[cut: only the first 33554432 bytes of this file were read]
<?xml version="1.0" encoding="utf-8"?>
<posts>
  <row Id="1" PostTypeId="1" CreationDate="2014-11-18T20:59:30.327" Score="2" ViewCount="485" Body="&lt;p&gt;If a currency can be worth too little (e.g. needing \$10,000,000,000 to buy a loaf of bread) and worth too much (e.g. being able to buy a loaf of bread for $0.00001), why isn't there an &quot;ideal value&quot; (a point, range, or a shifting set of priorities based on market conditions) that a currency could be fixed or drawn toward?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Many everyday transactions are still done in cash, requiring mental calculations from the transacting parties. Too large numbers and too small numbers create transaction costs that, at least for the extremes, cannot be ignored.  So conceivably, some &quot;middle&quot; point could be considered &quot;ideal&quot; as regards the &lt;em&gt;efficiency of money as medium of transactions&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What forces may prevent such an &quot;ideal value&quot; for a currency from being established?&lt;/p&gt;&#xA;" OwnerUserId="8" LastEditorUserId="61" LastEditDate="2014-12-16T01:14:00.107" LastActivityDate="2014-12-16T01:14:00.107" Title="Why isn't there an &quot;ideal value&quot; for a given currency?" Tags="&lt;currency&gt;&lt;value&gt;&lt;inflation&gt;&lt;deflation&gt;" AnswerCount="5" CommentCount="9" FavoriteCount="2" ClosedDate="2014-11-19T09:17:22.677" ContentLicense="CC BY-SA 3.0" />
  <row Id="3" PostTypeId="2" ParentId="1" CreationDate="2014-11-18T21:23:18.733" Score="2" Body="&lt;p&gt;Brand new currencies do typically aim to start off at the middle ground you describe. The problem is that over time, you have inflation (or more rarely deflation), so that over time the currency veers away from this middle ground.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, when the &lt;a href=&quot;http://en.wikipedia.org/wiki/Rhodesian_dollar&quot; rel=&quot;nofollow&quot;&gt;Rhodesian dollar&lt;/a&gt; first started in 1970, it was set so that it was roughly the same as a USD, which is perhaps sensible and probably close to what you might consider 'middle ground'. But by 2009, its successor the &lt;a href=&quot;http://en.wikipedia.org/wiki/Zimbabwean_dollar&quot; rel=&quot;nofollow&quot;&gt;Zimbabwean dollar&lt;/a&gt; had suffered so much inflation that a loaf of bread did indeed end up costing 10^n Zimbabwean dollars (where n was some shockingly large number). When so much inflation happens, the question is whether the government decides whether  to lop off a few zeros (by inventing a 'new' Zimbabwean dollar say), abolish the currency altogether (which is what Zimbabwe eventually did), or do nothing whatsoever. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In many countries, the last option (do nothing) is the preferred one. So we have that in Indonesia and Viet Nam, 10,000 of the local currency is a standard measure. And in Japan, 100 yen is a standard measure. But it didn't start off that way. It used to be that 1 yen in Japan could actually buy something substantial. Then inflation took its course.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There have indeed been proposals in some of these countries to lop off some of the zeroes, but the benefit of this must be weighed against the obvious costs of having to reprint all the currency, get everyone to redo their pricing, etc. &lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastEditorDisplayName="user18" LastEditDate="2014-11-18T22:33:03.290" LastActivityDate="2014-11-18T22:33:03.290" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4" PostTypeId="1" AcceptedAnswerId="31953" CreationDate="2014-11-18T21:24:09.537" Score="15" ViewCount="19770" Body="&lt;p&gt;I'm having troubles to understand the difference between the Real Exchange Rate and the PPP rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know the first one is calculated using a basket of goods and services so that the non-tradeable basket costs the same in 2 countries (imagining a 2-country world).  Now, isn't that the rate that would hold if PPP applies?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think I'm wrong if I say that the real exchange rate is the one that makes PPP become valid.  Any help appreciated.&lt;/p&gt;&#xA;" OwnerUserId="20" LastActivityDate="2019-09-20T04:21:01.463" Title="Real Exchange Rate vs PPP rate" Tags="&lt;currency&gt;&lt;purchasing-power-partity&gt;&lt;exchange-rates&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="5" PostTypeId="2" ParentId="1" CreationDate="2014-11-18T21:26:03.670" Score="6" Body="&lt;p&gt;Because money is really just arbitrary numbers, and those numbers only really have any meaning in relation to the other numbers in the set. For example:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Average salary is \$50,000 and a entry-level car costs \$10,000. If the price drops by \$5,000, it's well known that sales will go up, ceteris paribus. But what we increased all prices and all wages by a factor of 100,000? Would that change people's behavior in an otherwise identical system? E.G. now the average salary is \$5,000,000,000 and the average car costs \$1,000,000,000 and the price drops 500,000,000, then what happens? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Well there is a fancy economic name for the theory that covers this (which I forget at the moment), but the answer is No, nothing would change. It's quite obvious that humans are very insensitive to absolute price and very, very sensitive to relative price. (There have been several economy-wide currency revaluations in other countries that serve as examples of this.) Adding or taking away a couple zeros at the end of the numbers doesn't change the really make a difference (provided you apply the change uniformly to all numbers everywhere).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The two major problems that hyperinflation a la Weimar Republic cause are 1.) governments are slow moving beasts and don't react quickly enough to start printing 1 billion dollar notes, etc. so you end up having to use a wheelbarrow full of cash for purchases (which in today's economy isn't as big of a concern since almost all money is just electrons in a computer somewhere,) and 2.) changing prices and adjusting to changing prices and adjusting your forward looking predictions about prices are all not costless actions. It takes time and energy to do any one of those three things. Because of that fact, it imposes a very real dead weight loss on the economy as a whole when prices increase or decrease very rapidly. The faster things move, the more costly it is to adjust and the more often you have to do so, so the DWL becomes exponentially greater than a more slowly-paced situation.&lt;/p&gt;&#xA;" OwnerUserId="13" LastEditorUserId="1" LastEditDate="2014-11-19T00:28:22.233" LastActivityDate="2014-11-19T00:28:22.233" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6" PostTypeId="1" CreationDate="2014-11-18T21:26:51.393" Score="5" ViewCount="213" Body="&lt;p&gt;As an active participant on the Physics Stack Exchange I have, on several separate occasions, run into some vague remarks about the 'intimate relation' between the famous Black-Scholes model in economics and the Schrödinger equation that appears in quantum mechanics. In particular, people mention that &lt;em&gt;path integrals&lt;/em&gt; (a certain technique that is very useful in quantum mechanical calculations) find many applications in economic settings. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'd love if someone could make this connection clearer by &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Explicitly (i.e. in equations) showing how the Schrödinger equation and the Black-Scholes equation are related&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Discussing the use of path integrals in economics&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="24" LastActivityDate="2014-11-19T01:06:42.327" Title="The relation between the Black-Scholes model and quantum mechanics" Tags="&lt;black-scholes-model&gt;&lt;interdisciplinary&gt;&lt;mathematical-economics&gt;" AnswerCount="1" CommentCount="10" ClosedDate="2014-11-19T15:09:47.900" ContentLicense="CC BY-SA 3.0" />
  <row Id="7" PostTypeId="1" CreationDate="2014-11-18T21:35:22.903" Score="12" ViewCount="5376" Body="&lt;p&gt;We are often told by pundits that &quot;Country X cannot spend more than they take in in revenue, because a house that makes A and spends B will always collapse if B&gt;A&quot;. Essentially the siren calls of a balanced budget as promulgated by the talking heads.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sadly, despite even conservative economists like Friedman citing a &lt;em&gt;k-percent rule&lt;/em&gt; and the necessity of inflation (since the number of people demanding money seems to continue rising), many entry level students get hung up on this concept. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Essentially, what I'm asking is: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;What are the key functional differences between a household budget (or other simple toy model) and a national budget and what's the best way to communicate this to people with only a passing familiarity with economics?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I'm looking for a way to effectively communicate to group of first year students that beyond just the ability to control the supply of money (monetary policy), and control income and spending more readily than an individual or household (fiscal policy), economic policy really has nothing in common with the ability to balance a checkbook, and the dramatic oversimplification is a disservice to the dismal science.&lt;/p&gt;&#xA;" OwnerUserId="31" LastEditorUserId="31" LastEditDate="2014-11-19T04:27:18.103" LastActivityDate="2019-03-01T06:19:57.257" Title="How does a national budget differ from a household budget?" Tags="&lt;macroeconomics&gt;&lt;fiscal-policy&gt;&lt;monetary-policy&gt;&lt;teaching&gt;" AnswerCount="4" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8" PostTypeId="1" CreationDate="2014-11-18T21:39:04.550" Score="26" ViewCount="483" Body="&lt;p&gt;Are there any studies that explore the higher net present value (NPV) of education in countries with higher Gini coefficients?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Additionally, do any of these studies include the impacts of economic mobility as a reducing factor of the NPV or price of higher education?&lt;/p&gt;&#xA;" OwnerUserId="31" LastEditorUserId="70" LastEditDate="2014-11-19T13:37:13.187" LastActivityDate="2014-11-19T21:33:51.850" Title="How do Gini coefficients correlate with the cost of higher education?" Tags="&lt;macroeconomics&gt;&lt;inequality&gt;&lt;education-economics&gt;" AnswerCount="1" CommentCount="3" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="9" PostTypeId="1" AcceptedAnswerId="165" CreationDate="2014-11-18T21:48:22.947" Score="13" ViewCount="1621" Body="&lt;p&gt;I hope this isn't overly semantic, but I'd like to gain some clarification on the use positive (or negative) externality. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I usually shoot down suggestions for examples of positive externalities like organic agriculture. We can grant that organic agriculture is better than conventional, but that doesn't mean it is producing additional external benefits. Instead, organic agriculture might feature fewer negative externalities compared to the status quo. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've even seen examples like smoking being a positive externality because smokers die sooner and save governments money on Social Security (perhaps that accounting might be questionable, but let's grant it for the sake of argument). Again, my semantic preference would be to label this as the absence of status quo negative externality.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the semantics aren't interesting, might there still be something interesting on the tax vs. subsidize side? Returning to the agriculture example, taxing the negative externalities associated with conventional agriculture seems smarter than subsidizing organic. This seems like a case where it's more efficient to regulate the end and not the means. But what market characteristics might make subsidizing specific not-negative-externality-producing things more efficient?&lt;/p&gt;&#xA;" OwnerUserId="14" LastActivityDate="2014-11-20T18:10:24.787" Title="Differentiate a positive externality and the absence of a negative externality. Tax or subsidize?" Tags="&lt;soft-question&gt;&lt;externalities&gt;" AnswerCount="2" CommentCount="5" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11" PostTypeId="1" AcceptedAnswerId="39" CreationDate="2014-11-18T22:02:40.043" Score="14" ViewCount="2068" Body="&lt;p&gt;I am working on a model of optimal payout percentages in the gambling industry.   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Because the nominal price of a \$1 ticket is always \$1, we use an effective price strategy where Q = \$1 in won prizes. If a game pays out 50%, the effective price is \$2, since that is what would need to be spent to win an expected \$1 in prizes. Pretty simple, right?   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Well, I ran into this footnote in some research, and can't figure out how they got to the First Order Condition for Profit Maximization from the first equation:  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;&quot;Let $C(Q)$ represent operating costs as a function of quantity units, where one quantity unit is defined as one dollar in expected value of prizes.&lt;/em&gt;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;The lottery agency's net profits are given by&lt;/em&gt;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$N = PQ - Q - C(Q)$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;where $P$ is the price charged for a quantity unit.&lt;/em&gt;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;The first-order condition for profit maximization can be written&lt;/em&gt;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$-E_{PQ} = P(1 - C')/[P(1 -C')- 1] $$  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;If marginal operating costs are $6$ percent of sales and the payout rate is $50$ percent, we have $P = 2$ and $C' = .12$, implying that the price elasticity of demand at maximum profit is $-2.3$.&lt;/em&gt;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;For an increase in the payout rate to increase profits, $E_{PQ}$ must exceed $2.3$ in absolute value.&quot;&lt;/em&gt;    &lt;/p&gt;&#xA;&#xA;&lt;p&gt;-&lt;em&gt;[Citation]&lt;/em&gt; Clotfelter, Charles T, and Philip J Cook. &quot;On the Economics of State Lotteries.&quot; Journal of Economic Perspectives: 105-19.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the FOC equation, $-E_{PQ}$ is the effective price elasticity of demand. That normally would be found by taking the derivative of $P$ with respect to $Q$ in the first equation.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;How did they end up where they did? There has to be something I'm missing.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am having trouble understanding how that particular First Order Condition was reached- whether it was a result of some some derivative process on the Net Revenue equation, or if it is simply an external condition being applied.   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks!&lt;/p&gt;&#xA;" OwnerUserId="39" LastEditorUserId="61" LastEditDate="2014-11-19T03:43:17.197" LastActivityDate="2014-11-19T03:43:17.197" Title="First Order Condition for Profit Maximization in Gambling Industry" Tags="&lt;linear-programming&gt;&lt;profit-maximization&gt;&lt;effective-price&gt;&lt;optimization&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12" PostTypeId="2" ParentId="4" CreationDate="2014-11-18T22:04:49.697" Score="8" Body="&lt;p&gt;Effectively RER is calculated by converting currency from Country A to country B first, than purchasing the same goods in Country B, whereas PPP is the ratio of the price of goods in each country. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;From the &lt;a href=&quot;http://en.wikipedia.org/wiki/Exchange_rate#Purchasing_power_of_currency&quot; rel=&quot;nofollow noreferrer&quot;&gt;Wikipedia article&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;If all goods were freely tradable, and foreign and domestic residents purchased identical baskets of goods, purchasing power parity (PPP) would hold for the exchange rate and GDP deflators (price levels) of the two countries, and the real exchange rate would always equal 1&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Unfortunately, barriers to trade (as well as potential Ricardian advantages in production) often mean one good is &quot;cheaper&quot; in a given country than another, so RER and PPP can and do differ.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Edit:&lt;/strong&gt; As &lt;a href=&quot;https://economics.stackexchange.com/users/25/mico&quot;&gt;Mico&lt;/a&gt; pointed out in the comments, $PPP = RER$ is only true if all goods are freely tradable, fungible, &lt;strong&gt;and&lt;/strong&gt; there are no capital flows between the two countries. &lt;/p&gt;&#xA;" OwnerUserId="31" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2014-11-19T05:14:12.427" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13" PostTypeId="2" ParentId="1" CreationDate="2014-11-18T22:07:41.873" Score="2" Body="&lt;p&gt;When economists worry about inflation or deflation, they are not necessarily worried about the normative value of the currency. The number of zeroes on any given bill only become a problem with massive hyperinflation, like with the &lt;a href=&quot;http://en.wikipedia.org/wiki/Zimbabwean_dollar&quot; rel=&quot;nofollow&quot;&gt;Zimbabwean dollar&lt;/a&gt; or massive deflation, of which I do not think a given real world example exists (If this is wrong, please correct me). This aspect, I will cover in the second paragraph. What economists worry about is the relative value of the currency. When economists worry about inflation, they often worry about price inflation. They worry that the &lt;a href=&quot;http://en.wikipedia.org/wiki/Market_basket&quot; rel=&quot;nofollow&quot;&gt;basket of goods&lt;/a&gt; that the public can buy shrinks in size. They worry about increasing food prices, gasoline prices (and energy prices in general), rent prices (in housing), et cetera. Similarly enough, they may also worry about deflation with regards to economic factors like asset prices, which institutions like the Federal Reserve might encourage to rise. In particular, the Federal Reserve's website argues that, &lt;a href=&quot;http://www.federalreserve.gov/newsevents/speech/bernanke20120831a.htm&quot; rel=&quot;nofollow&quot;&gt;&quot;Declining yields and rising asset prices ease overall financial conditions and stimulate economic activity through channels similar to those for conventional monetary policy.&quot;&lt;/a&gt; The worry here is that falling asset prices will cause a drop in aggregate demand which will drive the economy into a recession, or worse a depression.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With regards to normative values for currencies, having a surplus of bills and coins that are either too little or too much in real terms is a problem. If half the currency in America are pennies, then the treasury's resources are producing money that is impractical to use for common, everyday use. Even today, the common disdain for getting change in pennies is shown through &lt;a href=&quot;https://www.youtube.com/watch?v=77C47XYm_3c&quot; rel=&quot;nofollow&quot;&gt;social media&lt;/a&gt;. One problem I could see with a currency having too many zeroes in its common denominations is if the public falls for the psychological effect known as the &lt;a href=&quot;http://en.wikipedia.org/wiki/Money_illusion&quot; rel=&quot;nofollow&quot;&gt;money illusion&lt;/a&gt;. The money illusion happens when people think in nominal terms as opposed to real terms. People overvaluing their currency may be unwanted if it prevents consumers from trading with other currencies. This could possibly lead to a country exporting less because the public has an artificially high demand for their currency (This is a really huge assumption, don't take this claim too seriously) and distorting the exchange ratios between the hypothetical currency and any other real world currency. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;One point to note is that Friedman gave an analogy of a helicopter flying over a city and dropping newly printed money evenly across the country to avoid money injection problems (The Optimum Quantity of Money, 1969). I believe (I am no Chicago school economist) that he implicitly claimed that having the normative value of money raise is fine as long as the inflation happens for all those that hold the currency. He argued that the problem was with the method of money injection. Uneven money injection (There is a term for this, and I am hoping that someone will remind me what it is) create distortions in the real wealth of individuals. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a conclusion, I am not sure if there are any standards for currencies with regards to the number placed on the common denominations of the money. The only example I can think of that would indicate some bounds would be the money illusion, and even that is just speculation on my part.&lt;/p&gt;&#xA;" OwnerUserId="28" LastEditorUserId="28" LastEditDate="2014-11-18T22:16:33.153" LastActivityDate="2014-11-18T22:16:33.153" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14" PostTypeId="2" ParentId="7" CreationDate="2014-11-18T22:11:11.580" Score="3" Body="&lt;p&gt;Imagine you are trying to fill a bucket with a hole in it. It's obvious you will never get the bucket filled if the hole allows more water to leave than you have power to put into it with a hose. That's your household budget. The hole = your expenditures. The hose = your income. The water level in the bucket = savings. Simple enough.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;National economies are not like buckets, though. It doesn't make sense for a national economy to have &quot;savings&quot;, or &quot;income&quot;. If I spend money at Wal-Mart, that's an expense for me but income for them. If someone else buys one of my paintings on Ebay, that's an expenditure for them but income for me. Everyone is better off presumably, but as far as the amount of money goes, it's zero sum. A better analogy for a national economy is an interconnected series of pipes where no water enters the system and no water leaves the system. In this completely closed system, we can't add any water, but what we can do is make the water flow faster. Then everyone gets the water that they need with a fixed supply. Because mild inflation allows the real GDP of an economy to grow at a faster rate than it would otherwise be able to, in this analogy, inflation is like widening the pipes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Incidentally, there IS a pretty good counterpoint at the national level for the household analogy, but it's not government spending. It's actually the aggregate trade imbalance with other countries, as that money leaves and enters the system in a way that government spending does not.&lt;/p&gt;&#xA;" OwnerUserId="13" LastActivityDate="2014-11-18T22:11:11.580" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="15" PostTypeId="2" ParentId="7" CreationDate="2014-11-18T22:17:05.187" Score="6" Body="&lt;p&gt;If you think about it, there is really not much difference between a government budget constraint and a household budget constraint. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Both have uncertain income streams, which are labor and capital income for the household, and mostly tax revenue for the government. On the other side of the constraint, you will find consumption and saving for the household. The government will spend most of its income on (public) goods and transfers to households (social system).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Both can move income inter temporally using borrowing. However, neither can run a permanent deficit where it is &quot;not expected to ever pay back&quot;, something that is typically referred to as a &lt;a href=&quot;http://en.wikipedia.org/wiki/Ponzi_scheme&quot;&gt;No-Ponzi-Game&lt;/a&gt; condition. As an implication, the &quot;life-time budget constraint&quot; will have to hold for both:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;sum of all expected future income = sum of all expected future expenditures&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;I'm pretty informal here, you would typically rather derive &quot;present value&quot; of these constraints, but latex is not yet allowed here, and I'm already writing much.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;What should government debt be used for?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We typically assume that households and governments have concave utility, they prefer consumption processes that are second-order dominating. Hence, they want to engage in smoothing of consumption over fluctuations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since all debt has to be paid back eventually, there is limited use of government borrowing. Most typically, one wants to stabilize consumption and output over business cycles, by financing consumption in busts and paying back in booms. Also, given an interest rate &lt;code&gt;r&lt;/code&gt;, &lt;code&gt;investments&lt;/code&gt; that promise a higher return than &lt;code&gt;r&lt;/code&gt; can be financed through debt, as the government will not violate consumption smoothing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Potential Difference&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One potential difference is the commitment. Developed governments are typically more &#xA;trustworthy, they are more likely to pay back there debt. Hence, they can borrow at cheaper interest than most households. As a conclusion, they can use debt more aggressively than households for the two purposes &lt;code&gt;consumption smoothing&lt;/code&gt; and &lt;code&gt;investment&lt;/code&gt;, as emphasized above.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;code&gt;tldr&lt;/code&gt;: Besides that, they're very much alike. Note also the &lt;a href=&quot;http://en.wikipedia.org/wiki/Ricardian_equivalence&quot;&gt;Ricardian Equivalence&lt;/a&gt;, which is not at the heart of this question, but very much related.&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2014-11-18T22:17:05.187" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16" PostTypeId="2" ParentId="1" CreationDate="2014-11-18T22:27:54.437" Score="3" Body="&lt;p&gt;There is a long, theoretical answer to your question. I'm going to give a much abbreviated version, and some pointers to some excellent theoretical literature on the topic. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The immediate answer is that the level of the currency doesn't matter, but rather the &lt;em&gt;change&lt;/em&gt; in the level of the currency -- or, inflation -- matters. Then the next question is, why don't economists like very high inflation? Or rather, why do economists seem to prefer relatively low inflation?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The short answer to this question (as far as a short theoretical answer can go) is that when you set up a &quot;modern&quot; macroeconomic model -- that is, a Dynamic Stochastic General Equilibrium (DSGE) model -- and add elements to the market portion such that prices have a sluggish or 'sticky' component, and add a central bank which tries to set inflation such that the best society-wide outcomes happen, one of the emergent results is that the monetary authority (the central bank) would like to smooth out a number of possible effects which distort how the private household behaves. A distortion here means that the private household will act in a way that is best for the HH at the micro level, but bad for the economy at the macro level (which then filters back down and is also bad for the household at the micro level). One of these distortions is that the household will want to save some money in a non-interest-bearing asset -- i.e. cash. Basically the household will want to shove some cash in a mattress. However this is not good for the economy as a whole. In this basic version of the model, the central bank can eliminate this distortion by setting inflation to zero. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This result emerges from this basic theoretical model, and is called &quot;the Friedman rule.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Good references to this in more detail are Jordi Gali's NBER working paper, &lt;a href=&quot;http://www.nber.org/papers/w8767.pdf&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;, specifically the intro and section 5 (specifically, page 21), and Gali's longer monograph, &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0691133166&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Practically, because inflation is measured with some error, central banks target some value of inflation just above zero, with the goal that &quot;true inflation&quot; will then be somewhere closer to zero. There are other reasons as well, but I unfortunately don't have a great reference for these points. Central banks' annual reports is actually a great place to look here, as the text is written to explain such questions in layman terms. The US Federal Reserve board, and Reserve System Banks (for example the San Francisco Fed and Saint Louis Fed) have some great resources that explain these things. The Bank of England and the Riksbank (Bank of Sweden) also have some excellent resources. (Another expert is welcome to correct this and/or add references!)&lt;/p&gt;&#xA;" OwnerUserId="17" LastEditorUserId="17" LastEditDate="2014-12-01T02:41:57.917" LastActivityDate="2014-12-01T02:41:57.917" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17" PostTypeId="1" AcceptedAnswerId="29" CreationDate="2014-11-18T22:27:59.577" Score="13" ViewCount="4287" Body="&lt;p&gt;A few months ago I interned at this organization; and, as a going away present, I decided to spend my last week, with whatever off time I had, to investigate the factors that affect teacher salaries. One problem that I ran into with teacher salaries was that the distribution for the given state was skewed. I had a lot of observations that clung to the lower end of the wage spectrum. I tried resolving this by incorporating a Comparable Wage Index into my dependent variable (teacher wages), but the results I found were completely out of date for the scope of my project. I instead decided to log my dependent variable. This was nice because now my wages had a normal distribution and it just looked perfect in the histogram. When I started testing down, I got to the point where I was left with one last independent variable, property tax returns. The problem with my normative wages was also apparent in my property tax return observations. I had a huge skew of property tax return numbers towards the lower end of the spectrum. So, I logged this variable as well and it still passed the null hypothesis test just fine.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am not sure if this is precisely correct, but by comparing the change of one logged variable to another logged variable gave me the elasticity. Assuming that this is correct, my regression equation (something like LogWages = B0 + B1(LogPropertyTaxReturns)) shows the elasticity between the two variables. Is this meaningful though? If my goal was to see which variable most affected teacher salaries in any given county of my state, then is showing the elasticity between the two variables helpful? We want to raise the counties with the lowest teacher salaries up higher to increase their living standards, but I fear that I've extrapolated so far away from the real observations that my concluding regression equation is meaningless. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit: One of my bigger fears is that I should have used a non-linear model to show the relationship. I feel that forcing both the dependent and independent variable to cooperate in a this linear regression is misleading in some way.&lt;/p&gt;&#xA;" OwnerUserId="28" LastEditorUserId="108" LastEditDate="2017-04-09T07:48:55.450" LastActivityDate="2017-04-09T07:48:55.450" Title="Econometrics: Is elasticity meaningful in my, or any, regression?" Tags="&lt;econometrics&gt;&lt;elasticity&gt;&lt;wages&gt;" AnswerCount="5" CommentCount="10" FavoriteCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="18" PostTypeId="1" AcceptedAnswerId="24" CreationDate="2014-11-18T22:35:02.863" Score="11" ViewCount="660" Body="&lt;p&gt;How would you answer the following question?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You work for a CEO of a large firm. He says to you, &lt;strong&gt;&quot;In my experience collusion is less likely to be sustained as the number of firms in the market increases. Demonstrate this using a model of Bertrand Competition.&lt;/strong&gt;&quot;&lt;/p&gt;&#xA;" OwnerUserId="40" LastEditorUserId="43" LastEditDate="2014-11-24T00:46:53.023" LastActivityDate="2014-12-02T08:43:49.413" Title="Collusion and number of firms" Tags="&lt;industrial-organisation&gt;&lt;game-theory&gt;" AnswerCount="3" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19" PostTypeId="1" AcceptedAnswerId="30" CreationDate="2014-11-18T22:46:25.890" Score="4" ViewCount="105" Body="&lt;p&gt;Specifically, in the RIMS II model espoused by the BEA, capital spending in a region induces job creation therin, based off of specific multipliers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where do these multipliers come from, and what do they mean? &lt;/p&gt;&#xA;" OwnerUserId="31" LastActivityDate="2014-11-19T00:26:01.380" Title="In econometrics what are induced jobs?" Tags="&lt;econometrics&gt;&lt;rims-ii&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20" PostTypeId="1" CreationDate="2014-11-18T23:04:06.693" Score="6" ViewCount="146" Body="&lt;p&gt;While &lt;a href=&quot;http://en.wikipedia.org/wiki/Regional_Input-Output_Modeling_System&quot; rel=&quot;nofollow&quot;&gt;RIMS II&lt;/a&gt;, &lt;a href=&quot;http://en.wikipedia.org/wiki/MIG,_Inc.&quot; rel=&quot;nofollow&quot;&gt;IMPLAN&lt;/a&gt;, and &lt;a href=&quot;http://en.wikipedia.org/wiki/Economic_impact_analysis#Methodology&quot; rel=&quot;nofollow&quot;&gt;other methods&lt;/a&gt; regularly deviate substantially from each other in the answers they yield to analytical questions, is there a &quot;band&quot; within results should be considered &quot;more accurate&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, if RIMS and IMPLAN give a quantitative result on the order of &lt;code&gt;x&lt;/code&gt;, and a third method gives a result 2,3, or more orders of magnitude higher, should the third method be disregarded?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I ask this because I've submitted analysis based off industry-specific methods and had it roundly rejected not because there was a flaw in my analysis, but because it didn't agree with general case tools, or differed to markedly.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there a best practice within econometrics that says &quot;throw out all results farther than &lt;code&gt;Y&lt;/code&gt; from some accepted average&quot;?&lt;/p&gt;&#xA;" OwnerUserId="31" LastEditorUserId="31" LastEditDate="2014-11-19T04:12:36.370" LastActivityDate="2014-11-20T03:37:43.823" Title="Comparative Methods of Econometric Analysis" Tags="&lt;econometrics&gt;&lt;rims-ii&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="21" PostTypeId="2" ParentId="18" CreationDate="2014-11-18T23:17:22.200" Score="4" Body="&lt;p&gt;This is how I would try to model this. It needs some more detail, but I think this is the basic gist of it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You need to allow firms to imperfectly observe other firms' prices. One way that I would do this is to assign some probability to the event that any given firms price is observed. Say, each firm flips a coin and if its head, the firm must reveal its price. Now, assume that the probability of a firms price being revealed is inversely proportional to the number of firms in the market. When the probability of having your price revealed becomes lower, a firm figures that it has a better chance of &quot;cheating&quot; the cartel agreement. Everybody knows this in a symmetric game. So if one firm thinks the other firm has a better chance of getting away with cheating, his/her best response is to also cheat. So, when the number of firms increases, the incentive for each firm to cheat gets larger and larger.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Just to note, I think Stigler has a paper (&quot;A Theory Oligopoly&quot;) that outlines a model that gives an opposite result.&lt;/p&gt;&#xA;" OwnerUserId="59" LastActivityDate="2014-11-18T23:17:22.200" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="22" PostTypeId="2" ParentId="4" CreationDate="2014-11-18T23:22:36.143" Score="14" Body="&lt;p&gt;There are several exchange rate concepts that need to be distinguished. There are bilateral and multilateral (aka &quot;effective&quot;) exchange rates, nominal and real exchange rates, and market-price versus PPP (purchasing power parity) exchange rates.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Let's start with the simplest concept: A bilateral &lt;em&gt;nominal&lt;/em&gt; exchange rate, e.g., 117 yen/(US dollar), 0.8 pounds/euro, 7.7 (Swedish krona)/(Swiss Franc), etc. These are the exchange rates that are commonly reported in newspapers and in any number of online outlets. &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Aside: There are two distinct quoting conventions for exchange rates: the &quot;E&quot; system (with the home currency in the numerator) and the inverse, the &quot;R&quot; system. A nominal exchange of 1.2 Swiss francs per euro is expressed in the &quot;R&quot; system from the point of view of a euro area resident, and in the &quot;E&quot; system from the point of view of a resident of Switzerland. The &quot;R&quot; convention is conceptually easier to work with, since an &lt;em&gt;increase&lt;/em&gt; of the numbers of foreign currency units per unit of home currency corresponds naturally to an &lt;em&gt;appreciation&lt;/em&gt; of the home currency. Using the &quot;E&quot; system, the opposite is the case. There seems to be little or no standardization with regard to quoting conventions of bilateral exchange rates. However, multilateral exchange rates are always expressed using the &quot;R&quot; convention, such that a larger numerical value corresponds to an appreciation of the currency, and vice versa.&lt;/li&gt;&#xA;&lt;/ul&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;A bilateral &lt;em&gt;real&lt;/em&gt; exchange rate is the bilateral nominal exchange rate multiplied by a ratio of price indices of the two currencies. (How the ratio is taken depends on whether the currency pair is quoted in the E or R method.) Naturally, many different price indices can be used; most common, though, is the use of headline CPIs (consumer price indices). Because CPI series are generally monthly (or even lower frequency) time series, real exchange rates too are generally monthly time series. The home currency appreciates in real terms against a foreign currency either if the home currency appreciates in nominal terms or if the home country's inflation rate is lower than that in the foreign currency.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;While bilateral exchange rates are straightforward to report, interest often centers on multilateral exchange rates. The home economy has trade and financial ties not just with one other economy but (usually) with many different economies. To form an index of the multilateral exchange value of the home currency, it's necessary to weight the various bilateral exchange rates according to the importance of the foreign economies. Again, many different weighting schemes are possible; a common scheme uses merchandies trade weights based on imports and/or exports between the home economy and the most important foreign economies. Because bilateral exchange rates are ratios of relative prices, an exchange rate index (aka a multilateral or efffective exchange rate) is computed as a Tornqvist index (a geometric rather than arithmetic average).&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Up to now, we've mainly dealt with market prices for both nominal and real exchange rates. While that's perfectly OK for many applications, it's not the most helpful way to proceed if one wants to make comparisons of standards of living across countries. Purchasing power parity (PPP) tries to facilitate such comparisons by figuring how much a &lt;em&gt;standard&lt;/em&gt; &quot;basket of goods&quot; -- frequently, but not always, the goods in the CPI baskets -- costs in various countries. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A famous case of a bilateral PPP exchange rate is the &quot;Big Mac Index&quot; of &lt;em&gt;The Economist&lt;/em&gt; magazine: Since a Big Mac is pretty much the same in all countries where it's sold, one can work out the PPP-based bilateral exchange between the U.S. dollar (say) and all other countries as the exchange rates that would make the cost of purchasing a Big Mac the same. (Obviously, &lt;em&gt;The Economist&lt;/em&gt; makes no claim that the Big Mac features prominently in anybody's consumption basket.) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;By comparing nominal and PPP-based exchange rates it is possible to make statements such as &quot;currency A is overvalued (or undervalued) against currency B&quot;. Of course, different choices of consumption baskets will lead to different PPP exchange rates. Hence, depending on the choice of basket, conflicting answers may arise as to whether a currency is over- or undervalued.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;For more about the Big Mac index, check out the &lt;a href=&quot;http://www.economist.com/content/big-mac-index&quot;&gt;Economist Magazine's own website&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a non-technical discussion of the dollar indices used by the staff of the U.S. Federal Reserve Board see, e.g, the 2005 article &lt;a href=&quot;http://www.federalreserve.gov/pubs/bulletin/2005/winter05_index.pdf&quot;&gt;Indexes of the Foreign Exchange Value of the Dollar&lt;/a&gt; in Federal Reserve Bulletin.&lt;/p&gt;&#xA;" OwnerUserId="25" LastActivityDate="2014-11-18T23:22:36.143" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="23" PostTypeId="1" AcceptedAnswerId="28" CreationDate="2014-11-18T23:24:41.923" Score="10" ViewCount="232" Body="&lt;p&gt;The Chamley-Judd result of zero optimal capital taxation says that 0 capital taxation are required in order to maximize welfare at the steady state. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The result is 30 years old. Still assuming that we only care about the steady state, what's the literature's take on that? How esoteric is it? Or in other words, are there simple extensions of the model that completely overcome the result?&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="59" LastEditDate="2014-11-20T19:28:11.290" LastActivityDate="2014-11-20T19:28:11.290" Title="Optimality of Zero Capital Taxation" Tags="&lt;macroeconomics&gt;&lt;taxation&gt;&lt;welfare-economics&gt;&lt;steady-state&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="24" PostTypeId="2" ParentId="18" CreationDate="2014-11-18T23:28:59.287" Score="9" Body="&lt;p&gt;Iet's say we have n identical firms and an infinite horizon of time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The n firms sustaining the collusion, will find optimal to fix the same price $p_m$ where $p_m$ is the price of the monopoly level and we define $\frac{\Pi^m}{n}$  as the profits each firm is obtaining by sustaining the collusion in each moment t.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, of course each firm can betray the others by fixing a price lower than $p_m$, namely $p_m-ε$, where ε is small, and by doing so, the firm will capture the entire demand because in this market the firms are doing the Bertrand competition. In other words, the firm by betraying the others, will get almost π_m at the time T=t. We will also assume that in all t &gt; T no firms will make any profits, because they will punish the firm, by fixing the price in Bertrand competition.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The firm will defect if:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$π_m/n + δπ_m/n + δ^2π_m/n.... &amp;lt; π_m+0+0....$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where δ is the discount factor.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This can rewritten as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$(\frac{π_m}{n})(\frac{1}{(1-δ)}) &amp;lt; π_m$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can now see that if n, the number of firms, increases then the profits by sustaining the collusion will decrease, so the above inequality will be more likely to be true. This means that a firm has less incentives to sustain a collusion when there are too many participants, because the profits will be divided among too many firms and the punishment will be seen as less heavy.&lt;/p&gt;&#xA;" OwnerUserId="9" LastEditorUserId="40" LastEditDate="2014-11-19T22:23:30.777" LastActivityDate="2014-11-19T22:23:30.777" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="25" PostTypeId="2" ParentId="17" CreationDate="2014-11-18T23:33:51.587" Score="8" Body="&lt;p&gt;Like people have said in the comments, log-log is commonly used. It amounts to estimating a constant elasticity model $Y = \alpha X^\beta$, which is a commonly used functional form within economics. Once you take logs, this becomes&#xA;$\ln Y = \ln \alpha + \beta \ln X$. You can read more about this &lt;a href=&quot;http://www.dummies.com/how-to/content/econometrics-and-the-loglog-model.html&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I guess your question is whether or not using this functional form makes sense in your particular model. It's hard to say. As with any ordinary linear regression, you're making an assumption about functional form. You can at least just think about it as a linear approximation that makes more sense after the log-log transformation.&lt;/p&gt;&#xA;" OwnerUserId="59" LastActivityDate="2014-11-18T23:33:51.587" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="26" PostTypeId="2" ParentId="9" CreationDate="2014-11-18T23:40:32.330" Score="2" Body="&lt;p&gt;A possible pair of definitions is this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Definition.&lt;/strong&gt; &lt;em&gt;A&lt;/em&gt; negative externality of a good &lt;em&gt;is any cost suffered by a party other than the buyer or the seller of the good, relative to a situation where the good is not traded at all.&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Definition.&lt;/strong&gt; &lt;em&gt;A&lt;/em&gt; positive externality of a good &lt;em&gt;is any benefit enjoyed suffered by a party other than the buyer or the seller of the good, relative to a situation where the good is not traded at all.&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As in mathematics, it all follows from the definitions. One can certainly disagree with my definitions. But if one agrees, then, applying them to your examples:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Organic agriculture could be generating fewer negative externalities than traditional agriculture: e.g. The latter uses pesticides and thus damages third parties (perhaps by contaminating the water supply). The former doesn't use pesticides and so doesn't damage third parties (at least in this specific regard). So the former results in fewer negative externalities (at least in this specific regard). &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;It could also be generating more positive externalities: e.g. roses always give off a  fragrant smell and thus generate a positive externality for passers-by. But maybe organic roses give off a stronger fragrance, so organic roses generate a larger positive externality.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Most likely when people think of the benefits of organic agriculture, they are thinking of the reduction in negative externalities. I say this only because I found it much harder to think of examples of positive externalities.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Smoking in your context is both reducing negative externalities and also generating positive externalities. By dying off more quickly, we reduce the costs to other taxpayers of having to treat lung cancer (reduction in negative externalities). By dying off more quickly, we increase the benefits to other taxpayers of not having to support smokers in their old age--the logic here is that everyone needs to be supported by taxpayers in old age, but by dying off more quickly, smokers reduce the need for such support.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Your question about taxing negative externalities vs subsidizing positive externalities is much trickier and I don't think can be answered in the SE format.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2014-11-18T23:40:32.330" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="27" PostTypeId="2" ParentId="1" CreationDate="2014-11-18T23:41:16.593" Score="-1" Body="&lt;p&gt;First of all, money has three basic functions: a store of value, a medium of exchange, and a unit of account.  Markets are able to work with any form of &quot;money&quot; as long as it is able to satisfy each of these conditions.  This explains why economies are still able to work with dollars, euros, &lt;a href=&quot;http://online.wsj.com/articles/SB122290720439096481&quot; rel=&quot;nofollow&quot;&gt;mackerel&lt;/a&gt;, and &lt;a href=&quot;http://dailyreckoning.com/bitcoin-the-prison-cigarette-of-global-currencies/&quot; rel=&quot;nofollow&quot;&gt;cigarettes&lt;/a&gt;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You are correct in saying that hyperinflation is bad, but the new numbers produced from the inflation is not necessarily bad.  Hyperinflation is merely a high rate of inflation and causes an overall increase in the prices of goods.  The reason inflation/hyperinflation is bad is because it destabilizes the money as a store of value.  The money is able to perform best in the economy when it can best fulfill it's three-pronged purpose.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, remember that the market prices are completely dependent upon the supply and demand of the good.  Let's say that you want to purchase a good but will only buy it if it cost less than a certain amount, say one hour of your per hour wage.  Let us also say that the good is being sold at the price of one hour of your per hour wage.  In this example, regardless of how much the prices have been changed by inflation, you are still going to value the good at the same &quot;price&quot;; the good still costs you the same amount of time and effort (in this example, one hour at your job).&lt;br&gt;&#xA;In the strictest sense, the price of the good does not matter.  The value of the good is determined by how much you are willing to pay for it, and you arbitrarily decided that you would not pay more than the per hour value of your job.  Because the value that you assigned the good is not an objective number value, it is impossible for us to find a good's &quot;ideal value&quot; and keep the price &quot;anchored&quot; to that standard.  &lt;/p&gt;&#xA;" OwnerUserId="27" LastEditorUserId="27" LastEditDate="2014-11-30T20:09:39.547" LastActivityDate="2014-11-30T20:09:39.547" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="28" PostTypeId="2" ParentId="23" CreationDate="2014-11-18T23:48:00.303" Score="9" Body="&lt;p&gt;There is quite a bit of work being done in that area. One very recent example is Straub and Werning's working paper &quot;&lt;a href=&quot;http://www.nber.org/papers/w20441&quot;&gt;Positive Long Run Capital Taxation: Chamley-Juff Revisited&lt;/a&gt;.&quot; &#xA;The point seems to be that we need to consider the rate of convergence to the steady state.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, there is other literature that gives some competing results (e.g., &quot;the new dynamic public finance&quot; literature). For a more complete summary of mainstream objections, see Diamond and Saez, &quot;&lt;a href=&quot;https://www.aeaweb.org/articles.php?doi=10.1257/jep.25.4.165&quot;&gt;The Case for a Progressive Tax: From Basic Research to Policy Recommendations&lt;/a&gt;,&quot; (JEP, 2011). They devote a whole section to why they think the Chamley-Judd result is not policy relevant.&lt;/p&gt;&#xA;" OwnerUserId="59" LastActivityDate="2014-11-18T23:48:00.303" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="29" PostTypeId="2" ParentId="17" CreationDate="2014-11-19T00:02:33.080" Score="12" Body="&lt;p&gt;The answer to the question is yes, it is indeed meaningful (at least mathematically speaking). If you estimate the linear equation&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ W = \beta_0 + \beta_1 PTR, $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;then $\beta_1=\frac{\partial W }{\partial PTR}$, meaning that $\beta_1$ represents the marginal change of $PTR$ over $W$. Now, if you estimate&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ log(W) = \beta_0 + \beta_1 log(PTR), $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;then $\beta_1=\frac{\partial W}{\partial PTR}\cdot\frac{PTR}{W}$, which is the very definition of elasticity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Generally speaking, linear transformations only affect the interpretation given to the coefficients, but the validity of the regression itself (in broad economic terms) is given by the model's assumptions and the economic phenomena being analyzed.&lt;/p&gt;&#xA;" OwnerUserId="72" LastEditorUserId="72" LastEditDate="2016-09-04T21:29:52.340" LastActivityDate="2016-09-04T21:29:52.340" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="30" PostTypeId="2" ParentId="19" CreationDate="2014-11-19T00:26:01.380" Score="6" Body="&lt;p&gt;Induced jobs are those created by the spending of those employed directly by the primary source or indirectly by suppliers to the source.  For example, you have a project to build a bridge.  That project hires a worker.  That worker stops at a convenience store every morning and buys a coffee and a bagel.  The people responsible for selling the coffee and bagel are induced jobs.  This includes the cashier, the stock person, the delivery person, the baker, etc.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Obviously this particular worker is only responsible for a small fraction of the overall cost of these others.  However, if you aggregate all the effects across all the workers on the project, you may find that the convenience store has to hire an extra cashier, that the part-time stock person has to work full-time, that an additional delivery person has to be hired to share the stops, that another baker needs to be hired, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The multiplier is simply an estimate of how much spending on the project will then be respent on labor indirectly.  It can be given either in terms of jobs or in money.  Economists use survey information and other studies to estimate how much this will be.  &lt;/p&gt;&#xA;" OwnerUserId="68" LastActivityDate="2014-11-19T00:26:01.380" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="31" PostTypeId="1" CreationDate="2014-11-19T00:26:53.337" Score="7" ViewCount="115" Body="&lt;p&gt;What, if anything, can we learn about customer switching costs by looking at price, revenue, profit, and quantity responses of producers to cost shocks?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, we can define the profit equation as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\Pi = \sum^\infty_{t=0} [ -\alpha S + \beta^t(P - C(q))] \cdot  q(P,C,S)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where $q(P,C,S)$ is demand as as function of prices, costs, and switching costs respectively, $C(q)$ is total cost as a function of quantity produced, and $\beta$ is the discount rate of the firm, and $\alpha$ is the fraction of the switching cost refunded to the purchaser. Are there published or just worked out examples of choices of $q(P,C,S)$ and $C(q)$  that allow identification of S from $\partial\pi/\partial C$, $\partial P^*/\partial C$, and $\partial q^*/\partial C$? &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Consider the cost shock as an exogenous shock, but I have in mind a setting that allows a structural identification.&lt;/li&gt;&#xA;&lt;li&gt;By switching costs, I mean that if a customer wants to first buy from firm A and later switch to firm B he pays $P_B+S$, in the period of the switch then $P_B,P_B\ldots$ in subsequent periods instead of $P_A, P_A, \ldots$.&lt;/li&gt;&#xA;&lt;li&gt;The $-\alpha S$ term is a refund to only the purchasers in the period of initial purchase while $S$ is paid in the final period of doing business with a firm. An example of $-\alpha S$ could be getting a special deal on your Verizon cellphone because you can't use that phone with any other network or a free toaster when you open a bank account. I fixed it in the profit equation so that $S$ was multiplied by $q$ to indicate that $S$ is is the switching costs per unit of $q$. I had in mind that customers purchase either $0$ or $1$ unit of the service and $q$ aggregates their individual decisions. But I'm not wedded that refund, if it gets me somewhere I'm happy to assume that $\alpha =0$ &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2014-11-19T10:32:26.940" LastActivityDate="2014-11-19T20:17:48.567" Title="Identification of switching costs from price shocks" Tags="&lt;optimization&gt;&lt;industrial-organisation&gt;" AnswerCount="2" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="32" PostTypeId="2" ParentId="17" CreationDate="2014-11-19T00:46:23.923" Score="7" Body="&lt;p&gt;Alright, the other respondents have covered the logic behind a log-log regression pretty well, so I'm just going to add some practical tips. If you want to check whether your specification is reasonable, and your problem is the assumption of a constant elasticity, try splitting the sample into groups based on percentiles of $x$ and recalculating $\alpha$ and $\beta$. Then see how much they differ. You can even do this by using dummies and interaction terms for each of the percentiles, and then use an $F$ test to determine joint significance of the interaction terms. In other words:&#xA;$$\log y_i = \alpha + \beta \log x_i +\sum_{j=2}^S \gamma_j\chi_j +\lambda_j\chi_j\log x_i  $$&#xA;where $\chi_j$ is your percentile dummy. Then test whether the $\gamma$'s and $\lambda$'s are jointly significant. &lt;strong&gt;This is by no means formal&lt;/strong&gt;, but it may give you a rough idea how reasonable having a constant elasticity is.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that as a representation of &quot;true&quot; underlying decision making all transformations that result in a linear regression are wrong. In fact, all models are going to be wrong. The question is really: &lt;strong&gt;is the statistic you've gotten from this model useful to your problem&lt;/strong&gt;? If your study is focused on determining an underlying model, is this a moment that tells you something interesting about that deeper model? If you're more policy oriented, will an approximation with constant elasticity get you close enough to the truth that further improvements are irrelevant? Either are extremely difficult questions to answer as an outside observer. But if the only alternative you're worried about is variable elasticity, the kind of test I outlined above may give you some peace of mind.&lt;/p&gt;&#xA;" OwnerUserId="54" LastEditorUserId="54" LastEditDate="2014-11-19T00:54:32.747" LastActivityDate="2014-11-19T00:54:32.747" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="33" PostTypeId="2" ParentId="6" CreationDate="2014-11-19T01:06:42.327" Score="1" Body="&lt;p&gt;I have more often heard of how the Black-Scholes equation is just the heat equation. You can find that information &lt;a href=&quot;https://quant.stackexchange.com/questions/84/transformation-from-the-black-scholes-differential-equation-to-the-diffusion-equ&quot;&gt;here&lt;/a&gt;. I haven't heard of a relationship between Black-Scholes and quantum mechanics before, but &lt;a href=&quot;https://physics.stackexchange.com/questions/60242/relation-between-black-scholes-equation-and-quantum-mechanics&quot;&gt;this&lt;/a&gt; post on the Physics stack exchange seems to have the details you're looking for. (Maybe you've seen this post before.)&lt;/p&gt;&#xA;" OwnerUserId="59" LastEditorUserId="-1" LastEditDate="2017-04-13T12:46:23.963" LastActivityDate="2014-11-19T01:06:42.327" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="34" PostTypeId="2" ParentId="31" CreationDate="2014-11-19T01:35:44.597" Score="2" Body="&lt;p&gt;This is not a complete argument but I'm going to give a brief sketch. Assume that producers set prices instead of quantity (which seems to be the model above). Assume that cost shocks do not affect demand, in other words $q(P,C,S) = q(P,S)$, and that they are not correlated with some kind of variation in switching costs. For simplicity, imagine also that this is a constant cost model. Then:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{d q^\star}{d C}= \frac{\delta q}{\delta P}\frac{d P^\star}{d C}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assuming switching costs are such that $\frac{\delta q}{\delta P}$ is low for high switching costs, this could give you an idea. If you enough form for $q$ you should be able to pin down $S$ using just-identified GMM (1 moment, 1 parameter). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's take a more concrete example, using a more concrete problem. Assume a two period model. In the first period, prices are announced, in the second period there is a surprise shock to the costs of $B$ (WLOG they get cheaper) which $A$ does not experience. This causes a switch from $P_B$ to $P_B^\prime$. Suppose a continuum of consumers, $i$, each with a time invariant valuation of each good, $j$, $V_i^j$, jointly distributed according to $F$. Then people who switch to $B$ from $A$ this period are those individuals for whom:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U(V^B_i - P_B^\prime -S)&amp;gt; U(V^A_i - P_A)$$&#xA;but:&#xA;$$U(V^B_i - P_A - S)&amp;lt; U(V_i^A-P_A)$$&#xA;This means:&#xA;$$q^\prime - q = \int_V1_{U(V^B - P_B^\prime - S)&amp;gt; U(V^A-P_A) &amp;gt;U(V^B - P_A - S)}dF(V^A,V^B)$$&#xA;Note that this is basically analogous to the argument above using derivatives. With form on $V$ and $U$ estimation is straightforward. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;More complicated setups, (for instance, consumers with infinite horizons) will require more complicated arguments, but the basic identification will be the same. In this setting what you really need are forms for demand and not costs. As far as demand goes, with only this data you are restricted in what you can estimate. With linear utility, and one of the goods valuations normalized to 0, you could probably pin down the mean of $V_i^j$, and maybe a bit of its cross-sectional distribution. More detail would be possible with consumer level data.&lt;/p&gt;&#xA;" OwnerUserId="54" LastEditorUserId="54" LastEditDate="2014-11-19T20:17:48.567" LastActivityDate="2014-11-19T20:17:48.567" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="35" PostTypeId="1" AcceptedAnswerId="49" CreationDate="2014-11-19T01:40:21.570" Score="68" ViewCount="22274" Body="&lt;p&gt;For the other sciences it´s easy to point to the most important equations that ground the discipline. If I want to explain Economics to a physicist say, what are considered to be the most important equations that underly the subject which I should introduce and attempt to explain?&lt;/p&gt;&#xA;" OwnerUserId="84" LastEditorUserId="8815" LastEditDate="2017-04-13T15:31:34.140" LastActivityDate="2017-11-10T16:55:52.090" Title="Fundamental equations in economics" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;soft-question&gt;" AnswerCount="13" CommentCount="5" FavoriteCount="52" ContentLicense="CC BY-SA 3.0" />
  <row Id="36" PostTypeId="2" ParentId="35" CreationDate="2014-11-19T02:06:56.440" Score="12" Body="&lt;p&gt;I don't think there are any economics equations with the same status as, say, Maxwell's equations in physics. In its place we have concepts like the equimarginal principle, competitive equilibrium or Nash equilibrium which are at the core of the &quot;economist's approach&quot;. But I think that the real worth of economics is not even in these ideas themselves but in what we know about concrete problems in specific areas of applications: for example what we know about business cycles in macro. In this economics may be more like medicine than physics.&lt;/p&gt;&#xA;" OwnerUserId="86" LastActivityDate="2014-11-19T02:06:56.440" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="37" PostTypeId="2" ParentId="35" CreationDate="2014-11-19T02:14:55.490" Score="22" Body="&lt;p&gt;Most of intro econ is intersecting lines. Specifically, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$MB = MC$$&#xA;&lt;a href=&quot;http://faculty.winthrop.edu/stonebrakerr/book/market_efficiency.htm&quot;&gt;* Equilibrium is achieved when Marginal Benefit is equal to Marginal Cost*&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\dfrac{MU_x}{p_x}=\dfrac{MU_y}{p_y}.$$&#xA;&lt;a href=&quot;http://dev.business.und.edu/Goenner/teaching/econ201/Resources/Book%20supplemental/07sg.pdf&quot;&gt;&lt;em&gt;Marginal Utility per unit cost should always be equal&lt;/em&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Economics is about the logic of human behavior, how we make decisions in a world of scarcity. These equations describe constrained optimization under some usual assumptions like continuity, convex preferences, and no corner solutions. I'd also give prominence to consumer theory over producer. Most of undergrad producer theory can be understood with the same tools used in consumer theory.&lt;/p&gt;&#xA;" OwnerUserId="14" LastEditorUserId="14" LastEditDate="2014-11-19T04:24:02.317" LastActivityDate="2014-11-19T04:24:02.317" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="38" PostTypeId="2" ParentId="35" CreationDate="2014-11-19T02:55:33.330" Score="19" Body="&lt;p&gt;I once heard Roger Myerson talk about why he thought Economics has, as a Social Science, been so successful in applying (or has so readily incorporated) mathematics. He suggested that perhaps it was due to some of the fundamental linearities within the world. Two examples would be the flow-balance constraints of scarce goods (commodity constraints) and&#xA;no-arbitrage conditions. These are fundamentally linear constraints.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;It's important to emphasize the importance of these because we can get a surprising amount out of the two. For example, a lot of people think that the law of demand is a consequence of assuming rationality (specifically, preferences that exhibits a diminishing marginal rate of substitution). A result due to Gary Becker shows that the law of demand (albeit just a slightly weaker version) can be derived &lt;em&gt;from the budget constraint alone&lt;/em&gt;. (See Becker 1962, &quot;&lt;a href=&quot;http://mcadams.posc.mu.edu/econ/Becker,%2520Irrational%2520Behavior.pdf&quot; rel=&quot;noreferrer&quot;&gt;Irrational Behavior and Economic Theory&lt;/a&gt;.&quot;) That is, this fundamental economic result can be derived from the reality of scarce resources alone---without assuming rationality.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The no-arbitrage condition is an application of the linear duality theorem (&lt;a href=&quot;http://en.wikipedia.org/wiki/Farkas%27_lemma&quot; rel=&quot;noreferrer&quot;&gt;Farkas' lemma&lt;/a&gt;). A lot of economics and finance (asset pricing) can be done just by the assumption that in economic equilibrium there is no arbitrage. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Extra Notes:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Gary Becker made a lot of advances in the field by studying the way constraints affect human behavior. One famous quote, taken from his Nobel prize lecture, is the remark that &quot;different constraints are decisive for different situations, but the most fundamental constraint is limited time.&quot; (Some discussion &lt;a href=&quot;http://conversableeconomist.blogspot.com/2014/05/gary-becker-and-time-constraint.html&quot; rel=&quot;noreferrer&quot;&gt;here&lt;/a&gt;.) Some more resources about how his work in this regard can be found &lt;a href=&quot;https://cehd.uchicago.edu/sites/heckman2013.uchicago.edu/files/uploads/Becker-slides_2014-10-31.pdf&quot; rel=&quot;noreferrer&quot;&gt;here&lt;/a&gt; and &lt;a href=&quot;http://bfi.uchicago.edu/video/impact-work-gary-s-becker&quot; rel=&quot;noreferrer&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Linear duality can be used to describe the no arbitrage condition. More generally, this theorem is typically proved with the &lt;a href=&quot;http://en.wikipedia.org/wiki/Hyperplane_separation_theorem&quot; rel=&quot;noreferrer&quot;&gt;Hyperplane Separation Theorem&lt;/a&gt;, which is mathematical tool that shows up a lot in economics textbooks.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, keep in mind that it's enough just to assume that in economic equilibrium, there&#xA;is approximately no arbitrage.&lt;/p&gt;&#xA;" OwnerUserId="59" LastEditorUserId="1601" LastEditDate="2016-01-08T10:42:13.320" LastActivityDate="2016-01-08T10:42:13.320" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="39" PostTypeId="2" ParentId="11" CreationDate="2014-11-19T03:05:14.307" Score="11" Body="&lt;p&gt;The expression in question is in footnote $11$ of the referenced article. Reading the paper, we see that the decision variable here is &quot;the payout rate&quot;, which is the reciprocal of $P$. So equivalently, we can solve the maximization problem with respect to $P$ (and not w.r.t. $Q$). More over, &quot;price elasticity of demand&quot; involves the derivative of $Q$ with respect to $P$, and not the other way around: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$E_{PQ} = \frac {dQ/dP}{Q}P $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and we expect it to be negative (higher price means lower payout rate leading to less demand for the quantity measure here, i.e. less &quot;demand for prizes&quot;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can write the maximization problem as &#xA;$$\max_{P}N = \max_{P}\left[P\cdot Q(P) - Q(P) - C(Q(P))\right]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The  first-order condition is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\partial N}{\partial P} = Q + P\cdot Q'  - Q' - C'\cdot Q' = 0 \tag{1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Multiply throughout by $P/Q$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Q\frac PQ + P\cdot Q'\frac PQ   - Q'\frac PQ  - C'\cdot Q'\frac PQ  = 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Rightarrow P +P\cdot E_{PQ} - E_{PQ} - C'\cdot E_{PQ}=0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Rightarrow -E_{PQ} = \frac {P}{P-1-C'} \tag{2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This makes sense. Plugging in the values presented in the reference, we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$-E_{PQ} = \frac {2}{2-1-.12} = \frac {2}{0.88} \approx  2.27 $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which is very close to the value resulting from the equation presented by the authors. I haven't been able, by whatever algebraic manipulations I tried, to replicate their formula, but eq $(2)$ is correct in any case. If a reconciliation comes up, I will update.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2014-11-19T03:05:14.307" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="41" PostTypeId="2" ParentId="23" CreationDate="2014-11-19T03:30:39.447" Score="6" Body="&lt;p&gt;&lt;a href=&quot;http://www.google.gr/books?hl=en&amp;amp;lr=&amp;amp;id=Xx-j-tYaPQUC&amp;amp;oi=fnd&amp;amp;pg=PR17&amp;amp;dq=Recursive%20macroeconomic%20theory&amp;amp;ots=a0Llkf0iBc&amp;amp;sig=j1OBl0PWIgpW9hTAZwa9WjqcVso&amp;amp;redir_esc=y#v=onepage&amp;amp;q=Recursive%20macroeconomic%20theory&amp;amp;f=false&quot;&gt;Ljungqvist and Sargent (2004). Recursive macroeconomic theory 2n ed. &lt;/a&gt; (ch. 15) present and review the issue. In the Concluding Remarks section, they mention two environments, where the &quot;zero-optimal-capital tax rate&quot; does not hold:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.jstor.org/stable/2138707&quot;&gt;Aiyagari(1995)&lt;/a&gt; presents a model with heterogeneous agents, incomplete insurance markets and borrowing constraints (i.e. a &quot;Bewley&quot; model): the optimal capital tax rate is positive, even in the long run. Insight: incomplete markets lead to excessive precautionary saving, leading to over-accumulation of capital. The positive capital tax rate offsets that.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.jstor.org/stable/3648601&quot;&gt;Golosov, Kocherlakota and Tsyvinski (2003)&lt;/a&gt; introduce private information (the government cannot observe the hidden skill levels of different households). The tax system becomes an optimal dynamic incentive mechanism, leading to positive optimal capital tax rate.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that the result depends also on the feasibility of government commitment. If a commitment mechanism is not in place, it will be optimal for the government to &lt;em&gt;&quot;renege on its promise and levy a confiscatory tax on capital&quot;&lt;/em&gt;, as L &amp;amp; S write. &lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2014-11-19T03:30:39.447" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="42" PostTypeId="1" CreationDate="2014-11-19T03:55:45.893" Score="6" ViewCount="91" Body="&lt;p&gt;Economic agents make decisions in particular models. These models do not need to be related to financial contexts, and economics can be used to describe how agents will act in any other field in which humans act.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As an example, how would economic principles be applied to the process of a democratic election?&lt;/p&gt;&#xA;" OwnerUserId="70" LastActivityDate="2014-11-19T23:15:33.237" Title="How are economic principles applied to non-financial models, such as a democratic election?" Tags="&lt;interdisciplinary&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="43" PostTypeId="2" ParentId="42" CreationDate="2014-11-19T04:07:14.663" Score="1" Body="&lt;p&gt;I think what you're looking for is the field of &quot;&lt;a href=&quot;http://en.wikipedia.org/wiki/Political_economy&quot; rel=&quot;nofollow&quot;&gt;political economy&lt;/a&gt;.&quot; According to the Wikipedia article, this term can relate to several different things. You'll want to look at &quot;&lt;a href=&quot;http://en.wikipedia.org/wiki/Public_choice&quot; rel=&quot;nofollow&quot;&gt;public choice theory&lt;/a&gt;.&quot; As its wikipedia article says,&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Public choice or public choice theory refers to &quot;the use of economic tools to deal with traditional problems of political science&quot;. Its content includes the study of political behavior. In political science, it is the subset of positive political theory that studies self-interested agents (voters, politicians, bureaucrats) and their interactions, which can be represented in a number of ways, such as standard constrained utility maximization, game theory, or decision theory.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="59" LastActivityDate="2014-11-19T04:07:14.663" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="44" PostTypeId="2" ParentId="42" CreationDate="2014-11-19T04:09:31.643" Score="4" Body="&lt;p&gt;Long story short: Preferences orderings are over more abstract outcomes instead of money. It's still a story of maximizing expected utility.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Agents are usually assumed to have preferences over outcomes. This is assuming something like consequentialism. In financial models, the outcomes are dollar amounts and so there is a natural preference ordering. In something like a political model, outcomes are policies. So, people have indirect preferences over political candidates based on beliefs and seek to influence the outcome by voting. This is probably a bad model of voting, as most people don't honestly believe their vote matters I'm guessing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Beyond voting to influence current decision-making, here is a good paper about voting as communicating: &lt;a href=&quot;http://piketty.pse.ens.fr/files/Piketty2000b.pdf&quot; rel=&quot;nofollow&quot;&gt;Piketty (2000)&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="14" LastActivityDate="2014-11-19T04:09:31.643" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="45" PostTypeId="1" CreationDate="2014-11-19T04:15:24.077" Score="8" ViewCount="3566" Body="&lt;p&gt;Let's say our government runs an advertising campaign, encouraging its citizens to reduce spending money on consumer items, and instead save more money. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's say the campaign is successful, and that happens.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How does this affect economic activity? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;On one hand the factory and shop owners appear to produce less, and thus hire less people, but on the otherhand, there is more money available to build new factories etc. &lt;/p&gt;&#xA;" OwnerUserId="96" LastEditorUserId="43" LastEditDate="2015-03-20T15:04:00.987" LastActivityDate="2015-03-24T17:43:33.060" Title="How does a reduction in consumer spending in favour of consumer saving, affect economic activity?" Tags="&lt;macroeconomics&gt;&lt;consumption&gt;" AnswerCount="5" CommentCount="2" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="46" PostTypeId="1" AcceptedAnswerId="71" CreationDate="2014-11-19T04:21:03.697" Score="31" ViewCount="2321" Body="&lt;p&gt;Most major economies have substantial government debt; for example among the OECD countries the lowest debt rate is Estonia with around 6% of GDP. Now we may be in a global recession at the moment, but even during the more prosperous times of the twentieth century most countries maintained substantial public debt. Here is a graph of the US federal debt:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://upload.wikimedia.org/wikipedia/commons/thumb/c/c5/FederalDebt1940to2012.svg/640px-FederalDebt1940to2012.svg.png&quot; alt=&quot;A graph of the US federal debt as a percentage of GDP since 1940&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And here is one of the UK's national debt:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://upload.wikimedia.org/wikipedia/commons/thumb/8/8b/UK_GDP.png/640px-UK_GDP.png&quot; alt=&quot;A graph of the UK&amp;#39;s natioanl debt as a percentage of GDP since 1692&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Both graphs via Wikimedia.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What benefits do governments of advanced economies receive from not eliminating their debt?&lt;/p&gt;&#xA;" OwnerUserId="70" LastEditorUserId="-1" LastEditDate="2017-03-10T09:42:49.700" LastActivityDate="2015-09-29T14:56:11.090" Title="What benefits do governments receive from not eliminating debt?" Tags="&lt;fiscal-policy&gt;&lt;debt&gt;&lt;government&gt;&lt;public-economics&gt;" AnswerCount="6" CommentCount="2" FavoriteCount="10" ContentLicense="CC BY-SA 3.0" />
  <row Id="47" PostTypeId="1" CreationDate="2014-11-19T04:27:47.397" Score="18" ViewCount="1752" Body="&lt;p&gt;Card and Krueger's paper (AER 1994, &quot;&lt;a href=&quot;http://dx.doi.org/10.1257/aer.90.5.1397&quot; rel=&quot;nofollow&quot;&gt;Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania&lt;/a&gt;&quot;) uses a &lt;a href=&quot;http://en.wikipedia.org/wiki/Difference_in_differences&quot; rel=&quot;nofollow&quot;&gt;difference-in-difference&lt;/a&gt; identification strategy to identify the causal effect of a minimum wage increase on unemployment. (A summary can be found &lt;a href=&quot;http://en.wikipedia.org/wiki/Minimum_wage#Card_and_Krueger&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;.) The main finding was that the increase in the minimum wage had a negligible or even non-existent effect of employment. There have been several criticisms to the paper---including criticizing the quality of the data or the fact that employers might have anticipated the change.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is, what are the main economic explanations for why employment did not significantly fall? What other evidence could be used to test these explanations?&lt;/p&gt;&#xA;" OwnerUserId="59" LastEditorUserId="7215" LastEditDate="2016-02-11T05:34:22.530" LastActivityDate="2020-12-30T11:26:55.377" Title="Unemployment and the Minimum Wage---what are the main counter-arguments to Card and Krueger?" Tags="&lt;macroeconomics&gt;&lt;public-economics&gt;&lt;labor-economics&gt;" AnswerCount="5" CommentCount="2" FavoriteCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="48" PostTypeId="1" CreationDate="2014-11-19T04:28:15.603" Score="12" ViewCount="10785" Body="&lt;p&gt;It's frequently useful in physics and engineering applications; are there any applications in theoretical economics? (If not, were there any attempts at incorporating CA that just never caught on?)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;See &lt;a href=&quot;http://en.wikipedia.org/wiki/Complex_analysis&quot;&gt;http://en.wikipedia.org/wiki/Complex_analysis&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="89" LastEditorUserId="89" LastEditDate="2014-11-21T02:36:21.627" LastActivityDate="2015-07-02T06:56:21.500" Title="Is complex analysis used in economics?" Tags="&lt;mathematical-economics&gt;" AnswerCount="4" CommentCount="11" FavoriteCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="49" PostTypeId="2" ParentId="35" CreationDate="2014-11-19T04:28:54.327" Score="53" Body="&lt;p&gt;Instead of proposing specific equations, I will point to two concepts that &lt;em&gt;lead&lt;/em&gt; to specific equations for specific theoretical set ups:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;A) Equilibrium&lt;/strong&gt;&lt;br&gt;&#xA;The most fundamental and the most misunderstood concept in Economics. People look around and see constant movement -how more irrelevant can a concept be, than &quot;equilibrium&quot;? So the job here is to convey that Economics models the observation that things most of the time &lt;em&gt;tend&lt;/em&gt; to &quot;settle down&quot; -so by characterizing this &quot;fixed point&quot;, it gives us an anchor to understand the movements outside and around this equilibrium (which may be changing of course).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is &lt;em&gt;not&lt;/em&gt; the case that &quot;&lt;strong&gt;quantity supplied equals quantity demanded&lt;/strong&gt;&quot; (here is a foundational equation)  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Q_d = Q_s$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;but it &lt;em&gt;is&lt;/em&gt; the case that supply &lt;em&gt;tends to equal&lt;/em&gt; demand (of &lt;em&gt;anything&lt;/em&gt;) for reasons that any economist should be able to convincingly present to anyone interested in listening (and deep down they all have to do with finite resources).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, by determining the conditions for equilibrium, we can understand, when we observe divergence, which conditions were violated. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;B) Marginal optimization under constraints&lt;/strong&gt;&lt;br&gt;&#xA;In a &lt;strong&gt;static environment&lt;/strong&gt;, it leads to the equation of marginal quantities/first derivatives of functions.&lt;br&gt;&#xA;Goods market: &lt;strong&gt;marginal revenue equals marginal cost&lt;/strong&gt;.&lt;br&gt;&#xA;Inputs market: &lt;strong&gt;marginal revenue product equals marginal reward&lt;/strong&gt; (rent, wage).&lt;br&gt;&#xA;Etc. (I left &quot;utility maximization&quot; out of the picture on purpose, because, here first one would have to present what this &quot;utility index&quot; is all about, and how crazy we are (&lt;em&gt;not&lt;/em&gt;), by trying to model human &quot;enjoyment&quot; through the concept of utility).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Perhaps you could cover it all under the umbrella &quot;marginal benefit equal marginal cost&quot; as other questions suggested:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$MB = MC$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Economists live in marginal optimization and most consider it self-evident. But if you try to explain it to an outsider, there is a respectable probability that he will object or remain unconvinced, instead usually proposing &quot;average optimization&quot; as &quot;more realistic&quot;, since &quot;people do not calculate derivatives&quot; (we don't argue that they do, only that their thought processes can be modeled &lt;em&gt;as if&lt;/em&gt; they were). So one has to get his story straight about marginal optimization, with convincing examples, and a discussion about &quot;why not average optimization&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In an &lt;strong&gt;intertemporal setting&lt;/strong&gt;, it leads to the discounted trade-off between &quot;the present and the future&quot;, again &quot;at the margin&quot; -starting with the &lt;strong&gt;&quot;Euler equation in consumption&quot;&lt;/strong&gt;, which in its discrete deterministic version reads&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$u'(c_{t})=\beta(1+r_{t+1})u'(c_{t+1})$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;...and one cannot avoid the theme of utility, after all: $u'()$ is marginal utility from consumption, $0&amp;lt;\beta&amp;lt;1$ is a discount rate and $r_{t+1}$ is the interest rate&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(&lt;em&gt;don't&lt;/em&gt; consult wikipedia article on Euler's equation in consumption, the concept behind it is much more generally applicable and foundational than the specific application that the wikipedia article discusses).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Interestingly, although dynamic economics are more technically demanding, I find this more intuitively appealing since people seem to understand way better &quot;what you save today will determine what you will consume tomorrow&quot;, than &quot;your wage rate will be the marginal revenue product of all labor employed&quot;.  &lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2016-01-23T03:35:55.833" LastActivityDate="2016-01-23T03:35:55.833" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="50" PostTypeId="1" AcceptedAnswerId="63" CreationDate="2014-11-19T04:41:34.263" Score="15" ViewCount="2436" Body="&lt;p&gt;&lt;a href=&quot;http://en.wikipedia.org/wiki/Price_elasticity_of_demand&quot;&gt;Price elasticity of demand&lt;/a&gt; and &lt;a href=&quot;http://en.wikipedia.org/wiki/Price_elasticity_of_supply&quot;&gt;Price elasticity of supply&lt;/a&gt; are two of the most important concepts of microeconomics, but they're generally explained from a hypothetical standpoint, and little effort is given to explaining how they are measured, or how they fluctuate (specifically the scale of fluctuation, not the contributing causes).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can anyone explain this, and/or point to studies that document the fluctuation of $PE_{d}$ and $PE_{s}$ over time?&lt;/p&gt;&#xA;" OwnerUserId="31" LastEditorUserId="2776" LastEditDate="2017-09-13T09:26:41.683" LastActivityDate="2017-09-13T09:26:41.683" Title="How is price elasticity determined in practice?" Tags="&lt;elasticity&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="51" PostTypeId="2" ParentId="47" CreationDate="2014-11-19T04:53:04.517" Score="13" Body="&lt;p&gt;Isaac Sorkin, a grad student at Michigan, has addressed this. Here is Miles Kimball blogging it, &lt;a href=&quot;https://blog.supplysideliberal.com/post/43482772288/isaac-sorkin-dont-be-too-reassured-by-small&quot; rel=&quot;nofollow noreferrer&quot;&gt;Isaac Sorkin: Don't Be Too Reassured by Small Short-Run Effects of the Minimum Wage&lt;/a&gt;, &lt;a href=&quot;https://blog.supplysideliberal.com/post/43980516189/jonathan-meer-and-jeremy-west-effects-of-the&quot; rel=&quot;nofollow noreferrer&quot;&gt;Jonathan Meer and Jeremy West: Effects of the Minimum Wage on Employment Dynamics&lt;/a&gt;, and &lt;a href=&quot;https://blog.supplysideliberal.com/post/126482484343/the-economist-destination-unknown-large&quot; rel=&quot;nofollow noreferrer&quot;&gt;The Economist—Destination Unknown: Large Increases in the Minimum Wage Could Have Severe Long-Term Effects&lt;/a&gt;. The main argument there is that previous work measures short run elasticities, which are less responsive than in the long run. You can surely find more by checking Sorkin's citations.&lt;/p&gt;&#xA;" OwnerUserId="14" LastEditorUserId="10298" LastEditDate="2020-12-30T11:26:55.377" LastActivityDate="2020-12-30T11:26:55.377" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="52" PostTypeId="2" ParentId="47" CreationDate="2014-11-19T04:53:23.330" Score="7" Body="&lt;p&gt;First, we need to assume that the minimum wage is an &quot;effective constraint&quot;, i.e. that in the cases examined people are paid the minimum wage. I guess this holds.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Second, the negative relation between demand for labor (for the services sold by workers) and wage (its price), depends on an assumption of a smooth such relation. In turn, such a smooth relation depends on substitutability of factors of production: in order to decrease labor employed, one needs to increase capital employed (if it has no reason to alter the production level).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is it the case that the services offered by minimum wage workers in the study mentioned, could be readily substituted by capital? If not, here is one explanation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another way for a firm to respond to a minimum wage increase, is to try to increase the &lt;em&gt;intensity&lt;/em&gt; of work, so it could fire people and maintain essentially the same level of services with fewer workers that are paid the higher minimum wage, keeping the total cost the same.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is it the case that minimum wage workers in the study mentioned worked with some slack, and there was still room to press them to work harder? If not, here is another explanation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So it may be the case, that the firms have done their &quot;profit making job excellently&quot;, and have managed to have the &lt;em&gt;lowest operationally possible level of labor&lt;/em&gt;, by extracting full efficiency from it, but also from the point of view of factors substitution capabilities... and then came the minimum wage increase. The firms simply had no options, (at least in the short run), than, perhaps, to pass the cost over to consumers, or live with lower profits, because they were already operating at their efficiency frontier with the minimum feasible amount of labor.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In such a case, the minimum-wage increase has a pure income-redistribution effect.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2014-11-19T22:59:52.190" LastActivityDate="2014-11-19T22:59:52.190" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="53" PostTypeId="1" CreationDate="2014-11-19T04:56:01.427" Score="5" ViewCount="86" Body="&lt;p&gt;In closed loop toy models with a fixed money supply, what are the downsides of calculating probable outcomes with a binomial coefficient?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, given a toy economy where trades yield a profit or loss of $t$, and all participants start with wealth $W$ as expressed by:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$f(x_{n+1})=x_n \pm t$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$f(x_0)=W$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would predict the probability of one participant reaching a wealth of $0$ by iteration $q$ to be :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;P = 1- \prod\limits_{n=1}^{q} {\left(1-\dbinom{n}{\frac{W+tn}{2t}}\frac{(n+1)\bmod 2}{2^n}\right)} &#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are there better methods?&lt;/p&gt;&#xA;" OwnerUserId="31" LastActivityDate="2014-11-19T04:56:01.427" Title="Simulations Using Binomial Coefficients" Tags="&lt;mathematical-economics&gt;&lt;simulations&gt;&lt;algorithms&gt;" AnswerCount="0" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="54" PostTypeId="2" ParentId="35" CreationDate="2014-11-19T05:18:00.853" Score="17" Body="&lt;p&gt;Although I agree with Jyotirmoy Bhattacharya that the most interesting ideas in economics are not always best expressed through equations, I still want to mention the Slutsky or compensated law of demand from consumer theory&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ (p' -p) \Big[ x\big(p', p' x(p,w)\big) – x\big(p,w\big)\Big]^T \leq 0,$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $p',p \in \mathbb{R}_{++}^n$ are any two price vectors, $w \in \mathbb{R}_+$ is any level of income, and $x(\cdot,\cdot) \in \mathbb{R}^n$ is the demand function. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The underlying relation is a couple of orders of certitude away from fundamental equations in other fields. Also, it does not ground the discipline, in the sense that it is not used all that often. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, I tend to view it as fundamental because&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;It is an &lt;em&gt;absolutely non-trivial&lt;/em&gt; consequence of three simple and fundamental assumptions in consumer theory, namely, &#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;That the demand function $x(\cdot,\cdot)$ is homogenous of degree zero (no money illusion)&lt;/li&gt;&#xA;&lt;li&gt;Walras' law (people do not burn money)&lt;/li&gt;&#xA;&lt;li&gt;The weak axiom of revealed preferences (if you chose A when B is available “today”, you will not chose B “tomorrow” if A  remains available) &lt;/li&gt;&#xA;&lt;/ul&gt;&lt;/li&gt;&#xA;&lt;li&gt;Therefore testing the inequality is equivalent to testing these three assumptions jointly. &lt;/li&gt;&#xA;&lt;li&gt;The three assumptions are used in the vast majority (maybe more than 90%?) of the models including consumers in economic theory. &lt;/li&gt;&#xA;&lt;li&gt;Their validity (at least as approximations) is therefore crucial to the validity of most models in economic theory (at least as approximations).&lt;/li&gt;&#xA;&lt;li&gt;Although it is not always obvious how to relate the notions of prices, goods and income  to observables, all the element in the equation are observable &lt;em&gt;in principle&lt;/em&gt; (as opposed to utility levels for instance) and the validity of the inequality can therefore be tested empirically.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="38" LastEditorUserId="38" LastEditDate="2017-03-22T00:40:17.043" LastActivityDate="2017-03-22T00:40:17.043" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="55" PostTypeId="2" ParentId="35" CreationDate="2014-11-19T05:22:36.393" Score="33" Body="&lt;p&gt;As has already been said, the MOST fundamental equation is surely:&#xA;$$\text{MB}=\text{MC}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT: This equation is fundamental in terms of the way economists think. As pointed out in the comments below, in terms of fundamental equations of economic models, the most fundamental equations describe equivalences between the uses and supplies of items (money, goods, etc.). These provide the tension of the marginal cost side of this equation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would add equations related to comparative statics:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;strong&gt;&lt;a href=&quot;http://en.wikipedia.org/wiki/Envelope_theorem&quot;&gt;Envelope theorem&lt;/a&gt;&lt;/strong&gt;&#xA;$$V^\prime(y)=f_y(x,y)$$&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;&quot;Delta&quot; analysis&lt;/strong&gt;, as described in Samuelson's Foundations of Economic Analysis:&#xA;$$\Delta p\Delta y-\Delta w\Delta x\geq0$$&#xA;(this examines responses of price-taking producers in terms of vectors of production $y$ and uses of inputs $x$, to their prices $p$ and $w$, essentially revealed preference for producers)&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;&lt;a href=&quot;http://en.wikipedia.org/wiki/Revealed_preference&quot;&gt;Revealed preference&lt;/a&gt;&lt;/strong&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;If we can claim game theorists or mathematicians whose equations we use constantly:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;strong&gt;&lt;a href=&quot;http://en.wikipedia.org/wiki/Karush%E2%80%93Kuhn%E2%80%93Tucker_conditions&quot;&gt;Karush-Kuhn-Tucker conditions&lt;/a&gt;&lt;/strong&gt;, especially complementary slackness. There's no single equation for linear programming, but I think econ has a claim to Kantorovich too. \&#xA;Stationarity:&#xA;$$\nabla f(x^*) = \sum_{i=1}^m \mu_i \nabla g_i(x^*) + \sum_{j=1}^l \lambda_j \nabla h_j(x^*)$$&#xA;Primal feasibility:&#xA;$$g_i(x^*) \le 0, \mbox{ for all } i = 1, \ldots, m$$&#xA;$$h_j(x^*) = 0, \mbox{ for all } j = 1, \ldots, l \,\!$$&#xA;Dual feasibility:&#xA;$$\mu_i \ge 0, \mbox{ for all } i = 1, \ldots, m$$&#xA;Complementary slackness:&#xA;$$\mu_i g_i (x^*) = 0, \mbox{for all}\; i = 1,\ldots,m.$$&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;&lt;a href=&quot;http://en.wikipedia.org/wiki/Nash_equilibrium&quot;&gt;Nash equilibrium&lt;/a&gt;&lt;/strong&gt;&#xA;$$\theta_{i}^\star = \arg \max_{\theta_i} u_i(\theta_i ,\theta_{-i}^\star)$$&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;&lt;a href=&quot;http://en.wikipedia.org/wiki/Revelation_principle&quot;&gt;Revelation principle&lt;/a&gt;&lt;/strong&gt;: which to be fair isn't so much an equation as a theorem...&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;&lt;a href=&quot;http://en.wikipedia.org/wiki/Bellman_equation&quot;&gt;Bellman equation&lt;/a&gt;&lt;/strong&gt;&#xA;$$V(x)=\max_{c\in\Omega(x)} U(x,z)+\beta\left[V(x^\prime)\right]$$&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="54" LastEditorUserId="54" LastEditDate="2014-12-30T00:38:39.513" LastActivityDate="2014-12-30T00:38:39.513" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="56" PostTypeId="1" CreationDate="2014-11-19T05:27:35.487" Score="7" ViewCount="122" Body="&lt;p&gt;Have studies been done that demonstrate the limits of human memory on reputation in the Iterated Prisoner's Dilemma?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;i.e. at what point (on average) does a player start to &quot;forget&quot; the actions of a previous opponent? &lt;/p&gt;&#xA;" OwnerUserId="31" LastActivityDate="2014-11-19T17:16:24.577" Title="How much impact does memory have on risk pricing?" Tags="&lt;game-theory&gt;&lt;behavioral-economics&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="57" PostTypeId="2" ParentId="46" CreationDate="2014-11-19T05:36:15.590" Score="-2" Body="&lt;p&gt;From a political standpoint, debt is less contentious than taxes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From an economic standpoint, in a fiat currency deficit is equal to an increase in the money supply, and can be used as a bridge between fiscal and monetary policy to stimulate growth. As older debt retires, this could lead to a stabilizing, or even temporary reduction in nominal debt load.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lastly, externalities like decreased economic output during a recession would increase the debt to GDP ratio as depicted by those charts. &lt;/p&gt;&#xA;" OwnerUserId="31" LastEditorUserId="31" LastEditDate="2014-11-19T05:43:03.017" LastActivityDate="2014-11-19T05:43:03.017" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="58" PostTypeId="2" ParentId="47" CreationDate="2014-11-19T05:56:41.617" Score="9" Body="&lt;p&gt;To the extent that there is an economic explanation for their findings, it's something along the lines of costs of changing prices and employment are large enough relative to the increase in the minimum wage observed that producers choose instead to take a large amount of the cost of minimum wage increases on themselves. The alternatives would be 1) they decrease employment 2) they increase prices 3) they close branches or reduce entry. None of that seems to have happened.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think Pburg is right that one possible bone to pick with this result is that the short run response is not representative of the possible long run reaction. Another possibility is that the increase in the minimum wage was too small. \$4.25 to \$5.05 (the increase they observe) is very different from &lt;a href=&quot;http://www.whitehouse.gov/raise-the-wage&quot; rel=&quot;nofollow&quot;&gt;\$7.25 to \$10.10&lt;/a&gt;. This is my where my concerns would lie.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's possible there were also confounding legal changes, which would violate the parallel trends assumption, but I find this less plausible.&lt;/p&gt;&#xA;" OwnerUserId="54" LastEditorUserId="54" LastEditDate="2016-02-11T15:42:17.753" LastActivityDate="2016-02-11T15:42:17.753" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="59" PostTypeId="2" ParentId="46" CreationDate="2014-11-19T08:08:59.100" Score="6" Body="&lt;p&gt;Suppose your country holds debt equal to thirty percent of GDP and that the government is obliged to pay interest of five percent per year on that debt. This implies that each year the cost of servicing the debt is 1.5% of GDP. Thus, if the country's GDP grows at a rate of 1.5% then it can afford to service the debt indefinitely without the debt/GDP ratio growing. If the country's economy grows at a rate greater than 1.5% per annum then, even if the government only pays the interest on the debt, the size of the public debt will be shrinking relative to the rest of the economy. If you believe that people have some sort of diminishing marginal utility of income then it is likely to be the case that the optimal strategy is to postpone some fraction of the debt repayment until such a time as the country is richer (and people face a smaller marginal dis-utility of giving up the income needed to pay down the debt).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Even putting aside the political expediency of postponing debt repayment, paying off the debt can be postponed until the country is 'richer' and therefore better able to do so. &lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2014-11-19T08:08:59.100" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="60" PostTypeId="1" CreationDate="2014-11-19T08:29:43.570" Score="1" ViewCount="81" Body="&lt;p&gt;I am interested in understanding when the stock market can influence real growth and the opposite, when real growth can influence the stock market. In other words, in which way causation is more likely to work?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In particular if stock market is growing, will GDP increase or will decrease?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;After studying the Blanchard model, I found out that both ways are possible, in fact in its model there are two cases, good news and bad news, but it was never explained in my studies why in one particular market we are in the first case or in the second.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I only know that the answer depends somehow on market efficiency and if the country is still developing or not.&lt;/p&gt;&#xA;" OwnerUserId="9" LastActivityDate="2014-11-19T08:29:43.570" Title="What is the relationship between real growth and stock market" Tags="&lt;macroeconomics&gt;" AnswerCount="0" CommentCount="4" FavoriteCount="1" ClosedDate="2014-11-19T14:36:51.493" ContentLicense="CC BY-SA 3.0" />
  <row Id="61" PostTypeId="1" CreationDate="2014-11-19T08:32:44.620" Score="-4" ViewCount="122" Body="&lt;p&gt;I'm writing &lt;a href=&quot;http://forums.sufficientvelocity.com/threads/panopticon-worm.7846/&quot; rel=&quot;nofollow&quot;&gt;fanfiction&lt;/a&gt; for the superhero serial novel &lt;a href=&quot;http://parahumans.wordpress.com/&quot; rel=&quot;nofollow&quot;&gt;Worm&lt;/a&gt;. The main setting in Worm is Brockton Bay, a failing city of about 300,000 people. The economy has been in decline since the decline of shipping through Brockton Bay. I assume manufacturing has also fallen as well. The people of Brockton Bay are largely poor, and superpowered gangs are in control of large sections of the city. (A side note for manufacturing: Japan in this story has been destroyed by a kaijuu, and China is a closed economy.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The economy of Brockton Bay is not all bad, however. There is a section of the city that is fairly rich due to tourism. The city has the most superhumans per capital, and attracts people on that basis.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What economic problems are likely plaguing this fictional city? How would you solve them? I'm willing to put in work to worldbuild, but I'm only an amateur economist. I'm thinking of basing the economics of Brockton Bay on Detroit, but I'm willing to read up on other failing cities as well. Thanks for your help :)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit: A bit more detail on economic problems:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The justice system is corrupt. The two major gangs are White and Asian. The White gang is well-organised, the Asian gang not so. I imagine the White gang holding on to wealthy suburbs and charging protection fees.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The education system is likely failing, so a good segment of the population is illiterate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Unemployment is high, which feeds into the gangs. Probably 20%? I'm basing this off of Detroit unemployment rates.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Due to Japan being devastated, and China becoming a closed economy, there are a lot Asian immigrants. Some are rich, some are poor. The poor Asians are used illegal as cheap labour to support unproductive manufacturers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That's all I can think of right now. As for more specific questions, I'd ask: How would you develop infrastructure, when the city is broke? Which infrastructure do you prioritise? How would you fix the justice system? The education system? On which do you prioritise your energies?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How do you create more jobs? Do you use macro policies? Or targeted policies? Do you implicitly encourage illegal immigrant labour? Or regulate working conditions? How do you improve productivity?&lt;/p&gt;&#xA;" OwnerUserId="85" LastEditorUserId="43" LastEditDate="2015-04-01T14:26:01.450" LastActivityDate="2015-04-01T14:26:01.450" Title="Help a writer worldbuild a failing economy" Tags="&lt;economic-failure&gt;" AnswerCount="1" CommentCount="11" ClosedDate="2014-11-19T11:53:36.757" ContentLicense="CC BY-SA 3.0" />
  <row Id="62" PostTypeId="1" CreationDate="2014-11-19T09:32:36.660" Score="9" ViewCount="1820" Body="&lt;p&gt;This is a famous quote from Douglas Adam's &lt;em&gt;The Restaurant at the End of the Universe&lt;/em&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Many years ago this was a thriving, happy planet – people, cities, shops, a normal world. Except that on the high streets of these cities there were slightly more shoe shops than one might have thought necessary. And slowly, insidiously, the number of the shoe shops were increasing. It’s a well-known economic phenomenon but tragic to see it in operation, for the more shoe shops there were, the more shoes they had to make and the worse and more unwearable they became. And the worse they were to wear, the more people had to buy to keep themselves shod, and the more the shops proliferated, until the whole economy of the place passed what I believe is termed the Shoe Event Horizon, and it became no longer economically possible to build anything other than shoe shops. Result – collapse, ruin and famine.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Are there real world examples from history where a society's economy has become so mono-industrialised that it collapses? Does this situation have an alternative (more serious) name in economics?&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;I'm not sure if this will be a constructive question. A potential edit could be to ask if something like Ireland's potato famine is an example of the shoe event horizon.&lt;/em&gt;&lt;/p&gt;&#xA;" OwnerUserId="70" LastActivityDate="2020-05-08T11:37:31.473" Title="Are there real world examples of a shoe event horizon?" Tags="&lt;economic-failure&gt;" AnswerCount="5" CommentCount="5" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="63" PostTypeId="2" ParentId="50" CreationDate="2014-11-19T09:44:29.440" Score="11" Body="&lt;p&gt;In many practical instances, price elasticity of demand (PED) is calculated in a back of the envelope fashion, just as taught in the textbooks! Firms can adjust their price by some small amount and observe the demand response. For relatively small changes in price and quantity, little accuracy is lost by assuming that the demand function is locally linear, so that the change in price and demand jointly give an estimate for $$\frac{dQ}{dp}.$$ Since $p$ and $Q$ are already known, this is enough to calculate the PED:&#xA;$$\eta=\frac{dQ}{dp}\frac{p}{Q}.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This method yields only a point estimate of elasticity at the current price. However, one can get an incredibly long way with just this estimate thanks to the so-called Lerner condition: that a firm with marginal cost $c$ facing a price elasticity of $\eta$ maximises profit when $$\frac{p-c}{p}=-\frac{1}{\eta}.$$ Once the price elasticity of demand is estimated in the above fashion, this formula can be used to infer if the firm's price is above or below its profit-maximising level (allowing a firm to correct towards that level). Alternatively, this kind of analysis is often used as a heuristic in competition policy (antitrust) because, by estimating the right hand side of the Lerner formula, competition authorities can get an estimate for the left hand side (i.e. for how much power the firm has to price above marginal cost).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One drawback of this approach is that, at least in its simplest implementation, it does not control for factors such as how a change in the price of a product affects the demand of other products sold by the same firm (and thus overall profit).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can see a nice informal discussion of Amazon's book pricing based on this kind of back of the envelope work &lt;a href=&quot;http://www.digitopoly.org/2014/07/30/amazon-makes-its-case-against-hachette/&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For more formal purposes, and when data is readily available, the process is often similar but slightly more careful in the estimation of demand. An excellent example of this kind of work can be found in Ellison &amp;amp; Ellison's 2009 &lt;em&gt;Econometrica&lt;/em&gt; Paper, &lt;a href=&quot;http://economics.mit.edu/files/7205&quot;&gt;Search, Obfuscation, and Price Elasticities on the Internet&lt;/a&gt;. They proceed by estimating the firm's demand function econometrically (rather than via the heuristic method described above), and then calculate the implied PED from this estimated demand. Using an equation analogous to the Lerner condition, they are able to infer how far from the competitive case the market is, and attribute this discrepancy to search obfuscation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In practice, for economists working outside of a firm, the main difficulty is often obtaining the data necessary to estimate the PED (Ellison &amp;amp; Ellison had excellent data thanks to collaboration with a firm in the market).&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2014-11-19T10:15:36.740" LastActivityDate="2014-11-19T10:15:36.740" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="64" PostTypeId="2" ParentId="46" CreationDate="2014-11-19T09:53:13.443" Score="10" Body="&lt;p&gt;There is an &lt;a href=&quot;http://media.npr.org/assets/img/2011/10/20/LifeAfterDebt.pdf&quot;&gt;interesting report&lt;/a&gt;  that circulated during the Clinton administration, when we predicted we'd pay off all the debt, that I think answers your question. (&lt;a href=&quot;http://www.npr.org/blogs/money/2011/10/21/141510617/what-if-we-paid-off-the-debt-the-secret-government-report&quot;&gt;here's&lt;/a&gt; a public radio article about it)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The main takeaway is that government bonds are &lt;strong&gt;the safest and most liquid asset&lt;/strong&gt;. Its existence is necessary for a large number of financial institutions (think insurance companies, pension funds and postal savings) and important as benchmark elsewhere.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Moreover the report suggests that monetary policy would be harder without government bonds. The Fed would have to buy stocks or corporate bonds instead but most markets are simply too small to accommodate the Fed's needs. This would mean that any open-market operation by the central bank would produce large swings in the relative prices of financial assets with unknown consequences.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Luckily we never paid it off.&lt;/p&gt;&#xA;" OwnerUserId="93" LastActivityDate="2014-11-19T09:53:13.443" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="65" PostTypeId="1" CreationDate="2014-11-19T09:55:44.813" Score="15" ViewCount="1197" Body="&lt;p&gt;&lt;a href=&quot;http://en.wikipedia.org/wiki/Tragedy_of_the_commons&quot;&gt;Wikipedia states&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The tragedy of the commons is an economics theory by Garrett Hardin, according to which individuals, acting independently and rationally according to each one's self-interest, behave contrary to the whole group's long-term best interests by depleting some common resource.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Intuitively, this seems correct that self-interest would lead to over use under the assumption that others would do the same.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Have there been any strong counter theories that argue that people would act in a &quot;sub-optimal&quot; way for the betterment of the community?&lt;/p&gt;&#xA;" OwnerDisplayName="user116" LastActivityDate="2014-12-16T18:34:33.193" Title="Are there theories that invalidate the &quot;tragedy of the commons&quot;?" Tags="&lt;game-theory&gt;&lt;microeconomics&gt;" AnswerCount="3" CommentCount="3" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="66" PostTypeId="2" ParentId="61" CreationDate="2014-11-19T10:15:09.013" Score="2" Body="&lt;p&gt;&lt;strong&gt;Secure property rights&lt;/strong&gt; are a prime determinant of long-term economic growth--without them your citizens will be underinvest and, ultimately, waste resources trying to protect the property they already have when they could be using it more productively (Think: Blood diamonds). That's basically the problem with a city where much of it is controlled by gangs... &lt;/p&gt;&#xA;&#xA;&lt;p&gt;By the way, tourism is the biggest driver of the economy?! Who would want to visit such a hell-hole?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Would a superpower qualify as &lt;strong&gt;human capital&lt;/strong&gt;? You'd think that it would but, then again, it seems like hardly any superheroes &lt;em&gt;ever&lt;/em&gt; apply their powers productively at work--I'm looking at you, Clark Kent! (Seriously, a &lt;em&gt;newspaper reporter?!&lt;/em&gt; Talk about &lt;em&gt;throwing your life away&lt;/em&gt;!). &lt;/p&gt;&#xA;" OwnerUserId="29" LastActivityDate="2014-11-19T10:15:09.013" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="67" PostTypeId="2" ParentId="50" CreationDate="2014-11-19T10:18:59.923" Score="8" Body="&lt;p&gt;The truth is that it's unclear if firms use the concept at all.&lt;br&gt;&#xA;Alan Blinder wrote this wonderful little book called &quot;&lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0871541211&quot; rel=&quot;noreferrer&quot;&gt;Asking about prices&lt;/a&gt;&quot;. A survey of firms asking them how they set prices. And it's full of very puzzling finds.&lt;br&gt;&#xA;Elasticity is one of them(Page 99). So they ask firms what is their price elasticity of demand:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;This was a difficult question for many firms, who not only do not have an elasticity estimate handy but are unaccustomed to thinking in such terms.  &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;And the results are:&lt;br&gt;&#xA;&lt;img src=&quot;https://i.stack.imgur.com/F6ksS.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which the author incredulously comment:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Can it really be true that firms that sell 40 percent of GDP believe that their demand is totally insensitive to price, and that only about one-sixth of GDP is sold under conditions of elastic demand?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;My idea is that most people setting prices just don't understand or care about the idea of elasticity. A suspicion further compounded by the fact (underlined in the same book) that most firms seemed to have no understanding of marginal benefits and cost&lt;/p&gt;&#xA;" OwnerUserId="93" LastActivityDate="2014-11-19T10:18:59.923" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="68" PostTypeId="1" AcceptedAnswerId="90" CreationDate="2014-11-19T10:35:04.843" Score="9" ViewCount="647" Body="&lt;p&gt;According (the semi-strong form of) the efficient market hypothesis, the price of an asset should reflect all publicly available information about the 'fundamental value' of that asset. The reasoning is that if there is some public information that suggests the price is below the fundamental value then people will have an incentive to act on this information and buy more of the asset. This increase in demand will cause the price of the asset to rise, closing the original price-value discrepancy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This reasoning seems intuitively plausible, but significant price-corrections during the recent recession seem to suggest that markets had systematically priced in a manner inconsistent with underlying fundamentals. What academic theories (i.e. published or in working papers) have been advanced (and by whom) to explain why the efficient market hypothesis might fail? Is there much of an empirical consensus on the validity of the efficient market hypothesis in the literature?&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2014-11-19T11:40:22.070" LastActivityDate="2014-11-19T14:55:32.170" Title="What are some theoretical explanations for deviations from the efficient market hypothesis?" Tags="&lt;finance&gt;&lt;theory&gt;&lt;asset-prices&gt;&lt;information&gt;" AnswerCount="3" CommentCount="3" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="69" PostTypeId="2" ParentId="35" CreationDate="2014-11-19T10:58:02.683" Score="8" Body="&lt;p&gt;Whilst not as foundational as, for example, the Slutsky equation, the condition on the Lerner index that a profit maximising firm with price $p$, cost $c$, and price elasticity of demand $\eta$ has&#xA;$$\frac{p-c}{p}=-\frac{1}{\eta}$$&#xA;is an important equation in industrial organisation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is not only an elegant formulation of the solution of the firm's problem, but it is also practically useful:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;A firm that estimates its $\eta$ and knows its $c$ can use this formula to calculate the profit-maximising price.&lt;/li&gt;&#xA;&lt;li&gt;A regulator that observes a $p$ and estimates $\eta$ can use the formula to calculate $c$—important in many forms of regulation.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="108" LastActivityDate="2014-11-19T10:58:02.683" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="70" PostTypeId="2" ParentId="65" CreationDate="2014-11-19T11:12:03.240" Score="9" Body="&lt;p&gt;As you implied, the &lt;strong&gt;tragedy of the commons&lt;/strong&gt; was &lt;em&gt;the&lt;/em&gt; standard theory in Economics. This is no longer the case. &lt;em&gt;However&lt;/em&gt;--and this is an important point--rejection of this one-size-fits-all approach to public resource management did not come from the emergence of new &lt;em&gt;theories&lt;/em&gt;; rather, it resulted from &lt;em&gt;actually studying real-world outcomes&lt;/em&gt;. In fact, it's for her work doing exactly this that &lt;a href=&quot;http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/2009/&quot; rel=&quot;noreferrer&quot;&gt;Elinor Ostrom&lt;/a&gt; won the Nobel Prize in Economics. As described by the Nobel committee:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;[B]ased on numerous empirical studies of natural-resource management, Elinor Ostrom has concluded that common property is often surprisingly well managed. Thus, the standard theoretical argument against common property is overly simplistic. It neglects the fact that users themselves can both create and enforce rules that mitigate overexploitation. The standard argument also neglects the practical difficulties associated with privatization and government regulation.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Since these case studies there has been theoretical work--some of it by Ostrom herself--in order to reconcile the discrepancies between the previous theory and the observed outcomes (developed using the theory of repeated games in &lt;strong&gt;Non-Cooperative Game Theory&lt;/strong&gt;). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, what's most interesting to me is that this theory was rooted in actual observations and not the other way around (i.e. first the theorized behavior followed by real-life observations).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Did this answer your question?&lt;/p&gt;&#xA;" OwnerUserId="29" LastEditorUserId="29" LastEditDate="2014-11-19T14:16:29.107" LastActivityDate="2014-11-19T14:16:29.107" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="71" PostTypeId="2" ParentId="46" CreationDate="2014-11-19T11:45:25.840" Score="20" Body="&lt;p&gt;Most of the same considerations apply to countries as apply to businesses and people, plus a couple of extra cons&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Pros of Being Debt Free&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;No interest payments&lt;/li&gt;&#xA;&lt;li&gt;Not beholden to someone else (financial freedom)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Cons of Being Debt Free&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Buying things on (interest free) credit can save a little money&lt;/li&gt;&#xA;&lt;li&gt;Paying for things in installments can match costs to income&lt;/li&gt;&#xA;&lt;li&gt;Interest rates can be used to control economic activity and defend currency&lt;/li&gt;&#xA;&lt;li&gt;Having a bond market promotes domestic financial activity&lt;/li&gt;&#xA;&lt;li&gt;Having government bonds provides savers with a safe investment&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;There is big difference between having no debt and having no net debt.  In the former case, you do not borrow any money and that is rare.  In the latter case you have the money but choose to borrow instead.  Many individuals do this by spending on credit card even though they have money in the bank, or not paying off all of their mortgage because the interest rate is good (so they can earn more with their money elsewhere).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For governments there are extra benefits from having debt (even if you can pay it off).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Perhaps the best way to understand this though is to look at a few notable examples, past and present.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;US 1836&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;If you don't set interest rates, someone else will&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Federal Reserve was only established in 1913, prior to that the US had an uneasy relationship with the concept of central banking.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems the founding fathers were against central banking, and it wasn't until Alexander Hamilton that &quot;First Bank of the United States&quot; was created in 1791, mandated to last for 20 years, after which it's mandate was not renewed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Second Bank was established in 1816.  Andrew Jackson was strongly against central banking (and banking generally!) and so when he came to power in 1832 he pulled the state money out of the bank.  The bank countered by tightening money supply to push the economy into recession.  Andrew Jackson held out and paid off the entire national debt by 1836.  The Second Bank did not have it's chartered renewed, and liquidated in 1838.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With no debt, and no central bank the US money supply was effectively free.  Jackson also introduces the Specie Circular which required all government land be purchased in gold and silver.  The rest of the 1830 saw significant inflation and recession, generally attributed to Jackson defeating the central bank.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The US government had lost control of their own economy, and in 1837 the Bank of England raise rates, forcing up domestic US interest rates, precipitating the 1837 panic.  The following years were marked by major recession.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For more on this see: &lt;a href=&quot;http://online.wsj.com/news/articles/SB123491373049303821?mg=reno64-wsj&amp;amp;url=http%3A%2F%2Fonline.wsj.com%2Farticle%2FSB123491373049303821.html&quot;&gt;WDJ article on US debt&lt;/a&gt; and &lt;a href=&quot;http://en.wikipedia.org/wiki/Second_Bank_of_the_United_States&quot;&gt;Wiki: Second Bank&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Norway Today&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Keep some debt for liquidity purposes and financial control&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Norway currently has around \$170bn of public debt, with a GDP of about \$500bn.  However in 1990 the government established what is now called the &quot;Government Pension Fund of Norway&quot; into which the excess income from Norwegian oil is poured.  It is an equity and bond portfolio currently estimated to be worth in excess of \$700bn.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The government of Norway could choose to pay off all its debts easily, but chooses not to.  Instead they maintain issuance in sovereign debt markets in order to hold a liquid reserve to cover their daily payments.  They also mention using the money to &quot;develop well-functioning and efficient financial markets&quot;.  A final consideration in their case is that their assets are abroad, and repatriating them would weaken the Krone, so there is some FX consideration here.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Because of this, it is not surprising that Norway has a AAA credit rating, and that also makes it cheaper for Norway to borrow than even the US (based on 5Y CDS).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For more on this see: &lt;a href=&quot;http://www.regjeringen.no/en/dep/fin/Selected-topics/economic-policy/the-central-governments-outstanding-debt.html?id=443404&quot;&gt;Norway Ministry of Finance&lt;/a&gt; and &lt;a href=&quot;http://www.norges-bank.no/en/Liquidity-and-markets/Government-debt/Why-government-debt/&quot;&gt;Norges Bank&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Singapore Today&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Issue debt to give people something to invest in&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Singapore has had no foreign debt (ie. non-SGD) since 1995, and consistently runs with a fiscal surplus.  Despite this they issue T-Bills and Notes of various maturities consistently and simply invests the proceeds.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why?  According to the Monetary Authority of Singapore (MAS) the main objectives are:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;ul&gt;&#xA;  &lt;li&gt;Provide a liquid investment alternative with little or no risk of default for individual and institutional investors; &lt;/li&gt;&#xA;  &lt;li&gt;Establish a liquid government bond market, which serves as a benchmark for the corporate debt securities market; and &lt;/li&gt;&#xA;  &lt;li&gt;Encourage the development of skills relating to fixed income financial services available in Singapore.&lt;/li&gt;&#xA;  &lt;/ul&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;For more on this see: &lt;a href=&quot;http://www.mas.gov.sg/moneysense/understanding-financial-products/investments/guides-and-articles/making-sense-of-singapore-government-securities.aspx&quot;&gt;MAS MoneySense&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;North Korea&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;If you don't pay, its not really debt...&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is only a semi serious one, but one country that basically has no debt is North Korea, for the simple reason that no-one will lend to them.  They do technically have debts though, including a debt to Sweden for some Volvos, but in 1984 they defaulted on them all and refused to pay anything.  It seems they have no-intention of ever paying.  I don't think I need to explain the downsides to the North Korean approach to economics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;See: &lt;a href=&quot;http://www.nkeconwatch.com/category/finance/debt/&quot;&gt;North Korea's Stolen Volvos&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="119" LastEditorUserId="119" LastEditDate="2015-09-29T08:22:55.510" LastActivityDate="2015-09-29T08:22:55.510" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="72" PostTypeId="2" ParentId="17" CreationDate="2014-11-19T11:58:37.687" Score="4" Body="&lt;p&gt;The other answers covered the main issues, I would like to respond to the &quot;Edit&quot; made by the OP in the question:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Edit: One of my bigger fears is that I should have used a non-linear&#xA;  model to show the relationship. I feel that forcing both the dependent&#xA;  and independent variable to cooperate in a this linear regression is&#xA;  misleading in some way.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;We tend to forget that &quot;transforming a variable&quot; &lt;em&gt;leads to a new variable&lt;/em&gt;, whose behavior may be totally different than the &quot;original one&quot;. The easiest example is to compare the graphs of  a variable and its square.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So by considering the natural logarithms of your variables, &lt;em&gt;you no longer examine &lt;strong&gt;the&lt;/strong&gt; relation between them&lt;/em&gt;, but &lt;strong&gt;a&lt;/strong&gt; relation between &lt;strong&gt;some&lt;/strong&gt; function of them.&lt;br&gt;&#xA;It is &lt;em&gt;fortunate&lt;/em&gt; that the mathematical concept of &quot;logarithm&quot; can be linked to the concept of &quot;elasticity&quot;, which describes a relation between percentage changes, which is something we understand from an economic point of view and we can meaningfully interpret and use.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the variables can be reasonably said to exhibit a &quot;linear relationship in logarithms&quot;, it means that their levels (i.e. the actual variables) have a non-linear relationship:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\ln y \approx a+b\ln x \Rightarrow y \approx e^a + x^b$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So why not estimate a non-linear model?&lt;br&gt;&#xA;In (mathematical) principle, there is no reason why not. Some practical issues are:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;1)&lt;/strong&gt; There are too many forms of non-linear relationships, there is only one linear relationship (structurally speaking). It is a matter of &quot;search costs&quot; for the most suitable specification.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;2)&lt;/strong&gt; The non-linear relationship obtained may not have a clear &lt;em&gt;economic&lt;/em&gt; explanation. Why this is a problem? Because, we are not uncovering &quot;laws of nature&quot; here, unchanged through time and space. We are approximating a social phenomenon. Having an approximation which, moreover, can only be &lt;em&gt;presented&lt;/em&gt; as a mathematical formula, without an economic reasoning that validates and supports it, makes the result very thin.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;3)&lt;/strong&gt; Non-linear &lt;em&gt;estimation&lt;/em&gt; is less stable, as regards the mechanics of the estimation algorithm.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2014-11-19T11:58:37.687" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="73" PostTypeId="1" CreationDate="2014-11-19T12:24:47.200" Score="6" ViewCount="159" Body="&lt;p&gt;In the core of cooperative games, the total cost of forming a coalition is shared by all members in a coalition (efficiency). However for my problem I only require that all members are individually rational in the coalition - that is, if the utility of at least one member of the coalition is less than the utility he would gain by being alone, then he will break away from the coalition.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words, what is the solution concept that only requires stability and does not carry the notion of efficiency? &lt;/p&gt;&#xA;" OwnerUserId="41" LastActivityDate="2015-01-30T18:18:45.100" Title="Modified core for cooperative games" Tags="&lt;game-theory&gt;&lt;cooperative-game-theory&gt;" AnswerCount="2" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="74" PostTypeId="1" CreationDate="2014-11-19T12:30:13.157" Score="1" ViewCount="84" Body="&lt;p&gt;I have started learning contract theory of late, and I find some of the assumptions and findings of the theory are too technical. Are there empirical studies that have validated concepts in contract theory? Or are there papers that talk about its relevance to practitioners (economists or operations managers)? &lt;/p&gt;&#xA;" OwnerUserId="41" LastActivityDate="2014-11-19T14:21:43.723" Title="Are there studies that empirically validate results in contract theory?" Tags="&lt;game-theory&gt;&lt;contract-theory&gt;" AnswerCount="1" CommentCount="1" ClosedDate="2014-11-19T22:50:02.577" ContentLicense="CC BY-SA 3.0" />
  <row Id="75" PostTypeId="1" CreationDate="2014-11-19T12:34:35.120" Score="23" ViewCount="79409" Body="&lt;p&gt;Microeconomic models are usually classified as partial and general equilibrium models. As a layman, I understand that partial equilibrium focuses attention on a few economic variables to find the equilibrium, while general eq. models capture a larger interaction.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Besides this, what are the key differences between the two kinds of modelling? Are there advantages and downsides to each of them?&lt;/p&gt;&#xA;" OwnerUserId="41" LastActivityDate="2017-08-18T17:30:00.767" Title="Partial vs. general equilibrium" Tags="&lt;microeconomics&gt;" AnswerCount="4" CommentCount="1" FavoriteCount="11" ContentLicense="CC BY-SA 3.0" />
  <row Id="76" PostTypeId="2" ParentId="7" CreationDate="2014-11-19T12:43:01.853" Score="4" Body="&lt;p&gt;A toy model is less useful here, as the only mathematical constraint is that both must adhere to the &lt;em&gt;no-ponzi condition&lt;/em&gt; - i.e. that whilst you might be a borrower/saver in any individual period, you cannot finance your consumption merely by &lt;em&gt;planning&lt;/em&gt; on borrowing more every year into the future. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Yet aside from this constraint, various aspects of economic theories give rise to the following differences:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Since households have diminishing marginal utility from consumption within a period, households aim to smooth consumption through their life cycle. Within-household incomes generally follow a predictable hump-shaped cycle. Your income is likely to be low at the start of your life, higher in your mid 30s to 50s, then decline in your 60s and thereafter. Households will take on high debts in the early stages of their lives, then aim to become net savers in the middle of their careers, then draw down on those savings at a later stage of life. It is therefore not uncommon for a household to get into debts of up to ~5x annual incomes. &lt;/li&gt;&#xA;&lt;li&gt;Following on from the point about debt in (1), households can generally finance much larger debts (proportional to annual incomes) than governments can. A rule of thumb for mortgage serviceability in many countries: a household can borrow at a level where repayments to pay down the loan over 30 years are worth approx 30% of their current income at cycle average interest rates. Governments will extremely rarely run budget surpluses worth 30% of revenues, and thus will find it harder to sustain debts that are of a similar scale relative to their revenues.&lt;/li&gt;&#xA;&lt;li&gt;Household incomes are more risky than government incomes - consider that a large recession might reduce an annual income by up to 90% for 5-10% of households, though this would only be a 4-9% reduction in incomes for a government. For this reason, governments are also less likely to find themselves &lt;em&gt;credit constrained&lt;/em&gt; than households.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;These points refute two common (though opposing) arguments made regarding fiscal policies. Firstly, it refutes the argument that governments should not run deficits. Point (3) argues that governments have dependable incomes, and therefore deficits may be appropriate. On the other hand, point (2) demonstrates that a government cannot sustainably run debts which are comparable in proportional terms to a household's mortgage - despite having a more diversified revenue base than an individual household.&lt;/p&gt;&#xA;" OwnerUserId="37" LastEditorUserId="37" LastEditDate="2015-07-08T23:53:15.077" LastActivityDate="2015-07-08T23:53:15.077" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="77" PostTypeId="2" ParentId="45" CreationDate="2014-11-19T12:45:17.227" Score="4" Body="&lt;p&gt;Such a &quot;planned&quot; and sought-after re-allocation of given income from consumption to saving, is justified only if the savings in an economy are sub-optimal (or we think so), in the sense of hurting the investment rate, which in turns hurts the (human and physical) capital infrastructure.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Think about the extremes: consume all that you produce, save nothing (as a society). Your capital base will erode, leaving in the end only the other factor of production, labor, an orphan, without the necessary capital to produce, leaving perhaps only land for the society to return to a non-industrial agricultural state.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So it is a matter of &lt;em&gt;intertemporal (re)allocation of resources&lt;/em&gt; in order to guarantee that the economy survives, and then that it does a bit better than just surviving.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;The conundrum:&lt;/strong&gt; if businesses see consumption declining, why would they rush to make new investments even though now the &quot;price&quot; of these investments is lower, due to increased savings and so to increased availability of funds?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would invoke here &quot;Say's Law&quot;: &lt;strong&gt;Supply finds its own demand.&lt;/strong&gt; (see &lt;a href=&quot;http://en.wikipedia.org/wiki/Say%27s_law&quot; rel=&quot;nofollow&quot;&gt;the controversies over it)&lt;/a&gt;.&#xA;For me, this law is better interpreted in the context of &lt;em&gt;heterogeneity&lt;/em&gt;: no matter what overall consumer spending does, there is always some fields where consumer &lt;em&gt;desire&lt;/em&gt; goes unfulfilled. Entrepreneurs try to identify these fields, and invest there (this has a Schumpeterian flavor).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The above discussion does not mean that we will not observe phenomena like increased unemployment. After all, investing in new fields requires re-allocation of productive resources, and this is not easily nor quickly done. And there is always the case that the &quot;savings drive&quot; may overshoot, and the economy will be led to a lengthy recession, Japan some 20 years ago being the classic modern example (in fact in Japan, the government tried actively to persuade the citizens to &lt;em&gt;raise their consumption&lt;/em&gt;, but it failed).&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="96" LastEditDate="2015-03-08T21:30:43.897" LastActivityDate="2015-03-08T21:30:43.897" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="78" PostTypeId="2" ParentId="68" CreationDate="2014-11-19T12:52:14.790" Score="3" Body="&lt;p&gt;I think &lt;a href=&quot;http://faculty.chicagobooth.edu/john.cochrane/research/papers/Fama_panel_nov_2013.pdf&quot; rel=&quot;nofollow&quot;&gt;this piece&lt;/a&gt; by John Cochrane represents a typical defense of the efficient market hypothesis from this kind of critique. Here's &lt;a href=&quot;http://faculty.chicagobooth.edu/john.cochrane/research/papers/Cochrane_efficient_markets.doc&quot; rel=&quot;nofollow&quot;&gt;another&lt;/a&gt;. The basic summary is that market efficiency does not imply that expected returns cannot vary or that bubbles will not happen. Bubbles should be unpredictable, and variation in expected returns should be driven by risk or discount factors. Whether that's the case for the financial crisis is definitely a matter of debate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Do people believe in efficient markets? I think that varies a lot from field to field. It might be more useful to say that efficient markets are usually the null or prior that academics in finance and economics work with when they try to understand something. That is to say if you want to use some data to try to convince them that financial markets aren't efficient, you face an uphill battle, but the struggle isn't impossible.&lt;/p&gt;&#xA;" OwnerUserId="54" LastActivityDate="2014-11-19T12:52:14.790" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="79" PostTypeId="2" ParentId="68" CreationDate="2014-11-19T13:03:47.917" Score="3" Body="&lt;p&gt;Yes, there is a simple and well accepted doctrine of why EMH fails - it is impossible, so long as arbitrageurs do not work for free, and firms only  pay wages for marginal product. The argument was first formalised by Stiglitz and Grossman (1980), &lt;a href=&quot;https://www.aeaweb.org/aer/top20/70.3.393-408.pdf&quot; rel=&quot;nofollow&quot;&gt;in the American Economic Review&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider that all information on the fair price of financial assets is costly to obtain, both in capital (technology) and in the disutility of human effort. To determine the impact of new information on the fair value of a bond, it may be costly to build a model of the economy, or the distribution of probabilities of the Federal Reserve's current reaction function. To determine a revision in company estimates, it is costly to research the sector outlook. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Firms pay individuals in order to find these discrepancies and use their capital to profit from them. Their pay should reflect their marginal product under perfectly competitive labour markets. Under perfectly informationally efficient markets, why will firms pay them?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now consider a deviation from this equilibrium. If some exogenous shift in technology or market strategists' human capital causes markets to become perfectly informationally efficient, some rational firms will fire their analysts, and choose to be uninformed. As experts leave the market, that informational efficiency is lost. For this reason, EMH cannot be supported as an equilibrium.&lt;/p&gt;&#xA;" OwnerUserId="37" LastActivityDate="2014-11-19T13:03:47.917" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="80" PostTypeId="1" AcceptedAnswerId="85" CreationDate="2014-11-19T13:38:13.590" Score="3" ViewCount="187" Body="&lt;p&gt;For a developing economy like India, where balance of trade is negative, is it good to have a weak dollar or a strong dollar?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Dollar value increases (Rupee, the local currency, weakens), imports (especially of oil) are done at an extremely high price, that leads to pressure on inflation and people (Central Bank etc.) are concerned. Personally as an exporter, we are a viable business today primarily because of a strong dollar, if the currency remained where it was two years back, our business would have made great losses and probably even shut down. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My thought process is if the local currency becomes very weak, imports would become expensive; while some imports like oil cannot be avoided, many other goods that are imported today would become viable to be produced locally, this means lesser imports in the long run, and similarly since exports would produce more revenue, more businesses would become viable and hence in the long run exports would increase.  This would eventually result in positive balance of trade and the effect would be a positive spiral. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given the short term inflationary shock and long term benefits of employment and thereby prosperity, is it generally better if the Central Bank doesn't interfere in currency devaluation and lets the Market find its own equilibrium.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The primary question stems from the worry that it is a common conception in India that with a strong dollar the country will be doomed.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If my argument is weak, can anyone explain why?&lt;/p&gt;&#xA;" OwnerUserId="123" LastEditorUserId="7593" LastEditDate="2016-05-26T17:21:22.627" LastActivityDate="2016-05-26T17:21:22.627" Title="Currency Values, Developing Economies and Balance of Trade" Tags="&lt;currency&gt;&lt;inflation&gt;&lt;economic-growth&gt;&lt;balance-of-trade&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="81" PostTypeId="5" CreationDate="2014-11-19T13:44:24.717" Score="0" Body="&lt;p&gt;The difference between the monetary value of exports and imports of output in an economy over a certain period&lt;/p&gt;&#xA;" OwnerUserId="123" LastEditorUserId="123" LastEditDate="2014-11-20T16:28:26.603" LastActivityDate="2014-11-20T16:28:26.603" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="82" PostTypeId="4" CreationDate="2014-11-19T13:44:24.717" Score="0" Body="" OwnerUserId="-1" LastEditorUserId="-1" LastEditDate="2014-11-19T13:44:24.717" LastActivityDate="2014-11-19T13:44:24.717" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="83" PostTypeId="2" ParentId="75" CreationDate="2014-11-19T13:48:00.320" Score="14" Body="&lt;p&gt;The main difference between partial and general equilibrium models is, that partial equilibrium models assume that what happens on the market one wants to analyze has no effect on other markets.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore in partial equilibrium models one only considers a market for one good and assumes that the price of every other good or the wealth one has does not change.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In general equilibrium models every market has an effect on every other market and therefore a change in one market may have changes in another market and therefore one has to model every market simultaneously.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Advantages and downsides&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Partial equilibrium models are simpler and changes, e.g. in the form of supply or demand functions, are easier to implement.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;General equilibrium models are, generally speaking, more realistic, in theory they model what partial equilibrium models model and, in addition to that, also the interaction between several markets. However, as general equilibrium models are more complicated, it is not clear if a model will result in a unique or even stable equilibrium and one has to make further assumptions to account for that.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Applications&lt;/strong&gt;&#xA;In general, if you want to analyze whole economies, interaction between markets or anything in which you think that the good (e.g. labor) that you want to analyze is so important, that it may have serious effects on other markets, one usually uses general equilibrium models. Therefore, most applications of GET are currently in Macroeconomics or Finance.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you want to analyze a single market (and if you think the effect on other markets is not that important) or if you want to introduce assumptions that would lead to problems in general equilibrium models (e.g. oligopoly models), they you probably should use a partial equilibrium model.&lt;/p&gt;&#xA;" OwnerUserId="120" LastActivityDate="2014-11-19T13:48:00.320" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="84" PostTypeId="2" ParentId="74" CreationDate="2014-11-19T14:21:43.723" Score="3" Body="&lt;p&gt;An excellent (if slightly old) survey on the empirics of contracts can be found in&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Pierre-André Chiappori and Bernard Salanie (2003) &quot;Testing Contract Theory: A Survey of Some Recent Work&quot;, in &lt;em&gt;Advances in Economics and Econometrics&lt;/em&gt;, vol 1, M. Dewatripont, L. Hansen and S. Turnovsky eds, Cambridge University Press.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It is mostly non-technical. Bernard Salanie (literally) wrote the book on contract theory. An ungated pdf of the chapter is available &lt;a href=&quot;https://ideas.repec.org/p/ces/ceswps/_738.html&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2014-11-19T14:21:43.723" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="85" PostTypeId="2" ParentId="80" CreationDate="2014-11-19T14:24:44.980" Score="1" Body="&lt;p&gt;Currency values change relatively slowly over time, partly due to differences in the rate of expansion of the money supply over time between different countries, and partly due to changes in the terms of trade.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we compare the Indian Rupee with the US dollar. M2 for the US dollar roughly doubles every 10 years, the Rupee is going up roughly 5 times in the same period. The Indian M3 measure is equivalent to the US M2 measure (M measures vary considerably between countries in what is being measured.) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://research.stlouisfed.org/fred2/series/M2/&quot; rel=&quot;nofollow&quot;&gt;US Dollar M2&lt;/a&gt;&#xA;&lt;a href=&quot;http://www.tradingeconomics.com/india/money-supply-m3&quot; rel=&quot;nofollow&quot;&gt;Indian Rupee M3&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is why the Rupee is getting progressively weaker, and will continue to do so, especially if balance of payments are also negative. The ratio of rupees:dollars is increasing, and so the value of rupees in dollars is falling, as the market tries to maintain equilibrium. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;When the central banks intervene in the currency markets, they essentially use their position to alter the relative value by buying/selling as appropriate. However, in this case they can only do this if they have foreign currency to sell, and with a negative balance of payments, and a rapidly expanding money supply, they are essentially in the position of standing on the sea shore and telling the tide not to come in.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;While all of the above is the monetary side of things, as an exporter you're standing on the trade side of the equation, and what you say is quite correct. All things being equal, over time local producers will step in to provide the imports that are now too expensive, exports will flourish, and the situation should reverse itself as you explain. However, that implicitly assumes that money supply expansion rates are broadly similar, and that clearly isn't the case. Unless and until the Indian central bank gets its banking system under control, and slows down the expansion in the money supply, you can essentially rely on continuing inflation, and a weak currency. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It continues to be an open question in Macro-Economics as to what the 'right' degree of monetary expansion is. However, there is a very strong correlation between countries with low expansion rates, Germany for example, and economic strength. There are a lot of negative effects within the economy when inflation rates are too high due to monetary expansion, fundamentally because it leads to widespread distortion of the price signal. &lt;/p&gt;&#xA;" OwnerUserId="84" LastActivityDate="2014-11-19T14:24:44.980" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="86" PostTypeId="2" ParentId="17" CreationDate="2014-11-19T14:29:55.507" Score="4" Body="&lt;p&gt;I would say that your model in this case doesn't seem meaningful if your &quot;&lt;strong&gt;&lt;em&gt;goal was to see which variable most affected teacher salaries in any given county of my state&lt;/em&gt;&lt;/strong&gt;&quot;. You have just shown what the correlation between (the logs of) wages and property tax returns is. You should at least use a multiple regression. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course, you could keep going and develop a fully fledged, proper, identification strategy with the appropriate methodological tools in order to estimate the intensity of each causal effect and find the biggest... In reality, you most likely won't be able to do it given the complexities of such a task. It's just a continuum of refinements and you're near the crudest possible model used to explain wages, very far from what I would consider the acceptable approximations of an answer to the question implicit in your goal. You should try to enlist the help of an econometrician.&lt;/p&gt;&#xA;" OwnerUserId="125" LastActivityDate="2014-11-19T14:29:55.507" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="87" PostTypeId="2" ParentId="35" CreationDate="2014-11-19T14:40:38.533" Score="9" Body="&lt;p&gt;For me, one of the most important ones is the budget constraint. It might seem too obvious but a lot of laypersons (though maybe not physicist) don't get it!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$p⋅x \leq w$&lt;/p&gt;&#xA;" OwnerUserId="125" LastActivityDate="2014-11-19T14:40:38.533" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="88" PostTypeId="1" CreationDate="2014-11-19T14:47:09.420" Score="22" ViewCount="5792" Body="&lt;p&gt;For class surveying different economic systems, I read a book on Marxism and its core beliefs.  As I read, I came to learn that the Marxist view of economics depends heavily on the Labor Theory of Value since Marx believed that the value of a good was determined by the amount of labor.&lt;br&gt;&#xA;But, from what I understand, the economic community no longer accepts the Labor Theory of Value due to its inability to explain the &lt;a href=&quot;https://en.wikipedia.org/wiki/Paradox_of_value&quot; rel=&quot;noreferrer&quot;&gt;Diamond-Water Paradox&lt;/a&gt;.&lt;br&gt;&#xA;How is it then, that certain economists still adhere to the Marxist view of economics?  How do they have Marxism explain the Diamond-Water Paradox?  &lt;/p&gt;&#xA;" OwnerUserId="27" LastEditorUserId="12132" LastEditDate="2017-02-16T09:00:39.673" LastActivityDate="2019-05-23T17:40:03.767" Title="How do Marxist economists solve the Diamond-Water Paradox?" Tags="&lt;labor-economics&gt;&lt;marxism&gt;" AnswerCount="6" CommentCount="1" FavoriteCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="89" PostTypeId="1" AcceptedAnswerId="1575" CreationDate="2014-11-19T14:53:57.180" Score="6" ViewCount="383" Body="&lt;p&gt;There is the long debate on the Frisch-Elasticity being the driver of unemployment over the business cycle.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One argument against the voluntary-unemployment mechanism of RBC models is that if we distinguish two subgroups of the population with different Frisch-elasticities, the one with the higher elasticity should respond stronger to wage fluctuations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Women have a bigger elasticity than men, yet their employment fluctuates less over the business cycle.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there a counterargument to this that salvages the neoclassical model of voluntary unemployment? I'm specifically referring to this argument that builds on heterogeneity in the elasticity, not on the Micro vs Macro estimation discussion.&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2015-07-14T12:44:35.267" LastActivityDate="2015-07-14T12:44:35.267" Title="Unemployment and the Frisch-Elasticity" Tags="&lt;macroeconomics&gt;&lt;labor-economics&gt;&lt;frisch-elasticity&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="90" PostTypeId="2" ParentId="68" CreationDate="2014-11-19T14:55:32.170" Score="3" Body="&lt;p&gt;There is a position that the efficient market hypothesis is essentially untestable. That's because purported tests of efficient markets are actually joint tests of two claims&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Market X is efficient&lt;/li&gt;&#xA;&lt;li&gt;An efficient markets looks / behaves like Y&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;A rejection of a market X as not behaving like Y could be because &lt;b&gt;market X is efficient&lt;/b&gt; but it is &lt;b&gt;false that efficient markets behave like Y&lt;/b&gt; or that &lt;b&gt;X is not an efficient market&lt;/b&gt;. The earliest citation I know on this issue is &lt;a href=&quot;http://m.e-m-h.org/Jens78.pdf&quot; rel=&quot;nofollow&quot;&gt;Jensen (1978)&lt;/a&gt;. There are numerous reasonable examples of how this can occur. Consider violations of the Consumption-CAPM. (&lt;a href=&quot;http://www.nber.org/papers/w0564&quot; rel=&quot;nofollow&quot;&gt;Grossman and Shiller (1981)&lt;/a&gt;). A rejection of the C-CAPM can occur simply because you have failed to identify the proper stochastic discount factor or market portfolio. Or consider a superficially reasonable assumption that returns should not be predicable if markets are efficient. But if there is aggregate (non-diversifiable) risk and there are limits to the ability to move income through time (like in a Lucas-tree economy) then when aggregate output is relatively low assets will be relatively cheap even if that low output was entirely predictable. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I suspect these problems will perpetually impair consensus on the validity of the efficient market hypothesis. A related but unasked question is &quot;Is it useful to assume that markets are efficient?&quot; On this matter, there does seem to be a strong consensus that:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Prices in big, liquid markets are often very good and hard to beat&lt;/li&gt;&#xA;&lt;li&gt;For models where asset prices or financial wealth are inputs to asking other questions, assuming markets are efficient is a good starting point and often good enough.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;All that about untestability said, people try to test market efficiency all the time. Most of these tests fall into the family of &quot;market anomalies&quot;. Essentially, someone comes up with an investment portfolio strategy that provides a arbitrage opportunity. Here arbitrage has a precise meaning that differs from common usage in finance. An arbitrage requires no cash outflow now or in the future and there is at least one state of the world in the present or future where it generates strictly positive value. The existence of such an anomaly seems plausible evidence that markets are not efficient. However, in practice, it isn't clear that the famous anomaly papers papers actually demonstrate this. What they more typically demonstrate is that fluctuations in some representative but flawed measure of the market portfolio do not explain all returns and therefore that one &lt;b&gt;might&lt;/b&gt; be able to construct zero up-front cost a portfolio with no market risk exposure that nevertheless pays out in some states. But such portfolios almost always have negative outcomes as well as positive ones and so are not strictly speaking arbitrages. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;An alternative explaination is that there are other risks that are priced besides the market. That's why the rightfully famous and careful &lt;a href=&quot;https://ciber.fuqua.duke.edu/~charvey/Teaching/IntesaBci_2001/FF_Common_risk.pdf&quot; rel=&quot;nofollow&quot;&gt;Fama and French (1993)&lt;/a&gt; is called &lt;i&gt;Common risk factors in the returns on stocks and bonds&lt;/i&gt;. But when we really dig into the weeds of what sorts of &quot;risk factors&quot; generate returns, some don't mesh to any clear source of economic risk. That &lt;a href=&quot;http://onlinelibrary.wiley.com/doi/10.1111/jofi.12119/abstract&quot; rel=&quot;nofollow&quot;&gt;firms with heavy recession exposures should command higher returns&lt;/a&gt; make sense. That &lt;a href=&quot;http://www.jstor.org/stable/4479164&quot; rel=&quot;nofollow&quot;&gt;firms should outperform in some months and not others&lt;/a&gt; is much harder to understand through the lens of risk and some prefer to think of as evidence of market inefficiency.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for why the efficient market hypothesis might fail, there seem to be a few key stories often combined into &quot;&lt;a href=&quot;http://onlinelibrary.wiley.com/doi/10.1111/j.1540-6261.1997.tb03807.x/full&quot; rel=&quot;nofollow&quot;&gt;the limits of arbitrage&lt;/a&gt;&quot;. A few examples follow. Informed traders may lack the capital to take large enough positions so that market prices can reflect their information. Markets may not exist to hedge some risks. If risk factors A and B cannot be traded separately and you have a signal on just A it may be impossible to get risk factor A priced properly. Market participants may be risk adverse and not want concentrated exposures in unusual, under-priced risks, and so not have an incentive to make markets efficient. Transaction costs of trade may prevent the profitable exploitation of information.&lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2014-11-19T14:55:32.170" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="92" PostTypeId="2" ParentId="46" CreationDate="2014-11-19T15:13:51.937" Score="0" Body="&lt;p&gt;In moderate amounts, debt is a stimulus. That is, if a country spends 105 percent of its GDP instead of 100 percent, it will grow faster, and over time, the &quot;extra&quot; growth will be sufficient to pay off the debt, and leave the country ahead of where it would be without the debt.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The danger is that if total debt becomes too high (say 100 percent of GDP), its marginal productivity declines as the required rate of interest rises. Moreover, it makes the country vulnerable to external macroeconomic &quot;shocks&quot; like rising oil prices.&lt;/p&gt;&#xA;" OwnerUserId="15" LastActivityDate="2014-11-19T15:13:51.937" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="93" PostTypeId="1" CreationDate="2014-11-19T15:14:27.340" Score="6" ViewCount="236" Body="&lt;p&gt;I think people would agree that the most common tool for welfare measurements in economics is the notion of total surplus. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Throughout it's history, total surplus has been criticized several times and on different grounds. This post aims at being a repository of all those critiques. &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Which are the critiques of total surplus which seem the most relevant to you?&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Note :&lt;/strong&gt; this is &lt;em&gt;not meant to be a &quot;total surplus bashing&quot;&lt;/em&gt; repository. I believe some of the best critique of a concept like total surplus are rarely the one attempting to destroy the concept, and more often those which help us understand when it is best to use it, and when it might be better not to use it.&lt;/p&gt;&#xA;" OwnerUserId="38" LastEditorUserId="38" LastEditDate="2016-04-10T03:19:29.523" LastActivityDate="2016-04-10T03:19:29.523" Title="Objections to total surplus as tool for welfare measurement" Tags="&lt;surplus&gt;&lt;welfare&gt;" AnswerCount="1" CommentCount="3" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="94" PostTypeId="2" ParentId="45" CreationDate="2014-11-19T15:16:53.870" Score="2" Body="&lt;p&gt;The whole point of saving is that you consume less NOW in order to consume more LATER. That is certainly true at a personal level.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Moreover, that is true at a national level. More savings this year means less consumption this year. The danger of savings is that if the money goes under the proverbial &quot;mattress,&quot; instead of being invested, less consumption this year will mean less GDP this year, and will not be compensated by more consumption in future years. If the savings are invested, total future consumption will rise by whatever the rate of return is on the investments.&lt;/p&gt;&#xA;" OwnerUserId="15" LastEditorUserId="15" LastEditDate="2014-11-20T15:12:28.833" LastActivityDate="2014-11-20T15:12:28.833" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="95" PostTypeId="1" CreationDate="2014-11-19T15:24:26.890" Score="17" ViewCount="628" Body="&lt;p&gt;This is &lt;a href=&quot;https://cogsci.stackexchange.com/questions/6426/list-of-experiments-contradicting-the-expected-utility-model&quot;&gt;a question I asked on the cognitive science beta&lt;/a&gt; which never got any answer there. I do not know what the policy should be for question migration/reposting (maybe worth discussing in the meta?), but I hoped it might get more answers (i.e. at least one ;)) here. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am looking for a list of experiments which cannot be accounted for by the expected utility model. By the expected utility model, I mean the model of individual preferences over vectors of uncertain events (e.g. &lt;span class=&quot;math-container&quot;&gt;$\Big(P(rain) = 0.4, P(sunshine) = 0.6\Big)$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\Big(P(rain) = 0.6, P(sunshine) = 0.4\Big)$&lt;/span&gt;)  which satisfies a list of axioms proposed by Von Neuman and Morgernstern, namely&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Completeness&lt;/li&gt;&#xA;&lt;li&gt;Transitivity&lt;/li&gt;&#xA;&lt;li&gt;Continuity&lt;/li&gt;&#xA;&lt;li&gt;Independence &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;A rigorous formulation of these axioms can be found on page 8 of &lt;a href=&quot;http://www.econ2.jhu.edu/people/karni/chapter.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Axiomatic Foundations of Expected Utility and Subjective Probability, by Edi Karni, from the Handbook of Economics of risk and uncertainty.&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Alternatively, by Von-Neuman and Morgenstern's representation theorem (page 9 of the same reference), these axioms are know to be equivalent to the fact that the preferences of the agent can be represented by a utility function of the form (in the discrete case):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$U(L) = \sum_{all~possible~events &quot;e&quot;} P(e)u(e)$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where &lt;span class=&quot;math-container&quot;&gt;$P(e)$&lt;/span&gt; is again the probability that &lt;span class=&quot;math-container&quot;&gt;$e$&lt;/span&gt; occurs and &lt;span class=&quot;math-container&quot;&gt;$u(e)$&lt;/span&gt; is the utility of getting event &lt;span class=&quot;math-container&quot;&gt;$e$&lt;/span&gt; for sure. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;The violations of these axioms I am most interested in are the ones related to the Independence axiom&lt;/strong&gt; (violations of completeness, transitivity and continuity would probably deserve a separate question. See &lt;a href=&quot;https://cogsci.stackexchange.com/questions/5150/are-people-more-likely-to-pick-the-odd-one-out/5162#5162&quot;&gt;this question&lt;/a&gt; for an example of intransitivity.).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am looking for situations which cannot be accounted for by the expected utility model. Some well-known examples are the the Allais and Ellsberg paradoxes (although there is &lt;a href=&quot;http://www.vanderbilt.edu/econ/conference/rational-choice/Bradley.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;still a debate regarding Ellsberg paradox&lt;/a&gt;). On the other hand, I do not see the Saint-Peterborough paradox as contradicting expected utility theory, because it can be accounted for by the theory if one assumes an appropriate degree of risk aversion. But you are much welcome to argue against that.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I hope this question can serve as a repository of famous experiments contradicting expected utility theory, so feel free to add many. &lt;/p&gt;&#xA;" OwnerUserId="38" LastEditorUserId="38" LastEditDate="2019-10-22T15:40:24.270" LastActivityDate="2019-10-22T15:40:24.270" Title="Experiments contradicting the expected utility model" Tags="&lt;expected-utility&gt;&lt;decision-theory&gt;&lt;uncertainty&gt;" AnswerCount="6" CommentCount="0" FavoriteCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="96" PostTypeId="2" ParentId="89" CreationDate="2014-11-19T15:24:43.607" Score="5" Body="&lt;p&gt;There are a couple of good papers on this that I know of.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Keane, Michael and Richard Rogerson, “Micro and Macro Labor Sup-&#xA;ply Elasticities: A Reassessment of Conventional Wisdom,” Journal of&#xA;Economic Literature, 2012, 50, 464-476.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;The response of aggregate labor supply to various changes in the economic environment&#xA;is central to many economic issues, especially the optimal design of tax policies.&#xA;Conventional wisdom based on studies in the 1980s and 1990s has long held that the&#xA;analysis of micro data leads one to conclude that aggregate labor supply elasticities&#xA;are quite small. In this paper we argue that this conventional wisdom does not hold&#xA;up to empirically reasonable and relevant extensions of simple life cycle models that&#xA;served as the basis for these conclusions. In particular, we show that several pieces&#xA;of conventional wisdom fail in the presence of human capital accumulation or labor&#xA;supply decisions that allow for adjustment along both the extensive and intensive&#xA;margin. We conclude that previous estimates of small labor supply elasticities based&#xA;on micro data are fully consistent with large aggregate labor supply elasticities.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Peterman, William B, “Reconciling Micro and Macro Estimates of the&#xA;Frisch Labor Supply Elasticity: A Sensitivity Analysis,” Technical Report,&#xA;Federal Reserve Board of Governors 2014.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;Microeconometric estimates of the Frisch labor supply (0 to 0.5) tend to be much lower than the values used by macroeconomists to calibrate general equilibrium models (2-4). This paper explores whether the gap in these ranges can be explained by two restrictions present in the micro Frisch elasticity that are implicitly relaxed in these values of the macro Frisch elasticity. First, the micro estimates focuses only on prime-aged married males who are the head of their household, while the macro values incorporates the whole population. Second, the micro estimates only include fluctuations in hours on the intensive margin, while the macro values also incorporate fluctuations on the extensive margin. Within a consistent microeconometric estimation strategy, this paper estimates a micro Frisch elasticity of 0.2, and, upon relaxing the two restrictions, a macro Frisch elasticity of about 3. The increase in the estimates suggests that these two restrictions can explain the gap. However, given that this paper demonstrates that the estimates of the macro Frisch elasticity are fairly sensitive to the estimation procedure, the sample of agents, and also the margins of fluctuations that are used for estimation one must careful choose the appropriate value for calibration purposes.&quot;&lt;/p&gt;&#xA;" OwnerUserId="132" LastEditorUserId="132" LastEditDate="2014-11-22T22:56:36.363" LastActivityDate="2014-11-22T22:56:36.363" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="97" PostTypeId="1" AcceptedAnswerId="1612" CreationDate="2014-11-19T15:34:50.023" Score="7" ViewCount="811" Body="&lt;p&gt;Say I have solved an HJB of the form:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\rho V(k) = \max_c g(c) + V'(k)(z - c)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have calibrated $\rho$ to monthly parameters. I would like to simulate the development of $k$. I start with $k(0)$. However, unlike in discrete-time, I'm not sure what happens next.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is $k(1) = k(0) + (z-c(0))$, with $k(1)$ being the value of $k$ for the next month? Or do I need to somehow integrate along the lines of $k(1) = \int_0^1 (z-c(t))dt + k(0)$? There's many references on solving these things, but I couldn't find any references on simulating it.&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2014-11-20T16:34:58.263" LastActivityDate="2015-09-10T17:43:05.573" Title="Simulating a Hamilton-Jacobi-Bellman" Tags="&lt;mathematical-economics&gt;&lt;simulations&gt;&lt;computation&gt;" AnswerCount="4" CommentCount="4" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="98" PostTypeId="2" ParentId="93" CreationDate="2014-11-19T15:40:48.833" Score="5" Body="&lt;p&gt;This is an answer to the closely related question of &quot;why don't competition/antitrust authorities aim to maximise total welfare rather than consumer surplus?&quot; There are a number of reasons for this:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;If there are a small number of firms participating in a market then they have a very concentrated interest in that market and therefore have a large incentive to lobby for favourable treatment by a regulator. By contrast, it is likely that only a relatively small fraction of a consumer's income is spent in any one given industry and, therefore, each individual consumer has less interest in lobbying for consumers' interests in any antitrust proceeding. This leads to producers having a louder voice (a problem known as regulatory capture).&lt;/li&gt;&#xA;&lt;li&gt;The total welfare and consumer surplus effects of a behaviour often point in the same direction (e.g. lower prices and higher quantities typically correspond to both higher consumer surplus and higher total welfare). If measuring both consumer and producer surplus is costly then measuring only consumer surplus will often be a sufficient heuristic.&lt;/li&gt;&#xA;&lt;li&gt;There are information asymmetry problems insofar as firms have better information about their expected profit gains from a practice than do regulators. Producers are likely to overstate the private benefits of anti-competitive practices and the regulator would need to find a mechanism to induce truthful reveltation.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;However, these points must be weighed against&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Ignoring producer surplus understates the benefits of a practice and will lead to the  prohibition of some practices that increase total welfare.&lt;/li&gt;&#xA;&lt;li&gt;Firms are owned by people (i.e. consumers) so that the distinction between consumer surplus and producer surplus is, in some sense, a false dichotomy.&lt;/li&gt;&#xA;&lt;li&gt;We should give firms enough profit to (a) cover the fixed costs of operating in an industry and (b) ensure that they have an incentive to innovate and be successful. If we insist on maximising consumer surplus by driving price to marginal cost then neither (a) nor (b) will be satisfied.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="108" LastActivityDate="2014-11-19T15:40:48.833" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="99" PostTypeId="5" CreationDate="2014-11-19T16:21:40.630" Score="0" Body="&lt;p&gt;Macroeconomics (from the Greek prefix makro- meaning &quot;large&quot; and economics) is a branch of economics dealing with the performance, structure, behavior, and decision-making of an economy as a whole, rather than individual markets. This includes national, regional, and global economies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Macroeconomics examines economy-wide phenomena such as changes in unemployment, national income, rate of growth, gross domestic product, inflation and price levels.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With microeconomics, macroeconomics is one of the two most general fields in economics.&lt;/p&gt;&#xA;" OwnerUserId="1466" LastEditorUserId="1466" LastEditDate="2014-12-18T01:59:57.063" LastActivityDate="2014-12-18T01:59:57.063" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="100" PostTypeId="4" CreationDate="2014-11-19T16:21:40.630" Score="0" Body="Macroeconomics is a branch of economics dealing with the aggregate economy as a whole, rather than individual markets." OwnerUserId="1466" LastEditorUserId="1466" LastEditDate="2014-12-18T01:59:41.640" LastActivityDate="2014-12-18T01:59:41.640" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="101" PostTypeId="1" AcceptedAnswerId="160" CreationDate="2014-11-19T16:58:46.877" Score="4" ViewCount="111" Body="&lt;p&gt;Lifecycle models base on the assumption that households want to maximize their consumption and at the same time insure themselves against income shocks.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, there is a lot of (c.p.) consumption dispersion observed in the data. At lower ages, the literature argues that income processes are very persistent (and not insurable), and hence such consumption profiles are optimal.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, at older ages, especially at retirement, most of the income uncertainty goes away. Yet, consumption keeps dispersing with age. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The only argument I heard that tries to justify the lifecycle models given this empirical observation is that at older age, &quot;available income&quot; is still a random walk, given that health expenses become potentially very high and persistent.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are there other arguments that can reconcile the empirical observation of consumption dispersion at older ages with life-cycle consumption models? Are there any studies on that?&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2017-06-18T16:08:34.930" Title="Lifecycle Consumption Models and Dispersion in Consumption" Tags="&lt;macroeconomics&gt;&lt;consumption&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="102" PostTypeId="2" ParentId="31" CreationDate="2014-11-19T17:07:03.000" Score="1" Body="&lt;p&gt;Assume that agents engage in a long term contract with a firm for services. They share a common discount factor $\beta$. When they engage a firm they face a switching cost of $S$ but receive an upfront refund of $F\cdot S$ where $0\leq F\leq1$. In every period (including the first) customers pay a price $P$ for the account services. This price is locked in as long as the firms costs do not change but they do not expect costs to change. (may not be needed) The bank faces a per period cost of $C$ of providing an account and faces a demand schedule as follows:&#xA;$Q_{d}=A-\frac{DP+EC}{S}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $D$ and $E$ are constants. (This needs to be motivated  and I think I can do that). Firms are aware of their effects on demand and maximize profits:&#xA;$\Pi = \max_P \{[F\cdot S + \sum_{t=0}^{\infty}\beta^{t}(P-C)](A - \frac{DP+EC}{S})\}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Because everything is constant, we can replace the summation the closed form for the geometric series:&#xA;$\Pi = \max_P \{[F\cdot S + (\frac{P-C}{1-\beta} )](A - \frac{DP+EC}{S})\}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To optimize:&#xA;$0=\frac{\partial\pi}{\partial P}=\left[F\cdot S+\left(\frac{P-C}{1-\beta}\right)\right]\left(-\frac{D}{S}\right)+\left[\frac{1}{1-\beta}\right]\left(A-\frac{DP+EC}{S}\right)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$=\left[-\frac{D\cdot F\cdot S}{S}-\frac{D}{S}\left(\frac{P-C}{1-\beta}\right)\right]+\left[\frac{1}{1-\beta}\right]\left(A-\frac{DP+EC}{S}\right)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\Rightarrow0=\left[-D\cdot F\left(1-\beta\right)-\frac{PD-CD}{S}\right]+A-\frac{DP+EC}{S} =-D\cdot F\left(1-\beta\right)-\frac{PD}{S}+\frac{CD}{S}+A-\frac{DP}{S}-\frac{EC}{S}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\Rightarrow\frac{2DP}{S}=-D\cdot F\left(1-\beta\right)+\frac{C}{S}\left(D-E\right)+A$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\Rightarrow P^{*}=\frac{-D\cdot F\left(1-\beta\right)+\frac{C}{S}\left(D-E\right)+A}{\frac{2D}{S}} =\frac{-D\cdot F\left(1-\beta\right)S+C\left(D-E\right)+AS}{2D}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\Rightarrow \frac{\partial P^{*}}{\partial C}=\frac{D-E}{2D}=a_{1}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which by the assumption of the question is known.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$q*=q(p^{*}) = A-\frac{DP^{*}+EC}{S}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac{\partial q^{*}}{\partial C}=\frac{\partial}{\partial C}\left[A-\frac{DP^{*}+EC}{S}\right]=\frac{\partial}{\partial C}\left[A-\frac{D}{S}P^{*}-\frac{E}{S}C\right]=-\frac{D}{S}\frac{\partial P^{*}}{\partial C}-\frac{E}{S}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$=-\frac{D}{S}\cdot\frac{D-E}{2D}-\frac{E}{S}=-\frac{D-E}{2S}-\frac{E}{S}=-\frac{D-E}{2S}-\frac{2E}{2S}=\frac{-D-E}{2S}=a_{2}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which again by the assumption of the question is known.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is it possible to use $a_{1}$ and $a_{2}$ to solve for $S$?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$a_{1}=\frac{D-E}{2D}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$a_{2}=\frac{-D-E}{2S}=\frac{-D-E}{2D}\cdot\frac{D}{S}=\frac{D-2D-E}{2D}\cdot\frac{D}{S}=\left(\frac{D-E}{2D}-1\right)\cdot\frac{D}{S}=\left(a_{1}-1\right)\cdot\frac{D}{S}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$S=\left(\frac{a_{1}-1}{a_{2}}\right)\cdot D$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So if I can figure out a way to find D I can identify S. But with the pieces I have ($\partial\pi/\partial C$, $\partial P^*/\partial C$, and $\partial q^*/\partial C$), I don't see how to do that. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I read j-kahn's solution as proposing in the work above that E is zero but if E is zero this does not identify S.&lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2014-11-19T17:07:03.000" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="103" PostTypeId="2" ParentId="48" CreationDate="2014-11-19T17:11:06.363" Score="2" Body="&lt;p&gt;As described in the comments, you could maybe count instances in probability theory, econometrics, PDEs, or numerical analysis. But in general, besides using trivial properties of complex numbers (as @Micheal stated), the answer is no.&lt;/p&gt;&#xA;" OwnerUserId="59" LastActivityDate="2014-11-19T17:11:06.363" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="104" PostTypeId="2" ParentId="48" CreationDate="2014-11-19T17:15:27.093" Score="9" Body="&lt;p&gt;Complex numbers and complex analysis do show up in Economic research. For example, many models imply some difference-equation in state variables such as capital, and solving these for stationary states can require complex analysis.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, as others already emphasized, complex analysis is mostly a byproduct of solving equations. I'm not familiar with any paper where complex analysis is at the heart of the model.&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2014-11-19T17:15:27.093" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="105" PostTypeId="2" ParentId="56" CreationDate="2014-11-19T17:16:24.577" Score="1" Body="&lt;p&gt;I'm not sure what you mean by risk pricing, but because you mention a repeated game, you might find the following papers useful. They present some theory about repeated games in which players have limited memory.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://ideas.repec.org/p/unl/unlfep/wp500.html&quot; rel=&quot;nofollow&quot;&gt;One - Memory in Repeated Games&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/S002205310800063X&quot; rel=&quot;nofollow&quot;&gt;Repeated games with one-memory&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://www.princeton.edu/~smorris/pdfs/PhD/Monte.pdf&quot; rel=&quot;nofollow&quot;&gt;Reputation and Bounded Memory in Repeated Games with Incomplete&#xA;Information&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="59" LastActivityDate="2014-11-19T17:16:24.577" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="106" PostTypeId="1" AcceptedAnswerId="108" CreationDate="2014-11-19T17:17:46.797" Score="2" ViewCount="348" Body="&lt;p&gt;I wonder whether there exists (even a young) theory of financial regulation in the sense of &quot;how to regulate a financial institution/system in an optimal manner&quot;? I mean, there is experience about several situations which came across in the past, like bank runs, liquidity shortages, insufficient quality of regulatory capital etc. resulting in a crisis and, thus, representing a deviation from the optimal functioning of the financial system. This is then addressed by a regulatory reform which is designed to avoid exactly the experienced situation again in the future, i.e. it is specific to the current problem at hand. Is there something more general? The current approach focuses on ex-post fixing crucial issues, but does there exist a formal normative model or theory about regulating systems like the financial system?&#xA;So far, I didn't found something about that but maybe others have?&#xA;If not yet, maybe there exists some theory about other kinds of systems which one could apply in a modified version like Cybernetics for mechanical systems or the like?&lt;/p&gt;&#xA;" OwnerUserId="141" LastActivityDate="2014-11-21T00:50:28.683" Title="Is there a theory of financial regulation?" Tags="&lt;financial&gt;&lt;regulation&gt;&lt;banking&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="107" PostTypeId="1" AcceptedAnswerId="144" CreationDate="2014-11-19T17:31:28.257" Score="9" ViewCount="833" Body="&lt;p&gt;The &lt;a href=&quot;http://en.wikipedia.org/wiki/Intertemporal_CAPM&quot; rel=&quot;noreferrer&quot;&gt;intertemporal capital asset pricing model&lt;/a&gt; (ICAPM) is different from the &lt;a href=&quot;http://en.wikipedia.org/wiki/Capital_asset_pricing_model&quot; rel=&quot;noreferrer&quot;&gt;CAPM&lt;/a&gt; in that in the ICAPM, utility is conditioned on some set of state variables. The ICAPM results in a multifactor pricing model of the market if investor care about hedging against changing investment opportunities and exposure to these factors. Are there any canonical examples of these factors? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know that the Fama-French multifactor models (e.g., &lt;a href=&quot;http://en.wikipedia.org/wiki/Fama%E2%80%93French_three-factor_model&quot; rel=&quot;noreferrer&quot;&gt;the three factor model&lt;/a&gt;) are often justified on grounds of the ICAPM (or APT -- arbitrage pricing theory). What are the underlying risk factors that justify this model? Are there any other examples of underlying risk factors that show up a lot?&lt;/p&gt;&#xA;" OwnerUserId="59" LastEditorUserId="59" LastEditDate="2014-11-19T19:33:49.420" LastActivityDate="2017-01-07T16:38:43.903" Title="Examples of Factors in the ICAPM" Tags="&lt;finance&gt;&lt;asset-pricing&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="108" PostTypeId="2" ParentId="106" CreationDate="2014-11-19T17:31:59.693" Score="4" Body="&lt;p&gt;Jean Tirole just won the Nobel Prize for his studies in regulation in different markets, including the banking market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Check:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://press.princeton.edu/titles/9155.html&quot; rel=&quot;nofollow&quot;&gt;Balancing the Banks:&#xA;Global Lessons from the Financial Crisis&lt;/a&gt; and &lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://mitpress.mit.edu/books/prudential-regulation-banks&quot; rel=&quot;nofollow&quot;&gt;The Prudential Regulation of Banks&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="20" LastActivityDate="2014-11-19T17:31:59.693" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="109" PostTypeId="1" CreationDate="2014-11-19T18:15:29.923" Score="1" ViewCount="46" Body="&lt;h2&gt;Assumption and Question&lt;/h2&gt;&#xA;&lt;p&gt;Given that many economic models can be viewed as &lt;a href=&quot;http://en.wikipedia.org/wiki/Continuous-time_Markov_chain&quot; rel=&quot;nofollow noreferrer&quot;&gt;Continuous Time Markov Chains&lt;/a&gt;, and that many &lt;a href=&quot;http://en.wikipedia.org/wiki/Continuous-time_Markov_chain#Chemical_reactions&quot; rel=&quot;nofollow noreferrer&quot;&gt;chemical reactions are also described as such&lt;/a&gt;, have any experiments been conducted comparing a queuing model (for example) with an enzyme-mediated reaction?&lt;/p&gt;&#xA;&lt;h2&gt;Inference&lt;/h2&gt;&#xA;&lt;p&gt;If physical systems could be found that predictably react in a way that can be meaningfully correlated with models, could enzymes (or other physical inputs) be swapped (in a manner akin to tweaking variables), to allow for multiple simulations to be run simultaneously, especially with large sample sizes (given the order of magnitude of &lt;a href=&quot;http://en.wikipedia.org/wiki/Avogadro_constant&quot; rel=&quot;nofollow noreferrer&quot;&gt;Avogadro's number&lt;/a&gt;)?&lt;/p&gt;&#xA;&lt;p&gt;Has this been tried, and is anyone publishing on such systems?&lt;/p&gt;&#xA;" OwnerUserId="31" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2014-11-19T18:15:29.923" Title="Have any chemical reactions been used to simulate CTMC for economic simulations" Tags="&lt;interdisciplinary&gt;&lt;markov-chain&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="110" PostTypeId="1" CreationDate="2014-11-19T18:22:14.193" Score="6" ViewCount="1986" Body="&lt;p&gt;This question is more so geared toward anyone with research experience within economics, though of course, anyone is welcome to respond. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm an undergraduate math major with a minor in economics. I'd like to know which textbooks are decent for introducing one to research methods in economics? Graduate level is fine, perhaps even preferred. If a student was to take his research to &quot;the next level&quot; (publishing worthy), which textbooks would provide the rigor and insight to develop said research?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, any introductory recommendations for econometrics? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you in advance. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;ANNENDUM: &#xA;From the limit experience I have in economics, I've found the following areas to fascinate me on multiple occasions (in no particular order):&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Game theory&lt;/li&gt;&#xA;&lt;li&gt;Macroeconomics (monetary policy) &lt;/li&gt;&#xA;&lt;li&gt;Microeconomics (i.e., commodity pricing) &lt;/li&gt;&#xA;&lt;li&gt;Pricing theory&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="81" LastEditorUserId="81" LastEditDate="2014-11-19T22:57:30.887" LastActivityDate="2016-02-09T13:46:48.623" Title="Book recommendations on empirical methods in economic research and econometrics?" Tags="&lt;soft-question&gt;&lt;reference-request&gt;" AnswerCount="5" CommentCount="13" FavoriteCount="9" ContentLicense="CC BY-SA 3.0" />
  <row Id="111" PostTypeId="2" ParentId="110" CreationDate="2014-11-19T18:35:59.037" Score="10" Body="&lt;p&gt;Firstly, for basic introductory econometrics, the following is quite good:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;Introduction to Econometrics&quot; by Stock and Watson.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It is light on technical details, and heavy on intuition. This might not appeal to you if you are a math major, but it's the most important thing to get straight if you are interested in applying the empirical methods rather than developing new econometric methods.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Stock and Watson &lt;em&gt;is&lt;/em&gt; very basic, so you will probably want to supplement it. Good choices are likely to be&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;Mostly Harmless Econometrics&quot; by Angrist and Pischke&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;(this is another book that puts intuition first, but now with more formal detail), and for an advanced graduate treatment&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;Econometric Analysis of Cross Section and Panel Data&quot; by Wooldridge.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I don't know Wooldridge very well, but I know that his book is popular and well-loved among econometrics grad students.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These books have a bias in favour of microeconometrics and deal less, if at all, with time series methods. More comprehensive coverage can be found in&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;Econometrics&quot; by Hayashi&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;or&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;Econometric Analysis&quot; by Greene.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The book by Hayashi is probably better for self-study; Greene is more of a comprehensive reference book.&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2015-10-08T15:53:09.847" LastActivityDate="2015-10-08T15:53:09.847" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="112" PostTypeId="2" ParentId="62" CreationDate="2014-11-19T18:41:04.897" Score="6" Body="&lt;p&gt;According to David Ricardo's &lt;a href=&quot;http://en.wikipedia.org/wiki/Comparative_advantage&quot;&gt;theory of comparative advantage&lt;/a&gt;, all regions should pursue specialization to an equilibrium point.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Beyond that point it would not be rational to continue developing a given industry.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That being said, many regions have seen their prosperity rise and fall as they &quot;lost&quot; their comparative advantage (especially in modern times as labor has no longer been considered the only factor input).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;More accurately one could say globalization has opened up trade with markets that have even greater comparative advantage that may be the result of cheaper labor as opposed to invested capital or natural resources, rendering many regions less productive.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The American Rust Belt and Detroit spring to mind.&lt;/p&gt;&#xA;" OwnerUserId="31" LastEditorUserId="31" LastEditDate="2014-11-19T21:01:47.593" LastActivityDate="2014-11-19T21:01:47.593" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="113" PostTypeId="2" ParentId="110" CreationDate="2014-11-19T18:55:41.487" Score="5" Body="&lt;p&gt;In addition to the notes from @Ubiquitous, I'd recommend these excellent and free/open resources from a number of academics. These are all posted freely and openly by the authors, and are all high-quality (and all at the &quot;graduate level&quot;).&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;John Cochrane's Time Series for Macro and Finance monograph &lt;a href=&quot;http://www.computational-economics.net/_downloads/time_series_book.pdf&quot; rel=&quot;nofollow&quot;&gt;pdf&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;John Stachurski's &lt;a href=&quot;http://johnstachurski.net/emet_book.html&quot; rel=&quot;nofollow&quot;&gt;intro grad textbook&lt;/a&gt;, online&lt;/li&gt;&#xA;&lt;li&gt;Michael Creel's &lt;a href=&quot;http://pareto.uab.es/mcreel/Econometrics/&quot; rel=&quot;nofollow&quot;&gt;graduate econometrics notes&lt;/a&gt;, with code&lt;/li&gt;&#xA;&lt;li&gt;Kenneth Train's &lt;a href=&quot;http://eml.berkeley.edu/~train/distant.html&quot; rel=&quot;nofollow&quot;&gt;course and textbook&lt;/a&gt; on simulation-based econometrics&lt;/li&gt;&#xA;&lt;li&gt;Bruce Hansen's all-around &lt;a href=&quot;http://www.ssc.wisc.edu/~bhansen/econometrics/&quot; rel=&quot;nofollow&quot;&gt;graduate econometrics textbook&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Cochrane's monograph should be your first stop for time series, period. Stachurski covers some of the very cool theory behind 'metrics. Creel provides a very nice, slide-style set of notes -- gives you a chance to &quot;quickly peruse&quot; graduate econometric theory (as well as very cool parallel computation estimators). Train has nice chapters on simulation-based estimators. Hansen is an all-around textbook with reasonable depth. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Somewhat further afield, but perhaps useful for the intro level, are the &quot;Think X&quot; series of books from Green Tea Press:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://greenteapress.com/thinkstats/&quot; rel=&quot;nofollow&quot;&gt;Think Stats&lt;/a&gt; for basic statistics &lt;a href=&quot;http://greenteapress.com/thinkstats2/index.html&quot; rel=&quot;nofollow&quot;&gt;second ed in progress&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://greenteapress.com/thinkbayes/index.html&quot; rel=&quot;nofollow&quot;&gt;Think Bayes&lt;/a&gt; for Bayesian estimation approaches&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;These are truly intro-level books -- and very excellent as such. I use the &quot;Train Problem/German Tank Problem&quot; from Think Bayes whenever I need to illustrate the usefulness/intuition of Bayesian approaches to a beginner. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I will note that for self-study, Hayashi (noted in another answer) has a lot to offer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Edit&lt;/strong&gt;: If you are looking for broad examples of methodologies, I would strongly recommend &quot;Mostly Harmless Econometrics.&quot; The book has a particular focus and mild methodology bias (see Andrew Gelman's &lt;a href=&quot;http://andrewgelman.com/2009/02/02/mostly_harmless/&quot; rel=&quot;nofollow&quot;&gt;nice review&lt;/a&gt;, which points out some of the topics missing), but it is still excellent at diving directly into application of their ideas, via examples from the literature and replication. I strongly believe that replication is key for learning about research methods, so I like their approach quite a lot. One minor warning: to get to the applications, you have to get through their very long intro chapter on the basic of regression. But hang in there -- that chapter is great as well, and you'll then get to enjoy the fruits of application/replication after it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, if you want to know a little more about what economists do, check out these two non-technical books: &quot;Passion and Craft&quot; and &quot;Lives of the Laureates.&quot; (&quot;The making of an economist, redux,&quot; is also good, but perhaps less ...exciting of a read. Take that for what its worth, since the first two books aren't necessarily action page turners.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Edit 2&lt;/strong&gt;: as @cc7768 notes in the comments, John Stachurski and Tom Sargent's website, &lt;a href=&quot;http://quant-econ.net&quot; rel=&quot;nofollow&quot;&gt;QuantEcon&lt;/a&gt;, is absolutely fantastic. They essentially work through the major basic concepts you need for computational economics (and so many things are computational these days), and give you clear, working code examples for a vast number or major problem-types. You should very definitely check it out if you are interested in economic methodologies -- it's probably the first place I'd recommend you stop, actually. Very easy way to dip your feet into serious methodology examples. I learned an enormous amount from early versions of these notes.&lt;/p&gt;&#xA;" OwnerUserId="17" LastEditorUserId="43" LastEditDate="2016-02-09T13:46:48.623" LastActivityDate="2016-02-09T13:46:48.623" CommentCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="114" PostTypeId="2" ParentId="97" CreationDate="2014-11-19T19:25:38.357" Score="2" Body="&lt;p&gt;You work in discrete time, see for example &lt;a href=&quot;http://www.princeton.edu/~moll/ECO521Web/Lecture5_ECO521_web.pdf&quot; rel=&quot;nofollow&quot;&gt;this resource&lt;/a&gt;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or &lt;a href=&quot;http://www.princeton.edu/~moll/HACT.pdf&quot; rel=&quot;nofollow&quot;&gt;this (incomplete) paper&lt;/a&gt;, where the same author participates. In the beginning the paper talks about &quot;coarse discrete methods&quot; and may give the impression that it contains some continuous time simulation method. It really doesn't -see the description of their algorithm in the Appendix, page 30.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also &lt;a href=&quot;https://people.maths.ox.ac.uk/witte/JHWitte_DPhilThesis_13_March_2012.pdf.&quot; rel=&quot;nofollow&quot;&gt;this MPhil dissertation&lt;/a&gt;, which, being a graduate thesis, describes the steps in some detail, and with a wealth of referenced literature.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2014-11-19T19:25:38.357" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="115" PostTypeId="2" ParentId="62" CreationDate="2014-11-19T19:58:29.750" Score="8" Body="&lt;p&gt;&lt;a href=&quot;http://en.wikipedia.org/wiki/Dutch_disease&quot;&gt;The dutch disease&lt;/a&gt; is when an economy is so dominated by a single export industry that the success of that industry drives up the currency and makes the exports of other industries un-competitive. This drives some of the firms making other goods out of business. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Continuing this cycle can lead in the short term to even greater concentration of the economy in that industry. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If later the export industry experiences a significant shock, the broader economy also experiences that shock. This happens for two reasons:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;In a diversified economy some firms are experiencing positive shocks when others experience negative ones. In a concentrated economy it is less likely that the other industries will collectively experience an sufficient offsetting shock.&lt;/li&gt;&#xA;&lt;li&gt;A negative shock to the primary exporting industry is likely to depreciate the currency which should help other industries but shrinking capacity from the expansion will diminish other industries' ability to generate sufficient exports to offset the shock. &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Further, if the industry responds by boosting output (like sometimes happens when oil prices fall and producers become desperate) this can make export prices fall further still, worsening the shock. &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2014-11-19T22:00:43.750" LastActivityDate="2014-11-19T22:00:43.750" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="116" PostTypeId="2" ParentId="110" CreationDate="2014-11-19T20:02:43.983" Score="5" Body="&lt;p&gt;In case you want to go into Dynamic Stochastic General Equilibrium models, the book&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.springer.com/economics/economic+theory/book/978-3-540-85684-9&quot;&gt;&quot;Dynamic General Equilibrium Modeling&quot; 2009 (2nd ed.)&lt;/a&gt; by B. Heer and Al. Mausser is a very useful companion.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For econometrics I would also suggest &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0521424089&quot;&gt;&quot;Probability Theory and Statistical Inference: Econometric Modeling with Observational Data&quot;&lt;/a&gt; 1999, by A. Spanos. It provides the statistical foundations of econometrics in a way no other book does.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To comment on some of the suggestions related to econometrics in the other answers:  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&quot;Econometric Analysis of Cross Section and Panel Data&quot; by Wooldridge.&lt;/strong&gt; has a very fresh approach, (chapter 2 &quot;Conditional Expectations and Related Concepts in Econometrics&quot; was long missing from any Econometrics book). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&quot;Econometrics&quot; by Hayasi&lt;/strong&gt;, except of presenting a new synthesis focused around Extremum Estimators (i.e. Maximum Likelihood and Generalized Method of Moments), and of giving space to Time Series, Unit root econometrics and Co-integration, it has theoretical depth alongside very practical applications, a combination which is not usually found.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&quot;Econometric Analysis&quot; by Greene&lt;/strong&gt; is indeed a compendium of results -very useful for lookup purposes, but not really suitable for self-study.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2014-11-19T20:02:43.983" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="117" PostTypeId="2" ParentId="88" CreationDate="2014-11-19T20:04:46.173" Score="16" Body="&lt;p&gt;The &lt;a href=&quot;http://en.wikipedia.org/wiki/Labor_theory_of_value&quot;&gt;Labor Theory of Value&lt;/a&gt; has been replaced by the theory of &lt;a href=&quot;http://en.wikipedia.org/wiki/Marginal_utility&quot;&gt;Marginal Utility&lt;/a&gt;, which was already accepted by Marx time. In fact he acknowledged:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;nothing can have value, without being an object of utility&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;-&lt;a href=&quot;http://en.wikipedia.org/wiki/Marginal_utility#The_Marginal_Revolution_and_Marxism&quot;&gt;Wikipedia: Marginal Utility - The Marginal Revolution and Marxism&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Marginal Utility addresses the &lt;a href=&quot;http://en.wikipedia.org/wiki/Paradox_of_value&quot;&gt;diamond - water paradox&lt;/a&gt; by explaining that the more of a resource or commodity one has ready access to, the less one needs access to even more. The declining marginal utility means that because water is nearly ubiquitous and easily accessed it has very little &quot;value&quot; per unit to an individual because they know they have access to many many units.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;Modern&quot; &lt;a href=&quot;http://en.wikipedia.org/wiki/Analytical_Marxism&quot;&gt;analytical Marxists&lt;/a&gt;, including &lt;a href=&quot;http://en.wikipedia.org/wiki/John_Roemer&quot;&gt;John Roemer&lt;/a&gt; have built a &lt;a href=&quot;http://en.wikipedia.org/wiki/Analytical_Marxism#Exploitation&quot;&gt;strong foundation&lt;/a&gt; (if somewhat heterodox) based on the theory of marginal utility.&lt;/p&gt;&#xA;" OwnerUserId="31" LastEditorUserId="31" LastEditDate="2014-11-19T22:10:52.823" LastActivityDate="2014-11-19T22:10:52.823" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="118" PostTypeId="2" ParentId="95" CreationDate="2014-11-19T20:34:16.157" Score="7" Body="&lt;p&gt;Adding to the list of paradoxes, consider Machina's paradox. It is described in Mas-Colell, Whinston and Green's Microeconomic Theory.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A person prefers a trip to Paris to watching a television program about Paris to nothing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Gamble 1: Win a trip to Paris 99% of the time, the television program 1% of the time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Gamble 2: Win a trip to Paris 99% of the time, nothing 1% of the time. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's reasonable to suppose that given the preferences over items, the second gamble might be preferred to the first. Someone who lost the trip to Paris might be so disappointed that they wouldn't be able to stand watching a program about how great it is.&lt;/p&gt;&#xA;" OwnerUserId="14" LastActivityDate="2014-11-19T20:34:16.157" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="119" PostTypeId="1" CreationDate="2014-11-19T21:24:34.243" Score="2" ViewCount="129" Body="&lt;p&gt;This question is related to another question &lt;a href=&quot;https://economics.stackexchange.com/questions/107/examples-of-factors-in-the-icapm&quot;&gt;here&lt;/a&gt;. The question linked to asks for examples of factors commonly used in ICAPM models (intertemporal capital asset pricing model). What I want to know here is this: what is underlying principle that makes a factor a valid factor in factor models such as the CAPM, ICAPM, or APT?&lt;/p&gt;&#xA;" OwnerUserId="59" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2014-11-25T21:33:55.423" Title="What makes a factor valid in a factor pricing model of assets?" Tags="&lt;finance&gt;&lt;asset-pricing&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="120" PostTypeId="2" ParentId="119" CreationDate="2014-11-19T21:24:34.243" Score="1" Body="&lt;p&gt;This is a partial answer (see section 5.1, p. 79 of Cochrane's book, &quot;Asset Pricing&quot;). Suppose you wanted to treat the size of the firm as a factor. Stocks of smaller firms typically have higher average returns. You could then form a &quot;large&quot; holding company comprised of smaller firms. The new, large company would then have returns like a smaller company but would in fact be large and &quot;the managers could enjoy the difference.&quot;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;What ruins this promising idea? The &quot;large&quot; holding company will still &lt;em&gt;behave&lt;/em&gt; like a portfolio of small stocks---it will have their high betas. Thus, only if asset returns depend on &lt;em&gt;how you behave&lt;/em&gt;, not &lt;em&gt;who you are&lt;/em&gt;---on betas rather than characteristics---can a market equilibrium survive such simple repackaging schemes.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;(How would I formalize this concept?)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT: Also, in Financial Asset Pricing Theory by Munk (chapter 10, p.371) it says&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;It is worth emphasizing that the general theoretical results of the consumption-based asset pricing framework are not challenged by factor models. ... Factor models do not invalidate the consumption-based asset pricing framework but are special cases that may be easier to apply and test. &lt;em&gt;Therefore factors should generally help explain typical indiviudals' marginal utilities of consumption.&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;(Emphasis added) This helps to understand the role of factors in the ICAPM.&lt;/p&gt;&#xA;" OwnerUserId="59" LastEditorUserId="59" LastEditDate="2014-11-25T21:33:55.423" LastActivityDate="2014-11-25T21:33:55.423" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="121" PostTypeId="2" ParentId="62" CreationDate="2014-11-19T21:26:48.307" Score="1" Body="&lt;p&gt;This refers to the discussion on whether bubbles exist or not (look at the previous year nobel laureate's talks).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you believe that bubbles might exist, the following can be the (simplified) story.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Take the Spanish housing market, under the Euro bubble. We saw that financed through low prices, an over investment into houses happened, paying workers in that industry high wages (due to the high demand). &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;People who owned houses saw increases in their income. &lt;/li&gt;&#xA;&lt;li&gt;People observed an increase in prices, hence investing into housing&lt;/li&gt;&#xA;&lt;li&gt;Since workers get higher wages, they can afford the houses&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;At some point, no one was buying houses anymore, the demand was satisfied. The housing industry didn't see this coming [1], and collapsed. People got fired. Oversupply of housing implied a crash of housing prices, and those who had houses on their balance sheets lost a lot of wealth.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;[1]: You see, that's the gist: We needed irrational expectations. Otherwise, by backward induction, this bubble wouldn't have happened the way I told it here.&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2014-11-19T21:26:48.307" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="122" PostTypeId="2" ParentId="8" CreationDate="2014-11-19T21:33:51.850" Score="7" Body="&lt;p&gt;I think this gives an answer reasonably close to what you're looking for (from the NYTimes article, &amp;quot;&lt;a href=&quot;http://www.nytimes.com/2013/07/22/business/in-climbing-income-ladder-location-matters.html?pagewanted=all&quot; rel=&quot;noreferrer&quot;&gt;In climbing the income ladder, location matters&lt;/a&gt;,&amp;quot; featuring &lt;a href=&quot;http://www.equality-of-opportunity.org/&quot; rel=&quot;noreferrer&quot;&gt;research&lt;/a&gt; by Raj Chetty, Emmanuel Saez, and others).&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;The team of researchers initially analyzed an enormous database of earnings records to study tax policy, hypothesizing that different local and state tax breaks might affect intergenerational mobility.&lt;/p&gt;&#xA;&lt;p&gt;What they found surprised them, said Raj Chetty, one of the authors and the most recent winner of the John Bates Clark Medal, which the American Economic Association awards to the country’s best academic economist under the age of 40. The researchers concluded that larger tax credits for the poor and higher taxes on the affluent seemed to improve income mobility only slightly. &lt;em&gt;The economists also found only modest or no correlation between mobility and the number of local colleges and their tuition rates or between mobility and the amount of extreme wealth in a region.&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;(emphasis added)&lt;/p&gt;&#xA;&lt;p&gt;Note that the study is primarily about income and social mobility, but they also mention that tey find modest or no correlation between tuition rates and amounts of extreme wealth in a region.&lt;/p&gt;&#xA;" OwnerUserId="59" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2014-11-19T21:33:51.850" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="123" PostTypeId="2" ParentId="97" CreationDate="2014-11-19T21:50:13.933" Score="0" Body="&lt;p&gt;Once you have solved the equation $\rho V(k) = \max_c g(c) + V'(k)(z - c)$&#xA;to find the function $V(k)$ you should be able to solve for what is called the policy function. The function $V(k)$ is the value function. Knowing $V(k)$ should then give you the&#xA;information that you need to solve for the policy, say $c(k,t)$. This will then tell you how  $k$ will evolve over time.&lt;/p&gt;&#xA;" OwnerUserId="59" LastActivityDate="2014-11-19T21:50:13.933" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="124" PostTypeId="1" AcceptedAnswerId="139" CreationDate="2014-11-19T22:00:46.377" Score="11" ViewCount="315" Body="&lt;p&gt;Suppose you are running a randomized experiment to assess the effect of $X$, say some training program for unemployed people, on $Y$, say the chance of finding a job in the coming year. Suppose also that $X$ takes time : maybe it lasts for several month.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Because you randomize, you do not need to worry about self-selection bias initially. But during the course of $X$, some people will likely realize that $X$ is beneficial to them, and others may realize that they are wasting their time. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a result, one might expect that among people who drop from the program, there is a higher proportion of agents for which the treatment effect would have been smaller. This might induce an over-estimation of the treatment effect.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My questions are&lt;/strong&gt; :&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Is this kind of bias discussed in the literature on randomized experiments?&lt;/li&gt;&#xA;&lt;li&gt;Does it have a canonical name ?&lt;/li&gt;&#xA;&lt;li&gt;Do researcher try to control for this, and if yes, how?&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="38" LastEditorUserId="38" LastEditDate="2015-11-06T02:19:41.300" LastActivityDate="2015-11-06T02:19:41.300" Title="Self-selection bias during the course of experiments" Tags="&lt;randomized-experiment&gt;&lt;treatment-effect&gt;&lt;selection-bias&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="125" PostTypeId="1" CreationDate="2014-11-19T22:08:50.073" Score="10" ViewCount="1467" Body="&lt;p&gt;I believe the rational expectations hypothesis says that agents in a model bear expectations that are the same as mathematical expectations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Under what circumstances does this hypothesis become questionable? What are the usual arguments against this hypothesis?&lt;/p&gt;&#xA;" OwnerUserId="41" LastEditorUserId="44" LastEditDate="2014-11-20T01:01:35.747" LastActivityDate="2018-01-27T04:57:40.160" Title="What are the arguments against the rational expectations hypothesis?" Tags="&lt;microeconomics&gt;&lt;efficient-markets&gt;" AnswerCount="5" CommentCount="3" FavoriteCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="126" PostTypeId="1" CreationDate="2014-11-19T22:11:35.587" Score="8" ViewCount="327" Body="&lt;p&gt;Take a market where there have been long-run negative externalities. That is to say, the negative externalities have been in place long enough to have played a part in the investment decisions for all extant fixed capital.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Capital costs are a significant part of total costs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The proposal now is to correct this market inefficiency, efficiently and quickly. Pricing in the negative externality should eventually, in the long term, correct this efficiently. However, as all the extant capital is a sunk cost, and can continue to operate at low operating cost, it can hinder and crowd out new entrants.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the ongoing costs by the incumbents are low: their fixed capital was built and initially operated in a world of negative externalities, and those capital costs are both (a) sunk costs and (b) fully written off by now. Merely pricing in the negative externalities from their ongoing activities won't change the effective subsidy they've received that allowed them to build up their incumbency in the first place; so they'll have no incentive to leave the market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What else can be done, in addition to simply pricing in the negative externality, to ensure prompt replacement of fixed capital which only exists because it was built in a time when it did not need to bear its full cost? Differential taxation for incumbents versus new entrants, or something else? How can this be done with economic efficiency?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The market in this case is fossil fuels for transport, heat and electricity generation; so the long-term is of the order of decades, whereas the need is for faster capital replacement. Additionally, several large suppliers exert oligopolistic influence, and there is a global cartel operating (OPEC), and has been for over 50 years.&lt;/p&gt;&#xA;" OwnerUserId="44" LastEditorUserId="44" LastEditDate="2014-11-23T15:37:18.737" LastActivityDate="2014-11-23T15:37:18.737" Title="A market correction for an industry which has had long-run negative externalities" Tags="&lt;externalities&gt;&lt;pigouvian-taxes&gt;&lt;long-run&gt;&lt;environmental-economics&gt;&lt;oligopoly&gt;" AnswerCount="1" CommentCount="4" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="127" PostTypeId="2" ParentId="47" CreationDate="2014-11-19T22:14:52.000" Score="5" Body="&lt;p&gt;No one else has mentioned another possible explanation:  that there was an increasing labor shortage in New Jersey at the time of the minimum wage increase.  This caused minimum wage employment to increase.  This was not a result of the minimum wage increase but of the demand increase.  I.e. the demand curve moved up and to the right.  This caused the intersection with the supply curve to move up and to the right as well (the supply curve itself did not change, only the intersection with the demand curve).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another possibility is that people were switching from lower wage Pennsylvania jobs to higher wage New Jersey jobs.  This would cause employment to fall in Pennsylvania relative to New Jersey.  The Card and Krueger study would not have caught this, as they surveyed managers not employees.  This would explain why the differential went in a different direction than expected.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In support of either or both of these hypotheses, when the subsequent federal minimum wage increased such that New Jersey and Pennsylvania had the same minimum wage, there was no repeat of the increase shown in the original study.  This is consistent with the first hypothesis that there was a special occasion at the time of the first increase.  It is also consistent with the second hypothesis, since there would be no need to move to get the better wage.  The study is &lt;a href=&quot;http://en.wikipedia.org/wiki/Minimum_wage#Research_subsequent_to_Card_and_Krueger.27s_work&quot; rel=&quot;noreferrer&quot;&gt;discussed on Wikipedia&lt;/a&gt;.  &lt;/p&gt;&#xA;" OwnerUserId="68" LastEditorUserId="68" LastEditDate="2014-11-19T22:33:30.887" LastActivityDate="2014-11-19T22:33:30.887" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="128" PostTypeId="1" CreationDate="2014-11-19T22:22:39.377" Score="6" ViewCount="108" Body="&lt;p&gt;Take a negative externality such as excess greenhouse gas emissions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We know some awkward things about the economic cost of this externality:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is fairly large uncertainty about the timing of damage associated with a unit of emissions. And about the scale of economic consequences of that damage.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Furthermore, there are significant non-linearities: if the world were to emit just one more tonne of CO&lt;sub&gt;2&lt;/sub&gt;, the unit cost of damage is tiny. If we hit a trillion tonnes total emitted, then we're looking at costs that start to hit percents of global GDP. If we burn most of our remaining fossil fuel resources, then we're looking at damage potentially of the order of tens of percent of global GDP, and potentially threatening the existence of human civilisation as we know it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Normally, a pigouvian tax or similar would have a unit price that represented the cost of damage: here, the uncertainty means that there would need to be some sort of option pricing within that. But also, it is typically a fixed unit price, which cannot be efficient if the damage costs are highly non-linear. What sort of correction to market pricing could take account both of the uncertainties, and the non-linearities?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've tagged with &lt;a href=&quot;/questions/tagged/pigouvian-taxes&quot; class=&quot;post-tag&quot; title=&quot;show questions tagged 'pigouvian-taxes'&quot; rel=&quot;tag&quot;&gt;pigouvian-taxes&lt;/a&gt;, but that's just one possible instrument, so I'll add &lt;a href=&quot;/questions/tagged/coasian-bargaining&quot; class=&quot;post-tag&quot; title=&quot;show questions tagged 'coasian-bargaining'&quot; rel=&quot;tag&quot;&gt;coasian-bargaining&lt;/a&gt; too (though my own hunch is that Pigou, rather than Coase, holds the answer here - YMMV)&lt;/p&gt;&#xA;" OwnerUserId="44" LastEditorUserId="44" LastEditDate="2014-11-23T12:57:12.780" LastActivityDate="2014-11-23T12:57:12.780" Title="Pricing a negative externality under high uncertainty and severe non-linearity" Tags="&lt;externalities&gt;&lt;pigouvian-taxes&gt;&lt;asset-pricing&gt;&lt;coasian-bargaining&gt;&lt;environmental-economics&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="129" PostTypeId="2" ParentId="125" CreationDate="2014-11-19T22:33:32.063" Score="5" Body="&lt;p&gt;We could expect the rational expectations hypothesis to hold, as long as errors were randomly distributed, without any systematic biases.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The hypothesis becomes problematic, if we find systematic biases.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We have found some systematic biases, thanks to behavioural economics experiments, and studies of risk.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some systematic biases:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;We are not asymmetric with regards to losses and gains: the disutility of a loss is higher than the utility of a gain of the same nominal price - if you give me £10, then take £10 away, I feel hard done by, even though I've come out of it at net £0 difference.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;We are systematically terrible at assessing very low probability events. For two reasons. One is that there is evidence that we're simply poor calculators when it comes to very small probabilities, even with perfect information about the statistical distribution (ref to follow if I remember). And the other is exactly as &lt;a href=&quot;https://economics.stackexchange.com/users/59/jmbejara&quot;&gt;jmbejara&lt;/a&gt; has noted in the comments: inference about tails of distributions is &lt;em&gt;hard&lt;/em&gt;, because there's very little empirical data available to infer from; and small errors in the inference get turned into very consequences by the end of the calculation, because of the nature of very long, very thin tails. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;We are susceptible to price anchoring: our expectations of final price are influenced by the first price we hear. Most memorably illustrated by Dan Ariely's experiment on valuing his reading of his own poetry: he gave members of his class each a piece of paper, containing a price for his poetry reading, to assess its value. What he didn't tell the class, was that some of the bits of paper explained that the price was what the student would be asked to pay, to hear Dan's poetry reading; and the others explained that the price was what Dan would pay to the student, if they sat through his poetry reading. From each group, he found students willing to accept the price they were given. So he established that his poetry reading had both a positive and a negative price. Illustrating both price anchoring and multiple mutually-inconsistent equilibria.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="44" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2014-11-20T03:37:02.223" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="131" PostTypeId="1" CreationDate="2014-11-19T22:55:47.790" Score="23" ViewCount="2059" Body="&lt;p&gt;What exactly are &lt;strong&gt;Giffen goods&lt;/strong&gt; and are they of purely &lt;em&gt;theoretical interest&lt;/em&gt; or has there been empirical evidence of their existence?&lt;/p&gt;&#xA;" OwnerUserId="29" LastActivityDate="2015-04-23T02:12:29.583" Title="What are Giffen Goods?" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;&lt;elasticity&gt;&lt;supply-and-demand&gt;" AnswerCount="4" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="132" PostTypeId="1" AcceptedAnswerId="147" CreationDate="2014-11-19T22:55:57.337" Score="11" ViewCount="368" Body="&lt;p&gt;It seems that bounded rationality models focus on explaining a particular psychological bias, in a very specific way. In particular, its seems that the state of the art consensus is that one size does not fit all. The prevalence of framing effects makes this issue very difficult, but is there any way to think of a general approach to modelling bounded rationality.&#xA;Is it regret minimization, or random choice, or rational inattention?&lt;/p&gt;&#xA;" OwnerUserId="127" LastActivityDate="2017-01-16T21:35:21.970" Title="What are the recent advancements in building a unified theory of bounded rationality?" Tags="&lt;microeconomics&gt;&lt;behavioral-economics&gt;&lt;theory&gt;&lt;decision-theory&gt;&lt;bounded-rationality&gt;" AnswerCount="3" CommentCount="3" FavoriteCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="133" PostTypeId="2" ParentId="95" CreationDate="2014-11-19T23:00:59.097" Score="10" Body="&lt;p&gt;this paper &lt;a href=&quot;http://else.econ.ucl.ac.uk/papers/uploaded/243.pdf&quot;&gt;http://else.econ.ucl.ac.uk/papers/uploaded/243.pdf&lt;/a&gt; (Choi 2007) has a nice state of the art experiment that deals with rationality and expected utility is a special case of it. In general only 17% of consumers are compatible with rationality ergo the remaining part cannot be expected utility maximizers.  Quah has a nice paper on the revealed preference theory of expected utility (among other models), he uses Choi dataset to test expected utility hypothesis that is going to be rejected more times than rationality &lt;a href=&quot;https://ideas.repec.org/p/lec/leecon/13-24.html&quot;&gt;https://ideas.repec.org/p/lec/leecon/13-24.html&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="127" LastActivityDate="2014-11-19T23:00:59.097" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="134" PostTypeId="1" CreationDate="2014-11-19T23:07:17.180" Score="10" ViewCount="780" Body="&lt;p&gt;&lt;a href=&quot;https://economics.stackexchange.com/questions/95/experiments-contradicting-the-expected-utility-model&quot;&gt;In another question&lt;/a&gt;, the Machina paradox is mentioned as a possible counterexample to the expected utility model:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Adding to the list of paradoxes, consider Machina's paradox. It is described in Mas-Colell, Whinston and Green's Microeconomic Theory.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;A person prefers a trip to Paris to watching a television program about Paris to nothing.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Gamble 1: Win a trip to Paris 99% of the time, the television program 1% of the time.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Gamble 2: Win a trip to Paris 99% of the time, nothing 1% of the time. &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;It's reasonable to suppose that given the preferences over items, the second gamble might be preferred to the first. Someone who lost the trip to Paris might be so disappointed that they wouldn't be able to stand watching a program about how great it is.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;However, it seems to me that this can be resolved by expanding the decision space to account for possibly state-dependent utility. For example, consider a model with two time periods,&#xA;$t=0$ and $t=1$. The first represents before the resolution of the uncertainty surrounding winning the trip to Paris. The second time period is after the resolution of the gamble. Now, model this potential outcomes as follows:&#xA;$$&#xA;\begin{align}&#xA;A &amp;amp;= \{P, \emptyset\} \\&#xA;B &amp;amp;= \{P^C, T\} \\&#xA;C &amp;amp;= \{P^C, N\},&#xA;\end{align}&#xA;$$&#xA;where $A$ corresponds to the outcome where you win the trip to Paris (and then it doesn't matter what you do after that), $B$ is the outcome where you don't win the trip and you watch TV afterwards, and $C$ is the case where you don't win and you do nothing afterwards. Then, although you might like Paris over TV over nothing in one time period (...?), when considered together over time (because of some sort of complementarities) you prefer $A$ over $B$ over $C$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is this. Is this a reasonable way to resolve this paradox? What are ways in which people have tried to resolve this?&lt;/p&gt;&#xA;" OwnerUserId="59" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-05-04T13:01:48.543" Title="Can the Machina Paradox be solved by expanding the choice set?" Tags="&lt;decision-theory&gt;&lt;uncertainty&gt;&lt;expected-utility&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="136" PostTypeId="2" ParentId="131" CreationDate="2014-11-19T23:44:21.410" Score="10" Body="&lt;p&gt;Consider the &lt;a href=&quot;http://en.wikipedia.org/wiki/Slutsky_equation&quot;&gt;Slutsky equation&lt;/a&gt;,&#xA;$$&#xA;\frac{\partial x}{\partial p} = \frac{\partial x^c}{\partial p} -&#xA;\frac{\partial x}{\partial I} x.&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A giffen good is the case where the income effect $\frac{\partial x}{\partial I} x$ is negative and large (in magnitude) enough so&#xA;that $\frac{\partial x}{\partial p} &amp;gt; 0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From Wikipedia:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;There are three necessary preconditions for this situation to arise:&#xA;  (1) the good in question must be an inferior good,&#xA;  (2) there must be a lack of close substitute goods, and&#xA;  (3) the good must constitute a substantial percentage of the buyer's income, but not such a substantial percentage of the buyer's income that none of the associated normal goods are consumed.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;(Sufficient when (1) also adds that the good is so inferior that the income effect is greater than the substitution effect.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A Giffen good does not generate utility directly through its price. Contrast this to a Veblen good where there the user actually derives utility &lt;em&gt;directly&lt;/em&gt; from the price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;See this &lt;a href=&quot;http://en.wikipedia.org/wiki/Giffen_good#Empirical_evidence&quot;&gt;link&lt;/a&gt; for some info about empirical evidence.&lt;/p&gt;&#xA;" OwnerUserId="59" LastActivityDate="2014-11-19T23:44:21.410" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="137" PostTypeId="1" CreationDate="2014-11-20T00:08:56.710" Score="7" ViewCount="83" Body="&lt;p&gt;The &lt;a href=&quot;https://www.cbo.gov/publication/49759&quot;&gt;Monthly Budget Review: Summary for Fiscal Year 2014&lt;/a&gt; states that the deficit was \$483 billion.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.treasurydirect.gov/NP/debt/search?startMonth=10&amp;amp;startDay=01&amp;amp;startYear=2013&amp;amp;endMonth=09&amp;amp;endDay=30&amp;amp;endYear=2014&quot;&gt;Treasury Direct&lt;/a&gt; shows Total Public Debt Outstanding increasing over the same period from \$16.7 trillion to \$17.8 trillion.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why is there such a huge difference in these figures?&lt;/p&gt;&#xA;" OwnerUserId="153" LastEditorUserId="119" LastEditDate="2014-11-20T16:28:30.250" LastActivityDate="2014-11-20T16:28:30.250" Title="How come the CBO reported the Federal Deficit for FY2014 was \$483 Billion when debt went up by \$1.1 trillion?" Tags="&lt;fiscal-policy&gt;&lt;debt&gt;&lt;government&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="138" PostTypeId="2" ParentId="73" CreationDate="2014-11-20T00:53:43.773" Score="1" Body="&lt;p&gt;I suppose it would look something like&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\Pi^m$ is the profit of a monopolist.&#xA;$\Pi^c$ is the profit under collusion.&#xA;$\Pi^c=\frac{\Pi^m}{n}$&#xA;$\Pi^{comp}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;suppose $\Pi^m&amp;gt; \Pi^c&amp;gt; \Pi^{comp} $.&#xA;The profit a firm gets for deviating through 1 period is $\Pi^d=\Pi^m-\epsilon=\Pi^m$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The condition to sustain collusion is $\Pi^d +\delta \Pi^{comp} +\delta ^2 \Pi^{comp}+...&amp;gt; \Pi^c+ \delta \Pi^c+ ... $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;for collusion to be sustained, time needs to be infinite and discount factor $\delta$ needs to be sufficiently high.&lt;/p&gt;&#xA;" OwnerUserId="40" LastActivityDate="2014-11-20T00:53:43.773" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="139" PostTypeId="2" ParentId="124" CreationDate="2014-11-20T01:39:32.127" Score="11" Body="&lt;p&gt;Apparently this is called &lt;a href=&quot;http://ije.oxfordjournals.org/content/34/1/87&quot;&gt;attrition bias&lt;/a&gt;. It's very similar to &lt;a href=&quot;http://en.wikipedia.org/wiki/Survivorship_bias&quot;&gt;survivorship bias&lt;/a&gt;. &lt;a href=&quot;http://digitalcommons.unl.edu/cgi/viewcontent.cgi?article=1044&amp;amp;context=famconfacpub&quot;&gt;This paper&lt;/a&gt; suggest correcting for it using &lt;a href=&quot;http://en.wikipedia.org/wiki/Heckman_correction&quot;&gt;Heckman correction&lt;/a&gt;. &lt;a href=&quot;http://en.wikipedia.org/wiki/Propensity_score_matching&quot;&gt;Propensity score matching&lt;/a&gt; may also &lt;a href=&quot;http://econweb.umd.edu/~ham/Rand_Ham_Li%20submit%20july%202011.pdf&quot;&gt;help somewhat&lt;/a&gt;. My experience with both has been mixed, but they are commonly used. You should figure out what exact approach is most appropriate for your setting.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;One last edit:&lt;/strong&gt; &lt;a href=&quot;http://ftp.iza.org/dp4162.pdf&quot;&gt;These&lt;/a&gt; &lt;a href=&quot;https://www.princeton.edu/~davidlee/wp/resrevision8.pdf&quot;&gt;two&lt;/a&gt; papers, which talk about bounding the average treatment effect, may also be of use to you.&lt;/p&gt;&#xA;" OwnerUserId="54" LastEditorUserId="54" LastEditDate="2014-11-20T01:57:05.247" LastActivityDate="2014-11-20T01:57:05.247" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="140" PostTypeId="1" AcceptedAnswerId="175" CreationDate="2014-11-20T02:57:59.283" Score="14" ViewCount="5652" Body="&lt;p&gt;Adam Smith is called the &quot;father of &lt;em&gt;modern&lt;/em&gt; economics&quot; and his book &lt;em&gt;The Weath of Nations&lt;/em&gt;, a fundamental work in the field of economics, is considered the first &lt;em&gt;modern&lt;/em&gt; book on economics.  In addition, economics first became a study in 1776 when &lt;em&gt;The Wealth of Nations&lt;/em&gt; was published.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why is the word &quot;modern&quot; used in both descriptions?  I know that individuals throughout the centuries and even Aristotle have dabbled with some economic theories, but I do not recall anyone making any significant contributions to economics before Adam Smith.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Were there important contributions to economics made before 1776?&#xA;If not, then why do we use the term &quot;modern&quot; even if there was no one in the study previously?  &lt;/p&gt;&#xA;" OwnerUserId="27" LastEditorUserId="70" LastEditDate="2014-11-20T16:27:29.140" LastActivityDate="2016-10-22T17:55:43.047" Title="What was economics like as a field before Adam Smith, the father of *modern* economics?" Tags="&lt;history&gt;&lt;development&gt;" AnswerCount="5" CommentCount="9" FavoriteCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="141" PostTypeId="2" ParentId="125" CreationDate="2014-11-20T03:08:33.893" Score="8" Body="&lt;p&gt;The Rational Expectations Hypothesis (REH) is an hypothesis about &lt;em&gt;aggregate&lt;/em&gt; expectations. I believe it is illuminating to post here a lengthy quote (part 2) from &lt;a href=&quot;http://www.jstor.org/stable/1909635&quot; rel=&quot;nofollow noreferrer&quot;&gt;Muth (1961)&lt;/a&gt; paper where REH originated (bold letters are our emphasis):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;2. THE &quot;RATIONAL EXPECTATIONS&quot; HYPOTHESIS&lt;/strong&gt;&lt;br&gt;&#xA;   &lt;strong&gt;Two major conclusions from studies of expectations data are the following&lt;/strong&gt;:&lt;br&gt;&#xA;  1. Averages of expectations in an industry are more accurate than naive models and as accurate as elaborate equation systems, although&#xA;  there are considerable cross-sectional differences of opinion.&lt;br&gt;&#xA;  2. Reported expectations generally underestimate the extent of changes that actually take place.    &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;In order to explain these phenomena, I&#xA;  should like to suggest that expectations, since they are informed&#xA;  predictions of future events, are essentially the same as the&#xA;  predictions of the relevant economic theory (We show in Section 5 that&#xA;  the hypothesis is consistent with these two phenomena). At the risk of&#xA;  confusing this purely descriptive hypothesis with a pronouncement as&#xA;  to what firms ought to do, we call such expectations &quot;rational.&quot; It is&#xA;  sometimes argued that the assumption of rationality in economics leads&#xA;  to theories inconsistent with, or inadequate to explain, observed&#xA;  phenomena, especially changes over time (e.g., Simon 1959). Our&#xA;  hypothesis is based on exactly the opposite point of view: that&#xA;  dynamic economic models do not assume enough rationality.  &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The hypothesis can be rephrased a little more precisely as follows: that&#xA;  expectations of firms (or, more generally, the subjective probability&#xA;  distribution of outcomes) tend to be distributed, for the same&#xA;  information set, about the prediction of the theory (or the&#xA;  &quot;objective&quot; probability distributions of outcomes).  &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The hypothesis asserts three things: (1) Information is scarce, and the &lt;strong&gt;economic&#xA;  system&lt;/strong&gt; generally does not waste it. (2) The way expectations are&#xA;  formed depends specifically on the structure of the relevant system&#xA;  describing the economy. (3) A &quot;public prediction,&quot; in the sense of&#xA;  Grunberg and Modigliani (1954), will have no substantial effect on the&#xA;  operation of the economic system (unless it is based on inside&#xA;  information). This is not quite the same thing as stating that the&#xA;  marginal revenue product of economics is zero, because expectations of&#xA;  a single firm may still be subject to greater error than the theory.  &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;It &lt;em&gt;does not&lt;/em&gt; assert that the scratch work of entrepreneurs resembles&#xA;  the system of equations in any way; &lt;strong&gt;nor does it state that predictions&#xA;  of entrepreneurs are perfect or that their expectations are all the&#xA;  same&lt;/strong&gt;. ...&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I believe that it should be clear from the above that:&lt;br&gt;&#xA;&lt;strong&gt;1)&lt;/strong&gt; REH  is &lt;em&gt;not&lt;/em&gt; an assertion about each separate individual, but about the properties of the &quot;prevailing&quot; expectation produced by the black-box combination of individual expectations.  In other words the REH is assumed, without really making any assumptions about individual rationality.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;2)&lt;/strong&gt; It has as much to do with  the &quot;internal consistency&quot; &lt;em&gt;of the economic model itself&lt;/em&gt;, because &lt;em&gt;by construction&lt;/em&gt; and without any economic assumptions, $E(X\mid I) = X+ e,\; E(e\mid I) =0 $.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The fact that the predominant economic model framework has been that of the &quot;representative&quot; (identical) consumer, nevertheless blurred the distinction between the aggregate expectation, and individual expectations on aggregate variables. This provided shallow &quot;micro-foundations&quot; to the REH, (shallow because it is not really micro-founded, that which essentially assumes away the need to aggregate), but also, it moved the debate into the arena of &lt;em&gt;individual&lt;/em&gt; expectations formation and whether &lt;em&gt;individuals&lt;/em&gt; use information efficiently or not, which raised valid objections as those mentioned in the answer by @EnergyNumbers.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But really, at the individual level, the hypothesis that individuals use the mathematical expected value comes essentially from Expected Utility theory, that predates the Rational Expectations, and has a debate on its own (also here in &lt;a href=&quot;https://economics.stackexchange.com/questions/95/experiments-contradicting-the-expected-utility-model&quot;&gt;Economics.SE&lt;/a&gt;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another set of &quot;arguments against&quot; the REH (which gave very interesting literature), was collected early on in the book &quot;&lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0521310954&quot; rel=&quot;nofollow noreferrer&quot;&gt;Individual forecasting and aggregate outcomes - Rational Expectations examined&quot; 1983 R. Frydman and E. Phelps (ed)&lt;/a&gt;. Of which I mention two:  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) Being an &lt;em&gt;equilibrium&lt;/em&gt; concept, &lt;strong&gt;REH requires co-ordination of expectations formation&lt;/strong&gt; (which is really not that realistic) or &lt;em&gt;properties of Nash-equilibrium&lt;/em&gt;: this last insight gave us &quot;&lt;strong&gt;Eductive Expectations&lt;/strong&gt;&quot; and some really thoughtful works by &lt;a href=&quot;http://en.wikipedia.org/wiki/Roger_Guesnerie&quot; rel=&quot;nofollow noreferrer&quot;&gt;Roger Guesnerie&lt;/a&gt;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) The second one, which became rather more widely spread than Eductive Expectations, is &quot;&lt;strong&gt;Adaptive Learning&lt;/strong&gt;&quot; (see &lt;a href=&quot;http://press.princeton.edu/titles/7097.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;&quot;Learning and Expectations in Macroeconomics&quot; By Evans and Honkapohja, 2001&lt;/a&gt;).&lt;br&gt;&#xA;Adaptive Learning pointed out that &lt;strong&gt;REH assumes that economic agents know the &lt;em&gt;structure&lt;/em&gt; of their environment perfectly&lt;/strong&gt;. So in Adaptive Learning models we have the first systematic approach to &lt;em&gt;model uncertainty&lt;/em&gt; : as economists, so economic agents do not know the environment perfectly, and they have to &lt;em&gt;estimate&lt;/em&gt; it and learn it gradually (hence &quot;adaptive learning&quot;). In this strand of literature, &quot;learning&quot; is done through econometric methods, mainly least-squares (which is a very intuitive least-distance mathematical approximation method). Roughly speaking, here agents' expectations are not the expected values, but the &lt;em&gt;estimated&lt;/em&gt; expected values. This creates much more interesting and realistic dynamics, that some times may converge (someday) to an REH equilibrium (which makes Adaptive Learning a &quot;selection mechanism&quot; for the sometimes multiple REH equilibira), or to some other point, not predicted by REH.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Research into the issue of &lt;em&gt;aggregate expectations&lt;/em&gt; formation and modeling is currently exploding, see for example another &lt;a href=&quot;http://press.princeton.edu/titles/10002.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Frydman &amp;amp; Phelps (ed.) book, &quot;Rethinking Expectations&quot; (2012)&lt;/a&gt;, in parallel with the emerging &quot;Post-Walrasian&quot; direction in Macroeconomics (see &lt;a href=&quot;http://www.cambridge.org/gr/academic/subjects/economics/macroeconomics-and-monetary-economics/post-walrasian-macroeconomics-beyond-dynamic-stochastic-general-equilibrium-model&quot; rel=&quot;nofollow noreferrer&quot;&gt;D. Colander (ed). Post-Walrasian Macroeconomics 2006)&lt;/a&gt;.  &lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-03-26T12:12:23.300" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="142" PostTypeId="1" AcceptedAnswerId="5671" CreationDate="2014-11-20T03:33:54.687" Score="6" ViewCount="677" Body="&lt;p&gt;What is the advantage and disadvantage of fiscal illusion policy for the financial market?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Fiscal illusion suggests that when government revenues are not completely transparent or are not fully perceived by taxpayers, then the cost of government is seen to be less expensive than it actually is.&lt;/p&gt;&#xA;" OwnerUserId="95" LastActivityDate="2015-05-15T13:40:39.780" Title="What is the advantage and disadvantage of fiscal illusion policy in terms for the financial market?" Tags="&lt;decision-theory&gt;&lt;uncertainty&gt;&lt;long-run&gt;&lt;development&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="143" PostTypeId="2" ParentId="20" CreationDate="2014-11-20T03:37:43.823" Score="1" Body="&lt;p&gt;In econometrics and statistics, you sometimes will truncate outliers. Otherwise, maybe it's worth mentioning that in the business of predicting, analysts are punished for either being wrong, but their punished even more if they were boldly wrong. This is a form of herding behavior. Deviating from the consensus can be disproportionately risky.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here's a paper that talks about it: &quot;&lt;a href=&quot;https://www.princeton.edu/~hhong/rje-analyst.pdf&quot; rel=&quot;nofollow&quot;&gt;Security analysts’ career concerns and&#xA;herding of earnings forecasts&lt;/a&gt;&quot; in the RAND Journal of Economics.&lt;/p&gt;&#xA;" OwnerUserId="59" LastActivityDate="2014-11-20T03:37:43.823" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="144" PostTypeId="2" ParentId="107" CreationDate="2014-11-20T04:51:23.343" Score="6" Body="&lt;h1&gt;ICAPM Factors&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;People have chosen different ways to pick factors. &lt;a href=&quot;http://rady.ucsd.edu/faculty/directory/valkanov/pub/classes/mfe/docs/ChenRollRoss_JB_1986.pdf&quot; rel=&quot;noreferrer&quot;&gt;Chen, Roll and Ross&lt;/a&gt; are a classic example of attempts to find reasonable ICAPM factors. Fama-French factors are often explained as &lt;em&gt;correlated&lt;/em&gt; with underlying ICAPM factors. Other researchers have chosen to look for factors without assuming outwardly observable exposures by analyzing returns using factor analysis or principal components.&lt;/p&gt;&#xA;&#xA;&lt;h1&gt;Explanations of Fama-French&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;I don't know if there are &quot;commonly accepted&quot; explanations for the Fama French factors. This is not to say that there aren't explanations, there are a lot of them. Just no one seems to agree on which ones are &quot;best&quot;. Candidates include both consumption based explanations AND production based models, each of which relates Fama-French factors to underlying economic variables. Cochrane has a nice summary of the performance of both in pricing Fama-French portfolios &lt;a href=&quot;http://faculty.chicagobooth.edu/john.cochrane/research/papers/financial_and_real_proofs_aug_07.pdf&quot; rel=&quot;noreferrer&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;h1&gt;Additional factors commonly used&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2287202&quot; rel=&quot;noreferrer&quot;&gt;Fama and French&lt;/a&gt; are now talking about a five-factor asset pricing model which also includes profitability and investment, similar to &lt;a href=&quot;http://rnm.simon.rochester.edu/research/OSoV.pdf&quot; rel=&quot;noreferrer&quot;&gt;Novy-Marx&lt;/a&gt;'s paper and work by &lt;a href=&quot;http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1418117&quot; rel=&quot;noreferrer&quot;&gt;Chen, Novy-Marx and Zhang&lt;/a&gt; which more directly relates to production asset pricing. &lt;a href=&quot;http://www.bauer.uh.edu/rsusmel/phd/jegadeesh-titman93.pdf&quot; rel=&quot;noreferrer&quot;&gt;Momentum&lt;/a&gt; is also a consistent candidate, although it's a real pain to put any kind of explanation to. There are tons of others. &lt;a href=&quot;http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2249314&quot; rel=&quot;noreferrer&quot;&gt;This paper&lt;/a&gt; lists many of them, as well as calling the significance of some of them into question.&lt;/p&gt;&#xA;" OwnerUserId="54" LastActivityDate="2014-11-20T04:51:23.343" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="145" PostTypeId="1" AcceptedAnswerId="202" CreationDate="2014-11-20T04:52:30.680" Score="13" ViewCount="646" Body="&lt;p&gt;In signaling games, it seems that the Cho Kreps refinement (intuitive criterion) is the go to refinement for eliminating bad sequential equilibria. &lt;a href=&quot;http://econweb.ucsd.edu/~jsobel/Papers/EquilibriumSelectionSignalingGames.pdf&quot;&gt;Divine equilibrium&lt;/a&gt; and &lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/0022053186900220&quot;&gt;perfect sequential equilibrium&lt;/a&gt; are also interesting refinements though. It seems more common that these are compared to Cho Kreps. Are there any interesting examples comparing the differences between perfect sequential and divine equilibrium? I've never seen the two concepts discussed together. &lt;/p&gt;&#xA;" OwnerUserId="14" LastEditorUserId="1601" LastEditDate="2019-05-19T19:40:26.277" LastActivityDate="2019-05-19T19:40:26.277" Title="When does the Divine Equilibrium refinement coincide with that of Perfect Sequential Equilibrium?" Tags="&lt;game-theory&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="146" PostTypeId="2" ParentId="110" CreationDate="2014-11-20T05:12:54.780" Score="3" Body="&lt;p&gt;&lt;strong&gt;Mostly Harmless Econometrics&lt;/strong&gt; is probably what you're looking for. However, that's because you're a math major--it's probably not a good recommendation for your average undergrad Econ major (the book itself is quirky and offbeat, which belies the sophistication of the mathematical methods presented).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In addition to the Econometrics textbooks mentioned by others, you might also want to look at &lt;strong&gt;A Guide to Econometrics&lt;/strong&gt; by Peter Kennedy--it works well as a supplemental text and, like &quot;Mostly Harmless&quot;, it's pretty cheap compared to those textbooks (ex: Wooldridge @ $250 on Amazon).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One last thing you need to check out (I've been recommending this as often as I can): Hal Varian--the chief economist at Google--recently wrote &lt;a href=&quot;https://www.aeaweb.org/articles.php?doi=10.1257/jep.28.2.3&quot; rel=&quot;nofollow&quot;&gt;this&lt;/a&gt; article for the &lt;em&gt;Journal of Economic Perspectives&lt;/em&gt; (&quot;&lt;strong&gt;Big Data: New Tricks for Econometrics&lt;/strong&gt;&quot;), detailing some of the techniques of Machine Learning most relevant to Econometrics (there's also a data set and &lt;strong&gt;R&lt;/strong&gt; code which accompanies the article). And, if that piques your interest, you might want to look at &lt;strong&gt;The Elements of Statistical Learning&lt;/strong&gt; by Hastie, et al.--or, for those looking for something less math-heavy--&lt;strong&gt;An Introduction to Statistical Learning&lt;/strong&gt;, both of which expand on some of the methods detailed by Varian (and both are available in Hardback or as a free pdf from the authors' sites).&lt;/p&gt;&#xA;" OwnerUserId="29" LastActivityDate="2014-11-20T05:12:54.780" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="147" PostTypeId="2" ParentId="132" CreationDate="2014-11-20T05:15:13.160" Score="5" Body="&lt;p&gt;The term bounded rationality was introduced by &lt;a href=&quot;http://en.wikipedia.org/wiki/Herbert_A._Simon&quot; rel=&quot;nofollow&quot;&gt;Herbert Simon&lt;/a&gt;. He wrote&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;The term, bounded rationality, is used to designate rational choice&#xA;  that takes into account the cognitive limitations of both knowledge&#xA;  and cognitive capacity. Bounded rationality is a central theme in&#xA;  behavioral economics. It is concerned with the ways in which the&#xA;  actual decision-making process influences decisions.&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This passage seems to focus only on incomplete information, limited information processing time, limited knowledge -and not on any &quot;psychological biases&quot; like framing effects and the like. But the passage is complemented by a last phrase&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;Theories of bounded rationality relax one or more assumptions of&#xA;  standard expected utility theory&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;which suddenly opens the content of the term to anything. So &quot;bounded rationality&quot; has come to signify &quot;deviations from strict rationality in &lt;em&gt;any way&lt;/em&gt;&quot;, making it rather impossible to arrive at a general, all-encompassing, or even most-encompassing, modeling approach, that at the same time, will be specific enough so as to be operational.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2014-11-20T05:15:13.160" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="148" PostTypeId="2" ParentId="134" CreationDate="2014-11-20T05:42:05.690" Score="4" Body="&lt;p&gt;I think you are correct that this solves the Machina Paradox but I am not sure I would associate your reformulation of the model with the idea of state-dependent utility.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;State-dependent utility is more than a mere extension or modification of the set of outcomes of the expected utility model. To make sense of state dependent utility, you need to have a clear distinction between states and outcomes. In state-dependent utility models, agent have preferences over lists like $( x_1, x_2, \dots , x_S)$ where each $x_i$ is a pair $(outcome, state)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In your example, I do not see clearly what the different states are. My understanding is that there is only one, and that the paradox is resolved by altering the set of outcomes from $\{P,T\}$ to $\{ A,B,C \}$ rather than by relying on different states. If this is correct, then there is no need to refer to state-dependency. Reformulating the outcome set seems enough.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For more on the distinction between state-dependent utility and the VnM model, I once wrote &lt;a href=&quot;https://math.stackexchange.com/questions/779974/von-neumann-morgenstern-independence-axiom-vs-savage-independence-theorm&quot;&gt;an answer about it on math.SE&lt;/a&gt;. See also the relevant section in Mas-Colell, Whinston and Green.&lt;/p&gt;&#xA;" OwnerUserId="38" LastEditorUserId="-1" LastEditDate="2017-04-13T12:19:37.213" LastActivityDate="2014-11-20T05:42:05.690" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="149" PostTypeId="2" ParentId="95" CreationDate="2014-11-20T05:47:07.900" Score="3" Body="&lt;p&gt;Following @Pburg answer and the subsequent discussion in the comments, I wanted to post an alternative Machina Paradox I thought of. Although it might be less pervasive in real life, it seems stronger to me in the sense that it does not rely on some kind of complementarity between the &quot;different&quot; components of each outcome. Consider the following alternative : &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Gamble 1: Win $1 million 99% of the time, win a penny 1% of the time.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Gamble 2: Win $1 million 99% of the time, win nothing 1% of the time. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I suspect that most people prefer winning $1 million for sure to winning a penny for sure to winning nothing for sure, while some people nevertheless prefer gamble 2 to gamble 1.&lt;/p&gt;&#xA;" OwnerUserId="38" LastActivityDate="2014-11-20T05:47:07.900" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="150" PostTypeId="1" AcceptedAnswerId="152" CreationDate="2014-11-20T07:25:36.610" Score="6" ViewCount="291" Body="&lt;p&gt;In the St. Petersburg paradox, we end up with the problem that a rational agent should be willing to play the game for any wager, if we look at expected income or utility of expected income. The standard &quot;solution&quot; to this is to instead look at expected utility of income, where the marginal utility of income is decreasing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Intuitively, decreasing marginal utility (for instance, where utility is logarithmic) of income makes sense, since one could argue that the utility of income comes from purchasing power, and standard indifference curves are convex.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But I've seen people (in a statistics department) point out that playing the game also has a time cost in addition to the monetary wager. This suggests potential other trade-offs that could affect decision making here, such as the fact that this time could be spent on more enjoyable pursuits, or in working and making money, even if the decreasing marginal utility is still the most convincing explanation for people's behavior to me.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How might be time-costs factored into the St. Petersburg problem, in terms of limiting the player's wager, and what literature might provide a good coverage of this?&lt;/p&gt;&#xA;" OwnerDisplayName="user169" LastEditorUserId="4251" LastEditDate="2015-11-26T03:57:08.547" LastActivityDate="2015-11-26T03:57:08.547" Title="Time costs and the St. Petersburg paradox" Tags="&lt;microeconomics&gt;&lt;reference-request&gt;&lt;expected-utility&gt;&lt;dynamic-programming&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="152" PostTypeId="2" ParentId="150" CreationDate="2014-11-20T10:28:13.527" Score="8" Body="&lt;p&gt;Consider the version of the paradox from &lt;a href=&quot;http://en.wikipedia.org/wiki/St._Petersburg_paradox&quot;&gt;Wikipedia&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;A casino offers a game of chance for a single player in which a fair coin is tossed at each stage. The pot starts at 2 dollars and is doubled every time a head appears. The first time a tail appears, the game ends and the player wins whatever is in the pot. Thus the player wins 2 dollars if a tail appears on the first toss, 4 dollars if a head appears on the first toss and a tail on the second, 8 dollars if a head appears on the first two tosses and a tail on the third, 16 dollars if a head appears on the first three tosses and a tail on the fourth, and so on. In short, the player wins 2k dollars, where k equals number of tosses. What would be a fair price to pay the casino for entering the game?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;If there is a finite fixed per-period time cost, $c$, of playing the game then the paradox would not be resolved. The payoff from the lottery would then be&#xA;$$-c+\sum_{t=1}^\infty \left[\frac{1}{2^t}\left(2^t-c\right)\right]=\sum_{t=1}^\infty \frac{1}{2^t}2^t-\sum_{t=0}^\infty \frac{c}{2^t}=-2c+1+1+1+\ldots=\infty$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, as in the original paradox, the value of the lottery is infinite.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An alternative might be to suppose that the marginal cost of time spent is not constant (e.g. it is increasing). However, it is hard to see how one would justify an increasing cost of time without invoking some idea of the dis-utility of time (but the whole purpose of this exercise is to get away from invoking a utility function). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Two solutions that are related (in the sense that they involve a time dimension) and that might be more appealing are:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;(1)&lt;/strong&gt; discounting. Even if your utility of wealth is linear, you might put a low weight on future payments because you have to forego some return during the period between now and when the payment occurs. If the future is discounted at rate $\delta&amp;lt;1$ then the lottery would have value&#xA;$$\sum_{t=1}^\infty\delta^{t-1}\frac{1}{2^t}2^t=\frac{1}{1-\delta}.$$&#xA;Thus, the value of the lottery is finite for any $\delta&amp;lt;1$ and the lottery is more valuable to more patient people (i.e. people with larger $\delta$).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;(2)&lt;/strong&gt; finite lifespan. This is formally equivalent to discounting, but conceptually different. Now the idea is that the player is not going to live forever so there is a chance that they 'die' before having the opportunity to collect the lottery's payoff. In particular, suppose that the player dies at the end of each period with probability $\lambda$ and that the payoff is zero if s/he dies before the end of the lottery. The value of the lottery is therefore&#xA;$$\sum_{t=1}^\infty\lambda^{t-1}\frac{1}{2^t}2^t=\frac{1}{1-\lambda}.$$&#xA;Thus, players who expect to live a long time have a higher willingness to pay for the lottery, but the value of the lottery is finite for anyone who does not expect to live forever.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2014-11-20T10:28:13.527" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="153" PostTypeId="2" ParentId="137" CreationDate="2014-11-20T10:55:01.710" Score="2" Body="&lt;p&gt;First off, you are looking at the wrong column to compare like with like.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Total debt went from \$16.7tr to \$17.8tr but that includes intragovernmental debt.  Changes in this number will net out in the deficit calculation (this is one part of the government lending money to another part).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Secondly, you are starting on the wrong date.  You need to go full year, so start from 30-Sep-2013 and go to 30-Sep-2014 (you would think 1 day wouldn't matter, but a lot happens on that last day of the fiscal year!), so your link should be: &lt;a href=&quot;http://www.treasurydirect.gov/NP/debt/search?startMonth=09&amp;amp;startDay=30&amp;amp;startYear=2013&amp;amp;endMonth=09&amp;amp;endDay=30&amp;amp;endYear=2014&quot; rel=&quot;nofollow&quot;&gt;Treasury Direct FY 2014&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the real number you expect to see change in line with deficit is the &quot;held by public&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This changed from \$11.976tr to \$12.784tr, an increase of $808bn over the period.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So that leaves a gap of $325bn to be explained.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This can be explained by the fact that various things are considered &quot;off budget&quot; for purposes of calculating the deficit, a small example I can remember is the U.S. Postal Service.  Prior to Obama the Iraq and Afghanistan war were considered &quot;off budget&quot;.  I think various overseas aid payments are also off-budget.  Also any loans or asset purchases or financial gains and losses will impact the debt value, but will be treated &quot;off budget&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This &quot;off-budget&quot; idea may seem a little dodgy but it should probably be seen in comparison to corporate accounting.  For corporate accounts you would not expect the income statement and cash flow statement to exactly match.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Doing the Math for 2013&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ok, so this is the best I can find, I'm afraid it is projected for 2014 but it gives you the idea.  We can do the calculation for 2013.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.whitehouse.gov/sites/default/files/omb/budget/fy2015/assets/tables.pdf&quot; rel=&quot;nofollow&quot;&gt;The Budget for Fiscal Year 2015&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Go to page 207, then there is a table showing the bits that contribute to the debt change.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we re-ask your question for 2013 (where we have data), then your links are:&#xA;&lt;a href=&quot;https://www.cbo.gov/publication/44716&quot; rel=&quot;nofollow&quot;&gt;Monthly Budget Review: Summary for Fiscal Year 2014&lt;/a&gt;&#xA;and&#xA;&lt;a href=&quot;http://www.treasurydirect.gov/NP/debt/search?startMonth=09&amp;amp;startDay=30&amp;amp;startYear=2012&amp;amp;endMonth=09&amp;amp;endDay=30&amp;amp;endYear=2013&quot; rel=&quot;nofollow&quot;&gt;Treasury Direct FY2013&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then we see that the deficit was \$680bn and the public debt changed from \$11,269,585,800,039.32   to \$11,976,279,236,073.83 = \$706.7bn&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now according to the budget tables, we see that Unified Deficit is \$680bn but that there is an additional 22bn of changes in financial assets and liabilities, bringing us up to $702bn.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Not bang on, but probably as close as you are going to get - rounding and different sample dates probably makes the difference.  You can see from the projections for 2014 that there is a much bigger value of \$271bn, which is only (!) \$54bn short of the actual number we are seeing.&lt;/p&gt;&#xA;" OwnerUserId="119" LastEditorUserId="119" LastEditDate="2014-11-20T12:16:49.793" LastActivityDate="2014-11-20T12:16:49.793" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="154" PostTypeId="2" ParentId="131" CreationDate="2014-11-20T13:00:43.417" Score="9" Body="&lt;p&gt;There is rather low probability for demand of a good to exhibit the Giffen property at &lt;em&gt;market&lt;/em&gt; level, where averaging over heterogeneous preferences, different income levels and consequent differentiated behavior, will usually offset Giffen phenomena.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Looking at @jmbejara answer, goods that are likely to satisfy all three necessary conditions are drugs like heroin. Heroin is a &quot;good&quot; alright, since, although it may have negative side effects and eventually grave effects, its consumption provides positive instantaneous utility. Here we observe that: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) &lt;strong&gt;Inferior good&lt;/strong&gt; (=income elasticity negative). This comes from data: the bulk of heroin consumption is done by lower-income individuals (that were &quot;lower-income&quot; &lt;em&gt;prior&lt;/em&gt; to any income-detrimental effects that the habit itself may eventually have).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) &lt;strong&gt;Lack of close substitutes&lt;/strong&gt;: heroin becomes a biological &lt;em&gt;need&lt;/em&gt;, because it substitutes for the production of opiates that the human body normally produces itself in order to regulate its sensitivity to stimulus (this is why when the habit is not fed, the addict feels actual &lt;em&gt;pain&lt;/em&gt;. That heroin may also induce a &quot;get-high&quot; state has to do with the fact that the amount of opiates that is inserted in the body by heroin injection exceeds the level that the body would itself produce). This is a very specific service offered, and substances like methadone for example, don't come close enough. More importantly, they are also not freely available, so the substitution effect, even though it may exist, may not be able to actually materialize.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;3) &lt;strong&gt;Substantial percentage of income:&lt;/strong&gt; heroin commands relatively high prices, due to its illegal status (and the associated risk), but also due to the exploitation from the supplier of the necessity and urgency with which the good is demanded. Combined with relatively low income, the condition is likely to be satisfied.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So there is a visible probability that rising heroin prices may lead to an increase in the demand for it, at least for a subset of individuals.  &lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-04-23T02:12:29.583" LastActivityDate="2015-04-23T02:12:29.583" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="156" PostTypeId="2" ParentId="75" CreationDate="2014-11-20T13:35:34.713" Score="18" Body="&lt;p&gt;Let's put the succinct answer by @TheAlmightyBob into an abstract model:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We want to model the labor market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Markets' structure assumptions:&lt;/strong&gt; goods market and labor markets are perfectly competitive. All participants are &quot;too small&quot; economically, and they cannot affect equilibrium price through their quantities demanded/supplied - they are &quot;price takers&quot;. Markets &quot;clear&quot; - i.e. prices adjust so that quantity actually supplied equals quantity actually bought.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Agents assumption:&lt;/strong&gt; There are $n$ identical workers, and $m$ identical firms, that participate in the market. Both populations are fixed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Other assumptions: a) deterministic environment, b) one perishable good produced, c) model in &quot;real terms&quot; (real wage etc, scaled by the price of the good produced).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The typical firm produces according to the technology&#xA;$$Y_j = F_j(K_j,L_j;\mathbf q)  \tag{1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $\mathbf q$ is a vector of parameters. Perfect competition in the goods market, and a perishable good imply that all output produced is sold.The goal of the firm is maximization of capital returns over the choice of labor.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\max_{L_j} \pi_j = F_j(K_j,L_j;\mathbf q) - wL_j$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We are modelling the labor market, so we are interested in the first-order condition&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\partial \pi_j}{\partial L_j} = 0 \tag{2}$$&#xA;and the corresponding input demand schedule&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$L_j^* = L_j^*\left(K_j, \mathbf q, w\right) \tag{3}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Total Labor demand is $L_d = m\cdot L_j^*$. &#xA;The labor market equilibrium assumption implies&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ L_d = L_s \Rightarrow m\cdot L_j^*\left(K_j, \mathbf q, w\right) = L_s \tag{4}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which implicitly expresses the equilibrium wage as a function of technology constants, of per-firm capital, and of labor supplied. In order to fully characterize the labor market, we need to derive also the optimal labor supply.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Each identical worker derives utility from consumption and leisure, subject to a biological limit of available time, $T$, and the budget constraint that consumption equals wage income:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\max_{L_i} U(C_i, T-L_i;\mathbf \gamma),\;\; \text{s.t.} \;C_i= wL_i$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $\gamma$ is a vector of preference parameters, indicating the relative weight between utility from consumption, and from leisure.&#xA;This will give us individual labor supply as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$L_i^* = L_i^*(T,w, \mathbf \gamma)  \tag{5}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and total labor supply is $L_s = n\cdot L_i^*$. Plugging this into $(4)$  we obtain&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$mL_j^*\left(K_j, \mathbf q, w\right) =n L_i^*(T,w, \mathbf \gamma) \tag{6}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we stop here, we have a &lt;em&gt;&lt;strong&gt;partial equilibrium&lt;/strong&gt;&lt;/em&gt; model that examines the labor market. We have fully described the market, and the goals and the constraints of the participants in it (firms and workers), &lt;em&gt;related to the specific market&lt;/em&gt;. We can perform comparative statics in order to see how the various components of $(6)$ affect the equilibrium wage. Among them, &lt;em&gt;there is the capital-per-firm term&lt;/em&gt;, whose effects on wage we can also consider based on $(6)$, by treating it as varying arbitrarily. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In order to turn this model into a &lt;em&gt;&lt;strong&gt;general equilibrium&lt;/strong&gt;&lt;/em&gt; model:&lt;br&gt;&#xA;a) We need to specify things about capital: who owns it/controls it/makes decisions on it. What is the objective functions of these decision makers. This will lead us to an optimal $K_j^*$ as a function of the structure we will impose here. Then, comparative statics with respect to $K_j$ will turn into comparative statics with respect to the factors that affect the determination of $K_j^*$, &lt;em&gt;which may very well prove to involve also $\mathbf q, w$ and even the other parameters in $(6)$&lt;/em&gt;, changing in this way the comparative statics results obtained in a partial equilibrium setting.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;b) We also need to take into account any &lt;em&gt;macroeconomic identities&lt;/em&gt; that characterize this economy, something along the lines of $mY_j \equiv ...$ where the right hand side will be determined by the assumptions we make related to capital, but also, for example, by whether we will assume that the economy is closed or open, or partially open to the outside economic system.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, apart from being more complicated as a model, it may also lead us to different conclusions than partial equilibrium analysis. &lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-06-19T20:10:07.180" LastActivityDate="2015-06-19T20:10:07.180" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="157" PostTypeId="1" CreationDate="2014-11-20T14:10:07.873" Score="2" ViewCount="44" Body="&lt;p&gt;Scoring rules arose in the field of meteorology, with the seminal paper published in 1950, but I can't find any references to their using in economics or finance until Hanson published in 2002. Half a century is a long time, so it seems unlikely that Hanson was the first to use scoring rules.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is the problem just with my Google-fu or was Hanson actually the first? I'm betting on the former.&lt;/p&gt;&#xA;" OwnerUserId="158" LastActivityDate="2014-11-20T15:47:08.067" Title="Was there any use of scoring rules in economics or finance before Hanson published about LMSR?" Tags="&lt;behavioral-economics&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="158" PostTypeId="2" ParentId="140" CreationDate="2014-11-20T14:12:01.663" Score="11" Body="&lt;p&gt;There exists the... &quot;Adam Smith of the Arabs&quot;: &lt;a href=&quot;http://en.wikipedia.org/wiki/Ibn_Khaldun&quot;&gt;&lt;strong&gt;Ibn Khaldun&lt;/strong&gt;&lt;/a&gt;. He lived during the 14th century. The work of his that focuses on Economics is &lt;a href=&quot;http://en.wikipedia.org/wiki/Muqaddimah&quot;&gt;Muqaddimah&lt;/a&gt; translated in English in 1958 as &quot;The Muqaddimah: An Introduction to History&quot;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;He advocated less involvement of the state in production and trade activities, which should focus instead on stabilization policy. He also argued in favor of a reduction in military expenses, in order to invest more on education and technology. He also pointed to the increased efficiency that comes from specialization of labor.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Don't all these sound eerily familiar? (400 years before Adam Smith). For a summary of his economic theories, see &lt;a href=&quot;http://muslimheritage.com/article/economic-theory-ibn-khaldun-and-rise-and-fall-nations&quot;&gt;here&lt;/a&gt;. &lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2014-11-20T14:12:01.663" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="159" PostTypeId="2" ParentId="140" CreationDate="2014-11-20T14:42:34.793" Score="0" Body="&lt;p&gt;For our purposes, &quot;traditional&quot; society refers to an agricultural society. &quot;Modern&quot; economics, at least as understood up to the end of the twentieth century, is the hallmark of an industrial society. Adam Smith was arguably the first economic writer to write about such an economy. His work described how improvements in manufacturing processes (e.g., the division of labor) could not only improve those processes, but the efficiency of society as a whole. It foreshadowed the mass consumption society (a modern construct), and applied to the economies of whole nations, not just individuals.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Adam Smith's &quot;Wealth of Nations&quot; is a blueprint for a modern industrial society. It was actually a little bit ahead of its time, meaning that probably &quot;no one&quot; before him would treat the same subject matter.  (By 1776, &quot;everyone&quot; could see the industrial revolution coming, including the inhabitants of 13 British colonies on the far side of the Atlantic, or &quot;pond,&quot; but it hadn't yet arrived.) The publications of earlier writers discussed mainly the impact of agriculture on society. They referred to a &quot;less modern&quot; world than one where industry dominates the economy.&lt;/p&gt;&#xA;" OwnerUserId="15" LastActivityDate="2014-11-20T14:42:34.793" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="160" PostTypeId="2" ParentId="101" CreationDate="2014-11-20T15:01:19.553" Score="2" Body="&lt;p&gt;There are two major &quot;qualifiers&quot; to the &lt;a href=&quot;http://en.wikipedia.org/wiki/Life-cycle_hypothesis&quot; rel=&quot;nofollow noreferrer&quot;&gt;life-cycle hypothesis&lt;/a&gt; (LCH). Both put forth by John Maynard Keynes in &quot;The General Theory of Employment, Interest, and Money.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first is the &quot;precautionary effect,&quot; that people save more than the LCH would predict because they are uncertain about their future health, life span, medical bills, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A second qualifier is that old people would want to leave a bequest, or legacy to their descendants, and therefore not spend all their savings.&lt;/p&gt;&#xA;" OwnerUserId="15" LastEditorUserId="15" LastEditDate="2017-06-18T16:08:34.930" LastActivityDate="2017-06-18T16:08:34.930" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="161" PostTypeId="2" ParentId="88" CreationDate="2014-11-20T15:05:23.963" Score="3" Body="&lt;p&gt;A Marxian view of the Diamond-Water Paradox would be that diamonds are scarce and expensive BECAUSE they require a lot of labor to produce (at the margin), while water is cheap because it can be produced with relatively little labor (anyone can go down to the river and draw a bucket of water).&lt;/p&gt;&#xA;" OwnerUserId="15" LastActivityDate="2014-11-20T15:05:23.963" CommentCount="11" ContentLicense="CC BY-SA 3.0" />
  <row Id="162" PostTypeId="2" ParentId="62" CreationDate="2014-11-20T15:18:51.477" Score="5" Body="&lt;p&gt;In international trade, this is called &lt;a href=&quot;http://en.wikipedia.org/wiki/Immiserizing_growth&quot;&gt;immiserizing growth&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This occurs when a major producer of a commodity, call it coffee, produces so much coffee that it drives down the price of coffee faster than the rising quantity can make up for it.&#xA;(This happens when the demand for coffee is &quot;inelastic.&quot;) Then the country is worse off then BEFORE the increase in production occurred.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This happened to Brazil in the 1930s (see Celso Furtado, &quot;The Economic Development of Brazil), and the &quot;solution&quot; was for the Brazilian government to buy &quot;cheap&quot; coffee, and store or burn it, to boost the price on international markets.&lt;/p&gt;&#xA;" OwnerUserId="15" LastActivityDate="2014-11-20T15:18:51.477" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="164" PostTypeId="2" ParentId="157" CreationDate="2014-11-20T15:47:08.067" Score="2" Body="&lt;p&gt;Hanson wasn't the first one.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://amstat.tandfonline.com/doi/abs/10.1080/01621459.1969.10501037&quot; rel=&quot;nofollow&quot;&gt;&quot;Scoring rules and the evaluation of probability assessors&quot;&lt;/a&gt; by Winkler was published in the &lt;em&gt;Journal of the American Statistical Association&lt;/em&gt; in 1969 wasn't published in an economics journal but already mentioned economic applications.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Other examples (probably also not the first publications in economics journals, but still earlier than Hanson) are:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Selten (1991), &lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/0165489691900764&quot; rel=&quot;nofollow&quot;&gt;&quot;Properties of a Measure of Predictive Success?&quot;&lt;/a&gt; in &lt;em&gt;Mathematical Social Sciences&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Selten (1998), &lt;a href=&quot;http://link.springer.com/article/10.1007/BF01426214&quot; rel=&quot;nofollow&quot;&gt;&quot;Axiomatic characterization of the quadratic scoring rule&quot;&lt;/a&gt; in &lt;em&gt;Experimental Economics&lt;/em&gt;.&lt;/p&gt;&#xA;" OwnerUserId="120" LastActivityDate="2014-11-20T15:47:08.067" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="165" PostTypeId="2" ParentId="9" CreationDate="2014-11-20T16:12:57.943" Score="3" Body="&lt;p&gt;A negative externality arises when the private net marginal benefit (i.e. the marginal benefit minus the marginal cost) of an activity exceeds the net social benefit. In such cases, the self-interested private decision maker will increase their participation in the activity even though it is socially inefficient for them to do so.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A positive externality arises when the private net marginal benefit (i.e. the marginal benefit minus the marginal cost) of an activity are smaller than the net social benefit. In such cases, the self-interested private decision maker will not increase their participation in the activity even though it is socially efficient for them to do so.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is a semantic distinction to the extend that if one thinks activity $A$ has a negative externality then one can define a new activity $B$, which is simply the &quot;act of not doing $A$&quot; so that $B$ has a positive externality. On this basis, one can argue that every externality is positive or that every externality is negative. For example, many people think that education has a positive externality because educated people make better citizens (e.g they make more informed voting decisions that benefit others). As a matter of semantics, one could argue that this is, in fact, not a positive externality and that what is really going on is that people who do &lt;em&gt;not&lt;/em&gt; educate themselves are exerting a negative externality on those who do by virtue of their ignorance.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Whilst there is some merit to this reasoning, I do not find it helpful. Often, when we study the effects of behaviour, we are interested in comparing those effects to some baseline or benchmark in which the behaviour is absent. When communicating economics to others, it is usually the case that some benchmarks are more intuitive that others. We could, for example, rewrite all of consumer theory in terms of &quot;the dis-utility people experience from not having goods&quot; and look at the &quot;problem of non-consumption dis-utility minimisation&quot;. Doing so would be formally equivalent to the more conventional approach of consumption utility maximisation (only the language changed), but would probably be less intuitive for people trying to understand the economics.(*) At least to me, it is more intuitive to think that people actively choose to undetake some level of education and exert a positive externality on others than to think that everyone receives infinite education by default and the choice of abstaining results in a negative externality.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Besides education, another example that I think fits most intuitively into the positive externalities box is network effects. If I buy a telephone then all of my phone-owning friends are made better off because now they can use their telephone to call one more person that they couldn't reach before. It seems weird to think of the negative externality of not owning a phone.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In terms of taxes versus subsidies: to get to the socially optimal intensity we need to ensure that the private net marginal benefit is zero precisely when the social net marginal benefit is zero. In the case of a negative externality this can be done either by increasing the private marginal cost (via a tax) for the activity or by increasing the private marginal benefit of &lt;em&gt;not&lt;/em&gt; participating in the activity via a subsidy. For example, we could either subsidize low carbon firms or tax heavy polluters. As far as aligning incentives are concerned, the two are equivalent. In most practical cases, the more important consideration is likely to be that of budget constraints and politics:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;In the case of a tax: can the person you are taxing afford to pay the tax and can the tax be levied without seeming vindictive (for example, I think that taxing people without a university degree would be a no-no on these grounds).&lt;/li&gt;&#xA;&lt;li&gt;In the case of a subsidy: can the government raise enough popular support and funding for a subsidy without leaving people with the impression the some parties are receiving unfair government hand-outs?&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;In most cases, thinking about these political and financial constraints makes it clear whether a subsidy should be used. Sometimes a combination of both is used. For example, in the UK the government both taxes petroleum consumption and subsidises electric car ownership.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;(*) Nevertheless, economists do often find it useful to convert the utility maximisation problems into their dual expenditure minimisation problems, which is somehow similar. This technique, though, is usually reserved for more advanced students who already have a well-developed intuition for the economics.&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2014-11-20T18:10:24.787" LastActivityDate="2014-11-20T18:10:24.787" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="166" PostTypeId="1" AcceptedAnswerId="168" CreationDate="2014-11-20T16:23:29.537" Score="27" ViewCount="3470" Body="&lt;p&gt;I'm thinking specifically of bitcoins.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What are the pros and cons of having a fixed number of coins, as opposed to more &quot;normal&quot; currencies?  Would the currency have no inflation?&lt;/p&gt;&#xA;" OwnerUserId="31" LastEditorUserId="119" LastEditDate="2014-11-24T13:07:00.457" LastActivityDate="2014-11-24T13:07:00.457" Title="From an economics perspective, what are the ramifications of a currency with fixed money supply?" Tags="&lt;macroeconomics&gt;&lt;monetary-policy&gt;&lt;cryptocurrency&gt;&lt;inflation&gt;&lt;price-level&gt;" AnswerCount="4" CommentCount="1" FavoriteCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="167" PostTypeId="2" ParentId="166" CreationDate="2014-11-20T16:34:20.310" Score="11" Body="&lt;p&gt;It is a fallacy to conclude that a steady number of coins will give you no change on the monetary value (inflation/deflation). The classical quantity theory of money can be used as a first-order approximation here:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$MV = PY$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $M$ is money, $V$ is the velocity of money, $P$ is the price level and $Y$ is the quantity of real goods. The equation says that the money stock must be sufficient to &quot;buy&quot; all produced goods in the economy, corrected for velocity of money.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now take $M$ as constant (as in bitcoins). We immediately see that changes in $V$ or $Y$, unless they happen to cancel each other, will affect the price level $P$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If bitcoins ever took over as the number one real currency, given that we see GDP increasing over time, c.p., they would have to increase in value (forever). &lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2014-11-21T23:28:14.870" LastActivityDate="2014-11-21T23:28:14.870" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="168" PostTypeId="2" ParentId="166" CreationDate="2014-11-20T17:01:19.680" Score="15" Body="&lt;p&gt;FooBar is quite right that unless you expect GDP growth to stop, fixed nominal supply currencies will lead to deflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A moderate degree of currency inflation serves a number of useful functions in the economy. The most obvious are:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;It induces people to spend their money before it loses its value. In&#xA;a deflationary environment there is an incentive to put money under&#xA;your mattress and spend it in a year when it has greater purchasing&#xA;power. If everbody does this then the lack of demand will lead to a&#xA;decrease in overall economic activity (i.e. a recession).&lt;/li&gt;&#xA;&lt;li&gt;It provides a weapon against downward nominal rigidities. For example, workers are generally reluctant to accept a nominal pay cut, even if market conditions are such that the current wage is above the equilibrium level. Inflation means that their employer can simply increase wages at less than the inflation rate so that the real wage is decreasing.&lt;/li&gt;&#xA;&lt;li&gt;It erodes the real value of nominally denominated debt. Now, this is obviously only a pseudo-advantage because (whilst it benefits debtors) it harms creditors. However, this kind of erosion of debt may be desirable if national economic stability is threatened by high debt levels. Also, since debtors are usually poorer on average than creditors, it can reduce inequality, which may be a normative objective for the government.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Without inflation you miss out on these benefits. The first benefit might not seem like a big deal if you think you can simply set the rate of inflation at zero percent. But it is very hard to hold inflation constant at some target level so attempting to hit zero inflation will almost certainly result in occasional lapses into deflation, with the attendant negative economic consequences.&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2014-11-20T18:08:10.147" LastActivityDate="2014-11-20T18:08:10.147" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="169" PostTypeId="1" AcceptedAnswerId="185" CreationDate="2014-11-20T17:29:17.560" Score="5" ViewCount="67" Body="&lt;p&gt;There is quite a bit of literature on the economics of education. One of the most debated aspects of it arises when estimating the achievement of the student (usually in the form of standardized test scores). Which are the most relevant inputs? Which are &lt;em&gt;not&lt;/em&gt;?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A few usual suspects are:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Parent's education&lt;/li&gt;&#xA;&lt;li&gt;Teacher &quot;quality&quot;, which is by itself an issue. Sometimes it is represented by years of experience, majors acquired, certification, test scores, etc. &lt;/li&gt;&#xA;&lt;li&gt;School inputs&lt;/li&gt;&#xA;&lt;li&gt;Peer effects&lt;/li&gt;&#xA;&lt;li&gt;Teacher absenteeism&lt;/li&gt;&#xA;&lt;li&gt;The list goes on...&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="72" LastActivityDate="2014-11-20T23:34:39.543" Title="Is there some kind of consensus on the determinant factors of education achievement?" Tags="&lt;microeconomics&gt;&lt;education-economics&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="170" PostTypeId="1" AcceptedAnswerId="186" CreationDate="2014-11-20T17:35:23.277" Score="4" ViewCount="416" Body="&lt;p&gt;I personally think technical analysis (TA) is not useful at all but I still see lot of courses about technical analysis, and even people using it.  They have the advantage of being easy to learn and they claim themselves as following the &quot;behavioral economics&quot; theory.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is the traditional &amp;amp; simple TA somehow valid?  I'm asking about the one that uses moving averages, graphs, momentum lines to try to predict market moves.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The behavioral economics theory is valid and 2 people won Nobel prizes because of that, so I'm not arguing its validity, but its consequences or usefulness as an investment method.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Please take into account not only a highly efficient market (eg, the US), but other smaller and less efficient markets (I'm from Argentina).&lt;/p&gt;&#xA;" OwnerUserId="20" LastActivityDate="2014-11-21T00:50:45.677" Title="Is technical analysis somehow a valid method for investment?" Tags="&lt;behavioral-economics&gt;&lt;efficient-markets&gt;" AnswerCount="3" CommentCount="4" FavoriteCount="0" ClosedDate="2014-11-21T14:52:01.017" ContentLicense="CC BY-SA 3.0" />
  <row Id="172" PostTypeId="2" ParentId="166" CreationDate="2014-11-20T18:18:42.623" Score="7" Body="&lt;p&gt;The other answers are correct in respect of what would happen if the &lt;strong&gt;money supply&lt;/strong&gt; of a currency was kept constant, however &lt;strong&gt;there is nothing in bitcoins to ensure that money supply will stay fixed&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is such a common misconception so I'll repeat it.  Bitcoins limit the money base, but that does not limit the money supply.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The money supply is the money base times the money multiplier, and the money multiplier comes from fractional reserve banking.  There is nothing in bitcoins to prevent fractional reserve banking, and we are already starting to see website that allow you to lend or invest bitcoins.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Someone could, if they wished, set up a bitcoin bank.  Savers would deposit bitcoins and earn interest, while borrowers could take out bitcoin loans.  As soon as you do this the money supply (the $M$ in $MV=PY$) increases.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, if bitcoins became a global currency, then you would almost certainly find that the money supply was much larger than the base limit - the money multiplier would expand as more banks entered the system.  We don't have any concrete evidence to suggest what the limit on the money multiplier would be, but even in &quot;normal&quot; currencies the money multiplier can exceed 10x.  The legal limit in the EU is 50x.  With no regulatory capital or reserve requirements, who knows what the practical limit could be.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;So what does fixed money base do?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Having a fixed money base means that there is no central bank to control the money supply.  If the economy heats up, you would normally raise rate, which would reduce the money base and tighten the money supply.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this case there would be nothing anyone could do - the world would simply rely on the &quot;free banking sector&quot; to do the right thing.  This was actually not far off the way the US ran it's currency during the period when it had no central bank (between 1836 and 1913).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What you could do is control the money multiplier directly.  This would mean passing laws and regulations forbidding fractional banking above a certain fraction.  For bitcoins doing so would be almost impossible, not to mention against the whole &quot;free&quot; concept.  You would have reintroduced a central controller for the currency.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The free banking era saw wild swings in money supply (e.g. more than doubling in a year) and hence huge inflation or deflation as banks grew and failed. It is anyone's guess what would be in store if bitcoins became a major currency, but there is no reason to believe they wouldn't have inflation.&lt;/p&gt;&#xA;" OwnerUserId="119" LastEditorUserId="119" LastEditDate="2014-11-20T22:31:45.500" LastActivityDate="2014-11-20T22:31:45.500" CommentCount="9" ContentLicense="CC BY-SA 3.0" />
  <row Id="173" PostTypeId="1" CreationDate="2014-11-20T18:42:27.837" Score="14" ViewCount="321" Body="&lt;p&gt;Following part 5 of @Lateral fractal answer to &lt;a href=&quot;https://economics.meta.stackexchange.com/questions/12/handy-hints-for-committing-to-the-beta/13#13&quot;&gt;&quot;Handy Hints for Committing to the Beta&quot; on the meta&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;Have fun! No fun = No play. No play = No beta. I'm sure I'm not the only one to feel that a fresh private beta is like unwrapping an early Christmas present.&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;and in order to complement the question &lt;a href=&quot;https://economics.stackexchange.com/questions/140/what-was-economics-like-as-a-field-before-adam-smith-the-father-of-modern-eco&quot;&gt;&quot;What was economics like as a field before Adam Smith, the father of &lt;em&gt;modern&lt;/em&gt; economics?&quot;&lt;/a&gt;, I propose the following contest:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Let us try to elect the &quot;best earliest&quot; written instance of economic thought.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Answers should contain a short description of the work at stake with proper reference and dates, and votes by users will decide of the winner. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Without a single hope of success, I suggest that people vote according to the following criterion&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ Vote_i(answer~a) = \begin{cases} 1, \qquad \text{if } u_i(e_a,d_a) \geq T_i \\   0, \qquad \text{if } u_i(e_a,d_a) &amp;lt; T_i\end{cases} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $r_a$ is your subjective assessment of the degree of &quot;economicness&quot; of the described work, $d_a$ is the date at which the work was written, and $u_i$ and $T_i$ are a utility function and threshold of your choice. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Good luck to everyone!&lt;/p&gt;&#xA;" OwnerUserId="38" LastEditorUserId="2776" LastEditDate="2017-09-15T12:35:03.453" LastActivityDate="2017-09-15T17:29:50.647" Title="Contest: earliest written instance of economic thought" Tags="&lt;soft-question&gt;&lt;history-economic-thought&gt;" AnswerCount="5" CommentCount="3" FavoriteCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="174" PostTypeId="2" ParentId="173" CreationDate="2014-11-20T18:43:25.327" Score="13" Body="&lt;p&gt;I was recently amazed to discover instances of &lt;a href=&quot;http://www.illc.uva.nl/COMSOC/&quot; rel=&quot;noreferrer&quot;&gt;computational social choice&lt;/a&gt; in &lt;a href=&quot;http://en.wikipedia.org/wiki/The_Nine_Chapters_on_the_Mathematical_Art&quot; rel=&quot;noreferrer&quot;&gt;The Nine Chapters on the Mathematical Art&lt;/a&gt;, the Chinese counterpart of Euclid's element, written by several generations of scholars &lt;strong&gt;from the 10th&lt;/strong&gt; up to the 2nd century BCE.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The core issues in social choice theory is the question of fair allocation, or fair collective decision. Once an allocation rule is devised, it remains to make it applicable. One of the topics of &lt;a href=&quot;http://www.illc.uva.nl/COMSOC/&quot; rel=&quot;noreferrer&quot;&gt;computational social choice&lt;/a&gt; is precisely to build efficient algorithm to compute the solution of allocations rules given some inputs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is precisely the topic of chapter 3 and chapter 6 of &lt;a href=&quot;http://en.wikipedia.org/wiki/The_Nine_Chapters_on_the_Mathematical_Art&quot; rel=&quot;noreferrer&quot;&gt;The Nine Chapters on the Mathematical Art&lt;/a&gt;, which are entitled (resp.)  &quot;Proportional Distribution&quot; and &quot;Fair Levies&quot;. The two fair division rules considered are the proportional division and the weighted proportional division rule. These rules are taken as given. They are not justified in any axiomatic way in the book, which would be the standard practice in modern social choice theory. Yet algorithm are proposed to apply them which in my views makes it a legitimate early instance of &lt;a href=&quot;http://www.illc.uva.nl/COMSOC/&quot; rel=&quot;noreferrer&quot;&gt;computational social choice&lt;/a&gt; ( because it answer the question  &quot;&lt;em&gt;given&lt;/em&gt; this allocation rule, how can we compute its solution for any possible inputs?&quot; at a time when the answer to this question was far from obvious for the allocation rules considered).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Some example problems you will find in chapter 3 :&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(All the examples below are taken form &lt;a href=&quot;http://books.google.com/books/about/The_Nine_Chapters_on_the_Mathematical_Ar.html?id=tnplngEACAAJ&quot; rel=&quot;noreferrer&quot;&gt;the excellent commented edition of the Nine chapters by Kangshen Shen, John N. Crossley, Hui Liu Oxford University Press, 1999&lt;/a&gt;. This edition contains great references to instances of these problem in written sources from other civilization, such as in Euclid's Elements)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;[Problem 1]&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot; Now Given five officials of different ranks : Dafu, Bugeng, Zanniao,&#xA;  Shangzao, and Gongshi jointly hunting 5 deers. Tell : how many does&#xA;  each get if [the deer are] distributed according to their ranks?&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;[Problem 2]&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;Now given a cow, a horse and a sheep have eaten up the seedlings of&#xA;  someone's field. The landlord demands 5 duo of millet as compensation.&#xA;  The shepherd says : &quot;My sheep eats hals as much as the horse.&quot; The&#xA;  horse owner says : &quot;My horse eats half as much as a cow.&quot; The&#xA;  compensation is to be distributed according to the rates. Tell : how&#xA;  much should each repay?&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;An example problems you will find in chapter 9 :&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;[Problem 1]&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;Now given the task of transporting tax millet is distributed among four counties. County A, 8 days from the tax bureau, has 10 000 households; County B, 10 days from the bureau, has 9500 households; County C, 13 days form the bureau, has 12350 households; County D, 20 days from the bureau, has 12 200 households. The total tax millet is 250000 hu needing 10000 carts. Assume the task is to be distributed in accordance with the distance from the bureau and the number of household. Tell : how much millet should each county transport? How many cart does each county employ?&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="38" LastEditorUserId="38" LastEditDate="2016-04-07T14:53:13.317" LastActivityDate="2016-04-07T14:53:13.317" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="175" PostTypeId="2" ParentId="140" CreationDate="2014-11-20T19:00:12.800" Score="10" Body="&lt;p&gt;Direct predecessors to Adam Smith within the classical tradition (maybe a more useful distinction than modern) include Hume, Locke and Dudley North. Before the classical economists, there were the &lt;strong&gt;physiocrats&lt;/strong&gt; (18th century), such as Francois Quesnay and Turgot. The physiocrats emphasised agricultural productivity as a driver of the wealth of nations. They were contemporaneous with, but also preceded by &lt;strong&gt;mercantilists&lt;/strong&gt; (16th century - 18th century). Mercantilists mostly concentrated on creating a favorable balance of trade, which would allow reserves to accumulate in the possession of an absolute ruler. They emphasized government control of the economy as an extension of state power. The mercantilists had a lot of influence in the policies of nations, for instance in the form of Colbert. Famous writers might include de Malynes and Mun. Mercantilists were one of the main targets of Adam Smith's critique. The distinction being that mercantilists believed the quantity of reserves to be the ultimate source of a nation's wealth and so emphasized protectionism, while Smith focused more on trade allowing inputs to become more productive. In doing so he was very influenced by Quesnay to whom he had considered dedicating The Theory of Moral Sentiments. The inclusion of gains from trade, self-interest and competition leading to increased productivity, and division of labor distinguishes Smith from these earlier writings and forms the link to &quot;modern&quot; economics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There were also &quot;economists&quot; long before the 16th century, the connections between them and economics is we understand it tends to become more tenuous the farther back you go. Iba Khaldun is a good example, Aristotle (or more likely one of his students) literally wrote a book called &quot;Economics&quot; (this deals with economics in the literal sense of management of a household), you could also talk about Hesiod's &quot;Works and Days&quot; (a very old text indeed) being an example of early economics. &lt;/p&gt;&#xA;" OwnerUserId="54" LastEditorUserId="54" LastEditDate="2014-11-20T20:27:17.053" LastActivityDate="2014-11-20T20:27:17.053" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="176" PostTypeId="2" ParentId="170" CreationDate="2014-11-20T19:10:14.373" Score="1" Body="&lt;p&gt;As I mentioned in my comment, I would start by looking at chapter 2, &quot;The Predictability of Asset Returns,&quot; in the book by Campbell, Lo, and MacKinlay's book, &quot;The Econometrics of Financial Markets.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, some papers that you might want to take a look at are &quot;The Dog That Did Not Bark: A Defense of Return Predictability&quot; by Cochrane or &quot;Predictive Regressions: A Present-Value Approach&quot; by Koijen and Van Binsbergen. Cochrane makes a point about distinguishing &quot;predictability&quot; from &quot;forcastability.&quot; I'll have to read more to get a better idea, but this should be a good start.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, you might find this paper enlightening: &quot;Luck versus Skill in the Cross-section of Mutual Fund Returns,&quot; by Fama and French. The idea is to try to figure out the the distribution of mutual fund alphas that we would expect to observe if fund performance were just a result of luck. They then compare it to the actual observed distribution of fund alphas and we see that it's likely that funds are performing worse than what you would expect by just luck (over the distribution). As they say in the abstract:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The aggregate portfolio of actively managed U.S. equity mutual funds is close to the market portfolio, but the high costs of active management show up intact as lower returns to investors. Bootstrap simulations suggest that few funds produce benchmark-adjusted expected returns sufficient to cover their costs. If we add back the costs in fund expense ratios, there is evidence of inferior and superior performance (nonzero true α) in the extreme tails of the cross-section of mutual fund α estimates.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="59" LastActivityDate="2014-11-20T19:10:14.373" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="177" PostTypeId="2" ParentId="169" CreationDate="2014-11-20T19:28:40.600" Score="1" Body="&lt;p&gt;I don't think there is at all a consensus. This is a huge, active field of research in economics. Though, if you'd like to get a feel for the work that's going on, here are two papers by Raj Chetty, John N. Friedman, and Jonah Rockoff (one paper in two parts) that have gotten a lot of attention:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;https://www.aeaweb.org/articles.php?doi=10.1257/aer.104.9.2593&quot; rel=&quot;nofollow&quot;&gt;Measuring the Impacts of Teachers I: Evaluating Bias in Teacher Value-Added Estimates&lt;/a&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;https://www.aeaweb.org/articles.php?doi=10.1257/aer.104.9.2633&quot; rel=&quot;nofollow&quot;&gt;Measuring the Impacts of Teachers II: Teacher Value-Added and Student Outcomes in Adulthood&lt;/a&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;You might also want to check out the work being done by &lt;a href=&quot;http://heckman.uchicago.edu/page/professor-james-heckman&quot; rel=&quot;nofollow&quot;&gt;James Heckman&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://www.heckmanequation.org/&quot; rel=&quot;nofollow&quot;&gt;Heckman Equation&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://hceconomics.uchicago.edu/news/early-childhood-education-can-pay-big-rewards-families-and-society&quot; rel=&quot;nofollow&quot;&gt;HCEO&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="59" LastActivityDate="2014-11-20T19:28:40.600" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="178" PostTypeId="1" CreationDate="2014-11-20T20:38:31.383" Score="3" ViewCount="105" Body="&lt;p&gt;I have heard that a paper by Heckman and Vytlacil demonstrate comparisons between nonparametric Heckman selection (NP Heckit) and the LATE (local average treatment effect) framework. Could someone clarify the differences and similarities between LATE and Heckman selection?&lt;/p&gt;&#xA;" OwnerUserId="59" LastActivityDate="2014-11-20T20:38:31.383" Title="Differences between LATE and Heckman Selection" Tags="&lt;econometrics&gt;&lt;identification&gt;&lt;nonparametrics&gt;&lt;structural-estimation&gt;&lt;reduced-form-estimation&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="179" PostTypeId="1" CreationDate="2014-11-20T20:49:31.847" Score="13" ViewCount="5361" Body="&lt;p&gt;I'm interested in income and social mobility. I understand that Piketty's research deals with the the distribution of income over a long time period. I have also seen some of Chetty and Saez's &lt;a href=&quot;http://www.equality-of-opportunity.org/&quot;&gt;research concerning income and social mobility in the US&lt;/a&gt;. I'm wondering, what data do Chetty and Saez work use? What other data is potentially available and how far back does it go?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It would be nice to see who could find the data that goes back the farthest. (Also, the data does not necessarily have to be US data.)&lt;/p&gt;&#xA;" OwnerUserId="59" LastEditorUserId="59" LastEditDate="2014-11-24T05:26:54.510" LastActivityDate="2018-03-26T13:32:50.447" Title="Where can I find data on income and social mobility over time? How far back is data available?" Tags="&lt;econometrics&gt;&lt;inequality&gt;&lt;data-request&gt;" AnswerCount="2" CommentCount="5" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="180" PostTypeId="1" AcceptedAnswerId="187" CreationDate="2014-11-20T20:56:40.373" Score="41" ViewCount="25583" Body="&lt;p&gt;I've heard a lot of definitions given for structural estimation. But it's never seemed entirely clear to me. Some times I've heard that what one person might call &quot;reduced form&quot; estimation should actually be called structural estimation. Sorry I don't have an example to illustrate, but I was wondering if somebody could clarify, hopefully with a link to a paper or some other source. What is structural estimation compared to reduced form estimation? Does the potential outcomes framework count as a structural equation?&lt;/p&gt;&#xA;" OwnerUserId="59" LastActivityDate="2017-04-29T09:24:49.300" Title="What is structural estimation compared to reduced form estimation?" Tags="&lt;econometrics&gt;&lt;structural-estimation&gt;&lt;reduced-form-estimation&gt;" AnswerCount="1" CommentCount="3" FavoriteCount="36" ContentLicense="CC BY-SA 3.0" />
  <row Id="181" PostTypeId="1" CreationDate="2014-11-20T20:59:36.327" Score="-4" ViewCount="363" Body="&lt;p&gt;Follow on to &lt;a href=&quot;https://economics.stackexchange.com/q/166/31&quot;&gt;this question&lt;/a&gt;:&lt;/p&gt;&#xA;&lt;p&gt;Would a cryptocurrency with a base that expanded at a fix rate face fewer difficulties than one with a stagnant base?&lt;/p&gt;&#xA;&lt;p&gt;&lt;strong&gt;Edit:&lt;/strong&gt;&#xA;I'm referring specifically to the issues raised by &lt;a href=&quot;https://economics.stackexchange.com/a/168/31&quot;&gt;this answer&lt;/a&gt;:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;A moderate degree of currency inflation serves a number of useful functions in the economy. The most obvious are:&lt;/p&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;It induces people to spend their money before it loses its value. In&#xA;a deflationary environment there is an incentive to put money under&#xA;your mattress and spend it in a year when it has greater purchasing&#xA;power. If everbody does this then the lack of demand will lead to a&#xA;decrease in overall economic activity (i.e. a recession).&lt;/li&gt;&#xA;&lt;li&gt;It provides a weapon against downward nominal rigidities. For example, workers are generally reluctant to accept a nominal pay cut, even if market conditions are such that the current wage is above the equilibrium level. Inflation means that their employer can simply increase wages at less than the inflation rate so that the real wage is decreasing.&lt;/li&gt;&#xA;&lt;li&gt;It erodes the real value of nominally denominated debt. Now, this is obviously only a pseudo-advantage because (whilst it benefits debtors) it harms creditors. However, this kind of erosion of debt may be desirable if national economic stability is threatened by high debt levels. Also, since debtors are usually poorer on average than creditors, it can reduce inequality, which may be a normative objective for the government.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="31" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2014-11-24T10:35:05.153" Title="Friedman k% applied to cryptocurrency" Tags="&lt;macroeconomics&gt;&lt;monetary-policy&gt;&lt;cryptocurrency&gt;&lt;friedman&gt;" AnswerCount="1" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="182" PostTypeId="1" CreationDate="2014-11-20T22:04:24.633" Score="12" ViewCount="795" Body="&lt;p&gt;When interest rates go up one percent (not one percentage point), what happens to demand for credit? I've only been able to find two papers in this area:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://www.nber.org/papers/w8314&quot;&gt;Gross and Souleles (2001)&lt;/a&gt; study credit cards and find -1.3% &lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://content.knowledgeplex.org/kp2/kp/text_document_summary/scholarly_article/relfiles/jhr_0802_follain.pdf&quot;&gt;Follain and  Dunsky (1997)&lt;/a&gt; study mortgages and find as -1.5 to -3.5 &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;There are two margins here of potential interest. First, shocks to one borrowing rate can shift borrowing into other sources, leading to overestimation of total debt elasticities. Second, shocks to borrowing rates can lead to a mixture of lower spending overall and more cash spending. Overall wealth is an interesting example of the other the latter, because wealthy households can choose to spend less or borrow less in response to higher rates while poor households can only spend less. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are there papers I've missed that study this effect? Of particular interest are studies that additionally explore these effects on different sub-populations.  &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="43" LastEditDate="2015-02-14T17:39:51.070" LastActivityDate="2015-02-14T17:39:51.070" Title="What are estimates of the elasticity of demand for credit with respect to interest rates?" Tags="&lt;academic-graduate&gt;&lt;elasticity&gt;&lt;reference-request&gt;&lt;consumer-credit&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="183" PostTypeId="2" ParentId="181" CreationDate="2014-11-20T22:58:16.283" Score="1" Body="&lt;p&gt;Nominal rigidities, the idea that prices are easier to adjust up than down, are thought to be a major channel for the harm of deflation. In principal, the growing supply of bitcoins helps offset the general economic growth leading to less deflation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The following is the rule for determining how difficult it is to mine bitcoins:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The difficulty is the measure of how difficult it is to find a new block compared to the easiest it can ever be. It is recalculated every 2016 blocks to a value such that the previous 2016 blocks would have been generated in exactly two weeks had everyone been mining at this difficulty.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Source: &lt;a href=&quot;https://en.bitcoin.it/wiki/Mining&quot; rel=&quot;nofollow&quot;&gt;Mining&lt;/a&gt; from the Bitcoin Wiki&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is the rule for the productivity of a block:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Bitcoins are created each time a user discovers a new block. The rate&#xA;  of block creation is approximately constant over time: 6 per hour. The&#xA;  number of Bitcoins generated per block is set to decrease&#xA;  geometrically, with a 50% reduction every four years. The result is&#xA;  that the number of Bitcoins in existence will never exceed 21&#xA;  million. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Source: &lt;a href=&quot;https://en.bitcoin.it/wiki/Controlled_supply&quot; rel=&quot;nofollow&quot;&gt;Controlled supply&lt;/a&gt; from the Bitcoin Wiki &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is a monetary policy rule! Let me contrast it with the &lt;a href=&quot;http://textbooks-savings.info/wp-content/uploads/pdfs/A%20Program%20For%20Monetary%20Stability%20by%20Milton%20Friedman%20-%20Dense%20Reading%20%20But%20Rich%20In%20Thought%20And%20Analysis.pdf&quot; rel=&quot;nofollow&quot;&gt;Friedman (1960)&lt;/a&gt;'s monetary policy rule. First, with bitcoins, the money supply growth rate falls over time to zero. In Friedman (1960) the fiat money supply grows at a constant `k' percent per year. It is often proposed that 'k' be roughly 5 so that the money supply grows at roughly the same long run growth rate and successful, rich country, monetary authorities have achieved in nominal GDP growth rates.  Second, while the supply of bitcoins produced in a year is fixed, the cost to produce them varies with the economic value of bitcoins. If bitcoins are valuable people will try hard to produce them and the adjustment mechanism will ensure they will cost more in electricity and hardware to produce.  The general conclusion that even though the money supply is increasing under this rule it is still likely more wasteful and deflationary than a money supply that grew over time. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Bitcoin and other finite supply cryptocoin systems are converging on 'k'=0. So yes, it does seem superficially that a 'k' percent rule  (k != 0 and more like 5) would be better. But here's a major consideration. Many people have argued that monetary equilibria are in fact bubbles ( &lt;a href=&quot;http://www.jstor.org/stable/1911012&quot; rel=&quot;nofollow&quot;&gt;Tirole (1985)&lt;/a&gt;  and  &lt;a href=&quot;http://www.jstor.org/stable/1826989&quot; rel=&quot;nofollow&quot;&gt;Samuelson (1958)&lt;/a&gt;). So an important caveat to this analysis is that choosing a higher value of 'k' may imperil the monetary equilibrium itself, leading to unstable prices or even hyperinflation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems plausible that a small 'k' wouldn't do this, after all, currently the money supply is growing at something similar to a low but positive 'k' percent. But the key determinate of the value of money to A is how certain he is that B will take it. But B is talking it because she thinks that C will take it. And so on.... As such, the monetary equilibrium today can easily unravel based on expectations of what will happen in the future. So it is possible that high values of 'k' will imperil that stability. We don't really know. &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2014-11-20T22:58:16.283" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="184" PostTypeId="1" AcceptedAnswerId="192" CreationDate="2014-11-20T23:18:35.437" Score="6" ViewCount="574" Body="&lt;p&gt;According to &lt;a href=&quot;http://www.nber.org/papers/w15343.pdf&quot; rel=&quot;noreferrer&quot;&gt;Trabant and Uhlig (2009)&lt;/a&gt;, the Laffer curve for consumption has no peak.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As far as I can make out, the argument is based on the fact that money extracted by taxing consumption ends up back with consumers and then gets taxed again. However I don't understand why the standard idea that taxes deter activity doesn't create a peak.&lt;/p&gt;&#xA;" OwnerUserId="58" LastActivityDate="2014-11-21T09:52:45.357" Title="Why does the Laffer curve for consumption have no peak?" Tags="&lt;macroeconomics&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="185" PostTypeId="2" ParentId="169" CreationDate="2014-11-20T23:34:39.543" Score="4" Body="&lt;p&gt;There is &lt;strong&gt;no solid consensus&lt;/strong&gt; on the inputs that go into educational achievement or attainment. The list of variables is vast and varied. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;One of the most common applications of this is attempting to calculate the returns to education - i.e. the average increase in income that results from one additional year of schooling.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I myself have performed research on this topic in grad school, and a good reference is:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Bronars, Stephen G., and Gerald S. Oettinger. “Estimates of the return to schooling and ability: Evidence from sibling data.” Labour Economics 13.1 (2006) : 19-34. &lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/S0927537104000983&quot; rel=&quot;nofollow&quot;&gt;http://www.sciencedirect.com/science/article/pii/S0927537104000983&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;In my research there were many variables that were statistically significant:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;age&lt;/li&gt;&#xA;&lt;li&gt;gender&lt;/li&gt;&#xA;&lt;li&gt;race&lt;/li&gt;&#xA;&lt;li&gt;marital status&lt;/li&gt;&#xA;&lt;li&gt;union membership&lt;/li&gt;&#xA;&lt;li&gt;year at time of measurement&lt;/li&gt;&#xA;&lt;li&gt;number of siblings&lt;/li&gt;&#xA;&lt;li&gt;religious beliefs&lt;/li&gt;&#xA;&lt;li&gt;opinion on sex ed in schools&lt;/li&gt;&#xA;&lt;li&gt;opinion on national educational spending&lt;/li&gt;&#xA;&lt;li&gt;opinion on education as catalyst for racial/class divides&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Most researchers in this area agree that parental involvement is one of the main determining factors for a child's educational outcome. The difficulty is in quantifying this and other subjective data such as teacher quality and peer effects. This is one of the main issues in the field now - figuring out how to statistically measure non-numerical variables. The opinion variables I mentioned above are from national social surveys and are an attempt to quantify these subjective things. Specifically, my data came from the General Social Survey (GSS) available here: &lt;a href=&quot;http://www3.norc.org/GSS+Website/&quot; rel=&quot;nofollow&quot;&gt;http://www3.norc.org/GSS+Website/&lt;/a&gt; &lt;/p&gt;&#xA;" OwnerUserId="180" LastActivityDate="2014-11-20T23:34:39.543" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="186" PostTypeId="2" ParentId="170" CreationDate="2014-11-20T23:54:18.410" Score="3" Body="&lt;p&gt;The Lo, Mamaysky and Wang paper &lt;a href=&quot;http://www.nber.org/papers/w7613&quot; rel=&quot;nofollow&quot;&gt;Foundations of Technical Analysis: Computational Algorithms, Statistical Inference, and Empirical Implementation&lt;/a&gt; is probably the best investigation of this question. He found there were some patterns that seemed to be useful, notably the Head and Shoulders pattern. &lt;/p&gt;&#xA;" OwnerUserId="84" LastEditorUserId="84" LastEditDate="2014-11-21T00:42:00.963" LastActivityDate="2014-11-21T00:42:00.963" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="187" PostTypeId="2" ParentId="180" CreationDate="2014-11-21T00:09:47.640" Score="51" Body="&lt;p&gt;Structural estimation is a term coined by the Cowles commission which at the time seems to have been dominated by Haavelmo, Koopmans and a few others. The motto of the Cowles commission (after 1965) was: &quot;Theory and Measurement&quot;. The phrase represents the underlying rationale of structural modelling, that measurement cannot be done without some kind of theory. To my knowledge, the phrase was first used by Koopmans in &quot;&lt;a href=&quot;http://www.jstor.org/stable/1905689&quot; rel=&quot;noreferrer&quot;&gt;Identification Problems in Economic Model Construction&lt;/a&gt;&quot;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Systems of structural equations may be composed entirely on the basis&#xA;  of economic &quot;theory.&quot; By this term we shall understand the combination of (a) principles of economic of behavior derived from general observation--partly introspective, partly through interview or experience--of the motives of economic decisions,(b) knowledge of legal and institutional rules restricting individual behavior (tax schedules, price controls, reserve requirements, etc.), (c) technological knowledge, and (d) carefully constructed definitions of variables.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Structural equations are then equations that come from an underlying economic (or physical, or legal) model&lt;/strong&gt;. Structural estimation is precisely estimation which uses these equations to identify parameters of interest, and inform counter-factuals. Importantly, these parameters are usually taken to be &lt;em&gt;invariant&lt;/em&gt;, and therefore counter-factuals taken from their estimates will be completely &quot;correct&quot;. Counter-factuals were the main unit of interest to the Cowles commission.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Koopmans also discusses reduced form estimation:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;By the &lt;em&gt;reduced form&lt;/em&gt; of a complete set of linear structural equations... we mean the form obtained by solving for each of the &lt;em&gt;dependent&lt;/em&gt; (i.e., nonlagged endogenous) variables, and in terms of transformed disturbances (which are linear functions of the disturbances in the original structural equations).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The linearity is an artifact of the times (this was published in 1949!) but the point is that reduced-form equations are equations written in terms of economic variables which do not have a structural interpretation as defined above. So, a linear regression will be a reduced-form of some true structural model, because linear regression &lt;em&gt;usually&lt;/em&gt; does not have a true economic interpretation. This does not mean that reduced form equations cannot be used to identify parameters in structural equations - in fact this is precisely how &lt;a href=&quot;https://ideas.repec.org/a/jae/japmet/v8y1993isps85-118.html&quot; rel=&quot;noreferrer&quot;&gt;indirect inference&lt;/a&gt; works - just that they do not represent a deeper model of the data generating process. Reduced forms can (in principle) be used to identify structural parameters, in which cased you are still performing structural estimation, just through using the reduced form.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another way to look at this is that &lt;strong&gt;structural models are generally deductive, whereas reduced forms tend to be used as part of some greater inductive reasoning&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a comparison of this kind of Cowles commission structural modelling with Rubin causal modelling, check out &lt;a href=&quot;http://jenni.uchicago.edu/papers/koop2006/koop1-cowles_ho_2006-09-25_jlt.pdf&quot; rel=&quot;noreferrer&quot;&gt;this awesome set of slides&lt;/a&gt; by Heckman.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For other resources I'd check out more of what Koopmans wrote, the book &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/069115287X&quot; rel=&quot;noreferrer&quot;&gt;Structural Macroeconomics&lt;/a&gt; by DeJong and Dave, these &lt;a href=&quot;http://toni.marginalq.com/FMA.pdf&quot; rel=&quot;noreferrer&quot;&gt;lecture notes by Whited&lt;/a&gt;, &lt;a href=&quot;http://cowles.econ.yale.edu/conferences/koopmans/tck10/wolpin-2.pdf&quot; rel=&quot;noreferrer&quot;&gt;this paper&lt;/a&gt; by Wolpin (written for the Cowles Foundation, in honour of Koopmans) and &lt;a href=&quot;http://pages.stern.nyu.edu/~dbackus/Identification/Rust_Wolpin_review_Dec_13.pdf&quot; rel=&quot;noreferrer&quot;&gt;a response&lt;/a&gt; by Rust.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Addendum:&lt;/strong&gt; A simple example of reduced form and structural models.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose we were looking at data on the prices, $p_t$ and quantities, $q_t$ produced by a monopolist. The monopolist faces a series of unknown costs in the future, and a linear demand curve (this would really have to be justified). Let's say the $\hat q_t$ and $\hat p_t$ we observe are measured with some kinds of mean-zero error, $e_t$, and $v_t$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Noting that both price and quantity seem to be associated with changes in cost, a reduced form equation for this model might be:&#xA;\begin{align}&#xA;\hat q_t &amp;amp;= \gamma - \lambda c_t + \epsilon_t\\&#xA;\hat p_t &amp;amp;= \alpha + \beta c_t + \nu_t&#xA;\end{align}&#xA;Because this is a reduced form model, it needs no justification other than that it might work empirically.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand, a structural model would start by specifying the demand curve (again to be strict this &lt;em&gt;should&lt;/em&gt; start at the level of individual utility), and the monopolist's problem:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{align}&#xA;\text{Demand curve: }&amp;amp;p_t=a-bq_t\\&#xA;\text{Producer's problem: }&amp;amp;\max E\left[\sum_{t=0}^\infty\delta^t (p_t-c_t)q_t(p_t)\right]\\&#xA;\text{Measurement equations: }&amp;amp;\hat q_t = q_t + e_t\\&#xA;&amp;amp;\hat p_t = p_t + v_t&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From this further structural equations could be derived (structural because they are still representative of principles of economic behavior):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{align}&#xA;\hat q_t&amp;amp;=\frac{a-c_t}{2b} +e_t\\&#xA;\hat p_t&amp;amp;=\frac{a+c_t}{2} + v_t\\&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is a case where a reduced form equation will have a meaningful structural interpretation, as consistent estimates $\hat a$ and $\hat b$ can be formed:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{align}&#xA;\hat a&amp;amp;= 2\hat\alpha \\&#xA;\hat b&amp;amp;= \frac{1}{2\hat \lambda}&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another case of identification of structural parameters from reduced forms is the logit model in the case of valuations with extreme value errors (see &lt;a href=&quot;http://eml.berkeley.edu/reprints/mcfadden/zarembka.pdf&quot; rel=&quot;noreferrer&quot;&gt;McFadden (1974)&lt;/a&gt;). In general it is unlikely a given reduced form model will have a structural interpretation.&lt;/p&gt;&#xA;" OwnerUserId="54" LastEditorUserId="13069" LastEditDate="2017-04-29T09:24:49.300" LastActivityDate="2017-04-29T09:24:49.300" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="188" PostTypeId="1" AcceptedAnswerId="1678" CreationDate="2014-11-21T00:24:48.897" Score="20" ViewCount="685" Body="&lt;p&gt;In order to &quot;ask my question&quot;, I have to solve a model first. I will omit some steps but still, this will unavoidably make this post &lt;em&gt;very&lt;/em&gt; long -so this is also a test to see whether this community likes such kind of questions.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Before starting, I clarify that this may look totally like a standard neoclassical growth model in continuous time, &lt;em&gt;but it is not&lt;/em&gt;: It is concerned with a single individual, which does not &quot;represent&quot; anybody else in the economy around him, an economy which is not modeled. The framework here is &lt;strong&gt;&quot;application of Optimal Control to the maximization problem of a single individual&quot;.&lt;/strong&gt; This is about the Optimal Control solution framework and method itself.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We solve the intertemporal utility maximization problem of a small businessman that owns the capital in his firm, while he purchases labor services in a perfectly competitive labor market, and he sells his product (fresh doughnuts) in a perfectly competitive goods market. We set the model in continuous time without uncertainty (socioeconomic conditions are steady), and with infinite horizon (the businessman envisions many future copies of him in a row):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\max_{c,\ell,k}\int_0^{\infty}e^{-\rho t}\ln c\,\text{d}t\\ \text{s.t.}\;\; \dot k = f(k,\ell) - w\ell - \delta k - c\\&#xA;\lim_{t\rightarrow \infty}e^{-\rho t}\lambda(t) k(t) = 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $c$ is the businessman's consumption, $\ln c$ is instantaneous utility from consumption, $\rho&amp;gt;0$ is the rate of pure time preference, $k$ is the firm's capital, $\delta$ is the capital depreciation rate, and $f(k,\ell)$ is the production function of the business. Initial level of capital is given, $k_0$. The businessman's own occupation with the business is subsumed into capital. The production function is standard neoclassical (constant returns to scale, positive marginal products, negative second partials, Inada conditions). The constraints are the law of motion of capital, and the Transversality condition using the current value multiplier.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Setting up the current value Hamiltonian &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\hat H = \ln c +\lambda[f(k,\ell) - w\ell - \delta k - c]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;we calculate the first-order conditions&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\partial \hat H}{\partial c} = 0 \Rightarrow \frac 1c =\lambda \Rightarrow \frac {\dot c}{c} = -\frac {\dot \lambda}{\lambda}$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\partial \hat H}{\partial \ell} = 0 \Rightarrow \lambda [f_{\ell} -w]=0 \Rightarrow f_{\ell} =w$$  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\partial \hat H}{\partial k} = \rho\lambda - \dot \lambda \Rightarrow \lambda [f_{k} -\delta]=\rho\lambda - \dot \lambda$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and combining them we obtain the law of evolution of consumption of our businessman , &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\dot c = \big(f_k-\delta -\rho \big)c \tag{1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From the optimal rule for labor demand $\ell: f_{\ell} =w$ (static) and the constant returns to scale implication ($f = f_kk + f_{\ell}\ell$) we obtain $f-w\ell = f_kk$. Inserting this into the law of motion of capital we obtain&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\dot k = f_kk -  \delta k - c \tag {2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Equations $(1)$ and $(2)$ form a system of differential equations. The steady-state values for the consumption and the capital of the businessman are &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$c^* = f_k^*k^* -  \delta k^*,\;\;\; k^*: f^*_k = \delta +\rho \tag{3}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \Rightarrow c^* = \rho k^* \tag{3a}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;...which is a pretty familiar expression.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$k^*$ is sometimes called the &quot;modified golden rule&quot; level of capital. The Jacobian of the system evaluated at the steady state values has a negative determinant &lt;em&gt;for any value of the model parameters&lt;/em&gt;, which is a necessary and sufficient condition for the system to exhibit saddle-path stability.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The maximum of the $\dot k =0$ locus is at the point, $\tilde k$ (sometimes called the &quot;golden rule&quot; level of capital)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\tilde k : f_{kk}(\tilde k)\tilde k + f_k(\tilde k) - \delta = 0\Rightarrow f_k(\tilde k) = \delta - f_{kk}(\tilde k)\tilde k \tag{4}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The $\tilde k$ value is important as a benchmark: it is the level of capital where $\dot k =0$ and $c$ is at a &lt;em&gt;maximum&lt;/em&gt; (not &lt;em&gt;optimal&lt;/em&gt; or &lt;em&gt;steady state&lt;/em&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The $\dot c=0$ loci crosses the horizontal axis of the phase diagram (that measures capital) at the steady-state capital level $k^*$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If $k^* &amp;gt; \tilde k$, which requires $f_k^* &amp;lt; f_k(\tilde k)$ due to negative second partials, we will have &quot;over-accumulation of capital&quot; (too many doughnuts): the businessman could enjoy more steady-state consumption with a lower level of capital.&#xA;Using $(3)$ and $(4)$ we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$f_k^* &amp;lt; f_k(\tilde k) \Rightarrow \delta + \rho &amp;lt; \delta - f_{kk}(\tilde k)\tilde k$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Rightarrow \rho &amp;lt;  - f_{kk}(\tilde k)\tilde k \tag {5}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Inequality $(5)$ is the condition for sub-optimal steady-state level of capital. And the thing is, &lt;em&gt;we cannot rule it out&lt;/em&gt;.  It simply requires that the businessman is &quot;sufficiently patient&quot;, with a sufficiently small rate of pure time preference, but still positive.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Here starts the problem:&lt;/strong&gt; overaccumulation of capital is effectively excluded in the representative agent model. It is possible in overlapping generation models, but as an unintended consequence at the macroeconomic level, one of the earliest examples that the macro-economy may be micro-founded and still behave differently than the micro-world.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But our model falls in neither category: it is a partial equilibrium model of a &lt;em&gt;single&lt;/em&gt; agent in an implicitly heterogeneous environment -and general equilibrium here won't alter the results: this person represents only himself. &#xA;So the problem is that if $(5)$ holds, then &lt;strong&gt;&lt;em&gt;the Optimal Control solution will be obviously sub-optimal&lt;/em&gt;&lt;/strong&gt;, because here we have a single person, a single will, a single mind: by looking at the solution our businessman will say, &quot;hey, this method is worthless, if I follow its advice I will end up with a sub-optimally high level of capital&quot;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And I am not satisfied to simply say &quot;well, Optimal Control is not suitable for this problem, try another method&quot;, because I cannot see &lt;em&gt;why&lt;/em&gt; we should consider it unsuitable. But if it is suitable, then the method should signal that something is wrong, it should at some point &lt;em&gt;require&lt;/em&gt; that $(5)$ does &lt;em&gt;not&lt;/em&gt; hold, in order to be able to offer a solution (if it so happens that $(5)$ does not hold, everything looks swell). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;One could wonder &quot;maybe the Transversality condition is violated if $(5)$ holds?&quot; -but it doesn't look that it does, since $\lambda(t)k(t) = k(t)/c(t)$, which goes to a positive constant, while $e^{-\rho t}$ goes to zero, requiring only that $\rho&amp;gt;0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My questions:&lt;/strong&gt;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) Can somebody offer some insight here?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) I would be grateful if somebody solved this using Dynamic Programming and reported the results.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;ADDENDUM&lt;/strong&gt;&lt;br&gt;&#xA;From a mathematical point of view, the crucial difference of this model is that the &lt;em&gt;optimized&lt;/em&gt; law of motion of capital, eq. $(2)$ includes &lt;em&gt;not&lt;/em&gt; the whole output $f(k)$ as in the standard model, but only the returns to capital $f_kk$. And this happens because we have separated property rights over the output, which in the &quot;individual business maximization problem&quot; framework, is to be expected.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2014-12-18T18:30:23.187" LastActivityDate="2020-11-28T13:22:23.610" Title="When Optimal Control fails (?)" Tags="&lt;economic-growth&gt;&lt;optimal-control&gt;&lt;dynamic-programming&gt;" AnswerCount="3" CommentCount="8" FavoriteCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="189" PostTypeId="2" ParentId="106" CreationDate="2014-11-21T00:50:28.683" Score="1" Body="&lt;p&gt;This is a good question to ask, and the short answer is no there isn't. There probably should be, but the system itself is extremely complex and at the moment this is really the bleeding edge of research in Economics. It's an extremely involved subject, in no small part because the financial system itself is a moving target - it keeps being changed by regulation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Tirole's research on market regulation, is a part of the larger puzzle, which properly framed would include detailed analysis of the banking system, the behaviours of different kinds of financial instrument, involvement of company structure and regulation, and probably the phase of moon. Well human behaviour has to be included somehow. &lt;/p&gt;&#xA;" OwnerUserId="84" LastActivityDate="2014-11-21T00:50:28.683" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="190" PostTypeId="2" ParentId="170" CreationDate="2014-11-21T00:50:45.677" Score="1" Body="&lt;p&gt;Good question. To address some of your concerns:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;but I still see lot of courses about technical analysis, and even people using it. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Sadly, this is meaningless; simply because courses, journals, and practitioners exist for any given field doesn't validate that field. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;They have the advantage of being easy to learn and they claim themselves as following the &quot;behavioral economics&quot; theory.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Behavioral economics is distinct from technical analysis. The former is based on empirical data stemming from psychological study; the latter, off strict historical price data, &lt;strong&gt;and nothing else&lt;/strong&gt;. In fact, the &quot;founder&quot; of technical analysis specifically said he wouldn't let &lt;em&gt;any&lt;/em&gt; outside factors- anyone's mood, the weather, a catastrophe, etc.- get in the way of his analysis. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Is the traditional &amp;amp; simple TA somehow valid? I'm asking about the one that uses moving averages, graphs, momentum lines to try to predict market moves.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The answer to this question carries a survivorship and success bias; you're &lt;em&gt;much&lt;/em&gt; more likely to hear from traders whose luck turned out well with technical analysis, rather than traders who haven't done too well. For success bias: suppose you had 10 traders who did well/poorly with technical analysis strategies. That doesn't really prove anything. Some really long and detailed studies have shown that tech analyst traders haven't really outperformed anyone.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The behavioral economics theory is valid and 2 people won Nobel prizes because of that, so I'm not arguing its validity, &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Unfortunately, winning the Alfred Nobel Prize in Economics doesn't validate a theory either. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;...but its consequences or usefulness as an investment method.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;A good question. I highly encourage you to ask this on other StackExchange sites &lt;em&gt;in addition&lt;/em&gt; to this one. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Please take into account not only a highly efficient market (eg, the US), but other smaller and less efficient markets (I'm from Argentina).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Here's the thing: fundamentally, I think the intellectual grounds supporting technical analysis is, at best, very weak: you can't drive forward by looking at your rearview mirror, and that's effectively what technical analysis is. Empirical study has shown that trying to predict the price movement of a stock isn't that beneficial with tech analysis; however, many traders use the techniques anyway. I believe that if one was to use tech analysis to gauge the positions of &lt;em&gt;other&lt;/em&gt; traders who use tech analysis, that trader/investor could hedge accordingly. In other words, if you and I are traders at different firms, and I know you use tech analysis, I will use tech analysis to guess what &lt;em&gt;your&lt;/em&gt; position is on some security. When I call you up to make a deal, I'll have a good idea what &lt;em&gt;your&lt;/em&gt; valuation is of the security, and I could negotiate a price accordingly (or not bother at all), while you may not necessarily know my position. Think &quot;game theory.&quot; &lt;/p&gt;&#xA;" OwnerUserId="81" LastActivityDate="2014-11-21T00:50:45.677" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="191" PostTypeId="2" ParentId="184" CreationDate="2014-11-21T04:36:07.340" Score="2" Body="&lt;p&gt;I think it is derived mathematically in the paper, but here's my take.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Preferences are defined by $log(c)-n$, while the budget constraint is $(1+\tau^c)c=(1+\tau^n)wn+s $. If $w$ is held constant and $s$ (transfers) equal tax receipts in equilibrium, then labor is equal to tax wedge $n=\varsigma=(1-r^n)/(1+r^c) $ and $c=wn $.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Using the equations defined in the paper, the Laffer curvers are&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$L(x)= (\tau_c+\tau_n)\frac{1-\tau^n}{1+\tau^c}w $$&#xA;where $x$ can be $\tau_c$ or $\tau_n$. Further simplifications in the algebra are made, but the essential point is that as tax revenues approach 1, transfers also approach 1 while labor supply approaches zero. As transfers are treated as income before taxes, the family will try to consume this transfer but will have to pay near 100% of it in form of tax consumption, rendering them useless.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Keep in mind that the $x$ axis shows consumption tax, whilst the $y$ axis represents tax revenues. As the tax rises, revenue flattens, but that doesn't mean that consumption is not deterred; in fact it is approaching zero, as labor supply is approaching zero.&lt;/p&gt;&#xA;" OwnerUserId="72" LastEditorUserId="72" LastEditDate="2014-11-21T09:52:45.357" LastActivityDate="2014-11-21T09:52:45.357" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="192" PostTypeId="2" ParentId="184" CreationDate="2014-11-21T04:45:24.403" Score="7" Body="&lt;p&gt;This is not a general result. As the auhtors describe in page 10 of their paper, the result obtains only when government lump-sum transfers $s$ do not vary with tax revenues, and instead government spending $g$ does. Then consumption taxes do not affect labor supply, for any level of the tax rate. The relation becomes monotonic, and the Laffer curve &lt;em&gt;with respect to the consumption tax rate&lt;/em&gt; becomes also monotonic. This is something that the authors are not very clear in the main text, but it can be detected in the various proofs at the end: they do not argue that the Laffer curve with respect to all three tax rates examined (consumption, labor, capital), becomes monotonic. Only its dimension with respect to the consumption tax.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And more over, on page 9, when government spending is fixed and it is lump-sum transfers that vary with tax revenues (their Proposition 2) they are not clear on what happens, &lt;em&gt;with respect to consumption tax rate&lt;/em&gt;. They do say that here the usual Laffer curve emerges, but they comment on a scenario with $\tau^c$ fixed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Mathematically, the result hinges on the different feasibility constraint that applies in the two cases (eq. $13$ for the fixed government spending case, eq. $14$ for the fixed-transfers case).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the model, the difference between government spending and transfers, is that the first provides directly utility, while the second increases disposable income in a lump-sum fashion.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consumption taxes affect &lt;em&gt;utility&lt;/em&gt;: a higher consumption tax rate $\tau^c$ will decrease consumption and hence utility of the same income level. When this is offset by higher utility-generating government spending, while transfers remain unaffected, the incentives related to work/income generation (&quot;activity&quot;) remain unaffected, pre-tax income remains the same, tax revenues increase: no extremum point in the Laffer curve. Essentially, this affect how much utility the individuals obtain from private consumption, and how much from government spending.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If alongside the increase in the consumption tax rate, we increase transfers keeping government spending fixed, this creates a substitution effect, a disincentive for labor income: it is better to sit back and collect, rather than work and collect. The individual can increase his utility indirectly, by decreasing the disutility from work. This creates conflicting forces: eventually, for a sufficiently high consumption tax rate (and a correspondingly higher level of transfers) he will decrease his labor supply and hence his labor income &lt;em&gt;more&lt;/em&gt; than the increased transfers, thus lowering the consumption tax-base.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The above are of course &lt;em&gt;static&lt;/em&gt; effects, &quot;inside&quot; each time period, since the Laffer curve is a static concept.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2014-11-21T04:45:24.403" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="193" PostTypeId="1" AcceptedAnswerId="196" CreationDate="2014-11-21T08:52:00.690" Score="20" ViewCount="1531" Body="&lt;p&gt;Hopefully, the title of this question is quite descriptive. Whilst I have a broad understanding of the research agenda of macroeconomics, I don't have a very good picture of how it is divided into various schools and traditions. Is there a way to briefly summarise what exactly New Keynesian macro is and how it relates to the rest of what is going on in macroeconomics?&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2014-11-22T19:24:04.450" Title="In what sense are &quot;new-Keynesian&quot; models &quot;new&quot; and in what sense are they &quot;Keynesian&quot;?" Tags="&lt;macroeconomics&gt;&lt;keynes&gt;" AnswerCount="3" CommentCount="1" FavoriteCount="11" ContentLicense="CC BY-SA 3.0" />
  <row Id="194" PostTypeId="1" AcceptedAnswerId="1613" CreationDate="2014-11-21T10:17:12.953" Score="14" ViewCount="1002" Body="&lt;p&gt;In single central banks systems (e.g. Bank of England) then the final ledger for electronic money transfer is the adjustment of reserve account balances.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the Federal Reserve System, there are 12 banks providing reserve accounts responsible for the banking in their region.  How do these 12 ledgers operate such that money can transfer from one region to another?  Is there an overall ledger?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Edit to clarify in response to answer:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An electronic transfer from bank A to bank B in Sterling results in an RTGS transfer between the banks' reserve accounts.  The Bank of England debits one reserve account and credits the other - so that the total reserve balance remains constant.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the federal reserve system, what happens when money transfers from bank A in region 1 to bank B in region 2?  Does the federal reserve bank in region 1 simply reduce the reserve balance of bank A without an offsetting transaction on its balance sheet anywhere?  Is there an overall ledger that manages the &quot;total reserve&quot;, or is it simply a technical constraint of RTGS that the same amount of money is destroyed at one bank as is created at the other?&lt;/p&gt;&#xA;" OwnerUserId="119" LastEditorUserId="31" LastEditDate="2014-11-21T15:37:29.337" LastActivityDate="2014-12-14T20:47:38.493" Title="How do reserves move between the 12 federal reserve banks?" Tags="&lt;federal-reserve&gt;&lt;central-banking&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="195" PostTypeId="2" ParentId="193" CreationDate="2014-11-21T11:02:42.173" Score="2" Body="&lt;p&gt;The economics and public policy website, Crooked Timber, devoted a question entirely to that subject recently. &lt;strong&gt;&lt;a href=&quot;http://crookedtimber.org/2014/01/22/new-old-keynesianism/&quot; rel=&quot;nofollow&quot;&gt;New Old Keynesianism&lt;/a&gt;&lt;/strong&gt; delineates the differences between &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Old Old Keynesianism, &lt;/li&gt;&#xA;&lt;li&gt;Old New Keynesianism, &lt;/li&gt;&#xA;&lt;li&gt;New Old Keynesianism and &lt;/li&gt;&#xA;&lt;li&gt;New New Keynesianism&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;such that &quot;New&quot; means “post Global Financial Crisis” and “Old” to refers to a belief that the economy can be in a long-run high unemployment equilibrium.&lt;/p&gt;&#xA;" OwnerUserId="172" LastActivityDate="2014-11-21T11:02:42.173" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="196" PostTypeId="2" ParentId="193" CreationDate="2014-11-21T11:11:28.017" Score="10" Body="&lt;p&gt;In essence New-Keynesians adapt micro to macro theory. This is in contrast to new classicals which adapt macro theory to orthodox neoclassical market-clearing microfoundations. New-Keynesians adapt the rational expectations hypothesis but accept that market may fails due to wage and price stickiness and Friedman's natural rate hypothesis. The New-Keynesians, the RBC school and New Classicals focus on issues relating to aggregate supply and have been the dominating schools since the 1970's, especially the new-Keynesians have dominated the last one to two decades. On the other hand &quot;old&quot;-Keynesians and the orthodox monetarists mainly focused on issues relating to aggregate demand and these dominated economic thinking pre-1970's. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As an example of the differences between New-Keynesian New Classicals and the RBC school consider an increase in money: This increase will have real effect in a New-Keynesian model due to these market imperfections. In a new classical model on the other hand money will only have real effects if they are unanticipated (Lucas' Island model) while in a RBC model the increase will only feed into higher prices due to perfect clearing markets and rational expectations. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that it has been argued by N. Gregory Mankiw that the New-Keynesian school could just as well have been called New-Monetarist.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For an excellent reference on the different schools, what they represent and their differences see Snowdon and Vane: &quot;Modern Macroeconomics: It's Origins, Development and Current State&quot;&lt;/p&gt;&#xA;" OwnerUserId="150" LastActivityDate="2014-11-21T11:11:28.017" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="197" PostTypeId="1" AcceptedAnswerId="198" CreationDate="2014-11-21T11:23:42.170" Score="4" ViewCount="93" Body="&lt;p&gt;For example, the Manx pound is in a de facto currency union with GBP.  The Isle of Man Bank chooses to back IMP one-to-one with Bank of England notes, but is not legally required to do so.  At one-to-one this would automatically be part of the GBP money supply.  In principle it could expand the IMP money supply, and since IMP is tied to GBP, one could argue this increase should be included in the GBP money supply.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Singapore dollar and Brunei Dollar are pegged to each other and the total money supply managed by the MAS.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand, the HKD is pegged to the USD without one-to-one backing and the federal reserve has no control over it (HKD being managed by Hong Kong Monetary Authority).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;During the Irish Pound-Sterling pegging era, we again had separate monetary authorities, but currency union.  First through Bretton-Woods and later &quot;managed&quot;.  In this case GBP was mostly accepted for trade in Ireland, while IEP was rarely accepted in the UK.  Would GBP be in the IEP money supply, but the IEP not in the GBP?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When performing an analysis on currencies of this nature, how should we determine what to include and not in the money supply calculation?&lt;/p&gt;&#xA;" OwnerUserId="119" LastActivityDate="2014-11-21T12:11:00.590" Title="When and to what extent should the money supply of a pegged currency be included in the &quot;parent&quot; currency?" Tags="&lt;money-supply&gt;&lt;currency-peg&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="198" PostTypeId="2" ParentId="197" CreationDate="2014-11-21T12:03:45.770" Score="2" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;During the Irish Pound-Sterling pegging era, we again had separate monetary authorities, but currency union. (...) In this case GBP was mostly accepted for trade in Ireland, while IEP was rarely accepted in the UK. Would GBP be in the IEP money supply, but the IEP not in the GBP?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Let the states and the institutions declare what they want. To study economic phenomena we must look at what economies actually do. Think of something totally unrelated: each state has a specific tax structure, a range of various taxes, progressive, proportional, whatever. The official structure matters, because it anchors the &lt;em&gt;effective&lt;/em&gt; taxation, but effective taxation itself matters more.&lt;br&gt;&#xA;In your case, the Irish Economy incorporated in its workings the official monetary union, while the UK Economy didn't.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So one has to go per case, which creates a &lt;em&gt;testable hypothesis&lt;/em&gt;: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;a) postulate an hypothesis based on &quot;casual&quot; (i.e. true but &lt;em&gt;unquantified&lt;/em&gt;) observations like the 2nd sentence in the above quote&lt;br&gt;&#xA;b) derive the theoretical implications of the hypothesis&lt;br&gt;&#xA;c) send your theory and your theoretical results out to meet the data.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For your example, assume that UK increased steadily its money supply to accommodate a growing economy, while the Irish economy was stable (or stagnant, depending on your philosophical point of view), or grew at a lower rate. If we add the GBP quantity in the money supply variable of the Irish Economy as &lt;em&gt;equivalent&lt;/em&gt;, $1:1$ to the IEP, shouldn't we observe excessive inflation? We should. Did we?  Let's say &quot;partly&quot;. Then we can estimate the &lt;em&gt;effective ratio&lt;/em&gt; between the two currencies as regards their effect on the Irish Economy.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2014-11-21T12:11:00.590" LastActivityDate="2014-11-21T12:11:00.590" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="199" PostTypeId="2" ParentId="194" CreationDate="2014-11-21T12:32:18.427" Score="6" Body="&lt;p&gt;Clearing for the US Banks is done through the &lt;a href=&quot;http://www.federalreserve.gov/paymentsystems/fedach_about.htm&quot; rel=&quot;nofollow&quot;&gt;Automated Clearinghouse System&lt;/a&gt; which is operated by the Fed. For transfers of central bank money, which would include transfers between reserve banks, the Federal Reserve also operates the &lt;a href=&quot;http://www.ny.frb.org/aboutthefed/fedpoint/fed43.html&quot; rel=&quot;nofollow&quot;&gt;Fedwire Funds Service&lt;/a&gt; which is an RTGS (Real Time Gross Settlement) system. This is similar to the Bank of England's RTGS system.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is a detailed survey of the US system (including some of the other  institutions involved for security transfer etc.) published by the &lt;a href=&quot;http://www.bis.org/cpmi/publ/d105_us.pdf&quot; rel=&quot;nofollow&quot;&gt;IMF&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What happens between the federal reserve banks themselves is a very interesting question, and I haven't ever seen it clearly documented anywhere. However if we look at their balance sheets - I'm going to pick on &lt;a href=&quot;http://www.federalreserve.gov/monetarypolicy/files/BSTPhiladelphiafinstmt2013.pdf&quot; rel=&quot;nofollow&quot;&gt;Philadelphia&lt;/a&gt; here, &#xA;either they are going to truck physical cash around (which is how it used to work in fact), or they are going to use the SOMA (System Open Market Account). The SOMA is managed by the Federal Reserve Bank of New York (which is also where foreign currency operations are handled), and on their &lt;a href=&quot;http://www.federalreserve.gov/monetarypolicy/files/BSTNewYorkfinstmt2013.pdf&quot; rel=&quot;nofollow&quot;&gt;balance sheet&lt;/a&gt; (p6) we can see an inter-district settlement account. So it certainly looks like they use the New York Federal Reserve as the final ledger.&lt;/p&gt;&#xA;" OwnerUserId="84" LastEditorUserId="84" LastEditDate="2014-11-21T17:00:55.133" LastActivityDate="2014-11-21T17:00:55.133" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="200" PostTypeId="1" AcceptedAnswerId="4865" CreationDate="2014-11-21T13:02:00.767" Score="11" ViewCount="237" Body="&lt;p&gt;Games on networks have been studied extensively, however, I was not able to find a &lt;a href=&quot;http://en.wikipedia.org/wiki/Folk_theorem_%28game_theory%29&quot;&gt;folk theorem&lt;/a&gt; for games on networks. Is there one or can it be derived from an already existing folk theorem?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With &lt;strong&gt;games on networks&lt;/strong&gt; I mean games in which the payoff of the stage game only depends on the actions of the direct neighbors in a network. Simple examples for that would be the the majority game (in which the payoff depends on the number of neighbors that play the same action as you are) or a prisoner's dilemma played with each neighbor.&lt;/p&gt;&#xA;" OwnerUserId="120" LastEditorUserId="120" LastEditDate="2015-03-27T08:48:59.127" LastActivityDate="2015-08-08T19:27:13.997" Title="Is there a folk theorem for repeated games on networks?" Tags="&lt;game-theory&gt;&lt;reference-request&gt;&lt;networks&gt;" AnswerCount="1" CommentCount="5" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="201" PostTypeId="1" CreationDate="2014-11-21T13:50:20.787" Score="5" ViewCount="249" Body="&lt;p&gt;It is well known that consumers' intertemporal incentives may play a key role on the potential of firms to sustain collusion. To my knowledge, most previous efforts studying the topic have assumed perfect observability of actions. How would imperfect public monitoring affect the usual results of industrial organization, regarding symmetrical punishments and price wars mechanisms? Would the results hold?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since &lt;a href=&quot;http://www.jstor.org/stable/725018&quot; rel=&quot;nofollow&quot;&gt;Coase (1972)&lt;/a&gt; there has been awareness that intertemporal incentives play a key role on determining industry configuration and the extent to which firms may exercise market power. &lt;a href=&quot;http://www.jstor.org/stable/2555551&quot; rel=&quot;nofollow&quot;&gt;Ausubel and Deneckere (1987)&lt;/a&gt;, &lt;a href=&quot;http://www.jstor.org/stable/2555550&quot; rel=&quot;nofollow&quot;&gt;Gul (1987)&lt;/a&gt;, &lt;a href=&quot;http://www.jstor.org/stable/25046307&quot; rel=&quot;nofollow&quot;&gt;Dutta et al. (2007)&lt;/a&gt; and &lt;a href=&quot;https://ideas.repec.org/a/bla/jindec/v60y2012i2p274-298.html&quot; rel=&quot;nofollow&quot;&gt;Schiraldi and Nava (2012)&lt;/a&gt; analyzed this in an oligopolic setting, particularly the effect of product durability on the feasibility of sustaining a collusive agreement. Their findings nevertheless contradict Coase's, as they show that the greater the patience of forward-looking rational consumers, the easier it was for a cartel to sustain collusion.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These results, however, asume perfect observability of firms' actions. So, what would happen if we lift this (rather restrictive) assumption? I'm thinking of &lt;a href=&quot;http://www.jstor.org/stable/25046307&quot; rel=&quot;nofollow&quot;&gt;Dutta et al. (2007)&lt;/a&gt;'s model for studying a cartel in a durable goods market and considering what would happen if one would extend it into a stochastic environment, making consumer's turnover rate random, which leads to an imperfect monitoring setting.&lt;/p&gt;&#xA;" OwnerUserId="72" LastEditorUserId="72" LastEditDate="2014-11-21T21:32:06.027" LastActivityDate="2015-01-14T20:19:10.327" Title="Collusion model with imperfect public monitoring" Tags="&lt;microeconomics&gt;&lt;game-theory&gt;&lt;industrial-organisation&gt;" AnswerCount="3" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="202" PostTypeId="2" ParentId="145" CreationDate="2014-11-21T14:29:51.770" Score="6" Body="&lt;p&gt;Some input:  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In &lt;a href=&quot;http://www.jstor.org/stable/1885060&quot; rel=&quot;noreferrer&quot;&gt;Cho, I. K., &amp;amp; Kreps, D. M. (1987). Signaling games and stable equilibria. The Quarterly Journal of Economics, 179-221&lt;/a&gt;, Banks &amp;amp; Sobel's Divine (and Universally Divine) equilibrium concepts are presented in Section IV.4 as a stand-alone concept.&#xA;On the other hand Grossman &amp;amp; Perry's Perfect Sequential Equilibrium concept is just mentioned in Section IV.5 which has the title &quot;Never a weak best response&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the &lt;a href=&quot;http://www.jstor.org/stable/1913604%20.&quot; rel=&quot;noreferrer&quot;&gt;Banks, J. S., &amp;amp; Sobel, J. (1987). Equilibrium selection in signaling games. Econometrica, 647-661.&lt;/a&gt; paper on Divine Equilibrium, page 654 (near the end of Section 3), we read &lt;em&gt;&quot;(...) This condition is more restrictive than universal divinity because (...)&quot;&lt;/em&gt; , &quot;this condition&quot; being &quot;never a weak best response&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So it appears that Perfect Sequential Equilibrium (PSE) is a stronger equilibrium filtering criterion than Divine Equilibrium. This accords with&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Theorem 2 of Banks &amp;amp; Sobel : Every signaling game has a divine equilibrium&lt;/strong&gt;&lt;br&gt;&#xA;to be contrasted with Section 4. of the &lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/0022053186900220#&quot; rel=&quot;noreferrer&quot;&gt;Grossman, S. J., &amp;amp; Perry, M. (1986). Perfect sequential equilibrium. Journal of economic theory, 39(1), 97-119&lt;/a&gt;. paper introducing PSE, where they show by means of an example that &lt;strong&gt;a Perfect Sequential Equilibrium may fail to exit&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A paper that applies both concepts is &lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/016771879290014P#&quot; rel=&quot;noreferrer&quot;&gt;Beggs, A. W. (1992). The licensing of patents under asymmetric information. International Journal of Industrial Organization, 10(2), 171-191.&lt;/a&gt;. In Section 3.2 a result is derived by an appeal to the PSE concept. Then the authors note that, &lt;em&gt;given&lt;/em&gt; an additional condition, they could obtain the same result by an appeal to Divinity. This agains shows that PSE, when it exists, is stronger than Divine equilibrium. Here too an example is offered for a case when the PSE does not exist.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2014-11-21T14:39:13.920" LastActivityDate="2014-11-21T14:39:13.920" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="203" PostTypeId="2" ParentId="188" CreationDate="2014-11-21T14:37:39.410" Score="5" Body="&lt;p&gt;I think that the key question is whether this firm is the only firm in the economy. If it is then it is no longer correct for it to take $w$ as given as $w$ will be affected by its own capital accumulation decision. In this case you should make the substitutions that you made before your equation (2) while setting up the Hamiltonian. On the other hand if this is one of many firms, so that the wage rate is exogenous, then the substitutions before eq. (2) are not valid. I think you need to carefully distinguish between big-$k$, the aggregate capital in the economy, and little-$k$ the capital chosen by this decision maker.&lt;/p&gt;&#xA;" OwnerUserId="86" LastActivityDate="2014-11-21T14:37:39.410" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="204" PostTypeId="2" ParentId="128" CreationDate="2014-11-21T15:03:28.453" Score="2" Body="&lt;p&gt;This should probably be a comment, but it's too long so I am posting it as an answer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm not sure I necessarily agree with &quot;[A Pigouvian tax] is a fixed unit price, which cannot be efficient if the damage costs are highly non-linear.&quot; But I do definitely agree with the fact that non-linearity causes practical problems for a Pigovian implementation, as I note below.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Suppose that the private benefit from emissions is $\pi(e)$, and that emissions cause external damages of $d(e)$. Assume that more emissions lead to greater damage ($d'(e)&amp;gt;0$), that the marginal damages are increasing ($d''(e)&amp;gt;0$—so damages are non-linear), and that profits are concave ($\pi''(e)\leq0$).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The self-interested individual will maximise his payoff by solving $\pi'(e)=0$. In contrast, social welfare is maximised when $\pi'(e)-d'(e)=0$. As usual, there is an inefficiently high level of emissions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Write $e^*$ for the level of emissions that is socially optimal, and suppose that we set a Pigouvian tax at $t=d'(e^*)$ per unit. This means that the individual's optimisation problem is now&#xA;$$\max_e \pi(e)-te=\max_e \pi(e)-d'(e^*)e.$$&#xA;The corresponding first-order condition is&#xA;$$\pi'(e)-d'(e^*)=0.$$&#xA;This is solved by $e=e^*$, so &lt;em&gt;the private individual is therefore induced to choose the efficient level of emissions even though the external damages are non-linear&lt;/em&gt;. Intuitively, if decisions are made at the margin then all the Pigouvian tax needs to do is to ensure that the private marginal benefit is equal to zero exactly when the social marginal benefit it. That the tax does not equal the external cost for all of the infra-marginal units has no bearing on the marginal decision problem.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Although the Pigouvian tax implements the efficient level of emissions, its implementation has important normative consequences. In particular, the polluting individual is paying a tax of $d'(e^*)$ for every unit of emission, even though the marginal external cost of the first $e^*$ units is less than this (because $d$ is convex). This implies that the polluter is required to pay more than the cost that he imposes on society, which some might not consider equitable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is also an awkward inter-temporal dimension to this problem that is not considered in the above static &quot;textbook&quot; treatment. Because damages are non-linear, if I allow $e$ units of pollution &quot;today&quot; then the marginal cost (and hence the optimal level) of emissions &quot;tomorrow&quot; will be different to if I had allowed $e+1$ units today. This seems to suggest that what is really needed (if the solution is, indeed, to be Pigouvian) is a time-varying tax and the problem becomes one of optimal control. That is, rather than calculating a single tax rate, we need to find the time-path $\{e_t^*\}_{t=0}^{\infty}$ that characterises the optimal evolution of emissions and change the tax over time to implement this. This increases the burden on the central authority, which is now required to calculate not only the emissions it wants to allow today, but also the emissions that it anticipates allowing into the indefinite future. This makes the informational problems noted in the question significantly more acute.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2014-11-21T15:03:28.453" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="206" PostTypeId="2" ParentId="201" CreationDate="2014-11-21T15:06:01.637" Score="6" Body="&lt;p&gt;You'll get different answers depending on assumptions, so the answer is maybe. Two papers come to mind.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a continuous time model, see &lt;a href=&quot;https://web.stanford.edu/~skrz/SannikovSkrzypaczAER07.pdf&quot;&gt;Sannikov and Skrzypacz (2007)&lt;/a&gt;. They show that collusion is impossible with imperfect monitoring if new information arrives continuously and actions can respond quickly in accordance with new information.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A well known model using discrete time periods is &lt;a href=&quot;http://www.dklevine.com/archive/refs41147.pdf&quot;&gt;Green and Porter (1984)&lt;/a&gt;. They show that collusion is possible. Firms can sustain collusion by allowing for the possibility of price wars.&lt;/p&gt;&#xA;" OwnerUserId="14" LastActivityDate="2014-11-21T15:06:01.637" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="207" PostTypeId="1" AcceptedAnswerId="576" CreationDate="2014-11-21T15:26:56.727" Score="3" ViewCount="1170" Body="&lt;p&gt;Does a temporary increase in government expenditure increase output in the standard new-Keynesian DSGE model? Is it possible to draw any intuitive parallels between the impact of government expenditure in these model and in the IS-LM model?y&lt;/p&gt;&#xA;" OwnerUserId="86" LastActivityDate="2014-12-11T04:35:36.540" Title="Government expenditure multiplier in the new-Keynesian model?" Tags="&lt;macroeconomics&gt;&lt;dsge&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="208" PostTypeId="1" AcceptedAnswerId="216" CreationDate="2014-11-21T15:31:39.307" Score="8" ViewCount="183" Body="&lt;p&gt;Older macroeconomics texts give much space to efficiency wage explanations of how unemployment could coexist with wages in equilibrium higher than the reservation wage of workers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, there seems to be very little current research on these theories, with most recent papers modelling unemployment using search frictions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is the decline in popularity of efficiency wage models due to their having failed in some sense? I would greatly appreciate any references to the literature.&lt;/p&gt;&#xA;" OwnerUserId="86" LastActivityDate="2014-11-22T01:07:40.887" Title="Whatever happened to efficiency wage theories?" Tags="&lt;macroeconomics&gt;&lt;labor-economics&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="209" PostTypeId="1" CreationDate="2014-11-21T15:39:33.813" Score="11" ViewCount="679" Body="&lt;p&gt;In Krugman &amp;amp; Obstfeld's &lt;em&gt;International Economics&lt;/em&gt;, 8e, Chapter 16, an involved argument is given showing that a permanent fiscal expansion will not affect output even in the short run. It seems to me that this is a saddlepoint stability argument in disguise. Am I right in thinking this? Can someone please help me with a differential equation formulation?&lt;/p&gt;&#xA;" OwnerUserId="86" LastEditorUserId="86" LastEditDate="2014-11-22T02:53:33.883" LastActivityDate="2014-12-13T15:11:59.213" Title="Effect of a permanent increase in government expenditure in an open economy?" Tags="&lt;international-economics&gt;&lt;open-economy-macro&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="210" PostTypeId="1" AcceptedAnswerId="220" CreationDate="2014-11-21T15:55:35.530" Score="13" ViewCount="1022" Body="&lt;p&gt;Consider an economy with a continuum of commodities, with one commodity for each point in $[0,1]$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose a consumer wants to maximise&#xA;$$U = \int_0^1 c_i^\theta\,di\qquad 0&amp;lt;\theta&amp;lt;1$$&#xA;subject to&#xA;$$\int_0^1 p_i c_i\,di = M$$&#xA;where $c_i$ is the amount of the $i$-th commodity consumed, $p_i$ its price and $M$ the consumer's money income.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This kind of problem arises for example in applying the Dixit-Stiglitz model to macroeconomics or international trade.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The solution to this problem is supposedly&#xA;$$c_i = Ap_i^{1 \over {\theta-1}}$$&#xA;where $A$ is a constant chosen to ensure that the budget constraint is satisfied.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am not very satisfied with derivations of this result which use Lagrange multipliers in analogy with the case of a finite number of commodities. What would be a completely mathematically rigorous method of deriving the above result?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems clear that there isn't a unique solution since arbitrarily changing the values of $c_i$ for a finite number of values of $i$ will leave the integrals in the utility function and budget constraint unchanged. I am expecting that a completely rigorous derivation would also correctly pinpoint this degree of nonuniqueness.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT: In response to the comments by @BKay, @Ubiquitous. My problem with starting out with economies with $n$ commodities and taking the limit as $n \to \infty$ is that this needs to be accompanied by an argument which shows that the limit of optima is an optimum of the limit problem. I would appreciate a reference to a result which shows this either for this particular problem or a general result which is applicable to this problem.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In response to @AlecosPapadopoulos. The proofs of the Langrange multiplier method that is taught in math for economics courses is usually for a finite number of choice variables. I would appreciate a reference to where the method is justified for a continuum of choice variables. Also, the nonuniqueness I mention above shows that the method cannot be exactly right. Then what exactly are the qualifications required for its validity?&lt;/p&gt;&#xA;" OwnerUserId="86" LastEditorUserId="86" LastEditDate="2014-11-22T03:04:46.683" LastActivityDate="2014-11-23T03:03:10.133" Title="Consumer optimum in an economy with a continuum of commodities" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;" AnswerCount="3" CommentCount="1" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="211" PostTypeId="2" ParentId="182" CreationDate="2014-11-21T18:55:50.797" Score="5" Body="&lt;p&gt;These papers look relevant, to one degree or the other:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://onlinelibrary.wiley.com/doi/10.3982/ECTA5781/abstract&quot; rel=&quot;noreferrer&quot;&gt;Karlan, D., &amp;amp; Zinman, J. (2009). Observing unobservables: Identifying information asymmetries with a consumer credit field experiment. Econometrica, 77(6), 1993-2008.&lt;/a&gt;&#xA;The authors write:&lt;em&gt;&quot;We estimate the presence and importance of hidden information and hidden action problems in a consumer credit market using a new field experiment methodology. We randomized 58,000 direct mail offers to former clients of a major South African lender along three dimensions (...) These three randomizations, combined with complete knowledge of the lender's information set, permit identification of specific types of private information problems. (...) We find strong evidence of moral hazard and weaker evidence of hidden information problems.&quot;&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://onlinelibrary.wiley.com/doi/10.1111/j.1540-6261.1971.tb01754.x/abstract&quot; rel=&quot;noreferrer&quot;&gt;Mandell, L. (1971). Consumer Perception of Incurred Interest Rates: An Empirical test of the efficacy of the Truth-In-Lending Law. The Journal of Finance, 26(5), 1143-1153.&lt;/a&gt; &lt;em&gt;&quot;The purpose of this article is to use national sample survey data to measure&#xA;the effect of the Truth-in-Lending Law (enacted in 1969) on the consumer’s knowledge of interest rates that he is actually paying on an installment loan.(...)&#xA;Aside from measuring the overall effect of the law on all persons, analysis&#xA;of various population subgroups will be made to see whether the law has had&#xA;differential effects upon the interest rate perception of persons based upon&#xA;personal characteristics such as age, income, amount borrowed, total debt and&#xA;education.&quot;&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.jstor.org/stable/2950992&quot; rel=&quot;noreferrer&quot;&gt;Calem, P. S., &amp;amp; Mester, L. J. (1995). Consumer behavior and the stickiness of credit-card interest rates. The American Economic Review, 1327-1336.&lt;/a&gt;&#xA;The authors present empirical evidence (from a 1989 Survey) that supports the &quot;stickiness&quot; of credit card interest rates, attributing it, as they write, to &lt;em&gt;&quot;(i) consumers facing search costs; (ii) consumers facing switch costs; and (iii) firms facing an adverse-selection problem if they were to unilaterally reduce their interest rates.&quot;&lt;/em&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.jstor.org/stable/2006788&quot; rel=&quot;noreferrer&quot;&gt;Ausubel, L. M. (1991). The failure of competition in the credit card market. The American Economic Review, 50-81.&lt;/a&gt; The original paper to which the previous one provided additional support. It contains both theoretical discussion and empirical evidence, as well as counterfactual calculation (what &quot;would&quot; the interest rates be if perfect competition held in this market).&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2014-11-22T21:32:51.657" LastActivityDate="2014-11-22T21:32:51.657" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="212" PostTypeId="1" CreationDate="2014-11-21T19:43:04.157" Score="4" ViewCount="788" Body="&lt;p&gt;I was researching &lt;a href=&quot;http://en.wikipedia.org/wiki/Fractal&quot; rel=&quot;nofollow&quot;&gt;fractals&lt;/a&gt; for my senior mathematics presentation and discovered that one of the most recent pioneers in that section of the field was able to apply fractal mathematics to the field of economics.  One of his first discoveries was finding a fractal pattern to fluctuations in cotton prices. &#xA;What are some other applications of fractals to economics?  (Obviously they may be too many or too few -but an answer collecting references and pointers to some of them is worthwhile, nevertheless).&lt;/p&gt;&#xA;" OwnerUserId="27" LastEditorUserId="61" LastEditDate="2014-12-18T20:25:11.243" LastActivityDate="2014-12-21T06:41:56.620" Title="What are the most recent devopments with applying fractals to economics?" Tags="&lt;mathematical-economics&gt;&lt;markets&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="213" PostTypeId="2" ParentId="126" CreationDate="2014-11-21T21:26:46.493" Score="4" Body="&lt;p&gt;An aspect of the matter could be described as follows:&#xA;We want&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;prompt replacement of (existing) fixed capital&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;because, I guess, it creates currently &quot;unacceptable&quot; levels of negative externalities, and we know better than to think that through the pricing of the externalities we will be able to reverse the damages, and all swell.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;From this point of view, we don't care about distribution between suppliers: it should be equivalent to us whether the existing companies change their capital base, or whether there appear new entrants with new cleaner technologies which will somehow drive out of business (or marginalize) the incumbents.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's describe the situation with very simple relations:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Prior to any pricing of externalities, the typical incumbent (symbolized by $h$ where needed) has a after-income-tax profit function at current time $t$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$(1-\tau)\pi_{t} = (1-\tau)\big[p_{t}q_{t} -c(q_t)\big] \tag{1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The OP writes that installed capital is &quot;fully written off by now&quot;. This means that there is no income tax offset from accounting depreciation, Of course there is a capital base here that operates, needs maintenance, some marginal replacements etc. These costs are captured in the operational cost function (i.e. we assume 100% depreciation rate for them).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume now that we declare that anyone who continues to use the existing technology will pay an enviromental tax that is linear in quantity, $T_t = \xi\cdot q_t$ (naturally, this tax does not decrease taxable profits). Alternatively, he will be exempt from the tax if he completely renews his capital base, with new technology. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The incumbent now has to compare two discounted cash-flow scenaria:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\text {OLD} : NPV_{Oh} = \sum_{t=0}^{T} \left(\frac 1{1+r}\right)^t\big[(1-\tau)\pi_{ht}-\xi q_t\big]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\text {NEW} : NPV_{Nh} = -C_R-I_N+\sum_{t=0}^{T} \left(\frac 1{1+r}\right)^t\big[(1-\tau)\pi_{ht}+\tau\cdot\frac 1T(C_R+I_N)\big] \tag{2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $C_R$ measure the (capitalized) side-costs of renewal (disposal, disruption of operations etc), while $I_N$ is the needed new investment (including perhaps adjustment costs). $r$ is some average measure of opportunity cost (and not interest rate). We have assumed that the operational costs of the new technology are the same. $\tau\cdot\delta(C_R+I_N)$ is the tax benefit from accounting depreciation of the new investments. $\delta$ is the depreciation rate. We use the Fixed percentage method of Accounting depreciation here.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What the situation is for a prospective new entrant? It is easily seen that if he attempts to install Old Technology, he will make less profits than the incumbent (due to the necessary investments). So $NPV_{Oe} &amp;lt; NPV_{Oh}$. If he opts for the new technology for production capacity equal to that of the incumbent described above, we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\text {NEW} : NPV_{Ne} = -I_N+\sum_{t=0}^{T} \left(\frac 1{1+r}\right)^t\big[(1-\tau)\pi_{ht}+\tau\cdot\frac 1TI_N\big] \tag{3}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is easy again to determine that, here, $NPV_{Ne} &amp;gt; NPV_{Nh}$ i.e. the entrant is in a better position from the point of view of investment evaluation, because he does not have to bear the side-costs of renewal The tax benefits of the incumbent for depreciation of $C_R$ do not offset in NPV terms $C_R$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why do we care whether $NPV_{Ne} &amp;gt; NPV_{Nh}$? Because we want, conditional on both using the new technology, the new entrant to have an advantage over the incumbent in terms of financial strength, in order to have the resources to sustain a possible war from the part of the latter.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we want that everybody has an incentive to use the new technology, then we must have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$NPV_{Oe} &amp;lt; NPV_{Oh}&amp;lt; NPV_{Nh} &amp;lt; NPV_{Ne}$$&#xA;The first and third inequalities already we already have. For the middle one, which will connect the chain, we need to set the tax rate accordingly:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$NPV_{Oh}- NPV_{Nh} &amp;lt;0 \Rightarrow -\sum_{t=0}^{T} \left(\frac 1{1+r}\right)^t\xi q_t +C_R+I_N-\sum_{t=0}^{T} \left(\frac 1{1+r}\right)^t\tau\cdot\frac 1T(C_R+I_N)\big]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Using an average period quantity produced $\bar q$, and denoting&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$R\equiv  \frac {(1+r)^{T+1}-1}{r(1+r)}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;this becomes&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$NPV_{Oh}- NPV_{Nh} &amp;lt;0 \Rightarrow - R \cdot\xi\cdot \bar q +C_R+I_N-R\cdot\tau\cdot\frac 1T(C_R+I_N) &amp;lt; 0 $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Rightarrow \left(1-R\cdot\tau\cdot\frac 1T\right)(C_R+I_N) &amp;lt; R \cdot\xi\cdot \bar q $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Rightarrow \xi &amp;gt; \left(R^{-1}-\frac {\tau}T\right)\frac {C_R+I_N}{\bar q} \tag{4}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Inequality $(4)$ determines the minimum level of the environmental tax rate from the point of view of financial incentives in order for the incumbents to switch technologies.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, does it matter whether this minimum level is consistent with the tax rate that would reflect the proper pricing of negative externalities, since by setting it above it, we expect that the old technology will be wiped out? It doesn't seem so. This is important: &lt;strong&gt;it says that we can see the environmental tax rate as a &lt;em&gt;threat&lt;/em&gt; that it won't be necessary to realize.&lt;/strong&gt;&lt;br&gt;&#xA;From a &quot;political point of view&quot;, is this minimum tax rate feasible in view of possible reaction, lobbying etc? This is a different chapter.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that it does not affect our goal what will happen in an oligopolistic framework, where possibly, the market demand cannot sustain both the incumbent and the new entrant (i.e. double output): whatever happens, the one, the other, or both, the appropriately set tax rate ensures that we will see only new technology in operation.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2014-11-21T21:26:46.493" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="214" PostTypeId="2" ParentId="166" CreationDate="2014-11-21T21:50:41.370" Score="1" Body="&lt;p&gt;The old monetary equation is MV=PT, where M is the money supply, V is the velocity of money, P is the price level, and T is the amount of transactions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The fear in this case is that M will remain fixed. In a growing economy, T, the level of economic activity, will rise. Then, to make the equation hold, one of two things must happen: 1) V must rise to compensate for the rise in T, or 2) the price level must fall to compensate for the rise in T, to hold PT constant with M times V, both of which we're assuming remain constant.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A rise in V can be caused in improvements in money management; banking, ATM cards, smart phone payments etc. That, in fact, is a large part of what has driven economic growth in the past 50 years.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The other possibility, a fall in P, is what scares people. It's called deflation, and represents &quot;sticker shock.&quot; Imagine a world in which prices were going down 3% every year, because the economy was growing 3% a year. Your wages would fall 3% a year. You shouldn't worry because your costs are also falling 3% a year, or more (but you will). There will be &quot;reverse&quot; millionaires,&quot; people who used to be millionaires, who aren't any longer, but who are better off because prices have fallen faster than their nominal wealth. It would be a strange, funky world, which is why policy makers avoid it, to the extent of making the &quot;opposite&quot; mistake of allowing inflation. Which may be one reason that the Bitcoin experiment is not viewed favorably by central banks.&lt;/p&gt;&#xA;" OwnerUserId="15" LastActivityDate="2014-11-21T21:50:41.370" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="215" PostTypeId="2" ParentId="208" CreationDate="2014-11-22T00:51:41.973" Score="3" Body="&lt;p&gt;My (unverified) impression is that the &lt;strong&gt;Search Unemployment&lt;/strong&gt; paradigm won over both &lt;strong&gt;Efficiency Wages&lt;/strong&gt; and &lt;strong&gt;Implicit Contracts&lt;/strong&gt; (the third alternative approach to study this so &quot;politically hot&quot; market), because Search models can more easily be quantified and tested, relying less on unobservables. The Nobel prize to &lt;a href=&quot;http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/2010/&quot; rel=&quot;nofollow&quot;&gt;Diamond, Mortensen &amp;amp; Pissarides&lt;/a&gt; certainly widened its acceptance, credibility, and increased its momentum.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Nevertheless, scholarly activity in the field of Efficiency wages seems not to have stopped.&lt;br&gt;&#xA;&lt;strong&gt;A noisy indicator:&lt;/strong&gt; data from &lt;strong&gt;Google scholar&lt;/strong&gt; &lt;em&gt;now&lt;/em&gt;(Nov-22, 2014), search item &quot;&lt;strong&gt;efficiency wage&lt;/strong&gt;&quot; (in quotes), don't include patents, don't include citations. &lt;strong&gt;Results per 5-year periods (year of publication):&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{array}{| r | r | }&#xA;  \hline                       &#xA;   \text {period}&amp;amp; \text {results} \\&#xA;  \hline &#xA;\hline                       &#xA;  \text {-1994} &amp;amp; \text {2,200} \\&#xA;  \hline                      &#xA; \text {1995-1999} &amp;amp; \text {1,980} \\&#xA;  \hline&#xA;\text {2000-2004} &amp;amp; \text {3,250} \\&#xA;  \hline&#xA;\text {2005-2009} &amp;amp; \text {3,530} \\&#xA;  \hline&#xA;\text {2010-2014} &amp;amp; \text {3,480} \\&#xA;  \hline&#xA;  \hline  &#xA;\end{array}&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2014-11-22T00:51:41.973" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="216" PostTypeId="2" ParentId="208" CreationDate="2014-11-22T01:07:40.887" Score="7" Body="&lt;p&gt;I don't believe that Search Unemployment (MP) actually &quot;won&quot; over efficiency wages. The whole discussion of search literature would be too long for this post, so I'll just skim the most important parts.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;(i) As a first, Shimer (2005) discusses that the MP model actually fails to get employment (market tightness) volatility right&lt;/li&gt;&#xA;&lt;li&gt;(ii) In the same AER issue, Hall(2005) proposes rigid wages. He and Shimer (in his booklet) argue that there is a set of wages which satisfy Barro (1977). Moreover, an intuition for wage rigidity is that old wages are an anchor for new negotiations&lt;/li&gt;&#xA;&lt;li&gt;(iii) Many papers show more or less convincingly that while average wages are rigid, wages of &lt;em&gt;new matches&lt;/em&gt; actually are &lt;em&gt;quite flexible&lt;/em&gt;. &lt;/li&gt;&#xA;&lt;li&gt;(iv) Bewley (1999) presents survey evidence where managers respond that they don't want to reduce wages because it would lead to detrimental climate.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;First, to the extent that the MP model actually needs exogenous wage rigidity to get the moments in the data right, it has not &lt;em&gt;won&lt;/em&gt; over efficiency wages, as these could be understood as a &lt;em&gt;complementary&lt;/em&gt; theory (as being the reason for wage ridigity, as an alternative to (ii)).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Second, (iii) kind of goes against both MP and efficiency wages at the same time - at least to the extent that they explain fluctuations in hirings. Note that this is the relevant margin for unemployment fluctuations: [I think it was Shimer who] showed that the most fluctuations in labor come from volatility in hiring, and not from firing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, a personal opinion. I was interested in the story myself, but I wouldn't know how you could find efficiency wages in the data we have. Also, there's not really more to the theoretical component than was written in the past century.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The trend in the past decade has gone to microfounded, self-consistent models that are found using empirical data. I don't believe that this is really possible at the moment with the efficiency wages story. We believe efficiency wages exist, but we can't detect them and they (arguably) don't explain the Shimer puzzle, which makes them less interesting these days.&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2014-11-22T01:07:40.887" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="218" PostTypeId="1" CreationDate="2014-11-22T03:19:52.983" Score="6" ViewCount="104" Body="&lt;p&gt;To derive the uncovered interest parity (UIP) condition we assume, among other things, that there is free movement of capital across countries.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But this cannot be directly applied to India because of capital controls. While foreigners are relatively free to hold Indian assets, Indians are in general forbidden to hold foreign assets.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there a variant of the UIP that we can expect to hold (given the other assumptions) under such asymmetric restrictions on asset holding?&lt;/p&gt;&#xA;" OwnerUserId="86" LastActivityDate="2014-11-24T13:12:29.553" Title="Uncovered interest parity and asymmetric capital controls" Tags="&lt;asset-pricing&gt;&lt;open-economy-macro&gt;&lt;financial-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="219" PostTypeId="1" AcceptedAnswerId="222" CreationDate="2014-11-22T03:30:46.673" Score="13" ViewCount="940" Body="&lt;p&gt;In Osborne's &lt;em&gt;An Introduction to Game Theory&lt;/em&gt; Nash equilibrium is described as follows (p. 21–22):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;First, each player chooses her action according to the model of&#xA;  rational choice, given her beliefs about the other players' actions.&#xA;  Second, every player's belief about the other players' actions is&#xA;  correct.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It seems to me that this definition is not completely equivalent to the usual definition of the Nash equilibrium as a strategy profile where each player's strategy is a best response to the strategies of the others.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The usual definition says nothing about beliefs and therefore allows for the possibility that beliefs might be incorrect.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To take a trivial possibility, consider the Prisoner's Dilemma. Suppose each player believes that the other player will not confess. Since confessing is a dominant strategy each player would still confess. So the actions constitute a Nash equilibrium even though the players' beliefs are completely the opposite of the actual equilibrium actions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Am I right in this understanding that Osborne's definition characterizes something other than Nash's equilibrium?&lt;/p&gt;&#xA;" OwnerUserId="86" LastActivityDate="2015-01-13T16:01:00.720" Title="Osborne, Nash equilibria and the correctness of beliefs" Tags="&lt;game-theory&gt;" AnswerCount="4" CommentCount="1" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="220" PostTypeId="2" ParentId="210" CreationDate="2014-11-22T04:57:07.297" Score="4" Body="&lt;p&gt;The completely rigorous thing would be to write the Euler lagrange equation of this calculus of variations problem, this will give you a strong solution that is what you have or a weak solution that is written with respect to a distribution. &lt;/p&gt;&#xA;" OwnerUserId="127" LastActivityDate="2014-11-22T04:57:07.297" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="221" PostTypeId="2" ParentId="219" CreationDate="2014-11-22T05:25:00.107" Score="2" Body="&lt;p&gt;Your prisoner's dilemma example only works because that is a game with dominant strategies. Osborne is correct. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To be best responding to another player's strategy, as in the definition you give, I must know their strategy. In other words, I must have beliefs about what they are doing, and those beliefs must be correct. This is a strengthening of the concept of rationalizability. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You make an interesting point about how you can get strange &quot;equilibria&quot; in games with dominant strategies. It amounts to outcome equivalent $(\sigma,\mu_1)$ and $(\sigma,\mu_2)$ where $\mu_2$ might be wrong and placing positive weight on nonrationalizable strategies. But, I have never seen a Nash equilibrium that included beliefs. The definitions I recall go, &quot;a strategy profile $\sigma\in \Sigma$ is a Nash equilibrium if $\sigma_i\in B_i(\sigma_{-i})$...&quot; I believe this to mean that defining the beliefs is unnecessary, because the beliefs are exactly a correct assessment of the strategy profile. Referencing, one of my books, it gives the usual definition with a Nash (1950) citation, and then goes on to discuss two underlying assumptions. One is correct beliefs and the other is rational play given those correct beliefs.&lt;/p&gt;&#xA;" OwnerUserId="14" LastEditorUserId="14" LastEditDate="2014-11-22T05:52:21.257" LastActivityDate="2014-11-22T05:52:21.257" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="222" PostTypeId="2" ParentId="219" CreationDate="2014-11-22T09:43:03.817" Score="9" Body="&lt;p&gt;Introducing the language of beliefs here is slightly strange, given that beliefs do have a very specific meaning in other parts of game theory.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Indeed, Osborne's description is reminiscent of a Bayes Nash Equilibrium. We could introduce the notion of beliefs into the normal form of a complete information game as follows: suppose that with probability $a_i$ each player, $i$, is a &quot;strategic&quot; &lt;em&gt;type&lt;/em&gt; who will play according to (Nash) equilibrium, and with probability $1-a_i$ he will select some strategy uniformly at random (because, say, he is indifferent across all actions). We thus have a Bayesian game where thinking about beliefs is more natural.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Bayes Nash solution concept then says that $i$'s strategy must be optimal given the expected play induced by the other players' strategies &lt;em&gt;and&lt;/em&gt; the beliefs over their types implied by $\{a_j\}_{j\neq i}$. If we look at the limit as $a_i\rightarrow 1$ for all $i$ then the Bayes Nash equilibrium of this game will coincide with the solution concept described by Osborne.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;I guess the reason Osborne wrote it like this is a pedagogical one, given that this is an introductory text. When we introduce students to static games, we tell them that player $i$ best responds to the actions of the other players. Students naturally want to know &quot;how can they respond to a strategy chosen simultaneously without knowing what that strategy will be?&quot; This is, in many senses, a philosophical question. Common answers are&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;If the game is one that is played often then (putting aside issues of&#xA;other outcomes that can be sustained in repeated games) we can think&#xA;of Nash as being an equilibrium in the sense that if we converge&#xA;there we can develop a norm whereby people continue to play that&#xA;equilibrium indefinitely (and expect others to do the same).&lt;/li&gt;&#xA;&lt;li&gt;If the game is really one-shot then we usually invoke the idea that players are going to try to predict what others will do—and our equilibrium notion embeds the idea that these predictions must be correct.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;It seems that the predictions in the second point correspond to the &quot;beliefs&quot; invoked by Osborne. However, it is important to stress that these predictions/&quot;beliefs&quot;, are merely an informal/intuitive tool for helping us to conceptualise what is going on in an equilibrium and are not part of the definition of such an equilibrium. The concept of Nash equilibrium itself is completely agnostic on the notion of beliefs (as you note in a comment, it is defined only over actions), which is why, when Osborne goes on to &lt;em&gt;formally&lt;/em&gt; define Nash equilibrium, he does so without invoking the idea of beliefs at all.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2014-11-22T09:43:03.817" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="223" PostTypeId="2" ParentId="131" CreationDate="2014-11-22T10:03:55.807" Score="6" Body="&lt;p&gt;The usual textbook example of a Giffen good (i.e. a good whose demand curve slopes upwards) is the Irish potato famine. The idea is that as potatoes (a staple food) became more expensive, people could no longer afford expensive foods such as meat and so ended up buying more potatoes! However, this example has come in for criticism, not least of all because a potato &lt;strong&gt;famine&lt;/strong&gt; means that the total consumption of potatoes must have been decreasing at the time. You can read a critique of the potato famine hypothesis &lt;a href=&quot;http://www.cbe.csueastbay.edu/alima/courses/2301/AdditionalReading/Giffen/DwyerLindsay.pdf&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;More recent work has suggested, however, that consumption of rice (also a staple) in some poor parts of China &lt;em&gt;does&lt;/em&gt; exhibit Giffen behaviour. This research was published in a paper by Jensen and Miller in the AER in 2008 titled &quot;&lt;a href=&quot;http://dirkbergemann.commons.yale.edu/files/giffen-good.pdf&quot;&gt;Giffen Behavior and Subsistence Consumption&lt;/a&gt;&quot;. They ran a field experiment in which they subsidised rice consumption (i.e. decreased its apparent price) for randomly chosen households and found that the result was a decrease in rice consumption. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Alfred Marshall popularised the notion of a Giffen good in 1895, but it took until the 21st century for fairly robust evidence of Giffen bahviour to emerge. That finding such an example took so long suggests that Giffen goods are, indeed, a very rare phenomenon.&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2014-11-22T10:38:27.637" LastActivityDate="2014-11-22T10:38:27.637" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="224" PostTypeId="1" CreationDate="2014-11-22T14:49:06.147" Score="10" ViewCount="493" Body="&lt;p&gt;Revelation principle is a powerful statement regarding Bayesian Nash equilibrium. However it may not hold always, as where players do not fully know their preferences, or when preference elicitation involves cost.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What are other situations where revelation principle is not applicable? Are there papers which have circumvented these issues with alternate versions of the principle?   &lt;/p&gt;&#xA;" OwnerUserId="41" LastActivityDate="2017-04-06T04:24:39.610" Title="Situations where revelation principle may not hold" Tags="&lt;game-theory&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="225" PostTypeId="1" AcceptedAnswerId="227" CreationDate="2014-11-22T14:53:05.240" Score="28" ViewCount="9773" Body="&lt;p&gt;The intuitive criterion by Cho and Kreps is a refinement to minimise the set of perfect Bayesian equilibria in signalling games. What would a simple and intuitive example to explain this criterion be? Assume any undergrad student should be easily able to appreciate the refinement through the example.&lt;/p&gt;&#xA;" OwnerUserId="41" LastEditorUserId="11590" LastEditDate="2019-05-19T16:59:52.033" LastActivityDate="2019-05-19T16:59:52.033" Title="How to intuitively understand the 'Intuitive criterion'?" Tags="&lt;game-theory&gt;&lt;signaling&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="226" PostTypeId="1" CreationDate="2014-11-22T16:00:18.043" Score="5" ViewCount="73" Body="&lt;p&gt;I am trying to track down the models and the underpinnings/details for them for models that may have been used to evaluate the ACA/Obamacare.  I am aware of Gruber's (proprietary) model, and am thinking that the Urban Institute's HIPSM model may have been used, but not sure if there are others.  Even for those two, it seems I'll need to do a good bit of research to figure out what's in them and how they work.&lt;/p&gt;&#xA;" OwnerUserId="204" LastEditorUserId="119" LastEditDate="2014-11-24T14:31:55.150" LastActivityDate="2014-12-01T20:22:45.647" Title="How to get details on all the models used for evaluating ACA?" Tags="&lt;macroeconomics&gt;&lt;fiscal-policy&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="227" PostTypeId="2" ParentId="225" CreationDate="2014-11-22T17:56:54.167" Score="25" Body="&lt;p&gt;A concise, completely informal way of putting it is this: The intuitive criterion rules-out any out-of-equilibrium beliefs that can only be correct if some player did something stupid.&lt;/p&gt;&#xA;&lt;p&gt;Below is a slightly more long-winded explanation with an informal example.&lt;/p&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;In many signalling games (that is, games in which one player—the sender—can communicate information to another—the receiver), there are often a lot of implausible equilibria. This happens because the Perfect Bayesian solution concept does not specify what the receiver's beliefs must be when the sender deviates; we can therefore support a lot of equilibria simply by saying that if the sender deviates from those equilibria then he will be &amp;quot;punished&amp;quot; with very bad beliefs. Such punishment will usually be enough to make the sender play a strategy that would otherwise not be a best response.&lt;/p&gt;&#xA;&lt;p&gt;For example, in &lt;a href=&quot;http://staff.bath.ac.uk/ecsjgs/Teaching/Advanced%20Microeconomics/Articles/spence.pdf&quot; rel=&quot;noreferrer&quot;&gt;Spence's classic job market signalling paper&lt;/a&gt; there is an equilibrium in which high-ability individuals invest in education (learning is easy for them) whilst low-ability individuals do not (because they find it too costly to do so). Education is then a signal of ability. We might ask: is there also an equilibrium of this game in which nobody chooses to get an education and no information is transmitted to the receiver? The answer is 'yes'. We can support such an equilibrium by saying that a deviation in which a sender is educated causes the receiver to adopt the belief that the sender is certainly low-ability. If education has the effect of signalling low-ability then, of course, everyone is happy to play along with the putative equilibrium and not get educated.&lt;/p&gt;&#xA;&lt;p&gt;It is also clear that this equilibrium is not very plausible: the receiver knows that it is less costly for a high-ability agent to get an education than a low-ability one, so it doesn't make much sense for him to think of an education as signalling low-ability. The intuitive criterion rules out this kind of equilibrium by requiring beliefs to be &amp;quot;reasonable&amp;quot; in the following sense:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Suppose the receiver observes a deviation from the equilibrium. The receiver should not believe that the sender is of type &lt;span class=&quot;math-container&quot;&gt;$t_{\text{bad}}$&lt;/span&gt; if both of the following are true:&lt;/p&gt;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;the deviation would result in&#xA;type &lt;span class=&quot;math-container&quot;&gt;$t_{\text{bad}}$&lt;/span&gt; being worse off then if he has stuck to the equilibrium for any beliefs.&lt;/li&gt;&#xA;&lt;li&gt;there is some type &lt;span class=&quot;math-container&quot;&gt;$t_{\text{good}}$&lt;/span&gt; who is better off by playing the deviation than by sticking to the equilibrium for some belief other than &lt;span class=&quot;math-container&quot;&gt;$t_{\text{bad}}$&lt;/span&gt;.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Returning to the education signalling model: Suppose that the equilibrium is that nobody gets an education and that the receiver believes that a deviation to getting education signals low ability. Anticipating these beliefs, a low ability worker is made worse-off by deviating because he not only incurs the cost of the education but is then thought of as a bad type as a result. Thus, condition 1. is satisfied.&lt;/p&gt;&#xA;&lt;p&gt;Can we find some alternative belief such that the high-ability worker &lt;em&gt;would&lt;/em&gt; like to deviate to getting education? The answer is yes: if the receiver believes that education signals high ability then this deviation is indeed profitable for the high-type. Thus, condition 2 is also satisfied.&lt;/p&gt;&#xA;&lt;p&gt;Since both conditions are satisfied, the intuitive criterion rules-out the implausible pooling equilibrium.&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2015-01-06T18:01:11.577" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="228" PostTypeId="2" ParentId="179" CreationDate="2014-11-22T17:57:51.217" Score="4" Body="&lt;p&gt;Maybe check Clark's work. He allegedly uses long time series.&#xA;&lt;a href=&quot;http://jasoncollins.org/2014/09/30/the-genetic-basis-of-social-mobility/&quot; rel=&quot;nofollow&quot;&gt;http://jasoncollins.org/2014/09/30/the-genetic-basis-of-social-mobility/&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="207" LastActivityDate="2014-11-22T17:57:51.217" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="229" PostTypeId="2" ParentId="35" CreationDate="2014-11-22T19:01:50.807" Score="6" Body="&lt;p&gt;The foundation of intertemporal economics is the &lt;a href=&quot;http://en.wikipedia.org/wiki/Net_present_value&quot; rel=&quot;noreferrer&quot;&gt;net present value equation&lt;/a&gt;. That is, the net present value of a future income stream is the yearly incomes divided by an appropriate discount factor, based on the prevailing interest rate, r, taken to the nth power, where n is the number of years.&lt;/p&gt;&#xA;" OwnerUserId="15" LastActivityDate="2014-11-22T19:01:50.807" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="230" PostTypeId="2" ParentId="193" CreationDate="2014-11-22T19:24:04.450" Score="6" Body="&lt;p&gt;&lt;strong&gt;(Old) Keynesian Theory&lt;/strong&gt; is what you might get taught in undergrad. It comes from behavioral rules and features the good old IS-LM etc diagrams. It rises the Keynesian traps, situations, where the economy might be stuck in downturns of the business cycle for a long time. These situations give rise to, for example, fiscal policy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then came the Rational Expectation paradigm, which required a general equilibrium story which is in itself consistent. These guys believed that &lt;strong&gt;you can only evaluate the impact of policy if the model is robust to changes in the environment&lt;/strong&gt;. That is, if you empirically observe a behavior rule (say, consumption), but then the environment changes, the behavioral rule might change. To the extent that we expect policy to adjust the environment, we can only predict policy outcomes if we have a model which is robust to changes in the environment (Lucas critique). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;These guys dismissed the old Keynesian Theory because it was built on Behavioral rules, rather than microfundations, and proceeded to create &lt;strong&gt;Dynamic Stochastic General Equilibrium models&lt;/strong&gt; (DSGE), which are supposedly internally consistent and based on micro-foundations: Empirical relationships that are &lt;strong&gt;always&lt;/strong&gt; true and do not change with the environment. This DSGE framework was taken over into most parts of mainstream Economics, most importantly macroeconomics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;New Keynesian Theory&lt;/strong&gt; is an extension of the simplest possible Real Business Cycle model (which satisfies the DSGE paradigm), which contains most importantly&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;market power of firms&lt;/li&gt;&#xA;&lt;li&gt;price stickiness&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;It is designed to give reason for policy intervention, just as the old keynesian theory. However, the intuition and the mechanism are completely different than from the Old Keynesian Story, Cochrane has nice papers and even blog posts on the exact mechanism. It's very debated, not just because its policy implications, but also because price stickiness is again implemented as a &quot;behavioral rule&quot;, breaking with the DSGE paradigm. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you want to know more, you should read up on the papers or ask a more precise question, otherwise this will head nowhere. &lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2014-11-22T19:24:04.450" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="231" PostTypeId="2" ParentId="210" CreationDate="2014-11-22T20:21:49.070" Score="8" Body="&lt;p&gt;As the OP noted in a comment, Theorem 1 in section 12 of &lt;a href=&quot;http://books.google.co.in/books?id=CeC7AQAAQBAJ&amp;amp;pg=PA43&amp;amp;lpg=PA239&amp;amp;focus=viewport&amp;amp;dq=kolmogorov%20fomin%20variations&quot;&gt;Kolomogorov and Fomin's Calculus of Variations&lt;/a&gt; seems to provide some comfort that we can indeed use the Langrange Multiplier method when the number of our variables is infinite. Still, the authors do that in a footnote, writing &quot;the reader will easily recognize &lt;em&gt;the analogy&lt;/em&gt; with Langrange multipliers&quot;. So no, this does not rigorously show what we want.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think that what we need is a paper like &lt;a href=&quot;http://journals.cambridge.org/article_S0004972700046050&quot;&gt;Craven, B. D. (1970). A generalization of Lagrange multipliers. Bulletin of the Australian Mathematical Society, 3(03), 353-362.&lt;/a&gt; which in its summary writes:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;The method of Lagrange multipliers for solving a constrained&#xA;  stationary-value problem is generalized to allow the functions to take&#xA;  values in arbitrary Banach spaces (over the real field). The set of&#xA;  Lagrange multipliers in a finite-dimensional problem is shown to be&#xA;  replaced by a continuous linear mapping between the relevant Banach&#xA;  spaces.&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This is math-speak but it says what we wanted to hear (one can also find a short exposition in wikipedia to the degree that it trusts the content).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, we can form the Lagrangean of the problem&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Lambda = \int_0^1 c_i^\theta\,\text{d}i +\lambda\left(M - \int_0^1 p_i c_i\,\text{d}i\right)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and calculate the first-order condition(s) by , informally speaking, &quot;looking at the integral and seeing a sum&quot;,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\partial \Lambda}{\partial c_i} = 0 \Rightarrow  \theta c_i^{\theta-1} = \lambda p_i, \;\; i \in [0,1] \tag{1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;...a continuum of conditions. For later use we  define&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\sigma \equiv 1/(1-\theta), \Rightarrow 1-\theta = 1/\sigma, \;\; \theta = \frac {\sigma-1}{\sigma}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The constant $\sigma$ can be shown to be the elasticity of substitution between any two goods.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Writing $(1)$ for commodity $j$ and equating through the common lagrange multiplier we arrive at &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$c_i = \left(\frac {p_i}{p_j}\right)^{-\sigma}c_j&#xA; \tag{2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Multiply both sides by $p_i$ and take the integral over the commmodity space with respect to $i$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\int_0^1 p_i c_i\,\text{d}i = \int_0^1 p_i^{1-\sigma}p_j^{-\sigma}c_j\,\text{d}i$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Rightarrow M = p_j^{\sigma}c_j\int_0^1 p_i^{1-\sigma}\,\text{d}i$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Rightarrow c_j = p_j^{-\sigma} \cdot M \cdot \left(\int_0^1 p_i^{1-\sigma}\,\text{d}i\right)^{-1} \tag{3}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which is Marshallian demand for commodity $j$.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2014-11-22T20:21:49.070" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="232" PostTypeId="1" AcceptedAnswerId="239" CreationDate="2014-11-22T20:37:43.990" Score="14" ViewCount="1599" Body="&lt;p&gt;In the classic introduction to non-cooperative game theory, the mixed strategy for a player is taught as a distribution over strategy space for the player. The distribution essentially gives us the probabilities (say, discrete strategy set) with which a player should play the strategies in a Nash equilibrium. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However probabilities carry the notion of being frequencies and these essentially mean the long-run fraction of games in which the player should play the strategy. However the setting is a one-shot game and this is a contradiction.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How do we resolve the contradiction when explaining what a mixed strategy is?  &lt;/p&gt;&#xA;" OwnerUserId="41" LastActivityDate="2019-07-12T12:57:46.127" Title="Explaining mixed strategies for one-shot games" Tags="&lt;game-theory&gt;" AnswerCount="5" CommentCount="1" FavoriteCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="233" PostTypeId="1" AcceptedAnswerId="8372" CreationDate="2014-11-22T21:00:36.800" Score="5" ViewCount="177" Body="&lt;p&gt;Can you provide a reference regarding a revealed preference test(s) of rational inattention models, as proposed by Sims, ergo, using a mutual information measure as the cost of putting attention. And if possible can you briefly explained it. A link that explains the model is given here &lt;a href=&quot;http://sims.princeton.edu/yftp/Gerzensee/info.pdf&quot;&gt;http://sims.princeton.edu/yftp/Gerzensee/info.pdf&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="127" LastEditorUserId="127" LastEditDate="2014-11-22T21:11:39.633" LastActivityDate="2015-09-24T19:21:01.567" Title="Tests of rational inattention" Tags="&lt;microeconomics&gt;&lt;behavioral-economics&gt;&lt;bounded-rationality&gt;" AnswerCount="2" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="234" PostTypeId="2" ParentId="134" CreationDate="2014-11-22T21:01:03.033" Score="6" Body="&lt;p&gt;No, I would not say that this resolves the Machina paradox, because it is exactly the same as the Machina paradox: the paradox does indeed require from you to look at the &lt;em&gt;three&lt;/em&gt; possible outcomes. The M-C/W/G book discuss only the $B$ and $C$ outcomes because it is there where the paradox focuses on whether a violation of the axiom of independence may happen.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But most importantly, Machina did &lt;em&gt;not&lt;/em&gt; argue that &lt;em&gt;all&lt;/em&gt; people will have preference ordering $A&amp;gt;C&amp;gt;B$. He argued that it is reasonable, for evident psychological reasons, to expect that &lt;em&gt;some&lt;/em&gt; people may... So &lt;em&gt;some others&lt;/em&gt; will have the ordering $A&amp;gt;B&amp;gt;C$, which does conform to expected utility framework.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first will say &quot;I cannot watch a movie about Paris after losing the trip - I will smash the TV!&quot; The second will say &quot;Well, tough luck. At least I will see it on screen and keep dreaming about it&quot;. Both seem like behaviors that could be anticipated by &quot;usual&quot; human beings. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The point of the paradox is not to show that Expected Utility (EU) is invalid for all people -only that it may be violated in reasonable situations, i.e. situations that may characterize a lot of people and may happen often.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What paradoxes like this examine and contemplate, is &lt;em&gt;the degree&lt;/em&gt; to which EU represents adequately the &quot;majority&quot; of people in some sense, and so whether it is valid/useful/not-misleading as a core theoretical assumption in economic models, or not.&#xA;And this is a matter of &lt;em&gt;degree&lt;/em&gt;, a quantitative matter. This is true for almost all assumptions in theoretical models in social sciences. &lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-05-04T13:01:48.543" LastActivityDate="2015-05-04T13:01:48.543" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="235" PostTypeId="2" ParentId="232" CreationDate="2014-11-22T21:07:59.583" Score="1" Body="&lt;p&gt;Well, here is my shot at answering, following this paper in Physics &lt;a href=&quot;http://bayes.wustl.edu/etj/articles/prob.in.qm.pdf&quot; rel=&quot;nofollow&quot;&gt;http://bayes.wustl.edu/etj/articles/prob.in.qm.pdf&lt;/a&gt; . I think, that propensity is a nice interpretation of mixed strategies, but more formally we should say it captures the ignorance of the modeller. We say, anything goes, in fact all strategies could be taken (if the support is everywhere positive) but the solution concept says certain are more likely. Probabilities here measure the ignorance of the modeller and are a result of the lack of information of the game theorist about the game. To clarify this think of an enhanced dataset where we know additional information about the game, say we speak with one of the players an he assures us that he is going to take one strategy no matter what, then we can make a sharper prediction in the form of a pure strategy. Frequencies arise when we think of the game as a typical game, and we see several independent situations where players with the same preferences play this game several times then mixed strategies will correspond indeed in the limit (asymptotic argument) to the frequency of strategies observed if our model is indeed correct. &lt;/p&gt;&#xA;" OwnerUserId="127" LastActivityDate="2014-11-22T21:07:59.583" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="236" PostTypeId="1" CreationDate="2014-11-22T21:26:42.430" Score="6" ViewCount="326" Body="&lt;p&gt;What is the &lt;strong&gt;methodology&lt;/strong&gt; of the Chicago School and what makes it unique among economic schools of thought?&lt;/p&gt;&#xA;" OwnerUserId="29" LastActivityDate="2014-11-23T05:05:34.720" Title="What's unique about the Chicago School's Methodology?" Tags="&lt;economic-methodology&gt;" AnswerCount="3" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="237" PostTypeId="2" ParentId="35" CreationDate="2014-11-22T21:55:29.013" Score="19" Body="&lt;p&gt;I think one of the most important equations (at least within macroeconomics) is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$E\left[ m R \right] = 1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This equation has been used to derive many foundational results.  This equation motivated the &lt;a href=&quot;http://en.wikipedia.org/wiki/Hansen%E2%80%93Jagannathan_bound&quot;&gt;Hansen–Jagannathan bound&lt;/a&gt;.  It is fundamental for asset pricing as well.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, something interesting I saw from once from Tom Sargent.  If you use the stochastic discount factor for a standard model $m = \beta E_t \left[ \frac{u'(c_{t+1})}{u'(c_t)} \right]$ then depending on which piece of the equation you allow to be exogenous you can get some fundamental results of macro:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Permanent Income Hypothesis:  Let $\beta R = 1$ then we get $c_t = E [c_{t+1}]$&lt;/li&gt;&#xA;&lt;li&gt;Lucas Asset Pricing Model:  Let the process for consumption be a given.  Then the price of an asset can be described by $R_t^{-1} = p_t = E \left[ \frac{u'(c_{t+1})}{u'(c_t)} \right]$&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="47" LastEditorUserId="47" LastEditDate="2014-11-22T22:17:58.113" LastActivityDate="2014-11-22T22:17:58.113" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="238" PostTypeId="2" ParentId="232" CreationDate="2014-11-22T22:00:23.790" Score="6" Body="&lt;p&gt;Let $s_i = \{p_A^i, p_B^i\}$ denote a strategy that attaches probabilities to playing $A,B$, and let $s = \{s_i, s_i\}_i$ be the set of such strategies that result in an equilibrium in a two-player symmetric game.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As you say, we think about $s_i$ to be probabilities with which a specific action is played. Whenever $s$ is not a singleton, we have multiple-equilibria, something which most branches of economics dislike, because it makes solving models quite difficult, and non-uniqueness is difficult to work with: How should we simulate the model? Which one of the equilibria is actually being played? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;At least, with mixed-strategy equilibria, we know the likelihood of each of the equilibria happening. You dislike probabilities to the extent that they carry frequencies, which you say are contradicted by the notion of the game being one-shot.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Simultaneously&lt;/strong&gt; However, the game being one-shot does not mean the game is only played once. In a world with many individuals, everyone can find a partner and play one of the strategies in $s$, to the extent that we (at the same time!) find $p_A$ of them in the equilibrium $\{A, A\}$, and the fraction $p_B$ of individuals playing the next  equilibrium, etc. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Non-Simulatenously&lt;/strong&gt; As an alternative, you could argue that in a world with a lot of anonymity, people forget the partners that they played with before. We have many people playing strategies in $s$ at time $t$, then we de-couple them, give everyone new partners and let them play again. Even if there is the possibility of meeting the same guy again: Since that possibility goes to zero, you could model this as a repeated game with a discount factor $\delta\rightarrow 0$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Lack of Commitment&lt;/strong&gt; Finally, think about situations which are actually repeated games, such as interactions between the government and the consumers. While this could be modeled as a repeated game, we might think that the government is not able to commit to a strategy sequence. Therefore, instead of modeling this as a repeated game, we model it as repetitions of the one-shot equilibrium: Given a time horizon $T$, we will see that $T\cdot p_A$ of the times, the government and the consumers play equilibrium $\{A, A\}$, etc.&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="108" LastEditDate="2015-02-13T08:54:27.117" LastActivityDate="2015-02-13T08:54:27.117" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="239" PostTypeId="2" ParentId="232" CreationDate="2014-11-22T22:00:40.767" Score="11" Body="&lt;p&gt;Ariel Rubinstein tends to be insightful regarding these kinds of questions. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;He addresses the interpretation of mixed strategies in section 3 of &lt;a href=&quot;http://www.jstor.org/stable/2938166&quot;&gt;this&lt;/a&gt; paper. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A few possible interpretations aside from deliberate randomization:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Purification: A mixed strategy is a plan of action based on information not specified in the model.&lt;/li&gt;&#xA;&lt;li&gt;A fictitious long run story.&lt;/li&gt;&#xA;&lt;li&gt;Population averages, so imagine the player's being pulled from some population distribution where different types play different pure strategies. The  population distribution is the mixed strategy distribution.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;An interesting quote regarding player $i$'s mixed strategy reflecting uncertainty among $-i$'s regarding what $i$ will do:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Mixed strategy can alternatively be viewed as the belief held by all other &#xA;  players concerning a player's actions. A mixed strategy equilibrium is then an &#xA;  n-tuple of common knowledge expectations, which has the property that all the &#xA;  actions to which a strictly positive probability is assigned are optimal, given the &#xA;  beliefs. A player's behavior may be perceived by all the other players as &#xA;  the outcome of a random device even though this is not the case. Adopting this &#xA;  interpretation requires the reassessment of much of applied game theory. In &#xA;  particular, it implies that an equilibrium does not lead to a prediction (statistical &#xA;  or otherwise) of the players' behavior. Any player i's action which is a best &#xA;  response given his expectation about the other players' behavior (the other &#xA;  n - 1 strategies) is consistent as a prediction for i's action (this might include &#xA;  actions which are outside the support of the mixed strategy). This renders &#xA;  meaningless any comparative statics or welfare analysis of the mixed strategy &#xA;  equilibrium and brings into question the enormous economic literature which &#xA;  utilizes mixed strategy equilibrium. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="14" LastActivityDate="2014-11-22T22:00:40.767" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="240" PostTypeId="1" AcceptedAnswerId="244" CreationDate="2014-11-22T22:50:21.310" Score="8" ViewCount="879" Body="&lt;h1&gt;Momentum as a common risk factor?&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;This question is partly a follow-up to another question found &lt;a href=&quot;https://economics.stackexchange.com/questions/107/examples-of-factors-in-the-icapm&quot;&gt;here&lt;/a&gt;. In this other question it was noted in momentum is difficult to explain as a common risk factor in factor pricing models like the intertemportal capital asset pricing model (I-CAPM) or arbitrage pricing theory (APT). In these models, it is assumed that exposure to one of these factors represent exposure to some sort of undesirable risk. In this question, I'm trying to understand how to interpret exposure to momentum as exposure to some form of common risk. In particular, I'd like to know&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Who was the firm to include momentum as a risk factor? What was the explanation?&lt;/li&gt;&#xA;&lt;li&gt;It seems like momentum is often attributed to behavioral over- or under-reaction. (This could be irrational or maybe even rational-overreaction, I suppose---right?) Is there an interpretation that rationalizes momentum? (I mean one that gives an explanation where exposure to momentum is a bad thing.)&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;h2&gt;For some reference:&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.bauer.uh.edu/rsusmel/phd/jegadeesh-titman93.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Jegadeesh and Titman (1993)&lt;/a&gt; review some explanations of momentum,&#xA;including overreaction to information, relation to size effect and systematic risk, short-term price pressure, lack of liquidity, delayed stock price reaction to common factors&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The paper argues that the &quot;relative strengths&quot; premium (the strategy of buying past winners) is not due to exposure to systematic risk, cannot be attributed to &quot;lead-lag effects that result from delayed stock price reactions to common factors,&quot; but that the evidence seems to be consistent with delayed price reactions to firm-specific information.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Stocks in &#xA;  the winners portfolio realize significantly higher returns than the stocks in &#xA;  the losers portfolio around the quarterly earnings announcements that are &#xA;  made in the first few months following the formation date. However, the &#xA;  announcement date returns in the 8 to 20 months following the formation &#xA;  date are significantly higher for the stocks in the losers portfolio than for the &#xA;  stocks in the winners portfolio. &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The evidence of initial positive and later negative relative strength returns &#xA;  suggests that common interpretations of return reversals as evidence of &#xA;  overreactlon and return persistence (i.e., past winners achieving positive &#xA;  returns in the future) as evidence of underreaction are probably overly &#xA;  simplistic.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="59" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-07-25T08:51:24.457" Title="How is momentum justified as a common risk factor?" Tags="&lt;behavioral-economics&gt;&lt;finance&gt;&lt;uncertainty&gt;&lt;asset-pricing&gt;&lt;risk&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="241" PostTypeId="1" CreationDate="2014-11-22T23:00:27.823" Score="11" ViewCount="1949" Body="&lt;p&gt;First of all, I realize that &quot;undesirable&quot; is an ambiguous term. So, to clarify, when is a monopoly undesirable under the following metrics?&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Pareto efficiency&lt;/li&gt;&#xA;&lt;li&gt;Reduces consumer surplus&lt;/li&gt;&#xA;&lt;li&gt;Social Welfare (could this possibly be different from the pareto efficiency criterion?)&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Are there any criteria that I'm missing? Also, if we take into account potential general equilibrium effects (like the effect on wages), does the analysis change?&lt;/p&gt;&#xA;" OwnerUserId="59" LastActivityDate="2014-11-23T18:56:11.847" Title="Under what conditions is a monopoly undesirable?" Tags="&lt;labor-economics&gt;&lt;industrial-organisation&gt;&lt;welfare-economics&gt;" AnswerCount="3" CommentCount="6" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="242" PostTypeId="2" ParentId="241" CreationDate="2014-11-22T23:11:16.267" Score="0" Body="&lt;p&gt;Under perfect competition, the producer faces a &quot;demand curve&quot; that consists of a single point; where price equals marginal costs. This party then has to produce and sell at the &quot;going&quot; price dictated by the market (or not at all), in order to remain in business.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a monopoly situation, the producer faces the WHOLE demand curve (which is basically the definition of a monopoly). This means that the producer can produce anywhere along the demand curve that s/he wants, not just at a market-determined price. This allows the monopolist to appropriate some of the consumer surplus. &quot;Price discrimination&quot; is another possibility, if the monopolist is allowed to charge different prices in in different markets (based on &quot;local&quot; sensitivities).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;Everyone&quot; choices a production point where the marginal revenue equals the marginal cost. In the perfect markets case, where there was a &quot;flat&quot; price, the two conditions, P= marginal cost and marginal revenue= marginal cost were the same. In a monopoly situation, the marginal revenue line will be BELOW the demand curve, meaning that the monopolist will want to produce less product than under perfect competition.&lt;/p&gt;&#xA;" OwnerUserId="15" LastActivityDate="2014-11-22T23:11:16.267" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="243" PostTypeId="2" ParentId="241" CreationDate="2014-11-22T23:20:09.460" Score="1" Body="&lt;p&gt;First of all, a monopoly literally means that we have a single firm in one market. As economists, we do not really care about the number of firms in a market &lt;em&gt;per se&lt;/em&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, the firm being single means it gets &lt;strong&gt;market power&lt;/strong&gt;. And this is where problems arise. It will, under no regulation, take the demand curve (for buyers of his good) and the supply curve (for intermediate goods it uses) as given and extract rent from both ends. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This directly implies that &lt;strong&gt;consumer surplus&lt;/strong&gt; is reduced, since under typical assumptions the monopoly will supply a smaller quantity at a higher price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For &lt;strong&gt;Social Welfare&lt;/strong&gt;, note that free markets with imperfect competition typically yield inefficient outcomes, that is adding up consumer surplus and producer surplus gives you a smaller sum than in the economy with no market power.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, &lt;strong&gt;Pareto Efficiency&lt;/strong&gt; is somewhat irrelevant to the market power, as long as market power comes with the ability of perfect discrimination (see the comment). It is relevant for the type of economy, where I have assumed free markets throughout this answer. Under free markets, if there was any resource &quot;free for grabs&quot;, someone would have taken it. Hence, the extent of market power does not affect Pareto-efficiency, the general existence of markets and their potential regulation does.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Addendum: Note that I have assumed &lt;strong&gt;free markets&lt;/strong&gt; (zero regulation by governments) throughout the answer. If the government was to enforce by law the optimal outcome, the amount of market power becomes irrelevant to both consumer surplus and social welfare in general. It could do this for example by forcing the monopoly to supply the optimal quantity of goods, or creating a subsidy which would incentivize the firm to supply exactly that quantity.&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2014-11-23T18:56:11.847" LastActivityDate="2014-11-23T18:56:11.847" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="244" PostTypeId="2" ParentId="240" CreationDate="2014-11-23T00:45:51.920" Score="3" Body="&lt;p&gt;The Jegadeesh and Titman (1993) paper is usually considered Original Source, though I'm sure you could find something earlier that looks similar if you looked hard enough.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't think there is a satisfactory explanation. Momentum is &lt;a href=&quot;http://www.kentdaniel.net/papers/published/cfr_12.pdf&quot; rel=&quot;nofollow&quot;&gt;not correlated with macroeconomic variables&lt;/a&gt;, it &lt;a href=&quot;http://faculty.chicagobooth.edu/john.cochrane/teaching/35904_Asset_Pricing/Fama_French_multifactor_explanations.pdf&quot; rel=&quot;nofollow&quot;&gt;does not seem to reflect&lt;/a&gt; persistent exposure to other (known) sources of risk, and is driven &lt;a href=&quot;http://rnm.simon.rochester.edu/research/MOM.pdf&quot; rel=&quot;nofollow&quot;&gt;almost entirely by the 7 to 12 months before stocks are chosen&lt;/a&gt; as part of a momentum portfolio. This all makes it extremely difficult to put a solid theoretical model to it that doesn't have a behavioral aspect.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Recently (mid 2009), there was a momentum crash in the market. &lt;a href=&quot;http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2371227&quot; rel=&quot;nofollow&quot;&gt;Daniel and Moskowitz&lt;/a&gt; argue that momentum has rare &quot;panics&quot; periods like this, where crashes occur for momentum. So during normal periods investors may be being compensated for this risk. The question becomes &quot;what are these crashes caused by?&quot; The authors make the case that following a period of declining stock values, momentum portfolios will be long a lot of low market beta stocks, and short a lot of high beta stocks. If there is a sudden rebound in the market, momentum strategies will experience a crash. So this is at least suggestive of a direction for more formal modeling, but they ultimately suggest a behavioral interpretation may be necessary as well.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you have not seen it, &lt;a href=&quot;http://www.annualreviews.org/doi/pdf/10.1146/annurev-financial-102710-144850&quot; rel=&quot;nofollow&quot;&gt;Jegadeesh and Titman (2011)&lt;/a&gt; review the evidence for momentum in more detail, and explore behavioral explanations for momentum, of which I have little knowledge.&lt;/p&gt;&#xA;" OwnerUserId="54" LastEditorUserId="54" LastEditDate="2014-11-23T00:54:28.873" LastActivityDate="2014-11-23T00:54:28.873" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="245" PostTypeId="1" CreationDate="2014-11-23T01:42:45.343" Score="5" ViewCount="737" Body="&lt;p&gt;This recent &lt;a href=&quot;https://economics.stackexchange.com/q/241/14&quot;&gt;question&lt;/a&gt; about when monopoly is undesirable made me curious about when monopoly is actually desirable? I was reminded of an argument for the efficiency of monopolies when moral hazard effects create a backward-bending supply curve in competition, like in healthcare perhaps. But, for the life of me, I cannot remember exactly how this was justified or if I am just imagining the whole thing. Is anyone familiar with arguments like this? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know you can create a backward bending marginal cost curve and then with the usual linear marginal revenue curve, you might have MR=MC at a greater quantity than where demand intersects marginal cost, but I don't understand how the backward bending supply is also a a marginal cost curve--then the curve isn't even a proper function.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Information is a funny thing, so I wouldn't be surprised if incomplete information made for strange results. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit: I am thinking of pictures like these. I am just having a hard time reconstructing the jump from a backwards bending supply or demand curve (I understand these--this is often taught in 101), I just don't understand the MB/MC interpretation below where it seems like you might get a higher equilibrium quantity with monopsony or monopoly.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/2cLla.png&quot; alt=&quot;enter image description here&quot;&gt;&#xA;&lt;img src=&quot;https://i.stack.imgur.com/dI5Bd.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For these to make sense, MC and MB can't be functions of quantity unless I have a marginal cost in each direction? As in I could sell $q_1$ at a high price a low price, so am I approaching from above or below.&lt;/p&gt;&#xA;" OwnerUserId="14" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2014-11-23T22:00:18.057" Title="The Backward Bending Supply Curve, Asymmetric Information, and Monopoly" Tags="&lt;information&gt;&lt;monopoly&gt;&lt;asymmetric-information&gt;" AnswerCount="4" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="246" PostTypeId="2" ParentId="236" CreationDate="2014-11-23T02:30:01.507" Score="0" Body="&lt;p&gt;The underlying belief among most &lt;a href=&quot;http://en.wikipedia.org/wiki/Chicago_school_of_economics&quot; rel=&quot;nofollow&quot;&gt;&quot;Chicago&quot;&lt;/a&gt; economists is that &quot;markets work,&quot; and most of public policy should mostly be directed toward improving their efficiency, e.g., by a &quot;steady&quot; monetary policy. Examples of economists include Milton Friedman (Capitalism and Freedom), and Ronald Coase (who postulated that most legal results are dictated by economics).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The opposite, &quot;saltwater&quot; school of thought (on the east and west coasts) recognize that markets often fail, and therefore focus on using government solutions to compensate for such failures (e.g. using fiscal policy to get the world out of the Great Depression).&lt;/p&gt;&#xA;" OwnerUserId="15" LastActivityDate="2014-11-23T02:30:01.507" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="247" PostTypeId="2" ParentId="210" CreationDate="2014-11-23T02:50:52.457" Score="7" Body="&lt;p&gt;This is just an elaboration of the answer given by @user157623. I am posting it as a community wiki for convenience.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Theorem 1 of Section 12 of Kolmogorov and Fomin's &lt;a href=&quot;http://books.google.co.in/books?id=CeC7AQAAQBAJ&amp;amp;lpg=PA239&amp;amp;dq=kolmogorov%20fomin%20variations&amp;amp;pg=PA43#v=onepage&amp;amp;q&amp;amp;f=false&quot;&gt;&lt;em&gt;Calculus of Variations&lt;/em&gt;&lt;/a&gt; says&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Given the functional $$J[y] = \int_a^b F(x,y,y')\,dx,$$ let the&#xA;  admissible curves satisfy the conditions &#xA;  $$y(a)=A,\quad y(b)=b, \quad K[y] = \int_a^bG(x,y,y')\,dx=l,$$ &#xA;  where $K[y]$ is another functional,&#xA;  and let $J[y]$ have an extremum for $y=y(x)$. Then, if $y=y(x)$ is not&#xA;  an extremal of $K[y]$, there exists a constant $\lambda$ such that&#xA;  $y=y(x)$ is an extremal of the functional $$\int_a^b (F+\lambda G)\,dx,$$&#xA;  i.e., $y=y(x)$ satisfies the differential equation&#xA;  $$F_y-\frac{d}{dx}F_{y'}+\lambda\left(G_y-\frac{d}{dx}G_{y'}\right)=0.$$&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;We can try to apply this theorem to our problem by taking $x$ to be $i$, $c$ to be $y$, $F(i,c,c')=c^\theta$ and $G(i,c,c')=pc$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then the final differential equation in the theorem becomes&#xA;$$\theta c_i^{\theta-1} + \lambda p_i=0$$&#xA;which is precisely what we need.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is the theorem applicable? Our $K[y]$ is linear, so cannot have an extremal, so the requirement of not having an extremal is easily satisfied. The boundary conditions on $y(a)$ and $y(b)$ do not matter since if a path of $c$, say $c^*(i)$, is extremal without any boundary conditions then it is extremal within the set $c(0)=c^*(0), c(1)=c^*(1)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The only catch is in the nature of the theorem itself. It gives necessary conditions for an optimum. Given that in our case the necessary condition gives a unique result, all that we need to make it sufficient is to argue that our problem has a solution. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The proofs in Kolmogorov-Fomin assume that the functions we are dealing with have continuous first derivatives. So we still need to show that the consumer's problem has an optimal in this class of functions but given that the problem is solved.&lt;/p&gt;&#xA;" OwnerUserId="86" LastEditorUserId="86" LastEditDate="2014-11-23T03:03:10.133" LastActivityDate="2014-11-23T03:03:10.133" CommentCount="0" CommunityOwnedDate="2014-11-23T02:50:52.457" ContentLicense="CC BY-SA 3.0" />
  <row Id="248" PostTypeId="2" ParentId="236" CreationDate="2014-11-23T03:33:51.620" Score="1" Body="&lt;p&gt;The best way to understand Friedman's and 1950s Chicago methodology is to consider it more an operation research outfit than an economics department. The group consolidated in the war-time SRG, an OR group studying the mathematics and statistics of weapon ordnance (check out &lt;a href=&quot;http://books.google.com.tw/books/about/Machine_Dreams.html?id=cuaMAgAAQBAJ&amp;amp;redir_esc=y&quot; rel=&quot;nofollow&quot;&gt;Machine Dreams&lt;/a&gt; for a good history of it).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As with all OR groups, the Chicago group put the priority on usefulness. What matters in economics to Friedman is that the models predict well. Even if the premise of the model sounds wrong, it's fine to act &quot;as if&quot; it was true as long as it predicts data well.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This went against most of past (and future) economics. The predominant philosophy of science in economics hasn't changed since John Stuart Mill. In short the idea is that data and experience is misleading, that the job of the economist is to isolate causal mechanisms whose effect may be masked by countervailing forces when we look at data alone.&lt;br&gt;&#xA;This results in a science that spends more time thinking about first principles (assuming everyone is rational...) than data itself.&lt;br&gt;&#xA;Maki makes &lt;a href=&quot;http://www.helsinki.fi/tint/publications/ModelsSyntheseDa.pdf&quot; rel=&quot;nofollow&quot;&gt;a good case&lt;/a&gt; for it. There is a &lt;a href=&quot;https://afinetheorem.wordpress.com/2011/07/12/models-and-the-locus-of-their-truth-u-maki-2011/&quot; rel=&quot;nofollow&quot;&gt;nice blog-post&lt;/a&gt; about it on &quot;a fine theorem&quot;.&lt;/p&gt;&#xA;" OwnerUserId="93" LastActivityDate="2014-11-23T03:33:51.620" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="249" PostTypeId="2" ParentId="236" CreationDate="2014-11-23T03:59:58.333" Score="2" Body="&lt;p&gt;I would submit that the premise is flawed. There is no &lt;em&gt;methodological&lt;/em&gt; criteria that unified the Chicago school and separates it from the rest of economics. I think this is true even for Friedman, whose methodological paper you refer to. If you look at his macroeconomic work such as his &lt;em&gt;Monetary History of the United States&lt;/em&gt;, &lt;em&gt;Theory of the Consumption Function&lt;/em&gt; or his famous presidential address to the AEA,there is nothing in it which is different from the methodology of mainstream economics. I think the same can be said about Stigler's work on industrial organization.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Chicago School was united by its institutional links and its faith in capitalism and not by a distinctive method. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And it would be wrong to think of the School as a homogenous entity. See for example this article by Patinkin on the diversity of views on the quantity theory of money:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://stevereads.com/papers_to_read/the_chicago_tradition_the_quantity_theory_and_friedman.pdf&quot; rel=&quot;nofollow&quot;&gt;http://stevereads.com/papers_to_read/the_chicago_tradition_the_quantity_theory_and_friedman.pdf&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="86" LastEditorUserId="86" LastEditDate="2014-11-23T04:08:49.420" LastActivityDate="2014-11-23T04:08:49.420" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="251" PostTypeId="1" AcceptedAnswerId="255" CreationDate="2014-11-23T05:06:00.290" Score="10" ViewCount="289" Body="&lt;p&gt;There are a number of online booksellers that are popular in India right now. The prices they charge for the same book often differ by as much as 10% (See this price comparison site to check &lt;a href=&quot;http://www.indiabookstore.net/&quot;&gt;http://www.indiabookstore.net/&lt;/a&gt;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since these are homogenous goods and anyone who can access one of the stores can as easily assess another I wonder how we might explain this price dispersion. I have not done a systematic study but it is my impression that it is not the case that there is an ordering of prices between stores which is the same for different books.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I was wondering whether there are any economic models which can explain this dispersion. In particular are there models which can be tested by using panels of price data. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;[I confess I am fishing for a research topic.]&lt;/p&gt;&#xA;" OwnerUserId="86" LastActivityDate="2014-11-23T10:21:08.410" Title="Price dispersion in online retail" Tags="&lt;microeconomics&gt;&lt;industrial-organisation&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="252" PostTypeId="2" ParentId="245" CreationDate="2014-11-23T05:11:21.250" Score="4" Body="&lt;p&gt;This definitely is not a complete answer. But I can imagine the case of increasing returns to scale. Or natural entry barrier. Increasing returns to scale is often discussed in international trade theory, but it can be also relevant here.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Example: think about commercial aircraft industry, dominated by Boeing and Airbus. Aircraft industry is seen as exhibiting increasing returns to scale, so monopolistic power those companies have (well, it is oligopoly, but that does not change the conclusion) may actually lead to cheaper quality aircraft.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now there are people who really believe that all monopolistic powers are undesirable, but I believe those people are only minorities.&lt;/p&gt;&#xA;" OwnerUserId="213" LastActivityDate="2014-11-23T05:11:21.250" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="253" PostTypeId="1" CreationDate="2014-11-23T06:51:28.520" Score="0" ViewCount="319" Body="&lt;p&gt;In April 2011, the money supply was estimated to be 52 million hurls.&#xA;At the same time, bank reserves were 6.24 million hurls and the&#xA;reserve requirement was 12 percent. The banking industry, being&#xA;“loaned up,” lobbied the Congress to cut the reserve ratio. The&#xA;Congress yielded and cut required reserves to 10 percent. What is&#xA;the impact on the money supply?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From my calculation, a decrease in the required reserve ratio would mean that the reserves of 6.24 million will support 62.4 million hurl. Does this means that the money supply increases by 10.4 million?&lt;/p&gt;&#xA;" OwnerUserId="214" LastEditorUserId="108" LastEditDate="2014-11-23T09:58:34.583" LastActivityDate="2014-11-23T13:58:25.327" Title="What is the impact on the money supply of a reduction in the required reserve ratio?" Tags="&lt;macroeconomics&gt;&lt;banking&gt;&lt;federal-reserve&gt;&lt;money-supply&gt;" AnswerCount="1" CommentCount="1" ClosedDate="2014-11-23T14:35:19.333" ContentLicense="CC BY-SA 3.0" />
  <row Id="254" PostTypeId="2" ParentId="241" CreationDate="2014-11-23T09:56:24.633" Score="7" Body="&lt;p&gt;Firstly, suppose we take a utilitarian welfare standard that is linear in money. That is to say, suppose that both utility and profits are linear in the amount of money that consumers and firms have (but not necessarily linear in anything else). In that case, the Pareto standard and the utilitarian social welfare criterion coincide exactly! You can see a nice video of Jeff Ely talking about the intuition for this result &lt;a href=&quot;http://cheaptalk.org/jeffs-intermediate-micro-course/&quot; rel=&quot;noreferrer&quot;&gt;here&lt;/a&gt; (look at the video titled &quot;efficiency&quot;). Intuitively, if both the utility and profits are linear in money then we can always maximise utilitarian welfare by implementing the Pareto optimum and then constructing side-payments to support it.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Now, the answer to the question of when a monopolist is undesirable depends on the richness of the model that one has in mind. In a very basic textbook model of a monopolist, FooBar's criterion is a good one. We know that an ordinary competitive market equilibrium maximises total welfare (the shaded area in the below figure) with price equal to marginal cost (n.b. the supply curve and the marginal cost curve are essentially the same thing):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/hRDH1.png&quot; alt=&quot;Competitive market equilibrium&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since the profit that a monopolist makes from a unit is equal to difference between its price and its marginal cost, the monopolist will tend to set price above marginal cost. This results in a higher price (the green $p$) and a reduction in total welfare (given by the shaded area in this figure) and consumer surplus (the triangle between the price line and the demand curve):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/rX3NR.png&quot; alt=&quot;Monopoly price&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Since this kind of analysis is standard, it makes sense to think of the case in which a monopolist reduces consumer surplus and welfare as being a kind of 'default' and instead ask &quot;when might a monopolist be desirable&quot;? Here are some situations in which having a monopolist might be better than having very intense competition:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;As Jyotirmoy Bhattacharya noted in a comment, &lt;strong&gt;First Degree Price Discrimination&lt;/strong&gt;. This describes the situation in which the monopolist can charge each consumer an individualised price that is exactly equal to that consumer's willingness to pay. Thus, the monopolist captures all consumer surplus so that&#xA;$$\text{Social welfare}=\underbrace{\text{Consumer surplus}}_{=0}+\text{Producer surplus}=\text{Producer surplus}.$$&#xA;Since producer surplus and social welfare coincide, when the monopolist acts to maximise its own surplus it is also maximising social welfare! However, whilst this is good for welfare, it is very bad for consumers. It also requires that the monopolist has enough information about consumers to accurately estimate their willingness to pay, that such discrimination is not illegal, and that consumers are willing to tolerate it (i.e. there is no PR backlash--see, e.g., &lt;a href=&quot;http://news.bbc.co.uk/1/hi/business/914691.stm&quot; rel=&quot;noreferrer&quot;&gt;here&lt;/a&gt;).&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;Large economies of scale&lt;/strong&gt;. Sometimes the fixed costs of establishing a business are massive. For example, to set up a rail/telephone network requires that you lay train tacks/phone lines across the entire country. Once this cost is incurred, the infrastructure can be used at close-to-zero marginal cost. In this kind of environment it doesn't make sense for society to incur the fixed cost more than once. The infrastructure company is then called a natural monopolist. In these kinds of industries a monopolist is usually allowed to operate and is either (i) owned by the government, or (ii) heavily regulated to ensure that price is not set far above marginal cost.&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;Network externalities&lt;/strong&gt;. Some products are only valuable to you is other people also use them. For example, Facebook and telephones (and Stack Exchange!) are only useful because they can be used to contact other people. The more people you can contact, the more valuable to the product becomes. If everybody uses a single monopoly social network then that network will be more valuable than if people are divided across a large number of competing social networks. Network effects are sometimes call demand-side economies of scale.&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;Innovation and investment&lt;/strong&gt;. Firms invest in R&amp;amp;D to develop new products (or new production technologies). Why bother? Presumably, firms do this because they anticipate earning a profit selling those new products (or from the reduced cost of the new technology). But their ability to earn this profit will depend on how much competition the firm faces. Thus, one might think that competition should reduce the incentive to innovate by eroding the associated profits. In fact, &lt;a href=&quot;http://web.stanford.edu/~nbloom/PevertedU.pdf&quot; rel=&quot;noreferrer&quot;&gt;a famous paper by Aghion and coauthors&lt;/a&gt; shows that adding competition first reduces innovation and then, once competition gets fierce enough, increases it again. Thus, if the choice is between a monopolist and a few firms then a monopolist might result in more innovation.&lt;/li&gt;&#xA;&lt;li&gt;It's perhaps worth mentioning that this last point is closely related to the idea of &lt;strong&gt;intellectual property&lt;/strong&gt;. Since most intellectual property (i.e. creative works like books, songs, or movies; and inventions) are information goods, they can be duplicated or imitated at zero marginal cost. That means that if we allowed competition we should expect there to be many competitors and it will be very hard for anyone (including the original creator) to make any profit whatsoever. In order to ensure that creators and inventors have an incentive to create new works or new inventions, the state therefore grants them a temporary monopoly in the form of either copyright protection or patent protection.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Those are a few of the most common ways in which a monopolist &lt;em&gt;might&lt;/em&gt; be preferable to competition. I am sure there are others that don't come to mind right now. The main message is that you have to look at the specific market context to evaluate whether there might be any problems associated with intense competition. Most often the answer will be that there are not, and the usual assumption is therefore that monopolists are undesirable unless we have good reason to think otherwise.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2014-11-23T09:56:24.633" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="255" PostTypeId="2" ParentId="251" CreationDate="2014-11-23T10:21:08.410" Score="9" Body="&lt;p&gt;Yes, this has actually been quite an active area for research within the consumer search literature. As a starting point, I would recommend looking at the following:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;&lt;a href=&quot;https://www.aeaweb.org/articles.php?doi=10.1257/aer.91.3.454&quot;&gt;BAYE, M. R., AND J. MORGAN (2001): “Information Gatekeepers on the Internet and the Competitiveness of Homogeneous Product Markets”, &lt;em&gt;American Economic Review&lt;/em&gt;, 91(2), 454–474.&lt;/a&gt;&lt;/strong&gt; These authors have a model that is interesting because it explains the persistence of price dispersion, even in environments like price comparison sites where one would ordinarily think that all consumers will buy from the lowest-priced merchant. The intuition is closely related to that of &lt;a href=&quot;http://people.ischool.berkeley.edu/~hal/Papers/model-of-sales.pdf&quot;&gt;Varian's classic model of sales&lt;/a&gt;, if you know that. The idea is that some firms price low to sell to the consumers on the price comparison site, whilst others price high to sell to less-informed consumers who do not use the price comparison site and therefore do not compare as many prices.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;&lt;a href=&quot;http://www.bus.indiana.edu/riharbau/repec/iuk/wpaper/bepp2004-03-baye-morgan-scholten.pdf&quot;&gt;BAYE, M. R., J. MORGAN AND P. SCHOLTEN (2004): “Price Dispersion in the Small and in the Large: Evidence From an Internet Price Comparison Site”, &lt;em&gt;Journal of Industrial Economics&lt;/em&gt;, 52(4), 463–496.&lt;/a&gt; (older working paper link).&lt;/strong&gt; This is interesting because they test various models (including the one mentioned above) against data from a price comparison site.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;&lt;a href=&quot;https://www.aeaweb.org/articles.php?doi=10.1257/aer.102.6.2955&quot;&gt;De Los Santos, B., A. Hortaçsu, and M. R. Wildenbeest (2012): &quot;Testing Models of Consumer Search Using Data on Web Browsing and Purchasing Behavior.&quot; &lt;em&gt;American Economic Review&lt;/em&gt;, 102(6), 2955-80.&lt;/a&gt;&lt;/strong&gt; Not directly related to the question, but an interesting take on a similar issue. There are two classic models of consumer search: sequential and fixed-sample. In sequential search, consumers visit a merchant, evaluate its offer and decide whether to search again; repeating his process until they find an offer they are willing to accept. In fixed-sample search consumers first decide the number $n$ of merchants they will visit; they then visit precisely $n$ merchants and buy the best offer among them. Given dispersed prices, sequential search is optimal and the fixed-sample strategy is not. These authors test the two models against data from online retailers and find evidence to suggest that consumers use a strategy closer to the fixed-sample end of the spectrum.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;A couple of extra references to finish up:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;strong&gt;&lt;a href=&quot;http://faculty.haas.berkeley.edu/rjmorgan/Information%20Search%20and%20Price%20Dispersion.pdf&quot;&gt;BAYE, M. R., J. MORGAN AND P. SCHOLTEN (2006): “Information, Search, and Price Dispersion”, in T. HENDERSHOTT (ed.) &lt;em&gt;Handbook of Economics and Information Systems&lt;/em&gt;, Elsevier Science, 323–371&lt;/a&gt;&lt;/strong&gt; A nice survey of theories of search and price dispersion that can give you an idea of what work has been done on these general phenomena (and possibly some ideas of what can be empirically tested?).&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;&lt;a href=&quot;http://economics.mit.edu/files/7205&quot;&gt;ELLISON, G., AND S. F. ELLISON (2009): “Search, Obfuscation, and Price Elasticities on the Internet”, &lt;em&gt;Econometrica&lt;/em&gt;, 77(2), 427–452&lt;/a&gt;&lt;/strong&gt; A study of how firms can obfuscate the search process to maintain market power in a frictionless context like a price comparison site. Ellison and Wolitzky also have a nice theoretical paper on this phenomenon in the &lt;em&gt;RAND Journal of Economics&lt;/em&gt;.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="108" LastActivityDate="2014-11-23T10:21:08.410" CommentCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="256" PostTypeId="1" CreationDate="2014-11-23T10:24:13.390" Score="5" ViewCount="62" Body="&lt;p&gt;One of the challenges of constructing a national or regional market-correction scheme to remove the distortions from negative externalities, is that such a scheme is liable to create leakage: for example, a European carbon tax could simply result in the carbon-emitters locating to outside the EU.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The antidote is a border-adjustment scheme, such as (a combination of) import tariffs and export rebates.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there empirical evidence on the factors that make a difference between schemes that are more successful, and those that are less successful, in correcting the distortion without exporting the externalities?&lt;/p&gt;&#xA;" OwnerUserId="44" LastEditorUserId="44" LastEditDate="2014-11-23T10:40:42.877" LastActivityDate="2014-11-23T10:40:42.877" Title="Empirical evidence on what makes a border adjustment successful at correcting a distortion without exporting externalities?" Tags="&lt;externalities&gt;&lt;pigouvian-taxes&gt;&lt;empirical-evidence&gt;&lt;environmental-economics&gt;" AnswerCount="0" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="257" PostTypeId="2" ParentId="245" CreationDate="2014-11-23T10:42:26.463" Score="2" Body="&lt;p&gt;I haven't seen the model you mention (so this answer should be taken with a grain of salt!) but, intuitively, I guess the story would go something like this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose a firm is selling insurance.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;If price is very low then selling is not very profitable so supply is low.&lt;/li&gt;&#xA;&lt;li&gt;Higher prices cause selling insurance to become more profitable so supply increases.&lt;/li&gt;&#xA;&lt;li&gt;If insurance is very expensive then the only people who will be willing to buy it are the people who know they are almost certain to make a claim. Since selling insurance to such people is not at all attractive, the firm wishes to reduce its supply of insurance.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Thus, supply first increases and then decreases with price. &lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2014-11-23T10:48:48.733" LastActivityDate="2014-11-23T10:48:48.733" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="258" PostTypeId="1" AcceptedAnswerId="297" CreationDate="2014-11-23T13:31:17.207" Score="16" ViewCount="3991" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;QUESTION: What are the major or systematic applications of post-1960s mathematics to microeconomics? &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;For example, in the late 19th century, Fisher first used the mathematical ideas of Gibbs to construct modern utility theory. In the 20th century, Mas-Colell incorporated topological ideas to study general equilibrium. What about the late 20th, early 21st century? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, consider directed graph theory, measure theory, topology, the category theory and modern homology or cohomology, topos methods, functional integration, etc.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Note 1&lt;/em&gt;: econometrics/statistics, without modelling, is excluded. The only modern mathematics used there is random walk theory, and the ergodic problem, solved via complex analysis. RW and EP are not specific to economics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any appropriate economics publication is an answer. This included also those published in non-strictly economics journals, e.g. the &lt;em&gt;Journal of Mathematical Psychology&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Note 2&lt;/em&gt;:&#xA;Yes, I know, this type of work is rarer (not to be confused with obscurity: some of it is well known). That is what makes it easy to miss such a reference when it is published. Hence the question.&lt;/p&gt;&#xA;" OwnerDisplayName="user218" LastEditorDisplayName="user218" LastEditDate="2014-11-24T08:40:32.303" LastActivityDate="2016-02-06T14:00:37.007" Title="Topological concepts in economic theory" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;decision-theory&gt;&lt;bounded-rationality&gt;&lt;welfare-economics&gt;" AnswerCount="5" CommentCount="5" FavoriteCount="11" ContentLicense="CC BY-SA 3.0" />
  <row Id="259" PostTypeId="2" ParentId="253" CreationDate="2014-11-23T13:58:25.327" Score="1" Body="&lt;p&gt;Theoretically, reducing the required reserve ratio will increase the money supply by allowing banks to produce more loans and keep less in reserve.  Theoretically your simple (ie basic homework) calculation would show that the money supply could increase by that amount.  In practice there are of course many other factors, such as the interest rate, velocity and reliablility of the people taking out the loans.  &lt;/p&gt;&#xA;" OwnerUserId="211" LastActivityDate="2014-11-23T13:58:25.327" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="260" PostTypeId="2" ParentId="245" CreationDate="2014-11-23T18:43:41.497" Score="-1" Body="&lt;p&gt;A &quot;backward bending&quot; supply curve is evidence of a a supplier &quot;monopoly.&quot; An example of such is a labor union, that has a &quot;monopoly&quot; on labor in a region, meaning that no one else can produce widgets for the monopolist; just as the widget producer is a monopolist because it has no competitors.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Normally, monopolies are frowned upon, because they have &quot;too much&quot; power, relative to other agents. On the other hand, if you have a &quot;monopoly&quot; that can move anywhere along the demand curve at will, and a labor &quot;monopoly&quot; that can confront the whole supply curve, maybe you have two operators with &quot;countervailing&quot; power that balance each other out.&lt;/p&gt;&#xA;" OwnerUserId="15" LastEditorUserId="15" LastEditDate="2014-11-23T22:00:18.057" LastActivityDate="2014-11-23T22:00:18.057" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="261" PostTypeId="2" ParentId="245" CreationDate="2014-11-23T19:11:49.083" Score="2" Body="&lt;p&gt;I don't recognize your moral hazard example, but there are a couple situations where a monopoly is desirable.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A monopoly is desirable when the cost of entry is close to zero or good substitutes are available, and the economies of scale are always increasing.  One might argue that Amazon.com, Google, and other internet companies are cases of this.  The advantage of being able to always go to the same source for everything makes the economies of scale high.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A monopoly is also desirable when the economies of scale are such that it is cheaper to pay the monopoly premium than to split between two producers.  The classic case of this is with law enforcement.  The cost of covering one more house on a street decreases as you cover more houses.  The cheapest price is reached when one agency covers every house on the street.  This would also apply to fire and ambulance services for the same reason.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course, if it is worth paying the monopoly premium, then it is generally worth paying the central planning penalty as well.  Thus most of these services tend to be provided by governments rather than private enterprises.  Even when they are provided by private enterprise, as gas, electric, cable, and phone connectivity are, they are often highly regulated as utilities.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Patents and copyrights award temporary monopolies to encourage production.  Ideally the societal benefit of increased effort should outweigh the monopoly penalties.  Of course, we can likely find individual instances where this is untrue.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Trademarks offer a relatively permanent monopoly to encourage brand building and responsibility.  Without trademarks, the name wouldn't indicate who was providing the good or service, so determining quality would be more difficult.  The trademark loses value if it becomes associated with lower quality, so the trademark owner is incented to maintain quality.  Hopefully we wouldn't offer them unless the benefit outweighed the cost.&lt;/p&gt;&#xA;" OwnerUserId="68" LastActivityDate="2014-11-23T19:11:49.083" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="262" PostTypeId="1" CreationDate="2014-11-23T19:15:33.547" Score="14" ViewCount="847" Body="&lt;p&gt;Economics, especially in the modern school is broadly influenced by the &lt;a href=&quot;http://en.wikipedia.org/wiki/Utilitarianism&quot; rel=&quot;noreferrer&quot;&gt;utilitarian&lt;/a&gt; concept of utility. More so since the labor theory of value has been broadly replaced by the theory of marginal utility.&lt;/p&gt;&#xA;&lt;p&gt;Additionally, &lt;a href=&quot;http://en.wikipedia.org/wiki/Perverse_incentive&quot; rel=&quot;noreferrer&quot;&gt;perverse incentives&lt;/a&gt; are commonly understood and well documented, and seem to be small scale imitations of &lt;a href=&quot;http://en.wikipedia.org/wiki/Utility_monster&quot; rel=&quot;noreferrer&quot;&gt;Nozick's classical &amp;quot;utility monster&amp;quot;&lt;/a&gt;.&lt;/p&gt;&#xA;&lt;p&gt;Are there any observations of larger &amp;quot;utility monsters&amp;quot; (wherein consumption by an individual increases aggregate utility for a group while individual utility is reduced for all but the &amp;quot;monster&amp;quot; of the group)?&lt;/p&gt;&#xA;&lt;p&gt;Does a theory of declining marginal utility necessarily prevent such a thing if utility is said to remain non-negative? (i.e. simply having the ability to ignore excess goods). Obviously it prevents it if utility can become negative, unless the number of units of the good in question are fixed at less than the number required to reach negative total utility.&lt;/p&gt;&#xA;&lt;p&gt;For a simplistic toy example, imagine a closed system consisting of myself, my five-year-old daughter, and two cars (full-sized). Allocating a car to her produces little marginal utility since she can't drive (or even reach the pedals), though presumably it's a non-zero amount. Consequently taking a car from her and giving it to me produces a net gain for the &amp;quot;economy&amp;quot;, despite producing a presumable reduction in utility for her (assuming I'm not going to drive her around because I'm a terrible father in this example). Further, even assuming if she owned both cars, taking them both from her and giving them to me would produce an aggregate gain, as I could exploit the one car better than she could the two, and the second (or even third, etc), would not be an inconvenience, and in fact still offer me greater marginal utility as backup vehicles.&lt;/p&gt;&#xA;&lt;p&gt;The question is, do such scenarios arise in practical economic settings where one group or individual is simply so much better able to make use of a good than another as to justify (in the sense of aggregate utility) taking it from the less able?&lt;/p&gt;&#xA;&lt;p&gt;I understand this could be a contentious question, but I'm asking not from a moral standpoint but strict aggregate utility.&lt;/p&gt;&#xA;&lt;h2&gt;Updates&lt;/h2&gt;&#xA;&lt;p&gt;The constraints regarding the system I'm modeling are (and looking for a general solution to):&lt;/p&gt;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Marginal Utility for every unit of a good must be positive (or zero), finite, and declining (though never to below zero).&lt;/li&gt;&#xA;&lt;li&gt;Finite Goods:&#xA;&lt;ol&gt;&#xA;&lt;li&gt;The available quantities of all goods must be finite, though they can be arbitrarily large.&lt;/li&gt;&#xA;&lt;li&gt;There can be an arbitrarily large, though finite number of other goods in the system.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;Aggregate Utility must increase for all, while individual utility must decrease for all except one (the &amp;quot;monster&amp;quot;) when a good of a certain class (let's say &amp;quot;cars&amp;quot;) is transferred from any member of the group to the &amp;quot;monster&amp;quot;.&lt;/li&gt;&#xA;&lt;li&gt;Condition 3 should be met for all transfers of &amp;quot;cars&amp;quot; from &amp;quot;innocents&amp;quot; (people not the monster) to the &amp;quot;monster&amp;quot;, to the exhaustion of &amp;quot;cars&amp;quot; from the system.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&lt;p&gt;Again, this is not a question about &amp;quot;Can mutually beneficial trade exist under any circumstances?&amp;quot; We've known that since before Ricardo. This is a question about the requirements for Aggregate Utility increase at the expense of most individuals when talking abut individual preference.&lt;/p&gt;&#xA;&lt;p&gt;&lt;a href=&quot;http://existentialcomics.com/comic/8&quot; rel=&quot;noreferrer&quot;&gt;Inspiration for the question&lt;/a&gt;:&lt;/p&gt;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/uQ5UJ.jpg&quot; alt=&quot;Inspiration&quot; /&gt;&lt;/p&gt;&#xA;" OwnerUserId="31" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2015-08-15T23:12:20.533" Title="Are there Utility Monsters in Economics?" Tags="&lt;utility&gt;&lt;theory&gt;" AnswerCount="5" CommentCount="7" FavoriteCount="9" ContentLicense="CC BY-SA 3.0" />
  <row Id="263" PostTypeId="2" ParentId="262" CreationDate="2014-11-23T21:06:20.447" Score="6" Body="&lt;p&gt;Your toy example does not really happen in standard economic models. For one, because we assume identical preferences. Therefore, to the extent that we similarly care about different individuals, we need similar consumption (or whatever enters their utility) to maximize welfare.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That does not mean that all allocations are the same. It could be that one of the agents is especially lazy - he should optimally not work. Others will have to do extra shifts, but we will compensate them with more consumption: the utility per person over both consumption and working time will then be again relative to the pareto weights.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We keep focussing at classes of utility functions $u(x)$ that are finite and strictly increasing in $x$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Necessary condition&lt;/strong&gt; Strictly speaking, diminishing marginal utility is necessary but not sufficient to prevent the existence of such &quot;utility monsters&quot;. Given two utility functions $u(x), v(x)$, you need that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$x_1 \geq x_2 \Leftrightarrow u'(x_1) \leq v'(x_2) \quad (1)$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;and vice-versa for $v'$ and $u'$. Diminishing marginal utility only gives you &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$x_1 \geq x_2 \Leftrightarrow u'(x_1) \leq u'(x_2) \quad (2)$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is easy to see that when only (2) holds, given a sufficiently enough difference in the levels of $u, v$, we still find it optimal to give all of $x$ to one individual.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Sufficient condition&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sufficient condition for every individual having positive $x$ is that for every preference $u, v$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\lim_{x\to 0}\,u(x) = -\infty \quad (3)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;such that no matter the levels of $u, v$, marginal utility just blows up. This together with diminishing marginal utility should prevent utility monsters.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Alternatively, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ u(\epsilon) - u(0) &amp;gt; v(x+\epsilon) - v(x) \, , \forall x&amp;gt;0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and vice-versa for $v, u$ and some $\epsilon &amp;gt; 0$ will ensure that you will never sacrifice &lt;em&gt;all&lt;/em&gt; consumption of everyone else in order to give it to the other guy.&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2014-11-23T21:34:25.643" LastActivityDate="2014-11-23T21:34:25.643" CommentCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="264" PostTypeId="2" ParentId="262" CreationDate="2014-11-23T21:12:06.613" Score="3" Body="&lt;p&gt;I haven't run into a &quot;utility monster&quot; in the literature. I can tell you one concept in which the utility monster is expressly ruled out. I believe this line:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;wherein consumption by an individual increases aggregate utility for a group while individual utility is reduced for all but a the &quot;monster&quot; of the group&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;rules out &lt;a href=&quot;http://en.wikipedia.org/wiki/Pareto_efficiency&quot; rel=&quot;nofollow&quot;&gt;pareto efficiency&lt;/a&gt; -- in your examples, clearly some person is being made better off while others are being made worse off. The first and second welfare theorems, for example, deal largely in pareto efficiency. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This doesn't exactly answer your question, but perhaps it is one reason for rarity of a &quot;utility monster&quot; in theory (at least as far as I've seen).  &lt;/p&gt;&#xA;" OwnerUserId="17" LastActivityDate="2014-11-23T21:12:06.613" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="265" PostTypeId="2" ParentId="225" CreationDate="2014-11-23T21:43:38.640" Score="6" Body="&lt;p&gt;Here's a simple model to complement my less formal answer:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A worker is of (privately known) type $H$ or $L$, each with probability $1/2$. The marginal product of the two types is $\pi_H&amp;gt;\pi_L$. The labour market is competitive so that workers are paid their (expected) marginal product. The worker can invest in education; doing so costs type $i$ $c_i$, with $\pi_H-c_L&amp;lt;\pi_L$ and $\pi_H-c_H&amp;gt;(\pi_H/2)+(\pi_L/2)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The game is as follows: the worker observes his type and decides whether to invest in education. Employers then observe wether the worker invested or not and make competitive wage offers based on their beliefs about his productivity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider the following two perfect Bayesian equilibria (PBE) of the game.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;(Separating equilibrium) Type $H$ invests; type $L$ does not invest. If employers observe investment then they update their beliefs to $\Pr(H)=1$ and offer a wage of $\pi_H$. If they observe no investment then they update to $\Pr(H)=0$ and offer wage $\pi_L$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can check that this is an equilibrium: type H's payoff is $\pi_H-c_H$. If he deviates to no education then his payoff is $\pi_L$, which is lower. Type $L$'s payoff is $\pi_L$. If he deviates to getting education then his payoff is $\pi_H-c_L&amp;lt;\pi_L$, which is lower. Thus neither type wants to deviate. The wage offers are (trivially) best responses given the beliefs because the labour market is competitive. Lastly, note that the beliefs are consistent with Bayes' rule and the equilibrium play of the game.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;(Pooling equilibrium) Neither type invests. The employer updates beliefs to $\Pr(H)=0$ if education is observed and offers wage $\pi_L$. The employer sticks with the prior belief of $\Pr(H)=1/2$ and offers wage $(\pi_H/2)+(\pi_L)/2$ if education is not observed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's check that this is also an equilibrium. Since education is costly but adversely affects the employer's beliefs in equilibrium, it is optimal for neither type to get education. Given beleifs and the competitiveness of the labour market, the putative wage offers are optimal. The belief $\Pr(H)=1/2$ is consistent with Bayes' rule if no education is observed (because this observation contains no new information about the worker's type). Lastly, Bayes' rule does not pin down  beliefs in the event of (out of equilibrium) investment in education so, according to the definition of a PBE, we are free to specify whatever beliefs we like.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;The intuitive criterion rules out equilibrium number 2.&lt;/strong&gt; Firstly, if type $L$ deviates to getting education then the best payoff he can get is $\pi_H-c_L&amp;lt;\pi_L$ so such a deviation is dominated. Secondly, suppose type $H$ deviates to getting education and the employers adopt some posterior belief $\Pr(H)=1$. The payoff of the deviating $H$-type is then $\pi_H-C_L&amp;gt;\pi_L$. So that the deviation would be profitable. The intuitive criterion therefore rules that the beliefs $\Pr(H)=0$ are not reasonable for a deviation to investing in education and we cannot have any equilibrium that depends of such beliefs.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;In fact, this game has other pooling equilibria. For example there is a pooling equilibrium in which the employer sticks with his prior belief irrespective of whether he observes education or not. This (and all other pooling equilibria) is also ruled-out by the intuitive criterion. The reason is that any deviation from an equilibrium in which nobody is educated is dominated for the $L$-type so the intuitive criterion is going to require that the employer never associates education with $L$-types. Given that education will therefore be associated with $H$-types, it is profitable for $H$-types to deviate from the no education equilibrium.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2014-11-23T21:43:38.640" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="266" PostTypeId="1" AcceptedAnswerId="279" CreationDate="2014-11-23T21:44:31.407" Score="10" ViewCount="171" Body="&lt;p&gt;The basic idea of Schumpeterian Business Cycles is that new technologies require creative destruction but will yield positive growth. These two opposing forces have impacts onto the real economy at different times, which will create fluctuations around the trend. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Romer (1986) has these effects in an explicit growth model, but he neglects the business cycle fluctuations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Has there been any literature of business cycles based on the idea of Schumpeterian Growth? &lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2014-11-23T21:50:44.653" LastActivityDate="2014-11-24T01:30:02.307" Title="Schumpeterian Business Cycles" Tags="&lt;macroeconomics&gt;&lt;business-cycles&gt;&lt;economic-growth&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="267" PostTypeId="1" CreationDate="2014-11-23T21:48:21.457" Score="8" ViewCount="195" Body="&lt;p&gt;Many papers look at the impact of credit frictions onto business cycles, and they almost unambiguously find that credit frictions work as an amplification mechanism of other shocks.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, given a stronger negative &lt;a href=&quot;http://en.wikipedia.org/wiki/Total_factor_productivity&quot; rel=&quot;noreferrer&quot;&gt;total factor productivity&lt;/a&gt; shock, the existence of borrowing frictions will lead to higher firm death, devaluation of capital and in general stronger impact on the real economy. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A lot of these models (in the tradition of Kiyotaki and Moore) have finite periods and just illustrate the amplification mechanisms. Have there been attempts that actually tries to look at credit frictions themselves as the &lt;em&gt;source&lt;/em&gt; of business cycles?&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="54" LastEditDate="2014-11-24T04:13:01.583" LastActivityDate="2014-11-24T21:02:39.500" Title="Credit Frictions as the source of Business Cycles" Tags="&lt;macroeconomics&gt;&lt;business-cycles&gt;&lt;credit-friction&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="268" PostTypeId="1" CreationDate="2014-11-23T21:50:37.277" Score="2" ViewCount="100" Body="&lt;p&gt;Follow on to &lt;a href=&quot;https://economics.stackexchange.com/questions/262/are-there-utility-monsters-in-economics&quot;&gt;this question&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Using similar constraints:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The constraints regarding the system I'm modeling are (and looking for a general solution to):&lt;/p&gt;&#xA;  &#xA;  &lt;ol&gt;&#xA;  &lt;li&gt;Marginal Utility for every unit of a good must be positive (or zero), finite, and declining (though never to below zero).&lt;/li&gt;&#xA;  &lt;li&gt;The available quantities of all goods must be finite, though they can be arbitrarily large.&#xA;  2.a There can be an arbitrarily large, though finite number of other goods in the system.&lt;/li&gt;&#xA;  &lt;li&gt;Aggregate Utility must increase for all, while individual utility must decrease for all except one (the &quot;monster&quot;) when a good of a certain class (let's say &quot;cars&quot;) is transferred from any member of the group to the &quot;monster&quot;.&lt;/li&gt;&#xA;  &lt;li&gt;Condition 3 should be met for all transfers of &quot;cars&quot; from &quot;innocents&quot; (people not the monster) to the &quot;monster&quot;, to the exhaustion of &quot;cars&quot; from the system. &lt;/li&gt;&#xA;  &lt;/ol&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;h2&gt;The Difference&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Let's replace the &quot;monster&quot; with a group of individuals, still in the minority.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can a mathematical relationship be defined between their utility function over a good (x), and their representation in a population (p), that sets lower bounds for the existence of a class of &quot;utility monsters&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, if members of the &quot;monster&quot; group a have function $u(x)=Ax+\frac{b}{x^2}$ and members of the innocent (i.e. non-monster group) have utility function $v(x)=Cx+\frac{d}{x^2}$, can we describe the ratio of $M:I$ (where $M$ is the size of the &quot;monster&quot; group and $I$ is the size of the &quot;innocent&quot; group) that allows $M$ to exist as a &quot;utility monster&quot; class solely in terms of $A$, $b$, $C$, and $d$? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is basically a question in regards to constructing non-Pareto economies in simulation.&lt;/p&gt;&#xA;" OwnerUserId="31" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-08-15T23:12:25.560" Title="Utility and the tyranny of a minority" Tags="&lt;mathematical-economics&gt;&lt;utility&gt;&lt;theory&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="269" PostTypeId="2" ParentId="262" CreationDate="2014-11-23T21:51:53.203" Score="4" Body="&lt;p&gt;The concept of the utility monster was intended by Nozick to criticize (1) interpersonal comparisons of utility where utility is a field subset, by revealing a certain absurdity in the scheme. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is a thought experiment purely, because interpersonal utility comparisons are questionable empirically and theoretically, and this because utility is not a field subset (and even if it was, this would not imply by itself meaningfulness of interpersonal comparisons). As is well-known, there is no neurophysiological evidence for (1)-type utility. Indeed, two mind configuration states are isomorphic or not, and if not, that's it, nothing more can be said, assuming we go with the mainstream models of brain functioning.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Most importantly, as Gibbs and Fisher long ago argued, explaining and predicting behaviour does not require utility to be a measurable quantity, let alone such measurements for one person being comparable to measurements for another person. So in reality, there is no possibility of observing a utility monster. For they don't exist.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The utility monster is an additional, alternative argument against (1) being valid by revealing that it leads to a very strange prediction.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The references are the ones that started modern utility theory, where utilities are not elements of fields, but merely numerical labels covarying in restricted ways with transformations to preserve correspondence to ranked behaviours. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Utility here is postulated to and only to predict and explain that behaviour to which it corresponds. So it means nothing to say I like X more than I like Y both compared to my like of Z. Merely I prefer X to Y to Z, as is demonstrated by my observed behaviour. It means nothing to say that A and B like so much brandy more than so much whisky yet A gets more happiness from drinking brandy than B. Rather, A and B feel the need to take so much brandy and leave so much whiskey when offered one or the other, and are willing to forego the whiskey, nothing more or less is implied by the &quot;utility&quot; analysis, because U(B';B,W) &gt; U(W';B,W), which means their mind is in a &quot;happier&quot; state, which is a different preferred configuration. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The utility numbers are distinguishing marks of ranks of continuously varying quantities, referring to lesser or more important wants that are eliminated by consumption of the quantities or remain where this consumption is absent. They don't add, but correspond to choices executed in a different order.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I give the references with historical priority:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Fisher, I.&lt;/strong&gt; 1892. Mathematical Investigations in Theory of Value &amp;amp; Prices. &lt;em&gt;Transactions of Connecticut Academy of Arts &amp;amp; Sciences&lt;/em&gt; 9:1-124. (It seems that the topic and novel approach and mathematics are given by Gibbs, the thesis instructor of Fisher, and Fisher worked it out into the modern neoclassical utility function and demand theory, to get his PhD.)  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Cuhel, F.&lt;/strong&gt; 1907. &lt;em&gt;Zur Lehre von den Bedurfnissen.&lt;/em&gt; Innsbruck. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Bernardelli, H.&lt;/strong&gt; 1938. End of Marginal Utility Theory? &lt;em&gt;Economica&lt;/em&gt; 5:192&#xA;-212. 1952. Theory of Marginal Utility. &lt;em&gt;Economica&lt;/em&gt; 19(3):254-268.&lt;/p&gt;&#xA;" OwnerDisplayName="user218" LastEditorDisplayName="user218" LastEditDate="2014-11-23T22:56:21.823" LastActivityDate="2014-11-23T22:56:21.823" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="270" PostTypeId="2" ParentId="262" CreationDate="2014-11-23T22:08:17.477" Score="7" Body="&lt;p&gt;There is a type of protection called a liability rule, where I, $A$, can take something from $B$, if I pay the damages $c$ which are court-ordered preemptively. Copyright law is all about liability rules. If the damages are correlated with $B$'s valuation appropriately, then efficiency holds. You are interested in the opposite case. If IP law doesn't get it right, this would be an example matching your hypothetical as I understand it. And some might say this is justified. A company might want to keep some research under wraps to prevent competitors from also using it and making it even more valuable to society through investment. So the expiration of a patent might fit this scenario in a roundabout way too if we start the model where the company already owns the patent and a court is deciding when to let it expire.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Reference: &lt;a href=&quot;http://nicolapersico.com/files/takings.pdf&quot;&gt;Exchange Efficiency With Weak Property Rights.&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="14" LastActivityDate="2014-11-23T22:08:17.477" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="272" PostTypeId="2" ParentId="267" CreationDate="2014-11-23T22:35:07.463" Score="3" Body="&lt;p&gt;Yes credit frictions do have an amplifying effect on supply shocks while they often attenuate demand shocks and they also give increased persistent to the effects of the supply shocks in many models. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Once you have a specified DSGE model you can choose exactly where the shock originates from and the strength of the shock. See for instance Gerali et. al. 2010. Credit and Banking in a DSGE model of the Euro Area. They incorporate a banking sector into a traditional DSGE model. Their variance decomposition shows that it is mostly shocks originating in the banking sector which explain the fall in GDP during the financial crisis. However that is empirical estimation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What you can do and what they do is to shock bank capital so as to simulate a loss. They show that this loss in bank capital has effects on output, consumption, inflation, investment and so on. So by incorporating financial and/or credit frictions you can simulate shocks to these which in turn should have real effects in your model.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The paper can be found here: &lt;a href=&quot;http://www.bancaditalia.it/pubblicazioni/econo/temidi/td10/td740_10/td_740_10/en_tema_740.pdf&quot; rel=&quot;nofollow&quot;&gt;http://www.bancaditalia.it/pubblicazioni/econo/temidi/td10/td740_10/td_740_10/en_tema_740.pdf&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT:&#xA;There are actually papers that are examining the question at hand in even more details than the Gerali et. al paper mentioned above. Two of these are Iacoviello, M. 2014. &quot;Financial Business Cycles&quot; where he examines a recession whcih is initiated by losses suffered from banks. Another paper is Jensen et. al. 2013. &quot;Changing Credit Limits Changing Business Cycles&quot; where they examine financial liberalization in a DSGE model. They find that financial liberalization leads to higher macroeconomic volatility.&lt;/p&gt;&#xA;" OwnerUserId="150" LastEditorUserId="150" LastEditDate="2014-11-24T21:02:39.500" LastActivityDate="2014-11-24T21:02:39.500" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="273" PostTypeId="2" ParentId="266" CreationDate="2014-11-23T22:46:28.373" Score="9" Body="&lt;p&gt;There have been examples of some papers that incorporate these ideas.  They are typically housed within the endogenous growth literature.  Off the top of my head, these are the papers that I think of:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;&quot;Endogenous Growth And Endogenous Business Cycles&quot; by Sergui and Lilia Maliar.  I haven't read this &lt;a href=&quot;https://ideas.repec.org/a/cup/macdyn/v8y2004i05p559-581_04.html&quot;&gt;paper&lt;/a&gt; in awhile, but if I remember correctly, the idea is that technology innovations come slowly over time and there is a trade off between investing in production and research.  I think one of the cool results of their paper was that they could capture some of the asymmetry in business cycles (but don't quote me).  Would need to reread to give you a better description, it is a kind of neat paper though.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&quot;A Model of Growth Through Creative Destruction&quot; by Philippe Aghion and Peter Howitt.  This &lt;a href=&quot;https://ideas.repec.org/p/nbr/nberwo/3223.html&quot;&gt;paper&lt;/a&gt; is another that is centered on technology growth through research.  Firms have a similar trade off as in the previous paper and I think what he found was that typically technology grows too quickly because firms are competing for the benefits of having the best technology.  Once again, it has been awhile since I've read it.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I hope this is the type of work you were looking for.&lt;/p&gt;&#xA;" OwnerUserId="47" LastActivityDate="2014-11-23T22:46:28.373" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="274" PostTypeId="2" ParentId="268" CreationDate="2014-11-23T23:02:24.837" Score="3" Body="&lt;p&gt;&lt;strong&gt;Solution:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we assume the Group Utility function equals:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$G(x)= M\times u(qx) + I \times v(rx)$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;where: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$u(x) = Ax+\frac bx$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$v(x) = Cx+\frac dx$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$q+r=1$$&#xA;$$q,r,A,b,C,D \in\mathbb{R}(0,\infty)$$&#xA;$$x,M,I\in\mathbb{Z} [1,\infty)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can state our goal as defining the boundaries of a situation where for some unfair allocation $M&amp;lt;I$ and $q&amp;gt;r$, $G(x)$ is greater than it would be if $r&amp;gt;q$ (a more &quot;fair&quot; allocation).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can even simplify the question to finding a set of constraints on the variables $M,I,q,r,A,b,C,$ and $d$ such that would satisfy the inequality (which assumes $q$ and $r$ are equal and dropped):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$M(Ax + \frac {b}{x}) &amp;gt; I(Cx+\frac{d}{x})$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$x\in \mathbb{Z}[1,\infty)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;so taking the $\lim_{x\to\infty}$ of both sides, we can see that if &#xA;$\frac{A}{C}&amp;gt;\frac{I}{M}$ at large $x$ the inequality is satisfied.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Conversely, at $x=1$, we get $M(A+b)$ and $I(C+d)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This would demonstrate that a non-Pareto optimal solution exists that still satisfies the idea of declining marginal utility &lt;strong&gt;and&lt;/strong&gt; maximizes overall group utility for all distributions of goods for any class of goods where there are two preference functions $u(x)$ and $v(x)$ as long as they are distributed such that[1]:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\infty&amp;gt;AM&amp;gt;CI+d&amp;gt;0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or in general a &quot;monster class&quot; can exist as long as the coefficients of its utility function are greater than that of an innocent class times it's fraction of the population times the total number of goods the class under consideration in the economy:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\{c_M|c_M&amp;gt;c_I\times\frac{I}{M}\times x\}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;[1] Again, assuming that $MU \geq0$ is always true&lt;/p&gt;&#xA;" OwnerUserId="31" LastEditorUserId="31" LastEditDate="2014-11-23T23:17:34.010" LastActivityDate="2014-11-23T23:17:34.010" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="275" PostTypeId="2" ParentId="268" CreationDate="2014-11-23T23:05:12.383" Score="2" Body="&lt;p&gt;I believe that we would have to assume that there was no or unusual declining marginal utility for the monster group.  Say we are talking about wealth, and a small group of people have increasing desire to become wealthier (ie always more), it could be the case that the pleasure that they take in having, say 327 million more dollars would be more than the cumulitive loss of 1 dollar per person in the US.  But I think we need to assume an oddly shaped marginal utility graph for the monsters, otherwise this could only occur for a short time, ie there could be non-pareto transfers that would fit this scenario, but it could not continue for very long.&lt;/p&gt;&#xA;" OwnerUserId="211" LastEditorUserId="211" LastEditDate="2014-11-24T01:06:49.263" LastActivityDate="2014-11-24T01:06:49.263" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="276" PostTypeId="1" AcceptedAnswerId="291" CreationDate="2014-11-23T23:48:02.263" Score="11" ViewCount="517" Body="&lt;p&gt;I am of the understanding that as a general rule, price discrimination does not benefit consumers. Yet I can think of a situation where it does. Look at two countries, Australia and India. The price levels are very different. If there is no price discrimination, prices are identical. Suppose firm profits were higher if they priced out Indians and sold just to Australians.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am of the impression consumer surplus will be higher if a firm could choose two different prices, one to India and one to Australia.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Under what conditions would partial price discrimination be beneficial?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am thinking, for simplicity, this firm is a monopolist and there are &gt;2 types of consumers, each with a different valuation of the good.&lt;/p&gt;&#xA;" OwnerUserId="40" LastActivityDate="2015-05-07T00:42:10.980" Title="Price discrimination- how much is optimal?" Tags="&lt;monopoly&gt;&lt;price-discrimination&gt;&lt;consumer-surplus&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="277" PostTypeId="2" ParentId="276" CreationDate="2014-11-24T00:34:59.640" Score="2" Body="&lt;p&gt;Assuming that market power is given, discrimination is always beneficial to agents whose indifference price is smaller than the optimal non-discriminatory price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is because under discrimination, they will get the good at their indifference price. Without discrimination, they will not get the good at all.&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2014-11-24T00:34:59.640" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="278" PostTypeId="2" ParentId="276" CreationDate="2014-11-24T01:03:12.017" Score="9" Body="&lt;p&gt;Price discrimination is generally welfare ambiguous. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Basic example: A monopoly can price discriminate between two market segments. In segment A, there is one consumer with a willingness to pay of $\$1$ million and there are one million consumers with a willingness to pay of $\$1$. In segment B, there is one consumer willing to pay $\$1$ million and 400,000 consumers willing to pay $3. Assume MC=AC=0 and that each consumer will buy either zero or one unit of the good.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Third-Degree Price Discrimination Prices: $\$1$ in A, $\$3$ in B&#xA;Uniform Price: $\$1$ million&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Price discrimination increases producer and consumer surplus.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Conditions I can think of when price discrimination might be good for everyone: otherwise the monopolist drops a market or if the total revenue curve is multi-peaked (as in this example -- note multi-peaked just means it's ambiguous, this example just happened to show higher surplus for everyone).&lt;/p&gt;&#xA;" OwnerUserId="14" LastEditorUserId="14" LastEditDate="2015-05-07T00:42:10.980" LastActivityDate="2015-05-07T00:42:10.980" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="279" PostTypeId="2" ParentId="266" CreationDate="2014-11-24T01:30:02.307" Score="11" Body="&lt;p&gt;I will toot my own horn and cite - Phillips and Wrase. (2006) &quot;Is Schumpeterian ‘Creative Destruction’ a Plausible Source of Endogenous Real Business Cycle Shocks?,&quot; Journal of Economic Dynamics and Control, vol. 30 no. 11 pp. 1885-1913.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We found it difficult to match the volatility using Schumpterian mechanisms alone.  The business cycle asymmetries from our model were also exactly backward.  That is, a sudden discovery leads to a jump in output which slowly peters out.  While recessions tend to suddenly jump downward and then slowly recover.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The mechanism in our model was that an increase in productivity due to the discovery, leads to a reallocation of resources away from innovation toward production of output and this slows down the innovation process.&lt;/p&gt;&#xA;" OwnerUserId="132" LastActivityDate="2014-11-24T01:30:02.307" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="280" PostTypeId="1" CreationDate="2014-11-24T01:44:31.870" Score="0" ViewCount="1301" Body="&lt;p&gt;All of welfare economics is based on some theorems, some of which I can remember, but I am looking for a comprehensive list.&lt;/p&gt;&#xA;" OwnerUserId="211" LastEditorUserId="31" LastEditDate="2014-11-24T04:15:54.863" LastActivityDate="2014-11-24T04:15:54.863" Title="What are the fundamental theorems of welfare economics?" Tags="&lt;welfare-economics&gt;" AnswerCount="1" CommentCount="8" ClosedDate="2015-03-06T20:53:22.983" ContentLicense="CC BY-SA 3.0" />
  <row Id="281" PostTypeId="1" CreationDate="2014-11-24T03:10:38.273" Score="5" ViewCount="569" Body="&lt;p&gt;Consider an industry with few producers selling differentiated products. The products must be sold through retailers of whom also there are a few and who therefore possess some degree of market power. Each retailer sells the products of all producers.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;What might be the reasons for the producers to dislike a price war&#xA;  among the retailers?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;With just one producer my guess would have been that the producer would always like a retail price war since a more competitive retail sector would reduce the double-marginalization problem and hence allow the producer to capture more profits. Is this intuition right? And how does moving from monopoly to oligopoly in production change things?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This question comes from a real-world observation. This Diwali (which is to Indian retailers what Christmas is to western ones) there was an intense price war among online retailers in India. In response to this price war, many producers of consumer durables like TVs and cameras made public statements against this price war and actively discouraged consumers from buying from these online retailers by measures such as offering longer warranties for products bought from brick-and-mortar stores.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A simple explanation for this behavior is that this was just to appease the brick-and-mortar stores which still dominate Indian retail.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But could there be a deeper explanation?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One story I could think of was as follows: suppose that the price charged by producers to retailers is not directly observed. Then a retailer price war can make it harder to detect a cut in the producer-to-retailer price. This can cause any implicit price collusion between the producers to break down, something which none of the producers would like to happen.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But I'm sure this is not the only possible explanation.&lt;/p&gt;&#xA;" OwnerUserId="86" LastActivityDate="2015-01-14T19:36:31.753" Title="Oligopolistic producers and retail price wars" Tags="&lt;microeconomics&gt;&lt;industrial-organisation&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="282" PostTypeId="2" ParentId="201" CreationDate="2014-11-24T03:12:11.070" Score="1" Body="&lt;p&gt;Besides the one answer with a couple references, I haven't got anything else. I've been developing a model like the one posted on my question and I'm leaving here what I've found, in case anyone finds it useful. Now, developing a fully blown model is beyond the scope of a single answer, but I'll try to lay down my conclusions so far.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Taking &lt;a href=&quot;http://www.jstor.org/stable/25046307&quot; rel=&quot;nofollow&quot;&gt;Dutta et al. (2007)'s&lt;/a&gt; model and expanding it with some simple assumptions to develop imperfect observability of actions among firms seems to show that &quot;price wars&quot; may be an inefficiently costly discipline mechanism in this setting, even when compared to other strongly symmetrical punishments. Not only the characteristics of continuations payoffs count, but also the actual discipline procedure matters. The reason for this is that when equilibrium &quot;price wars&quot; are used to enforce the agreement consumers will tend to delay purchase and wait until a bad realization of demand forces firms to switch phase to buy cheaper, undermining collusive profits.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Broadly speaking, the fact that equilibrium &quot;price wars&quot; shift consumers' intertemporal incentives may have implications on the collusive outcome.&lt;/p&gt;&#xA;" OwnerUserId="72" LastActivityDate="2014-11-24T03:12:11.070" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="283" PostTypeId="1" CreationDate="2014-11-24T03:17:03.840" Score="3" ViewCount="73" Body="&lt;p&gt;Can anyone point me to a resource where I can find monthly series data (specifically for 2003-2013) on Mexico's imports and exports in nominal (current) Mexican Pesos (MEP) including broken down by major industry?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've found UN data and OECD, but am having trouble navigating the INEGI site (since my grasp of Spanish is limited to the colloquial).&lt;/p&gt;&#xA;" OwnerUserId="31" LastEditorUserId="59" LastEditDate="2014-11-24T05:26:05.057" LastActivityDate="2017-09-04T09:15:23.950" Title="Can anyone recommend a resource for monthly trade data for Mexico from before 2010?" Tags="&lt;international-trade&gt;&lt;data-request&gt;" AnswerCount="3" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="285" PostTypeId="2" ParentId="280" CreationDate="2014-11-24T03:22:07.100" Score="1" Body="&lt;p&gt;I presume you meant &lt;a href=&quot;http://en.wikipedia.org/wiki/Fundamental_theorems_of_welfare_economics&quot; rel=&quot;nofollow noreferrer&quot;&gt;The Fundamental Theorems&lt;/a&gt;:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;The first fundamental theorem of welfare economics states that any Walrasian equilibrium is Pareto-efficient.&lt;/p&gt;&#xA;&lt;p&gt;The second fundamental theorem of welfare economics states that, under the assumptions that every production set &lt;span class=&quot;math-container&quot;&gt;$Y_j$&lt;/span&gt; is convex and every preference relation &lt;span class=&quot;math-container&quot;&gt;$\geq _i$&lt;/span&gt; is convex and locally nonsatiated, any desired Pareto-efficient allocation can be supported as a price quasi-equilibrium with transfers. Further assumptions are needed to prove this statement for price equilibriums with transfers.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Or you could read &lt;a href=&quot;http://www.nber.org/papers/w3641.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Stiglitz's Paper&lt;/a&gt; yourself if you were so inclined.&lt;/p&gt;&#xA;" OwnerUserId="31" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2014-11-24T03:22:07.100" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="286" PostTypeId="2" ParentId="281" CreationDate="2014-11-24T03:35:28.270" Score="4" Body="&lt;p&gt;A producer won't always want the retail outlets to compete on price. This is the reason for minimum resale price maintenance. By competing on price, it may be that the retailers competition amounts to something closer to a zero-sum game. Supposing there are some consumers who value something like service, it might be better for joint profits to provide good service and thus bring in new consumers. You might imagine two stores selling electronics. The stores might find it best to cut price to pull the customers away from the other. The producer would rather there be good service, display models, helpful employees, etc to bring in &lt;em&gt;new&lt;/em&gt; customers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Reference: &lt;a href=&quot;http://qje.oxfordjournals.org/content/108/1/61.abstract&quot;&gt;Winter (1993)&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="14" LastActivityDate="2014-11-24T03:35:28.270" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="287" PostTypeId="2" ParentId="283" CreationDate="2014-11-24T04:23:12.763" Score="2" Body="&lt;p&gt;The closest I've come so far is the &lt;a href=&quot;http://stats.oecd.org/#&quot; rel=&quot;nofollow&quot;&gt;OECD StatExtracts&lt;/a&gt;, which gave me data in current USD. I'm still hoping someone can come up with something better.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It took some fiddling because their MEI tables seemed to be wonky in chrome, and all I got was &quot;an error occurred&quot; until I start fiddling with the (invisible) table's layout.&lt;/p&gt;&#xA;" OwnerUserId="31" LastActivityDate="2014-11-24T04:23:12.763" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="288" PostTypeId="2" ParentId="224" CreationDate="2014-11-24T04:59:43.670" Score="8" Body="&lt;p&gt;You might want to be a little more precise about what you mean by &quot;Revelation Principle&quot; as there are many formulations of the &quot;Revelation Principle&quot; out there, some of which are stronger than others. Each of these formulations makes a different claim and relies on a particular set of assumptions. Of course, the claim will often fail to be true if some of the assumptions are false.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(The following is from notes I got from a microeconomics class.) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider for instance the following version of the revelation principle, which is from Repullo (1985), Review of Economic Studies: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Repullo's Revelation Principle : Let $g$ be a dominant strategy mechanism for the game $\Gamma \equiv ( g, U_1, \dots, U_n)$, where $g$ is some game form. For each equilibrium selection function $s : \Theta \rightarrow S$, there exists an equivalent direct dominant strategy mechanism $h$ to $g$ (where $\Theta$ is the set of types). &lt;strong&gt;If in addition the equilibrium selection function $s^* : \Theta \rightarrow S$ is surjective&lt;/strong&gt;, then the dominant equilibrium outcome under $h$ are a subset of the dominant equilibrium outcome under $g$ for all $\theta \in \Theta$. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The bold part is important. If it is not satisfied, there may still be a non-truthtelling  equilibrium in the equivalent direct mechanism. An example is provided in Repullo (1985), Review of Economic Studies pp 223-229. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$A \equiv \{a,b,c,d\}$$&#xA;$$ \Theta_1 \equiv \{ \theta_1', \theta_1''\}$$&#xA;$$ \Theta_2 \equiv \{ \theta_2', \theta_2''\}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \begin{array}{c |c c c c}&#xA; &amp;amp; a &amp;amp; b &amp;amp; c &amp;amp; d \\ \hline&#xA;u_1(\cdot, \theta_1') &amp;amp; 2 &amp;amp; 4 &amp;amp; 2 &amp;amp; 4\\ &#xA;u_1(\cdot, \theta_1'') &amp;amp; 1 &amp;amp; 0 &amp;amp; 2 &amp;amp; 4\\&#xA;u_2(\cdot, \theta_2') &amp;amp; 2 &amp;amp; 2 &amp;amp; 4 &amp;amp; 4\\&#xA;u_2(\cdot, \theta_2'') &amp;amp; 1 &amp;amp; 2 &amp;amp; 0 &amp;amp; 4\\&#xA;\end{array} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$S_1 \equiv \{s_1',s_1'',s_1'''\}$$&#xA;$$S_2 \equiv \{s_2',s_2'',s_2'''\}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The game form is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \begin{array}{c |c c  c}&#xA; &amp;amp; s_2' &amp;amp; s_2'' &amp;amp; s_2''' \\ \hline&#xA;s_1' &amp;amp; a &amp;amp; b &amp;amp; b \\ &#xA;s_1'' &amp;amp; c &amp;amp; d &amp;amp; c \\&#xA;s_1''' &amp;amp; c &amp;amp; b &amp;amp; a \\&#xA;\end{array} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On can check than the following is an equivalent direct mechanism&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \begin{array}{c |c c  }&#xA; &amp;amp; \theta_2' &amp;amp; \theta_2''  \\ \hline&#xA;\theta_1 &amp;amp; a &amp;amp; b  \\ &#xA;\theta_1 &amp;amp; c &amp;amp; d \\&#xA;\end{array} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Yet, when the types are $(\theta_1',\theta_2')$, although telling the truth is a dominant strategy, &lt;em&gt;any other report of preferences is also a dominant strategy&lt;/em&gt;. This may be quite bothersome as it means that for some configuration of the types, saying the truth is only one equilibrium among others. As a consequence, we have no real guarantee that &quot;telling the truth&quot;  will be played (it may even be that truth-telling is Pareto dominated by another equilibrium. Using a focal point argument, this may further undermine the relevance of the truth-telling equilibrium).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The above issue is due to the fact that in the original game, some strategies are never played, which is ruled out if $s^*$ is surjective. So Repullo's version of the Revelation Principle (requiering that every dominant strategy equilibrium outcome of the equivalent game be among the equilibrium outcome of the initial game &lt;em&gt;for every possible configuration of the types&lt;/em&gt;) only holds if the equilibrium selection function be surjective, and fails otherwise. &lt;/p&gt;&#xA;" OwnerUserId="38" LastEditorUserId="38" LastEditDate="2017-04-06T04:24:39.610" LastActivityDate="2017-04-06T04:24:39.610" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="289" PostTypeId="2" ParentId="225" CreationDate="2014-11-24T05:15:48.397" Score="4" Body="&lt;p&gt;I once wrote an example of Kreps criterion using the canonical signaling model and The Simpsons. I think it goes along the same lines as @Ubiquitous' answer while being much less precise and general. But I thought the Simpsons' context might help in a pedagogical setting. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose that &lt;a href=&quot;http://simpsons.wikia.com/wiki/Hank_Scorpio&quot; rel=&quot;nofollow&quot;&gt;Hank Scorpio&lt;/a&gt; must decide of a wage schedule for employees at &lt;a href=&quot;http://simpsons.wikia.com/wiki/Globex_Corporation&quot; rel=&quot;nofollow&quot;&gt;Globex Corporation&lt;/a&gt; depending on observed education. There are two candidates : &lt;a href=&quot;http://simpsons.wikia.com/wiki/Martin_Prince&quot; rel=&quot;nofollow&quot;&gt;Martin Prince&lt;/a&gt;, a $H$  type (for &quot;high&quot;) with an elementary school degree $e_1$, and &lt;a href=&quot;http://simpsons.wikia.com/wiki/Homer_Simpson&quot; rel=&quot;nofollow&quot;&gt;Homer&lt;/a&gt;, a $L$ type (for &quot;low&quot;) with a degree from Springfield University $e_2 &amp;gt; e_1$ (cf. &lt;a href=&quot;http://simpsons.wikia.com/wiki/Homer_Goes_to_College&quot; rel=&quot;nofollow&quot;&gt;Season 5, episode 3&lt;/a&gt;}). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A third possible signal would consist in getting a PhD in nuclear physics from MIT, which we denote $e_3 &amp;gt; e_2$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose Scorpio's believes that the productivity associated with the twho lower education levels are $\rho(e_2) &amp;gt; 0$, and $\rho(e_1) = 0$. Assume that this forms a sequential equilibrium, that is, at this equilibrium, neither Martin nor Homer find it worth it to get a PhD from MIT (I assume that if you are at the point of explaining Kreps criterion, you already covered sequential equilibira).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Martin would not need to exert much effort to get $e_3$ (see children's power plant competition, &lt;a href=&quot;http://en.wikipedia.org/wiki/Homer&amp;#39;s_Enemy&quot; rel=&quot;nofollow&quot;&gt;season 8, episode 23&lt;/a&gt;), and he would not mind doing so if it was the case that $\rho(e_3) = 1$. On the other hand, Homer is far better with his $e_2$ than he would be with $e_3$ even if $\rho(e_3)$ was $1$ because getting a PhD from MIT would be a huge pain for him (cf. aforementioned episode).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Because $(e_1,e_2,\rho)$ is an equilibrium, $\rho(e_3)$ must be sufficiently small to deter Martin from obtaining his PhD. This means Scorpio attaches a high probability to the fact that agents choosing $e_3$ are $L$ type. Is this equilibrium supported by reasonable beliefs? Not according to Kreps criterion : under the assumption that Scorpio knows that Homer would never try to get $e_3$ while Martin would not mind getting $e_3$, if Scorpio observes someone getting $e_3$, he could logically infer that this person is Martin, a $H$ type. &lt;/p&gt;&#xA;" OwnerUserId="38" LastEditorUserId="38" LastEditDate="2015-03-19T21:44:27.820" LastActivityDate="2015-03-19T21:44:27.820" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="290" PostTypeId="1" CreationDate="2014-11-24T06:13:46.597" Score="4" ViewCount="180" Body="&lt;p&gt;Due to McFadden Economists usually interpret Random Choice, in the population sense, as each DM being drawn from the probabilistic choice rule independently and identically. However, Psychologist have maintained that individual DM are actually stochastic, in the sense that when presented with the same menu several times they would choose different alternatives. I am not fully convinced by either way of understanding probability in Decision Making, is there any work on understanding this, neuroeconomics, epistemological or anything related. &#xA;In short, what is the interpretation of random choice for an individual DM? &lt;/p&gt;&#xA;" OwnerUserId="127" LastActivityDate="2015-01-20T14:48:13.840" Title="Random Choice interpretation" Tags="&lt;microeconomics&gt;&lt;behavioral-economics&gt;&lt;bounded-rationality&gt;" AnswerCount="1" CommentCount="5" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="291" PostTypeId="2" ParentId="276" CreationDate="2014-11-24T07:20:50.847" Score="11" Body="&lt;p&gt;Varian has a paper on &lt;a href=&quot;http://au4372.epage.au.edu.tw/ezfiles/71/1071/attach/31/pta_15648_4821688_82730.pdf&quot;&gt;Price Discrimination and Social Welfare&lt;/a&gt; in which he gives some necessary and sufficient conditions for (third degree) price discrimination to increase welfare.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A necessary condition is that the total level of output (i.e. the total number of consumers served) increases as a result of the discrimination. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A sufficient condition is that the profitability of the new output (i.e. after discrimination) exceeds the profitability of the old output (before discrimination) evaluated at the new prices.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2014-11-24T07:20:50.847" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="292" PostTypeId="1" AcceptedAnswerId="306" CreationDate="2014-11-24T08:46:14.110" Score="7" ViewCount="223" Body="&lt;p&gt;When examining how Market Microstructure works and affects price formation, there is talked about the: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;Assumed independence of of latent price and microstructure noise&quot; &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;From &quot;On the Correlation Structure of Microstrucure Noise: A Financial Economic Approach&quot;, Diebold and Strasser, 2013. &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I am struggling to understand what this means exactly? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, when examining a lot of financial trades and quotes, and looking for a underlying latent price - what does it mean to assume independence of the noise? And what do you assume the noise is then specifically? &quot;Wrong&quot; trades? Computer-errors? &lt;/p&gt;&#xA;" OwnerUserId="107" LastActivityDate="2014-11-24T23:08:28.563" Title="Independence of latent price and market microstructure noise" Tags="&lt;econometrics&gt;&lt;financial-economics&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="293" PostTypeId="2" ParentId="140" CreationDate="2014-11-24T10:25:33.143" Score="5" Body="&lt;p&gt;The wealth of nations is not the source of relatively modern economics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;John Locke in two books in the 1670's has priority on the supply and demand determining price, and arguments that show the harmfulness of price controls in the same way as we do today. His philosophy was later written to justify his political views!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lord North explained mutual gain to exchange and price coordination.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Cantillon explained inflation effect on price and supply and demand price determination as auction rationing, and finally, presented the entrepreneur concept.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Condilliac discovered opportunity cost, in the appendix to his theory of sensation, the concept of utility as source of value, and discussed the general idea behind decreasing marginal utility, the water and diamond paradox (which Smith failed to solve).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Adam Smith is mostly famous for the first eighty pages of the first volume of wealth of nations, because this is the clearest explanation of division of labor gains and reasons for peaceful social cooperation until the early nineteenth century.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Both Condillac and Smith referred to Cantillon, who in turn based his work on that of Locke.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The physiocrats mostly had their own theories based on land and labor as major sources of value, and these theories did not survive criticism, except where they followed Cantillon.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first Western economist was Copernicus, who wrote an essay against inflation (he argued that it was more destructive than war and plague, but preferable to death). One can find this essay, also discussing prices, in his collected works, both surviving versions translated.&lt;/p&gt;&#xA;" OwnerDisplayName="user218" LastActivityDate="2014-11-24T10:25:33.143" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="294" PostTypeId="1" CreationDate="2014-11-24T11:44:31.877" Score="11" ViewCount="291" Body="&lt;p&gt;As far as I can tell, research on the economics of poverty is very empirically driven, and this is probably appropriate. What kind of economic theory has been developed though? I'd also be interested in theory of some influence too. To avoid wholly opinion-based answers, let's measure influence by how the theory directed other research or anti-poverty measures. As an example, I know papers have been written on the theory of poverty traps, but I'm not sure that concept is a contribution from theorists so much as some theorists developed a model for what might have already been an empirical observation. Are there any cases where concepts started in theory?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Links to papers are good, but the question is also about history to some extent, so it would be nice if you can show a trail of this paper influenced that paper or this policy.&lt;/p&gt;&#xA;" OwnerUserId="14" LastActivityDate="2014-12-15T00:50:22.413" Title="Influential Theory in the Economics of Poverty" Tags="&lt;theory&gt;&lt;poverty&gt;" AnswerCount="3" CommentCount="4" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="295" PostTypeId="2" ParentId="218" CreationDate="2014-11-24T13:12:29.553" Score="2" Body="&lt;p&gt;In principle it shouldn't really matter that a sub-population (in this case the locals) have capital restrictions, so long as the unrestricted population is sufficiently large.  The UIP model only needs that the capital can flow - it doesn't mind who is doing it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this case, so long as the foreign investors have not completely left, then in aggregate the restriction shouldn't make a difference.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Furthermore, if foreign investors are able to short sell to locals (which I think they can?), then you can even create extreme capital outflows.&lt;/p&gt;&#xA;" OwnerUserId="119" LastActivityDate="2014-11-24T13:12:29.553" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="296" PostTypeId="2" ParentId="294" CreationDate="2014-11-24T15:14:57.920" Score="11" Body="&lt;p&gt;To extend @Majoko's comment, you may be very interested in the book &lt;a href=&quot;http://pooreconomics.com/&quot;&gt;Poor Economics&lt;/a&gt; which discusses many of the issues you note. It specifically discusses issues with theory, and of course has a lot of empirical work to back it up.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Perhaps on the other end of the spectrum is general equilibrium theory applied to poverty and the developing world. you should really look into &lt;a href=&quot;http://www.robertmtownsend.net/&quot;&gt;Robert Townsend's&lt;/a&gt; work. His &quot;Thai Project&quot; is a massive dive into some of the questions you're asking. A reasonable place to start is probably with his &lt;a href=&quot;http://www.robertmtownsend.net/books&quot;&gt;books&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As an aside, I was originally hooked on his work by his fantastic application of microeconomic general equilibrium theory in &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0691042705&quot;&gt;The Medieval Village Economy&lt;/a&gt;, which has sadly gone out of print (although I see there are now some used copies finally selling for less than $70, which is nice). He takes very sparse data and asks what theory might be able to tell us -- then very carefully and purposefully walks the reader from a most basic model through many extensions to explore important possible variations of the medieval experience. It's really an excellent example of applied general equilibrium work, and how theory might still be tested/explored with little data.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This isn't my area of research, but I'm very interested to see other answers appear here.&lt;/p&gt;&#xA;" OwnerUserId="17" LastActivityDate="2014-11-24T15:14:57.920" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="297" PostTypeId="2" ParentId="258" CreationDate="2014-11-24T15:50:21.170" Score="13" Body="&lt;p&gt;I strongly suspect that an emerging important area for applications of measure theory will be in approximate dynamic programming techniques. Approximate dynamic programming (aka &quot;reinforcement learning&quot; in the computer science literature) has been the direction of research work in the last ~10-20 years of the dynamic programming literature. Economics is only just now starting to adopt some of these advances. For example of the direction of the DP literature, see Bertsekas' most recent &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/1886529442&quot;&gt;4th edition expansion&lt;/a&gt; of his dynamic programming series, or Powell's &lt;a href=&quot;http://www.wiley.com/WileyCDA/WileyTitle/productCd-047060445X.html&quot;&gt;Approximate DP: Solving the Curse of Dimensionality&lt;/a&gt;. Economists are just starting to pick up some of these tools, both directly and indirectly, and I suspect that they will have a growing impact on the literature over the next few years. Some of the analytical background for convergence of these methods is topology and dynamical systems.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A good example of theoretical contribution to this type of literature from economists is Pál and Stachurski (2013), &lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/S0165188912001728&quot;&gt;Fitted Value Function Iteration With Probability One Contractions&lt;/a&gt; (ungated version &lt;a href=&quot;http://rse.anu.edu.au/media/44366%5C560.pdf&quot;&gt;here&lt;/a&gt;). Peruse that paper and you can see the importance of a good grasp of measure theory. Stachurski's book &lt;a href=&quot;http://mitpress.mit.edu/books/economic-dynamics&quot;&gt;Economic Dynamics&lt;/a&gt; is actually a very nice exposition of dynamic programming from this perspective, building at a pace which works for multiple levels of graduate student/professional (measure theory comes in formally at the end I believe -- I'm still working towards those insights). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hopefully this answers your question to some degree. I'm afraid that the phrase &quot;post-1960s mathematics&quot; is somewhat ambiguous to me (due to my own lack of knowledge of history of maths literature), so if I've completely missed the mark, my apologies!&lt;/p&gt;&#xA;" OwnerUserId="17" LastEditorUserId="17" LastEditDate="2014-11-25T13:41:30.763" LastActivityDate="2014-11-25T13:41:30.763" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="299" PostTypeId="1" CreationDate="2014-11-24T16:41:08.430" Score="7" ViewCount="189" Body="&lt;p&gt;This question is related to this &lt;a href=&quot;https://economics.stackexchange.com/questions/134/can-the-machina-paradox-be-solved-by-expanding-the-choice-set&quot;&gt;question about the Machina paradox&lt;/a&gt; and about &lt;a href=&quot;https://economics.stackexchange.com/questions/95/experiments-contradicting-the-expected-utility-model&quot;&gt;the expected utility model&lt;/a&gt;. In this question, I'd like to know a little more about various or even competing ways of specifying utility and decision making. It'd be nice if we could formulate a list of different formulations. To start, I suppose there is the Von Neumann–Morgenstern expected utility model, Savage's subjective expected utility model, or Prospect theory.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there anything else that is commonly used? &lt;/p&gt;&#xA;" OwnerUserId="59" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2014-11-25T13:47:34.237" Title="What are different ways of specifying utility and decision making?" Tags="&lt;microeconomics&gt;&lt;decision-theory&gt;&lt;expected-utility&gt;&lt;preferences&gt;" AnswerCount="4" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="300" PostTypeId="2" ParentId="299" CreationDate="2014-11-24T17:35:55.587" Score="6" Body="&lt;p&gt;This won't get at individual choice, but how about evolutionary approaches? Perhaps this isn't what you are looking for, but one way to model decisions is to wander from the rational paradigm entirely. All changes in behavior are driven by natural selection, and so an equilibrium is based on stability.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In a symmetric normal form game, an evolutionarily&#xA;  stable strategy is a (possibly mixed) strategy with the following property: a population in&#xA;  which all members play this strategy is resistant to invasion by a small group of mutants&#xA;  who play an alternative mixed strategy.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Text reference: &lt;a href=&quot;http://www.ssc.wisc.edu/~whs/book/index.html&quot; rel=&quot;nofollow&quot;&gt;Sandholm (2010)&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit: Wanted to add some more exotic models, inspired by @CompEcon. These are interesting models for temptation, inconsistency, etc because you can get at internal conflict by seeing a DM as the unification of multiple parts.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.aeaweb.org/articles.php?doi=10.1257/aer.96.5.1449&quot; rel=&quot;nofollow&quot;&gt;Dual-Self Model of Impulse Control&lt;/a&gt; (Fudenberg and Levine 2006)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.jstor.org/stable/29730124&quot; rel=&quot;nofollow&quot;&gt;The Brain as a Hierarchical Organization&lt;/a&gt; (Brocas and Carrillo 2008)&lt;/p&gt;&#xA;" OwnerUserId="14" LastEditorUserId="14" LastEditDate="2014-11-25T13:47:34.237" LastActivityDate="2014-11-25T13:47:34.237" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="301" PostTypeId="1" AcceptedAnswerId="302" CreationDate="2014-11-24T18:14:25.330" Score="4" ViewCount="1695" Body="&lt;p&gt;In competitive markets without frictions, the marginal buyer/seller determine the price. To what extent is this argument true in markets where a fraction of the sellers are constrained? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Think about the labor market. Some workers are optimally supplying labor given their marginal rate of substitution and the wage rate. Some workers are borrowing-constrained such that they have to supply their full labor endowment. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume perfect competition on the labor demand side. Under which conditions can we determine the wage rate using first-order condition of the firms and the first type of workers?&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="31" LastEditDate="2014-11-24T21:58:20.423" LastActivityDate="2014-11-25T10:15:35.677" Title="Marginal buyer/seller as determinant of price" Tags="&lt;microeconomics&gt;&lt;efficient-markets&gt;&lt;effective-price&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="302" PostTypeId="2" ParentId="301" CreationDate="2014-11-24T19:36:36.107" Score="4" Body="&lt;p&gt;If I have understood correctly, the question asks what should we know so that we can determine the wage using only information on the unconstrained workers. Here is a toy static model:  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's say we have $N_u$ unconstrained workers and $N_c$ constrained workers. Each has a total labor endowment $t$. Worker population is denoted $N_c+N_u = N$.&#xA;The unconstrained workers will solve a utility maximization problem&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\max u(c,\ell_u)\;\; \text{s.t.}\;\; c_u = w\ell_u,\;\; u_c&amp;gt;0, u_l&amp;lt;0$$&#xA;Subscripts in functions denote derivatives.&#xA;The above will give&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\ell_u^s: wu_c+u_l = 0 \Rightarrow \ell_u^s = h(c,w)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The constrained workers will supply each $t$. So total labor supply will be&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$L^s = N_ct + N_uh(c,w) = (N-N_u)t + N_uh(c,w),\;\; h_w&amp;gt;0$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(note that some simple utility function forms lead to the supply of labor being independent of the wage. We assume this is not the case here. Also, $h_w&amp;gt;0$ assumes away backward-bending of the individual supply curve).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since we assume perfect competition (and price taking behavior) on the labor demand side, the firms do not explore possible benefits from the existence of two types of workers. They just go on and equate the marginal product of labor to the market wage&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\ell^d: MP_L = w \Rightarrow \ell^d = g(w, k_j,T), \;\; g_w &amp;lt;0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $k_j$ is firms capital, and $T$ is technology.&#xA;If there are $m$ firms we will have the equilibrium condition&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$L^s = L^d \Rightarrow (N-N_u)t + N_uh(c,w)= mg(w, k_j,T)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;or writing $n_u = N_u/N$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$(1-n_u)t + n_uh(c,w)= \left(\frac mN\right)g(w, k_j,T) \tag{1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So if we know the proportion of unconstrained workers, and the total worker population, we can determine the wage from $(1)$, using the first-order conditions related to labor demand, and conditions related to the unconstrained workers.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we further assume a Cobb-Douglas production function (constant returns to scale) for the firms, then labor demand will be linear in capital, and so $g(w, X) = \xi(w,T)k_j$. Then $(1)$ becomes&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$(1-n_u)t + n_uh(c,w)= \xi(w,T)\frac {K}{N} \tag{2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here we need to know only the proportion of unconstrained workers, and the capital per worker.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this what the question asked?&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2014-11-25T10:15:35.677" LastActivityDate="2014-11-25T10:15:35.677" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="303" PostTypeId="2" ParentId="299" CreationDate="2014-11-24T19:55:21.550" Score="3" Body="&lt;p&gt;The traditional graduate micro theory education develops the neoclassic a model of consumer choice along the two parallel lines:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Observed choice based on the weak axiom of revealed preference.&lt;/li&gt;&#xA;&lt;li&gt;The preference relation approach, based on the rational (i.e. transitive and complete) preferences $\succsim$. Rational preferences plus continuity are sufficient for the existence of a utility function.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;We know that the two offer very similar foundations for a model of consumer choice, but that they are not quite equivalent. For one, any demand system generated by a rational preference relation will always have a symmetric substitution matrix, whereas the substitution matrix for a demand system based on WARP may be asymmetric. In that sense, the WARP framework is less restrictive. The usual goto discussion of this can be found in Chapters 1-3 of Mas-Colell et al.'s &quot;Microeconomic Theory&quot;.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2014-11-24T19:55:21.550" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="304" PostTypeId="2" ParentId="292" CreationDate="2014-11-24T20:05:31.477" Score="3" Body="&lt;p&gt;I guess you're asking three inter-relatated though conceptually separate questions:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;What is the latent or efficient price?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;What is market microstructure noise (as opposed to non-market-microstructure noise)?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;What does it mean to assume that the efficient price process and the microstructure noise process are independent?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I won't attempt to provide a full examination of the issues raised by these questions: entire articles could (and have been) written about them. I'll only attempt a summary review.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;The efficient price process is, by assumption, unobserved. Nevertheless, under the maintained assumptions of frictionless markets, perfect and symmetric information, and rationality of all market participants, one can apply some basic theorems to infer some statistical properties of the efficient price process. Most importantly, the efficient price process must generally be a semimartingale with respect to some filtration. In a continuous-time setting, it is also straightforward to show that the continuous (i.e., non-jump) component of the efficient price process must be local Brownian motion with local drift and variance components.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the &lt;em&gt;observed&lt;/em&gt; price process isn't a semimartingale, it's either because there's an additional component (usually, but not always, called market microstructure noise) or because the maintained assumptions (rationality, perfect and symmetric information, etc) aren't valid to begin with. Let's pursue the first reason.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;To make market microstructure noise more than just a catch-all (and tautological) component, it's important to relate any observed or known deviations from the semimartingale property to actual properties of the ways in which trading is conducted. I'll mention three such phenomena (there are several more, of course):&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Trading is known to produce not just one price, but two prices: the bid and the ask price. The bid-ask spread is in general non-zero even in a competitive market, for reasons well-explored in the literature of the past 25 years. (In econometric practice, one frequently calculates the average of bid and ask prices and tries to model this average as some kind of martingale but, strictly speaking, that's not always valid.) &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Because of inventory and liquidity effects, there's often predictability of price movements at the very highest sampling frequencies. E.g., if prices are observed every second, it may be possible to predict price movements out to a few seconds. This predictability is at the heart of what algorithmic trading rules are all about.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;There may also be some mean-reversion of prices and volatilities at the very highest sampling frequencies due to the so-called &quot;bid ask bounce&quot;: Empirically, it's been found that if a given trade happens at the bid, the very next trade is more likely to happen at the ask than at the bid, and vice versa. Because there's a spread between bid and ask prices, there's a bit of extra volatility that arises at the very highest sampling frequencies. This usually shows up in so-called volatility signature plots, which plot the intraday sampling freqency $\nu$ against the associated realized volatility $\sigma_\nu$: At the very highest sampling frequencies, $\sigma_\nu$ is frequently an increasing function of $\nu$.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Note that these &quot;noise components&quot; are generated as a consequence of the fact that trading takes place in real places among real people. As such, these noise components are &lt;em&gt;not&lt;/em&gt; akin to those generated by computer programming errors. I.e., flash crashes in certain stocks are &lt;em&gt;not&lt;/em&gt; an example of market microstructure noise.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;To assume, then, that the latent or efficient price process and the market microstructure noise process are mutually independent really means that they're generated by two underlying processes which don't interact with each other. E.g., if new information enters the market, it should affect the value of the semimartingale but not meaningfully alter the noise process. (The interaction between the two processes is usually assumed to be additive, but I suppose one could generate a statistical theory that works with multiplicative rather than with additive noise.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Naturally, it is not possible to verify directly that the independence assumption is correct, as one of the two underlying processes isn't observed. However, if it were the case that some observed departures from the semimartingale property are such that they cannot be explained usefully/credibly as being related to various market imperfections (such as the bid-ask bounce), one would have reason to doubt the empirical usefulness of the entire approach to modelling observed prices. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="25" LastActivityDate="2014-11-24T20:05:31.477" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="305" PostTypeId="1" AcceptedAnswerId="312" CreationDate="2014-11-24T21:05:47.167" Score="6" ViewCount="126" Body="&lt;p&gt;I want to rank firms based on a metric, let's call it productivity.&#xA;Theoretically, this firm productivity measure may be well defined. Empirically, however, data that account for all dimensions of productivity are generally unavailable.&#xA;On the other hand, typically available data (e.g. output/worker) does not suffice to rank firms across industries/sectors because sector-specific differences, for instance in production technology, need to be taken into account. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What empirical approach would be both feasible in the light of data availability and non-trivial with respect to the theoretical understanding of firm productivity?&lt;/p&gt;&#xA;" OwnerUserId="109" LastEditorUserId="109" LastEditDate="2014-11-25T16:38:50.397" LastActivityDate="2014-11-26T14:21:05.463" Title="Empirical ranking of firms based on productivity" Tags="&lt;firm&gt;&lt;productivity&gt;&lt;ranking&gt;" AnswerCount="1" CommentCount="9" ContentLicense="CC BY-SA 3.0" />
  <row Id="306" PostTypeId="2" ParentId="292" CreationDate="2014-11-24T23:08:28.563" Score="2" Body="&lt;p&gt;The microstructure noise is, roughly speaking, the small-scale noise introduced into the market as a result of the way the market is designed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, suppose that there is an asset and the &quot;real&quot; price for this, is 126.6.  That is, if we magically knew everyone's honest, perfect maximum buy and minimum sell prices and could match them off and arrive at the equilibrium price, then it would be 126.6.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, imagine that the market only quotes in whole numbers.  That means you can either buy at 127 or sell at 126, but it is physically impossible to trade at 126.6.  Intuitively we expect to see a sequence of trades switching between 126 and 127.  This is called &quot;bid ask bounce&quot; and is perhaps the simplest example of microstructure.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Even with such a trivial example, we can start to do interesting things.  For example, since the price is closer to 127 than 126, we might expect to see more 127s than 126s.  We could use a simple logit function or something to select the probability the next tick is on the near or far side.  Also we can &quot;what-if&quot; the market has a different tick size?  Clearly we expect in our model the bid ask bounce to reduce.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In our example the latent price is a constant, but that is not very realistic.  For a better model one would usually assume some dynamic model for this hidden price process.  Perhaps Brownian motion, for example.  Now you can see how with our model from above, we will see trade prices bouncing either side of our hidden price.  As the price gets closer to a whole number, more trades are done on that, until it crosses and then we start seeing trades on the next tick along.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As you can imagine, you can continue to play this game, making the latent price process more complex, and adding more complex microstructure models to generate the trades around that price.  And all along we have assumed independence of latent price and microstructure noise.  That is to say, our microstructure process does not impact the latent price, and the microstructure process stays the same, regardless of what the price is doing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is a useful assumption to make, since it separates the problem out - without it you probably wouldn't be able to solve much and the usefulness may be limited.  That said, it is easy enough to think up possible models that would break this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;e.g.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Modelling effect of limit orders in the order book when price breaks new ground&lt;/li&gt;&#xA;&lt;li&gt;Market maker inventory changes during long price runs in one direction.&lt;/li&gt;&#xA;&lt;li&gt;Psychological anchors set by previously traded prices impacting latent price.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="119" LastActivityDate="2014-11-24T23:08:28.563" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="307" PostTypeId="1" CreationDate="2014-11-24T23:35:37.133" Score="10" ViewCount="212" Body="&lt;p&gt;Does anyone know of any work on banking system behaviour, and in particular the governing regulatory frameworks that applied between the 1973 collapse of the gold standard based Bretton Woods system and the introduction of the Basel Accords and capital regulation beginning in 1988?&lt;/p&gt;&#xA;" OwnerUserId="84" LastActivityDate="2014-12-17T14:00:25.657" Title="Banking Regulatory Frameworks, between the 1973 collapse of Bretton Woods and the introduction of the Basel Accords in 1988?" Tags="&lt;macroeconomics&gt;&lt;regulation&gt;&lt;banking&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="308" PostTypeId="1" AcceptedAnswerId="311" CreationDate="2014-11-25T01:30:59.067" Score="16" ViewCount="4658" Body="&lt;p&gt;I've heard that there is a lot of work being done recently that applies Epstein-Zin preferences. The Wikipedia page doesn't seem to be very full. &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Why are Epstein-Zin preferences important?&lt;/li&gt;&#xA;&lt;li&gt;How does recursive utility differ from other preference models in general? What do they capture that can't be captured otherwise?&lt;/li&gt;&#xA;&lt;li&gt;What are some good resources to learn more about them?&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="59" LastActivityDate="2015-10-06T23:30:39.510" Title="What is the importance of Epstein-Zin preferences?" Tags="&lt;decision-theory&gt;&lt;risk&gt;&lt;preferences&gt;" AnswerCount="2" CommentCount="4" FavoriteCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="309" PostTypeId="2" ParentId="299" CreationDate="2014-11-25T02:18:49.087" Score="6" Body="&lt;p&gt;I'm somewhat surprised that no one has linked to this paper: Backus, Routledge, and Zin (2004) &lt;a href=&quot;http://pages.stern.nyu.edu/~dbackus/Exotic/BRZ%20exotic%20latest.pdf&quot;&gt;Exotic Preferences for Macroeconomists&lt;/a&gt; (this version has some fixed typos, vs the NBER print).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Their abstract is concise and extremely descriptive:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;We provide a user's guide to 'exotic' preferences: nonlinear time aggregators, departures from expected utility, preferences over time with known and unknown probabilities, risk-sensitive and robust control, 'hyperbolic' discounting, and preferences over sets ('temptations'). We apply each to a number of classic problems in macroeconomics and finance, including consumption and saving, portfolio choice, asset pricing, and Pareto optimal allocations.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The paper itself does a great job of overviewing many options for &quot;non-standard&quot; preferences and utility. They introduce a preference, outline key features, and then apply them in a number of classic settings to give you a feel for what is going on. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you are interested in using non-traditional preferences, you should certainly read this. I can't give extensive insight further than that -- I currently do nearly all my work with more traditional CRRA preferences. &lt;/p&gt;&#xA;" OwnerUserId="17" LastActivityDate="2014-11-25T02:18:49.087" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="310" PostTypeId="2" ParentId="308" CreationDate="2014-11-25T03:22:45.607" Score="10" Body="&lt;p&gt;This is only a quick answer, unfortunately. The key intuitive insight for Epstein-Zin is that they separate two distinct properties of preferences: risk aversion (&quot;I'd prefer less uncertainty to more uncertainty*&quot;) and &lt;a href=&quot;http://en.wikipedia.org/wiki/Elasticity_of_intertemporal_substitution&quot; rel=&quot;noreferrer&quot;&gt;intertemporal substitution&lt;/a&gt; (&quot;I may want to shift consumption forward or backwards in time**&quot;). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the very popular Constant Relative Risk Aversion class of preferences (CRRA), risk aversion and intertemporal elasticity of substitution are tied together as inverses of one another. Recursive preferences, and specifically Epstein-Zin, use certainty equivalence in a clever way to split out the parameter which controls intertemporal substitution from the parameter which controls risk aversion in a static gamble. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The static risk aversion parameter is embedded in the function which imposes the certainty equivalence, and the intertemporal elasticity of substitution parameter is imposed over today's certain consumption and the certainty equivalence value for utility of consumption tomorrow. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;That's my attempt to describe it intuitively/verbally. It's much more precise in mathematical form -- one good exposition that I like a lot is Francios Gourio's Asset Pricing field's course notes (EC745 is the course number). You can currently find these notes, titled &quot;Lecture Notes on Macroeconomics and Finance&#xA;Ec 745,&quot; &lt;a href=&quot;https://dl.dropboxusercontent.com/u/2582806/Web/ec745ln.pdf&quot; rel=&quot;noreferrer&quot;&gt;on his website here&lt;/a&gt;; see section 8 on page 36.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Work through the math a few times and hopefully it will suddenly &quot;click.&quot; The analytical idea is really quite clever. Gourio goes on to discuss how to actually estimate these models, which is very helpful. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(*The proper definitions involves preferences over &quot;lotteries,&quot; but I think discussion of that would cloud what we care about here.) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(** by a certain percent, as a function of the interest rate.)&lt;/p&gt;&#xA;" OwnerUserId="17" LastEditorUserId="17" LastEditDate="2014-11-25T15:16:48.963" LastActivityDate="2014-11-25T15:16:48.963" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="311" PostTypeId="2" ParentId="308" CreationDate="2014-11-25T05:06:59.927" Score="10" Body="&lt;p&gt;I think CompEcon covered most of the points that I was going to mention.  Just a few last thoughts:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) Why are Epstein-Zin preferences important?&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;The preferences are important because they allow you to separate two of the dimensions along which people care about their allocations; namely, risk aversion and intertemporal substitution.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Additionally, one short coming of standard (i.e. CRRA) is their inability to achieve the Hansen-Jagannathan lower bound for the ratio of the standard devation of the stochastic discount factor to its expected value, $\frac{\sigma(m)}{E(m)}$.  In a 2000 paper (I think his Job Market paper), Tallarini showed that recursive preferences are able to come into the Hansen-Jagannathan bounds at less ridiculous levels of risk aversion (although still not totally feasible risk aversion).&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;2) How does recursive utility differ from other preference models in general? What do they capture that can't be captured otherwise?&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;It allows you to capture the risk aversion - intertemporal substitution differences.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;They are a more general set of preferences than CRRA.  I'm pretty sure you can actually write CRRA utility using Epstein-Zin preferences with the right parameters.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Would be interested in hearing if other people know more about this.  I know thy can be have model misspecification interpretations.  Would love to hear more about that.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;3) What are some good resources to learn more about them?&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Like I said earlier in a comment, I have found that Ljungqvist and Sargent provide a pretty good explanation of the main things happening in recursive utility.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Additionally, the &lt;a href=&quot;http://pages.stern.nyu.edu/~dbackus/Exotic/BRZ%20exotic%20latest.pdf&quot;&gt;paper&lt;/a&gt; mentioned by CompEcon in another question earlier is a pretty good resource.  I'm actually working through this right now when I have some spare time.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="47" LastActivityDate="2014-11-25T05:06:59.927" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="312" PostTypeId="2" ParentId="305" CreationDate="2014-11-25T09:55:57.307" Score="7" Body="&lt;p&gt;There is a scientific tradition of decades that occupies itself with the measurement/estimation of the productivity/efficiency of firms. The three strands of the literature are &lt;strong&gt;Data Envelopment Analysis&lt;/strong&gt; (DEA), &lt;strong&gt;Discriminant Analysis&lt;/strong&gt; (DA), and &lt;strong&gt;Stochastic Frontier Analysis&lt;/strong&gt; (SFA).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am familiar with the third one. Stochastic Frontier Analysis starts with the observation that firms do &lt;em&gt;not&lt;/em&gt; operate all the time on their &lt;em&gt;efficiency frontier&lt;/em&gt;, i.e at maximum efficiency, either due to unanticipated shocks, or because, while competitive market forces may push firms to be efficient, they nevertheless are not that strong or that perfect in their effects in order to make firms to be &lt;em&gt;fully&lt;/em&gt; efficient, as it is usually assumed in theoretical models. Therefore, inefficiencies due to organizational problems and the like, may persist. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&quot;Efficiency&quot;&lt;/strong&gt; in the context of SFA, has many facets: output-oriented technical efficiency, input-oriented technical efficiency, cost-efficiency, revenue efficiency, profit efficiency. All have been developed in the literature. One can choose the approach  or approaches most suited to the purpose at hand, and to data availability. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To consider the case of &lt;strong&gt;output-oriented technical efficiency&lt;/strong&gt;, SFA modifies/augments the production function of a firm as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Q = F(\mathbf x) + u -v$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where $u$ is a zero-mean normal random variable and $u$ is a non-negative random variable (usually specified as a half-normal or as an exponential r.v.). The $v$ component captures the inefficiency (measured in terms of output), while the $u$ component captures stochastic disturbances that may affect production (either positively or negatively).  $F(\mathbf x)$ represents the full-efficiency level of output.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Econometrically, this is estimated by using Maximum Likelihood (the least-squares method cannot decompose the error term in its two components), on a data set that contains data on output, and on quantities of input factors (in other words, no more than the usual data set required to estimate a production function).&lt;br&gt;&#xA;The estimation procedure itself will provide of course estimates that are averages over the data set. If one wants to rank the firms present in the sample, one can implement the approach developed in &lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/0304407682900045&quot; rel=&quot;nofollow&quot;&gt;Jondrow, J., Knox Lovell, C. A., Materov, I. S., &amp;amp; Schmidt, P. (1982). On the estimation of technical inefficiency in the stochastic frontier production function model. Journal of econometrics, 19(2), 233-238.&lt;/a&gt;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A comprehensive book on Stochastic Frontier Analysis is &lt;a href=&quot;http://books.google.gr/books/about/Stochastic_Frontier_Analysis.html?id=wrKDztxLWZ8C&amp;amp;redir_esc=y&quot; rel=&quot;nofollow&quot;&gt;Kumbhakar, S. C., &amp;amp; Lovell, C. K. (2003). Stochastic frontier analysis. Cambridge University Press.&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2014-11-25T21:04:45.620" LastActivityDate="2014-11-25T21:04:45.620" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="313" PostTypeId="1" AcceptedAnswerId="316" CreationDate="2014-11-25T13:09:36.503" Score="5" ViewCount="1228" Body="&lt;p&gt;&lt;strong&gt;Research :&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As far as I can understand :&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Stock options are used to increase the capital of companies to realize some projects&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Shares are divided into two categories : &lt;/p&gt;&#xA;&#xA;&lt;p&gt;o    Free float (which is the part of shares important for my next question)&lt;br&gt;&#xA;o    Locked-in stock   &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;For the free float, it’s easy to understand. Public investors can earn money by playing with stock prices.&#xA;For the company it’s harder for me to understand.&#xA;    When a company wants capital to run projects, she can do an IPO. The initial price depending on the financial situation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Question :&lt;/strong&gt;  What are the effects of the increase/decrease of stock prices after that IPO ? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For exemple : Initial stock price was 20 dollars and public investors paid 20 dollars which got into the capital of the companies. If stock price is now 25dollars, company won’t earn 5dollars more. So what’s the point for the company to be devalued after an IPO if she got the amount of capital she wanted ?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Attempt :&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I saw only 2 easy solutions :&lt;br&gt;&#xA;-   If company wants to increase capital a second time, she needs to have a big value on the market to reduce the dilution of control.&lt;br&gt;&#xA;-   If company is too much devalued, she can be acquired by concurrents.&lt;br&gt;&#xA;If company doesnt decrease too much and doesnt want to increase capital again, she has no point regarding the increase/decrease of her stock prices, right ? &lt;/p&gt;&#xA;" OwnerUserId="182" LastActivityDate="2014-11-25T14:06:15.717" Title="What are the effects of the increase/decrease in stock options after an IPO?" Tags="&lt;stock-market&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="314" PostTypeId="2" ParentId="299" CreationDate="2014-11-25T13:40:08.687" Score="2" Body="&lt;p&gt;Decision theory uses three kind of mathematical objects:&#xA;Let $X$ be a choice set.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Choice correspondences: $C:2^{X}-\emptyset\mapsto 2^{X}-\emptyset$ defined as $C(A)=[a\in A|a\quad satisfies\quad property\quad R]$, where property R can be for instance that $u(a)&amp;gt;u(b) \forall b\in A $ (Utility maximizer rule). &lt;/li&gt;&#xA;&lt;li&gt;Weak order relations, they are sets $\succ \in X\times X$ such that $(a,b)\in\succ $ is denoted $a\succ b$ . This is the usual language in most of decision theory. &lt;/li&gt;&#xA;&lt;li&gt;Utility functions or value functions, they have the following structure $u:X\times A \mapsto \mathbb{R} $ where the value depends on the alternative and the menu. Then the behavior is described in terms of maximizing such object subject to some constraint than sometimes is just the menu $C(A)=argmax_{x\in A}u(x,A)$.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="127" LastActivityDate="2014-11-25T13:40:08.687" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="315" PostTypeId="1" CreationDate="2014-11-25T14:06:10.463" Score="12" ViewCount="830" Body="&lt;p&gt;As &lt;a href=&quot;http://en.wikipedia.org/wiki/Poverty_threshold&quot; rel=&quot;nofollow&quot;&gt;Wikipedia&lt;/a&gt; states:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In 2008, the World Bank came out with a revised figure of $1.25 at 2005 purchasing-power parity (PPP).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;(Update: In 2015, this was updated to $\$1.90$ at 2015 PPP.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Wikipedia cites &lt;a href=&quot;http://www.esocialsciences.org/GMU_Programs/Data/3.%20Dollar%20a%20Day%20Revisited.pdf&quot; rel=&quot;nofollow&quot;&gt;Ravallion, Chen, &amp;amp; Sangraula. &quot;Dollar a Day Revisited&quot;, 2009&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course, there will always be difficulties with measurement. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But conceptually, what precisely is this $\$1.25$ figure meant to capture? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does it mean the equivalent of someone having to pay for absolutely everything (food, water, shelter, utilities, transport, education, etc.) with just $\$1.25$ a day, in a place where prices are similar to those of the US average in 2005? Or something else? &lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastEditorDisplayName="user18" LastEditDate="2016-10-19T03:41:47.877" LastActivityDate="2019-01-25T06:07:31.113" Title="$1.25 PPP per day poverty threshold - What precisely does it mean?" Tags="&lt;poverty&gt;&lt;economic-measurement&gt;" AnswerCount="2" CommentCount="4" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="316" PostTypeId="2" ParentId="313" CreationDate="2014-11-25T14:06:15.717" Score="4" Body="&lt;p&gt;Exactly.  The main issue is if they want to raise capital a second time. The secondary market does not affect the company itself, but it affects its investors. And as investors are important, they need to be treated well.  Another problem related to this is that several employees in the company have stock options, so it really affects them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What companies can do also is buy their own stocks if the price dropped considerably. This is not something that happens right after the IPO because it would make no sense to return the money to the markets right after you received it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, to sum up, the direct effects for the company are on the primary market (when the company makes the IPO), the secondary market is between public investors that have little to do with the company.&lt;/p&gt;&#xA;" OwnerUserId="20" LastActivityDate="2014-11-25T14:06:15.717" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="317" PostTypeId="2" ParentId="219" CreationDate="2014-11-25T16:07:23.937" Score="3" Body="&lt;p&gt;I might be repeating things which have been said before, but here is my take on this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think we face a usual problem when comparing two different models. What an &quot;equivalence&quot; means is not completely obvious because the two definitions lie in different worlds, or different models. However, if &quot;equivalence&quot; is properly define, I think one can make sense of Osborne definition and show that it is indeed &quot;equivalent&quot; to a NE. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The solution concept underlying the quoted section would be something like the following :&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;Belief equilibrium&lt;/strong&gt; (BE) : &gt;  A strategy profile $s^*$ and a belief profile $b^*$ in which for all player $i$&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;$$ u_i ( s^*_i ~|~ s_{-i} = b^*_{i}) \geq  u_i ( s' ~|~ s_{-i} = b^*_{i}) \text{ for all } s' \in S_i$$ &#xA;  and&#xA;  $$b^*_i = s^*_{-i}$$&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Now the problem if we are to get to any &quot;equivalence&quot; statement is that on the one hand, we have the BE which &quot;lives&quot; in a world with... beliefs, and on the other the NE notion which lives in a world... exempt of beliefs. So what would an equivalence statement like &quot;NE $\Leftrightarrow$ BE&quot; possibly mean?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) BE $\Rightarrow$ NE&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This direction of the implication is probably uncontroversial, because we go from a more complex to a more simple model. &quot;Every BE is a NE&quot; should mean that if we look at the equilibrium &lt;em&gt;strategy&lt;/em&gt; profile of a BE alone (that is without its supporting belief profile $p$), it should be a NE. One can check that this is the case.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) NE $\Rightarrow$ BE&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is the tricky part. What does it mean that &quot;Every NE is a BE&quot;? Certainly not that &quot;a NE plus &lt;strong&gt;&lt;em&gt;any&lt;/strong&gt; belief profile&lt;/em&gt; is a BE&quot;, as the OP showed with his counter-example. Yet, it is the case that &quot;any NE can be made a BE &lt;strong&gt;&lt;em&gt;for some&lt;/strong&gt; belief profile&lt;/em&gt;&quot;. I think it is in this sense that one should understand Osborne's &quot;equivalence&quot; claim&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Notice that we also have the following more &quot;equivalence-like&quot; statement : &quot;An &lt;em&gt;outcome&lt;/em&gt; of the game is a NE outcome if and only if it is a BE outcome&quot;. &lt;/p&gt;&#xA;" OwnerUserId="38" LastEditorUserId="38" LastEditDate="2015-01-13T16:01:00.720" LastActivityDate="2015-01-13T16:01:00.720" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="318" PostTypeId="1" AcceptedAnswerId="323" CreationDate="2014-11-25T16:26:44.007" Score="1" ViewCount="4739" Body="&lt;p&gt;The US had a national bank during the first few decades after its birth before it was abolished.  Today, we have the Federal Reserve.&lt;br&gt;&#xA;What are the differences between the Federal Reserve and a National Bank (specifically, with regard to their intervention policies and powers for acting within the economy)?&lt;/p&gt;&#xA;" OwnerUserId="27" LastActivityDate="2014-11-25T23:35:49.943" Title="Federal Reserve vs National Bank" Tags="&lt;fiscal-policy&gt;&lt;monetary-policy&gt;&lt;federal-reserve&gt;&lt;national-bank&gt;" AnswerCount="1" CommentCount="3" ClosedDate="2014-11-26T05:24:07.443" ContentLicense="CC BY-SA 3.0" />
  <row Id="321" PostTypeId="1" CreationDate="2014-11-25T19:25:51.860" Score="5" ViewCount="160" Body="&lt;p&gt;The Mortensen-Pissarides (MP) framework of search labor is &lt;em&gt;the&lt;/em&gt; thing in analyzing (equilibrium) unemployment over the business cycle. Shimer showed that the lack of hires is the big margin that affects the volatility of labor. Since then people tried to analyze potential wage rigidity for new hires.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is it safe to conclude that - in this context - wage rigidity of old matches does not matter anymore? Is this somewhat depending on the framework (As in: old wages don't matter for hires in MP because of XYZ, but this is a strong assumption)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is wage rigidity, conditional on the match being new, the only relevant metric onwards?&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2014-11-25T19:54:04.387" LastActivityDate="2014-11-26T16:42:09.350" Title="Employment Volatility and the Relevance of Aggregate Wage Rigidity" Tags="&lt;macroeconomics&gt;&lt;labor-economics&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="322" PostTypeId="2" ParentId="283" CreationDate="2014-11-25T22:49:23.267" Score="3" Body="&lt;p&gt;I had a look for a few places. Looks like the WTO have something relevant. I haven't looked at the dataset but hopefully it is useful. This only has annual trade. The World Bank also has some data also covers annual data.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://imts.wto.org/CDS/gp/tsselection.aspx&quot; rel=&quot;nofollow&quot;&gt;http://imts.wto.org/CDS/gp/tsselection.aspx&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think this one has your answer. It has monthly data. Only 1000 records at a time but up to 5000 if you sign up. You will probably have to be a bit clever with your queries and then merge a few spreadsheets as well. Clunky interface but the data looks vast.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;a href=&quot;http://comtrade.un.org/monthly/Main/Data.aspx&quot; rel=&quot;nofollow&quot;&gt;http://comtrade.un.org/monthly/Main/Data.aspx&lt;/a&gt;&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="40" LastEditorUserId="40" LastEditDate="2014-11-25T23:41:57.583" LastActivityDate="2014-11-25T23:41:57.583" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="323" PostTypeId="2" ParentId="318" CreationDate="2014-11-25T23:35:49.943" Score="3" Body="&lt;p&gt;The two Banks of the United States (the First and Second) were nothing like the modern Federal Reserve system.  For example, the First was prohibited from buying government bonds (one of the main roles of the Federal Reserve system is to buy and sell government bonds).  Further, neither of the national banks had any role in regulating the banking system.  They were simply the only interstate banks allowed.  All other banks had to be confined to one state.  The national banks primary impact on the money supply was to require smaller banks to pay them in silver and gold to redeem checks deposited in the national banks.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;By contrast, the Federal Reserve system actively regulates banks, requiring them to maintain a percentage of their deposits as reserves.  It actively sets two rates:  the rate at which it loans money to banks to cover reserve shortages (called the discount rate) and the rate it pays on excess reserves.  The latter power is relatively new.  Previously the Federal Reserve did not pay interest on excess reserves.  The Federal Reserve also sets a target for the funds rate, which is the average rate at which banks loan money to each other.  The funds rate target is what most people mean when they refer to the Federal Reserve setting interest rates.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Federal Reserve has two main ways to affect the funds rate.  First, it publishes a target rate for the average.  Second, it buys and sells government bonds in what are called open market operations.  When it buys bonds, it adds money to the system, reducing the number of banks that need to borrow and increasing the number of those with money to lend.  This pushes the average rate to fall, as there are more lenders and fewer borrowers.  When it sells bonds, it pulls money from the system, reducing the number of banks with money to lend.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Federal Reserve can also compete with lenders by loaning money to banks at the discount rate.  This decreases the number of banks looking to borrow from other banks, which would push rates down.  It rarely does this however.  Most banks prefer to borrow from other banks, as there are fewer restrictions.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Federal Reserve also has two ways to influence how much banks keep in reserve.  First, it sets an explicit reserve requirement.  Every bank must keep that much in reserve.  Second, it can pay interest on excess reserves.  The higher that rate, the more likely banks are to keep excess reserves instead of loaning them to individuals, companies, or other banks.  This would push up the funds rate average, as fewer banks loan.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Again, the two Banks of the United States were not central banks the way that the Federal Reserve is.  Yes, they could print banknotes, but so could other banks of the time.  They had no special banking privileges.  They were simply the only interstate banks allowed during their charter.  &lt;/p&gt;&#xA;" OwnerUserId="68" LastActivityDate="2014-11-25T23:35:49.943" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="324" PostTypeId="2" ParentId="315" CreationDate="2014-11-25T23:40:46.807" Score="2" Body="&lt;p&gt;&lt;strong&gt;A partial answer :&lt;/strong&gt; I m not sure what measurement the World Bank would recommend, but I suspect that in practice, the expenses that are taken into account to measure whether one is below or above the 1.25$ threshold vary from one study to another. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For instance in their famous &lt;a href=&quot;http://economics.mit.edu/files/530&quot; rel=&quot;nofollow&quot;&gt;The Economic Lives of the Poor&lt;/a&gt;, Banerjee and Duflo write&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;From each of these surveys we identified the extremely poor as those living in households where the &lt;strong&gt;consumption per capita&lt;/strong&gt; is less than \$1.08 per person per day, as well as the merely “poor” defined as those who live under \$2.16 a day using the PPP in year 1993 as benchmark.3 &lt;strong&gt;The use of consumption, rather than income, is motivated by the better quality of the consumption data in these surveys&lt;/strong&gt; (Deaton, 2004).&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The use of &quot;consumption per capita&quot; suggest that capital income, such as the benefits one get from owning her own house, would not be taken into account. &#xA;Because data quality considerations seem to enter the picture, it opens the door to much variation from one study to the other. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The above quote however suggests that at equal data quality, income data would be preferred.&lt;/p&gt;&#xA;" OwnerUserId="38" LastEditorUserId="38" LastEditDate="2015-04-29T13:53:31.500" LastActivityDate="2015-04-29T13:53:31.500" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="325" PostTypeId="1" CreationDate="2014-11-26T02:03:24.287" Score="18" ViewCount="829" Body="&lt;p&gt;Why is income from capital gains taxed differently than wage income? There are perhaps historical, practical, and theoretical reasons. What are they?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(As far as historical reason go, I'm asking primarily about the United States. If anybody has any insight about this topic in other countries, I'd love to hear it as well.)&lt;/p&gt;&#xA;" OwnerUserId="59" LastActivityDate="2017-08-11T07:39:52.433" Title="Why is capital income taxed differently than wage income?" Tags="&lt;macroeconomics&gt;&lt;public-economics&gt;&lt;history&gt;&lt;taxation&gt;" AnswerCount="2" CommentCount="3" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="326" PostTypeId="1" CreationDate="2014-11-26T02:21:40.833" Score="10" ViewCount="271" Body="&lt;p&gt;Suppose there is a signaling game with a finite message space $M$, finite action space $A$, and finite type space $T$. Even simpler, all sender types have identical preferences (the receiver just prefers different actions in response to different types). Can the receiver ever do strictly better by randomizing across responses? When an equilibrium exists where the receiver only takes pure actions?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ubiquitous summarized my question nicely, &quot;Is it ever the case that the equilibrium with the highest receiver payoffs necessarily involves mixed strategies?&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's go with sequential equilibrium.&#xA;If you'd like some notation to start with.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\sigma_{t}(m)$ is the probability that $t\in T$ sends $m\in M$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\sigma_R^m(a)$ is the probability that the receiver responds to $m$ with $a\in A.$&#xA;$\mu^m \in \Delta T$ gives the receiver's beliefs after observing $m$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A sequential equilibrium requires $\sigma_t$ give optimal responses given $\sigma_R$, $\sigma_R$ is optimal given $\mu$ and $\mu$ is Bayesian given $\sigma$. This is really the definition of a weak sequential, but there is no distinction in a signaling game.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My intuition says no when there exists a equilibrium where the receiver only plays pure actions, but I've always been horrible with this kind of stuff. Maybe we also have to stipulate that it is not a zero-sum game, but I'm only saying that because I remember players being better off with the ability to randomize in those games. Perhaps this is a footnote in a paper somewhere?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider the game below where sender preferences are not identical. I apologize for the low quality. There are three sender types, each equally likely. We can create what I believe is the receiver (player 2) optimal equilibrium only if they randomize upon receiving message 1. Then types 1 and 3 will play $m_2$, creating a separating equilibrium. If the receiver uses a pure strategy in response to $m_1$, then a type 1 or 2 would deviate and make the receiver worse off.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\sigma_R^{m_1}(a)=.5=\sigma_R^{m_1}(r)=.5$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/uJECl.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;" OwnerUserId="14" LastEditorUserId="11590" LastEditDate="2019-05-19T16:53:48.560" LastActivityDate="2019-05-19T16:53:48.560" Title="When should a receiver randomize across actions in a signaling game?" Tags="&lt;game-theory&gt;&lt;signaling&gt;" AnswerCount="2" CommentCount="7" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="327" PostTypeId="1" CreationDate="2014-11-26T02:24:26.727" Score="12" ViewCount="1736" Body="&lt;p&gt;What is the difference between &quot;aggregation&quot; and a &quot;representative agent?&quot; I'm sorry if I'm not entirely clear on this question, but that's why I ask. It seems to me as if a representative agent is defined as a situation in which a competitive equilibrium can be reached by maximizing the utility of an object that can be interpreted as a &quot;representative agent&quot; whereas &quot;aggregation&quot; refers to a related situation where in competitive equilibrium prices don't depend on the distribution of an initial endowment. (Something to this effect.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Could somebody clarify what these two concepts are and how they are related and/or different?&lt;/p&gt;&#xA;" OwnerUserId="59" LastActivityDate="2014-11-27T13:17:38.813" Title="What is the difference between &quot;aggregation&quot; and a &quot;representative agent?&quot;" Tags="&lt;macroeconomics&gt;&lt;preferences&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="328" PostTypeId="2" ParentId="327" CreationDate="2014-11-26T03:24:00.280" Score="3" Body="&lt;p&gt;Maybe someone else has more to say about this, but here is what I understand to be the difference.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A model in which there is either a unit measure of homogeneous agents or a single agent is typically called a &quot;representative agent economy.&quot;  This seemed (and seems) to be how many papers model consumers.  The obvious shortcoming of this is that consumers are not identical.  In particular, if you want to measure distributional effects of different policies then a representative agent economy is a really bad idea.  For example, distributional effects are important in &lt;a href=&quot;https://files.nyu.edu/aaf287/public/Ferriere_jmp.pdf&quot; rel=&quot;nofollow&quot;&gt;this paper&lt;/a&gt; and I think she briefly discusses it in her introduction.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A model which admits aggregation is exactly what you said.  It is a model in which aggregate variables do not depend on the distribution of wealth, instead they can be expressed in terms of aggregates.  The problem is that this basically takes you right back to a representative agent economy.  If you go through the details of writing an economy with heterogeneous consumers then you need to make sure aggregation doesn't hold or else to some degree you will be missing the heterogeneity that you tried to capture.  There are some standard aggregation results that I can think of off the top of my head: &lt;a href=&quot;http://www.jstor.org/discover/10.2307/1909472?uid=3739832&amp;amp;uid=2&amp;amp;uid=4&amp;amp;uid=3739256&amp;amp;sid=21105298422943&quot; rel=&quot;nofollow&quot;&gt;Gormann Aggregation&lt;/a&gt;, &lt;a href=&quot;http://onlinelibrary.wiley.com/doi/10.1111/j.1467-999X.1960.tb00275.x/abstract&quot; rel=&quot;nofollow&quot;&gt;Negishi Aggregation&lt;/a&gt;.  I know there is a good literature survey out there, but for the life of me I can't find it.  I'll check some of my notes when I have them tomorrow and hopefully edit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit: Found one of the papers that I was thinking of:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://fguvenendotcom.files.wordpress.com/2014/05/guvenen_survey_richmondfed_2012.pdf&quot; rel=&quot;nofollow&quot;&gt;Guven 2012&lt;/a&gt;  deals with heterogeneous agent models.  Both aggregation and &quot;near aggregation&quot;(Think Krussel Smith) are discussed.&lt;/p&gt;&#xA;" OwnerUserId="47" LastEditorUserId="47" LastEditDate="2014-11-26T15:34:02.843" LastActivityDate="2014-11-26T15:34:02.843" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="329" PostTypeId="2" ParentId="327" CreationDate="2014-11-26T03:41:15.167" Score="6" Body="&lt;p&gt;&lt;em&gt;(I cannot say if my answer will respond to your questions, which indeed, are a bit unclear).&lt;/em&gt;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If one browses through many-many economic papers, one will get the impression that &quot;representative&quot; just means &lt;em&gt;identical&lt;/em&gt;. Indeed in large chunks of literature this is the case, for historical reasons.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The drive behind the adoption of the &quot;representative consumer&quot; modelling framework came from the Lucas critique on the previous-generation macro-models, and the requirement that macroeconomic models are &quot;micro-founded&quot;. But true theoretical aggregation (with heterogeneity present) requires some skill and knowledge and the bulk of the discipline appeared to have quickly settled for the &quot;representative means identical&quot; framework. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem is that in such a case, you don't really have a macro-model, just a blown-up version of a micro-model (note: here the words micro/macro are &lt;em&gt;not&lt;/em&gt; to be mapped to the partial/general equilibrium concepts). There is nothing to &quot;aggregate&quot; here: the whole point of aggregation is to see whether the behavior of the collective differs from the behavior of the individual. And in the &quot;representative means identical&quot; approach, no such thing can happen, by construction: Instead of micro-founded macro-models, we ended up having blown-up micro-models posing as macro-ones (this is not opinion, I am just describing).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are some models where the term &quot;representative&quot; obtains some intuition -especially in models with more than one classes of agents (say, labor owners and capital owners). Here we model &lt;em&gt;two&lt;/em&gt; agents, and each is &quot;representative&quot; of its class. In-class are all identical, but here it sounds more appropriate to call the two individuals &quot;representative&quot;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The funny thing is, &lt;strong&gt;the concept &quot;representative consumer&quot; (RC) does have a special meaning&lt;/strong&gt;: the representative consumer represents all consumers &lt;em&gt;as regards basic structure&lt;/em&gt;, not &lt;em&gt;measurement or quantities&lt;/em&gt;. E.g. &quot;all individual maximize utility from consumption (&quot;same structure&quot;), but their utility parameters may differ(&quot;different measure&quot;). All consumers have wealth, but the level of wealth may differ. Etc. RC is still a modelling abstraction, but it does leave room for heterogeneity.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A good source on the matter is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.jstor.org/stable/117314&quot; rel=&quot;nofollow&quot;&gt;Caselli, F., &amp;amp; Ventura, J. (2000). A representative consumer theory of distribution. American Economic Review, 909-926.&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Apart from their focus on developing a theory of distribution in the context of an RC model, they make a good job in presenting what can be done in an RC framework and what not. An excerpt:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;The RC is a fictional consumer whose utility maximization problem when&#xA;  facing aggregate resource constraints generates the economy's&#xA;  aggregate demand functions. The RC assumption does not rule out&#xA;  consumer heterogeneity, but only requires that &lt;strong&gt;potential sources of&#xA;  consumer heterogeneity have sufficient structure&lt;/strong&gt; to ensure that the&#xA;  sum of all consumers behaves &lt;strong&gt;as if&lt;/strong&gt; it were a single consumer&lt;/em&gt;.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2014-11-27T13:17:38.813" LastActivityDate="2014-11-27T13:17:38.813" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="330" PostTypeId="2" ParentId="325" CreationDate="2014-11-26T04:08:52.023" Score="11" Body="&lt;p&gt;One reason is the inflationary gain problem.  Let me give an example with simple numbers.  I make \$100 in income and pay 20% tax of \$20.  I have \$80 left, which I invest in a stock.  The stock goes up in value at the same rate as inflation, about 3.5% a year.  After 20 years, it's worth about \$160, but \$160 has the same value now as \$80 did when I earned it.  So in effect, I have made no gain.  If I have to pay a 20% tax on the \$80 nominal gain, then I actually have \$8 less spending power than when I made the investment.  Just in order to keep pace, I would have needed returns of 125% inflation.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another reason is to encourage investment.  A lower tax on capital should encourage savings, and the US is generally low on savings.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is also a historical argument that if the income tax rate is 90% (which was the top rate starting in World War 2 and ending in the Kennedy administration), then it is impractical to tax investments at the same rate.  From 1921 to 1986, there was a lower rate on long term capital gains than on other income.  In 1991, capital gains tax was capped at 28%.  In 1997, long term rates were reduced again.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The current system is designed to encourage long term capital investments by decreasing the rate the longer something is held.  This does very little to help with nominal gains but does provide an incentive for long term savings.  It's unclear if it actually increases saving.  It certainly doesn't increase net savings, as the US tends to be fully leveraged, borrowing as much as is saved.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There have been proposals that focused more on the nominal gains issue.  For example, in the late 80s, early 90s there was a proposal to switch investments to working like traditional IRAs:  deductible at the time of investment but taxed the same as any other income at the time of sale or withdrawal.  Since this delayed the original tax to be paid at the same time as the capital gains, there is no separate tax on the nominal gain.  &lt;/p&gt;&#xA;" OwnerUserId="68" LastActivityDate="2014-11-26T04:08:52.023" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="331" PostTypeId="2" ParentId="326" CreationDate="2014-11-26T04:43:22.870" Score="3" Body="&lt;p&gt;I think this cannot happen with risk averse senders, risk neutral receiver, and $A$ rich enough. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, and to stick to the canonical signaling model, suppose that $A$ is the positive real line and senders' utility $u$ is increasing in $a$ while receiver's have linear utility decreasing in $a$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Admittedly, this is only a partial answer as the framework is much less general that the one in your question, so it might not be satisfactory to you. I still provide an argument in case you were ok with these assumptions)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To derive a contradiction, suppose that at an equilibrium $\sigma^m_R(a') &amp;gt; 0$ and $\sigma^m_R(a'') &amp;gt; 0$ for some $a' \neq a'' \in A$. Let&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$a''' \equiv \frac{\sigma^m_R(a')}{\sigma^m_R(a') + \sigma^m_R(a'') }  a' + \frac{\sigma^m_R(a'')}{\sigma^m_R(a') + \sigma^m_R(a'') } a''.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By risk aversion&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ u[ a''' ] &amp;gt;  \frac{\sigma^m_R(a')}{\sigma^m_R(a') + \sigma^m_R(a'') } u(a') + \frac{\sigma^m_R(a'')}{\sigma^m_R(a') + \sigma^m_R(a'') } u(a'').$$&#xA;$$ [\sigma^m_R(a') + \sigma^m_R(a'')] u( a''' ) &amp;gt;  \sigma^m_R(a') u(a') + \sigma^m_R(a'') u(a'').$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Under some continuity assumption, there must also exist&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ a '''' &amp;lt; a''' $$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;such that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ [\sigma^m_R(a') + \sigma^m_R(a'')] u( a'''' ) =  \sigma^m_R(a') u(a') + \sigma^m_R(a'') u(a'').$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So consider $\sigma^m_R{'}$ constructed in the following way&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;$\sigma^m_R{'}(a') = \sigma^m_R{'}(a'') = 0$, &lt;/li&gt;&#xA;&lt;li&gt;$\sigma^m_R{'}(a'''') = \sigma^m_R(a'''') + [\sigma^m_R(a') + \sigma^m_R(a'')]$&lt;/li&gt;&#xA;&lt;li&gt;For all other $\tilde{a}$, $\sigma^m_R{'}(\tilde{a}) = \sigma^m_R(\tilde{a})$&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Receivers would prefer $\sigma^m_R{'}$ over $\sigma^m_R$ &lt;em&gt;if&lt;/em&gt; it did not alter the signals sent by the senders, because it involves lower expected compensations. But by construction, senders are indifferent between $\sigma^m_R{'}$ and $\sigma^m_R$, so they should send the same signals as in $\sigma^m_R$.  Thus $\sigma^m_R$ cannot be an equilibrium which shows that we cannot have two different actions played with positive probability at an equilibrium.&lt;/p&gt;&#xA;" OwnerUserId="38" LastEditorUserId="38" LastEditDate="2016-01-07T05:03:36.820" LastActivityDate="2016-01-07T05:03:36.820" CommentCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="332" PostTypeId="1" CreationDate="2014-11-26T06:35:16.073" Score="6" ViewCount="162" Body="&lt;p&gt;In the context of international financial crises, what mathematical methods have Economists employed in order to &lt;em&gt;quantify&lt;/em&gt; financial &lt;strong&gt;contagion&lt;/strong&gt;?&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Note: For a working definition of &lt;strong&gt;contagion&lt;/strong&gt; I'll use the description supplied by Kaminsky, Reinhart &amp;amp; Vegh &lt;a href=&quot;https://www.aeaweb.org/articles.php?doi=10.1257/089533003772034899&quot;&gt;(2003)&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;We refer to contagion as an episode in which there are significant &lt;em&gt;immediate&lt;/em&gt; effects in a number of countries following an event—that is, when the consequences are &lt;em&gt;fast and furious&lt;/em&gt; and evolve over a matter of hours or days. This “fast and furious” reaction is a contrast to cases in which the initial international reaction to the news is muted.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="29" LastEditorUserId="29" LastEditDate="2014-11-26T15:15:24.553" LastActivityDate="2014-11-26T20:51:02.980" Title="How Do Economists Quantify Contagion?" Tags="&lt;mathematical-economics&gt;&lt;econometrics&gt;&lt;financial-crises&gt;&lt;economic-terms&gt;" AnswerCount="2" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="333" PostTypeId="1" AcceptedAnswerId="334" CreationDate="2014-11-26T14:28:19.067" Score="5" ViewCount="1318" Body="&lt;p&gt;We have a pure exchange economy, two consumers $A,B$ and two goods $x,y$. The utility functions are as follows $$u_A=\min\{x_A,y_A\}\qquad u_B=\min\{x_B,\sqrt{y_B}\}$$&#xA;The endowments are $$\omega_A=(30,0)\qquad \omega_B=(0,20)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I want to derive the equilibrium price and the equilibrium allocation. Now, I can understand that if the vector of prices $\mathbf{p}&amp;gt;&amp;gt;\mathbf{0}$ the equilibrium does not exist because the offer curves do not intersect (and this is evident once you have drawn the Edgeworth Box). My problem is that I don't know how to approach the case in which one of the two prices is zero. How should I study this situation? Should I derive formally the two offer curves as functions of prices?&lt;/p&gt;&#xA;" OwnerUserId="103" LastEditorUserId="1601" LastEditDate="2017-02-28T07:58:12.313" LastActivityDate="2017-02-28T07:58:12.313" Title="Pure exchange economy with two consumers and non differentiable utility functions" Tags="&lt;perfect-complements&gt;&lt;pure-exchange-economy&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="334" PostTypeId="2" ParentId="333" CreationDate="2014-11-26T14:50:22.680" Score="3" Body="&lt;p&gt;I would suggest that ask yourself the following questions (hopefully, this should help you figure out how to solve the problem) : &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;If good $z \in (x,y)$ was free, what would be the demand for both agents?&lt;/li&gt;&#xA;&lt;li&gt;Is the conjunction of these demands feasible given the endowments? (this should allow you to rule out one of the cases)&lt;/li&gt;&#xA;&lt;li&gt;If the demands are feasible, which price(s) for the other good would support such demands? What could be the equilibrium(a) allocation(s)?&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Notice that if good $z$ is free, one of the agents is not able to consume the other good, and she is therefore indifferent between consuming any quantity of good $z$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope this helps.&lt;/p&gt;&#xA;" OwnerUserId="38" LastEditorUserId="38" LastEditDate="2015-05-11T20:12:46.993" LastActivityDate="2015-05-11T20:12:46.993" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="335" PostTypeId="2" ParentId="321" CreationDate="2014-11-26T16:42:09.350" Score="2" Body="&lt;p&gt;Wage rigidity is not the only solution to the Shimer Puzzle (Shimer, AER 2005) that has been proposed in the literature, so I wouldn't say that it is the only relevant metric to consider when thinking about labor market dynamics in this context. However, as I understand the question, it aims at the role of wage rigidity in a Diamond-Mortensen-Pissarides (DMP) model and not on alternative solutions to the Shimer Puzzle.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, here are a few thoughts on the rigidity of wages of newly hired workers:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The baseline DMP model is essentially a model of new hires. The wage formation mechanism as it is described in Pissarides (2000) does not differentiate between newly hired workers and ongoing employment relationships. The Nash bargaining solution dictates a surplus sharing rule that splits up what is being produced in every period, no matter how long the employment spell lasts. The bargaining powers are exogenous. In the baseline model, the elasticity of wages with respect to labor productivity is simply 1. Wages are fully flexible and immediately adjust to changes in labor productivity. This model feature lies at the heart of the Shimer puzzle. The model's inability to generate dynamics consistent with volatilities we observe in the data is due to the fact that wages adjust upwards too much in response to a positive shock, thereby lowering incentives of firms to post additional vacancies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since the theoretical model treats every match in every period like a new match, the rigidity of new matches is of primary empirical interest for the calibration and analysis of this class of models. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Haefke et al. (JME, 2013) report empirical evidence for wage rigidity using US labor market time series data.  They find that the wage of new hires (both out of unemployment and after a job-to-job switch) corresponds &lt;em&gt;almost&lt;/em&gt; one-to-one to changes in labor productivity. The estimated elasticity is around 0.8 (with quite a large standard error of 0.4). The wage of workers in ongoing employment relationships, on the other hand, shows little flexibility. The authors note that the elasticity of 0.8 is an appropriate calibration target for search and matching models. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Whether focusing on new hires only is too strong an assumption depends mainly on the country one looks at. The US labor market, for example, is driven by huge turnovers. Thus, in every period, a large share of employees can be considered new hires. For some European labor markets, on the other hand, the assumption might be less reasonable because average employment spells tend to be longer and labor market flows smaller. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;References:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Haefke, Christian; Sonntag, Marcus; Rens, Thijs van: Wage rigidity and job creation. In: Journal of Monetary Economics 60 (2013), No. 8, pp. 887-899&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Pissarides, Christopher A.: Equilibrium Unemployment Theory. 2nd Edition. The MIT Press, 2000&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Shimer, Robert: The Cyclical Behavior of Equilibrium Unemployment and Vacancies. In: The American Economic Review 95 (2005), No. 1, pp. 25-49&lt;/p&gt;&#xA;" OwnerUserId="109" LastActivityDate="2014-11-26T16:42:09.350" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="336" PostTypeId="1" AcceptedAnswerId="340" CreationDate="2014-11-26T17:17:22.430" Score="5" ViewCount="466" Body="&lt;p&gt;I think everyone know this &lt;a href=&quot;https://en.wikiquote.org/wiki/Milton_Friedman&quot; rel=&quot;nofollow noreferrer&quot;&gt;Friedman's quote&lt;/a&gt; nowadays:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Inflation is always and everywhere a monetary phenomenon in the sense&#xA;  that it is and can be produced only by a more rapid increase in the&#xA;  quantity of money than in output&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;However, things are not that simple. The US had emitted lots of money and has very little inflation. In some cases there's also a spiral effect. Some heterodox economists talk about lack of supply of goods too. And emission still applies only to the mid &amp;amp; long term.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To sum up, the questions would be:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Can businesses be an important cause of inflation, or is it a pure monetary effect?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;In not-so-developed countries, there might not be much competition.  Can that generate inflation?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Edited.&lt;/strong&gt; &lt;em&gt;Original question:&lt;/em&gt; Can anyone help me understand when that quote is true and when other factors should be considered too?&lt;/p&gt;&#xA;" OwnerUserId="20" LastEditorUserId="20" LastEditDate="2018-08-29T13:14:57.240" LastActivityDate="2018-08-29T13:14:57.240" Title="Inflation reasons beyond Friedman" Tags="&lt;macroeconomics&gt;&lt;monetary-policy&gt;&lt;inflation&gt;" AnswerCount="4" CommentCount="8" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="337" PostTypeId="2" ParentId="326" CreationDate="2014-11-26T18:07:30.990" Score="3" Body="&lt;p&gt;Perhaps I have a counterexample!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let there be three messages, $m_1, m_2,$ and $m_3$, and three sender types $t_1,t_2,t_3$ where $\Pr(t=t_3)=\frac{1}{2}-\epsilon$, $\Pr(t=t_2)=\frac{1}{4}$ and $\Pr(t=t_1)=\frac{1}{4}+\epsilon$. Sending $m_3$ results in a payoff $0$ for senders, we can think of it as exiting the game. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The set of receiver responses to a message $m=m_1,m_2$ is $\{a,r\}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$u_t(a,m_1)=1 &amp;gt; u_t(a,m_2)=\beta&amp;gt;u_t(r,\cdot)=0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$u_R(t_1,m_1,a)=u_R(t_2,m_2,a)=2$, $u_R(t_3,m_i,a)=1$,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$u_R(t_2,m_1,a)=u_R(t_2,m_1,a)=0$, $u_R(t_3,m_i,r)=2$,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$u_R(t_1,m_i,r)=u_R(t_2,m_i,r)=1$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then in equilibrium, all senders must obtain the same utility, correct?. Otherwise, one will imitate the other's strategy. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, the only pure strategy equilibrium is for all senders to choose $m_3$. In a pooling equilibrium on $m_1$ or $m_2$, the best response is to choose $r$. There is no pure strategy separating equilibrium except if $t_1$ and $t_2$ send $m_2$, and the receiver responds with $r$. Then $t_3$ is indifferent between all messages, because he will surely be met with payoff $0$. All of this gives the receiver payoff $\frac{3}{2}-\epsilon$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then consider the case where $\sigma_R^{m_1}(a)=\beta$ and $\sigma_R^{m_2}(a)=1.$ Now, the senders are indifferent between sending those two messages. Then, let $\sigma_{t_3}(m_1)=\frac{\epsilon+1/4}{-\epsilon+1/2}=1-\sigma_{t_3}(m_1)$ and $\sigma_{t_i}(m_i)=1$ for $i=1,2$. Then the receiver strategy is rational. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The receiver's expected utility from $m_1$ given $a$ or $r$ is 1.5. The expected utility from $m_2$ is slightly above 1.5, given $a$. So the ex ante expected payoff is above $\frac{3}{2}-\epsilon$, better than the pure equilibrium described above. Furthermore, this separation is only maintained by mixing. Any other pure strategy taken by the receiver will induce sender pooling, meaning the only a pure strategy equilibrium is when the receiver chooses $r$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I should have $\beta$s in the picture below for the lefthand side sender payoffs to $a$. I think the $\beta&amp;lt;1$ is the key ingredient.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/mBZ8Y.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;" OwnerUserId="14" LastEditorUserId="14" LastEditDate="2014-11-26T20:06:44.867" LastActivityDate="2014-11-26T20:06:44.867" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="338" PostTypeId="2" ParentId="332" CreationDate="2014-11-26T18:35:51.653" Score="1" Body="&lt;p&gt;If i understand the meaning of the question correctly, i would suggest that the benchmark model in this kind of stories is the so-called &lt;strong&gt;BGG [1999]&lt;/strong&gt;, &lt;em&gt;Handbook of Macroeconomics&lt;/em&gt;, &lt;em&gt;Volume 1,Part C,Chapter 21&lt;/em&gt;, which introduces and explains the &lt;strong&gt;financial accelerator effect&lt;/strong&gt;, which essentially states that endogenous &quot;developments&quot; in credit markets work to amplify and propagate shocks in macroeconomy. Following this model there is a huge literature which identifies quantitatively the financial accelerator in various models and proposes linkages with  financial crisis, credit networks and macroeconomy. A good paradigm is the paper of &lt;strong&gt;Delli Gati et al&lt;/strong&gt;, &lt;em&gt;Journal of Economic Dynamics and Control&lt;/em&gt;, &lt;strong&gt;[2012]&lt;/strong&gt;. &lt;/p&gt;&#xA;" OwnerUserId="241" LastActivityDate="2014-11-26T18:35:51.653" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="339" PostTypeId="1" AcceptedAnswerId="343" CreationDate="2014-11-26T19:37:14.243" Score="9" ViewCount="650" Body="&lt;p&gt;The argentine economist Fernanda Vallejos, while trying to protect the government because of the inflation, the following:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Inflation is not the result but the cause of monetary emission. As&#xA;  there's inflation (&lt;em&gt;because of other reasons not important here&lt;/em&gt;),&#xA;  people need more money and the central bank needs to print more money.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;How can you argue against that?  As it seems to be the opposite of modern theory on inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Context:&lt;/em&gt; This is in Argentina, where it has an important deficit, monetary emission and inflation are around 40%.&lt;/p&gt;&#xA;" OwnerUserId="20" LastEditorUserId="20" LastEditDate="2014-11-27T00:21:48.067" LastActivityDate="2016-01-26T15:23:44.247" Title="Inflation, cause or result of monetary emission?" Tags="&lt;inflation&gt;&lt;money-supply&gt;&lt;friedman&gt;" AnswerCount="3" CommentCount="3" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="340" PostTypeId="2" ParentId="336" CreationDate="2014-11-26T20:22:22.297" Score="3" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;The US had emitted lots of money and has very little inflation.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Are we talking about quantitative easing here?  It depends how broadly you are willing to define inflation.  Quantitative easing has caused asset price increases, just not consumer price inflation.  Look at stock prices, which are about 50% overvalued according to some well regarded investors (e.g. &lt;a href=&quot;http://investcorrectly.com/20141126/us-market-overvalued-buffett-indicator-market-cap-us-gnp/&quot; rel=&quot;nofollow&quot;&gt;Warren Buffett&lt;/a&gt;).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A common complaint about quantitative easing is that it is overly focused on investments and not focused enough on people (Wall Street over Main Street).  It has been successful at propping up stock prices to the point that they have returned to their 2008 levels, when they were regarded as being in a bubble.  Quantitative easing is heavily focused on investment assets.  It doesn't seem to be getting money into the hands of consumers.  Household incomes are still low.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In short, I don't believe that the current US recession has disproved Friedman's statement.  The Federal Reserve has eschewed its traditional open market operations in favor of quantitative easing, which has affected investments without increasing the money supply available to consumers.  A better question might be why quantitative easing is widely regarded as expanding the money supply when it doesn't seem to actually do that--at least not the kind of money supply whose expansion causes consumer price inflation.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note:  I'm sure that there is theoretical work disagreeing with Friedman's statement.  I haven't tried to cover that.  I was caught up in the questionable assertion that the US money supply has expanded without causing inflation.  I suspect that this is too new for a consensus to have arisen. This is my thoughts on one possible explanation.  &lt;/p&gt;&#xA;" OwnerUserId="68" LastEditorUserId="68" LastEditDate="2014-11-27T04:28:41.447" LastActivityDate="2014-11-27T04:28:41.447" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="341" PostTypeId="2" ParentId="332" CreationDate="2014-11-26T20:51:02.980" Score="3" Body="&lt;p&gt;I believe the single most commonly used metric for contagion is a sharp increase in the correlation of returns in various countries, either within a country (e.g., the correlation of daily returns in the markets for stocks, bonds, and commodities) or across countries (e.g, the correlation of daily returns in the stock markets in Europe, North and South America, Asia, etc). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;While correlation is an easily understood measure, and while it's true that pairwise correlations do tend to rise during crisis periods, using correlations in this manner is not without pitfalls. In particular, sampling correlation coefficients will rise during periods of heightened market volatility (and this is a major difference to, say, regression coefficients), irrespective of whether there's a real crisis or not. For more on these pitfalls see, e.g.,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Forbes and Rigobon, 2002, &quot;No Contagion, Only Interdependence: Measuring Stock Market Comovements&quot;, Journal of Finance, vol. 57, pp. 2223-2281.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Loretan and English, &lt;a href=&quot;http://www.bis.org/publ/r_qt0006e.pdf&quot; rel=&quot;nofollow&quot;&gt;Evaluating changes in correlations during periods of high market volatility&lt;/a&gt;, BIS Quarterly Review, 2000, June, pp. 29-36.&lt;/p&gt;&#xA;" OwnerUserId="25" LastActivityDate="2014-11-26T20:51:02.980" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="342" PostTypeId="1" AcceptedAnswerId="346" CreationDate="2014-11-27T00:51:56.677" Score="6" ViewCount="222" Body="&lt;p&gt;Suppose there is a set of agents causing loss $l_i$ to themselves and aggregate loss $L$ to the society, both of which can be minimised by their investments $c_i$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The social planner who is concerned with minimising $L(c_i)$ wants to incentivise players to invest more. Players have utility $u_i=-f(l_i)-c_i$ and they decide on whether to invest more based on utilities.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What are some mechanisms which can incentivise agents in this framework? Can VCG-type mechanisms be adapted to this situation?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(PS: Sorry if the question is vague; please feel free to add assumptions)&lt;/p&gt;&#xA;" OwnerUserId="41" LastActivityDate="2014-11-27T15:05:13.077" Title="Mechanisms to incentivise social welfare" Tags="&lt;game-theory&gt;&lt;social-welfare&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="343" PostTypeId="2" ParentId="339" CreationDate="2014-11-27T01:01:52.690" Score="8" Body="&lt;p&gt;The problematic part of the statement, is the &quot;&lt;em&gt;because of other reasons not important here&lt;/em&gt;&quot; part . In other words: &quot;ignore general equilibrium&quot; -which is an unacceptable statement to make when discussing government policy and actions.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider the naive quantity theory of money:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$PQ = VM \tag{1}$$&#xA;$P$ is the price level, $Q$ is output produced (measured in &lt;em&gt;quantity&lt;/em&gt;), $M$ is money supply, and $V$ is &quot;velocity of money&quot;, an indicator of the &quot;transactions technology&quot; in the economy, how fast money circulates around to settle transactions.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume now that we are talking for a &quot;small&quot; country that needs to import basic factors of production like raw materials or energy. &quot;Small&quot; here means &quot;with no market power&quot;. Such a country is a price-taker in the international market. More over, substitution possibilities for these factors are usually small to non-existent.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Competitive markets or not, the economy's output will be distributed to factors of production and for our purposes, it doesn't matter whether there will be &quot;capital rents&quot; &lt;em&gt;and&lt;/em&gt; &quot;profits&quot;, or only capital rents. Use for convenience three factors of production and write&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$PQ = rK + wL + p_fE \tag {2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $r$ and $w$ are nominal, and $p_fE$ is the nominal cost of imported factors. Denote $s_f$ the &lt;em&gt;foreign&lt;/em&gt; exchange rate (units of local currency per one unit of foreign currency), $c_f$ the price of the imported factors in &lt;em&gt;foreign&lt;/em&gt; currency, so $p_f = c_fs_f$.&#xA;Use this and substitute $(2)$ in $(1)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$rK + wL +c_fs_fE= VM \tag{3}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If something happens to the international market and $c_f$ goes up to $c_f' &amp;gt; c_f$, this will tend to increase the left hand side. This &quot;something&quot; in the international production factors market does not relate to the level of domestic output $Q$, or to domestic money transactions technology, $V$. More over, at least in the short run, factor substitutions will not happen, wages do not move that easily, and firms will maintain their output level while increasing selling prices, to cover the increased production costs. And since the reasons for the increase affect more-or less the whole economy, it is not that likely that competition will stop firms from doing so: they all want to cover their increased costs, they all know that the cost-rise is general and comes from abroad, so they don't need to actually collude in order to sustain a price increase. &quot;Common knowledge&quot; suffices.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So in order to preserve the equality in $(3)$ it appears that we must have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$rK + wL +c_f's_fE = VM',  \;\; M' &amp;gt; M\tag{3}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You see? This is the phenomenon called &quot;imported inflation&quot;. Whatever the reasons were for the price increase (the &quot;not important&quot; reasons), inflation was not caused by the expansion of the money supply (that's indeed true), and what else the government could do than raise the money supply to service the higher nominal level of output?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course what the story above does not say, is that foreign factors of production will want a &quot;money&quot; that they accept, and most likely this won't be the local currency of this small country. And by increasing the money supply the exchange rate $s_f$ will suffer (increase), because $s_f = h(M), \;\; h' &amp;gt;0$, increasing in this way further the costs of imported factors in terms of local currency, and making the increase in the money supply equivalent to &quot;shoot oneself in the foot&quot;. And this is only one more step towards the road to general equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The essence here is that&lt;br&gt;&#xA;a) it is &lt;em&gt;trivial&lt;/em&gt; that there are many other factors that may tend to affect prices upwardly, except money supply expansion  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;b) in the presence of these other influences, increasing the money supply is not necessarily the appropriate government response.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2014-11-27T04:38:57.273" LastActivityDate="2014-11-27T04:38:57.273" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="344" PostTypeId="1" CreationDate="2014-11-27T03:43:32.907" Score="9" ViewCount="865" Body="&lt;p&gt;Economies are extremely complex systems with many variables, not to mention the fact that they emerge from the interactions of complex beings. I agree that economies have certain underlying principles, but I remain skeptical of the overall value of econometrics as a science.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A truly useful econometrics would be a valuable tool in predicting the future behavior of the economy, particularly in predicting shocks like the recent financial crisis and Great Recession. But it did not happen.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If econometrics can't predict the future, how do we know it even effectively describes the past? What is the evidence that it has empirical value?&lt;/p&gt;&#xA;&#xA;&lt;h1&gt;Clarification&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;I regret any confusion this may have caused, but let me clarify what I'm looking for here. I regard this as an epistemological question. A better way to phrase it might be, &quot;Can econometrics conform to the scientific method?&quot; or just &quot;Is it science?&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is, at least in theory, a specific, answerable question, even if it is, as Alecos Papadopoulos noted in his answer, a matter of degree. (A view I share.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This does not mean that specific examples of econometrics' successes and failures are not relevant. &lt;/p&gt;&#xA;" OwnerUserId="243" LastEditorUserId="243" LastEditDate="2014-11-28T11:10:01.863" LastActivityDate="2014-12-01T19:43:45.337" Title="What is the evidence that econometrics has empirical value?" Tags="&lt;econometrics&gt;&lt;scientific-method&gt;" AnswerCount="5" CommentCount="14" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="345" PostTypeId="2" ParentId="339" CreationDate="2014-11-27T07:41:36.623" Score="5" Body="&lt;p&gt;I think Ms Vallejo's argument is based on (a) a slightly idiosyncratic definition of the term &quot;inflation&quot; and (b) a disregard for the difference between short run and long run phenomena. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;She is correct in mentioning that in the short run, various cost shocks -- e.g., a devaluation that leads to imported inflation, or excessive wage demands that are accommodated by employers -- can raise the cost of living. However, such cost shocks are &lt;em&gt;not&lt;/em&gt; what Friedman or Tobin would have called &quot;inflation&quot;. To wit, if the exchange rate appreciates at some point in the future, the imported inflation will be reversed, and there's thus fluctuations in the exchange rate do not necessarily have a long-term or permanent effect on the price level. Friedman and Tobin were clear that inflation refers to permanent (or at least long-lasting) changes in the price level.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, what transforms an initial (non-monetary) shock into inflation, in the Friedman-Tobin sense of the word? It's almost invariably the decision by the central bank to try to mitigate the negative effects of the shock on output and employment, viz., by expanding the money supply. While such a decision may be beneficial in the short run, by expanding the money supply the initial shock becomes permanent, i.e., we observe inflation. For the central bank to have the strength not to accommodate cost shocks by creating inflation, it's usually helpful to make it more or less independent of the rest of the government. Without political independence, it's just too tempting for the government to direct the central bank towards undertaking inflationary policies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence, Friedman continues to be right: inflation is a monetary phenomenon.&lt;/p&gt;&#xA;" OwnerUserId="25" LastActivityDate="2014-11-27T07:41:36.623" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="346" PostTypeId="2" ParentId="342" CreationDate="2014-11-27T11:37:25.427" Score="5" Body="&lt;p&gt;You say that losses are reduced by investment, so we can write the (private) loss as a function of own investment and others' investment: $l^i(c^i,\mathbf{c}^{-i})$ with $l^i_1(c_i,,\mathbf{c}^{-i})&amp;lt;0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Player $i$'s utility is $U^i(c^i,\mathbf{c}^{-i})=-f(l^i(c^i,\mathbf{c}^{-i}))-c^i$ and he invests until the first-order condition is satisfied:&#xA;$$-f'[l^i(c^i,\mathbf{c}^{-i})]l^i_1(c^i,\mathbf{c}^{-i})-1=0.$$&#xA;The social loss is&#xA;$$\sum_i\left[-f_i(l^i(c^i,\mathbf{c}^{-i}))-c_i\right]$$&#xA;so that the first-order condition for the optimal $c^i$ is&#xA;$$-f'[l^i(c^i,\mathbf{c}^{-i})]l^i_1(c^i,\mathbf{c}^{-i})-\left[\sum_{j\neq i}f'[l^j(c^j,\mathbf{c}^{-j})]\frac{\partial}{\partial c^i}l^j(c^j,\mathbf{c}^{-j})\right]-1=0.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This now looks like a standard externality model, where the external benefit of $i$'s investment is&#xA;$$b^i(\mathbf{c}^{-i})=-\sum_{j\neq i}f'[l^j(c^j,\mathbf{c}^{-j})]\frac{\partial}{\partial c^i}l^j(c^j,\mathbf{c}^{-j})&amp;gt;0.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If $l^i(\cdot)$ are publicly known then the problem can easily be solved as by imposing upon $i$ a standard Pigouvian subsidy of $b^i(\mathbf{c}^{-i})$ per unit of investment. This means that $i$'s payoff (including the subsidy) when $j\neq i$ choose $\mathbf{c}^{-i}$ is&#xA;$$\underbrace{-f(l^i(c^i,\mathbf{c}^{-i}))-c^i}_{U^i(c^i,\mathbf{c}^{-i})}+b^i(\mathbf{c}^{-i})c^i.$$&#xA;A rational $i$ will maximise this subsidy-augmented payoff; his first order condition is&#xA;$$-f'[l^i(c^i,\mathbf{c}^{-i})]l^i_1(c^i,\mathbf{c}^{-i})\underbrace{-\left[\sum_{j\neq i}f'[l^j(c^j,\mathbf{c}^{-j})]\frac{\partial}{\partial c^i}l^j(c^j,c^{-j})\right]}_{b^i(\mathbf{c}^{-i})}-1=0,$$&#xA;which is exactly the same as the first-order condition used to maximise social welfare. It is therefore a Nash equilibrium for each $i$ to choose the socially efficient level of investment given that everyone else does the same.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;If the $l$s are heterogeneous and private information then things get more complicated because we have to get people to reveal their private information. Assume there is a benevolent central planner with the power to monitor agents' investments. One way to do this is then, indeed, to use a VCG mechanism. It would work like this: first, the central planner asks each agent to report their $l^i(\cdot)$. Write $\widetilde{l}^i$ for the reports. He then solves the first-order condition for the maximum of social welfare given the (possibly dishonest) reports. Thus, he maximises&#xA;$$\widetilde{W}(\widetilde{\mathbf{l}},\mathbf{c})=\sum_i\left[-f_i(\widetilde{l}^i(c^i,\mathbf{c}^{-i}))-c_i\right].$$&#xA;Next the planner instructs all players to invest up to the optimal level. In return, he promises to pay to each $i$ a subsidy equal to&#xA;$$S^i=\max_{\mathbf{c}^{-i}}\left[\widetilde{W}(\widetilde{\mathbf{l}},\mathbf{c})-(-f(\widetilde{l}^i(c^i,\mathbf{c}^{-i}))-c^i)|c^i\right]-\max_{\mathbf{c^{-i}}}\left[\widetilde{W}(\widetilde{\mathbf{l}},c^1,\ldots,c^{i-1},0,c^{i+1},\ldots,c^n)-(-f(\widetilde{l}^i(0,\mathbf{c}^{-i})))\right].$$&#xA;Woah, what is that ugly thing!? The first set of square brackets is the welfare everyone other than $i$ gets. The second is the welfare everyone other than $i$ would get if $i$ were to drop out of the market all together. Thus, the difference between the two is $i$'s positive externality on everyone else.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now let's look at $i$'s payoff:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U^i=S^i-f(\widetilde{l}^i(c^i,\mathbf{c}^{-i}))-c^i$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When evaluated at the equilibrium $\mathbf{c}^{-i}$ some terms cancel and we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U^i=\max_{\mathbf{c}^{-i}}\left[\widetilde{W}(\widetilde{\mathbf{l}},\mathbf{c})|c^i\right]-\max_{\mathbf{c}^{-i}}\left[\widetilde{W}(\widetilde{\mathbf{l}},c^1,\ldots,c^{i-1},0,c^{i+1},\ldots,c^n)-(-f(\widetilde{l}^i(0,\mathbf{c}^{-i})))\right]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The second square bracket here does not depend on $c^i$ (remember, it is the surplus if $i$ were to drop out of the market) so $i$'s problem collapses to choosing $c^i$ to maximise $\max_{\mathbf{c}^{-i}}\left[\widetilde{W}(\widetilde{\mathbf{l}},\mathbf{c})|c^i\right]$. Thus, $i$ has the right incentive to choose $c^i$ to maximise social welfare with respect to the reported $l$s.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What about the incentive to report $l$ honestly? The social planner is going to chose the optimal $c$s to maximise&#xA;$$\widetilde{W}(\widetilde{\mathbf{l}},\mathbf{c})=\left[\widetilde{W}(\widetilde{\mathbf{l}},\mathbf{c})-(-f(\widetilde{l}^i(c^i,\mathbf{c}^{-i}))-c^i)\right]+(-f(\widetilde{l}^i(c^i,\mathbf{c}^{-i}))-c^i)$$&#xA;(this is just $\widetilde{W}$ with $i$'s utility added on and then subtracted again). $i$ would like to maximise&#xA;$$U^i=S^i+(-f(l^i(c^i,\mathbf{c}^{-i}))-c^i)$$&#xA;which is&#xA;$$U^i=\underbrace{\left[\widetilde{W}(\widetilde{\mathbf{l}},\mathbf{c})-(-f(\widetilde{l}^i(c^i,\mathbf{c}^{-i}))-c^i)\right]+z}_{S^i}+(-f(l^i(c^i,\mathbf{c}^{-i}))-c^i)$$&#xA;where $z$ is the second term in $S^i$ (does not depend on $\widetilde{l}^i$). Thus we see that the social planner's choice will coincide with $i$'s optimum exactly when $l^i=\widetilde{l}^i$ so that $i$ has an incentive to report $l^i$ truthfully.&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2014-11-27T15:05:13.077" LastActivityDate="2014-11-27T15:05:13.077" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="347" PostTypeId="2" ParentId="344" CreationDate="2014-11-27T15:28:30.380" Score="5" Body="&lt;p&gt;The first thing to say about this question is that it is important to look in the right places for good econometric predictions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Physicists cannot reliably predict a wide-variety of quantum phenomena. Does this represent a failure of physics? No. Quite the contrary, we know (thanks to the work of a series of high profile physicists) that such phenomena are fundamentally &lt;em&gt;impossible&lt;/em&gt; to predict.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In economics, too, there is good reason to think that certain kinds of shock or major economic event are virtually impossible to predict. Suppose that it was possible to predict the timing of the next financial crisis/recession, and that the next such event is predicted to happen tomorrow. Armed with such a prediction, firms would begin to reduce their capacity in readiness for the coming contraction in demand, traders would start to sell shares in anticipation of the coming stock market crash, households would reduce their spending in readiness for the expected contraction in their income, etc. In other words, anticipating the predicted recession tomorrow causes rational actors to take all of the actions necessary to induce a recession today: earlier than forecast! Any ability to accurately forecast the timing of such events is, therefore, to a large extent self-defeating.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Once one looks at variables that can realistically be predicted, virtually every field of economics is littered with examples of well-performing econometric models making predictions that are, by social science standards, excellent .&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2014-11-27T16:18:29.600" LastActivityDate="2014-11-27T16:18:29.600" CommentCount="10" ContentLicense="CC BY-SA 3.0" />
  <row Id="348" PostTypeId="1" AcceptedAnswerId="349" CreationDate="2014-11-27T18:21:33.437" Score="10" ViewCount="6229" Body="&lt;p&gt;I know that the GDP (the value of all final goods and services produced within a country during a given period of time) is useful for determining the productivity of a nation, the size of the nation's economy, and the standard of living.  The GNP (the value of all final goods and services produced by individuals belonging to a particular nation, both domestic and abroad, during a given period of time), I believe, is used in very similar ways.&lt;br&gt;&#xA;Overall, however, it seems that the GDP gives similar information and is easier to calculate  than the GNP.  That being said, what is the point of calculating the GNP?  &lt;/p&gt;&#xA;" OwnerUserId="27" LastActivityDate="2018-03-26T13:41:11.767" Title="What is the purpose of measuring GNP?" Tags="&lt;gdp&gt;" AnswerCount="2" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="349" PostTypeId="2" ParentId="348" CreationDate="2014-11-27T20:47:22.343" Score="8" Body="&lt;p&gt;In 1991, when the Bureau of Economic Analysis made the switch from GNP to GDP as &quot;their primary measure of U.S. production,&quot; they indicated the continued importance of &lt;strong&gt;GNP&lt;/strong&gt; this way:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;GNP, however, continues to be a useful concept. Because it refers to the income available to U.S. residents as the result of their contribution to production, it is appropriate for analyses related to sources and uses of income. For example, saving rates are normally expressed as a percentage of income, and GNP is the more appropriate measure for this propose. In addition, GNP is better than GDP for analyses that focus on the availability of resources, such as the Nation’s ability to finance expenditures on education.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="29" LastActivityDate="2014-11-27T20:47:22.343" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="350" PostTypeId="2" ParentId="219" CreationDate="2014-11-27T23:11:04.317" Score="4" Body="&lt;p&gt;Introducing belief makes the concept of NE comparable to other refinement concepts such as PBE and sequential equilibrium, but the meaning of NE is not changed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The graduate micro textbook by Mas-Colell, Whinston, and Green (MWG) has a result for this&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;Proposition 9.C.1.&lt;/strong&gt; A strategy profile $\sigma$ is a Nash equilibrium of an extensive form game $\Gamma_E$ if and only if there&#xA;  exists a system of beliefs $\mu$ such that &lt;/p&gt;&#xA;  &#xA;  &lt;ol&gt;&#xA;  &lt;li&gt;The strategy profile $\sigma$ is sequentially rational given belief system $\mu$ &lt;em&gt;at all information sets $H$ such that&#xA;  $\Pr(H|\sigma)&amp;gt;0$&lt;/em&gt;.&lt;/li&gt;&#xA;  &lt;li&gt;The system of beliefs $\mu$ is derived from strategy profile $\sigma$ through Bayes' rule whenever possible.&lt;/li&gt;&#xA;  &lt;/ol&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Thus, the Prisoner's Dilemma example you give where players have beliefs opposite to what the opponent's actual strategy fails the second condition, which requires beliefs to be derived from Bayes' rule whenever possible. In fact, this is the mathematical equivalent of the second requirement of Osborne's definition: that a player's belief about the other players' actions is correct.&lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2014-11-27T23:11:04.317" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="351" PostTypeId="1" CreationDate="2014-11-27T23:42:37.443" Score="7" ViewCount="156" Body="&lt;p&gt;The question came up on &lt;a href=&quot;https://politics.stackexchange.com/questions/6372/will-basic-income-necessarily-be-a-government-initiative/6379?noredirect=1#comment21290_6379&quot;&gt;comments in Politics.SE&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Situation:&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;A government of a country sets up an unconditional &lt;a href=&quot;http://en.wikipedia.org/wiki/Basic_income&quot; rel=&quot;nofollow noreferrer&quot;&gt;Basic Income Guarantee&lt;/a&gt; (defined as monthly payments to EVERY resident, unconditionally, of a certain sum). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The sum can be  roughly estimated as &quot;only enough for a person to survive on&quot; as per Wiki definition.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The financing of the program is 100% entirely set up from &lt;strong&gt;external, foreign&lt;/strong&gt; sources - charity donation, or no-strings-attached aid from another government.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Is it a certainty that such an arrangement would be highly inflationary for recipient country, assuming that BIG total financing is a non-trivial compared to recieving country's GDP?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;All Wikipedia says on the topic is:&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;A common concern with Basic Income among the general public is the risk of inflation raising prices and thus undoing its effect. Economists Ed Dolan and Karl Wilderquist say that since the funding for basic income would come from reductions in public spending and/or taxation, there would be no inflationary effect.[citation needed]&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;... which seems to NOT address foreign-financed BIG at all.&lt;/p&gt;&#xA;" OwnerUserId="201" LastEditorUserId="-1" LastEditDate="2017-04-13T12:54:44.007" LastActivityDate="2015-11-19T00:34:36.913" Title="Is foreign-financed Basic Income Guarantee inflationary?" Tags="&lt;inflation&gt;&lt;basic-income&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="352" PostTypeId="2" ParentId="351" CreationDate="2014-11-28T00:09:22.037" Score="5" Body="&lt;p&gt;Assume that a big country decides that, from here on, it will distribute &lt;em&gt;for free&lt;/em&gt; 1 Kgr of bread to every citizen of a neighbor small country. The bread will be made, transported and distributed with big country resources (raw materials, labor, equipment, wheels, etc). Moreover, big country's representatives will sit around while local citizens eat it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Will this create inflation? It doesn't seem so.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now assume that instead, the big country gives for free to the local government electronic funds which the local government transfers to its citizens which in turn transfer it to the bakeries of the big country in order to buy bread and have it delivered (and being watched at, while they eat it). Will this create inflation? It doesn't seem so. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But assume now that the funds are given, always for free and always from the big country, and the citizens of the small country &lt;em&gt;are free to do what they want with them&lt;/em&gt;. Will everybody buy bread from abroad? Hmmm, not likely. They may want to go cut their hair with that money. &lt;em&gt;Lots&lt;/em&gt; of them. So they rush to all the barber shops and beauty parlors in the country, whose owners start to live this dreadful paradise of every supplier, to be drowning in demand and not have the capacity to fulfill it. And the barbers may think, &quot;hey these people are dying to have their hair cut &lt;em&gt;now&lt;/em&gt;. I have two hands and 16 hours a day -They're not enough for all these customers... what if I ask for a little more money per haircut in exchange, say, for a &lt;em&gt;reservation&lt;/em&gt;?&quot;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The moral here is that injecting resources into a country may result in excessive demand in local sectors where the productive capacity is not enough to cover the demand, leading to inflation. This is why the ever-sung mantra is &quot;&lt;em&gt;productive investments&lt;/em&gt;&quot; rather than &quot;&lt;em&gt;consumption transfers&lt;/em&gt;&quot;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If one extends the horizon of course, excessive demand will signal &quot;hey! you, productive resources over there! Come over &lt;em&gt;here&lt;/em&gt;! There is more demand than anyone can cover!&quot; -but relocating productive resources takes time, more time than it takes for prices to rise.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;(I apologize for the fairy-tale approach, it just came out and for once, I thought &quot;let MathJax lie in peace&quot;. But it is perfectly valid scientifically.)&lt;/em&gt;&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="251" LastEditDate="2014-11-29T05:22:46.827" LastActivityDate="2014-11-29T05:22:46.827" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="353" PostTypeId="2" ParentId="48" CreationDate="2014-11-28T07:42:14.960" Score="17" Body="&lt;p&gt;It should be pointed out that just because one encounters complex numbers does not mean one is doing &quot;complex analysis&quot;, e.g. complex eigenvalues, complex Borel measures, Fourier transforms, etc. where trivial properties of complex numbers come up. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Complex analysis is a very focused subject unlike, say, real analysis, which is eclectic by comparison. At its core are holomorphic functions of one or more complex variables. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This paper&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://papers.ssrn.com/sol3/papers.cfm?abstract_id=932693&quot;&gt;http://papers.ssrn.com/sol3/papers.cfm?abstract_id=932693&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;is a specific instance of an economic model where complex analysis is used. The model solution technique used there is the identification between holomorphic functions on the unit disk and their continuation on the boundary. (The resulting function space is called the &lt;em&gt;Hardy space&lt;/em&gt;, which contains the players' strategy spaces in the game being played in the paper.)  &lt;/p&gt;&#xA;" OwnerUserId="126" LastEditorUserId="126" LastEditDate="2014-11-28T07:57:43.653" LastActivityDate="2014-11-28T07:57:43.653" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="354" PostTypeId="2" ParentId="344" CreationDate="2014-11-28T10:14:29.483" Score="7" Body="&lt;p&gt;&lt;strong&gt;To (slightly) paraphrase the OP:&lt;/strong&gt;  &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;Economies&lt;/em&gt; &lt;strong&gt;(Human Bodies)&lt;/strong&gt; are extremely complex systems with many variables, not to mention the fact that they emerge from the&#xA;  interactions of complex&#xA;  &lt;em&gt;beings&lt;/em&gt; &lt;strong&gt;(factors)&lt;/strong&gt;. I agree that &lt;em&gt;economies&lt;/em&gt; &lt;strong&gt;(human bodies)&lt;/strong&gt; have certain underlying principles, but I remain skeptical of the&#xA;  overall value of &lt;em&gt;econometrics&lt;/em&gt; &lt;strong&gt;(medicine)&lt;/strong&gt; as a science.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;A truly useful &lt;em&gt;econometrics&lt;/em&gt; &lt;strong&gt;(medical science)&lt;/strong&gt; would be a&#xA;  valuable tool in predicting the future behavior of the &lt;em&gt;economy&lt;/em&gt;&#xA;  &lt;strong&gt;(human body)&lt;/strong&gt;, particularly in predicting shocks like &lt;em&gt;the recent financial crisis and Great Recession&lt;/em&gt; &lt;strong&gt;(severe illnesses or near&#xA;  death)&lt;/strong&gt;. But it did not happen.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;If &lt;em&gt;econometrics&lt;/em&gt; &lt;strong&gt;(medical science)&lt;/strong&gt; can't predict the future, how&#xA;  do we know it even effectively describes the past? What is the&#xA;  evidence that it has empirical value?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;em&gt;Comment:&lt;/em&gt;&lt;/strong&gt; &lt;strong&gt;There is a Present that needs to be dealt with&lt;/strong&gt;, just like with human bodies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;To (slightly) paraphrase Milton Friedman:&lt;/strong&gt;  &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;I don't care how I predict, as long as I predict adequately.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;em&gt;Comment:&lt;/em&gt;&lt;/strong&gt; But what do we do when our predictions are not adequate ?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Econometrics is based on Mathematical Statistics on the one hand, and on the assumptions made by Economic Theory on the other, which in turn are based on (imperfect) empirical observation, and are then led to their logical conclusions. In other words, Econometrics uses rigorous mathematics, induction, deduction and all the words dear to an epistemologist. Its epistemological foundations are solid as a rock.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What hangs on the balance is the &lt;em&gt;&lt;strong&gt;observed&lt;/strong&gt; validity of its abstractions&lt;/em&gt;. So the question is not whether Econometrics is a science, in the sense of whether it follows the scientific method or not. It does, fully.  The question is whether its results are useful.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But &lt;em&gt;what are the criteria in order to determine &quot;useful&quot;&lt;/em&gt;? Is it just adequate predictions? That would be a matter of disagreement between humans.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And &lt;em&gt;is it a matter of a &quot;yes/no&quot; answer&lt;/em&gt;?  Or is it a matter of &lt;em&gt;degree&lt;/em&gt; to which it is useful? In which case, we have to somehow &lt;em&gt;measure&lt;/em&gt; this degree (after we have agreed on the criteria), which brings us back to where we have to collect, analyze, assess, and debate the &lt;em&gt;evidence&lt;/em&gt;.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2014-11-28T10:14:29.483" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="355" PostTypeId="2" ParentId="344" CreationDate="2014-11-28T10:26:00.287" Score="3" Body="&lt;p&gt;Well, &lt;a href=&quot;http://blog.stackoverflow.com/2014/11/podcast-61-the-what-jays-done-wrong-podcast/?cb=1&quot;&gt;stackexchange administrators&lt;/a&gt; believe that comments should not be used for anything remotely like an answer, I am moving my long pair of comments from the day before to an answer (and since the OP upvoted them).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question really seems to be to be asking for epistemological arguments, yes?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Econometrics, I would argue, has been most successful in economic demography and economics of education, where adequately controlled data leads (all classes attended, job placement, sufficiently large samples to satisfy statistical assumptions, with detailed relevant background information, etc.) have led to meaningful conclusions. That is the place generally to look for successful econometric explanations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In general, however, it's rather difficult to be impressed by claims along the lines that econometrics replaces coherent theory or is somehow more primary in explanation of facts. Consider the well know arguments (due to the W. Clifford and E. Mach) against a theory of history and history as a source of theory: --- no well-constructed experiments =&gt; no valid &quot;law&quot; inferences. (Typically, we simply don't have accurate preferences data to control historical data with, etc., etc.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, without theory, demonstrated by other means, one cannot decide which measurements or facts are relevant for collection and testing of another theory. In the end, the reason a theory is confirmed by facts or discarded, depends partially on another theory. The experience would not speak for itself, although in some physics, where we can control for almost everything, it may. (Although physics is generally highly theoretical too.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A shear stress test is the same shear stress test for everybody. But whether a farmer who contributed food to feed Wellington's army contributed to the outcome of the battle of Waterloo (this a factual question) would covary in answer with whether theoretically the food he contributed (if he did and what is a factual question too) is relevant to the economic dynamics. Otherwise, we get spurious and purely coincidental correlations that appear significant.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, there are no constants in economics --- because agents learn and preferences change. To say: A explains the dependent variable quantity B with extent C, if true, may be true by historical coincidence, without a strict reason. For, to say that it always has relation C to B, involves the assumption that people don't learn (which is false).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So I would argue epistemologically that more mathematics is required in economics, not less, which per se means less econometrics, if we aim to explain experience.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;EDIT&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The underlying evidence for the premises of theoretical arguments are (a) physiological-psychological results of well constructed experiment. (Extinction of the orienting reflex, say, corresponds to Gossen's Law of Satiety.) Or (b) tautological thought experiment. Not historical experience, the basis of econometrics, which is a higher-order analysis. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;A if and only if B&quot; claims cannot be falsified by historical experience; that may only falsify &quot;A does not exist&quot; claims. Science, as C. Wolff is famous for defining, is the set of proven or provable claims (at least to the extent, as K. Popper argued, that all known alternatives are falsified). The purpose of science is explanation, for &lt;em&gt;systematic&lt;/em&gt; and justified prediction (not merely coincidental prediction).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A classical analysis paper on what is required for knowledge (the ability to systematically predict, not merely guess): &lt;a href=&quot;http://analysis.oxfordjournals.org/content/23/6.toc&quot; rel=&quot;nofollow&quot;&gt;&lt;strong&gt;Gettier E&lt;/strong&gt;, 1963, Is Justified True Belief Knowledge, &lt;em&gt;Analysis&lt;/em&gt; 23(6),121-123&lt;/a&gt;. An &lt;a href=&quot;http://www.ditext.com/gettier/gettier.html&quot; rel=&quot;nofollow&quot;&gt;open link&lt;/a&gt;. Medical guesses, as opposed to systematic physiological study, would be &lt;em&gt;pragmatic belief&lt;/em&gt;, as opposed to &lt;em&gt;science&lt;/em&gt;, in the language of Kant (Critique of Pure Reason, 2nd edition).&lt;/p&gt;&#xA;" OwnerDisplayName="user218" LastEditorDisplayName="user218" LastEditDate="2014-11-28T10:52:10.063" LastActivityDate="2014-11-28T10:52:10.063" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="356" PostTypeId="1" CreationDate="2014-11-28T15:58:41.510" Score="1" ViewCount="188" Body="&lt;p&gt;Following question is not formulated in technical language of economics, since I am not an economist and I am mostly interested in accessible answers. Yet, I think it goes deeply into theory of economy and I hope it is not off-topic. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In different regions of the world, costs of living are very different. For simplicity, let us consider two countries which use the same currency (for example euro). In country A, there are high salaries, high housing costs, high costs of services, while in country B, all these quantities are lower. If we compare how much haircuts or meals in restaurant can citizen of country A buy for his salary, the number might be similar to what citizen of country B can buy for his salary. The prices of commodities often do not differ that much, but they tend to differ as well. The quality of services is similar. My question is: &lt;em&gt;What is in the core of the difference in costs of living? What causes them?&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To clarify, I am not interested in answers like &quot;country A is more developed&quot;, or &quot;country A is more rich&quot;, since it doesn't explain the issue, it just gives it another name. I would like to understand the mechanism. I have two hypotheses, which might be the cause, but I am not able to judge which one is more true, or if they are correct at all.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Hypothesis 1:&lt;/em&gt; History. During creation of the common currency, there was some agreement how much the national currencies are worth. (Based on international trade and older history.) This set up the level of costs of living to some value. If there is not much trade and migration between country A and B, costs of living equilibrate only slowly.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Hypothesis 2:&lt;/em&gt; Transfer from other sectors. If there is some high technology and well paid industry in country A, employees of this industry can afford better services and can afford to offer more money for housing, which increases salaries of all people in services and possibly transfers to all sectors of society.&lt;/p&gt;&#xA;" OwnerUserId="251" LastActivityDate="2014-11-28T19:34:03.037" Title="What is the main cause of differences in the costs of living?" Tags="&lt;microeconomics&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="357" PostTypeId="2" ParentId="356" CreationDate="2014-11-28T18:43:55.890" Score="0" Body="&lt;p&gt;Let us say that the two countries start out exactly the same in all respects.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Option 1: Country A has higher income taxes than Country B&lt;/strong&gt;&lt;br&gt;&#xA;The government raises taxes in Country A.&lt;br&gt;&#xA;The real salaries would be lower for the workers in Country A than the workers in Country B.  To prevent workers from leaving and working in Country B, the companies would need to increase wages until the new wage minus the tax equals the old wage.  For this to be sustainable, however, the businesses would need to increase prices of goods (as well as fire people).  So, Country A has higher wages and higher prices than Country B.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Option 2: Country A prints more money than Country B&lt;/strong&gt;&lt;br&gt;&#xA;The government in Country A prints more money which causes inflation within the economy.&lt;br&gt;&#xA;The extra money spreads throughout the economy increasing prices.&lt;br&gt;&#xA;Businesses can afford to raise the salaries of their employees.&lt;br&gt;&#xA;So, Country A has higher wages and higher prices than Country B.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In both of these instances, the ratios between the salary and the cost of goods in both countries should remain relatively constant.  &lt;/p&gt;&#xA;" OwnerUserId="27" LastActivityDate="2014-11-28T18:43:55.890" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="358" PostTypeId="1" AcceptedAnswerId="400" CreationDate="2014-11-28T18:58:54.243" Score="7" ViewCount="710" Body="&lt;p&gt;I read an &lt;a href=&quot;http://www.foxnews.com/opinion/2014/10/21/real-reason-gas-prices-are-falling&quot; rel=&quot;nofollow noreferrer&quot;&gt;article&lt;/a&gt; about the recent fall of gas prices in the US claiming that the fall in gas prices was due to the expansion of fracking within the US.  The article said that, over the past few months, the oil harvested from fracking had come onto the market reducing the price of gas at road-vehicle refueling stations. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Obviously, I realize that an increase of supply with a constant demand will decrease prices.  But, is there any way to validate the article and conclude that the decrease in oil prices was due to fracking?  The article I read did not go into detail on how they reached their conclusion.  &lt;/p&gt;&#xA;" OwnerUserId="27" LastEditorUserId="8481" LastEditDate="2020-05-03T14:54:51.817" LastActivityDate="2020-05-03T14:54:51.817" Title="What is the impact of fracking on oil prices?" Tags="&lt;commodities&gt;&lt;price-level&gt;&lt;oil&gt;&lt;resource-economics&gt;" AnswerCount="3" CommentCount="6" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="359" PostTypeId="2" ParentId="356" CreationDate="2014-11-28T19:34:03.037" Score="2" Body="&lt;p&gt;The United States has had a common currency for over two hundred years.  The cost of living in rural Georgia has not equalized with that in New York City during that time.  If anything, they've diverged.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Land in New York City is more expensive than land in rural Georgia.  As a result, rent is more expensive in New York City.  This has a cascading effect.  Because residential rent is more expensive, wages need to be higher.  Because commercial rent and wages are higher, prices of products and services need to be higher.  Which makes wages need to be higher again.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that commodities will often have very similar prices even in these conditions.  This is especially true of things that can be ordered from outside the region.  Even something like a haircut might be similar just because of economies of scale.  In New York City, there are more people needing haircuts, so a moderate price may still produce more revenue.  And of course, there are places that charge much more for a haircut.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Theoretical differences can be caused by something as simple as preferences.  Or by history.  Or by a single industry.  Or by some combination of those.  For example, New York City has historically been a financial center and had the kind of night life that a large city can.  That's history, preference for an advanced night life, and a special industry.  The reasons in your hypothetical countries are also likely to be complicated and probably not entirely understood.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the end, the most we can say is that people are willing to pay more to live in New York City than rural Georgia.  If you went around and asked people in New York City, they might give a bunch of different reasons.  One person has always lived there.  Another came to work on Wall Street.  Another tried several places and just prefers it.  Someone else came to be on Broadway.  Unfortunately, it's unlikely that we can point to a single economic reason unless we pick something bland like, &quot;because they could.&quot;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given two actual countries, we might be able to do a little better.  That's why I've been picking on the New York City/rural Georgia comparison.  That at least gives something to discuss.  The big point that I wanted to make is that your assumption that historical differences would disappear is incorrect.  Historical differences could persist.  Prices don't have to equalize in a common currency area.  &lt;/p&gt;&#xA;" OwnerUserId="68" LastActivityDate="2014-11-28T19:34:03.037" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="360" PostTypeId="2" ParentId="344" CreationDate="2014-11-28T22:22:39.743" Score="3" Body="&lt;p&gt;@Alecos has already mentioned one of the two points I wanted to make, here is my extension.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Econometrics has no value per se, it always comes from the data we use it on. In microeconomics, with many studies that are natural experiments, quasi-experiments or where we are somewhat sure that we are not capturing endogeneity, we could estimate many interesting parameters. One of the standard references would be the many wage regressions that have delivered fairly consistent and reproducible estimates.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand, in Macroeconomics, we have &lt;em&gt;no&lt;/em&gt; hope of getting clean identification. &lt;em&gt;If&lt;/em&gt; you assume every country to be identical, all we have is a panel of around 60 panels and 30-50 periods of observations (mostly of aggregates), depending on what you want to observe. Moreover, these are often not perfectly measured, &lt;strong&gt;and&lt;/strong&gt; most importantly we cannot create random variation here. &#xA;Of course, when data fails, one can try to tweak the estimators, but even with partial identification as some VARs do it, we can only hope to get short-run identification, and still have to worry about endogeneity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Yes, I agree. Economists have not consistently and univocally warned us about the financial crises and other macroeconomic shocks. But this does not necessarily mean that the structure that macroeconomic models assume are bad, nor does falsify any other section in Economics. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is good news for Microeconomics: We can somewhat rely on Econometrics to reject and accept theory. It is bad news for Macro: We can almost never reject plausible models just looking at the data. &lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2014-11-28T22:22:39.743" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="361" PostTypeId="1" AcceptedAnswerId="399" CreationDate="2014-11-28T22:23:06.633" Score="25" ViewCount="32731" Body="&lt;p&gt;In most Microeconomics textbooks it is mentioned that the Constant Elasticity of Substitution (CES) production function,&#xA;$$Q=\gamma[a K^{-\rho} +(1-a) L^{-\rho}  ]^{-\frac{1}{\rho}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(where the elasticity of substitution is $\sigma = \frac 1{1+\rho},\rho &amp;gt; -1$), has as its limits both the Leontief production function and the Cobb-Douglas one. Specifically,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\lim_{\rho\to \infty}Q= \gamma \min \left \{K , L\right\}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\lim_{\rho\to 0}Q= \gamma K^aL^{1-a}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But they never provide the mathematical proof for these results.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can somebody please provide these proofs?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Moreover, the above CES function incorporates constant-returns-to-scale (homogeneity of degree one), due to the outside exponent being $-1/\rho$. If it was, say $-k/\rho$, then the degree of homogeneity would be $k$.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;How are the limiting results affected if $k\neq 1$?&lt;/p&gt;&#xA;" OwnerUserId="227" LastEditorUserId="61" LastEditDate="2014-11-30T21:16:04.320" LastActivityDate="2020-04-12T06:26:14.420" Title="How can I obtain Leontief and Cobb-Douglas production function from CES function?" Tags="&lt;mathematical-economics&gt;&lt;production-function&gt;&lt;cobb-douglas&gt;&lt;leontief&gt;" AnswerCount="2" CommentCount="12" FavoriteCount="21" ContentLicense="CC BY-SA 3.0" />
  <row Id="362" PostTypeId="2" ParentId="351" CreationDate="2014-11-29T05:22:19.020" Score="2" Body="&lt;h1&gt;Short Answer:&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;Probably. For some goods. I guess.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Longer Answer:&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Assuming two toy economies and three goods, increasing the supply of good in one economy relative to the supply of goods of the other two classes will decrease its trade value relative to them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Prior to the transfer (at $t_0$) they'd look like:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$E_1(t_0)=\{a_1x,\ b_1y,\ c_1z\}$$&#xA;$$E_2(t_0)=\{a_2x,\ b_2y,\ c_2z\}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;with basic prices of $x$ in $E_2$ as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$p_x(y)=\frac{a_2}{b_2},\ \ p_x(z)=\frac{a_2}{c_2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;in that it if we started with $a_1=4,$ $b_1=8,$ and $c_1=16,$ then one unit of $x$ would cost either $2y$ or $4z$ in $E_1$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;After the transfer (let's say of good $x$ of quantity $a_t$ at $t_1$, they'd look like:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$E_1(t_1)=\{(a_1-a_t)x,\ b_1y,\ c_1z\}$$&#xA;$$E_2(t_1)=\{(a_2+a_t)x,\ b_2y,\ c_2z\}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;consequently in the recipient country ($E_2$), the price of good $y$ in terms of $x$ would have declined to $\frac{b_2}{a_2+a_t}$. But, with a rational expectation of future gifts of good $x$, the value of $x$ in $E_2$ should also be diminished (or price of a good in terms of $x$ increased) by the NPV of the perpetuity times the probability of default at each payment, though we'll skip quantifying that for now (and merely assume it's positive and non-zero), and simply say that at $t_1$ in $E_2$ the price of $y$ in terms of $x$ is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$p_x(y)&amp;gt;\frac{a_2+a_t}{b_2}&amp;gt;\frac{a_2}{b_2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and the price of $z$ in terms of $x$ is now:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$p_x(z)&amp;gt;\frac{a_2+a_t}{c_2}&amp;gt;\frac{a_2}{c_2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So as long as $x$ is currency, under the classical regime, any increase in the quantity of $x$ will decrease it's relative value in terms of the other commodities in the economy.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Still Longer Answer&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;This simplistic explanation over looks a few key factors, and can be expanded on by including basic international trade.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If $z$ is a fungible, non-perishable, and easily transported, and both economies have relatively free trade, then we have another story.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In that case, members of $E_1$ and $E_2$ would presumably have access to all the $z$ in each other's markets, so the price of $z$ in terms of $x$ would be globally set, and remain unchanged, since in the aggregate, the supply of $x$ has remained unchanged.&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;An Elaboration on Regulatory Dynamics&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;Further complicating this, however, would be any regulatory trade inefficiencies, like tariffs. Let's say $E_1$ has a tariff on the export of $z$ of $q\%$, then prices of $z$ are likely to rise in both $E_1$ and $E_2$ as the supply of $x$ has decreased in $E_1$. Since the ratios of $z:y$ should also remain unchanged if $y$ is not traded in this example, then prices of $y$ in terms of $x$ would also have to increase.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One would assume that given that their relative scarcity ($\frac{b}{c}$) hasn't changed from $t_0$ to $t_1$ (before and after the transfer), the ratio of their prices hasn't, or more formally:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$p_{x_{t_0}}(y):p_{x_{t_0}}(z) = p_{x_{t_1}}(y):p_{x_{t_1}}(z)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;should hold for both $E_1$ and $E_2$&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Transportation and Storage Costs&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;Of course most consumer spending is on consumable goods (funny how they got that name), which are generally neither free to ship, undifferentiated, or truly non-perishable. In fact, in aid recipient nations, the percent of GDP that is spent on &lt;a href=&quot;http://data.worldbank.org/indicator/NE.CON.PETC.ZS&quot; rel=&quot;nofollow&quot;&gt;household consumption&lt;/a&gt; is often larger than the total GDP, precisely because of foreign aid, although speculative debt buying in developing markets has historically also been something of a problem (See Carbuagh International Economics [citation needed]).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What this means, is that there would be a price gradient sloping upward away from the border into $E_2$ and downward into the territory of $E_1$. The magnitude of the slope would of course be proportional to the ratio of $a_t$ to $a_1$ in $E_1$ and $a_2$ in $E_2$&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Ricardo and Comparative Advantage&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;Given the relative production rates of goods $y$ and $z$ in the different economies, the prices in real currency might fluctuate away from even the trade influenced prices, as the relative supply of these goods changed inside their respective economies. Further, the country most efficient at producing one or the other of these goods would probably specialize, thereby reducing the price of that good at home in terms of $x$, and increasing the price of the other.&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Inflation&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;Of course the Monetary Base can also increase in either economy, as represented by a growth in the quantity of $x$, further confounding the relationship of $a_t$ to the function $P_x()$. That is, assuming of course both countries are currency issuers as opposed to being part of a larger monetary bloc like the EU.&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Currency Issue&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;Of course if our toy economies are not issuers of their own currency, or are part of some more restrictive monetary bloc, they may not have the ability to control inflation as easily.&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Banking Regulation&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;Of course $MB$ represents only a fraction of $M_0$, which is itself only a fraction of the total Money Supply ($M$), which in our toy economies would be the respective values of $a$. Consequently, an injection of hard capital into $MB$ could have a wildly disproportionate affect on $M$. Since classic inflation is linked to $M$ through &lt;a href=&quot;http://en.wikipedia.org/wiki/Equation_of_exchange&quot; rel=&quot;nofollow&quot;&gt;the equation of exchange&lt;/a&gt;, or &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$M * V = P * Q$$&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Differing Local Preferences vis-a-vis Utility Functions and Environmental factors&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;We touched briefly on logistics earlier, but haven't really dealt with the fine-grained details of differing marginal utility. For simplicity's sake, we can use the example of ice. If we were to assume on of the goods (let's say $y$) were ice, and the recipient economy was a desert, and the donor a frozen tundra, then you could see how purchasing more ice than could be consumed between stimulus payments (in $x$) would not be beneficial. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This would mean the recipient economy would not likely see a large increase in the price of ice, unless there were adequate technology to mitigate the risk of spoilage, although that would still increase the cost of preservation, which would put downward pressure on demand.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, if the roles were reversed, and they could just leave it sitting outside, then there would be.&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Other confounding factors&lt;/h3&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://en.wikipedia.org/wiki/Velocity_of_money&quot; rel=&quot;nofollow&quot;&gt;The Velocity of Money&lt;/a&gt; in each economy (referenced above in the inflation equation).&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://en.wikipedia.org/wiki/Sin_tax&quot; rel=&quot;nofollow&quot;&gt;Taxation as a policy tool&lt;/a&gt; in encouraging or dissuading local consumption of specific goods.&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://www.investopedia.com/articles/forex/021114/exchange-rate-risk-economic-exposure.asp&quot; rel=&quot;nofollow&quot;&gt;Exchange Rate Risk&lt;/a&gt;, hindering international trade, especially if other currencies and economies exist.&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://en.wikipedia.org/wiki/Sovereign_credit_risk&quot; rel=&quot;nofollow&quot;&gt;Default Risk&lt;/a&gt;, limiting the NPV of the aid, since it might simply stop.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;And of course:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Economies usually have more than two goods and a currency.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="31" LastActivityDate="2014-11-29T05:22:19.020" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="363" PostTypeId="1" AcceptedAnswerId="365" CreationDate="2014-11-29T11:29:54.093" Score="8" ViewCount="1449" Body="&lt;p&gt;Two common drawbacks of Pigouvian subsidy mentioned in the literature are related to monetisation and measurement of social cost (Baumol) and reciprocity of social cost (Coase).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What alternatives to Pigouvian taxes are proposed in the literature? Have any of such alternative measures been implemented in practice?&lt;/p&gt;&#xA;" OwnerUserId="41" LastEditorUserId="41" LastEditDate="2014-11-29T15:49:49.763" LastActivityDate="2016-04-07T14:59:10.400" Title="Alternatives to Pigouvian tax" Tags="&lt;microeconomics&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="364" PostTypeId="1" CreationDate="2014-11-29T11:59:06.987" Score="4" ViewCount="60" Body="&lt;p&gt;Inspired by the answer to a different question I wondered:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can anyone think of a case study example, past or present, when capital gains are inflating adjusted before being taxed. I could imagine this making a lot of sense in high inflation currencies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If there is an example, what prompted the introduction and was it considered a success?&lt;/p&gt;&#xA;" OwnerUserId="119" LastActivityDate="2014-11-29T17:29:28.957" Title="Has any country attempted to inflation adjust capital gains before taxation?" Tags="&lt;inflation&gt;&lt;taxation&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="365" PostTypeId="2" ParentId="363" CreationDate="2014-11-29T12:38:43.350" Score="10" Body="&lt;p&gt;The most obvious answer is Coasian bargaining. What Coase showed in his famous &quot;&lt;a href=&quot;http://www.econ.ucsb.edu/~tedb/Courses/UCSBpf/readings/coase.pdf&quot;&gt;The Problem of Social Cost&lt;/a&gt;&quot; is that if there are no transaction costs and if utility is transferable then it suffices to allocate property rights—i.e. to give one party the right either to engage in the externality-causing activity or to prohibit it. The two parties will then engage in bargaining with the result that the socially efficient level of the activity is undertaken. The idea is that if an activity has private value $v$, but imposes external social cost $c$ on others then&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;if the private individual has the right to participate in the activity then others would collectively be willing to pay up to $c$ to persuade him not to. This offer will be accepted only if $c&amp;gt;v$ so the activity takes place only if it is optimal.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;if others have the right to prohibit the activity then the private individual would pay up to $v$ for them not to do so. This offer will be accepted only if $v&amp;gt;C$ so again the activity takes place only when it is optimal.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;This example assumes a negative externality, but the same approach works in the case of a positive externality. For example, if the private benefit is $v$ (which may be negative if the activity is very costly) but there is an external benefit of $u$ then third parties would collectively be willing to pay up to $u$ to encourage the private individual to engage in the activity. Thus, the activity takes place only if $v+u&amp;gt;0$---i.e. exactly when it is efficient.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This solution is an important element of &lt;a href=&quot;http://en.wikipedia.org/wiki/Carbon_emission_trading&quot;&gt;carbon trading&lt;/a&gt; schemes, which are one of the main ways that countries are attempting to tackle the problem of anthropogenic global warming.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Coasian solution has the attractive feature that it is relatively decentralised (there is no need for a central planner to accurately determine the size of the externality). Although this solution appears to work very well, it has a couple of important drawbacks:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;The zero transaction cost assumption is strong. This is particularly true when an activity imposes a small externality on a large number of people so that there is potentially the need for a large number of bilateral payments.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;If the externality falls on a large number of individuals then paying a subsity creates a public good problem: each individual could try to free ride and hope that a large enough subsidy is paid by others.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The Coasian solution therefore works best when either&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;the externality falls mostly on a single 'large' agent who can therefore engage in Coasian bargaining without the fear of free riding and only incurring transaction costs once.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;or &lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;2&quot;&gt;&#xA;&lt;li&gt;agents are able to use contracts, their government, or some other device to act collectively as if there were the single large agent in 1.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2014-11-30T08:40:49.137" LastActivityDate="2014-11-30T08:40:49.137" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="366" PostTypeId="2" ParentId="364" CreationDate="2014-11-29T17:29:28.957" Score="3" Body="&lt;p&gt;Mexico has a 3% per annum adjustment to basis on real property when calculating capital gains, though they still have a 5% floor on capital gains tax.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I cannot weigh in on the &quot;success&quot; of the program given everything else they're juggling.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://yucalandia.com/living-in-yucatan-mexico/capital-gains-taxes-on-mexican-properties/&quot; rel=&quot;nofollow&quot;&gt;Source&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="31" LastActivityDate="2014-11-29T17:29:28.957" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="368" PostTypeId="1" CreationDate="2014-11-30T05:01:12.707" Score="8" ViewCount="920" Body="&lt;p&gt;In the Jehle and Reny textbook (which I should add I have not read much of beyond a few sections of interest), a theorem stating that there is always a (mixed) Nash equilibrium in finite strategic form games is proven. The book assumes that all players have the same number of actions available, but it's not difficult to imagine how this might be extended to the case where this isn't true.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I'm interested in, however, is whether there is some extension of this to games, particularly those where there may be infinite choices. For instance, there's clearly no equilibrium in a game where a player wins by picking the highest number, but if we have, for instance, the same game, but where the number must be &lt;em&gt;within&lt;/em&gt; the interval $[0, 100]$ (or any interval that contains its upper bound), the best response functions &quot;converge&quot;. Similarly, I would also suspect that there need to be &quot;well-behaved&quot; cost and demand functions in competition models to get &quot;good&quot; results.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As such, I have two questions:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Is there any sort of well-defined setting in which a game with infinite strategy choices will have a Nash equilibrium?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;What would relevant reading for this be?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerDisplayName="user169" LastActivityDate="2014-12-02T13:37:52.587" Title="Extensions of Nash equilibria to games with infinite strategies" Tags="&lt;game-theory&gt;&lt;reference-request&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="369" PostTypeId="2" ParentId="368" CreationDate="2014-11-30T08:30:17.020" Score="9" Body="&lt;p&gt;Yes, there is such a setting. The result is that&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;If each player's strategy space is&lt;/p&gt;&#xA;  &#xA;  &lt;ul&gt;&#xA;  &lt;li&gt;&lt;p&gt;convex&lt;/p&gt;&lt;/li&gt;&#xA;  &lt;li&gt;&lt;p&gt;compact&lt;/p&gt;&lt;/li&gt;&#xA;  &lt;/ul&gt;&#xA;  &#xA;  &lt;p&gt;and if payoffs are continuous then there exists at least one Nash equilibrium (possibly in mixed strategies).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This holds even when the set of possible actions is uncountably infinite. If one additionally assumes that payoffs are quasiconcave then the best-response correspondence will be convex even when we restrict attention to pure strategies so that we are then guaranteed to have at least one equilibrium in pure strategies in such a game.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I believe the original reference here is &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;I.L. Glicksberg. &quot;&lt;a href=&quot;http://www.ams.org/journals/proc/1952-003-01/S0002-9939-1952-0046638-5/S0002-9939-1952-0046638-5.pdf&quot; rel=&quot;nofollow&quot;&gt;A further generalization of the Kakutani fixed&#xA;point theorem, with application to Nash equilibrium points&lt;/a&gt;.&quot;&#xA;&lt;em&gt;Proceedings of the American Mathematical Society&lt;/em&gt;, 3(1):170–174, 1952.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The treatment in Glicksberg's paper, though, does not  seem very accessible. A good starting reference is more likely to be section 1.3 of &lt;a href=&quot;http://mitpress.mit.edu/books/game-theory&quot; rel=&quot;nofollow&quot;&gt;Fudenberg &amp;amp; Tirole's book &quot;Game Theory&quot;&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2014-12-02T12:07:42.410" LastActivityDate="2014-12-02T12:07:42.410" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="370" PostTypeId="1" AcceptedAnswerId="376" CreationDate="2014-11-30T08:58:56.687" Score="9" ViewCount="1123" Body="&lt;p&gt;One thing I hear a lot is talk of decreasing marginal utility—the idea being that additional units of a good become progressively less attractive the more units of that good one has already.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, this always made me a little uncomfortable because of the ordinality of utility. If we take the trivial case of a world in which there is only one good with utility $u(x)$ satisfying $u'(x),\ u''(x)&amp;lt;0$ (decreasing marginal utility) then it is clearly possible to construct an increasing function $f$ such that $(f\circ u)$ is linear in $x$. Moreover, since utility functions are invariant to monotone-increasing transformations, $(f\circ u)$ is a utility function that represents the same preferences as $u$ (but now has constant marginal utility). Thus, in a world with a single good it seems that it never makes sense to talk about diminishing marginal utility.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is this: consider a market with $L&amp;gt;1$ goods. Is there a formal condition under which we can safely talk about decreasing marginal utility? That is to say, is there a class of preferences such that &lt;strong&gt;&lt;em&gt;every&lt;/em&gt;&lt;/strong&gt; valid utility representation, $u(\mathbf{x})$, has $u_{ii}(\mathbf{x})&amp;lt;0$ for some $i$?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Alternatively, is there some simple proof that, for $L&amp;gt;1$, the existence of a utility representation with $u_{ii}(\mathbf{x})&amp;lt;0$ for some $i$ necessarily implies that all utility representations have $u_{ii}(\mathbf{x})&amp;lt;0$?&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2014-11-30T18:44:09.777" Title="When can one safely talk about decreasing marginal utility?" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;theory&gt;&lt;consumer-theory&gt;&lt;utility&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="371" PostTypeId="2" ParentId="370" CreationDate="2014-11-30T13:19:56.213" Score="3" Body="&lt;p&gt;The fact that you ask about &quot;safety&quot; implies that you believe that some result is in jeopardy. This answer can be improved if you can specify a result that you might have in mind. Otherwise, take as an example the first and second welfare theorems. They do not rely on decreasing marginal utility.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you're concerned about results about preferences over uncertainty (ideas about risk aversion, etc.) then recall that although a standard utility function representation of preferences without uncertainty is unique up to a positive monotonic transformation, a Von Neumann-Morgenstern utility function representation of preferences over uncertainty is unique only up to positive &lt;em&gt;affine&lt;/em&gt; transformations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT: Extra Notes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The definition of a utility function is given as follows (from &lt;em&gt;Advanced Microeconomic Theory&lt;/em&gt; by Jehle and Reny, 2011):&#xA;&lt;img src=&quot;https://i.stack.imgur.com/iaCcu.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;" OwnerUserId="59" LastEditorUserId="59" LastEditDate="2014-11-30T15:21:59.683" LastActivityDate="2014-11-30T15:21:59.683" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="373" PostTypeId="1" CreationDate="2014-11-30T15:46:58.433" Score="8" ViewCount="465" Body="&lt;p&gt;I've been reading about the &lt;a href=&quot;http://en.wikipedia.org/wiki/Surreal_number&quot;&gt;surreal numbers&lt;/a&gt; out of curiosity. Though I don't totally understand them, I wonder why I don't see them used more often. Surreal numbers extend the real line to also include infinitesimal and infinite numbers (transfinite ordinals like $\omega$ which is identified with the cardinal number $\aleph_0$, itself the cardinality of $\mathbb{N}$).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Often, there are interesting preferences which can't be represented by a real-valued utility function. The obvious example is for lexicographic preferences. But why not have $u:\mathbb{R}^n\rightarrow S^*$, like $u(a,b)=a+\frac{b}{\omega}$?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lexicographic probability spaces are another place where these numbers could have application. If we want to differentiate between two probability zero events, let one have probability $\frac{1}{\omega}$ and the other $\frac{2}{\omega}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One might ask, sure you can use them, but what's the point? What do we gain? Fair question. I just kind of think the use would make things cleaner--making lexicographic prob spaces less of a tortured construction perhaps.&lt;/p&gt;&#xA;" OwnerUserId="14" LastActivityDate="2015-07-14T00:16:36.200" Title="Why not talk about utility functions on the surreal line when preferences are lexicographic, etc?" Tags="&lt;mathematical-economics&gt;" AnswerCount="2" CommentCount="7" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="374" PostTypeId="2" ParentId="351" CreationDate="2014-11-30T16:04:29.327" Score="5" Body="&lt;p&gt;If the foreign country sends goods, then demand for the home currency increases, so the price level falls.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the foreign country sends currency (which substitutes for the home currency), then demand for the home currency falls, so the price level rises.&lt;/p&gt;&#xA;" OwnerUserId="250" LastActivityDate="2014-11-30T16:04:29.327" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="375" PostTypeId="2" ParentId="358" CreationDate="2014-11-30T16:36:21.493" Score="2" Body="&lt;p&gt;&lt;i&gt;over the past few months, the oil harvested from fracking had come onto the market reducing the price of gas.&lt;/i&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Obviously, this makes no sense insofar as the oil harvested from fracking displaces oil harvested by other means.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Absent changes in supply or demand, the price of oil has to rise at the rate of interest.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The development of a new extraction technology is a one-shot increase in supply, which should lead to a one-shot fall in price, followed by a resumption of the ongoing increase at the rate of interest.  It can't (by itself) explain an ongoing fall in price.&lt;/p&gt;&#xA;" OwnerUserId="250" LastActivityDate="2014-11-30T16:36:21.493" CommentCount="13" ContentLicense="CC BY-SA 3.0" />
  <row Id="376" PostTypeId="2" ParentId="370" CreationDate="2014-11-30T17:20:20.197" Score="8" Body="&lt;p&gt;The concept of &quot;marginal utility&quot; (and therefore of decreasing such) has meaning only in the context of &lt;em&gt;cardinal&lt;/em&gt; utility.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume we have an ordinal utility index $u()$, on a single good, and three quantities of this good, $q_1&amp;lt;q_2&amp;lt;q_3$, with $q_2-q_1 = q_3-q_2$.&lt;br&gt;&#xA;Preferences are well behaved and satisfy the benchmark regularity conditions, so&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$u(q_1)&amp;lt; u(q_2) &amp;lt; u(q_3)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is &lt;em&gt;ordinal&lt;/em&gt; utility. Only the ranking is meaningful, not the distances. So the distances $u(q_2) - u(q_1)$ and $u(q_3) - u(q_2)$ &lt;em&gt;have no behavioral/economic interpretation&lt;/em&gt;. If they don't, neither do the ratios&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {u(q_2) - u(q_1)}{q_2-q_1},\;\; \frac {u(q_3) - u(q_2)}{q_3-q_2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But the limits of these ratios as the denominator goes to zero would be the definition of the derivative of the function $u()$. So the derivative is devoid of economic/behavioral interpretation, and so comparing two instances of the derivative function would not produce any meaningful content.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course this does not mean that the derivatives of $u()$ do not exist as mathematical concepts. They can exist, if $u()$ satisfies the conditions needed for differentiability. So one can ask the purely mathematical question &quot;under which condition the  function representing ordinal utility has &lt;strong&gt;strictly negative second derivative&lt;/strong&gt;&quot; (or negative definite Hessian for the multivariate case), trying not to interpret it as &quot;decreasing marginal utility&quot; with economic/behavioral content, but as just a mathematical property that may play some role in the model he examines.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In such a case, we know that:&lt;br&gt;&#xA;1) If preferences are convex, the utility index is a quasi-concave function&lt;br&gt;&#xA;2) If preferences are strictly convex, the utility index is strictly quasi-concave&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But quasi-concavity is a &lt;em&gt;different kind of property&lt;/em&gt; than concavity: quasi-concavity is an &quot;ordinal&quot; property in the sense that it is preserved under an increasing transformation of the function.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand, &lt;strong&gt;concavity is a &quot;cardinal&quot; property, in the sense that it won't necessarily be preserved under an increasing transformation.&lt;/strong&gt;&lt;br&gt;&#xA;Consider what this implies: assume that we find a characterization of preferences such that they can be represented by &lt;em&gt;a&lt;/em&gt; utility index which is concave as a function. Then we can find and implement some increasing transformation of this utility index, that will eliminate the concavity property.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2014-11-30T18:22:37.877" LastActivityDate="2014-11-30T18:22:37.877" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="377" PostTypeId="2" ParentId="373" CreationDate="2014-11-30T18:35:47.733" Score="11" Body="&lt;p&gt;The first thing that comes to mind is that some economic models have more than one agent.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If one agent has a utility function with values in ${\mathbb R}$, then two agents have a pair of utility functions with joint values in ${\mathbb R}^2$.  If one agent has a utility function with values in $S^*$, then two agents have a pair of utility functions with joint values in ...what?  We can't just form a product of $S^*$ with itself, because $S^*$ is not a set.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are probably ways around these difficulties, but they're going to be clumsy and they're going to require lots of mucking around with foundations that are almost surely not interesting to most economists.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Set theory lets us form unions, products, coproducts and power sets.  It lets us talk about subsets and supersets without having to worry about whether they exist.  Economists use these constructions all the time without stopping to think about them.  I doubt that we want to switch to a new foundation that forces us to think about them constantly.&lt;/p&gt;&#xA;" OwnerUserId="250" LastActivityDate="2014-11-30T18:35:47.733" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="378" PostTypeId="2" ParentId="363" CreationDate="2014-11-30T21:18:29.050" Score="5" Body="&lt;p&gt;An alternative which has a rather bad reputation among economists but has been studied in the literature and is definitely implemented is the use of &lt;strong&gt;standards&lt;/strong&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In practice, some examples are :&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Bans on freon or DDT.&lt;/li&gt;&#xA;&lt;li&gt;Bans on lead in gasoline.&lt;/li&gt;&#xA;&lt;li&gt;Obligations for cars to have catalytic converters&lt;/li&gt;&#xA;&lt;li&gt;...&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;In the context of imperfect competition, the effect of standards is studied and compared rather systematically to other policies by &lt;a href=&quot;http://www.econstor.eu/bitstream/10419/22000/1/EWP-2005-12.pdf&quot; rel=&quot;nofollow&quot;&gt;Requate, T. (2007). Environmental policy under imperfect competition. In Tietenberg, T. and Folmer, H., editors, The International Yearbook Of Environmental And Resource Economics 2006/2007. A Survey of Current Issues, pages 120–207. Edward Elgar Publishing.&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The main advantage of standards is that they are (relatively) easy and cheap to implement. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some disadvantages are :&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;They are rarely flexible : they remain fixed for long periods of time, waiting for the next standards to be issued, and do not adapt smoothly to changing technologies, preferences or market environments.&lt;/li&gt;&#xA;&lt;li&gt;Once the standard is met :&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;There are no more incentives to adopt avoidance technologies.&lt;/li&gt;&#xA;&lt;li&gt;There are no more incentives to engage in mutually beneficial trades.&lt;/li&gt;&#xA;&lt;/ul&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;A disadvantage shared by both standards and Pigovian taxation is that in situations of imperfect information (about agent's preferences, firms' production technologies,...), it is difficult to find the optimal standard/tax. &lt;/p&gt;&#xA;" OwnerUserId="38" LastEditorUserId="38" LastEditDate="2016-04-07T14:59:10.400" LastActivityDate="2016-04-07T14:59:10.400" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="379" PostTypeId="1" CreationDate="2014-11-30T23:00:55.787" Score="1" ViewCount="517" Body="&lt;p&gt;How do I recover the cost function from the profit function?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose I have $$ \pi(p, w_1, w_2) = p^3 \cdot w_1 \cdot w_2 $$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How do I get the cost function?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Using Hotelling's lemma I get the supply function: $$ y_s(p) = \frac{\partial  \pi(p, w_1, w_2)}{\partial p} = 3 p^2 \cdot w_1 \cdot w_2$$ and the input demands:&#xA;$$z_1(p, w)= - \frac{\partial  \pi(p, w_1, w_2)}{\partial w_l} = - p^3 w_2 $$ and $$z_2(p, w)= - \frac{\partial  \pi(p, w_1, w_2)}{\partial w_2} = - p^3 w_1 $$but what is the next step?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that the functional forms are hypothetical and highly probable to be invalid.&lt;/p&gt;&#xA;" OwnerUserId="246" LastActivityDate="2014-12-01T20:51:14.480" Title="Recover cost function from profit function" Tags="&lt;microeconomics&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="380" PostTypeId="1" CreationDate="2014-11-30T23:06:06.803" Score="12" ViewCount="397" Body="&lt;p&gt;&lt;strong&gt;Main question:&lt;/strong&gt; I've been reading about communication games a lot, and I'm wondering if there are good criteria to select between two separating-ish equilibria. I think of a separating equilibria as coordination equilibria among types. So, if we grant that these types successfully coordinate, why wouldn't we grant that they coordinate to a sender-optimal (in a Pareto efficient among senders sense) equilibrium? That is, suppose there is a single sequential equilibrium where all senders do strictly better than in the remaining equilibria. What arguments are there for selecting this equilibrium?&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Consider the following communication game. Receiver payoffs are the second number in the pair. There are six types of senders, with payoffs given as the first element of the pairs. I will show there is a pooling equilibrium and at least two partial separations. I'm wondering what kind of techniques can be used to argue in favor of either separating equilibrium. One is sender-optimal and the other is receiver-optimal.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\begin{array}{l*{6}{c}r}&#xA;             &amp;amp; Action \;B &amp;amp; Action \;L &amp;amp; Action\;R&amp;amp; Action\:LL &amp;amp; Action\;RR &amp;amp; \\&#xA;\hline&#xA;type\;B &amp;amp; (0,3) &amp;amp; (1,2) &amp;amp; (1,2) &amp;amp; (2,1)&amp;amp; (2,1) \\&#xA;type\;L &amp;amp; (0,2) &amp;amp; (1,3) &amp;amp; (1,2) &amp;amp; (2,0) &amp;amp; (2,2.25) \\&#xA;type\;R &amp;amp; (0,2) &amp;amp; (1,2) &amp;amp; (1,3) &amp;amp; (2,2.25)  &amp;amp; (2,0) \\&#xA;type\;LL &amp;amp; (0,1) &amp;amp; (1,2) &amp;amp; (1,0) &amp;amp; (2,3) &amp;amp; (2,1) \\&#xA;type\;RR &amp;amp; (0,1) &amp;amp; (1,0) &amp;amp; (1,2) &amp;amp; (2,1) &amp;amp; (2,3)  \\&#xA;type\;H &amp;amp; (0,0) &amp;amp; (1,0.9) &amp;amp; (1,0.9) &amp;amp; (2,3.1)  &amp;amp; (2,3.1)  \\&#xA;\end{array}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let their be a prior distribution on types $\pi$ where $$\pi(B)=.3,\pi(L)=\pi(R)=.2, \pi(LL)=\pi(RR)=.1, \pi(H)=.1.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a pooling equilibrium, the receiver will take action $B$ for expected payoff $EU_2(B) = .3(3) + .4(2) + .2(1)=1.9$, edging out $EU_2(L)= .3(2) + .2(3) + .2(2) + .1(2) + .1(.9)=1.89$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, there are partially separating equilibria. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Separation 1&lt;/strong&gt;&#xA;Let types $L,LL$ &quot;ask&quot; for action $L$, types $R$ and $RR$ &quot;ask&quot; for $R$ and then $B$ and $H$ mix 50/50 between the two signals. Let the messages be $l$ and $r$ with the natural interpretation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So $EU_2(L\mid l)\Pr(l)=.15(2) + .2(3) + .1(2) + .025(1)=1.125=EU_2(R\mid r)\Pr(r)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the receiver earns $2.25$ in expectation. The senders are better off too.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Separation 2&lt;/strong&gt;&#xA;But let's consider another kind of separation. Types $R$ and $LL$ always send a message $ll$, &quot;asking&quot; for action $LL$. Types $L$ and $RR$ send $rr$, asking for action $RR$. Again, $B$ and $H$ randomize evenly. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, $EU_2(RR\mid rr)\Pr(rr)= .15(1) + .2(2.25) + .1(3) + .025(3.1) = .9775=EU_2(LL\mid ll)\Pr(ll).$ The expected payoff is 1.955 because each message is received half the time. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Responding to $rr$ with action $R$ and  $ll$ with $L$ yields a lower payoff of, so the separation, being jumbled with types $L$ and $RR$ pooling, isn't useful for taking the &quot;correct&quot; actions $L$ or $R$ as the receiver would like.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems to me that this last equilibrium is more robust. There are two separating equilibrium, which require coordination. Granting that senders can coordinate, why wouldn't they coordinate in the sender-optimal way? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm wondering if any methods exist that would refine the equilibrium set to exclude the receiver-optimal separation. The first pooling equilibrium might be said not to be neologism proof. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Neologism proofness is defined in section 3 of &lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/002205319190040B#&quot;&gt;this&lt;/a&gt; paper. Roughly, there must not be an additional (off path) message such, that if observed, the receiver could form beliefs and a rational strategy based on those beliefs such that all who sent the message are strictly better off relative to the proposed equilibrium and those who didn't weakly prefer the proposed equilibrium outcome. I'm guessing that won't work here, because you have to consider &lt;em&gt;two&lt;/em&gt; neologisms ($ll$ and $rr$) at once to eliminate separation 1, which requires collusion essentially. But are there any other ideas?&lt;/p&gt;&#xA;" OwnerUserId="14" LastEditorUserId="11590" LastEditDate="2019-05-19T16:54:34.257" LastActivityDate="2019-05-19T16:54:34.257" Title="Can I refine the set of equilibria in a signaling game to the sender-optimal outcome?" Tags="&lt;game-theory&gt;&lt;signaling&gt;" AnswerCount="0" CommentCount="7" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="382" PostTypeId="1" CreationDate="2014-12-01T03:46:28.813" Score="7" ViewCount="107" Body="&lt;p&gt;Why are the way banks are established and spread out in Canada and US so different?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Canada:&#xA;There are only six major banks and most products offered are very competitive. Its almost unusual to hear or see any other minor or regional bank.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;US:&#xA;Literally, there are thousands of banks. Although there are few big ones, like BoA, Wells Fargo, Chase, there are thousands of regional banks, even down to county levels. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What are the advantages of having multiple individual banks? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why did US encourage this type of proliferation of banks while it did not happen in Canada? &lt;/p&gt;&#xA;" OwnerUserId="162" LastEditorUserId="123" LastEditDate="2014-12-01T14:40:27.397" LastActivityDate="2014-12-01T19:43:33.300" Title="Banking System, Canada &amp; US" Tags="&lt;banking&gt;&lt;economic-growth&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="383" PostTypeId="1" AcceptedAnswerId="385" CreationDate="2014-12-01T12:05:01.823" Score="4" ViewCount="11635" Body="&lt;p&gt;In the classic formula for GDP, i.e., GDP=C+I+G+X-M, where are remittances accounted for? With remittances as high as third of GDP for developing countries, I wonder how they are not explicit in this equation.&lt;/p&gt;&#xA;" OwnerUserId="41" LastActivityDate="2021-04-10T14:54:02.820" Title="Where do remittances come into play in the formula for GDP?" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="385" PostTypeId="2" ParentId="383" CreationDate="2014-12-01T12:59:40.983" Score="4" Body="&lt;p&gt;Gross domestic product (GDP) is the total value of output in an economy, this can be measured only by Output using this formula.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This method uses GDP = C + I + G + (X-M) where&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;C: Consumption (Household spending)&#xA;I: Investments &#xA;G: Government spending &#xA;X: Exports from an economy &#xA;M: Imports into an economy&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;The remittances that you mention about are not made against any services.  While remittances can be a source of GDP growth by increasing household consumption, it does not directly add to GDP, it does affect GNP though.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a clear comparison of these two terms GDP and GNP use &lt;a href=&quot;http://www.diffen.com/difference/GDP_vs_GNP&quot; rel=&quot;nofollow&quot;&gt;this&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Alternatively you can use incomes to calculate GDP, however note that even in that method you add only those incomes that are made from the production of goods and services are included and not transfers&lt;/p&gt;&#xA;" OwnerUserId="123" LastEditorUserId="123" LastEditDate="2014-12-01T13:20:15.657" LastActivityDate="2014-12-01T13:20:15.657" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="387" PostTypeId="2" ParentId="379" CreationDate="2014-12-01T15:51:20.703" Score="4" Body="&lt;p&gt;I suggest that you ask yourself the following questions:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;If $\tilde{z}(y;w)$ is the input demand from cost minimization, can there be any difference between $\tilde{z}\big(y(p);w\big) \equiv \hat{z} (p;w)$ and $z(p;w)$ from Hotelling's lemma and profit maximization?&lt;/li&gt;&#xA;&lt;li&gt;Even if $\tilde{z}(y;w)$ is a correspondance rather than a function, is there any difference between $ p \hat{z} (p;w) = p \tilde{z}\big(y(p);w\big) = c(y;w) $ and $p z(p;w)$ (where the later are dot products).&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Hope this helps,&lt;/p&gt;&#xA;" OwnerUserId="38" LastActivityDate="2014-12-01T15:51:20.703" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="388" PostTypeId="2" ParentId="73" CreationDate="2014-12-01T16:38:03.357" Score="2" Body="&lt;p&gt;If I understand the question correctly, I believe the neatest way to put it is to simply call you solution concept &quot;individual rationality&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Individual rationality can easily be seen as a cooperative game theory solution concept in its own right. I am not aware of any other name for a solution concept consisting only of an individual rationality requirement.&lt;/p&gt;&#xA;" OwnerUserId="38" LastEditorUserId="38" LastEditDate="2014-12-01T17:12:37.860" LastActivityDate="2014-12-01T17:12:37.860" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="389" PostTypeId="2" ParentId="382" CreationDate="2014-12-01T19:22:19.900" Score="6" Body="&lt;p&gt;Limiting the scope to the question of why the US encouraged the proliferation of many banks, one important contributor was the 1927 McFadden act, which placed significant restrictions on interstate banking (rolled back through state laws in the 1980s-90s, and eventually substantially repealed by the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reasons for this were primarily concerns about concentration in the financial services sector, and concerns about the ability of state banking supervisors to monitor across state lines the activities of institutions for which they were responsible.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The trend in the US since at least the 1980s has indeed been towards consolidation: &lt;a href=&quot;http://research.stlouisfed.org/fred2/series/FREQ&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://research.stlouisfed.org/fred2/series/FREQ&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/7chq3.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally a (dated, but good) review of the effects of branch banking reform is available from the FRBNY: &lt;a href=&quot;http://www.newyorkfed.org/research/current_issues/ci1-2.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.newyorkfed.org/research/current_issues/ci1-2.pdf&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="264" LastEditorUserId="44" LastEditDate="2014-12-01T19:43:33.300" LastActivityDate="2014-12-01T19:43:33.300" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="390" PostTypeId="2" ParentId="344" CreationDate="2014-12-01T19:43:45.337" Score="3" Body="&lt;p&gt;Econometrics is nothing more than a fancy name for statistics. Namely, how do we apply statistics and economic theory together to get a clearer picture of reality?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is statistics scientific? It can be when used properly. Statistics is merely a tool of science, in exactly the same way that econometrics is a tool of general economics. It is a tool that can be used for good science and for shit science.&lt;/p&gt;&#xA;" OwnerUserId="13" LastActivityDate="2014-12-01T19:43:45.337" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="391" PostTypeId="2" ParentId="336" CreationDate="2014-12-01T20:07:47.633" Score="2" Body="&lt;p&gt;It obviously depends on who you ask, but many mainstream macroeconomists have basically dismissed the monetarist argument as incorrect and inconsistent with general economic theory. Here's a good break down of their arguments: &lt;a href=&quot;http://www.forbes.com/sites/johntharvey/2011/05/14/money-growth-does-not-cause-inflation/&quot; rel=&quot;nofollow&quot;&gt;http://www.forbes.com/sites/johntharvey/2011/05/14/money-growth-does-not-cause-inflation/&lt;/a&gt; (For the record, this is very close to what Krugman has argued as well, although his arguments have focused more on the ZLB issue as the primary reason why QE did nothing.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But the easiest retort to Friedman's most famous work is that the money supply will never outpace the demand for money, simply because such a mechanism for forcing cash into the system does not exist. There are many reasons why banks and businesses might want to hold more cash. Uncertainty, expectations of deflation, &lt;em&gt;rising prices&lt;/em&gt;...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In short, the idea that increasing the money supply causes inflation is based on some very strong assumptions (like a fixed velocity of money, the speed at which GDP will react to changes in the money supply, that there is some &quot;natural&quot; rate of GDP growth instead of it being completely endogenous, etc) which are probably not all true.&lt;/p&gt;&#xA;" OwnerUserId="13" LastActivityDate="2014-12-01T20:07:47.633" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="392" PostTypeId="2" ParentId="226" CreationDate="2014-12-01T20:22:45.647" Score="2" Body="&lt;p&gt;In terms of actually getting it passed as legislation, the only evaluation that has any real significance is the one done by the CBO, as that's the official scorecard for Congress and debates that come up on the floor. I have no idea what the specific models they use are called, but I do know they are very linear and simplistic (by design) compared to other mainstream models. It's definitely bound to be a fruitful search if you look there.&lt;/p&gt;&#xA;" OwnerUserId="13" LastActivityDate="2014-12-01T20:22:45.647" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="393" PostTypeId="2" ParentId="379" CreationDate="2014-12-01T20:51:14.480" Score="0" Body="&lt;p&gt;If you know quantity as a function of prices, then you know revenue as a function of prices.  If you also know profits, then cost are straightforwardly the difference.&lt;/p&gt;&#xA;" OwnerUserId="268" LastActivityDate="2014-12-01T20:51:14.480" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="396" PostTypeId="1" CreationDate="2014-12-01T21:29:01.293" Score="6" ViewCount="930" Body="&lt;p&gt;For instance, Cagetti (2003) estimates ρ &gt; 2 by targeting the median wealth of households,&#xA;Gourinchas and Parker (2002) find ρ &amp;lt; 2 by targeting the mean consumption of households,&#xA;Chetty (2006), using the effects of wage changes on labor supply, finds that ρ &amp;lt; 2.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Marginal utility of consumption is decreasing very fast when ρ &gt; 2, still you can find in macro or finance even ρ = 10. In experimental or in labor ρ is close to 0.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there any bound on this coefficient?&lt;/p&gt;&#xA;" OwnerUserId="271" LastActivityDate="2016-10-01T21:37:53.247" Title="Is risk aversion bounded in CRRA utility?" Tags="&lt;utility&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="397" PostTypeId="2" ParentId="396" CreationDate="2014-12-01T21:51:11.717" Score="4" Body="&lt;p&gt;A practical or mathematical bound? For a practical bound, people have argued that very large values of $\rho$ are impossible to reconcile with non-financial risk taking. Indeed, some values of $\rho$ may not be compatible with crossing the street. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Perhaps that's a bit glib, but consider &lt;a href=&quot;http://web.utk.edu/~wneilson/EcLett-Calibration.pdf&quot; rel=&quot;nofollow&quot;&gt;Neilson and Winter (2001)&lt;/a&gt; which find that CRRA utility and observed wage premia for dangerous jobs are compatible with values of $\rho$ such that  $0&amp;lt;\rho&amp;lt;&amp;lt;1$. They then point out that if $\rho$ were very very large and the model properly specified then the dangerous job wage premium would also be large or alternatively (and implausibly) that people place a very, very low value on their own lives (like $3,000). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Generally speaking, data and models implying very high values of $\rho$ like a basic equity premium setup and the relative volatility of equity returns and consumption) are often taken as signs of model miss-specification instead of alternative measures of risk preferences. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;While we can't talk about globally infinite risk aversion, we can consider what happens as If you take the limit $\rho\rightarrow\infty$ around a particular value of wealth $W_0$. As it goes to infinity you get a step-function utility function with $U(W) = -\infty, W &amp;lt; W_0$ and $U(W) = C, W \ge W_0$. &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2014-12-02T17:49:45.703" LastActivityDate="2014-12-02T17:49:45.703" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="398" PostTypeId="2" ParentId="18" CreationDate="2014-12-01T22:28:56.137" Score="3" Body="&lt;p&gt;I think the question wishes you to refer to the so called &quot;Bertrand Paradox&quot; - the term Bertrand competition refers to price competition (i.e. firms compete by choosing prices, as opposed e.g. to quantities in so called &quot;Cournot competition&quot;). In the simplest case, with constant marginal costs equal to c, say, a single firm will set the monopoly price. Now if you consider the case with two firms competing on prices, with the same constant marginal costs and under the assumption that prices are measured on the real line, it is easy to show that there is a unique Nash equilibrium in which both firms (whose strategy consists in choosing a price) will charge a price equal to their marginal cost - that is, by adding a single firm you go from monopoly pricing to marginal cost pricing. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is the simplest answer to your question that I can think of - now confess you were trying to solve an undergraduate assignment.... ;-)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;p.s.&#xA;Osborne's ug Game Theory textbook is very clear on this, if you need to catch up with self study.&lt;/p&gt;&#xA;" OwnerUserId="273" LastEditorUserId="273" LastEditDate="2014-12-02T08:43:49.413" LastActivityDate="2014-12-02T08:43:49.413" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="399" PostTypeId="2" ParentId="361" CreationDate="2014-12-01T22:32:19.527" Score="24" Body="&lt;p&gt;The proofs I will present are based on techniques relevant to the fact that the CES production function has the form of a &lt;a href=&quot;http://en.wikipedia.org/wiki/Generalized_mean&quot; rel=&quot;noreferrer&quot;&gt;&lt;em&gt;generalized weighted mean&lt;/em&gt;&lt;/a&gt;.&lt;br&gt;&#xA;This was used in the original paper where the CES function was introduced, &lt;a href=&quot;http://www.jstor.org/stable/1927286&quot; rel=&quot;noreferrer&quot;&gt;Arrow, K. J., Chenery, H. B., Minhas, B. S., &amp;amp; Solow, R. M. (1961). Capital-labor substitution and economic efficiency. The Review of Economics and Statistics, 225-250.&lt;/a&gt;&lt;br&gt;&#xA;The authors there referred their readers to the book &lt;a href=&quot;http://books.google.gr/books/about/Inequalities.html?id=t1RCSP8YKt8C&amp;amp;redir_esc=y&quot; rel=&quot;noreferrer&quot;&gt;Hardy, G. H., Littlewood, J. E., &amp;amp; Pólya, G. (1952). Inequalities &lt;/a&gt;, chapter $2 $.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We consider the general case&#xA;$$Q_k=\gamma[a K^{-\rho} +(1-a) L^{-\rho}  ]^{-\frac{k}{\rho}},\;\; k&amp;gt;0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Rightarrow \gamma^{-1}Q_k = \frac 1{[a (1/K^{\rho}) +(1-a) (1/L^{\rho})  ]^{\frac{k}{\rho}}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;1) Limit when $\rho \rightarrow \infty$&lt;/strong&gt;&lt;br&gt;&#xA;Since we are interested in the limit when $\rho\rightarrow \infty$ we can ignore the interval for which $\rho \leq0$, and treat $\rho$ as strictly positive.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Without loss of generality, assume $K\geq L \Rightarrow (1/K^{\rho})\leq (1/L^{\rho})$. We also have $K, L &amp;gt;0$. Then we verify that the following inequality holds:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$(1-a)^{k/\rho}(1/L^{k})\leq  \gamma Q_k^{-1} \leq (1/L^{k}) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies (1-a)^{k/\rho}(1/L^{k})\leq  [a (1/K^{\rho}) +(1-a) (1/L^{\rho})  ]^{\frac{k}{\rho}} \leq (1/L^{k}) \tag{1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;by raising throughout to the $\rho/k$ power to get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$(1-a)(1/L^{\rho}) \leq a (1/K^{\rho}) +(1-a) (1/L^{\rho})  \leq (1/L^{\rho}) \tag {2}$$&#xA;which indeed holds, obviously, given the assumptions. Then go back to the first element of $(1)$ and&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\lim_{\rho\rightarrow \infty} (1-a)^{k/\rho}(1/L^{k}) =(1/L^{k})$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which sandwiches the middle term in $(1)$ to $(1/L^{k})$ , so &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\lim_{\rho\rightarrow \infty}Q_k = \frac {\gamma }{1/L^k} = \gamma L^k = {\gamma }\big[\min\{K,L\}\big]^{k} \tag{3}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So for $k=1$ &lt;strong&gt;we obtain the basic Leontief production function.&lt;/strong&gt;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;2) Limit when $\rho \rightarrow 0$&lt;/strong&gt;&lt;br&gt;&#xA;Write the function using exponential as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\gamma^{-1}Q_k=\exp\left\{-\frac k{\rho}\cdot \ln\big[a (K^{\rho})^{-1} +(1-a) (L^{\rho})^{-1}\big]\right\} \tag {4}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider the first-order Maclaurin expansion (Taylor expansion centered at zero) of the term inside the logarithm, with respect to $\rho$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$a (K^{\rho})^{-1} +(1-a) (L^{\rho})^{-1} \\= a (K^{0})^{-1} +(1-a) (L^{0})^{-1} -a (K^{0})^{-2}K^{0}\rho\ln K- (1-a) (L^{0})^{-2}L^{0}\rho\ln L + O(\rho^2) \\$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$=1 - \rho a\ln K - \rho(1-a)\ln L+ O(\rho^2) = 1 +\rho \big[\ln K^{-a}L^{-(1-a)}\big]+ O(\rho^2)$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Insert this back into $(4)$ and get rid of the outer exponential,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\gamma^{-1}Q_k = \left(1 +\rho \big[\ln K^{-a}L^{-(1-a)}\big]+ O(\rho^{2})\right)^{-k/\rho}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In case it is opaque, define $r\equiv 1/\rho$ and re-write&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\gamma^{-1}Q_k = \left(1 +\frac{\big[\ln K^{-a}L^{-(1-a)}\big]}{r}+ O(r^{-2})\right)^{-kr}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now it does look like an expression whose limit at infinity will give us something exponential:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\lim_{\rho\rightarrow 0}\gamma^{-1}Q_k = \lim_{r\rightarrow \infty}\gamma^{-1}Q_k = \left(\exp\left\{ \ln K^{-a}L^{-(1-a)}\right\} \right)^{-k}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Rightarrow \lim_{\rho\rightarrow 0}Q_k =\gamma\left(K^{a}L^{1-a}\right)^k$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The degree of homogeneity $k$ of the function is preserved, and if $k=1$ &lt;strong&gt;we obtain the Cobb-Douglas function.&lt;/strong&gt;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It was this last result that made Arrow and Co to call $a$ the &quot;distribution&quot; parameter of the CES function.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2016-06-07T19:00:50.267" LastActivityDate="2016-06-07T19:00:50.267" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="400" PostTypeId="2" ParentId="358" CreationDate="2014-12-02T00:53:06.893" Score="1" Body="&lt;p&gt;The best way to get into the various factors at play on this is to look at the Oil Import/Export &amp;amp; Consumption figures for the USA, which the EIA provides in glorious detail (click on the expand button to see the individual charts):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.eia.gov/countries/country-data.cfm?fips=US#pet&quot; rel=&quot;nofollow&quot;&gt;US Oil Consumption - Import/export&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It´s not the case as some have claimed that the US has become a net exporter, but Oil imports have significantly declined from their peak in 2006, and the situation with natural gas is equally dramatic. Interestingly though, there has also been a drop in consumption, which I would speculate is partly due to the 2006 recession, and may be a contribution from other energy sources, and may also be increasing energy efficiency developments triggered by the high oil price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As Brythan quite correctly points out below, this doesn't include the time series data for production/consumption in the rest of the world, which can be found here:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.eia.gov/cfapps/ipdbproject/iedindex3.cfm?tid=5&amp;amp;pid=5&amp;amp;aid=2&amp;amp;cid=ww,&amp;amp;syid=2009&amp;amp;eyid=2013&amp;amp;unit=TBPD&quot; rel=&quot;nofollow&quot;&gt;World Oil Production&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;we can see that total world production has increased by around 6,000 barrels a day since 2005, about 4,000 of which would be the US production increase.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since the US is still the largest consumer of oil on a per country basis (approximately 2x the Chinese who are currently #2), the combination of this with the drop in imports by the US can be expected to have a significant knock on effect on the price of oil, reducing it globally.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Over the long term it really depends on what you are prepared to believe about the increasing efficiency of solar power, how long the new fields remain competitive, and what other sources of fracking may be available outside the USA, which can be exploited, as to what will happen to the price of oil. Certainly for the next few years though, and ceteris paribus of course, I´d expect oil prices to stay down.&lt;/p&gt;&#xA;" OwnerUserId="84" LastEditorUserId="84" LastEditDate="2014-12-02T22:16:51.037" LastActivityDate="2014-12-02T22:16:51.037" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="401" PostTypeId="2" ParentId="358" CreationDate="2014-12-02T07:16:35.323" Score="2" Body="&lt;p&gt;This started as a comment on &lt;a href=&quot;https://economics.stackexchange.com/a/375/68&quot;&gt;Stephen Landsburg's answer&lt;/a&gt; but was getting too long for the comment format.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;When a new supply of oil is discovered, it increases the potential new supply.  This will cause prices of oil fields to fall (if everything else is constant).  However, gasoline costs are determined not by the future supply but by current supply.  Gasoline is mildly unstable and will spoil if kept for months or years.  Therefore, there is less time shifting once the gasoline is refined than there is while the oil is still in the ground.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Most gasoline will be pumped to an end user within a month or two of refinement.  Therefore from the standpoint of day to day prices, it's the amount of gasoline that is currently available that is important.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume that the oil field prices fell due to new supply being discovered.  This can happen quickly.  What takes longer though are actual changes to the end user.  The issue is that you can't just produce as much gasoline as you want immediately.  Since prices are falling, it's to your advantage to sell as much as you can as soon as you can.  But you can only increase current flow if you have slack capacity.  If you don't, you need to add new capacity.  This restricts how much additional flow can be added immediately by existing participants.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Over time, both existing and new participants can produce oil.  If current participants have a cartel to keep supplies down and prices high, they can either increase their production to take advantage of current prices, keep production the same, or decrease production -- possibly so as to keep overall production (including new participants) the same.  Cartel members may be reluctant to decrease production though.  They are already facing less income due to lower prices.  If they also decrease production, they may increase prices in the near term, but they still face lower prices as more new participants join.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Cartel members are engaged in monopolistic pricing.  They are producing less than they could in order to maximize profit.  Assuming the new participants do not join the cartel, they will price at competitive pricing.  They'll produce up to the point where the cost to supply including their profit requirement reaches the demand price.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that the actual price will depend on what people do and how the supply is impacted.  My point is that price changes won't necessarily be fully realized immediately.  There's a difference between short run prices and long run prices and the uncertainty of what's actually happening in the long run.  Prices can decrease over time due to a supply shock.  They may not though.  They could also be combined with a demand change.  Or other supply changes.  Or external events unrelated to oil that make people more or less risk averse.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am suspicious of Moore's model.  It's plausible but nowhere near definitive (and it aligns with his pro-fracking views, which makes it suspect in my eyes).  I'm also suspicious of Landsburg's model.  I'm concerned that it skips past short term effects to a long run result.  Both models seem overly certain to me.  Unfortunately, I have more questions than answers.  Lumi's link is interesting, but it leaves out demand and supply in the rest of the world.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The worst part is that any answer should be taken with a grain of salt.  We don't know what the world would be like without fracking.  All answers here are speculating.  Gas prices might have fallen regardless.  Or stayed the same.  Or even increased.  &lt;/p&gt;&#xA;" OwnerUserId="68" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2014-12-02T07:16:35.323" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="402" PostTypeId="1" CreationDate="2014-12-02T10:25:43.460" Score="16" ViewCount="248" Body="&lt;p&gt;Pretty much since 1976 (the passage of Hart-Scott-Rodino Act) US antitrust authorities have been reviewing mergers, challenging only 1.8 per cent of the total number of above-threshold notifications (IIRC I read it in a book by Bob Pitofsky).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What are the studies that control for changes in technology, capital availability and perhaps other factors and quantify the impact of merger control on economy-wide market structure/concentration measures?&lt;/p&gt;&#xA;" OwnerUserId="284" LastActivityDate="2015-01-14T12:00:52.210" Title="Does merger control really affect market structure?" Tags="&lt;industrial-organisation&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="403" PostTypeId="2" ParentId="368" CreationDate="2014-12-02T12:53:03.950" Score="4" Body="&lt;p&gt;While compactness and convexity is still needed, the following reference deals with existence in vector-space games with certain types of discontinuities.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Reny, P. (1999) &quot;On the existence of pure and mixed strategy Nash&#xA;equilibria in discontinuous games&quot;, &lt;em&gt;Econometrica&lt;/em&gt; 67, 1029-1056&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="115" LastEditorUserId="115" LastEditDate="2014-12-02T13:37:52.587" LastActivityDate="2014-12-02T13:37:52.587" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="404" PostTypeId="1" AcceptedAnswerId="406" CreationDate="2014-12-02T14:46:44.347" Score="-7" ViewCount="16499" Body="&lt;p&gt;I have lost all notes for this and can't seem to work it out, although i'm sure it is very simple I apologise in advance!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A manufacturer has the following short-run total cost function:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$TC = 100 + 25Q – 5Q^2 + Q^3$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Derive the average variable cost (AVC) function and show that, when AVC is a minimum, marginal cost (MC) is equal to AVC. &lt;/p&gt;&#xA;" OwnerUserId="289" LastEditorUserId="43" LastEditDate="2015-02-26T01:18:30.450" LastActivityDate="2015-02-26T01:18:30.450" Title="Derive the average variable cost (AVC) function and show that, when AVC is a minimum, marginal cost (MC) is equal to AVC" Tags="&lt;industrial-organisation&gt;" AnswerCount="1" CommentCount="3" ClosedDate="2014-12-03T21:51:21.450" ContentLicense="CC BY-SA 3.0" />
  <row Id="406" PostTypeId="2" ParentId="404" CreationDate="2014-12-02T15:34:24.547" Score="0" Body="&lt;p&gt;Hoping I don't confuse you any further.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Variable cost is the cost that depends on how much you produce (hence, variable). So in your case that would be:&lt;br&gt;&#xA;$\text{VC}:25Q-5Q^2+Q^3$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now the average cost is the cost divided by how much is produced. The average variable cost then is:&lt;br&gt;&#xA;$\text{AVC} = \frac{\text{VC}}{Q} =25 - 5Q + Q^2$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now you want the minimum of the average cost. You find the minimum by deriving:&#xA;$\frac{\partial \text{AVC}}{\partial Q} = 0;  - 5 + 2Q = 0$&lt;br&gt;&#xA;So you have that the minimum is at $Q=2.50$. Hurray. The AVC at the minimum is:&lt;br&gt;&#xA;$\text{AVC}(2.5) = 25-5*(2.5) + (2.5)^2$, that is &lt;strong&gt;18.75&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now you also want the marginal cost, which is just:&lt;br&gt;&#xA;$\text{MC}:\frac{\partial \text{TC}}{\partial Q} = 25 - 10Q + 3 Q^2$&lt;br&gt;&#xA;$\text{MC}(2.5)=25-10*(2.5)+3*(2.5)^2$. And look at that we get back &lt;strong&gt;18.75&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So apparently they are the same. Who would have thought.&lt;/p&gt;&#xA;" OwnerUserId="93" LastActivityDate="2014-12-02T15:34:24.547" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="407" PostTypeId="1" AcceptedAnswerId="418" CreationDate="2014-12-02T21:11:43.733" Score="5" ViewCount="1463" Body="&lt;p&gt;For a course in international trade, our professor touched on the idea of &lt;a href=&quot;http://en.wikipedia.org/wiki/Immiserizing_growth&quot;&gt;immiserizering growth&lt;/a&gt;.  He emphasized that immiserizing growth was a &lt;strong&gt;theoretical&lt;/strong&gt; outcome from specialization of trade and did not provide the class with examples on the global market.&lt;br&gt;&#xA;What are some real world examples of immizerizing growth?&lt;/p&gt;&#xA;" OwnerUserId="27" LastActivityDate="2015-12-27T15:02:48.093" Title="Does immiserizing growth exist outside of theory?" Tags="&lt;international-trade&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="409" PostTypeId="2" ParentId="258" CreationDate="2014-12-02T22:14:23.360" Score="8" Body="&lt;p&gt;This was too long for comment. &quot;Post 1960&quot; seems an arbitrary and &lt;em&gt;very&lt;/em&gt; high bar for an applied field, including micro theory. Most of the topics you name would not be considered contemporary mathematics. For example, measure theory started with Lebesgue's thesis and is over a century old. Topology is even older and started with Poincare, who introduced homology groups. Both are taught to undergrads today, like calculus. (The mathematics used by Mas-Colell et al. in GE is analysis, rather than topology.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The externality of research programs that drive modern mathematics since the mid-20th century to the applied community is indirect at best. The point of view and techniques motivated by, for example, non-commutative geometry, Langland's program, Poincare conjecture, the Baum-Connes conjecture, the twin prime conjecture (Fields medals have been awarded post 1960 for progress on these problems), etc.---will probably never be seen outside mathematics. Mathematical finance, of course, remains mathematics but that is quite removed from the economic point of view.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Edit&lt;/strong&gt; It turns out that, addressing your question directly, there has been applications of topology to social choice theory, initiated by Chichilnisky, et. al. Here is a JET paper on the topic by a topologist:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://math.uchicago.edu/~shmuel/TSC.pdf&quot;&gt;http://math.uchicago.edu/~shmuel/TSC.pdf&lt;/a&gt; .&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Maybe someone with expertise in topology can comment further.&lt;/p&gt;&#xA;" OwnerUserId="126" LastEditorUserId="126" LastEditDate="2014-12-06T06:24:14.847" LastActivityDate="2014-12-06T06:24:14.847" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="410" PostTypeId="2" ParentId="348" CreationDate="2014-12-02T22:16:08.040" Score="3" Body="&lt;p&gt;As you said, &lt;strong&gt;GDP&lt;/strong&gt; (Gross Domestic Product) measures the market value of all good and services produced in a certain period in a country, either by national or non-resident bodies (firms, non-profit organizations, government companies, households etc.) As an example, two firms producing in US, one owned by Americans and another one by Spanish businessmen,  would both contribute to US GDP.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &lt;strong&gt;GNP&lt;/strong&gt; (Gross National Product) measures the market value of all goods and services produced in a certain period by national bodies, independently of where this production takes place. For instance, the production of the Spanish firm in the US would not form part of the US GNP, but all the value of the production of American-owned firms abroad would be part of US GNP (&lt;strong&gt;Note:&lt;/strong&gt; if the Spanish firm stays for more than a year in the US it would be considered resident).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Why is GNP useful?&lt;/strong&gt; Because it is a better indicator of the amount of &lt;strong&gt;income&lt;/strong&gt; actually obtained by the &lt;strong&gt;citizens of a country&lt;/strong&gt;  in the reference period. Think of American firms producing abroad, their benefits will probably come back to the US in the form of &lt;strong&gt;dividends&lt;/strong&gt;. To clarify, if the shares of a firm producing abroad are held by Americans, then these dividends would form part of US GNI but not GDP. Another important example are migrants remittances, they adds up to the GNI of their country but not to GDP. Although these two sources imply more income for the citizens of a country, they are ignored in the GDP. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Notice, that in most of the countries GNP and GDP figures are very similar. However, in some countries with a high presence of foreign firms, for instance Ireland, GDP is considerably higher than GNP (more than 30%) because most of firms' profits leave the country. Using GDP to measure standards of living could be thus misleading, we would think that Irish are much richer than what they actually are, but more than 30% of the income generated in the country does not stay there.&lt;/p&gt;&#xA;" OwnerUserId="292" LastEditorUserId="292" LastEditDate="2018-03-26T13:41:11.767" LastActivityDate="2018-03-26T13:41:11.767" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="411" PostTypeId="1" CreationDate="2014-12-03T01:41:16.680" Score="7" ViewCount="97" Body="&lt;p&gt;One common criticism in the optimal taxation literature is the specification of the social welfare function. The optimal taxation literature (I have the Mirrlees framework in mind) relies on first specifying a social welfare function. However, because we never observe the social welfare function (SWF) and because we're not even sure if a reasonable specification of social welfare can be represented by a utilitarian-like SWF, what kind of policy prescriptions can we get out of these types of models? How much of a problem is this? Are there potential ways in which this problem can be made less offensive? &lt;/p&gt;&#xA;" OwnerUserId="59" LastActivityDate="2015-05-05T19:37:40.580" Title="Policy relevance of the optimal taxation given uncertainty about social welfare specification" Tags="&lt;welfare-economics&gt;&lt;public-economics&gt;&lt;taxation&gt;&lt;social-welfare&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="412" PostTypeId="1" CreationDate="2014-12-03T03:57:01.627" Score="8" ViewCount="285" Body="&lt;p&gt;In the last few years, the estimator proposed by &lt;a href=&quot;http://dx.doi.org/10.1111/j.1468-0262.2007.00796.x&quot; rel=&quot;nofollow&quot;&gt;Bajari, Benkard, and Levin ('07)&lt;/a&gt; for dynamic games has been gaining popularity. It is relatively straight forward and is one of the only viable options for estimating dynamic games with both continuous state space and continuous decision variables. I have heard from a few people, though, concerns about what it is really identifying (possibly not the structural parameters it's supposed to be identifying).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is three-fold. 1) what are the specific concerns about identification with BBL, 2) when do they (not) matter, and 3) is there a way of getting around the identification issues without having to, say, approximate the state/actions as discrete.&lt;/p&gt;&#xA;" OwnerUserId="238" LastEditorUserId="238" LastEditDate="2014-12-09T17:59:35.293" LastActivityDate="2015-04-30T18:28:37.547" Title="Identification with BBL" Tags="&lt;industrial-organisation&gt;&lt;structural-estimation&gt;&lt;identification&gt;&lt;dynamic-games&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="413" PostTypeId="2" ParentId="396" CreationDate="2014-12-03T05:00:22.267" Score="2" Body="&lt;p&gt;In the benchmark model of representative household intertemporal utility maximization problem (the &quot;Ramsey model&quot;, see for example, &lt;a href=&quot;http://down.cenet.org.cn/upfile/8/200751171644184.pdf&quot; rel=&quot;nofollow&quot;&gt;Barro &amp;amp; Sala-I-Martin (2004), Economic Growth (2n ed)&lt;/a&gt;, &lt;strong&gt;ch. 2&lt;/strong&gt;, using a Constant Relative Risk Aversion utility function&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$u(c) = \frac {c^{1-\theta}}{1-\theta}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;results in the optimal rule for per capita consumption growth&#xA;$$\frac {\dot c}{c} = \frac 1{\theta} (r-\rho)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $r$ is the net rate of return on assets and $\rho$ the rate of pure time preference.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\theta$ is the coefficient of relative risk aversion (for which the OP uses $\rho$ in the question).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Benchmark values for post-war western economies are $r=0.06$ and $\rho=0.02$. So we would have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\dot c}{c} = \frac {0.04}{\theta}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore for $\theta =2$ we get $\frac {\dot c}{c}=0.02$ which is consistent with historical data, while for $\theta = 10$ we would get $\frac {\dot c}{c}=0.004$.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In another aspect in this model, the coefficient of relative risk aversion is inversely related to the gross savings rate, so a very-high value of $\theta$ would imply a counter-factually low steady-sate savings rate (where &quot;gross savings rate&quot; should be interpreted broadly, as any form of deferred consumption, including investments in human capital, something that also implies that the concept of &quot;capital&quot; and its share should be extended to include &quot;human capital&quot; also).&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2016-10-01T21:37:53.247" LastActivityDate="2016-10-01T21:37:53.247" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="415" PostTypeId="2" ParentId="361" CreationDate="2014-12-03T11:00:13.007" Score="14" Body="&lt;p&gt;The regular method of obtaining &lt;a href=&quot;https://math.stackexchange.com/questions/397925/lhopitals-rule-in-deriving-cobb-douglas-function-from-ces-production-function&quot;&gt;Cobb-Douglas&lt;/a&gt; and &lt;a href=&quot;https://math.stackexchange.com/questions/1024020/limit-of-ces-function-as-p-goes-to-infty&quot;&gt;Leotief&lt;/a&gt; is &lt;a href=&quot;http://en.wikipedia.org/wiki/L%27H%C3%B4pital%27s_rule&quot; rel=&quot;noreferrer&quot;&gt;L'Hôpital's rule&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another methods should be used too. &#xA;Setting $ \gamma=1$ will be return $Q=[a K^{-\rho} +(1-a) L^{-\rho}  ]^{-\frac{1}{\rho}}$ and &#xA;$$Q^{-\rho}=[a K^{-\rho} +(1-a) L^{-\rho}  ]$$&#xA;By The total derivative via differentials we will have&#xA;$$-\rho Q^{-\rho-1}dQ=- a\rho K^{-\rho-1}dK -(1-a)\rho L^{-\rho-1}dL   $$&#xA;With some manupulations our main equation will be obtained.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ dQ= a {(\frac{Q}{ K})}^{1+\rho}dK +(1-a){(\frac{Q}{ L})}^{1+\rho}dL   $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Linear Function&lt;/strong&gt; : $\lim_{\rho\to -1}{dQ}\Rightarrow  Q=aK+(1-a)L$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Cobb-Douglas Function&lt;/strong&gt; :  $$\lim_{\rho\to 0}{dQ}\Rightarrow	 \frac{1}{Q}dQ= a {(\frac{1}{ K})} dK +(1-a){(\frac{1}{ L})} dL$$&#xA;Taking the Integral from both side would produce &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \int\frac{1}{Q}dQ=  a \int {(\frac{1}{ K})} dK +(1-a)\int{(\frac{1}{ L})} dL$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Q=K^a L^{(1-a)}e^{C}=AK^a L^{(1-a)}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Leontief Function&lt;/strong&gt;: $\lim_{\rho\to \infty}{dQ}\Rightarrow  min(aK,(1-a)L)$&lt;/p&gt;&#xA;" OwnerUserId="227" LastEditorUserId="-1" LastEditDate="2017-04-13T12:19:37.213" LastActivityDate="2014-12-03T14:34:23.190" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="416" PostTypeId="1" AcceptedAnswerId="530" CreationDate="2014-12-03T12:05:51.997" Score="9" ViewCount="518" Body="&lt;p&gt;What are the reasons why the rouble (RUB) is collapsing? Which one is the main one?&lt;/p&gt;&#xA;" OwnerUserId="305" LastEditorUserId="8481" LastEditDate="2020-05-06T17:17:34.070" LastActivityDate="2020-05-06T17:17:34.070" Title="Why is the rouble collapsing?" Tags="&lt;macroeconomics&gt;&lt;inflation&gt;&lt;currency&gt;&lt;russia&gt;" AnswerCount="3" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="417" PostTypeId="1" CreationDate="2014-12-03T12:46:33.997" Score="6" ViewCount="2245" Body="&lt;p&gt;Consider the (schematic) indifference curve diagram of two good-quantities Q1, Q2:&#xA;&lt;img src=&quot;https://i.stack.imgur.com/j3BFS.png&quot; alt=&quot;Diagram with curves and tangent lines&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;According to &lt;a href=&quot;http://en.wikipedia.org/wiki/Substitution_effect&quot; rel=&quot;noreferrer&quot;&gt;Wikipedia&lt;/a&gt; we call the vector AB' the substitution effect and the vector B'B as the income effect.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I now wonder why I could not, instead of translating the tangent through B onto the lower indifference curve, translate the tangent through A to the higher indifference curve, thus denoting AA' as the income effect and A'B as the substitution effect.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that these two definitions do not coincide for (sufficiently) different shaped indifference curves.&lt;/p&gt;&#xA;" OwnerUserId="307" LastEditorUserId="59" LastEditDate="2014-12-04T22:48:23.250" LastActivityDate="2014-12-04T22:48:23.250" Title="Ambiguous definition of Substitution and Income effect?" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="418" PostTypeId="2" ParentId="407" CreationDate="2014-12-03T13:03:35.157" Score="2" Body="&lt;p&gt;The concept of &lt;strong&gt;immiserizing growth&lt;/strong&gt; describes a situation where a mainly exporter country that grows, finds itself worse-off because the terms of trade (relative prices) change too much against it.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Immiserizing growth has generated some theoretical interest in the past, and various situations have been determined under which such a phenomenon may arise, enhancing the original contributions by&lt;br&gt;&#xA;&lt;a href=&quot;http://onlinelibrary.wiley.com/doi/10.1111/j.1467-9957.1955.tb00960.x/full&quot; rel=&quot;nofollow&quot;&gt;Johnson, Harry G. 1955. &quot;Economic Expansion and International Trade,&quot; Manchester School 23, pp. 95-112&lt;/a&gt;&lt;br&gt;&#xA;and&lt;br&gt;&#xA;&lt;a href=&quot;http://www.jstor.org/stable/2295990&quot; rel=&quot;nofollow&quot;&gt;Bhagwati, Jagdish. 1958. &quot;Immiserizing Growth: A Geometrical Note,&quot; Review of Economic Studies 25, (June), pp. 201-205.&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I do not know of any real-world example though. On the contrary some studies have been conducted which have estimated the critical values for the variables of a real-world economy, in order for it to face the possibility of immiserizing growth-and these thresholds are not observed in practice.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As an example, &lt;strong&gt;Ramon Lopez (1991)&lt;/strong&gt;, in &lt;a href=&quot;https://ideas.repec.org/p/wbk/wbrwps/665.html&quot; rel=&quot;nofollow&quot;&gt;&quot;Microeconomic Distortions: Static Losses and their Effect on the Efficiency of Investment&quot;&lt;/a&gt;, studying the economy of Chile for the period 1974-1989, estimated that, under full employment, the critical tariff rate for the prospect of immiserizing growth to arise would be $185$%, while with unemployment, it would be $260$%, which are too high compared to observed tariff rates.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The real concern about International Trade is its &lt;em&gt;distributional effects inside each country&lt;/em&gt;, i.e. whether it creates &quot;misery&quot; for &lt;em&gt;part&lt;/em&gt; of the population, while benefiting some other part. This is also &quot;immiserizing growth&quot; (for some of the citizens) but not in the sense meant by the scholars that originally coined the term. &lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-12-27T15:02:48.093" LastActivityDate="2015-12-27T15:02:48.093" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="419" PostTypeId="1" AcceptedAnswerId="421" CreationDate="2014-12-03T14:00:51.487" Score="9" ViewCount="596" Body="&lt;p&gt;Can anyone recommend some free software for students studying economics for use in senior projects, theses, or dissertations?&lt;/p&gt;&#xA;" OwnerUserId="309" LastEditorUserId="108" LastEditDate="2017-04-09T07:48:22.193" LastActivityDate="2017-04-09T07:48:22.193" Title="What kind of economic freeware exists for economics students?" Tags="&lt;software&gt;" AnswerCount="5" CommentCount="5" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="420" PostTypeId="1" AcceptedAnswerId="527" CreationDate="2014-12-03T14:25:30.810" Score="7" ViewCount="1151" Body="&lt;p&gt;I have tried reading and understanding Savage's proof of the subjective utility representation, it is too complicated. Is anyone aware of a shorter/more elegant proof of this?&#xA;It is not a problem if we assume a finite prices set. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The original is in Savage, L.J. 1954. &lt;em&gt;The Foundations of Statistics&lt;/em&gt;. New York: John&#xA;   Wiley and Sons.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A good summary can be found at&#xA;&lt;a href=&quot;http://www.econ2.jhu.edu/people/Karni/savageseu.pdf&quot; rel=&quot;noreferrer&quot;&gt;http://www.econ2.jhu.edu/people/Karni/savageseu.pdf&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Savage proof is known to be very elaborate, and long. It uses the sure thing principle as its main axiom. I was wondering if there is a more &quot;modern&quot; proof, that is both elegant and shorter. Or a nice challenge would be to try to prove collaboratively using some modern mathematics, like mixture spaces, (I am aware of &lt;a href=&quot;http://www.econ.ucsb.edu/~tedb/Courses/GraduateTheoryUCSB/anscombeaumann.pdf&quot; rel=&quot;noreferrer&quot;&gt;Anscombe-Aumann&lt;/a&gt;).&lt;/p&gt;&#xA;" OwnerUserId="127" LastEditorUserId="108" LastEditDate="2014-12-05T08:02:33.230" LastActivityDate="2014-12-08T00:09:29.213" Title="The Savage sure thing principle and Subjective utility representation" Tags="&lt;microeconomics&gt;&lt;decision-theory&gt;" AnswerCount="1" CommentCount="8" FavoriteCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="421" PostTypeId="2" ParentId="419" CreationDate="2014-12-03T15:50:13.097" Score="11" Body="&lt;p&gt;I never understood why discussion about specialized software should be off-topic in the specialty's website. And of course I don't agree. So:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Before diving into &lt;a href=&quot;http://www.r-project.org/&quot;&gt;&lt;strong&gt;R&lt;/strong&gt;&lt;/a&gt;, which indeed appears to be the dominant (and rich) freeware for statistical computing, one can try &lt;a href=&quot;http://gretl.sourceforge.net/&quot;&gt;&lt;strong&gt;Gretl&lt;/strong&gt;&lt;/a&gt;. It is an Econometrics freeware, with a lot of functionality, a very good Random Number Generator, and has both menu-driven implementation but also code-writing by the user. It is easier for beginners - but it is serious stuff. The &lt;a href=&quot;http://en.wikipedia.org/wiki/Gretl&quot;&gt;wikipedia page&lt;/a&gt; for Gretl lists some reviews about Gretl.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The other kind of &quot;economics&quot; (not mathematics) software apart from econometrics packages would be specialized simulation software, for say Dynamic Stochastic General Equilibrium Models, or micro-applications.  For DSGE, one such is &lt;a href=&quot;http://www.dynare.org/&quot;&gt;&lt;strong&gt;Dynare&lt;/strong&gt;&lt;/a&gt;.  A lot of DSGE-code for various other software can be found at &lt;a href=&quot;http://www.dsge.net/&quot;&gt;International Network for DSGE Modeling, Monetary and Fiscal Policy&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2014-12-03T22:10:10.140" LastActivityDate="2014-12-03T22:10:10.140" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="422" PostTypeId="2" ParentId="417" CreationDate="2014-12-03T16:16:26.517" Score="10" Body="&lt;p&gt;First, you can make any definition you want as long as you use it consistently, but it's usually better to adopt the standard definition if you want to avoid confusion.   Similarly you could ask why we don't call a garage a dogpound and a dogpound a garage.  We perfectly well could, but it's better if we all use words the same way.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Second, assuming we agree to adopt the standard definition, your picture doesn't give enough information to determine a substitution and an income effect.  That depends on where you started and what changed, which you haven't told us.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;IF you started at $A$ and the price dropped, then, according to the standard definition, the substitution effect is from $A$ to $B'$ and the income effect is from $B'$ to $B$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you started at $B$ and the price rose, then, according to the standard definition, the substitution effect is from $B$ to $A'$ and the income effect is from $A'$ to $A$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Third, if you want to adopt your alternate definition, you will find that your definition and the standard definition agree arbitrarily closely for sufficiently small changes.  So if you imagine an infinitesimal price change, it doesn't matter which definition you adopt.  But for finite price changes, what matters is not that one definition is better than another, but that we find a definition we can all agree to use.  &lt;/p&gt;&#xA;" OwnerUserId="250" LastActivityDate="2014-12-03T16:16:26.517" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="423" PostTypeId="2" ParentId="419" CreationDate="2014-12-03T16:20:55.830" Score="7" Body="&lt;p&gt;@Pburg mentions &lt;a href=&quot;http://www.geogebra.org/&quot; rel=&quot;nofollow&quot;&gt;Geogebra&lt;/a&gt; which is a great drawing tool with export in &lt;a href=&quot;http://www.latex-project.org/&quot; rel=&quot;nofollow&quot;&gt;LaTex&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regarding graphs in LaTex, an alternative which I prefer to Geogebra is &lt;a href=&quot;http://latexdraw.sourceforge.net/&quot; rel=&quot;nofollow&quot;&gt;Latexdraw&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you want to use LaTex for your thesis, a good editor might also help. I personally use &lt;a href=&quot;http://texstudio.sourceforge.net/&quot; rel=&quot;nofollow&quot;&gt;Texstudio&lt;/a&gt;. &lt;/p&gt;&#xA;" OwnerUserId="38" LastEditorUserId="38" LastEditDate="2016-02-20T22:01:30.017" LastActivityDate="2016-02-20T22:01:30.017" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="424" PostTypeId="1" CreationDate="2014-12-03T17:29:15.497" Score="7" ViewCount="120" Body="&lt;p&gt;There have been a number of papers in the literature (pioneered by Sanjeev Goyal, Jackson, Kranton, amongst others) emphasising the role and importance of network structure in economics, the equilibrium arising therein and the relationship between the topology and other graph properties and the equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Such networks arise in a number of cases, for example, research collaboration, social networks, crime networks, etc. My question is what published empirical studies have tested the hypothesis presented by the theory? Do such studies also find that the graph properties are critical, as predicted by the theory? Or is network effects in economics a theory-only area?&lt;/p&gt;&#xA;" OwnerUserId="41" LastEditorUserId="59" LastEditDate="2014-12-03T17:33:49.307" LastActivityDate="2015-06-27T16:00:22.090" Title="Empirical studies on network equilibria" Tags="&lt;microeconomics&gt;&lt;networks&gt;" AnswerCount="3" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="425" PostTypeId="2" ParentId="411" CreationDate="2014-12-03T18:14:24.940" Score="6" Body="&lt;p&gt;Here is an answer based on the following interpretation of the SWF : there is no &quot;true&quot; SWF, but SWF&lt;strong&gt;s&lt;/strong&gt; are &lt;strong&gt;observable &lt;em&gt;in principle&lt;/em&gt;&lt;/strong&gt;, they simply represent the preferences of the policy decision maker.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Under this interpretation, the policy recommendation &lt;em&gt;are&lt;/em&gt; relevant despite depending on the specification of the SWF, precisely because different decision makers have different preferences. So there is no problem with studying different configuration of the SWF and getting different policy recommendations. In fact this is rather desirable as it makes the theory relevant to a larger number of decision makers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, whether you are aiming at policy recommendations for the average decision maker, or whether you are giving policy recommendation to a particular decision maker,  figuring out an exact social preferences might be complicated. Data may be insufficient to pin down particular preferences without much uncertainty. And if you ask the decision makers to state their preferences, they might be uncertain about their own preferences. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As is to be expected, the more uncertainty about the decision maker's preferences, the less precise the policy recommendations will be. But &lt;strong&gt;there is still a whole lot you can say even under relatively large uncertainty&lt;/strong&gt;. As a matter of fact, most of the literature on optimal taxation has focused on providing general policy recommendations which hold for a wide class of SWF. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A very good example is &lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/004727278590074X&quot; rel=&quot;nofollow&quot;&gt;Roëll, A. A., 1985. A note on the marginal tax rate in a finite economy.&#xA;Journal of Public Economics 28, 267–272&lt;/a&gt;'s &lt;strong&gt;very weak redistribution assumption&lt;/strong&gt; (VWR), which was informally presented earlier in &lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/0047272782900184&quot; rel=&quot;nofollow&quot;&gt;Guesnerie, R., Seade, J., 1982. Nonlinear pricing in a finite economy. Journal&#xA;of Public Economics 17, 157–179&lt;/a&gt;. The VWR is a property of the solution of the taxation problem which formalizes the idea idea that the decision maker is &lt;strong&gt;egalitarian in at least a very mild way&lt;/strong&gt;. To give a taste of the weakness of the assumption, notice for instance that &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;If the utility function U is strictly concave, leisure is a normal good, single-crossing is satisfied, the social welfare function $W$ is differentiable, strictly concave, increasing, and symmetric, and at a solution of the taxation problem, the lower level of income is positive, then VWR is satisfied (Brett and Weymark, forthcoming)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It turns out that the VWR is sufficient to derive many important policy implications. For instance, under the VWR (and single crossing), marginal tax rates must be non-negative at a solution of the taxation problem. Also under the same assumptions, the marginal tax rate of the highest type should be zero, and any type different from the highest type whose consumption and income are strictly positive must face a strictly positive marginal tax rate. Provided the non-normative assumptions of the model hold (e.g. single crossing, but also the fact that decision maker's preferences are representable by a SWF, more on this below), &lt;strong&gt;these are policy recommendation you can safely make to any policy decision maker with some form of egalitarian concerns, even if you do not know the exact degree to which they are egalitarian&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another question you are raising is whether policy decision makers' preference can be represented by a SWF at all. To say the least, I am not a big fan of the cardinal utility framework of SWF. This is mostly because hidden in the cardinality assumption is the idea that one can somehow &quot;objectively&quot; compare utilities. But it is also partly because some decision maker's preferences might be not representable through SWF. However, there are alternatives to both these problems, with applications to optimal taxation. See for instance the last chapters of &lt;a href=&quot;http://www.google.com/url?sa=t&amp;amp;rct=j&amp;amp;q=&amp;amp;esrc=s&amp;amp;source=web&amp;amp;cd=1&amp;amp;ved=0CCUQFjAA&amp;amp;url=http%3A%2F%2Fwww.researchgate.net%2Fpublication%2F227390471_A_Theory_of_Fairness_and_Social_Welfare%2Flinks%2F00b7d51a475e185679000000&amp;amp;ei=HUR_VNrhCoSdgwSVoYKIDg&amp;amp;usg=AFQjCNFae67bmNcntju8_Y5Ha7t-vgxI7w&amp;amp;bvm=bv.80642063,d.eXY&amp;amp;cad=rja&quot; rel=&quot;nofollow&quot;&gt;A theory of fairness and social welfare, by Fleurbaey and Maniquet&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The approach described in &lt;a href=&quot;http://www.google.com/url?sa=t&amp;amp;rct=j&amp;amp;q=&amp;amp;esrc=s&amp;amp;source=web&amp;amp;cd=1&amp;amp;ved=0CCUQFjAA&amp;amp;url=http%3A%2F%2Fwww.researchgate.net%2Fpublication%2F227390471_A_Theory_of_Fairness_and_Social_Welfare%2Flinks%2F00b7d51a475e185679000000&amp;amp;ei=HUR_VNrhCoSdgwSVoYKIDg&amp;amp;usg=AFQjCNFae67bmNcntju8_Y5Ha7t-vgxI7w&amp;amp;bvm=bv.80642063,d.eXY&amp;amp;cad=rja&quot; rel=&quot;nofollow&quot;&gt;A theory of fairness and social welfare, by Fleurbaey and Maniquet&lt;/a&gt; is not only ordinal, it is also purely axiomatic. Decision makers may have a hard time figuring out which SWF represent their preferences. With an axiomatic approach, they simply have to decide on the axioms they like the best to &quot;discover&quot; their preferences. This is often much simpler than trying to figuring and spelling out your full preference relation.&lt;/p&gt;&#xA;" OwnerUserId="38" LastEditorUserId="38" LastEditDate="2015-05-05T19:37:40.580" LastActivityDate="2015-05-05T19:37:40.580" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="426" PostTypeId="2" ParentId="419" CreationDate="2014-12-03T19:31:59.150" Score="6" Body="&lt;p&gt;Python is also something you could look at for econometric and/or data analysis in addition to R and Gretl mentioned above. Alternatively you could check out the Ox programming language. The Ox console is free to download for academic use. The Ox programming language is the basis for OxMetrics and it is relatively easy to use and extremely fast.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For optimization etc. you can get Octave which is a free alternative to MATLAB. I haven't tried Octave so I cannot comment on its qualities but its free so it might be worth checking out. You can also use Octave to simulate economic models in.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For simulation of economic models I would recommend you to check out Dynare which is a module for simulating and estimating DSGE and OLG models. Note that in order to use Dynare you'll need to have MATLAB or Octave installed on you computer (Octave is free!). I have used Dynare with MATLAB and it is really easy and intuitive to use.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For typesetting you should check out LaTex or the &quot;easier-to-start-to-use&quot; alternative Lyx. In case you want a &quot;Word&quot; type enviroment instead you should check out Open Office. Open Office also has a spreadsheet á la Excel. &lt;/p&gt;&#xA;" OwnerUserId="150" LastActivityDate="2014-12-03T19:31:59.150" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="427" PostTypeId="1" CreationDate="2014-12-03T19:45:56.187" Score="6" ViewCount="180" Body="&lt;p&gt;In reading the &lt;a href=&quot;http://en.wikipedia.org/wiki/Hyperbolic_discounting&quot;&gt;Wikipedia article about hyperbolic discounting&lt;/a&gt;, I read that it says that hyperbolic discounting created strange consequences:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;But note, the time inconsistency of this behavior has some quite perverse consequences.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Is it just that people make choices that their future selves would not make? The same article further says this:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Individuals using hyperbolic discounting reveal a strong tendency to make choices that are inconsistent over time – they make choices today that their future self would prefer not to have made, despite using the same reasoning.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;What are the consequences of hyperbolic discounting (HD)? (Although they seem to match some observed behavior, does HD produce predictions that are undesirable?)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, beside time inconsistency, what are the consequences of hyperbolic discounting, if any?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Also, any references to good material are always welcome.)&lt;/p&gt;&#xA;" OwnerUserId="59" LastEditorUserId="59" LastEditDate="2014-12-03T23:45:41.853" LastActivityDate="2016-02-20T21:47:34.653" Title="Consequences of hyperbolic discounting" Tags="&lt;decision-theory&gt;&lt;preferences&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="428" PostTypeId="1" AcceptedAnswerId="1581" CreationDate="2014-12-03T19:50:41.267" Score="7" ViewCount="366" Body="&lt;p&gt;I have heard multiple times that a consistent definition of liquidity does not exist. The two wikipedia articles describing liquidity (&lt;a href=&quot;https://en.wikipedia.org/wiki/Market_liquidity&quot;&gt;Market liquidity&lt;/a&gt; and &lt;a href=&quot;https://en.wikipedia.org/wiki/Accounting_liquidity&quot;&gt;accounting liquidity&lt;/a&gt;) lack a discussion of this apparent problem within economics. Could someone perhaps provide a reference to a discussion of the problem of defining liquidity and maybe provide a brief summary of the issue?&lt;/p&gt;&#xA;" OwnerUserId="59" LastEditorUserId="108" LastEditDate="2014-12-11T18:53:42.963" LastActivityDate="2014-12-11T18:53:42.963" Title="Problem with defining liquidity" Tags="&lt;reference-request&gt;&lt;finance&gt;&lt;liquidity&gt;&lt;definition&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="429" PostTypeId="1" CreationDate="2014-12-03T22:22:33.117" Score="40" ViewCount="7336" Body="&lt;p&gt;It is generally accepted among economists that minimum wage warps the equilibrium point between the supply and demand of labor by instituting a price floor and increases unemployment for unskilled laborers (while increasing the wage for the individuals who continue to work).&lt;br&gt;&#xA;However, I have noticed that politicians continue to advocate an increase in the minimum wage.  Politics and political maneuvering aside, is there an economic reason as to why a higher minimum wage would benefit the economy?  &lt;/p&gt;&#xA;" OwnerUserId="27" LastEditorUserId="43" LastEditDate="2015-09-04T10:58:23.563" LastActivityDate="2016-04-07T14:48:40.853" Title="What is the economic purpose of increasing the minimum wage?" Tags="&lt;macroeconomics&gt;&lt;minimum-wage&gt;" AnswerCount="11" CommentCount="10" FavoriteCount="23" ContentLicense="CC BY-SA 3.0" />
  <row Id="430" PostTypeId="2" ParentId="429" CreationDate="2014-12-03T22:34:18.453" Score="29" Body="&lt;h1&gt;Opinion of Economists&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;What makes you think that economists are so aligned against the minimum wage? Take a look at the IGM Forum that polls top academic economists. There is substantial disagreement about the effects and welfare implications of a minimum wage hike.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://www.igmchicago.org/igm-economic-experts-panel/poll-results?SurveyID=SV_br0IEq5a9E77NMV&quot;&gt;IGM Forum: Minimum Wage&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://economix.blogs.nytimes.com/2013/03/04/what-economists-think-about-raising-the-minimum-wage/?_r=0&quot;&gt;NYTimes Blog Post about it&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;h1&gt;Theory about the minimum wage&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;Also, it's worth pointing out that besides empirical studies (like Card and Krueger), there are in fact theoretical reasons why a minimum wage might be welfare improving---see Lee and Saez (2012). (I'm just saying they exists, not commenting on the strength of the results.) In the Handbook of Public Economics, chapter 7, &quot;Optimal Labor Income Taxation&quot;, they say this about that paper:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Lee and Saez use the occupational model ... with endogeneous wages and prove two results. First, they show that a binding minimum wage is desirable&#xA;  under the strong assumption that unemployment induced by the minimum wage hits the&#xA;  lowest surplus workers first. ... &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Second, when labor supply responses are along the extensive margin only, which is&#xA;  the empirically relevant case, the co-existence of a minimum wage with a positive tax rate on low-skilled work is always (second-best) Pareto inefficient.A Pareto improving policy&#xA;  consists of reducing the pre-tax minimum wage while keeping constant the post-tax&#xA;  minimum wage by increasing transfers to low-skilled workers, and financing this reform&#xA;  by increasing taxes on higher paid workers. Importantly, this result is true whether or not&#xA;  rationing induced by the minimum wage is efficient or not.This result can also rationalize&#xA;  policies adopted in many OECD countries in recent decades that have decreased the&#xA;  minimum wage while reducing the implicit tax on low skill work through a combination&#xA;  of reduced payroll taxes for low skill workers and in-work benefits of the EITC type for&#xA;  low skill workers.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="59" LastEditorUserId="59" LastEditDate="2014-12-03T23:16:19.477" LastActivityDate="2014-12-03T23:16:19.477" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="432" PostTypeId="2" ParentId="429" CreationDate="2014-12-03T23:10:00.277" Score="8" Body="&lt;p&gt;Recently there has been a lot of interest on the use of minimum wage in the literature on &lt;strong&gt;optimal taxation&lt;/strong&gt;. These recent developments tend to indicate that &lt;strong&gt;&lt;em&gt;if&lt;/em&gt;&lt;/strong&gt; a government aims at redistribution, minimum wage can often be a useful tool under imperfect information. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The core intuition is that, under some assumptions, a minimum wage can be used as a tagging device to relief incentive compatibility constraints in the taxation problem. &#xA;I have &lt;a href=&quot;https://drive.google.com/file/d/0B_x7ddsRCtk7WTVqNkVaVGJDTmc/edit&quot; rel=&quot;nofollow&quot;&gt;some (very) rough lecture notes on the topic.&lt;/a&gt; (One of the models reviewed is Lee and Saez 2012 mentioned in @jmbejara's answer.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;See also a more recent paper by Blumkin and Danziger on the use of minimum wage to target &quot;deserving poor&quot; : &lt;a href=&quot;http://www.econstor.eu/bitstream/10419/102318/1/dp8418.pdf&quot; rel=&quot;nofollow&quot;&gt;Deserving Poor and the Desirability of a Minimum Wage&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="38" LastEditorUserId="38" LastEditDate="2016-04-07T14:48:40.853" LastActivityDate="2016-04-07T14:48:40.853" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="433" PostTypeId="2" ParentId="429" CreationDate="2014-12-03T23:12:08.497" Score="8" Body="&lt;p&gt;There are two mechanisms at work.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, a minimum wage will (to the extent that it affects workers) &lt;strong&gt;increase disposable income&lt;/strong&gt; for a subpopulation who have a high marginal propensity to consume (increase demand). This is a somewhat old Keynesian argument: Then facing higher demand, firms will employ more, s.t. in general equilibrium the effect of a wage raise would lead to higher employment, higher production and higher consumption, a welfare improvement.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Second, a minimum wage will (to the extent that it affects firms) &lt;strong&gt;increase labor costs&lt;/strong&gt;. Firms potentially respond to this substituting away from that labor, which reduces employment, which has the opposite effects of above.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The overall &lt;strong&gt;general equilibrium&lt;/strong&gt; (GE) effects are hard to measure, we can't just randomize minimum wages for some countries. Empirical studies are somewhat ambiguous , but most state that in GE, the measure is welfare decreasing. This does not mean that Economists as a profession are mostly aligned against it (see jmbejara's post).&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2014-12-03T23:12:08.497" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="435" PostTypeId="2" ParentId="429" CreationDate="2014-12-04T00:26:04.857" Score="4" Body="&lt;p&gt;One point to mention is when you increase the purchasing power of the poorest they will use it on spending and thus boost the local economy (shops, repairs, plumbers etc). Wealthy people have more options and may invest it abroad or just save it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The social democratic model of the nordic countries with high governmental investment in social security and benefits financed by a high taxation-level gives a safety net for uneployment and disability. The selfish rich may not agree, but in all it makes them the best countries in the world to live in. &lt;/p&gt;&#xA;" OwnerUserId="314" LastActivityDate="2014-12-04T00:26:04.857" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="436" PostTypeId="1" AcceptedAnswerId="479" CreationDate="2014-12-04T01:52:28.813" Score="2" ViewCount="237" Body="&lt;p&gt;Is there much research into the long term impacts of government fiscal contractions. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have heard about 2nd generation unemployed as a result of Thatcher's policies but that is very much anecdotal. What does the literature have to say on the matter?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have left the interpretation of government fiscal contraction open so as to capture a broad variety of policies. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are many articles focusing on short term impacts, not so much long term impacts&lt;/p&gt;&#xA;" OwnerUserId="40" LastActivityDate="2014-12-05T15:52:25.497" Title="Long Term Impacts of Austerity Measures" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="437" PostTypeId="1" AcceptedAnswerId="453" CreationDate="2014-12-04T02:10:53.620" Score="3" ViewCount="102" Body="&lt;p&gt;Can anyone recommend a resource for very long term trade data? (1500-2014). I have looked and found bits and pieces here and there but haven't come across any single data-set covering all of it. I am thinking of mashing my own together but I really do expect it to have been done already.&lt;/p&gt;&#xA;" OwnerUserId="40" LastEditorUserId="2776" LastEditDate="2016-09-04T18:00:30.703" LastActivityDate="2016-09-04T18:00:30.703" Title="Long term trade data request" Tags="&lt;international-trade&gt;&lt;data-request&gt;" AnswerCount="1" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="438" PostTypeId="1" CreationDate="2014-12-04T02:48:27.880" Score="5" ViewCount="197" Body="&lt;p&gt;In the &lt;a href=&quot;https://economics.stackexchange.com/questions/429/what-is-the-purpose-of-increasing-the-minimum-wage&quot;&gt;question about the minimum wage found here&lt;/a&gt;, I have heard several times that an increase in the minimum wage can, as one of several competing effects, &quot;boost the economy&quot; by increasing the income of some workers. Under what conditions could this happen, if at all? Are there any papers (peer-reviewed journal articles) out there that make this claim?&lt;/p&gt;&#xA;" OwnerUserId="59" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-09-26T17:16:08.230" Title="Stimulus Effect of the Minimum Wage" Tags="&lt;labor-economics&gt;&lt;reference-request&gt;&lt;minimum-wage&gt;&lt;general-equilibrium&gt;" AnswerCount="2" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="439" PostTypeId="2" ParentId="429" CreationDate="2014-12-04T05:33:38.437" Score="-5" Body="&lt;p&gt;The reason politicians favor increasing the minimum wage is that it makes people think they care for the poor, while the predictable side-effects increase the number of out-of-work people who will then be reliant upon the government (and, by implication, a politician whom they think &quot;cares&quot; for them).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In reality, the effect of a price floor on any type of good or service is simple and predictable: it removes from the market goods or services of that type whose value would be insufficient to justify even the minimum price.  When low-value goods or services are removed from the market, this will often increase the relative demand for those goods or services which remain in the market, but eliminate the demand for those which don't.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If a business has a choice between hiring someone who would demand \$7/hour and could do something in eight hours, or someone who would demand \$10/hour but could do the job in seven, it would likely hire the less productive worker.  Even though the former worker wasn't as productive as the latter, a willingness to work for lower pay would allow that worker to compete in the marketplace.  Denying the former worker the ability to compete on price may allow the latter worker to demand more pay, but will also leave the former worker without any means of offering employers any reason to hire him.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If politicians really wanted to help the working poor, they would work to minimize the amount of money an employer must spend on someone's labor to leave the worker noticeably better off than he would be with no job.  If there were some job some not-particularly-good workers could do that could provide $5/hour worth of value to an employer even after deducting the costs of e.g. transporting the person to/from work, providing child care if needed, etc., then significant economic good would come from allowing such people to be hired, and allow them to add their wages to whatever welfare benefits they could receive from doing nothing.  Such a policy, however, would reduce politicians' power over the lower classes, however, and is thus unlikely to ever see the light of day.&lt;/p&gt;&#xA;" OwnerUserId="320" LastActivityDate="2014-12-04T05:33:38.437" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="440" PostTypeId="2" ParentId="438" CreationDate="2014-12-04T05:42:46.707" Score="7" Body="&lt;p&gt;From the Chicago Federal Reserve:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Following a minimum wage hike, household income rises on average by about \$250 per quarter and spending by roughly \$700 per quarter for households with minimum wage workers. Most of the spending response is caused by a small number of households who purchase vehicles&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.chicagofed.org/digital_assets/publications/working_papers/2007/wp2007_23.pdf&quot;&gt;http://www.chicagofed.org/digital_assets/publications/working_papers/2007/wp2007_23.pdf&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Aaronson, D., S. Agarwal, and E. French  (2011): &quot;The Spending and Debt Responses to Minimum Wage Increases&quot; &lt;em&gt;Federal Reserve Bank of Chicago Working Paper&lt;/em&gt;, WP 2007-23.&lt;/p&gt;&#xA;" OwnerUserId="321" LastEditorUserId="108" LastEditDate="2014-12-04T22:26:32.787" LastActivityDate="2014-12-04T22:26:32.787" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="441" PostTypeId="2" ParentId="427" CreationDate="2014-12-04T05:45:36.973" Score="8" Body="&lt;p&gt;As often with models embodying some form of &quot;irrationality&quot; (whatever that means), HD does a great job at matching a whole lot of behaviors, but leaves room for rather annoying &lt;a href=&quot;http://en.wikipedia.org/wiki/Dutch_book&quot; rel=&quot;nofollow&quot;&gt;Dutch Book&lt;/a&gt; situations (also know as &quot;money pump&quot; situations). These suggest that HD might generate some inaccurate predictions, and induce undesirable behaviors when included in models.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is an example. Suppose today is $t=0$ and I owe you a dollar one periods from now at $t=1$. I offer you the following sequence of deals:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;In $t=0$, I offer to pay &lt;em&gt;you&lt;/em&gt; some fee $f_0$ in $t=2$ in order to postpone my payment from $t=1$ to $t=2$.&lt;/li&gt;&#xA;&lt;li&gt;In $t=1$, I give you the possibility to pay &lt;em&gt;me&lt;/em&gt; some fee $f_1$ in $t=2$ in order to get the dollar back in period $t=1$ instead of $t=2$ (assuming you accepted the deal in $t=0$).&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Case 1 :&lt;/strong&gt; you have a classical exponential discount factor $\frac{1}{(1+\delta)^t}$.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Period $t=0$ : what is the minimal additional $f_0^*$ I can offer to pay in $t=2$ for you to let me postpone my payment to $t=2$?&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;$$ \begin{align} f_0^* &amp;amp; = (1+\delta)^2 \left[ \frac{1}{(1+\delta)} - \frac{1}{(1+\delta)^2} \right] \\&#xA;                       &amp;amp; = \delta \end{align} $$&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Period $t=1$ : what is the maximal additional $f_1^*$ I can ask you to pay me in $t=2$ in order for you to get your one dollar in $t=1$ instead of $t=2$ ?&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;$$ \begin{align} f_1^* &amp;amp; = (1+\delta)  \left[ 1 - \frac{1}{(1+\delta)} \right] \\&#xA;                       &amp;amp; = \delta \end{align} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So summing up the two deals : in period $t=0$ I offer to pay you $\delta$ more in $t=2$ to postpone the payment, but then in $t=1$ you promise to pay me $\delta$ more in $t=2$ to get the money earlier. Overall the deals cancel out, I still give you the dollar in $t=1$ and no one owes the other anything in $t=2$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Case 2 :&lt;/strong&gt; you have HD with discount factor $\frac{1}{(1+\delta t)}$.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Period $t=0$ :&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;$$ \begin{align} f_0^*(HD) &amp;amp; = (1+ 2\delta) \left[ \frac{1}{(1+\delta)} - \frac{1}{(1+2\delta)} \right] \\&#xA;                       &amp;amp; = \frac{\delta}{1+\delta} \end{align} $$&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Period $t=1$ : &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;$$ \begin{align} f_1^*(HD) &amp;amp; = (1+\delta)  \left[ 1 - \frac{1}{(1+\delta)} \right] \\&#xA;                       &amp;amp; = \delta \end{align} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Summing up the two deals, I still give you the dollar in $t=1$, but now you owe me an additional $\left[\delta - \frac{\delta}{1+\delta}\right]$ in $t=2$ which is strictly larger than zero for $\delta &amp;gt; 0$. Thus in a sense, I made money out of &quot;nothing&quot; (or some would say I made money out of your time-inconsistent preferences). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Whether this is bothersome for the HD model depends on whether you believe that these kinds of money pumps are likely or unlikely to occur. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;==================&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the comments, the OP also asks whether HD would have any influence on risk behavior. I do not think it would. HD denotes a specific way to discount utility but does not impose restrictions on the form of the instantaneous utility function $u(\cdot)$ which determines risk aversion in uncertain environments. &lt;/p&gt;&#xA;" OwnerUserId="38" LastEditorUserId="38" LastEditDate="2016-02-20T21:47:34.653" LastActivityDate="2016-02-20T21:47:34.653" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="442" PostTypeId="2" ParentId="419" CreationDate="2014-12-04T10:24:36.970" Score="3" Body="&lt;p&gt;If you feel LaTex is too much you can download a free math extension for word that's easy to use. &#xA;&lt;a href=&quot;http://www.eduap.com/wordmat/&quot; rel=&quot;nofollow&quot;&gt;http://www.eduap.com/wordmat/&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(I would recommend LaTex, but starting using LaTex, R and writing a thesis can be a bit much at the same time) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, atop of R - get &lt;a href=&quot;http://www.rstudio.com/&quot; rel=&quot;nofollow&quot;&gt;R-Studio&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="107" LastActivityDate="2014-12-04T10:24:36.970" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="443" PostTypeId="2" ParentId="429" CreationDate="2014-12-04T11:07:56.560" Score="19" Body="&lt;p&gt;From a purely theoretical perspective, one argument for a minimum wage would be that the majority of employees work for medium-large sized businesses and face significant personal cost from switching employer. The upshot, argue some, is that firms have disproportionate bargaining power when negotiating terms of employment. To get an idea of how this would work in a model, consider the following figure that depicts a monopsonistic market in which there is a single employer that is free to dictate a take-it or leave-it wage to employees.&lt;/p&gt;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/fo8I3.png&quot; alt=&quot;enter image description here&quot; /&gt;&lt;/p&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;The &lt;span class=&quot;math-container&quot;&gt;$S$&lt;/span&gt; curve is the supply of labor. You can think of &lt;span class=&quot;math-container&quot;&gt;$S$&lt;/span&gt; as&#xA;depicting the lowest wage, &lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt;, at which the &lt;span class=&quot;math-container&quot;&gt;$L$&lt;/span&gt;th unit of labor&#xA;would be willing to work.&lt;/li&gt;&#xA;&lt;li&gt;The &lt;span class=&quot;math-container&quot;&gt;$\text{MC}$&lt;/span&gt; curve depicts the marginal&#xA;cost to the firm of hiring an extra worker (this is higher than &lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt;&#xA;for the same reason that the marginal revenue is lower than &lt;span class=&quot;math-container&quot;&gt;$p$&lt;/span&gt; in an&#xA;ordinary monopoly market).&lt;/li&gt;&#xA;&lt;li&gt;The &lt;span class=&quot;math-container&quot;&gt;$\text{MRP}$&lt;/span&gt; curve is the revenue that&#xA;an additional worker would create for the firm (it therefore measures&#xA;how much, in principle, the firm would be willing to pay for an extra&#xA;unit of labor).&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;p&gt;The efficient outcome is for the firm to employ labor so long as its willingness to pay exceeds workers' reservation wage (i.e. the efficient outcome is &lt;span class=&quot;math-container&quot;&gt;$L'$&lt;/span&gt;, supported by wage &lt;span class=&quot;math-container&quot;&gt;$w'$&lt;/span&gt;).&lt;/p&gt;&#xA;&lt;p&gt;However, just as a standard monopolist finds it profitable to deviate from the efficient price and set &lt;span class=&quot;math-container&quot;&gt;$MR=MC$&lt;/span&gt;, so will our monopsonist behave in a similar fashion. In particular the profit-maximizing demand for labor is found where the marginal cost of labor is equal to its marginal revenue product (point &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt;) so that the monopsonist employs &lt;span class=&quot;math-container&quot;&gt;$L$&lt;/span&gt; units of labor. The corresponding wage is found by using the supply function to determine how much must be paid to attract those &lt;span class=&quot;math-container&quot;&gt;$L$&lt;/span&gt; units; the answer is a wage of &lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;p&gt;Thus we see that &lt;strong&gt;the monopsonist hires too few people (&lt;span class=&quot;math-container&quot;&gt;$L'&amp;gt;L$&lt;/span&gt;) and pays wages that are too low (&lt;span class=&quot;math-container&quot;&gt;$w'&amp;gt;w$&lt;/span&gt;) compared to the efficient allocation. Imposing a minimum wage of &lt;span class=&quot;math-container&quot;&gt;$w'$&lt;/span&gt; would correct both of these distortions.&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;A similar (but quantitatively less dramatic) result would hold in markets with a small number of large employers (but more than one). This is a very simple 'textbook' model and I am not sure what the current empirical evidence on this line of reasoning looks like.&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2014-12-04T11:07:56.560" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="444" PostTypeId="1" CreationDate="2014-12-04T11:10:14.327" Score="16" ViewCount="2150" Body="&lt;p&gt;Suppose for a moment that someone with legislative power decides to abolish Fractional Reserve Banking and passes a law that forces banks to only lend the money they own, that is M0.&#xA;What would be the economy-wise implications of such a change in the long run and what in the short run? In particular with such a criteria in mind as mortgages, interest rates and dispossessions.&lt;/p&gt;&#xA;" OwnerUserId="324" LastEditorUserId="324" LastEditDate="2014-12-04T17:28:52.860" LastActivityDate="2020-01-25T22:43:24.047" Title="Implications of abolishing Fractional Reserve Banking on mortgages and interest rates" Tags="&lt;monetary-policy&gt;&lt;money-supply&gt;&lt;banking&gt;" AnswerCount="5" CommentCount="7" FavoriteCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="445" PostTypeId="2" ParentId="429" CreationDate="2014-12-04T13:01:16.043" Score="4" Body="&lt;p&gt;Another argument is that, in the long run, it promotes productivity, technology and I+D. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Without a minimum wage your economy will tend to turn into a new Bangladesh. It will attract low tech industries that will have very little incentive to invest time and money into making workers more productive.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If each worker month cost you 1000$ you will think how to maximize the potential of your workers. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Was this argument from Joseph Stiglitz? )&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Update&lt;/strong&gt;: another argument is that the wage is set by negociating power of workers and employeers. You may set some basic rules or you may let the parts to set it by themselves. That means lots of negociation, strikes, unions, meetings, etc. A lot of energy is spent by both sides trying to negociate. Strikes reduce productivity. Some workers that can stop the system have greater power (air controllers, train drivers). This may spoil the culture of companies.&lt;/p&gt;&#xA;" OwnerUserId="327" LastEditorUserId="327" LastEditDate="2015-04-27T08:49:04.923" LastActivityDate="2015-04-27T08:49:04.923" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="446" PostTypeId="1" AcceptedAnswerId="448" CreationDate="2014-12-04T13:36:33.230" Score="4" ViewCount="107" Body="&lt;p&gt;Consider a market with a monopolist firm that has zero marginal cost and faces demand $D(p;\mathbf{a})$, where $\mathbf{a}$ is a vector of parameters and $p$ is the price. The monopolist maximizes profit by solving $$\max_p D(p;\mathbf{a})p,$$&#xA;so that the optimal price, $p^*$, satisfies $$D_1(p^*;\mathbf{a})p^*+D(p^*;\mathbf{a})=0.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This optimal price, $p^*$, results in consumer surplus $$\text{CS}=\int_{p^*}^\infty\!D(p;\mathbf{a})\,dp,$$&#xA;and producer surplus&#xA;$$\text{PS}=D(p^*,\mathbf{a})p^*.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is: is there a family of demand functions, $D(p;\mathbf{a})$, such that $\text{CS}=\text{PS}$ always holds at $p^*$, and if so what does the functional form look like?&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="61" LastEditDate="2014-12-04T14:54:29.800" LastActivityDate="2014-12-04T15:32:25.833" Title="Is there a class of demand functions that deliver equal surplus to consumers and a monopolist?" Tags="&lt;microeconomics&gt;&lt;monopoly&gt;&lt;consumer-surplus&gt;&lt;supply-and-demand&gt;&lt;producer-surplus&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="448" PostTypeId="2" ParentId="446" CreationDate="2014-12-04T15:32:25.833" Score="5" Body="&lt;p&gt;We have that &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$D(p^*,\mathbf{a}) = -\frac {d}{dp^*}\int_{p^*}^\infty\!D(p;\mathbf{a})\,dp,$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Rightarrow \text{PS}(p^*) = -\text{CS}'(p^*)p^* \tag{1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\text{PS}(p^*)= \text{CS}(p^*) \Rightarrow -\text{CS}'(p^*)p^* = \text{CS}(p^*)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;or&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\text{CS}'(p^*) + \frac 1{p^*}\text{CS}(p^*)=0 \tag{2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which is a first-order linear homogeneous differential equation in $p^*$ with variable coefficent. Its solution is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\text{CS}(p^*) = B\exp\left\{-\int \frac 1{p^*}dp^*\right\} = B\exp\left\{-\ln p^*\right\}=B\frac 1{p^*},\;\; B&amp;gt;0 \tag{3}$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So we have that the demand function the OP seeks must satisfy&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\int_{p^*}^\infty\!D(p;\mathbf{a})\,dp = B\frac 1{p^*} \tag{4}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since it should hold $\forall p^*$ we can consider the derivative w.r.t to $p^*$ on both sides, to obtain&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$D(p^*;\mathbf{a}) = B\frac 1{[p^*]^2} \tag{5}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But since, again, it should hold $\forall p^*$, it holds $\forall p$. So&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\text{PS} = \text{CS} \Rightarrow D(p;\mathbf{a}) = B\frac 1{p^2} \tag{6}$$&#xA;Verification of $(6)$ is straightforward.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2014-12-04T15:32:25.833" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="449" PostTypeId="1" CreationDate="2014-12-04T17:45:40.213" Score="2" ViewCount="112" Body="&lt;p&gt;Are there any empirical studies on the question of whether independent central banks cause price stability? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am seeking to understand if independence (of the central monitory authority) is part of the market function that determines price stability at all, and if there are any studies conducted in this area.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The case I have seen arguing for independence leading to price control from &lt;a href=&quot;http://profit.ndtv.com/news/economy/article-nobel-winning-economist-kydland-backs-rbis-anti-inflation-policy-689353&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;, in an article titled &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Nobel-Winning Economist Kydland Backs RBI's Anti-Inflation Policy&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;In his speech, Mr Kydland observed that independence of the central bank is key to achieving the broader goals of policymaking, and interference by the executive is not desirable.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The case against (probably) from &lt;a href=&quot;http://www.brookings.edu/~/media/Projects/BPEA/Spring%202008/2008a_bpea_acemoglu.PDF&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The 1995 Reserve Bank of Zimbabwe Act legislated a greater degree of autonomy&#xA;  for the central bank. After 1995 the bank had its own budget and could decide on its own&#xA;  finances. The act also established the control of inflation as the unique objective of monetary policy, &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Clearly, increased CBI (Central Bank Independence) did little to restrain Zimbabwe’s subsequent monetary policy.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="123" LastEditorUserId="123" LastEditDate="2014-12-05T17:26:09.470" LastActivityDate="2016-06-02T16:02:12.980" Title="Central Banks and Price Stability" Tags="&lt;macroeconomics&gt;&lt;inflation&gt;&lt;monetary-policy&gt;&lt;central-banking&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="450" PostTypeId="2" ParentId="444" CreationDate="2014-12-04T18:22:23.793" Score="14" Body="&lt;p&gt;There is a long standing problem in most discussions of Fractional Reserve Banking (FRB), around the precise definition of money. Cash money (that is M0) is an asset on the banking system balance sheet, while deposit money (the liability) is the money that is created by lending. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ever since the introduction of cheques specifically, and in general the ability to make direct transfers between two deposit accounts, deposit money has been the de facto form of money that is used in the economy. Cash money is maintained at a fractional reserve of deposits (it used to be a regulator of total deposits and lending, but in practice this isn´t the case anymore), and used primarily for inter-bank liquidity settlements, as transfers occur between bank accounts at different banks. Reserve requirements are now down to 2% or less in most countries.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So taken literally, the question is what happens to an economy when its money supply is reduced by 98%, and at the same time total lending shrinks by whatever proportion bank lending is of total lending in the economy (typically 1/3 or more).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the short run, congratulations, you no longer have an economy. Nobody can pay their non-bank debts any more, because there isn´t enough money to pay them with. Bear in mind debt payments do not automatically adjust to changes in the money supply. That triggers a &lt;a href=&quot;https://fraser.stlouisfed.org/docs/meltzer/fisdeb33.pdf&quot;&gt;debt cascade&lt;/a&gt; causing wide-spread company failure. The accompanying impact on all prices causes massive disruption in the supply chain, because everything in the economy is now completely mis-priced relative to everything else. A 20% reduction in the liability money supply &lt;a href=&quot;https://fraser.stlouisfed.org/docs/publications/bms/1914-1941/BMS14-41_complete.pdf&quot;&gt;in the US in 1930-33&lt;/a&gt; for example caused the price of food bought from farmers in some parts of the USA to be less than the cost of the fuel required to get the food to the market for sale. This event would clearly be far worse than that. Market based systems can and will adjust prices over time to compensate for money supply changes, but that´s the long term. It has been said that 'every civilisation is only 2 meals away from barbarism', and I´m afraid you just pushed yours over the edge. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the long term, after a period of market exchanges being performed with cigarettes, and other money-substitutes, and those responsible for this mess being hunted down and dealt with appropriately, people will probably feel that fractional reserve banking wasn´t such a bad idea after all.  Some form of Germany Year 0 event will take place and the banking system will be restarted. Since all debt was effectively discharged during the &quot;unfortunate event&quot; the next few decades will probably be referred to as a golden age. By the survivors.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If instead we assume that rather than reducing the money supply (which we know is a bad idea), the banking system is instead converted so that there is no fractional reserve lending, asset cash is injected to replace debt, and maintain the current quantity of deposits. All deposits in the system are simply held constant from this point on, and you now have a constant money supply economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a side note, everybody now has to pay for their bank accounts, because since banks are no longer lending institutions, they need a revenue source to fund their operations. Quite a large revenue source - ATM networks aren´t cheap.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problems caused by a sudden drop in total lending are still present. In practice this will disrupt the economy in the short term, but hopefully not quite as badly as in the previous scenario.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The short answer though, is we simply don´t know how a constant money economy behaves in practice. There hasn´t been a constant money economy since fractional reserve banking was invented, and that´s at least 3-400 years now (depending where you put goldsmith banking in the banking continuum, and what country you´re in). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A lot of financial statistics would probably start looking very strange, since even correcting for CPI doesn´t adequately control for the impact monetary growth has on price measurements. It´s possible that the economy would settle down after a few years as everything adjusts around the constant money supply - that´s essentially the general equilibrium theory argument. It´s also entirely possible that the growth in the money supply that FRB provides over time makes it easier for adjustments to occur - a lot of arguments in favour of small positive inflation amounts essentially revolve around this - and that a bunch of issues we didn´t previously know about emerge and cause new problems. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;While this is very much an open research question, it´s interesting to note that a side effect of some of the recent Basel 3 regulatory changes is that at least for the last couple of years, several countries including the UK have experienced stable money supplies. If this continues (it´s perfectly possible to regulate fractional reserve banking so that it doesn´t expand the money supply if you know what you´re doing - whether the central banks really know what they´re doing is also an open research question), then we may start to have some empirical data that can help shed light on this very interesting question.&lt;/p&gt;&#xA;" OwnerUserId="84" LastEditorUserId="84" LastEditDate="2014-12-04T23:54:30.457" LastActivityDate="2014-12-04T23:54:30.457" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="451" PostTypeId="1" CreationDate="2014-12-04T18:51:32.480" Score="6" ViewCount="194" Body="&lt;p&gt;The Swiss National Bank has been enforcing a currency floor since 2011, not allowing the EUR/CHF rate to drop below 1.20 by buying unlimited amounts of foreign currency as needed with newly created CHF.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm having trouble finding exact amounts, but it seems from their &lt;a href=&quot;http://www.snb.ch/ext/stats/balsnb/pdf/deen/A1_Ausweise_der_SNB.pdf&quot;&gt;balance sheet&lt;/a&gt; that their foreign currency reserves have increased by about CHF200bn since 2011.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How will they unwind this situation? They state that they still view CHF as overvalued at the 1.20 rate, so presumably they would let it drop some way from that before they start selling the reserves, leaving them with a gain in CHF. Will they just leave the money base permanently contracted to account for this? What long-term impacts will this have?&lt;/p&gt;&#xA;" OwnerUserId="58" LastEditorUserId="58" LastEditDate="2014-12-11T20:19:11.090" LastActivityDate="2017-06-20T06:04:45.447" Title="How might the Swiss currency floor be unwound?" Tags="&lt;monetary-policy&gt;&lt;money-supply&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="452" PostTypeId="1" CreationDate="2014-12-04T19:08:16.870" Score="3" ViewCount="53" Body="&lt;p&gt;I'm interested in technologies that are directed towards improving productivity of workers with high human capital.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What kind of data could one use to look at directed technical change, as in Howard-Howitt-Aghion, or Acemoglu (2002)? &lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="2776" LastEditDate="2017-09-07T06:40:21.943" LastActivityDate="2017-09-14T07:17:17.117" Title="Data on Directed Technical Change" Tags="&lt;data-request&gt;&lt;directed-technical-change&gt;&lt;human-capital&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="453" PostTypeId="2" ParentId="437" CreationDate="2014-12-04T19:11:46.773" Score="5" Body="&lt;p&gt;&lt;a href=&quot;http://www.ourworldindata.org/data/global-interconnections/international-trade/&quot;&gt;Max Roser (2014) – ‘International Trade’. Our World in Data&lt;/a&gt; provides data on overall international trade growth during the requested time period, citing  as their sources:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;International Historical Statistics (by Brian Mitchell)&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://www.correlatesofwar.org/COW2%20Data/Trade/Trade.html&quot;&gt;Correlates of War Bilateral Trade&lt;/a&gt; (as mentioned in the comments)&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://www.ggdc.net/maddison/maddison-project/home.htm&quot;&gt;The Maddison Project&lt;/a&gt; (which I love)&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://www.nber.org/papers/w9318&quot;&gt;The Rise and Fall of World Trade, 1870-1939 (2003)&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;The contribution of intercontinental trade to Europe’s expansion (O'Brien 1982) (&lt;a href=&quot;http://premodeconhist.wordpress.com/2007/12/02/obrien-p-1982-the-contribution-of-intercontinental-trade-to-europes-expansion/&quot;&gt;Which I could only find a discussion of&lt;/a&gt;)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;and many other sources...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I also enjoyed &lt;a href=&quot;http://dev3.cepr.org/meets/wkcn/1/1679/papers/O&amp;#39;Rourke-Prados-Chapter.pdf&quot;&gt;Trade and Empire, 1700-1870&lt;/a&gt; and &lt;a href=&quot;http://www.lse.ac.uk/economicHistory/workingPapers/2014/WP210.pdf&quot;&gt;Sailing Away from Malthus: Intercontinental Trade and European Economic Growth, 1500-1800&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope those help!&lt;/p&gt;&#xA;" OwnerUserId="31" LastActivityDate="2014-12-04T19:11:46.773" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="454" PostTypeId="1" AcceptedAnswerId="456" CreationDate="2014-12-04T19:16:03.333" Score="6" ViewCount="93" Body="&lt;p&gt;Is there any paper that looks at the distribution of wages? I'd like to see how many workers are in each percentile of labor income. I know that you could compute it using CPS or US tax data, but I suppose somebody must have done that before..&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="59" LastEditDate="2014-12-04T19:24:04.977" LastActivityDate="2014-12-04T19:44:37.613" Title="Distribution of Wages" Tags="&lt;macroeconomics&gt;&lt;labor-economics&gt;&lt;reference-request&gt;" AnswerCount="1" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="455" PostTypeId="1" AcceptedAnswerId="4979" CreationDate="2014-12-04T19:25:28.830" Score="11" ViewCount="485" Body="&lt;p&gt;One of the most widely published measures of the economy is the &lt;a href=&quot;https://en.wikipedia.org/wiki/Economic_growth&quot; rel=&quot;nofollow noreferrer&quot;&gt;economic growth&lt;/a&gt; as a % of the GDP; i.e. the degree to which an economy &lt;a href=&quot;https://en.wikipedia.org/wiki/Exponential_growth&quot; rel=&quot;nofollow noreferrer&quot;&gt;grows exponentially&lt;/a&gt;.  In my understanding, when the rate of economic growth is declining or close to 0%, this is considered undesirable and acts are undertaken to avert &lt;a href=&quot;https://en.wikipedia.org/wiki/Recession&quot; rel=&quot;nofollow noreferrer&quot;&gt;recession&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a situation where population is not growing, why do we want the economy to grow?  In other words, is there something inherently wrong with a &lt;a href=&quot;https://en.wikipedia.org/wiki/Steady_state_economy&quot; rel=&quot;nofollow noreferrer&quot;&gt;steady state economy&lt;/a&gt;?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;See also: &lt;em&gt;&lt;a href=&quot;https://economics.stackexchange.com/q/460/332&quot;&gt;Why is economic growth measured exponentially rather than linearly?&lt;/a&gt;&lt;/em&gt;&lt;/p&gt;&#xA;" OwnerUserId="332" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-04-06T22:21:26.270" Title="Are there fundamental reasons why (exponential) economic growth is highly desirable?" Tags="&lt;economic-growth&gt;" AnswerCount="1" CommentCount="3" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="456" PostTypeId="2" ParentId="454" CreationDate="2014-12-04T19:30:26.957" Score="4" Body="&lt;p&gt;Based on the 2010 US Census, &lt;a href=&quot;http://en.wikipedia.org/wiki/Household_income_in_the_United_States#Distribution_of_Household_Income&quot; rel=&quot;nofollow noreferrer&quot;&gt;Wikipedia&lt;/a&gt; has pretty much exactly what you seem to be looking for.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A sample graph:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/vsujP.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;though they of course also have tables and links to more data.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or if you prefer raw data, the &lt;a href=&quot;http://www.irs.gov/uac/SOI-Tax-Stats---Individual-Statistical-Tables-by-Size-of-Adjusted-Gross-Income&quot; rel=&quot;nofollow noreferrer&quot;&gt;IRS SOI&lt;/a&gt; is available for 1996-2012.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And of course there's &lt;a href=&quot;http://eml.berkeley.edu/~saez/pikettyqje.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Piketty and Saez seminal paper on the subject&lt;/a&gt; (See Table 5 for their data analogous to the included Wikipedia picture)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And of course there's the BLS which publishes these things regularly by &lt;a href=&quot;http://www.bls.gov/cps/earnings.htm#demographics&quot; rel=&quot;nofollow noreferrer&quot;&gt;demographic&lt;/a&gt;, &lt;a href=&quot;http://www.bls.gov/cps/earnings.htm#hourly&quot; rel=&quot;nofollow noreferrer&quot;&gt;hourly only&lt;/a&gt;, or &lt;a href=&quot;http://www.bls.gov/cps/earnings.htm#occind&quot; rel=&quot;nofollow noreferrer&quot;&gt;occupation/industry&lt;/a&gt;. &lt;/p&gt;&#xA;" OwnerUserId="31" LastEditorUserId="31" LastEditDate="2014-12-04T19:44:37.613" LastActivityDate="2014-12-04T19:44:37.613" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="457" PostTypeId="1" AcceptedAnswerId="473" CreationDate="2014-12-04T19:31:35.343" Score="8" ViewCount="434" Body="&lt;p&gt;Economic growth is frequently expressed as a % of GDP.  Proponents of a &lt;a href=&quot;https://en.wikipedia.org/wiki/Steady_state_economy&quot; rel=&quot;nofollow noreferrer&quot;&gt;steady-state economy&lt;/a&gt; postulate that perpetual exponential economic growth is impossible and that any system relying on it is inherently unstable. Is this true?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is indefinite exponential economic growth possible?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(See also: &lt;em&gt;&lt;a href=&quot;https://economics.stackexchange.com/q/455/332&quot;&gt;Are there fundamental reasons why (exponential) economic growth is highly desirable?&lt;/a&gt;&lt;/em&gt;)&lt;/p&gt;&#xA;" OwnerUserId="332" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2014-12-05T03:32:28.247" Title="Is indefinite exponential economic growth possible?" Tags="&lt;economic-growth&gt;" AnswerCount="1" CommentCount="4" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="458" PostTypeId="1" AcceptedAnswerId="1745" CreationDate="2014-12-04T19:44:14.110" Score="9" ViewCount="136" Body="&lt;p&gt;The words &lt;em&gt;ecology&lt;/em&gt; and &lt;em&gt;economy&lt;/em&gt; are very similar.  &lt;a href=&quot;http://en.wikipedia.org/wiki/Ecology&quot;&gt;Ecology&lt;/a&gt; derives from the words &lt;a href=&quot;http://en.wiktionary.org/wiki/%CE%BF%E1%BC%B6%CE%BA%CE%BF%CF%82#Ancient_Greek&quot;&gt;&lt;em&gt;οἶκος&lt;/em&gt;&lt;/a&gt; + &lt;a href=&quot;http://en.wiktionary.org/wiki/-%CE%BB%CE%BF%CE%B3%CE%AF%CE%B1#Ancient_Greek&quot;&gt;λογία&lt;/a&gt;, i.e. the &lt;em&gt;study of the house/household&lt;/em&gt;.  &lt;a href=&quot;http://en.wikipedia.org/wiki/Economy&quot;&gt;Economy&lt;/a&gt; derives from the words &lt;a href=&quot;http://en.wiktionary.org/wiki/%CE%BF%E1%BC%B6%CE%BA%CE%BF%CF%82#Ancient_Greek&quot;&gt;&lt;em&gt;οἶκος&lt;/em&gt;&lt;/a&gt; + &lt;a href=&quot;http://en.wiktionary.org/wiki/%CE%BD%CF%8C%CE%BC%CE%BF%CF%82#Ancient_Greek&quot;&gt;νόμος&lt;/a&gt;, i.e. the &lt;em&gt;laws of the house/household&lt;/em&gt;.  In modern usage, ecology studies, among other things, &lt;em&gt;movement of materials and energy through living communities&lt;/em&gt; (e.g. &lt;a href=&quot;https://en.wikipedia.org/wiki/Ecology&quot;&gt;Wikipedia&lt;/a&gt;).  Economy, in modern usage, is defined by &lt;a href=&quot;https://en.wikipedia.org/wiki/Economy&quot;&gt;Wikipedia&lt;/a&gt; as &lt;em&gt;An economy or economic system consists of the production, distribution or trade, and consumption of limited goods and services by different agents in a given geographical location&lt;/em&gt;.&#xA;An interdisciplinary field is called &lt;a href=&quot;https://en.wikipedia.org/wiki/Ecological_economics&quot;&gt;ecological economics&lt;/a&gt;, which is &lt;em&gt;the treatment of the economy as a subsystem of the ecosystem&lt;/em&gt; (again according to Wikipedia).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've often wondered by ecologists and economists seem, often quite literally and physically, separated fields.  Ecological economics considers the economy as a subsystem of the ecosystem.  Why is this not standard?  How can the economy ever &lt;em&gt;not&lt;/em&gt; be a subsystem of the ecology, and why is not all economics &quot;ecological economics&quot;?  Or is it?&lt;/p&gt;&#xA;" OwnerUserId="332" LastEditorUserId="43" LastEditDate="2014-12-23T21:57:36.997" LastActivityDate="2014-12-28T01:19:06.480" Title="Why are ecology and economics seemingly disjunct topics?" Tags="&lt;economic-terms&gt;" AnswerCount="2" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="459" PostTypeId="1" AcceptedAnswerId="3198" CreationDate="2014-12-04T20:03:20.657" Score="5" ViewCount="245" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;Proposition.&lt;/strong&gt; Every finite extensive form game is associated with a unique strategic form representation.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I think this proposition is true. But how do we prove it rigorously?&lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2016-01-07T05:05:52.027" Title="Strategic form representation of extensive form games" Tags="&lt;game-theory&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="460" PostTypeId="1" AcceptedAnswerId="464" CreationDate="2014-12-04T21:05:22.970" Score="10" ViewCount="4236" Body="&lt;p&gt;If economic growth is indeed highly desirable (see &lt;a href=&quot;https://economics.stackexchange.com/q/455/332&quot;&gt;this question&lt;/a&gt;), why must this growth be exponential? With finite resources, exponential growth might hit limits rapidly (or be impossible?). Why not express growth in linear rather than exponential terms?&lt;/p&gt;&#xA;" OwnerUserId="332" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-05-27T00:25:38.277" Title="Why is economic growth measured exponentially rather than linearly?" Tags="&lt;economic-growth&gt;" AnswerCount="4" CommentCount="1" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="461" PostTypeId="2" ParentId="429" CreationDate="2014-12-04T21:11:11.103" Score="-7" Body="&lt;p&gt;The immediate effect of increasing the minimum wage is obviously more disposable income for minimum wage workers, increased expense for employers, possibly higher prices, and an increase in the amount of taxes collected. But this leads to a chain of economic events that will resolve in a possibly new equilibrium that may or may not be any more beneficial.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Higher wages enables higher paid workers to choose a different bundle of goods that they consume. If some of the new purchasing options are outside the area that they work, the money may be lost from the community or microeconomy. The money may not return until the economy adjusts and inflation reestablishes a new equilibrium price level at which point the basket of goods to choose from may become local again.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, consider that minimum wage workers may have debt and so additional money earned might not go toward purchasing anything new or local; and may also flow away from local circulation. Firms requiring certain numbers of employees won't necessarily go out of business but will have to lessen other costs in other ways. This could lower the quality of goods &amp;amp; services and affect people's consumption from the firm given their preferences. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Within the local economy, given wage earners' new indifference curves, some firms may lose additional business to other firms while dealing with additional wage costs. Firms may raise prices to compensate, reestablishing the wage vs price equilibrium, BUT if the rate of money flow out of the local economy increases, local residents including the firms and wage earners may find themselves with higher prices but less money in their own local economy to afford those higher prices. Income taxes and payroll tax collections would increase. Depending on the government's discretion, the tax revenue may either be effectively or ineffectively applied. This could make the government look good or not so good.&lt;/p&gt;&#xA;" OwnerUserId="334" LastEditorUserId="334" LastEditDate="2014-12-07T19:08:11.550" LastActivityDate="2014-12-07T19:08:11.550" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="462" PostTypeId="1" CreationDate="2014-12-04T21:22:11.543" Score="5" ViewCount="464" Body="&lt;h1&gt;Long Question:&lt;/h1&gt;&#xA;&#xA;&lt;h2&gt;Overview:&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;While I understand that over certain intervals (i.e. less than the width of the step), they may appear not to be because the step is outside of consideration, and over other intervals (much, much larger) the step seems continuous as opposed to discrete, but at the end of the day aren't these merely artifacts of the analysis, as opposed to properties of the underlying function?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Admittedly, I was never much good with the calculus of discrete functions, but I remember there being some substantial differences between their derivatives (e.g. the need to invoke the finite difference method as opposed to a limit). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Further, given the potential steepness of the step, and its unknown location, isn't predicting difficult?&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;A Picture:&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;For example, the graph below shows a cost function for $n$ units with and without a step.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The red line is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$C(n)=5n$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and the blue line is&#xA;$$C(n) = n+(n-\mod (n,5))$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://s3.amazonaws.com/grapher/exports/dwqiqzpxd8.png&quot; alt=&quot;graph&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Analyzed over $(0,5)$ these would coincide, and an analyst might not have any expectation that increasing by a small factor would dramatically increase cost, and while the (simple) derivative at any point on the line is the same for either line (inside the step interval), this is very misleading.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Further, I chose $5$ at random, a more generalized idea might be something along the lines of:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$C(n) = n+\frac{S(n-\mod(n,w))}{w}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $S$ is the step cost, and $w$ is the width.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Summary:&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Given these concepts, why are step cost functions generally treated as less preferential in discussing models? Or is that just my experience, and not indicative of the way the field treats cost functions as a whole?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I ask this, because whenever I see a discussion of a cost function, it seems to be continuous, and whenever I see mention of a step function it seems to be an afterthought.&lt;/p&gt;&#xA;" OwnerUserId="31" LastEditorUserId="31" LastEditDate="2014-12-05T02:30:26.817" LastActivityDate="2014-12-05T02:30:26.817" Title="Aren't all cost functions step functions?" Tags="&lt;mathematical-economics&gt;" AnswerCount="1" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="463" PostTypeId="2" ParentId="460" CreationDate="2014-12-04T21:23:44.703" Score="7" Body="&lt;p&gt;Because linear functions don't match the data.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can't express a series &#xA;$$[1,2,4,9,16]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;as &#xA;$$f(x)=x+y$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;for any possible $y$.&lt;/p&gt;&#xA;" OwnerUserId="31" LastActivityDate="2014-12-04T21:23:44.703" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="464" PostTypeId="2" ParentId="460" CreationDate="2014-12-04T21:29:09.347" Score="9" Body="&lt;p&gt;Growth as is meant here &quot;must&quot; be nothing in particular. It is a specific metric, the percentage change in yearly GNP/GDP, and it is what it is.&lt;br&gt;&#xA;In &lt;a href=&quot;http://mitpress.mit.edu/books/lectures-macroeconomics&quot; rel=&quot;noreferrer&quot;&gt;Blanchard and Fischer 's &quot;Lectures on Macroeconomics&quot;&lt;/a&gt;, in the introductory chapter 1, page 2, Figure 1.1, the &lt;em&gt;logarithm&lt;/em&gt; of USA GNP 1874-1986 is graphed: and it is impressively &lt;em&gt;linear&lt;/em&gt; , bar a disturbance around World-War II (a dive before it that was roughly equally compensated immediately after). But this means that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\ln Y \approx at \Rightarrow Y \approx e^{at}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(for the US Economy, $a \approx 0.030\;\; \text{to} \;\;0.037$ for the period).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is &lt;em&gt;the data&lt;/em&gt; that told us that &quot;growth was exponential&quot; during this period.&lt;br&gt;&#xA;(Note that &quot;exponential growth&quot; usually includes the concept of &lt;em&gt;constant growth rate&lt;/em&gt;, while  in informal language, &quot;exponential&quot; may also refer to exploding paths, paths with increasing growth rate).&lt;br&gt;&#xA;And so economic models were deemed relevant if they could replicate to a respectable degree the observed data.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question &quot;can this go on forever?&quot; is an altogether different issue, starting with the meaning of the word &quot;forever&quot;.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2014-12-05T19:11:44.397" LastActivityDate="2014-12-05T19:11:44.397" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="465" PostTypeId="2" ParentId="429" CreationDate="2014-12-04T22:21:15.457" Score="-10" Body="&lt;p&gt;I am not an economist but I have had a very firm opinion about this since I first considered it as a young worker who has witnessed the increase of minimum wage and the increase in inflation over a 15-year period:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The fundamental problem with this is that if a significant amount of a population require a minimum wage increase, the economy will adjust in order neutralize this increased buying power after a very short time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example: Once it is determined by 'an industry' - computers, food, transportation, etc. that a significant amount of the population is now receiving more money (albeit 50 cents an hour), then surely their prices will soon reflect this increased buying power of the poor and the effect of the wage increase will then be effectectively neutralized. Can you blame the manufacturer?  After all, they are now having to pay some of their workers more and are seeing a loss because of it. Some call this type of thing 'inflation'. This increase will continue indefintely, much like a worm which stretches out their head farther than he can normally reach, the rest of the body will soon follow. Only the worm actuallly gets somehere, I do not believe the same is true for society or the economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To further this point: how far do you think we can keep increaing the minimum wage? Indefinitely?  Without unchecked inflation, soon we would find ourselves in a position where a loaf of bread costs one million dollars... but the minimum wage is 2 million so we can still buy our loaf of bread for a half-hour's worth of work. Of course, there was a short period before the bread manufucters increased their bread prices from $900,000 to 1 million, so for a short time those receiving minimum wage saw an increase in their buying power, but it was fake/forced/temporary.  They didn't do anything to truly increase their buying power: their skills were the same, their lives were the same, and so naturally the rest of the economy will adjust to keep everything else just the same.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In conclusion and to answer your actual question: I believe inreasing the minimum wage is nothing more than a facade used by a political party or politician to increase their reputation amongst those who would benefit the most, the recipients of the wage increase, and garner votes from those who do not realize how futile the politician's attempts are in the long term at making peoples' lives any better. It's a shortcut, which omits any of the hard work that is really required to accomplish anything in the real world. Like most shortcuts, their effects are usually &quot;short-term&quot;.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;NOTE: my answer is based on logical progression, not economical principles. If you disagree with something I've said, please leave a comment after downvoting. Thank you.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="339" LastEditorUserId="339" LastEditDate="2014-12-04T22:40:38.857" LastActivityDate="2014-12-04T22:40:38.857" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="466" PostTypeId="1" AcceptedAnswerId="468" CreationDate="2014-12-04T22:30:04.607" Score="3" ViewCount="4126" Body="&lt;p&gt;Are there results that says the monotonicity of one measure of risk aversion implies the monotonicity of the other measure?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example,&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Does constant relative risk aversion imply decreasing absolute risk aversion?&lt;/li&gt;&#xA;&lt;li&gt;Does constant absolute risk aversion imply decreasing relative risk aversion?&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;and so on.&lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2014-12-05T00:08:22.840" Title="Absolute vs Relative Risk Aversion" Tags="&lt;decision-theory&gt;&lt;risk&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="467" PostTypeId="1" AcceptedAnswerId="469" CreationDate="2014-12-04T22:30:43.493" Score="3" ViewCount="1309" Body="&lt;p&gt;The law of demand implies that when the price of a good rises, people buy less of it. This makes the demand curve slope monotonically downwards. A textbook exception is the so-called &lt;a href=&quot;http://en.wikipedia.org/wiki/Giffen_good&quot; rel=&quot;nofollow&quot;&gt;Giffen good&lt;/a&gt; that by definition behaves in the opposite way.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But take a stock on the rise; might there not at least be one tendency for people to buy more of it under some circumstances, because it looks promising, in spite of any opposite tendencies? Is or isn't this another case where a demand curve may slope upwards?&lt;/p&gt;&#xA;" OwnerUserId="56" LastActivityDate="2015-06-05T18:56:02.947" Title="Is stock investment an example of demand curves that slope upwards?" Tags="&lt;supply-and-demand&gt;" AnswerCount="3" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="468" PostTypeId="2" ParentId="466" CreationDate="2014-12-04T23:15:50.670" Score="3" Body="&lt;p&gt;Given a utility function $u(c)$, $c&amp;gt;0$, with $u'(c)&amp;gt;0, u''(c) &amp;lt;0$. Regarding the sign of the second derivative, if it is zero, then both measures are zero, if it is positive, it would imply increasing marginal utility, and I don't remember having seen these attitude-towards-risk measures for such a utility function.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Denote Absolute Risk Aversion ($ARA$) and Relative Risk Aversion ($RRA$) correspondingly by &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$A(c) = -\frac {u''(c)}{u'(c)},\;\;\; R(c) = cA(c), \;\; A(c) = \frac 1c R(c)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;1) Monotonicity of $A(c)$ in relation to $R(c)$&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\partial A(c)}{\partial c} = \frac {\partial [(1/c)R(c)]}{\partial c}= -\frac 1{c^2} R(c) + \frac 1{c}\frac {\partial R(c)}{\partial c} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So if &#xA;$$\frac {\partial R(c)}{\partial c} \leq 0 \Rightarrow \frac {\partial A(c)}{\partial c} &amp;lt; 0$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$RRA$ weakly decreasing  $\Rightarrow ARA$ is strictly decreasing in $c$.  &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;2) Monotonicity of $R(c)$ in relation to $A(c)$&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\partial R(c)}{\partial c} = \frac {\partial [cA(c)]}{\partial c}=A(c) + c\frac {\partial A(c)}{\partial c} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So if $$\frac {\partial A(c)}{\partial c} \geq 0 \Rightarrow \frac {\partial R(c)}{\partial c} &amp;gt; 0$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$ARA$ weakly increasing $\Rightarrow RRA$ is strictly increasing in $c$. &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2014-12-05T00:08:22.840" LastActivityDate="2014-12-05T00:08:22.840" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="469" PostTypeId="2" ParentId="467" CreationDate="2014-12-05T01:14:59.747" Score="6" Body="&lt;p&gt;The observation that &quot;as stock prices rise people tend to buy more of it, so here the &quot;law of demand&quot; holds in reverse&quot;, is one of the more widespread misconceptions related to economic thinking.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To expand on @StevenLandsburg comment, the &quot;demand curve&quot; (or &quot;schedule&quot;) describes a static relation between the &lt;em&gt;quantity&lt;/em&gt; of a good and its &lt;em&gt;price&lt;/em&gt;. Its &lt;em&gt;quality&lt;/em&gt; (in the general sense of features, qualities) remains &lt;em&gt;constant&lt;/em&gt;, as we trace the demand curve.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In our case we think of the stock as the good, and we have also its price. Now what happens when the price goes up? &lt;em&gt;Are we talking about the same good&lt;/em&gt;? Definitely no. The price raise itself signals that &lt;em&gt;we now have a better good&lt;/em&gt; (higher discounted future profits). But then we have a &lt;em&gt;different&lt;/em&gt; good.&#xA;So the pairs $(p_1, q_1)$ and $(p_2, q_2)$ &lt;em&gt;do not really belong to the same demand schedule&lt;/em&gt;. So the &quot;law of demand&quot; is irrelevant here as a tool to describe the situation (we could picture it as a &lt;em&gt;shift of the whole demand schedule outwards&lt;/em&gt;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If one wants to try to think &quot;intuitively&quot; about the law of demand and stocks, then one can consider the following thought experiment:&lt;br&gt;&#xA;&lt;strong&gt;Assume that you can buy the same stock on the same day at two different prices&lt;/strong&gt; (it can happen, the world is not really one single market, even for stocks -and transactions can happen also outside of the stock market).&lt;br&gt;&#xA;Assume that you cannot choose the seller, which will be determined randomly. But you have to commit beforehand about the number of pieces that you will buy. And you know the two prices.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What are you going to do?&#xA;&lt;strong&gt;Commit to buy &lt;em&gt;more&lt;/em&gt; pieces if you are dealt the &lt;em&gt;expensive&lt;/em&gt; seller, and &lt;em&gt;fewer&lt;/em&gt; pieces if you are dealt the &lt;em&gt;cheaper&lt;/em&gt; seller?&lt;/strong&gt; Sounds ridiculously obvious, isn't it?&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2014-12-05T01:14:59.747" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="470" PostTypeId="2" ParentId="462" CreationDate="2014-12-05T01:23:42.133" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Analyzed over (0,5) these would coincide, and an analyst might not&#xA;  have any expectation that increasing by a small factor would&#xA;  dramatically increase cost, and while the (simple) derivative at any&#xA;  point on the line is the same for either line (inside the step&#xA;  interval), this is very misleading.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Good question, but mainly of theoretical validity. The &quot;analyst&quot; in question would most probably have some indications of the cost for most if not all production scales of interest. There are few cases when a production plan is about producing on a scale no-one has seen before (not only the specific company, but any company). So data to compare and get an idea will be around, and also, as a last resort, &quot;engineering&quot; data can, and do, assist also (and engineering is much more of an exact science than Economics is).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Firms' practitioners have a rather clear view of &quot;Fixed Costs&quot; that are not really Fixed but step cost functions, trust my corporate experience on this one. They &quot;sense&quot; when the step is about to be taken -and they sit down and calculate it. The whole Cost-Accounting business is essentially about learning how to detect, separate and handle Fixed and Variable Costs, as well as Variable and Marginal Costs (in the real world, the distinction between Variable and Marginal Cost is &lt;em&gt;very&lt;/em&gt; existing, and very important).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the case of aggregate/average cost functions, the individuality of each firm alongside the common structural base that exists in all production activities, helps in smoothing the relationship.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2014-12-05T01:30:26.107" LastActivityDate="2014-12-05T01:30:26.107" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="471" PostTypeId="1" CreationDate="2014-12-05T02:24:23.183" Score="7" ViewCount="1248" Body="&lt;p&gt;What would be good textbooks at the graduate level that deal with Labor Economics and Labor-Macro (As in, Equilibrium Unemployment Theory, Shimer Puzzle etc)?&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="108" LastEditDate="2014-12-05T07:45:27.453" LastActivityDate="2017-02-09T14:17:28.727" Title="Graduate Level Textbook on Labor Economics and Macro-Labor" Tags="&lt;macroeconomics&gt;&lt;labor-economics&gt;&lt;reference-request&gt;" AnswerCount="6" CommentCount="1" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="473" PostTypeId="2" ParentId="457" CreationDate="2014-12-05T03:32:28.247" Score="5" Body="&lt;p&gt;As Steven Landsburg pointed out, indefinite anything isn't possible given the eventual heat death of the universe.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://en.wikipedia.org/wiki/Self-replicating_spacecraft#Von_Neumann_probes&quot;&gt;Von Neumann posited machines capable of indefinite growth in population&lt;/a&gt; (and theoretically production and consumption), so in theory, it would be possible for a time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://adsabs.harvard.edu/full/1983QJRAS..24..113S&quot;&gt;Sagan's Response&lt;/a&gt; however argued if such things existed that we would have already observed them, and that they would destroy whole galaxies &lt;em&gt;en masse&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That's probably the closest answer you can get to a question like this.&lt;/p&gt;&#xA;" OwnerUserId="31" LastActivityDate="2014-12-05T03:32:28.247" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="474" PostTypeId="1" AcceptedAnswerId="478" CreationDate="2014-12-05T06:54:40.493" Score="5" ViewCount="174" Body="&lt;p&gt;Take the standard portfolio choice problem as presented in MWG (p.188-189), but with a risk loving decision maker:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;with initial wealth  $w$&lt;/li&gt;&#xA;&lt;li&gt;invests an amount $\alpha$ in a risky asset with a random gross rate of return $z$, where $z$ is distributed according to cdf $F$, and $\int zdF(z)&amp;gt;1$&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The decision maker solves the following problem&#xA;$$&#xA;  \max_{\alpha\in[0,w]} \int u(w-\alpha +\alpha z) dF(z),&#xA;$$&#xA;where $u'&amp;gt;0$, $u''&amp;gt;0$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Is it true that the optimal solution is $\alpha^*=w$?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that since $u$ is convex, the usual first order condition is not sufficient for a maximum. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Intuitively the answer should be yes. But what's the reason, exactly?&lt;/p&gt;&#xA;" OwnerUserId="42" LastEditorUserId="61" LastEditDate="2014-12-05T07:12:01.763" LastActivityDate="2014-12-25T02:40:29.690" Title="Portfolio choice of a risk lover" Tags="&lt;decision-theory&gt;&lt;risk&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="476" PostTypeId="2" ParentId="471" CreationDate="2014-12-05T12:52:50.020" Score="4" Body="&lt;p&gt;To get us started, I will suggest &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Pissarides: &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0262161877&quot; rel=&quot;nofollow&quot;&gt;Equilibirum Unemployment Theory&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which deals with his Search&amp;amp;matching Equilibrium model of Labor Markets, and various extensions.&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2014-12-05T12:52:50.020" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="477" PostTypeId="2" ParentId="467" CreationDate="2014-12-05T13:42:49.000" Score="3" Body="&lt;p&gt;There are two completely separate reasons why you shouldn't think of stocks as Giffen goods.  Alecos has very nicely explained the first reason.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The other is that consumer theory --- maximization subject to a budget constraint --- does not apply to financial assets, because here there is in principle no budget constraint.  That is, there's a limit to how much you can borrow for a trip to Hawaii, but there's no limit in principle to how much you can borrow to buy assets that throw off income.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that the whole theory of Giffen goods --- the Slutsky equation, etc. --- relies on the budget constraint.  That's exactly why there are no Giffen factors of production, even in theory.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So Alecos's point is that to call a stock a &quot;Giffen good&quot;, you'd have to demonstrate an upward sloping demand curve holding quality constant.  The point here is that to make sense of a stock as a &quot;Giffen good&quot; you've got to have a budget constraint.  So &lt;b&gt;even if you ignore Alecos's point entirely&lt;/b&gt;, there is still no chance for a financial asset to be a Giffen good.&lt;/p&gt;&#xA;" OwnerUserId="250" LastActivityDate="2014-12-05T13:42:49.000" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="478" PostTypeId="2" ParentId="474" CreationDate="2014-12-05T14:22:28.503" Score="4" Body="&lt;p&gt;Since we are suspecting a corner-solution, it is better to write the problem explicitly with its constraint. Even better, use the Fritz John (&lt;strong&gt;FJ&lt;/strong&gt;) conditions rather than the Karush-Kuhn-Tucker (&lt;strong&gt;KKT&lt;/strong&gt;) ones. We will mention the differences as we go along.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\max_{\alpha} \int u[w+\alpha(z-1)] dF(z),\;\; \text{s.t.}\;\; w-\alpha  \geq 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The lagrangean under the Firtz John formulation is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$L_{FJ} = \lambda_0\int u[w+\alpha(z-1)] dF(z)\; + \;  \lambda_1(w-\alpha)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The new element is the multiplier on the objective function, $\lambda_0$. Without loss of generality we can specify &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\lambda_0 \in \{0,1\},\;\; \lambda_0 + \lambda_1 \neq 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is that we gain here, compared to the much more widely known and used &lt;strong&gt;KKT&lt;/strong&gt;-conditions?&#xA;If a solution necessitates that $\lambda_0 =1$, we obtain the &lt;strong&gt;KKT&lt;/strong&gt; conditions &lt;em&gt;&lt;strong&gt;with the constraint qualification satisfied&lt;/strong&gt;&lt;/em&gt;. If a solution necessitates that $\lambda_0 =0$, it reflects, among other special cases, the case where the constraint qualification fails to hold.  &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;(A standard example is the case where the feasible set for $\alpha$&#xA;  has been reduced to a single point due to the constraints imposed.&#xA;  Then we will find that the only solution dictates that $\lambda_0=0$,&#xA;  which has an intuitive explanation: if $\alpha$ can take one and only&#xA;  one value due to the constraints, then the objective function &quot;plays&#xA;  no role&quot; in the determination of $\alpha$ and so it gets a zero&#xA;  multiplier).&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Back to our problem. The first order condition is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\partial L_{FJ}}{\partial \alpha} = \lambda_0\int u'[w+\alpha(z-1)]\cdot (z-1) dF(z) - \lambda_1 \leq 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(note the &quot;lower or equal to zero&quot; which is the case when optimizing under inequality constraints, rather than just &quot;equal&quot;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, we establish that $\alpha^* &amp;gt;0$. Due to $u'&amp;gt;0$ and the (strict) convexity of the utility function,$u''&amp;gt;0$, and the assumption that $E(z) &amp;gt;1$ we have (using Jensen's Inequality)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$E[u(w+\alpha(z-1))] &amp;gt; u(w+\alpha(E(z)-1))] &amp;gt; u(w + 0\cdot(E(z)-1))=u(w)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We turn now to examine cases.  Since the two multipliers cannot be both zero, and $\lambda_0$ takes only two values, there are three possible combinations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Examine the case $\lambda_0 =1$.&lt;/strong&gt;&lt;br&gt;&#xA;Then $\lambda_1$ can in principle be zero or positive. Examine the case where $\lambda_1 =0$, i.e. the constraint is not binding which implies that $\alpha^* &amp;lt; w$.  With this candidate pair of multipliers, $\{\lambda_0=1,\lambda_1=0\}$, the first order condition would become&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\int u'[w+\alpha(z-1)]\cdot (z-1) dF(z) \leq 0 \Rightarrow E(zu') - E(u') \leq 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since $u'&amp;gt;0 \Rightarrow E(u') &amp;gt; 0$. Also, since $E(z)&amp;gt;1$ we have that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$E(u')&amp;lt; E(u')E(z) \Rightarrow E(zu') &amp;lt; E(u')E(z) \Rightarrow \text{Cov}(z, u')&amp;lt;0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But this cannot hold,  because, since $\alpha^*&amp;gt;0$ and $u''&amp;gt;0$, we have that $u'$ will be strictly increasing in $z$. So the covariance of $z$ and $u'$ cannot be negative. But then the pair of multiplier values $\{\lambda_0=1,\lambda_1=0\}$ cannot be a solution, and this happens due to the assumption $u''&amp;gt;0$.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;We are left with the cases&#xA;$\{\lambda_0=1,\lambda_1&amp;gt;0\}$, or $\{\lambda_0=0,\lambda_1&amp;gt;0\}$. In both these cases, $\lambda_1 &amp;gt;0$ i.e. the constraint is binding , i.e. we will have $\alpha^* = w$. &lt;strong&gt;QED.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;References&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The Fritz John conditions have been stated in&#xA;&quot;&lt;strong&gt;F. JOHN. Extremum problems with inequalities as side conditions. In “Studies and Essays, Courant Anniversary Volume”&lt;/strong&gt; (K. O. Friedrichs, O. E. Neugebauer and J. J. Stoker, eds.), pp. 187-204. Wiley (Interscience), New York, 1948&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and have been generalized in&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;&lt;strong&gt;Mangasarian, O. L., &amp;amp; Fromovitz, S. (1967). The Fritz John necessary optimality conditions in the presence of equality and inequality constraints&lt;/strong&gt;. Journal of Mathematical Analysis and Applications, 17(1), 37-47.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2014-12-25T02:40:29.690" LastActivityDate="2014-12-25T02:40:29.690" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="479" PostTypeId="2" ParentId="436" CreationDate="2014-12-05T15:52:25.497" Score="2" Body="&lt;p&gt;&lt;a href=&quot;http://eml.berkeley.edu/~webfac/cromer/e134_sp13/Lecture%2026%20Slides%20Long.pdf&quot; rel=&quot;nofollow&quot;&gt;This set of lecture notes&lt;/a&gt; cites a bunch of great studies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Effectively, this lecture said that fiscal consolidation (austerity) might have been expansionary (good). The &lt;a href=&quot;https://www.richmondfed.org/publications/research/economic_brief/2013/pdf/eb_13-09.pdf&quot; rel=&quot;nofollow&quot;&gt;Federal Reserve&lt;/a&gt;, however says:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;fiscal consolidation is not likely to be expansionary today.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The deciding factor seems to be whether Monetary Policy can offset short-term effects, thogh the Fed goes on to close with:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In summary, economists have not definitively answered the question of whether and when austerity is likely to be beneficial. Much of the debate ignores the question of whether implementing austerity is feasible in nations with nonexistent records of long-run fiscal consolidation or that rely on foreign sources of deficit financing. The economic volatility of recent years provides a ripe area of future study regarding the true effects of fiscal contractions.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Or, &quot;We'll see...&quot;&lt;/p&gt;&#xA;" OwnerUserId="31" LastActivityDate="2014-12-05T15:52:25.497" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="480" PostTypeId="2" ParentId="471" CreationDate="2014-12-05T16:20:26.617" Score="3" Body="&lt;p&gt;I'm not sure if it's a good book, the author at least is very known in the macro community, but if you want a book on the New-Keynesian perspective on unemployment:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.amazon.co.uk/Unemployment-Fluctuations-Stabilization-Policies-Perspective/dp/0262015978/ref=sr_1_4?s=books&amp;amp;ie=UTF8&amp;amp;qid=1417796361&amp;amp;sr=1-4&amp;amp;keywords=jordi%20gal%C3%AD&quot; rel=&quot;nofollow&quot;&gt;Jordí Galí's&lt;/a&gt; He tends to leave many details outside the book. You might like it. &lt;/p&gt;&#xA;" OwnerUserId="118" LastActivityDate="2014-12-05T16:20:26.617" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="481" PostTypeId="1" CreationDate="2014-12-05T16:51:28.703" Score="6" ViewCount="524" Body="&lt;p&gt;Recently I began thinking about why the use of tokens for money is so popular. In casinos, I think that it is &lt;a href=&quot;http://en.wikipedia.org/wiki/Casino_token&quot; rel=&quot;nofollow&quot;&gt;well justified&lt;/a&gt;, but there are some cases when those arguments are not useful. For example, why would an amusement park make you buy tickets that say exactly how much is it worth (for example, buying a ticket for 5 dollars at the cost of....5 dollars). You know how much money you are spending, so the link between value and tokens is not broken.  What positive effects does that measure have in the amusement park economy?  Why?&lt;/p&gt;&#xA;" OwnerUserId="353" LastEditorUserId="353" LastEditDate="2014-12-06T17:02:39.077" LastActivityDate="2016-12-31T07:52:38.960" Title="Tokens vs money" Tags="&lt;behavioral-economics&gt;" AnswerCount="4" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="482" PostTypeId="1" CreationDate="2014-12-05T17:48:52.307" Score="2" ViewCount="2382" Body="&lt;p&gt;The normal supply and demand models take the supply and demand of a particular good and show that the equilibrium price is where the two curves intersect.  At this point, all the people below the equilibrium point value the good as worth less than the price; on the other hand, all the people above the equilibrium point value the good as worth more than the price; people at the equilibrium point value the good at the price value.&lt;br&gt;&#xA;In my mind, following this logic, everyone should want to &quot;purchase&quot; a free good.  But that is not necessarily the case.  For example, in an undergraduate program, the university will give away t-shirts, pens, etc. to the students for free.  However, not all of the students will want these items.  However, since the price is free, it seems that everyone should want them.&lt;br&gt;&#xA;How do we reconcile both of these observations?  &lt;/p&gt;&#xA;" OwnerUserId="27" LastActivityDate="2015-06-04T04:00:43.693" Title="Analysis of free goods" Tags="&lt;supply-and-demand&gt;&lt;price-level&gt;" AnswerCount="3" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="483" PostTypeId="2" ParentId="481" CreationDate="2014-12-05T19:00:10.483" Score="5" Body="&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Disneyland takes in about \$8 billion a year --- not all of it through tokens, but let's say they sell, oh, \$4 billion a year worth of tokens.  People often buy tokens several hours before they use them, so Disneyland gets to hold \$4 billion a year for, oh, say, four hours longer than they would without tokens.  At 6\% annual interest, that's worth about \$100,000 a day to them.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Some people don't use all their tokens and don't bother to cash them in, which means you're effectively charging those people more than others.  So tokens can be an effective way to price discriminate.  To make sense of this, you'd have to explain why the people who don't cash in the tokens are (on average) the people you want to discriminate against, but I don't think it would be hard to come up with a plausible story along these lines.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="250" LastEditorUserId="250" LastEditDate="2014-12-05T20:59:16.707" LastActivityDate="2014-12-05T20:59:16.707" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="485" PostTypeId="1" AcceptedAnswerId="558" CreationDate="2014-12-05T20:04:44.483" Score="5" ViewCount="871" Body="&lt;h1&gt;Question&lt;/h1&gt;&#xA;&lt;p&gt;How should I deal with missing data when trying to test the CAPM? Specifically, there are some stocks that are newly listed and/or delisted at any time. I don't want to exclude assets for which I don't have complete data because this would create a kind of survivor bias.  I know that CRSP provides delisting returns that should, but how do I manage the missing data in practice? For example, in the unconstrained model, the procedure looks like this:&lt;/p&gt;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/6GpYT.png&quot; alt=&quot;enter image description here&quot; /&gt;&lt;/p&gt;&#xA;&lt;p&gt;(More details about the procedure are given below.) Now, if I wanted to take a bunch of random stocks at some point in time and look at them over some time period, what should I do with the values (&lt;span class=&quot;math-container&quot;&gt;$Z_it$&lt;/span&gt;) for these stocks that aren't listed at time &lt;span class=&quot;math-container&quot;&gt;$t$&lt;/span&gt;. Should I use the de-listing returns where appropriate and then fill in zeros everywhere else? But this would do weird things to the beta of the stock. Should I try to constrain the beta (the factor loadings) of the stocks to be zero in all the places where the stock is unlisted? This would require me to change the model (requiring a model that somehow allows for time varying factor loadings). How do people usually handle this problem? Is there an easy way (even if it is slightly more incorrect)?&lt;/p&gt;&#xA;&lt;h1&gt;Some Detail about the Estimation Procedure&lt;/h1&gt;&#xA;&lt;p&gt;For concreteness, suppose I wanted to test the CAPM using the time series regression framework outlined in chapter 6 of Campbell, Lo, and MacKinley (The Econometrics of Financial Markets). Some of the assumptions are listed in this image:&#xA;&lt;img src=&quot;https://i.stack.imgur.com/37Btm.png&quot; alt=&quot;enter image description here&quot; /&gt;&lt;/p&gt;&#xA;" OwnerUserId="59" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2014-12-10T04:54:42.813" Title="Dealing with Missing Data when Testing the CAPM" Tags="&lt;econometrics&gt;&lt;finance&gt;&lt;financial-economics&gt;&lt;applied-econometrics&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="486" PostTypeId="1" AcceptedAnswerId="488" CreationDate="2014-12-05T20:04:52.757" Score="8" ViewCount="594" Body="&lt;p&gt;Suppose a set of $N$ outcomes can be ranked in the following order: $1\succ 2\succsim\cdots\succsim N$. Further, suppose a decision maker has preference over lotteries over these outcomes. Assume the preference over lotteries is rational, continuous, but &lt;em&gt;not necessarily consistent with the independence axiom&lt;/em&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Does it follow that the best lottery in this case is the degenerate lottery $(1,0,\dots,0)$?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;What if the independence axiom is &lt;em&gt;violated&lt;/em&gt;?&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="42" LastEditorUserId="42" LastEditDate="2014-12-05T22:52:10.137" LastActivityDate="2019-11-07T00:34:38.633" Title="Preference over lotteries without independence axiom" Tags="&lt;decision-theory&gt;&lt;expected-utility&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="487" PostTypeId="2" ParentId="482" CreationDate="2014-12-05T20:13:04.653" Score="5" Body="&lt;p&gt;You can imagine a demand curve continuing through the x-axis as monetary price becomes negative. A negative price can be interpreted as payment to pick up shirts, a kind of subsidy.* That might tempt those who are still unwilling at price of zero because there's still a opportunity cost of picking up the shirt, or because they only wear collared shirts, or because disposal is not free (the unwanted shirt would need to recycled).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the simple model, the demand curve that represents willingness to pay is holding these other factors fixed. In a more complicated model, the price drop might induce congestion at the student union, so the demand curve would also shift down or up, depending on your desire to spend time in a crowd of college students.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;*Obviously, you have to impose some sort of limit per student to keep quantity demanded from shooting off to infinity. &lt;/p&gt;&#xA;" OwnerUserId="159" LastEditorUserId="159" LastEditDate="2014-12-05T21:41:29.330" LastActivityDate="2014-12-05T21:41:29.330" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="488" PostTypeId="2" ParentId="486" CreationDate="2014-12-05T20:33:31.233" Score="9" Body="&lt;p&gt;No, not necessarily. Without the independence axiom (or something else to replace it) there is not much you can infer about preferences over (non-degenerate) lotteries from knowing preferences over outcomes only.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For instance, let &lt;span class=&quot;math-container&quot;&gt;$p^L_n$&lt;/span&gt; be the probability of outcomes &lt;span class=&quot;math-container&quot;&gt;$n \in \{1, 2, 3\}$&lt;/span&gt;. Then preferences  over lotteries &lt;span class=&quot;math-container&quot;&gt;$\succeq^*$&lt;/span&gt; represented by the utility function&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$U(L) = p^L_1 + \beta [p^L_2p^L_3],$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;are continuous  and rational, but do not satisfy the independence axiom. For &lt;span class=&quot;math-container&quot;&gt;$\beta$&lt;/span&gt; large enough, it is not even the case that &lt;span class=&quot;math-container&quot;&gt;$(1,0,0)$&lt;/span&gt; is the best lottery, although &lt;span class=&quot;math-container&quot;&gt;$(1,0,0) \succ^* (0,1,0)$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$(1,0,0) \succ^* (0,0,1)$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To see why, observe that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ U(1,0,0) = 1, $$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$ U(0,1,0) = 0, $$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$ U(0,0,1) = 0, $$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, for &lt;span class=&quot;math-container&quot;&gt;$\beta &amp;gt; 4$&lt;/span&gt;,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ U\left(0,\frac{1}{2},\frac{1}{2}\right) &amp;gt; 1 .$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Violation of the independence axiom can be seen from the fact that, when &lt;span class=&quot;math-container&quot;&gt;$\beta &amp;gt; 4$&lt;/span&gt;,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ [1,0,0] \succ [0,1,0]  ,$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;although&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ \left[0,\frac{1}{2},\frac{1}{2}\right] \succ \left[ \frac{1}{2}, 0, \frac{1}{2}\right]. $$&lt;/span&gt; &lt;/p&gt;&#xA;" OwnerUserId="38" LastEditorUserId="38" LastEditDate="2019-11-07T00:34:38.633" LastActivityDate="2019-11-07T00:34:38.633" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="489" PostTypeId="1" CreationDate="2014-12-05T20:37:30.717" Score="3" ViewCount="176" Body="&lt;p&gt;In this paper, &lt;a href=&quot;http://www.econ2.jhu.edu/people/Karni/savageseu.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;&quot;Savages’ Subjective Expected Utility Model&quot; by Edi Karni&lt;/a&gt;, he gives a definition of &quot;conditional preferences.&quot; See here:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/5OEhB.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What situation is this supposed to capture? It seems like it might be more useful to define conditional preferences as $f \succeq_E f'$ if $f(s) \succeq f'(s)$ for all $s \in E$. This definition seems like it might be more ... useful? For one, it seems to resemble conditional expectation that way (or does it?). What idea is the definition as given in the paper supposed to capture (this might be a simple question)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, would it be more general to say, in the definition given in the paper, that $f(s) \sim f'(s)$ instead of $f(s) = f'(s)$?&lt;/p&gt;&#xA;" OwnerUserId="59" LastActivityDate="2014-12-06T02:49:55.917" Title="What's is the purpose of &quot;conditional preferences&quot; as specified in Savage's framework?" Tags="&lt;microeconomics&gt;&lt;decision-theory&gt;&lt;expected-utility&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="490" PostTypeId="1" AcceptedAnswerId="577" CreationDate="2014-12-05T21:00:50.383" Score="5" ViewCount="165" Body="&lt;p&gt;Take some state variable $X(t)$, which follows the law of motion&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \dot X(t) = f(t)X(t) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $f(t)$ is a policy function, and determines the growth rate of $X(t)$. As a second shock, we have $\psi$, which is iid. The agent defaults whenever&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ g(X(t), \psi) \leq 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Allow the agent to borrow some money that he will have to repay continuously. Let's compute the risk premium. The probability of default at $t+\epsilon$ is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Prob(g(X(t+\epsilon), \psi) \leq 0) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As the lending has to be repaid continuously, the interest rate, given some risk-free interest rate $r^*$ and risk-neutral lenders, is given by&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ r^* = r \cdot \lim_{\epsilon\to 0} \left(1 - Prob(g(X(t+\epsilon), \psi) \leq 0)\right)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, as the law of motion for $X(t)$ is continuous, in the limit, this becomes&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ r^* = r \cdot \left(1-Prob(g(X(t), \psi) \leq 0) \right)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This would mean that the agent's risk premium is independent of what he is doing: his policy $f(t)$ does not appear anymore.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But since $f(t)$ affects the state $X(t)$ and the latter the default probability, I feel it should. What's my mistake here? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;References are fine. Most of continuous time finance references I know are much too deep for this rather simple question.&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2014-12-05T21:59:05.813" LastActivityDate="2014-12-11T05:37:10.593" Title="Risk Premia in Continuous Time" Tags="&lt;mathematical-economics&gt;&lt;financial-economics&gt;" AnswerCount="1" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="491" PostTypeId="2" ParentId="482" CreationDate="2014-12-05T21:02:53.950" Score="4" Body="&lt;p&gt;Consider the politically, ideologically, philosophically and emotionally charged question (let's assume that it is free of framework effects):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;&quot;If a destitute person asked you for money, would you give some to this person?&quot;&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;There are various answers around the world that reflect and represent different political, ideological, philosophical and emotional points of view and stances -&lt;strong&gt;and there is the answer of Economics:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;&quot;It depends on my utility function, and the optimization result under the constraints I face&quot;.&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Offering something for free, removes effectively the &quot;constraints&quot; part (since more over we implicitly assume that the acquisition and consumption/utilization of said goods does not create any visible transaction costs). But it does not affect the &quot;utility function&quot; part. And the utility function represents preferences, &lt;strong&gt;&lt;em&gt;and preferences is a primitive concept&lt;/em&gt; (in Economics)&lt;/strong&gt;: they are what they are.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So a simple answer to the question is that &quot;People who don't pick up goods that are offered free of charge to them, have zero utility from consuming them&quot;. Why? &lt;em&gt;Because.&lt;/em&gt;&#xA;(The obvious &lt;em&gt;arbitrariness&lt;/em&gt;  of it at the same time ensures that no value judgements creep into the Theory at this fundamental level).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But surely, a pen has some undeniable &lt;em&gt;functionality&lt;/em&gt; for a student: with a pen you can (still) take notes... isn't it somehow unrealistic to say that students may have zero utility from them?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It isn't. And this is because we are not talking about the abstract concept of a &quot;writing device&quot;, but for a specific pen, of a specific color, design, touch feeling etc. It is reasonable to say that all students do have some positive preferences for &quot;writing devices&quot;, and they do face some budget constraints. So taking a free pen would save them money to buy something else... &lt;em&gt;if the free pen does not have some characteristic that offsets the utility from writing with it&lt;/em&gt;. So the pen may create &lt;em&gt;disutility&lt;/em&gt; due to its various characteristics, which cancels the utility from using it as a writing device, or even exceeds it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Add to this the fact that the most usual violation of the axioms and assumptions of Consumer Theory is that, in reality, &lt;strong&gt;Indifference curves are &quot;thick&quot;&lt;/strong&gt; (and not dimensionless lines): small variations in the quantity of a product/service do not really move us to a different Indifference curve. While this is not important for the usefulness of Indifference curves &amp;amp; Co as a base to build models to talk about markets and the economy (aggregation is a formidable smoothing device), when you go down to individual behavior and want to explain it, it does matter. So even if the disutility from the pen does not fully eliminate the utility it may offer as a writing device, still, what is left may be so little, that taking the pen would leave the student on the same Indifference curve. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In possible combination, the other axiom/assumption that is usually violated is &lt;strong&gt;local non-satiation&lt;/strong&gt;: &quot;&lt;em&gt;currently&lt;/em&gt;, I have all the pens I need&quot; (mind you that this very natural to the ear phrase just violated Consumer Theory -there is no such thing as &quot;all I need&quot; in Consumer Theory). The student is satiated, and as for his future needs for writing devices, the previous axiom-violation takes care of it, helped by the discounting of the future. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If one would want an explanation assuming that Consumer Theory holds in reality as in theory, then one would have to insert into the picture some &lt;em&gt;costs&lt;/em&gt;, which function as an implicit &lt;em&gt;price&lt;/em&gt;: go to a specific office to pick up the pen which is not in the itinerary of the student, burning extra calories to carry the extra weight, find space to keep the pen... things like that.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2014-12-05T21:02:53.950" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="492" PostTypeId="2" ParentId="481" CreationDate="2014-12-05T21:07:53.293" Score="5" Body="&lt;p&gt;A two reasons additional to Steven's:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Tokens can be individualized and smoothen the payment process. You can get a token exactly worth a ride, and the queues at the rides are shorter because nobody needs to get change for a 10\$ bill.&lt;/li&gt;&#xA;&lt;li&gt;You forget the value of tokens easier. Everytime you pay cash, you see in front of your eyes how much poorer you are getting. This direct punishment / reminder does not necessarily happen with tokens (But you need a behavioral story to make this work). &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;A similar thing exists with credit cards, which both facilitate the payment process and also make people care less about the amounts they're spending [&lt;em&gt;reference needed&lt;/em&gt;].&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2014-12-05T21:07:53.293" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="493" PostTypeId="2" ParentId="471" CreationDate="2014-12-05T21:10:48.327" Score="3" Body="&lt;p&gt;To add another book, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Shimer: &lt;a href=&quot;http://press.princeton.edu/titles/9217.html&quot; rel=&quot;nofollow&quot;&gt;Labor Markets and Business Cycles&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;deals with the extent of which the RBC model and the Mortensen-Pissarides model can deal with the Shimer puzzle. He goes through many extensions and concludes that rigid wages are an exciting future research avenue.&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2014-12-05T21:10:48.327" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="494" PostTypeId="2" ParentId="471" CreationDate="2014-12-05T22:05:00.937" Score="9" Body="&lt;p&gt;There's also &lt;a href=&quot;http://mitpress.mit.edu/books/labor-economics-1&quot;&gt;Labor Economics&lt;/a&gt; by Pierre Cahuc, Stéphane Carcillo, and André Zylberberg. It's a broader labor econ book, but The &quot;Unemployment and Inequality&quot; fourth of the book covers these topics. I have not seen the second edition, but I expect that they did not alter that part for the worse.&lt;/p&gt;&#xA;" OwnerUserId="159" LastActivityDate="2014-12-05T22:05:00.937" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="495" PostTypeId="1" AcceptedAnswerId="496" CreationDate="2014-12-05T22:21:55.813" Score="9" ViewCount="3562" Body="&lt;p&gt;Related: &lt;a href=&quot;https://economics.stackexchange.com/questions/110/book-recommendations-on-empirical-methods-in-economic-research-and-econometrics&quot;&gt;Book recommendations on empirical methods in economic research and econometrics?&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would like to focus mainly on &lt;em&gt;graduate texts in Econometrics&lt;/em&gt;. From the question above, I gather that Wooldridge's text is nice.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In terms of &quot;strong math background,&quot; I did my undergrad in Statistics, consisting of two semesters each of linear algebra, real analysis, and abstract algebra, along with a measure-theoretic probability course.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What are some econometrics texts that you would recommend for me? I learned some intro econometrics in a course which taught from Studenmund but was extremely bored. &lt;/p&gt;&#xA;" OwnerUserId="358" LastEditorUserId="38" LastEditDate="2019-11-06T20:09:34.850" LastActivityDate="2020-03-06T01:43:55.170" Title="What are some good graduate-level econometrics books for someone with a strong mathematics background?" Tags="&lt;econometrics&gt;&lt;reference-request&gt;" AnswerCount="4" CommentCount="4" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="496" PostTypeId="2" ParentId="495" CreationDate="2014-12-05T22:43:48.837" Score="8" Body="&lt;p&gt;&quot;Adult&quot; Wooldridge is great intro to various microeconometrics topics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For time series, Hamilton's Time Series and Lutkepohl's Introduction to Multiple Time Series Analysis are both nice, though Hamilton is a bit dated and Lutkepohl is more focused.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As far as more foundational, rigorous material, Herman Bierens has a short Introduction to the Mathematical and Statistical Foundations of Econometrics. Gourieroux and Monfort have a whole flock of graduate econometrics texts, but to quote an anonymous reviewer, they are &quot;in the French tradition of excellent precision and terrible pedagogics,&quot; though they have their champions.&lt;/p&gt;&#xA;" OwnerUserId="159" LastEditorUserId="159" LastEditDate="2014-12-05T22:54:55.213" LastActivityDate="2014-12-05T22:54:55.213" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="497" PostTypeId="2" ParentId="495" CreationDate="2014-12-05T22:45:26.557" Score="8" Body="&lt;p&gt;I repeat part of &lt;a href=&quot;https://economics.stackexchange.com/questions/110/book-recommendations-on-empirical-methods-in-economic-research-and-econometrics/116#116&quot;&gt;my answer&lt;/a&gt; in the question the OP already mentioned with some additional proposals:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since you have a background in Statistics&lt;br&gt;&#xA;&lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0521424089&quot; rel=&quot;noreferrer&quot;&gt;&quot;Probability Theory and Statistical Inference: Econometric Modeling with Observational Data&quot;&lt;/a&gt; 1999, by A. Spanos, provides the statistical foundations of econometrics in a way no other book does.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://fhayashi.fc2web.com/hayashi_econometrics.htm&quot; rel=&quot;noreferrer&quot;&gt;&quot;Econometrics&quot; by Hayasi&lt;/a&gt;, because, except of presenting a new synthesis focused around Extremum Estimators (i.e. Maximum Likelihood and Generalized Method of Moments), and of giving space to Time Series, Unit root econometrics and Co-integration, it has theoretical depth alongside very practical applications, a combination which is not usually found.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For Time-series, I don't believe you can ignore  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://press.princeton.edu/titles/5386.html&quot; rel=&quot;noreferrer&quot;&gt;Hamilton's Time Series Analysis&quot;&lt;/a&gt;,  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;or &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;&lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/3540262393&quot; rel=&quot;noreferrer&quot;&gt;Lutkepohl's &quot;Introduction to Multiple Time Series&quot;&lt;/a&gt; which has gone into its 2nd ed. as &quot;New Introduction to Multiple Time Series&quot; (my experience is from the first edition).&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2014-12-05T22:45:26.557" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="498" PostTypeId="2" ParentId="429" CreationDate="2014-12-05T22:48:52.260" Score="-6" Body="&lt;p&gt;Most respondents have not much addressed the issue of &lt;em&gt;purpose&lt;/em&gt;, but have focused more on outcomes.  Me too.&#xA;If a nursing home raises the pay of its carers from the minimum wage by a significant amount, then it may gain benefits that include: reduced costs for recruitment and training; better care; better continuity of care; staff goodwill; enhanced reputation; increased demand.&#xA;The higher the minimum wage goes, the less scope a nursing home has to follow such a plan.&lt;/p&gt;&#xA;" OwnerUserId="359" LastActivityDate="2014-12-05T22:48:52.260" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="499" PostTypeId="2" ParentId="495" CreationDate="2014-12-05T23:06:45.107" Score="2" Body="&lt;p&gt;Can't forget &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0131395386&quot; rel=&quot;nofollow&quot;&gt;&quot;Econometric Analysis&quot; by William Greene&lt;/a&gt;. It's in its &lt;a href=&quot;http://pages.stern.nyu.edu/~wgreene/Text/econometricanalysis.htm&quot; rel=&quot;nofollow&quot;&gt;7th edition&lt;/a&gt;. It seems to get referenced lot. It sometimes skips over some detail but it does cover a broad range of topics. (Though I do like the pedagogical approach of something like Hayashi better, I think Greene might cover more ground.)&lt;/p&gt;&#xA;" OwnerUserId="59" LastActivityDate="2014-12-05T23:06:45.107" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="500" PostTypeId="2" ParentId="449" CreationDate="2014-12-06T00:57:24.737" Score="5" Body="&lt;p&gt;Your question has been addresses in different ways. &lt;a href=&quot;http://www.jstor.org/discover/10.2307/1830193?uid=2&amp;amp;uid=4&amp;amp;sid=21105379941153&quot; rel=&quot;nofollow&quot;&gt;Kydland and Prescott (1977)&lt;/a&gt; argue that a central bank should follow defined policy rules instead of active stabilization methods because the latter contributes to economic instability. &lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/030439328390051X&quot; rel=&quot;nofollow&quot;&gt;Barro and Gordon (1983)&lt;/a&gt; prove that under a discretionary regime, the central bank has an incentive to print money to improve the economic performance in the short run, but this doesn't happen in the long run. Walsh (1995) discuss the way central bankers incentives should be design in order for the central bank to follow a socially optimal policy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On Central Bank Independence (CBI), Grilli, Masciandaro and Tabellini (1991) and Cukierman, Webb and Neyapti (1992) developed a methodology to assess CBI  from different countries, and how the degree of independence impacts on the economic performance of this countries. Alesina and Summers (1993) studied 16 OECD countries and they compared the countries CBI score against economic performance measures (GDP growth, unemployment rate, and inflation). Then, there are several papers that cite these researches and build upon them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The CBI scores are based on multiple criteria, Grilli et al., have a different approach than Cukierman et al. Alesina and Summers used a combination of both, so for the case of Zimbabwe you'll have to analyze if the laws of its central bank have the characteristics that the researches take into account when they build their indices.&lt;/p&gt;&#xA;" OwnerUserId="351" LastEditorUserId="351" LastEditDate="2016-06-02T16:02:12.980" LastActivityDate="2016-06-02T16:02:12.980" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="501" PostTypeId="2" ParentId="489" CreationDate="2014-12-06T01:37:06.470" Score="1" Body="&lt;p&gt;The statement $f\succcurlyeq f^\prime$ and for every $s$ not in $E$, $f(s)=f'(s)$ says that $f$ and $f^\prime$ have the consequences unless $E$ occurs, and $f$ is preferred to $f'$. Loosely, the sure thing principle says that if two acts differ only in their consequence should $E$ occur, their ordering should depend only on their consequences in $E$ and not on states outside of $E$. What the sure thing principle gets you is that if $f\succcurlyeq_E f^\prime$ then $f$ must be conditionally preferred to $f^\prime$ &lt;strong&gt;because of&lt;/strong&gt; the consequences of $f^\prime$ in $E$. Otherwise this would not be known.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here's a plain English interpretation of conditional preference. Imagine I put together two portfolios, $A$ and $B$. I start both portfolios off with the same asset, let's just say some money in a mutual fund. In portfolio $A$ I put an additional asset that pays a dollar in all states of the world $E$ where a democrat wins the 2016 election. I give you a choice between $A$ and $B$. In action $f$ you choose $A$ and in action $f'$ you choose $B$. Presumably you prefer $f$ to $f'$. But the payoffs of $f$ and $f'$ differ only should a democrat win the 2016 election. So by the definition Karni has given you $f$ is preferred to $f'$ given $E$. With the sure thing principle,  I can separate your preference in $E$ states from your preferences in not $E$ states. So I now know your preference for $f$ must stem from $f$ being in some sense better than $f'$ in $E$ states.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Technically (read: obnoxiously) preferences are defined over the functional space $F$, so the abstruse definitions come from the fact that the notation $f(s)\succcurlyeq f'(s)$ or $f(s)\sim f'(s)$ is not yet defined. Instead Karni has to work with the $f_E$ notation. In this notation you'd write your idea for conditional preference as $f\succcurlyeq_E f'$ iff $f_Eh\succcurlyeq f'_Eh$ (the first part of the sure thing principle). I agree that this is more in line with my notion of what conditional preference &lt;em&gt;should&lt;/em&gt; be. Savage mentions both senses in his discussion:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;What technical interpretation can be attached to the idea that $f$ would be preferred to $g$, if $B$ were known to obtain? Under any reasonable interpretation, the matter would seem not to depend on the values $f$ and $g$ assume at states outside of $B$. There is, then, no loss of generality in supposing that $f$ and $g$ &lt;strong&gt;agree&lt;/strong&gt; with each other at states outside of $B$, that is, that $f(s)=g(s)$ for all $s \in \sim B$. Under this unrestrictive assumption, $f$ and $g$ are surely to be regarded as equivalent given $\sim B$, that is, they would be considered equivalent, if it were known that $B$ did not obtain. The first part of the sure-thing principle can now be interpreted thus: If, after being modified so as to agree with one another outside of $B$, $f$ is not preferred to $g$; then $f$ would not be preferred to $g$, if $B$ were known. The notion will be expressed formally by saying that $f\leq g$ given $B$.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;(Here $\sim$ is set notation instead of preference ordering.) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The sense that Karni involves two acts that agree with each other outside of $B$. However Savage's definition of conditional preference is exactly $f\succcurlyeq_E f'$ iff $f_Eh\succcurlyeq f'_Eh$.  If there really is no loss of generality in the rest of the proofs it doesn't matter which definition you pick. However Savage's definition is in line with both yours and mine, and the definition of conditional expectation. I'll look to see if that has any real consequences for Karni.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;ADDENDUM&lt;/strong&gt; Using equality instead of $\sim$ is plenty general, simply because if the two acts only differ in consequences that do not have an effect on the preference ordering, you could just redefine the consequence space such that the equality was still maintained. Which is a cop out, but also true.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I believe I've figure it out. The only place Karni seems to use his conditional preference definition is in P7. Savage uses an analogous P7 but with his own definition of conditional preference. P7 says (Savage's wording):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;If $f \leq g(s)$ given $B$ for every $s\in B$, then $f \leq g$ given $B$.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This is a statement of conditional dominance: &lt;em&gt;&quot;a certain consequence $g(s)$ is better than an (uncertain) $f$ for every possible $s$ in $B$, so $g$ should be preferred to $f$ given $B$.&quot;&lt;/em&gt; &lt;strong&gt;Because&lt;/strong&gt; we have already accepted the sure-thing principle, P7 from Savage and P7 from Karni are equivalent. If we had not accepted the sure-thing principle, Savage's would be &lt;strong&gt;more&lt;/strong&gt; restrictive. So Karni is actually being &lt;em&gt;less&lt;/em&gt; restrictive with his definition of conditional preference, and that is presumably the purpose.&lt;/p&gt;&#xA;" OwnerUserId="54" LastEditorUserId="54" LastEditDate="2014-12-06T02:49:55.917" LastActivityDate="2014-12-06T02:49:55.917" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="502" PostTypeId="1" CreationDate="2014-12-06T03:01:58.280" Score="34" ViewCount="1048" Body="&lt;p&gt;I'm contributing to another open-source economics project, and was looking to compile a list of primary sources for modern developments in the field.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Basically something to help bridge the (occasionally decades long) time lag between what's taught at an undergrad/ introductory grad level and what's being researched in the field today.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Unfortunately as many in academia know, companies like Elsevier and others have most major publications locked up behind corporate paywalls, which makes them broadly incompatible with the principles of OSS/OSD.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There's Arxiv (and Vixra for the braver), but preprint servers are not really what I'm looking for. It's hard to separate the wheat from the chaff on many of them. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'd like something with some editorial content, and especially peer-review.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'd appreciate any suggestions.&lt;/p&gt;&#xA;" OwnerUserId="31" LastEditorUserId="2776" LastEditDate="2017-08-25T08:40:59.127" LastActivityDate="2017-09-19T20:37:56.783" Title="Are there any non-paywalled reputable economics journals?" Tags="&lt;reference-request&gt;&lt;data-request&gt;" AnswerCount="9" CommentCount="3" FavoriteCount="13" ContentLicense="CC BY-SA 3.0" />
  <row Id="503" PostTypeId="2" ParentId="502" CreationDate="2014-12-06T04:54:45.813" Score="8" Body="&lt;p&gt;&lt;a href=&quot;http://www.rofea.org/index.php?journal=journal&quot; rel=&quot;nofollow&quot;&gt;Review of Economic Analysis&lt;/a&gt;&lt;br&gt;&#xA;appears to be a respectable attempt (although I cannot tell about quality). It is peer-reviewed, and published by a private &lt;a href=&quot;http://www.rcfea.org/&quot; rel=&quot;nofollow&quot;&gt;Italian&lt;/a&gt; - &lt;a href=&quot;http://www.rcea-canada.org/&quot; rel=&quot;nofollow&quot;&gt;Canadian&lt;/a&gt; non-profit (with a lot of Greek names involved I have to point out), but it appears to have strong academic ties (for example, its &lt;a href=&quot;http://scholar.google.gr/citations?user=72SL-SYAAAAJ&amp;amp;hl=en&amp;amp;oi=sra&amp;amp;cstart=0&amp;amp;pagesize=20&quot; rel=&quot;nofollow&quot;&gt;Editor-in Chief&lt;/a&gt;, whose name I recognized since it so happened that I have read a paper of his). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Again, I just found out about the journal, and I have not an opinion about the quality of the submissions, but it appears worthy to dedicate some time to explore its contents.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-06-12T12:18:03.813" LastActivityDate="2015-06-12T12:18:03.813" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="504" PostTypeId="2" ParentId="502" CreationDate="2014-12-06T06:55:58.230" Score="29" Body="&lt;p&gt;&lt;strong&gt;&lt;em&gt;&lt;a href=&quot;http://econtheory.org/&quot;&gt;Theoretical Economics (TE)&lt;/a&gt;&lt;/em&gt;&lt;/strong&gt; and &lt;strong&gt;&lt;em&gt;&lt;a href=&quot;http://www.qeconomics.org/&quot;&gt;Quantitative Economics&lt;/a&gt;&lt;/em&gt;&lt;/strong&gt; are two open access, peer reviewed journals. The former I know is of very good quality, arguably the top &quot;field journal&quot; in microeconomic theory. &lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2014-12-06T06:55:58.230" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="505" PostTypeId="1" AcceptedAnswerId="512" CreationDate="2014-12-06T07:06:38.733" Score="8" ViewCount="1514" Body="&lt;p&gt;I was thinking about the following simple example when I wondered what the theoretical effects wealth equality or inequality may have on GDP:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose there is a society with three individuals who have enough money to cater for all their needs, and there is an additional 600 units of disposable income left over.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let us assume that $S_i$ is the disposable income allocated to person $i$ and let us first assume person $i$ will then spend an amount proportional to $\sqrt{S_i}$ (This assumption is incorrect, but I'm just using it as an example of a non-linear income to expenditure relationship example, which I will compare below with a linear assumption), that is, disposable expenditure would be given by $k\sqrt{S_i}$ for some constant k.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now if all the excess income was allocated equally among the three members, the total excess expenditure is $k(\sqrt{200} + \sqrt{200} + \sqrt{200}) = 42.43k$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However if all of the excess income is allocated to a single individual, the total excess expenditure is $k\sqrt{600} = 24.49k$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus given the assumption that expenditure is proportional to the square root of disposable income, a lower GDP should be observed in economies with increased inequality of disposable income.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However if expenditure is proportional to the square of disposable income, then it can easily be shown with a similar argument that wealth distribution will increase the GDP in this simple model.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;According to modern economics principles, in simple terms how does distribution of disposable income affect GDP?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Note:  I'm not interested in the politics behind equality, such as riots and revolutions etc that might result from severe inequality, but merely the financial/economic principles.&lt;/em&gt;&lt;/p&gt;&#xA;" OwnerUserId="79" LastEditorUserId="79" LastEditDate="2014-12-06T13:02:22.517" LastActivityDate="2014-12-07T03:34:21.893" Title="On the relationship between income distribution and GDP" Tags="&lt;gdp&gt;" AnswerCount="3" CommentCount="7" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="506" PostTypeId="2" ParentId="290" CreationDate="2014-12-06T08:01:37.170" Score="2" Body="&lt;p&gt;I don't feel these two interpretations are mutually exclusive, they belong to different sides of the same problem - one is empirical the other is theoretical. The conflict you seem to see between these two methods is that the &quot;population&quot; interpretation is individual specific. But the population component is a statistical convenience. It is &quot;everything else&quot; that the researcher has no time to model, and it is variation on the level of the population of observations not people - so it is not an individual specific error. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In fact, one acceptable interpretation of this convenience is that conditional on non-random components individuals are the same, and the errors are such that if presented with the same decision again the individual would make a different choice. This is precisely equivalent to your neurological interpretation. Extra structure on the random component may change the degree to which this justification applies - if errors for an individual are assumed to be correlated over time it decreases the relative impact of a neuroeconomic explanation and starts to be about unobservable heterogeneity on the level of the individual. But random utility can still easily encompass both explanations as answers to different sets of questions. The residual error will include both neuroeconomic reasoning and any variables that have been omitted.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To the extent that the randomness is specifically designed to capture &quot;everything else&quot; talking about what causes it is something most empiricists don't want to focus on. This being said, Michael Woodford has &lt;a href=&quot;http://www.columbia.edu/~mw2230/DDMASSA.pdf&quot; rel=&quot;nofollow&quot;&gt;written something recently&lt;/a&gt; about neuroeconomics and random choice. And the &quot;stocastic neural functions imply stochastic choice&quot; is apparently a fairly common assertion in neuroeconomics: (see &lt;a href=&quot;http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2226018&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;, &lt;a href=&quot;http://www.rnl.caltech.edu/publications/pdf/fehr2011.pdf&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;, and &lt;a href=&quot;http://people.hss.caltech.edu/~mshum/gradio/papers/WebbGlimcher2013.pdf&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt; though some of these references point out that neuroeconomics places constraints on the form of random choice). But given the variables omitted in an average econometric study, I would hazard a guess that the random term captures relatively more of this omission and less of neurological processes.&lt;/p&gt;&#xA;" OwnerUserId="54" LastEditorUserId="54" LastEditDate="2015-01-20T14:48:13.840" LastActivityDate="2015-01-20T14:48:13.840" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="507" PostTypeId="2" ParentId="502" CreationDate="2014-12-06T09:00:06.157" Score="17" Body="&lt;p&gt;The American Economic Association's &lt;a href=&quot;https://www.aeaweb.org/jep/&quot;&gt;Journal of Economic Perspectives&lt;/a&gt; can be accessed free of charge. It is definitely a reputable outlet (articles are mainly solicited from top economists), although it tends to publish original syntheses rather than primary research.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2014-12-06T09:00:06.157" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="509" PostTypeId="2" ParentId="505" CreationDate="2014-12-06T12:47:34.233" Score="5" Body="&lt;p&gt;While this is too broad a field and any study done on this would involve an extent of speculation. However the work by Berg and Ostry in &lt;a href=&quot;http://www.imf.org/external/pubs/ft/fandd/2011/09/pdf/berg.pdf&quot; rel=&quot;noreferrer&quot;&gt;this work&lt;/a&gt; have concluded the following&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Do societies inevitably face an invidious choice between efficient production and equitable wealth and income distribution? Are social justice and social product at war with one another?&lt;/p&gt;&#xA;&lt;p&gt;In a word, no.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;They also went on to justify that&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;In fact equality appears to be an important ingredient in promoting and sustaining growth. The difference between countries that can sustain rapid growth for many years or even decades and the many others that see growth spurts fade quickly may be the level of inequality&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Reading that article may throw in additional clarity&lt;/p&gt;&#xA;" OwnerUserId="123" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2014-12-06T12:47:34.233" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="511" PostTypeId="1" AcceptedAnswerId="513" CreationDate="2014-12-06T15:44:44.073" Score="15" ViewCount="1734" Body="&lt;p&gt;As a postgraduate student of economics I've been trying to expand my mathematical &amp;quot;toolset&amp;quot;. While doing so I've talked to engineers, physicists and mathematicians, many of which have disdained the use of mathematics in economics. Their arguments vary, but one common theme is summed up by mathematician &lt;a href=&quot;http://www.advisorperspectives.com/newsletters12/An_Attack_on_Paul_Krugman.php&quot; rel=&quot;noreferrer&quot;&gt;Michael Edesess' critique&lt;/a&gt;:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Economics pretends to be mathematics, but it is not mathematics. There&#xA;is a major difference. No mathematician uses a term in a formula, or a&#xA;statement of a theorem, unless that term has first been defined with&#xA;excruciating precision.&lt;/p&gt;&#xA;&lt;p&gt;And while economists may think they’ve defined terms like &amp;quot;aggregate&#xA;demand&amp;quot; or &amp;quot;economic growth&amp;quot;, they should try reading some real&#xA;mathematics to see what a precise definition truly is. The economists,&#xA;I think, leave the work of definition to be inferred from the way the&#xA;terms are used in the formulas.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;I &lt;em&gt;believe&lt;/em&gt; I know the precise definition of (quite a few) economic terms, but maybe Edesess is pointing out to some more profound mathematical foundations which I may not be familiar. Could someone expand on his argument and maybe even counter back?&lt;/p&gt;&#xA;" OwnerUserId="72" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2014-12-14T15:35:59.163" Title="Use of mathematics and imprecise definition of terms" Tags="&lt;mathematical-economics&gt;" AnswerCount="4" CommentCount="3" FavoriteCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="512" PostTypeId="2" ParentId="505" CreationDate="2014-12-06T16:03:29.003" Score="8" Body="&lt;p&gt;You assume that higher spending causes higher GDP. This is not necessarily true. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Saving income will increase GDP through investments (unless you're in a Keynesian trap). Think about the most standard growth model, where the &lt;em&gt;future&lt;/em&gt; (and steady state) GDP increases strictly in the savings rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence, whatever increases the savings rate (in your toy model, higher inequality), potentially increases future GDP. This was an argument brought forward in Barro (2000). Version with linear savings rate are in Bertola et al (2006) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course, this is the neoclassical answer. There are many reasons why high inequality decreases growth/GDP which work through political economy models or similar. I'll list some of them despite you not asking explicitly for them, perhaps it's of use for future visitors:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;strong&gt;Fiscal Policies&lt;/strong&gt;: Equality leads to less necessary government redistribution and hence more incentives for investments (Meltzer and Richard, 1981; Corcoran and Evans, 2010; Persson and Tabellini, 1994)&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;Crime&lt;/strong&gt;: Inequality reduces opportunity costs for illegal activities that harm GDP (Alesina and Perotti, 1993; Barro 2000)&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;Imperfect Credit Markets&lt;/strong&gt;: Fixed investment costs or similar may lead to higher growth in unequal societies (Barro 2000)&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;Saving Incentives&lt;/strong&gt;: With &quot;&lt;em&gt;not much to lose&lt;/em&gt;&quot;, poor people face moral hazard in unequal societies, a mechanism that decreases growth with inequality (Banerjee and Newman, 1991)&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;Fertility-Education&lt;/strong&gt;: Equality in human capital leads to smaller fertility rates, and hence lower GDP. The Argument is too long to be summed up here; see Perotti (1996) and Croix and Doepke (2003)) &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2014-12-07T00:07:38.677" LastActivityDate="2014-12-07T00:07:38.677" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="513" PostTypeId="2" ParentId="511" CreationDate="2014-12-06T16:43:56.870" Score="15" Body="&lt;p&gt;Edesess is attacking what is really just a straw man of economics. I'm not sure he really understands the field. To start, economics is not math. We're not claiming that it is. It's more of an &quot;applied&quot; science. Economists have never claimed that these definitions are precise in the way that mathematics is. These definitions are modeling constructs---they're for applied work. They're use is temporary in a way. The point is to try to convey an idea in a more precise way than just in words---but everyone knows that they're not a precise as we would like and not as precise as they ultimately should be. They're meant to be debated and later refined. But, as all applied scientists know, you've got to start somewhere and sometimes ideas are best conveyed through simpler---if less detailed mean.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Coming up with better definitions is a huge part of the economic science. Consider these examples. When the Cowles Foundation was founded in 1932 its motto was &quot;Theory and Measurement&quot; (&lt;a href=&quot;http://dido.econ.yale.edu/about/index.htm&quot;&gt;the motto was first adopted in 1952&lt;/a&gt;). Measurement is not an easy thing to do. As another example, a lot of &lt;a href=&quot;https://en.wikipedia.org/wiki/Laurence_Kotlikoff&quot;&gt;Larry Kotlikoff's&lt;/a&gt; work has dealt with how a lot of fiscal measures are not economically well-defined concepts.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Einstein taught us that neither time, nor distance are well-defined physical concepts. Instead, their measurement is relative to our frame of reference – how fast we were traveling in the universe and in what direction. Our physical frame of reference can be viewed as our language or labeling convention. ... Kotlikoff, along with Harvard's Jerry Green, offered a general proof of the proposition that deficits and a number of other conventional fiscal measures are, economically speaking, content-free, concluding that the deficit is simply an arbitrary figment of language in all economic models involving rational agents.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Also, take another example of current interest. &lt;a href=&quot;https://en.wikipedia.org/wiki/Lars_Peter_Hansen&quot;&gt;Lars Hansen's&lt;/a&gt; recent work (winner of the 2013 Economics &quot;Nobel&quot; prize) has focused on the difficulty and ongoing failure to define certain economic concepts, including &quot;bubbles&quot; and systemic risk. See his essay &lt;a href=&quot;http://www.larspeterhansen.org/documents/FC_2012_Risk_BookSRMM_Challenges_in_Identifying.pdf&quot;&gt;&quot;Challenges in Identifying and Measuring Systemic Risk&quot;&lt;/a&gt;. I'm a fan of the dictum he relays, attributed to Lord Kelvin,&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;I often say that when you can measure something that you are speaking about,&#xA;  express it in numbers, you know something about it; but when you cannot&#xA;  measure it, when you cannot express it in numbers, your knowledge is of the&#xA;  meagre and unsatisfactory kind: it may be the beginning of knowledge, but you&#xA;  have scarcely, in your thoughts advanced to the stage of science, whatever the&#xA;  matter might be. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;He notes that &quot;an abbreviated version appears on the Social&#xA;Science Research building at the University of Chicago.&quot; So, yeah, economists (as social scientists) definitely take this seriously.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, the point is that economists are well aware of the problems in these &quot;definitions.&quot; They are a part of ongoing research in the field; sometimes they're ignored if people don't think they're first-order to the problem; etc... &lt;/p&gt;&#xA;" OwnerUserId="59" LastActivityDate="2014-12-06T16:43:56.870" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="514" PostTypeId="2" ParentId="511" CreationDate="2014-12-06T16:58:14.157" Score="10" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Economics pretends to be mathematics, but it is not mathematics.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;God forbid, if you excuse my language. As many other scientific disciplines, Economics &lt;em&gt;uses&lt;/em&gt; Mathematics, it most certainly &lt;em&gt;is not&lt;/em&gt; Mathematics, and it can never become Mathematics.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Mathematics may get inspiration from the real world, but it then defines and works with its concepts without regard to whether they remain connected to the source of inspiration.&lt;br&gt;&#xA;Economics on the other hand, &lt;em&gt;is obliged to define its concepts in a way that preserves some degree of relevance to the real-world aspects which it attempts to study&lt;/em&gt;. And since the &quot;real-world&quot; that preoccupies Economics is the &lt;em&gt;social&lt;/em&gt; world, full of uncertainties and laws nobody has discovered yet, it follows that Economics can never achieve &quot;excruciating precision&quot;, &lt;em&gt;and remain relevant&lt;/em&gt;.  So what? Economics is not Mathematics, we already said that. Economics is &lt;em&gt;harder&lt;/em&gt; than Mathematics, exactly because it cannot impose such precision to itself and remain useful. But it abides by the scientific method, and so instead of being confined to verbal arguments, it attempts to &quot;mathematize&quot; them (use symbolic language, that is) so that they can be more transparent and focused as regards their conclusions and their internal consistency.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It would be so much more easy to produce verbal treatises, that first would require a round of semantics analysis, and then, &lt;em&gt;if&lt;/em&gt; this round eventually concludes somewhere, to discuss the argument &lt;em&gt;per se&lt;/em&gt;. But once we put it in symbolic language, we clear the fog and we let our premises (and so our &lt;em&gt;limitations&lt;/em&gt; and &lt;em&gt;imperfections&lt;/em&gt;) shine for anyone interested to see. That's what I call scientific integrity in Social Sciences, and this is why I consider Economics to be the Avant-garde of Social Sciences.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2014-12-06T16:58:14.157" CommentCount="10" ContentLicense="CC BY-SA 3.0" />
  <row Id="515" PostTypeId="2" ParentId="429" CreationDate="2014-12-06T18:22:53.520" Score="16" Body="&lt;p&gt;The title &quot;What is the purpose of increasing the minimum wage?&quot; and the question &quot;is there an economic reason as to why a higher minimum wage would benefit the economy?&quot; while overlapping, are not necessarily identical. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To answer the latter, minimum wage earners have the highest velocity money in the economy. By this, I mean that when I was working, the next incremental \$1000 was saved or paid debt, but not spent. Our budget was from the lower 60-70% of our income, and we weren't spending to keep up with anyone. But the minimum wage earner is likely living check to check, and has a list of needs that the next \$1, \$10, etc, is going to be spent on. The \$1/hr raise is \$2000/yr that goes right into the economy as spending. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is also the consideration that some number of minimum wage workers are also on government assistance programs for food, housing, etc. If the minimum wage were raised, the assistance will drop, perhaps not dollar for dollar, but in aggregate, some fraction of that increase employers will spend results in lesser demand on the taxpayer. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The New York Times has &lt;a href=&quot;http://economix.blogs.nytimes.com/2014/02/18/the-impact-of-a-minimum-wage-increase/?_r=0&quot; rel=&quot;noreferrer&quot;&gt;published research&lt;/a&gt; concluding that employment is somewhat inelastic at the margin, that a minimum wage increase doesn't immediately result in fewer jobs. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/MQMnM.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course there are limits to this, but those numbers are outside the range of proposed changes to the minimum wage. &quot;Why not just raise the wage to \$50/hr and we can all make \$100K&quot; is a red herring. For a sane view of the issue, focus needs to be on the numbers that are real, in the US, the \$10 level from the current \$7.50. The aggregate extra income to the workers will far exceed the lost wage of those who lose their jobs and there are those who suggest that this money will actually create more jobs as it will quickly create more activity to the businesses catering to these families. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit - This was written when there was a distinction between the question title and what was asked in the body text. My answer still mentions the difference, no longer there. Also, per comment request, I linked to the article, but links break. If the link breaks for this Times' article I'll link to a copy of it that I've archived. &lt;/p&gt;&#xA;" OwnerUserId="362" LastEditorUserId="362" LastEditDate="2015-09-29T22:11:44.243" LastActivityDate="2015-09-29T22:11:44.243" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="516" PostTypeId="2" ParentId="481" CreationDate="2014-12-06T19:23:14.700" Score="3" Body="&lt;p&gt;There are many reasons that make tokens &quot;better&quot; than cash: they smoothen the payment process as foobar said previously, they are a service for customer that can plan how much they will spend before having strong incentives to spend their money (&quot;look child, we have only one token left, so you have to choose between this two expensive products&quot;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But the main reason is far more cynical: tokens are not cash, and if you make things right (different types of tokens - color for instance - for two consecutive days, counting how much tokens are out and in each day, tokens cannot be converted to cash) it will have a direct impact on theft of cash by persons handling it. So basically tokens are a way of fighting theft of money.&#xA;There is a similar (but not exactly the same) idea in some places where for social welfare vouchers are given instead of cash: it is for prevent a specific behavior (in this case to prevent people on welfare in buying tobacco or alcohol with their social welfare money). &lt;/p&gt;&#xA;" OwnerUserId="217" LastActivityDate="2014-12-06T19:23:14.700" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="517" PostTypeId="1" CreationDate="2014-12-06T22:56:57.837" Score="3" ViewCount="248" Body="&lt;p&gt;In growth accounting the production function is defined as follows:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Y= AF(K,L) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That means output $Y$ is dependent upon capital $K$, labour $L$ and technology $A$. Now to produce something, in addition to capital and labour, you also need raw material and energy resources and even land. I do not understand why this production function does not include these three primary categories of input. Can someone please explain. A simple example could be very helpful. &lt;/p&gt;&#xA;" OwnerUserId="366" LastEditorUserId="43" LastEditDate="2014-12-07T03:08:24.043" LastActivityDate="2014-12-07T13:24:27.253" Title="Growth Accounting" Tags="&lt;macroeconomics&gt;&lt;economic-growth&gt;&lt;production-function&gt;&lt;productivity&gt;" AnswerCount="3" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="518" PostTypeId="2" ParentId="517" CreationDate="2014-12-06T23:27:06.520" Score="1" Body="&lt;p&gt;The standard growth model treads all production as equal, it is assumed that you can transform capital, consumption and all other commodities without friction. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If this is not satisfying, think about them as omitted variables. They will not cause bias in the estimators for $\log K$, $\log L$. They could bias the estimates of $\log A$, which growth regressions treat as a residual.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Personally, I don't think that there's too much to learn from growth regressions anyways. They're mostly eyeballing econometrics where we hope to learn something from correlations without having real random variation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But apparently I'm not the majority. Some people got a lot of publications by just regressing anything on anything, or even running 2 millions of regressions and hoping to find significance somewhere.&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2014-12-06T23:27:06.520" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="519" PostTypeId="2" ParentId="511" CreationDate="2014-12-07T00:15:19.530" Score="3" Body="&lt;p&gt;&lt;strong&gt;Definitions in Mathematics&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The field of mathematics is much more than just the applications.  In fact, the applications are a result of actual mathematics which comes in the form of proofs and theorems.  For example, in ring theory, mathematicians needed to prove that &lt;code&gt;a * 0 = 0&lt;/code&gt; for  all values of &lt;code&gt;a&lt;/code&gt;.  Below is the proof:&#xA;&lt;code&gt;Observe &#xA;a * 0  = a(0 * 0) = a * 0 + a * 0.                   (1)&#xA;Then we add -(a * 0) to both sides to get &#xA;(a * 0) + -(a * 0) = (a * 0 + a * 0) + -(a * 0)      (2)&#xA;This gives us &#xA;0 = a * 0.                                           (3)&lt;/code&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The applications of this benefit many individuals when used to show &lt;code&gt;5 * 0 = 0&lt;/code&gt;, but this is merely the result of a more broad result that has been proven.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;How are these proofs constructed?  Through definitions.  To prove the above result, we could not assume that &lt;code&gt;a(0 * 0) = a * 0 + a * 0&lt;/code&gt;; instead, we needed to use the definition of a &quot;ring&quot; which, by definition, allows for line (1).  Similarly, we needed to use the definition of a &quot;ring&quot; in order to know that we were allowed to use &lt;code&gt;-(a * 0)&lt;/code&gt; in line (2).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Definitions in Economics&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Economics, however, does not use definitions in the same capacity.  Here, definitions are used strictly for the &quot;defining of terms&quot; rather than the &quot;relation of terms.&quot;  In Economics, one cannot prove that, in the short-run, expanding the money supply (which causes inflation) will decrease unemployment.  The definitions in economics are not set up to do that; even more so, they cannot do that.&lt;br&gt;&#xA;Part of the reason that the definitions in economics cannot do this is because of the definitions.   Think of the terms &quot;good,&quot; &quot;market,&quot; and &quot;demand.&quot;  All of these terms have sloppy definitions.  They do not really relate to anything else.  On the other hand, we have terms such as &quot;currency&quot; and &quot;GDP&quot; that have extensive, precise definitions.  These definitions have been chosen purposefully, and measurements of &quot;currency&quot; and &quot;GDP&quot; are precise because of this.&lt;br&gt;&#xA;Another part of why Economics has &quot;poor&quot; definitions is due to the study of economics itself.  Economics relies heavily on the demand of individuals.  This demand cannot be quantified nor is there any guarantee that it will remain the same from one moment to the next.  Thus, no real way to construct a proof that will be true beyond any particular moment.  Because of this, economics does not need rigorous definitions.  In Mathematics, however, we can construct proofs regardless of the numbers we use and, thus, transcend the limitations up to a very broad context.  In the proof above, we used &lt;code&gt;a&lt;/code&gt; instead of a number so that we did not have to rely on using that number and only that number.  By using &lt;code&gt;a&lt;/code&gt;, we know that multiplying any number by &lt;code&gt;0&lt;/code&gt; will give us &lt;code&gt;0&lt;/code&gt;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Response to Edesess&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edesess is mostly (probably 95%) correct.  In truth, most of the definitions of economics are not &quot;precisely defined&quot; to the same level that mathematical definitions are required to be.  In Mathematics, the definitions are carefully considered and decided upon by the Mathematical Community as a whole (not to say that Economic definitions aren't, but that's outside my knowledge).  Also, by the nature of Economics, the use of the definitions cannot be used to prove anything.&lt;br&gt;&#xA;In response to Edesess, however, economics should not be treated as Mathematics because of the fundamental differences in how they make discoveries.  Economics is advanced through polls, market data, supply and demand graphs; Mathematics is furthered by research, proofs, and theorems.  &lt;/p&gt;&#xA;" OwnerUserId="27" LastActivityDate="2014-12-07T00:15:19.530" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="520" PostTypeId="2" ParentId="505" CreationDate="2014-12-07T03:34:21.893" Score="5" Body="&lt;p&gt;The question itself has merit, but isolating the variables seems tough to me. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The beginning of such a study would start with the &lt;a href=&quot;http://en.wikipedia.org/wiki/Gini_coefficient&quot;&gt;Gini coefficient&lt;/a&gt; which is a numerical method of determining income distribution with a single number. You'd then seek to correlate Gini with a country's per capita GDP. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a thought experiment, we'd agree that having a select elite 100,000 people and the rest in poverty would be economically awful for any country.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The flip side, every family right at the average, would have its own potential economic issues. That average wouldn't be enough for a number of luxury items that the top 10% can afford today. The economy would have to provide more of the goods and services the gap from median to average can't afford and less of the aforementioned luxury items. Those goods' demand wouldn't drop to zero, of course. If the $75K earner really desires the Ferrari, he can save up for one, but the market supply/demand would surely shift for such goods. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It would seem to me that the level of spending would be higher and could actually result in higher GDP growth, as those earning the average income tend to spend, not save, their marginal dollars. &lt;/p&gt;&#xA;" OwnerUserId="362" LastActivityDate="2014-12-07T03:34:21.893" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="521" PostTypeId="2" ParentId="517" CreationDate="2014-12-07T11:24:42.223" Score="0" Body="&lt;p&gt;Land is included inside capital. You should not think of land only as the fields for agricultural production but as any physical space needed for productive processes. Therefore, land could be the terrain where a factory is placed, a block of offices etc. Similarly, do not think that land is a fixed factor. Although the dimensions of a country are given, abandoned terrains are available for the construction of new factories and buildings, forests can be cut, residential spaces can be turned to commercial etc. It is true that all this could be added as additional factors, but that will not lead to any improvement. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;With respect to energy and raw materials, notice that they are very special factors different than capital and labor. For instance, in a given year the maximum quantity of capital and labor that you can use is difficult to modify, you are constrained. However,  this will change over time through capital accumulation, employment transitions etc. Changes in these two factors will determine the variation of GDP over time. However, one may think that at any point in time all energy and raw materials needed for the productive process are immediately available, they do not accumulate but are consumed and disappear, and therefore they do not play a role in determining the evolution of production over time (it is true that natural resources are a stock that deteriorate and decrease with their use, but in this framework, it is like if they were infinitely available).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Productivity can make land more productive, increasing for example the tons of grain produced by ha. This would be captured in A. Nonetheless, if technologies allow a more efficient used of resources, this would have no impact on the production function because as we saw, they do not enter as factors.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To conclude, the production function $Y=F(K,L)$ is a simplification of reality, but it is useful to the extent that it captures part of the most crucial factors that determine production and its evolution over time. It is not meant to be perfect, simply to help us understanding growth, in fact, differences in capital and labor alone can explain more than 80% of the cross-country differences of GDPpc and its growth rate. Given that the pressure on resources it is becoming more and more important and it is likely to constrained future production possibilities (if not today), it would be sensible to take this into account, and many economists do it with more sophisticated production functions.&lt;/p&gt;&#xA;" OwnerUserId="292" LastEditorUserId="292" LastEditDate="2014-12-07T11:41:05.393" LastActivityDate="2014-12-07T11:41:05.393" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="522" PostTypeId="2" ParentId="517" CreationDate="2014-12-07T13:24:27.253" Score="1" Body="&lt;p&gt;Including additional inputs into a production function is a simple exercise. For example, in Acemoglu (2009):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/76My3.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can include any input, but you should specify how it behaves (presumably different from $L$ and $K$).&lt;/p&gt;&#xA;" OwnerUserId="240" LastActivityDate="2014-12-07T13:24:27.253" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="523" PostTypeId="1" CreationDate="2014-12-07T13:32:52.710" Score="2" ViewCount="85" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;Given a ($n$-player) symmetric game and two equilibriums $s_1,s_2$, is&#xA;  it true that if the support (the set of strategies with positive&#xA;  probabilities) of $s_1$ is identical to the support of $s_2$ then&#xA;  $\frac{s_1+s_2}{2}$ is also a symmetric equilibrium?&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;By $\frac{s_1+s_2}{2}$ I mean that a strategy $i$ will be selected by a player with a probability which equals the average of the probability of $i$ under $s_1$ and the probability of $i$ under $s_2$.&lt;/p&gt;&#xA;" OwnerUserId="348" LastEditorUserId="123" LastEditDate="2014-12-08T06:10:03.480" LastActivityDate="2014-12-08T06:10:03.480" Title="Is there always at most one full-support extreme symmetric equilibrium?" Tags="&lt;mathematical-economics&gt;&lt;game-theory&gt;&lt;general-equilibrium&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="524" PostTypeId="2" ParentId="523" CreationDate="2014-12-07T14:27:49.690" Score="2" Body="&lt;p&gt;This seems obvious.  If $\sigma_1,\sigma_2$ are in the joint support of $s_1,s_2$ and $\tau$ is not, then (writing $P$ for the first player's payoff) you need&#xA;$$P(\tau,s)\le P(\sigma_1,s)=P(\sigma_2,s)$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $s$ is a convex combination of the $s_i$.  But if you replace $s$ with $s_1$ or $s_2$, this holds, so it still holds after you average over $s_1$ and $s_2$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What am I missing?&lt;/p&gt;&#xA;" OwnerUserId="250" LastActivityDate="2014-12-07T14:27:49.690" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="525" PostTypeId="2" ParentId="460" CreationDate="2014-12-07T15:39:54.250" Score="6" Body="&lt;p&gt;Because we use today's capital stock to produce tomorrow's output, some fraction of which is invested, so you should expect something like $dK/dt=\alpha f(K)$ where $f$ is increasing in $K$.&lt;/p&gt;&#xA;" OwnerUserId="250" LastActivityDate="2014-12-07T15:39:54.250" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="526" PostTypeId="1" CreationDate="2014-12-07T16:58:59.477" Score="6" ViewCount="1023" Body="&lt;p&gt;I'm looking for a good book that gives an (introductory) overview about the existing economic theories and the different schools of thought (optimally with focus to those that affect governments and institutions). Presentations that use  mathematical formalisms and that give a little bit of historical background to the respective theory are very welcome. I don't have any economic education, so I am hoping that there exist some &quot;standard works&quot; that compare the different theories and schools of thought.&lt;/p&gt;&#xA;" OwnerUserId="301" LastEditorUserId="2776" LastEditDate="2017-08-12T07:23:13.300" LastActivityDate="2017-08-12T07:23:13.300" Title="Overview book about economic theories" Tags="&lt;reference-request&gt;&lt;self-study&gt;&lt;schools-of-thought&gt;" AnswerCount="3" CommentCount="5" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="527" PostTypeId="2" ParentId="420" CreationDate="2014-12-07T17:42:04.023" Score="3" Body="&lt;p&gt;In Kreps' (1988) book &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0813375533&quot; rel=&quot;nofollow&quot;&gt;&lt;strong&gt;&quot;Notes on the Theory of Choice&quot;&lt;/strong&gt;&lt;/a&gt;, the issue is dealt with in &lt;strong&gt;chapter 9 &quot;Savage's Theory of Choice Under Uncertainty&quot;&lt;/strong&gt;, after discussing subjective probability in chapter 8. As usual, Kreps' style helps: he has the ability to seamlessly inject his -always formal- approach with very down-to-earth comments and examples that are strong in intuition (and he does it better than Savage, I might add). But also, here &lt;em&gt;&quot;formal&quot; does not translate into &quot;complete exposition&quot;&lt;/em&gt;: he explicitly refrains from formally &lt;em&gt;proving&lt;/em&gt; parts of the whole apparatus, mentioning that &quot;this is a two-page proof&quot;, and &quot;this is another two-page proof&quot;, and &quot;if you want to prove this, good luck&quot;. For these parts he falls back on Fishburn's (1970) &lt;a href=&quot;http://books.google.gr/books/about/Utility_theory_for_decision_making.html?id=lyUoAQAAMAAJ&amp;amp;redir_esc=y&quot; rel=&quot;nofollow&quot;&gt;&lt;strong&gt;&quot;Utility Theory for Decision Making&quot;&lt;/strong&gt;&lt;/a&gt; book, &lt;strong&gt;chapter 14&lt;/strong&gt; &lt;strong&gt;&quot;Savage's Expected Utility Theory&quot;&lt;/strong&gt;. And Fishburn is &lt;em&gt;formal&lt;/em&gt; alright (more symbols than words in a page).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My impression is that combining these two sources can be beneficial.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2014-12-07T17:42:04.023" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="528" PostTypeId="1" CreationDate="2014-12-07T20:47:40.997" Score="3" ViewCount="135" Body="&lt;p&gt;In New Zealand we have a retirement saving scheme called &lt;a href=&quot;http://en.wikipedia.org/wiki/KiwiSaver&quot; rel=&quot;nofollow&quot;&gt;Kiwisaver&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The scheme is opt in. If a consumer opts in, they must save at least 3% of their income, which they can't access until retirement. (They can also withdraw it to buy a first house). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Their employer must match up to 2% of the employee's income. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The government matches up to ~$500 a year. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is, what happens if the government, instead of giving a tax cut, increases its contribution to the retirement scheme?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;e.g. The government cuts services, and so can afford to give taxpayers a 1% tax cut. Instead of simply giving the tax cut, they announce that they'll be instead matching an additional 1% on the saving scheme. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The effects I see are:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is the effect of of reduced government spending. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There's also the effect that it will increase consumer participation in the scheme. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But there's also the effect that all this extra money has on the investment world. Would this simply be inflationary on existing stock prices? Or is it likely to increase new (risky?) investment? &lt;/p&gt;&#xA;" OwnerUserId="96" LastEditorUserId="59" LastEditDate="2014-12-08T06:22:33.573" LastActivityDate="2015-03-25T02:54:38.807" Title="What is the effect of redirecting government tax intake to a consumer retirement saving incentive?" Tags="&lt;taxation&gt;&lt;government&gt;&lt;saving&gt;&lt;investment&gt;" AnswerCount="1" CommentCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="530" PostTypeId="2" ParentId="416" CreationDate="2014-12-08T01:49:24.657" Score="7" Body="&lt;p&gt;The answer is very clear when you look at Russia's monetary statistics. The Central Bank of the Russian Federation has a very good site, and you can see them here:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.cbr.ru/eng/statistics/credit_statistics/MS.asp?Year=2014&quot; rel=&quot;nofollow noreferrer&quot;&gt;Russian Money Supply (M2)&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;or courtesy of the St. Louis Federal Reserve:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/1CJKu.png&quot; alt=&quot;Russian money Supply&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;They provide the annual expansion rate which is nice. Historically, Russia's money supply has always been an extreme outlier compared to other European countries. Compared to the USA's money supply, which roughly doubles every 10 years, Germany which was down at 1.3x/decade last time I checked, Russia's typically increases by 20x a decade.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The open research question is why currencies tend to collapse suddenly, rather than over time, but the underlying reason is always found in their relative expansion rates. I would suspect that this particular episode has also been triggered by the recent drop in oil prices, since that will put additional pressure on oil exporters like Russia, due to the drop in income from exports.&lt;/p&gt;&#xA;" OwnerUserId="84" LastEditorUserId="84" LastEditDate="2014-12-17T17:11:57.403" LastActivityDate="2014-12-17T17:11:57.403" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="531" PostTypeId="1" AcceptedAnswerId="20143" CreationDate="2014-12-08T03:14:26.077" Score="4" ViewCount="61" Body="&lt;p&gt;I was told that the advertising market as a whole shrank after Google became part of the marketing industry. Apparently, the decrease occurred in offline markets as well as online markets. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this a valid historical example (outside of theory) where a large increase in competition in a particular market has decreased the size of that market or was the marketing industry affected differently by Google?  &lt;/p&gt;&#xA;" OwnerUserId="380" LastEditorUserId="59" LastEditDate="2014-12-08T04:18:02.457" LastActivityDate="2018-01-18T03:48:19.713" Title="Is there any historical example that a market is shrinking down after competition?" Tags="&lt;markets&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="532" PostTypeId="1" CreationDate="2014-12-08T13:14:51.907" Score="5" ViewCount="82" Body="&lt;p&gt;I'm wondering if there's a name for a $n$-player symmetric game, such that the payoff for player $i$ playing strategy $j$ only depends on the &lt;strong&gt;number&lt;/strong&gt; of other players which played $j$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Such family of games would capture many real-life games, such as career choosing (where the profit of becoming, say, a programmer, depends on the number of people studying programming, and it is not effected by the ratio of, e.g., agronomists to athletes).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There seems to be quite a lot shared properties for such games, especially if the profit $U_i(j)$ is decreasing as the number of players that chose $j$ increases, so I was wondering if such family was researched before and if it has a name.&lt;/p&gt;&#xA;" OwnerUserId="348" LastEditorUserId="38" LastEditDate="2014-12-08T15:02:08.923" LastActivityDate="2014-12-09T13:21:32.107" Title="Is there a name for this family of games (Binomial games?)?" Tags="&lt;game-theory&gt;&lt;reference-request&gt;&lt;definition&gt;" AnswerCount="1" CommentCount="9" ContentLicense="CC BY-SA 3.0" />
  <row Id="533" PostTypeId="2" ParentId="258" CreationDate="2014-12-08T14:17:30.367" Score="5" Body="&lt;p&gt;&lt;a href=&quot;http://en.m.wikipedia.org/wiki/Loeb_space&quot;&gt;Loeb spaces&lt;/a&gt; have been used to model situations with a continuum of agents. See &lt;a href=&quot;http://eml.berkeley.edu/~anderson/Book.pdf&quot;&gt;http://eml.berkeley.edu/~anderson/Book.pdf&lt;/a&gt; and the chapters by Sun on economic applications in the book &lt;em&gt;Nonstandard Analysis for the Working Mathematician&lt;/em&gt;.&lt;/p&gt;&#xA;" OwnerUserId="86" LastActivityDate="2014-12-08T14:17:30.367" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="534" PostTypeId="2" ParentId="258" CreationDate="2014-12-08T15:48:48.533" Score="5" Body="&lt;p&gt;Measure theory is widely used in the problem of fair division (aka &quot;cake-cutting&quot;). See the many &lt;a href=&quot;http://www.citeulike.org/search/username?q=tag%3Aeconomics-journals%20AND%20tag%3Afairness&amp;amp;search=Search%20library&amp;amp;username=erelsegal-halevi&quot;&gt;papers about fairness in economics journals&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a particular example, see &lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/S0304406898000536&quot;&gt;Tatsuro Ichiishi and Adam Idzik, &quot;Equitable allocation of divisible goods&quot;, JME 1999&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="385" LastActivityDate="2014-12-08T15:48:48.533" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="535" PostTypeId="1" CreationDate="2014-12-08T15:54:34.510" Score="7" ViewCount="240" Body="&lt;p&gt;I am looking for some statistical models that are accepted to best predict inflation rates. Anything that is more complicated than linear model will be appreciated. Or even recommend books that discuss inflation predictions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would also be interested in models that could relate inflation to GDP(or some form of feature extracted from gdp).&lt;/p&gt;&#xA;" OwnerUserId="244" LastEditorUserId="43" LastEditDate="2014-12-08T16:02:57.180" LastActivityDate="2014-12-09T02:15:22.140" Title="Models for inflation prediction" Tags="&lt;macroeconomics&gt;&lt;inflation&gt;&lt;monetary-policy&gt;&lt;gdp&gt;" AnswerCount="1" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="536" PostTypeId="1" AcceptedAnswerId="563" CreationDate="2014-12-08T16:01:13.940" Score="2" ViewCount="68" Body="&lt;p&gt;A company is owned by two partners: partner $A$ holds a fraction $a$ and partner $B$ holds a fraction $b$ (with $a+b=1$). Partner $A$ wants to break the partnership. A common procedure for this is that $A$ should suggest a price $P$ for the entire company and let $B$ choose either of two options:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Buy $A$'s share for $aP$, or -&lt;/li&gt;&#xA;&lt;li&gt;Sell his share to $A$ for $bP$.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;This procedure incentivizes $A$ to suggest a fair price. Moreover, if $B$ thinks that $A$'s price is unfair, he can profit from this - if he thinks that the price is too low he can opt to buy and if he thinks that the price is too high he can opt to sell. The advantage of this procedure is that it guarantees fairness without requiring for an external arbitrator.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A possible problem with this procedure is that it requires $B$ to have enough cash for buying $A$'s share. If $B$ doesn't have enough cash, and cannot get credit, he might have to select the &quot;sell&quot; option even when the price is low. Moreover, if $A$ knows that $B$ is short in cash, he might exploit this fact and deliberately suggest a low price in order to force $B$ to sell his share.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;MY QUESTION IS: is there an improved division mechanism that handles this problem?&lt;/p&gt;&#xA;" OwnerUserId="385" LastActivityDate="2014-12-10T08:33:28.797" Title="Buy-or-sell deal when there is cash shortage" Tags="&lt;game-theory&gt;&lt;reference-request&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="537" PostTypeId="1" CreationDate="2014-12-08T16:36:44.783" Score="4" ViewCount="3691" Body="&lt;p&gt;I have question about max. profit condition for monopolist block pricing.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I learned that to maximize profit in block pricing, given a linear demand curve function and constant MC, calculate $Q_2(Q_1)$, and $P_S(Q_1)$ then find $Q_1$ maximizing profit and then find $P_1$ and $Q_2$ the $P_2$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is what I read from the textbook (Microeconomic, Besanko).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But I heard somewhere that when in following case,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/Puj5C.jpg&quot; alt=&quot;Graph with quantity and price axes showing demand, average cost, and marginal cost curves&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;with right-downward sloping $MC$ and $AC$,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Profit maximizing first block price and quantity is $P_1$ and $Q_1$ where $AC=MR$&#xA;and second block price and quantity should be $P_2$ and $Q_2$ where $AC=D$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've thought about this for 1 day and still couldn't get why maximizing condition is like that.&lt;/p&gt;&#xA;" OwnerUserId="386" LastEditorUserId="8815" LastEditDate="2016-08-27T06:40:02.410" LastActivityDate="2016-11-25T16:02:08.083" Title="Monopoly firm's block pricing strategy making max. profit" Tags="&lt;monopoly&gt;" AnswerCount="3" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="538" PostTypeId="1" AcceptedAnswerId="541" CreationDate="2014-12-08T19:02:55.897" Score="10" ViewCount="205" Body="&lt;p&gt;When several people have to decide about a single yes/no issue*, the natural decision rule to use is the majority rule. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But when there are many issues to decide upon, the majority rule is &quot;unfair&quot; in the following sense: it is possible that the majority's opinion will be accepted on all topics and the minority's opinion will not be accepted on any topic. As an extreme example, it is possible that 51% of the population will decide about 100% of the issues.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am looking for a decision rule which prevents this unfairness.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Formally, define a &quot;uniform group&quot; as a group of people who always vote in the same way. Define the &quot;acceptance rate&quot; of a uniform group as the percentage of issues on which the opinion of the uniform group got accepted. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Define a &quot;fair decision rule&quot; as a rule for which, for every uniform group containing X percent of the population, the acceptance rate tends to X when the number of issues tends to infinity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;MY QUESTION IS: Does there exist a fair division rule as defined above?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(* I restrict the question to yes/no issues, since when the issues are not binary the problems are much more complicated).&lt;/p&gt;&#xA;" OwnerUserId="385" LastEditorUserId="108" LastEditDate="2014-12-08T21:12:46.103" LastActivityDate="2014-12-10T21:11:25.740" Title="Fair voting procedure when there are many issues" Tags="&lt;reference-request&gt;&lt;preferences&gt;&lt;political-economy&gt;&lt;social-choice&gt;" AnswerCount="2" CommentCount="6" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="539" PostTypeId="2" ParentId="526" CreationDate="2014-12-08T20:06:57.610" Score="0" Body="&lt;p&gt;Because this question will ultimately produce subjective answers, and given the wise advice (given in the above comments) to avoid learning economics by studying &quot;schools of thought,&quot; I decided to answer by telling you what books were assigned in my introductory economics class as an undergraduate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In my first undergraduate class, our textbook was &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0538453052&quot; rel=&quot;nofollow&quot;&gt;&quot;Principles of Economics&quot;&lt;/a&gt; by Mankiw (which is actually very nice to read even though it's a textbook). Along with this textbook we were required to read these two more popularly oriented books: &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0393337642&quot; rel=&quot;nofollow&quot;&gt;&quot;Naked Economics: Undressing the Dismal Science&quot;&lt;/a&gt; (which has some fun discussion of economic issues) and &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/1451651732&quot; rel=&quot;nofollow&quot;&gt;&quot;The Armchair Economist: Economics and Everyday Life&quot;&lt;/a&gt; (which gives a great introduction to economics thinking).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These three books give a good beginner's overview of economics and economic thinking in general. I think this would be a nice way to start.&lt;/p&gt;&#xA;" OwnerUserId="59" LastActivityDate="2014-12-08T20:06:57.610" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="540" PostTypeId="2" ParentId="526" CreationDate="2014-12-08T21:21:04.133" Score="3" Body="&lt;p&gt;Snowdon and Vane &quot;&lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/1845422082&quot; rel=&quot;nofollow noreferrer&quot;&gt;Modern Macroeconomics: Its Origins, Development And Current State&lt;/a&gt;&quot; is probably the best book I have read which gives a clear exposition of all the major macroeoconomic schools from the classicals to the New Keynesians. It highlights what the different schools have contributed to modern macroeoconomics and compares them to the other schools. They even include interviews with economists such as Robert Lucas Jr. and Milton Friedman to mention a few. I guess this is exactly the book you are looking for and to be honest I think every single person studying economics should read this book. It is not an introductionary economics book but I think most people should be able to read and understand it.&lt;/p&gt;&#xA;" OwnerUserId="150" LastEditorUserId="2776" LastEditDate="2017-08-12T07:05:38.310" LastActivityDate="2017-08-12T07:05:38.310" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="541" PostTypeId="2" ParentId="538" CreationDate="2014-12-08T22:24:33.910" Score="6" Body="&lt;p&gt;That's interesting: the flavor of the frequentist approach to probability used for a socio-political fairness criterion: if my measure as a population group is $0&amp;lt;p&amp;lt;1$, and known, then my opinion should be accepted by the whole at the same measure, as number of issues goes to infinity. In other words, current observed acceptance rate should be a consistent estimator of theoretical acceptance rate, and equal to my measure.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then it is very easy to create such a decision rule, while saving public money: &lt;strong&gt;no need to hold one referendum after another, just construct a die,&lt;/strong&gt; with as many sides as there are &quot;uniform groups&quot;, with the die's weight distributed in such a way that the side representing uniform group $i$ will have probability of turning up equal to $p_i$. It won't be difficult to construct, and publicly and objectively test it for the desired properties.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, wherever an issue comes up for voting, just roll the die. And ok, spend some money for a suitable public ceremony.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Whenever there is a census, the relative size of each uniform group can be re-measured and a new die can be constructed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why do I have the feeling though that no uniform group is likely to ever accept such a scheme?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(This of course puts aside the &lt;em&gt;importance&lt;/em&gt; of each issue, in general, for each uniform group, etc, but I took that from the OP which concentrates on &lt;em&gt;number&lt;/em&gt; of issues, irrespective of what the issues are about, and to whom they matter and how much they matter, and how do we measure that etc).&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2014-12-08T23:38:46.903" LastActivityDate="2014-12-08T23:38:46.903" CommentCount="12" ContentLicense="CC BY-SA 3.0" />
  <row Id="542" PostTypeId="2" ParentId="535" CreationDate="2014-12-09T02:15:22.140" Score="4" Body="&lt;p&gt;One approach that you might find useful/interesting would be Bayesian VARs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An example of a Bayesian VAR being used to predict inflation can be found &lt;a href=&quot;https://ideas.repec.org/a/eee/dyncon/v29y2005i11p1893-1925.html&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;.  In this paper, Tim Cogley, Sergui Morozov, and Tom Sargent motivate some methodology for Bayesian VARs and then compare their results to what the Bank of England uses in their &quot;fan charts&quot; (which they use to predict inflation).  Cogley and Sargent have two other papers on inflation that are related to this paper, &quot;&lt;a href=&quot;http://dx.doi.org/10.1016/j.red.2004.10.009&quot; rel=&quot;nofollow&quot;&gt;Drifts and Volatilities&lt;/a&gt;&quot; and &quot;&lt;a href=&quot;http://www.nber.org/chapters/c11068.pdf&quot; rel=&quot;nofollow&quot;&gt;Evolving Post-World War II U.S. Inflation Dynamics&lt;/a&gt;.&quot;  This series of papers is a good expose on some of the theory of inflation and how to statistically approach it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I believe @FooBar is right that most banks are using large-scale VARs (similar to the aforementioned) and New Keynesian models.  This isn't directly related to the question, but there is a literature on model averaging in which they can combine the forecasts of VARs and N-K models to provide a &quot;more informed&quot; (I use the phrase more informed here lightly but I do think the model averaging is helpful) prediction as to what will happen.  An example of such a paper can be found &lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/S0165188911000455&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="47" LastActivityDate="2014-12-09T02:15:22.140" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="543" PostTypeId="2" ParentId="532" CreationDate="2014-12-09T13:21:32.107" Score="4" Body="&lt;p&gt;OK,  Erel Segal Halevi's comments have placed me on the right track for finding what I was looking for;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This family of games is called &quot;Resource Selection Games&quot;, and it has quite a few papers written on it (&lt;a href=&quot;http://web.mit.edu/iashlagi/www/papers/rsg_F3.pdf&quot; rel=&quot;nofollow&quot;&gt;such as this one&lt;/a&gt;).&lt;/p&gt;&#xA;" OwnerUserId="348" LastActivityDate="2014-12-09T13:21:32.107" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="545" PostTypeId="1" AcceptedAnswerId="547" CreationDate="2014-12-09T16:03:48.413" Score="9" ViewCount="2954" Body="&lt;p&gt;This is a point I find very confusing and very hard to justify to students. Depending on the books, one finds many different conventions regarding the sign of elasticities and marginal rate of substitution (MRS). Some define them with absolute value, some don't, and  one sometimes finds inconsistencies inside a single book or set of notes. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My questions are :&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;To your knowledge, what is the most conventional position regarding the use of absolute value in the definition of&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Own-price elasticity&lt;/li&gt;&#xA;&lt;li&gt;Cross-price elasticity&lt;/li&gt;&#xA;&lt;li&gt;MRS&lt;/li&gt;&#xA;&lt;/ul&gt;&lt;/li&gt;&#xA;&lt;li&gt;Is it mere convention or is there somewhat of a rationale for taking absolute value in some/all/none of the cases?&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="38" LastEditorUserId="38" LastEditDate="2020-03-06T13:08:06.213" LastActivityDate="2020-03-06T13:08:06.213" Title="Why absolute value in elasticities and marginal rate of substitution?" Tags="&lt;microeconomics&gt;&lt;elasticity&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="546" PostTypeId="2" ParentId="538" CreationDate="2014-12-09T16:15:26.570" Score="-1" Body="&lt;p&gt;Rolling Dice?! Flipping a coin?! Randomly excluding voters?! To attain a fair vote?!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here's a REAL set of answers that provide &lt;em&gt;deterministic&lt;/em&gt; results and that start with the assumptions of the OP's conditions. Refer to the &lt;strong&gt;Addendum&lt;/strong&gt; below if you need to understand how.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some &quot;fair&quot; voting procedures that are &lt;em&gt;deterministic&lt;/em&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can skip to the section labeled with A,B,C etc...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In fairness, as a disenfranchised new member of the community (meaning that I can't vote), I would like to ask that those with the vote privilege please leave my vote count at zero if you likewise believe that my answer is of no value. Please leave a well-reasoned argument that is of value instead. I do edit my posts. Thank you...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;INTRO.&lt;/strong&gt;&#xA;Much of the work by the philosopher, Alexis de Tocqueville, could be quoted and then &lt;em&gt;paraphrased&lt;/em&gt; to sum the very problem you describe in your question: 'The rule of the 51 percent majority is the tyranny and oppression over the 49 percent minority.' This is especially true, in the case of YES or NO, all or nothing, when essentially the other half of voters are given neither equally nor pragmatically viable alternative benefits or consolations to substitute with which they may be indifferent (as in a basket of goods A or B for them) to be satiated. (In America, by the way, this could even be as bad as a split-haired 49.99% vs. 50.01% popular vote.) They, the lesser half, cannot be ignored as they do not disappear. By little stretch of the imagination this sets the stage for a very Pareto Inefficient outcome.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In your comment, you say &quot;there is a chance that one person will always make the decisions although all other people disagree with him.&quot; As you originally alluded, the contrapositive is also applicable: 'Many people may make decisions although one person may disagree.' This is a challenge for new thinking when there already exists conventional thought.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;BODY.&lt;/strong&gt;&#xA;What you're asking is 'For the most optimal outcome, how do you balance votes when there's a group within the total set of voters whose unchanging vote makes one majority outcome more probable than another (thereby even making the voting process itself superfluous.)'&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are several things that can be done. These solutions can be applied to remedying loaded coin/dice tosses mixed in with legitimate coin/die tosses or people who vote with bias:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;A.&lt;/strong&gt; IGNORE/REMOVE THE VOTES THAT NEVER CHANGE.&#xA;If a subgroup always votes the same way, then the existence of them having a rationale is questionable. A vote is, in contrast to a random toss, assumed to be a discrimination between choices based on information. But voters can behave irrational in their choice. They may, without further consideration, always select one brand instead of another when faced between substitutes that have different labels but equal content. Perhaps they do this to minimize the risk of trying new. They operate on no, low, or old information. At any rate they skew the total vote by acting as a bias coefficient. 'Bias coefficient' means that the choice is completely inelastic. There are no other options or outcomes. This can mean that, because they neither question nor reason, they have no constructive voting input other than to skew the results. The solution: Simply ignore the never changing votes. Subtract the coefficient on the graph and bring the starting point back to zero. Conduct the real vote: Count the remaining votes as 100%, i.e., the votes which can sway either way depending on exogenous factors (as opposed to an inherent, endogenous bias.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;B1.&lt;/strong&gt; WEIGHT THE VOTES AND DECIDE ON A DIFFERENT MAJORITY FRACTION.&#xA;An inelastic vote bias gives the remaining voters who vote in line with the bias an unfair advantage over the other side of the YES/NO coin. This is a handicap for the other side. It takes less input for the former side to outvote the latter side - perhaps even when the majority of the latter votes are the actual thinking/rational voters who do constructively weigh YES vs. NO in decision-making. As you know, various sports employ handicaps to equate units of input, e.g., effort, on both sides. Q: How did David beat Goliath? A: By using an equalizer, i.e., a slingshot!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, pick a tie-breaker that is culturally tolerable. The US Congress uses the simplest fraction, 2/3 majority to represent a scenario where 2 out of 3 discrete/indivisible people would commit decisively one way versus another. In the 2/3 example, for the purpose of inclusion, redefine the inelastic subgroup as having 1/3 weight. The remaining voters can represent the other 2/3 of the vote. Multiply each vote of the remaining votes by some factor that makes their vote count numerically 2/3 the size of the first subgroup.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, the inelastic/biased group is made up of 90 voters or 40% of all voters. The remaining number of voters is therefore 90*60%/40% = 135 voters. Multiply the 135 elastic voters by a factor that gives them a 2/3 decision weight, i.e., 135*x=90*2 --&gt; x = 180/(135) --&gt; x = 4/3. In this example, the vote of each elastic voting person (who can be YES or NO) is equal to a 4/3 biased vote. This is actually a variation on A. The drawback is that the required majority might not be attained. The benefit is it makes the minority contingent smaller.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;B2.&lt;/strong&gt;&#xA;Let's say that there is yet another subgroup within the elastic, changeable subgroup that does not have an equal probability of voting YES or NO. It may be partially biased. Let's say members in this variable subgroup may have a 2/3 probability of voting one way versus another. Again, find out the number of this special subgroup that has an uneven probability versus the number of those who have an even probability and multiply each side by factors that give each group, e.g., an equal 50/50 voting weight. For simplicity, one half has 2/3 probability of voting one way; and the second half has a 1/2 probability of voting either way. Multiply the first side votes by 3/2 and the second side votes by 2/1 to make the influential weight of both sides 1:1 again. If the numbers of either elastic subgroup are uneven then do the additional simple math for which you can refer above in &lt;strong&gt;B1.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;C.&lt;/strong&gt; INCREASE THE VOTING SAMPLE SIZE AND APPLY &lt;strong&gt;B.&lt;/strong&gt;&#xA;Imagine a room of only 2 voters: one stubborn, hard-headed person and one changeable,open-minded person. The outcome is either unanimous or 50/50 ambiguous. Increase your sample size! The problem is that neither of them and very likely at least one of them will not trust the newcomers especially after the winning/losing votes are tallied.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;D.&lt;/strong&gt; MAKE PEOPLE ACCOUNTABLE FOR VOTING CONSEQUENCES. [...this is my favorite one...]&#xA;Hindsight is 20/20 but risk can truly sharpen one's focus. Involve risk management as part of the vote. Let the voters reap the fruit of their vote but also let them enjoy or suffer its taste. In this instance, voters would have to be registered/identifiable. Those voters who win get the benefits (and costs) of their vote (most fairly in proportion to the size of their vote.) If 67% of voters got to decide on how to use a budget, let them enjoy 67% of that budget toward their decision. Those voters who lose do not get to share in that benefit (or cost.) However, if the majority vote makes a bad decision, they must pay for it - not those who didn't vote for it. Most primates if not animals do not like to break even when budgeting input in exchange for output but the fear of loss is indeed greater than hope of gain. The perception of risks for voting vs. not voting can radically change voting behavior and motivate voters to acquire better information, not vote, or participate more actively thereby changing the voting sample (toward a more honest/constructive/informed turnout &amp;amp; vote) as well.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;CONCLUSION.&lt;/strong&gt;&#xA;Fairness rules can be created and do exist (right here!) to balance a voting sample that contains biased subgroups in achieving a fair and deterministic outcome in both YES/NO votes or those that involve further complexity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope these suggestions help, Erel!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;BONUS.&lt;/strong&gt;&#xA;A lengthy list of quotes by de Tocqueville:&#xA;&lt;a href=&quot;http://www.goodreads.com/author/quotes/465.Alexis_de_Tocqueville&quot; rel=&quot;nofollow&quot;&gt;http://www.goodreads.com/author/quotes/465.Alexis_de_Tocqueville&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Enjoy!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;ADDENDA.&lt;/strong&gt;&#xA;[Originally a response to a comment below asking for clarification. Important for inclusion but too long for intro.]&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An election is a decision. A vote is a decision. The difference between either is the word used for &quot;decision&quot; &amp;amp; fraction criteria for finalization. A decision represents a probability. The probable decision is the sum of all probabilities divided by the total number of probabilities. Therefore, without complete/perfect info, a priori, an election decision is a probability; a single vote decision is a probability. Before casting a vote, a voter conducts an election with themselves. Each issue may be comprised of sub-issues, all representing probabilities, each with weight. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The probable voting decision that a voter makes is the sum of all sub-decision probabilities (each multiplied by their weight of importance - analogous to individuals voting) divided by the total weight of sub-decisions. Taking issues, sub-decisions, etc., to infinity, using the formula, gives us the probability of a vote when total issues are taken to infinity. The same applies to a voter having infinite elections with themselves or conducting infinite elections. Whether a group given probability=1 for their preference gets their way (at infinity) depends on the required majority.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the probability of the group's decision at infinity is greater than the required majority vote, then the group will have their way at infinity. The answer to the question above takes this as a starting assumption, a mutually understood given, and then offers solutions for a &quot;fair decision rule&quot; that's interpreted to mean an 'equitable voting outcome that is balanced, that is &quot;fair.&quot;' Sources of error it addresses are groupsizes/weights and that, even when taken to infinity, voters do not work with the same sets of info at the sub-decision levels to come to the 'same vote decisions'*.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;*In the above, the &quot;same vote decision&quot; implies that the vote of one voter is identical in scope and thus equivalent to another voter's vote if it encompasses an identical number of issues/sub-issues, identical sets of information, identical cost/benefit analyses, and identical degrees of consideration with all other things being equal. Votes are not the same if all that which goes into each vote (for each voter) is different from one vote to the next which therefore creates a probable bias in the process leading up to the voting decision and thus the vote...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Case in point: Five people standing in line at a ballot box for an infinite number of elections to vote YES/NO that covers an infinite number of issues. They're living in an episode of Rod Serling's Twilight Zone where it just keeps repeating with more and more issues added to infinity. The first two people eternally read the newspaper everyday and do much research, consultation, &amp;amp; contemplation over weeks/years in order to decide YES/NO. The probability of the first group's vote either way, given variable tastes, is more variable. The other three people who like the same style and, who stubbornly refuse to change, base their decisions on comparing bumper stickers, 5-second slogans, and operate - with no exception - on the bias that marketing image &amp;amp; affiliation is everything and that the final decision is one about image &amp;amp; affiliation. The probability of the second group's vote given the same never changing preferences (and for the purpose of illustration) is 1 or very close to it. How to establish a fair vote? Refer to all of the above...&lt;/p&gt;&#xA;" OwnerUserId="334" LastEditorUserId="334" LastEditDate="2014-12-10T21:11:25.740" LastActivityDate="2014-12-10T21:11:25.740" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="547" PostTypeId="2" ParentId="545" CreationDate="2014-12-09T17:19:52.810" Score="7" Body="&lt;p&gt;I think there are pedagogical advantages to discussing both the raw numbers and the absolute values and I think the benefits of both explain why they both show up (sometimes in the same text, even).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Each elasticity number gives two bits of information. First, the absolute value with respect to 1 and second, the sign. Now, clearly, if you had a negative elasticity, you could compare it to -1. However, it becomes somewhat difficult to teach when using phrases like &quot;greater than&quot; or &quot;less than&quot; -1 to discuss a good being (in)elastic, since &quot;greater than -1&quot; is actually inelastic if the elasticity is negative. It is much more intuitive to be able to discuss the ratios of percent changes if &quot;greater than&quot; does in fact mean that the top is bigger than the bottom and vice versa for &quot;less than&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course, there is also a bunch of information tied up in the sign of the elasticity. We get the Law of Demand out of own-price elasticity, we get compliments/substitutes from cross-price elasticity, etc. So it is important to still make sure students understand the importance of the sign.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When I am teaching, I try to discuss both parts explicitly, but make clear that the elasticity itself includes the appropriate sign. I think most books are trying to capture these two bits of information in one way or another. In any case, the formal definition of elasticity should include the sign, but if one is just talking about how elastic a good is, the absolute value could be reported (with the note that it is the absolute value of the elasticity, not the elasticity itself). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for MRS, it's usually not the absolute value, per se, that we report, but rather the negative of the derivative dy/dx. This is quite standard, since it has the intuitive interpretation of the consumer being willing to give up so many units of x for so many units of y. Since indifference curves are usually convex, this derivative is negative, thus changing the interpretation (and intuition) somewhat if we don't negate it.&lt;/p&gt;&#xA;" OwnerUserId="238" LastEditorUserId="238" LastEditDate="2014-12-09T20:25:04.007" LastActivityDate="2014-12-09T20:25:04.007" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="548" PostTypeId="2" ParentId="545" CreationDate="2014-12-09T18:32:44.913" Score="5" Body="&lt;p&gt;Related to the MRS, this is a more general problem regarding negative slopes. I confess to continuously being confused for many-many years on the matter (and having to pose and think), until I constructed the following mental image in my mind, which I share here just in case somebody else may find helpful:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/DE1eT.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The trick is to put minus and plus infinity side-by-side on top, and imagine straight lines rotating following the arrows.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So when we deal with negative slopes  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;&lt;strong&gt;flatter slope&lt;/strong&gt;&quot; = &lt;em&gt;higher algebraic&lt;/em&gt; value, &lt;em&gt;lower&lt;/em&gt; value in &lt;em&gt;absolute terms&lt;/em&gt; (closer to zero),  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;&lt;strong&gt;steeper slope&lt;/strong&gt;&quot; = &lt;em&gt;lower algebraic&lt;/em&gt; value, &lt;em&gt;higher&lt;/em&gt; value in &lt;em&gt;absolute terms&lt;/em&gt;.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-06-03T15:21:28.773" LastActivityDate="2015-06-03T15:21:28.773" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="549" PostTypeId="2" ParentId="545" CreationDate="2014-12-09T19:37:10.957" Score="4" Body="&lt;p&gt;Can't resist this quote from Samuelson, though I'm afraid it's not very helpful:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Through the influence of Alfred Marshall economists have developed a fondness for certain dimensionless expressions called elasticity coefficients. On the whole, it appears their importance is not very great except possibly as mental exercises for beginning students.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;From: Foundations of Economic Analysis, 1947, p. 125&lt;/p&gt;&#xA;" OwnerUserId="54" LastEditorUserId="1442" LastEditDate="2014-12-15T03:15:40.123" LastActivityDate="2014-12-15T03:15:40.123" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="550" PostTypeId="2" ParentId="471" CreationDate="2014-12-09T20:57:24.847" Score="1" Body="&lt;p&gt;So the following is not a textbook, but it is a long and informative chapter on search-and-matching models from two experts in labor-macro:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Rogerson and Shimer, 2010: &lt;a href=&quot;https://ideas.repec.org/p/nbr/nberwo/15901.html&quot; rel=&quot;nofollow&quot;&gt;https://ideas.repec.org/p/nbr/nberwo/15901.html&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2014-12-09T20:57:24.847" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="551" PostTypeId="1" AcceptedAnswerId="554" CreationDate="2014-12-09T21:23:59.927" Score="8" ViewCount="6000" Body="&lt;p&gt;What is the advantage and disadvantage to have a high value of USD for USA?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;China and Japan always want to keep their currency low as oppose to USA.&lt;/p&gt;&#xA;" OwnerUserId="95" LastActivityDate="2014-12-31T10:03:43.570" Title="What is the advantage and disadvantage to have a high value of USD for USA?" Tags="&lt;microeconomics&gt;&lt;monetary-policy&gt;&lt;money-supply&gt;&lt;supply-and-demand&gt;&lt;currency&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="552" PostTypeId="2" ParentId="294" CreationDate="2014-12-09T22:14:55.620" Score="4" Body="&lt;p&gt;If you are looking for a light-weight, definitely somewhat partisan take on development economics (I realize this is only part of what you want) check out &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0262550423&quot; rel=&quot;nofollow&quot;&gt;The Elusive Quest for Growth: Economists' Adventures and Misadventures in the Tropics&lt;/a&gt;. It goes into the theory and history of development economics and its application to policy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you're looking for a good overview of development economics without the history or context but with more technical details, the standard reference is I think still Debraj Ray's &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0691017069&quot; rel=&quot;nofollow&quot;&gt;Development Economics&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="54" LastActivityDate="2014-12-09T22:14:55.620" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="553" PostTypeId="1" AcceptedAnswerId="4860" CreationDate="2014-12-09T22:33:19.837" Score="6" ViewCount="45" Body="&lt;p&gt;Curious if there's a formula for this. There are some notorious cases of software (accidentally) and people (purposefully) quickly unloading a given security, causing the price to (temporarily, generally) plummet. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there a general formula for determining how many issues can be transacted in a given time period so that the market price is minimally impacted?&lt;/p&gt;&#xA;" OwnerUserId="223" LastActivityDate="2015-03-26T09:42:48.283" Title="trading security volume that affects price" Tags="&lt;algorithms&gt;&lt;financial-markets&gt;" AnswerCount="1" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="554" PostTypeId="2" ParentId="551" CreationDate="2014-12-09T22:59:28.703" Score="7" Body="&lt;p&gt;When the USD is highly valued, it allows people from the home country, the United States in this case, to purchase goods relatively cheaply from abroad and put pressure on domestic firms to have low prices. From a consumption standpoint, this may be advantageous.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A high value USD may also make goods from the United States more expensive relative to goods from other countries, so the quantity demanded of U.S. goods abroad decreases. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, the high value USD may increase the quantity demanded of foreign goods domestically and reduce the quantity demanded of U.S. produced goods abroad. Together, this &lt;em&gt;can&lt;/em&gt;, but not necessarily, have long term consequences on the current account if imports are greater than exports over the long term.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The weak Chinese yuan renminbi allows China to export many goods cheaply and, thus, accumulate a positive current account and become richer relative to the rest of the world. In fact, China's monetary policy has been subject to criticism in the past for actively managing the renminbi's value.&lt;/p&gt;&#xA;" OwnerUserId="395" LastActivityDate="2014-12-09T22:59:28.703" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="555" PostTypeId="1" AcceptedAnswerId="557" CreationDate="2014-12-09T23:42:59.677" Score="2" ViewCount="17873" Body="&lt;p&gt;I'm going to be honest, I have 2 full days to study for an Introductory Microeconomics exam final, and I am starting from scratch. The course was given online and the assignments were very easy to complete since we had 3 tries and the questions repeated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have no background in micro but my math is very good for this type of course (completed Calculus 3 and Combinatorics), and I am looking for a resource to learn the material quickly. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have looked online and haven't really found one. The book we use in class is full babbling analysis of graphs that I already understand and random examples that don't cover the material efficiently. I am looking for a sort of summary that covers the essentials.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know that I should have studied earlier, but I still want to try my best to have, at least, a passing grade.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any recommendation will be appreciated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you in advance.&lt;/p&gt;&#xA;" OwnerUserId="396" LastEditorUserId="61" LastEditDate="2014-12-10T01:05:23.470" LastActivityDate="2017-06-18T20:52:05.090" Title="Best resource to learn Microeconomics fast?" Tags="&lt;microeconomics&gt;" AnswerCount="3" CommentCount="2" FavoriteCount="1" ClosedDate="2014-12-10T18:21:09.700" ContentLicense="CC BY-SA 3.0" />
  <row Id="556" PostTypeId="2" ParentId="555" CreationDate="2014-12-10T00:03:20.970" Score="2" Body="&lt;p&gt;I think I found a good resource... &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is the link for anyone else in my position: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://web.archive.org/web/20150430095443/http://dev.business.und.edu/Goenner/teaching/econ201/resources.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://web.archive.org/web/20150430095443/http://dev.business.und.edu/Goenner/teaching/econ201/resources.html&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="396" LastEditorUserId="396" LastEditDate="2017-06-18T20:52:05.090" LastActivityDate="2017-06-18T20:52:05.090" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="557" PostTypeId="2" ParentId="555" CreationDate="2014-12-10T00:32:04.727" Score="8" Body="&lt;p&gt;It would help a lot to know at what level this class is exactly. You mention calculus, however most classes titled like yours (&quot;Introductory Microeconomics&quot;) tend to be very light on math. I'm going to assume that your class is of the learning-introductory-concepts variety and not of the taking-partial-derivatives-to-maximize-utility variety. If I'm wrong please correct me (or ignore this answer).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You have two options:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) Obtain a virtual copy of an intro micro textbook (I can vouch for Mankiw's Principles of Microeconomics) and read it cover to cover.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) Use a (probably) less-reliable resource such as &lt;a href=&quot;http://economics.about.com/od/microeconomics/a/micro_text.htm&quot;&gt;this&lt;/a&gt; or the link you posted in your answer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course, I choose these options with the assumption that your textbook is as bad as you say it is. I would still recommend you go over the course material to determine what your instructor considers important.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Important note: at this level of economics, knowing how to &lt;em&gt;do&lt;/em&gt; things (calculate elasticity, do simple math in simple word problems about total cost and average cost, etc) is not nearly as important as &lt;em&gt;understanding&lt;/em&gt; the concepts being taught. You say you've taken Calculus 3; expect basically the opposite of your Calc 3 final for this final. Of course, you should know the equation for, say, the elasticity of demand. However, the much more important thing is understanding what elasticity means and how to apply the concept to novel real-world problems.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is my off-the-top-of-my-head list of concepts you need to master.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Competition. How does profit get driven to 0 in a competitive market? What happens when demand increases in the short run? What then happens as time goes on?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Monopolies. Understand why it is in a monopolist's best interest to produce less than the efficient amount. Understand &lt;em&gt;why&lt;/em&gt; a monopolist faces a downward sloping MR curve while a competitive firm faces a flat MR curve. Be able to show your understanding on a graph.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Understand the difference between an increase in demand (ie, an outward shift in the demand function) and an increase in quantity demanded. Same for supply. Be able to show it on a graph.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Understand what happens to quantity supplied and quantity demanded when a binding price floor is in place. Be able to show it on a graph.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Firm cost and revenue graphs. How are ATC, MC, MR, P, AVC, and AFC related? Does the answer to this depend on the structure of the market? Why are supply curves upward sloping while demand curves are downward sloping? What are sunk costs?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Opportunity cost. what is opportunity cost? If firms in a competitive market see 0 economic profit, how is it that real-world firms achieve positive accounting profit?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Specialization and comparative advantage.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Price discrimination.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Deadweight loss. What is it and why do taxes create it. Be able to show it on a graph.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Externalities, public goods, and Pigovian taxes. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Elasticity. Bonus points for understanding in terms of calculus. Understand perfect elasticity and perfect inelasticity. Show it on a graph.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="391" LastActivityDate="2014-12-10T00:32:04.727" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="558" PostTypeId="2" ParentId="485" CreationDate="2014-12-10T02:53:16.263" Score="5" Body="&lt;p&gt;Easiest fix: if you're worried about it you should &lt;strong&gt;value weight your results&lt;/strong&gt;. This is suggest by, for instance, &lt;a href=&quot;http://onlinelibrary.wiley.com/doi/10.1111/j.1540-6261.1995.tb05171.x/abstract&quot; rel=&quot;noreferrer&quot;&gt;Kothari, Shanken and Sloan (1995)&lt;/a&gt;. Firms that are delisted tend to have extremely small market cap, so value weighting gives them very little impact on summary statistics. Delisted returns should also be used, although I'm not sure how much impact they'll have. I've seen the delisted return stuck into the month after a stock ceases to be traded.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In finding $\beta$'s, I tend to see the regression used only on those dates for which the stock return is observed. The correction really comes in value weighting summary statistics afterwards. Whether all this is &quot;correct&quot; or just the practice I've seen is not something I'm sure about.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Edit:&lt;/strong&gt; here's a &lt;a href=&quot;http://www.jstor.org/stable/2329566&quot; rel=&quot;noreferrer&quot;&gt;different perspective&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="54" LastEditorUserId="54" LastEditDate="2014-12-10T03:06:04.410" LastActivityDate="2014-12-10T03:06:04.410" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="559" PostTypeId="2" ParentId="555" CreationDate="2014-12-10T02:58:21.827" Score="2" Body="&lt;p&gt;Just so that this list includes the absolute basics I include NCERT (National Council of Educational Research and Training) textbooks (though there is a lot of indian focus in these books). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.ncert.nic.in/ncerts/textbook/textbook.htm?leec2=0-6&quot; rel=&quot;nofollow&quot;&gt;http://www.ncert.nic.in/ncerts/textbook/textbook.htm?leec2=0-6&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Starts with Micro-Economics &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Not asked by OP but just in case if it helps anyone else &#xA;&lt;a href=&quot;http://www.ncert.nic.in/ncerts/textbook/textbook.htm?leec1=0-6&quot; rel=&quot;nofollow&quot;&gt;http://www.ncert.nic.in/ncerts/textbook/textbook.htm?leec1=0-6&lt;/a&gt;&#xA;Introduces Macro-Economics&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The class 9 book is full of stories, however this is far far below graduate level.&#xA;&lt;a href=&quot;http://www.ncert.nic.in/ncerts/textbook/textbook.htm?iess2=0-4&quot; rel=&quot;nofollow&quot;&gt;http://www.ncert.nic.in/ncerts/textbook/textbook.htm?iess2=0-4&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I learnt most of my fundamentals from NCERT so I can vouch for their content being useful&lt;/p&gt;&#xA;" OwnerUserId="123" LastActivityDate="2014-12-10T02:58:21.827" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="560" PostTypeId="1" CreationDate="2014-12-10T03:17:46.330" Score="3" ViewCount="167" Body="&lt;p&gt;What are the economic justifications of the size premium?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In factor pricing models like the intertemportal capital asset pricing model (I-CAPM) or arbitrage pricing theory (APT), it is assumed that exposure to one of these factors represent exposure to some sort of undesirable risk. In this question, I'm trying to understand how to interpret exposure to size (measured by market capitalization) as exposure to some form of common risk. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This question is related to this question about momentum: &lt;a href=&quot;https://economics.stackexchange.com/questions/240/how-is-momentum-justified-as-a-common-risk-factor&quot;&gt;&quot;How is momentum justified as a common risk factor?&quot;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="59" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2014-12-10T12:07:59.827" Title="What are the economic justifications of the size premium?" Tags="&lt;theory&gt;&lt;finance&gt;&lt;asset-pricing&gt;&lt;financial-economics&gt;&lt;risk&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="561" PostTypeId="2" ParentId="560" CreationDate="2014-12-10T04:43:07.133" Score="3" Body="&lt;p&gt;The following are &lt;strong&gt;NOT&lt;/strong&gt; my words. Found this online. Please check full article here:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.multifactorworld.com/Lists/Posts/Post.aspx?List=3b285530-ccfa-416a-ba3b-de55213abe17&amp;amp;ID=59&quot; rel=&quot;nofollow&quot;&gt;http://www.multifactorworld.com/Lists/Posts/Post.aspx?List=3b285530-ccfa-416a-ba3b-de55213abe17&amp;amp;ID=59&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope this helps...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Size Premium: Why Does it Exist?&#xA;There seems to be general agreement that the size premium is a reward for bearing the risk that small companies may do poorly in bad economic environments. For example, compared to larger companies smaller companies may not be able to easily obtain credit in such environments. Bankruptcy risk is also typically a bigger risk for smaller companies in tough economic environments and in general. It could also be that some portion of the size premium is a reward for bearing the liquidity risk of small stocks compared to large stocks.&lt;/em&gt;&lt;/p&gt;&#xA;" OwnerUserId="366" LastEditorUserId="366" LastEditDate="2014-12-10T05:57:28.260" LastActivityDate="2014-12-10T05:57:28.260" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="562" PostTypeId="2" ParentId="485" CreationDate="2014-12-10T04:54:42.813" Score="1" Body="&lt;p&gt;My suggestion to you, and this is a very general technique when you are unsure what method to use, is to let &lt;strong&gt;cross-validation&lt;/strong&gt; tell you what method works best.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I imagine you have a couple of options:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Not include any row with missing observations&lt;/li&gt;&#xA;&lt;li&gt;Assign some arbitrary weight (in your case those with compound with the assumed $\Omega$ matrix, and if you are using some non-linear regression to estimate $\hat{\Omega}$ then good luck)&lt;/li&gt;&#xA;&lt;li&gt;Use mean-substitution or some other placeholder strategy&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;But the fundamental problem is that you don't know what factors made some data unavailable, that is you don't know $\text{Probability}(\text{Missing})$ and you suspect that isn't white noise.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The best way then is to let data drive your results. Run all these methods on 80% of the data, check the prediction error on the remaining 20% and shuffle these groups around, take the mean prediction error and select the method that provided the lowest prediction error.&lt;/p&gt;&#xA;" OwnerUserId="93" LastActivityDate="2014-12-10T04:54:42.813" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="563" PostTypeId="2" ParentId="536" CreationDate="2014-12-10T08:33:28.797" Score="1" Body="&lt;p&gt;Let's assume $A$ stated that the company is worth $P$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I propose the following mechanism:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$B$ has to choose one of two alternatives:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Sell his share for $bP$.&lt;/li&gt;&#xA;&lt;li&gt;Pay an amount of his choice, $x\leq aP$, and then with probability $\frac{bP+x}{P}$ get $A$'s share and with probability $1-\frac{bP+x}{P}=\frac{aP-x}{P}$ lose his own share (in addition to paying $x$).&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;If $B$ thinks that the company is worth less than $P$, he should go with the first option, just like in the original scheme.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Otherwise he should pick the second alternative, paying as much as he can to maximize his profit expectation. Should $B$ have enough money, he would pay $aP$ and get $A$'s share w.p. 1, if not, there is no way of allowing $B$ to get the company without ripping $A$, unless this is done randomly..&lt;/p&gt;&#xA;" OwnerUserId="348" LastActivityDate="2014-12-10T08:33:28.797" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="564" PostTypeId="2" ParentId="560" CreationDate="2014-12-10T12:07:59.827" Score="2" Body="&lt;p&gt;Reasons why smaller firms may do more poorly, conditional on the same idiosyncratic shock:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Smaller means more focussed on one product, unable to diversify risks&lt;/li&gt;&#xA;&lt;li&gt;Smaller means less capital to use as collateral&lt;/li&gt;&#xA;&lt;li&gt;And hence more difficult to get funds when needed&lt;/li&gt;&#xA;&lt;li&gt;Smaller typically also means younger (unless controlled for), which can mean less experience in dealing with crises, but also less trust from corporate banks&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="43" LastActivityDate="2014-12-10T12:07:59.827" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="565" PostTypeId="2" ParentId="428" CreationDate="2014-12-10T13:09:00.107" Score="-2" Body="&lt;p&gt;&lt;a href=&quot;https://www.imf.org/external/np/seminars/eng/2008/fincycl/pdf/adsh.pdf&quot; rel=&quot;nofollow&quot;&gt;https://www.imf.org/external/np/seminars/eng/2008/fincycl/pdf/adsh.pdf&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think maybe this can help you&lt;/p&gt;&#xA;" OwnerUserId="400" LastActivityDate="2014-12-10T13:09:00.107" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="567" PostTypeId="1" CreationDate="2014-12-10T15:39:43.213" Score="-1" ViewCount="29" Body="&lt;p&gt;How much should the person must get? and is it taken from any person who works in US?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My country is paralyzed to impose this tax due to oligarchs heavy influence. I just wanted to gain some knowledge.&lt;/p&gt;&#xA;" OwnerDisplayName="user401" LastActivityDate="2014-12-10T16:29:10.163" Title="What is the tax rate U.S.Gov takes from individual income" Tags="&lt;taxation&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="568" PostTypeId="2" ParentId="567" CreationDate="2014-12-10T16:29:10.163" Score="4" Body="&lt;p&gt;The US has several taxes and several different systems of taxation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In brief, we have what are known as &lt;em&gt;ad valorem&lt;/em&gt; taxes, and income taxes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;ad valorem&lt;/em&gt; taxes are on the value of property held (i.e. real estate, though some others), and are usually collected by municipalities or states.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Income tax is principally collected by the federal government according to the following brackets (For single wage earners, married, and others are taxed differently):&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;\$0-\$9,075 10%&lt;/li&gt;&#xA;&lt;li&gt;\$9,075-\$36,900 15%&lt;/li&gt;&#xA;&lt;li&gt;\$36,900-\$89,350 25%&lt;/li&gt;&#xA;&lt;li&gt;\$89,350-\$186,350    28%&lt;/li&gt;&#xA;&lt;li&gt;\$186,350-\$405,100   33%&lt;/li&gt;&#xA;&lt;li&gt;\$405,100-\$406,750   35%&lt;/li&gt;&#xA;&lt;li&gt;\$406,750+    39.6%&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;For an easily digestible schedule of rates, see the &lt;a href=&quot;http://en.wikipedia.org/wiki/Rate_schedule_%28federal_income_tax%29&quot; rel=&quot;nofollow&quot;&gt;Wikipedia article&lt;/a&gt;, or for the official tax code, You can check out the &lt;a href=&quot;http://www.law.cornell.edu/uscode/text/26&quot; rel=&quot;nofollow&quot;&gt;Internal Revenue Code&lt;/a&gt; at the Cornell Law Library.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are of course many exemptions, and US tax policy is fairly nuanced, both in incentivizing certain behaviors (i.e. making primary home mortgage interest deductible), and disincenting other behaviors through consumption taxes (i.e. sin taxes).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a historical discussion, see the &lt;a href=&quot;http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=456&quot; rel=&quot;nofollow&quot;&gt;tax policy center&lt;/a&gt; and their discussion.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In effect, the average &lt;em&gt;effective&lt;/em&gt; federal income tax rate (which is different than nominal tax rate discussed above) was 18.1% for all tax payers. Which I think is the short answer you're looking for.&lt;/p&gt;&#xA;" OwnerUserId="31" LastActivityDate="2014-12-10T16:29:10.163" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="569" PostTypeId="1" AcceptedAnswerId="574" CreationDate="2014-12-10T18:12:12.927" Score="10" ViewCount="944" Body="&lt;p&gt;I'm curious whether one can numerically calculate the effect that counterfeiting has on an economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As I understand it, counterfeiting essentially amounts to theft of the wealth of everybody holding units of that currency. For example, say you have an economy with 100 units of currency currently circulating. Bob creates 100 fake units of currency. If he does nothing but leave them in his safe, then the economy is unaffected. However, if he spends all of them, he will get goods and services in exchange for nothing of value. This is the theft. Him introducing his 100 fake units into the economy doubles the money supply, which will eventually more or less lead to a doubling in the price of everything (but not necessarily). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So now, if Dave had 10 units of currency his purchasing power was X. However, after the counterfeiting and doubling of the money supply and thus more or less doubling of prices, his purchasing power is X/2. Likewise for anybody who was holding that currency.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, is it correct to say that in an economy with X currency units, counterfeiting and spending Y fake units is equal to theft of Y/(X+Y) of the wealth of the economy?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;e.g. Given 100 legit units and counterfeiting and spending 200 units, 2/3rds of the wealth was stolen?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If not then what is the effect?&lt;/p&gt;&#xA;" OwnerUserId="393" LastActivityDate="2014-12-11T04:10:53.173" Title="What is the calculable effect of counterfeiting on an economy?" Tags="&lt;macroeconomics&gt;&lt;mathematical-economics&gt;&lt;money-supply&gt;" AnswerCount="3" CommentCount="2" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="570" PostTypeId="1" CreationDate="2014-12-10T18:37:40.193" Score="2" ViewCount="246" Body="&lt;p&gt;The central bank gives money to the business banks, who then give that money to people, companies and government agencies/units.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When a government controls the central bank, why doesn't the government lend money from it instead of business banks?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That way they would have:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;a lower interest rate&lt;/li&gt;&#xA;&lt;li&gt;control on their interest rate&lt;/li&gt;&#xA;&lt;li&gt;theoritically no limit&lt;/li&gt;&#xA;&lt;li&gt;etc.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;EDIT:&lt;/strong&gt;&#xA;My question is only about where the government gets the money. I'm not suggesting that the central bank should lend money directly to people or companies.&lt;/p&gt;&#xA;" OwnerUserId="402" LastEditorUserId="402" LastEditDate="2015-03-15T13:39:23.570" LastActivityDate="2016-02-18T18:58:49.053" Title="Why do national governments not rent money from central banks directly?" Tags="&lt;government&gt;&lt;central-banking&gt;" AnswerCount="1" CommentCount="8" ClosedDate="2014-12-11T16:07:44.207" ContentLicense="CC BY-SA 3.0" />
  <row Id="571" PostTypeId="2" ParentId="569" CreationDate="2014-12-10T18:42:59.757" Score="4" Body="&lt;p&gt;I think the answer should be more complicated, and this won't be a complete answer at all. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You are assuming that counterfeit money is forever passed along? Counterfeit money is eventually taken out of circulation, so prices shouldn't move as perfectly as you suggest. But, given this fact, we might want to think about the costs of forcing counterfeit bills out of circulation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I will direct you to this selection from the introductory paragraph of this paper by L. Smith and E. Quercioli which models counterfeiting as a game. &lt;a href=&quot;http://lonessmith.com/sites/default/files/counterfeiting2014.pdf&quot; rel=&quot;nofollow&quot;&gt;The Economics of Counterfeiting.&lt;/a&gt; Smith's site says it is conditionally accepted at Econometrica. They also discuss data on pass rates.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The domestic losses from check fraud may well have exceeded \$20&#xA;  billion in 2003 (1). Counterfeit money is much less common but still costly: The counterfeiting rate of the U.S. dollar is about one per 10,000 notes, with the domestic public losing \$80 million in 2011, more than doubling since 2003. The indirect counterfeiting costs for money are much greater, forcing a U.S. currency re-design every 7–10 years. As well, many costs are borne by the public checking the authenticity of their money (2).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Footnotes add&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;1Data here is sketchy. This estimate owes to a widely-cited Nilson Report (www.nilsonreport.com).&#xA;  2Arguably, the \$500M budget of the Bureau of Printing and Engraving, and maybe $1B of the Secret Service&#xA;  and Treasury budgets owe to anti-counterfeiting. Also, there is a large private sector industry.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Given how new this paper is, I would take that as an indication that there aren't terrific estimates to measure the losses. Perhaps this owes more to data than theory. Still, you could also cook up strange models where counterfeiting alleviates money shortages, making it a good thing (e.g. everything is fiat so why not just pretend the counterfeit stuff is good too?). But that seems implausible.&lt;/p&gt;&#xA;" OwnerUserId="14" LastActivityDate="2014-12-10T18:42:59.757" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="573" PostTypeId="2" ParentId="570" CreationDate="2014-12-11T02:12:31.363" Score="3" Body="&lt;p&gt;&lt;strong&gt;&lt;em&gt;Note&lt;/em&gt;: This answer was posted &lt;em&gt;4 months&lt;/em&gt; before the OP clarified what it really wanted to ask (see comments below the answer).&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I will accept @Ubiquitous view of the question, which in summary is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Why not having a publicly owned monopoly in the banking sector? Instead of a, however regulated, private banking sector?&lt;/strong&gt;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It would be naive to counter &quot;then why not nationalize all production activities?&quot;. This is &lt;em&gt;not&lt;/em&gt; a &quot;socialism or capitalism?&quot; socio-philosophico-ideological issue. Strictly from the point of view of how the Economics discipline analyzes things, we must recognize the &lt;em&gt;critical&lt;/em&gt; and &lt;em&gt;special&lt;/em&gt; role the banking system plays in modern economies (because it intermediates savings and investment, consumption smoothing and intertemporal allocation of resources), as well as its &lt;em&gt;peculiarities&lt;/em&gt;.&lt;br&gt;&#xA;And whenever the words &quot;critical&quot;,&quot;special&quot;, &quot;peculiar&quot;, arise in economic analysis, the merits of a private-market structure against a publicly controlled one must be carefully analyzed and assessed.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;First let's define what is the main business-line of a bank, in the most basic, abstract sense: &lt;strong&gt;sublessor of perfectly liquid capital&lt;/strong&gt;. It borrows capital from the savers and lends it to the debtors -for a fee, which is the interest, and which depends on the length of the lease. And as with any lease, the lessee must also return what has been lent.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's move now to some of the main reasons that have made societies produced a good/service through a state monopoly (obviously I won't go through all the taxonomy and intricacies of the various categories of public goods):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Non-excludability&lt;/strong&gt;  pertains to public goods like national safety: we cannot exclude those citizens that don't pay for it. This creates disincentives to pay for it. But the society as a whole needs it. So everybody pays whether they want it or not (through taxes that are backed by the monopoly of violence that the state holds), and the service is offered to all by a state monopoly. Does non-excludability holds for what the banking sector offers? No, because &lt;em&gt;the bank&lt;/em&gt; gets to decide who gets the service or not. And the &quot;service&quot; is then at the control of the debtor.  So this cannot be an argument in favor of a public monopoly in the banking sector.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Decreasing Average Costs&lt;/strong&gt; with the scale of production, is what traditionally defines a &quot;natural monopoly&quot;: it is in the nature of the production process to have decreasing average costs as quantity produced increases, and so the state steps in so that the benefits to the monopolist accrue to all society through the state. Is the business of a bank characterized by &quot;automatically&quot; decreasing average costs as credit expands?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What are the &quot;production costs&quot; here? Various administrative costs certainly (branches, overheads etc), which are unlikely to exhibit a downward trend through out -rather they are very well likely to have the familiar U-shape, falling for initial small levels of credit volume, then perhaps a stage of constant returns to scale, then decreasing returns to scale (and so increasing average costs). A distinct and peculiar cost here, is &lt;strong&gt;outright loss of the capital&lt;/strong&gt;. Surely, when one lets an apartment, it may suffer various damages from the use of it by the tenant -but it won't disappear with him. These costs will almost certainly &lt;em&gt;increase&lt;/em&gt; with the &quot;scale of production&quot; (credit expansion) as the bank expands to less trustworthy debtors. So no &quot;decreasing average costs here&quot; - &lt;strong&gt;the banking sector is not a natural monopoly&lt;/strong&gt;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A case of &lt;strong&gt;negative externalities&lt;/strong&gt; can be made, that moreover &lt;em&gt;cannot be reversed&lt;/em&gt;: the choices a bank makes as to where it will lend its capital, and for what purposes, may not satisfy the needs of the economy as a whole: the economy may need transportation infrastructure -but the banks may lend capital for building office space, which are less needed. But once capital is sunk into buildings, it cannot be transformed into roads (certainly not directly, while indirectly, it won't be timely and it will have dead burden costs). But externalities are regulated in other ways, not by imposing a state monopoly.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What about the &lt;strong&gt;various imperfections&lt;/strong&gt; that inadvertently characterize all actual markets, banking sector included? Incomplete and asymmetric information, rigidities, straightforward inefficiency, etc? Here, the matter becomes &lt;strong&gt;&lt;em&gt;quantitative&lt;/em&gt;&lt;/strong&gt;, exactly in view of the &lt;em&gt;criticality&lt;/em&gt; of the banking sector: a given level of imperfection and inefficiency would matter less for society if observed in another market, compared to the banking sector. So we have to &lt;em&gt;measure&lt;/em&gt; it -and then compare this with the level of inefficiency and imperfection that we would observe if we had a public monopoly instead.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is what I had to offer as food for thought. I close with some responses to the OP's specific projections:  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;(In case of a state monopoly, the businesses would have)&lt;/em&gt;&lt;br&gt;&#xA;&lt;strong&gt;A lower interest rate&lt;/strong&gt;&lt;br&gt;&#xA;Why? The central bank would lend &lt;em&gt;public money&lt;/em&gt;. To &lt;em&gt;private&lt;/em&gt; businesses. It would also have to bear administrative costs. Also, it would be accountable for public money. This would introduce conservatism into the system, to avoid accusations for favoritism for example. Either higher interest rates, or much more stringent criteria to grant a loan. Would that be desirable, as there will be no-one else (&lt;em&gt;officially&lt;/em&gt;) lending capital in the economy?) What about the possible increase in loan-shark activity? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Control on their interest rate&lt;/strong&gt;&lt;br&gt;&#xA;I do not understand what that means.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Theoretically no limit&lt;/strong&gt;&lt;br&gt;&#xA;No way. Either the OP has in mind that the central bank will have vastly larger amounts of capital to lend (it will, but will it lend it &quot;easily&quot;? -see previous remark), or he has in mind &lt;em&gt;creation of capital out of thin air&lt;/em&gt; based on the &quot;state's authority&quot;, which of course would have solved all humanity's materialistic issues, if it could happen.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2016-02-18T18:58:49.053" LastActivityDate="2016-02-18T18:58:49.053" CommentCount="11" ContentLicense="CC BY-SA 3.0" />
  <row Id="574" PostTypeId="2" ParentId="569" CreationDate="2014-12-11T02:28:41.483" Score="3" Body="&lt;p&gt;&lt;i&gt;So, is it correct to say that in an economy with X currency units, counterfeiting and spending Y fake units is equal to theft of Y/(X+Y) of the &lt;b&gt;wealth&lt;/b&gt; of the economy?&lt;/i&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Emphasis added.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;No.  It is correct to say that spending Y fake units is equal to the theft of Y/(X+Y) of the &lt;b&gt;money holdings&lt;/b&gt; of the economy, which is not at all the same thing.&lt;/p&gt;&#xA;" OwnerUserId="250" LastEditorUserId="250" LastEditDate="2014-12-11T03:26:11.617" LastActivityDate="2014-12-11T03:26:11.617" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="575" PostTypeId="2" ParentId="569" CreationDate="2014-12-11T04:10:53.173" Score="5" Body="&lt;p&gt;I'm adding this as a separate answer because it's quite independent of my other answer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We've agreed that if there are X dollars existing and you counterfeit Y dollars, then you've stolen Y/(X+Y) of the value of those X dollars.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This assumes you do your counterfeiting all at once, and without warning. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If instead you do your counterfeiting slowly over time, or if it can be anticipated, then there's an additional effect:  people try to rid themselves of money holdings in order to avoid being stolen from.  (That is, they try to trade dollars for goods before the dollars lose value.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is costly to the moneyholders, with no offsetting benefit to anyone.  One way to see that it's costly to moneyholders is that they now own less money, which makes their lives less convenient.  A different way to see that it's costly to the moneyholders is that the rush to trade money for goods bids up prices, which lowers the value of money.  (These are not two different costs; they are two different ways to think about the same cost.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So in this case, you have stolen &lt;em&gt;more&lt;/em&gt; than Y/(X+Y) of the value of originally existing money, but kept somewhat less (because by the time you get to spend your dollars, they're worth less than dollars were worth at the outset).  The difference between what you steal and what you keep simply dissipates.&lt;/p&gt;&#xA;" OwnerUserId="250" LastActivityDate="2014-12-11T04:10:53.173" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="576" PostTypeId="2" ParentId="207" CreationDate="2014-12-11T04:35:36.540" Score="6" Body="&lt;p&gt;The &quot;standard&quot; New Keynesian model could be many things, but suppose that we're dealing with the basic log-linearized 3-equation model (intertemporal Euler equation, New Keynesian Phillips curve, and monetary policy rule) exhibited, for instance, in Gali's textbook.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In most variants of this simple model, a temporary increase in government expenditure will almost always increase output, but the intuition is different from the Old Keynesian IS/LM model. The extent of the increase depends on the monetary policy rule. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the monetary policy rule targets inflation of exactly zero (assuming trend inflation is also zero), then it turns out that there is no difference between the effects of government expenditure in the NK model and the effects in a purely real model; by successfully targeting zero inflation, we effectively negate the effect of the NK model's nominal frictions. Since the underlying real model produces an increase in output when government spending increases (ignoring effects of possible distortionary taxation used to fund this spending), we get this in the NK model with inflation targeting as well, but it's not very exciting. It's a purely classical story: all else equal, consumers work harder when their consumption is lower, and thus consumption does not drop one-for-one with increases in government spending.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the monetary policy rule happens to target a constant real interest rate, then in the basic NK model the &quot;multiplier&quot; is exactly 1: the constant path for the real interest rate leaves consumption unchanged, and the increase in output exactly equals the increase in spending. If the monetary policy rule targets a constant nominal interest rate during the stimulus, then there is an additional effect because future stimulus spending produces expected inflation that lowers the real interest rate and boosts consumption. This is the source of &quot;multipliers&quot; &gt;1 in the basic NK framework. See Woodford's &lt;a href=&quot;http://www.columbia.edu/~mw2230/G_ASSA.pdf&quot;&gt;2011 AEJ macro paper&lt;/a&gt; for more details on this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;None of this comports with the traditional Keynesian 1/(1-MPC) multiplier. This is for a couple reasons, but most important is the fact that the basic NK model features fully Ricardian consumers who intertemporally smooth consumption and anticipate future taxes levied to pay for current spending. &lt;a href=&quot;http://econ.upf.edu/docs/papers/downloads/911.pdf&quot;&gt;Gali, Lopez-Salido and Valles's 2007 JEEA&lt;/a&gt; comes much closer to the traditional story by adding ad-hoc &quot;non-Ricardian&quot; households.&lt;/p&gt;&#xA;" OwnerUserId="405" LastActivityDate="2014-12-11T04:35:36.540" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="577" PostTypeId="2" ParentId="490" CreationDate="2014-12-11T05:37:10.593" Score="5" Body="&lt;p&gt;The easiest way to model short-term but risky debt in continuous time is to have your $\psi$ be the increment of a compound Poisson process. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Jumps in this process correspond to events that might or might not cause default; the size of the jump can enter together with the state $X(t)$ into a function like your $g(X(t),\psi)$ to determine whether or not default actually occurs. Using this formulation, one can circumvent your concern in the comment that &quot;debt is risk-less, if it is almost immediately paid back&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If, for instance (in a simple case), default occurs whenever there is a nonzero increment in the compound Poisson, regardless of the size of this increment, then if the arrival rate of these jumps is $\mu$, the interest rate will be $r=r^*+\mu$, the risk-free rate plus the flow default rate. If (in a more complicated case) default only occurs for some increment sizes, according to a threshold that depends on $X(t)$, then we can get $r$ varying with $X$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this environment, your observation that $f(t)$ does not affect $r(t)$ is completely correct. But this is because $f(t)$ does not contemporaneously affect $X(t)$ and hence does not affect whether or not there will be a default if the Poisson shock occurs at time $t$. $f$ does affect &lt;em&gt;future&lt;/em&gt; $X$, and thus will potentially affect future default probabilities and interest rates.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The property we see here - where your policy today doesn't affect your interest cost today, because short-term creditors only care about the &lt;em&gt;current&lt;/em&gt; probability of default and your policy can't affect that right away - is generically a strange feature of short-term debt models, and is brought into starkest relief in the continuous-time environment. This is why models of long-term debt are often more realistic, because the price of long-term debt incorporates future default decisions and therefore the effects of policy on future values of the state variable.&lt;/p&gt;&#xA;" OwnerUserId="405" LastActivityDate="2014-12-11T05:37:10.593" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="1575" PostTypeId="2" ParentId="89" CreationDate="2014-12-11T06:17:17.553" Score="5" Body="&lt;p&gt;I'm not sure that there is any &lt;em&gt;convincing&lt;/em&gt; answer, but most answers I've seen take the form &quot;some other form of cyclical heterogeneity offsets the differences in Frisch elasticities across groups&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For instance, the most cyclical industries have historically been construction and durable goods manufacturing, both of which predominantly employ males. (See &lt;a href=&quot;http://www.bls.gov/opub/mlr/2014/article/pdf/the-rise-in-women-share-of-nonfarm-employment.pdf&quot;&gt;this BLS report&lt;/a&gt; for the effect of industry cyclicality on the gender composition of the labor force in the most recent recession.) If industry effects are strong enough, they may overwhelm males' much lower intertemporal substitutability of labor supply and cause male employment to be more cyclical.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that although this explanation sounds plausible at first glance, it raises many other quantitative problems for business cycle models. For instance, the explanation only works if labor supply cannot easily be reallocated across sectors; otherwise the needed reduction in manufacturing and construction employment could take place via men there switching to other sectors, and then women in those sectors exiting employment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is reasonable enough: in the short run, labor supply probably isn't too elastic across sectors. But once we acknowledge this fact, the quantitative puzzle of low employment in business cycles becomes much more severe. For instance, if most employees in construction are stuck in construction in the short term (so that it makes sense to think about labor supply elasticities for the construction sector on its own), then the puzzle of how construction employment &lt;a href=&quot;http://research.stlouisfed.org/fred2/graph/?g=U8E&quot;&gt;fell by 30% while real wages actually inched up in the recent recession&lt;/a&gt; becomes extremely hard to resolve in any frictionless labor model. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So ultimately, yes, this is very difficult to resolve on its own; the obvious industry-oriented explanation introduces new and even more insurmountable problems.&lt;/p&gt;&#xA;" OwnerUserId="405" LastActivityDate="2014-12-11T06:17:17.553" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1576" PostTypeId="2" ParentId="416" CreationDate="2014-12-11T06:53:45.893" Score="17" Body="&lt;p&gt;The primary source of the recent ruble collapse has almost certainly been the falling international oil price, aggravated by some other features of Russian politics and its economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Petroleum products account for &lt;a href=&quot;http://atlas.media.mit.edu/explore/tree_map/hs/export/rus/all/show/2010/&quot;&gt;over half of Russia's export revenue&lt;/a&gt;, and most remaining export revenue comes from other commodities, whose output it cannot easily adjust. When oil prices fall, this lost export revenue must be replaced by some combination of&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(1) more (presumably non-oil) exports&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(2) fewer imports&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(3) a larger net capital inflow.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the most part, these adjustments will be made in response to an equilbrating decline in Russia's exchange rate. Since Russia's export mix is so commodity-heavy, the short run response of (1) to the exchange rate is very weak; since consumers tend to be sluggish in responding to price changes, (2) is weak in the short run as well. For a modern economy with good access to international capital markets, (3) is the main short-term buffer for shocks like these, but Russia is currently suffering from Western sanctions and was not particularly well-integrated into international capital markets in the first place.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For all these reasons, a very large decline in the exchange rate is needed to induce enough of (1), (2), and (3) to offset the decline in oil export revenue. Meanwhile, skittishness about the political situation in Russia (and its dubious historical record on monetary stability) don't help. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;By the way, the dependence of commodity exporters' exchange rates on commodity prices is a staple of international finance; it has even been used to &lt;a href=&quot;http://dornsife.usc.edu/assets/sites/462/docs/papers/published/CRR09.pdf&quot;&gt;forecast commodity prices&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="405" LastActivityDate="2014-12-11T06:53:45.893" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1577" PostTypeId="2" ParentId="209" CreationDate="2014-12-11T07:24:09.590" Score="4" Body="&lt;p&gt;The intuition for this result is pretty straightforward, and I think one &lt;em&gt;can&lt;/em&gt; think about it in terms of saddlepoint stability in a phase diagram, although you don't need any serious technical apparatus - it's all conceptual.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Krugman and Obstfeld posit a model in which government expenditure does not affect the &quot;full employment&quot; level of output $Y^f$ (to which the economy must tend in the long run - note that proving &lt;em&gt;this&lt;/em&gt; requires you to look at a phase diagram and rule out the explosive paths that fail to converge to $Y^f$). The money supply $M^s$ is also assumed to be constant. Together, these assumptions imply that the steady state price level $P$ doesn't change.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now Krugman and Obstfeld, &lt;em&gt;critically&lt;/em&gt;, also assume that you're already at the steady state price level $P$ when the permanent increase in government expenditure occurs. And even once the increase hits and the phase diagram changes somewhat, this $P$ is still the steady-state price level (i.e. the price at the unique fixed point of the implied system of differential equations). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In their world, $P$ is the only state variable. (Prices are sticky, but quantities and exchange rates are not; they're jump variables.) Since you're already at the fixed point's value of $P$, the other variables will immediately jump to their fixed point levels and stay there. (This is always true for models where the fixed point is a saddle and equilibrium is unique.) And since the fixed point for output is unaffected by the expenditure shock, this means we stay at the same output even in the short run.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Conceptually, the point here is that we only get nontrivial dynamics from a permanent shock if that shock changes the fixed point values of state variables. This happens, for instance, in the neoclassical growth model following a permanent TFP shock, because an increase in TFP raises the steady state level of capital above the current level of capital. But it doesn't happen here, since under Krugman &amp;amp; Obstfeld's particular set of assumptions there is only one state variable and it's unaffected by permanent changes in government expenditure.&lt;/p&gt;&#xA;" OwnerUserId="405" LastActivityDate="2014-12-11T07:24:09.590" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1579" PostTypeId="2" ParentId="209" CreationDate="2014-12-11T12:54:36.637" Score="0" Body="&lt;p&gt;The following is a &lt;em&gt;trivial fact&lt;/em&gt;: in the short run, &lt;strong&gt;if we are producing at maximum capacity (&quot;full employment of all factors of production&quot;), we cannot &lt;em&gt;produce&lt;/em&gt; more no matter what the demand for our product is&lt;/strong&gt;. That's a tautological &quot;conclusion&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given this I find the exposition of &lt;strong&gt;Krugman &amp;amp; Obstfeld&lt;/strong&gt; &lt;strong&gt;problematic&lt;/strong&gt;:&lt;br&gt;&#xA;Based on the &lt;strong&gt;6th&lt;/strong&gt; edition, I see Figure 16-16 page 459, where they picture the case of permanent fiscal expansion.&#xA;&lt;img src=&quot;https://i.stack.imgur.com/2iDnU.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The legend says: &quot;the effect on output is nil &lt;em&gt;if the economy starts at long-run equilibrium&lt;/em&gt;&quot;. But reading the text below the figure, the &lt;em&gt;main&lt;/em&gt; argument here appears to be &lt;em&gt;not&lt;/em&gt; the fact that we are at long-run equilibrium (and so at full employment, and so producing at maximum capacity), but that the expansion being permanent and not temporary, it has a direct effect on the assets markets (through exchange rate expectations), that offsets the &quot;tendency&quot; to increase &lt;em&gt;output&lt;/em&gt;. But tendency or no tendency we cannot produce more output in the short-run, because the authors, in p. 456, when they start discussing effects of permanent changes, they explicitly assume indeed that &quot;&lt;em&gt;the economy starts out at full employment&lt;/em&gt;&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But the authors comment (in the figure but also in the text below), that if there was no effects on expectations, the economy would have moved to a &lt;em&gt;higher output&lt;/em&gt; level. This is inconsistent with the assumption of being at full-employment (of all factors of production).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So in the specific set up, the argument about exchange rate expectations is redundant, and the argument about increasing output if that effect was absent, is wrong, given the assumptions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that the word &quot;output&quot; is consistently used, which directly links to &lt;em&gt;production&lt;/em&gt;, and not the word &lt;em&gt;income&lt;/em&gt; which could perhaps accommodate international distributional changes, or the running down of possibly existent inventories.&#xA;This is obviously a problematic exposition.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2014-12-13T15:11:59.213" LastActivityDate="2014-12-13T15:11:59.213" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1580" PostTypeId="1" AcceptedAnswerId="1590" CreationDate="2014-12-11T17:00:22.713" Score="9" ViewCount="121" Body="&lt;p&gt;&lt;strong&gt;Background&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With regards to the UK government.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have recently been involved in a debate stemming from figures mentioned in &lt;a href=&quot;http://www.liblabcon.com/blog/2014/12/10/bankers&quot;&gt;this blog post&lt;/a&gt; (the blogger was advocated by &lt;a href=&quot;https://www.facebook.com/pages/Occupy-London/124563204315456?fref=ts&quot;&gt;Occupy London's facebook page&lt;/a&gt; and verifying the level of &quot;over-sensationalism&quot; portrayed in the post would make or break my relationship with them both).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here are the bare bones of what the blog post claims:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Bankers cost this country &lt;strong&gt;&lt;em&gt;£456.3bn&lt;/em&gt;&lt;/strong&gt; in fraud.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;People on the dole cost this country £1.6bn in fraud.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;0 bankers are sent to prison for fraud.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;6000 people on the dole are sent to prison for fraud (/yr).&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Politicians had to bail the bankers out with &lt;strong&gt;&lt;em&gt;£1.2tn&lt;/em&gt;&lt;/strong&gt;, leaving the&#xA;  next generation with 3 times more tuition fees to pay.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I did post (twice) on that blog post, asking for citations, but they have not yet replied. So I turn to Stack Economics for the first time for help with either verifying/debunking two claims (100 rep points is not from involvement on stack:economics):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Questions&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(i) Where (if anywhere) does the £456.3 billion come from? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(ii) Where (if anywhere) does the £1.2 trillion come from?&lt;/p&gt;&#xA;" OwnerUserId="1407" LastEditorUserId="1407" LastEditDate="2014-12-11T21:45:32.143" LastActivityDate="2014-12-13T11:14:40.917" Title="Are the figures quoted in this liblabcon's blog post accurate? (topic: UK banks)" Tags="&lt;fiscal-policy&gt;&lt;public-economics&gt;&lt;banking&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="1581" PostTypeId="2" ParentId="428" CreationDate="2014-12-11T18:48:37.003" Score="2" Body="&lt;h1&gt;Etymology and Introduction&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;As a concept to measure the interchangeability of assets and money, liquidity is a new word. It first appears in 1923 in a use by Hawtrey (The Oxford English Dictionary (1989)). The underlying idea however is much older. Menger (1892) calls a good more or less saleable according to the facility to which it can be disposed of at current purchasing prices with less or more diminution. He is talking about the origin of money, and not the disposition of financial assets, but this concept of saleability is very much like the modern concept of liquidity. This sense of saleability goes back at least as far as Jehan Palsgrave's usage in 1530 (The Oxford English Dictionary (1989)). Although the absence of liquidity is now commonly referred to as &quot;illiquidity&quot;, Marschak (1938) offers &quot;frozen&quot; as an alternative that did not catch on.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hicks (1962) says that the use of the word liquidity in a financial sense was popularized by Keynes and the Macmillan Report in the 1930's (Macmillan Committee of HMSO (1931)). In The General Theory, Keynes says that liquidity justifies money trading at a premium over bills or bonds and causes the existence of an interest rate. Hicks teases from Keynes' Treaty on Money (Keynes (1930)) that one calls an asset more liquid than another if it is &quot;more certainly realizable at short notice without loss.&quot; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This quote is more ambiguous than it may seem at first glance. Hicks offers several interpretations. The first, which he flatly rejects, define liquidity as the difference between the price the owner carries on his books for an asset and the price they could sell it for on the market. The second, is an interpretation of marketability. Hicks defines a security as marketable if it is sold just as well after negotiation, search and advertising as it is without it. That is, we can compare the liquidity of two assets by the relative sacrifice one makes from a rapid sale. He claims this interpretation is &quot;more appealing&quot; but still not what Keynes meant. He understands Keynes's definition of liquidity to require perfect marketability, but even perfectly marketable assets can be more or less liquid. The difference here is in the moments of the asset's price. Among marketable financial assets, we can regard them as more or less liquid by using a utility function to manage the trade-offs between maximizing the desirable odd moments (e.g., positive mean and skew) and minimizing undesirable even moments (e.g., variance and leptokurtosis) of asset returns.&lt;/p&gt;&#xA;&#xA;&lt;h1&gt;Definitions of Liquidity&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;A treatment of market liquidity is critical if we are to realistically model the behavior of markets of financial assets that are traded with transaction costs. The liquidity literature primarily follows three meanings of liquidity. The first and oldest class of measures of liquidity relate the size of loss to the amount of notice. That is, what is the fraction of the best possible price that a seller can net as a function of time allotted to conduct a loss minimizing sale? Keynes's definition is a specific example where he is interested only in short notice. For example, compare trying to sell a round lot (100 shares) of IBM stock today with doing the same with a home. The IBM shares will sell without diminution. The home will sell at an enormous discount because of product heterogeneity, heterogeneous buyers, and the skipping of time consuming risk avoidance techniques (e.g., title search and property inspection). A classic statement of this sense of liquidity comes from Hirshleifer (1968). He calls liquidity &quot;as asset's capability over time of being realized in the form of funds available for immediate consumption or reinvestment -- proximately in the form of money.&quot; Admati and Pfleiderer (1988) also care about liquidity in this first sense. They see exogenous liquidity events (say a change in margin requirements) causing a &quot;demand for immediacy&quot; (a term also found in Grossman and Miller (1988)), that is, the willingness to sell rather than wait when doing so costs the seller. According to Greenbaum (1971), who called this the L1 definition of liquidity, the earliest work on this sense of liquidity was in Tobin's unpublished manuscript. Pierce (1966) elaborates this notion and explores this measure in the context of commercial bank portfolio management.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The second meaning understands liquidity as the expected time to sale without diminution. Returning again to the example of selling the lot of IBM stock and a home, the expected time to getting the best price on your shares of IBM is almost zero (at least during business hours and with access to a computer or phone) whereas, on average, the home would take a few months to sell optimally. Lippman and McCall (1986) explore this sense of liquidity. They take an agent as choosing a stopping rule $\tau^* \in T$ of all possible stopping rules to maximize expected net receipts (under that stopping rule) of $E [R(\tau^*)]$. They define liquidity as $E [\tau^*]$, the expected time to sale under the optimal stopping rule. Krainer and LeRoy (2002) also suggest this expected time to sale under an optimal selling rule a measure of liquidity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The third definition of liquidity involves the uncertainty of an asset's value. As discussed above, Hicks (1962) sees this as the critical attribute of liquid assets. Proponents of this definition argue that it is of little importance if you can sell an asset on short notice and with small loss if the asset itself is worth little when you need it. That is reasonable as long as investors are risk averse. Tobin (1958) introduces this sense of liquidity in a framework of risk averse investors and uncertainty of future interest rates. Tobin's paper resolved the paradox (to economists) that consoles (perpetual bonds) have higher expected rates of return than cash investments. Lagos (2008) is able to explain much of the risk-free-rate and equity-premium puzzles in an economy with riskless, liquid assets and risky, illiquid ones when agents hold assets for the liquidity services.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Deaton (1991) equates a model's liquidity constraints with limitations on borrowing future income. In that sense, liquid assets are more effective in moving income though time. Holmstrom and Tirole (1998) also explore this meaning of liquidity as a way of storing wealth between periods in search of recommendations for efficient market making of financial assets and optimal provision of liquidity services by the government. Hovakimian, Opler, and Titman (2001) continue to explore this inter-temporal liquidity concept in economies with human capital that creditors cannot seize or make claims upon. He experiments with two an extra features, either no short selling of physical capital or limited borrowing by agents.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The concept of liquidity is a mixture of the attributes of liquidity discussed above. Households without liquid assets want to borrow with their illiquid assets as collateral. They cannot do so. Creditors are unwilling to lend because in the event of default, lenders will have to sell collateral with serious discount from the true value, with long waiting times for finding a good selling price, or with unfavorable co-movement (e.g., covariance or other forms of joint distribution) with other asset holdings. This idea of liquidity as having wealth when you need it is similar to the CAPM insight of weighting future returns by the marginal utility. Krainer and LeRoy (2002) argue that the CAPM holds for illiquid assets as well as liquid ones, but that observing the relevant shadow prices is difficult. However, the ambiguity of asset values in the presence of illiquidity (explored later) ensures that these shadow prices will not be unique. The general idea is that illiquidity can drive a a wedge between the discounted expected risk adjusted returns and the price for which you can sell an asset. As such, the traditional CAPM model is not entirely appropriate. An area for future investigation is expanding the CAPM to make this distinction. Holmstrom and Tirole (2001) was one attempt to so, but focused on firm decisions and not investor valuations.&lt;/p&gt;&#xA;&#xA;&lt;h1&gt;Can the Alternative Definitions of Liquidity be Reconciled?&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;Here is an example of the wedge between expected returns and price that also highlights that an asset can be liquid in one sense and yet is illiquid in another. Imagine an investor with a US Treasury bond with a 14% coupon in a market where newly issued bonds have a coupon of 7%. Selling these highly appreciated bonds (which traded far above par) would require paying significant capital gains taxes, while holding them involves minimal credit risk and the interest would be state and local tax exempt.  Therefore, to sell would be expensive for the owner and therefore illiquid in sense 1. Nevertheless, these securities could surely be sold rapidly though the secondary US Treasury Bond market and there would be little benefit to waiting and therefore highly liquid in sense 2. It is certainly the case that assets that are liquid in one sense are often liquid in the others too. But as this example shows, that need not be so.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore we cannot collapse these three definitions into a single numerical measure of liquidity capturing all the desired attributes. Even if we could, Hicks (1962) and Admati and Pfleiderer (1988) have concluded that liquidity is an ordinal property. Marschak (1938) suggests measuring the distinct properties of liquidity separately. Pierce (1966) disagrees that such an ordering is possible, at least with respect to sense 1 of liquidity. He says that &quot;apart from those assets that are perfectly liquid and those for which sale prior to maturity is impossible, assets cannot be uniquely ranked by degrees of liquidity.&quot; His example is an asset A that is easy to  sell well with short searches (but no better after long ones) and an asset B that sells more poorly than A for short searches and better than A for long ones. Pierce also notes (in describing the weakness of his notion of liquidity) that &quot;the price per unit often depends on the number of units sold.&quot; This allows for another example of the crossing behavior, where one asset may be more liquid at small quantities but less liquid for large ones. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Admati and Pfleiderer (1988) argue that liquidity of the third type actually encourages liquidity of the first type. They argue that commodities with successful futures markets have demand for immediacy because price volatility and risks of delaying sales are large (illiquid in sense 3). Such markets also help spread the fixed costs of market making (waiting around for buyers and sellers to want to trade, as well as infrastructure) across a large number of market participants.  In contrast, home sellers are less concerned&#xA;with short-term price volatility and instead prefer an extended search for potential buyers.&lt;/p&gt;&#xA;&#xA;&lt;h1&gt;Alternative Definitions&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;Krainer and LeRoy (2002) argue that liquidity is a feature of markets and not of assets. They offer as a first example that a Ford automotive factory is illiquid but Ford stock is liquid. A second example is a pool of mortgages which is more illiquid than than the underlying mortgages. However, perhaps it suffices to refer to an asset's liquidity as its liquidity in the most liquid market an agent can trade it in. Tobin calls reversibility &quot;the value of the asset to its holder expressed as a percentage of is contemporaneous cost to the buyer&quot; (Tobin and Golub (1998)). Hahn (1990) sees asset liquidity as being closely related &quot;to the cost reversing a decision taken earlier.&quot; His example is that for economic agents, the cost of selling an asset in period 2 will factor into the decision to invest in it in period 1. This meaning of reversibility is a mixture of sense 1 and sense 2 of liquidity. If waiting for suitable trading opportunities is the expensive part of reversing a trade then reversibility is primarily the second sense of liquidity. However, if transaction costs are the expensive part of reversal then the first sense of liquidity will be the relevant one. Marschak (1938) develops a concept of plasticity that is essentially this concept of reversibility. He considers plasticity as a&#xA;more general concept than saleability that includes flexibility. Greenbaum (1971) is an early reference that notes the interrelatedness of reversibility and liquidity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Jones and Ostroy (1984) see an essential attribute of liquidity in the related measure of flexibility. Financial investments that leave agents with a larger set of intermediate and final choices are more flexible. Lippman and McCall (1986) are similarly interested in liquidity as flexibility. They show in a simple search model that if the investor opportunity set changes over time, even risk neutral investors will demand a more&#xA;liquid asset because it improves the expected returns of their portfolio. Hahn (1990) also sees liquidity as tied to the &quot;speed of response to new information,&quot; but it is hard to see if this is a cause of liquidity or caused by it. Intuition suggests the former. Few market participants, high transaction costs and other direct causes of illiquid markets all make it more difficult to trade on new information. Further, the trees model&#xA;of Lucas (1978) shows that prices can move even in the absence of trade. Frequent trade is not synonymous with liquidity. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The frequency of order arrival is a determining factor of liquidity in markets with market makers. This implies that markets need not be liquid to have fast adjusting prices. Flexibility can be about more than investment opportunities. If agents are borrowing constrained and goods can be purchased only with liquid assets, then agents must hold some liquid assets to purchase goods for immediate consumption, even though doing so does not maximize their portfolio return. If consumption opportunities vary over time then agents will hold relatively more ready assets to take advantage of fleeting consumption opportunities. If agents were not so constrained, then they could simply borrow against their illiquid assets (repaying debts as the returns arrived or when prudent sale was possible) to consume as they like. This is also true for investment flexibility. If investors could borrow against their illiquid assets then they would not need liquid holdings to take advantage of future investment opportunities. The necessity of holding liquid assets for consumption purposes is one motivation for the money-in-the-&#xA;utility function (MIU) literature. The MIU framework puts money, an asset without consumption value nor any investment return, into the utility function as a reduced form representation of all the ways that money (as the most liquid asset) makes consumption easier and more efficient. &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2014-12-11T18:48:37.003" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1583" PostTypeId="1" CreationDate="2014-12-12T01:20:59.693" Score="13" ViewCount="5407" Body="&lt;p&gt;There are a few online resources available to help with log-linearization (e.g., &lt;a href=&quot;http://www3.nd.edu/~esims1/log_linearization_sp12.pdf&quot;&gt;here&lt;/a&gt;  or &lt;a href=&quot;https://www.macroeconomics.tu-berlin.de/fileadmin/fg124/advanced-macro/2014/Log-Linearization.pdf&quot;&gt;here&lt;/a&gt;). However, log-linearization where an expectation is involved&#xA;is a little tricky because the log can't simply &quot;pass through&quot; the expectation operator.&#xA;Could somebody help with the algebra in this example?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have the Euler equation (equation 1)&#xA;$$&#xA;1 = E_t \left [ \left \{ \delta \left (\frac{C_{t+1}}{C_t} \right )^{-1/\psi}&#xA;\right \}^\theta&#xA;\left \{ \frac{1}{1 + R_{m,t+1}} \right \}^{1 - \theta} 1 + R_{i, t+1}&#xA;\right ]&#xA;$$&#xA;where $\theta = ( 1 -\gamma)/(1 - 1/\psi)$. I'm trying to derive an expression for&#xA;the risk-free rate and an expression for the equity premium. How should I go about doing this?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems from the second link above that I should start by replacing the&#xA;variables of interest like so $C_t = c e^{\tilde C_t}$. Then following the steps given,&#xA;it seems like I should arrive at (equation 2)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{align}&#xA;1 = E_t \left [ &#xA;\left \{ \delta \left (\frac{\tilde C_{t+1} + 1}{\tilde C_t + 1} \right )^{-1/\psi}&#xA;\right \}^\theta&#xA;{}&#xA;\left \{ \frac{1}{(1 + R_m)[\widetilde{(1 + R_{m,t+1})} + 1]} \right \}^{1 - \theta} \cdot \\&#xA;\cdot&#xA;[(1 + R_i)[\widetilde{(1 + R_{i, t+1})} + 1]]&#xA;\right ].&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But where do I go from here?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;EDIT:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;I have copied equation 1 directly from the notes that I have. It is probably the case that the term on the right, $1 + R_{i,t+1}$, should be in parentheses, $(1 + R_{i,t+1})$. In my initial attempt at log-linearization I have treated it this way.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;In equation 2, I have followed the steps in the instruction that can be found in the second link at the beginning. So, $R_i$ and $R_m$ without time subscripts are these values in the steady state. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;$R_m$ is the return on the market portfolio and $R_i$ is the return on asset $i$.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;EDIT 2:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks for the useful comments.&#xA;So, from what I have gathered so far, I should get something like this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{align}&#xA;1 &amp;amp;= E_t&#xA;\left [&#xA;  \delta^\theta (1 - \frac \theta \psi (\tilde C_{t+1} - \tilde C_t )&#xA;  (1 + R_m)^{\theta - 1} (\theta - 1)&#xA;  \left (&#xA;    1 + \tilde R_{m,t}  \frac{R_m}{1 + R_m}&#xA;  \right ) \right .\\&#xA;  &amp;amp; \left . \, \cdot&#xA;  (1 + R_i)&#xA;  \left (&#xA;    (1 + \tilde R_{i,t} \frac{  R_i}{1 + R_i}&#xA;  \right )&#xA;\right ]&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then this would imply that the risk-free rate is found as follows:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{align}&#xA;1 &amp;amp;= E_t&#xA;\left [&#xA;  \delta^\theta (1 - \frac \theta \psi (\tilde C_{t+1} - \tilde C_t )&#xA;  (1 + R_m)^{\theta - 1} (\theta - 1)&#xA;    \left (&#xA;    1 + \tilde R_{m,t}  \frac{R_m}{1 + R_m}&#xA;    \right ) &#xA;  (1 + R_f)&#xA;\right ] \\&#xA;1 &amp;amp;= E_t[ m_{t+1} (1 + R_f)] \\&#xA;\frac{1}{E_t[m_{t+1}]} &amp;amp;= 1 + R_f.&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this correct? And now, to finish the question, how would I find the &#xA;equity premium?&lt;/p&gt;&#xA;" OwnerUserId="1410" LastEditorUserId="1410" LastEditDate="2014-12-12T06:38:11.627" LastActivityDate="2014-12-14T14:22:42.643" Title="Log-linearization of Euler equation with an expectation term" Tags="&lt;macroeconomics&gt;&lt;asset-pricing&gt;" AnswerCount="3" CommentCount="3" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="1584" PostTypeId="2" ParentId="1583" CreationDate="2014-12-12T04:05:54.630" Score="6" Body="&lt;p&gt;Let's ignore for the moment the existence of the expected value. If this was a deterministic set-up, linearization through taking logs would be straightforward, and without the tricks of the links the OP provided. Taking natural logs on both sides of the first equation we obtain:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$0 = \theta \ln \delta-\frac {\theta}{\psi}\ln \left (\frac{C_{t+1}}{C_t} \right )-(1-\theta) \ln(1 + R_{m,t+1}) + \ln (1 + R_{i, t+1}) \tag{1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Set &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\hat c_{t+1} = \frac{C_{t+1}-C_t}{C_t} \Rightarrow \frac{C_{t+1}}{C_t} = 1+\hat c_{t+1} \tag{2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, note that it is standard approximation to write $\ln (1+a) \approx a$ at least for $|a|&amp;lt;0.1$. Usually this is the case with growth rates and financial rates so we obtain&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$0 = \theta \ln \delta-\frac {\theta}{\psi}\hat c_{t+1} -(1-\theta) R_{m,t+1} + R_{i, t+1} \tag{3}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which is a clear dynamic relation that links the three variables present.&#xA;If in the model, the steady-state is characterized by constant consumption and constant returns, then at it we will have $\hat c_{t+1} =0$ and so the steady-state relation will be &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$R_{i} = - \theta \ln \delta + (1-\theta) R_{m} \tag{4}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But we did all these ignoring the expected value. Our expression is $E_t\left[f\left(C_t, C_{t+1},R_{m,t+1},R_{i,t+1} \right)\right]$, not just  $f\left(C_t, C_{t+1},R_{m,t+1},R_{i,t+1} \right)$. Enter first-order Taylor expansion of $f()$. We need a center of expansion. Represent the four variables simply by $\mathbf z_{t+1}$ (it doesn't hurt that a variable with $t$-index is present in $\mathbf z_{t+1}$). We choose to expand the function around $E_t(\mathbf z_{t+1})$. So&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$f\left(\mathbf z_{t+1}\right) \approx  f\left(E_t[\mathbf z_{t+1}]\right) + \nabla f\left(E_t[\mathbf z_{t+1}]\right)\cdot \big(\mathbf z_{t+1}-E_t[\mathbf z_{t+1}]\big) \tag{5}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$E_t\left[f\left(\mathbf z_{t+1}\right)\right] \approx f\left(E_t[\mathbf z_{t+1}]\right) \tag{6}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Obviously this is an approximation, i.e. it has error, even if only because of Jensen's inequality. But it is standard practice. Then we see that all the previous work we did on the deterministic version, can be applied in the stochastic version inserting conditional expected values in place of the variables. So eq. $(3)$ is written &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$0 = \theta \ln \delta-\frac {\theta}{\psi}E_t[\hat c_{t+1}] -(1-\theta) E_t[R_{m,t+1}] + E_t[R_{i, t+1}] \tag{7}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But &lt;em&gt;where are the steady-state values&lt;/em&gt;? Well, steady state values in a stochastic context are a bit tricky -are we arguing that our variables (which are now treated as random variables) become &lt;em&gt;constants&lt;/em&gt;? Or is there another way to define a steady-state in a stochastic context?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are more than one ways. One of them, is the &quot;perfect foresight steady state&quot;, where we forecast perfectly a not-necessarily constant value (this is the concept of &quot;equilibrium as fulfilled expectations&quot;). This is for example used in &lt;a href=&quot;http://press.princeton.edu/titles/8654.html&quot; rel=&quot;nofollow&quot;&gt;Jordi Gali's book&lt;/a&gt; mentioned in a comment. &quot;Perfect-foresight steady state&quot; is defined by&#xA;$$E_t(x_{t+1}) = x_{t+1} \tag{8}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Under this concept, eq. $(7)$ becomes eq. $(3)$ which is now the &quot;perfect-foresight stochastic steady state&quot; equation of the economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we want a stronger condition, saying that variables become constant in the steady-state, then it is also reasonable to argue that, again, their forecast will eventually be perfect. In that case, the steady-state of the stochastic economy is the same as that of the deterministic economy, i.e. eq. $(4)$. &lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2014-12-13T09:33:18.317" LastActivityDate="2014-12-13T09:33:18.317" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="1586" PostTypeId="1" CreationDate="2014-12-12T07:10:05.203" Score="2" ViewCount="60" Body="&lt;p&gt;The intertemporal capital asset pricing model (ICAPM), under the usual assumptions, produces a multifactor pricing model like &lt;a href=&quot;https://economics.stackexchange.com/questions/485/dealing-with-missing-data-when-testing-the-capm&quot;&gt;the one described in this question&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;When and how would it be possible to test this result when the assets' mean returns and variance-covariance matrix of returns are not constant over time?&lt;/p&gt;&#xA;" OwnerUserId="59" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2014-12-12T07:10:05.203" Title="ICAPM when assets' mean returns and variance-covariance matrix are not constant over time" Tags="&lt;macroeconomics&gt;&lt;finance&gt;&lt;asset-pricing&gt;&lt;empirical-methods&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="1587" PostTypeId="1" CreationDate="2014-12-12T09:57:35.963" Score="-1" ViewCount="241" Body="&lt;p&gt;A friend of mine told me that the Federal Reserve bank is the most evil thing in the world. Things like we can't print our own money and how this debt based fiat currency will destroy everything. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can someone tell me if this is true? Is the federal Reserve bad? Is it physically impossible to pay off the 17 trillion dollar debt? Can someone give me some cold hard facts on this? &lt;/p&gt;&#xA;" OwnerUserId="1414" LastActivityDate="2014-12-12T14:30:16.753" Title="Is the Federal Reserve even necessary?" Tags="&lt;federal-reserve&gt;&lt;debt&gt;" AnswerCount="1" CommentCount="2" ClosedDate="2014-12-16T19:00:22.520" ContentLicense="CC BY-SA 3.0" />
  <row Id="1588" PostTypeId="2" ParentId="1583" CreationDate="2014-12-12T11:05:54.883" Score="4" Body="&lt;p&gt;The correct approximation is $f(x) \approx E[f(x)] + E[f'(x)] (x - E[x])$. This is unbiased, whereas $f(x) \approx E[f(x)] + f'(E[x]) (x - E[x])$ is not. To see this,&#xA;project $f(x) - \overline{f(x)}$ on $x - \bar x$, where the &quot;bar&quot; represents the expectation operator. Then, approximate &#xA;$$&#xA;\frac{\text{Cov}(f(x), x)}{\text{Var(x)}} \approx E[f'(x)].&#xA;$$&#xA;This approximation is exact when $x$ is normally distributed (by Stein's lemma).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;EDIT:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For clarification, see that&#xA;the projection of $f(x) - \overline{f(x)}$ on $x - \bar x$ gives us $f(x) - \overline{f(x)} = \beta (x - \bar x) + \epsilon$, where $E[\epsilon] = E[\epsilon x] = 0$ and&#xA;$\beta = \frac{\text{Cov}(f(x), x)}{\text{Var(x)}}$. If we use Stein's lemma to approximate $\beta$ as described above, we are left with&#xA;$$&#xA;f(x) \approx E[f(x)] + E[f'(x)] (x - \bar x) + \epsilon,&#xA;$$&#xA;which is unbiased,&#xA;$$&#xA;E[\epsilon] = 0.&#xA;$$&#xA;On the other hand,&#xA;$$&#xA;E[f(E[x]) + f'(E[X]) (x - E[x])] = f(E[x]) \neq E[f(x)].&#xA;$$&lt;/p&gt;&#xA;" OwnerUserId="59" LastEditorUserId="59" LastEditDate="2014-12-12T18:38:01.187" LastActivityDate="2014-12-12T18:38:01.187" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="1589" PostTypeId="2" ParentId="1587" CreationDate="2014-12-12T14:30:16.753" Score="3" Body="&lt;p&gt;&lt;strong&gt;On the Federal Reserve&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First off a technicality; there isn't &lt;strong&gt;a&lt;/strong&gt; Federal Reserve bank, but 12 Federal Reserve banks that together make up the Federal Reserve System.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Federal Reserve System acts as the central bank for the United States Dollar and as such takes control of that currency.  The Federal Reserve Banks have a number of responsibilities, but it is indeed possible to manage without them.  They were established in 1913 and prior to that the US managed without, albeit with some problems.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An important, but mundane activity that a central bank carries out it to allow bank transfers to occur.  The &quot;Reserve&quot; part of the name refers to the reserve accounts that U.S. banks are required to hold with one or more Federal Reserve Bank.  These may be thought of as current accounts for banks.  It is only by having such accounts with a reserve bank, that money may be transferred from one bank to another.  When bank A wishes to pay bank B, they simply instruct their local Federal Reserve Bank to move money from one account to the other.  Prior to Reserve Banking one would have to physically ship the money from one bank to the other.  Whilst excellent for generating movie plot lines, this behaviour is not ideal for the banks.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another job of the Federal Reserve System is to act as lender of last resort.  This ensures that there is always liquidity available in USD, so that trades can be settled at the end of the day.  This can be an important tool for preventing contagion of bank runs, as well as allowing banks to survive short term exogenous problems, such as the September 11 attacks.  On the flip side, there is the risk of Moral Hazard; that banks are more reckless because there is support available.  Historically there were many more bank failures in the era before the Federal Reserve, and little evidence to suggest that they were any less reckless.  In the period 1837-1862 the average life span of a bank was 5 years.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Immediately prior to the Federal Reserve System, much of these two roles were taken up by private banks.  A system of &quot;National Banks&quot; were in place, which held accounts for smaller regional banks, in much the same way the Federal Reserve Banks would later do.  Similarly institutions such as the New York Safety Fund would provide deposit insurance, while others acted as pseudo lenders of last resort.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One irritating consequence of having no central bank, is that the value of currency depends upon the bank that prints it, and the bank in which your account is in.  So prior to the Federal Reserve, buying a cart might cost \$10 Acme Bank Dollars, but \$11 Zenith Bank Dollars.  With the various bank notes circulating together, this does not help efficient trade.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Federal Reserve System was established to deal with these issue, which by and large it has done.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The other major activity of the Federal Reserve System, are the open market operation.  That is, it controls the interest rates in an effort to &quot;look after&quot; the economy.  This is a very 20th Century thing to be doing, and really took off after the end of the Breton-Woods system.  It is difficult to objectively answer how successful this has been, but it is only one small part of the job of the Federal Reserve Banks.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Can you pay off the debt?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This question is roughly unrelated to the existence of the Federal Reserve System or not.  My guess is you refer to this apparent paradox:  &lt;em&gt;Currently the total US debt is around 17 trillion.  The total money supply (M2) of the US is around 11.6 trillion.&lt;/em&gt;  At first glance this looks odd - the U.S. has borrowed more money than exists.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In fact, this is not a problem at all, and is just a quirk of numbers with no real significance.  For starters, of that 17 trillion, 5 trillion is &quot;intra-government debt&quot;; that is where one government department owes another government department.  So that could instantly be paid off in theory.  This is just like if you put some money aside each month to buy a new car, but then &quot;borrow&quot; some money from your car fund to buy a TV.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Really the US debt is around 12 trillion, a tad over the money supply.  The money supply is fairly arbitrary though, and is a measure of LIQUID money.  The value I am using is roughly the sum of:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Cash, Coins, Demand Deposits, Checks, Savings Accounts, Money Market Accounts/Funds &amp;amp; certificates of deposit under \$100,000&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Obviously, there is a lot of wealth NOT included in that.  The total value of the US Stock market is around \$16 trillion, the total value of corporate bonds is around \$10 trillion, and the mortgage related market comes to something around \$10 trillion.  Then there are the buildings, resources, land etc.  Adding everything up at current market values and the entire united states is estimated at around \$123 trillion:  there is no shortage of wealth.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So really the questions is how do you pay back a debt without using up the money?  And the simple answer is that money is not destroyed when the debt is repaid, it simply moves from one person to another.  So if the US pays off \$5 trillion of debt, then there will STILL be \$12 trillion of money supply, it will just have changed hands.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Imagine:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Alice owns \$1000 of US Debt&#xA;Bob owns \$500 of US Debt&#xA;Chris runs a business and has money in his account (part of the money supply).  He pays \$1000 of taxes to the government.&#xA;The government pays Alice \$1000 to pay of the debt, which goes into her account (part of the money supply)&#xA;Alice spends this \$1000 at Dave's shop and it goes into his account.&#xA;Dave pays \$500 of taxes from his current account.&#xA;The government pays Bob \$500 which goes into his current account.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this example, \$1000 of money pays of \$1500 of debt, and ends up with \$500 sat in Dave's account and \$500 sat in Bob's account, ready to carry on the cycle.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The only impediment to paying off the debt is raising sufficient money to have a budget surplus with which to pay back the debt.&lt;/p&gt;&#xA;" OwnerUserId="119" LastActivityDate="2014-12-12T14:30:16.753" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1590" PostTypeId="2" ParentId="1580" CreationDate="2014-12-12T15:04:54.970" Score="8" Body="&lt;p&gt;Source:- &lt;a href=&quot;http://www.bloomberg.com/news/2011-11-09/sweden-prime-minister-proving-tough-love-of-banks-a-model-for-debt-crisis.html&quot;&gt;Bankers cost this country £456.3bn in fraud&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In the UK, where the government bailed out Royal Bank of Scotland Group Plc (RBS) and Lloyds Banking Group, the total outstanding support explicitly pledged to Britain’s banks stood at 456.3 billion pounds ($730 billion) at the end of March, or 31 percent of GDP, the National Audit Office said in a July report. The amount was down from a peak of 1.16 trillion pounds. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Source:- &lt;a href=&quot;http://www.theguardian.com/politics/reality-check-with-polly-curtis/2011/sep/12/reality-check-banking-bailout&quot;&gt;Politicians had to bail the bankers out with £1.2tn, leaving the next generation with 3 times more tuition fees to pay.&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The Treasury has pledged to spend £1.2 trillion on the bail-out since the crisis began. But the real outlay has been much smaller. By March it was committed to spending £456.33bn: £123.93bn in loan or share purchases, which required an actual cash injection from the government to the banks, and £332.4bn in guarantees and liabilities. It costs taxpayers up to £5bn a year just to service the loan that the crisis incurred. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The idea seems to be more to create noise rather than putting facts into perspective. The 2 lines in isolation are damning, but when you read the whole thing it seems to make a bit more sense. Seems more at fear mongering rather than putting the facts into perspective.&lt;/p&gt;&#xA;" OwnerUserId="1415" LastActivityDate="2014-12-12T15:04:54.970" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1591" PostTypeId="1" AcceptedAnswerId="11905" CreationDate="2014-12-12T18:14:38.153" Score="9" ViewCount="145" Body="&lt;p&gt;I've seen some articles online about the &lt;a href=&quot;https://en.wikipedia.org/wiki/2012%E2%80%9313_Cypriot_financial_crisis&quot; rel=&quot;nofollow&quot;&gt;Cyprus-style bail-ins&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When the bail-in actually happened there, they took money from people's accounts, but from where did they take the money?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, if someone had a CD there or a brokerage account with the bank, were those included as targets for bail-ins? Or was it limited to savings and checking accounts?&lt;/p&gt;&#xA;" OwnerUserId="1418" LastEditorUserId="118" LastEditDate="2016-03-11T22:40:06.983" LastActivityDate="2016-05-09T13:42:26.827" Title="How did the Bail-In in Cyprus Work?" Tags="&lt;macroeconomics&gt;&lt;banking&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="1593" PostTypeId="1" AcceptedAnswerId="1596" CreationDate="2014-12-13T05:50:26.507" Score="11" ViewCount="394" Body="&lt;p&gt;This week there was news that some prices are rising. I heard that in some countries where corruption is high the prices are also higher. I wonder if there is causaility or just both at same. It would be interesting to find some material to support if the claim is true. Is there some study e.g. comparing prices levels for energy and testing whether corruption levels in an economy (bribing, black market, unregulated markets) influences prices?&lt;/p&gt;&#xA;" OwnerUserId="1424" LastEditorUserId="1466" LastEditDate="2014-12-23T00:06:29.700" LastActivityDate="2015-01-08T07:07:43.260" Title="Can econometrics test for correlation or causality between prices and corruption?" Tags="&lt;econometrics&gt;&lt;markets&gt;&lt;effective-price&gt;" AnswerCount="3" CommentCount="2" FavoriteCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="1594" PostTypeId="2" ParentId="1580" CreationDate="2014-12-13T11:14:40.917" Score="2" Body="&lt;p&gt;&quot;fraud&quot; may have been a bit harsh, the original &lt;a href=&quot;http://www.liblabcon.com/blog/2014/12/10/bankers#comments-outer-wrapper&quot; rel=&quot;nofollow&quot;&gt;bloggers cite their figures&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Hi Andrew,  For all our articles we use information from national news&#xA;  organisations (for our sins). Have a look here at the Guardian&#xA;  &lt;a href=&quot;http://gu.com/p/3xzdk&quot; rel=&quot;nofollow&quot;&gt;http://gu.com/p/3xzdk&lt;/a&gt;, the BBC &lt;a href=&quot;http://www.bbc.co.uk/news/uk-24104743&quot; rel=&quot;nofollow&quot;&gt;http://www.bbc.co.uk/news/uk-24104743&lt;/a&gt;&#xA;  and the CAS &lt;a href=&quot;http://www.cas.org.uk/node/3330&quot; rel=&quot;nofollow&quot;&gt;http://www.cas.org.uk/node/3330&lt;/a&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="1407" LastActivityDate="2014-12-13T11:14:40.917" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="1595" PostTypeId="1" AcceptedAnswerId="1609" CreationDate="2014-12-13T13:50:17.247" Score="3" ViewCount="4106" Body="&lt;p&gt;Is it possible to reproduce the nominal exchange rate undershooting within the framework of the Dornbusch model?&lt;/p&gt;&#xA;&lt;p&gt;If the government uses fiscal expansion, does undershooting happen?&lt;img src=&quot;https://i.stack.imgur.com/R7ST1.png&quot; alt=&quot;enter image description here&quot; /&gt;&lt;/p&gt;&#xA;" OwnerUserId="1425" LastEditorUserId="40" LastEditDate="2020-07-20T22:54:26.107" LastActivityDate="2020-07-20T22:54:26.107" Title="Dornbusch model for exchange rate undershooting" Tags="&lt;exchange-rates&gt;&lt;ode&gt;" AnswerCount="1" CommentCount="6" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="1596" PostTypeId="2" ParentId="1593" CreationDate="2014-12-13T15:10:25.253" Score="12" Body="&lt;p&gt;Some related studies:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/S016517659900230X&quot; rel=&quot;nofollow&quot;&gt;Al-Marhubi, F. A. (2000). Corruption and inflation. Economics Letters, 66(2), 199-202.&lt;/a&gt;&lt;/strong&gt;&lt;br&gt;&#xA;The analysis is based on cross-country data consisting of 41 countries from Asia and Latin America for which data is available on four alternative indices of corruption (two from Transparency International, one is the Business International index, and the fourth from another economics study). Note that numerically, these are essentially &lt;em&gt;non-corruption&lt;/em&gt; indicators -they range from $0=$ &lt;strong&gt;maximum corruption&lt;/strong&gt; to $10=$  &lt;strong&gt;no corruption&lt;/strong&gt;. The panel covers the period 1980-1995. Four alternative OLS regressions were run (each with one corruption indicator present), with heteroskedasticity-robust standard errors. In all cases a statistically significant positive correlation between corruption and inflation was found.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;How large a correlation (to judge its &lt;em&gt;economic&lt;/em&gt; significance also)?&lt;/strong&gt;  The dependent variable was the &lt;em&gt;logarithm&lt;/em&gt; of inflation. The value of the coefficient on the corruption variable was on average $-0.22$. Given how the indicators are defined, the minus sign says that  less corruption = less inflation. The actual value roughly says that $1/5$ of inflation was associated with corruption. So if the inflation was, say $10$%, &lt;strong&gt;2 percentage points can be attributed to corruption&lt;/strong&gt;. Not small.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;a href=&quot;http://onlinelibrary.wiley.com/doi/10.1111/j.1468-0343.2004.00132.x/abstract&quot; rel=&quot;nofollow&quot;&gt;Braun, M. &amp;amp; Di Tella R., (2004). Inflation, inflation variability, and corruption. Economics &amp;amp; Politics, 16(1), 77-100.&lt;/a&gt;&lt;/strong&gt;&lt;br&gt;&#xA;They examine the &lt;em&gt;reverse relationship&lt;/em&gt;: inflation facilitates corruption. They present a theoretical model, and also empirical evidence. For the theoretical model they write:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;(...)high variability of inflation can make over-invoicing by&#xA;  procurement officers and under-invoicing by salespersons easier&#xA;  because it makes auditing more expensive to the principal&quot;.&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So here there is a &lt;em&gt;causative&lt;/em&gt; theoretical argument as to why unstable prices increase corruption.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Their data relates to 75 countries and for the period 1980-1994:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Algeria, Argentina, Austria, Bahamas, Bahrain, Bangladesh, Belgium,&#xA;  Bolivia, Botswana, Burkina Faso, Cameroon, Canada, Chile, Colombia,&#xA;  Costa Rica, Cote d’Ivoire, Cyprus, Denmark, Dominican Republic,&#xA;  Ecuador, Egypt, El Salvador, Ethiopia, Finland, France, Gambia,&#xA;  Germany, Ghana, Greece, Guatemala, Haiti, Honduras, Hungary, India,&#xA;  Indonesia, Israel, Italy, Jamaica, Japan, Jordan, Kenya, Korea&#xA;  (South), Luxembourg, Madagascar, Malaysia, Malta, Mexico, Morocco,&#xA;  Myanmar, Netherlands, Niger, Nigeria,Norway, Pakistan, Paraguay, Peru,&#xA;  Philippines, Portugal, Senegal, Singapore, South Africa, Spain, Sri&#xA;  Lanka, Suriname, Sweden, Switzerland, Thailand, Togo, Trinidad and&#xA;  Tobago, Turkey, United Kingdom, USA, Uruguay, Venezuela, Zimbabwe.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Here the dependent variable is the corruption index. They use the &lt;strong&gt;International Country&#xA;Risk Guide (ICRG)&lt;/strong&gt;, that ranges from $0$ to $6$. Here too, a higher score means &lt;em&gt;less&lt;/em&gt; corruption. They regress it (among various controls), on &lt;em&gt;inflation variance&lt;/em&gt; (since what they want to test is whether an unstable price system introduces noise into transactions that facilitates corruption). They find statistically significant regression coefficients with values around $0.5$. They even find that inflation variability correlates more strongly with corruption, than inflation itself. Lots of references.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;a href=&quot;http://core.kmi.open.ac.uk/download/pdf/9312682.pdf&quot; rel=&quot;nofollow&quot;&gt;Dreher, A., &amp;amp; Herzfeld, T. (2005). The economic costs of corruption: A survey and new evidence. Public Economics, 506001.&lt;/a&gt;&lt;/strong&gt;&lt;br&gt;&#xA;A more general study on the costs of corruption, looking also at inflation. For their empirical study (71 countries, 1975-2001), they also use the ICRG index. They regress the level of inflation on this index, and they find a &lt;em&gt;positive&lt;/em&gt; sign on the coefficient. Since the index is as described above, a non-corruption index, higher values mean less corruption. So what they find is that &lt;em&gt;less&lt;/em&gt; corruption is correlated with &lt;em&gt;higher&lt;/em&gt; inflation. Irrespective of whether this can stand reason, their findings are also incredibly large: if you move up the ladder by one point in the ICRG scale (less corruption), the corresponding inflation will be &lt;strong&gt;&lt;em&gt;10 percentage points&lt;/em&gt;&lt;/strong&gt; higher(i.e. if it was, say, 5%, it will become 15%). This is too large to be believable even if the direction of association is to be accepted. Despite this, this is a survey, so &lt;em&gt;lots&lt;/em&gt; of references.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/S0165176511002631&quot; rel=&quot;nofollow&quot;&gt;&lt;strong&gt;Blackburn, K., &amp;amp; Powell, J. (2011). Corruption, inflation and growth. Economics Letters, 113(3), 225-227.&lt;/strong&gt;&lt;/a&gt;&lt;br&gt;&#xA;This is a theoretical model. as the authors write:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;We present a model in which the embezzlement of tax revenues by public&#xA;  officials leads the government to rely more on seigniorage to finance&#xA;  its expenditures. This raises inflation which depresses investment and&#xA;  growth via a cash-in-advance constraint.&quot;&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So here we have a &lt;em&gt;causative&lt;/em&gt; theoretical argument about why increased corruption causes increased inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/S0264999311002562&quot; rel=&quot;nofollow&quot;&gt;&lt;strong&gt;Bittencourt, M. (2012). Inflation and economic growth in Latin America: some panel time-series evidence. Economic Modelling, 29(2), 333-340.&lt;/strong&gt;&lt;/a&gt;&lt;br&gt;&#xA;Four Latin American countries (Argentina, Bolivia, Brazil, Peru) for the period 1970-2007. As the authors note, these four countries account for $\approx 70$% of total GDP and population in South America (for 2009). The dependent variable on their regressions is the growth rate, while both inflation and a composite &quot;political situation&quot; variable are included as regressors. The &quot;political situation&quot; variable again increases with increased transparency and controls on power, and so it can be expected to correlate &lt;em&gt;negatively&lt;/em&gt; with corruption (i.e. the higher its value, the less corruption). For our purpose we need to look not at the regression results but at the correlation matrix of the regressors: there we see that the political situation variable is negatively correlated with inflation, with correlation coefficient $-0.142$ (so again, more corruption is associated with more inflation).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Overall, it appears that scholars have empirically detected a positive correlation between the level of corruption and the level of inflation, and also offered theoretical insights on how this can come about, although one theoretical model argues in favor of a causal effect from inflation to corruption, while the other from corruption to inflation. Since both arguments seem reasonable, one could think that it may be the case of a vicious feedback spiral.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2014-12-30T06:30:12.493" LastActivityDate="2014-12-30T06:30:12.493" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1599" PostTypeId="1" CreationDate="2014-12-14T00:30:15.270" Score="1" ViewCount="43" Body="&lt;p&gt;If the par value of the common stock is 5 dollars and is sold at market for 10 dollars does the company get the extra $5? Also how is the company affected by the market value going up and down? &lt;/p&gt;&#xA;" OwnerUserId="1428" LastEditorUserId="61" LastEditDate="2014-12-14T00:41:35.327" LastActivityDate="2014-12-15T01:00:10.500" Title="Paid in capital" Tags="&lt;financial-markets&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1600" PostTypeId="2" ParentId="1599" CreationDate="2014-12-14T00:47:44.077" Score="2" Body="&lt;p&gt;If &lt;strong&gt;existing shares&lt;/strong&gt; are sold, then the transaction does not involve the company -it is between the old shareholder and the new shareholder. The only thing that the company gets, is a new shareholder.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If on the other hand this is &lt;strong&gt;issuance of new stock&lt;/strong&gt;, then the new shareholder gets the paper and the company the green paper -the whole of it.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your second question (&quot;how the company is affected...&quot;) is too broad and unclear to be easy to answer. Is this in the short-run? Long-run? In relation to its operations? In relation to its competitive position? As regards its credit rating? &lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="84" LastEditDate="2014-12-15T01:00:10.500" LastActivityDate="2014-12-15T01:00:10.500" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="1601" PostTypeId="1" AcceptedAnswerId="1602" CreationDate="2014-12-14T10:03:08.763" Score="6" ViewCount="3305" Body="&lt;p&gt;I am working on macroeconomic model and I need to calibrate it.&#xA;I am looking primarily for a statistically-founded estimate for the &#xA;coefficient of relative risk aversion in the CRRA utility &#xA;function based on macroeconomic US data (but also for the coefficient of absolute risk aversion for the case of a CARA utility function). Cannot seem to find it anywhere.&#xA;Can anybody help?&lt;/p&gt;&#xA;" OwnerUserId="1429" LastEditorUserId="61" LastEditDate="2014-12-14T17:44:47.743" LastActivityDate="2014-12-14T17:44:47.743" Title="Empirical estimates of CRRA and CARA utility" Tags="&lt;macroeconomics&gt;&lt;utility&gt;&lt;risk-aversion&gt;" AnswerCount="2" CommentCount="4" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="1602" PostTypeId="2" ParentId="1601" CreationDate="2014-12-14T11:42:01.677" Score="3" Body="&lt;p&gt;In &lt;a href=&quot;http://ageconsearch.umn.edu/bitstream/30810/1/18010017.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Babcock, B. A., Choi, E. K., &amp;amp; Feinerman, E. (1993). Risk and probability premiums for CARA utility functions. Journal of Agricultural and Resource Economics, 17-24.&lt;/a&gt; (downloadable) we find the following table (the first column is the coefficient of absolute risk aversion)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/YoRO5.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can download the paper and trace the papers which it summarizes in the table.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2014-12-14T11:42:01.677" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="1603" PostTypeId="1" AcceptedAnswerId="5115" CreationDate="2014-12-14T13:47:12.023" Score="6" ViewCount="932" Body="&lt;p&gt;If PPP were to be satisfied in reality, does that mean the Law Of Price is satisfied for all goods in a basket of goods used to generate the price levels of the country? Or, since PPP uses only average price of basket, is there possibility of &quot;accidentally&quot; PPP is satisfied without holding LOP for each good?&lt;/p&gt;&#xA;" OwnerUserId="1425" LastEditorUserId="31" LastEditDate="2014-12-15T01:37:02.940" LastActivityDate="2015-05-13T23:50:29.467" Title="Purchasing Power Parity (PPP) and Law of One Price (LOP)" Tags="&lt;international-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1604" PostTypeId="2" ParentId="1583" CreationDate="2014-12-14T14:22:42.643" Score="4" Body="&lt;p&gt;Your problem seems like asset-pricing equation with recursive (Epstein-Zin) preferences. When interested in asset prices, one has to be careful with the usual &quot;macroeconomic&quot; linearization. Such an approximation is certainty-equivalent, meaning that coefficients of linearized solution do not depend on size of shocks. Moreover, all variables in linearized solution will fluctuate around their deterministic steady states. As a result, risk premia are zero, which kind of defies the point.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One solution is to use higher-order perturbation methods (2nd order to get constant risk premia, 3rd order for time-varying premia). This is easy to do with existing software (e.g. Dynare) if you want to solve the model numerically anyway (in which case there is also no need to linearize manually). If instead analytical (approximate) solution is preferred, the usual way is to linearize dynamics of quantities (e.g. consumption growth), then obtain asset prices directly from Euler equation, computing expectations using lognormality assumption, as in &lt;a href=&quot;https://ideas.repec.org/a/bla/jfinan/v59y2004i4p1481-1509.html&quot; rel=&quot;nofollow&quot;&gt;Bansal &amp;amp; Yaron (2004)&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, if lowercase variables are logs, the usual Euler equation can be rewritten as &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;1 = E_t [\exp(m_{t+1} + r_{t+1})]&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If $m_{t+1},r_{t+1}$ are (conditionally) jointly normal, the above implies&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;0 = E_t[m_{t+1}] + E_t[r_{t+1}] + \frac{1}{2} \left\{ Var_t[m_{t+1}] + Var_t[r_{t+1}] + 2 Cov_t[m_{t+1},r_{t+1}] \right\} \tag{1}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Risk free rate must satisfy $\exp(-r^f_t) = E_t[\exp(m_{t+1})]$, or&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;r^f_t = -E_t[m_{t+1}] - \frac{1}{2} Var_t[m_{t+1}]&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and thus we must have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;E_t[r_{t+1}] - r^f_t + \frac{1}{2}Var_t[r_{t+1}] = Cov_t[m_{t+1},r_{t+1}]&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To actually compute asset prices, one would then&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;express log-SDF as a linear function of some state variables and shocks (e.g. log consumption growth in CRRA case)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;linearize return in terms of log dividend-price ratio (Campbell-Shiller approximation), substitute that into (1).&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;express log D/P ratio as linear in state variables, then use method of undetermined coefficients to obtain a solution for it which satisfies (1).&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;In practice it's a bit more complicated (especially with EZ preferences, when one has to use the approach first to derive market return that enters SDF, then second time for other returns), but more details can be found e.g. in the linked Bansal &amp;amp; Yaron paper.&lt;/p&gt;&#xA;" OwnerUserId="1432" LastActivityDate="2014-12-14T14:22:42.643" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="1605" PostTypeId="2" ParentId="1601" CreationDate="2014-12-14T14:33:20.027" Score="6" Body="&lt;p&gt;There are many estimates in the literature. For example, &lt;a href=&quot;http://ies.fsv.cuni.cz/sci/publication/show/id/4902/lang/cs&quot;&gt;Havranek (2013)&lt;/a&gt; does a meta-analysis of avalible results and argues for a value of intertemporal elasticity (inverse of sigma in your notation) around 0.3-0.4. But it might also depend on what your goal is - the single parameter in CRRA utility controls both risk aversion and intertemporal smoothing motive, so a calibration for asset-pricing model might need to differ from let's say a deterministic growth model.&lt;/p&gt;&#xA;" OwnerUserId="1432" LastActivityDate="2014-12-14T14:33:20.027" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="1606" PostTypeId="2" ParentId="511" CreationDate="2014-12-14T15:35:59.163" Score="5" Body="&lt;p&gt;The critique of Edesess, misses the point. The reality is much more profound than mere misuse of mathematical definitions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The truth of a mathematical statement depends &lt;em&gt;strongly&lt;/em&gt; upon the ability to retrace any definitions used to axiomatic &lt;em&gt;logical&lt;/em&gt; level. In this sense, one would not find any mathematician wildly using &lt;em&gt;definitions&lt;/em&gt; that cannot be reduced to the &lt;em&gt;mathematically/logically true&lt;/em&gt; body of knowledge that &lt;strong&gt;already&lt;/strong&gt; exists. But this is stating the obvious.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the &lt;strong&gt;applied science&lt;/strong&gt; fields (biology, medicine, engineering, etc, etc), one starts with a real problem (problem domain), or phenomenon, and models the problem in the language of mathematics. The aim is to solve/study/simulate a mathematical problem, to be able to say something about the real problem. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &lt;strong&gt;critique&lt;/strong&gt; is actually about the mathematical-ization of economics (which started with Samuelson in 50's 60's). The claim is that &lt;em&gt;some&lt;/em&gt; economists make the transformation to the mathematical domain and lose sight of the original problem and never transform back to the problem domain (i.e. the interaction of people, firms, resources, etc). These economists appear content with formulating linear algebraic relations, or solving vector auto-regressive equations, with no empirical justification - or worse - claiming that such economics is above &lt;em&gt;short run considerations&lt;/em&gt; (i.e. my theory cannot be falsified in any of our lifetimes). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are many examples of this. One obvious one is the the so-called theory of &lt;strong&gt;general equilibrium&lt;/strong&gt; - which not only was shown to be mathematically flawed (via multiple equilibria (see Sonnenschein, Mantel, Debreu theorem) in the 1970s), but is hypothesised to lack &lt;em&gt;any&lt;/em&gt; empirical content. As a result, &lt;em&gt;some&lt;/em&gt; economists prefer to stay in the mathematical-ized domain - perhaps chasing a more accurate model (computable GE, dynamic GE, Stochastic GE, Dynamic stochastic GE, etc, etc) - hence the misunderstood critique that economists masquerade as mathematicians. One could make the case such people are more accurately described as pseudo-mathematicians, masquerading as economists (in the problem domain sense).&lt;/p&gt;&#xA;" OwnerUserId="1435" LastActivityDate="2014-12-14T15:35:59.163" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="1607" PostTypeId="1" AcceptedAnswerId="1610" CreationDate="2014-12-14T15:58:49.023" Score="7" ViewCount="333" Body="&lt;p&gt;I'm interested in the following quote that came up in &lt;a href=&quot;https://economics.stackexchange.com/a/430/43&quot;&gt;this earlier answer&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Second, when labor supply responses are along the extensive margin&#xA;  only, which is the empirically relevant case, the co-existence of a&#xA;  minimum wage with a positive tax rate on low-skilled work is always&#xA;  (second-best) Pareto inefficient.A Pareto improving policy consists of&#xA;  reducing the pre-tax minimum wage while keeping constant the post-tax&#xA;  minimum wage by increasing transfers to low-skilled workers, and&#xA;  financing this reform by increasing taxes on higher paid workers.&#xA;  Importantly, this result is true whether or not rationing induced by&#xA;  the minimum wage is efficient or not.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;How are higher paid workers not worse off, given the increased taxes they have to pay?&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2016-04-07T15:00:37.953" Title="Lee and Saez (2012): Pareto-Improvement?" Tags="&lt;microeconomics&gt;&lt;taxation&gt;&lt;pareto-efficiency&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1608" PostTypeId="2" ParentId="1607" CreationDate="2014-12-14T17:25:44.687" Score="5" Body="&lt;p&gt;The reason is that at the same time the wage of the high-skilled increases. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;By reducing the minimum wage, the number of people working in the low-skilled sector increases (involuntary unemployment is reduced) which leads to an increase in the wage of the high-skilled.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The corresponding proposition in the paper is Proposition 3, the argument of which is&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot; Suppose that the government reduces the minimum wage ($d\bar{w}&amp;lt;0$) while keeping $c_0$, $c_1$,$c_2$ constant. Reducing the minimum wage leads to a positive employment effect $dh_1 &amp;gt; 0$ as involuntary unemployment is reduced, improving the welfare of the newly employed workers and increasing tax revenue as $τ_1&amp;gt;0$. The increase $dh_1&amp;gt;0$ also leads to a change $dw_2 &amp;gt; 0$. However, because $h_1 d\bar{w} + h_2 dw_2 = 0$ through the no-profit condition (6), the mechanical fiscal effect of $d\bar{w}$ and $dw_2$, keeping $c_1$ and $c_2$ constant, is zero. Because $c_0$,$c_1$,$c_2$ remain constant, nobody's welfare is reduced. The increase in welfare due to the reduction in unemployment remains a-fortiori true if rationing is not efficient. Therefore, this reform is a second-best Pareto improvement.&quot; (Lee and Saez 2012)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;If you can access the paper, useful complements on the general equilibrium dynamics determining wages are in Appendix A.&lt;/p&gt;&#xA;" OwnerUserId="38" LastEditorUserId="38" LastEditDate="2016-04-07T15:00:37.953" LastActivityDate="2016-04-07T15:00:37.953" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="1609" PostTypeId="2" ParentId="1595" CreationDate="2014-12-14T18:12:09.103" Score="1" Body="&lt;p&gt;This will be long, but the subject is worth it.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The gist of the &quot;exchange rate overshooting&quot; model in &lt;a href=&quot;https://www.jstor.org/stable/1831272&quot; rel=&quot;nofollow noreferrer&quot;&gt;Dornbusch, R. (1976). Expectations and exchange rate dynamics. The Journal of Political Economy, 1161-1176.&lt;/a&gt; can be given using two equations:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Uncovered Interest Rate Parity (UIRP)&lt;/strong&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$i  = i^*+ \dot e\tag{1}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; is local interest rate, &lt;span class=&quot;math-container&quot;&gt;$i^*$&lt;/span&gt; is international interest rate, and &lt;span class=&quot;math-container&quot;&gt;$e$&lt;/span&gt; is the logarithm of the &lt;em&gt;foreign&lt;/em&gt; exchange rate, i.e. local currency units per unit of international currency basket. So an &lt;em&gt;increase&lt;/em&gt; in &lt;span class=&quot;math-container&quot;&gt;$e$&lt;/span&gt; reflects &lt;em&gt;depreciation&lt;/em&gt; of the local currency. A &lt;em&gt;decrease&lt;/em&gt; in &lt;span class=&quot;math-container&quot;&gt;$e$&lt;/span&gt; reflects &lt;em&gt;appreciation&lt;/em&gt; of the local currency (I would prefer to use the local exchange rate, where conceptually we link &quot;rise&quot; with &quot;rise&quot;, but it is unfriendly to the phase diagram that it will follow). Then &lt;span class=&quot;math-container&quot;&gt;$\dot e$&lt;/span&gt; is the expected percentage change on the exchange rate.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Money-market Equilibrium (in logarithms)&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$m-p = -\lambda i +\phi y \tag{2}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where &lt;span class=&quot;math-container&quot;&gt;$m$&lt;/span&gt; is money supply, &lt;span class=&quot;math-container&quot;&gt;$p$&lt;/span&gt; is the local price level, and &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; is local output.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The assumptions are: international interest rate is fixed. There is perfect capital mobility, so the local interest rate is a &quot;jump&quot; variable, being able to adjust instantaneously (and so eq. &lt;span class=&quot;math-container&quot;&gt;$(2)$&lt;/span&gt; holds always). Local output is at full-employment level. Local prices are &quot;sticky&quot;: this means that the local price-level is not a &quot;jump&quot; variable anymore, but its evolution is governed by a difference/differential equation that reflects gradual adjustment. Money supply is long-term neutral.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The famous &quot;overshooting&quot; effect from an &lt;em&gt;unanticipated&lt;/em&gt; permanent expansion of &lt;span class=&quot;math-container&quot;&gt;$m$&lt;/span&gt; can then be derived: an increase in &lt;span class=&quot;math-container&quot;&gt;$m$&lt;/span&gt; raises the left-hand side of &lt;span class=&quot;math-container&quot;&gt;$(2)$&lt;/span&gt;. Since prices are sticky (don't jump) and output is fixed, the only way that equilibrium can continue to hold in the money market is by a &lt;em&gt;decrease&lt;/em&gt; in &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; (due to the minus sign), so that that eq. &lt;span class=&quot;math-container&quot;&gt;$(2)$&lt;/span&gt; continues to hold.&lt;br&gt;&#xA;Given the fall in &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;, and the assumption of constant &lt;span class=&quot;math-container&quot;&gt;$i^*$&lt;/span&gt;, the only way now that &lt;span class=&quot;math-container&quot;&gt;$(1)$&lt;/span&gt; can hold with a lower &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; is for &lt;span class=&quot;math-container&quot;&gt;$\dot e$&lt;/span&gt; to be &lt;em&gt;negative&lt;/em&gt;, i.e. if the local currency is expected to &lt;em&gt;appreciate&lt;/em&gt;. But raising the long-term neutral local money supply can only create expectations for local currency &lt;em&gt;depreciation&lt;/em&gt;, not appreciation.&lt;br&gt;&#xA;&lt;strong&gt;&quot;Overshooting&quot;&lt;/strong&gt; cuts the Gordian Knot: the &lt;em&gt;immediate&lt;/em&gt; response of the exchange rate &lt;span class=&quot;math-container&quot;&gt;$e$&lt;/span&gt; is to &lt;em&gt;depreciate by more&lt;/em&gt; (overshooting) than the eventual depreciation that is consistent with the increase in the money supply, and then it starts to &lt;em&gt;appreciate&lt;/em&gt; to reach its new level (and so we can have &lt;span class=&quot;math-container&quot;&gt;$\dot e&amp;lt;0$&lt;/span&gt;).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question asks about &quot;&lt;strong&gt;fiscal expansion&lt;/strong&gt;&quot;. How is this to be represented in the model? The only possible way is to assume that output can rise due to the fiscal expansion. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A fiscal expansion increases &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; and raises the right-hand-side of &lt;span class=&quot;math-container&quot;&gt;$(2)$&lt;/span&gt;. Assuming that money supply is unchanged (and prices of course sticky), to equilibrate the money market, the local interest rate must now &lt;em&gt;rise&lt;/em&gt; (to reduce demand for money balances that tend to rise to facilitate transactions on the higher &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt;). Turning to &lt;span class=&quot;math-container&quot;&gt;$(1)$&lt;/span&gt;, with a higher local interest rate, we need expectations for currency &lt;em&gt;depreciation&lt;/em&gt; (&lt;span class=&quot;math-container&quot;&gt;$\dot e &amp;gt;0$&lt;/span&gt;) in order for UIRP to hold. But a fiscal expansion, be it temporary or permanent, given a full-employment output or not, is usually associated with local currency &lt;em&gt;appreciation&lt;/em&gt; (higher &lt;span class=&quot;math-container&quot;&gt;$e$&lt;/span&gt;).&lt;br&gt;&#xA;&lt;strong&gt;So it appears that here too the overshooting effect obtains&lt;/strong&gt;: the local currency jumps and appreciates by more than it is consistent with the fiscal expansion, and then it starts to depreciate, and we obtain the needed &lt;span class=&quot;math-container&quot;&gt;$\dot e &amp;gt;0$&lt;/span&gt;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Let's put this in a (semi) phase diagram&lt;/strong&gt;. We need a bit more specification, how the exchange rate and the price level change. Denoting &lt;span class=&quot;math-container&quot;&gt;$\bar e$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\bar p$&lt;/span&gt; their long-run equilibrium values, we specify&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\dot e = \theta(\bar e -e)\; \;\;\;\text{eq.}(3a)\\ \dot p = -v(p-\bar p)\; \;\;\;\text{eq.}(3b)$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Notes:&lt;/strong&gt; Both parameters are positive. The above look like ad-hoc &quot;adaptive&quot; schemes, but: the &lt;span class=&quot;math-container&quot;&gt;$\theta$&lt;/span&gt; parameter can be determined so as to be compatible with rational expectations, the &lt;span class=&quot;math-container&quot;&gt;$v$&lt;/span&gt; parameter is essentially determined endogenously, while the sluggishness of the price level is an  a priori assumption. This means that while both are governed optimally by a differential equation, the exchange rate &lt;em&gt;can jump&lt;/em&gt;, while the price level &lt;em&gt;cannot&lt;/em&gt; -it is &quot;slaved&quot; to its differential equation, while the exchange rate is only &lt;em&gt;optimally&lt;/em&gt; characterized by its own equation, not chained to it.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;By setting &lt;span class=&quot;math-container&quot;&gt;$\dot e=0$&lt;/span&gt; we can obtain the expression for the long-run price level:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\bar p = m+\lambda i^* - \phi y \Rightarrow m = \bar p-\lambda i^* + \phi y\tag{4}$$&lt;/span&gt;&#xA;Inserting equation &lt;span class=&quot;math-container&quot;&gt;$(3a)$&lt;/span&gt; into &lt;span class=&quot;math-container&quot;&gt;$(1)$&lt;/span&gt;, then &lt;span class=&quot;math-container&quot;&gt;$(1)$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$(4)$&lt;/span&gt; into &lt;span class=&quot;math-container&quot;&gt;$(2)$&lt;/span&gt;, we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\bar p-\lambda i^* + \phi y -p = -\lambda[i^*+ \theta(\bar e -e)] +\phi y$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Simplifying and re-arranging we get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ e = \bar e -\frac {1}{\lambda \theta}(p-\bar p) \equiv QQ\tag{5}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Equation &lt;span class=&quot;math-container&quot;&gt;$(5)$&lt;/span&gt; is the &lt;em&gt;saddle-path&lt;/em&gt; of the economy in the &lt;span class=&quot;math-container&quot;&gt;$e-p$&lt;/span&gt; space (although in Dornbusch's paper time it was rarely called that). And it alone can tell us about overshooting. Note that the current exchange rate level depends positively on both its long-run value but also on the long-run price level. Following Dornbusch, we normalize the initial relative price of local to foreign output to unity, and so we have that &lt;span class=&quot;math-container&quot;&gt;$\bar e = \bar p$&lt;/span&gt;. This means that in the &lt;span class=&quot;math-container&quot;&gt;$e-p$&lt;/span&gt; space the long-run equilibrium will be on the &lt;span class=&quot;math-container&quot;&gt;$45^{\text{o}}$&lt;/span&gt; line. Putting &lt;span class=&quot;math-container&quot;&gt;$p$&lt;/span&gt; on the vertical axis, the &lt;span class=&quot;math-container&quot;&gt;$QQ$&lt;/span&gt; schedule will be downward sloping. Then the phase-diagram (without fixed-point loci, we don't need them since we have the saddle-path) is, for the case of a fiscal expansion,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/hm7Y4.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We assume that we start at the long-run equilibrium point &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt;, (and we will discuss this point later). Then, fiscal expansion happens. If it is permanent, it is associated with long-run currency appreciation and a lower long-run price level. This means that the saddle-path of the economy moves permanently to the left and becomes the &lt;span class=&quot;math-container&quot;&gt;$Q'Q'$&lt;/span&gt; schedule. How can the economy find itself on the new saddle-path? It must jump. But it cannot jump vertically because prices are sticky. It can only jump &lt;em&gt;horizontally&lt;/em&gt;: so it goes from point &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt; to point &lt;span class=&quot;math-container&quot;&gt;$B$&lt;/span&gt; which is one the new saddle-path, and then starts to travel towards the new equilibrium, that is point &lt;span class=&quot;math-container&quot;&gt;$C$&lt;/span&gt;. But at &lt;span class=&quot;math-container&quot;&gt;$B$&lt;/span&gt; corresponds exchange rate &lt;span class=&quot;math-container&quot;&gt;$e_B&amp;lt;\bar e_2$&lt;/span&gt;, the latter being the new long-run equilibrium exchange rate. And lower &lt;span class=&quot;math-container&quot;&gt;$e$&lt;/span&gt; means &lt;em&gt;more&lt;/em&gt; appreciated currency. So the exchange rate &quot;overshoots&quot; the appreciation level, and then starts to depreciate as the economy moves towards &lt;span class=&quot;math-container&quot;&gt;$C$&lt;/span&gt;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume that the fiscal expansion is considered &quot;temporary&quot; (for decades, this was a good laugh in real-world macroeconomics -not so in the last couple of years). Still, even though the long-run equilibrium point remains &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt;, there is short-term and mid-term horizons that must adjust. Here the point &lt;span class=&quot;math-container&quot;&gt;$C$&lt;/span&gt; is some sort of &quot;temporary&quot; equilibrium point, which subsequently will start again to approach &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt;. But the initial adjustment will happen exactly in the same way, and we will have overshooting.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Imagining a monetary expansion, amounts to shift the saddle-path outwards -and obtain overshooting related to depreciation.   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;A final note:&lt;/strong&gt; if one plays around with the diagram, he will realize that &#xA;&lt;strong&gt;if we do &lt;em&gt;not&lt;/em&gt; start at the long run-equilibrium level, and if we are sufficiently far away from equilibrium on the &lt;span class=&quot;math-container&quot;&gt;$QQ$&lt;/span&gt; schedule, we may obtain &lt;em&gt;undershooting&lt;/em&gt; in either case of policy.&lt;/strong&gt; For the case at hand (fiscal expansion), imagine that we are at point &lt;span class=&quot;math-container&quot;&gt;$D$&lt;/span&gt; on &lt;span class=&quot;math-container&quot;&gt;$QQ$&lt;/span&gt; that at the time of the expansion corresponds to a price level &lt;em&gt;below&lt;/em&gt; the one that corresponds to new equilibrium point &lt;span class=&quot;math-container&quot;&gt;$C$&lt;/span&gt;, and we are moving upwards towards &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt;. When the fiscal expansion happens and the new saddle-path is &lt;span class=&quot;math-container&quot;&gt;$Q'Q'$&lt;/span&gt; we will jump horizontally alright -but we will jump on the &lt;em&gt;upward moving&lt;/em&gt; part of the new schedule (draw an horizontal line from &lt;span class=&quot;math-container&quot;&gt;$D$&lt;/span&gt; to see that), i.e. we will &lt;em&gt;undershoot&lt;/em&gt; the needed appreciation, and then we will gradually continue to appreciate the currency.&#xA;But this case is not unique to the fiscal expansion scenario -it can also happen in the monetary expansion scenario.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But if in principle the model permits everything to happen, why everybody went bonkers over Dornbusch paper back then, and it continues to be considered one of the high peaks of economic theory? For the historical framework &lt;a href=&quot;http://www.imf.org/external/np/speeches/2001/112901.htm#P41_10723&quot; rel=&quot;nofollow noreferrer&quot;&gt;one can read this&lt;/a&gt;. The fact that the model offered a clear and &lt;em&gt;optimizing&lt;/em&gt; reasoning to account for the continuous ups-and-downs of the exchange rates (a new &quot;bizarre&quot; phenomenon at the time) I guess was reason enough (and also perhaps because open economies sufficiently far away from the equilibrium point of their nominal variables are not considered very likely -prices do adjust, after all).&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="1601" LastEditDate="2019-11-30T09:58:52.217" LastActivityDate="2019-11-30T09:58:52.217" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="1610" PostTypeId="2" ParentId="1607" CreationDate="2014-12-14T19:33:15.573" Score="6" Body="&lt;p&gt;(Note that this answer implicitly makes reference to the specific model in Lee and Saez.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Short answer:&lt;/strong&gt; the increased taxes on high-skilled workers exactly offset the higher real wages they obtain from a decline in the minimum wage for low-skilled workers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Longer answer:&lt;/strong&gt; Suppose that I'm the government, and I decide to lower the minimum wage $\bar{w}$. The direct effect will make low-skilled workers currently earning the minimum wage worse off, while making high-skilled workers better off. (The fall in low-skilled wages means an increase in high-skilled wages.) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Furthermore, a lower minimum wage means that fewer low-skilled workers will be rationed out of the labor market. These workers will be better off.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As the government, I want to turn this into a Pareto improvement - which it currently isn't, because workers who are already earning the minimum wage are hurt by the decrease. I try the simplest possible offset: I adjust taxes so that everyone's after-tax wage rate is &lt;em&gt;exactly&lt;/em&gt; the same as before. The combination of this tax rate change and the minimum wage decrease means that everyone's welfare is unchanged, &lt;em&gt;except&lt;/em&gt; for some low-skilled workers who were previously unemployed and now can work. These workers are better off - hence overall we have a Pareto improvement. Great!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There's only one catch: I didn't verify that this policy was feasible for the government. Maybe the proposed change in tax rates would violate the government's budget constraint. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is where some slightly more involved logic comes in, and it's useful to think about the infinitesimal case for simplicity. Before the policy change, output is produced by a mix of low- and high-skilled workers, who I'll call the &quot;old&quot; workers. The minimum wage increase leads to additional low-skilled workers entering the mix; I'll call them the &quot;new&quot; workers. These new workers produce additional output and earn income. At the margin, though, (pretax) wage equals marginal product - so when an infinitesimal number of new workers is added, they increase output by exactly as much as they draw away in earnings, and the total earnings of the &lt;em&gt;old&lt;/em&gt; workers are unchanged. There's a redistribution in earnings among the old workers, toward the high-skilled and away from the low-skilled, but this is just a zero-sum redistribution, and the government can use taxes to reverse a zero-sum redistribution while maintaining a balanced budget - so this part is fine.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;All we need to worry about now is the budgetary impact of the &lt;em&gt;new&lt;/em&gt; low-skilled workers. But this is simple: we're initially taxing low-skilled work at some rate $\tau_1$, and the net budgetary effect of more low-skilled entry will be positive (even after the infinitesimal decrease in $\tau_1$ that's part of the reform) as long as $\tau_1&amp;gt;0$. New workers are good for the budget as long as their tax rate is positive.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So that wraps it up: we see that there is a potential Pareto improvement involving a decrease in the minimum wage and an offsetting change in tax rates, and this policy change is feasible as long as the initial tax rate on minimum wage work is positive: $\tau_1&amp;gt;0$. Lee and Saez emphasize this point (in conjunction with their other results) to demonstrate that in their model, the minimum wage can only be rationalized as a policy that's complementary to a labor subsidy $\tau_1\leq 0$. They really like this purported complementarity, and it's one of the most popular current arguments in favor of minimum wages.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(I happen to think that the way they prove this complementarity, which relies on the assume-a-can-opener assumption of efficient labor market rationing, is incredibly silly. But that's a different part of the paper, not directly related to your question here.)&lt;/p&gt;&#xA;" OwnerUserId="405" LastEditorUserId="405" LastEditDate="2014-12-15T00:00:33.967" LastActivityDate="2014-12-15T00:00:33.967" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1611" PostTypeId="2" ParentId="132" CreationDate="2014-12-14T19:49:16.203" Score="4" Body="&lt;p&gt;One recent paper that is being positioned as a very wide-ranging theory of bounded rationality (although certainly it doesn't come close to capturing every insight in the field) is &lt;a href=&quot;http://pages.stern.nyu.edu/~xgabaix/papers/sparsebr.pdf&quot; rel=&quot;nofollow&quot;&gt;Gabaix's forthcoming QJE, A Sparsity-Based Model of Bounded Rationality&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Gabaix formulates a fairly general model where agents can rationally decide to pay limited attention to each economic variable (depending on its importance), and derives the consequences for the classic features of consumer theory, general equilibrium, and so on. Since this is not my field, I am not completely sure how this paper differs from the preexisting literature on rational inattention, but it does seem quite general and ambitious.&lt;/p&gt;&#xA;" OwnerUserId="405" LastActivityDate="2014-12-14T19:49:16.203" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="1612" PostTypeId="2" ParentId="97" CreationDate="2014-12-14T20:09:57.893" Score="4" Body="&lt;p&gt;Expanding on jmbejara's answer and your question about integration, there are really three steps here:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Solve the HJB equation $\rho V(k) = \max_c g(c)+V'(k)(z-c)$. (You're already done this.)&lt;/li&gt;&#xA;&lt;li&gt;Obtain the policy function $c(k)=\text{argmax}_c g(c)+V'(k)(z-c)$. (You presumably already did this while solving the HJB.)&lt;/li&gt;&#xA;&lt;li&gt;Substitute $c(k)$ into the law of motion for $k$ and numerically solve that differential equation for $k(t)$:$$\dot{k}=z-c(k)$$&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;It sounds like you already had (1) and (2) and were just unsure about what exactly to do in (3). If you're working in a deterministic environment (and from the HJB it looks like you are), no discretization on your part is necessary: you can just use a canned ODE solver from Matlab or any other software package to numerically solve the differential equation above for $k(t)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To be a little more specific: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;If the HJB is simple and you have an analytical solution for $V(k)$, and thus can easily compute $c(k)$ as well, that's great. You can just plug $c(k)$ into the law of motion for $k$ and tell your software package of choice to solve it and obtain the trajectory of $k(t)$.&lt;/li&gt;&#xA;&lt;li&gt;If you had to numerically solve the HJB, then that's great because it means that you probably have already used some kind of numerical ODE solution technique and will be familiar with it. On the minus side, it means that when you initially obtain $V(k)$ and $c(k)$, you'll only get it for a grid of $k$, rather than having some kind of formula you can apply everywhere - which is a problem, because you'll need to be able to determine $c(k)$ at any point $k$ in a continuum if you're going to numerically solve the $\dot{k}$ differential equation for $k(t)$. The simplest way around this, to my knowledge, is to fit a spline to (or use some other approximation method on) the discrete grid of $(k_{grid},c(k_{grid}))$ values that you have. Then you can obtain an approximate value of $c(k)$ anywhere that's covered by the spline, and it will be extremely accurate assuming that your ODE is well-behaved and you have a dense grid.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Things get more complicated in a stochastic environment, but your case looks deterministic. (And to be clear, I'm just a dabbler here: numerical methods are not my area of expertise. But this is what I know.)&lt;/p&gt;&#xA;" OwnerUserId="405" LastActivityDate="2014-12-14T20:09:57.893" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1613" PostTypeId="2" ParentId="194" CreationDate="2014-12-14T20:47:38.493" Score="13" Body="&lt;p&gt;This is surprisingly subtle. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;When, for instance, when bank A in the Richmond Federal Reserve district sends $1000 in reserves to bank B in the Minneapolis Federal Reserve district, reserves are taken out of bank A's account at the Richmond Fed and placed into bank B's account at the Minneapolis Fed. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, bank A's reserves are a liability on the books of the Richmond Fed, while bank B's reserves are a liability on the books of the Minneapolis Fed. Without any offsetting change, therefore, the process would result in the Richmond Fed discharging a liability and the Minneapolis Fed gaining a liability - and if this continued, regional Fed assets and liabilities could become highly mismatched. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The principle, then, is that there should be an offsetting swap of assets. It would be too complicated to swap actual assets every time there is a flow of reserves between banks in different districts. (There's over &lt;a href=&quot;https://www.frbservices.org/operations/fedwire/fedwire_funds_services_statistics.html&quot;&gt;$3 trillion in transactions every day on Fedwire, the Fed's RTGS system&lt;/a&gt; - and if even a fraction of those are between different districts, the amounts are really enormous.) Instead, in the short run the regional Feds swap accounting entries in an &quot;Interdistrict Settlement Account&quot; (ISA). In the example above, the Minneapolis Fed's ISA position would increase by \$1000, while the Richmond Fed's ISA position would decrease by \$1000, to offset the transfer of liabilities.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So far, this is all very similar to the controversial TARGET2 system in the Euro area, in which large balances between national banks have recently been accumulating. The American system is different, however, because ISA entries are &lt;em&gt;eventually&lt;/em&gt; settled via transfers of assets. Every April, the average ISA balance for each regional Fed over the past year is calculated, and this portion of the balance is settled via a transfer of assets in the System Open Market Account (the main pile of Fed assets, run by the New York Fed). Hence, if in April the Minneapolis Fed has an ISA balance of +\$500, but over the past year it had an average balance of +\$2000, its balance is decreased (by \$2000) to -\$1500, and it has an offsetting gain of \$2000 in SOMA assets. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As this example shows, since it is &lt;em&gt;average&lt;/em&gt; balances over the past year that are settled, not the &lt;em&gt;current&lt;/em&gt; balances, ISA balances do not necessarily go to zero every April. Historically, they were fairly tiny anyway, but since QE brought dramatic increases in reserves, these balances have &lt;a href=&quot;http://research.stlouisfed.org/fred2/series/D2WAISAL&quot;&gt;sometimes been large and irregular&lt;/a&gt;. In the long run, though, the system prevents any persistent imbalances from accumulating.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Note: the process in April is a little bit more complicated than I describe, since some minor transfers of gold certificate holdings are also involved. Basically, gold certificates are transferred between regional Feds to maintain a constant ratio of gold certificates to federal reserve notes; the transfers of SOMA assets are adjusted to account for this. &lt;a href=&quot;https://www.richmondfed.org/publications/research/economic_quarterly/2013/q2/pdf/wolman.pdf&quot;&gt;Wolman's recent piece for the Richmond Fed&lt;/a&gt; is one of the few sources that describes the system in detail.)&lt;/p&gt;&#xA;" OwnerUserId="405" LastActivityDate="2014-12-14T20:47:38.493" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1614" PostTypeId="1" AcceptedAnswerId="1649" CreationDate="2014-12-14T20:55:10.480" Score="6" ViewCount="6222" Body="&lt;p&gt;I am told very firmly by an economist that a pegged exchange rate is NOT the same thing as a fixed exchange rate. So what, if any, is the difference between the two?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Addendum: Here's one &lt;a href=&quot;http://www.investopedia.com/exam-guide/cfa-level-1/global-economic-analysis/fixed-pegged-exchange.asp&quot; rel=&quot;nofollow&quot;&gt;webpage&lt;/a&gt; about the difference. I am looking for simple explanation of the difference and ideally also some good and simple contrasting examples.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Add2: Robert Mundell has a lengthy classification &lt;a href=&quot;http://policyoptions.irpp.org/issues/one-world-one-money/one-world-one-money/&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;, but it seems to me that his distinction is not one of kind, but merely one of degree. &lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastEditorDisplayName="user18" LastEditDate="2014-12-15T14:02:01.257" LastActivityDate="2015-09-11T23:35:57.317" Title="Fixed vs pegged exchange rate: What's the difference (if any)?" Tags="&lt;international-economics&gt;" AnswerCount="2" CommentCount="6" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1616" PostTypeId="1" AcceptedAnswerId="1651" CreationDate="2014-12-14T22:58:04.613" Score="16" ViewCount="975" Body="&lt;p&gt;In the standard discrete time economies with a finite number of states, $n$, a complete markets economy is simply an economy with $n$ independent assets (Think Ljunqvist and Sargent Chapter 8).  This is because $n$ independent assets is sufficient to span the set of states tomorrow.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I had a discussion with a professor last week in which he stated that one of the conveniences of continuous time when thinking about asset pricing is that within a continuous time economy one can get complete markets simply with a risk-free bond and a risky asset (independent) for each Brownian motion in the economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;He explained it as we talked, so I think I mostly understand it, but was wondering if someone would mind writing down the details?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I will probably spend a day or two this week on it (depends on some of the properties of the differential calculus), so if no one else answers the question then hopefully I can provide a satisfactory answer.&lt;/p&gt;&#xA;" OwnerUserId="47" LastActivityDate="2020-06-02T14:05:15.527" Title="Complete Markets in Continuous Time" Tags="&lt;macroeconomics&gt;&lt;mathematical-economics&gt;&lt;continuous-time&gt;&lt;complete-markets&gt;" AnswerCount="3" CommentCount="1" FavoriteCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="1617" PostTypeId="2" ParentId="294" CreationDate="2014-12-15T00:50:22.413" Score="4" Body="&lt;p&gt;Below I'll give you a partial answer by talking about research on poverty traps.  Before that, though, let me point out that it is a bit difficult to find any theory that is not motivated by observations.  Theories of poverty often have a trap because theorists want to explain why there are locations in the world where everyone is poor, and other places where everyone is rich.  Multiple equilibria is one popular way to explain this simple fact.  My development prof in grad school would always hide a slide with Admiral Ackbar somewhere in the discussion of a new development model: &quot;It's a trap!&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Maybe the first model of a poverty trap was the big push model of Paul Rosenstein-Rodan in 1943.  Rosenstein-Rodan built on insights from the work of Allyn Young who died in 1929.  Due to externalities, the investment by individual firms is not enough to lift a country out of poverty.  The government needs to come in and subsidize large investment projects.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The more recent poverty trap literature is legion.  I doubt it is their original idea, but Banerjee and Duflo talk about the nutritional poverty trap in their recent book, &quot;Poor Economics&quot;.   If you are too weak to work, you can't get money to buy healthy food.  You need healthy food to make you strong enough to work.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If there is learning by doing, economic specialization can be harmful.  Alwyn Young (1991) is about how opening up to trade can lead poor countries to specialize in traditional industries which have no room for productivity improvements.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Rather than go any farther into the taxonomy of poverty traps, I will just direct you to a fairly recent survey by Stachurski and Azariades (2005) which discusses many other mechanisms which lead to a poverty trap.&lt;/p&gt;&#xA;" OwnerUserId="1441" LastActivityDate="2014-12-15T00:50:22.413" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1618" PostTypeId="1" AcceptedAnswerId="3150" CreationDate="2014-12-15T01:04:46.250" Score="9" ViewCount="229" Body="&lt;p&gt;One of the fundamental results in epistemic game theory is that the solution concept of &lt;em&gt;correlated rationalizability&lt;/em&gt; gives exactly those action profiles that are compatible with rationality and common belief in rationality. A precise statement and formulation of this result is given in &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Tan, Tommy Chin-Chiu, and Sérgio Ribeiro da Costa Werlang. &quot;The&#xA;  Bayesian foundations of solution concepts of games.&quot; &lt;em&gt;Journal of&#xA;  Economic Theory&lt;/em&gt; 45.2 (1988): 370-391.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;as Theorem 5.2 and Theorem 5.3. An alternative reference often cited for this result (at least in the context of finite games, Tan &amp;amp; Werlang allow for compact metric action spaces) is &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Brandenburger, Adam, and Eddie Dekel. &quot;Rationalizability and&#xA;  correlated equilibria.&quot; Econometrica: Journal of the Econometric&#xA;  Society (1987): 1391-1402.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;For example, the survey on epitemic game theory in the fourth volume of the handbook of game theory credits Brandenburger &amp;amp; Dekel for this result (&lt;a href=&quot;https://c92d0541-a-62cb3a1a-s-sites.googlegroups.com/site/eddiedekelsite/EpistemicGameTheory-130326.pdf?attachauth=ANoY7cps6Rt9t8BHAt5jqUXK4DlafRwpMzlsT_oMieCrXMlGJz1AMJwODmMVmtQaNtFjR8cs1mj_mXtrXoIZL6bzTgKNwwxm4spccFUheStoyQmTq0NtfpZ2hqoThby97f84NZdM-vEQWBTt_JP8tz-2iwDw4t0rlCqRkRloyiyMZRXErEIcE7SbEkXdaTUzx-9jp8Pn_d4I8O8ZTJ2UIg0ez-zuBj1OXFdQl-QReYlLo9-i4td0I6s%3D&amp;amp;attredirects=0&quot;&gt;online version&lt;/a&gt;, see Theorem 1 there). I have actually seen many such references but was not able to locate the result in their paper. That paper contains 4 propositions and none of them corresponds to this result. The authors actually credit Tan &amp;amp; Werlang and write &quot;Tan and Werlang (1984) and Bernheim (1985) provide formal proofs of the equivalence between rationalizability and common knowledge of rationality.&quot; (Tan &amp;amp; Werlang 1984 is the working paper version).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;What am I missing that everyone else gets?&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="1442" LastActivityDate="2015-02-23T02:05:38.450" Title="Rationality and Common Belief in Rationality in Brandenburger &amp; Dekel (1987)" Tags="&lt;mathematical-economics&gt;&lt;game-theory&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="1620" PostTypeId="1" CreationDate="2014-12-15T02:00:23.037" Score="10" ViewCount="363" Body="&lt;p&gt;This is a test balloon to see whether these kinds of questions are appreciated/welcome on Econ.SE:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I had a hard time grasping &lt;a href=&quot;http://www.nber.org/papers/w20441&quot;&gt;Straub and Werning (2014)&lt;/a&gt; (&lt;a href=&quot;https://dl.dropboxusercontent.com/u/125966/reappraisal%20chamley-judd_aug.pdf&quot;&gt;no paywall&lt;/a&gt;). I understand the general environment, but could someone explain intuitively what exactly the mistake in the original Chamley-Judd calculations was, related to the optimality of zero-capital taxation?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can download Judd's 1985 paper, &lt;a href=&quot;http://down.cenet.org.cn/upfile/8/20049291682129.pdf&quot;&gt;here.&lt;/a&gt; and Chamley's 1986 paper, &lt;a href=&quot;http://hassler-j.iies.su.se/COURSES/DynPubFin/Papers/Chamley86.pdf&quot;&gt;here.&lt;/a&gt; &lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="61" LastEditDate="2014-12-15T03:57:18.293" LastActivityDate="2014-12-18T16:00:40.867" Title="Straub and Werning, 2014, on zero capital taxation" Tags="&lt;macroeconomics&gt;&lt;taxation&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="1621" PostTypeId="1" AcceptedAnswerId="1624" CreationDate="2014-12-15T02:38:12.183" Score="22" ViewCount="2216" Body="&lt;p&gt;The Nash Equilibrium provided a new look at certain economic problems and won the Nobel Memorial Prize in Economic Sciences in 1994.  Since its creation, the Nash Equilibrium has been applied to &amp;quot;international relations&amp;quot; specifically for war and arms-race scenarios. However, has the Nash Equilibrium lead to any significant economic discoveries?&lt;/p&gt;&#xA;&lt;p&gt;I had heard rumors of the Nash Equilibrium being applied to bank-runs and other financial crises but nothing to back it up.&lt;/p&gt;&#xA;" OwnerUserId="27" LastEditorUserId="8481" LastEditDate="2021-04-13T13:03:20.360" LastActivityDate="2021-04-13T13:03:20.360" Title="Has the Nash Equilibrium led to any significant economic discoveries?" Tags="&lt;game-theory&gt;&lt;empirical-evidence&gt;&lt;nash-equilibrium&gt;" AnswerCount="4" CommentCount="10" FavoriteCount="10" ContentLicense="CC BY-SA 4.0" />
  <row Id="1622" PostTypeId="2" ParentId="1621" CreationDate="2014-12-15T03:22:11.900" Score="12" Body="&lt;p&gt;You're not alone in your skepticism of the relevance of game theory.&#xA;Some of the greats, including Gary Becker, were at times dismissive of the practical/empirical importance of game theory (see the introduction/preface of his Economic Theory book). No doubt it is in a way foundational to the economic sciences (see &lt;a href=&quot;http://home.uchicago.edu/rmyerson/research/jelnash.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Myerson's great essay on Nash's accomplishment&lt;/a&gt;, and for other references see &lt;a href=&quot;https://mathoverflow.net/questions/162836/why-was-john-nashs-1950-game-theory-paper-such-a-big-deal/162860#162860&quot;&gt;this question on math overflow&lt;/a&gt;), but there is plenty of skepticism over its empirical importance. For more info and references, take a look at this paper by Chiappori, Levitt, and Groseclose, &lt;a href=&quot;http://pricetheory.uchicago.edu/levitt/Papers/ChiapporiGrosecloseLevitt2002.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;&quot;Testing Mixed-Strategy Equilibria When Players are Heterogeneous: The Case of Penalty Kicks in Soccer&quot;&lt;/a&gt; (American Economic Review, 2002).&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The concept of mixed strategy is a fundamental component of game theory, and its normative importance is undisputed. However, its empirical relevance has sometimes been viewed with skepticism. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This paper tries to overcome some of the difficulties associated with formulating a convincing test of the hypothesis that people play mixed strategies. There are plenty&#xA;of other papers on the topic, but I think this one is relatively well known.&lt;/p&gt;&#xA;" OwnerUserId="59" LastEditorUserId="-1" LastEditDate="2017-04-13T12:58:47.567" LastActivityDate="2014-12-15T03:22:11.900" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="1624" PostTypeId="2" ParentId="1621" CreationDate="2014-12-15T11:24:35.563" Score="17" Body="&lt;p&gt;Two areas that have been profoundly affected by game theoretic research stemming from Nash's contribution are&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Oligopoly theory&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;There are actually a few examples of what would come to be known as Nash equilibrium in the industrial organization literature that predate Nash's work (for example, Cournot's 1838 analysis of oligopoly competition). However, until Nash (and Selten, Harsanyi, and others) made game theory a general purpose tool, industrial economics was primarily focused on relatively naive models of competition. In the last 30-40 years there has been a revolution in industrial organisation as economists have used game theory to essentially reinvent the study of market competition around oligopoly theory and the study of strategic interaction. Our modern understanding of consumer search, limit pricing, strategic entry and entry deterrance, predatory pricing, strategic advertising, switching costs, product differentiation, platform competition, horizontal and vertical integration, etc. are all predicated on models that rely mostly on Nash equilibrium (or a refinement thereof) as the solution concept. Jean Tirole was recently awarded the Nobel prize largely for work in this area.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This work has also found great practical application in areas such as antitrust policy. Prior to the 1960s, antitrust enforcement in the US (and, to a large extent, elsewhere) was inconsistent and based on unsound economic principles. A combination of the insistence by scholars (especially those based in Chicago) on more careful analysis, and the new tools of oligopoly theory have lead to a much more robust and well-grounded approach to regulating competition.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Auction theory&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;The study of auctions is game theoretic by its very nature: most auctions involve very direct strategic interaction between a relatively small number of bidders. It should come as little surprise, then, that auction theory essentially did not exist prior to the work of Nash (the formal study of auctions can be traced to W. Vickrey (1961) &quot;&lt;a href=&quot;http://libeccio.di.unisa.it/SocialNetworkAlgo/reading/Vickrey61.pdf&quot;&gt;Counterspeculation, Auctions, and Competitive Sealed Tenders&lt;/a&gt;,&quot; &lt;em&gt;Journal of Finance&lt;/em&gt; 16(1); also the recipient of a Nobel prize).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;None of the cornerstones of auction theory (revenue equivalence, the linkage principle, optimal auctions—source of yet another Nobel prize, etc.) would exist without the solution apparatus that can be traced to Nash. This work, too, has been of great practical importance. From radio spectrum licenses to carbon emissions permits, and from public procurement to Google ad auctions, auction theory has had a significant effect on informing good auction design. See Klemperer (2004) &lt;a href=&quot;http://www.nuff.ox.ac.uk/users/klemperer/VirtualBook/VirtualBookCoverSheet.asp&quot;&gt;Auctions: Theory and Practice&lt;/a&gt;, Princeton University Press for an accessible summary of the theory and its applications.&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2014-12-15T13:25:30.770" LastActivityDate="2014-12-15T13:25:30.770" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="1625" PostTypeId="1" AcceptedAnswerId="1626" CreationDate="2014-12-15T14:24:15.920" Score="8" ViewCount="617" Body="&lt;p&gt;It is unclear to a economic novice like me why OPEC is not cutting down production and raising oil prices. I have read several journalists commenting upon this on the internet but perhaps an economist can explain this current fact better. &lt;/p&gt;&#xA;" OwnerUserId="1445" LastEditorUserId="8481" LastEditDate="2020-05-04T09:32:32.183" LastActivityDate="2020-05-04T09:32:32.183" Title="What benefits do OPEC countries obtain by cutting oil supply?" Tags="&lt;macroeconomics&gt;&lt;commodities&gt;&lt;price-level&gt;&lt;oil&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="1626" PostTypeId="2" ParentId="1625" CreationDate="2014-12-15T15:12:17.000" Score="5" Body="&lt;p&gt;The OPEC scenario is quite well described by a market with &lt;a href=&quot;http://en.wikipedia.org/wiki/Cournot_competition&quot;&gt;Cournot Competition&lt;/a&gt;. That is, while collusion would lead the highest total profits to the sum of the participants, each invididual participant would gain by increasing his production a little bit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Without observing the quantity of each participant and proper enforcement, that's the outcome the model predicts - and reality concurs.&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2014-12-15T15:12:17.000" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="1628" PostTypeId="1" CreationDate="2014-12-15T16:57:39.790" Score="7" ViewCount="153" Body="&lt;p&gt;This question arose from a useful comment I received upon answering a question on this site, and a recent question from a doctoral student.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The so-called theory of general equilibrium (including the many variants) is a cornerstone of economic theory, occupying economists' minds since (at least) the 1800s. Although, like other concepts in economics, different schools of economic thought remain polarised about its &lt;em&gt;usefulness&lt;/em&gt; (both empirically and theoretically) and its &lt;em&gt;falsifiability&lt;/em&gt;, [see Sonnenschein–Mantel–Debreu theorem (1976), positive corner-case results of Brown and Matzkin (1996) and any one of a number of further negative results Nachbar (2004), Kirman (1992), Carvajal (2003),...].&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Post Blanchard's now famous 2008 declaration that &quot;&lt;em&gt;the state of macro is....good&lt;/em&gt;&quot; and the characterization of DSGEs as &lt;em&gt;state-of-the-art&lt;/em&gt;. What is the state of GE theories today? &lt;/p&gt;&#xA;" OwnerUserId="1435" LastActivityDate="2015-01-01T17:33:03.393" Title="State of general equilibrium theories Post Blanchard 2008" Tags="&lt;theory&gt;&lt;general-equilibrium&gt;&lt;dsge&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="1629" PostTypeId="1" CreationDate="2014-12-15T17:31:07.757" Score="3" ViewCount="144" Body="&lt;p&gt;I have been wondering. With OPEC driving down the price of oil in order to stifle the growth of the American oil industry, what can we do about it?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;More specifically, why don't these oil producers simply store the oil that is produced for more than the current per barrel selling rate and then sell the stored oil later when the price inevitably rises once more?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand that many companies have to keep pumping the oil to retain land rights. But I don't see why we can't get around that by pumping it and then storing it somewhere. Preferably on land and in facilities that are already owned. Then when the price goes into the profitable zone you reduce the volume you are pumping out of the ground and replace the output with the stored oil.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, I read that Saudi Arabia is cutting oil production. But that OPEC has taken actions to drive down the cost of oil. Yet I would think that overwhelming the market with supply would be how they drive down prices. So I am confused as to how the production cutting is working.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any thoughts or information?&lt;/p&gt;&#xA;" OwnerUserId="1447" LastActivityDate="2014-12-16T05:38:53.617" Title="With OPEC driving the prices of oil down, can American producers simply store oil produced at higher cost to sell later?" Tags="&lt;macroeconomics&gt;&lt;markets&gt;&lt;international-trade&gt;&lt;financial-markets&gt;&lt;production-function&gt;" AnswerCount="0" CommentCount="8" ClosedDate="2014-12-16T20:04:04.217" ContentLicense="CC BY-SA 3.0" />
  <row Id="1630" PostTypeId="1" CreationDate="2014-12-15T18:27:54.057" Score="1" ViewCount="340" Body="&lt;p&gt;In his hugely successful book, Thomas Piketty writes:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;To be sure, there exists in principle a quite simple economic mechanism that should restore equilibrium to the process: the mechanism of supply and demand. &lt;strong&gt;If the supply of any good is insufficient, and its price is too high, then demand for that good should decrease, which should lead to a decline in its price&lt;/strong&gt;.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This is circular, because a decline in price $p$ would again lead to an increase in quantity demanded $q$ which would again contribute to a situation of excess demand, right?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\text{Excess  demand} \implies p\uparrow \implies q\downarrow \implies p\downarrow \implies d\uparrow \implies \text{Excess demand}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is Mr. Piketty forgetting to consider a possible supply-side reaction to the described excess-demand situation situation? What could be the reasons not to include this? Does it serve his argument? Is it economically as untenable as it appears?&lt;/p&gt;&#xA;" OwnerUserId="337" LastEditorUserId="59" LastEditDate="2014-12-15T21:18:01.253" LastActivityDate="2014-12-15T21:18:01.253" Title="Is this supply and demand reasoning in Picketty's book circular?" Tags="&lt;microeconomics&gt;&lt;supply-and-demand&gt;" AnswerCount="1" CommentCount="5" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="1631" PostTypeId="1" CreationDate="2014-12-15T20:15:25.677" Score="0" ViewCount="190" Body="&lt;p&gt;Malthusians and Neo-Malthusians believe that, eventually, the population of the earth will be exceed the number of people able to be sustained by the earth's food production.  As such, they advocated different forms of population control.&lt;br&gt;&#xA;However, it appears that an increase in the population beyond that of the food supply would cause an increase in the overall &lt;strong&gt;real&lt;/strong&gt; price for food.&lt;br&gt;&#xA;Proponents of Malthusianism, evidently, are not waiting for food prices to rise before advocating population control, but I do not see how we should be worried until the &lt;strong&gt;real&lt;/strong&gt; price of food increases.&lt;br&gt;&#xA;If Malthusianism is correct, how soon before the population crash would prices begin to rise? &lt;/p&gt;&#xA;" OwnerUserId="27" LastActivityDate="2014-12-20T05:46:08.043" Title="When would prices increase according to Malthusianism?" Tags="&lt;supply-and-demand&gt;&lt;price-level&gt;" AnswerCount="1" CommentCount="13" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1632" PostTypeId="1" AcceptedAnswerId="1637" CreationDate="2014-12-15T20:23:34.000" Score="5" ViewCount="299" Body="&lt;p&gt;The following historical graph of US Marketable Natural Gas volume has me puzzled:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/xhmZD.png&quot; alt=&quot;US Marketable Natural Gas 1900-2015&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How was the gas used in 1970 (a peak production period), given that we would seem to be using a lot more gas now? Normally, I think of natural gas as having relatively inelastic demand because it relies on fixed distribution networks which are time-consuming and expensive to build. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In 2010, the graph shows &lt;em&gt;less&lt;/em&gt; gas being produced than in 1970, but considering the huge increase in the retail use of natural gas for heating in recent decades, how can this be? Apparently there was some huge, elastic demand in 1970, which I presume was some industrial process. What would that have been? Before you say &quot;power generation&quot; look at this graph:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/2tEXL.jpg&quot; alt=&quot;power generation from natural gas&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, we are using a LOT more natural gas now compared to 1970 both in homes and for power generation. So, what is this huge extra use of natural gas in 1970? Where was it going?&lt;/p&gt;&#xA;" OwnerUserId="1448" LastEditorUserId="44" LastEditDate="2014-12-16T19:01:12.530" LastActivityDate="2014-12-16T19:01:12.530" Title="Usage of natural gas in 1970 (where was the demand elasticity?)" Tags="&lt;microeconomics&gt;&lt;supply-and-demand&gt;&lt;usa&gt;&lt;energy-economics&gt;&lt;commodities&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="1633" PostTypeId="2" ParentId="1630" CreationDate="2014-12-15T21:03:43.913" Score="3" Body="&lt;p&gt;The quote describes a &lt;em&gt;very specific situation&lt;/em&gt;, which is &lt;em&gt;not&lt;/em&gt; the general description through which the &quot;law of supply and demand&quot; is presented in non-technical terms.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It says&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;If the supply of any good is insufficient&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The correct term would be &quot;&lt;em&gt;quantity supplied&lt;/em&gt; at a specific point in time&quot;. Then the &quot;insufficient&quot; part, supposedly means &quot;quantity supplied is less then quantity demanded&quot;. Ok. Then it says &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;and its price is too high&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So not only suppliers bring in the market a lower quantity that the quantity demanded by the consumers, they also &quot;charge&quot; a &quot;too high&quot; price... &quot;too high&quot; with respect to what? Presumably the consumers' &quot;willingness to pay&quot;?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the first part of the quote describes consumers that have a priori specified &lt;em&gt;both&lt;/em&gt; quantity desired &lt;em&gt;and&lt;/em&gt; maximum acceptable unit price: &quot;I want to buy 4 kgr of bread &lt;em&gt;but at a price of no more than 0.5 euro/ Kgr&lt;/em&gt;.&quot; I understand that this sounds familiar: we tend to determine our needs/wants both in terms of quantity and we have some idea about what a &quot;reasonable price&quot; could be, by our past experience.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But once a consumer has specified &lt;em&gt;two&lt;/em&gt; aspects &lt;em&gt;distinctly&lt;/em&gt;, it must also &lt;em&gt;decide on priority&lt;/em&gt;, if any: if the price is above 0.5 euros/Kgr, will he buy nothing? if this is case, then this consumer has &quot;lexicographic preferences&quot; over the unit price: he cares first for the unit price, and &lt;em&gt;then&lt;/em&gt; for satisfying his needs through the consumption of bread. If the unit price is not right, &lt;strong&gt;&lt;em&gt;he won't buy at all.&lt;/em&gt;&lt;/strong&gt; &lt;strong&gt;This is a special situation&lt;/strong&gt;, not just theoretically, but as to the degree it represents the &quot;majority&quot; of consumer behavior as observed in practice.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But ok, let's analyze the &lt;strong&gt;special&lt;/strong&gt; situation presented in the quote.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The bakery has only 2 kgr and sells for 1 euro/Kgr. I won't buy at all, &lt;em&gt;because the unit price is not right&lt;/em&gt;. I don't care whether the baker brings in 2 more Kgr to reach 4 - as long as &quot;the price is not right&quot;, I am not buying. So for this special case, &quot;supply responses&quot; are irrelevant. Now if the baker lowers the price to 0.5 euro per Kgr, I will buy his 2 kgrs, &lt;strong&gt;(Piketty's quote ends here)&lt;/strong&gt;&lt;br&gt;&#xA;and I will tell him that I am willing to buy 2 more Kgrs &lt;em&gt;as long as he will sell these 2 additional Kgrs also for 0.5 euros&lt;/em&gt;. If the baker agrees, &quot;supply responds&quot; and the price is not raised back. If he brings in the 2 additional Kgrs but raises the price above 0.5 euro/Kgr, they will be left unsold, and we will have &lt;em&gt;excess quantity supplied&lt;/em&gt;, not excess quantity demanded.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;What would be a more  general framework?&lt;/em&gt;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;I will spend 2 euros for bread. if the price is 0.5 euros/Kgr, I will buy 4 kgr. If it is 1 euro/Kgr, I will buy 2 Kgr. Etc&quot;. In other words, through its utility maximization, the consumer will &lt;strong&gt;determine the budget share&lt;/strong&gt; that he will allocate to bread, and quantity demanded will be determined by the price.&#xA;Assume that there exists also a second consumer, that he has decided to allocate 4 euros for bread.&#xA;The baker appears with 4 Kgrs charging 1 euro each.&lt;br&gt;&#xA;The first consumer asks 2 kgrs and the second asks for 4 kgrs, for a total of 6 Kgrs. We have excess quantity demanded, but &lt;em&gt;not&lt;/em&gt; &quot;too high a price&quot;.&lt;br&gt;&#xA;Now, the baker is not in our heads, he does not know the budget shares we have allocated for bread: he thinks &quot;hey, these guys ask for more than I have, so it may be the case that I can still sell my 4 Kgrs for a higher unit price, -they seem to really want that bread so maybe they are willing to pay a higher unit price&quot;.&lt;br&gt;&#xA;He then declares that the price of bread is now 2 euros/Kgr. The first consumer then asks for 1 kgr, the second asks 2 kgr, for a total of 3 Kgrs. Now we have excess quantity supplied. This is how the &quot;cobweb&quot; theorem works bringing market equilibrium.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course the baker could conceivably think &quot;hey, let's make 2 more Kgrs, since these guys ask for 6 Kgrs in total, keeping the price at 1 euro/Kgr&quot;. Whether he will choose to sell his 4 Kgrs for 1.5 euro/Kgr, or 6 Kgrs for 1 euro/Kgr, I will leave for the OP to contemplate.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2014-12-15T21:03:43.913" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1634" PostTypeId="2" ParentId="65" CreationDate="2014-12-16T01:31:42.397" Score="7" Body="&lt;p&gt;The wikipedia quote you've given rather misses the point of the tragedy of the commons.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &quot;tragedy&quot; refers specifically to &lt;a href=&quot;http://dx.doi.org/10.1126/science.162.3859.1243&quot;&gt;Garrett Hardin's hypothesis&lt;/a&gt; that destruction of the commons (that is, a prolonged over-exploitation that massively reduces or terminates the commons' economic value) was &lt;strong&gt;inevitable&lt;/strong&gt;: he quotes Alfred North Whitehead - &lt;em&gt;&quot;the remorseless working of things&quot;&lt;/em&gt; and &lt;em&gt;&quot;the futility of escape&quot;&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &lt;a href=&quot;http://worldcat.org/identities/lccn-n80-1519/&quot;&gt;work&lt;/a&gt; of the late &lt;a href=&quot;http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/2009/ostrom-lecture.html&quot;&gt;Nobel Laureate&lt;/a&gt; Elinor Ostrom is important because it documented several cases where the destruction had been avoided: she refuted the &lt;em&gt;inevitability&lt;/em&gt;. There are particular circumstances where it can be avoided.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So that's not to say that destruction of the commons doesn't happen. It does happen, all over the world, constantly. But it's not &lt;em&gt;inevitable&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The specific conditions where she found the commons being protected, were that there was a group of custodians, numbering from a few up to about 150 (and I don't imagine that I'm the first to speculate that it's not a coincidence that this is close to Dunbar's Number). The custodians were capable guardians who could meet together to discuss the management of the commons, understood the economic costs and benefits, and were able and willing to create rules of custodianship of the commons, to adapt the rules to changing circumstances, and to enforce the rules. These have been characterised by various authors as covering architecture, agency, adaptiveness, accountability, allocation and access.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2014-12-16T01:31:42.397" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1636" PostTypeId="1" AcceptedAnswerId="6757" CreationDate="2014-12-16T06:53:26.910" Score="2" ViewCount="112" Body="&lt;p&gt;I'm an undergraduate student and I'm trying to code the specification testing for Markov-switching model in R, based on the article &quot;Specification Testing in Markov-Switching time series models&quot; &lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/0304407669416869&quot; rel=&quot;nofollow&quot;&gt;Hamilton&lt;/a&gt; 1996.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;More specifically, I don't understand equation 3.12, or maybe I have misunderstood something. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In equation 3.12 you have a term like this &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ = p_{ij}^{-1} p(s_{t}=j,s_{t-1}=i|\Omega_{t})$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But since &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ p(s_{t}=j,s_{t-1}=i|\Omega_{t}) = p_{ij} p(s_{t-1}=i|\Omega_{t})$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;then &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$= p_{ij}^{-1}p_{ij} p(s_{t-1}=i|\Omega_{t}) = p(s_{t-1}=i|\Omega_{t})$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this ok? &lt;/p&gt;&#xA;" OwnerUserId="1452" LastEditorUserId="61" LastEditDate="2014-12-17T02:37:19.743" LastActivityDate="2015-07-30T17:46:57.283" Title="Trouble understanding hamilton 1996 specification testing in MS" Tags="&lt;econometrics&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="1637" PostTypeId="2" ParentId="1632" CreationDate="2014-12-16T07:52:44.383" Score="8" Body="&lt;p&gt;&lt;strong&gt;tl;dr: it's basic engineering: efficiencies improved between 1970 and 2010. Additionally, net USA imports increased from 0.75 trillion cubic feet in 1970 to 3.8 trillion cubic feet in 2007&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think there may be some misunderstandings. Firstly: the first chart shows domestic gas production. &quot;Domestic&quot; doesn't refer to residential-only use - it just means natural gas produced &lt;em&gt;within&lt;/em&gt; country, rather than imported by pipeline or on ship. Secondly: the second graph does &lt;strong&gt;not&lt;/strong&gt; show the amount of gas uesd to generate electricity. It shows the amount of electricity generated by gas. There's a huge difference. The latter is the former multiplied by the volume-weighted efficiency of the generation fleet. And thirdly, you discuss the lack of responsiveness because of the need for gas infrastructure, but the period under consideration is 40 years, which &lt;em&gt;is&lt;/em&gt; the long run: that's sufficient time for replacement of capital; pretty much all costs are variable over 40 years in gas.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Just because there may have been an increase in demand for gas-fuelled energy services, does not mean there has been a big increase in demand for gas, for example, when part of the increase in demand is stimulated by improvements in energy efficiency.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The USA has two sources of natural gas: domestic production, and imports. One of the ways you get a disconnect between local production and local consumption is a change in net imports, which is what happened:  &lt;a href=&quot;http://www.eia.gov/dnav/ng/ng_move_ist_a2dcu_nus_a.htm&quot;&gt;net USA imports&lt;/a&gt; increased from 0.75 trillion cubic feet in 1970 to a peak of 3.8 trillion cubic feet in 2007.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Natural gas gets used directly for heating, including in industrial processes; it also gets used for electricity generation. The latter also had a local peak around 1970. The amount of electricity generated by gas turbines very closely tracks domestic gas production until about 1990.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What's happened over the last 40 years is that energy efficiency has improved. There has been fuel-switching, so that some processes that were done using gas now use coal or electricity; and some processes that did use coal now use gas. There have been net efficiency gains over time, just as you'd expect. Some of this was outside the residential sector, and some is within it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some energy efficiency improvements have come about through improvements in boiler technology such as the mainstream appearance of condensing gas boilers; as well as a better understanding of maintenance. And improvements in building heat tightness, from enforced tighter building controls, better materials, better construction techniques. In the UK, we've also seen the replacement of open gas fires with central heating systems, which tends to be more efficient too, and that may have played a role in the USA over the last 40 years.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And particularly, from 1990, the upward trend in electricity generated from gas (the second graph) is stronger than the domestic increase in gas production. Around 1990, there was the introduction of a new type of process, the combined cycle gas turbine (CCGT), which increased the gas-to-electricity efficiencies from around 30% to around 55% - i.e. almost doubling. By 2007, CCGTs had displaced pretty much all the old open-cycle turbines, resulting in almost twice the electricity generated from the same amount of gas.&lt;/p&gt;&#xA;" OwnerUserId="44" LastEditorUserId="44" LastEditDate="2014-12-16T10:05:38.073" LastActivityDate="2014-12-16T10:05:38.073" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1638" PostTypeId="1" AcceptedAnswerId="1671" CreationDate="2014-12-16T17:14:00.020" Score="14" ViewCount="2753" Body="&lt;p&gt;The question of designing matching procedure (between high-schools and students, med intern and hospitals, kidney donors and receivers,...) has been widely studied by economists and vastly contributed to Roth and Shapley receiving the Nobel memorial price in economics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I was wondering if you knew about any freely available &lt;strong&gt;code&lt;/strong&gt; out there (ideally in a relatively high-level language) able to &lt;strong&gt;compute solutions&lt;/strong&gt; to the main kind matching problems for some of the &lt;strong&gt;most famous algorithms&lt;/strong&gt; proposed in the literature. I am thinking of writing one, but I'd rather not it already exists. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am &lt;strong&gt;chiefly interested&lt;/strong&gt; in some piece of code to compute the solution to &lt;strong&gt;Deferred Acceptance&lt;/strong&gt; algorithm in a &lt;strong&gt;school choice&lt;/strong&gt; problem, but anything else would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="38" LastEditorUserId="38" LastEditDate="2014-12-16T19:06:42.150" LastActivityDate="2016-09-03T13:32:25.260" Title="Available code for computing solutions to matching algorithms?" Tags="&lt;algorithms&gt;&lt;mechanism-design&gt;" AnswerCount="2" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="1639" PostTypeId="1" AcceptedAnswerId="1641" CreationDate="2014-12-16T18:15:03.527" Score="5" ViewCount="191" Body="&lt;p&gt;This strategy (interest raise to minimize currency devaluation) is being adopted in countries like Brazil and Russia:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Brazil interest rate &lt;a href=&quot;http://www.tradingeconomics.com/brazil/interest-rate&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.tradingeconomics.com/brazil/interest-rate&lt;/a&gt;&#xA;&lt;img src=&quot;https://i.stack.imgur.com/l8tLw.png&quot; alt=&quot;Brazil interest rate&quot;&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Russia interest rate &lt;a href=&quot;http://www.tradingeconomics.com/russia/interest-rate&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.tradingeconomics.com/russia/interest-rate&lt;/a&gt;&#xA;&lt;img src=&quot;https://i.stack.imgur.com/p0c7P.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;How does the interest rate rise protect the currency value?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm used to see news about governments raising the interest rate with the aim of protect the currency value. But I never saw an explanation about how these two things are related.&lt;/p&gt;&#xA;" OwnerUserId="1455" LastEditorUserId="8481" LastEditDate="2020-05-09T12:16:19.640" LastActivityDate="2020-05-09T12:16:19.640" Title="How does the russian interest rate raise will defends the Ruble from devaluation?" Tags="&lt;interest-rate&gt;&lt;currency&gt;&lt;international-economics&gt;&lt;government&gt;&lt;foreign-exchange&gt;" AnswerCount="2" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="1640" PostTypeId="2" ParentId="65" CreationDate="2014-12-16T18:34:33.193" Score="3" Body="&lt;p&gt;Just to add one dimension that the very concise answers from @SteveS and @EnergyNumbers appear to me not to stress to the degree I feel it is important:  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The moment we introduce &lt;strong&gt;the time-dimension&lt;/strong&gt;, the concept of &quot;self-interest&quot; changes fundamentally: to joke a bit, we become &lt;em&gt;altruists towards our future selves&lt;/em&gt;. And since depletion of common resources can only happen intertemporally, there is no point in discussing the matter in a static framework.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, the &lt;em&gt;length&lt;/em&gt; of the time-horizon becomes important. If individuals have too-short a time-horizon, their behavior starts to resemble a &quot;one-off&quot; decision, and then the &quot;tragedy of the commons&quot; emerges. As the horizon becomes more long-term, individuals become willing to &lt;em&gt;commit&lt;/em&gt; -for example, commit to accept the existence of custodians (see @EnergyNumbers answer), and thus restrict their own possible actions (due to the guardianship actions of the custodians).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This aspect once more makes the issue a &lt;em&gt;matter of degree&lt;/em&gt;: &lt;em&gt;how&lt;/em&gt; long-term is our time-horizon. One can see this theoretically also, even in a non-cooperative game-theoretic framework: if the &quot;game&quot; becomes a &lt;em&gt;repeated&lt;/em&gt; game, then even famous frameworks like the &lt;strong&gt;Prisoner's Dilemma&lt;/strong&gt; &lt;a href=&quot;http://en.wikipedia.org/wiki/Repeated_game#Repeated_prisoner.27s_dilemma&quot; rel=&quot;nofollow&quot;&gt;may obtain new solutions&lt;/a&gt;: here cooperation (in the abstract sense) can be sustained &lt;em&gt;if the discount factor is not too high&lt;/em&gt;. Translation: if the importance we give to the future, &lt;em&gt;for our own sake&lt;/em&gt;,  is high enough.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we factor-in other ways humans plant roots into the future (like having children, or the observed existence of various collective identities), we can start to understand why common property appears &quot;surprisingly well-managed&quot; -and not so surprisingly, after all.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2014-12-16T18:34:33.193" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1641" PostTypeId="2" ParentId="1639" CreationDate="2014-12-16T18:56:17.907" Score="5" Body="&lt;p&gt;An interest rate is the return that a lender earns on money lent to someone else. If the interest rate is higher then it makes lending money more attractive because the return is higher.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In particular, if the interest rate in, say, Russia increases relative to that in the USA then American lenders will switch from lending their money in America to lending their money in Russia where the return is greater. But in order to lend money in Russia, these investors are first going to have to convert their dollars into roubles. This increased demand for roubles causes the price of the rouble (i.e. the exchange rate) to increase.&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2014-12-17T13:19:27.463" LastActivityDate="2014-12-17T13:19:27.463" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1642" PostTypeId="1" AcceptedAnswerId="1643" CreationDate="2014-12-16T19:10:08.523" Score="2" ViewCount="192" Body="&lt;p&gt;I am trying to do this problem, and I am  not getting the answer.&#xA;I need to find the fixed cost of system 1, and system 2.&#xA;I know that the fixed cost will be the y-intercept of the equation.&#xA;Fixed cost for system 1 is 1000, and fixed cost for system 2 is $5000.&#xA;When I tried to find the variable cost per map dispensed, I am not getting the answer.&#xA;I know that the variable cost changes with the output. Therefore, it is the slope of the equation. In this case, the variable cost for system 1 is supposed to be 0.90, and the variable cost per map dispensed for system 2 is 0.1. However, the solutions manual shows that the variable cost per map dispensed for system 1 is 0.8, and variable cost per map dispensed for system 2 is 0.16.&#xA;Did I do something wrong?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/mb2Gu.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;" OwnerUserId="1456" LastEditorUserId="43" LastEditDate="2015-02-26T12:09:16.313" LastActivityDate="2015-02-26T12:09:16.313" Title="Find Variable Cost per Unit" Tags="&lt;industrial-organisation&gt;&lt;producer-theory&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="1643" PostTypeId="2" ParentId="1642" CreationDate="2014-12-16T19:28:05.360" Score="1" Body="&lt;p&gt;Based on the information you have given, both the solution manual and your solution are wrong. You are correct that the fixed cost for system I is 1. Variable cost is given by $$VC(x)=TC(x)-FC.$$ The variable cost for system I is therefore equal to $0.9x$. Note that the variable cost depends on $x$! For system II the variable cost is $0.1x$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You appear to have confused variable cost with marginal cost. Variable cost is the part of the total cost that changes with quantity; marginal cost is, roughly, the cost of producing one more unit (and is given by the slope of the total cost curve). Thus, the &lt;em&gt;marginal&lt;/em&gt; cost of system I is $0.9$ and the marginal cost of system II is $0.1$.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2014-12-16T19:28:05.360" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="1644" PostTypeId="1" CreationDate="2014-12-16T23:30:50.717" Score="9" ViewCount="1324" Body="&lt;p&gt;This may be a weird question, but I am unfortunately confused by terms. Let us suppose log-linearized New Keynesian model as suggested by Gali here: &lt;a href=&quot;http://crei.cat/people/gali/pdf_files/monograph/slides-ch3.pdf&quot;&gt;http://crei.cat/people/gali/pdf_files/monograph/slides-ch3.pdf&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My first question is, apparently steady value $Y$ is assumed to do log-linearization of $Y_t$, output, but is this $Y$ a constant value, or the whole steady output path? Equivalently, is $Y$ about how output will evolve if $Y_t$ evolves without stochastic factors and errors according to long-run natural rate?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My second question, related to the first question, is whether $Y_t$ refers to total output or normalized output. That is, if economy has positive output growth rate, will $Y_t$ grow? Or is it normalized output that does not change without stochastic elements? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My third question is, what $y_t$ actually mean. As I understand it, it is just $\log Y_t$. Is this correct? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The fact that consumption euler equation exists seems to support the intuition that $Y$ is steady output path, not constant steady value, as real interest rate is often positive for economy. My confusion all rises from here, and I am not sure if this is correct understanding. &lt;/p&gt;&#xA;" OwnerUserId="1458" LastActivityDate="2015-02-15T13:08:57.287" Title="In log-linearized New Keynesian model, what do $Y$, $Y_t$, $y_t$ actually mean?" Tags="&lt;macroeconomics&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="1645" PostTypeId="2" ParentId="1620" CreationDate="2014-12-17T00:48:06.433" Score="3" Body="&lt;p&gt;The non-mathematical answer I believe is well described in Straub &amp;amp; Werning's last paragraph:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;In quantitative evaluations it may well be the case that one finds a&#xA;  zero long-run tax on capital, e.g. for the model in Judd (1985) one&#xA;  may set $\sigma  &amp;lt; 1$ ($\sigma$ is the reciprocal of the intertemporal elasticity of substitution), and in Chamley (1986) the bounds may not bind forever,&#xA;  depending on parameters. In this paper we stay away from making any&#xA;  such claim, one way or another. &lt;strong&gt;We confined attention to the original&#xA;  theoretical results, widely perceived as delivering zero long-run&#xA;  taxation as an ironclad conclusion, independent of parameter values.&#xA;  Based on our analysis, we find little basis for such an&#xA;  interpretation.&quot;&lt;/strong&gt;&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Just above their Proposition 2, there is also another illuminating passage: S&amp;amp;W write:  &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;&lt;em&gt;(...)This shows that the solution cannot converge to the zero-tax&#xA;  steady state. Indeed, it actually proves the solution cannot converge&#xA;  to any interior steady state, &lt;strong&gt;since, we argued, the only possible&#xA;  interior steady state is the zero tax steady state&lt;/strong&gt;.&lt;/em&gt;&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In other words, it appears that Judd and  Chamley did not fully solved their models, but provided results &lt;em&gt;conditional&lt;/em&gt; on the parameters being such that the steady state will be an interior one. S&amp;amp;W argue (I have not checked mathematical correctness), that, depending on the parameter values, the optimal solution may lead to a corner steady state in some aspect (see below for an example) -and in a corner steady state, the capital tax-rate will be positive.  This needs checking because Judd explicitly considers different values for $\sigma$ (so a plain mistake may be involved after all).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now if you ask me, this mostly indicates that the tools used may not be well suited after all (or we have somehow &quot;misused&quot; them) to solve the specific theoretical problem, and so they are unreliable to affect policy one direction or the other (which, by the way, reminds me of &lt;a href=&quot;https://economics.stackexchange.com/questions/188/when-optimal-control-fails&quot;&gt;my question&lt;/a&gt;...)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Because, exactly of what value is (for either theory or policy) to, say, empirically determine that the elasticity of intertemporal substitution is lower than unity, and then declare &quot;the optimal taxation solution for a government that cares only about the workers entails positive tax on capital and &lt;em&gt;zero consumption of workers&lt;/em&gt;&quot; at the steady state?  (see Proposition 3, p. 11 of S&amp;amp; W). Who is going to contemplate seriously such a proposition for purposes of real-world policy?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;ADDENDUM&lt;/strong&gt;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/fzivM.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\sigma &amp;gt;1 \Rightarrow$ the intertemporal elasticity of substitution ($1/\sigma)$ is lower than unity. $\gamma =0\Rightarrow$ the planner puts $0$ weight on capitalists' utility. $c_t$ is the workers' consumption, $C_t$ is capitalists' consumption, and $g$ is governments &lt;em&gt;own consumption&lt;/em&gt; (i.e. it is not the part of government budget that goes to the workers as transfers).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Again, I have not checked the mathematics here. Apart from what kind of &lt;em&gt;economic&lt;/em&gt; content and relevance one could conceivably provide for workers consumption going to zero, another issue here is that, if the limiting tax rate is going to unity as government own consumption goes to zero, then what happens to the Tax revenues (which are &lt;em&gt;not&lt;/em&gt; given to the workers as transfers because then their consumption could not go to zero?)&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2014-12-18T16:00:40.867" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1646" PostTypeId="2" ParentId="1644" CreationDate="2014-12-17T01:20:28.983" Score="3" Body="&lt;p&gt;Full disclosure: I haven't read through the lecture notes that your provided particularly carefully, but I think I can answer your question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit: Heads up, by not carefully reading the link provided by the question, I missed something.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The standard New Keynesian models (such as the one Gali presented) are modeled without growth.  If you write down the model then you can represent it as a difference equation:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$0 = E_t \left[ F(X_{t+1}, X_t, X_{t-1}, Z_{t}) \right]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $X_t$ contains all relevant variables and $Z_t$ represent the shocks to the economy.  The &quot;steady state&quot; typically refers to the state of the world where $X_t$ is constant (think stable solution to a difference/differential equation) and $Z_t = 0$, thus you could write it as the solution to:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$0 = F(X, X, X, 0)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;in which case $X$ would be the steady state value (notice not time subscripts --sometimes also done by denoting steady state with overhead bars $\bar{X}$).  This is what he is calling $Y$ and it is a constant value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the second question, I haven't read carefully, so I can't be 100% sure, but typically when a variable is written as $X_t$ it references the actual value that is taken (aka if you solved the model and simulated it exactly, this is the value it would have).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the third question, I think a deeper understanding of log-linearization will answer it for you.  Log-linearization at its heart is just a Taylor expansion around the steady state.  Consider a generic equation $f(X_t, Y_t) = g(Z_t)$.  There are 3 basic steps to log-linearization (refreshed my memory &lt;a href=&quot;http://www3.nd.edu/~esims1/log_linearization_sp12.pdf&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;).&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Take logs&lt;/li&gt;&#xA;&lt;li&gt;First Order Taylor Expansion&lt;/li&gt;&#xA;&lt;li&gt;Algebra&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;We first take logs,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\ln(f(X_t, Y_t)) = \ln(g(Z_t))$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we do a First order Taylor expansion around the steady state, then we can write:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \ln(f(X_t, Y_t)) \approx \ln(f(X, Y)) + \frac{f_x(X, Y)}{f(X, Y)} (X_t - X) + \frac{f_y(X, Y)}{f(X, Y)} (Y_t - Y)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \ln(g(Z_t)) \approx \ln(g(Z)) + \frac{g_z(Z)}{g(Z)} (Z_t - Z)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus we can write:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\ln(f(X, Y)) + \frac{f_x(X, Y)}{f(X, Y)} (X_t - X) + \frac{f_y(X, Y)}{f(X, Y)} (Y_t - Y) \approx \ln(g(Z)) + \frac{g_z(Z)}{g(Z)} (Z_t - Z)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Recall that in the steady state $f(X, Y) = g(Z)$ and I will also multiply by one in several places ($\frac{X}{X}$ etc...), so&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{X f_x(X, Y)}{f(X, Y)} \frac{(X_t - X)}{X} + \frac{Y f_y(X, Y)}{f(X, Y)} \frac{(Y_t - Y)}{Y} \approx \frac{Z g_z(Z)}{g(Z)} \frac{(Z_t - Z)}{Z}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now define $\hat{x_t} := \frac{(X_t - X)}{X}$, $\hat{y_t} = \frac{(Y_t - Y)}{Y}$, and $\hat{z_t} := \frac{(Z_t - Z)}{Z}$.  This is the percentage deviation of $X_t$ from $X$ (and correspondingly for $Y_t$ and $Z_t$). Then you can write the log-linearized equation as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{X f_x(X, Y)}{f(X, Y)} \hat{x_t} + \frac{Y f_y(X, Y)}{f(X, Y)} \hat{y_t} \approx \frac{Z g_z(Z)}{g(Z)} \hat{z_t}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Two final things.  First, one subtlety that caught me off-guard the first time I was switching between percent deviation and true values and you might want to be aware of; values that aren't normally negative can be negative because it just means that it is that percentage below steady state.  Secondly, functional forms usually make these simplify quite nicely as you have probably seen in the log-linearized equations presented.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this example, Gali is using $y_t := \log Y_t$ as seen in the other answer, so hopefully this provides some intuition for what is happening elsewhere.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope this helped.&lt;/p&gt;&#xA;" OwnerUserId="47" LastEditorUserId="47" LastEditDate="2014-12-17T02:57:52.150" LastActivityDate="2014-12-17T02:57:52.150" CommentCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="1647" PostTypeId="2" ParentId="1644" CreationDate="2014-12-17T01:26:05.103" Score="7" Body="&lt;p&gt;The log-linearization is performed in the neighborhood of a steady state with zero inflation, constant output, and constant markups over marginal cost, as stated on slide 11 of the Galí presentation you link. Hence $Y$ is indeed intended to be a constant value, the steady state level of output around which the log-linearization is performed. $Y_t$ is just the level of total output in period $t$, while $y_t=\log Y_t$ is the log value of total output, as you say.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Several additional points that seem to be relevant here:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;This derivation of the basic New Keynesian model is performed under the assumption that there is no steady-state trend output growth. We can only be sure that the log-linearized equations are approximately correct for situations where any deviation from this zero-growth steady state is sufficiently small. Obviously, since we live in a world with conspicuously positive trend growth, this is potentially a problem - so this is a very valid concern on your part. &lt;/li&gt;&#xA;&lt;li&gt;As it happens, I believe that the equations are very similar when we log-linearize around a steady state with positive trend productivity growth (but maintaining the zero trend inflation assumption). In particular, when stated in terms of the output gap and natural rate of interest as in Galí's equation (10), the intertemporal Euler equation is exactly the same (though note that the steady state natural rate $r^n=\rho+\sigma \psi_{ya}g_a$ is higher, where $g_a$ is the log trend growth rate of productivity). The New Keynesian Phillips curve is a little messier: in the log preferences case $\sigma=1$, there are several nice cancellations and we obtain exactly the same NKPC, but for other $\sigma$ the discount rate on future inflation is no longer $\beta$. This is all much more annoying to deal with, though, which is why Galí avoided it for the simple exposition and stuck with the zero-growth steady state.&lt;/li&gt;&#xA;&lt;li&gt;As mentioned above, neither $Y$, $Y_t$, nor $y_t$ are &quot;normalized output&quot; of any kind. However, the output gap $\tilde{y}_t\equiv y_t-y_t^n$ defined in Galí's equation (7) is effectively normalized log output, subtracting off the log &quot;natural output&quot; $y_t^n$ that we'd expect in a flexible-price world given log productivity $a_t$. In this sense, the model can accommodate fluctuations in productivity; but as stated above, if these fluctuations are too large, then the log-linearization around zero trend growth begins to break down, and if $\sigma\neq 1$ we have to rewrite the NKPC in a different form to account for this.&lt;/li&gt;&#xA;&lt;li&gt;Finally, I'm a little confused by the last paragraph, but you seem to imply that the model may have a positive growth rate, &quot;as real interest rate is often positive for economy&quot;. This is a misapprehension: the steady state real interest rate in this model is positive because agents in the model have pure time preference, with a discount rate $\beta&amp;lt;1$. If you look below Galí's equation (10), you see that when there is no productivity change the &quot;natural&quot; real interest rate is $r_t^n = \rho$, where $\rho=-\log \beta$.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="405" LastEditorUserId="405" LastEditDate="2014-12-17T01:37:41.693" LastActivityDate="2014-12-17T01:37:41.693" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="1649" PostTypeId="2" ParentId="1614" CreationDate="2014-12-17T02:32:46.293" Score="5" Body="&lt;p&gt;As Jason Nichols says, these terms are often used interchangeably. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The general theme is that pretty much anything can be called a &quot;peg&quot; (except perhaps the case where two countries are literally using the same currency), while &quot;fixed&quot; tends to refer to institutional arrangements that are more automatic, where changes in the exchange rate are perceived to be less likely. &quot;Peg&quot; tends to be used when some entity (e.g. a central bank) is doing the &quot;pegging&quot;; the more active and less automatic the behavior of this entity is, the more likely that you'll call the arrangement a &quot;peg&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To further explain the (inconsistent and informal) differences in usage that do seem to exist, I have to describe several different kinds of exchange rate regimes. &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;At one extreme, country A may use the same currency as country B. Relevant cases include the Euro Area and dollarized Western Hemisphere countries like Panama and Ecuador. In this case, we might say that A and B have a &quot;fixed&quot; exchange rate (at one to one), but we probably wouldn't say that their rate is &quot;pegged&quot;. A similar but less certain case would be, for instance, the CFA Franc in Africa, which is in principle distinct from the Euro but has a fixed Euro conversion rate and is guaranteed by the government of a country using the Euro (France). This might be called &quot;fixed&quot; or &quot;pegged&quot;.&lt;/li&gt;&#xA;&lt;li&gt;A less extreme situation is a currency board, where country A has a different currency than country B but promises to always convert them at a certain rate, and has reserves denominated in country B's currency backing up every unit of its own currency so that (in principle) this promise can always be fulfilled. Examples include Argentina's defunct currency board (a good example of a case where this promise was ultimately not fulfilled in practice) and Hong Kong's current currency board. I've seen both &quot;fixed&quot; and &quot;pegged&quot; used to describe such arrangements; as mentioned above, my sense is that &quot;peg&quot; is more common as a descriptor when the arrangement is perceived as being less automatic, with its permanence less certain.&lt;/li&gt;&#xA;&lt;li&gt;Still weaker is the situation where country A sets a certain exchange rate with country B but doesn't have a formal arrangement like a currency board to back it up. This is extremely common; one rare example among developed countries is Denmark, which pegs to the Euro. This is the last case among (1)-(3) that can still often be called a &quot;fixed&quot; rate or a &quot;peg&quot;. The line between this and a currency board in (2) is often blurry, since in this case too central banks often maintain large foreign reserves, perhaps enough to back up every unit of their currency outstanding; but usually this case involves a less universal guarantee of convertibility.&lt;/li&gt;&#xA;&lt;li&gt;Then there is a vast set of arrangements where the rate is not perceived as being truly fixed for the indefinite future, but instead is allowed to fluctuate within a moderate or large band, or is subject to a &quot;crawling&quot; peg that is adjusted by the central bank, or is pegged to a possibly malleable basket of currencies, etc. These arrangements are usually called &quot;pegs&quot; rather than &quot;fixed&quot;, because (after all) they aren't that fixed! A conspicuous modern example is China.&lt;/li&gt;&#xA;&lt;li&gt;There are even looser arrangements where a central bank floats the currency but pays some attention to exchange rates and wants to avoid fluctuations that are too large (rather than exclusively hewing to some domestic objective like an inflation target), using both the tools of domestic monetary policy (interest rates) and intervention in foreign exchange markets to keep exchange rates in line. This is usually described as a &quot;managed&quot; float, &quot;dirty&quot; float, or something similar; it would rarely be described as a peg, but sometimes the line between (4) and (5) can be blurry.&lt;/li&gt;&#xA;&lt;li&gt;Then at the extreme other end, we have countries that float their currencies and do not routinely intervene in foreign exchange markets. These arrangements would never be called either &quot;fixed&quot; or &quot;pegged&quot;.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;To sum up, my overall impression is that it's pretty vague, but that among 1 to 6 above, you're more likely to call something earlier in the list &quot;fixed&quot;, something more in the middle of the list a &quot;peg&quot;, and something later in the list a &quot;float&quot;. But I am not aware of any formal, clearly specified distinction between terms as general as &quot;fixed&quot; and &quot;peg&quot;. When exchange rates are classified, as in the &lt;a href=&quot;https://www.imf.org/external/pubs/nft/2013/areaers/ar2013.pdf&quot;&gt;IMF's annual report on the topic&lt;/a&gt;, this is usually done in a much more specific and descriptive way.&lt;/p&gt;&#xA;" OwnerUserId="405" LastActivityDate="2014-12-17T02:32:46.293" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1650" PostTypeId="1" CreationDate="2014-12-17T05:55:43.783" Score="2" ViewCount="56" Body="&lt;p&gt;What's the point of creating new bills with more security measures to prevent counterfeiting? (For example in the USA the new $100 bills have more security features).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the old bills are still acceptable as currency, why would anyone even try to counterfeit new banknotes with all these security features?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why don't people counterfeit bills from the 1800s (which are still legal tender - USA) and have NO protection from counterfeiting at all?&lt;/p&gt;&#xA;" OwnerUserId="1459" LastEditorUserId="284" LastEditDate="2014-12-17T15:25:38.543" LastActivityDate="2014-12-17T15:25:38.543" Title="What's the point of adding security features to new bill designs?" Tags="&lt;currency&gt;&lt;usa&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1651" PostTypeId="2" ParentId="1616" CreationDate="2014-12-17T08:24:03.293" Score="9" Body="&lt;p&gt;I am the last person that should be answering continuous time questions like these, but if there's no one else I guess I'll give it a shot. (Any correction of my dimly remembered continuous-time finance is very welcome.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My impression has always been that this is best interpreted as a consequence of the &lt;a href=&quot;http://en.wikipedia.org/wiki/Martingale_representation_theorem&quot;&gt;martingale representation theorem&lt;/a&gt;. First, though, I'll loosely establish some notation. Let the probability space be generated by the $n$ independent Wiener processes $(Z_t^1,\ldots,Z_t^n)$. Let there be $n+1$ assets, where the value of the $i$th asset at $t$ is given by $S_t^i$. Assume that asset $i=0$ is a riskfree bond $dS_t^0=r_tS_t^0dt$,  while assets $i=1,\ldots,n$ are each risky and are driven by the corresponding $Z_t^i$:&#xA;$$dS_t^i=\mu_t^idt+\sigma_t^idZ_t^i$$&#xA;Assume there is a strictly positive SDF process $m_t$ normalized to $m_0=1$, such that $m_tS_t^i$ is a martingale for each $i$ (basically the definition of SDF) and where&#xA;$$dm_t=\nu_t dt+\psi_t\cdot dZ_t$$&#xA;(I use $\cdot$ as the dot product, which will be convenient.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, let the $n+1$-dimensional vector $\theta_t$ be our portfolio at time $t$, such that net worth $A_t$ is given by $A_t=\theta_t\cdot S_t$. Assume that $A_0$ is fixed and that further we have&#xA;$$dA_t=\theta_t\cdot dS_t$$&#xA;Now I'll state the objective, which captures the essence of complete markets. Suppose that the world ends at time $T$, and that we want net worth $A_T$ to equal a certain stochastic $Y$, which can depend on the full history up until time $T$. Suppose that $A_0=E_0[m_TY]$, so that in a world with complete markets we could (at $t=0$) use our initial wealth $A_0$ to purchase the time $t=T$ payout $Y$. In the absence of these direct complete markets, the question is whether there is &lt;strong&gt;nevertheless some strategy for the portfolio&lt;/strong&gt; $\theta_t$ that will allow us to obtain $A_T=Y$ in all states of the world. And the answer, in this setting, is yes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, one can calculate $d(m_tA_t)=\theta_t\cdot d(m_tS_t)$. Thus $m_tS_t$ being a martingale implies that $m_tA_t$ is a martingale. Thus we have $A_T=Y\Longleftrightarrow m_TA_T=m_TY$ iff&#xA;$$m_tA_t=E_t[m_TY]$$&#xA;for all $t\in[0,T]$. Note that this is true for $t=0$ by assumption; hence to get equality it is only necessary to prove that the increments are always equal on both sides.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now the martingale representation theorem comes in. Since $E_t[m_TY]$ is a martingale, we can write&#xA;$$E_t[m_TY]=E_0[m_TY]+\int_0^t \phi_s\cdot dZ_s$$&#xA;for some predictable process $\phi_s$. So we need to be able to show $d(m_tA_t)=\phi_t\cdot dZ_t$. Writing&#xA;$$d(m_tA_t)=\sum_i (m_t\theta_t^i \sigma_t^i +A_t\psi_t^i)dZ_t^i$$&#xA;we see that we need $m_t\theta_t^i\sigma_t^i +A_t\psi_t^i=\phi_t^i$ for each risky asset $i=1,\ldots,n$, which we can invert to give the needed portfolio choice $\theta_t^i$:&#xA;$$\theta_t^i=\frac{\phi_t^i-A_t\psi_t^i}{m_t\sigma_t^i}$$&#xA;The riskless asset portfolio choice $\theta_t^0$ can then be backed out from $A_t=\theta_t\cdot S_t$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The intuition here is simple: we need to always have $A_t$ adjust to maintain the equality $m_tA_t=E_t[m_TY]$, but both the expectation on the right and the SDF $m_t$ on the left are moving in response to the driving processes $dZ_t^i$. Hence we need to pick a portfolio $\theta_t$ such that $dA_t$ precisely offsets these movements and the equation continues to hold. And we can always do this as long as locally, our assets span all the risks $dZ_t^i$ -- which can happen more generally, even for $n$ correlated assets as long as their increments are locally linearly independent. (The case here of $n$ risky assets each drien by an independent Brownian motion is a special one.)&lt;/p&gt;&#xA;" OwnerUserId="405" LastActivityDate="2014-12-17T08:24:03.293" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="1652" PostTypeId="1" CreationDate="2014-12-17T11:27:49.973" Score="11" ViewCount="522" Body="&lt;p&gt;There is a growing literature (e.g. &lt;a href=&quot;https://ideas.repec.org/a/ecm/emetrp/v77y2009i3p623-685.html&quot;&gt;Bloom, 2009&lt;/a&gt;) studying negative macroeconomic impacts of heightened uncertainty. One channel through which uncertainty can discourage economic activity, and investment in particular, is via &lt;em&gt;real option&lt;/em&gt; effect, where if firms face irreversibility or fixed cost in investment, higher uncertainty will encourage them to postpone investment, or exercise their &quot;option to wait&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is: which of the two forms of nonconvex adjustment costs (fixed cost vs. irreversibility) is more important for this mechanism, and how do they differ in their effects? Is there any good reference explaining the issue, preferably in discrete-time setting? (I'm aware there's large literature on real options in continuous time, but so far I'm more familiar with discrete-time macroeconomic models).&lt;/p&gt;&#xA;" OwnerUserId="1432" LastActivityDate="2015-09-28T05:43:48.457" Title="Real option effect of uncertainty - irreversiblity vs fixed cost" Tags="&lt;macroeconomics&gt;&lt;investment&gt;" AnswerCount="2" CommentCount="5" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="1653" PostTypeId="2" ParentId="1650" CreationDate="2014-12-17T13:15:40.687" Score="5" Body="&lt;p&gt;Bills don't last that long. &lt;a href=&quot;http://www.federalreserve.gov/faqs/how-long-is-the-life-span-of-us-paper-money.htm&quot; rel=&quot;nofollow&quot;&gt;The Federal Reserve estimates that $100 bills last about 15 years&lt;/a&gt;. Therefore, old bills are fairly rapidly rendered quite rare. Bills that look really odd (like the rare ones) are likely to warrant a second glance from the acceptor and later, if the counterfeiting is uncovered, much more likely to be traceable back to the forger. In &lt;a href=&quot;http://www.gq.com/long-form/the-great-paper-caper&quot; rel=&quot;nofollow&quot;&gt;The Great Paper Caper&lt;/a&gt;, Wells Tower tells the story of Frank Bourassa a counterfeiter who focused exclusively on modern \$20 bills because the enormous scrutiny on \$100 bills in general. &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2014-12-17T13:21:05.650" LastActivityDate="2014-12-17T13:21:05.650" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1654" PostTypeId="2" ParentId="307" CreationDate="2014-12-17T14:00:25.657" Score="6" Body="&lt;p&gt;I found two of two papers discussing this period, the second at length.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Throughout the 1970s, the capital position of many banking&#xA;  institutions declined significantly. To address this decline, in&#xA;  December 1981, the bank regulators issued explicit minimum capital&#xA;  standards for banks and bank holding companies. These standards&#xA;  required banks to hold capital at least equal in amount to a fixed&#xA;  percentage of their assets. While these standards have been given&#xA;  credit for increasing bank capital ratios, the 1980s saw an increase&#xA;  in both the number and cost of bank failures. A weakness of the&#xA;  minimum capital standards is that they failed to take into account the&#xA;  risk in a bank's portfolio of assets; high-risk assets required the&#xA;  same amount of capital as low-risk assets.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://garrido.pe/lecturasydocumentos/JAQUES%20y%20NIGRO%20(1994)%20riskbased%20capital,%20portfolio%20risk%20and%20bank%20capital.pdf&quot;&gt;Risk-based capital, portfolio risk, and bank capital: A simultaneous equations approach by K Jacques and P Nigro (1997)&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In 1972 the Fed capital standard was revised again. Asset risk was&#xA;  separated into “credit risk” and “market risk” components. In&#xA;  addition, banks were required to maintain a higher capital ratio to&#xA;  meet the test of capital sufficiency. Further, the Fed reintroduced&#xA;  both the capital to total asset and capital to total deposit ratios.&#xA;  This time, however, the former ratio was based on total assets less&#xA;  cash plus U.S. government securities, a rough “risk asset” adjustment.&#xA;  In practice, bankers and analysts used the FDIC and Fed standards more&#xA;  than those of the OCC.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;None of the agencies established a firm minimum capital ratio.&#xA;  Instead, the capital positions of banking institutions were evaluated&#xA;  on an individual bank basis. Particular attention was directed toward&#xA;  smaller banks whose loan portfolios were not as diversified and whose&#xA;  shareholders were fewer in number than those of larger institutions.&#xA;  It was reasoned that small or “community banks” might have a hard time&#xA;  raising capital in times of difficulty and therefore should be more&#xA;  highly capitalized at the start than larger institutions. Table 1&#xA;  shows the banking industry’s capital-asset ratios from 1960 to 1980.&#xA;  The table shows that there was a steady downward drift in the ratio,&#xA;  which can be explained by a number of factors. Chief among these would&#xA;  be the attractiveness of increased leverage in banking and reliance on&#xA;  other techniques to manage balance sheets, e.g., liability management.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;In late 1981 the three Federal bank regulatory agencies announced a&#xA;  new coordinated policy related to bank capital. The policy established&#xA;  a new definition of bank capital and set guidelines to be used in&#xA;  evaluating capital adequacy. The new definition of bank capital&#xA;  included two components: primary and secondary capital.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Primary capital consisted of common stock, perpetual preferred stock,&#xA;  surplus, undivided profits, mandatory convertible instruments (debt&#xA;  that must be convertible into stock or repaid with proceeds from the&#xA;  sale of equity), reserves for loan losses, and other capital reserves.&#xA;  These items were treated as permanent forms of capital because they&#xA;  were not subject to redemption or retirement. Secondary capital&#xA;  consisted of nonpermanent forms of equity such as limited-life or&#xA;  redeemable preferred stock and bank subordinated debt. These items&#xA;  were deemed nonpermanent since they were subject to redemption or&#xA;  retirement.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;In addition to the new definition of capital, the agencies also set a&#xA;  minimum acceptable level for primary capital and established three&#xA;  zones for classifying institutions according to the adequacy of their&#xA;  total capital.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.rich.frb.org/publications/research/economic_review/1988/pdf/er740603.pdf&quot;&gt;International risk-based capital standard: History and explanation by MC Alfriend (1988)&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the United States it isn't just Basel that is changing. FDICIA act of 1991 is also an important regulatory change for regulatory capital standards. My understanding is that Basel I only worried about credit risk but FDICIA introduced capital requirements for interest rate risk as well, perhaps in response to the contemporaneous savings and loan crisis where many thrifts failed as a result of losses from interest rate exposures. &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2014-12-17T14:00:25.657" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1655" PostTypeId="1" CreationDate="2014-12-17T15:40:56.063" Score="2" ViewCount="92" Body="&lt;p&gt;One simple New Keynesian model would be &lt;a href=&quot;http://crei.cat/people/gali/pdf_files/monograph/slides-ch3.pdf&quot; rel=&quot;nofollow&quot;&gt;http://crei.cat/people/gali/pdf_files/monograph/slides-ch3.pdf&lt;/a&gt; but I do not restrict my question to this model only.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let us for now ignore the problem of linearizing around zero-growth-rate, and assume that there is no problem in modelling constant natural growth rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let us suppose that monetary shock occurred, due to stochastic or forecast errors or intentional deviation. Can this shock result in technology shock also? (ex. change in $A_t$ in production function?)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am sure that there exists a model that does this, but in most models, and especially Gali's model as linked above, is this true?&lt;/p&gt;&#xA;" OwnerUserId="1463" LastActivityDate="2014-12-17T15:47:23.587" Title="In most New Keynesian models, can monetary shock affect technology shock also?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="1656" PostTypeId="2" ParentId="1655" CreationDate="2014-12-17T15:47:23.587" Score="2" Body="&lt;p&gt;No it usually does not.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is an intuitive reason why: We interpret the technology shock as a residual, the unexplainable part in TFP changes. If we knew that there was a specific causal relationship between monetary policy and future TFP, that part of future TFP would now was explained. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's true that the MP shock is excluded in standard Solow Regressions, but &lt;em&gt;if you believe there is a causal effect, you need to regress it out of it&lt;/em&gt;. Since after all, we understand $A_t$ to be independent.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that still, implicitly, through its effects on capital accumulation (which does not exist in standard NK models), monetary policy should impact future TFP. Then, you could make $A_t$ dependent and argue it being a shortcut in the absence of capital.&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2014-12-17T15:47:23.587" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="1658" PostTypeId="1" CreationDate="2014-12-17T17:04:29.783" Score="9" ViewCount="1568" Body="&lt;p&gt;In New Keynesian models, like the ones in Gali's simple New Keynesian model or even Mankiw-Reis NK model on sticky information, capital is often not included. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now people do say that there are modeling difficulties and that's why capital ($K$) is not included, but is there another justifiable reason other than modeling difficulties?&lt;/p&gt;&#xA;" OwnerUserId="1464" LastActivityDate="2014-12-18T19:56:43.697" Title="Why is capital often not included in New Keynesian models? Is there a reason other than modeling difficulty?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="1659" PostTypeId="1" AcceptedAnswerId="1660" CreationDate="2014-12-17T19:54:20.333" Score="8" ViewCount="420" Body="&lt;p&gt;Papers like &lt;a href=&quot;http://www.columbia.edu/~sn2294/papers/housing.pdf&quot;&gt;Ng and Moench (2011)&lt;/a&gt; and &lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/S0304393206002315&quot;&gt;Negro and Otrok&lt;/a&gt; (2007) use historical housing data to estimate latent variables that correspond to some &quot;true&quot; or &quot;truer&quot; measure of house prices or housing activity. I've put together a table of series one could use as inputs in such an exercise. However, as we can see in the table below, very little data is available before the mid-1970s. I would like to expand this list with U.S. historical data (free or to purchase) that help to characterize real and financial housing activity as far back as possible.  What other series am I missing?&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;+------------------------------------------------------+--------------+--------------+------------+&#xA;|                        Series                        |    Source    |  Frequency   | Start Date |&#xA;+------------------------------------------------------+--------------+--------------+------------+&#xA;| Median Sales Price of Single-Family Existing Homes   |  NAR         |  Monthly     |  Jan1968   |&#xA;| Median Existing Home Prices                          |  NAR         |  Monthly     |  Jan1999   |&#xA;| Median Sales Price of Single-Family New Homes        |  CENSUS      |  Monthly     |  Jan1963   |&#xA;| Average New Home Prices                              |  CENSUS      |  Monthly     |  Jan1975   |&#xA;| S&amp;amp;P National Home Price Index                        | S&amp;amp;P          |  Quarterly   |  Q1-1987   |&#xA;| Freddie Mac House Price Index                        |  FHLMC       |  Quarterly   |  Q1-1975   |&#xA;| FHFA Purchase-Only Index                             |  FHFA        |  Monthly     |  Jan1991   |&#xA;| FHFA Home Prices                                     |  FHFA        |  Quarterly   |  Q1-1975   |&#xA;| CoreLogic National House Price Index                 |  CoreLogic   |  Monthly     |  Jan1976   |&#xA;| Housing Starts                                       |  CENSUS      |  Monthly     |  Jan1959   |&#xA;| Existing Home Sales                                  |  NAR         |  Monthly     |  Jan1999   |&#xA;| New One-Family Houses Sold                           |  CENSUS      |  Monthly     |  Jan1963   |&#xA;| Housing Units Authorized by Permit                   |  CENSUS      |  Monthly     |  Jan1960   |&#xA;| Housing Units Under Construction                     |  CENSUS      |  Monthly     |  Jan1970   |&#xA;| Housing Completions                                  |  CENSUS      |  Monthly     |  Jan1968   |&#xA;| Private Residential Fixed Investment (PRFI)          |  BEA         |  Quarterly   |  Q1-1947   |&#xA;| Wilshire REIT Total Return Index                     |  Wilshire    |  Monthly     | Jan1978    |&#xA;| Ziman-CRSP Residential REIT Value Weighted Index     |  CRSP-Ziman  |  Monthly     | Jan1980    |&#xA;| Ziman-CRSP Residential REIT Equally Weighted Index   |  CRSP-Ziman  |  Monthly     | Jan1980    |&#xA;+------------------------------------------------------+--------------+--------------+------------+&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Commercial real estate data is not ideal, particularly data that is contaminated with mine and oil and water well construction. Regional data is fine but national data is preferred.  &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2015-04-02T11:11:22.290" Title="Historical US Housing Data Availability" Tags="&lt;data-request&gt;&lt;history&gt;&lt;housing&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="1660" PostTypeId="2" ParentId="1659" CreationDate="2014-12-17T22:26:03.117" Score="6" Body="&lt;p&gt;I feel this barely qualifies as an answer, but doesn't Shiller have house prices data on his webpage? Currently &lt;a href=&quot;http://www.econ.yale.edu/~shiller/data.htm&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Specifically:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Historical housing market data used in my book, Irrational Exuberance [Princeton University Press 2000, Broadway Books 2001, 2nd edition, 2005], showing home prices since 1890 are available for download and updated monthly: &lt;a href=&quot;http://www.econ.yale.edu/~shiller/data/Fig3-1.xls&quot; rel=&quot;nofollow&quot;&gt;US Home Prices 1890-Present&lt;/a&gt;.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I don't have much experience with this data directly, and am only aware of it through  Khandani, Merton, Lo (2013) (&quot;Refinancing Ratchet Effect&quot;), where they use this and many other data sources to construct a (very long) housing dataset for their simulation analysis.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Details of Case Shiller Series Construction methodology (from the end-notes of the 2006 edition for chapter 2):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Even though there were no regularly published home price indexes&#xA;  before the 1960s, some economists were constructing indexes of home&#xA;  prices that cover most of the years since 1890. We found home price&#xA;  indexes from 1890 to 1934 and from 1953 to the present that used in&#xA;  their construction some device to attempt to hold the quality of the&#xA;  home constant.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The nominal home price index 1890–1934 is from Leo Grebler, David M.&#xA;  Blank, and Louis Winnick, Capital Formation in Residential Real&#xA;  Estate: Trends and Prospects (Princeton, N.J.: National Bureau of&#xA;  Economic Research and Princeton University Press, 1956). It is a&#xA;  repeated-measures index based on a survey of homeowners in twenty-two&#xA;  U.S. cities, who were asked to give the value of their home in 1934&#xA;  and the date and price of the purchase of that home. Since it is based&#xA;  on repeated measures of individual homes, the series is protected, in&#xA;  contrast to the simple median price, from any bias from changes in the&#xA;  mix of houses sold or of the increasing size and quality of newer&#xA;  homes. Its shortcoming is that it depends on memories of the surveyed&#xA;  homeowners for the earlier purchase price.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The nominal home price index that we constructed for 1934–53 is a&#xA;  simple average over five cities of median home prices advertised in&#xA;  newspapers. The cities are Chicago, Los Angeles, New Orleans, New&#xA;  York, and Washington, D.C. My students collected the data from&#xA;  microfilmed newspapers at the Yale University library, collecting&#xA;  approximately thirty prices for each city and year, except that for&#xA;  the fifth city, Washington, D.C., 1934–48, data came from a median&#xA;  price series from E. M. Fisher, Urban Real Estate Markets:&#xA;  Characteristics and Financing (New York: National Bureau of Economic&#xA;  Research, 1951). The median series for 1934–53 does not make any&#xA;  attempt to correct for home quality change, as do the indexes we use&#xA;  for the other subperiods. Improvement in home size and quality gives&#xA;  median home price an upward bias, and this is why I avoided using&#xA;  median price outside the 1934–53 interval.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The nominal home price index for 1953–75 is the home purchase&#xA;  component of the U.S. Consumer Price Index (CPI). The Bureau of Labor&#xA;  Statistics collected data on home prices for those years for homes&#xA;  that are held constant in age and square footage. In the 1980s they&#xA;  discontinued this index when they switched to a rental equivalence&#xA;  basis for housing in the CPI. They made this change to correct what&#xA;  was considered a conceptual flaw in the housing component of the CPI:&#xA;  the CPI is supposed to be a price of consumption goods and services,&#xA;  not of investment assets. For our purposes, however, the old home&#xA;  purchase component is acceptable. There are, however, some&#xA;  shortcomings in the home purchase component, notably that it is based&#xA;  only on homes with certain government-subsidized mortgages, and the&#xA;  procedure that the Bureau of Labor Statistics used to correct for&#xA;  changes in the ceiling on these mortgages was not optimal. See J. S.&#xA;  Greenlees, “An Empirical Evaluation of the CPI Home Purchase Index&#xA;  1973–8,” American Real Estate and Urban Economics Association Journal,&#xA;  Carnegie-Rochester Conference Series on Public Policy, 17 (1982):&#xA;  203–38.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The nominal home price index for 1975–87 is the U.S. home price index&#xA;  published by the U.S. Office of Housing Enterprise Oversight (OFHEO),&#xA;  which is available on their Web site. It is a repeat sales index, and&#xA;  thus controls for quality change. The nominal home price index for&#xA;  1987–2004 is the repeat-sales U.S. home price index produced by Fiserv&#xA;  CSW, Inc., successor to Case Shiller Weiss, Inc.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Since 1987, the CSW and the OFHEO series have shown very similar&#xA;  patterns through time, though the sharpness of the increase is&#xA;  slightly more pronounced in the CSW series, an observation we&#xA;  attribute to the fact that our series is based only on actual sales,&#xA;  while the OFHEO series also uses both actual sales and appraised&#xA;  values as if they were sales. Appraised values are somewhat sluggish&#xA;  to respond to new market conditions.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="17" LastEditorUserId="17" LastEditDate="2014-12-18T23:41:00.623" LastActivityDate="2014-12-18T23:41:00.623" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="1661" PostTypeId="5" CreationDate="2014-12-17T23:22:21.400" Score="0" Body="&lt;p&gt;&lt;strong&gt;Microeconomics&lt;/strong&gt; - (&lt;em&gt;from Greek prefix &lt;code&gt;mikro-&lt;/code&gt; meaning &quot;small&quot; and economics&lt;/em&gt;) is a branch of economics, that studies the decision-making process of individual agents such as consumers and firms, how these decisions work when aggregated and how decisions change under different rules and institutions in an attempt to understand the behavior of agents under restrictions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Typically, it applies to markets where goods or services are bought and sold but it can be extended to households, marriages, crime and essentially any human activity. Microeconomics - in a more traditional, textbook approach - examines how decisions and behaviors affect the supply and demand for goods and services, which determines prices, and how prices, in turn, determine the quantity &lt;a href=&quot;/tags/supply/info&quot;&gt;supplied&lt;/a&gt; and quantity &lt;a href=&quot;/tags/demand/info&quot;&gt;demanded&lt;/a&gt; of goods and services.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One of the goals of microeconomics is to analyze market mechanisms that establish relative prices amongst goods and services and allocation of limited resources amongst many alternative uses. Microeconomics analyzes market failure, where markets fail to produce efficient results, and describes the theoretical conditions needed for perfect competition. Significant fields of study in microeconomics include general equilibrium, markets under asymmetric information, choice under uncertainty and economic applications of &lt;a href=&quot;/tags/game-theory/info&quot;&gt;game theory&lt;/a&gt;. Also considered is the elasticity of products within the market system.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;In contrast, &lt;a href=&quot;/tags/macroeconomics/info&quot;&gt;macroeconomics&lt;/a&gt; is concerned about economies as a whole.&lt;/em&gt;&lt;/p&gt;&#xA;" OwnerUserId="1466" LastEditorUserId="18167" LastEditDate="2018-09-15T16:30:40.447" LastActivityDate="2018-09-15T16:30:40.447" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="1662" PostTypeId="4" CreationDate="2014-12-17T23:22:21.400" Score="0" Body="Microeconomics is a branch of economics that studies the market behavior of individual actors (usually firms and consumers) and the aggregation of their actions in different institutional frameworks (usually the market). " OwnerUserId="1466" LastEditorUserId="18167" LastEditDate="2018-09-15T16:30:29.323" LastActivityDate="2018-09-15T16:30:29.323" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="1663" PostTypeId="5" CreationDate="2014-12-17T23:52:39.283" Score="0" Body="&lt;p&gt;&lt;strong&gt;Game theory&lt;/strong&gt; is a study of the strategic interaction between two or more players in a situation containing set rules and outcomes. While used in a number of disciplines, game theory is most notably used as a tool within the study of economics. Most research in game theory focuses on how groups of people interact.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are number of sub-branches in game theory, focusing of different types of games:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Noncooperative / Cooperative / Hybrid&lt;/li&gt;&#xA;&lt;li&gt;Zero-sum / Non-zero-sum&lt;/li&gt;&#xA;&lt;li&gt;Perfect information / Imperfect information&lt;/li&gt;&#xA;&lt;li&gt;Complete Information / Incomplete Information&lt;/li&gt;&#xA;&lt;li&gt;Symmetric / Asymmetric&lt;/li&gt;&#xA;&lt;li&gt;Static Games / Multistage Games&#xA;&#xA;&lt;hr&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Other branches of economics, closely connected to game theory:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;strong&gt;Decision theory&lt;/strong&gt; can be viewed as a theory of one person games, or a game of a single player against nature. &lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;General equilibrium theory&lt;/strong&gt; can be viewed as a specialized branch of game theory that deals with trade and production, and typically with a relatively large number of individual consumers and producers&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;Mechanism design theory&lt;/strong&gt; differs from game theory in that game theory takes the rules of the game as given, while mechanism design theory asks about the consequences of different types of rules.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="1466" LastEditorDisplayName="user13650" LastEditDate="2017-06-17T19:14:35.977" LastActivityDate="2017-06-17T19:14:35.977" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1664" PostTypeId="4" CreationDate="2014-12-17T23:52:39.283" Score="0" Body="Game theory is a study of situations of strategic interaction between two or more players in which there is a predefined set of rules and an outcome associated with each choice taken." OwnerUserId="1466" LastEditorDisplayName="user13650" LastEditDate="2017-06-17T06:33:05.960" LastActivityDate="2017-06-17T06:33:05.960" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1665" PostTypeId="1" CreationDate="2014-12-18T00:24:16.403" Score="2" ViewCount="72" Body="&lt;p&gt;So when dealing with not-too-complex RBC models or New Keynesian models, we often arrive with a few final reduced-form equations, and as far as I know, we use these equations to estimate the model. For Gali's simple New Keynesian model we have consumption Euler equation, New Keynesian Phillips Curve and some form of Taylor rule. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But it seems that when estimating them, labor data (for example, labor $N_t$ in production function $Y_t = A_tN_t^{1-\alpha}$) seems to be dropped and not compared with model's prediction that can be inferred from coefficients and how reduced-form equations got derived. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why is this comparison not often done? This seems to be an important indicator for a model..&lt;/p&gt;&#xA;" OwnerUserId="1468" LastActivityDate="2015-02-16T01:37:20.577" Title="When estimating a basic macroeconomics model, why is goodness of fit with labor data not often dealt with?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="1666" PostTypeId="2" ParentId="1665" CreationDate="2014-12-18T00:31:17.933" Score="1" Body="&lt;p&gt;It's somewhat public knowledge that Macroeconomic models don't fit labor data without&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;High Frisch Elasticity (but Rogerson, Prescott try to argue for that)&lt;/li&gt;&#xA;&lt;li&gt;Preference shocks (but, as Chari, Kehoe, McGrattan (AER 2006?) show, we cannot really understand these properly&lt;/li&gt;&#xA;&lt;li&gt;Search&amp;amp;Matching with weird parametrization or assumed wage rigidity&lt;/li&gt;&#xA;&lt;li&gt;Some other spooky thing going on that helps fitting the data&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;So since we know it doesn't work out, why feel bad about posting the correlations and make everyone feel bad? :)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If it were to work out, surely post it though.&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2014-12-18T00:31:17.933" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="1667" PostTypeId="2" ParentId="1593" CreationDate="2014-12-18T00:36:03.120" Score="3" Body="&lt;p&gt;Corruption undermines its country economy, and that &lt;em&gt;eventually&lt;/em&gt; causes inflation, &lt;strong&gt;but&lt;/strong&gt;: there are known examples of extreme corruption cohabiting with little to no inflation for some period of time, like Ukraine 2011-2013.&lt;/p&gt;&#xA;&lt;p&gt;Quoting &lt;a href=&quot;http://en.wikipedia.org/wiki/Corruption_in_Ukraine&quot; rel=&quot;nofollow noreferrer&quot;&gt;Wikipedia&lt;/a&gt;:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;In 2014's Transparency International Corruption Perceptions Index Ukraine was ranked 142th out of the 175 countries investigated (tied with Uganda and the Comoros). Back in 2007 Ukraine had taken 118th place (179 countries investigated that year). Ernst &amp;amp; Young (in 2012) put Ukraine &lt;em&gt;among the three most corrupted nations of the world&lt;/em&gt; together with Colombia and Brazil.&lt;/p&gt;&#xA;&lt;p&gt;United States diplomats have described Ukraine under Presidents Kuchma and Yushchenko as a &lt;em&gt;kleptocracy&lt;/em&gt;, according to Wikileaks cables.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Yet, with all of that scary corruption - the inflation index was very low - and in 2013 it was even negative!:&#xA;&lt;a href=&quot;http://data.worldbank.org/indicator/FP.CPI.TOTL.ZG/countries/UA?display=graph&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://data.worldbank.org/indicator/FP.CPI.TOTL.ZG/countries/UA?display=graph&lt;/a&gt;&lt;/p&gt;&#xA;&lt;p&gt;So, &lt;strong&gt;NO - there is no clear and immediate correlation between corruption and inflation.&lt;/strong&gt; But there certainly is some causality, like in aforementioned example - inflation Ukraine in 2014 was well above 100%.&lt;/p&gt;&#xA;" OwnerUserId="1466" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2014-12-18T00:36:03.120" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1668" PostTypeId="2" ParentId="1593" CreationDate="2014-12-18T00:48:38.323" Score="6" Body="&lt;p&gt;While it´s true that there is no direct relationship between corruption and inflation, there are mechanisms which can lead to corruption acting to influence inflation through the monetary system.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Inflation is primarily a direct function of the money supply, and an inverse function of total production. If corruption takes the form of corrupt bank lending, where loans are made to people who are not going to repay them, and in particular if this leads to a higher rate of lending than repayment, then the resulting excess money supply creation will cause inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Corrupt production practices can also lead to inflation, if they result in lower production, or if cartels and monopolistic organisations are allowed to control the price, or if direct manipulation of the markets themselves occur. All these can create higher prices than would otherwise be the case.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Monetary phenomena such as inflation, have to be measured over far longer periods of time than 2-3 years as in this example - because the system itself responds very sluggishly. But if you look at the money supply figures for the Ukraine, or indeed for Russia, it´s clear that they both continue to expand extremely fast, indicating that something is not right in the state of their banking systems with respect to their lending practices.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Iceland in the 2005-7 period is another good example of a country whose banking system is now known to have engaged in extremely corrupt practices - as a result of which their money supply more than doubled - but experienced the high inflation somewhat later.&lt;/p&gt;&#xA;" OwnerUserId="84" LastActivityDate="2014-12-18T00:48:38.323" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="1669" PostTypeId="2" ParentId="1658" CreationDate="2014-12-18T01:34:07.663" Score="13" Body="&lt;p&gt;Capital is included in all the big estimated New Keynesian models (Smets-Wouters, Christiano-Eichenbaum-Evans), etc. But you're absolutely right that the stylized core NK model does not have capital - which is hard to defend on empirical grounds, since capital investment is a very important part of business cycle fluctuations and the response to monetary policy. Ultimately, the reason does basically boil down to the &quot;modeling difficulties&quot; that you mention.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, there is an obvious way in which capital makes the NK model more complicated: at an absolute minimum, it introduces at least one additional backward-looking state variable $K$. In contrast, the two core equations (the intertemporal Euler equation and New Keynesian Phillips curve) of the ordinary log-linearized NK model are completely forward-looking. Adding $K$ to the mix eliminates this nice analytical feature. Still, on its own, this is not such a compelling reason to leave $K$ out of the standard presentation of the model, since the increase in complexity would still be tolerable and possibly justified by the added realism.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The additional complications that make capital much more difficult to include are the following.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Capital adjustment costs are needed to avoid absurd results.&lt;/strong&gt; Suppose that there are no capital adjustment costs, and that firms rent capital each period on competitive markets. Suppose also that there are no shocks today. The real rental cost of capital today will be approximately $r+\delta$, where $r$ is the real interest rate that was expected &lt;em&gt;yesterday&lt;/em&gt; and $\delta$ is depreciation. For each firm $i$, we have $MC(i)=(r+\delta)/MPK(i)$: real marginal cost equals the real cost of producing another unit of output by increasing capital.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, suppose for simplicity that firms are identical and there is no price dispersion. (Moving away from this, everything I say will still be approximately true.) Then we can eliminate the $i$ and just write $MC=(r+\delta)/MPK$. Furthermore, real marginal cost is just the inverse markup, so we can rewrite this in terms of markup $\mathcal{M}$ as $MPK=\mathcal{M}(r+\delta)$. Finally, if we assume that production is Cobb-Douglas with capital share $\alpha$ this becomes&#xA;$$\frac{K}{Y}=\frac{\alpha}{\mathcal{M}}\frac{1}{r+\delta}$$&#xA;Pick some reasonable parameters: say, $\alpha=0.3$, $\mathcal{M}=1.33$, $r=0.04$, and $\delta=0.06$. Given these we have $K/Y\approx 2.26$. Suppose that we exist in this steady-state world for a while, and then the Fed pushes down the projected path of interest rates such that the expected real rate declines to $r=0.02$. Then leaving $\mathcal{M}$ constant, the value of $K/Y$ given by the expression above increases to $K/Y\approx 2.82$. The NK model implies that this value should hold in the period after the shock.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is an immense increase in $K/Y$, and the model tells us that it should happen in &lt;em&gt;one period&lt;/em&gt;. If our period is a quarter, and $Y$ was not expected to take a sudden dive, then we'd have to invest well above the entire usual level of GDP to accomplish this. (In the continuous time limit, it becomes simply infeasible.) And although the assumption than $\mathcal{M}$ is constant is not right ($\mathcal{M}$ is determined endogenously in the NK model from the relationship of sticky prices to costs), relaxing this could easily make the puzzle more extreme: if $r=0.02$ is expected to prevail for a while, then it will imply higher-than-usual output $Y$ and lower-than-usual markups $\mathcal{M}$, which raise the implied $K$ even further.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The model &lt;em&gt;simply doesn't work in this form&lt;/em&gt;: you need some form of capital adjustment costs. And these, of course, make the model still more complicated. (By the way, the problem here isn't so much the NK model as the fact that an assumption of no adjustment costs is generally absurd: seemingly small changes in the real interest rate must be accompanied by massive swings in the capital-output ratio, which we never see in practice. The NK model simply brings this absurdity, which is found in the basic RBC model as well, into sharper relief because exogenous interest rate shocks are such an important feature of the NK environment.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Firm-specific capital is needed for strategic complementarity.&lt;/strong&gt; Even if we fix the problem above by including capital adjustment costs of some form, we run into another awkward feature of NK models: taken alone, the Calvo price rigidity is not plausibly large enough to make the NKPC as flat as we think it is. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The most popular fix is some form of strategic complementarity, where firms try not to set prices too far from the aggregate price level. And the most popular way to get strategic complementarity is to assume that firms face both a high elasticity of demand and a steeply upward-sloping marginal cost curve. That way, for instance, any firm that sets its price too far below the average price will receive a flood of demand that causes its marginal cost to spike - and this discourages the firm from setting such a low price in the first place. (Yes, this sounds a little ridiculous, but it's how the models work.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When the model excludes capital altogether, it's easy to just write a declining-returns-to-scale production function for each firm with labor as the only input. This makes each firm's marginal cost curve slope upward. But when we include both capital and labor in the model, the firm's production function probably should be much closer to constant-returns-to-scale. And this means, if the firm can rent any amount of capital from a competitive market on demand, that the firm's marginal cost curve is much closer to flat. This limits strategic complementarity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To get around this, you need to dispense with the assumption of a common rental market for capital, and start talking about firm-specific capital accumulation. But then the model becomes &lt;em&gt;much&lt;/em&gt; more complicated, and you're reduced to opaque quantitative exercises like &lt;a href=&quot;http://www.federalreserve.gov/PubS/ifdp/2010/990/ifdp990.pdf&quot;&gt;ACEL&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given all this, you can imagine how economists in &lt;a href=&quot;http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1683617&quot;&gt;insight-building mode&lt;/a&gt; often just dispense with capital altogether.&lt;/p&gt;&#xA;" OwnerUserId="405" LastEditorUserId="405" LastEditDate="2014-12-18T19:56:43.697" LastActivityDate="2014-12-18T19:56:43.697" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="1671" PostTypeId="2" ParentId="1638" CreationDate="2014-12-18T12:42:52.793" Score="11" Body="&lt;p&gt;While answering a comment, I realized I had a post-worth response. R has become the &amp;quot;default language&amp;quot; for a lot of computational research statistics (for a number of reasons; nice NYT article &lt;a href=&quot;http://www.nytimes.com/2009/01/07/technology/business-computing/07program.html?pagewanted=all&amp;amp;_r=0&quot; rel=&quot;noreferrer&quot;&gt;here&lt;/a&gt;). It's high level, free and open-source, and has a closely-related &lt;a href=&quot;http://www.jstatsoft.org/&quot; rel=&quot;noreferrer&quot;&gt;journal&lt;/a&gt; for publishing statistical algorithms. Citations and peer review are key for academia, so you get a lot of well-described code posted to the R archives (CRAN) with descriptions posted to JStat. This spills over into a lot of blogs and quick demonstration code posts.&lt;/p&gt;&#xA;&lt;p&gt;That is to say, there's an enormous user-create code base for R. When I need to find an algorithm online, I'll often first look to the massive R codebase. A quick search for R code turned up the following:&lt;/p&gt;&#xA;&lt;p&gt;From an &lt;a href=&quot;http://plausibel.blogspot.com/2012/01/illustrating-deferred-acceptance.html&quot; rel=&quot;noreferrer&quot;&gt;R blogger&lt;/a&gt;, with code (see the gist link):&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;The Deferred Acceptance Algorithm (DAA) goes back to Gale and Shapley (1962). They introduce a rather simple algorithm that finds a stable matching for example for college admissions or in a marriage market. ... Variations of this algorithm are used in Hospital assignments in the USA, whereby recently graduated doctors submit preferences over hospitals, and hospitals submit preferences over graduates. ... Here I'm going to use R to make a little simulation of this&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;From an install-able github repository for &lt;a href=&quot;https://github.com/thiloklein/matchingMarkets&quot; rel=&quot;noreferrer&quot;&gt;matching markets&lt;/a&gt;:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;R package &lt;code&gt;matchingMarkets&lt;/code&gt; comes with two estimators:&lt;/p&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;code&gt;stabit&lt;/code&gt;: Implements a Bayes estimator that estimates agents' preferences and corrects for sample selection in matching markets when the selection process is a one-sided matching game (i.e. group formation).&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;code&gt;stabit2&lt;/code&gt;: Implements the Bayes estimator for a two-sided matching game (i.e. the &lt;a href=&quot;http://en.wikipedia.org/wiki/Stable_marriage_problem#Similar_problems&quot; rel=&quot;noreferrer&quot;&gt;college admissions&lt;/a&gt; and &lt;a href=&quot;http://en.wikipedia.org/wiki/Stable_marriage_problem&quot; rel=&quot;noreferrer&quot;&gt;stable marriage&lt;/a&gt; problems).&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;p&gt;and three algorithms that can be used to simulate matching data:&lt;/p&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;code&gt;hri&lt;/code&gt;: Constraint model for the hospital/residents problem. Finds &lt;em&gt;all&lt;/em&gt; stable matchings in two-sided matching markets. Implemented for both the &lt;a href=&quot;http://en.wikipedia.org/wiki/Stable_marriage_problem&quot; rel=&quot;noreferrer&quot;&gt;stable marriage problem&lt;/a&gt; (one-to-one matching) and the &lt;a href=&quot;http://en.wikipedia.org/wiki/Stable_marriage_problem#Similar_problems&quot; rel=&quot;noreferrer&quot;&gt;hospital/residents problem&lt;/a&gt;, a.k.a. college admissions problem (many-to-one matching).&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;code&gt;sri&lt;/code&gt;: Constraint model for the stable roommates problem. Finds all stable matchings in the &lt;a href=&quot;https://en.wikipedia.org/wiki/Stable_roommates_problem&quot; rel=&quot;noreferrer&quot;&gt;roommates problem&lt;/a&gt; (one-sided matching market).&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;code&gt;ttc&lt;/code&gt;: Top-Trading-Cycles Algorithm. Finds stable matchings in the &lt;a href=&quot;https://en.wikipedia.org/wiki/Top_trading_cycle&quot; rel=&quot;noreferrer&quot;&gt;housing market problem&lt;/a&gt;.&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;p&gt;Functions &lt;code&gt;hri&lt;/code&gt; and &lt;code&gt;sri&lt;/code&gt; allow for &lt;strong&gt;incomplete preference lists&lt;/strong&gt; (some agents find certain agents unacceptable) and &lt;strong&gt;unbalanced instances&lt;/strong&gt; (unequal number of agents on both sides).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Hopefully one of these can help. The second one in particular looks extremely useful, particularly if it provides an empirical estimator.&lt;/p&gt;&#xA;" OwnerUserId="17" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2016-09-03T13:32:25.260" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1672" PostTypeId="1" CreationDate="2014-12-18T13:35:14.267" Score="2" ViewCount="63" Body="&lt;p&gt;Extensive margin models use Rogerson (1988) style lotteries in order to simplify the savings problem under non-full-insurance.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, one could still write down the model in that style but instead of assuming full insurance (that is, marginal utility of consumption equalized among all individuals in the household, no matter whether working or not), do it with partial insurance, in order to match the data better.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I however have not seen this approach so far. Did I miss something? Or what would be arguments against this approach? Besides the obvious one: If you don't have full insurance but forbid savings at the individual agent level, you are an evil person.&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2014-12-19T00:24:18.667" Title="Extensive Labor Margin and Full Insurance" Tags="&lt;macroeconomics&gt;&lt;labor-economics&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="1673" PostTypeId="1" CreationDate="2014-12-18T14:41:55.897" Score="3" ViewCount="2991" Body="&lt;p&gt;I'm trying to figure out how the Gross value added is calculated. The first question that I have encountered is &quot;Does the Gross value added of an activity includes workers salary?&quot; If not, what is the difference between GVA and an activity profit?&lt;/p&gt;&#xA;" OwnerUserId="1472" LastEditorUserId="27" LastEditDate="2014-12-18T15:21:16.710" LastActivityDate="2014-12-21T19:48:46.687" Title="Gross value added and worker salary" Tags="&lt;macroeconomics&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="1674" PostTypeId="2" ParentId="1673" CreationDate="2014-12-18T15:28:20.010" Score="2" Body="&lt;p&gt;Looking at a Profit &amp;amp; Loss statement of a company, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Value Added = Personnel Costs (+) Depreciation Charges (+) Profits (or (-) Losses)&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It essentially is this concept that coincides exactly (in a narrow sense) to the fundamental production function with constant returns to scale, and factors of production only Capital and Labor, that moreover are being paid their marginal product:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Due to homogeneity of degree $1$, we have the production function&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ Y = F(K,L) = \frac {\partial F(K,L)}{\partial K}K + \frac {\partial F(K,L)}{\partial L}L$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So if the gross rate of return to capital equals its marginal product, and the wage equals labor's marginal product,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$r= \frac {\partial F(K,L)}{\partial K}, \;\; w=\frac {\partial F(K,L)}{\partial L}L$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;we get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Y = rK + wL$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So all of $Y$ goes to the factors of production that appear in the right-hand side.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But $rK=$ Depreciation Charges + Profits (or minus Losses), and $wL=$ Personnel Costs. So in reality, $Y$ is Value Added rather than Gross Sales (and most econometric studies where production functions are estimated, regress Value Added on labor and capital, rather than Gross Sales). An issue here could be how one views &lt;em&gt;interest costs&lt;/em&gt;, which are also returns to capital (irrespective of the fact that they do not belong to the shareholders -the company employs this capital and pays a fee for its use) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course the concept of production function can be enhanced to include separately materials and energy for example, in which case the appropriate dependent variable becomes Gross Sales.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2014-12-18T15:28:20.010" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1675" PostTypeId="2" ParentId="1631" CreationDate="2014-12-18T17:24:16.573" Score="4" Body="&lt;p&gt;This question rests on a few assumptions.&lt;/p&gt;&#xA;&lt;p&gt;So let's dig into them.&lt;/p&gt;&#xA;&lt;h1&gt;What Malthus Said&lt;/h1&gt;&#xA;&lt;p&gt;First, the Malthusian collapse you are referring to is similar to the Malthusian Trap, from whence it derives, so let's look at that.&lt;/p&gt;&#xA;&lt;p&gt;From &lt;a href=&quot;http://en.wikipedia.org/wiki/Malthusian_trap&quot; rel=&quot;nofollow noreferrer&quot;&gt;Wikipedia&lt;/a&gt;:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;In accordance with the theory, cross-country evidence indicates that technological superiority and higher land productivity had significant positive effects on population density but insignificant effects on the standard of living, during the time period 1–1500 AD. In addition, scholars have reported on the lack of a significant trend of wages in various places over the world for very long stretches of time. In Babylonia during the period 1800 to 1600 BC, for example, the daily wage for a common laborer was enough to buy about 15 pounds of wheat. In Classical Athens in about 328 BC, the corresponding wage could buy about 24 pounds of wheat. In England in 1800 AD the wage was about 13 pounds of wheat. In spite of the technological developments across these societies, the daily wage hardly varied. In Britain between 1200 and 1800, only relatively minor fluctuations from the mean (less than a factor of two) in real wages occurred in Britain. They peaked at around 1450 and in 1800 they were actually significantly worse.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;So to go back to the source, Malthus didn't predict a population explosion at all (or food price rises for that matter). In fact, his theory was specifically that population growth fluctuated with economic development such that the prices of wheat (in terms of wages) remained relatively stable over two millennia.&lt;/p&gt;&#xA;&lt;p&gt;This was known as the Malthusian Trap, where technological advancement would always be matched by (not exceeded by) population growth, resulting in the stagnation of living conditions.&lt;/p&gt;&#xA;&lt;p&gt;Since the time of Thomas Malthus, new evidence has emerged that, while the trap may exist, many societies break out of it, and achieve explosive growth in living conditions. This is generally termed, the &amp;quot;breakout&amp;quot;. In &lt;i&gt;A Trap At The Escape From The Trap?&lt;/i&gt;&lt;span class=&quot;math-container&quot;&gt;$^1$&lt;/span&gt;, &lt;a href=&quot;http://en.wikipedia.org/wiki/Andrey_Korotayev&quot; rel=&quot;nofollow noreferrer&quot;&gt;Andrey Korotayev&lt;/a&gt; suggests that this breakout leads to social upheaval, and may have played a role in events like the revolutions in Latin America, or possibly even the formation of the US. Unfortunately if we delve too far down the social macroevolution road we wind up having to have the &lt;a href=&quot;http://en.wikipedia.org/wiki/Guns,_Germs,_and_Steel&quot; rel=&quot;nofollow noreferrer&quot;&gt;Guns, Germs, and Steel&lt;/a&gt; discussion, and that's straying dangerously off topic, though I also want to throw in a reference to &lt;a href=&quot;http://en.wikipedia.org/wiki/Samuel_P._Huntington&quot; rel=&quot;nofollow noreferrer&quot;&gt;Huntington&lt;/a&gt;, as another great and accessible read on the really big picture.&lt;/p&gt;&#xA;&lt;h1&gt;But More People...!&lt;/h1&gt;&#xA;&lt;p&gt;But moving back to your assumptions. Let's assume that population and technological growth became uncoupled by the &amp;quot;breakout&amp;quot;. Now all of a sudden standards of living are at all time historical highs. Under Malthus we would expect the population growth rate to also be at historical highs.&lt;/p&gt;&#xA;&lt;p&gt;But it's not.&lt;/p&gt;&#xA;&lt;p&gt;In fact much of the developed world is at &amp;quot;peak population&amp;quot;, facing major demographic shifts as baby-boomers age out of the workforce faster than they are being replaced.&#xA;Japan faces a &amp;quot;&lt;a href=&quot;http://www.economist.com/blogs/banyan/2014/03/japans-demography&quot; rel=&quot;nofollow noreferrer&quot;&gt;demographic crisis&lt;/a&gt;&amp;quot;&lt;a href=&quot;http://en.wikipedia.org/wiki/Aging_of_Japan&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;span class=&quot;math-container&quot;&gt;$^2$&lt;/span&gt;&lt;/a&gt;&lt;a href=&quot;http://www.wwq.jp/indexfr.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;span class=&quot;math-container&quot;&gt;$^3$&lt;/span&gt;&lt;/a&gt;, the &lt;a href=&quot;http://www.census.gov/popclock/&quot; rel=&quot;nofollow noreferrer&quot;&gt;US shows substantial aging&lt;/a&gt; and even &lt;a href=&quot;https://www.google.com/publicdata/explore?ds=d5bncppjof8f9_&amp;amp;ctype=l&amp;amp;strail=false&amp;amp;bcs=d&amp;amp;nselm=h&amp;amp;met_y=sp_pop_grow&amp;amp;scale_y=lin&amp;amp;ind_y=false&amp;amp;rdim=region&amp;amp;idim=country:CHN:IND:USA&amp;amp;ifdim=region&amp;amp;tdim=true&amp;amp;hl=en&amp;amp;dl=en&amp;amp;ind=false&quot; rel=&quot;nofollow noreferrer&quot;&gt;China's growth rate has slowed dramatically and is now lower than the US's&lt;/a&gt;.&lt;/p&gt;&#xA;&lt;p&gt;In fact, according to the UN, the projected world population over the next several decades looks like this:&lt;br&gt;&#xA;&lt;img src=&quot;https://i.stack.imgur.com/DcCSF.png&quot; alt=&quot;enter image description here&quot; /&gt;&lt;/p&gt;&#xA;&lt;p&gt;Which you may notice is not an explosive growth. For more information on this, I'll defer to the experts at the Population Division of the Department of Economic and Social Affairs, and their &lt;a href=&quot;http://www.un.org/en/development/desa/population/publications/technical/2013-3.shtml&quot; rel=&quot;nofollow noreferrer&quot;&gt;technical paper&lt;/a&gt;&lt;/p&gt;&#xA;&lt;h1&gt;Cause and also Cause&lt;/h1&gt;&#xA;&lt;p&gt;Lastly, you're assertions rely on the assumption that increased population means food prices go up.&lt;/p&gt;&#xA;&lt;p&gt;But that's not how numbers work.&lt;/p&gt;&#xA;&lt;p&gt;Prices are denominated in currency.&lt;/p&gt;&#xA;&lt;p&gt;More people (without a correlating rise in currency), actually means there's fewer dollars per person. In that scenario, food prices would go &lt;strong&gt;down&lt;/strong&gt; (although probably slower than wages), leading to shortages. Price is a way of rationing scarce resources, but it's not the only way. The other way to ration is queueing, or shortage. This is what we see happen in developing nations. Rice is not more expensive, there just isn't enough rice there.&lt;/p&gt;&#xA;&lt;p&gt;If everyone only has \$5 a rice merchant can't charge \$6/lb, or he won't sell any.&lt;/p&gt;&#xA;&lt;h1&gt;An Inflationary Theory&lt;/h1&gt;&#xA;&lt;p&gt;In the event that the population increased, &lt;strong&gt;and&lt;/strong&gt; central banks also increased money supply, than standard economic models would predict that the prices of all commodities (not just food) would rise, since the relationship to amount of quantity over the amount money would have changed, or roughly&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\rho (\Delta P_n, \Delta \frac{M_0}{Q_n})&amp;gt;0$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;where &lt;span class=&quot;math-container&quot;&gt;$\rho$&lt;/span&gt; is correlation, and &lt;span class=&quot;math-container&quot;&gt;$P_n$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$Q_n$&lt;/span&gt; are price and quantity of &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt; respectively. Of note, there is some disagreement o whether &lt;span class=&quot;math-container&quot;&gt;$M_0$&lt;/span&gt; or another measure of money should be used, but prices in the US (as measured by CPI) have a substantial correlation with &lt;span class=&quot;math-container&quot;&gt;$M_0$&lt;/span&gt; (&lt;span class=&quot;math-container&quot;&gt;$\rho = 0.46$&lt;/span&gt; for &lt;span class=&quot;math-container&quot;&gt;$M_0$&lt;/span&gt; as compared to &lt;span class=&quot;math-container&quot;&gt;$0.086$&lt;/span&gt; for &lt;span class=&quot;math-container&quot;&gt;$M_1$&lt;/span&gt; from 1985-2013)&lt;span class=&quot;math-container&quot;&gt;$^3$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;This would be conformant with standard economics, and not reliant on a Malthusian population collapse.&lt;/p&gt;&#xA;&lt;p&gt;The only way we would expect prices to rise dramatically without central bank intervention would actually be &lt;strong&gt;after&lt;/strong&gt; the collapse, as people accumulated currency, and would trade more currency for food.&lt;/p&gt;&#xA;&lt;h1&gt;TL;DR&lt;/h1&gt;&#xA;&lt;p&gt;In the event of a zombie or post-nuclear apocalypse, cash will decline in value relative to commodities, so stock up on rations and bullets because dollars won't help.&lt;span class=&quot;math-container&quot;&gt;$^4$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;h1&gt;References&lt;/h1&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$^1$&lt;/span&gt;: Korotayev, A.; et al. (2011). &amp;quot;A Trap At The Escape From The Trap? Demographic-Structural Factors of Political Instability in Modern Africa and West Asia&amp;quot;. Cliodynamics 2/2: 1–28. &lt;br/&gt;&lt;br/&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$^2$&lt;/span&gt;: Aging of Japan. (2014, December 9). Retrieved December 18, 2014, from &lt;a href=&quot;http://en.wikipedia.org/wiki/Aging_of_Japan&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://en.wikipedia.org/wiki/Aging_of_Japan&lt;/a&gt; &lt;br /&gt;&lt;br/&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$^3$&lt;/span&gt;: Current research. You'll have to take my word or pull the data from St Louis Fed and BLS yourself.&#xA;&lt;br /&gt;&lt;br/&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$^4$&lt;/span&gt;: &lt;i&gt;Fallout: New Vegas&lt;/i&gt;. (2010). United States of America: Bethesda Softworks.&lt;/p&gt;&#xA;" OwnerUserId="31" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2014-12-20T05:46:08.043" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="1676" PostTypeId="1" CreationDate="2014-12-18T19:26:25.297" Score="10" ViewCount="589" Body="&lt;p&gt;In a two good world, will a marshallian demand function the likes of &lt;code&gt;D(p,m)&lt;/code&gt; where p is the price of one good and m the income yield a utility function or indifference curve function? If so, how does one go about solving this? &lt;/p&gt;&#xA;" OwnerUserId="1473" LastActivityDate="2014-12-19T07:17:09.420" Title="Is it possible to derive indifference curves given marshallian demand function?" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;consumer-theory&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="1677" PostTypeId="2" ParentId="1676" CreationDate="2014-12-18T19:55:28.390" Score="11" Body="&lt;p&gt;Yes, under some conditions. This is the classic &lt;strong&gt;integrability problem&lt;/strong&gt;: for detailed discussion, see some &lt;a href=&quot;http://people.hss.caltech.edu/~kcb/Notes/Demand4-Integrability.pdf&quot;&gt;excellent notes by Kim Border&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Several other technical conditions are required, but the most economically substantive condition is that the &lt;a href=&quot;http://en.wikipedia.org/wiki/Slutsky_equation&quot;&gt;Slutsky matrix&lt;/a&gt; must always be symmetric and negative semidefinite. To be concrete, if we define the $ij$th element of the Slutsky matrix at $(p,m)$ to be&#xA;$$\sigma_{ij}(p,m)=\frac{\partial D_i(p,m)}{\partial p_j}+D_j(p,m)\frac{\partial D_i(p,m)}{\partial m}$$&#xA;then we must have $\sigma_{ij}(p,m)=\sigma_{ji}(p,m)$ for all $(p,m)$, and also for any vector $v$ we must have for all $(p,m)$&#xA;$$\sum_i \sum_j \sigma_{ij}(p,m)v_iv_j \leq 0$$&#xA;The &lt;em&gt;necessity&lt;/em&gt; of these conditions follows immediately from basic consumer theory, which shows that if Marshallian demand is derived from constrained maximization of a utility function, then the Slutsky matrix is symmetric and negative semidefinite. But the &lt;em&gt;sufficiency&lt;/em&gt; of these conditions (in conjunction with some other technical assumptions) for us to back out a utility function is a more complicated matter, and to get the details I recommend Border's notes or some other advanced micro source.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If, &lt;em&gt;assuming that the Slutsky conditions hold&lt;/em&gt;, you want a rough practical way (ignoring the technical subtleties) to back out indifference curves in the typical two-good case, the simplest way is probably to use your knowledge of demand to determine the compensating change in expenditure that is necessary to adjust for a given change in prices. Specifically, for either $i=1,2$ use the identity&#xA;$$\frac{\partial e(p,u)}{\partial p_i} = h_i(p,u) = D_i(p,e(p,u))$$&#xA;which, given knowledge of the Marshallian demand function $D$, is a differential equation in the expenditure function $e$. Starting with some initial values $(\bar{p},\bar{m})$ that produce some unknown utility $\bar{u}$, we know that $e(\bar{p},\bar{u})=\bar{m}$. Then, varying $p_1$, we can integrate the above differential equation for $i=1$ to obtain $e(p_1,\bar{p}_2,\bar{u})$ for any $p_1$. And then we can get the Hicksian demand vector&#xA;$$h(p_1,\bar{p}_2,\bar{u})=D(p_1,\bar{p}_2,e(p_1,\bar{p}_2,\bar{u}))$$&#xA;for any $p_1$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since these Hicksian demands all correspond to the same utility $\bar{u}$, they are on the same indifference curve. By varying $p_1$, we will be able to trace out many different points on this indifference curve. In fact, if demand is sufficiently well-behaved, then we can trace out the entire indifference curve by varying $p_1$ enough in either direction. (By the way, &quot;tracing indifference curves&quot; is &lt;em&gt;all&lt;/em&gt; we can do in any event: since the cardinality of utility is irrelevant to Marshallian demand, we can only retrieve ordinal properties like indifference curves and their ordering.)&lt;/p&gt;&#xA;" OwnerUserId="405" LastEditorUserId="405" LastEditDate="2014-12-19T07:17:09.420" LastActivityDate="2014-12-19T07:17:09.420" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1678" PostTypeId="2" ParentId="188" CreationDate="2014-12-18T23:46:54.307" Score="13" Body="&lt;p&gt;I believe the problem is that the steady state may not exist, and the system instead exhibits steady growth (depending on parameters).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reason is because the model is equivalent to the standard consumption-saving problem with exogenous and constant interest rate. To see that, first consider the first order condition for labor choice $f_2(k,\ell) = w$ (here, $f_i$ is partial derivative of $f$ wrt. $i$th argument). Using the definition of constant returns, marginal product of labor is&#xA;$$&#xA;\frac{\partial }{\partial \ell} f(k,\ell) = \frac{\partial }{\partial \ell} \left[ f \left( \frac{k}{\ell},1 \right) \ell \right] = f_1 \left( \frac{k}{\ell},1 \right) \frac{-k}{\ell} + f \left( \frac{k}{\ell},1 \right)&#xA;$$&#xA;which is a function of capital-labor ratio only. If wage is constant, labor FOC determines uniquely the optimal $k/\ell$ ratio as a function of wage $w$ and other parameters. Since marginal product of capital&#xA;$$&#xA;\frac{\partial }{\partial k} f(k,\ell) = \frac{\partial }{\partial k} \left[ f \left( \frac{k}{\ell},1 \right) \ell \right] = f_1 \left( \frac{k}{\ell},1 \right)&#xA;$$&#xA;also depends on $k/\ell$, it will be constant along optimal path. Denote this value of marginal product $r^*$, and denote the return net of depreciation $r = r^* - \delta$. Equations (1) - (2) for dynamics of capital and consumption are then&#xA;$$&#xA;\begin{split}&#xA;\dot c_t &amp;amp;= (r - \rho) c_t \\&#xA;\dot k_t &amp;amp;= r k_t - c_t &#xA;\end{split}&#xA;$$&#xA;and the specific solution which satisfies transversality condition should be $c_t = \rho k_t$ with $k_0$ given, i.e. a constant part of wealth is consumed at each moment. Both capital and consumption grow at rate $(r-\rho)$, so there is no steady state unless the return on capital (which here depends on exogenous wage rate $w$) equals rate of time preference.&lt;/p&gt;&#xA;" OwnerUserId="1432" LastActivityDate="2014-12-18T23:46:54.307" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="1679" PostTypeId="2" ParentId="1672" CreationDate="2014-12-19T00:24:18.667" Score="2" Body="&lt;p&gt;I'm not very well versed in macro-labor, but I'm aware of a few papers that might be close to what you mean. One could make unemployment uninsurable, and instead let agents partially self-insure by saving capital, like in &lt;a href=&quot;https://ideas.repec.org/a/aea/aecrev/v97y2007i5p1939-1956.html&quot; rel=&quot;nofollow&quot;&gt;Chang &amp;amp; Kim (2007)&lt;/a&gt; AER paper. Also Krusell &amp;amp; coauthors have some papers (like &lt;a href=&quot;https://ideas.repec.org/a/oup/restud/v77y2010i4p1477-1507.html&quot; rel=&quot;nofollow&quot;&gt;2010 ReStud&lt;/a&gt;) where they combine uninsurable unemployment with search/matching framework.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The obvious problem is that dealing with heterogeneity is painful, because one must keep track of distribution of variables across agents (e.g. employment status and savings). If you're interested in computation and what can go wrong with it, check out &lt;a href=&quot;https://www.aeaweb.org/articles.php?doi=10.1257/aer.104.4.1446&quot; rel=&quot;nofollow&quot;&gt;comment&lt;/a&gt; on Chang &amp;amp; Kim paper by Takahashi (as well as reply by original authors in the same issue).&lt;/p&gt;&#xA;" OwnerUserId="1432" LastActivityDate="2014-12-19T00:24:18.667" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1680" PostTypeId="2" ParentId="188" CreationDate="2014-12-19T02:10:03.503" Score="8" Body="&lt;p&gt;I am posting this as an answer, because it continues on user @ivansml answer... which is the one that identified the catch here, a catch I naively have overlooked (although it is a narrow case, while the interesting part comes after. Nevertheless, it should have been dealt with).&lt;/p&gt;&#xA;&lt;p&gt;Indeed, with exogenous wage rate, and perfectly competitive optimization on labor demand, the marginal product of capital is determined only by the parameters of the model and by the wage rate. For the simple case where we assume that the wage rate is constant the analysis of @ivansml holds: the model becomes one of &lt;em&gt;endogenous growth&lt;/em&gt;: the marginal product of capital is constant, which is what is needed for endogenous growth, where there is no steady state in &lt;em&gt;levels&lt;/em&gt;.&lt;/p&gt;&#xA;&lt;p&gt;Denoting &lt;span class=&quot;math-container&quot;&gt;$\hat c = \dot c/c$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\hat k = \dot k /k$&lt;/span&gt; , equations &lt;span class=&quot;math-container&quot;&gt;$(1)$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$(2)$&lt;/span&gt; of the OP can be written&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\hat c =  f_k-\delta -\rho  \tag{1b}$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\hat k = f_k -  \delta  - c/k \tag{2b}$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;Since &lt;span class=&quot;math-container&quot;&gt;$f_k$&lt;/span&gt; is constant, the growth rate of consumption is constant - zero, positive, or negative, depending on the parameters and the wage. On the other hand differentiating &lt;span class=&quot;math-container&quot;&gt;$(2b)$&lt;/span&gt; with respect to time we get&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\dot {\hat k} = (\hat k - \hat c)\cdot (c/k)$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;and it is obvious that for steady-state growth we want &lt;span class=&quot;math-container&quot;&gt;$\hat k = \hat c$&lt;/span&gt;, which, from &lt;span class=&quot;math-container&quot;&gt;$(2b)$&lt;/span&gt; is obtained only if &lt;span class=&quot;math-container&quot;&gt;$c = \rho k$&lt;/span&gt;. It is easy to verify that, since &lt;span class=&quot;math-container&quot;&gt;$\lambda(t) = c(t)$&lt;/span&gt;, the only way that the transversality condition will hold, is if consumption and capital grow, or shrink, at the same rate (or stay constant).&lt;/p&gt;&#xA;&lt;p&gt;In endogenous growth models proper where we examine the whole economy, we just &lt;em&gt;assume&lt;/em&gt; that the parameters of the model are such that there is a positive growth rate, because this is what we observe in the real world. But here, we have just one individual. So, what we may be telling our businessman?&lt;/p&gt;&#xA;&lt;p&gt;If &lt;span class=&quot;math-container&quot;&gt;$f_k-\delta -\rho &amp;gt;0$&lt;/span&gt;, the growth rate is positive, and both his consumption and capital should grow &amp;quot;forever&amp;quot;, maintaining a constant ratio.&lt;br /&gt;&#xA;If &lt;span class=&quot;math-container&quot;&gt;$f_k-\delta -\rho =0$&lt;/span&gt;, the growth rate is zero, and both variable stay forever constant.&lt;br /&gt;&#xA;If &lt;span class=&quot;math-container&quot;&gt;$f_k-\delta -\rho &amp;lt;0$&lt;/span&gt;, the growth rate is negative, and we should enter into a downward spiral of diminishing consumption and capital (always maintaining the relation &lt;span class=&quot;math-container&quot;&gt;$c= \rho k$&lt;/span&gt;).&lt;/p&gt;&#xA;&lt;p&gt;This, has some intuition, validating the appropriateness of Optimal Control application: given the other parameters and the wage rate, the larger the &amp;quot;impatience&amp;quot; (the larger &lt;span class=&quot;math-container&quot;&gt;$\rho$&lt;/span&gt; is) the more possible becomes that the individual will experience diminishing consumption levels, since the future, and hence investment, are not much to his liking. Of course, a monotonic downward spiral may not sound very realistic as a solution -but this is a very stylized model, providing essentially general tendencies in a necessarily highly formal mathematical language.&lt;/p&gt;&#xA;&lt;p&gt;The &lt;em&gt;really interesting part&lt;/em&gt; will start if &lt;strong&gt;we consider a variable wage&lt;/strong&gt;. This can create all sorts of interesting and complicated dynamics for our little businessman and his consumption-investment decisions.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2020-11-28T13:22:23.610" LastActivityDate="2020-11-28T13:22:23.610" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="1681" PostTypeId="1" CreationDate="2014-12-19T07:05:58.850" Score="1" ViewCount="328" Body="&lt;p&gt;Suppose there is a leader with net profit function $EC(P_{1},Y,X)$ where $P_{1},Y$ are decision variables of leader. The follower's problem is given as follows:&#xA;$$\max_{X}ENP(P_{1},Y,X)=\max_{X}P_{1}X-c_{1}(X^2+\sigma^2)-p_{1}\int_{LB}^{Y-X}(Y-X-\epsilon)f(\epsilon)d\epsilon$$ where $c_{1},p_{1}$ are parameters of the model and $X$ is follower's decision variable. Here $\epsilon$ is random variable with support in $[LB,UB]$ ,probability density function $f(.)$ and cumulative distribution function $F(.)$. The follower's problem is solved. $ENP$ is concave function of follower's decision variable $X$ with optimal $X$ coming from first order condition given by:$P_{1}-2c_{1}X^{*}+p_{1}F(Y-X^{*})=0$. From this expression it can be seen that $X^{*}$ is an implicit function of model parameters and customer's decision variables. Then how do we substitute $X^{*}$ in leader's problem and solve the leader's problem.&lt;/p&gt;&#xA;" OwnerUserId="1477" LastActivityDate="2014-12-19T07:05:58.850" Title="How to solve leader's problem in stackelberg game when follower's optimal decision is implicit function of model parameters?" Tags="&lt;game-theory&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="1682" PostTypeId="1" CreationDate="2014-12-19T10:39:11.793" Score="1" ViewCount="155" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Higher interest rates offer lenders in an economy a higher return relative to other countries. Therefore, higher interest rates attract foreign capital and cause the exchange rate &lt;strong&gt;to rise.&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Does &lt;strong&gt;&lt;em&gt;to rise&lt;/em&gt;&lt;/strong&gt; means &lt;strong&gt;&lt;em&gt;the value of currency decreasing?&lt;/em&gt;&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerDisplayName="user1481" LastActivityDate="2014-12-19T12:46:43.017" Title="Does it mean that the value of currency decreases?" Tags="&lt;exchange-rates&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="1683" PostTypeId="2" ParentId="1682" CreationDate="2014-12-19T12:46:43.017" Score="3" Body="&lt;p&gt;This is a constant source of confusion in international macreconomics. There are two ways to define the exchange rate. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$E = \frac {\text {home}}{\text{foreign}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here, we express &quot;units of home currency per unit of foreign currency&quot; (or basket of foreign currencies). In this definition &#xA;$$E \uparrow \Rightarrow \text {home currency depreciates}= \text {value} \downarrow$$&#xA;so it can be confusing at times, since usually the object of study is a specific &quot;home&quot; currency.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The other way is the reciprocal&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$S = 1/E = \frac {\text{foreign}}{\text {home}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here we measure &quot;foreign currency units per unit of home currency&quot;, and so&#xA;$$S \uparrow \Rightarrow \text {home currency appreciates} = \text {value} \uparrow$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some argue that this second expression is more &quot;natural&quot; since it expresses the &quot;price&quot; of home currency in terms of foreign currency, i.e. &quot;what is the price of 1 euro ? 1.22 USD&quot;, &quot;what is the price of 1 USD?  0.82 euro&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But not even the notation is standard (for example, the wikipedia article uses the symbol $S$ to denote the exchange rate that we denoted by $E$).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One way to avoid confusion is to write the various relations with subscripts, and use just one symbol for the exchange rate. Using $S$ as this symbol, the subscript $f$ for &quot;foreign&quot; and the subscript $h$ for &quot;home&quot; we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$S_{h/f} = \frac {\text {home}}{\text{foreign}},\;\; S_{f/h} = \frac {\text{foreign}}{\text {home}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the specific question, since interest rates are in focus, it appears that the underlying law is the Uncovered Interest Rate Parity (UIRP), where&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$1+i_h = (1+i_f)\left(\frac {S_{h/f, t+1}}{S_{h/f,t}}\right)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Rightarrow_{\text{approx}}\;\; i_h = i_f + \Delta s_{h/f,t+1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;or&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$i_h= i_f - \Delta s_{f/h,t+1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $s$ denotes the natural logarithm, and $\Delta$ is the first-difference operator. By looking at the UIRP, we see that if the home interest rate is higher than the foreign interest rate, $i_h &amp;gt; i_f$, it must be the case that $\Delta s_{h/f,t+1} &amp;gt;0$ to satisfy the relation. $\Delta s_{h/f,t+1} &amp;gt;0$ is expected percentage change in the &quot;home per foreign unit&quot; exchange rate. So we say that the home currency is expected to &lt;em&gt;depreciate&lt;/em&gt;...  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But hey, intuition appears to say otherwise:&#xA;Assume $i_h$ rises above $i_f$. Then foreign investors have a motive to deposit their funds in the home economy, since the interest is higher. But in order to do so, they increase the demand for the home currency, since they need to convert their funds in home currency units. Assuming constant home money supply, this &lt;strong&gt;leads to an increase in the value of home currency compared to other currencies&lt;/strong&gt;. But it does that &lt;em&gt;now&lt;/em&gt; so mathematically it decreases the &lt;em&gt;current&lt;/em&gt; exchange rate, $S_{h/f,t}$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$i_h &amp;gt; i_f \Rightarrow S_{h/f,t} &amp;lt; S_{h/f,t+1} \Rightarrow \Delta s_{h/f,t+1} &amp;gt; 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words a higher home interest rate increases the value of the home currency &lt;em&gt;now&lt;/em&gt;, creating expectations for home currency depreciation in the future.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2014-12-19T12:46:43.017" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="1684" PostTypeId="1" CreationDate="2014-12-19T15:25:02.147" Score="6" ViewCount="232" Body="&lt;p&gt;What exactly is computational economics? For example, does certain software for calculating/predicting/visualizing cost of manufacture falls under computational economics?&lt;/p&gt;&#xA;" OwnerUserId="1482" LastActivityDate="2015-02-05T17:01:50.640" Title="Computational economics" Tags="&lt;computation&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="1685" PostTypeId="2" ParentId="1684" CreationDate="2014-12-19T15:30:29.647" Score="6" Body="&lt;p&gt;Taken right from the &lt;a href=&quot;http://comp-econ.org&quot;&gt;society for computational economics&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Computational economics explores the intersection of economics and&#xA;  computation. These areas include agent-based computational modeling,&#xA;  computational econometrics and statistics, computational finance,&#xA;  computational modeling of dynamic macroeconomic systems, computational&#xA;  tools for the design of automated Internet markets, programming tools&#xA;  specifically designed for computational economics, and pedagogical&#xA;  tools for the teaching of computational economics. Some of these areas&#xA;  are unique to computational economics, while others extend traditional&#xA;  areas of economics to new areas through computational techniques.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I would say that calculating cost of manufacture is too trivial to fall under this category - unless it's a monopolist who has to take into account equilibrium responses of his suppliers and demanders to his choices. &lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2014-12-19T15:30:29.647" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="1686" PostTypeId="1" CreationDate="2014-12-19T15:51:27.690" Score="2" ViewCount="26" Body="&lt;p&gt;&lt;a href=&quot;https://fguvenendotcom.files.wordpress.com/2014/04/gkos_2014_fg6.pdf&quot; rel=&quot;nofollow&quot;&gt;Guvenen et al&lt;/a&gt; look at earnings shocks over time, and try to argue whether these are compatible with standard career-ladder models with normal shocks.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, their data is no real shocks, it is time differences in labor earnings. We do not know which part of these were expected. What are things to consider if one tries to take into account for the fact that these income changes are - to some extent - expected ex ante? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My first guess would be that since people expect future rise in income, correcting the &quot;shocks&quot; for that would mean that the &lt;em&gt;unexpected&lt;/em&gt; part of the shocks is to the left of their yearly changes in wage income. That is, there are more shocks downwards than upwards. &lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2014-12-19T21:46:01.540" Title="Guvenen et al: Earnings" Tags="&lt;labor-economics&gt;&lt;wages&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1687" PostTypeId="2" ParentId="1684" CreationDate="2014-12-19T16:20:05.323" Score="6" Body="&lt;p&gt;@Foobar provides an excellent reference. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Whenever I am looking into a new area of economics, I generally check two places almost immediately (after google, of course :)&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;The &lt;a href=&quot;http://www.elsevier.com/books/book-series/handbooks-in-economics&quot;&gt;Handbooks in Economics&lt;/a&gt; series, and &lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://www.dictionaryofeconomics.com/dictionary&quot;&gt;New Palgrave Dictionary of Economics&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The Handbooks series has &lt;a href=&quot;http://www.sciencedirect.com/science/handbooks/15740021&quot;&gt;three very nice volumes&lt;/a&gt; that cover a broad range of &quot;what computational economics is;&quot; I'd highly recommend checking them out. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;At the time of this writing, I'm not aware of a nice central article in Palgrave for computational economics (which is a shame). However if you search the dictionary for articles related to computational economics, you'll get a lot of results. The first few pages of results are have a reasonable set of topics. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'd definitely recommend checking the Handbooks of Economics first. Peruse the tables of contents of each to get a reasonable overview of what people publish in these fields. You might also check out some of the journals of the Society for Computational Economics: Journal of Economics Dynamics and Control, Computational Economics. Flip through the table of contents for the journals. &lt;/p&gt;&#xA;" OwnerUserId="17" LastActivityDate="2014-12-19T16:20:05.323" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1688" PostTypeId="1" CreationDate="2014-12-19T18:31:29.780" Score="-3" ViewCount="90" Body="&lt;p&gt;You may have heard of the Myers Briggs personality profile test. Is there a similar test for societies?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The MB has four dimensions &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Introversion/Extraversion &lt;/li&gt;&#xA;&lt;li&gt;iNtuition/Sensing &lt;/li&gt;&#xA;&lt;li&gt;Feeling/Thinking&lt;/li&gt;&#xA;&lt;li&gt;Perception/Judging&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I'm thinking that a society (which could be as large as a nation, or as small as an office) will have other attributes, such as&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Patriarchal/Matriarchal&lt;/li&gt;&#xA;&lt;li&gt;Corporate/Entrepreneur&lt;/li&gt;&#xA;&lt;li&gt;Rural/Urban&lt;/li&gt;&#xA;&lt;li&gt;Centralized/Decentralized (government)&lt;/li&gt;&#xA;&lt;li&gt;Religious/Secular&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;etc. Does a &quot;society profile test&quot; like that already exist?  Hopefully with data already collected?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sorry if this is off topic. I couldn't find any &quot;sociology stack exchange&quot;&lt;/p&gt;&#xA;" OwnerUserId="1484" LastActivityDate="2014-12-19T18:43:42.877" Title="Is there a &quot;personality test&quot; for societies?" Tags="&lt;behavioral-economics&gt;&lt;markets&gt;&lt;scientific-method&gt;&lt;history-economic-thought&gt;" AnswerCount="1" CommentCount="3" ClosedDate="2014-12-21T20:00:02.067" ContentLicense="CC BY-SA 3.0" />
  <row Id="1689" PostTypeId="2" ParentId="1688" CreationDate="2014-12-19T18:43:42.877" Score="2" Body="&lt;p&gt;&lt;a href=&quot;http://www8.gsb.columbia.edu/rtfiles/leadership/Graham_Jesse_paper.pdf&quot; rel=&quot;nofollow&quot;&gt;Jonathan Haidt&lt;/a&gt; has used a five axis model to characterize groups by their use of 5 sets of moral intuitions. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Harm/care, Fairness/reciprocity, Ingroup/loyalty, Authority/ respect,&#xA;  and Purity/sanctity. Across 4 studies using multiple methods, liberals&#xA;  consistently showed greater endorsement and use of the Harm/care and&#xA;  Fairness/reciprocity foundations compared to the other 3 foundations,&#xA;  whereas conservatives endorsed and used the 5 foundations more&#xA;  equally.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://scholar.google.com/scholar?q=Jonathan%20Haidt%20authority%20%20purity&amp;amp;btnG=&amp;amp;hl=en&amp;amp;as_sdt=0%2C21&quot; rel=&quot;nofollow&quot;&gt;He's got several papers in this area&lt;/a&gt;. I don't know of any attempts to use this framework to describe groups other than liberals, conservatives, and libertarians, but in principle you could. &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2014-12-19T18:43:42.877" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1690" PostTypeId="1" AcceptedAnswerId="1691" CreationDate="2014-12-19T19:45:03.607" Score="6" ViewCount="1020" Body="&lt;p&gt;What statistics and linear algebra book do I need before reading &lt;a href=&quot;http://fhayashi.fc2web.com/hayashi_econometrics.htm&quot; rel=&quot;noreferrer&quot;&gt;Hayashi's Econometrics?&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Basics linear algebra book seems too simple for the linear algebra part, and &#xA;Casealla's statistical inference is missing out detail/too basic for the statistical part&lt;/p&gt;&#xA;" OwnerUserId="95" LastEditorUserId="95" LastEditDate="2014-12-19T20:26:09.280" LastActivityDate="2014-12-19T21:05:39.197" Title="What statistics and linear algebra book do i need before reading Hayashi's econometrics" Tags="&lt;econometrics&gt;&lt;reference-request&gt;" AnswerCount="1" CommentCount="6" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="1691" PostTypeId="2" ParentId="1690" CreationDate="2014-12-19T21:05:39.197" Score="8" Body="&lt;p&gt;The &lt;strong&gt;Linear algebra&lt;/strong&gt; part should not worry you, it is just basic linear algebra plus familiarizing yourself a bit with &lt;a href=&quot;http://en.wikipedia.org/wiki/Matrix_calculus&quot;&gt;differentiation of vectors and matrices&lt;/a&gt; (and for some chapters, visualizing the &lt;a href=&quot;http://en.wikipedia.org/wiki/Kronecker_product&quot;&gt;Kronecker product&lt;/a&gt;).  Hayashi goes some length into writing out explicitly large matrices, which is virtually with no-precedent (see eg. pages 267, or 288), something that eventually facilitates understanding -as long as you don't back out from a matrix half a page large, but you really &lt;em&gt;look&lt;/em&gt; at it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What you should really go slow over upon is Hayashi's &lt;strong&gt;notation&lt;/strong&gt;, which is non-standard in many places. So &lt;em&gt;don't expect to understand through familiar notation&lt;/em&gt;. Be prepared for that and &quot;read&quot; carefully every symbol and its role. Many people's discomfort with this book is due to the notation, but they don't realize it.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for the &lt;strong&gt;Statistics part&lt;/strong&gt;: In Econometrics, since we deal almost always with non-experimental, observational data, a large part of Statistics (originating usually in Biostatistics) do not really enter (our) picture. For example, apart from proving that under certain conditions the OLS estimator is best linear unbiased, you won't see much regarding the issues of minimum variance estimation or sufficient statistics. We don't even discuss the Exponential Family of distributions and the concept of Generalized Linear Models. Also, in statistical Hypothesis testing the Fisherian spirit prevails (oozing through the Neyman-Pearson apparatus), meaning, among other things, that issues like the &quot;power of the test&quot; are not so often considered.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Moreover &quot;frequentist Econometrics&quot;, which is what Hayashi presents, are considerably lighter than Bayesian Econometrics in terms of the Algebra of Random Variables and probability theory.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What really matters is a good familiarity with &lt;em&gt;basic&lt;/em&gt; Asymptotic Theory and Stochastic Processes (for the Time Series part). Although Hayashi in most cases just states results, providing references for the proofs, nevertheless it would be good to feel comfortable with asymptotic results and properties, because in most cases, &lt;em&gt;it will be all your estimators will possess&lt;/em&gt;. For this part, I will once more advocate A. Spanos' book, &lt;a href=&quot;http://www.cambridge.org/lt/academic/subjects/economics/econometrics-statistics-and-mathematical-economics/probability-theory-and-statistical-inference-econometric-modeling-observational-data&quot;&gt;Probability Theory and Statistical Inference - Econometric Modeling with Observational Data&lt;/a&gt;. It is a valuable book, Hayashi or not Hayashi. It is Statistics with the Econometrics graduate student in mind.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In case you want some more specific Time Series material, Hamilton's &lt;a href=&quot;http://press.princeton.edu/titles/5386.html&quot;&gt;Time Series Analysis&lt;/a&gt; remains a standard reference.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, regarding &lt;strong&gt;Unit-root Econometrics and Co-Integration&lt;/strong&gt;, the subject is inherently advanced, and I think Hayashi has done a good job in collecting and presenting the very basics.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2014-12-19T21:05:39.197" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="1692" PostTypeId="2" ParentId="1686" CreationDate="2014-12-19T21:38:06.473" Score="1" Body="&lt;p&gt;If I understand correctly we have &lt;em&gt;observed&lt;/em&gt; earnings first-differences that we decompose into an &quot;expected&quot; part and an &quot;unexpected&quot; part. But f they are unexpected, it means something like&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$y_{t+1} -y_t = h(I_t) + u_{t+1} , \;\;E(u_{t+1}\mid I_t)=0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $I_t$ is the &quot;information set&quot; (in the broad sense) at time $t$. So by construction, the unexpected part will have conditional mean zero. But , this does &lt;em&gt;not&lt;/em&gt; imply necessarily that $u_{t+1}$ will also have a &lt;em&gt;symmetric&lt;/em&gt; distribution around zero. If as you conjecture, there are &quot;more shocks downwards (negative) rather than downwards&quot;, the distribution will have more probability mass in the negative. Then, in order to maintain a zero-mean the distribution will have to have &lt;em&gt;higher values&lt;/em&gt; on the positive: more and smaller negative shocks, fewer and higher positive shocks.  Something like a shifted to the left gamma distribution, so as to have zero-mean,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/NV07C.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this close to what you have in mind?&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2014-12-19T21:46:01.540" LastActivityDate="2014-12-19T21:46:01.540" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1693" PostTypeId="1" CreationDate="2014-12-19T21:39:41.803" Score="4" ViewCount="94" Body="&lt;p&gt;The model specification is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$D_{ij} = A + aP_{ij} + bY_{ij} + cN_{ij} + e_{ij}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$i, j$ = $i$-th year, $j$-th month,&#xA;$D$= demand (outgoing minutes)&#xA;$P$ = average price of call,&#xA;$Y$ = average income per capita,&#xA;$N$ = number of base stations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;During the 5-year period under examination, a tax has been levied on telecom gross revenues for two years. Is it reasonable to include instrumental variable such as amount of revenue/profit which could have direct effect on price? If not, perhaps you have any other suggestions. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any guidelines would be very appreciated.&lt;/p&gt;&#xA;" OwnerUserId="1482" LastEditorUserId="61" LastEditDate="2014-12-21T20:47:28.113" LastActivityDate="2014-12-21T20:47:28.113" Title="Demand function estimation" Tags="&lt;elasticity&gt;&lt;applied-econometrics&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="1694" PostTypeId="2" ParentId="416" CreationDate="2014-12-19T22:09:12.110" Score="9" Body="&lt;p&gt;The answer by &lt;a href=&quot;https://economics.stackexchange.com/users/405/nominally-rigid&quot;&gt;nominally rigid&lt;/a&gt; very correctly hints at oil prices as one of the major causes. I'd add more details and numbers to this point. A slightly longer version is available &lt;a href=&quot;http://antontarasenko.com/2014/12/19/a-brief-history-of-russian-debt/&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;h1&gt;1. Russian corporations borrowed in foreign currency when external debt was cheaper than domestic debt&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;Paul Krugman &lt;a href=&quot;http://krugman.blogs.nytimes.com/2014/12/18/notes-on-russian-debt/?module=BlogPost-Title&amp;amp;version=Blog%20Main&amp;amp;contentCollection=Opinion&amp;amp;action=Click&amp;amp;pgtype=Blogs&amp;amp;region=Body&quot; rel=&quot;nofollow noreferrer&quot;&gt;pointed&lt;/a&gt; at the PPP vs exchange rate changes. I've made a similar plot for absolute values of PPP:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/OphzE.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;External debt was cheaper than domestic one until high oil prices supported the ruble. A corporation paid 12-18% annually for ruble-denominated debt and a fraction of this interest for dollar-denominated debt. So, corporations thought it was a good idea to borrow abroad.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;h1&gt;2. Russian corporations had to pay this debt under financial sanctions and declining oil prices&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;That is, a shortage of foreign currency when private corporations must paid their debts by the end of 2014:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/DsGCT.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;h1&gt;3. The Russian Central Bank refused to support the ruble when Russian corporations needed dollars&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;The Central Bank held more than half of the balance-of-payment surplus accumulated over 2000-2008, but it marketed only about $100 bn. when multiple factors basically halted the currency influx and someone at home had to put dollars on the table:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/LqlM9.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;h1&gt;Finally, when the exchange rates hiked in December, even debt-free entities started buying foreign currency&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;Apart from borrowers that sought some $50 bn. for foreign creditors, the market was full of those who tried to buy dollars because exchange rate speculations yielded up to 10% &lt;em&gt;daily&lt;/em&gt;. The ruble went into freefall:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/V8dMK.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;" OwnerUserId="240" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2014-12-19T22:09:12.110" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="1696" PostTypeId="1" CreationDate="2014-12-19T23:22:10.693" Score="5" ViewCount="1963" Body="&lt;p&gt;As said in the title, why is real wage divided by marginal product of labor often called real marginal cost?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In mathematical formula, $mc_t = (W_t/P_t)/MPN_t$ where $MPN_t$ refers to marginal product of labor, $\partial Y_t/\partial N_t$ and $N_t$ is amount of labor. $W_t$ refers to nominal wage, and $P_t$ refers to price level. &lt;/p&gt;&#xA;" OwnerUserId="1485" LastActivityDate="2014-12-22T16:27:15.667" Title="why is real wage divided by marginal product of labor often called real marginal cost?" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;wages&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1700" PostTypeId="2" ParentId="1696" CreationDate="2014-12-20T00:56:56.843" Score="1" Body="&lt;p&gt;This relation can be obtained if we realize that Total Cost can be written as a function of output (which in turn is a function of input factors), but also, that Total Cost equals total payments to factors of production. In real terms,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$TC=TC(Q) = (w/p)N + (r/p)K$$&#xA;with the payment rates exogenous. But $Q = Q(N,K)$. Differentiate both sides by $N$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\partial TC(Q(N,K))}{\partial N} = w/p $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Rightarrow \frac {\partial TC(Q(N,K))}{\partial Q}\cdot \frac {\partial Q(N,K)}{\partial N} = w/p$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Rightarrow MC \cdot MPN = w/p \Rightarrow MC = \frac {w/p}{MPN}$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;One can perform the same exercise to obtain the analogous relation with respect to capital:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$MC = \frac {r/p}{MPK}$$&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2014-12-22T16:27:15.667" LastActivityDate="2014-12-22T16:27:15.667" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1701" PostTypeId="1" CreationDate="2014-12-20T02:07:54.970" Score="11" ViewCount="287" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Every dollar a research worker earns makes the economy \$5 better off and every dollar a finance worker makes costs the economy \$0.60&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So &lt;a href=&quot;http://www.reddit.com/r/Economics/comments/2pouvj/every_dollar_a_worker_earns_in_a_research_field/&quot;&gt;Reddit Economics&lt;/a&gt; yesterday posited and later retracted the above claim, and I was wondering, in the field of econometrics, are there any guidelines for how professions impact the national economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The RIMS II and similar systems all focused on regional economies, and were largely driven by anticipated spending patterns, so consequently focused on the demand side of the equation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there an equivalent concept for GDP based on productivity or supply? Like a worker productivity (which I know is available in aggregate for current and historical US workers) broken down by NAICS/SIC code or other industrial designation?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a follow on, are there comparative studies I could reference that compare this measure across time and countries? (IE Mexican automanufacturer production post-NAFTA compared to Japanese electronic manufacturer ca ~1980).&lt;/p&gt;&#xA;" OwnerUserId="31" LastActivityDate="2016-02-21T19:58:30.227" Title="What are the economic impacts of different professions?" Tags="&lt;macroeconomics&gt;&lt;econometrics&gt;" AnswerCount="1" CommentCount="8" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="1702" PostTypeId="1" CreationDate="2014-12-20T03:56:10.527" Score="7" ViewCount="295" Body="&lt;h1&gt;Premise&lt;/h1&gt;&#xA;&lt;p&gt;In the United States, women have been replacing men in the workforce, or rather were from sometime prior to 1976 until the mid-90's. (The general upward trend is from the recent recession, sorry, I'm recycling a graph from another presentation).&lt;/p&gt;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/1A3FR.jpg&quot; alt=&quot;People not working&quot; /&gt;&lt;/p&gt;&#xA;&lt;p&gt;Presumably, this occurred when a more qualified woman got a job over a male counterpart as women entered the workforce.&lt;/p&gt;&#xA;&lt;p&gt;Given that, one would expect the economy to grow substantially as overall productivity rose.&lt;/p&gt;&#xA;&lt;p&gt;Yet US GDP growth did not appear to outpace the world over that period, since not all the world liberalized their gender roles simultaneously.&lt;/p&gt;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/aKCp8.png&quot; alt=&quot;GDP Growth Rate&quot; /&gt;&lt;/p&gt;&#xA;&lt;h1&gt;Question&lt;/h1&gt;&#xA;&lt;p&gt;Why is that?&lt;/p&gt;&#xA;&lt;p&gt;Is there a flaw in the reasoning, or were the effects simply not visible at the scale I've looked because the data was too volatile or confounded by external factors.&lt;/p&gt;&#xA;&lt;p&gt;I'd be interested in any studies that dealt with this topic and offered potential causal mechanisms for breaking the presumed link between (again, the presumed) increased efficiency, and output growth.&lt;/p&gt;&#xA;&lt;p&gt;Thanks!&lt;/p&gt;&#xA;&lt;h1&gt;Sources:&lt;/h1&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;LNS10000001 - Civilian noninstitutional population, male&lt;/li&gt;&#xA;&lt;li&gt;LNS11000001 - Civilian labor force, male&lt;/li&gt;&#xA;&lt;li&gt;LNS10000002 - Civilian noninstitutional population, female&lt;/li&gt;&#xA;&lt;li&gt;LNS11000002 - Civilian labor force, female&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.google.com/publicdata/explore?ds=d5bncppjof8f9_&amp;amp;ctype=l&amp;amp;strail=false&amp;amp;bcs=d&amp;amp;nselm=h&amp;amp;met_y=ny_gdp_mktp_kd_zg&amp;amp;scale_y=lin&amp;amp;ind_y=false&amp;amp;rdim=region&amp;amp;idim=country:USA&amp;amp;ifdim=region&amp;amp;tdim=true&amp;amp;hl=en&amp;amp;dl=en&amp;amp;ind=false&quot; rel=&quot;noreferrer&quot;&gt;Google&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="31" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2021-03-11T00:34:21.843" Title="How did reducing the employment gender gap impact the US economy?" Tags="&lt;macroeconomics&gt;" AnswerCount="3" CommentCount="7" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="1703" PostTypeId="1" CreationDate="2014-12-20T05:15:59.917" Score="3" ViewCount="472" Body="&lt;p&gt;How does one solve a linear forward-looking equation $x_t = \beta E_t[x_{t+1}] + k$ where $\lim_{t \to \infty} x_t = 0$ and constant $k,\beta \in \mathbb{R}$, $0&amp;lt;\beta &amp;lt;1$? &lt;/p&gt;&#xA;" OwnerUserId="1488" LastActivityDate="2014-12-22T16:29:49.283" Title="How to solve a linear forward-looking equation $x_t = \beta E_t[x_{t+1}] + k$ where $\lim_{t \to \infty} x_t = 0$ and $0&lt;\beta &lt; 1$?" Tags="&lt;macroeconomics&gt;&lt;mathematical-economics&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="1704" PostTypeId="1" CreationDate="2014-12-20T05:29:24.810" Score="1" ViewCount="62" Body="&lt;p&gt;Are there any &lt;em&gt;de facto&lt;/em&gt; standards when publishing, or is there substantial latitude in deriving one's own methodology?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand in practice, even the &lt;a href=&quot;http://research.stlouisfed.org/wp/2011/2011-001.pdf&quot; rel=&quot;nofollow&quot;&gt;St. Louis Fed&lt;/a&gt; is gently skeptical of the validity of most technical methods, but I was wondering how academia viewed them. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;While Dooley and Shafer (1976, 1984) were largely dismissed, Neely and Weller (1999) seemed to fare fairly well using genetic algorithms, and Markov and ARIMA methods are reviewed more or less favorably in terms of predictive value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is accuracy of prediction (and consequently profitability) even necessarily a factor in modelling for academia, or is the simplicity and explanatory value more heavily favored?$^1$&#xA;&lt;br&gt;&lt;br&gt;$^1$*Note: Not sure if this merits a separate question, or can be answered as an elaboration of the primary*&lt;/p&gt;&#xA;" OwnerUserId="31" LastActivityDate="2014-12-20T08:06:40.177" Title="What are the most popular technical models used for forecasting exchange rates in international economics?" Tags="&lt;international-economics&gt;&lt;exchange-rates&gt;" AnswerCount="1" CommentCount="3" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1705" PostTypeId="2" ParentId="1704" CreationDate="2014-12-20T08:06:40.177" Score="1" Body="&lt;p&gt;Writing as an academic modeller who would use the outputs of such models, what's required (and what I look for as a reviewer) is:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;reproducibility: the algorithm is described with sufficient detail to enable someone else to reimplement it;&lt;/li&gt;&#xA;&lt;li&gt;validation, using data that is completely distinct from the calibration dataset; and&lt;/li&gt;&#xA;&lt;li&gt;that the output is a &lt;em&gt;distribution&lt;/em&gt; of forecasts, not just point values.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Such a distribution can then be fed into ensemble modelling. So instead of using a single forecast of the future value of a currency pair, I could feed in the distribution to a monte carlo simulator or similar.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It doesn't need to have the right expected value, nor a correct value for volatility (or any other moment).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;All that makes it essentially useless for trading. And that's a good thing, because no one of sound mind would give away a profitable forex forecaster: such a forecaster would immediately render itself obsolete as it entered common use.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2014-12-20T08:06:40.177" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="1706" PostTypeId="2" ParentId="1703" CreationDate="2014-12-20T09:37:40.803" Score="0" Body="&lt;p&gt;Since there is nothing random on the right-hand side, we know that the left-hand-side must be non-random either. Hence, we can drop the expectations operator&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$x_t = \beta x_{t+1} + k$$&#xA;$$x_{t+1} = \beta x_{t+2} + k$$&#xA;$$x_t = \beta (\beta x_{t+2} + k) + k$$&#xA;$$x_t = k + \beta k + \beta\beta x_{t+2} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where we can now see where this equation is leading towards:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$x_t = k\sum_{s=0}^\infty \beta^s + \lim_{T\to\infty} \beta^Tx_T$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where I have used that the limiting term with $T\to\infty$ will converge to zero.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$x_t = \frac{1}{1-\beta} k$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which yields a constant $x$. However, this violates $lim_{t\to\infty} x_t = 0$, as $x_t$ is a constant. To conclude, the given equation has no solution.&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2014-12-21T13:02:15.897" LastActivityDate="2014-12-21T13:02:15.897" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1707" PostTypeId="1" CreationDate="2014-12-20T12:30:07.837" Score="4" ViewCount="39" Body="&lt;p&gt;A recent entry at GitHub's blog caught my attention: &lt;a href=&quot;https://github.com/LOT&quot; rel=&quot;nofollow&quot;&gt;https://github.com/LOT&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &quot;network&quot; claims to provide protection from patent trolls by entering into an agreement automatically granting all members perpetual licenses to any patent assets sold to third parties.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The network's member list is quite impressive: Asana, Canon Inc., DropBox, Inc., GitHub, Inc., &lt;strong&gt;Google Inc.&lt;/strong&gt;, Khan Academy, Inc., Newegg Inc., Pure Storage Inc., &lt;strong&gt;Red Hat Inc.&lt;/strong&gt;, &lt;strong&gt;SAP SE&lt;/strong&gt;, SAS Institute Inc., SolarCity Corp.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Membership fee schedule is based on annual revenue and heavily biased against small businesses:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;&amp;lt;$10M           $1,500&#xA;$10M to $25M    $2,500&#xA;$25M to $50M    $5,000&#xA;$50M to $100M  $10,000&#xA;$100M to $1B   $15,000&#xA;&amp;gt;$1B           $20,000&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Under the License On Transfer (LOT) Agreement, every company that participates grants a license under its patents to the other participants that becomes effective with respect to a particular patent when that patent is transferred to a non-participant, e.g., a patent assertion entity (PAE). This structure protects LOT participants from patent attacks by the non-participant (e.g., a PAE) to which the patent is sold while completely preserving the real business uses of a participant’s patent portfolio. The Agreement includes value-preserving provisions. For example, Transfers as part of a Change of Control to a Non-Assertion Entity or qualified M&amp;amp;A are carved out.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Would be nice to have any refs that may answer the following questions:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Is the agreement pro- or anticompetitive?&lt;/li&gt;&#xA;&lt;li&gt;At what scale would it be effective against patent trolls?&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="284" LastActivityDate="2014-12-20T12:30:07.837" Title="Are there any economic studies of License-On-Transfer agreements?" Tags="&lt;microeconomics&gt;&lt;industrial-organisation&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="1708" PostTypeId="2" ParentId="1703" CreationDate="2014-12-20T12:53:19.160" Score="0" Body="&lt;p&gt;As FooBar says, you can drop the expectation. Then derive the general $n$-th case for $x_{t}$ in terms of $x_{t+n}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$x_{t}=\beta^{n}x_{t+n}+k\sum_{i=0}^{n}\beta^{i}.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As $n\rightarrow \infty$, $\beta^{n} \rightarrow 0$ and (we are told) $x_{t+n} \rightarrow 0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, using the above $$x_{t}=\lim_{n\rightarrow \infty}\left[\beta^{n}x_{t+n}+k\sum_{i=0}^{n}\beta^{i}\right]=\frac{k}{1-\beta},$$&#xA;where we have used the fact that the geometric sum converges because $0&amp;lt;\beta&amp;lt;1$,&#xA;$$\lim_{n\rightarrow \infty}\sum_{i=0}^{n}\beta^{i}=\frac{1}{1-\beta}.$$&lt;/p&gt;&#xA;" OwnerUserId="1435" LastEditorUserId="1435" LastEditDate="2014-12-20T15:12:31.417" LastActivityDate="2014-12-20T15:12:31.417" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="1710" PostTypeId="1" CreationDate="2014-12-20T15:30:21.990" Score="14" ViewCount="12475" Body="&lt;p&gt;I dont understand the relationships between Hicksian demand, walrasian demand (marshallian), the expenditure function and the indirect utility function (including the value function V(b)).  I have found this subject very difficult and cannot comprehend how they relate to each other due to the formality that is used in the books I have available! &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand how to derive the indirect utility, however, I need to be comfortable to show how I can use it to derive the expenditure function and the rest and how they differ in dualities! &lt;/p&gt;&#xA;" OwnerUserId="1491" LastEditorUserId="120" LastEditDate="2015-05-10T14:47:18.247" LastActivityDate="2015-05-10T14:47:18.247" Title="The relationship between the expenditure function and many others!" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;&lt;utility&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="1711" PostTypeId="2" ParentId="1703" CreationDate="2014-12-20T22:51:39.443" Score="1" Body="&lt;p&gt;(I suspect that $E_t[x_{t+1}] = E(x_{t+1}\mid I_t)$, where $I_t$ is the Information Set, i.e. $E_t[x_{t+1}]$ is translated as &quot;the expected value of random variable $x_{t+1}$ conditional on Information available at time $t$&quot;).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;@FooBar answer implemented the &quot;standard solution algorithm&quot;, arrived at a constant solution, and remarked that such a solution violates the limiting condition.&lt;br&gt;&#xA;Strictly speaking, a constant solution would satisfy the limiting solution also, if it was equal to zero (which in our case implies $k=0$): If indeed we had as solution&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$x_t = \frac k{1-\beta}$$&#xA;then&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\lim_{t \to \infty} x_t = \lim_{t \to \infty}\frac k{1-\beta} = \frac k{1-\beta} \neq 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;except if $k=0$. But this is trivial (or at least, uninteresting).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So I ask, &lt;strong&gt;if $k\neq 0$, what would it take to obtain a solution&lt;/strong&gt;? The law of evolution must hold also at the limit so &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\lim_{t \to \infty} x_t = \lim_{t \to \infty}\Big[\beta E_t[x_{t+1}] + k\Big]=0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Rightarrow \lim_{t \to \infty}E_t[x_{t+1}] = -\frac k{\beta} \tag{1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In words, as the random variable tends to zero, its expected value conditional on information available in the previous period, must equal a non-zero &lt;em&gt;constant&lt;/em&gt;, while the variable itself tends to zero. Consider some cases, to see whether and when such a thing can happen:  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;A)&lt;/strong&gt; If $x_t$ was &lt;em&gt;totally unobservable&lt;/em&gt;, (not observed directly, and not amenable to indirect estimation though other variables)? In such a case, the information set would not contain any information on $x_t$, meaning that the conditional expected value would equal the unconditional one. So we would have,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\lim_{t \to \infty}E_t[x_{t+1}] = \lim_{t \to \infty}E[x_{t+1}] \tag{2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is economics, meaning that the properties of the mathematical entities should take into account what do they represent in the real world. So it would be meaningless &lt;em&gt;not&lt;/em&gt; to assume that $x_{t+1}$ is &lt;em&gt;not&lt;/em&gt; bounded (more over, this would mean that the $x$ random variable goes to infinity in finite time and then &quot;comes back&quot; to tend to zero in infinite time -and for those who may think &quot;hyperinflation&quot;, hyperinflation is a &lt;em&gt;very very&lt;/em&gt; small number compared to infinity). If it is bounded then the Dominated/Bounded Convergence theorem holds and we have that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\lim_{t \to \infty}E\left(x_{t+1}\right) =E\left(\lim_{t \to \infty}x_{t+1}\right) =0 \neq -\frac k{\beta} \tag{3}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So this is not a case in which we can obtain the required relation $(1)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;B)&lt;/strong&gt; The limiting condition is part of the information sets for finite $t$. Then immediately  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$E\left(\lim_{t \to \infty}x_{t+1}\mid I_t\right) =0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In words, at any point in time we know that the variable will tend eventually to zero. Can this be compatible with relation $(1)$? We could invoke again the boundedness of $x_t$, and a generalization of the Dominated Convergence Theorem, since here the (conditional probability) measure is also time-varying, and again obtain a zero expectation at the limit. But intuitively also, if we know that eventually the variable will tend to zero, at some point in time this must be reflected in $E_t$, most certainly at the limit. But then again, the required relation $(1)$ won't hold.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;C)&lt;/strong&gt; We do observe perfectly or imperfectly the value of the variable, but &quot;we don't give proper notice&quot;: our Expectations are &lt;em&gt;not&lt;/em&gt; Rational. In that case, the symbol $E_t$ &lt;em&gt;no longer represents the conditional expectations operator&lt;/em&gt;, but it is just a generic symbol for the &quot;anticipation at time $t$&quot; (in Adaptive Learning literature this is usually symbolized by $E^*_t$) and &lt;em&gt;it acquires the value it needs to acquire for the limiting condition to hold&lt;/em&gt;.  In other words, &lt;em&gt;given&lt;/em&gt; the law of evolution &lt;em&gt;and&lt;/em&gt; the limiting condition, we &lt;em&gt;conclude&lt;/em&gt; that expectations must not obey the Rational Expectations Hypothesis, &lt;em&gt;not even at the limit&lt;/em&gt;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In such a case, a solution is obvious: &lt;em&gt;define&lt;/em&gt; &#xA;$$E^*_t(x_{t+1}) = -\frac {(1-c\beta^t)k}{\beta}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;for some constant $c$, This expectations formation rule satisfies $(1)$, and  transforms the law of motion into&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$x_t = \beta \Big[-\frac {(1-c\beta^t)k}{\beta}\Big] + k = ck\beta^t$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which in turn satisfies the limiting condition.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So we conclude that: &lt;strong&gt;the specific equation, with the specific limiting condition, has a solution if expectations formation does not obey the Rational Expectations Hypothesis, but instead follows the above rule, or some other to the same limiting effect.&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2014-12-22T16:29:49.283" LastActivityDate="2014-12-22T16:29:49.283" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1712" PostTypeId="2" ParentId="1693" CreationDate="2014-12-20T23:17:15.167" Score="3" Body="&lt;p&gt;It appears that you suspect that the regressor &quot;price&quot; is endogenous, i.e. correlated with the error term, and that you consider what kind of instrument to use in order to tackle endogeneity.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You think a possible instrument could be revenues or profits, because they are correlated with the price. Say, Revenues, denoted by $R$. But&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$R_{ij} = P_{ij}\cdot D_{ij} = P_{ij}\cdot(A + aP_{ij} + bY_{ij} + cN_{ij} + e_{ij})$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and so Revenues are a &lt;em&gt;function&lt;/em&gt; of the error term, therefore they will &lt;em&gt;certainly&lt;/em&gt; be correlated with it, and same goes for profits (and this should be obvious since both depend on quantity and therefore on the error term).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In order to find an admissible instrument, you must first conclude about &lt;em&gt;what are the variables&lt;/em&gt; that may be included in the error term, and are correlate with price. This will help you to search for admissible instruments. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;PS:&lt;/strong&gt; I cannot see the connection of the tax mentioned with the issue of instrumental variables estimation.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2014-12-20T23:17:15.167" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="1713" PostTypeId="1" CreationDate="2014-12-20T23:42:47.837" Score="4" ViewCount="72" Body="&lt;p&gt;What are public sources for US firm/plant sizes, in order to characterize the firm size distribution? And what are stylized facts about the firm size distribution: What does it approximate to? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Somewhat related: What about the firm age distribution? That is, the distribution of firms given their age. I understand the latter is a soft concept in the data, but are there first-order approximations for age, and how does its distribution look?&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-04-15T04:47:14.750" Title="Distribution of firm sizes and firm age" Tags="&lt;data-request&gt;&lt;firm&gt;&lt;micro-data&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="1714" PostTypeId="1" AcceptedAnswerId="1721" CreationDate="2014-12-21T00:27:40.837" Score="14" ViewCount="644" Body="&lt;p&gt;Due to Comparative Advantage, it is generally accepted among economists that free-trade is the best policy for a country and increases the standard of living for the citizens of that country and the country with which it trades.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have heard, however, that there are certain instances where it would be more beneficial (on the whole for that particular country) for the country to restrict trade with other nations.  Have there been instances like this where economists have advocated a trade embargo with another nation?  &lt;/p&gt;&#xA;" OwnerUserId="27" LastEditorUserId="27" LastEditDate="2014-12-21T19:50:42.607" LastActivityDate="2014-12-27T06:38:50.447" Title="Have there been instances where economists have advocated a trade embargo?" Tags="&lt;international-trade&gt;&lt;free-trade&gt;" AnswerCount="1" CommentCount="3" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="1715" PostTypeId="1" AcceptedAnswerId="1801" CreationDate="2014-12-21T00:50:02.857" Score="3" ViewCount="1860" Body="&lt;p&gt;The subsequent types of trading blocs have the following definitions:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;&lt;em&gt;Free Trade Area&lt;/em&gt; -- free trade among members&lt;/p&gt;&#xA;&lt;p&gt;&lt;em&gt;Customs Union&lt;/em&gt; -- free trade among members &lt;strong&gt;and&lt;/strong&gt; common external tariff&lt;/p&gt;&#xA;&lt;p&gt;&lt;em&gt;Common Market&lt;/em&gt; -- free trade among members, common external tariff, &lt;strong&gt;and&lt;/strong&gt; free movement of factors of production&lt;/p&gt;&#xA;&lt;p&gt;&lt;em&gt;Economic Union&lt;/em&gt; -- free trade among members, common external tariff, free movement of factors of production, &lt;strong&gt;and&lt;/strong&gt; harmonization of all economic policies&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;What are some real-world examples of these different types of trading blocs?&lt;/p&gt;&#xA;" OwnerUserId="27" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2015-06-04T21:39:10.423" Title="What are some real-world examples of the different types of trading blocs?" Tags="&lt;international-trade&gt;&lt;free-trade&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="1716" PostTypeId="1" CreationDate="2014-12-21T01:04:51.783" Score="16" ViewCount="503" Body="&lt;p&gt;When a country, say Greece, adopted the Euro as its currency, what happened to the debt that was based on the Drachma? Was it converted into Euros?&lt;/p&gt;&#xA;" OwnerUserId="1494" LastEditorUserId="8481" LastEditDate="2020-05-04T14:27:40.870" LastActivityDate="2020-05-04T14:27:40.870" Title="When a country adopts the Euro, what happens to its debt?" Tags="&lt;currency&gt;&lt;debt&gt;&lt;euro-area&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="1717" PostTypeId="2" ParentId="212" CreationDate="2014-12-21T02:51:09.837" Score="2" Body="&lt;p&gt;I did not read the following paper, but it seems to be using fractals in a game theoretic context :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.academia.edu/9842169/Fractal_Geometry_of_Equilibrium_Payoffs_in_Discounted_Supergames&quot; rel=&quot;nofollow&quot;&gt; &#xA;Fractal Geometry of Equilibrium Payoﬀs in Discounted Supergames, by Kimmo Berg and Mitri Kitti&#xA;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="38" LastActivityDate="2014-12-21T02:51:09.837" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1718" PostTypeId="2" ParentId="1716" CreationDate="2014-12-21T06:11:23.413" Score="12" Body="&lt;p&gt;Yes, upon the introduction of the euro on January 1, 1999, all debt (indeed, all nominal contracts) in participating countries was converted from national currency to euros at a legally defined conversion rate. See &lt;a href=&quot;http://www.ecb.europa.eu/press/pr/date/1998/html/pr981231_2.en.html&quot; rel=&quot;nofollow&quot;&gt;this press release from December 31, 1998&lt;/a&gt;, which states:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In accordance with Article 109l (4) of the Treaty establishing the&#xA;  European Community, the irrevocable conversion rates for the euro were&#xA;  today adopted by the EU Council, upon a proposal from the Commission&#xA;  of the European Communities and after consultation of the European&#xA;  Central Bank (ECB) for effect at 0.00 on 1 January 1999 (local time).&#xA;  In compliance with the legal framework for the use of the euro, the&#xA;  irrevocable conversion rate for the euro for each participating&#xA;  currency is the only rate to be used for conversion either way between&#xA;  the euro and the national currency unit and also for conversions&#xA;  between national currency units.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The euro conversion rates are the following...&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;For the particular case of Greece, which joined the euro on January 1, 2001 instead, the conversion rate with the drachma was apparently set at 1 euro = 340.750 drachma by &lt;a href=&quot;http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32000R1478&quot; rel=&quot;nofollow&quot;&gt;this regulation&lt;/a&gt; in June 2000.&lt;/p&gt;&#xA;" OwnerUserId="405" LastEditorUserId="2" LastEditDate="2015-08-31T15:59:59.387" LastActivityDate="2015-08-31T15:59:59.387" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="1719" PostTypeId="2" ParentId="212" CreationDate="2014-12-21T06:41:56.620" Score="3" Body="&lt;p&gt;Mandelbrot's original application to cotton prices, &lt;a href=&quot;http://web.williams.edu/Mathematics/sjmiller/public_html/341Fa09/econ/Mandelbroit_VariationCertainSpeculativePrices.pdf&quot; rel=&quot;nofollow&quot;&gt;The Variation of Certain Speculative Prices&lt;/a&gt;, claimed that the price fluctuations followed a &lt;a href=&quot;http://en.wikipedia.org/wiki/Stable_distribution&quot; rel=&quot;nofollow&quot;&gt;Lévy stable distribution&lt;/a&gt; with a stability parameter $\alpha$ below 2. ($\alpha=2$ corresponds to the normal distribution.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To be honest, I'm not sure how this was an application of &quot;fractals&quot; where previous contributions were not. While the sample paths of the Lévy stable process we was investigating have fractal characteristics—for instance, a non-integer &lt;a href=&quot;http://en.wikipedia.org/wiki/Fractal_dimension&quot; rel=&quot;nofollow&quot;&gt;fractal dimension&lt;/a&gt;—so does good old Brownian motion, which has fractal dimension of 1.5. Indeed, the relationship between fractal dimension $D$ and the stability parameter $\alpha$ is $D=2-1/\alpha$, so that Lévy stable processes with $\alpha\in (1,2)$ actually have a $D$ closer to 1 than Brownian motion—in a sense, they're &lt;em&gt;less&lt;/em&gt; fractal!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The contribution of Mandelbrot here was, I think, to illustrate the rich variety of possible stochastic processes that asset prices can follow. (Processes that happen to exhibit a variety of fractal features.) He proposed, for instance, both Lévy stable processes as in the cotton price paper and, &lt;a href=&quot;http://www.csee.wvu.edu/~xinl/library/papers/math/geometry/mandelbrot1968.pdf&quot; rel=&quot;nofollow&quot;&gt;later&lt;/a&gt;, &lt;a href=&quot;http://en.wikipedia.org/wiki/Fractional_Brownian_motion&quot; rel=&quot;nofollow&quot;&gt;fractional Brownian motion&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since this isn't my field (and I'm relying on half-remembered undergraduate knowledge at the moment), I can't say too much about the cutting edge of research here. I do know that &lt;a href=&quot;https://statistik.econ.kit.edu/download/doc_secure1/SymposiumBRKF.pdf&quot; rel=&quot;nofollow&quot;&gt;&quot;tempered&quot; Lévy stable distributions&lt;/a&gt; are still quite popular for modeling. (These distributions make tails enough thinner that all moments exist, whereas the usual Lévy stable distributions with parameter $\alpha$ have no moments $\alpha$ or higher. Not having a finite second moment is a big problem for financial applications, which is why this modification is necessary.) Variants of &lt;a href=&quot;http://scholar.google.com/scholar?q=fractional%20brownian%20motion&amp;amp;as_ylo=2000&quot; rel=&quot;nofollow&quot;&gt;fractional Brownian motion remain common&lt;/a&gt; as well. This &lt;a href=&quot;http://en.wikipedia.org/wiki/Financial_models_with_long-tailed_distributions_and_volatility_clustering&quot; rel=&quot;nofollow&quot;&gt;Wikipedia article,&lt;/a&gt; although not too well-written, discusses why such stochastic processes can be useful for financial modeling.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's safe to say that Mandelbrot has a very, very active legacy in finance.&lt;/p&gt;&#xA;" OwnerUserId="405" LastActivityDate="2014-12-21T06:41:56.620" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1720" PostTypeId="2" ParentId="1710" CreationDate="2014-12-21T07:23:06.643" Score="13" Body="&lt;p&gt;Not sure how much this will help, but the diagram in Mas-Colell p.75 is something I always have in mind when deriving these functions.  I'm not sure what books you're using, but Microeconomics by Mas-Colell et al. is the go to graduate resource.  But I prefer Microeconomic Analysis by Varian.  Much easier to read and still has the important content needed for graduate level work.  From my experience, deriving as many Walrasian demands as possible and just working the process is what got me comfortable with understanding.  If you are looking for examples I can apply some formulas to show you how it works, but you seem to understand this.  I also have pages and pages of practice problems if you need another resource as well.  Hope this helps :)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/SPFe5.png&quot; alt=&quot;Microeconomics : Mas-Colell&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Update : Here are a few practice problems from some of my problem sets.  Careful with the last one.  Enjoy&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If possible, compute Hicksian, Walrasian, Expenditure, and Indirect for each of the following: &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;$e(p,u) = (p_{1} + p_{2})u$&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;$e(p,u) = p_{1} +p_{2} + up_{1}$&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;$h(p,u) = ( \frac{up_{2}}{p_{1}} , \frac{up_{1}}{p_{2}})$&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;$x(p,w) = ( \frac{w}{p_{1}} , \frac{w}{p_{2}} )$&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Edit ; Update to explain #4&lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;4&quot;&gt;&#xA;&lt;li&gt;$x(p,w) = ( \frac{w}{p_{1}} , \frac{w}{p_{2}} )$&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;At first look, you can see that all the wealth is being used up for each demand $(x_{1}, x_{2})$, which is not possible given the income constraint&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$p_{1}x_{1}+p_{2}x_{2} = w$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One of the properties of the Walrasian Demand is that Walras' Law holds.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Walras' Law : $px = w$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A simple way to show that Walras' Law does not hold is to simple plug in the demands for the income constraint.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$p_{1} ( \frac{w}{p_{1}}) + p_{2} ( \frac{w}{p_{2}}) = w$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$2w \neq w$ ; therefore Walras' Law does not hold and this is not a Walrasian demand.&lt;/p&gt;&#xA;" OwnerUserId="1496" LastEditorUserId="1496" LastEditDate="2015-02-17T00:33:59.927" LastActivityDate="2015-02-17T00:33:59.927" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1721" PostTypeId="2" ParentId="1714" CreationDate="2014-12-21T07:35:39.060" Score="16" Body="&lt;p&gt;Free trade is, on the whole, one of the few otherwise controversial policy topics on which economists have near-perfect consensus. Historically, this consensus has long been strong in the English tradition (Hume, Smith, Ricardo, Mill), albeit less strong elsewhere. Famously, 1028 American economists signed an unsuccessful petition in 1930 begging Herbert Hoover not to approve the &lt;a href=&quot;http://www.wsj.com/articles/SB118593352401884265&quot; rel=&quot;noreferrer&quot;&gt;Smoot-Hawley tariff&lt;/a&gt;. If the &lt;a href=&quot;http://www.igmchicago.org/igm-economic-experts-panel/poll-results?SurveyID=SV_0dfr9yjnDcLh17m&quot; rel=&quot;noreferrer&quot;&gt;IGM Economic Experts panel&lt;/a&gt; is any guide, consensus remains firm today.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That said, off the top of my head, various cases in which &lt;em&gt;some&lt;/em&gt; modern economists have departed from advising free trade include:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;strong&gt;&lt;a href=&quot;http://en.wikipedia.org/wiki/Import_substitution_industrialization&quot; rel=&quot;noreferrer&quot;&gt;Import substitution&lt;/a&gt;&lt;/strong&gt; and related protectionist &lt;a href=&quot;http://en.wikipedia.org/wiki/Developmentalism&quot; rel=&quot;noreferrer&quot;&gt;development philosophies&lt;/a&gt; in the early postwar era. These were never (as far as I know) advocated by many economists in the neoclassical tradition, but they certainly had support among influential other figures, notably &lt;a href=&quot;http://en.wikipedia.org/wiki/Ra%C3%BAl_Prebisch&quot; rel=&quot;noreferrer&quot;&gt;Raúl Prebisch&lt;/a&gt;; enough that they were put into action in many parts of the developing world, especially Latin America. The mainstream verdict on import substitution is that it was a costly failure, although there are notable heterodox dissenters like Ha-Joon Chang. &lt;a href=&quot;http://rodrik.typepad.com/dani_rodriks_weblog/2007/05/should_economis.html&quot; rel=&quot;noreferrer&quot;&gt;Dani Rodrik&lt;/a&gt; also has a slightly less heterodox record of free trade skepticism.&lt;/li&gt;&#xA;&lt;li&gt;Cases of &lt;strong&gt;market power&lt;/strong&gt;. Here, economists do not necessarily advocate departing from free trade in practice; but they do recognize that (in principle) it can be &lt;em&gt;individually&lt;/em&gt; optimal for countries with either some monopoly or monopsony power to try to manipulate the terms of trade in their favor via trade restrictions (potentially either import or export tariffs). Many large, developed countries probably have some market power of this kind, and specialized commodity suppliers do as well. This observation is the basis of some &lt;a href=&quot;http://www.princeton.edu/~erossi/courses_files/Gatt.pdf&quot; rel=&quot;noreferrer&quot;&gt;economic theories of trade agreements&lt;/a&gt;, which are modeled as devices for countries to coordinate on a Pareto optimal free trade regime and overcome their individual desire to manipulate the terms of trade.&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;Aggregate demand management&lt;/strong&gt; when monetary tools are limited (due to the zero lower bound). Paul Krugman &lt;a href=&quot;http://krugman.blogs.nytimes.com/2009/02/01/protectionism-and-stimulus-wonkish/&quot; rel=&quot;noreferrer&quot;&gt;has discussed how&lt;/a&gt; protectionist clauses in stimulus plans could in principle be globally optimal, by allowing countries to retain more of the benefits of their own stimulus and thereby encouraging them to do more. Another case is where countries facing the zero lower bound could impose tariffs on unconstrained countries, in an attempt to redirect expenditure to demand-constrained economies. That said, Krugman still (mostly) favors free trade and doubts that the benefits of such a policy would overcome the cost to the global free trade regime.&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;Distributional consequences&lt;/strong&gt;. This is a common refrain in popular critiques of free trade: many pundits argue that even if trade is beneficial in some aggregate sense, its adverse distributional impact (e.g. hurting the already-suffering manufacturing workforce) negates the overall benefit. Indeed, in models where gains from trade arise from differing factor endowments, the whole point is that some factor (the domestically scarce but internationally not-so-scarce one) will lose; this is the idea behind the &lt;a href=&quot;http://en.wikipedia.org/wiki/Stolper%E2%80%93Samuelson_theorem&quot; rel=&quot;noreferrer&quot;&gt;Stolper-Samuelson theorem&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Traditionally, most economists have argued that it is better to have free trade and address any distributional or insurance objectives through the overall tax-and-transfer system. Whether not this conclusion holds in a formal model, however, depends on exactly what instruments are available to the government; it's conceivable that trade barriers would be an optimal second or third-best policy in some cases. The left-wing heterodox economist Dean Baker has &lt;a href=&quot;http://paecon.net/PAEReview/issue45/Baker45.pdf&quot; rel=&quot;noreferrer&quot;&gt;strenuously argued&lt;/a&gt; along these lines (though he has certainly not offered a formal model). More in the mainstream, an &lt;a href=&quot;http://www.princeton.edu/~ies/IESWorkshopS2011/HansonPaper.pdf&quot; rel=&quot;noreferrer&quot;&gt;early version&lt;/a&gt; of &lt;a href=&quot;http://economics.mit.edu/files/6613&quot; rel=&quot;noreferrer&quot;&gt;Autor, Dorn, Hanson (AER 2013)&lt;/a&gt; made a suggestive stab in this direction with a back-of-the-envelope calculation showing that the deadweight loss from transfers induced by Chinese trade was a substantial fraction of the theoretical gains from trade - though this calculation was rough and evidently removed from the published version. Notably, Autor was one of the few IGM panelists with an &quot;uncertain&quot; reply about the benefits from trade. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="405" LastEditorUserId="405" LastEditDate="2014-12-27T06:38:50.447" LastActivityDate="2014-12-27T06:38:50.447" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1722" PostTypeId="2" ParentId="1710" CreationDate="2014-12-21T08:27:23.337" Score="14" Body="&lt;p&gt;Following up on the excellent MWG diagram in Amstell's answer, the fundamental observation needed is that holding $p$ fixed, $e$ and $v$ are &lt;em&gt;inverses of each other&lt;/em&gt;. $e$ tells us the amount we need to spend to get a certain amount of utility $u$, while $v$ tells us the maximum amount of utility we can get from a certain expenditure $w$. Whenever we want to convert from utility to wealth, we use $e$; and whenever we want to convert from wealth to utility, we use $v$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;All the key identities can be derived from this observation. For instance, suppose we want to derive an identity for $\partial v(p,w)/\partial p_i$. We already know the corresponding identity for the expenditure function, $\partial e(p,u)/\partial p_i=h_i(p,u)$. To turn this into an identity for $v$, we substitute $w=e(p,u)$, obtaining $v(p,e(p,u))=u$, and differentiate with respect to $p_i$. The chain rule implies&#xA;$$\frac{\partial v(p,e(p,u))}{\partial p_i} + \frac{\partial v(p,e(p,u))}{\partial w}\cdot\frac{\partial e(p,u)}{\partial p_i} =0\\&#xA;\Longleftrightarrow \frac{\partial v(p,w)}{\partial p_i} = -\frac{\partial v(p,w)}{\partial w}\cdot x_i(p,w)$$&#xA;which, if we divide by $-\partial v/\partial w$ on both sides, becomes Roy's identity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or, suppose that we want to derive the Slutsky equation, which gives the relationship between the derivatives of Marshallian and Hicksian demand (decomposing a Marshallian demand change into substitution and income effects). Analogously to above, we can substitute $w=e(p,u)$ into Marshallian demand $x(p,w)$ to obtain $x(p,e(p,u))=h(p,u)$. Then, differentiating with respect to $p_i$ on both sides and applying the chain rule gives&#xA;$$\frac{\partial x(p,e(p,u))}{\partial p_i} + \frac{\partial x(p,e(p,u))}{\partial w}\cdot \frac{\partial e(p,u)}{\partial p_i} = \frac{\partial h(p,u)}{\partial p_i}\\&#xA;\Longleftrightarrow \frac{\partial x(p,w)}{\partial p_i}=\frac{\partial h(p,u)}{\partial p_i} - \frac{\partial x(p,w)}{\partial w}\cdot x_i(p,w)&#xA;$$&#xA;In general, I think the heuristic &quot;switch between $w$ and $u$ as needed using $v$ and $e$&quot; allows you to get pretty much everything here. (A similar heuristic is also useful if you ever deal with Frisch demand systems, where marginal utility $\lambda$ plays the same role that $w$ and $u$ do in Marshallian and Hicksian demand systems.)&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Of course, there is one other key fact used above, which is $\partial e(p,u)/\partial p_i = h_i(p,u)$, which for $w=e(p,u)$ becomes $\partial e(p,u)/\partial p_i = x_i(p,w)$. This is best viewed, instead, as a direct consequence of the venerable &lt;a href=&quot;http://en.wikipedia.org/wiki/Envelope_theorem&quot; rel=&quot;noreferrer&quot;&gt;&lt;strong&gt;envelope theorem&lt;/strong&gt;&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;($\partial v/\partial p_i$ can also be derived from the slightly more advanced version of the envelope theorem, where constraints as well as the objective are allowed to depend on a parameter. Since varying $p_i$ in the utility maximization problem changes the budget  &lt;em&gt;constraint&lt;/em&gt; rather than the &lt;em&gt;objective&lt;/em&gt;, the envelope theorem says that its effect will depend on the Lagrange multiplier on that constraint, which is the marginal utility $\partial v/\partial w$ of wealth. This is a good intuition for why the expression for $\partial v/\partial p_i$ is more complicated than the expression for $\partial e/\partial p_i$, picking up an extra factor.)&lt;/p&gt;&#xA;" OwnerUserId="405" LastEditorUserId="405" LastEditDate="2015-05-09T23:13:54.133" LastActivityDate="2015-05-09T23:13:54.133" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1723" PostTypeId="1" CreationDate="2014-12-21T13:59:26.517" Score="4" ViewCount="208" Body="&lt;p&gt;In some time series texts, there are some talks about one-sided polynomial on lag operator $L$. I tried looking up what this means, but I cannot find one. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So what does one-sided polynomial on lag operator, $a(L)$, mean?&lt;/p&gt;&#xA;" OwnerUserId="1500" LastEditorUserId="61" LastEditDate="2014-12-21T16:31:12.837" LastActivityDate="2014-12-21T16:31:20.773" Title="What does one-sided polynomial on lag operator $L$ mean?" Tags="&lt;macroeconomics&gt;&lt;econometrics&gt;&lt;time-series&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="1724" PostTypeId="2" ParentId="1702" CreationDate="2014-12-21T15:55:42.647" Score="2" Body="&lt;p&gt;I'm eyeballing that the unemployment rate of man rose by 3% while the rate for woman fall by 13. Clearly not all of those newly working woman replaced man.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You choose a rather long period with incredible changes to the US economy; The one I think responsible for the effect you saw being the shift from manufacturing to service.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Situation in 1977 can be seen on Page 10 (4 in the original numbering) of the &lt;a href=&quot;ftp://ftp2.census.gov/econ1977/Graphic_Summary_of_the_1977_Economic_Censuses.pdf&quot; rel=&quot;nofollow&quot;&gt;1977 Census&lt;/a&gt;.&#xA;It shows 44% of all employees working in manufacturing and 39% in service (Retail + &quot;Selected services industries&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Contrast that to the &lt;a href=&quot;http://www.census.gov/prod/ec97/e97cs-1.pdf&quot; rel=&quot;nofollow&quot;&gt;1997 Economics Census&lt;/a&gt; (Page 20 or 14) where &quot;Retail Trade&quot; alone employed more people than manufacturing - and Services almost double compared to manufacturing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That shift favored woman (and probably was &lt;em&gt;only possible&lt;/em&gt; due to more woman choosing not be stay-at-home moms) which explains the diminishing employment gap.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(The methodology of those reports has changed considerably so the exact percentage rates can certainly not be compared -- but the shift is so big that the conclusion stands unchallenged)&lt;/p&gt;&#xA;" OwnerUserId="1499" LastActivityDate="2014-12-21T15:55:42.647" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1725" PostTypeId="2" ParentId="1723" CreationDate="2014-12-21T16:31:20.773" Score="5" Body="&lt;p&gt;The terms &quot;one-sided&quot;  and &quot;two-sided&quot; lag-polynomials, are used when the text considers the option to specify an equation with both &quot;lags and leads&quot;, i.e a relation where both past but also future values co-vary with current value. When the lag-operator is &quot;one-sided&quot; it contains only lags in the one direction. When it is two-sided, it contains &quot;lags&quot; in both directions.&lt;br&gt;&#xA;In some cases, scholars have used the term &quot;forward&quot; operator to verbally contrast it with the &quot;lag&quot; operator, but my impression is that it is not so widely used.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;One may wonder &quot;so if I read &quot;one-sided lag-polynomial&quot;, does it mean that I will consider only past values, or only future values?&quot;. The answer is that in almost all cases the &lt;em&gt;invertibility condition&lt;/em&gt; holds, so in principle and in theory, it makes no difference. In other words, in principle the term &quot;one-sided lag polynomial&quot; may mean either&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\phi(L) = 1+\phi_1L+ \phi_2L^2+...$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;or&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\phi(L) = 1+\phi_1L^{-1}+ \phi_2L^{-2}+...$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $L^{-1}x_t = x_{t+1}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A specification with a two-sided lag polynomial may appear to violate a basic causality postulate (the arrow of time), but we should remember that estimated relationships are relationships of association, not causation.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So when the concern and goal is purely &lt;em&gt;forecasting&lt;/em&gt;, &quot;anything goes&quot; -or at least this is what many Time Series Theorists and Practioners essentially say.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2014-12-21T16:31:20.773" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1726" PostTypeId="1" AcceptedAnswerId="1728" CreationDate="2014-12-21T18:21:02.130" Score="5" ViewCount="1188" Body="&lt;p&gt;What does it mean when the price elasticity of demand  %Qd/%P is greater than one?  Typically I hear that it means the demand is elastic since if, say, the price decreases by 1% the demand for the good increases by more than 1%.  But what happens if %P is +1% and %Qd still increases by more?  Sure, this is elastic, but does it give us any more information?  I can't see why %Qd/%P &gt; 1 makes sense in this case.&lt;/p&gt;&#xA;" OwnerUserId="1501" LastActivityDate="2017-10-07T04:42:13.627" Title="Price Elasticity of Demand for Positive Price Increases" Tags="&lt;supply-and-demand&gt;&lt;price-level&gt;&lt;elasticity&gt;" AnswerCount="3" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="1727" PostTypeId="2" ParentId="1673" CreationDate="2014-12-21T19:48:46.687" Score="4" Body="&lt;p&gt;I assume that you're interested in gross value added as a national accounting concept (which is the most frequent use of the term). In that case, it is formally defined by the &lt;a href=&quot;http://unstats.un.org/unsd/nationalaccount/docs/SNA2008.pdf&quot; rel=&quot;noreferrer&quot;&gt;UN's System of National Accounts&lt;/a&gt; as &quot;the value of output less the value of intermediate consumption&quot;. Here is a table from the freely available &lt;a href=&quot;http://www.oecd.org/std/na/38451313.pdf&quot; rel=&quot;noreferrer&quot;&gt;old version of &lt;em&gt;Understanding National Accounts&lt;/em&gt;&lt;/a&gt; showing this breakdown for the nonfinancial corporate sector of France:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/PKSOI.png&quot; alt=&quot;production account and gross value added&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This definition is made on the &lt;em&gt;production side&lt;/em&gt;, but gross value added can also be broken down into &lt;em&gt;income&lt;/em&gt;. On the income side, it &lt;strong&gt;includes worker salaries&lt;/strong&gt;, as another account excerpted from &lt;em&gt;Understanding National Accounts&lt;/em&gt; shows:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/x29Xq.png&quot; alt=&quot;generation of income account and gross value added&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As we can see above, gross value added is decomposed into compensation of employees (of which &quot;wages and salaries&quot; is the most important part), other taxes less subsidies on production, and gross operating surplus. Gross operating surplus can further be decomposed into consumption of fixed capital (basically depreciation) and net operating surplus. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Combining Tables 3 and 4, we see how the initial &quot;output&quot; accruing to a firm can be progressively whittled down:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;First, we subtract intermediate inputs to obtain &lt;strong&gt;gross value added&lt;/strong&gt;.&lt;/li&gt;&#xA;&lt;li&gt;Then, we subtract compensation of employees and taxes less subsidies on production to obtain &lt;strong&gt;gross operating surplus&lt;/strong&gt;.&lt;/li&gt;&#xA;&lt;li&gt;Finally, we subtract consumption of fixed capital to obtain &lt;strong&gt;net operating surplus&lt;/strong&gt;.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Of all these concepts, the final one (&quot;net operating surplus&quot;) is closest to our usual concept of profit, since it subtracts payments for intermediates, compensation of employees, production taxes, and depreciation. Nevertheless, there are a number of conceptual and technical differences between this and profit as it is usually defined: for instance, the net earnings of a corporation subtract interest payments, while &quot;net operating surplus&quot; does not. Instead, &quot;net operating surplus&quot; can be viewed as a broader measure of capital income. (Indeed, when &lt;a href=&quot;http://piketty.pse.ens.fr/files/PikettyZucman2014QJE.pdf&quot; rel=&quot;noreferrer&quot;&gt;Piketty and Zucman (QJE 2014)&lt;/a&gt; plot &quot;capital shares&quot; of national income in Table XII, they are actually plotting net operating surplus as a share of national income for each country, taken from the national accounts.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, note that all these definitions are quite generic and meant to apply to many levels of aggregation: firms, industries, areas, sectors, or entire economies. The tables with gross value added above show the &quot;production&quot; and &quot;generation of income&quot; accounts for the non-financial corporate sector, but all national accounts constructed using the same principles provide an analogous account for other sectors—including households, government, the total economy, etc.&lt;/p&gt;&#xA;" OwnerUserId="405" LastActivityDate="2014-12-21T19:48:46.687" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1728" PostTypeId="2" ParentId="1726" CreationDate="2014-12-21T21:21:12.427" Score="3" Body="&lt;p&gt;Except of the purely descriptive aspect, &quot;elastic demand&quot;, or more accurately, regions of the demand schedule where demand elasticity with respect to price is higher than unity, &lt;em&gt;in absolute terms&lt;/em&gt;, is linked to the basic monopoly theory, since the monopolist maximizes profits at a point of the demand schedule where &quot;demand is elastic&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Define the demand point-elasticity with respect to price as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\eta = \frac {\partial Q }{ \partial P}\cdot \frac {P}{Q} \Rightarrow \frac {\partial Q }{ \partial P} = \eta \cdot \frac {Q}{P} \tag{1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that algebraically, the elasticity is a &lt;em&gt;negative&lt;/em&gt; number, with the sign indicating the direction of influence, since $\partial Q / \partial P &amp;lt;0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The profit function of a monopolist is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\pi = P\cdot Q(P) - C(Q(P)) \tag{2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first-order condition for a maximum with respect to price is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\partial \pi}{\partial P} = 0 \Rightarrow Q + P\frac {\partial Q }{ \partial P} - MC\cdot \frac {\partial Q }{ \partial P} = 0 \tag{3}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Inserting $(1)$ into $(3)$ we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Q + P\cdot \eta \cdot \frac {Q}{P} - MC\cdot \eta \cdot \frac {Q}{P} = 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Rightarrow 1 + \eta - \eta \cdot \frac {MC}{P} =0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Rightarrow - \eta \cdot \frac {MC}{P} = -\eta -1 $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Rightarrow  |\eta| \cdot \frac {MC}{P} = |\eta| -1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Rightarrow P^* =  \frac {|\eta|}{|\eta|-1} MC \tag{4}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$(4)$ is essentially an implicit relation since $\eta$ is a function of price also, &lt;strong&gt;but it provides a specific insight&lt;/strong&gt;: Since we naturally expect that price will be positive, we see that we must have $|\eta| &amp;gt;1$: the price will &lt;em&gt;necessarily&lt;/em&gt; be set at a level where &quot;demand is elastic&quot;, i.e. at a point on the demand schedule where the point price elasticity of demand is higher than unity, &lt;em&gt;in absolute terms&lt;/em&gt;.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2014-12-21T21:31:45.250" LastActivityDate="2014-12-21T21:31:45.250" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1729" PostTypeId="1" CreationDate="2014-12-21T23:18:22.557" Score="6" ViewCount="172" Body="&lt;p&gt;Last year, I read the book &lt;em&gt;The Bankers' New Clothes: What's Wrong with Banking and What to Do about It&lt;/em&gt;.  The book explained some of the causes of the recent financial crisis of 2007-2009 and gave some steps to prevent a similar crisis from occurring again.  Some of the steps were &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;1) eliminating the FDIC,&lt;br&gt;&#xA;  2) increasing the capital requirements of banks (up to ~30% instead of the current 2%-3%), and&lt;br&gt;&#xA;  3) having liability rest completely on bank owners and decision-makers within the bank (i.e. no government bailouts, depositors receive a certain number of cents on the dollar rather than 0, etc.).  &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;However, economics in plagued by the law of unintended consequences.  If these three points were implemented into the US financial system, what are some unintended consequences that could result?  &lt;/p&gt;&#xA;" OwnerUserId="27" LastActivityDate="2015-01-22T21:57:38.140" Title="Unintended consequences from &quot;fixing&quot; the US financial system" Tags="&lt;finance&gt;&lt;financial-economics&gt;&lt;financial-markets&gt;&lt;financial-crises&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1730" PostTypeId="2" ParentId="1729" CreationDate="2014-12-22T01:35:06.507" Score="6" Body="&lt;p&gt;1) Would lead to the return of general panic led bank runs, and introduce additional instability to the system. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It´s not generally appreciated, that 19th century bank runs were not just a symptom of insolvency or illiquidity, but were also occasionally triggered by competitors (other banks) spreading rumours. Generally this is a bad idea that rests on the fallacy that banks are just another business.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) They are typically rather more than 2-3%, 10-12% was the average at the crash, and Basel 3 is moving this up to above 15%. It´s generally a good idea, but it depends on the type of capital - more loss provisions are good, but simple holding extra share capital not so much. There are also side effects with respect to economic growth while the increase is occurring.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;3) This seems a little confused. Depositors are not decision makers in banks - they are the customers. Owners, managers and shareholders of the banks are not necessarily the same people, but making in particular the managers and owners stand behind the banks with their entire assets might be interesting. As in ´may you live in interesting times´ interesting. Scottish banking in the 18th-19th century was regarded as more stable by the English since the entire property of the bank´s owners would be seized if the bank failed. In today´s world though, expect that to cause issues, if Banks are the only type of company that this kind of punitive ownership encumbers, then one might imagine that relatively few people will want to own one, or creative ways will be found around the requirement.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Banks are also usually regarded as a fairly safe investment (between major credit crises at least), and a good investment for pension funds and retirees, as their dividends provide a steady stream of income. Blowing those institutions up, might not be entirely desirable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;All of this not withstanding, the main issue with banks, and the answer to why they are not just another company - is that they provide the money supply. The problem posed by any banking crisis, and any proposed reform, is how does this avoid or solve monetary and credit supply contraction in the event of loan default failure. 1 &amp;amp; 3) in particular would be likely to cause significant monetary contraction, and return the financial system to the instabilities of the 19th century, where not to put to fine a point on it, it was bouncing up and down like a yo-yo. Wikipedia has quite a nice list:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://en.wikipedia.org/wiki/List_of_banking_crises&quot;&gt;List of Banking Crises&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="84" LastActivityDate="2014-12-22T01:35:06.507" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="1732" PostTypeId="1" AcceptedAnswerId="1734" CreationDate="2014-12-22T12:04:01.820" Score="6" ViewCount="344" Body="&lt;p&gt;In the economics of pollution control, frequent reference is made to 'abatement cost' and/or 'marginal abatement cost'.  Is it normally implicit in the use of these terms in economics that output is held constant?  In other words, that the cost referred to is the cost of reducing emissions while producing the same output?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Common &amp;amp; Stagl (1) offer an explanation of abatement cost which explicitly states that abatement may be achieved by a reduction in the activity producing the emissions.  However, most presentations of abatement cost that I have seen do not make such a statement.  So would that perhaps be a non-standard usage from an ecological economics perspective?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Please note this is a question about correct or normal usage of 'abatement cost'.  There is of course a real issue about whether we should be producing and consuming less so as to reduce damage to the environment, but I'm not asking about that here.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Reference:&#xA;(1) Common M &amp;amp; Stagl S (2005) &lt;em&gt;Ecological Economics: An Introduction&lt;/em&gt; Cambridge University Press  p 415&lt;/p&gt;&#xA;" OwnerUserId="1417" LastEditorUserId="1417" LastEditDate="2014-12-22T12:26:16.897" LastActivityDate="2014-12-22T18:57:09.080" Title="Does Abatement Cost Mean Cost of Reducing Emissions with Output Held Constant?" Tags="&lt;environmental-economics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1733" PostTypeId="2" ParentId="1732" CreationDate="2014-12-22T12:57:50.747" Score="3" Body="&lt;p&gt;No, there's no assumption that output is constant.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Indeed, in most cases, it's expected that output will change, if only a little.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, there are abatement costs that involve a one-off increase in output which brings about a long-term decrease in output, such as insulating buildings to abate greenhouse-gas emissions from fossil-fuel powered heating.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's take the case of an Australian dwelling being insulated late in the year, during the start of summer, in November 2014 (I'll take the accouting year to be the same as the calendar year, rolling over on 1 Jan). So for 2014, we have had full heating costs from the winter that took place May-August, as well as the manufacture and installation of the insulation materials; so 2014 sees an increase in output over 2013. But in 2015, that insulation won't be manufactured or installed, and the dwelling's heating demand will be lower, so 2015's output is below that of both 2014 and 2013.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To produce output-constant costs would require putting the abatement measures through a macroeconomic model, as part of their cost-estimation. Abatement cost calculations are messy and uncertain enough as it is (before we even get onto the problems with marginal abatement cost curves, one of their more common presentations), without adding a whole extra layer of messy uncertainty that is macroeconomic modelling.&lt;/p&gt;&#xA;" OwnerUserId="44" LastEditorUserId="44" LastEditDate="2014-12-22T13:44:10.427" LastActivityDate="2014-12-22T13:44:10.427" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="1734" PostTypeId="2" ParentId="1732" CreationDate="2014-12-22T16:20:54.927" Score="2" Body="&lt;p&gt;To offer a theoretical micro-economic perspective, &quot;abatement&quot; can indeed be achieved by reducing the level of output of a company, since in most cases pollution is positively associated with the level of production.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But in such an approach, there is no firm-level hard cost, at least not in the mid- to long-term (i.e. abstracting for transitory scale-down costs): The firm does not engage in any abatement activity (which would create direct costs for it) - it simply produces less, and by that alone, abatement happens. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A cost-benefit analysis at the social level regarding the trade-off &quot;lower production - less pollution&quot; is another matter. At the micro-economic level, &quot;abatement cost&quot; usually refers to cost born by private businesses to &quot;clean-up&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But in economics, it is more than that: it is more realistic to wonder, &lt;strong&gt;what would it take (in terms of incurred costs at firm-level) to &lt;em&gt;not sacrifice output&lt;/em&gt; while achieving abatement&lt;/strong&gt;? And &lt;em&gt;optimally&lt;/em&gt; what could be the &lt;em&gt;minimum cost&lt;/em&gt; to achieve abatement without sacrificing output?&lt;br&gt;&#xA;But this question already has inherently the concept of a constant level of output in it, or more properly, a &lt;em&gt;given&lt;/em&gt; level of output, exactly as any other cost-minimization problem analyzed in economics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;More formally, assume a production function $q = f(\mathbf x)$ and a &quot;pollution production&quot; function $e = h(\mathbf x, z)$ where $\mathbf x$ are factors used in production, while $z$ is resources used for abatement, i.e. we have $\partial e / \partial z &amp;lt;0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, the enhanced cost-minimization problem of the firm can be written with respect to a given level of production and a &lt;em&gt;given level of pollution&lt;/em&gt; (given, not constant).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\min TC = \mathbf p'\mathbf x + p_zz$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\text {s.t.} f(\mathbf x) = \bar q, \;\;\; \bar e = h(\mathbf x, z)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Lagrangean of the problem is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$L = \mathbf p'\mathbf x + p_zz + \lambda[\bar q - f(\mathbf x)] + \mu [\bar e -h(\mathbf x, z) ]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which will lead to the first-order conditions&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\mathbf p -\lambda \nabla_x f(\mathbf x) =\mu \nabla_x h(\mathbf x, z)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$p_z = \mu \frac {\partial h(\mathbf x, z)}{\partial z}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These will give us some cost-minimizing relations&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\mathbf x^* = g_1(z^*, \bar q, \bar e, \mathbf p, p_z);\;\; z^* = g_2(\mathbf x^*, \bar q, \bar e, \mathbf p, p_z)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and eventually&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\mathbf x^* = \tilde g_1(\bar q, \bar e, \mathbf p, p_z);\;\; z^* = \tilde g_2(\bar q, \bar e, \mathbf p, p_z)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where also present are understood to be the various parameters of $f$ and of $h$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These determine input absorption for given level of output and pollution, and so also total such cost&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$TC^* = \mathbf p'\mathbf x^* + p_zz^*$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then the &lt;strong&gt;marginal abatement cost for given level of output&lt;/strong&gt; is (the negative of)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\partial TC^*}{\partial \bar e} = \mathbf p'\nabla_{\bar e}\tilde g_1(\bar q, \bar e, \mathbf p, p_z) + p_z\frac {\partial \tilde g_2(\bar q, \bar e, \mathbf p, p_z)}{\partial \bar e}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that here the concept takes into account not only how costs may change due to a different level of employment for the abatement resource $z$, but also how this will affect the input-factor mix for output production, and so the output production cost.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2014-12-22T18:57:09.080" LastActivityDate="2014-12-22T18:57:09.080" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1735" PostTypeId="1" CreationDate="2014-12-22T16:44:55.443" Score="2" ViewCount="303" Body="&lt;p&gt;In monopolistic competition, firms are said to have zero long-run economic profit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This makes me wonder whether profits of intermediate goods producers in New Keynesian model ever be zero.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For reference we can assume Gali's simple New Keynesian model.&lt;/p&gt;&#xA;" OwnerUserId="1509" LastEditorUserId="61" LastEditDate="2014-12-22T20:00:52.873" LastActivityDate="2014-12-27T07:42:37.250" Title="Can intermediate good producer's profit ever be zero in new keynesian model?" Tags="&lt;macroeconomics&gt;&lt;new-keynesian-economics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1736" PostTypeId="1" CreationDate="2014-12-22T17:38:25.513" Score="1" ViewCount="61" Body="&lt;p&gt;At equilibrium of classical monetary model, does $\lim_{t \rightarrow \infty} B_t = 0$, where $B_t$ represents bond holding has to hold? I was wondering about this question because there is no ponzi solvency condition in classical monetary model, and usually when inequality exists as part of constraints in economics model, they often can be represented as equality at equilibrium.&lt;/p&gt;&#xA;" OwnerUserId="1500" LastActivityDate="2014-12-24T13:51:22.503" Title="Is $\lim_{t \rightarrow \infty} B_t = 0$ at equilibrium in classical monetary model, where $B_t$ represents bond holding?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="1737" PostTypeId="1" CreationDate="2014-12-22T17:52:56.933" Score="7" ViewCount="233" Body="&lt;p&gt;The &lt;a href=&quot;http://en.wikipedia.org/wiki/Pacman_conjecture&quot; rel=&quot;nofollow&quot;&gt;Pacman conjecture&lt;/a&gt; states that the optimal strategy for monopolistic durable goods manufacturers is to set price high and slowly drop it (i.e. eating their way down the demand curve).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Empirically this seems to hold as it's the strategy employed by virtually all intellectual property producers (book publishers, movies, video games, software, etc). Microsoft has gone so far as to charge over \$100 at the time of release for pre-orders, and nothing for the same title 12-18 months later on Xbox Live. (I know, I know, the plural of anecdote is not data, but given the trend at brick and mortar retailers as well, I feel safe making the assertion).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this a function of the lack of spoilage/storage costs (i.e. IP lasts forever in the US [practically], and has almost no marginal cost to reproduce), such that it wouldn't work with cars, and if so, why are the same model year cars frequently sold at substantial discounts after their initial release.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems to have been going on long enough that literally every car buyer should be aware they can get the same car substantially cheaper in six months, yet people continue to consume both large physical durable goods and IP-related goods almost immediately upon their availability.&lt;/p&gt;&#xA;" OwnerUserId="31" LastEditorUserId="43" LastEditDate="2015-07-19T13:33:14.737" LastActivityDate="2015-07-19T13:33:14.737" Title="Has any progress been made on the Pacman Conjecture on Finite Time Horizons?" Tags="&lt;microeconomics&gt;&lt;reference-request&gt;&lt;academic-graduate&gt;&lt;industrial-organisation&gt;" AnswerCount="0" CommentCount="2" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="1738" PostTypeId="5" CreationDate="2014-12-22T22:51:55.943" Score="0" Body="&lt;p&gt;&lt;strong&gt;Econometrics&lt;/strong&gt; is the application of statistical and mathematical theories to economics for the purpose of testing hypotheses and forecasting future trends. The first known use of the term &lt;a href=&quot;/questions/tagged/econometrics&quot; class=&quot;post-tag&quot; title=&quot;show questions tagged 'econometrics'&quot; rel=&quot;tag&quot;&gt;econometrics&lt;/a&gt; was by Polish economist Paweł Ciompa in 1910. Ragnar Frisch is credited with coining the term in the sense in which it is used today.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Econometrics is the intersection of &lt;strong&gt;economics&lt;/strong&gt;, &lt;strong&gt;mathematics&lt;/strong&gt;, and &lt;strong&gt;statistics&lt;/strong&gt;. It takes economic models and tests them through statistical trials. The results are then compared and contrasted against real-life examples, like to study the hypothesis that &lt;em&gt;&lt;code&gt;as a person's income increases, spending increases&lt;/code&gt;&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Econometrics is also closely related to &lt;strong&gt;quantitative analysis&lt;/strong&gt; (&lt;em&gt;finance&lt;/em&gt;). So, it comes at no surprise that they share many tools, like:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;simple and multiple regression analysis&lt;/li&gt;&#xA;&lt;li&gt;frequency distributions&lt;/li&gt;&#xA;&lt;li&gt;probability and probability distributions&lt;/li&gt;&#xA;&lt;li&gt;statistical inference&lt;/li&gt;&#xA;&lt;li&gt;simultaneous equations models&lt;/li&gt;&#xA;&lt;li&gt;time series methods &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;There have been many &lt;a href=&quot;https://en.wikipedia.org/wiki/Criticisms_of_econometrics&quot; rel=&quot;nofollow&quot;&gt;criticisms of econometrics' usefulness as a discipline&lt;/a&gt; and perceived widespread methodological shortcomings in econometric modelling practices:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;The &lt;a href=&quot;https://en.wikipedia.org/wiki/Lucas_critique&quot; rel=&quot;nofollow&quot;&gt;&lt;strong&gt;Lucas critique&lt;/strong&gt;&lt;/a&gt; argues that it is naive to try to forecast entirely on the basis of relationships observed in historical data, because economic structure and behaviour is subject to change.&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;Austrian School&lt;/strong&gt; of economics entirely rejects the validity of econometrics as a method of predicting human behaviour, preferring to use the deductive method. &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="1466" LastEditorUserId="1466" LastEditDate="2014-12-23T00:42:35.843" LastActivityDate="2014-12-23T00:42:35.843" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1739" PostTypeId="4" CreationDate="2014-12-22T22:51:55.943" Score="0" Body="Econometrics is the application of statistical methods to economic data for various purposes such as of testing hypotheses, infering causal relationships and forecasting future trends. Only use this tag for questions relating to the theoretical aspect of an econometric technique. " OwnerUserId="1466" LastEditorUserId="175" LastEditDate="2020-03-13T21:56:32.827" LastActivityDate="2020-03-13T21:56:32.827" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="1740" PostTypeId="5" CreationDate="2014-12-22T23:50:06.683" Score="0" Body="&lt;p&gt;In microeconomics, &lt;strong&gt;Supply and Demand&lt;/strong&gt; is an economic model of price determination in a market. It concludes that in a competitive market, the unit price for a particular good will vary until it settles at a point where the quantity &lt;em&gt;demanded&lt;/em&gt; by consumers (at current price) will equal the quantity &lt;em&gt;supplied&lt;/em&gt; by producers (at current price), resulting in an economic &lt;em&gt;equilibrium&lt;/em&gt; for price and quantity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In macroeconomics, supply and demand concept is used in &lt;strong&gt;aggregate demand–aggregate supply&lt;/strong&gt; model (AD–AS), to relate money supply and money demand to interest rates, and to relate labor supply and labor demand to wage rates. &lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Learn more&lt;/h3&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.youtube.com/watch?v=ZR2255CEhvk&quot; rel=&quot;nofollow&quot;&gt;Video lecture from UC Bercley&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://www.investopedia.com/exam-guide/cfa-level-1/microeconomics/supply-demand.asp&quot; rel=&quot;nofollow&quot;&gt;Article from Investopedia's CFA 1&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="1466" LastEditorUserId="31" LastEditDate="2014-12-23T00:41:23.173" LastActivityDate="2014-12-23T00:41:23.173" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1741" PostTypeId="4" CreationDate="2014-12-22T23:50:06.683" Score="0" Body="Supply and Demand is an economic model of price determination in a market. Demand refers to how much (quantity) of a product or service is desired by buyers. Supply represents how much the market can offer." OwnerUserId="1466" LastEditorUserId="1466" LastEditDate="2014-12-23T00:42:38.667" LastActivityDate="2014-12-23T00:42:38.667" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1742" PostTypeId="5" CreationDate="2014-12-23T00:19:39.973" Score="0" Body="&lt;p&gt;&lt;strong&gt;Utility&lt;/strong&gt;, or usefulness, is the (perceived) ability of something to satisfy needs or wants. Utility is an important concept in economics and game theory, because it represents satisfaction experienced by the consumer of a good. Not coincidentally, a good is something that satisfies human wants and provides utility, for example, to a consumer making a purchase.&lt;/p&gt;&#xA;&lt;p&gt;Historically, two approachess existed to measure utility:&lt;/p&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;strong&gt;Ordinal utility&lt;/strong&gt; theory states that while the utility of a particular good or service cannot be measured using a numerical scale bearing economic meaning in and of itself, pairs of alternative bundles (combinations) of goods can be ordered such that one is considered by an individual to be worse than, equal to, or better than the other. The concept was first introduced by Pareto in 1906.&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;Cardinal utility&lt;/strong&gt; treats the magnitude of utility differences as bearing an economic meaning and being an ethically or behaviorally significant quantity. In neoclassical economics, cardinal utility is considered outdated except for specific contexts such as decision making under risk, utilitarian welfare evaluations, and discounted utilities for intertemporal evaluations where it is still applied. Elsewhere, such as in general consumer theory, ordinal utility is preferred.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;p&gt;Utility as a concept is used in &lt;strong&gt;Consumer theory&lt;/strong&gt; and &lt;strong&gt;Welfare economics&lt;/strong&gt;.&lt;/p&gt;&#xA;" OwnerUserId="1466" LastEditorUserId="4230" LastEditDate="2020-12-30T15:12:56.827" LastActivityDate="2020-12-30T15:12:56.827" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="1743" PostTypeId="4" CreationDate="2014-12-23T00:19:39.973" Score="0" Body="Utility, or usefulness, is the (perceived) ability of something to satisfy needs or wants." OwnerUserId="1466" LastEditorUserId="1466" LastEditDate="2014-12-23T00:42:03.407" LastActivityDate="2014-12-23T00:42:03.407" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1744" PostTypeId="1" CreationDate="2014-12-23T08:06:58.050" Score="2" ViewCount="125" Body="&lt;p&gt;According to &lt;a href=&quot;http://www.smh.com.au/business/markets/currencies/australian-dollar-on-track-to-dip-below-parity-with-new-zealand-20141223-12cxlj.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;this article&lt;/a&gt;, Australia will increase its interest rate only when the US increases its interest rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Aussie dollar (AUD) keeps going down, which is not very good for importing businesses. Why doesn't the Reserve Bank of Australia increase the interest rate right now rather than just wait for the US to increase first? What is the point?  &lt;/p&gt;&#xA;" OwnerUserId="1516" LastEditorUserId="8481" LastEditDate="2020-05-04T10:09:03.187" LastActivityDate="2020-05-04T10:09:03.187" Title="Why will Australia increase its interest rate only after the US increases its interest rate?" Tags="&lt;macroeconomics&gt;&lt;finance&gt;&lt;interest-rate&gt;&lt;australia&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="1745" PostTypeId="2" ParentId="458" CreationDate="2014-12-23T08:38:15.423" Score="5" Body="&lt;p&gt;I think you are right to say that an economy &lt;strong&gt;&lt;em&gt;is&lt;/em&gt;&lt;/strong&gt; &lt;em&gt;always&lt;/em&gt; a subsystem of a larger ecosystem, but it needs &lt;strong&gt;&lt;em&gt;not&lt;/strong&gt; always be &lt;strong&gt;modeled&lt;/strong&gt; as such&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It may be interesting to have a precise and elaborate model of the solar system taken in isolation, independently of its interactions with the rest of the galaxy, other galaxies, etc. In very much the same way, there are many good reasons to build a model of an economic system without accounting for how it fits in a more general ecosystem. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The same kind of question applies to many other topics. One could for instance ask &quot;why partial equilibrium and not always general equilibrium?&quot;, &quot;why small open economies instead of replicating the actual size structure of the global economy?&quot;, etc. I guess the only answer is that the smaller, less general models are considered useful in one way or another.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is not to say that the opposite endeavours (the ecological economics attempts to model economic systems as part of an ecosystem) are worthless, quite the contrary. But there is only so much you can do and there is always a trade-off (in terms of estimability, tractability, additional assumptions, you name it ) to increasing the generality of a model.&lt;/p&gt;&#xA;" OwnerUserId="38" LastActivityDate="2014-12-23T08:38:15.423" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1746" PostTypeId="2" ParentId="1735" CreationDate="2014-12-23T10:02:00.620" Score="1" Body="&lt;p&gt;We like to think that profits for monopolistic competition have to decrease because of some usually not-modelled interactions, most importantly that &lt;em&gt;households respond to the pricing markup&lt;/em&gt; in a way that makes the setup more costly for these firms.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In NK models, such a behavior is not modeled. Moreover, we assume there to be no entry/exit, and no other sectors. Hence, there is no way for households to respond to this in the long run, as the intuition dictates.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The existence of the Calvo fairy will induce heterogeneity within the firms. Some firms might - sometimes - make zero profits, because they cannot adjust prices. However, the firms that &lt;em&gt;can&lt;/em&gt; adjust will take the non-responsiveness of the others into account. All the firms, on aggregate, will always make positive profits. &lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2014-12-23T10:02:00.620" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="1747" PostTypeId="2" ParentId="1744" CreationDate="2014-12-24T04:24:44.220" Score="2" Body="&lt;p&gt;Australia's cash rate is already quite low. There's no need at the moment for the RBA to drop the interest rate any more, and as you can see from &lt;a href=&quot;http://www.rba.gov.au/statistics/cash-rate/&quot; rel=&quot;nofollow&quot;&gt;past decisions&lt;/a&gt; it's been unchanged for a while. Some economists think the RBA will move up soon, but that's uncertain - I wouldn't say it too confidently anyway - the bank is meeting its inflation targets and appears to be maintaining stability. Some are predicting later in 2015 anyway.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With low rates already, the article is stating that the RBA is watching the Fed to see what it does. The Aussie dollar is going down, you're correct. And while this isn't good for  importing businesses, businesses using overseas intermediatary goods or my eBay Christmas shopping, it will increase competitiveness for our exporting / manufacturing businesses and, in &lt;a href=&quot;http://www.rba.gov.au/media-releases/2014/mr-14-21.html&quot; rel=&quot;nofollow&quot;&gt;Glenn Steven's words&lt;/a&gt;, allows for 'more balanced growth' across the economy. Also mentioned is that the Australian dollar is higher than its fundamental value and the RBA wants it to go down even more.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the Fed cuts their rates more then the RBA may need to act because there will be higher demand for Australian investment as a result of higher returns, resulting in currency appreciation, which the RBA doesn't want any more of.&lt;/p&gt;&#xA;" OwnerUserId="1523" LastEditorUserId="1523" LastEditDate="2014-12-24T06:42:47.260" LastActivityDate="2014-12-24T06:42:47.260" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1748" PostTypeId="1" CreationDate="2014-12-24T06:47:17.500" Score="6" ViewCount="87" Body="&lt;p&gt;What would be the costs and benefits of collecting and releasing macroeconomic data, say, monthly instead of quarterly, or weekly instead of monthly? And what are the barriers to doing so?&lt;/p&gt;&#xA;" OwnerUserId="89" LastEditorUserId="8815" LastEditDate="2017-11-10T20:28:13.950" LastActivityDate="2017-11-11T23:23:41.473" Title="Measuring macroeconomic variables more frequently" Tags="&lt;macroeconomics&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="1749" PostTypeId="2" ParentId="1736" CreationDate="2014-12-24T08:33:49.240" Score="2" Body="&lt;p&gt;In general, &lt;strong&gt;no&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As you correctly say, No-Ponzi and Transversality imply that the NPV of &lt;em&gt;real&lt;/em&gt; bond holdings go to zero. Since we (in general) have not pinned down inflation paths, this does not imply $\lim_t B_t = 0$, as you correctly suspect.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you can provide more information about what model exactly you work on or the situation you're looking at, I could update my answer.&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2014-12-24T13:51:22.503" LastActivityDate="2014-12-24T13:51:22.503" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1750" PostTypeId="1" AcceptedAnswerId="1751" CreationDate="2014-12-24T11:26:43.670" Score="8" ViewCount="2830" Body="&lt;p&gt;Theoretically speaking, if all the Earth's inhabitants were to save money and invest, is it possible for everybody to get, let's say, a 4% yearly return for everyone?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is the economy a zero sum game (where if someone gains, others lose) or not?&lt;/p&gt;&#xA;" OwnerUserId="1529" OwnerDisplayName="dreamoki" LastEditorUserId="4226" LastEditDate="2015-03-21T13:22:57.990" LastActivityDate="2021-02-11T06:05:30.090" Title="Is the economy a zero-sum game?" Tags="&lt;macroeconomics&gt;" AnswerCount="2" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="1751" PostTypeId="2" ParentId="1750" CreationDate="2014-12-24T12:16:16.913" Score="5" Body="&lt;p&gt;Yes, it's possible, as long as the money is invested in ways that increase production by 4%. The economy is certainly not a zero sum game -- if it was, then it couldn't grow.&lt;/p&gt;&#xA;" OwnerUserId="12612" OwnerDisplayName="Mike Scott" LastActivityDate="2014-12-24T12:16:16.913" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="1752" PostTypeId="1" CreationDate="2014-12-21T19:49:02.290" Score="8" ViewCount="142" Body="&lt;p&gt;In an interview with Daron Acemoglu, he says &quot;the hot money which was floating through Turkey has stopped after FED's declaration that we are going to give much more attention on monetary policy&quot;.&#xA;Basically I know some fundamental things like monetary policy interests with the foreign currency but dont get exactly how does it effect directly. Why or how do foreign investments get scared by monetary policy?&lt;/p&gt;&#xA;" OwnerDisplayName="Mustafa Güven" LastActivityDate="2014-12-27T08:47:32.480" Title="How/why does foreign investment get scared by the monetary policy?" Tags="&lt;monetary-policy&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="1753" PostTypeId="1" CreationDate="2014-12-24T18:15:29.267" Score="12" ViewCount="3223" Body="&lt;p&gt;I find that many contemporary macroeconomics textbooks are too &lt;em&gt;applied&lt;/em&gt;, filled with examples, case studies and intuitive illustrations, often at the expense of quantitative rigour and therefore the depth of the understanding they convey. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there a canonical, quantitative textbook for central macroeconomic concepts and models? This should be preferably readable at an advanced undergraduate level.&lt;/p&gt;&#xA;" OwnerUserId="337" LastEditorUserId="43" LastEditDate="2014-12-24T20:55:03.157" LastActivityDate="2017-10-28T00:34:12.347" Title="Textbook for macroeconomics (advanced undergrad)" Tags="&lt;macroeconomics&gt;&lt;reference-request&gt;" AnswerCount="7" CommentCount="1" FavoriteCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="1754" PostTypeId="1" CreationDate="2014-12-24T19:32:10.750" Score="5" ViewCount="487" Body="&lt;p&gt;Suppose all firms are monopolistically competitive with constant elasticity of substitution. Can they profit maximize at the quantity point $MC=AC$ (So $P \neq MC$ but $Q$ is set at where $MC=MR=AC$ is established)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By constant elasticity of substitution, I mean that $\epsilon = -(\partial Q_j/\partial P_i)/(Q_j/P_i)$ is constant for $\forall i \neq j$ where $i,j$ refers to firms, $Q$ refers to quantity, and $P$ refers to price.&lt;/p&gt;&#xA;" OwnerUserId="1528" LastEditorUserId="1528" LastEditDate="2014-12-25T04:19:34.390" LastActivityDate="2015-01-24T23:15:10.643" Title="If all firms in an economy are in monopolistic competition with constant elasticity of substitution, can they profit-maximize at $MC=MR=AC$?" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="1755" PostTypeId="2" ParentId="1753" CreationDate="2014-12-24T21:32:08.727" Score="11" Body="&lt;p&gt;&lt;a href=&quot;http://highered.mheducation.com/sites/0073511374/index.html&quot; rel=&quot;noreferrer&quot;&gt;&lt;em&gt;Advanced Macroeconomics&lt;/em&gt;&lt;/a&gt; by David Romer, now in its fourth edition. Link contains TOC and a sample chapter.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The presentation consists of formal theory models, but with lots of intuition too, followed by light empirical applications.&lt;/p&gt;&#xA;" OwnerUserId="159" LastEditorUserId="159" LastEditDate="2014-12-25T19:36:53.207" LastActivityDate="2014-12-25T19:36:53.207" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="1757" PostTypeId="2" ParentId="1748" CreationDate="2014-12-25T00:03:15.443" Score="3" Body="&lt;p&gt;Looking at the US Economy,  the &lt;a href=&quot;http://www.bea.gov/&quot; rel=&quot;nofollow&quot;&gt;US Bureau of Economic Analysis&lt;/a&gt; (&lt;strong&gt;BEA&lt;/strong&gt;) and specifically &lt;a href=&quot;http://www.bea.gov/methodologies/index.htm#national_meth&quot; rel=&quot;nofollow&quot;&gt;ch. 3 p. 49 of the Handbok of NIPA (National Income and Product Accounts),&lt;/a&gt; we read&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;&lt;em&gt;The data that BEA uses are collected from a variety of sources and &lt;strong&gt;are&#xA;  usually collected for purposes other than for incorporation into BEA's&#xA;  estimates&lt;/strong&gt;. &lt;strong&gt;Data collected by federal government agencies&lt;/strong&gt; provide the&#xA;  backbone of the estimates; these data &lt;strong&gt;are supplemented by data from&#xA;  trade associations, businesses, international organizations, and other&#xA;  sources&lt;/strong&gt;. The Government data are from a number of agencies, including&#xA;  the Commerce Department's Census Bureau, the Labor Department's Bureau&#xA;  of Labor Statistics (BLS), the Treasury Department, the Office of&#xA;  Management and Budget, and the Agriculture Department.&#xA;  &lt;strong&gt;“Administrative” data are data that are tabulated by federal&#xA;  government and by state and local government agencies as a byproduct&#xA;  of administering their programs—such as processing corporate tax&#xA;  returns, regulating public utilities, and issuing building permits.&lt;/strong&gt;&#xA;  &lt;strong&gt;“Statistical”&lt;/strong&gt; data are data collected by the federal statistical&#xA;  agencies, such as the Census Bureau and BLS. These data consist of&#xA;  &lt;strong&gt;periodic economic and population censuses and a wide range of sample&#xA;  surveys,&lt;/strong&gt; such as those that collect data on manufacturing and trade,&#xA;  employment, and prices. The relatively few surveys that BEA conducts&#xA;  cover international trade in services and international direct&#xA;  investment, both by foreign companies in the United States and by U.S.&#xA;  companies in foreign countries. &lt;strong&gt;The source data available to BEA are not always ideal for the preparation of the&#xA;  NIPAs. BEA must develop methods that transform the best available data into estimates that are consistent with the NIPA concepts and framework and that fill gaps in the&#xA;  coverage of the source data.&quot;&lt;/strong&gt;&lt;/em&gt;  &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;em&gt;Macro-data are not just micro-data simply sitting out there and only needing adding up&lt;/em&gt;&lt;/strong&gt;. So &quot;collecting macroeconomic data&quot; is a misleading term : &quot;&lt;strong&gt;laboriously &lt;em&gt;producing&lt;/em&gt; macroeconomic data&lt;/strong&gt;&quot;, where collection is just a first step, moving on to selection, clean-up, adjustment, homogenization, &lt;em&gt;and&lt;/em&gt; estimation, is more like it. This is a vast enterprise, even with today's Information Technology capabilities, even for smaller economies than US.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Increasing the frequency of macro-data amounts to increasing the total output from this data-production function, which looks convincingly like a huge increase in input factors absorption. &lt;strong&gt;So to do it, it would increase costs substantially.&lt;/strong&gt;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Moreover, the &quot;collected for reasons other than...&quot; part, indicates that a lot of &lt;em&gt;procedures&lt;/em&gt; should be disrupted and changed in order to achieve that. Also, the number of different primary sources implies too many people and institutions should change their way of doing things. &lt;strong&gt;These are significant barriers on their own&lt;/strong&gt;, irrespective of cost-issues.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;What could be the benefits?&lt;/strong&gt;&#xA;One could think that it would permit a &quot;better&quot; fine-tuning of the economy? -to the degree that one believes that an economy can really be fine-tuned by its Government (it can certainly be &lt;em&gt;affected&lt;/em&gt;, but fine-tuning is a whole different game).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What about the benefits to the private sector? It is indeed the case that, say, Gross Domestic Output is produced &lt;em&gt;every day&lt;/em&gt;. Assume that in some magical way, GDP was recorded and published &lt;em&gt;every day&lt;/em&gt;. &lt;em&gt;So we could follow GDP as we follow the Stock Market&lt;/em&gt;. We will be able to observe the &lt;em&gt;everyday variability&lt;/em&gt; of output. Would that be beneficial? No, on the contrary, it would be misleading. Why? Because, although GDP is produced everyday, it mostly is produced based on structural relations (contracts, technologies, customs, knowledge etc) that have a lower frequency of change -and for reasons other than lack of data. So its everyday variability would be mostly due to pure randomness or exogenous factors like the weather -and observing it would only torment us towards trying futilely to do something about it (at our own micro-level).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What about the benefits to the discipline of Economics? Presumably, more data is always better. Is it? By increasing the number of instances of &quot;asking for&quot; and recording data about an economic variable, we increase the instances for which we may have &lt;em&gt;measurement error&lt;/em&gt; - and this may very well degrade the overall quality of our data. It is a standard wisdom departed in undergraduate statistics classes, that even if we could conceivably run a census than just collecting a sample from the population under study, it would be better to have just the sample, because the error of representability would most likely be smaller than the error of measurement we would have if we attempted to record the whole population.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That would offset the perceived benefits of having pushed the magnifying glass closer to the object of study. And sometimes, it is better to look from a certain distance, anyway.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Closing, by a &quot;Laffer-curve&quot; style of argument, one could argue that there must exist some &lt;em&gt;optimal&lt;/em&gt; frequency to have available macro-data. I am not saying that what we do have now is this &lt;em&gt;optimal&lt;/em&gt; frequency, but I doubt making the frequency higher is the way to go (my opinion is that modern economies of the western world at least would be tracked better under a three four-month cycle - Jan-Apr, May-Aug, Sep-Dec -it seems to me that this scheme combines better the seasons with the social aspects of life and economic activity). &lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2014-12-25T00:17:22.063" LastActivityDate="2014-12-25T00:17:22.063" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1758" PostTypeId="1" AcceptedAnswerId="1773" CreationDate="2014-12-25T01:40:23.217" Score="6" ViewCount="6122" Body="&lt;p&gt;To what extent can a country be 100% independent from the rest of the world? Is there any country like that in the world? Maybe North Korea, but North Korea receives supports from China.&lt;/p&gt;&#xA;" OwnerUserId="1516" LastEditorUserId="108" LastEditDate="2014-12-25T09:54:16.090" LastActivityDate="2014-12-29T18:20:32.630" Title="Can a country survive and prosper without international trade or investment from overseas?" Tags="&lt;macroeconomics&gt;" AnswerCount="4" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="1759" PostTypeId="1" AcceptedAnswerId="1789" CreationDate="2014-12-25T09:23:57.093" Score="3" ViewCount="119" Body="&lt;p&gt;I heard on UK and US news that higher education is very high and a lot of students are in debt.&#xA;In Israel here education is very cheap, because it is heavily subsidized by the government (Israel tries to be self-sufficient as opposed to other western countries because it doesnt have the liberal policies to attract brain drain like the western countries have). It strategy is to produce university candidates by their high school grades and IQ (psychometric) scores (those requirements are mandatory by top universities).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How would such educational policy work for countires like US or UK?&#xA;would it be better for US to subsidize their top universities heavily and introduce higher educational requirements (such as IQ scores and better grades)? or would it have disastarous effects on the economy, following such a government policy that Israel has?&#xA;I know that education is positively correlated with GDP.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;*****UPDATE*****&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, I have to thank you for answering. I live in Israel the tution fees for top univesities (Tel Aviv, Ben Gurion, Jerusalem, Bar Ilan) is no more that \$10,000.. tution fees for harvard for one year only from what I heard is something like \$40,000 a month alone (&lt;a href=&quot;https://college.harvard.edu/financial-aid/how-aid-works/cost-attendance&quot; rel=&quot;nofollow&quot;&gt;https://college.harvard.edu/financial-aid/how-aid-works/cost-attendance&lt;/a&gt;). My question why wouldnt a government open the market competition for those univesties only to American citizens (that will bring costs down), and also subsidize them, to bring  the costs to around 10-15k, that would be much affordable. In return, Harvard, could make higher requirments for its courses like psychometric tests and very high school grades. If it did that it would gurantee an educational self sufficiency and higher economic independence from immigration.&#xA;Wouldnt that be preferable politically (assuming your perception is right wing) instead of being pushed into a tougher rat race with immigrants coming from abroad?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Last point to add, Israel also provides a lot of education for free in the army (Israel has conscription laws). It provides higher degrees for good studens who also performed well on their IQ test.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If Israel provides and believes that there are high returns on their student's educational investment by providing education at low cost (when subsidized) or for free, why other Europen countries dont follow? or is Israel wrong in their approach to education and higher economic efficiency?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Could a country like US and UK pursue educational self-sufficiency or would such a pursuit be a disastor?  &lt;/p&gt;&#xA;" OwnerUserId="1533" LastEditorUserId="250" LastEditDate="2014-12-28T21:52:16.757" LastActivityDate="2014-12-28T21:52:16.757" Title="Educational self sufficiency" Tags="&lt;political-economy&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="1762" PostTypeId="2" ParentId="1758" CreationDate="2014-12-25T11:16:52.817" Score="1" Body="&lt;p&gt;It is agreed upon among economists that trade, mostly through specialization and economies of scale, is welfare improving.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence, if you want to look at self sufficient countries, you rightfully look at those which are involuntarily in that situation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;North Korea&lt;/strong&gt; receives supports from China. &lt;strong&gt;Cuba&lt;/strong&gt; receives support from Non-US. &lt;strong&gt;Iran&lt;/strong&gt; has self-sufficiency as one of the big targets of its politics, to be less dependent from international sanctions. While Iran is still trading with other countries, and getting a lot of resources through informal channels, I believe it i the country closest to self-sufficiency, disregarding undeveloped economies.&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2014-12-25T11:16:52.817" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1764" PostTypeId="2" ParentId="424" CreationDate="2014-12-25T13:05:13.407" Score="2" Body="&lt;p&gt;Because the notion of pairwise stability is so important in the theory of network formation and equilibrium, there has been a few attempts to test it in experimental setups. I know at least two papers:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://www.ucllouvain.be/cps/ucl/doc/core/documents/coredp2011_7web.pdf&quot; rel=&quot;nofollow&quot;&gt;Myopic or farsighted? An experiment on network formation&lt;/a&gt;, by Georg KIRCHSTEIGER1, Marco MANTOVANI, Ana MAULEON and Vincent VANNETELBOSCH.&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://experiments.cob.calpoly.edu/seminars/fafchamps.pdf&quot; rel=&quot;nofollow&quot;&gt;Departures from Best Response in Market-like Link Formation: An experimental study&lt;/a&gt;, by Margherita Comola and Marcel Fafchamps.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The first is a discussion paper. &lt;strong&gt;A word of warning regarding the second&lt;/strong&gt; : the version of the paper that is linked is very much a draft. You might want to have a look to get an idea of what the authors plan on doing, but don't rely on it too much. I attended a talk where Fafchamps presented the paper this week, and he told us that &lt;strong&gt;they initially got the wrong data from their experiment&lt;/strong&gt;. They only realized it rather recently and had to revise the whole paper. Because the linked draft is from February 2014, there are chances it is still based on the the old data (I did not read it).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For some field experiments on networks in development economics, you might want to have a look at other papers by Fafchamps : &#xA;&lt;a href=&quot;http://web.stanford.edu/~fafchamp/index.html&quot; rel=&quot;nofollow&quot;&gt;http://web.stanford.edu/~fafchamp/index.html&lt;/a&gt;. I am not sure these explicitly test equilibrium concepts though, but they might.&lt;/p&gt;&#xA;" OwnerUserId="38" LastEditorUserId="38" LastEditDate="2014-12-25T13:20:31.937" LastActivityDate="2014-12-25T13:20:31.937" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1765" PostTypeId="1" AcceptedAnswerId="1803" CreationDate="2014-12-25T20:42:24.700" Score="4" ViewCount="96" Body="&lt;p&gt;What if international date line being shifted to Atlas Ocean? Most of trade partners will have different date, States and all America continents will enter day first etc. So what can be coincidence of this? I am asking this because I have read that samoa was shifted to have better trade partnership with Australia.&lt;/p&gt;&#xA;" OwnerUserId="1535" LastActivityDate="2014-12-29T15:57:19.793" Title="International date line" Tags="&lt;international-trade&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1766" PostTypeId="2" ParentId="1754" CreationDate="2014-12-25T22:26:37.450" Score="2" Body="&lt;p&gt;The long-run picture for a firm in monopolistically competitive industry should look like this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/esaCk.gif&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The level of production is pinned down by where MR=MC. Price will be equal to AC at that point, so the firm has zero profits.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the firm was producing at the point where MC=AC, it would have positive profits, which would encourage entry into the industry, shifting the demand in and reducing profits to zero. &lt;/p&gt;&#xA;" OwnerUserId="159" LastActivityDate="2014-12-25T22:26:37.450" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="1767" PostTypeId="1" CreationDate="2014-12-26T10:03:35.437" Score="10" ViewCount="2109" Body="&lt;p&gt;I'm looking for textbooks that explain the New-Keynesian models, without taking shortcuts on the mathematics, that would go in depth on the derivations of the formulas. I appreciate rigour, and clarity above all else. If intuition is supplied, it would be perfect.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I find Jordi Galí's book on monetary policy is not good at presenting the model, specially by not explaining the mathematical assumptions (which are not simple details...)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edi:&#xA;Check the link found &lt;a href=&quot;https://economics.stackexchange.com/questions/4835/deriving-formulas-from-galis-book-on-the-new-keynesian-model&quot;&gt;here&lt;/a&gt; &lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-07-30T17:50:30.920" Title="Macroeconomics Textbook on New-Keynesian models" Tags="&lt;macroeconomics&gt;&lt;mathematical-economics&gt;&lt;reference-request&gt;&lt;new-keynesian-economics&gt;" AnswerCount="7" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="1768" PostTypeId="1" CreationDate="2014-12-26T11:40:48.463" Score="4" ViewCount="79" Body="&lt;p&gt;I have received anecdotal evidence (heard stories) about many firms hoarding cash (liquid assets) post 2008 and not spending it despite availability of many projects with positive NPV. However, when I tried to find some research / data on this matter, I couldn't dig out too much. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know that one can use compustat to get a grasp on liquid assets that firms have. Is there any other data on this matter? What papers would be starting points to read up on the related literature?&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2014-12-27T06:16:45.477" Title="Literature / Evidence on Cash Hoarding of Firms" Tags="&lt;data-request&gt;&lt;firm&gt;&lt;liquidity&gt;&lt;reference-request&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="1769" PostTypeId="1" CreationDate="2014-12-26T11:49:34.327" Score="4" ViewCount="917" Body="&lt;p&gt;I used to read &lt;a href=&quot;https://ideas.repec.org/a/eee/moneco/v3y1977i3p305-316.html&quot; rel=&quot;nofollow&quot;&gt;Barro 1977&lt;/a&gt; as &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;(1)&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Prices not moving in a long-term contract is not sufficient for these prices to be suboptimal. That is, there can be an optimal pricing sequence in a long-term contract in which prices do not change (for example, insurance reasons)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;However, many papers these days (for example, Hall 2005) cite that paper as &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;(2)&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Price rigidity that would terminate a contract is sub-optimal and should be subject of renegotiation, if the project yields a surplus.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Both quotes my own words.&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is a rather historical question, but when did the interpretation switch from (1) to (2)? Was (2) implied all the time, and I just didn't get it immediately from reading the paper? Or was it an implied corollary that the profession came to agree about later on?&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2014-12-26T13:50:22.233" Title="Barro 1977: Main Message" Tags="&lt;macroeconomics&gt;&lt;keynesian-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1770" PostTypeId="2" ParentId="1769" CreationDate="2014-12-26T13:50:22.233" Score="1" Body="&lt;p&gt;&lt;strong&gt;&lt;a href=&quot;http://www.jstor.org/stable/4132670?seq=1#page_scan_tab_contents&quot; rel=&quot;nofollow&quot;&gt;Hall (2005)&lt;/a&gt;&lt;/strong&gt; mentions Barro's paper twice, but the first one in p. 51 is in the introduction and in order to alert the reader on what to expect. The essential dialogue between the two papers is in p. 56, where, Hall, after presenting his model and its workings, writes:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;The earlier work implied inefficient outcomes, especially the loss of&#xA;  a job under conditions where both worker and employer could have been&#xA;  better off with a wage adjustment. The wage norm I consider interferes&#xA;  neither with the formation of efficient matches once the parties are&#xA;  in touch with one another nor with the preservation of jobs with&#xA;  positive surplus. Inefficient separations cannot occur. As a result,&#xA;  the model provides a full answer to the indictment of sticky wage&#xA;  models in Barro (1977) for invoking unexplained inefficiencies in&#xA;  economic arrangements.&quot;&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In p. 64 moreover Hall writes&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;Stickiness is plausible, because it occurs only within the range&#xA;  where the wage does not block efficient bargains from being struck and&#xA;  maintained.&quot;&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;From this second quote, one could indeed indirectly validate the OP's second quote - that in order to provide a rationale for wage stickiness, we should restrain ourselves to cases and models where wage stickiness, in order to arise does not require blatant inefficiency of the contracting parties (because, after all, &quot;blatant inefficiency&quot; can explain everything).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The important remark here is that &lt;em&gt;not all sticky-wage outcomes are necessarily inefficient&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But this essentially concurs with &lt;strong&gt;&lt;a href=&quot;https://ideas.repec.org/a/eee/moneco/v3y1977i3p305-316.html&quot; rel=&quot;nofollow&quot;&gt;Barro's (1977)&lt;/a&gt;&lt;/strong&gt; approach: Barro criticizes specific sticky-wage models where contracts have provisions only on the wage and not on the level of employment (or they have arbitrary such). Barro shows that not providing for employment determination may create dead-wight losses for both parties. On the other hand, providing an optimal rule for employment determination (optimal in the sense of &quot;maximizing the pie&quot;, as he writes, available to employers and workers), would eliminate this dead-weight losses, and &lt;em&gt;then&lt;/em&gt;, the issue of wage determination is to be considered, which may very well imply fixed nominal wages.&#xA;pp 311-312:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;Given this form of employment rule, which maximizes the total pie&#xA;  available to firms and workers, one can then consider optimal (and&#xA;  competitive) payment arrangements that would determine the split of&#xA;  the pie. For example, it may be optimal for firms to perform the&#xA;  insurance function of guaranteeing to the workers, ex ante, a fixed&#xA;  (nominal or real) wage or income. In this case long-term contracting&#xA;  may account for ‘rigid‘ wages, and may also explain the apparent&#xA;  non-wage rationing of jobs.&quot;&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So, I don't see any change in the interpretation of Barro's paper. Both papers seem to accept that it &lt;em&gt;may&lt;/em&gt; be the case that sticky wages arise from optimal, efficient behavior. Barro criticized sticky-wage models available then for not modeling such an efficient way to obtain the stickiness. Hall's accepts Barro's critique on past sticky-wage models, and creates a model where indeed, fixed wages can be a feature of an efficient equilibrium, something that Barro also considers it possible, as the above quote shows.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2014-12-26T13:50:22.233" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1771" PostTypeId="2" ParentId="1767" CreationDate="2014-12-26T16:38:39.437" Score="5" Body="&lt;p&gt;Michael Woodford's book &lt;a href=&quot;http://press.princeton.edu/titles/7603.html&quot;&gt;Interest and Prices&lt;/a&gt;, while it may not be explicitly New Keynesian, may have some of the rigor you're looking for applied to this class of models.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A more direct alternative would be &lt;a href=&quot;http://mitpress.mit.edu/books/new-keynesian-economics&quot;&gt;New Keynesian Economics&lt;/a&gt; edited by Mankiw and Romer. While it's a collection of papers not a textbook, if you're looking for underpinnings of New Keynesian models this'd be a good place to start. Also &lt;a href=&quot;http://www.nyu.edu/econ/user/gertlerm/science.pdf&quot;&gt;&quot;The Science of Monetary Policy: A New Keynesian Perspective&quot;&lt;/a&gt; by Clarida, Gali and Gertler.&lt;/p&gt;&#xA;" OwnerUserId="54" LastEditorUserId="54" LastEditDate="2014-12-26T20:27:45.367" LastActivityDate="2014-12-26T20:27:45.367" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="1772" PostTypeId="2" ParentId="1753" CreationDate="2014-12-26T17:14:26.427" Score="8" Body="&lt;h2&gt;&lt;a href=&quot;http://mitpress.mit.edu/books/recursive-macroeconomic-theory-2&quot;&gt;&lt;em&gt;Recursive Macroeconomic Theory&lt;/em&gt;&lt;/a&gt;&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;By Lars Ljungqvist and Thomas J. Sargent&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assuming you want rigor, it's better to try this &lt;em&gt;graduate&lt;/em&gt;-level textbook early and pick later things you need to understand it.&lt;/p&gt;&#xA;" OwnerUserId="240" LastActivityDate="2014-12-26T17:14:26.427" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1773" PostTypeId="2" ParentId="1758" CreationDate="2014-12-26T17:24:46.263" Score="1" Body="&lt;p&gt;In principle and in theory, anything can happen.&lt;br&gt;&#xA;First, as always, we have to supply some more specific content for &quot;survive and prosper&quot;. Are we assuming some &lt;em&gt;preferences&lt;/em&gt; underlying the whole issue? If yes, then what kind of preferences are they? What kind of material goods and services do these preferences favor? Can these material goods and services be provided by the country's own resources, and to what degree?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Looking at history though, (as we should), we notice that long-long before &quot;global trade liberalization&quot; policies became an officially declared goal and agenda of the powerful economies of the planet, international trade existed and expanded. For thousand of years humans are observed to trade with abroad -and no, nobody forced them to.  So it appears that international trade &lt;em&gt;gets chosen&lt;/em&gt; by human societies as a way to &lt;em&gt;prosper&lt;/em&gt;. And because this choice has been revealed time and again, through different eras, civilizations, cultures, productive capabilities etc, it makes it difficult to think that a country could obtain a comparable level of prosperity without international trade.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Survival, though, is another matter, since it is much more easy to survive than to prosper (as an individual or as a country).&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2014-12-26T17:24:46.263" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1774" PostTypeId="2" ParentId="1753" CreationDate="2014-12-26T17:25:12.897" Score="6" Body="&lt;h2&gt;&lt;a href=&quot;http://press.princeton.edu/titles/8764.html&quot;&gt;&lt;em&gt;Introduction to Modern Economic Growth&lt;/em&gt;&lt;/a&gt;&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;By Daron Acemoglu&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As with Ljungqvist and Sargent, I believe it's better to overshoot undergrad econ than to look for simple texts. Despite the title, this introductory graduate textbook by Acemoglu prepares the reader for macro. The book presents the neoclassical growth model and its various enhancements (which you'll see elsewhere later). Thorough and clear exposition, math appendix, many exercises for self-learning.&lt;/p&gt;&#xA;" OwnerUserId="240" LastActivityDate="2014-12-26T17:25:12.897" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1775" PostTypeId="2" ParentId="1753" CreationDate="2014-12-26T17:59:33.833" Score="5" Body="&lt;p&gt;&lt;a href=&quot;https://global.oup.com/academic/product/macroeconomic-theory-9780195387711?cc=us&amp;amp;lang=en&amp;amp;&quot; rel=&quot;nofollow&quot;&gt;Macroeconomic Theory - Benassy&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;All of the books suggested are great.  I also like Macroeconomic Theory by Benassy as it's not too difficult to follow and is on the level of Romer.  Great reference for looking up certain models or getting some intuition on theory.  This is my go to when looking up a basic model and then I'll reference Romer for more insight.&lt;/p&gt;&#xA;" OwnerUserId="1496" LastEditorUserId="1496" LastEditDate="2015-05-18T01:36:55.020" LastActivityDate="2015-05-18T01:36:55.020" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1776" PostTypeId="2" ParentId="1758" CreationDate="2014-12-26T18:06:33.647" Score="2" Body="&lt;h2&gt;TL; DR&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;A country can prosper without foreign investments. As for international trade, large nations set up specialization within. Small countries have to trade. Much depends on industries and the stage of development.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To understand why, let's look at the numbers.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;International trade&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;This data covers a small fraction of the history of international trade. Back in the 19-20 centuries, the world traded less on average. The United States was basically an autarky. Britain traded a lot, but it's an exception.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Trade as an opportunity for specialization is critical for small countries, like Singapore or Hong Kong. They can't produce everything as the economy becomes more complex. The United States can and do.&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Old timers&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;Highly developed European countries trade a lot within the European Union, which was conceived to simplify trade. But for economies as large as the United States, international trade is not an imperative:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/Pd6zh.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Newly industrialized countries&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;Trade played a more important role in countries that have been growing rapidly after the World War 2. This trade-oriented growth achieved two goals: larger demand (such that Japan and China run trade surplus for years) and inflow of currency to purchase novel technologies (relevant during catch-up growth, not for technological leaders):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/zsWpV.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;h2&gt;Foreign direct investments&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;FDI is a nominally small factor in all cases. Even with spillovers, FDI is a fraction of domestic savings, which are much more important for accumulation of capital and, hence, growth:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/woZCu.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://antontarasenko.com/2014/12/10/how-to-save-attention-misdirected-to-foreign-direct-investments/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Source and additional data on FDI, savings, and growth&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="240" LastEditorUserId="240" LastEditDate="2014-12-29T18:20:32.630" LastActivityDate="2014-12-29T18:20:32.630" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1777" PostTypeId="2" ParentId="1752" CreationDate="2014-12-26T22:10:03.367" Score="2" Body="&lt;p&gt;Monetary policy affects the value of a country's currency (e.g. interest rate &amp;amp; money supply changes affect the &lt;em&gt;value&lt;/em&gt; of cash).&lt;/p&gt;&#xA;&lt;p&gt;Foreign investment is made by purchasing that country's currency (via currency exchange), then purchasing financial instruments in that country (stocks, exchange traded funds, bonds, etc.)&lt;/p&gt;&#xA;&lt;p&gt;If a country decides to lower their currency's value over time (to make their goods cheaper to foreigners, for example), then any foreign investment would be exposed to currency devaluation.&lt;/p&gt;&#xA;&lt;h2&gt;A concrete example…&lt;/h2&gt;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Turkish commodity market, sells 1 ton of cotton for 230 Lira (~$100USD) on January 1, 2015.&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;US investor exchanges $100USD into 230 Lira, buys 1 ton cotton on 1/1/2015.&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Turkey decides to lower currency value by decreasing interest rate, increasing money supply, reduce reserve requirements. Value of Lira drops from 230 Lira for 100 USD to 270 lira for 100 USD.&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;US investor sells 1 ton cotton a year later for 250 Lira.  Exchanges Lira to USD. Receives $92.60USD.&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&lt;p&gt;What would normally be a modest ~9% gain from price appreciation of the cotton from 230 to 250 turns out to be an ~8% loss due to currency devaluation which occurred from monetary policy changes.&lt;/p&gt;&#xA;&lt;p&gt;If a foreign investor isn't confident that monetary policy will drive up a country's currency value (in which they will be investing), then they should rightly be scared by monetary policy changes a government plans to make.&lt;/p&gt;&#xA;" OwnerUserId="1540" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2014-12-26T22:10:03.367" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="1778" PostTypeId="2" ParentId="1768" CreationDate="2014-12-26T22:20:16.950" Score="2" Body="&lt;p&gt;I know very little about this, but check out Jake Zhao's work. He's an AP at Stony Brook.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From the abstract,&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;My model finds that 63% of the increase in corporate&#xA;  cash holdings can be accounted for by the increase in cash flow volatility.&#xA;  The increase in cash flow volatility observed in the data arises from a&#xA;  decrease in the correlation between revenue and operating expenses.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://c9e6d674-a-62cb3a1a-s-sites.googlegroups.com/site/j8zhao/Cash%20and%20Correlation%20%28Jake%20Zhao%29.pdf?attachauth=ANoY7coEawYo1xM4fO9-1KX78ZGTyjKkAd0bMTeWplNzasxqYPuIVebnxUfvsrrz8SsJlKFUi3bGVdS8ckJTkKsfv9W7D_6eq90KHs84PJrE-WE6JijpSBv-Hg4AgMmMcCGtj8iUv_swBch591DHt7aWyO4cEEROx1YQ5QLQb5DEI0WetnS4vmhv5wpr-RKYLusZnl5LWPNYc01ZYUQSaWanXtOkdG8SroMDZ3yiHJhV5LfdqRJ23Pc%3D&amp;amp;attredirects=0&quot; rel=&quot;nofollow&quot;&gt;Accounting for the Corporate Cash Increase.&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I imagine the references he includes will also be useful.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit: He uses compustat data. &lt;/p&gt;&#xA;" OwnerUserId="14" LastEditorUserId="14" LastEditDate="2014-12-26T22:34:00.773" LastActivityDate="2014-12-26T22:34:00.773" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1779" PostTypeId="2" ParentId="1768" CreationDate="2014-12-27T06:16:45.477" Score="2" Body="&lt;p&gt;Since I'm a macro rather than a corporate finance guy, my go-to resource for getting a rough sense of aggregate magnitudes is the &lt;a href=&quot;http://www.federalreserve.gov/releases/z1/&quot; rel=&quot;nofollow&quot;&gt;flow of funds accounts&lt;/a&gt;. Take a look at the &lt;a href=&quot;http://www.federalreserve.gov/releases/z1/current/z1r-5.pdf&quot; rel=&quot;nofollow&quot;&gt;B.102 balance sheet&lt;/a&gt; for nonfinancial corporate business, and also the &lt;a href=&quot;http://www.federalreserve.gov/releases/z1/Current/z1r-3.pdf&quot; rel=&quot;nofollow&quot;&gt;F.102 flows&lt;/a&gt; for nonfinancial corporate business.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The relevant insights I draw from this data are:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;In aggregate &lt;em&gt;level&lt;/em&gt; terms, &quot;cash&quot; is a pretty small part of corporate balance sheets, and the extent to which there is any strong upward trend is debatable.  Defining cash to be bank deposits plus MMMF shares plus commercial paper/Treasuries/Agencies, cash as a share of total assets was 4.7% in 2013, 4.3% in 2008, 4.9% in 2003, 4.1% in 1998, 4.4% in 1993, and so on. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, &quot;total assets&quot; is questionable as a denominator, since it includes large entries for FDI, real estate, and &quot;miscellaneous&quot; assets; if you exclude these and adopt a narrower denominator (or subtract some liabilities to get a net measure), you tend to get the long-term upward trend that many studies have identified. But there still isn't a strong &lt;em&gt;recent&lt;/em&gt; increase, and the numbers are small enough that this hardly seems like an important aspect of corporate behavior.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;In aggregate &lt;em&gt;flow&lt;/em&gt; terms, cash is also not a very important part of corporate balance sheets. The following table, adapted from the F.102 flow of funds data, shows net acquisition of cash (&quot;cash&quot;) vs. gross capital expenditures (&quot;capex&quot;), total internal funds (&quot;funds&quot;), net equity issuance (&quot;equity&quot;), and net funds raised through credit markets (&quot;credit&quot;), all in billions. As you can see, &quot;cash&quot; really pales in comparison to these other flows:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;year |  cash  |  capex  |  funds  |  equity  |  credit  |&#xA;2010 |   +14  |  +1235  |  +1677  |    -255  |     -71  |&#xA;2011 |    -5  |  +1332  |  +1729  |    -457  |    +251  |&#xA;2012 |   +29  |  +1478  |  +1761  |    -360  |    +404  |&#xA;2013 |  +138  |  +1526  |  +1805  |    -373  |    +427  |&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Net annual changes in cash are tiny compared to capital expenditures - and to internal funds available, stock buybacks less sales, and even &lt;em&gt;net&lt;/em&gt; debt issuance.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;I don't mean to dismiss corporate cash management as a topic altogether - I'm sure that it can be an important topic for corporate finance guys. But given these relative magnitudes, I do think that aggregate cash accumulation is a pretty minor macroeconomic issue right now, and that its high profile in the media (with a lot of discussion about &quot;idle&quot; cash, etc.) is misplaced.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Random aside: corporate cash holdings are apparently quite concentrated, with a great deal held by tech companies; &lt;a href=&quot;http://www.bloomberg.com/news/2014-03-31/apple-leads-u-s-companies-holding-record-1-64-trillion.html&quot; rel=&quot;nofollow&quot;&gt;this article&lt;/a&gt; claims that Apple alone accounts for almost 10%. In my view this is another clue that aggregate cash probably isn't that important a macroeconomic datapoint.) &lt;/p&gt;&#xA;" OwnerUserId="405" LastActivityDate="2014-12-27T06:16:45.477" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1780" PostTypeId="2" ParentId="1750" CreationDate="2014-12-27T07:05:40.493" Score="9" Body="&lt;p&gt;Certainly the economy is not a &quot;zero sum game&quot; (whatever that means). There has historically been a positive aggregate net return on capital investment - there doesn't have to be a loser for every winner.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That said, economists generally believe that as the stock of aggregate savings increases, the return will go down; this is a consequence of diminishing returns to capital. Hence it's not possible for everyone to save an &lt;em&gt;unlimited&lt;/em&gt; amount at 4%.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To be a little more concrete, economists often use a constant-returns-to-scale production function $F(K,L)$, taking capital $K$ and labor $L$ as inputs, as a first-pass way of thinking about the world. In this simple model, net aggregate savings equal capital $K$. Holding $L$ constant, the extent to which more $K$ will push down the net return to capital $r=F_K-\delta$ (where $F_K$ is the marginal product of capital and $\delta$ is the depreciation rate) depends on the &lt;a href=&quot;http://en.wikipedia.org/wiki/Elasticity_of_substitution&quot; rel=&quot;noreferrer&quot;&gt;&lt;em&gt;elasticity of substitution&lt;/em&gt;&lt;/a&gt; of the function $F$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;With a high elasticity of substitution, $K$ can increase substantially without $r$ falling very much, as the economy continues to find productive applications for capital despite its relative abundance; with a low elasticity of substitution, a rise in $K$ can result in a large drop in $r$.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Example.&lt;/strong&gt; A common form for $F$ is &lt;em&gt;Cobb-Douglas&lt;/em&gt;, which corresponds to a constant elasticity of substitution of 1. If the gross capital share of production is $0.35$, then we write $F(K,L) = K^{0.35} L^{0.65}$. The marginal product of capital here is $F_K(K,L) = 0.35 \cdot (K/L)^{-0.65}$, implying that the elasticity of $F_K$ with respect to $K$ is -0.65.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, if we suppose that initially $r=0.04$ and $\delta=0.06$, then the elasticity of $r=F_K-\delta$ with respect to $K$ is $-0.65\cdot (0.1/0.04)=-1.625$. This means that if we increase capital $K$ by 10%, the net return $r$ will decrease by approximately 16.25%, or $4\times .1625 = .65$ percentage points, from 4% to 3.35%. This is a pretty substantial decrease!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Indeed, since $1.625 &amp;gt; 1$, in this case net capital income $rK$ to capital decreases as $K$ goes up; remarkably enough, if savers accumulate more, they earn less, as the decline in the net return per unit of capital overwhelms the increase in capital.&lt;/p&gt;&#xA;" OwnerUserId="405" LastActivityDate="2014-12-27T07:05:40.493" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="1781" PostTypeId="2" ParentId="1735" CreationDate="2014-12-27T07:42:37.250" Score="3" Body="&lt;p&gt;Yes. In the core New Keynesian model in Galí, it is possible for the &lt;em&gt;aggregate&lt;/em&gt; profits of intermediate good producers to be zero or negative; and it is even more likely that the profits of &lt;em&gt;individual&lt;/em&gt; intermediate good producers, who may be stuck at prices far from the optimum, will be negative.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since it's easier to characterize the aggregate, I'll discuss the conditions there. Note that the aggregate profits of intermediate good producers are just aggregate revenues minus the aggregate wage bill, or&#xA;$$\Pi =PY-WN$$&#xA;where $P$ is the aggregate price index, $Y$ is aggregate output, $W$ is the nominal wage (common to all producers thanks to the competitive labor market) and $N$ is aggregate labor input.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, consider the special case where intermediate producers have constant returns to scale and productivity is normalized to 1. There we have, to first order, $Y\approx N$ (there is a second order difference due to price dispersion). Hence, again to first order, we have $$\Pi \leq 0 \Longleftrightarrow P\leq W$$&#xA;When is $P\leq W$? Well, using lowercase variables to denote logs, we know from household optimization that $w - p = \sigma c + \varphi n$ (see Gali p.43 equation (2), for instance), where $\sigma$ is the inverse EIS and $\varphi$ is the inverse Frisch elasticity. And since market clearing and our simple production function imply that $y=c=n$ to first order, this becomes $$w-p = (\sigma + \varphi)y$$&#xA;Finally, we observe that at the &quot;natural level&quot; of output $y^n$, markups should equal their desired level, which is $\mathcal{M}=\varepsilon/(\varepsilon-1)$, where $\varepsilon$ is the elasticity of firm demand. Writing $\mu =\log \mathcal{M}$ and substituting into the equation for $w-p$, this implies $-\mu=(\sigma+\varphi)y^n$. Finally, subtracting from the equation for $w-p$, we have&#xA;$$w-p = (\sigma+\varphi)(y-y^n) - \mu$$&#xA;We'll have negative aggregate profits $P\leq W \Longleftrightarrow w-p \geq 0$ when $(\sigma+\varphi)(y-y^n) \geq \mu$. Note that this happens when output is &lt;em&gt;high&lt;/em&gt;, since profits in the basic NK model are countercyclical.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Interestingly, under some not-totally-crazy calibrations this can happen. For instance, if we assume that both the EIS and Frisch are 1/2, so that $\sigma=\varphi=2$, and also assume $\varepsilon = 10$, so that $\mu = 0.105$, then exceeding the natural level of output by even 3% is enough to deliver negative aggregate profits, since $4\times 0.03 &amp;gt; 0.105$. And again, note that it is much more likely that we'll have individual &lt;em&gt;firms&lt;/em&gt; with negative profits; in the case where aggregate profits are even close to negative, any firm unlucky enough to be stuck at a much lower-than-average price will have negative profits.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, I should clarify that all of this is unrelated to the concept of zero long-term economic profit that you mention. This concept is often embedded in models of monopolistic competition in the form of a free-entry condition (where firms pay some fixed cost ex ante to exist), but this is very rare in New Keynesian models - presumably because NK models focus on business-cycle frequencies where the entry margin is limited.&lt;/p&gt;&#xA;" OwnerUserId="405" LastActivityDate="2014-12-27T07:42:37.250" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1782" PostTypeId="2" ParentId="1752" CreationDate="2014-12-27T08:47:32.480" Score="2" Body="&lt;p&gt;Conceptually, US monetary policy affects the US/Turkey exchange rate because of &lt;a href=&quot;http://en.wikipedia.org/wiki/Interest_rate_parity&quot; rel=&quot;nofollow&quot;&gt;&lt;strong&gt;interest rate parity&lt;/strong&gt;&lt;/a&gt;. Exchange rates and interest rates obey the following identity (where all quantities are specified in logs, and &quot;tomorrow&quot; is meant loosely as some future date):&#xA;$$\text{USD per TRY today} = \text{Expected USD per TRY tomorrow} \\&#xA;+ (\text{TRY interest rate}-\text{USD interest rate})-\text{TRY/USD return premium}$$&#xA;This is an arbitrage condition. If the return premium is zero, it is equivalent to the statement that if I borrow at the US dollar interest rate today and invest in Turkish lira at the Turkish interest rate, then convert back to dollars tomorrow, I should expect to break even. (This is called &lt;strong&gt;uncovered interest parity&lt;/strong&gt;, and it generally does not hold, though it can be a decent approximation in some settings.) The &quot;return premium&quot; is thrown in as a fudge factor, reflecting the fact that there might be some risk or other premium on lira investments -- for investors to be indifferent between dollar and lira, they demand a positive expected return on lira over dollars.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, suppose that the Fed raises the USD interest rate (or signals that it will do less QE than anticipated, etc.). Then, all else equal, the identity above implies that the lira will weaken today relative to the dollar. This is the sense in which a tightening monetary policy in the US pushes down other currencies relative to the dollar. This weaker lira will be accompanied by a smaller net capital inflow into Turkey, since Turkey's net imports will decline.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, all else might not be &quot;equal&quot;, since central banks (particularly in developing economies) will often try to limit currency fluctuations; in this case, we might expect the Turkish central bank to raise rates to partly offset the Fed's action. These higher rates will lead to diminished investment, and a somewhat weaker Turkish economy.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;An aside: the quote mentions &quot;hot money&quot;, a term that I dislike because it's so vague. If we define &quot;hot money&quot; to be &quot;international investors' capital moving at high frequencies&quot;, hot money doesn't necessarily &lt;em&gt;leave&lt;/em&gt; the country when the currency weakens. Indeed, possible central bank interventions in the foreign exchange market aside, if &quot;hot money&quot; is the only private capital moving around quickly, then total hot money flows &lt;em&gt;must net out to zero&lt;/em&gt; in the short run: the net capital inflow must equal the current account deficit, which is trivial over the span of a few days. The key point is that although &quot;hot money&quot; doesn't &lt;em&gt;leave&lt;/em&gt; in equilibrium, the exchange rate might have to fall substantially for the market to equilibriate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For instance, if investors holding &quot;hot money&quot; collectively get jittery about a currency and want to hold dollars instead, the currency might collapse until it reaches a value where (in the aggregate) they remain willing to hold the same amount. In the identity above, this would be reflected in a dramatic rise in the TRY/USD return premium. This is a common story of crises in developing countries with open but fragile capital markets.&lt;/p&gt;&#xA;" OwnerUserId="405" LastActivityDate="2014-12-27T08:47:32.480" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1784" PostTypeId="2" ParentId="1758" CreationDate="2014-12-27T19:33:31.900" Score="5" Body="&lt;p&gt;Besides allowing countries to take advantage of comparative advantage, as mentioned, an open economy can engage in intertemporal trade. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This possibility is useful because it allows a country to smooth consumption over time, even when domestic output fluctuates. For instance, in good times the economy can save (consume less than actual output, lending to foreign countries), allowing the economy to consume more than actual output in bad times. &#xA;This in fact is welfare improving relative to autarky (in which consumption in any period must equal current output (to simplify assume there is no investment), when we assume that consumer's preferences are convex.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, I don't know if a country can survive/prosper being a closed economy, but certainly there are many advantages for an economy that engages in international trade.&lt;/p&gt;&#xA;" OwnerUserId="1547" LastActivityDate="2014-12-27T19:33:31.900" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1785" PostTypeId="1" CreationDate="2014-12-27T20:55:45.587" Score="1" ViewCount="1061" Body="&lt;p&gt;National level or aggregate level data and firm-level data are self explanatory. I have seen certain papers on productivity analysis as well as other topics which refer to &quot;establishment-level&quot; data. Can someone please explain what is meant by this term?&lt;/p&gt;&#xA;" OwnerUserId="366" LastActivityDate="2014-12-27T21:06:05.343" Title="What is establishment-level data" Tags="&lt;productivity&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1786" PostTypeId="2" ParentId="1785" CreationDate="2014-12-27T21:06:05.343" Score="2" Body="&lt;p&gt;Establishments are firms at the facility level. Think about it like branches: If a firm has three different branches, each of these branches counts as an establishment. If a firm has no branches, the firm itself is the (sole) establishment.&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2014-12-27T21:06:05.343" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1787" PostTypeId="1" AcceptedAnswerId="1788" CreationDate="2014-12-27T21:58:15.117" Score="7" ViewCount="674" Body="&lt;p&gt;Since the fracking industry in the US has started to grow rapidly, I have heard increasing reports that OPEC is attempting some form of predatory dumping in the hopes of making the fracking industry in the US unprofitable.&lt;br&gt;&#xA;How successful do economists predict that OPEC's dumping strategy will be?  For example, does OPEC have a large profit margin and the fracking industries a small profit margin (making fracking an unprofitable enterprise quite easily under some form of predatory dumping) or are the profit margins close enough to make any predatory dumping infeasible in the short-run?&lt;/p&gt;&#xA;" OwnerUserId="27" LastEditorUserId="21827" LastEditDate="2020-05-04T03:44:32.543" LastActivityDate="2020-05-04T03:44:32.543" Title="How successful will OPEC's predatory dumping strategy be?" Tags="&lt;industrial-organisation&gt;&lt;oil&gt;&lt;resource-economics&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="1788" PostTypeId="2" ParentId="1787" CreationDate="2014-12-27T22:31:27.913" Score="7" Body="&lt;p&gt;This is the cost curve of oil production (North American shale at $65):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/q3xd7.jpg&quot; alt=&quot;enter image description here&quot;&gt;&#xA;&lt;a href=&quot;http://www.slate.com/blogs/moneybox/2014/12/11/oil_falls_below_60_a_barrel_who_s_in_trouble.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Source&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And this is the cost curve of major American projects:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/7lUQs.png&quot; alt=&quot;enter image description here&quot;&gt;&#xA;&lt;a href=&quot;http://www.businessinsider.com/citi-breakeven-oil-production-prices-2014-11&quot; rel=&quot;nofollow noreferrer&quot;&gt;Source&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;While &quot;Citi's Ed Morse highlighted this chart, showing that for most US shale plays, costs are below $80 a barrel.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And clearly, many of these new projects would lead to losses with oil prices at $60:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/MxJuf.jpg&quot; alt=&quot;enter image description here&quot;&gt;&#xA;&lt;a href=&quot;http://www.businessinsider.com/citi-breakeven-oil-production-prices-2014-11&quot; rel=&quot;nofollow noreferrer&quot;&gt;Source&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem with predatory pricing (if it's purposeful) is that OPEC itself depends on high oil prices to ensure balanced budgets in their (mostly dictatorial) regimes. Their sovereign funds are large enough to survive a brief (2-3 years) period of low oil prices, but in the long run, dumping endangers their rulers' positions:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/sbdjQ.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/O9nYS.png&quot; alt=&quot;enter image description here&quot;&gt;&#xA;&lt;a href=&quot;http://www.slate.com/blogs/moneybox/2014/12/11/oil_falls_below_60_a_barrel_who_s_in_trouble.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Source&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can't kill American oil production this way—it would return after these two-three years anyway.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The \$60-80 band leaves space for most American projects, while oil below \$60 kills too many OPEC members. So, it does not seem to be a good dumping strategy.&lt;/p&gt;&#xA;" OwnerUserId="240" LastEditorUserId="240" LastEditDate="2014-12-28T14:50:11.200" LastActivityDate="2014-12-28T14:50:11.200" CommentCount="9" ContentLicense="CC BY-SA 3.0" />
  <row Id="1789" PostTypeId="2" ParentId="1759" CreationDate="2014-12-27T23:37:43.773" Score="3" Body="&lt;p&gt;&lt;a href=&quot;http://www.oecd.org/edu/Israel_EAG2013%20Country%20Note.pdf&quot; rel=&quot;nofollow&quot;&gt;According to the OECD&lt;/a&gt;: Israel's spending per-student is low relative to other OECD countries. Given that countries like the US have both higher spending per-student and higher enrolment rates, it is not clear what a switch to heavier state subsidisation (both the UK and US already heavily subsidise universities) would achieve. Bear in mind that most of the best US universities privately subsidise talented students from poor backgrounds so that the highest fees are mostly bourne by the wealthy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems that implicit in your question is the idea that Israel rations its heavily subsidised tertiary education by imposing more demanding entrance requirements, but it is not clear to me that this is true. The entrance requirements for elite universities such as Harvard, MIT, Oxford, or Cambridge are among the most demanding in the world. There are &lt;a href=&quot;http://en.wikipedia.org/wiki/Higher_education_in_the_United_States&quot; rel=&quot;nofollow&quot;&gt;4599 higher education institutions&lt;/a&gt; in the US that cater to a very broad spectrum of student types.&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2014-12-28T08:46:40.727" LastActivityDate="2014-12-28T08:46:40.727" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1790" PostTypeId="2" ParentId="458" CreationDate="2014-12-28T01:19:06.480" Score="2" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Ecological economics considers the economy as a subsystem of the&#xA;  ecosystem. Why is this not standard?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It is not &quot;standard&quot; because economy and ecology are two fundamentally different things. We cannot really create or control an ecological system to the same extent we can create and control an economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can however create an economy where none existed before, because an economy is not a &quot;natural&quot; thing at all. It is governed by the financial, tax and contract laws that we as a society create.  We can create an economy where none existed before (e.g. internet, intellectual property, etc). We can't do any of that in an ecosystem. We can have two (or more) economic systems existing alongside each other whereas we can't have that in an ecology. The &quot;rules&quot; of an ecological system are immutable.&lt;/p&gt;&#xA;" OwnerUserId="1511" LastActivityDate="2014-12-28T01:19:06.480" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1791" PostTypeId="1" CreationDate="2014-12-28T13:33:27.580" Score="3" ViewCount="1334" Body="&lt;p&gt;I'm a masters student looking for a thesis topic. Please note, I'm studying Finance and whilst the econometrics component of my course is rather lacking when compared to a straight Econometrics degree, thanks to the internet there is a vast wealth of resources out there for me to try and grasp it on my own - with some friendly help along the way of course :)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'd like to use the thesis as an opportunity to learn a new regression model. Specifically GARCH models used to forecast volatility.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As I understand it, the GARCH-MIDAS model (as described by Engle et. al 2013) can and has been used with daily stock return data and macroeconomic data (typically quarterly or monthly) to produce volatility forecasts that contain both long and short-run components.&#xA;The GARCH model encompasses the mean-reverting short-run fluctuations in volatility, whilst the MIDAS component captures the long-run effects.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is what I gather from briefly looking over the paper late last night. Any corrections are welcome!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In terms of time-series experience, I can implement AR, ARDL, VAR and VECM models. I have never used ARCH, GARCH, or any of their variations; though as I said I would really like to learn.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I guess all I am asking is whether this is feasible option for me as a student with no formal teaching, but a desire to learn by himself. If so, can anyone point me to some books with practical expositions of the GARCH and MIDAS regression methods? I presume an understanding in each method separately would greatly aid combining the two.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your thoughts and opinions would be greatly appreciated!&lt;/p&gt;&#xA;" OwnerUserId="1552" LastEditorUserId="43" LastEditDate="2014-12-28T14:29:12.197" LastActivityDate="2015-06-06T07:31:21.587" Title="Does anyone here have experience with GARCH-MIDAS forecasting?" Tags="&lt;econometrics&gt;&lt;reference-request&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="1792" PostTypeId="1" AcceptedAnswerId="1793" CreationDate="2014-12-28T13:36:47.163" Score="6" ViewCount="2763" Body="&lt;p&gt;When the government causes inflation through printing money, the individuals who saved their money in the bank are poorer.&lt;br&gt;&#xA;Is there a way to determine how different inflation rates impact the welfare of the economy?&lt;br&gt;&#xA;I tried answering this question myself using the production function, and, though I was able to come up with some conjectures, I was unable to come to a definite conclusion.  &lt;/p&gt;&#xA;" OwnerUserId="27" LastActivityDate="2014-12-29T01:44:54.663" Title="How does inflation impact the welfare of the economy?" Tags="&lt;macroeconomics&gt;&lt;inflation&gt;&lt;production-function&gt;&lt;banking&gt;" AnswerCount="3" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="1793" PostTypeId="2" ParentId="1792" CreationDate="2014-12-28T14:05:26.807" Score="4" Body="&lt;p&gt;First, there are direct negative effects from inflation, known as the &lt;strong&gt;shoe leather cost&lt;/strong&gt; and &lt;strong&gt;menu costs&lt;/strong&gt; of inflation. These are direct costs which come from price changes: People will carry less cash, need to update their knowledge about prices, firms need to update their prices and wages, and similar. These are usually small, but typically higher given higher inflation rates.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Second, there are direct &lt;strong&gt;redistributional&lt;/strong&gt; effects, which come from the devaluation of money and everything denoted in nominal terms, including most importantly nominal bonds and debt (credits). Usually, we imagine borrowers to be less wealthy than lenders &lt;em&gt;(1)&lt;/em&gt;. Here (unexpected) inflation will redistribute wealth from the rich to the poor. Under most standard welfare functions, this will be a first-order welfare improvement.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Third, we typically think that poorer people have higher &lt;strong&gt;marginal propensity to consume&lt;/strong&gt; (MPC). Assuming that we are in a situation with inefficiently high savings rates (for example in Keynesian traps), the aforementioned redistribution will improve allocations, but this is typically a second-order effect (but also this will depend on what you believe is true about the Keynesian multipliers).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Wage contracts belong into the second argument, but deserve a special mentioning due to their &lt;a href=&quot;http://en.wikipedia.org/wiki/Phillips_curve&quot; rel=&quot;nofollow&quot;&gt;extensive treatment&lt;/a&gt; in the literature.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;(1)&lt;/em&gt;: This is sufficient, but not necessary. In order to get a higher MPC from borrowers than from lenders, it is sufficient that the borrowers are not optimally smoothing consumption over time (for example, because they are up against a borrowing constraint) - we call these types of consumers &lt;em&gt;Hand-to-mouth&lt;/em&gt;, because they will typically consume all their disposable income. As long as the distance between the (aggregated) borrowers consumption and what they would like to consume in a frictionless environment is larger than the distance between the (aggregated) lenders' consumption and what they would like to consume in a frictionless environment &lt;em&gt;(2)&lt;/em&gt;, devaluing debt will increase consumption.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;(2)&lt;/em&gt;: It may sound surprising, but there is a significant mass of wealthy hand-to-mouth consumers. See &lt;a href=&quot;http://www.nber.org/papers/w20073&quot; rel=&quot;nofollow&quot;&gt;Kaplan et al, 2014&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2014-12-28T15:17:09.483" LastActivityDate="2014-12-28T15:17:09.483" CommentCount="9" ContentLicense="CC BY-SA 3.0" />
  <row Id="1794" PostTypeId="2" ParentId="1792" CreationDate="2014-12-28T14:24:42.887" Score="3" Body="&lt;p&gt;In the absence of inflation, the social cost of creating a dollar is essentially zero (at most a few cents worth of paper and ink), but the private cost of holding a dollar is a forgone dollar's worth of consumption.  Therefore there must be positive externalities to holding dollars.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Inflation increases the private cost without changing the social cost, so magnifies the externality.  Moreover, because there's an externality even when inflation is zero, the additional welfare loss due to the first marginal unit of inflation is already non-zero.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This external cost is the same as the shoe-leather costs that FooBar mentions, but thinking about it as an externality lets you measure it as a triangle and so helps toward quantifying it.&lt;/p&gt;&#xA;" OwnerUserId="250" LastEditorUserId="250" LastEditDate="2014-12-28T14:39:52.240" LastActivityDate="2014-12-28T14:39:52.240" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="1795" PostTypeId="1" AcceptedAnswerId="1797" CreationDate="2014-12-28T14:42:00.440" Score="8" ViewCount="177" Body="&lt;p&gt;If a substantial (though admittedly I have no idea how large) part of the natural rate of unemployment is caused by the job search, do more efficient means of communication create more efficient labor markets, and if so, can anyone quantify their impact with data?&lt;/p&gt;&#xA;" OwnerUserId="31" LastActivityDate="2014-12-28T19:25:43.607" Title="Does Craigslist Reduce Unemployment?" Tags="&lt;macroeconomics&gt;&lt;labor-economics&gt;" AnswerCount="1" CommentCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="1796" PostTypeId="2" ParentId="1726" CreationDate="2014-12-28T16:55:08.637" Score="1" Body="&lt;p&gt;Yes, if elasticity is greater than one we say that demand is elastic.  This means that the percentage change in quantity demanded is greater than (in magnitude) the percentage change in price.  More generally, if elasticity is &lt;em&gt;e&lt;/em&gt; then the percentage change in quantity demanded is &lt;em&gt;e&lt;/em&gt; times the percentage change in price.  For example, if &lt;em&gt;e&lt;/em&gt;=0.5, the percentage change in quantity demanded is half the percentage change in price.  &lt;/p&gt;&#xA;" OwnerUserId="1554" LastActivityDate="2014-12-28T16:55:08.637" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1797" PostTypeId="2" ParentId="1795" CreationDate="2014-12-28T19:25:43.607" Score="7" Body="&lt;p&gt;Kroft and Pope (&lt;a href=&quot;http://faculty.chicagobooth.edu/devin.pope/research/pdf/Website_Craigslist.pdf&quot;&gt;working paper&lt;/a&gt;, published in JoLE 2014) ask exactly this question, and their tentative answer is &quot;no&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;They view Craigslist as a unique opportunity to study the benefits of online job sites, since it grew rapidly and somewhat idiosyncratically while other popular sites grew steadily (leaving few opportunities for identification). That said, they don't have a great identification strategy - they just treat the rise of Craigslist starting in 2005 as an event study and compare MSAs where it grew quickly to MSAs where it grew sluggishly, making the case via various alternative specifications and falsification tests that there isn't any substantial bias.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Interestingly, they find that Craigslist &lt;em&gt;does&lt;/em&gt; seem to have crowded out traditional newspaper classified ads, but had no discernible effect on unemployment. (This doesn't surprise me too much, since Craigslist seems like a pretty minor advance over traditional classifieds for job search, and if anything you'd expect a contribution from other sites that are more specialized or make more efforts to facilitate matching.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand, they find that Craigslist &lt;em&gt;does&lt;/em&gt; seem to have some effect on rental vacancy rates. Perhaps simple, searchable Craigslist-style classified ads facilitate rental search (I know they have for me) but are too crude to do much for employment.&lt;/p&gt;&#xA;" OwnerUserId="405" LastActivityDate="2014-12-28T19:25:43.607" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1798" PostTypeId="1" AcceptedAnswerId="1799" CreationDate="2014-12-28T19:40:56.553" Score="5" ViewCount="6338" Body="&lt;p&gt;I had heard that, at the start of the Great Depression, JP Morgan and other bankers attempted to prevent the depression by purchasing some of the overpriced stock.&lt;br&gt;&#xA;Did the actions of JP Morgan and the other bankers have any effect on the US economy at the time?  Were the effects of the Great Depression mitigated by their actions?&lt;/p&gt;&#xA;" OwnerUserId="27" LastActivityDate="2016-05-03T17:46:05.640" Title="Did JP Morgan mitigate the effects of the Great Depression?" Tags="&lt;stock-market&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1799" PostTypeId="2" ParentId="1798" CreationDate="2014-12-29T01:12:36.557" Score="5" Body="&lt;p&gt;Not really. While it's possible that the Morgan intervention softened the initial stock market decline, the vast majority of the ultimate collapse in securities prices, commodity prices, industrial production, and the banking sector took place after the purchases had been liquidated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First some history: the bankers' pool intended to lift the stock market was assembled at the J.P. Morgan &amp;amp; Co. offices on October 24, 1929, &quot;Black Thursday&quot;, the initial day of market chaos. They pooled their resources and directed broker Richard Whitney to place high bids on blue chip stocks at the NYSE to lift the confidence of the markets. This stemmed the crash on Thursday and led to a rally that continued the next two days. Indeed, the &lt;a href=&quot;http://query.nytimes.com/gst/abstract.html?res=9900E4DE1E30E73ABC4F51DFB6678382639EDE&quot; rel=&quot;nofollow noreferrer&quot;&gt;following Sunday's New York Times lauded&lt;/a&gt; the &quot;carefully arranged&quot; plan to boost the market, and mentioned that the inclusion of the First National Bank in the buyers' pool the next day confirmed to Wall Street that &quot;the danger of panic had been averted&quot;. Some history of these events is provided in &lt;a href=&quot;http://en.wikipedia.org/wiki/Wall_Street_Crash_of_1929&quot; rel=&quot;nofollow noreferrer&quot;&gt;the Wikipedia article on the crash&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Alas, the Monday and Tuesday immediately following this confident appraisal - October 28 and 29, 1929 - are known as &lt;em&gt;Black Monday and Tuesday&lt;/em&gt;, respectively. They experienced the &lt;a href=&quot;http://en.wikipedia.org/wiki/List_of_largest_daily_changes_in_the_Dow_Jones_Industrial_Average&quot; rel=&quot;nofollow noreferrer&quot;&gt;second and fourth largest daily percentage DJIA declines&lt;/a&gt; in history, combining for easily the largest two-day percentage decline in history. Most newspapers at the time described the bankers' pool as waiting to intervene until late Tuesday, when they cut margin requirements and placed buying orders (&lt;a href=&quot;http://cdsun.library.cornell.edu/cgi-bin/cornell?a=d&amp;amp;d=CDS19291030.2.21&amp;amp;e=-------en-20--1--txt-txIN------#&quot; rel=&quot;nofollow noreferrer&quot;&gt;see AP article&lt;/a&gt;). An AP article describing the crash on Monday opened with &quot;powerful financial interests stepped aside today and let the stock market drop...&quot;. Finally, on Wednesday the &lt;a href=&quot;http://cdsun.library.cornell.edu/cgi-bin/cornell?a=d&amp;amp;d=CDS19291031.2.13&amp;amp;e=-------en-20--1--txt-txIN------#&quot; rel=&quot;nofollow noreferrer&quot;&gt;bankers' pool entered&lt;/a&gt; with strong buying orders, leading to the third highest daily percentage DJIA &lt;em&gt;increase&lt;/em&gt; in history. The next day the pool apparently &lt;a href=&quot;http://query.nytimes.com/gst/abstract.html?res=9D00E0DE163BE23ABC4953DFB7678382639EDE&quot; rel=&quot;nofollow noreferrer&quot;&gt;stepped away from the markets once more&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It kept going like this for a little while, with some more volatility in markets over the next few weeks but eventual stabilization and partial recovery. Finally, the banking group quietly wrapped up its activities in February 1930, with &lt;a href=&quot;http://cdsun.library.cornell.edu/cgi-bin/cornell?a=d&amp;amp;d=CDS19300225.2.33&amp;amp;e=-------en-20--1--txt-txIN------&quot; rel=&quot;nofollow noreferrer&quot;&gt;press accounts mentioning&lt;/a&gt; that it &quot;come out about even&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given all this, it's &lt;em&gt;possible&lt;/em&gt; that the bankers' pool offered some initial stabilization of the markets. (Although even that's not clear: from press accounts, it seems just as likely that volatility was &lt;em&gt;increased&lt;/em&gt; by the erratic day-to-day decisions of the pool.) But again, any significant effect seems unlikely, because the vast majority of the carnage in the Great Depression took place &lt;em&gt;after&lt;/em&gt; the pool had been liquidated in February 1930. To convey some sense of this, the &lt;a href=&quot;http://research.stlouisfed.org/fred2/graph/?g=VCw&quot; rel=&quot;nofollow noreferrer&quot;&gt;following graph&lt;/a&gt; shows (in log points) the fall of the DJIA, industrial production index, and wholesale price index in the US starting in September 1929. As you can see, the initial declines in late 1929 and early 1930 - although substantial - are far smaller than the eventual ones. This is in line with the modern consensus view on the Great Depression, which &lt;a href=&quot;http://isites.harvard.edu/fs/docs/icb.topic467999.files/October%2022%20and%2027%20-%20Trade%20Money%20and%20Finance/Eichengreen.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;emphasizes the role of the gold standard&lt;/a&gt; and its propagation of adverse monetary and banking shocks, rather than the initial market crash itself.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/gdHSA.png&quot; alt=&quot;trajectory of the depression: stock prices, industrial production, and commodity prices&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is all an interesting contrast with the more famous and successful case of intervention, performed in the &lt;a href=&quot;http://en.wikipedia.org/wiki/Panic_of_1907&quot; rel=&quot;nofollow noreferrer&quot;&gt;Panic of 1907&lt;/a&gt; by J.P. Morgan himself. (The original J.P. Morgan was long dead by 1929, though his eponymous son and firm lived on.) In 1907, Morgan engineered a wide variety of rescue measures, making large deposits in struggling banks and large call loans to brokers. These measures are thought to have helped end the panic.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The key difference, I think, is that the 1907 panic was a fairly conventional acute crisis in the banks and money markets: recent nominal growth and seasonal demand for currency meant that interest rates were already high, and then a run on banks and trust companies led to more hoarding of currency and extremely high interest rates. Extremely expensive margin borrowing led to a collapse in securities prices, which endangered the banks further (they were more exposed to stocks, through various channels, than they are now), leading to more run pressure, and so on. In this environment, where banks and firms were sound - and money markets would loosen - if only the panic would stop, it was possible for a few decisive interventions to swing momentum in the other direction.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Depression was much different. Thanks to the Federal Reserve, seasonal fluctuations in currency demand and (to an extent) panicked currency hoarding did not lead to a spike in money market rates, which actually &lt;a href=&quot;http://research.stlouisfed.org/fred2/graph/?g=VCy&quot; rel=&quot;nofollow noreferrer&quot;&gt;fell drastically in late 1929 and 1930 rather than spiking as they did in 1907&lt;/a&gt;. Also unlike 1907, the banking crisis did not coincide with the initial stock market collapse - instead, it only started with the Bank of United States failure in December 1930, and in the initial stages was arguably due to fundamental insolvency rather than illiquidity. (Since both nominal real estate prices and food prices collapsed, mortgage default rates - residential, commercial, and farm - were all extremely high.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Bottom line: the crisis of 1929-33 was different enough from the crisis of 1907 that similar measures no longer worked.&lt;/p&gt;&#xA;" OwnerUserId="405" LastActivityDate="2014-12-29T01:12:36.557" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1800" PostTypeId="2" ParentId="1792" CreationDate="2014-12-29T01:44:54.663" Score="2" Body="&lt;p&gt;As the discussion here suggests, there are many possible costs and benefits to inflation. One source that might be edifying here is the &lt;a href=&quot;http://www.federalreserve.gov/monetarypolicy/files/FOMC19960703meeting.pdf&quot; rel=&quot;nofollow&quot;&gt;1996 FOMC discussion&lt;/a&gt; that ultimately resulted in the US's 2% inflation target. This discussion focuses on one particular aspect of the inflation tradeoff: namely, the &lt;em&gt;effects of long-term, low levels of inflation&lt;/em&gt;. It offers some useful insight into what policymakers view as the most quantitatively important consequences of long-term inflation in a country like the US.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Janet Yellen, who was then a Fed governor and advocated for the 2% target, sums it up on page 43 of the FOMC transcript. She lists one cost from inflation and two benefits:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;The major &lt;strong&gt;cost&lt;/strong&gt; arises from the interaction of inflation with the&#xA;tax system, which (aside from indexation of brackets) is specified in&#xA;nominal terms. As a result, inflation implicitly increases the tax&#xA;rate on capital investment in several ways. For instance, since&#xA;depreciation is measured for tax purposes at historical rather than&#xA;current cost, in an inflationary environment depreciation is&#xA;artificially low and businesses pay taxes on illusory &quot;profits&quot;.&#xA;Similarly, capital gains are measured in nominal rather than real&#xA;terms, pushing a large tax burden onto sellers even when their real&#xA;gains are minimal. These tax-interaction effects were emphasized by&#xA;Martin Feldstein (and some of his students, &lt;a href=&quot;http://www.nber.org/papers/w0312&quot; rel=&quot;nofollow&quot;&gt;like Larry Summers&lt;/a&gt;),&#xA;whose &lt;a href=&quot;http://www.nber.org/chapters/c8883.pdf&quot; rel=&quot;nofollow&quot;&gt;recent paper&lt;/a&gt; was mentioned by Yellen - who thought he&#xA;overstated the effects - in 1996.&lt;/li&gt;&#xA;&lt;li&gt;The first major &lt;strong&gt;benefit&lt;/strong&gt; Yellen discusses, prophetically enough, was that higher inflation means that one can achieve more negative real interest rates - which might be necessary in recessions - when nominal interest rates are pushed down to their zero lower bound. This is a very important issue today!&lt;/li&gt;&#xA;&lt;li&gt;The second major &lt;strong&gt;benefit&lt;/strong&gt; is the possibility that mild inflation makes it easier to overcome downward nominal wage rigidity and achieve needed adjustments; this was &lt;a href=&quot;http://dido.wss.yale.edu/P/cp/p03b/p0361.pdf&quot; rel=&quot;nofollow&quot;&gt;famously emphasized by Tobin in his 1971 AEA presidential address&lt;/a&gt; and developed more thoroughly by &lt;a href=&quot;http://www.brookings.edu/~/media/files/programs/es/bpea/1996_1_bpea_papers/1996a_bpea_akerlof_dickens_perry_gordon_mankiw.pdf&quot; rel=&quot;nofollow&quot;&gt;Akerlof, Dickens, Perry (1996)&lt;/a&gt;, which is also cited in Yellen's discussion.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Given this tradeoff, the committee honed in on a long-term target of 2%.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is interesting to consider all the issues that were not present in this discussion. The most conspicuous is the usual question of &lt;em&gt;redistribution&lt;/em&gt;. This is because, although borrowers benefit and savers lose from &lt;em&gt;unanticipated&lt;/em&gt; inflation, fully &lt;em&gt;anticipated&lt;/em&gt; inflation should be incorporated into nominal asset returns (except for the tax issues discussed above). Since anticipated rather than unanticipated inflation is the relevant issue for setting a long-term inflation target, this was not such an important question for this debate - though, of course, it still mattered for the transition to any new target.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another cost of inflation commonly cited by academics is the distortion from departing from the &lt;a href=&quot;http://en.wikipedia.org/wiki/Friedman_rule&quot; rel=&quot;nofollow&quot;&gt;Friedman rule&lt;/a&gt; of 0% interest rates: since the central bank can more-or-less costlessly engage in open market operations to buy securities and create more money, a positive interest rate means that individuals hold a less-than-socially-optimal amount of money in their portfolios. This cost was presumably ignored in the discussion because, in a low inflation economy, it is of trivial magnitude - not many people make decisions about how much cash to carry in their wallets based on whether the interest rate is 0% or 4%. Indeed, the cost here may be nonexistent, since a large amount of cash is held either outside the US or in support of illegal activities - and it is optimal for the US government to tax the former and discourage the latter.&lt;/p&gt;&#xA;" OwnerUserId="405" LastActivityDate="2014-12-29T01:44:54.663" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1801" PostTypeId="2" ParentId="1715" CreationDate="2014-12-29T02:43:32.410" Score="3" Body="&lt;p&gt;There are actually five different types of trading blocs: preferential trading areas, free trade areas, customs unions, common markets and economic (and monetary) unions &lt;a href=&quot;http://en.wikipedia.org/wiki/Trade_bloc&quot; rel=&quot;nofollow&quot;&gt;[1]&lt;/a&gt;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A &lt;strong&gt;preferential trade area&lt;/strong&gt; (PTA) is a trading bloc that reduces tariffs on particular goods between two countries but does not abolish them completely.  There are no particularly well-known examples, but a list can be found here &lt;a href=&quot;http://en.wikipedia.org/wiki/Preferential_trading_area&quot; rel=&quot;nofollow&quot;&gt;[2]&lt;/a&gt;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A &lt;strong&gt;free-trade area&lt;/strong&gt; is the agreement among all member countries to eliminate tariffs, import quotas, and preferences on goods and services traded between each other (the free-trade as defined in the question) &lt;a href=&quot;http://en.wikipedia.org/wiki/Free_trade_area&quot; rel=&quot;nofollow&quot;&gt;[3]&lt;/a&gt;.  Probably the best known free-trade area is NAFTA; but others are listed &lt;a href=&quot;http://en.wikipedia.org/wiki/List_of_free_trade_agreements&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt; and &lt;a href=&quot;http://en.wikipedia.org/wiki/List_of_bilateral_free_trade_agreements&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Again, there are no well-known &lt;strong&gt;customs unions&lt;/strong&gt;, but a list can be found &lt;a href=&quot;http://en.wikipedia.org/wiki/Customs_union&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A &lt;strong&gt;common market&lt;/strong&gt; has free trade and free movement of the factors of production but other economic policies of the countries may be different (one of the differences between a common market and an economic union).  You may also want to look at &lt;a href=&quot;http://en.wikipedia.org/wiki/Single_market&quot; rel=&quot;nofollow&quot;&gt;single market and unified market&lt;/a&gt;.  There are no well-known common markets, but the previous link also contains a list.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The best known &lt;strong&gt;economic union&lt;/strong&gt; is the EU though more can be found &lt;a href=&quot;http://en.wikipedia.org/wiki/Economic_and_monetary_union&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;.  An &lt;strong&gt;economic and monetary union&lt;/strong&gt; has the same qualities of an economic union but each member nation also uses the same currency.  One example would be the nations in the EU who also utilize the Euro.  &lt;/p&gt;&#xA;" OwnerUserId="27" LastActivityDate="2014-12-29T02:43:32.410" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1802" PostTypeId="1" AcceptedAnswerId="1806" CreationDate="2014-12-29T06:05:16.697" Score="5" ViewCount="116" Body="&lt;p&gt;The famous Newey 94 paper on the asymptotic convergence of semiparametric estimators with a first non parametric step and a second parametric one, &lt;a href=&quot;http://www.jstor.org/stable/2951752&quot; rel=&quot;noreferrer&quot;&gt;http://www.jstor.org/stable/2951752&lt;/a&gt;, establishes that it does not matter the rate of convergence of the particular non parametric estimator, as long a a number of regularity assumptions are fulfilled then the estimator of the second step is $\sqrt{N}$ convergent to a normal distribution. Here I am asking for intuition why does this a complicated stochastic process, say Naradaya-Watson asymptotic distribution converges to this nice distribution. &lt;/p&gt;&#xA;" OwnerUserId="127" LastEditorUserId="108" LastEditDate="2014-12-29T09:15:25.393" LastActivityDate="2015-01-08T18:51:08.750" Title="The $\sqrt{N}$ convergence of semiparametric estimators of Newey 94, why does it converges to a normal distribution?" Tags="&lt;econometrics&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="1803" PostTypeId="2" ParentId="1765" CreationDate="2014-12-29T06:46:23.100" Score="4" Body="&lt;p&gt;The consequence would be confusion, if someone is further east of you it's natural to think they're &lt;em&gt;ahead&lt;/em&gt; of time (relative to you).  Especially if you're used to the ubiquitous maps of the globe (with Europe/Africa in the middle, the Americas to the left and Japan/Oceania on the right).  Confusion then might arise in some economical contexts that are highly standardised.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, spot transactions on the forex markets are delivered (cleared) in 2 days.  If someone behind the date line trades on your behalf you might have to wait 3 days, or just one day for the funds to clear, depending on what side you're on.  Also in your example, think of recurring events (like quarterly reports, dividends, etc.), you might still be on the day before they're due but time-wise (just the hours on the clock) you're ahead.  Or if you're west of the date-line and waiting for events from someone east thereof you have to wait another day.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the explanations above are confusing then that's &lt;em&gt;exactly&lt;/em&gt; the point I'm making.  So, my opinion, if you wanted to pull off something like that without confusing people you'd also have to establish a new prevalent mapping of the globe, with Europe/Africa far to the &quot;west&quot; and the Americas on the far &quot;east&quot; side.  Of course, established terms, like far-east, western society, etc. have to be recoined as well.&lt;/p&gt;&#xA;" OwnerUserId="167" LastActivityDate="2014-12-29T06:46:23.100" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1806" PostTypeId="2" ParentId="1802" CreationDate="2014-12-29T14:23:31.350" Score="3" Body="&lt;p&gt;The usual proof of the classical Central Limit Theorem (CLT), I believe provides the most intuition there is about this phenomenon. And it is not much of an intuition anyway.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This &quot;usual&quot; proof is through characteristic functions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider a random variable $X$ with characteristic function&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\phi_X(t) = E(e^{i tX}), \;\;\;i^2 = -1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now consider its centered and scaled version &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Y = \frac {X-\mu}{\sigma} = \frac 1{\sigma}X - \frac {\mu}{\sigma}$$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;with $E(Y) = 0 , {\rm Var}(Y) E(Y^2)= 1$. Moreover, $Y$ is the sum of two independent random variables, the second degenerate (being a constant, and so also independent of everything). So, by the properties of the characteristic function for the sum of two independent random variables&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\phi_Y(t) = \phi_Y\left(\frac 1{\sigma}t\right)\cdot e^{-i\frac {\mu}{\sigma}t} = E\left[\exp{\left\{it\frac 1{\sigma}X - i\frac {\mu}{\sigma}t\right\}}\right] = E(e^{i tY})$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now take the second-order Taylor expansion of $\phi_Y(t)$, with respect to $Y$ and with center of expansion $E(Y) =0$:&#xA;$$\phi_Y(t) = E\left[e^{it\frac 1{\sigma}\cdot 0} + ite^{it\cdot 0}Y + \frac 12 i^2t^2e^{it\cdot 0}Y^2 + o(t^2)= \right]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first term is zero, the second term vanishes because $E(Y) =0$, and for the third term we use $i^2=-1, E(Y^2) =1$ to arrive at&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\phi_Y(t) = 1  - \frac {t^2}2 + o(t^2)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &quot;phenomenon&quot; is already here because&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac {t^2}2 = \ln MGF_{Z}(t),\;\; Z\sim {\rm N}(0,1)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;In words:&lt;/strong&gt; The characteristic function of &lt;em&gt;&lt;strong&gt;any&lt;/strong&gt;&lt;/em&gt; random variable with finite mean and variance that is centered and scaled accordingly, has a strong connection with the moment generating function of the Standard Normal distribution ($\ln MGF_{Z}(t)$ is actually the cumulant generating function).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;How can this happen? Have we uncovered a &quot;law of nature&quot; here, this fundamental connection of different &quot;types of uncertain behavior&quot; to the specific type labelled &quot;standard normal distribution&quot;,  or it is just our mathematical system, through which we have modeled this thing called &quot;uncertainty&quot;, producing some artificial connection that perhaps reveals some aspect of its own internal structure, but it has nothing to do with &lt;em&gt;the real world&lt;/em&gt;? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's first complete the proof of the CLT: consider the random variable&#xA;$$Z_n = \frac 1{\sqrt{n}}\sum_{i=1}^nY_i$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where the $Y_i$'s are independently and identically distributed. Again by the properties of the characteristic function we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\phi_{Z_n}(t) = \prod_{i=1}^n\phi_{Y}(t\sqrt{n}) = \Big[1  - \frac {t^2}{2n} + o(\frac {t^2}{n})\Big]^n \xrightarrow{n\rightarrow \infty} e^{-t^2/2} = \phi_{Z}(t),\;\; Z\sim {\rm N}(0,1)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and so &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Z_n \xrightarrow{d} {\rm N}(0,1)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;...and now we have arrived at the Standard Normal distribution proper. And this &lt;em&gt;is&lt;/em&gt; a law of nature: mathematics aside, computer simulations aside, real world data consistently validate this result. So there is no further &quot;why?&quot; here -as it cannot be with any law of nature. We just discover them -and we feel like gaining added intuition when we discover the interconnections between these laws (but this is not really insightful, it is just more discoveries).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course this is the first and most simple case, in a long line of Central Limit Theorems that increasingly deal with more complicated, interdependent, functions of random variables, stochastic processes etc as the one mentioned in the OP. And there are also the generalizations of CLT to stable distributions and not just the normal, and there is extreme value theory... all these are different aspects of the same conclusion: that collective behavior (even in the simple sense of &lt;em&gt;pooled&lt;/em&gt; behavior) is much more homogeneous than individual behaviors, even though it is just the pool of the latter -and this should be one of the most counter-intuitive results ever encountered.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;P.S.&lt;/strong&gt; An inspired attempt at bottom-up intuition is provided by @whuber in this Cross Validated thread: &lt;a href=&quot;https://stats.stackexchange.com/questions/3734/what-intuitive-explanation-is-there-for-the-central-limit-theorem&quot;&gt;https://stats.stackexchange.com/questions/3734/what-intuitive-explanation-is-there-for-the-central-limit-theorem&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="-1" LastEditDate="2017-04-13T12:44:19.590" LastActivityDate="2015-01-08T18:51:08.750" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1807" PostTypeId="2" ParentId="1765" CreationDate="2014-12-29T15:52:14.370" Score="1" Body="&lt;p&gt;The Pacific Ocean is the closest thing to &quot;no man's... land, sea and air&quot; that still remains in the globe today, while also crossing it &quot;vertically&quot;, from pole to pole.&lt;br&gt;&#xA;Also, it is &lt;em&gt;vast&lt;/em&gt;: Countries &quot;to the left&quot; and &quot;to the right&quot; of the Atlantic Ocean are much closer than countries &quot;to the left&quot; and &quot;to the right&quot; of the Pacific Ocean. So the latter is more suitable to mimic changing days (and so also dates), compared to the former. It appears therefore a natural &quot;neutral place&quot; to have the International Date Line.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The case of Samoa, and other countries close to the Line is special (as is always the case when close to any boundary). To copy from &lt;a href=&quot;http://en.wikipedia.org/wiki/International_Date_Line#Samoan_Islands_and_Tokelau&quot; rel=&quot;nofollow&quot;&gt;Wikipedia's article on the International Date Line&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;The Samoan Islands, now divided into Samoa and American Samoa, were west of the IDL until 1892, when King Malietoa Laupepa was persuaded&#xA;  by American traders to adopt the American date, three hours behind&#xA;  California, to replace the former Asian date, four hours ahead of&#xA;  Japan. The change was made by repeating Monday 4 July 1892, American&#xA;  Independence Day.&lt;/em&gt;&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&lt;em&gt;In 2011, more than 119 years later, Samoa shifted back to west of the IDL by skipping Friday 30 December 2011. This changed the timezone&#xA;  from UTC−11 to UTC+13. The IDL now passes between Samoa and American&#xA;  Samoa, with American Samoa remaining aligned with the American date.&lt;/em&gt;&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&lt;em&gt;Samoa made the change because Australia and New Zealand have become its biggest trading partners, and also have large communities of&#xA;  expatriates. &lt;strong&gt;Being 21 hours behind made business difficult because&#xA;  having weekends on backward days meant only four days of the week were&#xA;  shared workdays.&lt;/strong&gt;&quot;&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The economy, always the economy... -which should drive home the point that the economy is not about &quot;making money&quot; but still mostly about transforming the environment (&quot;producing&quot;) in order to survive (by &quot;consuming&quot;).&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2014-12-29T15:57:19.793" LastActivityDate="2014-12-29T15:57:19.793" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1808" PostTypeId="1" AcceptedAnswerId="1809" CreationDate="2014-12-29T18:32:16.427" Score="29" ViewCount="4831" Body="&lt;p&gt;&lt;a href=&quot;http://www.tradingeconomics.com/spain/unemployment-rate&quot;&gt;The unemployment rate in Spain has recently been fluctuating around 25%.&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What has caused this?&lt;/p&gt;&#xA;" OwnerUserId="1564" LastEditorUserId="8481" LastEditDate="2020-04-30T08:11:34.277" LastActivityDate="2020-11-04T13:57:48.063" Title="What has caused the recent 25% unemployment rate in Spain?" Tags="&lt;macroeconomics&gt;&lt;labor-economics&gt;&lt;unemployment&gt;" AnswerCount="3" CommentCount="5" FavoriteCount="10" ContentLicense="CC BY-SA 3.0" />
  <row Id="1809" PostTypeId="2" ParentId="1808" CreationDate="2014-12-29T20:51:01.180" Score="39" Body="&lt;p&gt;Here's an explanation from Paul Krugman. You can read more about this in Krugman's book &lt;em&gt;End This Depression Now!&lt;/em&gt;. &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Since joining the Euro, Spain &lt;a href=&quot;http://www.tradingeconomics.com/spain/private-capital-flows-total-percent-of-gdp-wb-data.html&quot;&gt;has experience large capital inflows&lt;/a&gt;—money flowing into Spain, mostly from Northern Europe. These inflows &lt;a href=&quot;http://krugman.blogs.nytimes.com/2009/03/14/spanish-doldrums/&quot;&gt;caused a boom in investment&lt;/a&gt;, coupled with an increase in prices of virtually everything (including labor) relative to other Eurozone countries.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One consequence of this is that the recession in Spain has been exacerbated by the fact that high costs of production (especially high labor costs) made the Spanish economy less competitive so that the country wasn't able to rely on exports to substitute for the reduced domestic demand.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In order to remedy this situation, Spain needs to become more competitive (i.e. for labor costs to fall relative to those in other countries). Normally, this would happen automatically: as a country exports less, demand for its currency from importers (and hence the currency's value) falls so that its products become cheaper for foreigners. However, the fact that Spain is in the Eurozone means that it can't devalue its currency—it doesn't have one of its own!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Instead, Spain must rely on 'internal devaluation', i.e. reducing the wages of its workers relative to those elsewhere in the Eurozone. This is problematic because workers are typically reluctant to accept a pay cut (so-called downward nominal rigidities). Thus, the way that the economy adjusts is to have a sufficiently large share of the workforce unemployed that people are prepared to accept jobs on significantly lower wage than they might have expected in the pre-recession years.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It should be noted that this line of reasoning is not without controversy. For one, a significant share of macroeconomists do not believe the nominal rigidities story.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2014-12-29T20:51:01.180" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="1811" PostTypeId="2" ParentId="1808" CreationDate="2014-12-29T23:50:57.697" Score="14" Body="&lt;p&gt;Neither the answer posited above nor the comment are off the mark.  Inability to use monetary policy to adjust to a shock is certainly a cause of high unemployment in the aftermath.  Idiotic fiscal policy doesn't help either.  The very last thing to try to do after such a shock is to eliminate government deficits in such situations.  It becomes a vicious -- not virtuous -- circle; spending is cut and government employees dismissed.  This leads to decreased consumer spending and expenditures by firms serving the public sectors.  Taxes revenues fall as these people's incomes do.  Which leads to further cuts and a further swirl around the toilet bowl.&lt;/p&gt;&#xA;&lt;p&gt;Spain's problems are exacerbated by many of the same problems experienced in the US sunbelt.  Far, FAR, FAAAAR too many homes were built and real-estate speculation ran rampant.  Like in Florida and Nevada, so many homes now sit empty that, other than custom-building, the residential real-estate industry remains in the doldrums.  In the US, such activity is around 12% of GDP.  With it remaining stagnant, and likely to remain so for many years to come, there are a large cadre of construction workers who are basically permanently unemployed.&lt;/p&gt;&#xA;&lt;p&gt;A third reason is the 'undocumented' economy.  Southern Europe has never been a hotbed of law-and-order.  Many of those who are 'unemployed' would starve to death in Greece, Italy and Spain if they actually had no income whatsoever.  They just don't have any official income at the moment.  Being properly employed is far more preferable, of course, but it is not as if 25% of Spaniards actually have no income coming in the door.  They just don't have a paycheque that the officials can trace coming in the door.&lt;/p&gt;&#xA;&lt;p&gt;A final reason is the climate and cost of living.  Quite frankly there are much worse places to try to continue to live without a regular paycheque than southern Europe.  Like Minnesota.  Try living there without a paycheque for 6 years and you'll have been pushing up daisies -- after thawing out and decomposing -- after the first winter.  The pressure to fix the problem of 25% unemployment is a lot less drastic when a) it's not really 25% and b) you can live reasonably well while 'unemployed'&lt;/p&gt;&#xA;" OwnerUserId="1567" LastEditorUserId="30778" LastEditDate="2020-11-04T13:57:48.063" LastActivityDate="2020-11-04T13:57:48.063" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="1812" PostTypeId="1" AcceptedAnswerId="1923" CreationDate="2014-12-29T23:54:39.390" Score="7" ViewCount="142" Body="&lt;p&gt;Mirrlees' 1971 paper (&lt;a href=&quot;http://aida.econ.yale.edu/~dirkb/teach/pdf/mirrlees/1971%20optimal%20taxation.pdf&quot;&gt;An Exploration in the Theory of Optimum Income Taxation&lt;/a&gt;) on optimal taxation can sometimes be hard to follow. Does anybody know of (or could even provide here) a simple sketch of the derivations of the optimal nonlinear income tax schedule in his paper?&lt;/p&gt;&#xA;" OwnerUserId="59" LastEditorUserId="2776" LastEditDate="2017-09-13T09:25:42.077" LastActivityDate="2017-09-13T09:25:42.077" Title="Simple Sketch of Mirrlees 1971" Tags="&lt;public-economics&gt;&lt;optimal-taxation&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="1813" PostTypeId="1" AcceptedAnswerId="1814" CreationDate="2014-12-30T01:47:18.523" Score="8" ViewCount="7394" Body="&lt;p&gt;As title says, why is CRRA utility often used in macroeconomics DSGE model? That is, the form of&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$u(c_t) = \frac{c_t^{1-\sigma}}{1-\sigma}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I cannot find any theoretical background around this..... After all, there is often no risk involved in DSGE models..&lt;/p&gt;&#xA;" OwnerUserId="1569" LastEditorUserId="405" LastEditDate="2014-12-30T03:05:32.520" LastActivityDate="2020-02-20T21:53:56.467" Title="Why is CRRA utility often used in macroeconomics DSGE model?" Tags="&lt;macroeconomics&gt;&lt;utility&gt;" AnswerCount="1" CommentCount="3" FavoriteCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="1814" PostTypeId="2" ParentId="1813" CreationDate="2014-12-30T03:52:24.583" Score="8" Body="&lt;p&gt;Models at Dynamic Stochastic General Equilibrium level must be able to replicate real economies to an acceptable degree. One of the features of real economies has been a relatively stable &lt;em&gt;growth rate&lt;/em&gt; (see also &lt;a href=&quot;https://economics.stackexchange.com/questions/460/why-is-economic-growth-measured-exponentially-rather-than-linearly/464#464&quot;&gt;this post&lt;/a&gt;), $\dot x/x=\gamma$, where the dot above a variable denots the derivative with respect to time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So one would want a model that admits a constant growth rate at its steady-state. In the benchmark deterministic/continuous time &quot;representative household&quot; model, the Euler equation  takes the form&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$r = \rho - \left(\frac {u''(c)\cdot c}{u'(c)}\right)\cdot \frac {\dot c}{c}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is the optimal rule for the growth rate of consumption. The rate of pure time preference $\rho$ is assumed constant. The interest rate $r$ has its own way to become constant at the steady state. So in order to obtain a constant consumption growth rate at the steady state, we want the term&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\left(\frac {u''(c)\cdot c}{u'(c)}\right)$$&#xA;to be constant too. The &lt;strong&gt;Constant Relative Risk Aversion (CRRA)&lt;/strong&gt; utility function satisfies exactly this requirement:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$u(c) = \frac {c^{1-\sigma}}{1-\sigma} \Rightarrow u'(c) = c^{-\sigma} \Rightarrow u''(c) = -\sigma c^{-\sigma-1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {u''(c)\cdot c}{u'(c)} = \frac {-\sigma c^{-\sigma-1} \cdot c}{c^{-\sigma}} = -\sigma $$&#xA;and the Euler equation becomes&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\dot c}{c} = (1/\sigma)\cdot (r-\rho)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Barro &amp;amp; Sala-i-Martin (2004, 2n ed.), extend the required form of the utility function when there is also leisure-labor choice (ch. 9 pp 427-428).&lt;br&gt;&#xA;These fundamental property extends to the case of stochastic/discrete time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;XXXX&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To compare, if we have specified a &lt;strong&gt;Constant Absolute Risk Aversion (CARA)&lt;/strong&gt; form, we would have &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$u(c) = -\alpha^{-1}e^{-\alpha c} \Rightarrow u'(c) = e^{-\alpha c}\Rightarrow u''(c) = -\alpha e^{-\alpha c}$$ and the Euler equation would become&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\dot c = (1/\alpha)\cdot (r-\rho)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;i.e.here we would obtain a constant steady-state growth in the &lt;em&gt;level&lt;/em&gt; of consumption (and so a diminishing growth &lt;em&gt;rate&lt;/em&gt;). &lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2016-10-01T21:43:32.323" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1815" PostTypeId="1" AcceptedAnswerId="1828" CreationDate="2014-12-30T04:58:46.713" Score="6" ViewCount="1077" Body="&lt;p&gt;The natural rate of unemployment is a combination of structural unemployment and frictional unemployment.&lt;br&gt;&#xA;Structural unemployment is caused by a surplus of labor at a given wage in a given area.&lt;br&gt;&#xA;Frictional unemployment is caused by workers searching for or transitioning between jobs.&lt;br&gt;&#xA;However, modern travel (airplanes, automobiles, etc.) would reduce structural unemployment and frictional unemployment by allowing for faster movement of excess labor to transfer to areas with a shortage of labor; similarly, the Internet (specifically search engines, online jobs fairs, etc.) would reduce frictional unemployment by allowing for workers to search for and find jobs more easily.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does this imply that the natural rate of employment decreased with modern travel and the Internet?&lt;/p&gt;&#xA;" OwnerUserId="27" LastEditorDisplayName="user4239" LastEditDate="2015-04-29T10:31:29.120" LastActivityDate="2015-05-13T12:45:21.493" Title="Has the natural rate of unemployment decreased with modern travel and the Internet?" Tags="&lt;macroeconomics&gt;&lt;labor-economics&gt;&lt;natural-rate-unemployment&gt;&lt;unemployment&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="1816" PostTypeId="1" CreationDate="2014-12-30T06:18:22.610" Score="7" ViewCount="375" Body="&lt;p&gt;In its &lt;a href=&quot;https://en.wikipedia.org/wiki/Risk_aversion&quot; rel=&quot;nofollow&quot;&gt;Wikipedia article&lt;/a&gt;, absolute risk aversion is defined as &#xA;$ARA = -\frac{u''(c)}{u'(c)}$. However, I have alternatively seen absolute risk aversion&#xA;defined as half the decrease in consumption that an investor is willing to accept to avoid a gamble $\varepsilon$, where $E[\varepsilon] = 0$, $E[\varepsilon^2] = 1$, and $\varepsilon$&#xA;is independent of consumption:&#xA;$$&#xA;U(C - ARA/2) \equiv E[U(C + \varepsilon) \mid C].&#xA;$$&#xA;Using the latter definition, how can I show that $ARA = -U''(C) / U'(C)$?&lt;/p&gt;&#xA;" OwnerUserId="59" LastEditorUserId="59" LastEditDate="2015-11-12T18:03:37.147" LastActivityDate="2015-11-12T18:03:37.147" Title="Definition of Absolute Risk Aversion" Tags="&lt;decision-theory&gt;&lt;risk&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="1817" PostTypeId="1" AcceptedAnswerId="1821" CreationDate="2014-12-30T09:18:39.093" Score="7" ViewCount="3706" Body="&lt;p&gt;I used this calculator: &lt;a href=&quot;http://www.buyupside.com/calculators/inflationjan08.htm&quot;&gt;http://www.buyupside.com/calculators/inflationjan08.htm&lt;/a&gt;&#xA;to estimate the future worth of 100 dollars in 100 years at 2% inflation. Does this really mean that a decent meal at a restaurant will cost about a $100 in the future or am I misunderstanding something? So basically what I'm asking is if at some point in the future will McDonald's Dollar menu become the Hundred Dollar menu?&lt;/p&gt;&#xA;" OwnerUserId="1576" LastActivityDate="2018-07-22T13:16:23.843" Title="Does Inflation Make Money Eventually Worthless?" Tags="&lt;finance&gt;&lt;inflation&gt;&lt;economic-growth&gt;&lt;price-level&gt;" AnswerCount="5" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="1818" PostTypeId="1" AcceptedAnswerId="1827" CreationDate="2014-12-30T09:32:18.080" Score="4" ViewCount="336" Body="&lt;p&gt;In the Wikipedia article about the &lt;a href=&quot;https://en.wikipedia.org/wiki/Black%E2%80%93Litterman_model&quot; rel=&quot;nofollow&quot;&gt;Black-Litterman model&lt;/a&gt;, it states that the motivation&#xA;behind model is that &quot;it is difficult to come up with reasonable estimates of expected returns.&quot; Why is it that expected returns are difficult to estimate, whereas the covariances are not?&lt;/p&gt;&#xA;" OwnerUserId="59" LastActivityDate="2014-12-31T13:10:15.340" Title="Black-Litterman---in what way are expected returns hard to estimate?" Tags="&lt;econometrics&gt;&lt;finance&gt;&lt;financial-economics&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="1819" PostTypeId="1" AcceptedAnswerId="1820" CreationDate="2014-12-30T09:40:31.250" Score="4" ViewCount="2892" Body="&lt;p&gt;I often hear that developing economies can benefit from a weak national currency. For example China as exporter deliberately makes its national currency weaker, so that it gains an advantage. Are there some underlying mechanisms which can explain this? &lt;/p&gt;&#xA;" OwnerUserId="1577" LastEditorUserId="1579" LastEditDate="2014-12-30T17:09:14.193" LastActivityDate="2014-12-30T17:09:14.193" Title="Benefits of a weak national currency" Tags="&lt;macroeconomics&gt;&lt;currency&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="1820" PostTypeId="2" ParentId="1819" CreationDate="2014-12-30T11:39:30.380" Score="5" Body="&lt;p&gt;It's usually considered a short term solution when you would rather do something quick than engage in structural reform. Economics consider this to be a very poor way of increasing competitiveness, since you're effectively harming the purchasing power of your own citizens. Let me explain.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Say a business in the People's Republic of China has to pay its workers in its local currency, and can get most resources locally, so also paid in local currency. On the other hand its finished product is sold abroad, in a foreign currency.  What can the government do to help this business make money? It can go and buy vast amounts of the foreign currency on the local money markets (i.e. from all the businesses that do export). To get this money, it will pay the holders of foreign currency a slightly higher rate in the local currency. The more money it wants, the higher the rate. This of course, by basic supply and demand logic, devalues the local currency. This means it is easier for the company to pay its workers and local suppliers. The workers and suppliers won't be able to buy as many foreign goods, but if they buy local products, they won't be as much affected. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now the government has a giant pile of money (you can think of it as savings extracted from the workers through the currency manipulation) and a lot of suddenly competitive exporters. To prevent other countries from easily doing the same, it will go and prop up the foreign currency (for instance by buying government debt at low rates). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why would a country go through the trouble of doing that? Several reasons.&lt;br&gt;&#xA;1. The country is dominated by an oligarchy of company owners and their friends and relatives, who want their businesses to do well, and don't care if this makes the ordinary workers relatively worse off. The ordinary workers must have no effective political representation for this to work, of course. &#xA;2. Your long-term policy slowly (or quickly) drives foreign businesses into bankruptcy, allowing you to corner an industry and effectively reap in large profits in that sector in the future, especially if initial set up costs are significant in terms of physical capital or intellectual know-how. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So why is this a poor solution long-term? Eventually, even the dumbest foreign governments will start to notice what you're doing and begin to impose punitive tariffs, or devalue their own currency in turn. Besides, doing it for decades will make your currency worthless. Italy's pre-euro currency, the Lira, got devalued so much, that Italian people wisened up to it, and asked for yearly salary increases to match. To keep its exports competitive, the devaluation rate had to be increased, and thus inflation rose and before you knew it, you had 500,000 lira banknotes. Taking the devaluation option for decades made it difficult for the devaluing country politicians to effectively implement the kind of structural reforms needed to make the country genuinely more competitive, discouraged savings, encouraged foreign currency hoarding by the population, depressing its long-term growth potential.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/ND2x6.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Whether a giant economy like China will be more successful with this policy by driving its competitors' companies bankrupt due to the sheer scale and sophistication of its operations is an open question. They have a lot of very smart people handling this, and as long as their markets such as the US do not retaliate and as long as inflation is in check, they're good.&lt;/p&gt;&#xA;" OwnerUserId="1579" LastEditorUserId="1579" LastEditDate="2014-12-30T12:28:51.917" LastActivityDate="2014-12-30T12:28:51.917" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="1821" PostTypeId="2" ParentId="1817" CreationDate="2014-12-30T12:40:14.180" Score="12" Body="&lt;p&gt;&quot;Worth less&quot; than before - yes, that's exactly what inflation does.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;Worthless&quot; - not quite. No percentage-based reduction in value can make something worth 0, but there are extreme examples from history of times inflation has spiralled so far out of control (&lt;a href=&quot;https://en.wikipedia.org/wiki/Hyperinflation&quot; rel=&quot;noreferrer&quot;&gt;&quot;hyperinflation&quot;&lt;/a&gt;), money became worth less than the paper it was printed on, and life savings became &lt;em&gt;almost&lt;/em&gt; worthless. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Hyperinflation_in_the_Weimar_Republic&quot; rel=&quot;noreferrer&quot;&gt;1920s Germany is the most famous example&lt;/a&gt;, but there are more recent examples, such as Zimbabwe. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is a &lt;a href=&quot;https://en.wikipedia.org/wiki/Banknotes_of_Zimbabwe&quot; rel=&quot;noreferrer&quot;&gt;real Zimbabwean banknote from 2009&lt;/a&gt; - you don't need the &lt;a href=&quot;https://en.wikipedia.org/wiki/Hyperinflation_in_Zimbabwe#Inflation_rate&quot; rel=&quot;noreferrer&quot;&gt;terrifying inflation rates&lt;/a&gt; to see that savings of thousands of Zimbabwean dollars made in the early 2000s had become &lt;em&gt;effectively&lt;/em&gt; worthless:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/mq6sO.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But those are extreme examples.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;As for the idea of a McDonald's &lt;code&gt;$100&lt;/code&gt; Menu - it wouldn't be unbelievable looking at history. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;According to &lt;a href=&quot;http://measuringworth.com/&quot; rel=&quot;noreferrer&quot;&gt;measuringworth.com&lt;/a&gt;, &lt;code&gt;$1&lt;/code&gt; one hundred years ago would buy the equivalent of &lt;code&gt;$24&lt;/code&gt; of common retail goods and the equivalent of &lt;code&gt;$99&lt;/code&gt; of the time of an unskilled labourer. A time-traveller from 1914 would expect a &quot;&lt;code&gt;$1&lt;/code&gt; menu&quot; to be high quality dining, worth days' wages for the average Joe. Not so different to how the idea of a &lt;code&gt;$100&lt;/code&gt; menu seems to us today,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This seems like a big change - but even this is a small change by international standards. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The US dollar has historically been one of the world's most stable currencies, partly related to its &lt;a href=&quot;http://www.investopedia.com/articles/07/unofficial_dollarization.asp&quot; rel=&quot;noreferrer&quot;&gt;use in international trading&lt;/a&gt; and its status as a &lt;a href=&quot;https://en.wikipedia.org/wiki/Reserve_currency&quot; rel=&quot;noreferrer&quot;&gt;reserve currency&lt;/a&gt;. In other countries, even countries with relatively stable economies, such changes do happen in a person's lifetime. Here in the UK, it's a cliche for elderly people to complain that &quot;in our day&quot;, meals could be bought for sums of money that today would considered small change.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;But even though it'd be perfectly believable, it might not happen. Beware of extrapolations that assume trends won't change (&lt;a href=&quot;http://xkcd.com/605/&quot; rel=&quot;noreferrer&quot;&gt;cartoon from XKCD&lt;/a&gt;): &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/3GNpw.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Anything could change. The US dollar might not keep its current world status. Governments influence inflation, and may sometimes simply change currency values if they feel it's getting out of hand. For example, &lt;a href=&quot;https://en.wikipedia.org/wiki/Romanian_leu#Fourth_leu_.28RON.29:_2005-Present&quot; rel=&quot;noreferrer&quot;&gt;in 2005 Romania knocked 4 zeros off its currency. 10,000RON became 1RON overnight&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="1580" LastEditorUserId="1580" LastEditDate="2014-12-30T15:45:11.213" LastActivityDate="2014-12-30T15:45:11.213" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="1822" PostTypeId="2" ParentId="1816" CreationDate="2014-12-30T13:03:49.227" Score="4" Body="&lt;p&gt;Set $y \equiv c+\varepsilon$. So $y$ represents &lt;em&gt;changed&lt;/em&gt; consumption around and &quot;close&quot; to a given level $c$. Take a 2nd-order Taylor expansion of the function $E[u(y)\mid c]$  around $c$, which is treated as fixed since we condition on it :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$E[u(y)\mid c] \approx E[u(c)\mid c] + E[u'(c)(y-c)\mid c] + E[\frac12u''(c)(y-c)^2\mid c]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But $y-c = \varepsilon$&lt;br&gt;&#xA;so&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$E[u(y)\mid c] \approx E[u(c)\mid c] + E[u'(c)\varepsilon\mid c] + E[\frac12u''(c)\varepsilon^2\mid c]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Due to the conditioning, and the independence of $\varepsilon$ from $c$ the expected value distributes and applies only to $\varepsilon$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$E[u(y)] \approx u(c) + u'(c)E[\varepsilon] + \frac12u''(c)E[\varepsilon^2]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since we assume &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$E[\varepsilon] = 0 \Rightarrow {\rm Var}(\varepsilon)=E[\varepsilon^2] =1$$&#xA;we obtain&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$E[u(c+\varepsilon)] \approx u(c) + \frac12u''(c)  \tag{1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now consider $u(c-\frac 12 ARA)$, with $ARA \equiv -\frac{u''(c)}{u'(c)}$, and take a 1st-order Taylor expansion in this case, again around $c$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$u\left(c-\frac 12 ARA\right) = u(c) + u'(c)\cdot (c- \frac 12 ARA - c) = u(c) - \frac 12 u'(c)\cdot ARA $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Using the definition of $ARA$ to replace it we obtain&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$u\left(c-\frac 12 ARA\right) \approx u(c) - \frac 12 u'(c)\cdot\left (-\frac{u''(c)}{u'(c)}\right)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Rightarrow u\left(c-\frac 12 ARA\right) \approx u(c) + \frac 12 \cdot u''(c) \tag{2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The right-hand sides of equations $(1)$ and $(2)$ are equal therefore, approximately, so  are their left-hand sides or,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$E[u(c+\varepsilon) \mid c] \approx u\left(c-\frac 12 ARA\right)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which is valid as long as $ARA$ is defined the way it is. QED.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the variance of the gamble is not unity but $\sigma^2 \neq 1$, then the more general equation is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$E[u(c+\varepsilon) \mid c] \approx u\left(c-\frac {\sigma^2}2 ARA\right)$$&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2014-12-31T02:49:11.113" LastActivityDate="2014-12-31T02:49:11.113" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1823" PostTypeId="2" ParentId="1815" CreationDate="2014-12-30T13:23:12.643" Score="2" Body="&lt;p&gt;I expect that in the UK it has increased due to the benefit system, we now have lots of unemployment in some parts of the north, but little movement of unskilled labour.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However when the mills were built worker moved from all over the UK to them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore I don’t know how the different effect can be separated.&lt;/p&gt;&#xA;" OwnerUserId="1584" LastActivityDate="2014-12-30T13:23:12.643" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1824" PostTypeId="1" CreationDate="2014-12-30T13:42:05.220" Score="12" ViewCount="224" Body="&lt;p&gt;Let’s assume that the members of Euro zone all agreed that it would end in 18 months time with each country getting its own currency.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What process could be put in place to allow this to happen without causing of lots instability?  &lt;/p&gt;&#xA;" OwnerUserId="1584" LastEditorUserId="8481" LastEditDate="2020-05-04T20:16:09.280" LastActivityDate="2020-05-04T20:16:09.280" Title="How could the Euro zone be broken up in an ordered way?" Tags="&lt;currency&gt;&lt;uncertainty&gt;&lt;euro-area&gt;" AnswerCount="2" CommentCount="6" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="1825" PostTypeId="1" CreationDate="2014-12-30T14:08:12.653" Score="3" ViewCount="69" Body="&lt;p&gt;If seems that all equations (e.g. Price elasticity of supply ) assume that there is a marginal cost of production that is nicely related to the level of output.  But clearly you can’t buy half a new machine.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also if you buy the new machine then the price decreased you can’t afford to pay the interest on the loan, so manager loses his job with the company closing down, compared to the manager getting a small incentive for the increase in production.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore how is &quot;real life&quot; coped with!&lt;/p&gt;&#xA;" OwnerUserId="1584" LastActivityDate="2016-05-11T04:41:38.277" Title="How does economics cope with production processes that have large lumpy investment requirements?" Tags="&lt;elasticity&gt;&lt;investment&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="1827" PostTypeId="2" ParentId="1818" CreationDate="2014-12-30T14:59:08.133" Score="4" Body="&lt;p&gt;Your question relates more broadly to modern portfolio theory, and can be illustrated via mean-variance analysis of a univariate time-series. The extension to the multi variate (normal) setting, is trivial. Below I use the term &lt;em&gt;accuracy&lt;/em&gt;, in a non-formal way, relating to the variance of an estimator. In particular, when the variance of an estimator can be reduced, take this to mean the estimator can be made more &lt;em&gt;accurate&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Short story: The variance of the estimator for the variance of returns can be reduced by taking more observations (finer observations - up to a limit), whereas this is not true for the variance of the estimator of the expected returns. In this sense, it is &lt;em&gt;more difficult&lt;/em&gt; to &lt;em&gt;accurately&lt;/em&gt; estimate expected (mean) returns compared to variance of returns. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To see why, consider a time-series of returns, and assume the mean (per unit time), $\mu$, and variance (per unit time), $\sigma^{2}$, are &lt;em&gt;constant&lt;/em&gt; over non-overlapping time &lt;em&gt;intervals&lt;/em&gt; of frequency $h$. Here, $h$ represents daily, or monthly, or quarterly periods, etc. Further assume that our time-series data are observations over time intervals of length $\Delta$, where $\Delta&amp;lt;&amp;lt;h$. Then, define $n=h/\Delta$, as the number of observations of returns during a time interval of $h$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the $k^{\text{th}}$ observation interval (of length $\Delta$) during a period of length $h$, without loss of generality, we can assume that the price process for an asset is given by $$S_{k+\Delta}=S_{k}\exp{(\mu\Delta+\sigma \sqrt{\Delta} \epsilon_{k})},$$ where $\epsilon_{k}$ are iid normal. The logarithmic return (over period $\Delta$) can be written, as&#xA;$$X_{k}=\mu\Delta+\sigma \sqrt{\Delta} \epsilon_{k}.$$ For mean-variance portfolio theory, we require estimates of the true values of $\mu$ and $\sigma$, since they are of course, unknown. Call these estimators $\hat{\mu}$ and $\hat{\sigma}$. To answer your question, we only need consider the properties of these estimators.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First&#xA;$$\hat{\mu}=\sum_{k=1}^{n}X_{k}/h, \quad \mathbb{E}(\hat{\mu})=\mu, \quad \text{Var}(\hat{\mu})=\sigma^{2}/h.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Importantly, the variance of $\hat{\mu}$ depends upon the total length of the observation period and not on the number of observations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now consider, the (biased) estimator for $\sigma$:&#xA;$$\hat{\sigma}=\sum_{k=1}^{n}X_{k}^{2}/h, \quad \mathbb{E}(\hat{\sigma})=\sigma^{2}+\mu^{2}h/n, \quad \text{Var}(\hat{\sigma})=2\sigma^{4}/n+4\mu^{2}h/n^{2}.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The bias can be neglected (see reference for details).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Importantly, the accuracy (variance) of the estimator for $\sigma$, $\text{Var}(\hat{\sigma})$, &lt;strong&gt;does&lt;/strong&gt; depend upon the number of observations, $n$ - for fixed $h$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The consequence of this is, for fixed $h$, by taking finer (smaller) observations intervals, $\Delta$, the accuracy of the variance estimator can be improved ($\text{Var}(\hat{\sigma})$ can be reduced). This is not true of the variance of the estimator of the expected (mean) return, $\text{Var}(\hat{\mu})$, whose accuracy can be improved only by increasing the observation period, $h$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reference for this is&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Merton, R. C. On estimating the expected return on the market. J. financ. econ. 8, 323–361 (1980).&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="1435" LastEditorUserId="1435" LastEditDate="2014-12-31T13:10:15.340" LastActivityDate="2014-12-31T13:10:15.340" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1828" PostTypeId="2" ParentId="1815" CreationDate="2014-12-30T15:31:41.217" Score="9" Body="&lt;p&gt;To me, it seems that it has increased, not decreased, due to the factors you mention. Yes, transportation and information networks enable workforce movement. But they also enable movement of goods and information - and because goods and information are more mobile than humans, they profit more, and the results of their portability outpaces the results of the workforce's increased mobility. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;When goods were hard to move, a local demand had to be met by local suppliers. If a manufacturer lost a deal, it went to a local competitor instead, and the workforce could adapt easily. Now, if a manufacturer loses a deal, it goes to a competitor 5000 km away. Take for example the Ruhr area: it's still the most densely populated area in Germany, even though the steel industry which attracted workforce in the mid-20th century is gone. The Germans literally shipped one of their steel mills around the globe to China - but the workers stayed. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, because the workforce cannot adapt to structural changes with the speed at which they are happening, the structural unemployment is higher than before networks which enabled such changes. But the increased speed of change also means more frictional unemployment. A large part of the adaptation which is happening requires people to change jobs. Also, your observation of an increased commute radius contributes to frictional unemployment too - when a person is unhappy with his job, he has more opportunities in his now increased commute area, and is more likely to change jobs. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are lots of indirect effects too. The Internet and the transport networks enable changes in culture (e.g. today people move out of their birth town early, so may be more willing to relocate again later), business models (e.g. movie streaming) and market structure (today's trend towards ever larger corporations is enabled through, among other things, efficient information and people movement, which reduces overhead costs of giant companies, and global knowledge - I doubt that 50 years ago, an American chain for mediocre coffee in fancy large cups would have been able to establish itself in Europe. Nowadays, the culture export means that the trendy European teenager recognized the brand before they had one of the shops in their location). And they go both ways - a giant corporation may actually be more stable, and afford to keep workforce during short-term demand slumps which would have capsized a tiny manufacturer. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Whatever globalization (spearheaded by more exchange of information and goods, and even people on their respective networks) may bring in the future, it currently seems to create more unemployment - not because it's a bad thing in itself, but because in a more dynamic market, there is less job stability. &lt;/p&gt;&#xA;" OwnerUserId="1585" LastActivityDate="2014-12-30T15:31:41.217" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="1830" PostTypeId="1" CreationDate="2014-12-30T17:02:05.743" Score="3" ViewCount="210" Body="&lt;p&gt;In this &lt;a href=&quot;http://www.bereansatthegate.com/why-ferguson-rioting-post-verdict-harms-african-american-communities-everywhere/&quot; rel=&quot;nofollow&quot;&gt;article&lt;/a&gt;, the author looks at some of the indirect effects caused by the rioting in Ferguson, Missouri after the jury's decision not to indict the police officer.  He explains that the rioting has hurt the economy (both short-term and long-term) in Ferguson and other communities where rioting is taking place.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are there actual numbers that support this conclusion?  Also, can this conclusion be expanded to say that rioting impairs the economy?&lt;/p&gt;&#xA;" OwnerUserId="27" LastEditorUserId="27" LastEditDate="2014-12-30T19:10:38.450" LastActivityDate="2014-12-30T19:49:19.850" Title="Does rioting impair the economy?" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;" AnswerCount="1" CommentCount="9" ContentLicense="CC BY-SA 3.0" />
  <row Id="1831" PostTypeId="2" ParentId="1817" CreationDate="2014-12-30T18:01:09.443" Score="1" Body="&lt;p&gt;No.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The price paid for any item in a market based economy is loosely a direct function of the total quantity of money and an inverse function of all the transactions that that quantity of money is used for.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Inflation can consequently arise from 2 separate causes - increases in the total quantity of money, and decreases in the total quantity of production. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Owing to the way the banking system operates, the money supply typically increases over time. For example, the USA´s money supply over time looks like this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://research.stlouisfed.org/fred2/series/M2/&quot; rel=&quot;nofollow&quot;&gt;US M2 Money Supply&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As the money supply expands, prices increase (inflation), but that´s prices for everything, including labour. So at the point in time when the money supply expansion causes McDonald´s burgers to cost $100, average salaries would have increased to a similar degree. Money hasn´t become worthless, it´s just had a few 0´s tacked on its quantity. If you flip this paragraph around, then the value of money itself, is a function both of its total quantity, and the total amount of economic activity that it is being used as a unit of exchange for.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It´s also possible that production could dramatically decrease, for example if harvest failure led to food shortages. In that case, the price could increase to 100 dollars or more, but that would be an indicator of scarcity. Conceivably, a vegetarian dominated government could also legislate beef consumption to be illegal, in which case the black market price could well become $100, in this case reflecting a presumably artificial scarcity. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note though, that this behaviour both of the banking system in expanding the money supply, and the economy in expanding or contracting production does mean that the time value of money is more or less continuously decaying. So in the sense of putting a $100 note under the mattress for a hundred years, then yes, that particular amount of money will become worthless or nearly so, because whatever fraction of the total money supply it was at T, it will be substantially less in T+100 years.&lt;/p&gt;&#xA;" OwnerUserId="84" LastEditorUserId="84" LastEditDate="2014-12-30T18:08:16.763" LastActivityDate="2014-12-30T18:08:16.763" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="1832" PostTypeId="2" ParentId="1830" CreationDate="2014-12-30T19:49:19.850" Score="5" Body="&lt;p&gt;There are no numbers to support the problem specific to Ferguson because it happened recently, and not enough time has passed to assess any effect.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The inflammatory rhetoric of the site you linked to probably stems from this paper &lt;a href=&quot;http://www.nber.org/papers/w10243&quot;&gt;http://www.nber.org/papers/w10243&lt;/a&gt; that tries to quantify the effects of the race riots in the 1960s. The authors themselves concede the speciousness of their conclusions by acknowledging that the data they used are not detailed enough to identify the precise mechanisms at work. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A more thorough study that examined the riots in India between the Hindus and Muslims concluded that the motivation for the riots was primarily economically based. Where there was economic growth, riots decreased. Moreover, rioting in one region had no effect on the rioting of neighboring regions. &lt;a href=&quot;https://openknowledge.worldbank.com/handle/10986/5432&quot;&gt;https://openknowledge.worldbank.com/handle/10986/5432&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="1511" LastActivityDate="2014-12-30T19:49:19.850" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1833" PostTypeId="2" ParentId="1817" CreationDate="2014-12-30T20:16:18.490" Score="3" Body="&lt;p&gt;Inflation can be seen as a tax on (uninvested) savings really more than anything else.  In 100 years, a McDonalds Hamburger will cost \$100 (say), but you'll also see a nominal minimum wage of $400 an hour.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, your $1000 savings account (without interest) that would today buy you 100 hamburgers, would in 100 years buy you 10.  Interest of course will offset this some, but interest rates often are below inflation.  As such, inflation can be seen as a tax on savings.  As long as you don't just hold onto the cash as money under your mattress, and as long as inflation is 'normal' (say, under 10% per annum), you shouldn't be unduly harmed (and will somewhat be helped, if you're good at your job).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ultimately, inflation is caused because it is easier to expand the economy if the amount of money slightly outpaces the growth in the economy - ie, if the economy grows at 5%, money available should expand at 6% or 7% (which will cause a small inflation rate, 1-2%).  If the money supply only grows at 3%, economic (real) growth will slow some, because it will be harder to pay for things, borrow money, etc.  Aiming to expand the money supply a bit more than the expected economic growth avoids that problem.  Lowering the interest rate for bank lending (ie, the Federal Reserve rate in the USA) also has an effect in this regard (as it tends to allow the money supply to expand more easily in response to demand); this is why we've had extremely low Fed interest rates (nearly 0) in the US since 2008.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It also (depending on if you believe this part) may make it easier to deal with wages, because wage cuts are infrequent, but raises below inflation levels are effective wage cuts, and commonly occur for underperforming workers.  This is a more controversial part of inflationary theory, but has strong supporters (Paul Krugman and his ilk).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What it means is if you are investing your money in the economy, it should grow with it - hopefully ahead of inflation - while money sitting in a bank will likely lag inflation (not always, as sometimes interest will outpace inflation, but frequently not - banks have to keep enough uninvested currency to meet reserve minimums, so they cannot pay full investment value for your money).&lt;/p&gt;&#xA;" OwnerUserId="1590" LastActivityDate="2014-12-30T20:16:18.490" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="1834" PostTypeId="1" AcceptedAnswerId="1844" CreationDate="2014-12-30T21:50:48.207" Score="5" ViewCount="162" Body="&lt;p&gt;Assume a two player symmetric game is given by $n\times n$ payoff matrix $A$ for the row player (and $A^t$ for the column player).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $B$ be a matrix such that $\forall i,j\in [n]:B_{i, j}\geq A_{i,j}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume $a$ is a symmetric equilibrium in $A$, $b$ is a symmetric equilibrium in $B$ and that $a$ and $b$ has the same support.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does it mean player's payoff under $a$ (playing matrix $A$) can not be larger than the payoff of playing $b$ in game $B$?&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Formulating the claim in linear algebra:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $A,B\in [0,1]^{n\times n}$ such that $\forall i,j\in [n]:B_{i, j}\geq A_{i,j}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Denote by $\Delta $ the set of probability distributions over $[n]$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $a,b\in \Delta$ be two distribution vectors.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;$\forall x\in \Delta: x^tAa\leq a^tAa \ \ $ (i.e. $a$ is an equilibrium for $A$)&lt;/li&gt;&#xA;&lt;li&gt;$\forall x\in \Delta: x^tBb\leq b^tBb \ \ \ $ (i.e. $b$ is an equilibrium for $B$)&lt;/li&gt;&#xA;&lt;li&gt;$\forall i\in [n]: a_i&amp;gt;0 \iff b_i&amp;gt;0  \ \ $ ($a,b$ have the same support)&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Imply&#xA;$$a^tAa\leq b^tBb?$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If not, does the answer change if $A,B$ are symmetric?&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Notice that without the support condition, the claim is false, for example-&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$A=&#xA; \left( \begin{array}{ccc}&#xA;1 &amp;amp; 0 \\&#xA;0 &amp;amp; 0.1 \\&#xA;\end{array} \right) $&#xA;$B=&#xA; \left( \begin{array}{ccc}&#xA;1 &amp;amp; 0 \\&#xA;0 &amp;amp; 0.5 \\&#xA;\end{array} \right) $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$a=&#xA; \left( \begin{array}{ccc}&#xA;1 \\&#xA;0  \\&#xA;\end{array} \right) $&#xA;$b=&#xA; \left( \begin{array}{ccc}&#xA;0 \\&#xA;1  \\&#xA;\end{array} \right) $&lt;/p&gt;&#xA;" OwnerUserId="348" LastEditorUserId="348" LastEditDate="2014-12-31T10:25:46.883" LastActivityDate="2014-12-31T15:50:50.907" Title="Are symmetric equilibria monotone?" Tags="&lt;game-theory&gt;&lt;nash-equilibrium&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1835" PostTypeId="2" ParentId="1816" CreationDate="2014-12-30T23:46:46.207" Score="4" Body="&lt;p&gt;@Alecos's answer is great. For pedagogical purposes, I'm just going to rephrase some of the steps.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We want to show that $ARA = -u''(c)/u'(c)$ given that ARA is defined such that&#xA;$u(c - ARA/2) = E[u(c + \varepsilon) \mid c]$. So, following Alecos' answer, take a 2nd-order Taylor expansion to get&#xA;\begin{equation}&#xA;E[u(c + \varepsilon)\mid c] \approx u(c) + \frac 12 u''(c).&#xA;\end{equation}&#xA;Then by definition,&#xA;$u(c - ARA/2) \approx u(c) + \frac 12 u''(c)$.&#xA;Now, taking of 1st order Taylor series expansion of the left-hand side of this expression, we see that&#xA;\begin{equation}&#xA;u(c - ARA/2) \approx u(c) - u'(c) \cdot \frac{ARA}{2},&#xA;\end{equation}&#xA;which implies that&#xA;\begin{align}&#xA;u(c) - u'(c) \cdot \frac{ARA}{2} &amp;amp;\approx u(c) + \frac 12 u''(c) \\&#xA;ARA &amp;amp;\approx -\frac{u''(c)}{u'(c)}.&#xA;\end{align}&lt;/p&gt;&#xA;" OwnerUserId="59" LastActivityDate="2014-12-30T23:46:46.207" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="1836" PostTypeId="1" CreationDate="2014-12-31T03:32:07.760" Score="8" ViewCount="167" Body="&lt;p&gt;It seems to me that the seminal model for the price of nonrenewable resources is &lt;a href=&quot;https://en.wikipedia.org/wiki/Hotelling%27s_rule&quot; rel=&quot;nofollow noreferrer&quot;&gt;Hotelling's rule.&lt;/a&gt; However, as the Wikipedia article describes, Hotelling's rule has empirically performed poorly. I know there are some variations that seek to improve on the original model, such as by accounting for changes in extraction cost or other factors. However, I am unfamiliar with this literature. Can anybody provide some more detail about variations on Hotelling's rule? Also, what, if any, alternative hypotheses exist to explain the prices of nonrenewables?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Notes:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This questions is related to a previous question about &lt;a href=&quot;https://economics.stackexchange.com/questions/358/what-is-the-impact-of-fracking-on-oil-prices&quot;&gt;the impact of fracking on oil prices.&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="59" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-04-16T06:42:56.040" Title="What models exists for explaining the price of nonrenewable resources?" Tags="&lt;public-economics&gt;&lt;environmental-economics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="1837" PostTypeId="1" AcceptedAnswerId="1909" CreationDate="2014-12-31T05:16:34.717" Score="4" ViewCount="108" Body="&lt;p&gt;The following is a specific question that is useful for demonstrating a general idea.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider the following autoregressive model:&#xA;$$&#xA;X_{t+1} = \alpha_0 + \beta_0 (X_t - \alpha_0) + W_{t+1},&#xA;$$&#xA;where $-1 &amp;lt; \beta_0 &amp;lt; 1$ and $W_{t+1}$ is distributed as a normal with mean zero and variance one. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;How should I go about constructing the bivariate score process associated with the parameters $\alpha_0$ and $\beta_0$? How can I verify that it is a martingale?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Progress:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would begin by constructing the log-likelihood process as follows (conditioning on $X_0$):&#xA;$$&#xA;\ell_t(\theta \mid \textbf X) = -\frac t2 \ln(2 \pi) - \frac 12 \sum_{j=1}^t&#xA;   (X_j - \alpha_0 - \beta_0(X_{j-1} - \alpha_0))^2.&#xA;$$&#xA;Then, the score process can be constructed as&#xA;$$&#xA;s_t(\theta \mid \textbf X) =&#xA;\begin{bmatrix}&#xA; (1 - \beta_0) \sum_{j=1}^t (X_j - \alpha_0 - \beta_0(X_{j-1} - \alpha_0)) \\&#xA; \sum_{j=1}^t (X_j - \alpha_0 - \beta_0(X_{j-1} - \alpha_0)) (X_{j-1} - \alpha_0)&#xA;\end{bmatrix}.&#xA;$$&#xA;Is this correct? How do I proceed?&lt;/p&gt;&#xA;" OwnerUserId="59" LastEditorUserId="59" LastEditDate="2015-01-05T18:55:47.923" LastActivityDate="2015-09-25T20:23:50.240" Title="How do I construct the score process of a Markov model and verify that it is a Martingale?" Tags="&lt;econometrics&gt;&lt;time-series&gt;&lt;self-study&gt;&lt;martingales&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1838" PostTypeId="1" CreationDate="2014-12-31T07:19:23.927" Score="2" ViewCount="69" Body="&lt;p&gt;The rules for including a stock in indices such as S&amp;amp;P 500 are common knowledge, so everyone can know when e.g. company B is going to enter the index instead of company A. Since ETFs and mutual funds tracking the index have to buy shares of B and sell shares of A, this can potentially used by speculators who would try to quickly buy B and sell it to the ETFs in a high price, while buying A in a low price from the ETFs. Does such kind of speculation have any effect on the stock prices?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Specifically: Suppose someone invents a new index, X&amp;amp;Y 500, in which the identity of the companies is kept secret and revealed only to issuers of ETFs and mutual funds. All other things being equal (e.g. the companies in both indices are equally strong, have the same business potential, the volume of ETFs of both indices is the same, etc.), will the secret index X&amp;amp;Y 500 perform better than the revealed index S&amp;amp;P 500?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT: To make the question even more focused, assume that there is no way to know in advance which stocks are going to enter/exit S&amp;amp;P 500 (e.g. these stocks are selected at random). So the difference between S&amp;amp;P 500 and X&amp;amp;Y 500 is that the stocks in the former are revealed to all traders at the same time, while the stocks in the latter are revealed only to ETF issuers.&lt;/p&gt;&#xA;" OwnerUserId="385" LastEditorUserId="385" LastEditDate="2014-12-31T15:57:54.207" LastActivityDate="2015-01-02T18:40:47.577" Title="Effect of information on stock indices" Tags="&lt;supply-and-demand&gt;&lt;information&gt;&lt;stock-market&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1839" PostTypeId="2" ParentId="1818" CreationDate="2014-12-31T07:36:58.030" Score="1" Body="&lt;p&gt;To maybe give a little more intuition (and partially to increase the site's answer's per question ratio), I would add the following to @Rusan's answer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we consider estimating the parameters in a stochastic process like&#xA;$X_k = \mu \Delta + \sigma \sqrt \Delta \epsilon_k$, then we can do two things. We can either sample more points in a given interval of time (points are closer together) or we can lengthen the given interval of time (by gather data over a longer period of time, for example). When it comes to estimating $\mu$, sampling points&#xA;closer together doesn't do us much good because over shorter intervals (higher frequency), the process becomes dominated by the noise. This might help us estimate the variance of the process, but if we want a more precise estimate of the trend ($\mu$), then we need to lengthen the total interval of time ($h$ in @Rusan's answer).&lt;/p&gt;&#xA;" OwnerUserId="59" LastActivityDate="2014-12-31T07:36:58.030" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1840" PostTypeId="2" ParentId="551" CreationDate="2014-12-31T10:03:43.570" Score="3" Body="&lt;p&gt;There is another factor.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A lot of people outside of the US, consider that paper US money to be a lot safer method of storing wealth then what their governments promote.   Therefore a lot of US money is kept under the bed and never spent.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This has the effect of allowing the US to print money without increasing the money supply, e.g. to borrow lots of money at 0% interest.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the value of USD every goes down a lot, would these people still want to keep it under their beds?  &lt;/p&gt;&#xA;" OwnerUserId="1584" LastActivityDate="2014-12-31T10:03:43.570" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1841" PostTypeId="1" AcceptedAnswerId="1869" CreationDate="2014-12-31T07:34:10.280" Score="1" ViewCount="121" Body="&lt;p&gt;There is a lot of hype about the national debt of the USA being incredibly large, and I wonder if this has any implications about an individual investor? I understand that the risk of having a large national debt is that the government may be unable to pay for its bonds. But if an investor holds only stocks of private companies, does he have any reason to worry about this? If so, what can an investor do to protect against this?&lt;/p&gt;&#xA;" OwnerUserId="385" OwnerDisplayName="Erel Segal Halevi" LastActivityDate="2015-01-02T18:32:05.260" Title="The USA debt and the individual investor" Tags="&lt;debt&gt;&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="1843" PostTypeId="2" ParentId="1838" CreationDate="2014-12-31T14:03:59.583" Score="1" Body="&lt;p&gt;If you believe the efficient market hypothesis, then the answer is no;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At the moment relevant information (say, which allow the company to be added to the index reveal, the stock price would automatically reflect the price as if it was already added to the index, as otherwise there would be arbitrage closable by buying the stock at this moment and selling it when the ETFs are getting in.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In practice, I've tried it a few times myself but it seems that in general the market already takes future ETF investments into pricing quite well.&lt;/p&gt;&#xA;" OwnerUserId="348" LastActivityDate="2014-12-31T14:03:59.583" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="1844" PostTypeId="2" ParentId="1834" CreationDate="2014-12-31T14:08:31.973" Score="2" Body="&lt;p&gt;For a simple counterexample let&#xA;$$&#xA;A = B = \left( \begin{array}{cc}&#xA;1 &amp;amp; 0 \\&#xA;1 &amp;amp; 0 \end{array} \right).&#xA;$$&#xA;In this game any strategy pair will constitute a Nash-equilibrium. Let&#xA;$$&#xA;a^t = \left(\frac{2}{3}, \ \frac{1}{3} \right), b^t = \left(\frac{1}{3}, \ \frac{2}{3} \right).   &#xA;$$ &#xA;Then the expected payoffs are larger in the symmetric equilibrium associated with $a$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you wish for $B$ to be strictly larger than $A$ you can easily modify this example, simply multiply all of $B$'s elements with a number larger than 1 but smaller than 2.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A counterexample where neither $A$ nor $B$ are singular:&#xA;$$&#xA;A = \left( \begin{array}{cc}&#xA;4 &amp;amp; 0 \\&#xA;6 &amp;amp; -4 \end{array} \right), \ &#xA;B = \left( \begin{array}{cc}&#xA;4 &amp;amp; 1 \\&#xA;6 &amp;amp; 0 \end{array} \right)&#xA;$$&#xA;$$&#xA;a^t = \left(\frac{2}{3}, \ \frac{1}{3} \right), b^t = \left(\frac{1}{3}, \ \frac{2}{3} \right).   &#xA;$$&#xA;$$&#xA;A \cdot a = \left( \begin{array}{c}&#xA;\frac{8}{3}  \\&#xA;\frac{8}{3}  \end{array} \right) &amp;gt;&#xA;\left( \begin{array}{c}&#xA;2  \\&#xA;2  \end{array} \right) = B \cdot b &#xA;$$&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2014-12-31T15:50:50.907" LastActivityDate="2014-12-31T15:50:50.907" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="1845" PostTypeId="1" AcceptedAnswerId="1852" CreationDate="2014-12-31T14:41:52.597" Score="4" ViewCount="128" Body="&lt;p&gt;In ordinary equilibrium models, we can pin down equilibrium quantity by supply-demand functions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this the same in RBC models?  Can we pin down equilibrium output and amount of labor and capital without initial conditions with stochastic variations? Or do we need initial conditions (time $0$ conditions) for labor and capital?&lt;/p&gt;&#xA;" OwnerUserId="1602" LastEditorUserId="1602" LastEditDate="2014-12-31T15:30:14.990" LastActivityDate="2015-01-01T00:48:12.667" Title="Does RBC models pin down equilibrium output, amount of labor and capital without initial condition?" Tags="&lt;macroeconomics&gt;&lt;business-cycles&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="1846" PostTypeId="1" AcceptedAnswerId="1867" CreationDate="2014-12-31T18:00:35.217" Score="2" ViewCount="255" Body="&lt;p&gt;This question was originally &lt;a href=&quot;https://money.stackexchange.com/questions/41773/is-the-sp-500-now-in-a-boom-bust-cycle&quot;&gt;posted&lt;/a&gt; at money.stackexchange but was moved here per a commentor's suggestion after the question was put on hold for being opinion-based.  The original question was:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;When I google &quot;SP500&quot; I get the following chart:&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/0FiDv.png&quot; alt=&quot;SP500 history&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Isn't this a boom-bust cycle, that's overdue for a &quot;correction&quot; that&#xA;  drops everything back down to below the 1,000 level like in 2002 and&#xA;  2009? What are the arguments against such a prediction?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The first comment someone posted argued against a drop but was confusing because it claims drops can happen from &quot;causal forces&quot; other than cycles.  That actually sounds like an additional reason for a drop (causal forces, not just cycles) although I wouldn't understand how a cycle would be established or maintained without causal forces in the first place.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It also claims &quot;you would only expect it to come back down on schedule if you believe that it goes up and down on schedule&quot;.  That sounds like &quot;if there's a cycle, it will go up and down&quot;, but doesn't make it clear how you determine if a cycle is happening.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The second comment says &quot;markets always move in cycles&quot; although the first half of the graph doesn't seem to back that up.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The third comment says &quot;in the long term the markets have exponential growth&quot; although it then cherrypicks the portions of the graph that reflect that (in effect replacing a &quot;long term&quot; argument with &quot;short term&quot; examples).  And exponential growth can't happen forever, right?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The final comment suggest a log graph, though none is offered.  My first search result for a log graph led to &lt;a href=&quot;http://www.advisorperspectives.com/dshort/updates/Regression-to-Trend.php&quot; rel=&quot;nofollow noreferrer&quot;&gt;this page&lt;/a&gt;, which actually seems to make the case the market is &lt;strong&gt;always&lt;/strong&gt; cyclic, although it throws so many numbers around in such a complicated fashion I'm not left with a sense of real understanding.  (I also find it odd to compute things like annualized growth rate over 140 years, when any individual's investing career probably rarely exceeds 60 years, and most investors probably average much less.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Returning to the original question, is there any argument the market is &lt;strong&gt;not&lt;/strong&gt; cyclic, and not overdue for a substantial drop?  Also, is there any measurement indicating whether investors believe that, and are exiting index funds?&lt;/p&gt;&#xA;" OwnerUserId="1605" LastActivityDate="2015-01-02T17:02:01.270" Title="Is the S&amp;P 500 now in a boom-bust cycle?" Tags="&lt;business-cycles&gt;&lt;stock-market&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="1847" PostTypeId="2" ParentId="1791" CreationDate="2014-12-31T20:29:32.950" Score="3" Body="&lt;p&gt;Sean Becketti has a very readable book called &lt;a href=&quot;http://www.stata.com/bookstore/introduction-to-time-series-using-stata/&quot; rel=&quot;nofollow&quot;&gt;Introduction to Time Series Using Stata&lt;/a&gt; that has a chapter on (G)ARCH models. Unfortunately, it does not discuss mixed-data sampling (MIDAS), as that is a more advanced topic. I am not aware of any introductory treatment  of that material.&lt;/p&gt;&#xA;" OwnerUserId="159" LastActivityDate="2014-12-31T20:29:32.950" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1848" PostTypeId="1" AcceptedAnswerId="1851" CreationDate="2014-12-31T21:22:36.047" Score="2" ViewCount="152" Body="&lt;p&gt;&lt;em&gt;Note: This question is related to the following question about &lt;a href=&quot;https://economics.stackexchange.com/questions/1616/complete-markets-in-continuous-time&quot;&gt;complete markets in continuous time&lt;/a&gt;. In the linked question, the answer mentions that complete markets in this setting is a result of the Martingale Representation theorem.&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm trying to understand the statement of the theorem as given in &lt;a href=&quot;https://en.wikipedia.org/wiki/Martingale_representation_theorem&quot; rel=&quot;nofollow noreferrer&quot;&gt;its Wikipedia article&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Let $B_t$ be a Brownian motion on a standard filtered probability space $(\Omega, \mathcal F, \mathcal F_t, P)$, and let $\mathcal G_t$ be the augmentation of the filtration generated by $B$.&#xA;  If $X$ is a square integrable random variable measurable with respect to $\mathcal G_\infty$ then there exists a predictable process $C$ which is adapted with respect to $\mathcal G_t$, such that&#xA;  $$&#xA;X = E[X] + \int_0^\infty C_s dB_s.&#xA;$$&#xA;  Consequently,&#xA;  $$&#xA;E[X \mid G_t] = E[X] + \int_0^t C_s dB_s.&#xA;$$&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In this definition, where is the relationship to Martingales? I see that it is assumed that $X$ is square integrable with respect to $\mathcal G_\infty$ and I assume that it has something to do with the fact that $\mathcal G_t$ is an &quot;augmentation of the filtration generated by $b$.&quot; Also, what is an &quot;augmentation of a filtration?&quot;&lt;/p&gt;&#xA;" OwnerUserId="59" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-01-01T00:18:32.650" Title="Augmented Filtrations and Martingales in the Martingale Representation Theorem" Tags="&lt;finance&gt;&lt;martingales&gt;&lt;probability&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="1849" PostTypeId="2" ParentId="1702" CreationDate="2014-12-31T22:03:15.827" Score="2" Body="&lt;p&gt;&lt;strong&gt;Answer:&lt;/strong&gt;&lt;br&gt;&#xA;From the research that I have done in order to answer this question, I believe that the following premise is flawed: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Presumably, this [women replacing men in the workforce] occurred when a more qualified woman got a job over a male counterpart as women entered the workforce.  &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;With the hiring of women who were just as qualified (or, in some cases, less qualified) than men, we would &lt;strong&gt;not&lt;/strong&gt; expect the economy to grow substantially, and we would &lt;strong&gt;not&lt;/strong&gt; expect US GDP growth to outpace the world over that period.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My Reasoning:&lt;/strong&gt;&lt;br&gt;&#xA;In the early 1900s, women's rights became an important issue in the Western world.  Women began entering the work-force during World War II in order to replace the men who had gone to the fronts.  The wages of women, however, were much less than the wages paid to men (in some cases, it was only 60%).&lt;br&gt;&#xA;It was not until the 1960s that the women's rights movement, now called &quot;feminism,&quot; began to gather momentum, and President Kennedy signed the &lt;a href=&quot;http://en.wikipedia.org/wiki/Equal_Pay_Act_of_1963&quot; rel=&quot;nofollow&quot;&gt;Equal Pay Act of 1963&lt;/a&gt;.  This supposedly allowed for wages to be set by the job and not influenced by the sex of the worker.  While this law reduced the wage gap, the gap continued to exist and still exists today.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let us think about hiring employees with a wage gap from an employer standpoint.  You have a vacancy in a particular position (with a wage of \$100 for men and \$80 for women) and have the option of hiring either a man or a woman.  The man can do the job 90% well (meaning that his is only worth &lt;code&gt;$100 * .9 = $90&lt;/code&gt;).  The woman, on the other hand, can do the job 80% well (meaning that a man of similar skill is only worth &lt;code&gt;$100 * .8 = $80&lt;/code&gt;).  Therefore, the man is worth &lt;code&gt;$90/$100 = 90%&lt;/code&gt; of his salary, and the woman is worth &lt;code&gt;$80/$80 = 100%&lt;/code&gt; of her salary.  Thus, the woman gets hired even though she is &lt;strong&gt;less&lt;/strong&gt; qualified than the man (which is the contradiction to your premise).  &lt;/p&gt;&#xA;" OwnerUserId="27" LastActivityDate="2014-12-31T22:03:15.827" CommentCount="9" ContentLicense="CC BY-SA 3.0" />
  <row Id="1850" PostTypeId="1" AcceptedAnswerId="1853" CreationDate="2014-12-31T22:21:00.583" Score="6" ViewCount="148" Body="&lt;p&gt;Cobb-Douglas production is often given by $Y=AK^{\alpha}L^{1-\alpha}$, and $L$ is often just labor. But in RBC model, I notice that labor $h_t$ is restricted to $[0,1]$, and interpreted as working-time perecentage of non-sleeping time. Is this necessary restriction for RBC? Or can we allow $h_t$ to be in $[0,100]$ (with utility function $U(c_t,100-h_t)$)?&lt;/p&gt;&#xA;" OwnerUserId="1602" LastEditorUserId="405" LastEditDate="2015-01-01T00:50:01.493" LastActivityDate="2015-01-01T02:08:54.917" Title="why is labor $h_t$ often average working time percentage of non-sleeping time in RBC?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="1851" PostTypeId="2" ParentId="1848" CreationDate="2015-01-01T00:18:32.650" Score="2" Body="&lt;p&gt;The &lt;em&gt;augmentation of the filtration generated by $B$&lt;/em&gt; is typically just called &lt;em&gt;the augmented filtration&lt;/em&gt; and is defined using the below construction. It is more commonly referred to simply as &lt;em&gt;the standard Brownian filtration&lt;/em&gt;. &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;The collection $\mathcal{C}$ of all sets of probability $0$ in the sigma-field $\sigma\{B_{s} \: : \: s \leq t\}$&lt;/li&gt;&#xA;&lt;li&gt;The collection of null-sets, $\mathcal{N}$, of all $A$ such that $A \subset B$ for $B \in \mathcal{C}$. It is assumed $\mathbb{P}(A)=0$ for all such $A \in \mathcal{N}$.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Then the &lt;em&gt;augmented filtration&lt;/em&gt; for Brownian motion to be the filtration given by $\{\mathcal{F}_{t}\}$, where for each $t$ we take $\mathcal{F}_{t}$ to be the smallest sigma-field containing $\sigma\{B_{s} \: : \: s \leq t\}$ and $\mathcal{N}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The point of this is to endow the filtration with some properties which are considered &lt;em&gt;helpful&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The relationship to martingales is simply that $X_{t}:=\mathbb{E}(X\:|\:\mathcal{G}_{t})$ is a martingale.&lt;/p&gt;&#xA;" OwnerUserId="1435" LastActivityDate="2015-01-01T00:18:32.650" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="1852" PostTypeId="2" ParentId="1845" CreationDate="2015-01-01T00:48:12.667" Score="5" Body="&lt;p&gt;The stock of capital in the RBC model is a predetermined &lt;strong&gt;state variable&lt;/strong&gt;, meaning that the capital $K_t$ available at time $t$ was determined at time $t-1$. Usually we have an accumulation relation of the form &#xA;$$K_t = I_{t-1}+(1-\delta)K_{t-1}$$&#xA;When solving an RBC model starting at time $t=0$, we must exogenously assume some initial capital stock $K_0&amp;gt;0$ to get the model started, since we don't explicitly consider what happened at time $t=-1$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Labor, on the other hand, generally is not specified ahead of time. Instead, in many RBC models the household has an exogenous certain time endowment, perhaps normalized to 1, and then &quot;leisure&quot; $L_t=1-N_t$ is the amount of time remaining after &quot;labor&quot; $N_t$. Leisure then enters into the utility function just like consumption. (An equivalent and common alternative is to directly put labor $N_t$ as a &quot;bad&quot; into the utility function.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The basic contrast is that capital is a &lt;em&gt;stock&lt;/em&gt; while labor is a &lt;em&gt;flow&lt;/em&gt;. We can choose the level of investment &lt;em&gt;flow&lt;/em&gt; $I_t$ in each period, and the &lt;em&gt;stock&lt;/em&gt; $K_t$ (which we can no longer control once we've reached time $t$) reflects the accumulation of past investment flows $$K_t = \sum_{s=0}^\infty (1-\delta)^s I_{t-s-1}$$&#xA;Meanwhile, labor $N_t$ is a &lt;em&gt;flow&lt;/em&gt; that the household can choose optimally at time $t$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Things becomes more complicated in a model with either (A) human capital or (B) search frictions. With (A) human capital, the effective supply of labor is partly a stock, since it reflects past flow investments in human capital; whereas with (B), the number of ongoing employer-employee relationship is a stock that reflects accumulated matches. Neither of these are present in the baseline RBC model, however. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Instead, the baseline RBC model is essentially the &lt;a href=&quot;http://en.wikipedia.org/wiki/Ramsey%E2%80%93Cass%E2%80%93Koopmans_model&quot;&gt;Ramsey growth model&lt;/a&gt; augmented with a stochastic process for TFP and endogenous labor supply. In this model, capital $K_t$ is the only endogenous linkage between periods.&lt;/p&gt;&#xA;" OwnerUserId="405" LastActivityDate="2015-01-01T00:48:12.667" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1853" PostTypeId="2" ParentId="1850" CreationDate="2015-01-01T02:08:54.917" Score="10" Body="&lt;p&gt;Specifications of this form treat &lt;em&gt;labor&lt;/em&gt; $h_t$ and &lt;em&gt;leisure&lt;/em&gt; $1-h_t$ as two alternative ways of spending a total &lt;em&gt;time endowment&lt;/em&gt;.  Labor can be used as an input to the production function, while leisure enters directly into the utility function as a desirable end in its own right.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this environment, there are many equivalent normalizations. There is no need to say that the total time endowment is 1; instead, we could just as easily say it is 100, and by modifying the production function and utility function accordingly we'd get an isomorphic model.  There's nothing special about any particular normalization.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That said, given a particular functional form for utility $u$, it often &lt;strong&gt;does matter how we &lt;em&gt;define&lt;/em&gt; the time endowment&lt;/strong&gt;, and this issue has played an important and somewhat embarrassing role in the history of RBC. In particular, if we normalize the total &quot;time endowment&quot; to 1 and say that $h_t$ is the labor fraction of the time endowment, then it can matter greatly whether we define the time endowment to be 24 hours every day for all individuals, limit to non-sleeping time, limit to non-sleeping time of working age adults, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Why&lt;/em&gt; does this matter? The basic RBC model has typically assumed that intratemporal utility depends on a constant-returns-to-scale composite of consumption $c_t$ and leisure $l_t$. Given this, we can infer that this composite must have a constant elasticity of substitution of 1 from the fact that long-run labor supply seems roughly stable even as productivity and real wages have a strong upward trend. (See, for instance, pages 6 and 7 of &lt;a href=&quot;https://minneapolisfed.org/research/sr/sr102.pdf&quot;&gt;Prescott 1986&lt;/a&gt;.) An elasticity of 1 means that the composite is Cobb-Douglas in consumption and leisure, taking the form $c_t^{1-\phi}l_t^\phi$ for some $\phi$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;RBC models then generally assume a constant intertemporal elasticity of substitution $1/\gamma$ for this composite, giving us the period utility function found on page 6 of &lt;a href=&quot;https://minneapolisfed.org/research/sr/sr102.pdf&quot;&gt;Prescott (1986)&lt;/a&gt;:&#xA;$$u(c_t,l_t) = \frac{[c_t^{1-\phi}l_t^\phi]^{1-\gamma}-1}{1-\gamma}$$&#xA;In the common special case with unitary intertemporal elasticity of substitution $1/\gamma=1$, the above reduces to simply&#xA;$$u(c_t,l_t) = (1-\phi)\log c_t + \phi \log l_t\tag{1}$$&#xA;Now, one important feature of a dynamic macroeconomic model is the &lt;em&gt;Frisch elasticity of labor supply&lt;/em&gt;, which is the elasticity of labor supply to real wages holding marginal utility of consumption constant. This is important because it determines how the household will intertemporally substitute labor in response to the intertemporal pattern of real wages and real interest rates.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At an optimum the marginal utility of leisure must equal the real wage times the marginal utility of consumption, so for constant marginal utility of consumption $\lambda_t$ we have the condition&#xA;$$\frac{\phi}{l_t} = w_t\lambda_t$$&#xA;It follows that the Frisch elasticity of &lt;em&gt;leisure&lt;/em&gt; $l_t$ with respect to $w_t$ is $-1$; this is a more-or-less direct consequence of the assumption that consumption and leisure form a Cobb-Douglas aggregate. But since $l_t = 1-h_t$, the local Frisch elasticity of &lt;em&gt;labor&lt;/em&gt; $h_t$ is&#xA;$$\text{Frisch elasticity of labor}=\frac{dh_t/h_t}{dw_t/w_t}=\frac{-dl_t/h_t}{dw_t/w_t}\\&#xA;=-\frac{l_t}{h_t}\times \underbrace{\frac{dl_t/l_t}{dw_t/w_t}}_{\text{Frisch elasticity of leisure}} = \frac{1-h_t}{h_t}$$&#xA;From this, we can see that the definition of &quot;time endowment&quot; 1 matters greatly. For instance, from Table 1 of the most recent &lt;a href=&quot;http://www.bls.gov/news.release/pdf/atus.pdf&quot;&gt;American Time Use Survey&lt;/a&gt; we see that average working hours per day are 3.14. If we take the time endowment to be all 24 hours, then $h=3.14/24 \approx .13$, and the implied local Frisch elasticity is about &lt;strong&gt;6.6&lt;/strong&gt;. If, on the other hand, we take out sleeping and other personal care activities, the remaining time endowment is 14.5 hours, in which case $h\approx.22$ and the implied Frisch elasticity is about &lt;strong&gt;3.5&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Both these values are far higher than most Frisch elasticities estimated using micro data, as discussed by &lt;a href=&quot;http://obs.rc.fas.harvard.edu/chetty/ext_margin_slides.pdf&quot;&gt;Chetty et al. (2012)&lt;/a&gt;. Moreover, it seems bizarre that something as deep and important as the Frisch elasticity should depend on a choice as arbitrary as the definition of &quot;time endowment&quot;. This connection is ultimately attributable to the assumption that $c_t$ and $l_t$ form a constant-returns-to-scale composite; &lt;a href=&quot;http://sws.bu.edu/rking/EC702/kprjme88a.pdf&quot;&gt;King, Plosser, and Rebelo (1988)&lt;/a&gt; show that if we discard this assumption, a more general &quot;KPR&quot; functional form is consistent with the stylized fact of stable long-term labor supply, and we can potentially calibrate this more general form to the (much lower) elasticities estimated in the labor supply literature rather than imposing an unrealistically high Frisch elasticity by fiat.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For reasons that I do not completely understand, much of the RBC literature has followed Prescott (1986) and used the &quot;log-log&quot; utility parameterization (1) above, rather than calibrating the KPR functional form to match some externally estimated elasticity. This is probably due to a combination of inertia and convenience: the high Frisch elasticity guaranteed by the log-log parameterization helps to make labor volatile enough to match the macro data. And this is all connected to a lengthy and convoluted debate about the possible difference between &quot;micro&quot; and &quot;macro&quot; elasticities - see Chetty's &lt;a href=&quot;http://obs.rc.fas.harvard.edu/chetty/ext_margin_slides.pdf&quot;&gt;slides&lt;/a&gt; or &lt;a href=&quot;http://obs.rc.fas.harvard.edu/chetty/ext_margin.pdf&quot;&gt;paper&lt;/a&gt; to read more about this.&lt;/p&gt;&#xA;" OwnerUserId="405" LastActivityDate="2015-01-01T02:08:54.917" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="1854" PostTypeId="2" ParentId="1628" CreationDate="2015-01-01T17:33:03.393" Score="3" Body="&lt;p&gt;To understand why macroeconomists use DSGE as a tool, in general, it's a good idea to read up on the &lt;a href=&quot;http://en.wikipedia.org/wiki/Lucas_critique&quot; rel=&quot;nofollow&quot;&gt;Lucas critique&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;More colloquially, DSGE models provide macroeconomists with a laboratory that allows quantitative comparison (and ranking) of different economic policies.  Further, the process of writing a model disciplines thinking: if one cannot write down a minimally specified model that replicates (to varying degrees of success) some real world dynamics of interest, then do we really understand what is happening to begin with?  It's easy to play a casual story telling game that explains economic phenomena (with critical errors).  We unfortunately see this all the time in politics, or even on CNBC.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, DSGE models do not all share the same objective.  There are some medium and large scale models employed at central banks that are used to guide monetary policy.  Other models are much smaller and stylized, and seek to answer questions about how a government should optimally finance itself, or how to tax different factors of production, or how informational frictions affect prices.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, to answer your question on the state of dynamic general equilibrium theory, researchers continue to apply this mode of analysis to deepen our understanding of economic dynamics.  This entails writing models of economic agents incentivized by objective functions, facing resource and informational constraints, interacting with one another and nature.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Every DSGE model has some fatal flaw which cripples it from perfectly explaining real world dynamics.  Perfection is not the point of DSGE models, so when macroeconomists say that DSGE models are &quot;useful&quot; or &quot;good&quot;, it's important to ask questions about the &lt;em&gt;context&lt;/em&gt; of those descriptive terms.  It's also important to remember that macroeconomists are, at the same time, some of the harshest critics of DSGE models.&lt;/p&gt;&#xA;" OwnerUserId="1609" LastActivityDate="2015-01-01T17:33:03.393" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1855" PostTypeId="1" CreationDate="2015-01-01T19:58:21.163" Score="2" ViewCount="670" Body="&lt;p&gt;Where can I find statistics about how many 16-20 years old people do live in the world? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If there is no such statistics, how about people in this age-range in europe+amerika?&lt;/p&gt;&#xA;" OwnerUserId="1610" LastEditorUserId="59" LastEditDate="2015-01-02T07:34:04.283" LastActivityDate="2015-01-02T07:34:04.283" Title="Where can I find statistics for numbers of 16-20 year olds in the world?" Tags="&lt;data-request&gt;&lt;markets&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="1856" PostTypeId="2" ParentId="1855" CreationDate="2015-01-01T21:54:31.660" Score="2" Body="&lt;p&gt;That's not really an economics question, so it's probably off-topic. However, the US Census Bureau seems to track this &lt;a href=&quot;https://www.census.gov/population/international/data/idb/worldpop.php&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt; over time by sex.&lt;/p&gt;&#xA;" OwnerUserId="159" LastActivityDate="2015-01-01T21:54:31.660" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1857" PostTypeId="1" CreationDate="2015-01-01T22:47:08.027" Score="2" ViewCount="171" Body="&lt;p&gt;Does have anyone link to the reference where Robert Lucas said &quot;market is always in equilibrium&quot;?&lt;/p&gt;&#xA;" OwnerUserId="1612" LastActivityDate="2015-07-05T15:40:32.167" Title="Where did Robert Lucas say &quot;market is always in equilibrium&quot;?" Tags="&lt;macroeconomics&gt;&lt;reference-request&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="1858" PostTypeId="1" CreationDate="2015-01-02T05:04:34.233" Score="3" ViewCount="165" Body="&lt;p&gt;So in RBC and Ramsey-derived utility function, the following is usually the form of utility:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$u(c,l) = c^{1-\sigma}(1 + \omega(l))$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $\omega(l)$ is arbitrary function of $l$, labor, that satisfies $u_c&amp;gt;0$, $u_l &amp;lt;0$, $u_{ll} \leq 0$ and $u_{cc} &amp;lt; 0$. $c$ is consumption. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In Mankiw/Rotemberg/Summers paper Intertemporal Substitution in Macroeconomics (link: &lt;a href=&quot;http://scholar.harvard.edu/files/mankiw/files/intertemporal_substitution.pdf&quot; rel=&quot;nofollow&quot;&gt;http://scholar.harvard.edu/files/mankiw/files/intertemporal_substitution.pdf&lt;/a&gt;), utility function of following is used to test RBC model:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$u(c,l) = \frac{1}{1-\gamma}\left[\frac{c^{1-\alpha} - 1}{1-\alpha} + d\frac{l^{1-\beta} - 1}{1-\beta}\right]^{1-\gamma}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a special case, not considering multiplicative and additive constants, a special case of &#xA;$$u(c,l) = \frac{c^{1-\alpha}}{1-\alpha} - \frac{l^{1+\beta}}{1+\beta}$$&#xA;can be considered. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now for the third utility, it seems that third utility must be special case of the first utility functional form, but I cannot see how this is possible. &lt;/p&gt;&#xA;" OwnerUserId="1613" LastActivityDate="2015-01-02T20:08:17.760" Title="Is special case of utility function in &quot;Intertemporal Substitution in Macroeconomics&quot; also a special case of a Ramsey growth model utility function?" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;utility&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="1859" PostTypeId="1" AcceptedAnswerId="1860" CreationDate="2015-01-02T05:57:56.397" Score="3" ViewCount="175" Body="&lt;p&gt;In &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0538453060&quot; rel=&quot;nofollow&quot;&gt;Mankiw, N. (2012). &lt;i&gt;Principles of Macroeconomics&lt;/i&gt; (6th ed.).&lt;/a&gt;, on pg 456 Mankiw says &quot;The amount of oil used to produce a unit of real GDP has declined about 40 percent since the OPEC shocks of the 1970s.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How would one measure that?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That's unfortunately just kind of dropped at the end of a chapter as the second to last sentence in a five paragraph side note about OPEC, and I've been curious for years now if that reduction was because the mix of energy supply changed (rise in natural gas consumption?), or production is simply more energy efficient, or what.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can someone clarify the claim, the process, or point toward primary sources (US EIA maybe?), rereading this book has reminded me how frustrating that bit was. &lt;/p&gt;&#xA;" OwnerUserId="31" LastEditorUserId="264" LastEditDate="2015-07-15T16:21:59.690" LastActivityDate="2015-07-15T16:21:59.690" Title="Oil as a function of GDP" Tags="&lt;macroeconomics&gt;&lt;energy-economics&gt;&lt;resource-economics&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="1860" PostTypeId="2" ParentId="1859" CreationDate="2015-01-02T07:06:52.827" Score="3" Body="&lt;p&gt;I don't think it's any more complicated than looking at the ratio of global oil consumption and global Gross Domestic Product. The OECD, World Bank, IMF and others produce estimates of each.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is some &lt;strong&gt;fuel-switching&lt;/strong&gt;: for example, the world burns much less electricity from oil than it used to: in 1973 (the first oil crisis started around October that year) 251 million tonnes were used for electricity; by 2000, this had dropped to 110; by 2012, to 70 (table 7A on IV.81 of &lt;a href=&quot;http://dx.doi.org/10.1787/electricity-2014-en&quot; rel=&quot;nofollow&quot;&gt;the IEA Electricity Information 2014&lt;/a&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There's several decades of &lt;strong&gt;energy efficiency&lt;/strong&gt;, kickstarted in large part by the oil shocks of the 1970s.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;The share of services (relative to physical goods) within global GDP has increased&lt;/strong&gt;; IIRC services require much lower energy inputs than goods, on average, even though transport is one of the services (I'll check this and edit later - please nudge me in comments if I haven't after a week or so). The &lt;a href=&quot;http://data.worldbank.org/indicator/BG.GSR.NFSV.GD.ZS&quot; rel=&quot;nofollow&quot;&gt;World Bank&lt;/a&gt; only gives services as a share of global GDP from 1990 onwards: this share grew from 60.7% in 1990 to 70.2% in 2011.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The combination of energy efficiency and the increase in the share of services (relative to physical goods) within global GDP, means that energy consumption per unit of global GDP has fallen: &lt;a href=&quot;http://holtz.org/Library/Social%20Science/Economics/Estimating%20World%20GDP%20by%20DeLong/Estimating%20World%20GDP.htm&quot; rel=&quot;nofollow&quot;&gt;J. Bradford DeLong&lt;/a&gt; gives global GDP at \$12 trillion for 1970 and \$41 trillion for 2000 (preferred measure, 1990 international dollars). The &lt;a href=&quot;http://www.bp.com/en/global/corporate/about-bp/energy-economics/statistical-review-of-world-energy/statistical-review-downloads.html&quot; rel=&quot;nofollow&quot;&gt;BP Statistical Review of World Energy 2014&lt;/a&gt; gives 1970 energy consumption at 4.9 billion tonnes of oil equivalent (btoe) and 9.3 btoe for 2000. So &lt;strong&gt;energy per unit global GDP almost halved (44% reduction) over those thirty years 1970-2000.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Understanding an individual country's changes are harder, because we then have to unpick whether oil intensity of GDP has dropped because of energy-efficiency &amp;amp; fuel-switching, or because oil-intensive goods are now imported rather than produced domestically: for further reading on this, see papers by John Barrett and by Dieter Helm.&lt;/p&gt;&#xA;" OwnerUserId="44" LastEditorUserId="44" LastEditDate="2015-01-02T09:26:53.197" LastActivityDate="2015-01-02T09:26:53.197" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="1861" PostTypeId="1" AcceptedAnswerId="1863" CreationDate="2015-01-02T07:15:12.113" Score="12" ViewCount="424" Body="&lt;p&gt;I've not been able to find any states that don't have debt to other states.  This, to me at least, seems really strange.  Are there any nation states that are not in debt to other states, if so which ones, and if not why can't everyone just settle the debts?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Wasn't sure if I should ask this on the Politics Stack Exchange or here, please let me know if this is out of scope and I'll ask there.)&lt;/p&gt;&#xA;" OwnerUserId="1616" LastEditorUserId="8481" LastEditDate="2020-05-04T20:15:45.087" LastActivityDate="2020-05-04T20:15:45.087" Title="Are there any states that don't have debt?" Tags="&lt;international-trade&gt;&lt;government-debt&gt;&lt;international-economics&gt;&lt;debt&gt;" AnswerCount="2" CommentCount="6" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1862" PostTypeId="1" CreationDate="2015-01-02T07:33:02.790" Score="2" ViewCount="52" Body="&lt;p&gt;I'm trying to study the relationship of general macro factors and their effect on credit in the private sector. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The country in question has a fixed exchange regime with the dollar, would it be correct to use exchange rates of the country's biggest trading partners to the dollar as an explanatory variable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm not sure if should be regressing on the absolute figure of credit, or the year to year change in credit. My reasoning for the latter is that since I'll be using GDP growth rate, CPI based inflation, it's best to see how their changes effect changes in credit. If that's the case, should I use changes in oil price and the stock index, or their yearly averages?&lt;/p&gt;&#xA;" OwnerUserId="1617" LastEditorUserId="87" LastEditDate="2015-01-03T00:24:44.470" LastActivityDate="2015-01-03T00:24:44.470" Title="Would it be correct to use exchange rates of the biggest trading partners to the dollar as an explanatory variable?" Tags="&lt;macroeconomics&gt;&lt;econometrics&gt;&lt;inflation&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="1863" PostTypeId="2" ParentId="1861" CreationDate="2015-01-02T12:08:51.030" Score="11" Body="&lt;p&gt;The classic answer here would be Libya and Brunei, but I think Libya now has debt.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Brunei is a strange case in that it uses a joint currency with Singapore dollar, controlled by the monetary authority of Singapore, so in effect you can use Singapore debt as a substitute for Brunei dollar investment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Not having any debt, and having a free currency is generally a bad idea, since you cannot control interest rates. Furthermore, if you can afford not to have debt, then people will be begging to lend to you at such favorable rates it would be foolish not to borrow a bit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand there are many counties with no net debt. Singapore and Norway don't need to borrow but do so to provide bonds for the financial markets. They then invest the money they borrow. Norway can borrow so cheaply they can buy US treasuries and make a profit.&lt;/p&gt;&#xA;" OwnerUserId="119" LastActivityDate="2015-01-02T12:08:51.030" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1864" PostTypeId="1" AcceptedAnswerId="3034" CreationDate="2015-01-02T13:08:24.650" Score="6" ViewCount="124" Body="&lt;p&gt;Assume a two player symmetric game where the payoff for the row player is given by:&#xA;$$&#xA;A = \left( \begin{array}{cc}&#xA;a_{1,1} &amp;amp; a_{1,2} &amp;amp;\cdots &amp;amp; a_{1,n}\\&#xA;a_{2,1} &amp;amp; a_{2,2} &amp;amp;\cdots &amp;amp; a_{2,n} \\&#xA;\vdots &amp;amp; \vdots &amp;amp; \ddots &amp;amp; \vdots\\&#xA;a_{n,1}&amp;amp;a_{n,2}&amp;amp;\cdots &amp;amp;a_{n,n}&#xA;\end{array} \right)&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We denote by $\Delta$ all probability vectors over $[n]$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A symmetric equilibrium for the game is a vector $a\in \Delta$ such that &#xA;$$\forall x\in \Delta: x^tAa\leq a^tAa$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume we increase the value of some specific coordinate $i,j$ by a variable $t$. Denote the new matrix by $A(t)$.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;Assuming $A$ is non-singular, is the change in the symmetric equilibrium continuous in $t$?&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;I'm aware that the question might not be enough well-defined, as there could be more than a single equilibrium for $A$, but is there necessarily a symmetric equilibrium for $A(t)$ which converges to the symmetric equilibrium for $A$ as $t\to 0$?&lt;/p&gt;&#xA;" OwnerUserId="348" LastActivityDate="2015-01-16T14:24:00.380" Title="Are symmetric equilibria continuous with respect to the payoff matrix?" Tags="&lt;game-theory&gt;&lt;nash-equilibrium&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1865" PostTypeId="2" ParentId="1862" CreationDate="2015-01-02T16:19:12.860" Score="2" Body="&lt;p&gt;When a variable is measured over a period of time, it is a &lt;em&gt;flow&lt;/em&gt; variable.  When measured at a single point in time, it is a &lt;em&gt;stock&lt;/em&gt; variable.  In your case, I think you are looking to explain the year/year change in credit, a flow.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Think about the case with the level of credit as the dependent variable.  Does one year GDP growth explain the overall level of credit in this economy?  Most likely not.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Try to be cautious here on how you interpret the regression coefficients.  For instance, if your coefficient on GDP is 1, you cannot argue that GDP growth is causing increased credit flows.  This is because this model likely suffers from endogeneity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To make the case for causality, an important step is showing the reader that your model satisfies conditional independence.  That is, the variables on the right hand side of the regression are uncorrelated with the error term.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Otherwise, it's useful to disclose that an attempt at identification was not made, and that the coefficients are more are less statistical summaries of how the data move together.&lt;/p&gt;&#xA;" OwnerUserId="1609" LastActivityDate="2015-01-02T16:19:12.860" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1866" PostTypeId="2" ParentId="1858" CreationDate="2015-01-02T16:49:27.983" Score="4" Body="&lt;p&gt;Let's call your first utility function [1], and the third utility function [3].  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If [3] is a special case of [1], then for some [1] we can find parameter values such that the first derivatives of [1] and [3] will be equal for all values of $c$ and $l$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the following must hold:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$c^{1-\sigma} = -(1+\beta)l^{\beta}/\omega_l(l)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$c^{\sigma -\alpha} = (1-\sigma)(1+\omega(l))$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Solving both for $c$, and the setting the equations equal to one another, you'll find a functional equation which we need to solve for $\omega$ given its restrictions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ (-(1+\beta)l^{\beta}/\omega_l(l))^{1/(1-\sigma)} = ((1-\sigma)(1+\omega(l)))^{1/(\sigma-\alpha)}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now check this equation to see if you can satisfy the sign restrictions on $\omega$'s derivatives, and you fill find that you cannot for any meaningful specification.&lt;/p&gt;&#xA;" OwnerUserId="1609" LastEditorUserId="1609" LastEditDate="2015-01-02T20:08:17.760" LastActivityDate="2015-01-02T20:08:17.760" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1867" PostTypeId="2" ParentId="1846" CreationDate="2015-01-02T17:02:01.270" Score="5" Body="&lt;p&gt;Here's the &lt;a href=&quot;http://en.wikipedia.org/wiki/Efficient-market_hypothesis&quot;&gt;Efficient Market Hypothesis&lt;/a&gt; (EMH) explanation for why one cannot say that a correction is overdue:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose that it were widely known that, by looking at the above figure, one could ascertain that the market was &quot;due for a drop&quot; one week from now. Financial analysts and investors would look at the graph and come to this conclusion. How would people respond to this knowledge? They would go and sell their stocks before those stocks loose a substantial portion of their value. However, this flurry of selling activity would cause the price of the stocks (and hence the stock index) to fall today—one week earlier than forecast.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This example is obviously a highly simplified and stylised exposition of how markets function, but it should serve to make clear the basic point: any hypothesised means by which one can look at a chart like this and forecast the future movement of prices is automatically self-defeating and any information about the future of the market is instantly built in to the current price of securities. The drop you think might be due will come, says the EMH, if and only if new information about the economy becomes available that suggests the economic outlook is less promising that people had thought.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2015-01-02T17:02:01.270" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1868" PostTypeId="1" AcceptedAnswerId="1878" CreationDate="2015-01-02T18:04:35.337" Score="6" ViewCount="289" Body="&lt;p&gt;In DSGE models, utility function contains labor disutility components. But I cannot not see how labor disutility is incorporated in Arrow-Debreu-Mackenzie model. &lt;/p&gt;&#xA;" OwnerUserId="1620" LastActivityDate="2015-01-03T16:57:11.057" Title="How is labor disutility modeled in Arrow-Debreu model?" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;utility&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1869" PostTypeId="2" ParentId="1841" CreationDate="2015-01-02T18:32:05.260" Score="-1" Body="&lt;p&gt;Sure, government borrowing affects the small investor in many ways.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For starters, there is only so much money available for borrowing. The more the government borrows, the less there is available for everyone else. This pushes up interest rates and in some cases will make it impossible for the least desirable borrowers to get a loan at all.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the government defaults on its loans, this would cause many problems. Details are debated by economists, but I don't know anyone who says it would be good for the economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As to what you can do personally to protect yourself ... &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course there are political things you can do, like voting for and otherwise supporting candidates who campaign on economic policies that you believe are more desirable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you are worried about the government defaulting on its bonds, then don't buy government bonds.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you are worried about the macro-economic effects of a government default, you could invest money in foreign countries that you believe have wiser debt policies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Invest in companies that are more likely to survive or prosper in an economic downturn. Like, if there's a depression, people will still need food, so food-processing companies are probably relatively safe investments. If people are suddenly made poor, they're probably not going to buy frilly luxuries like video games, so those might be poor investments. But the rich tend to manage to get along no matter how bad things get, so services for the rich, like luxury yachts, might do well regardless. There are plenty of people out there who do research on this sort of thing that you could consult.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;People who are deeply worried about government default often advise people to invest in commodities, especially gold. If the government goes bankrupt and takes large sections of the economy down with it, precious metals, especially gold, tend to hold their value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you're really worried you can build a compound in the wilderness, stock it with food and other supplies, and have an arsenal of guns to protect you from the marauding hordes after the economic collapse. :-) (Okay, I say that flippantly, but if you're convinced that things are going to get very bad, that would be a logical thing to do.)&lt;/p&gt;&#xA;" OwnerUserId="1621" LastActivityDate="2015-01-02T18:32:05.260" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="1870" PostTypeId="2" ParentId="1838" CreationDate="2015-01-02T18:40:47.577" Score="0" Body="&lt;p&gt;A key assumption in your question is that the list of stocks making up your &quot;X&amp;amp;Y 500&quot; could be kept secret. In practice lots of people would have to know, and it's difficult to see how the secret could be kept indefinitely. Assuming that being included in the index gave a company prestige and tended to push the price up, those in the know sooner would have an advantage: they could buy this stock early on at a discount, and then as the word spreads the price would go up and they could cash in.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Maybe that's irrelevant as you're speaking of a hypothetical scenario, and so whether it is practical or not is not the issue.&lt;/p&gt;&#xA;" OwnerUserId="1621" LastActivityDate="2015-01-02T18:40:47.577" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="1871" PostTypeId="1" CreationDate="2015-01-02T19:15:05.690" Score="7" ViewCount="240" Body="&lt;p&gt;I believe this distinction may have been made by Hayek or some other Austrian. &lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2016-02-19T07:18:04.183" Title="What is the difference between knowledge and information?" Tags="&lt;austrian&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="1872" PostTypeId="1" AcceptedAnswerId="1887" CreationDate="2015-01-02T20:32:14.213" Score="6" ViewCount="121" Body="&lt;p&gt;I have set up and solved an optimization problem with time $t$ endogenous state variables, $\alpha_t$ and $\beta_t$ and choice variable $s_t$. After some manipulation, the first-order condition for $s_t$ is of the form:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$f(\alpha_t,\beta_t,s_t,s_{t+1})=0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $f(\cdot)$ is a non-linear and contains expectations over future realizations of shocks. In some specifications there is no explicit solution for $s_t$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I want to derive testable implications from the underlying theory. In particular, I am interested in the signs of:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\dfrac{\partial s_t}{\partial \alpha_t}$ and $\dfrac{\partial s_t}{\partial \beta_t}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How should I treat $s_{t+1}$ when I take the total derivative? Should I treat it as a constant, or include it? What's the rationale? If more elaboration is needed, do let me know and I'll be happy to explain in more detail the problem.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks!&lt;/p&gt;&#xA;" OwnerUserId="1622" LastActivityDate="2015-01-04T21:08:41.353" Title="Comparative dynamics in forward-looking equation" Tags="&lt;mathematical-economics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1873" PostTypeId="1" CreationDate="2015-01-02T21:44:20.497" Score="10" ViewCount="215" Body="&lt;p&gt;Large public companies (e.g. S&amp;amp;P 500) seem to end their lives in one of two ways: either they're acquired (or taken private), or they go bankrupt.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Theoretically it seems like there should be a third option: to wind up the company and return assets to shareholders (as Michael Dell famously suggested Apple should do). A company that realises its industry is in decline and it's about to become unprofitable as a business surely ought to do this; it would give the shareholders at least some cash, rather than the nothing they'll get in bankruptcy. But I can't remember this ever happening, at least in my lifetime (alternately, maybe it's common enough to simply not be news?). A struggling company like HP or Nokia or Blackberry seems to always keep going to a buyout or the bitter end, even when &quot;everyone&quot; can see they're doomed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are large public companies ever simply wound up? If not, why?&lt;/p&gt;&#xA;" OwnerUserId="1623" LastActivityDate="2015-01-04T20:03:55.970" Title="Do large public companies ever &quot;quit while they're ahead&quot;?" Tags="&lt;history&gt;&lt;value&gt;&lt;stock-market&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="1874" PostTypeId="2" ParentId="1872" CreationDate="2015-01-03T00:30:29.610" Score="6" Body="&lt;p&gt;Try writing your equation explicitly with a conditional expectation operator:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \mathbb{E}_t f(\alpha_t, \beta_t, s_t, s_{t+1}) = 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hopefully this clarifies things.  You can take the total derivative as you normally would with any function, however $s_{t+1}$ is a random variable since it is not predetermined.  Ultimately you are considering all cases of $s_{t+1}$ weighted by their probability.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since $\mathbb{E}_t$ integrates over shocks, you can differentiate under the integral sign by Leibniz's integration rule.&lt;/p&gt;&#xA;" OwnerUserId="1609" LastEditorUserId="1609" LastEditDate="2015-01-03T00:41:35.547" LastActivityDate="2015-01-03T00:41:35.547" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="1875" PostTypeId="2" ParentId="1871" CreationDate="2015-01-03T01:09:23.077" Score="11" Body="&lt;p&gt;In &lt;a href=&quot;http://www.gmu.edu/depts/rae/archives/VOL15_4_2002/boettke.pdf&quot;&gt;this paper (pdf)&lt;/a&gt;, &lt;a href=&quot;http://en.wikipedia.org/wiki/Peter_Boettke&quot;&gt;Peter Boettke&lt;/a&gt; goes into great depth explaining the difference between the two concepts in the Austrian school.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Essentially information is any data that might influence an act (or specifically the perceived utility or cost of a choice), and knowledge is the information that the actor has already collected prior to the time they made their decision and/or engaged in their behavior.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This helps to explain seemingly irrational behavior that is merely a manifestation of imperfect or asymmetric information (though it doesn't necessarily preclude or eliminate irrationality by any means).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is also some room for &quot;false&quot; (or conflicting) knowledge, to provide for further irrationality (in the sense that $A$ &lt;em&gt;knows&lt;/em&gt; $U(x)&amp;gt;U(y)$ and $B$ &lt;em&gt;knows&lt;/em&gt; &#xA;$U(y)&amp;gt;U(x)$ where $U(x)$ is the average perceived utility of $x$ for all actors in the economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;He of course does a much better job explaining it than I do.&lt;/p&gt;&#xA;" OwnerUserId="31" LastEditorUserId="31" LastEditDate="2015-01-03T06:38:43.033" LastActivityDate="2015-01-03T06:38:43.033" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="1876" PostTypeId="1" CreationDate="2015-01-03T16:06:15.183" Score="1" ViewCount="1605" Body="&lt;p&gt;Most individuals refer to the former USSR as a &quot;communist&quot; nation, but, in reality, it was only a &quot;socialist&quot; nation with a high level of governmental control in all areas of its citizens' lives.&lt;br&gt;&#xA;Have there been any true &quot;communist&quot; nations as Marx envisioned?  &lt;/p&gt;&#xA;" OwnerUserId="27" LastActivityDate="2018-10-22T05:50:50.007" Title="Have there been any true &quot;communist&quot; nations as Marx envisioned?" Tags="&lt;marxism&gt;&lt;communism&gt;" AnswerCount="4" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="1877" PostTypeId="1" AcceptedAnswerId="1881" CreationDate="2015-01-03T16:15:03.940" Score="3" ViewCount="6175" Body="&lt;p&gt;I want to study financial constraints on companies of different groups and for that I try to use Whited-Wu index:&#xA;&lt;code&gt;WW = - 0.091CF - 0.062DIVPOS + 0.021*TLTD - 0.044*LNTA + 0.102*ISG - 0.035*SG&lt;/code&gt;&#xA;Where &lt;code&gt;TLTD&lt;/code&gt; is the ratio of the long-term debt to total assets; &lt;code&gt;DIVPOS&lt;/code&gt; is an indicator that takes the value of one if the firm pays cash dividends; &lt;code&gt;SG&lt;/code&gt; is firm sales growth; &lt;code&gt;LNTA&lt;/code&gt; is the natural log of total assets; &lt;code&gt;ISG&lt;/code&gt; is the firm’s three-digit industry sales growth; &lt;code&gt;CASH&lt;/code&gt; is the ratio of liquid assets to total assets; &lt;code&gt;CF&lt;/code&gt; is the ratio of cash flow to total assets (see Whited and Wu. Financial Constraints Risk. 2006).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Although I managed to compute it, I have difficulties with results interpretation. My idea was to compare different companies/groups of firms using this index. As written in one of the papers, &quot;higher index values can be associated to higher need of external capital&quot;. So if in 2010, for &quot;Toyota&quot; I got value -0.9 and for &quot;Fuji Technica Inc.&quot; -0.53, may I conclude that Toyota is more financially constrained (requires more external capital)? Similarly, if I get two industries - food and car producing - then the first have higher values of WW.&lt;/p&gt;&#xA;" OwnerUserId="374" LastEditorUserId="374" LastEditDate="2015-01-03T17:55:28.963" LastActivityDate="2019-10-01T06:34:24.063" Title="How to interpret Whited Wu index (WW-index)" Tags="&lt;econometrics&gt;&lt;financial-economics&gt;&lt;debt&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1878" PostTypeId="2" ParentId="1868" CreationDate="2015-01-03T16:57:11.057" Score="7" Body="&lt;p&gt;In the Arrow-Debreu model, households are endowed with some commodities, producers can use feasible production plans to transform commodities, and households ultimately consume commodities - which they choose optimally given their preferences subject to budget constraints. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;These commodities can include (potentially time and state-contingent) labor services provided by households. In this framework, provision of labor can simply be viewed as a form of negative consumption, which decreases utility but provides earnings that can be spent elsewhere. Indeed, the &lt;a href=&quot;http://cowles.econ.yale.edu/P/cp/p00b/p0087.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;original Arrow-Debreu paper&lt;/a&gt; mentions this interpretation several times. For instance, on page 268 when they describe households in the model (which they call &quot;consumption units&quot;):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/BZifZ.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;" OwnerUserId="405" LastActivityDate="2015-01-03T16:57:11.057" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1879" PostTypeId="2" ParentId="1767" CreationDate="2015-01-03T17:03:54.073" Score="5" Body="&lt;p&gt;Check out the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Jordi Gali;&#xA;Monetary Policy, Inflation, and the Business Cycle: An Introduction to the New Keynesian Framework&lt;/p&gt;&#xA;&#xA;&lt;p&gt;David Romer;&#xA;Advanced Macroeconomics&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Michael Woodford;&#xA;Interest and Prices: Foundations of a Theory of Monetary Policy&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first two will ground you in the theory of nominal rigidities and the business cycle.  Woodford's book is a good advanced text on the theory of monetary policy.  I would not start with Woodford to understand the basic New Keynesian model.  Practice problems with the first two books first, then move on to Woodford.&lt;/p&gt;&#xA;" OwnerUserId="1609" LastActivityDate="2015-01-03T17:03:54.073" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="1880" PostTypeId="1" AcceptedAnswerId="4847" CreationDate="2015-01-03T18:21:21.583" Score="12" ViewCount="920" Body="&lt;p&gt;I've seen stochastic processes modeled/constructed in the following way. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Consider the&#xA;  probability space $(\Omega, \mathcal F, Pr)$ and let $\mathbb S$ be the (measurable)&#xA;  transformation $\mathbb S: \Omega \rightarrow \Omega$&#xA;  that we use to model the evolution of the sample point $\omega$ over time.&#xA;  Also, let $X$ be the random vector $X: \Omega \rightarrow \mathbb R^n$.&#xA;  Then, the stochastic process $\{ X_t: t=0,1,...\}$ is used to model&#xA;  a sequence of observations via the formula&#xA;  $&#xA;X_t(\omega) = X[\mathbb S^t(\omega)]&#xA;$&#xA;  or&#xA;  $&#xA;X_t = X \circ \mathbb S^t.&#xA;$&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;How should I understand the sample points $\omega \in \Omega$ and&#xA;the transformation $\mathbb S$ in this construction? (Could $\omega$ be something&#xA;like a sequence of shocks in certain cases?) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For more concreteness,&#xA;how would I write these two processes in this notation? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Process 1:&lt;/strong&gt;&#xA;$$&#xA;X_{t+1} = \rho X_t + \varepsilon_{t+1} \tag{1}&#xA;$$&#xA;where $X_0 = 0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Process 2:&lt;/strong&gt;&#xA;$$&#xA;X_{t+1} = \varepsilon_{t+1} \tag{2}&#xA;$$&lt;/p&gt;&#xA;" OwnerUserId="59" LastActivityDate="2015-06-17T02:49:33.523" Title="Understanding the construction of stochastic processes" Tags="&lt;econometrics&gt;&lt;time-series&gt;&lt;probability&gt;&lt;stochastic-processes&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="1881" PostTypeId="2" ParentId="1877" CreationDate="2015-01-03T21:37:17.663" Score="3" Body="&lt;p&gt;This is equation $(13)$ of &lt;a href=&quot;http://www.bauer.uh.edu/wu/Papers/RFS2006_FinConstr.pdf&quot; rel=&quot;nofollow&quot;&gt;Whited, T. M., &amp;amp; Wu, G. (2006). Financial constraints risk. Review of Financial Studies, 19(2), 531-559.&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is empirically estimated as regards the specific coefficient values. The important question is, &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;What is the left-hand-side?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Looking at eq. $(12)$ of the paper the left-hand-side of $(13)$ is $\lambda_{i,t+1}$ which in turn is part of&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Lambda_{i,t+1} = \frac {1+\lambda_{i,t+1}}{1+\lambda_{i,t}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\Lambda_{i,t+1}$ is discussed in the middle of p. 536 (between eq. 5 and eq. 6). As the authors write,&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;If the outside equity constraint is binding, the effects of external&#xA;  finance constraints show up in the term $\Lambda_{i,t+1} =&#xA; (1+\lambda_{i,t+1})/(1+\lambda_{i,t})$, which is the relative shadow&#xA;  cost of external finance. In the absence of finance constraints,&#xA;  $\Lambda_{i,t+1}=1$. On the other hand, if the equity constraint&#xA;  binds, then generally $\Lambda_{i,t+1}\neq1$, unless $\lambda_{i,t+1}&#xA; = \lambda_{i,t}$. As also noted in Gomes, Yaron, and Zhang (2004), this last observation implies that finance constraints can only affect&#xA;  investment if they are time varying. It is the shadow value of the&#xA;  constraint today, relative to tomorrow, that is important.&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So $\lambda_{i,t+1}$ is the shadow cost of external finance at period $t+1$. Near the end of p. 538 the authors write&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;The higher $\lambda_{i,t+1}$, the greater is the effect of finance&#xA;  constraints.&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This is translated as &quot;&lt;strong&gt;the higher $\lambda_{i,t+1}$, the more difficult (or costly) is for a firm to obtain external financing&lt;/strong&gt;&quot;. It does not appear to relate to whether it &lt;em&gt;needs&lt;/em&gt; more external financing or not.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Moreover, as the authors write in p. 540, it being a shadow value, it must be non-negative. So what do you make of the fact that you obtained negative values?&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-01-03T21:37:17.663" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="1882" PostTypeId="2" ParentId="1876" CreationDate="2015-01-03T22:04:40.307" Score="8" Body="&lt;p&gt;(I am not certain of whether I use established English terminology here).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The answer is no, because in a communist state (as described by Marx), there are no markets, especially, markets for production factors. And in none of the countries that implemented a socialistic socio-economic system, was labor &quot;directly socialized&quot; -it continued to be considered as owned by each worker individually, and it was priced, bought and sold. And it doesn't matter how this was done, i.e. of whether the wages were determined through some market mechanism or decreed by the state. All it matters is that labor was still &lt;em&gt;private property&lt;/em&gt;.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-01-03T22:04:40.307" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1883" PostTypeId="1" AcceptedAnswerId="2935" CreationDate="2015-01-04T05:42:02.440" Score="6" ViewCount="101" Body="&lt;p&gt;&lt;em&gt;Note: This question is related to this &lt;a href=&quot;https://economics.stackexchange.com/questions/1880/understanding-the-construction-of-stochastic-processes&quot;&gt;question about the construction of stochastic processes.&lt;/a&gt; Specifically, it relates to the transformation $\mathbb S: \Omega \rightarrow \Omega$ that is mentioned. The following is an example to help understand such transformations. If such transformation are measure preserving, then the distribution function of $X_t$ is identical for all $t \geq 0$.&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we suppose that $\Omega = [0,1)$ and that $Pr$ is the uniform measure and that &#xA;$$&#xA;\mathbb S(\omega) =&#xA;\begin{cases}&#xA;2 \omega &amp;amp; \omega \in [0, 1/2) \\&#xA;2 \omega - 1 &amp;amp; \omega \in [1/2, 1),&#xA;\end{cases}&#xA;$$&#xA;how would we show that $\mathbb S$ is measure-preserving?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It definitely suffices to verify this property for just the open intervals in $\Omega$. But trying to so explicitly for an arbitrary interval $(a,b) \subset \Omega$ is complicated by the fact that it's hard to say more than $\mathbb S((a,b)) \subset [0,1)$ when $(a,b) \subset [0,1/2)$ and that again&#xA;$\mathbb S((a,b)) \subset [0,1)$ when $(a,b) \subset [1/2)$. Given this, what is an easy way to go about arguing that&#xA;$\mathbb S$ is measure-preserving?&lt;/p&gt;&#xA;" OwnerUserId="59" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-01-07T17:15:25.167" Title="Showing that a transformation is measure preserving" Tags="&lt;econometrics&gt;&lt;time-series&gt;&lt;probability&gt;&lt;stochastic-processes&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="1884" PostTypeId="1" AcceptedAnswerId="1888" CreationDate="2015-01-04T17:06:55.193" Score="11" ViewCount="250" Body="&lt;p&gt;The UK is running a budget deficit £107 billion a year. Inflation is currently running at 1%. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given these facts, why do they plug the gap by selling debt rather than just creating the money to cover the gap?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Just creating the money seems like it has a lot of upside and not a lot of downside when inflation is so low. Why do we not see countries doing this?&lt;/p&gt;&#xA;" OwnerUserId="1631" LastActivityDate="2015-05-22T02:10:43.170" Title="Why plug deficits with bonds rather than printing money?" Tags="&lt;macroeconomics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1885" PostTypeId="2" ParentId="1884" CreationDate="2015-01-04T17:37:16.167" Score="2" Body="&lt;p&gt;Your question touches on &lt;em&gt;seigniorage&lt;/em&gt;, which is the revenues a government receives from printing money.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The issue is that, while the government may benefit (in the short run) from the additional revenues, the holders of money are penalized because their money becomes less valuable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;While a low level of seigniorage is typically acceptable, if it becomes clear a government is going to finance the majority of its expenditures this way, then the government risks hyperinflation and a loss of confidence in the currency.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Further, selling bonds can be beneficial for a few reasons.  One, when a country participates in international capital markets, the act of paying off debt creates positive relationships with lenders and can lower borrowing costs.  Two, it allows a government to smooth its expenditures over time.  When the economy returns to healthy growth and is able to generate a surplus, the government will again be able to pay off debt it accumulated during leaner times.&lt;/p&gt;&#xA;" OwnerUserId="1609" LastActivityDate="2015-01-04T17:37:16.167" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1886" PostTypeId="2" ParentId="1873" CreationDate="2015-01-04T20:03:55.970" Score="2" Body="&lt;p&gt;Assume a company decides to &quot;wind up&quot;. What would happen? Its competitors would want to get hold of its tangible and intangible assets (like customer base, patents etc). How is this different from &quot;fighting to a buyout&quot;? In this second scenario, the company has always available the option/threat of continuing competition (possibly harmful to the competitors), while in the &quot;wind-up&quot; scenario it does not -it has committed to leave the business. So &quot;fighting to a buyout&quot; gives the company better position in negotiations, and so chances to increase its selling price compared to the &quot;wind up&quot; scenario.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You could spice this with theories about management, and how &quot;management will not let go&quot; etc, but the above provides an interpretation that appears more widely applicable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Compared to smaller companies, large companies have more market power and so the &quot;threat&quot; of continuing competition weighs more heavily with competitors.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-01-04T20:03:55.970" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="1887" PostTypeId="2" ParentId="1872" CreationDate="2015-01-04T20:30:18.737" Score="2" Body="&lt;p&gt;The moment an unknown and unknowable in advance future quantity enters an optimal solution, we have no other option than to insert in its place some estimation of it. The more widely used such estimation (but not the only one) is the conditional expectation. Conditional on $t$, everything except $s_{t+1}$ will be treated as a constant. Since we do not know how exactly $s_{t+1}$ enters the $f$-function, we write in abstract notation as a function:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$E\big[f(\alpha_t,\beta_t,s_t,h(s_{t+1},...)\mid t\big]=0 \Rightarrow f(\alpha_t,\beta_t,s_t,E[h(s_{t+1},...)\mid t]) =0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Remember also that the conditional expectation is a &lt;em&gt;function&lt;/em&gt;, and not a constant (as is the unconditional expected value).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since this is a solution, to study comparative statics one has to use the implicit function theorem which states that, starting at the solution,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{{\rm d}s_t}{{\rm d}\alpha_t} = -\frac {\partial f(\alpha_t,\beta_t,s_t,E[h(s_{t+1},...)\mid t]) / \partial \alpha_t}{\partial f(\alpha_t,\beta_t,s_t,E[h(s_{t+1},...)\mid t]) / \partial s_t}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The partial derivative symbol in the right-hand side conveys the message that in the numerator, $s_t$ is not to be differentiated with respect to $\alpha_t$, and in the denominator, $\alpha_t$ is not to be differentiated with respect to $s_t$ (and the same holds with respect to $\beta_t$).&lt;br&gt;&#xA;But $E[h(s_{t+1},...)\mid t]$ is fair game in both cases. What will the operations $\partial E[h(s_{t+1},...)\mid t] /\partial \alpha_t$ and $\partial E[h(s_{t+1},...)\mid t] /\partial s_t$ yield, will depend of course on what is the actual expression for the conditional expectation.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-01-04T21:08:41.353" LastActivityDate="2015-01-04T21:08:41.353" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="1888" PostTypeId="2" ParentId="1884" CreationDate="2015-01-04T21:28:12.843" Score="4" Body="&lt;p&gt;There are several issues with this approach. One is that any changes in the quantity of money - including those considered 'acceptable amounts of inflation' - act to distort the price signal being communicated to all economic participants which is an extremely undesirable side effect. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The other is a little more insidious. Governments can only print cash or asset money. The vast majority, over 98% in most modern banking systems of money being used is liability money - money that is represented as deposits in the banking system. Were the government for example to print physical cash and deposit it in a commercial bank the book keeping operation would be [debit cash, credit deposit]. In almost all cases, it is the deposit money that is actually spent as the government pays salaries etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So if a government prints money and its banking regime relies on a framework where assets act as a regulatory control on lending (and consequent deposit creation), and there is no other regulatory control, the result is hyper-inflation. The problem is not just the money created by the government, it is the consequent multiplication that results from banks increasing their credit/money creation. (This form of regulation is generally referred to as the reserve requirement in economic literature.) Typically the resulting inflation then leads the government to print more money, and the result is a rapid spiral that quickly destroys the usefulness of the currency concerned for any economic transaction.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Most modern banking systems use a combination of reserve requirements and capital requirements, and this is why the quantitative easing interventions have so far had no inflationary effect on the economies using them. Even though the US government printed a huge amount of money for the TARP intervention, the capital controls intervened to prevent the runaway hyperinflation that would have occurred under earlier regimes. However it's still a dangerous thing to do, and the long term behaviour of banking systems that rely on basel capital controls is poorly understood.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, it's worth noting that the alternative available to any government besides borrowing, is raising taxes or controlling its' expenditure. Ultimately the government's use of social resources has to be regulated by something, and keeping a more or less balanced budget isn't a bad place to start.&lt;/p&gt;&#xA;" OwnerUserId="84" LastEditorUserId="84" LastEditDate="2015-05-21T23:11:03.050" LastActivityDate="2015-05-21T23:11:03.050" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1889" PostTypeId="2" ParentId="1767" CreationDate="2015-01-04T22:35:45.287" Score="3" Body="&lt;p&gt;I've just found &lt;a href=&quot;http://www.amazon.co.uk/Macroeconomic-Theory-Dynamic-Equilibrium-Approach/dp/0691152861/ref=sr_1_2?ie=UTF8&amp;amp;qid=1420410437&amp;amp;sr=8-2&amp;amp;keywords=michael%20wickens&quot; rel=&quot;nofollow&quot;&gt;Michael Wickens' Book&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and &lt;a href=&quot;http://www.amazon.co.uk/ABCs-RBCs-Introduction-Dynamic-Macroeconomic/dp/0674028147/ref=pd_bxgy_b_img_y&quot; rel=&quot;nofollow&quot;&gt;George Mccandless' ABC of RBC&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Wickens leaves the stochastic element of the DSGE's model out of the picture, so I'm not sure if it's a good book.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;McCandless book has great reviews. I took a peek and it seems to be really good pedagogical tool. It may really be a good buy.&lt;/p&gt;&#xA;" OwnerUserId="118" LastActivityDate="2015-01-04T22:35:45.287" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="1890" PostTypeId="1" CreationDate="2015-01-04T23:35:41.900" Score="7" ViewCount="503" Body="&lt;p&gt;I'm trying to understand more about the economic repercussions of climate change. I'm unfamiliar with the specifics of the work of William Nordhaus, but it's been predicted in several instances that he will very likely win the economics Nobel prize in the near future* (&lt;a href=&quot;http://www.forbes.com/sites/timworstall/2011/10/09/economics-nobel-pick-william-nordhaus/&quot; rel=&quot;nofollow noreferrer&quot;&gt;forbes&lt;/a&gt;, &lt;a href=&quot;http://economix.blogs.nytimes.com/2013/10/11/economists-to-watch-for-the-nobel-prize/?_r=0&quot; rel=&quot;nofollow noreferrer&quot;&gt;nytimes&lt;/a&gt;, &lt;a href=&quot;http://blogs.wsj.com/economics/2010/10/07/pregaming-the-economics-nobel-dont-bet-on-it/&quot; rel=&quot;nofollow noreferrer&quot;&gt;wsj&lt;/a&gt;, &lt;a href=&quot;http://www.npr.org/2014/02/11/271537401/economist-says-best-climate-fix-a-tough-sell-but-worth-it&quot; rel=&quot;nofollow noreferrer&quot;&gt;npr&lt;/a&gt;, &lt;a href=&quot;http://marginalrevolution.com/marginalrevolution/2007/10/who-will-win-th.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;marginal revolution&lt;/a&gt;). He is most famous for his work on the economics of climate change (which include some estimates of the social cost of carbon).&lt;/p&gt;&#xA;&lt;p&gt;To clarify with question, what are the merits of William Nordhaus' work that have won him this attention? Was he merely the first to devote serious attention towards a rigorous estimate of the social cost of carbon? Or is there more?&lt;/p&gt;&#xA;&lt;p&gt;*Update: &lt;a href=&quot;https://www.nobelprize.org/prizes/economic-sciences/2018/summary/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Nordhaus was awarded the prize in 2018, along with Paul Romer.&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="59" LastEditorUserId="59" LastEditDate="2021-03-18T18:01:27.697" LastActivityDate="2021-03-18T18:01:27.697" Title="What is William Nordhaus' contribution to the economics of climate change?" Tags="&lt;public-economics&gt;&lt;environmental-economics&gt;&lt;climate-change&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="1891" PostTypeId="1" CreationDate="2015-01-04T23:51:23.130" Score="8" ViewCount="623" Body="&lt;p&gt;Wikipedia defines &quot;economics imperialism&quot; as follows:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Economics imperialism (often economic imperialism) in contemporary economics refers to economic analysis of seemingly non-economic aspects of life, such as crime, law, the family, prejudice, tastes, irrational behavior, politics, sociology, culture, religion, war, science, and research. Related usage of the term predates recent decades.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;My question is this. What is it about economics as a discipline that has allowed the it to extend to these &quot;seemingly non-economics aspects of life?&quot; Also, when did economic analysis in these so-called unrelated fields become accepted as part of mainstream economics?&lt;/p&gt;&#xA;" OwnerUserId="59" LastActivityDate="2015-01-10T09:02:47.410" Title="What causes the &quot;imperialism of economics&quot; and how did it start?" Tags="&lt;history&gt;&lt;history-economic-thought&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="1892" PostTypeId="2" ParentId="1891" CreationDate="2015-01-05T00:03:59.460" Score="2" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;What is it about economics as a discipline that has allowed the it to&#xA;  extend to these &quot;seemingly non-economics aspects of life?&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The fact that essentially all aspects of human/social life have a materialistic base/aspect. I am not saying that it is always the most important or critical aspect, but it is almost always one of the important aspects (still). So analyzing a phenomenon without analyzing this aspect renders the analysis incomplete, less insightful, less useful, and sometimes simply wrong.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course, this at times results at the &quot;imperialism&quot; phenomenon proper -the case where the analyst believes that by providing only an analysis of the materialistic aspect, based to one or to the other degree on economic concepts and tools, has indeed adequately, if not fully, dissected and analyzed the phenomenon. This also renders &lt;em&gt;this&lt;/em&gt; analysis incomplete, less insightful, less useful, and sometimes simply wrong.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-01-05T00:59:01.710" LastActivityDate="2015-01-05T00:59:01.710" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1893" PostTypeId="1" AcceptedAnswerId="1898" CreationDate="2015-01-05T00:05:25.127" Score="36" ViewCount="2070" Body="&lt;p&gt;Is a &lt;a href=&quot;https://en.wikipedia.org/wiki/Basic_income&quot;&gt;universal basic income or unconditional demogrant&lt;/a&gt; possible in the United States? (For the sake of specificity I have focused the question on the US, though the question is certainly interesting in all settings.)&#xA;It seems that without some restructuring, the answer is no. But, in order to entertain the idea (and pushing politics aside), what programs could/would be cut in order to fund a reasonably sized basic income? What size of basic income could be afforded, if any? How would tax rates have to change?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course the answer depends on the size of the basic income. It would be interesting to see how the answer would change for multiple values.&lt;/p&gt;&#xA;" OwnerUserId="59" LastEditorUserId="40" LastEditDate="2015-11-19T00:33:06.620" LastActivityDate="2019-09-08T23:15:29.540" Title="Is a universal basic income possible in the United States?" Tags="&lt;fiscal-policy&gt;&lt;public-economics&gt;&lt;welfare-economics&gt;&lt;basic-income&gt;" AnswerCount="3" CommentCount="1" FavoriteCount="10" ContentLicense="CC BY-SA 3.0" />
  <row Id="1894" PostTypeId="2" ParentId="1767" CreationDate="2015-01-05T01:20:47.417" Score="3" Body="&lt;p&gt;One book which I have used and which has an excellent chapter on NK-DSGE models is &lt;a href=&quot;http://mitpress.mit.edu/books/monetary-theory-and-policy&quot; rel=&quot;nofollow&quot;&gt;Monetary Theory and Policy&lt;/a&gt; by Carl E. Walsh. Even though he only has one chapter on NK-DSGE models (50 pages or so) the chapters before discuss staggered price and wage setting models used in the NK-DSGE models. He also has chapters discussing the Sidrauski MIU model and the Cash-in-Advance models which are close relatives to the RBC and NK-DSGE models. I personally think this book is better than the Galí's book.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Other books which I haven't used (I once for some years ago used a chapter in the Wickens book) but which get okay reviews on Amazon are:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/364203148X&quot; rel=&quot;nofollow&quot;&gt;Dynamic General Equilibrium Modeling: Computational Methods and Applications&lt;/a&gt;, &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0691152861&quot; rel=&quot;nofollow&quot;&gt;Macroeconomic Theory: A Dynamic General Equilibrium Approach&lt;/a&gt; and &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0674028147&quot; rel=&quot;nofollow&quot;&gt;The ABCs of RBCs: An Introduction to Dynamic Macroeconomic Models&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In case you do get the The ABCs of RBCs: An Introduction to Dynamic Macroeconomic Models could you make a quick comment on how it is and if it is worth getting? I think it looks interesting.&lt;/p&gt;&#xA;" OwnerUserId="150" LastActivityDate="2015-01-05T01:20:47.417" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1895" PostTypeId="1" AcceptedAnswerId="1896" CreationDate="2015-01-05T02:54:30.897" Score="3" ViewCount="172" Body="&lt;p&gt;A newspaper said in 2080 China can be a developed country, with a bigger population. Does that mean China's GDP is going to be bigger than the USA's and Europe's combined?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, is this possible even though China's land area per person is smaller?&lt;/p&gt;&#xA;" OwnerUserId="95" LastEditorUserId="405" LastEditDate="2015-01-05T05:05:13.990" LastActivityDate="2015-01-05T22:31:28.557" Title="Will China's GDP be greater than the USA's and Europe's combined?" Tags="&lt;economic-growth&gt;&lt;long-run&gt;&lt;development&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="1896" PostTypeId="2" ParentId="1895" CreationDate="2015-01-05T03:37:37.270" Score="4" Body="&lt;p&gt;Of course this is is possible. China is a very large economy currently and it is likely quite a way away from reaching its production frontier. It has lots of room to grow.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A lot can happen in 65 years and any forecasting this far into the future will be subject to a high degree of error. Don't forget that the US and Europe are dynamic as well. The current world economic climate may be in China's favour now but in 65 years who knows. Maybe everything we will need can be 3D printed an large scale manufacturing won't exist.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is hard to look at &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0767923057&quot; rel=&quot;nofollow&quot;&gt;The Next 100 years&lt;/a&gt;. It attempts to speculate on what can happen. *Spoiler*, the author does not expect the 21st century to be China's.&lt;/p&gt;&#xA;" OwnerUserId="40" LastEditorUserId="1417" LastEditDate="2015-01-05T22:31:28.557" LastActivityDate="2015-01-05T22:31:28.557" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1897" PostTypeId="2" ParentId="1895" CreationDate="2015-01-05T05:03:12.507" Score="4" Body="&lt;p&gt;This depends on long-run economic and demographic trends that are very difficult to forecast. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;That said, the medium fertility scenario in the &lt;a href=&quot;http://esa.un.org/wpp/Excel-Data/population.htm&quot; rel=&quot;nofollow&quot;&gt;UN's 2012 World Population Prospects&lt;/a&gt; puts the population in 2080 of China at 1173 million, of Europe at 659 million, and of the US at 446 million. Since the combined population of Europe and the US, at 1105 million, would be only slightly below the population of China in this scenario, China's output per capita would have to be more-or-less completely caught up with the average in Europe and the US in order to exceed their combined GDP.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Although this would be a very strong performance, it is certainly plausible given the experience of China's neighbors: Japan, South Korea, Taiwan, Hong Kong, and Singapore &lt;a href=&quot;http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)_per_capita&quot; rel=&quot;nofollow&quot;&gt;all have per capita GDP&lt;/a&gt; within the range of other developed countries, despite all starting far behind the US and Europe as recently as World War II. (Japan had already experienced breakneck development following the Meiji Restoration, but according to the &lt;a href=&quot;https://pwt.sas.upenn.edu/&quot; rel=&quot;nofollow&quot;&gt;Penn World Table&lt;/a&gt; it was far behind the US + Europe average after World War II, and according to &lt;a href=&quot;http://www.ggdc.net/maddison/maddison-project/home.htm&quot; rel=&quot;nofollow&quot;&gt;Maddison&lt;/a&gt; this was not just a result of wartime destruction: Japan was still far behind even before the war, at maybe 40% of US GDP per capita. Its performance following the war was therefore quite remarkable. Of course, South Korea's performance - starting at roughly the same level as sub-Saharan Africa - was an order of magnitude more impressive still.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Large-scale economic and political changes will most likely be necessary for China to achieve convergence to Western output per capita, but 65 years is plenty of time for these to happen. 65 years ago, in 1950, the Communists were just wrapping up after victory in the Civil War; 65 years before that, in 1885, the Qing Dynasty was still sputtering along.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One consideration that will likely &lt;em&gt;not&lt;/em&gt; matter much in all of this is land area. First of all, China's population density is &lt;a href=&quot;http://en.wikipedia.org/wiki/List_of_sovereign_states_and_dependent_territories_by_population_density&quot; rel=&quot;nofollow&quot;&gt;actually lower than that&lt;/a&gt; in many of the world's leading economies - Japan, South Korea, Taiwan, and Singapore are all far denser, and the UK, Germany, and Italy are somewhat denser as well. Second, very little of the output in advanced economies depends on land area and natural resources: for instance, &lt;a href=&quot;http://bea.gov/iTable/iTableHtml.cfm?reqid=51&amp;amp;step=51&amp;amp;isuri=1&amp;amp;5114=a&amp;amp;5102=5&quot; rel=&quot;nofollow&quot;&gt;in the US&lt;/a&gt;, agriculture, mining, and resource extraction combined are about 4% of GDP.&lt;/p&gt;&#xA;" OwnerUserId="405" LastActivityDate="2015-01-05T05:03:12.507" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1898" PostTypeId="2" ParentId="1893" CreationDate="2015-01-05T06:23:38.610" Score="41" Body="&lt;p&gt;This is a good question. To be concrete, I think it's easier to pick a single number - this is arbitrary, but I'll go with the figure of $10,000 offered in the &lt;a href=&quot;http://www.aei.org/wp-content/uploads/2014/03/-in-our-hands_105549266790.pdf&quot;&gt;proposal by Charles Murray&lt;/a&gt; (one of the most prominent conservative supporters of a universal basic income). I'll assume that this is offered to every adult in the US age 18 and over, expanding slightly on Murray's 21 and over proposal.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This would be about 85% of the average &lt;a href=&quot;https://www.census.gov/hhes/www/poverty/data/threshld/&quot;&gt;poverty level&lt;/a&gt; for a single individual, just above 50% of the poverty level for a single parent with two children, and (at $20,000) about 85% of the poverty level for a family of four with two parents and two children.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The direct budgetary cost of this program, of course, is easy to calculate: it is the number of Americans age 18 and over, times \$10,000. There are about 245 million &lt;a href=&quot;http://www.census.gov/popest/data/&quot;&gt;American adults&lt;/a&gt; currently, making this cost \$2.45 trillion. This compares to total federal government expenditures that are currently about \$4 trillion. (See &lt;a href=&quot;http://bea.gov/iTable/iTableHtml.cfm?reqid=9&amp;amp;step=3&amp;amp;isuri=1&amp;amp;903=87&quot;&gt;this NIPA table&lt;/a&gt; for some figures.) Remarkably, the sum of &quot;government social benefits&quot; and &quot;grants-in-aid to state and local governments&quot; (the latter of which is almost entirely grants for social programs like Medicaid) is currently about \$2.4 trillion. Hence, to a first approximation, we could say that the federal government could afford the $10,000 UBI given its current budget if it &lt;em&gt;eliminated all other existing transfers&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How plausible is this? Not very. More than 75% of the federal government's &lt;a href=&quot;http://bea.gov/iTable/iTableHtml.cfm?reqid=9&amp;amp;step=3&amp;amp;isuri=1&amp;amp;903=110&quot;&gt;transfer&lt;/a&gt; spending is on three programs: Social Security, Medicare, and Medicaid. This spending is overwhelmingly concentrated on the elderly, with some also on the disabled (SSDI and Medicaid) and children (Medicaid). Taking away these programs and replacing them with the basic income, which is distributed evenly throughout the adult population, would surely leave these groups receiving far less in total than they currently do. This would be politically near-impossible to push through, and any sudden change would be dubious on policy and moral grounds too. (Even if one doesn't like the distribution of transfer spending embedded in these programs, millions of people have planned their lives around it.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is just one case of a basic point - which is that unless one plans to achieve massive savings through improved administrative efficiency or improved work incentives, any reallocation of the existing transfer pie will involve offsetting winners and losers. Since existing transfer recipients (aged, disabled, poor children, etc.) are targeted for a reason, such a shift may be quite painful. Moreover, any improvements in administrative efficiency are unlikely to be large enough to save much money; the more likely source of savings would be improved incentives, particularly relative to the &lt;a href=&quot;http://economics.mit.edu/files/6344&quot;&gt;dysfunctional disability system&lt;/a&gt; and perhaps current overspending on health care. But I haven't seen a case made that these would be anywhere near large enough to make a UBI work within the current budget without large losses to some existing party.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On a more positive note, I should mention that the headline cost of the UBI may not be quite as bad as it looks. Since the current tax-and-transfer system embeds &lt;a href=&quot;http://www.cbo.gov/sites/default/files/cbofiles/attachments/11-15-2012-MarginalTaxRates.pdf&quot;&gt;very large implicit marginal taxes&lt;/a&gt; on some beneficiaries, it would be possible to replace these with higher explicit marginal taxes to claw some of grant back, without incurring additional distortions at the margin. That said, these high marginal taxes are heavily concentrated in certain segments of the population (e.g. single parents with children). The US tax-and-transfer system currently makes heavy use of &lt;a href=&quot;http://people.virginia.edu/~slf9s/teaching/econ452/readings/Akerlof%201978.pdf&quot;&gt;tagging&lt;/a&gt;, which saves money at the expense of potentially perverse social incentives (conservatives have complained about incentives for low-income parents to avoid marriage for years). Doing away with tagging could limit these particular bad incentives and concentrated high marginal rates, but necessitate moderately higher marginal rates throughout the population.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, if it is not realistic to eliminate existing transfers, we can think about how difficult it would be to establish a UBI through increased taxation. If (given the substantial existing transfers to the elderly) we limited the \$10,000 to adults below age 65, we are down to a population of about 200 million and cost of \$2 trillion. Since personal consumption expenditures are currently about \$12 trillion, (unrealistically) assuming a constant tax base these \$2 trillion could be raised through a 24% VAT with 70% coverage. This would be quite high, but not totally out of line with &lt;a href=&quot;http://en.wikipedia.org/wiki/Value-added_tax&quot;&gt;international norms&lt;/a&gt;. Furthermore, since current GDP is about \$17.5 trillion, and additional \$2 trillion in transfer spending (again unrealistically assuming constant GDP) would increase the US's overall tax intake as a share of GDP by 11.5 percentage points. This would make the US &lt;a href=&quot;http://en.wikipedia.org/wiki/List_of_countries_by_tax_revenue_as_percentage_of_GDP&quot;&gt;similar to the typical European country&lt;/a&gt;, still below states like Denmark, Sweden, and France with the highest taxation.&lt;/p&gt;&#xA;" OwnerUserId="405" LastActivityDate="2015-01-05T06:23:38.610" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="1899" PostTypeId="1" AcceptedAnswerId="1913" CreationDate="2015-01-05T10:59:42.527" Score="2" ViewCount="481" Body="&lt;p&gt;I can't decide between using value function iteration or projection on chebyshev polynomials.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm inclined to use projection, however I need to compute (for welfare analysis) the value of the value function at some specific age.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Using the decision rules computed by projection and derived from FOCS is it possible to compute the expected lifetime discounted utility?&lt;/p&gt;&#xA;" OwnerUserId="1636" LastEditorUserId="31" LastEditDate="2015-01-05T15:55:13.923" LastActivityDate="2015-01-05T22:25:21.247" Title="Solving an OLG model, value function iteration vs. projection (chebyshev polynomial)" Tags="&lt;macroeconomics&gt;&lt;computation&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="1901" PostTypeId="1" CreationDate="2015-01-05T12:47:01.573" Score="1" ViewCount="94" Body="&lt;p&gt;In &lt;a href=&quot;http://www.compmacro.com/makoto/note/note_rbc_lq.pdf&quot; rel=&quot;nofollow&quot;&gt;http://www.compmacro.com/makoto/note/note_rbc_lq.pdf&lt;/a&gt; page 5, it is said that for value function $V = F^TPF$ (Bellman equation) $P$ has to be negative semi-definite matrix. Why does it have to be negative semi-definite?&lt;/p&gt;&#xA;" OwnerUserId="1641" LastActivityDate="2015-01-05T14:36:39.257" Title="For linear quadratic approximation of RBC model, why does matrix $P$ of value function $V = F^TPF$ has to be negative semi-definite matrix?" Tags="&lt;macroeconomics&gt;&lt;mathematical-economics&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1902" PostTypeId="1" AcceptedAnswerId="1912" CreationDate="2015-01-05T13:33:15.760" Score="1" ViewCount="411" Body="&lt;p&gt;I've understood that when the nominal interest rate reaches the &lt;em&gt;zero lower bound&lt;/em&gt; there is nothing that the monetary policy can do to increase the output level of a certain economy. Because $i=0$, no one is interested in bonds anymore, and people decide to hold more money in correspondence to the same interest rate. But if they hold more money, why they decide to keep them, instead of increasing their level of consumption and thus increase also the level of production?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It may be a stupid question, but I really cannot figure out the answer. Hope you can help me. Thank you in advance.&lt;/p&gt;&#xA;" OwnerUserId="1642" LastActivityDate="2015-01-05T22:40:16.173" Title="Liquidity trap and consumers' reaction to an increase in money supply" Tags="&lt;macroeconomics&gt;&lt;monetary-policy&gt;&lt;consumption&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="1903" PostTypeId="1" AcceptedAnswerId="1929" CreationDate="2015-01-05T14:03:12.097" Score="4" ViewCount="11674" Body="&lt;p&gt;I see these two terms used interchangeably but I have the feeling they are not exactly the same. My gut feeling tells me this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1)&#xA;Surplus is the additional aggregate utility from the existence of one market, while welfare is the additional aggregate utility from all existent markets&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies  [ W(u_1,u_2,\dots,u_N) \ \mathrm{with} \  u_i=u(c_1,...,c_M) ] \gg [ S(u_1,u_2,...,u_N) \ \mathrm{with} \ u_i = u(c_i) ]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Change in surplus is thus an approximation of the aggregate gain in welfare, and is only equivalent under the conditions that: policy changes do mainly affect one market and consumers’ utility is assumed to be quasi-linear in the good at focus.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) Or a second idea/notion, surplus is only the difference between supply and demand curve (i.e. it entails all aspects of the good that can be monetized), while welfare also includes non-monetizable aspects of a good.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any thoughts on this?&lt;/p&gt;&#xA;" OwnerUserId="1643" LastEditorUserId="119" LastEditDate="2015-01-05T14:36:05.640" LastActivityDate="2015-01-16T13:48:56.630" Title="Difference between 'surplus' and 'welfare'" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;surplus&gt;&lt;welfare&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="1904" PostTypeId="2" ParentId="1901" CreationDate="2015-01-05T14:36:39.257" Score="3" Body="&lt;p&gt;P being negative semi-definite would imply that V is a concave function. The reason you would restrict P so that V would be a concave function is because of some of the assumptions you've made about about the model previously tell you that V must be concave.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In general, some of the typical assumptions that imply that the value function must be concave are something like the following:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;the graph of the constraint correspondence is convex,&lt;/li&gt;&#xA;&lt;li&gt;the period return function is concave,&lt;/li&gt;&#xA;&lt;li&gt;other assumptions about the stochastic transition function having the Feller property and being monotone,&lt;/li&gt;&#xA;&lt;li&gt;etc...&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Sorry I'm not giving the full details, but you can read more about them in chapters 4 and 9 of &quot;Recursive Methods in Economic Dynamics&quot; by Stokey, Lucas, and Prescott. The point that I'm making is that the assumptions of these kinds of models usually imply that the value function is concave. Therefore, if you check the assumptions and they indeed do so restrict the value function, then you can restrict your search to look only for matrices P that are negative semi-definite.&lt;/p&gt;&#xA;" OwnerUserId="59" LastActivityDate="2015-01-05T14:36:39.257" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1905" PostTypeId="1" AcceptedAnswerId="1910" CreationDate="2015-01-05T15:24:39.070" Score="3" ViewCount="109" Body="&lt;p&gt;I'm curious what would happen the the US economy (and perhaps others) if the overnight lending capability of the Fed ceased operation for some reason (perhaps a cyber attack) for a non-trivial period of time (a week or more).  What are the possible implications of that?  Would there be panic, massive loan defaults, lack of operating capital or other nasty things?  Also, for the sake of argument, that we didn't know how long the overnight lending capability of the Fed would be down and only speculated at the reason.  Would banks just weather the storm for a week or so, or would thing get ugly?&lt;/p&gt;&#xA;" OwnerUserId="1645" LastEditorUserId="31" LastEditDate="2015-01-05T15:54:01.230" LastActivityDate="2015-01-05T20:18:06.873" Title="What would happen to the economy if the Fed's discount window completely stopped?" Tags="&lt;monetary-policy&gt;&lt;federal-reserve&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="1906" PostTypeId="2" ParentId="1890" CreationDate="2015-01-05T15:47:07.153" Score="4" Body="&lt;h3&gt;Summary&lt;/h3&gt;&#xA;&lt;p&gt;Bill Nordhaus has made several significant contributions to the economics of climate change. That's something of an understatement. His contributions are not just in the pricing of carbon; they but span microeconomics, macroeconomics, (econometric and other) modelling, the philosophy of economics, and the economics of innovation.&lt;/p&gt;&#xA;&lt;h3&gt;Modelling&lt;/h3&gt;&#xA;&lt;p&gt;He's been one of several key figures in the development of integrated assessment modelling - see for example his paper in Science, &lt;a href=&quot;http://cowles.econ.yale.edu/P/cp/p08a/p0829.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;An Optimal Transition Path for Controlling Greenhouse Gases&lt;/a&gt;, from 1992. Such modelling became a cornerstone of the Stern Review (through Chris Hope's PAGE model), and is a live and ongoing area of development at several major universities.&lt;/p&gt;&#xA;&lt;h3&gt;Philosophy&lt;/h3&gt;&#xA;&lt;p&gt;He's been a significant contributor to the discussions about how to design more meaningful measures of economic welfare, including his 1972 book chapter with James Tobin, &lt;a href=&quot;http://www.nber.org/chapters/c7620.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Is Growth Obsolete&lt;/a&gt;: the discussions about what economic growth is, and the necessity of capturing the value of what we now call natural capital and well-being, have been core to the evaluation of the potential damage costs of anthropogenic global rapid climate change.&lt;/p&gt;&#xA;&lt;h3&gt;Innovation&lt;/h3&gt;&#xA;&lt;p&gt;He's &amp;quot;carried out extensive research on the determinants of technological change&amp;quot; - the &lt;a href=&quot;http://www.iaee.org/documents/2011fallenergyforum.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;words&lt;/a&gt; (p38) of the International Association of Energy Economists, which awarded him their 2011 &amp;quot;Outstanding Contributions to The Profession Award&amp;quot;: this work has been important in the discussions about climate change mitigation, for example with regard to &lt;a href=&quot;http://www.econ.yale.edu/%7Enordhaus/homepage/induced_innovation_preprint.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;induced innovation&lt;/a&gt;, and learning curves for decarbonisation technologies.&lt;/p&gt;&#xA;&lt;h3&gt;Energy resources&lt;/h3&gt;&#xA;&lt;p&gt;There's also his &lt;a href=&quot;http://www.brookings.edu/%7E/media/projects/bpea/1973%203/1973c_bpea_nordhaus_houthakker_solow.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;1973 discussion of the allocation of energy resources&lt;/a&gt;, which remains pertinent to the discussion of climate change mitigation today, though the forecasts about dominant technologies turned out to be a mix of prescient and ... less prescient.&lt;/p&gt;&#xA;&lt;h3&gt;And finally&lt;/h3&gt;&#xA;&lt;p&gt;His &lt;a href=&quot;http://www.econ.yale.edu/%7Enordhaus/homepage/current.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;full CV is here&lt;/a&gt;, and shows both the breadth and depth of his interests.&lt;/p&gt;&#xA;&lt;p&gt;So while it's fair to say that his discussion of the application of a Pigouvian tax to greenhouse gas emissions is significant, it's just one part of a much larger body of work on the distortions caused by system boundaries that were drawn far too narrowly within neoclassical economics; and possible remedies to those distortions.&lt;/p&gt;&#xA;" OwnerUserId="44" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2015-01-05T19:21:48.383" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1907" PostTypeId="1" AcceptedAnswerId="1908" CreationDate="2015-01-05T16:07:10.380" Score="4" ViewCount="270" Body="&lt;p&gt;According to Hayashi's Econometrics (page 151), efficient market hypothesis is a joint hypothesis combining:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Rational expectations&lt;/strong&gt; $\rightarrow$ expected inflation$= \mathbb{E}(\pi_{t+1}|I_t)$, where $I_t$ is the information available at the beginning of the period.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Constant Real Rates&lt;/strong&gt; $\rightarrow$ The ex-ante real interest rate is constant.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why is the second one also included? I've searched the wikipedia, but I didn't find anything helpful. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="2776" LastEditDate="2017-02-21T16:40:46.293" LastActivityDate="2017-02-21T16:40:46.293" Title="Efficient Market Hypothesis and constant ex-ante real interest rates?" Tags="&lt;macroeconomics&gt;&lt;econometrics&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="1908" PostTypeId="2" ParentId="1907" CreationDate="2015-01-05T18:37:51.833" Score="6" Body="&lt;h2&gt;To test market efficiency, you always need to specify the market's model of price formation&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Tests of the efficient markets hypothesis must always include a model of how the market forms prices. One of Fama's big contributions was that you cannot separate these two things in a test. Tests of efficient markets and models of price formations are inherently linked. So, in this case, the assumption of constant real interest rates is merely an assumption of how the market forms prices. Only after assuming this, can we test market efficiency. You might disagree with the model---more sophisticated models will repeat this experiment in that way---but the point is that you &lt;em&gt;have&lt;/em&gt; to assume some model for price formation.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Further reading&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;For more information about this, check out Fama's &lt;a href=&quot;http://faculty.chicagobooth.edu/eugene.fama/research/&quot; rel=&quot;nofollow&quot;&gt;website&lt;/a&gt;. You'll find some links to some books of his. It would be helpful to read at least the first two sections of &lt;a href=&quot;http://faculty.chicagobooth.edu/eugene.fama/research/Foundations%20of%20Finance/Chapter%205%20Efficient%20Capital%20Markets.pdf&quot; rel=&quot;nofollow&quot;&gt;chapter 5 of his book, &quot;Foundations of Finance.&quot;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The argument that he makes in that chapter is approximately the following (borrowing his notation, but changing $\phi$ to $I$).&#xA;The point that he makes is that we want to test if the information sets are equal&#xA;$I_{t-1}^m = I_{t-1}$, where $I_{t-1}^m$ is the information that the market possesses. But because we can't test this directly, we would like to test&#xA;whether the distributions of prices are the same&#xA;$$&#xA;f_m(p_1,...,p_n \mid I_{t-1}^m) = f(p_1,..., p_n \mid I_{t-1}).&#xA;$$&#xA;However, this is impossible too. The equality possesses no testable content because we only observe $f(p_1,..., p_n \mid I_{t-1})$ and not $f_m(p_1,...,p_n \mid I_{t-1}^m)$ (see the top of page 137 of the linked chapter). I do not observe the latter because I do not know what $I_{t-1}^m$, except that $I_{t-1}^m \subseteq I_{t-1}$, and I do not know how the market uses this information. For this reason, we specify a model for how the market takes information and turns it into prices. Thus, we specify $f_m$ ourselves (in turn, also specifying what information $I_{t-1}^m$ the market uses). That is, we specify what data the market uses and the way in which it uses that data.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On page 134, Fama says&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;the statement that prices in an efficient market &quot;fully reflect&quot; available information conveys&#xA;  the general idea of what is meant by market efficiency, but the statement is too general to be&#xA;  testable. Since the goal is to test the extent to which the market is efficient, the proposition&#xA;  must be restated in a testable form. ... this requires a more detailed specification of the process of price formation, one that gives testable content to the term &quot;fully reflect.&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;h2&gt;Why assume constant rates in the example in Hayashi?&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;I think it's just an assumption made in that particular example. If you read a little further into the linked chapter, you'll see that Fama discusses 4 different models of market equilibrium. The first two are ridiculous, but he's doing it just to demonstrate the concept. (Part of the reason is that some of the previous ideas about market efficiency had some bizarre consequences, which he demonstrates through those examples.) The point is that any test of market efficiency is always tied to the model that is assumed. If the test fails, you know one of two things: either the market is inefficient or your model of the market is wrong. The unfortunate truth, however, is that you will never know which one it is. &lt;/p&gt;&#xA;" OwnerUserId="59" LastEditorUserId="59" LastEditDate="2015-01-07T00:01:24.460" LastActivityDate="2015-01-07T00:01:24.460" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="1909" PostTypeId="2" ParentId="1837" CreationDate="2015-01-05T19:29:52.803" Score="3" Body="&lt;p&gt;The derivation of the score process is correct. To verify that the process is a Martingale, recall the &lt;a href=&quot;https://en.wikipedia.org/wiki/Martingale_(probability_theory)#Definitions&quot; rel=&quot;nofollow&quot;&gt;definition&lt;/a&gt;. It becomes clear that if we substitute $W_{t+1}$ back into the equation&#xA;$$&#xA;s_t(\theta \mid \textbf X) =&#xA;\begin{bmatrix}&#xA; (1 - \beta_0) \sum_{j=1}^t W_j \\&#xA; \sum_{j=1}^t W_j (X_{j-1} - \alpha_0)&#xA;\end{bmatrix}.&#xA;$$&#xA;Because $W_{t+1}$ are Normal with mean 0 and variance 1 (I'm assuming they're iid), then&#xA;$$&#xA;E[s_{t+1} \mid s_t ] = s_t + E \left [&#xA;\begin{matrix}&#xA;(1 - \beta_0) W_{t+1} \\&#xA;W_{t+1} (X_t - \alpha_0)&#xA;\end{matrix} \middle |&#xA;s_t&#xA;\right ]&#xA;= s_t&#xA;$$ &#xA;and we are finished.&lt;/p&gt;&#xA;" OwnerUserId="59" LastEditorUserId="59" LastEditDate="2015-09-25T20:23:50.240" LastActivityDate="2015-09-25T20:23:50.240" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1910" PostTypeId="2" ParentId="1905" CreationDate="2015-01-05T20:18:06.873" Score="3" Body="&lt;p&gt;First, one note on the premise. The Fed basically operates a giant ledger for financial institutions, each of which has a certain balance in its &quot;master account&quot;. Over $3 trillion is moved between accounts each day via &lt;a href=&quot;https://www.frbservices.org/operations/fedwire/fedwire_funds_services_statistics.html&quot; rel=&quot;nofollow&quot;&gt;Fedwire&lt;/a&gt;, and these accounts are also used for settling most traditional checks and ACH transactions, which include many of the everyday transactions in the economy. Even alternative payment networks not provided by the Fed, &lt;a href=&quot;http://www.newyorkfed.org/aboutthefed/fedpoint/fed36.html&quot; rel=&quot;nofollow&quot;&gt;like CHIPS&lt;/a&gt;, ultimately use the Fed's ledger to clear net payments. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;When the Fed loans money to banks via the discount window, it simply adds to their account balance on this ledger; many &quot;cyberattacks&quot; that disabled this capability would probably also disable the ledger itself. This would certainly mean &lt;em&gt;chaos&lt;/em&gt;, but the missing discount window wouldn't be the most important aspect of this chaos - the real problem would be the breakdown of the economy's payment system.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That said, now suppose that somehow the discount window vanished but the Fed's other services continued. There wouldn't necessarily be any immediate consequences: as of the end of 2014, the Fed was lending very little via its discount window. The &lt;a href=&quot;http://www.federalreserve.gov/releases/h41/20141229/&quot; rel=&quot;nofollow&quot;&gt;H.4.1 &quot;factors affecting reserve balances&quot;&lt;/a&gt; release shows that the total of &lt;a href=&quot;http://www.federalreserve.gov/monetarypolicy/bst_lendingdepository.htm&quot; rel=&quot;nofollow&quot;&gt;&quot;primary&quot;, &quot;secondary&quot;, and &quot;seasonal&quot; credit&lt;/a&gt; provided to banks was virtually zero relative to the size of the banking system as a whole, at $112 million. This is because the discount rate, currently at 0.75%, is well above other short-term interest rates and has additional strings attached; it only makes sense for banks to borrow from it if they don't have good other options.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The real purpose of the discount window, of course, is to serve as the lender of last resort. And it has been used substantially in that capacity during times of crisis: for instance, &lt;a href=&quot;http://www.federalreserve.gov/releases/h41/20081016/&quot; rel=&quot;nofollow&quot;&gt;in October 2008 there was $100 billion&lt;/a&gt; in discount window lending, 1000 times the current level. (Other, newer forms of Fed assistance to the non-bank financial system made the total level of Fed intervention much higher still.) In fact, the acute phase of the 2008 financial crisis for Goldman Sachs and Morgan Stanley, two large investment banks, ended &lt;a href=&quot;http://www.nytimes.com/2008/09/22/business/22bank.html&quot; rel=&quot;nofollow&quot;&gt;when they became bank holding companies&lt;/a&gt; with full access to the Fed's discount window. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In general, if a crisis was already underway, I'm sure that a missing discount window could lead to panic. But without an ongoing crisis, I doubt the ramifications of a temporary discount window shutdown would be too severe: the promise of a restored discount window in a week or two would be enough to stem any speculative run, and banks have many options to deal with short-term funding needs in the interim. They are required, after all, to hold &lt;a href=&quot;http://www.federalreserve.gov/newsevents/press/bcreg/20140903a.htm&quot; rel=&quot;nofollow&quot;&gt;certain levels of liquidity&lt;/a&gt;, meaning a combination of reserves and securities that can quickly be sold or lent out for reserves.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By the way, if not only the discount window but also all other interventions into overnight money markets stopped, then in normal times there would also be &lt;em&gt;chaos&lt;/em&gt;. Banks' demand for reserves is inelastic in the short-run and subject to shocks; and if the New York Fed was not elastically supplying reserves to keep the federal funds rate at the target, there would be massive volatility in short-term interest rates. (Volatility &lt;a href=&quot;http://research.stlouisfed.org/fred2/graph/?g=Waj&quot; rel=&quot;nofollow&quot;&gt;in the early 80s&lt;/a&gt;, when the Fed partly targeted monetary aggregates rather than interest rates - but still engaged in plenty of discretionary interest rate smoothing - gives a small taste of what this volatility would look like. Or we can look at &lt;a href=&quot;http://research.stlouisfed.org/fred2/graph/?g=Wam&quot; rel=&quot;nofollow&quot;&gt;how irregular rates were before the establishment of the Fed&lt;/a&gt;.) This would not be true today, however, because the &lt;a href=&quot;http://research.stlouisfed.org/fred2/series/EXCSRESNS&quot; rel=&quot;nofollow&quot;&gt;banking system is awash in excess reserves&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="405" LastActivityDate="2015-01-05T20:18:06.873" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1911" PostTypeId="1" CreationDate="2015-01-05T20:20:54.223" Score="2" ViewCount="177" Body="&lt;p&gt;How would we expect US GDP to be affected by oil prices dipping into the 30-50 USD/bbl range?  If you need to make additional assumptions to answer this question, please note these, but still answer the question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would expect that this would lower the cost of a major fundamental input and therefore increase the US GDP dramatically.  The US is both the largest producer and consumer of oil.  However, the US produces more oil these days from more expensive sources (shale) -- so perhaps this is a naive assumption?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This &lt;a href=&quot;http://www.businessinsider.com/ubs-gdp-impact-of-10-decline-in-oil-2014-12&quot; rel=&quot;nofollow&quot;&gt;article&lt;/a&gt; suggests a slight increase -- but perhaps a drop larger than $10 would change this analysis?&lt;/p&gt;&#xA;" OwnerUserId="1649" LastEditorUserId="1649" LastEditDate="2015-01-18T22:00:03.897" LastActivityDate="2015-01-19T06:07:47.037" Title="US GDP vs sub-$50/bbl oil" Tags="&lt;gdp&gt;" AnswerCount="2" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="1912" PostTypeId="2" ParentId="1902" CreationDate="2015-01-05T21:49:18.540" Score="2" Body="&lt;p&gt;Good question. The answer depends on what exactly you mean by an increase in the money supply and how it is implemented. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Because standard monetary policy (ie. open market operations) is implemented through banks, it is functionally quite different from a pure infusion of cash to consumers, which is more the realm of fiscal policy, depending on how it is financed. Consider a central bank that buys bonds from commercial banks by crediting their accounts with reserves. Banks now have excess reserves which they are able to lend should they so choose. If interest rates are above zero, interest rates will fall enabling banks to offload the excess reserves. However, if interest rates are already at a nominal lower bound of zero, the price of loanable funds cannot fall to stimulate increased demand, and hence banks cannot offload the excess reserves. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It also depends on whether the increase in the money supply is temporary or permanent. A permanent increase in the money supply will permanently increase the price level, thereby inducing a one-period spike in inflation and a contraction in real interest rates ($i^R=i^N-\pi$). The quantity of loanable funds demanded will increase. If the increase in the money supply is temporary, though, this will not work. This is why economists view the implications of permanent versus temporary changes to the money supply very differently during zero bound episodes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A few links that may be helpful:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.voxeu.org/article/combatting-eurozone-deflation-qe-people&quot; rel=&quot;nofollow&quot;&gt;http://www.voxeu.org/article/combatting-eurozone-deflation-qe-people&lt;/a&gt;&#xA;&lt;a href=&quot;http://www.bruegel.org/nc/blog/detail/article/1527-permanent-qe-and-helicopter-money/&quot; rel=&quot;nofollow&quot;&gt;http://www.bruegel.org/nc/blog/detail/article/1527-permanent-qe-and-helicopter-money/&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="1622" LastEditorUserId="1622" LastEditDate="2015-01-05T22:40:16.173" LastActivityDate="2015-01-05T22:40:16.173" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="1913" PostTypeId="2" ParentId="1899" CreationDate="2015-01-05T22:25:21.247" Score="1" Body="&lt;p&gt;You could solve for the value function ex-post from the Bellman equation. For simplicity, consider a deterministic dynamic programming problem (in OLG model, you'd have age as another state variable, but I'll abstract from that). If $x$ is state and its next-period value $x'$ is control, $U(x,x')$ is one-period utility and you have somehow obtained decision rule $x' = g(x)$, it must be the case that the value function satisfies&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;V(x) = U(x,g(x)) + \beta V(g(x))&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is a functional equation in $V()$ that could also be solved by projection method. Alternatively, you could iterate on the Bellman equation (on some grid over state space) just like in VFI, but skipping the optimization step (since you already know the optimal choice), and eventually the value function should converge.&lt;/p&gt;&#xA;" OwnerUserId="1432" LastActivityDate="2015-01-05T22:25:21.247" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1914" PostTypeId="1" CreationDate="2015-01-05T22:26:34.267" Score="5" ViewCount="1059" Body="&lt;p&gt;The Wikipedia article on the &lt;a href=&quot;https://en.wikipedia.org/wiki/Hansen%E2%80%93Jagannathan_bound&quot; rel=&quot;noreferrer&quot;&gt;Hansen-Jagannathan bound&lt;/a&gt; is short, giving only the following:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Hansen–Jagannathan bound is a theorem in financial economics that says that the ratio of the standard deviation of a stochastic discount factor to its mean exceeds the Sharpe Ratio attained by any portfolio. This result is an application of the Cauchy–Schwarz inequality.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;An important detail that is missing is a discussion of the theorem's significance. The Hansen-Jagannathan (H-J) bound gives us a type of mean-variance frontier. But what is importance/significance (in theoretical and empirical work) of the H-J bound over the &lt;a href=&quot;https://en.wikipedia.org/wiki/Efficient_frontier&quot; rel=&quot;noreferrer&quot;&gt;classic mean-variance efficient frontier&lt;/a&gt;? (The two are different but related. What's the main insight from the H-J bound?)&lt;/p&gt;&#xA;" OwnerUserId="59" LastActivityDate="2015-01-06T02:35:00.660" Title="What is the significance of the Hansen-Jagannathan bound?" Tags="&lt;econometrics&gt;&lt;finance&gt;&lt;financial-economics&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="1916" PostTypeId="1" CreationDate="2015-01-05T23:05:29.030" Score="12" ViewCount="1197" Body="&lt;p&gt;Does anyone know of good references to learn continuous-time dynamic programming? The references don't have to be books. They could be links to online resources as well. Links to clear, concise discussions of even just the basics would be helpful.&lt;/p&gt;&#xA;" OwnerUserId="59" LastActivityDate="2015-09-24T09:13:00.340" Title="References to learn continuous-time dynamic programming" Tags="&lt;optimization&gt;&lt;dynamic-programming&gt;&lt;continuous-time&gt;" AnswerCount="6" CommentCount="3" FavoriteCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="1917" PostTypeId="1" CreationDate="2015-01-06T00:16:20.370" Score="9" ViewCount="362" Body="&lt;p&gt;Almost any discussion about poverty and wealth and income inequality at some point includes arguments based on the premise that the wealth of the wealthy is causally related to the poverty of the poor; more specifically, there often seems to be a tacit agreement that the former causes the latter.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is the basis for many arguments about distributional justice and in particular the notion that inequality is unjust per se or simply socially inefficient. &lt;strong&gt;I am however not interested in the discussion of any ethical questions regarding this issue, as this would motivate primarily opinion-based responses&lt;/strong&gt;. Instead, I would like to know if there exist any (mathematical) models which support the common assumption that the same economic processes which make the wealthy wealthy also make the poor poor.&lt;/p&gt;&#xA;" OwnerUserId="337" LastActivityDate="2015-01-15T12:55:35.260" Title="Does economic theory support the notion that the wealth of the wealthy is based on the poverty of the poor?" Tags="&lt;mathematical-economics&gt;&lt;reference-request&gt;&lt;theory&gt;&lt;inequality&gt;" AnswerCount="2" CommentCount="5" FavoriteCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="1918" PostTypeId="2" ParentId="1916" CreationDate="2015-01-06T00:22:41.073" Score="6" Body="&lt;p&gt;Dynamic Programming &amp;amp; Optimal Control by Bertsekas&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Introduction to Modern Economic Growth by Acemoglu&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Acemoglu book, even though it specializes in growth theory, does a very good job presenting continuous time dynamic programming.&lt;/p&gt;&#xA;" OwnerUserId="1609" LastActivityDate="2015-01-06T00:22:41.073" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1919" PostTypeId="2" ParentId="1916" CreationDate="2015-01-06T00:57:42.390" Score="9" Body="&lt;p&gt;For continuous-time stochastic dynamic programming, the small, nontechnical &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0415269377&quot;&gt;&lt;em&gt;Art of Smooth Pasting&lt;/em&gt;&lt;/a&gt; by Dixit is a wonderful option. It does a very effective job of conveying the basic intuition.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Stokey's more recent &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0691135053&quot;&gt;&lt;em&gt;The Economics of Inaction&lt;/em&gt;&lt;/a&gt; is also decent, but for a practical-minded person it probably underperforms Dixit - its much greater length and somewhat heavier notation do not yield commensurate rewards.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;If the underlying stochastic processes are not Itō diffusions, then I'm not sure what the best reference is. The most common such case I've seen (and that I use myself) is the case of discretely many exogenous states, where if we are currently in state $s$ there is some constant hazard rate $\lambda_{s,s'}$ of a switch to state $s'$. Fortunately, this is a pretty simple case in practice: one can just modify the HJB equation to account for the flow probability of switching from $V(\cdot,s)$ to $V(\cdot,s')$. (You can see this, for instance, in equations (1)-(5) in this &lt;a href=&quot;http://economics.mit.edu/files/7720&quot;&gt;Acemoglu and Akcigit paper&lt;/a&gt;. Conceptually it's no different from setting up the HJB equation when we have an Itō diffusion as the driving process, except that it's simpler because we just get a system of linear equations and we don't need to think about Itō's lemma, etc.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course, maybe there is a good textbook reference for this too - but unlike the potentially much more complicated cases involving stochastic calculus, this is straightforward enough that a text has never seemed necessary to me.&lt;/p&gt;&#xA;" OwnerUserId="405" LastEditorUserId="405" LastEditDate="2015-01-06T01:51:21.773" LastActivityDate="2015-01-06T01:51:21.773" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="1920" PostTypeId="1" AcceptedAnswerId="1931" CreationDate="2015-01-06T01:30:06.670" Score="9" ViewCount="415" Body="&lt;p&gt;I got curious about this because I happened to pass by a list of countries with zero debt. Country debt seems like a major thing, but for a non-economics major like me, I don't exactly understand the implications of a country having debt.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;More tax? Less progress? Exports are more necessary? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What difference does it make, for a normal citizen, if his/her country has debt or no debt?&lt;/p&gt;&#xA;" OwnerUserId="1653" LastActivityDate="2015-02-11T23:44:35.450" Title="In the eyes of a normal citizen, what difference does it make if my country has debt or no debt?" Tags="&lt;debt&gt;" AnswerCount="4" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="1921" PostTypeId="2" ParentId="1916" CreationDate="2015-01-06T01:37:33.610" Score="5" Body="&lt;p&gt;I think Kamien and Schwartz's &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/048648856X&quot; rel=&quot;noreferrer&quot;&gt;&lt;em&gt;Dynamic Optimization: The Calculus of Variations and Optimal Control in Economics and Management&lt;/em&gt;&lt;/a&gt; is pretty well known.&lt;/p&gt;&#xA;" OwnerUserId="59" LastActivityDate="2015-01-06T01:37:33.610" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="1922" PostTypeId="2" ParentId="1914" CreationDate="2015-01-06T01:51:53.483" Score="4" Body="&lt;p&gt;Fundamental theorem of asset pricing tells us that if there is no arbitrage, there must exist a positive random variable $M$ (also called stochastic discount factor) such that for &lt;em&gt;any&lt;/em&gt; return $R$, we must have $1 = E[M R]$. Thus to understand asset prices, in cross-section as well as across time, we need to understand which factors affect $M$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, the most basic Hansen-Jagannathan bound can be stated as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\left| \frac{E[R^e]}{\sigma[R^e]} \right| \leq \frac{\sigma[M]}{E[M]}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $R^e$ is an excess return. The main contribution is that it allows us to say something about moments of $M$ (right-hand side), which is unobservable, in terms of moments of returns (left-hand side), which can be (in principle) observed. Specifically, given the observed Sharpe ratio (say, around 0.4), the bound tells us that the SDF must be at least just as volatile.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem is that standard consumption-based models for $M$ have problems matching this volatility. For example, your basic Lucas-tree economy with CRRA utility leads to $M = \beta \exp(-\gamma \Delta c)$, where $\Delta c$ is log consumption growth. Since $E[M] \approx 1$, we have $\sigma[M] \approx \gamma \sigma[\Delta c]$. If $\sigma[\Delta c]$ is let's say around 1% yearly, we need to set $\gamma &amp;gt; 40$, an unrealistically high value of risk aversion.&lt;/p&gt;&#xA;" OwnerUserId="1432" LastEditorUserId="405" LastEditDate="2015-01-06T02:35:00.660" LastActivityDate="2015-01-06T02:35:00.660" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1923" PostTypeId="2" ParentId="1812" CreationDate="2015-01-06T02:57:16.557" Score="8" Body="&lt;p&gt;You can find a didactic exposition of Mirrlees (1971) -- including derivations of optimal tax schedule formulas for different social welfare and utility function -- in section 4.2 of &lt;a href=&quot;http://books.google.com/books/about/The_Economics_of_Taxation.html?id=OrzkTfuMQ0kC&quot; rel=&quot;nofollow&quot;&gt;&quot;The Economics of Taxation&quot; by Bernard Salanié (2003, First Edition).&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I bet it is still somewhere in the second edition too, but I do not have a copy of it so I don't know in which section that would be.&lt;/p&gt;&#xA;" OwnerUserId="38" LastEditorUserId="38" LastEditDate="2016-04-07T14:51:40.730" LastActivityDate="2016-04-07T14:51:40.730" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="1925" PostTypeId="1" CreationDate="2015-01-06T04:42:46.737" Score="3" ViewCount="2685" Body="&lt;p&gt;In general (Walrasian) equilibrium, local non-satiation is one of the assumptions that guarantee existence of equilibrium. Question is, is non-monotonic local non-satiation preference supported by rational consumer theory in economics?&lt;/p&gt;&#xA;" OwnerUserId="1641" LastActivityDate="2015-01-11T11:44:02.220" Title="Is non-monotonic local non-satiation supported by consumer theory in economics?" Tags="&lt;microeconomics&gt;&lt;preferences&gt;&lt;consumer-theory&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="1926" PostTypeId="2" ParentId="1920" CreationDate="2015-01-06T04:45:15.230" Score="-5" Body="&lt;p&gt;I've tried to mention &#xA;some of the affects of high national debt on normal citizen.I think it would be helpful&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;When the government doesn't have enough money to meet obligations and doesn't want to—or can't—borrow money, it just prints some. That's called &quot;quantitative easing”. It creates inflation in the economy. It increases the value of goods and services.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Government debt makes it more expensive to borrow. When you want to take out an auto loan or get a mortgage, you're competing with the government to borrow money. It means that rate of interest would be high.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;Government debt squeezes business and makes it harder to hire new employees. Government borrowing makes it more difficult for small business to borrow the money they need for expansion. The possibility of higher taxes discourages businesses from growing. The result: Fewer new employees are being hired. It raises unemployment.&lt;/li&gt;&#xA;&lt;li&gt;Government debt never dies. When you die, your kids do not inherit your debts unless they're on your accounts. That’s not true with government debts. That isn't repaid in your lifetime will be passed on to your children’s.&lt;/li&gt;&#xA;&lt;li&gt;Government spending for public welfare would be low that affects the living standard of people.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="1492" LastActivityDate="2015-01-06T04:45:15.230" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="1927" PostTypeId="1" CreationDate="2015-01-06T09:46:17.593" Score="-4" ViewCount="78" Body="&lt;p&gt;Under the Zero interest-rate policy, people will keep spending spending money &amp;amp; there is no savings.  I believe saving is good. So,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;What is the serious problem when Fed implements Zero interest-rate policy?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&amp;amp; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;When should Fed increase their rate?&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="1654" LastActivityDate="2015-01-06T20:10:38.740" Title="What is the serious problem when Fed implements Zero interest-rate policy?" Tags="&lt;financial-economics&gt;" AnswerCount="1" CommentCount="3" ClosedDate="2015-01-06T22:01:37.717" ContentLicense="CC BY-SA 3.0" />
  <row Id="1928" PostTypeId="2" ParentId="1920" CreationDate="2015-01-06T12:50:13.853" Score="-4" Body="&lt;ol&gt;&#xA;&lt;li&gt;Money does not have an intrinsic value  - goods and services do. &lt;/li&gt;&#xA;&lt;li&gt;People only want money to exchange it for goods and services. &#xA;Because money has no intrinsic value any country is capable of creating endless money supplies without resorting to incurring debts.&lt;br&gt;&#xA;The first consequence for country that decides to not create money supplies itself but instead let someone else create it, from whom that county then borrows, is the inevitable payback which for many countries in Europe is measured in tens of billions of $ per year. While part of the payback money does indeed comes from yet another debt (!), majority of the payback needs to be collected in taxes, so you can take it for granted that such a country country will impose higher taxes or else will have to cut the expenses.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="324" LastActivityDate="2015-01-06T12:50:13.853" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="1929" PostTypeId="2" ParentId="1903" CreationDate="2015-01-06T15:40:37.750" Score="4" Body="&lt;p&gt;Surplus and welfare are different concepts, but not for the reasons you state, although there are elements of validity in both (1) and (2).  They may, however, be used interchangeably in certain contexts and where certain conditions are met.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Both “surplus” and “welfare” are terms from ordinary language that in economics are used in more precise senses.  &quot;Surplus&quot; has several senses in economics, and is commonly clarified by the words accompanying it: (in microeconomics) &quot;consumer surplus&quot;, &quot;producer surplus&quot; and their sum &quot;total surplus&quot;, (in macroeconomics) &quot;budget surplus (of a government)&quot; and (in Marxian economics) &quot;surplus value&quot;.  Where it is used alone, the context will usually make clear which of these is meant: the question appears to be concerned with the microeconomic senses.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consumer surplus and producer surplus are normally defined in terms of supply and demand curves in a single market.  Such curves can in principle be estimated from observations of supplier and consumer behaviour, without reference to utility.  So although consumer surplus can be related to utility via marginal utility theory, utility is not needed in its definition and, as Steven Landsburg points out, surplus should be measured in monetary units, not units of utility.  Welfare, equally, is often related to utility at a theoretical level, but in applied work is often estimated without reference to utility and measured in monetary units.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;“Welfare” in economics is used both in macroeconomics, where there have been various attempts to identify an appropriate set of adjustments to GDP to provide a suitable measure of overall welfare in an economy, and in microeconomics, where the focus is on welfare in a single market or a few related markets.   But these are not entirely different senses of the term.  They both retain from ordinary language the essential idea that welfare is good - something policy should aim to increase - and in this respect there is an important difference, even in microeconomics, between surplus and welfare.  “Surplus” is a purely descriptive concept (a term of positive economics), whereas “welfare” is – to borrow a little from philosophy – a &lt;a href=&quot;http://en.wikipedia.org/wiki/Thick_concept&quot; rel=&quot;nofollow&quot;&gt;thick concept&lt;/a&gt;, one that is both descriptive and evaluative.  Let’s consider three situations which can help to clarify our understanding of these concepts.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Firstly, consider a standard supply-demand diagram for a single product, and suppose supply increases (the whole supply curve moves to the right).  Normally, we would say that both surplus and welfare have increased.  Now suppose that the product is one which is harmful to those consuming it.  Would we still say that surplus has increased?  Yes, because “surplus” is a purely descriptive term, so we can quite consistently say that surplus has increased while thinking it might have been better if this had not occurred.  Would we still say that welfare has increased?  Quite possibly not.  Points we might want to consider before drawing a conclusion are whether consumers are aware of the harm and acting rationally, and if not whether their pleasure from consumption outweighs the harm.  This distinction between surplus and welfare can be found in debate on the regulation of smoking (&lt;a href=&quot;http://www.gocolumbiamo.com/Health/Documents/AnnalofInternalMedicineArticleSmokingRegulation.pdf&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt; is an example).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Secondly, consider the &lt;a href=&quot;http://en.wikipedia.org/wiki/Tariff#Economic_analysis&quot; rel=&quot;nofollow&quot;&gt;effect of a tariff on an imported good&lt;/a&gt;.  The tariff raises the domestic price of the good, with resulting changes in the consumer surplus and producer surplus relating to that good. Would we say that the change in welfare is the sum of those changes?  No, because (even if we ignore effects on related markets and on exporting countries) the revenue raised by the tax is also relevant to welfare.  In a simple partial equilibrium analysis, therefore:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Welfare loss  =  Reduction in CS – Gain in PS – Increase in government revenue&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This distinction between surplus and welfare can be found in (A) and (B).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thirdly, consider a change in a market for a good subject to a production externality, say air pollution.  Here we would say that the change in welfare is not just the change in producer and consumer surplus in the particular market, but should also take account of the externality.  However, to draw a distinction between surplus and welfare on this basis would be an oversimplification since, in the economics of environmental valuation, the concept of consumer surplus is routinely applied to non-market goods.  For example (although the details are complex and the results unlikely to be very accurate) a demand curve for air quality (suitably measured) in a region might be estimated using the &lt;a href=&quot;http://www.ecosystemvaluation.org/hedonic_pricing.htm&quot; rel=&quot;nofollow&quot;&gt;hedonic pricing method&lt;/a&gt; which uses the housing market as a surrogate for a market in air quality.  Once a demand curve has been estimated, it is possible to calculate the change in consumer surplus due to a change in air quality and include this in a measure of change in welfare. Having said that, it is questionable whether methods are available to estimate consumer surpluses for all non-market goods, so to that extent there is validity in (2).   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The conditions that would be needed for a change in total surplus in the market for one product to be an accurate measure of the change in welfare resulting from a policy change would therefore be quite stringent, including at least the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;•  No direct effects of the policy change on other markets;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;•  No effects of change in the market on other markets;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;•  No harmful effects of the product on those consuming it;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;•  No externalities in production or consumption of the product.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sometimes these conditions will be met, to a reasonable approximation, and then it might be appropriate to use the terms “surplus” and “welfare” interchangeably.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, a brief consideration of the idea that surplus relates to one market while welfare relates to many markets. Because “welfare” is an evaluative term, it makes sense to apply it to situations involving either one or many markets, even if in some cases it is hard to find suitable criteria to determine whether a change is an increase in welfare.  “Consumer surplus”, on the other hand is normally defined for a single market, and the path-dependency problem (see (C)) is a complication in aggregation across markets, except in special cases (this is where, if the connection is made with utility theory, quasi-linear utility is relevant).  To overcome the path-dependency problem, either &lt;a href=&quot;http://en.wikipedia.org/wiki/Compensating_variation&quot; rel=&quot;nofollow&quot;&gt;compensating variation&lt;/a&gt; or equivalent variation are sometimes used as alternatives to (ordinary Marshallian) consumer surplus, but then there is the further problem that the theoretical income-compensated demand curves underlying these measures cannot be estimated from observations of consumer behaviour.  To that extent there is validity in (1).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;References&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A. Koo W W &amp;amp; Kennedy P L (2005) &lt;em&gt;International Trade and Agriculture&lt;/em&gt; Blackwell Publishing p 104&lt;/p&gt;&#xA;&#xA;&lt;p&gt;B. Mankiw B G &amp;amp; Taylor M P (2006) &lt;em&gt;Economics&lt;/em&gt; Thomson Learning pp 172-3 (a European version of the well-known textbook)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;C. Johansson P-O (1991) An Introduction to Modern Welfare Economics  Cambridge University Press pp 42-52&lt;/p&gt;&#xA;" OwnerUserId="1417" LastEditorUserId="1417" LastEditDate="2015-01-16T13:48:56.630" LastActivityDate="2015-01-16T13:48:56.630" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="1930" PostTypeId="2" ParentId="1925" CreationDate="2015-01-06T16:19:13.347" Score="4" Body="&lt;p&gt;Suppose we're talking about some bundle of consumables, $x$. If preferences are monotone, either weakly or strongly, the general idea is that more is better. With local non-satiation the idea is that, no matter what $x$ you have, there is always some small change in $x$ that would make you better off.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is your question, does there exist rational preferences where:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;More is better does not hold.&lt;/li&gt;&#xA;&lt;li&gt;You can always make a tiny change that leads to a preferable bundle.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Imagine a consumption set on the surface of an infinite dimensional unit sphere, where the dimensions are indexed by the counting numbers and represent different varieties of goods.  The consumer prefers goods found in higher dimensions.  So the 1 unit of good on the second dimension is preferred to the 1 unit of good on the first dimension.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, the consumer is never satiated because they would always prefer one unit of a good found in a higher dimension, and there are infinitely many dimensions.  But these preferences do not satisfy monotonicity, because you must always give up a little bit of at least one good to acquire more of another.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence, these preferences are rational, because you can rank all pairs on the surface of the sphere, and transitivity holds trivially.&lt;/p&gt;&#xA;" OwnerUserId="1609" LastEditorUserId="1609" LastEditDate="2015-01-06T17:01:34.907" LastActivityDate="2015-01-06T17:01:34.907" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="1931" PostTypeId="2" ParentId="1920" CreationDate="2015-01-06T17:21:50.980" Score="7" Body="&lt;p&gt;1)  Debt matters because it smoothes (or unsmoothes) taxes over time, which matters because the deadweight loss from taxation is (roughly) proportional not to the tax rate, but to the square of the tax rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2)  Because family sizes are not homogeneous, government debt (which transfers the tax burden to future generations) can redistribute the tax burden across families.  (Think, for example, about a taxpayer with no kids, or a family that has just immigrated.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;3)  Government debt makes it easier to borrow --- it's better to pay 3% to government bondholders than 18% to your credit card company.  This is possible because the penalty for not paying your taxes is considerably more severe than the penalty for not paying your credit card bill.  (In effect, government debt resurrects the institution of the debtor's prison.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;4)  There are of course issues with misperceptions, where debt can make people feel either richer or poorer than they really are, depending on whether they underestimate or overestimate their future tax burdens, and so can affect consumption paths in either direction.&lt;/p&gt;&#xA;" OwnerUserId="250" LastActivityDate="2015-01-06T17:21:50.980" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1932" PostTypeId="1" AcceptedAnswerId="3284" CreationDate="2015-01-06T18:40:15.430" Score="3" ViewCount="68" Body="&lt;p&gt;Today the Spiegel ran an &lt;a href=&quot;http://www.spiegel.de/wirtschaft/soziales/griechische-staatsschulden-syriza-fordert-von-deutschland-revanche-a-1011371.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;article&lt;/a&gt; on a &lt;a href=&quot;http://www.levyinstitute.org/pubs/wp_819.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;proposal&lt;/a&gt; to end the Euro Debt Crisis.&lt;br /&gt;&#xA;That article made the claim given in the title&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Syriza will eine sogenannte Wachstumsklausel für jene Schulden einführen, die nach dem Schuldenschnitt übrigbleiben. Im Falle Deutschlands handelte es sich damals um eine &amp;quot;Außenhandels-Einnahmen-Klausel&amp;quot;, der zufolge der jährliche Schuldendienst drei Prozent der Exporteinnahmen nicht übersteigen durfte. Für die Gläubiger Deutschlands hieß es also: Kauft deutsche Produkte, wenn ihr euer Geld zurückwollt.&lt;/p&gt;&#xA;&lt;p&gt;Syriza wants to establish a so called growth-clause for the debt left after the haircut. In the case of Germany there was the &amp;quot;Außenhandels-Einnahmen-Klausel&amp;quot; (Foreign-trade profit condition) which states that the amount of serviced debt is not allowed to be higher than 103% of export profit.&lt;br /&gt;&#xA;For the debtee that meant: If you want your money back you have to buy German products.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;As the article mentions the &lt;a href=&quot;https://en.wikipedia.org/wiki/Agreement_on_German_External_Debts&quot; rel=&quot;nofollow noreferrer&quot;&gt;London Debt Agreement of 1953&lt;/a&gt; I assume that the statments given in the past tense refer to that agreement. However the term Außenhandels-Einnahmen-Klausel does not appear in those &lt;a href=&quot;https://www.gov.uk/government/publications/agreement-on-german-external-debts-london-2721953&quot; rel=&quot;nofollow noreferrer&quot;&gt;documents&lt;/a&gt; and on a cursory overview actually doesn't seem to include those conditions.&lt;br /&gt;&#xA;The only google hits for that exact term are that very article.&lt;br /&gt;&#xA;And the proposal also doesn't mentions foreign trade or export.&lt;/p&gt;&#xA;&lt;p&gt;So, has this clause existed or even still exists today?&lt;/p&gt;&#xA;" OwnerUserId="1499" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2020-05-03T14:47:54.313" Title="Do German Goverment bonds usually include (or included) a condition that the debt will not be serviced in case of trade imbalance?" Tags="&lt;reference-request&gt;&lt;international-trade&gt;&lt;government-debt&gt;&lt;international-economics&gt;&lt;debt&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="1933" PostTypeId="1" AcceptedAnswerId="16278" CreationDate="2015-01-06T20:08:31.927" Score="5" ViewCount="144" Body="&lt;p&gt;This question relates to a theorem about the decomposition of additive functionals---a technique especially useful in macroeconomics and finance. This question has two objective. First, I don't have a reference to the theorem that shows when this is possible, and I would like to find it. Second, I would like to know how to actually find this decomposition.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider the following autoregressive model:&#xA;$$&#xA;X_{t+1} = \alpha_0 + \beta_0 (X_t - \alpha_0) + W_{t+1},&#xA;$$&#xA;where $-1 &amp;lt; \beta_0 &amp;lt; 1$ and $W_{t+1}$ is distributed as a normal with mean zero and variance one. Now, consider the additive functional&#xA;$$&#xA;Y_t = \sum_{j=1}^t X_j.&#xA;$$&#xA;How would I produce the decomposition of the form&#xA;$$&#xA;Y_t = r_1 t + M_t - r_2 (X_t - X_0)&#xA;$$&#xA;where $\{M_t \}$ is a Martingale? (How can obtain the values $r_1$, $r_2$, and $M_t - M_{t-1}$?)&lt;/p&gt;&#xA;" OwnerUserId="59" LastEditorUserId="59" LastEditDate="2015-01-06T20:15:42.450" LastActivityDate="2017-04-24T11:13:46.950" Title="Decomposition of an additive functional into a Martingale part and other" Tags="&lt;econometrics&gt;&lt;martingales&gt;&lt;stochastic-processes&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="1934" PostTypeId="2" ParentId="1927" CreationDate="2015-01-06T20:10:38.740" Score="1" Body="&lt;p&gt;Economists do not argue that allowing the Fed to operate at the ZLB will cause a cessation of savings. Instead, some (many?) economists argue that when the Fed operates at the ZLB it loses the ability to further manipulate interest rates to achieve some desired result regarding inflation/unemployment. If investment remains stagnant when interest rates are at zero, what else can the Fed do to encourage investment? If investment remains stagnant, what are the implications for new job creation rates and unemployment rates? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Asking when the Fed should increase interest rates will, at best, elicit responses that include some amount of subjectivity. At worst, you will receive opinion-based arguments. That question can't be any more definitively answered than &quot;why should/shouldn't the Fed explicitly operate using Taylor's rule?&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This response is broad because your question is broad. I am also answering a slightly different question than what you asked (more specifically, I am trying to concentrate on your sentence &quot;what is wrong with the Fed implementing zero-interest policy&quot;) and have done so in a very general way.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you fix your question a bit then this community will be able to provide much better responses. I hope this might help some. &lt;/p&gt;&#xA;" OwnerUserId="1655" LastActivityDate="2015-01-06T20:10:38.740" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="1935" PostTypeId="1" CreationDate="2015-01-06T18:56:38.650" Score="1" ViewCount="79" Body="&lt;p&gt;Okay, this is from latest events. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Countries like USA &amp;amp; Japan have successfully used QE to stimulate the economy, but what stops European Central Bank from implementing it?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If they decide to use it what will happen to stocks and bonds? How will the investors react? Most economists also say that it wont work well in Europe, why?&lt;/p&gt;&#xA;" OwnerUserId="162" OwnerDisplayName="Nick" LastEditorUserId="2776" LastEditDate="2017-08-10T06:43:20.947" LastActivityDate="2017-08-10T06:43:20.947" Title="Europe Quantitative Easing" Tags="&lt;monetary-policy&gt;&lt;quantitative-easing&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="1936" PostTypeId="2" ParentId="1935" CreationDate="2015-01-06T20:06:37.043" Score="1" Body="&lt;p&gt;Europe is a banking based continent, in contrast to the US where financial markets play a prominent role. As a result, wealth effects in Europe are much smaller than in the US. QE thus has a smaller favorable effect on the economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You are right, they should implement it given the low inflation level present for an extended period. But as shown by history, the ECB always reacts later and less agressive than the FED. This is because the ECB has a sole objective of keeping inflation close but below 2% (imposed by the Germans having experienced periodes of hyperinflation). Even today, the germans and some other hawks are still reluctant to pull out the big canon.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;QE leads to an increase in bond prices, and supports equities as well. However, whether or not equities go up, depends more on how people react.&lt;/p&gt;&#xA;" OwnerDisplayName="QuantK" LastActivityDate="2015-01-06T20:06:37.043" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="1937" PostTypeId="1" CreationDate="2015-01-07T02:20:22.103" Score="3" ViewCount="141" Body="&lt;p&gt;This question is a natural continuation of the following question: &lt;a href=&quot;https://economics.stackexchange.com/questions/1837/how-do-i-construct-the-score-process-of-a-markov-model-and-verify-that-it-is-a-m&quot;&gt;How do I construct the score process of a Markov model and verify that it is a Martingale?&lt;/a&gt; In this problem, we set up as follows:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Consider the following autoregressive model:&#xA;  $$&#xA;X_{t+1} = \alpha_0 + \beta_0 (X_t - \alpha_0) + W_{t+1},&#xA;$$&#xA;  where $-1 &amp;lt; \beta_0 &amp;lt; 1$ and $W_{t+1}$ is distributed as a normal with mean zero and variance one. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The question constructs a log-likelihood process and the associated score process:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;$$&#xA;s_t(\theta \mid \textbf X) =&#xA;\begin{bmatrix}&#xA; (1 - \beta_0) \sum_{j=1}^t W_j \\&#xA; \sum_{j=1}^t W_j (X_{j-1} - \alpha_0)&#xA;\end{bmatrix}.&#xA;$$&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;After verifying that the score process is a Martingale, a natural follow is to compute&#xA;the covariance matrix for a central limit approximation for this process and find the inverse of the matrix. How would I do this? Also, how would I interpret the one-one component of the inverse?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;After looking at the Wikipedia article on the &lt;a href=&quot;https://en.wikipedia.org/wiki/Martingale_central_limit_theorem&quot; rel=&quot;nofollow noreferrer&quot;&gt;Martingale central limit theorem&lt;/a&gt;, it seems like this may be a little difficult given that the statement of the theorem requires the difference sequence to be uniformly bounded. Am I missing something or is there a generalization that I'm missing?&lt;/p&gt;&#xA;" OwnerUserId="59" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-01-07T02:20:22.103" Title="Applying the Martingale central limit theorem to the score process of an autoregressive model" Tags="&lt;econometrics&gt;&lt;time-series&gt;&lt;martingales&gt;&lt;probability&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="2931" PostTypeId="2" ParentId="1903" CreationDate="2015-01-07T04:50:54.630" Score="3" Body="&lt;p&gt;You are certainly wrong regarding surplus, which is measured in dollars, not in units of welfare.  In particular, according to the definition you've given, surplus depends on the choice of welfare function $W$, whereas in fact surplus is independent of that choice (and indeed the concept of surplus makes perfectly good sense in the absence of any welfare function at all.)   (There are of course issues involving income effects that add a little ambiguity to the notion of surplus, but those issues are not, I think, relevant to what you're asking.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regarding welfare, personally I use the word interchangeably with surplus, and I am pretty sure many others do also.  Unfortunately, the same word is also often used to mean &quot;value of the social welfare function&quot; (which of course requires a social welfare function to have been chosen).  So, as with so many other words, it can be important to clarify which meaning you have in mind.&lt;/p&gt;&#xA;" OwnerUserId="250" LastActivityDate="2015-01-07T04:50:54.630" CommentCount="11" ContentLicense="CC BY-SA 3.0" />
  <row Id="2932" PostTypeId="1" AcceptedAnswerId="2933" CreationDate="2015-01-07T05:10:52.997" Score="3" ViewCount="1253" Body="&lt;p&gt;The Wikipedia article for the &lt;a href=&quot;https://en.wikipedia.org/wiki/Weighted_average_cost_of_capital&quot; rel=&quot;nofollow&quot;&gt;&quot;weighted cost of capital&quot;&lt;/a&gt; (WACC) defines the WACC&#xA;as &quot;the rate that a company is expected to pay on average to all its security holders to finance its assets.&quot; What exactly does this mean? Does this mean that this is supposed to be the expected returns on the company's stocks as well as the expected return on the company's bonds? Also, how are the two equations, &lt;a href=&quot;https://en.wikipedia.org/wiki/Weighted_average_cost_of_capital#Calculation&quot; rel=&quot;nofollow&quot;&gt;given in the Wikipedia article&lt;/a&gt;, derived? For convenience, the two equations are the following. The first is&#xA;$$&#xA;\text{WACC} = \frac{\sum_{i=1}^N r_i \cdot MV_{i}}{\sum_{i=1}^N MV_i}, \tag{1}&#xA;$$&#xA;where $N$ is the number of sources of capital (securities, types of liabilities); $r_i$ is the required reate of return for security $i$; and $MV_i$ is the market value of all outstanding securities $i$. The second is&#xA;$$&#xA;\text{WACC}  = \frac{D}{D+E}K_d + \frac{E}{D+E}K_e \tag{2},&#xA;$$&#xA;where $D$ is the total debt, $E$ is the total shareholder’s equity, $Ke$ is the cost of equity, and $Kd$ is the cost of debt. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;EDIT:&lt;/strong&gt;&#xA;Thanks for the answers below. &quot;Derivation&quot; was too strong of a word to use, which was clear after the explanations given. It was just a little unclear what the objects were in practice. The discussions below clarified things. Also, I found this paragraph from a website linked in one of the answers helpful:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;To understand WACC, think of a company as a bag of money. The money in the bag comes from two sources: debt and equity. Money from business operations is not a third source because, after paying for debt, any cash left over that is not returned to shareholders in the form of dividends is kept in the bag on behalf of shareholders. If debt holders require a 10% return on their investment and shareholders require a 20% return, then, on average, projects funded by the bag of money will have to return 15% to satisfy debt and equity holders. The 15% is the WACC.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="59" LastEditorUserId="59" LastEditDate="2015-01-07T19:54:02.167" LastActivityDate="2015-01-07T19:54:02.167" Title="Deriving and explaining the weighted cost of capital" Tags="&lt;finance&gt;&lt;corporate-finance&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="2933" PostTypeId="2" ParentId="2932" CreationDate="2015-01-07T06:01:27.503" Score="4" Body="&lt;p&gt;If you are asking &quot;Is the WACC the amount that the company expects to earn on the stocks and bonds that it holds..&quot; then the answer is no. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The WACC, in very simple terms, is the amount of money a company pays to obtain financing for projects. These types of financing are clearly listed in the wikipedia article and clearly extend beyond stocks and bonds issued by the company. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A company can calculate the WACC to determine whether or not undertaking a project will be profitable. That is, a company can determine that it must earn some minimum return on a project before that project becomes profitable. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You, as a consumer, possibly have experience with cost of capital. Consider the interest paid on a car loan. That interest is the cost you incur for financing the purchase of your vehicle by borrowing funds from a financial intermediary. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As far as derivation goes - I'm not sure how to simplify these formulas much more. However, you can think simply about the first as the ratio of the interest paid out on sources of financing and the total market value of those sources of financing (so...some ration &amp;lt; 1) and the second is a more simple case of the first. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.investopedia.com/walkthrough/corporate-finance/5/cost-capital/wacc.aspx&quot; rel=&quot;nofollow&quot;&gt;http://www.investopedia.com/walkthrough/corporate-finance/5/cost-capital/wacc.aspx&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think this website gives a decent walkthrough of the concept. Hope this helps some. &lt;/p&gt;&#xA;" OwnerUserId="1655" LastEditorUserId="1655" LastEditDate="2015-01-07T06:07:17.427" LastActivityDate="2015-01-07T06:07:17.427" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="2934" PostTypeId="2" ParentId="2932" CreationDate="2015-01-07T15:28:34.850" Score="2" Body="&lt;p&gt;The concept of $\text{WACC}$ seems pretty straightforward... it is a weighted  average percentage, calculated in principle as equation $(2)$ in the question shows. If we have two sources of financing each demanding a different interest rate and with given percentage contribution each to the total funds we want to borrow, then what would be the single interest rate that would lead to the same total interest cost, if we borrowed the sum of funds from some third source? And this easily generalizes to $n$ sources of financing.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The concept stops being so straightforward the moment one realizes that the &lt;em&gt;property rights&lt;/em&gt; and the transaction clauses characterizing  the &quot;cost of equity funds&quot; and the &quot;cost of debt funds&quot; respectively are totally different (and this is why this is the first grand partition), and also, that &quot;the future won't necessarily repeat the past&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Related to &lt;strong&gt;Debt funds&lt;/strong&gt;, Debt owners have the full power of the Law behind them to seek payment of interest and principal, against the company's assets. Also, the interest rate is specifically agreed to a certain level, and even if there are provisions that may make it variable, these usually create few scenarios one would need to evaluate. So calculating the (unitary) &quot;cost of debt&quot; appears relatively transparent and certain.&lt;em&gt;But&lt;/em&gt;: a distinction has to be made related to past &quot;cost of debt&quot; and the prospective one: the current debts of the company may have a certain interest rate agreed upon, but the interest rate that the company must pay in order to get more debt may be different. This essentially tends to make the concept a &lt;em&gt;marginal&lt;/em&gt; weighted average, and the company must conduct a market search in order to see what interest rates prospective debt owners would demand for new debt. But for an outsider, this information is usually not available -he has to rely on published data on debt and interest rates agreed in the past from the company's financial statements.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Turning to &lt;strong&gt;Equity funds&lt;/strong&gt;, the equity holder has no power whatsoever over the company to seek payment of &lt;em&gt;any&lt;/em&gt; rate of return, or of his funds (in cases of fraud, gross negligence etc, the equity holder may demand compensation from the &lt;em&gt;persons&lt;/em&gt; that were involved, managers etc, but not from the company as a legal entity). In other words, there is no &quot;legally committed&quot; interest rate here, nor &quot;obligatory&quot; rate of return (funds that appear as equity but are characterized by such clauses are not considered equity but debt, under both Finance practices and Accounting principles). So here the (unitary) &quot;cost of equity&quot; is &lt;em&gt;the rate of return that prospective equity holders would want to be persuaded that the company will generate using their funds&lt;/em&gt;. In two-steps: I want $\text{xx}$% rate of return, and in order to invest my funds to you as equity, you have to &quot;persuade&quot; me that you will manage to pay me that rate of return.  Persuade how? By past performance, convincing analysis of future prospects, and charm.&lt;br&gt;&#xA;So how do we calculate this component of $\text{WACC}$? We usually look at how the company is performing relative to its &lt;em&gt;sector&lt;/em&gt;. Why the sector and not the whole market, has to do with increased risk that correlates with inexperience: investors that for some historical reasons have concentrated their investments in a sector, will be in a better position to judge the validity of prospective projects in this sector, than to some other they don't have a clue about. So some combination of company/sector rates of return provides an estimation of the (unitary) cost of equity (this again brings in the distinction between a &quot;historical $\text{WACC}$&quot; against a &quot;marginal&quot; $\text{WACC}$).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And finally, how do we calculate the relative weights of the two sources? Again, time series data from the company's financial statements can show how this mix has evolved over the years for the company.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-01-07T15:28:34.850" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="2935" PostTypeId="2" ParentId="1883" CreationDate="2015-01-07T17:15:25.167" Score="5" Body="&lt;p&gt;To show that transformation is measure preserving you need to show that full preimage $S^{-1}(A)$ of any set A in the Borel $\sigma$-field on [0,1) is again in the same $\sigma$-field, i.e. it is measurable, and that $Pr\{S^{-1}(A)\} = Pr\{A\}.$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As you have correctly pointed out, it will suffice to show it for any base of usual topology, namely, all open intervals.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is evident that preimage of $(a,b)$ is $(\frac{a}{2},\frac{b}{2})\cup (\frac{1}{2}+\frac{a}{2},\frac{1}{2}+\frac{b}{2})$. It is, evidently, in Borel $\sigma$-field, as it is a union of two open intervals, and $Pr\{(\frac{a}{2},\frac{b}{2})\cup (\frac{1}{2}+\frac{a}{2},\frac{1}{2}+\frac{b}{2})\} = Pr\{(a,b)\} = b-a$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We proved that preimage of any open interval is measurable and has the same measure as the interval. As open intervals form a base of the usual topology we can extend this result to any measurable set and it completes the proof.&lt;/p&gt;&#xA;" OwnerUserId="2659" LastActivityDate="2015-01-07T17:15:25.167" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="2936" PostTypeId="2" ParentId="2932" CreationDate="2015-01-07T18:49:02.403" Score="2" Body="&lt;p&gt;The first equation is dollars time interest over total dollars.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, if a company wants to finance a project, issues \$1M in equity with an expected ROI to the investors of 6% and \$4M in bonds at 4%, it's WACC is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{(4\%*4,000,000 + 6\% * 1,000,000)}{4,000,000+1,000,000} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which for simplicity we can say is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{(4\%*4 + 6\% * 1)}{4+1} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;or:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{22\%}{5} = 4.4\% $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As mathtastic pointed out, it means the project needs to exceed an ROI of 4.4% to be viable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The second WACC formula is assuming an average for debt and an average for equity, and then expressing the percentage of financing as debt times the average interest rate on debt, and the percentage of financing that's equity times the expected or needed ROI on equity to secure financing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;They derive from each other because $r_i$ and $MV_i$ don't differentiate between debt and equity.&lt;/p&gt;&#xA;" OwnerUserId="31" LastActivityDate="2015-01-07T18:49:02.403" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="2937" PostTypeId="1" CreationDate="2015-01-07T20:27:07.060" Score="5" ViewCount="83" Body="&lt;p&gt;This question was posted on a forum (see &lt;a href=&quot;http://www.econjobrumors.com/topic/question-on-todays-murphy-price-theory-final-uofc&quot;&gt;here&lt;/a&gt;), and I thought it was interesting, especially in light of the recent spotlight on Matthew Gentzkow's work. So, I'm re-posting it here.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Some studies claim that newspaper articles are usually more liberal than their readership. Since the news market is competitive, should we doubt this claim?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="59" LastActivityDate="2015-03-09T15:06:38.513" Title="Are newspaper articles more liberal than their readership?" Tags="&lt;price-theory&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="2938" PostTypeId="1" AcceptedAnswerId="2940" CreationDate="2015-01-07T20:50:35.413" Score="7" ViewCount="1414" Body="&lt;p&gt;In the Wikipedia article on the &lt;a href=&quot;https://en.wikipedia.org/wiki/Modigliani%E2%80%93Miller_theorem#Without_taxes&quot; rel=&quot;nofollow noreferrer&quot;&gt;Modigliani--Miller theorem&lt;/a&gt;, it states two propositions. (It gives the cases of with and without taxes. Here I'll just focus on the case without taxes.)&#xA;The first proposition is that the value of an unlevered firm is the same as a levered firm. Given the assumptions, this is clear from the discussion:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;To see why this should be true, suppose an investor is considering buying one of the two firms U or L. Instead of purchasing the shares of the levered firm L, he could purchase the shares of firm U and borrow the same amount of money B that firm L does. The eventual returns to either of these investments would be the same. Therefore the price of L must be the same as the price of U minus the money borrowed B, which is the value of L's debt.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;However, here I am asking about &quot;Proposition II:&quot;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;$$r_E(Levered) = r_E(Unlevered) + \frac DE (r_E(Unlevered) - r_D),$$&#xA;  where&lt;/p&gt;&#xA;  &#xA;  &lt;ul&gt;&#xA;  &lt;li&gt;$r_E$ ''is the required rate of return on equity, or cost of equity,''&lt;/li&gt;&#xA;  &lt;li&gt;$r_D$ ''is the required rate of return on borrowings, or cost of debt,''&lt;/li&gt;&#xA;  &lt;li&gt;and $\frac{D}{E}$ ''is the debt-to-equity ratio.''&lt;/li&gt;&#xA;  &lt;/ul&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The article states that the &quot;formula is derived from the theory of weighted average cost of capital (WACC).&quot; (See a related question &lt;a href=&quot;https://economics.stackexchange.com/questions/2932/deriving-and-explaining-the-weighted-cost-of-capital&quot;&gt;here&lt;/a&gt;.) My question is this: how can we arrive at this result from WACC?&lt;/p&gt;&#xA;" OwnerUserId="59" LastEditorUserId="59" LastEditDate="2018-01-09T23:52:36.513" LastActivityDate="2018-01-09T23:52:36.513" Title="Deriving the Modigliani--Miller Theorem" Tags="&lt;finance&gt;&lt;financial-economics&gt;&lt;corporate-finance&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="2939" PostTypeId="2" ParentId="1880" CreationDate="2015-01-07T22:19:20.730" Score="1" Body="&lt;p&gt;It is possible to consider cases of $\omega$ being a point in infite dimensional space, e.g. sequence of shock, but such interpretation would be unproductive, as then you will get no simplifications when compared to direct specification of the process on filtered probability space and only produced unwanted additional entities to complicate matters.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This approach is much better suited for applications to points in finite dimensional space. Then by this approach you will construct time homogeneous Markov process and $\omega$ shall be interpreted as a point in it's state space, say, current position of the process, or several last positions. The considerations on interpretation of S shall be postponed until examples are discussed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Henceforce I presume that $\epsilon_t$ is an iid sequence of random variables on the probability space defined in the question. Then second process can be defined as follows:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\omega \in R,$ $S(\omega) = \omega, $ $X(S^t(\omega)) = S^t(\omega).$ Upper index here denotes here multiple application of the operator.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First example is an elaboration upon the first one:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\omega \in R^2,$ $S((\omega_1,\omega_2)) = (\rho \cdot \omega_1 + \omega_2,\omega_2), $ $X(S^t(\omega)) = (S^t(\omega))_1.$ Lower index here denotes here respective component of the corresponding vector.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As we have seen, the operation S itself is rather ambiguous and dificult to reasonably interpret. The point to be noted, however, is that it defines measure preserving transformation and taking an image under it produces the set with the same measure. So this function dynamics of measure on our state space in time.&lt;/p&gt;&#xA;" OwnerUserId="2659" LastActivityDate="2015-01-07T22:19:20.730" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="2940" PostTypeId="2" ParentId="2938" CreationDate="2015-01-08T02:38:44.477" Score="5" Body="&lt;p&gt;The first equation can be written as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ r_E(Levered) = \frac{E+D}{E}r_E(Unlevered) - \frac{D}{E}r_D $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, isolating the unlevered return gives:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ r_E(Unlevered) = \frac{E}{E+D}r_E(Levered) + \frac{D}{E+D}r_D$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And this is the WACC.&lt;/p&gt;&#xA;" OwnerUserId="1609" LastActivityDate="2015-01-08T02:38:44.477" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="2941" PostTypeId="1" CreationDate="2015-01-08T08:12:29.270" Score="13" ViewCount="66944" Body="&lt;p&gt;What is the difference between intensive margin and extensive margin in labor economics, or general RBC model, where we talk about labor-hours supplied changing with extensive margin or intensive margin?&lt;/p&gt;&#xA;" OwnerUserId="1641" LastActivityDate="2015-01-15T12:39:44.330" Title="What is the difference between intensive margin and extensive margin in labor economics?" Tags="&lt;macroeconomics&gt;&lt;labor-economics&gt;&lt;economic-terms&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="2942" PostTypeId="1" AcceptedAnswerId="2945" CreationDate="2015-01-08T08:33:00.833" Score="12" ViewCount="2250" Body="&lt;p&gt;Take Romer's advanced macro book as reference. In it the Solow model,the Ramsey model and the Diamond OLG all contain the fundamental $A_t$  variable representing technological progress.&lt;br&gt;&#xA;In all these models, technology affects only labor, that is:&lt;br&gt;&#xA;$Y_t = F(K_t,A_t L_t)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now my question is why is such assumption so prevalent in these models. It seems to me that when we imagine technology as affecting output we think of the Northrop loom, the Bessemer steel, the container, the railroad. You know, stuff. All these seem to me to be mostly capital-augmenting technologies.&lt;br&gt;&#xA;So why do we tend to assume labor-augmenting technology instead? &lt;/p&gt;&#xA;" OwnerUserId="93" LastActivityDate="2015-01-08T18:46:28.127" Title="Why in most macro models technology is labor-augmenting?" Tags="&lt;macroeconomics&gt;&lt;technology&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="2943" PostTypeId="2" ParentId="2942" CreationDate="2015-01-08T13:16:42.727" Score="6" Body="&lt;p&gt;In the Cobb Douglas production function technological progress can be thought of as either labor or capital augmenting, it doesn't matter. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Under Cobb Douglas:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$Y_t = F(A_t, K_t, L_t) = A_t \cdot K_t^\alpha \cdot L_t^{1-\alpha}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which can be written as Labor augmenting:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$Y_t = K_t^\alpha \cdot (A_t^{1/(1-\alpha)} \cdot L_t)^{1-\alpha} = F(K_t,\hat A_t L_t) $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where $\hat{A}_t = A_t^{1/(1-\alpha)} $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But which can also be written as capital augmenting:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$Y_t = ( A_t^{1/\alpha} \cdot K_t)^\alpha \cdot L_t^{1-\alpha} = G(\check{A}_tK_t, L_t)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where $\check{A}_t = A_t^{1/\alpha} $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I believe that there is a larger class of production functions for which this is true. If I recall correctly, this is the homothetic production functions with factor augmenting technologies. &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-01-08T13:21:53.677" LastActivityDate="2015-01-08T13:21:53.677" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="2944" PostTypeId="2" ParentId="2937" CreationDate="2015-01-08T14:32:09.063" Score="4" Body="&lt;p&gt;This strikes me as a straightforward industrial organization anomaly question. Like, why do hot dogs and buns come in different counts to a package or why are the finest apples shipped out of apple producing regions?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://faculty.chicagobooth.edu/matthew.gentzkow/research/biasmeas.pdf&quot; rel=&quot;nofollow&quot;&gt;Gentzkow and Shapiro (2010)&lt;/a&gt; that this paradox is only an apparent contradiction. They find slant is mostly a product of readership bias. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;By contrast, we find much less evidence for a role of newspaper owners&#xA;  in determining slant. While slant is somewhat correlated across&#xA;  co-owned papers, this effect is driven by the geographic clustering of&#xA;  ownership groups. After controlling for the geographic location of&#xA;  newspapers, we find no evidence that the variation in slant has an&#xA;  owner-specific component. We also find no evidence that pressure from &#xA;  incumbent politicians or the tastes of reporters are important drivers&#xA;  of slant.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;But jmbejara already mentions knowing about Gentzkow so it isn't obvious what he's looking for beyond this insight. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Timothy Taylor,  Managing Editor of the JEP and blogger at CONVERSABLE ECONOMIST also has an article on this subject that may be of interest, &#xA;&lt;a href=&quot;http://conversableeconomist.blogspot.com/2015/03/the-economics-of-media-bias.html&quot; rel=&quot;nofollow&quot;&gt;The Economics of Media Bias&lt;/a&gt;.  &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-03-09T15:06:38.513" LastActivityDate="2015-03-09T15:06:38.513" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="2945" PostTypeId="2" ParentId="2942" CreationDate="2015-01-08T14:49:46.877" Score="12" Body="&lt;p&gt;The mathematical reason, is that this happens in order for the model to have a steady-state in terms of growth rates: variables like Consumption, Capital, Income, grow at the steady-state, but grow at the same rate, so their ratios remain constant (and it is in this sense that this situation represents a &quot;steady&quot;-state). If they were to grow at different rates, their ratios would tend to either zero or infinity which is not very realistic, since it would imply that the economy tends towards one or the other &quot;corner&quot; situation.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The mathematical proof can be found in &lt;a href=&quot;http://down.cenet.org.cn/upfile/8/200751171644184.pdf&quot;&gt;Barro &amp;amp; Sala-i-Martin book (2nd ed)&lt;/a&gt; , section 1.5.3, pp 78-80. Relevant and useful is also the discussion in section 1.2.12, pp 51-53.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For functional forms like (generalized, even) Cobb-Douglas, it is really indistinguishable (not separately identifiable), especially since we predominantly use the exponential function:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Y_t = A\cdot \left (K_te^{zt}\right)^\alpha \left (L_te^{vt}\right)^\beta = A\cdot K_t^{\alpha}\left (L_te^{(v+\frac {\alpha}{\beta}z)t}\right)^\beta = A\cdot K_t^{\alpha}\left (L_te^{wt}\right)^\beta$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So strictly speaking in such a functional setup we can say that technology is also capital augmenting.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But since for other functional forms, the above does not hold, and so we must explicitly assume that technology is &quot;labor-augmenting&quot; for the reason stated previously, authors settled in labeling it as such in order to cover all cases, and when they want to keep the functional form unspecified.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regarding the conceptual issue the OP poses, which is insightful, a conceptual way out is to think of &quot;Technology&quot; more like &quot;Knowledge&quot;. So &quot;Knowledge&quot; that goes into the machines, is part of the Investment that augments capital, while the &lt;em&gt;other&lt;/em&gt; knowledge turns raw labor $L$ into human capital: essentially a production function with &quot;exogenous labor-augmenting technology&quot;, is equivalent to a formulation that includes Human Capital instead of labor but where the investment in Human Capital is not subject to optimizing behavior but &quot;automatic&quot; (which points to Arrow's &quot;Learning-by-Doing&quot; concept of human capital accumulation).&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-01-08T18:46:28.127" LastActivityDate="2015-01-08T18:46:28.127" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="2946" PostTypeId="2" ParentId="2941" CreationDate="2015-01-08T16:09:03.767" Score="3" Body="&lt;p&gt;Consider the following example with a Cobb-Douglas production function having total factor productivity $A_t$, labor $L_t$, capital $K_t$, and effort $e_t$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ Y_t = A_t K_t^{\alpha} (e_tL_t)^{(1-\alpha)}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The intensive margin regards the level of effort $e_t$ (think &lt;em&gt;intensity&lt;/em&gt;), and the extensive margin the quantity of labor supplied $L_t$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a less abstract sense, think about output and hours worked.  You can work for 2 hours at a normal pace and create one widget.  Or, if you try very hard, you could make one widget in one hour.  How do you get the same output from the same worker with different values of $L$?  The intensive margin is the answer.&lt;/p&gt;&#xA;" OwnerUserId="1609" LastActivityDate="2015-01-08T16:09:03.767" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="2947" PostTypeId="2" ParentId="2941" CreationDate="2015-01-08T16:14:55.243" Score="11" Body="&lt;p&gt;In Labor Economics, &lt;strong&gt;&quot;Extensive margin&quot;&lt;/strong&gt; refers to &quot;how many people work&quot;. &lt;strong&gt;&quot;Intensive margin&quot;&lt;/strong&gt; refers to &quot;how much a given number of people work, on average&quot;. To copy from a freely available recent study by &lt;a href=&quot;http://ftp.iza.org/dp6051.pdf&quot;&gt;Blundell, Bozio and Laroque 2011&lt;/a&gt;,&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;...we split the overall level of work activity into the number of individuals in work and the intensity of work supplied by those in&#xA;  work. This reflects the distinction between whether to work and how&#xA;  much to work at the individual level and is referred to, respectively,&#xA;  as the extensive and intensive margin of labour supply. At the&#xA;  aggregate level the former is typically measured by the number of&#xA;  individuals in paid employment and the later by the average number of&#xA;  working hours.&quot;&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Evidently, it is an important distinction, especially when one wants to analyze &lt;em&gt;changes&lt;/em&gt; in employment, measured say in total number of hours worked: Say, did they increase? Why? Because more people work, or because the same number of people work more? And if the answer is &quot;both&quot;, then what portion is attributable to a change in the intensive &lt;em&gt;margin&lt;/em&gt;, and what portion to a change in the extensive &lt;em&gt;margin&lt;/em&gt;? (this is why the word &quot;margin&quot; is used).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course &quot;intensity&quot; as a word has a more general meaning, as for example the one mentioned in another answer here -it may be the case that people work &quot;faster&quot; and so in the same time interval, they produce more. Such changes are usually put under the concept of &quot;changes in efficiency&quot; (for example in Growth theory this is how they are called). In Labor Economics the terms have the meaning given above.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-01-08T16:24:17.443" LastActivityDate="2015-01-08T16:24:17.443" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="2948" PostTypeId="2" ParentId="1917" CreationDate="2015-01-09T07:32:48.743" Score="5" Body="&lt;p&gt;Let me preface this answer with a word of caution: your question is a very good and important one but it is also one that depends tremendously on the definitions of the terms it uses. I'm going to attempt to answer it in the most unassuming and non-technical way. You could pose it in technical terms and get a more precise answer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The wealth of the rich &lt;em&gt;can&lt;/em&gt; be attributed to the poverty of the poor. In North Korea, one of the poorest countries in terms of per-capita GDP, there are few rich people and many poor people. It is well-known that almost all of the rich people work either in the highest levels of government or the military. The poor people who are lucky enough to make any income largely do so at the behest of the rich people, and those who refuse are imprisoned or worse. Since almost all economic activity in North Korea is centrally planned via force, it follows that the rich derive their wealth from the suffering of the poor.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, in societies with more private ownership of production and capital - and less centralization - force is still useful in general but less of a factor in determining who is wealthy and who is poor.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regardless of our relative lot in life, if you and I freely trade with each other, we only do so when both of us feel like we are &quot;better off&quot; as as a result. So, if you are a wealthy industrialist and I am a poor banana farmer, and I freely decide to trade 100 of my bananas for 100 of your dollars, you necessarily think a banana is worth at least 1 dollar to you, and I necessarily think a banana is worth at most 1 dollar to me.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Excluding outright fraud (misrepresentation either of your dollars or my bananas) we must conclude that each of us either thinks this is a fair trade or that the other guy is a dope. For instance, you may know something about the value of bananas that I don't. Maybe you've just discovered that bananas have special healing powers or that my bananas are particularly good. On the other hand, maybe I know something you don't. Maybe I know that there are about to be many more banana producers in the area or that I can buy two bananas for 1 dollar somewhere else.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Usually, however, it's just a matter of what each party in the trade is able to do with the traded goods that determines what he/she thinks they are worth.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you get rich from selling my bananas at a higher price, you are not doing so &quot;at my expense&quot; as long as you are not preventing me from doing the same thing. There may be reasons you have the ability to sell bananas at a higher price that have nothing to do with force - maybe you own a distribution system or retail outlets, and I don't - but my choice isn't between selling retail bananas and selling wholesale bananas, but rather selling bananas at the highest possible price vs not selling bananas at all.&lt;/p&gt;&#xA;" OwnerUserId="2667" LastEditorUserId="2667" LastEditDate="2015-01-09T07:41:28.110" LastActivityDate="2015-01-09T07:41:28.110" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="2949" PostTypeId="1" AcceptedAnswerId="2951" CreationDate="2015-01-09T09:27:58.030" Score="2" ViewCount="188" Body="&lt;p&gt;I am working with a Realized GARCH model. I have am having some trouble understanding a concept: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Paper: &lt;a href=&quot;https://ideas.repec.org/p/aah/create/2010-13.html&quot; rel=&quot;nofollow&quot; title=&quot;Realized GARCH: A Complete Model of Returns and Realized Measures of Volatility, Hansen &amp;amp; Huang&quot;&gt;Realized GARCH: A Complete Model of Returns and Realized Measures of Volatility, Hansen &amp;amp; Haung&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;A key feature of the Realized GARCH framework is a measurement&#xA;  equation that relates the &lt;strong&gt;observed realized measure&lt;/strong&gt; to latent&#xA;  volatility&quot;.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Or from the rugarch-vignette (R), page 14: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;Unlike the naive augmentation of GARCH processes by a realized&#xA;  measures, the realGARCH model relates the &lt;strong&gt;observed realized&#xA;  measure&lt;/strong&gt; to the latent volatility...&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I am confused to exactly does &quot;observed realized measure&quot; mean? &lt;/p&gt;&#xA;" OwnerUserId="107" LastActivityDate="2015-01-09T14:43:16.907" Title="What is &quot;Observed realized measure&quot;?" Tags="&lt;econometrics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="2951" PostTypeId="2" ParentId="2949" CreationDate="2015-01-09T14:43:16.907" Score="3" Body="&lt;p&gt;I presume, that you are familiar with the subject and need clarification only upon the expression in question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I also preume that you know what volatility is. Volatility is generally unobserved in GARCH models, i.e. it can not be measured directly in which sence it is latent volatility. Usual GARCH model derives an estimate for this latent volatility from squared errors.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this paper the way to incorporate a different estimatior of the latent volatility is sujested. As it is not entirely accurate to call it an estimator, that refer to it as measure. They consider measures from the family that is commonly referred to as realized measures of volatility, e.g. realized varianse and bipower variance. So we have realized measure to latent volatility. However we can not observe a random variable, which this realized measure actually. Instead we observe one realization of it - an observation. So the numbers that we got from using these procedure are called &quot;observed realized measure to latent variation&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If my explanations were unclear or something else needs to be explained please specify it.&lt;/p&gt;&#xA;" OwnerUserId="2659" LastActivityDate="2015-01-09T14:43:16.907" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="2953" PostTypeId="1" CreationDate="2015-01-09T17:03:48.030" Score="7" ViewCount="172" Body="&lt;p&gt;One requirement for a supermodular game $(I, \mathbf S, \mathbf u)$ is usually presented in two ways (e.g. in &lt;a href=&quot;http://www.myoops.org/twocw/mit/NR/rdonlyres/Economics/14-126Game-TheoryFall2002/29E08740-716A-4165-AC15-0B4978CC57DA/0/smod11.pdf&quot;&gt;this note&lt;/a&gt;):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;For $i \in I$, $u_i$ is supermodular in $S_i$, when $s_{-i}$ is fixed, i.e. for $s_i, s_i' \in S_i$&#xA;  $$u_i(s_i \vee s_i', s_{-i})+u_i(s_i \wedge s_i', s_{-i}) \geq u_i(s_i , s_{-i})+u_i(s_i', s_{-i})$$&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Or&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;For $i \in I$, $u_i$ is upper-semicontinuous, i.e. for $\alpha \in \mathbb R$&#xA;  $$\{s_i \in S_i \mid u_i(s_i, s_{-i}) &amp;lt; \alpha\} \text{ is open.}$$&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;But they're obviously different. The former endows $S_i$ with an order structure, while the latter requires the equipment of a topology. How to understand this difference?&lt;/p&gt;&#xA;" OwnerUserId="2671" LastEditorUserId="87" LastEditDate="2015-01-17T15:12:17.757" LastActivityDate="2015-01-17T15:12:17.757" Title="How to see that upper-semicontinuity and supermodularity are equivalent in a supermodular game context?" Tags="&lt;mathematical-economics&gt;&lt;game-theory&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="2954" PostTypeId="1" CreationDate="2015-01-09T21:23:50.857" Score="7" ViewCount="1873" Body="&lt;p&gt;In finance, the variance of the returns of a security are used as a proxy for the associated risk of the security. I've seen some books include sentences like &quot;if you take variance as a measure of risk...&quot;. In what way might variance be an incomplete measure of risk? What alternatives do we have?&lt;/p&gt;&#xA;" OwnerUserId="59" LastActivityDate="2017-10-10T02:36:51.260" Title="What are alternative measures of risk?" Tags="&lt;finance&gt;&lt;decision-theory&gt;&lt;risk&gt;&lt;economic-measurement&gt;" AnswerCount="6" CommentCount="3" FavoriteCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="2955" PostTypeId="2" ParentId="1891" CreationDate="2015-01-09T21:31:39.950" Score="7" Body="&lt;p&gt;I find the following quotes to be interesting:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;[Political economy is] a branch of the science of a statesman or legislator [with the objective to provide] a plentiful revenue or subsistence for the people [and] to supply the state or commonwealth with a revenue for the publick services.&quot;—Adam Smith, 1776.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&quot;Economics is a study of man in the ordinary business of life. It enquires how he gets his income and how he uses it. Thus, it is on the one side, the study of wealth and on the other and more important side, a part of the study of man.&quot; —Alfred Marshall, 1890.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&quot;Economics is the science which studies human behavior as a relationship between ends and scarce means which have alternative uses&quot; —Lionel Robbins, 1932.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Together, I think these quotes nicely illustrate the way that economists' perceptions of their own discipline evolved over time. By the 1930s, we have Robbins' startlingly insightful observation that Economics is about choice subject to constraints, which is obviously a very general kind of problem. But even as early as the late 19th century you can already see traces of this kind of thinking in Marshall's words.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This way of thinking about economics is, I think, key to emboldening economists to reach out beyond the confines of market behavior. Indeed, I think one reason &lt;em&gt;why&lt;/em&gt; economics has been so imperialistic is that economics is as much a methodology as a body of knowledge. As such, economists have constantly looked for new problems and settings to which they can apply the tools they know.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;More recent contributions that have been important are probably:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;The work of Gary Becker, whose Nobel citation reads &quot;for having extended the domain of microeconomic analysis to a wide range of human behaviour and interaction, including non-market behavior&quot; Those non-market behaviors include important things such as fertility, marriage, and crime—not traditionally within the domain of economics.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The development of game theory and information economics. These tools equipped people with new ways of modelling social environments. A classical supply/demand type model, or a general equilibrium framework will get you quite far when studying traditional markets, but these tools are much less suitable for studying non-market behaviors that are the preserve of economic imperialism. New modelling frameworks brought about by game theory, the principal-agent model, etc. really opened the way for studying all kinds of new environments.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The Downs model, which was an early application of economic-style (specifically, Hoteling's linear city) modelling to political science—one of the most thoroughly 'colonized' disciplines.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2015-01-10T09:02:47.410" LastActivityDate="2015-01-10T09:02:47.410" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="2956" PostTypeId="2" ParentId="2954" CreationDate="2015-01-10T00:59:09.063" Score="2" Body="&lt;p&gt;For an alternative approach:  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume we have wealth $W_0$ which is certain. Assume away inflation and things to that effect.&#xA;If we invest an amount $A$ somewhere (security or whatever), whose future is uncertain, our wealth becomes a random variable&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$W_r = W_o -A + A(1+r) = W_0 + Ar, \;\;\; r \geq -1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $r$ is the proportional return, and it can be as low as $-1$, i.e. we can even completely lose the amount we have invested. This also reflects the cases of &quot;limited liability&quot; of the investor, which is what happens when ones contemplates buying bonds, stocks etc (but in other forms of investing, e.g. a Personal Business, the whole wealth of the investor may be risked, irrespective of the amount invested in the business). The source of randomness is $r$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, a &quot;conservative&quot; point of view would &lt;em&gt;ignore opportunity cost&lt;/em&gt;, and think as follows: &lt;strong&gt;&quot;I understand that the &quot;risk&quot; I am undertaking, is the possible reduction in my wealth&quot;.&lt;/strong&gt; From this definition, it follows naturally that a &lt;em&gt;measure&lt;/em&gt; of risk should be based on the change of wealth. The change in wealth is (by a &quot;before and after&quot; approach)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Delta W = W_r - W_o = Ar$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is a random variable. Accepting the expected value as a reasonable stochastic analogue of the level of a deterministic variable (it is not the only one of course, but that is another discussion), we can reasonably say that &lt;strong&gt;&quot;a quantification in wealth-units of my risk, is the expected value of negative change in wealth ($r&amp;lt;0$) given that such a thing happens, times the probability that it will indeed happen&quot;&lt;/strong&gt;. In symbols&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\text {Risk} = E(\Delta W \mid r&amp;lt; 0) \cdot P(r&amp;lt; 0) = A\cdot E(r \mid r&amp;lt; 0) \cdot P(r&amp;lt; 0) = A\cdot E(r \,; r&amp;lt; 0)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Rightarrow \text {Risk} = A\cdot \int_{-1}^0rf_r(r)dr$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $f_r(r)$ is the probability density function of $r$.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-01-11T00:51:28.187" LastActivityDate="2015-01-11T00:51:28.187" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="2957" PostTypeId="2" ParentId="2953" CreationDate="2015-01-10T10:33:04.943" Score="4" Body="&lt;p&gt;Your observation about topology and order is somewhat inaccurate. First definition make use of partial order on $S_i$ while the second make use of topology on it, but both structures are almost always specified by the assumption, that $S_i$ is a sublattise of $R^n$ and so it is equipped with usual subspace topology and partial order. This is the first point in the definition in the material you have referred to. So this worries are misplaced.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However there is some indications (see, for example, chapter 4 in Supermodularity and Complimentarity by Topkis), that the requirement of upper-semicontinuity is stronger and implies the first one. I'm not ready to provide an accurate proof, however.&lt;/p&gt;&#xA;" OwnerUserId="2659" LastActivityDate="2015-01-10T10:33:04.943" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="2958" PostTypeId="2" ParentId="2954" CreationDate="2015-01-10T10:57:35.600" Score="4" Body="&lt;p&gt;A variance is an incomplete measure of risk in a sense, that it measures uncertainty in security payoffs, rather than uncertainty in holder's welfare. In the simplest way we can demonstrate this point as follows.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose that agents want to marginally increase her holding of an asset by $\xi$ and a unit of asset provides a payoff of $x$, which is a random variable. Now we model agent as caring about volatility in her consumption $c$, which is more reasonable, than assumption that she cares about volatility in the payoff directly. Then $$Var(c+\xi x) = Var(c) + 2\xi\cdot cov(c,x) + \xi^2Var(x)$$ and the last term is negligible as $\xi$ is marginal change. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, as marginal changes are considered in equilibrium, &lt;strong&gt;it is more reasonable to take covariance between consumption and payoff as measure of riskiness of the security, rather than just variance of the payoff.&lt;/strong&gt; In practice the aggregate consumption is often used as a proxy for individual consumption.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Yet another more accurate measure of riskiness can be introduced if we were to presume not direct care for volatility in consumption, but consider an agent with a utility dependent upon his consumption stream. It is a rather lengthy technical exercise and those who are interested should look it up in an excellent textbook &quot;Asset Pricing&quot; by John Cochrane. I will limit myself with presenting the result for multiperiod discrete time model here.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we were to defined a random variable $m_t = \beta\frac{u'(c_{t+1})}{u'(c_t)}$ called &lt;strong&gt;stochastic discount factor&lt;/strong&gt; for agent with von Neumann-Morgenstern utility and discount factor $\beta$ then by the similar argument as above we may derive that &lt;strong&gt;$cov(m_t,x_t)$ should be considered to be even a better measure of riskiness of the security&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Obviously, any nonrandom transformation of the above may be considered to be measure of riskiness, namely, standard deviation and correlation instead of variance and covariance are quite popular. Also different nonrandom normalizations may be applied to $m_t$. For example $u'(c)$ may be used, as $\beta$ is nonrandom and $c_t$ is known at time $t$&lt;/p&gt;&#xA;" OwnerUserId="2659" LastActivityDate="2015-01-10T10:57:35.600" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="2959" PostTypeId="2" ParentId="1625" CreationDate="2015-01-10T17:24:44.183" Score="2" Body="&lt;p&gt;To appreciate why OPEC can´t do this now, we have to understand a little better why they were able to do it in the 1970´s - temporarily at least. The received wisdom on the 70´s crisis is a little oversimplified. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are two key things going on at that time, one was that US oil consumption was steadily increasing throughout the 60´s, which is what led to the crisis; the other was the fall out from the collapse of the Bretton Woods agreement in 1972 which had also led to oil being significantly mis-priced (too cheap in dollar terms essentially). The doubling of prices resulted from the combination of the two factors, not just from the OPEC oil sanctions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Fast forward to 2015. The situation with respect to supply is now the reverse, due to fracking, oil supply is increasing with respect to demand, rather than dropping as it was back then. We don´t have any similar level of financial crisis to muddy the waters. OPEC could reduce their production, but they are a much lower percentage of total oil production than they were then, fracking is still increasing, so it´s unlikely to have much effect. Put all that together, and throw in that it didn´t work for very long back in the 70´s - the financial crisis was probably responsible for far more disruption than the oil sanctions actually were - and OPEC has no reason to try this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is especially the case when the financial dynamics behind fracking are considered. As the oil price drops more and more oil sources become unprofitable, and will either be shut down or put on hold, eventually restoring some kind of equilibrium to the market as the new supply/demand levels assert themselves. &lt;/p&gt;&#xA;" OwnerUserId="84" LastEditorUserId="84" LastEditDate="2015-01-10T17:38:12.113" LastActivityDate="2015-01-10T17:38:12.113" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="2960" PostTypeId="1" AcceptedAnswerId="2961" CreationDate="2015-01-10T18:39:17.260" Score="10" ViewCount="13546" Body="&lt;p&gt;I am trying to understand Lagrangian multipliers and using an example problem I found online. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Problem Set Up:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider a consumer with utility function $u(x,y) = x^{\alpha} y^{1-\alpha}$, where $\alpha \in (0,1)$. Suppose this consumer has wealth $w$ and the prices $p =(p_x,p_y)$. That's all we were given.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Work I Did:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I then defined a budget constraint equation: $w = xp_x + yp_y$. I also then defined an associated Lagrangian for the consumer's maximization problem: &#xA;$\Lambda(x,y,\lambda) = x^{\alpha} y^{1-\alpha} + \lambda ((xp_x+yp_y)-w)$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My question:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What does this equation allow me to do? Although I set it up given the formula on Wikipedia's page on Lagrangian multipliers, I really have no idea what the purpose of this equation is. Like I don't understand how the equation as given allows me to determine how to maximize my utility function. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note: I am familiar with multivariable calculus and Lagrangians ($L = T -V$) in physics, but this method is new to me. &lt;/p&gt;&#xA;" OwnerUserId="2679" LastActivityDate="2015-11-04T13:01:27.537" Title="Help understanding Lagrangian multipliers?" Tags="&lt;utility&gt;" AnswerCount="5" CommentCount="1" FavoriteCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="2961" PostTypeId="2" ParentId="2960" CreationDate="2015-01-10T19:19:44.630" Score="8" Body="&lt;p&gt;A constrained optimization function maximizes or minimizes an objective subject to one or more constraints. As I understand it, the Lagrangian multiplier approach transforms a constrained optimization problem (I) into an unconstrained optimization problem (II) where the optimal control values to problem II are also the optimal control values to problem I. Additionally, the the objective functions in problems I and II take the same optimal values. The trick is a clever way of putting the constraints into the objective function directly rather than using them separately. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I agree with your presentation of the consumer's maximization problem: &#xA;$\Lambda(x,y,\lambda) = x^{\alpha} y^{1-\alpha} + \lambda ((xp_x+yp_y)-w)$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now we take the partial derivatives with respect to x an y, set them equal to zero, and then solve for x* and y*.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$0=\partial\Lambda / \partial x  = \alpha x^{\alpha -1 } y^{1-\alpha} + \lambda p_x = (\alpha / x ) x^{\alpha  } y^{1-\alpha} + \lambda p_x$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\Rightarrow -\lambda = (\alpha / (x p_x)) x^{\alpha  } y^{1-\alpha}$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$0 =\partial\Lambda / \partial y  = (1 - \alpha) x^{\alpha} y^{-\alpha} + \lambda p_y = ((1 - \alpha) / y ) x^{\alpha  } y^{1-\alpha} + \lambda p_y$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\Rightarrow -\lambda = ((1- \alpha) / (y p_y)) x^{\alpha  } y^{1-\alpha}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\Rightarrow (\alpha / (x p_x)) x^{\alpha  } y^{1-\alpha} = -\lambda = ((1- \alpha) / (y p_y)) x^{\alpha  } y^{1-\alpha}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\Rightarrow (\alpha / (x p_x)) = ((1- \alpha) / (y p_y))$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\Rightarrow ( y p_y ) / (1- \alpha) = (x p_x) / \alpha$ (eqn 1)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Recover the budget constraint equation by taking the partial derivative $\partial\Lambda / \partial \lambda = 0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$0 = \partial\Lambda / \partial \lambda = xp_x + yp_y - w \Rightarrow xp_x /  w + yp_y /w = 1$ (eqn 2)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We now have two equations and two unknowns (x,y) and can solve for x* and y*.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\Rightarrow yp_y / w  = xp_x/w \cdot (1 / \alpha - 1) = xp_x/w / \alpha - xp_x/w$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\Rightarrow 1 = yp_y / w + xp_x/w = xp_x/w / \alpha$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\rightarrow \alpha = xp_x/w$ (result 1)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\Rightarrow \alpha = xp_x/w = 1 - yp_y /w$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\rightarrow 1-\alpha =yp_y/w$ (result 2) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Results 1 and 2 form the famous constant expenditure shares result for the Cobb-Douglas utility and production functions. Which can also be explicitly solved for x* and y*: $x^* = \alpha w /p_x$ and $y^* = (1-\alpha) w /p_y$ which are the optimal values for both the Lagrangian and the original problems. &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-01-27T02:54:30.017" LastActivityDate="2015-01-27T02:54:30.017" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="2962" PostTypeId="2" ParentId="2960" CreationDate="2015-01-10T19:38:18.440" Score="2" Body="&lt;p&gt;I'd recommend you to work through this answer paragraph by paragraph, making sure you got each of them in turn, or you will get confused. You may even want to ignore later ones if it's not necessary for your purpose.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The main idea hear is that if the point is conditionall extremum, than it is necessarily a stationary point of the Lagrangian, i.e. such point, that all partial derivatives of the Lagrangian are zero in it. To solve the problem you should identify all stationary points and than find the maximum among them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However in general this recipe is not entity reliable, as the maximum may not exist. Usually you may verify it's existence with Weierstrass theorem. It requires that fiction is continuous and the set is compact which is the case here. In general it means that you need to check any boundary points of the set in question, points $x= 0$ and points $y = 0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this case your equation is insufficient for solution, as the set you are considering is defined by inequalities rather than equalities. You may point out, that the function is monotonic in $x$ and $y$, so the maximum is on the upper right boundary. Also the utility is 0 if $x = 0$ or $y=0$, while there is feasible points where it is strictly positive, so the maximum can not be attained at either left or lower boundaries. Then this approach is completely justified.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In future you should be aware that problem if such type should be generally solved by applying Kuhn-Tucker Theorem and I recomend you to get acquainted with it after you grasp this material. &lt;/p&gt;&#xA;" OwnerUserId="2659" LastActivityDate="2015-01-10T19:38:18.440" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="2963" PostTypeId="2" ParentId="2960" CreationDate="2015-01-10T19:51:44.370" Score="5" Body="&lt;p&gt;Using Lgrange multipliers to optimize a function under constraints is a useful &lt;em&gt;technique&lt;/em&gt;, although in the end, it provides additional insights and information. Sticking to the case of equality constraints, the problem&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\max_{(x,y)} u(x,y) = x^{\alpha} y^{1-\alpha},\;\; \alpha \in (0,1)$$&#xA;$$\text {s.t.} \;\;w = p_xx + p_yy$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;can of course be transformed in an unconstrained problem by direct substitution:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\max_{y} u(x,y) = \left(\frac {w-yp_y}{p_x}\right)^{\alpha} y^{1-\alpha},\;\; \alpha \in (0,1)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But in general, direct substitution can produce cumbersome expressions (especially in dynamic problems), where an algebraic mistake will be easy to make. So the Lagrange method has an advantage here. Moreover, the Lagrange multiplier has a meaningful economic interpretation. In this approach, we define a new variable, say $\lambda$, and we form the &quot;Lagrangean function&quot; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Lambda(x,y,\lambda) = x^{\alpha} y^{1-\alpha} + \lambda (w-p_xx-p_yy)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, note that $\Lambda(x,y,\lambda)$ is &lt;em&gt;equivalent&lt;/em&gt; to $u(x,y)$, since the added part to the right is identically zero. Now we maximize the Lagrangean with respect to the two variables and we obtain the first order conditions&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\partial u}{\partial x} = \lambda p_x$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\partial u}{\partial y} = \lambda p_y$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Equating through $\lambda$, this provides quickly the fundamental relation &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\partial u/\partial x} {\partial u/\partial y}= \frac  {p_x}{p_y}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This optimal relation, together with the budget constraint, provide a two-equation system in two unknowns, and so provide the solution $(x^*, y^*)$ as a function of the exogenous parameters (the utility parameter $\alpha$, the prices $(p_x,p_y)$ and the given wealth $w$).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To determine the value of $\lambda$, multiply each first-order condition throughout by $x$ and $y$ respectively and then sum by sides to get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\partial u}{\partial x}x+\frac {\partial u}{\partial y}y = \lambda (p_xx+p_yy) = \lambda w$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With utility homogeneous of degree one, as it is the case with Cobb-Douglas functions, we have that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\partial u}{\partial x}x+\frac {\partial u}{\partial y}y = u(x,y)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and so at the optimum bundle we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$u(x^*,y^*) =\lambda^*w$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And this is how the Lagrange multiplier acquires an economically meaningful interpretation: its value is the &lt;em&gt;marginal utility of wealth&lt;/em&gt;. Now, in the context of &lt;em&gt;ordinal&lt;/em&gt; utility, marginal utility is not really meaningful (see also the &lt;a href=&quot;https://economics.stackexchange.com/questions/370/when-can-one-safely-talk-about-decreasing-marginal-utility/376#376&quot;&gt;discussion here&lt;/a&gt;). But the above procedure can be applied for example to a cost-minimization problem, where the Lagrange multiplier reflects the increase in total cost by a marginal increase in quantity produced, and so it is the Marginal Cost.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-11-04T13:01:27.537" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="2964" PostTypeId="1" CreationDate="2015-01-10T21:04:06.857" Score="2" ViewCount="7874" Body="&lt;p&gt;I need to write 6-7 lines explaining why is the following statement true: &lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;A drought around the world raises the total revenue that farmers&#xA;receive from the sale of grain, but a drought only in&#xA;Kansas reduces the total revenue that Kansas farmers&#xA;receive.&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;I have few answers in my mind, but I have no economy training so it's really difficult for me to express my self using economic terms.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is anyone kind to provide me a comprehensive answer.&lt;/p&gt;&#xA;" OwnerUserId="2681" LastActivityDate="2015-01-10T21:10:18.850" Title="A general drought in the world, raises the total income that farmers receive?" Tags="&lt;macroeconomics&gt;&lt;financial-economics&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="2965" PostTypeId="2" ParentId="2964" CreationDate="2015-01-10T21:10:18.850" Score="2" Body="&lt;p&gt;The demand for the world grain is relatively inelastic, while the demand for the Kansas grain is relatively more elastic. As a worldwide drought reduces the supply of the world grain, the world price of grain rises significantly and the quantity of grain falls insignificantly. Therefore, total revenue that world farmers receive rises. On the other hand, as a drought only in Kansas reduces the supply of Kansas grain, the price of grain rises insignificantly and the quantity falls significantly. Therefore, total revenue that Kansas farmers receive falls.&lt;/p&gt;&#xA;" OwnerUserId="2681" LastActivityDate="2015-01-10T21:10:18.850" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="2966" PostTypeId="2" ParentId="2960" CreationDate="2015-01-10T22:09:33.330" Score="2" Body="&lt;p&gt;As others have noted, the essence of the Lagrange method is to convert a constrained-extremum problem into a form such that the FOC of the free-extremum problem can be applied. In your setup, you transformed the non-constrained problem ($\max u(x,y)$) to:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \Lambda = x^{\alpha} y^{1-\alpha} + \lambda (w-(xp_x+yp_y)) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you assume that the restriction will be met, that is, that $xp_x+yp_y=w$, then the last term will vanish independently of the value of $\lambda$, so that $\Lambda$ will be identical to $u$. The trick is to treat $\lambda$ as an additional choice variable, thus maximizing $\Lambda(x,y,\lambda)$. Since the first order condition for $\lambda$ is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{\partial Z}{\partial \lambda} = w-(xp_x+yp_y) = 0$$&#xA;we can be assured of the satisfaction of the constraint and the disappearance of $\lambda$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for the &lt;em&gt;interpretation&lt;/em&gt; of $\lambda_i$ (the Lagrange multiplier), in broad economic terms it is the &lt;strong&gt;shadow price&lt;/strong&gt; of the $i$th constraint. In your setup, where there's only a budget constraint, the shadow price is the opportunity cost of the budget constraint, that is, the marginal utility of budget money (income).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another way to view it is that $\lambda$ measures the sensitivity of $\Lambda$ to changes in the (budget) constraint. In fact in can be proven that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{d\Lambda^*}{dw}=\lambda^* $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Notice that for this interpretation of $\lambda^*$ to make sense you must always express the constraint as $w-(xp_x+yp_y)$, &lt;em&gt;not&lt;/em&gt; as $(xp_x+yp_y)-w$ (like you wrote on your setup).&lt;/p&gt;&#xA;" OwnerUserId="72" LastActivityDate="2015-01-10T22:09:33.330" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="2967" PostTypeId="1" AcceptedAnswerId="2988" CreationDate="2015-01-10T23:08:54.213" Score="4" ViewCount="376" Body="&lt;p&gt;For  example can the government of the UK invest in some company with shares in the FTSE 100? Or can Russia take the opportunity now that the shares of oil companies are low to buy them?&lt;/p&gt;&#xA;" OwnerUserId="2682" LastActivityDate="2015-01-13T19:25:47.937" Title="Do countries invest in the country's own stock market?" Tags="&lt;macroeconomics&gt;&lt;public-economics&gt;&lt;political-economy&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="2968" PostTypeId="1" AcceptedAnswerId="2981" CreationDate="2015-01-11T05:39:27.050" Score="1" ViewCount="1340" Body="&lt;p&gt;I have notes that say that we can make the following calculations. I'm a little confused about some of the calculations that are being made. What assumptions would I need to get the following results? Or are there errors? Specifically, I am confused by equation (1) below. In particular, this is strange to me because if I let $\rho = -1$, then equation (1) sometimes gives negative variance. (Perhaps the calculation is undefined when $\rho = -1$?)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $r_{t,t+n} = \sum_{i=1}^n r_{t+i}$. Suppose that $r_t$ is an AR(1) process (say with errors given by a mean zero Normal distribution with variance $\sigma^2$) where&#xA;$$&#xA;\text{Cov}(r_t,r_{t+j}) = \rho^j \sigma^2&#xA;$$&#xA;and thus&#xA;$$&#xA;\text{Corr}(r_t, r_{t+j}) = \rho^j.&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The notes that I have say that $\text{Var}(r_{t,t+2}) = 2(1 + \rho) \sigma^2$ and that&#xA;$$&#xA;\text{Var}(r_{t,t+n}) = \left( n + 2 \sum_{i=1}^{n-1} \rho^i (n-i) \right) \sigma^2. \tag{1}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(FWIW, this question deals with cumulative (log) returns.)&lt;/p&gt;&#xA;" OwnerUserId="59" LastEditorUserId="59" LastEditDate="2015-01-12T00:03:52.043" LastActivityDate="2015-01-12T19:51:58.557" Title="Formula for the unconditional variance of the sum of observations from an autoregressive time series" Tags="&lt;econometrics&gt;&lt;time-series&gt;&lt;autoregressive&gt;" AnswerCount="2" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="2969" PostTypeId="1" AcceptedAnswerId="2972" CreationDate="2015-01-11T07:17:43.150" Score="9" ViewCount="15440" Body="&lt;p&gt;I am confused about a particular point regarding finding a demand function. All the problems in this practice set I am doing have involved applying the method of Lagrangian multipliers. But I am uncertain if it applies here for this problem.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Problem Setup&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider a consumer with utility function $u(x,y) = \min\lbrace x,y\rbrace$. Suppose we are given wealth $w$ and prices $p_x = 1, p_y = \frac{1}{2}$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My Work&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Not much to do yet. All I did was set up a budget constraint $w = xp_x +  yp_y = x + \frac{1}{2} y$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My Confusion&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I was all set to setup a Lagrangian multiplier equation when suddenly I realized that my utility function is a $\min$ function. At first, I thought this function wasn't differentiable. Now, I am thinking it is not differentiable but it is partially differentiable. I am still unsure.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My Guess&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I suspect yes $\min$ is partially differentiable based on this thread &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://math.stackexchange.com/questions/150960/derivative-of-the-fx-y-minx-y&quot;&gt;https://math.stackexchange.com/questions/150960/derivative-of-the-fx-y-minx-y&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But I suspect my answer will need a piecewise component or something. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My Question&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are Lagrangian multipliers applicable here? If so, how do I define the Lagrangian in piecewise terms as I think I will need to do?  If it is not differentiable, how does one derive a demand function given a $\min$ or a $\max$ function? &lt;/p&gt;&#xA;" OwnerUserId="2679" LastEditorUserId="-1" LastEditDate="2017-04-13T12:19:37.213" LastActivityDate="2015-01-11T10:45:33.347" Title="Finding demand function given a utility min(x,y) function" Tags="&lt;utility&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="2970" PostTypeId="2" ParentId="2960" CreationDate="2015-01-11T09:56:07.710" Score="5" Body="&lt;p&gt;This is for &lt;em&gt;intuition,&lt;/em&gt; not for rigor, and assumes we know which way you would want to deviate from the constraint. Here it is easy; you would want to overspend, so we invoke Lagrange to discipline you to spend $w$ rather than more. Think of the problem in the following steps:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;You wish to go out and consume pizza ($x$) and beer ($y$), and ask your parents to borrow a credit card.&lt;/li&gt;&#xA;&lt;li&gt;Your parents know you, so with the credit card you get the following warning: if you spend more than $w$, we will let our evil neighbour Mr. Lagrange smack your fingers, delivering a pain worth $\lambda$ utility units per dollar you overspend.&lt;/li&gt;&#xA;&lt;li&gt;Look at the Lagrangian; it is now your utility net of penalty, as a function of pizza ($x$), beer ($y$) and pain ($\lambda\cdot(xp_x+yp_y-w)$). From your point of view, you just maximize this for given $\lambda$ (which means, in particular, that if $\lambda$ is very small, exceeding your budget grossly will be worth a small number of slaps from Mr. Lagrange).&lt;/li&gt;&#xA;&lt;li&gt;From your parents' point of view, they want to adjust $\lambda$ to the number that makes you voluntarily choose to spend precisely $w$, leaving Mr. Lagrange at bay. (Choosing $\lambda$ higher would lead to you underspending, you could adjust the interpretation accordingly.)&lt;/li&gt;&#xA;&lt;li&gt;Of course you will then choose precisely the level where you are indifferent between having and not having the bundle of additional consumption &amp;amp; penalty. Hence the shadow price interpretation: $\lambda$ is (more precisely: first-order approximates) how much you would be willing to pay - &lt;em&gt;in the same units as your objective function!&lt;/em&gt; to have your budget increased.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;As for the suggestion to change sign on the constraint: of course it works mathematically, but I hardly ever use it for instruction purposes; leaving it as it is, $u-\lambda(xp_x+yp_y-w)$ exposes a constraint (which you do not like, it reduces your utility) as equivalent to a &lt;em&gt;tax&lt;/em&gt; (which you do not like either, for the same reason). From an economic point of view, you get the idea of the constraint being implemented by a tax, and that is instructive in e.g. modeling Pigouvian taxes internalizing (unwanted negative) externalities.&lt;/p&gt;&#xA;" OwnerUserId="2683" LastEditorUserId="2683" LastEditDate="2015-01-11T10:11:47.883" LastActivityDate="2015-01-11T10:11:47.883" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="2971" PostTypeId="2" ParentId="1925" CreationDate="2015-01-11T10:32:25.757" Score="4" Body="&lt;p&gt;The simplest examples of preferences which are lns but not monotonic come from allowing satiation for some commodities, but greed for others. Here is a simple example given by a utility function on $\mathbb{R}^2_+$:&#xA;$$u(x,y)=x-|7-y|.$$&#xA;The consumer always wants more of the first good but is satiated with respect to the second good at having $7$ units of it. &lt;/p&gt;&#xA;" OwnerUserId="1442" LastEditorUserId="1442" LastEditDate="2015-01-11T11:44:02.220" LastActivityDate="2015-01-11T11:44:02.220" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="2972" PostTypeId="2" ParentId="2969" CreationDate="2015-01-11T10:45:33.347" Score="10" Body="&lt;p&gt;No, you should not use Lagrange multipliers here, but sound thinking. Suppose $x\neq y$, say for concreteness $x&amp;lt;y$. Let $\epsilon=y-x$. Then $\min\{x,y\}=x=\min\{x,x\}=\min\{x,y-\epsilon\}.$&#xA;So the consumer could reduce her consumption of good 2, without being worse off. On the other hand for all $\delta&amp;gt;0$, we would have $\min\{x+\delta,y-\epsilon/2\}&amp;gt;x=\min\{x,y\}$, so the consumer could be better of by reducing the consumption of the second good and spending the freed money on the first good. In an optimum, a consumer cannot improve so optimality requires $x=y$. It is also clear that consumers improve along the $x=y$ 45° ray. So you can simply use $x=y$ as an optimality condition to be substituted into your budget constraint and bypass Lagrange multipliers.&lt;/p&gt;&#xA;" OwnerUserId="1442" LastActivityDate="2015-01-11T10:45:33.347" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="2973" PostTypeId="1" AcceptedAnswerId="2974" CreationDate="2015-01-11T17:26:50.007" Score="-3" ViewCount="85" Body="&lt;p&gt;Only data I have is Average Revenue: &lt;strong&gt;AR=20-2Q&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;How can I calculate &lt;strong&gt;Q&lt;/strong&gt; - Quantity, &lt;strong&gt;P&lt;/strong&gt; - Price and Total Profit - &lt;strong&gt;TP&lt;/strong&gt;?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks for help&lt;/p&gt;&#xA;" OwnerUserId="2686" LastEditorUserId="43" LastEditDate="2015-02-26T01:17:54.637" LastActivityDate="2015-02-26T01:17:54.637" Title="How can I calculate Q, P, TP from AR=20-2Q?" Tags="&lt;industrial-organisation&gt;" AnswerCount="1" CommentCount="4" ClosedDate="2015-01-12T05:02:04.480" ContentLicense="CC BY-SA 3.0" />
  <row Id="2974" PostTypeId="2" ParentId="2973" CreationDate="2015-01-11T18:11:12.747" Score="4" Body="&lt;p&gt;Here's how I would solve it : &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finding Q, P, and $\pi$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$AR = 20 - 2Q$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Know : $AR = \frac{R}{Q}$ and $R = PQ$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore : &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$R = 20Q - 2Q^2$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$PQ = 20Q - 2Q^2$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\Rightarrow$ $ P = 20 - 2Q$ $\hspace{22mm} (1)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\Rightarrow$ $ Q = \frac{P - 20}{2}$ $\hspace{28mm} (2)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\Rightarrow$ $ \pi = 20Q - 2Q^2 - C$ $\hspace{8mm} (3)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Additional Information : &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$AC = 3Q$ and $MC = MR$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Know : $AC = \frac{C}{Q}$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore : &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$C = 3Q^2$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Max $\pi$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$ \pi = 20Q - 2Q^2 - 3Q^2$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac{\partial \pi}{\partial Q} = 20 - 4Q - 6Q = 0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Solve for Q then plug into (1) to find P:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$Q = 2$ and $P = 16$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Plug P and Q into $\pi$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\pi = 20(2) - 2(2^2) - 3(2^2)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\pi = 20$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/CXWyR.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;" OwnerUserId="1496" LastEditorUserId="1496" LastEditDate="2015-01-11T19:13:06.093" LastActivityDate="2015-01-11T19:13:06.093" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="2975" PostTypeId="2" ParentId="2968" CreationDate="2015-01-12T01:00:13.077" Score="2" Body="&lt;p&gt;For an AR(1) process (I omit any drift), the coefficient on the lag is the 1st-order correlation coefficient,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$r_{t+1} = \rho r_t + u_{t+1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$r_{t,t+2} = \sum_{i=1}^2 r_{t+i} = r_{t+1} + r_{t+2} = \rho r_t + u_{t+1} + \rho r_{t+1} + u_{t+2}  $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$=\rho r_t + u_{t+1} + \rho \big(\rho r_t + u_{t+1}\big) + u_{t+2} = \rho(1+\rho)r_t+(1+\rho)u_{t+1} + u_{t+2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and now the three components are independent. So&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$${\rm Var}(r_{t,t+2}) = \rho^2(1+\rho)^2\frac {\sigma^2}{1-\rho^2}+ (1+\rho)^2\sigma^2 +\sigma^2$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$=\left( (1+\rho)^2\frac {\rho^2+1-\rho^2}{1-\rho^2}+1\right)\cdot \sigma^2$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$=\left( \frac {1+\rho}{1-\rho}+1\right)\cdot \sigma^2 = \frac {2}{1-\rho}\sigma^2$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So we arrive at a different formula for ${\rm Var}(r_{t,t+2})$, compared to the one provided in these notes, and we will arrive also at a different expression for general $n$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that my result is valid for $\rho =-1$, giving ${\rm Var}(r_{t,t+2}) = \sigma^2$ in this case since here&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$r_{t+1} = - r_t + u_{t+1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and so&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$r_{t+1} + r_{t+2} = - r_t + u_{t+1}- r_{t+1} + u_{t+2} = - r_t + u_{t+1} - \big(- r_t + u_{t+1}\big) + u_{t+2} = u_{t+2}$$&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-01-12T01:00:13.077" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="2977" PostTypeId="1" CreationDate="2015-01-12T09:08:12.580" Score="3" ViewCount="143" Body="&lt;p&gt;What would happen if the entire world switched to the 4-day work week?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Specifically would someone's quality of life drop significantly in a developed or a non-developed country?&lt;/p&gt;&#xA;" OwnerUserId="2692" LastActivityDate="2015-01-15T05:40:23.953" Title="What would happen if the entire world switched to the 4-day work week?" Tags="&lt;macroeconomics&gt;&lt;labor-economics&gt;&lt;gdp&gt;" AnswerCount="1" CommentCount="8" FavoriteCount="2" ClosedDate="2015-01-14T16:01:55.793" ContentLicense="CC BY-SA 3.0" />
  <row Id="2978" PostTypeId="1" CreationDate="2015-01-12T12:49:56.757" Score="0" ViewCount="33" Body="&lt;p&gt;There are several methods measuring integration capital market. What best to measure for integration capital market?&lt;/p&gt;&#xA;" OwnerUserId="2694" LastActivityDate="2015-01-12T12:49:56.757" Title="Measuring Integrating Capital Market" Tags="&lt;macroeconomics&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="2979" PostTypeId="1" CreationDate="2015-01-12T15:48:35.670" Score="9" ViewCount="1192" Body="&lt;p&gt;I know that Dynare (which sits on top of Matlab) can solve many kinds of dynamic stochastic general equilibrium (DSGE) and overlapping generations (OLG) models. I also know that Dynare can handle some sorts of adjustment costs. For example, I have seen convex adjustment cost examples in Dynare. In particular, &lt;a href=&quot;http://www.macromodelbase.com/&quot; rel=&quot;nofollow noreferrer&quot;&gt;The Macroeconomic Model Data Base&lt;/a&gt; provides on the order of 50 models compatible with Dynare and &lt;a href=&quot;http://www.monfispol.eu/reports/the-macroeconomic-model-data-base-user-manual&quot; rel=&quot;nofollow noreferrer&quot;&gt;the user manual&lt;/a&gt; indicates several models (e.g. NK_IR04 and US_NFED0) with quadratic (a type of convex) adjustment costs. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can Dynare solve models with non-convex adjustment costs like &lt;a href=&quot;https://www2.bc.edu/matteo-iacoviello/research_files/RPE.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;An equilibrium model of lumpy housing investment&lt;/a&gt; (Iacoviello and Pavan (2008)) or &lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/S0304393212001353#&quot; rel=&quot;nofollow noreferrer&quot;&gt;Housing and debt over the life cycle and over the business cycle&lt;/a&gt; (Iacoviello and Pavan (2013))? Non-convex has a specific mathematical meaning, but in the context of these papers it indicates that adjustment costs that are not proportional to the amount of adjustment. Instead, the adjustment costs have a fixed-cost proportional to the current asset value.  However, there are other forms of non-convex adjustment cost. If Dynare can solve any model with any sort of non-convex adjustment costs that is of interest. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If models with these adjustment costs can be solved with Dynare, please provide an example or a link to an example (if possible).  If Dynare currently cannot solve these models is there any published code that can do so? Even sample code for a specific model solution rather than a general product like Dynare would be helpful.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;More details on non-convex adjustment costs&lt;/strong&gt;: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I draw my language here from a &#xA;&lt;a href=&quot;http://econweb.ucsd.edu/~mflavin/pdfs/AERhabit.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;A Model of Housing in the Presence of Adjustment Costs: A Structural Interpretation of Habit Persistence&lt;/a&gt; (Flavin and Nakagawa (2008)) &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;At the instant the house is sold, the household pays a transactions&#xA;  cost proportional to the value of the house sold, so that wealth also&#xA;  changes discontinuously....The housing model developed in Section I&#xA;  invokes a fourth set of assumptions: utility depends nonseparably on&#xA;  nondurable consumption and on housing, nondurable consumption is&#xA;  costlessly adjustable, but housing is subject to a nonconvex&#xA;  adjustment cost (&lt;span class=&quot;math-container&quot;&gt;$\lambda &amp;gt; 0 $&lt;/span&gt;).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Perhaps this language is non-standard but that's a quote from a paper in the AER, and when I've discussed it with others people seem to know what I'm talking about. The two mentioned papers don't use that language but do have the same rough form, that transaction costs are &lt;strong&gt;not&lt;/strong&gt; increasing in the degree of the adjustment but rather that any use of adjustment (other than a small bit, perhaps for depreciation or unit improvement perhaps) triggers a cost related to the state variables instead of the control variables. The paper &lt;a href=&quot;http://econweb.umd.edu/~haltiwan/Coak111105.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;On the Nature of Capital Adjustment Costs&lt;/a&gt; (Cooper and Haltiwanger (2005)) seems to use nonconvex adjustment costs in the same way in a firm capital setting. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Building upon the analysis of Abel and Eberly [1999], Cooper,&#xA;  Haltiwanger and Power [1999] and Caballero and Engel [1999], during&#xA;  periods of investment plants incur a fixed adjustment cost. Generally,&#xA;  these non-convex costs of adjustment are intended to capture&#xA;  indivisibilities in capital, increasing returns to the installation of&#xA;  new capital and increasing returns to retraining and restructuring of&#xA;  production activity. These fixed adjustment costs represent the need&#xA;  for plant restructuring, worker retraining and organizational&#xA;  restructuring during periods of intensive investment&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2019-03-16T13:12:40.437" LastActivityDate="2019-03-16T13:12:40.437" Title="Can Dynare solve general equilibrium (GE) models with non-convex adjustment costs?" Tags="&lt;macroeconomics&gt;&lt;computation&gt;&lt;dsge&gt;&lt;dynare&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="2980" PostTypeId="1" CreationDate="2015-01-12T19:00:34.110" Score="6" ViewCount="352" Body="&lt;p&gt;(Sorry for the fuzzy title, could not think of something more informative. Feel free to suggest improvements)&lt;/p&gt;&#xA;&lt;p&gt;This question is somewhat of a generalization of &lt;a href=&quot;https://economics.stackexchange.com/questions/219/osborne-nash-equilibria-and-the-correctness-of-beliefs/317#317&quot;&gt;&amp;quot;Osborne, Nash equilibria and the correctness of beliefs&amp;quot;&lt;/a&gt;.  Consider the normal form game&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$G = \langle P, S, U \rangle$&lt;/span&gt; with&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$P = \{1,\dots, m\}$&lt;/span&gt; the set of players,&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$S =\{S_1,\dots,S_m\}$&lt;/span&gt; the &lt;span class=&quot;math-container&quot;&gt;$m$&lt;/span&gt;-tuple of pure strategies for players in &lt;span class=&quot;math-container&quot;&gt;$P$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$U = \{u_1,\dots,u_m\}$&lt;/span&gt; the &lt;span class=&quot;math-container&quot;&gt;$m$&lt;/span&gt;-tuple of payoff functions for players in &lt;span class=&quot;math-container&quot;&gt;$P$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;The structure &lt;span class=&quot;math-container&quot;&gt;$G$&lt;/span&gt; is rich enough to define the notion of a Nash equilibrium (NE).&lt;/p&gt;&#xA;&lt;p&gt;However, authors sometimes describe NE based on richer models. For instance, the description by Osborne discussed in &lt;a href=&quot;https://economics.stackexchange.com/questions/219/osborne-nash-equilibria-and-the-correctness-of-beliefs/317#317&quot;&gt;&amp;quot;Osborne, Nash equilibria and the correctness of beliefs&amp;quot;&lt;/a&gt; hinges on a structure&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\hat{G} = \langle P, S, B, U \rangle$&lt;/span&gt; with&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$P = \{1,\dots, m\}$&lt;/span&gt; the set of players,&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$S =\{S_1,\dots,S_m\}$&lt;/span&gt; the &lt;span class=&quot;math-container&quot;&gt;$m$&lt;/span&gt;-tuple of pure strategies for players in &lt;span class=&quot;math-container&quot;&gt;$P$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$B = \{B_1,\dots,B_m\}$&lt;/span&gt; the &lt;span class=&quot;math-container&quot;&gt;$m$&lt;/span&gt;-tuple of possible beliefs about each other's actions for players in &lt;span class=&quot;math-container&quot;&gt;$P$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$U = \{u_1,\dots,u_m\}$&lt;/span&gt; the &lt;span class=&quot;math-container&quot;&gt;$m$&lt;/span&gt;-tuple of payoff functions for players in &lt;span class=&quot;math-container&quot;&gt;$P$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;In this setting a NE is equivalent to&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;A strategy profile &lt;span class=&quot;math-container&quot;&gt;$s^*$&lt;/span&gt; and a belief profile &lt;span class=&quot;math-container&quot;&gt;$b^*$&lt;/span&gt; in which for all &lt;span class=&quot;math-container&quot;&gt;$i\in P$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ u_i ( s^*_i ~|~ s_{-i} = b^*_{i}) \geq  u_i ( s' ~|~ s_{-i} = b^*_{i}) \text{ for all } s' \in S_i$$&lt;/span&gt;&#xA;and&#xA;&lt;span class=&quot;math-container&quot;&gt;$$b^*_i = s^*_{-i}$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Based on this equivalence, Osborne describes a NE as a situation in which&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;First, each player chooses her action according to the model of rational choice, given her beliefs about the other players' actions. Second, every player's belief about the other players' actions is correct.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Now in other settings, I have seen  justifications of NE based on other structures richer than &lt;span class=&quot;math-container&quot;&gt;$G$&lt;/span&gt;. For instance, one could have a game with incomplete information&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\tilde{G} = \langle P, \Theta, p , S, U \rangle$&lt;/span&gt; with&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$P = \{1,\dots, m\}$&lt;/span&gt; the set of players,&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\Theta = \{\Theta_1,\dots,\Theta_m\}$&lt;/span&gt; the &lt;span class=&quot;math-container&quot;&gt;$m$&lt;/span&gt;-tuple of possible types for players in &lt;span class=&quot;math-container&quot;&gt;$P$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$p$&lt;/span&gt;, a joint probability distribution over types&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$S =\{S_1,\dots,S_m\}$&lt;/span&gt; the &lt;span class=&quot;math-container&quot;&gt;$m$&lt;/span&gt;-tuple of pure strategies for players in &lt;span class=&quot;math-container&quot;&gt;$P$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$U = \{u_1,\dots,u_m\}$&lt;/span&gt; the &lt;span class=&quot;math-container&quot;&gt;$m$&lt;/span&gt;-tuple of payoff functions for players in &lt;span class=&quot;math-container&quot;&gt;$P$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;In &lt;span class=&quot;math-container&quot;&gt;$\tilde{G}$&lt;/span&gt;, a NE is equivalent to&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;A Bayesian-Nash equilibrium in which agent know each other types for sure, that is &lt;span class=&quot;math-container&quot;&gt;$p$&lt;/span&gt; is degenerate.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;In this case, one could therefore describe a NE as a situation in which&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Players know each other's type for sure and play according to a Bayesian-Nash equilibrium&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;(See for instance &amp;quot;Featherstone, C., &amp;amp; Niederle, M. (2008). Ex ante efficiency in school choice mechanisms: an experimental investigation&amp;quot;)&lt;/p&gt;&#xA;&lt;p&gt;Now these two examples puzzle me. One seems to recommend to view NE as a situation in which &lt;em&gt;beliefs about actions&lt;/em&gt; are correct, whereas the other suggests that NE be viewed as situations in which agent have &lt;em&gt;perfect information about each other's preferences&lt;/em&gt;.&lt;/p&gt;&#xA;&lt;p&gt;So my  question is :&lt;/p&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Is any of these two argument better than the another in any meaningful way? Is any of the two generalization of &lt;span class=&quot;math-container&quot;&gt;$G$&lt;/span&gt; (to &lt;span class=&quot;math-container&quot;&gt;$\tilde{G}$&lt;/span&gt; or &lt;span class=&quot;math-container&quot;&gt;$\hat{G}$&lt;/span&gt;) any more helpful than the other in terms of understanding the necessary conditions for a NE to prevail?&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;p&gt;My impression is that the concept of NE stands alone, independently of these generalizations and that there is no &amp;quot;correct&amp;quot; way of enriching the NE framework. As I understand it, &amp;quot;a NE is a situation in which agents are rational and beliefs are correct&amp;quot; is not more or less true than &amp;quot;a NE is a situation in which agents have perfect information on each other's payoffs&amp;quot;. But as I see such somewhat conflicting claims showing up again and again, I am worried that I might be missing something.&lt;/p&gt;&#xA;" OwnerUserId="38" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2018-10-19T12:58:02.293" Title="Is a Nash equilibrium anything more than what it is?" Tags="&lt;game-theory&gt;&lt;nash-equilibrium&gt;&lt;solution-concept&gt;" AnswerCount="1" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="2981" PostTypeId="2" ParentId="2968" CreationDate="2015-01-12T19:51:58.557" Score="2" Body="&lt;p&gt;Ok. I made some small computation errors and got confused here. The notes make sense with the following notational assumptions. If I write out the AR(1) process as follows (ignoring drift)&#xA;$$&#xA;r_{t+1} = r_t + \epsilon_{t+1},&#xA;$$&#xA;then we have $\text{Cov}(r_t, r_{t+j}) = \frac{\rho^j}{1 - \rho^2} \sigma_\epsilon^2$, where&#xA;$\sigma^2_\epsilon := Var(\epsilon)$. The point that I should have caught on to in the notes was exactly the point that the variance is &lt;em&gt;unconditional&lt;/em&gt; and so &#xA;$\text{Var}(r_t) = \sigma^2 = \frac{1}{1 - \rho^2} \sigma_\epsilon^2$ is the unconditional variance (the time series is stationary only when $|\rho| &amp;lt; 1$, so beware when using $\rho = -1$ as mentioned above). Given this definition, everything works. First, note that&#xA;$$&#xA;\text{Cov}(r_t, r_{t+j}) = \frac{\rho^j}{1 - \rho^2} \sigma_\epsilon^2 = \rho^j \sigma^2,&#xA;$$&#xA;as noted above. Then also notice that&#xA;\begin{align}&#xA;\text{Var}(r_{t,t+n}) &amp;amp;= \text{Var}\left (\sum_{i=1}^n r_{t+i} \right) \\&#xA; &amp;amp;= \sum_{j=1}^n \sum_{i=1}^n \text{Cov}(r_{t+1}, r_{t+j}) \\&#xA; &amp;amp;= \sum_{j=1}^n \sum_{i=1}^n \rho^{|i - j|} \sigma^2 \\&#xA; &amp;amp;= \left (n + 2 \sum_{i=1}^{n-1} \rho^j (n - i) \right) \sigma^2.&#xA;\end{align}&#xA;So, it all works out.&lt;/p&gt;&#xA;" OwnerUserId="59" LastActivityDate="2015-01-12T19:51:58.557" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="2982" PostTypeId="1" AcceptedAnswerId="2984" CreationDate="2015-01-12T21:51:07.947" Score="12" ViewCount="902" Body="&lt;p&gt;Things I have considered: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Poor economic conditions around the world could have caused an unpredicted decrease in demand. The resulting surplus has begun driving prices down. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;This could be exacerbated by a decade of record-high prices that spurred massive investment that changed supply capacity. I know part of this could also be a result of technological innovation that, over the last few years, has changed supply capacity. Add to this the relatively recent discovery of new pockets of oil/natural gas here that producers have begun exploiting. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Consumer's expect prices to continue falling and so they forgo purchasing fuel if possible. This slowdown in demand can actually help fuel that expected price drop. This could contribute to a steady downward pressure, I think. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Geopolitical relations between America, Saudi Arabia, Russia and Iran. I know that Saudi Arabia and co. could slash production in an attempt to remove the excess supply and drive prices of oil up again. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;America is now a (the?) leading oil producer world wide and the USA do not import nearly as much oil as it once did. The fact that the USA are using oil extracted and refined domestically has obvious implications etc. An interesting question is how OPEC's recent announcement to not cut production and instead let prices stay low might affect domestic production where things like horizontal drilling and fracking drive up the cost of extraction. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I would really appreciate a substantiated walkthrough of what has caused this very sharp turn around in oil prices. I know the last decade was a time of record highs...so why now the massive landslide in the value of oil?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I should say I am hoping to hear from economists who perhaps have some specialized knowledge here. I do have an undergrad degree in economics and I have read and am familiar with most of the general arguments.  I am looking for a well substantiated and thorough answer that will deepen my understanding of this issue.&lt;/p&gt;&#xA;" OwnerUserId="1655" LastEditorUserId="6168" LastEditDate="2020-05-03T09:47:28.977" LastActivityDate="2020-05-03T09:47:28.977" Title="What is the reasoning behind the sharp fall of oil prices starting in mid 2014?" Tags="&lt;macroeconomics&gt;&lt;commodities&gt;&lt;energy-economics&gt;&lt;oil&gt;&lt;resource-economics&gt;" AnswerCount="5" CommentCount="5" FavoriteCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="2983" PostTypeId="1" AcceptedAnswerId="4669" CreationDate="2015-01-12T22:17:56.247" Score="6" ViewCount="684" Body="&lt;p&gt;On page 18 of his book &lt;em&gt;Economic Theory&lt;/em&gt;, Gary Becker provides the reader with the following exercise (no answers given):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Exercise Statement:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Write the formula $\sum_j K_jN_j = 1$ where $N_j$ is the market income elasticity of demand for the $j$th good and $K_j$ is the fraction of total market income spent on $j$, in terms of the $\eta_{ij}$ and $k_{ij}$, where these are the income elasticities and shares of the $i$th person for the $j$th good. First derive the $N_j$ in terms of the $\eta_{ij}$. Is $N_j$ a simple average of the $\eta_{ij}$, or do higher income persons have a greater weight than lower income persons?&lt;/em&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My Question:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What does $\sum_j K_jN_j = 1$ represent? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My first intuition was I understand why the sum of all $K_j$ shares would add up to a whole. The sum of all shares equals the total income which could be 1. So $K_j$ would then just be a percentage of the whole. But what then would $K_jN_j$ represent? This is where I got stuck. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Okay here's my first stab at the problem: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;We know $\eta_{ij}$ represents the income elasticity of individual $i$ with respect to the $j$th good. So by definition, the income elasticity is defined as &#xA;\begin{equation} &#xA;\eta = \frac{\partial Q}{\partial I} \frac{I}{Q}&#xA;\end{equation} &lt;/p&gt;&#xA;&#xA;&lt;p&gt;We also know the fraction of total market income individual $i$ spends on good $j$ is $k_{ij}$. I reason that this should be just the amount spent on the good divided by the total income of individual. So it should be &#xA;\begin{equation} &#xA;k_{ij} = \frac{p_jq_j}{I}&#xA;\end{equation} &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I still don't see how this should come out to $1$ though. Unless we are thinking that elasticities cancel out, such that for every $\eta_i$, $\exists$ $\eta_j = \frac{1}{\eta_i}$ such that $\eta_i\eta_j=1$. &lt;/p&gt;&#xA;" OwnerUserId="2679" LastEditorUserId="2679" LastEditDate="2015-01-31T04:49:05.687" LastActivityDate="2015-08-14T16:36:45.917" Title="Help with Income Elasticity Exercise in Becker's Economic Theory" Tags="&lt;elasticity&gt;" AnswerCount="2" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="2984" PostTypeId="2" ParentId="2982" CreationDate="2015-01-12T22:26:10.903" Score="12" Body="&lt;p&gt;My understanding of the recent drop in oil price is due to recent changes in US drilling. They are now the worlds largest oil producer. &lt;a href=&quot;http://www.economist.com/blogs/economist-explains/2014/12/economist-explains-4&quot;&gt;This article&lt;/a&gt; by the economist does a good job explaining.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My answer (borrowed very heavily from the economist.)&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Demand is low because of weak economic activity, increased efficiency, and a growing switch away from oil to other fuels.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;America has become the world’s largest oil producer, creating a lot of spare supply. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The Saudis and their Gulf allies have decided not to sacrifice their own market share to restore the price. They could curb production sharply, but the main benefits would go to countries they detest such as Iran and Russia. Saudi Arabia can tolerate lower oil prices quite easily. It has \$900 billion in reserves. Its own oil costs very little (around $5-6 per barrel) to get out of the ground.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;For further reading, the NY times has a &lt;a href=&quot;http://www.nytimes.com/2015/01/13/business/energy-environment/oil-prices.html?_r=0&quot;&gt;decent article&lt;/a&gt; explaining it a little more.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;edit:&#xA;I think it is safe to assume that OPEC has market power. They can get oil far cheaper than their competitors (as referenced above).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With that in mind,&#xA;The below reference provides a model which explains what we are experiencing here. Cournot competition seems a perfect model to use.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Naoum-Sawaya, J. and Elhedhli, S. (2010). Controlled predatory pricing in a multiperiod Stackelberg game: an MPEC approach. J Glob Optim, 50(2), pp.345-362.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;A key quote from the above article: &lt;strong&gt;&quot;After reducing or eliminating competition, the predatory firm&#xA;can raise its price and compensate the loss by earning monopoly profits in the long run&quot;&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This second provides a very brief overview of OPEC and their behaviour.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;OPEC reflects on its history. Salisbury, Peter, Middle East Economic Digest.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I couldn't find an empirical study comparing a Stackleberg model to the OPEC cartel but I do not doubt that this has been done to death.&lt;/p&gt;&#xA;" OwnerUserId="40" LastEditorUserId="40" LastEditDate="2015-01-13T01:12:40.607" LastActivityDate="2015-01-13T01:12:40.607" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="2985" PostTypeId="2" ParentId="2982" CreationDate="2015-01-13T00:06:45.273" Score="3" Body="&lt;p&gt;I'll go ahead and admit that I do not have any empirical evidence, and this is more of factor to consider when evaluating future movement in the oil market. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As oil prices drop, some US oil producers will find continued exploration and production unprofitable. This will serve as a counter balance to the falling prices aa producers choose to reign in supply. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It remains to be seen if this relative decrease in supply will prove sufficient to cause any significant increase in market prices. &lt;/p&gt;&#xA;" OwnerUserId="2689" LastActivityDate="2015-01-13T00:06:45.273" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="2986" PostTypeId="1" CreationDate="2015-01-13T02:32:49.043" Score="3" ViewCount="201" Body="&lt;p&gt;Can someone explain intuitively, the Block-Marschack Polynomials that completely characterize random utility. &lt;/p&gt;&#xA;" OwnerUserId="127" LastActivityDate="2015-01-14T10:57:16.857" Title="Random Utility interpretation" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;decision-theory&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="2987" PostTypeId="2" ParentId="2982" CreationDate="2015-01-13T04:54:42.270" Score="3" Body="&lt;p&gt;The basic factors in the decline of petroleum prices is the increased production in the US in the North Dakota and Texas shale oil fields as a result of the use of hydraulic fracturing in conjunction with horizontal drilling (up to 2 miles horizontal in a single borehole. Furthermore, the Saudi Petroleum Minister chose not to reduce their output in order to bolster international prices. The International Energy Agency is forecasting the US to remain the largest petroleum producer through 2020, though the Saudi's could easily increase their production if they choose to do so. Even though we are the number one producer, we are also the number one consumer of petroleum, importing 7.5 million barrels of crude per day in 2014.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The US did become the number one petroleum producer in 2014. Prior to that Saudia Arabia and Russia ranked ahead of the US.&lt;/p&gt;&#xA;" OwnerUserId="2698" LastActivityDate="2015-01-13T04:54:42.270" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="2988" PostTypeId="2" ParentId="2967" CreationDate="2015-01-13T17:43:38.583" Score="5" Body="&lt;p&gt;One example of monetary policy is the &lt;a href=&quot;http://www.marketwatch.com/story/bank-of-japan-buys-record-amount-of-stock-etfs-2012-05-07&quot; rel=&quot;nofollow&quot;&gt;Bank of Japan buying the Nikkei&lt;/a&gt; as part of its asset purchasing program.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Typically, a substantial share of citizens' wealth is connected to returns of their national stock market.  Hence, it is generally not a wise move for a fiscal authority to invest public funds (not tied to pension schemes) in broad baskets of stocks.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You might try looking into &lt;a href=&quot;http://www.swfinstitute.org/fund-rankings/&quot; rel=&quot;nofollow&quot;&gt;sovereign wealth funds&lt;/a&gt;, these are typically gargantuan profit-maximizing investment vehicles wealthy nations use to acquire risky securities.&lt;/p&gt;&#xA;" OwnerUserId="1609" LastEditorUserId="1609" LastEditDate="2015-01-13T19:25:47.937" LastActivityDate="2015-01-13T19:25:47.937" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="2989" PostTypeId="2" ParentId="2979" CreationDate="2015-01-13T18:08:18.447" Score="3" Body="&lt;p&gt;It is generally not possible to make a sharp statement about the types of non-convex costs that Dynare can handle.  Many different factors come into play about whether a model can be &quot;solved&quot; by Dynare or not.  Is the steady-state correctly defined?  Is the model stationary?  Is the model differentiable everywhere in the ergodic set?  Are the number of endogenous and exogenous variables equal to the number of equations?  Is the model Blanchard-Kahn stable?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But, to answer your question, can Dynare solve a model with a state-contingent fixed cost?  Yes.  This is not difficult, you should try to create one yourself.  Try modifying a simple RBC model with capital and bonds.  The trouble is not inducing the cost, but rather finding the steady state, which can be quite onerous if not done cleverly.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Dynare, however, cannot solve Iacoviello and Pavan 2013 because of the min function found in a borrowing constraint.  This min function induces a point in the ergodic set which is not differentiable.  Dynare numerically approximates optimal policy functions about a steady state using perturbation methods.  This requires employing the implicit function theorem to build out Taylor expansions of the optimal policies, hence you must be able to take derivatives everywhere within the ergodic set.&lt;/p&gt;&#xA;" OwnerUserId="1609" LastEditorUserId="1609" LastEditDate="2015-01-13T19:18:06.033" LastActivityDate="2015-01-13T19:18:06.033" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="2990" PostTypeId="2" ParentId="2980" CreationDate="2015-01-13T20:59:15.673" Score="6" Body="&lt;p&gt;The conventional definition of Bayesian Nash equilibrium (BNE) is as follows:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;A pure strategy BNE is a profile of&#xA;  &lt;strong&gt;type-contingent strategies&lt;/strong&gt; $$(s_i(\theta_i),s_{-i}(\theta_{-i}))=(s_1(\theta_1),\dots,s_{i-1}(\theta_{i-1}),s_i(\theta_i),s_{i+1}(\theta_{i+1}),\dots,s_m(\theta_m))$$&#xA;  such that for each $i\in P$,  $$ s_i(\theta_i)\in\arg\max_{s_i'\in&#xA; S_i} \sum_{\theta_{-i}}p(\theta_{-i}\mid \theta_i) &#xA; u_i(s_i'(\theta_i),s_{-i}(\theta_{-i}),(\theta_i,\theta_{-i})). $$&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;If we want to define BNE with the language of beliefs about the other player's actions, we may propose the following definition: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;A pure strategy BNE is a profile of type contingent strategies&#xA;  $(s_i(\theta_i),s_{-i}(\theta_{-i}))$ and a profile of beliefs&#xA;  $b^*=\{b_i(\theta_{-i})\}_{i\in P}$, where $b_i(\cdot)$ is a&#xA;  distribution over $S_{-i}(\cdot)$ conditional on $\theta_{-i}$, such&#xA;  that &lt;/p&gt;&#xA;  &#xA;  &lt;ol&gt;&#xA;  &lt;li&gt;$s_i(\theta_i)$ maximizes $i$'s expected utility (expectation over $\theta_{-i}$) given $b_i(\cdot)$ and a prior on types; and &lt;/li&gt;&#xA;  &lt;li&gt;$b_i(\cdot)=s_{-i}(\cdot)$, i.e. beliefs in $b^*$ are correct.&lt;/li&gt;&#xA;  &lt;/ol&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Thus if the type distribution is degenerate, the definitions of BNE and NE coincide. Nevertheless, the correctness of beliefs (about the opponents' strategies) are present in both definitions. &#xA;The difference is that in BNE, players' beliefs are over a set of &lt;em&gt;functions&lt;/em&gt; (due to the fact that in Bayesian games, strategies are type-contingent). &lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2015-01-13T20:59:15.673" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="2991" PostTypeId="2" ParentId="2979" CreationDate="2015-01-13T22:53:29.757" Score="5" Body="&lt;p&gt;Short answer: no.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Dynare, and linearization/perturbation methods in general, are designed for solving&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;smooth models&lt;/li&gt;&#xA;&lt;li&gt;approximated around a single point in state space (the steady state).&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;A model with fixed cost is typically non-smooth, and its behavior away from the steady state may be very different, if e.g. the firm switches from investing to not investing. On the most practical level, a model with fixed cost will typically include equation such as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;V = \max \left\{ V^{\text{invest}}, V^{\text{not invest}} \right\},&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which cannot be entered into Dynare, because max operator is not supported. On the other hand, first order conditions for convex (e.g. quadratic) adjustment cost are still smooth (one simply adds additional terms to Euler equation for investment) and thus can be easily solved with Dynare.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To actually compute optimal policy with fixed costs, one has typically to use global method, e.g. value function iteration. I'm not aware of any standardized toolbox for solving such problems, so you may need to code your own.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;PS: there are some modelling tricks that make the problem smoother, typically in a setting with many, possibly heterogeneous agents/firms. For example, &lt;a href=&quot;http://www.juliathomas.net/ThomasMay01.pdf&quot;&gt;Thomas (2002)&lt;/a&gt; keeps track of number of firms depending on how long they didn't invest, and solves the model with standard linearization on this extended state space. &lt;a href=&quot;http://www.aubhik-khan.net/ecta5894.pdf&quot;&gt;Khan &amp;amp; Thomas (2007)&lt;/a&gt; assume that the fixed cost is random and iid over time and across firms, so one can average over the realization of fixed cost to obtain smooth value functions. &lt;a href=&quot;http://people.bu.edu/miaoj/MiaoWangET.pdf&quot;&gt;Miao &amp;amp; Wang (2014)&lt;/a&gt; use a similar approach in a model with constant returns to scale and show how it aggregates to a version of representative-firm model with only convex adjustment costs.&lt;/p&gt;&#xA;" OwnerUserId="1432" LastActivityDate="2015-01-13T22:53:29.757" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="2992" PostTypeId="1" AcceptedAnswerId="2993" CreationDate="2015-01-14T00:14:23.803" Score="5" ViewCount="13501" Body="&lt;p&gt;Suppose I have a consumer with a utility function $U(x,y) = x^\alpha y ^{1-\alpha} $ where $a \in (0,1)$. Suppose this consumer has wealth $w$ and the prices for $x$ and $y$ are $p_x$ and $p_y$ respectively. I have already set up budget constraints, calculated demand and expenditure functions. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But now I am given another utility function $\alpha \log x + (1-\alpha) \log  y$. Supposedly I can calculate the demand function for this without needing to do further calculation. I don't see how though. What property of logarithms are useful here? I know obviously the definition of a logarithm, but I haven't seen it in this context and am confused what kind of math I should apply to it to find a demand function. Is this just arithmetic? Is it calculus? What is pertinent here to solving this problem?  &lt;/p&gt;&#xA;" OwnerUserId="2679" LastActivityDate="2017-07-05T08:08:25.930" Title="Cobb-Douglas and Logarithm Utility Functions" Tags="&lt;utility&gt;&lt;cobb-douglas&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="2993" PostTypeId="2" ParentId="2992" CreationDate="2015-01-14T00:28:24.457" Score="11" Body="&lt;p&gt;Utility functions are invariant with respect to positive monotonic transformations (PMT).&#xA;Take $U(x,y)=x^\alpha y^{1-\alpha}$, and let $V(x,y)=\log(U(x,y))$ be a PMT of $U$. &#xA;Thus $V$ and $U$ both represent the same preference, and thus demand functions for $x$ and $y$ are the same.&lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2015-01-14T00:28:24.457" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="2994" PostTypeId="2" ParentId="1911" CreationDate="2015-01-14T01:21:31.217" Score="2" Body="&lt;p&gt;Consider a basic case of linear supply and demand functions for oil.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Demand: $q_d = \alpha + \beta P + \gamma X + \epsilon$ Think of X as a demand shifter, so Z could move around if the Chinese economy goes into recession or changes growth speed, someone invents a cheap hybrid car, or Americans wake up one day and decide to drive less. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Supply: $q_s = \eta + \zeta P + \psi Z + \phi$ Think of Z as a supply shifter, so if Z could move around if we have a shock to oil production like an expansion of fracking, a return of Libyan oil production to market, or the Saudis decide to reduce production for strategic reasons. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now in equilibrium supply equals demand ($q_d = q_s$):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\alpha + \beta P + \gamma X + \epsilon = q_d = q_s = \eta + \zeta P + \psi Z + \phi$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which we can solve for P:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\Rightarrow P = \frac{(\alpha - \eta) \gamma X - \psi Z  + \epsilon - \phi}{\zeta - \beta}$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can also solve for $\Delta P$:&#xA;$\Rightarrow \Delta P = \frac{ \gamma \Delta X - \psi \Delta Z  + \Delta (\epsilon - \phi)}{\zeta - \beta}$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;When we observe that P has fallen, that may be because $\Delta Z&amp;gt;0$ or because $\Delta X&amp;lt;0$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But for the economy, we'd expect quite different results from $\Delta Z&amp;gt;0$ and $\Delta X &amp;lt;0$. A negative demand shock ($\Delta X &amp;lt;0$) for oil probably reflects people being poorer and the economy heading into recession. A positive supply shock ($\Delta Z&amp;gt;0$) probably reflects technological improvements that make oil extraction more cost effective. The former bodes poorly for the economy, the latter bodes well. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So it isn't enough to say that it is an exogenous change in oil prices, we have to know more about why oil prices are changing. Economics blogger Scott Sumner warns about this particular issue, advising his students and readers to &lt;a href=&quot;http://www.themoneyillusion.com/?p=5062&quot; rel=&quot;nofollow&quot;&gt;never reason from a price change&lt;/a&gt;. However, if we can take a stand on where the shock is coming from we can get some place. For example, if we assume it is entirely a oil supply shock then because we have estimates of &lt;a href=&quot;http://onlinelibrary.wiley.com/doi/10.1111/1468-0076.00121/abstract&quot; rel=&quot;nofollow&quot;&gt;the price elasticity of demand for oil&lt;/a&gt;, we can ask how much the supply curve would have had to move to drop prices as observed. From a supply curve shift and a sense of the demand function we could then calculate the increase in social surplus(measured in dollars) from the movement in the supply curve. Or you could treat it as a pure positive income shock to american consumers, negative to American oil producers, and use estimates of fiscal multipliers and marginal propensity to consume to estimate the effects.  I suspect you could do something similar with demand shocks.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a thought experiment, I tried to think of this as a global supply shock. In my scenario oil prices are lower because production is up but there are no additional knock on effects on demand for exports or the US dollar. We also have to take a stand on if this is temporary or permanent. In general you'll get much bigger effects from permenant shocks. I'm going to assume the price shock lasts a single year. I'm not positive that's a coherent scenario but it gives me something to plug into my calculator. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&amp;amp;s=WTTNTUS2&amp;amp;f=W&quot; rel=&quot;nofollow&quot;&gt;According to the US Energy Information Administration the US is a net importer of about 5,700,000 barrels of oil and oil products a day&lt;/a&gt;. If the price of oil falls from $\approx$\$102 to  $\approx$\$40 a barrel that's about \$127 billion in savings by the American public. That works out to about \$410 a person a year or 0.75 percent of GDP. What about the fiscal multiplier you ask? The marginal propensity to consume numbers are like 4% in representative agent models, which means that if everyone were the same and we have a multiplier of 2 we'd get something like 0.81 percent of GDP. Which suggests that the direct effect of oil price changes can't be very important. That is, if the distributional consequences are not important. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The aggregate net export numbers obscure that some people are huge net exporters (the people in oil business) but the vast majority of us are modest net importers. Aggregate production was something like 3.4 billion barrels produced &lt;a href=&quot;http://www.eia.gov/todayinenergy/detail.cfm?id=12451&quot; rel=&quot;nofollow&quot;&gt;by about 600,000 workers&lt;/a&gt; call it an even two million to include support staff and that's a massive \$100,000 less per worker (noting that capital will bear much of the adjustment here, but still, that's huge). With 9.1B barrels (5.7B imports  + 3.4B domestic production) in domestic consumption , that works out to more generous /$1,800 a year in savings for the 308 million or so of us who don't work in the oil business. But if everyone is the same, none of that really matters, income losses buy the oil guys are offset but income gains by consumers except to the extent that we are net importers. Do we think that's true here?      &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In general, we think that poorer people have a higher marginal propensity to consume than richer people, which generally means that shocks that affect poor people have stronger short-run economic effects than shocks of the same size affecting rich people. The people who work in the petroleum business are much higher paid than the average American (&lt;a href=&quot;http://www.bls.gov/oes/current/naics3_211000.htm#00-0000&quot; rel=&quot;nofollow&quot;&gt;about 91k a year&lt;/a&gt; compared with say &lt;a href=&quot;http://www.ssa.gov/OACT/COLA/central.html&quot; rel=&quot;nofollow&quot;&gt;43k for the typical worker&lt;/a&gt; and of course not everyone works). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Imagine America had one guy (some trillionare) who owned all domestic oil production and consumed so little of his money that oil price shocks didn't influence his consumption (MPC = 0). Everyone else was a consumer of oil. In that world the short run aggregate effects would be more like that of giving everyone the \$1,800 wealth effect from cheaper oil. So something like 3-4% of income is a non-trivial shocks, and &lt;a href=&quot;http://www.econ2.jhu.edu/people/ccarroll/papers/cstwMPC.pdf&quot; rel=&quot;nofollow&quot;&gt;by some accounts lower income people have MPC as high as 0.5&lt;/a&gt;, so that could be say 1.5 - 2 percent of GDP directly.  You'd also get a knock on effect of whatever you think the fiscal multiplier is. Some people would say about 2. So that tells you 3-4 percent of GDP stimulus effect should be the upper bound. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So in my thought experiment I'd say something between 0.75 - 4% of GDP effect from the oil price drop of \$62 a barrel from a pure supply effect. &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-01-19T00:46:33.677" LastActivityDate="2015-01-19T00:46:33.677" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="2995" PostTypeId="2" ParentId="2992" CreationDate="2015-01-14T02:44:18.617" Score="1" Body="&lt;p&gt;As already mentioned before the result of performing utility maximization is invariant under monotone transformations in the following sense. Let the demand $x^{*}(p,w)=\arg\max_{x\in B(p,w)}u(x)$, as with all optimization problems $x^{*}(p,w)=\arg\max_{x \in  B(p,w)}V(u(x))$, where V is a monotone map. Notice that the value function that is $u(x^{*}(p,w))\neq V(u(x^{*}(p,w)))$ is different in the two cases but we typically do not care about this object since the utility has only ordinal information.    &lt;/p&gt;&#xA;" OwnerUserId="127" LastEditorUserId="1601" LastEditDate="2017-07-05T08:08:25.930" LastActivityDate="2017-07-05T08:08:25.930" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="2996" PostTypeId="2" ParentId="2986" CreationDate="2015-01-14T10:57:16.857" Score="2" Body="&lt;p&gt;Given a universe of choices $X$, subsets of alternatives $A \subseteq X$, and choice probabilities $\Pi_{A}(x)$ for item $x \in A \subseteq X$, the Block-Marschak polynomials can be defined recursively as (see McFadden, &lt;em&gt;Revealed stochastic preference:&#xA;a synthesis&lt;/em&gt;, 2005) as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$K_{x, \emptyset} = \Pi_{X}(x) \,, \quad K_{x, A} = \Pi_{X\setminus A}(x) - \sum_{C \subset A} K_{x, C}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When the choice probabilities are the result of utility maximization, Barbara and Pattanaik (&lt;em&gt;Falmagne and the rationalizability of stochastic choices in terms of random orderings&lt;/em&gt;, 1986) provide a useful and intuitive interpretation of $K_{x,A}$ as the probability of the event that $x$ is ranked behind the elements of $A$ and ahead of all the remaining elements in $X \setminus A$.&lt;/p&gt;&#xA;" OwnerUserId="2701" LastActivityDate="2015-01-14T10:57:16.857" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="2997" PostTypeId="2" ParentId="402" CreationDate="2015-01-14T11:26:58.800" Score="6" Body="&lt;p&gt;Clifford Winston´s &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0815793898&quot; rel=&quot;noreferrer&quot;&gt;&lt;strong&gt;excellent book&lt;/strong&gt;&lt;/a&gt; &lt;em&gt;Government Failure versus Market Failure: &#xA;Microeconomics Policy Research and Government Performance&lt;/em&gt; surveys the literature on the effects of government regulation generally and antitrust merger control specifically. He doesn't exactly answer your question on economy-wide structural effects, but largely concludes that merger control is rather ineffective. A small quote:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Evidence from the finance literature indicates that mergers that were&#xA;  challenged by the DOJ and the FTC were in general not anticompetitive&#xA;  and would have been efficient had they been allowed to go through&#xA;  (&lt;a href=&quot;http://dx.doi.org/10.1111/j.1540-6261.1992.tb04003.x&quot; rel=&quot;noreferrer&quot;&gt;Eckbo 1992&lt;/a&gt;). Mergers that were challenged or opposed by antitrust&#xA;  regulators but were consummated anyway have often resulted in gains&#xA;  for consumers (&lt;a href=&quot;http://dx.doi.org/10.1023/a:1007979005941&quot; rel=&quot;noreferrer&quot;&gt;Schuman, Reitzes, and Rogers 1997&lt;/a&gt;; Morrison 1996).&#xA;  Finally, Crandall and Winston (2003) analyzed the effects of merger&#xA;  policy on price-cost margins and found that the antitrust authorities&#xA;  have primarily attacked mergers that would enhance efficiency, either&#xA;  by blocking them in court or allowing them to proceed only if the&#xA;  merger partners agreed to conditions that turned out to raise their&#xA;  costs.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="2701" LastEditorUserId="284" LastEditDate="2015-01-14T12:00:52.210" LastActivityDate="2015-01-14T12:00:52.210" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="2998" PostTypeId="2" ParentId="2977" CreationDate="2015-01-14T13:36:17.510" Score="4" Body="&lt;p&gt;Based on the OP's comment directed at @StevenLandsburg, it appears that what we are discussing here is &quot;same $L$abor amount, more $H$eads&quot;. So if currently we have $H = L/40$ we will roughly have $H' = (1/0.8)\cdot(L/40) \Rightarrow H' = 1.25H$.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assuming that there are $25$% more Heads to go to work, this is a redistribution of the same labor income from current earners to non-earners, possibly partly offset by the reduction of unemployment benefits and other transfers that are somehow related to non-earners, which could materialize as lower taxes.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another interesting aspect here would be the effect on savings: if savings are non-linearly related to income, and then, reasonably expected to be a &lt;em&gt;convex&lt;/em&gt; function of it (the higher the income, the higher &lt;em&gt;proportion&lt;/em&gt; of it is saved), then such a redistribution would lower savings in favor of consumption (but only partially, since part of this +$25$% would come from households that had already some earners, thus tending to re-instate &lt;em&gt;family&lt;/em&gt; income). In any case, lower savings would mean lower available funds for loans and investments. What would that do to capital accumulation, capital level and hence profit maximizing demand for labor? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, part of the non-earners that they will now go to paid work, may have been engaged in &quot;non-market&quot;, &quot;home production&quot;. What will happen with this aspect? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words, as comments suggested this needs a fully specified model, even if it is only a highly abstract one, and depending on the assumptions of the model, even within the &quot;usual&quot; variety of assumptions, conclusions will most probably differ.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-01-15T05:40:23.953" LastActivityDate="2015-01-15T05:40:23.953" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="2999" PostTypeId="1" CreationDate="2015-01-14T15:30:46.287" Score="2" ViewCount="173" Body="&lt;p&gt;I have been reading the work of Alesina &lt;a href=&quot;http://scholar.harvard.edu/files/alesina/files/dollarization.pdf&quot; rel=&quot;nofollow&quot;&gt;http://scholar.harvard.edu/files/alesina/files/dollarization.pdf&lt;/a&gt;, about the pros and cons of dollarization (i.e. adopting the currency of other country, say the dollar). It is not the case of the European Union by the way, here the small open economy completely gives up on having its own currency. &#xA;Countries like Panama, El Salvador, and Ecuador have adopted such monetary policy and have done well during expansionary part of the cycle. Now, most commodities prices, of which these countries depends are down, and evidence will be available of the costs of dollarization. However, here I ask about theoretical reasons of why this extreme fixed exchange rate is better with a flexible scheme. The trade-off is between stable and credible monetary policies and flexible possibly manipulable ones in countries with weak institutions. &lt;/p&gt;&#xA;" OwnerUserId="127" LastActivityDate="2015-01-14T22:10:01.090" Title="Is Dollarization a good decision for a small open economy with an economic cycle that weakly correlates with the anchor country?" Tags="&lt;monetary-policy&gt;&lt;money-supply&gt;&lt;open-economy-macro&gt;" AnswerCount="1" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3000" PostTypeId="1" AcceptedAnswerId="3006" CreationDate="2015-01-14T16:15:19.137" Score="4" ViewCount="91" Body="&lt;p&gt;I'm trying to understand the tools used/presented in &lt;a href=&quot;http://www.larspeterhansen.org/documents/2012_Risk_OpMe_E_Dynamic_valuation_decomposition.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Lars Hansen's Econometrica paper &quot;Dynamic Valuation Decomposition within Stochastic Economies.&quot;&lt;/a&gt; In a part in the paper, Hansen introduces a long-term approximation. This approximation first requires us to solve for a principle eigenfunction of a kind of conditional expectation operator. As an exercise, I'm trying to solve the following example.&#xA;$\newcommand{\E}{\mathbb E}$&#xA;Suppose that&#xA;$$&#xA;X_{t+1} = A X_t + B W_{t+1}&#xA;$$&#xA;where A has stable eigenvalues and $\{W_{t+1} : t = 0,1,... \}$ is an iid sequence of multivariate standard normally distributed random vectors. Suppose that&#xA;$$&#xA;\log M_{t+1} - \log M_t = D \cdot X_t + F \cdot W_{t+1}.&#xA;$$&#xA;I want to show that there exists a solution to the equation&#xA;$$&#xA;\E \left [ \frac{M_{t+1}}{M_t} e(X_{t+1}) \mid X_t = x \right ] = \exp(\eta) e(x) \tag{1}&#xA;$$&#xA;for $\log e(x) = H \cdot x.$ I also want to compute that value of $\eta$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Progress:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The beginning of the problem is straightforward. Using the properties of log-normal random variables, we can calculate from (1)&#xA;\begin{align}&#xA;\exp\{ (D' + H'A) x + \frac 12 (F' + H' B)'(F' + H'B)\} &amp;amp;= \exp\{\eta + H' x\} \\&#xA;(D' + H'(A - I)) x + \frac 12 (F' + H'B)'(F' + H'B) &amp;amp;= \eta.&#xA;\end{align}&#xA;This is probably a simple question from here. It seems clear that a solution exists, and I have solved for $\eta.$ But from what I understand, solving this problem involves making a &quot;guess&quot; that $e$ was linear in $x$. I don't know what $H$ is. Thus, I need to solve for $H$ and $\eta$. How would I do this?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Note:&lt;/em&gt; This problem is related to &lt;a href=&quot;https://economics.stackexchange.com/questions/1933/decomposition-of-an-additive-functional-into-a-martingale-part-and-other&quot;&gt;this problem about the &quot;Decomposition of an additive functional into a Martingale part and other.&lt;/a&gt;&quot;&lt;/p&gt;&#xA;" OwnerUserId="59" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-01-20T09:42:06.003" Title="Multiplicative factorization of stochastic growth time series--solving for an eigenfunction/eigenvector" Tags="&lt;econometrics&gt;&lt;economic-growth&gt;&lt;risk&gt;&lt;uncertainty&gt;&lt;eigenvalue&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="3001" PostTypeId="1" CreationDate="2015-01-14T17:22:53.053" Score="2" ViewCount="59" Body="&lt;p&gt;This question is a little more specific than the title. Here I use the same notation that is set forth in &lt;a href=&quot;https://economics.stackexchange.com/questions/2968/formula-for-the-unconditional-variance-of-the-sum-of-observations-from-an-autore&quot;&gt;this other question about cumulative returns&lt;/a&gt; (the sum of return observations). That is, let $r_{t,t+n} = \sum_{i=1}^n r_{t+i}$. Suppose that $r_t$ is an AR(1) process (say with Normally distributed errors) where&#xA;$$&#xA;\text{Cov}(r_t,r_{t+j}) = \rho^j \sigma^2&#xA;$$&#xA;and thus&#xA;$$&#xA;\text{Corr}(r_t, r_{t+j}) = \rho^j.&#xA;$$&#xA;In the same notes references in the other question I see a claim that when $\rho = -1$&#xA;that the cumulative return is riskless, i.e.,&#xA;$$&#xA;\text{Var}(r_{t,t+n}) = 0.&#xA;$$&#xA;How can this be? For example, if I let define the AR(1) process as follows&#xA;$$&#xA;r_{t+1} = - r_t + \epsilon_{t+1},&#xA;$$&#xA;then consider the following example:&#xA;\begin{align}&#xA;\text{Var}(r_{t,t+2}) &amp;amp;= \text{Var}(r_{t+1} + r_{t+2}) \\&#xA; &amp;amp;= \text{Var}(\epsilon_{t+2}),&#xA;\end{align}&#xA;or&#xA;\begin{align}&#xA;\text{Var}(r_{t,t+4}) &amp;amp;= \text{Var}(\epsilon_{t+2} + \epsilon_{t+4}).&#xA;\end{align}&#xA;So, this doesn't appear to work.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I define $\sigma^2$ as the unconditional, long-run variance of an observation,&#xA;$\text{Var}(r_{t+1}) = \sigma^2$ as I did in the other question (&lt;a href=&quot;https://economics.stackexchange.com/questions/2968/formula-for-the-unconditional-variance-of-the-sum-of-observations-from-an-autore&quot;&gt;linked&lt;/a&gt;), then when&#xA;$\rho = -1$ this variance doesn't is undetermined/infinite. Am I missing something? Can I reconcile the claim made in these notes?&lt;/p&gt;&#xA;" OwnerUserId="59" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-01-14T17:22:53.053" Title="How can I construct a process for cumulative returns that is riskless?" Tags="&lt;finance&gt;&lt;risk&gt;&lt;probability&gt;&lt;autoregressive&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3002" PostTypeId="2" ParentId="2982" CreationDate="2015-01-14T18:19:05.990" Score="3" Body="&lt;p&gt;Considering oil as a commodity that does not expire and can be relatively easily stored, I believe the reason for the recent price drop of oil is much more political than what it has to do with economics. Russia is a giant producer of crude oil and its governmental operation fund is tightly related the export tax of oil. By lowering the price of oil, the world is effectively putting pressure on Russia and perhaps it's a punishment for invading Ukraine. &lt;/p&gt;&#xA;" OwnerUserId="2702" LastActivityDate="2015-01-14T18:19:05.990" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3003" PostTypeId="2" ParentId="281" CreationDate="2015-01-14T19:36:31.753" Score="0" Body="&lt;p&gt;An even simpler explanation is that the manufacturers &lt;strong&gt;were attempting to collude on prices&lt;/strong&gt; through their media statements. Motta's book &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0521016916&quot; rel=&quot;nofollow&quot;&gt;&lt;strong&gt;Competition Policy, Theory and Practice&lt;/strong&gt;&lt;/a&gt; has a formal analysis in Chapter 6. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your observation about a monopoly producer are treated in the analysis of &lt;strong&gt;intra-brand competition&lt;/strong&gt;. With two-part tariff contracts, producers can pay retailers a whole-sale price equal to marginal costs $w = c$, and extract the downstream profits through a fixed franchise fee $F$. Motta shows that vertical restraints such as retail price maintenance or exclusive areas imposed by monopoly producers on their downstream retailers are typically welfare enhancing (e.g. promoting customer service, such as in car dealers). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the case of &lt;strong&gt;inter-brand competition&lt;/strong&gt;, vertical restraints are much more likely to be detrimental to welfare, although case-by-case analyses are required to make any specific statements. &lt;a href=&quot;http://www.jstor.org/discover/10.2307/2555414?sid=21105627422293&amp;amp;uid=3738736&amp;amp;uid=4&amp;amp;uid=2&quot; rel=&quot;nofollow&quot;&gt;&lt;strong&gt;Bernheim &amp;amp; Whinston (1985)&lt;/strong&gt;&lt;/a&gt; identify &lt;strong&gt;common agency&lt;/strong&gt; as an indirect mechanism through which competing firms may &quot;sell out&quot; to a single party, thereby creating incentives which generate a collusive outcome. This could apply to your Indian example if retailers would sell brands from multiple manufacturers (e.g. this happens in most electronics stores). &lt;/p&gt;&#xA;" OwnerUserId="2701" LastActivityDate="2015-01-14T19:36:31.753" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3004" PostTypeId="2" ParentId="201" CreationDate="2015-01-14T19:58:59.543" Score="2" Body="&lt;p&gt;Sustained collusion in repeated games is a topic with a huge and diverse literature. Motta's book &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0521016916&quot; rel=&quot;nofollow&quot;&gt;&lt;strong&gt;Competition Policy, Theory and Practice&lt;/strong&gt;&lt;/a&gt; devotes the entire Chapter 4 to it. Chapter 2 of Whinston's &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0262731878&quot; rel=&quot;nofollow&quot;&gt;&lt;strong&gt;Lectures on Antitrust Economics&lt;/strong&gt;&lt;/a&gt; has a more high-level overview of the modern literature on price-fixing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Apart from the &lt;strong&gt;mutual observability of firm's price setting&lt;/strong&gt;, the other main complication is &lt;strong&gt;heterogeneity of beliefs about demand&lt;/strong&gt; (e.g. has there been a common demand shock, or has someone deviated from the cartel?). This literature started with &lt;a href=&quot;http://www.jstor.org/discover/10.2307/1911462?sid=21105627422293&amp;amp;uid=2&amp;amp;uid=4&amp;amp;uid=3738736&quot; rel=&quot;nofollow&quot;&gt;&lt;strong&gt;Green and Porter (1984)&lt;/strong&gt;&lt;/a&gt; who analysed cartel self-enforcement in the presence of demand uncertainty. A similar paper is &lt;a href=&quot;http://www.jstor.org/discover/10.2307/1813358?sid=21105627422293&amp;amp;uid=2&amp;amp;uid=3738736&amp;amp;uid=4&quot; rel=&quot;nofollow&quot;&gt;&lt;strong&gt;Rotemberg and Saloner (1986)&lt;/strong&gt;&lt;/a&gt; who showed that price wars are more likely during times of high demand (&quot;booms&quot;). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A recent paper is &lt;a href=&quot;http://www.jstor.org/discover/10.2307/2696363?sid=21105627508853&amp;amp;uid=4&amp;amp;uid=3738736&amp;amp;uid=2&quot; rel=&quot;nofollow&quot;&gt;&lt;strong&gt;Athey and Bagwell (2001)&lt;/strong&gt;&lt;/a&gt; where prices are publicly observed but each firm receives a privately observed cost shock in each period. They show that collusion can be maintained in such environments if high-cost firms (temporarily) give up market share. They also analyze the role of communication and side-payments (i.e. inter-firm bribes to enforce collusion).&lt;/p&gt;&#xA;" OwnerUserId="2701" LastEditorUserId="2701" LastEditDate="2015-01-14T20:19:10.327" LastActivityDate="2015-01-14T20:19:10.327" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3005" PostTypeId="2" ParentId="2999" CreationDate="2015-01-14T21:30:48.210" Score="1" Body="&lt;p&gt;Like many questions in economics, optimal behavior depends on the set of alternatives. The alternatives of Panama, El Salvador, and Ecuador to dollarization are likely a heavily politicized monetary and exchange rate policy. And so for the hypothetical small open economy considered in the question, the key issue is &quot;What's the institutional effectiveness and independence of the potential monetary authority?&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are small, open economies with well run central banks (Australia and Switzerland) but also less well run ones (Turkey).  If Panama could have Australia's quality of central bank they'd probably prefer that to dollarization. That might explain why Chile and Costa Rica, with some of the best institutions in Central America choose not to peg their currency to the dollar. If Panama did manage its own monetary affairs without a peg they'd get likely get results more like Turkey. They likely prefer dollarization to the results they'd expect from independent monetary policy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And indeed, when you peek into the past of many countries with pegged currencies, you often find an episode of poorly conducted monetary policy just before dollarization. Not Panama (never had its own currency since independence), nor El Salvador, but Ecuador introduced dollarization &lt;a href=&quot;http://en.wikipedia.org/wiki/1998%E2%80%9399_Ecuador_banking_crisis&quot; rel=&quot;nofollow&quot;&gt;in response to a severe banking and financial crisis&lt;/a&gt;. Argentina also seemed to introduce dollarization in response to monetary crisis.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are of course other considerations related to &lt;a href=&quot;http://en.wikipedia.org/wiki/Optimum_currency_area&quot; rel=&quot;nofollow&quot;&gt;optimal currency areas&lt;/a&gt;. In particular, if you do a lot of trade with the USA dollarization is less of a sacrifice with respect to the best possible independent currency and monetary policy then if you do most of your trade with a neighboring country that uses a different currency. If Mexico adopts a pegged currency at some point the dollar makes a lot more sense than the Euro when &lt;a href=&quot;http://atlas.media.mit.edu/profile/country/mex/&quot; rel=&quot;nofollow&quot;&gt;70% of their trade is with the USA&lt;/a&gt; and trade is a big part of their economy. But neighboring countries often have similar trading partners, and are in a similar position with respect to other optimal currency area criteria (no labor mobility to the reference &#xA;country, no fiscal transfer mechanism shared with the reference country, and probably similar business cycles) so institutions are going to play a important role in explaining cross-sectional differences in the decision to dollarize, and that is why I highlight that in this answer. &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-01-14T22:10:01.090" LastActivityDate="2015-01-14T22:10:01.090" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3006" PostTypeId="2" ParentId="3000" CreationDate="2015-01-14T23:44:44.740" Score="1" Body="&lt;p&gt;The progress given so far appears to be correct. Finishing this problem just requires us to argue that $H$ must be chosen so that the equation&#xA;$$&#xA;(D' + H'(A - I)) x + (F + H'B)'(F + H'B) = \eta&#xA;$$&#xA;holds for all $x$. Thus, we must have $D' + H'(A - I) = 0$ and, consequently,&#xA;$H' = D'(I-A)^{-1}$. This implies that $\eta = (F' + H'B)'(F' + H'B)$. &lt;/p&gt;&#xA;" OwnerUserId="59" LastEditorUserId="59" LastEditDate="2015-01-20T09:42:06.003" LastActivityDate="2015-01-20T09:42:06.003" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3007" PostTypeId="1" CreationDate="2015-01-15T00:09:00.610" Score="1" ViewCount="256" Body="&lt;p&gt;In 2010 the UK government simultaneously started an austerity program which cut public spending, taking money out of the economy, while enacting a quantitative easing program which injected hundreds of billions of pounds into the economy. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;How can these two seemingly conflicting programs co-exist?&lt;/p&gt;&#xA;" OwnerUserId="2703" LastEditorUserId="4020" LastEditDate="2020-05-08T09:56:38.097" LastActivityDate="2020-05-08T09:56:38.097" Title="How can austerity and quantitative easing happen simultaneously?" Tags="&lt;macroeconomics&gt;&lt;monetary-policy&gt;&lt;keynesian-economics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="3008" PostTypeId="2" ParentId="3007" CreationDate="2015-01-15T01:06:40.543" Score="3" Body="&lt;p&gt;The division comes from the entities guiding these sets of policies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The austerity program falls under &lt;em&gt;fiscal policy&lt;/em&gt;, which is controlled by Parliament. Quantitative easing falls under &lt;em&gt;monetary policy&lt;/em&gt;, which is controlled by the Bank of England.  The policies enacted by these two entities are not necessarily coordinated, and can sometimes work opposite each other's objective.&lt;/p&gt;&#xA;" OwnerUserId="1609" LastEditorUserId="1609" LastEditDate="2015-01-15T04:32:33.960" LastActivityDate="2015-01-15T04:32:33.960" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3009" PostTypeId="1" CreationDate="2015-01-15T04:07:03.930" Score="1" ViewCount="64" Body="&lt;p&gt;In this question, I'm continuing to explore the tools used/presented in &lt;a href=&quot;http://www.larspeterhansen.org/documents/2012_Risk_OpMe_E_Dynamic_valuation_decomposition.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Lars Hansen's Econometrica paper &quot;Dynamic Valuation Decomposition within Stochastic Economies&quot;&lt;/a&gt; (2012).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm trying to compute an example of the change of measure associated with multiplicative decomposition proposed in Hansen (2012). This question continues from &lt;a href=&quot;https://economics.stackexchange.com/questions/3000/multiplicative-factorization-of-stochastic-growth-time-series-solving-for-an-ei&quot;&gt;the same example&#xA;discussed in this previous question.&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\newcommand{\E}{\mathbb E}$&#xA;Suppose that&#xA;$$&#xA;X_{t+1} = A X_t + B W_{t+1}&#xA;$$&#xA;where A has stable eigenvalues and $\{W_{t+1} : t = 0,1,... \}$ is an iid sequence of multivariate standard normally distributed random vectors. Suppose that&#xA;$$&#xA;\log M_{t+1} - \log M_t = D \cdot X_t + F \cdot W_{t+1}.&#xA;$$&#xA;I want to show that there exists a solution to the equation&#xA;$$&#xA;\E \left [ \frac{M_{t+1}}{M_t} e(X_{t+1}) \mid X_t = x \right ] = \exp(\eta) e(x) \tag{1}&#xA;$$&#xA;for $\log e(x) = H \cdot x.$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From the previous question we see that&#xA;$H' = D'(A - I)^{-1}$ and $\eta = (F + H'B)'(F + H'B)$. How would I compute the change of probability measure discussed in section 6.3 of Hansen's paper? Under this change of measure, what is the conditional distribution of $X_{t+1}$ conditioned on $X_t = x$?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Progress:&lt;/strong&gt; In order to compute the proposed change of measure, I first need to complete the factorization described in equation (20) of the paper. Then I need to identify the factor $\tilde M_t$. In order to do this, I need to clarify how equation (1)&#xA;here fits into the framework outlined in the paper.&lt;/p&gt;&#xA;" OwnerUserId="59" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-01-15T04:07:03.930" Title="Example of the change of measure proposed in Hansen (2012)" Tags="&lt;econometrics&gt;&lt;finance&gt;&lt;time-series&gt;&lt;probability&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3011" PostTypeId="1" CreationDate="2015-01-15T11:45:10.440" Score="2" ViewCount="42" Body="&lt;p&gt;Macroeconomics basic formulas are referring to a model in which the raw material are unlimited.&#xA;Also the efficiency of production is a consequence of the pressure done by consumers (that buy the most cheap product, between the ones with the same level of quality).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;exist formulas that try to model an economic system that &quot;expand&quot; toward the maximization of efficiency in using the limited quantity of raw resources?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(provided that we can describe the actual basic model like one that &quot;expand&quot; toward the maximization of quantity of production and quantity of selling, by total units or by total revenue). &lt;/p&gt;&#xA;" OwnerUserId="2708" LastActivityDate="2015-01-15T14:02:14.203" Title="Macroeconomic formulas for global limited raw material economy exist?" Tags="&lt;macroeconomics&gt;&lt;economic-growth&gt;&lt;environmental-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3012" PostTypeId="2" ParentId="2941" CreationDate="2015-01-15T12:39:44.330" Score="1" Body="&lt;p&gt;From an individual perpective : &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;The intensive margin: Number of hours of work (or intensity of work) of participating workers&lt;/li&gt;&#xA;&lt;li&gt;The extensive margin: Participation decision, independently of how many hours are chosen&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;For information, in a recent meta article  &lt;a href=&quot;http://obs.rc.fas.harvard.edu/chetty/bounds_opt.pdf&quot; rel=&quot;nofollow&quot;&gt;Chetty 2012&lt;/a&gt; you have the following hisckian elasticities : &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Intensive margin: 0.33&lt;/li&gt;&#xA;&lt;li&gt;Extensive margin: 0.25&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Along with your examples, they are also used in taxation economics, as most of the modern optimal taxation problems (a la la Mirrlees 1971) results from a&#xA;trade-off between:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Equity: Redistributing to the least skilled workers&lt;/li&gt;&#xA;&lt;li&gt;Efficiency :Providing high skilled workers with incentives to&#xA;work, which directly depend on those margins&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="2709" LastActivityDate="2015-01-15T12:39:44.330" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3013" PostTypeId="2" ParentId="1917" CreationDate="2015-01-15T12:48:23.773" Score="0" Body="&lt;p&gt;I am not sure this question has a clear answer as it is stated. There are two problems that your question imply : &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;The distribution of wealth&lt;/li&gt;&#xA;&lt;li&gt;The total amount of wealth&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;If the total amount was constant then the answer would be simple : yes. But it is not, and most of the people who would say no to your question will say that rich people save and therefore invest more, take more risks, and so create more wealth than others.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To be sure whether it is true or not, and to what extent, is very complicated. For instance, a lot of macroeconomics are done with representative agents that typically do not enable very well to answer these questions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Last, this is a very hot topic right now in economics, mainly in the form of a number of papers that try to study links between growth and inequality. &lt;a href=&quot;http://www.imf.org/external/pubs/ft/sdn/2014/sdn1402.pdf&quot; rel=&quot;nofollow&quot;&gt;Here&lt;/a&gt; you can find a recent imf paper on the subject. If you want more papers, I can find some later, just add a comment.&lt;/p&gt;&#xA;" OwnerUserId="2709" LastEditorUserId="2709" LastEditDate="2015-01-15T12:55:35.260" LastActivityDate="2015-01-15T12:55:35.260" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3014" PostTypeId="2" ParentId="3011" CreationDate="2015-01-15T14:02:14.203" Score="1" Body="&lt;p&gt;I am not an expert on the domain. However, a popular extension in various domains of macroeconomics is to replace the standard Cobb-Douglas function &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Y=AK^{\alpha}L^{1-\alpha}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;by a production function that take a third resources (typically called land and noted $T$) which is supposed to be in a constant quantity. The production function hence becomes&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Y=AK^{\alpha}L^{\beta}T^{1-\alpha-\beta}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;$$\frac{\dot{A}}{A}=g $$&lt;/li&gt;&#xA;&lt;li&gt;$$\frac{\dot{L}}{L}=n $$&lt;/li&gt;&#xA;&lt;li&gt;$$ \dot{K}=sY-\delta K $$&lt;/li&gt;&#xA;&lt;li&gt;$$\frac{\dot{T}}{T}=0 $$&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;It is -to my knowledge, typically used in growth theory, to account for malthusian theories, more &lt;a href=&quot;http://web.stanford.edu/~klenow/Hansen%20and%20Prescott.pdf&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt; for instance, and some empirics &lt;a href=&quot;http://tigger.uic.edu/~gkarras/EL_2010.pdf&quot; rel=&quot;nofollow&quot;&gt;Here&lt;/a&gt;, but i guess every textbook in growth has a note or more on it. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I also recall seeing it  in international trade, but less frequently.&lt;/p&gt;&#xA;" OwnerUserId="2709" LastActivityDate="2015-01-15T14:02:14.203" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3015" PostTypeId="1" AcceptedAnswerId="3016" CreationDate="2015-01-15T15:36:41.763" Score="3" ViewCount="551" Body="&lt;p&gt;I found the following text in the paper &quot;&lt;a href=&quot;http://www.nber.org/papers/w8959.pdf&quot; rel=&quot;nofollow&quot;&gt;Real-time Price Discovery in Foreign Exchange&lt;/a&gt;&quot;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The general pattern is one of very quick exchange rate conditional mean adjustment, characterized by a jump immediately following the announcement, and little movement thereafter. Favorable U.S. “growth news” tends to produce dollar appreciation, and conversely. [...] [A] one standard deviation U.S. payroll employment surprise tends to appreciate (if positive) or depreciate (if negative) the dollar against the DM by 0.16 %.17 This is a sizeable move [...]&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;implying that this news are only available to the market once the announcement is made by the US authorities. Other similar announcements are considered: Retail Sales, Industrial Production, Consumer Credit, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am having trouble to understand why this is an acceptable explanation. From my point of view, the markets must &quot;feel&quot; the increase (decrease) and adjust accordingly before the announcement. Any price change after an announcement seem as irrational or herding behavior to me. On the other hand, I can think of examples in which a real surprise causes movements in the market: changes in Central Bank policy, social unrest, accidents, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Am I missing something?&lt;/p&gt;&#xA;" OwnerUserId="2707" LastActivityDate="2016-04-29T11:06:44.717" Title="Market Behavior under expected and unexpected news" Tags="&lt;currency&gt;&lt;financial-markets&gt;&lt;efficient-markets&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="3016" PostTypeId="2" ParentId="3015" CreationDate="2015-01-15T16:57:17.540" Score="3" Body="&lt;p&gt;Short answer: the market has a forecast of the government numbers but the market considers the actual government numbers to contain information not available to the market. Therefore when unemployment  is lower than the market forecasts this indicates that on average things will be better than than the market forecast before the release. This is not to say that the forecast has no use, nor that the government number is perfect. Instead, it merely requires that there be some information in the release not in the forecast such that differences from the forecast are informative.&lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2015-01-15T16:57:17.540" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3017" PostTypeId="1" CreationDate="2015-01-15T21:07:52.700" Score="5" ViewCount="208" Body="&lt;p&gt;In Hayashi Econometrics, page 207-8, ex3 (see hint), he says that even if a population moment conditions (GMM setting) system is overidentified it still has a solution, while the sample moment conditions system cannot.&lt;/p&gt;&#xA;&lt;p&gt;I'm having a hard time understanding this.&lt;/p&gt;&#xA;&lt;p&gt;Any help would be appreciated.&lt;/p&gt;&#xA;&lt;p&gt;By the way, I've also posted this question on &lt;a href=&quot;https://stats.stackexchange.com/questions/133578/possibility-of-solution-in-overdetermined-system-of-moment-conditions&quot;&gt;CrossValidated&lt;/a&gt;. I hope there's no problem.&lt;/p&gt;&#xA;&lt;p&gt;Edit: Check Jayk answer in CV. ;)&lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2016-11-25T12:47:49.407" Title="Solution of overdetermined system of moment conditions" Tags="&lt;econometrics&gt;" AnswerCount="1" CommentCount="4" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="3018" PostTypeId="1" AcceptedAnswerId="3024" CreationDate="2015-01-15T22:00:21.307" Score="10" ViewCount="5816" Body="&lt;p&gt;Usually when we do a difference-in-differences estimation, we do it in a OLS reduced form as follows: &#xA;$$&#xA;Y_{it}=\alpha After_t+\gamma Treatment_i+\delta After*Treatment_{i,t}+X_{it}\beta+\epsilon_{i,t}&#xA;$$&#xA;However, I was wondering, if the $Treatment$ group is endogenous (e.g. self-selected), but we can define an &quot;eligible&quot; group for the treatment, whether it would be more precise to estimate a diff-in-diff in a OLS/2SLS form as:&#xA;$$&#xA;Treatment_{i,t}=constant+\alpha After_t+\gamma Eligible_i+\delta After*Eligible_{i,t}+\epsilon_{i,t}&#xA;$$and get $\hat{Treatment_{i,t}}$, then&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;Y_{i,t}=X_{it}\beta+\delta\hat{Treatment_{i,t}}+\epsilon_{i,t}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How should we understand the diff-in-diff in a OLS/2SLS form? Are there any paper using this particular identification strategy that I could take a look?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you very much in advance!&lt;/p&gt;&#xA;" OwnerUserId="2712" LastActivityDate="2019-11-21T14:13:22.880" Title="Difference-in-differences in 2SLS regression" Tags="&lt;econometrics&gt;&lt;applied-econometrics&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="3019" PostTypeId="1" CreationDate="2015-01-15T22:46:19.727" Score="1" ViewCount="66" Body="&lt;p&gt;Is it possible to calculate GPP given commonly available data like GDP and government expenditure? The example in &lt;a href=&quot;http://en.m.wikipedia.org/wiki/Private_product_remaining&quot; rel=&quot;nofollow&quot;&gt;this Wikipedia article&lt;/a&gt; seems to suggest those two alone are enough. Would nominal GDP minus federal spending equal GPP? Do I have to account for state spending too and is there any source for that?&lt;/p&gt;&#xA;" OwnerUserId="2714" LastEditorUserId="2659" LastEditDate="2015-01-17T15:11:31.727" LastActivityDate="2015-01-17T15:11:31.727" Title="Calculate Gross Private Product from standard metrics" Tags="&lt;economic-measurement&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3020" PostTypeId="1" AcceptedAnswerId="5273" CreationDate="2015-01-16T00:16:51.630" Score="8" ViewCount="38872" Body="&lt;p&gt;I recently learned how to solve the following type of problem using the method of Lagrangian multipliers: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given a consumer with utility function $u(x,y)$, wealth $w$, prices $p =(p_x,p_y)$, budget constraint $w = xp_x + yp_y$. Find the demand function for $x$ and $y$. I also learned how to find cost functions by plugging these demand functions into my budget constraint and rewriting to give a cost function. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But those cases all involved having $w$ and somehow budgeting with respect to that budget. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Problem Setup:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose a firm is a price-taker with market price for the good in question $p$. Suppose the firm has a production function $F(K,L)$. Derive the firms cost function. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My Question:&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;How should I approach this problem? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My Ideas / Thoughts Relevant for Solving Problem:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am not given wealth $w$ although I suppose I could assume any firm who is purchasing has some budget. All previous problems I have done involved two goods, but this involves one. Perhaps I could therefore have a budget constraint $w = qp$ where $q$ is the quantity and $p$ is the price as given to the price-taking firm. But Lagrangian multplier problems I have seen involve two variables and this is just a function of one. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Remark:&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The specific production function I am using is $F(K,L) = \sqrt{k} + \sqrt{l}$. I only include this in case it's relevant. I want to solve the problem myself. &lt;/p&gt;&#xA;" OwnerUserId="2679" LastActivityDate="2015-08-07T15:23:47.167" Title="How to derive firm's cost function from production function?" Tags="&lt;production-function&gt;&lt;cost&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3021" PostTypeId="2" ParentId="3015" CreationDate="2015-01-16T00:33:33.430" Score="0" Body="&lt;p&gt;They are betting on bigger growth.&#xA;Rising Industrial production, retail sales etc. are indicators for growth. Investors want to buy as soon as possible after the release of the data because they anticipate that others will want to buy as well and this demand would make the price go up. So they want to get it at the best price. Shorter term traders (whether human or automated) betting on a spike up after the news release could also be driving the price up. &lt;/p&gt;&#xA;" OwnerUserId="2717" LastActivityDate="2015-01-16T00:33:33.430" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3023" PostTypeId="2" ParentId="3020" CreationDate="2015-01-16T04:50:01.183" Score="2" Body="&lt;p&gt;You don't need to have any knowledge of &quot;wealth&quot; here, because this &quot;wealth&quot; that is necessary to produce is exactly the value of the cost function, it is what you are trying to find.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Cost function is the minimal amount of expenditures necessary to produce a given amount of product given some prices. Suppose your the price of your final good is $p$, and prices of the inputs are $w_1$ and $w_2$. Then your problem is to find such $k$ and $l$ that you can produce given amount $x$ and spend as little as possible.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This can be formilized the following way: $$c(x, w_1, w_2) = \min\limits_{k,l}(w_1 k + w_2 l), s.t. F(k,l) = x$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now you should be able to solve it by applying Lagrange multiplier technique that you have learned.&lt;/p&gt;&#xA;" OwnerUserId="2659" LastActivityDate="2015-01-16T04:50:01.183" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="3024" PostTypeId="2" ParentId="3018" CreationDate="2015-01-16T06:01:13.343" Score="6" Body="&lt;p&gt;Well, if you believe that treatment is endogenous (which depends on the problem at hand here and is not an inherent feature of the model), then using eligibility as an instrumental variable will help you to get rid of the biases due to the safe selection in treatment. (Incidentally, DID is intended to do the same, but won't do as good a job as a well chosen instrument, so there is some doubts whether applying both of them is better then resorting to only one). However it is up to you to decide whether eligibility is exogenous, as it well may be, that those who are expecting higher return to treatment made sure to be eligible.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Taking that we believe that there are some biases that arenot eliminated by DID and that eligibility can help us, there is still considerations of efficiency. In many cases eligibility may happen to be a weak instrument and then the reduction is bias will come at a cost of significant efficiency loss.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And taking a look at the particular specification that you have sugested, it seems not very reasonable in general setting. You may choose when you believe that eligibility is changing quickly, or the interaction term in second equation will be generally unhelpful. Inclusion of time After in that equation can have even more drastic consequences, as it is likely to be endogenous and will weaken the bias reduction effect. If not endogenous, it is likeliy to be negligible as well as interaction, unless Treatment is rapidly changing on it's own.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So in this case I would recommend leaving only the eligibility as an instrument in the first equation and specifying the third one in a DID form.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With respect to interpretation, my specification does not allow for a nice interpretation of difference in changes in two subgroups and should be interpreted as a difference in changes in two hypothetical subgroup where each person is divided between them with some weights.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your specification, however, loses all interpretation as DID, because you do not use the resulting interaction coefficient, but just employ more variables as instruments for treatment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Unfortunately, probably due to the aformentioned reasons, I was unable to recall or find any appropriate paper, sorry about that.&lt;/p&gt;&#xA;" OwnerUserId="2659" LastActivityDate="2015-01-16T06:01:13.343" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3025" PostTypeId="1" AcceptedAnswerId="3029" CreationDate="2015-01-16T09:20:20.390" Score="2" ViewCount="1282" Body="&lt;p&gt;There are several sellers holding some indivisible goods, and several potential buyers with different valuations for these goods.  I need to calculate the Walrasian equilibrium in this scenario, but first I need to understand what exactly &lt;em&gt;is&lt;/em&gt; a Walrasian equilibrium. So I am looking for a short, formal, operational definition of this term.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Wikipedia just links to a page about &lt;a href=&quot;https://en.wikipedia.org/wiki/General_equilibrium_theory&quot; rel=&quot;nofollow&quot;&gt;General equilibrium theory&lt;/a&gt;, which is very long and verbal, but I couldn't find there a formal definition of a Walrasian equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This page also hints that a Walrasian equilibrium is similar to &lt;a href=&quot;https://en.wikipedia.org/wiki/Competitive_equilibrium&quot; rel=&quot;nofollow&quot;&gt;Competitive equilibrium&lt;/a&gt;, but I didn't understand whether they are identical or different, and if they are different - what is the relation between them?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is also a page about a &lt;a href=&quot;https://en.wikipedia.org/wiki/Walrasian_auction&quot; rel=&quot;nofollow&quot;&gt;Walrasian auction&lt;/a&gt;, but again, I am not sure what is the relation between this and a Walrasian equilibrium?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The definition in the &lt;a href=&quot;http://economics.about.com/od/economicsglossary/g/walrasiane.htm&quot; rel=&quot;nofollow&quot;&gt;about.com dictionary&lt;/a&gt; looks promising: &quot;An allocation vector pair (x,p), where x are the quantities held of each good by each agent, and p is a vector of prices for each good, is a Walrasian equilibrium if (a) it is feasible, and (b) each agent is choosing optimally, given that agent's budget. In a Walrasian equilibrium, if an agent prefers another combination of goods, the agent can't afford it.&quot;   But, they do not define what they mean by &quot;feasible&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would very much appreciate an orderly explanation of the relation between all these different terms.&lt;/p&gt;&#xA;" OwnerUserId="385" LastActivityDate="2015-01-16T10:26:12.927" Title="competitive equilibrium, Walrasian equilibrium, Walrasian auction" Tags="&lt;general-equilibrium&gt;&lt;economic-terms&gt;&lt;definition&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="3026" PostTypeId="2" ParentId="3025" CreationDate="2015-01-16T09:43:53.063" Score="2" Body="&lt;p&gt;The definition from about.com is what you are looking for. Feasible means that total consumption of each good does not exceed total endowment (initial holding) of that good in the economy. Terms Walrasian and Competitive equilibrium can be used interchangeably here and Walrasian auction is entirely different concept.&lt;/p&gt;&#xA;" OwnerUserId="2659" LastActivityDate="2015-01-16T09:43:53.063" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="3027" PostTypeId="1" CreationDate="2015-01-16T10:18:12.650" Score="6" ViewCount="14422" Body="&lt;p&gt;So I have an exam in a bit, I understand that to find the optimal choice you have to equate tangent of the two indifference curves. However, if the other indifference curve is a perfect complement, what is MRS? I calculated the MRS as infinity/infinity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Take a look at the question below:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose Jane has an endowment of 2 units of x and 2 units of y, and has preferences given by utility function $u_J(x_J , y_J) = x_J^{2/3} \cdot y_J^{1/3}$ . Suppose Derek has an endowment of 4 units of x and 1 unit of y, and has preferences given by the utility function $u_D(x_D, y_D) = \min(x_D, 2 y_D)$.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;On an Edgeworth box diagram, indicate the set of Pareto efficient allocations. Explain how it is determined.&lt;/li&gt;&#xA;&lt;li&gt;Compute the competitive equilibrium (prices and quantities) for the exchange economy&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Was I right about the MRS being infinity over infinity? If yes, then how would I compute the Pareto Efficient outcome when I cannot equate the MRSs? I was thinking that the solution will be on one of the vertexes of Derek's indifference curve but I'm not sure (because kinks are not diff).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any ideas?&lt;/p&gt;&#xA;" OwnerUserId="1652" LastEditorUserId="1601" LastEditDate="2017-02-28T07:58:41.763" LastActivityDate="2017-02-28T14:26:51.110" Title="Perfect complement preferences in an exchange economy" Tags="&lt;pareto-efficiency&gt;&lt;perfect-complements&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="3028" PostTypeId="2" ParentId="3025" CreationDate="2015-01-16T10:20:44.627" Score="1" Body="&lt;p&gt;Walrasrian Equilibrium is just basically the same as Market Equilibrium or Competitive Equilibrium. According to the books I am reading, market clears in equilibrium; demand = initial endowment.&lt;/p&gt;&#xA;" OwnerUserId="1652" LastActivityDate="2015-01-16T10:20:44.627" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3029" PostTypeId="2" ParentId="3025" CreationDate="2015-01-16T10:26:12.927" Score="2" Body="&lt;p&gt;Yes, &lt;em&gt;Walrasian equilibrium&lt;/em&gt; and &lt;em&gt;competitive equilibrium&lt;/em&gt; are used interchangably. Both refer to a set of allocations and prices such that&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Taking prices as given, every agent weakly prefers their allocation to any other possible allocation they might receive (i.e., in an indivisible goods market, they do not want to buy some goods that they are not allocated in equilibrium, nor do they wish they didn't have to buy some goods that they are allocated in equilibrium).&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The market clears: the entire endowment of goods is allocated, and no good is allocated more than once. (This is the feasibility requirement).&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Note that in the case where the market has distinct seller and buyer roles (e.g. an auction), 1. and 2. jointly require that any unsold goods have a price of zero.&lt;/p&gt;&#xA;&lt;p&gt;The term &lt;em&gt;Walrasian auction&lt;/em&gt; is something rather unrelated. The standard classical model of supply and demand in a perfectly competitive market (i.e. the first thing you see in Econ 101) predicts price and quantity are set when supply is equal to demand. But how do we get there? Leon Walras proposed a thought experiment in which a hypothetical auctioneer called out prices and people made offers until the market converged on the prefect competition equilibrium. This hypothetical process is known as a Walrasian auction or, sometimes, Walrasian tâtonnement.&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2015-01-16T10:26:12.927" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="3030" PostTypeId="1" AcceptedAnswerId="3031" CreationDate="2015-01-16T11:34:55.113" Score="2" ViewCount="769" Body="&lt;p&gt;When explaining basic macroeconomics model involving consumption-leisure tradeoff, often diagram showing production possbility frontier (PPF) is drawn with leisure on x-axis and consumption on y-axis. But what exactly is the meaning of this production possibility frontier? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Production Possibility Froniter diagram is often drawn on two-goods basis (for example, like butter on x-axis and milk on y-axis) but I am confused on what PPF might be on consumption-leisure basis.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Reference: &lt;a href=&quot;http://newmonetarism.blogspot.com/2014/02/rbc-and-nk-in-nutshell.html&quot; rel=&quot;nofollow&quot;&gt;http://newmonetarism.blogspot.com/2014/02/rbc-and-nk-in-nutshell.html&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="1641" LastEditorUserId="1641" LastEditDate="2015-01-16T11:42:22.023" LastActivityDate="2015-01-16T13:37:16.020" Title="What is Production Possibility Frontier (PPF) diagram drawn on consumption-leisure?" Tags="&lt;macroeconomics&gt;&lt;production-function&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3031" PostTypeId="2" ParentId="3030" CreationDate="2015-01-16T11:38:02.440" Score="3" Body="&lt;p&gt;Edited because wrnog answer, did not took the time to read the page.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Without maths&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So your PPF would just be the link between leisure and consumption set by technology : the amount of leisure you choose give the time you can spend working, so the wage you earn and therefore the consumption you have (since there is no saving, all you earn is what you consume).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;With a bit of math&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You have a fixed amount of time, which we normalize to $1$. You can spend it either in leisure F (fun) or in work L (labour) so that &#xA;$$1=L+F$$&#xA;Then you get a wage $w$, that is related to $L$ in some way : $w=\psi(L)$, and you consume $C=w=\psi(L)$, so that $L=\psi^{-1}(C)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then your PPF is &#xA;$$F+\psi^{-1}(C)=1 $$&#xA;It is a relation between leisure $F$ and consumption $C$ set by technology (the way wages are fixed).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then the program is to maximize the agent utility $U(C,F)$ subject to this contraint. You can visualize it by the common tangent between iso-utility curves and your PPD.&lt;/p&gt;&#xA;" OwnerUserId="2709" LastEditorUserId="2709" LastEditDate="2015-01-16T13:37:16.020" LastActivityDate="2015-01-16T13:37:16.020" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="3032" PostTypeId="1" CreationDate="2015-01-16T12:31:08.077" Score="2" ViewCount="229" Body="&lt;p&gt;Granger proposed a test for causality based on time series, is there any relation with the notion of causality by Rubin that seems prevalent on applied micro work. The latter deals with the notion of counterfactual and how we can use an experimental set-up to capture the expected value of this parallel world situation to infer about the average effect of the intervention. &lt;/p&gt;&#xA;" OwnerUserId="127" LastActivityDate="2015-01-18T05:26:48.300" Title="What is the relation beween Granger causality and Rubin's causality?" Tags="&lt;econometrics&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="3033" PostTypeId="1" CreationDate="2015-01-16T12:39:19.170" Score="10" ViewCount="1780" Body="&lt;p&gt;I have always wondered why such a negative result such as &lt;a href=&quot;http://en.wikipedia.org/wiki/Sonnenschein%E2%80%93Mantel%E2%80%93Debreu_theorem&quot; rel=&quot;noreferrer&quot;&gt;Sonnenschein–Mantel–Debreu theorem&lt;/a&gt; (SMD) theorem is usually ignored or disregarded by practitioners, specially in macro. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The result roughly says that there is no deep empirical implications of the rationality assumptions when aggregated because the aggregate demand itself only inherits Walras' law and homogeneity of degree zero. The lack of empirical implications can be translated to the lack of identification and so we cannot hope to recover the underlying preferences from an aggregate demand setup as much of the cross-country empirical macro or calibration macro seems to try. For additional discussion of the importance of the SMD theorem, see this &lt;a href=&quot;https://rwer.wordpress.com/2014/07/21/the-sonnenschein-mantel-debreu-results-after-forty-years/&quot; rel=&quot;noreferrer&quot;&gt;piece&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In sum what are the implications of the SMD theorem for macroeconomics. &lt;/p&gt;&#xA;" OwnerUserId="127" LastEditorUserId="69" LastEditDate="2015-01-16T15:45:52.147" LastActivityDate="2021-03-11T21:35:06.163" Title="The Sonnenschein-Mantel-Debreu results, what are the implications for macroeconomics?" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;economic-methodology&gt;" AnswerCount="4" CommentCount="5" FavoriteCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="3034" PostTypeId="2" ParentId="1864" CreationDate="2015-01-16T14:24:00.380" Score="3" Body="&lt;p&gt;If I understand your question correctly then the answer is no. Consider&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;A(h) =  \left( \begin{array}{ccc}&#xA;1 &amp;amp; 1 &amp;amp; 0 \\&#xA;0 &amp;amp; 2 &amp;amp; 0 \\&#xA;2+2h &amp;amp; 0 &amp;amp; 3 \end{array} \right)&#xA;$$&#xA;For the game defined by $A(0)$ the vector $a^t(0) = \left( \frac{1}{2}, \frac{1}{2}, 0\right)$ yields an equilibrium. For any $h&amp;gt;0$ however&#xA;$$&#xA;A(h) \cdot a(0) = \left( \begin{array}{ccc}&#xA;1 \\&#xA;1 \\&#xA;1+h \end{array} \right),&#xA;$$&#xA;so $a(0)$ is no longer an equilibrium. If play around with the probabilities you will see that nearby strategies do not constitute an equilibrium either. Hence if you have a positive sequence $h_1, h_2, ...$ such that $\lim_{n\to \infty} h_n = 0$ then you cannot select a sequence of vectors $a(h_1), a(h_2), ...$ such that they are equilibrium strategies of their respective games $A(h_1), A(h_2), ...$ and&#xA;$$&#xA;\lim_{n\to \infty} a(h_n) = a(0).&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this counterexample I used that an action that was never played in $a(0)$ yielded the same payoff as actions with positive supports. If this is not the case then I think the answer to your question would be affirmative. Here is a proof for the case where $a&amp;gt;0$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since $a^t$ is a best response to $a$ we have&#xA;$$&#xA;A\cdot a = \underline{1} \cdot c&#xA;$$&#xA;where $\underline{1}$ is a vector with $1$ at all coordinates and $c \in \mathbb{R}$.&#xA;If $A$ is non-singular then&#xA;$$&#xA;a = A^{-1} \cdot \underline{1} \cdot c.&#xA;$$&#xA;As $a$ is a probability vector, $c$ is uniquely determined by $A$:&#xA;$$&#xA;1 = \underline{1}^t \cdot a = \underline{1}^t \cdot A^{-1} \cdot \underline{1} \cdot c&#xA;$$&#xA;I will use $A(h)$ to denote the perturbed matrix, and $a(h)$, $c(h)$ to denote the associated vectors. The original matrix and vectors occur at $h=0$. Since matrix inversion is continuous&#xA;$$&#xA;\lim_{h \to 0} c(h) = \lim_{h \to 0} \frac{1}{\underline{1}^t \cdot A(h)^{-1} \cdot \underline{1}} = \frac{1}{\underline{1}^t \cdot A(0)^{-1} \cdot \underline{1}} = c(0).&#xA;$$&#xA;Similarly&#xA;$$&#xA;\lim_{h \to 0} a(h) = \lim_{h \to 0} A(h)^{-1} \cdot \underline{1} \cdot c(h) = A(0)^{-1} \cdot \underline{1} \cdot c(0) = a(0).&#xA;$$&#xA;This is not an exact proof. To be exact you would have to specify the norm of a matrix, and then to prove that the above limits exist you would have to have a condition like&#xA;$$&#xA;\lim_{h \to 0} ||A(h)|| = ||A(0)|| \neq 0.&#xA;$$&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2015-01-16T14:24:00.380" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3035" PostTypeId="1" AcceptedAnswerId="3046" CreationDate="2015-01-16T15:02:01.777" Score="3" ViewCount="365" Body="&lt;p&gt;As far as I could understand, the loan system applied by banks which is based on a fractional reserve system works as follows:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Assumptions&lt;/strong&gt;:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;The bank has initially 1000$. &lt;/li&gt;&#xA;&lt;li&gt;The fractional reserve is currently 10%. &lt;/li&gt;&#xA;&lt;li&gt;For simplicity, we assume that all deposits are made only on this bank, instead of having multiple banks. It has been argued in many places that, for the overall view of the money system, that this is a justfied assumption.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;The following happens now:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;1)&lt;/strong&gt; Guy A makes a loan for 900\$. The bank keeps 100\$ (more than 10%, thus ok).&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;Total loans owned by bank: 900$&#xA;Total deposits owned by bank: 100$&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;2)&lt;/strong&gt; Guy A pays guy A', which deposits the money on the bank again.&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;Total loans owned by bank: 900$&#xA;Total deposits owned by bank: 1000$&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;3)&lt;/strong&gt; Guy B makes a loan for 800\$. The bank keeps 100$ as a new reserve (more than 10%, thus ok).&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;Total loans owned by bank: 1700$&#xA;Total deposits owned by bank: 200$&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;4)&lt;/strong&gt; Guy B pays guy B', which deposits the money on the bank again.&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;Total loans owned by bank: 1700$&#xA;Total deposits owned by bank: 1000$&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;This repeats itself a couple of times, until we arrive at:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;Total loans owned by bank: 5000$&#xA;Total deposits owned by bank: 1000$&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;From the deposits, 500\$ are reserves of the bank, which belong to the bank, and 500\$ are money which is owned by the last guy that got money from another guy.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Ok, so this is, as far as I understood, the beginning of the &quot;loan process with a fractional reserve system&quot;, with a couple of loans. The bank has still enough reserves, so it did everything ok.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Now let's assume that Guy A comes to the bank and says &quot;Hi, I'm sorry, I can't give you the money back, I'm broke&quot;.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Currently, the following thing happens: The bank says &quot;ok, so you must give us your security to cover our loss&quot; (for example the car).&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Question&lt;/strong&gt;: Why does this happen, what is the &lt;strong&gt;justification&lt;/strong&gt; for taking the car from Guy A? Since the bank never lost anything...?&lt;/p&gt;&#xA;" OwnerUserId="2721" LastEditorUserId="2721" LastEditDate="2015-01-16T15:41:18.790" LastActivityDate="2015-01-17T02:08:15.603" Title="What is the justification for it being a problem if loans are not paid back?" Tags="&lt;debt&gt;&lt;banking&gt;" AnswerCount="4" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3036" PostTypeId="2" ParentId="3035" CreationDate="2015-01-16T15:51:47.877" Score="3" Body="&lt;p&gt;I can understand how examining the question in this 'closed' form could lead to fallacious reasoning. So, let's consider this: Any person who has deposited money at that bank is allowed to come withdraw their money and the bank must be able to service that request. What if all the $(N')$ customers come to collect simultaneously? You're also incorrectly calculating the deposits held by the bank - which (I think) you seem to treat as an asset when in reality deposits are liabilities for bank. If I make a deposit to the bank, the bank loans it to person B, person B pays person B' and person B' deposits the total of the payment into the same bank (let's assume the deposit and loan are 1000 dollars for simplicity) then the bank now has 2,000 dollars in deposits. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also consider why banks need the money flowing in from loans. Remember, banks must service interest on deposits (which total more than 1000 here...do you see why now?), for operating costs and to build reserves to meet obligations. &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&quot;Why must the bank take the car from guy A...&quot; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;because the bank gave him money and he failed to repay that money. The bank must be able to balance liabilities and assets. Deposits are liabilities. Loans are assets. So what happens to the balance sheet when it loses some significant portion of its assets? &lt;/p&gt;&#xA;" OwnerUserId="1655" LastEditorUserId="1655" LastEditDate="2015-01-16T16:35:10.267" LastActivityDate="2015-01-16T16:35:10.267" CommentCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="3037" PostTypeId="2" ParentId="3027" CreationDate="2015-01-16T15:52:27.130" Score="2" Body="&lt;p&gt;Perfect complements is equivalent to Leontief utility: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$U(x,y) = min(x/a_x, y/a_y)$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The MRS is defined as: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$MRS_x,y = MU_x / MU_y$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since &lt;a href=&quot;http://people.hss.caltech.edu/~kcb/Notes/CostFunctionExamples.pdf&quot; rel=&quot;nofollow&quot;&gt;this utility function is not differentiable&lt;/a&gt; the concept of marginal substitution is not well defined for Derek. However, we don't need marginal arguments for Derek to solve the problem. A function doesn't have to be differentiable to have a unique maximum. Derek has Leontief preferences and so wants to consume $x_d = 2 y_d$ for all prices.  He exhausts his wealth (his endowment): $4 p_x + 1 p_y  = w = x_d p_x + y_d p_y$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can use this to solve for $y_d = (4 p_x + 1 p_y) / (p_y + 2 p_x)$ (eqn 1) and $x_d = 2 (4 p_x + 1 p_y) / (p_y + 2 p_x)$ (eqn 2).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Jane has Cobb-Douglas preferences and so wants to spend constant budget shares on x: $x_j p_x / (2 p_x + 2 p_y) = 2/3$ and  $y_j p_y / (2 p_x + 2p_y) = 1/3$. We can also solve these for $x_j = (2/3) / (p_x / (2 p_x + 2 p_y) )$ (eqn 3) and $y_j = (1/3) / (p_y / (2 p_x + 2p_y))$ (eqn 4). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, we also know that in equilibrium $y_j + y_d  = 3$ (eqn 5) and $x_j + x_d  = 6$ (eqn 6) This is 6 equations and 6 unknowns ($p_x, p_y, x_d, y_d, x_j, y_j$) and can be solved for the equilibrium prices and allocation.  &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2015-01-16T15:52:27.130" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3038" PostTypeId="2" ParentId="3032" CreationDate="2015-01-16T18:20:28.720" Score="5" Body="&lt;p&gt;In short, not really.  Prof. John Cochrane offers an astute example of Granger causality by stating that a weatherman Granger-causes the weather.  We know that a weatherman has no measurable role in causing the weather, but there is indeed an intertemporal correlation between what the weatherman says today and what happens tomorrow.&lt;/p&gt;&#xA;" OwnerUserId="1609" LastActivityDate="2015-01-16T18:20:28.720" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3039" PostTypeId="2" ParentId="3035" CreationDate="2015-01-16T18:46:53.000" Score="2" Body="&lt;p&gt;The problem in your reasoning is caused by the fact, that you decrease deposits every time bank makes a loan. It doesn't work like that. Deposits pile up and bank is obliged to pay them off. Your calculations suggest that when you come to a bank and ask for the money you have deposited, bank should answer &quot;Oh, well, you know... We have lent it to some other guy, so, no, we won't pay you back anything&quot;. What you have called deposits is actually a sum of reserves and free cash. Deposits on each step of your procedure are respectively $0, 900, 900, 1700, 4000$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To put it another way, the bank has not produced any actual cash. It has produced promises to pay off the money if they will be requested. This promises are trusted only while the amount of promises (total deposits, summed properly and not as you have done) exceed the amount of what is promised to the bank (loans) plus what it actually has on it's hand (and that is what you have written as deposits, cash plus reserves). As soon, as the later is lower then the former (due to decrese in loans that are to be paid to the bank) no one will trust the bank and it's promises are worth nothing. Then everyone who had a deposit in the bank won't get his money back and all of those &quot;money&quot; you have referred to will disappear. That's why you have to return money to the bank. Otherwise you are robbing the depositors.&lt;/p&gt;&#xA;" OwnerUserId="2659" LastEditorUserId="2659" LastEditDate="2015-01-16T18:53:15.950" LastActivityDate="2015-01-16T18:53:15.950" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3040" PostTypeId="1" AcceptedAnswerId="3041" CreationDate="2015-01-16T19:23:31.183" Score="1" ViewCount="88" Body="&lt;p&gt;I'm working on a practice problem where I'm giving the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Suppose a firm is a price-taker and can sell the good it produces at price $p$.&lt;/em&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is more to the problem, but it is not relevant for my question. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am not given any more information about the market other than the firm is a price-taker. So it is therefore not a price-setter meaning the market is setting the price. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can imagine two scenarios under which a firm would not be a price-setter. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(1) if there were perfect competition between sellers, the firm could not set a price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(2) Also, if there were only one buyer, the firm would not be able to set a price either since the buyer could refuse to buy until the price went low enough. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My Question:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there something that distinguishes price-taking due to competition between sellers from price-taking due to monopsony? How do I tell which one it is?&lt;/p&gt;&#xA;" OwnerUserId="2679" LastActivityDate="2015-01-16T19:48:23.633" Title="How do I distinguish price-taking in perfect competition from monopsony?" Tags="&lt;markets&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3041" PostTypeId="2" ParentId="3040" CreationDate="2015-01-16T19:48:23.633" Score="2" Body="&lt;p&gt;You may notice that the price would almost surely vary with the quantity the firm wants to sell if it were operating on a monopsonic market. (Exotic cases when this is not true may be ignored as then competitive and monopsonic markets are indistinguishable). As you are given price and not price schedule, it is a sure indication that market can be considered competitive for any practical purpose.&lt;/p&gt;&#xA;" OwnerUserId="2659" LastActivityDate="2015-01-16T19:48:23.633" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3042" PostTypeId="2" ParentId="2982" CreationDate="2015-01-16T21:20:00.773" Score="1" Body="&lt;p&gt;I really like Jamzy's explanation and believe I am not offering any new points but would like to offer additional detail.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Demand&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We see that other than in North America, economies all over the world are in a bit of a slump. Growth rate is low in Europe due to the Eurozone crisis. China's growth rate has steadily declined this decade due to a decrease in worker productivity which in turn is attributed to investments in infrastructure and real estate not having the same effect as in the past. The fall in metal ore prices has led to decreased growth on ore exporting countries like Chile and Brazil. This means aggregate demand for countries all over the world is not increasing as fast as expected. AD low (for various reasons in various countries) -&gt; less need for inputs into economy -&gt; drop in demand in global petroleum market -&gt; drop in price&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, we have vehicles becoming increasingly efficient and a transition away from oil across the globe. See this chart (&lt;a href=&quot;http://www.c2es.org/docUploads/PV-fuel-economy-standards.jpg&quot; rel=&quot;nofollow&quot;&gt;http://www.c2es.org/docUploads/PV-fuel-economy-standards.jpg&lt;/a&gt;) which shows dramatic increases in vehicular fuel efficiency in recent years.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lastly, we have countries trying to diversify their energy sources, either to reduce exposing their economies to geopolitical risk (e.g. China) or to protect the environment (e.g. Europe).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Supply&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Libya and Iraq - Libyan oil production recovered in September and Iraq's production was not affected by unrest, contrary to expectations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;OPEC's Statement&#xA;OPEC made a decision in November 2014 to maintain collective oil production at 30M b/d despite a glut in supply due to all the other factors mentioned. The intention here is pretty clear: to put American Shale and other unconventional sources of petroleum out of business. By producing extracting petrol at low prices, they force any method of production with higher costs to shutdown either temporarily or for good, depending on how long they can maintain 30M b/d. See (&lt;a href=&quot;https://imfdirect.files.wordpress.com/2014/12/oil-4.jpg&quot; rel=&quot;nofollow&quot;&gt;https://imfdirect.files.wordpress.com/2014/12/oil-4.jpg&lt;/a&gt;) for the cost curves.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On a side note, the economics of oil storage are interesting as well. Oil traders are currently keeping full oil tankers offshore due to unprofitable prices (and also because these tankers would not be needed to bring oil anywhere anyway due to lackluster demand). On the other hand, we have strategic petroleum reserves which (in the case of the US) are difficult to get oil OUT of (~45 days to fill 5M barrels from storage), leading to people arguing that the US govt should not bother refilling them.&lt;/p&gt;&#xA;" OwnerUserId="2723" LastActivityDate="2015-01-16T21:20:00.773" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3043" PostTypeId="2" ParentId="3035" CreationDate="2015-01-16T21:29:04.323" Score="3" Body="&lt;p&gt;You seem to be confused between Reserves and Deposits. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;If you don't read anything else just remember:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Reserves + Loans = Deposits&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;One way to think about it is to treat loans and reserves as the banks' assets and deposits as its liabilities. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the bank has 1000 at the start it means it has 1000 in deposits. It makes 900 in loans and keeps 100 in reserves.&#xA;Loans: 900 | Deposits: 1000 | Reserves: 100&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If someone else deposits 900 into the bank and the bank loans out 90% of 900 = 810 then we have&#xA;Loans: 1710 | Deposits: 1900 | Reserves: 190&lt;/p&gt;&#xA;" OwnerUserId="2723" LastActivityDate="2015-01-16T21:29:04.323" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3044" PostTypeId="2" ParentId="3033" CreationDate="2015-01-16T21:43:30.420" Score="3" Body="&lt;p&gt;This is somewhat broad and argumentative question, but I'll try to provide one possible answer (disclaimer: I'm not a GE theorist). SMD theorem states that imposing only the abstract structure of general equilibrium has few empirical implications. Fair enough. But it's incorrect to say that &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;we cannot hope to recover the underlying preferences from an aggregate demand setup as much of the cross-country empirical macro or calibration macro seems to try.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;because once we impose &lt;em&gt;additional&lt;/em&gt; assumptions about preferences, technologies and endowments, we do obtain additional empirical predictions (and of course, different sets of assumptions will lead to different predictions). This is precisely what economists are doing most of the time! It's not 1950's anymore - these days, there is very little research that tries to arrive at general results from abstract axioms. Most theoretical work in macroeconomics will present specific model, derive its qualitative and quantitative implications and often will include an empirical component.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another often-heard argument, present e.g. in the linked piece, is that SMD theorem shows GE models are in general unstable or indeterminate, and thus we must resort to unrealistic restrictions, such as representative agent assumption, to guarantee that our models are well-behaved. But this confuses necessary and sufficient condition: yes, assuming representative agent is sufficient to obtain well-behaved aggregate demand function, but that doesn't mean all, or even most, models with heterogeneity are somehow automatically unstable. And a logical possibility of unstable equilibrium says nothing about whether such situation is empirically relevant (maybe it is, but critics usually provide no evidence for such claims).&lt;/p&gt;&#xA;" OwnerUserId="1432" LastActivityDate="2015-01-16T21:43:30.420" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="3045" PostTypeId="1" CreationDate="2015-01-16T22:34:17.173" Score="5" ViewCount="93" Body="&lt;p&gt;I once had a physics teacher who said (paraphrased): &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;for any formula or principle you use on an exam, you have to be able to provide a real world test that would demonstrate the theory's validity. In other words, the test must show the theory accurately describes some real world phenomena.&lt;/em&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would like to better understand how economist think about &quot;testing&quot; their theories. For instance, psychology undergrads at my local university take a psych research methods course. I would like something along these lines for economics. But more than this, I want something that goes beyond just discussing research methods and actually assesses what makes high quality economic &lt;strong&gt;science.&lt;/strong&gt; In contrast to psychology, many claims in economics are hard to test because doing so is either impossible, intractable, or impractical. Therefore, I think a good understanding of how to do economic science is crucial to learning it to figure out whether a given author is adhering to the scientific method. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Remark: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;By science, I mean &lt;/p&gt;&#xA;&#xA;&lt;p&gt;CLAIM: the earth's acceleration is $g$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;TEST:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We will drop a ball and measure how long it takes to hit the ground.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(1) measure a height $d$ off the surface of the earth &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(2) time the ball as it drops from $d$ to the surface &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(3) compute the acceleration from $d = v_0t + \frac{1}{2} a t^2$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and I will find the acceleration of the earth is $g$. &lt;/p&gt;&#xA;" OwnerUserId="2679" LastActivityDate="2015-02-10T01:42:12.163" Title="Is there a go-to resources on the use of the scientific method in economics?" Tags="&lt;scientific-method&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="3046" PostTypeId="2" ParentId="3035" CreationDate="2015-01-17T02:08:15.603" Score="4" Body="&lt;p&gt;It appears that the OP confuses  &lt;em&gt;money&lt;/em&gt; with &lt;em&gt;property rights&lt;/em&gt;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A) It writes &quot;deposits owned by the bank&quot; which is simply wrong, since deposits are liquid assets belonging to the persons that deposited them. The bank leases the funds from them and then sublets them to the debtors.&lt;br&gt;&#xA;B) Looking also at an OP's  comment to another answer, indeed the bank may create the money, but it creates the money as a medium of exchange and representative of value -it does not keep the property rights on the &lt;em&gt;money itself&lt;/em&gt; it creates.&lt;br&gt;&#xA; C) Finally we should not forget that the bank is a distinct legal entity from its own shareholders.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Stopping at the four explicit amounts the OP gave (after person $B$ pays person $B'$ and person $B'$ deposits the money in the bank), the bank's balance sheet is as follows:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{array} {| r | r | r |}&#xA;  \hline &#xA;\hline                       &#xA;  \text {ASSETS} &amp;amp; \text {USD} &amp;amp; \text{LIABILITIES} &amp;amp; \text{USD}\\&#xA;  \hline                      &#xA;\text{Loans} &amp;amp; 1,700 &amp;amp; \text{Shareholders Capital} &amp;amp; 1,000\\&#xA;\text{Cash} &amp;amp; 1,000 &amp;amp; \text {Deposits} &amp;amp; 1,700\\&#xA;\hline&#xA;\text {TOTAL ASSETS} &amp;amp; 2,700 &amp;amp; \text{TOTAL LIABILITIES} &amp;amp; 2,700\\&#xA;  \hline  &#xA;\end{array}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A Balance Sheet is just an inventory at a specific point in time, of Cash and Rights to Collect in the future (&quot;Assets&quot;) and Obligations to Pay (also in the future) (&quot;Liabilities&quot;). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is important to understand the &quot;Liabilities&quot; (obligations to pay) side.&#xA;The initial USD $1,000$ with which the bank started, represent an &quot;obligation to pay&quot; for the bank towards its own shareholders. Second the bank is obliged to pay at any time USD $1,700$ total to persons $A'$ and $B'$ that deposited &lt;em&gt;their wealth&lt;/em&gt; to the bank. The fact that the depositing transaction could happen because the bank in a previous instance has created the &lt;em&gt;money&lt;/em&gt;, does not give the bank a &lt;em&gt;property right&lt;/em&gt; on that money, just because it was its &quot;creator&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That the bank has at the moment $1,000$ in Cash as when it started doing business, relates to the bank's &quot;liquidity&quot; situation. This is not unimportant, and in fact it is an index of financial health on its own right. But it has to do only with the &lt;em&gt;short term&lt;/em&gt; horizon. For the &lt;em&gt;long-term&lt;/em&gt; horizon though, it is &lt;em&gt;property rights&lt;/em&gt; that matter. And so it is not the only financial criterion for the economic health of a bank.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So assume that person $A$ comes in and say &quot;I cannot pay my loan of USD $900$&quot;. Certainly, in the &lt;em&gt;short-term&lt;/em&gt;, this won't affect the liquidity of the bank -it will still have the USD $1,000$ that it now has. But if the bank writes-off the debt, it will do so against the Shareholders capital invested. So after the write-off the balance sheet will be&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{array} {| r | r | r |}&#xA;  \hline &#xA;\hline                       &#xA;  \text {ASSETS} &amp;amp; \text {USD} &amp;amp; \text{LIABILITIES} &amp;amp; \text{USD}\\&#xA;  \hline                      &#xA;\text{Loans} &amp;amp; 800 &amp;amp; \text{Shareholders Capital} &amp;amp; 100\\&#xA;\text{Cash} &amp;amp; 1,000 &amp;amp; \text {Deposits} &amp;amp; 1,700\\&#xA;\hline&#xA;\text {TOTAL ASSETS} &amp;amp; 1,800 &amp;amp; \text{TOTAL LIABILITIES} &amp;amp; 1,800\\&#xA;  \hline  &#xA;\end{array}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume things with debtor $B$ go smoothly, the bank will eventually (in the &lt;em&gt;long-term&lt;/em&gt;) collect his loan, and it will be able to give to persons $A'$ and $B'$ their deposits back... so where is the problem? Well, the problem is that it will give to its shareholders only USD $100$ back instead of the initial USD $1,000$ investment.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And who might care?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, we live in societies built upon the principle of private property rights. The shareholders have a right to defend their property rights, and the bank acting as their representative attempts to defend them by not simply writing-off the debt (but demanding another asset -the car- in its place), even if such a write-off may affect the property rights only of the shareholders, and not of the people that keep their wealth to the bank as deposits.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But again, does this creates a problem to the economy &lt;em&gt;now&lt;/em&gt;? In terms of actual &lt;em&gt;existing liquidity&lt;/em&gt; the answer is &lt;em&gt;no&lt;/em&gt;. But the &lt;em&gt;Present&lt;/em&gt; is affected by what we project for the &lt;em&gt;Future&lt;/em&gt;. After the write-off, the future of the shareholders and of the bank looks worse, because their current wealth is less. And this will affect negatively what the bank and the shareholders will and can do in terms of their involvement in the &lt;em&gt;economic activity&lt;/em&gt; &lt;em&gt;now&lt;/em&gt;.&lt;br&gt;&#xA;So to the question &quot;who cares?&quot; the second answer is &quot;the whole economy&quot;.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-01-17T02:08:15.603" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3047" PostTypeId="1" CreationDate="2015-01-17T05:37:36.597" Score="2" ViewCount="55" Body="&lt;h2&gt;I want to apply grangers' Test between GSDP and Electricity production in the state. The state is a newly formed in the year 2000 and hence I have only 13 data points, as mentioned below&lt;/h2&gt;&#xA;&#xA;&lt;h2&gt;Year     |   GSDP&lt;/h2&gt;&#xA;&#xA;&lt;h2&gt;2000-01  |   29539&lt;/h2&gt;&#xA;&#xA;&lt;h2&gt;01 to 02 |  32493&lt;/h2&gt;&#xA;&#xA;&lt;h2&gt;02 to 03 |  38802&lt;/h2&gt;&#xA;&#xA;&lt;h2&gt;03 to 04 |  47862&lt;/h2&gt;&#xA;&#xA;&lt;h2&gt;04 to 05 |  53381&lt;/h2&gt;&#xA;&#xA;&lt;h2&gt;05 to 06 |  66875&lt;/h2&gt;&#xA;&#xA;&lt;h2&gt;06 to 07 |  80255&lt;/h2&gt;&#xA;&#xA;&lt;h2&gt;07 to 08 |  96972&lt;/h2&gt;&#xA;&#xA;&lt;h2&gt;08 to 09 |  99364&lt;/h2&gt;&#xA;&#xA;&lt;h2&gt;09 to 10 |  119420&lt;/h2&gt;&#xA;&#xA;&lt;h2&gt;10 to 11 |  144382&lt;/h2&gt;&#xA;&#xA;&lt;h2&gt;11 to 12 |  163461&lt;/h2&gt;&#xA;&#xA;&lt;h2&gt;12 to 13 |  185060&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;The test yields that it is not a stationary process. Kpss test yields that it is not a trend stationary process. Hence a the second popular choice comes to be difference stationary process. (Transformation of data yields the same result).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question is how to convert this process to stationary process ?. Is it advisable to apply Grangers' Test using this limited number of data points?. If not what other methodology I can adopt for the same.&lt;/p&gt;&#xA;" OwnerUserId="2725" LastEditorUserId="2725" LastEditDate="2015-01-17T05:43:27.007" LastActivityDate="2015-01-17T05:43:27.007" Title="Test Series for Stationary Process" Tags="&lt;econometrics&gt;&lt;mathematical-economics&gt;&lt;gdp&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3048" PostTypeId="1" CreationDate="2015-01-17T09:47:07.837" Score="4" ViewCount="769" Body="&lt;p&gt;I would like to understand the meaning of the following phrase:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Capital flight from Russia in 2014 was 151 billion dollars.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;First, I would like to know how such a calculation can be done. Secondly, I would like to know what the underlying mechanism of capital flight from Russia is. For example, does this mean approximatively the following: Russian companies sell Russian gas and oil and then instead of investing this money domestically, they invest it outside? &lt;/p&gt;&#xA;" OwnerUserId="2727" LastEditorUserId="8481" LastEditDate="2020-04-09T23:52:13.717" LastActivityDate="2020-04-09T23:54:00.393" Title="How is capital outflow calculated?" Tags="&lt;macroeconomics&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="3049" PostTypeId="1" AcceptedAnswerId="3089" CreationDate="2015-01-17T11:36:57.920" Score="9" ViewCount="508" Body="&lt;p&gt;The &lt;a href=&quot;http://en.wikewipedia.org/wiki/Heckscher%E2%80%93Ohlin_model&quot;&gt;Heckscher-Ohlin Model&lt;/a&gt; is normally presented for the case of 2 countries, 2 factors of production and 2 traded goods, leading to statements that, subject to free trade and various other assumptions:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;A country with a relative abundance of a factor will specialize in&#xA;and export the good whose production makes relatively intensive use&#xA;of that factor (the Heckscher-Ohlin Theorem).&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The return to a factor will be equalized between the countries (the&#xA;Factor Price Equalization or Heckscher-Ohlin-Samuelson Theorem).&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Do these results generalize, subject to the same assumptions, to cases with more than 2 countries, factors or traded goods, and what are good sources that treat this topic?  Of particular interest are cases with 3 factors: labour, man-made capital and &lt;a href=&quot;http://en.wikipedia.org/wiki/Natural_capital&quot;&gt;natural capital&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I appreciate that the predictions of the Heckscher-Ohlin Model often differ from &#xA;empirical findings (eg the &lt;a href=&quot;http://en.wikipedia.org/wiki/Leontief_paradox&quot;&gt;Leontief Paradox&lt;/a&gt;), but this question is about the model itself.&lt;/p&gt;&#xA;" OwnerUserId="1417" LastActivityDate="2015-01-20T05:56:16.260" Title="Generalization of the Heckscher-Ohlin Model" Tags="&lt;reference-request&gt;&lt;international-trade&gt;&lt;environmental-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3050" PostTypeId="1" CreationDate="2015-01-17T15:52:24.467" Score="3" ViewCount="97" Body="&lt;p&gt;An acquaintance once told me that Europe is not self-sufficient in terms of food consumption as it does not have enough farmland and farmers to produce enough for all its people, especially in terms of things such as wheat and meat consumption, and hence must rely on the United States to provide such supply such food products in exchange for other products. His claim is that such dependency and exchange of goods is due to the fact that Europe is not and could never be self-sufficient in terms of food production.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this true?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks.&lt;/p&gt;&#xA;" OwnerUserId="2710" LastActivityDate="2015-01-17T15:52:24.467" Title="Europe not self-sufficient in terms of food requirements and consumption?" Tags="&lt;markets&gt;&lt;consumption&gt;" AnswerCount="0" CommentCount="10" ContentLicense="CC BY-SA 3.0" />
  <row Id="3051" PostTypeId="1" AcceptedAnswerId="3053" CreationDate="2015-01-17T20:07:38.057" Score="2" ViewCount="322" Body="&lt;p&gt;I did a practice problem set. I was given a production function $F(K,L)$ and had to derive the firm's cost function. To do this, I used the following relationship: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{equation}&#xA;\frac{MP_L}{MP_K}=\frac{w}{r}&#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I found this formula in a set of lecture notes online. I have no idea where it comes from. I understand what $MP_K$, $MP_L$, $w$, and $r$ are but I don't know why these ratios are equal. I got the problem correct, but I want to understand this point better. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My Question:&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can someone explain why this ratio is true? &lt;/p&gt;&#xA;" OwnerUserId="2679" LastActivityDate="2019-12-25T18:45:19.657" Title="Why does $\frac{MP_L}{MP_K} = \frac{w}{r}$?" Tags="&lt;microeconomics&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3052" PostTypeId="2" ParentId="3051" CreationDate="2015-01-17T22:01:08.963" Score="7" Body="&lt;p&gt;Mathematically it is a necessary condition in problem of profit maximisation and it can be easily derived under usual assumptions. However there is an intuitive explanation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;We make a usual assumption of decreasing productivity of capital and labour (i.e. each additional unit of the input produce some product, but less then previous one, $\frac{\partial^2F}{\partial K^2}&amp;lt;0, \frac{\partial^2F}{\partial KL^2}&amp;lt;0, \frac{\partial F}{\partial K}&amp;gt;0, \frac{\partial F}{\partial K}&amp;gt;0$).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, we believe that the firm is maximizing profit (another assumption, better get used to this sort of simplifications). Then the ratio on the right represents how much one additional unit of labor will produce in terms of production of additional unit of capital, while the ratio on the left shows how much more will additional unit of labour cost you in terms of cost of one unit of capital. Also, I will set price of the good the firm produces to be 1 without loss of generality.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, if the right side is greater, you may decrease you labour by $\frac{\Delta}{MP_L}$ and increase capital by$\frac{\Delta}{MP_K}$, and you profit will increase by $\frac{w\Delta}{MP_L}-\frac{r\Delta}{MP_K}&amp;gt;0$, so it was not maximised. If the left side was greater you decrese capital, increase labour and increase your profit by$\frac{w\Delta}{MP_K}-\frac{r\Delta}{MP_L}&amp;gt;0$, and so profit, again, was not maximised. It means, that profit can only be maximised at points that satisfy the equation. &lt;/p&gt;&#xA;" OwnerUserId="2659" LastActivityDate="2015-01-17T22:01:08.963" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3053" PostTypeId="2" ParentId="3051" CreationDate="2015-01-17T22:03:24.410" Score="8" Body="&lt;p&gt;This is a result of firm maximization.  Consider a problem that a profit maximizing firm faces --it must rent capital, $k$, at rate $r$ and hires labor, $l$, at wage $w$ to produce goods ($F(k, l)$) for which we can sell at a normalized price of 1.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \max_{k, l} F(k, l) - w l - r k $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then if we just think about the firm's maximization, we can take derivatives w.r.t $k$ and $l$ to get:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ F_k(k, l) - r = 0 $$&#xA;$$ F_k(k, l) = r $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ F_l(k, l) - w = 0 $$&#xA;$$ F_l(k, l) = w $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Notice that by definition $MPL_K = F_k(k, l)$ and $MP_L = F_l(k, l)$.  If we take the ratio of the two equations then we get what you initially introduced --that is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{F_l(k, l)}{F_k(k, l)} = \frac{MP_L}{MP_K} = \frac{w}{r} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit: As mentioned in another answer, this is imposing some assumptions on the behavior of $F(k, l)$.  These assumptions are $\frac{\partial F}{\partial k} &amp;gt; 0$, $\frac{\partial F}{\partial l} &amp;gt; 0$ and $\frac{\partial^2 F}{\partial k^2} &amp;lt; 0$ $\frac{\partial^2 F}{\partial l^2} &amp;lt; 0$&lt;/p&gt;&#xA;" OwnerUserId="47" LastActivityDate="2015-01-17T22:03:24.410" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="3054" PostTypeId="1" CreationDate="2015-01-18T00:59:52.663" Score="2" ViewCount="84" Body="&lt;p&gt;The problem I am considering involves a firm that is a price-taker and sells its good at price $p$. From the production function, I calculated the cost function and the profit-maximizing level of output. This allowed me to define my quantity supplied in terms of price. I got &lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{equation}&#xA;q(p) = \frac{p}{2c}&#xA;\end{equation} &lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $c$ is a constant. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I want to calculate price elasticity of supply. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{equation}&#xA;E_s = \frac{dq}{dp}\frac{p}{q}&#xA;\end{equation} &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, I got &#xA;\begin{equation}&#xA;\frac{dq(p)}{dp} = \frac{1}{2c}&#xA;\end{equation} &#xA;Here's where I am confused: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can I now just multiply that derivative by $\frac{p}{q}$ to get the price elasticity of supply? &lt;strong&gt;My confusion is that $q(p)$ is a function of $p$. So am I supposed to merely multiply by  $\frac{p}{q}$ or $\frac{p}{q(p)}$?&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="2679" LastActivityDate="2015-01-18T06:23:19.753" Title="Am I using quantity and price correctly in trying to calculate price elasticity of supply?" Tags="&lt;elasticity&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3055" PostTypeId="2" ParentId="3048" CreationDate="2015-01-18T04:35:02.743" Score="2" Body="&lt;p&gt;From a Russian stand point, I would turn all of my rubles at the end of the month into USD because of the recent weakness that rubles have shown. But I don't think savings make up the majority of the capital flight. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.iam.fmph.uniba.sk/studium/efm/diplomovky/2006/cervena/diplomovka.pdf&quot; rel=&quot;nofollow&quot;&gt;http://www.iam.fmph.uniba.sk/studium/efm/diplomovky/2006/cervena/diplomovka.pdf&lt;/a&gt; &#xA;In the link above, the author of the paper explained the different methods of measuring capital flight(page 13) &lt;/p&gt;&#xA;" OwnerUserId="2731" LastActivityDate="2015-01-18T04:35:02.743" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3056" PostTypeId="2" ParentId="3032" CreationDate="2015-01-18T04:36:20.910" Score="3" Body="&lt;p&gt;&lt;a href=&quot;http://en.wikipedia.org/wiki/Clive_Granger&quot; rel=&quot;nofollow noreferrer&quot;&gt;Sir Clive Granger&lt;/a&gt; was a master not only of Time-Series Econometrics, but also of giving very appealing names to his works. With his concept of &quot;causality&quot; I guess he went a bit too far: reading the &lt;a href=&quot;http://www.jstor.org/stable/1912791&quot; rel=&quot;nofollow noreferrer&quot;&gt;original paper&lt;/a&gt;, p.428,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/Sedc2.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;...and &quot;better able to predict&quot; is essentially defined in the first sentence (reduced prediction error variance, which is $\sigma^2 (X\mid U)$, conditional on $U$, that includes $Y$).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words, Granger shamelessly used the word &quot;causality&quot; as a synonym for &quot;predictive power&quot;: if information on $Y$ improves our predictions on $X$ then &quot;$Y$ is causing $X$&quot;. His implicit argument is clear: if they correlate there &lt;em&gt;may&lt;/em&gt; be also a causative link here -who knows?... No wonder scholars felt the need to subsequently name it &quot;Granger-causality&quot; -proving Granger's strategic mastery in name-giving!  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So no, no relation to Rubin's concept.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-01-18T05:26:48.300" LastActivityDate="2015-01-18T05:26:48.300" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3057" PostTypeId="2" ParentId="3033" CreationDate="2015-01-18T05:23:39.697" Score="2" Body="&lt;p&gt;The SMD results deprived us of the certainty that if the individual level is as we model it, then the market and macro level will be just like gigantic individuals.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So we have to turn to the real world, and record for how many markets, in how many countries, and in how many instances, did the markets and the economies appear to have behaved in a way that negates this convenient projection so much that it makes it really misleading. And judge whether the number of cases we found justifies the abandonment of models that use this projection, compared to the number of cases that they are modeled adequately through it. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The cases are not many. I am not a fan of &quot;representative consumer&quot; modeling -I agree with the link in the question that it is an &lt;em&gt;evasion&lt;/em&gt;. But this is the only point of that polemic with which I agree -because it is a &lt;em&gt;clever&lt;/em&gt; evasion, one that permitted macroeconomics to produce results that did have relevance to the real-world (see also &lt;a href=&quot;https://economics.stackexchange.com/questions/327/what-is-the-difference-between-aggregation-and-a-representative-agent/329#329&quot;&gt;this post&lt;/a&gt; about the representative-individual framework).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Moreover, the main purpose of macroeconomic models is not to uncover the underlying preferences -it is to provide relations between macro-economic variables that stand the test of data.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I suspect that somebody (a bit old) will think &quot;but what about the Oil Crisis of the 70's&quot;. And somebody else (younger) will say &quot;but what about the recent financial crisis?&quot; Etc. Well, the clear inadequacy of the Economics to predict crises, has nothing to do with whether the market demand schedule is downward sloping or not. It has to do with the fact that Economics has concentrated on equilibrium analysis and of fluctuations around it in an otherwise rather stable underlying structure.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So there is an open road ahead which we are gradually taking -and in this perspective I would say that the SMD results &lt;em&gt;liberate&lt;/em&gt; us from internal myopic theoretical constraints, by essentially proving that the aggregate can be much more/different than &quot;the sum of its parts&quot;, as the saying goes. Given it, we don't have to argue that individuals are self-destructive in order to produce disastrous behavior on aggregate, for example.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;(PS: This issue of crying &quot;but what about the crises?&quot; every time we discuss the usefulness of macroeconomics, reminds me of a symphonic concert: 120 minutes of perfect harmony -and we will remember much more forcefully the one second that a violin went awry. In between crises, macroeconomic models do a pretty good job -but when things work, much fewer people notice that they do work).&lt;/em&gt;  &lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-01-18T05:23:39.697" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="3058" PostTypeId="2" ParentId="3054" CreationDate="2015-01-18T06:23:19.753" Score="1" Body="&lt;p&gt;It does not really mater, as you will get the same numerical values eventually. You may choose whatever is more convenient in each particular situation. Convention is, however, to replase $q$ with $q(p)$ to derive a formula for elasticity as a function of the price only.&lt;/p&gt;&#xA;" OwnerUserId="2659" LastActivityDate="2015-01-18T06:23:19.753" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3059" PostTypeId="1" CreationDate="2015-01-18T16:37:47.640" Score="9" ViewCount="1109" Body="&lt;p&gt;There are &lt;a href=&quot;http://marginalrevolution.com/marginalrevolution/2015/01/why-did-the-swiss-break-the-peg-of-the-franc.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;many theories&lt;/a&gt; about why the &lt;a href=&quot;http://qz.com/327410/absolutely-everything-you-need-to-understand-what-happened-to-the-swiss-franc-this-week/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Swiss National Bank (SNB) abandoned its currency peg&lt;/a&gt; a few days ago.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is more specific:  why did they make the change so sudden?  Why not reduce the peg to 1.19 (Francs needed to buy one Euro) one month, 1.18 the next month, and so on, until a reasonable balance is found, taking into account all of the factors that the bank would want to consider in targeting an exchange rate?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Disambiguation update:&lt;/strong&gt; Some of the commentary/responses below maybe should be directed at the following related questions:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://economics.stackexchange.com/questions/3065/why-was-swiss-national-bank-in-red-by-keeping-fix-exchange-rate-to-euro&quot;&gt;Why did some call maintaining the peg &quot;expensive&quot;?&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://economics.stackexchange.com/questions/3073/why-did-the-swiss-national-bank-end-the-currency-peg&quot;&gt;Why did the SNB decide to end the currency peg?&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="2732" LastEditorUserId="2732" LastEditDate="2019-06-03T20:26:14.107" LastActivityDate="2019-06-03T20:26:14.107" Title="Why did the Swiss National Bank abandon its currency peg so suddenly?" Tags="&lt;exchange-rates&gt;&lt;central-banking&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="3060" PostTypeId="1" CreationDate="2015-01-18T17:36:08.890" Score="1" ViewCount="199" Body="&lt;p&gt;I recently came across the following problem on a set of past examination papers for a university module I'm currently taking:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;'A video manufacturer produces 8500 video recorders on a continuous &#xA;production line every month. Each video requires a tape head unit and these &#xA;are produced very quickly in batches. It costs €13,000 to set up the machinery &#xA;to produce a batch and €0.30 a month to store and insure a tape head once &#xA;made. How large should the batch size be to minimize total costs and how &#xA;often will they have to set up a production run?'&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I arrived at the following values:&#xA; $$r = 8500, K = 13000, h = 0.30.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;While trying to apply the formula to find the optimal batch size for a continuous EOQ model, that is $$q^* = \left(\frac{2KDr}{h(r-D)}\right)^{1/2},$$ I noticed that only the rate of production per month was given, not the Demand of the product. Is there some way to calculate this problem to get around this roadblock or am I approaching the problem incorrectly?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've tried applying the regular EOQ formula, that is $$q^* = \left(\frac{2KD}{h}\right)^{1/2},$$ where Demand is the 8500 value, but I ended up with a seemingly unusual value (which may be completely correct given my lack of experience in this field) : I received an answer close to 27,142 and using $q/D$ to find the time gap between orders I arrived upon roughly 0.3 orders per month.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I came here to ask two things: Is there a way to solve the former continuous model question? Or is the latter question using the basic EOQ model formula closer to being correct?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you in advance, this has been bothering me for the past two days. &lt;/p&gt;&#xA;" OwnerUserId="2735" LastEditorUserId="43" LastEditDate="2015-02-26T01:20:50.530" LastActivityDate="2015-02-26T01:20:50.530" Title="Finding the result when Demand is not given within an Economic Order Quantity question?" Tags="&lt;mathematical-economics&gt;&lt;producer-theory&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3061" PostTypeId="1" AcceptedAnswerId="3062" CreationDate="2015-01-18T18:11:06.200" Score="2" ViewCount="456" Body="&lt;p&gt;An important result in auction theory is Milgrom &amp;amp; Weber's &lt;em&gt;linkage principle&lt;/em&gt;, which, roughly, holds that the expected revenue from an auction is higher is the seller commits ex ante to reveal as much information about the good for sale as possible.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am trying to understand why this should be true even if bidders are risk-neutral and care only about the expected difference between their value and the price paid.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is anyone able to provide some intuition for this result?&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2015-01-18T20:20:08.040" Title="Intuition behind the linkage principle" Tags="&lt;microeconomics&gt;&lt;theory&gt;&lt;auctions&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3062" PostTypeId="2" ParentId="3061" CreationDate="2015-01-18T20:20:08.040" Score="3" Body="&lt;p&gt;The linkage principle does not depend on risk-aversion, because risk-neutral bidders simply bid according to the expected value they assign to the auctioned object. Having private information not revealed to other bidders, will generate information rents, reduce competition among bidders and lead to lower seller revenue.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Daniel Quint (U. Wisconson, eBay) has some &lt;a href=&quot;http://www.ssc.wisc.edu/~dquint/econ805%202009/lectures/econ%20805%20lecture%209.pdf&quot; rel=&quot;nofollow&quot;&gt;&lt;strong&gt;lectures notes&lt;/strong&gt;&lt;/a&gt; where he works out the Milgrom-Weber result in detail, and also gives the following intuitive explanation: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;One way to think about this is that bidder’s expected payoff can be&#xA;  thought of as his “information  rents,” that is, the extra surplus he&#xA;  is able to get by having private information. But in auction formats&#xA;  where information is revealed which is correlated with his private&#xA;  information, his private information becomes “less private” in a&#xA;  sense, so he gets a smaller surplus, and therefore more goes to the&#xA;  seller. In the logical limit – where information revealed over the&#xA;  course of the auction fully reveals the highest type – the seller&#xA;  could simply make a take-it-or-leave-it offer to extract full surplus.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="2701" LastActivityDate="2015-01-18T20:20:08.040" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3063" PostTypeId="2" ParentId="3059" CreationDate="2015-01-18T20:45:05.110" Score="2" Body="&lt;p&gt;The main reason is that the next week the ECB will, with all the probabilities, expand again the money supply inside the EU area. This operation will devaluate the european currency forcing the SNB to carry on buying more euros to preserve the 1.20 exchange rate (take in consideration that they now hold something like 300 billions euro in their foreign currency reserve). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This operation was becoming costly and dangerous. The Swiss Francs introduced into the market as a result of the purchase of euros were going directly in the housing market as a matter of speculation creating in this way an high risk of a new real estate bubble. No one wants this, and no one wants to hold a very high and increasing quantity of a useless and almost dead currency in their reserves.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A risky move that will cause a drop in exports in the middle term and a worsening in the trade balance, but I'm confident in the SNB's move.&lt;/p&gt;&#xA;" OwnerUserId="1642" LastActivityDate="2015-01-18T20:45:05.110" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="3064" PostTypeId="2" ParentId="3059" CreationDate="2015-01-18T21:34:48.983" Score="-2" Body="&lt;p&gt;An unpredictable player usually holds the advantage of being unpredictable when all other players are reasonably predictable. Most central banks are predictable. Now the move last week was as unpredictable as it can be precisely because it has been so sudden.&lt;/p&gt;&#xA;" OwnerUserId="200" LastActivityDate="2015-01-18T21:34:48.983" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="3065" PostTypeId="1" AcceptedAnswerId="3071" CreationDate="2015-01-18T20:43:40.247" Score="5" ViewCount="461" Body="&lt;p&gt;When I read news about the action of Swiss National bank of not keeping fix ration to Euro any more, I read in all articles, that it was too expensive for Swiss National Bank to keep the fixed exchange rate. I don't really understand how can it be expensive. Swiss N.B was printing Swiss Franc and selling it for Euro? Right? How can be expensive printing and having Euro for free?&lt;/p&gt;&#xA;" OwnerUserId="2747" OwnerDisplayName="qub1n" LastEditorUserId="379" LastEditDate="2015-01-21T03:15:37.423" LastActivityDate="2015-01-24T17:09:18.847" Title="Why was Swiss National Bank in red by keeping fix exchange rate to Euro?" Tags="&lt;currency&gt;&lt;exchange-rates&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3066" PostTypeId="2" ParentId="1911" CreationDate="2015-01-19T06:07:47.037" Score="1" Body="&lt;h1&gt;Requested assumptions&lt;/h1&gt;&#xA;&lt;p&gt;Like @BKay pointed out, the answer really depends on what caused the price decrease. Also, along this point, I think it would be more appropriate to ask for us to assume that the cost of oil has gone down. As far as jargon goes, a &amp;quot;price&amp;quot; is the number that defines an equilibrium where markets clear---where supply equals demand. So, as I'm sure you understand, I feel like a price should always be considered endogeneous. On the other hand, it seems more appropriate to assume that cost has gone down in the sense that the cost just represents, e.g., the cost of extraction. I'll make this assumption.&lt;/p&gt;&#xA;&lt;p&gt;Also, in a comment you made on @BKay's answer, you talk about wanting to make the assumption that the domestic supply of oil is small in comparison with the global supply. So, I'll make this assumption as well.&lt;/p&gt;&#xA;&lt;h1&gt;Two Extreme Cases&lt;/h1&gt;&#xA;&lt;p&gt;I think a simple analysis would be as follows. I believe that the logic will show two extreme cases in which GDP could go up or down. The idea is that we could be somewhere in between and it's hard to say without more data and a more careful analysis.&lt;/p&gt;&#xA;&lt;h3&gt;&lt;em&gt;GDP could go up&lt;/em&gt;&lt;/h3&gt;&#xA;&lt;p&gt;Assuming that domestic supply of oil is small (infinitesimal) compared to the global supply, assuming a small open economy with no trade barriers in a perfectly competitive market, domestic owners of oil will have no market power and so when the cost of foreign oil does down, people will substitute away from domestic oil until the price of domestic oil is equal to the price of foreign oil. If we assume that the value of the domestic supply of oil represents a negligible fraction of the value of domestic endowments, then the lower cost of oil will only serve to slacken the budget constraints of households and firms who purchase oil (as a good of final demand or as an intermediate factor of production). In this sense, the US has become richer and GDP will go up.&lt;/p&gt;&#xA;&lt;h3&gt;&lt;em&gt;GDP could go down&lt;/em&gt;&lt;/h3&gt;&#xA;&lt;p&gt;On the other hand, suppose the extreme case where the US's only endowment is oil (you notice that we're just assuming a simple endowment economy here). Then, because we have assumed that domestic owners of oil have no market power (domestic supply small compared to global), the price and therefore the value of the US's only endowment has gone down. Because we've assumed a friction-less, perfectly competitive market, the lower value of the US's endowment can only cause GDP to go down. Essentially, the lower price of oil has made the US a poorer country.&lt;/p&gt;&#xA;&lt;h1&gt;Somewhere in between?&lt;/h1&gt;&#xA;&lt;p&gt;There were a lot of unrealistic assumptions made in the above argument, but it just serves to show ways in what ways that GDP could go up or down given the &amp;quot;requested assumptions&amp;quot; discussed above.&lt;/p&gt;&#xA;&lt;p&gt;Also, for what it's worth, I think this line of reasoning is particularly nice because it's a little more transparent. The logic is essentially built on how the cost change affects the budget constraint. It's easy to see that this line of reasoning is internally consistent. In essence, the question just amounts to this: does the lower cost of oil make the US richer or poorer in terms of its natural endowments?&lt;/p&gt;&#xA;" OwnerUserId="59" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2015-01-19T06:07:47.037" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3067" PostTypeId="1" AcceptedAnswerId="3350" CreationDate="2015-01-19T08:31:48.940" Score="2" ViewCount="96" Body="&lt;p&gt;I've heard an interview with Bill Gross in which he claims that one of the problems with lower interest rate is that it leads to a lower return on investment (ROI) in the real economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How can that be?&lt;/p&gt;&#xA;" OwnerUserId="2740" LastEditorUserId="7660" LastEditDate="2016-03-22T14:51:13.430" LastActivityDate="2016-03-22T14:51:13.430" Title="Lower ROI because of zero interest rate" Tags="&lt;investment&gt;&lt;interest-rate&gt;" AnswerCount="3" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3068" PostTypeId="2" ParentId="3059" CreationDate="2015-01-19T08:45:01.233" Score="4" Body="&lt;p&gt;Just to synthesize the other two answers together a bit and &quot;join-the-dots&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Setting the Scene&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since 2011 SNB had decided that it wanted to prevent the CHF from strengthening past 1.2 CHF per EUR.  In order to do this it had to do either or both of:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Discourage people from buying CHF.  One way to try do this is to keep rates low.&lt;/li&gt;&#xA;&lt;li&gt;Sell CHF by the bucket load.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Keeping rates low at the short end is easy enough - that's the base rate.  But that was scuppered by the low EUR short rates.  Keeping rates low at the long end is trickier, but can be done by not issuing too many bonds.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Selling CHF is fine, but that means buying other currencies.  By the end of December the SNB had bought 85% of GDP worth of foreign currencies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At this point the SNB decided that it did not want to keep expanding the balance sheet.  Why it decided this is a different question (as the question points out).  The question is how to end a cap once you hold a huge Euro position.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;The Sudden Act&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Once the SNB had decided it could not defend the cap, it had three ways it could act.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Stop supporting the cap, but not tell anyone&lt;/li&gt;&#xA;&lt;li&gt;Tell people at the same time that it stops supporting the cap&lt;/li&gt;&#xA;&lt;li&gt;Tell people before it stops supporting the cap (or as in your example, schedule a reducing cap).&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The third case would have almost certainly bankrupted the SNB.  If they had, as you suggest, let everyone know in advance what was going to happen, then everyone in the world would just arbitrage the situation into the ground.  Everyone would just buy CHF from the SNB at the cheap rate while they support the cap, and sell as soon as the cap is dropped.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first case is a little dishonest, and would almost certainly get found out (the worst kind of dishonesty!).  As soon as they stopped supporting the cap, the FX rate would drift slowly down from 1.2.  Once people realised that this was not &quot;supposed to happen&quot; and therefore the SNB must have stopped defending it, then it would probably snap anyway.  There are two dubious plus sides to this approach I see though&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;The SNB could have started offloading some of its 85% holdings before the market realised.  This is called front running and market abuse, and would land a stock trader in jail, but for a central bank trading FX, it would not technically come under any legal challenge (at the moment...).&lt;/li&gt;&#xA;&lt;li&gt;The reputational damage to the SNB would be huge, which would go some way to undermine investment in the country, causing a weakening in the CHF!&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;As you can see this would be a rather dubious strategy, but I have often wondered if Thomas Jordan (chairman of SNB) could simply address the world with underpants on his head and his willy hanging out as a way to depress the CHF.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The strategy they opted for was the &quot;ripping off a bandaid&quot; style.  The sudden shock is estimated to have cost the SNB about 13% of GDP due to all those foreign holdings.  Since the SNB made a massive profit in 2014 (see: &lt;a href=&quot;http://www.bloomberg.com/news/2015-01-09/snb-sees-2014-profit-of-38-billion-francs-resumes-dividend.html&quot; rel=&quot;nofollow&quot;&gt;http://www.bloomberg.com/news/2015-01-09/snb-sees-2014-profit-of-38-billion-francs-resumes-dividend.html&lt;/a&gt;) it probably saw this as an opportunity to get out before things got any worse.  Hold out longer and have 100+% GDP in foreign currency, and the bank might not have survived the jolt itself.&lt;/p&gt;&#xA;" OwnerUserId="119" LastEditorUserId="119" LastEditDate="2015-04-07T08:19:58.330" LastActivityDate="2015-04-07T08:19:58.330" CommentCount="10" ContentLicense="CC BY-SA 3.0" />
  <row Id="3071" PostTypeId="2" ParentId="3065" CreationDate="2015-01-19T14:37:57.747" Score="4" Body="&lt;p&gt;From a central bank's point of view, printing money isn't free.  Each 1 CHF created costs exactly 1 CHF - that is, it appears on the bank's balance sheet as a liability.  They owe that 1 CHF to someone (the person they bought the Euros off - a bank).  And whenever you owe someone money, there is always the ultimate belief that you can pay it back.  Lose that and the bank fails, and the currency fails.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With central banks this isn't clear cut, since the money can only be &quot;paid back&quot; by destroying it, but the trust in fiat money relies on the solvency of the central bank.  A sort of, &quot;so long as you could pay it back, I'll never ask you to&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The SNB had been buying so many Euros (and other currencies) that it was sitting on foreign reserves worth about 85% of Swiss GDP.  In the process it did make a lot of profit, but that can only go on so long.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In theory, if the SNB could have held out forever, then it could have beaten the ECB, and when the Euro eventually strengthened, unwound its position as a profit.  But that would have involved the SNB conducting massive quantitative easing in the mean time, in order to supply the world with sufficient CHF to meet demand.  Given that Switzerland is somewhat smaller than the Eurozone, it would have been a battle it was destined to lose.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given that they knew they would likely lose eventually, it is better to lose now, when you only have 85% of GDP in Euros, than to lose later on when you have 850% of GDP in Euros!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course having a central bank that is completely screwed, would weaken the CHF, but they only want moderate weakness, no complete destruction of the currency!&lt;/p&gt;&#xA;" OwnerUserId="119" LastActivityDate="2015-01-19T14:37:57.747" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3072" PostTypeId="1" AcceptedAnswerId="5421" CreationDate="2015-01-19T14:53:16.910" Score="14" ViewCount="194" Body="&lt;p&gt;I would like to get up to speed on the current state of empirical work done to test the assumptions and predictions of consumer theory (think Chapters 1, 2, 3, and 6 of Mas-Colell et al.).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can anyone recommend a good survey or provide a brief summary of what we currently know about how much empirical support there is for our primary means of modelling individual behavior?&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="4445" LastEditDate="2015-04-17T10:22:39.247" LastActivityDate="2015-04-30T23:59:15.987" Title="Current knowledge about the empirics of consumer theory" Tags="&lt;reference-request&gt;&lt;utility&gt;&lt;consumer-theory&gt;&lt;expected-utility&gt;&lt;empirical-evidence&gt;" AnswerCount="3" CommentCount="2" FavoriteCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="3073" PostTypeId="1" CreationDate="2015-01-19T15:21:20.980" Score="2" ViewCount="152" Body="&lt;p&gt;The title says it all.  Why did the Swiss National Bank end the currency peg?  The issue obviously has many aspects, so I'm looking for a concise summary with references to explanations for each of those crucial aspects.&lt;/p&gt;&#xA;" OwnerUserId="2732" LastActivityDate="2015-02-18T20:17:21.770" Title="Why did the Swiss National Bank end the currency peg?" Tags="&lt;central-banking&gt;&lt;currency-peg&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3074" PostTypeId="2" ParentId="3073" CreationDate="2015-01-19T15:22:13.777" Score="4" Body="&lt;p&gt;From &lt;a href=&quot;http://www.economist.com/blogs/economist-explains/2015/01/economist-explains-13&quot; rel=&quot;nofollow noreferrer&quot;&gt;the Economist&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The SNB suddenly dropped the cap last week for several reasons. First, many Swiss are angry that the SNB has built up such large foreign-exchange reserves. Printing all those francs, they say, will eventually lead to hyperinflation. Those fears are probably unfounded: Swiss inflation is too low, not too high. But it is a hot political issue. In November there was a referendum which, had it passed, would have made it difficult for the SNB to increase its reserves. Second, the SNB risked irritating its critics even more, thanks to something that is happening this Thursday: many expect the European Central Bank to introduce “quantitative easing”. This entails the creation of money to buy the government debt of euro-zone countries. That will push down the value of the euro, which might have required the SNB to print lots more francs to maintain the cap. But there is also a third reason behind the SNB’s decision. During 2014 the euro depreciated against other major currencies. As a result, the franc (being pegged to the euro) has depreciated too: in 2014 it lost about 12% of its value against the dollar and 10% against the rupee (though it appreciated against both currencies following the SNB's decision). A cheaper franc boosts exports to America and India, which together make up about 20% of Swiss exports. If the Swiss franc is not so overvalued, the SNB argues, then it has no reason to continue trying to weaken it.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I have only several things to add to this commentary, all contained &lt;a href=&quot;https://economics.stackexchange.com/a/3082/2732&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="2732" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-01-19T19:57:38.027" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3075" PostTypeId="1" CreationDate="2015-01-19T16:13:13.087" Score="2" ViewCount="49" Body="&lt;p&gt;Say I use two fuels to heat my home (space heating): oil and wood. I purchase both in bulk, at a price decided at the time of purchase.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Wood is cheaper per kWh, but I purchase both because oil has other uses (heating water for example, plus it's sometimes useful to have redundancy). So I purchase, say, three tonnes of logs for £300, and 1800 litres of oil for £1100.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When a given fuel has been used, I must purchase some more at the market price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, the price of oil has collapsed and it is now may be cheaper per kWh to use it for space heating.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, one any one night, how do I decide which fuel to use? Should I be using the market price at the time of use, or the purchase price?&lt;/p&gt;&#xA;" OwnerUserId="2743" LastEditorUserId="2743" LastEditDate="2015-01-19T20:36:13.410" LastActivityDate="2015-01-20T00:59:01.720" Title="When using consumables consider the purchase or market price?" Tags="&lt;microeconomics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3076" PostTypeId="2" ParentId="3017" CreationDate="2015-01-19T16:56:17.247" Score="2" Body="&lt;p&gt;Here's a little discussion that might help.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The population version has a solution because it is assumed to have a solution. You can see that this is the case from assumptions 3.1 (linearity), 3.3 (orthogonality conditions), and 3.4 (rank condition for identification). You can see the derivation of this fact from equations (3.3.3) and (3.3.4). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, you'll notice the population version having a solution implies that&#xA;$$&#xA;\text{rank}\left( \Sigma_{xz} \right ) &#xA;= \text{rank}\left(\left [\Sigma_{xz} \mid \sigma_{xy} \right ]\right ),&#xA;$$&#xA;as discussed in exercise 5 of section 3.3. In the hint they note that the population version has a solution when&#xA;$$&#xA;\left [\Sigma_{xz} \mid \sigma_{xy} \right ]&#xA;$$&#xA;is of rank $L$. If it has rank $L+1$, it will not have a solution. In the hint, they say that this is a set of &quot;equality conditions.&quot; This is referring to the fact that one of the columns must be a linear combination of the remaining columns. This is a very hard condition to satisfy. In many models, this condition will hold with probability zero. This is because the data has to come out so that the equality condition holds perfectly.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand, the condition that the sample version $S_{xy}$ of $\sum_{xz}$ be of full column rank is a set of &quot;inequality&quot; conditions on the matrix. Because they are inequality conditions on the matrix, they are much easier to satisfy by chance.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In conclusion, $S_{xy}$ will have full column rank for sufficiently large $n$ because the conditions are inequality conditions which occur with probability larger than zero. However, to have a solution we need $\left [S_{xz} \mid s_{xy} \right ]$ to have rank $L$. But because this is an equality condition on the matrix, it only occurs with probability zero.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Search Keywords: Solutions, Exercise 3, section 3.4 Hayashi Econometrics&lt;/em&gt;&lt;/p&gt;&#xA;" OwnerUserId="59" LastActivityDate="2015-01-19T16:56:17.247" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3077" PostTypeId="1" CreationDate="2015-01-19T17:19:29.443" Score="3" ViewCount="59" Body="&lt;p&gt;&lt;strong&gt;NOTE:&lt;/strong&gt; This question is related to the econometric method explored in the following two questions:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://economics.stackexchange.com/questions/3000/multiplicative-factorization-of-stochastic-growth-time-series-solving-for-an-ei&quot;&gt;Multiplicative factorization of stochastic growth time series--solving for an eigenfunction/eigenvector&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://economics.stackexchange.com/questions/3009/example-of-the-change-of-measure-proposed-in-hansen-2012?lq=1&quot;&gt;Example of the change of measure proposed in Hansen (2012)&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;QUESTION:&lt;/strong&gt; Suppose that $X_t$ is an $n$-state Markov chain with transition probability matrix $\mathbb P$ and realized values given by $n$-dimensional coordinate vectors. Suppose that $\{W_{t+1} \}$ is an iid sequence of multivariate normally distributed random vectors. How would I represent an equation of the form&#xA;$$&#xA;E[\exp(D'X_t + X_t' F W_{t+1}) e(X_{t+1}) \mid X_t = x] = \exp(\eta) e(x)&#xA;$$&#xA;as an eigenvector problem for a matrix $\mathbb M$? How can I represent $\mathbb M$ in terms of the primitives of the problem?&lt;/p&gt;&#xA;" OwnerUserId="59" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-01-19T19:24:49.613" Title="How can I write a conditional expectation of finite state markov process in matrix notation" Tags="&lt;econometrics&gt;&lt;time-series&gt;&lt;eigenvalue&gt;&lt;markov-chain&gt;&lt;linear-algebra&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3078" PostTypeId="2" ParentId="3075" CreationDate="2015-01-19T17:39:54.890" Score="0" Body="&lt;p&gt;This is a normative question and there is no &quot;correct&quot; unswer in any reasonable sense. There us, however, some general considerations. First, unless you are considering selling the fuel there is no reason to worry about prices at all. Second, if you are entertaining the idea, than you should look not at the market prices as such, but at how much money you will be able to get for it. There is no reason at all to consider what you have already paid. It is generally a good idea to evaluate decisions in terms of opportunity costs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course, this ignores all matters concerned with expectations, comparative advantages, regrets and such, but nobody will be able to adress them better then you. Sort for not being very helpful.&lt;/p&gt;&#xA;" OwnerUserId="2659" LastActivityDate="2015-01-19T17:39:54.890" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="3079" PostTypeId="1" AcceptedAnswerId="3411" CreationDate="2015-01-19T18:36:28.953" Score="5" ViewCount="1543" Body="&lt;p&gt;From what I understand about Keynesian theory, when we're facing deflation, lowering interest rates or increasing government spending/lending (when consumers are cutting back) helps stimulate economic growth through consumption (GDP = C + I + &lt;code&gt;G&lt;/code&gt; + NE).  While a few loud voices (Schiff, the ZH guy, Martin Armstrong, etc) have been screaming about hyperinflation, Krugman has been right that we haven't seen it, even with the Federal Reserve's QEs.  It does seem like QE has helped move the economy along, even though I know this depends on a person's point of view; ie: Austrian economists won't agree.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What happens in the case of a major drought causing food prices to rise, as in double, triple or quadruple (&lt;a href=&quot;http://www.calculatedriskblog.com/2015/01/year-4-it-never-rains-in-california.html&quot; rel=&quot;nofollow&quot;&gt;See this post by Bill McBride.&lt;/a&gt; and now &lt;a href=&quot;http://www.calculatedriskblog.com/2015/02/year-4-it-never-rains-in-california.html&quot; rel=&quot;nofollow&quot;&gt;this post&lt;/a&gt;)?  Is the Keynesian solution here to raise interest rates =&gt; wouldn't that be a double whammy on the poor in that it would be more difficult to get a job and food prices would be rising?  What is the Keynesian solution to supply shock problems, like a major drought, impacting basic necessities, such as food prices?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To be more specific because of the comment, I am looking for the Keynesian solution to a supply shock, or major crises that involve a supply shock - such as a drought that causes food prices to rise?&lt;/p&gt;&#xA;" OwnerUserId="2746" LastEditorUserId="2746" LastEditDate="2015-02-16T16:21:42.313" LastActivityDate="2016-10-01T01:17:32.293" Title="How Does Keynesian Theory Address Supply Shocks, Like the California Drought?" Tags="&lt;keynesian-economics&gt;" AnswerCount="3" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3080" PostTypeId="2" ParentId="3077" CreationDate="2015-01-19T19:24:49.613" Score="2" Body="&lt;p&gt;Let the $n$ states of the finite-state markov chain be denoted&#xA;by $\{x_1,...,x_n\}$ and let $\vec e = [e(x_1), ..., e(x_n)]'$.&#xA;Now,&#xA;first note that because $X_{t+1} \mid X_t$ is independent of $W_{t+1}$, we can write&#xA;\begin{align*}&#xA;\exp(\eta) e(x) &amp;amp;= E[\exp(D'x + x' F W_{t+1})] E[ e(X_{t+1}) \mid X_t = x] \\&#xA;  &amp;amp;= \exp(D'x + x' F F' x)\, E[ e(X_{t+1}) \mid X_t = x] .&#xA;\end{align*}&#xA;Then, because this must hold for all values $x= x_1, ..., x_n$, we&#xA;can assemble the following vector equation,&#xA;\begin{align*}&#xA;\vec e \, \exp(\eta)&#xA;  &amp;amp;= &#xA;\begin{bmatrix}&#xA;\exp(D'x_1 + x_1' F F' x_1)\, E[ e(X_{t+1}) \mid X_t = x_1] \\&#xA;... \\&#xA;\exp(D'x_n + x_n' F F' x_n)\, E[ e(X_{t+1}) \mid X_t = x_n]  \\&#xA;\end{bmatrix}\\&#xA;  &amp;amp;= &#xA;\text{diag} \begin{bmatrix}&#xA;\exp(D'x_1 + x_1' F F' x_1) \\&#xA;... \\&#xA;\exp(D'x_n + x_n' F F' x_n) \\&#xA;\end{bmatrix}&#xA;\, \mathbb P \, \vec e \\&#xA;  &amp;amp;= &#xA;\text{diag}(f)\, \mathbb P \, \vec e \\&#xA;\end{align*}&#xA;where $f = [ \exp(D'x_1 + x_1' F F' x_1),  ..., \exp(D'x_n + x_n' F F' x_n) ]'$&#xA;and $\text{diag}$ is the operator that takes a vector and places&#xA;it on the diagonal of a matrix where the off-diagonal elements are zero.&#xA;So, we can express the equation as a linear operator $\mathbb M$ on $\vec e$&#xA;with&#xA;\begin{align*}&#xA;\text{diag}(f)\, \mathbb P \, \vec e&#xA;  &amp;amp;= \vec e \, \exp(\eta) \\&#xA;\mathbb M \vec e &amp;amp;= \vec e \, \exp(\eta).&#xA;\end{align*}&lt;/p&gt;&#xA;" OwnerUserId="59" LastActivityDate="2015-01-19T19:24:49.613" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3081" PostTypeId="1" CreationDate="2015-01-19T19:46:14.717" Score="4" ViewCount="77" Body="&lt;p&gt;In &lt;em&gt;The Omnivore's Dilemma&lt;/em&gt;, Michael Pollan writes that industrial beef farming, in the form of concentrated animal feeding operations (CAFOs), is dependent on low corn prices for its cost-effectiveness. He also implies that corn prices low enough to justify CAFOs were only possible because the US agriculture policy artificially depressed the price of corn.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Pollan attests that the first CAFOs began in the 1950s. But he also spends a good deal of time in the previous chapter discussing how Earl Butz, under President Nixon (that is, in the 1970s), was instrumental in ending the New Deal corn price stabilization policies (a buffer-stock scheme) and replacing them with corn supply subsidies (direct payments to farmers).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If that's the case, then how did the first CAFOs manage to be profitable, or even seem like a good idea, if corn was not to become artificially cheap for at least another decade? Or were CAFOs always profitable, but received a tremendous boon when corn prices were later driven down by policy?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is as much a question about the timeline as it is about the underlying economics, so I'd prefer to see an answer based in some kind of scholarly source.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also I'd appreciate it if someone with more than 150 rep could create an &quot;agriculture&quot; tag for this question. I had wanted to add &quot;prices&quot; and &quot;subsidies&quot; tags as well.&lt;/p&gt;&#xA;" OwnerUserId="379" LastEditorUserId="379" LastEditDate="2015-04-22T02:13:36.417" LastActivityDate="2015-06-11T01:56:15.293" Title="Was factory beef farming (in the USA) the result of government-subsidized corn?" Tags="&lt;history&gt;&lt;usa&gt;&lt;agriculture&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3082" PostTypeId="2" ParentId="3065" CreationDate="2015-01-19T19:52:24.707" Score="2" Body="&lt;p&gt;[&lt;strong&gt;Update:&lt;/strong&gt;  the following answer starts with the assumption that the SNB achieved its peg against the Euro through purely monetary means, i.e. printing new CHF to buy EUR. Some support for this view can be found &lt;a href=&quot;https://economics.stackexchange.com/questions/3108/what-did-the-swiss-national-bank-use-to-purchase-eur-while-pegging-the-franc-to&quot;&gt;here&lt;/a&gt;.]&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You are correct that it cost the SNB essentially nothing to print new SNB to buy EUR in maintaining the currency peg, and I think that &quot;expensive&quot; is a poor description for what was really going on.  In particular, when you hear people characterize the size of the SNB holdings of EUR in terms of the size of Swiss GDP, keep in mind that the links connecting the SNB balance sheet and real Swiss income are rather indirect.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;HOWEVER, there was a cost or risk associated with creating the currency peg, because peg had the potential to lead to bad things.  Here are some things that could have happened:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Best case for SNB:  The EUR becomes gradually more valuable in terms of underlying market forces, eventually eliminating the need for the peg.  With it's accumulated EUR holdings from maintaining the peg, the SNB can then buy back all of the CHF that it distributed in creating the peg.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The EUR keeps fairly stable and the SNB maintains the peg indefinitely, also a fine outcome.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The EUR becomes volatile, perhaps experiencing hyperinflation, in which case it's unfortunate to be pegged to the EUR, as that could mean hyperinflation inside of Switzerland.  &lt;del&gt;Even worse, the inflation rate inside of Switzerland could exceed the rate of inflation in the European Union if currency speculators build a CHF bubble around the mere possibility that the SNB may abandon the peg.  Yes, this is circular, but it's not circular reasoning; it's circular reality.&lt;/del&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The SNB abandons the peg completely, as actually happened, in part to avoid the potential for (3).  In doing so, the SNB experienced huge nominal loses.  Remember that the SNB was buying EUR at rates above 1.2 CHF per EUR.  Upon selling its holdings of EUR, however, the SNB could get back only about 1 CHF per EUR, a nearly 20% loss on that investment.  From the perspective of the SNB, it's just a numbers game, but there was a real underlying loss of wealth for Switzerland as a whole, since the foreigners who originally loaned EUR to the SNB can now walk away with a clean profit denominated in CHF.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;So, to synthesize, maintaining the peg was never very expensive for Switzerland.  The expensive thing was ending the peg!  Of course you then ask why did they end the peg, and the answer is essentially &lt;em&gt;fear of&lt;/em&gt; (3) above.  EUR has been devaluing,and the Swiss feared further devaluation.  They were being very cautious, since the EUR devaluation has been pretty mild so far, but it makes sense to act sooner than later: If they waited to remove the peg until the EUR was experiencing true hyperinflation, then the SNB would lose even far more than it did.&lt;/p&gt;&#xA;" OwnerUserId="2732" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-01-24T17:09:18.847" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="3083" PostTypeId="1" CreationDate="2015-01-19T22:49:40.353" Score="0" ViewCount="600" Body="&lt;p&gt;I was given a word problem. No formulas. So I set up the following equations: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Demand Function &#xA;\begin{equation}&#xA;D(p) = a - p&#xA;\end{equation} &#xA;Cost Function: &#xA;\begin{equation}&#xA;c(q) = 9 + 10q&#xA;\end{equation} &#xA;Marginal Cost &#xA;\begin{equation}&#xA;MC = 10&#xA;\end{equation} &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am supposed to find how much the man in the problem would produce for any value of $a$. But, without a production function, I am unsure how to determine how much he will produce. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Specifically, suppose I write &lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{equation}&#xA;R = pD(p) &#xA;\end{equation}  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can't then differentiate R by q to find marginal revenue. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So how do I know how much he would produce? &lt;/p&gt;&#xA;" OwnerUserId="2679" LastActivityDate="2015-01-19T23:59:23.440" Title="How do you find marginal revenue if you don't have a production function?" Tags="&lt;supply-and-demand&gt;&lt;production-function&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3084" PostTypeId="2" ParentId="124" CreationDate="2015-01-19T22:50:26.040" Score="6" Body="&lt;p&gt;I think this paper might be useful to you. It's a job market paper by one of Heckman's students at UChicago, named &lt;a href=&quot;http://home.uchicago.edu/~rodrig/&quot; rel=&quot;nofollow&quot;&gt;Rodrigo Pinto&lt;/a&gt;. The paper is titled &lt;a href=&quot;http://home.uchicago.edu/~rodrig/JMP.pdf&quot; rel=&quot;nofollow&quot;&gt;&quot;Selection Bias in a Controlled Experiment: The Case of Moving to Opportunity.&quot;&lt;/a&gt;&#xA;In the MTO experiment, the voucher assignment mechanism was random but only approximately half that received the voucher ended up actually moving. This creates a problem because the usual analysis (treatment-effect-on-the-treated or intent-to-treat) will only tell us the causal effect of receiving a voucher. However, we are interested in the causal effect of the new neighborhood, not of receiving the voucher. He shows how to decompose the typical treatment-on-the-treated parameter into components that have unambiguous interpretations. Namely, he isolates the causal effect of the new neighborhood.&lt;/p&gt;&#xA;" OwnerUserId="59" LastEditorUserId="59" LastEditDate="2015-04-30T05:31:27.660" LastActivityDate="2015-04-30T05:31:27.660" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3085" PostTypeId="2" ParentId="3083" CreationDate="2015-01-19T23:04:59.063" Score="2" Body="&lt;p&gt;Here are some hints. Either solve the profit function in terms of $p$, substituting out all references to $q$ (recall that $D(p) = q$), or solve the profit function in terms of $q$, substituting out all references to $p$. Then you'll find that the profit function is concave and the differentiated with respect to $p$ in the first case or $q$ in the second case will give you the profit maximizing solution.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT: Yeah, $a = 2q + 10$ looks correct. Just solve the equation for $q$ and the interpretation is clear. That is, the quantity produced is $q = (a - 10)/2$. If you want to know the price, then just substitute $q$ in for $D(p)$ like so: $a - p = D(p) = q = (a - 10)/2$.&lt;/p&gt;&#xA;" OwnerUserId="59" LastEditorUserId="59" LastEditDate="2015-01-19T23:59:23.440" LastActivityDate="2015-01-19T23:59:23.440" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="3086" PostTypeId="1" CreationDate="2015-01-20T00:33:39.283" Score="13" ViewCount="823" Body="&lt;p&gt;LVT is &quot;&lt;a href=&quot;http://www.economist.com/blogs/economist-explains/2014/11/economist-explains-0&quot;&gt;a tax on the unimproved value of land&lt;/a&gt;&quot;, and &quot;&lt;a href=&quot;http://www.economist.com/blogs/economist-explains/2014/11/economist-explains-0&quot;&gt;in theory, it does not distort decision making&lt;/a&gt;&quot;. But if I own land then improvements such as buildings on my neighbour's land can easily increase the value of mine. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems like the total LVT payable would therefore be reduced if I sold my land to my neighbour and they paid tax on the entire estate at the value it would have had not been improved. This seems like a major distortion of decision making.&lt;/p&gt;&#xA;" OwnerUserId="2751" LastEditorUserId="40" LastEditDate="2016-06-10T00:41:45.490" LastActivityDate="2019-05-19T20:08:04.700" Title="Does land value tax create an incentive to merge land ownerships?" Tags="&lt;taxation&gt;&lt;property&gt;" AnswerCount="6" CommentCount="0" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="3087" PostTypeId="1" AcceptedAnswerId="3184" CreationDate="2015-01-20T00:51:34.690" Score="1" ViewCount="90" Body="&lt;p&gt;In this question, I'm continuing to explore the tools used/presented in &lt;a href=&quot;http://www.larspeterhansen.org/documents/2012_Risk_OpMe_E_Dynamic_valuation_decomposition.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Lars Hansen's Econometrica paper &quot;Dynamic Valuation Decomposition within Stochastic Economies&quot;&lt;/a&gt; (2012).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This might be an easy question, but I can't quite see it. In the paper linked above, the factorization is presented in which one component is a martingale.&#xA;See p. 937. On this page it presents this formula and says &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Given a solution to (21), I construct a martingale via&#xA;  $$&#xA;\widetilde M_t = \exp(-\rho t) M_t \left [ \frac{e(X_t)}{e(X_0)} \right ]&#xA;$$&#xA;  which is itself a multiplicative functional.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Maybe it's easy, but I just don't see right away how to show that $\widetilde M_t$&#xA;is a martingale. How can I show this?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;NOTE:&lt;/strong&gt; This question is related to the following two questions:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://economics.stackexchange.com/questions/3000/multiplicative-factorization-of-stochastic-growth-time-series-solving-for-an-ei&quot;&gt;Multiplicative factorization of stochastic growth time series--solving for an eigenfunction/eigenvector&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://economics.stackexchange.com/questions/3009/example-of-the-change-of-measure-proposed-in-hansen-2012?lq=1&quot;&gt;Example of the change of measure proposed in Hansen (2012)&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="59" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-01-27T05:20:03.067" Title="Why is the martingale factor a martingale in Hansen's 2012 Dynamic Valuation Decomposition?" Tags="&lt;econometrics&gt;&lt;finance&gt;&lt;time-series&gt;&lt;martingales&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3088" PostTypeId="2" ParentId="3075" CreationDate="2015-01-20T00:59:01.720" Score="1" Body="&lt;p&gt;Assuming you plan to keep both oil and wood in stock, and they both give you the same quality of heating, presumably you should burn whichever will cost less for you to replace. That would be the fuel that will cost less to buy in the future when you buy it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you don't have any special knowledge about what prices will do in the future, I think the most neutral position would be to assume they will stay where they are now, so you should burn whichever currently has the lowest market price - oil in your scenario.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Having done that you could if you wanted to sell the wood that you didn't burn, which you say is worth more than the oil, buy the exact quantity of oil that you did burn, and have money left over. That must be better than burning the wood.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've assumed for simplicity that there are no transaction costs incurred in the act of buying and selling.&lt;/p&gt;&#xA;" OwnerUserId="2751" LastActivityDate="2015-01-20T00:59:01.720" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3089" PostTypeId="2" ParentId="3049" CreationDate="2015-01-20T05:56:16.260" Score="7" Body="&lt;p&gt;The HO model has been generalised. Vanek does a good job of it. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Instead of only two countries, there is an index of countries.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;There are many industries.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Identical technology&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Identical, homothetic tastes.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The HOV theorem states that if a country is abundant in a factor,&#xA;its factor content of trade in that factor should be positive, and&#xA;negative otherwise.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Empirically, this model is not that successful. &lt;a href=&quot;http://www.nber.org/papers/w5625.pdf&quot;&gt;Here&lt;/a&gt; is a good paper discussing the applications and results.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;See below for that extension:&#xA;Vanek, Jaroslav, The Factor Proportions Theory: The N-Factor Case,” Kyklos, October 1968, 21, 749-755.&lt;/p&gt;&#xA;" OwnerUserId="40" LastActivityDate="2015-01-20T05:56:16.260" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3090" PostTypeId="1" CreationDate="2015-01-20T06:33:07.383" Score="5" ViewCount="396" Body="&lt;p&gt;When publicly-traded corporations reach record valuations, articles in the media often compare such valuations to the GDPs of countries throughout the world, typically in the form &quot;Company X's valuation of Y is now larger than the GDP of all but Z of the world's countries...&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, a Fortune &lt;a href=&quot;http://fortune.com/2014/11/25/apple-700-billion/&quot;&gt;article&lt;/a&gt; from Nov. 2014 states:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;At this point, Apple’s market cap is higher than the gross domestic&#xA;  product of all but 19 of the world’s countries, coming just behind&#xA;  Saudi Arabia (GDP of \$745 billion) and ahead of Switzerland (\$650&#xA;  billion), according to data compiled by the World Bank.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This doesn't seem like a meaningful comparison to make, given that GDP and market cap are very different metrics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Similarly, a Business Insider &lt;a href=&quot;http://www.businessinsider.com/25-corporations-bigger-tan-countries-2011-6?op=1&quot;&gt;article&lt;/a&gt; compares corporate revenue to countries' GDPs. This is intuitively a better comparison than market cap to GDP, but wouldn't comparing profits to GDP be a more accurate measure?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;In summary, what are the best metrics for comparing the performance of companies to the performance of national economies?&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="2752" LastActivityDate="2015-01-21T10:23:07.253" Title="Normalizing comparisons of corporations and countries" Tags="&lt;gdp&gt;&lt;probability&gt;&lt;stock-market&gt;&lt;value&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3091" PostTypeId="1" AcceptedAnswerId="3096" CreationDate="2015-01-20T09:23:13.563" Score="2" ViewCount="14223" Body="&lt;p&gt;I'm reading an economics textbook and trying to make sense of PPF (or PPC) concept. All examples I could find are like producing computers vs food. I can't understand how it can be evaluated and applied to real life situation. Do you know any practical example of PPF?&lt;/p&gt;&#xA;" OwnerUserId="2753" LastActivityDate="2020-09-29T16:59:14.450" Title="Real world production-possibility frontier example?" Tags="&lt;production-function&gt;" AnswerCount="4" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3092" PostTypeId="2" ParentId="3091" CreationDate="2015-01-20T09:59:19.483" Score="1" Body="&lt;p&gt;Production possibility frontier is not about producing two different goods, it is about producting one good, with two different resources, typically labour and capital.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For instance, a PPF would be how to produce a car, with either machines or workers. If you have a lot of machines you need less workers, and conversely.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Edit1&lt;/strong&gt; &#xA;Note that these domains are -to my limited knowledge- mainly used for theoretical purposes, namely the two welfare theorems and their implications. I am not sure it is the most applied branch of economics&lt;/p&gt;&#xA;" OwnerUserId="2709" LastEditorUserId="2709" LastEditDate="2015-01-20T15:25:24.850" LastActivityDate="2015-01-20T15:25:24.850" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="3093" PostTypeId="1" AcceptedAnswerId="3104" CreationDate="2015-01-20T12:53:47.343" Score="2" ViewCount="36" Body="&lt;p&gt;what are the parameters which will affect a company ability to buy a new product based on its current financial situation.  Is there any metrics or ratios which will tell the current company purchasing power? &lt;/p&gt;&#xA;" OwnerUserId="2756" LastActivityDate="2015-01-21T04:59:08.803" Title="Ratios to determine company's current purchasing power" Tags="&lt;applied-econometrics&gt;&lt;corporate-finance&gt;&lt;purchasing-power-partity&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="3094" PostTypeId="1" AcceptedAnswerId="3095" CreationDate="2015-01-20T13:29:30.463" Score="6" ViewCount="286" Body="&lt;p&gt;Suppose I've just won 1'000'000 dollars in a game show. At the end of the program they tell me that they will pay me the prize as following: they will deposit in my bank 50'000 dollars every year for twenty years with a constant annual interest rate of 6% (this to prevent me from wasting too quickly the one million dollars I've just won). The present value of my prize is given by:$$V_t=z\frac{1-\left [ \frac{1}{(1+i)^n} \right ]}{1-\left [ \frac{1}{(1+i)} \right ]}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;with $z=50'000$, $i=0.06$ and $n=20$ I get  that: $$V_t\approx 50'000 \left (\frac{0.688}{0.566}  \right )\approx 608'000$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My book says that is a really great prize, but I'm not a millionaire at this point. I would have been a millionaire if they'd paid me the one million dollars right at the end of the program. But I can't understand why it looks like I'm less rich. Suppose I won't spend money they'll give me, in twenty years I'll have: $$1'000'000\cdot(1+0.06)=1'060'000$$&#xA;Which is obviously greater than 1'000'000. Could you please explain me what's the reasoning that there is behind the present value of 608'000 dollars? Thanks for any help you can provide.&lt;/p&gt;&#xA;" OwnerUserId="1642" LastEditorUserId="1642" LastEditDate="2015-01-20T22:58:52.837" LastActivityDate="2015-01-21T01:37:06.167" Title="Present value of a payment" Tags="&lt;macroeconomics&gt;&lt;mathematical-economics&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3095" PostTypeId="2" ParentId="3094" CreationDate="2015-01-20T14:08:40.783" Score="7" Body="&lt;p&gt;You got the last sum wrong. In twenty years if you invest the million at 6 percent you'll have:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$1,000,000 \cdot (1 + .06) ^ {20} = 3,200,000$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think the easiest way to to understand this result is with a table. This table asks what is the present value of each payment, the value of each year of payment in the year of the award (t=0). The far right column sums those payments to calculate the net present value of payments from time = 0 to time = t. You can see that the row 19, far right column number is the desired net present value of \$608k. &lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;+------+-------------+-------------+-----------+--------------+------------------+&#xA;| Year | Value of $  | Value of $  | Payment   | Value at 0   | Cumulative value |&#xA;| (t)  | in year 0   | in year t   | in year t | of payment   | of payments      |&#xA;|      | at time t   | at time 0   |           | in year t    | through t at 0   |&#xA;+------+-------------+-------------+-----------+--------------+------------------+&#xA;| 0    |  1.00       |  1.00       |  50,000   |  50,000      |  50,000          |&#xA;+------+-------------+-------------+-----------+--------------+------------------+&#xA;| 1    |  1.06       |  0.94       |  50,000   |  47,170      |  97,170          |&#xA;+------+-------------+-------------+-----------+--------------+------------------+&#xA;| 2    |  1.12       |  0.89       |  50,000   |  44,500      |  141,670         |&#xA;+------+-------------+-------------+-----------+--------------+------------------+&#xA;| 3    |  1.19       |  0.84       |  50,000   |  41,981      |  183,651         |&#xA;+------+-------------+-------------+-----------+--------------+------------------+&#xA;| 4    |  1.26       |  0.79       |  50,000   |  39,605      |  223,255         |&#xA;+------+-------------+-------------+-----------+--------------+------------------+&#xA;| 5    |  1.34       |  0.75       |  50,000   |  37,363      |  260,618         |&#xA;+------+-------------+-------------+-----------+--------------+------------------+&#xA;| 6    |  1.42       |  0.70       |  50,000   |  35,248      |  295,866         |&#xA;+------+-------------+-------------+-----------+--------------+------------------+&#xA;| 7    |  1.50       |  0.67       |  50,000   |  33,253      |  329,119         |&#xA;+------+-------------+-------------+-----------+--------------+------------------+&#xA;| 8    |  1.59       |  0.63       |  50,000   |  31,371      |  360,490         |&#xA;+------+-------------+-------------+-----------+--------------+------------------+&#xA;| 9    |  1.69       |  0.59       |  50,000   |  29,595      |  390,085         |&#xA;+------+-------------+-------------+-----------+--------------+------------------+&#xA;| 10   |  1.79       |  0.56       |  50,000   |  27,920      |  418,004         |&#xA;+------+-------------+-------------+-----------+--------------+------------------+&#xA;| 11   |  1.90       |  0.53       |  50,000   |  26,339      |  444,344         |&#xA;+------+-------------+-------------+-----------+--------------+------------------+&#xA;| 12   |  2.01       |  0.50       |  50,000   |  24,848      |  469,192         |&#xA;+------+-------------+-------------+-----------+--------------+------------------+&#xA;| 13   |  2.13       |  0.47       |  50,000   |  23,442      |  492,634         |&#xA;+------+-------------+-------------+-----------+--------------+------------------+&#xA;| 14   |  2.26       |  0.44       |  50,000   |  22,115      |  514,749         |&#xA;+------+-------------+-------------+-----------+--------------+------------------+&#xA;| 15   |  2.40       |  0.42       |  50,000   |  20,863      |  535,612         |&#xA;+------+-------------+-------------+-----------+--------------+------------------+&#xA;| 16   |  2.54       |  0.39       |  50,000   |  19,682      |  555,295         |&#xA;+------+-------------+-------------+-----------+--------------+------------------+&#xA;| 17   |  2.69       |  0.37       |  50,000   |  18,568      |  573,863         |&#xA;+------+-------------+-------------+-----------+--------------+------------------+&#xA;| 18   |  2.85       |  0.35       |  50,000   |  17,517      |  591,380         |&#xA;+------+-------------+-------------+-----------+--------------+------------------+&#xA;| 19   |  3.03       |  0.33       |  50,000   |  16,526      |  607,906 (award NPV)|&#xA;+------+-------------+-------------+-----------+--------------+------------------+&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Now that we see how this \$608 number is calculated, how should we interpret it? The classic answer is to ask &quot;what someone would pay you for your prize?&quot; For simplicity, let's ignore risk or assume that the 6% number fully encapsulates the risk. Imagine an investor who is risk neutral, has deep pockets, but critically, &lt;strong&gt;has the same investment choices as the game show&lt;/strong&gt;. What would they pay you for your prize? What if there were many such investors such that they were competing away all the profits to pay you exactly what they thought that investment was worth.? What's the absolute maximum they'd pay? They would pay \$607,906.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why? Because say they invested \$607,906 at 6% per year with the plan of selling anything left over? What would happen to their balance over time?&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;+---------------+--------------+--------------+--------------------+&#xA;| Starting      | Interest (t) | Cash Out (t) | Ending Balance (t) |&#xA;|   Balance (t) |              |              |                    |&#xA;+---------------+--------------+--------------+--------------------+&#xA;| 607,906       | 0            | 50,000       | 557,906            |&#xA;+---------------+--------------+--------------+--------------------+&#xA;| 557,906       | 33,474       | 50,000       | 541,380            |&#xA;+---------------+--------------+--------------+--------------------+&#xA;| 541,380       | 32,483       | 50,000       | 523,863            |&#xA;+---------------+--------------+--------------+--------------------+&#xA;| 523,863       | 31,432       | 50,000       | 505,295            |&#xA;+---------------+--------------+--------------+--------------------+&#xA;| 505,295       | 30,318       | 50,000       | 485,612            |&#xA;+---------------+--------------+--------------+--------------------+&#xA;| 485,612       | 29,137       | 50,000       | 464,749            |&#xA;+---------------+--------------+--------------+--------------------+&#xA;| 464,749       | 27,885       | 50,000       | 442,634            |&#xA;+---------------+--------------+--------------+--------------------+&#xA;| 442,634       | 26,558       | 50,000       | 419,192            |&#xA;+---------------+--------------+--------------+--------------------+&#xA;| 419,192       | 25,152       | 50,000       | 394,344            |&#xA;+---------------+--------------+--------------+--------------------+&#xA;| 394,344       | 23,661       | 50,000       | 368,004            |&#xA;+---------------+--------------+--------------+--------------------+&#xA;| 368,004       | 22,080       | 50,000       | 340,085            |&#xA;+---------------+--------------+--------------+--------------------+&#xA;| 340,085       | 20,405       | 50,000       | 310,490            |&#xA;+---------------+--------------+--------------+--------------------+&#xA;| 310,490       | 18,629       | 50,000       | 279,119            |&#xA;+---------------+--------------+--------------+--------------------+&#xA;| 279,119       | 16,747       | 50,000       | 245,866            |&#xA;+---------------+--------------+--------------+--------------------+&#xA;| 245,866       | 14,752       | 50,000       | 210,618            |&#xA;+---------------+--------------+--------------+--------------------+&#xA;| 210,618       | 12,637       | 50,000       | 173,255            |&#xA;+---------------+--------------+--------------+--------------------+&#xA;| 173,255       | 10,395       | 50,000       | 133,651            |&#xA;+---------------+--------------+--------------+--------------------+&#xA;| 133,651       | 8,019        | 50,000       | 91,670             |&#xA;+---------------+--------------+--------------+--------------------+&#xA;| 91,670        | 5,500        | 50,000       | 47,170             |&#xA;+---------------+--------------+--------------+--------------------+&#xA;| 47,170        | 2,830        | 50,000       | 0                  |&#xA;+---------------+--------------+--------------+--------------------+&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;That is, they'd have exactly enough money to make the required \$50,000 payments in every period with nothing left over. &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-01-21T01:37:06.167" LastActivityDate="2015-01-21T01:37:06.167" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="3096" PostTypeId="2" ParentId="3091" CreationDate="2015-01-20T16:11:50.450" Score="3" Body="&lt;p&gt;In the 1940's the RAND corporation put together a series of simulations about war between the USA and the USSR. In the end, they came out with a series of two &quot;good&quot; possibilities, degree of victory and number of crew lives saved. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The US Air Force asked RAND to apply systems analysis to design a&#xA;  first strike on the Soviets. ....  Paxson and RAND were initially&#xA;  proud of their optimization model and the computing power that they&#xA;  brought to bear on the problem, which crunched the numbers for over&#xA;  400,000 configurations of bombs and bombers using hundreds of&#xA;  equations. The massive computations for each configuration involved&#xA;  simulated games at each enemy encounter, each of which had first been&#xA;  modeled in RAND’s new aerial combat research room. They also involved&#xA;  numerous variables for fighters, logistics, procurement, land bases,&#xA;  and so on. Completed in 1950, the study recommended that the United&#xA;  States fill the skies with numerous inexpensive and vulnerable&#xA;  propeller planes, many of them decoys carrying no nuclear weapons, to&#xA;  overwhelm the Soviet air defenses. Though losses would be high, the&#xA;  bombing objectives would be met. While RAND was initially proud of&#xA;  this work, pride and a haughty spirit often go before a fall. RAND’s&#xA;  patrons in the US Air Force, some of whom were always skeptical of the&#xA;  idea that pencil-necked academics could contribute to military&#xA;  strategy, were apoplectic. RAND had chosen a strategy that would&#xA;  result in high casualties, in part because the objective function had&#xA;  given zero weight to the lives of airplane crews.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.aeaweb.org/atypon.php?return_to=/doi/pdfplus/10.1257/jep.28.4.213&quot; rel=&quot;nofollow&quot;&gt;Retrospectives: The Cold-War Origins of the Value of Statistical Life&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;RAND quickly backpedaled on the study, and instead moved to a more&#xA;  cautious approach which spelled out a range of choices: for example,&#xA;  some choices might cost more in money but be expected to have fewer&#xA;  deaths, while other choices might cost less in money but be expected&#xA;  to have more deaths. The idea was that the think tank identified the&#xA;  range of choices, and the generals would choose among them. But of&#xA;  course, financial resources were limited by political considerations,&#xA;  and so the choices made by the military would typically need to&#xA;  involve some number of deaths that was higher than the theoretical&#xA;  minimum--if more money had been available. In that sense, spelling out&#xA;  a range of tradeoffs also spelled out the monetary value that would be&#xA;  put on lives lost.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://conversableeconomist.blogspot.com/2014/11/the-origins-of-value-of-statistical.html&quot; rel=&quot;nofollow&quot;&gt;The Origins of the Value of a Statistical Life Concept&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Maybe that's too much like the two input story of Aerandal. Depends on if you consider the saved lives a &quot;savings&quot; or a &quot;good&quot;. For a clearer example of the guns vs. butter tradeoff, consider another example from WW II.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In February 1942, Fisher Body completely stopped making auto bodies&#xA;  and began assembling the famous M-4 &quot;Sherman&quot; tank in its No. 1 plant&#xA;  in Flint. The operation eventually moved to Grand Blanc and would turn&#xA;  out 11,358 tanks by 1945.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Buick tackled the manufacture of ammunition, churning out 75,000&#xA;  casings per month for the duration. By the war's end, the division had&#xA;  supplied more than 12.5 million casings.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Buick also retooled to meet the demands of making engines for the B-24&#xA;  bomber. At first, they talked of about 500 engines a month, but the&#xA;  government doubled its order by the time Buick had its tooling in&#xA;  place. By 1944, Buick's Melrose Park factory was regularly turning out&#xA;  2,000 engines a month....&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;In all, more than 113,000 employees left GM to serve while the company&#xA;  churned out $12.3 billion in aircraft, tanks, vehicles and arms.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;When it was all counted up after the war, GM had produced 854,000&#xA;  trucks (including the legendary DUKW, or &quot;Duck&quot; amphibious vehicles),&#xA;  198,000 diesel engines, 206,000 aircraft engines, and 38,000 tanks,&#xA;  tank destroyers, and armored vehicles, not to mention vast quantities&#xA;  of guns and ammunition.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.military.com/veteran-jobs/career-advice/military-transition/how-gm-divisions-tackled-war-effort.html&quot; rel=&quot;nofollow&quot;&gt;How GM's Divisions Tackled the War Effort&lt;/a&gt; &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2015-01-20T16:11:50.450" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3097" PostTypeId="1" CreationDate="2015-01-20T16:29:03.477" Score="3" ViewCount="58" Body="&lt;p&gt;I am looking for total amount of customer loans banks are giving in a country. I can find data for US at &#xA;&lt;a href=&quot;http://research.stlouisfed.org/fred2/series/CLSACBW027SBOG&quot; rel=&quot;nofollow&quot;&gt;http://research.stlouisfed.org/fred2/series/CLSACBW027SBOG&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However I am looking for statistics for also other countries, Europe, China, Russia, Japan, India, etc.&lt;/p&gt;&#xA;" OwnerUserId="2758" LastEditorUserId="2758" LastEditDate="2017-02-10T16:52:23.500" LastActivityDate="2017-02-10T16:52:23.500" Title="Total amount of bank loans in a country" Tags="&lt;data-request&gt;&lt;banking&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3098" PostTypeId="2" ParentId="3090" CreationDate="2015-01-20T16:44:03.907" Score="4" Body="&lt;p&gt;GDP is a flow (of goods and services) while market capitalization is a stock measure. So I agree, this is not a great comparison. If we want to compare stocks, we'd compare total enterprise value (sum of equity and debt) to national domestic assets. But that's imperfect because much of what makes a country rich is labor income and that's not going to be in domestic assets. So we'd like to add in some measure of human capital. That's going to be imperfect at best. So I prefer to compare flows. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider how GDP is a value added measure. If you import steel for 150 and export cars you make out of that steel for 250 the GDP contribution is 100. Some of that 100 went to capital and some to labor. What's the value added of the corporation? Think of the company as &quot;importing&quot; the goods it buys and &quot;exporting&quot; the goods it sells. The difference is paid out to three sources, equity capital, debt capital, and and wages paid to labor. So to make a number comparable to GDP, add together corporate profits, net income expense, and labor costs. This is the value added of the firm and much more analogous to GDP than firm value. &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-01-21T10:23:07.253" LastActivityDate="2015-01-21T10:23:07.253" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3099" PostTypeId="1" AcceptedAnswerId="3114" CreationDate="2015-01-20T19:12:53.183" Score="3" ViewCount="473" Body="&lt;p&gt;I am looking at CPI datasets for developing countries which have gaps in them. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For each country I have two time-series with annual averages for years 2000-2013: i) General/Overall CPI and ii) Food CPI. I'm also assuming that Food CPI must have some relationship with the General/Overall CPI since the Food category has its own weight in the General CPI.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, I have two types of cases, some such as: &lt;a href=&quot;https://imgur.com/a/9z7o8#1&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://imgur.com/a/9z7o8#1&lt;/a&gt; where gaps are between values. I'm assuming I can interpolate here, if so, how would I go forward with this? I also have to deal with more complicated cases such as: &lt;a href=&quot;https://imgur.com/a/9z7o8#0&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://imgur.com/a/9z7o8#0&lt;/a&gt;, any suggestions in this case? Would a simple extrapolation even make sense here?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An option for my first case that I read (on BLS) is taking the geometric mean of the year immediately before and after of the missing value. Other people have suggested I should predict the missing values by a simple regression model of the CPI on the GDP deflator for that year (which I do have). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, in some cases, gaps in annual averages exist because the monthly data needed to calculate these averages is incomplete. So say I only have 2006 data for Russia for months Jan-June, then the annual average data point is missing in the data series. I assume I can just take a simple average of the available months and impute that for 2006? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks in advance&lt;/p&gt;&#xA;" OwnerUserId="2759" LastActivityDate="2015-01-21T21:13:46.087" Title="What to do for missing points in CPI time series?" Tags="&lt;time-series&gt;" AnswerCount="1" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3100" PostTypeId="1" CreationDate="2015-01-20T20:43:44.413" Score="7" ViewCount="238" Body="&lt;p&gt;I am considering a regression discontinuity design (RD) where the &quot;treatment&quot; has a definite sorting rule (below the threshold, you are not fined - above the threshold, you are fined). The outcome I am considering is how much you are fined the FOLLOWING year. There are 4 options: 1) remain without a fine, 2) go from no fine to fined, 3) fined less than you were the previous year, or 4) fined more than you were the previous. While I have listed these as categorical, I have the continuous amount of the fine as well.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here are my questions:&#xA;1.) I have never seen a &quot;longitudinal&quot; RD design where the treatment is at a time period before the outcome. Are there any methodological issues with this approach?&#xA;2.) Assuming this approach is valid, how best should I model the outcome given the multiple possibilities?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks in advance for any advice!&lt;/p&gt;&#xA;" OwnerUserId="2760" LastActivityDate="2015-02-20T09:27:49.517" Title="Regression discontinuity questions" Tags="&lt;econometrics&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3101" PostTypeId="1" AcceptedAnswerId="3102" CreationDate="2015-01-20T21:03:09.027" Score="2" ViewCount="149" Body="&lt;p&gt;On nearly all graphs found within economics textbooks, quantity is label on the x-axis and price on the y-axis, implying that the quantity supplied affects the price. Is this really so? Intuition would tell you (or me at least!) that the quantity someone wishes to buy is dictated by the price, which in turn is decided by whoever is selling the item.&lt;/p&gt;&#xA;" OwnerUserId="242" LastActivityDate="2015-02-11T23:31:31.610" Title="Does price affect quantity or vice versa?" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3102" PostTypeId="2" ParentId="3101" CreationDate="2015-01-20T21:43:24.250" Score="3" Body="&lt;p&gt;This is a common problem among students first learning economics. The way these graphs are displayed are not meant to tell you anything about causality, let along the direction of causality. The reason that price is on the y-axis is partly because of tradition and partly because that's what makes the most sense from the perspective of developing economic theory. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;One of the central questions of economics is the determination of prices. What causes prices to be what they are? So, it maybe seems natural to write relationships that give a price as the dependent variable. However, the layout is not meant to convey any information about causality.&lt;/p&gt;&#xA;" OwnerUserId="59" LastActivityDate="2015-01-20T21:43:24.250" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3103" PostTypeId="1" AcceptedAnswerId="3105" CreationDate="2015-01-21T02:30:11.043" Score="4" ViewCount="1894" Body="&lt;p&gt;I am a mathematics undergraduate trying to self-learn some economics. I have no background in economics. I wish to know from which chapters of Hal Varian's &quot;Intermediate Microeconomics&quot; (7th edition) should I study for the following topics:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;Microeconomics: Theory of consumer behaviour, theory of production,&#xA;market structure under perfect competition, monopoly, price discrimination,&#xA;duopoly with Cournot and Bertrand competition (elementary problems) and&#xA;welfare economics.&#xA;&#xA;Macroeconomics: National income accounting, simple Keynesian Model of&#xA;income determination and the multiplier, IS-LM Model, models of aggregate&#xA;demand and aggregate supply, Harrod-Domar and Solow models of growth,&#xA;money, banking and inflation.&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Regarding the macroeconomics part, I still do not know which book to follow and which chapters to read. It would help me a lot, if someone can guide me in this. Since the headings of the chapters differ from the names of these topics, I am unsure which portions to read without any expert's help.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;P.S.: I am unsure if this is the right place for me to ask such a question.&lt;/p&gt;&#xA;" OwnerUserId="2763" LastEditorUserId="2701" LastEditDate="2015-01-24T05:18:35.583" LastActivityDate="2015-01-24T05:18:35.583" Title="Books for microeconomics and macroeconomics for selected topics" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;self-study&gt;" AnswerCount="4" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="3104" PostTypeId="2" ParentId="3093" CreationDate="2015-01-21T04:59:08.803" Score="0" Body="&lt;p&gt;You could probably get a very good idea of a company's ability to spend money - that is, make capital investments, develop new ventures etc. - by investing its balance sheet and develop both liquidity and leverage ratios. High liquidity with low leverage means that a company is probably not investing enough. Low liquidity with high leverage ratios would indicate a company has already invested heavily and is not in a position to undertake new ventures etc. &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;http://www.investopedia.com/articles/investing/080113/understanding-leverage-ratios.asp&quot; rel=&quot;nofollow&quot;&gt;Here is a good introduction to leverage ratios&lt;/a&gt; &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;http://www.investopedia.com/university/ratios/liquidity-measurement/&quot; rel=&quot;nofollow&quot;&gt; Here is a good introduction to liquidity ratios&lt;/a&gt; &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="1655" LastActivityDate="2015-01-21T04:59:08.803" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3105" PostTypeId="2" ParentId="3103" CreationDate="2015-01-21T08:18:39.777" Score="7" Body="&lt;p&gt;From Varian (7th edition):&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Consumer behavior: at least chapters 1–6; preferably also chapters 7, 8, and 12.&lt;/li&gt;&#xA;&lt;li&gt;Perfect competition and Theory of production: chapters 15, 16, and 18-23.&lt;/li&gt;&#xA;&lt;li&gt;Monopoly price discrimination: chapter 25 (you might want to look at chapter 24; it seems a bit odd to study price discrimination without first looking at a non-discriminating monopolist).&lt;/li&gt;&#xA;&lt;li&gt;Bertrand/Cournot duopoly: chapter 27.&lt;/li&gt;&#xA;&lt;li&gt;Welfare economics is a bit tougher, because this could mean a number of things. I would suggest chapters 31 and 33 (and maybe chapters 32, 34 and 36).&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2015-01-21T09:23:55.613" LastActivityDate="2015-01-21T09:23:55.613" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3106" PostTypeId="2" ParentId="3100" CreationDate="2015-01-21T09:00:14.897" Score="2" Body="&lt;p&gt;The fact that your outcome is measured at a later point in time than the treatment is not a problem, and not unusual either - this is true to some extent in all RD studies (if this were not the case, there couldn't be causation). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for how to analyze your outcome, I suggest a couple of different specifications. First, you should use the continuous fine measure as an outcome. Second, you could use an indicator variable equal to 1 if they got a fine, and equal to zero if they didn't. You might be able to do similar dummy regressions for the more/less cases too, but that's a little more complicated. If you want to be a little more advanced, it would certainly be interesting to take the RD framework to a tobit model. Shouldn't be too complicated, I expect, but I haven't thought that much about it.&lt;/p&gt;&#xA;" OwnerUserId="283" LastActivityDate="2015-01-21T09:00:14.897" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3107" PostTypeId="2" ParentId="3103" CreationDate="2015-01-21T11:16:54.780" Score="4" Body="&lt;p&gt;As far as I remember, Varian's book is aimed at second year undergraduates who are normally studying a micro 2 module (or something similar).&#xA;As a result, he does tend to assume some prior knowledge so it would be beneficial for you to plug the gaps in your knowledge (assuming you haven't) before you proceed with this book.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Even though you are studying mathematics, I will suggest resources in a way that will be accessible to mathematicians &amp;amp; non-mathematicians alike.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would say that the prerequisites for intermediate micro are game theory &amp;amp; a micro 1 module. The prerequisite for a micro 1 module would be a sort of &quot;Principles of Economics&quot; module, where you encounter the very basics of economics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This would be my plan for a two year &quot;course&quot; in micro &amp;amp; macro:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Year 1&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;No prerequisites &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Micro and macro 1&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&quot;Economics&quot; by Sloman&lt;/li&gt;&#xA;&lt;li&gt;&quot;Debunking Economics&quot; by Keen &lt;em&gt;(I would strongly suggest that you read this if you want to pursue your interest in economics)&lt;/em&gt;&lt;/li&gt;&#xA;&lt;li&gt;&quot;Macroeconomics: Understanding the global Economy&quot; by Miles,Scott &amp;amp; Breedon&lt;/li&gt;&#xA;&lt;li&gt;&quot;Macroeconomics: A European Perspective&quot; by Blanchard,Giavazzi&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Before we proceed to &quot;Year 2&quot;, ensure that you are comfortable with the following micro 1 topics:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1.Set theory &amp;amp; probability theory basics (Including bayes' theorem)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2.Individual choice&lt;/p&gt;&#xA;&#xA;&lt;p&gt;3.Consumption bundles&lt;/p&gt;&#xA;&#xA;&lt;p&gt;4.Inter-temporal choice&lt;/p&gt;&#xA;&#xA;&lt;p&gt;5.Choice under risk&lt;/p&gt;&#xA;&#xA;&lt;p&gt;6.Choice under uncertainty&lt;/p&gt;&#xA;&#xA;&lt;p&gt;7.Beliefs under uncertainty&lt;/p&gt;&#xA;&#xA;&lt;p&gt;8.Efficiency&lt;/p&gt;&#xA;&#xA;&lt;p&gt;9.Social choice&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Year 2&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Micro 2 prerequisites: Basic economics -&gt; Micro 1&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Macro 2 prerequisites: Understanding the global economy -&gt; European perspective&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Micro 2&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;&quot;Strategy:An Introduction to Game Theory&quot; by Watson&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&quot;Intermediate micro&quot; by Varian&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Macro 2&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;&quot;Economics of Development&quot; by Thirlwall&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&quot;Macroeconomics&quot; by Dornbusch et al.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&quot;Macroeconomics&quot; either the Blanchard or Mankiw version, take your pick.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;And that's your basic contingent course of action... done.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, I would like to add that if you want to understand the empirical side of economics, you should also study econometrics. In addition to this, I would stress that you study the history of economic thought. Learning economics without appreciating its historical and philosophical foundations leads to a half baked knowledge.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, to answer your specific question regarding the Varian book, this is how I would read it:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Technology (chapter 18)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Profit maximization (19)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Cost functions (20,21)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Firm supply (22,23)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Monopoly (24,25)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Exchange (31)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Production &amp;amp; welfare (32,33)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Externalities (34)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Public goods (36)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Asymmetric information (37)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Hope that helps.&lt;/p&gt;&#xA;" OwnerUserId="2765" LastEditorUserId="2765" LastEditDate="2015-01-21T11:39:23.097" LastActivityDate="2015-01-21T11:39:23.097" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3108" PostTypeId="1" AcceptedAnswerId="3109" CreationDate="2015-01-21T13:23:09.557" Score="6" ViewCount="316" Body="&lt;p&gt;To peg its currency (CHF) to the Euro (EUR), the Swiss National Bank (SNB) made purchases of EUR to the tune of several hundred billion.  By reducing the supply of EUR, the SNB made the EUR relatively valuable, achieving the peg.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But how did the SNB fund its EUR purchases?  My original assumption was that the SNB simply printed CHF to buy EUR.  Is this correct?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reason I ask is (a) I have not been able to find explicit documentation of this and (b) a colleague suggested that the SNB may have been using other means to purchase EUR, such as tapping into gold reserves or other kinds of reserves.&lt;/p&gt;&#xA;" OwnerUserId="2732" LastEditorUserId="2732" LastEditDate="2015-01-22T22:45:01.863" LastActivityDate="2019-05-28T13:48:42.553" Title="What did the Swiss National Bank use to purchase EUR while pegging the Franc to the Euro?" Tags="&lt;central-banking&gt;&lt;currency-peg&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3109" PostTypeId="2" ParentId="3108" CreationDate="2015-01-21T13:56:09.747" Score="5" Body="&lt;p&gt;This quotation by Michael Bordo, Owen F Humpage, and Anna J Schwartz (2012) was the richest description I could find on how the SNB achieved the floor:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In March 2008, the Swiss National Bank eased monetary policy in&#xA;  response to expectations of deflation, deteriorating economic&#xA;  conditions, financial-market distress, and a Swiss franc appreciation&#xA;  that resulted from the global financial crisis. In conjunction with&#xA;  this action, the Bank aggressively bought euros in the&#xA;  foreign-exchange market in 2009. Throughout March and April 2009, the&#xA;  Swiss National Bank did not seem to sterilise its substantial&#xA;  foreign-exchange purchases; the Swiss monetary base rose by more than&#xA;  the value of foreign assets on the Bank’s books. In response, the&#xA;  Swiss franc depreciated. By April 2009, however, the Swiss monetary&#xA;  base had more than doubled from a year earlier, and the Bank – now&#xA;  concerned about latent inflation – began to sterilise the liquidity&#xA;  resulting from its huge interventions. The Swiss interventions&#xA;  continued through June 2010, but the Swiss monetary base either grew&#xA;  by less than the Swiss National Bank’s holdings of foreign assets, or&#xA;  the monetary base actually declined. The Bank was clearly sterilising&#xA;  the operations, and the franc appreciated by nearly 10% between April&#xA;  2009 and June 2010. On balance, from May 2010 to August 2011, the&#xA;  Swiss monetary base contracted and the franc appreciated, reaching an&#xA;  historic high on a real trade-weighted basis.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;In early August 2011, the Swiss National Bank announced a series of&#xA;  new measures to inject liquidity into financial markets with the&#xA;  objective of stemming the Swiss franc’s appreciation. The operations&#xA;  included foreign-exchange swaps in which the Bank sold francs spot and&#xA;  repurchased them forward. The franc depreciated sharply, but undertook&#xA;  a stunning reversal late in the month. The Swiss National Bank then&#xA;  announced that it was prepared to buy foreign exchange in unlimited&#xA;  quantities to maintain a floor of SF 1.20 vis-à-vis the euro. The&#xA;  Bank’s holdings of foreign exchange increased substantially, but the&#xA;  Swiss monetary base increased by even more. Since September, the Swiss&#xA;  National Bank has maintained an exchange-rate floor, by giving up&#xA;  control of its monetary base in conformity to the fundamental&#xA;  trilemma.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.voxeu.org/article/notes-currency-wars-trilemma-international-finance&quot; rel=&quot;nofollow noreferrer&quot;&gt;Foreign-exchange intervention and the fundamental trilemma of international finance: Notes for currency wars&lt;/a&gt;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If they are not controlling their monetary base they probably be doing standard currency interventions. That is, they credit their own accounts at banks with CHF, then using those credited accounts to purchase Euro denominated assets. Or perhaps, they enter into spot Euro-CHF FX transactions and use the proceeds to buy Euro denominated assets. If they were selling gold then they'd sell gold for dollars and buy euros with dollars. That might modestly move the Euro-USD  exchange rate but would affect the Euro-CHF rate only indirectly. But the Swiss monetary base shouldn't be increasing.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;" OwnerUserId="69" LastEditorUserId="-1" LastEditDate="2019-05-28T13:48:42.553" LastActivityDate="2019-05-28T13:48:42.553" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="3110" PostTypeId="2" ParentId="3103" CreationDate="2015-01-21T13:56:49.443" Score="2" Body="&lt;p&gt;I would not pick and choose chapters. Instead, I would try an iterative approach, visiting all topics multiple times, at increasing levels of sophistication. This really helps to get a &lt;strong&gt;coherent view&lt;/strong&gt; on the broad range of topics that encompasses modern economics. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So start with e.g. &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/128516587X&quot; rel=&quot;nofollow&quot;&gt;&lt;strong&gt;Principles of Economics&lt;/strong&gt;&lt;/a&gt; by Mankiw (which treats both micro and macro, but without calculus), and then go through all of &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0393123960&quot; rel=&quot;nofollow&quot;&gt;&lt;strong&gt;Intermediate Microeconomics&lt;/strong&gt;&lt;/a&gt; by Varian, and through all of &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/1429240024&quot; rel=&quot;nofollow&quot;&gt;&lt;strong&gt;Macroeconomics&lt;/strong&gt;&lt;/a&gt; by Mankiw (both of which use elementary calculus). Pricing on Amazon for these books is kind of ridiculous, but you can use older editions without losing much information.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you are still hooked by then, you can go even deeper with graduate level texts (e.g. &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0195073401&quot; rel=&quot;nofollow&quot;&gt;&lt;strong&gt;Microeconomic Theory&lt;/strong&gt;&lt;/a&gt; by Mas-Colell et al. and &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0073511374&quot; rel=&quot;nofollow&quot;&gt;&lt;strong&gt;Advanced Macroeconomics&lt;/strong&gt;&lt;/a&gt; by Romer). By that time, you probably also need to do some supporting studies on &lt;strong&gt;econometrics&lt;/strong&gt; and &lt;strong&gt;game theory&lt;/strong&gt; (for which there are also many good texts at various levels of sophistication).&lt;/p&gt;&#xA;" OwnerUserId="2701" LastActivityDate="2015-01-21T13:56:49.443" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3112" PostTypeId="1" AcceptedAnswerId="3121" CreationDate="2015-01-21T21:05:00.317" Score="10" ViewCount="3368" Body="&lt;p&gt;In &lt;a href=&quot;http://ocw.mit.edu/courses/economics/14-01sc-principles-of-microeconomics-fall-2011/unit-6-topics-in-intermediate-microeconomics/uncertainty/&quot; rel=&quot;noreferrer&quot;&gt;Lecture 20&lt;/a&gt; of MIT's Microeconomics course, a situation is proposed where a 50/50 bet will either result in losing \$100 or gaining \$125 with a starting wealth of \$100. It is stated that a person would be willing to insure themselves for \$43.75 (the difference between \$100 and \$56.25). What is the intuition behind this?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks in advance!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/IxebN.jpg&quot; alt=&quot;From MIT&quot;&gt;&lt;/p&gt;&#xA;" OwnerUserId="242" LastEditorUserId="264" LastEditDate="2015-11-06T13:51:16.753" LastActivityDate="2016-05-15T23:14:26.120" Title="Intuition behind risk premium" Tags="&lt;utility&gt;&lt;risk&gt;&lt;probability&gt;&lt;expected-utility&gt;&lt;risk-aversion&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="3114" PostTypeId="2" ParentId="3099" CreationDate="2015-01-21T21:13:46.087" Score="1" Body="&lt;p&gt;&lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0471183865&quot; rel=&quot;nofollow&quot;&gt;Statistical Analysis with Missing Data by Little and Rubin&lt;/a&gt; is the go-to reference for working with missing data, at least if nothing state of the art is required. In general, this is a complex problem that remains an area of active research. The relatively easy cases are when the data is &lt;a href=&quot;http://missingdata.lshtm.ac.uk/index.php?option=com_content&amp;amp;view=article&amp;amp;id=75:missing-completely-at-random-mcar&amp;amp;catid=40:missingness-mechanisms&amp;amp;Itemid=96&quot; rel=&quot;nofollow&quot;&gt;missing-completely-at-random&lt;/a&gt; or &lt;a href=&quot;http://missingdata.lshtm.ac.uk/index.php?option=com_content&amp;amp;view=article&amp;amp;id=76:missing-at-random-mar&amp;amp;catid=40:missingness-mechanisms&amp;amp;Itemid=96&quot; rel=&quot;nofollow&quot;&gt;missing-at-random&lt;/a&gt;. Even among the most basic single imputation methods you have a lot of choices (list from Little and Rubin):&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Mean imputation (replace with mean values)&lt;/li&gt;&#xA;&lt;li&gt;Regression imputation&lt;/li&gt;&#xA;&lt;li&gt;Stochastic regression imputation&lt;/li&gt;&#xA;&lt;li&gt;Hot deck imputation (substitute individual values drawn from &quot;similar&quot; response units)&lt;/li&gt;&#xA;&lt;li&gt;Substitution (not relevant in your context)&lt;/li&gt;&#xA;&lt;li&gt;Cold deck imputation (replace missing value with constant value from external source like last value)&lt;/li&gt;&#xA;&lt;li&gt;Composites of the above methods &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;However, if all the the general price level is what's of interest and not the dynamics of the price level (e.g. because you want a deflator instead of studying inflation dynamics) linear interpolation / extrapolation may be just fine. Fundamentally, since deflation is rare, if prices are 100 at time t and 110 at t+2, realistically prices at t+1 are going to be somewhere in $[100,110]$ and lots of models can get you there.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can check the within and out of sample prediction quality to asses if your method is a good predictor of the missing prices. Within sample testing could be as simple as asking if the $R^2$ is high of predictive model. Obviously you can do much richer analysis than that. For out of sample testing, consider splitting the sample and calibrating the model only on the first half of the data, then evaluating prediction quality on the second half of the data. &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2015-01-21T21:13:46.087" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="3115" PostTypeId="1" AcceptedAnswerId="3120" CreationDate="2015-01-21T21:29:53.420" Score="23" ViewCount="111801" Body="&lt;p&gt;I keep seeing the terms first-order conditions and second-order conditions used in my undergrad economics class on production functions, monopolies, etc but I have no idea what these terms mean. It seems like a completely ambiguous term. What kind of conditions? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Can someone explain what these terms mean? If it is context dependent, provided some of them most elementary meanings you associate with the term.&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="2679" LastActivityDate="2018-11-18T20:59:01.360" Title="What are FOCs and SOCs?" Tags="&lt;microeconomics&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="9" ContentLicense="CC BY-SA 3.0" />
  <row Id="3116" PostTypeId="1" AcceptedAnswerId="3117" CreationDate="2015-01-21T21:40:13.403" Score="5" ViewCount="439" Body="&lt;p&gt;I'd like to have a mathematical version of the following two definitions just because I remember symbols better than words. But I lack the math prowess to convert them from words to symbols. Can someone assist me? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Def 1:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A feasible allocation is &lt;strong&gt;weakly Pareto-optimal&lt;/strong&gt; if there is no alternative (feasible) allocation such that &lt;em&gt;everyone&lt;/em&gt; prefers the alternative to the original. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Def 2: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A feasible allocation is &lt;strong&gt;strongly Pareto-optimal&lt;/strong&gt; if there is no alternative (feasible) allocation such that at least one person prefersthe alternative, and everyone else is indifferent. &lt;/p&gt;&#xA;" OwnerUserId="2679" LastActivityDate="2015-01-21T22:16:29.150" Title="Converting word definitions of Pareto-Optimal into math symbols" Tags="&lt;microeconomics&gt;&lt;pareto-efficiency&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3117" PostTypeId="2" ParentId="3116" CreationDate="2015-01-21T22:16:29.150" Score="4" Body="&lt;p&gt;Let $\Omega$ be the set of all feasible allocations with an element $\omega \in \Omega$.  Consider $I$ agents such that the utility of agent $i$ is described by $u_i(\omega)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Definition 1: $\omega \in \Omega$ is weakly Pareto-optimal if $\nexists \omega' \in \Omega$ such that $\forall i$ $u_i(\omega') &amp;gt; u_i(\omega)$.  Weak Pareto-optimality is basically just saying that for any other allocation, $\omega'$, in the set of feasible allocations that not everyone can strictly prefer the alternative.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Definition 2: $\omega \in \Omega$ is strongly Pareto-optimal if $\nexists \omega' \in \Omega$ such that $\forall i$ $u_i(\omega') \geq u_i(\omega)$ with strict inequality for at least one $i$.  Strong Pareto-optimality is a little stronger in the sense that your allocation must be strictly preferred by some to all other allocations and everyone else can be indifferent.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I hope that is helpful.&lt;/p&gt;&#xA;" OwnerUserId="47" LastActivityDate="2015-01-21T22:16:29.150" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3118" PostTypeId="1" CreationDate="2015-01-21T22:16:39.287" Score="4" ViewCount="289" Body="&lt;p&gt;A common practice when computing solutions to stochastic dynamic optimization problems is to approximate an exogenous forcing process $z_{t+1} = \rho z_t + \sigma \epsilon_{t+1}$ with a finite-state Markov chain, e.g. by Tauchen's or Rouwenhorst's method. What would be a good way to discretize AR(1) process with stochastic volatility?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That is, if the original AR(1)-SV process looks something like this:&#xA;$$&#xA;\begin{split}&#xA;z_{t+1} &amp;amp;= \rho_z z_t + \mathrm{e}^{v_t} \sigma_z \epsilon_{t+1} \\&#xA;v_{t+1} &amp;amp;= \rho_v v_t + \sigma_v \eta_{t+1} &#xA;\end{split}&#xA;$$&#xA;with $\epsilon, \eta$ being independent standard gaussian shocks, my goal is to obtain values $z_i$ and transition probabilities $p_{ij}$ ($i,j=1,\dots,n$) such that the corresponding Markov chain approximates the original continuous-valued process.&lt;/p&gt;&#xA;" OwnerUserId="1432" LastEditorUserId="59" LastEditDate="2015-01-25T02:07:43.683" LastActivityDate="2015-01-26T21:58:22.383" Title="How to approximate stochastic volatility model with finite-state Markov chain?" Tags="&lt;econometrics&gt;&lt;time-series&gt;&lt;computation&gt;&lt;markov-chain&gt;&lt;statistics&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3119" PostTypeId="2" ParentId="3115" CreationDate="2015-01-21T22:50:30.563" Score="5" Body="&lt;p&gt;For example when you are talking about profit maximization starting from a profit function $\pi(q)$, the main condition for a maximum is that: $$\frac{\partial \pi}{\partial q}=0$$ This is the FOC (first order condition).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Though, to be sure that what you have found above is a &lt;em&gt;true&lt;/em&gt; maximum you should also check a 'secondary' condition which is: $$\frac{\partial^2 \pi}{\partial q^2}&amp;lt;0$$ This is called the SOC (second order condition).&lt;/p&gt;&#xA;" OwnerUserId="1642" LastActivityDate="2015-01-21T22:50:30.563" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3120" PostTypeId="2" ParentId="3115" CreationDate="2015-01-21T23:47:00.703" Score="26" Body="&lt;p&gt;Suppose you have a differentiable function $f(x)$, which you want to optimize by choosing $x$. If $f(x)$ is utility or profit, then you want to choose $x$ (i.e. consumption bundle or quantity produced) to make the value of $f$ as large as possible. If $f(x)$ is a cost function, then you want to choose $x$ to make $f$ as small as possible. FOC and SOC are conditions that determine whether a solution maximizes or minimizes a given function. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;At the undergrad level, what is usually the case is that you need to choose $x^*$ such that the derivative of $f$ is equal to zero:&#xA;$$f'(x^*)=0.$$&#xA;This is the FOC. The intuition for this condition is that a function attains its extremum (either maximum or minimum) when its derivative is equal to zero (see picture below). [You should be aware that there are more subtleties involved: look up terms like &quot;interior vs corner solutions&quot;, &quot;global vs local maximum/minimum&quot;, and &quot;saddle point&quot; to learn more].&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/AGgAo.png&quot; alt=&quot;Example functions where x_star is a maximum and a minimum&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, as the picture illustrates, simply finding $x^*$ where $f'(x^*)=0$ is not enough to conclude that $x^*$ is the solution that maximizes or minimizes the objective function. In both graphs, the function attains a zero slope at $x^*$, but $x^*$ is a maximizer in the left graph, but a minimizer in the right graph. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To check whether $x^*$ is a maximizer or a minimizer, you need the SOC. The SOC for maximizer is &#xA;$$f''(x^*)&amp;lt;0$$ &#xA;and the SOC for minimizer is&#xA;$$f''(x^*)&amp;gt; 0.$$&#xA;Intuitively, if $x^*$ maximizes $f$, the slope of $f$ around $x^*$ is decreasing. Take the left graph, where $x^*$ is a maximizer. We see that the slope of $f$ is positive on the left of $x^*$ and negative on the right. Thus, around the neighborhood of $x^*$, as $x$ increases, $f'(x)$ decreases. The intuition for the case of minimizer is similar. &lt;/p&gt;&#xA;" OwnerUserId="42" LastEditorUserId="42" LastEditDate="2015-01-22T01:30:58.850" LastActivityDate="2015-01-22T01:30:58.850" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3121" PostTypeId="2" ParentId="3112" CreationDate="2015-01-22T00:11:08.303" Score="9" Body="&lt;p&gt;The name for the amount $56.25 is &lt;strong&gt;certainty equivalent&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The expected utility for the individual from taking the bet is calculated as follows:&#xA;$$E[U]=\frac12U(100+125)+\frac12U(100-100)=75$$&#xA;Suppose the individual can pay an amount of money $x$ so that she can avoid taking the bet (which leads to expected utility $75$). What's the maximum amount of money $x$ she's willing to pay? Well, she would pay up to a point where she's indifferent between taking and not taking the bet.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If she takes the bet, expected utility is $75$. If she pays, her utility is $U(100-x)$. We want her to be indifferent, so that $U(100-x)=75$. Reading off from the blue curve in your graph (the curve describing $U$), we see that &#xA;$$U(56.25)=75$$&#xA;which means $100-x=56.25$, or $x=43.75$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So we can interpret 43.75 as the maximum amount of money that an individual is willing to pay in order to avoid the (risky) bet. &lt;/p&gt;&#xA;" OwnerUserId="42" LastEditorUserId="42" LastEditDate="2015-01-23T18:15:28.810" LastActivityDate="2015-01-23T18:15:28.810" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="3123" PostTypeId="1" CreationDate="2015-01-22T02:45:10.490" Score="3" ViewCount="129" Body="&lt;h2&gt;&lt;strong&gt;Background&lt;/strong&gt;&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Today in my macroeconomics class my teacher taught us three concepts. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first is very simple: consumption $c$ is a linear function of national income $y$. Mathematically, $$c = My + b$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We will call $M$ the marginal propensity to consume, and refer to it accordingly as MPC. MPC can also be thought of as the fraction of income that is spent rather than saved. So MPC is going to be some number less or equal to one but greater than or equal to zero ($0 \leq M \leq 1$). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The second concept we learned is also quite simple. As income $y$ increases, MPC decreases. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The third concept is a little bit more complicated. Let &lt;em&gt;Person 1&lt;/em&gt; has $5$ dollars. Let MPC be universally constant and equal to $\frac{3}{4}$. Now, since MPC $= \frac{3}{4}$, &lt;em&gt;Person 1&lt;/em&gt; spends $\frac{3}{4}$ of his or her income on &lt;em&gt;Person 2&lt;/em&gt;. So &lt;em&gt;Person 2&lt;/em&gt; has an income of $\frac{3}{4} * 5 = 3.75$ dollars. &lt;em&gt;Person 2&lt;/em&gt; will now spend $\frac{3}{4}$ of his or her income on &lt;em&gt;Person 3&lt;/em&gt;. And so on to infinity. I instantly recognized this as the sum of a geometric series: $$5*\sum_{n=0}^\infty\left(\frac{3}{4}\right)^{n} = 20$$&#xA;This makes sense, but only when disregarding the second concept (MPC decreases as $y$ increases). When I asked about it my teacher said that since calculus isn't a prerequisite for the class we won't go any further in depth; we'll just let MPC be a constant to simplify things in an introductory-level macroeconomics class. So I thought about the problem for a while today and realized that if we &lt;em&gt;did&lt;/em&gt; account for MPC decreasing as &lt;em&gt;y&lt;/em&gt; increases, or in this case, MPC &lt;em&gt;increasing&lt;/em&gt; as $n$ increases, then we could write the total money spent as an infinite series of kind of infinite product (??). My model can be found below.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;&lt;strong&gt;The Main Question&lt;/strong&gt;&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;I just finished Calculus III last fall so I've never formally learned anything about infinite products. I'm not even sure if these are infinite products since many of them are finite. Anyways, can the following infinite series that I came up with be solved for convergence? If so, &lt;em&gt;how&lt;/em&gt; can I figure out the number it converges too? Long explanations will be appreciated. Keep in mind I have a very coarse knowledge of mathematics beyond Calculus III.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\sum_{i=0}^{\infty} \left(\prod_{n=0}^{i} \frac{n + 2}{\sqrt{n^2 + 5n + 7}}\right)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Perhaps it would be better if I knew how to solve the infinite product first.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, I came up with the function $\frac{n + 2}{\sqrt{n^2 + 5n + 7}}$ as a model of MPC because I figured MPC should start around $\frac{3}{4}$ and increase asymptotically towards $1$ as $n$ approaches $\infty$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Does any of this make economic sense or am I missing a major concept?&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerDisplayName="user2774" LastEditorDisplayName="user2774" LastEditDate="2015-01-22T02:53:23.863" LastActivityDate="2015-01-23T01:23:18.113" Title="How can I solve for total money spent if I use a non-constant MPC?" Tags="&lt;macroeconomics&gt;&lt;mathematical-economics&gt;" AnswerCount="1" CommentCount="7" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3124" PostTypeId="1" CreationDate="2015-01-22T13:56:56.360" Score="3" ViewCount="43" Body="&lt;p&gt;Im looking for good literature of quantitative easing and the effects on economic actitivty.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;from a modelling perspective&lt;/li&gt;&#xA;&lt;li&gt;Any empirical research?  &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;What I am thinking of, is how much of an effect does QE actually have for citizens?  &lt;/p&gt;&#xA;" OwnerUserId="107" LastActivityDate="2015-01-22T13:56:56.360" Title="Research on the link of QE and increased economic activity" Tags="&lt;macroeconomics&gt;&lt;monetary-policy&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3125" PostTypeId="1" CreationDate="2015-01-22T15:09:33.297" Score="3" ViewCount="1241" Body="&lt;p&gt;When we talk about marginal cost and marginal benefit/cost, why does the equilibrium point is the most convenient for the production of a product. If the marginal cost and the marginal benefit/revenue are the same Wouldn't the cost of producing a product would be the same as the revenue you obtain from selling it? Wouldn't you be earring nothing when you reach the equilibrium point?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Extra question; Are marginal benefit and marginal revenue the same concept?&lt;/p&gt;&#xA;" OwnerUserId="2775" LastActivityDate="2017-03-23T01:49:10.000" Title="Why does the profit reaches its maximum value at the equilibrium point?" Tags="&lt;macroeconomics&gt;&lt;finance&gt;&lt;financial-economics&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3126" PostTypeId="2" ParentId="3125" CreationDate="2015-01-22T16:03:40.973" Score="0" Body="&lt;p&gt;Marginal revenue and cost capture small, local changes in quantity. I.e. if MR=MC, it doesn't necessarily mean that the firm makes zero profit - it means that any small change in quantity produced would affect revenue and costs by the same amount, so profits wouldn't change. Which, if you think about it, is exactly what should be the case if the firm maximizes profits - otherwise it could get higher profits by expanding/decreasing production by a little bit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Marginal benefit is a more general term. while marginal revenue deals specifically with, well, revenue. One could say that the revenue is a particular case of benefit when speaking about firms and production, so in this situation the two are equivalent. In other situations, marginal benefit may mean something else, e.g. change in utility for a consumer.&lt;/p&gt;&#xA;" OwnerUserId="1432" LastActivityDate="2015-01-22T16:03:40.973" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3127" PostTypeId="2" ParentId="1729" CreationDate="2015-01-22T16:04:25.267" Score="-1" Body="&lt;p&gt;This is only a partial answer, but I wanted to note and describe the theoretical literature which will come to mind for many research economists when observing (1), &quot;eliminating the FDIC.&quot; The simple framework which is often first used to theoretically discuss this kind of question is the so-called  &lt;a href=&quot;http://www.jstor.org/stable/1837095&quot; rel=&quot;nofollow&quot;&gt;Diamond–Dybvig&lt;/a&gt; model, which tries to set up a very simple theoretical world in which maturity transformation occurs in a straightforward way. (Maturity transformation is defined nicely in &lt;a href=&quot;https://www.frbatlanta.org/news/conferences/2012/120409-fmc/media/dybvig-interview/12fmc_dybvig_transcript.aspx&quot; rel=&quot;nofollow&quot;&gt;this interview&lt;/a&gt;, which I shamelessly lifted from the first reference on the current version of the [wikipedia page] :) Other quick references are a bit dry unfortunately.) There's something of an instability in maturity transformation which can lead to to-called bank runs; Diamond–Dybvig (&quot;DD&quot;) try to capture this dynamic in a succinct model. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'll be careful to note that this model itself is very abstract -- the true financial system is very complicated. Regardless, it has been used as a framework for exploring theoretical ideas related to banking stability for a while. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'll start with the intuition for the model first. In the model, banks function by converting short-term accounts (savings accounts, perhaps money market accounts) into long-term loans. Banks take depositor money, retain a certain amount, and lend out a certain amount as long-term house loans, car loans, or small business loans. This means everyone gets something at the end of the day -- depositors get a safe place to keep their money with some modest return on savings; homeowners and business owners can smooth out the large costs of housing and capital over many years, and everyone gets a little bit of the slice of &quot;added production&quot; which occurs because the loans could be made. There's some investment projects which will fail (houses defaulted, businesses going bankrupt), but that can be planned for appropriately by the bank. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Not all depositors need their money at the same time -- after all, that's why you put it in a safe spot to begin with. The bank knows (or guesses) how many people on average will need to access their funds, and holds on to that much (plus extra for a &quot;safety buffer&quot;). Everything else is lent out to achieve the above-mentioned benefits. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This system works fine unless, for some reason, enough people start to &lt;em&gt;believe&lt;/em&gt; that enough &lt;em&gt;other&lt;/em&gt; people will want to withdraw their funds more frequently than usual -- perhaps all at once. Everyone generally understands the structure of the game: stage 1, if there are too many people who want to withdraw money, the bank will fail. Stage 2, if everyone realizes this, they will want to get their money first. Stage 3, I personally need to get my money out before anyone else does, and I know everyone else knows this, so now it's a race. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now this only happens if everyone believes that everyone else believes the bank will not have enough money for everyone. For a bank &quot;standing alone&quot; this is always a danger. However it also demonstrates a way to nip everything in the bud: institute an insurance scheme for individual depositors. You need to be able to &lt;em&gt;credibly&lt;/em&gt; tell the borrowers that, &quot;don't worry, even if the bank collapses, your deposits are insured and you'll get at least X back.&quot; This promise itself (and it must be a &quot;good&quot; promise; a promise no one trusts will be useless) will prevent many possible instances of bank runs which might occur when there is nothing intrinsically wrong with the bank. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The theoretical illustration of the above points is the well-known &lt;a href=&quot;http://www.jstor.org/stable/1837095&quot; rel=&quot;nofollow&quot;&gt;Diamond–Dybvig&lt;/a&gt; model [wiki page &lt;a href=&quot;http://en.wikipedia.org/wiki/Diamond%E2%80%93Dybvig_model&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;, which is actually quite good]. The model is really quite beautiful in laying out the constraints faced by everyone in the world -- depositors, banks, loan-takers. It does so in a very clean and clear way, which is one reason it is so popular. If you're ever deeply interested in these things, I'd definitely recommend working through the model at some point, ideally with someone you can &quot;ping&quot; for input (perhaps here, later). It's a great example of a framework one can use to tackle bigger questions (or alternatively, a great example of how to frame an observed phenomena in the simplest way possible, which is always how you want to start). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is one of those nice theoretical results which is so intuitive and easy to understand that it can be understood by anyone. In fact, it is literally the main plot device for the classic &quot;&lt;a href=&quot;http://en.wikipedia.org/wiki/It&amp;#39;s_a_Wonderful_Life&quot; rel=&quot;nofollow&quot;&gt;It's a Wonderful Life&lt;/a&gt;,&quot; where [SPOILER!] the first bank run in the movie is quelled with the &quot;insuring&quot; of depositors' accounts with the couple's honeymoon fund.  (The real-world equivalent of the honeymoon fund, of course, being the FDIC in the US.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;NOW, all that said, I have no idea what the context of point (1), &quot;eliminate the FDIC,&quot; in &lt;em&gt;The Bankers' New Clothes&lt;/em&gt;. I suspect the authors are aware of everything outlined above, and they may perhaps have an alternative suggestion for how to handle the &quot;bank runs&quot; problem (aka the &quot;Wonderful Life&quot; problem) which emerges naturally without some deposit insurance system. If they are advocating a &quot;clean sweep&quot; of depositor insurance, that would be very extreme -- but I don't know if that is what they are actually advocating. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is an enormous empirical literature on bank runs -- see @Lumi's response, particularly the list of bank runs. I'm certain that if you were to choose a bank run from that list at random and search for it in Google Scholar, you would find plenty of empirical papers. (I'm not an expert on this literature so unfortunately cannot answer this more specifically.)&lt;/p&gt;&#xA;" OwnerUserId="17" LastEditorUserId="17" LastEditDate="2015-01-22T21:57:38.140" LastActivityDate="2015-01-22T21:57:38.140" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="3128" PostTypeId="1" CreationDate="2015-01-22T17:26:35.447" Score="2" ViewCount="1407" Body="&lt;p&gt;What major fiscal and monetary policy actions were taken during the Great Recession (2007-2009)? What impact did they have on U.S. economic performance?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand how how the recession occurred in the first place. I know that as far as fiscal policies, Bush passed the Economic Stimulus Act of 2008 and also the Emergency Economic Stabilization Act of 2008 which established the Troubled Assets Relief Program. Obama passed the American Recovery and Reinvestment Act in early 2009. I also am familiar with the objectives of each. For monetary policy, I know what quantitative easing is and that the Fed controls interest rates.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is on what their impact on U.S. economic performance was. The more research I do, the more confused I'm getting. It of course seems all very political; Liberals interpreting data one way and Conservatives another. Some say it absolutely worked. Some say it failed miserably. Some just keep talking about the federal deficit. Some say it prevented a deeper economic recession or possibly even depression. &#xA;I'm leaning towards the latter. I'm not entirely sure though. If you could just point me in a direction and towards some reliable data that won't make my head spin (not too high level; I'm an econ newbie) it'd be really appreciated. &#xA;Thanks&lt;/p&gt;&#xA;" OwnerUserId="2777" LastEditorUserId="2777" LastEditDate="2015-01-22T18:22:15.880" LastActivityDate="2015-01-22T18:22:15.880" Title="Impact of Fiscal and Monetary Policy during Great Recession on U.S. Economic Performance" Tags="&lt;macroeconomics&gt;&lt;monetary-policy&gt;&lt;fiscal-policy&gt;&lt;government&gt;&lt;keynesian-economics&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3129" PostTypeId="1" CreationDate="2015-01-22T19:17:10.910" Score="3" ViewCount="169" Body="&lt;p&gt;I am curious to hear what economists think might happen if the Fed stopped paying interest on reserves held in excess of the penalty free upper bound. I am also curious to know how economists think this practice might be fazed out gradually in such a way that the Fed could mitigate the negative effects that might accompany a sudden and complete cessation of the practice. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example - If banks stop earning risk-free profit on these reserves (current at .25 percent, I think) would they feel compelled to channel these excess funds into profitable loans? Perhaps this is a way the Fed could keep interest rates low after ending QE practices? Would ending the interest payments overnight cause banks to start lending such that we would experience significant inflation? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any feedback, papers, etc. much appreciated!  &lt;/p&gt;&#xA;" OwnerUserId="1655" LastEditorUserId="2776" LastEditDate="2017-08-23T06:23:02.863" LastActivityDate="2017-08-23T06:23:02.863" Title="What might happen if the Fed stopped paying interest on excess reserves?" Tags="&lt;reference-request&gt;&lt;federal-reserve&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3130" PostTypeId="1" CreationDate="2015-01-22T21:22:35.490" Score="7" ViewCount="264" Body="&lt;p&gt;Up until last week, the Swiss central bank used Francs to buy Euros, in an effort to lower the value of the Franc; today the European central bank announced that it would use Euros to  buy bonds in order to fight deflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I assume that the central banks &quot;create&quot; the money used for these programs electronically. I would like to understand how this works. Can a central bank simply by fiat change its holdings of its own currency, and then use this new money in any way they please? Do they later have to &quot;pay back&quot; this money to balance the books, or can they simply forget about it? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or more concretely: if the ECB buys bonds with newly created electronic money, and these bonds later default, would that be a problem for the ECB or could they laugh it off?&lt;/p&gt;&#xA;" OwnerUserId="2779" LastActivityDate="2020-05-11T05:51:09.793" Title="How does a central bank create the money used for quantitative easing or lowering the value of their currency?" Tags="&lt;central-banking&gt;" AnswerCount="3" CommentCount="2" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="3131" PostTypeId="2" ParentId="3123" CreationDate="2015-01-22T21:32:55.383" Score="1" Body="&lt;p&gt;I don't know that the distribution you claim is wrong but it strikes me as having a couple of very undesirable features. For one, virtually the entire population all of the has &gt;0.99 MPC, which seems very high for a distribution you think is centered around 3/4. For another, if you think that the income shocks in your model are transitory rather than permanent, my reading of the literature is that these are way too large. But that's all separate from your question about estimating things conditional on the actual MPC distribution and ordering. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ordering from low to high MPC seems to take a strong stance on how trade works in the economy. Again, I don't know that is wrong but it doesn't strike me as true. If we think that MPC is caused by income then this is akin to saying the richest guy get the money first, spends some it at the second richest guy's store and saves the rest, he spends the spending of guy 1 at the third richest guy and so on. The economy strikes me as less neat than that and so a random ordering makes more sense to me in the absence of evidence about where high vs. low MPC people spend their money. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I tried messing around with simulations (in Python) to see how well we could approximate these random chains of consumption. In general, experimenting a few parameter values with uniform, beta, and your distribution above, distribution doesn't matter so much in determining total consumption effect. Using the geometric or arithmetic means of the MPC distribution give nice approximations of actual total consumption effect from the random chains of consumption.* On the other hand, if you order the households by MPC from high to low or low to high this makes a huge difference in the resulting total consumption effects. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;* - That said, I explicitly ruled out distributions of MPC where MPC can be zero (or less). If that happens the geometric mean will be zero and the resulting approximation using the geometric mean quite poor. &lt;/p&gt;&#xA;&#xA;&lt;h1&gt;Code:&lt;/h1&gt; &#xA;&#xA;&lt;pre&gt;&lt;code&gt;# Python 3.x code for stack exchange question&#xA;# http://economics.stackexchange.com/questions/3123/how-can-i-solve-for-total-money-spent-if-i-use-a-non-constant-mpc&#xA;import numpy as np&#xA;&#xA;# Parameters&#xA;households = 5001&#xA;sims = 10000&#xA;initial_shock = 5&#xA;&#xA;# Alternative marginal propensity to consume populations&#xA;MPC_vec_lin = np.linspace(0.01, 0.2, households)&#xA;MPC_vec_beta = np.random.beta(2, 5, size=households)&#xA;&#xA;# THis is the function Gragas asks for&#xA;nvec = np.arange(0,households)&#xA;MPC_vec_gragas = (nvec + 2) / np.sqrt(nvec**2 + 5*nvec + 7)&#xA;&#xA;MPC_vec = MPC_vec_gragas&#xA;&#xA;# Calculate geometeric and arithmetic mean MPC from the population&#xA;approx_geo_mean = np.mean(np.log(MPC_vec))&#xA;approx_long_run_eqiv_MPC = np.exp(approx_geo_mean)&#xA;avg_MPC = np.mean(MPC_vec)&#xA;&#xA;# Assuming that all households had the same MPC (@ geo / arithmetic level), what is the total effect?&#xA;approx_total_shock_with_geo = initial_shock / (1 - approx_long_run_eqiv_MPC)&#xA;approx_total_shock_with_mean = initial_shock / (1 - avg_MPC)&#xA;&#xA;print('Initial shock size:', initial_shock)&#xA;print('Approximate total effect with geometric mean:', approx_total_shock_with_geo)&#xA;print('Approximate total effect with arithmetic mean:', approx_total_shock_with_mean)&#xA;&#xA;# Simulating many possible orderings, what is the total effect for each ordering?&#xA;total_shock_vec = np.zeros(sims)&#xA;for i, item in enumerate(total_shock_vec):&#xA;    MPC_vec_random_order = np.random.choice(MPC_vec, replace=False, size=households)&#xA;    random_products = np.cumproduct(MPC_vec_random_order)&#xA;    total_shock = np.sum(initial_shock * random_products) + initial_shock&#xA;    total_shock_vec[i] = total_shock&#xA;# Compare resulting average and std. of total effect from simulations&#xA;print('Average total effect from simulations:',  np.mean(total_shock_vec))&#xA;print('Std Dev of total effect from simulations:',  np.std(total_shock_vec))&#xA;&#xA;# Conclusion, mean and geomean do a very nice job of approximating the resulting total effect without knowing the&#xA;# general specific ordering. However, the worst and best total effect ordering (low to high and high to low) are&#xA;# quite different.&#xA;&#xA;MPC_vec_low_to_high = MPC_vec.copy()&#xA;MPC_vec_low_to_high.sort()&#xA;&#xA;MPC_vec_high_to_low = MPC_vec_low_to_high.copy()&#xA;MPC_vec_high_to_low = MPC_vec_high_to_low[::-1]&#xA;&#xA;product_low_to_high = np.cumproduct(MPC_vec_low_to_high)&#xA;total_shock_low_to_high = np.sum(initial_shock * product_low_to_high) + initial_shock&#xA;&#xA;product_high_to_low = np.cumproduct(MPC_vec_high_to_low)&#xA;total_shock_high_to_low = np.sum(initial_shock * product_high_to_low) + initial_shock&#xA;&#xA;print('Maximum effect ordering effect size:', total_shock_high_to_low)&#xA;print('Minimum effect ordering effect size:', total_shock_low_to_high)&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;h1&gt;Results:&lt;/h1&gt; &#xA;&#xA;&lt;pre&gt;&lt;code&gt;Initial shock size: 5&#xA;Approximate total effect with geometric mean: 6023.35708426&#xA;Approximate total effect with arithmetic mean: 6154.37897874&#xA;Average total effect from simulations: 5999.77721767&#xA;Std Dev of total effect from simulations: 642.715838738&#xA;Maximum effect ordering effect size: 16675.8496051&#xA;Minimum effect ordering effect size: 777.157515589&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-01-23T01:23:18.113" LastActivityDate="2015-01-23T01:23:18.113" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="3132" PostTypeId="1" CreationDate="2015-01-23T02:03:42.203" Score="5" ViewCount="207" Body="&lt;p&gt;I was reading this article about Denmark central bank defending its currency peg: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.bloomberg.com/news/2015-01-22/denmark-cuts-key-deposit-rate-to-minus-0-35-to-drive-down-krone.html&quot; rel=&quot;noreferrer&quot;&gt;http://www.bloomberg.com/news/2015-01-22/denmark-cuts-key-deposit-rate-to-minus-0-35-to-drive-down-krone.html&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In it he said they had &quot;plenty of Kroner to defend against hedge funds&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My understanding of the issue is since Euro is coming under pressure for launching &lt;a href=&quot;http://en.wikipedia.org/wiki/Quantitative_easing&quot; rel=&quot;noreferrer&quot;&gt;QE program&lt;/a&gt;, a lot of funds are moving their money into countries like Denmark -- which cause their currency demand spiked -- and hence its price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But why did he say they had &quot;plenty&quot;? Apart from law, there's nothing physically stopping a country from keep printing its own currency right? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So I imagine its not hard at all for any country to defend a peg if its demand side spiked -- just keep printing currency to maintain the price?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why does it seem that Denmark has limited supply of its own currency?&lt;/p&gt;&#xA;" OwnerUserId="2782" LastActivityDate="2015-01-23T14:26:51.040" Title="Unlimited supply of national currency?" Tags="&lt;macroeconomics&gt;&lt;monetary-policy&gt;&lt;currency&gt;&lt;money-supply&gt;&lt;currency-peg&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3133" PostTypeId="2" ParentId="3125" CreationDate="2015-01-23T02:39:20.103" Score="1" Body="&lt;p&gt;The point where MB = MC is the largest Net Benefit available for a given product.  Therefore, any additional benefit has a lower level of benefit than at equilibrium, and the costs increase at a higher rate than at equilibrium.  In the context of supply and demand, this is where the two lines cross.  But if you think about it in terms of diminishing marginal benefit, and increasing marginal costs then you can see why it is beneficial to product where the largest net benefit occurs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The following graph is from Markets and the Environment by Keohane and Olmstead and deals with abatement costs, but it is the one graph I think about when someone asks this sort of question because it provides a good example.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As you can see from the graph, the largest net benefit is the furthest distance between the benefit and cost curves.  If you were to take the derivative of each of these functions, you would get linear supply and demand lines, where the largest net benefit is the cross section of the lines (as you can see in the graph below).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/bUlus.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;" OwnerUserId="1496" LastActivityDate="2015-01-23T02:39:20.103" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3134" PostTypeId="2" ParentId="3132" CreationDate="2015-01-23T04:44:49.210" Score="2" Body="&lt;p&gt;When a country, or perhaps a country's central bank, prints money it is increasing the money supply. When the amount of money available in an economy increases, the value of the currency will decrease. So think about the capital flight from the Euro to the Kroner that is causing the value of that currency to spike. Printing money can basically cause a 'reversal' of sorts. That is, it places downward pressure on the value of the currency. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So Denmark's banking authority might have some large stash of Kroner to meet the current demand. It can sell Kroner to counter-balance the new fluctuation in demand to keep its currency's value from spiking. Denmark might make this decision to avoid making its exports more expensive etc. However, it certainly does not have an unlimited supply of money. If it was willing to print an unending amount of money, Denmark's banking authority would actually  be manufacturing hyperinflation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've written this in a non-techinical fashion. Please let me know if you want more details.&lt;/p&gt;&#xA;" OwnerUserId="1655" LastActivityDate="2015-01-23T04:44:49.210" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3135" PostTypeId="1" AcceptedAnswerId="3138" CreationDate="2015-01-23T05:25:51.087" Score="5" ViewCount="100" Body="&lt;p&gt;I have the following problem that asks me to solve for the &quot;maximal growth portfolio.&quot;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Suppose that the equilibrium stochastic discount factor evolves as&#xA;  $$&#xA;\log S_{t+1} - \log S_t = \kappa_s(X_t, W_{t+1}).&#xA;$$Solve the following maximization problem:&#xA;  \begin{equation*}&#xA;\begin{aligned}&#xA;&amp;amp; \underset{x}{\text{maximize}}&#xA;&amp;amp; &amp;amp; E[\log(R_{t+1})] \\&#xA;&amp;amp; \text{subject to}&#xA;&amp;amp; &amp;amp; E\left[ \frac{S_{t+1}}{S_t} R_{t+1}\, \middle | X_t = x \right] = 1.&#xA;\end{aligned}&#xA;\end{equation*}&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It seems clear how we would derive the following solution:&#xA;$R^*_{t+1} = \exp(-\kappa(X_t, W_{t+1})) = \frac{S_t}{S_{t+1}}$.&#xA;However, my question is related to understanding the economics behind this problem. The constraint in this problem is clearly saying that whatever portfolio we construct, it must be fairly priced (given the stochastic discount factor process $S_t$). However, I don't understand why there would be a portfolio that produces a &quot;maximal expected return.&quot; So, there are my two questions:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Why isn't the objective here unbounded? Can't we always choose a portfolio with a higher expected return (with correspondingly higher risk)? &lt;/li&gt;&#xA;&lt;li&gt;Also, why is there a log in the objective? Would this problem work just the same as having the objective be $E[R_{t+1}]$?&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="59" LastEditorUserId="59" LastEditDate="2015-01-23T16:32:07.593" LastActivityDate="2015-01-23T16:54:51.360" Title="Finding a maximal growth portfolio" Tags="&lt;finance&gt;&lt;asset-pricing&gt;&lt;optimization&gt;&lt;portfolio-theory&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="3136" PostTypeId="2" ParentId="3103" CreationDate="2015-01-23T09:47:32.220" Score="2" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Just what I wanted! Can you suggest a similar chapter allotment to the Macroeconomics part of the list of topics I mentioned? Maybe from the book Macroeconomics by Dornbusch or Macroeconomics by Blanchard. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The Dornbusch book is decent for IS-LM, but it has a tendency to focus on perfect capital flows instead of its more realistic imperfect counterpart. For a good introduction to the IS-LM framework, see &quot;Macroeconomics: A European Perspective&quot; by Blanchard &amp;amp; Giavazzi. In addition to this, &quot;Economics of Development&quot; is one of the better books with regards to how it approaches the H-D and Solow-Swan models.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The books suggested in my first answer should cover your learning needs (Including the keynesian, balanced-budget multipliers etc..)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you would like a specific chapter allocation with reference to these works, let me know and I will try to help.&lt;/p&gt;&#xA;" OwnerUserId="2765" LastEditorUserId="2765" LastEditDate="2015-01-23T09:52:43.853" LastActivityDate="2015-01-23T09:52:43.853" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3137" PostTypeId="1" AcceptedAnswerId="3245" CreationDate="2015-01-23T13:01:57.803" Score="1" ViewCount="74" Body="&lt;p&gt;Very recently, the GBP has been raising against the Euro. I understand this has to do with the EU injecting €1.1 trillion until Sep 2016 and the elections in Greece.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is: when is this going to stop? I am uncertain as I don't know if the result of the EUR being much lower than GBP is also the result of speculation and, for that reason, it might not go beyond that.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Just today, I was reading about a specialist saying now was the best time, but that specialist was also a seller pushing for a long-term contract to buy EUR (currency.co.uk) so I am uncertain about his opinion. He mentioned 1.32 was great, but later 1.3465 was achieved!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What to expect then?&lt;/p&gt;&#xA;" OwnerUserId="2784" LastEditorUserId="108" LastEditDate="2015-02-02T20:30:54.750" LastActivityDate="2015-02-02T20:35:43.630" Title="Where is GBP/EUR exchange rate going?" Tags="&lt;finance&gt;&lt;exchange-rates&gt;&lt;financial-markets&gt;&lt;efficient-markets&gt;" AnswerCount="1" CommentCount="4" ClosedDate="2015-02-02T20:47:22.753" ContentLicense="CC BY-SA 3.0" />
  <row Id="3138" PostTypeId="2" ParentId="3135" CreationDate="2015-01-23T14:21:19.967" Score="3" Body="&lt;p&gt;Say you have a portfolio with returns described by a random variable X. Call the lowest possible realization of X: xmin. If you take a levered position in that portfolio with leverage A and financing cost r your returns are r(A-1)+AX. There will exist a value of A no larger than 1/xmin where when you get the worst return of X and the levered portfolio returns -100%. That's game over for your wealth. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So if you invest for the long run and reinvest after each period it should be clear that you can't simply arbitrarily maximize leverage to maximize long run returns. That expected log return maximization objective function is exactly the objective function of long run return maximization. This objective treats -100% returns as -infinity utility and so avoids it at all cost. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If instead you maximized expected returns this wouldn't happen. Your preference would be for unboundedly large leverage, in line with your intuition. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another way to think about this is risk aversion. Log utility in wealth is analogous to a CRRA utility parameter of 1, while the expected return utility function a CRRA parameter of 0 (risk neutral). Since the risk neutral guy doesn't care about risk, he sees an asset with positive expected returns and wants a gigantic levered bet on it. The log utility guy is relatively risk tolerant but still worries about extreme outcomes and so doesn't want too much leverage. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And if the range of values taken by X are mostly in the range of +/- 30%, it turns out that E[log(X)] is nicely approximated by E[X]+0.5Var(X) so can be well approximated with &lt;a href=&quot;http://en.wikipedia.org/wiki/Modern_portfolio_theory&quot; rel=&quot;nofollow&quot;&gt;Markowitz mean-variance portfolio optimization&lt;/a&gt; where lambda is 1/2. Where as E[X] preferences is analogous to lambda of zero which won't have a bounded solution without an additional constraint. &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-01-23T16:54:51.360" LastActivityDate="2015-01-23T16:54:51.360" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="3139" PostTypeId="2" ParentId="3132" CreationDate="2015-01-23T14:26:51.040" Score="2" Body="&lt;p&gt;He's being glib. The only constraints on their capacity are political, not from  technical constraints or inventory issues. They can make more Kroner by changing their own balances at Danish banks,something they can do at will. As the recent Swiss episode shows, political constraints can be very real and powerful, but they certainly didn't stop defending the Swiss Franc floor because they ran out of Francs. &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2015-01-23T14:26:51.040" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3140" PostTypeId="1" CreationDate="2015-01-23T14:33:41.980" Score="2" ViewCount="263" Body="&lt;p&gt;What major fiscal policy actions were taken during the Great Recession (2007-2009)? &lt;/p&gt;&#xA;" OwnerUserId="2777" LastActivityDate="2015-01-23T14:33:41.980" Title="What major fiscal policy actions were taken during the Great Recession (2007-09)?" Tags="&lt;macroeconomics&gt;&lt;fiscal-policy&gt;&lt;government&gt;&lt;keynesian-economics&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="3141" PostTypeId="1" AcceptedAnswerId="3144" CreationDate="2015-01-23T14:42:29.593" Score="8" ViewCount="2685" Body="&lt;p&gt;Is there a measurable correlation in a town between salary level and housing prices?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or, to put it differently: is it politically meaningful to drive up salaries by new investments if the result is unaffordable housing?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;UPDATE: I do not want to edit the original question as others wrote their reply with that in mind, but it is right to suggest that it would have been better to ask about causality, not correlation.&lt;/p&gt;&#xA;" OwnerUserId="1564" LastEditorUserId="1564" LastEditDate="2015-01-24T09:46:19.767" LastActivityDate="2017-08-03T10:00:10.790" Title="Correlation between salary level and housing prices in a town" Tags="&lt;housing&gt;" AnswerCount="4" CommentCount="5" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="3142" PostTypeId="1" CreationDate="2015-01-23T15:07:16.693" Score="2" ViewCount="268" Body="&lt;p&gt;What impact did fiscal policy actions taken during the Great Recession (2007-09) have on U.S. economic performance? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Bush passed the Economic Stimulus Act of 2008 and also the Emergency Economic Stabilization Act of 2008 which established the Troubled Assets Relief Program. Obama passed the American Recovery and Reinvestment Act in early 2009. &#xA;Let me know if I missed something.&lt;/p&gt;&#xA;" OwnerUserId="2777" LastActivityDate="2015-02-09T14:25:19.923" Title="What impact did major fiscal policy actions taken during the Great Recession (2007-09) have on U.S. economic performance?" Tags="&lt;macroeconomics&gt;&lt;fiscal-policy&gt;&lt;government&gt;&lt;keynesian-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3143" PostTypeId="1" CreationDate="2015-01-23T15:14:11.567" Score="5" ViewCount="133" Body="&lt;p&gt;What major monetary policy actions were taken during the Great Recession (2007-2009)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Quantitative easing and unconventional policy actions such as asset purchases and &quot;forward guidance&quot;. I think I'm missing some things.  &lt;/p&gt;&#xA;" OwnerUserId="2777" LastActivityDate="2019-04-02T18:26:46.550" Title="What major monetary policy actions were taken during the Great Recession (2007-2009)?" Tags="&lt;macroeconomics&gt;&lt;monetary-policy&gt;&lt;federal-reserve&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="3144" PostTypeId="2" ParentId="3141" CreationDate="2015-01-23T15:38:08.010" Score="8" Body="&lt;p&gt;The graph below plots average house prices against average incomes for various US cities. The relationship is strong in the cross-section, especially if you ignore Honolulu.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/6oxFt.jpg&quot; alt=&quot;housing prices in 2009 against wage levels for 2008&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.creativeclass.com/_v3/creative_class/2009/07/29/housing-and-the-crisis-part-iv/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Richard Florida, Housing and the Crisis, Part IV&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is it also true dynamically, that is, are changes in income associated with changes in house prices (not just levels)? Van Nieuwerburgh and Weill (2010) say yes:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;We set up and solve a spatial, dynamic equilibrium model of the&#xA;  housing market based on two main assumptions: households with&#xA;  heterogenous abilities flow in and out metropolitan areas in response&#xA;  to local wage shocks, and the housing supply cannot adjust instantly&#xA;  because of regulatory constraints. In our equilibrium, house prices&#xA;  compensate for cross-sectional productivity differences. We increase&#xA;  productivity dispersion in the calibrated model in order to match the&#xA;  30-year increase in cross-sectional wage dispersion that we document&#xA;  based on metropolitan-level data. &lt;strong&gt;We show that the model&#xA;  quantitatively matches the observed 30-year increase in dispersion of&#xA;  house prices across US metropolitan areas&lt;/strong&gt;. It is consistent with&#xA;  several other features of the cross-sectional distribution of house&#xA;  prices and wages.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://restud.oxfordjournals.org/content/77/4/1567.short&quot; rel=&quot;nofollow noreferrer&quot;&gt;Why Has House Price Dispersion Gone Up?&lt;/a&gt; &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2015-01-23T15:38:08.010" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3145" PostTypeId="1" CreationDate="2015-01-23T17:00:08.693" Score="5" ViewCount="92" Body="&lt;p&gt;What impact did monetary policy actions taken during the Great Recession (2007-09) have on U.S. economic performance?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Quantitative easing and unconventional policy actions such as asset purchases and &quot;forward guidance&quot;. I think I'm missing some things.&lt;/p&gt;&#xA;" OwnerUserId="2777" LastActivityDate="2015-01-26T01:28:11.453" Title="What impact did monetary policy actions taken during the Great Recession (2007-09) have on U.S. economic performance?" Tags="&lt;macroeconomics&gt;&lt;monetary-policy&gt;&lt;money-supply&gt;&lt;federal-reserve&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3146" PostTypeId="2" ParentId="3141" CreationDate="2015-01-23T17:47:25.243" Score="2" Body="&lt;p&gt;Assuming a fixed housing stock, it's not hard to show that an increase in salaries drives up rents enough to make renters worse off if and only if housing is a Giffen good.&lt;/p&gt;&#xA;" OwnerUserId="250" LastActivityDate="2015-01-23T17:47:25.243" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3147" PostTypeId="1" CreationDate="2015-01-23T20:13:58.957" Score="2" ViewCount="182" Body="&lt;p&gt;I'm looking for empirical evidence (optimally from natural experiments, as described below) of the impact of working capital constraints onto firm output, and the differentials of firm size.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I suppose that generally, stricter working capital constraints are bad for output, and typically these constraints are stronger for smaller firms (measured in output) and younger firms. However, I couldn't manage to find (a) paper(s) to establish that fact yet. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where by working capital constraint I mean something along the lines of Kiyotaki&amp;amp;Moore (1997)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$L, K: f(wL, rK) \leq \psi(F(K,L))$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;, for example, for some constant $\psi_0$,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$wL + rK \leq \psi_0 \cdot F(K,L)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $F(\cdot)$ is the production function, and $f$ and $\psi$ can be whatever.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;I have, in other environments, seen that some people take bank liquidity to approximate $\psi$ and argue that for example the last recession was a natural experiment on a change of $\psi$.&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, one type of useful regression table would be (on the firm level)&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;em&gt;dependent variable:&lt;/em&gt; output&lt;/li&gt;&#xA;&lt;li&gt;&lt;em&gt;independent variables:&lt;/em&gt;&lt;/li&gt;&#xA;&lt;li&gt;Increase of financial constraint (here, decrease of $\psi_0$)&lt;/li&gt;&#xA;&lt;li&gt;Dummy for firm size (or different size bins)&lt;/li&gt;&#xA;&lt;li&gt;And/Or: Dummy for firm age (or different age bins)&lt;/li&gt;&#xA;&lt;li&gt;additional controls&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;One example&lt;/strong&gt; would be Chodorow-Reich (2014, QJE). The two downsides with that paper are that &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;He uses employment, not output as dependent variable (but that's tolerable)&lt;/li&gt;&#xA;&lt;li&gt;He does not actually list the coefficients on the dummies for size. He just includes them as controls.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2015-01-30T12:01:00.793" LastActivityDate="2015-02-07T13:30:40.243" Title="Impact of working capital constraints onto output" Tags="&lt;microeconomics&gt;&lt;financial-economics&gt;&lt;liquidity&gt;&lt;reference-request&gt;&lt;financial-constraints&gt;" AnswerCount="1" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="3148" PostTypeId="1" CreationDate="2015-01-24T00:15:07.863" Score="4" ViewCount="298" Body="&lt;p&gt;I realize now that my undergraduate program is not nearly as rigorous as it should be - it required almost no math to complete. This is concerning because I've been accepted into a decent (top 30) PhD program. However, I (luckily) am also completing a degree in mathematics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can anyone recommend a good textbook(s) to help me bridge the gap between my non-rigorous program and a PhD program (level of rigor is whatever might be typical of a top 30 school??). I would also love any online resources such as video lectures, problem sets with solutions etc.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I looked at MIT's OCW but most of the courses beyond the principles do not include lectures, which was really disappointing.  &lt;/p&gt;&#xA;" OwnerUserId="1655" LastEditorUserId="108" LastEditDate="2015-01-24T09:37:14.753" LastActivityDate="2015-01-24T09:37:14.753" Title="Preparation for the rigors of an economics graduate programme" Tags="&lt;soft-question&gt;" AnswerCount="2" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="3149" PostTypeId="2" ParentId="3148" CreationDate="2015-01-24T00:48:13.363" Score="4" Body="&lt;p&gt;I'd work my way through &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0393957357&quot; rel=&quot;nofollow&quot;&gt;Microeconomic Analysis by Hal Varian&lt;/a&gt; (the PhD level one) and &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0393957330&quot; rel=&quot;nofollow&quot;&gt;Mathematics for Economists by Simon and Bloom&lt;/a&gt;. You'll need both the micro intuition  of the former and mastery of the math bits of the the latter. You'll need thornier and more technical books at some point but these authors will hold your hand enough to work through them solo.&lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2015-01-24T00:48:13.363" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="3150" PostTypeId="2" ParentId="1618" CreationDate="2015-01-24T02:02:09.790" Score="4" Body="&lt;p&gt;The concept that Brandenburger and Dekel (1987) call an &quot;a posteriori equilibrium&quot; is roughly the same as what Dekel and Siniscalchi call an &quot;epistemic type structure for a complete information game&quot; in which all types are rational and there is common belief in rationality. Therefore, Brandenburger and Dekel's Proposition 2.1, together with the remark that immediately follows the proof of Propoistion 2.1, is roughly the same as Theorem 1 in Dekel and Siniscalchi.  &lt;/p&gt;&#xA;" OwnerUserId="2787" LastActivityDate="2015-01-24T02:02:09.790" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3151" PostTypeId="2" ParentId="3148" CreationDate="2015-01-24T05:28:47.907" Score="2" Body="&lt;p&gt;The other suggestions given here are great. In addition, I might add the following. Because you mention completing a degree in mathematics but not having a rigorous economics program, it's reasonable to assume that you might have some gaps in econometrics. If you haven't already, you should go through &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/1111531048&quot; rel=&quot;nofollow noreferrer&quot;&gt;&quot;Introductory Econometrics: A Modern Approach&quot; by Wooldridge&lt;/a&gt;. (If you've gone through it already and want something more advanced, you could take a look at &lt;a href=&quot;https://economics.stackexchange.com/questions/495/what-are-some-good-graduate-level-econometrics-books-for-someone-with-a-strong-m&quot;&gt;the books listed in this question&lt;/a&gt;.)&lt;/p&gt;&#xA;" OwnerUserId="59" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-01-24T05:28:47.907" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="3152" PostTypeId="1" AcceptedAnswerId="3154" CreationDate="2015-01-24T12:29:29.620" Score="2" ViewCount="59" Body="&lt;p&gt;I like the comparison between economics and medicine. Both study complex phenomena and both are limited in ways to run experiments (though medicine has much more freedom here).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We all know medicine has found a cure for lots of previously dreadful diseases, like plague, flu, TB. Doesn't mean that no one dies from TB now, but it's a problem with medical service in developing world, not with medical science. And there are issues medicine is still struggling with (AIDS, cancer, aging, etc.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By analogy, can you give examples of macroeconomic issues which are proven to be &lt;em&gt;curable&lt;/em&gt; if properly treated and ones not so curable?&lt;/p&gt;&#xA;" OwnerUserId="2753" LastActivityDate="2015-01-24T14:29:19.447" Title="Which macroeconomic issues can be considered &quot;curable&quot; and which can't?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3153" PostTypeId="1" CreationDate="2015-01-24T13:03:44.060" Score="2" ViewCount="25" Body="&lt;p&gt;Can someone please explain or provide some useful link on factors affecting setting prices of mobile telephony services?&lt;/p&gt;&#xA;" OwnerUserId="1482" LastEditorUserId="69" LastEditDate="2015-08-17T13:18:44.600" LastActivityDate="2015-08-17T13:18:44.600" Title="Setting prices in mobile telephony" Tags="&lt;industrial-organisation&gt;&lt;markets&gt;&lt;price-theory&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3154" PostTypeId="2" ParentId="3152" CreationDate="2015-01-24T14:29:19.447" Score="2" Body="&lt;p&gt;Friedman's assessment that &quot;inflation is always and everywhere a monetary phenomenon&quot; seems to have substantial concensus around it empirically: (&lt;a href=&quot;http://www.nber.org/papers/w1453&quot; rel=&quot;nofollow&quot;&gt;http://www.nber.org/papers/w1453&lt;/a&gt;) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think this essentially gave us the cure for both hyperinflation (don't monetize government spending or the debt more generally) and deflation (print money or do QE until the price level goes up). That isn't to say we've eradicated these &quot;diseases&quot; because we don't always follow the cure. Or even countries should take the cure. Following the cure can be politically untenable and hyperinflation could well be better than revolution. &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2015-01-24T14:29:19.447" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3155" PostTypeId="1" AcceptedAnswerId="3160" CreationDate="2015-01-24T16:23:50.213" Score="5" ViewCount="3150" Body="&lt;p&gt;I think that the best way for me to ask my question would be to start with an example. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose that consumers have a two-period horizon and their instantaneous utility is:&#xA;$\:$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$U(C_{t})=ln \: C_{t}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\:$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where $C_{t}&amp;gt;0$$\:$ denotes consumption. Assume that agents supply a fixed amount of labour $L$ and have no initial bonds $B$ or capital $K$. Agents discount utility of the second period with the discount factor $1&amp;gt;\beta&amp;gt;0$.&#xA;$\:$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The budget constraint is:&#xA;$\:$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$C_{1}+\frac{C_{2}}{1+r_{1}}$ =$\:$ $(w/P)_{1}$$L$ $\:$ + $\frac{(w/P)_{2}L}{1+r_{1}}$&#xA;$\:$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Lagrangian is:&#xA;$\:$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\mathcal L = \ln C_1 + \beta \ln C_2 - \mu \left[ C_1 + \frac{C_2}{1+r_1} -(w / P)_{1} L - \frac{(w/P)_{2}L}{1+r_{1}} \right]$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I now have two questions:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Assuming that I compute the correct FOCs, how do I go about deriving the consumption euler equation?&#xA;$\:$&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Could you guys please help me with the formatting of my lagrangian?&#xA;I want to make the square parentheses large enough to encapsulate everything.&#xA;$\:$&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Thanks.&lt;/p&gt;&#xA;" OwnerDisplayName="user2789" LastEditorUserId="61" LastEditDate="2015-01-24T22:03:25.690" LastActivityDate="2015-01-25T20:24:16.737" Title="Relationship between the Lagrangian and consumption euler equation?" Tags="&lt;macroeconomics&gt;&lt;mathematical-economics&gt;" AnswerCount="2" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3156" PostTypeId="1" CreationDate="2015-01-24T17:24:54.333" Score="2" ViewCount="654" Body="&lt;p&gt;I've been reading a little about the capital structure of banks. For example, in this working paper, &amp;quot;Financing as a Supply Chain: The Capital Structure of Banks and Borrowers&amp;quot; by Gornall and Strebulaev (accessed 2014), it mentions this:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;There is disagreement on the causes and effects of high bank leverage; however, there is no disagreement that banks and other financial institutions are indeed highly indebted. The average leverage of U.S. banks, measured as the ratio of debt to assets, has been in the range of 87%-95% over the past 80 years. At the same time, the average leverage of public U.S. non-financials, measured in the same way, has been in the range of 20%-30% over a long period, below the predictions of many models. This dramatic difference in financial structure is puzzling at first glance.&lt;/p&gt;&#xA;&lt;p&gt;In this paper, we explain this gap by modeling the interaction between a bank's debt decisions and the debt decisions of that bank's borrowers....&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;I am unfamiliar with this literature. I'm wondering, what other explanation exist in the literature to explain the difference in the average leverage between banks and non-financials?&lt;/p&gt;&#xA;" OwnerUserId="59" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2015-06-16T15:47:59.607" Title="How do we explain the difference in average leverage between banks and non-financial firms?" Tags="&lt;banking&gt;&lt;corporate-finance&gt;&lt;regulation&gt;&lt;capital-structure&gt;" AnswerCount="2" CommentCount="6" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3157" PostTypeId="1" CreationDate="2015-01-24T17:54:51.773" Score="3" ViewCount="1512" Body="&lt;p&gt;The question is: explain the change in the market for skim milk, if demand for ice cream rises.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'd say these two are unrelated in consumption (saying they're substitutes is kind of stretching it), but complements in production: you extract the cream from whole milk to make ice cream, and the rest becomes skim milk. (Right? Please correct me if I'm wrong.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Based on this assumption, my answer is that the supply for skim milk will increase (the supply curve shifts right). As demand for ice cream rises, the demand curve for it shifts to the right, and assuming the supply curve for it remains still, this shift will increase both the price and quantity of ice cream. In turn, as ice cream prices rise, producers make more of it, and thus more skim milk.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The thing is, my textbook doesn't describe demand for a complement in production as a factor that shifts the supply curve. So I was wondering, is the reasoning above valid? Thanks.&lt;/p&gt;&#xA;" OwnerUserId="2790" LastEditorUserId="2790" LastEditDate="2015-01-24T17:59:52.830" LastActivityDate="2015-01-24T18:45:28.533" Title="Basic microeconomics: supply, demand and substitutes in production" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;supply-and-demand&gt;&lt;perfect-complements&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3158" PostTypeId="2" ParentId="3157" CreationDate="2015-01-24T18:45:28.533" Score="2" Body="&lt;p&gt;Sounds pretty good to me. I think it would be more coherent to change the way you say this:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;As demand for ice cream rises, the demand curve for it shifts to the right, and assuming the supply curve for it remains still, this shift will increase both the price and quantity of ice cream. In turn, as ice cream prices rise, producers make more of it, and thus more skim milk.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I would change it to say this:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;As demand for ice cream rises, the demand curve for it shifts to the right, and assuming the supply curve for it remains still, this shift will increase both the price and quantity of ice cream. &lt;em&gt;In turn, the increase in production will cause a upward shift in the supply of skim milk because skim milk and ice cream are &quot;complements in production.&quot;&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I make this change because you when you say that &quot;this shift will increase both the price and quantity of ice cream&quot; you have already said that the production of ice cream has increased (it increased &lt;em&gt;along&lt;/em&gt; the supply curve). &lt;/p&gt;&#xA;" OwnerUserId="59" LastActivityDate="2015-01-24T18:45:28.533" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="3160" PostTypeId="2" ParentId="3155" CreationDate="2015-01-24T20:47:52.093" Score="4" Body="&lt;p&gt;In this simple problem, using a Lagrangean is an overkill, direct substitution of the constraint is perhaps better.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Anyway, treating the two consumption levels as two distinct decision variables under the budget constraint, the Euler equation emerges from the combination of the two first-order conditions:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$FOC$'s&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\partial \mathcal L}{\partial C_1} = 0 \Rightarrow \frac 1{C_1} = \mu$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\partial \mathcal L}{\partial C_2} = 0 \Rightarrow \frac {\beta}{C_2} = \mu\frac {1}{1+r_1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Substitute the first into the second&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\beta}{C_2} = \frac 1{C_1}\frac {1}{1+r_1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;re-arrange and you 're done.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would suggest to also do that with a general utility function, where in the Euler equation the first derivatives of the utility will appear.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-01-24T20:47:52.093" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3161" PostTypeId="2" ParentId="3086" CreationDate="2015-01-25T01:10:10.500" Score="4" Body="&lt;p&gt;Some people strongly disagree that LVT is not distortionary: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;George was right that other taxes may have stronger disincentives, but&#xA;  some economists now recognize that the single land tax is not&#xA;  innocent, either. Site values are created, not intrinsic. Why else&#xA;  would land in Tokyo be worth so much more than land in Mississippi? A&#xA;  tax on the value of a site is really a tax on productive potential,&#xA;  which is a result of improvements to land in the area. Henry George’s&#xA;  proposed tax on one piece of land is, in effect, based on the&#xA;  improvements made to the neighboring land.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;And what if you are your “neighbor”? What if you buy a large expanse&#xA;  of land and raise the value of one portion of it by improving the&#xA;  surrounding land. Then you are taxed based on your improvements. This&#xA;  is not far-fetched. It is precisely what the Disney Corporation did in&#xA;  Florida. Disney bought up large amounts of land around the area where&#xA;  it planned to build Disney World, and then made this surrounding land&#xA;  more valuable by building Disney World. Had George’s single tax on&#xA;  land been in existence, Disney might never have made the investment.&#xA;  So even a tax on unimproved land can reduce incentives.&#xA;  ... Zachary Gochenour and Bryan Caplan have pointed out that while the&#xA;  surface value of land is more apparent, especially for farming&#xA;  purposes, many lands have hidden natural resources, such as gold,&#xA;  water, and oil. These resources require investment on the part of&#xA;  owners to discover and produce. “Information about the land can be&#xA;  considered an improvement in its own right.” To tax the entire, or&#xA;  even a large, value of the mineral resources would create enormous&#xA;  disincentives for exploration and production&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.econlib.org/library/Enc/bios/George.html&quot; rel=&quot;nofollow&quot;&gt;The Concise Encyclopedia of Economics: Henry George (1839-1897 )&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To answer this more definitively we'd need to take a stand on how we think the tax assessor would measure unimproved value. We could then ask if combined plots would distort this measure. I read the quote above as saying that the assessor looks at the sale prices of undeveloped lots in the area. But the value of these lots is necessarily higher due to the improvements of others (or even your own). Combining plots, to the extent that it makes big, valuable projects possible, distorts this measure but in the wrong direction. Some other method that tried to strip out the indirect value of your own improvements on the unimproved value of your own land but left in the increase in value of the improvements of others would bias towards combining properties. &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-01-26T00:41:48.147" LastActivityDate="2015-01-26T00:41:48.147" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="3162" PostTypeId="2" ParentId="3086" CreationDate="2015-01-25T02:02:50.230" Score="0" Body="&lt;p&gt;The Economist column that the OP linked to makes an elementary mistake: it says&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;&lt;em&gt;Land value taxation is so beloved of economists because, in theory, it&#xA;  does not distort decision making. Suppose a land value tax of one per&#xA;  cent on land value is introduced tomorrow. &lt;strong&gt;There can be no supply&#xA;  response: there would still be as much land as there is today&lt;/strong&gt;.&lt;/em&gt;&quot;  &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Bold letters my emphasis. Who on earth would ever equate the economic concept of &lt;em&gt;Supply&lt;/em&gt; with the meaning of the word &lt;em&gt;availability&lt;/em&gt;? &lt;em&gt;Especially&lt;/em&gt; for goods that are not transformations of other goods and so embody a very tangible opportunity cost if left unsold (plus the unavoidable depreciation)?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sure, if I produce cars, I want my cars to be sold, and if a tax is imposed on them, even if I have to fully absorb the tax. I may change my behavior in the future, but right now I want to see my &lt;em&gt;inventory&lt;/em&gt; sold. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But it is by no accident that, globally, Accounting Standards prescribe that no depreciation is calculated for unimproved land (and if it is improved, then a portion of the value attributed to the landfield per se remains non-depreciated). This reflects the actual fact that the value of the land itself is purely a matter of &lt;em&gt;surrounding circumstances&lt;/em&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But the Supply of Unimproved Land can be much more easily &lt;em&gt;reduced&lt;/em&gt; if prices fall, in the sense that the land &lt;em&gt;stops being for sale&lt;/em&gt;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What such a tax can also do is to provide a &quot;negative&quot; incentive to sell, in order not to continue paying the tax. &lt;strong&gt;So in any case the tax will tend to affect the Supply of land&lt;/strong&gt; :some landowners will withdraw their land from the market, even if this means bearing the tax, because they may figure that they can wait so that land prices rise again to an overall gain, while some others will be induced to sell the land they did not have up for sale prior to the tax, in order to not be burdened with the tax.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand, Milton Friedman's &quot;least bad tax&quot; quote (from the same link) is a true economist's thinking: weigh the pros and the cons, try to give the world a clearer picture to help them decide.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-01-25T02:02:50.230" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="3163" PostTypeId="1" CreationDate="2015-01-25T06:42:38.883" Score="8" ViewCount="1010" Body="&lt;p&gt;It seems that overlapping generation model has far more realistic assumptions than ordinary Ramsey-Prescott RBC model for use in macroeconomics. Why is Ramsey-Prescott ones, even New Keynesian variants, are more popular than overlapping generation ones? Is this just due to simplicity, or is there any fundamental problem with the consequences of overlapping generation model?&lt;/p&gt;&#xA;" OwnerUserId="2793" LastActivityDate="2015-05-07T15:37:42.367" Title="Why is overlapping generation model not a main model in macroeconomics?" Tags="&lt;macroeconomics&gt;" AnswerCount="2" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="3165" PostTypeId="1" CreationDate="2015-01-25T10:01:31.770" Score="0" ViewCount="79" Body="&lt;p&gt;Protectionism methods including: tariffs, subsidies, quotas, local contents rules and export incentives &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Would would be the effects of a reduction of these methods, not complete free trade. &lt;/p&gt;&#xA;" OwnerUserId="2796" LastActivityDate="2015-01-26T13:59:59.770" Title="What would be the economic effects of a reduction in the general level of protectionism on the Australian economy?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3166" PostTypeId="2" ParentId="3165" CreationDate="2015-01-25T11:21:26.173" Score="-1" Body="&lt;p&gt;Normally protectionism is never the answer as it doesn´t help in anyway.&#xA;If for example the subsidies for exportation were to be reduced you would see a drop in the price of items that are exported from autralia , i would place your question more in micro-economics then in macro. Not sure if that answered your question.&lt;/p&gt;&#xA;" OwnerUserId="2797" LastEditorUserId="84" LastEditDate="2015-01-25T21:03:00.360" LastActivityDate="2015-01-25T21:03:00.360" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="3167" PostTypeId="1" CreationDate="2015-01-25T16:49:25.523" Score="1" ViewCount="64" Body="&lt;p&gt;The European Central Bank announced plans to buy government bonds from national banks. Quantitative Easing, 60 billion euros a month. Although ultimately I am trying to make a decision on what this will likely do to the exchange rate, I am currently at the point where I don't know what the national banks will do with all of the financing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What does the ECB expect will happen to national bank bond yields with their buying? How abnormal in amounts would their buying be than from investors buying the government bonds?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What does the ECB expect the national banks will do with all of the new &quot;demand&quot; for their bonds? Do more commercial lending to spur the economy? I also didn't get the impression that there is any actual new productivity taking place to really grow any of the individual country's economy no matter how much additional lending takes place. Opening up the potential to a wave of defaults, presupposing that more commercial lending would take place.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If anyone could shed some light on this, that would be great. Ideally not really opinion based, but more so in line with something official or some school of thoughts. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For analogies' sake, I really couldn't see the US Federal Reserve buying Montana bonds to spur commercial lending in Montana and thinking this would help the economy in Montana.&lt;/p&gt;&#xA;" OwnerUserId="2798" LastActivityDate="2020-11-27T11:17:43.327" Title="ECB bond buying from national banks, what are the national banks expected to do?" Tags="&lt;central-banking&gt;&lt;national-bank&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3168" PostTypeId="2" ParentId="3155" CreationDate="2015-01-25T20:24:16.737" Score="1" Body="&lt;p&gt;$\mathcal L = \ln C_1 + \beta \ln C_2 - \mu \left[ C_1 + \frac{C_2}{1+r_1} -(w / P)_{1} L - \frac{(w/P)_{2}L}{1+r_{1}} \right]$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac {\partial \mathcal L}{\partial C_1}=\frac 1{C_1} - \mu = 0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac {\partial \mathcal L}{\partial C_2}= \frac{\beta}{C_2} - \mu\frac {1}{1+r_1}=0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac {\partial \mathcal L}{\partial \mu}= C_{1}+\frac{C_{2}}{1+r_{1}}-(w/P)_{1}L-\frac{(w/P)_{2}L}{1+r_{1}}=0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These conditions characterise a maximum since the second-order condition &#xA;$\frac {\partial \mathcal (ln \ C_{1} + \beta \ ln \ C_{2})}{\partial^{2} C_{1}}$ is negative.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Substitute the first FOC into the second and you get:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$C_{2} = \beta(1+r_{1})C_{1}$&lt;/p&gt;&#xA;" OwnerUserId="2765" LastActivityDate="2015-01-25T20:24:16.737" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3170" PostTypeId="1" AcceptedAnswerId="5843" CreationDate="2015-01-26T00:52:46.707" Score="2" ViewCount="1421" Body="&lt;p&gt;I am reading the CFA Level 2 Economics section and I came across this statement: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In emerging markets, capital flows may be restricted. In that case, impact of trade balance on exchange rate (goods flow effect) is greater than the impact of interest rates (financial flows effect). In such a case, expansionary fiscal policy or monetary policy leads to increases in net imports, leading to depreciation of domestic currency&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;My question is: how can expansionary fiscal policy which results in an &lt;em&gt;increase&lt;/em&gt; in interest rate cause &lt;em&gt;depreciation&lt;/em&gt; of currency?&lt;/p&gt;&#xA;" OwnerUserId="2802" LastEditorUserId="43" LastEditDate="2015-05-27T19:26:33.130" LastActivityDate="2015-05-27T19:26:58.853" Title="Expansionary fiscal policy in a low mobility economy" Tags="&lt;fiscal-policy&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3171" PostTypeId="2" ParentId="3145" CreationDate="2015-01-26T01:28:11.453" Score="4" Body="&lt;p&gt;The consensus appears to be that the effect was large and positive. The IGM Forum asked a panel of economists to assess the statement&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;Informed postmortems of Ben Bernanke’s Fed chairmanship will judge favorably the Fed's creative and aggressive policy initiatives from autumn 2008 through early 2009.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Not one disagreed. Weighted by their confidence, 90% of those polled agreed or strongly agreed with the statement.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.igmchicago.org/igm-economic-experts-panel/poll-results?SurveyID=SV_1GF6NyHSVWhEtN3&quot; rel=&quot;nofollow&quot;&gt;http://www.igmchicago.org/igm-economic-experts-panel/poll-results?SurveyID=SV_1GF6NyHSVWhEtN3&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="321" LastActivityDate="2015-01-26T01:28:11.453" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3172" PostTypeId="1" AcceptedAnswerId="3173" CreationDate="2015-01-26T02:00:14.907" Score="4" ViewCount="330" Body="&lt;p&gt;Why in the Arbitrage Pricing Theory (APT), one of the assumptions is that the factors has to be orthonogal? what if not?&lt;/p&gt;&#xA;" OwnerUserId="2803" LastActivityDate="2015-01-26T04:11:31.430" Title="Arbitrage Pricing Theory (APT), orthogonal factors" Tags="&lt;asset-pricing&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3173" PostTypeId="2" ParentId="3172" CreationDate="2015-01-26T04:11:31.430" Score="3" Body="&lt;p&gt;If you want to describe excess returns in terms of exposure to common risk factors, you want the risk factors to be orthogonal. However, if you have $k$ factors with no perfect collinearity, you can always orthogonalize them and use those. You then call the orthogonalized factors the risk factors. &lt;/p&gt;&#xA;" OwnerUserId="59" LastActivityDate="2015-01-26T04:11:31.430" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="3174" PostTypeId="1" CreationDate="2015-01-26T09:48:07.557" Score="15" ViewCount="292" Body="&lt;p&gt;Let $G$ be a $n$-players and $m$-elements &lt;a href=&quot;http://en.wikipedia.org/wiki/Congestion_game#Definition&quot;&gt;congestion game&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For an equilibrium $e$, denote by $$SUP(e)\triangleq&amp;lt;sup_1(e),sup_2(e),\ldots, sup_n(e)&amp;gt;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where $sup_i(e)$ contains the support of the $i$'th player playing $e$ (the set of strategies $i$ play with positive probability).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, we say that $SUP(e)\subseteq SUP(e')$ iff $\forall i\in[n]: sup_i(e)\subseteq sup_i(e')$, that is every player in $e$ randomizes his action on a subset of the actions he could have chosen playing $e'$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One last definition is the social cost, $SC(e)$ which is defined to be the sum of costs for the players.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $e,e'$ be two (possibly mixed) equilibriums for $G$.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;Does $$SUP(e)\subseteq SUP(e')$$ imply $$SC(e) \leq SC(e')$$?&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="348" LastEditorUserId="108" LastEditDate="2015-02-02T08:54:51.280" LastActivityDate="2016-11-29T13:43:24.203" Title="Submodularity property in congestion games?" Tags="&lt;game-theory&gt;&lt;nash-equilibrium&gt;&lt;congestion-games&gt;" AnswerCount="1" CommentCount="3" FavoriteCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="3176" PostTypeId="1" CreationDate="2015-01-26T16:36:14.457" Score="5" ViewCount="616" Body="&lt;p&gt;I'm reading Png &amp;amp; Hui on the economics of privacy. (&lt;a href=&quot;http://128.118.178.162/eps/io/papers/0505/0505007.pdf&quot; rel=&quot;nofollow&quot;&gt;http://128.118.178.162/eps/io/papers/0505/0505007.pdf&lt;/a&gt; great review article). Can someone explain the difference between direct and consequential externalities to me? as in:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;Generally, in competitive settings, an improvement in the accuracy of&#xA;  productive personal  information may lead the less informed party&#xA;  (seller or employer) to include more or  exclude some marginal persons&#xA;  (consumers or workers).  This is a consequential externality on some&#xA;  members of the better-informed side of the market.  The consequential&#xA;  externality might be positive or negative. &quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="2806" LastEditorUserId="44" LastEditDate="2015-01-27T10:54:52.840" LastActivityDate="2015-01-27T10:54:52.840" Title="What's the difference between a &quot;consequential&quot; and a &quot;direct&quot; externality?" Tags="&lt;externalities&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3178" PostTypeId="1" CreationDate="2015-01-26T17:43:35.960" Score="3" ViewCount="646" Body="&lt;p&gt;Let's consider 5 farmers, each of them has 2 cows to put into the field. &#xA;So every farmers can put 0,1 or 2 cows. I denote the three stategies by $q_i$, i=0,1,2. &#xA;Now, the payoffs ( i.e. the amout of food that each cow will eat) are given by:&#xA;$$&#xA;u_{i}(q_1,...,q_5)=q_{i}(12-(q_{1}+...+q_{5}))&#xA;$$&#xA;Now, for finding the Nash equilibrium I draw the matrix which has on the row one player and on the columns the others four. I observe that strategy 2 stricly dominates 1 so the N.E. is given by (2,2,2,2,2) and the correspinding payoffs are (4,4,4,4,4). &#xA;(If I estend the strategies to $q_{i}\in[0,2]$ the N.E. remains the same, right?) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, the Pareto optimality, if I have understood well should be the strategies (1,1,1,1,1) which give me as payoffs (7,7,7,7,7). Are there other pareto optimality profile? Because I think that I have understood the problem for 2 players but for more I'm not totally sure. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, the last question :) If I tax (c) farmers that put two cows in the field, how much I should tax to inforce N.E?&#xA;For replying to this I have think in that sense: for strategy I have that my payoffs functions are given by &#xA;$$&#xA;u_{i}(q_1,...,q_5)=q_{i}(12-(q_{1}+...+q_{5})-c) &#xA;$$&#xA;Hence, if I look to the payoff matrix in order to have strictly dominance of strategy 2 I should impose c=1. &lt;/p&gt;&#xA;" OwnerUserId="2807" LastEditorUserId="43" LastEditDate="2015-01-26T19:03:48.783" LastActivityDate="2017-01-03T15:03:07.793" Title="Pareto optimality and Externalities" Tags="&lt;game-theory&gt;&lt;nash-equilibrium&gt;&lt;pareto-efficiency&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3179" PostTypeId="2" ParentId="3178" CreationDate="2015-01-26T18:48:59.753" Score="0" Body="&lt;p&gt;My understanding is that we do not answer homework problems here. (I might be wrong.) However you did lay out some ideas and I will give you feedback on those:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) There is no guarantuee that the NE will remain the same if you extend the strategy space. You have to check again by looking for the arg max of the payoff function given the strategy profile you suspect to be a NE.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) In a game theory context Pareto optimality means that there is no other outcome of the game where someone is better off and no one is worse off. Usually highly asymmetric payoffs are Pareto-optimal because someone is very happy, so you should check some asymmetric strategies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;3) The NE actually does not need enforcement. It is what players will play anyway. My guess is that your question was: How much do you need to tax cow placement to enforce the Pareto-optimal outcome as a NE of the taxed game?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope these will help YOU finish the problem. &lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2015-02-16T07:33:49.860" LastActivityDate="2015-02-16T07:33:49.860" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3180" PostTypeId="2" ParentId="3178" CreationDate="2015-01-26T19:00:16.013" Score="2" Body="&lt;p&gt;The idea behind Pareto optimality is &lt;em&gt;efficiency&lt;/em&gt;. On the discrete set, there is no allocation where, compared to $(1,1,1,1,1)$, we could make someone better off and keep the others at least indifferent. This is why this allocation is Pareto optimal. However, any other &lt;em&gt;efficient&lt;/em&gt; allocation (in the sense that we are not throwing away resources) will be Pareto optimal here as well. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the set in $\mathcal R$, we assume a symmetric solution and solve&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\max_{q\in[0,2]} 5\cdot q(12-(5q))$$&#xA;$$\Rightarrow 5(12-5q) -25q$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first term is the direct benefit of increasing $q$, the second one is the externality (that we now internalize). The interior solution is given by $q = 1.2$ where everyone gets the payoff $7.2$. We know that the interior solution solves the problem given that the boundaries $0, 2$ both delivered lesser value than $q=1$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, for the tax, derive the FOC of the agents given a general tax $c$. Then, look for the optimal quantity &lt;em&gt;you want them to have&lt;/em&gt;, that is, replace $q_i$ with $q_i^*$, the welfare-maximizing solution, and then look for the value of $c$ that would solve the FOC (and hence make the farmers optimally chose what you want them to).&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2017-01-03T15:03:07.793" LastActivityDate="2017-01-03T15:03:07.793" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3181" PostTypeId="2" ParentId="3176" CreationDate="2015-01-26T20:02:06.643" Score="1" Body="&lt;p&gt;According to the examples given in the paper, &lt;strong&gt;direct externality&lt;/strong&gt; results from, among other things, unsolicited promotions, while the sources of &lt;strong&gt;indirect / consequential externality&lt;/strong&gt; are price discrimination, etc. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this sense, the externality on the individuals (whose information is collected and used) is deemed direct if the information about them is used directly back at them (in the form of targeted advertising, for example). In contrast, indirect externality only occurs if the individuals choose to engage in transactions with the firm which has (collected or purchased) their information, and that these transactions make them vulnerable to price discrimination, etc. In other words, externality of this second kind occurs &lt;em&gt;consequently&lt;/em&gt;.&lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2015-01-26T20:02:06.643" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3182" PostTypeId="2" ParentId="3118" CreationDate="2015-01-26T21:58:22.383" Score="2" Body="&lt;p&gt;You could do a binomial-tree approximation to the process for $z_t$ and then have a different process control the number of steps you take on the tree. This preserves recombining property and it is essentially the method explored in &lt;a href=&quot;http://www.jstor.org/stable/2331407&quot; rel=&quot;nofollow&quot;&gt;On the Computation of  Continuous  Time Option Prices Using Discrete Approximations&lt;/a&gt; (Amin (1991)) &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;We  develop  a class of  &lt;strong&gt;discrete, path-independent  models&lt;/strong&gt; to &#xA;  compute prices  of American options  within the Black-Scholes  (1973)&#xA;  framework,  &lt;strong&gt;including  models in which state variables have &#xA;  time-varying volatility&lt;/strong&gt;  functions and models with  multiple  state&#xA;  variables. Time-varying volatility  functions are illustrated with &#xA;  applications  to term structure models developed by  Vasicek  (1977) &#xA;  and  Heath, Jarrow,  and Morton  (1988), (1990).  Distinct from &#xA;  previous  work in the  literature,  the multivariate models suggested&#xA;  in this  paper are consistent with  arbitrarily large, though&#xA;  constant,  covariance functions. Finally,  we compare  and contrast&#xA;  the numerical  accuracy  of a  large  number of models with simulation&#xA;  results.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;You could then use a &lt;a href=&quot;http://www2.hsu-hh.de/mathstat/downloads/Folien_09_12_2.pdf&quot; rel=&quot;nofollow&quot;&gt;binomial AR(1) process&lt;/a&gt; for the number of steps.&lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2015-01-26T21:58:22.383" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3183" PostTypeId="2" ParentId="3086" CreationDate="2015-01-27T00:39:52.797" Score="0" Body="&lt;p&gt;Caplan and Gochenour use the term land in the physical sense, rather than the economic sense. Their argument therefore only amounts to one long straw man. The &quot;unimproved&quot; value of land doesn't only included physical improvements, but all Capital. Including all sunk costs, like search and discovery.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Land is, by definition all that is not produced.  Therefore any charge upon it that doesn't reduce it's selling price to below zero cannot cause a deadweight loss. Shared land rent a) makes everyone an equal share landlord b) all occupiers tenants. Land is then only occupied by capitalists who can put land to it's most productive use and are prepared to out bid all others for exclusive rights.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We therefore eliminate a set of deadweight losses associated with current owner occupation(monopoly).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As land is by definition unreproducible, exclusive use of productive land puts a burden on the rest of the community. The value of this negative externality is measured by the market it's rental value i.e the highest amount someone else would pay for exclusive occupation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Compensation paid for negative externalities aligns incentives. They do not distort them.&lt;/p&gt;&#xA;" OwnerUserId="2809" LastEditorUserId="43" LastEditDate="2015-01-27T10:57:05.953" LastActivityDate="2015-01-27T10:57:05.953" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3184" PostTypeId="2" ParentId="3087" CreationDate="2015-01-27T05:20:03.067" Score="0" Body="&lt;p&gt;The idea is that after the Perron-Frobenius problem is solved, you have $e$ such that&#xA;\begin{align}&#xA;E \left[\frac{M_{t+1}}{M_t} e(X_{t+1}) \middle | X_t = x \right]&#xA; &amp;amp;= e(x) \exp(\eta) \\&#xA;E \left[\frac{M_{t+1}}{M_t} \frac{e(X_{t+1})}{e(X_t)} \exp(-\eta) \middle | X_t = x \right]&#xA; &amp;amp;= 1 \\&#xA;E \left[\frac{\widetilde M_{t+1}}{\widetilde M_t} \middle | \mathcal F_t \right]&#xA; &amp;amp;= 1 \\&#xA;E \left[\widetilde M_{t+1} \middle | \mathcal F_t \right]&#xA; &amp;amp;= \widetilde M_t.&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus we see that $\widetilde M_t$ is a martingale.&lt;/p&gt;&#xA;" OwnerUserId="59" LastActivityDate="2015-01-27T05:20:03.067" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3185" PostTypeId="1" CreationDate="2015-01-27T09:22:26.737" Score="3" ViewCount="167" Body="&lt;p&gt;I'm reading Jorgenson, Dale W. (1963), &quot;Capital Theory and Investment Behavior&quot;, American Economic Review. Vol 53, No. 2, pp. 247-259. &lt;a href=&quot;http://www.jstor.org/stable/pdfplus/1823868.pdf&quot; rel=&quot;nofollow&quot;&gt;http://www.jstor.org/stable/pdfplus/1823868.pdf&lt;/a&gt;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would like to know how to derive the marginal productivity conditions given in pg 4.&lt;/p&gt;&#xA;" OwnerUserId="2815" LastEditorUserId="43" LastEditDate="2015-01-27T10:58:16.090" LastActivityDate="2015-01-27T13:38:22.007" Title="Derive marginal productivity conditions in DW Jorgenson paper" Tags="&lt;theory&gt;&lt;investment&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3186" PostTypeId="2" ParentId="3185" CreationDate="2015-01-27T11:02:59.253" Score="4" Body="&lt;p&gt;This is a deterministic Optimal Control problem in continuous time. Jorgenson uses nominal terms, so prices are explicitly present. To copy the original&#xA;&lt;img src=&quot;https://i.stack.imgur.com/BjVKu.png&quot; alt=&quot;enter image description here&quot;&gt;&#xA;&lt;img src=&quot;https://i.stack.imgur.com/23r9o.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and we want to arrive at  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/nF40S.png&quot; alt=&quot;enter image description here&quot;&gt;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A standard neoclassical production function, is a constant-returns to scale one over Labor $L$ and capital $K$, $Q = F(K,L), F_L, F_K &amp;gt;0, F_{LL}, F_{KK} &amp;lt;0$, satisfying also the Inada limit conditions, while the law of motion of capital is described verbally and it is the standard one, $\dot K = I-\delta K$.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To solve this we can set up the current value Hamiltonian (analogous to the Lagrangean)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$H = R(t) - D(t) + \lambda \cdot [I-\delta K]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $\lambda$ is a multiplier, and we maximize it over the decision variables $L$ and $I$, and the state variable $K$.&#xA;The first order conditions are&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\partial H}{\partial L} = 0 \Rightarrow \frac {\partial R(t)}{\partial L}   -\frac {\partial D(t)}{\partial L}=0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Rightarrow \frac {\partial }{\partial L} \left(pQ-sL\right)  -u\frac {\partial }{\partial L}\left(pQ-sL\right)=0 $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies (1-u)\left(p\frac {\partial Q}{\partial L} - s\right) = 0 \implies \frac {\partial Q}{\partial L} = s/p  \tag{1}$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\partial H}{\partial I} = 0 \implies -q +\lambda =0 \implies q = \lambda \tag{2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;from which we also obtain (to be needed next)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\dot \lambda = \dot q \tag{3}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first-order condition related to the state variable $K$, when we use the current value Hamiltonian is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\partial H}{\partial K} = r\lambda - \dot \lambda$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies \frac {\partial R(t)}{\partial K}   -\frac {\partial D(t)}{\partial K} = r\lambda - \dot \lambda$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies p\frac {\partial Q }{\partial K} -up\frac {\partial Q }{\partial K} + (v\delta q + wrq - x\dot q) -\lambda \delta = r\lambda - \dot \lambda  \tag {4}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The rest are algebraic manipulations (are they correct?)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A good educational presentation on the workings of Optimal Control in Economics is to be found &lt;a href=&quot;http://down.cenet.org.cn/upfile/8/200751171644184.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;, mathematical appendix A.3, p. 604. Dorfman's 1969 paper remains a classic in mapping the mathematical structure of Optimal Control to economic concepts and intuition, &lt;a href=&quot;http://www.jstor.org/stable/1810679&quot; rel=&quot;nofollow noreferrer&quot;&gt;Dorfman, R. (1969). An economic interpretation of optimal control theory. The American Economic Review, 817-831.&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-01-27T13:38:22.007" LastActivityDate="2015-01-27T13:38:22.007" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3187" PostTypeId="2" ParentId="3142" CreationDate="2015-01-27T13:06:46.377" Score="1" Body="&lt;p&gt;The fiscal policies to fight the great recession in the United States were not administered in a way that would allow us to assess this a natural experiment. However, there have been many situations in the past where there was such a natural-experiment setting, and that allows us to approximate the effect of these fiscal policies. For example, if a dollar of additional government spending, when such variation is experimental in nature creates two dollars in private consumption and investment (a multiplier of two), then when the government spends a trillion dollars in a way that may be endogenous, you could guess that the effect on private consumption would be something like two trillion. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The CBO used this methodology in their report &lt;a href=&quot;http://www.cbo.gov/sites/default/files/02-23-arra.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Estimated Impact of the American Recovery and Reinvestment Act on Employment and Economic Output from October 2010 Through December 2010 (2011)&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The American Recovery and Reinvestment Act of 2009 (ARRA) contains&#xA;  provisions that are intended to boost economic activity and employment&#xA;  in the United States. Section 1512(e) of the law requires the&#xA;  Congressional Budget Office (CBO) to comment on reports filed by&#xA;  recipients of ARRA funding that detail the number of jobs funded&#xA;  through their activities. This CBO report fulfills that requirement.&#xA;  It also provides CBO's estimates of ARRA's overall impact on&#xA;  employment and economic output in the fourth quarter of calendar year&#xA;  2010. Those estimates—which CBO considers more comprehensive than the recipients' reports—are based on evidence from similar policies&#xA;  enacted in the past and on the results of various economic models.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Key findings:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;On that basis, CBO estimates that ARRA’s policies had the following&#xA;  effects in the fourth quarter of calendar year 2010:&lt;/p&gt;&#xA;  &#xA;  &lt;ol&gt;&#xA;  &lt;li&gt;They raised real (inflation-adjusted) gross domestic product (GDP)&#xA;  by between 1.1 percent and 3.5 percent,&lt;/li&gt;&#xA;  &lt;li&gt;Lowered the unemployment rate by between 0.7 percentage points and&#xA;  1.9 percentage points, Increased the number of people employed by between 1.3 million and 3.5 million, and&lt;/li&gt;&#xA;  &lt;li&gt;Increased the number of full-time-equivalent jobs by 1.8 million to&#xA;  5.0 million compared with what would have occurred otherwise, as shown in Table 1. (Increases in FTE jobs include shifts from&#xA;  part-time to full-time work or overtime and are thus generally&#xA;  larger than increases in the number of employed workers.)&lt;/li&gt;&#xA;  &lt;/ol&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Another CBO paper, &lt;a href=&quot;https://www.cbo.gov/sites/default/files/cbofiles/attachments/49925-FiscalMultiplier.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;The Fiscal Multiplier and Economic Policy Analysis in the United States&lt;/a&gt; (Whalen and Reichling (2015), discusses an economic parameter at the heart of these estimates, the fiscal multiplier.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The recession from 2007 to 2009 sparked wide interest in the economic&#xA;  effects of fiscal policy.  That interest is reflected in an ongoing&#xA;  debate over the size of the fiscal multiplier. This  working paper&#xA;  addresses three questions: What models do economists use to estimate&#xA;  that multiplier?  Why do estimates of it vary widely? How can&#xA;  economists use those estimates to judiciously analyze  U.S. economic&#xA;  policy?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Tables 1 and 2 are of particular interest, they can help you understand the estimated contributions of various parts of the stimulus to the recovery by time and project type. &#xA;&lt;img src=&quot;https://i.stack.imgur.com/5PH8V.png&quot; alt=&quot;multiplier by project type&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/VsevJ.png&quot; alt=&quot;multiplier effect over 8 quarters&quot;&gt;&lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-02-09T14:25:19.923" LastActivityDate="2015-02-09T14:25:19.923" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3188" PostTypeId="2" ParentId="1824" CreationDate="2015-01-27T16:20:18.263" Score="6" Body="&lt;p&gt;&lt;strong&gt;No Time To Argue&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Most importantly, there cannot be an &quot;&lt;em&gt;18 months period of notice&lt;/em&gt;&quot;. Tt has to be decided suddenly and there cannot be any period in which individuals could respond to the new plan by withdrawing their money and moving cash from one of the member countries to any of the others.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;New Currencies&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Each country has to have its own currency. These currencies should be free floating against each other, which on the other hand means that some will value up and some down. That is, Germany's new currency will probably value up against whatever Greece will have.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Capital Controls&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, it will be of higher value to have your Euro exchanged for German money than for Greek money. Any bank account will have to immediately be translated into local currency. Also, no one will be allowed to move cash Euro between the member countries. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;One way to immediately establish the new currency would be to simply &lt;strong&gt;stamp&lt;/strong&gt; the old money with country specific stamps.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Citation&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that Greek's new finance minister implied that their train of thoughts follows exactly these lines of thinking [my own translation]:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Greece is not going to leave the currency union, as it cannot go back&#xA;  to the path of development on which it was on, hadn't it joined the&#xA;  union. An exit would lead to chaos in any case: For the moment, there&#xA;  is no new Greek currency as a new Drachm. Preparations for the&#xA;  introduction of such a currency would take months and would have the&#xA;  same effect as announcing a depreciation several months in advance.&#xA;  But you can only have a depreciation over night and unexpectedly,&#xA;  otherwise there are massive movements of capital flight/export.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.faz.net/aktuell/wirtschaft/eurokrise/griechenland/griechenlands-finanzminister-starke-sprueche-gegen-deutschland-13393858.html&quot; rel=&quot;nofollow&quot;&gt;From this german article&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Die Währungsunion verlassen soll Griechenland nach den Worten von&#xA;  Varoufakis aber in keinem Fall. Denn damit könne das Land nicht auf&#xA;  den Entwicklungspfad zurückkehren, den es ohne Eintritt in den&#xA;  Euroraum genommen hätte. Ein Austritt habe auf jeden Fall Chaos zur&#xA;  Folge. Denn gegenwärtig gebe es keine griechische Währung wie eine&#xA;  neue Drachme. Vorbereitungen für die Einführung einer solchen Währung&#xA;  würden Monate dauern und hätten die gleiche Wirkung wie die&#xA;  Ankündigung einer Abwertung mehrere Monate im Voraus. Doch eine&#xA;  Abwertung könne es immer nur über Nacht und unerwartet geben, sonst&#xA;  gebe es riesige Bewegungen zum Kapitalexport, warnt er.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2015-01-30T14:26:38.123" LastActivityDate="2015-01-30T14:26:38.123" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="3189" PostTypeId="1" CreationDate="2015-01-27T17:26:59.257" Score="3" ViewCount="44" Body="&lt;p&gt;We hear more and more these days about growth, particularly in the Eurozone and Britain, being beneath its long-term trend due to deficient demand. I can think of a few things which support that idea - such as a drying up of the credit which fuelled pre-crash consumer growth, low inflation and perhaps even deflation, long-term stagnant wages, and all this despite ultra low interest rates and QE. In short, the deficient demand story is one which has an intuitive appeal.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I don't get is simply this: can we prove that deficient demand is the cause of the problem, and if so how?&lt;/p&gt;&#xA;" OwnerUserId="2816" LastEditorUserId="43" LastEditDate="2015-01-27T18:27:16.413" LastActivityDate="2015-01-27T18:27:16.413" Title="Can we &quot;prove&quot; that slow growth is due to deficient demand?" Tags="&lt;supply-and-demand&gt;&lt;economic-growth&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3190" PostTypeId="2" ParentId="3189" CreationDate="2015-01-27T18:26:10.677" Score="2" Body="&lt;p&gt;This is one of the issues with Macroeconomics - you usually cannot prove these kind of things, you can only find indicators.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That is, because what we observe is always - in the neoclassical language - the &lt;strong&gt;general equilibrium&lt;/strong&gt;, never the &quot;off equilibrium adjustment&quot; (as in the Walrasian Auctioneer). That includes Keynesian logic - these days, the majority of Economists does not think about these traps as off-equilibrium paths, but rather as multiple equilibria [citation needed].&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a comparison, if you only observe the equilibrium outcome, it is hard to say whether a decrease in prices comes from an increase in supply or a decrease in demand. Now, if you could &lt;strong&gt;randomize&lt;/strong&gt; or had a natural experiment at hand (say, randomly shut down half of the firms in the economy), you could actually &quot;prove&quot; the underlying issue with empirical data.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But since this is not feasible within many subjects of macroeconomic interest, disproving ideas using empirical evidence is &lt;em&gt;quite difficult&lt;/em&gt;.&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-01-27T18:26:10.677" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3192" PostTypeId="1" AcceptedAnswerId="3263" CreationDate="2015-01-28T00:08:26.517" Score="2" ViewCount="43" Body="&lt;p&gt;There was a recent rollback in the fare rate in our city from 9.50 pesos to 6.50 pesos because of the decrease in the price of gasoline. The fare rate here is pegged to the prevailing price of gasoline as stipulated in a city ordinance crafted in 2007. Due to the decrease in the fare rate, public transportation drivers held a strike arguing that 6.50 pesos was too low considering the prices of necessities and rent for their vehicles have not declined.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is will it be sufficient to use the percentage change in CPI between 2015 and 2007 multiplied by 2007 fare rate to arrive at a new fare rate for 2015? I'm thinking since CPI already takes oil and gasoline prices into account, we don't have to factor in percent change in gasoline prices.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I plan to pose this problem in my economics class as a practical application of what we learned about inflation and the CPI.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you for taking the time to read this!&lt;/p&gt;&#xA;" OwnerUserId="2818" LastActivityDate="2015-02-04T01:47:40.360" Title="Can I use percentage change in CPI to calculate fare rate schedule?" Tags="&lt;inflation&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3194" PostTypeId="1" AcceptedAnswerId="3199" CreationDate="2015-01-28T03:01:00.450" Score="13" ViewCount="11731" Body="&lt;p&gt;I work in Political Economy, and a lot of the models include &quot;innocent&quot; control variables such as population, inequality, colonial legacy, etc. so that the author can claim unbiasedness on their independent variable of interest.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But if any of these control variables are endogenous to some omitted variable, doesn't this contaminate the unbiasedness of ALL the independent variables?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If that's true, then what can we do? Leave those control variables out and they lead to omitted variable bias themselves. Include those in and they will contaminate everything in the model.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Example: A researcher wants to know if inequality leads to violence, and he controls for a few things:&#xA;\begin{equation}&#xA;Violence = Inequality + Growth + Development + \epsilon&#xA;\end{equation}&#xA;Seeing that &lt;em&gt;Inequality&lt;/em&gt; is likely to be endogenous (because of the omitted variable &lt;em&gt;Level of altruism&lt;/em&gt;), he will try to find a instrumental variable for &lt;em&gt;Inequality&lt;/em&gt;. But aren't &lt;em&gt;Growth&lt;/em&gt; and &lt;em&gt;Development&lt;/em&gt; likely to be endogenous (i.e. correlated with &lt;em&gt;Level of altruism&lt;/em&gt;) too? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This example may look silly, but my point is in Political Economy / Development work, there are so many factors at play (yet omitted) that I'm afraid many variables included on the LHS are endogenous. Yet often, the researcher only looks for an instrument for his pet independent variable only.&lt;/p&gt;&#xA;" OwnerUserId="2819" LastEditorUserId="2819" LastEditDate="2015-01-28T14:46:02.400" LastActivityDate="2018-03-17T13:10:42.927" Title="What happens if the &quot;control variables&quot; are also endogenous?" Tags="&lt;econometrics&gt;&lt;political-economy&gt;&lt;identification&gt;&lt;regression&gt;" AnswerCount="5" CommentCount="1" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="3195" PostTypeId="1" AcceptedAnswerId="3240" CreationDate="2015-01-28T03:20:13.923" Score="2" ViewCount="695" Body="&lt;p&gt;As I understand it, foreign currency indexation (FCI) is when a government pegs its currency to another (usually the dollar), and their central bank buys or sells dollars to maintain a stable exchange rate between the two. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The material I have to read for my class mentions FCI in the context of the Mexican tesobonos and other domestic debt that was issued linked to another currency. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am unable to find a resource online or otherwise that can distinguish between the two possible answers I'm given to the question &quot;What is FCI&quot;:&#xA;1. When a country issues debt in another country's currency&#xA;2. When a country buys foreign currency to lower the value of its currency&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One seems incorrect because I don't see how the option hits at the fact that the currency is being pegged to the dollar (or another stable currency), and two seems wrong because it does not account for the other side of the equation (selling to increase which I would assume is functionally correct).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any input or suggestions?&lt;/p&gt;&#xA;" OwnerUserId="2822" LastActivityDate="2015-02-02T14:23:14.867" Title="What exactly is Foreign Currency Indexation?" Tags="&lt;exchange-rates&gt;&lt;currency-peg&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3198" PostTypeId="2" ParentId="459" CreationDate="2015-01-28T06:03:08.073" Score="3" Body="&lt;p&gt;I rely on the definitions from Chapter 2 of the Handbook of Game Theory, Volume 1, by Sergiu Hart.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I understand you correctly, the proposition can be re-written as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Proposition&lt;/strong&gt;. For, every finite extensive form game $\Gamma^E$, there exists a single&#xA; strategic form representation $\Gamma^N =[I^N,\{S^N_i\},\{u^N_i(\cdot)\}]$ (up to relabeling of the agents) such that&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;$I^N = I^E$,&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;and for all $i\in I^N = I^E$,&lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;2&quot;&gt;&#xA;&lt;li&gt;&lt;p&gt;$S^N_i = \{$ pure strategies of $i$ in $\Gamma^E$ $\}$ ,&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;and $u^N_i(s) = u^E_i(c(s))$, where $c(s) $ associates every profile of pure strategy in $\Gamma^E$  with a terminal node of  $\Gamma^E$ resulting from the pure strategy profile $s$.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;I think 1. and 2. are obvious. There only remains to show 3, which is equivalent to proving that $c(s)$ is a function, i.e. every profile of pure strategies is associated with one and only one terminal node in $\Gamma^E$. This follows directly from the fact that the pure strategy of some player $i$ is a function selecting one and only one possible action from every information set. &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Start from the root node, $r_0$. &lt;/li&gt;&#xA;&lt;li&gt;By definition of a game in extensive form, the nodes are partitioned between the agents.&lt;/li&gt;&#xA;&lt;li&gt;Thus $r_0$ belongs to some agent $i_0$.&lt;/li&gt;&#xA;&lt;li&gt;By definition of the game in extensive form, the nodes of $i_0$ are partitioned into information sets.&lt;/li&gt;&#xA;&lt;li&gt;Thus $r_0$ belongs to some information set of $i_0$, say $H_i^0$.&lt;/li&gt;&#xA;&lt;li&gt;By definition of the pure strategy $s$, for any node in  $H_i^0$, $i_0$ always choses a &lt;em&gt;single&lt;/em&gt; successor, among the possible successors at $H_i^0$.&lt;/li&gt;&#xA;&lt;li&gt;Let this successor be $r_1$.&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Then $r_1$ must be the successor of $r_0$, and the next node on the path.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Now consider $r_1$.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;By definition of agame in extensive form, the nodes are partitioned between the agents.&lt;/li&gt;&#xA;&lt;li&gt;Thus $r_1$ belong to some agent $i_1$ (where $i_1 = i_0$ is allowed).&lt;/li&gt;&#xA;&lt;li&gt;$\vdots$&lt;/li&gt;&#xA;&lt;li&gt;Repeating the argument as many time as needed, because the game is finite, we necessarily reach a single terminal node $r_* = c(s)$.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="38" LastEditorUserId="38" LastEditDate="2016-01-07T05:05:52.027" LastActivityDate="2016-01-07T05:05:52.027" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3199" PostTypeId="2" ParentId="3194" CreationDate="2015-01-28T07:26:38.027" Score="10" Body="&lt;h1&gt;&quot;But if any of these control variables are endogenous to some omitted variable, doesn't this contaminate the unbiasedness of ALL the independent variables?&quot;&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;I don't want to emphasize this too much, but it's worth mentioning that this is not true in general. The following derivation will hopefully provide some understanding of the &quot;contamination&quot; you mention. As a simple counterexample, suppose that the data generating process is given by&#xA;$$&#xA;Y = X_1 \beta_1 + X_2 \beta_2 + Z \gamma + \varepsilon,&#xA;$$&#xA;where $Z$ is unobserved. Let $Cov(X_1,Z) = 0$, $Cov(X_2, Z) \neq 0$, and &#xA;$Cov(X_1,X_2) = 0$. Then, it&#xA;is clear that $X_2$ is &quot;endogenous.&quot; But notice that because $Cov(X_1,Z) = 0$, our&#xA;estimate of $\beta_1$ will still be ok:&#xA;$$&#xA;\text{plim}\, \hat \beta_{1} = \beta_1 + \gamma \frac{Cov(X_1^*, Z)}{Var(X_1^*)} = \beta_1,&#xA;$$&#xA;where $X_1^* = M_2 X_1$ and $M_2 = [I - X_2(X_2'X_2)^{-1}X_2']$. Because $Cov(X_1,X_2) = 0$, $X_1^* = X_1$. So $Cov(X_1^*,Z)=0$. &lt;/p&gt;&#xA;&#xA;&lt;h1&gt;&quot;What can we do?&quot;&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;One of the mains challenges of doing good econometrics is thinking of potential identification strategies. In the type of situation you describe, there is probably nothing you can do but to try to approach the problem a different way.&lt;/p&gt;&#xA;" OwnerUserId="59" LastEditorUserId="59" LastEditDate="2015-01-29T02:44:44.313" LastActivityDate="2015-01-29T02:44:44.313" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="3200" PostTypeId="2" ParentId="3194" CreationDate="2015-01-28T07:28:46.153" Score="6" Body="&lt;p&gt;All is too strong, but probably some. This problem is called &quot;smearing&quot;. Take a look at the proof in Greene's &lt;a href=&quot;http://people.stern.nyu.edu/wgreene/Econometrics/Econometrics-I-13.pptx&quot; rel=&quot;nofollow noreferrer&quot;&gt;lecture notes&lt;/a&gt; on slide 5.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Emily Oster has a &lt;a href=&quot;http://brown.edu/research/projects/oster/sites/brown.edu.research.projects.oster/files/uploads/Unobservable_Selection_and_Coefficient_Stability.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;nice working paper&lt;/a&gt; (and Stata command &lt;code&gt;psacalc&lt;/code&gt;) that can help bound the bias.&lt;/p&gt;&#xA;" OwnerUserId="159" LastEditorUserId="16419" LastEditDate="2018-02-28T21:03:24.927" LastActivityDate="2018-02-28T21:03:24.927" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3201" PostTypeId="1" AcceptedAnswerId="3216" CreationDate="2015-01-28T10:18:17.970" Score="3" ViewCount="1256" Body="&lt;p&gt;In many microeconomic applications (e.g. monopoly price-setting) the &lt;strong&gt;inverse elasticity&lt;/strong&gt; appears. Explaining such relations to laymen is often awkward because inverse proportionality is not as intuititve as direct proportionality. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In physics, there are often separate terms for inverses of important concepts (e.g. electrical resistance and conductance are each other's inverse).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Question&lt;/strong&gt;: is there a commonly used term for the inverse elasticity? If not, what would be a suitable term that is easily grasped by laymen?&lt;/p&gt;&#xA;" OwnerUserId="2701" LastActivityDate="2015-01-30T16:36:52.530" Title="Suitable terminology for the inverse elasticity?" Tags="&lt;microeconomics&gt;&lt;elasticity&gt;&lt;definition&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3202" PostTypeId="2" ParentId="3201" CreationDate="2015-01-28T18:42:07.257" Score="1" Body="&lt;p&gt;Economists generally call it the &quot;inverse elasticity&quot;. But note&#xA;$$\frac{1}{\eta}=\left(\frac{\partial Q}{\partial P}\frac{P}{Q}\right)^{-1}=\frac{1}{\left(\frac{\text{% change in quantity}}{\text{% change in price}}\right)}=\frac{\text{% change in price}}{\text{% change in quantity}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, whilst the price elasticity of demand can be interpreted as (roughly)&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The percentage change in quantity sold that would follow a one percentage point increase in the price.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;the inverse elasticity (the &quot;demand elasticity of price&quot;) could be explained as&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The percentage change in price necessary to achieve a one percentage point increase in quantity.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="108" LastActivityDate="2015-01-28T18:42:07.257" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="3203" PostTypeId="1" AcceptedAnswerId="3206" CreationDate="2015-01-28T19:02:14.410" Score="8" ViewCount="437" Body="&lt;p&gt;In &lt;a href=&quot;https://economics.stackexchange.com/questions/3194/what-happens-if-the-control-variables-are-also-endogenous&quot;&gt;another question of mine&lt;/a&gt;, an answerer used the following derivation of OLS coefficient:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;We have a model: $$ Y = X_1 \beta + X_2 \beta_2 + Z \gamma + \varepsilon, $$ where $Z$ is unobserved. Then we have: $$\text{plim}\, \hat \beta_{1} = \beta_1 + \gamma \frac{Cov(X_1^*, Z)}{Var(X_1^*)} = \beta_1, $$ where $X_1^* = M_2 X_1$ and $M_2 = [I - X_2(X_2'X_2)^{-1}X_2']$.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This looks different from the usual $\beta = (X'X)^{-1}X'Y$ that I've seen in Econometrics. Is there a more explicit exposition of this derivation? Is there a name for the $M_2$ matrix?&lt;/p&gt;&#xA;" OwnerUserId="2819" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2018-07-23T22:41:32.737" Title="Alternative way of deriving OLS coefficients" Tags="&lt;econometrics&gt;&lt;regression&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="3204" PostTypeId="2" ParentId="3194" CreationDate="2015-01-28T20:33:18.627" Score="5" Body="&lt;p&gt;In the context of Least-squares estimation, the way we have to (attempt to) deal with possible endogeneity of regressors is through Instrumental Variables estimation. This approach does not depend on having just one endogenous regressor -you may have many. In such a case of course you need to find more instruments which make things harder -but in principle, the method will work the same way.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;IV estimation does not solve the issue of bias, it only provides consistency for the estimator. But &lt;em&gt;nothing&lt;/em&gt; solves the issue of bias bar strict exogeneity itself (and then there are some methods of bias reduction). But if you take a look around another SE site, &lt;a href=&quot;https://stats.stackexchange.com/questions&quot;&gt;Cross Validated&lt;/a&gt;, which is about statistics, you will see that seasoned statisticians don't really give much weight to the property of unbiasedness -they focus on Mean-Square Efficiency for finite sample properties, and on consistency for large sample properties.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="-1" LastEditDate="2017-04-13T12:44:19.590" LastActivityDate="2015-01-29T04:50:29.917" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="3205" PostTypeId="2" ParentId="1824" CreationDate="2015-01-28T20:53:40.720" Score="4" Body="&lt;p&gt;People have argued that if the rich countries (sometimes just Germany) left the Euro the resulting dislocations would be much smaller:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;German departure would be less disruptive than Grexit for three&#xA;  reasons.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;First , a Greek devaluation would trigger capital flight from the next&#xA;  weakest country – Spain, then Italy and France. Germany would not&#xA;  create such domino effects. Once the Deutschemark was restored and&#xA;  revalued, there would not be a “next strongest” country to attract&#xA;  capital flight. Of course, some people might still send their money&#xA;  from Italy or France to Germany, to speculate on further revaluation,&#xA;  but that would be no different from investment flows out of Europe at&#xA;  present into dollars, pounds or Swiss francs.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Second, and most crucially, the euro zone would become a more credible&#xA;  and coherent unit without Germany. Liberated from German obstruction,&#xA;  the ECB would be able to follow the examples of the U.S., Japanese,&#xA;  British and Swiss central banks, using quantitative easing to bring&#xA;  down interest rates to zero at the short end and to around 2 percent&#xA;  on long-term bonds. Just as important, the euro governments could&#xA;  finally form a genuine fiscal union, using the entire fiscal capacity&#xA;  of the euro zone to back jointly guaranteed eurobonds. The euro zone&#xA;  could then be treated again as a single economic unit, comparable to&#xA;  the U.S., Japan or Britain – and in terms of key fiscal ratios it&#xA;  would score well. Public deficits in euroland ex Germany were 5.3&#xA;  percent of GDP in 2011, according to the IMF, compared with roughly 9&#xA;  percent in Britain and 10 percent in the U.S. and Japan. Gross debt&#xA;  (including financial bailouts) was 90.4 percent of GDP, against 98&#xA;  percent, 103 percent and 205 percent in Britain, the U.S. and Japan,&#xA;  respectively. Trade deficits were much smaller than in Britain or the&#xA;  U.S. In short, euroland without Germany would be far from bankrupt –&#xA;  and the key reason for the euro crisis isn’t lack of competitiveness&#xA;  but Germany’s refusal to mutualize and monetize public debts.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Third, a euro break-up caused by Germany withdrawing would be far less&#xA;  chaotic from a legal standpoint than a break-down in which the euro&#xA;  disintegrated as weak countries were pushed out. The euro without&#xA;  Germany would remain a legal currency, governed by the same treaties&#xA;  as before. International contracts in euros would be legally&#xA;  unaffected, but simply devalued in terms of new German marks or&#xA;  dollars, just as British contracts were devalued when the pound fell&#xA;  from $2 to $1.40 from 2008 to 2009. Only contracts within Germany&#xA;  governed by German domestic law, for example retail bank deposits and&#xA;  wage deals, would be redenominated into marks. The German government&#xA;  would face no legal challenge if it decided to save money by repaying&#xA;  bonds in devalued euros (as specified in the contract) instead of&#xA;  converting them into marks (as speculative investors might hope).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://blogs.reuters.com/anatole-kaletsky/2012/06/27/a-german-exit-from-the-euro-could-be-relatively-easy/&quot; rel=&quot;nofollow&quot;&gt;A German exit from the euro could be relatively easy By Anatole Kaletsky&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;IU.eu: Are there any other ways out of the current mess?&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Gloy: Yes, I think the least painful way out is for the major creditor&#xA;  countries—Germany and the Netherlands—to leave the euro first, before&#xA;  everything else crumbles.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;These two countries could create a new currency, called the neuro, or&#xA;  Northern Euro, for example. This would make German savers happy, while&#xA;  taking the pressure off the remaining members of the single currency.&#xA;  Over time the neuro would probably appreciate, and holders of the euro&#xA;  would be free to switch some of their assets into it.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;IU.eu: How likely is this to occur?&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Gloy: Given the current stance of EU politicians and central bankers,&#xA;  it’s very unlikely. But it’s the least worst of the outcomes, by far.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://europe.etf.com/europe/features-a-news/7929-alex-gloy.html&quot; rel=&quot;nofollow&quot;&gt;From Euro To Neuro?&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But are there any modern examples of currency unions breaking up in an orderly manner with minimal economic disruption? I can think of some currency pegs that ended without major harm but I can't think of any actual unions that ended without doing so. The rubble union dissolving might not have been a huge deal but only because the other changes to the affected countries were enormous. Maybe the dissolution of the &lt;a href=&quot;http://en.wikipedia.org/wiki/Scandinavian_Monetary_Union&quot; rel=&quot;nofollow&quot;&gt;Scandinavian Monetary Union in 1914&lt;/a&gt; would qualify but WWI loomed large in that decision. War, financial crises, and depression do see to be the most frequent fellow travelers with dissolution of currency unions. Perhaps that's not because dissolution is horrendous so much as it is a high risk, relatively low reward strategy that is only worth trying when things are already terrible. &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2015-01-28T20:53:40.720" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3206" PostTypeId="2" ParentId="3203" CreationDate="2015-01-28T20:55:39.050" Score="9" Body="&lt;p&gt;The $\mathbf M = \mathbf I-\mathbf X(\mathbf X'\mathbf X)^{-1}\mathbf X'$ matrix is the &quot;annihilator&quot; or &quot;residual maker&quot; matrix associated with matrix $\mathbf X$. It is called &quot;annihilator&quot; because $\mathbf M\mathbf X =0$ (for its own $X$ matrix of course). Is is called &quot;residual maker&quot; because $\mathbf M \mathbf y =\mathbf {\hat e}$, in the regression $\mathbf y = \mathbf X \beta + \mathbf e$.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is a symmetric and idempotent matrix. It is used in the proof of the Gauss-Markov theorem.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, it is used in the &lt;a href=&quot;http://en.wikipedia.org/wiki/Frisch%E2%80%93Waugh%E2%80%93Lovell_theorem&quot; rel=&quot;nofollow noreferrer&quot;&gt;Frisch–Waugh–Lovell theorem&lt;/a&gt;, from which one can obtain results for the &quot;partitioned regression&quot;, that says that in the model (in matrix form)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\mathbf y = \mathbf X_1\beta_1 + \mathbf X_2\beta_2 + \mathbf u$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;we have that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\hat \beta_1 = (\mathbf X_1'\mathbf M_2\mathbf X_1)^{-1}(\mathbf X_1'\mathbf M_2)\mathbf y $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since $\mathbf M_2$ is idempotent we can re-write the above by&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\hat \beta_1 = (\mathbf X_1'\mathbf M_2\mathbf M_2\mathbf X_1)^{-1}(\mathbf X_1'\mathbf M_2\mathbf M_2)\mathbf y$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and since $M_2$ is also symmetric we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\hat \beta_1 = ([\mathbf M_2\mathbf X_1]'[\mathbf M_2\mathbf X_1])^{-1}([\mathbf M_2\mathbf X_1]'[\mathbf M_2\mathbf y]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But this is the least-squares estimator from the model&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$[\mathbf M_2\mathbf y] = [\mathbf M_2\mathbf X_1]\beta_1 + \mathbf M_2\mathbf u$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and also $\mathbf M_2\mathbf y$ are the residuals from regressing $\mathbf y$ on the matrix $\mathbf X_2$ only.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words:&#xA;1) If we regress $\mathbf y$ on the matrix $\mathbf X_2$ only, and then regress the &lt;em&gt;residuals&lt;/em&gt; from this estimation on the matrix $\mathbf M_2\mathbf X_1$ only, the $\hat \beta_1$ estimates we will obtain will be &lt;em&gt;mathematically&lt;/em&gt; equal to the estimates we will obtain if we regress $\mathbf y$ on both $\mathbf X_1$ and $\mathbf X_2$ together at the same time, as a usual multiple regression.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, assume that $\mathbf X_1$ is not a matrix but just one regressor, say $\mathbf x_1$. Then $\mathbf M_2 \mathbf x_1$ is the residuals from regressing the variable $X_1$ on the regressor matrix $\mathbf X_2$. And this provides the intuition here: $\hat \beta_1$ gives us the effect that &quot;the part of $X_1$ that is unexplained by $\mathbf X_2$&quot; has on &quot;the part of $Y$ that is left unexplained by $\mathbf X_2$&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is an emblematic part of classic Least-Squares Algebra.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="1601" LastEditDate="2018-07-23T22:41:32.737" LastActivityDate="2018-07-23T22:41:32.737" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="3207" PostTypeId="1" AcceptedAnswerId="3208" CreationDate="2015-01-29T13:26:16.547" Score="8" ViewCount="2343" Body="&lt;p&gt;Here is a puzzle that is supposed to help illuminate common knowledge in game theory. Three girls are sitting in a circle, each wearing a red or white hat. Each can see the color of all hats except their own. Now suppose they are all wearing red hats. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is said that if the teacher announces that at least one of the hats is red, and then sequentially asks each girl if she knows the color of her hat, the third girl questioned will know her hat is red. I understand the reasoning there. The first must have seen at least one red hat on the other two to say I don't know. And the second girl must have seen a red hat on the third, or else she would deduce that the first girl saw a red hat on her. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I don't understand is the necessity of the teacher. Everyone knows there is at least one red hat. And, if we start with common knowlege, they should figure out that everyone else knows that. So is the teacher only introduced if common knowledge is not an assumption?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Source: &lt;a href=&quot;http://cowles.econ.yale.edu/~gean/art/p0882.pdf&quot;&gt;http://cowles.econ.yale.edu/~gean/art/p0882.pdf&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="156" LastActivityDate="2016-01-22T07:22:06.847" Title="Common Knowledge and the Red Hats Puzzle" Tags="&lt;game-theory&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3208" PostTypeId="2" ParentId="3207" CreationDate="2015-01-29T14:17:04.803" Score="9" Body="&lt;p&gt;Without the teacher, everyone knows that there is at least a red hat, &lt;em&gt;but nobody knows that everyone knows&lt;/em&gt; - the fact is not common knowledge. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;With the introduction of the teacher, &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Girl 1 doesn't answer. &lt;strong&gt;Due to common knowledge&lt;/strong&gt;, 2 and 3 can reason: &quot;1 knows there is at least one red hat, and since she doesn't know her hat color, 2 and/or 3 must have a red hat.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Without the introduction of the teacher,&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Girl 1 doesn't answer. Without common knowledge, there is nothing 2 and 3 can reason on top of their prior knowledge: 2 will keep knowing that 3 has a red hat, and 3 will keep knowing that 2 has a red hat. Nothing more.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;In other words: Without the teacher, the set of knowledge is:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;1: 2+3 have red hats&lt;/li&gt;&#xA;&lt;li&gt;2: 1+3 have red hats&lt;/li&gt;&#xA;&lt;li&gt;3: 1+2 have red hats&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The teacher works as an injector of additional knowledge:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;1: 2+3 both know that there is at least one red hat&lt;/li&gt;&#xA;&lt;li&gt;2: 1+3 both know that there is at least one red hat&lt;/li&gt;&#xA;&lt;li&gt;3: 1+2 both know that there is at least one red hat&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;And, common knowledge means that in the next level, &lt;em&gt;everyone knows that everyone knows&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;1: 2+3 both know that I know that there is at least one red hat&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;etc, &lt;em&gt;ad infinitum&lt;/em&gt;. This additional information is required to solve the puzzle.&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-01-29T14:17:04.803" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="3210" PostTypeId="1" AcceptedAnswerId="4558" CreationDate="2015-01-29T16:34:38.560" Score="8" ViewCount="1470" Body="&lt;p&gt;Looking for some help to understand the following problem and how to use the reduced form in econometrics&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider a model for the health of an individual:&#xA;$$health = b_0 + (b_1)age + (b_2)weight + (b_3)height + (b_4)male + (b_5)work +&#xA;(b_6)exercise + u$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;assume that all variables in the equation with the exception of exercise are uncorrelated with u. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A)Write down the reduced form for exercise, and state the conditions under which the parameters of the equation are identified.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;B)How can the identification assumption in part c be tested?&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Is it correct to assume:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$exercise = b_0 + (b_1)age + (b_2)weight + (b_3)height + (b_4)male + (b_5)work +&#xA;  u$$ as the reduced form?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and is the condition for identification of parameters simply &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$E(exercise|u)=0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and how can I test it? But moreover what is it good for?&lt;/p&gt;&#xA;" OwnerUserId="2829" LastEditorUserId="43" LastEditDate="2015-02-26T01:20:02.857" LastActivityDate="2015-02-27T17:58:32.433" Title="Reduced Form of an econometric model, identification problem and test" Tags="&lt;econometrics&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3211" PostTypeId="1" CreationDate="2015-01-29T17:55:51.700" Score="2" ViewCount="63" Body="&lt;p&gt;I have been fruitlessly searching for a list of dates of comprehensive National Income and Product Account revisions.  Clues I have found so far: The Bureau of Economic Analysis  website says the 1999 revision was the 11th one, and there have been three more since then - 2003, '09, and '13.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;From the Philadelphia Fed's vintage datasets it looks like there were comprehensive revisions in 1975, 1985, 1991, and 1995.  This still leaves several unaccounted-for revisions.  Is there an online source for this information or should I hunt through old print copies of the Survey of Current Business?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks&lt;/p&gt;&#xA;&#xA;&lt;p&gt;edited to remove acronyms&lt;/p&gt;&#xA;" OwnerUserId="2834" LastEditorUserId="2834" LastEditDate="2015-01-29T22:04:31.493" LastActivityDate="2015-02-02T02:10:18.473" Title="Timeline of comprehensive NIPA revisions" Tags="&lt;macroeconomics&gt;&lt;data-request&gt;&lt;gdp&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3212" PostTypeId="1" CreationDate="2015-01-29T20:43:51.563" Score="3" ViewCount="94" Body="&lt;p&gt;So I was reading about the consequences of various loss functions on what regressions result in, i.e. the L1 norm giving conditional median estimation and L2 giving conditional mean, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What happens if you minimize the sum of $\left(\frac{\hat{y}}{y}-1 \right)^2$ over all observations? Provided no y != 0, I get Monte Carlo results that are very close to standard OLS results.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I SHOULD be doing my time series homework but instead I've been tinkering around.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Not a super serious question, just curiosity :)&lt;/p&gt;&#xA;" OwnerUserId="2835" LastEditorUserId="-1" LastEditDate="2015-01-31T19:10:12.617" LastActivityDate="2015-01-31T19:10:12.617" Title="Consequences of a particular loss function" Tags="&lt;econometrics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3213" PostTypeId="2" ParentId="3210" CreationDate="2015-01-30T03:28:04.593" Score="3" Body="&lt;p&gt;The question doesn't make much sense to me as stated. If the problem says that &lt;em&gt;exercise&lt;/em&gt; is endogenous (correlated with error term), you can't assume the opposite in the solution. Plus, one usually speaks about reduced vs. structural form in the context of IV estimation. If &lt;em&gt;exercise&lt;/em&gt; is endogenous, you need an instrument for it (variable that predicts exercise, but doesn't affect health otherwise) to obtain causal effects. For example, if some people in your sample randomly won gym membership coupons, that could be a valid instrument. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Identification assumptions would then be &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;em&gt;coupon&lt;/em&gt; really does predict &lt;em&gt;exercise&lt;/em&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;em&gt;coupon&lt;/em&gt; is orthogonal to $u$&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;What is called &lt;strong&gt;structural form&lt;/strong&gt; would be two equations, one your original model, the other regression of exercise on &lt;em&gt;coupon&lt;/em&gt; and other explanatory variables from the original model (the first stage). &lt;strong&gt;Reduced form&lt;/strong&gt; would be when you substitute first stage into the main equation, so you regress health on &lt;em&gt;age, weight, ... , work&lt;/em&gt; and &lt;em&gt;coupon&lt;/em&gt; (but not &lt;em&gt;exercise&lt;/em&gt;, as that has been substituted out). Reduced form is sometimes used for explaining properties of IV estimation, but AFAIK it's not much used in practice.&lt;/p&gt;&#xA;" OwnerUserId="1432" LastActivityDate="2015-01-30T03:28:04.593" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3214" PostTypeId="1" CreationDate="2015-01-30T11:30:49.133" Score="3" ViewCount="39" Body="&lt;p&gt;Where can I see in real time data about the amount of a currency that is held in central banks (and maybe other significant  places) ? A map would be great.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would like to know if there is an institution that watches where the currency reserves are held for the different currencies out there.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would specialy like to know where is US dollar held around the world&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have another related question : knowing that oil and US dollar are directly correlated : can oil reserves be considered as US currency reserves in a certain way ?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I quickly tried the FMI website but did not find anything.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;FYI : I'm just trying to get myself a personal point of view about the recent  dollar value raise, and I know peanuts about economics and finance : don't hesitate to prove me wrong :) .&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks,&#xA;Julian&lt;/p&gt;&#xA;" OwnerUserId="2839" LastActivityDate="2015-01-30T11:30:49.133" Title="Real time data map about the amount of a currency that are held in the world ?" Tags="&lt;macroeconomics&gt;&lt;currency&gt;" AnswerCount="0" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3215" PostTypeId="2" ParentId="3212" CreationDate="2015-01-30T16:25:05.377" Score="5" Body="&lt;p&gt;Is it the case that since you can rearrange this expression to $\Sigma (\frac{1}{y^2})(\hat{y}-y)^2$, that you are really weighting the standard L2 norm with  weights that are higher for lower absolute values of y? &lt;/p&gt;&#xA;" OwnerUserId="2844" LastEditorUserId="2844" LastEditDate="2015-01-31T16:33:40.203" LastActivityDate="2015-01-31T16:33:40.203" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3216" PostTypeId="2" ParentId="3201" CreationDate="2015-01-30T16:36:52.530" Score="1" Body="&lt;p&gt;&lt;a href=&quot;http://en.wikipedia.org/wiki/Lerner_index&quot; rel=&quot;nofollow&quot;&gt;Lerner Index.&lt;/a&gt;  The term is pretty ambiguous in use.  Sometimes people mean, by Lerner Index, &quot;price-cost margin,&quot; and sometimes people mean &quot;minus the inverse of the demand elasticity.&quot;  But that works to your favor here.  It can mean what you want it to, so use it that way.&lt;/p&gt;&#xA;" OwnerUserId="2843" LastActivityDate="2015-01-30T16:36:52.530" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3217" PostTypeId="2" ParentId="3194" CreationDate="2015-01-30T17:09:13.967" Score="5" Body="&lt;p&gt;This is an example of what statistician &lt;a href=&quot;http://www.stat.columbia.edu/~gelman/&quot; rel=&quot;nofollow&quot;&gt;Andrew Gelman&lt;/a&gt; calls &quot;the fallacy of controlling for an intermediate outcome&quot;. Here is his description of this fallacy popping up when researchers ask if having more daughters changes your politics. The decision to have a second child is necessarily conditional on the previous decision to have the first child, and so seems like a clear example of controlling for decision variable that was endogenous. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Several studies have been performed in the last few years looking at&#xA;  the economic decisions of parents of sons, as compared to parents of&#xA;  daughters....A common feature of all these studies is that they&#xA;  control for the total number of children....At first sight,&#xA;  controlling for the total number of children seems reasonable. There&#xA;  is a difficulty, however, in that the total number of kids is an&#xA;  intermediate outcome, and controlling for it (whether by subsetting&#xA;  the data based on #kids or using #kids as a control variable in a&#xA;  regression model) can bias the estimate of the causal effect of having&#xA;  a son (or daughter).&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;To see this, suppose (hypothetically) that politically conservative&#xA;  parents are more likely to want sons, and if they have two daughters,&#xA;  they are (hypothetically) more likely to try for a third kid. In&#xA;  comparison, liberals are more likely to stop at two daughters. In this&#xA;  case, if you look at data on families with 2 daughters, the&#xA;  conservatives will be underrepresented, and the data could show a&#xA;  correlation of daughters with political liberalism–even if having the&#xA;  daughters has no effect at all!...&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&lt;strong&gt;A solution is to apply the standard conservative (in the statistical&#xA;  sense!) approach to causal inference, which is to regress on your&#xA;  treatment variable (sex of kid) but controlling only for things that&#xA;  happen before the kid is born.&lt;/strong&gt; For example, one could compare parents&#xA;  whose first child is a girl to parents whose first child is a boy. One&#xA;  can also look at the second birth, comparing parents whose second&#xA;  child is a girl to those whose second child is a boy–controlling for&#xA;  the sex of the first child. And so on for third child, etc.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://andrewgelman.com/2005/12/27/daughters_liber/&quot; rel=&quot;nofollow&quot;&gt;Does having sons make you more conservative? Maybe, maybe not. A problem with controlling for an intermediate outcome&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regarding your comment that &quot;Leave those control variables out and they lead to omitted variable bias themselves.&quot;, this seems to depend what sort of instrument you get. A good instrument, one that really satisfies the requirements, &lt;a href=&quot;http://en.wikipedia.org/wiki/Instrumental_variable#Definitions&quot; rel=&quot;nofollow&quot;&gt;has to be independent of of the error term in the second stage and be independent of everything else you control for directly&lt;/a&gt;. That is, the instrument changes Y only through X. So a suitable instrument for inequality has to be independent of growth and development (good luck finding that!) if we believe that the violence equation is the structural equation for violence. &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-01-31T06:11:07.757" LastActivityDate="2015-01-31T06:11:07.757" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3218" PostTypeId="1" AcceptedAnswerId="8163" CreationDate="2015-01-30T18:07:40.743" Score="2" ViewCount="1542" Body="&lt;p&gt;The following model jointly determines monthly child support payments and monthly visitation rights for divorced couples with children:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$support = d_1 + g_1 visits + d_1 finc + d_1 fremarr + d_1 dist + u_1$$&#xA;$$visits = d_2 + g_2 support + d_2 mremarr + d_2 dist + u_2$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For expository purposes, assume that children live with their mothers, so that fathers pay child support. Thus, the first equation is the father’s ‘‘reaction function’’: it describes the amount of child support paid for any given level of visitation rights and the other exogenous variables &lt;strong&gt;finc&lt;/strong&gt; (father’s income), &lt;strong&gt;fremarr&lt;/strong&gt; (binary indicator if father remarried), and &lt;strong&gt;dist&lt;/strong&gt; (miles currently between the mother and father). Similarly, the second equation is the mother’s reaction function: it describes visitation rights for a given amount of child support; &lt;strong&gt;mremarr&lt;/strong&gt; is a binary indicator for whether the mother is remarried.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;a. Discuss identification of each equation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;b. How would you estimate each equation using a single-equation method?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;c. How would you test for endogeneity of visits in the father’s reaction function?&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;I'd like to get some help with the whole question and to have my reasoning on it checked, thank you:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;a)identification not possible due to simultaneity (which causes endogeneity)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;b)via instrumental variable (possible choice (fremarr and mremarr) or ( dist)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;c) my only idea was to estimate visits via OLS then use Hausman test between OLS and IV&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is the approach correct? How can I answer C in an alternative way?&lt;/p&gt;&#xA;" OwnerUserId="2829" LastEditorUserId="43" LastEditDate="2015-02-26T01:19:54.627" LastActivityDate="2015-09-06T23:13:37.150" Title="Simultaneity problem: use of Instrumental Variables and test" Tags="&lt;econometrics&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3219" PostTypeId="1" CreationDate="2015-01-30T21:48:52.010" Score="6" ViewCount="71" Body="&lt;p&gt;In mechanism design, the optimal mechanism is usually not linear in the agent's type. However, linear mechanisms are easy for implementation. Are there any studies on the performance comparison between optimal and linear mechanisms. I guess a theoretical comparison is probably hard, as the payoff in the linear mechanism does not have closed-form, but a numerical analysis is not very difficult. Thanks.&lt;/p&gt;&#xA;" OwnerUserId="2846" LastActivityDate="2015-04-15T04:33:35.687" Title="Any study on performance gap between optimal mechanism and linear mechanism?" Tags="&lt;game-theory&gt;&lt;mechanism-design&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="3220" PostTypeId="1" CreationDate="2015-01-31T15:31:01.763" Score="4" ViewCount="42" Body="&lt;p&gt;I'm looking for as many empirical &quot;stylized facts&quot; about price dispersion (in products markets) in the idea of Burdett and Judd (1983) as possible. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;how high is the variance of price dispersion over different markets? &lt;/li&gt;&#xA;&lt;li&gt;Is there a time trend in price dispersion?&lt;/li&gt;&#xA;&lt;li&gt;How does price dispersion vary over the business cycle?&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;For the last question, I only found Cornia et al (2011), who show that it is very pro-cyclical for airlines - probably not the most generalizable result.&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-01-31T16:35:35.610" Title="Stylized Facts: Price Dispersion" Tags="&lt;industrial-organisation&gt;&lt;reference-request&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3221" PostTypeId="2" ParentId="3220" CreationDate="2015-01-31T16:35:35.610" Score="1" Body="&lt;p&gt;A little empirical evidence for your first point can be found in&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Erik Brynjolfsson &amp;amp; Michael D. Smith (2000): &quot;&lt;a href=&quot;http://ebusiness.mit.edu/erik/frictionless.pdf&quot; rel=&quot;nofollow&quot;&gt;Frictionless Commerce?&#xA;A Comparison of Internet and Conventional Retailers&lt;/a&gt;&quot;, Management&#xA;Science, 46(4), 563–585.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;They look at the markets for books and for CDs both online and offline and estimate the price distributions. Whilst they look at price changes, they do not present data on the change in price distributions over time.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2015-01-31T16:35:35.610" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3222" PostTypeId="1" AcceptedAnswerId="3230" CreationDate="2015-01-31T16:54:32.283" Score="23" ViewCount="3044" Body="&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Technological_unemployment&quot; rel=&quot;noreferrer&quot;&gt;Technological unemployment&lt;/a&gt;, where unemployment arises from (with some oversimplification) workers being replaced by machines, has so far been temporary as new jobs were created that replaced the old jobs.  Structural unemployment has been predicted many times in the past &lt;a href=&quot;http://zackkanter.com/2015/01/23/how-ubers-autonomous-cars-will-destroy-10-million-jobs-by-2025/&quot; rel=&quot;noreferrer&quot;&gt;and the present&lt;/a&gt;, but has not (yet) occurred.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Historical increases in productivity have led to an increase in overall production.  Physicist Timothy Garrett &lt;a href=&quot;http://physicsworld.com/cws/article/news/2008/nov/27/modelling-civilization-as-heat-engine-could-improve-climate&quot; rel=&quot;noreferrer&quot;&gt;models the economy as a heat engine&lt;/a&gt;, with more details in papers &lt;a href=&quot;http://www.inscc.utah.edu/~tgarrett/Economics/Economics.html&quot; rel=&quot;noreferrer&quot;&gt;linked from Garretts personal page&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In each of the past 40 years for which records are available, a continuous 7.1 Watts has been required to maintain every one thousand inflation-adjusted 2005 dollars of historically accumulated economic wealth (not yearly economic output or GDP). As of 2010, civilization was powered by about 17 trillion Watts of power which supported about 2352 trillion dollars of collective global wealth. In 1970, both quantities were less than half this. In the interim, energy consumption and wealth grew equally rapidly in the interim at an average rate of 1.9% per year. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Dr. Garrett is not an economist by training, and I don't know how his models are received by mainstream economists.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How do contemporary forecasts on technological unemployment take into account an economy that is increasingly limited not by the availability of (sufficiently skilled) labour, but rather by the availability of resources?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To illustrate it further: some speculate that in the next years and decades, self-driving cars will displace professional drivers (taxi drivers, lorry drivers, etc.).  This will initially increase unemployment, but it would also lower the labour component of the price of many goods.  Historically, civilization has responded to such events more with an increase in production than with an overall decrease in hours worked.  However, production cannot be increased arbitrarily; resources become increasingly scarce. Therefore, those prices will go up.  That means that perhaps this time around, the feedback preventing structural, technological unemployment does not apply...  hence my question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I welcome answers that do and answers that do not take into account externalized costs such as damage to natural ecosystems, pollution, and anthropogenic climate change.&lt;/p&gt;&#xA;" OwnerUserId="332" LastEditorUserId="5048" LastEditDate="2017-02-03T21:06:11.390" LastActivityDate="2017-02-03T21:06:11.390" Title="Should we expect more structural technological unemployment if growth becomes more limited by natural resources and less by labour?" Tags="&lt;macroeconomics&gt;&lt;economic-growth&gt;&lt;unemployment&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="12" ContentLicense="CC BY-SA 3.0" />
  <row Id="3223" PostTypeId="2" ParentId="3222" CreationDate="2015-01-31T18:07:45.347" Score="2" Body="&lt;p&gt;I see multiple questions in this question (please avoid that in the future), and Ill do my best to answer two of them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Resources Limiting Growth&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is no problem what-so-ever with the restriction of resources. Decreasing supply implies higher prices, s.t. technologies which manage these more efficiently will be rewarded. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you look at environmental economics, there are many papers that look at the transition dynamics from fossil to renewable energies, and pivot taxation that optimizes the transition from one to another.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Structural Technological Unemployment&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assuming that human capital is slow to adjust to the demand, improving technologies will increase unemployment in the short run, as these workers become obsolete. However, in the long run, workers' human capital will be optimized to take new technologies into account, and they will be employable again. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Why?&lt;/em&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Whenever machines replace some jobs because they became more productive than the human which was working there before, they also make other jobs - that depend on this one - more productive.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, think about writers and the press. The digital age has lead to the layoff of many workers who were working in the printing industries. However, an improvement in the printing industries has lead to a surplus, which partially has been passed over to the writers. Printing is now more affordable, hence being a writer has higher returns. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Without being able to prove this in equations, it seems to be a natural counter-force: The more effective technology is at replacing some jobs, the more it is improving the efficiency of that job, and the higher the surplus for other jobs that depend on this one.&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-01-31T18:07:45.347" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="3224" PostTypeId="1" AcceptedAnswerId="3225" CreationDate="2015-01-31T19:40:16.593" Score="2" ViewCount="783" Body="&lt;p&gt;From &lt;a href=&quot;http://www.telegraph.co.uk/finance/economics/11381533/Angela-Merkel-rules-out-debt-cancellation-for-Greece.html&quot; rel=&quot;nofollow&quot;&gt;The Daily Telegraph&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The new Syriza-led government has demanded some form debt write-off on the country's €317bn liabilities, two-thirds of which are owned to official creditors in the form of the EU and the IMF. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;From &lt;a href=&quot;http://www.bbc.com/news/world-europe-31016261&quot; rel=&quot;nofollow&quot;&gt;BBC News&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;New Greek PM Alexis Tsipras says his country will not default on its debts.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;A &lt;a href=&quot;https://en.wikipedia.org/wiki/Default_%28finance%29&quot; rel=&quot;nofollow&quot;&gt;default&lt;/a&gt; is, according to Wikipedia:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In finance, default is failure to meet the legal obligations (or conditions) of a loan, for example when a home buyer fails to make a mortgage payment, or when a corporation or government fails to pay a bond which has reached maturity.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Which leads me to the question:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is the difference between &lt;em&gt;some form of debt write-off&lt;/em&gt; (demanded by the Greek government) and a partial default (denied by the Greek government)?&lt;/p&gt;&#xA;" OwnerUserId="332" LastActivityDate="2015-02-11T23:13:57.173" Title="What is the difference betwene a partial default and having debts partially written off?" Tags="&lt;monetary-policy&gt;&lt;debt&gt;&lt;default&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3225" PostTypeId="2" ParentId="3224" CreationDate="2015-01-31T21:49:10.607" Score="2" Body="&lt;p&gt;&lt;strong&gt;&quot;Some form of debt write-off&quot;&lt;/strong&gt; means usually, &lt;strong&gt;mutually agreed&lt;/strong&gt; (between creditor and debtor) elimination of a portion or the whole of debt.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&quot;Partial default&quot;:&lt;/strong&gt; I had the contractual obligation to pay EUR $100$ on Monday, but I paid only EUR $80$. Technically speaking, this is not always (or immediately) considered a &quot;default&quot;, but a &quot;credit incident&quot; (alternatively it is characterized as &quot;default on a payment&quot; and not &quot;default on the loan&quot;). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then &lt;em&gt;the reason why&lt;/em&gt; I haven't paid the remaining EUR $20$ is crucial: Do I recognize my obligation but I am unable to fulfill it because of financial inability? Or do I &lt;em&gt;deny&lt;/em&gt; my obligation, questioning the validity of the underlying contract of the debt from which the obligation to pay the remaining EUR $20$ came?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the first case, the issue is whether this financial inability is deemed as &quot;temporary&quot; or &quot;permanent&quot;. If it is deemed &quot;permanent&quot; (usually by a court decision), then in some countries the debt is officially written off by necessity, while in other countries the creditors retain the right to seek payment whenever the debtor acquires assets in the future (so the creditors may be monitoring you). If it is deemed &quot;temporary&quot;, then the issue is to make an attempt to restructure the debt.  For Public Debt, the inability is never officially considered &quot;permanent&quot; so the issue is always to restructure (which of course may include a &lt;strong&gt;mutually agreed&lt;/strong&gt; partial write-off, which essentially means a recognition that there exists a &quot;partial&quot; permanent inability to pay).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We could call the second case, where we question/deny the validity of our obligation, a &quot;unilateral debt write-off&quot;, which of course is rarely if ever accepted by the creditors, and so whether it should be called a &quot;write-off&quot; is questionable in turn.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-01-31T23:05:26.540" LastActivityDate="2015-01-31T23:05:26.540" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3226" PostTypeId="1" AcceptedAnswerId="3258" CreationDate="2015-01-31T19:18:16.840" Score="5" ViewCount="186" Body="&lt;p&gt;I am very interested in learning about debt and credit - not personal debt and credit - but debt and credit of countries and the like. I have searched everywhere but it's difficult to find books that are related to these topics. One such book that I found was Alexander Graeber's &quot;Debt: The First 5000 Years&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I was wondering if someone has a recommendations for books that would allow someone to get a much better idea of what exactly debt and credit are and how they affect the world around us. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;P.S. I apologize in advance if this question is off topic but this was my last resort. &lt;code&gt;:)&lt;/code&gt;&lt;/p&gt;&#xA;" OwnerUserId="1439" OwnerDisplayName="Jeel Shah" LastEditorUserId="1439" LastEditDate="2015-01-31T23:29:43.680" LastActivityDate="2016-11-29T18:16:21.147" Title="Learning about Debt and Credit" Tags="&lt;debt&gt;&lt;reference-request&gt;&lt;consumer-credit&gt;" AnswerCount="2" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="3227" PostTypeId="1" CreationDate="2015-01-31T23:30:55.547" Score="3" ViewCount="116" Body="&lt;p&gt;Suppose we want to estimate a model:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$Y_i  =  \beta_0 + \beta_1X_i + \epsilon_i\tag{1}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where the $Y_i$ are averages or rates per capita for geographical regions or zones, so that if $Z_i$ is the regional aggregate variable of interest and $P_i$ is population:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$Y_i  =  Z_i / P_i\tag{2}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If all the variables are accurately measured, and if there exist $β_0^*$ and $β_1^*$ such that for all i:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$E[Y_i - \beta_0^* - \beta_1^*X_i]  =  E[\epsilon_i]  =  0\tag{3}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;then OLS estimation of model (1) should yield an unbiased estimate of $\beta_1$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose however that estimates of $P_i$ are only approximate.  This is in practice likely since the values of $P_i$ will almost certainly be obtained or derived from census data, leading to several possible sources of error:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;error in the original census data;&lt;/li&gt;&#xA;&lt;li&gt;extrapolation from census data using assumptions on population&#xA;trends where data are required in respect of a later date;&lt;/li&gt;&#xA;&lt;li&gt;the regions used in the model may not correspond to census areas, eg&#xA;concentric rings around a central point.  An example is a&#xA;travel cost valuation study reported in Herath (1999) (1) where&#xA;populations in the range 5,000 to 35,000 for concentric ring zones&#xA;are all stated in exact multiples of 5,000, suggesting that the&#xA;figures are only very approximate.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;The errors in $P_i$ will obviously ‘infect’ the values of $Y_i$, but not in a straightforward way, since the absolute effect on $Y_i$ of a given error in $P_i$ will depend on the size of $Z_i$ (and if $Z_i = 0$ there will be no error in $Y_i$).    &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Question&lt;/strong&gt;: Given errors in $P_i$, will OLS estimation of model (1) yield an unbiased estimate of $\beta_1$, and if not, under what additional conditions would the estimate be unbiased?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Reference&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Herath, G (1999) Estimation of Community Values of Lakes: A Study of Lake Mokoan in Victoria Australia  &lt;em&gt;Economic Analysis &amp;amp; Policy&lt;/em&gt;  29(1)  Table 1 p 37&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="1417" LastActivityDate="2015-02-01T01:26:46.980" Title="Are Parameter Estimates Unbiased If the Dependent Variable is a Per Capita Rate Based on Approximate Population Data?" Tags="&lt;econometrics&gt;&lt;environmental-economics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3228" PostTypeId="2" ParentId="3227" CreationDate="2015-02-01T00:27:16.327" Score="2" Body="&lt;p&gt;What about assuming a multiplicative error process and then using logs? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Say the data generating process were a little different:&#xA;$Y_i  =  \beta_0 \cdot  X_i^{\beta_1}\cdot E_i$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If $Y_i  =  Z_i / P_i$ in truth but all we could really observe was:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\hat{P}_i = P_i \cdot \Gamma_i$, where $P_i$ was the true value and $\Gamma_i$ was a strictly positive measurement error.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We' be estimating the following equation in practice:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\hat{Y}_i  = Z_i / \hat{P}_i =  \beta_0 \cdot  X_i^{\beta_1}\cdot E_i$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;take the logs of both sides (lower case letters are logs of individual variables):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$y_i  = \beta_0 + \beta_1 \cdot x_i + \epsilon_i - \gamma_i$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we define a variable $\xi_i = \epsilon_i - \gamma_i$ then we can have an equation $y_i  = \beta_0 + \beta_1 \cdot x_i + \xi_i$ that looks very much like the one you wrote above. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If $\xi_i$ satisfies the same relationships with the log variables that $\epsilon_i$ does with the level variables it seems like everything should still work. &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2015-02-01T00:27:16.327" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3229" PostTypeId="1" CreationDate="2015-02-01T01:07:00.153" Score="0" ViewCount="25344" Body="&lt;p&gt;What is the difference between a free trade agreement and a preferential trade agreement? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is the difference between a free trade area and a free trade agreement?&lt;/p&gt;&#xA;" OwnerUserId="2849" LastEditorUserId="69" LastEditDate="2015-02-01T17:55:15.570" LastActivityDate="2015-06-28T19:24:46.553" Title="What is the difference between a free trade agreement and a preferential trade agreement?" Tags="&lt;international-trade&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="3230" PostTypeId="2" ParentId="3222" CreationDate="2015-02-01T01:17:03.553" Score="10" Body="&lt;p&gt;I understand that you are asking the following&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Up to now, we have avoided structural unemployment because we increased&#xA;  production by &lt;em&gt;more&lt;/em&gt; than what the technological efficiency gains&#xA;  implied (and so eventually re-employed the labor that had become&#xA;  initially obsolete, usually in other industries). But if finite resources put constraints on how&#xA;  much we can increase production, won't a time come that structural&#xA;  unemployment will emerge?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;As @Foobar notes in a comment, technically speaking this appears to have to do with the rate of increase of efficiency in resource use compared to the rate of decrease of resources available.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But one could argue that, efficiency in resource use has its limits, and the constraint will eventually set in. In such a technological unemployment scenario (which I don't believe anyone can really put a reliable time-line on), there is one resource that won't decrease but rather increase in availability: labor. So, and if nothing &lt;em&gt;truly&lt;/em&gt; life-changing happens (like devastation of human population, massive colonizations of other planets, or the equivalent of &lt;a href=&quot;http://ancienthistory.about.com/od/cterms/g/cornucopia.htm&quot; rel=&quot;noreferrer&quot;&gt;Amalthea's Horn of Plenty&lt;/a&gt;), production will tend to utilize this available resource (which we should expect to command a relatively lower reward being in high supply). Meaning, a tendency for production to grow in &lt;em&gt;sectors where services delivered by humans remain central&lt;/em&gt;, by their nature (or by the prevailing consumer preferences). Servants, personal assistants, waiters, nurses, sex workers, trainers, teachers, baby sitters, security guards, body guards, arts and sports entertainers... even if only as a relative &quot;luxury&quot;, rather than strictly needed in the amounts employed. And we may even see innovative ways of using labor (i.e. once more creating new sectors) -but I leave that to anyone's imagination...&lt;br&gt;&#xA;Of course this labor should get paid &lt;em&gt;something&lt;/em&gt; for its services, so those employing it should have the income/wealth needed to pay this something... which indirectly brings in the issue of wealth and income inequality, and whether it plays (or not) a part in all these.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-02-01T20:22:07.523" LastActivityDate="2015-02-01T20:22:07.523" CommentCount="11" ContentLicense="CC BY-SA 3.0" />
  <row Id="3231" PostTypeId="2" ParentId="3227" CreationDate="2015-02-01T01:26:46.980" Score="2" Body="&lt;p&gt;Just to complement @Bkay's answer, &quot;measurement error&quot; in the dependent variable is relatively &quot;harmless&quot; -what hurts is error in measurement in the regressors.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we have measurement error in the dependent variable, what we need to assume in addition, in order to preserve unbiasedness, is that this error is independent of the regressors. If we can reasonably assume that (and usually we can), then @BKay 's answer shows that the effect is just a transformation of the error term of the regression. It may affect the variance, but not the parameter estimates.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the contrary, if we have measurement error in the regressors, then they stop being strictly exogenous to the error term, and unbiasedness is lost.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-02-01T01:26:46.980" CommentCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="3232" PostTypeId="1" CreationDate="2015-02-01T05:33:43.127" Score="6" ViewCount="254" Body="&lt;p&gt;I can't figure out how the calculation of first order conditions was carried out.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.imgur.com/FF67b4z.png&quot; alt=&quot;The model and constraints&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.imgur.com/SouRrk9.png&quot; alt=&quot;First order conditions&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can't figure out where the stochastic discount factor came from.&lt;/p&gt;&#xA;" OwnerUserId="2851" LastEditorUserId="2776" LastEditDate="2017-08-31T06:57:42.567" LastActivityDate="2018-11-24T15:02:15.450" Title="Optimization of Households' utility in &quot; Rule-of-Thumb Consumers and the Design of Interest Rate Rules &quot; (Gali et al., 2004)" Tags="&lt;utility&gt;&lt;optimization&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3234" PostTypeId="1" CreationDate="2015-02-01T15:32:10.500" Score="4" ViewCount="107" Body="&lt;p&gt;I am looking for a source containing debt (government debt) to GDP data of different governments. Do you know of any reliable sources with data going back as far as possible (at least 1960s)?&lt;/p&gt;&#xA;" OwnerUserId="2853" LastEditorUserId="69" LastEditDate="2015-02-02T15:11:18.133" LastActivityDate="2015-02-02T15:11:18.133" Title="Sources of historical cross-country government debt to GDP data" Tags="&lt;data-request&gt;&lt;gdp&gt;&lt;government-debt&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3235" PostTypeId="2" ParentId="3234" CreationDate="2015-02-01T17:50:04.987" Score="2" Body="&lt;p&gt;Using the World Bank's &lt;a href=&quot;http://data.worldbank.org/data-catalog/international-debt-statistics&quot; rel=&quot;nofollow&quot;&gt;International Debt Statistics&lt;/a&gt; you could calculate the ratio of PPG, bonds (AMT, current US\$) to GNI (current US\$):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;PPG, bonds (AMT, current US\$): Public and publicly guaranteed debt&#xA;  from bonds that are either publicly issued or privately placed. Data&#xA;  are in current U.S. dollars.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;GNI (current US\$): GNI (formerly GNP) is the sum of value added by all&#xA;  resident producers plus any product taxes (less subsidies) not&#xA;  included in the valuation of output plus net receipts of primary&#xA;  income (compensation of employees and property income) from abroad.&#xA;  Data are in current U.S. dollars.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;These data go back to 1970's for some countries, but the data only covers 1970-2013. The OECD numbers go back to 2000 but are even easier to work with. You can &lt;a href=&quot;http://stats.oecd.org/Index.aspx?DataSetCode=GOV_DEBT&quot; rel=&quot;nofollow&quot;&gt;link right to them&lt;/a&gt;. For some rich countries the data go back quite a bit farther (like G7 countries like  the &lt;a href=&quot;http://krugman.blogs.nytimes.com/2011/12/26/debt-and-growth-in-the-g7/?_r=0&quot; rel=&quot;nofollow&quot;&gt;UK, France, and the USA&lt;/a&gt;). For a large panel of countries.  I don't know of sources better than the World Bank and the OECD. You could check the &lt;a href=&quot;http://www.imf.org/external/data.htm&quot; rel=&quot;nofollow&quot;&gt;IMF data page&lt;/a&gt; but all I found were links back to the World Bank data. &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-02-01T17:58:07.430" LastActivityDate="2015-02-01T17:58:07.430" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3236" PostTypeId="2" ParentId="1791" CreationDate="2015-02-01T19:43:04.930" Score="2" Body="&lt;p&gt;&lt;a href=&quot;http://research.stlouisfed.org/publications/review/10/11/Armesto.pdf]&quot; rel=&quot;nofollow&quot;&gt;Forecasting with Mixed Frequencies&lt;/a&gt; by Michelle T. Armesto, Kristie M. Engemann, and Michael T. Owyang has a nice overview of several mixed frequency prediction techniques (including MIDAS)  and evaluates them on several macroeconomic series: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;For our forecasting experiments, the data we use are log growth rates&#xA;  of the seasonally adjusted annual rate of nominal GDP from the Bureau&#xA;  of Economic Analysis, seasonally adjusted nonfarm payroll employment&#xA;  and seasonally adjusted CPI from the Bureau of Labor Statistics, and&#xA;  seasonally adjusted IP from the Board of Governors of the Federal&#xA;  Reserve System.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="69" LastActivityDate="2015-02-01T19:43:04.930" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3237" PostTypeId="1" CreationDate="2015-02-01T19:51:27.207" Score="3" ViewCount="123" Body="&lt;p&gt;Is it possible to retrieve Autocorrelations ( value or any other info) up to a certain lag&#xA;for an AR(2) stationary model using the Wold decomposition?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Example:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$X_t=0.32X_{t-1}+0.51X_{t-2}+ \varepsilon_t $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lag Poly Form&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$(1-0.32L-0.51L^2)X_t= \varepsilon_t$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Char Eq&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Z^2-0.32Z-0.51=0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Wold Decomposition form $(L^J:- \phi_1 \psi_{j-1}-\phi_2 \psi_{j-2}+ \psi_j = 0)$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$L^0:\psi_0 = 0 $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$L^1:-0.32 \psi_{0}-\psi_1 = 0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$L^2:-0.32 \psi_{1}-0.51 \psi_{0}+ \psi_2 = 0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$L^3:-0.32 \psi_{2}-0.51 \psi_{1}+ \psi_3 = 0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$L^4:-0.32\psi_{3}-0.51 \psi_{2}+ \psi_4 = 0$&lt;/p&gt;&#xA;" OwnerUserId="2829" LastActivityDate="2015-03-31T19:07:29.573" Title="Wold Decomposition and autocorrelations of AR" Tags="&lt;econometrics&gt;&lt;time-series&gt;" AnswerCount="0" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3238" PostTypeId="2" ParentId="3211" CreationDate="2015-02-02T02:10:18.473" Score="2" Body="&lt;p&gt;You can read what looks like the entire collection of &lt;a href=&quot;http://www.bea.gov/scb/date_guide.asp&quot; rel=&quot;nofollow&quot;&gt;back issues of Survey of Current Business on the BEA website&lt;/a&gt; but the old issues seem to be PDFs that are not indexed by the site's search engine. &lt;a href=&quot;http://www.bea.gov/scb/pdf/national/nipa/1995/0795od.pdf&quot; rel=&quot;nofollow&quot;&gt;You can see the 1995 revision discussed there&lt;/a&gt;. This seems to be the &lt;a href=&quot;http://www.bea.gov/scb/pdf/1965/0865cont.pdf&quot; rel=&quot;nofollow&quot;&gt;1965&lt;/a&gt; and &lt;a href=&quot;http://www.bea.gov/scb/pdf/1980/1280cont.pdf&quot; rel=&quot;nofollow&quot;&gt;1980&lt;/a&gt; revisions. The seem to have changed the termenology on the major revisions at one point. In 1980 the called it &lt;em&gt;The National Income and Product Accounts of the United States: An Introduction to the Revised Estimates for 1929-80&lt;/em&gt; instead of &lt;em&gt;Preview of the Comprehensive Revision&#xA;of the National Income and Product Accounts&lt;/em&gt; which they called in since at least 1995. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;That still leaves five more still to discover. I set my &lt;a href=&quot;https://addons.mozilla.org/en-US/firefox/addon/downthemall/&quot; rel=&quot;nofollow&quot;&gt;DownThemAll&lt;/a&gt; to download the whole archive and then I'll see if can get anywhere with searching the pdfs.&lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2015-02-02T02:10:18.473" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3240" PostTypeId="2" ParentId="3195" CreationDate="2015-02-02T14:23:14.867" Score="1" Body="&lt;p&gt;A currency can be indexed but so can a bond. An indexed bond is one where the coupons and principal are indexed to another currency (the U.S dollar in the case of Tesobonos) at the spot rate in effect at the time of issuance. So you actually pay in the local currency but how much you pay depends on the prevailing exchange rates when payment is due. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A bond can be indexed without a currency being indexed. It is typically a way, much like a foreign currency denominated debt issuance, to remove local inflation and exchange risk from debt issuance. &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2015-02-02T14:23:14.867" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3241" PostTypeId="1" CreationDate="2015-02-02T17:39:16.827" Score="2" ViewCount="687" Body="&lt;p&gt;John consumes two products – X and Y and his preferences are represented by an unknown utility function – u(x,y) (we may assume his indifference curves are well-behaved). His income is m, while the product prices are Px and Py.&#xA;John was made an offer to sign up for a rewards card. This card would allow him to purchase x at a 10% discount. He would, however, have to pay A dollars to sign up for this card. John is indifferent between accepting and declining the offer.&#xA;John’s mother has offered to pay the signup price. Alternatively, she’s willing to give John B dollars instead (in which case, John would be prohibited from signing up for the card). John is indifferent between the two options.&#xA;What can one say about A and B?&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;A &gt; B&lt;/li&gt;&#xA;&lt;li&gt;A = B&lt;/li&gt;&#xA;&lt;li&gt;A &amp;lt; B&lt;/li&gt;&#xA;&lt;li&gt;We can’t know the relation between A and B, however if X were known to be a normal good, we could.&lt;/li&gt;&#xA;&lt;li&gt;The above answers are incorrect.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;I'd appreciate it if someone could direct me to info about the relationship between the compensating variation (CV) and the equivalent variation (EV) and their sizes, dependent on income elasticity (classification of the good as normal\neutral\inferior.&lt;/p&gt;&#xA;" OwnerUserId="2857" LastEditorUserId="59" LastEditDate="2015-03-07T21:39:17.863" LastActivityDate="2015-03-07T21:39:17.863" Title="Consumer Theory - Relationship between compensating variation (CV) and the equivalent variation (EV)" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;" AnswerCount="0" CommentCount="7" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3242" PostTypeId="1" AcceptedAnswerId="4754" CreationDate="2015-02-02T18:23:13.823" Score="6" ViewCount="104" Body="&lt;p&gt;The &lt;a href=&quot;https://en.wikipedia.org/wiki/Gibbard%E2%80%93Satterthwaite_theorem&quot; rel=&quot;nofollow&quot;&gt;Gibbard-Satterthwaite theorem&lt;/a&gt; implies that, in every non-dictatorial voting system with 3 or more candidates, there is a preference profile in which some of the voters can gain by lying about their preferences. However, usually this gain requires that the voters know the voting rule.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, consider a voting system with 3 candidates, A B and C, and 12 voters with the following preferences:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;3 voters prefer A&gt;B&gt;C;&lt;/li&gt;&#xA;&lt;li&gt;4 voters prefer B&gt;C&gt;A;&lt;/li&gt;&#xA;&lt;li&gt;5 voters prefer C&gt;A&gt;B.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Consider the following two voting rules:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;em&gt;plurality&lt;/em&gt; - in which C is elected;&lt;/li&gt;&#xA;&lt;li&gt;&lt;em&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Instant-runoff_voting&quot; rel=&quot;nofollow&quot;&gt;Instant-runoff&lt;/a&gt;&lt;/em&gt; - in which B is elected (after A is eliminated in the first round).&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Consider the 5 C&gt;A&gt;B voters, and assume all other voters are truthful:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;In plurality voting, they should of course be truthful so that their favorite candidate C wins.&lt;/li&gt;&#xA;&lt;li&gt;But in instant-runoff voting, they can gain by lying and saying that their best candidate is A, since this will prevent the election of their worst option B.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;So without knowing the voting rule, these voters cannot know whether lying about their preferences will help them or harm them. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The situation is different with the 3 A&gt;B&gt;C voters:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;In plurality voting, they can gain by lying and saying that they prefer B, as this will prevent the election of their worst option C;&lt;/li&gt;&#xA;&lt;li&gt;In instant-runoff voting, although they won't gain from lying, they also won't lose.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;So even without knowing the voting rule, these voters can know that voting for B will either help them or at least not harm them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the sake of this question, assume that all voters are &lt;em&gt;truth-biased&lt;/em&gt;. This means that, if they are not sure whether lying will help them or harm them, they will be truthful. They will only lie if lying may help them and may not harm them. So in the above example, the C&gt;A&gt;B voters will be truthful and the A&gt;B&gt;C voters will lie (assuming the B&gt;C&gt;A voters are truthful).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;MY QUESTION IS: Is there a collection of reasonable (non-dictatorial, monotone, etc.) voting rules, such that, in &lt;em&gt;all&lt;/em&gt; preference profiles, &lt;em&gt;no&lt;/em&gt; truth-biased voter will want to lie?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words: we look for a collection of voting rules so that, for every preference profile and every group of voters, there exists a voting rule in our collection where their best response (when all other voters are truthful) is to be truthful.&lt;/p&gt;&#xA;" OwnerUserId="385" LastEditorUserId="59" LastEditDate="2015-02-03T18:43:10.593" LastActivityDate="2015-03-16T03:25:06.570" Title="Tactical voting when the voting rule is unknown" Tags="&lt;preferences&gt;&lt;social-choice&gt;" AnswerCount="1" CommentCount="5" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3243" PostTypeId="1" AcceptedAnswerId="3246" CreationDate="2015-02-02T18:58:04.080" Score="4" ViewCount="108" Body="&lt;p&gt;A higher oil price would increase incentives to develop new oil resource extraction, but it also increases the competitiveness of sustainable energy sources.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Conversely, a low oil price might mean less development of new resource extraction, putting projects such as hydraulic fracturing or offshore Arctic drilling on hold.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I wonder is: what oil price will lead to the lowest level of new resource extraction?  Or, in other words: suppose that I strongly oppose the development of new resource extraction with potentially very high environmental costs (such as hydraulic fracturing or Arctic offshore drilling), should I be glad when oil prices or low... or when they are high?&lt;/p&gt;&#xA;" OwnerUserId="332" LastEditorUserId="43" LastEditDate="2015-07-15T17:56:57.343" LastActivityDate="2015-09-21T19:22:39.143" Title="What oil price will minimise new resource extraction?" Tags="&lt;macroeconomics&gt;&lt;energy-economics&gt;&lt;resource-economics&gt;" AnswerCount="3" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="3244" PostTypeId="1" AcceptedAnswerId="3251" CreationDate="2015-02-02T19:07:16.020" Score="4" ViewCount="134" Body="&lt;p&gt;According to this figure from the Center for Climate and Energy Solutions, US, Canada, or Australia car fuel efficiencies are considerably lower than those for Europe or Japan:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/ihnZj.jpg&quot; alt=&quot;Fuel efficiencies&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At the same time, cities in US, Canada, and Australia, are far more spread out than in Europe or Japan.  There is more car dependency and people drive more and longer distances in North America.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then why are fuel efficiencies so much lower?  I would think that it makes sense to market the most fuel efficient cars in the market where people drive the largest distances.  And as the automobile market is quite globalised, even if it's European regulations requiring manufacturers to develop cars with higher fuel efficiencies than North American regulations, it would make economic sense to sell the same cars in North America.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is the economic reason for the observed pattern?&lt;/p&gt;&#xA;" OwnerUserId="332" LastActivityDate="2015-02-04T14:05:22.147" Title="If Americans drive more and consume more oil, why are cars less efficient?" Tags="&lt;energy-economics&gt;" AnswerCount="1" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="3245" PostTypeId="2" ParentId="3137" CreationDate="2015-02-02T20:29:00.510" Score="2" Body="&lt;p&gt;What bdsl's comment means is this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose there was a way for &quot;experts&quot; (here or anywhere else) to predict when the pound would start depreciating against the euro, and that this method predicted that it would begin to do so tomorrow. What would the experts do with this information? They would start selling pounds today in order to get out of the market at the top. But this rush of selling activity would cause the value of the pound to fall (via the usual principle of supply and demand) today—a day earlier than forecast! This simple story illustrates the broader idea that a method for forecasting financial markets is self-defeating. As soon as anyone has information about the future direction of an asset price (be it currency exchange rates, stock prices, etc.), their buying or selling activity will, by itself, move the price in that direction. Thus, any information available to the public will be &quot;built-in&quot; to the market price you see quoted. Moreover, given the amounts of money at stake, large market actors have a huge incentive to act on new information very quickly so that information gets built into the price almost immediately.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This general principle—that it is impossible to use publicly available information to beat the market—is known as the &lt;a href=&quot;http://en.wikipedia.org/wiki/Efficient-market_hypothesis&quot; rel=&quot;nofollow&quot;&gt;efficient market hypothesis&lt;/a&gt;. So-called specialists who claim they can predict what the market will do usually &lt;a href=&quot;http://economix.blogs.nytimes.com/2010/01/13/traders-vs-chimps/?_r=0&quot; rel=&quot;nofollow&quot;&gt;fail to do better than a random guess&lt;/a&gt;. Such people usually earn their money from commissions or advisory fees rather than from profits on successful trades.&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2015-02-02T20:35:43.630" LastActivityDate="2015-02-02T20:35:43.630" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3246" PostTypeId="2" ParentId="3243" CreationDate="2015-02-02T20:44:08.890" Score="3" Body="&lt;p&gt;Let us just assume, without any loss of generality, that it is OPEC nations who can produce oil most cheaply. That is, the cost per barrel for all OPEC nations is homogeneous and is lower than the cost per barrel for any other oil producing nation or entity. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then OPEC can continue to allow the price of oil per barrel to fall until other oil producing nations and entities are not gaining enough revenue to cover variable costs. This is because, in general, a firm will shutdown whenever marginal revenue is lower than average variable cost at the profit maximizing output. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, If US oil companies have total costs of 20 US dollars per barrel of oil and half of those are variable but they can only sell a barrel of oil for 9 dollars, then the US firm will stop producing oil. This is because continuing to extract oil causes larger loss than not extracting oil. If, however, the company could sell a barrel of oil for 12 dollars, they would continue extracting oil since doing so would 'eat away' some of the fixed costs. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The techniques you mentioned do cause oil producing entities to incur significantly higher costs than most OPEC nations. And most economists interpret OPEC's decision to not cut production as a predatory strategy meant to drive out marginal producers. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you are seeking a concrete numbers, you could probably find some company reports and do a bit of math to calculate these things and develop a rough estimate of what price-per-barrel might cause these firms to make the shutdown decision. &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;So to actually answer your final question: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You should probably be happy that oil prices are falling. Those techniques are expensive. If oil continues its downward plunge most of those marginal producers will have to exit the market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Something to consider is what this might mean over a longer time horizon. If many of these firms leave infrastructure in place (meaning there are relatively low barriers to re-entering the market), they could do a bit of hit-and-run until oil prices once again fall. This is assuming this situation arises while they are still incurring some fixed costs and are therefore seeking to minimize losses. Or perhaps it rises enough for them to even eek out a bit of profit etc. &#xA; Perhaps not. &lt;/p&gt;&#xA;" OwnerUserId="1655" LastActivityDate="2015-02-02T20:44:08.890" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3247" PostTypeId="1" CreationDate="2015-02-02T21:03:00.623" Score="4" ViewCount="121" Body="&lt;p&gt;I want to make a grid [0,1] with 100 points but I want points to be concentrated at the edges close to 0 and 1. So I want 60-70% of the points to be in the intervals [0, 0.2] and [0.8, 1]. Any ideas on how I can do this? &lt;/p&gt;&#xA;" OwnerUserId="71" LastActivityDate="2015-02-03T13:07:08.973" Title="How to make unequally spaced grid?" Tags="&lt;computation&gt;&lt;simulations&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3248" PostTypeId="1" CreationDate="2015-02-02T21:12:02.463" Score="2" ViewCount="66" Body="&lt;p&gt;I'm looking for scholarly articles or summaries on the subject of markups. More importantly, for empirical evidence whether they're pro- or counter cyclical, and on theoretical papers on their conclusions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For Example, &lt;em&gt;Nekarda and Ramey, &lt;a href=&quot;http://www.nber.org/papers/w19099&quot; rel=&quot;nofollow&quot;&gt;The Cyclical Behavior of the Price-Cost Markup&lt;/a&gt;&lt;/em&gt;, who show that some methods which provide empirical counter cyclicality are not robust, and look at the implications for Neo Keynesian models. &lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="69" LastEditDate="2015-02-03T19:33:36.850" LastActivityDate="2015-02-03T19:33:36.850" Title="Cyclicality of Markups" Tags="&lt;macroeconomics&gt;&lt;reference-request&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3249" PostTypeId="2" ParentId="3247" CreationDate="2015-02-02T21:13:20.833" Score="4" Body="&lt;p&gt;One quick way to do this is through inverting a distribution c.d.f.. For example, the distribution Beta(alpha,beta) has density concentrated at small and large values when alpha and beta are less than one. Thus, you can first generate equally spaced grid, and then use the inverse function of Beta c.d.f to map the grid to unequally spaced grid. You can change the percentiles you want (60-70%, e.g.) by setting the appropriate alpha and beta. &lt;/p&gt;&#xA;" OwnerUserId="2846" LastActivityDate="2015-02-02T21:13:20.833" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3250" PostTypeId="1" CreationDate="2015-02-02T21:25:21.470" Score="5" ViewCount="477" Body="&lt;p&gt;This is somewhat related, but distinct from &lt;a href=&quot;https://economics.stackexchange.com/questions/3248/cyclicality-of-markups&quot;&gt;Cyclicality of Markups&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Basically, I'm looking for papers on whether firms profits are (on average) procyclical or not, and I appreciate theoretical, but look mainly for empirical papers.&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-02-03T00:15:06.367" Title="Are profits procyclical?" Tags="&lt;macroeconomics&gt;&lt;reference-request&gt;&lt;business-cycles&gt;&lt;empirical-evidence&gt;&lt;profits&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3251" PostTypeId="2" ParentId="3244" CreationDate="2015-02-02T23:23:26.727" Score="4" Body="&lt;p&gt;The price of petrol / gasoline is surely a major reason, offsetting the effect of longer distances.  In many European countries it is more than twice as high as in the US, mainly because of differences in tax rates, as shown &lt;a href=&quot;http://www.aip.com.au/pricing/internationalprices.htm&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given consumer rationality, the price of fuel might be expected to impact on fuel efficiency via choice between car models of different efficiency at the time of purchase.  But do people actually behave rationally in this situation?  &lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/S0301421506001200&quot; rel=&quot;nofollow&quot;&gt;Turrentine &amp;amp; Kurani&lt;/a&gt; (2007) found from interviews with households that consumers lacked the knowledge and understanding needed to estimate savings in fuel costs over time.  Although their sample was small (57), this finding seems plausible.  However, even if individual consumers do not behave rationally, it remains possible that the price of fuel is still for many an influencing factor, albeit imperfectly assessed, and that the aggregate effect of decisions by many consumers approximates to what might be expected given rational behaviour.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.mitpressjournals.org/action/doSearch?Contrib=Allcott%2C%20H&quot; rel=&quot;nofollow&quot;&gt;Allcott &amp;amp; Wozny&lt;/a&gt; (2014) tested the hypothesis that consumers, on average, are willing to pay \$1 more to buy a car with \$1 less in discounted future fuel costs.  They used panel data relating to purchases of different car models in the US over the period 1999-2008, relying on changes in gasoline prices over time (rather than differences between countries) to permit a test of the hypothesis.  Their sample was impressively large, including 86 million transactions.  Purchases were assumed to be informed by assumptions on future fuel costs. On their base specification, willingness to pay for \$1 less in discounted future fuel costs was estimated as \$0.76.  Alternative specifications with different assumptions on discount rates and the basis for forecasting future fuel costs yielded willingness to pay figures in the range \$0.42 to \$1.01.  Given the large sample, the standard errors of these results were small, at most \$0.06, even after clustering by model and age was allowed for.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The above strongly suggests that the price of fuel has influenced fuel efficiency in the US. I haven't seen a similarly rigorous study for Europe, or comparing the US and Europe, but it seems plausible that this finding would extrapolate, if only approximately, to a cross-sectional inter-country comparison.  &lt;/p&gt;&#xA;" OwnerUserId="1417" LastEditorUserId="1417" LastEditDate="2015-02-04T14:05:22.147" LastActivityDate="2015-02-04T14:05:22.147" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3252" PostTypeId="2" ParentId="3250" CreationDate="2015-02-03T00:06:52.770" Score="2" Body="&lt;p&gt;My reading is yes, it is procyclical in levels and margins. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;This paper uses industry and firm data to look at price cost mark-ups&#xA;  and firm profit margins in U.K. manufacturing and services. In&#xA;  particular it examines how they behave over the business cycle. It has&#xA;  two main findings. First, the estimated average mark-ups and the&#xA;  profit margin results both suggest that there is imperfect competition&#xA;  in manufacturing and services. Second, &lt;strong&gt;mark-ups are pro-cyclical, as&#xA;  are profit margins&lt;/strong&gt; even after allowing for movements in their standard&#xA;  determinants. This suggests that price pressures may increase during&#xA;  recovery periods and decrease during recessions. One possible&#xA;  explanation for this is Kreps and Scheinkman's argument that the&#xA;  pro-cyclicality of capacity constraints means that firms move between&#xA;  Cournot and Bertrand competition over the cycle. The finding that&#xA;  mark-ups are pro-cyclical also raises doubts about macroeconomic&#xA;  models that assume that demand shocks may affect employment via&#xA;  counter-cyclical mark-ups.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://papers.ssrn.com/sol3/papers.cfm?abstract_id=115037&quot; rel=&quot;nofollow&quot;&gt;The Cyclicality of Mark-Ups and Profit Margins: Some Evidence for Manufacturing and Services&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In this paper, we assess the cyclicality of mark-ups and profit&#xA;  margins within the United Kingdom, at both the aggregate and industry&#xA;  level. We find that the &lt;strong&gt;private sector labour share moves&#xA;  countercyclically, suggesting that the aggregate mark-up moves&#xA;  procyclically&lt;/strong&gt;. This result survives when we consider more&#xA;  sophisticated measures of the mark-up. And this result is also&#xA;  supported by industry-level data. We find that the &lt;strong&gt;aggregate market&#xA;  sector profit share moves procyclically and that the cyclical&#xA;  behaviour of profit margins&lt;/strong&gt; is largely homogenous across industries.&#xA;  Nevertheless, there is some evidence that margins moved against the&#xA;  cycle in the late 1990s, starting to fall in 1997, whereas GDP growth&#xA;  did not peak until 2000. In tandem with these cyclical movements, we&#xA;  also find that the market sector profit share has trended upwards&#xA;  since 1970, in contrast to the aggregate mark-up, which fell over the&#xA;  same period.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1280900&quot; rel=&quot;nofollow&quot;&gt;The Cyclicality of Mark-Ups and Profit Margins for the United Kingdom: Some New Evidence&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Modeling cash flows separately from aggregate consumption is crucial&#xA;  since corporate cash flows have historically been far more volatile&#xA;  and sensitive to economic shocks than has aggregate consumption. For&#xA;  example, &lt;strong&gt;corporate earnings have been more than ten times as volatile&#xA;  as consumption growth during the post-war period. Similarly, while&#xA;  aggregate consumption declined nearly 10 percent during the early&#xA;  stages of the Great Depression, aggregate corporate earnings were&#xA;  completely obliterated as they fell more than 103 percent.&lt;/strong&gt; In addition&#xA;  to being more volatile, &lt;strong&gt;corporate cash flows are also highly&#xA;  correlated with aggregate consumption because of their strong&#xA;  procyclical behavior.&lt;/strong&gt; To provide specifics, during the 1929 to 2001&#xA;  period the volatility of earnings growth was 29.5 percent, while the&#xA;  correlation between per capita real consumption and earning growth was&#xA;  68.7 percent.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Intuitively, &lt;strong&gt;the reason for the extreme volatility and procyclicality&#xA;  of corporate earnings is that stockholders are residual claimants to&#xA;  corporate cash flows. Thus, the compensation of workers is a senior&#xA;  claim to cash flows. In other words, labor contracts provide workers&#xA;  with some degree of insurance against business cycle risk.&lt;/strong&gt; These&#xA;  contracts make the fraction of labor income in output (or consumption)&#xA;  countercyclical, while the fraction of earnings in output is&#xA;  procyclical. &lt;strong&gt;Gomme and Greenwood (1995) document that these&#xA;  business-cycle-related changes in labor income and earnings can be&#xA;  found in many countries.&lt;/strong&gt;&#xA;  &lt;a href=&quot;http://core.ac.uk/download/pdf/6743530.pdf&quot; rel=&quot;nofollow&quot;&gt;CORPORATE EARNINGS AND THE EQUITY PREMIUM&lt;/a&gt; &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Finally,&#xA;&lt;a href=&quot;http://www.jeremygreenwood.net/papers/gg95.pdf&quot; rel=&quot;nofollow&quot;&gt;On the cyclical allocation of risk&lt;/a&gt; P.117 shows that Labor’s share of income (in Australia, Austria, Britain, Canada, France, Germany, Japan, and the USA) is negatively contemporaneously correlated with the seasonal component of aggregate income, suggesting that when aggregate income is high profit margins are high.  &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-02-03T00:15:06.367" LastActivityDate="2015-02-03T00:15:06.367" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="3253" PostTypeId="1" AcceptedAnswerId="3254" CreationDate="2015-02-03T00:11:54.447" Score="5" ViewCount="208" Body="&lt;p&gt;Current, Greece has a debt of &lt;a href=&quot;https://en.wikipedia.org/wiki/Greek_government-debt_crisis&quot; rel=&quot;nofollow noreferrer&quot;&gt;roughly 175% of GDP&lt;/a&gt;.  The new government has announced it wishes to negotiate a write-off, something Eurozone leaders have &lt;a href=&quot;http://www.bbc.com/news/business-30977714&quot; rel=&quot;nofollow noreferrer&quot;&gt;so far refused&lt;/a&gt;.  From prior knowledge and &lt;a href=&quot;https://economics.stackexchange.com/a/15/332&quot;&gt;this post&lt;/a&gt;, I understand that governments may want to stimulate consumption when the economy is doing poorly, and have budget surpluses / pay off debt when the economy is doing well.  Since the beginning of austerity, &lt;a href=&quot;http://www.theglobeandmail.com/globe-debate/editorials/europes-greek-lesson-austerity-has-failed/article22719860/&quot; rel=&quot;nofollow noreferrer&quot;&gt;the Greek economy has shrunk by 25%&lt;/a&gt;, and unemployment is now 27%.  I have mainly read economical opinions arguing that austerity is harmful and needs to stop, but I the sources I read are probably not representative.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there any historical precedent of a country that recovered from a 175% debt, &lt;em&gt;without&lt;/em&gt; either having substantial debt write-off, or a currency devaluation?  By recovering I mean: returning to substantial economic growth, increasing standards of living compared to crisis conditions, and a public debt shrinking to become substantially less than 100%.  If so, how did they do it?&lt;/p&gt;&#xA;" OwnerUserId="332" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2016-10-12T15:18:51.197" Title="Recovering from large government debt without currency devaluation" Tags="&lt;macroeconomics&gt;&lt;debt&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3254" PostTypeId="2" ParentId="3253" CreationDate="2015-02-03T01:45:36.643" Score="2" Body="&lt;p&gt;&lt;a href=&quot;http://www.ukpublicspending.co.uk/debt_brief.php&quot; rel=&quot;nofollow&quot;&gt;By one estimate&lt;/a&gt; (&lt;a href=&quot;http://www.bondvigilantes.com/blog/2010/02/02/what-happened-the-last-time-the-uk-defaulted/&quot; rel=&quot;nofollow&quot;&gt;here is another&lt;/a&gt;) , as a result of WWII, the United Kingdom saw a debt of more than 200 percent of GDP. They never defaulted on their debt after reaching that level. I believe they never did anything radical, just systematically growing government spending more slowly than national income, thus gradually eroding the debt as a fraction of GDP. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The paper &lt;a href=&quot;http://personal.lse.ac.uk/ritschl/pdf_files/Stockholm_reconstructed.pdf&quot; rel=&quot;nofollow&quot;&gt;Sustainability of High Public Debt: What the Historical Record Shows&lt;/a&gt; may also be of interest.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The paper looks into the debt histories of three European countries,&#xA;  Britain, France, and Germany, to study three questions. First, are&#xA;  there historical parallels to the accumulation of high debt in&#xA;  peacetime that has taken place in the past decades? The answer to this&#xA;  is mostly in the negative. National debt was high during long periods&#xA;  but usually related to wars or their financial aftermath. Second, how&#xA;  were large debts reduced, and that were the factors determining&#xA;  decision-making? Recent research has emphasized the role of social&#xA;  conflict in this context. We find that although this may play a role,&#xA;  the dominant effect may have come from international financial&#xA;  relations. Third, what are the macroeconomic effects of budget&#xA;  stabilization, and does it pay off for a country to repudiate or&#xA;  inflate away its debt? The short-run evidence is mixed, as the success&#xA;  of debt default has varied considerably. In the long run, however,&#xA;  stabilizing the budget pays off, as there seem to be no lasting&#xA;  adverse effects of fiscal austerity on a nation's growth performance.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="69" LastActivityDate="2015-02-03T01:45:36.643" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="3255" PostTypeId="1" AcceptedAnswerId="3266" CreationDate="2015-02-03T02:00:06.567" Score="6" ViewCount="693" Body="&lt;p&gt;I reproduce here the first paragraph of Hayek's well-known essay &lt;a href=&quot;http://object.cato.org/sites/cato.org/files/articles/hayek-use-knowledge-society.pdf&quot; rel=&quot;noreferrer&quot;&gt;The Use of Knowledge in Society&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;What is the problem we wish to solve when we try to construct a rational economic order? On certain familiar assumptions the answer is simple enough. If we possess all the relevant information, if we can start out from a given system of preferences, and if we command complete knowledge of available means, the problem which remains is purely one of logic. That is, the answer to the question of what is the best use of the available means is implicit in our assumptions. The conditions which the solution of this optimum problem must satisfy have been fully worked out and can be stated best in mathematical form: put at their briefest, they are that &lt;strong&gt;the marginal rates of substitution between any two commodities or factors must be the same in all their different uses.&lt;/strong&gt; [emphasis added]&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I have bolded the part that I don't quite grasp, not being a trained economist. Can anyone explain this in layman's terms? (I understand marginalism quite well, so no need to go in depth on that, though it could help others understand better. Of course, perhaps I don't understand marginalism as well as I thought.)&lt;/p&gt;&#xA;" OwnerUserId="243" LastActivityDate="2015-06-23T17:11:39.940" Title="What does Hayek mean at the end of the first paragraph of The Use of Knowledge?" Tags="&lt;microeconomics&gt;&lt;austrian&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3257" PostTypeId="2" ParentId="3247" CreationDate="2015-02-03T13:07:08.973" Score="2" Body="&lt;p&gt;An alternative to the beta distribution mentioned by @Justin is the &lt;a href=&quot;http://en.wikipedia.org/wiki/Kumaraswamy_distribution&quot; rel=&quot;nofollow&quot;&gt;Kumaraswamy distribution&lt;/a&gt;, which has a similar degree of flexibility but a more tractable PDF:$$f(x)=abx^{a-1}(1-x^a)^{b-1}.$$ Setting, for example, $a=b=1/2$ will give you a concentration of points at ends of the unit interval.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Alternatively, you could just uniformly distribute the points in the intervals $[0,0.2)$, $[0.2,0.8]$, and $(0.8,1]$ in the ratio $0.15:0.7:0.15$.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2015-02-03T13:07:08.973" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="3258" PostTypeId="2" ParentId="3226" CreationDate="2015-02-03T14:13:58.363" Score="2" Body="&lt;p&gt;You might call Graeber's theory of money as something emerging from a system of compensation from the harm of others. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Chartalist's say the state is what makes money, they demand taxes be paid in money, this gives money value, and then the state makes money which it spends on what it wants. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The Chartalist contribution turns on the recognition that money cannot&#xA;  be appropriately studied in isolation from the powers of the state –&#xA;  be it modern nation-states or ancient governing bodies. It thus offers&#xA;  a view diametrically opposed to that of orthodox theory, where money&#xA;  spontaneously emerges as a medium of exchange from the attempts of&#xA;  enterprising individuals to minimize the transaction costs of&#xA;  barter. The standard story deems money to be neutral – a veil, a simple&#xA;  medium of exchange, which lubricates markets and derives its value&#xA;  from its metallic content. Chartalism, on the other hand, posits that&#xA;  money (broadly speaking) is a unit of account, designated by a public&#xA;  authority for the codification of social debt obligations. More&#xA;  specifically, in the modern world, this debt relation is between the&#xA;  population and the nation-state in the form of a tax liability. Thus&#xA;  money is a creature of the state and a tax credit for extinguishing&#xA;  this debt. If money is to be considered a veil at all, it is a veil of&#xA;  the historically specific nature of these debt relationships.&#xA;  Therefore, Chartalism insists on a historically grounded and socially&#xA;  embedded analysis of money.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;This chapter distinguishes between several broad Chartalist&#xA;  propositions about the origin, nature and role of money, and several&#xA;  specific propositions about money in the modern context. It offers&#xA;  only a cursory examination of the historical record to illumin- ate&#xA;  the essential characteristics of money emphasized in the Chartalist&#xA;  tradition. Chartalist ideas are not new, although they are most&#xA;  closely associated with the writings of Georg Friedrich Knapp of the&#xA;  German Historical School. Thus the chapter briefly surveys instances&#xA;  in the history of thought which have emphasized the chartal nature of&#xA;  money. The paper then expounds on Chartalism, clarifying aspects of&#xA;  the concepts and drawing out the implications for modern currencies.&#xA;  It concludes with a discussion of the various applications of this&#xA;  approach to policy.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://pavlina-tcherneva.net/Tcherneva-Chartalism.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Chartalism and the tax-driven approach to money&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Economics (as a profession) generally focuses on another motive for money, solving the problem of the double coincidence of wants. That is, in barter we generally need to both want what the other has or we can't make a deal (unless we have credit, but consider barter among strangers). Money presents an alternative, a good that we don't want per se, but we can use for transactions because everyone else wants it and we can rely upon to want it later as well. Such a thing should be portable, hard to counterfeit, and easily identified. Then when Art wants to buy a Ball and Charlie has a Ball but wants to a Dog, Art can use his money to buy the Ball from Charlie so that later he can use money to buy a Dog from Eric who will then use it to buy Florence's Goat, and so on...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is an accessible and justifiably famous paper on this sort of money, &lt;a href=&quot;http://www.jstor.org/stable/2550133?seq=1#page_scan_tab_contents&quot; rel=&quot;nofollow noreferrer&quot;&gt;The Economic Organisation of a P.O.W. Camp&lt;/a&gt;,  about how cigarettes emerged as this sort of money in WW II POW camps. Graeber singles this paper out for scorn, saying these people already knew about money and so this is not a good example of a origin story for money, but it is a nice example of money as an emergent phenomenon to solve the double coincidence of wants problem. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I haven't read &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0143116177&quot; rel=&quot;nofollow noreferrer&quot;&gt;Ascent of Money,&lt;/a&gt; I recall it getting mixed reviews, but I really enjoyed a Ferguson's somewhat related &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0465023266&quot; rel=&quot;nofollow noreferrer&quot;&gt;The Cash Nexus&lt;/a&gt;,  which might help you understand the national aspect of your question. I also enjoyed &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0195175719&quot; rel=&quot;nofollow noreferrer&quot;&gt;The Origins of Value: The Financial Innovations that Created Modern Capital Markets&lt;/a&gt;, but that book covers much more than just money.  &lt;a href=&quot;https://www.aeaweb.org/assa/2005/0108_0800_0805.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Famous Myths of Fiat Money&lt;/a&gt; has some nice examples of commodity money emerging to solve transactional issues. &lt;a href=&quot;https://pantherfile.uwm.edu/vesely/www/831/Kiyotaki%201989%20JPE.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;On Money as a Medium of Exchange&lt;/a&gt; is a famous (relatively modern) theory paper that covers the benefits of fiat over commodity money. The book &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/B000FBFKI6&quot; rel=&quot;nofollow noreferrer&quot;&gt;What is Money?&lt;/a&gt; in many ways is a long answer to your question, with &lt;a href=&quot;http://books.google.com/books?id=VtSFAgAAQBAJ&amp;amp;lpg=PA139&amp;amp;ots=5WJcwFV0Op&amp;amp;dq=The%20Invisible%20Hand%20and%20the%20Evolution%20of%20the%20Monetary%20System.&amp;amp;lr&amp;amp;pg=PA142#v=onepage&amp;amp;q=The%20Invisible%20Hand%20and%20the%20Evolution%20of%20the%20Monetary%20System.&amp;amp;f=false&quot; rel=&quot;nofollow noreferrer&quot;&gt;chapter 7&lt;/a&gt; in particular covering a lot of these issues.  &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2016-11-29T18:16:21.147" LastActivityDate="2016-11-29T18:16:21.147" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3261" PostTypeId="1" AcceptedAnswerId="3262" CreationDate="2015-02-03T22:54:54.070" Score="6" ViewCount="1347" Body="&lt;p&gt;I am a layman in economics. I am curious about the current devaluation of Australian Dollar in comparison with the US Dollar. Could someone please explain, in simplest words possible:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;What causes currency devaluation? Is it a variety of factors or are there some common factors in all currency devaluations? &lt;/li&gt;&#xA;&lt;li&gt;What does this devaluation mean for people living in Australia, people living in US, and people living in other countries, say China? I understand that one of the consequences for Australians is that their exports become cheaper, so foreign countries have more incentive to buy Australia products. For Australians, this could potentially mean more incentive to produce/work/innovate, and to decrease their imports. In other (naive) words, tighten their belts, rely more on themselves and less on the external world. This, logically, seems like a positive sign and should have good consequences. Does this interpretation have any element of truth in it? And is there another, completely opposite, possible outcome of this devaluation?&lt;/li&gt;&#xA;&lt;li&gt;What are good (smart) ways for the Australian government and policy makers to respond to this? &lt;/li&gt;&#xA;&lt;li&gt;How does devaluation translate in &quot;standard of living&quot;. I was looking at the historical exchange rate of AUD and USD &lt;a href=&quot;http://www.oanda.com/currency/historical-rates/&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt; since 2000. Interestingly, in March 2001, the AUD was almost half of USD, and in July 2011, it was more than 1 USD! Surely, it does not mean that the standard of living in Australia in March 2001 was twice as bad as it was in July 2011 (in comparison with US), does it?&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;I understand that forex rates involve an interconnection of many factors. But, I want to be educated about how much we know about it, and how much of what we know is actually useful for us.&lt;/p&gt;&#xA;" OwnerUserId="2866" LastEditorUserId="8481" LastEditDate="2020-05-04T13:03:10.127" LastActivityDate="2020-05-04T13:03:10.127" Title="Australian Dollar Devaluation" Tags="&lt;monetary-policy&gt;&lt;currency&gt;&lt;exchange-rates&gt;&lt;fiscal-policy&gt;&lt;australia&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3262" PostTypeId="2" ParentId="3261" CreationDate="2015-02-04T00:24:48.577" Score="3" Body="&lt;p&gt;This question is heavily reliant on the context of when it was asked. A lot has happened since February with respect to the Australian Dollar.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;A currency devaluation can be caused by quite a few factors. In the case of Australia, the devaluation is occurring with respect to the USD. The AUD remains strong but the US is currently experiencing a surge in consumer confidence. There is also a few larger factors at play. The USD is seen as basically the safest investment one can make. In recent history, govt bonds have been less attractive. As a result, Australian Sovereign bonds have been more attractive as they are very safe. In short, the AUD devaluation has more to do with the strength of the US than any domestic weakness (although Australian economic performance has been underwhelming).&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Another key factor relates to the resources boom in Australia. This has primarily been driven by an increase in demand from China instead of an increase in mineral output. The resources book has been a key driver of economic growth. In March/April, the iron ore price took a big hit, partly due to weakening demand from China. As a result of the change in price, the value of Australia's exports dropped very quickly. This directly reduces our Terms of Trade. Manufacturers are pretty happy about this and it is expected they will pick up some of the slack from the stagnating mining sector.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;This devaluation has a few flow through consequences. Exporting to the US is cheaper. Importing from the US in particular is more expensive. A good way to think about it is if you are Australian and are thinking about travelling to the US for a holiday, you would be pretty upset. Your trip just got a lot more expensive very quickly. If you own a hotel and you cater to a lot of American tourists, you will be very happy. It will be cheaper for them to come. This change is good for our exporters, including natural resources, manufacturers and services.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;The RBA typically responds to these issues very well. Their main instrument of monetary policy is the interest rate.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;There isn't much need for a monetary policy response to the devaluation of the dollar. The RBA targets inflation rate which is preferred to Exchange Rate Targeting by many governments.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;With respect to a fiscal policy response, The IMF has a working paper on &lt;a href=&quot;https://www.imf.org/external/pubs/ft/wp/2012/wp1252.pdf&quot; rel=&quot;nofollow&quot;&gt;Fiscal Policy and the Real Exchange rate&lt;/a&gt;. It doesn't answer it perfectly, but it is definitely worth a read. The key point is that the effect depends critically on (i) the composition of public spending, (ii) the underlying financing policy, (iii) the intensity of private&#xA;capital in production, and (iv) the relative productivity of public infrastructure&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;There should be very low immediate pressure on the standard of living. It gets more expensive to import into Australia, but Australian produced products are more competitive in the international marketplace.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="40" LastEditorUserId="40" LastEditDate="2015-06-23T00:04:18.080" LastActivityDate="2015-06-23T00:04:18.080" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="3263" PostTypeId="2" ParentId="3192" CreationDate="2015-02-04T01:47:40.360" Score="1" Body="&lt;p&gt;Without anything better than a CPI, a CPI would approximate it. That said, I don't think it would be accurate. A better gauge would be a measure of the cost of living for the effected people. Vehicle maintenance and the like would be much higher than a typical person.&lt;/p&gt;&#xA;" OwnerUserId="40" LastActivityDate="2015-02-04T01:47:40.360" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3264" PostTypeId="1" AcceptedAnswerId="3267" CreationDate="2015-02-04T02:53:08.593" Score="4" ViewCount="173" Body="&lt;p&gt;How are the &lt;strong&gt;weights of the various household items in&lt;/strong&gt; the Consumer Price Index (&lt;strong&gt;C.P.I.&lt;/strong&gt;) &lt;strong&gt;basket decided&lt;/strong&gt;, i.e., how are they &lt;strong&gt;&lt;em&gt;re-evaluated&lt;/em&gt;&lt;/strong&gt; every year? Is it done manually or automatically?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;If&lt;/strong&gt; its done &lt;strong&gt;manually&lt;/strong&gt;, &lt;em&gt;then how can they be sure&lt;/em&gt; (i.e., what methods, statistical or mathematical) that the weights represent the general average consumption of that item in the household? &lt;strong&gt;Else, if&lt;/strong&gt;  its done &lt;strong&gt;automatically&lt;/strong&gt;, then what is the strategy (i.e., &lt;em&gt;what sort of algorithms or data structures&lt;/em&gt;) used to ensure the accuracy of the weights.&lt;/p&gt;&#xA;" OwnerUserId="2867" LastEditorUserId="175" LastEditDate="2019-12-06T08:51:50.330" LastActivityDate="2019-12-06T08:51:50.330" Title="Re-evaluation of Consumer Price Index (C.P.I.) weights" Tags="&lt;macroeconomics&gt;&lt;econometrics&gt;&lt;supply-and-demand&gt;&lt;consumption&gt;&lt;statistics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="3265" PostTypeId="1" AcceptedAnswerId="3269" CreationDate="2015-02-04T04:25:44.110" Score="0" ViewCount="337" Body="&lt;p&gt;The question:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider a person with constant relative risk aversion $p$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(a) Suppose the person has wealth of $100,000$ and faces a gamble in which he wins or loses $x$ with equal probabilities. Calculate the amount he would pay to avoid the gamble, for various values of p (say, between $0.5$ and $40$), and for some values of $x$. For large gambles, do large values of p seem reasonable? What about small gambles?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(b) Suppose $p &amp;gt; 1$ and the person has wealth $w$. Suppose he is offered a gamble in which he loses x or wins y with equal probabilities. Show that he will reject the gamble no matter how large $y$ is if $p &amp;gt;= (log(0.5)+log(1-x/w))/log(1-x/w)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm not sure where to start with this. Am I solving for the risk premium and multiplying by $w$?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know that for someone with CRRA utility $u(w)= (1/(1-p))w^(1-p)$ and that an individual will pay $\pi(w)$ to avoid the gamble if $u((1-\pi)w)=E[u(1+\epsilon \tilde)w)]$. But I'm not sure how to apply this information to solve the question.&lt;/p&gt;&#xA;" OwnerUserId="2868" LastEditorUserId="43" LastEditDate="2015-02-04T16:51:24.383" LastActivityDate="2015-02-04T16:51:24.383" Title="Question about constant relative risk aversion" Tags="&lt;utility&gt;&lt;risk&gt;&lt;expected-utility&gt;&lt;risk-aversion&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3266" PostTypeId="2" ParentId="3255" CreationDate="2015-02-04T06:35:27.243" Score="12" Body="&lt;p&gt;Your marginal rate of substitution between (say) eggs and wine is the number of eggs you'd be willing to trade for one additional bottle of wine.  This marginal rate of substitution can reflect your preferences (if you're a consumer) or the state of technology (if you're a producer who can, for example, substitute three eggs for one wine in your production process).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose your MRS is three eggs per wine and my MRS is two eggs per wine.  Then there's an opportunity for a mutually beneficial trade:  You give me two and a half eggs, and I'll give you a wine.  You thought the wine was worth three eggs, and you got it for two and a half --- that's a win.  I thought the wine was worth two eggs, and I sold it for two and a half --- that's also a win.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Whenever your MRS differs from my MRS, there's an opportunity for a mutually beneficial trade.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, if our MRS's differ, it means that an opportunity for mutually beneficial trade has been missed.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So in order for resources to be used efficiently --- that is, in such a way that all opportunities for mutually beneficial trade have been exploited --- the MRS between any two commodities must be the same for you as it is for me or anyone else, regardless of how we're using those resources.&lt;/p&gt;&#xA;" OwnerUserId="250" LastActivityDate="2015-02-04T06:35:27.243" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="3267" PostTypeId="2" ParentId="3264" CreationDate="2015-02-04T14:39:48.217" Score="2" Body="&lt;p&gt;I don't think they are &quot;sure&quot;, but the weights are based on the &lt;a href=&quot;http://www.bls.gov/cex/&quot; rel=&quot;nofollow&quot;&gt;American Consumer Expenditure Survey&lt;/a&gt; which has a big sample size, a carefully chosen sampling frame, professionally executed sample gathering, and a large team of experts crafting questions and collating the data.  &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;h1&gt;How is the CPI market basket determined?&lt;/h1&gt;&#xA;  &#xA;  &lt;p&gt;The CPI market basket is developed from detailed expenditure&#xA;  information provided by families and individuals on what they actually&#xA;  bought. For the current CPI, this information was collected from the&#xA;  Consumer Expenditure Surveys for 2011 and 2012. In each of those&#xA;  years, about 7,000 families from around the country provided&#xA;  information each quarter on their spending habits in the interview&#xA;  survey. To collect information on frequently purchased items, such as&#xA;  food and personal care products, another 7,000 families in each of&#xA;  these years kept diaries listing everything they bought during a&#xA;  2-week period.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Over the 2 year period, then, expenditure information came from&#xA;  approximately 28,000 weekly diaries and 60,000 quarterly interviews&#xA;  used to determine the importance, or weight, of the more than 200 item&#xA;  categories in the CPI index structure.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.bls.gov/cpi/cpifaq.htm#Question_6&quot; rel=&quot;nofollow&quot;&gt;Consumer Price Index Frequently Asked Questions (FAQs)&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Consumer expenditure data supplied by the CE Survey are a critical&#xA;  component of the CPI, as they are used to estimate weights for the&#xA;  CPI’s consumer goods and services classification structure used in the&#xA;  calculation of the CPI. In the construction of the CPI, four distinct&#xA;  functional uses of CE Survey data are made: (1) to estimate biennial&#xA;  expenditure weights, (2) to estimate monthly expenditure weights, (3)&#xA;  to calculate the probability that an item’s price will be included in&#xA;  the CPI calculations, and (4) to allocate expenditure estimates&#xA;  between more-broadly defined expenditure categories from other survey&#xA;  sources.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.bls.gov/opub/mlr/2013/article/ce-survey-redesign.htm&quot; rel=&quot;nofollow&quot;&gt;Research highlights of the Consumer Expenditure Survey redesign&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Page 6 of BLS Handbook of Methods, April 1997, &lt;a href=&quot;http://www.bls.gov/opub/hom/pdf/homch16.pdf&quot; rel=&quot;nofollow&quot;&gt;Chapter 16: Consumer Expenditures and Income&lt;/a&gt; has a nice, detailed description of how &quot;The estimation of population quantities of interest, such as the average expenditure per consumer unit on a particular&#xA;item category, is achieved through the use of weights.&quot; Be sure to check that out too. &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-02-04T18:55:56.303" LastActivityDate="2015-02-04T18:55:56.303" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3268" PostTypeId="2" ParentId="3264" CreationDate="2015-02-04T15:36:34.967" Score="1" Body="&lt;p&gt;This goes on a tangent for this question here, but &lt;a href=&quot;http://www.nber.org/papers/w20768&quot; rel=&quot;nofollow&quot;&gt;Chevalier and Kashyap&lt;/a&gt; criticize the basket that the CPI collects. To summarize, their point is that the basket is immune to sales: Holding goods in the basket constant while a seizable fraction of the population is hunting cheaper goods overestimates actual inflation, and vice versa in the &quot;no sales&quot; periods.&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-02-04T15:36:34.967" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3269" PostTypeId="2" ParentId="3265" CreationDate="2015-02-04T16:49:03.390" Score="1" Body="&lt;p&gt;Whenever you need to make someone indifferent between $x$ and $y$, it means that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U(x) = U(y)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;a&lt;/strong&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Denote amount he would pay by $z$. Paying $z$ to avoid the lottery gives him &quot;certain utility&quot; $u(100.000 - z)$. With Von Neumann-Morgenstern utility as given,&lt;br&gt;&#xA;we can denote the lottery utilities as &#xA;$$prob*U(10.000 + x) + (1-Prob)*U(10.000-x)$$ (Understand why we can do that!) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;b&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Without uncertainty, he will have $u(w)$. Then, you need to compute the utility of the lottery as the function of $p, x,y$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That is, you need to solve&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U(100000) = prob*U(w+y) + (1-prob)*U(w-x)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, I'm not sure whether you were meant to say &lt;em&gt;loses x or wins y&lt;/em&gt;, I suppose it is &lt;em&gt;loses x or wins y&lt;/em&gt;. Anyhow, the value of the lottery is on the right hand side. Can it ever dominate the left hand side, given the additional information for $p$ that you were told in that subquestion?&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-02-04T16:49:03.390" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3270" PostTypeId="1" AcceptedAnswerId="3272" CreationDate="2015-02-04T17:31:49.653" Score="6" ViewCount="960" Body="&lt;p&gt;Although I'm specifically interested in the likely economic consequences of implementation of an official world auxiliary language, since this is only theoretical, I'd like to know what have been some economic consequences, whether positive or negative, for those nations that endorsed a lingua franca and thereby opened themselves up to segments of the rest of the world (or conversely, I'd be interested in the long-term economic consequences for a country which, perhaps for anti-colonial reasons, rejected a more internationally spoken language in favor of a local one).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For this question, I'm less interested in lingua francas whose effect was primarily domestic. For example, with Modern Hebrew being chosen in Israel, or perhaps Mandarin Chinese in China to a lesser extent, the ability to speak a new official and universally taught common language did not open up the country precipitously to opportunities for communication with other countries.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that I'm not asking here about the economic costs of implementing such a language change.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;No doubt, and as with free trade, all things being equal, a lingua franca would increase economic opportunities, whether in collaboration possibilities, education opportunities, etc., but, also as with free trade, a lingua franca might precipitously expose a country to competition in certain (intellectual) fields and thereby create resentment within certain industries which in turn led to protectionism. What experiences have been documented on this topic?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Note: I can't create a &quot;language&quot; tag for this post, due to my being new here, so &quot;free-trade&quot; was the closest tag I could think of.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(And just for interest's sake, I've asked re: political consequences at &lt;a href=&quot;https://politics.stackexchange.com/questions/7732/external-political-consequences-of-a-lingua-franca&quot;&gt;https://politics.stackexchange.com/questions/7732/external-political-consequences-of-a-lingua-franca&lt;/a&gt; )&lt;/p&gt;&#xA;" OwnerUserId="2871" LastEditorUserId="-1" LastEditDate="2017-04-13T12:54:44.007" LastActivityDate="2015-05-10T20:20:22.083" Title="Economic consequences of a lingua franca" Tags="&lt;free-trade&gt;" AnswerCount="3" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3271" PostTypeId="2" ParentId="3270" CreationDate="2015-02-04T17:52:52.487" Score="4" Body="&lt;p&gt;&lt;strong&gt;Within Currency Areas&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is not going to be exactly what you're asking for, which also goes into the realms of trade, but:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The use of common language is extremely important. Many Economists consider the lack of common language to be one of the main reasons of the failure of the Euro zone. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;a href=&quot;http://en.wikipedia.org/wiki/Optimum_currency_area&quot; rel=&quot;nofollow&quot;&gt;Optimum Currency Area&lt;/a&gt;&lt;/strong&gt; theory says that even if the regions are not exactly the same, flows of workers across the regions will equalize returns and lead to convergence within the currency area. The lack of flows within the EURO area was mostly blamed on language barriers. Consequently, the tensions within the area increased and made optimal monetary policy for the union as a whole a pretty difficult task.&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2015-05-10T10:54:19.343" LastActivityDate="2015-05-10T10:54:19.343" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3272" PostTypeId="2" ParentId="3270" CreationDate="2015-02-04T19:17:05.260" Score="5" Body="&lt;p&gt;These two papers seem relevant. The large Indian wage premium for English language fluency suggests that there would be significant returns at the margin to providing services through trade instead of locally, but they are limited by the supply of foreigners with the right language skills.  However, these premiums are largest among the skilled workers, suggesting that the benefits of a universal language would also accrue disproportionately (in absolute wage premia) to the most skilled.   &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Recent studies have shown that trade liberalization increases skilled&#xA;  wage premiums in developing countries. This result suggests&#xA;  globalization may benefit elite skilled workers relatively more than&#xA;  poor unskilled workers, increasing inequality. This effect may be&#xA;  mitigated, however, if human capital investment responds to new global&#xA;  opportunities. A key question is whether a country with a more&#xA;  elastic human capital supply is better positioned to benefit from&#xA;  globalization. I study how the impact of globalization varies across&#xA;  Indian districts with different costs of skill acquisition. &lt;strong&gt;I focus on&#xA;  the cost of learning English, a relevant qualification for high-skilled&#xA;  export jobs. Linguistic diversity in India compels individuals to&#xA;  learn either English or Hindi as a lingua franca.&lt;/strong&gt; Some districts have&#xA;  lower relative costs of learning English due to linguistic&#xA;  predispositions and psychic costs associated with past nationalistic&#xA;  pressure to adopt Hindi. I demonstrate that &lt;strong&gt;districts with a more&#xA;  elastic supply of English skills benefited more from globalization:&#xA;  they experienced greater growth in both information technology jobs&#xA;  and school enrollment.&lt;/strong&gt; Consistent with this human capital response,&#xA;  they experienced smaller increases in skilled wage premiums.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.cgdev.org/doc/events/1.18.08/shastry_ITandEducation_0108.pdf&quot; rel=&quot;nofollow&quot;&gt;Human Capital Response to Globalization: Education and Information Technology in India&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;India's colonial legacy and linguistic diversity give English an&#xA;  important role in its economy, and this role has expanded due to&#xA;  globalization in recent decades. It is widely believed that there are&#xA;  sizable economic returns to English-language skills in India, but the&#xA;  extent of these returns is unknown due to lack of a microdata set&#xA;  containing measures of both earnings and English ability. In this&#xA;  paper, we use a newly available data set - the India Human Development&#xA;  Survey, 2005 to quantify the effects of English-speaking ability on&#xA;  wages. &lt;strong&gt;We find that being fluent in English (compared to not&#xA;  speaking any English) increases hourly wages of men by 34%, which is&#xA;  as much as the return to completing secondary school and half as much&#xA;  as the return to completing a Bachelor's degree. Being able to speak a&#xA;  little English significantly increases male hourly wages 13%. There is&#xA;  considerable heterogeneity in returns to English. More experienced and&#xA;  more educated workers receive higher returns to English.&lt;/strong&gt; The&#xA;  complementarity between English skills and education appears to have&#xA;  strengthened over time. Only the more educated among young workers&#xA;  earn a premium for English skill, whereas older workers across all&#xA;  education groups do.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://w.cream-migration.org/publ_uploads/CDP_02_10.pdf&quot; rel=&quot;nofollow&quot;&gt;The Returns to English-Language Skills in India&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is a natural experiment that provides an example of the negative effect of the opening of labor markets on the existing population the new workers will compete with (in this case, the arrival of Russian mathematicians on Western mathematicians' wages and job prospects). &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The fall of the Iron Curtain in late 1991 ended nearly 70 years of&#xA;  isolation of Soviet mathematicians from the world mathematical&#xA;  community. Suddenly free to travel and emigrate, approximately 1000&#xA;  Soviet mathematicians, mostly highly productive researchers, relocated&#xA;  to other countries. Three-hundred-thirty-six scientists came to the&#xA;  United States.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;During the decades of scant contact with foreign colleagues, Russian&#xA;  mathematicians, for political reasons that Borjas and Doran explain,&#xA;  concentrated on certain fields that tended to get much less attention&#xA;  in the West. American mathematicians, meanwhile, had moved ahead in&#xA;  areas that Russians largely ignored. When the émigrés arrived in&#xA;  America, therefore, they had a great impact on certain mathematical&#xA;  fields but much less on others.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;These differential impacts allow Borjas and Doran to compare what&#xA;  happened in fields heavily and lightly affected by the influx and to&#xA;  analyze what a large infusion of new talent and ideas does to a field&#xA;  of research. Combining information from several large databases, they&#xA;  track the productivity and affiliations of the Russian and American&#xA;  mathematicians. Their inquiry concentrates on two major effects; the&#xA;  “knowledge shock” from all of the new approaches and insights suddenly&#xA;  available to American mathematics, and the “labor market shock” from&#xA;  all the new people suddenly on the American mathematics job market.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;What they found does not support what Borjas calls the conventional&#xA;  “rubbing-off” theory, which holds that if “we get all these highly&#xA;  skilled immigrants, … somehow there’s a rubbing-off effect that makes&#xA;  you and me more innovative.”&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Since the fields with heavy Russian influence had “incredibly bright&#xA;  new mathematicians coming in, with all these new theorems, all these&#xA;  new techniques flooding the market, you would expect that people&#xA;  working in those areas are going to learn quite a lot from them,”&#xA;  Borjas says. “At the same time, the number of academic jobs where&#xA;  mathematical research is actually done is really not increasing all&#xA;  that much. So something has to give.”&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;That something, the study found, was the career prospects and&#xA;  productivity of many of the mathematicians already here. “When you&#xA;  increase the number of very smart people in a field by a substantial&#xA;  amount,” Borjas says, “… not everybody benefits. The typical&#xA;  pre-existing American mathematician actually lost out.”&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&lt;strong&gt;That’s because “a generation of American mathematicians at the very&#xA;  peak of their mathematical efficiency by luck just happened to&#xA;  graduate at the same time these Russians [were] coming in,” Borjas&#xA;  explains. The people of that young generation lost the most. Faculty&#xA;  members protected by tenure kept their jobs, but mathematicians who&#xA;  had not yet attained it found themselves facing sharply heightened&#xA;  competition, which produced an “unprecedented 12 percent unemployment&#xA;  rate for new American mathematics PhDs” and “a dramatic decrease in&#xA;  the probability of obtaining a position in research universities,” the&#xA;  article says. The overall unemployment rate for college graduates,&#xA;  meanwhile, was dropping rapidly, from 3.2% to 2.2% between 1992 and&#xA;  1996. Many of the young mathematicians in heavily affected fields ended up moving to lower-ranking institutions or leaving academic&#xA;  mathematics altogether.&lt;/strong&gt;&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The situation “drove a lot of American mathematicians into Wall&#xA;  Street,” Borjas says. There, in their new role as “quants”&#xA;  (quantitative analysts), they turned their talents to inventing&#xA;  intricate financial instruments. Ironically, one of Borjas’s&#xA;  colleagues has joked, the migration from the formerly communist&#xA;  country probably helped to fuel the 2008 economic crisis that nearly&#xA;  &lt;a href=&quot;http://sciencecareers.sciencemag.org/career_magazine/previous_issues/articles/2012_03_02/caredit.a1200024&quot; rel=&quot;nofollow&quot;&gt;&gt; brought down American capitalism.&#xA;  Taken for Granted: Foreign Invasion&lt;/a&gt; &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-02-05T01:20:26.690" LastActivityDate="2015-02-05T01:20:26.690" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="3273" PostTypeId="1" CreationDate="2015-02-04T20:10:23.373" Score="0" ViewCount="177" Body="&lt;p&gt;I have performed PCA over a data set containing 25 items (variables). PCA was performed in a view to reduce the number of items (variables) from the data set, so as to move forward with analysis. Opting for Varimax rotation. The rotated component matrix is shown below&#xA;&lt;img src=&quot;https://i.stack.imgur.com/xaLwt.jpg&quot; alt=&quot;Rotated Component Matrix after PCA&quot;&gt;. The Communalities is show below &lt;img src=&quot;https://i.stack.imgur.com/aCDZe.jpg&quot; alt=&quot;Communalities&quot;&gt; the question is which Items (variables) should i reject from the data set and why based on the output.&lt;/p&gt;&#xA;" OwnerUserId="2725" LastActivityDate="2015-02-04T20:10:23.373" Title="Data Reduction using Principal Component Analysis" Tags="&lt;econometrics&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="3275" PostTypeId="1" AcceptedAnswerId="3276" CreationDate="2015-02-04T20:50:57.383" Score="4" ViewCount="1030" Body="&lt;p&gt;Ok, I am working on a problem that consists of the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am looking to solve the portfolio choice optimization problem (maximizing utility with a known utility function) in the case where all of the underlying random variables are multivariate normal.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Problem:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;define $\phi$ as the amount invested in each of $n$ risky assets, such that the budget constraint is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\Sigma_{i=1}^{n}\phi_i=w_0$ for some initial wealth, $w_0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Show that the optimal portfolio is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\phi=\frac{1}{\alpha}\Sigma^{-1}\mu+[\frac{\alpha w_0-1'\Sigma^{-1}\mu}{\alpha 1'\Sigma^{-1}1}]\Sigma^{-1}1$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where each of the 1's is an $n$-dimensional column vector of 1's.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Work/Attempt&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ok, these are the things I know:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am dealing with CARA utility, which gives me a utility function of the form:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$u(w)=-e^{-\alpha w}$ where $w$ is my random end-of-period wealth which I believe to be distributed as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$w$~$N(\mu,\sigma^2)$ with $\mu=\phi'\mu$ (a vector of expected returns scaled by the amount invested in each), and $\sigma^2=\phi'\Sigma\phi$ where $\Sigma$ is the covariance matrix of the $n$ risky assets.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, to find the expected utility of this function, I use the fact that the expectation of an exponential of normals is the exponential of the mean plus half the variance, to arrive at:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$E(u(w))=-e^{-\alpha\phi'\mu+\frac{\alpha^2\phi'\Sigma\phi}{2}}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Factoring out a negative alpha, and equating the remaining part of the exponential as the certainty equivalent of a random wealth (I might not be explaining that well, but I am almost certain this is the correct path), I can maximize utility by maximizing the utility of the certainty equivalent, which is done by maximizing the certainty equivalent itself.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;All that to say, I need:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac{\partial}{\partial\phi}\phi'\mu+\frac{\alpha\phi'\Sigma\phi}{2}=0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From there I can't seem to get anything even remotely close to the result I am supposed to show. I have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$1'\mu+\alpha\Sigma\phi=0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which seems to mirror the first term in the result, but I am lost as to where the rest comes from.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated. I'm not sure if my mistake is in the multi-dimensional partial derivative, or if it is in obtaining the function that needs to be maximized. The book I am using has a similar problem for a single risky asset which I can work through just fine, but the exclusion of a risk-free asset (which would seem to simplify the wealth constraint) makes it more confusing to me.&lt;/p&gt;&#xA;" OwnerUserId="2874" LastEditorUserId="2874" LastEditDate="2015-02-05T03:05:14.870" LastActivityDate="2015-02-05T04:05:43.527" Title="Portfolio choice problem of a CARA investor with n risky assets" Tags="&lt;asset-pricing&gt;&lt;optimization&gt;&lt;risk-aversion&gt;&lt;portfolio-theory&gt;" AnswerCount="1" CommentCount="6" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="3276" PostTypeId="2" ParentId="3275" CreationDate="2015-02-05T04:05:43.527" Score="1" Body="&lt;p&gt;The problem is equivalent to maximizing&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\max_\phi \left( \phi ' \mu - \frac{1}{2} \alpha \phi ' \Sigma \phi \right)&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;subject to&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\mathbf{1}' \phi = w_0.&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(boldface 1 is column vector of ones, ' stands for transposition).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The lagrangian is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;L(\phi, \lambda) = \phi ' \mu - \frac{1}{2} \alpha \phi ' \Sigma \phi - \lambda \left( \mathbf{1}' \phi - w_0 \right),&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and its jacobian wrt. $\phi$ is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\mathrm{D}_\phi L(\phi, \lambda) = \mu' - \alpha \phi ' \Sigma - \lambda \mathbf{1}'.&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First order conditions require that the jacobian is equal to zero (in each element), plus the original budget constraint, which together (after transposing the jacobian) yields a system of linear equations in $(\phi,\lambda)$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\begin{split}&#xA;\Sigma \phi + \mathbf{1} \lambda &amp;amp;= \frac{1}{\alpha}\mu \\&#xA;\mathbf{1}' \phi &amp;amp;= w_0&#xA;\end{split}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can solve for $\phi$ as a function of multiplier $\lambda$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\phi = \frac{1}{\alpha} \Sigma^{-1} \mu - \lambda \Sigma^{-1} \mathbf{1} &#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Plugging this into the budget constraint and some algebra yields an expression for $\lambda$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\lambda = \frac{\frac{1}{\alpha}\mathbf{1}' \Sigma^{-1} \mu - w_0}{\mathbf{1}' \Sigma^{-1} \mathbf{1}},&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and substituting this into the expression for $\phi$ should yield the result as given in the question.&lt;/p&gt;&#xA;" OwnerUserId="1432" LastActivityDate="2015-02-05T04:05:43.527" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3278" PostTypeId="1" CreationDate="2015-02-05T15:26:58.140" Score="3" ViewCount="155" Body="&lt;p&gt;I'll try to ask this question in the most simplistic environment possible, so lets think about a household that can consume and save. After some cumbersome work, we have solved for the optimal savings policy, and know that the change of assets, given his assets $a$, is given by $s(a) = \dot a(a)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Denoting with $g(a, t)$ the density of households with assets at level $a$ given time $t$, I can compute the Kolmogorov Forward Equation for the distribution of assets:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \partial_t g(a, t) = - \partial_a [s(a,t)g(a,t)]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where I followed the methodology of &lt;a href=&quot;http://www.princeton.edu/~moll/HACT.pdf&quot; rel=&quot;nofollow&quot;&gt;Achdou et al, Appendix A3&lt;/a&gt;: First compute the CDF $G(a, t)$, and then use that $g(a,t) = \partial_t G(a,t)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, now assume that we have birth and death of households. Most importantly, I don't want there to be a constant death rate, but let's make the death rate conditional on the asset level: $d(a,t)$ - and let's denote birth by $b(a,t)$. Intuitively, I'd think that the new KFE would be given by&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \partial_t g(a, t) = - \partial_a [s(a,t)g(a,t)] - d(a,t)g(a,t) + b(a,t)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Intuition aside, how can I derive the correct KFE that allows for death rates and birth from the scratch?&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2015-02-05T16:34:47.333" LastActivityDate="2015-02-05T16:34:47.333" Title="Kolmogorov-Forward-Equation with Entry and Exit" Tags="&lt;macroeconomics&gt;&lt;continuous-time&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3279" PostTypeId="1" CreationDate="2015-02-05T16:53:21.050" Score="11" ViewCount="397" Body="&lt;p&gt;Some people from the more extreme microfoundations/internal consistency camp keep bashing the Neo Keynesian model for the Calvo pricing being not micro founded and hence the whole model not being immune to the Lucas critique.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, one could argue that we don't  observe inflation rates far away from the steady state in the US, and, as long as this was true, the lack of micro foundations was minor.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which argument dominates here? Are there other arguments to be made around NK and the Lucas critique? What is the literature's conclusion?&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2015-02-05T17:03:03.423" LastActivityDate="2015-12-05T20:39:19.450" Title="Neo Keynesian Modelling and the Lucas Critique" Tags="&lt;macroeconomics&gt;&lt;new-keynesian-economics&gt;" AnswerCount="1" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="3280" PostTypeId="2" ParentId="1684" CreationDate="2015-02-05T17:01:50.640" Score="-4" Body="&lt;p&gt;The algebraic formulas in microeconomics can be tabulated for a large number of conditions and then the results averaged or otherwise adjusted before being presented graphically. This is one kind of computational economics. So the answer to your question is affirmative.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But by far the most interesting form of computational economics is in macroeconomics, when the situation of a country is simulated as time passes. Unfortunately, due to the failures to properly express the configured situation in what I regard as logical terms, these forecasts are made to be inaccurate and wrong. (In many cases this is deliberate, because there are strong political reasons for making the associated assumptions.) I am not talking about the effects of sudden changes, simply the ability for a situation to tend to a greater amount of equilibrium (self-stabilize).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The model that I use goes back to the situation before John Bates Clerk combined the factors of land and capital (offensively from A. Smith's explanation of the factors and returns on production). Were this situation to be correctly and better expressed, then we would have a greater degree of accuracy in simulating the changes. My method for response to the effect of the external changes is original and will also greatly help this process, for which my soon to be released book &quot;Consequential Macroeconomics&quot; should provide the answer. &lt;/p&gt;&#xA;" OwnerUserId="2877" LastActivityDate="2015-02-05T17:01:50.640" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3281" PostTypeId="1" CreationDate="2015-02-05T19:00:00.583" Score="1" ViewCount="26" Body="&lt;p&gt;I read a paper titled 'State generic substitution laws can lower drug outlays under&#xA;medicaid'. It uses quarterly state level medicaid drug utilization data. However, I could only find yearly data at the state level. Has anyone has experience in this data set. &lt;/p&gt;&#xA;" OwnerUserId="151" LastActivityDate="2015-02-05T19:00:00.583" Title="Where can I find quarterly/monthly medicare/medicaid state level drug utilization data" Tags="&lt;microeconomics&gt;&lt;data-request&gt;" AnswerCount="0" CommentCount="5" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3282" PostTypeId="1" AcceptedAnswerId="3286" CreationDate="2015-02-05T20:25:11.507" Score="5" ViewCount="978" Body="&lt;p&gt;I read that at 2008 there was an electronic bank run.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From what I undestand bank runs occur due to the fractional reserve banking system. The actual real money you can hold on your hand are a fraction of the total money in banks. So if everyone goes to ATM and gets the money in their hand, it means that the bank runs out of the &quot;real money&quot; and people can't withdraw these &quot;real money&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So if the same number of people, instead of withdrawing from the ATMs, do electronic transactions that eg get their money from a bank to another bank (or any other institution) how can there be a bank run? It just doesn't make sense to me.&lt;/p&gt;&#xA;" OwnerUserId="2880" LastActivityDate="2015-02-15T00:28:04.223" Title="How can there be an electronic bank run?" Tags="&lt;banking&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="3283" PostTypeId="1" CreationDate="2015-02-05T20:26:20.840" Score="3" ViewCount="5214" Body="&lt;p&gt;What is the difference between &lt;a href=&quot;http://www.osfi-bsif.gc.ca/eng/fi-if/rg-ro/gdn-ort/gl-ld/pages/icaap_dti.aspx&quot; rel=&quot;nofollow&quot;&gt;ICAAP&lt;/a&gt; and &lt;a href=&quot;http://www.federalreserve.gov/bankinforeg/ccar.htm&quot; rel=&quot;nofollow&quot;&gt;CCAR&lt;/a&gt;?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Except that one is for USA and other is for Canada? &lt;/p&gt;&#xA;" OwnerUserId="2879" LastActivityDate="2015-07-20T21:37:33.693" Title="Difference between CCAR and ICAAP stress tests" Tags="&lt;banking&gt;&lt;regulation&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3284" PostTypeId="2" ParentId="1932" CreationDate="2015-02-05T20:51:47.467" Score="2" Body="&lt;p&gt;The answer is somewhat. Those terms were not part of the original bond but were added by the &lt;a href=&quot;https://en.wikipedia.org/wiki/Agreement_on_German_External_Debts&quot; rel=&quot;nofollow&quot;&gt;Debt Agreement&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The Conference recognised the principle that the transfer of payments under the Settlement Plan implies the development and maintenance of a balance of payments&#xA;  situation in which those payments, like other payments for current transactions, can be financed by foreign exchange receipts from visible and invisible transactions so&#xA;  that more than a temporary drawing on monetary reserves is avoided. (Final Report of the Conference on German External Debt 1952: paragraph 21)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;That quote is NOT part of the official agreement (As seen by it's absence in the &lt;a href=&quot;https://www.gov.uk/government/publications/agreement-on-german-external-debts-london-2721953&quot; rel=&quot;nofollow&quot;&gt;British &lt;/a&gt; and the &lt;a href=&quot;http://www.admin.ch/opc/de/classified-compilation/19530026/index.html&quot; rel=&quot;nofollow&quot;&gt;Swiss copy&lt;/a&gt;) - however the &lt;a href=&quot;http://library.fes.de/pdf-files/iez/10137.pdf&quot; rel=&quot;nofollow&quot;&gt;&quot;One made it out of the debt trap&quot; study&lt;/a&gt; claims it was accepted by the British and the French.&lt;/p&gt;&#xA;" OwnerUserId="1499" LastActivityDate="2015-02-05T20:51:47.467" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="3286" PostTypeId="2" ParentId="3282" CreationDate="2015-02-06T05:18:22.313" Score="4" Body="&lt;p&gt;What you describe is the &quot;traditional&quot; bank-run.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The 2008 incident you refer to, was called an &quot;electronic bank run&quot;, because the problem was not caused by people trying to get tangible paper money in their hands in excess of the actual paper money available to the banks.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem was that through electronic banking and electronic wire-transfer orders &quot;funds were redirected out of the U.S. money markets&quot; as one account of the incident puts it.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So why is this a problem? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Because under &quot;fractional banking&quot;, &lt;em&gt;electronic money functions exactly as paper money&lt;/em&gt;. You work, and your employer pays your salary through a wire transfer. You go buy something and you pay with your debit card, where you transfer electronic money from your account to the shop's account.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words, electronic money, once created, &lt;em&gt;is as much actual purchasing power as paper money is.&lt;/em&gt; It is &lt;em&gt;wealth&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But this means that this &quot;electronic bank run&quot; was &lt;em&gt;impoverishing&lt;/em&gt; the US banking system. But since the transfers were electronic, by necessity they went out of the US economy also -to some bank accounts in other countries.  It was &lt;em&gt;wealth going out of the US economy&lt;/em&gt;, not just paper money going out of the banks but still &lt;em&gt;in&lt;/em&gt; the economy -and at a speed and volume unimaginable in the old days, due to the wonders of the internet and digital technology.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So essentially, it is a totally &lt;em&gt;different&lt;/em&gt; kind of problem (and more serious) than the &quot;traditional&quot; bank run, so it should perhaps have been characterized by using another term.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-02-06T05:18:22.313" CommentCount="11" ContentLicense="CC BY-SA 3.0" />
  <row Id="3287" PostTypeId="2" ParentId="3226" CreationDate="2015-02-06T08:18:06.900" Score="1" Body="&lt;p&gt;While its difficult to pinpoint an answer to the question, here are some ideas/sources id consider helpful/interesting.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Video:&#xA;How The Economic Machine Works by &lt;a href=&quot;http://en.wikipedia.org/wiki/Ray_Dalio&quot; rel=&quot;nofollow&quot;&gt;Ray Dalio&lt;/a&gt; (30 minute presentation)&#xA;&lt;a href=&quot;https://www.youtube.com/watch?v=PHe0bXAIuk0&quot; rel=&quot;nofollow&quot;&gt;https://www.youtube.com/watch?v=PHe0bXAIuk0&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Book Titles:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Capital in the Twenty-First Century&lt;/li&gt;&#xA;&lt;li&gt;Fault Lines: How Hidden Fractures Still Threaten the World Economy&lt;/li&gt;&#xA;&lt;li&gt;This Time Is Different: Eight Centuries of Financial Folly&lt;/li&gt;&#xA;&lt;li&gt;Manias, Panics and Crashes: A History of Financial Crises&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="2884" LastEditorUserId="2884" LastEditDate="2015-02-07T11:43:10.513" LastActivityDate="2015-02-07T11:43:10.513" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3288" PostTypeId="1" CreationDate="2015-02-06T09:20:13.770" Score="7" ViewCount="136" Body="&lt;p&gt;In the literature of interactive epistemology, for a player, knowing an event obtains with probability one and knowing an event obtains with absolute certainty are different. Is there a nontrivial (say, it could be the case, an event is a proper subset of the event that player $i$ knows this event obtains with probability one, but never the case for knowledge operator with absolute certainty) proposition that could serve as an example to show they're not interchangeable in the language which consists of two corresponding knowledge operators, a set of states of world, set relations, set operations, and all logical connectives.&lt;/p&gt;&#xA;" OwnerUserId="73" LastEditorUserId="43" LastEditDate="2015-02-12T15:23:53.817" LastActivityDate="2015-05-11T12:58:29.730" Title="Interchangeability between knowing an event obtains with probability 1 and knowing an event obtains with absolute certainty?" Tags="&lt;mathematical-economics&gt;&lt;game-theory&gt;&lt;academic-graduate&gt;" AnswerCount="3" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="3289" PostTypeId="1" CreationDate="2015-02-06T17:59:55.960" Score="3" ViewCount="71" Body="&lt;p&gt;There has been a lot of evidence about the firm size distribution (as measured in employment) being Pareto (see for example &lt;a href=&quot;http://qje.oxfordjournals.org/content/122/3/1103.full.pdf&quot; rel=&quot;nofollow&quot;&gt;Luttmer 2007&lt;/a&gt;), but what are the properties of this distribution over the business cycle? &lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2015-02-12T15:26:01.877" LastActivityDate="2016-05-16T17:29:45.690" Title="Firm Sizes over the business cycle" Tags="&lt;macroeconomics&gt;&lt;industrial-organisation&gt;&lt;academic-graduate&gt;&lt;business-cycles&gt;&lt;reference-request&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="3290" PostTypeId="1" CreationDate="2015-02-06T22:48:52.703" Score="19" ViewCount="531" Body="&lt;p&gt;How do I use the Malliavin calculus to solve for the optimal trading strategy in the classic Merton problem?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In Duffie's book &quot;Dynamic Asset Pricing,&quot; he outlines the &quot;Martingale method&quot; of solving stochastic control problems. I won't reproduce the whole outline or notation here, but the the essentials are given on p.217 of his third edition book:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/V1xO8.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/V1xO8.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&#xA;&lt;img src=&quot;https://i.stack.imgur.com/x67SK.png&quot; alt=&quot;enter image description here&quot;&gt;&#xA;&lt;img src=&quot;https://i.stack.imgur.com/2PhTq.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;After some discussion of a generalization, he mentions the following (p.221):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Although this approach generates an explicit solution for the optimal-consumption&#xA;  policy up to an unknown scalar $\gamma$, it does not say much about the form of the optimal trading strategy, beyond its existence. The Notes cite sources in which an optimal strategy is represented in terms of the &lt;em&gt;Malliavin calculus&lt;/em&gt;....&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I know how to solve for the optimal trading strategy using the Hamilton-Jacobi-Bellman approach, but I would like to learn how to do this using the Malliavin calculus and the Clark-Ocone theorem. Duffie's book does not give directions on how to do this. Does anyone know (or can reproduce here) the way in which we would derive the optimal trading strategy this way? (For an easy, clean demonstration, it would be nice to assume, say, &#xA;$U(c) = E \int_0^\infty \frac{C^{1 - \gamma}}{1 - \gamma}$.)&lt;/p&gt;&#xA;" OwnerUserId="59" LastEditorUserId="59" LastEditDate="2017-07-26T19:06:53.843" LastActivityDate="2017-07-26T19:06:53.843" Title="How do I use the Malliavin calculus to solve for the optimal trading strategy in the classic Merton problem?" Tags="&lt;finance&gt;&lt;academic-graduate&gt;&lt;portfolio-theory&gt;&lt;stochastic-calculus&gt;&lt;optimal-control&gt;" AnswerCount="0" CommentCount="1" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="3291" PostTypeId="2" ParentId="3282" CreationDate="2015-02-07T00:34:22.363" Score="4" Body="&lt;p&gt;Historically, banks would take deposits, telling depositors that they could withdraw their deposits upon demand. The bank would then take these deposits, combine them with with the equity of the bank's owners, and extend long term term loans to business, governments, and home owners. Under normal circumstances, this is a nice business model, &lt;a href=&quot;http://www.investopedia.com/terms/1/3_6_3_rule.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;give 3% interest on depositors' accounts, lend the depositors money at 6% interest and then be playing golf at 3pm&lt;/a&gt;. You pocket the difference between the deposit rate and the lending rate and live in Connecticut or Luxembourg.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem is those pesky depositors. Because they know that the bank has tied up most of their money in these illiquid long term loans, they can't possibly pay everyone back if they all show up to demand their money on short notice. Under normal circumstance they have no reason to show up and demand all their money back. But if there are &lt;a href=&quot;http://onlinelibrary.wiley.com/doi/10.1111/j.1540-6261.2005.00762.x/abstract?deniedAccessCustomisedMessage=&amp;amp;userIsAuthenticated=false&quot; rel=&quot;nofollow noreferrer&quot;&gt;inklings that the bank has lost money on its loans&lt;/a&gt;, or even just that &lt;a href=&quot;http://en.wikipedia.org/wiki/Diamond%E2%80%93Dybvig_model&quot; rel=&quot;nofollow noreferrer&quot;&gt;you've heard that other people are thinking about pulling their money out&lt;/a&gt;, you can have this in no time:&#xA;&lt;img src=&quot;https://i.stack.imgur.com/B7OlQ.jpg&quot; alt=&quot;Berlin 1931 bank run&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So what is different when deposits aren't cash but instead are electronic? Nothing of substance. The bank still has the vast majority of its liabilities invested in illiquid assets, in America usually mortgage and commercial loans. The bank still must pay on demand in cash or electronic bank transfer. If it doesn't have enough electronic cash, it has to find people who will pay cash for their assets or lend against them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think what confuses @user2832080 is that false assumption that the problem is &quot;how much cash is in the ATMs&quot; when in fact it is &quot;how much cash / deposits in other banks / readily marketable securities the bank can get a hold of on short notice&quot; A bank could be able to give all the money by ATM that people want but still have not nearly enough to pay the electronic transfer requests. A bank could have run out of cash in the ATMs (as &lt;a href=&quot;http://www.nydailynews.com/new-york/queens/atm-shortage-rockaways-article-1.1202177&quot; rel=&quot;nofollow noreferrer&quot;&gt;happens from time to time around natural disasters&lt;/a&gt;) but have plenty of liquidity to pay out transfer requests. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;All of which may sound odd to the lay reader. I recommend Richard Brown's article: &lt;a href=&quot;http://gendal.me/2013/11/24/a-simple-explanation-of-how-money-moves-around-the-banking-system/&quot; rel=&quot;nofollow noreferrer&quot;&gt;A Simple Explanation of How Money Moves Around the Banking System&lt;/a&gt; for a nice overview of how you don't need cash to affect transfers between institutions. The key idea is that banks have cash on hand, they have cash balances at other banks, and a limited amount of marketable liquid assets (like government bonds). If the demands to return deposits exceed those values, the bank is having a run, with or without the lines out front.  &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-02-15T00:28:04.223" LastActivityDate="2015-02-15T00:28:04.223" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3293" PostTypeId="2" ParentId="3147" CreationDate="2015-02-07T13:30:40.243" Score="1" Body="&lt;p&gt;I can think of at least one paper where binding accounting rules are shown to have negative consequences on real investment:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.kellogg.northwestern.edu/faculty/roshak/Kevin_Roshak_Job_Market_Paper.pdf&quot; rel=&quot;nofollow&quot;&gt;Can Tight Accounting Oversight Distort Investment? Evidence from Mortgage Restructurings after the JOBS Act&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Abstract: I study the effect of accounting oversight on a bank’s level&#xA;  of troubled mortgage restructurings. &lt;strong&gt;If banks manage their accounting&#xA;  numbers (e.g. regulatory capital or earnings) in the wake of the&#xA;  financial crisis, then they may be hesitant to restructure troubled&#xA;  loans because such restructurings require the bank to mark the value&#xA;  of the loans down&lt;/strong&gt;. I show that giving a bank more accounting&#xA;  discretion leads the bank to restructure more troubled mortgages. My&#xA;  identification strategy uses a provision of the Jumpstart Our Business&#xA;  Startups (JOBS) Act of 2012 that allows a subset of banks to&#xA;  deregister from the SEC. The first stage of the analysis shows that&#xA;  accounting oversight is of first-order importance in the&#xA;  deregistration decision; in particular, there is a sharp increase in&#xA;  the probability of deregistration from 7% to 30% for banks that can&#xA;  escape accounting oversight. By instrumenting for the decision to&#xA;  deregister with the bank’s newfound eligibility to deregister after&#xA;  the JOBS Act, I show that deregistration leads banks to slash their&#xA;  accounting and audit fees and make fewer provisions for loan losses. I&#xA;  next show that deregistration induces banks to double their investment&#xA;  in mortgage restructurings, which entail large upfront accounting&#xA;  expenses; this effect is driven by banks with low capital ratios, and&#xA;  estimates for non-mortgage troubled debt restructurings react&#xA;  similarly. &lt;strong&gt;These results suggest that banks manage their capital using&#xA;  real activities&lt;/strong&gt;, and this is one reason for the low level of mortgage&#xA;  restructurings since the recession.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="69" LastActivityDate="2015-02-07T13:30:40.243" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3296" PostTypeId="1" AcceptedAnswerId="3298" CreationDate="2015-02-07T22:21:55.330" Score="4" ViewCount="2525" Body="&lt;p&gt;I am trying to self teach myself some Economics, I am using an old textbook given to me by a friend, which does not contain an answer key. I have run into the following problem and I was wondering if anyone could guide me (I don't want the answers, I just want to understand the method).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The firms in a perfectly competitive industry have a cost function given by:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$c(w_{1},w_{2},Y)= Y^{2} (w_{1}, w_{2})^{\frac{1}{2}} + 8$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where $(w_{1},w_{2})=(4,25)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The market demand in this industry is $D(p)=40-p$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The number of firms in this industry are $30$, I'm not sure if this ties in with this half of the question or not.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Anyways, what I have done so far is computed the total cost function:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$TC= 10Y^{2} +8$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From this point, how can I proceed onwards to find the short run equilibrium price?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would appreciate it if anyone could offer some advice.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks.&lt;/p&gt;&#xA;" OwnerUserId="2899" LastActivityDate="2015-02-11T15:05:17.733" Title="Perfect competition: Finding short run equilibrium price?" Tags="&lt;microeconomics&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3297" PostTypeId="1" CreationDate="2015-02-07T22:22:20.530" Score="1" ViewCount="42" Body="&lt;p&gt;I'm absolutely not from firm financing and look to read up on the subject, but mostly onto empirical stuff.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Standard questions would be:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;What is the ratio of firms that finance themselves with bank loans? &lt;/li&gt;&#xA;&lt;li&gt;How does this vary with firm size?&lt;/li&gt;&#xA;&lt;li&gt;What's the duration of these loans?&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Is there some handbook chapter or something similar for this?&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2015-02-12T15:25:18.267" LastActivityDate="2015-02-12T15:25:18.267" Title="Evidence of firm borrowing and loans" Tags="&lt;macroeconomics&gt;&lt;finance&gt;&lt;reference-request&gt;&lt;academic-graduate&gt;&lt;corporate-finance&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="3298" PostTypeId="2" ParentId="3296" CreationDate="2015-02-07T22:30:34.620" Score="1" Body="&lt;p&gt;These kinds of questions depend heavily on the market structure that you assume. Most importantly, when firms have (some degree of) market power, they usually take the demand function as given and try to solve something of the kind&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \max_p D(p)\cdot (p-c(D(p)))$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However here, when there is no market power, firms take the price as given and solve for the optimal quantity of production $q$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \max_q q\cdot (p-c(Q))$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, we get the supply of any single firm, given the price $S(p)$ from solving this problem. To clear the perfectly competitive market, we remember that there are $30$ firms and solve:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$p: D(p) - 30\cdot S(p) = 0$$&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-02-07T22:30:34.620" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3299" PostTypeId="1" CreationDate="2015-02-07T23:57:17.130" Score="2" ViewCount="291" Body="&lt;p&gt;In the beginning of the mahjong anime/manga &lt;em&gt;Akagi&lt;/em&gt;, the titular character has just come in from what is called a game of chicken, which is described as follows:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Two cars head for a cliff at full speed. It's a game of reckless disregard for life where the person who first brakes loses.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;No conditions for ties were given in the anime, but I will assume that:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Driving over the cliff is the least preferable outcome regardless of what happens to the other person&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Losing is preferable to driving over the cliff&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Being in a tie is preferred over losing, and winning is the most preferred outcome&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I believe that the games aren't equivalent:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Unlike the description of the game of chicken given on &lt;a href=&quot;https://en.wikipedia.org/wiki/Chicken_(game)#Popular_versions&quot; rel=&quot;nofollow&quot;&gt;Wikipedia&lt;/a&gt;, there is a weakly dominant strategy in the game in &lt;em&gt;Akagi&lt;/em&gt; (i.e. braking at the edge of the cliff). But I'm not sure if the existence of weakly dominant strategies are preserved under isomorphisms of games.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The &lt;em&gt;Akagi&lt;/em&gt; version of chicken has a pure Nash equilibrium where both players take the same action (and both obtain an outcome that isn't their most preferred outcome). This outcome (in terms of preference rankings) doesn't exist in the standard formulation of the game of chicken. However, thinking about it, it might be better to view the &lt;em&gt;Akagi&lt;/em&gt; case as something continuous that might then permit mixed strategies (with regards to when the player chooses to brake).&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Is my reasoning here correct, or is there a better way to view this?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Update:&lt;/strong&gt; I should add that in the &lt;em&gt;Akagi&lt;/em&gt; version, the choice is &lt;em&gt;when&lt;/em&gt; to brake, which lies on a continuum in some interval of $\mathbb{R}$. (I'm not entirely sure how to formulate this mathematically, since we also need to allow for the possibility that the player drives off the cliff, but this is beside the point.) However, as previously stated, braking right at the edge should be weakly dominant, at least from an intuitive perspective.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Conversely, in the standard version, there is a binary choice (&quot;swerve&quot; or &quot;straight&quot;) at a single point in time. Unless it's possible to rule out all but a few cases in the &lt;em&gt;Akagi&lt;/em&gt; version, it would seem that the games can't possibly be equivalent, since we can't &quot;reduce&quot; the &lt;em&gt;Akagi&lt;/em&gt; case to the normal game of chicken. (There should be no isomorphism between them if the cardinalities of the set of choices are different.) But that's exactly the thing that I'm not completely sure about.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Moreover, I'm not sure if I'm analysing the equilibria of the &lt;em&gt;Akagi&lt;/em&gt; case properly, particularly since it strikes me as a scenario where mixing might do better (but I'm not familiar with mixed strategies in continuous cases, and I'm too busy at the moment to test somewhat &quot;simpler&quot; cases).&lt;/p&gt;&#xA;" OwnerDisplayName="user169" LastEditorDisplayName="user169" LastEditDate="2015-02-08T02:27:30.797" LastActivityDate="2015-02-10T09:59:53.133" Title="Is this equivalent to the game of chicken?" Tags="&lt;game-theory&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="3304" PostTypeId="1" CreationDate="2015-02-08T16:48:00.163" Score="7" ViewCount="559" Body="&lt;p&gt;I would like to know which mathematical skills are most important to understanding different types of theoretical economics literature. An ideal answer would list disciplines used for different 'genres' of literature; for example: &quot;&lt;em&gt;Mathematical finance requires elementary linear algebra and stochastic calculus&lt;/em&gt;&quot; (is this accurate?).  &lt;/p&gt;&#xA;" OwnerUserId="337" LastEditorUserId="337" LastEditDate="2015-02-09T13:14:08.803" LastActivityDate="2015-02-09T14:44:51.190" Title="Which areas of mathematical knowledge are required for understanding different genres of theoretical economics literature (and at which level)?" Tags="&lt;mathematical-economics&gt;" AnswerCount="2" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3305" PostTypeId="1" CreationDate="2015-02-08T20:00:41.997" Score="3" ViewCount="1637" Body="&lt;p&gt;I am studing a little bit of auction theory. I found the optimal bid value in the Milgrom paper for the first price auction that is&#xA;$$&#xA;P=v \frac{n-1}{n}&#xA;$$&#xA;where $P$ is the optimal bid, $v$ is the true value and $n$ is the number of bidders.&#xA;Now I am wondering if there exist an equivalent formula for reverse auctions.&#xA;What is the formula for the optimal bidding in reverse auctions?&lt;/p&gt;&#xA;" OwnerUserId="2910" LastEditorUserId="43" LastEditDate="2015-02-12T15:24:49.887" LastActivityDate="2015-02-12T15:24:49.887" Title="Reverse auction formula" Tags="&lt;expected-utility&gt;&lt;optimization&gt;&lt;academic-graduate&gt;&lt;auctions&gt;" AnswerCount="1" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3308" PostTypeId="1" AcceptedAnswerId="3333" CreationDate="2015-02-09T09:46:21.973" Score="7" ViewCount="279" Body="&lt;p&gt;Denote &lt;span class=&quot;math-container&quot;&gt;$[r]\triangleq\{1,2,\ldots,r\}$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;p&gt;Consider a game with &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt; players, &lt;span class=&quot;math-container&quot;&gt;$[n]$&lt;/span&gt;, each has &lt;span class=&quot;math-container&quot;&gt;$m$&lt;/span&gt; strategies, &lt;span class=&quot;math-container&quot;&gt;$[m]$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;p&gt;Each player &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; has an associated payoff function, which considers only his selected strategy, and the number of players selected the same strategy:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$U_i:[m]\times[n]\to[0,1]$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;Furthermore, the utility function is monotonically decreasing in the number of players which picked the same strategy, i.e.&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\forall i\in[n],j\in[m],k\in[n-1]:U_i(j,k)\geq U_i(j,k+1)$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;&lt;strong&gt;Does this game always have a pure Nash equilibrium?&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;p&gt;&lt;strong&gt;Can we (computationally) find it efficiently?&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;Notice that the &lt;strong&gt;special case&lt;/strong&gt;, where all players are symmetric (&lt;span class=&quot;math-container&quot;&gt;$\forall i,j\in[n]: U_i\equiv U_j\equiv U$&lt;/span&gt;), the game reduces to an exact potential game and therefore is guaranteed to have a pure Nash equilibrium.&lt;/p&gt;&#xA;&lt;p&gt;The potential function for the symmetric case would be, given a strategy profile &lt;span class=&quot;math-container&quot;&gt;$s$&lt;/span&gt;:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\phi(s) = \sum_{j\in[m]}\sum_{k=1}^{\#_j(s)} U(j,k)$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;Where &lt;span class=&quot;math-container&quot;&gt;$\#_j(s)$&lt;/span&gt; is the number of players in &lt;span class=&quot;math-container&quot;&gt;$s$&lt;/span&gt; playing strategy &lt;span class=&quot;math-container&quot;&gt;$j$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerUserId="348" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2015-02-11T07:33:03.680" Title="Is there always a pure Nash equilibrium in a resource selection game?" Tags="&lt;game-theory&gt;&lt;computation&gt;&lt;nash-equilibrium&gt;&lt;congestion-games&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3309" PostTypeId="2" ParentId="3305" CreationDate="2015-02-09T12:30:06.303" Score="5" Body="&lt;p&gt;A first price standard and reverse auction are formally equivalent to each other, and the same method can be used to solve both:&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;h2&gt;First Price Auction&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;In a first price auction, $n$ bidders choose their bid, $b_i$, as a function of their value $v_i$ (distributed according to $F$. They seek to maximise their expected payoff:&#xA;$$[v_i-b_i(v_i)]\Pr(b_i\geq\max_j b_j).$$&#xA;If we look for a symmetric equilibrium in which bidders with higher values bid more then the probability that I have the highest bid is just the probability I have the highest value:&#xA;$$\Pr(b_i\geq\max_j b_j)=F(v_i)^{n-1}.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A useful trick is to think of a bidder as choosing what kind of value to &quot;pretend to have&quot;. If we call their choice $\widetilde{v}$ then a bidder's probablem is to&#xA;$$\max_{\widetilde{v}}[v_i-b(\widetilde{v})]F(\widetilde{v})^{n-1}.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Differentiation yields the first-order condition:&#xA;$$(n-1)F'(\widetilde{v})F(\widetilde{v})^{n-2}[v_i-b(\widetilde{v})]-F(\widetilde{v})^{n-1}b'(\widetilde{v})=0.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In equilibrium, we know that a bidder should not want to pretend to be anyone other than his true type, so this first-order condition must hold at $\widetilde{v}=v_i$:&#xA;$$(n-1)F'(v_i)F(v_i)^{n-2}[v_i-b(v_i)]-F(v_i)^{n-1}b'(v_i)=0.$$&#xA;This is a differential equation that can be solved for the equilibrium bid function, $b(v_i)$. In, particular, if values are uniformly distributed on $[0,1]$, we have $F(v_i)=v_i$ and the equation becomes&#xA;$$(n-1)v_i^{n-2}[v_i-b(v_i)]-v_i^{n-1}b'(v_i)=0,$$&#xA;which can be simplified to&#xA;$$(n-1)\frac{1}{v_i}[v_i-b(v_i)]=b'(v_i).$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The solution to this differential equation is&#xA;$$b(v_i)=v_i\frac{n-1}{n},$$&#xA;which is what you have in your question.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;h2&gt;Reverse Auction&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;In a reverse auction, $n$ bidders choose their bid, $b_i$, as a function of their cost $c_i$ (distributed according to $F$. They seek to maximise their expected payoff:&#xA;$$[b_i(c_i)-c_i]\Pr(b_i\leq\min_j b_j).$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we look for a symmetric equilibrium in which bidders with higher costs bid more then the probability that I have the lowest bid is just the probability I have the lowest cost:&#xA;$$\Pr(b_i\leq\min_j b_j)=[1-F(c_i)]^{n-1}.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A useful trick is to think of a bidder as choosing what kind of cost to &quot;pretend to have&quot;. If we call their choice $\widetilde{c}$ then a bidder's probblem is to&#xA;$$\max_{\widetilde{c}}[b(\widetilde{c})-c_i][1-F(\widetilde{c})]^{n-1}.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Differentiation yields the first-order condition:&#xA;$$-(n-1)F'(\widetilde{c})[1-F(\widetilde{c})]^{n-2}[b(\widetilde{c})-c_i]+[1-F(\widetilde{c})]^{n-1}b'(\widetilde{c})=0.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In equilibrium, we know that a bidder should not want to pretend to be anyone other than his true type, so this first-order condition must hold at $\widetilde{c}=c_i$:&#xA;$$-(n-1)F'(c_i)[1-F(c_i)]^{n-2}[b(c_i)-c_i]+[1-F(c_i)]^{n-1}b'(c_i)=0.$$&#xA;This is a differential equation that can be solved for the equilibrium bid function, $b(c_i)$. In, particular, if costs are uniformly distributed on $[0,1]$, we have $F(c_i)=c_i$ and the differential equation can be simplified to&#xA;$$-(n-1)[1-c_i]^{n-2}[b(c_i)-c_i]+[1-c_i]^{n-1}b'(c_i)=0.$$&#xA;$$(n-1)\frac{1}{1-c_i}[b(c_i)-c_i]=b'(c_i).$$&#xA;The solution to this differential equation is&#xA;$$b(c_i)=\frac{1+c_i(n-1)}{n}.$$&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;h2&gt;Comparing the two&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;The two solutions,&#xA;$$b(v_i)=v_i\frac{n-1}{n},\qquad b(c_i)=\frac{1+c_i(n-1)}{n}$$&#xA;are equivalent in the sense that a bidder in the first price auction shades (bids below his true valuation) by exactly the same amount as a bidder in a procurement auction bids above his true cost. You can confirm this by, for example, plotting these two bid functions for some value of $n$. Here's an example with $n=2$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/TI7JF.png&quot; alt=&quot;Example for $n=2$&quot;&gt;&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2015-02-10T07:55:00.943" LastActivityDate="2015-02-10T07:55:00.943" CommentCount="12" ContentLicense="CC BY-SA 3.0" />
  <row Id="3310" PostTypeId="2" ParentId="3304" CreationDate="2015-02-09T13:48:18.470" Score="5" Body="&lt;p&gt;For &lt;strong&gt;microeconomic theory&lt;/strong&gt;, a starting point would be&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Basic multivariate calculus,&lt;/li&gt;&#xA;&lt;li&gt;topology/set theory&lt;/li&gt;&#xA;&lt;li&gt;real analysis,&lt;/li&gt;&#xA;&lt;li&gt;probability theory,&lt;/li&gt;&#xA;&lt;li&gt;a basic knowledge of linear algebra.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;For 'applied' micro theory (theoretical industrial organisation, applications in information economics, etc.), or for reading of a graduate-level microeconomics text (such as Mas-Colell, Whinston, and Green's &quot;Microeconomic Thoery&quot;), a good understanding of the basics of these areas will suffice. Most material will be set in something like a Euclidean space and will draw on a fairly restricted set of methods and results from the above domains. You can already get a long way with a good understanding of the basic continuity properties of the reals ($\epsilon$-$\delta$ proofs, open and closed intervals, intermediate value theorem, basic fixed-point theorems, etc.), the ability to do partial differentiation, integration, and to calculate conditional probabilities and expectations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As one turns to the journal literature and looks more towards pure (rather than applied) economic theory, the level of mathematical sophistication increases somewhat and it becomes more likely that you will encounter more exotic (from the point of view of economics) mathematical methods and results.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2015-02-09T13:48:18.470" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3311" PostTypeId="2" ParentId="3045" CreationDate="2015-02-09T13:53:53.460" Score="2" Body="&lt;p&gt;Economists often do something similar to what your physics teacher taught. One of my graduate econometrics teachers taught us to begin our empirical investigations by asking what the ideal experiment to test them would be. And a quick web search confirmed this is a widespread sentiment:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Esther Duflo, PhD ’99, a prominent antipoverty researcher at MIT whom&#xA;  Angrist advised when she was a graduate student, says his relentless&#xA;  concentration on the problem of selection bias—for instance, the&#xA;  possibility that the better-rated high school is populated with better&#xA;  students—spurred her to go beyond his techniques and conduct actual&#xA;  field experiments. “&lt;strong&gt;Once you ask the question right, you can ask what&#xA;  the ideal experiment to answer it is&lt;/strong&gt;,” she explains&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.technologyreview.com/article/508381/the-natural-experimenter/&quot; rel=&quot;nofollow&quot;&gt;The Natural Experimenter By Peter Dizikes on January 2, 2013&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;For a long time I have maintained that economics is unfairly&#xA;  criticised for the use of unrealistic assumptions. (See Cartwright&#xA;  1989, 1998). &lt;strong&gt;I can summarise my view by comparing an economic model to&#xA;  a certain kind of ideal experiment in physics&lt;/strong&gt;: criticising economic&#xA;  models for using unrealistic assumptions is like criticising Galileo’s&#xA;  rolling ball experiments for using a plane honed to be as frictionless&#xA;  as possible. This defence of economic modelling has a bite, however.&#xA;  On the one hand, it makes clear why some kinds of unrealistic&#xA;  assumptions will do; but on the other, it highlights how totally&#xA;  misleading other kinds can be – and these other kinds of assumptions&#xA;  are ones that may be hard to avoid given the nature of contemporary&#xA;  economic theory.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.lse.ac.uk/CPNSS/pdf/DP_withCoverPages/DP43/DP43F-99-C.pdf&quot; rel=&quot;nofollow&quot;&gt;The Vanity of Rigour in Economics: Theoretical Models and Galilean Experiments by &#xA;NANCY CARTWRIGHT&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;So what is, intuitively, an experiment? &lt;strong&gt;The key idea is control:&#xA;  experimenting involves observing an event or set of events in&#xA;  controlled circumstances. It is useful to distinguish at least two&#xA;  important dimensions of control: (1) control over a variable that is&#xA;  changed or manipulated by the experimenter, and (2) control over other&#xA;  (background) conditions or variables that are set by the experimenter.&lt;/strong&gt;&#xA;  Both dimensions involve the idea of design or manipulation of the&#xA;  experimental conditions: the experimental laboratory is in some&#xA;  intuitive way an “artificial” situation compared to what is likely to&#xA;  happen in the “natural” or “real” world. 3 An experiment is usually&#xA;  designed with the aim of getting a clear-cut answer to a fairly&#xA;  specific scientific question. As we shall see, many different kinds of&#xA;  questions can be answered in the laboratory. But typically, such&#xA;  questions regard the mutual dependence of some variables or&#xA;  quantities, and in particular the causal relations holding between&#xA;  them.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://users.unimi.it/guala/Handbook%20Elsevier3.pdf&quot; rel=&quot;nofollow&quot;&gt;Experimentation in Economics by Francesco Guala&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-02-10T01:42:12.163" LastActivityDate="2015-02-10T01:42:12.163" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3312" PostTypeId="2" ParentId="3304" CreationDate="2015-02-09T14:01:56.047" Score="5" Body="&lt;p&gt;For &lt;strong&gt;macroeconomics&lt;/strong&gt;, it depends a bit on the part you're working in&lt;/p&gt;&#xA;&#xA;&lt;p&gt;basic requirements are always&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Basic multivariate calculus&lt;/li&gt;&#xA;&lt;li&gt;Real analysis&lt;/li&gt;&#xA;&lt;li&gt;Probability theory and stochastic calculus&lt;/li&gt;&#xA;&lt;li&gt;Beginnings of linear algebra&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;If you go down the Macro/Econometrics route, your linear algebra knowledge should be quite profound.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, you should have (because discrete time is almost everywhere a standard tool) working knowledge in&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;difference equations&lt;/li&gt;&#xA;&lt;li&gt;Bellman Equations&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;If you go theoretical, that also requires&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Functional analysis&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;If instead you're going to continuous time (this will be the case for Macro-Finance, also likely Growth. For mainstream macro, it seems to be the trend, but is yet unclear), you will need knowledge of differentiable equations, in particular &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Solution methods to First and second order ODE&lt;/li&gt;&#xA;&lt;li&gt;Derivation and Solutions to Kolmogorov Forward Equation (Fokker Plank)&lt;/li&gt;&#xA;&lt;li&gt;Working knowledge with Wiener processes &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Where again, if you want to do purely theoretical work, your knowledge (in particular with probability theory) needs to be much more profound.&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2015-02-09T14:44:51.190" LastActivityDate="2015-02-09T14:44:51.190" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3313" PostTypeId="1" CreationDate="2015-02-09T16:04:31.250" Score="2" ViewCount="113" Body="&lt;p&gt;&lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/0304393285900613&quot; rel=&quot;nofollow&quot;&gt;The equity premium: A puzzle&lt;/a&gt; (Mehra and Prescott (1985)) lays out the basic problem with equity returns:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;Restrictions that a class of general equilibrium models place upon the&#xA;  average returns of equity and Treasury bills are found to be strongly&#xA;  violated by the U.S. data in the 1889–1978 period.&lt;/strong&gt; This result is&#xA;  robust to model specification and measurement problems. We conclude&#xA;  that, most likely, an equilibrium model which is not an Arrow-Debreu&#xA;  economy will be the one that simultaneously rationalizes both&#xA;  historically observed large average equity return and the small&#xA;  average risk-free return.&#xA;  ...Historically the average return on equity has far exceeded the&#xA;  average return on short-term virtually default-free debt. Over the&#xA;  ninety-year period 1889-1978 the average real annual yield on the&#xA;  Standard and Poor 500 Index was seven percent, while the average yield&#xA;  on short-term debt was less than one percent. The question addressed&#xA;  in this paper is whether this large differential in average yields can&#xA;  be accounted for by models that abstract from transactions costs,&#xA;  liquidity constraints and other frictions absent in the Ar~ow-Debreu&#xA;  set-up. Our finding is that it cannot be, at least not for the class&#xA;  of economies considered. Our conclusion is that most likely some&#xA;  equilibrium model with a friction will be the one that successfully accounts for the &#xA;  large average equity premium.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I've summarized this for my grandmother by saying that the most basic economic models explain the high equity premium by saying people are very risk adverse but if they are that risk adverse, other things make no sense, like how much people charge to do dangerous jobs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the 30 years since, much ink has been spilled on the subject of just what is causing the equity premiums in the historical record. Indeed, there is a huge book, the &#xA; &lt;a href=&quot;http://www.sciencedirect.com/science/book/9780444508997&quot; rel=&quot;nofollow&quot;&gt;Handbook of the Equity Risk Premium&lt;/a&gt; that just summarizes these results. I've read much of this book and I've come away a bit confused. There are so many explanations each capable of explaining much of the puzzle that the puzzle itself appears overdetermined. That is, if all the (or even several popular ) explanations are true, the question isn't &lt;strong&gt;&quot;why is the premium is so large?&quot;&lt;/strong&gt; but rather &lt;strong&gt;&quot;why is the premium so small?&quot;&lt;/strong&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What are we to conclude about this? All the explanations jointly can't be true, some are contradictory. For example, &lt;a href=&quot;http://faculty.chicagobooth.edu/pietro.veronesi/research/peso3.pdf&quot; rel=&quot;nofollow&quot;&gt;the peso and reverse-peso explanation&lt;/a&gt; says long run returns are likely lower than historical returns in the USA, while &lt;a href=&quot;https://www.academicwebpages.com/preview/mehra/pdf/Ch02-N50899.pdf&quot; rel=&quot;nofollow&quot;&gt;preference based explanations of the equity premium&lt;/a&gt; need an actual premium to explain. However, once we've eliminated the contradictory explanations, what then? What does one conclude about the individual explanations, the literature as a whole, and the underlying phenomenon?&lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2015-02-09T16:04:31.250" Title="What can we conclude from the overdetermined equity premium puzzle?" Tags="&lt;finance&gt;&lt;risk&gt;" AnswerCount="0" CommentCount="1" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="3314" PostTypeId="1" CreationDate="2015-02-09T20:21:16.447" Score="3" ViewCount="142" Body="&lt;p&gt;In a economy Arrow Debreau of pure exchange with two agents and two goods. With utility function of Leontief for agent B, where $U_b(x_b,y_b)=\min(x_b,y_b)$; and for agent A a simple Cobb-Douglas $U_a(x_a,y_a)=x_ay_a$ where the marginal rates of sustituion can´t be found because the concept of convergence can´t be applied. How do I solve this problem?&lt;/p&gt;&#xA;" OwnerUserId="2913" LastEditorUserId="108" LastEditDate="2015-02-10T13:57:56.270" LastActivityDate="2015-02-10T13:57:56.270" Title="How to find walrasian asignations?" Tags="&lt;microeconomics&gt;&lt;general-equilibrium&gt;&lt;pure-exchange-economy&gt;" AnswerCount="0" CommentCount="2" ClosedDate="2017-05-31T19:17:05.213" ContentLicense="CC BY-SA 3.0" />
  <row Id="3315" PostTypeId="1" CreationDate="2015-02-09T20:43:06.000" Score="5" ViewCount="129" Body="&lt;p&gt;In moment $t=0$ we bought option with expiration date $T=2$. The payoff function of this option is given by:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$f=(\max_{t\in[0,T]} S_t -110)^{+}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $S_t$ satisfies&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$dS_t=15dW_t$$&#xA;$$S_0=95$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Find probability $P(f\in[10,20])$. Use cumulative density function of standard normal distribution to express it.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Obviously&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$S_t=95+15W_t$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But i don't have any idea how can I move further. Any help please?&lt;/p&gt;&#xA;" OwnerUserId="2915" LastEditorUserId="108" LastEditDate="2015-02-10T15:32:57.623" LastActivityDate="2015-02-10T18:38:18.230" Title="Find probability that payoff function is in $[10,20]$" Tags="&lt;stochastic-processes&gt;&lt;stochastic-calculus&gt;&lt;asset-pricing&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3316" PostTypeId="2" ParentId="3315" CreationDate="2015-02-09T21:40:51.390" Score="2" Body="&lt;p&gt;Maybe I'm familiar with a completely different background of mathematical finance, but I'll drop my two cents anyways.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, note that &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \int d Wt $$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;is a stochastic integral and not easily integrable with standard methods. I hope you are preset with a tool of stochastic calculus.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The following method based on no-arbitrage was first introduced by Merton.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;We look for a derivative price based on the price of $S_t$, denoted by $\Pi(S_0)$&lt;/li&gt;&#xA;&lt;li&gt;You form a portfolio based on the underlying $S$ and the derivative $f$, with portfolio dynamics $dV_t = V_t (\omega_t^s \frac{dS_t}{S_t} + \omega_t^f \frac{df}{f} )$, where $\omega$ denotes the two weights on the portfolio&lt;/li&gt;&#xA;&lt;li&gt;These weights are chosen such that we &quot;kill&quot; the stochastic component $dW$&lt;/li&gt;&#xA;&lt;li&gt;We now have $dV_t = V_t k dt$&lt;/li&gt;&#xA;&lt;li&gt;Due to no-arbitrage, $k$ must be zero (there is no growth component on $S_t$ either)&lt;/li&gt;&#xA;&lt;li&gt;solve for $f$&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-02-09T21:40:51.390" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3317" PostTypeId="1" CreationDate="2015-02-09T22:15:03.617" Score="11" ViewCount="1049" Body="&lt;p&gt;Noticeable works about the impact of inflation on economic growth are dated back to the 90s.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, &lt;a href=&quot;http://research.stlouisfed.org/publications/review/96/05/9605rb2.pdf&quot; rel=&quot;noreferrer&quot;&gt;Barro (1995)&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;the impact effects from an increase in average inflation by 10 percentage points per year are a reduction of the growth rate of real per capita GDP by 0.2-0.3 percentage points per year and a decrease in the ratio of investment to GDP by 0.4-0.6 percentage points.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;He also shows outliers there:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/dI8FK.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://williameasterly.files.wordpress.com/2010/08/18_easterly_bruno_inflationcrisesandlongrungrowth_prp.pdf&quot; rel=&quot;noreferrer&quot;&gt;Bruno and Easterly, “Inflation Crises and Long-Run Growth”&lt;/a&gt; (1998), reiterate that extreme situations matter for growth:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;growth falls sharply during discrete high inflation crises, then recovers rapidly and strongly after inflation falls.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Since after these papers, no highly cited paper on topic appeared. Though there's Acemoglu et al., “Institutional Causes, Macroeconomic Symptoms” (2003), which is relevant in another sense.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a &lt;a href=&quot;http://www.bankofengland.co.uk/education/Documents/ccbs/handbooks/pdf/ccbshb29.pdf&quot; rel=&quot;noreferrer&quot;&gt;recent survey&lt;/a&gt; (2012), the Bank of England mentions without a reference that&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The consensus seems to be that&#xA;  above a threshold of around 3%–4%, inflation imposes welfare&#xA;  costs, while the plausible gains from reducing inflation below&#xA;  about 2% are unlikely to outweigh the advantages of a positive&#xA;  inflation target.&#xA;  There is even less guidance in the literature on the optimal&#xA;  level of inflation in developing and emerging countries,&#xA;  though Balassa-Samuelson effects imply that optimal&#xA;  inflation in these countries should be a little higher than in&#xA;  industrialised countries.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Apart from cross-country evidences, rare country studies are available. The &lt;a href=&quot;http://www.imf.org/external/pubs/ft/wp/2014/wp14222.pdf&quot; rel=&quot;noreferrer&quot;&gt;IMF on India (2014)&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Our findings suggest that, on average, there is a negative long-run relationship between&#xA;  inflation and economic growth in India. We also find statistically-significant inflation-growth threshold effects in the case of states with persistently-elevated inflation rates of above 5.5 percent. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Does the current academic consensus remain with Barro's 1995 paper? Are there any new estimates of the impact of inflation, threshold levels of inflation, and changes in inflation on long-term economic growth?&lt;/p&gt;&#xA;" OwnerUserId="240" LastEditorUserId="240" LastEditDate="2015-02-16T19:14:22.580" LastActivityDate="2015-02-16T19:14:22.580" Title="Inflation and economic growth" Tags="&lt;macroeconomics&gt;&lt;inflation&gt;&lt;academic-graduate&gt;&lt;economic-growth&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="3318" PostTypeId="2" ParentId="3317" CreationDate="2015-02-09T23:06:42.983" Score="6" Body="&lt;p&gt;Macro regressions, especially annual ones, have in general two flaws:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;They have small sample problems and&lt;/li&gt;&#xA;&lt;li&gt;They have no proper identification&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;In order to circumvent problem #1, people often assume that the DGP process behind different countries are the same, increasing observations from perhaps 60 to 600.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In order to attack #2, many people add timing assumptions. However, this is still no clear identification, these are still assumptions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To see the issue: Imagine high inflation at $t-5$, and low growth at $t$. Using a standard timing assumption, the former caused the latter. However, we like to think about agents as forward looking. Can we be &lt;em&gt;certain&lt;/em&gt; that expectations w.r.t. the latter didn't influence the former?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Especially because of #2, this type of regressions have lost popularity. Also, there is not really much more to do. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;tl;dr:&lt;/strong&gt; No important new results that I know of. &lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-02-09T23:06:42.983" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3319" PostTypeId="2" ParentId="3317" CreationDate="2015-02-10T00:23:12.357" Score="4" Body="&lt;p&gt;The strongest story I hear for the benefits of inflation is from undoing the nominal rigidities that make it difficult for some prices to adjust down. The most important of these rigidities is usually thought to be wages. People seem to really hate nominal wage cuts and wages are some of the most important prices in the economy. As such, economists have tried to quantify how large the nominal rigidities in wages are. For example:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://papers.ssrn.com/sol3/papers.cfm?abstract_id=3032&quot; rel=&quot;nofollow&quot;&gt;Inflation, Nominal Wage Rigidity, and the Efficiency of Labor Markets&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;If nominal wages cannot fall, then positive inflation may facilitate&#xA;  real wage adjustment. We examine data on individuals' wage changes and&#xA;  find only limited evidence of such downward nominal rigidity. The&#xA;  shape of the distribution of wage changes is little affected by the&#xA;  rate of inflation. About 8 percent of job stayers have zero nominal&#xA;  wage change, but we estimate that less than half of that spike&#xA;  represents truncation associated with downward nominal rigidity. We&#xA;  estimate that reducing inflation from four percent to zero would&#xA;  result in an additional 1/2 to 1 3/4 percent of peoplehaving&#xA;  constrained wages because of downward nominal rigidity, and our&#xA;  estimates of the associated welfare loss center on about&#xA;  five-hundredths of a percent of aggregate output.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/S0304393205000462&quot; rel=&quot;nofollow&quot;&gt;Robustness and real consequences of nominal wage rigidity&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Nominal wage rigidity has been shown to exist in periods of high&#xA;  inflation, while reduction in nominal pay has been hypothesized to&#xA;  occur in times of low inflation. Nominal wage rigidity would therefore&#xA;  become irrelevant because there is little need to cut nominal pay&#xA;  under high inflation, while the necessary cuts would occur under low&#xA;  inflation. We test this hypothesis by examining Swiss data in the&#xA;  1990s, where wage inflation was low. Nominal wage rigidity proves&#xA;  robust in a low inflation environment, constituting a considerable&#xA;  obstacle to real wage adjustments. Real wages would indeed respond to&#xA;  unemployment without downward nominal rigidity. Moreover, wage&#xA;  sweep-ups caused by nominal rigidity correlate strongly to&#xA;  unemployment, suggesting downward nominal wage rigidity fuels&#xA;  unemployment.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://onlinelibrary.wiley.com/doi/10.1111/j.1468-0297.2007.02094.x/abstract?deniedAccessCustomisedMessage=&amp;amp;userIsAuthenticated=false&quot; rel=&quot;nofollow&quot;&gt;Real and Nominal Wage Rigidities and the Rate of Inflation: Evidence from West German Micro Data&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;This article examines real and nominal wage rigidities in West&#xA;  Germany. Using regionally disaggregated register data for 1975–2001,&#xA;  we estimate the extent of both types of wage rigidities from the&#xA;  observed distribution of individual wage changes, taking into account&#xA;  possible measurement error. The fraction of workers facing wage&#xA;  increases that are caused by nominal and particularly real wage&#xA;  rigidity is substantial. The extent of real rigidity rises with&#xA;  inflation and falls with regional unemployment, whereas the opposite&#xA;  holds for nominal rigidity. Overall, the incidence of wage rigidity,&#xA;  which accelerates unemployment growth, is most likely minimised in a&#xA;  moderate inflation environment.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The empirical distribution of nominal rigidities could form a basis for an optimal inflation. There are other benefits and costs of inflation, but as @FooBar points out, many may be difficult to get good identification upon. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The somewhat confusingly titled paper &lt;a href=&quot;http://www.nber.org/chapters/c8883.pdf&quot; rel=&quot;nofollow&quot;&gt;The Costs and Benefits of Going from Low Inflation to Price Stability&lt;/a&gt; which actually considers going from 4 percent to 2 percent annual CPI growth. Martin Feldstein lays out four welfare costs and benefits of inflation: &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Consumption timing - inflation can act as a tax on savings&lt;/li&gt;&#xA;&lt;li&gt;Housing demand - create incentives to over invest in housing by increasing deduction&lt;/li&gt;&#xA;&lt;li&gt;Money demand - by raising the cost of holding money, inflation causes people hold too little &lt;/li&gt;&#xA;&lt;li&gt;Debt service - Lower inflation makes it more expensive to service existing debt&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Feldstein shows that total effects depend on parameters: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Table 3.1 summarizes all of the welfare changes that are discussed in&#xA;  the remaining sections of the paper. The specific assumptions and&#xA;  parameters values will be discussed there. With the parameter values&#xA;  that seem most likely, the overall total effect of reducing inflation&#xA;  from 2% to zero, shown in the lower right corner of the table, is to&#xA;  reduce the annual deadweight loss by between 0.63 and 1.01% of GDP.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-02-10T10:33:15.330" LastActivityDate="2015-02-10T10:33:15.330" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3320" PostTypeId="1" AcceptedAnswerId="3327" CreationDate="2015-02-10T03:29:01.783" Score="5" ViewCount="1932" Body="&lt;p&gt;I'm aware of the following four functions of money:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Medium of exchange.&lt;/li&gt;&#xA;&lt;li&gt;Measure of value (in dollars, pounds, etc.)&lt;/li&gt;&#xA;&lt;li&gt;Standard for exchanging goods (guaranteed by the Fed)&lt;/li&gt;&#xA;&lt;li&gt;A Store of value (as an asset).&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;AFAIK, the last one didn't exist according to Classical Economists, but only John Maynard Keynes brought it later in his theory.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I want to understand whether this function really exists? I'm more inclined to agree with the Classical Economists - &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've created a simple analogy to understand this. Suppose there is a small village where there are N residents who trade only in barter. Now, you introduce a new bank in the village called Banko and a currency called pebbles. (For simplicity, lets assume that Banko is both a central bank and also lends/borrows money).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now in order to leave barter and migrate to currency system, the villagers will have to either sell their goods to Banko, or borrow pebbles from them. So, there is a &quot;give and take&quot; or &lt;em&gt;exchange&lt;/em&gt; of pebbles against goods.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But at the end of the day, if you consider the &lt;strong&gt;overall macro-economic position&lt;/strong&gt;, the pebbles made no difference in &lt;em&gt;value&lt;/em&gt; at all.  The villager's &lt;em&gt;NET ENDOWMENT&lt;/em&gt; is same as it was before, the pebbles just facilitate transactions and used to count their assets now.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, my question is, if money doesn't make any difference to the REAL value of goods and services, how can it be considered an asset?&lt;/p&gt;&#xA;" OwnerUserId="2919" LastEditorUserId="2919" LastEditDate="2015-02-10T12:22:35.347" LastActivityDate="2015-02-11T07:58:58.730" Title="Does the money's &quot;Store of value&quot; function actually exists?" Tags="&lt;macroeconomics&gt;&lt;money-supply&gt;" AnswerCount="6" CommentCount="9" FavoriteCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="3321" PostTypeId="2" ParentId="3320" CreationDate="2015-02-10T03:44:42.760" Score="0" Body="&lt;p&gt;Money can be seen as a store of value in your thought experiment and in reality. If you have many pebbles, you can choose to keep those pebbles where convenient in lieu of having other assets. Money is an asset where it can be readily be exchanged for other, more tangible assets.&lt;/p&gt;&#xA;" OwnerUserId="40" LastActivityDate="2015-02-10T03:44:42.760" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="3322" PostTypeId="2" ParentId="3320" CreationDate="2015-02-10T04:57:01.047" Score="2" Body="&lt;p&gt;This is similar to what has already been said and it depends on what you classify as an asset. Money,  although intrinsically worthless, maintains some worth which allows you to purchase in the future.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are three papers that I found really interesting on the subject (and I don't remember them being overly technical).  They are three Kiyotaki Wright papers (1989, 1991, 1993).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These papers basically set up a very simple economy (the one I'm thinking of has n goods and n agents).  They then show what trade would look like in these economies without money and then what it would look like with the money. And one of the papers gets people basically establishing money (by saving a certain type of good which everyone accepts in trade).  The others show that if you insert money into the economy then you are better off.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, worth looking into if this is interesting to you is Neil Wallace's idea of &quot;essentiality of money.&quot;&lt;/p&gt;&#xA;" OwnerUserId="47" LastActivityDate="2015-02-10T04:57:01.047" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="3323" PostTypeId="2" ParentId="3320" CreationDate="2015-02-10T07:29:04.597" Score="1" Body="&lt;p&gt;&quot;Store of value&quot; is part of the definition of money. That is to say, it's not really meaningful to ask &quot;is money a store of value&quot;, because if it wasn't a store of value, it wouldn't be money.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If a purported currency can't be exchanged for assets next week, next month, in a very similar manner to how it can be exchanged today, then it's not money. No one can trust it enough to accept it in exchange for goods and services. It doesn't have the option value of: consume now versus consume later.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your analogy confuses wealth with money. They overlap, but are not identical. In your example, the bank has no wealth unless people accept that trade must occur with pebbles: in that case, the bank is indeed wealthy, because it has all the pebbles, and everyone else has to give up something in order to access the pebbles.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2015-02-10T07:29:04.597" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="3324" PostTypeId="1" CreationDate="2015-02-10T08:03:49.730" Score="2" ViewCount="725" Body="&lt;p&gt;I think that differences in climate is one key factor but I think it could be explained by David Ricardo's theory on international trade differences??? &lt;/p&gt;&#xA;" OwnerUserId="2921" LastActivityDate="2015-02-11T12:46:22.173" Title="Why do rich and poor countries trade in different goods and why do rich countries trade in similar goods with other rich countries?" Tags="&lt;international-trade&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="3325" PostTypeId="2" ParentId="3299" CreationDate="2015-02-10T08:52:48.927" Score="3" Body="&lt;p&gt;As you stated the strategy set in the traditional chicken game has two elements and in the Akagi version it is an interval, so there will be no bijective mapping between the two.&#xA;If I misunderstood and you are using a different notion of equivalence please clarify.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also as you state in the Akagi version there are weakly dominant strategies but in the traditional version there are none. I believe the story of the traditional version is rather about two cars driving towards each other and you have to decide whether to swerve at the last moment or trust that the other driver will. Even if you were to extend the strategies to allow swerving before the last moment this game would differ from the Akagi version, because here not swerving at all is better than swerving at the last moment if the other driver swerves at last moment whereas swerving at the last moment is better if the other does not swerve at all, hence there are no weakly dominant strategies.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2015-02-10T09:59:53.133" LastActivityDate="2015-02-10T09:59:53.133" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3326" PostTypeId="2" ParentId="3320" CreationDate="2015-02-10T09:17:55.150" Score="0" Body="&lt;p&gt;&lt;em&gt;The villager's NET WORTH is same as it was before&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Before they had money, they didn't have a net worth. What would the worth be denominated in? They had an inventory of assets, but if they're bartered in an adhoc fashion it's not sensible to compute a net worth figure. If they're bartered in a highly consistent fashion against some common article of trade (e.g. knives), such that you can calculate an asset value, then it's not much of a stretch to call that article money, such as the &quot;&lt;a href=&quot;http://en.wikipedia.org/wiki/Knife_money&quot; rel=&quot;nofollow&quot;&gt;knife money&lt;/a&gt;&quot; in historical China.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can see the reverse of this in the real economy. Fluctuating house prices cause the total value of the housing stock to move up and down, without the stock itself changing.&lt;/p&gt;&#xA;" OwnerUserId="2922" LastActivityDate="2015-02-10T09:17:55.150" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3327" PostTypeId="2" ParentId="3320" CreationDate="2015-02-10T12:04:04.550" Score="6" Body="&lt;p&gt;What is &lt;em&gt;value&lt;/em&gt;? Ultimately, value flows from the utility people get from consuming goods and services.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, suppose, in your example world, I am a farmer and it is Autumn so I have the product of a large harvest. Here are three things I could do with it:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Consume (and thereby enjoy the value of) my entire harvest immediately. But this would leave me hungry in the winter.&lt;/li&gt;&#xA;&lt;li&gt;Store some food for later: Put some of the grain I produced into a silo and take it out of the silo to eat in the winter.&lt;/li&gt;&#xA;&lt;li&gt;Sell some of my food to the bank in return for pebbles. Then, later in the winter, use those pebbles to buy back some food when my supply has run out.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Notice that points 2 and 3 are essentially equivalent (they result in the same distribution of consumption across time). In the former, I am directly storing food. In the latter, I am using the pebbles to &lt;em&gt;store the value&lt;/em&gt; associated with the food until I want to claim that value back.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Although the store of value is really just an abstract implementation of the physical storage of the goods generating that value, this distinction becomes important in more sophisticated economies. Storing value rather than storing the goods that generate that value is attractive for a few reasons.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Many goods and services are hard to store. For example, as an economics professor it is impossible for me to &quot;store&quot; lectures during the autumn for use in the summer when I can't find any students to teach. How do I avoid starving during these long, studentless summer months? I take the (hopefully positive) value my lectures produce during the autumn and store this value in money. I can then claim this value back during the summer when I need it.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Storage of physical stuff takes up a lot of space and is expensive. Storage of money is much less so. Similarly, transporting stuff is expensive. With a bank card it becomes unnecessary to transport money at all. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Storage is often wasteful because it involves stuff sitting around doing nothing when it could be generating utility for someone.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2015-02-11T07:58:58.730" LastActivityDate="2015-02-11T07:58:58.730" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="3328" PostTypeId="2" ParentId="2954" CreationDate="2015-02-10T13:18:31.807" Score="3" Body="&lt;p&gt;For alternative measurements of risk, consider:&#xA;1. Maximum Adverse Excursion [MAE]- the largest historical loss suffered by a system, trade or investment whether real or back-test.&#xA;2. Average True Range [ATR] a measure of price change capturing high/low/close and gaps:&#xA;&lt;a href=&quot;http://stockcharts.com/school/doku.phpd=chart_school:technical_indicators:average_true_range_atr&quot; rel=&quot;nofollow&quot;&gt;http://stockcharts.com/school/doku.phpd=chart_school:technical_indicators:average_true_range_atr&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="2924" LastActivityDate="2015-02-10T13:18:31.807" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3329" PostTypeId="2" ParentId="3315" CreationDate="2015-02-10T16:20:27.943" Score="3" Body="&lt;p&gt;Generally:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$P(f\in[10,20]) = P(120 \leq S_t \leq 130) = P(S_t \leq 130) - P(S_t \leq 120)$ &#xA;That is, the probability that the option is between 10 and twenty is the same that the stock is between 120 and 130. The probability that the stock is between 120 and 130 is the probability the stock is less than 130 minus the probability that it is less than 120. If you are a more visual person consider this picture:&#xA;&lt;img src=&quot;https://i.stack.imgur.com/aRqX5.gif&quot; alt=&quot;CDF to calculate interior prob&quot;&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.mathwave.com/articles/calculate-probability-distributions.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Source MathWave&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we know that $W_t$ follows a driftless-Wiener process that:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$W_t - W_0 \sim N(0, 15^2t) \rightarrow S_t \sim N(95, 15^2t)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If $S_t \sim N(95, 15^2t)$ then $P(S_t \leq 130) = $ prob. that a normal random variable with mean 95 and std. deviation 15t which is just the cumulative distribution function (CDF) of that normal random variable. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here, that CDF is $\Phi( (x-95) / (15 \sqrt(t)))$, where $\Phi$ is the CDF of the standard normal. So the answer is $$\Phi( (130-95) / (15 \sqrt t)) - \Phi( (120-95) / (15 \sqrt t))$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Update:&#xA;I thought that this was a simple option payoff but this is actually a trickier problem because it is a look back option taking the maximum stock value from 0 to 2. The general idea with this more complex problem is we are studying the maximum of a Wiener process motion rather than the Wiener process itself. &lt;a href=&quot;http://www.yats.com/doc/stats-en.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Stochastic Processes and Related Distributions by Daniel Herlemont&lt;/a&gt;, section 2 should be of some help. But I don't have a solution to this problem at this time. &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-02-10T18:38:18.230" LastActivityDate="2015-02-10T18:38:18.230" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="3330" PostTypeId="2" ParentId="3320" CreationDate="2015-02-10T20:53:08.503" Score="1" Body="&lt;p&gt;Money, as a store of value, can affect macroeconomic allocations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The classical reference is &lt;a href=&quot;http://www.jstor.org/stable/1826989?seq=1#page_scan_tab_contents&quot; rel=&quot;nofollow&quot;&gt;Samuelson 1958&lt;/a&gt; (google for the paper if you don't have access to it).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In your example, all the traders meet at the marketplace at once and exchange goods. In this case, you are right to say that although money makes trading more convenient, it does not affect the end allocations (as long as people have the time and patience necessary).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Samuelson consider a different setup, where all agents cannot meet in the same marketplace at once, because some of them are not born yet. A simplified version of his model looks as follows:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Time is infinite and discrete, $t=0,1,2,\ldots$.&lt;/li&gt;&#xA;&lt;li&gt;In each period $t$, a generation $t$ consisting of $1$ person is born. A generation lives in two periods (so generation $t$ lives in periods $t$ and $t+1$. People are born without any assets.&lt;/li&gt;&#xA;&lt;li&gt;In period $0$, there already exists a generation $-1$ of old people. They have nothing.&lt;/li&gt;&#xA;&lt;li&gt;People work when they are young, and produce $1$ apple. When they are old, they cannot produce anything. Apples rot if they are not eaten the same day they are produced (they are not storable).&lt;/li&gt;&#xA;&lt;li&gt;People get utility $u(c^y)+u(c^o)$ if they consume $c^y$ apples when they are young and $c^o$ apples when they are old. $u$ is concave, for concreteness, let $u(c) = \sqrt{x}$.&lt;/li&gt;&#xA;&lt;li&gt;In each period, people can trade with each other.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;In this model, the following will happen: In time $0$, generation $0$ will produce $1$ apple. Since generation $-1$ has nothing to offer them, no trade will occur and generation $0$ will consume the apple themselves. In time $1$, generation $1$ will produce $1$ apple. Since generation $0$ has nothing to offer generation $1$, generation $1$ will consume the apple themselves. And so on. Every generation will consume $1$ apple when young and $0$ apples when old (except generation $-1$ who will consume $0$ apples when old but will not exist when young). The utility of each generation will be $u(1)+u(0)=1$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now consider what happens if the initial old have a piece of paper that we call money. Let us say that the piece of paper is considered to be worth $0.5$ apples. What will people do?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The initial old will obviously swap their piece of paper for $0.5$ apples (they are about to die and have no reason to die with a piece of paper in their hands instead of apples in their bellies). Will the young accept the trade? They have one apple today, but no income tomorrow. Since their utility is concave, they would prefer to consume a little bit today and a little bit tomorrow rather than all at once today. Therefore, they accept the trade, and give up $0.5$ apples today for the piece of paper, &lt;em&gt;with the expectations of being able to swap the paper tomorrow for apples tomorrow&lt;/em&gt;. In period $1$, the old will happily swap their piece of paper for $0.5$ apples, and the young will accept the trade for the exact same reason as the young of period $0$ accepted the trade. Every generation will consume $0.5$ apples when young and $0.5$ apples when old (except generation $-1$ who will consume $0.5$ apples when old, and not exist young). The utility of each generation is $\sqrt{0.5}+\sqrt{0.5} = \sqrt{2}&amp;gt;1$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The introduction of &quot;the social contrivance of money&quot; affected macroeconomic outcomes, and in fact made everyone better of. Note that we can equally well call the worthless paper in this model &quot;government bond&quot; or a pay-as-you-go retirement scheme promise.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This little exposition is informal, and I definitely cut a bunch of corners. Read the paper, or any good textbook exposition of overlapping generation models (OLG).&lt;/p&gt;&#xA;" OwnerUserId="2917" LastActivityDate="2015-02-10T20:53:08.503" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3331" PostTypeId="2" ParentId="3288" CreationDate="2015-02-10T21:22:15.177" Score="2" Body="&lt;p&gt;I have some difficulties parsing your question (especially the &quot;this&quot; in &quot;it could be the case, an event is a proper subset of the event that player i knows this event obtains with probability one, but never the case for knowledge operator with absolute certainty&quot;) so maybe what I am proposing here is &quot;trivial&quot; (and therefore not what you are looking for). But I don't have enough reputation to comment so this ends up an &quot;answer&quot; anyway. See it as a question asking for clarification.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $X\sim Unif([0,5])$ be a random variable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $E_1=\{X\in [0,5]\}$. The agent knows with certainty $E_1$, since the agent knows with certainty that $X\sim Unif([0,5])$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $E_2 = E_1\setminus \{3.14\}$. That is, $E_2$ is the event that $X$ is not $3.14$. Now, $P(E_2)=1$ so the agent knows with probability $1$ that $E_2$. However, the agent does not know $E_2$ with absolute certainty since it is possible (but only with probability $0$) that $X$ is in fact $3.14$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this what you have in mind?&lt;/p&gt;&#xA;" OwnerUserId="2917" LastActivityDate="2015-02-10T21:22:15.177" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="3332" PostTypeId="1" AcceptedAnswerId="3335" CreationDate="2015-02-10T22:26:53.383" Score="3" ViewCount="45" Body="&lt;p&gt;Jovanovic (1982) cites Du Rietz (1975) as a source for&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Survival Rates of smaller firms are smaller than for larger firms&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;It's his doctoral thesis, and using Swedish data. Is there any recent evidence on this for the United States?&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-02-11T04:03:53.510" Title="Survival Rates of Firms" Tags="&lt;industrial-organisation&gt;&lt;academic-graduate&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3333" PostTypeId="2" ParentId="3308" CreationDate="2015-02-10T23:48:00.387" Score="7" Body="&lt;p&gt;Yes, there is always a pure Nash equilibrium. See:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I Milchtaich (1996). Congestion games with player-specific payoff functions. &#xA;&lt;em&gt;Games and economic behavior&lt;/em&gt; 13 (1), 111-124.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You are interested in the special case of &lt;strong&gt;singleton&lt;/strong&gt; congestion games with player-specific payoff functions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And yes, they can be computed in polynomial time. See Corollary 7 in:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Heiner Ackermann, Heiko Röglin, Berthold Vöcking (2009). Pure Nash equilibria in player-specific and weighted congestion games. &lt;em&gt;Theoretical Computer Science&lt;/em&gt; 410 (17), 1552-1563.&lt;/p&gt;&#xA;" OwnerUserId="2926" LastEditorUserId="2926" LastEditDate="2015-02-11T07:33:03.680" LastActivityDate="2015-02-11T07:33:03.680" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="3334" PostTypeId="1" AcceptedAnswerId="3339" CreationDate="2015-02-11T02:56:32.117" Score="2" ViewCount="20" Body="&lt;p&gt;Do US non-profit organizations with tax exemption under Section 501(c)(3) of its Internal Revenue Code which have investments (such as university endowment funds) have to divulge these investments in any sort of filings? If so, are these required to be available to the public?&lt;/p&gt;&#xA;" OwnerUserId="2927" LastEditorUserId="2927" LastEditDate="2015-02-11T16:49:18.890" LastActivityDate="2015-02-11T16:49:18.890" Title="Do US 501(c)(3) non-profits have to divulge their investments?" Tags="&lt;taxation&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3335" PostTypeId="2" ParentId="3332" CreationDate="2015-02-11T04:03:53.510" Score="2" Body="&lt;p&gt;This is unlikely to be a published result in its own right, simply since it is publicly available &lt;a href=&quot;http://www.census.gov/ces/dataproducts/bds/data_firm.html&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;  (click on the row Firm Age).&lt;/p&gt;&#xA;" OwnerUserId="2917" LastActivityDate="2015-02-11T04:03:53.510" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3336" PostTypeId="1" AcceptedAnswerId="3337" CreationDate="2015-02-11T10:00:07.557" Score="4" ViewCount="3420" Body="&lt;p&gt;Consider a consumer who can consume either A or B, with the quantities being denoted by $a$ and $b$ respectively. If the utility function of the consumer is given by $$-[(10-a)^2+(10-b)^2]$$(suppose prices of both goods are equal to $1$), then solve for optimal consumption of the consumer when his income is $40$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My approach: I have the problem: $$max(-[(10-a)^2+(10-b)^2])$$ $$s.t.\ a+b \le 40,\ a\ge 0,\  b\ge 0.$$ Looking at the objective function, we see that it's maximum value is $0$ when $a=b=10$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Am I right here?&lt;/p&gt;&#xA;" OwnerUserId="2763" LastActivityDate="2015-02-11T13:18:21.157" Title="Solving for optimal consumption bundle" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3337" PostTypeId="2" ParentId="3336" CreationDate="2015-02-11T11:42:33.167" Score="5" Body="&lt;p&gt;Yes, you are correct. That solution implies a utility of $0$, while any other solution necessarily will give you negative utility.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is an odd problem for its violation of local nonsatiation: It is indeed optimal for the household to throw away the rest of his income.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Update&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's add the &lt;em&gt;either a or b&lt;/em&gt; and see what happens:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$max(-[(10-a)^2+(10-b)^2])$$ $$s.t.\ a+b \le 40,\ a\ge 0,\  b\ge 0,\ ab=0.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The optimal solution set now contains $\{(10, 0), (0, 10)\}$. The preferences between this one are still globally satiated at $(10,10)$, but as the point is not feasible, we set one of the coordinates to that value and keep the other one at $0$.&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2015-02-11T13:18:21.157" LastActivityDate="2015-02-11T13:18:21.157" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="3338" PostTypeId="2" ParentId="3324" CreationDate="2015-02-11T12:46:22.173" Score="2" Body="&lt;p&gt;The key is production capabilities, not relative specialization. In words of &lt;a href=&quot;http://www.hks.harvard.edu/fs/drodrik/Research%20papers/doomed.pdf&quot; rel=&quot;nofollow&quot;&gt;Hausmann and Rodrik (2006)&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The idea that rich (poor) countries tend to export goods exported by other rich&#xA;  (poor) countries is quite obvious and is compatible with many possible theories. For&#xA;  example, in conventional trade theory a la Heckscher-Ohlin, countries export products&#xA;  that are more intensive in the factors of production that are relatively abundant at home.&#xA;  As development takes place, physical, human and institutional capital is accumulated and&#xA;  the products countries export become more intensive in these factors. ...&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Labor-abundant countries trade with land- or capital-abundant countries in order to&#xA;  acquire more efficiently the goods that are intensive in the factors they don’t have. The&#xA;  transition between goods is of little significance: they are the passive consequence of&#xA;  changing factor endowments.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="240" LastActivityDate="2015-02-11T12:46:22.173" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3339" PostTypeId="2" ParentId="3334" CreationDate="2015-02-11T13:34:46.743" Score="1" Body="&lt;p&gt;&lt;a href=&quot;http://www.irs.gov/pub/irs-access/f990_accessible.pdf&quot; rel=&quot;nofollow&quot;&gt;Form 990&lt;/a&gt; and associated schedules:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The Form 990 provides the public with financial information about a&#xA;  nonprofit organization, and is often the only source of such&#xA;  information. It is also used by government agencies to prevent&#xA;  organizations from abusing their tax-exempt status. In June 2007, the&#xA;  IRS released a new Form 990 that requires significant disclosures on&#xA;  corporate governance and boards of directors. These new disclosures&#xA;  are required for all nonprofit filers for the 2009 tax year, with more&#xA;  significant reporting requirements for nonprofits with over \$1 million&#xA;  in revenues or \$2.5 million in assets. In addition, certain nonprofits&#xA;  have more comprehensive reporting requirements, such as hospitals and&#xA;  other health care organizations (Schedule H). The Form 990 may be&#xA;  filed with the IRS by mail or electronically with an Authorized IRS&#xA;  e-file Provider.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The Form 990 disclosures do not require but strongly encourage&#xA;  nonprofit boards to adopt a variety of board policies regarding&#xA;  governance practices. These suggestions go beyond Sarbanes-Oxley&#xA;  requirements for nonprofits to adopt whistleblower and document&#xA;  retention policies. The IRS has indicated they will use the Form 990&#xA;  as an enforcement tool, particularly regarding executive compensation.&#xA;  For example, nonprofits that adopt specific procedures regarding&#xA;  executive compensation are offered safe harbor from excessive&#xA;  compensation rules under section 4958 of the Internal Revenue Code and&#xA;  Treasury Regulation section 53.4958-6.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://en.wikipedia.org/wiki/IRS_tax_forms#990&quot; rel=&quot;nofollow&quot;&gt;Wikipedia on Form 990&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In particular, &lt;a href=&quot;http://www.irs.gov/pub/irs-pdf/f990sd.pdf&quot; rel=&quot;nofollow&quot;&gt;SCHEDULE D.&lt;/a&gt; The level of detail is not rich but the information is public enough for &lt;a href=&quot;http://www.charitynavigator.org/index.cfm?bay=content.view&amp;amp;cpid=32&quot; rel=&quot;nofollow&quot;&gt;Charity Navigator&lt;/a&gt; to make use of these filings in their evaluations. You can &lt;a href=&quot;http://foundationcenter.org/findfunders/990finder/&quot; rel=&quot;nofollow&quot;&gt;search for a charity's form 990 here&lt;/a&gt;. &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2015-02-11T13:34:46.743" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3340" PostTypeId="1" AcceptedAnswerId="5545" CreationDate="2015-02-11T14:30:01.747" Score="12" ViewCount="2673" Body="&lt;p&gt;I have encountered the equilibrium concept of &quot;Stackelberg leader-leader equilibrium&quot; while reading &lt;a href=&quot;http://www.jstor.org/stable/1804010?seq=1#page_scan_tab_contents&quot;&gt;Product Line Rivalry&lt;/a&gt; (AER, Brander and Eaton (1984). They say &quot;we define a Stackelberg strategy as one which involves taking into account the contemporaneous reaction of one's rival in setting one's own strategy&quot;. That definition does not really help me.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;They also mention that this equilibrium concept is another way of interpreting the &lt;a href=&quot;http://books.google.com/books?id=dghH9OH5fDoC&amp;amp;lpg=PR7&amp;amp;ots=OZR6MfPESK&amp;amp;dq=Market%20Structure%20and%20Equilibrium&amp;amp;lr&amp;amp;pg=PP1#v=onepage&amp;amp;q&amp;amp;f=false&quot;&gt;original&lt;/a&gt; &lt;a href=&quot;http://en.wikipedia.org/wiki/Stackelberg_competition&quot;&gt;Stackelberg model&lt;/a&gt; (which I know). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does anyone have a reference or an explanation ? Of course, Google only returns results on the leader-follower game.&lt;/p&gt;&#xA;" OwnerUserId="225" LastEditorUserId="4578" LastEditDate="2015-05-11T17:23:56.080" LastActivityDate="2015-05-11T17:23:56.080" Title="What is the definition of a &quot;Stackelberg leader-leader equilibrium&quot;?" Tags="&lt;game-theory&gt;&lt;academic-graduate&gt;&lt;nash-equilibrium&gt;" AnswerCount="2" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="3341" PostTypeId="2" ParentId="3296" CreationDate="2015-02-11T15:05:17.733" Score="0" Body="&lt;p&gt;I believe you will need a Demand &lt;strong&gt;and&lt;/strong&gt; Supply Curve to find Equilibrium Price, i.e. the intersection of both.&lt;/p&gt;&#xA;" OwnerUserId="2924" LastActivityDate="2015-02-11T15:05:17.733" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3342" PostTypeId="2" ParentId="3079" CreationDate="2015-02-11T15:12:27.900" Score="-2" Body="&lt;p&gt;Last analogue in US was Nixon years:  Price Controls first, interest rate changes second.&lt;/p&gt;&#xA;" OwnerUserId="2924" LastActivityDate="2015-02-11T15:12:27.900" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3343" PostTypeId="1" CreationDate="2015-02-11T16:55:58.787" Score="6" ViewCount="167" Body="&lt;p&gt;I know there are lots of &lt;a href=&quot;https://www2.bc.edu/james-anderson/GravityModel.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;gravity models in economics&lt;/a&gt; that take as an input distance between countries. My understanding is distance is typically coded based on the &lt;a href=&quot;http://research.stlouisfed.org/publications/review/99/01/9901hw.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;distance between capital cities&lt;/a&gt;, either in &lt;span class=&quot;math-container&quot;&gt;$L_2$&lt;/span&gt; norm or &lt;a href=&quot;http://en.wikipedia.org/wiki/Great-circle_distance&quot; rel=&quot;nofollow noreferrer&quot;&gt;great-circle distance&lt;/a&gt;. Most countries are small relative to the distances between them, and so maybe it doesn't matter much how they code the center of these countries for purposes of trade. But in my application I'm looking at US states, and many states are large enough that the internal placement of the location for calculating distances between states makes a difference. Additionally, state capitals are often not the economic center of the state (Carson City, NV and Albany, NY come to mind) nor the geographic center (North Folk, CA is hours away from Sacramento, CA), so I don't know of obvious choices.&lt;/p&gt;&#xA;&lt;p&gt;Are there any standard choices I should know about here?&lt;/p&gt;&#xA;&lt;p&gt;As a resource to others here are some sample data:&lt;/p&gt;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://dev.maxmind.com/geoip/legacy/codes/state_latlon/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Average Latitude and Longitude for US States&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.census.gov/geo/reference/centersofpop.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;US Census Centers of Population&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://en.wikipedia.org/wiki/Geographic_centers_of_the_United_States&quot; rel=&quot;nofollow noreferrer&quot;&gt;List of geographic centers of each U.S. state&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&lt;p&gt;Would anyone provide a list of the economic center of each state?&lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2015-03-23T19:43:23.930" Title="Are there conventions in economics for coding the distance between states?" Tags="&lt;applied-econometrics&gt;&lt;academic-graduate&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="3344" PostTypeId="1" AcceptedAnswerId="4564" CreationDate="2015-02-11T19:38:17.660" Score="3" ViewCount="127" Body="&lt;p&gt;I am very confused regarding the corporate income tax. Please explain me the following scenario:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;Teddy Bears Company&quot; buys stocks of 1000 euro (VAT added). Then, in 1 month sells everything with 1500 euro and makes a profit of 500 euro.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where comes the income tax? On the profit of 500 euros or on the income of 1500 euros?&lt;/p&gt;&#xA;" OwnerUserId="2933" LastActivityDate="2015-02-27T03:02:54.117" Title="How does corporate income tax apply?" Tags="&lt;taxation&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="3345" PostTypeId="1" CreationDate="2015-02-11T19:45:01.773" Score="2" ViewCount="122" Body="&lt;p&gt;I got my hands on an interesting dataset of property transfers covering four decades and I'm unsure of how to properly inflate prior-year sale prices.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I typically use the 'bushel basket' metro CPI-U to adjust dollar amounts, but I'm wondering if I should specifically use the 'housing' index instead of the full bushel basket? What would be the benefits/drawbacks of using the more targeted price index?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Additionally, what sort of price index should I use to adjust commercial property transfers if I were to include those into the analysis?&lt;/p&gt;&#xA;" OwnerUserId="2934" LastActivityDate="2015-02-11T19:45:01.773" Title="Using the CPI to inflate real estate prices" Tags="&lt;inflation&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="3346" PostTypeId="1" CreationDate="2015-02-11T21:53:55.177" Score="6" ViewCount="108" Body="&lt;p&gt;I'm trying to find a short (~100 page) book by Herbert A. Simon in which he presents a simplified economics in which there is only one item of value and it is called the 'Bread-brick'. One can eat a breadbrick, or sell it, or store it, etc. He uses this simple world to illustrate certain topics in the study of economics. I have been looking for it for ages, and I don't know the title. I've googled endlessly, and perused all Simons books on google reader but I have come to nothing.&lt;/p&gt;&#xA;" OwnerUserId="2936" LastActivityDate="2015-05-07T20:14:52.593" Title="Looking for the title of a short (~100 page) Herbert Simon book about &quot;Bread-bricks&quot;" Tags="&lt;mathematical-economics&gt;&lt;theory&gt;&lt;reference-request&gt;&lt;simulations&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3347" PostTypeId="2" ParentId="3224" CreationDate="2015-02-11T23:13:57.173" Score="1" Body="&lt;p&gt;If I refuse to pay its a default.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you say I don't have to pay its a write-off.&lt;/p&gt;&#xA;" OwnerUserId="2937" LastActivityDate="2015-02-11T23:13:57.173" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3348" PostTypeId="2" ParentId="3130" CreationDate="2015-02-11T23:28:57.547" Score="-2" Body="&lt;p&gt;They have a procedure to make it look like it isn't what it actualy is - dictat.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem is that if we accept the reality we may all clammer for more money creation and eventually destroy the value of it, as happened many times in the past.&lt;/p&gt;&#xA;" OwnerUserId="2937" LastActivityDate="2015-02-11T23:28:57.547" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3349" PostTypeId="2" ParentId="3101" CreationDate="2015-02-11T23:31:31.610" Score="-2" Body="&lt;p&gt;When strawberries are in season they are cheaper.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The only thing that has changed is the supply.&lt;/p&gt;&#xA;" OwnerUserId="2937" LastActivityDate="2015-02-11T23:31:31.610" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3350" PostTypeId="2" ParentId="3067" CreationDate="2015-02-11T23:33:49.207" Score="0" Body="&lt;p&gt;Cheap money makes it worthwhile doing stupid things.&lt;/p&gt;&#xA;" OwnerUserId="2937" LastActivityDate="2015-02-11T23:33:49.207" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="3351" PostTypeId="2" ParentId="1920" CreationDate="2015-02-11T23:44:35.450" Score="0" Body="&lt;p&gt;To the average citizen the difference between no government debt and a bit is irrelevant.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It becomes relevant when the debt is very large or when the government wants or needs to borrow and no one wants to lend.&lt;/p&gt;&#xA;" OwnerUserId="2937" LastActivityDate="2015-02-11T23:44:35.450" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3352" PostTypeId="1" CreationDate="2015-02-12T03:30:00.583" Score="2" ViewCount="8937" Body="&lt;p&gt;Can anybody explain to me the income offer curve? Is it a relationship between $x_1$ and $m$? If the budget equation is $p_1x_1+p_2x_2=m$? With income being the variable $m$?&lt;/p&gt;&#xA;" OwnerUserId="2939" LastEditorUserId="43" LastEditDate="2015-02-12T15:47:55.177" LastActivityDate="2019-04-13T06:25:10.450" Title="Income Offer Curve In Basic Microeconomics" Tags="&lt;microeconomics&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3353" PostTypeId="1" AcceptedAnswerId="3355" CreationDate="2015-02-12T08:22:28.447" Score="3" ViewCount="128" Body="&lt;p&gt;I live in a developing country, where unemployment is at roughly 25%. There is a large divergence in population whereby skilled workers are typically active within in the manufacturing, finance, tourism, retail  etc. sectors, however the bulk of the unskilled population typically would/could find employment in other sectors such as Manufacturing(again), Mining, Agriculture, construction and the like. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem is, within a highly unionised country, minimum wage is set to first world standards whereby its mostly cheaper to export our raw materials, and buy back finished products from China, India etc. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there a timing factor associated with implementation of minimum wage? surely there are natural supply vs demand factors at play in determining minimum wage. would it not be better to reach a critical mass in the labor force whereby skills, infrastructure &amp;amp; techniques are at par with international competition.  &lt;/p&gt;&#xA;" OwnerUserId="2940" LastActivityDate="2015-02-18T11:54:28.607" Title="Should minimum wage be regulated for developing countries" Tags="&lt;labor-economics&gt;&lt;minimum-wage&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="3354" PostTypeId="1" AcceptedAnswerId="3356" CreationDate="2015-02-12T08:40:54.300" Score="0" ViewCount="51" Body="&lt;p&gt;What I have typed in the title is all I want to know.&lt;/p&gt;&#xA;" OwnerUserId="2941" LastActivityDate="2015-02-12T13:11:46.827" Title="How does an increase in domestic interest rate increase capital inflow?" Tags="&lt;international-trade&gt;&lt;balance-of-trade&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3355" PostTypeId="2" ParentId="3353" CreationDate="2015-02-12T11:57:20.047" Score="3" Body="&lt;p&gt;A welfare or efficiency enhancing minimum wage can be justified in several theoretical settings. For example, if there is monopsony (a single employer), the employer can internalize the effect of his labor demand on the labor market price (the wage) and therefore holds down both labor demand and wages. A minimum wage can therefore increase both employment and wages. In a developing country with a dominant industry like resource extraction or tourism controlled by a small number of connected families, this might be a decent model and therefore an industry specific minimum wage perhaps could work. Another theoretical motivation, if an industry has inelastic labor demand, due to pricing power in the good markets and low substitutability of other inputs for labor (maybe French wine would be an example of this), then the minimum wage could raise wages without great inefficiencies or reduced employment. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course economists dispute if those settings hold in practice. Emigration, competition in factor or product markets, and labor market competition across industries can lead to competitive wage setting even in monopsonistic industries. And minimum wages may work, and yet we might not have a good model for why. Or they might be helpful in the short-run but harmful in the long run. The empirical evidence of the short-run costs and benefits of small minimum wages changes does not show they are particularly harmful, even if we have good reason to think that the long run costs and the costs of large minimum wage increases would be significantly larger.  &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-02-18T11:54:28.607" LastActivityDate="2015-02-18T11:54:28.607" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3356" PostTypeId="2" ParentId="3354" CreationDate="2015-02-12T13:11:46.827" Score="0" Body="&lt;p&gt;There is no domestic interest rate; there is a world interest rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What you presumably mean to ask is:  How is that a change in the world interest rate, caused by a change in domestic supply or demand, increases capital inflow?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Answer:  Because the foreign supply and demand for output are being held constant, an increase in the interest rate leads foreigners to produce more and consume less.  The excess has to go somewhere, i.e. it has to be lent to a non-foreigner, i.e. to a domestic citizen.&lt;/p&gt;&#xA;" OwnerUserId="250" LastActivityDate="2015-02-12T13:11:46.827" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3357" PostTypeId="5" CreationDate="2015-02-12T15:45:29.460" Score="0" Body="&lt;p&gt;This tag is meant to help mark questions that are at an expert level---these are for academics and graduate students in economics. The tag was first proposed and created here: &lt;a href=&quot;https://economics.meta.stackexchange.com/a/1278/59&quot;&gt;https://economics.meta.stackexchange.com/a/1278/59&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="-1" LastEditorUserId="59" LastEditDate="2018-01-24T22:07:59.463" LastActivityDate="2018-01-24T22:07:59.463" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3358" PostTypeId="4" CreationDate="2015-02-12T15:45:29.460" Score="0" Body="Expert level questions which do not arise prior to graduate studies in economics. " OwnerUserId="43" LastEditorUserId="59" LastEditDate="2018-01-24T22:07:59.463" LastActivityDate="2018-01-24T22:07:59.463" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3359" PostTypeId="1" AcceptedAnswerId="3360" CreationDate="2015-02-12T15:57:17.453" Score="4" ViewCount="2213" Body="&lt;p&gt;Military spending as percentage of GDP is the most used measure of the economic capability of a certain country/military. But Some countries like India for example, have a huge difference between their nominal and PPP GDP (2 billion vs 7.7 billion). So which number is more meaningful to express the economic capability of a certain military ?&lt;/p&gt;&#xA;" OwnerUserId="2943" LastEditorUserId="2943" LastEditDate="2015-02-12T16:04:01.903" LastActivityDate="2015-02-12T23:49:04.957" Title="Nominal GDP versus PPP in comparing military spending of different countries?" Tags="&lt;gdp&gt;&lt;exchange-rates&gt;&lt;purchasing-power-partity&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3360" PostTypeId="2" ParentId="3359" CreationDate="2015-02-12T16:54:52.113" Score="2" Body="&lt;p&gt;One argument for using the exchange rate:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Market exchange rates are determined by the supply and demand of&#xA;  currencies used in international transactions. However, the prices of&#xA;  many goods and services on domestic markets are determined in partial&#xA;  or complete isolation from the rest of the world. Therefore, the MERs&#xA;  do not always accurately reflect differences in price levels between&#xA;  countries.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;An alternative is to use purchasing power parity (PPP) conversion&#xA;  factors (or PPP exchange rates). The PPP dollar rate of a country's&#xA;  currency is defined by the World Bank as 'the number of units of a&#xA;  country's currency required to buy the same amount of goods and&#xA;  services in the domestic market as a U.S. dollar would buy in the&#xA;  United States'. &gt;1  The only PPP rates available for all countries are&#xA;  GDP- based basket of goods and services that are major components of&#xA;  the gross domestic product. Such GDP-based PPP rates are designed to&#xA;  control for differences in price levels and thus to provide a measure&#xA;  of the real purchasing power of the GDP of each country.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Using GDP-based PPP rates instead of MERs for currency conversion&#xA;  results in much higher output and expenditure figures for many&#xA;  developing and transition countries since they have relatively low&#xA;  prices for non-traded goods and services—thus giving the currency&#xA;  higher purchasing power. A unit of local currency therefore has&#xA;  greater purchasing power within a developing country (which is better&#xA;  reflected by using PPP rates) than it has internationally (which is&#xA;  what is reflected by using MERs). For those such developing and&#xA;  transition countries for whom data was available for 2008, the median&#xA;  increase in military expenditure figures from using PPP rates instead&#xA;  of MERs was around a factor of 2. Three-quarters of these countries&#xA;  would see their relative figures increase by at least two-thirds.&#xA;  Meanwhile, using PPP rates would cause the GDP and military&#xA;  expenditure figures of most 'developed' countries to fall relative to&#xA;  the USA, by a median rate of 17 per cent—reflecting the low value of&#xA;  the US dollar at market exchange rates in 2008. &lt;strong&gt;However, the&#xA;  reliability of such PPP rates is lower than for MERs, since PPP rates&#xA;  are statistical estimates, calculated on the basis of collected price&#xA;  data for a basket of goods and services for benchmark years.&lt;/strong&gt; Between&#xA;  benchmark years, the PPP rates are extrapolated forward using ratios&#xA;  of prices indexes, either GDP deflators or consumer price indexes.&#xA;  Like all statistical estimates they are subject to a margin of error.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&lt;strong&gt;Furthermore, GDP-based PPP rates are of limited relevance for the&#xA;  conversion of military expenditure data into US dollars. Such PPP&#xA;  rates are designed to reflect the purchasing power for goods and&#xA;  services that are representative of spending patterns in each country,&#xA;  that is, primarily for civilian goods and services. Military&#xA;  expenditure is used to purchase a number of goods and services which&#xA;  are not typical of national consumption patterns.&lt;/strong&gt; For example, the&#xA;  price of conscripts can be assumed to be lower than the price of a&#xA;  typical basket of goods and services, while the prices of advanced&#xA;  weapon systems and of their maintenance and repair services can be&#xA;  assumed to be much higher. The extent to which this data reflects the&#xA;  amount of military goods and services that the military budget can buy&#xA;  is not known. Due to these uncertainties, SIPRI uses market exchange&#xA;  rates to convert military expenditure data into US dollars, despite&#xA;  their limitations.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.sipri.org/research/armaments/milex/measuring-military-expenditures&quot; rel=&quot;nofollow&quot;&gt;Stockholm International Peace Research Institute: Monitoring Military Expenditures&lt;/a&gt;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But wages are a big part of military costs and those are not paid with PPP GDP but rather domestic GDP. &lt;a href=&quot;http://MEASURING%20HARD%20POWER:%20CHINA%E2%80%99S%20ECONOMICGROWTH%20AND%20MILITARY%20CAPACITY%20economics.stackexchange.com/questions/3359/nominal-gdp-versus-ppp-in-comparing-military-spending-of-different-countries&quot; rel=&quot;nofollow&quot;&gt;MEASURING HARD POWER: CHINA’S ECONOMIC GROWTH AND MILITARY CAPACITY&lt;/a&gt; says that both methods have merits but at least in China, both methods understate military capacity. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;The most appropriate way to compare real military capacity across&#xA;  countries is to deflate each country’s actual, or potential, military&#xA;  spending by the price of real military services in each country.&#xA;  Unfortunately military price indices do not exist for most countries.&lt;/strong&gt;&#xA;  The aim of this paper, therefore, is to develop a simple method for&#xA;  computing a relative military price index, that deflates nominal&#xA;  spending into units of real military services, using readily&#xA;  accessible data. The ratio of two countries’ military price indices&#xA;  then gives an exchange rate that provides an index of relative real&#xA;  military capacity across countries. &lt;strong&gt;We use this military exchange rate&#xA;  to compare the level and growth of China’s real military capacity&#xA;  relative to the USA&lt;/strong&gt;. 4 We obtain two key results. First we find that&#xA;  &lt;strong&gt;the value of the RMB, in terms of its ability to purchase real&#xA;  military services, is greater than both its market exchange rate value&#xA;  and its PPP value.&lt;/strong&gt; This suggests that conventional estimates of GDP&#xA;  understate China’s real military capacity, but also that PPP exchange&#xA;  rate comparisons are much closer to the actual value than market&#xA;  exchange rate comparisons. This is mainly because of the very low cost&#xA;  of labor in China relative to the USA. &#xA;  ... &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;If we wish to infer&#xA;  country’s miliary capacity based on the size of its economy, however,&#xA;  standard PPP indices also pose a problem insofar as they reflect the&#xA;  relative price of an average basket of goods produced in the economy&#xA;  and this average price index may differ substantially from the price&#xA;  of military services. Thus C&lt;strong&gt;rane et al (2005) argue that, while&#xA;  military services have large personnel costs, a substantial share of&#xA;  military equipment purchased by developing-country militaries is&#xA;  imported or incorporates com- ponents that are manufactured from&#xA;  materials and parts sold at world market prices, such as electronics,&#xA;  diesel engines, or aircraft frames. Thus they suggest that, for some&#xA;  purposes, GDP measured at market exchange rates may give a more&#xA;  realistic picture of changes in military capacity&lt;/strong&gt; (Crane et al 2005,&#xA;  pp.16-17). Similarly, the two principle military statistical&#xA;  abstracts, The Military Balance published by The International&#xA;  Institute for Strategic Studies (IISS), and the Stockholm Interna-&#xA;  tional Peace Research Institute’s (SIPRI) Yearbook report relative&#xA;  military spending and relative GDP in terms of $US converted at market&#xA;  exchange rates and also at PPP ex- change rates. IISS (2012) notes&#xA;  that market exchange rates are likely to understate the true level of&#xA;  economic resources allocated towards defence since food material and&#xA;  hous- ing costs will be lower in China, but remain noncommittal in&#xA;  recommending a preferred price index. 8 Thus they often report a&#xA;  weighted average of PPP and market exchange rates when discussing&#xA;  China’s real military capacity relative to the USA.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-02-12T23:49:04.957" LastActivityDate="2015-02-12T23:49:04.957" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3361" PostTypeId="1" CreationDate="2015-02-12T17:48:06.690" Score="0" ViewCount="60" Body="&lt;p&gt;Reading Ramsey's paper: a contribution to the theory of taxation. It says that when we are dealing with rival goods we look if the tax that is going to be applied leave unchanged the proportions in wich these goods are consumed. Alike Ramsey presents that in order to avoid evasion by consume another good that it's no taxed. The tax must be applied in the commoditie that is least elastic. Taking into account the above, What happened when we are dealing with substitue commodites? Does the supposed that the consume of a good depends only of its price is still standing?&lt;/p&gt;&#xA;" OwnerUserId="2913" LastActivityDate="2015-02-12T17:48:06.690" Title="Optimal taxation and substitute commodities" Tags="&lt;macroeconomics&gt;&lt;taxation&gt;&lt;optimal-taxation&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="3362" PostTypeId="2" ParentId="232" CreationDate="2015-02-12T18:45:07.243" Score="2" Body="&lt;p&gt;This is a supplement of Pburg's quote:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One view in &lt;a href=&quot;http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.122.5816&amp;amp;rep=rep1&amp;amp;type=pdf&quot; rel=&quot;nofollow&quot;&gt;Aumann and Brandenburger(1995)&lt;/a&gt; is that mixed strategy is only in the eyes of opponents. In a $N$-player game, the set of states of world $\mathbf {S} : = \times_{i \in N} S_i$. For a state $s \in \mathbf S$, it satisfies the following specification:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;For a player $i$, let $\pi_i : \mathbf {S} \to S_i$ be the projection on a state´s $i$th component. When a state is realized, player $i$ is absolutly sure about her own type $s_i$, but unsure about the exact state. In other word, she doesn't know which state in $\pi_i^{-1}(s_i)$ is obtained. Instead, she held a belief on $\pi_i^{-1}(s_i)$, which is specified by $s_i$.&lt;/li&gt;&#xA;&lt;li&gt;Let $A_i$ be player $i$'s action space. Her action is a random variable $a_i : \mathbf{S} \to A_i$, while its restriction $\left.a_i\right|_{\pi_i^{-1}(s_i)}$ is constant.&lt;/li&gt;&#xA;&lt;li&gt;Player $i$´s utility function $g_i$ is defined in the same fashion as $a_i$, which means $g(s) : \mathbf{A} \to \mathbb{R}$ is referring to the same utility function, for all $s \in \pi_i^{-1}(s_i)$ for all $s_i$.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="73" LastActivityDate="2015-02-12T18:45:07.243" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3365" PostTypeId="1" CreationDate="2015-02-13T08:42:33.573" Score="5" ViewCount="140" Body="&lt;p&gt;According to Spanos 2014 &lt;a href=&quot;https://secure.hosting.vt.edu/www.econ.vt.edu/directory/spanos/spanos9.pdf&quot;&gt;Revisiting Haavelmo's Structural econometrics: Bridging the gap between theory and data&lt;/a&gt; Dynamic Stochastic General Equilibrium models are statistically inadequate, in such an order of magnitude as to render them useless.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The most serious problem with DSGE models is that they are often statistically inadequate. Advocates of DSGE modeling, however, have&#xA;  put forward a number of arguments to explain away the unreliability of&#xA;  their evidence, such as ‘the price one has to pay for rigorous and&#xA;  policy-relevant theoretical models’ (Lucas, 1980, p. 696), or simply&#xA;  inevitable: “The models constructed within this theoretical framework&#xA;  are necessarily highly abstract. Consequently, they are necessarily&#xA;  false, and statistical hypothesis testing will reject them. This does&#xA;  not imply, however, that nothing can be learned from such quantitative&#xA;  theoretical exercises.” (Prescott, 1986, p. 10)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Part of my research involves using a partial equilibrium models to simulate a particular segment of an economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Considering the above, what methods would you start with to show that a given equilibrium model is statistically unreliable?&lt;/p&gt;&#xA;" OwnerUserId="2949" LastActivityDate="2015-10-12T08:56:21.510" Title="What methods - inspired by Haavelmo’s Structural Econometrics - can show that a partial equilibrium model is unreliable?" Tags="&lt;macroeconomics&gt;&lt;econometrics&gt;&lt;general-equilibrium&gt;&lt;dsge&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3366" PostTypeId="1" CreationDate="2015-02-13T09:53:27.680" Score="3" ViewCount="82" Body="&lt;p&gt;Talk about Greece leaving the Euro has been reignited by the recent election of Syrzia, with &lt;a href=&quot;http://www.economist.com/news/leaders/21643139-unless-syriza-changes-course-greece-inexorably-heading-out-euro-hitting-ground&quot; rel=&quot;nofollow&quot;&gt;some again talking about how it is practically inevitable&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why are these people viewing a Greek default as likely triggering an exit from the Euro? Couldn't Greece simply default on its debt and continue to use the Euro? Would this trigger the ECB to freeze the accounts of Greek banks (and if so, why?).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand why moving to a local currency, which can be devalued, might make sense for a country that needs economic stimulation. But I don't understand the direct cause-and-effect from a sovereign default to an exit from the Euro.&lt;/p&gt;&#xA;" OwnerUserId="2950" LastActivityDate="2015-07-01T02:10:01.697" Title="Greek default versus Euro exit" Tags="&lt;default&gt;&lt;government-debt&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3367" PostTypeId="1" AcceptedAnswerId="3368" CreationDate="2015-02-13T10:27:56.517" Score="5" ViewCount="120" Body="&lt;p&gt;I keep hearing the term, &quot;enough money to buy a country&quot;. My question is: Is it realy possible to buy a country or is this just an expression? and if so how would this work since there is no 1 person you could pay for it?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So &quot;Bill Gates has enough money to buy a country.&quot; Is this another way of saying he has a lot of money or does this mean he could actualy buy a country if he wished for it. And if its the later then say he did want to do it. How would this work?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks&lt;/p&gt;&#xA;" OwnerUserId="2951" LastEditorUserId="2951" LastEditDate="2015-02-13T18:06:40.047" LastActivityDate="2015-02-13T18:43:49.287" Title="&quot;Buy a country&quot;, expression or possibility?" Tags="&lt;international-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3368" PostTypeId="2" ParentId="3367" CreationDate="2015-02-13T13:04:55.670" Score="9" Body="&lt;p&gt;What do you mean? A country per se cannot be bought. The wealthiest man, Gates, has a net worth of around 67 billion USD (forbes). What could he buy?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;GDP&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Whatever it the country produces. The poorest country by GDP per capita is Burundi, with a total GDP per capita of around 267 USD, and a population of 10 million. That gives then a total GDP per year of 2.7 billion USD. Gates could easily afford that.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Wealth&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We don't have - to my knowledge - reliable wealth data on most developing countries, but the wealth/income ratio is typically around 4-6. Let's assume the maximum, 6. That would give the people of Burundi 13 billion USD, still affordable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Public Assets&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's pick a random country, switzerland. They have public assets worth 200 billion USD. Too much for Gates to afford. But for a smaller country, he could surely buy it out.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The answer is somewhat unsatisfactory. Why? Because the question is. In the end, before asking &lt;em&gt;can xyz really happen&lt;/em&gt;, you should ask &lt;em&gt;what is xyz&lt;/em&gt;  and what do I mean by it?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;What else is there?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm not aware of a country where the people are still counted as property, so you most likely can't buy them. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Perhaps you could buy all the land? There are many small islands (potentially for sale) that would grant you independence. Some people (mostly rich and eccentric) own them, which means I presume that they bought those countries at some point. So, it turns out,&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;You can buy a country&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;but you can't buy the people. !Viva la revoluçion!&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2015-02-13T18:43:49.287" LastActivityDate="2015-02-13T18:43:49.287" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="3369" PostTypeId="2" ParentId="3366" CreationDate="2015-02-13T16:17:10.967" Score="2" Body="&lt;p&gt;As far as I recall, you're dead on: they don't &lt;em&gt;have&lt;/em&gt; to. The contracts don't allow for &quot;some countries kicking others out of the Euro Zone&quot;, they never envisioned this scenario when writing them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other side, Greece can, and should, leave on its own. Sharing the currency is hurting them economically, the only reason they're not is that the continuous inflow of loans is preferred over leaving the zone. But if Greece really defaults, I don't think there will be any more lending in the short run. And then really there is no reason for Greece to stay.&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2015-02-14T17:39:23.737" LastActivityDate="2015-02-14T17:39:23.737" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3370" PostTypeId="1" AcceptedAnswerId="3388" CreationDate="2015-02-13T18:16:01.877" Score="3" ViewCount="89" Body="&lt;p&gt;I encountered a necessary optimality conidtion involving growth rate of Lagrange multiplier in &lt;a href=&quot;http://www.econ2.jhu.edu/people/ccarroll/Public/LectureNotes/Growth/HamiltonianVSDiscrete/&quot; rel=&quot;nofollow&quot;&gt;this note&lt;/a&gt; on Ramsey model&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\dot \lambda}{\lambda} = \mathcal {v} - (f^\prime(k)-\delta-\xi)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;in which $\mathcal {v}$    is the time preference rate, $\xi$   is the population growth rate, and $\delta$   is the depreciation rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there some way to make sense of it in a similar fashion as Euler equation?&lt;/p&gt;&#xA;" OwnerUserId="2671" LastActivityDate="2015-02-15T04:34:32.720" Title="How to intuit a necessary optimality conidtion involving growth rate of Lagrange multiplier in Ramsey growth model?" Tags="&lt;macroeconomics&gt;&lt;economic-growth&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3371" PostTypeId="1" CreationDate="2015-02-13T19:13:37.810" Score="3" ViewCount="59" Body="&lt;p&gt;My partner and I are both undergrads. trying to complete an extracurricular research project and need to update parameters for our model. Our advisor is out of country and we have minimal/spotty contact with him. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;We have constructed our own model and found most information (we are reproducing his work and adding a few new things) on our own but we aren't sure how to calculate. Here are the things we are looking for: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Everything below is for use in a limited participation model: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Beta Value for a discounted utility model&lt;/strong&gt; - The current paper uses a beta value of .988. I know what this is and why we use it but I am not sure how to calculate this number. My assumption is that this is 1-real interest rate. Can anyone confirm this? I know his numbers are a bit outdated. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Capital depreciation rates&lt;/strong&gt; - Again, I know what this is but am unsure of how to calculate an accurate value. Current model uses .025.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;adjustment cost on capital&lt;/strong&gt; - This is given as .01. I assume this is the cost associated with adjusting capital stock etc. Again...not sure how this was calculated. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;standard deviation of technology shock&lt;/strong&gt; - This is given as .0081. no idea how to calculate this. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Autocorrelation of technology shock&lt;/strong&gt; -  given as .95. No idea how to calculate this.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;These are the few things we are not sure how to calculate. We've read through his other papers also and found that he cites other work for the values he uses but are unable to find that paper to determine how that author calculated the values.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does anyone here have any good ideas about how we might calculate these values so we can calibrate this model to the American economy?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help, suggestions, hints, tips, literature suggestions etc. are very very very much appreciated.  &lt;/p&gt;&#xA;" OwnerUserId="1655" LastActivityDate="2015-02-13T19:13:37.810" Title="Help finding information for research" Tags="&lt;macroeconomics&gt;" AnswerCount="0" CommentCount="3" FavoriteCount="1" ClosedDate="2015-08-07T01:06:49.963" ContentLicense="CC BY-SA 3.0" />
  <row Id="3372" PostTypeId="1" CreationDate="2015-02-13T19:37:53.243" Score="2" ViewCount="1824" Body="&lt;p&gt;One measure is to look at standard deviations. If a one standard deviation increase in X leads to a more than a 0.5 (or 1, or ⅓, or whatever) standard deviation increase in Y, then we say that X has a economically significant effect on Y.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this standard? And if not, what other measures are there to formalize the notion of &quot;economic significance&quot;?&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2015-02-14T23:59:25.477" Title="Is there any standard measure of economic significance?" Tags="&lt;econometrics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3373" PostTypeId="1" AcceptedAnswerId="3377" CreationDate="2015-02-14T02:36:22.670" Score="3" ViewCount="99" Body="&lt;p&gt;My professor defined a &lt;em&gt;game&lt;/em&gt; as follows: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;a set of $n$ players &lt;/li&gt;&#xA;&lt;li&gt;a set of strategies $s_i$ for each player $i$&lt;/li&gt;&#xA;&lt;li&gt;a set of payoffs $p_i$ for each player $i$&lt;/li&gt;&#xA;&lt;li&gt;turn-taking: sequential or simultaneous &lt;/li&gt;&#xA;&lt;li&gt;repetition: $k$ rounds, where $k\geq1$ and $k \in \Bbb{N}$&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I have three problems with this definition:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;He didn't define turn-taking mathematically, so I feel like it's a vague definition. There should be like an index of possible turns with max value $n$. But I'm not sure how to write it formally. &lt;/li&gt;&#xA;&lt;li&gt;He doesn't define how we map from strategies selected to payoffs. Presumably, the set of payoffs should include a value for every possible combination of strategies selected. But there should be a way to state this formally as well.  &lt;/li&gt;&#xA;&lt;li&gt;He doesn't define what a strategy is. I suppose one could simply say that a strategy is the object we map from in the domain to an element in the set of payoffs (ie codomain). In that sense, anything that can be valued &lt;em&gt;is&lt;/em&gt; a strategy, ie a possible action. &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My Question:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can someone offer a more complete definition than the one given? Specifically make sure it improves upon the concerns I mentioned. &lt;/p&gt;&#xA;" OwnerUserId="2679" LastActivityDate="2015-02-14T18:23:35.623" Title="Help improving this definition of a &quot;game&quot;?" Tags="&lt;game-theory&gt;" AnswerCount="1" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3375" PostTypeId="1" AcceptedAnswerId="3376" CreationDate="2015-02-14T14:09:04.387" Score="7" ViewCount="207" Body="&lt;p&gt;I'm reading &lt;a href=&quot;https://hec.unil.ch/docs/files/80/599/plosser89.pdf&quot;&gt;understanding real business cycle&lt;/a&gt; by Plosser.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here's my crude understanding: For a RBC model, the FOCs of lagrangian together with transversality condition usually forms a nonlinear difference equations system. The standard way of solving this system is by linearization in the neighbourhood of steadystate,  solve this problem as a linear difference equations system.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What insight can we get from this solution, except for gaining  some knowledge of whether the steadystate is locally stable?&lt;/p&gt;&#xA;" OwnerUserId="2671" LastEditorUserId="43" LastEditDate="2015-02-14T16:23:01.443" LastActivityDate="2015-02-19T00:39:07.517" Title="What is the usefulness of approximating an optimal decision rule that close enough to steadystate in RBC model?" Tags="&lt;macroeconomics&gt;&lt;academic-graduate&gt;&lt;general-equilibrium&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3376" PostTypeId="2" ParentId="3375" CreationDate="2015-02-14T16:10:57.467" Score="5" Body="&lt;p&gt;Side note: This is one way of solving it - the alternative would be formulating a Bellman equation and iterating on that.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you assume that the real economy is on or sufficiently close to the steady state, you can also infer about responses to shocks. That is, you can look at the impulse response functions to a change in whatever interests you, and see how the model economy changes. Arguing that we're close enough to that steady state will allow you to see how the economy responds to certain shocks.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, in general, you can simulate the economy with (for example TFP) shocks, and look whether the simulated economy looks similar to the real economy. Using this comparison you could judge the model.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This needs arguing that we are close to the steady state - or that convergence happens really fast. Generally, the growth literature around Solow has provided arguments for this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But your argument is very present in most extensions of the basic RBC model: especially when it is important &lt;em&gt;how&lt;/em&gt; close we are to the steady state - when models are more nonlinear. There have been many papers showing that this is the case for standard Neo Keynesian extensions of the RBC model.&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2015-02-14T17:35:47.213" LastActivityDate="2015-02-14T17:35:47.213" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="3377" PostTypeId="2" ParentId="3373" CreationDate="2015-02-14T18:23:35.623" Score="7" Body="&lt;p&gt;Your question is a little bit vague, but I'll do my best. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your professor was motioning in the correct mathematical direction, but I think that what you're asking for is a more complete formalization.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any game can be thought of as a tree (i.e. a non-cyclic graph). So to answer your first point about turn-taking, you might think about a function which maps nodes of the tree to some $i\in\{1,2,...n\}$ In the picture below, you might be able to define a formula to characterize the turn taking, but you can't necessarily do this in general. In this example $P_1$ and $P_2$ take alternating sequential turns. $P_1$ can choose $L$ or $R$, then $P_2$ can see which he chose, and then also choose $L$ or $R$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/4cNLP.gif&quot; alt=&quot;Game Tree Example&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Before going on to your second point, I need to take a moment to define information sets, which it doesn't sound like you've gotten to yet. Colloquially, an infoset is a set of vertices that represent uncertainty. The root of a game tree is always a singleton infoset, for example. Consider the game where you and I simultaneously choose heads or tails. When $P_2$ chooses whether or not to play heads or tails, she doesn't know if I have chosen to play heads or tails either. Thus while the game tree will have 3 internal vertices (1 that is the root for $P_1$, and 2 for $P_2$, reflecting $P_1$'s choice) there will only be 2 infosets because both vertices for $P_2$ will be contained in the same infoset. In games where turn-taking is sequential, all infosets should be singleton. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now back to your question about strategies. Each player has a set of strategies. In the example tree provided above $S_1 = \{LLLLL,LLLLR,...,RRRRR\}$. This might seem a little bit confusing at first as it seems like each element of $S_1$ goes above and beyond defining a path. Each player's strategy is defined in terms of infosets. Therefore, the element $LLLLL$ should be read as, when $P_1$ finds herself at the top, she will choose $L$, and when she finds herself at the vertex that is farthest on the left and 1 down from the top, she will also choose $L$. It then also says that if $P_2$ were to choose $R$ instead, that $P_1$ would choose $L$. Thus a strategy is the set of all possible actions a player might take under all possible contingencies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, how do we state the mapping from strategies to payoffs? First we note that ever player has a strategy set $S_i$, and then form the cartesian product $S=S_1 \times S_2 \times ... \times S_n$, which characterizes all possible strategy combinations for all possible players. Then our payoff will be $\pi:S\to\mathbb{R}^n$. In our example $\pi(LLLLL,LLLLLLLLLL) = (4,2)$. &lt;/p&gt;&#xA;" OwnerUserId="2956" LastActivityDate="2015-02-14T18:23:35.623" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3378" PostTypeId="1" AcceptedAnswerId="3380" CreationDate="2015-02-14T19:30:44.377" Score="4" ViewCount="118" Body="&lt;p&gt;I'm trying to understand the section on responses to productivity disturbances in &lt;a href=&quot;https://hec.unil.ch/docs/files/80/599/plosser89.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Understanding Real Business Cycles&lt;/a&gt; by Plossor.&lt;/p&gt;&#xA;&lt;p&gt;It seems to me ambiguity of representative agent's response in consumption, saving and leisure rooted in two reasons:&lt;/p&gt;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Wealth effect is ambiguous. As far as I know, wealth effect means a temporary shock or a permanent change make the choice set determined by production techonology and budget bigger or smaller. The curvature of indifference curve is to some degree arbitrary, so the reallocation of consumption, saving, working, leisure could be arbitrary.&lt;/li&gt;&#xA;&lt;li&gt;The relative strength of wealth effect against substitution effect is also arbitrary.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&lt;p&gt;Here's my attempt: Suppose that, a higher value of (unexpected) temporary technological shock hits the economy at time &lt;span class=&quot;math-container&quot;&gt;$t$&lt;/span&gt;.&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\sigma_{high}F(K_t, N_t)=C_t+(K_{t+1}-(1-\delta)K_t)$$&lt;/span&gt;&#xA;Substition effect indicates more labour at &lt;span class=&quot;math-container&quot;&gt;$t$&lt;/span&gt;, but wealth effect makes this indetermined. &lt;span class=&quot;math-container&quot;&gt;$\{K_{t+1+i}\}_{i\in \mathbb N}$&lt;/span&gt; is higher in each period for sure. But it's unclear for &lt;span class=&quot;math-container&quot;&gt;$\{C_{t+i}\}_{i\in \mathbb N}$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\{N_{t+i}\}_{i\in \mathbb N}$&lt;/span&gt;. It could be the case both wind up with higher value for all &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;, or only one of them wind up with higher value for all &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;p&gt;It seems to me the qualitive result for a permanent increase of productivity is the same.&lt;/p&gt;&#xA;" OwnerUserId="2671" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2015-02-17T19:11:21.117" Title="What can we know for sure among ambiguous impulse responses in RBC?" Tags="&lt;macroeconomics&gt;&lt;academic-graduate&gt;&lt;general-equilibrium&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3379" PostTypeId="1" AcceptedAnswerId="12647" CreationDate="2015-02-14T20:03:50.220" Score="8" ViewCount="605" Body="&lt;p&gt;According to an &lt;a href=&quot;https://uk.finance.yahoo.com/news/sweden-sets-interest-rate-below-135817353.html&quot; rel=&quot;noreferrer&quot;&gt;article at Yahoo Finance&lt;/a&gt;, the Swedish central bank dropped its zero interest rate to -0.1 percent a couple of days ago (the article is dated to Thursday, February 12th, 2015).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, already in 2013 &lt;a href=&quot;http://www.btinvest.com.sg/property/overseas/sweden-targets-lengthy-mortgage-repayments-20130312/&quot; rel=&quot;noreferrer&quot;&gt;this article from Business Times&lt;/a&gt; reported that Swedish households were repaying their mortgages so slowly that it will take 140 years on average. It seems that the mortgage repayment system in Sweden is such that while a bank may set a theoretical limit on how soon the mortgage should be repaid, the individual is free to make interest-only repayments as long as they see fit. So the 140-year average length is not caused by lenders granting 140 year loans, but by the individuals simply paying them back at a rather slow pace.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If mortgage debts are already being paid on a rather low rate, can reducing the interest rate to below zero actually help the economy? Wouldn't this kind of decision just speed up a crash?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As to the Forex rate for the Swedish krona, can it be expected that this situation pushes down the value of the krona?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Update:&lt;/strong&gt;&#xA;My reason for asking this question is because of the assumption that the Central Bank interest rate controls the rate at which other banks lend money to individual customers. Thus the central bank would set the interest rate low so as to lower the interest rates of loans in the country, and through this, to stimulate lending. This is what for example USA did during the first decade of this century.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would have thought that stimulating lending in a situation where mortgages are being paid back at an extremely low rate would be a recipe for a house price bubble and subsequent crash(?)&lt;/p&gt;&#xA;" OwnerUserId="2957" LastEditorUserId="2957" LastEditDate="2015-02-17T05:03:10.853" LastActivityDate="2016-07-09T13:32:10.083" Title="Consequences to lending and value of national currency from a negative interest rate and 140-year mortgages in Sweden" Tags="&lt;monetary-policy&gt;&lt;debt&gt;&lt;interest-rate&gt;" AnswerCount="2" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="3380" PostTypeId="2" ParentId="3378" CreationDate="2015-02-14T20:14:15.417" Score="3" Body="&lt;p&gt;Yes and no. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Temporary Shock&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is correct, that a &lt;strong&gt;temporary&lt;/strong&gt; increase in TFP has unclear effects on leisure:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;The **income effect* will increase consumption and leisure&lt;/li&gt;&#xA;&lt;li&gt;The **substitution effect* will decrease leisure. &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;On total, effects onto leisure are unclear. But, unless you have very specific preferences, consumption should increase. What are the cases in which it doesn't? Let $l$ denote leisure, $1-N$:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Violation of &lt;strong&gt;local nonsatiation&lt;/strong&gt;: Households do not prefer more consumption at their current $(C,l)$ locus, so an income effect will not make them consume more (shut down income effect)&lt;/li&gt;&#xA;&lt;li&gt;Strong and negative elasticity of substitution between $(C, N)$: People that work more, prefer more consumption. Hence, if substitution effect increases $N$, it also decreases $C$ (putting in $C$ into the substitution effect)&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;1.&lt;/em&gt; is generally not accepted, both empirically and theoretically (remember, we're here not talking about individual preferences, but under aggregation). &lt;em&gt;2.&lt;/em&gt; is more disputed, but elasticities of substitution found typically range between $0$ and small positive amounts, not strongly negative as required here.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, to conclude, &lt;strong&gt;temporarily&lt;/strong&gt;, $C$ responds positively to a positive TFP shock. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Permanent Shock&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Yes, a temporary shock could end up however, given how we calibrate it. But here's the gist: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;We calibrate models to data.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;One standard calibration goal are the Kaldor facts, among which we will find:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Despite an strong rise in productivity during the 20th century, working hours per capita have remained constant.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;This means that in calibrating an RBC model, we will chose specifications that give us exactly this result. A simple way of doing so is having an additive separate utility function of &lt;a href=&quot;http://en.wikipedia.org/wiki/King%E2%80%93Plosser%E2%80%93Rebelo_preferences&quot; rel=&quot;nofollow&quot;&gt;King-Rebelo-Plosser&lt;/a&gt; type (Note that Prescott in his original paper claimed that only log-log preferences would reproduce this independence, which is incorrect).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Temporary Shock revisited&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To conclude, we calibrate the model such that an income and substitution effect on leisure cancel out exactly. The income effect of a permanent shock is bigger than the income effect of a temporary shock. Hence, if it holds that permanent increases in TFP do not affect working hours, it must be the case that temporary increases in TFP &lt;em&gt;do positively affect working hours&lt;/em&gt;, since the substitution effect is the same, but the income effect is smaller.&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-02-14T20:14:15.417" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3381" PostTypeId="1" CreationDate="2015-02-14T21:28:20.607" Score="12" ViewCount="15145" Body="&lt;p&gt;Say the consumer has a standard convex, monotonic preference over Apples and Bananas. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Update: I'd like the preference to be as 'standard' as possible. So ideally we have diminishing MRS everywhere and we also have &quot;more is better&quot; everywhere.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Say his preference can be represented by some utility function $u(A,B)$. He must satisfy some budget constraint $p_AA+p_BB=y$, where $y$ is his income. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then what is an example of a utility function in which $\frac{\partial A}{\partial y}&amp;lt;0$, at least under some circumstances?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This seems to me a very simple question but briefly Googling I'm unable to find anything.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastEditorDisplayName="user18" LastEditDate="2015-02-15T21:47:40.090" LastActivityDate="2021-05-12T14:12:04.243" Title="What is an example of a utility function where one good is inferior?" Tags="&lt;utility&gt;&lt;preferences&gt;" AnswerCount="4" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="3382" PostTypeId="1" AcceptedAnswerId="15919" CreationDate="2015-02-14T21:46:04.420" Score="5" ViewCount="844" Body="&lt;p&gt;Consider a simple neoclassical model of an economy populated by firms with a constant returns to scale production function, using homogeneous labour and capital. Firms are equal, and are price takers in all markets. Thus, firms pay factors their value marginal product. In the long run, any &lt;em&gt;economic&lt;/em&gt; profit is wiped out by changes in the price of the good, due to the menace of entry of new firms.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this setting, no income remains after paying out competitive wages to workers (L) and competitive return to the capital hired for production (K). This is, for firm $i$, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$pY_i = L_iw + K_ir $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, in real markets, even in competitive ones, firms do make profits, even if these profits are not &lt;strong&gt;abnormal&lt;/strong&gt;. Part of these profits might be distributed as dividends.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the trivial economic model however, the ownership of the firm is not explicitly modeled. Firms do not pay dividends. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why is this? Why is ownership not relevant? Are profits uninteresting? That is what the capitalistic firms cares about! I'm puzzled.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-05-25T09:25:18.497" LastActivityDate="2017-05-25T10:45:33.260" Title="Why (neoclassical) economic models have no profits, unlike the real world?" Tags="&lt;economic-terms&gt;&lt;profits&gt;" AnswerCount="5" CommentCount="5" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="3383" PostTypeId="2" ParentId="3382" CreationDate="2015-02-14T23:07:44.987" Score="11" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;It seems economic models do not explicitly include ownership of the firm (not of the physical capital, an input used to produce).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Many economic model &lt;em&gt;do&lt;/em&gt; have profits. We're just more careful about what we call it. See the definition of &quot;&lt;a href=&quot;http://en.wikipedia.org/wiki/Profit_%28economics%29&quot; rel=&quot;noreferrer&quot;&gt;economic profit&lt;/a&gt;.&quot; When you think of profits, you need to ask yourself if the money you are making is simply a fair exchange for the costs you incur---explicit and implicit costs---or whether some portion of that profit represent money gained above and beyond the (true) costs of production (see &quot;&lt;a href=&quot;http://en.wikipedia.org/wiki/Economic_rent&quot; rel=&quot;noreferrer&quot;&gt;economic rent&lt;/a&gt;&quot;). Indeed, this is the only sensible way to think about the world.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;It seems economic models do not explicitly include ownership of the firm&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Many economic models &lt;em&gt;do&lt;/em&gt; in fact include ownership of the firm. However, most economic models are built for demonstrating some particular idea in relative isolation, as opposed to trying to model every single detail. So if someone wants to demonstrate some effect in a world without economic rents, then a lot of the time modeling the ownership of the &lt;em&gt;firm&lt;/em&gt; is less important than modeling the ownership of the &lt;em&gt;capital&lt;/em&gt;---and thus it might be excluded. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you want to see models that dig deep into the issues of economic rents and the ownership of a firm, I would recommend taking a look at the subfields called &quot;&lt;a href=&quot;http://en.wikipedia.org/wiki/Industrial_organization&quot; rel=&quot;noreferrer&quot;&gt;industrial organization&lt;/a&gt;&quot; and &quot;&lt;a href=&quot;http://en.wikipedia.org/wiki/Corporate_finance&quot; rel=&quot;noreferrer&quot;&gt;corporate finance&lt;/a&gt;.&quot; (For example, take a look at &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0691125562&quot; rel=&quot;noreferrer&quot;&gt;Jean Tirole's book on corporate finance&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Meanwhile, in real life, even in competitive markets, firms do make profits on the long run.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This is a bold claim. If you want to be scientific, you're going to have to be precise about how you (1) define profits and (2) define competitive markets, and (3) show (with data and sound analysis) that firms very commonly do make profits as you've defined them. This is how an economist would operate.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Firms are just an ethereal &quot;thing&quot; that take inputs and produce output with a technology freely available.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Hidden in this comment is an very interesting object of study. What is a firm, &lt;em&gt;really&lt;/em&gt;? &#xA;This was an important question (first?) and most famously raised by &lt;a href=&quot;http://en.wikipedia.org/wiki/Ronald_Coase&quot; rel=&quot;noreferrer&quot;&gt;Ronald Coase&lt;/a&gt;. How do we define a firm? Why do they exists? etc. See the &quot;&lt;a href=&quot;http://en.wikipedia.org/wiki/Theory_of_the_firm&quot; rel=&quot;noreferrer&quot;&gt;theory of the firm&lt;/a&gt;.&quot;&lt;/p&gt;&#xA;" OwnerUserId="59" LastEditorUserId="1601" LastEditDate="2017-03-25T09:45:44.533" LastActivityDate="2017-03-25T09:45:44.533" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="3384" PostTypeId="2" ParentId="3372" CreationDate="2015-02-14T23:59:25.477" Score="2" Body="&lt;p&gt;Imagine the basic linear regression setup:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$Y_i = \alpha + X_i \beta + \epsilon, \epsilon \sim N(0,\sigma^2)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Holding everything else fixed, increasing $\sigma$ will increase the standard deviation of  $Y$ and therefore, for a fixed relationship between $X$ and $Y$, eventually move the relationship between them to economic insignificance by the standard you present. But the relationship might still be quite economically important. It might be better to instead ask about the standard deviation effects on $\sigma_\hat{Y}$, the standard deviation of the fitted values of $Y$, to ask if the effect is large relative to the total variation that can be explained by the model.   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In accounting, they use a concept of &lt;a href=&quot;http://en.wikipedia.org/wiki/Materiality_(auditing)&quot; rel=&quot;nofollow&quot;&gt;immateriality&lt;/a&gt; which seems quite similar to economic insignificance. That might be a helpful definition for some problems.&lt;br&gt;&#xA;This quote from &lt;a href=&quot;http://www.deirdremccloskey.com/articles/stats/sig.php&quot; rel=&quot;nofollow&quot;&gt;Signifying Nothing: Reply to Hoover and Siegler by Deirdre N. McCloskey and Stephen T. Ziliak&lt;/a&gt; may also be helpful:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The sheer probability statement about one or two standard errors is&#xA;  useless, unless you have judged by what scale a number is large or&#xA;  small for the scientific or policy or personal purpose you have in&#xA;  mind. This applies to the so-called &quot;precision&quot; or &quot;accuracy&quot; of the&#xA;  estimate, too, beloved of Hoover and Siegler — the number we calculate&#xA;  as though that very convenient sampling theory did in fact apply.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="69" LastActivityDate="2015-02-14T23:59:25.477" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3385" PostTypeId="2" ParentId="3381" CreationDate="2015-02-15T00:21:37.107" Score="8" Body="&lt;p&gt;A good cannot be inferior over the entire income range.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The paper &lt;a href=&quot;http://www.hindawi.com/journals/isrn/2012/608645/&quot; rel=&quot;nofollow noreferrer&quot;&gt;A Convenient Utility Function with Giffen Behaviour&lt;/a&gt; shows that for a person with utility of the form:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$U(x,y) = \alpha_1 \ln(x-\gamma_x)- \alpha_2 \ln(\gamma_y - y) $$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;X is inferior if &lt;span class=&quot;math-container&quot;&gt;$\gamma_x$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\gamma_y$&lt;/span&gt; are positive, &lt;span class=&quot;math-container&quot;&gt;$0&amp;lt;\alpha_1&amp;lt;\alpha_2$&lt;/span&gt;, and in the domain &lt;span class=&quot;math-container&quot;&gt;$x&amp;gt;\gamma_x$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$0\leq y&amp;lt;\gamma_y$&lt;/span&gt;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Update:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$U(x,v) = x + \ln(v)$$&lt;/span&gt;&#xA;If the budget is &lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$v^* = \min(P_x / P_V, w)$&lt;/span&gt; so for &lt;span class=&quot;math-container&quot;&gt;$w&amp;gt;P_x / P_V$&lt;/span&gt; &lt;span class=&quot;math-container&quot;&gt;$v$&lt;/span&gt; is &lt;s&gt;inferior&lt;/s&gt; &lt;a href=&quot;http://en.wikipedia.org/wiki/Income_elasticity_of_demand&quot; rel=&quot;nofollow noreferrer&quot;&gt;sticky good&lt;/a&gt;. Realized this is actually a zero income elasticity not a negative one so it is not inferior.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I found another funky functional form for a utility function where one good is inferior but it too has increasing marginal utility of the other good: &lt;a href=&quot;http://www.jstor.org/discover/10.2307/25603643?sid=21105359296871&amp;amp;uid=3739256&amp;amp;uid=4&amp;amp;uid=2&quot; rel=&quot;nofollow noreferrer&quot;&gt;An Inferior Good and a Novel Indifference Map&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$U = A_1 \ln(x) + y^2 /2 $$&lt;/span&gt; That function gives a crazy indifference map. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The classic example to me of inferior goods are things like cheap food, where delicious food which is much more expensive crowds it out because there is an additional constraint (stomach capacity) which eventually binds. It should be readily possible to make an example where inferiority is a consequence of this second constraint rather than the utility function. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Update with another example:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The paper &lt;a href=&quot;https://www.tandfonline.com/doi/pdf/10.1080/00220485.1994.10844823?needAccess=true&quot; rel=&quot;nofollow noreferrer&quot;&gt;The Case of a “Giffen Good”&lt;/a&gt; (Spiegel (2014)) shows that for a person with utility of the form:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$ U = \begin{Bmatrix} \alpha X - \beta X^2 / 2 + \lambda Y + \delta Y^2 / 2 &amp;amp; for &amp;amp; 0\leq X\leq \alpha/\beta \\ \alpha^2 /2 \beta + \lambda Y + \delta Y^2 /2 &amp;amp; for&amp;amp; X &amp;gt; \alpha/\beta\end{Bmatrix} $$&lt;/span&gt;&#xA;where &lt;span class=&quot;math-container&quot;&gt;$\alpha, \beta, \lambda,$&lt;/span&gt;, and &lt;span class=&quot;math-container&quot;&gt;$\delta$&lt;/span&gt; are constant and positive values. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But as in the above functions, this utility function has increasing MU in one good (Y). This is apparently common in Giffen settings:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In the case of an additive utility function where the marginal&#xA;  utilities of all goods are diminishing with the consumption of the&#xA;  goods, that is, the marginal utility of income is dimin­ishing, all&#xA;  goods are normal and net-substitutes for each other. However, if for&#xA;  some good (in our case, good Y) the marginal utility is positive and&#xA;  increasing and for the other good(s) the marginal utility(ies) is&#xA;  (are) diminishing (in our case, good X), then the marginal utility of&#xA;  income is increasing. The good that exhibits increasing marginal&#xA;  utility is a luxury good, whereas the good that exhibits dimin­ishing&#xA;  marginal utility is an inferior good. These characteristics were&#xA;  proved by Liebhafsky (1969) and Silberberg (1972) and wen: used to&#xA;  develop the utility function above that illustrates the case of a&#xA;  Giffen good.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2020-01-28T21:03:38.427" LastActivityDate="2020-01-28T21:03:38.427" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="3386" PostTypeId="1" CreationDate="2015-02-15T03:54:45.567" Score="1" ViewCount="36" Body="&lt;p&gt;This is my first time doing this but with respects to economic prosperity. What are some of the tools/strategies that Chinese leader such as  Deng Xiaoping would have used to stimulate and enhance China's economy that could be used to do the same for small developing countries such as those in the Caribbean? &lt;/p&gt;&#xA;" OwnerUserId="2960" LastEditorUserId="108" LastEditDate="2015-02-15T19:50:23.020" LastActivityDate="2015-02-15T19:50:23.020" Title="China's Prosperity" Tags="&lt;production-function&gt;&lt;political-economy&gt;&lt;development&gt;" AnswerCount="0" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3387" PostTypeId="1" AcceptedAnswerId="3389" CreationDate="2015-02-15T04:16:08.377" Score="5" ViewCount="252" Body="&lt;p&gt;What economic and development lessons/strategies can developing Caribbean countries learn from successfully small island nations like Singapore? &lt;/p&gt;&#xA;" OwnerUserId="2960" LastActivityDate="2015-02-15T04:38:59.937" Title="Lessons From Successfully small island economies" Tags="&lt;production-function&gt;&lt;development&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3388" PostTypeId="2" ParentId="3370" CreationDate="2015-02-15T04:34:32.720" Score="3" Body="&lt;p&gt;The multiplier is equal to marginal utility of consumption. In case of CRRA utility (i.e. $\lambda_t = c_t^{-\gamma}$), its rate of growth is then related to consumption growth:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\frac{\dot \lambda}{\lambda} = \frac{\mathrm{d} \log \lambda}{\mathrm{d} t} = \frac{\mathrm{d} (-\gamma \log c)}{\mathrm{d} t} =  -\gamma \frac{\dot c}{c}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The condition can be then rewritten as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\frac{\dot c}{c} = \frac{1}{\gamma} \left[ (f'(k) - \delta - \xi) - \nu\right],&#xA;$$&#xA;so that the consumption growth rate is proportional to return on capital (less rate of time preference), which is pretty much the same as Euler equation in discrete time.&lt;/p&gt;&#xA;" OwnerUserId="1432" LastActivityDate="2015-02-15T04:34:32.720" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3389" PostTypeId="2" ParentId="3387" CreationDate="2015-02-15T04:38:59.937" Score="6" Body="&lt;p&gt;I like this question, in the sense that although it is broad, I think it can be answered concisely and factually.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Singapore and China (from your &lt;a href=&quot;https://economics.stackexchange.com/questions/3386/chinas-prosperity&quot;&gt;previous question&lt;/a&gt;) are largely authoritarian countries. So they were both able to exert a lot of government influence over their development programs.  In this respect, they are not similar to Caribbean countries.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, in other respects, Singapore is a good case analog because it is an island with very few natural resources and a relatively small population with correspondingly small domestic economic prospects.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here are some pillars that underpinned Singapore's meteoric economic development.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;Create stable and market-friendly government&lt;/strong&gt;.  Economic development takes a long time, and it's hard to execute it if government changes frequently.  Also, governments need to be prepared -- over time -- to relinquish control over their economies as they transition to market-based.  Both Singapore and China accomplished this deliberately and in an ordered fashion (moving too quickly can cause chaos...see Russia for example).&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;Create stable currency and a good banking system&lt;/strong&gt;.  Singapore, like many developing countries, decided to peg its currency to the US dollar, which gave it exchange rate stability and familarity.  Banking systems are crucial to ensuring liquidity and investment for economic growth, so installing a currency board, conservative fiscal policy, a decent bank, and a set of quasi-government commercial banks helped create financial infrastructure from scratch.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;Invest in general economic infrastructure&lt;/strong&gt;.  Singapore carefully built out physical infrastructure (roads, communications), legal infrastructure (courts and business law), and talent infrastructure (through schools and workforce training) to reduce economic friction, create economic resources, and maximize economic opportunity for development.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;Seed strategic industries&lt;/strong&gt;.  Singapore identified major industries that could help drive economic growth, and used a combination of government subsidies, pro-business laws, and economic protectionism to nurture these industries.  These investments included: making Singapore a low-cost manufacturing hub and a shipping hub (early economic development), and then subsequently a banking and communications hub (later development). &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;Assist trade&lt;/strong&gt;.  The Singapore government worked closely with private and semi-public enterprises to help push through trade negotiations with countries (US, Japan, China, etc), reduce tariffs, and generally make Singapore an easy location for trade.  This was crucial to expanding the scope of the economy, because with fewer than 4 million people (at the time), the domestic economy could not be sufficient to drive growth.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;Attract foreign direct investment&lt;/strong&gt;.  As the economic infrastructure took root, Singapore became an attractive destination for foreign direct investment.  The government assisted with courting and promoting foreign direct investment into the country, which provided investment capital to build out the economy.  Tax and relocation subsidies helped a lot here.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Not all of these approaches will be applicable to Caribbean countries (e.g. Singapore's location was particularly strategic as a shipping hub), but not all of them need to be replicated in order to create fertile conditions for economic development in the Caribbean.&lt;/p&gt;&#xA;" OwnerUserId="2959" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-02-15T04:38:59.937" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="3390" PostTypeId="1" CreationDate="2015-02-15T06:31:24.377" Score="3" ViewCount="23161" Body="&lt;p&gt;What is the difference between merchandise trade and trade in goods? Are they the same? If so, would total trade be just trade in goods + trade in services, aka merchandise trade + trade in services?&lt;/p&gt;&#xA;" OwnerUserId="2961" LastActivityDate="2017-10-26T12:02:39.087" Title="Difference between merchandise trade and trade in goods?" Tags="&lt;international-trade&gt;" AnswerCount="3" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3391" PostTypeId="1" CreationDate="2015-02-15T07:00:06.837" Score="2" ViewCount="741" Body="&lt;p&gt;If the government pays a certain amount $b&amp;gt;0$ to every person who is not working, what is the impact of this subsidy on labour supply? How does it alter the reservation wage? Is your answer modified when payments are restricted to persons who are looking for a job?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My attempt: Suppose $A$ is an individual in the labour force. For an individual who is not in the labour force, there is no impact on labour supply. Therefore, it makes sense to apply the analysis to a person in the labour force.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the income-leisure ($i$-$l$) diagram (of a week) for an individual $A$, without any government aid, let $w_R$ be the reservation wage. Suppose $G$ represents $A$'s other sources of income. Let $T=168$ be the number of hours in a week. Our analysis is done in the interval $[0,T]$ of the $l$-axis. We have the line $i=G+w(T-l)$ or $$i+wl=(wT+G).$$ At $l=T$ and $w=w_R$, $A$ is most happy (maximum utility) to not work at all. However, $w_R$ is the maximum wage rate at which $A$ doesn't work (by definition). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;With the given government intervention, $A$'s original line shifts upward by $b$. $A$ comes to a higher utility point (than in previous case without government intervention) whether he is working or not. It is impossible to tell how the $w_R$ will be altered in this case. It is possible that if $A$ was working before, $A$ is not working now and vice-versa.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Am I correct?&lt;/p&gt;&#xA;" OwnerUserId="2763" LastActivityDate="2015-02-20T02:05:33.123" Title="Impact of government subsidy on labour supply" Tags="&lt;microeconomics&gt;&lt;labor-economics&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3392" PostTypeId="1" CreationDate="2015-02-15T07:29:15.960" Score="4" ViewCount="698" Body="&lt;p&gt;What resources are available for learning Dynare? I think it'd be nice to put together a list of resources that available to those new to Dynare. I've had a little experience with it but it'd be nice to know what resources I might be able to go to for questions on the beginner/intermediate level. Also, I would prioritize resources that have full-fledged examples. Does anybody have any suggestions?&lt;/p&gt;&#xA;" OwnerUserId="59" LastActivityDate="2017-10-02T09:55:49.740" Title="What resources are available for learning Dynare?" Tags="&lt;macroeconomics&gt;&lt;reference-request&gt;&lt;computation&gt;&lt;dynare&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3393" PostTypeId="1" AcceptedAnswerId="17469" CreationDate="2015-02-15T08:27:46.450" Score="7" ViewCount="360" Body="&lt;h1&gt;My Questions&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;Consider the following problem. It is almost identical to&#xA;the classic Merton portfolio choice problem. Here I'm solving it using&#xA;the so-called Martingale method. I have provided my attempt at&#xA;a derivation. I have three questions:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Is this correct? &lt;/li&gt;&#xA;&lt;li&gt;Why does it seem like the consumption path is stochastic? I understand that we can&#xA;perhaps interpret this problem as identical to the classic Merton&#xA;problem where the agent has some starting wealth $W_0 &amp;gt; 0$.&#xA;We can do this by saying that $W_0 = \int_0^\infty \pi_t w dt$.&#xA;However, why would the agent simple not choose $C_t = w$? &#xA;My suspicion is that this depends on the relative values of $\rho$&#xA;and the interest rate $r$. &lt;/li&gt;&#xA;&lt;li&gt;Under&#xA;what conditions would $C_t = w$, if ever?&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;h1&gt;Problem setup&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;An agent has initial wealth $W_0 = 0$ but receives a constant&#xA;stream of wages $w$. There is a riskless asset that pays the interest rate &#xA;$r$ and a risky security that follows the dynamics&#xA;$$&#xA;\frac{dS}{S} = \mu_S dt + \sigma_S dB_t,&#xA;$$&#xA;where $B_t$ is a standard brownian motion.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, the agent has CRRA utility. Thus, his decision is modelled by&#xA;the following program:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{align*}&#xA;\max_{\{C_t\}_{t=0}^\infty} \quad \mathbb E\left[\int_0^\infty e^{-\rho t} &#xA;  \left ( \frac{C_t^{1-\gamma}}{1 - \gamma} \right )&#xA;  \, \mathrm d t \right ] \\&#xA;\text{ s.t. } \mathbb E \left [ \int_0^\infty \pi_t (c_t - w) dt \right ] \leq W_0,&#xA;\end{align*}&#xA;where $\pi_t$ is the stochastic discount factor, which can&#xA;be written as&#xA;$$&#xA;\frac{d \pi_t}{\pi_t} = - \mu_{\pi} dt - \sigma_{\pi} d B_t.&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;h1&gt;My solution attempt&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;Proceeding with the Martingale method, the first-order condition on the&#xA;appropriate Lagrangian are&#xA;$$&#xA;u_c(c_t, t) = e^{-\rho t} C_t^{-\gamma} = \lambda \pi_t,&#xA;$$&#xA;where $\pi = e^{-r t} \xi_t$, $\lambda$ is the Lagrange multiplier,&#xA;and the exponential martingale is &#xA;$\xi_t = \exp\left (-\eta B_t - \frac{t}{2} \eta^2 \right )$.&#xA;Note that this is based on the assumption of complete markets and&#xA;is equivalent to&#xA;$$&#xA;\frac{d \pi_t}{\pi_t} = - r dt - \eta d B_t,&#xA;$$&#xA;where $\eta = \frac{\mu_s - r}{\sigma_s}$ is the market price of risk.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first-order condition implies that &#xA;$C^*_t = \left( \lambda \pi_t e^{\rho t} \right )^{-1/\gamma}$.&#xA;We can then substitute this into the budget constraint and&#xA;solve for $\lambda$:&#xA;\begin{align*}&#xA;W_0 &amp;amp;= \mathbb E \int_0^\infty \pi_t (C_t^* - w) \, \mathrm d t \\&#xA;0  &amp;amp;= \mathbb E \int_0^\infty \pi_t^{\frac{\gamma - 1}{\gamma}} &#xA;      \lambda ^{\frac{-1}{\gamma}} \exp(-\rho t/\gamma) - \pi_t w \, \mathrm d t.&#xA;\end{align*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, in order to proceed, let us make the following intermediate calculations:&#xA;\begin{align*}&#xA;\mathbb E_0[\pi_t] &amp;amp;= \exp\{-r t\} \\&#xA;&amp;amp;\text{and} \\&#xA;\mathbb E_0 \left [\pi_t^{\frac{\gamma - 1}{\gamma}} \right ] &#xA;  &amp;amp;= \mathbb E_0 \exp \left \{&#xA;  - \frac{\gamma - 1}{\gamma} \left (r + \frac 12 \eta^2 \right ) t &#xA;  - \frac{\gamma - 1}{\gamma} \eta B(t) \right \} \\&#xA;  &amp;amp;= \exp \left \{ - \frac{\gamma - 1}{\gamma} (r + \frac 12 \eta^2 ) t &#xA;  + \frac 12 \frac{(\gamma - 1)^2}{\gamma^2} \eta^2 t \right \} \\&#xA;  &amp;amp;= \exp \left \{ -t \frac{\gamma - 1}{\gamma} \left[ r + \frac 12 \eta^2 &#xA;  \frac{1}{\gamma} \right] \right \}.&#xA;\end{align*}&#xA;Because of the appropriate regularity conditions, we can exchange&#xA;the order of integration to &#xA;make the following calculations:&#xA;\begin{align*}&#xA;\mathbb E \int_0^\infty \pi_t w \, \mathrm d t &amp;amp;= w \int_0^\infty \mathbb E[\pi_t] \, \mathrm d t&#xA;  = w \int_0^\infty \exp(-r t) = \frac{w}{r} \\&#xA; \text{and} \\&#xA;\mathbb E \int_0^\infty \pi_t^{\frac{\gamma - 1}{\gamma}} &#xA;  \exp \left (\frac{-\rho t}{\gamma} \right ) \, \mathrm d t&#xA;  &amp;amp;= \int_0^\infty \exp(-a t) dt = a^{-1},&#xA;\end{align*}&#xA;where $a = \frac{\rho}{\gamma} +\frac{\gamma - 1}{\gamma}&#xA;  \left[r + \frac 12 \eta^2 \frac{1}{\gamma} \right ] $.&#xA;Then, continuing with the budget constraint, we&#xA;can solve for $\lambda^{-1/\gamma}$,&#xA;$$&#xA;\lambda^{-1/\gamma} = \frac{w a}{r}.&#xA;$$&#xA;We can then substitute this back into our expression for&#xA;the optimal path of consumption,&#xA;$$&#xA;C^*_t = \frac{w a}{r} \pi_t^{-1/\gamma} \exp \left \{ -\frac{1}{\gamma} \rho t&#xA;  \right \}.&#xA;$$&lt;/p&gt;&#xA;" OwnerUserId="59" LastEditorUserId="59" LastEditDate="2017-07-12T17:09:56.173" LastActivityDate="2017-08-08T02:32:30.843" Title="Optimal consumption in Merton-like portfolio choice model with constant wage" Tags="&lt;finance&gt;&lt;financial-economics&gt;&lt;academic-graduate&gt;&lt;continuous-time&gt;&lt;portfolio-theory&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="3395" PostTypeId="2" ParentId="1644" CreationDate="2015-02-15T13:08:57.287" Score="8" Body="&lt;p&gt;The following post explains in a somewhat easier way what exactly is happening when we log linearize a model. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://economictheoryblog.com/2012/06/22/latexgx_t/&quot;&gt;http://economictheoryblog.com/2012/06/22/latexgx_t/&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Going through the provided example should make it clear what the single steps are. &lt;/p&gt;&#xA;" OwnerUserId="2963" LastActivityDate="2015-02-15T13:08:57.287" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3396" PostTypeId="1" AcceptedAnswerId="3398" CreationDate="2015-02-15T13:12:33.613" Score="6" ViewCount="17820" Body="&lt;p&gt;We know if the utility function is quasilinear (QL) w.r.t good 1, then the demand for other goods is independent of income (no income effect for goods $(2,\dots, N)$). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But is the reverse implication also true: i.e can we say if all the goods except one have demand functions independent of income then the utility function must be quasilinear? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have been looking up all the standard micro grad level text books but haven't got an answer yet. I see books defining (rather characterizing) QL by just one side of implication (i.e QL implies No income effect) but are silent about the other.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any reference in this regard will be highly useful.&lt;/p&gt;&#xA;" OwnerUserId="2904" LastEditorUserId="43" LastEditDate="2015-02-15T16:22:20.017" LastActivityDate="2015-05-19T19:53:01.493" Title="Quasilinear Utility Functions" Tags="&lt;utility&gt;&lt;consumer-theory&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3397" PostTypeId="2" ParentId="3396" CreationDate="2015-02-15T13:52:20.013" Score="3" Body="&lt;p&gt;Is that first claim right? I guess it depends what you mean by an income effect. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Say your quasi-linear utility form is:&#xA;$$U(x,v) = x + \ln(v)$$&#xA;Say $P_v = P_x=1$ and so for wealth $w = P_v\cdot v + P_x \cdot x = x + v$. &#xA;If $0&amp;lt;w\leq 1$ the household strictly prefers to buy $v$ to $x$ and buys no $x$ but $w&amp;gt;1$ is then exclusively $x$ is purchased beyond that. So demand for $x$ looks like this:&#xA;$$w&amp;lt;1: x^* = 0$$&#xA;$$w&amp;lt;1: v^* = w$$&#xA;$$w\geq1: x^* = w-1$$&#xA;$$w\geq1: v^* = 1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the marginal demand for $x/v$ depends on $w$. &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2015-02-15T13:52:20.013" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3398" PostTypeId="2" ParentId="3396" CreationDate="2015-02-15T16:18:42.877" Score="2" Body="&lt;h1&gt;Is your claim 1 true?&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;Let's look at an agent who's Utility is quasi linear in money, $m$, and goods $c$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The utility function is given by&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U(m,c) = m + f(c)$$ for some concave function $f$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The maximization problem, given wealth $w$, prices of money and consumption $p, p_c$ is then&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\max_{m,c} U(m,c) \text{ s.t. } pm + p_c c = w\\&#xA;= \max_c f(c) + \frac{w}{p} - \frac{p_c}{p}c\\&#xA;\Rightarrow f'(c) = \frac{p_c}{p}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the optimal amount for consumption $c$ is independent of the wealth level $w$, &lt;em&gt;if the interior solution qualifies as the global solution&lt;/em&gt; - which it does for sufficiently high wealth level. I'm not from a micro background but I suppose this qualifies as &lt;em&gt;no income effect for the nonlinear good&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The intuition is, that, beyond a threshold of income, you have your optimal consumption locus $c^*$ which is identified by the previous FOC. Having a higher income will make you want to save that money, not put it into consumption.&lt;/p&gt;&#xA;&#xA;&lt;h1&gt;What about the inverse?&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;Now that we got the intuition, we can try to work it backwards. What do we need? That &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\exists c^* : U(m+\epsilon, c^*) &amp;gt; U(m, c^* + \frac{p}{p_c}\epsilon) \,\forall \epsilon &amp;gt; 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One can show (do it!) that if $U$ was concave in $m$, eventually the marginal value of increasing $m$ (for a large enough $\epsilon$) was smaller than investing it into $c$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand, if $U$ was additively separable in $(m,c)$ and increasing but convex in $m$, we would - after a threshold - always invest all into $m$ and set $c=0$. Also here, after that threshold, the optimal locus for $c$ is trivially independent of the wealth level: no income effect.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another example would be decreasing utility in $c$, which would make us set it independently of the wealth level to its global minimum (often 0).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You see, unless you give us a class of utility functions, there can be many valid (but economically stupid) cases of utility functions where the inverse does not hold.&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2015-02-15T16:51:02.557" LastActivityDate="2015-02-15T16:51:02.557" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="3399" PostTypeId="2" ParentId="3382" CreationDate="2015-02-15T18:13:17.230" Score="1" Body="&lt;p&gt;I assume that this is about Macroeconomics in particular (you might want to add that tag).&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Often we don't need profits&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;The interaction of firm profits is often irrelevant. It is well summarized under capital rents. Having firm profits does not add any insights to, say, Solow's growth model or the standard Neoclassical model.&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Operative profits vs Life time profits&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;In some models, however, we do need profitability of firms. That typically comes from additional costs of running the firm. For example &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Vacancy costs (search and matching model)&lt;/li&gt;&#xA;&lt;li&gt;Entry costs (patents in Romer's growth model)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Firms run positive operative profits, which exactly offset the entrance costs. That is, life time profits are zero. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why? Because we start in many models from the first-best and gradually remove particular assumptions. Romer could have talked in his model about a world in which patents have limited enforceability, or competitors particularly catch up, but the standard models we research ( and teach) typically do not incorporate this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Later on, Kortum (1997) and Aghion, Howard, Howit create research based growth models that allow for catching up of competitors. &lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Profits are messy to model&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;Profits mess up a lot of things. Think about the neo keynesian model, a standard example of where firms make profits (positive or negative) in every period, which do not necessarily cancel out over time. Allow for heterogeneity in households assets: some are poor, some are rich.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Perfect representation of the owner in the decision making process of the firm requires that the stochastic discount factor (SDF) of the firm represents the SDF of the owner. But, in this model, who is the owner? Rich and poor agents share the firm, with different degree of ownership. To do this properly, we would need to add a stock market for the firm and allow agents to trade it; track the ownership of the firm and adjust the SDF. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But no, you can't even look at the share of ownership: Say, $w$ denotes the wealth level, $m(w)$ denotes the measure of firm assets hold by agents with wealth $w$, and $\rho(w)$ denotes the discount rate of agents with wealth level $w$. Can you then just compute the firms SDF $\rho_F$ with&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\rho_F = \int \rho(w)m(w) dw$$?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In reality, firm decisions are often voted over by simple majority. You'd need to model coalitions that get votes of $50%$ of asset holdings and see what SDF that gives you. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course, this is much too complicated to do correctly. Even the intermediate step with an asset market is not trivial, people very often fall back to assuming the SDF of the richest agents, predicting their model's outcome. But it's not nice: We like to have internality consistent models, and profits make this difficult.&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-02-15T18:13:17.230" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="3402" PostTypeId="1" CreationDate="2015-02-15T20:10:08.330" Score="6" ViewCount="129" Body="&lt;p&gt;I am interested in getting aggregate dollar values for listings/sales on Zillow (for the whole country summed together, for example). Unfortunately, &lt;a href=&quot;http://www.zillow.com/research/data/&quot;&gt;Zillow's data page&lt;/a&gt; seems to only show the &quot;ZHVI&quot;, an index value, not a total dollar value. Is there any way to get the total dollar value?&lt;/p&gt;&#xA;" OwnerUserId="1448" LastActivityDate="2017-08-21T08:31:52.450" Title="How can I get total home values on Zillow?" Tags="&lt;data-request&gt;&lt;statistics&gt;" AnswerCount="2" CommentCount="7" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3403" PostTypeId="1" CreationDate="2015-02-15T21:38:44.543" Score="8" ViewCount="709" Body="&lt;p&gt;Berge's theorem states&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Let $X \in \mathbb R^m, \Theta \in \mathbb R^n $, $f : X \times \Theta \to \mathbb R$ be a jointly continuous function, $C : \Theta  \rightrightarrows X$ be a continuous(both upper and lower hemicontinuous) compact-valued correspondence.The maximized value function and maximizer are&#xA;  $$V(\theta) := \max_{x \in X}f(x, \theta)$$&#xA;  $$C^\ast(\theta):=\{x \in C(\theta) \mid f(x, \theta )=V(\theta)\}$$&#xA;  Then $V : \Theta \to \mathbb R$ is continuous and $C^\ast :\Theta \rightrightarrows  X$ is upper hemicontinuous.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;According to Varian's Microeconomic Analysis(1992), page 490, Envelope theorem is simply:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;$$\frac{dM(a)}{da}=\frac{\partial f(x,a)}{\partial a}\mid_{x=x(a)}$$&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;$x(a)$ is the maximizer of $f(\cdot, a)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems to me Envelope theorem entails Berge's theorem, but the derivation looks way simpler. Is there a relationship between the two?&lt;/p&gt;&#xA;" OwnerUserId="2671" LastActivityDate="2015-02-20T15:14:50.617" Title="Is there a way to link Berge's theorem of maximum to Envelope theorem?" Tags="&lt;mathematical-economics&gt;&lt;academic-graduate&gt;&lt;optimization&gt;" AnswerCount="2" CommentCount="3" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="3404" PostTypeId="1" AcceptedAnswerId="5136" CreationDate="2015-02-16T08:22:30.290" Score="5" ViewCount="590" Body="&lt;p&gt;In a context that future return is discounted by a constant parameter, &lt;a href=&quot;http://en.wikipedia.org/wiki/One-shot_deviation_principle&quot;&gt;one-shot deviation principle&lt;/a&gt; holds for both repeated games and dynamic programming.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Because, in repeated games, a one-shot deviation refers to one history, so on equilibrium path, a one-shot deviation could produce a play that differs on more than one stages from the original equilibrium path.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is it true for the sequence of state variables and control variables in dynamic programming? In other words, can a one-shot deviation generate an aforementioned sequence that differs for more than one stage?&lt;/p&gt;&#xA;" OwnerUserId="73" LastActivityDate="2015-05-11T00:31:37.993" Title="One-shot deviation principle for infinite repeated games and dynamic programming" Tags="&lt;academic-graduate&gt;&lt;dynamic-programming&gt;&lt;dynamic-games&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3405" PostTypeId="1" CreationDate="2015-02-16T08:23:27.467" Score="5" ViewCount="251" Body="&lt;p&gt;I have an idea for a fantasy football experiment looking at three different areas of the draft.  These three areas are the position of each pick and how often and what value are trades.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have dug through the literature and have only found a couple of papers about this topic. I was wondering if anybody has heard of this vetting done before or any ideas on how to make this idea more concrete. If it is to vague I can explain it more later on. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you for all of your help guys&lt;/p&gt;&#xA;&#xA;&lt;p&gt;UPDATE:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A little more information, the paper will look at level k play in regard to fantasy football and the implementations of this paper is to ultimately either to help companies learn how to players play and develop a better drafting system and a more ok intelligent player pool.  Think of it of this way: is crowd mentality in ranking better than one's own ranking system?&lt;/p&gt;&#xA;" OwnerUserId="2973" LastEditorUserId="2973" LastEditDate="2015-02-16T15:00:31.807" LastActivityDate="2015-05-09T06:45:25.233" Title="Fantasy football" Tags="&lt;game-theory&gt;&lt;utility&gt;&lt;decision-theory&gt;&lt;auctions&gt;" AnswerCount="1" CommentCount="12" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3406" PostTypeId="2" ParentId="3379" CreationDate="2015-02-16T09:47:52.997" Score="3" Body="&lt;p&gt;First of all, that rate is the overnight deposit rate for banks depositing cash at the central bank, so it doesn't have a direct relationship with what people pay for their mortgages. (EDIT: yes, it does have an indirect relationship but it's not completely straightforward) People are still paying positive interest rates for their houses (and why would they not? No bank is going to give you money for loaning money from them!) And the rate to &lt;strong&gt;lend&lt;/strong&gt; money from the central bank is still positive.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Essentially, the negative interest rate is there to dissuade the institutions that can interact with the Swedish central bank from depositing money there, since they would be better off just holding cash. So, this negative interest rate will cause them to have more reserves on hand, or, if they don't want to increase their reserves, they will have to loan out more money: and loaning out the money will have an indirect effect of stimulating the economy (since the people who need loans tend to be people trying to start companies or projects that will spend money). So basically, either it forces banks to be more solvent or it gets them stimulating the economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As you might be able to see, this only has a very remote relationship with mortgages or the mortgage rate, that being, it indirectly causes interest rates across the economy to stay low (since banks will want to loan out marginally more money, there will be some pressure downward overall on interest rates). This is definitely not anything that will speed up a crash, though arguably a long period of low interest rates may lead to people taking on too much debt which could cause problems if interest rates spike sometime down the road, but that's far away at this point.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's hard to say what impact this would have on the exchange rate, just because any impact this would have is fairly subtle either way. The effect of market confidence in the krona and the Swedish Central Bank will likely have a more immediate and larger effect, which would actually strengthen the krona a bit.&lt;/p&gt;&#xA;" OwnerUserId="2971" LastEditorUserId="2971" LastEditDate="2015-02-17T06:10:32.173" LastActivityDate="2015-02-17T06:10:32.173" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="3407" PostTypeId="1" AcceptedAnswerId="3410" CreationDate="2015-02-16T10:25:35.733" Score="4" ViewCount="180" Body="&lt;p&gt;If you had to summarize New-Keynsian thought into one paragraph, or a set of equations, what would it be?&lt;/p&gt;&#xA;" OwnerUserId="2971" LastEditorUserId="2971" LastEditDate="2015-02-17T07:03:31.607" LastActivityDate="2015-02-17T07:03:31.607" Title="What would be the defining characteristic of New-Keynsian thought?" Tags="&lt;macroeconomics&gt;&lt;keynesian-economics&gt;&lt;new-keynesian-economics&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3408" PostTypeId="2" ParentId="3407" CreationDate="2015-02-16T12:23:01.180" Score="3" Body="&lt;p&gt;I will try to answer this question although it is rather hard using only one paragraph, if not impossible. A paragraph explaining what New-Keynesian Economics is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Models explaining price and wage stickiness using rational expectations and utility maximizing behaviour.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;See &lt;a href=&quot;http://www.jstor.org/discover/10.2307/2727103?sid=21105873205523&amp;amp;uid=3738008&amp;amp;uid=2&amp;amp;uid=4&quot; rel=&quot;nofollow&quot;&gt;Gordon, R.J, 1990&lt;/a&gt; for more details.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a defining equation the New-Keynesian Phillips curve is one of the cornerstones of New Keynesian economics:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\pi_{t}=\beta E_{t}\left\{ \pi_{t+1}\right\} +\kappa x_{t}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where $x_{t}&#xA; $ is the output gap, $\pi_{t}&#xA; $ is inflation at time $t&#xA; $. $\kappa=\frac{\gamma\left(1-\omega\right)\left(1-\beta\omega\right)}{\omega}&#xA; $ which is an increasing function of firms being able to change their price that period. Note that this curve is based upon Calvo pricing but one can also use Rotemberg pricing etc.&lt;/p&gt;&#xA;" OwnerUserId="150" LastActivityDate="2015-02-16T12:23:01.180" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3410" PostTypeId="2" ParentId="3407" CreationDate="2015-02-16T13:27:20.563" Score="6" Body="&lt;p&gt;&lt;a href=&quot;http://press.princeton.edu/titles/8654.html&quot;&gt;Gali's Monetary Policy, Inflation, and the Business Cycle: An Introduction to the New Keynesian Framework&lt;/a&gt;, provides an advanced undergraduate / first-year graduate student introduction to these models, and I'd recommend it for self studies. According to &lt;a href=&quot;http://press.princeton.edu/chapters/s8654.pdf&quot;&gt;chapter 1, available online, which offers an overview of the  New Keynesian Model&lt;/a&gt;, the key elements are:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Structural characteristics of Real Business Cycle (RBC) Dynamic Stochastic General Equilibrium (DSGE) models&lt;/li&gt;&#xA;&lt;li&gt;Monopolistic competition&lt;/li&gt;&#xA;&lt;li&gt;Nominal rigidities&lt;/li&gt;&#xA;&lt;li&gt;Short run non-neutrality of monetary policy&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-02-16T20:33:53.347" LastActivityDate="2015-02-16T20:33:53.347" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3411" PostTypeId="2" ParentId="3079" CreationDate="2015-02-16T16:27:44.920" Score="4" Body="&lt;p&gt;In what follows, I'm going to be very hand wavy - take with a grain of salt.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you think about it, a &lt;strong&gt;demand shock&lt;/strong&gt; is like a scenario of multiple equilibria (given the fixed levels of wages and prices):&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;If everyone is employed, everyone has a lot of income, can spend that on goods, and the demand for goods implies a large demand for labor, making everyone employed&lt;/li&gt;&#xA;&lt;li&gt;If few people are employed, total spending is smaller, so is demand for goods and labor, corresponding to only fewer people employed&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The Keynesian solution can be thought of as &lt;em&gt;forcing the first case to happen rather than the second&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you really have a &lt;strong&gt;supply shock&lt;/strong&gt;, that is, lack of a factor important to production, there is no indeterminacy here. There just isn't that much (oil) available, increasing its price. The RBC spokesperson of your favor would say&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The high price stems from scarcity; both the high price, the low production and high unemployment are efficient.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In the standard problem, rigidity of wages and prices create inefficiency, they can be dealt with. Here, there is no such inefficiency, and no inherent &lt;em&gt;solution&lt;/em&gt; to a supply side shock. &lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-02-16T16:27:44.920" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3412" PostTypeId="1" AcceptedAnswerId="3413" CreationDate="2015-02-16T19:37:43.493" Score="0" ViewCount="46" Body="&lt;p&gt;Let $P_k$ be the value of 1 quantity of a capital good. If one does not sell the capital good and keep it, the good provides interests.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In such a case, does standard macro say that all expected discounted real expected returns (or net present value of all future and present returns) be equal to $P_k$?&lt;/p&gt;&#xA;" OwnerUserId="2977" LastActivityDate="2015-02-16T23:34:32.890" Title="Do capital goods have to be valued so that (discounted) real expected return on capital goods equal current present value of capital goods?" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3413" PostTypeId="2" ParentId="3412" CreationDate="2015-02-16T20:27:50.557" Score="0" Body="&lt;p&gt;Here is a somewhat standard presentation that might be taught in intermediate macroeconomics at US universities.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $p_t$ be the price of a unit of capital at the end of period $t$. Suppose that production takes place at the start of each period. After production takes place, depreciation occurs. Let us say that the depreciation rate is constant at $\delta$. Let us also say that the real interest rate across any two consecutive periods is $r$. Assume also that the price of each unit of output is equal to $1. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If so, we would expect that &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$p_1=\frac{1}{1+r}[MP^k_2+(1-\delta)p_2]$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This has a nice interpretation. The price of capital at the end of period 1 equals: The present discounted value of the additional output it can give us at the start of period 2, &lt;em&gt;plus&lt;/em&gt; the after-depreciation resale value of that unit of capital at the end of period 2.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can write down an analogous expression for $p_2$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$p_2=\frac{1}{1+r}[MP^k_3+(1-\delta)p_3]$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now substitute this latter expression for $p_2$ into our first equation above, to get:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$p_1=\frac{1}{1+r} \left\{ [MP^k_2+(1-\delta)\frac{1}{1+r}[MP^k_3+(1-\delta)p_3] \right\}=\frac{1}{1+r}[MP^k_2+\frac{1-\delta}{1+r}MP^k_3+\frac{(1-\delta)^2}{1+r}p_3]$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This last expression has again a nice interpretation. The price of capital at the end of period 1 equals: The present discounted value of the additional output it can give us at the start of period 2, &lt;em&gt;plus&lt;/em&gt; the additional output it can give us at the start of period 3, &lt;em&gt;plus&lt;/em&gt; the resale value of that unit of capital at the end of period 3.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we keep going, plugging in expressions for $p_3$, $p_4$, ..., eventually we'll find that &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$p_1=\frac{1}{1+r}[MP^k_2+\frac{1-\delta}{1+r}MP^k_3+(\frac{1-\delta}{1+r})^2MP^k_4+(\frac{1-\delta}{1+r})^3MP^k_5+\dots]$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This has the desired result: The price of a unit of capital today is simply equal to the present value of the future stream of income that this unit of capital will generate, appropriately taking into account depreciation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This generalizes to a broader principle employed not just in standard macroeconomics but in the real world too: &lt;strong&gt;The price of any asset should be equal simply to the present value of the future stream of income that the asset will generate.&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2015-02-16T20:27:50.557" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3414" PostTypeId="2" ParentId="3412" CreationDate="2015-02-16T23:34:32.890" Score="0" Body="&lt;p&gt;Let's think about a unit of non-depreciating capital that has a price of $p_k$, in a static environment where we normalized the price of the consumption good to 1. Furthermore, the unit of capital gives you $r$ units of interest in consumption good units.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;tl;dr&lt;/strong&gt;: Yes, Because of some equilibrium condition.&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;The value of capital&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;Let me denote by $\lambda_t$ the value of a marginal consumption good in unit $t$ - this is how much more happy you would be today, if you knew that in time $t$ you get to consume a little bit more.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, the utility that a unit of capital generates for you at time $0$ is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\lambda_1 r + \lambda_2 r + \lambda_3 r + \dots$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We assume that capital doesn't give interest in the first period. Note that discount rates are hidden inside $\lambda$; this sequence converges by assumption. This is your discounted real expected return on capital goods.&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Cost of Capital&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;Now, what is the opportunity cost of investing into one unit of capital? You forgo $p_k$ units of consumption in period 0.&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Equilibrium Condition&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;The cost has to equal the value in equilibrium - the price has to equal the value of capital, otherwise:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;if the price was higher than the value, people who owned capital would try to sell it&lt;/li&gt;&#xA;&lt;li&gt;if the price was lower than the value, demand would be larger than supply of capital goods&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-02-16T23:34:32.890" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3415" PostTypeId="1" AcceptedAnswerId="3417" CreationDate="2015-02-17T08:48:24.570" Score="0" ViewCount="6454" Body="&lt;p&gt;Please briefly explain the situation when a bank is &quot;fully loaned up&quot;.&lt;/p&gt;&#xA;" OwnerUserId="2941" LastEditorUserId="69" LastEditDate="2015-02-17T13:27:47.553" LastActivityDate="2015-02-17T14:06:42.233" Title="What does it mean when a bank is &quot;fully loaned up&quot;?" Tags="&lt;banking&gt;&lt;regulation&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="3416" PostTypeId="1" CreationDate="2015-02-17T10:42:25.667" Score="5" ViewCount="746" Body="&lt;p&gt;I'm a mathematics student learning a bit of Game theory. Many examples are given within a very economic setting and up to know I could follow most of it because they were very basic and I learnt some basic economics in high school.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now I've come across some examples where a player is risk-neutral whereas the other is risk-averse (e.g. insurance company vs. customer). Say we have outcomes $(A_i)_{i \in I}$ which occur with probabilities $(p_i)_{i \in I}$, and they have payoffs $(w_i)_{i \in I}$. It seems the expected payoff for risk-neutral players is simply&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\sum_{i \in I} p_i w_i$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;whereas for risk-averse player we apply the natural logarithm and end up with&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\sum_{i \in I} p_i \log w_i.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the lecture notes I am reading, I have found no justification for this and I assume it is covered in other lectures in the standard curriculum of any economics student.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Question 1:&lt;/strong&gt; Why are we taking the logarithm? (mathematically and economically)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Question 2:&lt;/strong&gt; Are there more &quot;measures&quot; of risk-attitude? If so, how does the expected payoff change?&lt;/p&gt;&#xA;" OwnerUserId="2982" LastEditorUserId="43" LastEditDate="2015-02-17T16:32:41.477" LastActivityDate="2015-02-17T23:19:33.773" Title="Why are we taking the logarithm for risk-averse decision-makers?" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;preferences&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="3417" PostTypeId="2" ParentId="3415" CreationDate="2015-02-17T13:26:47.480" Score="2" Body="&lt;p&gt;The reserve requirement on deposits ensures that (for a given $reserve\ requirement(\%)$ and $deposits(\$)$): $$loans(\$) \leq deposits(\$)  \cdot (1 - reserve\ requirement(\%))$$&#xA;Fully loaned up means that this holds with equality: &#xA;$$ loans(\$) =  deposits(\$)  \cdot (1 - reserve\ requirement(\%)) $$&lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-02-17T14:06:42.233" LastActivityDate="2015-02-17T14:06:42.233" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4417" PostTypeId="2" ParentId="3416" CreationDate="2015-02-17T14:27:22.537" Score="4" Body="&lt;p&gt;&lt;strong&gt;Question 1:&lt;/strong&gt; &lt;em&gt;Why are we taking the logarithm? (mathematically and economically)&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The log function is a concave function so that an agent would prefer to get the utility of the average payoff to the average of the utilities of the actual payoff. Linear utility is not concave and so they are indifferent between these two offers. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/YLwjx.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Source: &lt;a href=&quot;http://en.wikipedia.org/wiki/Risk_aversion&quot; rel=&quot;nofollow noreferrer&quot;&gt;Risk aversion&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Question 2:&lt;/strong&gt; &lt;em&gt;Are there more &quot;measures&quot; of risk-attitude? If so, how does the expected payoff change?&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Check out the &lt;a href=&quot;http://en.wikipedia.org/wiki/Risk_aversion#Measures_of_risk_aversion&quot; rel=&quot;nofollow noreferrer&quot;&gt;Arrow-Pratt measures of absolute and relative risk aversion&lt;/a&gt;. Log utility is a special case of when the agent has an Arrow-Pratt measure of relative risk aversion $\rho=1$. The log actually turns out to be a rather risk-tolerant parametrization of  relative risk aversion, consistent with laboratory evidence but at odds with some financial and macroeconomic estimates. &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2015-02-17T14:27:22.537" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4418" PostTypeId="2" ParentId="3416" CreationDate="2015-02-17T16:56:53.207" Score="5" Body="&lt;p&gt;Let's step back. In general, utility functions are (monotone increasing) functions $f(w)$ that map wealth into utility. That is, the input $w$ is money and the output $f(w)$ is utility. If we have a distribution $\vec{p}$ over possible wealth outcomes $w$, then my &lt;em&gt;expected utility&lt;/em&gt; is $\mathbb{E}f(w) = \sum_i p_i f(w_i)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, what is risk aversion? Intuitively, it means I prefer a &lt;em&gt;certain&lt;/em&gt; outcome to an &lt;em&gt;uncertain&lt;/em&gt; one even though they have the same expectation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, a &lt;em&gt;risk-averse&lt;/em&gt; utility function is defined to be a &lt;em&gt;concave&lt;/em&gt; utility function $f$. This is natural because of &lt;a href=&quot;http://en.wikipedia.org/wiki/Jensen%27s_inequality&quot; rel=&quot;nofollow&quot;&gt;Jensen's inequality&lt;/a&gt;: if $f$ is concave, then for any distribution over outcomes of $w$, we have $\mathbb{E}f(w) \leq f(\mathbb{E} w)$. In other words, I prefer to get $\mathbb{E}w$ for certain rather than some uncertain amount of money with that expectation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To connect back to your question (1), you are comparing the expected utility from two different utility functions: $f(w) = w$ and $f(w) = \log w$. The latter is just a very nice and handy concave (hence risk-averse) utility function. But it is only one example (albeit an important one) of a risk-averse utility functions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And to connect back to your question (2), to get risk aversion, any concave function will do. But the &quot;more&quot; concave, the &quot;more&quot; risk averse. Meanwhile, &lt;em&gt;risk-neutral&lt;/em&gt; functions should satisfy $\mathbb{E}f(w) = f(\mathbb{E} w)$, so that's any &quot;affine&quot; function of the form $f(w) = a\cdot w + b$. Finally, risk-seeking utility functions are convex (and less-often studied as they seem less natural).&lt;/p&gt;&#xA;" OwnerUserId="2856" LastEditorUserId="2856" LastEditDate="2015-02-17T23:19:33.773" LastActivityDate="2015-02-17T23:19:33.773" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4419" PostTypeId="1" AcceptedAnswerId="4421" CreationDate="2015-02-17T17:36:00.930" Score="1" ViewCount="2608" Body="&lt;p&gt;The Wikipedia article for &lt;a href=&quot;http://en.wikipedia.org/wiki/Real_versus_nominal_value_(economics)&quot; rel=&quot;nofollow&quot;&gt;real value&lt;/a&gt; says&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In economics, a nominal value is an economic value expressed in&#xA;  historical nominal monetary terms. By contrast, &lt;strong&gt;a real value is a&#xA;  value that has been adjusted from a nominal value to remove the&#xA;  effects of general price level changes over time&lt;/strong&gt; and is thus measured&#xA;  in terms of the general price level in some reference year (the base&#xA;  year).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Here the Wikipedia link for &lt;em&gt;general price level changes&lt;/em&gt; takes me straight to the article for &lt;em&gt;inflation&lt;/em&gt;. But then the Wikipedia article for &lt;a href=&quot;http://en.wikipedia.org/wiki/Deflation&quot; rel=&quot;nofollow&quot;&gt;deflation&lt;/a&gt; says&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Economists generally believe that deflation is a problem in a modern&#xA;  economy because it increases the real value of debt&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This sounds like a contradiction to me, because by the first definition, the &lt;em&gt;real value of debt&lt;/em&gt; remains constant under deflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can someone explain this?&lt;/p&gt;&#xA;" OwnerDisplayName="user3985" LastActivityDate="2015-02-17T18:49:32.573" Title="Real value of debt" Tags="&lt;inflation&gt;&lt;deflation&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4420" PostTypeId="1" CreationDate="2015-02-17T18:03:54.753" Score="8" ViewCount="1700" Body="&lt;p&gt;Is there a list of EU banks that got state aid / bailed out since 2008 crisis? I know EU state aid commission approves the fundings to banks, but does anyone keep track of which banks are tapping into these aids?&lt;/p&gt;&#xA;" OwnerUserId="2758" LastEditorUserId="264" LastEditDate="2017-05-15T16:12:51.287" LastActivityDate="2017-05-16T10:05:07.903" Title="List of EU banks that received state aid" Tags="&lt;banking&gt;&lt;financial-crises&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4421" PostTypeId="2" ParentId="4419" CreationDate="2015-02-17T18:10:08.993" Score="0" Body="&lt;p&gt;If you take s loan for one million dollars at a certain point -  deflation will mean one million dollars is now worth more than when you loaned it, but you still owe a million dollars  (assuming you didn't return any back)  therefore the value of your debt is now increased. &#xA;That being said you can always take loans adjusted for inflation - where you return the real value of your loan regardless of the value of the currency. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is actually a big argument whether deflation is good or bad - the Keynesians think it's bad - mainly because they think it reduces spending and results in a recession. The Austrians on the other hand think it is nonsense and deflation is good because it means the price of goods is lowered. &#xA;*this was a great simplification, but the point is still there. &lt;/p&gt;&#xA;" OwnerUserId="3986" LastActivityDate="2015-02-17T18:10:08.993" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="4422" PostTypeId="2" ParentId="4419" CreationDate="2015-02-17T18:10:18.907" Score="0" Body="&lt;p&gt;There is no contradiction. Call $p$ the price level and $D$ the nominal debt level. Then, the real value of debt is given by&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{D}{p}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The debt level, divided by the current price level. When we have deflation, that means that $p$ decreases. A decrease in the denominator, $p$, means that the total value increases.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Perhaps &lt;strong&gt;an example&lt;/strong&gt; helps. You started a debt contract in 1960, for 100 USD. That money was worth a lot back then. Suppose you would have to pay that money back now (without interest). In nominal terms, $D$ is still 100. Assuming that we had average inflation of 5 percentage points (pulling numbers from my head just for the example), the value of the currency decreased around 11.5 times (not real number) during that interval. That is, your real debt is only around 8 USD. Had the inflation over the period been higher, your real debt would be even smaller. The other way around: if there was deflation over that period, your real burden would be higher!&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2015-02-17T18:49:32.573" LastActivityDate="2015-02-17T18:49:32.573" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4423" PostTypeId="2" ParentId="4420" CreationDate="2015-02-17T18:53:48.150" Score="8" Body="&lt;p&gt;&lt;a href=&quot;http://www.propublica.org/&quot; rel=&quot;nofollow&quot;&gt;Pro Publica&lt;/a&gt; keeps an ongoing &lt;a href=&quot;http://projects.propublica.org/bailout/list&quot; rel=&quot;nofollow&quot;&gt;list of bailout recipients in the United States&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is a report on the UK bailouts during the crisis:&#xA;&lt;a href=&quot;http://www.nao.org.uk/wp-content/uploads/2011/07/HMT_account_2010_2011.pdf&quot; rel=&quot;nofollow&quot;&gt;The Comptroller and Auditor General’s Report on Accounts to the House of Commons: The financial stability interventions&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &lt;a href=&quot;http://en.wikipedia.org/wiki/SoFFin&quot; rel=&quot;nofollow&quot;&gt;SoFFin&lt;/a&gt; Wikipedia page has a list of participating German institutions. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.reuters.com/article/2009/02/11/uk-financial-banks-bailouts-sb-idUSTRE51A5NO20090211&quot; rel=&quot;nofollow&quot;&gt;FACTBOX - Bank bailouts around the world covers a few additional countries's bailouts&lt;/a&gt; between September 2008 and February 2009. &lt;a href=&quot;http://www.reuters.com/article/2009/04/09/us-hyporealestate-offer-bailouts-factbox-idUSTRE53822E20090409&quot; rel=&quot;nofollow&quot;&gt;A further update came in April of 2009&lt;/a&gt; but it doesn't seem exhaustive.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Page 28 of &lt;a href=&quot;http://ec.europa.eu/europe2020/pdf/nrp/sp_netherlands_en.pdf&quot; rel=&quot;nofollow&quot;&gt;Stability Programme of the Netherlands April 2011 Update&lt;/a&gt; contains information on their biggest bailouts but I am unsure if it is exhaustive. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &lt;a href=&quot;http://www.frob.es/en/Paginas/Home.aspx&quot; rel=&quot;nofollow&quot;&gt;Spanish Fund for Orderly Bank Restructuring&lt;/a&gt; appears to be the key Spanish bailout program. The &lt;a href=&quot;http://www.scribd.com/doc/96543288/FROB-FAQ&quot; rel=&quot;nofollow&quot;&gt;FROB FAQ&lt;/a&gt; lists entities receiving FROB support but again, this may not be exhaustive. &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-02-24T01:11:57.177" LastActivityDate="2015-02-24T01:11:57.177" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="4424" PostTypeId="1" AcceptedAnswerId="4443" CreationDate="2015-02-17T19:04:33.337" Score="15" ViewCount="1255" Body="&lt;p&gt;I really, really like moderate inflation. I live in Sweden where the interest rates just went negative because we are on the brink of deflation, and the rate of inflation we have now is far too low. We have huge problems attracting foreign attention and the swedes don't want to take out loans to invest since paying them back ten years down the road hurts just as bad as paying them now (and there's a real risk it might take more to pay them back later, if we go into deflation). It's a real head ache that's all the talk in our financial world.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Getting a hold of Bitcoin is very, very hard and expensive. The value of it has deflated dramatically from when it was introduced, and despite occasional crashes, it could very well just keep climbing in value. It also has a cap, which to me looks like it would unleash a deflationary spiral that would only end once we find a new currency (like the Great Depression was alleviated when we stopped using the gold standard).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But, I'm a computer scientist and I just can't stop finding bit coin supporters everywhere. It has thousands of evangelical missionaries using blogs and magazines to tout it as a means to liberate us from the bankers. I don't know, can't computer scientists be just as corrupt? It looks like dot coms with access to good cryptographic algorithms and server farms who can work in parallel could game the system even more, and once they've swept up all the bit coins they would wield more power than nation states.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Am I missing something? What does bit coin bring to the table that is worth disregarding deflation? Does it bring positive GDP growth? Ease of investment? Monetary power to the people? How? And, I keep coming back to this, wouldn't all these positives be completely wiped out once the 30s come knocking deflation style?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why does this currency have so many supporters? Are everyone mad?&lt;/p&gt;&#xA;" OwnerUserId="3987" LastEditorUserId="40" LastEditDate="2015-10-13T03:21:40.050" LastActivityDate="2020-04-18T22:16:19.160" Title="What benefits does Bitcoin (i.e. cryptocurrency) offer?" Tags="&lt;macroeconomics&gt;&lt;currency&gt;&lt;deflation&gt;&lt;cryptocurrency&gt;" AnswerCount="4" CommentCount="3" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="4425" PostTypeId="2" ParentId="3365" CreationDate="2015-02-17T19:27:57.323" Score="2" Body="&lt;p&gt;I can think of two big ways.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Formal tests of model fit: If you are using SMM, GMM or indirect influence check out the &lt;a href=&quot;http://en.wikipedia.org/wiki/Generalized_method_of_moments#J-test&quot; rel=&quot;nofollow&quot;&gt;J-stat&lt;/a&gt;. If you are using maximum likelihood you want a &lt;a href=&quot;http://en.wikipedia.org/wiki/Likelihood-ratio_test&quot; rel=&quot;nofollow&quot;&gt;likelihood ratio&lt;/a&gt;. &lt;a href=&quot;http://en.wikipedia.org/wiki/Bayes_factor&quot; rel=&quot;nofollow&quot;&gt;Bayesian model testing&lt;/a&gt; is similar to likelihood ratios, but more complicated. Many of the DSGE models were rejected on these bases (you can see Sargent discussing it briefly in &lt;a href=&quot;https://files.nyu.edu/ts43/public/research/SargentinterviewMD.pdf&quot; rel=&quot;nofollow&quot;&gt;this interview&lt;/a&gt;). These tests are all very similar.&lt;/li&gt;&#xA;&lt;li&gt;Out of sample performance: Estimate the model, then use it to predict out of sample data. This is a tough test, but it is super useful. They aren't so common in economics, but statisticians use them a lot (often times they leave out part of the data and try the model out there). You probably want your model to pass a formal test in sample before you do an out of sample test.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;All these tests rely on the same, extremely basic, intuition: If the model is good then it should fit the data well. If the model does not fit the data well it is probably not good.&lt;/p&gt;&#xA;" OwnerUserId="54" LastActivityDate="2015-02-17T19:27:57.323" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4426" PostTypeId="1" CreationDate="2015-02-17T20:40:07.540" Score="4" ViewCount="87" Body="&lt;p&gt;I've read some literature on measuring capital control / financial openness, but I am wondering if there is any data directly collected by international organizations like IMF that measure capital control. &lt;/p&gt;&#xA;" OwnerUserId="3989" LastEditorUserId="43" LastEditDate="2015-06-10T21:20:00.053" LastActivityDate="2015-06-11T20:08:02.053" Title="Does any international organization (such as IMF) provide data on capital control / financial openness?" Tags="&lt;macroeconomics&gt;&lt;data-request&gt;&lt;financial-economics&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4427" PostTypeId="1" CreationDate="2015-02-17T21:28:30.143" Score="4" ViewCount="4302" Body="&lt;p&gt;It is generally accepted, that printing money will be inflationary, as it increases the money supply without a corresponding real growth of the economy. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;At the same time, if the central bank increases reserve requirements (or the official cash rate/bank rate) this decreases the money supply. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the question is, if a government, perhaps in a time of need, both prints money in order to carry out some project, and also increases reserve requirements/bank rate in order to conteract the inflationary effect, what are the likely follow on economic effects?&lt;/p&gt;&#xA;" OwnerUserId="96" LastActivityDate="2015-11-24T03:56:04.523" Title="What effect would raising reserve requirements while printing money have?" Tags="&lt;inflation&gt;&lt;money-supply&gt;&lt;central-banking&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4428" PostTypeId="1" AcceptedAnswerId="4436" CreationDate="2015-02-17T21:37:00.673" Score="7" ViewCount="4197" Body="&lt;p&gt;The typical right wing/free market argument, that leads to privatisation of government assets is that the government assets will be far more efficiently managed when in the hands of profit seeking capitalists, rather than being owned by the government. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Certainly it's fair to say that government departments are inefficient - a department that is &lt;em&gt;directly funded&lt;/em&gt; by the government can't go bankrupt, so long as the government keeps funding it. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, for a SOE the company still needs to stand on its own right, the SOE doesn't receive funding directly from the government. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The SOEs management structure is exactly the same as a privately owned company, except that the government is choosing who the board of directors is. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the question is, unless the government is electing a board of directors that have different priorities to profit seeking capitalists, how is it that a SOE would be less efficient than a privately owned company?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there any research showing that SOEs are less profitable than privately owned companies? &lt;/p&gt;&#xA;" OwnerUserId="96" LastEditorUserId="43" LastEditDate="2015-02-18T13:52:48.197" LastActivityDate="2017-03-31T17:50:54.930" Title="Are state owned enterprises really inefficient?" Tags="&lt;government&gt;&lt;political-economy&gt;" AnswerCount="3" CommentCount="4" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="4429" PostTypeId="1" AcceptedAnswerId="4432" CreationDate="2015-02-17T21:48:25.050" Score="6" ViewCount="95" Body="&lt;p&gt;People are subject to all sorts of cognitive biases.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Advertising works, and not just by making people aware of a product,&#xA;but by appealing to emotional quirks. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;People are subject to &lt;a href=&quot;http://en.wikipedia.org/wiki/Psychological_pricing&quot;&gt;psychological pricing&lt;/a&gt;.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;It seems clear that people aren't entirely cold calculating rational agents, calculating the maximum utility and acting accordingly. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this acknowledged in any economic theories, or is it more or less ignored? &lt;/p&gt;&#xA;" OwnerUserId="96" LastActivityDate="2015-02-18T02:21:40.657" Title="Is there a school of thought or concept that acknowledges that people aren't rational actors when it comes to economic decisions?" Tags="&lt;decision-theory&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4430" PostTypeId="1" CreationDate="2015-02-17T22:17:26.940" Score="8" ViewCount="973" Body="&lt;p&gt;This question confuses me for some time. My first impression is that Pareto sub-optimality is due to feature that old generations will consume everything without any incentive to trade. But after taking a look at the first example in an modern introduction to economic growth, it's just a disguised version of &lt;a href=&quot;http://en.wikipedia.org/wiki/Hilbert%27s_paradox_of_the_Grand_Hotel&quot; rel=&quot;noreferrer&quot;&gt;Hilbert's paradox of grand hotel&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Screenshot in the book:&#xA;&lt;img src=&quot;https://i.stack.imgur.com/AyQ30.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is the true source of dynamic(Pareto) inefficiency in OLG models?&lt;/p&gt;&#xA;" OwnerUserId="73" LastEditorUserId="73" LastEditDate="2015-02-17T22:48:28.177" LastActivityDate="2015-05-11T00:58:12.770" Title="What is the true source of dynamic(Pareto) inefficiency in OLG models?" Tags="&lt;macroeconomics&gt;&lt;general-equilibrium&gt;&lt;pareto-efficiency&gt;&lt;olg&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="4431" PostTypeId="1" AcceptedAnswerId="4442" CreationDate="2015-02-17T22:41:20.467" Score="3" ViewCount="418" Body="&lt;p&gt;So far, the models of Signaling Games I have seen involve two players. One player is known as the Sender and has more information. The other player is known as the Receiver and has less information. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But suppose I have two people who each don't have information about the other.  Now they start sending signals and learn about the other. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are there models of Signaling Games that cover such dynamics where both players are senders and receivers? &lt;/p&gt;&#xA;" OwnerUserId="2679" LastEditorUserId="11590" LastEditDate="2019-05-19T16:53:18.030" LastActivityDate="2019-05-19T16:53:18.030" Title="Is it possible to have a signaling game in which all players are both informed (about themselves) and uniformed (about other players)?" Tags="&lt;game-theory&gt;&lt;signaling&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4432" PostTypeId="2" ParentId="4429" CreationDate="2015-02-18T02:21:40.657" Score="5" Body="&lt;p&gt;Yes this is a blossoming area of research in economics and it spans approaches from psychology to game theory, social theory, and cultural biases.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A lot of these approaches fall under the rubric of &quot;Behavioral Economics&quot;.  Unlike classical market economics which often &lt;em&gt;begins&lt;/em&gt; with assumptions around individual and collective rationality, behavioral economics seeks to study how economic decisions are actually made by individuals and groups (i.e. it does not take utility-maximizing rationality as an assumption but instead studies its role in animating economic decisions and systems).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;Irrational&quot; behavior should not be confused with unexplainable or unpredictable behavior.  A simple example is why people buy lottery tickets.  This may be irrational under classical utility theory, but it is explainable and can be modeled, tested, and incorporated into larger economic frameworks like market options pricing by using behavioral economics.&lt;/p&gt;&#xA;" OwnerUserId="2959" LastActivityDate="2015-02-18T02:21:40.657" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4434" PostTypeId="1" AcceptedAnswerId="4447" CreationDate="2015-02-18T02:34:16.573" Score="3" ViewCount="177" Body="&lt;p&gt;&lt;a href=&quot;http://en.wikipedia.org/wiki/Abenomics&quot; rel=&quot;nofollow&quot;&gt;Abenomics&lt;/a&gt; seems to me like a straightforward and modern plan of economic reflation through monetary easing and some attempt at structural reform.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;While it's still early, it looks like many of the predicted effects of this approach have begun to materialize:  unemployment is lower, earnings are higher, currency has deflated resulting in a rise in exports and improvements to corporate earnings.  Capital has, unfortunately, accumulated on corporate balance sheets rather than re-entered the economy, but even this is a known effect of easing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One thing I don't understand (aka my question) is:  &lt;em&gt;why did the Japanese government seek to raise consumption tax (VAT) during this process?&lt;/em&gt;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It would seem that the whole point of easing is to stimulate productive money circulation, and implementing a consumption tax when consumers are likely to suffer in the initial stages from currency devaluation seems very counterproductive to the cause.  If the government actually needed the funds then surely there were other approaches available (borrowing or deferred taxation) which would have had less negative impact on the overall easing programme?&lt;/p&gt;&#xA;" OwnerUserId="2959" LastEditorUserId="61" LastEditDate="2015-02-19T12:30:46.040" LastActivityDate="2015-02-20T01:58:09.573" Title="Abenomics and the Japanese VAT tax hike" Tags="&lt;macroeconomics&gt;&lt;monetary-policy&gt;&lt;taxation&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4435" PostTypeId="2" ParentId="4428" CreationDate="2015-02-18T05:37:03.280" Score="6" Body="&lt;p&gt;SOE's don't have to perform worse that private enterprises, but they often do.  The reasons are manifold:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Some SOE's are not set up for profit motive, but rather to seed strategic industries for a nation (e.g. Port of Singapore, or Huawei Telecom).&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Frequently, state influence at market-oriented is counterproductive because politicians placed in leadership positions are not good business managers (different skillsets), and political contacts can have a detrimental effect on competitiveness (overreliance on government contracts, etc).&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Even if the SOE is run by market-selected managers and employees, states often have different shareholder incentives and objectives as &lt;em&gt;owners&lt;/em&gt;, so they may not exercise market-driven ownership which leads private firms to attempt maximizing equity value and earnings.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Note that it's not true that SOE's are not funded directly by government.  Many SOE's receive partial funding through government, and many others receive heavily subsidized contracts from governments.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is quite a lot of research on SOE performance.  Do a search.  For example, McKinsey did a study on Chinese SOE's and concluded that on average they deliver less than half the return on assets as their public counterparts:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.forbes.com/2004/11/04/cx_1104mckinseychina6.html&quot;&gt;http://www.forbes.com/2004/11/04/cx_1104mckinseychina6.html&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="2959" LastActivityDate="2015-02-18T05:37:03.280" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4436" PostTypeId="2" ParentId="4428" CreationDate="2015-02-18T12:23:48.400" Score="6" Body="&lt;p&gt;Because of the large number of roughly comparably sized private and public firms, the petroleum industry provides a laboratory for exploring differences between private and state owned enterprises in related businesses. Without passing judgement on if it &lt;em&gt;has&lt;/em&gt; to be that way,  it appears as though the private firms are vastly more efficient:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.tandfonline.com/doi/abs/10.1080/00036849200000122&quot; rel=&quot;noreferrer&quot;&gt;Efficiency differences between private and state-owned enterprises in the international petroleum industry&lt;/a&gt; (1992)&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Technical (managerial), scale and allocative efficiency differences&#xA;  between private and state owned firms in the international petroleum&#xA;  industry are estimated. The estimation of Aigner-Chu deterministic&#xA;  frontiers, maximum likelihood stochastic frontiers, and maximum&#xA;  likelihood Gamma frontiers make this analysis the most complete and&#xA;  sophisticated testing of property rights theory available. The&#xA;  empirical findings suggest ceteris paribus, that &lt;strong&gt;state firms could&#xA;  satisfy the demand for their output with something less than half of&#xA;  their current resource inputs simply by being converted to private,&#xA;  for profit enterprises.&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Of course, that last claim depends on the costs of privatization and asserting those efficiency gains can actually be realized in the sorts of places where oil firms are state owned.   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://onlinelibrary.wiley.com/doi/10.1111/j.1540-6261.1994.tb05147.x/abstract&quot; rel=&quot;noreferrer&quot;&gt;The Financial and Operating Performance of Newly Privatized Firms: An International Empirical Analysis&lt;/a&gt; (1994)&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;This study compares the pre- and postprivatization financial and&#xA;  operating performance of 61 companies from 18 countries and 32&#xA;  industries that experience full or partial privatization through&#xA;  public share offerings during the period 1961 to 1990. Our results&#xA;  document strong performance improvements, achieved surprisingly&#xA;  without sacrificing employment security. &lt;strong&gt;Specifically, after being&#xA;  privatized, firms increase real sales, become more profitable,&#xA;  increase their capital investment spending, improve their operating&#xA;  efficiency, and increase their work forces.&lt;/strong&gt; Furthermore, these&#xA;  companies significantly lower their debt levels and increase dividend&#xA;  payout. Finally, we document significant changes in the size and&#xA;  composition of corporate boards of directors after privatization.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Some evidence from a broader array of industries:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.jstor.org/stable/725378?seq=1#page_scan_tab_contents&quot; rel=&quot;noreferrer&quot;&gt;Ownership and Performance in Competitive Environments: A Comparison of the Performance&#xA;of Private, Mixed, and State-Owned Enterprises&lt;/a&gt; (1989)&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The coefficients for MEs [Mixed Ownership Enterprises] and SOEs [State Owned Enterprises] are negative and statistically&#xA;  significant at the .05 level for a one-sided alternative in all&#xA;  equations, which indicate that, on average, MEs and SOEs are&#xA;  significantly less profitable and less efficient than PCs [Private Corporations] after&#xA;  controlling for the factors described above. &lt;strong&gt;On average, SOEs have a&#xA;  return on equity of almost 12 percent less than PCs ; they have a&#xA;  return on assets and a return on sales that are about 2 percent less&#xA;  than PCs, and their net incomes are \$66 million less than PCs.&lt;/strong&gt; MEs&#xA;  perform worse: their return on equity is more than 12 percent less&#xA;  than PCs, their return on assets and return on sales are about 3.5&#xA;  percent less than PCs, and their net income is \$165 million less than&#xA;  that of PCs. In terms of sales per asset, both SOEs and MEs fare&#xA;  equally poorly relative to PCs; but in terms of sales per employee,&#xA;  SOEs are less efficient than MEs.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;A more recent result:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.jstor.org/stable/2677913?seq=1#page_scan_tab_contents&quot; rel=&quot;noreferrer&quot;&gt;State-Owned and Privately Owned Firms: An Empirical Analysis of Profitability, Leverage, and Labor Intensity&lt;/a&gt; (2001)&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The results of the comparison &lt;strong&gt;strongly support the proposition that&#xA;  government firms display inferior profitability&lt;/strong&gt;. ... We test an implication&#xA;  of the Boycko et al. (1996) model that government firms will tend to&#xA;  &lt;strong&gt;use more labor than their private counterparts&lt;/strong&gt;. Cross-sectional&#xA;  comparisons support the model&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-02-18T14:04:34.947" LastActivityDate="2015-02-18T14:04:34.947" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4437" PostTypeId="1" AcceptedAnswerId="5360" CreationDate="2015-02-18T13:17:09.227" Score="3" ViewCount="55" Body="&lt;p&gt;What are good free sources of European National income and output data? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;By this I mean, amongst others: &#xA;&lt;code&gt;GDP&lt;/code&gt; and the variations of this such as; &lt;code&gt;GNP, GNI, NNI&lt;/code&gt; and similar. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Preferable in english and with formats that are easy to work with, such as &lt;code&gt;.xls, .csv, .sdv.&lt;/code&gt; &lt;/p&gt;&#xA;" OwnerUserId="107" LastEditorDisplayName="user4239" LastEditDate="2015-04-28T08:57:59.887" LastActivityDate="2015-06-11T20:02:22.127" Title="Sources of free European national income and output data?" Tags="&lt;macroeconomics&gt;&lt;data-request&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4438" PostTypeId="1" AcceptedAnswerId="4572" CreationDate="2015-02-18T13:40:06.283" Score="7" ViewCount="699" Body="&lt;p&gt;For example, the European Union currently has a Carbon Emissions Trading Scheme in progress the ETS which acts to cap the amount of carbon dioxide released by large corporations. However, let us imagine, for example that the UK implements a carbon tax, which taxes fossil fuels as they enter the UK (at well, mine or port of entry) based on the amout of CO2 they will emit (at an escalating cost per ton of CO2). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Could these two systems feasibly act and coexist together, or would it simply be double taxing? &lt;/p&gt;&#xA;" OwnerUserId="3995" LastEditorUserId="43" LastEditDate="2015-02-18T13:49:25.113" LastActivityDate="2015-02-27T20:16:29.210" Title="Could a Cap-and-Trade and a Carbon Tax both work together as a system to reduce carbon emissions?" Tags="&lt;taxation&gt;&lt;environmental-economics&gt;" AnswerCount="2" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="4439" PostTypeId="1" CreationDate="2015-02-18T15:22:05.247" Score="2" ViewCount="41" Body="&lt;p&gt;I was just wondering what happens generally if i send all my x points to y's and y's to x's (i.e reflect along the y=x line) - if I change the x's and y's will my old error minimizing line still be the error minimizing line after reflection? How about if I rotate points?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Many thanks&lt;/p&gt;&#xA;" OwnerUserId="3996" LastActivityDate="2016-09-06T17:19:07.647" Title="rotating and exchanging x for y's in regression" Tags="&lt;regression&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4441" PostTypeId="2" ParentId="4431" CreationDate="2015-02-18T17:36:28.637" Score="1" Body="&lt;p&gt;If you have a game where both players are sender and receiver, then there is no asymmetric information and you do not have a signalling game, but a game with uncertainty. There are a lot of these games. E.g. bayesian games, global games etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These types of games can also handle situations where some players no more about the state of the game than other player. E.i. they have a higer probability of being right. &lt;/p&gt;&#xA;" OwnerUserId="3997" LastActivityDate="2015-02-18T17:36:28.637" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4442" PostTypeId="2" ParentId="4431" CreationDate="2015-02-18T18:51:09.327" Score="5" Body="&lt;p&gt;&lt;strong&gt;A comment on the number of players in signaling games in general.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Signaling games need not have only two players. In the cheap talk literature, there are papers that study signaling games with multiple informed senders and one uninformed receiver (e.g. &lt;a href=&quot;http://qje.oxfordjournals.org/content/116/2/747.abstract&quot; rel=&quot;nofollow&quot;&gt;Krishna &amp;amp; Morgan, 2001&lt;/a&gt;), or one informed sender with multiple uninformed receivers (e.g. &lt;a href=&quot;http://web.mit.edu/rgibbons/www/Gibbons_Farrell_Cheap%20Talk%20with%20Two%20Audiences.pdf&quot; rel=&quot;nofollow&quot;&gt;Farrel and Gibbons, 1989&lt;/a&gt;). There are no theoretical reasons to limit the number of players to two.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Is it possible to have a signaling game in which all players are both informed (about themselves) and uniformed (about other players)?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The answer is yes. For example, auctions with pre-play communication, where each bidder is informed about their own valuations of the object but not about the others'. In the communication stage, they use signals to strategically (mis-)communicate their private information, and to infer about other bidders' types from their signals (e.g. &lt;a href=&quot;http://www.ssc.upenn.edu/~apostlew/paper/pdf/Preplay%20Communication.pdf&quot; rel=&quot;nofollow&quot;&gt;Mathews and Postlewaite, 1988&lt;/a&gt;). In general, mechanism design is about signaling privately observed types. But the specific model depends on what you want to do &lt;em&gt;after&lt;/em&gt; the signaling stage, whether signals are costly, and what kind of outcome you want the model to deliver, etc.&lt;/p&gt;&#xA;" OwnerUserId="42" LastEditorUserId="42" LastEditDate="2015-02-20T21:43:55.140" LastActivityDate="2015-02-20T21:43:55.140" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4443" PostTypeId="2" ParentId="4424" CreationDate="2015-02-18T20:01:18.320" Score="18" Body="&lt;p&gt;I'd say that some benefits of Bitcoin and other cryptocurrencies (i.e. &quot;altcoins&quot;), include:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;strong&gt;Decentralization&lt;/strong&gt; -- which is advantageous for those who are skeptical of monetary policy, runs on banks, etc.&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;Anonymity&lt;/strong&gt;, or at least the perception thereof -- with increasingly comprehensive monitoring of transactions (particularly non-cash transactions), those seeking relatively anonymous methods of exchange have traditionally been out of luck in the realm of digital transactions. Bitcoin has widely been regarded as a &quot;digital cash&quot;, providing some measure of relative anonymity in online transactions, though this is a decreasingly accurate perception as government databases cataloging transactions grow in sophistication (and some of these databases, such as that of the FBI's, have been opened up to public developers via coding marketplaces like Kaggle). Some altcoins, such as Monero (XMR), add measures to enhance the benefit of relative anonymity.&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;Portability&lt;/strong&gt; -- they can be easily stored and transported offline (paper-based hashes or QR codes), on portable media, over the Internet, with or without the aid of a &quot;wallet&quot; or bank-like service.&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;Region Neutrality&lt;/strong&gt; -- unlike fiat currency or Eastern-only currencies such as Perfect Money, cryptocurrencies seem to have less bias based on location or language.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="3998" LastEditorUserId="3998" LastEditDate="2020-04-18T22:16:19.160" LastActivityDate="2020-04-18T22:16:19.160" CommentCount="16" ContentLicense="CC BY-SA 4.0" />
  <row Id="4444" PostTypeId="1" AcceptedAnswerId="6729" CreationDate="2015-02-18T22:12:39.750" Score="11" ViewCount="444" Body="&lt;p&gt;From what I can tell, the idea of the &lt;a href=&quot;http://en.wikipedia.org/wiki/Basic_income&quot;&gt;basic income guarantee&lt;/a&gt; is very popular in some circles as an excellent alternative to a lot of modern welfare systems.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Has anybody developed a theoretic or empirical model in which minimum income is tested? In this model, what are the necessary and sufficient conditions for such a model to be preferred to a more traditional alternative?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If anyone has suggested readings on the topic, that would be appreciated as well.&lt;/p&gt;&#xA;" OwnerUserId="40" LastEditorUserId="40" LastEditDate="2015-07-27T02:37:36.693" LastActivityDate="2015-11-27T04:22:12.783" Title="The Case for Basic Income in developed and underdeveloped countries" Tags="&lt;macroeconomics&gt;&lt;reference-request&gt;&lt;welfare-economics&gt;&lt;development-economics&gt;&lt;basic-income&gt;" AnswerCount="2" CommentCount="5" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="4445" PostTypeId="2" ParentId="3375" CreationDate="2015-02-19T00:39:07.517" Score="5" Body="&lt;p&gt;Higher order approximations such as those generated by Dynare may help a bit in terms of expanding the neighborhood in which the approximation works well, but the fundamental problem remains that the approximation is made about the steady state and deviating too far from the steady state introduces large errors.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Judd, Maliar and Maliar have a paper in Quantitative Economics in 2011 that details a highly nonlinear method that can be used to give pretty good policy function approximations.  This method can be finicky with large state spaces, however.  So it too suffers from a curse of dimensionality.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Numerically stable and accurate stochastic simulation approaches for solving dynamic economic models&#xA;KL Judd, L Maliar, S Maliar&#xA;Quantitative Economics 2 (2), 173-210&lt;/p&gt;&#xA;" OwnerUserId="132" LastActivityDate="2015-02-19T00:39:07.517" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4446" PostTypeId="2" ParentId="3381" CreationDate="2015-02-19T12:03:00.000" Score="5" Body="&lt;p&gt;Let's see what inferiority of one good in the two-good case implies. Look up &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0071181369&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;strong&gt;Silberberg's &quot;The Structure of Economics&quot;&lt;/strong&gt;&lt;/a&gt; (still one of the best undergraduate microeconomics textbooks ever written), ch. 10 for more details.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Utility maximization is described by (stars denote optimal levels)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U_A(A^*,B^*) - \lambda^*p_A \equiv 0$$&#xA;$$U_B(A^*,B^*) - \lambda^*p_B \equiv 0$$&#xA;$$y- p_AA^* - p_BB^* \equiv 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and note the use of the identity symbol instead of simple equality -these relations always hold at the optimum. Then we can differentiate both sides and maintain the identity. Do that and solve the $3 \times 3$ system of equations to determine the various derivatives, and you will find that if good $A$ is inferior, $\frac {\partial A^*}{\partial y} &amp;lt;0$, then we must have that &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$p_AU^*_{BB}&amp;gt; p_BU^*_{AB}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we are willing to accept $U_{BB} &amp;gt;0$, then the cross-partial $U_{AB}$ can be zero, and we can have a utility function as the one mentioned in @BKay 's answer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But if we want to maintain $U_{BB} &amp;lt;0$, then it must be the case that $U_{AB}$, the cross-partial derivative of the utility function must also be strictly negative (and so not-zero). This in turn implies &lt;em&gt;preferences that are not separable&lt;/em&gt;, additively or multiplicatively.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Perhaps you can consider something like &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U(A,B) =\ln\left[aA^k + bB^h\right]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and all four parameters positive. For example, for values, $a=5, k=0.4, b=0.2, h=0.8$ the indifference map is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/1ftrJ.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My conjecture is that for $0&amp;lt;h&amp;lt;1$ you &lt;em&gt;may&lt;/em&gt; be able to have all the standard setup together with inferiority of $A$ (and for suitable values of prices and the other parameters of course). Find the first order conditions, substitute for $B$ in terms of $A$ in the budget constraint, and use the implicit function theorem to determine the conditions on the parameters required for $\frac {\partial A^*}{\partial y} &amp;lt;0$. And don't forget to check whether these conditions are compatible with the second-order conditions for utility maximization.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;COMMENT October 7, 2015&lt;/strong&gt;&lt;br&gt;&#xA;Some comments in this answer appear to me to confound the issue of preference representation and preservation of preference ranking under monotonic transformations, with the &quot;inferiority&quot; property of a good. Preferences and their representation have nothing to do with the existence of a budget constraint. On the other hand, &quot;inferiority&quot; has &lt;em&gt;everything&lt;/em&gt; to do with the existence of a budget constraint, and how it affects &lt;em&gt;choices&lt;/em&gt; (&lt;strong&gt;not&lt;/strong&gt; preferences) as it changes.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And monotonic transfomration do not leave everything &quot;unchanged&quot;. Consider the utility function $V = A^k+ B^h$, and its monotonic transformation $U =\ln(A^k+ B^h)$. One can easily see that while $\frac {\partial^2 V}{\partial AB} = 0$, we have that $\frac {\partial^2 U}{\partial AB} \neq 0$. In other words, monotonic transformations may preserve the ranking of bundles, but this does not mean that they give the same relations &lt;em&gt;between&lt;/em&gt; goods. And as I have written above, the property of &quot;inferiority&quot; depends on the signs and relative magnitudes of the second partial derivatives of the utility function used, signs and relative magnitudes that depend on the actual functional form used.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-10-08T09:19:39.233" LastActivityDate="2015-10-08T09:19:39.233" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="4447" PostTypeId="2" ParentId="4434" CreationDate="2015-02-19T12:51:10.210" Score="2" Body="&lt;p&gt;Everybody seems to be worried about the raise in the consumption tax, and how it has thus far crippled the efforts to bring the Japanese economy out of stagnation. But Japan has 200% of DGP in public debt, and it cannot leave its public finances go south, not even temporarily.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My impression is that it was the choice to lower corporate tax and &quot;in exchange&quot; increase V.A.T. (perhaps under the impression that it was low, if they looked at European Union levels). Demand was supposed to strengthen through direct transfers, while lowering corporate tax is to boost business initiatives, towards investment but also give some added room to increase wages (to help demand).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We' ll see. Up to now, it doesn't go very well.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;ADDENDUM&lt;/strong&gt;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;That the increase in the Sales Tax had as its target to take care of the public finance side of the equation is clearly stated in the &lt;a href=&quot;http://www.imf.org/external/pubs/ft/scr/2014/cr14236.pdf&quot; rel=&quot;nofollow&quot;&gt;IMF-report on the matter&lt;/a&gt;, in which we read&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;The consumption tax rate increase in April to 8 percent was a major achievement, but is only a first step towards fiscal&#xA;  sustainability...The second consumption tax rate increase in 2015 to&#xA;  10 percent with a uniform rate should be confirmed. Raising the tax&#xA;  rate further at a moderate pace would help establish fiscal policy&#xA;  credibility. Staff estimates that fiscal consolidation in 2015 would&#xA;  slow growth by ½ percent, leaving growth in 2015/16 still above&#xA;  potential under the baseline.&quot;&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;A quick journalistic take can be found &lt;a href=&quot;http://www.businessinsider.com/the-imf-helped-push-japan-into-disastrous-sales-tax-increase-2014-11&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-02-20T01:58:09.573" LastActivityDate="2015-02-20T01:58:09.573" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="4448" PostTypeId="2" ParentId="4439" CreationDate="2015-02-19T13:36:34.990" Score="5" Body="&lt;p&gt;This is a somewhat &quot;dated&quot; subject in introductory econometrics, I suspect because, in econometrics the models come from theories and arguments that try to a priori establish causality and not just association.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Anyway, the issue is analyzed in &lt;a href=&quot;http://en.wikipedia.org/wiki/G._S._Maddala&quot; rel=&quot;nofollow&quot;&gt;Maddala's&lt;/a&gt; Econometrics &lt;a href=&quot;http://eu.wiley.com/WileyCDA/WileyTitle/productCd-EHEP000871.html&quot; rel=&quot;nofollow&quot;&gt;textbook&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the 2001 3d ed. the issue for simple regression is presented in ch. 3. inside section 3.4, under the title &lt;strong&gt;&quot;Reverse Regression&quot;&lt;/strong&gt;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Writing&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\hat y = \hat a + \hat b x,$$&#xA;and &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\hat x = \hat a' + \hat b'y$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;one can quickly find that &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\hat b \hat b' = r^2_{xy}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;i.e. the product of the two is equal to the squared correlation between $x$ and $y$. If this correlation coefficient is close to unity then the two regression lines will be close.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;One can also establish a relation between the two constant terms easily.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2016-09-06T17:19:07.647" LastActivityDate="2016-09-06T17:19:07.647" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4449" PostTypeId="2" ParentId="3391" CreationDate="2015-02-19T14:33:00.677" Score="1" Body="&lt;p&gt;The individual has a utility function over consumption and leisure&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U(C, \ell) = U(C, T-L)$$&#xA;and to keep this &lt;em&gt;static&lt;/em&gt;, it has the no-savings/no-credit budget constraint&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$C = G + wL$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;He wants to maximize utility. Inserting the budget constraint into the utility function the first-order condition is (maximizing with respect to $L$)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$${\rm (f.o.c)} :\;\; U_c(G+wL, T-L)\cdot w - U_{\ell}(G+wL, T-L) = 0 $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This will hold in all optimal solutions. Set $L=0$ to express the reservation wage, (i.e. ask &quot;what is the wage consistent with zero work?&quot;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$L=0 \Rightarrow U_c(G, T)\cdot w - U_{\ell}(G, T) =0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Rightarrow w_R = \frac {U_{\ell}(G, T)}{U_c(G, T)}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$${\rm sign} \left\{\frac {\partial w_R}{\partial G}\right\} = {\rm sign} \left\{U_{\ell c}(G, T)\cdot U_c(G, T) - U_{cc}(G, T)\cdot U_{\ell}(G, T)\right\}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We see that  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;A)&lt;/strong&gt; If preferences are assumed separable between consumption and leisure, i.e. if  $U_{\ell c} = 0$, then under the usual assumption that  $U_{cc} &amp;lt;0$ we see that $\frac {\partial w_R}{\partial G} &amp;gt;0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;B)&lt;/strong&gt; If separability is not assumed, then it is usually assumed (and reasonably) that $U_{\ell c} &amp;gt;0$, in which case we again obtain $\frac {\partial w_R}{\partial G} &amp;gt;0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In both cases, an increase in $G$ (which is what happens when the government pays the amount $b$), increases the reservation wage. If we assume that wages are the same before and after the government subsidy, then if the person did not work, he will continue not to work, while if the person worked previously, he may now stop, given the government subsidy. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course, making the problem dynamic by introducing intertemporal utility maximization and a consumption-savings decision, requires an analysis on its own.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-02-20T02:05:33.123" LastActivityDate="2015-02-20T02:05:33.123" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4450" PostTypeId="2" ParentId="4424" CreationDate="2015-02-19T14:58:10.347" Score="6" Body="&lt;p&gt;One of the patterns to watch for, which may or may not be a benefit, is what happens during periods of capital controls, account confiscations, hyperinflation, or other financial controls imposed on citizens.  Many people will highlight Cyprus as an example, but that's only one example and it's too early to tell if it will be an alternative electronic safe haven for savings (whereas physical commodities aren't).  An enthusiast may say this will be a benefit, but there haven't been enough periods to determine this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Examples:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A family in Venezuela, before experiencing hyperinflation, manages to convert 50% of their savings to bitcoin to hold until the central bank gets in control, then re-converts their savings.  In this case, bitcoin is only used to preserve savings, like gold would, electronically.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Capital controls are imposed on families in Greece, though one family managed to move 50% of their savings to bitcoin.  [Assuming here] When Greece creates its own currency after leaving the Euro, the family re-converts their bitcoin, able to retain a part of their savings.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why isn't this a benefit now and not settled?  It depends on what attempts are made to stop the above examples from happening, and if - over the long run - this is even possible in the electronic age (China seems to think so); for instance, the Venezuela family may convert some of their savings, but have absolutely no way of re-converting it or trading with it to someone else.  Also, if the value of bitcoin fluctuates too much (going from 200 to 1000 to 200), this creates a problem in that someone may buy bitcoin to preserve savings in a crisis, only to lose a huge amount of value when they re-convert because bitcoin's value has fallen.  This would be compared and contrasted with a basket of commodities, which is the current popular approach for the above problem.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Forgot to add, what I'm looking for on this is post crisis.  When a country experiences one of the above - severe capital controls, hyperinflation, etc, and moves beyond it, but has trouble getting investors to return, do they open the door to bitcoin?  If this is a pattern that emerges, then bitcoin, on the basis of this point, does have some advantages.  Recently, notice how quickly Russia changed its perspectives on its former oligarchs who had left the country =&gt; a country, which was anti-bitcoin, might suddenly be pro-bitcoin when it needs capital.&lt;/p&gt;&#xA;" OwnerUserId="2746" LastActivityDate="2015-02-19T14:58:10.347" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4451" PostTypeId="1" AcceptedAnswerId="4455" CreationDate="2015-02-19T16:54:04.680" Score="3" ViewCount="783" Body="&lt;p&gt;I am trying to find the derivative of $y$ with respect to $n$. All I need to do is take the partial derivative $\frac{\partial y}{\partial n}$ of the function: $sf(k) = (n+g+\delta)k$  Here is what I get using the chain rule, but it's wrong:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$sf'(k)  \frac{\partial k}{\partial n} = (n+g+\delta)\frac{\partial k}{\partial n}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To solve $\frac{\partial y}{\partial n}$ some more steps are required, but as far as I know the equation is already wrong. From what I have seen the right side should be augmented by k and then it would be right. Any ideas where the derivation went wrong?&lt;/p&gt;&#xA;" OwnerUserId="2853" LastEditorUserId="2776" LastEditDate="2016-09-04T21:19:33.947" LastActivityDate="2016-09-04T21:19:33.947" Title="Solow model: Partial derivative of y with respect to n" Tags="&lt;macroeconomics&gt;&lt;economic-growth&gt;" AnswerCount="1" CommentCount="6" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="4452" PostTypeId="1" CreationDate="2015-02-19T20:37:06.280" Score="4" ViewCount="88" Body="&lt;p&gt;&lt;a href=&quot;http://www.investopedia.com/terms/c/correspondent-bank.asp&quot; rel=&quot;nofollow&quot;&gt;http://www.investopedia.com/terms/c/correspondent-bank.asp&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Correspondent bank is like a delegator in a country to operate on behalf of the delegatee who doesn't normally has established business in that country.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, I heard that for some bank groups, one subsidiary can be the correspondent bank for another subsidiary, especially in the area of clearing. Let's say Deutsche Bank Italy can be the correspondent bank for Deutsche Bank North America.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does it imply that Deutsche Bank Italy can hold a Nostro account in Deutsche Bank North America or vice versa.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I wonder why would these kind of relationship considered as correspondent? What are the limitations/benefits for banks operating in this way?&lt;/p&gt;&#xA;" OwnerUserId="4002" LastEditorUserId="1601" LastEditDate="2015-12-19T15:06:13.717" LastActivityDate="2015-12-19T20:18:51.120" Title="Can one bank be the correspondent bank of itself?" Tags="&lt;banking&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4453" PostTypeId="1" CreationDate="2015-02-19T21:08:02.383" Score="2" ViewCount="98" Body="&lt;p&gt;My understanding of the operation of the United States Federal Reserve Bank is that it invents dollars by a unilateral, unbalanced credit to its own account and then it loans this money to member banks. In some cases this money is loaned to non-bank institutions of the Federal Reserves choosing and that all of these loans, whether to member banks or non-member institutions are secret.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What assurance is there that the Federal Reserve is not giving the money to the various recipients as opposed to lending it?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, let's imagine the Federal Reserve &quot;loans&quot; $400 billion to JP Morgan Chase. What is to prevent them from &quot;forgiving&quot; this loan, meaning to allow the recipient to never pay it back? Or, in a similar vein, simply making the terms of the loan essentially infinite, for example making it a zero coupon loan for 5000 years, which is effectively a gift.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What assurance do members of the public have that this is not occurring?&lt;/p&gt;&#xA;" OwnerUserId="1448" LastActivityDate="2015-02-20T13:57:01.623" Title="What assurances are there that the Federal Reserve does not give money to banks?" Tags="&lt;finance&gt;&lt;monetary-policy&gt;&lt;federal-reserve&gt;&lt;financial-crises&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4454" PostTypeId="1" AcceptedAnswerId="6204" CreationDate="2015-02-19T22:57:20.947" Score="4" ViewCount="285" Body="&lt;p&gt;If I understand correctly, under the dominant system of fractional reserve banking, many (all?) private banks can create money by lending.  See, for example, &lt;em&gt;&lt;a href=&quot;https://economics.stackexchange.com/q/444/332&quot;&gt;Implications of abolishing Fractional Reserve Banking on mortgages and interest rates&lt;/a&gt;&lt;/em&gt;.  So, money created when people (or other entities) go in debt, and destroyed when those debts are paid back.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some organisations, such as &lt;a href=&quot;http://www.positivemoney.org/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Positive Money&lt;/a&gt;, advocate there would be considerably advantages if we step away from this system, and &lt;em&gt;only the government could create money&lt;/em&gt;.  Quoting from &lt;a href=&quot;http://www.positivemoney.org/our-proposals/&quot; rel=&quot;nofollow noreferrer&quot;&gt;their website&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;History has shown that when banks have the power to create money, they create too much in the good times, causing financial crises, and then create too little money in the bad times, making recessions and unemployment even worse. They put most of the money that they create into house price bubbles and speculation on financial markets, and only put a small amount into businesses outside the financial sector. We simply don’t think that banks, with all their incentives and need to maximise their profits, can be trusted with something as powerful as the ability to create money. And it’s not enough to regulate them, because regulators have already failed to keep them under control, and there’s no reason why they should get it right this time around. We need to stop banks being able to create money. Instead, we want to see the power to create money transferred to a democratic, accountable and transparent process (...)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;My question:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What would be the consequence if only a single institution, accountable to the national government, had the ability to create money?  Assume that this institution would use a more or less objective set of criteria to determine how much money to create, for example, in order to meet particular targets.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Edit&lt;/strong&gt;: A commenter requested more background motivation why this question is specifically about banks.  Allegedly, the system leads to &lt;a href=&quot;http://www.positivemoney.org/issues/house-prices/&quot; rel=&quot;nofollow noreferrer&quot;&gt;increasing house prices and debts&lt;/a&gt;, along with other &lt;a href=&quot;http://www.positivemoney.org/faqs/&quot; rel=&quot;nofollow noreferrer&quot;&gt;problems&lt;/a&gt;.  My question here is &lt;em&gt;not&lt;/em&gt; whether the issues that Positive Money are correct in attributing those problems the current system of private banks creating money; regardless of their correctness, my question is, as stated above, what the consequences would be of having only a single government-controlled institute create money. &lt;/p&gt;&#xA;" OwnerUserId="332" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-06-22T10:48:37.487" Title="What if only the government could create money?" Tags="&lt;monetary-policy&gt;&lt;money-supply&gt;" AnswerCount="1" CommentCount="11" FavoriteCount="1" ClosedDate="2015-06-23T08:14:24.160" ContentLicense="CC BY-SA 3.0" />
  <row Id="4455" PostTypeId="2" ParentId="4451" CreationDate="2015-02-20T01:00:30.707" Score="6" Body="&lt;p&gt;You need to use the &lt;a href=&quot;http://en.wikipedia.org/wiki/Implicit_function_theorem&quot;&gt;implicit function theorem&lt;/a&gt;. The long-run relationship implies&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;0 = F(n,k) = s f(k) - (n+g+\delta)k,&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and this implicitly defines function $k(n)$. The derivative is then&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\frac{d k(n)}{d n} = -\frac{\partial F / \partial n}{\partial F / \partial k} = \frac{k}{s f'(k) - (n+g+\delta)},&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which can be evaluated once one has solved for particular long-run (n,k) combination. To finally obtain derivative of output $y = f(k)$ wrt. $n$, simply use chain rule:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\frac{d y}{d n} = f'(k(n)) \frac{d k(n)}{d n}.&#xA;$$&lt;/p&gt;&#xA;" OwnerUserId="1432" LastActivityDate="2015-02-20T01:00:30.707" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="4456" PostTypeId="2" ParentId="3403" CreationDate="2015-02-20T12:07:04.130" Score="6" Body="&lt;p&gt;They are related and usually fall into the same discussion, but as @Alecos mentions in the comments, the two theorems show different things.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I suppose the connection that you're after is the fact that if&#xA;the derivative&#xA;$$&#xA;\left .\frac{\partial f(x, a)}{\partial a} \right |_{x=x(a)} &#xA;$$&#xA;exists, then because differentiability implies continuity, you might be able&#xA;to get part of theorem of the maximum out of it. However, to compare and contrast two theorems you mustn't just look at the results. You need to look at the assumptions as well. For example, the theorem of the maximum doesn't assume any sort of differentiability. The envelope theorem does (at least some forms of it). In any case, the assumptions that go into each are different (some stronger, some weaker).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, there is this. The envelope theorem&#xA;doesn't tell you that anything about the control function. Therefore, you definitely wont be able to get the result that $C^*$ is upper hemicontinuous. &lt;/p&gt;&#xA;" OwnerUserId="59" LastActivityDate="2015-02-20T12:07:04.130" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4457" PostTypeId="2" ParentId="4453" CreationDate="2015-02-20T13:57:01.623" Score="8" Body="&lt;p&gt;According to &lt;a href=&quot;http://www.federalreserve.gov/faqs/about_12784.htm&quot;&gt;this official link&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Does the Federal Reserve ever get audited?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;Yes, the Board of Governors, the 12 Federal Reserve Banks, and the&#xA;  Federal Reserve System as a whole are all subject to several levels of&#xA;  audit and review:&lt;br&gt;&#xA;      The &lt;a href=&quot;http://www.federalreserve.gov/newsevents/reform_audit_gao.htm&quot;&gt;Government Accountability Office (GAO)&lt;/a&gt; conducts numerous reviews of Federal Reserve activities.&lt;br&gt;&#xA;      The &lt;a href=&quot;http://www.federalreserve.gov/monetarypolicy/bst_fedfinancials.htm&quot;&gt;Board's financial statements&lt;/a&gt;, and its compliance with laws and regulations affecting those statements, are audited annually by an&#xA;  outside auditor retained by the &lt;a href=&quot;http://oig.federalreserve.gov/&quot;&gt;Office of Inspector General (OIG)&lt;/a&gt;.&lt;br&gt;&#xA;      The Board's OIG audits and investigates Board programs and operations as well as those Board functions delegated to the Reserve&#xA;  Banks. Completed and active GAO reviews and completed OIG audits,&#xA;  reviews, and assessments are listed in the &lt;a href=&quot;http://www.federalreserve.gov/publications/annual-report/default.htm&quot;&gt;Board's Annual Report&lt;/a&gt;.&#xA;  (Before 2002, the reviews were listed in the Board's Annual Report:&#xA;  Budget Review.)&lt;br&gt;&#xA;      The &lt;a href=&quot;http://www.federalreserve.gov/monetarypolicy/bst_fedfinancials.htm&quot;&gt;financial statements of the Reserve Banks&lt;/a&gt; are also audited annually by an independent outside auditor.&lt;br&gt;&#xA;      Each week, the Federal Reserve publishes its &lt;a href=&quot;http://www.federalreserve.gov/monetarypolicy/bst_fedsbalancesheet.htm&quot;&gt;balance sheet&lt;/a&gt; and charts of &lt;a href=&quot;http://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm&quot;&gt;recent balance sheet trends&lt;/a&gt;, as well as provides an&#xA;  &lt;a href=&quot;http://www.federalreserve.gov/monetarypolicy/reservebalances_p.htm&quot;&gt;interactive guide to the Fed's balance sheet&lt;/a&gt;. The balance sheet is&#xA;  included in the Federal Reserve's H.4.1 statistical release, &lt;a href=&quot;http://www.federalreserve.gov/releases/h41/current/h41.htm&quot;&gt;&quot;Factors&#xA;  Affecting Reserve Balances of Depository Institutions and Condition&#xA;  Statement of Federal Reserve Banks.&quot;&lt;/a&gt;&lt;br&gt;&#xA;  In addition, the Reserve Banks&#xA;  are subject to annual examination by the Board. The Board's financial&#xA;  statements and the combined financial statements for the Reserve Banks&#xA;  are published in the Board's Annual Report.&lt;br&gt;&#xA;  &lt;a href=&quot;http://www.federalreserve.gov/newsevents/reform_audit.htm&quot;&gt;See our audit page&lt;/a&gt; for&#xA;  more information on all of the above audits and more information on&#xA;  the accounting, financial reporting, and internal controls of the&#xA;  Federal Reserve Board and Federal Reserve Banks.&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-02-20T13:57:01.623" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4458" PostTypeId="2" ParentId="3403" CreationDate="2015-02-20T15:14:50.617" Score="4" Body="&lt;p&gt;Quoting the OP from a comment&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;What sort of conditions on utility function and constraint enables us&#xA;  to apply envelope theorem only after we established the continuity of&#xA;  value function by Berge's theorem?&#xA;  &lt;a href=&quot;http://people.hss.caltech.edu/~pbs/expfinance/Readings/Lucas1978.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;people.hss.caltech.edu/~pbs/expfinance/Readings/Lucas1978.pdf&lt;/a&gt;&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In the referenced Lucas (1978) paper, Proposition 1 establishes that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/NHtC3.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $v(z,y;p)$ is the value function, and $(i)$ is its definition. So it appears that it is the continuity of the Price function that is singled out as a condition here, but earlier in the paper Lucas defines the Utility function as a non-negative function which is&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;continuously differentiable, bounded, increasing and strictly concave&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Proposition 2 of the paper establishes the differentiability of the value function, without requiring further assumptions.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-02-20T15:14:50.617" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4460" PostTypeId="1" AcceptedAnswerId="5608" CreationDate="2015-02-20T20:35:57.503" Score="9" ViewCount="324" Body="&lt;p&gt;I would like to know how the last theorem in Debreu's paper &quot;Neighboring economic agents&quot; (La Decision 171 (1969): 85-90; reprinted in G. Debreu, Mathematical Economics: Twenty Papers of Gerard Debreu (1986), pp. 173-178) has been used:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Theorem.&lt;/strong&gt; &lt;em&gt;For a topological space $M$ and a metric space $H$, let $\varphi$ be a set-valued mapping from $M$ to $H$ that is compact-valued (i.e. $\varphi(e)$ is compact for every $e \in M$) and &lt;a href=&quot;https://en.wikipedia.org/wiki/Hemicontinuity#Implications_for_continuity&quot;&gt;continuous&lt;/a&gt;. Further, for each $e \in M$ let $\lesssim_e$ be a total preorder on $\varphi(e)$ such that the set $\{(e, x, y) \in M \times H \times H : x \lesssim_e y\}$ is closed. Then the set-valued mapping $\varphi^0$ from $M$ to $H$ where&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\varphi^0(e) = \{z \in \varphi(e) : x \lesssim_e z \ \ \mbox{for all} \ x \in \varphi(e)\}, \quad e \in M,$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;is compact-valued and &lt;a href=&quot;https://en.wikipedia.org/wiki/Hemicontinuity#Upper_hemicontinuity&quot;&gt;upper hemi-continuous&lt;/a&gt;.&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that the theorem looks similar to the well-known Berge Maximum Theorem. Prior to the statement of the theorem, Debreu writes that special cases of it &quot;have been repeatedly used in the theory of economic equilibrium and in game theory&quot;, but doesn't give any references; in the paper itself, it's used to prove the upper hemi-continuity of the demand correspondence for an agent in an exchange economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm especially interested in whether there have been any recent uses or generalizations of this theorem, e.g. to mappings that are not compact-valued.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Questions:&lt;/strong&gt; What are some good examples of and/or references for applications of the above theorem? Has it been generalized to mappings that are not compact-valued?&lt;/p&gt;&#xA;" OwnerUserId="1611" LastActivityDate="2015-05-11T09:46:57.060" Title="Applications/generalizations of a theorem of Debreu" Tags="&lt;mathematical-economics&gt;&lt;game-theory&gt;&lt;reference-request&gt;&lt;general-equilibrium&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4461" PostTypeId="1" CreationDate="2015-02-20T21:27:04.830" Score="1" ViewCount="441" Body="&lt;p&gt;I have an IRF that shows the GDP shock to GDP.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's say I have a 5-year forecast of GDP. If there is an immediate 1% decrease in GDP today, can I adjust the original 5-year forecast by using the IRF?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;e.g., GDP forecast in year 3 is 500 USD. The IRF says a 1% decrease in GDP will cause a 0.1 % decrease in year 3. Can I simply adjust the forecast downwards by 0.1% to to 499.5 USD?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank You&lt;/p&gt;&#xA;" OwnerUserId="4010" LastActivityDate="2015-02-20T21:27:04.830" Title="Interpretation of the Impulse Response Function" Tags="&lt;gdp&gt;&lt;time-series&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="4462" PostTypeId="1" AcceptedAnswerId="4463" CreationDate="2015-02-20T21:35:20.167" Score="4" ViewCount="194" Body="&lt;p&gt;I am reviewing Markov decision processes (MDP) and there is something I am missing with respect to the contraction argument. I am pretty sure it is a silly mistake somewhere (maybe computational), but anyways, I cannot figure it out. Here it goes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider a simple MDP with two states and two actions defined as follows.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ r(s,a) = \begin{pmatrix} 1 &amp;amp; 1 \\ 1 &amp;amp; 1 \end{pmatrix},$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ P(s,s',1) = \begin{pmatrix} 1 &amp;amp; 0 \\ 1 &amp;amp; 0 \end{pmatrix},$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ P(s,s',2) = \begin{pmatrix} 0.5 &amp;amp; 0.5 \\ 0.5 &amp;amp; 0.5 \end{pmatrix},$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \beta \in (0,1). $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now suppose we start with two guesses for the value function&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ V_1 (s) = \begin{pmatrix} 100 \\ 0 \end{pmatrix}, $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ V_2 (s) = \begin{pmatrix} 0 \\ 1 \end{pmatrix}. $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we iterate on these approximate value functions using the Bellman operator we get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ T(V_1) = \begin{pmatrix} \max_a \begin{cases} 1 +  100\beta, \qquad \text{ if }  a = 1, \\&#xA;                                                 1 +  50\beta,  \qquad \text{ if }  a = 2.                                               \end{cases}\\&#xA;                             \max_a \begin{cases} 1 +  100\beta, \qquad \text{ if }  a = 1, \\&#xA;                                                 1 +  50\beta,  \qquad \text{ if }  a = 2.                                               \end{cases} \end{pmatrix} = &#xA;\begin{pmatrix} 1 + \beta 100 \\ 1+ \beta 100 \end{pmatrix}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ T(V_2) = \begin{pmatrix} \max_a \begin{cases} 1 +  0\beta, \qquad \text{ if }  a = 1, \\&#xA;                                                 1 +  0.5\beta,  \qquad \text{ if }  a = 2.                                               \end{cases}\\&#xA;                             \max_a \begin{cases} 1 +  0\beta, \qquad \text{ if }  a = 1, \\&#xA;                                                 1 +  0.5\beta,  \qquad \text{ if }  a = 2.                                               \end{cases} \end{pmatrix} = &#xA;\begin{pmatrix} 1 + \beta 0.5 \\ 1+ \beta 0.5 \end{pmatrix}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But then for $\beta$ close enough to $1$ and taking for instance the Manhattan norm, we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ d(V_1(s),V_2(s)) \approx 101,$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ d(T(V_1(s)),T(V_2(s))) \approx 199.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now that sounds weird to me because I thought $T$ was supposed to be a contraction mapping. Where did I screw up? Is there a mistake in my computation? I am forgetting to apply an important hypothesis? Or am I misunderstanding something about contraction mappings?&lt;/p&gt;&#xA;" OwnerUserId="38" LastEditorUserId="43" LastEditDate="2015-02-21T18:59:55.873" LastActivityDate="2015-02-21T18:59:55.873" Title="Markov decision processes, contractions and value iteration" Tags="&lt;decision-theory&gt;&lt;academic-graduate&gt;&lt;optimization&gt;&lt;markov-chain&gt;&lt;bellman-equations&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4463" PostTypeId="2" ParentId="4462" CreationDate="2015-02-20T23:32:18.597" Score="2" Body="&lt;p&gt;The value iteration operator is a contraction with respect to the &lt;em&gt;supremum&lt;/em&gt; norm. Your example probably provides a counterexample for the statement that it's a contraction with respect to the Manhattan norm.&lt;/p&gt;&#xA;" OwnerUserId="1611" LastActivityDate="2015-02-20T23:32:18.597" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4464" PostTypeId="2" ParentId="1916" CreationDate="2015-02-21T00:30:10.067" Score="4" Body="&lt;p&gt;&lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0387260455&quot; rel=&quot;nofollow&quot;&gt;Controlled Markov Processes and Viscosity Solutions&lt;/a&gt; by Fleming and Soner includes a number of applications to Finance and Differential Games.&lt;/p&gt;&#xA;" OwnerUserId="1611" LastActivityDate="2015-02-21T00:30:10.067" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4466" PostTypeId="1" AcceptedAnswerId="4475" CreationDate="2015-02-21T04:50:38.500" Score="6" ViewCount="2094" Body="&lt;p&gt;The GDP per capita of China is only a fifth of that of US.&#xA;But China has lent more than a trillion dollars to US.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How could the much poorer China lend so much money?&#xA;Where did those money come from?&lt;/p&gt;&#xA;" OwnerUserId="4013" LastActivityDate="2015-02-21T17:22:34.577" Title="Why could China, much poorer than US, lend so much money to US?" Tags="&lt;international-economics&gt;&lt;government-debt&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4467" PostTypeId="2" ParentId="3097" CreationDate="2015-02-21T06:07:59.867" Score="3" Body="&lt;p&gt;Have you tried the Bank for International Settlements? The stats are pretty comprehensive: &lt;a href=&quot;https://www.bis.org/statistics/rppb1501.htm&quot; rel=&quot;nofollow&quot;&gt;https://www.bis.org/statistics/rppb1501.htm&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="4014" LastActivityDate="2015-02-21T06:07:59.867" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4468" PostTypeId="2" ParentId="4466" CreationDate="2015-02-21T11:33:58.947" Score="2" Body="&lt;p&gt;You don't have to be richer than someone to lend them money. You only need to have money to lend. China has a lot of money to lend because it has a high savings rate. In the past, it preferred to lend the money to the US, because that would allow the US to buy more goods from China. However, the situation is now changing.&lt;/p&gt;&#xA;" OwnerUserId="4015" LastActivityDate="2015-02-21T11:33:58.947" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4469" PostTypeId="2" ParentId="1916" CreationDate="2015-02-21T11:59:09.217" Score="3" Body="&lt;p&gt;A really nice methodology for approximating the HJB is the upwind scheme, which I learnt quite quickly using &lt;a href=&quot;http://www.princeton.edu/%7Emoll/HACTproject.htm&quot; rel=&quot;nofollow&quot;&gt;Ben Moll et al's notes and codes&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The examples are continuous time versions of familiar heterogenous agents economies models such as Hugget and Aiyagari.&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-02-21T11:59:09.217" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4470" PostTypeId="1" CreationDate="2015-02-21T14:40:50.110" Score="4" ViewCount="208" Body="&lt;p&gt;Is 'intelligent money' or 'smart money' an economic term, and if yes, what does it refer to?&lt;/p&gt;&#xA;" OwnerUserId="4018" LastActivityDate="2018-08-27T20:14:04.647" Title="What does 'intelligent money' mean?" Tags="&lt;economic-terms&gt;&lt;definition&gt;" AnswerCount="3" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="4471" PostTypeId="1" CreationDate="2015-02-21T16:15:58.763" Score="23" ViewCount="1517" Body="&lt;p&gt;Apologies if the topic is not appropriate (economics newbie here) but I am curious as to who &lt;em&gt;exactly&lt;/em&gt; would foot the bill if Greece defaults on the ~300 billion dollars it owes. It looks like most of the money is owed to EU, IMF and ECB but what does that really mean in layman terms? Does it mean that tax-payers in other (mostly EU) countries end up paying one way or the other.&lt;/p&gt;&#xA;" OwnerUserId="4019" LastEditorUserId="1601" LastEditDate="2021-05-12T10:56:33.117" LastActivityDate="2021-05-12T10:56:33.117" Title="Who exactly foots the bill if Greece defaults" Tags="&lt;government-debt&gt;&lt;nonexpert&gt;" AnswerCount="6" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="4472" PostTypeId="1" AcceptedAnswerId="4478" CreationDate="2015-02-21T16:50:29.823" Score="6" ViewCount="1139" Body="&lt;p&gt;I already read and ask NOT about pp 52-54, &lt;em&gt;Principles of Microeconomics&lt;/em&gt;, 7 Ed, 2014, by N Gregory Mankiw. I understand such numerical examples that corroborate Comparative Advantage, but how can I intuit comparative advantage? I wish to quash my need to revisit these numerical examples to recollect this idea. i start with definitions from pp 52 and 53 (supra):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;absolute advantage&lt;/strong&gt; = the ability to produce a&#xA;  good using fewer inputs&#xA;  than another producer&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&lt;strong&gt;comparative advantage&lt;/strong&gt; = the ability to produce&#xA;  a good at a lower&#xA;  opportunity cost than&#xA;  another producer&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I read &lt;a href=&quot;http://internationalecon.com/Trade/Tch40/T40-0.php&quot;&gt;this&lt;/a&gt; by &lt;a href=&quot;http://economics.columbian.gwu.edu/steven-m-suranovic&quot;&gt;Prof Steven M. Suranovic&lt;/a&gt; and understand the gardening example, but still lack intuition. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;First, ... comparative advantage is &lt;a href=&quot;http://oecdinsights.org/2011/10/11/comparative-advantage-doing-what-you-do-best/&quot;&gt;clearly counter-intuitive&lt;/a&gt;. ... Secondly, the theory is easy to confuse with ... the theory of absolute advantage. The logic behind absolute advantage IS quite intuitive. This confusion between these two concepts leads many people to think that they understand comparative advantage when in fact, what they understand is absolute advantage.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;However, instead of assuming, as Adam Smith did, that England is more productive in producing one good and Portugal is more productive in the other; [David] Ricardo assumed that Portugal was more productive in both goods. Based on Smith's intuition, then, it would seem that trade could not be advantageous, at least for England. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="4020" LastEditorUserId="2776" LastEditDate="2017-06-14T07:26:09.247" LastActivityDate="2017-09-05T23:57:49.963" Title="Intuition behind Comparative Advantange" Tags="&lt;microeconomics&gt;&lt;comparative-advantage&gt;" AnswerCount="3" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="4475" PostTypeId="2" ParentId="4466" CreationDate="2015-02-21T17:22:34.577" Score="2" Body="&lt;p&gt;Let's start with the balance of trade between the US and China.  China exports far more to the US than it imports.  The difference (trade balance) is over $200 billion a year:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/arutO.png&quot; alt=&quot;US-China trade balance&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;China's labor force is about 800 million workers according to the &lt;a href=&quot;http://data.worldbank.org/indicator/SL.TLF.TOTL.IN&quot; rel=&quot;nofollow noreferrer&quot;&gt;World Bank&lt;/a&gt;.  That is likely understated, BTW.  But assuming 800 million workers and \$450 billion in China-US exports, that is just ~$560/year per worker.  So you don't need a lot of GDP per capita to build up a massive trade balance.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, how does the trade balance affect US debt? Since China is exporting more than it imports to the US, it receives a surplus of US dollars in return.  The US also exports to China, resulting in RMB outflows to the US.  But since the China exports &gt;&gt; US exports, the flow of trade payments correspondingly shows US dollars &gt;&gt; China RMB. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This causes a supply-demand imbalance because the supply of USD is much greater than the supply of RMB.  That would normally cause the exchange rate to rise so that the RMB appreciates against the dollar.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But, China has historically wanted to keep its exchange rate low, so as to encourage exports.  So it needs to balance out this supply-demand imbalance.  Fortunately (for China), the US government runs a huge deficit annually which it needs to borrow in USD to fund.  So China just turns around and lends the USD back to the US, in effect &quot;re-exporting&quot; the USD back to the US.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This helps China keep the exchange rate low, and results in a growing debt balance between the &lt;em&gt;US government&lt;/em&gt; and China:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/2bQ0h.jpg&quot; alt=&quot;China holdings of US debt&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This shows why low GDP per capita in China can still result in large sovereign indebtedness to China.&lt;/p&gt;&#xA;" OwnerUserId="2959" LastActivityDate="2015-02-21T17:22:34.577" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4476" PostTypeId="1" CreationDate="2015-02-21T17:28:00.860" Score="0" ViewCount="78" Body="&lt;p&gt;&lt;a href=&quot;http://internationalecon.com/Trade/Tch40/T40-0.php&quot; rel=&quot;nofollow&quot;&gt;Source&lt;/a&gt;: 'The Theory of Comparative Advantage - Overview', &lt;a href=&quot;http://economics.columbian.gwu.edu/steven-m-suranovic&quot; rel=&quot;nofollow&quot;&gt;Prof Steven M. Suranovic&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Advantageous trade based on comparative advantage, then, covers a larger set of circumstances while still including the case of absolute advantage and hence is a more general theory.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Please explain this? What's the intuition, which I prefer over a formal proof? &lt;/p&gt;&#xA;" OwnerUserId="4020" LastEditorUserId="2776" LastEditDate="2017-06-14T07:23:41.813" LastActivityDate="2017-06-14T07:23:41.813" Title="How is Comparative Advantage a superset of Absolute Advantage?" Tags="&lt;international-trade&gt;&lt;comparative-advantage&gt;" AnswerCount="0" CommentCount="4" ClosedDate="2015-02-24T05:19:30.853" ContentLicense="CC BY-SA 3.0" />
  <row Id="4477" PostTypeId="2" ParentId="4472" CreationDate="2015-02-21T17:49:49.453" Score="4" Body="&lt;p&gt;Let's look at two companies capable of producing gemstones.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Company A has machinery that produces quartz gemstones which it can sell at \$100/stone.  It costs $10/stone in raw materials and \$20/stone in operating costs to produce the stones.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Company B has uses different machinery, but also produces quartz gemstones with identical \$100/stone sales and identical \$10 + \$20 cost structure per stone.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the companies have the &lt;strong&gt;same absolute competitive advantage&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, Company B's machines are more flexible, and can be used to produce diamonds instead of quartz.  Here, the diamonds sell for \$10,000/stone and cost a total of \$1,000 in cost to make.  Company A's machines are specialized so they can only be used to produce quartz or cheaper and less profitable gemstones.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Company B is much better off producing diamonds than quarts.  So the opportunity cost of producing quartz is very high for that Company.  By contrast, Company A's opportunity cost is very low.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So Company A has a &lt;strong&gt;comparative competitive advantage&lt;/strong&gt; over Company B, both by definition and also, hopefully, by intuition.&lt;/p&gt;&#xA;" OwnerUserId="2959" LastActivityDate="2015-02-21T17:49:49.453" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4478" PostTypeId="2" ParentId="4472" CreationDate="2015-02-21T18:11:21.380" Score="18" Body="&lt;p&gt;A classic example is to consider the question&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Why doesn't Tiger Woods mow his own lawn?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Woods is an excellent golf player. But he also may be excellent at mowing. Still, if he devotes time to mow the lawn he sacrifices time playing golf, in which he is much more productive.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A gardener who is skilled at mowing lawns but not at playing golf sacrifices less in order to mow, so even though Tiger Woods may be better at it (i.e. has an &lt;em&gt;absolute&lt;/em&gt; advantage), the gardener has a &lt;em&gt;comparative&lt;/em&gt; advantage. Both benefit if the gardener is paid for the time that he mows the lawn by Tiger Woods who in the time he saves can earn more by concentrating on golf.&lt;/p&gt;&#xA;" OwnerUserId="72" LastEditorUserId="7215" LastEditDate="2016-02-08T07:38:36.830" LastActivityDate="2016-02-08T07:38:36.830" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4479" PostTypeId="2" ParentId="4470" CreationDate="2015-02-21T18:59:15.163" Score="-1" Body="&lt;p&gt;While it is typically hard to assess that something is &lt;em&gt;not&lt;/em&gt; a term/thing, a google search for &quot;intelligent money&quot; only returned an &lt;a href=&quot;http://en.wikipedia.org/wiki/Intelligent_Money&quot; rel=&quot;nofollow&quot;&gt;investment company&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-02-21T18:59:15.163" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4480" PostTypeId="1" AcceptedAnswerId="4488" CreationDate="2015-02-21T19:12:38.750" Score="4" ViewCount="90" Body="&lt;p&gt;In the United States I see significant quantities of manufactured good imports made in Taiwan, Japan, China and Korea. However, there seem to be relatively few imports from India. Why is this?&lt;/p&gt;&#xA;" OwnerUserId="1448" LastActivityDate="2015-02-22T19:39:45.007" Title="Why do there seem to be relatively few imports from India into the United States?" Tags="&lt;international-trade&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4481" PostTypeId="2" ParentId="3229" CreationDate="2015-02-21T23:31:20.270" Score="2" Body="&lt;p&gt;A free trade agreement stipulates free (cero tariff) trade between countries/states. In practice, this also includes broader provisions, such as agreements on movement of capital, goods and people (such as NAFTA). A free trade agreement will also mostly include all or a large portion of goods. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In contrast, a preferential trade agreement is much less broad covering preferential (i.e. low or lower other countries) tariffs for a set of products or services. A preferential trade agreement can also just be unilateral or for a particular amount of years, etc. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A free trade area is an area inside a country or state where free-trade rules (in general, but depending on the country and circumstance) apply. These areas are intended mostly for the import and export of goods, and are useful for a country that imports a good as an input by which another good is produced, thus lowering tariff costs for the producers. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A free trade agreement is, of course, not a physical place (see explanation above).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Further, I recommend simply wikipedia in this case...&lt;/p&gt;&#xA;" OwnerUserId="4014" LastActivityDate="2015-02-21T23:31:20.270" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4482" PostTypeId="2" ParentId="4438" CreationDate="2015-02-22T00:24:54.730" Score="1" Body="&lt;p&gt;This is a bit glib, but it has been argued that :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Cap-and-trade = Carbon tax + Corporate welfare.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example by &lt;a href=&quot;http://gregmankiw.blogspot.co.uk/2007/08/fundamental-theorem-of-carbon-taxation.html&quot; rel=&quot;nofollow&quot;&gt;Greg Mankiw&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So mixed solutions of carbon taxes and cap and trade can have less corporate subsidies than pure cap and trade systems. But since this may allow more robust political constituencies to form around carbon reduction, it might be worth it to have some. &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="1417" LastEditDate="2015-02-22T11:21:07.200" LastActivityDate="2015-02-22T11:21:07.200" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="4484" PostTypeId="2" ParentId="4471" CreationDate="2015-02-22T13:13:08.927" Score="3" Body="&lt;p&gt;You are correct. The majority of Greek sovereign debt is held by other EU sovereigns. So EU taxpayers end up footing the bill in the event of a Greek default. Usually, rather than outright defaulting (i.e. missing a repayment deadline), there will be some agreement to restructure the debt so that Greece gets more time or some other form of concession.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the EU and Greece will both talk tough on TV to please their respective electorates, but both sides know that a genuine default would spell catastrophe for the entire European economy and so will do everything they can to avoid it.&lt;/p&gt;&#xA;" OwnerUserId="4015" LastActivityDate="2015-02-22T13:13:08.927" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4485" PostTypeId="1" CreationDate="2015-02-22T14:41:37.513" Score="4" ViewCount="4148" Body="&lt;p&gt;I have several times heard scholars refer to asset pricing models (such as the CAPM) as a type of equilibrium model. Why exactly is this the case? Does this simply mean that equilibrium is a necessary condition we need to accept for the model relationship to hold? Can this be shown formally?&lt;/p&gt;&#xA;" OwnerUserId="337" LastEditorUserId="337" LastEditDate="2015-02-24T17:18:01.003" LastActivityDate="2020-04-29T09:49:22.103" Title="Why are asset pricing models equilibrium models?" Tags="&lt;asset-pricing&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="4487" PostTypeId="1" CreationDate="2015-02-22T17:42:54.967" Score="5" ViewCount="450" Body="&lt;p&gt;I am trying to run a time series analysis on some variables - GDP being my dependent variable, and my independent variables are oil revenues, government expenditure, exports and FDI inflows. My data contains missing values for some years for at least 3 variables. I have been able to ascertain that they are non-stationary. However, I am unable to perform the Johansen test of cointegration due to the missing variables in between the data set. How do I resolve this?&lt;/p&gt;&#xA;" OwnerUserId="4027" LastEditorUserId="43" LastEditDate="2015-04-27T13:12:52.317" LastActivityDate="2015-04-27T13:19:39.593" Title="Missing values in economic time series" Tags="&lt;econometrics&gt;&lt;time-series&gt;" AnswerCount="1" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4488" PostTypeId="2" ParentId="4480" CreationDate="2015-02-22T19:39:45.007" Score="6" Body="&lt;p&gt;India has significantly worse physical/logistics infrastructure than China, Japan, Korea and Taiwan, so it is difficult to produce goods in India because it's difficult to move supplies and product around the country.  This, coupled with the comparatively higher complexity of dealing with government bureaucracy, makes it challenging to manufacture products in India for export.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is the World Bank's 2014 Logistics Performance Index for the countries, which illustrates the significant competitive disadvantage India has compared to China and others.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/1JB9P.png&quot; alt=&quot;LIP score&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;India still has a low-cost workforce, so they do export items where cost is very important (e.g. clothing, sneakers).  More importantly, India exports services (call centers, software offshoring) because it's much easier to lay down fiber optic cable than to build a railroad so certain cities (Hyderabad, Mumbai, Bangalore) have developed strong export services industries which do not need to depend on a lot of outside physical infrastructure to create viable exports.&lt;/p&gt;&#xA;" OwnerUserId="2959" LastActivityDate="2015-02-22T19:39:45.007" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="4489" PostTypeId="1" CreationDate="2015-02-22T20:18:36.753" Score="1" ViewCount="85" Body="&lt;p&gt;If I have the utility function of an individual that exhibits perfect substitutes, think (U=ax+by), and I'm given the price of good x and the budget M, then how am I supposed to determine the demand for good Y if I don't have the price of good Y? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know for Cobb-Douglas style utility functions the optimal choice of good Y is given by Y=BM/price of good Y&lt;/p&gt;&#xA;" OwnerUserId="4028" LastEditorUserId="43" LastEditDate="2015-02-26T01:18:50.987" LastActivityDate="2015-02-26T01:18:50.987" Title="How to determine demand without the price of a good?" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4492" PostTypeId="2" ParentId="4427" CreationDate="2015-02-23T01:35:15.597" Score="2" Body="&lt;p&gt;During the global financial crisis of 2008-2009, both the US and UK undertook quantitative easing (QE) in conjunction with a policy to fortify banks against risk by increasing reserve requirements.  So there are recent cases which illustrate what happens.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A rise in reserve requirements constrains a bank's ability to lend.  So it seems to counteract the idea of QE.  So why did both the US and UK implement these two seemingly antithetical policies?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Because the two policies also accomplish other objectives.  &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;An increase in capital requirements for banks was thought to be necessary to restore investor confidence in a badly shaken credit system (raising reserves was &lt;em&gt;not&lt;/em&gt; done to counteract inflation).  Investors did not have confidence in the quality of assets on bank balance sheets, so requiring banks to retain cash deposits was one way of ensuring that banks had (a) a clear base of assets that were not obfuscated (e.g. subprime); and (b) limitations on how much risk (via lending) they could undertake.  So investors could feel safer about their deposits and the fundamental strength of the banking system.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Quantitative easing was aimed at injecting liquidity into an economy paralyzed by loss of confidence and liquidity, resulting in low spending and investment levels.  In order to offset the negative effects of raising capital reserves, the QE programs needed to be very large, which is why vast amounts of money were pumped into circulation in both countries.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;The second part of your question is around follow-on economic effects.  Using the dynamics above you can infer the likely effects.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Raising capital requirements had the effect of exactly that.  It also had the effect of requiring larger volume of QE to counteract the drag on lending (in effect, money velocity or money multipler) cause by the higher reserve requirements.&lt;br&gt;&#xA;Had QE not been sufficient to overcome the higher capital  reserves, you would have seen bank balance sheets swell while lending remained low....which is exactly what happened in the early to mid stages of QE while banks shored up their balance sheets before timidly starting to lend at risk again.&lt;/p&gt;&#xA;" OwnerUserId="2959" LastActivityDate="2015-02-23T01:35:15.597" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4493" PostTypeId="1" CreationDate="2015-02-23T02:40:37.100" Score="1" ViewCount="811" Body="&lt;p&gt;This should be a very simple question for most of you, but I can't seem to get an answer so I decided to ask the question here. So please be as simple as possible and excuse my ignorance.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.futuretimeline.net/subject/images/us-debt-as-percentage-of-gdp-1900-2010-2020.jpg&quot; rel=&quot;nofollow&quot;&gt;This&lt;/a&gt; is a chart of the US debt as percentage of GDP versus time. It is obvious that WW1 and WW2 have greatly increased the debt. Let's take the WW2 case as an example. the US military/defense spending reached 38% of GDP in 1944-1945, and as far as I understand, GDP is value of the all the products and services in a country within a specific time, a year in this case.&#xA;So my question here is, why does the debt increase during a war ? And why can't governments &quot;direct&quot; the products and the services they already own and which are already accounted for in the GDP to their war effort instead of borrowing ?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words, what could have happened if the US spent on the war entirely from its production and services (GDP) without borrowing a penny ?&lt;/p&gt;&#xA;" OwnerUserId="2943" LastActivityDate="2015-02-23T13:07:04.147" Title="Why do wars increase the public debts?" Tags="&lt;debt&gt;&lt;gdp&gt;&lt;usa&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4494" PostTypeId="2" ParentId="4493" CreationDate="2015-02-23T04:05:15.920" Score="4" Body="&lt;p&gt;Countries don't wage war, Governments do.&#xA;GDP is the economic production of a country, which is usually much larger than what the government has as available annual income. Historically government expenditure in the US has amounted to ~20% of GDP since 1940 (and was lower than that previously). &lt;a href=&quot;http://taxfoundation.org/article/short-history-government-taxing-and-spending-united-states&quot; rel=&quot;nofollow&quot;&gt;(Source)&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In general, if a government needs to spend more on a war effort, it has three options: print money, which is going to inflate the money supply and might work for a very short time period but will backfire quickly, raise taxation (which may not be possible once taxes get to a certain point, and the US &lt;em&gt;did&lt;/em&gt; do this over the course of WWII) but once you reach a certain point, taxation will slow your production down, at that point you'd have to seize assets from the private sector (which obviously wouldn't go down well in the US). Lastly, the government could go into debt. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To answer the second part of your question, since we know that the US was spending 38% of GDP but was only raising 18% of GDP in taxes (and if you look at the graph it's probably safe to say that it was raising an average of 12-15% over the course of the war) that means there's somewhere in the ballpark of 26-20% of GDP worth of money that has to come from somewhere. Since printing more money isn't going to work, realistically the US government would have had to triple taxes from 1930 levels to pay for the war without going into debt, or it would have had to drop the size of it's military by two-thirds, or some combination thereof, say double taxes and half the size of it's military. &#xA;This also leads to some problems: if we had to half the size of the US military, would the allies have been able to win the war? Keeping a balanced budget as a priority over that of winning the war doesn't seem like a wise course of action.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any increase in taxes would also have a dampening effect on the economy itself, (and would also indirectly increase the costs of some of the purchases that the U.S. government would be making), so while the government might get more revenue this way it might end up with a less cost-effective military.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the government wanted to avoid that, it could just seize assets from the private sector-- if it just stole from multimillionaires, the rail and coal tycoons etc. it probably would be able to finance the expansion without too many short-term effects, but I doubt it would ever have been a politically viable option. Also, arbitrary seizure of private property is generally a bad thing if you want an economy to run well.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So all of this kind of argues for taking on debt.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of the three choices going into debt is more palatable for most people. It has the advantage of taking wealth from citizens NOW with the promise of them getting money later, when the government desperately needs money now (to win the war) and couldn't care less about how it will pay the citizens back later.&lt;/p&gt;&#xA;" OwnerUserId="2971" LastEditorUserId="2971" LastEditDate="2015-02-23T09:50:05.510" LastActivityDate="2015-02-23T09:50:05.510" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="4495" PostTypeId="1" AcceptedAnswerId="4502" CreationDate="2015-02-23T12:24:59.367" Score="12" ViewCount="24653" Body="&lt;p&gt;What is the definition of &quot;First Best&quot;, &quot;Second Best&quot;, etc. in contract theory?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Especially, what is the difference between &quot;First Best&quot; in contract theory and &quot;ex-post efficient&quot; in mechanism design?&lt;/p&gt;&#xA;" OwnerUserId="1639" LastEditorUserId="1639" LastEditDate="2015-02-24T22:54:45.707" LastActivityDate="2017-04-06T04:28:31.187" Title="What is the definition of &quot;First Best&quot;, &quot;Second Best&quot;, etc. in contract theory?" Tags="&lt;mechanism-design&gt;&lt;contract-theory&gt;" AnswerCount="3" CommentCount="2" FavoriteCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="4496" PostTypeId="2" ParentId="4493" CreationDate="2015-02-23T13:07:04.147" Score="2" Body="&lt;p&gt;Wars increase public debts only if the Government does not have enough money to finance the costs of war.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a war is always very costly, governments end up borrowing to finance it, but the relation between going to war and borrowing money is not automatic, it is rather an 'imperfection' of the money market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Asking what would have happened if the US had financed the WW's from its production and services is not a right question. The value created by 'production and services' belong to individuals, they are private property (the very fundamental feature of free exchange market economies). It is true that the Government contributes to total GDP, that's why the question is not right since the Government does not own all the money from production and services.&lt;/p&gt;&#xA;" OwnerUserId="4032" LastActivityDate="2015-02-23T13:07:04.147" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="4497" PostTypeId="2" ParentId="4489" CreationDate="2015-02-23T13:16:59.787" Score="2" Body="&lt;p&gt;Consider that, if two goods are perfect substitutes, their marginal utilities are constant with respect to each other. Hence with two goods, you will consume only one or the other*.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If $\frac{a}{p_x} &amp;gt; \frac{b}{p_y}$, then $x^*(M) = \frac{M}{p_x}; y^* = 0 $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;otherwise if $\frac{a}{p_x} &amp;lt; \frac{b}{p_y}$, then $x^* = 0; y^*(M) = \frac{M}{p_y} $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;*(assume their prices are not the inverse of their marginal utilities, in which case you are indifferent).&lt;/p&gt;&#xA;" OwnerUserId="37" LastEditorUserId="37" LastEditDate="2015-02-23T13:33:39.173" LastActivityDate="2015-02-23T13:33:39.173" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4498" PostTypeId="2" ParentId="4470" CreationDate="2015-02-23T13:29:54.800" Score="6" Body="&lt;p&gt;&quot;Intelligent money&quot; or &quot;smart money&quot; is not an economic term per se, but a finance term.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is colloquially used in the finance industry to describe the collective group of individuals who are paid to actively manage funds, rather than passively manage funds. Active management differs from passive management in that the former chooses how to invest money based on individual perceptions of expected return, whereas the latter follows a predetermined simple rule, such as &quot;buy equities in a weighting equal to their individual market valuations amongst the largest x stocks&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;More generally, 'smart money' refers to the subset of active managers that act as if they possessed an informational advantage, and/or the ability to adapt a fund's investment strategy to market conditions. In this sense, smart money consists of hedge funds and stock-picking mutual funds and 'dumb money' consists of passive mutual funds. (Passive funds are more likely to be ETFs, though it's not mutually exclusive).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However few economists would consider investing with active managers to be the intelligent choice (given equal risk, passive investment outperforms active investment on average, net of fees).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since the term is colloquial, it is hard to find an example which provides a definition. Notwithstanding this, the following article's title lines up with this explanation, and further, explains why &quot;smart money&quot; isn't ordinarily a smart place for money.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://time.com/money/3657009/indexing-investing-inflows-vanguard-blackrock/&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://time.com/money/3657009/indexing-investing-inflows-vanguard-blackrock/&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="37" LastEditorUserId="37" LastEditDate="2018-08-27T20:14:04.647" LastActivityDate="2018-08-27T20:14:04.647" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="4499" PostTypeId="1" CreationDate="2015-02-23T13:57:57.153" Score="2" ViewCount="173" Body="&lt;p&gt;During the last decades there has been an increase of anti-capitalistic movements around the world which are fundamentally different from those of the XIX-th and XX-th centuries in the sense that they do not belong to a &quot;working class&quot;, but rather to a &quot;middle class&quot; who has had high levels of education.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By &lt;strong&gt;capitalism&lt;/strong&gt; I mean any exchange market economy (with private property, one currency, representative democracy, competitive markets,...), i.e. in a broad sense and not referring to regional particularities (for example US vs Europe).&lt;/p&gt;&#xA;" OwnerUserId="4032" LastActivityDate="2015-02-23T16:55:51.713" Title="Is Capitalism dying or will it prevail?" Tags="&lt;theory&gt;" AnswerCount="1" CommentCount="4" ClosedDate="2015-02-24T18:10:11.930" ContentLicense="CC BY-SA 3.0" />
  <row Id="4500" PostTypeId="2" ParentId="4495" CreationDate="2015-02-23T14:12:53.090" Score="2" Body="&lt;p&gt;&lt;em&gt;First Best&lt;/em&gt; is the ideal optimal solution of a given problem, i.e. the mathematical solution of the model with &quot;no imperfections&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If that solution is &lt;strong&gt;not attainable&lt;/strong&gt; then the solution must be binding to some constraint, in which case we call it a &lt;em&gt;Second Best&lt;/em&gt; solution.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;'&lt;strong&gt;Not attainable&lt;/strong&gt;' here means that there's a discrepancy between the theoretical predictions of the model and what really happens in the economy. Different authors use other terms...&lt;/p&gt;&#xA;" OwnerUserId="4032" LastActivityDate="2015-02-23T14:12:53.090" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4501" PostTypeId="1" CreationDate="2015-02-23T14:35:07.967" Score="2" ViewCount="166" Body="&lt;p&gt;Where can I learn about market value of specific sector? What keywords should I be looking to being understand which reserch facilities publish relevant reports?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'll put it simple: I'm building a startup, and I need to answer how much my market is worth. Where do I being this research? I believe this is a question every aspiring entrepreneur has to deal with, and I'm sure answers by knowledgeable people on this forum will become invaluable resource to the general community.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In my specific case, I'm looking at the b2d market where companies such as Twilio, Stripe, Github, Zencoder and StatHat operate.&lt;/p&gt;&#xA;" OwnerUserId="4034" LastActivityDate="2015-02-27T13:40:12.120" Title="How to value market size?" Tags="&lt;value&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4502" PostTypeId="2" ParentId="4495" CreationDate="2015-02-23T14:57:11.153" Score="10" Body="&lt;p&gt;&lt;strong&gt;In contract theory&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &lt;em&gt;first-best&lt;/em&gt; refers to the best you could do if you knew agents' preferences over labor an income (i.e., if you did not have to impose the incentive compatibility constraint), and the &lt;em&gt;second-best&lt;/em&gt; is the best you can do if agents have to reveal their preferences themselves.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;In mechanism design&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A useful reference is Galichon, Alfred, Ex-Ante vs. Ex-Post Efficiency in Matching (May 21, 2011). Available at SSRN: &lt;a href=&quot;http://ssrn.com/abstract=1837321&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://ssrn.com/abstract=1837321&lt;/a&gt; or &lt;a href=&quot;http://dx.doi.org/10.2139/ssrn.1837321&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://dx.doi.org/10.2139/ssrn.1837321&lt;/a&gt;  :&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;an assignment is called ex-post efficient if no other &lt;em&gt;deterministic assignment&lt;/em&gt; is improving on it in a Pareto sense; and ex-ante efficient if no &lt;em&gt;lottery over deterministic assignments&lt;/em&gt; is.&quot; (my emphasis)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Difference between the two&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is not much connexion between the two notions as defined above. Every combination of the two notions is &lt;em&gt;a priori&lt;/em&gt; possible. Both a mechanism and a contract can be&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;First-best ex-post efficient (i.e., efficient when incentive compatibility constraint is &lt;em&gt;not&lt;/em&gt; imposed and the outcome of the mechanism/contract must be &lt;strong&gt;deterministic&lt;/strong&gt;)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;First-best ex-ante efficient (i.e., efficient when incentive compatibility constraint is &lt;em&gt;not&lt;/em&gt; imposed and the outcome of the mechanism/contract can be &lt;strong&gt;random&lt;/strong&gt;)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Second-best ex-post efficient (i.e., efficient when incentive compatibility constraint is imposed and the outcome of the mechanism/contract must be &lt;strong&gt;deterministic&lt;/strong&gt;)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Second-best ex-ante efficient (i.e., efficient when incentive compatibility constraint is imposed and the outcome of the mechanism/contract can be &lt;strong&gt;random&lt;/strong&gt;)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;In the literature&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Yet, in general, you are be more likely to find the first-best/second-best terminology in contract theory (random contracts are not &lt;em&gt;that common&lt;/em&gt; in contract theory), and the ex-post/ex-ante efficiency in mechanism design (knowledge of the preferences is rarely assumed in a mechanism: the fact that we do not know agents preferences is the &lt;em&gt;raison d'être&lt;/em&gt; of mechanism design). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus you can expect to see 3. and 4. being discussed in the mechanism design literature, and 1. and 3. being discussed in contract theory.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Beware&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This being said, the notions of second-best and first-best are often used outside of contract theory in a rather permissive way, which may be confusing. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For some people, first-best simply means &quot;if we do &lt;em&gt;not&lt;/em&gt; impose some constraint $X$&quot; and second-best means &quot;if we &lt;em&gt;do&lt;/em&gt; impose constraint $X$&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus you may hear people talk about (beware this is where it gets confusing) &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;an ex-post efficient mechanism as &quot;second-best&quot; efficient, because it is &quot;efficient under the constraint that the assignment be deterministic&quot;. &lt;/li&gt;&#xA;&lt;li&gt;an ex-ante efficient mechanism as &quot;first-best&quot; efficient, that is &quot;efficient if we do &lt;em&gt;not&lt;/em&gt; impose constraint $X$&quot;.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Hope that clarifies it (or at least does not confuse you more).&lt;/p&gt;&#xA;" OwnerUserId="38" LastEditorUserId="38" LastEditDate="2017-04-06T04:28:31.187" LastActivityDate="2017-04-06T04:28:31.187" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="4503" PostTypeId="2" ParentId="4495" CreationDate="2015-02-23T16:26:56.353" Score="3" Body="&lt;p&gt;The solution to an optimal contract problem is called &quot;first best&quot; if it maximizes the principal's objective function subject to all constraints except the incentive constraints. The solution to an optimal contract problem is called &quot;second best&quot; if it maximizes the principal's objective function subject to all constraints, including the incentive constraints. Usually, one calls a contract &quot;second best&quot; only if it differs from the &quot;first best&quot; contract.&lt;/p&gt;&#xA;" OwnerUserId="2787" LastActivityDate="2015-02-23T16:26:56.353" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="4504" PostTypeId="2" ParentId="4499" CreationDate="2015-02-23T16:55:51.713" Score="3" Body="&lt;p&gt;I agree that this question is too broad, but here's a perspective: much of the criticism of modern capitalism is from people who've been in the system.  What about people who haven't been in the system, like in Vietnam or China, where they haven't been under capitalism in the past?  Do they tell us what we're missing out on?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.washingtonexaminer.com/study-vietnamese-chinese-choose-capitalist-road/article/feed/2171717&quot; rel=&quot;nofollow&quot;&gt;One study I've seen all over&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;A world-topping 95 percent of Vietnamese say that most people are&#xA;  better off in free-market economies, and 76 percent of Chinese agree,&#xA;  according to a Pew survey of nearly 49,000 people worldwide that might&#xA;  have astonished Ho Chi Minh and Mao Zedong. Seventy percent of&#xA;  Americans and 65 percent of those in the UK expressed support for a&#xA;  free-market economic system.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This is part of the reason why this question is too broad.  We could say that while some systems abandon it, others will use it.  I also don't know if a capitalist-like system didn't exist before Adam Smith, as from reading some Roman history, there seems to be times where there was a merchant class featuring open markets with entrepreneurs where they would meet the needs of those they traded with and while they certainly didn't call it capitalism (I assume), like we do, seems very similar.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I believe Plato pointed out that civilizations often move from one system to another, like Oligarchy to Democracy, before reverting, so the very nature of a Meritocracy may be a transitional stage in a civilization's history.&lt;/p&gt;&#xA;" OwnerUserId="2746" LastActivityDate="2015-02-23T16:55:51.713" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4505" PostTypeId="2" ParentId="4470" CreationDate="2015-02-23T20:12:30.300" Score="3" Body="&lt;p&gt;You may be seeing the same thing that I'm seeing (on social media), and I've added the links below as evidence of this, more often than not, they don't define what they mean (in this case, they do - for instance, you'll see &quot;the smart money is moving against the USD&quot; etc).  This term is very common on social media stock discussions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://stocktwits.com/nathan200/message/31224854&quot; rel=&quot;nofollow&quot;&gt;StockTwit example&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://jlfmi.tumblr.com/post/101083300790/smart-money-decreases-crude-oil-shorts-by-record&quot; rel=&quot;nofollow&quot;&gt;Tumblr post&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The way that I understand is that these are individuals who have a commercial interest in a position.  For instance, if the price of oil goes through the roof and a company has a lot to gain from that, they may take a hedge out against the position, in case of a fall, especially if the price goes to an extreme and they know it can't be sustained (you'll see a massive short movement).  This is true with currencies as well (ie: an export driven business must watch exchange rates).  It should be of note that they aren't always the &quot;smart&quot; move and they generally are early to the party, as you can see with their bets against oil (very early, and notice how quickly they cut some of the shorts as prices plummeted).  The key is to watch their positions; they will generally be short, but when they make a strong short position, that could spell that something will happen.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I do not think that this is an economic term; more of a trading term.&lt;/p&gt;&#xA;" OwnerUserId="2746" LastActivityDate="2015-02-23T20:12:30.300" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4506" PostTypeId="1" CreationDate="2015-02-23T21:45:01.813" Score="2" ViewCount="155" Body="&lt;p&gt;Mr. Yaron Brooks from the Ayn Rand Institute argues that global income inequality is decreasing. True/false?&lt;/p&gt;&#xA;" OwnerUserId="4038" LastActivityDate="2015-02-24T17:02:34.683" Title="Is income inequality decreasing?" Tags="&lt;inequality&gt;" AnswerCount="1" CommentCount="8" ClosedDate="2015-02-24T18:09:42.903" ContentLicense="CC BY-SA 3.0" />
  <row Id="4507" PostTypeId="1" CreationDate="2015-02-23T21:59:32.010" Score="7" ViewCount="2207" Body="&lt;p&gt;I recently heard a story on npr about economic policy changes that both liberal and conservative economists definitively agree on.  Among other things, complete elimination of corporate taxes was mentioned.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm curious to know more about what the consequences of such a policy would be, both positive and negative.&lt;br&gt;&#xA;Particularly, i want to know how this could possibly benefit the middle and lower echelons of society, not just the wealthy.  I'm curious if there are any benefits to the government as well, since they stand to lose income by this change.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm not looking for answers appealing to political ideology or speculation.  I want solid answers backed up by sound theory and empirical evidence.&lt;/p&gt;&#xA;" OwnerUserId="4039" LastEditorUserId="69" LastEditDate="2015-02-24T10:19:56.227" LastActivityDate="2015-02-25T12:53:12.457" Title="What are the pros and cons of eliminating corporate taxes?" Tags="&lt;taxation&gt;" AnswerCount="1" CommentCount="3" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="4508" PostTypeId="1" CreationDate="2015-02-23T23:48:00.077" Score="4" ViewCount="2326" Body="&lt;p&gt;Source: Question 9b, p 61, &lt;em&gt;Principles of Microeconomics&lt;/em&gt;, 7 Ed, 2014, by N Gregory Mankiw&lt;br&gt;&#xA;= Question 8b in &lt;em&gt;Principles of Microeconomics&lt;/em&gt;, 4 Ed, 2008&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;9. Are the following statements true or false? Explain in&#xA;  each case.&lt;br&gt;&#xA;  b. “Certain very talented people have a comparative&#xA;  advantage in everything they do.”&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&lt;strong&gt;Answer:&lt;/strong&gt; b. False; it is not true that some people have a comparative advantage in everything they&#xA;  do. In fact, no one can have a comparative advantage in everything. Comparative&#xA;  advantage reflects the opportunity cost of one good or activity in terms of another. If you&#xA;  have a comparative advantage in one thing, you must have a comparative disadvantage&#xA;  in the other thing.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Abbreviate comparative advantage as CA. Mankiw's question above motivates the titled one.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;E.g., suppose in a 3-person economy: person A's CA is cooking and person B's foraging, yet person C does nothing. &lt;/p&gt;&#xA;" OwnerUserId="4020" LastEditorUserId="4020" LastEditDate="2018-04-14T22:38:48.630" LastActivityDate="2018-04-14T22:38:48.630" Title="Can people lack a comparative advantage and a comparative disadvantage?" Tags="&lt;microeconomics&gt;&lt;comparative-advantage&gt;" AnswerCount="3" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4509" PostTypeId="2" ParentId="4508" CreationDate="2015-02-24T00:32:48.280" Score="4" Body="&lt;p&gt;Comparative advantage doesn't work like that.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If person A's CA is cooking, person C has a comparative advantage in foraging. With B, C has a comparative advantage in cooking.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's not possible to have a comparative advantage or comparative disadvantage in everything: If you were better at everything than someone else, you would have an absolute advantage. As soon as two people have different skills for anything, they have a comparative advantage of some kind.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is possible for two people to have no comparative advantage/disadvantages whatsoever: If both people are exactly equal at everything they can do, then there is no comparative advantage or disadvantage between them at all.&lt;/p&gt;&#xA;" OwnerUserId="2971" LastActivityDate="2015-02-24T00:32:48.280" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4510" PostTypeId="2" ParentId="4508" CreationDate="2015-02-24T00:44:04.277" Score="2" Body="&lt;p&gt;In the three person economy, if all three people are equally good at cooking and foraging then they have neither absolute nor comparative advantages. But that's unlikely to be an economically important situation in a real economy with many jobs to do and many forms of skill and ability. &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2015-02-24T00:44:04.277" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4511" PostTypeId="2" ParentId="4485" CreationDate="2015-02-24T00:53:04.307" Score="2" Body="&lt;p&gt;An equilibrium asset pricing model is one in which the asset prices jointly satisfy the requirement that the quantities of each asset supplied and the quantities demanded must be equal at that price. It is as opposed to a partial equilibrium model where the price of the asset (or at least some assets) are determined outside of the model. &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-02-25T18:50:44.467" LastActivityDate="2015-02-25T18:50:44.467" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="4513" PostTypeId="1" CreationDate="2015-02-24T02:40:37.033" Score="2" ViewCount="1207" Body="&lt;p&gt;For almost all demand curves, the resulting marginal revenue curve is often to the left of and steeper than the demand curve. The marginal cost curve has its distinctive U-shape, and a particular portion of the marginal cost curve is the supply curve. So the result can be shown below:&#xA;&lt;img src=&quot;https://i.stack.imgur.com/6hKLl.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The figure above indicates that in almost any case, because MR is to the left of D, if a firm produces the quantity at market equilibrium, MR &amp;lt; MC, which means that the firm would be actively losing profits.  So, why do firms even bother going to market equilibrium - from a theoretical standpoint?&lt;/p&gt;&#xA;" OwnerUserId="4041" LastEditorUserId="4041" LastEditDate="2015-02-24T19:34:07.443" LastActivityDate="2015-02-24T19:34:07.443" Title="Why do firms bother to produce at equilibrium quantities if at equilibrium quantity, MR &lt; MC?" Tags="&lt;microeconomics&gt;&lt;supply-and-demand&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4514" PostTypeId="1" AcceptedAnswerId="4523" CreationDate="2015-02-24T03:18:40.157" Score="2" ViewCount="739" Body="&lt;p&gt;Source: pp 40-41, &lt;em&gt;Principles of Microeconomics&lt;/em&gt;, 7 Ed, 2014, by N Gregory Mankiw&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;her demand curve would shift to the left (to curve D3).&#xA;  In economics, it is important to distinguish between &lt;em&gt;movements along a curve&lt;/em&gt;&#xA;  and &lt;em&gt;shifts of a curve&lt;/em&gt;. ...&lt;br&gt;&#xA;  ♦ There is a simple way to tell when it is necessary to shift a curve: When a relevant&#xA;  variable that is not named on either axis changes, the curve shifts. ♦ ...&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Is the last sentence of the excerpt (within $\mathbb{R^2}$) above really true ? (I surrounded it with lozenges ♦) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What if ceterus paribus, a fixed number $&amp;gt; 1$, of relevant variables changes? Can they counteract each other, or even equilibrize all the changes so that the curve stands unmoved? &lt;/p&gt;&#xA;" OwnerUserId="4020" LastActivityDate="2015-02-24T22:17:57.040" Title="When a relevant variable unnamed on either axis changes, can the curve NOT shift?" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4515" PostTypeId="1" CreationDate="2015-02-24T04:54:56.507" Score="2" ViewCount="323" Body="&lt;p&gt;The problem is from Asset Pricing and Portfolio Theory by Back and can be found &lt;a href=&quot;https://imgur.com/fGDUeHL&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The relevant info from section 2.5 can be found &lt;a href=&quot;http://imgur.com/Aq7z4m5,JEnkEPl#0&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;. Given that we have the Expected value and the variance of end of period wealth, I tried substituting them into the equation, differentiating and setting to 0. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm not sure this is the right method, or if I'm even taking the derivative correctly. Any help would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="2874" LastActivityDate="2015-02-24T04:54:56.507" Title="Calculating the optimal portfolio for an investor with quadratic utility" Tags="&lt;asset-pricing&gt;&lt;optimization&gt;&lt;risk-aversion&gt;&lt;portfolio-theory&gt;" AnswerCount="0" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4516" PostTypeId="2" ParentId="4507" CreationDate="2015-02-24T12:02:13.420" Score="8" Body="&lt;p&gt;The first and most important insight here is to recognize that burden of taxation (the incidence) need not fall on the entity taxed. Economist Herb Stein is famous for having quipped (on the subject of the corporate income tax): &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;...that it’s as if people think that if the government imposed a tax on&#xA;  cows, the tax would be paid by the cows.&quot;&#xA;  &lt;a href=&quot;http://econlog.econlib.org/archives/2011/08/are_taxes_on_co.html&quot; rel=&quot;nofollow&quot;&gt;Are Taxes on Corporations Taxes on People?&lt;/a&gt; &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The corporation may front the money, but ultimately that money comes from customers, employees, vendors, creditors, and equity holders. &lt;a href=&quot;http://www.nber.org/papers/w11686&quot; rel=&quot;nofollow&quot;&gt;Miller and others have written down models where corporate shareholders bear the burden but it doesn't have to be that way&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So to assess the consequences of eliminating the corporate income tax, we really want to know who pays (bears the burden of) the corporate income tax. To the extent that it is the providers of capital of the firm who bear the burden, we might assume that lowering the corporate income tax would act like an income tax cut for the rich. But there are simple models where customers pay some of the corporate income tax, such as if domestic and foreign products (as well as investments) are perfect substitutes, then (immobile) labor pays all the burden of the corporate income tax. Unfortunately, &lt;a href=&quot;http://thinkprogress.org/yglesias/2011/08/12/294273/the-mysterious-incidence-of-the-corporate-income-tax/&quot; rel=&quot;nofollow&quot;&gt;the issue of incidence remains murky despite decades of work on the subject&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regardless of who pays, it is clear that enormous resources are devoted to corporate income tax avoidance probably because corporations have so many more opportunities for tax avoidance than individuals do, due to their complexity, multi-territoriality, and general scale and scope. If eliminating the corporate income tax freed most of those resources invested in corporate taxation preparation and avoidance (&lt;a href=&quot;http://mercatus.org/sites/default/files/Fichtner_TaxCompliance_v3.pdf&quot; rel=&quot;nofollow&quot;&gt;on the order of \$150 billion by two estimates&lt;/a&gt; just in compliance costs, ignoring strategically wasted resources), resources &lt;a href=&quot;http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=203&quot; rel=&quot;nofollow&quot;&gt;amounting to something like half of actual corporate income tax revenue&lt;/a&gt; would be usable for other activities. Free up those resources and you can make everyone better off, at least in principle. You might for example create a revenue neutral increase in dividends, capital gains, and interest taxation to offset the corporate income tax cut. This could leave beneficiaries of current spending essentially unaffected while the holders of current capital in taxable accounts would be a bit worse off and tax-free accounts (retirement, charities) slightly better off from the direct effects of the tax changes. But since their compliance costs fell massively, there might be enough to make everyone better off. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The bottom line is that that the corporate income tax is a expensive way to gather tax revenue from rich people and we are not sure it even does get money from rich people. The corporate income tax can plausibly harm non-rich people in the process. Taxing the income of the rich directly, if that is the end goal, is much more efficient. The resulting efficiency gains can be split between the rich and poor. Even if you don't particularly want to tax the rich, a more efficient tax policy means  tax rates can be lowered. So there is something for a liberal and conservative economist alike to love with this tax reform. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here are a couple of papers that suggest that higher corporate income taxes induce corporations to have more debt and less equity (greater leverage), although there is some evidence that reducing these taxes would not reduce leverage in the short run. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;...low tax rate firms lease more, and have lower debt levels, than high&#xA;  tax rate firms&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://onlinelibrary.wiley.com/doi/10.1111/0022-1082.55404/abstract&quot; rel=&quot;nofollow&quot;&gt;Debt, Leases, Taxes, and the Endogeneity of Corporate Tax Status&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The results suggest that taxes have had a strong and statistically&#xA;  significant effect on debt levels. For example, cutting the corporate&#xA;  tax rate by ten percentage points (e.g. from 46 to 36%), holding&#xA;  personal tax rates fixed, is forecast to reduce the fraction of assets&#xA;  financed with debt by around 3.5%&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/S0047272700001511&quot; rel=&quot;nofollow&quot;&gt;Do taxes affect corporate debt policy? Evidence from U.S. corporate tax return data&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;...we show that taxes have a first-order effect on capital structure.&#xA;  Firms increase leverage by around 40 basis points for every&#xA;  percentage-point tax increase. Consistent with dynamic tradeoff&#xA;  theory, the effect is asymmetric: leverage does not respond to tax&#xA;  cuts.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/S0304405X15000057&quot; rel=&quot;nofollow&quot;&gt;As Certain as Debt and Taxes: Estimating the Tax Sensitivity of Leverage from State Tax Changes&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;If I can recall papers that estimate the costs of tax avoidance and excess burden of taxation I'll add them as well. Suggestions welcome. &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-02-25T12:53:12.457" LastActivityDate="2015-02-25T12:53:12.457" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="4517" PostTypeId="1" CreationDate="2015-02-24T14:22:49.397" Score="5" ViewCount="62" Body="&lt;p&gt;I suppose that it doesn't cost most firms much to get rid of cheap labor, and that high wage workers typically have contracts that imply high compensations in case of firing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But what about the remainder? Since Macroeconomics is mostly about the art of writing linear models, what evidence is there for average firing costs from the view point of the firm?&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-02-27T01:50:06.690" Title="Is Firing Costly in the US?" Tags="&lt;macroeconomics&gt;&lt;labor-economics&gt;&lt;data-request&gt;&lt;reference-request&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="4519" PostTypeId="1" CreationDate="2015-02-24T15:42:56.567" Score="3" ViewCount="103" Body="&lt;p&gt;This question is related to the development of &lt;strong&gt;The Joint Giving Theorem&lt;/strong&gt; (by S. Kolm).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are two types of agents: benevolent and beneficiaries.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Benevolents' preferences are represented by utilities: $u^i=u^i(x_i,x,c_i,g_i,c_{-i},g_{-i})$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where $x_i=X_i-g_i-t_i$ is final wealth, $X_i$ initial wealth, $g_i$ some private gift made to the poor, $t_i$ is the transfer to the public sector (who then gives it to the poor). $x$ is the final wealth of the beneficiaries. $c_i=g_i+t_i$ is total contribution of agent $i$. Subscripts $~_{-i}$ denote variables of other benevolents.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Beneficiary's preferences are represented by an increasing ordinal utility function $u=u(x)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The assumptions are (subscripts mean derivatives): $u^i_{x_i}&amp;gt;0,u^i_{x}\geq 0, u^i_{c_i}\geq 0, u^i_{g_i}\geq u^i_{c_j} \leq 0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The theorem then says (I quote):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Pareto efficiency for this society of potential givers and receivers implies that there&#xA;  exist coefficients $\lambda_i &amp;gt;0$ such that $U=\sum \lambda_j u^j +u$ is maximal (without loss of generality). Public policy chooses taxes $t_i$. When it implements a Pareto efficient social state, this choice maximizes such a function $U$. This implies, for tax $t_i$ :&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;$\lambda_i \cdot (-u^i_{x_i}+u^i_{x}+u^i_{c_i})+\sum_{j\neq i} \lambda_j \cdot (u^j_{x}+u^j_{c_i})+u'\leq 0$&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;with $=0$ if $t_i&amp;gt;0$ and $\leq 0$ if $t_i=0$.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;My question is: Why is the derivative of $U$ with respect to taxes $t$ non positive? More precisely, why is it non-positive if taxes are &lt;strong&gt;zero&lt;/strong&gt;?&lt;/p&gt;&#xA;" OwnerUserId="4032" LastEditorUserId="4032" LastEditDate="2015-02-24T21:29:45.287" LastActivityDate="2015-02-25T02:39:51.850" Title="Why is the derivative of this SWF non-positive?" Tags="&lt;mathematical-economics&gt;&lt;social-welfare&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4520" PostTypeId="2" ParentId="4513" CreationDate="2015-02-24T16:00:16.663" Score="5" Body="&lt;p&gt;The MC curve can only be seen as a supply schedule for the individual firm if it is a price taker. In the case you depicted, however, we have imperfect competition. A profit-maximizing firm will thus produce where MR=MC, and charge a price that will induce consumers to purchase this quantity (which can be read off the demand schedule). In this sense, there is no &quot;disequilibrium&quot;: the firm is doing the best it can (so it has no reason to change), and total quantity demanded is equal to total quantity supplied (i.e. there is market equilibrium). &lt;/p&gt;&#xA;" OwnerUserId="4045" LastActivityDate="2015-02-24T16:00:16.663" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="4521" PostTypeId="2" ParentId="4506" CreationDate="2015-02-24T16:51:00.407" Score="6" Body="&lt;p&gt;Here is a fairly instructive figure showing a cross-country measure of income inequality:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/VjG7F.png&quot; alt=&quot;World Gini coefficient&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It shows that inequality was increasing for most of the last 35 years, but has started to decrease again recently. (You can read more at the source for this figure: &lt;a href=&quot;http://www.conferenceboard.ca/hcp/hot-topics/worldinequality.aspx&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.conferenceboard.ca/hcp/hot-topics/worldinequality.aspx&lt;/a&gt;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Once data is weighted by population, we see a longer-term trend for decreasing inequality (due to rapid growth in China and India, which contain around a third of the world's people:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/2lnHT.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As @FooBar notes in a comment, a pattern of decreasing income inequality is consistent with economic &lt;a href=&quot;https://en.wikipedia.org/wiki/Convergence_(economics)&quot; rel=&quot;nofollow noreferrer&quot;&gt;theories of convergence&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2015-02-24T17:02:34.683" LastActivityDate="2015-02-24T17:02:34.683" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="4522" PostTypeId="1" CreationDate="2015-02-24T20:21:41.807" Score="3" ViewCount="1479" Body="&lt;p&gt;I am working with an ARDL model in STATA but am unable to figure out how to run the impulse response functions with the estimated coefficients. Numerous papers talk about ARDL and IRF, but not a single one I've found actually outlines the process.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can anyone point me in the right direction?&lt;/p&gt;&#xA;" OwnerUserId="4046" LastActivityDate="2016-03-28T21:12:36.860" Title="STATA: Impulse Response Function after ARDL?" Tags="&lt;macroeconomics&gt;&lt;econometrics&gt;&lt;time-series&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="4523" PostTypeId="2" ParentId="4514" CreationDate="2015-02-24T22:17:57.040" Score="2" Body="&lt;p&gt;The scenario of counteracting changes in relevant variables is theoretically possible, but unlikely in practice.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As an example that might come fairly close, consider the supply curve of oil in a small developing country which imports all its oil and subsidizes its sale, the subsidy being at a flat rate per unit.  The country will be a price taker for oil, so its domestic supply curve will be horizontal at the world price less the subsidy.  Now suppose the world price falls, and the government takes the opportunity to reduce the subsidy by a similar amount.  Either change on its own would shift the supply curve (the former down, the latter up), but together they could largely counteract each other.  Even in this case, however, it is implausible that the supply curve would never shift at all.  For one thing, the world price of oil is constantly changing, and it would be impracticable to adjust the subsidy so frequently.  For another, there would inevitably be time-lags in adjustments.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So although you correctly identify a theoretical exception to the statement by Mankiw, it is unlikely to be of much practical significance.&lt;/p&gt;&#xA;" OwnerUserId="1417" LastActivityDate="2015-02-24T22:17:57.040" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4524" PostTypeId="1" CreationDate="2015-02-24T23:20:30.610" Score="8" ViewCount="2105" Body="&lt;p&gt;All parties make a single bid. But do not disclose the bid to peers. The organizer chooses the maximum (or minimum) bid as the winner. What are benefits of such a system as opposed to normal auction where bidders openly declare the bids and keep updating based on the current maximum ( or minimum )?&lt;/p&gt;&#xA;" OwnerUserId="4049" LastActivityDate="2019-03-17T12:35:12.427" Title="What are the benefits of a first price sealed bid auction?" Tags="&lt;auctions&gt;" AnswerCount="4" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4525" PostTypeId="1" AcceptedAnswerId="4535" CreationDate="2015-02-25T00:38:44.653" Score="8" ViewCount="948" Body="&lt;p&gt;I am looking for a few good books pitched at different levels to help analyse discrete data.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Specifically: Specification, Estimation and the application of econometric methods to model discrete choices by individuals, households or firms.&lt;/p&gt;&#xA;" OwnerUserId="40" LastEditorUserId="159" LastEditDate="2015-02-25T20:57:02.317" LastActivityDate="2015-06-10T00:12:22.533" Title="Book Recommendation for Microeconometrics of Discrete Data" Tags="&lt;econometrics&gt;&lt;reference-request&gt;" AnswerCount="3" CommentCount="1" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="4526" PostTypeId="2" ParentId="4525" CreationDate="2015-02-25T00:38:44.653" Score="3" Body="&lt;ul&gt;&#xA;&lt;li&gt;Greene, W.H. (2008), &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0131395386&quot; rel=&quot;nofollow&quot;&gt;Econometric Analysis&lt;/a&gt;, 6th edition, Prentice Hall.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Very extensive. Worth having as a reference at least because it covers an enourmous set of models and estimation techniques. It is a little bit light on the intuition though. Also, a kindle edition is available which is a lot cheaper than the very expensive hard cover&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Winkelmann, R. and Boes, S. (2009), &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/364210083X&quot; rel=&quot;nofollow&quot;&gt;Analysis of Microdata&lt;/a&gt;, 2nd edition, Springer&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I haven't looked at this one so can't speak from experience. It seems popular.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Wooldridge, J.M. (2010), &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0262232588&quot; rel=&quot;nofollow&quot;&gt;Econometric Analysis of Cross Section and Panel Data&lt;/a&gt;, 2nd edition, MIT Press.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;In my experience, this one is a bit easier to read and does a better job of attempting to explain itself. It isn't as extensive as Greene. I would go to this book first because I find it more accessible. If I don't get the answer I need, it will probably be in Greene.&lt;/p&gt;&#xA;" OwnerUserId="40" LastEditorUserId="40" LastEditDate="2015-06-10T00:12:22.533" LastActivityDate="2015-06-10T00:12:22.533" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4527" PostTypeId="2" ParentId="4524" CreationDate="2015-02-25T02:34:13.917" Score="6" Body="&lt;p&gt;A good article to read about this is by Susan Athey, Jonathan Levin and Enrique Seira. It has the title: &quot;Comparing Open and Sealed Bid Auctions: Theory and Evidence from Timber Auctions,&quot; was published in the Quarterly Journal of Economics, vol. 126(1), 2011, 207-257, and is available online at: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://faculty-gsb.stanford.edu/athey/documents/comparingformats.pdf&quot; rel=&quot;noreferrer&quot;&gt;http://faculty-gsb.stanford.edu/athey/documents/comparingformats.pdf&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The abstract includes this: &quot;We study entry and bidding patterns in sealed bid and open auctions. Using data from U.S. Forest Service timber auctions, we document a set of systematic effects: sealed bid auctions attract more small bidders, shift the allocation towards these bidders, and can also generate higher revenue. A private value auction model with endogenous participation can account for these&#xA;qualitative effects of auction format.&quot;&lt;/p&gt;&#xA;" OwnerUserId="2787" LastActivityDate="2015-02-25T02:34:13.917" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4528" PostTypeId="2" ParentId="4519" CreationDate="2015-02-25T02:39:51.850" Score="6" Body="&lt;p&gt;This looks like a simple first order condition from constrained optimization. If the maximum is interior, i.e. if $t_i&amp;gt;0$, then the first derivative must be zero. If the maximum is on the boundary, i.e. if $t_i=0$, then the first derivative must be $\leq 0$. If it were $&amp;gt;0$, then we can't have an optimum, because then the value of $U$ could be raised by increasing $t_i$. It can be negative, though, assuming that $t_i$ cannot be negative.&lt;/p&gt;&#xA;" OwnerUserId="2787" LastActivityDate="2015-02-25T02:39:51.850" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4529" PostTypeId="1" AcceptedAnswerId="4555" CreationDate="2015-02-25T03:48:03.977" Score="4" ViewCount="1037" Body="&lt;p&gt;Assume there are 3 states of the world: w1, w2, and w3. Assume there are two assets: a risk-free asset returning Rf in each state, and a risky asset with Return R1 in state w1, R2 in state w2, and R3 in state W3. Assume the probabilities are 1/4 for state w1, 1/2 for state w2, and 1/4 for state w3. Assume Rf=1.0 and R1= 1.1, R2=1.0 and R3= 0.9.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(a) Prove that there are no arbitrage opportunities.&#xA;(b) Describe the one-dimensional family of state price vectors (q1,q2,q3)&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For (a), I believe this is equivalent to showing there exists a state price vector.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know p=Xq, but since we are only given two assets X doesn't have an inverse so I don't know how to compute q. Further, we are not given p. How do I show a state price vector exists?&lt;/p&gt;&#xA;" OwnerUserId="2874" LastActivityDate="2015-02-26T21:47:57.533" Title="Proving there exists no arbitrage opportunities given 3 states and 2 assets" Tags="&lt;mathematical-economics&gt;&lt;asset-pricing&gt;&lt;stochastic-processes&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4530" PostTypeId="2" ParentId="4444" CreationDate="2015-02-25T05:26:03.267" Score="1" Body="&lt;p&gt;So I have done some additional research, I haven't found the resource I am looking for but I do have some worth posting here. When I do find something better, I will update this answer.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.opendemocracy.net/daniel-raventos-julie-wark/general-strike-in-kingdom-of-spain-political-economy-and-basic-income&quot; rel=&quot;nofollow&quot;&gt;Raventós, Daniel; Wark, Julie. &quot;General Strike in the Kingdom of Spain: the Political Economy and Basic Income&quot; &quot;Opendemocracy&quot;, 30 March 2012&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Very much a news article. Nice overview of the points. Not very analytical.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Peter Barnes (2014). With Liberty and Dividends for All: How to Save Our Middle Class When Jobs Don't Pay Enough. Berrett-Koehler Publishers. ISBN 1626562148.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I am getting a copy of this book. I expect it will provide a good overview&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://www.huffingtonpost.com/carl-gibson/the-case-for-a-basic-guar_b_5311330.html?utm_hp_ref=tw&quot; rel=&quot;nofollow&quot;&gt;The Case for a Basic Guaranteed Income for All&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Huffington post...&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Caputo, R. (2008). The unconditional basic income guarantee: Attempts to eclipse the welfare state. International Social Work, 51(4), pp.509-518.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Looks to be the best source so far. Haven't read it all yet. When I do I will update here. It considers three basic income schemes and discusses the advantages and shortcomings.&lt;/p&gt;&#xA;" OwnerUserId="40" LastActivityDate="2015-02-25T05:26:03.267" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4531" PostTypeId="2" ParentId="4524" CreationDate="2015-02-25T05:30:03.100" Score="0" Body="&lt;p&gt;Just a partial answer. Your post combines several questions into one. First, why a sealed-bid auction at all? Second, why a first-price instead of some other type of sealed-bid auction? (There is also the question of whether you are interested in theory or practice.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the second question, in theory, the equilibria of a first-price auction seem more robust than those of a second-price auction. In a second-price or ascending-bid auction, a threat to bid very highly, even if not credible, can discourage participation (especially if the other bidders don't know it's not credible). However, every equilibrium in a first-price auction has good welfare and good revenue (I can provide some references on this if you like). So some people like the first-price in theory for this reason.&lt;/p&gt;&#xA;" OwnerUserId="2856" LastActivityDate="2015-02-25T05:30:03.100" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="4532" PostTypeId="2" ParentId="4524" CreationDate="2015-02-25T08:05:09.997" Score="6" Body="&lt;p&gt;If there is a single item for sale, bidders are risk neutral, and bidders have independently and identically distributed private values then any two auctions that&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;allocates the item to the highest value bidder in equilibrium&lt;/li&gt;&#xA;&lt;li&gt;offers the same surplus to the lowest value bidder&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;yield the same revenue (in expectation). This is the celebrated &lt;a href=&quot;https://en.wikipedia.org/wiki/Revenue_equivalence&quot; rel=&quot;noreferrer&quot;&gt;revenue equivalence theorem&lt;/a&gt;, which implies that first price sealed bid, second price sealed bid, English (open ascending), and Dutch (open descending) auctions all yield the same revenue. You can read a nice exposition of this theorem in the Appendix to Chapter 1 of Paul Klemperer's book &lt;em&gt;Auctions: Theory and Practice&lt;/em&gt; (available here: &lt;a href=&quot;http://www.nuff.ox.ac.uk/users/klemperer/VirtualBook/VBCrevisedv2.asp&quot; rel=&quot;noreferrer&quot;&gt;http://www.nuff.ox.ac.uk/users/klemperer/VirtualBook/VBCrevisedv2.asp&lt;/a&gt;).&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Some things that break this result:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If there is correlation between bidders private information then revenue equivalence breaks, and it is typically better (in expectation) to choose an auction format that reveals as much information as possible. This result, known as the &lt;a href=&quot;https://en.wikipedia.org/wiki/Linkage_principle&quot; rel=&quot;noreferrer&quot;&gt;Linkage Principle&lt;/a&gt; (originally due to &lt;a href=&quot;http://www.jstor.org/discover/10.2307/1911865?sid=21105950204403&amp;amp;uid=70&amp;amp;uid=3738032&amp;amp;uid=4&amp;amp;uid=2129&amp;amp;uid=2&quot; rel=&quot;noreferrer&quot;&gt;Milgrom and Weber&lt;/a&gt;), implies that open ascending auctions earn more revenue in expectation than do sealed bid auctions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If bidders are risk averse then the picture changes somewhat. In an open ascending auction, equilibrium  bids remain unchanged (it's still optimal to stay in the bidding until your value is reached). A first price sealed bid auction, on the other hand, will tend to attract higher bids (roughly, if bidders are risk averse then they would prefer to pay more to reduce the chance of not winning the auction). So with risk averse bidders, one would expect the first price sealed bid auction to do better.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;I higly recommend the entire first chapter of the Klemperer book linked above; it provides a nice, non-technical overview of the most important topics in auction theory research.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2015-02-25T08:05:09.997" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4533" PostTypeId="1" CreationDate="2015-02-25T16:52:55.323" Score="1" ViewCount="178" Body="&lt;p&gt;I want to know how a country, Mexico for instance, keeps the exchange rate higher or lower against other nations currency, USD, EUR, JPY. How does the value of a nation currency is valued against other counties?&lt;/p&gt;&#xA;" OwnerUserId="4051" LastActivityDate="2015-05-18T17:37:46.943" Title="How does a country increases or decreases it currency value (exchange rate) against other nations currency?" Tags="&lt;currency&gt;&lt;money-supply&gt;&lt;international-economics&gt;" AnswerCount="0" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4534" PostTypeId="1" AcceptedAnswerId="9633" CreationDate="2015-02-25T16:58:27.790" Score="3" ViewCount="13929" Body="&lt;p&gt;What is the relationship between GDP and CPI(consumer price index)? My thinking is that if the CPI increases, this means that the market basket cost has increased, therefore, the consumer spending has increased. If the consumer spending increases, then GDP increases. However, depending on the consumer preferences, CPI can either underestimate or overestimate the cost of living. So from here, I cannot draw consequences about how CPI affects GDP or vice versa. Can someone please explain this? Is my thinking correct? Can there be any additions to these?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks in advance!&lt;/p&gt;&#xA;" OwnerUserId="4030" LastActivityDate="2016-03-13T18:10:16.980" Title="Correlation between CPI and GDP" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;" AnswerCount="1" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="4535" PostTypeId="2" ParentId="4525" CreationDate="2015-02-25T18:52:17.897" Score="10" Body="&lt;p&gt;Personally, for choice analysis, I like&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://eml.berkeley.edu/books/choice2.html&quot; rel=&quot;nofollow&quot;&gt;Discrete Choice Methods with Simulation&lt;/a&gt; by Ken Train (pdf)&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://www.cambridge.org/es/academic/subjects/economics/econometrics-statistics-and-mathematical-economics/applied-choice-analysis-primer&quot; rel=&quot;nofollow&quot;&gt;Applied Choice Analysis: A Primer&lt;/a&gt; by Hensher and Greene (2nd edition, book)&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://pages.stern.nyu.edu/~wgreene/DiscreteChoice/Readings/OrderedChoiceSurvey.pdf&quot; rel=&quot;nofollow&quot;&gt;Modeling Ordered Choices&lt;/a&gt; by Hensher and Greene (pdf)&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://www.stata.com/bookstore/regression-models-categorical-dependent-variables/&quot; rel=&quot;nofollow&quot;&gt;Regression Models for Categorical Dependent Variables Using Stata&lt;/a&gt; by Long and Freese (3rd edition, book)&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;(1) is a fairly short, readable classic. (2) is much more introductory, with lots of intuition, though it devotes a lot of space to the nlogit software. (3) has the same features as (2), but for a more focused set of topics. (4) is also pretty introductory and focuses on using Stata. It is perhaps the least &quot;economisty&quot; of the four, but still quite good.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For count data, I like Cameron and Trivedi's &lt;a href=&quot;http://www.econ.ucdavis.edu/faculty/cameron/racd2/&quot; rel=&quot;nofollow&quot;&gt;count data book&lt;/a&gt;, followed by &lt;a href=&quot;http://www.springer.com/us/book/9783540776482&quot; rel=&quot;nofollow&quot;&gt;Winkelmann's&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The books you have listed are good, particularly Wooldridge, but they cover much more ground than just discrete data at the expense of depth. &lt;/p&gt;&#xA;" OwnerUserId="159" LastEditorUserId="159" LastEditDate="2015-03-07T21:15:32.770" LastActivityDate="2015-03-07T21:15:32.770" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4536" PostTypeId="2" ParentId="4522" CreationDate="2015-02-25T19:22:16.670" Score="1" Body="&lt;p&gt;In order to compute IRF in stata you should check &quot;varbasic&quot; in Stata's manual: &lt;a href=&quot;http://www.stata.com/manuals13/tsvarbasic.pdf&quot; rel=&quot;nofollow&quot;&gt;http://www.stata.com/manuals13/tsvarbasic.pdf&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="4035" LastActivityDate="2015-02-25T19:22:16.670" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4537" PostTypeId="1" CreationDate="2015-02-25T19:33:42.957" Score="4" ViewCount="75" Body="&lt;p&gt;&lt;a href=&quot;https://www.guggenheiminvestments.com/perspectives/global-cio-outlook/we-are-all-government-sponsored-enterprises-now&quot; rel=&quot;nofollow noreferrer&quot;&gt;Scott Minerd, CIO of Guggenheim Investments contends&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;What could go wrong with my outlook? We are already in uncharted territory and another black swan might emerge in the midst of a very fragile market. Or a second-order event could create irreversible damage such as large default volumes in the emerging markets. Risks from reopening the economy are two-sided: State and local governments could ease up on lockdown restrictions, the spread of the virus could prove to be manageable, and the economy could come roaring back—unlike what we’ve predicted, which is more of a checkmark-shaped recovery than a V-shaped recovery. On the other hand, the easing of restrictions could lead to a second spike in the coronavirus that is even worse than what we have already lived through, leading to a new leg down for the economy and markets.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Another risk is the Treasury itself. The Fed will need to conduct another \$2 trillion of QE this year to keep the Treasury market functioning given the size of the deficit. Net coupon issuance for the rest of 2020 will approach \$1.5 trillion, and net bill issuance could add another \$2 trillion. &lt;strong&gt;There is just not enough available credit in the world to absorb all of these Treasury securities without crowding out other borrowers.&lt;/strong&gt; If at some point markets begin to question the efficacy of QE, or the Federal Reserve is perceived to be behind the curve in making necessary asset purchases, we could very well get a tantrum in the Treasury market, which would likely spill over into a tantrum in corporate credit, and into the stock market.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Is Minerd correct the world doesn't have &quot;enough available credit&quot; &quot;to absorb all of these Treasury securities without crowding out other borrowers&quot;? &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Has US Treasury publicly addressed this crowding out? Do they also think they'll crowd out private investments? If so, how will they counteract?  &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Same question as 2, but for Federal Reserve? &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/0UpSB.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/0UpSB.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&#xA;&lt;a href=&quot;https://i.stack.imgur.com/we5Qo.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/we5Qo.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="4020" LastEditorUserId="4020" LastEditDate="2020-05-12T19:33:04.647" LastActivityDate="2020-05-12T19:33:04.647" Title="Will US Treasury and Federal Reserve's expansionary policies in 2020 crowd out?" Tags="&lt;covid-19-crisis&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="4538" PostTypeId="1" CreationDate="2015-02-25T20:47:30.907" Score="1" ViewCount="9" Body="&lt;p&gt;Is there a resource showing the average amount of money an individual with a 60K + annual income spends within a one mile radius of their residence?&lt;/p&gt;&#xA;" OwnerUserId="4055" LastActivityDate="2015-02-25T20:47:30.907" Title="Spending Proximal to Domicile" Tags="&lt;data-request&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4539" PostTypeId="1" AcceptedAnswerId="4541" CreationDate="2015-02-25T21:20:59.423" Score="1" ViewCount="1348" Body="&lt;p&gt;I am first year economics student and for the past month we have had it constantly drilled into us that all choices have an opportunity cost and thus they are all necessitated by scarcity. Thus when I saw this quesiton in my homework I was baffled. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't need an exact answer to this, but a hint would be great. My current line of thinking is leaning towards infinite resources like the sun, but I simply can't work it out. Thanks.&lt;/p&gt;&#xA;" OwnerUserId="4056" LastEditorUserId="43" LastEditDate="2015-02-26T01:17:02.960" LastActivityDate="2020-05-02T14:23:46.147" Title="What is an example of a choice which is not necessitated by scarcity?" Tags="&lt;microeconomics&gt;&lt;choice-theory&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4540" PostTypeId="1" CreationDate="2015-02-25T22:46:11.513" Score="2" ViewCount="60" Body="&lt;p&gt;You are given a 5% call option worth \$2.66. The strike price, k is $41.00. S(0)=40, Sd= 35 (i.e the lower price of the stock at t=1) find Su (i.e the high price of the stock at t=1).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How would this be done? I know Cu= Su-\$41. C(0)=\$2.66 and I have something written in my notes that c(0)= B/(1+r) +ΔS(0), but I'm not sure what B is here. I assume to Find Su I need to first find Cu, but I'm not sure how to do this from the given information. Any help is appreciated.&lt;/p&gt;&#xA;" OwnerUserId="2874" LastEditorUserId="43" LastEditDate="2015-02-26T19:08:40.713" LastActivityDate="2015-02-26T21:32:28.380" Title="Pricing of a call option in a one period binomial model" Tags="&lt;asset-pricing&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4541" PostTypeId="2" ParentId="4539" CreationDate="2015-02-25T22:54:19.920" Score="2" Body="&lt;p&gt;The basic idea behind scarcity and opportunity cost is fundamental to economics. Basically, if resources are infinite, you have everything.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In my opinion, there are no infinite resources because a lifetime is finite. In one way or another, it can be argued all choices are necessitated by scarcity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Eating chips means at that time, you cant be eating a burger. That is your opportunity cost.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This may be the point of your homework question, to make you realise that scarcity is a key driving force behind decision making.&lt;/p&gt;&#xA;" OwnerUserId="40" LastActivityDate="2015-02-25T22:54:19.920" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4542" PostTypeId="2" ParentId="4539" CreationDate="2015-02-26T01:16:38.323" Score="1" Body="&lt;p&gt;Whenever you choose something, you choose against something else. If there was nothing to be lost, the choice would be trivial.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words, there is only no scarcity to choosing when there is no real choice.&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-02-26T01:16:38.323" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4543" PostTypeId="1" AcceptedAnswerId="4544" CreationDate="2015-02-26T03:32:39.603" Score="1" ViewCount="168" Body="&lt;p&gt;Can someone help explain the passage &lt;a href=&quot;https://imgur.com/2kbPT2B&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;? I'm rusty with my linear algebra so the derivate of these transpose matrices isn't making any sense to me. A detailed explanation would be very much appreciated. What happens to the 1/2, and that whole second term in general?&lt;/p&gt;&#xA;" OwnerUserId="2874" LastEditorUserId="43" LastEditDate="2015-02-26T13:54:12.113" LastActivityDate="2015-02-26T13:54:12.113" Title="Derivative of CARA utility" Tags="&lt;asset-pricing&gt;&lt;optimization&gt;&lt;portfolio-theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4544" PostTypeId="2" ParentId="4543" CreationDate="2015-02-26T04:26:55.557" Score="5" Body="&lt;p&gt;All you need for this particular question is the following. Let $\mathbf{X}$ be a $T \times K$ matrix, $\mathbf{w}$ a K-dimensional vector and $\mathbf{y}$ a T-dimensional vector, then&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\begin{eqnarray*}&#xA;\frac{\partial \mathbf{w}^{\prime}\mathbf{X}^{\prime}\mathbf{y}}{\partial \mathbf{w}}&amp;amp;=&amp;amp;&#xA;\mathbf{X}^{\prime}\mathbf{y}\\&#xA;\frac{\partial \mathbf{w}^{\prime}\mathbf{X}^{\prime}\mathbf{X}\mathbf{w}}{\partial\mathbf{w}}&amp;amp;=&amp;amp;2\mathbf{X}^{\prime}\mathbf{X}\mathbf{w}&#xA;\end{eqnarray*}&#xA;$$&#xA;Back to your original post, we will first rewrite it in order to apply the rules provided. The first element in the expression we want to differentiate is the same as $\phi'(\mu-R_f\mathbf{1})$, hence&#xA;$$&#xA;\frac{\partial \phi'(\mu-R_f\mathbf{1})-1/2\alpha\phi'\Sigma\phi}{\partial \phi}=&#xA;(\mu-R_f\mathbf{1})-\alpha\Sigma\phi&#xA;$$&#xA;and equating to 0 you get the desired result.&lt;/p&gt;&#xA;" OwnerUserId="4035" LastEditorUserId="69" LastEditDate="2015-02-26T13:10:20.000" LastActivityDate="2015-02-26T13:10:20.000" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4546" PostTypeId="1" CreationDate="2015-02-26T11:18:20.637" Score="2" ViewCount="331" Body="&lt;p&gt;In standard macro model, it is usually time preference that causes positive interest rate. But is there anything to do with risk aversion of utility function that causes existence of positive interest rate?&lt;/p&gt;&#xA;" OwnerUserId="4063" LastActivityDate="2015-02-28T17:24:56.273" Title="Does risk aversion of utility function cause the existence of positive interest rate?" Tags="&lt;macroeconomics&gt;&lt;risk-aversion&gt;&lt;interest-rate&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="4547" PostTypeId="2" ParentId="4546" CreationDate="2015-02-26T14:46:34.533" Score="3" Body="&lt;p&gt;Yes and no; it depends on which interest rate you look at.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You are right in that risk aversion affects interest rates, but the direction can go both ways. In what follows I look at an economy with risky (stochastic) and non risky assets and risk averse agents. For the thought experiment, we increase the volatility of the risky asset, &quot;increasing its riskiness&quot;.&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Risky Asset&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;Despite having the same expected return, due to Jensen's inequality, the risky asset gives less utility to the agents. The risky asset will need to pay a &lt;strong&gt;higher interest&lt;/strong&gt;, a risk premium, to attract investors.&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Safe Asset&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;We have increased the aggregate risk of the economy by making the stochastic asset more volatile. Agent's added utility from insurance (through safe assets) has increased. Demand for safe assets at the old interest increases. Holding the supply of safe assets fixed, this means that the safe asset's interest rate will &lt;strong&gt;go down&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To understand this fully, you might want to write down a two period model with two different assets, one standard normal with standard deviation $\sigma$ and one deterministic. Examine how interest rates for both assets change if you increase $\sigma$.&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-02-26T14:46:34.533" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4549" PostTypeId="1" AcceptedAnswerId="4551" CreationDate="2015-02-26T16:21:40.370" Score="2" ViewCount="145" Body="&lt;p&gt;A few years ago, Peter Schiff and a few other Austrians (not all Austrians, as Mish was stating the opposite) were adamant about hyperinflation and Paul Krugman stated that it was like talking about fire problems during a flood, which made sense because of the credit crunch (the inverse problem).  However, Schiff kept pointing to Zimbabwe and the Weimar Republic as examples of hyperinflation and even now, we're seeing it in Ukraine.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As far as Ukraine and Zimbabwe are concerned, neither appeared to have much gold before their hyperinflation.  For instance, Ukraine has next to 0, if not 0 and Zimbabwe, from what I could find, had less than 5 metric tonnes.  When I was looking online to see if anyone knew how much gold they estimate the Weimar Republic had, I couldn't find a figure and was curious if anyone knew, or could find a historic estimate?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reason I ask this is because the United States owns the most gold in the world (and it's not a close competition), assuming we don't believe the people who think &lt;em&gt;it's not there&lt;/em&gt;, and thus it's hard to believe that, unless the U.S. begins to liquidate its position, that it would face hyperinflation like these other countries even without a currency backed by gold because people know that in a really bad situation, it could trash the dollar, create a new currency backed by its gold (note that I'm not saying this would happen, but the US is hardly a country comparable to Zimbabwe when you consider its gold holdings).&lt;/p&gt;&#xA;" OwnerUserId="2746" LastEditorUserId="2746" LastEditDate="2015-02-26T16:48:32.547" LastActivityDate="2015-02-27T20:01:57.047" Title="How Much Gold Did Weimar Have Pre-Hyperinflation?" Tags="&lt;currency&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4550" PostTypeId="1" CreationDate="2015-02-26T18:01:54.050" Score="2" ViewCount="40" Body="&lt;p&gt;I'm working with some experimental data on choice under uncertainty and trying to use a method similar to RISK AVERSION IN THE LABORATORY (&lt;a href=&quot;http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.469.509&amp;amp;rep=rep1&amp;amp;type=pdf&quot; rel=&quot;nofollow&quot;&gt;Harrison and Rutstrom, 2008&lt;/a&gt;).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am pretty sure that one of the explanatory variables used to estimate the  $\mu$ and CRRA parameter is an upper bound.  Does anyone have a good link to some literature on these kinds of latent variable models with errors in variables with a known distribution, e.g., gamma?&lt;/p&gt;&#xA;" OwnerUserId="4067" LastEditorUserId="43" LastEditDate="2015-02-26T18:14:27.770" LastActivityDate="2015-02-26T18:14:27.770" Title="Latent Variable Models such as Harrison and Rutstrom (2008)" Tags="&lt;econometrics&gt;&lt;reference-request&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4551" PostTypeId="2" ParentId="4549" CreationDate="2015-02-26T18:42:26.983" Score="3" Body="&lt;p&gt;To address the first part of your question:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;By July 10, Germany's free gold reserve had fallen to the equivalent of £35 million pounds, and all the Bank was doing had produced precisely the effect it was hoped to avoid. Another loss of 50 million gold marks was suffered during the week which ended on July 14 — the direct result of supporting the paper mark by rationing supplies of foreign currencies and having to cover indispensable imports from the gold reserve. If intervention continued at the then level of 10 million gold marks daily, bankruptcy would come within 60 days: the reserves had already taken as much as they could stand. If intervention ceased, on the other hand, it was broadly expected that the dollar would go to a million marks, the pound to over 4 million — and by the end of July that expectation was fulfilled. Merchants were still said to be borrowing paper marks to the value of 80 per cent of their stock, and exchanging them at the Bank for dollar Treasury bills needed ostensibly for imports. These bills were sent abroad to the merchants' buying agencies, and in most cases stayed there with no countervalue returning to Germany.&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;-&lt;a href=&quot;http://www.nowandfutures.com/us_weimar.html&quot; rel=&quot;nofollow&quot;&gt;A World of Possible Futures: German Weimar Republic in the early 1920s and the U.S. - Troubling similarities&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The source itself appears to be of questionable value, but makes vague reference to:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0415313929&quot; rel=&quot;nofollow&quot;&gt;&quot;The Economics of Inflation (Routledge Library Editions-Economics, 84)&quot; by Constantino Bresciani-Turroni (427 pages, Routledge, reprint edition, October 1, 2003, first published 1937&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Judging from &lt;a href=&quot;http://www.nma.org/pdf/gold/his_gold_prices.pdf&quot; rel=&quot;nofollow&quot;&gt;historical gold prices&lt;/a&gt; and &lt;a href=&quot;http://answers.google.com/answers/threadview/id/310722.html&quot; rel=&quot;nofollow&quot;&gt;exchange rates&lt;/a&gt;, we could estimate:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ 35M x 4.58 /  21.32 = 7.5M$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, 7.5 million troy ounces or 233 Metric Tonnes according to Google. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To address your second point, it seems to be exactly what the Weimar Republic tried.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would not imagine the US would be keen to repeat something like that, though it seems far outside the scope of this SE to speculate on that.&lt;/p&gt;&#xA;" OwnerUserId="31" LastActivityDate="2015-02-26T18:42:26.983" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4553" PostTypeId="2" ParentId="4549" CreationDate="2015-02-26T20:39:29.957" Score="2" Body="&lt;p&gt;It´s an historical side note at this point, but it´s not entirely clear that the Weimar authorities fully understood what they were kicking off.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first public acknowledgement of the multiplier problem in the banking system - that is the way changes to reserve holdings could multiply the amount of money in deposit accounts - appears to be the 1931 MacMillan Report to the British Parliament. By contrast, von Mises book on capital in 1911 talks around various banking practices, including variations in cash money due to seasonal demands, but does not explicitly talk about the reserve issue.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So it´s entirely possible that when they tried to duck out of the Versailles Treaty requirements (which were impossible to meet in any case) by printing money, they didn´t envision a full on destruction of their monetary system.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It´s not as appreciated as it should be, the fundamental problem with the government printing money under reserve regulated systems, isn´t the money the government prints. It´s the second-order response of the banking system as it then creates a multiplier of the printed money as a result of its regulatory framework. F.ex. the government thinks its just doubling the money supply, resulting in an acceptable degree of mild inflation, but what happens is that the banking system multiplies that by 5x (reserve requirements back then were usually between 20-25%), and that then kicks off more government printing and a hyper-inflationary spiral, as the government is then forced to print more money to pay their civil servants.&lt;/p&gt;&#xA;" OwnerUserId="84" LastEditorUserId="84" LastEditDate="2015-02-27T20:01:57.047" LastActivityDate="2015-02-27T20:01:57.047" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4554" PostTypeId="2" ParentId="4540" CreationDate="2015-02-26T21:32:28.380" Score="2" Body="&lt;p&gt;I assume 5% is the interest rate. If we knew stock price in each state, formula for call option price in binomial model should be&#xA;$$&#xA;C_0 = \left(S_0 - \frac{S_d}{1+r}\right) \frac{S_u-K}{S_u-S_d} &#xA;$$&#xA;Now just invert the formula to get $S_u$, given values of $C_0, S_0, S_d, K, r$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where did we get that formula for call option price in the first place? That's pretty important, so I'd recommend you to look into your notes more closely. In short, you want to form a portfolio of stocks and bonds that replicates the option payoff in the next period, i.e. find $a, b$ such that&#xA;$$&#xA;\begin{split}&#xA;a S_u + (1+r)b &amp;amp;= S_u - K \\&#xA;a S_d + (1+r)b &amp;amp;= 0&#xA;\end{split}&#xA;$$&#xA;(here, $a$ stands for how many stocks you buy, $b$ for how much you save into bonds)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you solve this system, then the price of the option in current period must be just the value of this portfolio, $C_0 = a S_0 + b$ (otherwise one could make easy profits from the mispricing), and doing the algebra should yield the formula at the beginning.&lt;/p&gt;&#xA;" OwnerUserId="1432" LastActivityDate="2015-02-26T21:32:28.380" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4555" PostTypeId="2" ParentId="4529" CreationDate="2015-02-26T21:47:57.533" Score="3" Body="&lt;p&gt;First, you are in fact given $p$. You can think of return as a security that costs 1 in current period and pays off $R$ in the next period. The price vector and the payoff matrix are thus&#xA;$$&#xA;p = \begin{bmatrix} 1 \\ 1 \end{bmatrix}, \  X = \begin{bmatrix} 1.1 &amp;amp; 1.0 &amp;amp; 0.9 \\ 1.0 &amp;amp; 1.0 &amp;amp; 1.0 \end{bmatrix}&#xA;$$ &#xA;and we need to find positive vector $q$ of state prices such that $p = Xq$. Because the system is undetermined, there can be many such vectors, but as long as some of them are positive, we can be sure there's no arbitrage. To actually do the computation, one way would be to treat $q_3$ as a parameter, solve for $q_1, q_2$ as functions of $q_3$, then try to find $q_3 &amp;gt; 0$ such that implied values of $q_1,q_2$ are positive. But in this case it's easy to see that $q = (\frac{1}{3}, \frac{1}{3}, \frac{1}{3})$ does the job.&lt;/p&gt;&#xA;" OwnerUserId="1432" LastActivityDate="2015-02-26T21:47:57.533" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4556" PostTypeId="1" CreationDate="2015-02-26T22:14:43.977" Score="3" ViewCount="449" Body="&lt;p&gt;Most people in the media talk about how the total debt level of a nation relative to its GDP is a measure of how &quot;screwed&quot; the country is. For example, see this: &lt;a href=&quot;http://www.zerohedge.com/news/goldmans-sigma-x-hints-who-next-contagion-target&quot; rel=&quot;nofollow&quot;&gt;http://www.zerohedge.com/news/goldmans-sigma-x-hints-who-next-contagion-target&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems to imply that UK is in bad shape but nobody seems to pay attention to it?&#xA;Japan also not looking good.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, look at the Net International Investment Position (NIIP) of these countries:&#xA;UK: about 0% of GDP (equal amount of debt and assets)&#xA;Japan: &gt;50% of GDP (Japan holds more assets than debt)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;A country's external debt includes both its government debt and private debt, and similarly its public and privately held (by its legal residents) external assets are also taken into account when calculating its NIIP&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If Japan needed to pay back its debt, couldn't it just sell some of the assets it holds and repay that way? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there something I'm missing here? Which is the right way to look at things?&lt;/p&gt;&#xA;" OwnerUserId="4070" LastActivityDate="2015-02-27T15:44:23.967" Title="Why does nation's total debt matter and not NIIP?" Tags="&lt;macroeconomics&gt;&lt;debt&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4557" PostTypeId="2" ParentId="4485" CreationDate="2015-02-26T22:49:40.523" Score="0" Body="&lt;p&gt;In general, you can distinguish theory for a given market with off-equilibrium and on-equilibrium theory. &lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Off-Equilibrium Theory&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;Off-Equilibrium theory basically means that the market is not cleared using prices, supply does not equal demand. This type of theory needs to give a good story why this is the case.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One very typical example is old Keynesian theory: due to stickiness of both wages and prices, in particular the labor market is not cleared: supply dominates demand. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The story for non clearing wages is a mixture of long-term wage contracts, efficiency wages, observed downward rigidity of wages and similar.&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;On-Equilibrium Theory&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;Asset markets however are typically assumed to be in equilibrium. The reason being that there exists a huge machinery (the whole financial system) that immediately (and mostly automatically) buys and sells assets when it predicts future changes in supply or demand. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;We just don't think that asset prices are fixed at off-equilibrium values. What could possibly cause them to?&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-02-26T22:49:40.523" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4558" PostTypeId="2" ParentId="3210" CreationDate="2015-02-26T23:35:29.643" Score="3" Body="&lt;p&gt;This is the very standard question on Instrumental Variables of Single-Equation Linear models. Given the primitives of your question, the only endogenous variable is &lt;em&gt;exercise&lt;/em&gt;. In order to answer this particular question, you need an exogeous variable, &lt;strong&gt;z&lt;/strong&gt;, that satisfies two conditions:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;cov(z,u)=0. &lt;/li&gt;&#xA;&lt;li&gt;There must be a relationship between the endogenous variable and this exogenous variable you are proposing but that it wasn't part of the true postulated model (the structural model). In other words,&#xA;$$&#xA;exercise=\beta_0+\beta_1 age +\beta_2 weight + \beta_3 height + \beta_4 male + \beta_5 work + \phi z + \varepsilon_{exercise}&#xA;$$&#xA;with $\phi\ne 0$, $\mathbb{E}\,( \varepsilon_{exercise})=0$ and orthogonal to all your explanatory variables (other than exercise) &lt;strong&gt;and&lt;/strong&gt; to z. &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Before moving on, a remark. By &lt;strong&gt;structural model&lt;/strong&gt; I mean, following Wooldridge and Goldberger convention, the postulated model. That is, the model that states the causal relationship between &lt;em&gt;health&lt;/em&gt; and your covariates. This is a key difference and a disagreement with previous answers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, back at the problem at hand, condition 2 is what in the simultaneous-equations literature call &lt;strong&gt;the reduced form equation&lt;/strong&gt;, which is nothing but a linear projection of the endogenous onto all exogenous variables, including z. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, plug the reduced form into your postulated model and you'll get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;health=\alpha_0 + \alpha_1 age + \alpha_2 weight + \alpha_3 height + \alpha_4 male + \alpha_5 work + \delta z  + \nu &#xA;$$&#xA;where $\alpha_i = b_i + b_6\beta_i,\: \forall i \in \{1,\dots,5\}$, $\delta=b_6\phi$ and $\nu = u+b_6\varepsilon_{exercise}$. By the definition of linear projection, $\nu$ is uncorrelated with all explanatory variables and thus OLS of this last equation will produce consistent estimates for $\alpha_i$ and $\delta$, not the underlying $b_i$ in the true model.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Identification requires a bit of manipulation in matrix form but essentially it reduces to the so-called &lt;strong&gt;rank condition&lt;/strong&gt;. Define $\mathbf{b}=(b_0,\dots,b_6)'$ and $\mathbf{x}=(1, age, \dots, exercise)'$ so that your structural model is $health=\mathbf{x}'\mathbf{b}+u$. Now define $\mathbf{z}\equiv(1,age,\dots,work,z)'$. By condition 1 (cov(z,u)=0 so that E(z,u)=0),&#xA;$$&#xA;\mathbb{E}(\mathbf{z}u)=0&#xA;$$&#xA;If you multiply bot sides of the structural model by $\mathbf{z}$ and take expectations you have&#xA;$$&#xA;\mathbb{E}(\mathbf{z}\mathbf{x}')\mathbf{b}=\mathbb{E}(\mathbf{z}y)&#xA;$$&#xA;Rank condition states that $\mathbb{E}(\mathbf{z}\mathbf{x}')$ is full column rank. In this particular example and given conditions on z this is equivalent to $rank(\mathbb{E}(\mathbf{z}\mathbf{x}')=6$. Therefore we have 6 equations in 6 unknowns. Hence there exists a unique solution for the system i.e. $\mathbf{b}$ is identified and equals to $[\mathbb{E}(\mathbf{z}\mathbf{x}')]^{-1}\mathbb{E}(\mathbf{z}y)$, as desired.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Remarks: Condition 1 is useful to get the moment condition but the reduced form model with $\phi$ is crucial for the rank condition. Both conditions are usual.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At this point it should be clear why do we need this. In the one hand, without z OLS estimator of the true model will produce inconsisten estimators not only for $b_6$ but for all $b_i$. In the other hand (and somewhat related), our parameters are uniquely identifies so we are certain that we are estimating the true causal relationship as stated in our true model.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In regard to testing, condition 2 (z and &lt;em&gt;exercise&lt;/em&gt; are partially correlated) can be tested directly and you should always report that step contrary to the comment in a previous answer. There is a huge literature in relation to this step, specially the weak-instrument literature.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Second condition cannot be directly tested nonetheless. Sometimes you might invoke economic theory to justify or provide alternative hypotheses thats support the use of z.&lt;/p&gt;&#xA;" OwnerUserId="4035" LastEditorUserId="4035" LastEditDate="2015-02-27T17:58:32.433" LastActivityDate="2015-02-27T17:58:32.433" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4559" PostTypeId="1" AcceptedAnswerId="4566" CreationDate="2015-02-26T23:41:21.807" Score="0" ViewCount="54" Body="&lt;p&gt;For example, 100 dollars is going to be worth less in 30 years, how much less depends on the inflation rate. if we assume a constant annual inflation rate of 3%, should I compound the inflation rate daily or monthly or yearly?&#xA;I'm debating mostly between daily and monthly, since the data of inflation rate is collected on monthly  basis. But isn't it happening in real life on a daily basis??&#xA;Can someone help me to answer this question and please provide some explanation is possible&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you!  &lt;/p&gt;&#xA;" OwnerUserId="2702" LastActivityDate="2015-02-27T16:04:21.713" Title="At forecasting, should I calculate inflation rate daily, monthly or annualy?" Tags="&lt;finance&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4560" PostTypeId="2" ParentId="4525" CreationDate="2015-02-27T00:55:15.260" Score="4" Body="&lt;p&gt;I would suggest to look also into &lt;strong&gt;Alan Agresti's &quot;Categorical Data Analysis&quot;.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://eu.wiley.com/WileyCDA/WileyTitle/productCd-0470463635.html#see-less-toc&quot; rel=&quot;nofollow&quot;&gt;Here&lt;/a&gt;, you can see detailed Contents, and get a sense of the level of the book. Here, &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0470463635&quot; rel=&quot;nofollow&quot;&gt;a user review&lt;/a&gt; discussing the differences between 2nd and 3d edition. &lt;a href=&quot;http://www.planta.cn/forum/files_planta/categorical_data_analysis_202.pdf&quot; rel=&quot;nofollow&quot;&gt;Here&lt;/a&gt;, you can check out the 2003 2nd edition.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The book is not focused on econometric applications, and &lt;em&gt;this is exactly why I am suggesting it&lt;/em&gt;. It will give you the more general point of view on the matter, which sometimes brings fresh ideas in.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My experience is with the 2nd edition. The book does not target other scholars but students and practitioners. &#xA;From the extras, I particularly like ch. 16 &quot;Historical Tour of Categorical&#xA;Data Analysis&quot;, since it always benefits my understanding of the material to have a sense of how a scientific field evolved.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-02-27T03:52:17.907" LastActivityDate="2015-02-27T03:52:17.907" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="4561" PostTypeId="2" ParentId="4517" CreationDate="2015-02-27T01:50:06.690" Score="3" Body="&lt;p&gt;Interestingly I could not locate quantitative data on Firing Costs (aka Separation Costs aka Severance Pay) for the US Economy. Perhaps because, as &lt;a href=&quot;http://www.dol.gov/dol/topic/wages/severancepay.htm&quot; rel=&quot;nofollow&quot;&gt;US Dpt of Labor&lt;/a&gt; says&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;There is no requirement in the Fair Labor Standards Act (FLSA) for&#xA;  severance pay. Severance pay is a matter of agreement between an employer and an employee (or the employee's representative).&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;A  &lt;a href=&quot;http://chartsbin.com/view/3749&quot; rel=&quot;nofollow&quot;&gt;world map&lt;/a&gt;  and &lt;a href=&quot;http://www.nationmaster.com/country-info/stats/Labor/Firing-cost/Weeks-of-wages#country&quot; rel=&quot;nofollow&quot;&gt;another one&lt;/a&gt; for separation costs measured in weeks of wages -but none of the two include data on US Economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.ilo.org/ilostat/faces/help_home/data_by_country/country-details?country=USA&amp;amp;_afrLoop=925896074796144#%40%3F_afrLoop%3D925896074796144%26country%3DUSA%26_adf.ctrl-state%3Djs37ics7s_318&quot; rel=&quot;nofollow&quot;&gt;ILO's&lt;/a&gt; new data base does not seem to have quantitative data on Firing Costs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.iza.org/en/webcontent/publications/papers/viewAbstract?dp_id=134&quot; rel=&quot;nofollow&quot;&gt;&lt;strong&gt;Kugler, A. D., &amp;amp; Saint Paul, G. (2000). Hiring and firing costs, adverse selection and long-term unemployment.&lt;/strong&gt;&lt;/a&gt; deal with  some US data but qualitatively and indirectly.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/S0927537103000174&quot; rel=&quot;nofollow&quot;&gt;Abowd, J. M., &amp;amp; Kramarz, F. (2003). The costs of hiring and separations. Labour Economics, 10(5), 499-530.&lt;/strong&gt;&lt;/a&gt; Data from the economy of France, related to year 1992. Extensive treatment of various costs associated with labor, including costs of separation treated distinctly. &lt;strong&gt;&lt;em&gt;Note:&lt;/em&gt;&lt;/strong&gt; monetary values are in French Francs. Conversion Rate: 1 FFr = 0.152449 EUR.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-02-27T01:50:06.690" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4562" PostTypeId="2" ParentId="4559" CreationDate="2015-02-27T01:55:08.123" Score="1" Body="&lt;p&gt;If you are estimating annual inflation figures, it makes sense to compound them annually.&lt;/p&gt;&#xA;" OwnerUserId="40" LastActivityDate="2015-02-27T01:55:08.123" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4563" PostTypeId="2" ParentId="4471" CreationDate="2015-02-27T02:26:15.633" Score="3" Body="&lt;p&gt;We have first to be clear about what meaning do we give to the word &quot;default&quot;. The other answer gave it a temporary meaning (&quot;missing a payment deadline&quot;). In such a case, any &lt;em&gt;direct&lt;/em&gt; economic effect is bound to be small (expecially if the delay is short). But there may be &lt;em&gt;indirect&lt;/em&gt; economic consequences through the effect on economic expectations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now let's give to the word &quot;&lt;strong&gt;default&lt;/strong&gt;&quot; a heavy meaning: &quot;&lt;strong&gt;non-payment ever of principal and interest&lt;/strong&gt;&quot;, then there will be various direct and indirect effects:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The debt market loses Supply, reducing loan opportunities for other debtors. Creditors become more conservative and stringent towards prospective debtors, in view of the loss... in general the debt market suffers -and with it any beneficial economic activity that may need debt financing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Creditors lose current income (the interest), and also become less wealthy. So their financial health worsens which affects directly their level of current engagement in economic activity, and also, their plunging into new economic activity, and so, the future. If the end-creditors are  states, then their Government Budget suffers which may indeed lead also to higher taxation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider now the following &quot;economic fantasy&quot; twist: Assume that a debtor state announces: &lt;strong&gt;&quot;We cannot say when we will be able to start repaying the principal amount of the debt, but we will duly and fully pay the interest accrued in the meantime&quot;.&lt;/strong&gt;... Is there a &quot;bill to be footed&quot; here? It would be very interesting to see what the consequences of such a situation would be. Unfortunately, in Social Sciences, there are all shorts of very interesting experiments that we cannot really execute, so we can only theorize about them, and hope for a &quot;natural experiment&quot; to emerge...&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-02-27T02:26:15.633" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="4564" PostTypeId="2" ParentId="3344" CreationDate="2015-02-27T03:02:54.117" Score="3" Body="&lt;p&gt;&quot;Income tax&quot; for corporations means &quot;profit tax&quot;. The 1.500 euros is never called &quot;income&quot; but &quot;Revenue&quot;, or &quot;Net Revenue&quot;, or &quot;Net Sales turnover&quot; or something similar. But &lt;em&gt;never&lt;/em&gt; &quot;income&quot; -&quot;income&quot; is equivalent to &quot;profit&quot;, for companies or professionals. &lt;strong&gt;(*)&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;Profits&quot; are calculated as &quot;Net Revenues minus tax-deductible expenses&quot;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;Net Revenues&quot; means revenues without taking into account any Sales tax (like the V.A.T is).  This is what the &quot;net&quot; signifies here.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the tax rate will be applied to the 500 euros in your example.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;--&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;(*)&lt;/strong&gt; When a professional says &quot;my income is 20.000 EUR&quot; he means &quot;revenues minus professional expenses&quot;. When filing a tax-return, he will be taxed on the 20.000 EUR, minus any &quot;living-expenses&quot; tax deductions provisioned for natural persons (like maybe health care etc). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;When a person that only works as an employee states &quot;my income is 20.000 EUR&quot;, then he has not deducted any expenses from his wages, because it is considered that this person has no &lt;em&gt;professional&lt;/em&gt; expenses, only &quot;living&quot; expenses.  &lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-02-27T03:02:54.117" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="4565" PostTypeId="2" ParentId="4546" CreationDate="2015-02-27T11:25:37.107" Score="1" Body="&lt;p&gt;Another way to look at it is this. The utility function of the representative agent affects the SDF, but we have some conditions that the resulting SDF must satisfy in typical economies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A stochastic discount factor (SDF) exists if and only if there is no arbitrage. (It is unique when markets are complete.) A key point is that a SDF must is a strictly positive process. Recall the definition of a SDF.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A stochastic discount factor is an adapted stochastic process &#xA;$\pi$ where $\pi_0 = 1$; $\pi_t &amp;gt; 0$ for all $t$; for each time $t$, $\pi_t$ has finite variance; for any basic asset&#xA;$$&#xA;P_{it} = E_t \left [ \sum_{s=t+1}^T D_{is} \frac{\pi_s}{\pi_t} \right ],&#xA;$$&#xA;for all $t \in \mathcal T$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, this gives us the relationship $1 = E_t\left [ \frac{\pi_{t+1}}{\pi_t} R_{t+1} \right ]$. Then, the risk-free rate is just&#xA;\begin{align}&#xA;E_t\left [ \frac{\pi_{t+1}}{\pi_t} R_{t}^f \right ] = 1\\&#xA;R_t^f  = \frac{1}{E_t\left [ \pi_{t+1}/\pi_t \right ]}.&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, in some ways, we can just say that the positivity of the risk-free rate is just due to the assumption of no arbitrage. &lt;/p&gt;&#xA;" OwnerUserId="59" LastEditorUserId="59" LastEditDate="2015-02-28T17:24:56.273" LastActivityDate="2015-02-28T17:24:56.273" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4566" PostTypeId="2" ParentId="4559" CreationDate="2015-02-27T13:14:04.000" Score="2" Body="&lt;p&gt;Inflation is the percent change in a price index per unit time. You should compound at the same frequency as the units in the inflation measure. Many reported measures of inflation are year over year measures, which means that even though they may be reported monthly or quarterly they overlap substantially between observations. You want to be sure to handle this properly by choosing non-overlapping intervals.&lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-02-27T16:04:21.713" LastActivityDate="2015-02-27T16:04:21.713" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4567" PostTypeId="2" ParentId="4471" CreationDate="2015-02-27T13:28:49.223" Score="21" Body="&lt;p&gt;Who would pay depends on the terms of the default. Sometimes holders of similar debts are not treated equally, and this can play out in different ways. Greeks could default on external debts but continue to pay internal creditors. Or because the ESM and other entities are providing ongoing financing, perhaps they will continue to be repaid when others are not to keep those spigots open. Or, less extremely, they could vary the degree of forbearance, term changes, and extent of default. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I found the following two charts from 2013 and 2014 helpful for understanding who are the current holders of Greek public debt and how that compares with other rich countries.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/SEpMQ.jpg&quot; alt=&quot;Pie chart Greek debt Q3 2014&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/haPIt.png&quot; alt=&quot;who owns national debt&quot;&gt;&#xA;Source: &lt;a href=&quot;https://twitter.com/StarlingCityF/media&quot; rel=&quot;noreferrer&quot;&gt;STARLING CITY&lt;/a&gt;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Update:&#xA;I couldn't find a time series of the holders of Greek debt but here are some additional charts to see the evolution. The first one is more comparable to the pie chart above than the second one which shows only bank holdings. If this is of interest, the &lt;a href=&quot;http://www.bis.org/statistics/consstats.htm&quot; rel=&quot;noreferrer&quot;&gt;BIS's consolidated banking statistics&lt;/a&gt; could be used to create a time series of the bank holdings of Greek debt&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/Cgxw5.jpg&quot; alt=&quot;Pie chart Greek debt Q4 2012&quot;&gt;&#xA;&lt;img src=&quot;https://i.stack.imgur.com/nUI8y.gif&quot; alt=&quot;Pie chart Greek debt sometime in 2010&quot;&gt;&lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-06-30T00:14:48.953" LastActivityDate="2015-06-30T00:14:48.953" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="4568" PostTypeId="2" ParentId="4501" CreationDate="2015-02-27T13:40:12.120" Score="4" Body="&lt;p&gt;You might want to check out &lt;a href=&quot;http://en.wikipedia.org/wiki/Fermi_problem&quot; rel=&quot;nofollow&quot;&gt;Fermi estimation&lt;/a&gt;. XKCD did a very accessible example of &lt;a href=&quot;https://what-if.xkcd.com/84/&quot; rel=&quot;nofollow&quot;&gt;Fermi estimation being used to estimate paint production&lt;/a&gt;. This method can be quite good at providing estimates within an order of magnitude of the correct answer. &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2015-02-27T13:40:12.120" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4569" PostTypeId="2" ParentId="4556" CreationDate="2015-02-27T15:44:23.967" Score="2" Body="&lt;p&gt;NIIP includes (and in fact is predominantly) personal assets.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The government of Japan could not sell the assets of its citizens to satisfy its sovereign debt. &lt;/p&gt;&#xA;" OwnerUserId="31" LastActivityDate="2015-02-27T15:44:23.967" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4570" PostTypeId="1" CreationDate="2015-02-27T17:20:34.803" Score="1" ViewCount="33" Body="&lt;p&gt;Is there some summary article on using variation in US bequest taxation as natural experiments? Has there been variation over time or over different states? Is there perhaps a paper that already has used this?&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-02-27T21:06:28.250" Title="US Bequest Taxation" Tags="&lt;econometrics&gt;&lt;data-request&gt;&lt;reference-request&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4571" PostTypeId="1" CreationDate="2015-02-27T17:46:21.847" Score="9" ViewCount="498" Body="&lt;p&gt;How exactly does Piketty et al's method (as in his book) for computing the interest rate over time and countries work?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know that they use reported tax returns, and that some criticize them for also using increase in housing values even if households didn't benefit from that through selling them (only an increase in book value).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So how does their method work in detail: Infer capital stock $k_t$ at $t$ through capital tax reports in $t$, look at interest accrued in $t+1$ through capital tax reports $Rk_{t+1}$, and then compute $r$ as $Rk_{t+1}/k_t$?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And what are potential advantages and disadvantages of this methodology compared to the traditional way? &lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2015-03-04T22:58:59.577" LastActivityDate="2015-05-03T02:21:07.913" Title="Piketty's Return on Capital" Tags="&lt;macroeconomics&gt;&lt;academic-graduate&gt;&lt;inequality&gt;&lt;capital-returns&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4572" PostTypeId="2" ParentId="4438" CreationDate="2015-02-27T20:16:29.210" Score="6" Body="&lt;p&gt;The combination of the two policies could work and would have some advantages over either alone, and for a given reduction in emissions the overall cost burden on industry and consumers would &lt;em&gt;not&lt;/em&gt; be doubled.  However, the cap on emissions would weaken the effect of gradual escalation of the tax rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The model represented in the following diagram is a simplification in several respects (which will be considered below) but is a helpful starting-point.  It assumes a single homogeneous fossil fuel, with emissions depending solely on the quantity of fossil fuel consumed.  Hence the horizontal axis represents quantity of fossil fuel &lt;em&gt;and&lt;/em&gt; quantity of emissions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/0GFKD.png&quot; alt=&quot;Emissions Reduction Model&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Supply is shown as highly elastic (nearly horizontal) because the UK buys large amounts of its fossil fuels, especially coal, on competitive international markets.  In the absence of policy intervention, equilibrium is at point A with consumption and production (assuming no change in stocks) at $Q_A$, which also represents emissions.  Note however that while consumption and emissions relate to the UK, production includes amounts produced elsewhere and imported to the UK.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The effect of the carbon tax is to raise the supply curve vertically by the amount of the tax. In the absence of other measures, the new equilibrium is at B.  Production, consumption and emissions fall to $Q_B$.  The cost burden of the tax is mainly shared between users of fossil fuels and consumers of goods produced using fossil fuels, the shares depending on elasticities in particular markets. A share of the burden would also take the form of a fall in the price received by fossil fuel producers, but this would be small given the elastic supply curve.  The tax revenue could be used by the government in various ways with various distributional effects.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The effect of adding cap-and-trade, assuming an effectively enforced cap at $Q_C$ below $Q_B$, is to limit consumption, production and emissions to $Q_C$.  Thus the part of the demand curve to the right of $Q_C$ becomes redundant.  Equilibrium is brought about via the market for emissions permits, which will determine a permit price such that supply (post-tax) and constrained demand are in equilibrium at C.  Distributional effects depend heavily on the mechanism for the initial allocation of permits.   The ‘corporate welfare’ point in BKay’s answer relates most clearly to the case of free allocation.  This can be avoided if allocation is by auction, with the revenue accruing to the government with, again, distributional consequences depending on how it is used.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Within this model we can infer the following:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;The tax and the cap both reduce production of fossil fuel and emissions.  It is not a case of separate policies to achieve separate objectives.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The cap provides certainty that emissions will not exceed a pre-determined level (whereas a carbon tax alone cannot give this certainty because its effect depends on the position of the demand curve which cannot be known with certainty).  The tax provides certainty that there will be &lt;em&gt;some&lt;/em&gt; reduction in emissions, as compared with their level in the absence of policy (whereas cap-and-trade alone cannot give certainty in this respect because of the risk that poor forecasting or industry lobbying will result in the cap being set at too high a level, ie above $Q_A$).  In this respect the combination of policies overcomes limitations of either policy alone.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;If a firm has to buy its permits at the market price, as well as bear a share of the burden of the tax, it might be perceived that it is subject to double taxation.  However, the effects of the tax and the permit price are additive, so that the total cost to the firm, for a given reduction in emissions, is no more than the cost under either policy alone.&lt;/li&gt;&#xA;&lt;li&gt;With a fixed cap in place, gradual escalation of the tax rate will not normally produce further reductions in production or emissions.  It will move $Q_B$ gradually towards $Q_C$, increasing the share of emissions reduction due to the tax and reducing the share due to cap-and-trade, but will not shift $Q_C$.  Only if the tax rate were so high, or the cap so lenient, that $Q_B$ were below $Q_C$ (in which case the cap would have no effect) would escalation reduce production and emissions.  To achieve further progressive reductions in emissions within this policy framework, it would be essential gradually to reduce the cap.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Let’s now consider some ways in which the above conclusions need to be modified because of departures from the model’s assumptions.  Firstly, cap-and trade, because it depends on measurement of actual emissions, is for practical reasons normally limited to large users or specific industrial sectors, certainly excluding household use. By contrast, a carbon tax levied at point of entry on the carbon content of the fuel is a simple and effective way of bringing &lt;em&gt;all&lt;/em&gt; consumption of fossil fuels within the scope of policy.   In practice, therefore, users within the scope of cap-and-trade would be at (their individual equivalent of) $Q_C$, while those outside its scope would be at $Q_B$.  This difference in coverage could result in emissions reduction not being achieved in the most efficient way, eg by creating a greater incentive for expensive measures by large firms than for simple measures in the home.  In this respect the combined policy would be inferior to a carbon tax alone, but superior to cap-and-trade alone.  A further consequence is that escalation of the tax will always reduce emissions by users outside the scope of cap-and-trade.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Secondly, fossil fuels are not homogeneous.  For example, emissions can be reduced by switching from coal to natural gas in electricity generation.  The combined policy (like either policy alone) would not only reduce production of fossils fuels but also encourage this type of switching.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thirdly, the assumption that emissions depend solely on consumption of fossil fuel, though currently fairly accurate, may become less so in future.  Currently the main ways in which carbon emissions can be reduced are improved fuel-efficiency, switching to alternative energy sources, and energy-saving measures such as improved insulation.  However, the implementation of carbon capture and storage (see &lt;a href=&quot;http://saskpowerccs.com/ccs-projects/boundary-dam-carbon-capture-project/&quot; rel=&quot;noreferrer&quot;&gt;here&lt;/a&gt;) may be beginning to weaken the link between consumption and emissions. It is desirable therefore that policy should include an element based on actual measured emissions.  In this respect either the combined policy or cap-and-trade alone are superior to a carbon tax based solely on carbon content.&lt;/p&gt;&#xA;" OwnerUserId="1417" LastActivityDate="2015-02-27T20:16:29.210" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="4573" PostTypeId="2" ParentId="4570" CreationDate="2015-02-27T21:06:28.250" Score="1" Body="&lt;p&gt;Australia&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In 1979, Australia abolished federal inheritance taxes. Using daily&#xA;  deaths data, we show that approximately 50 deaths were shifted from&#xA;  the week before the abolition to the week after. This amounts to over&#xA;  half of those who would have been eligible to pay the tax. Although we&#xA;  cannot rule out the possibility that our results are driven by&#xA;  misreporting, our results imply that over the very short run, the&#xA;  death rate may be highly elastic with respect to the inheritance tax&#xA;  rate.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://andrewleigh.org/pdf/DeathAndTaxes_BEP.pdf&quot; rel=&quot;nofollow&quot;&gt;Did the Death of Australian Inheritance Taxes Affect Deaths?&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sweden&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Does taxation affect the timing of death? This is an interesting&#xA;  example of how behavior might be affected by economic incentives. We&#xA;  study how two changes in Swedish inheritance taxation 2004–2005 have&#xA;  affected daily all-cause mortality. Our main result is that mortality&#xA;  decreased by 17% the day before the expected tax repeals began.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/S0165176508000566&quot; rel=&quot;nofollow&quot;&gt;Living to save taxes&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;USA&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;This paper examines data from U.S. federal tax returns to shed light&#xA;  on whether the timing of death is responsive to its tax consequences.&#xA;  We investigate the temporal pattern of deaths around the time of&#xA;  changes in the estate-tax system periods when living longer, or dying&#xA;  sooner, could significantly affect estate-tax liability. We find some&#xA;  evidence that there is a small death elasticity, although we cannot&#xA;  rule out that what we have uncovered is ex post doctoring of the&#xA;  reported date of death.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.mitpressjournals.org/doi/abs/10.1162/003465303765299783&quot; rel=&quot;nofollow&quot;&gt;Dying to Save Taxes: Evidence from Estate-Tax Returns on the Death Elasticity&lt;/a&gt; &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2015-02-27T21:06:28.250" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4574" PostTypeId="1" AcceptedAnswerId="4578" CreationDate="2015-02-27T23:32:51.877" Score="1" ViewCount="2817" Body="&lt;p&gt;Given a territory and a time range, the gross domestic product is the sum of all the values added. The term “value added” is open to interpretation. Since the value added of a product or service is its total value minus the value of the intermediate product and services used to produce it, it follows that in an identical scenario, the GDP will vary according to what is classified as final products. Yet in reports, a single number is quoted as if it was &lt;strong&gt;the&lt;/strong&gt; GDP.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For instance, a factory will need cleaning. Is the service of cleaning a factory considered a final product or intermediate consumption needed to produce whatever the factory produces?. What about the plant's paint, electricity, training of workers and so on?. People need to eat in order to work and produce, and more so the more they work (hence food may be classified as intermediate consumption), and need medical care to live (and hence produce) just like car factories need steel. I have seen these things sometimes taken to be final consumption. The consumption of decoration from a restaurant is a requirement (since people go to a restaurant in part, due to the &lt;em&gt;style&lt;/em&gt;) and by that reasoning, it is intermediate consumption, but a luxury in one's house (therefore final consumption). When doing the accounting at an high level (city, state or national), how do the accountants know what part of the paint consumed take as intermediate consumption and what part to take as final consumption?.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The boundary between intermediate and final consumption seems blurry. How, and where is the line drawn. Could you please cite a (preferentially publicly available) relevant document from an organization in charge of computing a GDP about the methodology regarding the intermediate-final consumption?.&lt;/p&gt;&#xA;" OwnerUserId="4077" LastEditorUserId="43" LastEditDate="2015-02-27T23:43:52.887" LastActivityDate="2015-02-28T23:46:44.713" Title="What is considered a &quot;final product&quot; for gross domestic product?" Tags="&lt;macroeconomics&gt;&lt;reference-request&gt;&lt;gdp&gt;&lt;economic-measurement&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4575" PostTypeId="1" CreationDate="2015-02-28T02:00:07.130" Score="0" ViewCount="521" Body="&lt;p&gt;Are there any nice examples of firms using attachment bias to increase profits? Examples from the academic literature or well-motivated anecdotes are both acceptable. For instance, pet stores seem to let you play with the animals and GM used to have 24 hour test drives for some of their cars. However, both of these examples are also consistent with a match quality that takes some time to learn, rather than mere attachment bias.&lt;/p&gt;&#xA;" OwnerUserId="159" LastActivityDate="2015-02-28T06:08:50.263" Title="Examples of firms using attachment bias" Tags="&lt;industrial-organisation&gt;&lt;behavioral-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4576" PostTypeId="2" ParentId="4575" CreationDate="2015-02-28T06:08:50.263" Score="2" Body="&lt;p&gt;The field of performance marketing makes ample use of attachment bias.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, skiers often purchase race-level ski boots and skis which are too stiff relative to their ability, so the product is actually detrimental to performance.&lt;br&gt;&#xA;In this case, self-attachment bias causes buyers to overestimate their own ability.&#xA;The ski manufacturers know this and market and price the stiffness of this equipment at a premium even though it is not objectively helpful for the vast majority of consumers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In pharmaceuticals, attachment bias to familiar medications like Tylenol cause consumers to pay premiums for this medicine even while knowing that the generics next to it on the shelves contain exactly the same active ingredients and are often made by the same manufacturers.  Here, attachment bias to a familiar product causes allows manufacturers to pay a premium, and the manufacturers tune marketing messages to amplify the attachment bias (&quot;Tylenol, what matters most&quot;, &quot;Advil, the original round tablet).&lt;/p&gt;&#xA;" OwnerUserId="2959" LastActivityDate="2015-02-28T06:08:50.263" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4577" PostTypeId="2" ParentId="1616" CreationDate="2015-02-28T15:17:21.630" Score="5" Body="&lt;p&gt;I've been meaning to post this for a long time. I came across this and thought it could add some insight. This example is from &amp;quot;Financial Asset Pricing Theory&amp;quot; by Munk.&lt;/p&gt;&#xA;&lt;p&gt;Consider the following figure. How many assets do we need to have a complete market?&#xA;&lt;img src=&quot;https://i.stack.imgur.com/xE3q3.png&quot; alt=&quot;enter image description here&quot; /&gt;&lt;/p&gt;&#xA;&lt;p&gt;You might think that, because there are 6 different states here, we need at least 6 different assets.&#xA;In a static setting, we know that when we have &lt;span class=&quot;math-container&quot;&gt;$N$&lt;/span&gt; different states, we must have &lt;span class=&quot;math-container&quot;&gt;$N$&lt;/span&gt; &amp;quot;sufficiently different assets&amp;quot; (in the usual static setting, this means linearly independent). However, in the dynamic setting, this is not the case. Munk explains this based on two different observations:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;(i) the uncertainty is not revealed completely at once, but little by little, and (ii) we can trade dynamically in the assets. In the example there are three possible transitions of the economy from time 0 to time 1. From our one-period analysis we know that three sufficiently different assets are enough to 'span' this uncertainty. From time 1 to time 2 there are either two, three, or one possible transitions of the economy, depending on which state the economy is in at time 1. At most, we need three sufficiently different assets to span the uncertainty over this period. In total, we can generate any dividend process if we just have access to three sufficiently different assets in both periods.&lt;/p&gt;&#xA;&lt;p&gt;In the case of a general multinomial tree version of a more general, finite-state discrete-time market, we can for each node in the tree define the &lt;em&gt;spanning number&lt;/em&gt; as the number of branches of the subtree leaving that node. The market is then complete if, for any node in the tree, the number of linearly independent traded assets over the following period is equal to the spanning number.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Now, in the case of a continuous-time model where the uncertainty is generated by a d-dimensional standard Brownian motion the argument is complicated, but Munk gives some insights based on the previous discussion.&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;The result is quite intuitive given the following observations:&lt;/p&gt;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;For contunuous changes over an instant, only means and variances matter.&lt;/li&gt;&#xA;&lt;li&gt;We can approximate the d-dimensional shock &lt;span class=&quot;math-container&quot;&gt;$dz_i$&lt;/span&gt; by a random variable that takes on &lt;span class=&quot;math-container&quot;&gt;$d+1$&lt;/span&gt; possible values and has the same mean and variance as &lt;span class=&quot;math-container&quot;&gt;$dz_t$&lt;/span&gt;. For example, a one-dimensional shock &lt;span class=&quot;math-container&quot;&gt;$dz_t$&lt;/span&gt; has mean zero and variance &lt;span class=&quot;math-container&quot;&gt;$dt$&lt;/span&gt;. This is also true for a random variable &lt;span class=&quot;math-container&quot;&gt;$\epsilon$&lt;/span&gt; which equals &lt;span class=&quot;math-container&quot;&gt;$\sqrt{dt}$&lt;/span&gt; with a probability of &lt;span class=&quot;math-container&quot;&gt;$1/2$&lt;/span&gt; and equals &lt;span class=&quot;math-container&quot;&gt;$-\sqrt{dt}$&lt;/span&gt; with probability &lt;span class=&quot;math-container&quot;&gt;$1/2$&lt;/span&gt;. ...&lt;/li&gt;&#xA;&lt;li&gt;With continuous trading, we can adjust our exposure to the exogenous shocks at every instant.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&lt;p&gt;Over each instant we can thus think of the model with uncertainty generated by a d-dimensional standard Brownian motion as a discrete-time model with &lt;span class=&quot;math-container&quot;&gt;$d+1$&lt;/span&gt; states. Therefore it only takes &lt;span class=&quot;math-container&quot;&gt;$d+1$&lt;/span&gt; sufficiently different assets to complete the market.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="59" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2015-02-28T15:17:21.630" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="4578" PostTypeId="2" ParentId="4574" CreationDate="2015-02-28T23:46:44.713" Score="4" Body="&lt;p&gt;Since you're asking a question about the value-added approach to calculating GDP, the answer that follows talks about the value-added approach. It's worth noting, however, that GDP can (and is) also calculated through two other approaches: the expenditure approach and the income approach. In the US, the value-added approach is used primarily in the GDP-by-industry accounts.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;The boundary between intermediate and final consumption seems blurry. How, and where is the line drawn?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Products and services provided to consumers are considered to be final products. Products and services provided to businesses are treated as intermediate inputs. See point 4 on page 3 in this &lt;a href=&quot;http://www.bea.gov/national/pdf/nipa_primer.pdf&quot; rel=&quot;nofollow&quot;&gt;NIPA primer&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;When doing the accounting at an high level (city, state or national), how do the accountants know what part of the paint consumed take as intermediate consumption and what part to take as final consumption?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A simplified answer (ignoring issues like capital consumption and inventories) is that at the national level, business revenue is totaled, and then business expenses (other than labor costs) are subtracted. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So if a restaurant sells \$100 worth of dinners, pays a farmer \$50 for the food, and pays a designer \$10 for designing the restaurant, the totals look like this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Restaurant: \$100-(\$50+\$10)=$40&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Designer: \$10&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Farmer: \$50 &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Total: \$40+\$10+\$50 = \$100&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As you can see in this example, by subtracting business expenses from revenue, double-counting is eliminated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At the state level in the US, GDP is actually &lt;a href=&quot;http://bea.gov/regional/pdf/gsp/GDPState.pdf&quot; rel=&quot;nofollow&quot;&gt;allocated from the national level&lt;/a&gt; using a variety of techniques. Metro area GDP is &lt;a href=&quot;https://bea.gov/scb/pdf/2007/11%20November/1107_gdpmetro.pdf&quot; rel=&quot;nofollow&quot;&gt;allocated from the state level to counties&lt;/a&gt; based on income by industry and then aggregated. As a result, the value-added approach is simply not used to calculate state and local GDP in the US.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Is the service of cleaning a factory considered a final product or intermediate consumption needed to produce whatever the factory produces?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Intermediate consumption.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;What about the plant's paint, electricity, training of workers and so on?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Intermediate consumption.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;The consumption of decoration from a restaurant is a requirement (since people go to a restaurant in part, due to the style) and by that reasoning, it is intermediate consumption, but a luxury in one's house (therefore final consumption).&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Intermediate consumption.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;People need to eat in order to work and produce, and more so the more they work (hence food may be classified as intermediate consumption), and need medical care to live (and hence produce) just like car factories need steel. I have seen these things sometimes taken to be final consumption.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you refer to the example above, you will see why they're treated as final consumption. The household sector is not treated as a business; if it were, the value-added approach would not work. Wages paid to workers would be subtracted as intermediate inputs, and workers' consumption of whatever they consume would also be subtracted as intermediate inputs, and everything would sum to zero.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If a restaurant sells \$100 worth of dinners, pays a farmer \$50 for the food, pays a designer \$10 for designing the restaurant, and pays workers \$20 for making the food, the totals look like this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Restaurant: \$100-(\$50+\$10+\$20)=$20&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Designer: \$10&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Farmer: \$50 &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Households: \$20-\$100=\$-80&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Total: \$20+\$10+\$50-\$80 = $0&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What we've discovered above is called the circular flow of goods and services.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A simpler example can make this obvious: let's say that there exist two businesses in an economy. One grows cabbage, the other raises pork. The cabbage guy gets hungry for some pork, and buys \$10 worth of pork, while the pork guy decides he wants some cabbage and buys some of that for \$10. Under the value-added approach, \$20 of market output has been produced. If we said, &quot;Hey, wait, but people need to eat food to live!&quot; and did not count the food production, then we'd end up concluding that \$0 of market output had been produced. That would be incorrect.&lt;/p&gt;&#xA;" OwnerUserId="264" LastActivityDate="2015-02-28T23:46:44.713" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="4579" PostTypeId="1" AcceptedAnswerId="4580" CreationDate="2015-03-01T06:46:45.880" Score="9" ViewCount="20995" Body="&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Substitute_good#Different_types&quot; rel=&quot;noreferrer&quot;&gt;Wikipedia explains the difference&lt;/a&gt; between products that are &quot;gross substitutes&quot; and products that are &quot;net substitutes&quot;. However, the mathematical explanation doesn't give much intuition about these concepts. So my questions are:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;What is the intuitive difference between gross and net substitutes? &lt;/li&gt;&#xA;&lt;li&gt;What are good real-life examples of these?&lt;/li&gt;&#xA;&lt;li&gt;Why is the requirement for &lt;a href=&quot;https://en.wikipedia.org/wiki/Competitive_equilibrium&quot; rel=&quot;noreferrer&quot;&gt;competitive equilibrium&lt;/a&gt;, &quot;gross substitute&quot; and not &quot;net substitute&quot;? I.e., why does a competitive equilibrium not exist if the products are net-substitute?&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="385" LastActivityDate="2020-06-07T15:13:22.670" Title="Gross substitutes vs. net substitutes" Tags="&lt;utility&gt;&lt;consumer-theory&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="4580" PostTypeId="2" ParentId="4579" CreationDate="2015-03-01T09:50:29.603" Score="13" Body="&lt;p&gt;Intuitively, a higher price for pears means that I have to give up more apples to be able to afford an extra pear (or, conversely, if I give up one pear then the number of extra apples that I can afford increases). This is going to make me want to reduce my pear consumption and increase my apple consumption (in orther words, to substitute away from pears towards apples). Graphically, this corresponds to a change in the slope of the budget constraint and is known as the &lt;em&gt;(Hicksian) &lt;a href=&quot;http://en.wikipedia.org/wiki/Substitution_effect&quot;&gt;substitution effect&lt;/a&gt;&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This substitution effect is, however, moderated by a second consideration. If I increase one or more prices then the total amount of &quot;stuff&quot; that I can afford to buy decreases, so it is as if my income has decreased (which would correspond to a shift of the budget constraint towards the origin). This is known as the &lt;em&gt;&lt;a href=&quot;http://en.wikipedia.org/wiki/Income%E2%80%93consumption_curve&quot;&gt;income effect&lt;/a&gt;&lt;/em&gt; and will usually mean that my consumption of apples decreases if the price of pears rises.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When the income and substitutes effects are put together, you get the total effect of an increase in the pear price upon the demand for apples. This total effect gives rise the the notion of &lt;strong&gt;gross substitutes&lt;/strong&gt;: apples and pears are gross substitutes if the following is true&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;increasing the price of pears causes the consumer to demand more apples.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Formally, this is written as $$\frac{\partial X_a}{\partial p_P}&amp;gt;0,$$ where $X_A$ and $p_P$ are the demand for apples and the price of pears respectively.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To arrive at the notion of &lt;strong&gt;net substitutes&lt;/strong&gt; we simply take a price change and shut-down the income effect. The hypothetical exercise works like this:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;we increase the price of pears, which induces both an income effect and a substitution effect.&lt;/li&gt;&#xA;&lt;li&gt;to compensate the consumer for the income effect, we give him exactly enough extra money to ensure that (even though one of the prices is higher) he can still afford to get onto the same indifference curve as before. Hence his utility will remain unchanged.&lt;/li&gt;&#xA;&lt;li&gt;We look at how his demand changed, which now depends only on the substitution effect (since we have compensated the consumer for any change in real income).&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Two goods are net substitutes if, after making this adjustment, we find that the demand for apples has increased. Thus, we say that two produces are net substitutes if&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Increasing the price of pears while compensating the consumer for the resulting decrease in his real income causes the consumer to demand more apples.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Formally, $$\left.\frac{\partial X_a}{\partial p_P}\right|_{\text{constant }U}&amp;gt;0,$$ where $X_A$ and $p_P$ are the demand for apples and the price of pears respectively, and $U$ is the consumer's utility.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;It is not true to say that &quot;a competitive equilibrium [does] not exist if the products are net-substitute&quot;. Indeed, most of the time, products that are gross substitutes will also be net substitutes as well. Thus, most examples of gross substitute preferences supporting a competitive equilibrium will also be examples of net substitutes doing the same.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reason why it doesn't make sense to state the existence condition for competitive equilibrium in terms of net substitutes is that net substitutes is a purely hypothetical construction in which a fictitious agent intervenes to shut down the income effect and keep the consumer's utility constant. The whole point of a competitive equilibrium is that there is no such intervention: the equilibrium is entirely decentralised and is sustained purely by finding prices such that the market clears when consumers pick their optimal demand.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2015-03-01T09:50:29.603" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4582" PostTypeId="1" AcceptedAnswerId="4583" CreationDate="2015-03-01T19:27:36.490" Score="3" ViewCount="8739" Body="&lt;p&gt;I am having a hard time deciding for this question:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If all quantities produced rise by 10 percent, and all prices fall by 10 percent, which of the following occurs?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A) Real GDP rises by 10 percent, while nominal GDP falls by 10 percent.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;B) Real GDP rises by 10 percent, while nominal GDP is unchanged.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;C) Real GDP is unchanged, while nominal GDP rises by 10 percent.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;D) Real GDP is unchanged, while nominal GDP falls by 10 percent.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think it is either A or B, because I know that real GDP rises but i'm not sure what happens to the nominal GDP. if anyone can help, it would be much appreciated.&lt;/p&gt;&#xA;" OwnerUserId="4012" LastActivityDate="2017-12-15T02:31:35.830" Title="If all quantities produced rise by 10 percent, and all prices fall by 10 percent, which of the following occurs?" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4583" PostTypeId="2" ParentId="4582" CreationDate="2015-03-01T19:50:22.493" Score="5" Body="&lt;p&gt;It helps to write out things as (simple but) proper equations. Denote production as $Y$ and prices as $P$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is given that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Y_{t+1} = 1.1 Y_t \\&#xA;P_{t+1} = 0.9 P_t$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Nominal GDP is given by $P_t Y_t$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ P_{t+1}Y_{t+1} = 1.1 Y_t \cdot 0.9 P_t  \\&#xA;= 1.1\cdot 0.9 \cdot Y_t P_t$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So nominal GDP changed by $1.1 \cdot 0.9 = 0.99$ - it dropped by one percent. &lt;/p&gt;&#xA;&#xA;&lt;h3&gt;So which answer is it?&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;I assumed that the initial value is base value for the description of the relative changes. If, instead, we have that the larger value is base for the relative change, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$0.9 Y_{t+1} = Y_t \\&#xA;P_{t+1} = 0.9 P_t$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;we get that &#xA;$$ P_{t+1}Y_{t+1} = \frac{1}{0.9} Y_t \cdot 0.9 P_t = Y_t P_t  $$&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;nominal GDP does not change.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2015-03-01T20:15:50.133" LastActivityDate="2015-03-01T20:15:50.133" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4584" PostTypeId="1" AcceptedAnswerId="4587" CreationDate="2015-03-01T20:24:39.420" Score="3" ViewCount="93" Body="&lt;p&gt;Let's say we want to approximate a second order differential:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \partial_{aa} V(a)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, say we have a grid of values for $A$, where the step size is $\Delta$, $i$ is the index on this A grid, and we define the short hand notation&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$V_i \equiv V(A_i)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.princeton.edu/~moll/HACTproject/HACT_Numerical_Appendix.pdf&quot; rel=&quot;nofollow&quot;&gt;Achdou et al&lt;/a&gt; (page 13, equation 35) then compute the approximation to the second order differential on the grid at a point $i$ as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\partial_{AA} v_i =  \frac{v_{i+1} - 2v_i + v_{i-1}}{\Delta^2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;They don't explain why, and I can't follow here. Could someone provide me with the rough ansatz for why this is the case?&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="12357" LastEditDate="2015-03-02T00:16:28.097" LastActivityDate="2015-03-02T00:16:28.097" Title="Approximation to a second order partial derivative" Tags="&lt;mathematical-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4587" PostTypeId="2" ParentId="4584" CreationDate="2015-03-02T00:02:38.450" Score="2" Body="&lt;p&gt;I think that this question would be more suitable for &lt;a href=&quot;http://math.stackexchange.com&quot;&gt;math.SE&lt;/a&gt;, since it is purely mathematical and not specific to economics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In your notation, the first derivative would be given by&#xA;$$&#xA;\partial_A v_i = \frac{v_{i+1} - v_i}{\Delta}.&#xA;$$&#xA;In order to compute the second derivative, we need to apply this formula with $\partial_A v_i$ itself in place of $v$. This gives&#xA;$$&#xA;\partial_{AA} v_i = \frac{ \frac{v_{i+2} - v_{i+1}}{\Delta} - \frac{v_{i+1} - v_i}{\Delta}}{\Delta}.&#xA;$$&#xA;A bit of algebra reveals that this is the same as&#xA;$$&#xA;\partial_{AA} v_i = \frac{v_{i+2} - 2v_{i+1} + v_i}{\Delta^2}.&#xA;$$&#xA;Now if your grid is fine enough, you can lower the index $i$ on the right-hand side without changing the result significantly. This gives the equation that you came across. It is generally preferred due to the &quot;symmetry&quot; that it displays between $i-1$ and $i+1$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For more on this topic, see e.g. Wikipedia at &lt;a href=&quot;https://en.wikipedia.org/wiki/Finite_difference&quot; rel=&quot;nofollow&quot;&gt;finite difference&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="12357" LastActivityDate="2015-03-02T00:02:38.450" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4588" PostTypeId="1" CreationDate="2015-03-02T12:41:09.063" Score="1" ViewCount="47" Body="&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/vc3iq.jpg&quot; alt=&quot;Working&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm using the second edition of applied international trade by Bowen and for the HO model, the marginal product with respect to capital ought to be the first term of the final answer (as given in the textbook) but I'm unable to derive it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm pretty sure I'm wrong somewhere as the final answer I derived is negative (average product &gt; marginal product) but I can't figure out where I'm wrong.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Please help, thanks!&lt;/p&gt;&#xA;" OwnerUserId="4085" LastEditorUserId="43" LastEditDate="2015-03-02T20:26:28.173" LastActivityDate="2015-03-02T20:26:28.173" Title="Deriving Marginal Product For Hecksher-Ohlin" Tags="&lt;international-trade&gt;&lt;academic-graduate&gt;&lt;international-economics&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4589" PostTypeId="1" AcceptedAnswerId="4592" CreationDate="2015-03-02T14:55:57.640" Score="3" ViewCount="540" Body="&lt;p&gt;Suppose we have a simple maximization problem as described in Equation 1.1 &lt;a href=&quot;http://www.wouterdenhaan.com/teach/ch1.pdf&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt; or &lt;a href=&quot;http://www.wouterdenhaan.com/teach/ch1.pdf&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;. This leads us to the Lagrangian Equation 1.3: $$\begin{align*}\mathcal{L} &amp;amp;= \sum_{t=1}^\infty \beta^{t-1}\left\{u(c_t) + \lambda_t \left[ f(k_t) + (1 - \delta)k_t - c_t - k_{t+1}\right]\right\} \\ &amp;amp;= \sum_{t=1}^\infty \left[\beta^{t-1} u(c_t) - \beta^{t-1}\lambda_t c_t + \beta^{t-1} \lambda_t f(\mathbf{k_t}) + \beta^{t-1}\lambda_t(1-\delta)\mathbf{k_t}  - \beta^{t-1}\lambda_t \mathbf{k_{t+1}}\right]  \end{align*}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When we derive the first order condition with respect to $k_{t+1}$, which is:&#xA;$$\frac{\partial \mathcal{L} (\cdot)}{\partial k_{t+1}} = 0 :   \beta \lambda_{t+1} \frac{\partial f(k_{t+1})}{\partial k_{t+1}} +  \beta \lambda_{t+1} (1 - \delta) -\lambda_t=0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;why do we use the subscript $\phantom{.}_{t+1}$ in  $\lambda_{t+1}$ and why does $\beta^{t-1}$ becomes $\beta$? I cannot understand how the first two terms are combined with the last one ($-\lambda_t$). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The relevant terms (with $k$) of the Lagrangian in period $\phantom{.}_{t+1}$ are: $$ \beta^{(t+1)-1} \lambda_{t+1} f(k_{t+1}) +  \beta^{(t+1)-1} \lambda_{t+1} k_{t+1} (1 - \delta) - \beta^{(t+1)-1} \lambda_{t+1} k_{(t+1)+1}$$ so for this part of the sum we do not &quot;care&quot; about the last term when we take the derivative with respect to $k_{t+1}$. So for this period this part of the sum is $$\frac{\partial \mathcal{L}_{t+1}}{\partial k_{t+1}} = \beta^{t} \lambda_{t+1} \frac{\partial f(k_{t+1})}{\partial k_{t+1}} +  \beta^{t} \lambda_{t+1}  (1 - \delta)$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The relevant terms (with $k$)  of the Lagrangian in period $\phantom{.}_{t}$ are:&#xA;$$\beta^{t-1} \lambda_t f({k_t}) + \beta^{t-1}\lambda_t(1-\delta){k_t}  - \beta^{t-1}\lambda_t k_{t+1}$$&#xA;so for this period the part of the sum is $$\frac{\partial \mathcal{L}_t}{\partial k_{t+1}} =  - \beta^{t-1}\lambda_t$$&#xA;Now the First Order Condition with respect to $k_{t+1}$ should be:  $$\frac{\partial \mathcal{L}_{t+1}}{\partial k_{t+1}} +  \frac{\partial \mathcal{L}_t}{\partial k_{t+1}} = \beta^{t} \lambda_{t+1} \frac{\partial f(k_{t+1})}{\partial k_{t+1}} +  \beta^{t} \lambda_{t+1}  (1 - \delta) - \beta^{t-1}\lambda_t = 0$$right?&lt;/p&gt;&#xA;" OwnerUserId="246" LastEditorUserId="246" LastEditDate="2015-03-02T15:26:56.423" LastActivityDate="2015-03-02T16:27:30.687" Title="Understanding subscripts in first order conditions of dynamic optimization problems" Tags="&lt;macroeconomics&gt;&lt;dynamic-programming&gt;&lt;self-study&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="4590" PostTypeId="2" ParentId="4589" CreationDate="2015-03-02T15:29:29.710" Score="0" Body="&lt;p&gt;(facepalm)&#xA;Multiply both sides with $\beta^{1-t}$:&#xA;$$ \beta^{1-t+t} \lambda_{t+1} \frac{\partial f(k_{t+1})}{\partial k_{t+1}} +  \beta^{1-t+t} \lambda_{t+1}  (1 - \delta) - \beta^{1-t+t-1}\lambda_t = 0$$&lt;/p&gt;&#xA;" OwnerUserId="246" LastActivityDate="2015-03-02T15:29:29.710" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4592" PostTypeId="2" ParentId="4589" CreationDate="2015-03-02T16:27:30.687" Score="5" Body="&lt;p&gt;In an intertemporal maximization problem, we seek to find the optimal &lt;em&gt;sequence&lt;/em&gt;  of the control and the state variables. It is the recursive nature of the problem that permits us to consider a &quot;typical&quot; point in time and just one condition per variable.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For each such problem, we need to find out (carefully) &lt;em&gt;in how many distinct periods a specific realization of a variable appears&lt;/em&gt;. To do this properly we should distinguish between the &quot;absolute&quot; index, and a &quot;running&quot; index. In the formulation of the Lagrangean as appears in the question, this is not done (and it is usual practice not to, but it may become confusing).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So I would use the $t$ symbol as the absolute index (to arrive at same-looking first-order conditions), and some other symbol for the running index, say&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\mathcal{L_t} = \sum_{j=0}^\infty \beta^{j}\left\{u(c_{t+j}) + \lambda_{t+j} \left[ f(k_{t+j}) + (1 - \delta)k_{t+j} - c_{t+j} - k_{t+j+1}\right]\right\} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that $t$ no longer affects  the discount factor $\beta$, and this is because the discount factor has to do with looking at the future, which is represented by the index $j$. Also, note that $j$ starts at zero, indicating that the first period is the $t$ period.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Written this way, the Lagrangean says &quot;we are at some point in time indicated by $t$ (that can take the value zero or whatever positive value), and we are looking forward period by period counted by index $j$&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For &lt;em&gt;any given&lt;/em&gt; $j$ we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\mathcal{L}_t =...+ \beta^{j}\Big\{u(c_{t+j}) + \lambda_{t+j} \left[ f(k_{t+j}) + (1 - \delta)k_{t+j} - c_{t+j} - k_{t+j+1}\right]\Big\} + \beta^{j+1}\Big\{u(c_{t+j+1}) + \lambda_{t+j+1} \left[ f(k_{t+j+1}) + (1 - \delta)k_{t+j+1} - c_{t+j+1} - k_{t+j+2}\right]\Big\} + ...$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Pondering this, we realize that the variable $k_{t+j+1}$ will appear in only two consecutive periods, and so the first order condition for a &quot;typical&quot; element of the sequence $\{k_{t+j}\}_{j=0}^{\infty}$ can be exrpessed by differentiating only these two periods with respect to $k_{t+j+1}$. Doing so we get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\partial \mathcal{L}_t}{\partial k_{t+j+1}} =  -\beta^{j} \lambda_{t+j}  + \beta^{j+1}\Big\{ \lambda_{t+j+1} \left[ f'(k_{t+j+1}) + (1 - \delta)\right]\Big\} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Take common factors (which will simplify the discount factor) and set equal to zero&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\partial \mathcal{L}_t}{\partial k_{t+j+1}} = \beta^{j} \Big[-\lambda_{t+j}  + \beta\Big\{ \lambda_{t+j+1} \left[ f'(k_{t+j+1}) + (1 - \delta)\right]\Big\}\Big] = 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To lighten the indexing burden, we can express this for $j=0$, to obtain&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\partial \mathcal{L}_t}{\partial k_{t+1}} = 0 \implies -\lambda_{t}  + \beta\Big\{ \lambda_{t+1} \left[ f'(k_{t+1}) + (1 - \delta)\right]\Big\} = 0$$&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-03-02T16:27:30.687" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="4593" PostTypeId="1" AcceptedAnswerId="4599" CreationDate="2015-03-02T20:33:34.493" Score="10" ViewCount="885" Body="&lt;p&gt;It's well understood that the cost of living in New York City vastly exceeds the cost of living in, say, rural Louisiana.  It is also well understood that wages in New York City vastly exceed those in rural Louisiana.  My question is: who comes out ahead?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To clarify, let me offer a thought experiment (not sure if this is valid or not, I'm no economist).  Imagine we have two individuals: one in rural Louisiana with a low cost of living and low wage (&quot;Lou&quot; for short), the other in New York City with a high cost of living and a high wage (&quot;Nue&quot; for short).  Imagine that both Lou and Nue earn exactly the median household income for their respective region.  They live in virtually identical homes (paying the local rent).  They drive virtually identical cars.  They have the same number of children.  They have the same healthcare plan, and so on.  Now imagine that each day Lou and Nue both go to the mall, and buy the exact same items as one another (paying the local price).  Let's imagine they are spending very quickly, far more quickly than either can afford.  Who runs out of money first, Lou or Nue?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A follow up question: is there a single number which tracks this quality I'm trying to describe?  It seems like median income divided by local CPI would just about do it, but that's purely based on my own untrained intuition.&lt;/p&gt;&#xA;" OwnerUserId="4088" LastEditorUserId="43" LastEditDate="2015-03-04T16:36:41.587" LastActivityDate="2015-07-28T13:20:20.930" Title="In the US, do high wages in regions like New York and California offset the high cost of living?" Tags="&lt;purchasing-power-partity&gt;&lt;wages&gt;&lt;living-cost&gt;" AnswerCount="3" CommentCount="1" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="4594" PostTypeId="1" CreationDate="2015-03-02T22:16:09.537" Score="3" ViewCount="618" Body="&lt;p&gt;Source: pp 91-92, &lt;em&gt;Principles of Microeconomics&lt;/em&gt;, 7 Ed, 2014, by N Gregory Mankiw&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;If you try calculating the price elasticity of demand between two points on a&#xA;  demand&#xA;  curve, you will quickly notice an annoying problem: The elasticity from&#xA;  point A to point B seems different from the elasticity from point B to point A. For&#xA;  example, consider these numbers:&lt;br&gt;&#xA;  Point A: Price = \$4, Quantity = 120&lt;br&gt;&#xA;  Point B: Price = \$6, Quantity = 80&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Going from point A to point B, the price rises by 50 percent and the quantity falls by&#xA;  33 percent, indicating that the price elasticity of demand is 33/50, or 0.66.&lt;br&gt;&#xA;  By contrast,&#xA;  going from point B to point A, the price falls by 33 percent and the quantity&#xA;  rises by 50 percent, indicating that the price elasticity of demand is 50/33, or 1.5.     $\color{darkred } { \text { This&#xA;difference}}$ arises because the $\color{darkgreen } { \text {percentage changes are calculated from a different base.}   }$&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Though I calculated these 2 different price elasticities of demand and understood the last sentence, the big pictures or the deeper intuitions elude me? How can I naturalise this such difference? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What's the intuition behind  $\color{darkred } { \text { This&#xA;difference}}$, caused by $\color{darkgreen } { \text {percentage changes [that] are calculated from a different base}   }$ ?&lt;/p&gt;&#xA;" OwnerUserId="4020" LastEditorUserId="4020" LastEditDate="2015-03-02T22:26:10.547" LastActivityDate="2015-03-03T11:22:45.593" Title="Intuition: Difference in price elasticities of demand due to different bases" Tags="&lt;microeconomics&gt;&lt;elasticity&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4595" PostTypeId="2" ParentId="4593" CreationDate="2015-03-02T22:31:47.180" Score="9" Body="&lt;p&gt;A bit dated, but here are &lt;a href=&quot;http://www.bea.gov/scb/pdf/2014/06%20June/0614_real_personal_income_and%20_regional_price_parities_for_states_and%20metrpolitan_areas.pdf&quot; rel=&quot;nofollow&quot;&gt;Real Personal Income and Regional Price Parities for States and Metropolitan Areas, 2008–2012&lt;/a&gt;. The BEA takes per capita personal income by state and normalizes it by a cost of living index specific to that state. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;They find that New York and California are about 13 percent (119/106) more expensive than the country as a whole in 2012. Nevertheless, the average real income per capita in those states is 39 in CA, 44 in NY, and 41 nationally, suggest that even though CA is richer before cost adjustment (1.19 * 39 &gt; 41 * 1.06) the higher income does not afford a larger bundle of goods taking into account the higher cost of living. NY is both more expensive and richer. All numbers from Table 1 on page 7.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note, however, P. J. O'Rourke's quip about cost of living adjustments:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;PPP is supposed to compensate for the lower living costs found in&#xA;  poorer countries. It's like having your boss tell you , &quot;Instead of a&#xA;  raise, why don't you move to a worse neighborhood -- your rent will be&#xA;  lower and so will your car payments, as soon as someone steals your&#xA;  Acura.&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;That is, the cost of living reflects the prices of living and some of the differences in those prices reflect demand differences related to amenities which are not typically captured in these costs of living. For example, a safe neighborhood may be more expensive than an unsafe one and that safety the reason for the price differences between neighborhoods. Correcting for price differences captures the differences in house prices but over-corrects because at the same prices families prefer the safe neighborhood. This problem exists for almost all amenities; parks, Broadway, the Smithsonian, and school quality to name a few. In fact, virtually the only feature of housing that does not suffer from this problem (in theory anyway) is the access to good jobs because the capitalized value of access to high paying jobs is exactly the income from those higher paying jobs that accrues to the current land owners and not workers and so should be rightly subtracted from wages when comparing wages in two regions. &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-07-28T13:20:20.930" LastActivityDate="2015-07-28T13:20:20.930" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="4596" PostTypeId="1" CreationDate="2015-03-03T01:19:55.577" Score="7" ViewCount="14671" Body="&lt;p&gt;Source: p 96, &lt;em&gt;Principles of Microeconomics&lt;/em&gt;, 7 Ed, 2014, by N Gregory Mankiw&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Even though the slope of a linear demand curve is constant, the elasticity is not.&#xA;  This is true because the slope is the ratio of &lt;strong&gt;&lt;em&gt;changes&lt;/em&gt;&lt;/strong&gt; in the two variables, whereas&#xA;  the elasticity is the ratio of &lt;strong&gt;&lt;em&gt;percentage changes&lt;/em&gt;&lt;/strong&gt; in the two variables.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&lt;a href=&quot;https://www.boundless.com/economics/textbooks/boundless-economics-textbook/elasticity-and-its-implications-6/price-elasticity-of-demand-54/interpretations-of-price-elasticity-of-demand-210-12301/&quot; rel=&quot;noreferrer&quot;&gt;[Source:]&lt;/a&gt; Elasticity along a straight line demand curve varies from zero at the quantity axis to infinity at the price axis. ... At the midpoint ... elasticity is equal to one, or unit elastic.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Please explain the above intuitively? I ask NOT for a formal proof. &lt;/p&gt;&#xA;" OwnerUserId="4020" LastEditorUserId="4020" LastEditDate="2015-03-03T21:18:43.460" LastActivityDate="2017-12-31T20:12:49.990" Title="Intuition - Why does elasticity vary along a curve?" Tags="&lt;microeconomics&gt;&lt;elasticity&gt;" AnswerCount="3" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="4598" PostTypeId="1" CreationDate="2015-03-03T02:58:25.527" Score="3" ViewCount="1987" Body="&lt;p&gt;Source: p 109, Question 5.9, &lt;em&gt;Principles of Microeconomics&lt;/em&gt;, 7 Ed, 2014, by N Gregory Mankiw&lt;br&gt;&#xA;= Question 5.7, &lt;em&gt;Principles of Microeconomics&lt;/em&gt;, 4 Ed, 2008, by N Gregory Mankiw&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;9. $\color{green } { \text { Before looking at the price,}   }$ Jessie spends $d$ dollars on &lt;em&gt;something&lt;/em&gt;  (abbreviate this S). What is Jessie’s price&#xA;  elasticity of demand?&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&lt;strong&gt;Given Answer:&lt;/strong&gt; Jessie's price elasticity of demand is one, because he spends the same amount on S, no&#xA;  matter what the price, which means $\color{darkred} { \text { his percentage change in quantity  }   }$ is equal to the percentage&#xA;  change in price.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;From p 91: Price elasticity of demand $= \dfrac{ \text{&#xA;Percentage change in quantity demanded }} {  \text{ Percentage change in price } } $&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The green implies Jessie's ignorance of prices, so % change in price = 0. Yet please explain the answer? Especially the red, because the question implies nothing about the % change in quantity demanded?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Footnote: I slightly generalised the question. Mankiw writes 'gas' instead of  '&lt;em&gt;something&lt;/em&gt;'. &lt;/p&gt;&#xA;" OwnerUserId="4020" LastActivityDate="2018-04-15T01:59:21.207" Title="If one always spends the same amount, what's one's price elasticity of demand?" Tags="&lt;microeconomics&gt;&lt;elasticity&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="4599" PostTypeId="2" ParentId="4593" CreationDate="2015-03-03T04:27:51.693" Score="10" Body="&lt;p&gt;&lt;strong&gt;TL;DR&lt;/strong&gt; Wages offset the high cost of living in most states.  In NY and CA specifically, wages are insufficient to offset the high cost of living.  In New York City specifically, wages do not even come close to offsetting the high cost of living.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Having now researched this a bit, I can give a very concrete answer to the Lou/Nue hypothetical, and I think a pretty decent answer to the general idea.  Let me just say up front, &lt;em&gt;I am not&lt;/em&gt; an economist, I'm taking a best guess based on the data published by real economists.  These are layman's conclusions, and, as BKay pointed out, can't possibly capture the complexity of the real world.  That said...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Nue runs out of money first.  Here's why:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.bea.gov/scb/pdf/2011/05%20May/0511_price_parities.pdf&quot; rel=&quot;noreferrer&quot;&gt;The regional price parity (RPP) in NYC is 136&lt;/a&gt;.  That means, a purchase which costs \$100 for an average American will cost \$136 for an average resident of NYC.  &lt;a href=&quot;http://project.wnyc.org/median-income-nabes/&quot; rel=&quot;noreferrer&quot;&gt;The median income in NYC is \$50,711&lt;/a&gt;.  This is 97% the national median income.  This means that a days work which pays \$100 for an average American pays \$97 dollars for an average resident of NYC.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The regional price parity in Louisiana is 91.  A purchase which costs \$100 for an average American will cost \$91 for an average resident of Louisiana.  The median income in Louisiana is \$40,462.  This is 77% the national average.  This means that a days work which pays \$100 for an average American pays \$77 dollars for an average resident of Louisiana.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In addition to Lou and Nue, also let us consider Medie.  Medie earns exactly the national median income, and her cost of living is exactly the national average, i.e. RPP = RWP = 100.  (Sidebar: to the extent that such a person exists, they probably live in Pennsylvania, which comes the closest to conforming to both wage and price averages).  So let's compare a hypothetical wage and price for Medie, Lou, and Nue:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Medie earns \$100 per day&lt;br&gt;&#xA;Apples cost \$1 each in Medie's home town&lt;br&gt;&#xA;Medie can buy &lt;strong&gt;100 apples per day&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lou earns \$77.81 per day&lt;br&gt;&#xA;Apples cost \$0.91 each in Lou's home town&lt;br&gt;&#xA;Lou can buy &lt;strong&gt;85 apples per day&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Nue earns \$97.63 per day&lt;br&gt;&#xA;Apples cost \$1.36 in Nue's home town&lt;br&gt;&#xA;Nue can buy &lt;strong&gt;71 apples per day&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note, this effect only holds for New York City proper.  If you compare New York State with Louisiana, they are dead even.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To answer the question more generally, all other things being equal it pays to be in a &lt;strong&gt;high wage, high cost of living&lt;/strong&gt; state, though there is major regional variation.  To try and answer this more fully, let's look at the data BKay supplied above, and expand the hypothetical from the original question.  Regional Price Parity data is fairly easy to come by (i.e., &quot;for every dollar spent by an average american, how many dollars must a person from region X spend to get the same result?&quot;).  Regional Median Wage data is also pretty easy to come by.  From the Regional Median Wage we can trivially calculate Regional Wage Parity (i.e. &quot;for every dollar &lt;em&gt;earned&lt;/em&gt; by an average American, how many dollars can a person in region X expect to earn?&quot;).  This is a term I'm making up, so I know it's not exactly scientific, but I think it give a good gestalt for the situation.  This gives us:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\frac{Regional Wage Parity}{Regional Price Parity} = HowMuchStuffYouCanBuy&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;How much stuff you can buy&quot; is really the figure that this question is trying to get at.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The state with the highest &quot;apples per day&quot; value is New Hampshire (126) followed by Virginia (123).  As I said, New York and Louisiana do the worst.  DC and Georgia conform exactly to the national average.  Here are these value's graphed:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/Y6TWk.png&quot; alt=&quot;How many apples can you buy&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note, while local wages seem to predict well for this &quot;how many apples&quot; measure, prices &lt;em&gt;do not&lt;/em&gt; seem to predict at all.  Goes to show, cheap != affordable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/DNo41.png&quot; alt=&quot;prices&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here's the raw data I used for this if you want to play around with it:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;+----------------------+-----------------------+----------------------+------------------+&#xA;|        State         | Regional Price Parity | Regional Wage Parity | How Many Apples? |&#xA;+----------------------+-----------------------+----------------------+------------------+&#xA;| Louisiana            | 91.40%                | 77.81%               |               85 |&#xA;| New York             | 115.40%               | 99.14%               |               86 |&#xA;| New Mexico           | 94.80%                | 83.12%               |               88 |&#xA;| Mississippi          | 86.40%                | 77.30%               |               89 |&#xA;| Arkansas             | 87.60%                | 78.39%               |               89 |&#xA;| Montana              | 94.20%                | 84.35%               |               90 |&#xA;| Kentucky             | 88.80%                | 80.21%               |               90 |&#xA;| North Carolina       | 91.60%                | 83.45%               |               91 |&#xA;| Florida              | 98.80%                | 90.60%               |               92 |&#xA;| Tennessee            | 90.70%                | 83.27%               |               92 |&#xA;| South Carolina       | 90.70%                | 83.53%               |               92 |&#xA;| West Virginia        | 88.60%                | 81.89%               |               92 |&#xA;| Nevada               | 98.20%                | 91.10%               |               93 |&#xA;| Alabama              | 88.10%                | 83.07%               |               94 |&#xA;| California           | 112.90%               | 109.39%              |               97 |&#xA;| Arizona              | 98.10%                | 95.31%               |               97 |&#xA;| Hawaii               | 117.20%               | 115.16%              |               98 |&#xA;| Maine                | 98.30%                | 97.09%               |               99 |&#xA;| Ohio                 | 89.20%                | 88.24%               |               99 |&#xA;| Delaware             | 102.30%               | 101.61%              |               99 |&#xA;| District of Columbia | 118.20%               | 118.01%              |              100 |&#xA;| Georgia              | 92.00%                | 92.23%               |              100 |&#xA;| Indiana              | 91.10%                | 91.93%               |              101 |&#xA;| Michigan             | 94.40%                | 96.26%               |              102 |&#xA;| Oklahoma             | 89.90%                | 91.71%               |              102 |&#xA;| Idaho                | 93.60%                | 95.86%               |              102 |&#xA;| Pennsylvania         | 98.70%                | 101.48%              |              103 |&#xA;| Illinois             | 100.60%               | 103.93%              |              103 |&#xA;| Texas                | 96.50%                | 100.33%              |              104 |&#xA;| Vermont              | 100.90%               | 105.73%              |              105 |&#xA;| Oregon               | 98.80%                | 103.97%              |              105 |&#xA;| Kansas               | 89.90%                | 96.16%               |              107 |&#xA;| Rhode Island         | 98.70%                | 106.07%              |              107 |&#xA;| Missouri             | 88.10%                | 95.00%               |              108 |&#xA;| New Jersey           | 114.10%               | 124.36%              |              109 |&#xA;| Alaska               | 107.10%               | 118.71%              |              111 |&#xA;| South Dakota         | 88.20%                | 98.39%               |              112 |&#xA;| Wisconsin            | 92.90%                | 104.50%              |              112 |&#xA;| Washington           | 103.20%               | 116.72%              |              113 |&#xA;| Wyoming              | 96.40%                | 109.30%              |              113 |&#xA;| Colorado             | 101.60%               | 116.78%              |              115 |&#xA;| Iowa                 | 89.50%                | 103.26%              |              115 |&#xA;| Massachusetts        | 107.20%               | 123.79%              |              115 |&#xA;| Nebraska             | 90.10%                | 105.34%              |              117 |&#xA;| Connecticut          | 109.40%               | 128.66%              |              118 |&#xA;| Utah                 | 96.80%                | 115.15%              |              119 |&#xA;| North Dakota         | 90.40%                | 107.59%              |              119 |&#xA;| Minnesota            | 97.50%                | 117.62%              |              121 |&#xA;| Maryland             | 111.30%               | 134.28%              |              121 |&#xA;| Virginia             | 103.20%               | 126.95%              |              123 |&#xA;| New Hampshire        | 106.20%               | 133.56%              |              126 |&#xA;+----------------------+-----------------------+----------------------+------------------+&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Sources:&lt;br&gt;&#xA;&lt;a href=&quot;http://www.census.gov/hhes/www/income/data/statemedian/&quot; rel=&quot;noreferrer&quot;&gt;Wage data&lt;/a&gt; (Direct &lt;a href=&quot;http://www.census.gov/hhes/www/income/data/incpovhlth/2013/stateonline_13.xls&quot; rel=&quot;noreferrer&quot;&gt;XLS Download&lt;/a&gt;)&lt;br&gt;&#xA;&lt;a href=&quot;http://www.bea.gov/scb/pdf/2014/06%20June/0614_real_personal_income_and%20_regional_price_parities_for_states_and%20metrpolitan_areas.pdf&quot; rel=&quot;noreferrer&quot;&gt;Price Data&lt;/a&gt; (PDF)&lt;/p&gt;&#xA;" OwnerUserId="4088" LastEditorUserId="4088" LastEditDate="2015-03-04T15:35:35.450" LastActivityDate="2015-03-04T15:35:35.450" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4600" PostTypeId="1" CreationDate="2015-03-03T05:29:40.993" Score="1" ViewCount="99" Body="&lt;p&gt;The capitalism system relies on a monetary system for exchange of goods and services. This appears to cause a large number of problems. For example, we shun those that don't have money.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there an economic model that embodies and &lt;em&gt;actually&lt;/em&gt; encourages hard work while discouraging laziness &lt;strong&gt;and&lt;/strong&gt; at the same time makes sure that everyone has what they need to live, to survive? Is there a model that marries the best of the other economic models into one that promotes motivation and community unity?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A model where your basic needs are cared for. Food, clothing, housing, education, and medicine is available to everyone. Yet everyone strives for more in their lives. There isn't a massive amount of laziness and instead people live for the things that make them happy and benefit society.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What would that entail? How would I embody such things into one model? Is it even possible?&lt;/p&gt;&#xA;" OwnerUserId="1447" LastEditorUserId="69" LastEditDate="2015-03-05T00:02:23.517" LastActivityDate="2015-03-06T21:02:02.590" Title="Economic Model: Incentive Compatible Market Economy that Satisfies Basic Needs" Tags="&lt;markets&gt;&lt;social-welfare&gt;&lt;communism&gt;&lt;basic-income&gt;" AnswerCount="0" CommentCount="8" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4601" PostTypeId="1" CreationDate="2015-03-03T10:09:39.470" Score="2" ViewCount="59" Body="&lt;p&gt;I read Hamermesh's 2012 paper, &quot;Six Decades of Top Economics Publishing: Who and How?&quot;. He collected the data from QJE, AER and JPE. It seems that the average age of economists is now higher than it was 20 or even 10 years ago. However, I wonder if things might be different in second tier journals. Maybe now young economists tend to submit their paper to these journals?&lt;/p&gt;&#xA;" OwnerUserId="4089" LastEditorUserId="54" LastEditDate="2015-03-04T04:52:56.450" LastActivityDate="2015-03-04T04:52:56.450" Title="Is the average age of economists getting higher than it was many years ago?" Tags="&lt;history&gt;" AnswerCount="0" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4602" PostTypeId="2" ParentId="4594" CreationDate="2015-03-03T11:22:45.593" Score="2" Body="&lt;p&gt;The solution to this issue is called &lt;a href=&quot;http://en.wikipedia.org/wiki/Arc_elasticity&quot; rel=&quot;nofollow noreferrer&quot;&gt;&quot;Arc Elasticity&quot;&lt;/a&gt;, used for &quot;large&quot; absolute changes. On the surface, the formula for Arc Elasticity is the familiar one, for example for price elasticity of demand&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\eta_{arc}= \dfrac{ \text{&#xA;Percentage change in quantity demanded }} {  \text{ Percentage change in price } }$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But the thing is how these percentage changes are calculated: If we went from quantity $q_a$ to quantity $q_b$, then while we &quot;usually&quot; calculate the percentage change as $(q_b-q_a)/q_a$ for the Arc Elasticity we divide by the &lt;em&gt;mid-point of the interval&lt;/em&gt; -not by the point we started with. Same for price. So&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\eta_{arc}= \dfrac{ \text{&#xA;Percentage change in quantity demanded }} {  \text{ Percentage change in price } } = \frac {\frac {q_b-q_a}{(q_b+q_a)/2}}{\frac {p_b-p_a}{(p_b+p_a)/2}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies \eta_{arc} = \frac {q_b-q_a}{p_b-p_a}\cdot \frac{p_b+p_a}{q_b+q_a}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Re-arrange the terms at will to suit your own mnemonic triggers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Arc Elasticity has the convenient properties&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(1) it is symmetric with respect to the two prices and quantities,&lt;br&gt;&#xA;(2) it is independent of the units of measurement,&lt;br&gt;&#xA;(3) it yields a value of unity if the total revenues (price times quantity) at the two points are equal. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;See &lt;a href=&quot;http://www.jstor.org/discover/10.2307/2967486&quot; rel=&quot;nofollow noreferrer&quot;&gt;Allen (1933)&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;P.S. to OP: Use this for &lt;a href=&quot;https://economics.stackexchange.com/questions/4598/if-one-always-spends-the-same-amount-whats-ones-price-elasticity-of-demand&quot;&gt;your other question&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-03-03T11:22:45.593" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4604" PostTypeId="2" ParentId="4596" CreationDate="2015-03-03T15:09:29.950" Score="5" Body="&lt;p&gt;Say elasticity (of demand) gives the &lt;strong&gt;percentage change&lt;/strong&gt; in quantity demanded in response to a &lt;em&gt;one&lt;/em&gt; percent change in price. Since the change is porcentual, if you are in a point of the demand where consumption is low, then a one percent decrease in price will result in a relatively big change in consumption, so elasticity is relatively high. As the quantity demanded increases along the demand curve, the &lt;em&gt;percentage&lt;/em&gt; increase in quantity resulting of a one percent decrease of price will decrease.&lt;/p&gt;&#xA;" OwnerUserId="72" LastActivityDate="2015-03-03T15:09:29.950" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4605" PostTypeId="2" ParentId="4596" CreationDate="2015-03-03T18:14:35.160" Score="12" Body="&lt;p&gt;Think of it this way. A yacht costs $\$0.01$. How much do you demand? Then double the price. Now how many would you demand?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then consider something closer to a market price. Something in 6 or 7 figures I guess. If you've got some money, you might buy one at the market price. But then if that price doubles, wouldn't that affect your demand a lot more than the 1 to 2 pennies change?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Simply put, as you go up the demand curve, the same percentage change in price is a much bigger absolute movement in price.&lt;/p&gt;&#xA;" OwnerUserId="14" LastActivityDate="2015-03-03T18:14:35.160" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4606" PostTypeId="1" CreationDate="2015-03-03T21:15:27.097" Score="3" ViewCount="194" Body="&lt;pre&gt;&lt;code&gt;I need to solve for optimal tax rates for two products.&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;In my model there are N identical households that maximize their utility function subject to a budget constraint.U is positive utility function, D is disutility function. Y is income.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U(x_1,x_2,y_1,y_2)- D(x_1,x_2,y_1,y_2)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Subject to:&#xA;$$q_1^x x_1+ q_2^x x_2+q_1^y y_1+q_2^y y_2 = Y$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The state government wants to tax goods $x_1$ and $x_2$ and they need to solve for the optimal tax rates $t_1^x$ and $t_2^x$. &#xA;$y_1$ is same good as $x_1$ but purchased in another state, $y_2$ is same good as $x_2$ but purchased from another state.&#xA;State government wants to maximize the sum of all utilities, subject to raising a certain amount of revenue.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$max ∑_hU(x_1,x_2,y_1,y_2)- D(x_1,x_2,y_1,y_2) + a[Y-q_1^x x_1- q_2^x x_2-q_1^y y_1- q_2^y y_2]$$ by choosing $t_1^x$ and $t_2^x$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Subject to&#xA;$$t_1^x ∑_hx_1 + t_2^x ∑_hx_2   ≥R$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When I take the first order conditions for $t_1^x$ and $t_2^x$, I end up with two complex equations that have Lagrange multipliers in them, therefore I am not able to obtain expressions for each tax rate that would not have the Lagrange multipliers in them.&#xA;Do I need to make more assumptions in order to obtain the expressions?&lt;/p&gt;&#xA;" OwnerUserId="4095" LastActivityDate="2016-01-26T15:45:30.070" Title="Optimal commodity taxation - solving for the optimal tax rates?" Tags="&lt;microeconomics&gt;&lt;public-economics&gt;&lt;commodities&gt;" AnswerCount="0" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4608" PostTypeId="1" AcceptedAnswerId="12744" CreationDate="2015-03-04T10:47:35.357" Score="5" ViewCount="217" Body="&lt;p&gt;It is widely recognised that GDP as conventionally measured does not reflect an economy’s impact on the environment and its consumption of natural resources.  There have been various attempts to develop broader measures of economic performance via adjustments to conventional GDP (some of which also address non-environmental limitations of conventional GDP), for example:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Measure of Economic Welfare (&lt;a href=&quot;http://www.economicsonline.co.uk/Global_economics/Measure_of_economic_welfare_MEW.html&quot;&gt;Nordhaus &amp;amp; Tobin 1972&lt;/a&gt;)&lt;/li&gt;&#xA;&lt;li&gt;“True NNP inclusive of natural resource stock diminution” (&lt;a href=&quot;http://qed.econ.queensu.ca/working_papers/papers/qed_wp_771.pdf&quot;&gt;Hartwick 1990&lt;/a&gt;)&lt;/li&gt;&#xA;&lt;li&gt;Gross Sustainable Development Product (GSDP) (&lt;a href=&quot;http://globalcommunitywebnet.com/globalcommunity/measurementofsd.htm#AF&quot;&gt;Global Community Assessment Centre&lt;/a&gt;)&lt;/li&gt;&#xA;&lt;li&gt;Genuine Progress Indicator (GPI) (eg &lt;a href=&quot;http://anielski.com/wp-content/documents/Alberta%20GPI%20Blueprint.pdf&quot;&gt;Anielski 2001&lt;/a&gt;)&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://en.wikipedia.org/wiki/Green_gross_domestic_product&quot;&gt;Green GDP&lt;/a&gt; (a term whose precise content appears to be disputed (see eg &lt;a href=&quot;http://www.rff.org/Documents/RFF-DP-06-24.pdf&quot;&gt;Boyd 2006&lt;/a&gt;))&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Is this just a proliferation of alternative measures, or is it possible to discern progress or convergence towards a best or most useful measure that adjusts GDP for environmental and resource impacts, or perhaps different best measures for different purposes?&lt;/p&gt;&#xA;" OwnerUserId="1417" LastActivityDate="2016-07-17T16:03:31.950" Title="Adjusting GDP for Environmental and Resource Impacts" Tags="&lt;macroeconomics&gt;&lt;environmental-economics&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4610" PostTypeId="1" CreationDate="2015-03-04T14:01:40.630" Score="2" ViewCount="2712" Body="&lt;p&gt;As the title suggests, I would like to know whether the numbers are generally calculated with real or nominal GDP. Besides that I would also like to know whether it matters and how significant of a difference this could make.&lt;/p&gt;&#xA;" OwnerUserId="2853" LastActivityDate="2017-02-08T10:40:12.440" Title="Are debt/GDP ratios calculated with real or nominal GDP as the denominator?" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;&lt;debt&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4611" PostTypeId="2" ParentId="4598" CreationDate="2015-03-04T15:03:50.710" Score="2" Body="&lt;p&gt;The intuition is that if Jessie spends the same amount on $S$ no matter the price $p$, then a % change in price of price will reduce the demand by the same % . The thing that might confuse you is that the formula you are given is an approximation for the true price elasticity of demand given by&#xA;\begin{align}&#xA;     \eta=\frac{dS\Big/ S}{dp\Big/ p}&#xA; \end{align} &#xA; where $d$ is the derivative operator. The approximation &#xA; \begin{align}&#xA;     \frac{\%\Delta S}{\% \Delta p}&#xA; \end{align}&#xA; only works for very small changes in $p$ and $S$. &#xA; To see why the elasticity of demand is $\mid 1 \mid$, let $b$ be the fixed amount spend on $S$. Then the quantity demanded $S$ is given by &#xA;\begin{align}&#xA;    S=\frac{b}{p}&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume that there is a &lt;em&gt;small&lt;/em&gt; price change from $p$ to $p+\epsilon, \, \epsilon&amp;gt;0$. Then we can define $S_1=\frac{b}{p}$ as the demand before the price change and $S_2=\frac{b}{p+\epsilon}$ as the demand after the price change. Thereby we see that&#xA;\begin{align}&#xA;    \frac{S_2\Big/ S_1 -1}{\frac{p+\epsilon}{p}-1} = \frac{\frac{b}{p+\epsilon}\Big/\frac{b}{p}-1}{\frac{p+\epsilon}{p}-1}=\frac{\frac{-\epsilon}{p+\epsilon}}{\frac{e}{p}}=-\frac{p}{p+\epsilon}\approx -1&#xA;\end{align}&#xA;when $\epsilon$ is small enough.&lt;/p&gt;&#xA;" OwnerUserId="3997" LastEditorUserId="4020" LastEditDate="2018-04-15T01:59:21.207" LastActivityDate="2018-04-15T01:59:21.207" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="4613" PostTypeId="1" AcceptedAnswerId="5683" CreationDate="2015-03-04T20:28:31.130" Score="2" ViewCount="8198" Body="&lt;p&gt;Source: p 130, Question 6.5, &lt;em&gt;Principles of Microeconomics&lt;/em&gt;, 7 Ed, 2014, by N Gregory Mankiw&lt;br&gt;&#xA;= (page unknown), Question 6.5, &lt;em&gt;Principles of Microeconomics&lt;/em&gt;, 4 Ed, 2008, by N Gregory Mankiw&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;p 125, Case Study: a &lt;strong&gt;payroll tax&lt;/strong&gt; [...] is a tax on the wages that firms pay their&#xA;  workers. ... When a payroll tax is enacted, the wage received by workers falls, and the&#xA;  wage paid by firms rises.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/b4TaS.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;$5.$ A senator wants to raise tax revenue and make workers&#xA;  better off. A staff member proposes raising the&#xA;  payroll tax paid by firms and using part of the extra&#xA;  revenue to reduce the payroll tax paid by workers.&#xA;  Would this accomplish the senator’s goal? Explain.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&lt;strong&gt;Given Answer:&lt;/strong&gt; Reducing the payroll tax paid by firms and using part of the extra revenue to reduce the payroll&#xA;  tax paid by workers would not make workers better off, because the division of the burden of a&#xA;  tax depends on the elasticity of supply and demand and not on who must pay the tax. Because&#xA;  the tax wedge would be larger, it is likely that both firms and workers, who share the burden of&#xA;  any tax, would be worse off.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I reddened the transfer of tax revenue from firms, and yellowed workers' lost wages. Why are workers worsened, by the transfer of tax revenue from firms (the red as above) intended to repay workers' lost wages (yellow)? The workers receive extra money, right? Please advise if I erred, but I think Question 5 can be graphed as above (I modified Figure 8, p 126). &lt;/p&gt;&#xA;" OwnerUserId="4020" LastEditorUserId="4020" LastEditDate="2015-05-16T17:23:09.640" LastActivityDate="2015-05-16T20:26:24.867" Title="How are workers harmed, from firms' payroll tax revenue aimed at reducing workers' tax?" Tags="&lt;microeconomics&gt;&lt;taxation&gt;" AnswerCount="3" CommentCount="11" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4614" PostTypeId="1" AcceptedAnswerId="4628" CreationDate="2015-03-04T20:34:49.683" Score="1" ViewCount="58" Body="&lt;p&gt;I thought that the St Louis FED was the ultimative resource for macro data, but even they don't appear to have a time series of &lt;strong&gt;state level&lt;/strong&gt; unemployment numbers for the United States.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Who does?&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2015-03-05T03:12:37.380" LastActivityDate="2015-03-05T19:46:15.150" Title="State Level Unemployment Data" Tags="&lt;macroeconomics&gt;&lt;data-request&gt;&lt;unemployment&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="4615" PostTypeId="2" ParentId="4613" CreationDate="2015-03-04T21:09:48.250" Score="3" Body="&lt;p&gt;As the answer says, it depends on the elasticity. The following is a short counter example.&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;A Short Example&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;Suppose that the firm is perfectly elastically demanding labor based on&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$L^D (w) = 5 - w$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And workers supplies labor:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$L^S (w) = w$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In equilibrium, we have $L = 2.5, w = 2.5$. Total income = $2.5^2$ Now install a tax:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$L^D (w) = 5 - (1+t)*w$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, we have that $w = \frac{5}{1+1+t}$ and $L = \frac{5}{1+1+t}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence total labor income is: $wL = \left(\frac{5}{2+t}\right)^2$. We give the payroll taxes to the workers, who then receive $(1+t)*wL$. Let $t=1$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Total worker income is then $2*\left(\frac{5}{3}\right)^2$ = 50/9. Previously, they got 50/8. They new total income, &lt;strong&gt;including payroll taxes&lt;/strong&gt;, is smaller than before.&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;So what is the math indicating?&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;The reason behind this is ignored externalities. &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;The payroll tax increases the labor cost, making the firms want to hire less&lt;/li&gt;&#xA;&lt;li&gt;The workers do not take into account that they are going to get the payroll taxes out later on, so they do not compensate for the higher labor costs by accepting smaller wages (see last paragraph)&lt;/li&gt;&#xA;&lt;li&gt;Given higher costs, we produce less. There is a deadweight loss (DWL) caused by disturbing taxation (production changed), and the only question is: how this DWL is shared. This depends on the elasticities of supply and demand w.r.t. wages. In this scenario, some of the DWL was taken over by the workers. They got partly compensated through taxes, but not by enough&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;h3&gt;Negative externality&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Why doesn't the worker take into account that the more they work, the higher the taxes they receive are going to be?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Basically, because each worker is very very small compared to the total labor force. Think about it this way: Compensating for the increase in labor cost means that the worker has to work for a smaller wage. This will hurt him a lot. The benefits of this $t\cdot wL$ are going to be shared with all other fellow workers. That means that his own share of his &quot;sacrifice&quot; is going to be small. His private gain is too small from doing this. On the other hand, he would receive the positive externality from all the other workers working more. To wit, he would receive some of their tax share - but since the other workers' incentives aren't set correctly either, they don't work &quot;as much&quot; either.&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="84" LastEditDate="2015-05-15T22:24:29.090" LastActivityDate="2015-05-15T22:24:29.090" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4616" PostTypeId="1" AcceptedAnswerId="4617" CreationDate="2015-03-04T22:58:08.577" Score="3" ViewCount="493" Body="&lt;p&gt;I'm reading a paper right now that refers to divisible and one-period IOUs, but doesn't explain what the shorthand stands for.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand it's a unit of payment, and guess that is the same &quot;thing&quot; cashless NeoKeynesian models use. Am I correct? What does IOU stand for? Are there any other relevant properties/definitions I need to be aware of? &lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-03-04T23:09:01.013" Title="What is an IOU?" Tags="&lt;academic-graduate&gt;&lt;money&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4617" PostTypeId="2" ParentId="4616" CreationDate="2015-03-04T23:09:01.013" Score="7" Body="&lt;p&gt;It stands for I-Owe-You. As in a promise. &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2015-03-04T23:09:01.013" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4618" PostTypeId="1" CreationDate="2015-03-05T00:25:19.047" Score="3" ViewCount="18676" Body="&lt;p&gt;I have a utility function of $U = B^{.67}Z^{.33}$ with Income $Y$, Price of Good B is $P_b$ and price of Z is $P_z$ I now need to derive an engel curve for this. I have no idea where to start.&lt;/p&gt;&#xA;" OwnerUserId="4104" LastActivityDate="2015-03-05T09:25:51.223" Title="Deriving Equation for Engel Curve" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="4619" PostTypeId="1" CreationDate="2015-03-05T01:46:21.477" Score="10" ViewCount="167" Body="&lt;p&gt;Some mutual funds make a point of only investing in ethical companies (eg avoiding arms companies, polluters, human rights violators, etc). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or other organisations pressure funds to stop investing in particular industries/companies. (&lt;a href=&quot;http://www.scoop.co.nz/stories/PO1503/S00046/350-calls-for-tsb-to-go-fossil-free.htm&quot;&gt;example&lt;/a&gt;). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some organisations involved in ethical investments are particular big. &lt;a href=&quot;http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&amp;amp;objectid=10853624&quot;&gt;For example the New Zealand Super Fund is worth $20bn,&lt;/a&gt; and frequently recieves pressure to divest in certain firms. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question is - does divesting from unethical firms have any impact on those companies?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;No doubt that consumers boycotting what the company is producing would have an effect, as that directly effects their revenue. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Similarly refusing to loan money, or provide additional capital to ethically questionable companies would limit their ability to do business. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But as far as I can see not owning shares in particular companies simply reduces demand for, and thus value of those companies, improving the return on investment for people who &lt;em&gt;are&lt;/em&gt; willing to own those shares. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does boycotting ownership of ethically questionable companies/industries have any effect on those companies/industries? &lt;/p&gt;&#xA;" OwnerUserId="96" LastActivityDate="2017-08-25T14:09:44.007" Title="Does 'ethical investing' have any effect?" Tags="&lt;investment&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="4620" PostTypeId="2" ParentId="4610" CreationDate="2015-03-05T01:55:14.747" Score="4" Body="&lt;p&gt;Usually, the debt/gdp ratio has no unit. For instance, if the debt is equal to 60% of the gdp, the debt/gdp ratio is 0.6. If you use real gdp as denominator and nominal debt as numerator, you end up with a number which is less clear to interpret. It is more relevant to have either both variables in nominal terms or both in real terms. In these two cases, the result is the same.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you denote D and GDP respectively nominal debt and nominal GDP. As long as you take the same price index P, the ratio in nominal variables, D/GDP, and the ratio in real variables, (D/P)/(GDP/P) are mathematically identical.&lt;/p&gt;&#xA;" OwnerUserId="4094" LastActivityDate="2015-03-05T01:55:14.747" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="4621" PostTypeId="1" CreationDate="2015-03-05T02:17:05.440" Score="3" ViewCount="196" Body="&lt;p&gt;I have data for a business firm for two periods. The data include: output (Q), capital (K), labor (L), wage (W) and the rental rate of capital (R). Here they are:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;    Period    K    L    W    R    Q&#xA;    1        30    50   200  100  500&#xA;    2        40    55   180  90   510&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;I need to find wage elasticity of demand, and, assuming &quot;the same mathematical relationship exists for capital&quot; (it is formulated in the task this way), rental elasticity of demand.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have no idea how to handle this and need some direction, please. I know that wage elasticity of demand should be %change in labor / %change in wage, and rental elasticity of demand should be %change in labor / %change in rental rate of capital.&#xA;However, it seems in this case it is not possible to apply these formulas right away. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I believe that it might be reasonable to compare labor L, wage W and rental rate of capital R using the same volume of output (Q). However, the production function is not given, so I have no idea how to arrive to comparable outputs. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I found that for equilibrium cases in the long run MP(L)/MP(K) = W/R. Moreover, W/R is the same in both periods, so it might be used for finding the answer. But I have no clues what to do further. Would be extremely grateful for any advice and direction.&lt;/p&gt;&#xA;" OwnerUserId="4105" LastEditorUserId="43" LastEditDate="2015-07-18T15:26:52.253" LastActivityDate="2015-07-18T15:26:52.253" Title="Production in the long run - calculating wage and rental elasticity of demand" Tags="&lt;elasticity&gt;" AnswerCount="0" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="4624" PostTypeId="2" ParentId="4618" CreationDate="2015-03-05T09:25:51.223" Score="6" Body="&lt;p&gt;It is quite simple. The engels curve is the change in demand for a good as a function of income, keeping prices fixed&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Solve the constrained maximisation problem&#xA;$$&#xA;\max B^{0.67}Z^{0.33}-\lambda(P_bB+P_zZ-Y) \Leftrightarrow \\&#xA;B=\frac{0.67Y}{P_b} \\&#xA;Z=\frac{0.33Y}{P_z} \\&#xA;\lambda = \frac{0.5303709372}{P_z^{33/100}P_b^{67/100}}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Fix prices at some level. I choose 1 for simplicity. Then the engels is simply&#xA;$$&#xA;Y=\frac{1}{0.67}B \\&#xA;Y=\frac{1}{0.33}Z&#xA;$$&#xA;&lt;img src=&quot;https://i.stack.imgur.com/sNDBq.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;" OwnerUserId="3997" LastActivityDate="2015-03-05T09:25:51.223" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4625" PostTypeId="1" AcceptedAnswerId="4626" CreationDate="2015-03-05T17:18:05.253" Score="2" ViewCount="268" Body="&lt;p&gt;I understand that inflation has an impact on the foreign direct investment. But can the opposite be true? &lt;strong&gt;The amount of foreign direct investment has an impact on the inflation of the country that receives the investment?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks &lt;/p&gt;&#xA;" OwnerUserId="4109" LastActivityDate="2015-03-05T18:00:19.463" Title="Does the amount of inward investments affect inflation?" Tags="&lt;macroeconomics&gt;&lt;inflation&gt;&lt;investment&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4626" PostTypeId="2" ParentId="4625" CreationDate="2015-03-05T18:00:19.463" Score="2" Body="&lt;p&gt;Yes, FDI and Inflation are correlated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Think of it this way, if foreigners buy assets, that reduces the supply available for domestic consumption, driving up prices, and if they buy them from citizens, it increases the domestic supply of money.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That being said, the relationship can be complicated because if there's substantial trade of real assets between foreigners, the effect might not trickle down to the domestic populace.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ex 1:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Alice and Bob are citizens of Country X. Charles is a citizen of Country Y. At equilibrium, sans FDI, Alice and Bob price the only pineapple at \$3. If Charles buys that pineapple for \$4 from either of them (assuming symmetric preferences for A &amp;amp; B), he has injected \$1 into the economy of Country X and removed 1 pineapple, consequently the supply of money has increased relative to the supply of assets, and prices should increase.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Ex 2:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;If Charles had left the pineapple in Country X, and David, a citizen of Country Z then bought it from him for \$5, and Charles did not invest any of that profit into Country X, the supply of capital in X would not be increased by this transaction, nor would the supply of assets, consequently the ratio of money to goods hasn't changed, and country-wide price levels shouldn't fluctuate.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Ex 3:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Assuming there was a second pineapple that Alice or Bob held, they could then borrow against it at a higher value (given the new equilibrium price and FMV), leaving more money in the economy and consequently increasing the price of sponges for Bob as the ratio of assets to money would have changed &lt;em&gt;in situ&lt;/em&gt;.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Note:&lt;/strong&gt; &lt;em&gt;This is an off the cuff explanation, not a formal model&lt;/em&gt;&lt;/p&gt;&#xA;" OwnerUserId="31" LastActivityDate="2015-03-05T18:00:19.463" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4627" PostTypeId="1" CreationDate="2015-03-05T18:06:48.987" Score="2" ViewCount="355" Body="&lt;p&gt;I have this&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&#xA;Labor (L)   0   1   2   3   4   5   6   7   8   9   10  11&#xA;Output      0   32  72  114 161 204 242 272 292 304 302 288&#xA;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;and I need to estimate function expressions for $TC$, $AVC$, and $MC$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have capital $K = 10$, wage $w = 30$, and rate $r = 50$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think that total costs are&#xA;$$&#xA;TC = wL + rK = 30 L + 50 \cdot 10 = 30 L + 500.&#xA;$$&#xA;and marginal costs are $MC = TC'(Q)$ but my $TC$ doesn't depend on $Q$. Is it $MC = TC'(L) = 30$ instead?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I'm calculating the marginal cost ($MC_t = \frac{\Delta TC}{\Delta Output}$) in discrete quantities I get&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&#xA;Labor (L)   0   1   2   3   4   5   6   7   8   9     10    11&#xA;Output      0   32  72  114 161 204 242 272 292 304   302   288&#xA;MC          -   25  20  19  17  19  21  27  40  67    -400  -57&#xA;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;but these numbers seem very wrong.&lt;/p&gt;&#xA;" OwnerUserId="4110" LastActivityDate="2015-03-09T09:10:24.813" Title="Estimate function expression for TC and MC" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="4628" PostTypeId="2" ParentId="4614" CreationDate="2015-03-05T19:46:15.150" Score="2" Body="&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/gdXgC.gif&quot; alt=&quot;DE Unemployment Rate Time Series&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Bureau of Labor Statistics Local Area Unemployment series of data provides monthly figures at the state level from 1976-2014 downloadable as Excel, CSV, or images.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I looked into the following Series:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;LASST100000000000003 &lt;br /&gt;&#xA;LASST100000000000004 &lt;br /&gt;&#xA;LASST100000000000005 &lt;br /&gt;&#xA;LASST100000000000006 &lt;br /&gt;&#xA;&lt;br /&gt;&#xA;LAUST100000000000003 &lt;br /&gt;&#xA;LAUST100000000000004 &lt;br /&gt;&#xA;LAUST100000000000005 &lt;br /&gt;&#xA;LAUST100000000000006 &lt;br /&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where LAU meant not seasonally adjusted, and LAS was seasonal, with the 3,4,5,6 standing for labor force, employment, unemployment, and unemployment rate, respectively, and the 10000000000000 (I believe) indicating the region I chose (in this example, the State of Delaware).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can use the &lt;a href=&quot;http://data.bls.gov/pdq/querytool.jsp?survey=la&quot; rel=&quot;nofollow noreferrer&quot;&gt;One Screen Search Tool&lt;/a&gt; to find whatever you need.&lt;/p&gt;&#xA;" OwnerUserId="31" LastActivityDate="2015-03-05T19:46:15.150" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4631" PostTypeId="1" AcceptedAnswerId="4632" CreationDate="2015-03-06T02:55:49.247" Score="3" ViewCount="42" Body="&lt;p&gt;Consider&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$f(x) + z = y \\&#xA;x = g(y)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have a feedback effect in mind:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;We Shock z by 1 percent&lt;/li&gt;&#xA;&lt;li&gt;as a direct response, y increases&lt;/li&gt;&#xA;&lt;li&gt;x increases with y through the second equation&lt;/li&gt;&#xA;&lt;li&gt;Through f(x), y increases. Repeat 3.-4. until new equilibrium&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;I'm interested in solving the elasticity of $x,y$ w.r.t. $z$. I guess I need some sort of concavity requirement in $f \circ g$. How do I approach this?&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="2776" LastEditDate="2017-08-03T13:39:39.583" LastActivityDate="2017-08-03T13:39:39.583" Title="Solving for Feedback Effects / Amplification" Tags="&lt;mathematical-economics&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4632" PostTypeId="2" ParentId="4631" CreationDate="2015-03-06T09:48:10.163" Score="2" Body="&lt;p&gt;We have an equilibrium given by&#xA;$$h_1(x,y)=f(x)+z-y=0,$$&#xA;$$h_2(x,y)=x-g(y)=0$$.&#xA;The implicit function theorem then says that (omitting the arguments):&#xA;$$\frac{\partial x}{\partial z}=\frac{-\det\left(&#xA;\begin{matrix}&#xA;  \frac{\partial h_1}{\partial z} &amp;amp; \frac{\partial h_1}{\partial y} \\&#xA;  \frac{\partial h_2}{\partial z} &amp;amp; \frac{\partial h_2}{\partial y} &#xA; \end{matrix}\right)}{\det\left(&#xA;\begin{matrix}&#xA;  \frac{\partial h_1}{\partial x} &amp;amp; \frac{\partial h_1}{\partial y} \\&#xA;  \frac{\partial h_2}{\partial x} &amp;amp; \frac{\partial h_2}{\partial y} &#xA; \end{matrix}\right)},\quad \frac{\partial y}{\partial z}=\frac{-\det\left(&#xA;\begin{matrix}&#xA;  \frac{\partial h_1}{\partial x} &amp;amp; \frac{\partial h_1}{\partial z} \\&#xA;  \frac{\partial h_2}{\partial x} &amp;amp; \frac{\partial h_2}{\partial z} &#xA; \end{matrix}\right)}{\det\left(&#xA;\begin{matrix}&#xA;  \frac{\partial h_1}{\partial x} &amp;amp; \frac{\partial h_1}{\partial y} \\&#xA;  \frac{\partial h_2}{\partial x} &amp;amp; \frac{\partial h_2}{\partial y} &#xA; \end{matrix}\right)}.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My source for this is &lt;em&gt;Mathematical Methods and Models for Economists&lt;/em&gt; by Angel de la Fuente, although I don't have the book to hand now and can't remind myself of the intuition.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This implies&#xA;$$\frac{\partial x}{\partial z}=\frac{g'(y)}{1-f'(x) g'(y)}$$&#xA;$$\frac{\partial y}{\partial z}=\frac{1}{1-f'(x) g'(y)}.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the implicit function theorem to hold and this solution to be valid, we need $1-f'(x) g'(y)\neq0$.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;More generally, the way this works is as follows: you write down a system of equations whose roots characterize the equilibrium:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$F_1(\mathbf{x};a)=0,F_2(\mathbf{x};a)=0,\ldots,F_n(\mathbf{x};a)=0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(where $a$ is the parameter of interest). From them, we construct the vector-valued function&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\mathbf{F}(x)=[F_1(\mathbf{x};a),F_2(\mathbf{x};a),\ldots,F_n(\mathbf{x};a)]$$&#xA;which has the Jacobian matrix&#xA;$$\mathbf J = \frac{d\mathbf F}{d\mathbf x}&#xA;= \begin{bmatrix}&#xA;    \dfrac{\partial F_1}{\partial x_1} &amp;amp; \cdots &amp;amp; \dfrac{\partial F_1}{\partial x_m}\\&#xA;    \vdots &amp;amp; \ddots &amp;amp; \vdots\\&#xA;    \dfrac{\partial F_n}{\partial x_1} &amp;amp; \cdots &amp;amp; \dfrac{\partial F_n}{\partial x_m} \end{bmatrix}.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To calculate the derivative of $x_i$ with respect to $a$, we construct the modified Jacobian in which we replace the $i^{\text{th}}$ column with derivative WRT $a$ instead of $x_i$. So, for $x_1$ this would look like&#xA;$$\mathbf{J}_{x_1}=\begin{bmatrix}&#xA;    \dfrac{\partial F_1}{\partial a} &amp;amp; \dfrac{\partial F_1}{\partial x_2} &amp;amp; \cdots &amp;amp; \dfrac{\partial F_1}{\partial x_m}\\&#xA;    \vdots &amp;amp; \vdots&amp;amp;\ddots &amp;amp; \vdots\\&#xA;    \dfrac{\partial F_n}{\partial a}&amp;amp;\dfrac{\partial F_n}{\partial x_2} &amp;amp; \cdots &amp;amp; \dfrac{\partial F_n}{\partial x_m} \end{bmatrix}.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The derivative of interest is then calculated as $$\frac{\partial x_i}{\partial a}=\frac{-\det\mathbf{J}_{x_i}}{\det\mathbf{J}}.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We need $\det\mathbf{J}\neq0$ for the implicit function theorem to be valid.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2015-03-06T09:48:10.163" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4633" PostTypeId="1" CreationDate="2015-03-06T13:51:50.340" Score="3" ViewCount="70" Body="&lt;p&gt;Consider a game of delegation. An uninformed principal must delegate some task to an informed agent with preferences imperfectly aligned.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm aware of plenty of literature that studies these kinds of problems when there is a continuous action space, Alonso and Matouschek (2008) for example. Their lit review also seems to feature papers with continuous spaces. Quadratic loss utilities are very popular.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are there any papers featuring delegation of a decision which is constrained to some discrete space? Do qualitative results change?&lt;/p&gt;&#xA;" OwnerUserId="14" LastActivityDate="2015-03-07T09:45:07.493" Title="Delegation with Discreteness" Tags="&lt;microeconomics&gt;&lt;game-theory&gt;&lt;principal-agent&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4634" PostTypeId="1" AcceptedAnswerId="4638" CreationDate="2015-03-06T14:12:02.830" Score="21" ViewCount="3719" Body="&lt;p&gt;I study pure mathematics at university and I'm looking to get into economics, with pretty much no background knowledge about it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are there good sources to learn from with a decent mathematical background in mind, or should I just start learning from &quot;normal&quot; sources, like watching video lectures from introductory courses, which don't assume much mathematical knowledge? Preferably, I'd like to embrace economics without those limitation.&lt;/p&gt;&#xA;" OwnerUserId="4117" LastEditorUserId="43" LastEditDate="2015-03-06T15:07:07.187" LastActivityDate="2016-09-19T15:17:33.590" Title="Where to start learning economics as a mathematician?" Tags="&lt;reference-request&gt;" AnswerCount="5" CommentCount="3" FavoriteCount="12" ContentLicense="CC BY-SA 3.0" />
  <row Id="4635" PostTypeId="2" ParentId="4634" CreationDate="2015-03-06T14:45:36.360" Score="5" Body="&lt;p&gt;A good introductory text might be something like Preston McAfee's Introduction to Economic Analysis if you want something that might substitute for the average principles text.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.mcafee.cc/Introecon/&quot; rel=&quot;noreferrer&quot;&gt;http://www.mcafee.cc/Introecon/&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are two versions available there. I understand the earlier version might be preferable if you're already comfortable with math. From the beginning of the 2006 draft:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;This book presents introductory economics (“principles”) material using standard&#xA;mathematical tools, including calculus. It is designed for a relatively sophisticated undergraduate who has not taken a basic university course in economics. It also contains the standard intermediate microeconomics material and some material that ought to be standard but is not. The book can easily serve as an intermediate microeconomics text. The focus of this book is on the conceptual tools and not on fluff. Most microeconomics texts are mostly fluff and the fluff market is exceedingly overserved by $100+ texts. In contrast, this book reflects the approach actually adopted by the majority of economists for understanding economic activity. There are lots of models and equations and no pictures of economists.&quot;&lt;/p&gt;&#xA;" OwnerUserId="14" LastActivityDate="2015-03-06T14:45:36.360" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4636" PostTypeId="1" CreationDate="2015-03-06T19:09:32.350" Score="3" ViewCount="58" Body="&lt;p&gt;&lt;em&gt;Following is a question that did not receive attention at math.SE at all. I am aware that is would be better suited there, but given its Economic background, perhaps it will get more attention here. If not, I'm happy to call this a failed attempt and delete it&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I need to solve $Ag=b$ for $b$, where $A$ is not symmetric.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$A g = b \\&#xA;A = \left(\begin{matrix} A_1 \\ E_{IJ} \otimes \mathbb 1  \end{matrix}\right)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For some positive integers $I, J$: $A$ has size $(IJ\cdot J)\times IJ$, $g$ has size $IJ \times 1$, and $b$ has size $IJ \times 1$. $A$ is vertically stacked $A_1, A_2$, where $A_1$ is $IJ\times IJ$.  $\mathbb 1$ is $J\times 1$ vector of ones, and $E$ is the identity matrix. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I need to solve this for $g$ on a computer for the case where $J$ small and $I$ large. I am fairly certain (through the way I get $A_1$ and $A_2$) that with $A_1$ being singular, my system of equations is exactly identifying $g$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm used to the case where $A$ is symmetric and invertible. How do I proceed here?&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2015-03-06T22:37:55.800" LastActivityDate="2015-03-06T23:36:33.763" Title="Solving Ag=b with non symmetric A" Tags="&lt;general-equilibrium&gt;" AnswerCount="1" CommentCount="9" ContentLicense="CC BY-SA 3.0" />
  <row Id="4638" PostTypeId="2" ParentId="4634" CreationDate="2015-03-06T21:18:36.723" Score="10" Body="&lt;p&gt;McCloskey's &lt;em&gt;Applied Theory of Price&lt;/em&gt; is somewhat legendary as a model of clarity. It is, sadly, no longer in print. However, a PDF is available here: &lt;a href=&quot;http://www.deirdremccloskey.com/docs/price.pdf&quot;&gt;http://www.deirdremccloskey.com/docs/price.pdf&lt;/a&gt;. The level of mathematical sophistication in this book (like in most good economics!) is not that high, but the book gives a deeper look at the important concepts than is to be found in most extant introductory undergraduate texts.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you really want a more mathematically formalised treatment then you are going to have to turn to graduate-level econ books. For microeconomics, the classic text of choice is &lt;em&gt;Microeconomic Theory&lt;/em&gt; by Mas-Colell et al.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you do go down the more formal route, I would urge you not to give up on simpler treatments altogether; they're great for building intuition. More than a decade of experience in economics has taught me that good intuition built through simple models is often far more valuable than a less intuitive understanding of a more sophisticated model.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2015-03-06T21:18:36.723" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4639" PostTypeId="1" AcceptedAnswerId="4645" CreationDate="2015-03-06T22:11:30.833" Score="2" ViewCount="156" Body="&lt;p&gt;Consider the following composite function&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \lambda(\theta(J)) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you want to think about it in more economic terms, think about it how values of firms $J$ affects market tightness $\theta$, and through that, job finding rates $\lambda$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $\eta_{a,b}$ denote the elasticity of $a$ w.r.t. $b$. Then we have, under some abuse of notation,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \eta_{\lambda, J} = \frac{\partial \lambda}{\partial \theta}\frac{\partial \theta}{\partial J} \cdot \frac{J}{\lambda} \\&#xA;\eta_{\lambda, J}= \frac{\partial \lambda}{\partial \theta} \frac{\theta}{\lambda}\frac{\partial \theta}{\partial J} \cdot \frac{J}{\lambda} \frac{\lambda}{\theta} \\&#xA;\eta_{\lambda, J}= \eta_{\lambda, \theta} \eta_{\theta, J} \frac{\lambda}{\theta}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Could someone give me an intuition for $\lambda / \theta$ in the last expression? Why is the total elasticity not just the chain of elasticities, $\eta_{\lambda, \theta}\cdot \eta_{\theta, J}$?&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-03-07T02:38:14.583" Title="Composite Elasticities" Tags="&lt;elasticity&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4640" PostTypeId="1" CreationDate="2015-03-06T23:17:17.117" Score="2" ViewCount="2205" Body="&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/lyYzH.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I reference &lt;em&gt;Principles of Microeconomics&lt;/em&gt;, 7 Ed, 2014, by NG Mankiw. The graph above is from p 100.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;[p 99:] ...supply&#xA;  is &lt;strong&gt;&lt;em&gt;perfectly elastic&lt;/em&gt;&lt;/strong&gt;. This occurs as the price elasticity of supply approaches infinity&#xA;  and the supply curve becomes horizontal, meaning that very small changes in the&#xA;  price lead to very large changes in the quantity supplied.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Please explain the red box? How's it true? The graph itself shows that at \$4 exclusively, all quantities $\ge 0$ are supplied. The graph depicts nothing for prices above \$4? (Footnote: I tried &lt;a href=&quot;http://www.amosweb.com/cgi-bin/awb_nav.pl?s=wpd&amp;amp;c=dsp&amp;amp;k=perfectly+elastic&quot; rel=&quot;nofollow noreferrer&quot;&gt;this&lt;/a&gt;)&lt;/p&gt;&#xA;" OwnerUserId="4020" LastEditorUserId="4020" LastEditDate="2015-03-08T22:24:46.920" LastActivityDate="2015-03-08T22:27:56.547" Title="How does Perfect Elasticity imply infinite quantity for any higher price?" Tags="&lt;microeconomics&gt;&lt;elasticity&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4641" PostTypeId="2" ParentId="4636" CreationDate="2015-03-06T23:36:33.763" Score="2" Body="&lt;p&gt;Maybe this helps. One method to do this is to use least squares (as was mentioned by @cc7768).&#xA;Matlab does this by default when using the &lt;code&gt;\&lt;/code&gt; operator.&#xA;This is also useful because it's sensible even if the system is overidentified as in the following example:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;A = [1 22; 2 100; 7 6]&#xA;b = [1 2 5]'&#xA;A\b&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;produces&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;ans =&#xA;&#xA;    0.7108&#xA;    0.0061&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;. In Python, this can be done with&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;import numpy&#xA;from numpy import linalg&#xA;A = numpy.matrix(&quot;1 22; 2 100; 7 6&quot;)&#xA;b = numpy.matrix(&quot;1 2 5&quot;).T&#xA;linalg.lstsq(A,b)[0]&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;which gives&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;matrix([[ 0.71084144],&#xA;        [ 0.00611577]])&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;.&lt;/p&gt;&#xA;" OwnerUserId="59" LastActivityDate="2015-03-06T23:36:33.763" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4642" PostTypeId="1" AcceptedAnswerId="6034" CreationDate="2015-03-06T23:41:11.347" Score="4" ViewCount="18037" Body="&lt;p&gt;All page numbers refer to &lt;em&gt;Principles of Microeconomics&lt;/em&gt;, 7 Ed, 2014, by NG Mankiw. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;[p 125:] Taxes levied on sellers and taxes levied on buyers are equivalent.&lt;br&gt;&#xA;  [p 156:] ... When a tax is levied on buyers, the demand curve shifts downward&#xA;  by the size of the tax; when it is levied on sellers, the supply curve shifts upward&#xA;  by that amount. In either case, when the tax is enacted, the price paid by buyers&#xA;  rises, and the price received by sellers falls. ...&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;What's the intuition?  I already proved this 'surprising conclusion' with a supply-demand graph (p 130, Question 6.7) and so ask NOT about a graphical or rigorous math proof.&lt;br&gt;&#xA;I understand the para below, but don't comprehend how it intuitively explains the supply-demand mechanisms (the quote below concerns only how the tax is sent to the government)?&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;[p 125:] The equivalence of these two taxes is easy to understand if we imagine that the&#xA;  government collects the $0.50 ice-cream tax in a bowl on the counter of each ice cream&#xA;  store.' .....&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="4020" LastEditorUserId="43" LastEditDate="2015-03-07T00:59:18.007" LastActivityDate="2015-06-08T03:27:30.190" Title="Taxes levied on sellers = Taxes levied on buyers" Tags="&lt;microeconomics&gt;&lt;taxation&gt;" AnswerCount="3" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4643" PostTypeId="2" ParentId="4642" CreationDate="2015-03-07T02:12:21.240" Score="2" Body="&lt;p&gt;Both buyers and sellers have a degree of elasticity to the price - how much they change their demand/supply if the price changes a bit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you tax the buyer, that is like increasing the price - he will reduce his demand according to his elasticity. Given a shrinking Q, the seller will adjust the price to get the most out of the deal - according to his elasticity. They &quot;split&quot; the tax, if you will, according to their elasticity. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Whoever has the higher elasticity - whoever reacts more strongly to price changes, is the &quot;winner&quot; - the other one will try to compensate relatively more for the price change in order to have the total quantity not changed too much.&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Comparison with Bargaining&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;You and your buddy have a project going, involving a startup cost. You were planning to split it. Then, for some reason, the project cost increases. Whoever is worse at bargaining (&quot;if you don't pay this much of the project cost, I leave&quot;), will have to take the lion share of the costs. Here, there is no bargaining, but whoever &quot;cares less about the price&quot; is the one with the better bargaining power.&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-03-07T02:12:21.240" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4644" PostTypeId="2" ParentId="4640" CreationDate="2015-03-07T02:26:13.100" Score="2" Body="&lt;p&gt;&quot;Calculus at infinity&quot; is a useful tool in Economics also, when we have managed to represent mathematically an economic situation. For example, when we model an intertemporal utility maximization problem with an &quot;infinite&quot; planning horizon, we only do it because it simplifies the mathematics considerably, while the approximation error is usually negligible for our purposes, since due to discounting, a finite-horizon setup would not produce any additional insight of value. We do not really argue that economic agents have &quot;infinite&quot; planning horizon.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The convention to talk about &quot;infinite supply&quot; belongs to the same category -but in this case it does not appear to help in anything.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reason that the Economics discipline exists is the &lt;em&gt;finiteness&lt;/em&gt; of resources. Supply of a good or service, or anything else related to Economics cannot be infinite - so whenever we use the term we usually mean &quot;very large&quot;...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;...and the &lt;em&gt;excerpt&lt;/em&gt; the OP quotes from the textbook does exactly that: it talks about &quot;price elasticity &lt;em&gt;approaching&lt;/em&gt; infinity... meaning that very small changes in price lead to &lt;em&gt;very large&lt;/em&gt; changes in quantity supplied&quot;. This passage takes a mathematical concept, and correctly translates it in meaningful economic terms.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;More formally, &lt;em&gt;&quot;any quantity&quot;&lt;/em&gt; does not mean &quot;infinite quantity&quot; because &quot;infinity&quot; is not a number, so it cannot represent a quantity (and let's not confuse &lt;em&gt;quantity&lt;/em&gt; with the concept of &lt;em&gt;cardinality&lt;/em&gt; used in set theory). The expression $x\geq 0$ does &lt;em&gt;not&lt;/em&gt; include &quot;$\infty$&quot;. $x$ belongs to the real numbers, and $\infty$ is &lt;em&gt;added&lt;/em&gt; to the real numbers to create the &quot;extended real numbers&quot; - it is not a real number itself.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Perhaps by &quot;logical extension&quot;, if all non-zero real quantities are supplied at USD $4$, then what is left for higher prices is only &quot;infinity&quot;. But this has no economic meaning -apart from the approximate one already mentioned in the passage quoted.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-03-08T22:27:56.547" LastActivityDate="2015-03-08T22:27:56.547" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4645" PostTypeId="2" ParentId="4639" CreationDate="2015-03-07T02:38:14.583" Score="3" Body="&lt;p&gt;But it is, there is just a simple oversight in your calculations:&#xA;We can indeed write identically&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\eta_{\lambda, J} = \frac{\partial \lambda}{\partial \theta}\frac{\partial \theta}{\partial J} \cdot \frac{J}{\lambda} \\&#xA;\implies \eta_{\lambda, J}= \left\{\frac{\partial \lambda}{\partial \theta} \frac{\theta}{\lambda}\right\}\left\{\frac{\partial \theta}{\partial J} \cdot \frac{J}{\lambda}\right\} \frac{\lambda}{\theta} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But the term in the second curly brackets is &lt;em&gt;not&lt;/em&gt; equal to $\eta_{\theta, J}$.&#xA;We have to re-arrange to get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\eta_{\lambda, J}= \left\{\frac{\partial \lambda}{\partial \theta} \frac{\theta}{\lambda}\right\}\cdot \left\{\frac{\partial \theta}{\partial J} \cdot \frac{J}{\theta}\right\} \frac{\lambda}{\lambda} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The fraction in the end now cancels and so &#xA;$$\eta_{\lambda, J}= \eta_{\lambda, \theta} \cdot\eta_{\theta, J} $$&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-03-07T02:38:14.583" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4646" PostTypeId="2" ParentId="4598" CreationDate="2015-03-07T03:16:25.930" Score="0" Body="&lt;p&gt;The Arc Elasticity is the one that will work using the percentage formula &lt;a href=&quot;https://economics.stackexchange.com/questions/4594/intuition-difference-in-price-elasticities-of-demand-due-to-different-bases/4602#4602&quot;&gt;(see also this post)&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\eta_{arc} = \frac {q_b-q_a}{q_b+q_a}\cdot \frac{p_b+p_a}{p_b-p_a} \tag{1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Quantity demanded is &#xA;$$S = E/p$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $E$ is total expenditure.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume that price increases from $p_a$ to $p_b = (1+c)p_a$, where $c$ is &lt;em&gt;not&lt;/em&gt; &quot;small&quot;. The second quotient in the Arc Elasticity formula is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{p_b+p_a}{p_b-p_a} = \frac{(1+c)p_a+p_a}{(1+c)p_a-p_a} = \frac {2+c}{c} \tag{2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Total expenditure remains the same, by assumption. So for the quotient involving quantities we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$q_b-q_a = \frac {E}{(1+c)p_a} - \frac {E}{p_a} = \frac {E - (1+c)E}{(1+c)p_a} = \frac {-c}{1+c}\cdot \frac {E}{p} \tag{3} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$q_b+q_a = \frac {E}{(1+c)p_a} + \frac {E}{p_a} = \frac {E + (1+c)E}{(1+c)p_a} = \frac {2+c}{1+c}\cdot \frac {E}{p} \tag{4} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {q_b-q_a}{q_b+q_a} = \frac{\frac {-c}{1+c}\cdot \frac {E}{p}}{\frac {2+c}{1+c}\cdot \frac {E}{p}} = \frac {-c}{2+c} \tag {5}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Combining $(2)$ and $(5)$ we get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\eta_{arc} = \frac {-c}{2+c} \cdot \frac {2+c}{c}  = -1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;with the minus sign indicating direction of movement.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-03-07T03:16:25.930" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4647" PostTypeId="2" ParentId="4633" CreationDate="2015-03-07T09:45:07.493" Score="1" Body="&lt;p&gt;I believe this is the basic case discussed in the Laffont-Martimort textbook &quot;The Theory of Incentives&quot;. The choice of the agent is either 0 or 1. You can find a complete description in &quot;The Moral Hazard&quot; chapter, section 4.2. The results are listed later, and while I am not sure, I do not think there should be qualitative differences.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2015-03-07T09:45:07.493" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4648" PostTypeId="2" ParentId="4642" CreationDate="2015-03-07T16:35:53.500" Score="2" Body="&lt;p&gt;The key point is to remember that prices are determined by the equilibrium condition that quantity supplied must equal the quantity demanded. This is a fundamental proposition of price theory. The result that you speak of is a logical consequence of that condition given the standard framework. In the presence of taxes, the effective price that a buyer or seller changes. So, prices must adjust so that equilibrium is again reached. The result is that prices adjust in the same way, regardless of who remits the tax. Just think of it that way.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, given the idea that prices adjust so that an equilibrium reaches, I think the best intuition beyond what has been given is to think of a tax as a wedge between the price buyers and sellers face. It doesn't matter whether you obtain that wedge by increasing buyers effective price or by lowering sellers' effecting price. Because prices will adjust to equilibrium, the only thing that matters in the end is the size (think width) of that wedge. &lt;/p&gt;&#xA;" OwnerUserId="59" LastActivityDate="2015-03-07T16:35:53.500" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4649" PostTypeId="1" AcceptedAnswerId="4670" CreationDate="2015-03-07T20:45:24.563" Score="2" ViewCount="62" Body="&lt;p&gt;When I took a course in consumer theory, the economy always had a single consumer, represented by a monotone positive utility function $u(x,y)$ and an income $I$. Given prices $p_x$ and $p_y$, it is possible to calculate the demands of the consumer for products $x$ and $y$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, I deal with a different type of economy: there are many consumers, each of them wants only a single unit of each product. Each consumer is represented by three positive values: $u_x$ (utility for having $x$), $u_y$ (utility for having $y$) and $u_{xy} \geq \max(u_x,u_y)$ (utility for having both $x$ and $y$). Given prices $p_x$ and $p_y$, each consumer buys either $x$ or $y$ or both, whichever gives the highest net utility (utility of product/s minus price). So it is possible to calculate the aggregate demands for $x$ and $y$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;MY QUESTION IS: Is there a natural/standard way to convert between these two types of economies?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I.e, given a utility function $u(x,y)$ and income $I$ for a single consumer, is it possible to construct a set of consumers with different $u_x$, $u_y$  and $u_{xy}$, such that the demand curves in both economies are the same?&lt;/p&gt;&#xA;" OwnerUserId="385" LastEditorUserId="385" LastEditDate="2015-03-08T06:48:13.000" LastActivityDate="2015-03-09T12:46:29.140" Title="From single-consumer-multi-units to multiple-consumers-single-unit" Tags="&lt;utility&gt;&lt;supply-and-demand&gt;&lt;consumer-theory&gt;" AnswerCount="1" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="4650" PostTypeId="1" AcceptedAnswerId="4661" CreationDate="2015-03-07T21:16:16.190" Score="1" ViewCount="738" Body="&lt;p&gt;Is the conclusion that both decline correct? Both long and short run.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $g_x$ denote growth rate of $x$, $g_c$ the growth rate of $\hat c$. In the model there is no depreciation so,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ g_c = \frac 1{\theta}[r - \rho - \theta g_x] $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\dot {\hat k} = f(\hat k) - \hat c - (n+g_x)\hat k$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;At steady state growth of $\hat k$ and $\hat c$ are both $0$. When that is the case:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\hat c^* = f(\hat k^*) - (n+g_x)\hat k^*$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also since $r = f'(k)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$f'(\hat k^*) = \rho + \theta g_x$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Somehow based on these equations I reach the opposite conclusion, i.e. that $\hat c^*$ and $\hat k^*$ will increase rather than decrease if $g_x$ is reduced.&lt;/p&gt;&#xA;" OwnerUserId="4125" LastEditorUserId="61" LastEditDate="2015-03-08T21:58:51.230" LastActivityDate="2015-03-09T02:36:23.883" Title="What happens to effective consumption and capital in the Ramsey/Cass-Koopmans(RCK) model when technological growth decreases?" Tags="&lt;macroeconomics&gt;&lt;economic-growth&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4651" PostTypeId="1" AcceptedAnswerId="4652" CreationDate="2015-03-07T23:24:45.970" Score="1" ViewCount="26" Body="&lt;p&gt;I run the following regression: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$r_i-r_f=a+b(r_m-r_f)+e&#xA;$$&#xA;Now I see that the alpha is not zero and I construct two different zero cost portfolios:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) 100% long in ($r_i-r_f$) and -b short in ($r_m-r_f$)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) 100% long in $r_i$ -b short in r_m and borrow/short (1-b) on$ r_f$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have problems determining the expected returns of the two portfolios and determining if they are the same.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would appreciate your help a lot!&lt;/p&gt;&#xA;" OwnerUserId="4126" LastActivityDate="2015-03-07T23:50:10.143" Title="Return on two different ways to construct a portfolio" Tags="&lt;finance&gt;&lt;financial-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4652" PostTypeId="2" ParentId="4651" CreationDate="2015-03-07T23:50:10.143" Score="0" Body="&lt;p&gt;I'm not sure I follow, but do the two portfolios mean the following? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For portfolio (1),&#xA;$$&#xA;r_i - r_f - b(r_m - r_f) = r_i + (b-1) r_f - b r_m&#xA;$$&#xA;and for portfolios (2)&#xA;$$&#xA;r_i - b r_m - (1-b) r_f = r_i + (b-1) r_f - b r_m.&#xA;$$&#xA;So, writing them out like this, they look the same.&lt;/p&gt;&#xA;" OwnerUserId="59" LastActivityDate="2015-03-07T23:50:10.143" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4653" PostTypeId="2" ParentId="4634" CreationDate="2015-03-08T00:07:14.920" Score="3" Body="&lt;p&gt;&lt;a href=&quot;http://en.wikipedia.org/wiki/Foundations_of_Economic_Analysis&quot; rel=&quot;nofollow&quot;&gt;Foundations of Economics Analysis, by Paul Samuelson&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;or &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0073511293&quot; rel=&quot;nofollow&quot;&gt;Economics, by Paul Samuelson (and William Nordhaus)&lt;/a&gt; or &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0070747415&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt; for the original.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Maybe I should at least mention this for historical reasons. The book is very old by now (though it has seen some updates with Nordhaus becoming a co-author on later editions), but it's amazing how many Nobel laureates in economics cite this book as an inspiration to go into economics---many of them coming from a background in math.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From &lt;a href=&quot;http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/2007/myerson-bio.html&quot; rel=&quot;nofollow&quot;&gt;Roger Myerson's prize biographical&lt;/a&gt;,&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;I have always loved to read about history and found a fascinating beauty in historical maps. But I hoped for something more analytical, and so I was naturally intrigued when I first heard about economics. I began reading Paul Samuelson's basic economics textbook in a high school vacation. When I got to college, I chose to concentrate in economics and applied mathematics...&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;From &lt;a href=&quot;http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/2000/heckman-bio.html&quot; rel=&quot;nofollow&quot;&gt;James Heckman's prize biographical&lt;/a&gt;,&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Samuelson's Foundations of Economic Analysis, was an exciting experience that shaped my desire to learn more economics...&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;From &lt;a href=&quot;http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/1970/samuelson-bio.html&quot; rel=&quot;nofollow&quot;&gt;Samuelson's biography&lt;/a&gt;, the mention this about his textbook:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;His Economics: An Introductory Analysis, first published in 1948, has become the best selling economics textbook of all time. The textbook has sold more than a million copies and has been translated into French, German, Italian, Hungarian, Polish, Korean, Portuguese, Spanish and Arabic. It is now in its fifth edition. &quot;The book's emphasis on different themes has changed with the changing of the nation's economic problems,&quot; wrote Business Week in 1959. &quot;The first edition was dominated by the end-of-the-war worry that widespread unemployment would return... later editions put growing stress on fiscal and monetary controls over inflation. In the later editions Samuelson has worked toward what he calls a 'neoclassical synthesis' of ancient and modern economic findings. Briefly, his synthesis is that nations today can successfully control either depression or inflation by fiscal and monetary policies... Some economists feel that Samuelson's book... is really his greatest contribution. It has gone a long way toward giving the world a common economic language.&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="59" LastActivityDate="2015-03-08T00:07:14.920" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4656" PostTypeId="1" AcceptedAnswerId="4660" CreationDate="2015-03-08T01:28:54.760" Score="1" ViewCount="22824" Body="&lt;p&gt;I am supposed to answer a question in my economics class and was wondering if someone could explain it out for me. The question is,&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;What is the effect of an increase in the expected inflation rate on the loanable funds market?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This question goes against what I was taught. I was taught about the Fisher Effect where the real interest rate is not effected by changes in expected inflation and that the quantity of loanable funds does not change with this rise in effect inflation. So, my instinctive answer upon reading the question would be to answer no effect on quantity or real interest rate and that there would be a rise in nominal interest rate. However, this was a multiple choice question and that wasn't even close to one of the answers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think I got the answer right by saying&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;It decreases the demand for loanable funds, thereby increasing the nominal interest rate.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;All of the answers involved a shift in the demand curve for loanable funds. My question is if anyone could explain to me why there would be a shift in the demand curve instead of what we would expect based on the Fisher Effect?&lt;/p&gt;&#xA;" OwnerUserId="4129" LastEditorUserId="175" LastEditDate="2015-06-09T11:12:10.540" LastActivityDate="2015-06-09T11:12:10.540" Title="Effects of an expected increase in the inflation rate on the market for loanable funds" Tags="&lt;inflation&gt;&lt;interest-rate&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="4657" PostTypeId="2" ParentId="4634" CreationDate="2015-03-08T03:06:45.523" Score="2" Body="&lt;p&gt;Complementary to the other answers, my suggestion would also be to check more than one book entitled &lt;strong&gt;&quot;Mathematics for Economics&quot;&lt;/strong&gt; or alike.&lt;br&gt;&#xA;It will give you an idea of what parts of mathematics does Economics use more often, and also, of how Economics translates into economic concepts the mathematical ones. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some very different books on the subject (without any particular order)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0393957330&quot; rel=&quot;nofollow&quot;&gt;Simon &amp;amp; Blume&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0521314984&quot; rel=&quot;nofollow&quot;&gt;A. Takayama&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;3) &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0273760688&quot; rel=&quot;nofollow&quot;&gt;Sydsaeter &amp;amp; Hammond&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;4) &lt;a href=&quot;http://www.goodreads.com/book/show/1398735.Fundamental_Methods_of_Mathematical_Economics&quot; rel=&quot;nofollow&quot;&gt;A.C. Chiang&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;...and of course &lt;a href=&quot;http://en.wikipedia.org/wiki/Foundations_of_Economic_Analysis&quot; rel=&quot;nofollow&quot;&gt;Samuelson's Foundations&lt;/a&gt; (already suggested).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A note of warning: if you are a &quot;pure math&quot; person, you may not like what you see into these books.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In general you will find more abstract mathematics into Game Theory and Theoretical Micro, although Stochastic Macro, as well as Finance (especially the latter with its insistence on using continuous time) can be pretty heavily mathematized.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, there is the sub-field of &quot;Mathematical Economics&quot;  if you want to feel more at home as regards approach and style. A journal of the filed is&#xA;&lt;a href=&quot;http://www.sciencedirect.com/science/journal/03044068&quot; rel=&quot;nofollow&quot;&gt;Journal of Mathematical Economics&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-03-08T03:06:45.523" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4658" PostTypeId="1" CreationDate="2015-03-08T07:34:01.307" Score="8" ViewCount="287" Body="&lt;p&gt;Interest rates keep dropping. In my country in northern Europe we now have negative interest rate - banks have to pay the central bank for lending it their money.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have two questions:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Why are interest rates lower than any time ever before?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Are low interest rates dangerous? The low interest rates will make it easier to borrow money for projects that would otherwise not have been possible. Irresponsible lending has proven dangerous in the past.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Are the low interest rates a way that the central banks are &quot;artificially resuscitating&quot; a poor economy which may finally lead to a crash? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Adding that we have never seen this situation before I ask if this situation with extremely low interest rates is dangerous?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One aspect of the question is: Are these low interest rates expected to stay low or are they considered an extreme value in a cyclic variation? &lt;/p&gt;&#xA;" OwnerUserId="4131" LastEditorUserId="4131" LastEditDate="2015-03-09T00:06:28.830" LastActivityDate="2020-03-02T05:01:33.443" Title="Are low interest rates dangerous?" Tags="&lt;interest-rate&gt;" AnswerCount="3" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="4659" PostTypeId="2" ParentId="4658" CreationDate="2015-03-08T12:09:01.170" Score="3" Body="&lt;p&gt;If by dangerous it is meant they add possible downwards volatility of assets, that could easily be argued for as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$ PV = D / (1+r)^t$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where D denotes any future income. This is especially the case if the reason for the low rates is very easy monetary policy, as such policy cannot be maintained and thus the rate is not equilibrium rate and must rise, causing a crash in asset values when that happens.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Central banks determinate the interest rates in the short run, their policies are targeted to lower rates, thus a low rate. The other reason is that of supply and demand. There is not much demand for credit (no profitable ideas, no more room for consumer credit) and on the other hand the supply of credit is significant due to central bank action. High supply and low demand equals a low rate.&lt;/p&gt;&#xA;" OwnerUserId="4125" LastEditorUserId="4125" LastEditDate="2015-03-08T12:16:10.807" LastActivityDate="2015-03-08T12:16:10.807" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="4660" PostTypeId="2" ParentId="4656" CreationDate="2015-03-08T20:23:13.860" Score="3" Body="&lt;p&gt;The Fisher Hypothesis is a standard example of the approach that argues that nominal magnitudes just reflect the real economy, they do not affect it. Denote $r$ the real interest rate, $i$ the nominal interest rate, and $\pi^e$ the expected inflation. Then the Fisher Hypothesis states that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$i = r+  \pi^e$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I write it this way to emphasize that it is the nominal interest rate that depends on the real one. In this framework, the real interest rate is determined in the real economy, say the marginal product of capital. So an increase in expected inflation will have the effect of increasing the nominal interest rate, and nothing else.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;How is this rationalized?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The demand schedule for loanable funds is drawn with respect to their price. The price of loanable funds is the &lt;em&gt;nominal&lt;/em&gt; interest rate. Magnitudes like expected inflation, if they have an effect, is to shift the whole demand schedule. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a standard diagram, and with supply curve assumed unaffected, your answer appears strange: since when a &quot;decrease in demand&quot; (shift to the left of the demand schedule), leads to an &lt;em&gt;increase&lt;/em&gt; in the equilibrium price? Intuitively, when customers start to demand less for any given price, this will lead to a &lt;em&gt;lower&lt;/em&gt; equilibrium price, not higher. But the second part of your answer asserts that the price, i.e. the nominal interest rate, will &lt;em&gt;increase&lt;/em&gt; due to this &lt;em&gt;downward&lt;/em&gt; shift in the demand schedule.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Before&lt;/em&gt; any re-equilibrium effect, a rise in expected inflation &lt;em&gt;reduces&lt;/em&gt; the real interest rate that prospective borrowers face. They may pay the same nominal interest rate, but the financial burden is smaller, due to the inflationary expectations: loans have just become cheaper, in real terms (while the &lt;em&gt;current&lt;/em&gt; purchasing power they represent has not been affected).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So inflationary expectations shift the demand schedule upwards-outwards.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, it would be arbitrary to keep the supply schedule fixed. If expected inflation increases, prospective lenders should have a tendency to increase their current consumption, thus &lt;em&gt;reducing&lt;/em&gt; the available funds: the supply schedule shifts upwards.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Fisher Hypothesis says that these movements will lead to an increase in the equilibrium nominal interest rate, and the increase will be equal to the increase in expected inflation, since the real interest rate &quot;should&quot; remain constant.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Delta i^* =  \Delta \pi^e \implies \Delta r =0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Moreover, the equilibrium quantity of loans will be unaffected, (and so real magnitudes like consumption will be unaffected).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/a7Rrm.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If no choice reflecting the above effects was given to you, and if &quot;none of the above&quot; was not an option, then the question was deficient, &lt;em&gt;or&lt;/em&gt; it postulated some additional assumption.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-03-08T20:32:23.820" LastActivityDate="2015-03-08T20:32:23.820" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4661" PostTypeId="2" ParentId="4650" CreationDate="2015-03-08T21:53:39.133" Score="1" Body="&lt;p&gt;When the (exogenous) rate of technological change/efficiency is smaller, the corresponding steady-state levels of consumption and capital per unit of effective labor, &lt;em&gt;increase&lt;/em&gt;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For capital, we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$f'(\hat k^*) = \rho + \theta g_x \implies \frac {\partial}{\partial g_x}f'(\hat k^*) = \theta &amp;gt;0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So if $g_x \downarrow \implies f'(\hat k^*) \downarrow \implies \hat k^* \uparrow$ due to decreasing marginal product of capital.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For steady-state consumption per unit of effective labor we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\hat c^* = f(\hat k^*) - (n+g_x)\hat k^*$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies \frac {\partial \hat c^*}{\partial g_x}= f'(\hat k^*) \frac {\partial \hat k^*}{\partial g_x} - \hat k^* - (n+g_x) \frac {\partial \hat k^*}{\partial g_x}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$=[f'(\hat k^*) - n - g_x]\cdot \frac {\partial \hat k^*}{\partial g_x} - \hat k^* $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The term in brackets is assumed positive, i.e. we have already assumed&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$f'(\hat k^*) = \rho + \theta g_x &amp;gt; n + g_x \implies \rho &amp;gt; n + (1-\theta)g_x$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;in order to exclude infinite utility. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Moreover, evidently $\frac {\partial \hat k^*}{\partial g_x} &amp;lt;0$ so in all&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\partial \hat c^*}{\partial g_x} &amp;lt;0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, if $g_x \downarrow \implies \hat c^* \uparrow $.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;See &lt;a href=&quot;http://down.cenet.org.cn/upfile/8/200751171644184.pdf&quot; rel=&quot;nofollow&quot;&gt;Barro &amp;amp; Martin&lt;/a&gt;, ch. 2 page 102, where they discuss the  $g_x \uparrow$ case (in p. 101 they discuss the constraint on the parameters).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Comment:&lt;/strong&gt; This result may appear counter-intuitive, but a deeper examination of the model shows that if $g_x$ is lower, &lt;em&gt;utility per capita&lt;/em&gt; is lower. Using &quot;consumption per unit of effective labor&quot; is a modeling tactic, what interests us is what happens per individual. So no, the model does &lt;em&gt;not&lt;/em&gt; argue in favor of lower productivity/technology.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-03-09T02:36:23.883" LastActivityDate="2015-03-09T02:36:23.883" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="4662" PostTypeId="1" CreationDate="2015-03-08T22:11:04.920" Score="3" ViewCount="291" Body="&lt;p&gt;I'm not sure, but I think I've read somewhere that because the Classical Linear Regression model assumes to have a random sample, when researchers think they might not be in presence of a sample with that property, they try to use some randomization technique to make sure the usual theory may be applied.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In Hayashi's Econometrics, chapter 2, he develops the OLS and studies its large-sample properties in a generalization of iid sample. He assumes that the sample is ergodic, and stationary, and that the regressors multiplied by the error terms (the same that define the orthogonality conditions) also follow a martingale difference sequence.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is, given a sample, is there a way to know if it satisfies ergodicity, stationarity, and martingale diff. seq.? Also, even if the sample does not satisfy it, is there a way to make sure that we are able to obtain such a sample, when randomization techniques are not possible to apply?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;P.S.:&#xA;&lt;a href=&quot;https://stats.stackexchange.com/questions/140910/how-to-detect-if-ergodicity-stationarity-and-martingale-dif-sequence&quot;&gt;This question&lt;/a&gt; is also posted in CrossValidated, but with a different intention. When posting it here, I'm looking more for a perspective of applied econometricians, not so much for formal mathematical explanation of the possible existing methods. But of course, if you're willing to formalize and going into depth I would also be very thankful.&lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="-1" LastEditDate="2017-04-13T12:44:19.590" LastActivityDate="2015-06-10T20:33:00.960" Title="How to detect if Ergodicity, Stationarity and Martingale. dif. sequence are satisfied?" Tags="&lt;econometrics&gt;&lt;applied-econometrics&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="4663" PostTypeId="1" AcceptedAnswerId="7063" CreationDate="2015-03-08T22:14:17.130" Score="2" ViewCount="6415" Body="&lt;p&gt;Source: p 191, Question 9.7b, 9.7c, &lt;em&gt;Principles of Microeconomics&lt;/em&gt;, 7 Ed, 2014, by NG Mankiw&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Consider a country that imports a good.&#xA;  True or false. Explain your answer.&lt;br&gt;&#xA;  b) “If demand is perfectly inelastic, there are no gains&#xA;  from trade.”&lt;br&gt;&#xA;  c) “If demand is perfectly inelastic, consumers do not&#xA;  benefit from trade.”&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Please explain if &lt;a href=&quot;https://answers.yahoo.com/question/index?qid=20101024184934AAOyIhd&quot; rel=&quot;nofollow noreferrer&quot;&gt;this Best Answer&lt;/a&gt; is wrong? It claims that b) and c) are true. Yet my own work below shows a surplus of $+B$ after imports $\implies$ Gains from importing $\implies$ B and C are false.&lt;br&gt;&#xA;Please feel free to correct my graph, but please also explain the intuition.&lt;br&gt;&#xA;I wish to develop intuition, rather than be mechanically engrossed in graphs. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/SfqQn.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;" OwnerUserId="4020" LastActivityDate="2015-08-29T01:35:27.127" Title="What does perfectly inelastic demand imply about gains from trade and domestic consumers?" Tags="&lt;microeconomics&gt;&lt;international-trade&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="4664" PostTypeId="2" ParentId="4619" CreationDate="2015-03-08T23:57:57.707" Score="3" Body="&lt;p&gt;In a world where capital markets are infinitely deep there shouldn't be any price response to capital and so we wouldn't expect any consequences on firm behavior. There is some good empirical evidence for &lt;a href=&quot;http://pages.stern.nyu.edu/~lpederse/papers/SlowMovingCapital.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;slow moving capital&lt;/a&gt; so that's probably not true. Ethical investing is likely to drive up capital costs at least some. In which case your question boils down to two questions, &quot;can an non-ethical company become an ethical one&quot; and one that may seem quite different, &quot;what is the elasticity of demand for capital with respect to the price of capital?&quot; Tobacco and munitions companies can shift into other business but they can't get ethical investment funds without abandoning that business. Other businesses like fair-trade coffee and certified conflict-free diamonds, may allow ethical investing in the current business with higher costs. The former group really only have one choice, to shrink in response to expensive capital. The latter group have a second option, to shift into ethical investing business models that may be more expensive but less expensive than the increase in the cost of capital. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's ignore that first channel for a minute. Let's just consider a world with some ethical industries and some non-ethical ones. One day some people wake up and become ethical investors and this causes a change in the demand for non-ethical securities. If firms have an inelastic demand for capital (lower right graph, moving from $S_2$ to $S_1$) then the quantity of capital demanded changes relatively little from the ethical preference shock and so the  total capital invested in the non-ethical industry changes very little ($Q_2$ to $Q_1$). Instead returns go up a lot ($P_2$ to $P_1$) for those investors who remain invested in non-ethical industries. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand, if capital demand is quite inelastic (lower left graph, moving from $S_2$ curve to $S_1$)), the return on capital changes very little ($P_2$ to $P_1$) but the total capital invested in  non-ethical industries falls a lot ($Q_2$ to $Q_1$). In that world the ethical industries crowd out the non-ethical ones because the profits aren't there to preserve their capital supply.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now consider production shifting. If substitution into ethical practice is more expensive than paying a higher cost of capital, this won't be an important channel. Firms are better of taking their licks in the capital markets. However, if substitution is cheaper (like when capital demand is inelastic and and substitution easy) then behavioral adaption will become the dominant channel.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In practice, according to &lt;a href=&quot;http://www.iijournals.com/doi/abs/10.3905/joi.1997.57&quot; rel=&quot;nofollow noreferrer&quot;&gt;Does Ethical Investing Impose a Cost Upon the Firm? A Theoretical Perspective&lt;/a&gt; by James J. Angel and Pietra Rivoli (1997), the actual effects on capital costs and quantities are quite small, suggesting that neither industry shrinking nor industry transformation are important under prevailing circumstances. If more money shifts into ethical investing this could easily change.&lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="2776" LastEditDate="2017-08-25T14:08:22.647" LastActivityDate="2017-08-25T14:08:22.647" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4665" PostTypeId="1" CreationDate="2015-03-09T03:55:04.967" Score="9" ViewCount="902" Body="&lt;p&gt;Here in New Zealand our lowest denomination coin is 10c after the 5c was removed about 10 years ago. I think generally the public is pretty happy about the move. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's quite a common argument to &lt;a href=&quot;http://en.wikipedia.org/wiki/Penny_debate_in_the_United_States&quot;&gt;remove the penny from circulation in the United States.&lt;/a&gt; The main argument being that pennies are expensive to produce, are virtually worthless, and tie up time when they're given as change. The argument is that they don't actually serve the purpose of currency very well in terms of easily transferring value, because their value is so small for the effort of using them. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question I have is, what economic effect would removing the smallest denomination currency have? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Things to consider are:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Immediate rounding on smaller items (eg. newspapers). &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Less piggybanking as pennies are no longer lost or stuck in collection jars. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I guess the question is whether removing lowest denomination coins has an inflationary effect. &lt;/p&gt;&#xA;" OwnerUserId="96" LastActivityDate="2017-08-17T08:47:54.360" Title="What effect would removing the lowest denomination currency have?" Tags="&lt;currency&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4666" PostTypeId="2" ParentId="4627" CreationDate="2015-03-09T09:10:24.813" Score="2" Body="&lt;p&gt;As the OP corrected in the comments, using $K=20, w=800$, and $r=500$, so $TC = 10000 + 800L$, we get , in the $\{Q,C\}$ space&#xA;&lt;img src=&quot;https://i.stack.imgur.com/Bnfqm.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This looks pretty text-book like. The fact that there are levels of labor for which output is reduced, tells us that for these levels we have to employ more of the &quot;fixed&quot; factor, capital (which thus stops being fixed).&lt;br&gt;&#xA;The function as is, with capital fixed at $10000$, stops having economic sense after $L=9$.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-03-09T09:10:24.813" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="4667" PostTypeId="1" AcceptedAnswerId="18260" CreationDate="2015-03-09T09:48:58.127" Score="2" ViewCount="175" Body="&lt;p&gt;I have $P_1 = 24$, $Q_1 = 800000$, $P_2 = 32$ and price elasticity $e = -8$ and need to find the function $P(Q)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I guess I need to find $Q_2$ by&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\frac{(Q_2-Q_1)/Q_1}{-(P_2-P_1)/P_1} = -8 \Leftrightarrow Q_2 = \frac{8800000}{3}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But does it make sense that the quantity will be so much higher by a price increment and thus not follow the law of demand? I know that $e = -8$ is a high price elasticity but this is quite extreme I think.&lt;/p&gt;&#xA;" OwnerUserId="4110" LastActivityDate="2017-09-13T10:01:43.380" Title="Find quantity from price elasticity" Tags="&lt;microeconomics&gt;&lt;elasticity&gt;" AnswerCount="2" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="4668" PostTypeId="2" ParentId="4667" CreationDate="2015-03-09T10:12:03.900" Score="0" Body="&lt;p&gt;You have that price elasticity is defined by:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\varepsilon_{d} = -\frac{\partial Q}{\partial P}\frac{P}{Q} \approx -\frac{P}{Q}\frac{\Delta Q}{\Delta P}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Initially we have $P = P_{1}$ and $Q=Q_{1}$ and after the perturbation we have $\Delta P = (P_{2} - P_{1})$ and $\Delta Q = (Q_{2} - Q_{1})$, therefore:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$-\frac{P_{1}}{Q_{1}}\frac{Q_{2}-Q_{1}}{P_{2}-P_{1}}=-8 \implies Q_{2}-Q_{1}=\frac{8Q_{1}(P_{2}-P_{1})}{P_{1}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And therefore:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ Q_{2}=Q_{1}+\frac{8Q_{1}(P_{2}-P_{1})}{P_{1}}=\frac{8800000}{3} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is so large, partly because the price elasticity is so large, but also probably because of the error in the finite difference approximation method over such large changes in $P$.&lt;/p&gt;&#xA;" OwnerUserId="4083" LastEditorUserId="2776" LastEditDate="2017-09-13T10:01:43.380" LastActivityDate="2017-09-13T10:01:43.380" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="4669" PostTypeId="2" ParentId="2983" CreationDate="2015-03-09T12:37:18.370" Score="4" Body="&lt;p&gt;Just to show that indeed, $\sum_j K_jN_j = 1$, we have the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$K_j$ is the fraction of total expenditure directed to good $j$. Total expenditure is also market income (denote it by $I_m = p_1Q_1+...+p_nQ_n$). so&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$K_j = \frac {p_jQ_j}{I_m}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$N_j$ is the &lt;em&gt;market&lt;/em&gt; income elasticity of demand for good $j$. So&#xA;$$N_j = \frac {\partial Q_j}{\partial I_m}\cdot \frac {I_m}{Q_j}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$K_jN_j = \frac {p_jQ_j}{I_m}\cdot \frac {\partial Q_j}{\partial I_m}\cdot \frac {I_m}{Q_j}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Simplify,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$K_jN_j = p_j\frac {\partial Q_j}{\partial I_m}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Silently, we assume that prices are not affected. So we can insert the price into the partial derivative&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$K_jN_j = \frac {\partial (p_jQ_j)}{\partial I_m}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\sum_j K_jN_j = \sum_j\frac {\partial (p_jQ_j)}{\partial I_m} = \frac {\partial }{\partial I_m}(p_1Q_1+...+p_nQ_n) = \frac {\partial I_m}{\partial I_m} = 1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By weighting the income demand elasticity for each good by the expenditure-weight it has on the whole economy, we essentially arrive at a tautology, saying &quot;if total market expenditure increases by 100 Euros, then ... total market expenditure will increase by 100 euros&quot;. What Becker wants is to decompose this tautology into something a bit more insightful, as regards differences in individual incomes.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-03-09T12:37:18.370" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="4670" PostTypeId="2" ParentId="4649" CreationDate="2015-03-09T12:46:29.140" Score="1" Body="&lt;p&gt;The cumulative distribution function (CDF) describes the probability that a random variable X with a given probability distribution will be found to have a value less than or equal to x. That is: $$F_X(x) = P(X \leq x) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this context, think of $X$ as the valuation of a particular unit demander. The demands are distributed with a certain probability distribution. So the the CDF tells you the probability of  a randomly drawn demander of having a valuation at least as large as $x$. If everyone demands either one unit if the price $p \leq X$ and 0 otherwise, then this also gives a demand function:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Q_d(p) = P(X \geq p) = 1 - P(X \leq p) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;because at each price $p$ everyone with a valuation at least as high as $p$ will buy their one unit. But the fraction of people with a valuation at least as high as $p$ is one minus the fraction of people with valuations $p$ or lower. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Next, consider a single household with a demand function that just so happens to look like $1 - P(X \leq p) $. This household will have an identical demand for the good at all prices as the collective demand of the unit demanders above. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I believe this generalizes to the more complex case you present in the question but I haven't worked out the details. &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2015-03-09T12:46:29.140" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4671" PostTypeId="2" ParentId="4665" CreationDate="2015-03-09T13:04:33.253" Score="3" Body="&lt;p&gt;The practice of rounding to the smallest currency unit is called &lt;a href=&quot;http://en.wikipedia.org/wiki/Swedish_rounding&quot; rel=&quot;nofollow&quot;&gt;Swedish rounding&lt;/a&gt;. I know of a few papers that discuss likely economic concequences. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.jstor.org/stable/40326060?seq=1#page_scan_tab_contents&quot; rel=&quot;nofollow&quot;&gt;Eliminating the Penny from the U. S. Coinage System: An Economic Analysis&lt;/a&gt; Lombra (2001) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.jstor.org/stable/20642337?seq=1#page_scan_tab_contents&quot; rel=&quot;nofollow&quot;&gt;Time to Eliminate the Penny from the U.S. Coinage System: New Evidence&lt;/a&gt; Whaples (2007)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.jstor.org/stable/20642338?seq=1#page_scan_tab_contents&quot; rel=&quot;nofollow&quot;&gt;Pennies, Pricing, and Rounding: Is All the Relevant Analysis in?&lt;/a&gt; Lombra (2007) &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-03-10T12:16:17.043" LastActivityDate="2015-03-10T12:16:17.043" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4672" PostTypeId="1" CreationDate="2015-03-09T17:11:17.503" Score="1" ViewCount="60" Body="&lt;p&gt;There is company A, which has Assets = \$100, Equity = \$50, Debt = \$50.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I, Ant, found a new company, company B. I personally invest 10 in this company, and I find people who lend me \$50. Assets = \$60, Equity = \$10, Debt = \$50.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With this \$60 cash I buy company A (I apply a \$10 premium because I can't expect to buy it at the current market price. Also I assume that the book value of equity is equal to the market value of equity)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The shareholder of the company A are happy as they got away with a 10 premium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The balance sheet of B now looks like&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assets = \$100 Debt = \$150 (?) Equity = (?)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't know exactly how debt and equity would be in this case.&#xA;Also, I believe that the market value of the debt held by debtholder of the first company should go down, because now they have that their debt is alongside another 50 million dollars of debt against company assets that are still fixed at 100.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can somebody help me clear up this point?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Also, help me find the correct tags.. It seems like there are very few!)&lt;/p&gt;&#xA;" OwnerUserId="4137" LastEditorUserId="69" LastEditDate="2015-03-09T19:01:53.277" LastActivityDate="2015-03-10T01:35:59.617" Title="Understanding Leveraged Buyout" Tags="&lt;corporate-finance&gt;&lt;accounting&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4673" PostTypeId="1" AcceptedAnswerId="4675" CreationDate="2015-03-09T17:36:14.897" Score="3" ViewCount="136" Body="&lt;p&gt;So I have this Game Theory problem, and I have a solution, but at a certain point I assume the symmetry of the problem to finally get my answer.  I'd like to be able to avoid using symmetry, though, so that in the future I can solve problems that are not symmetric.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So Alice and Beatrice are suppliers, Ashok and Bob buy from them to then sell again at retail.  Ashok only buys from Alice and Bob only buys from Beatrice.  First Alice and Beatrice set their prices simultaneously, $p_{A},p_{B}$ respectively.  Then Ashok and Bob set their quantities $q_{A},q_{B}$, and their price is determined by &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$P=1-q_{A}-q_{B}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The payoffs for Alice, Beatrice, Ashok, and Bob respectively are $p_{A}q_{A}, p_{B},q_{B}, q_{A}(P-p_{A}), q_{B}(P-p_{B})$.  I want to find a sub-game perfect equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I first look at Ashok and Bob and, for any fixed prices from Alice and Beatrice, find the intersection of their best response curves.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{dB_{A}}{dq_{A}} = 1-2q_{A}-q_{B}-p_{A}=0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{dB_{B}}{dq_{B}} = 1-q_{A}-2q_{B}-p_{B}=0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We're solving for $q_{A},q_{B}$ so we get &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$1-3q_{A}-2p_{A}+p_{B}=0 \Rightarrow$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$q_{A}=-\frac{1-2p_{A}+p_{B}}{3}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Similarly for $q_{B}$.  Once we know those, we can substitute into the first equation for price and solve for $p_{A},p_{B}$.  But the solution will not be unique.  It becomes unique when I assume $p_{A}=p_{B}$ but if anyone can point out how I can solve this without that equation, I'd appreciate it.&lt;/p&gt;&#xA;" OwnerUserId="4138" LastEditorUserId="5635" LastEditDate="2015-11-12T09:53:34.000" LastActivityDate="2015-11-12T09:53:34.000" Title="Game Theory (continuous strategies, pure strategy)" Tags="&lt;game-theory&gt;&lt;industrial-organisation&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="4674" PostTypeId="1" CreationDate="2015-03-09T18:54:40.267" Score="3" ViewCount="15393" Body="&lt;p&gt;Consider an economy described by the per worker production function function:&#xA; $$y = f(k) = 2k^\frac{1}{2}$$   and a depreciation rate $δ$ of $.05, 5%$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Considering what we know to be true of the golden rule level of capital, find the golden rule level of capital $k_{gold}$ and output $y_{gold}$ using the above information.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose there is no population growth rate $n = 0$.  Given the Solow model equation $(\Delta k = sf(k) – \delta k)$, and the answers for $k^*$ and $y^*$ you got in part A, what savings rate must this country have to put us at the golden rule level of capital?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is what I did:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In part A, I took the derivatives of the depreciation rate, and the&#xA;  per worker production function, and got that $K =.05$ just by the&#xA;  simple power rule. To find the output I plugged $K=.05$ back into the&#xA;  per worker production function to get $2(.05)^{1/2}$ and came up with&#xA;  an output of $.447$&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Part B: Since the equation I need now is $sf(k) = \delta k$ which&#xA;  using what I know, $s\times.447 =.05 \times .05$ Solving for $s$ I get&#xA;  that the savings rate is $0.556$ %.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;However, this is not correct. Please help me find the correct solution method and correct solution.&lt;/p&gt;&#xA;" OwnerUserId="4104" LastEditorUserId="69" LastEditDate="2015-03-11T13:51:56.020" LastActivityDate="2015-03-12T16:05:59.770" Title="Deriving the golden-rule savings rate in a Solow Model" Tags="&lt;macroeconomics&gt;&lt;economic-growth&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4675" PostTypeId="2" ParentId="4673" CreationDate="2015-03-09T20:20:25.663" Score="2" Body="&lt;p&gt;I think I figured this out--I forgot to imposed the constraints on Alice and Beatrice, using the fact that they know this about Ashok and Bob and will strategize accordingly to maximize payoff.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus if &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$q_{A} = -\frac{1-2p_{A}+p_{B}}{3}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$q_{B} = -\frac{1-p_{A}-2p_{B}}{3}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;then Alice maximizes her payoff by &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\partial B_{alice}}{\partial p_{A}} = \frac{\partial }{\partial p_{A}}\left(p_{A}\left[-\frac{1-2p_{A}+p_{B}}{3}\right]\right)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$=-\frac{1}{3}(1-4p_{A}+p_{B})=0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With the same analysis given for Beatrice you get two linear equations in $p_{A},p_{B}$.&lt;/p&gt;&#xA;" OwnerUserId="4138" LastEditorUserId="4138" LastEditDate="2015-03-10T02:58:16.673" LastActivityDate="2015-03-10T02:58:16.673" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4676" PostTypeId="2" ParentId="4672" CreationDate="2015-03-10T01:35:59.617" Score="1" Body="&lt;p&gt;There are two cases to consider: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;1)&lt;/strong&gt; Company B buys the shares of company A, but keeps A as a separate entity, a $100$% subsidiary. The individual Balance Sheets here will be&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;COMPANY B&lt;/strong&gt;&#xA;\begin{array} {| r | r | r |}&#xA;  \hline &#xA;\hline                       &#xA;  \text {ASSETS} &amp;amp; \text {USD} &amp;amp; \text{LIABILITIES} &amp;amp; \text{USD}\\&#xA;  \hline                      &#xA;\text{Goodwill} &amp;amp; 10 &amp;amp; \text{Equity} &amp;amp; 10\\&#xA;\text{Participations} &amp;amp; 50 &amp;amp; \text {Debt} &amp;amp; 50\\&#xA;\hline&#xA;\text {TOTAL ASSETS} &amp;amp; 60 &amp;amp; \text{TOTAL LIABILITIES} &amp;amp; 60\\&#xA;  \hline  &#xA;\end{array}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The overall value has not changed, only the composition of the Assets. Nothing changes in the Balance Sheet of Company A - it was &lt;em&gt;not&lt;/em&gt; a &lt;em&gt;party&lt;/em&gt; in the transaction, its shares was the &lt;em&gt;object&lt;/em&gt; of the transaction&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;COMPANY A&lt;/strong&gt;&#xA;\begin{array} {| r | r | r |}&#xA;  \hline &#xA;\hline                       &#xA;  \text {ASSETS} &amp;amp; \text {USD} &amp;amp; \text{LIABILITIES} &amp;amp; \text{USD}\\&#xA;  \hline                      &#xA;\text{Assets} &amp;amp; 100 &amp;amp; \text{Equity} &amp;amp; 50\\&#xA;\text{} &amp;amp;  &amp;amp; \text {Debt} &amp;amp; 50\\&#xA;\hline&#xA;\text {TOTAL ASSETS} &amp;amp; 100 &amp;amp; \text{TOTAL LIABILITIES} &amp;amp; 100\\&#xA;  \hline  &#xA;\end{array}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;but what is interesting here is the Consolidated Accounts, the two companies viewed as one from a financial point of view, even though for legal and other purposes they are separate entities. Here we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;GROUP BALANCE SHEET&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{array} {| r | r | r |}&#xA;  \hline &#xA;\hline                       &#xA;  \text {ASSETS} &amp;amp; \text {USD} &amp;amp; \text{LIABILITIES} &amp;amp; \text{USD}\\&#xA;  \hline                      &#xA;\text{Assets} &amp;amp; 100 &amp;amp; \text{Equity} &amp;amp; 0\\&#xA; &amp;amp;  &amp;amp; \text {Debt} &amp;amp; 100\\&#xA;\hline&#xA;\text {TOTAL ASSETS} &amp;amp; 100 &amp;amp; \text{TOTAL LIABILITIES} &amp;amp; 100\\&#xA;  \hline  &#xA;\end{array}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How come? First, Debts of both companies are owed to Third Parties, so their amount doesn't change. So Group Debts = 100. Second, The Assets held by mother company B are &quot;internal&quot; - the shares of company A (face value and premium), so they are ignored, &quot;written off&quot; in the consolidated accounts. What Assets remain are those held by company A. So Group Assets = 100. We are then led to find that Group Equity is zero... which is correct, because if we write off Assets we have to write off an equal amount from the other side, of Equity.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can we arrive at zero by some other road of reasoning?&#xA;Well, the two Equity figures add up to \$60. Hmmm, and how much did you pay Third Parties to leave company A? \$60. What Equity was injected into the Group, exited as payment to Third Parties for the buyout. This is why Group Equity ended up zero.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;2)&lt;/strong&gt; Company B bought the shares of company A, but then merged with it. In this case we don't have individual and Consolidated Statements, only one Balance Sheet, which is the same as the Consolidated BS in the previous case.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Leveraged Buyout indeed.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-03-10T01:35:59.617" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4677" PostTypeId="1" AcceptedAnswerId="4684" CreationDate="2015-03-10T03:58:21.177" Score="2" ViewCount="53" Body="&lt;p&gt;Why does an increase in the number of jobs in the USA make make the Australian dollar, oil, iron, gas, gold, copper devalue?&lt;/p&gt;&#xA;" OwnerUserId="4140" LastEditorUserId="69" LastEditDate="2015-03-10T10:34:12.073" LastActivityDate="2015-03-10T21:44:47.567" Title="Why does an increase in jobs in the USA devalue the the Australian dollar, oil, iron, gas, gold, and copper?" Tags="&lt;financial-economics&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4678" PostTypeId="2" ParentId="4677" CreationDate="2015-03-10T04:11:15.407" Score="3" Body="&lt;p&gt;When you look at many things in economics it is worth noting that everything is relative. $1 is only worth what it can purchase. The decisions you make are made in the contexts of your next best option (opportunity cost). In this case, the Australian dollar isn't worth any less domestically. The US has just gotten stronger. With the US outlook being quite positive at the moment, its assets and investments are looking more attractive, thus the appreciation of the USD wrt to the AUD (and many other currencies).&lt;/p&gt;&#xA;" OwnerUserId="40" LastActivityDate="2015-03-10T04:11:15.407" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4679" PostTypeId="1" AcceptedAnswerId="4683" CreationDate="2015-03-10T04:16:24.197" Score="12" ViewCount="799" Body="&lt;p&gt;Economic data is a very broad concept. It can include discrete preference relation data-sets as well as extensive time series data.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But it is important that theories are tested against data, and the earlier this happens in the development of an economic model, or of a new economic hypothesis, the more beneficial will be to the researcher, providing early signals on how good or bad a match with the real world his theoretical endeavors are. Economics being a Social Science, it is also important to have plentiful of different data sets, since testing a theory on just one data set does not provide strong enough evidence of the model's usefulness or uselessness.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So I am posting this question with the hope that it will be gradually enhanced with answers and it will become a point of reference for Economic data of all sorts for this community.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My offering: The World Bank for example has very useful information on trade lanes. Other repositories:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;-&lt;a href=&quot;http://www.feweb.vu.nl/econometriclinks/#data&quot; rel=&quot;noreferrer&quot;&gt;Data links hosted at the&#xA;Econometrics&#xA;Journal&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;-&lt;a href=&quot;http://qed.econ.queensu.ca/jae/&quot; rel=&quot;noreferrer&quot;&gt;Data archive of the&#xA;Journal&#xA;of&#xA;Applied&#xA;Econometrics&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;-&lt;a href=&quot;http://www.econometricsociety.org/suppmatlist.asp&quot; rel=&quot;noreferrer&quot;&gt;Supplemental material for&#xA;Econometrica&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="40" LastEditorUserId="61" LastEditDate="2015-04-02T13:42:37.300" LastActivityDate="2017-08-18T14:32:46.317" Title="What are some good repositories for economic data" Tags="&lt;data-request&gt;&lt;applied-econometrics&gt;" AnswerCount="4" CommentCount="4" FavoriteCount="4" CommunityOwnedDate="2015-04-08T19:46:00.220" ContentLicense="CC BY-SA 3.0" />
  <row Id="4680" PostTypeId="2" ParentId="3405" CreationDate="2015-03-10T04:51:25.093" Score="3" Body="&lt;p&gt;Your question is long and unclear. I suggest editing it to get a better response. I hope you do because I think it has good potential.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am able to help with one element of the question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;is crowd mentality in ranking better than one's own ranking system?&quot;&#xA;The answer to this really depends on what your own ranking system is.&#xA;&lt;a href=&quot;http://en.wikipedia.org/wiki/Wisdom_of_the_crowd&quot; rel=&quot;nofollow&quot;&gt;The Wisdom of the Crowd&lt;/a&gt; is pretty good at this sort of stuff. That said, I think there is definitely room in something like fantasy football to beat the crowd generated rankings.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I find when I am looking for a probabilistic outcome on something like that, a bookmakers site should be one of the first ports of call.&lt;/p&gt;&#xA;" OwnerUserId="40" LastActivityDate="2015-03-10T04:51:25.093" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4682" PostTypeId="1" AcceptedAnswerId="4688" CreationDate="2015-03-10T15:28:54.087" Score="1" ViewCount="72" Body="&lt;p&gt;I have problems understanding the solution to the following question and would like to ask if you could help me with the interpretation?&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;A house is an asset which generates a benefit to its owners: a stream&#xA;  of housing services in the future. Similarly a stock generates a&#xA;  stream of dividends in the future. One measure of the value of this&#xA;  housing service is the rent one would have to pay on an equivalent&#xA;  house. For the purposes of this assignment, assume $D_{t+1}$ is the rent&#xA;  you have to pay over the next year (we know this number at time $t$),&#xA;  and $P_t$ is the price of the house today. The return on housing is &#xA;  $r_{t+1} =  (P_{t+1}+D_{t+1}-P_t)/Pt$. If the discount rate and growth rate of rent were constant, this setup satisfies the &lt;a href=&quot;http://en.wikipedia.org/wiki/Dividend_discount_model#Growth_cannot_exceed_cost_of_equity&quot; rel=&quot;nofollow&quot;&gt;Gordon equatio&lt;/a&gt;n, $P_t = D_{t+1}&#xA;/ (r – g)$, where $r$ is the expected return on housing and $g$ is the growth&#xA;  rate of rent. You can ignore issues about taxes and transaction costs&#xA;  on houses.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Suppose the Gordon equation were correct. In this world, looking at a&#xA;  specific city over time, suppose we start out at $D_{t+1} = \$10,000$ a&#xA;  year, $P_t =\$200,000$, $r$ is $10$% and $g$ is $5$%. &lt;strong&gt;Over time, would the&#xA;  price be constant, rising, or falling?&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;If I plug in the numbers into the Gordon formula I get $P=10.000/(10\text{%}-5\text{%})=200.000$.&#xA;Thus the price stays constant.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However the answer is:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Since the expected return is $10$% but the “divided yield” is only $5$%,&#xA;  the price has to rise $5$% a year.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Could someone explain me if there is a way to understand the solution using the Gordon growth formula or some other intuitive approach?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you very much in advance!&lt;/p&gt;&#xA;" OwnerUserId="4126" LastEditorUserId="61" LastEditDate="2015-03-11T01:36:32.967" LastActivityDate="2015-03-11T01:36:32.967" Title="Question about gordon growth and expected stock prices" Tags="&lt;financial-economics&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4683" PostTypeId="2" ParentId="4679" CreationDate="2015-03-10T17:30:39.077" Score="8" Body="&lt;p&gt;Be more specific on what you need.&#xA;&lt;a href=&quot;https://www.quandl.com/&quot;&gt;Quandl&lt;/a&gt; would be a pretty general source which hasn't been mentioned yet.&#xA;For macro data the St. Louis Fed is pretty good and thorough. Eurostat for European data. &lt;a href=&quot;http://www.historicalstatistics.org/&quot;&gt;historicalstatistics.org&lt;/a&gt; for historical data.&lt;/p&gt;&#xA;" OwnerUserId="4087" LastActivityDate="2015-03-10T17:30:39.077" CommentCount="0" CommunityOwnedDate="2015-04-08T19:46:00.220" ContentLicense="CC BY-SA 3.0" />
  <row Id="4684" PostTypeId="2" ParentId="4677" CreationDate="2015-03-10T21:44:47.567" Score="0" Body="&lt;p&gt;This is an example of correlation rather than causation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The root cause here is not employment. It's the strengthening US economy. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A stronger economy provides employment opportunities, so unemployment decreases. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The stronger economy has helped strengthen the US dollar because investors are shifting money into the economy. That is not the only reason for the strength of the dollar....the uncertainty in the Eurozone and slowing growth in China are other reasons investors are shifting into the US dollar. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, the USD-AUD exchange rate explains only part of the devaluation of Australian resources.  Another driver is the weakening of global resources demand caused by softer Asian and  European economies. Even US economic growth has been revised downward recently, and resource prices tend to discount forward looking prospects. &lt;/p&gt;&#xA;" OwnerUserId="2959" LastActivityDate="2015-03-10T21:44:47.567" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4685" PostTypeId="1" AcceptedAnswerId="4698" CreationDate="2015-03-10T22:08:11.543" Score="18" ViewCount="988" Body="&lt;p&gt;In my understanding, allowing ISP to throttle sites that use a lot of traffic is just price discrimination. The ISP will charge sites like Netflix, which will then pass the cost to Netflix consumers. So basically people who use a lot of data will get charged more--seems perfectly fine to me.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand the argument that in practice, the ISP won't build new infrastructure but simply put up roadblock to slow down the current speed. However, this seems like a problem only in the oligopolistic market of US internet providers. In a competitive market, putting up roadblock will cause an exodus to competitors.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, am I correct in thinking that preserving Net Neutrality is not important in a competitive telecom market? Instead of fighting to preserve Net Neutrality, may be the correct fight is to encourage more ISP to enter the market.&lt;/p&gt;&#xA;" OwnerUserId="2819" LastEditorUserId="2819" LastEditDate="2015-03-10T22:29:02.873" LastActivityDate="2017-07-13T06:55:56.530" Title="Is net neutrality not important in a competitive market of internet providers?" Tags="&lt;microeconomics&gt;&lt;price-discrimination&gt;&lt;competition&gt;" AnswerCount="4" CommentCount="3" FavoriteCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="4686" PostTypeId="1" AcceptedAnswerId="4687" CreationDate="2015-03-10T22:14:39.217" Score="9" ViewCount="4990" Body="&lt;p&gt;What are the known (and alleged) problems of using Joules (i.e. a measure of energy/work) as a currency? I tried to find such idea in Google (searched terms like &quot;technocracy&quot;, since someone told me that technocracy had such idea), but I'm not clear about where to search in.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(&lt;strong&gt;Edit&lt;/strong&gt; : asked in contrast to fiduciary/trust/faith-based currencies)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(&lt;strong&gt;Edit 2&lt;/strong&gt; : found &lt;a href=&quot;http://www.theperfectcurrency.org/&quot; rel=&quot;noreferrer&quot;&gt;this link&lt;/a&gt;, but i'm not quite an expert in eco to judge the possible problems, not exposed in the article)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(&lt;strong&gt;Edit 3&lt;/strong&gt; : This one is my fault since I asked a not-so-clear question, becuase my lack of knowledge. I have to clarify that this proposal is not mine, and I want to just study the concept. In this way, many principles I should enumerate are:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Energy taken into account is the &quot;seizable&quot; energy, like solar or fossil.&lt;/li&gt;&#xA;&lt;li&gt;Fossil energy can be stored. Fossil industry would be credited for that.&lt;/li&gt;&#xA;&lt;li&gt;Solar energy can be captured, transformed, and injected into the power network to be credited for that [as currently is, in many countries, right now], and have such energy redeemed later; the only difference with the current situation is that [the modern proposals support that] the economy could be based in such energy, instead the vice-versa case.&lt;/li&gt;&#xA;&lt;li&gt;The exchange act would not involve energy directly, since a &lt;em&gt;wallet&lt;/em&gt; of that type could be quite dangerous to carry in the ... ¿pocket?.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;In this sense, I think useful answers have already been provided to cover the expressed points, althought I don't want to consider the answer as just-closed, but narrow the extent of the issues I want to understand about).&lt;/p&gt;&#xA;" OwnerUserId="4143" LastEditorUserId="4143" LastEditDate="2015-03-11T16:49:28.530" LastActivityDate="2018-03-11T15:46:13.197" Title="What are the known / alleged problems against using energy as currency?" Tags="&lt;currency&gt;" AnswerCount="7" CommentCount="0" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="4687" PostTypeId="2" ParentId="4686" CreationDate="2015-03-10T22:26:42.733" Score="9" Body="&lt;p&gt;The problems with using an energy-back currency are probably the same &lt;a href=&quot;http://en.wikipedia.org/wiki/Gold_standard#Disadvantages&quot;&gt;problems as using gold&lt;/a&gt; or anything else. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some of those mentioned in the link (&lt;a href=&quot;http://en.wikipedia.org/wiki/Gold_standard#Disadvantages&quot;&gt;Wikipedia article&lt;/a&gt;) include&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;ul&gt;&#xA;  &lt;li&gt;&lt;p&gt;Mainstream economists believe that economic recessions can be largely mitigated by increasing the money supply during economic downturns. A gold standard means that the money supply would be determined by the gold supply and hence monetary policy could no longer be used to stabilize the economy. The gold standard is often blamed for prolonging the Great Depression, as under the gold standard, central banks could not expand credit at a fast enough rate to offset deflationary forces.&lt;/p&gt;&lt;/li&gt;&#xA;  &lt;li&gt;&lt;p&gt;Although the gold standard brings long-run price stability, it is historically associated with high short-run price volatility. It has been argued by Schwartz, among others, that instability in short-term price levels can lead to financial instability as lenders and borrowers become uncertain about the value of debt.&lt;/p&gt;&lt;/li&gt;&#xA;  &lt;li&gt;&lt;p&gt;The money supply would essentially be determined by the rate of gold production. When gold stocks increase more rapidly than the economy, there is inflation and the reverse is also true. The consensus view is that the gold standard contributed to the severity and length of the Great Depression.&lt;/p&gt;&lt;/li&gt;&#xA;  &lt;/ul&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="59" LastActivityDate="2015-03-10T22:26:42.733" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="4688" PostTypeId="2" ParentId="4682" CreationDate="2015-03-11T01:35:50.123" Score="0" Body="&lt;p&gt;Plugging in the numbers into the Gordon's growth formula does not tell what will happen to the price of the house -it just verifies that the numbers given do satisfy the formula.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To see what will happen to the price in the future, you have to go to the definition of the return on an asset&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$r_{t+1} =  \frac {P_{t+1}+D_{t+1}-P_t}{P_t} = \frac {\Delta P_{t+1}}{P_t} + \frac {D_{t+1}}{P_t} \tag{1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The right-hand side now is clearly &quot;Asset percentage appreciation(Capital Gain) + rate of return on asset value&quot; which is indeed the Total Return on an asset expressed in percentages.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But we have assumed (and the numbers given verify the initial condition), that Gordon's formula holds so&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$P_t = \frac {D_{t+1}}{r-g} \implies P_t(r-g) = D_{t+1} \tag{2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Substitute $(2)$ into $(1)$ to get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$r_{t+1} = \frac {\Delta P_{t+1}}{P_t} + \frac {P_t(r-g)}{P_t} = \frac {\Delta P_{t+1}}{P_t} + r-g \tag{3}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, reasonably we should identify &quot;expected (total) return per period&quot; $r$ with &quot;total return next period&quot; $r_{t+1}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then  $(3)$ becomes&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$r_{t+1} = r = \frac {\Delta P_{t+1}}{P_t} + r-g \implies \frac {\Delta P_{t+1}}{P_t} = g \tag{4}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which in our case, means that the value of the house will appreciate $5$% per year. Intuitively, since &lt;em&gt;expected&lt;/em&gt; Total Returns are $10$% and what we get out of the house as income ($D_{t+1}/P_t$) is $5$%, the other component of Total Returns, house price appreciation, must cover the distance between the two, which is another $5$%. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note: Whether this increase in price refers to &quot;asking&quot; price or &quot;equilibrium&quot; price is another matter that involves a more elaborate modelling of the situation.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-03-11T01:35:50.123" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4689" PostTypeId="1" AcceptedAnswerId="4692" CreationDate="2015-03-11T05:35:33.810" Score="4" ViewCount="5091" Body="&lt;p&gt;So I have a production function $Q=2K + 20L^{1/2}$ and I suppose the wage is $w=5$ and the rental rate is $r=9$.  I want to find the long-run cost of production, which I know is constrained by $\frac{MP_{L}}{MP_{K}}=w/r$ and therefore&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{10L^{-1/2}}{2} = 5/9$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which implies $L=81$.  However, I don't see how to find my quantity of capital, $K$.  Any help would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="4138" LastActivityDate="2015-03-11T15:29:19.850" Title="Determining cost from production function, wage, and rental rate" Tags="&lt;production-function&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="4690" PostTypeId="2" ParentId="4686" CreationDate="2015-03-11T06:53:49.210" Score="15" Body="&lt;p&gt;&lt;strong&gt;tl;dr: Energy is one of the worst ideas for a currency that anyone's had.&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;p&gt;It's not fungible, it's not a store of value, and has absolutely no scarcity. Let's look at the details.&lt;/p&gt;&#xA;&lt;h3&gt;Commodity currencies are problematic&lt;/h3&gt;&#xA;&lt;p&gt;jmbjera has listed core problems with the gold standard, and with commodity currencies generally: its supply is managed not by a democratically-elected government, but by one industry, so you remove a hugely useful tool from the policy-makers' toolbox; and you expose yourself to very high short-term volatility.&lt;/p&gt;&#xA;&lt;p&gt;But even amongst commodities, energy has unique issues that make it worse than useless as a currency.&lt;/p&gt;&#xA;&lt;h3&gt;Energy is ubiquitous and bountiful&lt;/h3&gt;&#xA;&lt;p&gt;There's absolutely enormous quantities of it lying around everywhere. One kilogramme of anything contains mind-boggling amounts of energy - &lt;span class=&quot;math-container&quot;&gt;$E=mc^2$&lt;/span&gt;, right? &lt;em&gt;c&lt;/em&gt;, the speed of light, is huge. Squaring it makes it a lot bigger (when we're in SI units). &lt;span class=&quot;math-container&quot;&gt;$3\times10^8m/s$&lt;/span&gt; squared becomes &lt;span class=&quot;math-container&quot;&gt;$9\times10^{16}$&lt;/span&gt; - that's how many joules of energy in 1kg of matter. Any matter. Soil, platinum, flesh and blood, it doesn't matter, it's all the same amount of energy: 90 Petajoules; aka 25 Terawatt-hours. That's a few weeks worth of electricity supply in Britain. So an energy currency means one kilogramme of sand is equivalent value to sufficient electricity to power that G7 country for a few weeks.&lt;/p&gt;&#xA;&lt;h3&gt;Additional energy arrives on Earth every second of the day&lt;/h3&gt;&#xA;&lt;p&gt;So not only is there immense quantities of energy lying around for free, but vast amounts arrive every second from our friendly neighbourhood fusion reactor, the sun. Irradiation on the earth is about 130 Petawatts. That's about four orders of magnitude more than human energy consumption. Or, to put it another way, &lt;strong&gt;sunlight on one ten-thousandth of the Earth's surface brings energy in at about the same average rate as global energy demand&lt;/strong&gt;.&lt;/p&gt;&#xA;&lt;h3&gt;Energy's value varies hugely in time and space&lt;/h3&gt;&#xA;&lt;p&gt;But it gets worse, as far as currencies are concerned. See, energy's value differs constantly in time, in space and in form. You must have noticed that wind and sunlight are free - no one's charging you for them - and they're energy. Whereas you have to pay for natural gas. You probably pay even more, joule for joule, for diesel or petrol (gasoline). And you will pay a lot more for electricity. On top of that, one unit of electricity has a very different price depending on where and when you buy it, and the quantity you're buying it in.&lt;/p&gt;&#xA;&lt;h3&gt;Energy's form drives its economic value. 1 Joule is rarely worth 1 Joule&lt;/h3&gt;&#xA;&lt;p&gt;Electricity is a really high quality vector of energy: it can do huge amounts of work. But you can only use it in the instant it's generated (ok, you can store it briefly in a capacitor, but that will cost you, too). Heat is a really low quality vector of energy: and the closer the temperature is to ambient temperature, the less work it can do. i.e. the less economic value it has. Now, we've got enough problems with variable marginal values of money as it is, without this scale of problem. The other thing is, if you're storing your currency of energy as heat, it's losing its value every second as it cools off. Yet, at the same time, cooling has economic value, in aircon and in refrigeration. So that's a &lt;em&gt;lack&lt;/em&gt; of energy that has economic value.&lt;/p&gt;&#xA;&lt;h3&gt;Many energy transformations add economic value but consume energy&lt;/h3&gt;&#xA;&lt;p&gt;Refining crude oil costs you energy and other resources. And the end product is more valuable, which is why people do it, and make a profit at it. But that would be absurd if energy were the currency.&lt;/p&gt;&#xA;&lt;h3&gt;On sophistry&lt;/h3&gt;&#xA;&lt;p&gt;I've seen the argument for an energy currency before. Usually, when you dig deeper, they're not really talking about an energy currency. They're actually trying to sell something. Typically, but not always, fossil gas. So their proposed energy currency turns out to be something very like gas futures contracts (which have the usual commodity-currency problems: control of supply lies with one industry, not democratically-elected governments; and the whole economy is exposed to high short-term volatility). Now, as we know, we've got far more gas than we can possibly burn (see &lt;a href=&quot;http://dx.doi.org/10.1038/nature14016&quot; rel=&quot;noreferrer&quot;&gt;my colleagues' paper in Nature&lt;/a&gt; on this), and the gas industry is starting to get nervous. And so it should. This desparate bid for a &amp;quot;gas currency&amp;quot; is just one more bit of special pleading and rent-seeking from what must become a dying industry.&lt;/p&gt;&#xA;" OwnerUserId="44" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2015-03-11T14:49:44.480" CommentCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="4691" PostTypeId="2" ParentId="4689" CreationDate="2015-03-11T13:14:49.980" Score="3" Body="&lt;p&gt;What's tricky is that the problem has a kink. Below a certain production value no capital is used. The demand functions for $k$ and $l$ are as follows:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If $Q \leq 180$&#xA;$$L(Q) = (Q/20)^2$$&#xA;$$K(Q) = 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If $Q &amp;gt; 180$&#xA;$$L(Q) = 81$$&#xA;$$K(Q) = (Q - 180) / 2$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which you can get from thinking about what happens to the marginal cost of producing with labor just below and above $L=81$ (goes from below 4.5 to above 4.5) and comparing it with the the cost of producing a marginal unit with capital (which is always 4.5).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why the split at $Q = 180 / L = 81 $?&#xA; $$\frac{MP_{L}}{MP_{K}}=w/r \leftrightarrow  \frac{10L^{-1/2}}{2} = 5/9 \rightarrow L = 81$$&#xA;Note that $ Q(k=0,L=81) = 180$&lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-03-11T13:29:43.800" LastActivityDate="2015-03-11T13:29:43.800" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4692" PostTypeId="2" ParentId="4689" CreationDate="2015-03-11T14:00:16.957" Score="3" Body="&lt;p&gt;&lt;strong&gt;A)&lt;/strong&gt; &lt;strong&gt;If we care about not making losses,&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;one can observe that  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;a)&lt;/strong&gt; $Q(K=0, L&amp;gt;0) &amp;gt;0$  (i.e. we can obtain positive output without capital)  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;and   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;b)&lt;/strong&gt; Output is linear in $K$ and $MP_K = 2$, while $r=9$. So for each unit of capital we will employ,  we will obtain $2$ additional units of output, but we will have to pay $9$ units of output as capital reward: employing capital means subsidizing it here, given its price. So we should not employ capital at all, since in light of a), we can have positive output without it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand if, say, $L=1$ then $Q = 20$ while $wL = 5$. So there is room for production to be carried using only labor, without subsidizing the production factor.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So we have $K^* = 0$. But then, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$C^* =  wL^*,\;\; L^* = \frac {\bar Q^2}{400}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The cost function now has a non-interesting minimum at zero, and then it monotonically increases.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In order not to make losses, we need &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \bar Q - C^* \geq 0 \implies \bar Q - w\frac {\bar Q^2}{400} \geq 0 \implies \left(1-w\frac {\bar Q^*}{400}\right) \geq 0 $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \bar Q \leq \frac {400}{w}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, &lt;strong&gt;if we care about not making losses&lt;/strong&gt;, a) We do not employ capital and b) output level should not exceed, for $w=5$, $Q \leq 80$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;B) If we don't care about making losses&lt;/strong&gt; (say, this is a public utility that has to deliver a specific level of output irrespective of whether it will cost more than the revenue obtained from selling the output)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's see where the standard approach leads us.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\min_{K,L} C = rK + wL  \;\;\;s.t.\;\; g(K,L) = 2K + 20L^{1/2} = \bar Q$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;for any given level of output.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Lagrangean is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \Lambda = rK + wL + \lambda[\bar Q-2K - 20L^{1/2}]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and if we calculate the first-order conditions for a minimum we get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\partial \Lambda/\partial K = 0 \implies r - 2\lambda =0 \implies \lambda = r/2 \tag{1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\partial \Lambda/\partial L = 0 \implies w - \lambda\cdot 10L^{-1/2} = 0 \tag {2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which for $r=9, w=5$ leads to a &lt;em&gt;candidate&lt;/em&gt; solution $\{K^*,L^*=81,\lambda^* = 4.5\}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To determine what happens at the candidate solution we need to consider also second-order conditions for a minimum&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\partial^2 \Lambda/\partial L^2 = 5\lambda L^{-3/2} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\partial^2 \Lambda/\partial K^2 = \partial^2 \Lambda/\partial L\partial K =0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then the bordered Hessian matrix (=matrix of second derivatives of the Lagrangean bordered by the first derivatives of the constraint, and a zero in the upper left position) is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\bar H = \left [ \begin{matrix}&#xA;0 &amp;amp; 2 &amp;amp; 10L^{-1/2} \\&#xA;2 &amp;amp; 0 &amp;amp; 0 \\&#xA;10L^{-1/2} &amp;amp; 0 &amp;amp; 5\lambda L^{-3/2} \\&#xA;\end{matrix} \right]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the candidate solution to be a minimum, we need the bordered principal minors (minor determinants) to all be &lt;em&gt;strictly negative&lt;/em&gt; except for the first which is by construction zero), at least evaluated at the candidate solution. We have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$|\bar H_2| = \left | \begin{matrix}&#xA;0 &amp;amp; 2  \\&#xA;2 &amp;amp; 0  \\&#xA;\end{matrix} \right| = -4 &amp;lt;0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$|\bar H_3| = \left | \begin{matrix}&#xA;0 &amp;amp; 2 &amp;amp; 10L^{-1/2} \\&#xA;2 &amp;amp; 0 &amp;amp; 0 \\&#xA;10L^{-1/2} &amp;amp; 0 &amp;amp; 5\lambda L^{-3/2} \\&#xA;\end{matrix} \right| = 0 - 2\cdot10\lambda\cdot L^{-3/2} + 0 &amp;lt;0 $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;for $\lambda , L$ strictly positive. So we 're good... except we do not know the value for $K^*$. &lt;strong&gt;Are we free to choose any level of capital we want?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Certainly not. Remember that the multiplier $\lambda ^*$  is &lt;em&gt;optimal&lt;/em&gt; Marginal Cost (as a function of output). But here, &lt;strong&gt;assuming non-zero Capital is employed&lt;/strong&gt;, &lt;em&gt;optimal marginal cost does not depend on the level of output, it is fixed at $\lambda ^* =4.5$&lt;/em&gt;, due to the linear appearance of $K$ in the production function, and the assumed price-taking behavior of the organization.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words: if we employ capital, we should have fixed $MC(Q) = 4.5$. This means that as long as we can carry production with lower marginal cost than that, we should not employ capital. But if there is a level of output produced solely by labor, at and after which, to continue producing using only labor would result in marginal cost higher than $4.5$, then, it becomes optimal to start employ capital (optimal strictly in the sense of cost-minimization).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Under production solely using labor we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$C = \frac {w\bar Q^2}{400} \implies MC = \frac {\bar Q}{40}$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So for $MC \leq 4.5 \implies \bar Q \leq 180$&#xA;After $\bar Q =180$ if we employ additional labor to increase production our marginal cost will be higher than if we start employing capital. And this will continue, because the marginal product of labor will be falling, while the marginal product of capital is constant. So we conclude that up to $\bar Q =180$ we should carry production using only labor, and after that, we should stop employing any additional labor, and cover all resource needs by employing capital, the level of which will evidently be determined as given in @BKay 's answer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The full mathematical treatment would require turning this into a Karush-Kuhn-Tucker framework, and include multipliers for the case of decision variables taking the value zero.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-03-11T15:29:19.850" LastActivityDate="2015-03-11T15:29:19.850" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4693" PostTypeId="1" CreationDate="2015-03-10T20:36:44.230" Score="2" ViewCount="1095" Body="&lt;p&gt;It was top news a week ago that Bank of Ukraine increased its rate to 30%.&#xA;And the news said they did this to fight inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But I don't understand one thing: isn't the increased rate of &quot;money printing&quot; of the central bank only aggravates the problem? How is it supposed to reduce inflation?&lt;/p&gt;&#xA;" OwnerUserId="4150" OwnerDisplayName="Calmarius" LastActivityDate="2015-06-17T17:50:54.227" Title="Why do central banks increase their rate to fight inflation?" Tags="&lt;interest-rate&gt;&lt;inflation&gt;" AnswerCount="3" CommentCount="3" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4694" PostTypeId="2" ParentId="4693" CreationDate="2015-03-10T20:57:55.213" Score="4" Body="&lt;p&gt;From &lt;a href=&quot;http://en.wikipedia.org/wiki/Monetary_policy&quot; rel=&quot;nofollow&quot;&gt;Monetary Policy&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;There are several monetary policy tools available to achieve these&#xA;  ends: increasing interest rates by fiat; reducing the monetary base;&#xA;  and increasing reserve requirements. All have the effect of&#xA;  contracting the money supply; and, if reversed, expand the money&#xA;  supply.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Increasing rates makes it more expensive to borrow and thus slows economic growth where the US in the early 1980s would be a good example to see the recession that was had at the hand of high interest rates at the time.&lt;/p&gt;&#xA;" OwnerDisplayName="JB King" LastActivityDate="2015-03-10T20:57:55.213" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4695" PostTypeId="2" ParentId="4693" CreationDate="2015-03-10T21:03:00.613" Score="4" Body="&lt;p&gt;The Rate they are talking about is the rate at which the central bank lends money to other private/public banks. It has nothing to with the rate at which the central bank prints money (Infact this is the first time I have seen somebody interpreting the central bank lending rate as the rate at which the central bank prints money). By increasing the rate of interest they are tightening the money supply. As a result the rate at which the Ukrainian currency is losing its value aka inflation will decrease.   &lt;/p&gt;&#xA;" OwnerUserId="4153" OwnerDisplayName="acoolguy" LastEditorUserId="4153" LastEditDate="2015-06-17T17:50:54.227" LastActivityDate="2015-06-17T17:50:54.227" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="4696" PostTypeId="2" ParentId="4686" CreationDate="2015-03-11T15:50:55.793" Score="0" Body="&lt;p&gt;The concept of using energy as currency doesn't make theoretical sense. Energy alone isn't inherently valuable, it's the energy along with how that energy is expended that makes the energy valuable. The energy is only valuable as long as a mechanism exists to use that energy. Let me provide a scenario to make this more clear. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you could somehow harvest raw energy in joules into an energy container which could be easily expended, &lt;strong&gt;an energy container would be economically similar to a human&lt;/strong&gt;. Humans are essentially containers of energy. They get this energy from metabolizing food. The energy in a human can be easily used because their bodies are designed to use energy towards moving their muscles, which makes the energy in a human valuable. Whereas the energy contained in a rock (E=MCsquared) is not valuable because it would be so difficult to use that energy. When we pay a human a wage to do a task, such as build a house, we're paying for them to expend their energy towards a specific purpose. In essence, a human is a walking container of energy, and we pay them to use this energy towards different tasks. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Have you ever volunteered? By volunteering for two hours, you are basically giving a charity an energy container which contains two hours of your energy (if you expend 50 kCal an hour, then the energy box would contain 100 kCals of energy at a power of 50kCals an hour). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since we can see that human labor is inherently valuable, an energy container would be inherently valuable as well. Therefore, having an energy container would be similar to having a person work for you. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But now the issue becomes, what can that human do? What kind of skills does that human have? Humans can expend their energy in different ways. A body builder can use their energy towards contracting their muscles to lift heavy weights, whereas a mathematician uses their energy towards using their brain to process complex problems. &lt;strong&gt;So the concept of an energy container is not possible without defining how the energy from that container is expended&lt;/strong&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So energy containers would differ in value based on:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;the amount of energy in the container&lt;/li&gt;&#xA;&lt;li&gt;the power output of the container&lt;/li&gt;&#xA;&lt;li&gt;the means by which energy is expended from the container&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;So energy containers to be most similar to robots. A robot's battery has a certain amount of energy, the battery has a certain output, and the energy can be expended as defined by the robot (was the robot designed to lift heavy weights, or to process complex simulations?). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So a world where we use energy as currency, in a practical scenario, would be a world where people use robots as currency. And a robot would not make good currency because it is not fundamentally valuable, since a robot is made of many parts such as metals and other raw materials. &lt;strong&gt;So even from a science fiction, theoretical viewpoint, this concept does not make sense&lt;/strong&gt;.&lt;/p&gt;&#xA;" OwnerUserId="4149" LastEditorUserId="4149" LastEditDate="2015-03-11T15:57:32.707" LastActivityDate="2015-03-11T15:57:32.707" CommentCount="14" ContentLicense="CC BY-SA 3.0" />
  <row Id="4697" PostTypeId="1" AcceptedAnswerId="4704" CreationDate="2015-03-11T16:19:20.857" Score="2" ViewCount="67" Body="&lt;p&gt;I am interested in two variables $x, y$. Their (observed empirical) standard deviations are $\sigma_x$, $\sigma_y$. I know the elasticity of $x$ w.r.t. $y$ is $\eta_{x,y}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $x$ be fully determined through $y$, which is the only source of randomness. Is it true that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{\sigma_x}{mean(X)} = \eta_{x,y} \cdot \frac{\sigma_y}{E[y]}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can't find anything on this relationship, but it appears that appropriately scaled  standard deviations of two variables should be connected through their elasticity.&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2015-03-11T19:52:33.013" LastActivityDate="2015-03-11T20:30:08.590" Title="Standard Deviations and Elasticities" Tags="&lt;econometrics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4698" PostTypeId="2" ParentId="4685" CreationDate="2015-03-11T17:15:29.650" Score="13" Body="&lt;p&gt;Yes, if there were more competition then net neutrality would not be such a big issue. Any throttling would cause an ISP to lose customers to competitors.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Competition is a main assumption behind why markets work. However, in this case an ISP has &lt;a href=&quot;http://en.wikipedia.org/wiki/Market_power&quot; rel=&quot;noreferrer&quot;&gt;market power&lt;/a&gt; which breaks the assumption. The market power allows them to easily put smaller ISPs out of business. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is a link to a rather long article on how ISPs get this market power. Essentially, the reason is that starting an ISP is entering an economy of scale, which requires a large amount of capital to start: &lt;a href=&quot;http://arstechnica.com/business/2014/04/one-big-reason-we-lack-internet-competition-starting-an-isp-is-really-hard/&quot; rel=&quot;noreferrer&quot;&gt;http://arstechnica.com/business/2014/04/one-big-reason-we-lack-internet-competition-starting-an-isp-is-really-hard/&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="4149" LastActivityDate="2015-03-11T17:15:29.650" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4699" PostTypeId="2" ParentId="4685" CreationDate="2015-03-11T17:33:44.283" Score="2" Body="&lt;p&gt;A lot of commentary seems to focus on monopoly and oligopoly among ISPs.&#xA;I am of the opinion that the real issue behind net neutrality is not about market power.&#xA;If this is really an issue of antitrust, why isn't the solution one of antitrust? (at least directly?) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The real issue at stake seems to be one of ensuring the survival of the democratic nature of the Internet. It perhaps seems more likely that an ISP with market power might shape the Internet in ways that we don't think are &quot;democratic&quot;, but this could very well happen in a competitive market as well. But it's hard to say, since we can only speculate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The important point to realize is, which is what your question is getting at, is that net neutrality is not solely about monopoly or oligopoly.&lt;/p&gt;&#xA;" OwnerUserId="59" LastActivityDate="2015-03-11T17:33:44.283" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="4701" PostTypeId="2" ParentId="4674" CreationDate="2015-03-11T18:10:02.390" Score="0" Body="&lt;p&gt;Since the depreciation rate is already a &quot;derivative&quot; (of the line $$\delta k$$), I'm not sure what you mean by &quot;taking the derivative of the rate.&quot; If you take the derivative of the rate, you get zero.&#xA;In any case, if I understand your question, it's true you want to take the derivative of f, and set it equal to the depreciation rate, and solve for k.  What do you get when you take the derivate of f? What is this &quot;simple power rule&quot; you've used?&lt;/p&gt;&#xA;" OwnerUserId="4151" LastActivityDate="2015-03-11T18:10:02.390" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4702" PostTypeId="1" AcceptedAnswerId="4708" CreationDate="2015-03-11T18:41:37.567" Score="2" ViewCount="9324" Body="&lt;p&gt;I'm trying to solve this question which states:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose that a profit maximizing producer has a production function described by Q = K^3/4 L^1/4 and faces the general isocost line (TC = rK + wL). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Find the optimal demand functions for capital and labor for this firm.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here's what I've done and know:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've solved for the MP1(labor) and MP2(capital):&#xA;MP1 = 1/4 (K^3/4 * L^-3/4 )&#xA;MP2 = 3/4 (K^-1/4 * L^1/4 )&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I also know that MP1 / MP2 = w / r. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can someone point out a suggestion to solve for K and L, the optimal demand functions?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks&lt;/p&gt;&#xA;" OwnerUserId="4155" LastActivityDate="2015-03-12T08:24:19.430" Title="Find the optimal demand functions for capital and labour for this firm" Tags="&lt;microeconomics&gt;&lt;profit-maximization&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4703" PostTypeId="1" AcceptedAnswerId="4719" CreationDate="2015-03-11T20:19:09.897" Score="4" ViewCount="1460" Body="&lt;p&gt;For any game, trembling hand perfect equilibria are a subset of sequential equilibria.&#xA;What is a simple example where a sequential equilibrium is not a trembling hand perfect equilibrium?&#xA;Is it possible to create a normal form example?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Links:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.jstor.org/stable/1912767?seq=1#page_scan_tab_contents&quot; rel=&quot;nofollow noreferrer&quot;&gt;Kreps-Wilson: Sequential Equilibria&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://core.ac.uk/download/pdf/6805957.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Selten: Reexamination of the Perfectness Concept for&#xA;Equilibrium Points in Extensive Games&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2019-03-26T20:50:46.650" LastActivityDate="2019-03-26T20:50:46.650" Title="Sequential vs. trembling hand perfect equilibrium" Tags="&lt;game-theory&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="4704" PostTypeId="2" ParentId="4697" CreationDate="2015-03-11T20:30:08.590" Score="1" Body="&lt;p&gt;Let $X = h(Y)$. A first-order Taylor expansion around $E(Y) = \mu_y$ gives&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$X \approx h[\mu_y] + h'[\mu_y]\cdot [Y-\mu_y]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This easily leads to&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\sigma^2_x \approx \big(h'[\mu_y]\big)^2\cdot \sigma^2_y$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\eta_{x,y} \equiv h'\cdot \frac Yh \implies \eta_{x,y}(\mu_y) = h'(\mu_y)\frac {\mu_y}{h(\mu_y)} \implies h'(\mu_y) = \eta_{x,y}(\mu_y) \cdot \frac {h(\mu_y)}{\mu_y}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Substituting,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\sigma^2_x \approx \left(\eta_{x,y}(\mu_y) \cdot \frac {h(\mu_y)}{\mu_y}\right)^2\cdot \sigma^2_y$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Taking the square root we are led to &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\sigma_x}{h(\mu_y)}  \approx \eta_{x,y}(\mu_y) \cdot \frac {\sigma_y}{\mu_y} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The difference of the above from the expression in the question is that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;a) The elasticity must be evaluated at the center of the Taylor expansion used&#xA;and&lt;br&gt;&#xA;b) $h(\mu_y)$ is usually equal to $E(X)=E[h(Y)]=\mu_x$ only to a first approximation, due to Jensen's inequality.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course if the relation between $X$ and $Y$ is linear, and/or the elasticity is constant, things specialize.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In any case, it is valid as an approximation to write&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$${\rm cv}_x \approx \eta_{x,y}(\mu_y) \cdot {\rm cv}_y $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where &quot;cv&quot; stands for &quot;&lt;a href=&quot;http://en.wikipedia.org/wiki/Coefficient_of_variation&quot; rel=&quot;nofollow&quot;&gt;coefficient of variation&lt;/a&gt;&quot;.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-03-11T20:30:08.590" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4705" PostTypeId="1" CreationDate="2015-03-11T22:19:46.150" Score="0" ViewCount="143" Body="&lt;p&gt;I need a bit of help interpreting this version of the Taylor rule I stumbled across recently: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\ln\frac{1+i_t}{1+i} = X_i \ln\frac{1+i_{t-1}}{1+i}+X_{\pi}\ln\frac{\pi_t}{\pi}+X_y \ln\frac{Y_t}{Y}+X_s \ln\frac{S_t}{S}+X_{\theta}\ln\frac{{\theta_t}}{\theta}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think that S is the exchange rate and theta is a money growth factor. Other than that, I am not very sure. I am hoping this uses some standard notation so that anyone here more familiar with economics research might be able to give me more thorough understanding of what is happening here. &lt;/p&gt;&#xA;" OwnerUserId="4156" LastEditorUserId="1601" LastEditDate="2015-11-11T10:59:36.547" LastActivityDate="2015-12-11T11:45:54.890" Title="Help interpreting a Taylor rule" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="2" ClosedDate="2017-03-08T09:44:55.280" ContentLicense="CC BY-SA 3.0" />
  <row Id="4706" PostTypeId="1" AcceptedAnswerId="4707" CreationDate="2015-03-11T22:31:12.410" Score="6" ViewCount="1409" Body="&lt;p&gt;Billboards cost money to make and don't really seem to significantly benefit anyone other than billboard-makers. A company c putting up billboards presumably increases profits from the resulting increased number of customers, but don't competing businesses' billboards decrease c’s profits by decreasing its number of customers? I don’t see why the total amount of consumption would change, so wouldn't the total amount of business remain roughly constant? So, are billboards economically beneficial or not? Why?&lt;/p&gt;&#xA;" OwnerUserId="4157" LastEditorUserId="69" LastEditDate="2015-03-12T10:32:37.730" LastActivityDate="2015-04-07T19:53:25.740" Title="Are billboards beneficial for the economy? Why?" Tags="&lt;microeconomics&gt;&lt;externalities&gt;&lt;marketing&gt;" AnswerCount="4" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="4707" PostTypeId="2" ParentId="4706" CreationDate="2015-03-11T23:21:24.760" Score="7" Body="&lt;p&gt;While advertising can be zero sum, here are two additional dimensions you might want to consider. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Billboards, like other forms of advertising, can inform. In this way Ford can talk about their new 8 seat minivan while GM talks about the more fuel efficient engine of their latest model. This can result in happier customers who value their product better and are willing to pay higher prices for this more ideal product. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Billboards, in ways not paralleled by other most other forms of advertising, have a negative externality akin to pollution. When the NY Times decides to increase their number of advertisements slightly they bear the costs in customer unhappiness, giving them an incentive to adjust until the private costs and benefits of a marginal ad are equated. But not so with the billboard. The billboard is typically adjacent to public space, so if a nasty billboard ruins the scenery or obscures another billboard the billboard owner doesn't internalize those costs. Since the private benefits of ad revenue continue to accrue to the owner, this leads to too many billboards even if some level of billboard production would be socially desirable. &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-04-07T19:53:25.740" LastActivityDate="2015-04-07T19:53:25.740" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="4708" PostTypeId="2" ParentId="4702" CreationDate="2015-03-11T23:33:58.683" Score="0" Body="&lt;p&gt;I think you may need some more information to find an expression for L (or K).&#xA;From what we have, we know MP1/MP2 = w/r, and that lets us say K = aL.&#xA;Now we look at our profit, the thing we want to maximize. Substituting K = aL into Q - TC, we get L(pb - 4w), where $b  = pa^{3/4}$, and p is the price.&#xA;As long as p &gt; 4r/3, we can increase profit forever by increasing L, as long as we increase K proportionally. &#xA;This assumes p is fixed, and labor and capital are infinitely available at r and w. So that's where our constraint has to come from. (Unless we're simply given a fixed value for Q, in which case we solve from K = aL.) &#xA;If we have a demand curve, and we're the only supplier, we increase L and K until Q becomes such that p = 4r/3, or we hire people until we can't get aL units of capital, or we increase K until we can't get K/a units of labor. If we're not the only supplier, we play a game with the other suppliers and fix Q ourselves.&#xA;But I don't think we can maximize profit without that extra information, because the functional form of Q together with the fact that L and K are linearly related means Q is linearly related to L or K, and the cost function is as well.&lt;/p&gt;&#xA;" OwnerUserId="4151" LastEditorUserId="4151" LastEditDate="2015-03-11T23:43:49.937" LastActivityDate="2015-03-11T23:43:49.937" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4709" PostTypeId="2" ParentId="4706" CreationDate="2015-03-11T23:52:15.923" Score="1" Body="&lt;p&gt;It is an interesting question. Let me rephrase it slightly differently and then argue that &lt;strong&gt;we don't know&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;A Good effect, and a negative externality&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;What you are saying is that advertisements have a negative externality. To some effect, they increase a firm's sales because customers were not aware at all about the product's existence or features. But to some extent, customers were aware that such products existed, advertisements merely redirected other firms customers to this firm. This second part is the negative externality.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As long as the first effect exists, &lt;em&gt;some&lt;/em&gt; advertisement* is welfare optimal. As long as the second effect (the negative externality) exists, the competitive outcome is inefficient: We spend too much on advertisements. &lt;/p&gt;&#xA;&#xA;&lt;h3&gt;How much to much?&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;We don't know. Proper scientific evidence includes randomization across some countries that affects the marginal costs of advertisement for their firms. We don't have (and probably never will) have this kind of data.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For partial identification (that is, will a marginal decrease of advertisement yield welfare gains) we need less - but I'm not aware of any study of this kind.&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-03-11T23:52:15.923" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4710" PostTypeId="2" ParentId="4706" CreationDate="2015-03-12T00:53:14.170" Score="0" Body="&lt;p&gt;I think BKay's answer is quite good. I do have something to add.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is worth considering a key benefit to the consumer of billboards (and advertising in general). It can help a consumer search for a product or service advertised. The consumer will only take advantage of this product if it improves their utility. In this way, the knowledge imparted on the consumer by the billboard allows for an increase in utility. In general, an increase in utility is good for the economy. In this case, improving the mechanism of product search allows consumers to find their individual utility maximizing products. The producers also benefit because the best producers get more revenue.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The key assumption here is that a billboard allows a consumer to make a more informed decision.&lt;/p&gt;&#xA;" OwnerUserId="40" LastActivityDate="2015-03-12T00:53:14.170" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4711" PostTypeId="2" ParentId="4702" CreationDate="2015-03-12T08:24:19.430" Score="2" Body="&lt;p&gt;A firm requieres capital $K\in\mathbb{R}_+$ and labor $L\in\mathbb{R}_+$ to produce the final good $Q$. The technology is of Cobb-Douglas type $Q:(K,L)\mapsto K^{\alpha}L^{1-\alpha}$, here $\alpha=0.75$. Denote the capital rent by $r$ and the worker's wage by $w$. Production costs are then given by $C:(K,L)\mapsto rK+wL$. Instead of maximizing profits, the firm wants to minimize costs to produce a given quantity $\bar{Q}&amp;gt;0$ (look up the duality of $\min-\max$ problems in producer theory). We end up with the following programm&#xA;\begin{align}&#xA;\min_{K,L}~C(K,L)\quad\text{s.t.}~~Q(K,L)\geq\bar{Q}.&#xA;\end{align}&lt;br&gt;&#xA;Which is &#xA;\begin{align}&#xA;\min_{K,L}~(rK+wL)\quad\text{s.t.}~~K^{.75}L^{.25}\geq\bar{Q}.&#xA;\end{align}&#xA;Set up the lagragian&#xA;\begin{align}&#xA;\mathcal{L}=rK+wL+\lambda(\bar{Q}-K^{.75}L^{.25}).&#xA;\end{align}&#xA;Note that the constraint is binding (Why? Look that up too!) The FOCs are given by &#xA;\begin{align}&#xA;\frac{\partial \mathcal{L}}{\partial K}=0\\&#xA;\frac{\partial \mathcal{L}}{\partial L}=0\\&#xA;\frac{\partial \mathcal{L}}{\partial\lambda}=0&#xA;\end{align}&#xA;Solve for $K$ and $L$. &lt;/p&gt;&#xA;" OwnerUserId="4162" LastActivityDate="2015-03-12T08:24:19.430" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4712" PostTypeId="2" ParentId="4706" CreationDate="2015-03-12T10:58:26.920" Score="1" Body="&lt;p&gt;The business stealing effect of advertisements was detailed in&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Gene M. Grossman and Carl Shapiro, &quot;&lt;a href=&quot;http://restud.oxfordjournals.org/content/51/1/63.short&quot; rel=&quot;nofollow&quot;&gt;Informative Advertising with&#xA;  Differentiated Products&lt;/a&gt;&quot;,&#xA;  &lt;em&gt;The Review of Economic Studies&lt;/em&gt;, Vol. 51, No. 1 (Jan., 1984), pp. 63-81.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Intuitively, since the consumers attracted by advertising will be (in part) stolen from other firms, each firm imposes a negative externality on its rivals and will tend to invest too much in advertising.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is offset, somewhat, by the fact that advertising improves the match between consumers and products by informing consumers about which products best suit their needs. Thus, contrary to the statement in the question, the level of consumption may well increase because consumers value the products the buy more highly on average.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Grossman and Shapiro build a model in which the business stealing effect always dominates so that the equilibrium level of advertising is excessive.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Some factors not in the Grossman and Shapiro model that are likely to be important, and are detailed elsewhere in the literature:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;There is an &lt;em&gt;information overload&lt;/em&gt; problem: if everybody sends many advertisements then consumers may be so overwhelmed with ad messages that they become unable to cognitively process them all and simply stop paying attention. This induces an additional externality because if a firm sends an extra message it will crowd the messages of other sellers out of the consumer's attention.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Advertisements can be persuasive: seing an ad can increase a consumer's (perceived) utility from a product. Depending on whether you believe this is a real change in the consumer's preferences or merely psychological trickery, this can either be a good or a bad thing. Depending on the market, both the persuasive and informative roles of advertisements seem to be important see, for example, &lt;a href=&quot;http://users.ox.ac.uk/~econ0360/FerdinandRauch/dp1073.pdf&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;I agree with BKay that, in the case of billboards, there is likely to be an additional environmental externality.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;To the extent that the ad platform (e.g. the billboard owner) has market power, there may be a monopoly distortion of the supply of advertising. In the UK, 80% of outdoor advertising is sold by three firms (JCDecaux, Clear Channel and CBS Outdoor; source: &lt;a href=&quot;http://www.lgcplus.com/Journals/3/Files/2011/2/3/oft1304.pdf&quot; rel=&quot;nofollow&quot;&gt;http://www.lgcplus.com/Journals/3/Files/2011/2/3/oft1304.pdf&lt;/a&gt;).&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="108" LastActivityDate="2015-03-12T10:58:26.920" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4713" PostTypeId="1" CreationDate="2015-03-12T13:27:51.800" Score="4" ViewCount="148" Body="&lt;p&gt;Can anyone point me to a source of monthly GDP? So far I only find &lt;a href=&quot;http://data.worldbank.org/indicator/NY.GDP.MKTP.CD&quot; rel=&quot;nofollow&quot;&gt;yearly&lt;/a&gt; and &lt;a href=&quot;http://stats.oecd.org/index.aspx?queryid=350&quot; rel=&quot;nofollow&quot;&gt;quarterly&lt;/a&gt;. I need it for the period of Jan/1999-Jan/2015 for USA, Japan, the Eurozone and UK.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you!&lt;/p&gt;&#xA;" OwnerUserId="4167" LastEditorUserId="69" LastEditDate="2015-03-12T13:38:01.810" LastActivityDate="2016-07-05T00:07:58.193" Title="Database for Monthly GDP" Tags="&lt;data-request&gt;&lt;gdp&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="4716" PostTypeId="2" ParentId="4674" CreationDate="2015-03-12T16:05:59.770" Score="6" Body="&lt;p&gt;The &quot;golden rule&quot; is the level at which steady-state consumption is at a maximum, given the parameters of the model. Steady state consumption is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$c^* = (1-s^*)\cdot f[k^*(s^*)] = f[k^*(s^*)]  - s^*f[k^*(s^*)] \tag{1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $0&amp;lt;s^*&amp;lt;1$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We also have that, at the steady state (for constant capital)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$s^*f[k^*(s^*)] = \delta k^*(s^*) \tag{2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Inserting $(2)$ in $(1)$,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$c^* =  f[k^*(s^*)]  - \delta k^*(s^*) \tag{3}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We want to maximize steady-state consumption, so we take the first derivative and set it equal to zero,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\partial c^*}{\partial s^*} = f'[k^*(s^*)]\cdot \frac {{\rm d}k^*}{{\rm d}s^*} - \delta \frac {{\rm d}k^*}{{\rm d}s^*} =0 $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies \big(f'[k^*(s^*)]\ - \delta \big)\frac {{\rm d}k^*}{{\rm d}s^*} =0 \implies f'[k^*(s^*)] = \delta \tag{4} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From the production function we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$f'(k) = \frac 1{\sqrt {k}} = \delta \implies k^* = \frac 1 {\delta^2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The rest are evident.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-03-12T16:05:59.770" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4718" PostTypeId="1" CreationDate="2015-03-12T20:17:30.177" Score="4" ViewCount="253" Body="&lt;p&gt;Take a cont. diff, convex and increasing cost function $c(X)$. Say you start with a stock $K$, and want to (dis)invest $I$. Many adjustment cost functions (&lt;a href=&quot;http://www3.nd.edu/~esims1/investment_notes.pdf&quot; rel=&quot;nofollow&quot;&gt;for example, the first example on page 2 here&lt;/a&gt;) then are of the type&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ K c\left(\frac{I}{K}\right)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is the purpose of scaling investment costs with $K$ here? Marginal cost of investment is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ c'\left(\frac{I}{K}\right)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems that this gives the property that marginal cost of investment decreases in existing capital stock. Is this observed in the real world, or does it rather simplify computations? Are there (popular) alternative formulations of adjustment costs?&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2015-03-12T20:26:54.957" LastActivityDate="2015-03-14T00:09:25.543" Title="Scaling Adjustment Costs" Tags="&lt;macroeconomics&gt;&lt;academic-graduate&gt;&lt;investment&gt;&lt;adjustment-costs&gt;" AnswerCount="3" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4719" PostTypeId="2" ParentId="4703" CreationDate="2015-03-12T20:21:05.137" Score="7" Body="&lt;p&gt;Yes. In a normal form game, every Nash equilibrium is also a sequential equilibrium. But not every Nash equilibrium is trembling hand perfect. Consider the game in which each of two players has two strategies, A and B. Both players get payoff 0 except in one case: they achieve positive payoffs if they both choose A. Then (A,A) and (B,B) are two Nash equilibria of this game. Both are therefore also sequential equilibria. However, (B,B) is not trembling hand perfect. If there is even the smallest tremble in player 2's choice, player 1 has a strict preference for A. Only (A,A) is trembling hand perfect. The generalization of this is that Nash equilibria in which some players play weakly dominated strategies are not trembling hand perfect. &lt;/p&gt;&#xA;" OwnerUserId="2787" LastEditorUserId="1601" LastEditDate="2015-03-13T15:38:31.773" LastActivityDate="2015-03-13T15:38:31.773" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="4720" PostTypeId="1" CreationDate="2015-03-12T23:02:21.550" Score="3" ViewCount="788" Body="&lt;p&gt;I have two indices with different base years. &#xA;The first is car registrations which is an index with the base year of 2010. &#xA;The other is harmonized index of car prices, with a base year of 2005. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The two are not comparable, so I need to change the base year of one of the variables to 2010. The problem is that the data is quarterly, so I'm not sure exactly how to proceed.&lt;/p&gt;&#xA;" OwnerUserId="4173" LastEditorUserId="2776" LastEditorDisplayName="user4239" LastEditDate="2017-08-29T10:38:32.297" LastActivityDate="2017-08-29T10:38:32.297" Title="How to change the base year of a quarterly index" Tags="&lt;base-year&gt;" AnswerCount="0" CommentCount="4" FavoriteCount="0" ClosedDate="2017-09-01T22:18:10.727" ContentLicense="CC BY-SA 3.0" />
  <row Id="4721" PostTypeId="2" ParentId="4718" CreationDate="2015-03-13T12:13:05.147" Score="4" Body="&lt;p&gt;&lt;a href=&quot;http://www.juliathomas.net/PalgraveArticleFeb2007.pdf&quot; rel=&quot;nofollow&quot;&gt;The New Palgrave Dictionary of Economics Article on Adjustment Costs&lt;/a&gt; gives a nice overview of the use of adjustment costs in economic models. &lt;/p&gt;&#xA;&#xA;&lt;h2&gt;What is the purpose of scaling investment costs with K here?&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;This function form implies that adjustment costs of size X% of capital $I/k$ cost the same fraction of capital ($c(I/k)$) regardless of the amount of capital($k$) involved. It is a constant returns to scale form of adjustment cost. &lt;/p&gt;&#xA;&#xA;&lt;h2&gt;It seems that this gives the property that marginal cost of investment decreases in existing capital stock. &lt;/h2&gt;&#xA;&#xA;&lt;p&gt;I think you have the marginal cost of adjustment wrong here.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{\partial}{\partial K} K \cdot c\left(\frac{I}{K}\right)$$&#xA;$$ = c(\frac{I}{K})  + K \cdot c'(\frac{I}{K})$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first term is decreasing in $K$ for fixed $I$ but the second need not be. &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2015-03-13T12:13:05.147" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4722" PostTypeId="1" CreationDate="2015-03-13T13:37:44.520" Score="4" ViewCount="607" Body="&lt;p&gt;Can someone please recommend a book or a chapter from a book which provides a good and clear explanation of price theory. How prices are determined what they reflect and how they serve as allocaters of resources. &lt;/p&gt;&#xA;" OwnerUserId="366" LastEditorUserId="43" LastEditDate="2015-03-13T14:33:57.470" LastActivityDate="2015-03-16T00:11:41.267" Title="Book Recommendation: Price Theory" Tags="&lt;reference-request&gt;&lt;price-theory&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="4723" PostTypeId="1" CreationDate="2015-03-13T13:53:33.150" Score="3" ViewCount="317" Body="&lt;p&gt;A few pundits have been stating that we have a student loan bubble, and this bubble will pop, similar to housing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm struggling to imagine the economic impact of what this would look like &lt;em&gt;if&lt;/em&gt; these pundits are right, outside the obvious bailout or student loan forgiveness.  Hypothetically, let's say a scenario where 15% of students are unable to pay back their loans occurs, and the government bails them out (or forgives their loans), how would that be a negative economic event?  Would it create inflation?  Would it cost in terms of productivity, in that students would spend more time borrowing money and staying in school than working and producing?&lt;/p&gt;&#xA;" OwnerUserId="2746" LastActivityDate="2015-03-19T20:08:55.787" Title="Economic Impact of A Student Loan Bubble Popping?" Tags="&lt;macroeconomics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4724" PostTypeId="1" CreationDate="2015-03-13T14:48:54.240" Score="1" ViewCount="1324" Body="&lt;p&gt;Why do sale of used goods do not add to income of a country in a particular year? If you think of income as the inflow in your bank account. All outflows are just expenditures. So I think of income as how much stuff can someone buy in a particulat year. Lets say person A bought a football for 50 dollars. Someone's income is increased by 50 dollars. So currently total income of society is 50 dollars in the current year. Now the guy who bought it sells it for 30. His income in this year is 30. All outflow is expenditure, in other words you are making use of your income. It does not really reduce income. So total income of society in this year should be 50 + 30 = 80? What is wrong with this logic? &lt;/p&gt;&#xA;" OwnerUserId="366" LastActivityDate="2015-03-15T15:13:49.763" Title="Value of Used Goods in GDP" Tags="&lt;gdp&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4725" PostTypeId="1" AcceptedAnswerId="4733" CreationDate="2015-03-13T15:41:42.753" Score="7" ViewCount="15304" Body="&lt;p&gt;Can someone provide a rigorous definition of a utility function? I had thought that a utility function only needs to the preserve the order of preferences. Thus a utility function can take on negative values as long as it preserves the order of preferences. Others have told me that a utility function cannot take on negative values. Is this a condition of a rigorous definition of a utility function?&lt;/p&gt;&#xA;" OwnerUserId="4178" LastActivityDate="2015-09-27T23:11:53.097" Title="Can A Utility Function Take On Negative Values?" Tags="&lt;utility&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4726" PostTypeId="2" ParentId="4718" CreationDate="2015-03-13T15:49:47.933" Score="2" Body="&lt;p&gt;Formulation like in your post ensure that adjustment costs are homogeneous of degree 1 in $K,I$. If the production function has also constant returns, we can typically rescale the whole firm's problem by $K$, which is very convenient:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;value function will be linear in capital, so marginal and average value of capital (Tobin's q) are equal and don't depend on firm's size.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;if there's technological growth, such formulation allows for balanced growth path.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;we may be able to drop one state variable, which is always nice if the model must be solved numerically.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="1432" LastActivityDate="2015-03-13T15:49:47.933" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4728" PostTypeId="2" ParentId="4722" CreationDate="2015-03-13T16:31:19.207" Score="2" Body="&lt;p&gt;Any decent basic introductionary economics textbook will answer that for you. Principles of economics by Mankiw gives some nice intuition. if you a looking for a little more advanced stuff, try Intermediate microeconomics by Varian.&lt;/p&gt;&#xA;" OwnerUserId="3997" LastActivityDate="2015-03-13T16:31:19.207" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4729" PostTypeId="1" AcceptedAnswerId="4755" CreationDate="2015-03-13T16:36:51.540" Score="0" ViewCount="62" Body="&lt;p&gt;I'm trying to wrap my head around the concept of advertising effectiveness and hit a wall when I tried to measure the quantitative effect of an advertising campaign on the sales tendency of a business.&#xA;As far as I know, this is an econometrics question, since I have isolate the effect of said campaign from past and future campaigns, but also from distribution, macro effects, competitor activity and random effects. &#xA;Can you point me to a paper or a textbook that deals with this kind of problem?&lt;/p&gt;&#xA;" OwnerUserId="4031" LastActivityDate="2015-03-15T23:11:26.663" Title="Isolating single campaign effects over a sales series" Tags="&lt;econometrics&gt;&lt;time-series&gt;&lt;applied-econometrics&gt;&lt;marketing&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="4730" PostTypeId="2" ParentId="4725" CreationDate="2015-03-13T17:06:09.020" Score="7" Body="&lt;p&gt;Here is one possible rigorous definition of a utility function:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $X$ be a set of alternatives. Let $\succeq$ be a preference relation over those alternatives. $U: X \to \mathbb{R}$ is a utility function means that $U(x) \geq U(y) \iff x \succeq y$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then if for example $X$ is 'amounts of money you might be given', and $x \succeq y$ only if $x \geq y$, then some possible utility functions are $U(x) = x, U(x) = e^x, U(x) = \log(x)$... &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some of these are negative. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;One could of course require that $U(x) &amp;gt; 0$. Maybe this makes it easier to swallow as an interpretation of the 'well-being' of an individual. But that would rule out many commonly used utility functions, such as $U(x) = x$ or $U(x) = \log(x)$. &lt;/p&gt;&#xA;" OwnerUserId="4177" LastActivityDate="2015-03-13T17:06:09.020" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="4731" PostTypeId="2" ParentId="4722" CreationDate="2015-03-13T17:11:30.353" Score="6" Body="&lt;h2&gt;&lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0023785209&quot;&gt;The Applied Theory of Price&lt;/a&gt;&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;by Donald N. McCloskey&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;McCloskey published the book (&lt;a href=&quot;http://www.deirdremccloskey.com/docs/price.pdf&quot;&gt;pdf&lt;/a&gt;) for free now.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Chicago school's other economists also published their books on price theory (see Milton Friedman's and George Stigler's).&lt;/p&gt;&#xA;" OwnerUserId="240" LastActivityDate="2015-03-13T17:11:30.353" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="4733" PostTypeId="2" ParentId="4725" CreationDate="2015-03-13T21:44:36.460" Score="8" Body="&lt;p&gt;A utility function can certainly be negative. The utility function is &lt;em&gt;nothing more than a way to represent a preference relationship.&lt;/em&gt; This is an important conceptual point. In several theorems that typically show up in introductory texts, we show that sets of preferences that satisfy certain regularity conditions can be represented as utility function.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, there are different decision theory frameworks that allow the utility function to be transformed. You alluded to something like this in your question. In the traditional framework without uncertainty, the utility function is defined up to a monotonic transformation. Under certain kinds of uncertainty, we get Von Neumann–Morgenstern utility functions that are unique up to affine transformations. You can read more about this elsewhere. For now, the consider the following definition of a utility function. It is taken from &lt;em&gt;Advanced Microeconomic Theory&lt;/em&gt; by Jehle and Reny (3rd edition):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/bbGb5.png&quot; alt=&quot;Definition of a utility function&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A preference relation $\succeq$ is defined as follows:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/zRToV.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where the axioms references are these:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Axiom 1:&lt;/strong&gt; &lt;em&gt;Completeness.&lt;/em&gt; For all $x^1$ and $x^2$ in $X$, either $x^1 \succeq x^2$ or $x^2 \succeq x^1$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Axiom 2:&lt;/strong&gt; &lt;em&gt;Transitivity.&lt;/em&gt; For any three elements $x^1$, $x^2$, and $x^3$ in $X$, if $x^1 \succeq x^2$ and $x^2 \succeq x^3$, then $x^1 \succeq x^3$.&lt;/p&gt;&#xA;" OwnerUserId="59" LastActivityDate="2015-03-13T21:44:36.460" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4734" PostTypeId="2" ParentId="4718" CreationDate="2015-03-13T23:57:13.973" Score="2" Body="&lt;p&gt;The &quot;adjustment cost&quot; function is modeled as a mark-up, so it needs a base to be expressed in comparable units.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A frequent modeling approach is to make Total Adjustment Cost a function of gross investment and write&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$${\rm Adjustment \; Cost\; of \;Investment} = I \cdot \phi(I/K)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The rationale here is that Adjustment Costs are &quot;Costs of Change&quot;, and so the modeling should be all about that. Therefore  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;a)&lt;/strong&gt; The larger the change compared to where we are now ($I/K$), the larger the extra &lt;em&gt;unit&lt;/em&gt; cost, so we have the $\phi()$ function as non-decreasing in $(I/K)$ and convex,&#xA;and&lt;br&gt;&#xA;b) This additional unit cost is measured per &quot;Unit of Change&quot; (Investment).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this approach we find that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\partial}{\partial I}\big[ I\cdot \phi(I/K)\big] = \phi(I/K) + (I/K)\cdot \phi'(I/K) &amp;gt;0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\partial}{\partial K}\big[ I\cdot \phi(I/K)\big] = -(I/K)^2\cdot \phi'(I/K) &amp;lt; 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The message:&lt;br&gt;&#xA;a) Total adjustments costs are everywhere increasing in the &lt;em&gt;level&lt;/em&gt; of gross investment&lt;br&gt;&#xA;b) But they are everywhere &lt;em&gt;decreasing&lt;/em&gt; in the level of Capital: the bigger you are, the better, in terms of adjustment costs, for the same intended Change (because in relative terms, the change is smaller). This is intuitive at least from the point of view that abrupt large changes in the size of a company may have very large side-costs, which is in general verified by real world experience.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;The formulation&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$${\rm Adjustment \; Cost\; of \;Investment} = K\cdot c(I/K)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;uses the same rationale as regards the unit cost, but it postulates that this extra unit cost is per Unit of Current State (Capital) rather than per Unit of Change (Investment). So the function $c()$ has a different interpretation, and it is not conceptually comparable with $\phi()$ -the latter is &quot;unit adjustment cost per unit of Investment&quot; while the former &quot;unit adjustment cost per unit of installed Capital&quot; (so if one attempted to empirically estimate both functions, one would not arrive at the same function/parameters). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\partial}{\partial I}\big[ K\cdot c(I/K)\big] = c'(I/K) &amp;gt; 0 $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which gives the same message as the previous formulation as regards Total Adjustment Costs and the level of investment.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But&#xA;$$\frac {\partial}{\partial K}\big[ K\cdot c(I/K)\big] = c(I/K) - (I/K)\cdot c'(I/K) &amp;lt;&amp;gt; 0 $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and it would be positive (negative) depending on whether the &lt;em&gt;elasticity&lt;/em&gt; of the unit adjustment cost function with respect to $(I/K)$ is lower (higher) than unity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This seems to provide a higher degree of flexibility as regards the modeling of real world situations. It permits for example to account for the costs of &quot;rigidity&quot; that may go together with a company that is &quot;large&quot; in size, where due to them Total Adjustment Costs for given $I$ may be increasing after some level of Capital.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;An empirically inclined and extensive discussion on various issues surrounding Adjustment Costs (functional forms, micro/macro point of view, etc) can be found in &#xA;&lt;a href=&quot;http://www.jstor.org/stable/2729502&quot; rel=&quot;nofollow&quot;&gt;Hamermesh, D. S., &amp;amp; Pfann, G. A. (1996). Adjustment costs in factor demand. Journal of Economic Literature, 1264-1292.&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-03-14T00:09:25.543" LastActivityDate="2015-03-14T00:09:25.543" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4735" PostTypeId="2" ParentId="3130" CreationDate="2015-03-14T03:24:07.693" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Can a central bank simply by fiat change its holdings of its own currency, and then use this new money in any way they please?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Yes, but with oversight and in line with all sorts of principles of best practice. They answer to the legislature in some instances and the judiciary if they are shown to break any of those principals that are enshrined in law.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This oversight means that large bond buys typically require political impetus, as in the case of holding the Eurozone together (serving as a paltry stand-in for fiscal integration, also dependent on political impetus) being the primary political consideration here.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Do they later have to &quot;pay back&quot; this money to balance the books, or can they simply forget about it? &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;They certainly don't &quot;have to&quot; pay anything back, though if the value of a currency were to crash in bearish circumstances for investment in the economies using the currency, the responsible central bank might be expected to stave off the worst of the inflation by reducing the amount of money in circulation, perhaps by literally accepting tax revenues and writing them off without spending in the cases of inflation well above target levels (though perhaps the logic doesn't stretch to extremes).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An interesting factor here is that international investors are spooked because the Euro is still going down, but the HICP inflation within the currency zone is well below target rates, so arbitrarily expanding the money and leverage pools makes a degree of sense, just acknowledging that it implies that you are bullish regarding long run growth of tax receipts or your balance of trade will start encouraging you to take on debt. This is where the differences in dynamic between different forms of debt and money seem to become a difficult barrier to my progress on this topic. Suffice it to say for my purposes, that the simultaneous devaluation of a currency against others and the extant risk of consumer deflation within the currency zone means that there is going to be price pressure to buy European for both exporters and internally.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If that isn't manifesting in inflation, then either output is growing or expected to grow or there have been significant improvements in economic efficiency (like, tending to pay lower wages so that the poor can't import things or breaking up trusts and cartels so that the rich can't export things). Which of these kinds of measures we should prefer to use when presented an option is a whole thorny political debate all of it's own. The ECB, though perhaps through political pressure, have chosen to imply that they expect output to grow to a degree (certainly aggregate demand - whatever that even means if we treat it like a single coherent number comparing all forms of economic activity - is not going to decrease) warranting the risk of any undesirable effects that their diminished balance of trade might cause the currency union.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Either more will have to be produced or people will have to do without some things they currently consume, but which is likely?&lt;/p&gt;&#xA;" OwnerUserId="4181" LastActivityDate="2015-03-14T03:24:07.693" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4736" PostTypeId="1" AcceptedAnswerId="4738" CreationDate="2015-03-14T22:47:34.183" Score="5" ViewCount="988" Body="&lt;p&gt;Suppose there is an agent who faces the following gamble g: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;50\$ with probability 1/3&lt;/li&gt;&#xA;&lt;li&gt;100\$ with probability 1/3&lt;/li&gt;&#xA;&lt;li&gt;150\$ with probability 1/3&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Clearly, the E[g] = 100\$. Since agent is risk averse, we would expect that U(E[g]) &amp;lt; U(CE) , where CE is the certainty equivalent. Now, my question is, is it hypothetically possible that the agent's Certainty Equivalent of this gamble will be below 50\$, or is it necessarily true that it will be somewhere between 50\$ and 100\$?&lt;/p&gt;&#xA;" OwnerUserId="4188" LastActivityDate="2015-03-15T16:00:25.423" Title="Can a risk-averse agent's Certainty Equivalent be lower than the lowest possible outcome of a gamble?" Tags="&lt;risk-aversion&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="4737" PostTypeId="2" ParentId="4736" CreationDate="2015-03-15T00:06:30.220" Score="2" Body="&lt;p&gt;The lottery you show is equivalent to having two lotteries, one where you get \$50 with certainty and one with the following payoffs:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;\$0 with probability 1/3&lt;/li&gt;&#xA;&lt;li&gt;\$50 with probability 1/3&lt;/li&gt;&#xA;&lt;li&gt;\$100 with probability 1/3&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The first lottery has a certainty equivalent of \$50. The second lottery has no negative payoffs and so shouldn't ever have a negative price. Therefore the certainty equivalent must be $\geq 50$.&lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-03-15T10:30:43.440" LastActivityDate="2015-03-15T10:30:43.440" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4738" PostTypeId="2" ParentId="4736" CreationDate="2015-03-15T02:35:08.303" Score="7" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;Since agent is risk averse, we would expect that $U(E[g]) &amp;lt; U(CE)$ ,&#xA;  where $CE$ is the certainty equivalent.&quot;&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This is wrong. I presume the Expected Utility Property holds here, so, if we denote the gamble by $G$, a discrete uniform random variable taking three values according to the setup, we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U(CE) \equiv \sum_{i=1}^3p_iU(g_i) = E[U(G)] &amp;lt; U[E(G)]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;the inequality to the right due to Jensen's Inequality and the assumption that $U()$ is concave. This also gives us&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ CE &amp;lt; E(G)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which should be intuitive: a risk-neutral person would demand $E(G)$, the expected value of the gamble, in order not to take it. A risk-averse person would require &lt;em&gt;less&lt;/em&gt;, to leave the gamble.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Having cleared this, the OP asks: &lt;strong&gt;Is it possible that $CE &amp;lt; \min G$?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The answer is : &lt;strong&gt;No.&lt;/strong&gt; Assume that the gamble outcomes are ordered, so $\min G = g_1$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Ad absurdum&lt;/strong&gt;, assume that $CE &amp;lt; g_1$ holds. Then we will have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U(CE) &amp;lt; U(g_1)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Using the definition of $CE$ we replace the left-hand side&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\sum_{i=1}^3p_iU(g_i) &amp;lt; U(g_1) \implies p_2U(g_2) + p_3U(g_3) &amp;lt; (1-p_1) U(g_1)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies p_2U(g_2) + p_3U(g_3) &amp;lt; p_2U(g_1) + p_3U(g_1)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies p_2[U(g_2)-U(g_1)] + p_3[U(g_3)-U(g_1)] &amp;lt; 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But this is impossible since $g_1 = \min\{g_1,g_2, g_3\}$ and so&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$U(g_2)-U(g_1) &amp;gt;0$ and $U(g_3)-U(g_1) &amp;gt;0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So assuming $U(CE) &amp;lt; U(g_1)$ led us to an impossible situation, and therefore  it cannot hold. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Intuitively, the &lt;em&gt;worst&lt;/em&gt; outcome of being in the gamble is to receive the minimum payoff -so for a rational agent, even if it is risk-averse, it would be irrational to accept less than the worst outcome, since then it would &lt;em&gt;certainly&lt;/em&gt; do worse than being in the gamble. Note that &quot;aversion to risk&quot; does &lt;em&gt;not&lt;/em&gt; mean &quot;take away &lt;em&gt;all&lt;/em&gt; risk at &lt;em&gt;all&lt;/em&gt; costs&quot;. &lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-03-15T16:00:25.423" LastActivityDate="2015-03-15T16:00:25.423" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4739" PostTypeId="1" CreationDate="2015-03-15T06:52:20.340" Score="2" ViewCount="70" Body="&lt;p&gt;It's election time in my country. The government boasts a decrease of 5% in consumption prices thanks to removing regulations, while the opposition blames the government for an increase of 5% in housing prices. I am wondering if there is any economic relation between the two facts. Consider the following model:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are two nearby towns, A and B. Initially, each town has a single grocery store. In the housing market, there is a competitive equilibrium between the two towns, with $r_A$ the rent in A and $r_B$ the rent in B.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, the mayor of A decides to remove regulations and allow new discount stores to operate. This immediately decreases the price of consumption goods in A. People living in B hear about this and go shopping in A. Some of them, when their rent period terminates, decide to move to A in order to live near the discount stores. House owners in A notice the increased demand and decide to raise the rent.   Finally, the housing market achieves a new competitive equilibrium, with the rent in A increasing to $r_A'&amp;gt;r_A$.  In effect, the house owners have pocketed the gain from the removal of regulations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;MY QUESTIONS:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Is this description economically correct?&lt;/li&gt;&#xA;&lt;li&gt;Is there an empirical evidence showing that a decrease in consumption prices causes an increase in housing prices?&lt;/li&gt;&#xA;&lt;li&gt;If there is a relation, what is its magnitude? I.e, how much of the gain from decreased consumption prices is pocketed by the house owners?&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="385" LastActivityDate="2015-03-15T06:52:20.340" Title="Decreasing consumption prices and increasing housing prices" Tags="&lt;macroeconomics&gt;&lt;general-equilibrium&gt;&lt;markets&gt;&lt;price-level&gt;&lt;competition&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4741" PostTypeId="1" AcceptedAnswerId="4788" CreationDate="2015-03-15T09:23:15.490" Score="2" ViewCount="602" Body="&lt;p&gt;In a recent Bloomberg interview, Alan Greenspan suggested that entitlements leads to lower productivity, can you please explain it?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What does 'capital stocks' mean? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does he means that because we are spending a lot on health we don't have money to invest in other things? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;ALAN GREENSPAN:  Well, it's unfortunately very simple but not a good story.  It's turning out that we're using more and more people at the&#xA;  margin to produce less and less.  Productivity, which is output for&#xA;  man hours as we conventionally measure it, is running at a very low&#xA;  rate of increase.  And that's the critical variable in the economy&#xA;  over both the short-term and the long-term. &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;So what we are confronted with right now is a very serious problem&#xA;  caused by the fact that capital investment is falling far short of the&#xA;  requirements necessary to keep the capital stock growing, and&#xA;  therefore productivity.  It is not working. &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;LIU:  So how do we reverse that?  What exactly is behind that,&#xA;  Chairman? &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;GREENSPAN:  Well, I've on many occasions indicated that the best way&#xA;  to standard this is to track it backwards.  There's a very tight&#xA;  relationship between the stock of nonresidential, private stock and&#xA;  output per hour.  They move together parallel all the time for very&#xA;  good reasons.  But that capital stock requires capital investment. &#xA;  And capital investment, in turn, is being crowded out by a very&#xA;  substantial increase in government expenditures.  Basically,&#xA;  entitlements -- because both parties, both the Republicans and the&#xA;  Democrats, don't want to talk about it largely because it is&#xA;  considered the third rail of American politics.  You touch it and you&#xA;  lose. &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;LIU:  Well, so that makes perfect sense.  So it might come down to&#xA;  cutting some costs, right, to cost controls, Chairman.  Top of your&#xA;  list, I know you've mentioned entitlement spending.  You know, you've&#xA;  got Medicare, Social Security.  The No. 1 thing that you think that we&#xA;  need to cut our costs on is what?&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;GREENSPAN:  Well, the basic issue is the entitlements and the reason&#xA;  it's a problem is that people put money in their own funds and their&#xA;  employers' funds plus interest and that is what they perceive they et&#xA;  back , and therefore they are entitled to it because it is their&#xA;  money. &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The only problem is that's not what we are doing.  We're not creating&#xA;  enough funding for the Social Security trust funds, and the same thing&#xA;  goes for Medicare Part A.  And we're not funding this.  So long as we&#xA;  are not funding this, we are dollar for dollar crowding out capital&#xA;  investment.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="2740" LastActivityDate="2015-03-20T05:43:34.877" Title="Why does entitlements leads to lower US productivity?" Tags="&lt;macroeconomics&gt;&lt;productivity&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ClosedDate="2015-03-26T23:26:05.370" ContentLicense="CC BY-SA 3.0" />
  <row Id="4742" PostTypeId="1" AcceptedAnswerId="4764" CreationDate="2015-03-15T10:51:42.997" Score="2" ViewCount="447" Body="&lt;p&gt;In a competitive market, there are 3 types of goods: X, Y and money (m). X and Y are &lt;a href=&quot;https://en.wikipedia.org/wiki/Substitute_good&quot; rel=&quot;nofollow&quot;&gt;substitute goods&lt;/a&gt;, and the utility functions are quasi-linear with respect to money, i.e:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U(x,y,m) = u(x,y) + m$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The supply of X and Y is  determined exogeneously, and the prices $p_x$ and $p_y$ are then determined such that the system is in equilibrium (i.e. demands for X and Y equal their supply).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now the supply of X is increased, and a new equilibrium is achieved with new prices $p_x'$ and $p_y'$. What can we say about the new prices?&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Certainly $p_x'&amp;lt;p_x$, since we must have new consumers buying the newly available units of X.&lt;/li&gt;&#xA;&lt;li&gt;Certainly $p_y'\leq p_y$, since X and Y are substitutes (when the price of X decreases, the demand for Y weakly decreases so the price of Y also weakly decreases).&lt;/li&gt;&#xA;&lt;li&gt;My main question is: &lt;strong&gt;what happens to the price difference $p_x-p_y$?&lt;/strong&gt; I did some anecdotal simulations, and it seems that $p_x'-p_y'\leq p_x-p_y$. I.e, even if there is a decrease in the price of Y, the decrease in the price of X is weakly larger.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Is this observation correct?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What really happens to the price difference when the supply increases?&lt;/p&gt;&#xA;" OwnerUserId="385" LastEditorUserId="385" LastEditDate="2015-03-17T07:42:27.427" LastActivityDate="2015-03-17T19:00:03.677" Title="Price difference of substitute goods when the supply increases?" Tags="&lt;general-equilibrium&gt;&lt;consumer-theory&gt;&lt;price-theory&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="4743" PostTypeId="1" AcceptedAnswerId="4746" CreationDate="2015-03-15T09:02:29.097" Score="4" ViewCount="218" Body="&lt;p&gt;According to the Fischer hypothesis, nominal interest rates increase with inflation, so that the underlying real interest rate is preserved.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One might then expect that if a nation A has a higher interest rate than another nation B, then the expected inflation for nation A will be higher than that of nation B. (Assuming the real rate of interest is the same accross nations as in the international Fischer hypothesis)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, if a nation sets its interest rates by controlling money supply, then the nation can raise their interest rates by decreasing the supply of money. Wouldn't the decrease supply of money then lead to decreased inflation, rather than the increased inflation described in the Fischer hypothesis?&lt;/p&gt;&#xA;" OwnerUserId="79" OwnerDisplayName="Mew" LastActivityDate="2015-03-15T13:09:54.267" Title="Interest Rates and Inflation" Tags="&lt;interest-rate&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4744" PostTypeId="1" AcceptedAnswerId="4745" CreationDate="2015-03-15T12:11:43.140" Score="10" ViewCount="28634" Body="&lt;p&gt;I have to prove that the sample variance is an unbiased estimator. What is is asked exactly is to show that following estimator of the sample variance is unbiased:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$s^2=\frac{1}{n-1}\sum\limits_{i=1}^n(x_i-\bar x)^2$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I already tried to find the answer myself, however I did not manage to find a complete proof. &lt;/p&gt;&#xA;" OwnerUserId="2963" LastEditorUserId="2963" LastEditDate="2015-03-16T11:55:31.880" LastActivityDate="2015-04-26T12:27:27.933" Title="Prove the sample variance is an unbiased estimator" Tags="&lt;econometrics&gt;&lt;statistics&gt;&lt;self-study&gt;" AnswerCount="3" CommentCount="12" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="4745" PostTypeId="2" ParentId="4744" CreationDate="2015-03-15T12:20:27.320" Score="9" Body="&lt;p&gt;I know that during my university time I had similar problems to find a complete proof, which shows exactly step by step why the estimator of the sample variance is unbiased.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The proof I used can be found under &lt;a href=&quot;http://economictheoryblog.wordpress.com/2012/06/28/latexlatexs2/&quot;&gt;http://economictheoryblog.wordpress.com/2012/06/28/latexlatexs2/&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The proof itself is not very complicated but rather long. That also the reason why I am not writing it down here and probably it is not fair towards the person who actually provided it in the first place.&lt;/p&gt;&#xA;" OwnerUserId="4189" LastEditorUserId="4189" LastEditDate="2015-03-15T12:49:42.670" LastActivityDate="2015-03-15T12:49:42.670" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4746" PostTypeId="2" ParentId="4743" CreationDate="2015-03-15T13:09:54.267" Score="4" Body="&lt;p&gt;The fisher hypothesis, as well as related aspects of the neutrality of money hypothesis, are typically argued only to operate in the long-run, with changes in money supply having short-run effects which are modeled with monetary disequilibrium theories.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, a nation sells bonds in exchange for liquid assets denominated in its currency and then holds onto those assets, reducing the liquidity in their economy. As a result, at short-run levels of demand, that currency will be more highly valued than it would have been otherwise (lowered inflation). However, in the long run potential investors are presented with an incentive to lend in the currency, increasing the savings rate and lowering spending until their nominal interest rate (dependent on the amount of currency available and the spending rate) is low enough that the real interest rate is the same as it was before (assuming a constant level of expected future returns in the economy over this period).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This relies on investors only considering the real economy to be of significance in their long-run deliberations &quot;Will future demand in this industry justify my investment and provide me with a good real rate of return down the line? If I think future inflation will be very low or negative it might just be more appropriate to hang onto my money.&quot; This is, like any model, a huge simplification, but in terms of a perfectly rational investment community (it's ok, you're allowed to laugh) it seems as though it should hold fairly well.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, to bring this into the real world somewhat. Short-run levels of inflation and short-run levels of the spending and savings rates do not seem to be especially short run. Ordinary consumers who make up the majority of the economy take a long time to change their behaviour to bring these into an equilibrium, and shocks and government interventions and technology changes are sufficiently frequent that in effect everything stays more dynamic than monetarists would imply. Does this make the hypothesis useless? Not entirely, as an investor with no means of predicting the future accurately you could do worse than trusting it and just trying to keep your margins high in case of unpleasant surprises.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a concise answer to your question: You're right in the short-run, the fisher hypothesis is supposed to apply to the long-run, but whether it does so accurately is virtually impossible to tease out of chaotic real world data.&lt;/p&gt;&#xA;" OwnerUserId="4181" LastActivityDate="2015-03-15T13:09:54.267" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4747" PostTypeId="2" ParentId="4741" CreationDate="2015-03-15T13:42:36.687" Score="0" Body="&lt;p&gt;I think what he is trying to say is when people contribute monthly from their paycheck to Medicare and Social Security they feel that is their money in the future when they retired, so they feel they don't need to save more for their future. What they don't realize is Social Security and Medicare is like a Ponzi Scheme (using new money to pay for old one). You are actually paying for for parents generation social security and medicare. And as Baby Boomer generation is getting older, life expectancy is getting longer, and younger generation are decreasing in numbers, The amount of money the younger generation has to contributed is Many times more to pay for there parents' generation. They don't have any saving left for their own capital investment. The rate of household Saving has been on the declined for the last 20 yrs. Saving helps banking balance sheet; it helps capital investment; it helps more money flow into equity; it helps spur invention and business startups and productivity and GDP. Crowding these money out will lead to Decrease in productivity and GDP.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So that is the short explanation to what Greenspan is saying. It is more complicated than that from macroeconomics standpoint (including fiscal and monetary policy, America corporate tax rate pushing jobs internationally, Strength of dollar and Union labor ). All of these will decrease output productivity per man hour. But it is too complicated to be discussed here.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;TQ&#xA;Economics For Fun&lt;/p&gt;&#xA;" OwnerUserId="4191" LastActivityDate="2015-03-15T13:42:36.687" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4748" PostTypeId="2" ParentId="4724" CreationDate="2015-03-15T15:13:49.763" Score="1" Body="&lt;p&gt;As @FooBar mentions in a comment, with &quot;Income&quot; we want to measure what we produce (production being the whole targetfocus of economic activity, with consumption being the ultimate purpose).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Measuring Income as&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;If you think of income as the inflow in your bank account.&quot;&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;may appear an adequate approach to measure it for some situations: if I work and my employer pays me by bank-transfers, all my income is the sum of these inflows (I am sure that the OP meant to exclude other kinds of inflows, like for example from one of my accounts to another). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, If I sell something that belongs to me, doesn't that also increase my Income, and so National Income?&#xA;&lt;strong&gt;No,&lt;/strong&gt; it restructures your &lt;em&gt;wealth&lt;/em&gt; in terms of liquidity: your non-liquid wealth decreased while your liquid wealth increased. You did not produce anything, you just liquidated part of your wealth.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Buying a football, is buying a durable consumer good. You don't get to eat the football, or burn it at a temple (at least in normal usage), you make use of its bouncing services to entertain yourself. So while you hold on to the football and you use it, it is a utility-enhancing capital good, and so part of your wealth.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The very fact that you were able to re-sell it, reveals that this durable/utility enhancing capital good was not fully depreciated, it still had some potential flow of services in it -this is why the other person paid you for it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So it is selling of a capital good &lt;em&gt;after&lt;/em&gt; this good has become &lt;em&gt;wealth&lt;/em&gt;, and so it does not reflect production. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Mind you  that the &quot;Used goods Sector&quot; does create Income: it offers &lt;em&gt;services&lt;/em&gt; around the used goods: the good &quot;Used football in my closet&quot; is &lt;em&gt;not&lt;/em&gt; the same good as &quot;Used football in a shelf for sale&quot;. But the Income they generate is the difference between how much they paid me for the football, and how much they will sell it... which naturally leads us to the concept of &quot;Value Added&quot; which is the one we should make certain to understand accurately, in order to navigate in quantitative economics.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-03-15T15:13:49.763" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4749" PostTypeId="1" CreationDate="2015-03-15T18:16:05.503" Score="4" ViewCount="118" Body="&lt;p&gt;At this &lt;a href=&quot;http://www.zerohedge.com/news/2015-03-14/inside-federal-reserve-money-nothing-full-movie&quot; rel=&quot;nofollow&quot;&gt;ZH link&lt;/a&gt; (paranoid blogger warning), the free documentary mentions that using an old measure of inflation, &lt;em&gt;which was used during Paul Volcker's years at the Fed&lt;/em&gt;, inflation has been much higher than reported.  In fact, their chart, in some cases appears to be double what's reported.  The documentary implies that this measure of inflation actually included assets bubbles, like housing, which helped Volcker and company prevent too much market enthusiasm.  I also found this &lt;a href=&quot;http://www.cnbc.com/id/42551209&quot; rel=&quot;nofollow&quot;&gt;CNBC link&lt;/a&gt;, which shows the same.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this measure still tracked?  I've been Googling to find it and haven't had much luck (and Shadow Stats doesn't appear to be this calculation, but I might be wrong?), but I had no idea the measurements were changed and I'd be very interested in comparing the two.  Thanks!&lt;/p&gt;&#xA;" OwnerUserId="2958" LastEditorUserId="69" LastEditDate="2015-03-16T12:41:09.440" LastActivityDate="2015-03-19T16:02:10.367" Title="Old Measure of Inflation Still Tracked?" Tags="&lt;data-request&gt;&lt;inflation&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4750" PostTypeId="2" ParentId="4725" CreationDate="2015-03-15T18:31:15.257" Score="5" Body="&lt;p&gt;Like jmbejara says generally in economics utility is not measured in anything but preference relations, so it's called ordinal utility (which contrasts cardinal utility). So a bundle giving utility of -1 is preferred to any bundle giving less than -1. The number -1 doesn't tell us anything else.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;Ordinal utility theory states that while the utility of a particular good or service cannot be measured using a numerical scale bearing economic meaning in and of itself, pairs of alternative bundles (combinations) of goods can be ordered such that one is considered by an individual to be worse than, equal to, or better than the other. This contrasts with cardinal utility theory, which generally treats utility as something whose numerical value is meaningful in its own right.&quot; (source: &lt;a href=&quot;http://en.wikipedia.org/wiki/Ordinal_utility&quot; rel=&quot;noreferrer&quot;&gt;http://en.wikipedia.org/wiki/Ordinal_utility&lt;/a&gt;)&lt;/p&gt;&#xA;" OwnerUserId="4193" LastActivityDate="2015-03-15T18:31:15.257" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4751" PostTypeId="1" CreationDate="2015-03-15T04:34:58.560" Score="4" ViewCount="134" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;a href=&quot;https://money.stackexchange.com/a/18878/10763&quot;&gt;[Source:]&lt;/a&gt; If banks started simply depositing money with each other, all else aside, then what would happen? Keep in mind that the interest rate is basically &lt;strong&gt;&lt;em&gt;the price of money&lt;/em&gt;&lt;/strong&gt;. Supply-and-demand would dictate that ... ♦ a huge inflow of capital =&gt; you can lower the interest rate paid on that capital ♦. Banks don't pay high interest (and certainly wouldn't do so to each other) because of their intristic good will; they pay high interest &lt;strong&gt;&lt;em&gt;because they cannot secure capital funding at lower rates&lt;/em&gt;&lt;/strong&gt;. This is a large reason why the large banks will generally pay much lower interest rates than smaller niche banks; the larger banks are seen as more reliable in the bond market, so are able to get funding more cheaply by issuing bonds.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I understand (and so ask NOT about:) that interest rate = &lt;strong&gt;&lt;em&gt;the price of money&lt;/em&gt;&lt;/strong&gt; = opportunity cost of money, and also the implication that I surrounded with ♦ (a lozenge). What else would result? Please differentiate and segregate the positive and negative effects. &lt;/p&gt;&#xA;" OwnerUserId="4020" OwnerDisplayName="Law Area 51 Proposal - Commit" LastEditorUserId="-1" LastEditDate="2017-04-13T12:25:31.177" LastActivityDate="2015-03-17T08:36:49.877" Title="If banks started simply depositing money with each other, then what else?" Tags="&lt;banking&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4752" PostTypeId="2" ParentId="4751" CreationDate="2015-03-15T05:31:42.990" Score="3" Body="&lt;p&gt;The purpose of paying interest is to get people to lend you their money (by depositing it) so you can lend it out at a higher rate of interest. The argument here is that if the deposits outstrip the bank's ability to invest/lend, they don't need to offer as much interest to get those deposits. However, given current banking practice i don't think there is ever going to be more deposited funds than the bank can find profitable uses for, so the thought experiment sorta falls apart.&lt;/p&gt;&#xA;" OwnerDisplayName="keshlam" LastActivityDate="2015-03-15T05:31:42.990" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4753" PostTypeId="1" AcceptedAnswerId="5141" CreationDate="2015-03-15T20:28:03.720" Score="3" ViewCount="1925" Body="&lt;p&gt;I have the expenditure function: $$e(p,u)=\left(p_1^{\rho/{\rho-1}}+p_2^{\rho/{\rho-1}}\right)^{{\rho-1}/\rho}u$$&#xA;where $u$ is the utility, $p_1,p_2$ prices and $\rho$ a parameter. How do I derive the indirect utility function?&lt;/p&gt;&#xA;" OwnerUserId="4195" LastActivityDate="2018-11-02T10:03:00.860" Title="Indirect utility from expenditure function" Tags="&lt;microeconomics&gt;&lt;utility&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4754" PostTypeId="2" ParentId="3242" CreationDate="2015-03-15T21:43:11.797" Score="2" Body="&lt;p&gt;You use the term 'deterministic' several times to refer to Gibbard-Satterhwaite, and a related question might specify preferences over risk for voters, and then ask whether there's a non-deterministic voting rule for which truth-telling is incentive compatible. I think &lt;a href=&quot;https://www.kellogg.northwestern.edu/research/math/papers/175.pdf&quot; rel=&quot;nofollow&quot;&gt;this paper&lt;/a&gt;, by Gibbard from 1977, is relevant to that question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for the question you actually asked, if I understand you correctly, 'truth-biasedness' seems pretty strong. A voter misreports only if both (a) there are no voting rules under which misreporting would hurt her and (b) there is at least one voting rule under which misreporting would help her. So what's wrong with the following?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Say you have 3 voters, and consider 3 voting rules, one for each voter. Voting rule $i$ is: &quot;Choose voter $i$'s most preferred alternative, unless the other two voters both prefer the same alternative and it is not the same as voter $i$'s most preferred alternative.&quot; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the other two voters report truthfully, then a truth-biased voter can't gain from deviating: If voting rule $i$ is in effect and the other two voters differ in their most preferred alternative, then she cannot gain from misreporting because she gets her favorite alternative. If the other two voters both prefer the same option, then regardless of the voting rule that option will be chosen. In the former case there is one voting rule under which misreporting hurts her, in the latter case there are no voting rules under which misreporting helps her.&lt;/p&gt;&#xA;" OwnerUserId="4177" LastEditorUserId="4177" LastEditDate="2015-03-16T03:25:06.570" LastActivityDate="2015-03-16T03:25:06.570" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="4755" PostTypeId="2" ParentId="4729" CreationDate="2015-03-15T23:11:26.663" Score="0" Body="&lt;p&gt;You might take a look at the &lt;a href=&quot;http://google.github.io/CausalImpact/CausalImpact.html&quot; rel=&quot;nofollow&quot;&gt;Causal Impact R package and accompanying paper&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="159" LastActivityDate="2015-03-15T23:11:26.663" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4756" PostTypeId="2" ParentId="4722" CreationDate="2015-03-15T23:16:38.793" Score="1" Body="&lt;p&gt;I really like David Friedman's &lt;a href=&quot;http://www.daviddfriedman.com/Academic/Price_Theory/PThy_ToC.html&quot; rel=&quot;nofollow&quot;&gt;Price Theory&lt;/a&gt; for this material. I feel it really marries the intuition to the math. If you prefer a dead-tree version, you can usually find a used one for a few bucks online.&lt;/p&gt;&#xA;" OwnerUserId="159" LastEditorUserId="159" LastEditDate="2015-03-16T00:11:41.267" LastActivityDate="2015-03-16T00:11:41.267" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4757" PostTypeId="1" AcceptedAnswerId="4778" CreationDate="2015-03-16T01:55:44.223" Score="6" ViewCount="77" Body="&lt;p&gt;I am trying to find references that support an idea that I think I read in a book on theory of institutions. I can't find the original reference. Basically, I'd like to find anything that talks about number of rules and the strictness of enforcement as variables in controlling outcomes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the reference I can't find as I remember it, there was a case study related to OSHA or Worker's Compensation where increasingly strict safety policies caused an increase in accidents. The analysis ran that the existing policies were too stringent to allow workers to get their jobs done, and that the workers were deciding which rules they could ignore to get tasks completed on schedule. In this case, they had better outcomes by restricting the set of rules to a smaller set that were realistic and strictly enforced. Basically, too many rules resulted in workers prioritizing the rules to follow, while decreasing the rules allowed management to make the decision about which rules were truly the most valuable.&lt;/p&gt;&#xA;" OwnerUserId="4196" LastActivityDate="2015-03-19T13:05:22.080" Title="References where fewer rules resulted in better governance" Tags="&lt;reference-request&gt;&lt;political-economy&gt;&lt;regulation&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4758" PostTypeId="1" CreationDate="2015-03-16T02:20:01.573" Score="5" ViewCount="232" Body="&lt;p&gt;I watched a video about how if America imports USD 1m worth of goods but only exports USD 600k worth of goods, there is a USD 400k debt to other countries if the other country allows this deficit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;US importers pay for the value of the goods they import. So why is there debt? Doesn't the US pay in USD the full value based on the transaction? Why would importing have anything to do with exporting, also why would anyone &quot;exchange&quot; goods for credit with somebody that already is USD 18 trillion in debt?&lt;/p&gt;&#xA;" OwnerUserId="4197" LastEditorUserId="43" LastEditDate="2015-03-16T13:58:24.570" LastActivityDate="2017-09-05T12:15:34.133" Title="What does trade deficit really mean?" Tags="&lt;debt&gt;&lt;international-trade&gt;" AnswerCount="3" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4759" PostTypeId="2" ParentId="4744" CreationDate="2015-03-16T21:58:00.370" Score="16" Body="&lt;p&gt;For a shorter proof, here are a few things we need to know before we start:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$X_1, X_2 , ..., X_n$ are independent observations from a population with mean $\mu$ and variance $\sigma^{2}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\mathbb E(X_i) = \mu$ , $\mathbb{Var}(X_i)= \sigma^{2}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\mathbb E(X^2) = \sigma^{2} + \mu^{2}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\mathbb{Var}(X)=\mathbb E(X^2)-\mathbb [E(X)]^2$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\mathbb E(\bar{X}^2) = \frac{\sigma^2}{n} + \mu^2$&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Let's try to show that $\mathbb E(s^2)= \mathbb E\left(\frac{\sum_{i=1}^n (X_i - \bar X)^2}{n-1}\right) = \sigma^{2}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To make my life easier, I will omit the limits of summation from now onwards, but let it be known that we are always summing from $1$ to $n$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\mathbb E\left(\sum (X_i - \bar X)^2 \right) = \mathbb E\left(\sum X_{i}^2 - 2 \bar X \sum X_i + n \bar X^2 \right) = \sum \mathbb E(X_{i}^2) - \mathbb E\left(n \bar X^2 \right)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\sum \mathbb E(X_{i}^2) - \mathbb E\left(n \bar X^2 \right) = \sum \mathbb E(X_{i}^2) - n \mathbb E\left(\bar X^2\right) = n \sigma^2 + n \mu^2 - \sigma^2 -n \mu^2$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This simplifies to $(n-1) \sigma^2$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So far, we have shown that $\mathbb E\left(\sum (X_i - \bar X)^2 \right) = (n-1)\sigma^2$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\mathbb E(s^2)= \mathbb E\left(\frac{\sum (X_i - \bar X)^2}{n-1}\right) = \frac{1}{n-1} \mathbb E\left(\sum (X_i - \bar X)^2 \right)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\mathbb E(s^2) = \frac {(n-1)\sigma^2}{n-1} = \sigma^2$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We have now shown that the sample variance is an unbiased estimator of the population variance.&lt;/p&gt;&#xA;" OwnerUserId="4201" LastEditorUserId="4201" LastEditDate="2015-04-26T12:27:27.933" LastActivityDate="2015-04-26T12:27:27.933" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4760" PostTypeId="2" ParentId="4744" CreationDate="2015-03-17T00:47:51.507" Score="4" Body="&lt;p&gt;Let's improve the &quot;answers per question&quot; metric of the site, by providing a variant of @FiveSigma 's answer that uses visibly the i.i.d. assumption (showing also its necessity).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We want to prove the unbiasedness of the sample-variance estimator, &#xA;$$s^2 \equiv \frac{1}{n-1}\sum\limits_{i=1}^n(x_i-\bar x)^2$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;using an i.i.d. sample of size $n$, from a distribution having variance $\sigma^2$,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$E(s^2) =?\; \sigma^2$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, write&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$s^2 \equiv \frac{n}{n-1} \frac{1}{n}\sum_{i=1}^n(x_i-\bar x)^2$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{1}{n}\sum_{i=1}^n(x_i-\bar x)^2 = \frac 1n \left(\sum_{n=1}^n(x_i^2- 2\bar x x_i + \bar x^2)\right) = \frac 1n \sum_{n=1}^nx_i^2- 2\bar x \frac 1n \sum_{n=1}^nx_i + \bar x^2$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since $\bar x = \frac 1n \sum_{n=1}^nx_i$ we get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{1}{n}\sum_{i=1}^n(x_i-\bar x)^2 =\frac 1n \sum_{n=1}^nx_i^2-  \bar x^2$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We consider the expected value of the two components&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$E\left(\frac 1n \sum_{n=1}^nx_i^2\right) = \frac 1n \sum_{n=1}^nE(x_i^2)=E(X^2)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;since the variables are identically distributed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\bar x ^2 = \left(\frac 1n \sum_{n=1}^nx_i\right)^2 = \frac 1{n^2}\left(\sum_{n=1}^nx_i^2 + \sum_{i\neq j}x_ix_j\right)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;the second sum having $n^2-n$ elements. So&#xA;$$E(\bar x^2) = \frac 1{n^2}(nE(X^2)) + \frac 1{n^2}\left[(n^2-n)E(x_i)E(x_j)\right]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We were able to write $E(x_ix_j) = E(x_i)E(x_j)$ because the sample is comprised of independent RVs. More over they are identical so $E(x_i)E(x_j) = [E(X)]^2$. Therefore&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$E(\bar x^2) = \frac 1nE(X^2) + \frac {n-1}{n}[E(X)]^2$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Bringing it all together,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$E(s^2) = \frac {n}{n-1}\cdot \left[E(X^2) - \frac 1nE(X^2) - \frac {n-1}{n}[E(X)]^2\right]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$= \frac {n}{n-1}\cdot \left[\frac {n-1}{n}E(X^2)  - \frac {n-1}{n}[E(X)]^2\right]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies E(s^2) = E(X^2) - [E(X)]^2 \equiv {\rm Var}(X)$$&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-03-17T00:47:51.507" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4761" PostTypeId="2" ParentId="4758" CreationDate="2015-03-17T06:39:01.270" Score="4" Body="&lt;p&gt;Every country has a trade balance, which is defined as exports minus imports. The United States is a typical observing state, which means their imports are higher than their exports. I do not know the current numbers but USD 1m of imports and USD 600k might be right. In this sense you import USD 400k than you export. &#xA;Now as you already pointed out you have to pay you imports in USD. Now the point NickJ mentioned is insofar important  as to understand what you are actually entitled when holding USD. And all you are entitled to is to buy products within the United States. True, you as a single person could change it into another currency, but this does not change the fact that some else is holding USD and is sooner or later going to demand goods in USD.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So it is correct that in some sense running a trade deficit really brings debt to a country. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, one has to understand that running a trade deficit is not only indebting. In some way it is a credit for future production and consequently employment. The debt you are causing when running a trade deficit can also be seen as in some way storing demand for US products which in some point in the future will be carried out.&lt;/p&gt;&#xA;" OwnerUserId="4203" LastActivityDate="2015-03-17T06:39:01.270" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4762" PostTypeId="2" ParentId="4751" CreationDate="2015-03-17T08:36:49.877" Score="2" Body="&lt;p&gt;There is an interesting aspect to this question, which maybe goes beyond the generality of your question but should be mentioned nevertheless.&#xA;In fact the answer refers to a somewhat technicality concerning the Euro Zone. The ECB introduced negative interest rates their account, i.e. if a bank deposits money on the central bank is subject to these negative interest rates. The idea is that bank withdraw their money and some part of it will flow into the real economy which would lower interest rates. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, ECB excludes a certain part of banks deposits from negative interest rates, the exact amount which is excluded is defined by the minimum requirement a bank is required to hold. Further, the minimum requirement a bank is forced to hold is defined as certain percentage of provided credits. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now if banks would start to lend money to each other, banks would increase provided credits, which would increase minimum requirement. This would increase the amount exempted from negative interest rates. Consequently it would undergo ECB intention and interest rate would not fall. &lt;/p&gt;&#xA;" OwnerUserId="4204" LastActivityDate="2015-03-17T08:36:49.877" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4763" PostTypeId="1" AcceptedAnswerId="5281" CreationDate="2015-03-17T17:44:01.720" Score="3" ViewCount="53" Body="&lt;p&gt;Improved manufacturing efficiency could cause price reduction of goods, increase manufacturer's profit (still asks for the same price, but has less expenses), and what else? Is it possible to predict what would be more dominant? If not, is there historical statistical data about this?&lt;/p&gt;&#xA;" OwnerUserId="4006" LastEditorUserId="4006" LastEditDate="2015-03-17T17:57:54.673" LastActivityDate="2015-04-23T17:07:56.367" Title="What would be the results of improved goods manufacturing efficiency?" Tags="&lt;supply-and-demand&gt;&lt;efficient-markets&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4764" PostTypeId="2" ParentId="4742" CreationDate="2015-03-17T19:00:03.677" Score="2" Body="&lt;p&gt;To use a simple example, assume that consumer $i$ maximizes&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U(x_i,y_i,I_i) = \alpha\ln x_i +(1-\alpha)\ln y_i + (\bar I_i-p_xx_i -p_yy_i)\\&#xA;s.t. \bar I_i \geq p_xx_i +p_yy_i$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words, it may spend all his income on the two goods (but not more), or he may keep some for other goods, not modeled here. Due to the inequality in the constraint we need to use a Karush-Kuhn-Tucker non-negative multiplier, rather than the usual Lagrange multiplier.&#xA;Assuming a fixed income, the lagrangean function is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Lambda = \alpha\ln x_i +(1-\alpha)\ln y_i + (\bar I_i-p_xx_i -p_yy_i) +\lambda_i(\bar I_i-p_xx_i -p_yy_i)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assuming income is fixed, the first order conditions are&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\alpha}{x_i} - (1+\lambda_i)p_x \leq 0,\;\; \frac {1-\alpha}{y_i} -  (1+\lambda_i)p_y  \leq  0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\lambda(\bar I_i-p_xx_i -p_yy_i) = 0 ,\; x_i\cdot \left(\frac {\alpha}{x_i} -  (1+\lambda_i)p_x\right)=0, \; y_i\cdot \left(\frac {1-\alpha}{y_i} -  (1+\lambda_i)p_y\right) =0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;it follows that at the optimum both goods will be demanded in positive quantities, which in turn requires that the first-derivatives be set equal to zero. This gives us&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\alpha}{p_xx_i} = \frac {1-\alpha}{p_yy_i} \implies x_i^D=\frac {\alpha}{1-\alpha}\frac {p_y}{p_x}y_i^D \tag{1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;from which we can obtain the optimal relation for the Expenditure $E_i$ on the two goods&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$E_i^* = \frac {1}{1+\lambda_i^*} , \;\; E_i^* \leq \bar I_i$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since $\lambda_i \geq 0 \implies  \max E_i^* \leq 1$ so if it so happens that $\bar I_i &amp;gt;1$ then not all income will be spent on the two goods, the constraint won't be binding and so $\lambda_i^* =0 $. (Is $\max E_i^* \leq 1$ a strange result?) On the other hand if $\bar I_i \leq 1$ then we will necessarily have $E_i^* = \bar I_i$, and $\lambda_i^* = (1-\bar I_i)/\bar I_i$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In either case, optimal relation $(1)$ remains valid. So, assuming identical consumers with respect to preferences (not necessarily with respect to Income), aggregating $(1)$ we obtain the market-level relation&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ X^D=\frac {\alpha}{1-\alpha}\frac {p_y}{p_x}Y^D \tag {2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At equilibrium, we have $X^D = X^S,\; Y^D = Y^S \tag{3}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Equations $(2)$ and $(3)$ hold for any supply. &#xA;We now change the supply of $X$ but leave the supply of $Y$ unchanged. Indexing  the initial situation by $0$ and the second situation by $1$, they are described by&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ X^D_0=\frac {\alpha}{1-\alpha}\frac {p_{y0}}{p_{x0}}Y^D_0,\;\;X^D_0 = X^S_0,\;\; Y^D_0 = Y^S_0 \tag {4}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ X^D_1=\frac {\alpha}{1-\alpha}\frac {p_{y1}}{p_{x1}}Y^D_1,\;\;X^D_1 = X^S_1&amp;gt;X^S_0,\;\; Y^D_1 = Y^S_1= Y^S_0\tag {5}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$X^D_1 - X^D_0 = \frac {\alpha}{1-\alpha}\frac {p_{y1}}{p_{x1}}Y^D_1 - \frac {\alpha}{1-\alpha}\frac {p_{y0}}{p_{x0}}Y^D_0   $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and using the various relations&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies X^S_1 - X^S_0 = \frac {\alpha}{1-\alpha}\frac {p_{y1}}{p_{x1}}Y^S_1 - \frac {\alpha}{1-\alpha}\frac {p_{y0}}{p_{x0}}Y^S_0 &amp;gt;0   $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies \frac {\alpha}{1-\alpha}Y^S_0\cdot \left[\frac {p_{y1}}{p_{x1}}-\frac {p_{y0}}{p_{x0}}\right] &amp;gt;0$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies \frac {p_{y1}}{p_{x1}}-\frac {p_{y0}}{p_{x0}} &amp;gt;0 \implies \frac {p_{y1}}{p_{y0}}&amp;gt;\frac {p_{x1}}{p_{x0}} \tag{6}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$(6)$ tells us that the price of $Y$, if it falls, it will fall certainly less than the price of $X$, but &lt;em&gt;in proportional terms&lt;/em&gt;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It appears that in this benchmark example, we cannot say anything about the price changes in terms of &lt;em&gt;levels&lt;/em&gt;, as the OP asks about.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the levels of the two prices are very different we can easily have a smaller proportional fall for $p_y$, while at the same time a higher fall in monetary units. Set for example $p_{y0} = 100, p_{x0} = 1$, and assume that the price of $Y$ falls only by $10$% while the price of $X$ falls by $20$%.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In turn the levels of prices depends on the magnitude of the supply of the two goods also, which are treated as exogenous here.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-03-17T19:00:03.677" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4765" PostTypeId="1" AcceptedAnswerId="5624" CreationDate="2015-03-17T19:35:46.280" Score="8" ViewCount="1273" Body="&lt;p&gt;I have the code corresponding to Tauchen (1986) (Python equivalent of &lt;a href=&quot;http://www2.hhs.se/personal/floden/Code.htm&quot;&gt;this&lt;/a&gt;), which generates a discrete approximation of a discrete time AR(1) process.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, if you set up grid size as 3, it gives you a vector of productivities&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;[A_1, A_2, A_3,]&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;and a matrix of transition probabilities&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;A_11, A_12, A_13&#xA;A_21, A_22, A_23&#xA;A_31, A_32, A_33&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Where row &lt;code&gt;i&lt;/code&gt;, column &lt;code&gt;j&lt;/code&gt; gives you the probability of transitioning from &lt;code&gt;i&lt;/code&gt; to &lt;code&gt;j&lt;/code&gt;, and it satisfies that the sum of each row is approximately one.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am wondering how I can transform this to a continuous time equivalent of the transition matrix; a set of poisson probabilities controlling the flow rates between the states. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;All I remember in this regard is that we can get the linear approximation to the poisson probabilities using&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Prob(i \to j) = \lim_{\Delta\to0} \exp(-\lambda_{ij}\Delta) \approx 1-\lambda_{ij}\Delta  $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But I can't see how that helps me transforming that former matrix to the $\lambda$s... I'm looking forward to any suggestion.&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-05-12T05:53:26.427" Title="Transition Matrix: Discrete -&gt; Continuous Time" Tags="&lt;computation&gt;&lt;stochastic-processes&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="4766" PostTypeId="1" AcceptedAnswerId="4767" CreationDate="2015-03-17T21:06:49.063" Score="8" ViewCount="387" Body="&lt;p&gt;I am reading in statistical decision theory and stumbled upon the rational expectations literature (rationality with incomplete information-&gt;dynamic problem-&gt;N.L Stokey-&gt;husband). The assumption that subjective expectation approximates the objective probabilities without adaptive learning seems almost ridiculous if one considers that the whole enterprise of statistics is to learn from the past to infer about the future. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Nevertheless, as explained clearly in the &lt;a href=&quot;https://economics.stackexchange.com/a/141/4205&quot;&gt;answer to another question&lt;/a&gt;, Muth (1961) proposed the hypothesis of rational expectations as a purely descriptive model, to facilitate explanation of certain market behavior, however unrealistic it might be to generalize this hypothesis to all behavior.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Please refer to the &lt;a href=&quot;http://www.fep.up.pt/docentes/pcosme/S-E-1/se1_trab_0910/se1.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;full text of the paper&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I understood it correctly, section 3 of the paper is an exposition of how such a rational expectations hypothesis, as the author proposed and shortly justified in section 2, can be applied to analyze several market situations. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I had difficulty understanding the reasoning around equations 3.3-3.4. In particular:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Referring to (3.3) we see that if $\frac{\gamma}{\beta}\neq-1$ the rationality assumption (3.4) implies that $p_t^e=0$, or that the expected price equals the equilibrium price. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;What does the last part of the sentence mean? That equation (3.4) holds? How can $\frac{\gamma}{\beta}\neq-1$, $p_t^e\neq0$ and equations (3.3) and (3.4) hold together? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I understand his exposition as imposing the rational expectations hypothesis (equation 3.4) on the market equilibrium price (equation 3.3), then the solution would be that either $\frac{\gamma}{\beta}=-1$ or that $p_t^e=0$. What does this mean? Or is he trying to show something else?&lt;/p&gt;&#xA;" OwnerUserId="4205" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-03-18T18:12:08.787" Title="Muth exposition of the rational expectations hypothesis" Tags="&lt;microeconomics&gt;&lt;academic-graduate&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="4767" PostTypeId="2" ParentId="4766" CreationDate="2015-03-17T23:38:38.753" Score="5" Body="&lt;p&gt;Muth assumes a model of &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;...short-period price variations in an isolated market with a fixed&#xA;  production lag of a commodity which cannot be stored&quot;.&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It is useful to remember that the model's equations are expressed as deviations from equilibrium values. So in a bit more clear notation than the original (a star denotes &lt;em&gt;long-run&lt;/em&gt; equilibrium value)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\begin{align} &amp;amp; D_t-D^* = -\beta (p_t-p^*) &amp;amp; {\rm (Demand)}\\&#xA;&amp;amp; S_t-S^* = \gamma (p^e_t-p^*) + u_t &amp;amp; {\rm (Supply)}\\&#xA;&amp;amp; D_t = S_t,\;\; D^* = S^* &amp;amp; {\rm (Market \;Equilibirum)} \end{align}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Production is determined one period before, based on expected future price, but final supply is also subject to random shocks, $u_t$, with $E_{t-1}u_t =0$. $p^e_t$ is expected price but we have not yet make any assumption on how it is formed, or to what is equal.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Eliminating quantities through market equilibrium we obtain&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$p_t-p^* = -\frac {\gamma}{\beta} (p^e_t-p^*) - u_t \tag {3.2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Taking expectations conditional on time $t-1$ we obtain&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$E_{t-1}p_t-p^* = -\frac {\gamma}{\beta} (p^e_t-p^*) \tag {3.3}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Rearranging and subtracting $p^e_t$ from both sides we see that equation $(3.3)$ leads to&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$p^e_t-E_{t-1}p_t = (1+\gamma/\beta) (p^e_t-p^*) \tag {3.3a}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If  $\gamma / \beta =-1$ we obtain, &lt;em&gt;without making any &lt;strong&gt;assumption&lt;/strong&gt; on how expectations are formed but as a solution to the model&lt;/em&gt;, that $p^e_t=E_{t-1}p_t$. But this is uninteresting, being a very specific configuration of demand and supply responses. Assume then that $\gamma / \beta \neq -1$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then this way to write the relation (not in Muth's paper), shows clearly that if $$p^e_t \neq E_{t-1}p_t \implies p^e_t \neq p^*$$&#xA;and that&#xA;$$p^e_t = E_{t-1}p_t \implies p^e_t = p^*$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Throughout the paper Muth treats $E_{t-1}p_t$ as the &lt;em&gt;theory's&lt;/em&gt; prediction, a &lt;em&gt;best&lt;/em&gt; prediction (and it is, in the sense of being the minimizer of mean squared error of prediction). Given this Muth argues as follows: if &quot;market expectations&quot; $p^e_t$ (i.e. some concept of &quot;average&quot;, &quot;prevailing&quot; expectations) were &lt;em&gt;not&lt;/em&gt; equal to the &quot;best&quot; prediction, then &lt;em&gt;recurring&lt;/em&gt; pure-profit opportunities would exist, for &lt;em&gt;someone&lt;/em&gt; that used $E_{t-1}p_t$ as his own expectation, while all others used some other expectations formation rule. But, is it reasonable to argue that &lt;em&gt;the market as a whole&lt;/em&gt; is outperformed by some &quot;wise man&quot;? Is it reasonable to argue that the firms and the businessmen and any other people whose livelihood depends on the workings of this specific market, would not really try hard to be as efficient and as accurate as possible regarding their predictions? It doesn't sound too convincing, especially since we are talking about the &lt;em&gt;collective wisdom of all market participants&lt;/em&gt; here.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So making the assumption $p^e_t = E_{t-1}p_t$ (i.e. imposing the RE Hypothesis) appears reasonable, and this leads to &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$p^e_t =p^*$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(remember the right-hand side is long-run equilibrium price, not next-period's - we are not looking at period-by-period perfect foresight here).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now use this result on the initial equations describing the market, and eventually obtain the determination of the short-run equilibrium price as &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$p_t = p^* -(1/\beta)u_t$$&#xA;This happens &lt;em&gt;because&lt;/em&gt; we have imposed REH. In other words the imposition of REH brings about the result that current equilibrium price remains &quot;attracted&quot; and &quot;chained&quot; to long-run equilibrium, fluctuating randomly but not explosively.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$p_t = p^e_t -(1/\beta)u_t$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which also means than in &lt;em&gt;unconditional&lt;/em&gt; expected-value terms&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$E(p_t) = E(p^e_t)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;On average&quot; (intertemporally), the price expectation will equal the actual price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In one move Muth obtained two extremely powerful results:&lt;br&gt;&#xA;a) Markets do not explode&lt;br&gt;&#xA;b) Market participants on average and &quot;as a whole&quot; predict correctly.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And really, if markets did tend to explode rather than not explode, they would not be around for thousands of years, as they are. And if market participants were predicting consistently poorly, we would have seen much more personal financial ruins than we do.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What REH does &lt;em&gt;not&lt;/em&gt; do well, is in helping model and analyze short run and transitional dynamics. It remains a long-run concept, a &quot;long-run view&quot; if you will, and this is why Adaptive Learning emerged, and this is why we are currently researching (in a frenzy), other expectations formation hypotheses.  &lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-03-17T23:38:38.753" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4768" PostTypeId="1" CreationDate="2015-03-18T15:51:57.323" Score="4" ViewCount="56" Body="&lt;p&gt;I'm interested in data that reveals public opinion towards global warming in the US. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It'd be best to have a time dimension to it, but I'm interested in data from around the year 2000. Since it is quite a hot topic, I expect there to be much around this, but I couldn't find anything with &lt;em&gt;scientific standards&lt;/em&gt; - say, anything beyond &lt;em&gt;political institution X / news channel Y  asked 1000 and we are not even sure what the phrasing of the question was&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;I am especially interested in data that includes an indicator for income/wealth.&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2015-03-18T18:28:22.647" LastActivityDate="2015-03-19T18:40:05.873" Title="Data: Attitude towards global warming" Tags="&lt;data-request&gt;&lt;environmental-economics&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="4769" PostTypeId="2" ParentId="4723" CreationDate="2015-03-18T16:44:32.443" Score="1" Body="&lt;p&gt;If 15% of students were unable to pay back loans in year X, the loans would roll over to the next year X+1 and accrue interest.  These loans continue for the lifetime of the student. Perhaps if 15% of students died simultaneously without paying back their loans?  I believe if this were the case, there may be deflation, (because of the sudden disappearance of anticipated future income lowering investment and GDP), rather than inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If 15% of students default yearly on their debt, and the government decides to cover that debt by -printing the money- and paying the balance of the loan, inflation will occur. But it is not clear to what extent.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In general, economic recessions are associated with deflation, economic growth is associated with inflation.  If you have a period of both inflation and recession, you have &quot;stagflation&quot;, which can be brought on by increased price of critical inputs, like oil.&lt;/p&gt;&#xA;" OwnerUserId="4185" LastActivityDate="2015-03-18T16:44:32.443" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="4770" PostTypeId="1" AcceptedAnswerId="4786" CreationDate="2015-03-18T16:54:52.127" Score="10" ViewCount="949" Body="&lt;p&gt;Basically I need to replicate Hartley's 'A User's Guide to Solving Real Business Cycle Models' (&lt;a href=&quot;http://www.econ.ucdavis.edu/faculty/kdsalyer/LECTURES/Ecn235a/Linearization/ugfinal.pdf&quot; rel=&quot;noreferrer&quot;&gt;http://www.econ.ucdavis.edu/faculty/kdsalyer/LECTURES/Ecn235a/Linearization/ugfinal.pdf&lt;/a&gt;). Specifically, I want to simulate the dynamical system implied by the model which is specified as follows:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/2LuOx.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $c$ is consumption, $h$ is labour supply, $k$ is capital, $z$ is the autoregressive technological process, $y$ is the output and $i$ is investment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I simulate it using the following logic: say at time $t$, everything is at steady state and all the values are 0, from which we have $k_{t+1}$. Then, at $t+1$ by giving a shock to the system through $\varepsilon$, i solve for $c_{t+1}$ and $h_{t+1}$ (as I have the 'shocked' $z_{t+1}$ and previously obtained $k_{t+1}$. Then, I plug those two to retrieve the rest, namely - $y_{t+1}, i_{t+1}, k_{t+2}$ and repeat the process.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Unfortunately, I get an explosive process which doesn't make sense:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/weeDr.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I also include R code that is used to simulate this:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;n&amp;lt;-300&#xA;&#xA;data.simulated &amp;lt;- data.table(t = 0, zval = 0, cval = 0, hval = 0, kval = 0, yval = 0, ival = 0)&#xA;data.simulated &amp;lt;- rbind(data.simulated, data.table(t = 1, kval = 0), fill = TRUE)&#xA;&#xA;for (ii in 1:n){&#xA;&#xA;  ##initial shocks&#xA;  eps &amp;lt;- rnorm(1, mean = 0, sd = 0.007)&#xA;  zt1 &amp;lt;- data.simulated[t == ii - 1, zval]*0.95 + eps&#xA;  kt1 &amp;lt;- data.simulated[t == ii, kval]&#xA;&#xA;  ##solve for ct, ht&#xA;  lmat &amp;lt;- matrix(c(1, -0.54, 2.78, 1), byrow = T, ncol = 2)&#xA;  rmat &amp;lt;- matrix(c(0.02 * kt1 + 0.44 * zt1, kt1 + 2.78 * zt1), ncol = 1)&#xA;&#xA;  solution &amp;lt;- solve(lmat, rmat)&#xA;  ct1 &amp;lt;- solution[1, ]&#xA;  ht1 &amp;lt;- solution[2, ]&#xA;&#xA;  ##now solve for yt1 and kt2 and it1&#xA;  yt1 &amp;lt;- zt1 + 0.36 * kt1 + 0.64 * ht1&#xA;  kt2 &amp;lt;- -0.07 * ct1 + 1.01 * kt1 + 0.06 * ht1 + 0.1 * zt1&#xA;  it1 &amp;lt;- 3.92 * yt1 - 2.92 * ct1&#xA;&#xA;  ##add to the data.table the results&#xA;  data.simulated[t == ii, c(&quot;zval&quot;, &quot;cval&quot;, &quot;hval&quot;, &quot;yval&quot;, &quot;ival&quot;) := list(zt1, ct1, ht1, yt1, it1)]&#xA;  data.simulated &amp;lt;- rbind(data.simulated, data.table(t = ii + 1, kval = kt2), fill = TRUE)&#xA;}&#xA;&#xA;&#xA;a &amp;lt;- data.simulated[, list(t, cval, ival, yval)]&#xA;a &amp;lt;- data.table:::melt.data.table(a, id.vars = &quot;t&quot;)&#xA;ggplot(data = a, aes(x = t, y = value, col = variable)) + geom_line()&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Sy my question is simple - is the system specified in the paper is inherently unstable and ergo the results, or did I make a mistake somewhere?&lt;/p&gt;&#xA;" OwnerUserId="4208" LastActivityDate="2015-03-20T14:15:41.397" Title="Simulating Real Business Cycle" Tags="&lt;macroeconomics&gt;&lt;general-equilibrium&gt;&lt;business-cycles&gt;&lt;simulations&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="4771" PostTypeId="1" CreationDate="2015-03-18T17:09:49.300" Score="4" ViewCount="507" Body="&lt;p&gt;I come from a strong quantitative background and am going to law school in the fall. I'm interested in financial product regulation and competition law. I have taken an introductory course in economics, but my exposure to economics stopped there.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I was wondering if you had reading suggestions in &lt;strong&gt;micro, macro, and financial markets&lt;/strong&gt;. Although I don't have an issue with calculus, lin alg, or probability, I tend to prefer learning by the use of examples, e.g. &quot;too many chefs in the kitchen&quot; to explain diminishing returns. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I really don't like jargon and so far I seem to come across a lot of online resources (especially regarding financial products) that seem to use a lot of jargon with little reference to basic concrete examples. I tend to be very detailed oriented, so I prefer texts that lay out their variables and constants clearly. Something lighter and shorter tailored for independent study would be best.&lt;/p&gt;&#xA;" OwnerUserId="4209" LastEditorUserId="43" LastEditDate="2015-03-18T18:09:57.547" LastActivityDate="2015-03-21T13:22:12.490" Title="Literature Recommendation: Advanced Undergraduate Economics" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;reference-request&gt;&lt;financial&gt;" AnswerCount="3" CommentCount="1" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="4772" PostTypeId="2" ParentId="4771" CreationDate="2015-03-18T17:43:11.577" Score="3" Body="&lt;p&gt;I would suggest Mankiw and &lt;a href=&quot;http://www.econtalk.org/&quot; rel=&quot;nofollow&quot;&gt;EconTalk&lt;/a&gt; (despite my Keynesian leanings). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Specifically Mankiw's text &quot;&lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0030259517&quot; rel=&quot;nofollow&quot;&gt;Principles of Economics&lt;/a&gt;&quot; is a great math-light introduction that covers both Macro and Micro. I recommend this edition particularly because you can get it new off Amazon for under $20, though of course the latest edition is best, but the field hasn't changed that much that I'd spend 15x as much to get it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Additionally &lt;a href=&quot;http://www.amazon.com/Joseph-E.-Stiglitz/e/B000APIKRK/ref=dp_byline_cont_book_2&quot; rel=&quot;nofollow&quot;&gt;Stiglitz&lt;/a&gt;, &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/067443000X&quot; rel=&quot;nofollow&quot;&gt;Piketty&lt;/a&gt;, &lt;a href=&quot;http://en.wikipedia.org/wiki/James_M._Buchanan&quot; rel=&quot;nofollow&quot;&gt;Buchanan&lt;/a&gt;, and &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0030867320&quot; rel=&quot;nofollow&quot;&gt;Fama&lt;/a&gt; (particularly Fama, given your interest in finance), are all great authors, and in my opinion fairly accessible (in book, not in paper, they're each just as jargonated in paper as any one else).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope that helps.&lt;/p&gt;&#xA;" OwnerUserId="31" LastActivityDate="2015-03-18T17:43:11.577" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4773" PostTypeId="2" ParentId="4768" CreationDate="2015-03-18T18:23:45.590" Score="3" Body="&lt;p&gt;There's &lt;a href=&quot;http://www.pollingreport.com/enviro.htm&quot; rel=&quot;nofollow&quot;&gt;this&lt;/a&gt; from Polling report showing raw survey data (question, sample data, and responses) back to 2012.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Additionally &lt;a href=&quot;http://www.atmosp.physics.utoronto.ca/people/lev/ESSgc/lorenzoniPclimchng06.pdf&quot; rel=&quot;nofollow&quot;&gt;this paper by Lorenzoni and Pidgeon&lt;/a&gt; and &lt;a href=&quot;http://anthonyleiserowitz.com/pubs_assets/AmericanRiskPerceptions.pdf&quot; rel=&quot;nofollow&quot;&gt;this paper by Leiserowitz&lt;/a&gt; (both 2005) discussing said data in a more academic context. You would need to do some substantial extrapolation to get time-series out of these though.&lt;/p&gt;&#xA;" OwnerUserId="31" LastActivityDate="2015-03-18T18:23:45.590" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4775" PostTypeId="2" ParentId="4770" CreationDate="2015-03-18T19:40:56.490" Score="5" Body="&lt;p&gt;&lt;strong&gt;Final NEWS March 20, 2015&lt;/strong&gt; : I have e-mailed prof. K. Salyer, one of the authors of the User Guide. In a repeated communication, &lt;strong&gt;he verified that both issues (see my answer below, as well as @ivansml answer), do exist:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;a)&lt;/strong&gt; The correct equation for the law of motion of consumption is as @ivansml shows  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;b)&lt;/strong&gt; The number $0.007$ is &lt;em&gt;wrongly&lt;/em&gt; called &quot;variance&quot; (p. 11) in the paper. In reality, it is the &lt;strong&gt;standard deviation&lt;/strong&gt;, and indeed such a magnitude is a typical finding in the data (prof. Salyer referenced &quot;p. 22 form ch.1 of Cooley and Prescott's Frontiers of Business Cycle Research). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Both mistakes relate to the printed version of the paper.&lt;/strong&gt; In other words, the simulations behind Figure 1  of the paper are correct: they use the correct equation for consumption, and they use $0.007$ as the standard deviation of the disturbance in the technology process. So it is the second graph below that it is valid.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;PHASE A&lt;/strong&gt;&lt;br&gt;&#xA;I verified by simulation (and using the correct standard deviation) that the model explodes, although it does so &lt;em&gt;upwards&lt;/em&gt; rather than downwards.&#xA;There must be a calculating mistake in the paper, which nevertheless was somehow not &quot;transmitted&quot; to the authors' simulations. For the moment I cannot think of anything else, since the methodology is standard. I am intrigued and so still working on it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;PHASE B&lt;/strong&gt;&lt;br&gt;&#xA;After @ivansml's answer, which &lt;strong&gt;identified a mistake in the paper (that apparently was not made in the simulations of the authors)&lt;/strong&gt;, I think &lt;strong&gt;I have identified a &lt;em&gt;second&lt;/em&gt; mistake, this time &lt;em&gt;in the simulations&lt;/em&gt;&lt;/strong&gt;: and it is related to whether $0.007$ is a standard deviation or a variance value.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Specifically:&#xA;Using the corrected system of equations, and a random disturbance $\epsilon_i \sim N(0, \sigma^2 = 0.007), \implies SD = 0.0837$ (i.e. as &lt;em&gt;written in the paper&lt;/em&gt;) I obtain the following graph of the last 120 realizations of 3,000 total :&#xA;&lt;img src=&quot;https://i.stack.imgur.com/RJfsX.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note the values on the vertical axis: they are &lt;strong&gt;much greater&lt;/strong&gt; than the range of values that appears in Figure 1 in the authors' paper.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But if I generate disturbances according to $\epsilon_i \sim N(0, \sigma^2 = 0.00049), \implies SD = 0.007$, then I obtain&#xA;&lt;img src=&quot;https://i.stack.imgur.com/5ngQq.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now the range of values matches those appearing in the paper's graph. It may be the case that the correct Variance is $0.007$ and the authors incorrectly used it as StDev.But it also may be the case that the correct variance is $0.000049$ and the correct SD is $0.007$. So the simulation was correct (in line with the obtained estimate), but by mistake they called in the paper &quot;Variance&quot; what should be called &quot;Standard Deviation&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I will attempt to contact the authors on these two matters.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-03-20T14:15:41.397" LastActivityDate="2015-03-20T14:15:41.397" CommentCount="11" ContentLicense="CC BY-SA 3.0" />
  <row Id="4776" PostTypeId="2" ParentId="4757" CreationDate="2015-03-19T06:37:58.513" Score="3" Body="&lt;p&gt;I think in the literature of uncertainty I once read that increasing the number of laws increases the potential source of uncertainty. However, it was probably more related to investment than to working performance. However, if you are interested &quot;Measuring economic policy uncertainty&quot; by Baker, Bloom and David (2013) might be a good start. &lt;/p&gt;&#xA;" OwnerUserId="4216" LastActivityDate="2015-03-19T06:37:58.513" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4777" PostTypeId="1" CreationDate="2015-03-19T11:55:47.500" Score="27" ViewCount="25695" Body="&lt;p&gt;Swedens central bank recently lowered their prime rate to -0.25% from -0.10% in an effort to avoid deflation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;At the same time, house and apartment prices are higher than ever, up 11% last 12 months, and up hundreds of percents the last 5-10 years. Measures are taken to avoid a housing bubble, like regulations on mortgage payments and so on, these are having an effect but the effects of a rapid rise in rate would be disastrous.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As I've understood, and I guess this might differ from country to country, the measure of inflation, CPI, includes prices for services and goods, but not for houses and apartments, why is that? In Sweden, rent for apartments and the bank rate are included in CPI, but the consumer isn't paying rate, they pay rate * house prices.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If house prices were included in CPI, we would definitely have inflation rather than deflation, so the right action would be to increase the prime rate, which would also lower house prices. &lt;/p&gt;&#xA;" OwnerUserId="2719" LastActivityDate="2020-09-24T22:32:20.890" Title="Why aren't house prices included in CPI?" Tags="&lt;inflation&gt;&lt;interest-rate&gt;" AnswerCount="3" CommentCount="4" FavoriteCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="4778" PostTypeId="2" ParentId="4757" CreationDate="2015-03-19T12:47:55.597" Score="3" Body="&lt;p&gt;There is a movement in automotive and pedestrian traffic management called &lt;a href=&quot;http://www.pps.org/reference/shared-space/&quot; rel=&quot;nofollow&quot;&gt;Shared Spaces&lt;/a&gt;. Under Shared Spaces the vast majority of formal and informal road signage is removed, such as stop signs, traffic lights, raised curbs, road lines. The idea is that these signs makes pedestrians and drivers run follow the signs instead of watching the road and the people on it. When their attention is redirected to city streets and the people on them the hope is that a safer and faster spontaneous order will result. This has been tried in a number of places, most famously &lt;a href=&quot;http://en.wikipedia.org/wiki/Drachten&quot; rel=&quot;nofollow&quot;&gt;Drachten, Netherlands&lt;/a&gt;. &lt;a href=&quot;http://www.fietsberaad.nl/library/repository/bestanden/Evaluation%20Laweiplein.pdf&quot; rel=&quot;nofollow&quot;&gt;A study of the Drachten experiment&lt;/a&gt; indicated that this caused a significant reduction in traffic accidents in the town. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The UK's financial regulator, the Financial Services Authority, switched to a comprehensive principles-based regime in 2003 (&lt;a href=&quot;http://wwwarc.law.ubc.ca/files/pdf/faculty/ford/ABLJ_50.PDF&quot; rel=&quot;nofollow&quot;&gt;Ford (2008)&lt;/a&gt;) from a previous regime of detailed rules. This might be another example of a policy intervention to reduce the number of rules. Assessing if this is working is a challenge. For one, international comparisons of financial regulation in the global financial crisis don't tell us much. Almost every rich country experienced failure or near failure of regulated entities. For another, people dispute just how principle versus rules based various national regulatory systems actually are (&lt;a href=&quot;http://www.lse.ac.uk/collections/law/wps/WPS2010-17_Black.pdf&quot; rel=&quot;nofollow&quot;&gt;Black (2010)&lt;/a&gt;). &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-03-19T13:05:22.080" LastActivityDate="2015-03-19T13:05:22.080" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4779" PostTypeId="2" ParentId="4777" CreationDate="2015-03-19T13:19:48.743" Score="30" Body="&lt;p&gt;The CPI stands for a Consumer Price Index. As in the price of things that are consumed (at a particular moment in time). Real estate prices are not the price of something consumed because they contain the value of current housing consumption but also the capitalized value of future housing consumption. As such, including house prices would make the CPI a mixture of consumption at different times, and therefore unsuitable for comparing the price of consumption bundles at distinct times. Instead, they use a purer measure of the price of housing consumption: rents. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Rents reflect the price of consuming a flow of real estate services at a moment in time. Of course, many homes are owned by the occupants and not rented. Therefore, the calculators of national accounts generate something called &quot;owner occupied rents&quot;, which is an attempt to calculate what the rents would be on homes that are occupied by their owners. This measure has problems, but for many purposes is quite adequate (&lt;a href=&quot;https://www.philadelphiafed.org/research-and-data/publications/working-papers/2004/wp04-22.pdf&quot;&gt;Crone, Nakamura, Voith (2004)&lt;/a&gt;).&lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-03-20T12:03:01.230" LastActivityDate="2015-03-20T12:03:01.230" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="4780" PostTypeId="2" ParentId="4723" CreationDate="2015-03-19T14:12:03.227" Score="2" Body="&lt;p&gt;If, as you say, 15% of student loan borrowers were to default and the government were to forgive their loans, that would simply be a transfer of wealth from the government to those borrowers (on the order of about 15% of &lt;a href=&quot;http://research.stlouisfed.org/fred2/series/SLOAS&quot; rel=&quot;nofollow&quot;&gt;\$1.3 trillion&lt;/a&gt;, or about \$200 billion). What happened from there would depend first on whether the government funded that transfer by cutting other spending or by issuing debt. Inflation is a basically unrelated issue— the monetary authority (the Federal Reserve) is independent of the fiscal authority (Congress and the Treasury), and as they say, the monetary authority acts last.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Student loan payments are generally not due until some time after a student leaves school, so as a practical matter, forgiveness on defaulted loans would not generally affect whether students remained in school versus being in the workforce, unless you assumed that students started borrowing more with the intent of defaulting (a &quot;moral hazard&quot; scenario). I'll ignore this possibility just to keep things simple and to keep the focus on the fiscal and monetary impact.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In all scenarios, borrowers who received loan forgiveness would be better off, as their wealth would increase by the amount of the forgiven debt. They would, as noted, likely already be working or seeking work. Because they had already stopped paying their debt, we would not assume that they would experience improved cash flows. Work on structuring modifications to defaulted mortgages suggests that households are more sensitive to changes in cash flows than changes in net wealth, so we would only expect these individuals to increase their consumption modestly, but we would in fact expect this side of the ledger to result in increased consumption and economic growth.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, if the government financed this debt forgiveness by reducing its consumption, it would probably be a net negative to GDP in the short run, as it would remove \$200 billion in government spending, which would not be made up by the slight increase in consumption by borrowers. Government consumption expenditures are currently equal to about &lt;a href=&quot;http://research.stlouisfed.org/fred2/series/GCE&quot; rel=&quot;nofollow&quot;&gt;\$3.2 trillion annually&lt;/a&gt;, which equaled about &lt;a href=&quot;http://research.stlouisfed.org/fred2/series/A822RE1Q156NBEA&quot; rel=&quot;nofollow&quot;&gt;18% of GDP&lt;/a&gt; in the most recent quarter, so... the direct impact would be a reduction of about 1% of GDP. You can make assumptions about consumption multipliers for government consumption and come up with different results, but this is the direct impact in that scenario.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the government financed the debt forgiveness by issuing its own debt, it would increase the stock of outstanding US government debt by \$200 billion, or about %1. This would have little impact on debt markets, so there would be no concern about &quot;crowding out&quot; private borrowing, and because it was debt-financed, there would be no reduction of government consumption. As a result, the only real effect on GDP would be the small net positive contribution from increased private consumption.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With respect to inflation, even if the monetary authority bought all the additional debt issuance, it'd only increase the amount of money in the financial system by a negligible amount. For comparison, the Federal Reserve's aggregate increase in holdings of Treasury securities in response to the financial crisis and through its quantitative easing program was close to about &lt;a href=&quot;http://research.stlouisfed.org/fred2/series/TREAST&quot; rel=&quot;nofollow&quot;&gt;\$2 trillion&lt;/a&gt;, or ten times the size of this hypothetical debt issuance. Inflation during that period has &lt;a href=&quot;http://research.stlouisfed.org/fred2/graph/?g=14HB&quot; rel=&quot;nofollow&quot;&gt;generally remained below&lt;/a&gt; the Fed's 2% target. So currently, the effect on inflation would likely be negligible.&lt;/p&gt;&#xA;" OwnerUserId="264" LastEditorUserId="264" LastEditDate="2015-03-19T20:08:55.787" LastActivityDate="2015-03-19T20:08:55.787" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4782" PostTypeId="2" ParentId="4749" CreationDate="2015-03-19T16:02:10.367" Score="4" Body="&lt;p&gt;There have been several changes to the way the CPI is calculated over the years. A significant change occurred with respect to weights and hedonic adjustments in 1998 (I believe the pre-1998 series is what ShadowStats, without having any of the underlying data, attempts to replicate), and one in 1983 that, among other things, changed the way that housing services were calculated from an &quot;asset price&quot; approach to a &quot;rental equivalence&quot; approach. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The 1983 change was made to &lt;a href=&quot;http://www.bls.gov/bls/fesacp1120905.pdf&quot; rel=&quot;nofollow&quot;&gt;more accurately reflect changes in consumer prices&lt;/a&gt;, rather than reflecting changes in asset prices, which is not the point of the CPI. The 1998 change was made in part to more accurately reflect changes in the quality of goods produced, because it had been apparent for some time, particularly in the tech sector, that a computer sold one year for $500 was much more &quot;computer&quot; than the one sold a year or so earlier for the same price, and was therefore actually cheaper in real terms once you accounted for the change in the quality of the goods.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;None of the old measures are still tracked, for two reasons:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;The old measures were targeted for these changes because they were not believed to accurately reflect economic realities.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Economic statistics agencies like the BLS have limited budgets, and calculating multiple versions of a series is more costly than calculating one version.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;So the series you want doesn't exist basically because it'd be a waste of money to have the government calculating numbers that economists believe are wrong.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Old series are dropped all the time for these reasons; for example, around the time of the 1998 change to inflation calculations, the BEA adopted the NAICS industry classification and dropped the SIC system, because the NAICS system was believed to more accurately reflect the structure of industries at the time. For example, before NAICS, computers were in a category called &quot;Industrial And Commercial Machinery And Computer Equipment&quot; right between the pump/compressor/industrial oven category and the industrial refrigerator category. At the same time, guided missiles were lumped into the same category as space vehicles (under transportation), so that we didn't tell the Russians exactly how much we were spending on our intercontinental ballistic missiles (or so I've heard).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, if you want an independent check on the BLS-calculated CPI numbers, you can check out MIT's &lt;a href=&quot;http://bpp.mit.edu/&quot; rel=&quot;nofollow&quot;&gt;Billion Prices Project&lt;/a&gt; (a similar project, the &quot;Google Price Index&quot;, is no longer publicly available, to my knowledge). You will find that they generally come to the same conclusions as the CPI.&lt;/p&gt;&#xA;" OwnerUserId="264" LastActivityDate="2015-03-19T16:02:10.367" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4784" PostTypeId="1" AcceptedAnswerId="4791" CreationDate="2015-03-19T18:35:30.077" Score="5" ViewCount="104" Body="&lt;p&gt;This is question about Kaplan and Menzio's &lt;a href=&quot;http://ideas.repec.org/p/nbr/nberwo/18777.html&quot;&gt;shopping time model&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Pages 7,8: Unemployed search once or twice (for a seller). &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;$\psi_u$:probability of searching twice, searching once with prob $1-\psi_u$&lt;/li&gt;&#xA;&lt;li&gt;$\nu$ is the probability of finding a seller. &lt;/li&gt;&#xA;&lt;li&gt;Searches are independent. An unemployed who searches twice, hence has the probability of finding two sellers of $\nu^2$.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Now here's the problem, on page 10, they look at it from a seller's point of view. Conditional of the seller of being matched with a buyer, what is the probability of the buyer being matched with another seller?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ Prob(\text{being matched second seller} | \text{being matched with first seller}) = \frac{Prob(\text{being matched with first and second seller})}{Prob(\text{being matched with first seller})} \\&#xA;= \frac{\text{search twice and find both times}}{\text{search once and find a seller or search twice and find one or two sellers }} \\&#xA;= \frac{\psi_u\nu^2}{((1-\psi_u) * \nu) + (\psi_u)*(\nu + \nu)}\\&#xA;= \frac{\psi_u\nu}{1+\psi_u}\\&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, what they get is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{2\psi_u\nu}{1+\psi_u}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;They compute some &quot;intermediate probabilities&quot; on page 8, but I don't see how they help get their result. How does one get their result?&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2015-03-19T18:43:18.003" LastActivityDate="2015-05-29T20:18:44.003" Title="Conditional probability in Kaplan, Menzio (2014)" Tags="&lt;probability&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4785" PostTypeId="2" ParentId="4768" CreationDate="2015-03-19T18:40:05.873" Score="2" Body="&lt;p&gt;I've done some more digging, and I'm adding this as a separate answer:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.ropercenter.uconn.edu/CFIDE/cf/action/catalog/catalogResult.cfm?keywordDisplay=climate%2520change&amp;amp;keyword=climate+AND++change&amp;amp;keywordOptions=1&amp;amp;organization=&amp;amp;fromDate=01%2F01%2F1935&amp;amp;toDate=&amp;amp;country=&amp;amp;type=&amp;amp;queryId=9115159&amp;amp;label=&amp;amp;studyId=&amp;amp;perPage=20&amp;amp;sortBy=BEG_DATE_DESC&amp;amp;filterDecade2010s=on&quot; rel=&quot;nofollow&quot;&gt;This search of Roper Center data from UConn&lt;/a&gt; yielded a few interesting surveys. Namely, &lt;a href=&quot;http://www.ropercenter.uconn.edu/CFIDE/cf/action/catalog/abstract.cfm?type=&amp;amp;start=&amp;amp;id=&amp;amp;archno=USCBS2013-03C&amp;amp;abstract=&quot; rel=&quot;nofollow&quot;&gt;this CBS survey from 2013&lt;/a&gt; and &lt;a href=&quot;http://www.ropercenter.uconn.edu/CFIDE/cf/action/catalog/abstract.cfm?type=&amp;amp;start=&amp;amp;id=&amp;amp;archno=USPRRI2011-09&amp;amp;abstract=&quot; rel=&quot;nofollow&quot;&gt;this PRRI survey from 2011&lt;/a&gt;. Both track income data and are rigorously documented. Lastly there was &lt;a href=&quot;http://www.ropercenter.uconn.edu/CFIDE/cf/action/catalog/abstract.cfm?type=&amp;amp;start=&amp;amp;id=&amp;amp;archno=USUMARY2004-06&amp;amp;abstract=&quot; rel=&quot;nofollow&quot;&gt;this report entitled Americans on Climate Change from 2004&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Digging even deeper, I found &lt;a href=&quot;http://www.people-press.org/2000/07/13/june-2000-voter-attitudes-survey/&quot; rel=&quot;nofollow&quot;&gt;this report from Pew from 2000&lt;/a&gt; with a few questions on climate and a measure of income. I did not download the whole report though, and just perused the pdf, so your mileage may vary. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I did however just want to call both datasets out for being invaluable (much better than Gallup), so if there's more info you'd like, definitely peruse &lt;a href=&quot;http://www.people-press.org/question-search/&quot; rel=&quot;nofollow&quot;&gt;The Pew Research Center for the People &amp;amp; the Press Poll Database&lt;/a&gt; or &lt;a href=&quot;http://www.ropercenter.uconn.edu/CFIDE/cf/action/catalog/index.cfm&quot; rel=&quot;nofollow&quot;&gt;the Roper Center Public Opinion Archives&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="31" LastActivityDate="2015-03-19T18:40:05.873" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4786" PostTypeId="2" ParentId="4770" CreationDate="2015-03-20T01:37:15.737" Score="6" Body="&lt;p&gt;&lt;strong&gt;Explosiveness&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The paper contains an error, which causes the explosive dynamics in your simulation (although presumably the underlying computations in the paper were correct). The equilibrium condition derived from eigenvalue decomposition is contained in the third row of matrix $Q^{-1}$ on page 12 of the paper, with variables ordered as $(c,k,h,z)$ (I'll drop tildas, so all lowercase variables are to be understood as log-deviations). Comparing with eqn. (16) on p. 13, we see that coefficients for $k$ and $h$ are switched, and so the correct condition is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;c_t = 0.54 k_t + 0.02 h_t + 0.44 z_t&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Simulation&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, we can express consumption and labor as linear function of state variables (no need to solve the system at each step of the simulation). The intertemporal and intratemporal equilibrium conditions can be written as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\begin{bmatrix}1 &amp;amp; -0.02 \\ 2.78 &amp;amp; 1 \end{bmatrix} \begin{bmatrix} c_t \\ h_t\end{bmatrix} = \begin{bmatrix} 0.54 &amp;amp; 0.44 \\ 1 &amp;amp; 2.78 \end{bmatrix} \begin{bmatrix} k_t \\ z_t\end{bmatrix}&#xA;$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;so after multiplying by an inverse we get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\begin{bmatrix} c_t \\ h_t\end{bmatrix} = \begin{bmatrix} 0.53 &amp;amp; 0.47 \\&#xA;-0.47 &amp;amp; 1.47 \end{bmatrix} \begin{bmatrix} k_t \\ z_t\end{bmatrix}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Next, transition for states can be written as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\begin{bmatrix} k_{t+1} \\ z_{t+1} \end{bmatrix} = \begin{bmatrix} -0.07 &amp;amp; 0.06 \\ 0 &amp;amp; 0 \end{bmatrix} \begin{bmatrix} c_t \\ h_t\end{bmatrix} + \begin{bmatrix} 1.01 &amp;amp; 0.1 \\ 0 &amp;amp; 0.95 \end{bmatrix} \begin{bmatrix} k_t \\ z_t\end{bmatrix} + \begin{bmatrix} 0 \\ \epsilon_{t+1}\end{bmatrix}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which can be reduced by substuting for control variables to&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\begin{bmatrix} k_{t+1} \\ z_{t+1} \end{bmatrix} = \begin{bmatrix} 0.94 &amp;amp; 0.16 \\ 0 &amp;amp; 0.95 \end{bmatrix} \begin{bmatrix} k_t \\ z_t\end{bmatrix} + \begin{bmatrix} 0 \\ \epsilon_{t+1}\end{bmatrix}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now the simulation should be trivial, here's a Matlab/Octave example:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;T = 200;&#xA;X = zeros(2,T);&#xA;for i=2:T&#xA;    X(:,i) = [0.94 0.16; 0 0.95] * X(:,i-1) + [0; 0.007*randn()];&#xA;end&#xA;Y = [0.53 0.47; -0.47 1.47] * X;&#xA;figure&#xA;plot(1:T, [X; Y])&#xA;legend('k','z','c','h')&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/MPNc9.png&quot; alt=&quot;Simulation&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course in practice, you should probably recompute the whole solution, including the eigenvalue decomposition, so that you would be able to change parameters, etc.&lt;/p&gt;&#xA;" OwnerUserId="1432" LastActivityDate="2015-03-20T01:37:15.737" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4787" PostTypeId="2" ParentId="45" CreationDate="2015-03-20T05:27:55.487" Score="1" Body="&lt;p&gt;Let's say the campaign was free. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;According to the common introductory model:&#xA;$C+I+G+X-IM=Y_1$&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;G stays the same (program is free). &lt;/li&gt;&#xA;&lt;li&gt;C goes down. &lt;/li&gt;&#xA;&lt;li&gt;I goes up the by an amount equal to the decrease in C because Savings=Investment.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Net result: No change in GDP for that year.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Every model I have ever seen suggests that broadly increased investment leads to better production in the following year. We have more hammers, more manufacturing of widgets, etc. This means $Y_2&amp;gt;Y_1$, and either $C_2$, $I_2$, $G_2$ or $X_2-IM_2$ must be larger to compensate.&lt;/p&gt;&#xA;" OwnerUserId="4185" LastEditorUserId="4185" LastEditDate="2015-03-20T14:31:02.883" LastActivityDate="2015-03-20T14:31:02.883" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4788" PostTypeId="2" ParentId="4741" CreationDate="2015-03-20T05:37:44.467" Score="4" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;Well, the basic issue is the entitlements and the reason it's a&#xA;  problem is that people put money in their own funds and their&#xA;  employers' funds plus interest and that is what they perceive they et&#xA;  back , and therefore they are entitled to it because it is their&#xA;  money.&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;He's saying people think that they receive the income that they are putting into the program.  For example, a common perception that people have about social security is that it is simply a forced savings program: I put in \$50, that \$50 is put into a vault somewhere, then pulled out later, and given back to me for my retirement.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That's not how it works. I put in \$50, and we spend it immediately on someone's current retirement, or a number of other pre-approved (and sometimes seemingly unrelated) programs. We then hope that some new young person puts in another \$50 in time for my retirement.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is particularly a problem as that the number of retirees is going to grow while the number of young people putting money into social security is going to shrink. In fact, this is a problem if productivity declines in any way, and the amount going in is limited or restricted, or fails to grow.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Questions 1/3: He is not saying that entitlements cause lower productivity in this statement-&gt; he is saying entitlements will have problems -because- of lower productivity (probably from lower population, as has been popular to discuss for quite some time).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Question 2: Capital stock is the collection of tools available for production.  (Hammers, technical know-how, computers, assembly lines.)&lt;/p&gt;&#xA;" OwnerUserId="4185" LastEditorUserId="4185" LastEditDate="2015-03-20T05:43:34.877" LastActivityDate="2015-03-20T05:43:34.877" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4789" PostTypeId="1" CreationDate="2015-03-20T10:26:36.927" Score="-1" ViewCount="94" Body="&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/Xo97I.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Please help as I am not able to solve either parts.&lt;/p&gt;&#xA;" OwnerUserId="2763" LastActivityDate="2015-04-19T13:06:09.217" Title="Proving government expenditure crowds out private consumption" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="1" ClosedDate="2017-03-06T22:25:45.747" ContentLicense="CC BY-SA 3.0" />
  <row Id="4790" PostTypeId="2" ParentId="4789" CreationDate="2015-03-20T12:49:16.930" Score="1" Body="&lt;p&gt;Since I don't know where exactly you have the problems, I&#xA;'m just providing a rough solution scheme here. Note that it's quite long ago that I did this stuff, so I may be outright wrong - &lt;em&gt;don't follow without verifying that the following actually makes sense&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;a)&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Since $Y = F(L)$ is increasing in $L$, the sign of $dY/dG$ is equal to the sign $dL/dG$. Through the government's budget constraint, any change in $G$ must be reflected in an increase in $M$ and/or an increase in $PT$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Set up $\max_{C,L} U $ subject to the household's budget constraint, and then replace in the FOC $M - \bar M$ with $PG - PT$ , to get the dependence of $L$ on $G$. As soon as you have $L(G)$, you can compute $Y(G)$ as $F(L(G))$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The next step then is just to look at the derivative of $d F(L(G))/dG$. Once you have $L(G)$, computing $C(G)$ is analogous. &lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-03-20T12:49:16.930" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4791" PostTypeId="2" ParentId="4784" CreationDate="2015-03-20T13:46:27.953" Score="4" Body="&lt;p&gt;The first / second seller terminology can be confusing here (does it relate to time or to conditionality?). It's safer to focus on a particular seller.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let the probability that a buyer finds a particular seller, $s$, via single search be $\nu_s$. The probability that a buyer is matched with $s$ and (either before or after) another seller is then (assuming that $\nu_s$ is small so that the probability of finding $s$ twice in at most 2 searches can be ignored):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\psi_u(\nu_s\nu+\nu\nu_s)= 2\psi_u\nu_s\nu$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The probability that a buyer is matched with $s$ via either a single or a double search is (again ignoring the probability, given a double search, of finding $s$ twice):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$(1-\psi_u)\nu_s + \psi_u(\nu_s + \nu_s)=\nu_s(1+\psi_u)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The conditional probability of a buyer being matched with $s$ and another seller, conditional on $s$ being matched with that buyer, is therefore:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{2\psi_u\nu_s\nu}{\nu_s(1+\psi_u)}=\frac{2\psi_u\nu}{1+\psi_u}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But the latter formula does not depend on $\nu_s$. Hence the same formula applies to any seller.&lt;/p&gt;&#xA;" OwnerUserId="1417" LastActivityDate="2015-03-20T13:46:27.953" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4792" PostTypeId="2" ParentId="3352" CreationDate="2015-03-20T14:03:05.787" Score="3" Body="&lt;p&gt;It is the change in the demand of $x_1$ and $x_2$ for different levels of income $m$ (when we shift the budget curve out). Intuitively, how will your consumption of the two goods change when income changes. If we let $x_1$ be bus tickets and $x_2$ taxi rides, then if your income increases, we might expect that you will takes the bus less and the taxi more often. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/YngFA.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;" OwnerUserId="3997" LastActivityDate="2015-03-20T14:03:05.787" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4793" PostTypeId="2" ParentId="45" CreationDate="2015-03-20T15:36:37.213" Score="3" Body="&lt;p&gt;As stated the Government successfully runs a campaign and people stop spending and start saving. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Part of the answer depends on how they save, and the other part depends on how manufacturers react. However it´s worth observing that in most countries only a minority of people can do this - the 60-70% of people in the USA for example who live pay cheque to pay cheque can´t realistically save anything.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the savers simply leave their money in their bank accounts, or switch it to a savings account, it is incorrect to assume there is more investment. In fact &lt;strong&gt;nothing&lt;/strong&gt; changes on the investment side. Banks can´t lend more money, because their customers stop spending it. It just sits there in their bank accounts.  Capital reserves, and in some countries central bank reserves control the amount of bank lending, not deposits. People spend less, less is bought, we can presume that either less is produced, or producers lower their prices as a result. In the latter case, there could be no change whatsoever.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, people may start buying investments, and in that case there may be more investment. It again depends on which financial instruments they´re buying. Money market funds for example would channel that money into short term commercial debt, angel investments into startup companies, corporate bonds into companies, government treasuries into government debt. If they bought bank capital (i.e. newly issued bank shares), then the banks would be able to lend more - as the increased capital would act to increase the amount they could lend. Since banks can lend at a multiple of their capital, that is actually the most efficient (in terms of the amount of money required) way to increase lending.&lt;/p&gt;&#xA;" OwnerUserId="84" LastActivityDate="2015-03-20T15:36:37.213" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4794" PostTypeId="1" AcceptedAnswerId="4807" CreationDate="2015-03-20T15:59:09.543" Score="7" ViewCount="296" Body="&lt;p&gt;Kaplan and Menzio's &lt;a href=&quot;http://se.shufe.edu.cn/upload/htmleditor/File/140522081313.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;shopping time model&lt;/a&gt; is a search&amp;amp;matching unemployment model where we, for a steady state equilibrium, need to determine to variables:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;$J$: Value of a worker &lt;/li&gt;&#xA;&lt;li&gt;$u$: unemployment rate&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Their &lt;em&gt;steady state&lt;/em&gt; values ($\dot J, \dot u = 0$) are given by the following system of equations:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ &#xA;J = \frac{(1-\gamma)(S(u) + y_e - y_u)}{\rho + \delta}\\&#xA;u = \frac{\delta}{\delta + \lambda(J)}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Furthermore, &quot;profits from the good with price dispersion&quot; and wages, respectively, are given by (equations (6), (7) on page 12)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;S(u) = A(u) + B(u)*w(u)\\&#xA;w(u) = y_u + \gamma*(S(u) + y_e - y_u)&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where $A(u), B(u)$ are some placeholders for a bunch of constants and parameters, that may depend on $u$. I plug out the wages and solve as &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\tilde S(u) = \frac{A(u) + B(u)(y_u + \gamma(y_e - y_u)}{1 - B(u)\gamma}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, using the authors' calibration and this version of $\tilde S(u)$, I can solve for both $J$ and $u$. Here it is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/GgtM7.png&quot; alt=&quot;My computation&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given their calibration, they get two interesting steady state equilibria on the $(u, J)$ space: $(0.053, 11.3)$ and $(0.081, 9.5)$. My $u(J)$ graph seems to be correct as it goes through both these loci. The $J(u)$ line, however, seems to be &quot;too small&quot; given $u$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The only object somewhat difficult to compute is $S(u)$. I have verified that my step of replacing actually works: I computed $w(u)$ using $\tilde S(u)$ and verified that $S(u, w(u)) == \tilde S(u)$ (up to a numerical approximation). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am not asking for someone to find my mistake, but rather where to look for it: I have checked anything I could come up with and am somewhat stuck. For the interested, here is my Python code:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;# solves simple shopping time model&#xA;# only on the steady state equilibria&#xA;&#xA;import numpy as np&#xA;import matplotlib.pyplot as plt&#xA;&#xA;# all parameters for monthly&#xA;class Parameters(object):&#xA;    def __init__(self):&#xA;&#xA;        self.psi_u = 0.27 # search twice, unemployed&#xA;        self.psi_e = 0.02 # search twice, employed &amp;lt; psi_u&#xA;        self.gamma = 0.74 # bargaining power&#xA;        self.alpha = 1 # BJ exponent in utility&#xA;&#xA;        self.r = 15.7 # reservation price, home transformation&#xA;        self.c = 1 # production technology firm&#xA;&#xA;        self.y_u = 4.91 # efficiency home&#xA;        self.y_e = 1 # efficiency firm&#xA;&#xA;        self.rho = 0.003 # depreciation rate&#xA;        self.delta = 0.024 # separation rate&#xA;&#xA;        self.phi = 1.24 # matching function efficiency&#xA;        self.k = 8.02 # search costs of labor for firm&#xA;&#xA;&#xA;def b(u, Param):&#xA;    return 1 + Param.psi_e + u*(Param.psi_u - Param.psi_e)&#xA;def s(u, Param):&#xA;    return 1 - u&#xA;def sigma(u, Param):&#xA;    return s(u, Param)/b(u, Param)&#xA;# seller meets buyer&#xA;def muOfU(u, Param):&#xA;    return np.minimum(1/sigma(u, Param), 1)&#xA;# buyer meets seller&#xA;def nuOfU(u, Param):&#xA;    return np.minimum(sigma(u, Param), 1)&#xA;&#xA;&#xA;def lambdaOfJ(J, Param):&#xA;    result = ( ((J/Param.k)**(Param.phi) - 1 )**(-1) + 1 )**(-float(1)/Param.phi)&#xA;    result[np.isnan(result)] = 0&#xA;    return result&#xA;&#xA;# not needed atm, replaced within lambdaOfJ (instead of lambdaOfTheta)&#xA;def thetaOfJ(J, Param):&#xA;    #eta(theta)J = k&#xA;    #etaInverse = (eta^(-phi) - 1)^(1/phi)&#xA;    x = Param.k/J&#xA;    return (x**(-Param.phi) - 1)**(1/Param.phi)&#xA;&#xA;&#xA;&#xA;def STilde(u, Param):&#xA;&#xA;&#xA;    A1 = muOfU(u, Param)*u*(1+Param.psi_u)/b(u, Param)&#xA;    A2 = 1 - 2*Param.psi_u*nuOfU(u, Param)/(1+Param.psi_u)&#xA;    A3 = Param.alpha*Param.y_u*(Param.r-Param.c)/Param.r&#xA;    A = A1*A2*A3&#xA;&#xA;    B1 = muOfU(u, Param)*(1-u)*(1+Param.psi_e)/b(u, Param)&#xA;    B2 = 1 - 2*Param.psi_e*nuOfU(u, Param)/(1+Param.psi_e)&#xA;    B3 = Param.alpha*(Param.r-Param.c)/Param.r&#xA;&#xA;    B = B1*B2*B3&#xA;&#xA;    result = (A + B*(Param.y_u + Param.gamma*(Param.y_e - Param.y_u) ))/(1 - B*Param.gamma)&#xA;    return result&#xA;&#xA;def S(u, wages, Param):&#xA;    A1 = muOfU(u, Param)*u*(1+Param.psi_u)/b(u, Param)&#xA;    A2 = 1 - 2*Param.psi_u*nuOfU(u, Param)/(1+Param.psi_u)&#xA;    A3 = Param.alpha*Param.y_u*(Param.r-Param.c)/Param.r&#xA;    A = A1*A2*A3&#xA;&#xA;    B1 = muOfU(u, Param)*(1-u)*(1+Param.psi_e)/b(u, Param)&#xA;    B2 = 1 - 2*Param.psi_e*nuOfU(u, Param)/(1+Param.psi_e)&#xA;    B3 = Param.alpha*(Param.r-Param.c)/Param.r&#xA;&#xA;    B = B1*B2*B3&#xA;&#xA;    result = A + B*wages&#xA;    return result&#xA;&#xA;&#xA;&#xA;def w(u, Param):&#xA;    return Param.y_u + Param.gamma*(STilde(u, Param) + Param.y_e - Param.y_u)&#xA;&#xA;#result2 = A + B*w(u, Param)&#xA;&#xA;def JSteadyState(u, Param):&#xA;&#xA;    A = (1-Param.gamma)*(STilde(u, Param) + Param.y_e - Param.y_u )&#xA;    B = Param.rho + Param.delta&#xA;    return A/B&#xA;&#xA;def uSteadyState(J, Param):&#xA;&#xA;    B = Param.delta + lambdaOfJ(J, Param)&#xA;    return Param.delta/B&#xA;&#xA;&#xA;Param = Parameters()&#xA;&#xA;&#xA;# compute J(u) and u(J)&#xA;uGrid = np.linspace(0.001, 0.2, 100)&#xA;J = JSteadyState(uGrid, Param)&#xA;&#xA;JGrid = np.linspace(5, 20, 1000)&#xA;u = uSteadyState(JGrid, Param)&#xA;&#xA;&#xA;# verify computation of S(u)&#xA;# wages given STilde:&#xA;wages = w(uGrid, Param)&#xA;# S given u, STilde&#xA;SOriginal = S(uGrid, wages, Param)&#xA;SWithTilde = STilde(uGrid, Param)&#xA;&#xA;print max(abs(SWithTilde - SOriginal)) # 8.881784197e-16&#xA;&#xA;# plot J(u) and u(J)&#xA;plt.plot(u, JGrid, label='u(J)')&#xA;plt.plot(uGrid, J, label='J(u)')&#xA;plt.legend()&#xA;plt.xlabel('u')&#xA;plt.ylabel('J')&#xA;plt.show()&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2015-03-25T21:30:27.527" LastActivityDate="2015-03-30T00:06:22.430" Title="Solving Kaplan and Menzio: Shopping Time" Tags="&lt;macroeconomics&gt;&lt;academic-graduate&gt;&lt;general-equilibrium&gt;&lt;computation&gt;&lt;unemployment&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4795" PostTypeId="1" CreationDate="2015-03-20T17:22:15.240" Score="2" ViewCount="79" Body="&lt;p&gt;In Hayashi's Econometrics, page 529, he states one of the assumptions we need for the FIML estimator. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My doubt is in the third line of point 1). He says that the vector $(y_{t1},...,y_{tM},\mathbf{z}_{t1},...,\mathbf{z}_{t1})$ are elements of $(\mathbf{y}_t,\mathbf{x}_t) $. How is that possible? If $\mathbf{y}_t=(y_{t1},...,y_{tM})'$, then it means that $\mathbf{x}_t=(\mathbf{z}_{t1},...,\mathbf{z}_{t1})$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't think I'm understanding the 'english' here.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="118" LastActivityDate="2015-03-20T18:38:51.123" Title="A doubt on FIML assumptions" Tags="&lt;econometrics&gt;" AnswerCount="1" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4796" PostTypeId="2" ParentId="4795" CreationDate="2015-03-20T18:38:51.123" Score="2" Body="&lt;p&gt;I think I understand now. If we look at example 8.1 on the previous page, the $y_{tm}$ variables may be the same, which would allow for some of the $\mathbf{z}_{tm}$ variables to be endogenous. And we pool all those endogenous variables (both the $y_{tm}$ and of the $\mathbf{z}_{tm}$) in one vector,  $\mathbf{y}_{t}$, and all the remaining ones (exogenous) in the $\mathbf{x}_{t}$ vector.&lt;/p&gt;&#xA;" OwnerUserId="118" LastActivityDate="2015-03-20T18:38:51.123" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4797" PostTypeId="2" ParentId="4771" CreationDate="2015-03-21T02:48:39.770" Score="3" Body="&lt;p&gt;For industrial organization, you might try the freely available IO book by Church and Ware. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't know the book in and out, but it includes many case studies in antitrust and more general IO topics, so you might find it useful. It's not especially technical, for better or worse, with most chapters beginning with motivating vignettes and a more talky style than most books I've used. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Comprehensive coverage and extended treatments of such recent developments as incomplete&#xA;  contracts, property rights, and the boundaries of the firm; durable goods monopoly; nonlinear&#xA;  pricing; address models of product differentiation; supergames, tacit collusion, and facilitating&#xA;  practices; the new empirical industrial organization; the efficient component pricing rule and&#xA;  access pricing; regulatory and industry restructuring in network industries; and regulation&#xA;  under asymmetric information&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://works.bepress.com/cgi/viewcontent.cgi?article=1022&amp;amp;context=jeffrey_church&quot; rel=&quot;nofollow&quot;&gt;http://works.bepress.com/cgi/viewcontent.cgi?article=1022&amp;amp;context=jeffrey_church&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="14" LastActivityDate="2015-03-21T02:48:39.770" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4799" PostTypeId="1" CreationDate="2015-03-21T12:22:31.890" Score="6" ViewCount="133" Body="&lt;p&gt;&lt;em&gt;Let's see how questions like the following are taken here.&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://crei.cat/people/gali/gvr2014.pdf&quot;&gt;Gali and van Rens, 2014&lt;/a&gt; show that empirically, the correlation between $Y, Y/L$ has been declining over time. In fact, it only was a &quot;real thing&quot; when the RBC theory was formed, and is now not statistically  different from zero.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is that an end to RBC theory as we know it? And by RBC I mean anything that sets driven by a TFP shock / uses TFP shocks to explain empirical phenomena: Standard neoclassical models for sure, even Neokeynesian models rely (to a lesser extend) on these. Also the whole Diamonds-Mortensen-Pissarides literature, where the surplus of a match comes from labor productivity, seems to be affected.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Alternatively, one could argue that that the correlation has become smaller, but amplification mechanism are larger now. Or attack the measurement of Gali and van Rens (but their results seem to be pretty robust).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What are potential views on this, what arguments does the literature emphasize?&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-04-22T03:30:34.910" Title="Gali and van Rens: The Vanishing Procyclicality of Labor Productivity" Tags="&lt;macroeconomics&gt;&lt;academic-graduate&gt;&lt;empirical-evidence&gt;&lt;real-business-cycles&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="4800" PostTypeId="2" ParentId="4771" CreationDate="2015-03-21T13:22:12.490" Score="3" Body="&lt;p&gt;Since you mention competition policy, Motta's book on that topic &quot;&lt;strong&gt;&lt;a href=&quot;http://www.cambridge.org/gb/academic/subjects/economics/industrial-economics/competition-policy-theory-and-practice&quot; rel=&quot;nofollow&quot;&gt;Competition Policy: Theory and Practice&lt;/a&gt;&quot;&lt;/strong&gt; is excellent (and puts all of the technical material into boxes so that it can be avoided if desired).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For micro, a good upper-level undegraduate treatment can be found in McCloskey's &lt;strong&gt;&quot;&lt;a href=&quot;http://www.deirdremccloskey.com/docs/price.pdf&quot; rel=&quot;nofollow&quot;&gt;Applied Theory of Price&lt;/a&gt;&quot;&lt;/strong&gt;. Now out of print, but available here: &lt;a href=&quot;http://www.deirdremccloskey.com/docs/price.pdf&quot; rel=&quot;nofollow&quot;&gt;http://www.deirdremccloskey.com/docs/price.pdf&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you would prefer a print book, I would also recommend &lt;strong&gt;&quot;&lt;a href=&quot;http://www.amazon.co.uk/Microeconomic-Theory-Basic-Principles-Extension/dp/111152551X&quot; rel=&quot;nofollow&quot;&gt;Microeconomic Theory: Basic Principles and Extension&lt;/a&gt;&quot;&lt;/strong&gt; by Nicholson and Snyder.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The McCloskey and Nicholson &amp;amp; Snyder books are a bit more advanced than those used for a typical introduction to microeconomics, but I get the sense that that is what you are looking for.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2015-03-21T13:22:12.490" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4801" PostTypeId="1" CreationDate="2015-03-21T18:25:10.673" Score="5" ViewCount="118" Body="&lt;p&gt;There have been many business cycles in the US over the past 50 years (although less so since the great moderation). Many of us youngsters are too young to remember many of these. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there some summary article / plot containing these, including their causes? For example: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;1990: Gulf war, drop in oil supply&lt;/li&gt;&#xA;&lt;li&gt;2000: crash of internet related stocks&lt;/li&gt;&#xA;&lt;li&gt;2008: crash of mortgages/housing market in the US, amplified through banking sector&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="43" LastEditorUserId="2776" LastEditDate="2017-09-11T08:18:44.577" LastActivityDate="2017-09-11T08:18:44.577" Title="Overview: Crises and their causes" Tags="&lt;macroeconomics&gt;&lt;reference-request&gt;&lt;business-cycles&gt;&lt;economic-crisis&gt;" AnswerCount="2" CommentCount="3" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="4802" PostTypeId="2" ParentId="4801" CreationDate="2015-03-21T23:34:07.280" Score="2" Body="&lt;h1&gt;&lt;em&gt;&lt;a href=&quot;http://www.reinhartandrogoff.com/&quot; rel=&quot;nofollow&quot;&gt;This Time Is Different&lt;/a&gt;&lt;/em&gt;&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;by Reinhart and Rogoff&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Detailed, structured, and comprehensive. A brief paper by the same authors on the same topic: &lt;em&gt;&lt;a href=&quot;http://www.nber.org/papers/w13882&quot; rel=&quot;nofollow&quot;&gt;This Time is Different: A Panoramic View of Eight Centuries of Financial Crises&lt;/a&gt;&lt;/em&gt;. The paper's abstract:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;This paper offers a &quot;panoramic&quot; analysis of the history of financial&#xA;  crises dating from England's fourteenth-century default to the current&#xA;  United States sub-prime financial crisis. Our study is based on a new&#xA;  dataset that spans all regions. It incorporates a number of important&#xA;  credit episodes seldom covered in the literature, including for&#xA;  example, defaults and restructurings in India and China. [...] We find&#xA;  that serial default is a nearly universal phenomenon as countries&#xA;  struggle to transform themselves from emerging markets to advanced&#xA;  economies. Major default episodes are typically spaced some years (or&#xA;  decades) apart, creating an illusion that &quot;this time is different&quot;&#xA;  among policymakers and investors. [...] We also confirm that crises&#xA;  frequently emanate from the financial centers with transmission&#xA;  through interest rate shocks and commodity price collapses. [...] Our&#xA;  data also documents other crises that often accompany default:&#xA;  including inflation, exchange rate crashes, banking crises, and&#xA;  currency debasements.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="240" LastEditorUserId="240" LastEditDate="2015-03-23T11:08:07.780" LastActivityDate="2015-03-23T11:08:07.780" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4803" PostTypeId="2" ParentId="4801" CreationDate="2015-03-21T23:36:14.720" Score="4" Body="&lt;h1&gt;&lt;em&gt;Manias, Panics, and Crashes&lt;/em&gt;&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;by Charles Kindleberger&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(&lt;a href=&quot;http://www.nowandfutures.com/large/Manias,Panics,andCrashes.pdf&quot; rel=&quot;nofollow&quot;&gt;Full book pdf&lt;/a&gt;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An easier reading compared to Reinhart and Rogoff. It informally explains how crises occur and presents some famous examples.&lt;/p&gt;&#xA;" OwnerUserId="240" LastActivityDate="2015-03-21T23:36:14.720" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4804" PostTypeId="1" CreationDate="2015-03-22T00:56:41.263" Score="1" ViewCount="59" Body="&lt;p&gt;I am having trouble formulating the concept I am thinking about. It has to do with looking at observed behavior of the sales of a particular product during each hour of the day, and trying to adjust prices accordingly.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you have a time series of 24 pairs of values, $(x_1,y_1), (x_2,y_2), \ldots, (x_{24},y_{24})$, where $(x_t,y_t)$ represents the data at time $t$ o'clock: $x_t$ is the number of sales and $y_t$ is the average price paid (both at time $t$).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given this information, is there anything that can be deduced about how the product should be priced? What about by the hour?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My background is not in economics, so I don't know if there is a framework for this type of problem.&lt;/p&gt;&#xA;" OwnerUserId="4232" LastActivityDate="2015-04-21T15:40:16.713" Title="Is there a name for this type of problem?" Tags="&lt;time-series&gt;&lt;probability&gt;" AnswerCount="1" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="4805" PostTypeId="1" AcceptedAnswerId="6079" CreationDate="2015-03-22T14:33:34.857" Score="8" ViewCount="999" Body="&lt;p&gt;I was reading about some of the famous crisis that happened in the past and i came across &quot;the tequila crisis&quot; in mexico during 1994-96.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a background, The Tequila crisis (also known as the Mexican Peso Crisis or December mistake crisis) was a currency crisis sparked by the Mexican government's sudden devaluation of the peso against the U.S. dollar in December 1994, which became one of the first international financial crises ignited by &quot;capital flight&quot;, as investors pulled out of Mexico.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The extended issuance of Tesbonos, a mexican bond also contributed to the crisis&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What are the mechanisms for a currency devaluation in a case like this?&lt;/p&gt;&#xA;" OwnerUserId="4233" LastEditorUserId="7593" LastEditDate="2016-05-12T03:34:59.487" LastActivityDate="2016-05-12T03:34:59.487" Title="Currency Devaluation and the causes of the Tequila Crisis" Tags="&lt;exchange-rates&gt;&lt;financial-crises&gt;&lt;currency-peg&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4806" PostTypeId="2" ParentId="4804" CreationDate="2015-03-22T15:06:05.837" Score="1" Body="&lt;p&gt;I take from your comments that you are interested in airline seating prices.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The subject of airline pricing is very complex: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;There are different seating classes at different sizes, where the offered quantities vary over time&lt;/li&gt;&#xA;&lt;li&gt;There is overbooking, because more expensive tariffs allow &quot;last second changing&quot; into and out of a specific flight, and companies try to accommodate for that&lt;/li&gt;&#xA;&lt;li&gt;Demand for the same flights vary with season and even day of the week. Typical example: There is higher demand on short distance flights for Thursday Evening/Friday Afternoon and Sunday night / Monday morning flights&lt;/li&gt;&#xA;&lt;li&gt;Elasticities vary with the distance: The more short term flights are being booked, the &quot;more desperate&quot; customers are, and the higher the faires are that companies can charge them. However, at the &quot;last minute&quot;, the companies potentially become &quot;desperate&quot; to fill seatings themselves, and offer low prices themselves&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I remember sitting into one, two lectures on this when a professor of Business Administration was treating the subject. The elasticities part of could equally well be treated by Economists, but most who look at the subject are BAs involved with logistics and similar - I would refer you to look for their literature (I have none at hand) for more detailed information.&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-03-22T15:06:05.837" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4807" PostTypeId="2" ParentId="4794" CreationDate="2015-03-22T18:05:21.467" Score="5" Body="&lt;p&gt;&lt;strong&gt;UPDATE&lt;/strong&gt;&lt;br&gt;&#xA;After e-mail communication with one of the authors G.W.Kaplan, I recalibrated the value of the vacancy-posting cost parameter $k$ in order to obtain a cross of the two nullclines for $u=0.05$. This is achieved for $k=7.41$ (rounded). Moreover, with this value of $k$, I get a second (but not a third) steady state. A close up diagram :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/kWwjw.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This still is not what Figures 1 and 2 of the paper show. The shape of the $J$-nullcline remains the issue. It should have an initial concave part and then a convex part in order to give us &lt;em&gt;three&lt;/em&gt; steady states. But I won't dig it any further than that.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;The $u$-nullcline&lt;/strong&gt;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;On p.8 the authors define $\lambda(\theta) \equiv M(1,\theta)$ (I believe they should have written for clarity, $\lambda(\theta) \equiv M/u =  M(1,\theta)$) . On p. 25 they specify the matching function as $M(u,v) = uv(u^\phi + v^\phi)^{-1/\phi}$. Therefore we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\lambda(\theta) = \theta(1 + \theta^\phi)^{-1/\phi}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This means that whenever $\theta = 0 \implies \lambda(\theta) =0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On p.14, eq. $(8)$ the give $k&amp;gt; J \implies \theta = 0$.&#xA;In the calibration stage, $k=8.02$. The $u$-nullcline is defined as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$u_{SS} = \frac {\delta}{\delta + \lambda[\theta(J))]}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;All these together imply that&#xA;$$J &amp;lt; 8.02 \implies u_{SS} = 1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Using the other relations specified, after a little algebra, we get &#xA;$$J&amp;gt;k=8.02 \implies \lambda[\theta(J)] = \left(1-(k/J)^{\phi}\right)^{1/\phi}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which is indeed your code, a bit less convoluted. And indeed the $u$-nullcline never crosses with the $J$-nullcline. For values of $u$ near unity see below. For low values of $u$ we obtain&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{array}{| r | r |}&#xA;  \hline &#xA;\hline                       &#xA;  \text {u} &amp;amp; \text {Jss} &amp;amp; \text{uSS(in J units)} \\&#xA;  \hline                      &#xA;0.03 &amp;amp; 12.25 &amp;amp; 23.06 \\&#xA;0.04 &amp;amp; 11.53 &amp;amp; 14.13 \\&#xA;0.05 &amp;amp; 10.86  &amp;amp; 11.75 \\&#xA;0.06 &amp;amp; 10.23 &amp;amp; 10.66 \\&#xA;0.07 &amp;amp; 9.64 &amp;amp; 10.03\\&#xA;0.08 &amp;amp; 9.09 &amp;amp; 9.62\\&#xA;0.09 &amp;amp; 8.57 &amp;amp; 9.34\\&#xA;0.10 &amp;amp; 8.09 &amp;amp; 9.14\\&#xA;  \hline  &#xA;\end{array} &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The $u$-nullcline stays always above the $J$-nullcline. I also &quot;pushed&quot; the $J$-nullcline by the factor $(1+\rho)$, i.e. the discrete version of the equation. But $\rho=0.003$, too small a mark-up, and so again there was no crossing. &#xA;&lt;strong&gt;Therefore it appears that what went into the simulations of the authors is at some point(s) different from what the equations and the calibrated parameters (Table 2) appearing in the paper give us.&lt;/strong&gt; Or, we are missing something.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;The $J$-nullcline&lt;/strong&gt;&lt;br&gt;&#xA;I checked the OP's code line by line, including the values of the calibrated parameters. I did not find any discrpeancy with what the paper gives. I then copy-pasted the code for the $J$-nullcline into Gretl, tweaking it only to match the local language.&#xA;&lt;strong&gt;A note:&lt;/strong&gt; the way various magnitudes are defined in the paper, we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\psi_u &amp;gt; \psi_e \implies b &amp;gt;1 \;\forall u \implies \sigma = s/b &amp;lt; 1, \;\forall u$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies \text {muOfU}\equiv \mu(\sigma(u)) = \min(1/\sigma, 1) = 1,\; \forall u$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies \text {nuOfU}\equiv \nu(\sigma(u)) = \min(\sigma, 1) = \sigma, \; \forall u$$ &lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;**GRETL script**  &#xA;solves simple shopping time model&#xA; only on the steady state equilibria&#xA;     nulldata 100  &#xA;      genr series u = index/100   &#xA;        genr scalar  psi_u = 0.27 # search twice, unemployed&#xA;        genr scalar  psi_e = 0.02 # search twice, employed &amp;lt; psi_u&#xA;        genr scalar  gamma = 0.74 # bargaining power&#xA;        genr scalar  alpha = 1 # BJ exponent in utility&#xA;&#xA;        genr scalar  r = 15.7 # reservation price, home transformation&#xA;        genr scalar  c = 1 # production technology firm&#xA;&#xA;        genr scalar  y_u = 4.91 # efficiency home&#xA;        genr scalar  y_e = 1 # efficiency firm&#xA;&#xA;        genr scalar  rho = 0.003 # depreciation rate&#xA;        genr scalar  delta = 0.024 # separation rate&#xA;&#xA;        genr scalar  phi = 1.24 # matching function efficiency&#xA;        genr scalar  k = 8.02 # search costs of labor for firm&#xA;&#xA;        genr series b =1 + psi_e + u*(psi_u - psi_e)&#xA;        genr series s = 1-u &#xA;        genr series sigma = s/b&#xA;        genr series sigmareci = 1/sigma&#xA;        genr list  mlist = sigmareci const&#xA;        genr list  nlist  = sigma const&#xA;        genr series muOfU = min(mlist)  # seller meets buyer&#xA;        genr series nuOfU = min(nlist)  # buyer meets seller&#xA;&#xA;&#xA;# def STilde:&#xA;&#xA;    genr series A1 = muOfU*u*(1+psi_u)/b&#xA;    genr series A2 = 1 - 2*psi_u*nuOfU/(1+psi_u)&#xA;    genr scalar A3 = alpha*y_u*(r-c)/r&#xA;    genr series A = A1*A2*A3&#xA;&#xA;    genr series B1 = muOfU*(1-u)*(1+psi_e)/b&#xA;    genr series B2 = 1 - 2*psi_e*nuOfU/(1+psi_e)&#xA;    genr series B3 = alpha*(r-c)/r&#xA;&#xA;    genr series  B = B1*B2*B3&#xA;&#xA;    genr series STilde = (A + B*(y_u + gamma*(y_e - y_u) ))/(1 - B*gamma)&#xA;&#xA;# def JSS&#xA;&#xA;genr series JSS = (1-gamma)*(STilde + y_e - y_u ) / (rho+delta)&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;I obtained the values&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/QedFo.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and the graph&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/JIlSb.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From the above we can see that the $J$-nullcline, although it starts increasing, it never approaches again the value $8$, which is $\approx$ the low asymptote for the $u$-nullcline. &lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-03-30T00:06:22.430" LastActivityDate="2015-03-30T00:06:22.430" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="4809" PostTypeId="1" CreationDate="2015-03-22T21:28:15.200" Score="1" ViewCount="974" Body="&lt;p&gt;In New Zealand our lowest denomination note is a $5 note. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For perspective, a can of coke costs $1.50 - $2.00, a Big Mac costs around $5. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The idea of a &lt;a href=&quot;http://www.stuff.co.nz/business/money/5321416/NZ-bank-notes-to-be-refreshed&quot; rel=&quot;nofollow&quot;&gt;$5 coin is on the cards&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question is - what effect does turning a note in to a coin have? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I imagine there would more of a piggybank effect (coins being lost, stuck in collection jars). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are there any studies on what's happened when notes have been replaced by coins? &lt;/p&gt;&#xA;" OwnerUserId="96" LastActivityDate="2015-03-23T19:27:19.157" Title="What effect would converting the lowest denomination note to a coin be?" Tags="&lt;currency&gt;" AnswerCount="2" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="4810" PostTypeId="1" CreationDate="2015-03-22T21:36:23.967" Score="11" ViewCount="768" Body="&lt;p&gt;There are concerns that &lt;a href=&quot;http://www.stuff.co.nz/life-style/home-property/65539484/auckland-house-prices-may-move-into-uncharted-territory-in-2015&quot; rel=&quot;nofollow&quot;&gt;Auckland, New Zealand, is currently experiencing a housing bubble.&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.stuff.co.nz/business/65176275/Auckland-in-world-top-ten-for-housing-unaffordability-report&quot; rel=&quot;nofollow&quot;&gt;Auckland is one of the top 10 cities in the world on a housing unaffordability index.&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question is - how as economists can we tell whether housing prices reflect a bubble or genuine market value? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would be looking at average wages, crime rates, happiness, and other social measures of the city (ie. it's reasonable that people would be willing to spend more on a house in a utopian city). A good answer should comprehensively list these and explain the relevance of these metrics. &lt;/p&gt;&#xA;" OwnerUserId="96" LastEditorUserId="96" LastEditDate="2015-12-17T20:20:11.973" LastActivityDate="2017-03-21T16:39:46.557" Title="What metrics would indicate a house bubble rather than genuine market values?" Tags="&lt;asset-pricing&gt;&lt;risk&gt;&lt;housing&gt;" AnswerCount="6" CommentCount="3" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="4811" PostTypeId="2" ParentId="4794" CreationDate="2015-03-22T22:04:04.787" Score="1" Body="&lt;p&gt;It is possible that this issue is caused by the limits of the precision of the calculation operations. The Python package &lt;a href=&quot;https://pythonhosted.org/bigfloat/&quot; rel=&quot;nofollow&quot;&gt;bigfloat&lt;/a&gt; may be of interest in ruling this out. &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2015-03-22T22:04:04.787" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4812" PostTypeId="1" CreationDate="2015-03-22T22:23:59.303" Score="6" ViewCount="117" Body="&lt;p&gt;Is there any article or paper that describes what Thomas Sargent thinks of New Keynesian economics/models?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am asking this question, because we all know what Thomas Sargent thinks of Old Keynesian economics, but I can't find what he thinks of New Keynesians that involve sticky price (well, Calvo/Rotemberg/etc. methods) and imperfect competition.&lt;/p&gt;&#xA;" OwnerUserId="4235" LastEditorUserId="43" LastEditDate="2015-03-22T22:27:13.843" LastActivityDate="2015-03-23T02:40:41.673" Title="Is there any article or paper that describes what Thomas Sargent thinks of New Keynesian economics/models?" Tags="&lt;macroeconomics&gt;&lt;academic-graduate&gt;&lt;new-keynesian-economics&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4813" PostTypeId="1" AcceptedAnswerId="4826" CreationDate="2015-03-23T01:06:35.130" Score="4" ViewCount="121" Body="&lt;p&gt;I've been meaning to learn more about economics, and am looking for an introductory text or a primer on the topic. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've already taken a subject on this back in high school, but I guess what I'm looking for is more on breadth. Something that'll introduce me to the things that I should know if I am to read an article on the news concerning updates on the world's economy and the local market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I just want to get into being updated on such things. And thought of asking because maybe you guys who're more experienced can point me to the right direction instead of me reading about on different things, when in fact there are better references.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm a computer engineering undergrad, and my reason for wanting to learn about this is to be updated about the economy (it interests me), and because I want to get into stocks and forex eventually. I've already been reading books and articles on stocks, but I guess I'm just looking for something comprehensive and structured.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So a recommended text on stocks or forex would be nice too! Something on terms and the likes I guess :D same for the references I'm looking for concerning economics. Thanks a lot for the help!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My interest on the topic also concerns my intention to eventually focus on a field regarding energy consumption, the smart grid and the likes, and environmental sustainability.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So being able to understand and gain a working knowledge about economics seems like something that I should know.&lt;/p&gt;&#xA;" OwnerUserId="4237" LastActivityDate="2015-03-23T17:16:30.170" Title="Introductory or Primer text on Economics?" Tags="&lt;financial-economics&gt;&lt;international-economics&gt;&lt;economic-terms&gt;&lt;energy-economics&gt;&lt;stock-market&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="4814" PostTypeId="1" CreationDate="2015-03-23T01:37:48.007" Score="4" ViewCount="96" Body="&lt;p&gt;GDP as a measure of the well being of an economy has been &lt;a href=&quot;http://www.oecdobserver.org/news/archivestory.php/aid/1518/Is_GDP_a_satisfactory_measure_of_growth_.html&quot; rel=&quot;nofollow&quot;&gt;criticised as not being an accurate measure of the quality of an economy&lt;/a&gt;, as it excludes non-commericial interactions (such as housework or volunteer work) and includes negative events (such as graffiti and cleaning up after it) as economic activity. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, at the same time, &lt;a href=&quot;http://www.voxeu.org/article/defence-gdp-measure-wellbeing&quot; rel=&quot;nofollow&quot;&gt;GDP is a good predictor of a society's wellbeing.&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some people have suggested instead of relying on GDP as the primary measure of an economy's performance, we should use something like the &lt;a href=&quot;http://www.consultmcgregor.com/documents/resources/GDP_and_GPI.pdf&quot; rel=&quot;nofollow&quot;&gt;Genuine Progress Indicator (warning: PDF)&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question is, how much traction does this idea have, in economic circles? &lt;/p&gt;&#xA;" OwnerUserId="96" LastActivityDate="2015-03-23T11:21:43.570" Title="How popular are alternative standard of living measures amongst economists?" Tags="&lt;gdp&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="4815" PostTypeId="2" ParentId="4812" CreationDate="2015-03-23T02:40:41.673" Score="4" Body="&lt;p&gt;This journal article (Oct 29-2011,) has parts from a telephone conversation of the journalist with Sargent:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.nytimes.com/2011/10/30/your-money/thomas-sargent-nobel-winner-rejects-philosophical-slogans.html&quot; rel=&quot;nofollow&quot;&gt;http://www.nytimes.com/2011/10/30/your-money/thomas-sargent-nobel-winner-rejects-philosophical-slogans.html&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Although none of it mentions &quot;New-Keynsian&quot;, there are some interesting points, like&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;Professor Sargent said he felt insulted by people who call him&#xA;  “non-Keynesian” or “right wing,” terms that, he said, are based on a&#xA;  misunderstanding of his thinking... He’s a Democrat, he said, “a fiscally conservative, socially liberal Democrat,” adding, “I&#xA;  think that budget constraints are really central.”&quot;&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;On Keynes?&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;The “non-Keynesian” label irks him particularly. “That’s just off&#xA;  base,” he said. “Keynes was a very good economist. He was brilliant.&#xA;  He had wonderful insights. His work has inspired me many times.”&lt;/em&gt;&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So are we to believe that Sargent is a &quot;Keynesian&quot;?&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;Today, Professor Sargent says that in some ways he actually is a&#xA;  Keynesian, but he qualified that claim, too. “I’m happy to say I am a&#xA;  Harrison-Kreps-Keynesian,” he said, citing work by two scholars at&#xA;  Stanford, J. Michael Harrison and David M. Kreps. They developed a&#xA;  theory of speculative investor behavior and stock-bubble formation&#xA;  that subtly modifies rational expectations “in a beautiful way” and&#xA;  “captures Keynes’s argument, makes it rigorous, and pushes it&#xA;  further,” he said.&quot;&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-03-23T02:40:41.673" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4816" PostTypeId="2" ParentId="4814" CreationDate="2015-03-23T03:39:42.330" Score="4" Body="&lt;p&gt;This question is somewhat subjective but I'll attempt to provide an answer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Real GDP is a very useful concept in economics. It provides a very good indicator on the size of an economy. It does have its limitations, some of which you have described.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Many economists are interested in measuring populations in different ways. At the moment, social mobility and inequality are getting a lot of attention. In analysing these issues, there is not as much value in observing the real GDP figure. Further treatment needs to be done.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Essentially, on a macroeconomic scale, GDP is very useful. When the analysis looks at individuals and concepts like welfare, it takes a far less prominent role in the analysis and other indicators are more commonly used.&lt;/p&gt;&#xA;" OwnerUserId="40" LastActivityDate="2015-03-23T03:39:42.330" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4817" PostTypeId="2" ParentId="4810" CreationDate="2015-03-23T03:47:52.673" Score="3" Body="&lt;p&gt;I'll direct you to &lt;a href=&quot;http://en.wikipedia.org/wiki/Real_estate_bubble&quot; rel=&quot;nofollow&quot;&gt;wikipedia&lt;/a&gt; which has some pretty good information about it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One of the important things about speculative bubbles is that they are very difficult to identify before they burst. It is very difficult to say the market is overvaluing an asset or a change in economic conditions have raised the true value. That said, there are some signs that a bubble is occurring. One of them being an increase in the demand for credit.&lt;/p&gt;&#xA;" OwnerUserId="40" LastActivityDate="2015-03-23T03:47:52.673" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4818" PostTypeId="2" ParentId="3343" CreationDate="2015-03-23T04:24:15.693" Score="5" Body="&lt;p&gt;I think the answer depends on who is impacted by your measure of distance and for what purpose. Kennan and Walker (2011) Econometrica measure distance between states as &quot;the great circle distance between population centroids&quot; in an attempt to model moving costs. They also include an indicator for whether or not the state is adjacent. &lt;/p&gt;&#xA;" OwnerUserId="4234" LastActivityDate="2015-03-23T04:24:15.693" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4819" PostTypeId="2" ParentId="4809" CreationDate="2015-03-23T05:27:48.040" Score="0" Body="&lt;p&gt;I had a quick look and couldn't find any useful resources for you. I know Australia removed 1c and 2c coins from circulation and the USA has considered removing their 1c coins. It was found to be very very expensive.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The other way around I can't imagine the economic costs would be too high. The main reason of changing relates to the preferences of consumers.&lt;/p&gt;&#xA;" OwnerUserId="40" LastActivityDate="2015-03-23T05:27:48.040" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4820" PostTypeId="1" CreationDate="2015-03-23T06:42:20.900" Score="0" ViewCount="5393" Body="&lt;p&gt;Actually I want to know what does it mean by alternative uses of this two terms of economy.&lt;/p&gt;&#xA;" OwnerUserId="4238" LastActivityDate="2015-03-23T11:07:41.507" Title="What are the alternative uses of unlimited wants and scarce resource?" Tags="&lt;macroeconomics&gt;&lt;financial-economics&gt;" AnswerCount="1" CommentCount="0" ClosedDate="2015-04-15T01:01:16.250" ContentLicense="CC BY-SA 3.0" />
  <row Id="4821" PostTypeId="1" CreationDate="2015-03-23T10:07:15.753" Score="1" ViewCount="433" Body="&lt;p&gt;Is there an altruistic utility function that cannot represent a locally non-satiated preference?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As an example of an altruistic utility function:&#xA;$U^1(x^1,...,x^H)=u^1(x^1)+\sum^H_{j=2}U^j(x^j)$, where $x^j$ is a consumption bundle for agent j, and $U^j$ is increasing in $x^j$.&lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="118" LastEditDate="2015-03-23T11:59:39.983" LastActivityDate="2015-03-23T11:59:39.983" Title="Altruism and locally non-satiated preferences" Tags="&lt;microeconomics&gt;" AnswerCount="0" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="4822" PostTypeId="2" ParentId="4820" CreationDate="2015-03-23T11:07:41.507" Score="2" Body="&lt;p&gt;Scarce resource : is a (physical) limitation which forces us to make choices accordingly. It is what is available under current technology and cost of extaction. We could say its a supply side perspective and generally refers to material.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Unilimited desires: Is a demand side perspective. Individuals or organizations usually want more tomorrow than today. Even if you get satiated of one good you will want more. For instance if you have enough foood you can't eat more but maybe you would wish a special meal in a fancy restaurant. So even if cooking home was sufficient to narch your need, after an increase of income you will buy more services... bigger house... There are diminishing returns to consume more of the same good but imagination makes it possible to always find a new object of desire. Thus unlimited wants.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By combining these two phenomenons, a scarcity situation arises and humanity must make choices hopefully to fullfill the most pressing needs.   &lt;/p&gt;&#xA;" OwnerUserId="4229" LastActivityDate="2015-03-23T11:07:41.507" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4823" PostTypeId="2" ParentId="4814" CreationDate="2015-03-23T11:21:43.570" Score="4" Body="&lt;p&gt;Jamzy has a good answer to which I would add that other alternative indicators have also their limits and measurement challenges. Especially if you want to compare between countries, GDP figures may be the only available. They have been recorded for a long time also so you can look at the evolution.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The idea of alternatives indicator has not taken much traction because no other indicator is readily available.&lt;/p&gt;&#xA;" OwnerUserId="4229" LastActivityDate="2015-03-23T11:21:43.570" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4825" PostTypeId="2" ParentId="3018" CreationDate="2015-03-23T12:35:21.630" Score="3" Body="&lt;p&gt;The issue of selection into treatment based on some observable variable that does not enter the outcome equation is solved with a latent index approach or a Heckman 2-step method. A difficulty with Heckman 2-step is the requirement to find a valid instrument, but if you already have one, it will solve your endogenous treatment issue. &lt;/p&gt;&#xA;" OwnerUserId="4234" LastActivityDate="2015-03-23T12:35:21.630" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4826" PostTypeId="2" ParentId="4813" CreationDate="2015-03-23T17:16:30.170" Score="1" Body="&lt;p&gt;If you were to read only introductory book in econonomics:&#xA;&lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0718197038&quot; rel=&quot;nofollow&quot;&gt;Economics: The User's Guide by Ha-Joon Chang.&lt;/a&gt;&#xA;It explains all basics concepts in economics, and the differences between the main school of thoughts. It is quite easy to read, it is not a textbook.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For an overview of financial markets:&#xA;&lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0471731749&quot; rel=&quot;nofollow&quot;&gt;Capital Ideas&lt;/a&gt;, and &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0470452498&quot; rel=&quot;nofollow&quot;&gt;Capital Ideas Evolving&lt;/a&gt; by Peter L. Bernstein&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For your interest in electricity:&#xA;&lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/030910260X&quot; rel=&quot;nofollow&quot;&gt;The Grid: A Journey Through the Heart of Our Electrified World&lt;/a&gt; by Phillip F. Schewe, very interesting on how the grid came to be.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/B005VNUPO2&quot; rel=&quot;nofollow&quot;&gt;Smart Grid: Integrating Renewable, Distributed &amp;amp; Efficient Energy&lt;/a&gt;&#xA;by Fereidoon P. Sioshansi (Editor), Sioshansi is a reference in Smart Grid and the paradigm change from consumer to prosumer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Renewable Economics: How to compare the costs of different technologies:&#xA;&lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/3319082248&quot; rel=&quot;nofollow&quot;&gt;Energy Technologies and Economics&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="4229" LastActivityDate="2015-03-23T17:16:30.170" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4827" PostTypeId="2" ParentId="4809" CreationDate="2015-03-23T19:27:19.157" Score="2" Body="&lt;p&gt;The usual rationale for replacing notes with coins is that small-denomination notes and coins circulate heavily, and notes need to be replaced much more often than coins. However, as an example, the costs of transitioning to a dollar coin (think vending machines, etc.) in the U.S. would be significant enough to make the change not worthwhile, according to a FRB staff working paper. See &quot;&lt;a href=&quot;http://www.federalreserve.gov/paymentsystems/staff-working-paper-20131211.pdf&quot; rel=&quot;nofollow&quot;&gt;Costs and Benefits of Replacing the \$1 Federal Reserve Note with a $1 U.S. Coin&lt;/a&gt;&quot; for details on their approach, which covers the issues pretty well.&lt;/p&gt;&#xA;" OwnerUserId="264" LastActivityDate="2015-03-23T19:27:19.157" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4828" PostTypeId="2" ParentId="3343" CreationDate="2015-03-23T19:43:23.930" Score="2" Body="&lt;p&gt;Instead of using population weights, you could do a spatial average of county centroids using &lt;a href=&quot;http://www.bea.gov/newsreleases/regional/lapi/lapi_newsrelease.htm&quot; rel=&quot;nofollow&quot;&gt;county-level personal income&lt;/a&gt; as the weight. The residence adjustment that is applied (LAPI is calculated on a place of residence basis, rather than place of work) will screw this measure up a little bit (fortunately, the adjustment mostly just shifts around income within metropolitan areas), and it doesn't account for differences in the capital intensity of various industries, but it's likely a better proxy than using population as a weight.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;More broadly, I'd really recommend checking out Jim LeSage's &lt;a href=&quot;http://papers.ssrn.com/sol3/cf_dev/AbsByAuth.cfm?per_id=364023&quot; rel=&quot;nofollow&quot;&gt;spatial econometrics&lt;/a&gt; work (he wrote the toolbox for Matlab), as much of it deals with spatial weight structures.&lt;/p&gt;&#xA;" OwnerUserId="264" LastActivityDate="2015-03-23T19:43:23.930" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4829" PostTypeId="2" ParentId="4810" CreationDate="2015-03-23T20:00:43.487" Score="12" Body="&lt;p&gt;The first metric to look at is house-price-to-rent ratios. Rental prices capture the value of the housing (and housing-linked) services provided by a property, including things like how safe a neighborhood is, how good the schools are, et cetera. In contrast, house prices are the capitalized value of the future stream of housing services PLUS the price of an asset (mostly land; structure value beyond the housing services it provides is negligible). As a result, a higher ratio of house prices to rents means that, &lt;em&gt;controlling for the value of housing services provided&lt;/em&gt;, we observe people paying more for housing assets (i.e., land).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This doesn't mean that the asset is necessarily overvalued, but it at least moves you in the right direction by separating out the asset price from the value of housing services. You can then start thinking about the supply/demand fundamentals that apply to housing assets, and what you'd have to assume to support a particular valuation of the asset (things like, as Jamzy noted, whether growth in price-to-rent ratios is linked with increased home purchase borrowing).&lt;/p&gt;&#xA;" OwnerUserId="264" LastActivityDate="2015-03-23T20:00:43.487" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4830" PostTypeId="1" CreationDate="2015-03-24T02:52:03.157" Score="0" ViewCount="435" Body="&lt;p&gt;Let $X$ denote wealth. The mean variance utility for a risk-averse person is given by $E(X)-\frac{r}{2}Var(X)$ where $r$ is degree of risk-version. $r=0$ implies that person is risk-neutral. How does the mean variance utility function look like for a risk-lover?&lt;/p&gt;&#xA;" OwnerUserId="1477" LastActivityDate="2018-05-04T15:35:24.423" Title="mean variance utility function for risk loving person" Tags="&lt;utility&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="4831" PostTypeId="1" CreationDate="2015-03-24T04:54:28.727" Score="2" ViewCount="211" Body="&lt;p&gt;I am working through my textbook's problems, using the overlapping generation's model. In this economy, people are endowed with $y$ goods when young, and nothing when old. They will choose to exchange some of their endowment for money, and hence real money demand is given by&#xA;$$N(y-c_{1, t})$$&#xA;for the population $N$ of young people, and the value $v^t$ of money.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this question, the money supply is shrinking such that $M_{t+1} = zM_{t}$ with $0&amp;lt;z&amp;lt;1$. The old are taxed $\tau$ goods by the government, payable in terms of fiat money. It then destroys this revenue.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have already found that the rate of return of money is given by&#xA;$$\frac{v_{t+1}}{v_t} = \frac{1}{z} &amp;gt; 1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question asks for proof that this situation will not maximise individuals' welfare. I first find the lifetime budget constraint:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$c_{1, t} + zc_{2, t+1} \leq y - z\tau$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and then find the feasible set for consumption for each individual:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$c_1 + c_2 + \tau \leq y$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When I now compare the first and second period consumption intersections, I appear to find that consumption for both periods will be &lt;em&gt;more&lt;/em&gt; than is feasible. For instance my feasible set intersections are&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$c_1 = y - \tau, c_2 = y - \tau$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;whereas for the equilibrium, I get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$c_1 = y - z\tau, c_2 = \frac{y}{z} - \tau$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;both of which are &lt;em&gt;more&lt;/em&gt; than their feasible equivalents, since $z &amp;lt; 1$. What have I done wrong here?&lt;/p&gt;&#xA;" OwnerUserId="4245" LastActivityDate="2015-03-26T04:11:09.060" Title="Lump sum taxation in the overlapping generations model" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4832" PostTypeId="2" ParentId="4810" CreationDate="2015-03-24T12:27:11.703" Score="2" Body="&lt;p&gt;More a comment really, but rent can be misleading. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Just a quick example. On the demand side in Denmark you have various rent subsidies when your under a certain income level. For example if you have a installed kitchen, and under a quite high income bracket, you get a substantial subsidy. You also have a subsidy for the elderly, and quite a few more. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the supply side you have regulation that is tied to how old the house/appartment is that your renting out. So, for example if I own a building that is older than 1990 there is an upper limit I can charge. This amount is in no way tied to the price I paid for the building. So, if you where to look at rents in the city I live in (which is an old city) you have entire neighbourhoods that would be misleading in terms of rental prices compared to what you would say would be a fair market price. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I addition to that tennets can complain - after they have agreed to a contract - and get a significant reduction, which is not based on market value of the house. &lt;/p&gt;&#xA;" OwnerUserId="107" LastActivityDate="2015-03-24T12:27:11.703" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4833" PostTypeId="2" ParentId="4810" CreationDate="2015-03-24T13:24:50.940" Score="7" Body="&lt;p&gt;While it is possible to rigorously define a bubble in principle (see for example &lt;a href=&quot;http://www.princeton.edu/~markus/research/papers/bubbles_survey.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;asset markets where prices violate transversality condition&lt;/a&gt;s), in practice it can be difficult or impossible to identify actual bubbles, even ex-post. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, @dismalscience discusses looking at house-price-to-rent ratios. This sounds straightforward. If houses are selling for more than the net present value of their rents then you have a bubble. But there are many tricky bits in that analysis. Rental markets for single family homes are not robust and so it is difficult to impute accurate rents from the multi-family (apartment / townhouses) market that makes  up most of the market. Long term residential leases at market prices are essentially non-existent so future rents are at best an educated guess. And what rate shall we discount the rents at?  &lt;a href=&quot;http://www.rff.org/Publications/Pages/PublicationDetails.aspx?PublicationID=14908&quot; rel=&quot;nofollow noreferrer&quot;&gt;Discounting and Intergenerational Equity (1999) by Portney and Weyant&lt;/a&gt; makes the case for using everything between a discount rate of 0 and stock market returns.  &lt;a href=&quot;http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1845504&quot; rel=&quot;nofollow noreferrer&quot;&gt;Trachtenberg (2011)&lt;/a&gt; argues that the proper discount rate for a social planner may even be negative. With all of this uncertainty and estimation error, estimates will differ. The paper Reasonable People Did Disagree: Optimism and Pessimism About the U.S. Housing Market Before the Crash (&lt;a href=&quot;https://www.bostonfed.org/economic/ppdp/2010/ppdp1005.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Gerardi, Foote, and Willen (2010)&lt;/a&gt;) shows how different scholars used price-to-rent / user-cost approaches to come to very different conclusions on if housing was over-valued. &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2017-03-21T16:39:46.557" LastActivityDate="2017-03-21T16:39:46.557" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="4834" PostTypeId="1" AcceptedAnswerId="4843" CreationDate="2015-03-24T13:27:01.327" Score="4" ViewCount="826" Body="&lt;p&gt;In Gali's book (chapter 3), the FOC of a firm is given by:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$(\sum_{k=0}^\infty \theta^k E_k(Q_{t,t+k} Y_{t+k|t} (P_t^*/P_{t-1} - \alpha MC_{t,t+k} \beta_{t-1,t+k}))) = 0 $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Basically, the first order condition for maximizing a firm's profit. $0&amp;lt; \theta &amp;lt;=1$, $\alpha$ is markup over competitive price. MC is marginal cost. And $beta = P_{t+k}/P_t$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;At the zero inflation steady state (the point we're supposed to linearize this around),&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$P_t^*/P_{t-1} = 1$ &#xA;$beta = P_{t+k}/P_t = 1$&#xA;$P^*=P_{t+k}$ &#xA;Thus Y is constant. $Y_{t+k|t} = Y$ and so is MC. &#xA;Q is stocastic discount factor and equals $B^k$ around steady. &#xA;Similarly, Marginal cost (MC) is the reciprocal of the markup. i.e. $MC = 1/\alpha$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I need to expand this lovely expression. The problem I'm having is that if I do an expansion around the steady state, everything seems to be cancelling out, leaving me without anything that looks like the intended solution to the problem. &lt;/p&gt;&#xA;" OwnerUserId="4247" LastEditorUserId="4247" LastEditDate="2015-03-24T14:50:19.567" LastActivityDate="2015-03-25T01:45:45.710" Title="New-Keynesian Model: Log-linearizing the firm's FOC" Tags="&lt;macroeconomics&gt;&lt;new-keynesian-economics&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4835" PostTypeId="1" AcceptedAnswerId="4861" CreationDate="2015-03-24T15:53:23.190" Score="7" ViewCount="1134" Body="&lt;p&gt;I've found this &lt;a href=&quot;http://bergholt.weebly.com/uploads/1/1/8/4/11843961/the_basic_new_keynesian_model_-_drago_bergholt.pdf&quot; rel=&quot;noreferrer&quot;&gt;link&lt;/a&gt; with all the derivations from Gali's book on New Keynesian model.&#xA;In page 13, eq. $(3.7)$, the author derives the optimal price-setting rule  $P_t^*$ by a representative firm that solves an intertemporal profit maximization problem. Equation $(3.7)$ contains two infinite series. The author then does a log-linearization on both and proceeds to the solution. Log-linearization is a local approximation, right? Then how can we be sure that the two series, with these approximations will converge?&lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="61" LastEditDate="2015-03-26T10:20:55.243" LastActivityDate="2015-03-26T13:26:46.137" Title="Deriving formulas from Gali's book on the New Keynesian model" Tags="&lt;macroeconomics&gt;&lt;new-keynesian-economics&gt;" AnswerCount="1" CommentCount="3" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="4836" PostTypeId="2" ParentId="45" CreationDate="2015-03-24T17:43:33.060" Score="2" Body="&lt;p&gt;Why Save? &quot;In the long run we are all dead!&quot; - K.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your interesting question brings more questions. Because the short answer is: it depends.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Part A - Diagnostic&#xA;What phase of the business cycle are you in?&#xA;You first need to make a diagnostic of the shape and timing of the economy your are analyzing.&#xA;The timing of the business cycle is of prime importance. In a downturn it may affect negatively, while in an era&#xA;of overheating it might be a good thing to calm things down. Has the government surpluses? &#xA;Is the economy growing? Are people optimist about the future?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is a closed economy or a globalized one?&#xA;A globalized but stagnant-growth economy could see an outflow of capital, if &quot;agents&quot; see more investments opportunities abroad.&#xA;This is a key question. Where those new factories will be built. The economy is &lt;a href=&quot;https://economics.stackexchange.com/questions/1750/is-the-economy-a-zero-sum-game&quot;&gt;not a zero sum game&lt;/a&gt; but wealth will not be equally distributed. In a closed system, or if the wolrd economy is your level of observation,&#xA;more savings could increase investments in productive assets and result in an increase of productivity. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Who are the consumers?&#xA;What is the demographics young/old population? It will have an impact on the response both in terms of consumption and investing.&#xA;We could argue that a young population will be more adventurous in new projects. Is it a risk/loss averse culture? &#xA;Are the consumers into hedonic consumerism, where entertainment and instant gratification is more important than distant benefits?&#xA;Is the population in favor of buying local products, or prefer cheap imports? &#xA;If you cut consumption of local products you might hurt your domestic market, or maybe they will cut imports first?&#xA;Are your consumers poor or rich?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are there good institutions in place?&#xA;Do people trust the government/ each other? Is there a lot of corruption?&#xA;Is there efficient financial markets to invests the savings in?&#xA;In India, gold is a popular forms of savings. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is the economic struture, the dominant type of industries?&#xA;Oil is a dominant sector in Norway, which command a large share of gdp, exports and governmental revenues. By reducing the consumption&#xA;you will affect less the vigor of the economy. A country with a large industrial business to business (B2B) economy may profit &#xA;from more investments. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Do the economy needs more savings?&#xA;If you assume we are at the dawn of the thirs industrial revolution, in which IT leads our civilization into a new era, maybe &#xA;you don't need that much more savings. The tech-savy &quot;creative class&quot; mostly need a computer and an internet connection to launch&#xA;a business. You do not need the same large investments in machinery as in the 1st and 2nd revolutions, where pooling capital and sharing risks &#xA;was a condition for developping for example the railroad systems. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Once you have made a diagnostic of the situation you can look at the effects:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Part B - Possibles Outcomes:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1- How much can consumers save?&#xA;As Lumi observed, most people live on a tight budget (In fact via credit they spend more than their annual income).A small increase in savings will probably have a minimal impact both on consumption and investments levels.&#xA;1b) What are they going to save on? &#xA;Spending cuts will affect the basket of goods and services that they usually consume. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If there is a sales tax, a decrease in consumption will diminish the revenues of the government (hopefully only in the sort run), and if&#xA;the government must also cut back its spending we could perhaps see an amplification of the action, and a contraction of the economy.&#xA;Why would business invests if both government and consumers stops spending?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1c) How much consumers are willing to save/sacrifice?&#xA;This has to do with time preferences, and perhaps the inflation levels, the interests rates, other cultural traits like attitude towards savings...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2- Where will the savings be invested?? Short vs long run?&#xA;This depends on multiple factors (see diagnostic). It also depends on the incentives. In your question you only refer to advertisement, but the government can implement other incentives and it will direct where the money go.&#xA;&lt;a href=&quot;https://economics.stackexchange.com/questions/528/what-is-the-effect-of-redirecting-government-tax-intake-to-a-consumer-retirement&quot;&gt;For example incentives for retirements savings.&lt;/a&gt; &#xA;Are they sophisticated investors? How much knowledge do they have about financial markets?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2a) Downturn, optimisim, risk/loss aversion, and forecasts: Will they be willing to take risks? If not, we can expect people to buy secure assets for example bonds.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2b) What are they saving for?&#xA;Saving for a wedding or to start a company will have a different impact. &#xA;China has experienced what the Austrian School calls &quot;malinvestments&quot;, people just bought real estate properties. Apparently there are appartments towers &lt;a href=&quot;http://www.businessinsider.com/chinas-ghost-cities-in-2014-2014-6&quot; rel=&quot;nofollow noreferrer&quot;&gt;completly empty even empty brand new town&lt;/a&gt;s. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;2c) Invest in... Education? Housing? Stock Markets?&#xA;Investment in education could have long term positive effects (hopefully). In housing it could lead to a bubble... Sotck markets, facilitate outflow of capital, and offshoring of manufacturing. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;2d) Save for... Retirements, or decrease in working hours or travels.&#xA;What if people having more savings decide to work less? Early retirment, or more part time jobs? How would this impact the productivity? Debts are a forced incentive to postpone retirment age. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;3- Will the savings translate in productive investments?&#xA;more cash = hoarding, possibly merge and acquisition waves? Will they lead to an increase productivity or more complacency due to reduced competitivity?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Conclusion: What is the total effect?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It really depends on the situation. For individuals there are great benefits to have a little cushion to face unexpected situations, it also opens the way to new opportunities. But will they/ can they seize them? For the government it may mean less revenues in the short run, and must therefore be ready for it. For companies it depends to which purpose the money will be used for. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Reducing consumer spending, might contract the personal goods/services sector, leaving with less diversity in the end. Or if people take the opportunity of having more available money to invest in order to launch new businesses it might just do the opposite. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;At the moment, the strategy is to facilitate access to credit and to promote high levels (almost unsustainable) of consumption. A supply-side economy needs a high level of C. &lt;/p&gt;&#xA;" OwnerUserId="4229" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-03-24T17:43:33.060" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4837" PostTypeId="2" ParentId="4810" CreationDate="2015-03-24T17:46:52.297" Score="5" Body="&lt;p&gt;With apologies for the somewhat journalistic answer (as others have noted, even defining a bubble in a rigorous fashion is difficult).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Information on housing supply may be of some use. Demand for housing is quite inelastic (everyone needs somewhere to live) so shifts in supply should show up mostly in prices and less in market quantities.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As an example, the UK has experience sustained house price inflation since the 1950s. Even during the recent recession, the decrease in UK prices was relatively brief and modest. If ever there was a bubble, surely this is it? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/cEqqe.png&quot; alt=&quot;enter image description here&quot;&gt;&#xA;(&lt;a href=&quot;http://www.economist.com/blogs/dailychart/2011/11/global-house-prices&quot; rel=&quot;nofollow noreferrer&quot;&gt;source&lt;/a&gt;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But we must remember that in a competitive market prices are determined by the intersection of supply and demand. At present the UK is building around 150,000 homes per-year, but creating around 250,000 new households per-year (&lt;a href=&quot;http://www.bbc.co.uk/news/magazine-30776306&quot; rel=&quot;nofollow noreferrer&quot;&gt;source&lt;/a&gt;). This is part of a long-run trend initiated by large-scle public sector withdrawal from house building (and probably also due to extremely restrictive planning laws in the UK that make private development difficult):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/P2BVu.gif&quot; alt=&quot;enter image description here&quot;&gt;&#xA;(&lt;a href=&quot;http://www.new-home-blog.co.uk/why-house-builders-will-never-build-enough-new-homes/&quot; rel=&quot;nofollow noreferrer&quot;&gt;source&lt;/a&gt;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So long as demand remains inelastic and supply fails to keep pace with growth in demand, housing will become an increasingly scarce resource and one should expect the price to increase accordingly.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2015-03-24T17:46:52.297" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4838" PostTypeId="2" ParentId="4810" CreationDate="2015-03-24T18:12:20.513" Score="4" Body="&lt;p&gt;It's actually quite easy. The key things to know are 1) that the majority of house purchases are made via mortgage lending, and that 2) an excess of bank lending over bank loan repayment causes money creation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So first determine if there is an abnormally high increase in the supply of money occurring - if yes, then there is a bubble, and if not, then the increase is probably the normal one that would be expected as a result of fiscal expansion. This is fairly easy to determine by simply looking at relevant statistics for the amount of money being held in bank deposits (typically M2 or M3, the precise definitions vary between countries).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The key thing to appreciate, is that because of the normal expansion of the money supply by the banking system over time, and especially because that money directly influences house prices, an increase in house prices over long periods is to be expected simply due to the operation of the banking system. Only if economic conditions really deteriorate. i.e. Detroit does this not occur. Regulatory changes, or even simple changes in custom and practice around the amount of lending can quite easily trigger changes in fiscal expansion, for example if the banks change from requiring a 20% deposit to a 10% deposit on house purchase.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is also possible for house lending to increase without an abnormal increase in the money supply - in particular the 2008 crash in the USA, and elsewhere, was caused by an increase in lending as a result of the huge increase in securitized bank loans.  This had the interesting effect of increasing the amount of lending originating in the banking system (and then being moved outside it), without increasing the money supply. This also made it at the time, somewhat invisible, subsequently the US and other countries have introduced statistics on securitization that allow it to be tracked.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Generally speaking, changes that also increase the money supply will cause a much bigger price rise, than changes that only increase the amount of lending, but the entire system is significantly leveraged, leading to some highly non-linear impulse responses at times.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So if we look at the New Zealand figures:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.tradingeconomics.com/new-zealand/money-supply-m3&quot; rel=&quot;nofollow&quot;&gt;New Zealand Money Supply&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It looks like the Money Supply flat lined following the 2008 crash for 3 years, and has now returned to something approximating its &quot;normal&quot; rate of expansion, which would explain the perception of a bubble. (What the normal rate of monetary expansion should be is an open research question.) It doesn't look like there are separate securitization statistics, and there probably isn't much loan securitization, but it's something to keep an eye on.&lt;/p&gt;&#xA;" OwnerUserId="84" LastEditorUserId="84" LastEditDate="2015-03-24T18:28:07.357" LastActivityDate="2015-03-24T18:28:07.357" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4839" PostTypeId="2" ParentId="4430" CreationDate="2015-03-24T18:50:33.520" Score="6" Body="&lt;p&gt;&lt;a href=&quot;http://www.karlshell.com/pdfs/2009/economics_of_infinity.pdf&quot;&gt;Shell 1971&lt;/a&gt; argues (in a ten page paper, so read it!) that the dynamic inefficiency stems from the double infinity of traders and goods, and &lt;em&gt;not&lt;/em&gt; the dynamics. This allows us to do the Hilbert hotel switch.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Therefore, even when all souls are able to transact business in the same&#xA;  Walrasian market, the absence of Pareto-optimality persists in the competitive-equilibrium model. This absence of Pareto-optimality is implicit in Gamow's hotel problem. An innkeeper has committed each of the denumerably infinite number of beds on a certain rainy night. A guest asks for a bed when all are occupied, but a bed can be found if the innkeeper requires each guest to move down one bed. In our little chocolate game, the imposed allocation can produce one extra chocolate. In the hotel problem, on the other hand, the innkeeper by imposing an allocation will be able to produce a denumerable infinity of extra beds. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Consider the following &lt;em&gt;static&lt;/em&gt; setup.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;A countable number of agents $i$, indexed $-1, 0,1, 2, 3, \ldots$.&lt;/li&gt;&#xA;&lt;li&gt;A countable number of goods $j$, indexed $0, 1, 2, 3, \ldots$.&lt;/li&gt;&#xA;&lt;li&gt;Agent $-1$ has preferences $u^i(c_0, c_1, \ldots) = c_0$.&lt;/li&gt;&#xA;&lt;li&gt;Agent $i\ge 0$ has preferences $u^i(c_0, c_1, \ldots) = c_i + c_{i+1}$.&lt;/li&gt;&#xA;&lt;li&gt;Agent $i\ge 0$ is endowed with one unit of good $i$. Agent $-1$ has nothing.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Then autarky (everyone consumes what they were endowed with) is a Walrasian equilibrium (even though everyone can meet at the same time). This Walrasian equilibrium is not Pareto efficient (for the same reason as always). The fact that people can meet and trade does not alleviate the inefficiency.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that in the static setup, introducing money cannot help (because who would be so dumb as to hold money after the static trade?).&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The fragility of intergenerational social contracts shows up in our example. If the $k$th generation repudiates the money of its elders, it can avoid passing chocolate backward. Furthermore, the $k$th generation can gain seigniorage by printing new money. Under this monetary reform the reforming generation may have chocolate passed to it, but itself passes none backward. If all souls had met in an atemporal Walrasian market, the monetary reform would have been revealed to be a nonequilibrium solution. In the actual dynamic world, &quot;monetary reform&quot; merely leads to frustration of the $(k - 1)$th generation's expectations. The most notable instance of such frustration is when the peasants' sons leave home for the city and fail to provide adequately for their parents' old-age. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="2917" LastActivityDate="2015-03-24T18:50:33.520" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4840" PostTypeId="1" CreationDate="2015-03-24T21:30:15.240" Score="3" ViewCount="501" Body="&lt;p&gt;I'm wondering do I need to convert nominal wages to real wages when running wage equations using panel data sets? My dependent variable is log of wage and I'm looking at returns to education across countries over time. Does the decision to use nominal versus real wage depend on what model I'm using- namely random, fixed effects or pooled OLS?&lt;/p&gt;&#xA;" OwnerUserId="4250" LastEditorUserId="43" LastEditDate="2015-03-24T23:34:51.690" LastActivityDate="2015-03-24T23:34:51.690" Title="Wage regressions: Nominal versus real wage" Tags="&lt;econometrics&gt;&lt;labor-economics&gt;&lt;wages&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4841" PostTypeId="2" ParentId="4840" CreationDate="2015-03-24T22:00:09.953" Score="3" Body="&lt;p&gt;Because you want to measure the real impact of education.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If there is inflation, the nominal wages most likely will go up over time, but you don't want to think that your return to education does that, it's just inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If, on the other hand, you're comparing wage differentials, say $\log w_s - \log w_u$, where $s$ indicates skill and $u$ indicates unskilled, you do not need to correct for the price level.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To see, note that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\log w^s_t - \log w^u_t = \log \frac{w^s_t}{w^u_t} \\&#xA;\frac{w^s_t}{w^u_t} = \frac{\frac{w^s_t}{p_t}}{\frac{w^s_t}{p_t}}&#xA;$$&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2015-03-24T22:39:39.263" LastActivityDate="2015-03-24T22:39:39.263" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="4842" PostTypeId="2" ParentId="4593" CreationDate="2015-03-24T22:09:42.010" Score="0" Body="&lt;p&gt;Many events/services/products exists in NY but not in Louisiana. This increased variety and possibilities is more qualitative. It depends on the &quot;utility&quot; derived for this increased cultural/commercial avtivities. But there is a large offer of music events a NewYorker can easily attend after the job, while a person living in a less densily populated area would have to take a flight. Large urban centers offers certain agglomerative benefits that are underestimated when comparing identical basket of goods. Also, in NY you may not need a car a probably live in a smaller appartment than you would otherwise. So a for city-dweller his utility can offset living costs but the nature-lover is probably much worse off (especially considering congestion on friday pm.) The concept of Utility cannot be measured precisely but helps to explain why people choose sunny California even if they are worse off &quot;financially&quot;. &lt;/p&gt;&#xA;" OwnerUserId="4229" LastEditorUserId="4229" LastEditDate="2015-03-24T22:15:48.683" LastActivityDate="2015-03-24T22:15:48.683" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4843" PostTypeId="2" ParentId="4834" CreationDate="2015-03-25T01:39:32.407" Score="2" Body="&lt;p&gt;$$(\sum_{k=0}^\infty \theta^k E_k(Q_{t,t+k} Y_{t+k|t} (P_t^*/P_{t-1} - \alpha MC_{t,t+k} \beta_{t-1,t+k}))) = 0 $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Log linearize around the zero inflation steady state.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$p_t^* - p_{t-1} = (1 - \beta\theta) \sum_{k=0}^\infty (\beta\theta)^k E_t(\widehat{mc}_{t+k|t} + p_{t+k} - p_{t-1}) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where $$\widehat{mc}_{t+k|t} \equiv {mc}_{t+k|t} - mc$$&#xA;In other words,&#xA;$$p_t^* = \gamma + (1 - \beta\theta) \sum_{k=0}^\infty (\beta\theta)^k E_t(\widehat{mc}_{t+k|t} + p_{t+k}) $$&#xA;where $\gamma \equiv log \frac{\epsilon}{\epsilon + 1} $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I remember correctly, this model uses Calvo pricing, so inflation is just from wage stickiness. So if you set $\theta = 0$ (no price stickiness)&#xA;$$p_t^* = \gamma + mc_t + p_t$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;See what you can work with from there.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit: If you're wondering how this is done, then &quot;An Old Man in the Sea&quot;'s resource in the comments is helpful, in sections 3.2 and 3.3. It will show how to do the First-Order Taylor Expansion to derive the result.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastEditorUserId="4251" LastEditDate="2015-03-25T01:45:45.710" LastActivityDate="2015-03-25T01:45:45.710" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4844" PostTypeId="2" ParentId="528" CreationDate="2015-03-25T02:54:38.807" Score="1" Body="&lt;p&gt;If you've ever looked at the ratchet effects model, you might be able to glean insight from there? Basically, if a worker is paid in a piece rate $a + bq = S, for \space e(q)$, where e is the effort exerted by the worker, we know that it is the most efficient--normally--to set $b = 1$ (no deadweight loss of &quot;taxation&quot; of labor, so to speak), assuming that e is measurable. However, given the cost of effort, the firm will always try to guess what that ($C(e)$) is so that $a + be - C(e) = 0$, to minimize the salary $S$ that is paid out. Workers, anticipating this, ratchet their productivity downwards, since working hard will tell a firm that the job being done by the worker is very easy, and not worth much pay.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So this means the optimum is for the firm to set $b &amp;gt; 1$ in a two period model where you observe effort, and then set the piece rate pay in the second period. Imagine how this might work for employers. They know that the amount they put into the Kiwisave is dependent on how much they pay out to the worker, given some chance that the employee actually puts aside the 3%. So the firm will set pay lower than they normally would if the government raised their investment into Kiwisave. The question is, would firms lower $b$ or $a$. When you optimize a simple model like this, $a$ usually doesn't go into the FOC, so probably what will happen is $b &amp;lt; 1$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think that increased government spending wouldn't necessarily increase employer costs if more employees opt in. If employers &lt;em&gt;only&lt;/em&gt; had to pay the 2% if employees successfully paid their share that is, 100% chance employees who opt in, then more government spending would do almost nothing, barring elasticity. Those who opt in would simply have their wage set lower by the firm.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;All in theory.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2015-03-25T02:54:38.807" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4845" PostTypeId="1" CreationDate="2015-03-24T19:21:25.503" Score="3" ViewCount="544" Body="&lt;p&gt;Assuming dependent variable is log of wage, do we need to convert nominal wages to real wages in analyzing panel data sets when using random and fixed effects models? Is that also applicable for pooled OLS when not controlling for years?&lt;/p&gt;&#xA;" OwnerUserId="4250" OwnerDisplayName="metrics77" LastActivityDate="2015-10-06T23:38:49.100" Title="Nominal versus real wages in panel data modes" Tags="&lt;econometrics&gt;" AnswerCount="1" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="4846" PostTypeId="2" ParentId="4662" CreationDate="2015-03-25T10:01:45.417" Score="3" Body="&lt;p&gt;Ergodic and strict stationarity are the essentially the weakest assumptions for which you have a LLN, i.e. can do large sample estimation. Given the very liberal way applied econometricians use laws of large numbers, ergodicity and strict stationarity is almost always assumed. If that is in question, you're simply not in business for consistent estimation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Similarly, if one would like to have a CLT, i.e. do large sample inference, MDS is a general weak assumption. (There are other CLT's around but more technical. The MDS CLT and Lindenberg CLT are the two immediate generalizations of the classical CLT.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The MDS assumption can be tested. An MDS is just a discrete-time martingale with mean zero. In particular, its increments are uncorrelated. (The martingale assumption is an intermediate condition between serially uncorrelated and independence.) So a rejection by a serial correlation test would also reject the MDS assumption.     &lt;/p&gt;&#xA;" OwnerUserId="126" LastActivityDate="2015-03-25T10:01:45.417" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="4847" PostTypeId="2" ParentId="1880" CreationDate="2015-03-25T10:36:40.510" Score="5" Body="&lt;p&gt;This construction you describe is not fully general. In fact it characterizes strictly stationary time series. You see that it's shift-invariant. This operator $S$ is essentially a shift operator.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For comparison, here's the usual definition of, let's say discrete-time, processes:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Definition&lt;/strong&gt; A stochastic process is a sequence $\{ X_t \}$ of Borel measurable maps on a probability space $( \Omega, \mathcal{F}, \mu )$.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now for what you're describing, you have a &lt;em&gt;fixed&lt;/em&gt; Borel measurable map $X: \Omega \rightarrow \mathbb{R}^n$. It's the underlying measure that is evolving according to $S$. The map $S$ induces a new &quot;push-forward measure&quot; (in measure-theoretic parlance) on $\Omega$ by just taking preimages: define a measure $\mu_S$ by&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;A \in \mathcal{F} \stackrel{\mu_S}{\mapsto} Pr(S^{-1}(A)).&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the random vector $X: ( \Omega, \mathcal{F}, \mu_S) \rightarrow \mathbb{R}^n$ is $X \circ S$ by construction. They induce the same push-forward measure on $\mathbb{R}^n$. Do this with $S^t$ for each $t$ and you have your time series.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for your question about $\omega$, inspecting the proof for the other direction should clarify this---i.e. any strictly stationary time series must necessarily take this form for some $( \Omega, \mathcal{F}, Pr)$, $X$, and $S$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The basic point is that, from a general point of view, a stochastic process is a probability measure on the set of its possible realizations. This is seen in, for example, Wiener's construction of Brownian motion; he constructed a probability measure on $C[0, \infty)$. So in general, an $\omega$ is a sample path and $\Omega$ consists of all possible sample paths.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, take the two processes you named above. They are strictly stationary, if let's say the innovations are Gaussian. (Any covariance-stationary time series driven by Gaussian innovations is strictly stationary.) The construction would then start by taking $\Omega$ to be the set of all sequences, $\mathcal{F}$ the $\sigma$-algebra generated by coordinate maps, and $Pr$ the appropriate measure. For the white noise process (2), $Pr$ is just a product measure on an infinite product. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Reference&lt;/strong&gt; This characterization/construction by shift of strictly stationary time series is mentioned in White's &lt;em&gt;Asymptotic Theory for Econometricians&lt;/em&gt;.&lt;/p&gt;&#xA;" OwnerUserId="126" LastEditorUserId="126" LastEditDate="2015-04-08T15:35:31.483" LastActivityDate="2015-04-08T15:35:31.483" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="4849" PostTypeId="2" ParentId="125" CreationDate="2015-03-25T12:44:20.253" Score="2" Body="&lt;p&gt;Rational expectations seems to have a similar &lt;a href=&quot;http://www.e-m-h.org/joint.html&quot; rel=&quot;nofollow&quot;&gt;joint hypothesis problem as the efficient market hypothesis&lt;/a&gt;. In the efficient market hypothesis, this means &quot;&lt;a href=&quot;http://press.princeton.edu/titles/5904.html&quot; rel=&quot;nofollow&quot;&gt;If efficiency is rejected, this could be because the market is truly inefficient or because an incorrect equilibrium model has been assumed.&lt;/a&gt;&quot; Similarly here, if rational expectations is rejected this could be because rational expectations is truly false or that the model of rational expectations is incorrect. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a contrived example of this consider what happens if agents know the the true distributions of shocks in the economy but the econometrician does not. If the econometrician guesses the wrong process for these shocks and discovers that agents are not rationally expecting this incorrect process. This clearly does not constitute a rejection of rational expectations even though that is often what is claimed. . &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-03-26T09:16:52.767" LastActivityDate="2015-03-26T09:16:52.767" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="4850" PostTypeId="2" ParentId="3079" CreationDate="2015-03-25T12:48:51.990" Score="1" Body="&lt;p&gt;I came across &lt;a href=&quot;http://krugman.blogs.nytimes.com/2015/03/25/anti-keynesian-delusions/?module=BlogPost-Title&amp;amp;version=Blog%20Main&amp;amp;contentCollection=Opinion&amp;amp;action=Click&amp;amp;pgtype=Blogs&amp;amp;region=Body&quot; rel=&quot;nofollow&quot;&gt;this post by Krugman&lt;/a&gt; and I think for those interested in learning about these different theories that the below quote helps when thinking about supply shocks and Keynesian economics:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;OK, stop right there. That’s an adverse supply shock, and no Keynesian&#xA;  claims that demand-side policies can cure the economy from the effects&#xA;  of such shocks. If you have a harvest failure, deficit spending can’t&#xA;  put the crops back in the fields. But that’s not what happened to the&#xA;  world economy in 2008, or in 1930; productive capacity was unimpaired,&#xA;  as was the willingness to work, so what we were looking at was&#xA;  something quite different — a demand shock, according to most&#xA;  economists, and everything we’ve seen is consistent with this view.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This isn't to say I agree or disagree; I find it helpful to understand that focusing on the demand side cannot help if we have a supply shock.  To my knowledge, the best preparation for a supply shock, like the California Drought leading to food prices quadrupling (&lt;strong&gt;&lt;em&gt;ONLY in theory&lt;/em&gt;&lt;/strong&gt;), would be to have a supply surplus saved or ready in case of such events.&lt;/p&gt;&#xA;" OwnerUserId="2746" LastActivityDate="2015-03-25T12:48:51.990" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4851" PostTypeId="1" CreationDate="2015-03-25T14:51:40.087" Score="6" ViewCount="249" Body="&lt;p&gt;What could prevent arbitrage (not necessarily risk-free) between some markets even when price differences exist?&lt;/p&gt;&#xA;" OwnerUserId="4255" LastActivityDate="2016-04-29T11:29:51.123" Title="What possible reasons could make arbitrage impossible between some markets?" Tags="&lt;finance&gt;&lt;efficient-markets&gt;&lt;financial-markets&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4852" PostTypeId="1" CreationDate="2015-03-25T15:13:11.590" Score="3" ViewCount="150" Body="&lt;p&gt;The question is:&#xA;A man is planning to retire in 20 years. Money can be deposited at 8%, compounded monthly. It is estimated that the future general inflation rate will be 3% compounded annually. What deposit must be made each month until the man retires so that he can make annual withdrawals of $20000 in terms of actual dollars over the 15 years following his retirement? (Assume that his first withdrawal occurs at the end of the first year after his retirement)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My approach is:&#xA;$$ i = (1 + \frac{0.08}{12})^{12} = 0.082 $$&#xA;$$ P = $20.000(P|A, 0.082, 15)(P|F, 0.082, 20) = $34966.04$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now to find the deposit, in terms of constant dollars first I calculate inflation free interest rate&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$(1+i^{'})(1+ \frac{0.03}{12}) - 1 = \frac{0.08}{12} $$&#xA;$$i^{'}= 0.00415$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am not sure about this last equation, could anyone please justify or correct it?&#xA;$$A = $34966.04(A|P, 0.00415, 20)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you.&lt;/p&gt;&#xA;" OwnerUserId="4256" LastActivityDate="2015-03-26T06:25:53.490" Title="Equal Payment Series" Tags="&lt;inflation&gt;&lt;interest-rate&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4853" PostTypeId="2" ParentId="4851" CreationDate="2015-03-25T16:56:20.990" Score="6" Body="&lt;p&gt;The seminal paper in this area with over 3,000 citations is by Shleifer and Vishney:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Textbook arbitrage in financial markets requires no capital and&#xA;  entails no risk. In reality, almost all arbitrage requires capital,&#xA;  and is typically risky. Moreover, professional arbitrage is conducted&#xA;  by a relatively small number of highly specialized investors using&#xA;  other people's capital. Such professional arbitrage has a number of&#xA;  interesting implications for security pricing, including the&#xA;  possibility that arbitrage becomes ineffective in extreme&#xA;  circumstances, when prices diverge far from fundamental values. The&#xA;  model also suggests where anomalies in financial markets are likely to&#xA;  appear, and why arbitrage fails to eliminate them.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The Limits of Arbitrage (&lt;a href=&quot;http://onlinelibrary.wiley.com/doi/10.1111/j.1540-6261.1997.tb03807.x/full&quot;&gt;Andrei Shleifer and Robert W. Vishny (1997)&lt;/a&gt;) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://scholar.google.com/scholar?cluster=12337463257772968513&amp;amp;hl=en&amp;amp;as_sdt=0,9&quot;&gt;There are many versions online&lt;/a&gt;, one of them is likely ungated.&lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2015-03-25T16:56:20.990" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4854" PostTypeId="1" CreationDate="2015-03-25T18:52:12.883" Score="11" ViewCount="454" Body="&lt;p&gt;In New Keynesian models, we use a lot of CES assumption, usually Dixit-Stiglitz, to develop an economic model. Is CES, constant elasticity of substitution between goods, empirically (approximately) true? &lt;/p&gt;&#xA;" OwnerUserId="4259" LastEditorUserId="43" LastEditDate="2015-03-25T18:58:56.603" LastActivityDate="2015-06-25T13:26:01.733" Title="Is elasticity of substitution between goods empirically constant?" Tags="&lt;macroeconomics&gt;&lt;data-request&gt;&lt;elasticity&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4856" PostTypeId="1" AcceptedAnswerId="5139" CreationDate="2015-03-25T21:39:27.843" Score="3" ViewCount="144" Body="&lt;p&gt;Having just dabbled in &lt;a href=&quot;https://books.google.com.hk/books?id=HkAwexYQww4C&amp;amp;printsec=frontcover&amp;amp;hl=zh-CN#v=onepage&amp;amp;q&amp;amp;f=false&quot; rel=&quot;nofollow&quot;&gt;7.1&lt;/a&gt;of rationality in extensive games by Andres Perea, I got an impression all constructions of universal type space are restricted to finite players. What's the obstacle to extend it to countably infinite players? For example, is it trivial to extend them to cover OLG games in which each stage game is only played by finite players?&lt;/p&gt;&#xA;" OwnerUserId="73" LastActivityDate="2015-04-15T04:53:51.287" Title="Is there a universal type space involving infinite players?" Tags="&lt;mathematical-economics&gt;&lt;game-theory&gt;&lt;reference-request&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="4857" PostTypeId="2" ParentId="4831" CreationDate="2015-03-26T03:27:13.447" Score="1" Body="&lt;p&gt;If I understand correctly the set up, the government does not destroy real goods, it just collects fiat money and destroys it to reduce the available quantity of money (since money is in the hands of the individuals). The fact that the government calculates the amount of fiat money to collect by using a real-goods base, $\tau$, does not alter this fact. But then, &lt;em&gt;all endowment is consumed&lt;/em&gt; and the government's actions just affect the price level.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some assumptions:&lt;br&gt;&#xA;&lt;strong&gt;a)&lt;/strong&gt; population is constant at $N$ per generation&lt;br&gt;&#xA;&lt;strong&gt;b)&lt;/strong&gt; all individuals are identical, so we can carry the analysis by setting $N=1$&lt;br&gt;&#xA;&lt;strong&gt;c)&lt;/strong&gt; There are no altruistic motives, so no inheritance&lt;br&gt;&#xA;&lt;strong&gt;d)&lt;/strong&gt; Individuals do &lt;em&gt;not&lt;/em&gt; carry over periods real goods: they consume some of their endowment, and what they do not consume, they sell in exchange for money&lt;br&gt;&#xA;&lt;strong&gt;e)&lt;/strong&gt; the subscript $1$ denotes consumption when Young, and the subscript $2$ consumption when Old.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume that we are in economy's period $t+1$. The Young come to the Goods market as suppliers, bringing with them $y-c_{1,t+1}$ goods. The Old come to the Goods market as buyers, bringing with them fiat money.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Market clearing implies in real terms that all real goods will change hands, and then that the Old that bought them will consume them. So we obtain&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$c_{2,t+1} = y- c_{1,t+1} \implies c_{2,t+1} + c_{1,t+1} = y  \tag{1}$$&#xA;In nominal terms equilibrium requires that Total Revenue of Suppliers equals Total Expenditure of Buyers. Total Revenue is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$TR_{t+1} = p_{t+1}(y-c_{1,t+1})  \tag{2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Old will want to spend all their available money (since money is not consumed per se, and they don't leave any inheritance). The money they got in the previous period (prior to being taxed) was Total Revenue of Suppliers in period $t$. The tax is paid on $t+1$, has a real base $\tau$ and so its nominal value is $T_{t+1} = p_{t+1}\tau$. So Total Expenditure is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$TE_{t+1} = p_t(y-c_{1,t}) - p_{t+1}\tau  \tag {3}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Equating $(2)$ and $(3)$ we get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$p_{t+1}(y-c_{1,t+1}) = p_t(y-c_{1,t}) - p_{t+1}\tau \implies p_{t+1}(y-c_{1,t+1} +\tau) = p_t(y-c_{1,t}) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and using $(1)$ we obtain an expression that involves the components of life-time consumption of the same individual&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$p_{t+1}(c_{2,t+1}+ \tau) = p_t(y-c_{1,t})\tag{4}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We are moreover told that what fiat money the government collects as taxes, it destroys, targeting a fixed rate of reduction. So we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$m_{t+1} = m_t - T_{t+1} = m_t - p_{t+1}\tau = zm_t$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies m_t = \frac {p_{t+1}\tau}{1-z} ,\;\; 0&amp;lt;z&amp;lt;1 \tag {5}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We know that $m_t = p_t(y-c_{1,t})$, so we obtain&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$p_t(y-c_{1,t}) = \frac {p_{t+1}\tau}{1-z} \tag {6}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Combining $(4)$ and $(6)$ we see that consumption of Old is determined exogenously&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ (4), (6) \implies p_{t+1}(c_{2,t+1}+ \tau) = \frac {p_{t+1}\tau}{1-z}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies c_{2,t+1} = \frac {z}{1-z}\tau \tag{7}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since the endowment $y$ is also exogenous, consumption when Young is also determined exogenously (from $(1)$)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ c_{1,t+1} = y-\frac {z}{1-z}\tau \tag{8}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But if $z$ and $\tau$ are constant over time, then the time subscripts become irrelevant. Each generation consumes exactly the same when Young and when Old as the previous and the next ones:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$c_1 = y- \frac {z}{1-z}\tau ,\;\; c_2 = \frac {z}{1-z}\tau \tag{9}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Using $(9)$ together with $(4)$ we can determine the evolution of the price level&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$(4), (9) \implies p_{t+1}\left(\frac {z}{1-z}\tau+ \tau\right) = p_t\frac {z}{1-z}\tau$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies \frac {p_{t+1}}{p_t} = z &amp;lt;1 \tag{10}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;as should be expected. Constant amount of goods with shrinking amount of fiat money $\implies$ deflation.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;As regards the issue of whether the equilibrium here is welfare maximizing&lt;/strong&gt;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Eq. $(4)$ combined with $(10)$ gives us the life-time budget constraint. Assuming logarithmic utility, the individual would solve&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\max V = \ln(c_1)+  \frac 1{1+\rho}\ln(c_2)\\&#xA;s.t. \;\; y - zc_{2} - z\tau  = c_{1} \tag {11}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first order condition with respect to $c_2$ is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$-z\frac 1 {c_1} + \frac 1{1+\rho}\frac 1 {c_2} = 0 \implies c_1 = (1+\rho)zc_2 \tag{12}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Combining with the life-time budget constraint as well as $(9)$ we end up with a quadratic in $z$ in order for the equilibrium to be utility-maximizing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$(11), (12) \implies (1+\rho)zc_2 = y - zc_{2} - z\tau \implies (2+\rho)zc_2^* = y  - z\tau \tag{13}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$(9), (13):\;\; c_2^{eq.} = c_2^* \implies \frac {(2+\rho)\tau z^2}{1-z} = y  - z\tau$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \implies (1+\rho)\tau z^2 +(y+\tau)z - y = 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This has a single positive real solution&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$z^* = -\frac {y+\tau}{2(1+\rho)\tau} + \left[\left(\frac {y+\tau}{2(1+\rho)\tau}\right)^2+\frac {y}{(1+\rho)\tau}\right]^{1/2} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, for this value of $z$ to be feasible, not only do we want it smaller than unity, but we must also consider the non-negativity constraint on the level of consumption of the first period.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We want &#xA;$$c_1 &amp;gt; 0 \implies y- \frac {z}{1-z}\tau &amp;gt; 0 \implies z &amp;lt; \frac {y}{y+\tau} &amp;lt;1 $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So one should check whether&#xA;$$-\frac {y+\tau}{2(1+\rho)\tau} + \left[\left(\frac {y+\tau}{2(1+\rho)\tau}\right)^2+\frac {y}{(1+\rho)\tau}\right]^{1/2} &amp;lt; \;? \; \frac {y}{y+\tau}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which holds. So $z^*$ is feasible, and for this single value the imposed allocation of consumption will equal the utility-maximizing solution (at least for logarithmic utility).&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-03-26T04:11:09.060" LastActivityDate="2015-03-26T04:11:09.060" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4858" PostTypeId="1" CreationDate="2015-03-26T04:20:47.417" Score="2" ViewCount="39" Body="&lt;p&gt;Explain why the currency crisis must occur at time t0 when the pegged rate equals the shadow exchange rate and not before or after t0.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose the crisis were to occur at a date before and after t0 and examine the incentives of an individual investor. Is it in his or her interest to also sell the currency on that date?&lt;/p&gt;&#xA;" OwnerUserId="4064" LastEditorUserId="4064" LastEditDate="2015-03-26T05:03:54.503" LastActivityDate="2015-10-24T08:59:03.257" Title="why the currency crisis must occur at time t0 when the pegged rate equals the shadow exchange rate" Tags="&lt;financial-economics&gt;&lt;currency&gt;&lt;exchange-rates&gt;" AnswerCount="1" CommentCount="2" ClosedDate="2015-10-24T12:45:06.320" ContentLicense="CC BY-SA 3.0" />
  <row Id="4860" PostTypeId="2" ParentId="553" CreationDate="2015-03-26T06:56:38.040" Score="3" Body="&lt;p&gt;There are countless models, from different perspectives (theory/econometric/etc.) on price impact of trade volume. The seminal model in market microstructure---the Kyle model (&lt;a href=&quot;https://faculty.fuqua.duke.edu/~qc2/BA532/1985%20EMA%20Kyle.pdf&quot; rel=&quot;nofollow&quot;&gt;85 &lt;em&gt;Econometrica&lt;/em&gt;&lt;/a&gt;) addresses this very issue. There are many descendents of this model.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To demand a &quot;formula&quot; is a little simplistic. The usual framework for these models, if micro-founded, is strategic. The price impact is a property of the resulting game-theoretic equilibrium. In the Kyle model, one has&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\Delta p = \lambda\cdot Q &#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $\Delta p$ is the price adjustment of market maker when the incoming total order flow is (only market orders are considered) $Q$. The coefficient $\lambda$ (&lt;em&gt;Kyle's lambda&lt;/em&gt;) is a measure of price impact, and is determined by the severity of the adverse selection problem faced by the market maker.&lt;/p&gt;&#xA;" OwnerUserId="126" LastEditorUserId="108" LastEditDate="2015-03-26T09:42:48.283" LastActivityDate="2015-03-26T09:42:48.283" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4861" PostTypeId="2" ParentId="4835" CreationDate="2015-03-26T13:26:46.137" Score="3" Body="&lt;p&gt;Mathematically speaking, we are not sure. The infinite sums mentioned is of the form&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$E_t\sum_{k=0}^{\infty}\gamma^kX_{t+k},\;\; 0&amp;lt;\gamma&amp;lt;1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The fact that there is the declining factor, $\gamma^k$, provides some comfort that the sum converges, but from examples like &lt;a href=&quot;https://en.wikipedia.org/wiki/Harmonic_series_%28mathematics%29&quot; rel=&quot;nofollow&quot;&gt;the harmonic series&lt;/a&gt; we know that even if $\lim_{k\rightarrow \infty}\gamma^kE_tX_{t+k} =0$, the sum may not converge.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some times authors provide rigorous conditions for convergence, but I believe it is more important not to be trapped by our own tools: the use of infinite horizon is, of course, non-realistic. The only reason we use it is that it makes the mathematics more tractable. So in reality we model a problem with possibly long but finite horizon. In such a case, there is no issue of convergence. By extending the problem to the infinite horizon we silently assume that this won't destroy convergence, since it is an &lt;em&gt;artificial&lt;/em&gt; extension.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The ultimate economic argument for convergence, is that it is meaningless to talk about economic magnitudes going to infinity. Even for prices, where it is tempting to think that they do not have an upper bound &lt;em&gt;per se&lt;/em&gt;, we must remember that &lt;em&gt;prices as a component of an economic system do have ultimate bounds&lt;/em&gt;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;With prices flying to heaven, the economy goes to hell (if you excuse the christian iconography), because the price system stops functioning as a signal mechanism to co-ordinate decisions in a decentralized framework. But in the real world, when such explosions &quot;start to happen&quot;, the &lt;em&gt;society&lt;/em&gt; that encloses the economy in question, will intervene in one way or the other, in order to end the phenomenon. The historical experience from war-time hyperinflations and from other price-bubbles verifies this.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ideally, we would want a single model to encompass both possibilities and also model the possible &quot;extraordinary reaction&quot; to the explosive case: herein infinite PhDs lie.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Returning to the specific situation from the link, note that the price in eq. $(3.7)$ is determined by the &lt;em&gt;ratio&lt;/em&gt; of two such infinite sums. Even from a mathematical point of view, this is a bit more favorable, because even if each sum separately diverges, their ratio may converge. But again, my point is, &quot;don't let the mathematics make you forget the economics&quot; of the situation.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-03-26T13:26:46.137" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4862" PostTypeId="1" AcceptedAnswerId="4895" CreationDate="2015-03-26T19:00:39.787" Score="4" ViewCount="83" Body="&lt;p&gt;Nice properties of the set of Nash equilibria can be shown for supermodular games(see &lt;a href=&quot;http://cowles.econ.yale.edu/P/cp/p08b/p0875.pdf&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;). But for a two-player game in which &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Strategy spaces for two player, $S_1$ and $S_2$ are finite, and both of them are subsets of $\mathbb R$.&lt;/li&gt;&#xA;&lt;li&gt;$u_1$ exhibits &lt;a href=&quot;http://web.stanford.edu/~jdlevin/Econ%20286/Supermodular%20Games.pdf&quot; rel=&quot;nofollow&quot;&gt;increasing differences&lt;/a&gt; while $u_2$ exhibits decreasing differences.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;What can we say about it?&lt;/p&gt;&#xA;" OwnerUserId="2671" LastEditorUserId="5635" LastEditDate="2015-11-12T04:15:11.170" LastActivityDate="2015-11-12T04:15:11.170" Title="Are there some nice properties for a finite two-player game having an increasing differences utility and a decreasing differences utility?" Tags="&lt;mathematical-economics&gt;&lt;game-theory&gt;&lt;reference-request&gt;&lt;academic-graduate&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4865" PostTypeId="2" ParentId="200" CreationDate="2015-03-27T08:47:16.567" Score="7" Body="&lt;p&gt;Yes, there are folk theorems for games on networks, depending on information structure and possible communication. Here are some of the most relevant papers:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Ben-Porath, E., &amp;amp; Kahneman, M. (1996). &lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/S0022053196900903&quot; rel=&quot;nofollow&quot;&gt;Communication in repeated&#xA;games with private monitoring&lt;/a&gt;. Journal of Economic Theory, 70(2),&#xA;281-297. - &lt;em&gt;public communication, private monitoring&lt;/em&gt;&lt;/li&gt;&#xA;&lt;li&gt;Renault, J., &amp;amp; Tomala, T. (1998). &lt;a href=&quot;http://link.springer.com/article/10.1007/s001820050089&quot; rel=&quot;nofollow&quot;&gt;Repeated proximity games&lt;/a&gt;.&#xA;International Journal of Game Theory, 27(4), 539-559. - &lt;em&gt;complete information, imperfect monitoring&lt;/em&gt;&lt;/li&gt;&#xA;&lt;li&gt;Tomala, T. (2011). &lt;a href=&quot;http://pubsonline.informs.org/doi/abs/10.1287/opre.1110.0936&quot; rel=&quot;nofollow&quot;&gt;Fault reporting in partially known networks and&#xA;folk theorems&lt;/a&gt;. Operations research, 59(3), 754-763. - &lt;em&gt;partial knowledge of the network and restricted communication&lt;/em&gt;&lt;/li&gt;&#xA;&lt;li&gt;Laclau, M. (2012). &lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/S0899825612001285&quot; rel=&quot;nofollow&quot;&gt;A folk theorem for repeated games played on a&#xA;network&lt;/a&gt;. Games and Economic Behavior, 76(2), 711-737. - &lt;em&gt;private communication&lt;/em&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Thanks @Ubiquitous for basically providing the answer.&lt;/p&gt;&#xA;" OwnerUserId="120" LastEditorUserId="120" LastEditDate="2015-08-08T19:27:13.997" LastActivityDate="2015-08-08T19:27:13.997" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4866" PostTypeId="1" AcceptedAnswerId="4871" CreationDate="2015-03-27T11:21:25.217" Score="22" ViewCount="3100" Body="&lt;p&gt;Employees sell their labor for wages. If a critical mass of employees get together and demand higher wages, how is this not the same thing as a critical mass of merchants illegally fixing the price of some commodity?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can't a strong union be considered to have an illegal monopoly on labor? &lt;/p&gt;&#xA;" OwnerUserId="4265" LastEditorUserId="108" LastEditDate="2015-03-27T14:47:41.560" LastActivityDate="2016-06-07T18:48:50.280" Title="Why is collective bargaining by a group of employees not the same thing as price-fixing?" Tags="&lt;labor-economics&gt;&lt;monopoly&gt;&lt;competition&gt;" AnswerCount="3" CommentCount="4" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="4867" PostTypeId="1" AcceptedAnswerId="5391" CreationDate="2015-03-27T11:39:06.873" Score="8" ViewCount="217" Body="&lt;p&gt;I'm looking for a theoretic example of an economy where one agent is altruistic, while the others are not, that would make a walrasian equilibrium not efficient.  &lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="118" LastEditDate="2015-03-27T21:40:30.960" LastActivityDate="2016-04-15T13:22:01.613" Title="Example of an economy where Equilibria may not be efficient, where one agent is altruistic" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="5" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="4868" PostTypeId="1" CreationDate="2015-03-27T03:59:30.617" Score="5" ViewCount="182" Body="&lt;p&gt;Take S&amp;amp;P for example. In the long run it just keeps climbing. Same for the market as a whole. Why would this happen? Why the market keeps going up (in the long term) all the time?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/VnyUa.jpg&quot; alt=&quot;S&amp;amp;P historical data&quot;&gt;&#xA;(&lt;a href=&quot;http://www.singularity2050.com/2008/10/a-history-of-stock-market-bottoms.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;source&lt;/a&gt;)&lt;/p&gt;&#xA;" OwnerUserId="4006" OwnerDisplayName="Sparkler" LastActivityDate="2015-04-01T13:37:36.253" Title="Why the total value of the whole economy is constantly appreciating?" Tags="&lt;economic-growth&gt;&lt;theory&gt;" AnswerCount="2" CommentCount="5" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4869" PostTypeId="2" ParentId="4866" CreationDate="2015-03-27T14:09:30.477" Score="13" Body="&lt;p&gt;I think your question has two parts:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Is a labor union a cartel?&lt;/li&gt;&#xA;&lt;li&gt;Is a labor union therefore illegal?&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Let me give you the quick answer to both: 1) yes, 2) no.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The longer version is the following:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;You are right, there is, from an economical point of view not that&#xA;much of a difference between selling a good and labor, so a union could (and most times is) considered a cartel.&lt;/li&gt;&#xA;&lt;li&gt;It is not illegal, because it is explicitly excluded in the&#xA;antitrust laws (like in the US via the National Labor Relations&#xA;Act) or not included in the antitrust laws in the first place.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;There are several possible reasons why collective bargaining and labor unions could have been excluded from antitrust laws, for example:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Firms have more market power in the first place (as perfectly explained by Ubiquitous)&lt;/li&gt;&#xA;&lt;li&gt;Most workers usually can not choose not to work, those workers could be exploited without collective bargaining&lt;/li&gt;&#xA;&lt;li&gt;...&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="120" LastEditorUserId="120" LastEditDate="2015-03-27T16:04:34.590" LastActivityDate="2015-03-27T16:04:34.590" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="4870" PostTypeId="2" ParentId="4868" CreationDate="2015-03-27T14:20:42.047" Score="6" Body="&lt;p&gt;Roughly, people produce &quot;stuff&quot; by spending their time working (labour) and by employing machinery/tools/land/etc. (capital).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you have more workers or more machinery then it should not come as a surprise that more goods and services get produced.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But this is only part of the story. Even if we divide by the number of people to get the size of the economy per-capita, we still find growth:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/W4W0k.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So we clearly can't &lt;em&gt;fully&lt;/em&gt; attribute growth to an increase in the population of workers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For some time in the early 19th century, economists thought that growth was due to an increase in the use of machinery during the industrial revolution. If each worker has more tools—went the reasoning—then each worker can produce more and per-capita output will increase. But &lt;a href=&quot;http://faculty.georgetown.edu/mh5/class/econ489/Solow-Growth-Accounting.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;in 1957, Robert Solow found&lt;/a&gt; that only 12.5% of US growth in the first half of the 20th century was due to an increase in the capital / labour ratio. That still leaves 87.5% of growth unexplained.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If growth is not due to an increase in the availability of labour and capital, then it must be driven by the existing capital and labour becoming more productive. Why might that happen?&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Education levels increase over time so that an average worker in 2000 produces more value than did an averager worker in 1900. Indeed, in 1900 the average worker was a farm hand or low-level industrial worker who produced a few thousand dollars worth of goods each year. Now, the average worker is a skilled industrial worker or office worker who produces good or services worth tens of thousands of dollars per-year.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Similarly, technological advancement makes tools and machinery more productive over time. For example, a \$200 modern computer is several orders of magnitude more powerful than a \$1million computer was in 1970. That means that we can now produce anything created by (or with the aid of) a computer in quantities many orders of magnitude larger than was possible 40 years ago.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;So, in sum, more skilled workers who have access to better tools produce more stuff. Since a country's GDP is just the value of the stuff it produces in a year, education and technology cause GDP to increase over time.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2015-03-27T14:20:42.047" CommentCount="10" ContentLicense="CC BY-SA 3.0" />
  <row Id="4871" PostTypeId="2" ParentId="4866" CreationDate="2015-03-27T14:44:27.520" Score="22" Body="&lt;p&gt;This is more of an elaboration of The Almighty Bob's answer:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is true that &lt;em&gt;if we start from a competitive market&lt;/em&gt; (i.e. large numbers of buyers &lt;strong&gt;and&lt;/strong&gt; sellers), then granting market power to sellers (e.g. workers) by allowing the formation of a monopolistic cartel is bad for efficiency. Those sellers will use their market power to increase the price (and reduce the quantity traded), resulting in a deadweight loss. Thus, we tend to look suspiciously upon practices that create market power. Note that here, the policy intervention we have in mind is to break up the cartel and return us to a competitive world.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why should the labour market be viewed differently? Part of the answer is that the relevant counterfactual has changed. Begin with a world without labour unions. The market will then typically &lt;em&gt;not&lt;/em&gt; be competitive because there are often a small number of employers who themselves enjoy market power. Just as a monopolist seller can drive up the price, these monopsonistic (or oligopsonistic) buyers of labour can use their power to drive down the price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now we are faced with the following policy problem:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;How can we correct for employers' market power and restore wages toward the (higher) efficient level?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Two simple solutions come immediately to mind:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Reduce employer's market power by stimulating competition between employers. This is achieved, to some extent, by antitrust policy. But it's hard to do much more here short of forcing more businesses to hire more workers.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Allow workers to form unions so that both workers and employers have market power. If the firms try to use their power to drive wages down and the workers use it to drive them up then there is a sense in which the two will 'cancel out' and the result can be closer to the efficient wage than a market in which only employers have market power. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Whether the second solution indeed works or not depends upon a whole range of factors. Here are a few:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;If the employer side of the market is, in fact, quite competitive then the correction will likely be too big and we will end up with wages that are inefficiently high.&lt;/li&gt;&#xA;&lt;li&gt;If bargaining is very costly then it might be more efficient to have one side (e.g. the employers) unilaterally set the wage.&lt;/li&gt;&#xA;&lt;li&gt;If there is uncertainty about the wage that firms are willing to pay/workers are willing to accept then bargaining may inefficiently break down (see the &lt;a href=&quot;http://en.wikipedia.org/wiki/Myerson%E2%80%93Satterthwaite_theorem&quot;&gt;Myerson-Satterthwaite Theorem&lt;/a&gt;).&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2015-04-18T10:36:16.327" LastActivityDate="2015-04-18T10:36:16.327" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="4872" PostTypeId="2" ParentId="4866" CreationDate="2015-03-27T16:35:07.807" Score="3" Body="&lt;p&gt;To complement @Ubiquitous answer, whether employers have &lt;strong&gt;&lt;em&gt;monopsonistic&lt;/strong&gt;&lt;/em&gt; power or not in the labor market is still something that is questioned in various corners of the Economics discipline.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The simple observation made in a comment, that in the labor market, most of  the suppliers (workers) have an &lt;em&gt;urgent and immediate need to sell&lt;/em&gt;, to a degree higher than a firm has in selling its products, I believe goes a long way in rationalizing why the labor market is &quot;special&quot;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A stimulating book focusing on the issue of monopsony power of employers in the labor market is &lt;a href=&quot;http://press.princeton.edu/titles/7522.html&quot; rel=&quot;nofollow&quot;&gt;&lt;strong&gt;&quot;Monopsony in Motion: Imperfect Competition in Labor Markets&quot; (2005) by Alan Manning&lt;/strong&gt;&lt;/a&gt;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A review critical of the book can be found &lt;a href=&quot;http://www-personal.umich.edu/~jdinardo/kuhn.pdf&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-03-27T16:35:07.807" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="4873" PostTypeId="1" AcceptedAnswerId="4877" CreationDate="2015-03-27T20:00:50.557" Score="6" ViewCount="48" Body="&lt;p&gt;What is the technical term for the mix of maturities of outstanding US Treasury bonds? Also, is there an &quot;official&quot; source for this information?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I tried searching to find out, but not knowing what the correct term for the maturity mix is, I got no hits.&lt;/p&gt;&#xA;" OwnerUserId="1448" LastActivityDate="2015-03-27T22:19:09.433" Title="What is the mix of maturities of outstanding US Treasury bonds called?" Tags="&lt;finance&gt;&lt;financial-markets&gt;&lt;usa&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4875" PostTypeId="1" AcceptedAnswerId="4879" CreationDate="2015-03-27T21:43:39.890" Score="9" ViewCount="4325" Body="&lt;p&gt;I was formerly an economics major and now also majoring in mathematics.&#xA;I want a textbook that is rigorously based on mathematics; not just using mathematics whenever the author wants, but in a more unified way to explain a concept.&#xA;I've learned enough mathematics in undergraduate level so mathematics will hardly be a problem. &#xA;I've searched for information, but I really wanted textbooks that satisfy this specific condition; explaining concepts with sound mathematics in a unified way.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help is welcome.&lt;/p&gt;&#xA;" OwnerUserId="4275" LastEditorUserId="-1" LastEditDate="2020-02-17T19:20:24.160" LastActivityDate="2020-02-17T19:20:24.160" Title="Mathematical Micro/Macro Economics Textbook Recommendation" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;reference-request&gt;" AnswerCount="7" CommentCount="0" FavoriteCount="10" ContentLicense="CC BY-SA 4.0" />
  <row Id="4876" PostTypeId="2" ParentId="4875" CreationDate="2015-03-27T21:55:25.793" Score="8" Body="&lt;p&gt;For microeconomics with a proper mathematical formalisation, you will want a graduate textbook. The standard book is &lt;em&gt;&lt;a href=&quot;http://ukcatalogue.oup.com/product/9780195102680.do&quot;&gt;Microeconomic Theory&lt;/a&gt;&lt;/em&gt; by Mas Colell, Whinston, and Green.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2015-03-27T21:55:25.793" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="4877" PostTypeId="2" ParentId="4873" CreationDate="2015-03-27T22:19:09.433" Score="6" Body="&lt;p&gt;Weighted Average Maturity of Marketable Debt &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2015-03-27T22:19:09.433" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4878" PostTypeId="1" CreationDate="2015-03-28T08:32:13.057" Score="2" ViewCount="63" Body="&lt;p&gt;In an article (see &lt;a href=&quot;https://theoryclass.wordpress.com/2012/04/07/the-ex-ante-game-versus-the-interim-game/&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;) from the blog leisure of theory class, it is shown, in an interim stage for a Baysian game, we could run into a technical problem that the induced belief space for a player could be a uniform distribution on a countably infinite type space, which can't exist.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is how is it the case in that setting?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, let $a=\sqrt 2$, the nature choose $x=0$, for player 1, of course, $\sqrt{2} \mathbb Z$ is countably infinite, but how the induced distribution $p(\sqrt{2} \mathbb{Z} \mid x=0)$ is uniform? It seems to me it's trivial that $p((0, \sqrt{2}) \mid x=0) =p((0, 0) \mid x=0) = 0.5 $.&lt;/p&gt;&#xA;" OwnerUserId="73" LastActivityDate="2015-03-28T08:32:13.057" Title="How this ex ante game induce a uniform distribution for interim stage?" Tags="&lt;mathematical-economics&gt;&lt;game-theory&gt;&lt;academic-graduate&gt;&lt;bayesian-game&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4879" PostTypeId="2" ParentId="4875" CreationDate="2015-03-28T08:53:35.460" Score="11" Body="&lt;p&gt;You should also try &lt;a href=&quot;https://rads.stackoverflow.com/amzn/click/com/0273731912&quot; rel=&quot;nofollow noreferrer&quot; rel=&quot;nofollow noreferrer&quot;&gt;Advanced Microeconomic Theory (3rd Edition)&lt;/a&gt; by (Jehle, Reny, 2011).&#xA;Note that, imho, Mas-colell-Whinston-Green (1995!) is the best choice for those with initial background in Math switching to Economics. When it comes to Economics majors the former seems to be more appropriate (and more modern).&#xA;For modern Macro with strong math see &lt;a href=&quot;https://rads.stackoverflow.com/amzn/click/com/0691132925&quot; rel=&quot;nofollow noreferrer&quot; rel=&quot;nofollow noreferrer&quot;&gt;Introduction to Modern Economic Growth&lt;/a&gt; (Acemoglu, 2009).&#xA;To integrate the micro/macro problems with econometrics and math see &lt;a href=&quot;http://press.princeton.edu/titles/8903.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Economic Modeling and Inference&lt;/a&gt; (Christensen &amp;amp; Kiefer, 2009). Hope, that helps.&lt;/p&gt;&#xA;" OwnerUserId="4184" LastEditorUserId="-1" LastEditDate="2020-02-17T11:19:11.040" LastActivityDate="2020-02-17T11:19:11.040" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="4880" PostTypeId="2" ParentId="4875" CreationDate="2015-03-28T09:27:26.537" Score="5" Body="&lt;p&gt;For economics, both micro and macro, written in mathematics as mathematicians would know it, try the &lt;a href=&quot;http://www.sciencedirect.com/science/handbooks/15734382&quot; rel=&quot;noreferrer&quot;&gt;&lt;em&gt;Handbook of Mathematical Economics&lt;/em&gt;&lt;/a&gt; series, 4 volumes in total. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;See for example, &lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/S1573438205800098&quot; rel=&quot;noreferrer&quot;&gt;this very nice article by Mas-Colell and Zame in volume 4&lt;/a&gt; on general equilibrium. (&lt;em&gt;Microeconomics&lt;/em&gt;, for example, by Mas-Colell-Whinston-Green falls far below this standard of rigor.)&lt;/p&gt;&#xA;" OwnerUserId="126" LastActivityDate="2015-03-28T09:27:26.537" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="4881" PostTypeId="1" CreationDate="2015-03-28T15:20:59.343" Score="1" ViewCount="58" Body="&lt;p&gt;How do profit margins vary over &quot;business cycles&quot; in the new Keynesian model?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm interested in responses of profit margins (actual price markups) to all three standard shocks in NK models: &#xA;- TFP shocks&#xA;- Demand shocks&#xA;- Monetary policy shocks&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As an example, here is what I came up with for TFP shocks, but I don't really trust my analysis on that.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If BC are driven by TFP shocks, a bust implies lower marginal productivity of labor. Assuming flexible wages, this implies a decrease in costs. Since there is an optimal markup that firms are targeting, this implies that firms want to decrease their prices. Those that cannot adjust prices now have higher markups, and &lt;em&gt;too high&lt;/em&gt; markups (compared to their desired markups). Those that can adjust prices will achieve their desired markup - their markup is constant through a decrease in prices. So as a response, average markups increase when hit by a negative TFP shocks - but holding the negative TFP shock constant, over time markups will go back to $\epsilon$ as all firms have adjusted their prices.&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-03-28T15:20:59.343" Title="Profit-Margins in the NK Model" Tags="&lt;macroeconomics&gt;&lt;new-keynesian-economics&gt;&lt;profits&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4882" PostTypeId="1" CreationDate="2015-03-28T19:20:44.237" Score="3" ViewCount="55" Body="&lt;p&gt;Is there some consenus in the literature as to what features characterize a bubble investment as distinct from a productive investment?&lt;/p&gt;&#xA;" OwnerUserId="4285" LastActivityDate="2017-04-02T01:14:29.237" Title="Bubble and productive investments" Tags="&lt;macroeconomics&gt;&lt;investment&gt;" AnswerCount="1" CommentCount="4" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="4883" PostTypeId="1" CreationDate="2015-03-28T21:16:32.713" Score="5" ViewCount="956" Body="&lt;p&gt;Please suggest a good alternative to intermediate macroeconomics by Mankiw. A book with better teaching and which develops better understanding but at a similar level in terms of difficulty. I personally do not like mankiw's book. I can understand concepts at superficial level but do not get in depth understanding. &lt;/p&gt;&#xA;" OwnerUserId="366" LastEditorUserId="366" LastEditDate="2015-03-28T21:50:20.747" LastActivityDate="2015-10-24T16:37:55.400" Title="Alternative to Intermediate-macroeconomics book by Mankiw" Tags="&lt;macroeconomics&gt;&lt;reference-request&gt;" AnswerCount="2" CommentCount="4" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="4884" PostTypeId="1" AcceptedAnswerId="4888" CreationDate="2015-03-28T22:17:29.000" Score="7" ViewCount="247" Body="&lt;p&gt;The only relevant model I'm aware of is &lt;a href=&quot;http://web.stanford.edu/group/siepr/cgi-bin/siepr/?q=system/files/shared/pubs/papers/pdf/06-30.pdf&quot;&gt;Liu Qingmin(2011 R.E.S)&lt;/a&gt;. Is there any other decent models dealing with the mechanism of online markets under reputation system, and perhaps linking to regulation?&lt;/p&gt;&#xA;" OwnerUserId="73" LastActivityDate="2015-03-29T15:20:58.653" Title="Models for online markets with reputation system" Tags="&lt;game-theory&gt;&lt;reference-request&gt;&lt;dynamic-games&gt;&lt;bayesian-game&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4885" PostTypeId="2" ParentId="4875" CreationDate="2015-03-28T22:51:49.623" Score="7" Body="&lt;p&gt;I would like strongly recommend David Kreps' latest textbook, &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0691155836&quot;&gt;Microeconomic Foundations I: Choice and Competitive Markets &lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It contains true virtuosity and is very inspiring.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Take utility representation theorem as an example. Kreps forsake the assumption in MWG of taking $\mathbb R^n$ as the underlying space so that readers won't be left with the false impression that this theorem is of limited interest.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I also $\heartsuit$ the presentation of GE as a generalized NE which helps developing connections between different areas.&lt;/p&gt;&#xA;" OwnerUserId="73" LastActivityDate="2015-03-28T22:51:49.623" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4886" PostTypeId="1" CreationDate="2015-03-29T04:58:32.957" Score="1" ViewCount="1561" Body="&lt;p&gt;I am reading mankiw's intermediate economics text. what i find is that when he writes a production function for how much will be produced in an economy. he says it is dependent upon quantity of inputs (capital, labour) and technology (defined by the production function itself). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now my question why he ignored raw materials, energy and land? When you need to produce more cars. you will need more energy, more raw material (steel or whatever) and more land (after a certain threshold). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Secondly, the idea of technology is kind of tricky. Like usually technology does not hang in thin air. It is usually embedded in the capital itself. pentium 3 as compared to pentium 4 computer, for instance. Also labour. every hour of labour is not equal. Highly skilled labor may be more productive. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, how do you actually go about disentangling what is the contribution of &quot;technology&quot;, capital and labour to output, in a real world data. Like some growth accounting exercises do. It may be very hard to say what is capital and what is technology. every dollar of investment in capital is not same, and it is not independent of technology. &lt;/p&gt;&#xA;" OwnerUserId="366" LastActivityDate="2015-03-30T15:18:44.967" Title="factors of production (and their relative contribution)" Tags="&lt;production-function&gt;&lt;technology&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4887" PostTypeId="1" CreationDate="2015-03-29T06:50:19.583" Score="2" ViewCount="347" Body="&lt;h2&gt;In a nutshell&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Supply-side economists support reductions in tax, because government revenue can increase (according to the Laffer curve) and businesses and consumers will be incentivised to invest (Mohr, Fourie, et al 2009:470). However, I do not see how is this supply-side. Tax and investment form part of the aggregate expenditure function, which determines aggregate demand (AD). So, surely a cut in tax will shift AD to the right?&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;More detail&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;I am currently trying to answer this question, related to cost-push inflation:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Provide two different methods for which a supply shock may revert back to the long-run equilibrium, without any external intervention. Give reasons to each answer provided.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;When researching this question (vide Mohr, Fourie, et al 2009; Parkin, et al 2010; Arnold 2012), I could not find any mention of a self-regulating phenomenon in a free-market economy which results in the output being at potential GDP in the long-run. The textbooks that I consulted all assume that the government will step in to resolve the supply shock and to prevent stagflation from occurring. I am thus answering the question by outlining different strategies that the government can take. The one strategy (which is more interventionist than the others) is to decrease interest rates, which increases AD. Another strategy is an anti-inflammatory incomes policy. The third strategy is what Mohr, Fourie, et al. call &quot;supply-side economics&quot; (2009:470), which includes cuts in government spending, deregulation and reductions in tax.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$$$&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;References&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Arnold, R. 2012. Macroeconomics: Economics 144. 2nd custom edition. Hampshire: Cengage Learning.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Mohr, P, Fourie, L, et al. 2009. Economics for South African students. 4th ed. Pretoria: Van Schaik Publishers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Parkin, M., Kohler, M., Lakay, L., Rhodes, B., Saayman, A., Schöer, V., Scholtz, F. &amp;amp; Thompson, K. 2010. Economics: Global and Southern African perspectives. Cape Town: Pearson Education.&lt;/p&gt;&#xA;" OwnerUserId="175" LastEditorUserId="43" LastEditDate="2015-03-31T15:06:14.570" LastActivityDate="2015-03-31T15:06:14.570" Title="Supply-side economics: reduction in tax" Tags="&lt;macroeconomics&gt;&lt;inflation&gt;&lt;supply-and-demand&gt;&lt;fiscal-policy&gt;" AnswerCount="0" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4888" PostTypeId="2" ParentId="4884" CreationDate="2015-03-29T15:20:58.653" Score="5" Body="&lt;p&gt;I would suggest you start by looking at&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;C. Dellarocas. &quot;The Digitization of Word-of-Mouth: Promise and&#xA;  Challenges of Online Reputation Systems&quot;. &lt;em&gt;Management Science&lt;/em&gt; 49&#xA;  (10), October 2003, 1407-1424.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;for a review of relevant literature and&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Friedman &amp;amp; Resnick &quot;The Social Cost of Cheap Pseudonyms&quot;. &lt;em&gt;Journal of&#xA;  Economcs and Management Strategy&lt;/em&gt;. 10 (2), 173–199.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;and&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;Sustainable Reputations with Rating Systems,&quot; 2011. Journal of&#xA;  Economic Theory, 146, 2, 479-503&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;for some models of online reputation systems that comes to mind. If I think of any others, I will update this answer.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2015-03-29T15:20:58.653" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4889" PostTypeId="1" AcceptedAnswerId="4890" CreationDate="2015-03-29T21:16:40.840" Score="5" ViewCount="184" Body="&lt;p&gt;As far as I can see there are two senses in which it's 'rational' for an investor to buy during a bubble. &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;The investor has erroneously overvalued the value of the stock/commodity. &lt;/li&gt;&#xA;&lt;li&gt;The investor is aware that it's a bubble and is overvalued, but believes he can make a profit by selling before the bubble bursts. &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;There are also 'irrational' explanations, such as the investor being caught up in the hype, or fearing missing out. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question is, is investor behaviour during bubbles well studied, and are there models explaining it? &lt;/p&gt;&#xA;" OwnerUserId="96" LastEditorUserId="69" LastEditDate="2015-03-30T10:28:10.620" LastActivityDate="2015-03-30T13:29:00.747" Title="Is there a theory about investors' behaviour during bubbles?" Tags="&lt;asset-pricing&gt;&lt;investment&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="4890" PostTypeId="2" ParentId="4889" CreationDate="2015-03-29T23:02:16.993" Score="3" Body="&lt;h1&gt;The investor has erroneously overvalued the value of the stock/commodity. &lt;/h1&gt;&#xA;&#xA;&lt;p&gt;Here is a prominent paper that models irrational bubbles:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;This paper attempts to formalise herd behaviour or mutual mimetic&#xA;  contagion in speculative markets. The emergence of bubbles is&#xA;  explained as a self-organising process of infection among traders&#xA;  leading to equilibrium prices which deviate from fundamental values.&#xA;  It is postulated furthermore that the speculators' readiness to follow&#xA;  the crowd depends on one basic economic variable, namely actual&#xA;  returns. Above average returns are reflected in a generally more&#xA;  optimistic attitude that fosters the disposition to overtake others'&#xA;  bullish beliefs and vice versa. This economic influence makes bubbles&#xA;  transient phenomena and leads to repeated fluctuations around&#xA;  fundamental values.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Herd Behaviour, Bubbles and Crashes (&lt;a href=&quot;http://www.jstor.org/stable/2235156?seq=1#page_scan_tab_contents&quot; rel=&quot;nofollow&quot;&gt;Lux (1995)&lt;/a&gt;)&lt;/p&gt;&#xA;&#xA;&lt;h1&gt;The investor is aware that it's a bubble and is overvalued, but believes he can make a profit by selling before the bubble bursts. &lt;/h1&gt;&#xA;&#xA;&lt;p&gt;Bubbles, rational expectations and financial markets (&lt;a href=&quot;http://papers.ssrn.com/sol3/papers.cfm?abstract_id=226909&quot; rel=&quot;nofollow&quot;&gt;Blanchard and Watson (1982)&lt;/a&gt;) is a famous paper on this subject. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;This paper investigates the nature and the presence of bubbles in&#xA;  financial markets. Are bubbles consistent with rationality? If they&#xA;  are, do they, like Ponzi games, require the presence of new players&#xA;  forever? Do they imply impossible events in finite time, such as&#xA;  negative prices? Do they need to go on forever to be rational? Can&#xA;  they have real effects? These are some of the questions asked in the&#xA;  first three sections. The general conclusion is that bubbles, in many&#xA;  markets, are consistent with rationality, that phenomena such as&#xA;  runaway asset prices and market crashes are consistent with rational&#xA;  bubbles. In the last two sections, we consider whether the presence of&#xA;  bubbles in a particular market can be detected statistically. The task&#xA;  is much easier if there are data on both prices and returns. In this&#xA;  case, as shown by Shiller and Singleton, the hypothesis of no bubble&#xA;  implies restrictions on their joint distribution and can be tested. In&#xA;  markets in which returns are difficult to observe, possibly because of&#xA;  a nonpecuniary component, such as gold, the task is more difficult. We&#xA;  consider the use of both &quot;runs tests&quot; and &quot;tail tests&quot; and conclude&#xA;  that they give circumstantial evidence at best.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Here is another:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;We present a model in which an asset bubble can persist despite the&#xA;  presence of rational arbitrageurs. The resilience of the bubble stems&#xA;  from the inability of arbitrageurs to temporarily coordinate their&#xA;  selling strategies. This synchronization problem together with the&#xA;  individual incentive to time the market results in the persistence of&#xA;  bubbles over a substantial period. Since the derived trading&#xA;  equilibrium is unique, our model rationalizes the existence of bubbles&#xA;  in a strong sense. The model also provides a natural setting in which&#xA;  news events, by enabling synchronization, can have a disproportionate&#xA;  impact relative to their intrinsic informational content.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://Abreu1%20and%20Markus%20K.%20Brunnermeier&quot; rel=&quot;nofollow&quot;&gt;Abreu and Brunnermeier (2003)&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;h1&gt;[I]s investor behaviour during bubbles well studied, and are there models explaining it? &lt;/h1&gt;&#xA;&#xA;&lt;p&gt;Yes, this is a huge literature with probably thousands of papers and hundreds of books written about it. Here is a technical book on the subject:  &lt;a href=&quot;http://books.google.com/books?id=v5wpl6BenL4C&amp;amp;lpg=PT3&amp;amp;ots=CHdqpb0ZEQ&amp;amp;dq=Asset%20pricing%20under%20asymmetric%20information%3A%20Bubbles%2C%20crashes%2C%20technical%20analysis%2C%20and%20herding&amp;amp;lr&amp;amp;pg=PT10#v=onepage&amp;amp;q=Asset%20pricing%20under%20asymmetric%20information:%20Bubbles,%20crashes,%20technical%20analysis,%20and%20herding&amp;amp;f=false&quot; rel=&quot;nofollow&quot;&gt;Asset Pricing under Asymmetric Information: Bubbles, Crashes, Technical Analysis, and Herding&lt;/a&gt;,&#xA; These books are more historical than theoretical: &lt;a href=&quot;https://books.google.com/books?id=sVVdAQAAQBAJ&amp;amp;lpg=PP1&amp;amp;dq=bubbles%20financial&amp;amp;pg=PP1#v=onepage&amp;amp;q=bubbles%20financial&amp;amp;f=false&quot; rel=&quot;nofollow&quot;&gt;Manias, Panics and Crashes: A History of Financial Crises&lt;/a&gt;, &lt;a href=&quot;https://books.google.com/books?id=Iihe6s0XincC&amp;amp;lpg=PP1&amp;amp;dq=this%20time%20is%20different&amp;amp;pg=PP1#v=onepage&amp;amp;q=this%20time%20is%20different&amp;amp;f=false&quot; rel=&quot;nofollow&quot;&gt;This Time Is Different: Eight Centuries of Financial Folly&lt;/a&gt;, &lt;a href=&quot;https://books.google.com/books?id=_aIpBQAAQBAJ&amp;amp;lpg=PP1&amp;amp;dq=irrational%20exuberance&amp;amp;pg=PP1#v=onepage&amp;amp;q=irrational%20exuberance&amp;amp;f=false&quot; rel=&quot;nofollow&quot;&gt;Irrational Exuberance&lt;/a&gt;. &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-03-30T13:29:00.747" LastActivityDate="2015-03-30T13:29:00.747" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4891" PostTypeId="1" CreationDate="2015-03-30T00:55:08.243" Score="2" ViewCount="880" Body="&lt;p&gt;In Indonesia, petrol/gasoline price is regulated by the government and historically it is heavily subsidized. I know, economists typically consider fuel subsidy to be &lt;a href=&quot;http://freakonomics.com/2013/08/06/fuel-subsidies-the-worlds-dumbest-transportation-policy/&quot; rel=&quot;nofollow&quot;&gt;a bad policy&lt;/a&gt;, for many reasons, including: it appears to disproportionately favor the wealthy who have more cars.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, in Indonesia, fuel price seems to strongly affects other prices in general. I mean, when the government tries to reduce subsidy and increase the price, we will see prices of everyday stuff like food increase significantly. So, some people say increasing fuel price actually affect the poor the worst, because they barely have enough money to buy basic needs. The effect is so bad that such attempts to reduce subsidy are usually met with big protests by the general population. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some source:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://www.bloomberg.com/news/articles/2013-06-21/indonesia-raises-subsidized-fuel-prices-amid-riots&quot; rel=&quot;nofollow&quot;&gt;Jakarta Calm After Subsidized Fuel Prices Are Increased&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://www.channelnewsasia.com/news/business/indonesia-inflation-jumps/1563672.html&quot; rel=&quot;nofollow&quot;&gt;Indonesia inflation jumps after fuel price hike&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://www.irinnews.org/report/79469/indonesia-poor-hit-hard-as-fuel-prices-rise&quot; rel=&quot;nofollow&quot;&gt;INDONESIA: Poor hit hard as fuel prices rise&lt;/a&gt;.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I've lived in other countries where fuel price is determined by market and fluctuate freely (like say the US), but I don't see such phenomenon (e.g. grocery prices don't noticeably increase as much when gas price increase). Why?&lt;/p&gt;&#xA;" OwnerUserId="4297" LastActivityDate="2019-12-27T14:01:39.007" Title="In Indonesia, reducing fuel subsidy strongly impacts the price of everyday goods. Why?" Tags="&lt;fiscal-policy&gt;&lt;energy-economics&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4892" PostTypeId="2" ParentId="4891" CreationDate="2015-03-30T01:56:47.520" Score="5" Body="&lt;p&gt;Consumers rarely have to pay the full price of petrol / gasoline. That's true in most of the world, and the US is no exception. There are explicit subsidies and favourable tax regimes in many extraction countries; and of course there are the implicit subsidies in the unpriced pollution - oil's externalities.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Those explicit and implicit subsidies have been there for decades: and consequently, oil products are hugely over-used, compared to the alternatives: that's a direct consequence of oil being a product with demand that's not perfectly inelastic - indeed, &lt;a href=&quot;http://www.tandfonline.com/doi/pdf/10.1080/0144164042000181725&quot; rel=&quot;nofollow&quot;&gt;estimates of long-term price elasticity of demand for petrol are of a figure around -0.6 or so&lt;/a&gt;. That means that oil is embedded in large quantities in the supply chains for very many products.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The larger the historic subsidies, the bigger the impact of changes in subsidy levels to the price of other goods and services. And the poorer the population, the bigger the impact. That's why you see a bigger impact in Indonesia than in the US.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, although in the long run removing some of the subsidies will correct some of those imbalances, that will require capital reallocation and some industrial restructuring, all of which takes time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And although in the long run, rising prices of some products, in the absence of rising wages, will choke off demand for other products, leaving inflation at no net change, the short-term effect of rising oil prices is to raise the costs in a significant part of the supply chain for a lot of goods and services, given an instant boost to inflation. &lt;/p&gt;&#xA;" OwnerUserId="44" LastEditorUserId="44" LastEditDate="2015-03-30T11:18:01.567" LastActivityDate="2015-03-30T11:18:01.567" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="4893" PostTypeId="1" CreationDate="2015-03-30T13:06:52.563" Score="0" ViewCount="235" Body="&lt;p&gt;I am looking for Macro-Labor models that include deterioration of human capital. The mechanism is simple: The longer you were unemployed, the more human capital you are losing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, this is backward-looking: Your human capital today depends on the length of unemployment - i.e. the periods $t-1$, $t-2$, .... Hence, keeping track of this issue in a macroeconomic model appears to be nontrivial, and I am wondering how and whether the literature was dealing with this fact so far.&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-03-30T15:03:29.100" Title="Unemployment: Human Capital Deterioration" Tags="&lt;macroeconomics&gt;&lt;reference-request&gt;&lt;labor-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4894" PostTypeId="1" CreationDate="2015-03-30T13:41:16.453" Score="2" ViewCount="29" Body="&lt;p&gt;I am wondering how the consumption of the unemployed varies over the business cycle. We know that wages of people getting fired in busts are higher than wages of people in booms (&lt;a href=&quot;http://ftp.iza.org/dp6849.pdf&quot; rel=&quot;nofollow&quot;&gt;Mueller 2012&lt;/a&gt;), so there seems to be some variation in the &quot;unemployed&quot; sample over the business cycle. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This surely should have some consequences on consumption of unemployed people over the BC - are there stylized facts on that?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Im looking for stuff like&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;The longer the bust, the smaller average consumption of unemployed&lt;/li&gt;&#xA;&lt;li&gt;in busts, average consumption of unemployed smaller/larger than in booms&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-03-30T13:41:16.453" Title="Consumption of the unemployed" Tags="&lt;macroeconomics&gt;&lt;reference-request&gt;&lt;labor-economics&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4895" PostTypeId="2" ParentId="4862" CreationDate="2015-03-30T13:51:13.507" Score="4" Body="&lt;p&gt;There is a recent paper which may help you:&#xA;&lt;a href=&quot;http://link.springer.com/article/10.1007/s00199-015-0864-0&quot; rel=&quot;nofollow&quot;&gt;Games with strategic complements and substitutes&lt;/a&gt; (Monaco and Sabarwal (2015))&lt;/p&gt;&#xA;" OwnerUserId="4300" LastEditorUserId="69" LastEditDate="2015-03-30T14:56:19.033" LastActivityDate="2015-03-30T14:56:19.033" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4896" PostTypeId="2" ParentId="4893" CreationDate="2015-03-30T15:03:29.100" Score="2" Body="&lt;p&gt;I know nothing about this. But I entered &quot;unemployment human capital deterioration mortensen pissarides&quot; into Google Scholar and clicked the first link (Two Questions about European Unemployment, Ljungqvist and Sargent, Econometrica 2008) and Ljungqvist and Sargent just do the obvious thing.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Employed and unemployed workers experience stochastic accumulation or deterioration of skills, respectively. There is a finite number of skill levels with transition probabilities from skill level $h$ to $h'$ denoted by $\mu_u(h, h')$ and $\mu_e(h, h')$ for an unemployed and an employed worker, respectively. That is, an unemployed worker with skill level $h$ faces a probability $\mu_u(h, h')$ that his skill level at the beginning of the next period is $h'$, contingent on not retiring. Similarly, $\mu_e(h, h')$ is the probability that an employed worker with skill level $h$ sees his skill level change to $h'$ at the beginning of the next period, contingent on not being exogenously laid off. In the event of an exogenous layoff, the transition probability is $\mu_l(h, h')$. After the initial period coinciding with an exogenous layoff, the stochastic skill level of an unemployed worker is again governed by the transition probability $\mu_u(h, h')$. All newborn workers begin with the lowest skill level.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So this is at least one approach. Do you have a particular reason not to use a Markov chain?&lt;/p&gt;&#xA;" OwnerUserId="2917" LastActivityDate="2015-03-30T15:03:29.100" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4897" PostTypeId="1" CreationDate="2015-03-30T15:17:59.633" Score="7" ViewCount="493" Body="&lt;p&gt;First question here.  I am not an economist by training, but I do quite a bit of econometric analysis in my job (my background is maths).  I often get asked about elasticity, and I am familiar with several different ways of calculating elasticity.  My question is this: in the price-volume relationship for elasticity, does it make sense to ask about elasticity for individual customers, or is elasticity properly understood to be an aggregate (market) concept.  Is it possible to build an elasticity model for individual customers.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For clarification, these customer typically purchase thousands of units every month (these are B2B sales, not B2C).  Or is there something fundamental about elasticity that makes it intrinsically aggregate.  I have seen some discussion in the literature about individual customer elasticity, but the literature seems to be fairly sparse, so I am not sure how much to trust it.&lt;/p&gt;&#xA;" OwnerUserId="4301" LastActivityDate="2015-03-31T12:12:34.883" Title="Is elasticity purely an aggregate concept or can it be individualized" Tags="&lt;microeconomics&gt;&lt;elasticity&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4898" PostTypeId="2" ParentId="4886" CreationDate="2015-03-30T15:18:44.967" Score="3" Body="&lt;p&gt;People aren't ignoring things like raw material, energy, and land, they're abstracting them. They're saying, &quot;We don't want to keep track of each of these separately, so we'll say that for our purposes, as an input to production, they're all really the same thing: capital.&quot; Whether that level of abstraction is appropriate for a specific problem can be questioned, and it is, and people come up with other models that refine the abstraction. For an example of this, which goes to your second question, rather than shovel all &quot;technology&quot; into either the production function itself or an investment which is reflected in capital, you can claim there is &quot;labor augmenting technology&quot;, and that appears as a coefficient of the labor input- instead of y = f(K, L), you have y = f(K, AL). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;When you talk about &quot;disentangling&quot; the parts of a production function, you have to be careful not to put something back into the problem that wasn't there when the abstraction was made, otherwise, you've changed your problem. To take your Pentium example, if you've made a model that includes a labor augmenting coefficient, you might want to put it there, otherwise, you might want to put that in capital, as an investment the firm has made. Although the production function represents &quot;technology&quot;, the worker is still using the same basic production process, so it doesn't seem to belong there. But what you can't do is put it directly in labor, if you haven't allowed labor to be directly affected by technology. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The point is, however you claim it affects output, you have to make sure the abstractions you've made support it as an input. &lt;/p&gt;&#xA;" OwnerUserId="4151" LastActivityDate="2015-03-30T15:18:44.967" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4899" PostTypeId="1" AcceptedAnswerId="4901" CreationDate="2015-03-30T15:41:51.677" Score="2" ViewCount="270" Body="&lt;p&gt;So, at work we are doing a charity bake sale.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lunch hour is long gone. An email was sent out offering everything at half price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I imagine decreased demand as everyone knows they have to get rid of it all by the end of the day, therefor everyone will expect the price to decrease further, therefor people will not buy due to the expectation of lower prices when an item is only of value for a finite amount of time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there an economic term to describe this situation?&lt;/p&gt;&#xA;" OwnerUserId="4302" LastEditorUserId="61" LastEditDate="2015-03-31T12:27:10.140" LastActivityDate="2015-03-31T12:51:28.207" Title="Is there an economic term for decreased demand due to expected decrease in price due to a product's value lasting for a finite amount of time" Tags="&lt;microeconomics&gt;&lt;supply-and-demand&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="4900" PostTypeId="1" CreationDate="2015-03-30T17:52:06.927" Score="2" ViewCount="62" Body="&lt;p&gt;Let $F(p)$ denote the distribution of prices in a market, $\pi(p, F)$ are profits choosing $p$ given distribution $F$. $E\pi(p,F)$ is defined to be&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ E \pi(p, F) = R(p) \psi(p, F)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $R(p) = p D(p)$ is the revenue per customer, and $\psi(p, F)$ denotes the expected share of customers that a seller with price $p$, given distribution $F$ will face.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Definition (2.1)&lt;/strong&gt; in &lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/0167718794004749&quot; rel=&quot;nofollow&quot;&gt;Stahl (1996)&lt;/a&gt; (just below eq. 2.3) defines the symmetric Nash equilibrium as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ E \pi(p,F) \leq \max_p p E \pi(p, F) \, \forall p$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is why $(2.1)$ is defined as such? I would have thought that a Nash equilibrium requires choice being optimal, hence no incentive to change profits:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ E \pi(p,F) \leq \max_p E \pi(p,F) \, \forall p$$&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="61" LastEditDate="2015-03-31T08:27:58.020" LastActivityDate="2015-03-31T08:27:58.020" Title="Symmetric Nash Equilibrium in Stahl (1996)" Tags="&lt;game-theory&gt;&lt;industrial-organisation&gt;&lt;nash-equilibrium&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="4901" PostTypeId="2" ParentId="4899" CreationDate="2015-03-30T19:03:22.367" Score="5" Body="&lt;p&gt;You are describing a market where a &quot;non-storable&quot; (or &quot;perishable&quot;) good is traded. This is &lt;em&gt;the&lt;/em&gt; (in terms of historical precedent) model of a market, since in the old days, most goods were agricultural, and many amongst them were &quot;non-storable&quot;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The argument behind &quot;market clearing&quot;, i.e. that prices will adjust so that all quantity available will be sold, owes a lot to the goods being non-storable. You can observe this today in the so-called &quot;farmer's markets&quot;, where if you monitor a day of trading, you will observe that prices go down as the day nears to an end, as suppliers attempt to sell all their quantity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why some consumers nevertheless buy early on and so at higher prices, even though they know that later on prices will go down, has to do with  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;a) constraints imposed on the consumer schedule (say, he &lt;em&gt;has&lt;/em&gt; to buy early because he has to prepare lunch), and/or  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;b) quality considerations: early on the suppliers may give you more room to &quot;pick and choose&quot; item per item, or  they themselves will offer the better quality, to justify the higher price. It may be the case that some consumers have a lexicographic preference over a certain threshold of quality, which they expect it won't be around at the end of the day when prices will fall.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand, some consumers will hold on, given their constraints/preferences. As you can see, the phenomenon of &lt;em&gt;all&lt;/em&gt; consumers waiting till &quot;the last minute&quot; presuposes a situation were the consumers are perfectly &quot;flexible&quot;, and the quality of the good does not deteriorate with time, but the good looses all its &quot;good-properties&quot;, instantly, at the end of its &quot;useful life&quot;. In reality quality erodes gradually, in almost all cases.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-03-31T12:51:28.207" LastActivityDate="2015-03-31T12:51:28.207" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="4902" PostTypeId="2" ParentId="4897" CreationDate="2015-03-30T20:22:27.543" Score="1" Body="&lt;p&gt;It has been a while but if I remember correctly the elasticity can be measured on the level of one individual consumer. In fact, to simplify things, we started out with demand functions of customer A and customer B to compare elasticity. That might as well have been customer group A and customer group B. To make the elasticity statistical relevant you will need a big enough datapool to define the demand function. So if you are working with B2B that works with units by the thousands and you have got a big enough dataset it should be very well acceptable that you would calculate elasticity for one individual customer.&lt;/p&gt;&#xA;" OwnerUserId="4305" LastActivityDate="2015-03-30T20:22:27.543" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4904" PostTypeId="1" CreationDate="2015-03-30T22:13:16.167" Score="4" ViewCount="59" Body="&lt;p&gt;Bloom (2009) analyzes the impact of &lt;em&gt;uncertainty shocks&lt;/em&gt;, and Bloom et al (2014) propose a business cycle model based on these shocks.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems to be a young field, but is there any consensus on strength and weaknesses of this new shock? Is it the answer to some puzzles such as the risk premium puzzle? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is the opinion of the literature about this field, and is there already a handbook chapter on this?&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-04-01T14:52:32.513" Title="What's the status on uncertainty shocks?" Tags="&lt;academic-graduate&gt;&lt;reference-request&gt;&lt;uncertainty&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="4906" PostTypeId="2" ParentId="4897" CreationDate="2015-03-31T04:32:18.220" Score="7" Body="&lt;p&gt;In theory, the elasticity quantifies in proportional terms the &quot;reaction&quot; of the dependent variable to a change of the independent variable, where the two are related through a functional relationship. So the concept is universal and mathematical -it applies to any univariate function, and not only in the field of Economics (when we have a multivariate function, then partial elasticities can be defined and used, but they face some constraints). So there is nothing &quot;intrinsically aggregate&quot; about the concept. In its theoretical conceptualization. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But in order to estimate/calculate the elasticity of any function, we must have the function in the first place. So the question boils down to &lt;strong&gt;&quot;Can we obtain an individual demand function?&quot;&lt;/strong&gt;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It would appear that the matter is only one of data availability. If we somehow could have data on many transactions of the same individual related to the same good, then we could use these data points (price, quantity) =$\{(p_1,q_1),...,(p_n,q_n)\}$,  in order to approximate its demand function... and we would probably be mistaken.&lt;br&gt;&#xA;And this is because these points &lt;em&gt;&lt;strong&gt;do not necessarily represent movements along the individual demand schedule&lt;/strong&gt;&lt;/em&gt;. They are &lt;em&gt;equilibrium&lt;/em&gt; points, points reflecting &lt;em&gt;not&lt;/em&gt; the preferences of the individual alone, but their &quot;crossing&quot; with the supplier's behavior. Only if we could be reasonably certain that for a given set of transaction data, the demand schedule have not shifted (due to say, income effects), we could then use these data to estimate the demand function (by the way at market level, this is the classic endogeneity problem: using market outcomes to estimate a relation we estimate neither market demand, nor market supply, but rather the locus of market equilibrium points).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So while realized transactions possess the strong element of &quot;truth&quot; (the individual did actually bought such quantity at such price), they do not necessarily reveal to us his demand function.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In your case, if you can have other data on the buyer, especially in order to assess any possible &quot;income effects&quot; (for the case you are examining, that would be turnover and/or profit data for a company), you could combine them with its purchases from you to arrive at an elasticity estimation (there are also possible issues with substitution effects, but for them you will have to have data on what your customer purchases from your competitors). Is it a listed company? If it is, I guess you can find quarterly Financial Statements over the web (meaning that you will have to transform the data on purchases to quarterly too). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This could take the form of a multiple regression model&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$E(\ln q_i) = \beta_0 + \beta_1\ln s_i + \beta_2\ln p_i, i=1,...,n$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $q_i=$ quantity purchased in period $i$ (month or quarter), $s_i$ would be the turnover of the customer (assumption = if the customer sells more to its customers, he purchases more from me), and $p_i=$ average price of $q_i$. One could also include Customer's profit data as an additional regressor, in order to control for their possible effect on purchases from us. And of course, any other regressor that you think can have an effect on the purchasing decisions of the customer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The use of natural logarithms, means that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\hat \beta_2 = \frac {\partial E(\ln Q_i)}{\partial \ln P_i} \approx \eta_{q,p}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;i.e. it is the estimate of the price elasticity of demand. The above model assumes a demand function that is characterized by a &lt;em&gt;constant&lt;/em&gt; price elasticity. You can make it more complex or even non-linear, if you suspect that the elasticity of demand in your case may vary.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-03-31T12:12:34.883" LastActivityDate="2015-03-31T12:12:34.883" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4907" PostTypeId="1" CreationDate="2015-03-31T06:40:49.470" Score="3" ViewCount="102" Body="&lt;p&gt;Does anyone know where I can find data regarding the median income of college graduates by county in the US? Can't seem to find it searching through the census website. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The goal here is to obtain an opportunity cost basis to explore geographic wage differences in one field. I will be taking a ratio of field wage to this median income data. It would be more meaningful if I could find estimates of median income by educational attainment, rather than just general population data.&lt;/p&gt;&#xA;" OwnerUserId="4310" LastActivityDate="2015-03-31T13:57:09.073" Title="Where can I find County level income data for college graduates?" Tags="&lt;data-request&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4908" PostTypeId="1" CreationDate="2015-03-31T11:01:45.777" Score="1" ViewCount="38" Body="&lt;p&gt;Let $G$ be a finite, symmetric, congestion game. According to Nash theorem, a (mixed) symmetric equilibrium surely exists. Congestion games also known to admit pure-strategies Nash equilibrium as they are exact potential games.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;I was wondering if a symmetric (i.e. one in which all players play a strategy with the same probability) can yield higher social-welfare (sum of payoffs for the players) than any other equilibrium for the game.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The intuition is that if all players are using the same elements, this has to incur higher cost than if they partition across multiple actions, as the payoff per player depends directly on the number of players using the same elements.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Also, is there always a single symmetric equilibrium for congestion games?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="348" LastActivityDate="2015-03-31T11:01:45.777" Title="Is the symmetric equiblirium in congesstion games always inferior in terms of social-welfare?" Tags="&lt;game-theory&gt;&lt;nash-equilibrium&gt;&lt;congestion-games&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4909" PostTypeId="2" ParentId="4907" CreationDate="2015-03-31T13:57:09.073" Score="2" Body="&lt;p&gt;Try looking at the &lt;a href=&quot;http://www.census.gov/cps/data/&quot; rel=&quot;nofollow&quot;&gt;Current Population Survey&lt;/a&gt;. Using a tool like DataFerret you can find education (PEEDUCA) and income (HUFAMINC), along with the county code. That gives you the micro data, finding median income by education level can then be done in your statistics package of choice. &lt;/p&gt;&#xA;" OwnerUserId="4177" LastActivityDate="2015-03-31T13:57:09.073" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4910" PostTypeId="1" CreationDate="2015-03-31T15:03:53.277" Score="3" ViewCount="50" Body="&lt;p&gt;&lt;strong&gt;Q : Can the tools of mechanism design be applied when the set of feasible decisions &lt;span class=&quot;math-container&quot;&gt;$D$&lt;/span&gt; depends on the types &lt;span class=&quot;math-container&quot;&gt;$\theta$&lt;/span&gt;?&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;p&gt;For example, when &lt;span class=&quot;math-container&quot;&gt;$d \in D$&lt;/span&gt; represents the total funding allocated toward some good and &lt;span class=&quot;math-container&quot;&gt;$\theta_i$&lt;/span&gt; represents the funds &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; has available, &lt;span class=&quot;math-container&quot;&gt;$D = \{ d | 0 &amp;lt; d &amp;lt; \sum\limits_i\theta_i\}$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;p&gt;&lt;strong&gt;Q : If not, is there some other approach that analyzes this sort of scenario?&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="4311" LastEditorUserId="11590" LastEditDate="2020-12-23T16:20:40.197" LastActivityDate="2020-12-23T16:20:40.197" Title="Mechanism design when the set of feasible decisions depends on types" Tags="&lt;game-theory&gt;&lt;mechanism-design&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="4912" PostTypeId="2" ParentId="4868" CreationDate="2015-04-01T02:55:06.327" Score="1" Body="&lt;p&gt;The Unit of Measurement keeps growing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Prices are measured using money, and the total quantity of money in the economy is continuously growing due to the operation of the banking system, as you can see here for the USA:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://research.stlouisfed.org/fred2/series/DPSACBM027NBOG&quot; rel=&quot;nofollow&quot;&gt;US Money Supply (Bank Deposits)&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a consequence, so are any and all statistics that rely on any form of monetary derived data, such as share prices.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Stock indexes not only make no correction for this, but also suffer from &quot;survivor bias&quot; as less successful companies are removed from the index. Other economic statistics make a partial but inadequate correction by factoring in the inflation rate - however, this doesn't account for changes in production which also influence price. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The correct way to handle price data mathematically would be to normalise it for the growth in the money supply, which would at least remove the 'known' unknowns. If you do that however, a lot of economic statistics start looking very different. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;On a personal finance note, it can be useful to know the monetary expansion rate for whatever country you're living in (it varies), since it makes it much easier to make sense of comparisons of price related data between different periods.&lt;/p&gt;&#xA;" OwnerUserId="84" LastEditorUserId="84" LastEditDate="2015-04-01T13:37:36.253" LastActivityDate="2015-04-01T13:37:36.253" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="4913" PostTypeId="1" CreationDate="2015-04-01T04:54:53.837" Score="13" ViewCount="76767" Body="&lt;p&gt;Wikipedia states:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;&lt;strong&gt;Exogenous Preference&lt;/strong&gt; -- one that comes from outside the model and is unexplained by the model.&lt;/p&gt;&#xA;&lt;p&gt;&lt;strong&gt;Endogenous Preference&lt;/strong&gt; -- preferences then cannot be taken as given, but are affected by individual internal responses to the external state of affairs.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Can someone clarify what these two terms mean? Specifically, what does it mean to be &amp;quot;inside&amp;quot; (or internal) or &amp;quot;outside&amp;quot; (or external) of a model?&lt;/p&gt;&#xA;" OwnerUserId="2679" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2019-03-06T16:17:53.087" Title="What is the definition of exogenous and endogenous preferences?" Tags="&lt;preferences&gt;" AnswerCount="4" CommentCount="2" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="4914" PostTypeId="1" CreationDate="2015-04-01T05:00:14.643" Score="6" ViewCount="920" Body="&lt;p&gt;What is the basis for interest rate parity to hold?&#xA;I know, the reason stated is excess returns&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Excess returns as such should not be the reason for a currency depreciation. for e.g. when we posit that forward rate converge to the spot rates over time and back by arbitrage argument it is actually because forward prices, if less than spot prices, would result in an increase in the demand for forwards and subsequently increase its price. (talking about long positions here). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence, in relation to interest rate parity, excess returns(which is wrongly stated sometimees as arbitrage) should put downward pressure on the interest rates. (you keep investing more and more money in a bank at a given rate obviously it cant keep it up and has to lower the rates, also it now has a lot of reserves so it wants to lend again leading to lowered rates) why it should affect the exchange rate beats me.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To the contrary a high interest rate(say of country A) should put upward pressure on exchange rates(foreign/home); People want to invest more into A's banks so they convert more foreign currency to A and hence the A's currency should appreciate&lt;/p&gt;&#xA;" OwnerUserId="4316" LastActivityDate="2016-01-25T02:38:33.413" Title="Interest rate parity: Counter intuitive" Tags="&lt;exchange-rates&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="4915" PostTypeId="1" AcceptedAnswerId="5471" CreationDate="2015-04-01T09:16:53.600" Score="4" ViewCount="188" Body="&lt;p&gt;What would happen if every person in the world pulled their money out of their bank accounts?&lt;/p&gt;&#xA;" OwnerUserId="4318" LastEditorUserId="43" LastEditDate="2015-04-01T14:25:33.377" LastActivityDate="2015-05-03T07:16:01.197" Title="If all Banks in the world are emptied..?" Tags="&lt;monetary-policy&gt;&lt;banking&gt;" AnswerCount="3" CommentCount="2" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="4916" PostTypeId="2" ParentId="4914" CreationDate="2015-04-01T11:16:19.523" Score="5" Body="&lt;p&gt;In your last paragraph you write &quot;high interest rate in Country A&quot;. There is no such thing. There is &lt;em&gt;higher&lt;/em&gt; interest rate, per some given criterion. Say higher than historical average. In out case, it is &quot;higher interest rate in Country A compared to the interest rate in Country B&quot;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So &lt;strong&gt;your last paragraph&lt;/strong&gt; says that if returns (from nominal interest rates) in Country A are higher than returns (from nominal interest rates) in Country B, that would put upward pressure to the exchange rate (units of currency B per one unit of currency A): people will demand more currency A, etc. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now a different but equivalent  way to say &quot;higher returns in A than in B&quot; is &quot;excess returns&quot;, &lt;em&gt;in the specific context we are talking about&lt;/em&gt;. Of course the term &quot;excess returns&quot; is very general and can be used in any situation. Sometimes it may used to mean &quot;abnormal&quot; returns (in some sense and again compared to some base). But in the specific situation we are talking, it has the exact same meaning with &quot;higher returns from nominal interest rates in Country A compared to returns (from nominal interest rates) in Country B&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So moving to &lt;strong&gt;your penultimate paragraph&lt;/strong&gt; you say that &quot;if returns in A are higher than returns in B, that should put downward pressure on the interest rates in country A (because funds flow in), and it should leave the exchange rate unaffected&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Although there is logic to the mid-term effect of an increase in the flow-in of funds, still it appears that your last paragraph already answers the question &quot;why should exchange rate be affected?&quot;, stated  in your penultimate paragraph.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;ADDEDNUM&lt;/strong&gt;&lt;br&gt;&#xA;Responding to the OP's comment, let's write the Uncovered Interest Rate Parity expression&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$(1+i_{A,t}) = \frac {S^e_{A|B, t+1}}{S_{A|B, t}} (1+i_{B,t})$$&#xA;where $S_{A|B}=$ &lt;strong&gt;units of currency A per unit of currency B&lt;/strong&gt;.&#xA;This is the claim.  The numerator is the expected future exchange rate&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume that $i_{A,t} &amp;gt; i_{B,t}$. Standard economic logic (and a few assumptions on ability to invest over borders), says that then investors would want to invest in country A. To do that they will increase demand for currency A. This should lead to &lt;em&gt;appreciation&lt;/em&gt; of currency A. Does the UIRP say something like that?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If $$i_{A,t} &amp;gt; i_{B,t} \implies 1+i_{A,t} &amp;gt; 1+i_{B,t}$$&#xA;and so the UIRP asserts that we must have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {S^e_{A|B, t+1}}{S_{A|B, t}} &amp;gt; 1 \implies S^e_{A|B, t+1} &amp;gt; S_{A|B, t}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given how $S$ was defined the last inequality means that &lt;em&gt;we expect that the currency will depreciate&lt;/em&gt;. Indeed, &lt;em&gt;in the future&lt;/em&gt;. Because, &lt;em&gt;what is affected in the first place by the reaction of the investors is $S_{A|B, t}$, &lt;strong&gt;not&lt;/strong&gt; $S^e_{A|B, t+1}$&lt;/em&gt;. The reaction of the investors will &lt;em&gt;decrease&lt;/em&gt; $S_{A|B, t}$ (which reflects the appreciation of currency A), creating expectations of future depreciation, i.e. leading to $S^e_{A|B, t+1} &amp;gt; S_{A|B, t}$, as the UIRP asserts. &lt;em&gt;Why&lt;/em&gt; should we expect depreciation of currency A in the future, compared to the present? Because the inflow of funds in country A will eventually pressure $i_{A,t}$ downwards, as the OP remarked, investors will stop loving currency A so much, demand for it will fall, hence depreciation.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The UIRP therefore compacts &lt;em&gt;two&lt;/em&gt; effects from a discrepancy in interest rates: a first effect of currency appreciation and a second (expected) effect of currency depreciation in the future.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2016-01-25T02:38:33.413" LastActivityDate="2016-01-25T02:38:33.413" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="4917" PostTypeId="2" ParentId="4915" CreationDate="2015-04-01T12:36:47.687" Score="1" Body="&lt;p&gt;The thing with these economics questions that never happened empirically is always the same: nobody really knows.&#xA;Befor Creditanstalt 1931 nobody thought that a bank can go bancrupt, during BrettonWoods/Goldstandard freely floating exchange rates were sought of being detrimental and dumb....&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But in theory everything should collapse due to our fractional reserve system that requires banks to have a certain amount of money stored in their books for every granted loan.&#xA;But thats not going to happen because centralbanks would intervene and convince people that they are going to do anything to keep the banking system working. If the CB is able to make a trustworthy commitment that should work. Because a rational individual should have no incentive to have so much cash... The costs of carrying so much money are simply too high...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Once there was this Eric Canton attempt....&lt;/p&gt;&#xA;" OwnerUserId="4087" LastActivityDate="2015-04-01T12:36:47.687" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="4918" PostTypeId="2" ParentId="4913" CreationDate="2015-04-01T12:42:52.240" Score="4" Body="&lt;p&gt;The inside/internal/endogenous thing simply means that you have something inside your model that determines the value of this specific value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To put it differently: the model structure (e.g. its underlying equation) + the exogenous variables you throw into your model determine the endogenous variable.&lt;/p&gt;&#xA;" OwnerUserId="4087" LastActivityDate="2015-04-01T12:42:52.240" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4919" PostTypeId="2" ParentId="4904" CreationDate="2015-04-01T14:52:32.513" Score="1" Body="&lt;p&gt;Macroeconomic Uncertainty and Expected Stock Returns is a recent paper (&lt;a href=&quot;http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2407279&quot; rel=&quot;nofollow&quot;&gt;Bali, Brown, and Tang (2015)&lt;/a&gt;) finds an economically important effect on uncertainty on returns. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;This paper introduces a broad index of macroeconomic uncertainty based&#xA;  on ex-ante measures of cross-sectional dispersion in economic&#xA;  forecasts by the Survey of Professional Forecasters. We estimate&#xA;  individual stock exposure to a newly proposed measure of economic&#xA;  uncertainty index and find that the resulting uncertainty beta&#xA;  predicts a significant proportion of the cross-sectional dispersion in&#xA;  stock returns. After controlling for a large set of stock&#xA;  characteristics and risk factors, we find the predicted negative&#xA;  relation between uncertainty beta and future stock returns remains&#xA;  economically and statistically significant. The significantly negative&#xA;  uncertainty premium is robust to alternative measures of uncertainty&#xA;  index and distinct from the negative market volatility risk premium&#xA;  identified by earlier studies.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Dynamic co-movements of stock market returns, implied volatility and policy uncertainty (&lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/S0165176513001754&quot; rel=&quot;nofollow&quot;&gt;Antonakakisa, Chatziantonioua, and Filisb (2013)&lt;/a&gt;) finds that policy uncertainty, as measured by &lt;a href=&quot;http://www.policyuncertainty.com/media/BakerBloomDavis.pdf&quot; rel=&quot;nofollow&quot;&gt;Baker, Bloom, and Davis (2013)&lt;/a&gt;, has an unconditional correlation with the Vix of about 0.43. But using a DCC_Garch they find episodes when this correlation was negative, which may be surprising. &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2015-04-01T14:52:32.513" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4920" PostTypeId="1" AcceptedAnswerId="4921" CreationDate="2015-04-01T21:01:42.783" Score="4" ViewCount="1086" Body="&lt;p&gt;India has 4x the population, less land, and far worse technology and infrastructure than the United States. Shouldn't food cost in the US be less expensive? I've never been to India, but it seems like food costs far less there from what I see on TV (10 cents a meal). Why is this? &lt;/p&gt;&#xA;" OwnerUserId="4324" LastActivityDate="2015-04-02T14:42:02.193" Title="Why is food less expensive in India than the United States?" Tags="&lt;supply-and-demand&gt;&lt;markets&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="4921" PostTypeId="2" ParentId="4920" CreationDate="2015-04-01T21:22:06.380" Score="2" Body="&lt;p&gt;I think your intuition is right that food is cheap there. The Economist Big Mac price index suggests that &lt;a href=&quot;http://www.economist.com/content/big-mac-index/&quot; rel=&quot;nofollow noreferrer&quot;&gt;India has some of the cheapest big macs in the world&lt;/a&gt;. More generally, the index indicates that there is a strong relationship between GDP per capita (a proxy for labor costs) and Big Mac prices:&#xA;&lt;img src=&quot;https://i.stack.imgur.com/vIMpM.png&quot; alt=&quot;Big MaC index April 2015&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Labor is a significant part of the costs of making food (&lt;a href=&quot;http://smallbusiness.chron.com/common-food-labor-cost-percentages-14700.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;25-35 percent in America&lt;/a&gt;). Transportation is a significant part of the cost of food grown far away (&lt;a href=&quot;http://data.worldbank.org/indicator/IC.EXP.COST.CD&quot; rel=&quot;nofollow noreferrer&quot;&gt;world bank data indicates that even exports fees alone can be substantial&lt;/a&gt;). But when food is grown locally and prepared locally, the total costs are significantly determined by local labor costs. In addtion, Indian restaurants probably also serves much smaller portions than in rich countries, particularly the United States. They may also make use of less expensive ingredients generally, more stables and seasonal vegetables and less dairy and meat.   &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-04-02T14:42:02.193" LastActivityDate="2015-04-02T14:42:02.193" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="4922" PostTypeId="1" CreationDate="2015-04-02T03:16:12.257" Score="4" ViewCount="105" Body="&lt;p&gt;If the yield curve for zero coupon bonds is decreasing does it mean (in general)&#xA;that investors are thinking that country's economy has gloomy future? Or unpredictable?&lt;/p&gt;&#xA;" OwnerUserId="4325" LastEditorUserId="43" LastEditDate="2015-04-05T15:54:44.630" LastActivityDate="2018-11-02T04:01:41.117" Title="Decreasing Yield Curve: Infer expected future trend?" Tags="&lt;interest-rate&gt;" AnswerCount="0" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4924" PostTypeId="1" AcceptedAnswerId="4925" CreationDate="2015-04-02T03:26:21.490" Score="2" ViewCount="73" Body="&lt;p&gt;Hello in a simple treatment model &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$y=\beta_0+\beta_1w+e$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $w$ is unity for treatment by group.  Should you add dummies for the groups to control for differences. I read somewhere that you should never but I cannot remember where or why.&lt;/p&gt;&#xA;" OwnerUserId="4326" LastEditorUserId="61" LastEditDate="2015-04-02T03:31:26.957" LastActivityDate="2015-04-02T04:44:05.087" Title="Fixed effects in treatment model" Tags="&lt;econometrics&gt;&lt;fixed-effects&gt;" AnswerCount="1" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4925" PostTypeId="2" ParentId="4924" CreationDate="2015-04-02T04:16:06.080" Score="1" Body="&lt;p&gt;This sounds like the standard &quot;drop one dummy&quot; requirement when binary characteristics are included in linear regression - because otherwise, we will get perfect mutlicollinearity and no-solution.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume you have three subgroups, separated by age: &lt;strong&gt;Y&lt;/strong&gt;(oung), &lt;strong&gt;A&lt;/strong&gt;(dult), &lt;strong&gt;O&lt;/strong&gt;(ld). You have reasons to believe that the effect of the treatment correlates with age-group, and you want to control for this association. If you include three dummies in the regression to that effect, you will create perfect mutlicollinearity - because if you sum these three columns of the regresor matrix row-by-row, you will get a series of Ones, which is already present in the matrix, since there exists already a constant term and so a regressor that consists of a series of Ones.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In such cases, we exclude from the regressor matrix any one of the three control dummies (for many reasons it is &lt;em&gt;not&lt;/em&gt; a good idea to drop the constant term instead of one of the dummies). &#xA;This has the effect that the interpretation of the results becomes conditional on the group whose dummy we excluded: if say we specify&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$y=\beta_0+\beta_1w + \gamma_1A + \gamma_2O+e$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;then $\gamma_1$ measures &lt;em&gt;how much &lt;strong&gt;more&lt;/strong&gt;&lt;/em&gt; (or less, if negative) being Adult affects the outcome, compared to being Young, and $\gamma_2$ analogously for Old.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Situations of perfect (or near) multicollinearity may nevertheless occur even in this approach, depending also on the nature and distribution of values of the dependent variable. If the dependent variable is also binary, such possibilities increase, since we may have phenomena of &quot;complete separation/perfect prediction&quot; and the like.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In general, including controls in treatment regressions is a standard approach, and very reasonable. Including &lt;em&gt;dummies&lt;/em&gt; as controls, may have the above mentioned complications.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-04-02T04:44:05.087" LastActivityDate="2015-04-02T04:44:05.087" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="4927" PostTypeId="1" CreationDate="2015-04-02T07:29:58.450" Score="2" ViewCount="177" Body="&lt;p&gt;&lt;strong&gt;Two commodities, X and Y, are produced with identical technology and are &#xA;sold in competitive markets. One unit of labour can produce one unit of each of &#xA;the two commodities. Labour is the only factor of production; and labour is &#xA;perfectly mobile between the two sectors. The representative consumer has the &#xA;utility function: U = XY ; and his income is Rs. 100/-. If 10 units of labour are &#xA;available, find out the equilibrium wage in the competitive labour market.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Please tell me if I am going wrong.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My attempt: Solving the consumer's utility maximization problem, I have the demands $$x(p_x)=\frac{50}{p_x},\ y(p_y)=\frac{50}{p_y}.$$ The firm has same production functions for both X and Y: $x=y=f(l)$. Since one unit of labour produces one unit each of X and Y, we consider $f(l)=l.$ Therefore the firm operates with a profit function $$\pi=P_xl+P_yl-wl,$$ producing $l$ units of X and Y respectively. Here, $w$ is the wage in the competitive labour market and $P_x, P_y$ are the respective equilibrium market prices. Since $(l,P_x)$ and $(l,P_y)$ must lie on the respective demand curves, we get $l=\frac{50}{P_x}=\frac{50}{P_y}$. Since the competitive firm makes zero profits, $\pi=100-wl=0.$ If 10 units of labour are available, the equilibrium wage is $w=100/10=10.$ The equilibrium market prices for X and Y are $P_x=P_y=5$.&lt;/p&gt;&#xA;" OwnerUserId="2763" LastActivityDate="2015-04-02T07:29:58.450" Title="undergrad Producer theory problem" Tags="&lt;microeconomics&gt;&lt;producer-theory&gt;" AnswerCount="0" CommentCount="2" ClosedDate="2018-01-03T14:12:51.357" ContentLicense="CC BY-SA 3.0" />
  <row Id="4928" PostTypeId="2" ParentId="1659" CreationDate="2015-04-02T11:11:22.290" Score="0" Body="&lt;p&gt;I found an additional series. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is a series Nonfarm Housing Starts (&lt;a href=&quot;http://research.stlouisfed.org/fred2/series/HOUSTNF&quot; rel=&quot;nofollow&quot;&gt;HOUSTNF on FRED&lt;/a&gt;) that runs monthly from 1946-01-01 to 1969-12-01. There is about 10 years of overlap with the new series Housing Starts: Total: New Privately Owned Housing Units Started (&lt;a href=&quot;https://research.stlouisfed.org/fred2/series/HOUST&quot; rel=&quot;nofollow&quot;&gt;HOUST on FRED&lt;/a&gt;). These series have a correlation coefficient of over 95 percent in their overlapping period. &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2015-04-02T11:11:22.290" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4929" PostTypeId="1" AcceptedAnswerId="5071" CreationDate="2015-04-02T16:20:38.863" Score="4" ViewCount="7524" Body="&lt;p&gt;I am reading the book &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/1441979603&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;Benchmarking with DEA, SFA, and R&lt;/em&gt; by Bogetoft and Otto&lt;/a&gt;. In Section 4.8 they discuss the concept of scale efficiency, and I am having trouble interpreting this concept.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The usual output of Data Envelopment Analysis (DEA) is a collection of efficiency scores. If we consider the input efficiency scores, then these scores represent the fraction of a firm's current costs which should, in principle, be able to be used to produce a firm's current output. Thus when a firm is judged as inefficient, a reasonable reaction might be to reduce costs and focus on making internal practices more efficient. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;When investigating scale efficiency, one compares two different DEA outputs: one using the assumption of constant returns to scale, and the other using varying returns to scale. This expresses whether a firm is operating at it's &quot;optimal size.&quot; If it is not, then using further comparisons of DEA outputs (using increasing or decreasing returns to scale) it is possible to see whether the firm is &quot;too large&quot; or &quot;too small.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;While the concept of scale efficiency makes sense to me intuitively, I don't see how the practical response to a scale efficiency analysis is any different from the response to the usual DEA efficiency analysis. For example, suppose we do a DEA input efficiency analysis and find that a firm is inefficient. Then the practical response is to reduce the budget and focus on making internal practices efficient. Suppose now instead that a firm is found to be scale inefficient. The practical response again seems to be to reduce costs and focus on making internal practices more efficient... but what exactly are the proposed gains? With the original DEA analysis we had some estimate of how much we could reduce costs and keep the same level of production. But with a scale efficiency analysis, how much production should expect to keep up given the reduction in the size? Should we expect a proportional reduction in production as well? If so, what is the advantage of downsizing?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, there is the somewhat more confusing case (whose interpretation may help me to make sense of all this) where a firm is judged to be maximally input efficient (i.e. is assigned a score of 1 by the DEA) but is not scale efficient. What is the practical response to this case?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Cross posted at Cross Validated: &lt;a href=&quot;https://stats.stackexchange.com/questions/144554/how-to-interpret-scale-efficiency-in-dea&quot;&gt;https://stats.stackexchange.com/questions/144554/how-to-interpret-scale-efficiency-in-dea&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="4328" LastEditorUserId="-1" LastEditDate="2017-04-13T12:44:19.590" LastActivityDate="2016-09-21T12:57:04.883" Title="How to interpret &quot;scale efficiency&quot; in DEA?" Tags="&lt;econometrics&gt;&lt;applied-econometrics&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4931" PostTypeId="1" AcceptedAnswerId="4932" CreationDate="2015-04-02T18:57:44.190" Score="7" ViewCount="27786" Body="&lt;p&gt;Suppose I buy a house and sell it off in the same year for the same price, would the GDP for that year increase by twice the value of the house, or only once, or not at all?&lt;/p&gt;&#xA;" OwnerUserId="2779" LastActivityDate="2019-03-10T23:07:37.640" Title="How does buying/selling houses affect the GDP?" Tags="&lt;gdp&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4932" PostTypeId="2" ParentId="4931" CreationDate="2015-04-02T20:27:09.147" Score="11" Body="&lt;p&gt;There is only a change in GDP to the extent there are market goods and services used in the sale and only those goods and services are counted. The actual sales revenue are irrelevant. For example, the home inspection, appraisal, brokerage fees, and, I believe mortgage closing costs, would be in GDP. If you and your sister swapped houses in as-is condition without getting the market, bank, or tax authority involved, there would be no change in GDP.  &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-04-02T21:50:06.013" LastActivityDate="2015-04-02T21:50:06.013" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4933" PostTypeId="1" CreationDate="2015-04-02T20:59:02.187" Score="0" ViewCount="2160" Body="&lt;p&gt;So my question goes like this, I have the returns of 3 different stocks AAPL, NKE and BBRY&#xA;I make 4 portfolios out of them as follows:&lt;/p&gt;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/0nXGB.png&quot; alt=&quot;my stock portfolios&quot; /&gt;&lt;/p&gt;&#xA;&lt;p&gt;and the question asks me to compute the correlation coefficient and covariance for each portfolio...&lt;/p&gt;&#xA;&lt;p&gt;Now this seems a bit odd to me, since it already asked me to compute the covariance and correlation of each stock pair in an earlier question. Also, how would I go about doing it for the portfolio with 3 stocks?&lt;/p&gt;&#xA;" OwnerUserId="4330" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2015-04-02T20:59:02.187" Title="Finding the covariance of a stock portfolio" Tags="&lt;portfolio-theory&gt;&lt;stock-market&gt;&lt;statistics&gt;" AnswerCount="0" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="4935" PostTypeId="1" AcceptedAnswerId="5015" CreationDate="2015-04-03T03:43:12.597" Score="1" ViewCount="81" Body="&lt;p&gt;Can government and people spend money foolishly be a main cause of inflation?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example if the the arm race happen in two country unwisely, two country will be focus on a military product instead of civilian use product, then some resources will not be use effectively based on the production possibility curve &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am wondering if inflation will happen if people don't know how to balance out which combinations of product is best for them&lt;/p&gt;&#xA;" OwnerUserId="95" LastActivityDate="2015-04-08T14:35:41.663" Title="Can government and people spend money foolishly be a main cause of inflation?" Tags="&lt;government&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="4936" PostTypeId="1" CreationDate="2015-04-03T08:10:01.250" Score="2" ViewCount="110" Body="&lt;p&gt;Is it possible to calculate how long it will take to reach Break Even Point if the information provided is only an ROI (Return On Investment) of 10%?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Only ROI is provided. If there is a way to calculate, please say so.&lt;/p&gt;&#xA;" OwnerUserId="4334" LastActivityDate="2015-04-03T10:53:18.110" Title="Is it possible to calculate how long it will take to reach Break Even Point if the information provided is only an ROI (Return On Investment) of 10%?" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4937" PostTypeId="2" ParentId="4936" CreationDate="2015-04-03T10:53:18.110" Score="1" Body="&lt;p&gt;Lets say your investment is $x$. What does ROI mean? The money you get per period out of your investment (= revenue). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What does break even point mean? The point (here in time) where your total costs (here it is only the investment) are equal to your total revenue.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, the time $t$ at which the total costs are equal to the total revenue is the break even point, with $r$ being the ROI.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ costs = revenue \\&#xA;x = r x t \\&#xA;t=\frac1r$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can see, it does not depend on $x$, therefore it is possible.&lt;/p&gt;&#xA;" OwnerUserId="120" LastActivityDate="2015-04-03T10:53:18.110" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4939" PostTypeId="1" CreationDate="2015-04-03T11:25:41.230" Score="1" ViewCount="571" Body="&lt;p&gt;CFA Kaplan Schweser claim that&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Cobb-Douglas function exhibits constant marginal product of capital&#xA;  but diminishing marginal productivity of capital.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I think this statement is not right.&#xA;My view is that Cobb-Douglas production functions exhibits decreasing marginal product of capital and constant marginal productivity of capital.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am more or less sure that Schweser made a mistake but just want to confirm.&lt;/p&gt;&#xA;" OwnerUserId="4316" LastEditorUserId="2776" LastEditDate="2017-04-19T08:26:40.277" LastActivityDate="2017-04-19T08:26:40.277" Title="Marginal product versus marginal productivity in a Cobb-Douglas production function" Tags="&lt;production-function&gt;&lt;cobb-douglas&gt;" AnswerCount="0" CommentCount="5" FavoriteCount="2" ClosedDate="2017-04-20T18:36:24.337" ContentLicense="CC BY-SA 3.0" />
  <row Id="4940" PostTypeId="2" ParentId="3392" CreationDate="2015-04-03T19:58:49.290" Score="3" Body="&lt;p&gt;Eric Sims at Notre Dame has an excellent set of &lt;a href=&quot;http://www3.nd.edu/~esims1/using_dynare_sp15.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;self contained notes&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;He uses a small neoclassical model as an example and goes over the model derivation, how to construct each block of Dynare code, different simulation options, interpreting output, and how to do higher order approximations. Full code is included for each step in the notes.&lt;/p&gt;&#xA;" OwnerUserId="4336" LastEditorUserId="2776" LastEditDate="2017-10-02T09:55:49.740" LastActivityDate="2017-10-02T09:55:49.740" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="4943" PostTypeId="2" ParentId="4915" CreationDate="2015-04-03T23:31:59.490" Score="-1" Body="&lt;p&gt;A such systemic bank run would be caused by a massive loss of trust in the banking system and financial markets. Its a collapse and bankrupt of banks possibly capitalism system as we know it. It would be a new era.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;New institutions would emerge. Possibly decentralized ones like Bitcoin. If there is no possibility of international payments, international trade would be almost non existent. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;How would credit would exist in such a world without money creation and central banks?&#xA;Majors big investissements would be difficult.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In fact I don't think people would withdraw money in the first place. In a total loss of confidence money would be worth nothing. Perhaps metals would be back in fashion for trades. Perhaps a cooperative system of reputation like Stackoverflow...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There exist a realistic possibility of collapse. What if a virus enables automatic payment system like interact or cirrus? In an instant destroy the banking system before people could actually withdraw.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In any case I do not forsee a calm transition to a new system. Forget rational behaviors then.&lt;/p&gt;&#xA;" OwnerUserId="4229" LastActivityDate="2015-04-03T23:31:59.490" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4944" PostTypeId="1" CreationDate="2015-04-04T01:45:38.493" Score="2" ViewCount="112" Body="&lt;p&gt;My background in economics is non-existant, I'm just doing some research before the UK general elections and am having some difficulty in understanding certain data.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assuming the figures found in &lt;a href=&quot;http://www.ukpublicrevenue.co.uk/year_revenue_2014UKbt_14bc1n_G0#ukgs302&quot; rel=&quot;nofollow noreferrer&quot;&gt;this&lt;/a&gt; and &lt;a href=&quot;http://www.ukpublicspending.co.uk/year_spending_2014UKbn_14bc1n#ukgs302&quot; rel=&quot;nofollow noreferrer&quot;&gt;this&lt;/a&gt; link are accurate, the UK government spent £714 Billion in the 2014 fiscal year. They generated £619.8 billion in public revenue in the same year. I'd assume the difference between these figures, £94.2 billion, is what they needed to borrow to make up the difference. But the website lists the UK national debt to be of magnitude £1258 billion in 2014 and £1185 the year before, meaning that only a total of £73 billion was borrowed in reality. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Moreover, the &lt;a href=&quot;https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/330717/PESA_2014_-_print.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;HM treasury PESA&lt;/a&gt; (page 19) gives public sector current expenditure in 2014 to be ~£666 billion, which is over £45 billion more than what they generated from public revenue. Even if the statistic of £619.2 billion is incorrect, and the government actually generated exactly the £666 billion spent, the difference £714-£666 billion=£48 billion is less than the amount by which the national debt rose in the 2014 fiscal year. I can't get the figures to match up!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, from what I've learned today, government borrowing works by having banks etc. purchase bonds which the government pay interest on, and then in a certain number of agreed years pay the purchaser back what they paid. The statistics for government spending in the second link above show £47.4 billion being spent on interest. However, I can't find any account of the original loans being paid back. That is, surely some of the bonds the government sold should mature each year, requiring them to pay the owner of the bond the original amount they sold it for?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Apologies for my economic naivety.  &lt;/p&gt;&#xA;" OwnerUserId="4338" LastEditorUserId="2776" LastEditDate="2017-02-10T10:55:58.950" LastActivityDate="2017-04-11T14:03:36.547" Title="Government spending/borrowing difference/ national debt increase disparity" Tags="&lt;debt&gt;&lt;government&gt;&lt;interest-rate&gt;&lt;government-debt&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4945" PostTypeId="1" CreationDate="2015-04-04T15:26:32.490" Score="0" ViewCount="110" Body="&lt;p&gt;In this question, only K is included and L is excluded how would I go about deriving it?&lt;img src=&quot;https://i.stack.imgur.com/vRyiB.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Total cost= Fixed costs + Average costs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since the variable input costs r per unit, the variable costs is r times the number of units rQ, hence $VC= rK^\alpha$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus $C(Q)= c_0 + rK^\alpha$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is the above solution correct? &#xA;IS there a more mathematical way of doing it, one that involves grpahs etc. &lt;/p&gt;&#xA;" OwnerUserId="4341" LastEditorUserId="4363" LastEditDate="2015-04-06T15:17:26.277" LastActivityDate="2015-04-06T15:17:26.277" Title="Derive a cost production function give prod f, only K" Tags="&lt;mathematical-economics&gt;&lt;cobb-douglas&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="4946" PostTypeId="1" AcceptedAnswerId="4968" CreationDate="2015-04-04T15:30:54.233" Score="3" ViewCount="108" Body="&lt;p&gt;In a highly controversial paper by Robert Aumann(see &lt;a href=&quot;http://www.ma.huji.ac.il/raumann/pdf/36.pdf&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;), it is stated as a theorem:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In PI games, common knowledge of rationality implies backward induction.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;If we stick to the strong and controversial definition of rationality in the paper&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Rationality of a player means that he is a habitual payoff maximizer:&#xA;  that no matter where he finds himself,&#xA;  at which vertex,he will&#xA;  not knowingly continue with a strategy that yields him less than he could&#xA;  have gotten with a different strategy. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Can we have some other implication, like, If a game admits a unique Nash equilibirum, does common knowledge of rationality implies Nash equilibirum?&lt;/p&gt;&#xA;" OwnerUserId="73" LastEditorUserId="73" LastEditDate="2015-04-04T21:56:31.930" LastActivityDate="2015-04-06T22:53:26.847" Title="If a game admits a unique Nash equilibirum, does common knowledge of rationality implies Nash equilibirum?" Tags="&lt;game-theory&gt;&lt;reference-request&gt;&lt;nash-equilibrium&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="4947" PostTypeId="1" CreationDate="2015-04-04T16:14:29.033" Score="4" ViewCount="127" Body="&lt;p&gt;I have retrieved the below term structure curve for livestock (lean hogs) from Bloomberg and noticed that it is inverted. I have a vague intuition that this has to do with the storage costs and perishability of agricultural underlyings, but I lack a rigorous explanation. Searching for the solution online has yielded publications and PhD theses on term structure models which slightly exceed my understanding as an undergraduate student.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would thus greatly appreciate any suggestions for economic explanations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/RPMM5.png&quot; alt=&quot;Term structure of lean hogs.&quot;&gt; &lt;/p&gt;&#xA;" OwnerUserId="337" LastEditorUserId="337" LastEditDate="2015-04-07T20:40:57.180" LastActivityDate="2015-04-07T23:50:02.700" Title="Why is the term structure curve of agricultural commodities often downward sloping?" Tags="&lt;asset-pricing&gt;&lt;financial-markets&gt;&lt;agriculture&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4948" PostTypeId="1" CreationDate="2015-04-04T16:54:17.710" Score="1" ViewCount="26" Body="&lt;p&gt;When I open a stock market graph tool such as Metastock and enter in the intra-day periodicities, I can never found the data related to the after market operations. I know (by observation) that when the market is in the initial moments just before being closed, all the operations are put inside the last candles (so e.g. if the market closes at 5 pm, the after-market operations between 5pm and 5:15 pm are all inserted in the candle related to 4:50-5:00 pm in the 10 minute graph).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But what about all the moves done after that? Are all after market operations inserted as part of the last candle?&lt;/p&gt;&#xA;" OwnerUserId="4343" LastActivityDate="2015-04-04T16:54:17.710" Title="How is after market tradings inserted in stock market graphs?" Tags="&lt;stock-market&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="4951" PostTypeId="1" AcceptedAnswerId="4955" CreationDate="2015-04-04T20:41:42.417" Score="8" ViewCount="2151" Body="&lt;p&gt;What would happen if all countries suddenly stopped using local currencies and adopted a global currency (like the Euro, but for everyone)?&lt;/p&gt;&#xA;" OwnerUserId="4348" LastEditorUserId="43" LastEditDate="2015-04-05T17:52:51.693" LastActivityDate="2017-01-11T01:22:53.760" Title="What would happen if the world switched to a single currency?" Tags="&lt;macroeconomics&gt;&lt;currency&gt;&lt;exchange-rates&gt;&lt;optimal-currency-area&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="4952" PostTypeId="1" AcceptedAnswerId="4954" CreationDate="2015-04-05T00:52:20.410" Score="6" ViewCount="776" Body="&lt;p&gt;Does a monotonic transformation of a homothetic utility function imply the preference relation on the set of consumption bundles is still homothetic?   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Obviously, if a utility function on a set of  consumption bundles is homothetic, then the preference relation is homothetic. &lt;/p&gt;&#xA;" OwnerUserId="2679" LastActivityDate="2015-04-05T15:09:37.853" Title="Does a monotonic transformation of a homothetic utility function imply the preference relation on the set of consumption bundles is still homothetic?" Tags="&lt;consumer-theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4954" PostTypeId="2" ParentId="4952" CreationDate="2015-04-05T08:21:34.320" Score="6" Body="&lt;p&gt;Yes.&#xA;We know that a monotonic transformation of a utility function still represents the same preferences and as the old utility function represented homothetic preferences the new one does, too.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As an easy example you could look at Cobb-Douglas utility functions of the form $u(x,y) = a\left(x y\right)^\alpha$. For $\alpha = \frac12$ the utility function is homogeneous of degree 1, but for every $\alpha,a&amp;gt;0,$ the preference relation is homogeneous of degree 1.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We never used homothetic as a property of the utility function to answer your question (as it works for every utility function).&#xA;A homothetic utility function is, to the best of my knowledge, not very clearly defined, I have see two different versions:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Homothetic as different name for homogeneous of degree 1&lt;/li&gt;&#xA;&lt;li&gt;A homothetic utility function is a utility function that represents&#xA;a homothetic preference relation.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Which means, with definition 2 Cobb-Douglas utility functions with equal weights are always homothetic, with definition 2 only some of them are:&#xA;$$u(tx,ty) = (tx)^\frac12 (ty)^\frac12 = t xy = t u(x,y)$$&#xA;and some are not&#xA;$$u(tx,ty) = (tx) (ty) = t^2 xy \neq t u(x,y)$$&lt;/p&gt;&#xA;" OwnerUserId="120" LastEditorUserId="120" LastEditDate="2015-04-05T15:09:37.853" LastActivityDate="2015-04-05T15:09:37.853" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="4955" PostTypeId="2" ParentId="4951" CreationDate="2015-04-05T16:38:51.483" Score="13" Body="&lt;p&gt;The Euro was always conceived by most Economists as a political goal, not an economic one. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Prologue: There is the theory of &lt;a href=&quot;http://en.wikipedia.org/wiki/Optimum_currency_area&quot; rel=&quot;nofollow&quot;&gt;Optimum Currency Area&lt;/a&gt;s (OCA) which characterizes properties that a larger area would need to have if it were to operate on a single unit of currency. Since the announcement of the Euro around 1990, there were many papers that looked into whether the European Area actually satisfied the broader range of these criteria, and they mostly agreed that it did not. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ex-post, we can now see this playing out as the ECB has a hard time setting up an inflation rate that is improving conditions of countries that are hit very badly by the crisis such as Greece and Spain, and countries which are not, such as France and Germany.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Intuition behind OCA&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Basically, a country gives up the tool of monetary policy when it subordinates into such a currency union. In order to properly use monetary policy for a set of different economies (countries), you need these to be very similar in nature: If all countries react similarly to a housing bubble / oil shock / etc, you can easily improve outcomes for all countries with the same monetary tool. If the countries respond differently, it is much harder to do so.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Single currency for non-OCA&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;To the extent that &lt;em&gt;all countries&lt;/em&gt; in the world are very different in nature, your experiment is similar to the gold standard (see &lt;a href=&quot;http://en.wikipedia.org/wiki/Bretton_Woods_system&quot; rel=&quot;nofollow&quot;&gt;Bretton Woods system&lt;/a&gt;). We think about that system mostly as a failure. While there is no hard data on the causal relationship, countries that abandoned the gold standard earlier tended to do better. We observed similar trends for countries that abandoned the dollar standard earlier. As a short intuition, among other explanations, when you abandon monetary policy and fix your exchange rate, you make yourself more vulnerable to inflation/deflation of other regions.&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="4891" LastEditDate="2016-10-23T11:51:38.447" LastActivityDate="2016-10-23T11:51:38.447" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="4956" PostTypeId="1" CreationDate="2015-04-05T18:38:27.277" Score="5" ViewCount="169" Body="&lt;p&gt;I have three variables: &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$x_1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$z$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm interested in finding the effect of &lt;span class=&quot;math-container&quot;&gt;$x_1$&lt;/span&gt; on &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt;.&#xA;Unfortunately &lt;span class=&quot;math-container&quot;&gt;$x_1$&lt;/span&gt; is endogenous so I use an instrument z.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know that &lt;span class=&quot;math-container&quot;&gt;$z$&lt;/span&gt; is correlated with &lt;span class=&quot;math-container&quot;&gt;$x_1$&lt;/span&gt;. The problem is, &lt;span class=&quot;math-container&quot;&gt;$z$&lt;/span&gt; is correlated with another variable (&lt;span class=&quot;math-container&quot;&gt;$x_2$&lt;/span&gt;) that arguably has an effect on &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt;. &lt;span class=&quot;math-container&quot;&gt;$z$&lt;/span&gt; is unlikely to have a causal effect on &lt;span class=&quot;math-container&quot;&gt;$x_2$&lt;/span&gt;, but &lt;span class=&quot;math-container&quot;&gt;$x_2$&lt;/span&gt; may still be endogenous for other reasons (e.g. reverse causality, etc.).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Will the following procedure give me a consistent estimate of &lt;span class=&quot;math-container&quot;&gt;$\beta_1$&lt;/span&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;two stage least squares with &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; regressed on &lt;span class=&quot;math-container&quot;&gt;$x_1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$x_2$&lt;/span&gt;, with &lt;span class=&quot;math-container&quot;&gt;$z$&lt;/span&gt; as an instrument for &lt;span class=&quot;math-container&quot;&gt;$x_1$&lt;/span&gt;?&lt;/p&gt;&#xA;" OwnerUserId="4354" LastEditorUserId="10775" LastEditDate="2019-04-01T12:21:32.243" LastActivityDate="2019-04-01T12:21:32.243" Title="IV - Is this procedure valid?" Tags="&lt;econometrics&gt;&lt;identification&gt;&lt;instrumental-variable&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="4957" PostTypeId="1" AcceptedAnswerId="5620" CreationDate="2015-04-05T19:39:54.497" Score="4" ViewCount="1377" Body="&lt;p&gt;I asked on Math SE a bit about level sets &lt;a href=&quot;https://math.stackexchange.com/q/1221262/197705&quot;&gt;here&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Based on what I learned, it seems like we usually assume a level set $L(f)$ and its function $f$ defined on $\Bbb{R}^n$ have the following properties:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;$f$ is continuous &lt;/li&gt;&#xA;&lt;li&gt;Thus, the curves in the level set are closed curves. (not sure why) &lt;/li&gt;&#xA;&lt;li&gt;All closed curves are &quot;converging&quot; to a point. (not sure why) &lt;/li&gt;&#xA;&lt;li&gt;This point will be a maximum for the function: the derivative in the point will be zero, since if it was not then the point would be a 1-manifold, which is absurd. &lt;/li&gt;&#xA;&lt;li&gt;$\nabla f \neq 0$ on the rest of the points &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;I don't understand how we know a preference relation on a consumption bundle has a utility function representation such that these properties hold. According to my professor, we use level sets to describe indifference curves. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, if indifference curves are described by a level set, that level set must have the properties listed above. Note, for economics, we are considering a function $U(\mathbf{x})$, where $\mathbf{x}=(x_1,...,x_n)$, and the level set $L(U)$. Also, note $U: \Bbb{R}^n\rightarrow \Bbb{R}$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My Question:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In economic terms, what assumption do we have to make to ensure, $U$, $L(U)$ have these properties to create a level set used for indifference curves? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ideally, it would be great to have an enumerated list of the assumptions (ie 1,2,3). &lt;/p&gt;&#xA;" OwnerUserId="2679" LastEditorUserId="-1" LastEditDate="2017-04-13T12:19:37.213" LastActivityDate="2015-05-12T00:07:09.673" Title="What properties must a utility function have such that we can define level sets and thus indifference curves?" Tags="&lt;consumer-theory&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4958" PostTypeId="1" CreationDate="2015-04-05T22:38:51.360" Score="1" ViewCount="75" Body="&lt;p&gt;In &lt;a href=&quot;https://economics.stackexchange.com/a/365&quot;&gt;this excellent answer&lt;/a&gt;, Ubiquitous elaborates on the Coasian solution as an alternative to Pigouvian subsidies. I wanted to explore and understand the solution a bit further.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider the setting in &lt;a href=&quot;https://economics.stackexchange.com/q/342&quot;&gt;this question&lt;/a&gt; - a set of agents facing losses $l_i$ and making investments $c_i$. The loss $l_i$ is a function of others' investments as well, i.e., $l_i=f_i(c_i,i=1,2,\ldots,N)$. Let us also assume that a bargaining hierarchy exists - agent $i$ has greater bargaining power than agent $i-1$.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;How does one achieve the socially optimal investment levels in this problem through Coasian bargaining?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;How does the answer change when there are connections among agents, as in commodity flow networks? Are there papers that study such bargaining across different tiers in such networks?  &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="41" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-04-05T22:38:51.360" Title="Implementing Coasian bargaining to achieve social welfare" Tags="&lt;microeconomics&gt;&lt;game-theory&gt;&lt;social-welfare&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4959" PostTypeId="1" CreationDate="2015-04-06T01:09:20.433" Score="3" ViewCount="7419" Body="&lt;p&gt;I'm getting confused over the relationship between forward rates, spot rates, and liquidity preference.  I know that liquidity preference theory (i.e. that investors prefer shorter term investments because they are more liquid) states that &lt;strong&gt;the forward rate is greater than the future spot rate&lt;/strong&gt;.  However, I am confused on what exactly the forward rate and future spot rate are.  My understanding is that:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &lt;strong&gt;forward rate (&lt;span class=&quot;math-container&quot;&gt;$f_2$&lt;/span&gt;)&lt;/strong&gt; is the hypothetical rate you would need to eliminate an arbitrage opportunity in the example below:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$(1 + r_1)(1 + f_2)$&lt;/span&gt; = &lt;span class=&quot;math-container&quot;&gt;$(1 + r_2)^2$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &lt;strong&gt;spot rate&lt;/strong&gt; is the the expected yield on a zero-coupon bond.  But how does this play into the example above?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Moreover- just to make sure- am I correct in that longer maturity -&gt; greater interest rate risk (because of inflation / liquidity pref)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks for your help.&lt;/p&gt;&#xA;" OwnerUserId="4357" LastEditorUserId="-1" LastEditDate="2019-06-17T18:28:30.050" LastActivityDate="2019-06-17T18:28:30.050" Title="Relationship between forward rate, future spot rate, and liquidity preference" Tags="&lt;interest-rate&gt;&lt;liquidity&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="4960" PostTypeId="1" AcceptedAnswerId="4971" CreationDate="2015-04-06T05:47:46.500" Score="4" ViewCount="998" Body="&lt;p&gt;I was searching for this but could not find an answer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is whether education of the U.S. universities provided to foreign students counts in exports component on GDP.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And if so, can we call the U.S. &quot;the largest education exporter in the world&quot;?&lt;/p&gt;&#xA;" OwnerUserId="4360" LastActivityDate="2015-04-06T17:33:48.367" Title="Is education a part of the U.S. exports component of GDP?" Tags="&lt;gdp&gt;&lt;education-economics&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4961" PostTypeId="2" ParentId="4945" CreationDate="2015-04-06T11:02:49.370" Score="2" Body="&lt;p&gt;Here you have to express $K$ in terms of $Q$, since the cost depends on the number of units of capital employed and not on the number of products produced. You have&#xA;\begin{equation}&#xA;Q = K^a \Leftrightarrow K = Q^{\frac{1}{a}}&#xA;\end{equation}&#xA;so your cost function will be&#xA;\begin{equation}&#xA;C(Q) = c_0 + rK(Q) = c_0 + rQ^{\frac{1}{a}}&#xA;\end{equation}&lt;/p&gt;&#xA;" OwnerUserId="4363" LastActivityDate="2015-04-06T11:02:49.370" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="4963" PostTypeId="1" AcceptedAnswerId="4965" CreationDate="2015-04-06T14:03:57.810" Score="1" ViewCount="1384" Body="&lt;p&gt;While reading Intermediate Microeconomics from Hal Varian, I fell short in understanding the relationship between SRMC and LRMC. I can see how in SR, when fixed factor is chosen at LR optimizing condition, then &lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;                         c(y) = cs (y,k(y))&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;where, k is the fixed factor.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But at pg. 394 of 8th edition, in Appendix to Ch. 21 (Cost Curves), author writes, &#xA;&quot;...the long-run marginal cost will consist of two pieces:&#xA;how costs change holding plant size fixed plus how costs change when plant size&#xA;adjusts. But if the plant size is chosen optimally, this last term has to be zero!&quot;. This is what I am unable to understand, how the 'second' term is zero!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Please, help me understand both intuitively and through calculus.&lt;/p&gt;&#xA;" OwnerUserId="4345" LastActivityDate="2015-04-06T15:11:45.917" Title="Relationship between short-run marginal cost(SRMC) and long-run marginal cost(LRMC)" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4965" PostTypeId="2" ParentId="4963" CreationDate="2015-04-06T15:11:45.917" Score="1" Body="&lt;p&gt;First, fix an output level $y^*$. Now you solve the (long run) cost-minimization problem conditional to this output level. We obtain the cost function $c(y)$ and the conditional demand function $k(y)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose we are at a cost-minimizing size of plant, $k(y^*)=:k^*$, for this output level. If costs decreased when you increase plant size, then it would pay to increase plant size. This contradicts our choice of plant size. Likewise, if cost increases when you increase plant size, then it would pay to decrease plant size. Again, this contradicts our choice of plant size. So, $$\left(\frac{\partial c(y)}{\partial k}\right)_{y=y^*,k=k^*}=0.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The calculus treatment is already given in the mentioned page. Let me know if there is still something that bugs you.&lt;/p&gt;&#xA;" OwnerUserId="2763" LastActivityDate="2015-04-06T15:11:45.917" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4966" PostTypeId="2" ParentId="4960" CreationDate="2015-04-06T15:30:25.590" Score="3" Body="&lt;h3&gt;Does GDP include education?&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;Yes: GDP is the summed added value of all produced goods and services, this includes education. &lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Is the US the largest education exporter in the world?&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;The US are a big country, so you might want to correct for scale. Here is a graph for public spending on education, as a share of total GDP&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://data.worldbank.org/indicator/SE.XPD.TOTL.GD.ZS/countries/1W-US-DE-SE?display=graph&quot; rel=&quot;nofollow&quot;&gt;http://data.worldbank.org/indicator/SE.XPD.TOTL.GD.ZS/countries/1W-US-DE-SE?display=graph&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As you can see, I randomly added Germany, Sweden and the World average. The US is clearly not the countries with the highest public spending on education, as a share of total GDP.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, if you want to look at education &lt;em&gt;exporter&lt;/em&gt;, you need to look at something different. There should probably be statistics on the number of foreign students in US universities. Comparing the number of foreign students in each country (and assuming that the share of those that go back home is constant between countries) should give you an answer to the question. &lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-04-06T15:30:25.590" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4967" PostTypeId="2" ParentId="4957" CreationDate="2015-04-06T17:05:58.387" Score="1" Body="&lt;p&gt;Level sets are always well defined. No property of utility functions has to be assumed. For any utility level $\bar u$ just define the level set to be $\{x\in \mathbb{R}^n|U(x)=\bar u\}$. No property of $U$ must be assumed. This is well-defined regardless of the properties of $U$. Properties of $U$ are useful if one wants to derive specific properties of the level sets, but are not needed to define them. &lt;/p&gt;&#xA;" OwnerUserId="2787" LastActivityDate="2015-04-06T17:05:58.387" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="4968" PostTypeId="2" ParentId="4946" CreationDate="2015-04-06T17:09:55.957" Score="5" Body="&lt;p&gt;No. In static games, common knowledge of rationality is equivalent to rationalizability. Bernheim, in &quot;&lt;a href=&quot;http://www.econ.yale.edu/~dirkb/teach/pdf/b/bernheim/1984%20rationalizable%20strategic%20behavior.pdf&quot; rel=&quot;nofollow&quot;&gt;Rationalizable Strategic Behavior&lt;/a&gt;&quot; (Econometrica, July 1984) gives an example on page 1012 in Figure 1 of a normalform game in which there is a unique Nash equilibrium, yet multiple strategies are rationalizable.&lt;/p&gt;&#xA;" OwnerUserId="2787" LastEditorUserId="73" LastEditDate="2015-04-06T22:53:26.847" LastActivityDate="2015-04-06T22:53:26.847" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="4970" PostTypeId="2" ParentId="4960" CreationDate="2015-04-06T17:24:29.930" Score="4" Body="&lt;p&gt;&lt;a href=&quot;http://www.uis.unesco.org/Education/Pages/international-student-flow-viz.aspx&quot; rel=&quot;nofollow&quot;&gt;&lt;strong&gt;From Unesco's website:&lt;/strong&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Top 10 destination countries:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;United States (18% of total mobile students)&#xA;United Kingdom (11%)&#xA;France (7%)&#xA;Australia (6%)&#xA;Germany (5%)&#xA;Russian Federation (4%)&#xA;Japan (4%)&#xA;Canada (3%)&#xA;China (2%)&#xA;Italy (2%)&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;This is about headcount, not value-of-services. For 2nd-in-rank &lt;strong&gt;UK&lt;/strong&gt; to nevertheless generate more income in terms of value, it should be the case that average fees/cost of living in UK is ~$64$% higher than in the USA. Otherwise, USA will be also the biggest exporter of education.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This, without taking into account the size of each country's economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The link mentions that &lt;a href=&quot;http://www.uis.unesco.org/datacentre/pages/default.aspx&quot; rel=&quot;nofollow&quot;&gt;Unesco's statistical data base&lt;/a&gt; provides further statistics.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-04-06T17:24:29.930" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4971" PostTypeId="2" ParentId="4960" CreationDate="2015-04-06T17:33:48.367" Score="4" Body="&lt;p&gt;Education is indeed in exports according to the US Government's Trade.gov website:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Trade in Services:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The U.S. Bureau of Economic Analysis collects and compiles U.S.&#xA;  services import and export statistics. These are released in a monthly&#xA;  press release entitled U.S. International Trade in Goods and Services&#xA;  report (FT900). The services statistics are estimates of services&#xA;  transactions between foreign countries and the 50 states, the District&#xA;  of Columbia, Puerto Rico, the U.S. Virgin Islands, and other U.S.&#xA;  territories and possessions. Unlike trade in goods, which is closely&#xA;  tracked through the submission of EEIs to the AES system, services&#xA;  trade calculations are based on quarterly, annual, and benchmark&#xA;  surveys and partial information generated from monthly reports.&#xA;  Services trade totals are then estimated from these survey results.&#xA;  Limited country or area detail is available due to the lack of&#xA;  adequate source data upon which to base estimates.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;In June 2014, the BEA introduced a new presentation of the&#xA;  International Transactions Accounts and a new presentation of the&#xA;  International Investment Position. These new presentations reflect a&#xA;  comprehensive restructuring of the international accounts that&#xA;  enhances the quality and usefulness of the accounts for customers and&#xA;  bring the accounts into closer alignment with international&#xA;  guidelines. Additional information on the restructuring is available&#xA;  from the Bureau of Economic Analysis.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Services trade data are shown in nine broad categories: ...&#xA;  &lt;strong&gt;Travel (for all purposes including education) – Includes goods and services acquired by nonresidents while abroad. A traveler is defined&#xA;  as a person who stays, or intends to stay, for less than one year in a&#xA;  country of which he or she is not a resident or as a nonresident whose&#xA;  purpose is to obtain education or medical treatment, no matter how&#xA;  long the stay.&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.trade.gov/mas/ian/referenceinfo/tg_ian_001872.asp&quot; rel=&quot;nofollow&quot;&gt;Trade Data Basics from trade.gov&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2015-04-06T17:33:48.367" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4972" PostTypeId="1" AcceptedAnswerId="4980" CreationDate="2015-04-06T18:26:04.873" Score="2" ViewCount="901" Body="&lt;p&gt;In my professors lecture notes (it's more like a book), he states four properties of preferences relations:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;monotonicity&lt;/li&gt;&#xA;&lt;li&gt;transitivity &lt;/li&gt;&#xA;&lt;li&gt;continuity&lt;/li&gt;&#xA;&lt;li&gt;completeness &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;He then goes on to discuss utility levels and indifference curves. He describes indifference curves as level sets and that consumption bundles that the consumer is indifferent between lie on the same indifference curve. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My Question:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a given set of consumption bundles, how do we know there are &lt;em&gt;any&lt;/em&gt; bundles that the consumer is indifferent between? I don't see how we can define indifference curves without knowing that. &lt;/p&gt;&#xA;" OwnerUserId="2679" LastActivityDate="2015-04-07T04:08:12.307" Title="For a given set of consumption bundles, how do we know there are bundles that the consumer is indifferent between?" Tags="&lt;consumer-theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4974" PostTypeId="1" AcceptedAnswerId="4975" CreationDate="2015-04-06T20:12:39.913" Score="1" ViewCount="62" Body="&lt;p&gt;I've searched around the web for awhile now and I'm beginning to think this might be an unanswerable question. I want to know if there is a theoretical way to determine the worth of a particular good, either cash or item, independently of average purchase price (ideal selling so exactly whoever wants one and can pay for it at the price will get it).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The specific case is a virtual economy such as a video game, where there might be no way to get real world cash into or out of the game, but you want to determine if the value of SuperSwords is right to buy and what those swords are likely to be worth in the future. Is there a general formula for this situation?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A secondary case that I also wish to know about is setting the price (in-game stores) of such items. While this may push the topic more towards video game design rather than economics, I think that the basis of a price is more heavily in the modeling an economy area than a game area. What will be the best way to adjust the pricing? The four factors controlled are price sold by the store, price paid by the store, how many the store can buy and how many the store can sell. &lt;/p&gt;&#xA;" OwnerUserId="4370" LastActivityDate="2015-04-06T21:07:00.630" Title="How to determine the worth of a good" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;currency&gt;&lt;money-supply&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4975" PostTypeId="2" ParentId="4974" CreationDate="2015-04-06T21:07:00.630" Score="1" Body="&lt;h3&gt;What you are after&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;The value of a good should be the highest possible utility that it would give anyone in the economy. If you care differently about different people, you are interested in the highest possible adjusted utility that it would give anyone in your economy, where you have adjust the utility with a weight that indicates how much you comparatively care about that person&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;It doesn't exist&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;This is almost what a price is: It is the highest possible utility that it would give anyone in the economy &lt;strong&gt;who can afford it&lt;/strong&gt;, &lt;strong&gt;under frictions&lt;/strong&gt;. These frictions could be informational (someone who benefits most from the new iPhone isn't aware of its existence) or other (some people/groups are restricted from purchasing a good, for example due to trade sanctions).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is no other objective way that we are aware of. At the cost of sounding dogmatic, this is the superior part of capitalism compared to other economic systems: Allowing prices to judge the value of goods.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In alternative systems, you need committees or similar to do this job. While there is no theoretical reason why human's couldn't do a better job than prices do (unless you allow for hand waving &lt;em&gt;the system is too complex&lt;/em&gt;), &lt;a href=&quot;http://en.wikipedia.org/wiki/Criticisms_of_socialism&quot; rel=&quot;nofollow&quot;&gt;it turns out they don't&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Do you need real world cash for prices?&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;There is three properties of money: It is&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;a storage of value&lt;/li&gt;&#xA;&lt;li&gt;a unit of exchange&lt;/li&gt;&#xA;&lt;li&gt;unit of account&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Introduction of money into your economy doesn't need to connect it to &lt;em&gt;real world cash&lt;/em&gt;, but you need to make it valuable. Connecting it to real world cash at some rate would immediately determine its value. Say, if you allow &lt;em&gt;modwizdollar&lt;/em&gt; at 1-to-1 rate to the USD, your dollar has immediately the same value as the dollar, and also its inflation rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In Diablo, players find gold and items over time, as they kill enemies. Therefore, the objective value of gold is the time it takes a player to earn that much gold, devalued by how much that time is worth to the player. The more time it takes for players to find items, the more valuable these are. For money to be work as a store of value, it is sufficient to keep finding &lt;em&gt;modwizdollars&lt;/em&gt; costly in terms of time. &lt;/p&gt;&#xA;&#xA;&lt;h3&gt;How to set prices&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;It depends on what your goals are, and I suppose people could write Bachelor papers on the complexity of these systems, and in fact, an economist of late publicity &lt;a href=&quot;http://blogs.valvesoftware.com/economics/&quot; rel=&quot;nofollow&quot;&gt;did exactly that for Valve&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;One simple way to set up prices&#xA;&#xA;&lt;p&gt;One simple way would to allow the measure of goods (items) grow constantly over time. This would imply a new supply of a specific item $i$ of $S_i$. Let time be denoted by $t$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Compute, at any time, the actual demand for goods by players given the current prices $D_i(p_{i,t})$. Given initial $p_{i,t}$,&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Increase $p_{i,t+i}$ if $D_i(p_{i,t}) &amp;gt; S_i$&lt;/li&gt;&#xA;&lt;li&gt;Decrease $p_{i,t+i}$ if $D_i(p_{i,t}) &amp;lt; S_i$&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;How much you want to increase or decrease these depends on many things, and I can't possibly spell out the whole model for you. Assuming that demands are stable over time, you could try a &lt;a href=&quot;http://en.wikipedia.org/wiki/Bijection&quot; rel=&quot;nofollow&quot;&gt;bijection&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-04-06T21:07:00.630" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4976" PostTypeId="1" AcceptedAnswerId="5280" CreationDate="2015-04-06T21:13:48.953" Score="8" ViewCount="247" Body="&lt;p&gt;Iceland is considering &lt;a href=&quot;http://www.forsaetisraduneyti.is/media/Skyrslur/monetary-reform.pdf&quot; rel=&quot;nofollow&quot;&gt;removing &quot;money creation&quot; from commercial banks&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;[Despite the date of the article, I don't think this is a joke, as it has been picked up in other places since without anyone claiming it was a joke.]&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I guess that what they are proposing is that borrowing short and lending long based on fractional reserves wouldn't be allowed, and only the central bank would be allowed to issue unbacked long-term loans in exchange for short-term deposits. Commercial banks could fund their own lending with these loans and would make short-term deposits at the central bank to reflect deposits made with them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What are the advantages and drawbacks of this approach? If it makes sense, why isn't everyone else already doing so?&lt;/p&gt;&#xA;" OwnerUserId="58" LastEditorUserId="58" LastEditDate="2016-09-10T13:36:58.910" LastActivityDate="2016-09-10T13:36:58.910" Title="Restricting &quot;money creation&quot; to the central bank" Tags="&lt;money-supply&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ClosedDate="2015-04-23T16:49:36.230" ContentLicense="CC BY-SA 3.0" />
  <row Id="4977" PostTypeId="2" ParentId="4913" CreationDate="2015-04-06T21:22:29.687" Score="10" Body="&lt;p&gt;Exogenous variables are believed to have some value given by nature. They are not caused by your theory's variables of interest. This is why they are said to be outside the model.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Endogenous variables have values dependent on your theory's variables of interest. They both cause, and are caused by your topic. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Example: In the study of wages, some individuals are born superior, genetically, perhaps. They are superior exogenously. Because of their superior innate quality, they may choose to seek additional education knowing they will get higher returns for their investments. So the amount of education is endogenous to wages, because a person's expected earnings informs their education.&lt;/p&gt;&#xA;" OwnerUserId="4185" LastActivityDate="2015-04-06T21:22:29.687" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4979" PostTypeId="2" ParentId="455" CreationDate="2015-04-06T21:50:52.667" Score="4" Body="&lt;p&gt;Because according to utility theory: more is better- or at least not worse (nonsatiation- or free disposal).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your question seems to actually be: why is growth good? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Firstly, It's axiomatic. Utility theory very formally assumes the law of nonsatiation/free disposal.  Things that result in the death of the cosmos are bad not because we are dead, but because we cannot consume and improve our happiness afterwards. Evidince: We observe that consumption improves happiness.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Second, in cases of limited resources, we have situations where optional growth paths are negative-But this is only because it allows for increased overall consumption. &lt;/p&gt;&#xA;" OwnerUserId="4185" LastEditorUserId="4185" LastEditDate="2015-04-06T22:21:26.270" LastActivityDate="2015-04-06T22:21:26.270" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="4980" PostTypeId="2" ParentId="4972" CreationDate="2015-04-07T03:56:48.913" Score="2" Body="&lt;p&gt;We can obtain the result that Indiference Sets are &lt;em&gt;not&lt;/em&gt; singletons, i.e. that consumption bundles that are equivalent under the preference relation &lt;em&gt;must&lt;/em&gt; exist, by using a Consumption Set $X$ defined over $\mathbb R_+^n$, i.e. over &lt;em&gt;real&lt;/em&gt; vectors, together with the property of Continuity of preferences (alternative-weaker prerequisites may exist though).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;An equivalent way to state the property of Continuity of preferences (see for example Mas-Collel et al, ch 3.C), is that $\forall x \in X$ the upper contour set $UCS$ and the lower contour set $LCS$ are both &lt;em&gt;closed&lt;/em&gt;, i.e they include their boundaries. The contour sets are sets that include consumptions bundles &quot;at least as preferred as $x$&quot; (upper) and &quot;at most as preferred as $x$&quot; (lower). In order for them to &quot;include&quot; their boundary&quot;, &lt;em&gt;a boundary must exist in the first place&lt;/em&gt;. But their boundary is the Indifference Set, the set containing all bundles as preferred as $x$.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So your question essentially boils down to &lt;strong&gt;Is it possible that the boundary of the upper or lower contour sets of $x$, sets that are defined over real vectors, is a single point?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I believe that envisioning this in two-dimensions will show that it is impossible, but let's prove it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Ad absurdum&lt;/em&gt;, assume that this holds for some $x \in X$. Then for &lt;em&gt;any&lt;/em&gt; other consumption bundle in $X$, say $x'$, we will have either $x'&amp;gt;_{pr} x$ or $x'&amp;lt;_{pr} x$. In other words, any other point in $X$ will belong either in $UCS_x$ or in $LCS_x$, &lt;em&gt;but not in both&lt;/em&gt;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So consider two such points , $x''&amp;gt;_{pr}x&amp;gt;_{pr}x'$. Assume that $x'=\{\mathbf y_{(n-1)}, y_n\}$, $x''=\{\mathbf y_{(n-1)}, y_n+\epsilon(k)\}$, i.e. that they differ in only one of the goods in Goods Space, $\epsilon(k)&amp;gt;0$.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Transform now these two points into two &lt;em&gt;sequences&lt;/em&gt; of points, $\{x''_k\}$ and $\{x'_k\}$, indexed by $k= 1,...$ and by constructing the sequence $\{\epsilon_k\}$ such that $\{\epsilon_k\} &amp;gt;0\; \forall k$ but also $\lim_{k\rightarrow \infty} \epsilon_k = 0$. The consumption space as defined permits these constructions.  We note of course that $\{x'_k\}$ is a constant sequence since its value does not change  as $k$ changes, but that's perfectly legal. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider now the sequence of pairs, for each $k$, $\{(x''_k, x'_k)\}_{k=1}^{\infty}$, and it holds that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ x''_k &amp;gt;_{pr} x'_k\;\;\;\forall k  \tag{1}$$&#xA;$$\lim_{k\rightarrow \infty} x''_k = x'$$&#xA;$$\lim_{k\rightarrow \infty} x'_k = x'$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Under Continuity of preferences we should obtain&#xA;$$ (1) \implies \lim_{k\rightarrow \infty} x'' &amp;gt;_{pr} \lim_{k\rightarrow \infty} x'$$&#xA;but this is obviously not possible since these limits are identical.&#xA;So by assuming that there exists an $x$ in the Consumption Set to which no other bundle is equivalent in terms of the preference relation, we have violated the Continuity property.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Alternatively, since the bundles are defined over real vectors, and both $UCS$ and $LCS$ are closed due to the Continuity property, then every Cauchy sequence in each of them that converges has its limit &lt;em&gt;in&lt;/em&gt; them. So the sequence $\{x''_k\}$ has its limit in $UCS_x$, while the sequence $\{x'_k\}$ must have its limit in $LCS_x$. But this limit is the same as shown above, and equal to $x'$. But the only common point of these two sets is $x$. So it must be the case that $x'=x$. But this cannot hold since we have started by assuming $x&amp;gt;_{pr} x'$.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;An example where indifference sets are singletons is the case of &lt;em&gt;Lexicographic Preferences&lt;/em&gt;. And Lexicographic Preferences are not continuous.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-04-07T04:08:12.307" LastActivityDate="2015-04-07T04:08:12.307" CommentCount="10" ContentLicense="CC BY-SA 3.0" />
  <row Id="4981" PostTypeId="1" AcceptedAnswerId="4982" CreationDate="2015-04-07T09:49:52.613" Score="2" ViewCount="103" Body="&lt;p&gt;In retrospect what are the major parameters, most frequently causing countries' economy to reduce its size and/or growth.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Global Financial Crisis?&lt;/li&gt;&#xA;&lt;li&gt;Regional instability?&lt;/li&gt;&#xA;&lt;li&gt;Local Banking Sector failure?&lt;/li&gt;&#xA;&lt;li&gt;Long-term inefficient governmental fiscal, civil, law policies, corruption?&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="4374" LastEditorUserId="4374" LastEditDate="2015-04-07T11:26:17.750" LastActivityDate="2015-04-07T12:13:07.393" Title="The most frequent causes of economic downfall?" Tags="&lt;macroeconomics&gt;&lt;financial-crises&gt;" AnswerCount="1" CommentCount="12" ContentLicense="CC BY-SA 3.0" />
  <row Id="4982" PostTypeId="2" ParentId="4981" CreationDate="2015-04-07T11:21:39.923" Score="1" Body="&lt;p&gt;Interestingly, &lt;a href=&quot;http://eml.berkeley.edu/~dromer/papers/RomerandRomerFinancialCrises.pdf&quot; rel=&quot;nofollow&quot;&gt;Romer and Romer (2014)&lt;/a&gt; show that financial crises are typically &lt;em&gt;not&lt;/em&gt; causing major downfalls in economic activity, if you restrict your sample onto the developed countries post WWII.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An advantage of their method is that they look at a real time narrative, so they don't try to judge ex-post what was a crises. So historians &lt;em&gt;winner writes history&lt;/em&gt; criticism doesn't apply here.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is certainly worse if the financial crises is global, but that's pretty infrequent.&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2015-04-07T12:13:07.393" LastActivityDate="2015-04-07T12:13:07.393" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="4983" PostTypeId="1" CreationDate="2015-03-24T20:48:43.743" Score="3" ViewCount="98" Body="&lt;p&gt;This is an old exam question I can't figure out.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/pJcRc.png&quot; alt=&quot;old exam question&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I thought to find the relationship you would sum the coefficients on the &lt;em&gt;Y&lt;/em&gt;s, so it would be&lt;br&gt;&#xA;&lt;strong&gt;0.80 + 0.70 - 0.10&lt;/strong&gt;, giving you &lt;strong&gt;C = 1.4Y&lt;/strong&gt;, but this isn't an option. Could someone tell me where I went wrong? Is it something to do with the fact it's in &lt;strong&gt;log&lt;/strong&gt; form?&lt;/p&gt;&#xA;" OwnerDisplayName="roncook" LastActivityDate="2015-04-07T17:21:11.790" Title="How to find the long-run relationship using this regression (3rd time posted)" Tags="&lt;regression&gt;&lt;self-study&gt;" AnswerCount="1" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="4984" PostTypeId="2" ParentId="4983" CreationDate="2015-03-24T21:26:16.853" Score="3" Body="&lt;p&gt;&lt;strong&gt;INITIAL ANSWER March 24&lt;/strong&gt;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ok. Let's answer this without answering. Your moral obligation to this community, in case it matters to you, is to report back with your work and your answer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) In Economics we use the difference of natural logarithms to express (approximately) something specific. It is essentially stated in the body of the exercise.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) An estimated relation through regression is essentially an estimation of the expected value, which in turn can be thought of as some long-term average. So don't you think it should validate the assumed long-run values given in the exercise?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;3)  Given the assumed long-run values in the exercise what is the relation between $C_{t-1}/Y_{t-1}$ ,  $C_{t}/Y_{t}$, and of $C/Y$, in the long-run? Or between $\Delta \log Y_{t-1}$ and $\Delta \log Y_{t}$ (in light of your answer in 1) above).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;4) Given the assumed long-run values in the exercise, do you think that the answer will be of the form $C = a + bY$, or of the form $C = bY$?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The final step will require remembering your answer in 1).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;ADDENDUM April 7th&lt;/strong&gt;&lt;br&gt;&#xA;Now that the question came to its proper home, and a two-weeks interval has passed, let's complete this:  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given the estimated relationship, in order to be consistent with our model, we accept that this relationship will also hold in the long-run. In the long-run some magnitudes are constant. Which ones, in our case? We are told that the long-run &lt;em&gt;growth rate&lt;/em&gt; of Consumption and of Income are the same, &lt;em&gt;constant&lt;/em&gt;, and equal to $0.25$. This means that in the long-run we will have the equalities&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$C_{t-1}/Y_{t-1}= C_{t}/Y_{t}=C_{LR}/Y_{LR}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Delta \log Y_{t-1}=\Delta \log Y_{t} = \Delta \log C_{t} \equiv g =0.25$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;...since the difference of natural logs approximates the growth rate.&lt;br&gt;&#xA;Given these, and given the estimated long-run inflation that is given and equal to&#xA;$$\Delta \log P_{t} \equiv \pi = 0.1$$&#xA; the long-run relationship is transformed into an equation with a single unknown, $C_t/Y_t$. Specifically, we have, making first symbolic and then numerical substitution:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$g = 0.8g+0.7g+0.1\ln(C_{LR}/Y_{LR}) -0.15\pi$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies g(1-0.8-0.7) + 0.15\pi = 0.1\ln(C_{LR}/Y_{LR})$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies  0.25\cdot (-0.5) + 0.15\cdot 0.1 = 0.1\ln(C_{LR}/Y_{LR})$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies -0.11 = 0.1\ln(C_{LR}/Y_{LR})$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At this point, it appears that the &quot;old exam question&quot; made a mistake, because the choices given for answering seem to &quot;ignore&quot; the existence of the coefficient $0.1$ attached to $\ln(C_{LR}/Y_{LR})$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;If&lt;/em&gt; the relation was $-0.11 = \ln(C_{LR}/Y_{LR})$, we would obtain by taking the exponential $e^{-0.11} = C_{LR}/Y_{LR} \implies 0.896 = C_{LR}/Y_{LR} \implies C_{LR} \approx 0.9Y_{LR}$, which is one of the choices given.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But with the coefficient $0.1$ present we obtain&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$... \frac {-0.11}{0.1} = -1.1 =\ln(C_{LR}/Y_{LR}) \implies e^{-1.1} = C_{LR}/Y_{LR} \implies C_{LR}\approx \frac 13Y_{LR}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which is not given as an option.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;PS:&lt;/strong&gt; The standard errors of the estimates are not involved in the above calculations. One could comment that their magnitude compared to the magnitude of the estimates indicates that the estimates are &quot;statistically significant&quot; for confidence $&amp;gt;95$%.&lt;/p&gt;&#xA;" OwnerUserId="61" OwnerDisplayName="Alecos Papadopoulos" LastEditorUserId="61" LastEditDate="2015-04-07T17:21:11.790" LastActivityDate="2015-04-07T17:21:11.790" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4987" PostTypeId="1" AcceptedAnswerId="4988" CreationDate="2015-04-07T18:55:39.520" Score="2" ViewCount="4139" Body="&lt;p&gt;Is it possible to have a negative gini coefficient?&#xA;In which situations is it possible?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="118" LastActivityDate="2015-04-07T19:30:35.363" Title="Negative Gini Coefficiente?" Tags="&lt;microeconomics&gt;&lt;econometrics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4988" PostTypeId="2" ParentId="4987" CreationDate="2015-04-07T19:30:35.363" Score="7" Body="&lt;p&gt;&lt;strong&gt;tl;dr&lt;/strong&gt; No, it is not possible to have a negative Gini coefficient.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://en.wikipedia.org/wiki/Gini_coefficient&quot;&gt;The Gini coefficient is the area between the line of equality and the Lorentz curve&lt;/a&gt;, and this area cannot be negative. Let the area of equality as in the link be denoted by $A$, and the area under the Lorentz curve be denoted by $B$, then the Gini coefficient is given by&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ G = \frac{A-B}{B}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If negative income (or whatever you are measuring) is not permitted, the maximum inequality is $1$. If negative income is permitted, it can potentially be larger than $1$. In any case, the minimum for the Gini coefficient is $0$, which corresponds to total equality.&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-04-07T19:30:35.363" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4990" PostTypeId="1" CreationDate="2015-04-07T20:33:06.187" Score="3" ViewCount="120" Body="&lt;p&gt;Pretty simple question: people get rich by saving more money than they spend. What are the implications of people holding onto their money instead of spending it?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Do rich people save more money (ratio-wise) than less rich people?&lt;/p&gt;&#xA;" OwnerUserId="4379" LastEditorUserId="69" LastEditDate="2015-04-07T20:51:04.167" LastActivityDate="2015-04-08T09:57:10.773" Title="What are the widescale economic ramifications of people holding onto their money instead of spending it?" Tags="&lt;macroeconomics&gt;&lt;consumption&gt;&lt;money&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4991" PostTypeId="1" CreationDate="2015-04-07T20:40:26.160" Score="15" ViewCount="2452" Body="&lt;p&gt;If the central bank is the only institution that can increase the monetary base (create both, digital and paper money), how can any institution that borrows from it (mostly banks) satisfy its interest requirements? In other words, how can you pay back more than what left the central bank?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A dumbed down example would be: Only I can create money, I (the central bank) loan you (the banks) 10 dollars expecting 11 dollars back (10 dollars principal + 1 dollar interest). Where will you get that 1 dollar from to pay me the interest if there are only 10 dollars in existence?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This question can be easily answered if there were any way in which new money can leave the central bank without being paid back. Are there such transactions I don't know about?&lt;/p&gt;&#xA;" OwnerUserId="4380" LastEditorUserId="264" LastEditDate="2015-04-13T17:37:45.700" LastActivityDate="2016-03-29T14:06:21.577" Title="How can banks pay interest to the central bank?" Tags="&lt;monetary-policy&gt;&lt;interest-rate&gt;&lt;federal-reserve&gt;" AnswerCount="5" CommentCount="3" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="4994" PostTypeId="2" ParentId="4947" CreationDate="2015-04-07T23:29:41.043" Score="3" Body="&lt;p&gt;In Keynes's &lt;em&gt;Treatise on Money&lt;/em&gt; he argued that the phenomenon you describe, known as &quot;&lt;a href=&quot;http://en.wikipedia.org/wiki/Normal_backwardation&quot; rel=&quot;nofollow&quot;&gt;normal backwardation&lt;/a&gt;&quot;, is due to the fact that certain commodities producers hedge their price risk (importantly, they hedge their risk much more than consumers) by selling futures. The intuition for why the producer does this is that it allows the producer to lock in the price of the commodity in advance, allowing them to plan their production based on a guaranteed price. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, remember that relatively fewer consumers hedge their risk than producers. Intuitively, this might be because, for example, if the price of pork rises significantly, consumers can easily adapt by substituting away from it; in contrast, if the price of pork falls significantly, pork producers who have been raising pigs for months are unable to adapt easily and may face a significant loss. So the risk is concentrated on producers, and selling futures is essentially just shifting this risk from the producers out into the financial system so that it is (hopefully) more dispersed. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But now the twist: because there aren't a lot of consumers who feel that it's important to lock in today the cost of a ham in the future, there are no natural buyers of these futures. As a result, producers have to sell pork futures at a discount to the expected future spot price, to compensate people for accepting the risk. When this is the case, futures prices in these markets are said to experience normal backwardation.&lt;/p&gt;&#xA;" OwnerUserId="264" LastEditorUserId="264" LastEditDate="2015-04-07T23:50:02.700" LastActivityDate="2015-04-07T23:50:02.700" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4995" PostTypeId="1" AcceptedAnswerId="5000" CreationDate="2015-04-08T00:44:57.267" Score="6" ViewCount="918" Body="&lt;p&gt;Consider the demand curve for fare evasion on a train. The price (I suppose) would be the average amount of money paid per ride in fines, and the quantity would be the average number of fare evaders caught. The supply curve would quantify the target number of fare evaders to catch.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/z7pZy.png&quot; alt=&quot;Typical supply and demand curve&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Normally technological advances push the supply curve rightward. This would correspond with more people getting caught. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/0KPJy.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But this obviously isn't right. If it were easier to catch fare evaders, you'd intuitively expect that the average price in fines per ride for a rider would be higher, thus, quantity would go down.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What does the supply/demand curve really look like for fare evasion and what would be the effect of a rightward supply curve shift?&lt;/p&gt;&#xA;" OwnerUserId="4382" LastActivityDate="2015-04-08T02:27:58.450" Title="What does a supply+demand curve look like for fare evasion?" Tags="&lt;supply-and-demand&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="4997" PostTypeId="1" AcceptedAnswerId="5019" CreationDate="2015-04-08T01:35:48.713" Score="11" ViewCount="33645" Body="&lt;p&gt;When trying maximize the utility having a cobb-douglas utility function $u=x_1^ax_2^b$, with $a+b = 1$, I found the following formulas (&lt;a href=&quot;http://de.wikipedia.org/wiki/Marshallsche_Nachfragefunktion#Marshallsche_Nachfragefunktionen_f.C3.BCr_g.C3.A4ngige_Nutzenfunktionen&quot;&gt;Wikipedia: Marshallian Demand&lt;/a&gt;):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$x_1 = \frac{am}{p_1}\\&#xA;x_2 = \frac{bm}{p_2}$  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In one of my books I also find these formulas for the same purpose:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$x_1 = \frac{a}{a+b}\frac{m}{p_1} \\&#xA;x_2= \frac{b}{a+b}\frac{m}{p_2}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With $p_i$: prices of the goods; $m$: budget&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I tested all of them and they produced the same results.&lt;br&gt;&#xA;So are there any differences?&lt;/p&gt;&#xA;" OwnerUserId="4383" LastEditorUserId="4383" LastEditDate="2015-04-08T15:28:47.807" LastActivityDate="2015-06-23T22:58:38.417" Title="Marshallian Demand for Cobb-Douglas" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;&lt;optimization&gt;&lt;cobb-douglas&gt;" AnswerCount="2" CommentCount="4" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="4998" PostTypeId="1" CreationDate="2015-04-08T01:48:30.523" Score="13" ViewCount="1864" Body="&lt;p&gt;It's quite clear that the expected return on a lottery ticket is less than 1. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, I think it can still be argued that buying lottery tickets is still a economically rational decision by consumers. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are a few lines of reasoning:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;The consumer isn't just buying an expected payout, they're buying 'a dream'. Much like watching a fantasy movie or reading a book is an economically rational decision, (even though the story isn't 'real'), the thoughts of 'what would I do if I won the lottery' is a commodity that the consumer is buying. &lt;/li&gt;&#xA;&lt;li&gt;The value of a lottery payout is worth more than its face value. When analysing the expected return on an ordinary decision, we assume that the return is given in the same context. (For example when Bob is choosing between Stock A, Stock B or saving his money in the bank, regardless of which payout he gets, the rest of his circumstances stay the same). Winning the lottery means, for most us, that we'd quit our jobs, which is worth more than just the payout itself. &lt;/li&gt;&#xA;&lt;li&gt;It also needs to be considered that the cost of the lotto ticket is often mitigated by that it can also be partially considered as charity. &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The question is - is this subject well considered in economics? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Perhaps a good answer would iterate the economic reasoning of buying lottery tickets. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;NB.&lt;/em&gt; I'm planning asking a separate follow up question regarding point two, question at what lottery payout the expected return increases. &lt;/p&gt;&#xA;" OwnerUserId="96" LastEditorUserId="96" LastEditDate="2015-04-08T03:34:20.447" LastActivityDate="2017-05-23T02:28:35.020" Title="Is there an economic analysis of the rationality of buying lottery tickets?" Tags="&lt;decision-theory&gt;" AnswerCount="3" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="4999" PostTypeId="1" AcceptedAnswerId="5069" CreationDate="2015-04-08T02:05:57.660" Score="2" ViewCount="2308" Body="&lt;p&gt;Two Questions: &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Since Lexicographic preferences are not continuous, is it still appropriate to use $\Bbb{R}^n_+$ to define my coordinate axes when drawing Lexicographic preferences? If not, what should I use instead? &lt;/li&gt;&#xA;&lt;li&gt;Since the indifference sets for Lexicographic preferences are singletons, how do I draw them? What's the convention? Will a single point do? &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;(related to &lt;strong&gt;&lt;a href=&quot;https://economics.stackexchange.com/questions/4972/for-a-given-set-of-consumption-bundles-how-do-we-know-there-are-bundles-that-th&quot;&gt;this question&lt;/a&gt;&lt;/strong&gt;)&lt;/p&gt;&#xA;" OwnerUserId="2679" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-04-11T13:32:35.440" Title="How does one graph indifference curves for a set of Lexicographic preferences?" Tags="&lt;consumer-theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5000" PostTypeId="2" ParentId="4995" CreationDate="2015-04-08T02:08:17.233" Score="2" Body="&lt;p&gt;The way to get the demand curve is by deriving the utility function.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, the utility function needs to be defined.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$E(u)=(u(0)(r)+u(200)(1-r))$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this case, the expected utility is the utility of spending \$0 on the fare vs the utility if you get a \$200 fine. in this case, r is the probability of getting away with it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If this is greater than the utility of paying the fare, the fare will be evaded.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$E(u)=(u(0)r+u(200)(1-r))\geq {u(5)}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The exact utility function can take many forms. Popular choices are Decreasing Absolute Risk Aversion (DARA), Constant Absolute Risk Aversion (CARA) or others. &lt;a href=&quot;http://en.wikipedia.org/wiki/Risk_aversion&quot; rel=&quot;nofollow&quot;&gt;Wikipedia&lt;/a&gt; is OK on this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The next steps in this analysis are to decide on a utility function.&#xA;You will need inputs on risk of getting caught and fines.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;After defining the utility function you will be able to derive the demand curve.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You will also need to define the supply curve. If the fare is something like a train ride, you may be able to set up the marginal cost=0. That allows you to only worry about the fixed cost.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A useful resource will be the wiki article mentioned earlier. This &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0195073401&quot; rel=&quot;nofollow&quot;&gt;Mas Collel&lt;/a&gt; book is a very popular graduate text. I think it treats risk aversion relatively well, although I did find it not incredibly accessible.&lt;/p&gt;&#xA;" OwnerUserId="40" LastActivityDate="2015-04-08T02:08:17.233" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5001" PostTypeId="2" ParentId="4995" CreationDate="2015-04-08T02:27:58.450" Score="0" Body="&lt;p&gt;A more simple analysis would be to suggest that the firm is a monopolist operating with a profit function $F_1=\Pi^m(q)$&#xA;That is, $mc=0$&#xA;Price is a downward sloping function of Q&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$P=A-q$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The constraint is that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\Pi^m\geq 0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\Pi^m(q)=(A-q)q-C$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which is price times quantity minus fixed cost.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Looking at this simple model, an increase in the proportion of people evading fares, would result in a lower q. This essentially reduces the profit for the firm but does not impact supply.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This could be adjusted to include a marginal cost in the profit function ($P=A-q-c$)&lt;/p&gt;&#xA;" OwnerUserId="40" LastActivityDate="2015-04-08T02:27:58.450" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5002" PostTypeId="1" CreationDate="2015-04-08T02:42:18.080" Score="2" ViewCount="39" Body="&lt;p&gt;The New Zealand dollar &lt;a href=&quot;http://www.stuff.co.nz/business/67600087/australian-dollar-parity-party-approaches&quot; rel=&quot;nofollow&quot;&gt;has reached parity with the Australian dollar for the first time in more than forty years.&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question is - what are the economic factors that have caused this?&lt;/p&gt;&#xA;" OwnerUserId="96" LastActivityDate="2015-04-08T02:42:18.080" Title="Why is the New Zealand dollar on parity with the Australian dollar?" Tags="&lt;exchange-rates&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5003" PostTypeId="2" ParentId="4998" CreationDate="2015-04-08T03:09:47.970" Score="10" Body="&lt;p&gt;There are definitely economic justifications for playing the lottery, even if all (I hope) players understand that it is unlikely to pay off.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One such justification is that what you actually buy when purchasing a lottery ticket is the fantasy of winning.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here are a few sources. Lotterys are relatively well understood in economics.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;http://college.holycross.edu/RePEc/hcx/Grote-Matheson_LiteratureReview.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;The Economics of Lotteries: A Survey of the Literature&lt;/a&gt;(pdf)  - is an excellent article covering basically your entire question. It discusses the microeconomic forces at play, particularly income elasticity and risk aversion.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;http://ocw.mit.edu/courses/economics/14-03-microeconomic-theory-and-public-policy-fall-2010/lecture-notes/MIT14_03F10_lec14.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;This source&lt;/a&gt; (note: this is now a dead link) has some excellent lecture notes on the market for risk. I recommend it highly. Some basic points are:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;people don't want actuarialy fair games, often they would decline a coin flip with a payoff of \$1mil for a win and a cost of \$1m for a loss. Also, an actuarialy favourable game isn't necessarily desirable. If the payoff was \$1.1m people would still decline the game as the cost is just so high. In that sense, a lottery has an advantage. The payoff can be huge but the cost in the event of losing is almost negligible.&lt;/li&gt;&#xA;&lt;/ul&gt;&lt;/li&gt;&#xA;&lt;li&gt;Lastly, &lt;a href=&quot;http://www.nytimes.com/2015/02/12/upshot/the-case-for-buying-a-powerball-ticket.html?_r=0&amp;amp;abt=0002&amp;amp;abg=1&quot; rel=&quot;nofollow noreferrer&quot;&gt;this source&lt;/a&gt; is an article from the NY times. Definitely relevant, highlighting similar points to the first two articles but is a lot more accessible.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="40" LastEditorUserId="40" LastEditDate="2017-05-23T02:28:35.020" LastActivityDate="2017-05-23T02:28:35.020" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5004" PostTypeId="1" CreationDate="2015-04-08T04:03:24.667" Score="11" ViewCount="974" Body="&lt;p&gt;Suppose $\Omega$ is a set of mutually exclusive outcomes of a discrete random variable and $f$ is a utility function where $0 &amp;lt; f(\omega) \leq 1$, $\sum_\Omega f(\omega) = 1$, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When $f$ is uniformly distributed over $\Omega$ and $f$ is a &lt;strong&gt;probability mass function&lt;/strong&gt;, the Shannon entropy $H(\Omega) = \sum_{\Omega}f(\omega)log\frac{1}{f(\omega)}$ is maximized ($=log|\Omega|)$, and when one element in $\Omega$ has all of $f$'s mass, the Shannon entropy is minimized ($0$, in fact). This corresponds to intuitions about &lt;em&gt;surprisal&lt;/em&gt; (or &lt;em&gt;uncertainty reduction&lt;/em&gt;) and outcomes and &lt;em&gt;uncertainty&lt;/em&gt; (or &lt;em&gt;expected surprisal&lt;/em&gt;) and random variables:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;When $f$ is uniformly distributed, uncertainty is maximized, and the more outcomes there are for mass to be uniformly distributed over, the more uncertain we are.&lt;/li&gt;&#xA;&lt;li&gt;When $f$ has all its mass concentrated in one outcome, we have no uncertainty.&lt;/li&gt;&#xA;&lt;li&gt;When we assign an outcome a probability of $1$, we gain no information (are &quot;unsurprised&quot;) when we actually observe it.&lt;/li&gt;&#xA;&lt;li&gt;When we assign an outcome a probability closer and closer to $0$, the observation of it actually occurring becomes more and more informative (&quot;surprising&quot;).&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;(This all says nothing about the much more concrete -- but less epistemic -- coding interpretation of Shannon information/entropy, of course.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, when $f$ has the interpretation of a &lt;strong&gt;utility function&lt;/strong&gt;, is there a sensical interpretation of $log\frac{1}{f(\omega)}$ or $\sum f(\omega)log\frac{1}{f(\omega)}$? &#xA;It seems to me that there might be: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;if $f$ as a PMF represents a uniform distribution over $\Omega$, then $f$ as a utility function corresponds to &lt;em&gt;indifference&lt;/em&gt; over the outcomes that could not be greater*&lt;/li&gt;&#xA;&lt;li&gt;a utility function where one outcome has all of the utility and the rest have none (as skewed of a utility as there could be) corresponds to &lt;em&gt;very strong relative preferences&lt;/em&gt; -- a lack of indifference.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Is there a reference expanding on this? Have I missed something about the limitations on comparing probability mass functions and normalized, relative utilities over discrete random variables?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;*I am aware of indifference curves and do not see how they might be relevant to my question for a variety of reasons, starting with my focus on a categorical sample space and with the fact that I am not interested in 'indifference' per se, but rather how to interpret utilities as probabilities and how to interpret functionals on probabilities when the (discrete) 'probability distribution' in question actually or (additionally) has the interpretation of a utility function.&lt;/p&gt;&#xA;" OwnerUserId="4384" LastEditorUserId="61" LastEditDate="2015-04-08T04:21:33.147" LastActivityDate="2015-10-01T03:04:59.377" Title="When treating a relative, normalized utility function as a pmf, what is the interpretation of Shannon entropy or Shannon information?" Tags="&lt;utility&gt;&lt;decision-theory&gt;&lt;preferences&gt;&lt;probability&gt;" AnswerCount="3" CommentCount="1" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5005" PostTypeId="2" ParentId="5004" CreationDate="2015-04-08T04:41:46.610" Score="3" Body="&lt;p&gt;Before discussion Shannon's entropy, there is another point that should be discussed: it appears that you have in mind &lt;em&gt;cardinal&lt;/em&gt; utility rather than &lt;em&gt;ordinal&lt;/em&gt;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;Normalized&quot; utility functions can be derived of course in both cases. But the concept of &quot;relative preference&quot; can be defined and measured only in the context of cardinal utility.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And the issue does not arise at the two extremes you describe, but in all the possible intermediate cases.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A simple example: assume that there are three &quot;outcomes&quot;, $A, B, C$ (say, consumption levels, or three different goods each at some quantity). Your utility function assigned to them the values&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$V(A) = 1, \;\;V(B) = 9,\;\; V(C) = 90$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Under ordinal utility, this just tells us that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$A &amp;lt;_{pr} B &amp;lt;_{pr} C$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Certainly we can normalize these by dividing by $100$ to obtain&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U_V(A)=0.01, \;\; U_V(B) = 0.09,\;\; U_V(C)  =0.9$$&#xA;and the ranking of the three outcomes is preserved&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But under ordinal utility, we could very well use another utility function that would assign&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$W(A) = 31, \;\;W(B) = 32,\;\; W(C) = 37$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and obtain&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U_W(A)=0.31, \;\; U_W(B) = 0.32,\;\; U_W(C)  =0.37$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The ranking is the same so the two utility functions $V$ and $W$ are &lt;em&gt;equivalent&lt;/em&gt; under ordinal utility. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But in what you are describing, the $W$ utility function represents &lt;em&gt;different relative preferences&lt;/em&gt; than $V$ and so it is not the same utility function. But this is meaningful only under &lt;em&gt;cardinal&lt;/em&gt; utility, where quantitative comparisons between utility numbers are assumed to have meaning.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are you familiar with the issues surrounding cardinal utility?&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-04-08T04:41:46.610" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5006" PostTypeId="1" AcceptedAnswerId="5008" CreationDate="2015-04-08T09:07:52.273" Score="5" ViewCount="428" Body="&lt;p&gt;I do understand the gist of what infinitely repeated games are in that T=$\infty$ ; that is the stage game is played each period for an infinite number of periods.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In his book &lt;em&gt;&quot;Strategy&quot;&lt;/em&gt;, Watson makes the following claim:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Although such a game may not seem realistic at first (people do not&#xA;  live forever), infinitely repeated games are useful &lt;strong&gt;for modeling some&#xA;  real-world situations&lt;/strong&gt;.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;With reference to the part in bold, could you elaborate?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks.&lt;/p&gt;&#xA;" OwnerUserId="4201" LastActivityDate="2015-08-25T18:04:20.343" Title="Infinitely repeated games and real-world situations?" Tags="&lt;game-theory&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5007" PostTypeId="1" AcceptedAnswerId="5016" CreationDate="2015-04-08T09:29:57.150" Score="4" ViewCount="3329" Body="&lt;p&gt;While reading Ch. 24-Monopoly from Intermediate Microeconomics by Hal Varian (8 &lt;sup&gt;th&lt;/sup&gt; edition), on pg. 441, he writes that a monopolist will never choose to operate where the demand curve is inelastic. I understand the argument, but, if we have constant elasticity demand curve with&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$|\epsilon| &amp;lt; 1 $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;then how this effect the monopolist's choice?&lt;/p&gt;&#xA;" OwnerUserId="4345" LastEditorUserId="108" LastEditDate="2015-04-08T14:37:16.233" LastActivityDate="2015-04-08T14:38:44.967" Title="Monopoly pricing under constant elasticity of demand" Tags="&lt;elasticity&gt;&lt;monopoly&gt;&lt;producer-theory&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5008" PostTypeId="2" ParentId="5006" CreationDate="2015-04-08T09:42:55.877" Score="6" Body="&lt;p&gt;In most situations it is not clear when a game ends, it is just clear that at every point in time there is a probability that this is the last period of them game.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Just try to say what is this $T$ for the life of a human? 150 years? Even if you are 150 years old there is a (probably small) chance that you will survive another year. And the next year? There is also another chance to live another year, and so on.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As long as there is no fixed endpoint to the game, infinitely repeated games are, in my opinion, more realistic as long as there is some chance of ending the game included (i.e., as a discount rate).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Infinitely repeated games are also a way to resolve some problems backward induction (for example in the Chain-store paradox). You really have to know that there is a very last situation to use backward induction.&lt;/p&gt;&#xA;" OwnerUserId="120" LastActivityDate="2015-04-08T09:42:55.877" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5009" PostTypeId="2" ParentId="4990" CreationDate="2015-04-08T09:57:10.773" Score="3" Body="&lt;p&gt;The amount that people save depend on the marginal propensity to consume (MPC), i.e., part of the additional income that a person consume, hence, $1-MPC = savingrate$. Keynes assumed that with increase in income MPC would increase, while neo-Keynesian assumed it to be constant in their analysis. But real data shows that MPC increases with elevation of income but decreases with large income gains. Hence, in a way, rich people save more relatively to others. But that is not the reason why they are rich, more saving is the effect, not the cause. Mostly, the reasons behind getting rich are the apt investment decisions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When an economy hold more money, consumption reduces leading to reduced outputs. This in return decreases real income. Since, in equilibrium savings equals investment ($I = S$), so actually there is no increase in savings and we are left poorer with lower income levels. This is called the &lt;strong&gt;paradox of thrift&lt;/strong&gt;, suggested by Keynes. &lt;/p&gt;&#xA;" OwnerUserId="4345" LastActivityDate="2015-04-08T09:57:10.773" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5011" PostTypeId="1" AcceptedAnswerId="5013" CreationDate="2015-04-08T12:10:18.657" Score="0" ViewCount="872" Body="&lt;p&gt;I have problems with deciding whether those statements are true or false.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;In a short/long run price of equilibrium on a perfectly compettive market might be either lower or higher then average total cost of one company operating on this market.&lt;/li&gt;&#xA;&lt;li&gt;In a short run total amount of companies in perfectly competitive branch of industry, changes when their economic gains are equal to zero.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Appreciate your help with some further comments about that. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;PS. anticipating your questions i am preparing to an exam, that is why i am looking for an answer to those questions. &lt;/p&gt;&#xA;" OwnerUserId="4264" LastActivityDate="2015-06-23T07:58:16.173" Title="Perfect competition questions" Tags="&lt;microeconomics&gt;&lt;competition&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5012" PostTypeId="2" ParentId="4998" CreationDate="2015-04-08T12:12:43.963" Score="7" Body="&lt;p&gt;I want to add some other justifications for buying lottery tickets:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;general risk-seeking behavior &lt;em&gt;(which is probably pretty rare)&lt;/em&gt;&lt;/li&gt;&#xA;&lt;li&gt;risk-seeking when it comes to low monetary values (Cumulative prospect theory)&lt;/li&gt;&#xA;&lt;li&gt;Cognitive biases, e.g.,&#xA;&lt;ul&gt;&#xA;&lt;li&gt;with respect to probabilities (over-weighting low probabilities, Knightian unicertainty)&lt;/li&gt;&#xA;&lt;li&gt;the money (under-weighting small amounts)&lt;/li&gt;&#xA;&lt;li&gt;Gambler's fallacy (I've lost so often, I have to win now)&lt;/li&gt;&#xA;&lt;li&gt;focusing effect (John has won \$ 10 000 in the lottery last year and Jane \$ 1000 this year)&lt;/li&gt;&#xA;&lt;/ul&gt;&lt;/li&gt;&#xA;&lt;li&gt;Jumps in the utility function (e.g., I am on a fair, have only \$ 2 on me, but I really want to buy this cotton candy for \$ 3), &lt;em&gt;(probably also rare)&lt;/em&gt;&lt;/li&gt;&#xA;&lt;li&gt;additional (non-monetary) benefit through lotteries (e.g., doing something good (charity) or likes the &quot;thrill&quot; of gambling) &lt;em&gt;(in my opinion the most important reason)&lt;/em&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Your mentioned reasons fit very well into the additional benefit category (buying a dream or &quot;cost of the lotto ticket is mitigated&quot;) or into the the jumps in the utility function (quitting the job).&lt;/p&gt;&#xA;" OwnerUserId="120" LastEditorUserId="120" LastEditDate="2015-06-04T09:07:07.617" LastActivityDate="2015-06-04T09:07:07.617" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5013" PostTypeId="2" ParentId="5011" CreationDate="2015-04-08T12:19:59.297" Score="1" Body="&lt;p&gt;I'm not going to answer the questions for you, but here is some food for thought, you should be able to conclude yourself.&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Ad 1&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;We know that in the long run equilibrium, there are zero profits: If they'd be positive, firms would enter, if they'd be negative, firms would leave. Can we conclude something about a firm's profits if it has average total costs smaller (larger) than the price?&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Ad 2&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;What induces change in the total amount of companies in such a branch? Is having zero-profits one of these reasons?&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-04-08T12:19:59.297" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5014" PostTypeId="2" ParentId="5007" CreationDate="2015-04-08T14:34:49.777" Score="2" Body="&lt;p&gt;A constant elasticity demand function has the form $q=p^{-\epsilon}$. Let's check this indeed gives us a constant elasticity...&#xA;$$\frac{d q}{dp}=-\epsilon p^{-\epsilon-1}$$&#xA;so, as we'd hoped, the elasticity is constant:&#xA;$$\frac{d q}{dp}\frac{p}{q}=-\epsilon p^{-\epsilon-1}\frac{p}{p^{-\epsilon}}=-\epsilon p^{-\epsilon-1+1+\epsilon}=-\epsilon p^{0}=-\epsilon.$$&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Now, suppose a monopolist has constant marginal cost $c\geqslant0$ (and no fixed cost). It's profit is&#xA;$$q(p-c)=p^{-\epsilon}(p-c).$$&#xA;The effect on the firm's profits of a small increase in its price is&#xA;$$\frac{d}{d p}p^{-\epsilon}(p-c)=p^{-\epsilon -1} [c \epsilon -p\epsilon+p].$$&#xA;Now we can answer the question: if $\epsilon&amp;lt;1$ then $c \epsilon -p\epsilon+p$ is definitely positive &lt;strong&gt;for every $p$&lt;/strong&gt;. That means, no matter how high the price is, the firm would still like to increase the price further—the optimal price is $+\infty$!&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Intuitively, constant  $\epsilon&amp;lt;1$ means that the firm can always more than double its price by foregoing less than half its current sales. Provided marginal cost isn't very quickly decreasing, this is always an attractive prospect for the firm.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2015-04-08T14:34:49.777" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5015" PostTypeId="2" ParentId="4935" CreationDate="2015-04-08T14:35:41.663" Score="3" Body="&lt;p&gt;No, it cannot cause inflation. Inflation is a general rise in the price level, a decrease in the purchasing power of money. While military spending, for example, could cause inflation &lt;em&gt;if paid for through seigniorage&lt;/em&gt; (essentially, devaluing a currency by printing more of it), there's neither any reason in theory nor any empirical evidence to support the idea that inflation would result from military spending &lt;em&gt;per se&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Intuitively, if spending were shifted toward military expenditures and away from consumer expenditures, the price of consumer goods would likely fall, not rise. Similarly, the effect on producer prices would be ambiguous, as the price of consumer goods would likely fall, while the price of military goods would likely rise. If prices aren't rising, you don't have inflation.&lt;/p&gt;&#xA;" OwnerUserId="264" LastActivityDate="2015-04-08T14:35:41.663" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5016" PostTypeId="2" ParentId="5007" CreationDate="2015-04-08T14:38:44.967" Score="1" Body="&lt;p&gt;In &lt;a href=&quot;https://economics.stackexchange.com/questions/1726/price-elasticity-of-demand-for-positive-price-increases/1728#1728&quot;&gt;this post&lt;/a&gt; you can find the algebraic steps that lead to the (standard) result mentioned in Varian's book.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, let's assume that, in a specific market, the consumer's preferences are such that they lead to a constant elasticity demand curve, with elasticity lower than unity in absolute terms, $|\eta| &amp;lt; 1$, for example&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Q^d = AP^{\eta}, -1 &amp;lt;\eta &amp;lt; 0$$ &#xA;Also, let's assume that for historical or institutional reasons this market is a monopoly. From the post mentioned above we have that profit maximization by the monopolist requires that&#xA;$$P^* =  \frac {|\eta|}{|\eta|-1} MC \tag{1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\eta = \frac {\partial Q }{ \partial P}\cdot \frac {P}{Q} \Rightarrow \frac {\partial Q }{ \partial P} = \eta \cdot \frac {Q}{P} \tag{2}$$&#xA;and $MC$ is marginal cost.&#xA;Obviously, this price is negative in our case, and so meaningless. We don't need to go into sophisticated constrained maximization procedures to see what happens here: the profit function is&#xA;$$\pi = P\cdot Q(P) - C(Q(P)) \tag{3}$$&#xA;and its derivative with respect to price is&#xA;$$\frac {\partial \pi}{\partial P}  = Q + P\frac {\partial Q }{ \partial P} - MC\cdot \frac {\partial Q }{ \partial P}  \tag{4}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Using $(2)$ we get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac {\partial \pi}{\partial P}=Q + P\cdot \eta \cdot \frac {Q}{P} - MC\cdot \eta \cdot \frac {Q}{P} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies \frac {\partial \pi}{\partial P}= Q\cdot \left [1 + \eta  -  \eta \cdot \frac {MC}{P}\right]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies \frac {\partial \pi}{\partial P}= Q\cdot \left [1 - |\eta|  +  |\eta| \cdot \frac {MC}{P}\right] \tag{5}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From $(5)$ we see that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$|\eta| &amp;lt; 1 \implies \frac {\partial \pi}{\partial P} &amp;gt; 0,&#xA;\;\; \forall P &amp;gt;0 \tag{6}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So a profit maximizing monopolist would theoretically have the tendency to increase the price to &quot;infinity&quot; sending the quantity supplied to zero. Note that the Revenue function here is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$R = P\cdot Q^d = P\cdot AP^{\eta} = AP^{1-|\eta|},  \uparrow \text{in} \;P$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;while Costs are decreasing in $Q^d$. So indeed profits would tend to infinity by selling less and less for higher and higher price.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What markets could be described by such tendencies?&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-04-08T14:38:44.967" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5017" PostTypeId="1" CreationDate="2015-04-08T14:52:37.803" Score="2" ViewCount="53" Body="&lt;p&gt;In the context of the Diamonds-Mortensen-Pissarides models, there was a reasoning why a separation shock cannot fit business cycles. I think it was brought forward by Shimer, but I could be wrong.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Could someone summarize why separation shocks don't fit the data (besides that it is a decrease of vacations and not an increase of separations that that we observe in crises), and perhaps even reference the original paper?&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-04-08T14:52:37.803" Title="Separation shock and business cycles" Tags="&lt;macroeconomics&gt;&lt;labor-economics&gt;&lt;business-cycles&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5018" PostTypeId="1" AcceptedAnswerId="5037" CreationDate="2015-04-08T15:39:08.033" Score="4" ViewCount="20620" Body="&lt;p&gt;Inverse function of market demand for certain good is equal to $P=100-0.25Q$, inverse supply function is $P=20+0.55Q$. Calculate equilibrium price and quantity. Furthermore calculate consumer and producer surplus.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Equlibrium price and quantity i think i know how to calculate:&#xA;$$20+0.55Q=100-0.25Q$$&#xA;and this will be the quantity whereas the price will be (substituting Q with value calculated above): &#xA;20+0.55Q=P&#xA;am i correct with this?&#xA;I am lost with consumer/producer surplus need more help. &#xA;edit: I have and idea about consumer/producer surplus:&#xA;consumer:&#xA;$0.5 \times 100 \times 25=1250$ and producer $100 \times 55 \times 0.5=2750$&#xA;is this correct?&lt;/p&gt;&#xA;" OwnerUserId="4264" LastEditorUserId="4264" LastEditDate="2015-04-08T17:20:18.797" LastActivityDate="2018-01-30T03:02:43.840" Title="Equilibrium price and quantity - consumer and producer surplus" Tags="&lt;microeconomics&gt;&lt;general-equilibrium&gt;&lt;producer-theory&gt;&lt;consumer-surplus&gt;&lt;producer-surplus&gt;" AnswerCount="1" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5019" PostTypeId="2" ParentId="4997" CreationDate="2015-04-08T15:44:52.250" Score="13" Body="&lt;p&gt;Since $a + b=1$ the equations are exactly the same. Substituting in for $a+b$ with $1$ in the third and fourth equations gives the first and second equations. &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-04-08T16:08:08.853" LastActivityDate="2015-04-08T16:08:08.853" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="5021" PostTypeId="1" AcceptedAnswerId="5029" CreationDate="2015-04-08T16:24:14.373" Score="2" ViewCount="1042" Body="&lt;p&gt;Suppose a utility function $u=x_1^ax_2^b$ with $a+b=1$. The following formula finds the values for $x$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$x_1 = \frac{am}{p_1}\\&#xA;x_2 = \frac{bm}{p_2}$  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But what if the utility function looks like $u=cx_1^adx_2^b$ so has additional factors bevore $x_i$? Can the formula above be edited accordingly?&lt;/p&gt;&#xA;" OwnerUserId="4383" LastActivityDate="2019-01-12T20:52:44.550" Title="Editing formula for finding Marshallian Demand with Cobb-Douglas utility function" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;&lt;optimization&gt;&lt;cobb-douglas&gt;" AnswerCount="2" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="5022" PostTypeId="1" AcceptedAnswerId="5023" CreationDate="2015-04-08T17:10:25.587" Score="2" ViewCount="1165" Body="&lt;p&gt;The question that I am trying to answer is as follows:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;For a given year, South Africa's Gross Domestic Expenditure (GDE) is R 3 251 414, imports are R 987 781, and exports are R891 562. The table below lists the taxes and subsidies applicable to the South African economy:&#xA;  $$\begin{array} {|l|rr|}&#xA;\hline&#xA;\text{Taxes on production} &amp;amp; \text{R} &amp;amp; 54\ 166 \\&#xA;\hline&#xA;\text{Taxes on products} &amp;amp; \text{R} &amp;amp; 338\ 792 \\&#xA;\hline&#xA;\text{Subsidies on production} &amp;amp; \text{R} &amp;amp; 14\ 358 \\&#xA;\hline&#xA;\text{Subsidies on products} &amp;amp; \text{R} &amp;amp; 18\ 684 \\&#xA;\hline&#xA;\end{array}$$&#xA;  The gross value added at factor cost is&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;A. R 2 795 279&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;B. R 2 863 543&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;C. R 2 835 087&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;D. R 3 155 195&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;E. R 3 347 633&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;My Answer is R 2 891 498, because I took the GDE and added subsidies and subtracted taxes. I did that because I assumed that the GDE was given at market prices. I disregarded the information about imports and subsidies because I assumed that GDE was calculated using the equation Y=C+I+G+X-M.&lt;/p&gt;&#xA;" OwnerUserId="175" LastActivityDate="2017-11-11T20:21:54.033" Title="A national accounting calculation" Tags="&lt;accounting&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5023" PostTypeId="2" ParentId="5022" CreationDate="2015-04-08T17:10:25.587" Score="2" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;I disregarded the information about imports and subsidies because I assumed that GDE was calculated using the equation Y=C+I+G+X-M.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This is where I went wrong. GDE is calculated as C+I+G, but to get GDP at market prices, I need to add nett exports.&lt;/p&gt;&#xA;" OwnerUserId="175" LastActivityDate="2015-04-08T17:10:25.587" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5024" PostTypeId="2" ParentId="4998" CreationDate="2015-04-08T17:41:32.090" Score="4" Body="&lt;p&gt;You might find a very old paper interesting:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Milton Friedman and Leonard Savage, &lt;em&gt;&lt;a href=&quot;http://www.jstor.org/stable/1826045&quot; rel=&quot;nofollow&quot;&gt;&quot;Utility Analysis of Choices Involving Risk&quot;&lt;/a&gt;&lt;/em&gt;, Journal of Political Economy 1948, pages 279–304. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This famous paper asked how the fact that the same individuals buy lottery tickets, and buy insurance, could be reconciled with the economic theory of expected utility maximization. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Nothing in this paper is related to the political views for which Milton Friedman later became well-known.&lt;/p&gt;&#xA;" OwnerUserId="2787" LastEditorUserId="40" LastEditDate="2015-08-13T02:51:41.947" LastActivityDate="2015-08-13T02:51:41.947" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5025" PostTypeId="1" AcceptedAnswerId="5027" CreationDate="2015-04-08T19:24:31.387" Score="5" ViewCount="7566" Body="&lt;p&gt;I'll use the US as an example. I have three data series&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;nominal GDP $(Y)$&lt;/li&gt;&#xA;&lt;li&gt;real GDP in 2005 USD $(\bar{Y})$&lt;/li&gt;&#xA;&lt;li&gt;the GDP deflator $(d)$, with 2005 as the base year, so $d_{2005} = 100$&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;I want to change the base year to 2000. Are these calculations accurate? I use the notation $\$_{t}$ for USD in year $t$ prices to help myself keep the units straight.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My goal is $\bar{Y}_{t} \ \$_{2000}$.&#xA;\begin{align}&#xA;\frac{d_{2000}}{d_{t}} \cdot Y_{t} \ \$_t&#xA;&amp;amp;= \frac{Y_{2000} \ \$_{2000}}{\bar{Y}_{2000} \ \$_{2005}} \cdot \frac{\bar{Y}_{t} \ \$_{2005}}{Y_{t} \ \$_{t}} \cdot Y_{t} \ \$_t \\&#xA;&amp;amp;= \frac{Y_{2000} \ \$_{2000}}{\bar{Y}_{2000}} \cdot \bar{Y}_{t} \\&#xA;&amp;amp;= \bar{Y}_{t} \ \$_{2000} \cdot \frac{Y_{2000}}{\bar{Y}_{2000}}&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think those are all the correct unit cancellations, but now I'm stuck with the unitless quantity $\frac{Y_{2000}}{\bar{Y}_{2000}}$, so I don't know how to complete the conversion. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Am I doing this right?&lt;/p&gt;&#xA;" OwnerUserId="4387" LastEditorUserId="2776" LastEditDate="2017-06-06T09:46:24.170" LastActivityDate="2021-05-12T15:47:14.193" Title="How do I change the base year of real GDP using the GDP deflator and nominal GDP?" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;&lt;base-year&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5026" PostTypeId="2" ParentId="5004" CreationDate="2015-04-08T19:42:57.230" Score="5" Body="&lt;p&gt;After the exchange with the OP in my other answer, let's work a bit with his approach.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;We have a discrete random variable $X$ with finite support, $X = \{x_1,...,x_k\}$, and probability mass function (PMF), $\Pr(X=x_i)=p_i, i=1,...,k$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The values in the support of $X$ are also inputs in a real-valued  &lt;em&gt;cardinal&lt;/em&gt; utility function, $u(x_i) &amp;gt; 0\; \forall i$. We then consider the normalized utility function&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$w(X): w(x_i) = \frac {u(x_i)}{\sum_{i=1}^ku(x_i)},\;\;i=1,...,k \tag{1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and we are told that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$w(x_i) = p_i \tag{2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that we do not just make the observation that a normalized non-negative discrete function of finite domain, satisfies the properties of a probability mass function in general -we specifically assume that $w(x_i)$ has the functional form of the PMF of the random variable whose values $w(x_i)$ takes as inputs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since $w(x_i)$ is a measurable function of a random variable, it, too, is a random variable. So we can meaningfully consider things like its expected value. Using the Law of the Unconscious Statistician we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$E[w(X)] = \sum_{i=1}^kp_iw(x_i) = \sum_{i=1}^kp_i^2 \tag{3}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is a convex function, and if we try to extremize it over the $p_i$'s under the constraint $\sum_{i=1}^kp_i=1$ we easily obtain&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\text{argmin} E[w(X)] = \mathbf p^*: p_1=p_2=...=p_k=1/k \tag {4}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and we have obtained a general result:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;The normalized utility function as defined above has minimum expected&#xA;  value iff the distribution of $X$ is Uniform.&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Obviously in such a case $w(X)$ &lt;strong&gt;will be a constant function&lt;/strong&gt;, a degenerate random variable with $E[w(X)]=1/k$ and zero variance.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's turn to Shannon's Entropy which is the focus of the OP. To be calculated, Shannon's Entropy needs the probability mass function of the random variable... so we should find the PMF of the random variable $w(X)$...  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But it is my impression that this is not what the OP has in mind. Rather, it views Shannon's Entropy as a metric that has some desirable algebraic properties and perhaps can measure compactly in a meaningful way something of interest.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This has been done before in Economics, specifically in Industrial Organization, were Indices of Market Concentration (&quot;degree of competition/monopolistic structure of a market&quot;) have been constructed. I note two that look particularly relevant here.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;A)&lt;/strong&gt; The &lt;strong&gt;&lt;a href=&quot;http://en.wikipedia.org/wiki/Herfindahl_index&quot; rel=&quot;noreferrer&quot;&gt;Herfindahl Index,&lt;/a&gt;&lt;/strong&gt; has as its arguments the market shares of the $n$ companies operating in a market, $s_i$, so they sum to unity by construction. Its unscaled version is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$H = \sum_{i=1}^n s_i^2$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which is an expression that has the exact same structure with the expected value of $w(X)$ derived above.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;B)&lt;/strong&gt; The &lt;strong&gt;Entropy Index&lt;/strong&gt;&#xA;$$R_e = -\sum_{i=1}^n s_i\ln s_i$$&#xA;which has the exact mathematical form with Shannon's Entropy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;a href=&quot;http://www.jstor.org/stable/2526242&quot; rel=&quot;noreferrer&quot;&gt;Encaoua, D., &amp;amp; Jacquemin, A. (1980). Degree of monopoly, indices of concentration and threat of entry. International Economic Review, 87-105.&lt;/a&gt;&lt;/strong&gt;, provide an axiomatic derivation of &quot;allowable&quot; concentration indices, i.e. they define the properties that such an index must possess. Since their approach is abstract, I believe it may be useful to what the OP wishes to explore and attach meaning to.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-04-08T19:42:57.230" CommentCount="9" ContentLicense="CC BY-SA 3.0" />
  <row Id="5027" PostTypeId="2" ParentId="5025" CreationDate="2015-04-08T19:48:50.520" Score="4" Body="&lt;p&gt;It's just real GDP in year t, times (deflator in year 2000 / deflator in year t).&lt;/p&gt;&#xA;" OwnerUserId="264" LastEditorUserId="264" LastEditDate="2021-05-12T15:47:14.193" LastActivityDate="2021-05-12T15:47:14.193" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="5028" PostTypeId="1" AcceptedAnswerId="5033" CreationDate="2015-04-08T20:46:23.873" Score="3" ViewCount="114" Body="&lt;p&gt;I was wondering what economics says about what I would call the “starting from” pricing pattern in advertising. My first question would be whether there’s a more properly defined term for it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It’s a common enough pattern: for example, an advertisement on a website that promises “Spend a weekend in Paris!” highlighting a price of “€150”, preceded by, in small type, the words “starting from”. When you click through, this price turns out to only apply to the weekend of Saturday December 25th, which most people would prefer to spend with their family and when many sights in the city are closed. Not to mention that it’s in winter time. Every other weekend the website offers and which is closer to what you had in mind when viewing the advertisement (Paris in summer!) is really priced at €300. (I just made up those numbers).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;More generally stated, the pattern consists of advertising a highly desirable price for a seemingly desirable product, which really only applies to an undesirable version of the product, while offering a more desirable product at a less desirable price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On one hand, I assume this pattern is effective in enticing people to check out the advertiser’s offerings. On the other hand, there’s an ineffectiveness in making people feel disappointed or outright deceived by the advertisement, possibly making them turn away.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I was wondering what economics says about this pattern. Some more specific subquestions:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Is there a more properly defined term for it?&lt;/li&gt;&#xA;&lt;li&gt;Is there some more formal or experimental study on the relation between the “starting from” price point and the more realistic one and the effectiveness of such advertisements?&lt;/li&gt;&#xA;&lt;li&gt;Is there some comparison on this advertising pattern and others, such as one in which both price points are stated? (like “Spend a weekend in Paris! Summer weekends at €300 or in winter as low as €150”)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="4390" LastEditorUserId="2776" LastEditDate="2016-09-05T00:45:03.767" LastActivityDate="2016-09-05T00:45:03.767" Title="What does economics say about “starting from” pricing?" Tags="&lt;behavioral-economics&gt;&lt;price-theory&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5029" PostTypeId="2" ParentId="5021" CreationDate="2015-04-09T01:45:29.973" Score="1" Body="&lt;p&gt;$u=cx_1^adx_2^b$ is equivalent to $u=(cd)x_1^ax_2^b$&#xA;the values of $c$ and $d$ do not impact the optimal bundles. I'll provide complete working on your other question (&lt;a href=&quot;https://economics.stackexchange.com/questions/4997/marshallian-demand-for-cobb-douglas&quot;&gt;Marshallian Demand for Cobb-Douglas&lt;/a&gt;).&lt;/p&gt;&#xA;" OwnerUserId="40" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-04-09T01:45:29.973" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5030" PostTypeId="2" ParentId="4997" CreationDate="2015-04-09T01:47:43.623" Score="6" Body="&lt;p&gt;This is how you get from your first equation to your second.&#xA;your utility function is $u(x_1, x_2)=x_1^a x_2^b$&#xA;since $a+b=1$ I'll change it slightly to a and (1-a)&#xA;In order to optimise these two choices, you need to maximise utility, wrt your choice variables.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;subject to $p_1x_1 + p_2x_2 = w$&#xA;using Walras Law. Basically, in order to optimise utility, all money will be spent.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Cobb-Douglas functions are typically difficult for optimisation problems. A monotonic transformation which preserves the ordinal properties of the function can be used.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$aln(x_1) + (1 − a)ln(x_2)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This will be used instead. The same budget constraint will be applied.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Lagrange and First Order Conditions are Below&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$L = aln(x_1) + (1 − a)ln(x_2) − \lambda(w − p_1x_1 − p_2x_2)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac{δL} {δx_1}= \frac{a} {x_1} − \lambda p_1 = 0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac {δL} {δx_2}=\frac{1 − a} {x_2} − \lambda p_2 = 0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;manipulating the First order conditions result in&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\lambda = \frac{a} {x_1p_1}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\lambda =\frac{(1 − a)}{ x_2p_2}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac{a} {x_1p_1}=\frac{(1 − a)}{ x_2p_2}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;substituting in the budget constraint $p_2x_2 = w − p_1x_1$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac{a}{ x_1p_1}=\frac{(1 − a)} {w − p_1x_1}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$x_1 =\frac{wa}{ p_1}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$p_1x_1 = w − p_2x_2$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac{a} {w − p_2x_2}=\frac{(1 − a)}{ p_2x_2}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$w =\frac{a}{(1 − α)}p_2x_2 + p_2x_2$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$w(1 − a) = p_2x_2$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$x_2=\frac{w(1 − a)}{p_2}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Using these results, we can work out the optimal consumption bundles of $x_1$ and $x_2$ for a given price, wealth combination.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$x_1 =\frac{wa}{ p_1}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$x_2=\frac{w(1 − a)}{p_2}$&lt;/p&gt;&#xA;" OwnerUserId="40" LastEditorUserId="40" LastEditDate="2015-06-23T22:58:38.417" LastActivityDate="2015-06-23T22:58:38.417" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5031" PostTypeId="1" AcceptedAnswerId="5035" CreationDate="2015-04-09T03:25:14.100" Score="1" ViewCount="114" Body="&lt;p&gt;&lt;strong&gt;First&lt;/strong&gt;, I'm not an economist - just a regular Joe interested in a small part of the subject.&#xA;&lt;strong&gt;Second&lt;/strong&gt;, I apologize if this is a better question for the 'politics' stack exchange, but I figured I might get a more thorough/technical answer here.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;The question:&lt;/strong&gt; What is flawed with the following scenario (i.e. what are the downsides or why is it not realistic)?:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;A government's tax model is hard on the wealthy. For simplicity's sake, let's say it caps an individual's annual income (total via employment, capital gains, gifts or anything else) to $1,000,000 USD. So if they make more than that, the rest goes to taxes (or same-year purchases, I suppose) - no exemptions for this tax bracket.&lt;/li&gt;&#xA;&lt;li&gt;The government invests the additional taxes into education - providing high quality, cheap/free high level education. In theory, boosting the education level of the country as a whole - and hopefully stimulating innovation, etc.&lt;/li&gt;&#xA;&lt;li&gt;Other taxes flow back into businesses - incentives to start and run small businesses. This &lt;em&gt;could&lt;/em&gt; keep the markets competitive (plus, no business 'too-big-to-fail' or gross monopolies). Since owners/stakeholders wouldn't profit beyond a point, the focus may go to social/science/tech advances (making a name for one's self), giving back, etc. They could also hire more, use more services, and otherwise stimulate the economy that wat. I suppose you'd need some 'business savings account' to allow large businesses to have a safety net as they could otherwise become unstable.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Anyway, maybe it's just me, but it seems like making $1M/year would still make for a fantastic living and one you could retire on quickly. You'd still see people making 20x what others earn, so the point isn't to completely flatten the social scale, just even it out.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems like this would result in:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;A more just society where the bottom 40% of the nation controls MORE than 1% of the wealth. Obviously you'll still have bums, drug addicts, etc. but that's a reality everywhere so unless it worsens the problem I wouldn't consider that a flaw; and perhaps a rehabilitation system could be funded.&lt;/li&gt;&#xA;&lt;li&gt;Create a more robust economy as you'll have a lot of businesses competing and lots of educated people pushing the limits and as stated before, perhaps looking to higher-minded goals than the bottom-line.&lt;/li&gt;&#xA;&lt;li&gt;A higher standard of living on average - as more people would be educated, employed and contributing to society.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;So again - why doesn't this work? What are the downsides? Or is this just the wrong stack-exchange?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks!&lt;/p&gt;&#xA;" OwnerUserId="4393" LastActivityDate="2015-04-09T13:19:58.693" Title="Equality, Taxes &amp; Business Growth" Tags="&lt;macroeconomics&gt;&lt;taxation&gt;&lt;optimal-taxation&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5032" PostTypeId="2" ParentId="5028" CreationDate="2015-04-09T07:47:46.573" Score="2" Body="&lt;p&gt;The effect is called Anchoring. As you also say, it is actually a psychological term, made popular/coined by Kahneman.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://en.wikipedia.org/wiki/Anchoring&quot; rel=&quot;nofollow&quot;&gt;http://en.wikipedia.org/wiki/Anchoring&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="107" LastActivityDate="2015-04-09T07:47:46.573" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5033" PostTypeId="2" ParentId="5028" CreationDate="2015-04-09T10:08:51.043" Score="5" Body="&lt;p&gt;Glenn Ellison's &quot;&lt;a href=&quot;http://economics.mit.edu/files/7605&quot;&gt;A model of Add-On Pricing&lt;/a&gt;&quot; seems closely related to this issue.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;He addressed the question 'why don't firms compete more aggressively to attract consumers by lowering the initial price?' The answer that he offers is that doing so induces an adverse selection problem because lowering the advertised price will disproportionately attract &quot;cheapskates&quot; who will not pay the add-on price for a more expensive version of the goods. &lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2015-04-09T10:08:51.043" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5034" PostTypeId="1" AcceptedAnswerId="5036" CreationDate="2015-04-09T12:22:50.417" Score="0" ViewCount="93" Body="&lt;p&gt;Market is supplied by: 50 competitive companies all of them have relatively low costs given by an equation $C_l(q)=350+2q+q^2$ and by n companies of higher costs given by an equation $C_h(q)=400+2q+q^2$. Market demand is given by $Q=250-10P$. If none of the companies with higher costs will  gain positive profits, how large is n? What is the profit of companies with low costs?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have no idea how to solve this question, i do not know how to start. &lt;/p&gt;&#xA;" OwnerUserId="4264" LastActivityDate="2015-04-09T13:37:27.653" Title="Perfect competition profits question" Tags="&lt;microeconomics&gt;&lt;competition&gt;&lt;cost&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5035" PostTypeId="2" ParentId="5031" CreationDate="2015-04-09T13:19:58.693" Score="1" Body="&lt;p&gt;To provide some input (which I do not necessarily endorse), the &lt;a href=&quot;http://taxfoundation.org/&quot; rel=&quot;nofollow&quot;&gt;Tax Foundation&lt;/a&gt; has used its &quot;Taxes and Growth&quot; (TAG) model to estimate/simulate the effects on USA Economy of &lt;a href=&quot;http://en.wikipedia.org/wiki/Capital_in_the_Twenty-First_Century&quot; rel=&quot;nofollow&quot;&gt;Thomas Piketty's proposal&lt;/a&gt; that the tax rate for very high incomes should rise to $80$%. &#xA;The results can be found on a report &lt;a href=&quot;http://taxfoundation.org/article/what-would-piketty-s-80-percent-tax-rate-do-us-economy&quot; rel=&quot;nofollow&quot;&gt;freely downloadable from here&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Their &lt;strong&gt;Key Findings&lt;/strong&gt; are (quote)&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;1)&lt;/strong&gt; If ordinary income were taxed at the top rates of 80 and 55 percent, our model estimates that after the economy adjusts, total&#xA;  output (GDP) would be 3.5 percent lower, wage rates would drop 1.6&#xA;  percent, the capital stock would be 7.4 percent less, and there would&#xA;  be 2.1 million fewer jobs.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&lt;strong&gt;2)&lt;/strong&gt; If capital gains and dividends were taxed at the new tax rates along with ordinary income, the economic damage would be much worse.&#xA;  GDP would plunge 18.1 percent (a loss of $3 trillion dollars annually&#xA;  in terms of today’s GDP), the capital stock would be 42.3 percent&#xA;  smaller than otherwise, wages would be 14.6 percent lower, 4.9 million&#xA;  jobs would be lost, and despite the higher tax rates, government&#xA;  revenue would actually fall.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&lt;strong&gt;3)&lt;/strong&gt; Although Piketty’s proposed income tax increase may appear to target only upper-income taxpayers, all income groups would suffer&#xA;  from the economic fallout.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&lt;strong&gt;4)&lt;/strong&gt; Our model estimates that the after-tax incomes of the poor and middle class would drop about 3 percent if the higher rates do not&#xA;  apply to capital gains and dividends and about 17 percent if they do.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The reasons that I say that I do not necessarily endorse the above results is that the report provided, although produced by a &quot;Michael Schuyler, PhD&quot; is not a scientific paper -so we do not know what assumptions and structure does their &quot;TAG&quot; model incorporates.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-04-09T13:19:58.693" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5036" PostTypeId="2" ParentId="5034" CreationDate="2015-04-09T13:37:27.653" Score="1" Body="&lt;p&gt;It says&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;If none of the companies with higher costs will gain positive profits&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I assume this means they're making 0 profits, while strictly speaking it could mean that they make negative profits and leave the market.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;So with 0 profits, this means that &lt;em&gt;average costs&lt;/em&gt; = &lt;em&gt;price&lt;/em&gt; for the high-cost firms.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;First, you need to derive the equilibrium price, using that, for the equilibrium price, &lt;em&gt;demand&lt;/em&gt; = &lt;em&gt;supply&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \text{total demand} = Q(p) = S(p) = \text{total supply}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A firm's supply is the solution to a maximization problem:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ q_h(p) = \arg\max_q (p-C_h(q))q \\&#xA; q_l(p) = \arg\max_q (p-C_l(q))q$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, total supply given price $p$ and amount of high-cost firms $n$ is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ S(p, n) = 50\cdot q_l(p) + n \cdot q_h(p)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, our equilibrium condition is simply&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ S(p, n) = Q(p) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is under defined, as we have one equation and two variables $(p, n)$ to solve for. But wait, we know more! 0 profits for the high-cost firms means&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ p = C_h(q)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To get rid of the additional variable $q$, just use the solution to the firm's problem: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ p = C_h(q_h(p))$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now we have two equations and two variables, you are all set!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ S(p, n) = Q(p) \\&#xA; p = C_h(q_h(p))$$&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-04-09T13:37:27.653" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5037" PostTypeId="2" ParentId="5018" CreationDate="2015-04-09T13:44:37.810" Score="1" Body="&lt;p&gt;Equating supply and demand we obtain the equilibrium&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$P^* = 75, Q^*=100$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The corresponding diagram is&#xA;&lt;img src=&quot;https://i.stack.imgur.com/mxrp8.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Consumer Surplus&lt;/strong&gt; is the area of triangle $B-E-C$ so&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$CS = \frac 12 \cdot (100-75)\cdot 100 = 1250$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Producer Surplus&lt;/strong&gt; is the area of the triangle $B-E-A$ so&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$PS = \frac 12 \cdot (75-20)\cdot 100 = 2750$$&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-04-09T13:49:39.793" LastActivityDate="2015-04-09T13:49:39.793" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5038" PostTypeId="1" AcceptedAnswerId="5039" CreationDate="2015-04-09T13:58:05.090" Score="1" ViewCount="169" Body="&lt;p&gt;I have attempted to solve this problem and would be grateful if someone looked over my solution&lt;/p&gt;&#xA;&#xA;&lt;p&gt;5% increase in price  results in 5% decrease in total revenue. I need to determine price elasticity of demand. I have done calculations but I am not sure whether the way I have solved it is true.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$TR=PQ\mapsto Q=\frac{TR}{P}\rightarrow Q=\frac{0.8TR}{1.2 P}=2/3$$&#xA;And then I wrote $$PE=\frac{\frac{8}{12}}{\frac{12}{10}}=5/9$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But this solution doesn't appear in the test answer options. Can someone please check it and tell what is wrong?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks in advance!&lt;/p&gt;&#xA;" OwnerUserId="4030" LastEditorUserId="43" LastEditDate="2015-04-09T15:04:40.587" LastActivityDate="2015-04-09T15:04:40.587" Title="Relationship between Revenue-Elasticity and Price-Elasticity" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;&lt;elasticity&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5039" PostTypeId="2" ParentId="5038" CreationDate="2015-04-09T14:57:12.117" Score="1" Body="&lt;p&gt;Let's denote the elasticity of $X$ to $Y$ at $Y_0$ with $\eta_{X, Y}(Y_0)$ and solve for the demand ($Q$) elasticity in terms of the revenue elasticity ($R$).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We know that the elasticity is always given by&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \eta_{X,Y} = \frac{d X(Y)}{dY}\frac{Y}{X}$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;or equivalently (showing the equivalence is a useful exercise),&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \eta_{X,Y} = \frac{d \log X(Y))}{d \log Y}$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ R(p) = p Q(p) \\&#xA;\eta_{R, p}(p) = R'(p) \frac{p}{pQ(p)}\\&#xA;\eta_{R, p}(p) = (Q(p) + pQ'(p_0) ) \frac{p}{pQ(p)} \\&#xA;\eta_{R, p}(p) = 1 + \frac{pQ'(p_0)}{Q} \\&#xA;\eta_{R, p}(p) = 1 + \eta_{Q, p}(p) \\&#xA;$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given that the left-hand-side elasticity is $-1$ at the initial price $p_0$, the right-hand-side elasticity must be $-2$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$-1 = 1 + \eta_{Q, p}(p_0) \Rightarrow \eta_{Q, p}(p_0) = -2$$&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Your mistake&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;You are being sloppy with the mathematics. First you state&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ Q = \frac{TR}{P}$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But then you claim&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ Q = \frac{0.8TR}{1.2P}$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;These two equations just cannot be true at the same time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Perhaps you want to look at initial $TR_0$, at total revenue after price change $TR_1$, and then state that $TR_1/TR_0 = 0.95$.&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2015-04-09T15:00:35.700" LastActivityDate="2015-04-09T15:00:35.700" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5040" PostTypeId="1" AcceptedAnswerId="5050" CreationDate="2015-04-09T15:50:31.907" Score="4" ViewCount="395" Body="&lt;p&gt;In pg. 509, of Hal Varian's Intermediate Microeconomics Ch. 27, writer discusses the Cournot equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the figure, the reaction curve of firm 1 &lt;strong&gt;f&lt;sub&gt;1&lt;/sub&gt;(y&lt;sub&gt;2&lt;/sub&gt;)&lt;/strong&gt; was steeper than firm 2 &lt;strong&gt;f&lt;sub&gt;2&lt;/sub&gt;(y&lt;sub&gt;1&lt;/sub&gt;)&lt;/strong&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;When we started from the point &lt;strong&gt;(y&lt;sub&gt;1&lt;/sub&gt;&lt;sup&gt;t&lt;/sup&gt;, y&lt;sub&gt;2&lt;/sub&gt;&lt;sup&gt;t&lt;/sup&gt;)&lt;/strong&gt;, we were able to reach the stable equilibrium. But what if &lt;strong&gt;f&lt;sub&gt;2&lt;/sub&gt;(y&lt;sub&gt;1&lt;/sub&gt;)&lt;/strong&gt; was steeper than &lt;strong&gt;f&lt;sub&gt;1&lt;/sub&gt;(y&lt;sub&gt;2&lt;/sub&gt;)&lt;/strong&gt;? I cannot find any adjustment process. Can such condition be viable? If not, then why?![Adjustment process when &lt;strong&gt;f&lt;sub&gt;1&lt;/sub&gt;(y&lt;sub&gt;2&lt;/sub&gt;)&lt;/strong&gt; was steeper than &lt;strong&gt;f&lt;sub&gt;2&lt;/sub&gt;(y&lt;sub&gt;1&lt;/sub&gt;)&lt;/strong&gt;]&lt;a href=&quot;https://i.stack.imgur.com/fnfz6.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;1&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="4345" LastEditorUserId="40" LastEditDate="2015-04-10T05:16:36.337" LastActivityDate="2016-04-15T10:40:04.460" Title="Adjustment to equilibrium in Cournot model with 2 firms" Tags="&lt;microeconomics&gt;&lt;oligopoly&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5041" PostTypeId="1" CreationDate="2015-04-09T18:28:11.923" Score="7" ViewCount="2078" Body="&lt;p&gt;I'd like to find an answer to this question as I can't see how something like this can be happening. I can see three reasons that they would earn that much but any of them if thought better is wrong.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) They generate all the money they win. I don't deny that they generate lots of money, but news like this one: &lt;a href=&quot;http://www.euroweeklynews.com/news/axarquia-malaga-east/item/126022-la-liga-clubs-threaten-strike&quot; rel=&quot;noreferrer&quot;&gt;http://www.euroweeklynews.com/news/axarquia-malaga-east/item/126022-la-liga-clubs-threaten-strike&lt;/a&gt;, or this one &lt;a href=&quot;http://www.forbes.com/sites/mikeozanian/2015/01/22/nba-adding-1-1-billion-of-debt-while-getting-its-best-credit-rating-ever/&quot; rel=&quot;noreferrer&quot;&gt;http://www.forbes.com/sites/mikeozanian/2015/01/22/nba-adding-1-1-billion-of-debt-while-getting-its-best-credit-rating-ever/&lt;/a&gt; make clear that there are going to be a lot of times where their salary is clearly overvalued, and according to only economic terms they should earn maybe something that's a third of their salary.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) They generate the money on its own. I consider that also mostly false, if they generate that much is because mass media is always talking about them and showing them, if they wished they could take any other thing and with time put it on top being that thing much less expensive for them on the beginning.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;3) What the do not earn economically , they earn in entertaining people and making them less aware of their problems, ok, so do a lot of other things, like computer games or books or whatever, and none of them get that much of hype usually, moreover, they are likely to be victims on piracy with a lot more frequency than, let's say, a televised sport event.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Maybe this is applied for other professionals like top actors or singers, but I don't know of such huge debts on their case, and I get the impression that there much more top sport players with huge winnings rather than actors or singers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm not a economist, but I find this question intriguing, hope you can help me to understand why.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks for your time.&lt;/p&gt;&#xA;" OwnerUserId="4399" LastEditorUserId="40" LastEditDate="2015-07-01T05:37:44.357" LastActivityDate="2015-07-01T05:37:44.357" Title="Why do top professional sport players get usually paid so much?" Tags="&lt;microeconomics&gt;&lt;sports&gt;" AnswerCount="2" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="5042" PostTypeId="2" ParentId="5041" CreationDate="2015-04-09T19:22:37.117" Score="6" Body="&lt;h3&gt;tl;dr There is a lot of demand for what they produce.&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;A proper answer should have some evidence, perhaps I will add that when I have more time.&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Even within a category, say, football (soccer) players, you see a lot of discrimination: Top players at top clubs in top leagues get most of the cake. This is anecdotal evidence for the demand side story:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Only the best leagues earn much money through television rights, because only there is most of the demand (how much media coverage do you have for your national third league anyways?)&lt;/li&gt;&#xA;&lt;li&gt;Only the best teams in these leagues get most of this money, mostly because leagues partly pay teams based on their performance ranking wise &lt;/li&gt;&#xA;&lt;li&gt;Only the best players get the highest share, which is a combination of the previous two facts, and that these guys are quite unique and have hence an even higher demand:&lt;/li&gt;&#xA;&lt;li&gt;&lt;ul&gt;&#xA;&lt;li&gt;They make more marketing money (people really want to see them)&lt;/li&gt;&#xA;&lt;/ul&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;ul&gt;&#xA;&lt;li&gt;Due to their uniqueness, they can bargain better deals with teams and sponsors&lt;/li&gt;&#xA;&lt;/ul&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Note that the last point is really the only supply-side story. If you ignore super stars, the supply of good players is &lt;em&gt;huge&lt;/em&gt;. Most of the twist really comes from some of them being marginally better / lucky, making it into the better leagues, which happen to be the one that mass media demand, and get the high compensation.&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-04-09T19:22:37.117" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5044" PostTypeId="1" AcceptedAnswerId="29773" CreationDate="2015-04-09T23:53:23.710" Score="6" ViewCount="4800" Body="&lt;p&gt;Let $U(x,y)$ be a utility function. Suppose I have an indifference curve for which $U(x,y) = \bar{U}$. Then $dU = 0$ along the curve and I can rearrange to find the MRS. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose I have a monotonic transformation of my utility function. That is, some function $$W(x,y) = f(U(x,y))$$ $$f'(\cdot) &amp;gt; 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since it too is an indifference curve, $dW = 0$ and I can rearrange as follows &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{dy}{dx} = -\frac{W_x}{W_y} = -\frac{f'(U(x,y))U_x}{f'(U(x,y))U_y} =-\frac{U_x}{U_y}$$&#xA;Thus, we observe MRS is invariant under monotonic transformation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My Question:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can someone explain what this means graphically? I don't get why the slope remains the same. Why does MRS remain the same but MU changes? &lt;/p&gt;&#xA;" OwnerUserId="2679" LastActivityDate="2019-06-13T13:59:05.943" Title="Can someone explain graphically why MRS is invariant under monotonic transformation?" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;" AnswerCount="4" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5045" PostTypeId="1" CreationDate="2015-04-10T00:39:17.780" Score="2" ViewCount="54" Body="&lt;p&gt;I'm struggling on trying to find a beta for an equially wighted profolio for three countries &lt;code&gt;(A, B,C)&lt;/code&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;All the data I'm given are montlhy retunrs of each countrys market indexes and risk free rates for each one as well.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know whow to apply &lt;code&gt;CAPM&lt;/code&gt; to a given set of shares and use a national index (such as the S&amp;amp;P500) in order to calculate betas fo each share, however in this case I have multiple risk free rates an multiple return on indexes so I don't know how to use each piece of information when trying to apply the &lt;code&gt;CAPM&lt;/code&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm not using covariance method, but an Excel regression on $x = rm-rf$ and $y = ri-rf$&lt;/p&gt;&#xA;" OwnerUserId="4402" LastEditorUserId="107" LastEditDate="2015-04-10T13:24:54.730" LastActivityDate="2015-04-10T13:24:54.730" Title="Capital asset pricing model (CAPM) applied to countries" Tags="&lt;asset-pricing&gt;&lt;markets&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5046" PostTypeId="1" CreationDate="2015-04-10T01:04:38.313" Score="0" ViewCount="872" Body="&lt;p&gt;I am currious to know if there has been any work of estimating the BLP model with micro data. Could you give me a reference list. &lt;/p&gt;&#xA;" OwnerUserId="151" LastActivityDate="2015-04-14T06:21:44.323" Title="BLP using micro data" Tags="&lt;industrial-organisation&gt;&lt;applied-econometrics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5047" PostTypeId="1" CreationDate="2015-04-10T01:45:41.470" Score="2" ViewCount="575" Body="&lt;p&gt;Suppose I have $U(x,y)$ and a level set of indifference curves. Suppose the value of $U$ along a given curve is $\bar{U}$. We know $dU = 0$. We compute total derivative, rearrange, and now have &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{dy}{dx} = -\frac{U_x}{U_y}$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My Confusion and Question:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac{dy}{dx}$ is written as a function of a single variable right? But when we talk about $MU$, we always talk about it as a multivariable function. I thought $MRS$ was the ordinal utility analog of the cardinal utility $MU$. So why is $MRS$ a single variable function? &lt;/p&gt;&#xA;" OwnerUserId="2679" LastActivityDate="2015-05-31T13:20:05.367" Title="Is Marginal Rate of Substitution a multivariable function?" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5048" PostTypeId="2" ParentId="5041" CreationDate="2015-04-10T02:16:57.817" Score="4" Body="&lt;p&gt;One answer not mentioned is called &lt;a href=&quot;https://en.wikipedia.org/wiki/O-ring_theory_of_economic_development&quot; rel=&quot;nofollow&quot;&gt;o-ring theory&lt;/a&gt;. The idea is that otherwise trivial increases in performance command a high premium if they are in a chain of dependent events: like a American football team's pass, which depends on both the thrower and receiver, and the other critical players on a team.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Mathematically: In 10 dependent sequential events, there is a large difference between 0.99^10 and 0.98^10.  That's a very valuable premium we pay for these seemingly trivial improvement between minor and major leagues.&lt;/p&gt;&#xA;" OwnerUserId="4185" LastEditorUserId="4483" LastEditDate="2015-06-30T19:09:04.190" LastActivityDate="2015-06-30T19:09:04.190" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5049" PostTypeId="1" CreationDate="2015-04-10T05:30:31.907" Score="1" ViewCount="48" Body="&lt;p&gt;Suppose I have $$\text{apples} \succ \text{pears} \succ \text{pineapples}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can map this onto the natural numbers as follows &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\text{apples}\mapsto 1$$&#xA;$$\text{pears}\mapsto 2$$&#xA;$$\text{pineapple}\mapsto 3$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But for weak preferences we might have $$\text{apples} \sim \text{pears}$$&#xA;But this wouldn't map bijectively onto the natural numbers because then for example &#xA;$$\text{apples} \mapsto 2$$&#xA;$$\text{pears} \mapsto 2$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My Question:&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What do we map weak preferences on to? Or do we relax the assumption the map has to be bijective and allow it to be a surjective mapping onto $\Bbb{N}$? &lt;/p&gt;&#xA;" OwnerUserId="2679" LastActivityDate="2015-04-10T08:23:58.997" Title="If strict preferences map onto $\Bbb{N}$ what do weak preferences map onto?" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5050" PostTypeId="2" ParentId="5040" CreationDate="2015-04-10T08:15:41.813" Score="3" Body="&lt;p&gt;The trick is to draw the whole reaction function—including the part that coincides with the axis. Hopefully these figures make it clear:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/GIKHR.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/9Ayzv.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2015-04-10T08:15:41.813" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5051" PostTypeId="2" ParentId="5049" CreationDate="2015-04-10T08:23:58.997" Score="2" Body="&lt;p&gt;First of all, I don't know if there is a convention as I never use weak preferences myself. But I can give you some suggestion that should work:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Do you have a &lt;strong&gt;finite number of goods&lt;/strong&gt;, lets say $n$? Then $\mathbb{N}$ is clearly enough:&#xA;Just map the best good to 1, the second best to $n$, third best to $n^2$,... .&#xA;If you are indifferent between 2 goods (lets say they would be ranked third overall) assign them to $n^2$ and $n^2+1$. As @MettaWorldPeace already pointed out: it is kind of &quot;wasteful&quot; to use $\mathbb{N}$, so can we use less? And clearly we can never need more than $(n-1)^n+1$ numbers, so a mapping on $\{1,2, ..., (n-1)^n+1 \}$ would be sufficient (you can use even less numbers, but it is annoying to write down, so I just leave it at that).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What if we have a &lt;strong&gt;(countably) infinite number&lt;/strong&gt; of goods? Here we can use the same trick, using $\mathbb{R}$ (or, if you like to, use $\mathbb{Q}$) just assign the best good $1$, the second best $2$, ... . If there are indifferences (i.e., you have three second best goods, the first one is assigned $2$, the second one $2.1$, the third $2.11$(or whatever you like)). Again, as before it is kind of wasteful, what else can you use? You could use a mapping on $\mathbb{N}\times \mathbb{N}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The same idea clearly works for every other number of goods, but I guess you can figure that out yourself.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Remark: This is not more than a different way to write preferences. You can not use this, e.g. as a utility function. However, all of these examples have the property that you can compare the ranking by simple mathematical operations (i.e., comparing $\lfloor \frac{x}{n}\rfloor$ for the first example).&lt;/em&gt;&lt;/p&gt;&#xA;" OwnerUserId="120" LastActivityDate="2015-04-10T08:23:58.997" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5052" PostTypeId="2" ParentId="1877" CreationDate="2015-04-10T09:34:11.757" Score="0" Body="&lt;p&gt;Hey I think I can guess your mistake... you have to insert the numbers as full percentages inside the WW-Index Formula (so 4.33 and not 0.0433). This is the difference to the KZ index. you have to do it for the &lt;strong&gt;&quot;CF&quot;,&quot;TLTD&quot;,&quot;ISG&quot; and &quot;SG&quot;&lt;/strong&gt;. then you should not receive negative values.&lt;/p&gt;&#xA;" OwnerUserId="4407" LastEditorUserId="374" LastEditDate="2015-04-10T13:24:47.353" LastActivityDate="2015-04-10T13:24:47.353" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="5053" PostTypeId="2" ParentId="5047" CreationDate="2015-04-10T12:22:50.503" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;$\frac{dy}{dx}$ is written as a function of a single variable right?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I don't think so. Your shorthand notation should be standing for&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{dy}{dx} = -\frac{U_x(x, y)}{U_y(x,y} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and hence is a function of both variables ${x,y}$. That makes sense, as your MRS could depend on the locus you're at.&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-04-10T12:22:50.503" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="5054" PostTypeId="1" CreationDate="2015-04-10T13:05:37.733" Score="7" ViewCount="486" Body="&lt;p&gt;In 2002, when Germany, France, Italy and Austria adopted the Euro currency, the exchange rate with Switzerland was 1.60 CHF (Swiss Franc) = 1€ (Euro).&#xA;The prices and salaries in Switzerland were slightly higher than in its neighbours, but reasonably so.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since then the Swiss franc has been more and more valuable and today reaches the rate of 1.04 CHF = 1€. The prices and salaries in Switzerland are over two times higher than in the neighbouring countries.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Depending on the way of computing this (price of food, price of housing, prices of insurances, lower range salaries or median salaries), the purchasing power parity exchange rate should be between 1.80 CHF and 2.50 CHF for 1€.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since the exchange rate is so biased, in a free market it should be easy for Swiss people to buy stuff in neighbouring countries for cheap prices, and re-sell them at a more competitive prices in Switzerland. That would have the effect of lowering prices, creating deflation, and equalizing prices with neighbouring countries.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So my question is : &lt;strong&gt;Why doesn't such a regulation of the exchange rate happen?&lt;/strong&gt; What actually happens is the opposite : The price bias becomes wider and wider, leading to a ridiculous situation where for example a piece of bread costs over 2 times more in one side of the border than on the other side, with all the side issues this causes.&lt;/p&gt;&#xA;" OwnerUserId="4408" LastEditorUserId="175" LastEditDate="2016-09-04T12:02:24.123" LastActivityDate="2016-09-04T12:02:24.123" Title="How can the Swiss exchange rate be very biased in a free market?" Tags="&lt;currency&gt;&lt;exchange-rates&gt;&lt;deflation&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5055" PostTypeId="2" ParentId="5054" CreationDate="2015-04-10T13:43:29.800" Score="8" Body="&lt;p&gt;Swiss people do shop outside of their border, exactly as you think they should:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;Even the Swiss are staying away from their local stores and products—they would rather buy from neighbouring countries and take advantage of the situation. Switzerland is bound by Germany, France and Italy, and most of its big cities are located just at the border. It is relatively easy for Swiss residents to do their shopping elsewhere and get high value for their money, but it also means that the Swiss supermarkets and downtown stores have lost huge shares of the consumer market.&quot; (Source: &lt;a href=&quot;http://www.forbes.com/sites/realspin/2015/03/30/currency-wars-the-swiss-case/&quot;&gt;http://www.forbes.com/sites/realspin/2015/03/30/currency-wars-the-swiss-case/&lt;/a&gt;)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Currency is like any other commodity in the sense that its price (i.e. the exchange rate) is higher when demand is high relative to supply. For the exchange rate to remain high even when large sections of the population are selling Francs to get the Euros they need to shop in Germany, it must be that somebody else is buying up a lot of Francs and thus providing a large source of demand for the currency.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That someone else appears to be foreign investors, who are desperate to put their money into a safe and stable environment. In 2013, investors put 101bn Francs more into Switzerland than they took out (an amount equal to 22% of Switzerland's GDP!). In 2014, this figure fell dramatically, but there was still a net inflow equating to 7.5% of GDP.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On top of investors putting money into the country, Swiss companies are also net exporters. In 2013, Switzerland exported 65bn CHF more of goods and services than they imported–15% of GDP. Every time a Swiss company sells a product to someone in the US, dollars need to be changed into Francs (either because the Swiss company sets prices in Francs, or because it gets paid in dollars and then wants to repatriate the money in domestic currency).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These two sources of money flowing into Switzerland (respectively known as the capital account and the current account, and collectively known as the balance of payments) provide a robust source of demand for Swiss Francs and ensure that the value of the currency remains high.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The source for the numbers quoted above is here: &lt;a href=&quot;http://snbchf.com/euro-zone-swiss-macro/swiss-balance-payments-2014/&quot;&gt;http://snbchf.com/euro-zone-swiss-macro/swiss-balance-payments-2014/&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2015-04-10T13:43:29.800" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="5056" PostTypeId="1" CreationDate="2015-04-10T14:21:01.993" Score="7" ViewCount="1202" Body="&lt;p&gt;AFAIK, at least in the English-speaking world, labor, capital, and land are (in economics) usually denoted by the letters &lt;em&gt;L&lt;/em&gt;, &lt;em&gt;K&lt;/em&gt;, and &lt;em&gt;T&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Who first popularized the use of these letters and why?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My uneducated guesses are that:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;L&lt;/em&gt; would certainly make sense in English.&#xA;&lt;em&gt;K&lt;/em&gt; I think is from the German &lt;em&gt;Kapital&lt;/em&gt;.&#xA;&lt;em&gt;T&lt;/em&gt; I think is from the French or Latin &lt;em&gt;Terre&lt;/em&gt; or &lt;em&gt;Terra&lt;/em&gt;.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2015-04-11T00:07:55.680" Title="Why are labor, capital, and land traditionally denoted by the letters L, K, and T?" Tags="&lt;history-economic-thought&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5057" PostTypeId="1" AcceptedAnswerId="5058" CreationDate="2015-04-10T15:46:55.303" Score="3" ViewCount="28" Body="&lt;p&gt;Shimer (2005) says&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;These [separation shocks] introduce an almost perfectly positive correlation between unemployment and vacancies, an event that essentially never been observed in the United States at business cycle frequency.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;What is the data corresponding to that? Since his publication was from 2005, he must be referring to data on vacancies before the big recession. However, the standard data on job openings, &lt;a href=&quot;http://www.bls.gov/jlt/&quot; rel=&quot;nofollow&quot;&gt;JOLTS&lt;/a&gt;, is only available from 2005 onwards. &lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-04-10T16:36:50.343" Title="Data: Vacancies in the US before 2005" Tags="&lt;macroeconomics&gt;&lt;data-request&gt;&lt;unemployment&gt;&lt;labor-economics&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5058" PostTypeId="2" ParentId="5057" CreationDate="2015-04-10T16:36:50.343" Score="3" Body="&lt;p&gt;JOLTS actually goes back to 2000 (though years before 2005 &lt;a href=&quot;http://www.bls.gov/data/archived.htm&quot; rel=&quot;nofollow&quot;&gt;are only available on a SIC basis&lt;/a&gt;). Prior to JOLTS, most people used data on the number of help-wanted ads in newspapers, such as &lt;a href=&quot;https://research.stlouisfed.org/fred2/series/M0882BUSM350NNBR&quot; rel=&quot;nofollow&quot;&gt;this series&lt;/a&gt; from the 1950s-60s or &lt;a href=&quot;https://research.stlouisfed.org/fred2/series/M0882AUSM349NNBR&quot; rel=&quot;nofollow&quot;&gt;this one&lt;/a&gt; that goes back to 1919.&lt;/p&gt;&#xA;" OwnerUserId="264" LastActivityDate="2015-04-10T16:36:50.343" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5059" PostTypeId="1" CreationDate="2015-04-10T17:25:53.267" Score="1" ViewCount="93" Body="&lt;p&gt;I have the following social planner problem to maximize $\{c_t, k_t, n_t \}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\begin{gather*}E_0 \sum_{t=0}^\infty \beta^t U(c_t, 1 - n_t), 0 &amp;lt; \beta &amp;lt; 1\end{gather*}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;subject to&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\begin{gather}&#xA;y_t = F(k_{t-1}, n_t) \\&#xA;c_t + x_t = F(k_{t-1}, n_t) \\&#xA;k_t = h(x_t, k_{t-1})&#xA;\end{gather}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the final equation for capital stock evolution, $h$ is a function $h(x_t, k_{t-1}) = k_{t-1} g(x_t/k_{t-1})$ with $g(0) = 0$, $g' &amp;gt; 0$, and $g'' &amp;lt; 0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Standard variable terminology applies, $k_{t-1}$ is the capital stock carried into period $t$, $n_t$ is hours worked at $t$ and  $c_t$ and $x_t$ are consumption and investment at $t$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To determine first order conditions in this type of problem, I would normally reduce the constraints down to a single equation. With standard capital adjustment, this would be trivial. However, the inclusion of $h$ is confusing me. It's easy to see that the first two constraints can be combined, $c_t + x_t = y_t$ , but is it possible to combine that and the remaining constraint without functional forms? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's probably a simple mathematical property that I'm forgetting. Can anyone help me out?&lt;/p&gt;&#xA;" OwnerUserId="4411" LastActivityDate="2015-04-10T23:57:11.257" Title="Simple Neoclassical Growth Model with Elastic Labor and Non-Standard Capital Adjustment Costs" Tags="&lt;macroeconomics&gt;&lt;economic-growth&gt;&lt;optimization&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5060" PostTypeId="1" AcceptedAnswerId="5064" CreationDate="2015-04-10T17:34:38.610" Score="1" ViewCount="37" Body="&lt;p&gt;For example, in my country, the price of coconuts steadily rises, despite the fact that we still have plenty of coconuts. The same with vegetables.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this caused primarily by an increase in the cost of labor as a factor input, or are other forces at play?&lt;/p&gt;&#xA;" OwnerUserId="4412" LastEditorUserId="31" LastEditDate="2015-04-20T18:44:42.043" LastActivityDate="2015-04-20T18:45:15.303" Title="Why do prices of consumer products seem to rise independent of their supply?" Tags="&lt;price-theory&gt;&lt;commodities&gt;&lt;cost&gt;&lt;living-cost&gt;&lt;asset-prices&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5061" PostTypeId="2" ParentId="4991" CreationDate="2015-04-10T17:57:01.803" Score="0" Body="&lt;p&gt;The principle is that the central bank acquires government bonds and in return increases the money flow, i.e increases inflation. I think that Keynes's objective was to ensure market liquidity and to stimulate growth, this &lt;strong&gt;market growth&lt;/strong&gt; should take care of the interests, I guess. &#xA;&lt;a href=&quot;http://en.wikipedia.org/wiki/Central_bank&quot; rel=&quot;nofollow&quot;&gt;Check a summary of all the &lt;strong&gt;Goals of Monetary policy&lt;/strong&gt; developed in : John Maynard Keynes, The General Theory of Employment, Interest and Money. &lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Government bonds in a country's own currency are sometimes taken as an approximation of the theoretical risk-free bond, because it is assumed that the government can &lt;a href=&quot;http://www.investopedia.com/terms/g/government-bond.asp&quot; rel=&quot;nofollow&quot;&gt;&lt;strong&gt;raise taxes or create additional currency&lt;/strong&gt;&lt;/a&gt; in order to redeem the bond at maturity. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;Payments in kind&quot; through disposal of assets, e.g &lt;strong&gt;&lt;em&gt;public privatization&lt;/em&gt;&lt;/strong&gt;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Extreme measures taking care of debt are &lt;strong&gt;&lt;em&gt;clearing&lt;/em&gt; and &lt;em&gt;defaults&lt;/em&gt;&lt;/strong&gt;.&lt;/p&gt;&#xA;" OwnerUserId="4374" LastEditorUserId="4374" LastEditDate="2015-04-11T07:18:35.873" LastActivityDate="2015-04-11T07:18:35.873" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="5062" PostTypeId="2" ParentId="5044" CreationDate="2015-04-10T20:41:09.177" Score="5" Body="&lt;p&gt;Preferences are primitive. MRS is defined solely in terms of the primitive preferences:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I give up 1 apple (good on the horizontal axis), then &lt;em&gt;MRS&lt;/em&gt; is the number of bananas (good on the vertical axis) I must be given to remain indifferent.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Clearly then, if preferences do not in any way change, then neither should the MRS.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Utility functions/representations are merely a (very) convenient tool to help us study these preferences. Under certain technical conditions, we can speak also of marginal utility. But these, it must always be remembered, are merely tools to help us study preferences.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So utility functions can be transformed monotonically. But such monotonic transformations will do nothing whatsoever to the preferences. And so of course the MRS will not change either. But the utility functions (and the MU) will.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastEditorDisplayName="user18" LastEditDate="2015-04-10T21:19:19.677" LastActivityDate="2015-04-10T21:19:19.677" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5063" PostTypeId="1" CreationDate="2015-04-10T21:22:10.507" Score="1" ViewCount="37" Body="&lt;p&gt;I am trying to establish if it would be worth my while to sell a product in a particular online marketplace but am unsure how to evaluate if it would be financially worth my while.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The marketplace in question allows me to know basic kinds of sales data for any given item in the marketplace such as:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;When was the item first offered for sale?&lt;/li&gt;&#xA;&lt;li&gt;What is the total number of sales for this item?&lt;/li&gt;&#xA;&lt;li&gt;What is the price of this item?&lt;/li&gt;&#xA;&lt;li&gt;Who is the seller of this item?&lt;/li&gt;&#xA;&lt;li&gt;What kind of item is this?&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The marketplace also allows me some other high level information such as:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;What is the total number of items for sale on the website?&lt;/li&gt;&#xA;&lt;li&gt;How many user accounts are there on the website?&lt;/li&gt;&#xA;&lt;li&gt;What are the most popular items for sale on the website?&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I would love to know if this information is enough to help me make an educated decision as to if it would make economic sense in order to produce an item to sell in this marketplace and if so how would I go about figuring that out?&lt;/p&gt;&#xA;" OwnerUserId="4414" LastActivityDate="2015-04-12T22:32:18.733" Title="How to evaluate if an activity is likely to produce a positive ROI?" Tags="&lt;microeconomics&gt;&lt;risk&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5064" PostTypeId="2" ParentId="5060" CreationDate="2015-04-10T22:27:41.363" Score="1" Body="&lt;p&gt;Real prices are fundamentally determined by supply, demand, and the market structure.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As you say, it cannot be a supply effect, as the supply of, say, coconuts, appears to be constant to you.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It could be an increase in nominal prices at the rate of inflation. In that case, prices for some goods just become more expensive because the relative supply of money is growing, &lt;em&gt;real prices&lt;/em&gt; do not change. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Alternatively, you could be facing more international demand for your goods. If international demand for coconuts goes up, exports and local demand have to &quot;&lt;em&gt;fight&lt;/em&gt;&quot; for the supply of coconuts, leading to an increase in prices.&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-04-10T22:27:41.363" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5065" PostTypeId="2" ParentId="5044" CreationDate="2015-04-10T23:39:18.667" Score="3" Body="&lt;p&gt;Graphically: you have to have in mind a 3D graph. On the basis (x,y) and for $z$ the level of your utility. The MRS must be read on the $(x,y)$ space: for a same utility level (z is constant), what is the trade off between goods 1 and 2.&#xA;Now, when you do this kind of transformation, you simply adjust the level of the utility (the value of z). Btw, $f'&amp;lt;0$ is also ok. Hope it helps despite my English. &lt;/p&gt;&#xA;" OwnerUserId="4415" LastActivityDate="2015-04-10T23:39:18.667" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5066" PostTypeId="2" ParentId="5060" CreationDate="2015-04-10T23:43:39.100" Score="2" Body="&lt;p&gt;To make it simple: let say your coconuts production is constant over time but the population is growing. It's a constant supply but an increasing demand, resulting in an increase of coconuts price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the prices were constant, the demand would be higher and thus not fully satisfied.&lt;/p&gt;&#xA;" OwnerUserId="4415" LastActivityDate="2015-04-10T23:43:39.100" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5068" PostTypeId="2" ParentId="5056" CreationDate="2015-04-11T00:07:55.680" Score="1" Body="&lt;p&gt;I'm only guessing (sorry) that $T$ for &lt;em&gt;terre&lt;/em&gt; comes from the &lt;a href=&quot;http://en.wikipedia.org/wiki/Physiocracy&quot; rel=&quot;nofollow&quot;&gt;Physiocrats&lt;/a&gt;' work. K for capital is easiest than $c$ (for consumption). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Btw, labor is not always $L$ but sometimes $N$ depending of if you mean labor force vs working population (or hours). And I've no ideas why $N$!&lt;/p&gt;&#xA;" OwnerUserId="4415" LastActivityDate="2015-04-11T00:07:55.680" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5069" PostTypeId="2" ParentId="4999" CreationDate="2015-04-11T00:21:18.263" Score="1" Body="&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;You can draw discontinuous functions in a standard $R^2$ space. For example when you draw a floor functions (a discontinuous function), the standard coordinates are still appropriate. Just make clear what to what part the discontinuous point belongs to.&#xA;Usually, for lex. preferences, one draws only the preferred set. &lt;a href=&quot;http://www.econ.ohio-state.edu/miyazaki/econ804/LEXICO.pdf&quot; rel=&quot;nofollow&quot;&gt;Here&lt;/a&gt; you can find a graph of this kind (page 2).&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Yes, each point is an &quot;indifferent singleton&quot; (if we may say so, as your set has only one element, and of course you're indifferent between the same thing). &#xA;The infinity number of points is not a problem. When you draw a preference map (for standard preferences), there are an infinite number of possible indifference curves. The idea is just to know how many you need to make your point. If you're using a software, you can plot with colors instead of a huge number of lines...&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="4415" LastEditorUserId="4415" LastEditDate="2015-04-11T13:32:35.440" LastActivityDate="2015-04-11T13:32:35.440" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5070" PostTypeId="2" ParentId="4991" CreationDate="2015-04-11T08:29:53.857" Score="1" Body="&lt;p&gt;A good starting point would be to see what an &lt;a href=&quot;http://en.wikipedia.org/wiki/Open_market_operation&quot; rel=&quot;nofollow&quot;&gt;open market operation&lt;/a&gt; is, which is the main way to adjust the money supply. FYI, the banks may borrow from the ECB but they are reluctant to do so (they prefer borrow from each others). The interest rate you're referring to is mere a &quot;focus&quot; point (for later arbitrage).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I let someone else give you a more complete answer...&lt;/p&gt;&#xA;" OwnerUserId="4415" LastActivityDate="2015-04-11T08:29:53.857" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5071" PostTypeId="2" ParentId="4929" CreationDate="2015-04-11T09:50:14.067" Score="5" Body="&lt;p&gt;First of all, let me tell you that you're doing great. I remember that, being a non-parametric method, it was more difficult for me to understand even the simplest things of DEA.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, your interpretation of DEA is correct. When a firm is considered inefficient, it is because it could have gotten the same output but with a lower cost if it had used the best practices. Nonetheless, there is another way of looking at it (the output oriented way): if the firm adopts better practices the output will be increased with the same costs. Keep that in mind.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To explain the scale efficiency, i'm gonna build a very simple case. Imagine a firm that manufactures some product (&lt;em&gt;y&lt;/em&gt;) and uses only labor as an input (&lt;em&gt;x&lt;/em&gt;) and both the product price and the wage are $1 (for easier calculation). This firm has 4 plants: &lt;em&gt;a&lt;/em&gt;, &lt;em&gt;b&lt;/em&gt;, &lt;em&gt;c&lt;/em&gt;, and &lt;em&gt;d&lt;/em&gt;. Table 1, shows the number of workers, production, profit and productivity of the 4 plants.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/ElLyk.png&quot; alt=&quot;Table 1&quot;&gt;&lt;br&gt;&#xA;Table 1 &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is clear, that plant &lt;em&gt;a&lt;/em&gt; is the least productive of them, because every worker produces only 1 unit. Plant &lt;em&gt;b&lt;/em&gt; &lt;strong&gt;produces the same as &lt;em&gt;a&lt;/em&gt; with less workers.&lt;/strong&gt; &lt;em&gt;c&lt;/em&gt;, on the other hand, has &lt;strong&gt;the same number of workers as &lt;em&gt;a&lt;/em&gt;&lt;/strong&gt;, but with more production and it is the most productive plant(2.5 units per worker). &lt;em&gt;d&lt;/em&gt; is the biggest plant producing 29 units.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, let's calculate both the Constant Returns to Scale (CRS) efficiency and the Variable Returns to Scale (VRS) efficiency and the scale efficiency:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/BnxBA.png&quot; alt=&quot;Table 2&quot;&gt;&lt;br&gt;&#xA;Table 2&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, let's plot what it looks like:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/iZgKF.png&quot; alt=&quot;Figure 1&quot;&gt;&lt;br&gt;&#xA;Figure 1&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where every point represents a plant, the black dotted line is the CRS efficiency frontier and the blue line is the VRS efficiency frontier. This blue line implies that &lt;em&gt;b&lt;/em&gt;, &lt;em&gt;c&lt;/em&gt;, and &lt;em&gt;d&lt;/em&gt; are as efficient as they can be. That is, they already have the best practices. The only difference in their productivity is due to &lt;em&gt;economies of scale&lt;/em&gt;. Now, if you were to decide the future of &lt;em&gt;a&lt;/em&gt;, the least efficient plant, what can you do? you have two options: &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Fire some people keeping production constant: move to &lt;em&gt;b&lt;/em&gt;.&lt;/li&gt;&#xA;&lt;li&gt;Increase production keeping all the workers: move to &lt;em&gt;c&lt;/em&gt;.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;You should be aware by now that the smart move is to increase the production without getting rid of anyone (move to &lt;em&gt;c&lt;/em&gt;). So far, this is the usual DEA analysis. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But now, let's forget about &lt;em&gt;a&lt;/em&gt;. Let's see what we can do to increase the profitability of &lt;em&gt;b&lt;/em&gt;. &lt;em&gt;b&lt;/em&gt; is already in the efficiency frontier of VRS DEA. This means that &lt;em&gt;b&lt;/em&gt; is already using the best practices. Nonetheless, &lt;em&gt;because of economies of scale&lt;/em&gt; it is impossible to achieve the same productivity. So, the smart move, would be to invest \$5 hiring 5 new workers: &lt;strong&gt;move to &lt;em&gt;c&lt;/em&gt; in Figure 1&lt;/strong&gt;. Note that &lt;em&gt;b&lt;/em&gt; is not adopting efficiency measures this time: &lt;em&gt;it's just increasing the scale, while maintaining the best practices it already has&lt;/em&gt;. This investment would be profitable indeed: we hire 5 new workers and production goes from 10 up to 25, which represents an increase in profits of \$$10=\$15-\$5$. Put in other words, for every \$1 we got \$2 return. Not bad!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;But wait a second&lt;/strong&gt;... We already have 5 extra workers in &lt;em&gt;d&lt;/em&gt;! What would happen if we just move workers from &lt;em&gt;d&lt;/em&gt; to &lt;em&gt;b&lt;/em&gt;? Now the three firms would have \$15 profit, leaving a total profit of \$50 &lt;em&gt;without investing a single penny&lt;/em&gt;! The profit increased by 47.05% just by &lt;strong&gt;adjusting scales&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, what role did the scale efficiency measure of DEA played here? Take a look back to Table 2 and divide &lt;em&gt;b&lt;/em&gt;'s productivity by &lt;em&gt;b&lt;/em&gt;'s scale efficiency $2/0.8=2.5$ which is &lt;em&gt;c&lt;/em&gt;'s productivity. Repeat this procedure with &lt;em&gt;d&lt;/em&gt;: $1.93/0.77333=2.5$. So you can say that &lt;em&gt;b&lt;/em&gt; is achieving 80% of the &lt;em&gt;optimal scale efficiency&lt;/em&gt;, while &lt;em&gt;d&lt;/em&gt; achieves 77.33% of it. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have to make a remark: note that both &lt;em&gt;b&lt;/em&gt;'s and &lt;em&gt;d&lt;/em&gt;'s scale efficiency have a positive sign, but one has to increase its scale while the other has to reduce it. In this sense, the analysis is kind of blind, but you have other tests to know whether it's &lt;em&gt;increasing&lt;/em&gt; returns to scale or &lt;em&gt;decreasing&lt;/em&gt; returns to scale. &lt;/p&gt;&#xA;" OwnerUserId="4409" LastActivityDate="2015-04-11T09:50:14.067" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5072" PostTypeId="1" AcceptedAnswerId="5117" CreationDate="2015-04-11T14:14:45.510" Score="3" ViewCount="1311" Body="&lt;p&gt;I'm trying to understand the encouragement design but I have some doubts. For example, if I want to introduce a voucher for teachers that can be used for professional development(the treatment) and I want to estimate its impact on student performance(dependent variable) obviously I have some problems, since not all the individuals in the treatment group will actually use the voucher. How can I introduce the encouragement design in this case? for example is it right if I send (randomly in the treatment group) some invitations to some professional developments program and I use their participation to these invitations as instrumental variable? And what's the difference with intention to treat?&lt;/p&gt;&#xA;" OwnerUserId="9" LastActivityDate="2015-04-14T06:25:26.050" Title="How encouragement design works practically?" Tags="&lt;randomized-experiment&gt;&lt;treatment-effect&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5073" PostTypeId="1" AcceptedAnswerId="5074" CreationDate="2015-04-11T15:09:25.733" Score="8" ViewCount="171" Body="&lt;p&gt;I hope this is the place to ask this question. I am in the first year of PhD in economics. As most of PhD students in economics, I try to show some economic mechanisms by &lt;strong&gt;theoretical modelling&lt;/strong&gt; in environmental economics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Most of time, I have a tendency to base largely on other models in the literature. I try to incorporate my idea in existing models but it does not work really well. For those who are in economics, how do you start to model your idea ? Do you start from a really basic model and complexify after ?&lt;/p&gt;&#xA;" OwnerUserId="2938" LastEditorUserId="2938" LastEditDate="2015-04-13T09:46:47.977" LastActivityDate="2015-08-23T21:08:34.020" Title="Departure point for research in economics" Tags="&lt;scientific-method&gt;" AnswerCount="3" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5074" PostTypeId="2" ParentId="5073" CreationDate="2015-04-11T16:36:46.680" Score="5" Body="&lt;p&gt;Always use smaller models when you can. Typically, you want to show that&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;surprisingly/interestingly, if we combine A,B in a model, there is an interaction that explains C.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Have the smallest model that you need to make your point (that contains A,B). Additional features are irrelevant to make your point and will only distract you and your audience. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are many models which are famous for being able to model A, B, or similar. If you need A and C, take a model famous for being good at modeling A, and add feature C. If there is nothing clean (any model that has A, also has A2, A3, A4 - which you really don't need), you might be better off writing your own model / simplifying an existing one).&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Example&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;For example, &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;A: Monopolistic competition is a nice way to have firms with positive profit margins&lt;/li&gt;&#xA;&lt;li&gt;B: The Calvo-fairy is one way of getting sticky prices in an equilibrium model&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;If you combine A,B (and a few other basic elements), you can interestingly show an environment with room for monetary policy, the standard NK-model. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Say you want to look at the impact of sticky prices onto unemployment. You could take A,B and add sticky wages and monopolistic competition on the labor supply side. Or, you could start with the Diamonds-Mortensen-Pissarides (DMP) model and extend it with B. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The choice of model depends particularly on &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Which is the easier choice (certainly the first one)&lt;/li&gt;&#xA;&lt;li&gt;What is the mechanism you're interested in?&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;If you believe that workers really are setting the wage and there is some stickiness in their ability to do so, (i) is the way to go. If you believe it is important that employment comes after some matching-period, and wages are set through bargaining from both employers and employees, extending DMP would be a better way. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Fundamentally, if you believe that you could use DMP, but it has some clutter that you don't need, get rid of that first, and then add your price-stickiness.&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-04-11T16:36:46.680" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5075" PostTypeId="1" AcceptedAnswerId="5078" CreationDate="2015-04-11T16:36:56.957" Score="2" ViewCount="78" Body="&lt;p&gt;I know one form of a derivative, which is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ f'(x) = \lim_{\Delta\to 0} \frac{f(x+\Delta) - f(x)}{\Delta}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $x_{t+\Delta} = x_t + \Delta \dot x_t$. &lt;a href=&quot;http://www.princeton.edu/~moll/HACT.pdf&quot; rel=&quot;nofollow&quot;&gt;Achdou and coauthors&lt;/a&gt; (end of appendix A1) claim that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \lim_{\Delta\to 0} \frac{f(x_{t+\Delta}) - f(x_t)}{\Delta} = \lim_{\Delta\to 0} \frac{f(x_t + \Delta \dot x_t) - f(x_t)}{\Delta} = f'(x_t)\dot x_t$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand the first equality, that's merely the substitution. I can't wrap my head around the second one. How exactly does one show it? &lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2015-04-11T18:09:01.463" LastActivityDate="2015-04-11T18:09:01.463" Title="From Discrete to Continuous Time" Tags="&lt;mathematical-economics&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5076" PostTypeId="1" CreationDate="2015-04-11T16:38:48.733" Score="3" ViewCount="855" Body="&lt;p&gt;What's the literature on Non-Constant elasticities of substitution? Say, I'm interested in the elasticity between $c_1$ and $c_2$ increasing/decreasing in income/wealth. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;CES utility functions with equal spending weights are similar to&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \left(\sum_i c_i^\frac{\epsilon-1}{\epsilon}\right)^\frac{\epsilon}{1-\epsilon}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A simple way of getting non-constant elasticities would be to let $\epsilon = \epsilon(Y)$. Then the elasticity of substitution would vary with income:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{d \log \frac{c_i}{c_j}}{d \log \frac{p_j}{p_i}} = \epsilon(Y)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But I feel that this mixture of preference-parameters and outcome variables is suboptimal.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there a common way of modeling these preferences? &lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2015-04-11T19:12:17.777" LastActivityDate="2020-12-20T18:03:16.400" Title="Non-Constant Elasticity of Substitution" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;preferences&gt;" AnswerCount="2" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5077" PostTypeId="1" AcceptedAnswerId="5079" CreationDate="2015-04-11T16:38:56.027" Score="2" ViewCount="1374" Body="&lt;p&gt;I'm a civil engineering student and I'm interested in economics and I would like to learn everything about it. I would like to learn everything from banks to the stock markets and everything there is to learn about. I always read articles about stocks and the market but I feel really ignorant. Can you recommend me some introductory books or some learning ressources? &#xA;Thank you in advance.&lt;/p&gt;&#xA;" OwnerUserId="4419" LastActivityDate="2015-04-11T18:15:13.203" Title="How can I learn about economics?" Tags="&lt;self-study&gt;" AnswerCount="1" CommentCount="1" ClosedDate="2015-04-15T01:01:02.990" ContentLicense="CC BY-SA 3.0" />
  <row Id="5078" PostTypeId="2" ParentId="5075" CreationDate="2015-04-11T17:51:31.490" Score="2" Body="&lt;p&gt;$$\require{cancel}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Notice that if $\dot x_t \neq 0$, then $\Delta \dot x_t \to 0 \implies \Delta \to 0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \lim_{\Delta\to 0} \frac{f(x_{t+\Delta}) - f(x_t)}{\Delta} = \cancelto{f'(x_t)}{\lim_{\Delta \dot x\to 0} \frac{f(x_t + \Delta \dot x_t) - f(x_t)}{\Delta \dot x_t} \dot x_t}= f'(x_t)\dot x_t$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If $\dot x_t = 0$, then $f(x_t)$ is a constant function.&lt;/p&gt;&#xA;" OwnerUserId="73" LastEditorUserId="73" LastEditDate="2015-04-11T18:07:20.977" LastActivityDate="2015-04-11T18:07:20.977" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5079" PostTypeId="2" ParentId="5077" CreationDate="2015-04-11T18:15:13.203" Score="3" Body="&lt;p&gt;I would recommend Tim Harford's &quot;The Undercover Economist&quot; for an easy way to get some exposure to how economists think, without having to go through all of the dry academic mathematics etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To get a sense of the shape of the economics discipline, you might also like to look at &quot;Economics: A Very Short Introduction&quot; by Partha Dasgupta.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lastly, if you really want to get into the discipline and you want a slightly more formalised/academic treatment then any good introductory textbook should do. N. Gregory Mankiw's &quot;Economics&quot; is a popular choice.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;The above describes how you might go about learning about economics. But &lt;strong&gt;from your question, it seems more like you are more interested in learning about finance&lt;/strong&gt;, which is the discipline that encompasses the study financial markets, etc. I learnt finance from a book called &quot;Introduction to Finance&quot; by Lawrence J. Gitman and Jeff Madura, but there doesn't seem to be a recent edition so perhaps someone else can recommend a more recent introduction to the subject.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2015-04-11T18:15:13.203" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5080" PostTypeId="2" ParentId="5073" CreationDate="2015-04-11T18:16:49.013" Score="5" Body="&lt;p&gt;Hal Varian's &quot;&lt;a href=&quot;http://people.ischool.berkeley.edu/~hal/Papers/how.pdf&quot; rel=&quot;nofollow&quot;&gt;How to Build an Economic Model in Your Spare Time&lt;/a&gt;&quot; has some excellent advice on this topic.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The best advice echoes what FooBar has alrady said. Start with the simplest possible model: two agents, two actions, two periods. Not only does this help to keep the model clean, it also helps you to understand the most fundamental aspects of the mechanism driving your results. If you really have an intuitive story to tell, you should be able to figure out what are the absolute minimum necessary ingredients to make it work. Also, because of the lack of 'moving parts', the simpliest model will probably yield the most robust version of your results.&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2015-04-12T19:18:58.783" LastActivityDate="2015-04-12T19:18:58.783" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5081" PostTypeId="1" AcceptedAnswerId="5083" CreationDate="2015-04-11T20:07:13.770" Score="3" ViewCount="6195" Body="&lt;p&gt;I am reading the book Macroeconomics by Olivier Blanchard.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It states that an alternative way of looking at an goods market equilibrium is &lt;em&gt;investment = saving&lt;/em&gt;.  In an open economy it states the equilibrium condition is &lt;em&gt;Net Exports = Saving (both private and public) - Investment&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am struggling a little bit with the intuition of understanding this condition.  Would it be because the difference between saving and investment would contribute to the capital account aspect of the balance of payments in some way?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would be very grateful if someone could help me to gain an understanding of this equilibrium condition.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thankyou.&lt;/p&gt;&#xA;" OwnerUserId="4420" LastActivityDate="2015-04-11T23:47:27.057" Title="Investment = Saving relation in an open economy" Tags="&lt;macroeconomics&gt;&lt;investment&gt;&lt;saving&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5082" PostTypeId="2" ParentId="5063" CreationDate="2015-04-11T20:46:43.730" Score="1" Body="&lt;p&gt;Look into what similar/same products this platform and similar platforms are selling for compared to your pricing. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ask yourself the following:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;How does their pricing compare to yours?&lt;/strong&gt; If you are equal to or above their pricing- too risky. If you are below their sales prices, compare their online shelf life to estimate your projected holding period and carry cost between your purchase and sale time? &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;Do the other sellers have strong reviews (credibility)?&lt;/strong&gt; Are you starting out without any reviews, or are you an existing seller with reviews? &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;What are your profit margins?&lt;/strong&gt; If your costs go up 10-20% does will the demand allow for an increase your sales price? &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Finally, &lt;strong&gt;run a 3-5 year cash flow plan to estimate your total sales, costs, and profits&lt;/strong&gt;. Compare your projections(profits) with the amount of time you anticipate it will take you on a daily, weekly, monthly, annually. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Remember&lt;/strong&gt;, selling online has its challenges, don't underestimate the amount of time it will take out of your day. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There's this story about a paintball gun dealer who bought their products from China and sold them out of their store, plus online through a major online selling platform. Their online sales grew so large their online platform (partner) went direct to the manufacture in China and made a deal cutting out the reseller, selling it cheaper than the paintball company could. They became a victim of their own success. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Anyway, good luck! :)  &lt;/p&gt;&#xA;" OwnerUserId="4421" LastEditorUserId="100" LastEditDate="2015-04-12T22:32:18.733" LastActivityDate="2015-04-12T22:32:18.733" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5083" PostTypeId="2" ParentId="5081" CreationDate="2015-04-11T21:38:15.393" Score="3" Body="&lt;p&gt;First it should be clear that this is an (ex post) national account equality:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$Y=C+I+G+NX$, the private saving is $S_p=Y-C-T$ and public saving is $S_g=T-G$&#xA;thus you have $S_p+S_g-I=NX$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Later you see in this book that the net exports, which depend on the exchange rate, are exactly equal to the Net Capital Outflow. Why? because an export is like a capital import (and vice versa).&lt;/p&gt;&#xA;" OwnerUserId="4415" LastActivityDate="2015-04-11T21:38:15.393" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5084" PostTypeId="1" CreationDate="2015-04-11T22:02:36.540" Score="3" ViewCount="150" Body="&lt;p&gt;I am an undergraduate math major who is intrigued about social choice theory. I am in the early stages of planning my senior project and was wondering if anybody had some recommendations of literature about the applications of ultrafilters in social choice theory, along with any other literature you think may be beneficial. The more math the better! Thanks in advance!  &lt;/p&gt;&#xA;" OwnerUserId="1594" LastEditorUserId="5635" LastEditDate="2015-11-12T15:54:47.103" LastActivityDate="2015-11-12T15:54:47.103" Title="Ultrafilters in Social Choice Theory Literature Request" Tags="&lt;mathematical-economics&gt;&lt;reference-request&gt;&lt;social-welfare&gt;&lt;social-choice&gt;" AnswerCount="0" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="5085" PostTypeId="2" ParentId="5081" CreationDate="2015-04-11T23:47:27.057" Score="2" Body="&lt;p&gt;Just to add a little more intuition, recall the difference between a small open economy and a closed economy. A closed economy must consume its endowment. A small endowment, however, can borrow and lend from the rest of the world. This allows it to engage in intertemporal trade. When it borrows from the rest of the world, it does so to either increase present consumption or, in the case of a production economy, to increase investment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, this leads to the equilibrium condition that at any time, the amount saved is equal to the sum of investments plus net exports (foreign money flows in to the economy),&#xA;$$&#xA;NX + I = S.&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note, that even if we're not dealing with an endowment economy, i.e., even if the closed economy is a production economy, it is still constrained in its ability to engage in intertemporal trade. The closed economy is constrained to invest only what it saves. Hence, to take advantage of an investment opportunity, it must forgo some present consumption.&lt;/p&gt;&#xA;" OwnerUserId="59" LastActivityDate="2015-04-11T23:47:27.057" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="5086" PostTypeId="1" CreationDate="2015-04-12T00:35:09.073" Score="2" ViewCount="64" Body="&lt;p&gt;The excange of Chinese yuan is controled by Chinese government in part now. &#xA;What will  happen  if  Chinese yuan turn floating exchange rate system?&lt;/p&gt;&#xA;" OwnerUserId="4418" LastActivityDate="2015-04-12T00:35:09.073" Title="What will happen if Chinese yuan turn floating exchange rate system?" Tags="&lt;exchange-rates&gt;" AnswerCount="0" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5087" PostTypeId="1" CreationDate="2015-04-12T01:01:10.673" Score="3" ViewCount="107" Body="&lt;p&gt;I have the following system of equations&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \rho V(u, \epsilon^i) = F(u, \epsilon^i) + V_u(u, \epsilon^i)g(u, V(u, \epsilon^i) + \lambda^i \left(V(u, \epsilon^{-i}) - V(u, \epsilon^i)\right)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;with $i \in \{0,1\}$, so that $\epsilon$ can take two values and $g(u, V)$ known and initial $u(0), \epsilon$ given. $g(u,V)$ is the law of motion for $u$, $\dot u(u, \epsilon^i)$ if you will - but it depends on the value of $V$. This looks like a HJB, but crucially, there is no optimization involved. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is a macro-labor model, where the amount of job openings depends on the value of a filled position ($V$), which is why the law of motion for $u$ (unemployment) depends on the &lt;em&gt;equilibrium value&lt;/em&gt; of $V$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;How could I compute (numerically?) the value of $V$ that solves this ODE?&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="8481" LastEditDate="2020-05-09T07:04:49.257" LastActivityDate="2020-05-09T07:04:49.257" Title="Solving this system of ODE" Tags="&lt;mathematical-economics&gt;&lt;academic-graduate&gt;&lt;computation&gt;&lt;bellman-equations&gt;&lt;ode&gt;" AnswerCount="0" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5088" PostTypeId="1" AcceptedAnswerId="5248" CreationDate="2015-04-12T11:21:35.147" Score="6" ViewCount="979" Body="&lt;p&gt;While reading economics papers, especially those related to economy with land, I often encounter the terms $L^\infty$ and the &quot;weak* topology&quot;. They seem like very basic terms, but I couldn't find a basic explanation of them. Here is a typical paragraph which I am trying to decipher (it is from page 4 at the introduction of &lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/0022053188900087&quot;&gt;A foundation of location theory&lt;/a&gt;):&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Let:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$[0,\frac{1}{n}]\cup[\frac{2}{n},\frac{3}{n}]\cup[\frac{4}{n},\frac{5}{n}]\cup...\cup[\frac{n-2}{n},\frac{n-1}{n}]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$(n=1,2,...)$ represent a sequence of commodities of increasing utility. If the indicator functions of these sets are embedded in $L^\infty$ with the weak* topology, then the limit is $\frac{1}{2}1_{[0,1]}$, half the indicator function on the interval $[0,1]$. This, indeed, is a natural limit that is not in the commodity space.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;So my questions are:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;What is $L^\infty$?&lt;/li&gt;&#xA;&lt;li&gt;What is the &quot;weak* topology&quot;?&lt;/li&gt;&#xA;&lt;li&gt;What is the meaning of &quot;embedded in $L^\infty$&quot;?&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;NOTE: I have some basic (undergraduate) knowledge of topology. I have heard about &quot;weak topology&quot; but never heard of &quot;weak* topology&quot;. I will be very thankful for a simple, intuitive explanation that will help me continue reading!&lt;/p&gt;&#xA;" OwnerUserId="385" LastActivityDate="2015-04-22T02:25:20.990" Title="L-infinity and weak-star topology" Tags="&lt;mathematical-economics&gt;" AnswerCount="1" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5089" PostTypeId="1" CreationDate="2015-04-11T15:04:49.723" Score="1" ViewCount="22" Body="&lt;p&gt;I hope this is the place to ask this question. &#xA;I am in the first year of PhD in economics. As most of PhD students in economics, I try to show some economic mechanisms by modelling. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Most of time, I have a tendency to base largely on other models in the literature. I try to incorporate my idea in existing models but it does not work really well. &#xA;For those who are in economics, how do you start to model your idea ? Do you start from a really basic model and complexify after ? &lt;/p&gt;&#xA;" OwnerUserId="2938" OwnerDisplayName="optimal control" LastEditorUserId="44" LastEditDate="2016-10-17T12:32:31.247" LastActivityDate="2016-10-17T12:32:31.247" Title="Departure point for research in economics" Tags="&lt;scientific-method&gt;" AnswerCount="0" CommentCount="2" ClosedDate="2015-04-13T16:54:20.650" ContentLicense="CC BY-SA 3.0" />
  <row Id="5090" PostTypeId="1" AcceptedAnswerId="5092" CreationDate="2015-04-12T16:15:13.033" Score="3" ViewCount="220" Body="&lt;p&gt;I'm interested to know the exact magnitude of impact of Subprime Mortgages crisis on major players in investment banking.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In particular, how can I find data for percentage of revenue from Subprime Mortgages in total revenue for major banks, like Goldman Sachs, Morgen Stanley, The Bear Stearns and  Lehman Brothers?&lt;/p&gt;&#xA;" OwnerUserId="73" LastActivityDate="2015-04-12T19:49:24.890" Title="Understanding the impact of Subprime Mortgages crisis on investment banking" Tags="&lt;data-request&gt;&lt;banking&gt;&lt;financial-crises&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5092" PostTypeId="2" ParentId="5090" CreationDate="2015-04-12T19:49:24.890" Score="1" Body="&lt;p&gt;Simply put, you can't tell exactly. It's just not possible to tell these entities' subprime losses apart from other losses, with the possible exception of Lehman Brothers, due to the detail made available through its bankruptcy proceedings. Even then, it would be an incredibly labor-intensive task.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are a number of reasons for this. First, most subprime mortgage exposures of major banks weren't held as on-balance-sheet loans, but in the form of (usually higher-rated) tranches of private-label mortgage-backed securities, which has a number of implications, including: the exposures appeared on the balance sheet as securities, not as mortgage loans; there's no way to know what fraction of those securities contained subprime loans; and due to the structures of the securities, there's not even a linear relationship between the fraction of subprime loans in a given security and the bank's exposure to losses from those loans, among other things. Second, they often had off-balance-sheet exposures in the form of support obligations (whether explicit or implicit) on structured investment vehicles. Third, their exposures varied significantly due to differences in the amount of leverage they used in funding their assets.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As an aside: pre-crisis, none of the four entities you've named were actually banks. Though often referred to as &quot;investment banks,&quot; all of those were nonbank broker-dealers.&lt;/p&gt;&#xA;" OwnerUserId="264" LastActivityDate="2015-04-12T19:49:24.890" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5093" PostTypeId="1" AcceptedAnswerId="5094" CreationDate="2015-04-12T21:53:17.607" Score="1" ViewCount="135" Body="&lt;p&gt;I wanted to know what is the formal name of the (gain/cost)x100 ratio calculation (growth rate perhaps?). Any clarification would be greatly appreciated. &lt;/p&gt;&#xA;" OwnerUserId="4425" LastEditorUserId="96" LastEditDate="2015-04-13T14:17:51.793" LastActivityDate="2015-04-13T14:17:51.793" Title="What is the name of the gain/cost ratio" Tags="&lt;microeconomics&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5094" PostTypeId="2" ParentId="5093" CreationDate="2015-04-12T22:48:44.987" Score="2" Body="&lt;p&gt;You could call it a &lt;a href=&quot;https://en.wikipedia.org/wiki/Benefit%E2%80%93cost_ratio&quot; rel=&quot;nofollow&quot;&gt;benefit–cost ratio&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="2" LastActivityDate="2015-04-12T22:48:44.987" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5095" PostTypeId="1" AcceptedAnswerId="5106" CreationDate="2015-04-12T23:00:04.083" Score="3" ViewCount="720" Body="&lt;p&gt;In the production function &lt;strong&gt;&lt;em&gt;Y = C + I + G + NX&lt;/em&gt;&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does foreign investment in domestic assets (&lt;em&gt;i.e. foreign buying of domestic bonds&lt;/em&gt;) - and vice versa - come under the Net Exports variable? Which denotation does domestic investment in domestic assets come under? The Investment variable (I), one would think, however I seem to recall being told that the Investment variable does not include financial investment, so does it come under saving?&lt;/p&gt;&#xA;" OwnerUserId="4420" LastActivityDate="2015-04-13T12:42:27.743" Title="Financial investment in the composition of GDP" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;&lt;production-function&gt;&lt;saving&gt;&lt;financial&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5096" PostTypeId="2" ParentId="5093" CreationDate="2015-04-13T01:46:07.627" Score="0" Body="&lt;p&gt;You could refer to it as the '&lt;em&gt;Relative Gain&lt;/em&gt;', possibly.&lt;/p&gt;&#xA;" OwnerUserId="4420" LastActivityDate="2015-04-13T01:46:07.627" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5097" PostTypeId="1" AcceptedAnswerId="5179" CreationDate="2015-04-13T03:46:22.787" Score="4" ViewCount="3769" Body="&lt;p&gt;Suppose I have the following Cobb-Douglas function $$U(x,y) = x^\alpha y^{1-\alpha} = 1$$ where $\alpha \in [0,1]$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$MRS = -\frac{U_x}{U_y} = - \frac{\alpha}{1-\alpha} \frac{y}{x} $$&#xA;$$\frac{\partial MRS}{\partial \alpha} = -\frac{1}{(1-\alpha)^2}\frac{y}{x}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So suppose I have the following set of graphs: &#xA;&lt;img src=&quot;https://i.stack.imgur.com/EYVS0.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here I just picked some values. Red is $\alpha = \frac{1}{4}$, blue is $\alpha = \frac{1}{2}$, black is $\alpha = \frac{3}{4}$  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand how the steepness and flatness of the different curves change as I vary $\alpha$. But I am confused as to what $\frac{\partial MRS}{\partial \alpha} $ tells me about the graph. In particular, $\frac{\partial MRS}{\partial \alpha} $ is dependent on $\alpha$. So even though I know $\frac{\partial MRS}{\partial \alpha}$ tells me how much $MRS$ changes as I change alpha....changing $\alpha$ changes $\frac{\partial MRS}{\partial \alpha}$...so I am very confused!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My Question&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is $\frac{\partial MRS}{\partial \alpha}$ telling me about the graph? Since $\frac{\partial MRS}{\partial \alpha}$ is dependent on $\alpha$, how does this affect things? &lt;/p&gt;&#xA;" OwnerUserId="2679" LastEditorUserId="2679" LastEditDate="2015-04-13T07:31:21.033" LastActivityDate="2015-04-18T08:16:50.470" Title="Interpreting how graphs of Cobb-Douglas utility functions. How does MRS vary as we vary $\alpha$?" Tags="&lt;cobb-douglas&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5098" PostTypeId="1" CreationDate="2015-04-13T04:07:35.563" Score="3" ViewCount="1316" Body="&lt;p&gt;I need help in solving this question from one of the entrance examination.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Q&lt;/strong&gt;.Consider an economy where a representitive agent lives for three periods.&#xA;In the first period, she is young - this is the time when she gets&#xA;education. In the second period, she is middle-aged and with the level&#xA;of education acquired in the first period, she generates income. More&#xA;specifically, if she has $h$ units of education in the first period, she can&#xA;earn $wh$, in the second period, where $w$ is the exogenously given wage&#xA;rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The agent borrows funds for her education when she is young and&#xA;repays with interest when she is middle aged. If in the first period,&#xA;the agent borrows $e$, then the human capital $h$ at the beginning of the&#xA;second period becomes $h(e)$, where $$dh/de &amp;gt; 0$$$$d^2h/de^2 &amp;lt; 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the third period of her life, she consumes out of her savings made&#xA;in the second period, that is, when she was middle aged. Assume&#xA;that the exogenous rate of interest (gross) on saving or borrowing is&#xA;$R$. For simplicity, assume that an agent does not consume when she&#xA;is young and, thus, the life time utility is $u(c^m) + bu(c^o)$, where $c^m$ and $c^o$ are the level of consumption when they are middle-aged and&#xA;old respectively and $0&amp;lt;b&amp;lt;1$ is the discount factor.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;1.&lt;/strong&gt; Write down the utility maximization problem of the agent and the&#xA;first order conditions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;2.&lt;/strong&gt;  How does the optimal level of education vary with the wage rate&#xA;and the rate of interest?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I cannot understand how to use the interest rate. Also I have got following answer to &lt;strong&gt;1&lt;/strong&gt;:-&lt;/p&gt;&#xA;&#xA;&lt;p&gt;maximizing$$U = u(c^m) + bu(c^o)$$ subjected to the constraint&#xA;$$c^o/(1+r) + c^m = wh(e) - (1+r)e$$&#xA;from which we can get Lagrange first order equations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I cannot see how $R$ could be used. Also got a doubtful answer for &lt;strong&gt;2&lt;/strong&gt;. &lt;/p&gt;&#xA;" OwnerUserId="4345" LastActivityDate="2015-04-14T12:41:29.347" Title="Intertemporal utility maximization through consumption" Tags="&lt;microeconomics&gt;&lt;utility&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5099" PostTypeId="1" AcceptedAnswerId="5122" CreationDate="2015-04-13T04:57:34.643" Score="3" ViewCount="801" Body="&lt;p&gt;I often see papers in economic theory mentioning a duality between the price space and the commodity space. I think they refer to &lt;a href=&quot;https://en.wikipedia.org/wiki/Dual_space&quot; rel=&quot;nofollow&quot;&gt;duality of vector spaces&lt;/a&gt;. I.e, the commodity space is a vector space, a price system is a linear functional over the commodity space (assigning a value to each bundle), and so the space of all possible price systems  is the dual of the commodity space.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there a standard reference that explains this duality in more detail?&lt;/p&gt;&#xA;" OwnerUserId="385" LastActivityDate="2015-04-22T02:37:32.253" Title="price space as a dual of commodity space" Tags="&lt;mathematical-economics&gt;&lt;reference-request&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5100" PostTypeId="2" ParentId="5097" CreationDate="2015-04-13T08:12:43.700" Score="4" Body="&lt;p&gt;If $\alpha$ rises, the utility puts more weights to the $x$. Then you must give up more $x$ for one $y$ (for the same utility). Your MRS, for a given $y$, increases in absolute value. Graphically:&#xA;&lt;img src=&quot;https://i.stack.imgur.com/Mv0f8.gif&quot; alt=&quot;MRS as a function of x for different $alpha$&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you set $y$ &lt;strong&gt;and&lt;/strong&gt; $x$, the slope is lower for higher $\alpha$ (be careful to only change one thing at a time).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Concerning your &quot;loop&quot; problem, look at the function $1/x$, the first derivative is also a function of $x$, like the 2nd and so on. What matter is the value at one particular x.&lt;/p&gt;&#xA;" OwnerUserId="4415" LastActivityDate="2015-04-13T08:12:43.700" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5101" PostTypeId="1" AcceptedAnswerId="5105" CreationDate="2015-04-13T09:15:22.113" Score="3" ViewCount="101" Body="&lt;p&gt;I am looking for some good introductory papers or possible books on macroprudential regulation. &lt;/p&gt;&#xA;" OwnerUserId="107" LastEditorUserId="44" LastEditDate="2016-10-14T12:11:07.100" LastActivityDate="2016-10-14T12:11:07.100" Title="Books/Papers on Macroprudential Regulation" Tags="&lt;macroeconomics&gt;&lt;reference-request&gt;&lt;regulation&gt;" AnswerCount="3" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5102" PostTypeId="2" ParentId="5098" CreationDate="2015-04-13T10:04:44.167" Score="4" Body="&lt;p&gt;&lt;strong&gt;Hint&lt;/strong&gt; : You can write down your Lagrangian and simply take derivatives according to $c^{o}$ and $c^{m}$. So, you will mainly have two first order conditions with a lagrange multiplier. After, you will combine these two equation to eliminate your lagrange multiplier, which will give your intertemporal optimality condition (so-called Euler equation). I don't write the whole maximisation problem but only Euler condition.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$bu^{'}\left(c^{o}\right)=\frac{u^{'}\left(c^{m}\right)}{1+r}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The role of interest rate is quite evident. If your interest rate increases, the marginal utiliy of consuming when old decreases, which means that it is optimal to consume more when old. Intuitively, it is plausible, if interest rate increases, the opportunity cost of consuming today increases.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the second question, when you try to find optimal level of education, you should take the derivative according to $e$. So, the lagrange multiplier cancels out, which mean that you find a somewhat static problem. You will have ;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$h^{'}(e)=\frac{1+r}{w}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If wage is higher, marginal utility of capital is less, which means that the level of education is higher. So, if wage is high, there are more incentives to invest on human capital. You can make the inverse similar interpretation for the interest rate.&lt;/p&gt;&#xA;" OwnerUserId="2938" LastEditorUserId="2938" LastEditDate="2015-04-13T10:10:34.743" LastActivityDate="2015-04-13T10:10:34.743" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5103" PostTypeId="1" CreationDate="2015-04-13T10:47:43.457" Score="1" ViewCount="263" Body="&lt;p&gt;&lt;strong&gt;Q&lt;/strong&gt;.Consider an economy producing a single good by a production function&#xA;$$Y = min [K, L]$$&#xA;where Y is the output of the final good. K and L are input use of capital and labour respectively. Suppose this economy is endowed with 100 units of capital and labour supply is &lt;strong&gt;L&lt;sub&gt;s&lt;/sub&gt;&lt;/strong&gt; is given by the function&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;L&lt;sub&gt;s&lt;/sub&gt; = 50w&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where w is the wage rate.&#xA;Assuming that all markets are competitive find the equilibrium wage and rental&#xA;rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Actually I am having doubt in assessing if the economy would use its full capital endowment. Also how we are going to calculate marginal product of labour and capital for finding wage rate and rental rate. I think if we use isoquants and isocost lines, then optimal solution should come where $$K = L = Y$$. But I think I am missing something, please help.&lt;/p&gt;&#xA;" OwnerUserId="4345" LastActivityDate="2015-04-14T14:16:27.357" Title="Finding economy's factor price for perfect complement production function" Tags="&lt;macroeconomics&gt;&lt;production-function&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5105" PostTypeId="2" ParentId="5101" CreationDate="2015-04-13T11:56:16.280" Score="2" Body="&lt;p&gt;It's not really introductory in the sense that it focusses on what Macro-Prodential means (reducing risk at the cost of efficiency), but rather applied: &lt;a href=&quot;http://pages.stern.nyu.edu/~tphilipp/papers/MartinPhilippon.pdf&quot; rel=&quot;nofollow&quot;&gt;Martin and Philippon (2014)&lt;/a&gt; analyze the great recession in Europe and simulate to what end more macruprudential policies would have ameliorated the situation.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;We provide a first comprehensive account of the dynamics of Eurozone&#xA;  countries from the creation of the Euro to the Great recession. We&#xA;  model each country as an open economy within a monetary union and&#xA;  analyze the dynamics of private leverage, fiscal policy and spreads.&#xA;  Our parsimonious model can replicate the time-series for nominal GDP,&#xA;  employment, and net exports of Eurozone countries between 2000 and&#xA;  2012. We then ask how periphery countries would have fared with: (i) more conservative fiscal policies; (ii) macro-prudential tools to&#xA;  control private leverage; (iii) a central bank acting earlier to limit&#xA;  sovereign spreads; and (iv) the possibility to recoup the&#xA;  competitiveness they lost in the boom.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2015-04-13T12:04:41.917" LastActivityDate="2015-04-13T12:04:41.917" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5106" PostTypeId="2" ParentId="5095" CreationDate="2015-04-13T12:42:27.743" Score="5" Body="&lt;p&gt;What you're describing is a change in the &lt;a href=&quot;https://en.wikipedia.org/wiki/Capital_account&quot;&gt;capital account&lt;/a&gt;, not in GDP. They're related through the &lt;a href=&quot;https://en.wikipedia.org/wiki/Balance_of_payments&quot;&gt;balance of payments&lt;/a&gt;, in that if a country is running a &lt;a href=&quot;https://en.wikipedia.org/wiki/Current_account&quot;&gt;current account&lt;/a&gt; deficit (usually arising through being a net importer), they'll have a capital account surplus (i.e., foreigners will on net buy more domestic assets or domestic owners will be net sellers of foreign assets, or both), and vice-versa. So if you take foreign investment in domestic assets for example, it'll be &lt;em&gt;associated&lt;/em&gt; with being a net importer, but it &lt;em&gt;does not appear directly&lt;/em&gt; in the national accounting identity $Y=C+I+G+NX$.&lt;/p&gt;&#xA;" OwnerUserId="264" LastActivityDate="2015-04-13T12:42:27.743" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="5107" PostTypeId="1" AcceptedAnswerId="5110" CreationDate="2015-04-13T14:55:53.917" Score="3" ViewCount="280" Body="&lt;p&gt;(1) Does the following result in a &quot;valid&quot; (in the sense of being consistent with the economic theory) market demand function?&lt;br&gt;&#xA;A consumer $i$ maximizes a utility $u_{ij}$ in choosing one of J alternatives, $j=1,..,J$:&lt;br&gt;&#xA;$u_{ij} = v_j - \alpha p_j + \epsilon_{ij}$&lt;br&gt;&#xA;where $v_j$ is the utility of alternative $j$ without the effect of price (i.e. $-\alpha p_j$) and the logit error term $\epsilon_{ij}$.&lt;br&gt;&#xA;The market demand results then as the choices of all consumers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is in accordance with economic theory to follow (1) and &lt;em&gt;not&lt;/em&gt; assume a budget constraint but let the ultility of an alternative be directly affected by price?  And additionally assume that a consumer chooses one alternative (i.e., a corner solution follows directly from this assumption).  Does (1) result a  &quot;valid&quot; (in the sense of being consistent with the economic theory) market demand function ?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(2) Typically the theory of the microeconomic foundation of logit choice model (e.g.&#xA;&lt;a href=&quot;http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1718571&quot; rel=&quot;nofollow&quot;&gt;http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1718571&lt;/a&gt;)  assumes that consumers maximize a utility function &lt;em&gt;without&lt;/em&gt; the price effect &lt;em&gt;but&lt;/em&gt; subject to a budget constraint. With a linear utility function, the maximization problem results in a corner solution of a consumer choosing only one choice alternative.&#xA;This setup (as outlined in the cited paper) leads than to the market demand.&lt;/p&gt;&#xA;" OwnerUserId="4430" LastEditorUserId="4415" LastEditDate="2015-04-13T17:37:35.113" LastActivityDate="2015-04-15T21:02:56.250" Title="Microeconomic foundation of discrete choice model" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;choice-theory&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5108" PostTypeId="2" ParentId="5101" CreationDate="2015-04-13T14:57:12.393" Score="2" Body="&lt;p&gt;A good historical survey is &quot;&lt;a href=&quot;http://financialresearch.gov/working-papers/files/OFRwp0008_ElliottFeldbergLehnert_AmericanCyclicalMacroprudentialPolicy.pdf&quot; rel=&quot;nofollow&quot;&gt;The History of Cyclical Macroprudential Policy in the United States&lt;/a&gt;&quot; by Elliot, Feldberg, and Lehnert:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Since the financial crisis of 2007-2009, policymakers have debated the need&#xA;  for a new toolkit of cyclical “macroprudential” policies to constrain the&#xA;  build-up of risks in financial markets, for example, by dampening credit-fueled&#xA;  asset bubbles. These discussions tend to ignore America’s long and&#xA;  varied history with many of the instruments under consideration to smooth&#xA;  the credit cycle, presumably because of their sparse usage in the last three&#xA;  decades. We provide the first comprehensive survey and historic narrative&#xA;  of these efforts. The tools whose background and use we describe include&#xA;  underwriting standards, reserve requirements, deposit rate ceilings, credit&#xA;  growth limits, supervisory pressure, and other financial regulatory policy&#xA;  actions. The contemporary debates over these tools highlighted a variety of&#xA;  concerns, including “speculation,” undesirable rates of inflation, and high&#xA;  levels of consumer spending, among others. Ongoing statistical work&#xA;  suggests that macroprudential tightening lowers consumer debt but&#xA;  macroprudential easing does not increase it.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="264" LastActivityDate="2015-04-13T14:57:12.393" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5109" PostTypeId="2" ParentId="5101" CreationDate="2015-04-13T14:59:10.130" Score="2" Body="&lt;p&gt;&lt;em&gt;&lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0470499346&quot; rel=&quot;nofollow&quot;&gt;Restoring Financial Stability&lt;/a&gt;&lt;/em&gt;, a series of essays focusing on policies to address the issues that led to the most recent crisis, edited by Viral Acharya and Matthew Richardson, is good and accessible.&lt;/p&gt;&#xA;" OwnerUserId="264" LastActivityDate="2015-04-13T14:59:10.130" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5110" PostTypeId="2" ParentId="5107" CreationDate="2015-04-13T15:38:30.147" Score="1" Body="&lt;p&gt;Your first equation is an &lt;strong&gt;indirect&lt;/strong&gt; utility function. The consumer chooses only one good and we assume that he can afford it. For simplification, the indirect utility discards the budget $m$ (often assumed be the same for all $i$).&#xA;Here, your demand function is perfectly inelastic. If the individual demand would not have been perfectly inelastic, the form would have been like $V=a-s(p)$, where $s'$ is strictly concave and increasing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;See, for example, Palma/Anderson/Thisse.&lt;/p&gt;&#xA;" OwnerUserId="4415" LastEditorUserId="4415" LastEditDate="2015-04-15T21:02:56.250" LastActivityDate="2015-04-15T21:02:56.250" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5111" PostTypeId="1" CreationDate="2015-04-13T16:05:41.340" Score="5" ViewCount="141" Body="&lt;p&gt;I'm interested to know results on repeated games indexing each stage game by $\mathbb Z$ which contrast with those indexed by $\mathbb Z_+$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems to me this could be quite different from repeated games with a starting stage, because there's no need to concern ourselves about whether or not a node could be obtained. Is it the case that we only need to consider stationary equilibrium?&lt;/p&gt;&#xA;" OwnerUserId="73" LastEditorUserId="43" LastEditDate="2015-04-13T17:36:37.187" LastActivityDate="2015-12-24T19:53:56.317" Title="Repeated games without a beginning and an end" Tags="&lt;game-theory&gt;&lt;reference-request&gt;&lt;dynamic-games&gt;" AnswerCount="2" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="5112" PostTypeId="1" CreationDate="2015-04-13T20:05:23.550" Score="2" ViewCount="154" Body="&lt;p&gt;Nowadays, I'm observing that the government of India is predicting much higher GDP growth for the Indian economy. I hear that the government has changed the base year, such that it is able to show a high growth rates. &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Is that true?&lt;/li&gt;&#xA;&lt;li&gt;Can anyone explain how it works?&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="4431" LastEditorUserId="2776" LastEditDate="2017-06-06T09:45:43.700" LastActivityDate="2017-10-01T12:18:28.383" Title="Can the growth rate increase after a change in the base year?" Tags="&lt;gdp&gt;&lt;base-year&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5114" PostTypeId="1" AcceptedAnswerId="5119" CreationDate="2015-04-13T21:12:08.750" Score="4" ViewCount="1063" Body="&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/rAd0k.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've been given the SPNE through backward induction, I just want to understand how to interpret the equilibria properly.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The SPNE: $(agi,de)$ and $(bgi,df)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For instance, how would I interpret $(agi,de)$?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Please let me know if the following would be an accurate interpretation of the above:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;If A chooses &lt;em&gt;a&lt;/em&gt; first, then B will play &lt;em&gt;d&lt;/em&gt;.&lt;/li&gt;&#xA;&lt;li&gt;In the event that we end up on the right hand side of the extensive form, B will select &lt;em&gt;e&lt;/em&gt; and A will subsequently select &lt;em&gt;g&lt;/em&gt;. However, if given the opportunity, A will select &lt;em&gt;i&lt;/em&gt;.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;This is supposed to be a complete contingent plan of action for both players (i.e. if it were in matrix form then we would be looking at all possible strategies for all players).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I find the first part quite easy, i.e. If A selects &lt;em&gt;a&lt;/em&gt;, then B will select &lt;em&gt;d&lt;/em&gt; which can be represented by $(a,d)$. However, I am getting confused when I have to account for all possible strategies that could be played $\rightarrow$ $(a \color{blue}{gi},d \color{blue}{e})$.&#xA;I would appreciate it if you could offer some advice.&lt;/p&gt;&#xA;" OwnerUserId="4201" LastEditorUserId="4201" LastEditDate="2015-04-13T22:26:11.333" LastActivityDate="2015-04-14T15:37:30.810" Title="Extensive form: backward induction &amp; subgame perfect nash equilibria?" Tags="&lt;game-theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5115" PostTypeId="2" ParentId="1603" CreationDate="2015-04-13T23:12:05.943" Score="2" Body="&lt;p&gt;If PPP holds, so does the LOP.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The law of one price (LOP) is an economic concept which posits that &quot;a good must sell for the same price in all locations&quot;. The law of one price constitutes the basis of the theory of purchasing power parity and is derived from the no arbitrage assumption.&lt;/p&gt;&#xA;" OwnerUserId="40" LastActivityDate="2015-04-13T23:12:05.943" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5116" PostTypeId="2" ParentId="5046" CreationDate="2015-04-14T06:21:44.323" Score="4" Body="&lt;p&gt;Yes, the same authors Berry, Levinsohn, Pakes have written a second paper that uses both macro and micro data to estimate demand for automobiles as a function of the characteristics of the car.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;Differentiated Products Demand Systems from a Combination of Micro and Macro Data: The New Car Market&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://dash.harvard.edu/bitstream/handle/1/3436404/Pakes_DifferentiatedProducts.pdf&quot; rel=&quot;nofollow&quot;&gt;http://dash.harvard.edu/bitstream/handle/1/3436404/Pakes_DifferentiatedProducts.pdf&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="392" LastActivityDate="2015-04-14T06:21:44.323" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5117" PostTypeId="2" ParentId="5072" CreationDate="2015-04-14T06:25:26.050" Score="2" Body="&lt;p&gt;The fact that you can only encourage but not force the teachers to participate puts you squarely in the world of Local Average Treatment Effect (LATE) and Intention to Treat analysis.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Essentially if you use the voucher as a instrumental variable, you will get an estimate of the effect of the voucher on &quot;the sort of person who you can encourage to take a class by giving them a voucher&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Read the Instrumental Variables section in Mostly Harmless Economics, to get a good easy to understand explanation of exactly the situation you are interested in.&lt;/p&gt;&#xA;" OwnerUserId="392" LastActivityDate="2015-04-14T06:25:26.050" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="5118" PostTypeId="2" ParentId="5112" CreationDate="2015-04-14T07:56:40.100" Score="1" Body="&lt;p&gt;I don't know what the Indian government's growth accounting practices are, but the World Bank has an independent forecast that shows India's GDP growth increasing in the near-term (pink area is a forecast):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/aU85b.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The source is here: &lt;a href=&quot;http://data.worldbank.org/country/india&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://data.worldbank.org/country/india&lt;/a&gt;, where you can get more detailed data.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2015-04-14T07:56:40.100" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5119" PostTypeId="2" ParentId="5114" CreationDate="2015-04-14T09:39:09.817" Score="5" Body="&lt;p&gt;Until the last paragraph your interpretation is correct.&#xA;$(a,d)$ is not a strategy profile, it is merely a 'history', a way that the game can play out. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A strategy of a player is a function that chooses an action in each of her decision nodes. As you can see in your graph Player A has three decision nodes while B has two. Hence any strategy of player A will consist of three elements, while any strategy of B will consist of two elements. So $(agi,de)$ is indeed a strategy profile. The corresponding history, what will happen if the players play these strategies, is $(a,d)$. The corresponding payoff is (1,2).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am unsure what you mean by having to account for all possible strategies.&#xA;Do you want to see what it means when an equilibrium is not subgame perfect?&#xA;That would be $(ahj,de)$. No player can gain by unilaterally switching to another strategy, but if we were to reach player A's second or third decision node his action would not be optimal. But $(ahj,de)$ can be an equilibrium because the history given by this strategy profile never reaches these nodes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Do you want to find all the equilibria that are not subgame perfect? In that case you should write down all possible strategies:&#xA;There are 2^3 strategies for A, 2^2 strategies for B. Make a matrix using these as row and column labels. (Not sure if you really want to do this, as it is rather large.) Then you calculate the history and payoff for each strategy profile, creating a payoff matrix. In this you will find many equilibria. The ones that are not $(agi,de)$ and $(bgi,df)$ are not subgame perfect.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2015-04-14T15:37:30.810" LastActivityDate="2015-04-14T15:37:30.810" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5120" PostTypeId="1" CreationDate="2015-04-14T10:01:39.770" Score="7" ViewCount="175" Body="&lt;h2&gt;General Problem&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Let $k\in\mathbb{R}_+$ be the state variable, $k=k^*$ a fixed point (saddle) and $v(k)$ a value function. The problem is, that the value function has two distinct functional forms, where the switch is at the fixed point. &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Do you have any reference for theses kind of problems? &lt;/li&gt;&#xA;&lt;li&gt;Do you think a solution to the model below can be approximated? &lt;/li&gt;&#xA;&lt;li&gt;What about a kink in the control/policy function?   &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;h2&gt;Model&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Let $t\in[0,\infty)$ and $k\in[0,2]$ is the state. There are two players $i=1,2$ with controls $\tau_i\in[0,1]$. Production is given by $f:[0,2]\to\mathbb{R}_+$. The wages and interests are given by $w_1=f(k)-f'(k)k$, $w_2=f(2-k)-f'(2-k)(2-k)$ and $r_1=f'(k)-\tau_1$, $r_2=f'(2-k)-\tau_2$ respectively. The law of motion for the state is given by &#xA;\begin{align}&#xA;\dot{k}=r_1-r_2.&#xA;\end{align}&#xA;There is a saddle at &#xA;\begin{align}&#xA;k^*=1,~ \tau^*_1=\tau^*_2&#xA;\end{align}&#xA;where $\tau_i^*$ depens on some parameters. Utility is given by the function&#xA;\begin{align}&#xA;u(g_i,c_i)=h(g_i)+c_i&#xA;\end{align}&#xA;where $u_g&amp;gt;0&amp;lt;u_c$. Public good is with $g_i=\tau_i k$ and consumption &#xA;\begin{align}&#xA;c_1=\begin{cases}&#xA;w_1+r_1k+\int^1_k{[r_2-a(\theta)]d\theta},\quad &amp;amp; k\in[0,1)\\&#xA;w_1+r_1,&amp;amp; k\in[1,2]&#xA;\end{cases}&#xA;\end{align}&#xA;and&#xA;\begin{align}&#xA;c_2=\begin{cases}&#xA;w_2+r_2,\quad &amp;amp; k\in[0,1)\\&#xA;w_2+r_2(2-k)+\int^k_1{[r_1-b(\theta)]d\theta},&amp;amp; k\in[1,2]&#xA;\end{cases}&#xA;\end{align}&#xA;with $a:[0,1]\to\mathbb{R}_+,~b:[1,2]\to\mathbb{R}_+$ representing some cost for $\theta\in[0,2]$. &#xA;The payoff functionals are then given by&#xA;\begin{align}&#xA;j_i(\tau_i,\tau_j)=\int^\infty_0{e^{-\rho t}(h(g_i)+c_i)dt}&#xA;\end{align}&#xA;with $\rho&amp;gt;0$ time preference rate. And the value functions are&#xA;\begin{align}&#xA;v_i(k)=\sup_{\tau_i} j_i.&#xA;\end{align} &#xA;Setting up the Hamilton-Jacobi-Bellman (HJB) equations for each player yields&#xA;\begin{align}&#xA;\rho v_i(k)=\max_{\tau_i} h(g_i)+c_i + v'_i(k)\dot{k}.&#xA;\end{align} &#xA;Firstly, I will fix $\tau_2$ at the equilibrium level $\tau^*$. Then the HJB for player 1 reads&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{align}&#xA;\rho v_1(k)	&amp;amp;=\max_{\tau_1} h(g_1)+c_1 + v'_1(k)\dot{k}\\&#xA;		&amp;amp;=\begin{cases}\max_{\tau_1} h(g_1) + w_1+r_1k+\int^1_k{[r_2-a(\theta)]d\theta} + v'_1(k)\dot{k},\quad &amp;amp; k\in[0,1)\\&#xA;				\max_{\tau_1} h(g_1) + w_1 + r_1 + v'_1(k)\dot{k},&amp;amp; k\in[1,2]&#xA;		  \end{cases} &#xA;\end{align} &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The FOCs are&#xA;\begin{align}&#xA;\tau_1=&#xA;\begin{cases}&#xA;(v_1'(k)+k)^{-1},\quad &amp;amp; k\in[0,1)\\&#xA;(v_1'(k)+1)^{-1},\quad &amp;amp; k\in[1,2]&#xA;\end{cases}&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;First pass implementation&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;I used the algorithm provided by Benjamin &lt;a href=&quot;http://www.princeton.edu/~moll/ECO521Web/HJB.m&quot; rel=&quot;noreferrer&quot;&gt;Moll&lt;/a&gt;.  For reference: in his optimum growth model the value function converged within 8441 iteration and it took 0.825062 seconds.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I used a CB Production function $f(k)=k^\alpha$ with $Ak$-Technology, that is $f(k)=k$ (for $\alpha&amp;lt;1$ I have a problem) and log preferences a la $u(g,c)=\ln g +c$. A linear cost function with $a:\theta\mapsto (1-\theta)$.&#xA;I stopped after 200 iterations which already lasted for 21mins. In the first panel is the guess of the 1st and 200th value function. The second panel shows the difference for between the value function (convergence tendency). And the last panel ist the actual policy function, say, $\tau_1(k)$ (note the kink at $k=1=k^*$). It seems to be right from an intuitive perspective. That is, a country lowers its tax rate on capital if the capital stock is realitively small and vive versa. I'm not quite sure why the procedure is so time consuming.&lt;br&gt;&#xA;&lt;img src=&quot;https://i.stack.imgur.com/d6pnB.png&quot; alt=&quot;test&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Update&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;I was able to increase the speed. Then I increased the range of the grid to the respective endpoints of the state, as well as the number of grid points and ran the VFI (40000 Iterations) until I was out of memory. First panel contains first and final value function. The algorithms is converging with $|v^{40000}-v^{39999}|=0.0077$. The kink in the policy function still remains, but the shape slightly differs now. &lt;img src=&quot;https://i.stack.imgur.com/AVhDM.png&quot; alt=&quot;test2&quot;&gt;&lt;/p&gt;&#xA;" OwnerUserId="4266" LastEditorUserId="4266" LastEditDate="2015-04-15T14:37:16.947" LastActivityDate="2015-04-15T14:37:16.947" Title="Splittet Value Function and Hamilton-Jacobi-Bellman equation" Tags="&lt;mathematical-economics&gt;&lt;academic-graduate&gt;&lt;reference-request&gt;&lt;computation&gt;&lt;simulations&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="5121" PostTypeId="2" ParentId="5120" CreationDate="2015-04-14T11:14:17.937" Score="2" Body="&lt;p&gt;I don't think I've seen cases with a kink in continuous time that are solved numerically. &lt;a href=&quot;http://scholar.princeton.edu/sites/default/files/maturity_draft_v8_0.pdf&quot; rel=&quot;nofollow&quot;&gt;Aguiar &amp;amp; Amador (2014)&lt;/a&gt; have a kink in their HJB, but they solve their HJB analytically. &lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Validation&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;I don't know to what extent Moll et al's algorithm is going to get that right. You will most likely get weird behavior around the kink, but whether it's the real functional form is to be doubted, and you'll have to argue ex-post that &quot;it looks okay alright?&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;If you want to get a better grip into whether the kink looks alright, make it more extreme&lt;/em&gt;. Without going through your equations, it seems that the first part is convex and the second part is linear. Increase the curvature for the first part so you can &quot;see&quot; more easily whether it still looks correct around the kink.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, you definitively should look at the numerical counterparts to the first-order and second-order derivative, the first-order and second-order difference of the approximation divided by the step size. Do they have the correct signs around the kink?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One thing I'd emphasize is having many grid points around the kink. However, since the algorithm gets tougher when you have a nonlinear grid (because the grid step size is now not a constant, but a vector), it might just not be worth it and you could rather jack up overall grid points and keep it linear.&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Speed&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;Finally, you really should look into having sparse matrices for the A and B matrices. 10 iterations per minute is really slow. It takes you perhaps 30 minutes to understand and implement (if you've never worked with sparse systems before), but already after the second time you run the code you've made up that time. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the problem persists, have a look at profilers for your coding language. For Python, &lt;a href=&quot;http://www.huyng.com/posts/python-performance-analysis/&quot; rel=&quot;nofollow&quot;&gt;this&lt;/a&gt; is a nice solution. Even if you have everything sparse, perhaps you forgot some matrix that you don't even need in the iteration loop. That was the case for me, and with large grid sizes that single reinitialization took up a lot of time. Profiler will tell you what's what.&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2015-04-14T12:07:18.490" LastActivityDate="2015-04-14T12:07:18.490" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="5122" PostTypeId="2" ParentId="5099" CreationDate="2015-04-14T12:28:17.063" Score="3" Body="&lt;p&gt;If you want to see a nice usage of duality in economics, in &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0195073401&quot; rel=&quot;nofollow&quot;&gt;Mas-Colell, Whinston, and Green&lt;/a&gt;  there's a nice section on duality in the second or third chapter when talking about Hicksian demand. The treatment is pretty straightforward if the consumption space is real and has a finite dimension. I think understanding that basic usage of duality is illustrative of its general utility.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the idea is to understand what duality is and how it operates, I think &lt;a href=&quot;http://www.springer.com/gp/book/9780387972459&quot; rel=&quot;nofollow&quot;&gt;Conway&lt;/a&gt; is a great book. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Just undergrad here, hope I'm not mixing up topics). &lt;/p&gt;&#xA;" OwnerUserId="4434" LastEditorUserId="4434" LastEditDate="2015-04-14T13:01:21.113" LastActivityDate="2015-04-14T13:01:21.113" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="5124" PostTypeId="2" ParentId="5103" CreationDate="2015-04-14T13:06:21.463" Score="1" Body="&lt;p&gt;The planner is trying to maximize:&#xA;$$\Pi = Y - r\cdot K - w\cdot L= min [K, L] - r\cdot K - w\cdot L $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In perfect competition factors receive their marginal product as price. If $0&amp;lt;w &amp;lt;2$ then $0 &amp;lt; L_s &amp;lt; 100$. This means that the marginal product of capital (MPK) is zero and therefore the price of capital ($r$) should be zero. In this region the marginal product of labor (MPL) is 1, and so there is only one wage that represents a competitive equilibrium, $w*=1 \rightarrow L^* = 50, Y^* = 50, r^* = 0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What about of $w\geq 2$? In this region the MPL is 0 so this can't be a competitive equilibrium because $2&amp;lt; w \neq MPL$.&lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2015-04-14T13:06:21.463" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5125" PostTypeId="2" ParentId="5103" CreationDate="2015-04-14T14:16:27.357" Score="1" Body="&lt;p&gt;Complementing @BKay's answer, let's consider the labor market, which per assumptions is perfectly competitive. The equilibrium wage adjusts so that labor supply and labor demand equate and we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$L^s = L^d \implies 50w^* = L^d \implies w^* = L^d/50$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now the question is, how much will labor demand be? Given the specification of the production function and the fact that $K =100$, and &lt;em&gt;assuming that we will either employ all $K$ or none at all&lt;/em&gt;, then we see that Labor Demand cannot exceed the value of $100$, because, if its was, say $101$, then we would have $Y = \min \{K,L\}=K$ and said Labor would not be used in production at all, so it is nonsensical to &quot;demand&quot; it. So we conclude that the &lt;em&gt;maximum observable wage&lt;/em&gt; is $\max w = 2$. For the wage range $(0,2]$ labor supply will always be smaller than $100$, and so also labor demand and labor employed, and production will be carried using only labor and no capital, and the rest are @BKay's.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that this can be considered suboptimal, because if we employed all capital and no labor, we would have output equal to $100$, while we now have output of only $50$. Even if we assume that working does not generate disulity, higher output would be preferable since it expands the boundaries of the consumption set. So the central planner solution would be different than the market outcome.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Could an entity like a government use tax and subsidies to increase output? In other words assume that the model is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\max _{K,L^d}\pi = min [K, L^d] - r\cdot K - w\cdot L^d + s\cdot K$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$L^s = 50\cdot (1-\tau)w$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$L^s = L^d =L^*$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and a balanced budget for the government&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$sK = \tau wL^*$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Would we obtain something different?&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-04-14T14:16:27.357" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5127" PostTypeId="1" AcceptedAnswerId="5130" CreationDate="2015-04-14T16:57:48.200" Score="2" ViewCount="507" Body="&lt;p&gt;I am struggling with calculating the Cash Flow Sensitivity of Cash from the Almeida et al. (2004) working paper. (&lt;a href=&quot;http://u.osu.edu/weisbach.2/files/2015/01/ACWJFinance-ui65te.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://u.osu.edu/weisbach.2/files/2015/01/ACWJFinance-ui65te.pdf&lt;/a&gt;) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am trying to apply his formula on one specific company case and additionally make some conclusions, whether the company has financially constraints or not.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am trying to apply equation (8) on page 1787. However, I understand the main variables like  change of CashHoldings, CashFlow, Q and the Size but I do not understand the factors in front of them like a0, a1, etc. Therefore, I am not able to apply this equation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/NCisy.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On page 1793 the authors also provide a more simplified definition of the cash flow sensitivity of cash. &quot;These estimates suggest that for each dollar of additional cash flow, a constrained firm will save around 5-6 cents&quot;(p.1793).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I stick to this definition I can not see the necessity to apply any equation. Following this definition I simply could calculate the cash flow sensitivity of cash with the data of changes in cash holdings and cash flows of the certain company. Is this right?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Moreover, does anybody know how to calculate the cash flow sensitivity of cash with the given equation (8)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;/p&gt;&#xA;" OwnerUserId="4407" LastActivityDate="2015-04-15T19:41:27.393" Title="The Cash Flow Sensitivity of Cash" Tags="&lt;financial-constraints&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5128" PostTypeId="1" CreationDate="2015-04-14T17:46:05.397" Score="0" ViewCount="4424" Body="&lt;p&gt;I'm hesitating between these 2 solutions:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;The conventional calculation:&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;MCAP = #shares * SharePrice&lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;2&quot;&gt;&#xA;&lt;li&gt;Perform the weighted average of the MCAP of each stock in the ETF&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;MCAP = sum(iStockWeight * iStockMCAP)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks for your help.&lt;/p&gt;&#xA;" OwnerUserId="4439" LastActivityDate="2015-07-02T09:42:20.780" Title="How do you define the market cap of an ETF?" Tags="&lt;finance&gt;" AnswerCount="3" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5130" PostTypeId="2" ParentId="5127" CreationDate="2015-04-14T19:56:51.010" Score="1" Body="&lt;p&gt;This is a standard regression equation, in the context of an econometric approach. The authors postulate a &lt;em&gt;theoretical relationship&lt;/em&gt; between the variable &quot;Change in Cash Holdings&quot;, which is treated as the &quot;dependent variable&quot;, while &quot;Cash Flow&quot; and the rest are the explanatory variables/regressors.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &quot;factors in front of them&quot; are the &lt;em&gt;regression coefficients&lt;/em&gt;, which are unknown, and which are to be estimated through a regression estimation approach, like Ordinary Least Squares or any other technique deemed appropriate, using a sample of observations, which could be either &quot;cross-sectional&quot; (one balance sheet for each company, many companies), &quot;time series&quot; (many consecutive balance sheets for one company), or &quot;panel data&quot; (many consecutive balance sheets for many companies).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Each coefficient represents the &lt;em&gt;partial marginal effect&lt;/em&gt; of a change in the regressor on the dependent variable, holding the other regressors constant.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is also a &quot;stand alone&quot; coefficient, $\alpha_0$: this is the &quot;constant term of the regression&quot;. Attached to it there is an implied &quot;explanatory variable&quot; that takes the value $1$ throughout the sample. It captures the average value of the dependent variable after the average effect of the regressors has been subtracted. The $\varepsilon$ at the end is the regression error, and it is unknown -an estimation of it will be given by the series of residuals obtain as the difference between the estimated value of the dependent variable and the actual one. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In Table 2 p. 1794 &quot;The Baseline Regression Model&quot; in the paper contains the numerical estimates the authors obtained for the $\alpha$'s for the specific regression equation, based on a panel data set, it appears, and for a number of variants.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;According to the authors, immediately below eq. $(8)$ &lt;strong&gt;they identify the &quot;Cash Flow Sensitivity of Cash&quot; with the unknown coefficient $\alpha_1$.&lt;/strong&gt; As already mentioned in the question (and as can be seen in Table 2), they find that the estimated value of $\alpha_1$ is $0.05-0.06$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As described immediately above eq. $(8)$, &quot;Cash Flow&quot; here is essentially Operating Profits plus Interest Costs minus Dividends. Then the interpretation is that &quot;&lt;em&gt;on average&lt;/em&gt;, for every dollar increase in thus defined &quot;Cash Flow&quot;, the Cash Holdings of a company increase by 5-6 cents&quot; (the authors use, perhaps misleadingly, the verb &quot;save&quot; instead of &quot;increase&quot;. &quot;Hoard&quot; would also be accurate).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;Applying&quot; a regression equation to a specific firm, means, use time-series data on that firm, run the regression as specified and obtain firm-specific estimates for the coefficients. You essentially &quot;accept&quot; the theoretical validity of the regression specification, and you attempt to find the values of the coefficient pertinent to a specific firm (remember, the obtained estimates by the authors are averages over data from thousands of firms). You can then compare these estimates with the estimates obtained by the authors and see whether the firm under examination is close to average or not. &lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-04-15T19:41:27.393" LastActivityDate="2015-04-15T19:41:27.393" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5131" PostTypeId="2" ParentId="124" CreationDate="2015-04-14T22:11:48.440" Score="4" Body="&lt;p&gt;Another thing you can look at is &lt;a href=&quot;http://en.wikipedia.org/wiki/Intention-to-treat_analysis&quot; rel=&quot;nofollow&quot;&gt;&quot;Intention-to-treat analysis&quot;&lt;/a&gt;. From Wikipedia,&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;An intention-to-treat (ITT) analysis of the results of an experiment is based on the initial treatment assignment and not on the treatment eventually received. ITT analysis is intended to avoid various misleading artifacts that can arise in intervention research such as non-random attrition of participants from the study or crossover.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This appears to match what you were looking for: your treatment is randomized initially and people drop out non-randomly.&lt;/p&gt;&#xA;" OwnerUserId="59" LastActivityDate="2015-04-14T22:11:48.440" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5132" PostTypeId="1" AcceptedAnswerId="5149" CreationDate="2015-04-14T22:15:32.790" Score="1" ViewCount="72" Body="&lt;p&gt;A currency can be backed by a trusted issuing authority, by a scarce resource or by the scarcity of its money base (eg bitcoin). Are there any other known working alternatives.&lt;/p&gt;&#xA;" OwnerUserId="4441" LastActivityDate="2015-04-15T20:56:02.073" Title="what alternatives can possibly back a new currency" Tags="&lt;currency&gt;&lt;cryptocurrency&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5134" PostTypeId="1" AcceptedAnswerId="5135" CreationDate="2015-04-15T03:43:43.030" Score="1" ViewCount="113" Body="&lt;p&gt;Is it possible work out the average income of a household if one knows the rental cost per square meter of property?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Example: Edinburgh, Scotland = £2,125.00 per square meter.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I hope I have posted this in the right SO platform.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks&lt;/p&gt;&#xA;" OwnerUserId="4444" LastEditorUserId="40" LastEditDate="2015-11-19T00:32:39.867" LastActivityDate="2015-11-19T00:32:39.867" Title="How to work out average income based on square meter of property rented" Tags="&lt;econometrics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5135" PostTypeId="2" ParentId="5134" CreationDate="2015-04-15T04:00:30.760" Score="1" Body="&lt;p&gt;It is only possible if you also know the average fraction of income that is spent on housing in that area... and even then only if you assume either that rental costs per square foot are similar to ownership costs per square foot, or that the rent/buy decision is uncorrelated with income. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So: not really. Rental costs are correlated with income, but there's a lot of error. &lt;/p&gt;&#xA;" OwnerUserId="264" LastActivityDate="2015-04-15T04:00:30.760" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5136" PostTypeId="2" ParentId="3404" CreationDate="2015-04-15T04:29:26.267" Score="2" Body="&lt;p&gt;A deviation (one-shot or not) can certainly generate a sequence that differs from the optimal one for an arbitrary number of periods. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You could treat a dynamic programming problem as a repeated game between one player and chance. The one-shot deviation principle should then carry over from repeated games to dynamic programming.&lt;/p&gt;&#xA;" OwnerUserId="4445" LastActivityDate="2015-04-15T04:29:26.267" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5137" PostTypeId="2" ParentId="3219" CreationDate="2015-04-15T04:33:35.687" Score="1" Body="&lt;p&gt;&lt;a href=&quot;http://web.stanford.edu/~gdc/robustcontract.pdf&quot; rel=&quot;nofollow&quot;&gt;Robustness and linear contracts&lt;/a&gt; by Carroll says that linear is optimal (in his class of environments). &lt;a href=&quot;http://theory.stanford.edu/~tim/&quot; rel=&quot;nofollow&quot;&gt;Tim Roughgarden&lt;/a&gt; from Stanford also studies `the price of anarchy' related to using simple but suboptimal mechanisms.&lt;/p&gt;&#xA;" OwnerUserId="4445" LastActivityDate="2015-04-15T04:33:35.687" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5138" PostTypeId="2" ParentId="1713" CreationDate="2015-04-15T04:47:14.750" Score="3" Body="&lt;p&gt;Compustat Annual is used in &lt;a href=&quot;http://pages.stern.nyu.edu/~xgabaix/papers/ceoPay.pdf&quot; rel=&quot;nofollow&quot;&gt;Gabaix and Landier (2008)&lt;/a&gt;. A famous stylized fact is the power-law distribution (&lt;a href=&quot;http://ssrn.com/abstract=1257822&quot; rel=&quot;nofollow&quot;&gt;by Gabaix again&lt;/a&gt;) of firm sizes. But power-law claims have been criticized as resulting from poor measurement.&lt;/p&gt;&#xA;" OwnerUserId="4445" LastActivityDate="2015-04-15T04:47:14.750" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5139" PostTypeId="2" ParentId="4856" CreationDate="2015-04-15T04:53:51.287" Score="2" Body="&lt;p&gt;Countably infinite is easy to extend to, no obstacles. You can use results by &lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/S089054010500204X&quot; rel=&quot;nofollow&quot;&gt;Moss and Viglizzo (2006)&lt;/a&gt;. I will also shamelessly promote my own work &lt;a href=&quot;http://sanderheinsalu.com/papers/Universal%20type%20structures%20with%20unawareness.pdf&quot; rel=&quot;nofollow&quot;&gt;Universal type structures with unawareness&lt;/a&gt; that mathematically treats each of (possibly countably infinitely many) awareness levels as a player.&lt;/p&gt;&#xA;" OwnerUserId="4445" LastActivityDate="2015-04-15T04:53:51.287" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="5140" PostTypeId="2" ParentId="4910" CreationDate="2015-04-15T05:01:09.117" Score="3" Body="&lt;p&gt;Yes, they can, because the utility function typically depends on the type. A particular action unavailable to a type can be modelled as that action yielding so low utility that it is never chosen no matter what other players do. Then apply standard mechanism design to the appropriately modified utility function.&lt;/p&gt;&#xA;" OwnerUserId="4445" LastActivityDate="2015-04-15T05:01:09.117" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5141" PostTypeId="2" ParentId="4753" CreationDate="2015-04-15T05:10:40.957" Score="3" Body="&lt;p&gt;Mas-Colell, Whinston, Green chapter 3, especially p. 75 explains this. One possible way is $v(p,w)=e(p,v(p,w))$ where $v$ is the indirect utility function, $p$ the price vector and $w$ the wealth.&lt;/p&gt;&#xA;" OwnerUserId="4445" LastEditorUserId="47" LastEditDate="2015-04-17T01:37:27.520" LastActivityDate="2015-04-17T01:37:27.520" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5142" PostTypeId="1" AcceptedAnswerId="5164" CreationDate="2015-04-15T05:27:01.913" Score="9" ViewCount="1196" Body="&lt;p&gt;Let $A$ be the set of possible states of the world, or possible preferences a person could have. Let $G(A)$ be the set of &quot;gambles&quot; or &quot;lotteries&quot;, i.e. the set of probability distributions over $A$. Then each person would have a preferred ordering of the states in $A$, as well as a preferred ordering of the lotteries in $G(A)$. The von Neumann-Morgenstern theorem states that, assuming your preference ordering over $G(A)$ obeys certain rationality axioms, your preferences can be represented by a utility function $u: A → ℝ$. (This function is unique up to multiplication of scalars and addition of constants.) That means that for any two lotteries $L_1$ and $L_2$ in $G(A)$, you prefer $L_1$ to $L_2$ if and only if the expected value of $u$ under $L_1$ is greater than the expected value of $u$ under $L_2$. In other words, you maximize the expected value of the utility function.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now just because you maximize the expected value of your utility function does not mean that you maximize the expected value of actual things like money. After all, people are often risk averse; they say &quot;a bird in the hand is worth two in the bush&quot;. Risk aversion means that you value a gamble less than expected value of the money you'll gain. If we express this notion in terms of the von Neumann-Morgenstern utility function, we get the following result through Jensen's inequality: a person is risk averse if and only if their utility function is a concave function of your money, i.e. the extent to which you're risk averse is the same as the extent to which you have a diminishing marginal utility of money. (See page 13 of &lt;a href=&quot;http://www.stanford.edu/~jdlevin/Econ%20202/Uncertainty.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;this PDF&lt;/a&gt;.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is, which direction does the causation run? Do the values of the von Neumann-Morgenstern utility function reflect the intensity of your preferences, and is risk aversion due to discounting the preferences of future selves who are well-off compared to the preferences of future versions of yourself who are poorer and thus value money more (as Brad Delong suggests &lt;a href=&quot;http://delong.typepad.com/sdj/2011/08/1049-million.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;)? Or does the causation run the other way: does your tolerance for risk determine the shape of your utility function, so that the von Neumann-Morgenstern utility function tells you nothing about the relative intensity of your preferences?&lt;/p&gt;&#xA;" OwnerUserId="4447" LastEditorUserId="2776" LastEditDate="2017-07-21T07:23:03.643" LastActivityDate="2017-07-21T07:23:03.643" Title="Does risk aversion cause diminishing marginal utility, or vice versa?" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;academic-graduate&gt;&lt;expected-utility&gt;&lt;risk-aversion&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="5143" PostTypeId="1" CreationDate="2015-04-15T05:36:54.497" Score="2" ViewCount="61" Body="&lt;p&gt;How to resolve the following seeming contradiction? Mas-Colell, Whinston, Green p. 148 Prop. 5.E.1 says that the efficient aggregate (coordinated) production is just the sum of individually optimal productions. But Adam Smith argued that &lt;a href=&quot;http://en.wikipedia.org/wiki/Division_of_labour&quot; rel=&quot;nofollow&quot;&gt;division of labour&lt;/a&gt; allows more efficient production than the sum of individual productions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course Adam Smith's argument is informal, so it is not clear what assumptions differ from Mas-Colell. It could be that Smith envisioned production units with market power, externalities or some other inefficiency and the inefficiency somehow disappears with aggregation. &lt;/p&gt;&#xA;" OwnerUserId="4445" LastActivityDate="2015-04-16T18:29:55.290" Title="Aggregate efficient production and division of labour" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5144" PostTypeId="2" ParentId="5142" CreationDate="2015-04-15T06:07:13.193" Score="5" Body="&lt;p&gt;The utility function is a representation of preferences, which are traditionally inferred from choices. Preferences come before utility. I would not call the connection between utility and preferences causality, just a mathematical relationship.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Risk aversion (risk preference) is not connected to discounting, which measures time preference. It does not make sense to say that risk aversion is due to discounting the preferences of future selves.&lt;/p&gt;&#xA;" OwnerUserId="4445" LastActivityDate="2015-04-15T06:07:13.193" CommentCount="10" ContentLicense="CC BY-SA 3.0" />
  <row Id="5145" PostTypeId="2" ParentId="95" CreationDate="2015-04-15T06:09:50.327" Score="2" Body="&lt;p&gt;Kahneman and Tversky's experiments and many in behavioural economics contradict the existence of a utility function (preferences not complete and transitive), therefore also contradict expected utility.&lt;/p&gt;&#xA;" OwnerUserId="4445" LastActivityDate="2015-04-15T06:09:50.327" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5146" PostTypeId="1" CreationDate="2015-04-15T07:03:03.423" Score="-2" ViewCount="235" Body="&lt;p&gt;Draw the T-accounts for Fred's Bank if the FED buys a $20,000 treasury security from Fred and Fred puts all the money he gets for it in the bank. Assume the reserve requirement set by the FED is 8%.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Economist A claims that this will result in a change in the money supply of $250,000. Explain how this is possible.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Economist B claims that the data shows the money supply only went up by $200,000. Explain how this is possible.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am having difficulty understanding how a deposit can be multiplied 10x to get 200,000. These numbers seem to be too large to be possible. &lt;/p&gt;&#xA;" OwnerUserId="4448" LastActivityDate="2015-04-16T23:40:49.253" Title="Reserve Ratio Requirements and Money multipliers" Tags="&lt;federal-reserve&gt;" AnswerCount="1" CommentCount="1" ClosedDate="2017-05-04T12:46:24.223" ContentLicense="CC BY-SA 3.0" />
  <row Id="5147" PostTypeId="1" CreationDate="2015-04-15T10:11:42.013" Score="2" ViewCount="2893" Body="&lt;p&gt;The typical approach to computing RCA (Revealed Comparative Advantage) is the Balassa definition:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$RCA=\frac{\frac{X_cp}{\sum_{p=1}^{P}{X_cp}}}{\frac{\sum_{c=1}^{C}{X_cp}}{\sum_{c=1,p=1}^{C,P}{X_cp}}}=\frac{Product Export Share in Country C}{Product Export Share in World Trade}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, given disaggregated product level trade data between origin (i) and destination (j) countries there are some lines in the data that aren't always attributed directly between two countries, and may have an &lt;code&gt;Areas, nes&lt;/code&gt; partner such as:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;1962, USA, United States, ., Latin America NES, 0011, 34.298&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;In this case the USA is exporting $34.298 to Latin America NES. Given this relationship we know the US has exported some items (with productcode 0011) to Latin America but we don't know it's exact partner country j. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;When summing over j, to construct Total Country Exports it is possible to include all of these items as you sum over j, despite the fact they will never appear in the numerator of the RCA expression (as we are not typically interested in Latin America NES and keep countries only). &lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Question&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;When computing the denominators of the RCA expression should we:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Include these in the aggregate values Total Country Export = $\sum_{p=1}^{P}{X_cp}$ and Total World Export = $\sum_{c=1,p=1}^{C,P}{X_cp}$&lt;/li&gt;&#xA;&lt;li&gt;Discard these values and only aggregate values (across j) based on those that we can properly measure and will appear at some point in the numerator. (i.e. only considering trade between defined countries)&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="4449" LastEditorUserId="2776" LastEditDate="2017-06-14T07:20:28.247" LastActivityDate="2017-06-14T07:20:28.247" Title="Correct Calculation of Balassa Revealed Comparative Advantage (with full trade data)" Tags="&lt;international-trade&gt;&lt;comparative-advantage&gt;" AnswerCount="0" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5148" PostTypeId="1" CreationDate="2015-04-15T18:10:34.277" Score="2" ViewCount="152" Body="&lt;p&gt;The classical definition of Price of anarchy is the ratio of decentralised optimal utility to the centralised optimal utility. This concept is used to quantify how inefficient is it when agents behave selfishly, in comparison with a situation where a central planner takes optimal actions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question: why cannot Price of anarchy be defined as the difference between the two solutions? In my setting, I have a number of log based functions in the utilities. For example, in a network setting defined on a graph $G$, the central planner's utility function is $U_s=f_s(G)+\sum_i \log(l_i)$ and the individual firm's utility is $U_i=f_i(G)+\log(l_i)$, where $l_i$ are loss terms for node $i$. Having a difference as PoA helps me eliminate idiosyncratic losses and I am left with $f_s(G)-\sum_i f_i(G)$, and I have a means to compare dependence of PoA on network structure.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am greatly benefited by having a difference in place of ratio. Is it fine to define that way? Is there some other term for the difference? &lt;/p&gt;&#xA;" OwnerUserId="41" LastEditorUserId="41" LastEditDate="2015-04-16T12:31:40.273" LastActivityDate="2015-04-16T14:19:08.793" Title="Definition of 'Price of anarchy'" Tags="&lt;game-theory&gt;" AnswerCount="2" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="5149" PostTypeId="2" ParentId="5132" CreationDate="2015-04-15T20:56:02.073" Score="3" Body="&lt;p&gt;The value of money is derived entirely from others' willingness to accept it in exchange for things of value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Money has in fact emerged— &lt;a href=&quot;http://en.wikipedia.org/wiki/Rai_stones&quot; rel=&quot;nofollow&quot;&gt;Rai stones&lt;/a&gt; on Yap is the &lt;a href=&quot;http://www.npr.org/blogs/money/2011/02/15/131934618/the-island-of-stone-money&quot; rel=&quot;nofollow&quot;&gt;classic example&lt;/a&gt;— without the existence of either a &quot;trusted authority&quot; mandating its use (I assume that by &quot;trusted authority&quot; you mean a government-mandated fiat currency) or any recourse to a scare resource (e.g., notes redeemable for silver or gold). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;While the Yap stones themselves (the monetary base) were in fact scarce, and some degree of scarcity is a necessary condition for money to act as an effective store of value, it's not a sufficient condition, as FooBar noted in his comment. Even if a monetary base is finite, what matters is that people are willing to accept that form of money as payment, which is in turn generally determined by whether other people will be willing to accept that form of money as payment. It's collective agreement that money has value that makes it valuable. If people some day find no reason to continue using the Rai stones as money (they've been replaced by US dollars for day-to-day use, and they're only used for certain traditional exchanges now), they will lose their value as currency, despite their continued scarcity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Specifically regarding Bitcoin, there has been significant skepticism in the economics community about whether it is actually a currency, with &lt;a href=&quot;http://www.nber.org/papers/w19747&quot; rel=&quot;nofollow&quot;&gt;Yermack&lt;/a&gt; (2013) noting that it functions poorly as a store of value and unit of account, and that its transaction volumes have been quite low.&lt;/p&gt;&#xA;" OwnerUserId="264" LastActivityDate="2015-04-15T20:56:02.073" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5150" PostTypeId="1" AcceptedAnswerId="5152" CreationDate="2015-04-15T22:51:32.753" Score="2" ViewCount="431" Body="&lt;p&gt;Well the question kind of says it all, what I would like to know is,if a TTIP between America and EU is put in place even though not only Europe and America will benefit from it but also other countries who export to Europe and America because of the augmentation of demand, would there be any drawbacks for consumers? I know that some companies will find it hard to compete with others but then again what could that cause for us consumers ?&#xA;Sorry for my bad English its been a long time. &lt;/p&gt;&#xA;" OwnerUserId="2797" LastActivityDate="2015-04-16T11:31:48.563" Title="What would be the disadvantages of a TTIP?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="5151" PostTypeId="2" ParentId="1836" CreationDate="2015-04-16T06:42:56.040" Score="2" Body="&lt;p&gt;Based on my understanding, Hotelling's Rule is a pretty good first step. Like many first steps, it doesn't perform particularly well empirically. I would expect that when technological change is considered, in the very long run, it isn't too bad.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are a few extensions of this model which are popular.&#xA;-Exogenise extraction costs&#xA;    The standard idea is that extraction costs increase as the resource moves towards depletion. Something which isn't included in the standard model is that technology is changing, making some previously unprofitable reserves cost effective. At the same time, exploration can uncover more reserves. Whilst the total amount of non-renewable resource doesn't change, the amount available for extraction isn't static.&#xA;- Account for substitutes&#xA;    The demand for oil for example is constantly growing, but it must remain competitive with substitutes. A rise in prices make substitutes more attractive. This is a phenomenon we have seen with ethanol and into our petrol.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.eolss.net/sample-chapters/c13/E6-29-03-01.pdf&quot; rel=&quot;nofollow&quot;&gt;This pdf&lt;/a&gt; provides a broad overview of such extensions. It also provides references for further reading. I borrowed heavily from it above. I'll list a few&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Chapman, D. (1983). World Oil: Hotelling Depletion or Accelerating Use?Nonrenewable Resources.2(4): 331-339&#xA;Extends the Hotelling model to so that the marginal extraction cost is independent of quantity demanded.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Stiglitz, J.E. (1976). Monopoly and the Rate of Extraction of Exhaustible Resources. American Economic Review,66(4): 655-661&#xA;Straightforward paper showing that extraction rate under monopoly is lower than under perfect competition.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="40" LastActivityDate="2015-04-16T06:42:56.040" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5152" PostTypeId="2" ParentId="5150" CreationDate="2015-04-16T11:31:48.563" Score="1" Body="&lt;p&gt;TTIP is a combination of trade agreements and property rights / legal changes.&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Trade Liberalization&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;Most of the current debate in European countries is not so much about trade - we all know trade liberalization yields welfare gains. In the first-order, these are split between consumers and firms: Consumer get a larger variety / cheaper goods, and (surviving) firms can reach more customers. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;These are &lt;em&gt;efficiency gains&lt;/em&gt;, and could be split up anyhow between these two groups. To the extent that surviving firms get some of these welfare gains, workers of these firms might get some of the benefits. I'm trying to be very cautious here, because on this last bit, I don't think we have sufficient empirical evidence - and theory will support different results based on the wage setting mechanism.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course, there will be firms that lose, and workers that will be fired - which is why the US has set up (I think under WIA) Trade Adjustments Assistance for workers who lost their jobs due to trade. This is one way of sharing the welfare gains of trade with those who lose.&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Copyright and Regulation&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;The issue with TTIP is mostly the legal power that firms get. US american firms could sue France for french regulation at US courts. This downside is off topic here. However, the angst here is that is not welfare gains for each single country. Countries with stronger regulations will lose. Even for the world as a whole, it is unclear whether this yields efficiency gains, or whether firms just reap surplus from countries/governments.&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-04-16T11:31:48.563" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5153" PostTypeId="2" ParentId="5148" CreationDate="2015-04-16T14:12:48.163" Score="2" Body="&lt;p&gt;As hinted in a comment, the problem with using the difference instead of the ratio, is that the difference is not free of the units of measurement while the ratio is. And in general we want to &lt;em&gt;not&lt;/em&gt; depend on units of measurement (whatever it is that we measure).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Although I am not familiar with the literature, I understand that here utility is a fully quantitative, &quot;cardinal&quot; concept. Moreover, there exists the network $G$ whose characteristics generate utility, and then there are the &quot;idiosyncratic&quot; losses, which is the component we want to get out of our sight.  Then why not define a $\text {PoA}$ &lt;em&gt;net&lt;/em&gt; of idiosyncratic losses, &lt;em&gt;especially&lt;/em&gt; since they appear &lt;em&gt;not&lt;/em&gt; to depend on the decision making framework, and so they are the same both in the decentralized set up and in the centralized one?&#xA;I mean,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\text {nPoA} \equiv \frac {\sum_iU_i -\sum_i\log(l_i) }{U_s - \sum_i\log(l_i)}=\frac {\sum_if_i(G)}{f_s(G)}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This seems to me as a meaningful concept to reflect the network contribution to utility and how it changes under the two decision-making cases.  &lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-04-16T14:12:48.163" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5154" PostTypeId="2" ParentId="5148" CreationDate="2015-04-16T14:19:08.793" Score="0" Body="&lt;p&gt;It is difficult to answer your question. The reason is that there is a conceptual problem with the &quot;price of anarchy&quot; literature. The literature uses the sum of utilities, and the ratio of sums of utilities, without reflecting on what it means to sum up utilities, and what it means to divide sums of utilities. In conventional utility theory these are all meaningless operations. Without clearer conceptual foundatinos, it is hard to compare the criterion that the &quot;price of anarchy&quot; literature uses to alternative criteria such as the one that you propose.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Maybe one can interpret the welfare criterion in the &quot;price of anarchy&quot; literature as &quot;relative utilitarian.&quot; I would have to do some work, though, to figure out whether there is any meaning to dividing welfare from different outomces when welfare is &quot;relative utilitarian.&quot; &lt;/p&gt;&#xA;" OwnerUserId="2787" LastActivityDate="2015-04-16T14:19:08.793" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5155" PostTypeId="1" AcceptedAnswerId="5157" CreationDate="2015-04-16T14:29:13.533" Score="9" ViewCount="495" Body="&lt;p&gt;I'm working on my master's thesis in industrial organization and I have a model that is based on social networks. I have had two courses about social networks (one more focused on basic industrial organization questions in networks and the other more about basic graph theory) but as I work more on the model I feel I'm not really using the network in solving the questions that arise and leaving it more as a descriptive structure, and I fear it is mostly due to ignorance.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can anyone refer to a good book, class notes or papers that might help me learn more deeply the implications of the network structure and/or the pros and cons of modeling a problem as a network? For example on how the network structure might be helpful when trying to determine existence of equilibrium.&lt;/p&gt;&#xA;" OwnerUserId="4434" LastEditorUserId="4455" LastEditDate="2015-04-17T16:02:03.187" LastActivityDate="2015-04-17T16:02:03.187" Title="Where to start with social networks?" Tags="&lt;reference-request&gt;&lt;networks&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5156" PostTypeId="2" ParentId="5155" CreationDate="2015-04-16T14:34:02.333" Score="3" Body="&lt;p&gt;&lt;a href=&quot;http://www-personal.umich.edu/~mejn/networks-an-introduction/&quot; rel=&quot;nofollow&quot;&gt;Networks: An Introduction&lt;/a&gt; by Mark Newman is a good book.&lt;/p&gt;&#xA;" OwnerUserId="264" LastActivityDate="2015-04-16T14:34:02.333" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5157" PostTypeId="2" ParentId="5155" CreationDate="2015-04-16T14:47:27.547" Score="9" Body="&lt;p&gt;The best introduction is, in my opinion, the book by Matthew Jackson. It has a pretty nice introduction (even if you know nothing about social networks) and chapters about many of the applications of graph theory in economics.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Jackson, M. O. (2008). Social and economic networks (Vol. 3).&#xA;Princeton: Princeton University Press.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;It sounds like you try to model a game on a network (i.e., using game theory with players on a network without changing the network). If this is true, then the following paper might be even more relevant:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Galeotti, A., Goyal, S., Jackson, M. O., Vega-Redondo, F., &amp;amp; Yariv,&#xA;L. (2010). &lt;a href=&quot;http://cadmus.eui.eu/bitstream/handle/1814/7864/ECO-2008-07.pdf&quot;&gt;Network games&lt;/a&gt;. The review of economic studies, 77(1),&#xA;218-244.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="120" LastActivityDate="2015-04-16T14:47:27.547" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="5158" PostTypeId="1" AcceptedAnswerId="5178" CreationDate="2015-04-16T17:06:02.827" Score="9" ViewCount="424" Body="&lt;p&gt;Consider a firm with zero marginal cost. If it gives the product for free, then all the demand is satisfied and the social welfare increases by the maximum possible amount; call this increase $W$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But because the firm is a monopoly, it reduces the demand and increases the price in order to optimize its revenue. Now the social welfare increases by a smaller amount, say, $V$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Define the relative loss of welfare (deadweight loss) as: $W/V$. This ratio depends on the shape of the demand function. So my question is: is this ratio bounded, or can it be arbitrarily large? In particular:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;If $W/V$ is bounded, then for what demand function is it maximized?&lt;/li&gt;&#xA;&lt;li&gt;If $W/V$ is unbounded, then for what family of demand functions can it become arbitrarily large?&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Here is what I tried so far. Let $u(x)$ be the consumers' marginal utility function (which is also the inverse demand function). Assume that it is finite, smooth, monotonically decreasing, and scaled to the domain $x\in[0,1]$. Let $U(x)$ be its anti-derivative. Then:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/uSaVw.png&quot; alt=&quot;monopoly deadweight loss&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;$W = U(1)-U(0)$, the total area under $u$.&lt;/li&gt;&#xA;&lt;li&gt;$V = U(x_m)-U(0)$, where $x_m$ is the amount produced by the monopoly. This is the area under $u$ except the &quot;deadweight loss&quot; part.&lt;/li&gt;&#xA;&lt;li&gt;$x_m = \arg \max (x \cdot u(x))$ = the quantity which maximizes the producer's revenue (the marked rectangle).&lt;/li&gt;&#xA;&lt;li&gt;$x_m$ can usually be calculated using the first-order condition: $u(x_m) = -x_m u'(x_m)$.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;To get some feeling of how $W/V$ behaves, I tried some function families. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Let $u(x)=(1-x)^{t-1}$, where $t&amp;gt;1$ is a parameter. Then:&lt;/p&gt;&#xA;  &#xA;  &lt;ul&gt;&#xA;  &lt;li&gt;$U(x)=-(1-x)^{t}/t$. &lt;/li&gt;&#xA;  &lt;li&gt;The first-order condition gives: $x_m=1/t$.&lt;/li&gt;&#xA;  &lt;li&gt;$W=U(1)-U(0) = 1/t$&lt;/li&gt;&#xA;  &lt;li&gt;$V=U(x_m)-U(0)=(1-(\frac{t-1}{t})^{t})/t$&lt;/li&gt;&#xA;  &lt;li&gt;$W/V=1/[1-(\frac{t-1}{t})^{t}]$&lt;/li&gt;&#xA;  &lt;/ul&gt;&#xA;  &#xA;  &lt;p&gt;When $t\to\infty$,  $W/V \to 1/(1-1/e)\approx 1.58$, so for this family, $W/V$ is bounded.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;But what happens with other families? Here is another example:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Let $u(x)=e^{-t x}$, where $t&amp;gt;0$ is a parameter. Then:&lt;/p&gt;&#xA;  &#xA;  &lt;ul&gt;&#xA;  &lt;li&gt;$U(x)=-e^{-t x}/t$. &lt;/li&gt;&#xA;  &lt;li&gt;The first-order condition gives: $x_m=1/t$.&lt;/li&gt;&#xA;  &lt;li&gt;$W=U(1)-U(0) = (1-e^{-t})/t$&lt;/li&gt;&#xA;  &lt;li&gt;$V=U(x_m)-U(0)=(1-e^{-1})/t$&lt;/li&gt;&#xA;  &lt;li&gt;$W/V=(1-e^{-t})/(1-e^{-1})$&lt;/li&gt;&#xA;  &lt;/ul&gt;&#xA;  &#xA;  &lt;p&gt;When $t\to\infty$, again $W/V \to 1/(1-1/e)\approx 1.58$, so here again $W/V$ is bounded.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;And a third example, which I had to solve numerically:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Let $u(x)=\ln(a-x)$, where $a&amp;gt;2$ is a parameter. Then:&lt;/p&gt;&#xA;  &#xA;  &lt;ul&gt;&#xA;  &lt;li&gt;$U(x)=-(a-x)log(a-x)-x$. &lt;/li&gt;&#xA;  &lt;li&gt;The first-order condition gives: $x_m=(a-x_m)\ln(a-x_m)$. Using this &lt;a href=&quot;https://www.desmos.com/calculator/bmu1ilr0jp&quot; rel=&quot;noreferrer&quot;&gt;desmos graph&lt;/a&gt;, I found out that $x_m \approx 0.55(a-1)$. Of course this solution is only valid when $0.55(a-1)\leq 1$; otherwise we get $x_m=1$ and there is no deadweight loss.&lt;/li&gt;&#xA;  &lt;li&gt;Using the same graph, I found out that $W/V$ is decreasing with $a$, so its supremum value is when $a=2$, and it is approximately 1.3. &lt;/li&gt;&#xA;  &lt;/ul&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Is there another family of &lt;em&gt;finite&lt;/em&gt; functions for which $W/V$ can grow infinitely?&lt;/p&gt;&#xA;" OwnerUserId="385" LastEditorUserId="385" LastEditDate="2015-04-17T06:58:00.603" LastActivityDate="2015-04-18T05:28:46.373" Title="For what demand function is a monopoly most harmful?" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;social-welfare&gt;&lt;monopoly&gt;" AnswerCount="1" CommentCount="6" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5159" PostTypeId="1" AcceptedAnswerId="5160" CreationDate="2015-04-16T17:08:34.053" Score="0" ViewCount="8011" Body="&lt;p&gt;What is &lt;strong&gt;Stated Capital&lt;/strong&gt;? I have found some definitions on the Google, but I have not been able to comprehend it from this definitions. Could somebody explain it to me? &lt;/p&gt;&#xA;" OwnerUserId="4454" LastEditorUserId="61" LastEditDate="2015-04-16T18:08:42.270" LastActivityDate="2017-07-12T15:41:09.843" Title="What is &quot;Stated-capital&quot;?" Tags="&lt;accounting&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5160" PostTypeId="2" ParentId="5159" CreationDate="2015-04-16T18:07:53.377" Score="1" Body="&lt;p&gt;&quot;Stated Capital&quot; is the &lt;em&gt;nominal&lt;/em&gt; value (or &quot;par&quot; value) of all the outstanding shares of a company.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;When a company issues shares each has a nominal price, say EUR $1.00$. But of course they may be sold for more (as far as I know, it is forbidden to issue a share and receive an amount less than its nominal value. Afterwards of course, the share of a company may be re-sold for less than its nominal value -but not when it is issued originally).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If it is sold for more, say EUR $1.50$, then the EUR $1.00$ is designated and presented as &quot;Shareholder's Capital&quot; in a specific line in the financial statements (usually the first line of Equity), while the &quot;above par&quot; value, the remaining EUR $0.50$, goes into another Equity line.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-04-16T18:07:53.377" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5161" PostTypeId="2" ParentId="5143" CreationDate="2015-04-16T18:29:55.290" Score="1" Body="&lt;p&gt;I would say, it is more Proposition $5.\text{F}.1$ on page 150, &lt;em&gt;in combination&lt;/em&gt; with $5.\text{E}.1$ that leads to, as the authors write discussing the two,&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;...if a collection of firms each independently maximizes profits with respect to the same fixed price vector $p &amp;gt;&amp;gt;0$, then the aggregate&#xA;  production is socially efficient. That is, there is no other production plan for the economy as a whole that could produce more output using no additional inputs.&quot;&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Note that no assumption of identical suppliers is made here, or any other restrictive assumption about technology or the production set. The crucial assumption is the &quot;price-taking&quot; behavior assumed for all firms. Or, &quot;no-market-power&quot;. Or, &lt;strong&gt;&quot;all firms are equal&quot;:&lt;/strong&gt; &lt;strong&gt;doesn't Perfect Competition sound &lt;em&gt;a lot&lt;/em&gt; like the market version of Communism (not Socialism)?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;P.S.: Externalities could also create issues here, of course.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-04-16T18:29:55.290" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5162" PostTypeId="2" ParentId="5142" CreationDate="2015-04-16T19:05:13.763" Score="3" Body="&lt;p&gt;The Expected Utility property is &lt;em&gt;not&lt;/em&gt; a property that depends on the functional form of the utility function. Its existence depends on satisfying certain &quot;axioms&quot; (which would be more acurately be described as &quot;conditions&quot;), that have to do with preferences/behavior of human beings. They may be given a strict mathematical expression (which is good), but they have to do with preferences, i.e. before any functional form for the utility function is specified. Let's see what that means.&#xA;In a comment the OP wrote &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;...if x, y, and z are three fixed elements of A, then the quantity $[u(x) - u(y)]/[u(y) - u(z)]$ varies from person to person (among people&#xA;  who satisfy the vNM axioms), but it does not vary among different vNM&#xA;  utility functions for the same person. So this quantity conveys&#xA;  something specific to a person.&quot;&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;It does.&lt;/strong&gt;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Quoting from &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0273731912&quot; rel=&quot;nofollow&quot;&gt;Jehle &amp;amp; Renyi (2011) &quot;Advanced Microeconomic Theory&quot; (3d ed)&lt;/a&gt;, ch. 2 p. 108&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;We conclude that the ratio of utility differences has inherent meaning regarding the individual’s preferences and they must take on&#xA;  the same value for every VNM utility representation of (the weak&#xA;  preference relation). Therefore, VNM utility representations provide&#xA;  distinctly more than ordinal information about the decision maker’s&#xA;  preferences, for otherwise, through suitable monotone transformations,&#xA;  such ratios could assume many different values.&quot;&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In their example just before the quote they show that &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {[u(x) - u(y)]}{[u(y) - u(z)]} = \frac {1-\alpha}{\alpha}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $\alpha$ is a probability that reflects the preferences that we are modelling. Quote again (p. 107)&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;Note well that the probability number $\alpha$ is determined by, and is a reflection of, the decision maker’s preferences. It is a&#xA;  meaningful number. One cannot double it, add a constant to it, or&#xA;  transform it in any way without also changing the preferences with&#xA;  which it is associated.&quot;&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;And $(1-\alpha)/\alpha$ is an &lt;a href=&quot;http://en.wikipedia.org/wiki/Odds&quot; rel=&quot;nofollow&quot;&gt;&lt;em&gt;odds&lt;/em&gt;&lt;/a&gt; (not &quot;odds ratio&quot;).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So here you are: a vNM utility function is associated with the odds that can characterize a person's preferences.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;ADDENDUM&lt;/strong&gt;&lt;br&gt;&#xA;After an interesting but too lengthy exchange of opinions and thoughts in the comments with the OP, I decided to enhance this answer with an example, in order to show that in the context of the specific theory of preferences we are discussing, &quot;preference intensity&quot; (as is informally discussed here) cannot be dissociated from &quot;attitude towards risk&quot; -they are inextricably linked. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume that an individual declares (as he has every right to): &quot;My preferences are monotonic and I prefer more to less. Moreover, the next five euros will give me exactly the same utility as the five after them&quot;. Note that this is the individual speaking -we cannot question him by whether utility can be cardinal or not etc. Starting from zero for convenience, we symbolize his statement as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$u(10) - u(5) = u(5) - u(0) \implies u(5) = \frac 12 u(0) + \frac 12 u(10) \tag {1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the context of the discussion with the OP, this is a statement about &quot;preference intensity&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Next we present to this individual the following choice: he can either get $5$ euros, or he can participate to a gamble $G$ where he will get $0$ euros with probability $1/2$ or $10$ euros with probability $1/2$. The individual then declares that he &lt;em&gt;strictly prefers&lt;/em&gt; to get the $5$ euros with certainty.&#xA;This is a statement revealing &quot;attitude towards risk&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Question:&lt;/strong&gt; Can the preferences of this individual, as described by his two statements, be represented by a utility function that possesses the Expected Utility Property?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Answer: No.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Proof:&lt;/strong&gt; By his second statement, the individual revealed that the Certainty Equivalent  of the gamble $CE_G$ is strictly less than $5$ euros:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore we have that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$E[u(G)] = u(CE_G)  &amp;lt; u(5) \tag{2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now for the Expected Utility property to hold, it must be the case that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$u[G;p(G)] = E[u(G)] = \frac 12 u(0) + \frac 12 u(10) \tag{3}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Due to $(2)$ (which expresses the &quot;attitude towards risk&quot; of the individual) we have that &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$(2), (3) \implies \frac 12 u(0) + \frac 12 u(10) &amp;lt; u(5) \tag {4}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But this contradicts $(1)$, which expresses &quot;preference intensity&quot; of the individual.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So we conclude that an individual whose preferences are described by the above statements cannot be represented by a utility function that possesses the Expected Utility Property.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words, for the Expected Utility property to hold, &quot;attitude towards risk&quot; cannot be dissociated from &quot;preference intensity&quot;. If the individual had declared that he was indifferent between the $5$ certain euros and the gamble $G$, then his preferences could be represented by a utility function that had the EU property. But in order to achieve that, we had to &quot;align&quot; the &quot;attitude towards risk&quot; with &quot;preference intensity&quot;.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-04-17T01:05:54.020" LastActivityDate="2015-04-17T01:05:54.020" CommentCount="19" ContentLicense="CC BY-SA 3.0" />
  <row Id="5163" PostTypeId="2" ParentId="5146" CreationDate="2015-04-16T23:40:49.253" Score="1" Body="&lt;p&gt;So, the correct answer is for Economist A.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The concept that you are looking for is that of a money multiplier. If we take out the other factors and just focus on the money multiplier and assume no taxes and that all money ends up in banks this is pretty simple. So, Fred gets the 20,000 from the Federal Reserve in exchange for Treasury bonds. Fred will now go and deposit this in the bank. Now, the bank has the 20,000. They will take that 20,000 and have keep part of it as the minimum reserve requirement of 8%. So the bank will keep 1,600 and have 18,400 in excess reserves. The bank will then want to make loans with that 18,400 dollars. The bank makes the loan to someone else, say Jill. Jill now has the 18,400, Jill is going to spend that money and that money will eventually end up in the bank account of someone else. Again, this 18,400 goes to the banking system where it must keep 1,472 and is allowed to loan out the rest. This loan is spent, comes into a bank in the form of deposits, is loaned out again, comes back in the form of deposits and so on and there you have the money multiplier. So, you can see that the Federal Reserve can influence the size of the money supply more than the initial 20,000 and in this case with this hypothetical situation would increase the size of the money supply by 250,000. Now, in real life the multiplier would not be so big, but the point of the problem is to understand that the growth of the money supply will be more than the inital increase because of this multiplier. The overall effect of the money multiplier can be formulated as so...&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;Increase in money supply = Initial Value * (1/reserve requirement)&#xA;$250,000 = $20,000 * (1/.08)&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;" OwnerUserId="4129" LastActivityDate="2015-04-16T23:40:49.253" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5164" PostTypeId="2" ParentId="5142" CreationDate="2015-04-17T04:24:14.867" Score="6" Body="&lt;p&gt;I think I've found an answer to my question, in &lt;a href=&quot;http://gdurl.com/sSNT&quot; rel=&quot;nofollow noreferrer&quot;&gt;this excerpt&lt;/a&gt; from Nobel laureate John C. Harsanyi's 1994 paper &quot;Normative validity and meaning of von neumann-morgenstern utilities&quot;, presented at the Ninth International Congress of Logic, Methodology and Philosophy of Science.  Harsanyi starts by proving the same lemma that Alecos proved in his answer, namely that if $u$ is a vNM utility function of an individual, then $u(10) - u(5) &amp;lt; u(5) - u(0)$ if and only if they would prefer a guaranteed 5 dollars compared to a 50% of 10 dollars and a 50% chance of 0 dollars.  In the comments section I said that was insufficient to demonstrate that the vNM utility function represented intensity of preferences, because what if the individual's actual pleasure and pain was accurately described by some other utility function $v$, which is a monotonic transformation but not an affine transformation of $u$?  In that case couldn't $v$ fail to satisfy the expected value property, and couldn't $v(10) - v(5) = v(5) - v(0)$?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Harsanyi has a clever argument dealing with this issue. Let $L_1$ be the lottery where you get 5 dollars guaranteed, let $L_2$ be the lottery where you have a 50% chance of 10 dollars and a 50% chance of 0 dollars, and let $L_3$ be the lottery where you have a 50% chance of 10 dollars and a 50% chance of 5 dollars.  Then obviously the person prefers $L_3$ to both $L_1$ and $L_2$.  And Harsanyi argues that $L_3$ is preferred to $L_1$ less strongly than $L_3$ is preferred to $L_2$ if and only if $v(10) - v(5) &amp;lt; v(5) - v(0)$.  That's because in the choice between, $L_3$ vs $L_1$, 50% of the time they get 5 dollars, and 50% of the time they have to make a choice between 10 and 5.  Similarly in the choice between $L_3$ and $L_2$, 50% of the time they get 10 dollars, and 50% of the time they have to make a choice between 5 and 0.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now here comes the master stroke: $L_1$ is preferred to $L_2$ if and only if $L_3$ is preferred to $L_1$ less strongly than $L_3$ is preferred to $L_2$.  Therefore, $L_1$ is preferred to $L_2$ if and only if $v(10)-v(5) &amp;lt; v(5) -v(0)$.  And thus we reach the grand conclusion that $u(10) - u(5) &amp;lt; u(5) - u(0)$ if and only if $v(10)-v(5) &amp;lt; v(5) -v(0)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus Harasanyi reaches the conclusion that the vNM utility function represents preferences intensities.  So the answer to my question seems to be that diminishing marginal utility in the vNM utility function reflects genuine diminishing marginal utility when it comes to intensity of preferences, and thus (assuming the vNM axioms are true) diminishing marginal utility really is the cause of risk aversion.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By the way, on a side note I wonder whether we could identify the set of all functions $v$ that satisfy the constraint that $u(x) - u(y) &amp;lt; u(z) - u(w)$ if and only if $v(x)-v(y) &amp;lt; v(z) -v(w)$ (and similarly for greater than and equal to).  (EDIT: I asked about this on Mathematics.SE &lt;a href=&quot;https://math.stackexchange.com/q/1238576/71829&quot;&gt;here&lt;/a&gt;.)&lt;/p&gt;&#xA;" OwnerUserId="4447" LastEditorUserId="-1" LastEditDate="2017-04-13T12:19:37.213" LastActivityDate="2015-04-29T11:50:32.070" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5165" PostTypeId="1" CreationDate="2015-04-17T04:42:23.327" Score="6" ViewCount="108" Body="&lt;p&gt;I have been trying to model a Pay What you Want scheme. Now, for a monopoly it is clear that monopoly will have more profit by setting monopoly pricing assuming all players are selfish. But consider a scenario of 2 sellers one posting a fix price and other a PWYW strategy. In a market of selfish players the PWYW will make huge losses and market would move on to the fix price seller who can now act as a monopoly. So does this imply that there is an incentive for the selfish players to keep PWYW firm in market ? Also, how do I extend this idea to more than 2 firms ?&lt;/p&gt;&#xA;" OwnerUserId="4457" LastActivityDate="2015-04-17T17:36:54.973" Title="Modelling Pay what you want" Tags="&lt;supply-and-demand&gt;&lt;general-equilibrium&gt;&lt;monopoly&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5166" PostTypeId="1" AcceptedAnswerId="5175" CreationDate="2015-04-17T12:08:34.790" Score="-5" ViewCount="129" Body="&lt;p&gt;It's true that now we can purchase a whole load of useless stuff spending less than in the past, but is it really worth it? It feels like you buy something and the next day it's already broken.&#xA;Is this what we're going to face in a foreseeable future?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT: this IS indeed funny, so many butthurt economists randomly downvoting...&#xA;At least try to expose your thesis&lt;/p&gt;&#xA;" OwnerUserId="4460" LastEditorUserId="4460" LastEditDate="2015-04-18T12:16:24.193" LastActivityDate="2015-04-18T12:16:24.193" Title="Chinese products: are we lowering our everyday life quality?" Tags="&lt;macroeconomics&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="0" ClosedDate="2015-04-18T23:03:23.190" ContentLicense="CC BY-SA 3.0" />
  <row Id="5167" PostTypeId="2" ParentId="5166" CreationDate="2015-04-17T13:39:35.183" Score="1" Body="&lt;h3&gt;Is this what we're going to face?&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;You're not forced to buy cheap low-quality products. There is still a market for high-quality but expensive products. If demand shifts in the future, we're not going to face this in the foreseeable future. Economics itself is horrible at predicting, and since this isn't mainly an Economic equation, but mostly depends on consumer preferences and politics - who knows?&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Is this a &lt;em&gt;bad&lt;/em&gt; thing to happen?&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;Slightly on a tangent, your wording makes this sounds like a bad thing to happen. By revealed preferences, it is not. Unless you can make a case for a reason why people are forced to buy the low-quality goods, or why the supply of these goods has a negative externality on high-quality goods, that is.&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-04-17T13:39:35.183" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5168" PostTypeId="2" ParentId="5165" CreationDate="2015-04-17T13:43:57.300" Score="0" Body="&lt;p&gt;Not it is not. You're assuming that each selfish player actually has enough market power to keep PWYW firms in the market. Usually, we rather think about buyers as atomistic - each individual's purchase decision has no impact on the seller, which is why they usually do not take into account these &lt;em&gt;externalities&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you had a monopolistic consumer however, he would pay the PWYW firm exactly the marginal cost: Just enough to keep the firm alive, but no surpluses what-so-ever. The opposite of a monopolistic firm, if you will.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, I don't think that selfish and rational preferences will get you a solution that gives rise to PWYW firms: As I just hinted at, even if the buyers had market powers, the firm wouldn't make profits, and should just go for the standard oligopoly pricing strategy. The latter weakly dominates the former in all market sizes, and strictly dominates in markets with positive market power.&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-04-17T13:43:57.300" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5169" PostTypeId="2" ParentId="5076" CreationDate="2015-04-17T14:21:57.713" Score="2" Body="&lt;p&gt;&lt;a href=&quot;http://faculty.wcas.northwestern.edu/~yona/research/CalvoMarch162005.pdf&quot; rel=&quot;nofollow&quot;&gt;Eichenbaum and Fisher (2005)&lt;/a&gt; follow Kimball (1995) in allowing for the possibility that the elasticity of demand is increasing in a firm’s price. Which is not exactly what I was looking for, but it's a start.&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-04-17T14:21:57.713" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5170" PostTypeId="2" ParentId="5165" CreationDate="2015-04-17T14:27:47.493" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;So does this imply that there is an incentive for the selfish players&#xA;  to keep PWYW firm in market ?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;No,&lt;/strong&gt; unfortunately not. In general equilibrium models (as @FooBar already mentioned) buyer's do not think about the influence of their actions on the seller. Therefore, they would just buy at the lowest possible price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;However&lt;/strong&gt;, if you have a &lt;strong&gt;game theoretic model&lt;/strong&gt; including uncertainty about profits of the PWYW firm and risk-averse consumers who prefer the PWYW firm for some reason you might get Nash-equilibria in which PWYW firms have positive profits.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another way to model PWYW firms is to include &lt;strong&gt;non-monetary benefits&lt;/strong&gt; from paying. For example a disutility for being seen as a cheapskate or for exploiting the firm or a positive utility from &quot;doing the right thing&quot; (i.e., paying the price that they think is appropriate). The selfish, rational players will pay a positive price and will generate profits for the firm.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think in reality the impact of non-monetary benefits is much higher than the impact of asymmetric information with risk-aversion.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Also, how do I extend this idea to more than 2 firms ?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I don't really think it is really interesting to extend this to more than two firms (especially without having solved this for 2 firms), but for both modeling options presented it should be &lt;a href=&quot;http://www.phdcomics.com/comics/archive.php?comicid=1093&quot; rel=&quot;nofollow&quot;&gt;&quot;easy enough&quot;&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="120" LastActivityDate="2015-04-17T14:27:47.493" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5171" PostTypeId="1" AcceptedAnswerId="5172" CreationDate="2015-04-17T14:34:19.073" Score="2" ViewCount="228" Body="&lt;p&gt;&lt;a href=&quot;http://www.nber.org/papers/w5046&quot; rel=&quot;nofollow&quot;&gt;Kimball (1995)&lt;/a&gt; defines production of the final good ($Y$) with intermediate goods $y_l$ in his equation (1) as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ 1 = \int_0^1 G\left(\frac{y_l}{Y}\right) dl $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;with $G(1) = 1$, $G'(x) &amp;gt; 0$ and $G''(x) &amp;lt; 0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have never seen such a construct before. What does the $1$ on the left-hand-side mean, is that a normalization or some cost construct? An introduction into this type of production function would be greatly appreciated.&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-04-17T15:30:06.213" Title="Kimball (1995) Specification of Final Good Production" Tags="&lt;microeconomics&gt;&lt;industrial-organisation&gt;&lt;production-function&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5172" PostTypeId="2" ParentId="5171" CreationDate="2015-04-17T15:30:06.213" Score="2" Body="&lt;p&gt;Some input:&lt;br&gt;&#xA;Kimball assumes a constant-returns-to-scale (CRS) production of the final good $Y$ from the intermediate goods (and no other inputs are involved in this function). Turn to discrete space for a moment, and this means that we would have something like&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Y = F(y_1,...,y_l,...,y_m)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since this is a CRS function we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$1 = F\left(\frac {y_1}{Y},...,\frac {y_l}{Y},...\frac {y_m}{Y}\right)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But also, from Euler's theorem for homogeneous functions we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Y = \sum_{i=1}^m \frac {\partial F}{\partial y_i}\cdot y_i \implies 1 = \sum_{i=1}^m \frac {\partial F}{\partial y_i}\cdot\frac{ y_i}{Y}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Combining and manipulating the index into $[0,1]$-continuity we get something like&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$1 = F\left(\frac {y_1}{Y},...,\frac {y_l}{Y},...\frac {y_m}{Y}\right) =\sum_{i=1}^m \frac {\partial F}{\partial y_i}\cdot\frac{ y_i}{Y}\rightarrow \int_0^1\left[\frac {\partial F}{\partial y_l}\cdot\frac{ y_l}{Y}\right]{\rm d}l$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a sense, $G(y_l/Y)$ is the elasticity of final output with respect the the $l$-th intermediate good. Given the assumptions on $G()$, it rules out a Cobb-Douglas CRS production function, where the elasticities not only sum to unity but they are constant, and it looks, say, to a C.E.S. production function with constant returns to scale, where the elasticities are variable but always sum up to unity.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-04-17T15:30:06.213" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5174" PostTypeId="2" ParentId="131" CreationDate="2015-04-17T18:45:59.533" Score="1" Body="&lt;p&gt;(Correct me if I'm wrong but) a Giffen good is exactly a good whose demand increases as price increases and decreases as price decreases &lt;strong&gt;ceteris paribus&lt;/strong&gt;. In other words its consumption goes down when they become cheaper.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In mathematics: $\frac{\partial x_d}{\partial p_x} &amp;gt; 0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Do they exists? For me it's obvious there are examples of this in the real world. Just look around, price is also a signal for quality for many (definitely culture dependent), and in casy of very assymetric a little information a higher price can trigger higher demand (in my personal experience). I have however heard many established economists doubt its existance. Here is what one reference book has to say about it.  (Mas-Colell et al., 1995, P. 26).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/zWrz1.png&quot; alt=&quot;.&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also make sure to check out a paper [WHICH ANOTHER ANSWER A ALREADY LINKED TO] (Published in the American economic review, 2008) who claims that it &quot;provides the first real-world evidence of Giffen behavior, i.e., upward sloping demand.&quot; : &lt;a href=&quot;http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2964162/&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2964162/&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="4193" LastActivityDate="2015-04-17T18:45:59.533" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5175" PostTypeId="2" ParentId="5166" CreationDate="2015-04-17T18:57:22.370" Score="1" Body="&lt;p&gt;I'd look into the concept of &quot;Planned Obsolescence.&quot; It's true that products are not made to withstand the same rigour as in previous decades. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm not a fan of the cheap stuff (read: junk) so I personally vote with my dollars and stay away from it. Thus, fuelling the premium product market... but ultimately longer-lasting products. IMO. &lt;/p&gt;&#xA;" OwnerUserId="4462" LastActivityDate="2015-04-17T18:57:22.370" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5176" PostTypeId="1" AcceptedAnswerId="5177" CreationDate="2015-04-17T23:13:38.073" Score="6" ViewCount="394" Body="&lt;p&gt;I have done most of the legwork, but I have fallen short at the final hurdle.&#xA;Could you please correct my mistake(s)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/Wvla4.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given the condition $x&amp;gt;0$ I need to consider the infinitely repeated game where the above strategic form is the stage game. The discount factor: $\delta=\frac{1}{2}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I need to find a further condition on the game, such that we have a subgame perfect equilibrium in which both players &quot;cooperate&quot; in each period.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;What I have done so far&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The profile of strictly dominated strategies $(u,r)$ constitutes the cooperative strategy where $x&amp;gt;0$ and $x \ne 1$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The prescription (cooperative strategy) will therefore be $(u,r)=(x+1,x+1)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The grim trigger is $(d,l) = (x,x)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Payoff from obeying the prescription:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$(x+1) + \delta(x+1) + \delta^2(x+1) +\delta^3(x+1)+... = \frac{x+1}{1-\delta}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Payoff from deviating&lt;/strong&gt; (&lt;em&gt;here comes the mistake&lt;/em&gt;)&lt;strong&gt;:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$2x + \delta x + \delta^2 x +\delta^3 x +... =\color{red}{\frac{2x-\delta(x+1)}{1-\delta}}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The part in red should apparently be:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{(2-\delta)x}{1-\delta}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't understand why I am wrong, could you please explain?&#xA;My understanding was that if a player deviates in period 1 in order to obtain $2x$ then both players would have to play the grim trigger profile $(d,l)$ from period 2 to perpetuity. As a result, the players would be missing out on $\delta(x+1)$.  The payoff numerator would therefore be $\color{red}{2x - \delta(x+1)}$ instead of $\color{blue}{(2-\delta)x}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given that the correct numerator is $\color{blue}{(2-\delta)x}$, I can easily finish the question:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{x+1}{1-\delta} \ge \frac{(2-\delta)x}{1-\delta}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, we would have a subgame perfect equilibrium &lt;strong&gt;iff&lt;/strong&gt; $x \le 2$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem is that my mistake lies in:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;$2x + \delta x + \delta^2 x +\delta^3 x +...$&#xA;  $=\color{red}{\frac{2x-\delta(x+1)}{1-\delta}}$&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;But, I'm not sure why. I would like to know why I am wrong and why $\color{blue}{(2-\delta)x}$ is the correct numerator.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks.&lt;/p&gt;&#xA;" OwnerUserId="4201" LastEditorUserId="4201" LastEditDate="2015-04-18T10:14:34.543" LastActivityDate="2015-04-18T10:14:34.543" Title="Infinitely repeated game: prisoners' dilemma" Tags="&lt;game-theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5177" PostTypeId="2" ParentId="5176" CreationDate="2015-04-18T00:26:05.990" Score="6" Body="&lt;p&gt;the payoff from play the trigger strategy will be:&#xA;$$ \sum_{i=0}^{\infty}(x+1) \delta^i=\frac{x+1}{1-\delta}$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;if I deviate and I play $l$ or $d$ the payoff will be&#xA;$$ 2x + \sum_{i=1}^{\infty}x \delta^i = 2x+ x\frac{\delta}{1-\delta}=\frac{2x(1-\delta) + x\delta}{1-\delta}= \frac{x(2-\delta)}{1-\delta}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;then, the condition is $$ \frac{x+1}{1-\delta} \geq \frac{x(2-\delta)}{1-\delta}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I hope that this will help you ;)&lt;/p&gt;&#xA;" OwnerUserId="4463" LastEditorUserId="4463" LastEditDate="2015-04-18T00:41:39.450" LastActivityDate="2015-04-18T00:41:39.450" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5178" PostTypeId="2" ParentId="5158" CreationDate="2015-04-18T05:28:46.373" Score="4" Body="&lt;p&gt;An arbitrarily large ratio should occur with demand curve &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$P=\begin{cases}&#xA;\frac{1}{Q} &amp;amp; \text{if } Q&amp;gt;1 \\&#xA;2-Q &amp;amp; \text{if } Q\leq 1 \\&#xA;\end{cases}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The monopolist prices at $P=1$, but the consumers' surplus if $P=0$ is infinite, because the area under the demand curve contains $\int_1^\infty \frac{1}{Q}dQ=\infty$.&lt;/p&gt;&#xA;" OwnerUserId="4445" LastActivityDate="2015-04-18T05:28:46.373" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5179" PostTypeId="2" ParentId="5097" CreationDate="2015-04-18T08:16:50.470" Score="2" Body="&lt;p&gt;I think it is important to note that $MRS(x,y)$ is a function. There is exactly one indifference curve passing through $(x,y)$. $MRS(x,y)$ shows the steepness of this curve at point $(x,y)$. Then $\frac{\partial MRS(x,y)}{\partial \alpha}$ would show how much steeper the indifference curve passing through $(x,y)$ gets at this point if you change the parameter $\alpha$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As YM'fr already stated in his answer, the interpretation of this is how the marginal substition rate (the rate at which she would be willing to trade) of a consumer in possesion of the goods package $(x,y)$ would change.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2015-04-18T08:16:50.470" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5181" PostTypeId="1" CreationDate="2015-04-18T13:50:27.143" Score="3" ViewCount="610" Body="&lt;p&gt;Overcapitalization doesn't seem to have a clear-cut definition.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For some it seems to deal with the ratio of current output (Y) over optimal output (Y*). A company would then be overcapitalized if Y &amp;lt; Y*, meaning it could raise its output without having to recapitalize.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Others define it as Equity + Debt &gt; &quot;True Value of assets&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I like the second definition but it is subjective.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am trying to understand the concept of overcapitalization in the context of a firm's valuation.&lt;/p&gt;&#xA;" OwnerUserId="4466" LastEditorUserId="4466" LastEditDate="2015-04-21T07:05:55.170" LastActivityDate="2015-04-21T07:05:55.170" Title="If assets = liabilities + equity, what do we mean by overcapitalization?" Tags="&lt;value&gt;&lt;accounting&gt;&lt;capital-structure&gt;" AnswerCount="2" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="5182" PostTypeId="2" ParentId="5181" CreationDate="2015-04-18T14:59:06.143" Score="2" Body="&lt;p&gt;A firm's Output $Y$ (in &lt;em&gt;value-added&lt;/em&gt; terms, i.e. over and above the value of purchases of third-party services and materials) is distributed as reward to the factors of production. Denote $K$ the &lt;em&gt;book value&lt;/em&gt; of the company's assets.  Use the standard notation $L$ for payments to the labor/human capital input to production. Denote $r$  the capital rate of return as measured with respect to the book value of firm's capital and denote $w$ the average remuneration of human capital services. Then we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Y = rK + wL$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Depending on the market, the industry, and a few other things, we can estimate  $r^*$, the rate of return that the firm &quot;should&quot; have on average, if it should be judged as an efficient user of capital allocated to it, for given output and human capital costs. $r^*$ is usually estimated by what are the returns on the market and the industry (we do not go outside the industry since we recognize the existence of &quot;asset specificity&quot;). Associated with $r^*$ goes the efficient level of capital, $K^*$. So we also have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Y = r^*K^* + wL$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;leading to &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$rK = r^*K^*  \implies r = r^*\frac {K^*}{K}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we have that &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$r &amp;lt; r^* \implies r^*\frac {K^*}{K} &amp;lt; r^* \implies K^* &amp;lt; K$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and we can say with some certainty that the inequality does not show a tendency to change in the near future, then we can argue that the company does not make efficient use of the current amount of capital it appears to have, either due to &quot;functional inefficiency&quot; (how things are organized and work inside the company and in the delivery of of its business, a qualitative aspect), or due to plain under-utilization of the existing capital (a quantitative aspect).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &quot;over-capitalization&quot; story essentially assumes &quot;functional efficiency&quot; but it sees under-utilization of capital, and so it advocates the reduction of the capital/assets currently under the control of the company.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To measure it we have the relation ($K_E=$ Excess Capital)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ K_E = K - K^* = K- \frac {r}{r^*}K = \left (1-\frac {r}{r^*}\right)K$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$r$ and $K$ is measured from the firms financial statement, while $r^*$ from Industry weighted averages.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-04-18T23:55:42.703" LastActivityDate="2015-04-18T23:55:42.703" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5183" PostTypeId="1" CreationDate="2015-04-19T00:35:30.853" Score="2" ViewCount="3573" Body="&lt;p&gt;I understand that there are two common applications of Lagrangian multipliers in consumer theory: the utility maximization problem (UMP) ans the expenditure minimization problem (EMP). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;These seem like the same problem to me but with different parameters being the focus. Why does my professor emphasize the importance of duality between these theories? I don't understand why both are needed. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;my question:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To what extent are the UMP and EMP different economic ideas/problems as opposed to just simply being a different way of mathematically stating the same thing? &lt;/p&gt;&#xA;" OwnerUserId="2679" LastActivityDate="2015-04-19T10:08:20.373" Title="Why do we need both the UMP and the EMP?" Tags="&lt;consumer-theory&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5184" PostTypeId="1" AcceptedAnswerId="5265" CreationDate="2015-04-19T00:42:05.947" Score="3" ViewCount="7612" Body="&lt;p&gt;If a GDP deflator is continually greater than 100%, does that mean inflation is still occuring?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the difference in deflators from year to year is continually greater than 1%, does that mean inflation is occuring at a greater and greater rate? &lt;/p&gt;&#xA;" OwnerUserId="4471" LastActivityDate="2015-04-23T00:23:03.733" Title="If a GDP deflator is continually greater than 100%, does that mean inflation is still occuring?" Tags="&lt;gdp&gt;&lt;inflation&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5185" PostTypeId="1" AcceptedAnswerId="5186" CreationDate="2015-04-19T01:33:52.353" Score="0" ViewCount="66" Body="&lt;p&gt;My professor says the expenditure function and the indirect utility function are inverses of each other. But how is this possible? Consider each.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$v:(p_x,p_y,m) \rightarrow \Bbb{R}$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$e:(p_x,p_y,\bar{U}) \rightarrow \Bbb{R}$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;These are both mappings from $\Bbb{R^3}\rightarrow \Bbb{R}$. How can one be the inverse of the other? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Only if one was a scalar field and the other a vector field would this work.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My Question:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is the relationship between the expenditure minimization function and the indirect utility function? &lt;/p&gt;&#xA;" OwnerUserId="2679" LastActivityDate="2015-04-19T05:56:10.817" Title="Is the implicit function theorem needed to relate the EMP to UMP?" Tags="&lt;consumer-theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5186" PostTypeId="2" ParentId="5185" CreationDate="2015-04-19T05:56:10.817" Score="2" Body="&lt;p&gt;Fix prices at some arbitrary positive values $p_x^0,p_y^0$ and view the functions $v$ and $e$ as $v:\mathbb{R}\rightarrow \mathbb{R}$ and $e:\mathbb{R}\rightarrow \mathbb{R}$. Then they are inverses.&lt;/p&gt;&#xA;" OwnerUserId="4445" LastActivityDate="2015-04-19T05:56:10.817" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="5187" PostTypeId="2" ParentId="5183" CreationDate="2015-04-19T06:02:04.940" Score="1" Body="&lt;p&gt;The optimal solutions of UMP and EMP have different uses. EMP leads to welfare analysis for example: compensating variation and equivalent variation use the expenditure function. UMP gives the optimal consumption bundle and allows wealth effects to be studied. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Duality is useful in advanced optimization. Your current UMP and EMP study is a simple introduction to it.&lt;/p&gt;&#xA;" OwnerUserId="4445" LastActivityDate="2015-04-19T06:02:04.940" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5188" PostTypeId="1" CreationDate="2015-04-19T09:11:33.393" Score="6" ViewCount="101" Body="&lt;p&gt;&lt;strong&gt;UPDATE&lt;/strong&gt;&lt;br&gt;&#xA;&lt;em&gt;I was not thinking straight anymore and got totally confused after working hours on my equations. The point is, I have an unstable system, but I force it on the stable path. After realizing that crucial point everything made perfect sense.&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Problem&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;(I fixed some major errors)&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm having a two dimensional system with dynamics&#xA;\begin{align}&#xA;\dot{k} &amp;amp;= \frac{1}{1+\frac{1}{\rho}} - \frac{1}{1+\lambda}\\&#xA;\dot{\lambda} &amp;amp;= \rho\lambda - \frac{1}{k}.&#xA;\end{align}&#xA;Where $k\in[0,2]$ is the state, and $\lambda$ the costate. There is a (symmetric) fixed point $E(\tilde{k},\tilde{\lambda})$ at $\tilde{\lambda} = \frac{1}{k\rho}$ which yields $\tilde{k}=1$. The Jacobian at the fixed point is given by&#xA;\begin{align}&#xA;J_E = \begin{bmatrix}0,&amp;amp; \frac{1}{\left(\frac{1}{\rho}+1\right)^2}\\&#xA;1,&amp;amp; \rho\end{bmatrix}_E&#xA;\end{align}&#xA;I get two eigenvalues which are opposite in sign&#xA;\begin{align}&#xA;(\mu_1,\mu_2)=\left(\frac{p(p + \sqrt{p^2 + 2p + 5}+ 1}{2(p + 1)},\frac{p(p - \sqrt{p^2 + 2p + 5}+ 1}{2(p + 1)}\right)&#xA;\end{align}&#xA;where $\rho\in\mathbb{R}_{++}$ (time preference rate). The first eigenvalue is always positive ($\mu_1&amp;gt;0$) and the second one is always negative ($\mu_2&amp;lt;0$). So it is an unstable saddle,right? Nonetheless the system is stable. How is that possible, cause I used to think that it must be unstable?  The image shows the evolution of the state and the control which is a function of the costate. ($\rho = 0.05$)&#xA;&lt;img src=&quot;https://i.stack.imgur.com/jy5OO.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For reference I add figures with $\rho=2,5$. &#xA;The first one seems to converge to a different fixed point $k&amp;lt;1$ (I didn't solve for that one, cause I deal with a symmetric situation; I think there are three in total).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/MLV6T.png&quot; alt=&quot;enter image description here&quot;&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And the second picture shows a strange attractor? Which I actually quite like cause of its chaotic stability. For $k\in[0,3]$ the policy function $\tau_1(k)$ is quite weird.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/Mp4uf.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;" OwnerUserId="4266" LastEditorUserId="61" LastEditDate="2015-04-21T15:48:15.357" LastActivityDate="2015-04-21T15:48:15.357" Title="Real Positive Eigenvalue, but Stable Dynamics" Tags="&lt;steady-state&gt;" AnswerCount="2" CommentCount="3" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="5189" PostTypeId="2" ParentId="5183" CreationDate="2015-04-19T10:08:20.373" Score="2" Body="&lt;p&gt;The solutions of UMP and EMP only coincide if certain conditions such as monotonicity of preferences is met. Hence they are different problems.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Duality is important because the Lagrangian multipliers frequently have an economic meaning. In the UMP the Lagrangian multiplier of the budget constraint is equal to the marginal utility of money.&#xA;In the EMP the Lagrangian multiplier of the budget constraint is equal to the marginal cost of utility.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the EMP you can easily replace the consumer with a corporation deciding what inputs to use to create an output. In this case the Lagrangian multiplier would show the marginal cost of output.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a similar way you could also alter the UMP to a problem where a corporation has to decide between some kinds of outputs and is trying to allocate resources in a way that will maximize profits. (E.g.: There are $m$ amount of man-hours and several kind of projects that can be taken on.)&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2015-04-19T10:08:20.373" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5190" PostTypeId="1" CreationDate="2015-04-19T12:44:54.043" Score="1" ViewCount="9454" Body="&lt;p&gt;The demand function of a monopolist is $q = 12 - p$ where $p$ is the price. Using the total cost and total revenue I was trying to calculate the optimal (short term) level of production.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I tried to solve it using the total revenue $r = p x$. Then I calculated the marginal revenue (the derivative of total revenue) and set it to $0$.&#xA;Then I got $p = 6$ and $x = 6$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, I never used the cost function, what did I do wrong?&lt;/p&gt;&#xA;" OwnerUserId="4428" LastEditorUserId="120" LastEditDate="2015-04-19T13:22:44.313" LastActivityDate="2015-04-19T13:40:47.293" Title="what is the optimum level of production?" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="5191" PostTypeId="2" ParentId="5188" CreationDate="2015-04-19T12:48:08.083" Score="2" Body="&lt;p&gt;If you have are trying to discretize the continuous time model&#xA;$$&#xA;\dot{\textbf{x}} = A\textbf{x},&#xA;$$&#xA;then in discrete time you will have&#xA;$$&#xA;\textbf{x}_{t+1} = B \textbf{x}_t&#xA;$$&#xA;but $A\neq B$, since $A$ describes the change in $\textbf{x}$ while $B$ describes the next value of $\textbf{x}$, not just the change. However&#xA;$$&#xA;\Delta\textbf{x}_t = \textbf{x}_{t+1} - \textbf{x}_t = B \textbf{x}_t - \textbf{x}_t = (B-I) \textbf{x}_t&#xA;$$&#xA;This new matrix $B-I$ would correspond to $A$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(From this you can also see why the stability criterion is different.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given your equations&#xA;\begin{eqnarray*}&#xA;\dot{k} &amp;amp; = &amp;amp;  \frac{1}{1+\frac{1}{\rho}} - \frac{1}{1+\lambda} \\&#xA;\\&#xA;\dot{\lambda} &amp;amp; = &amp;amp;  \rho \lambda - \frac{1}{k}&#xA;\end{eqnarray*}&#xA;the equations for the discrete modell would be&#xA;\begin{eqnarray*}&#xA;k_{t+1} &amp;amp; = &amp;amp;  k_t + \frac{1}{1+\frac{1}{\rho}} - \frac{1}{1+\lambda_t} \\&#xA;\\&#xA;\lambda_{t+1} &amp;amp; = &amp;amp;  \lambda_t + \rho \lambda_t - \frac{1}{k_t}.&#xA;\end{eqnarray*}&#xA;You will have to calculate the Jacobian of this system to determine stability.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2015-04-21T11:05:57.400" LastActivityDate="2015-04-21T11:05:57.400" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="5192" PostTypeId="2" ParentId="5190" CreationDate="2015-04-19T13:40:47.293" Score="1" Body="&lt;p&gt;Try to think about what the the optimal level of production is supposed to be. What should it maximize? The revenue?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What you have calculated is the revenue maximizing level of production but maybe you wanted to find a level of production that maximizes something different?&lt;/p&gt;&#xA;" OwnerUserId="120" LastActivityDate="2015-04-19T13:40:47.293" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5193" PostTypeId="1" CreationDate="2015-04-19T14:03:55.680" Score="4" ViewCount="124" Body="&lt;p&gt;&lt;a href=&quot;http://www.nber.org/papers/w20273&quot; rel=&quot;nofollow noreferrer&quot;&gt;Kroft et al&lt;/a&gt; document the raise of long-term unemployed in the US during the recent crises. This is an impressive figure from their paper:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/5YUmk.png&quot; alt=&quot;Time Series: unemployment rates&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;They show that the raise does not come from compositional effects. However, they cannot find &lt;em&gt;the&lt;/em&gt; reason for this phenomenon. For some reason, apparently, long-term unemployed are less likely to find a job, and hence their stock accumulates.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Potential reasons I could think of are&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Human capital deterioration &lt;/li&gt;&#xA;&lt;li&gt;Discrimination of employers&lt;/li&gt;&#xA;&lt;li&gt;Shrinking motivation of searching &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;What other reasons does the &lt;strong&gt;literature&lt;/strong&gt; find? Is there &lt;strong&gt;empirical support&lt;/strong&gt; for any of this?&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2015-05-04T18:31:17.750" LastActivityDate="2015-05-05T14:55:58.597" Title="Reasons for the recent rise in long-term unemployment" Tags="&lt;macroeconomics&gt;&lt;reference-request&gt;&lt;labor-economics&gt;&lt;unemployment&gt;&lt;empirical-evidence&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5194" PostTypeId="2" ParentId="5193" CreationDate="2015-04-19T14:41:15.527" Score="1" Body="&lt;p&gt;I would &quot;advise&quot; to wait... a few more years! From the figure you provided, there is a perhaps slow but visible rising trend (with business-cycles-like &quot;seasonality&quot;) for both the long-term and the mid-term unemployment rate, a fairly stable trend in terms of steepness over 60 years. The sudden peak of long term unemployment in 2009 is impressive but it also fell sharply in the next three years. To me, it appears &lt;em&gt;critical&lt;/em&gt; to know the unemployment rates for the next four-five years, in order to decide whether we have a structural break with the historical rising trend becoming more steep, or just a few-years-incident due to the crisis.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-04-19T14:41:15.527" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5195" PostTypeId="1" AcceptedAnswerId="5196" CreationDate="2015-04-19T14:44:58.503" Score="2" ViewCount="856" Body="&lt;p&gt;I have been trying to work this out for quite a while now, but I can't seem to understand how to solve these kind of questions. Any help (or hint) would be highly appreciated. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Professor Goodheart's colleague Dr. Kremepu gives 3 midterm exams. He drops the lowest and gives each student her average score on the other two exams. Polly Sigh is taking his course and has a 60 on her first exam. Let $x_2$ be her score on the second exam and $x_3$ be her score on the third exam. If we draw her indifference curves for scores on the second and third exams with $x_2$ represented by the horizontal axis and $x_3$ represented by the vertical axis, then her indifference&#xA;curve through the point ($x_2; x_3$) = (50; 70) is:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;L-shaped with a kink where $x_2 = x_3$.&lt;/li&gt;&#xA;&lt;li&gt;three line segments, one vertical, one horizontal, and one running from (70; 60) to (60; 70).&lt;/li&gt;&#xA;&lt;li&gt;a straight line, running from (0; 120) to (120; 0).&lt;/li&gt;&#xA;&lt;li&gt;three line segments, one vertical, one horizontal, and one running from (70; 50) to (50; 70).&lt;/li&gt;&#xA;&lt;li&gt;a V-shaped curve with its point at (50; 70).&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="4253" LastActivityDate="2015-04-19T15:59:17.193" Title="Deriving indifference curves" Tags="&lt;microeconomics&gt;&lt;preferences&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5196" PostTypeId="2" ParentId="5195" CreationDate="2015-04-19T15:59:17.193" Score="3" Body="&lt;p&gt;The Utility function here is the average score that Polly gets i.e.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$U(x_2,x_3)=\frac{max\{x_2,x_3,60\}+max^2\{x_2,x_3,60\}}{2}\\$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where: $max^2\{.\}$ stands for second highest number.&#xA;Now this utility function can be rewritten as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$U(x_2,x_3)= \begin{cases}\frac{x_2+x_3}{2}, &amp;amp; \text{ if } x_2,x_3\geq 60,\\ \frac{60+x_3}{2}, &amp;amp; \text{ if } x_2&amp;lt;60, x_3&amp;gt;x_2,\\ \frac{60+x_2}{2}, &amp;amp; \text{ if } x_3&amp;lt;60,x_3&amp;lt;x_2,\\ \frac{60+k}{2}, &amp;amp; \text{ if } k&amp;lt;60,x_3=x_2=k.\\ &#xA;\end{cases}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Plotting its level curve i.e. the IC for utility level $c$ would be a horizontal line from point $(0,2c-60)$ to $(60,2c-60)$, a vertical line from point $(2c-60,0)$ to $(60,2c-60)$ and a line from $(60,2c-60)$ to $(2c-60,60)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So if $(x_2,x_3)=(50,70)$ option 2 satisfies the IC's description.&lt;/p&gt;&#xA;" OwnerUserId="4474" LastActivityDate="2015-04-19T15:59:17.193" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5197" PostTypeId="1" AcceptedAnswerId="12866" CreationDate="2015-04-19T20:10:06.970" Score="2" ViewCount="371" Body="&lt;p&gt;China is labelled by some to be a 'currency manipulator', that is supposedly pegged to the US Dollar. What is the difference between currency manipulation and a fixed regime?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Different motives?&lt;/strong&gt;&#xA;I figure that it may be that a textbook fixed regime is undertaken to prevent instability, and is minor (just to correct volatility), whereas manipulation is done with the aim of gaining an unfair advantage.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Different means?&lt;/strong&gt;&#xA;I have also read that it could be due to the fact that a manipulator creates domestic base money with which it can buy currency, without sterilisation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Legality?&lt;/strong&gt; BVJ below makes an interesting comment about the legality of the two... is there a &lt;em&gt;legal framework&lt;/em&gt; in which some forms of fixed currency maintenance are allowed and some not?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Could anyone please clarify? Thanks.&lt;/p&gt;&#xA;" OwnerUserId="4475" LastEditorUserId="4475" LastEditDate="2015-04-20T19:25:43.640" LastActivityDate="2016-07-28T03:06:39.293" Title="What is the difference between currency manipulation, and a fixed exchange rate regime?" Tags="&lt;macroeconomics&gt;&lt;currency&gt;&lt;exchange-rates&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5198" PostTypeId="1" CreationDate="2015-04-19T22:23:11.627" Score="2" ViewCount="30" Body="&lt;p&gt;The &lt;strong&gt;AIIB&lt;/strong&gt; is the Asian Infrastructure Investment Bank. It's an international financial institution proposed by China. Almost all Asian countries have joined and a lot of European countries. &lt;a href=&quot;http://en.m.wikipedia.org/wiki/Asian_Infrastructure_Investment_Bank&quot; rel=&quot;nofollow&quot;&gt;Here is the link to the Wikipedia page&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question: How come Japan is not part of the AIIB ? Why are all the countries of North America against it ?&lt;/p&gt;&#xA;" OwnerUserId="4476" LastEditorUserId="61" LastEditDate="2015-04-22T02:15:44.333" LastActivityDate="2015-04-22T02:15:44.333" Title="The new AIIB, Japan and America" Tags="&lt;international-economics&gt;&lt;political-economy&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5199" PostTypeId="1" CreationDate="2015-04-19T22:38:28.190" Score="6" ViewCount="75" Body="&lt;p&gt;I recently watched S02E01 of Silicon Valley. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In it, having demonstrated a breakthrough algorithm, the guys are pursued by investors with increasing funding offers. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, the founder is warned with a higher valuation, there are higher expectations of performance, and that this may make it harder for to get funding in the future when the company is more mature. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://mashable.com/2015/04/12/silicon-valley-season-2-premiere-recap/&quot; rel=&quot;nofollow&quot;&gt;See this Mashable article for a summary of the episode.&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Her offer? \$20 million at a \$100 million valuation.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Naturally, Richard jumps at the opportunity, but Monica warns him&#xA;  against taking it to avoid a runaway valuation and potential for a&#xA;  future down round. After some initial resistance, Richard comes&#xA;  around, and decides to make Laurie a counteroffer she can't refuse:&#xA;  \$10 million at a \$50 million valuation.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The question is, is this a genuine dilemma for start ups, or is the rational decision always to 'take as much money as you can'?&lt;/p&gt;&#xA;" OwnerUserId="96" LastEditorUserId="43" LastEditDate="2015-07-18T15:30:12.177" LastActivityDate="2015-07-18T21:24:53.230" Title="Is over-valuation of a start up genuinely detrimental to the start up's future?" Tags="&lt;asset-pricing&gt;&lt;investment&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5203" PostTypeId="1" CreationDate="2015-04-20T00:53:14.377" Score="0" ViewCount="231" Body="&lt;p&gt;Principal is interested in buying lake. The revenues of operating the lake as a camping site are determined by the weather (a random parameter $w$ distributed uniformly on $[0, 1]$) and by the development programme $d$. The revenue function is $wd$, the cost of development is $(d^2-1)/2$ and the agent outside option is $x&amp;gt;0$. Principal needs to specify a contract paying the agent an amount $π$ (if the site produces revenue $R$, the principal gets $R-π$ and the agent get $π$). Suppose that the agent have to accept or reject the contract before observing $w$, but choose the development programme after observing it. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;First assume that the principal can observe the revenue $R$ but cannot separately observe $d$ or $w$. You may assume that the contract takes the form $π = aR$ where $a$ is a (not necessarily positive) parameter. Find the agent optimal development as a function of $a$, $x$ and $R$, and use this to compute the value of $a$ that maximises the investor’s expected utility. Also, find the optimised expected value of the lake as a function of $x$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Need help solving this I don't want solution but just guidelines. First time on stack exchange so please ignore if I am breaking any rules while asking this question. I am struggling with how to form expected payoffs for agent and principal separately help will be appreciated thanks. As far as off topic is concern I think mechanism design is economic topic although little focused on but it is pure financial economics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;should agent expected payoff be $$\int_0^1 {[awd-(d^2-1)/2] dw} $$ and principal expected payoff be $$\int_0^1 {[wd-awd] dw} $$&lt;/p&gt;&#xA;" OwnerUserId="4480" LastEditorUserId="4481" LastEditDate="2015-04-23T15:59:31.710" LastActivityDate="2015-04-25T16:21:38.650" Title="Principal agent question" Tags="&lt;contract-theory&gt;&lt;principal-agent&gt;" AnswerCount="0" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5204" PostTypeId="1" AcceptedAnswerId="5213" CreationDate="2015-04-20T02:40:16.457" Score="3" ViewCount="4410" Body="&lt;p&gt;What is the difference between constant elasticity of substitution and elasticity of substitution? Are these formulas related? How are they different concepts? &lt;strong&gt;I just did a whole problem set involving these and got the right answers. But my thought process was all math. I don't feel like I understand them economically. And that's what I want explained.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By CES, I mean&#xA;$$U(x,y) = A \left(\alpha x^{-\rho} + (1-\alpha) y^{-\rho}\right)^{-\frac{1}{\rho}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By ES, I mean &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\sigma = \frac{\mathrm{d}\log \left(\frac{x}{y}\right)}{\mathrm{d}\log \left(\frac{U_y}{U_x}\right)}$$&lt;/p&gt;&#xA;" OwnerUserId="2679" LastEditorUserId="2679" LastEditDate="2015-04-20T03:54:44.037" LastActivityDate="2015-04-20T14:07:59.507" Title="What is the difference between constant elasticity of substitution and elasticity of substitution?" Tags="&lt;elasticity&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5205" PostTypeId="2" ParentId="5204" CreationDate="2015-04-20T03:47:53.347" Score="2" Body="&lt;p&gt;Elasticity of substitution is a property of a function, like slope or curvature. Constant elasticity of substitution means that this property has the same value at all arguments of the function.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are many explanations of the elasticity of substitution online, e.g. &lt;a href=&quot;http://en.wikipedia.org/wiki/Elasticity_of_substitution&quot; rel=&quot;nofollow&quot;&gt;http://en.wikipedia.org/wiki/Elasticity_of_substitution&lt;/a&gt;&#xA;If after reading these, you are still confused, you can ask a more specific question.&lt;/p&gt;&#xA;" OwnerUserId="4445" LastActivityDate="2015-04-20T03:47:53.347" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5206" PostTypeId="1" CreationDate="2015-04-20T04:52:37.597" Score="7" ViewCount="700" Body="&lt;p&gt;While I was studying eighth edition of Mankiw's Macroeconomics, in chapter 9 on Economic Growth(pg. 245), the author mentions :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&quot;Some economists have proposed increasing the incentive to save by replacing the current system of income taxation with a system of consumption taxation.&quot;&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here, the book was discussing on the topic of government policies that affect rate of saving and spur growth. My question is that doesn't this finding contradicts with &lt;strong&gt;Second Welfare Theorem&lt;/strong&gt; in Microeconomics, according to which, the taxation should be on endowments and not on consumption goods so that we can have Pareto Efficient allocation(refer Varian's Intermediate Microeconomics eighth edition Ch. 31, pg 605)? Or am I wrong in superimposing the micro concept over macro?&lt;/p&gt;&#xA;" OwnerUserId="4345" LastEditorUserId="4345" LastEditDate="2015-04-20T06:14:20.150" LastActivityDate="2015-04-21T23:13:02.700" Title="on economic growth and Second Welfare theorem" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;economic-growth&gt;&lt;welfare&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5207" PostTypeId="2" ParentId="5181" CreationDate="2015-04-20T07:00:13.200" Score="1" Body="&lt;p&gt;I don't think the term is very well defined. I think it depends on the context. I have maybe two possibilities. I'll try to provide references with each.&lt;/p&gt;&#xA;&lt;h1&gt;Possible Definition 1&lt;/h1&gt;&#xA;&lt;p&gt;The first coincides with @Alecos' answer. The following is taken from the beginning of &amp;quot;&lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/0165176584901575&quot; rel=&quot;nofollow noreferrer&quot;&gt;The Over-Capitalization Effect with Diversification and Cross Subsidization&lt;/a&gt;,&amp;quot; by Rozek, published in the journal &lt;em&gt;Economic Letters&lt;/em&gt;:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;A basic component of the theory of regulation is the model developed&#xA;by Averch and Johnson (1962). The main result is that a monopolist,&#xA;subject to a rate of return constraint, will select a larger capital-labor&#xA;ratio than the one that minimizes costs for the output level it decides to&#xA;produce. This result is known as the over-capitalization or A-J effect. A&#xA;crucial assumption in this model is that the allowed rate of return is&#xA;greater than the market cost of capital. If the reverse is true, the regulated&#xA;monopolist will actually under-capitalize.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;h1&gt;Possible Definition 2&lt;/h1&gt;&#xA;&lt;p&gt;The second possible definition coincides with &lt;a href=&quot;http://www.investopedia.com/terms/o/overcapitalization.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;the definition given on &lt;em&gt;Investopedia.com&lt;/em&gt;&lt;/a&gt;.&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;When a company has issued more debt and equity than its assets are worth. An overcapitalized company might be paying more than it needs to in interest and dividends. Reducing debt, buying back shares and restructuring the company are possible solutions to this problem. ... The opposite of overcapitalization is undercapitalization, which occurs when a company has neither the cash flow nor the access to credit that it needs to finance its operations. Undercapitalization most commonly occurs in companies with high start-up costs, too much debt and/or insufficient cash flow and can ultimately lead to bankruptcy.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Whereas the first definition was one that dealt with efficient use of inputs of production this second definition deals more with capital structure in the corporate finance literature.&lt;/p&gt;&#xA;&lt;p&gt;This reminds me of the &amp;quot;free cash flow problem.&amp;quot; This is an agency problem described in the corporate finance literature that arises in cash-rich firms. I'm assuming that over-capitalization can refer to this situation. That is, they have more cash than is needed to finance their operations. Here is a basic description of the free cash flow problem, given in &lt;a href=&quot;https://rads.stackoverflow.com/amzn/click/com/0691125562&quot; rel=&quot;nofollow noreferrer&quot; rel=&quot;nofollow noreferrer&quot;&gt;Jean Tirole's book &lt;em&gt;The Theory of Corporate Finance&lt;/em&gt;&lt;/a&gt;:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Following Easterbrook (1984) and Jensen (1986,&#xA;1989), Section 5.6 focuses on cash-rich firms, defined&#xA;as firms with cash inflows exceeding their efficient&#xA;reinvestment needs or opportunities. Such&#xA;firms have excess liquidity that must be “pumped&#xA;out” in order not to be used on wasteful projects,&#xA;unwarranted diversifications, perks, and so forth.&#xA;Jensen’s (1989) list of industries with potential free cash-&#xA;flow problems includes steel, chemical, television&#xA;and radio broadcasting, brewing, tobacco, and&#xA;wood and paper products.&#xA;Overall, the liquidity-shortage and free-cash-flow&#xA;problems are two sides of the same coin. The key&#xA;issue in the design of long-term financing is to ensure&#xA;that, at intermediate stages, the right amount&#xA;of money is available for the payment of operating&#xA;expenses and for reinvestment and the right amount&#xA;is paid out to investors. Whether this results in a net&#xA;inflow (the liquidity-shortage case) or outflow (the&#xA;free-cash-flow case) is important for the comprehension&#xA;of corporate financing, but is a pure convention&#xA;as far as economic principles are concerned. And,&#xA;indeed, we merely reinterpret the liquidity-shortage&#xA;model in order to obtain its flip side, the free-cashflow&#xA;model.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="59" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2015-04-20T07:00:13.200" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="5208" PostTypeId="1" AcceptedAnswerId="5223" CreationDate="2015-04-20T07:09:38.030" Score="6" ViewCount="4568" Body="&lt;p&gt;Earlier I studied macroeconomics from Blanchard. But now while reading Mankiw's Macroeconomics I found different definition for natural rate of unemployment. According to Blanchard,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&quot;the rate of unemployment (and by implication the level of output) that prevails if the price level and the expected price level are equal.&quot;&lt;/strong&gt; (pg. 135, sixth edition) and&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&quot;The natural rate of unemployment is the rate of unemployment required to keep the inflation rate constant.&quot;&lt;/strong&gt; (pg. 170, sixth edition)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But according to Mankiw,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&quot;The natural rate is the rate of unemployment toward which the economy gravitates in the long run, given all the labor-market imperfections that impede workers from instantly finding jobs.&quot;&lt;/strong&gt;(pg. 177. eighth edition),&lt;strong&gt;i.e., where unemployment rate reaches steady-state, it neither increases or decreases, where rate of job finding is equal to rate of job separation.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is the common ground between all these definitions? Are they different or essentially the same? If so, then how?&lt;/p&gt;&#xA;" OwnerUserId="4345" LastActivityDate="2015-04-21T10:50:00.210" Title="Right definition of natural rate of unemployment?" Tags="&lt;macroeconomics&gt;&lt;natural-rate-unemployment&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5209" PostTypeId="2" ParentId="5208" CreationDate="2015-04-20T12:22:25.573" Score="1" Body="&lt;p&gt;In the Blanchard book itself, when discussing the WS-PS model there is also a definition similar to that given in Mankiw. Relating to the first definition you gave, in the long run expectations adapt and expected and observed price levels match. That relates the first and third definition. The second definition goes through the definition of the Phillips curve if I am mot mistaken and again has to do with expected and seen prices matching.&lt;/p&gt;&#xA;" OwnerUserId="4434" LastActivityDate="2015-04-20T12:22:25.573" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5210" PostTypeId="2" ParentId="5208" CreationDate="2015-04-20T12:51:52.637" Score="4" Body="&lt;p&gt;One definition of the natural rate of unemployment is the &lt;a href=&quot;http://en.wikipedia.org/wiki/NAIRU&quot; rel=&quot;nofollow&quot;&gt;NAIRU&lt;/a&gt;: non-accelerating-inflation rate of unemployment. The classic story of the money illusion and unemployment works like this: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Both Friedman and Phelps argued that the government could not&#xA;  permanently trade higher inflation for lower unemployment. Imagine&#xA;  that unemployment is at the natural rate. The real wage is constant:&#xA;  workers who expect a given rate of price inflation insist that their&#xA;  wages increase at the same rate to prevent the erosion of their&#xA;  purchasing power. Now, imagine that the government uses expansionary&#xA;  monetary or fiscal policy in an attempt to lower unemployment below&#xA;  its natural rate. The resulting increase in demand encourages firms to&#xA;  raise their prices faster than workers had anticipated. With higher&#xA;  revenues, firms are willing to employ more workers at the old wage&#xA;  rates and even to raise those rates somewhat. &lt;strong&gt;For a short time,&#xA;  workers suffer from what economists call money illusion: they see that&#xA;  their money wages have risen and willingly supply more labor. Thus,&#xA;  the unemployment rate falls. They do not realize right away that their&#xA;  purchasing power has fallen because prices have risen more rapidly&#xA;  than they expected. But, over time, as workers come to anticipate&#xA;  higher rates of price inflation, they supply less labor and insist on&#xA;  increases in wages that keep up with inflation. The real wage is&#xA;  restored to its old level, and the unemployment rate returns to the&#xA;  natural rate. But the price inflation and wage inflation brought on by&#xA;  expansionary policies continue at the new, higher rates.&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.econlib.org/library/Enc/PhillipsCurve.html&quot; rel=&quot;nofollow&quot;&gt;The Concise Encyclopedia of Economic: Phillips Curve&lt;/a&gt; by Kevin D. Hoover, emphasis mine.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;At first this seems like a Blanchard-type definition. But why it is that the NAIRU takes one value and not another? The answer typically given is like that provided by Mankiw:  labor-market imperfections impeding or incentivizing workers from instantly finding jobs. A decline in unemployment insurance, a reduction in the regulatory costs of firing workers, or a technological improvement in the ability of workers and employers to find each other all could reduce unemployment without altering inflation or inflation expectations. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In my eye, both definitions contribute something important to the idea of a natural rate of unemployment. If labor market frictions are moving around a great deal it is hard to speak of a natural rate of unemployment. If the fiscal or monetary policy authorities are manipulating inflation in a way that is at odds with inflation expectations there similarly is no natural rate of unemployment either. By &quot;gravitates in the long run&quot; I assume that Mankiw doesn't mean convergence. Rather, he means something more like mean reversion. Only when the monetary authority is catering rational expectations of inflation and labor market frictions are broadly stable that a natural rate of unemployment makes sense. It's going to be something more like a long run average rate of unemployment in that economy. &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-04-20T13:48:40.877" LastActivityDate="2015-04-20T13:48:40.877" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5211" PostTypeId="1" AcceptedAnswerId="5212" CreationDate="2015-04-20T13:30:37.357" Score="8" ViewCount="475" Body="&lt;p&gt;From what I understand after reading mainstream media, quantitative easing &lt;strong&gt;increases the supply of money in the economy without direct government spending&lt;/strong&gt; (fiscal policy). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems to have all the benefits of monetary policy (decreasing interest rates), but &lt;em&gt;can still be done with rock-bottom interest rates&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is my understanding correct? What's the downside I'm missing?&lt;/p&gt;&#xA;" OwnerUserId="100" LastEditorUserId="43" LastEditDate="2015-04-20T13:55:36.073" LastActivityDate="2020-06-01T09:29:55.867" Title="What's quantitative easing?" Tags="&lt;monetary-policy&gt;&lt;fiscal-policy&gt;&lt;government&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5212" PostTypeId="2" ParentId="5211" CreationDate="2015-04-20T13:45:47.553" Score="9" Body="&lt;p&gt;Before the edit, you wrote &amp;quot;qualitative easing&amp;quot;, but I think you refer to quantitative easing. I'll discuss both.&lt;/p&gt;&#xA;&lt;h3&gt;Quantitative Easing&lt;/h3&gt;&#xA;&lt;p&gt;Quantitative easing corresponds to the central bank (CB) expanding its balance sheets by &amp;quot;buying&amp;quot; assets. This is typically done in secondary markets. It mainly injects liquidity into the system. To the extent that there is an additional buyer of assets now, the price of assets/investment (interest rates) decreases. However, the quantitative impact &lt;em&gt;should&lt;/em&gt; be negligible: Through its demand, the CB increases value and liquidity in the markets it is operating. However, the scale of its operations should be too small  to affect the aggregate interest rate.&lt;/p&gt;&#xA;&lt;h3&gt;Qualitative Easing&lt;/h3&gt;&#xA;&lt;p&gt;Qualitative easing is a relatively new expression and refers to the riskiness of the stocks that the CB is investing in. In contrast to quantitative easing, which is about the magnitude of assets on the CB's balance sheets, qualitative easing is about the riskiness on the CB's balance sheets, and hence the decrease in aggregate risk (on the banks' balance sheets).&lt;/p&gt;&#xA;&lt;h2&gt;Downsides&lt;/h2&gt;&#xA;&lt;h3&gt;Independence of a central bank&lt;/h3&gt;&#xA;&lt;p&gt;When the CB holds assets, it is interested in their value. This may lead it to commit policies that infract its primary directive (e.g. inflation stability). &lt;em&gt;Even if it does not do so&lt;/em&gt;, effectiveness of a CB comes from its capacity to control expectations. It suffices for households and firms to &lt;em&gt;expect&lt;/em&gt; the CB to commit &amp;quot;&lt;em&gt;bad&lt;/em&gt;&amp;quot; policies, to decrease the effectiveness of the CB.&lt;/p&gt;&#xA;&lt;h3&gt;Number of Goals&lt;/h3&gt;&#xA;&lt;p&gt;I don't have sources on this, but I seem to remember that central banks with one clear goal (i.e. monetary stability) are more effective than those with a basket of goals (i.e. monetary stability, GDP growth, decrease of unemployment rate). A general criticism can be that QE are not operations that help with the important margin, monetary stability - and that the central bank should focus on that instead.&lt;/p&gt;&#xA;&lt;p&gt;Note that these are not just esoteric points. In fact, the academics and central bankers at the &amp;quot;Rethinking Macro Policy&amp;quot; conference agreed that (&lt;a href=&quot;http://blog-imfdirect.imf.org/2015/05/01/ten-take-aways-from-the-rethinking-macro-policy-progress-or-confusion/?hootPostID=1de7242883b321b5960fb910a4dce832&quot; rel=&quot;noreferrer&quot;&gt;quoting Blanchard&lt;/a&gt;)&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Throughout the conference, e.g., in Gill Marcus’ talk, and actually throughout the various meetings which took place during the IMF meetings in the following days, policy makers remarked and complained about the heavy burden placed on monetary policy in this crisis, and the danger of a political backlash against central banks. Even as the crisis recedes, it is clear that central banks will end up with substantially more responsibilities—whether they are given in full or shared—for financial regulation, financial supervision, and the use of macro prudential tools.&lt;/p&gt;&#xA;&lt;p&gt;While even the use of the policy rate has distributional implications, these implications are much more salient in the case of regulation or macro prudential tools, such as the loan-to-value ratio. The general consensus was that these distributional implications could not be ignored, and that while central banks should retain full independence with respect to traditional monetary policy, this cannot be the case for regulation or macro prudential tools.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="43" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2020-06-01T09:29:55.867" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="5213" PostTypeId="2" ParentId="5204" CreationDate="2015-04-20T13:55:00.257" Score="3" Body="&lt;p&gt;Well, you didn't get the math &lt;em&gt;all&lt;/em&gt; right, otherwise you might have seen it yourself! &lt;/p&gt;&#xA;&#xA;&lt;p&gt;By Elasticity of substitution, you &lt;em&gt;should&lt;/em&gt; refer to&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \sigma(x,y) = \frac{\mathrm{d}\log \left(\frac{x}{y}\right)}{\mathrm{d}\log \left(\frac{U_y}{U_x}\right)} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, constant elasticity of substitution is a property of a function $U$ such that for some constant $\bar \sigma$,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \sigma(x,y) = \bar\sigma \, \forall y, x$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That is, the elasticity doesn't depend on $x,y$. What you showed as $U$ is a function that has exactly that feature. If you compute $\sigma(x,y)$ (do it!), you will see that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \sigma(x,y) = \bar\sigma = \frac{1}{1+\rho}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That is, the elasticity of your $U$ function is constant for any allocation. Hence, we refer to that class of function (for different $\rho$) to Constant-Elasticity-of-Substitution-Functions (with share parameters $\alpha$). Cobb-Douglas preferences would be a special (limiting) case of that, with $\sigma(x,y) = 1$&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Example&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;Say, we produce happiness ($U$) with apples ($x$) and oranges ($y$). Lets look at the allocation $\{5,1\}$. We only have one orange, but we would &lt;em&gt;really&lt;/em&gt; want more. Hence, we are willing to give up 2 apples to get one orange, and we would be indifferent:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ U(5,1) = U(3,2)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is &lt;em&gt;very easy&lt;/em&gt; to substitute apples with oranges, we have a high elasticity of substitution. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now look at the allocation $\{1,6\}$. Do you think that you would again be willing to lose $40\%$ of $x$ to get an increase of $50\%$ in $y$? Is it true that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ U(1,6) = U(0.6, 12)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If yes, that means that the elasticity of substitution of $U$ (or my rather handwaving approximation to it) is the same at the two allocations $\{1,6\}$ and $\{5,1\}$. If that was true for &lt;em&gt;all&lt;/em&gt; possible allocations, $U$ was CES.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are some reasons why you would think some preferences are perhaps not CES: For example, if $x$ and $y$ are good complements. Then, when you have little of $x$, you're willing to give up a lot for the other, but that elasticity might decrease the closer you are to equality between the two inputs.&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2015-04-20T14:07:59.507" LastActivityDate="2015-04-20T14:07:59.507" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="5214" PostTypeId="1" AcceptedAnswerId="5216" CreationDate="2015-04-20T14:34:46.990" Score="2" ViewCount="770" Body="&lt;p&gt;In the recent past, both the S&amp;amp;P 500 and the USD (against other currencies) have appreciated a lot.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From what I understand, if USD goes up against other companies, the major companies of the S&amp;amp;P 500 suffer because many of them earn foreign revenue in foreign currencies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, the S&amp;amp;P500 and the USD should have an inverse relationship with each other.&#xA;So how come both S&amp;amp;P 500 and the USD have risen so sharply this year?&lt;/p&gt;&#xA;" OwnerUserId="2879" LastActivityDate="2015-04-21T02:33:05.517" Title="What is the relationship between S&amp;P500 and the US dollar" Tags="&lt;macroeconomics&gt;&lt;currency&gt;&lt;stock-market&gt;&lt;balance-of-trade&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5215" PostTypeId="1" CreationDate="2015-04-20T15:10:07.963" Score="2" ViewCount="1509" Body="&lt;p&gt;&lt;strong&gt;The Statement of the Problem:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $f,g$ be two functions on $\mathbb R^n$ and assume $\nabla f $and$ \nabla g$ are nonzero everywhere. Write the first and second order Langrangian-multiplier conditions for the following two problems:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$(1) \text{ minimize } f(\mathbf x) \text{ subject to constraint } g(\mathbf x)=b $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$(2) \text{ maximize } g(\mathbf x) \text{ subject to constraint } f(\mathbf x)=c  $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given a solution $\mathbf y$ to first and second order conditions for the minimization problem $(1)$, for some value of $b$, set $c=f(\mathbf y)$ and consider the maximization problem $(2)$; when is $\mathbf y$ a solution to this problem as well?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My Questions:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I believe I have the first-order conditions for $(1)$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{\partial \mathcal{L}(\mathbf x)}{\partial x_i} = \frac{\partial f(\mathbf x)}{\partial x_i}-\lambda \frac{\partial g(\mathbf x)}{\partial x_i}=0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But what are the second-order conditions? I know that, in order to minimize $f$, $\mathcal{L}$ must be convex and that the constraint set must be convex, but are those the &quot;second-order conditions&quot;? If so, how do I determine them? By way of bordered Hessians? That doesn't seem right. Anyway, any help here would be appreciated. Thanks!&lt;/p&gt;&#xA;" OwnerUserId="4484" LastEditorUserId="4484" LastEditDate="2015-04-20T17:24:36.590" LastActivityDate="2015-04-20T17:24:36.590" Title="First and Second Order Lagrangian-Multiplier Conditions for Optimization" Tags="&lt;mathematical-economics&gt;&lt;optimization&gt;" AnswerCount="0" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="5216" PostTypeId="2" ParentId="5214" CreationDate="2015-04-20T15:11:22.330" Score="3" Body="&lt;p&gt;You're doing the traditional mistake of people not familiar with Econometrics: You mistake correlation and causality.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You look at a change in the USD, assume it to be exogenous, and then predict an impact onto the S&amp;amp;P. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, changes in the USD are not exogenous. For example, an increase in US productivity (compared to the productivity of firms in other countries) will both increase the S&amp;amp;P and valuate the USD.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For what you're trying to do, you need to separate different effects, which is virtually impossible - or look for random variation in the USD, of which I'm also unfamiliar with.&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-04-20T15:11:22.330" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5217" PostTypeId="1" AcceptedAnswerId="5219" CreationDate="2015-04-20T16:20:07.167" Score="2" ViewCount="640" Body="&lt;p&gt;I was studying threats to internal validity from Stock and Watson's Introduction to Econometrics 2nd edition, chapter 14 Assessing studies based on multiple regression.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The textbook says &quot;hypothesis tests should have the &lt;strong&gt;desired significance level&lt;/strong&gt; (the actual rejection rate of the test under the null hypothesis should equal its desired significance level). and confidence intervals should have the &lt;strong&gt;desired confidence level&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How should I interpret this short paragraph?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I think it means is that the hypothesis tests should have appropriate/not-too-off-tract significance level. But what is desired confidence level? And why does these conditions have to do with threats to internal validity?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Pardon my poor understanding...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks in advance for your help!&lt;/p&gt;&#xA;" OwnerUserId="4485" LastActivityDate="2017-02-06T09:16:12.443" Title="How to interpret &quot;desired significance level&quot;?" Tags="&lt;econometrics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5218" PostTypeId="1" CreationDate="2015-04-20T16:49:43.603" Score="11" ViewCount="291" Body="&lt;p&gt;I am a fledgling computer science researcher working in intersection of economics and computation. Please excuse me if this question seems out of place to the administrator. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am currently studying different pricing models and studying the &quot;optimal&quot; way or price to sell items. I have noticed that on Google Play there are movies which one could rent or buy. Also, for movies for similar popularity I noticed that there is often a huge difference in their price. (about 10 euros). Conventionally, one looks at the valuation distribution for an item. However, that won't explain this difference in cost. There may be issues of purchasing copyrights too. However, more generally, how do companies like Google price these digital items? Do they update these prices regularly based on sale information? Is there any prior work about how can one go about doing this?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am just looking for directions so any help is greatly appreciated.&lt;/p&gt;&#xA;" OwnerUserId="4486" LastActivityDate="2015-05-01T16:02:42.393" Title="How does Google price the items on Google Play?" Tags="&lt;microeconomics&gt;&lt;game-theory&gt;&lt;mechanism-design&gt;&lt;profit-maximization&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5219" PostTypeId="2" ParentId="5217" CreationDate="2015-04-20T17:00:48.537" Score="2" Body="&lt;p&gt;I am not sure what you mean by &quot;appropriate significance level.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Basically how sure you want to be is your choice. A frequently used analogy is the presumption of innocence. You are considered guilty only if this is proven beyond &lt;strong&gt;reasonable&lt;/strong&gt; doubt. But what exactly is reasonable?&#xA;This is for you to decide. If you require very strong evidence then the probability of making a false positive conclusion (Type I error) decreases. But this will increase the probability of making a false negative conclusion (Type II error).&#xA;In the presumption of innocence analogy: If you change the law in a way that will require more evidence for a conviction, you will send fewer innocent people to jail (Type I), but you will also let more guilty ones go (Type II).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The significance level is the probability of a Type I error occuring.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In some situations you can perform a cost benefit analysis. In quality control you may be able to determine the cost of the damage caused by a malfunctioning part and then compare this to the cost of throwing away a properly functioning part. Using these you can actually calculate a cost minimizing significance level. However in other situations this is not feasible, or sometimes not even desirable. Then you have to make your own decision about the significance level.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In econometrics the most frequently used significance levels are 0.1%, 1% and 5%. My understanding is that this is a rule of thumb and there is actually no calculation behind it. (I could be wrong.) &lt;br&gt;&#xA;Given some data you might say that &quot;the findings are significant on the 5% level but not on the 1% level,&quot; or you can simply give the p-value, this is what is usually done.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2017-02-06T09:16:12.443" LastActivityDate="2017-02-06T09:16:12.443" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5220" PostTypeId="1" CreationDate="2015-04-20T17:15:10.460" Score="3" ViewCount="247" Body="&lt;p&gt;This pretty much went over my head:&lt;a href=&quot;http://en.wikipedia.org/wiki/Deflation&quot; rel=&quot;nofollow&quot;&gt;http://en.wikipedia.org/wiki/Deflation&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there something a bit easier to digest than this? For a non econ student?&lt;/p&gt;&#xA;" OwnerUserId="2879" LastEditorUserId="43" LastEditDate="2015-04-20T18:14:41.533" LastActivityDate="2015-04-20T21:13:39.497" Title="Easy to understand explanation of deflation and what causes it" Tags="&lt;reference-request&gt;&lt;deflation&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5221" PostTypeId="2" ParentId="5220" CreationDate="2015-04-20T18:21:00.620" Score="5" Body="&lt;p&gt;Krugman's &lt;a href=&quot;http://www.pkarchive.org/theory/baby.html&quot; rel=&quot;noreferrer&quot;&gt;classic story&lt;/a&gt; of a babysitting co-op never uses the word &quot;deflation&quot; but describes it perfectly. Go read it first.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Basically, if you think of money as a thing that has a price level, just as other things have prices, it's possible to imagine that price level falling relative to other goods (inflation) or doing the reverse (deflation). Inflation is, for some reason, easier for people to understand— it means that if you hold on to a $100 bill for a year, that bill will buy you less stuff next year than it'll buy you right now.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In contrast, if you're in a deflationary world, the money in your wallet will be able to buy more stuff a year from now than it can today, giving you an incentive to hang on to your money and wait to spend it. The problem is, if everyone does that, then the fact that everyone is trying to hold on to cash means that the value of cash continues to go up relative to goods (more deflation), which is known as a liquidity trap.&lt;/p&gt;&#xA;" OwnerUserId="264" LastActivityDate="2015-04-20T18:21:00.620" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5222" PostTypeId="1" AcceptedAnswerId="5224" CreationDate="2015-04-20T18:42:19.837" Score="3" ViewCount="171" Body="&lt;p&gt;Is monetary expansion policy the same as quantitative easing (i.e the buying of US treasuries by Federal reserve which injects more USD into the economy)?&lt;/p&gt;&#xA;" OwnerUserId="2879" LastActivityDate="2015-04-20T20:08:57.097" Title="Is monetary expansion the same as quantitative easing" Tags="&lt;monetary-policy&gt;&lt;federal-reserve&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5223" PostTypeId="2" ParentId="5208" CreationDate="2015-04-20T19:56:47.870" Score="1" Body="&lt;p&gt;&lt;strong&gt;Mankiw's definition&lt;/strong&gt; alludes to a situation where the &lt;em&gt;only&lt;/em&gt; source of unemployment is frictions and imperfections in the labor/human capital market (you could also add inherent rigidities like &quot;specificity&quot; of labor/human capital,  which is the price to pay for specialization). But also, in &quot;imperfections&quot; Mankiw may also include &quot;wage rigidities&quot;.&lt;br&gt;&#xA;We could say that this is the &quot;micro&quot; approach, focused on the special characteristics of the labor/human capital market.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Blanchard's 1st definition&lt;/strong&gt; on the other hand is more &quot;macroeconomic&quot;: it is a perfect-foresight equilibrium state (or maybe a self-fulfilled one). It indirectly says that, whenever (i.e. always) expectations and forecasts on the &lt;em&gt;nominal&lt;/em&gt; magnitudes are not perfect, the &lt;em&gt;real&lt;/em&gt; magnitudes of the economy do not come out exactly as expected, creating variations in, among other things, the unemployment rate. But when we have such an ideal state of perfect foresight, even temporarily, the unemployment observed will be the &quot;natural rate&quot;. Blanchard does not go into &lt;em&gt;why&lt;/em&gt; this &quot;natural rate&quot; is &lt;em&gt;not&lt;/em&gt; zero (presumably, he has in mind the &quot;micro-&quot; approach as an explanation).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So we could say that Mankiw describes the &quot;natural rate&quot; as the rate due to causes over and beyond expectational disequilibrium on nominal magnitudes. On the other hand, Blanchard identifies the natural rate as -...exactly, the rate that will prevail in the absence of expectational disequilibrium on nominal magnitudes (he just doesn't state what other causes create unemployment). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Blanchard second definition is the NAIRU concept clearly explained in @BKay's answer.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-04-21T10:50:00.210" LastActivityDate="2015-04-21T10:50:00.210" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5224" PostTypeId="2" ParentId="5222" CreationDate="2015-04-20T20:08:57.097" Score="3" Body="&lt;p&gt;It is not. Monetary expansion is increasing the money supply (through whatever method). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Quantitative easing increases the money supply / injects liquidity, but  also reduces privately hold stocks (and hence can reduce risks from the banks' balance sheets).&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-04-20T20:08:57.097" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5225" PostTypeId="2" ParentId="5220" CreationDate="2015-04-20T21:13:39.497" Score="1" Body="&lt;p&gt;Deflation is reduction in price level.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How is price level measured? There are many methods, just imagine checking the price of certain things (maybe gasoline, house rent, butter, etc.) every month and see if, on average, the prices have increased or decreased.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If they have decreased then it's price deflation.&#xA;If they have increased then it's price inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What causes it? That's complicated, but certainly everyone (?) would agree that money supply (the amount of money in the system) will affect prices. More money in the system, prices will increase and vice versa. &lt;/p&gt;&#xA;" OwnerUserId="4193" LastActivityDate="2015-04-20T21:13:39.497" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5226" PostTypeId="1" AcceptedAnswerId="5228" CreationDate="2015-04-20T22:16:58.223" Score="3" ViewCount="1396" Body="&lt;p&gt;A utility function in general has only ordinal meaning, any monotone transformation preserves the order isomorphism of the underlying preference ordering. However, there are several econometrics papers, that estimate demand with concavity shape restrictions on the utility. &#xA;Is this justified? &#xA;My first thought is that yes, that the key idea is that there exists a concave utility representation, and this generates the dataset, however it worries me the identification issue since there is infinitely many of these utilities not all of them concave. &#xA;In short, does it make sense to require concavity restrictions on the utility function in econometric work?&lt;/p&gt;&#xA;" OwnerUserId="127" LastActivityDate="2015-04-21T01:32:45.200" Title="Does concavity of the utility function has any bite?" Tags="&lt;microeconomics&gt;&lt;econometrics&gt;&lt;mathematical-economics&gt;&lt;consumer-theory&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5227" PostTypeId="2" ParentId="5226" CreationDate="2015-04-20T22:41:22.410" Score="0" Body="&lt;p&gt;I think that the way marginal utility is frequently used is that there is an assumed unit of measurement. For example if in the utility function&#xA;$$&#xA;U(x,y) = v(x) + y&#xA;$$&#xA;$y$ denotes income spent on other goods then the unit of measurement becomes money, as one unit will always increase the utility by one. In this case $MU_x(x,y)$ is actually $MRS(x,y)$ because $MU_y(x,y) = 1$, so the two are equal. The concavity of $v(x)$ will mean that the preferences w.r.t. $x$ and $y$ are convex. This remains unchanged if you perform monotone transformations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am afraid I cannot give advice on econometric applications.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2015-04-20T22:41:22.410" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5228" PostTypeId="2" ParentId="5226" CreationDate="2015-04-20T23:48:17.327" Score="7" Body="&lt;p&gt;&lt;a href=&quot;https://economics.stackexchange.com/questions/370/when-can-one-safely-talk-about-decreasing-marginal-utility/&quot;&gt;&lt;strong&gt;This post&lt;/strong&gt;&lt;/a&gt; shows clearly why in the world of &quot;standard&quot; ordinal utility, concavity of a utility function cannot obtain an economically meaningful interpretation, although it may be useful as a mathematical property.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;em&gt;But &quot;standard&quot; ordinal utility is not compatible with Econometrics&lt;/em&gt;&lt;/strong&gt;, because Econometrics deal inherently with situations where there exists uncertainty, and in a framework with uncertainty we move from &quot;fully ordinal utility&quot; to &lt;strong&gt;Expected Utility theory, where properties like concavity have economically meaningful content -they express attitude towards risk&lt;/strong&gt; (as well as &quot;preference intensity&quot;, as &lt;a href=&quot;https://economics.stackexchange.com/questions/5142/does-risk-aversion-cause-diminishing-marginal-utility-or-vice-versa/&quot;&gt;&lt;strong&gt;this laborious post&lt;/strong&gt;&lt;/a&gt; shows).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The concavity assumption/restriction is made because there is universal consensus that the vast majority of people exhibit risk aversion in their economic behavior.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-04-21T01:32:45.200" CommentCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="5229" PostTypeId="1" CreationDate="2015-04-21T00:11:12.013" Score="6" ViewCount="2144" Body="&lt;p&gt;I've seen a video on &lt;a href=&quot;https://www.youtube.com/watch?v=QPKKQnijnsM&quot;&gt;wealth distribution on the US&lt;/a&gt; where perceived, &quot;desired&quot;(by the majority) and actual income distributions are shown. I've been thinking what would happen to the purchasing power if such a distribution was attained. How much could the supply increase to balance the huge amounts of money that were just being invested and accumulated and will now be spent on consumer goods? If an inflation would occur, is it possible to estimate it?&lt;/p&gt;&#xA;" OwnerUserId="4490" LastActivityDate="2015-04-22T03:16:22.607" Title="Would a major wealth redistribution cause a major inflation?" Tags="&lt;inflation&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5230" PostTypeId="1" AcceptedAnswerId="5287" CreationDate="2015-04-21T01:00:27.857" Score="6" ViewCount="163" Body="&lt;p&gt;I've been reading a book on a Kaleckian economics model, but there is a recursive function that has been bothering me. Can anyone provide some insight into why the equation why designed like this?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Quote from the book:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;$Y = \min\{aE, uK\} \quad (1.1)$  &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Equation (1.1) denotes the fixed-coefficients production function, where $u$ denotes output; $E$, employment; $K$, capital stock; $a = Y/E$, labor productivity; and $u = Y/K$, the output-capital ratio. In the following analysis, we assume that the capital-potential output ratio is unity. From this, we can regard the output-capital ratio $u = Y/K$ as the capacity utilization rate.$^{4)}$&#xA;  ...&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;$4)$ The capacity utilization rate $u$ is defined as $u = Y/Y^*$, where $Y$ denotes the actual output and $Y^*$ denotes the potential output. The capacity utilization rate is decomposed into $u = (Y/K)(K/Y^*)$, where $K/Y^*$ denotes the capital/potential output ratio and captures the production technology. If we assume that $K/Y^*$ is constant, then $u$ and $Y/K$ change in the same direction. From this, we can regard the output/capital ratio as the capacity utilization rate. In this chapter, for simplicity, we assume that $K/Y^* = 1$. Therefore, we obtain $u = Y/K.$&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I assume $a$ and $u$ are the fixed coefficients. But even if we suppose $uK &amp;lt; aE $ then since $u = Y/K$, we should have $uK = aE$, or is that wrong? If correct, why do we use use the minimum operation?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://books.google.com/books?id=mZtH3gI61KcC&amp;amp;pg=PA20&amp;amp;lpg=PA20&amp;amp;dq=From%20this,%20we%20can%20regard%20the%20output/capital%20ratio%20as%20the%20capacity%20utilization%20rate.%20In%20this%20chapter,%20for%20simplicity,%20we%20assume%20that%20K/Y%E2%88%97%3D1.%20Therefore,%20we%20obtain&amp;amp;source=bl&amp;amp;ots=PlBhuc9Mnd&amp;amp;sig=siMN_IbN4hjYzuMXH3IBP5fkPCo&amp;amp;hl=en&amp;amp;sa=X&amp;amp;ei=sXw4VfnbAdPhoATxp4D4Cw&amp;amp;ved=0CCEQ6AEwAA#v=onepage&amp;amp;q=From%20this%2C%20we%20can%20regard%20the%20output%2Fcapital%20ratio%20as%20the%20capacity%20utilization%20rate.%20In%20this%20chapter%2C%20for%20simplicity%2C%20we%20assume%20that%20K%2FY%E2%88%97%3D1.%20Therefore%2C%20we%20obtain&amp;amp;f=false&quot; rel=&quot;nofollow&quot;&gt;Here&lt;/a&gt; is the digital book. Quote from page 20.&lt;/p&gt;&#xA;" OwnerUserId="4493" LastEditorUserId="4493" LastEditDate="2015-04-23T05:05:38.377" LastActivityDate="2015-04-23T22:20:38.830" Title="A recursive production function" Tags="&lt;mathematical-economics&gt;&lt;economic-growth&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5231" PostTypeId="2" ParentId="5214" CreationDate="2015-04-21T02:33:05.517" Score="1" Body="&lt;p&gt;It really depends on the cause of the change in prices. In basic supply-demand analysis if you see Q going up you don't know whether to expect P to go up too or to fall-it depends on whether Q is changing because of S or D.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here the key is who is pushing up demand for US stocks, Americans or foreigners. The stock market and other U.S. assets will do well while the dollar rises at the same time when there is a rush of capital into the U.S. this often happens during a &quot;flight to safety&quot; or famously during the &quot;global savings glut&quot; of the mid-2000s.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand, if for some reason Americans save more like maybe they set up personal retirement accounts and mandate saving in them, then that will push up the values of stocks (more demand) but some people will buy foreign assets, increasing the supply of dollars to foreigners and pushing down the value.&lt;/p&gt;&#xA;" OwnerUserId="4494" LastActivityDate="2015-04-21T02:33:05.517" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5232" PostTypeId="2" ParentId="5229" CreationDate="2015-04-21T05:02:03.570" Score="4" Body="&lt;p&gt;Inflation is only inflation if supply can't keep up, and if the money supply increases without growing the economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Massive wealth distribution (edit: on a long time scale) would be a huge boost to the economy. Why? All the purchases of consumer goods will increase production of all those goods, which will move through the entire economy causing expansion. Of course there will likely be some inflationary effects but as long as the wealth distribution didn't happen overnight whatever mechanism of distribution is probably going to redistribute slower than what the economy can handle anyway.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you wanted to estimate potential inflationary effects you'd have to figure out the stickiness of production schedules of a basket of consumer goods that the poor would be likely to buy compared to the speed of redistribution.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, it's worth pointing out that a lot of money in equity is 'virtual money'. It doesn't actually exist (or rather, it exists, as long as you don't use too much of it at once). What I mean is, if for example Bill Gates wanted to liquidate half his stock, he would sell the stock at a massive loss to the current market rate and would get a lot less than you would think. The same applies to sales of any equity or land... In theory those assets have the value on paper but you can't just redistribute that form of wealth, it would end up destroying the paper wealth since the buyers wouldn't be able to afford it, and would require the seller to sell at a 'loss'... Forced distribution on a short timescale of large amounts of wealth would result in that wealth being destroyed without any real advantage, because the wealth isn't in actual money. So you could also argue that there would be some deflationary effects due to wealth distribution too!&lt;/p&gt;&#xA;" OwnerUserId="2971" LastEditorUserId="2971" LastEditDate="2015-04-22T03:16:22.607" LastActivityDate="2015-04-22T03:16:22.607" CommentCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="5233" PostTypeId="1" CreationDate="2015-04-21T06:55:56.760" Score="2" ViewCount="788" Body="&lt;p&gt;Walras has available 24 hours per day. He has to alloacate this 24 hours between leisure $(L)$ and work. His utility function depends on leisure and the composite good $(C)$ and is given by $U=LC$. Work pays him a wage of 1 dollar per hour and this is his only income. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is his optimal choice of $L$ and $C$ ?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand that $MRS=C/L$ and it should be equal to the price ratio. Is it 1 or 2?&#xA;I am confused whether budget constraint is $C+L=24-L$ (in this case price ratio is 2). Can someone clarify this?&lt;/p&gt;&#xA;" OwnerUserId="4496" LastEditorUserId="107" LastEditDate="2015-04-22T11:54:44.257" LastActivityDate="2015-04-22T11:54:44.257" Title="labor leisure trade off" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5235" PostTypeId="1" CreationDate="2015-04-21T08:10:10.623" Score="2" ViewCount="66" Body="&lt;p&gt;My labour productivity data for USA and UK show that the &quot;Government services&quot; sector for both countries are below their economies' average.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This trend is observed in the 2000s.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are there any reasons for the low labour productivity in the sector for the 2 countries?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Referring me to some reliable sources will be helpful too.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you&lt;/p&gt;&#xA;" OwnerUserId="4497" LastActivityDate="2015-04-21T13:42:33.453" Title="Why low labour productivity for Govt Services in UK and USA in 2000s?" Tags="&lt;productivity&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5236" PostTypeId="2" ParentId="5206" CreationDate="2015-04-21T08:55:54.997" Score="3" Body="&lt;p&gt;This does not contradict welfare theorems (1st or 2nd), because income tax is a distortionary tax just like consumption taxes. Income tax is a subsidy on the consumption of leisure.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Endowment tax would be a lump-sum tax for each person independent of the person's choices, among others the choice of how much to work, what qualifications to obtain etc. These lump-sum taxes are politically impossible to impose. So discussion of real-life tax issues is partly about which tax is the least distortionary or creates good incentives (distortions in the right direction). Your quote is part of this discussion.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You are not in general wrong in applying a micro concept to macro. &lt;/p&gt;&#xA;" OwnerUserId="4445" LastActivityDate="2015-04-21T08:55:54.997" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5237" PostTypeId="1" AcceptedAnswerId="5239" CreationDate="2015-04-21T11:05:32.230" Score="3" ViewCount="2861" Body="&lt;p&gt;I am going through some micro concepts and I am confused, is there a difference between deriving preferences through indifference curves and actual preferences of the consumers? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question I was going through was: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Jim's utility function is $U(x; y) = xy$. Jerry's utility function is $U(x; y) = 1,000xy + 2, 000.$ Tammy's utility function is $U(x; y) = xy(1-xy)$. Oral's utility function is $-1/(10+xy)$. Billy's utility function is $U(x; y) = x/y$. Pat's utility function is $U(x; y) = -xy$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(a) No two of these people have the same preferences.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(b) They all have the same preferences except for Billy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(c) Jim, Jerry, and Pat all have the same indifference curves, but Jerry and Oral are the only ones with the same preferences as Jim.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(d) Jim, Tammy, and Oral all have the same preferences.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(e) There is no truth in any of the above statements.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The answer apparently is C, which implies that even though Jim, Jerry and Pat have the same indifference curves, The preferences of Pat and Jim are different, while those of Oral and Jim are the same even though they have different indifference curves. How is that possible? &lt;/p&gt;&#xA;" OwnerUserId="4253" LastActivityDate="2017-06-17T09:56:38.643" Title="Indifference curves and preferences?" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;preferences&gt;" AnswerCount="3" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5238" PostTypeId="2" ParentId="5237" CreationDate="2015-04-21T11:16:17.840" Score="1" Body="&lt;p&gt;Perhaps you overlooked something, as I think Oral and Jim do not have different indifference curves.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Pat and Jim do have identical indifference curves, but whereas Jim prefers curves that are 'higher' or 'more to the right' in the x,y coordinate system Pat prefers curves that are 'lower or more to the left'.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An analogy:&#xA;If you would be looking at an &lt;a href=&quot;http://www.volcano.si.edu/volcanoes/region14/nicarag/masaya/14mas02f.png&quot; rel=&quot;nofollow&quot;&gt;altitude map&lt;/a&gt; you cannot tell if one line is higher or lower than the other without additional information. In micro this additional information is the utility value (corresponding to altitude) of the indifference curve.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2015-04-21T11:16:17.840" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5239" PostTypeId="2" ParentId="5237" CreationDate="2015-04-21T12:00:42.907" Score="2" Body="&lt;p&gt;A nerd loves both mathematics and physics equally, and hates sports and drinking beer equally.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A football player hates both mathematics and physics equally, and loves sports and drinking beer equally.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The nerd and the football player have the same indifference curves, but not the same preferences.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The point is this: Both agree on the &quot;grouping&quot; of things. But they disagree in the ranking of the groups.&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Your Example&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;If you look at Jim and Pat, they have exactly inverse utility functions and hence inverse ranking in their preferences.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That is, if for Jim $A &amp;gt; B = C = D &amp;gt; E$, Pat will have $A &amp;lt; B = C = D &amp;lt; E$. Both agree on the three groups, but disagree on the order. Jerry's just a monotone transformation (poor Jerry).&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-04-21T12:00:42.907" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5240" PostTypeId="2" ParentId="5235" CreationDate="2015-04-21T12:35:46.680" Score="1" Body="&lt;p&gt;I'm not positive that this is the issue, but here is a thought. The G component of GDP (government spending) is the spending on goods and services by the government. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;G (government spending) is the sum of government expenditures on final&#xA;  goods and services. It includes salaries of public servants, purchases&#xA;  of weapons for the military and any investment expenditure by a&#xA;  government. It does not include any transfer payments, such as social&#xA;  security or unemployment benefits.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://en.wikipedia.org/wiki/Gross_domestic_product&quot; rel=&quot;nofollow&quot;&gt;Wikipedia: GDP&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Notwithstanding heavy use of capital in the armed forced, much of the cost of government services are labor costs. There is some evidence (&lt;a href=&quot;http://onlinelibrary.wiley.com/doi/10.1111/ssqu.12128/abstract&quot; rel=&quot;nofollow&quot;&gt;Does Baumol's Cost Disease Account for Nonfederal Public-Sector Cost Growth in the United States? A New Test of an Old Idea&lt;/a&gt;) that government cost growth has been driven by this labor intensity. Since government labor productivity is defined as G/Payroll, if they use relatively less capital  and more labor they are going to look less productive. &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2015-04-21T12:35:46.680" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5241" PostTypeId="2" ParentId="5235" CreationDate="2015-04-21T13:42:33.453" Score="3" Body="&lt;p&gt;The biggest issue (in the US national accounts, at least) is the fact that government production is recorded on a cost basis rather than a market value of output basis (due to the lack of market values for many government services). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;From the &lt;a href=&quot;http://www.bea.gov/national/pdf/nipa_primer.pdf&quot; rel=&quot;nofollow&quot;&gt;NIPA Primer&lt;/a&gt;, pages 2-3:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;GDP is composed of goods and services that are produced&#xA;  for sale in the “market”—the generic term referring&#xA;  to the forum for economic transactions—and of&#xA;  nonmarket goods and services—those that are not sold in&#xA;  the market, such as the defense services provided by the&#xA;  federal government, the education services provided by&#xA;  local governments, the emergency housing or health care&#xA;  services provided by nonprofit institutions serving&#xA;  households (such as the Red Cross), and the housing services&#xA;  provided by and for persons who own and live in&#xA;  their home (referred to as “owner-occupants”).&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;[...]&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;In cases where there are no similar market transactions&#xA;  available to impute a value of the good or service being&#xA;  produced, the output of these services is valued by estimating&#xA;  the costs (such as employee compensation and&#xA;  purchases of materials and supplies) of producing the&#xA;  good or service.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;As a result, any direct government production is recorded as though the workers add no value that they do not capture through their salaries. Given the technical difficulties (not to mention the political issues) that arise when one tries to come up with an alternative estimate of the value of government production, this is probably the most neutral approach, and the approach that is most accurate in differences, though it obviously gets the level wrong.&lt;/p&gt;&#xA;" OwnerUserId="264" LastActivityDate="2015-04-21T13:42:33.453" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5242" PostTypeId="2" ParentId="5233" CreationDate="2015-04-21T14:44:52.987" Score="3" Body="&lt;p&gt;My suggestion would be to take the habit of fully writing down and then solving formally even the simplest model. Yours is a static one,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\max_{C,L} U(C,L) = CL,\;\;\;\; s.t. C = (24-L)w$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;since we silently assume that the individual cannot consume more than his income. Here $L$ &lt;strong&gt;is leisure&lt;/strong&gt;, not work.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Inserting the constraint into the objective function,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\max_L U[C(L), L] = (24-L)w\cdot L = 24wL - wL^2 = w(24L - L^2)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This permits you to see that &lt;strong&gt;&lt;em&gt;the wage doesn't matter&lt;/em&gt;&lt;/strong&gt; for the optimal allocation (it will matter, for the &lt;em&gt;level&lt;/em&gt; of utility attained). This may sound counter-intuitive... It is, and it has to do with the category of functions to which the specific utility function belongs to. In other words, it is an unrealistic aspect of the model introduced by a mathematical choice we made.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The above has a straightforward solution for a maximum.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(&lt;strong&gt;PS&lt;/strong&gt;: Has &lt;a href=&quot;http://en.wikipedia.org/wiki/L%C3%A9on_Walras&quot; rel=&quot;nofollow&quot;&gt;Walras&lt;/a&gt; been notified that his name is used in such a manner?)&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-04-21T14:44:52.987" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5243" PostTypeId="2" ParentId="5188" CreationDate="2015-04-21T15:38:53.163" Score="1" Body="&lt;p&gt;I find that the system is saddle-path stable.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Setting $z\equiv  1/k$ we get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{eqnarray*}&#xA;\dot{z} &amp;amp; = &amp;amp;  -z^2\left(\frac{\rho}{1+\rho} - \frac{1}{1+\lambda}\right) \\&#xA;\\&#xA;\dot{\lambda} &amp;amp; = &amp;amp;  \rho \lambda - z&#xA;\end{eqnarray*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The fixed point is $E=\{z^*, \lambda^*\} = \{1, 1/\rho\}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Jacobian of this system evaluated at the steady state is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{align}&#xA;J_E = \begin{bmatrix}0&amp;amp; -\frac{\rho^2}{(1+\rho)^2}\\&#xA;-1&amp;amp; \rho\end{bmatrix}&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The determinant is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$${\rm det}(J_E) = 0-\frac{\rho^2}{(1+\rho)^2} &amp;lt; 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and when the determinant of the Jaconbian in a two-by-two system is negative, the system is saddle-path stable (and so &lt;em&gt;mathematically speaking&lt;/em&gt;, unstable), &lt;em&gt;irrespective&lt;/em&gt; of whether the trace of the Jacobian (here equal to $\rho&amp;gt;0$) is positive, negative, or zero.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Perhaps &lt;a href=&quot;https://alecospapadopoulos.wordpress.com/2014/04/13/stability-of-systems-of-differential-equations/&quot; rel=&quot;nofollow&quot;&gt;this&lt;/a&gt; could be helpful.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-04-21T15:38:53.163" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="5244" PostTypeId="1" CreationDate="2015-04-21T15:50:13.820" Score="7" ViewCount="2751" Body="&lt;p&gt;I am having difficulties in distinguish them. I kind of understand what is the difference intuitively, but I still fail to put some games in the correct category.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can you give me two examples of games and show me the difference from a mathematical (notation) point of view?&lt;/p&gt;&#xA;" OwnerUserId="9" LastActivityDate="2015-05-31T13:44:50.183" Title="Asymmetric vs incomplete information" Tags="&lt;game-theory&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5245" PostTypeId="1" CreationDate="2015-04-21T15:54:08.233" Score="1" ViewCount="323" Body="&lt;p&gt;Consider the following extension of the standard DMP model, in which we have two labor markets with different returns, indexed $i$. The markets are completely separated and firms and workers can only go to one market. It might help to think of them as different countries, for example. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;I am ultimately interested in the different waiting time of unemployed to find a job&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As usual, we match using a CRS function $M(u,v)$, such that the likelihoods of finding a job and finding a worker are given by $f(\theta) = M(u,v)/u = M(1, \theta) $, and $q(\theta) = M(u, v)/v = M(\theta^{-1}, 1)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The vacancy-value equation is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \rho V_i = -c q(\theta_i) (J_i - V_i)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Free entry implies $V_i = 0$. Manipulating the equations we get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{q(\theta_1)}{q(\theta_0)} = \frac{J_0}{J_1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which makes sense - the job-filling-rates are inverse to the value of the jobs. Say $J_1 &amp;gt; J_0$. Then, market $1$ is tighter, leading to a lower job-filling-rate for an individual firm.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Using the earlier definitions, I can use that $f(\theta) = q(\theta)\theta$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{f(\theta_1)}{f(\theta_0)} = \frac{J_0}{J_1}\frac{\theta_1}{\theta_0}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $W_i$ denote the average waiting time of an unemployed in market $i$. As we're using Poisson rates, $W_i = 1/f(\theta_i)$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{W_0}{W_1} = \frac{J_0}{J_1}\frac{\theta_1}{\theta_0}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which doesn't make sense anymore. Consider again $J_1 &amp;gt; J_0$: A worker in market $1$ is much more valuable to firms than a worker in market $0$. However, the relative waiting time for workers in market $1$ &lt;em&gt;increases&lt;/em&gt; in the relative value of workers in market $1$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't understand this. Was my derivation wrong? Or am I not allowed to to the ceteris paribus argument while ignoring $\theta_1/\theta_0$ on the right-hand-side? &lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-04-21T16:40:50.260" Title="DMP: Two Labor Markets" Tags="&lt;macroeconomics&gt;&lt;labor-economics&gt;&lt;unemployment&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5246" PostTypeId="2" ParentId="5245" CreationDate="2015-04-21T16:40:50.260" Score="3" Body="&lt;p&gt;Found my mistake. I guess I'm not allowed to move the thetas to the other side.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Define $q^{-1}$ be the inverse of $q$. Then,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \theta = q^{-1} \left( \frac{c}{J} \right)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{W_1}{W_0} = \frac{f(\theta_0)}{f(\theta_1)} = \frac{f \left( q^{-1} \left(\frac{c}{J_1}\right)\right)}{f \left( q^{-1} \left(\frac{c}{J_0}\right)\right)}$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$J_1 &amp;gt; J_0$, hence $\theta_1 &amp;gt; \theta_0$ and $W_1 &amp;lt; W_0$.&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-04-21T16:40:50.260" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5247" PostTypeId="2" ParentId="5229" CreationDate="2015-04-21T21:02:08.407" Score="2" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Massive wealth distribution would be a huge boost to the economy. Why?&#xA;  All the purchases of consumer goods will increase production of all&#xA;  those goods, which will move through the entire economy causing&#xA;  expansion. Of course there will likely be some inflationary effects&#xA;  but as long as the wealth distribution didn't happen overnight&#xA;  whatever mechanism of distribution is probably going to redistribute&#xA;  slower than what the economy can handle anyway.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This is over looking the fact that much of the wealth is invested in companies who hire people.  As an example, if 90% of Warren Buffett's wealth was in Berkshire, and he had to liquidate to re-distribute his wealth, that would have an affect on the economy, some inflationary, some deflationary.  But it would also cause some people to lose their jobs; that money invested is providing jobs - it's lending to a business, which in turn hires people, buys resources, etc.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Massive wealth distribution would be a huge boost to the economy. Why?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So when they confiscated land from the land owners in Zimbabwe, why wasn't there a HUGE boost to the economy?  Again, this would be like confiscating Steve Jobs' wealth (a lot of which was in Apple) when he was alive and redistributing it, thinking that the overall effect will be good, when what you've really done is stifle innovation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A good example of wealth redistribution is Zimbabwe.  &lt;a href=&quot;http://hrbrief.org/2013/12/zimbabwes-land-reform-wealth-redistribution-and-a-looming-food-shortage/&quot; rel=&quot;nofollow&quot;&gt;As you can read, it turned out very well&lt;/a&gt;!  Another good example is the &lt;a href=&quot;http://articles.latimes.com/1991-09-28/news/mn-2830_1_soviet-union&quot; rel=&quot;nofollow&quot;&gt;Soviet Union&lt;/a&gt; - there has never been a more equal society as far as wealth (excluding bureaucrats, of course).  300% inflation and many people starved to death.  If wealth is a product of skill, redistributing wealth may discourage skill; and in the long run, it won't be pretty.  At least the two examples I provided show some pretty significant inflation.&lt;/p&gt;&#xA;" OwnerUserId="2746" LastActivityDate="2015-04-21T21:02:08.407" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="5248" PostTypeId="2" ParentId="5088" CreationDate="2015-04-21T21:03:27.863" Score="3" Body="&lt;p&gt;$L^{\infty}$: the (Banach, usually) space of bounded measurable functions modulo the equality almost everywhere. Like all function spaces not involving holomorphic functions, it's really a space of equivalence classes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;weak-$^*$ topology: the topology on the dual $X^*$ of any topological vector space $X$ induced by the $(X, X^*)$-pairing. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;embedded in $L^{\infty}$&quot;: a (say) topological vector space $Y$ is said to be embedded in $L^{\infty}$ if there is an injective continuous linear map from $Y$ to $L^{\infty}$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(This is the usual meaning. In your paragraph, &quot;embedded&quot; just means viewing those indicator functions as representatives of their classes. The weak-$^*$ topology on $L^{\infty}$ is given by the identification $L^{\infty} = (C_0)^*$.) &lt;/p&gt;&#xA;" OwnerUserId="126" LastEditorUserId="126" LastEditDate="2015-04-22T02:25:20.990" LastActivityDate="2015-04-22T02:25:20.990" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5249" PostTypeId="1" AcceptedAnswerId="5250" CreationDate="2015-04-21T21:04:25.633" Score="2" ViewCount="424" Body="&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/ept0F.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question I'm dealing with is:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Suppose A plays &lt;em&gt;bf&lt;/em&gt;, Which of B's strategies would lead to an outcome that is not pareto efficient?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The answer is apparently &lt;em&gt;ei&lt;/em&gt; as $(bf,ei)=(0,5)$, but I don't understand why. If this answer is correct, could you please explain why?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My understanding of pareto efficiency is that by moving from $(x,y)$, we cannot make any player better off without making the other worse off. If this is the case, then $(x,y)$ is pareto efficient.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$(x,y)$ would be pareto inefficient if there exists a movement away from $(x,y)$, where a player can be made better off without the other being made worse off.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From $(bf,ei)=(0,5)$, we can move to:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$(4,4), (5,0),(2,2)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't see how we can move to any of these without making B worse off, I think that $(bf,ei)$ represents a pareto efficient outcome.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any chance you could offer some advice?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks.&lt;/p&gt;&#xA;" OwnerUserId="4201" LastEditorUserId="4201" LastEditDate="2015-04-21T21:10:28.907" LastActivityDate="2015-04-21T22:34:04.993" Title="Extensive form: pareto inefficiency?" Tags="&lt;game-theory&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="5250" PostTypeId="2" ParentId="5249" CreationDate="2015-04-21T22:23:51.553" Score="3" Body="&lt;p&gt;Thanks to denesp, I realised that I was only considering outcomes resulting from the following subgame:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/zYatG.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you consider all outcomes within the extensive form, then it is clear that $(2,6)$ pareto dominates $(0,5)$.&lt;/p&gt;&#xA;" OwnerUserId="4201" LastEditorUserId="4201" LastEditDate="2015-04-21T22:34:04.993" LastActivityDate="2015-04-21T22:34:04.993" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5251" PostTypeId="2" ParentId="5244" CreationDate="2015-04-21T22:26:13.427" Score="4" Body="&lt;p&gt;Consider &#xA;&lt;img src=&quot;https://i.stack.imgur.com/BocOk.png&quot; alt=&quot;enter image description here&quot;&gt;&#xA;where $\epsilon_1,\epsilon_2$ are iid random variables with distribution $F$. $a,b,\dots,h$ are constant parameters.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Game of &lt;em&gt;incomplete but symmetric&lt;/em&gt; information&lt;/strong&gt;&#xA;would be something like: $F$ is common knowledge among the two players. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Game of &lt;em&gt;asymmetric and incomplete&lt;/em&gt; information&lt;/strong&gt;&#xA;would be something like: before making their respective decision, Player 1 observes the realization of $\epsilon_1$ but not $\epsilon_2$ and Player 2 observes $\epsilon_2$ but not $\epsilon_1$.&lt;/p&gt;&#xA;" OwnerUserId="42" LastEditorUserId="42" LastEditDate="2015-04-21T23:08:25.150" LastActivityDate="2015-04-21T23:08:25.150" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="5252" PostTypeId="2" ParentId="5206" CreationDate="2015-04-21T23:13:02.700" Score="8" Body="&lt;p&gt;The two statement say two completely different things. So, no, there is no contradiction.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The second welfare theorem essentially says that a system of transfers that results in an efficient allocation can be supported by a competitive outcome. The statement about replacing income taxes with a consumption tax will increase peoples' incentives to save. These are two completely different statements.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your mistake is that you suppose that the second welfare theorem prescribes a system of taxation to achieve the hypothetical transfers. It doesn't. The second welfare theorem just supposes that these transfers can be made---nothing more. Importantly, the alleged social planner who makes the transfers has complete information about the agents in the model. When information about the agents is hidden from the social planner (information such as the skills and true abilities of each individual), such transfers become difficult and costly. That is, they create distortions. This was a point that was famously made by James Mirrlees in his seminal paper &quot;An Exploration in the Theory of Optimum Income Taxation&quot; (1971). The point of this paper is that there is a trade-off between equity and efficiency. Once we consider the fact that transfers are costly and create distortions, the question is, how do we create a tax system that minimizes the amount of distortions and still is able to make desired transfers of wealth. This serves as a motivation for why people might study the incentives created by an income tax or consumption tax, for example.&lt;/p&gt;&#xA;" OwnerUserId="59" LastActivityDate="2015-04-21T23:13:02.700" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5253" PostTypeId="2" ParentId="5099" CreationDate="2015-04-22T02:32:31.590" Score="2" Body="&lt;p&gt;For a nice, and gentle, functional analytic treatment on this, see the chapter on welfare theorems in Stokey and Lucas. (Although what they call &quot;inner product&quot; is definitely not standard functional analytic language. That term is reserved strictly for Hilbert spaces in functional analysis.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Prices are elements of the dual as you and previous answer stated. Where one needs to be more careful in the general setting is specifying a topology. You want the value of bundles to be continuous---hence prices are continuous (i.e. bounded, if the commodity space is Banach) with respect to the topology chosen on the commodity space. &lt;/p&gt;&#xA;" OwnerUserId="126" LastEditorUserId="126" LastEditDate="2015-04-22T02:37:32.253" LastActivityDate="2015-04-22T02:37:32.253" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5254" PostTypeId="2" ParentId="4799" CreationDate="2015-04-22T03:30:34.910" Score="2" Body="&lt;p&gt;A napkin theoretical exploration of the issue, to find possible directions to look for explanations, could go like this:  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;According to the paper, the volatility of output and productivity has fallen. So for the correlation to have gone down, the &lt;em&gt;covariance&lt;/em&gt; must have fell steeply.&#xA;Modeling output as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Y = AK^a(h\cdot L)^{1-a}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $h$ is the &quot;effort per unit&quot; variable, we have &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$${\rm Cov}(Y, Y/L) = E(Y^2/L) - E(Y)E(Y/L)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Y^2/L =   A^2(K/L)^{2a}\cdot L \cdot h^{2(1-a)}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Y/L =   A(K/L)^{a}\cdot h^{1-a}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$${\rm Cov}(Y, Y/L) = E\left[A^2(K/L)^{2a}\cdot L \cdot h^{2(1-a)}\right] -E\left[A(K/L)^{a}\cdot L\cdot h^{1-a}\right]E\left[A(K/L)^{a}\cdot h^{1-a}\right]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We observe ${\rm Cov}(Y, Y/L) \rightarrow 0$. Now, I am in the mood of assuming that the capital-labor ratio is essentially a constant, as is $A$. More over, that the effort-per-unit variable is independent of the amount of labor hours. Under this scenario, we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$${\rm Cov}(Y, Y/L) = A^2(K/L)^{2a} \cdot E(L)\cdot \big[ E\left[(h^{1-a})^2\right] -\left[E(h^{1-a})\right]^2\big]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies {\rm Cov}(Y, Y/L) \rightarrow 0 \implies {\rm Var}(h^{1-a}) \rightarrow 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So here, the effort variable should be approximately a constant too.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;--&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a more agnostic approach, using lower case letters to denote logarithms, we would have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$${\rm Cov}(y, y-\ell) = Var(y) - {\rm Cov}(y, \ell)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If what we observe is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$${\rm Cov}(y, y-\ell) \approx 0 \implies  Var(y) \approx {\rm Cov}(y, \ell)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But this means that in a least-squares regression of $\ell$ on a constant $\gamma_0$ and $y$&#xA;$$\ell = \gamma_0 + \gamma_1y + u$$&#xA;we would obtain $\gamma_1 =1$ and the relation&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\hat \ell = \hat \gamma_0 + y \implies \approx Y = e^{-\gamma_0}L$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(with $\gamma_0 &amp;lt;0$ most probably). This is consistent with the previous approach since the constant $e^{-\gamma_0}$, may be seen as containing the $A(K/L)^ah^{1-a}$ terms, which were assumed or emerged as constants for the result of zero-covariance to occur. Here, there is more flexibility since we only require that their &lt;em&gt;product&lt;/em&gt; is constant, not each one separately.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-04-22T03:30:34.910" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5257" PostTypeId="1" CreationDate="2015-04-22T16:17:43.217" Score="3" ViewCount="188" Body="&lt;p&gt;I have searched arround the web and economic journals trying to find out research related to a macroeconomic model in which the country is fully dollarized, but I haven't had any luck. My main concern is how to deal with exchange rates and the monetary authority. Maybe I just have to forget about them. &lt;/p&gt;&#xA;" OwnerUserId="4507" LastEditorUserId="43" LastEditDate="2015-07-18T15:28:28.807" LastActivityDate="2017-04-19T05:26:11.690" Title="What are the main differences in a macroeconomic model, i.e. New-Keynesian DSGE, under a currency substitution (full dollarization) scheme?" Tags="&lt;macroeconomics&gt;&lt;reference-request&gt;&lt;currency&gt;&lt;monetary-policy&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5258" PostTypeId="1" AcceptedAnswerId="5277" CreationDate="2015-04-22T16:30:17.580" Score="6" ViewCount="681" Body="&lt;p&gt;In the video game, Team Fortress 2, an economy grew inside of it. It had its own currency and barter systems, and everything was running smoothly. But, in time, things started to get very strange. One of the currency types, keys, started to raise in value (the price of a key was originally at 2.33 refined metal (2 refined and 1 reclaimed), but it slowly went up to 2.66 and greater). Now, the value of keys have reached 15 refined metal (give or take), and the value of many other items have gone down dramatically. For example, a sub currency, called Buds, were valued at 16 keys, but through the rise of keys, have lowered to around 5-6 keys.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is, what caused this abnormality to happen, and will the TF2 economy ever be able to recover back to the values they started at (without  the game creator's intervention)? &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Before I go into how the economy works, I will start with currency.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The most basic currency is Refined metal. One can create a refined metal through crafting. I will explain it more in depth once I have gone over more currencies. Refined metal can be destroyed through crafting, where it and the pieces that make it can be used to craft hats and weapons.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Making up Refined metal are Reclaimed metal. There are 3 Reclaimed metal per Refined. They are obtained by crafting 3 Scrap metal together. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Scrap metal is created by crafting 2 weapons of the same class together (weapons are a common drop). For more on the drop mechanics, go to these Gaming SE questions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://gaming.stackexchange.com/questions/24012/team-fortress-2-item-drop-chances&quot;&gt;https://gaming.stackexchange.com/questions/24012/team-fortress-2-item-drop-chances&lt;/a&gt;&#xA;&lt;a href=&quot;https://gaming.stackexchange.com/questions/322/when-does-the-weekly-drop-count-reset&quot;&gt;https://gaming.stackexchange.com/questions/322/when-does-the-weekly-drop-count-reset&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Besides just weapons, both Hats and Crates can drop. Hats are the more valuable of the two, usually at around 2 refined, give or take. Crates on the other hand, have little to no value, albeit some are very expensive (some people would trade their first born for one of the rarer ones), and when a new one is released, it can have a high initial value, that decays with time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;All money used here is in USD, but the $ sign was causing errors when more than one was used.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Unlike how metal is created by users, Keys are purchased from the Mann Co store (this is the main in-game store. You can trade real world money for items here). A Key is valued at 2.49 here. There are also Hats and Weapons on sale here, but the community generally counts those as ridiculously overpriced, seeing that one of the Weapons that you can find (as a common drop) is valued at 9.99 by the Mann Co store. The Mann Co store is run and maintained by the game developers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The main way of trading is through a barter system. Users search servers and forums for people who have the item(s) they want, and then try to trade with them. A good example of one forum made specificly for TF2 (and other game) trading is &lt;a href=&quot;http://www.tf2outpost.com/&quot; rel=&quot;nofollow noreferrer&quot;&gt;TF2 Outpost&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You might be thinking,&quot; If it is a barter system, why do prices exist?&quot; The price part, comes from a community of people. This site, called Backpack TF is one of the (if not) biggest sites that give item value guide lines. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A link to it is here: &lt;a href=&quot;http://backpack.tf/&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://backpack.tf/&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The barter system still exists though. Outside of the people who do not use Backpack TF, many of the rarer items have to be traded through barter, because there are either not enough to try and create a price, or because they don't get traded enough. But, if someone gives the details on what the item was traded for, Backpack TF will try to make a price over time. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, time to go in-depth about crates. Crates can be consumed (along with one Key) to open it. Inside, you will find an item that was listed on content list of the crate. Most items inside of the basic crates start high, then drop down. The main type of item that does not follow this are the Unusual Hats. These rare items only have a 1% flat chance of being obtained from ANY type of crate, and event crates tend to have a rarer type. Some of these are valued at 8 Keys (give or take), while some have been in trades with more than 5000+ USD being traded for it, and even more in items. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another way to get semi-rare items is through MvM, an extra game mode. If a player &quot;Manns Up&quot;, they get bonus loot at the end of the mission, and a bigger reward at the end of a tour (set of 3-6 missions, depending on difficulty). These bigger rewards started expensive, but slowly dropped. The only one of any value besides the Pro-Killstreak and Austrailium items (better ones are valued like Unusuals, while lower ones are valued at 1-3 keys) is the Golden Frying Pan, which is valued at ridiculous levels. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://backpack.tf/stats/Strange/Golden%20Frying%20Pan/Tradable/Craftable&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://backpack.tf/stats/Strange/Golden%20Frying%20Pan/Tradable/Craftable&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A big part in trading is the Steam Market, which allows users to sell their items (only certain types) for real world money (that is still stuck in the Steam System). Users can also spend their money on items in a similar fashion. This is all user to user, much like trading. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;That is a basic overview of the how the TF2 Economy works and how it is regulated. Outside of the Mann Co store, have little say in the economy. Its community is what creates the prices. Backpack TF probably creates the guide lines off of supply and demand, but because of how easily both can change, that might not be the only factor to the prices. I want to explain more of why things are priced the way they are, but I don't know the inner-workings of Backpack TF. &lt;/p&gt;&#xA;" OwnerUserId="4503" LastEditorUserId="-1" LastEditDate="2017-04-13T12:10:05.777" LastActivityDate="2015-04-23T10:56:33.217" Title="What caused such an abnormality in the TF2 economy?" Tags="&lt;simulations&gt;" AnswerCount="1" CommentCount="6" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5261" PostTypeId="1" AcceptedAnswerId="5263" CreationDate="2015-04-22T18:51:07.387" Score="4" ViewCount="48" Body="&lt;p&gt;A British trader has been arrested on accusations of having triggered the 2010 &quot;flash crash&quot; that saw the Dow plummet by 600 points in 20 minutes. This is reported, for example, &lt;a href=&quot;http://www.bbc.co.uk/news/business-32415664&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt; (BBC), or &lt;a href=&quot;http://www.ft.com/cms/s/0/fc3a66a8-e84a-11e4-baf0-00144feab7de.html#axzz3XsNsAwbn&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt; (FT, paywalled). In these reports, it is claimed that the crash was triggered by some sort of irregular trading in a type of futures contracts called eMinis.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can someone explain&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;What exactly is it that the trader is alleged to have done, how did this allow him to make irregular profits, and what is the mechanism by which he was able to single-handedly move the entire equities index?&lt;/li&gt;&#xA;&lt;li&gt;If the trader participated only in legitimate voluntary trades via the normal market mechanism, what exactly is the behaviour that is being considered as potentially illegal here, and what is the rationale for this illegality (i.e. how can the authorities distinguish this seemingly illegal behaviour from normal market trading activity)?&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="108" LastActivityDate="2015-04-22T20:15:22.473" Title="2010 flash crash: cause and rationale for illegality" Tags="&lt;finance&gt;&lt;law&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5262" PostTypeId="1" AcceptedAnswerId="5264" CreationDate="2015-04-22T20:13:56.873" Score="3" ViewCount="133" Body="&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/MpvMS.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question I am dealing with is:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Find all Nash equilibria in pure or mixed strategies.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This is what I have done so far..&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Pure strategy nash equilibria&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By observing best responses, the PSNE are $(u2,l2)$ and $(d2,r2)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Mixed strategies&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Solving for $\tau$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$10\tau +2(1-\tau) = 5\tau +8(1-\tau)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\tau^{*}=\frac{6}{11}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Solving for $\sigma$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$10\sigma +2(1-\sigma)=5\sigma+8(1-\sigma)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\sigma^*=\frac{6}{11}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore: $(\tau^*,\sigma^*)=\left(\frac{6}{11},\frac{6}{11}\right)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The correct answer is apparently:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;$(\tau^*,\sigma^*)=\color{red}{(1,1)},\color{red}{(0,0)}$ and&#xA;  $\left(\frac{6}{11},\frac{6}{11}\right)$&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It seems that the correct answer has omitted my pure strategy nash equilibria. I also don't know how to get $(1,1)$ and $(0,0)$. Any chance you could help me out?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks.&lt;/p&gt;&#xA;" OwnerUserId="4201" LastEditorUserId="4201" LastEditDate="2015-04-22T20:22:11.373" LastActivityDate="2015-04-22T20:40:05.683" Title="Strategic form: mixed strategy nash equilibria?" Tags="&lt;game-theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5263" PostTypeId="2" ParentId="5261" CreationDate="2015-04-22T20:15:22.473" Score="4" Body="&lt;p&gt;&lt;strong&gt;What exactly is it that the trader is alleged to have done, how did this allow him to make irregular profits, and what is the mechanism by which he was able to single-handedly move the entire equities index?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;According to the Complaint, for over five years and continuing as recently as at least April 6, 2015, Defendants have engaged in a massive effort to manipulate the price of the E-mini S&amp;amp;P by utilizing a variety of exceptionally large, aggressive, and persistent spoofing tactics.  In particular, according to the Complaint, in or about June 2009, Defendants modified a commonly used off-the-shelf trading platform to automatically simultaneously “layer” four to six exceptionally large sell orders into the visible E-mini S&amp;amp;P central limit order book (the Layering Algorithm), with each sell order one price level from the other.  As the E-mini S&amp;amp;P futures price moved, the Layering Algorithm allegedly modified the price of the sell orders to ensure that they remained at least three or four price levels from the best asking price; thus, remaining visible to other traders, but staying safely away from the best asking price.&lt;br&gt;&#xA;  Eventually, the vast majority of the Layering Algorithm orders were canceled without resulting in any transactions.  According to the Complaint, between April 2010 and April 2015, Defendants utilized the Layering Algorithm on over 400 trading days.&lt;br&gt;&#xA;  The Complaint alleges that Defendants often cycled the Layering Algorithm on and off several times during a typical trading day to create large imbalances in the E-mini S&amp;amp;P visible order book to affect the prevailing E-mini S&amp;amp;P price.  Defendants then allegedly traded in a manner designed to profit from this temporary artificial volatility.&lt;br&gt;&#xA;  (&lt;a href=&quot;http://www.cftc.gov/PressRoom/PressReleases/pr7156-15#PrRoWMBL&quot; rel=&quot;nofollow&quot;&gt;http://www.cftc.gov/PressRoom/PressReleases/pr7156-15#PrRoWMBL&lt;/a&gt;)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The offical verdict has a &lt;a href=&quot;http://www.justice.gov/sites/default/files/opa/press-releases/attachments/2015/04/21/sarao_criminal_complaint.pdf&quot; rel=&quot;nofollow&quot;&gt;step-by-step walkthrough&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;If the trader participated only in legitimate voluntary trades via the normal market mechanism, what exactly is the behaviour that is being considered as potentially illegal here, and what is the rationale for this illegality (i.e. how can the authorities distinguish this seemingly illegal behaviour from normal market trading activity)?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Sarao was charged in a federal criminal complaint in the Northern District of Illinois on Feb. 11, 2015,  with one count of wire fraud, 10 counts of commodities fraud, 10 counts of commodities manipulation, &lt;em&gt;and one count of “spoofing,” a practice of bidding or offering with the intent to cancel the bid or offer before execution.&lt;/em&gt;&#xA;  (&lt;a href=&quot;http://www.justice.gov/opa/pr/futures-trader-charged-illegally-manipulating-stock-market-contributing-may-2010-market-flash&quot; rel=&quot;nofollow&quot;&gt;http://www.justice.gov/opa/pr/futures-trader-charged-illegally-manipulating-stock-market-contributing-may-2010-market-flash&lt;/a&gt;)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The relevant articles for spoofing are: Title 7, United States Code, Sections 6c(a)(5)(C) and 13(a)(2) &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;(5) Disruptive practices&lt;br&gt;&#xA;  It shall be unlawful for any person to engage in any trading, practice, or conduct on or subject to the rules of a registered entity that-&lt;br&gt;&#xA;  (A) violates bids or offers;&lt;br&gt;&#xA;  (B) demonstrates intentional or reckless disregard for the orderly execution of transactions during the closing period; or&lt;br&gt;&#xA;  (C) is, is of the character of, or is commonly known to the trade as, &quot;spoofing&quot; (bidding or offering with the intent to cancel the bid or offer before execution).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="1499" LastActivityDate="2015-04-22T20:15:22.473" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5264" PostTypeId="2" ParentId="5262" CreationDate="2015-04-22T20:30:32.317" Score="3" Body="&lt;p&gt;The probability vectors you gave in red describe pure strategy NE. (They assign probability one to an action.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\tau$ shows the probability that the column player plays action $l_2$.&#xA;If $\tau = 1$, then he will play $l_2$ with probability one. This is essentially another way of saying that he plays the pure strategy $l_2$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One way to get these probability vectors is to find the PSNE as you have done. The PSNE $(u_2,l_2)$ means that the Row player plays $u_2$ with probability one, and the Column player plays $l_2$ with probability one.&#xA;According to your notation this means that $(\tau, \sigma) = (1,1)$.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2015-04-22T20:40:05.683" LastActivityDate="2015-04-22T20:40:05.683" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5265" PostTypeId="2" ParentId="5184" CreationDate="2015-04-22T20:36:31.533" Score="4" Body="&lt;p&gt;No, a deflator greater than 100 means that the price level is higher than in the base year. It doesn't mean that inflation is still occurring. In fact, you could be &lt;strong&gt;experiencing deflation&lt;/strong&gt; after a period of inflation and if prices today are still higher than the base year, have the deflator be above 100. A growing deflator is an indication of inflation. To detect inflation acceleration you'd need to see changes in the log(deflator) growing over time. &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-04-23T00:23:03.733" LastActivityDate="2015-04-23T00:23:03.733" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5266" PostTypeId="1" AcceptedAnswerId="5268" CreationDate="2015-04-22T21:09:55.153" Score="1" ViewCount="50" Body="&lt;p&gt;In their equation (5), &lt;a href=&quot;http://scholar.princeton.edu/gkaplan/publications/shopping-externalities-and-self-fulfilling-unemployment-fluctuations&quot; rel=&quot;nofollow&quot;&gt;Kaplan and Menzio&lt;/a&gt; claim that the price distribution in their Burdett-Judd market is given by&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ F(p, u) = \{u \cdot A_1 \left[1 - \left(1 - B_1(u)\right)\frac{(r-c)p}{(p-c)r}y_u\right] \\&#xA;+ (1-u) \cdot A_2 \left[1 - (1 - B_2(u))\frac{(r-c)p}{(p-c)r}*w(u)\right]&#xA; \}/C$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For positive $A_i$, $B_i$, $C$, where $u$ denotes the unemployment rate and $p$ denotes the price. They continue claiming that&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;$F$ is continuous&lt;/li&gt;&#xA;&lt;li&gt;has connected support&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;$c$ is the households outside option, $r$ is the reservation price, hence the distribution should only give positive mass to prices between $[c, r]$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ B_1(u) = 2\nu(u)\frac{\psi_u}{1+\psi_u}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $\nu(\sigma(u)) = \frac{s}{b} = \frac{1-u}{1+u(\psi_u - \psi_e)}$. In their calibration: $\psi_e = 0.02$, $\psi_u = 0.27$. Hence&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ B_1(u) = 2\frac{1-u}{1+0.25u}\frac{0.27}{1+0.27}$$&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;The Issue&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;For example, at an unemployment rate of $0.05$, we have $B_1(0.05) = .38$. However, for $p = c + \epsilon$ (for small $\epsilon$), the denominator $p-c$ becomes very small small.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This means that the product of $1-B_1(0.05)\cdot (r-c)\cdots$ becomes very  large. One minus that is an very large negative number. The denominator $C$ is positive. A similar phenomenon happens with $B_2(0.05)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;They call $F(p, u)$ the distribution. I assume this means the pdf. Can a pdf have negative values? Or what am I missing here?&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2015-04-22T21:48:03.857" LastActivityDate="2015-04-22T21:48:03.857" Title="Price distribution: Negative values?" Tags="&lt;macroeconomics&gt;&lt;mathematical-economics&gt;&lt;price-theory&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5267" PostTypeId="1" CreationDate="2015-04-22T21:24:23.910" Score="8" ViewCount="3227" Body="&lt;p&gt;What are translog preferences? The &lt;a href=&quot;http://en.wikipedia.org/wiki/Cobb%E2%80%93Douglas_production_function#Translog_.28transcendental_logarithmic.29_production_function&quot; rel=&quot;noreferrer&quot;&gt;wikipedia article&lt;/a&gt; only clears up that it stands for transcendental logarithmic preferences, and that they are a generalization of Cobb-Douglas preferences.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Do they have special features that make it more appealing? I have never seen these being used in Macroeconomics.&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-04-28T10:46:00.027" Title="Translog Preferences" Tags="&lt;microeconomics&gt;&lt;preferences&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="5268" PostTypeId="2" ParentId="5266" CreationDate="2015-04-22T21:25:32.813" Score="2" Body="&lt;p&gt;In Lemma 1 they say that the support $\left[\underline{p}_t, \bar{p}_t \right]$ is such that $ c &amp;lt; \underline{p}_t $.&#xA;So even though the support is connected, it does not extend to $c$, hence the $p \to c$ problem never arises.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2015-04-22T21:25:32.813" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5269" PostTypeId="1" CreationDate="2015-04-22T21:59:34.153" Score="2" ViewCount="734" Body="&lt;p&gt;I had a homework problem regarding calculating a discounted present value. My solution is:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;15000 * (1+.08)^1 + 15000 * (1+.08)^2 = $33 696&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;The question is this:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Laura has an undergraduate degree in economics and has been working as&#xA;  a utility rate analyst at the local electricity utility. If she&#xA;  continues on her present career path, the present value of her&#xA;  lifetime earnings is \$250,000. If she takes two years off and gets an&#xA;  MA degree in economics, the present value of her lifetime earnings is&#xA;  \$275,000. The annual cost of an MA degree in economics is \$15,000&#xA;  and the interest rate is 8%. Assume that school fees are paid at the&#xA;  beginning of the year.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;a.) Calculate the discounted (present value) cost of Laura's graduate&#xA;  degree in economics. (2 points)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The given solution is this:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;Answer: $28, 889&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;I don't understand the logic of this question. To me, it seems the present value cost would be the cost of what I would pay if I was accounting for the interest of the tuition.&lt;/p&gt;&#xA;" OwnerUserId="4510" LastEditorUserId="59" LastEditDate="2015-04-22T22:20:46.097" LastActivityDate="2015-04-23T03:35:06.290" Title="Discounted (present value) calculation" Tags="&lt;microeconomics&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5270" PostTypeId="2" ParentId="5269" CreationDate="2015-04-22T22:32:44.113" Score="1" Body="&lt;p&gt;The calculation that you gave doesn't make sense. To answer this question, you should revise your definition of &quot;present value.&quot; The definition you gave isn't specific enough to be operational:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;To me, it seems the present value cost would be the cost of what I would pay if I was accounting for the interest of the tuition.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;What does present value mean? Think about it like this. How much money do you need &lt;em&gt;today&lt;/em&gt; to pay the future costs. Well you need $\$15,000$ to to pay for the first year and $\$ X$ to pay for the second year. Why did I write $X$? Because we want to know how much money we need &lt;em&gt;today&lt;/em&gt; to pay for the second year and that amount is less than $\$15,000$. This is because we can invest $X$ amount of dollars at $8\%$ interest so that we have $\$15,000$ in a year. So, we want to&#xA;solve&#xA;$$&#xA;X * 1.08 = 15000.&#xA;$$&#xA;Thus, the proper present value calculation is&#xA;$$&#xA;28,889 \approx 15,000 + \frac{15,000}{1.08}.&#xA;$$&lt;/p&gt;&#xA;" OwnerUserId="59" LastActivityDate="2015-04-22T22:32:44.113" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5271" PostTypeId="1" CreationDate="2015-04-22T23:25:31.003" Score="2" ViewCount="461" Body="&lt;p&gt;My professor said, in practice, Marshallian demand follows the law of demand (ie that increase in price decreases demand). But he said in theory, the Marshallian case is ambiguous and it does not follow the law of demand. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;MY QUESTION:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why isn't the Law of Demand true for Marshallian demand? &lt;/p&gt;&#xA;" OwnerUserId="2679" LastActivityDate="2015-04-23T01:33:49.710" Title="Why isn't the Law of Demand true for Marshallian demand?" Tags="&lt;consumer-theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5272" PostTypeId="2" ParentId="5271" CreationDate="2015-04-23T00:57:46.333" Score="1" Body="&lt;p&gt;Marshallian demand is also called uncompensated demand. That is a price changes and you see what changes in what the household buys. This consists of two effects. &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;The good itself is more expensive&lt;/li&gt;&#xA;&lt;li&gt;The household is poorer because they can no longer afford their old consumption bundle. &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;The effect of (1) is always to make you consume less of the good. The effect of (2) is what is ambiguous. An inferior good is one where as you get richer (poorer) you consume less (more) of it. For an inferior good forces (1) and (2) oppose. You consume more of the good because you are poorer and less because it is more expensive. A good (check out &lt;a href=&quot;http://en.wikipedia.org/wiki/Giffen_good&quot; rel=&quot;nofollow&quot;&gt;Giffen goods&lt;/a&gt;) could be so powerfully inferior that the effect of (2) is bigger than the effect of (1). No one seems to be able to find evidence that they exist, but they certainly are possible. Often potatoes in Ireland are used as an example, &lt;a href=&quot;http://www.jstor.org/discover/10.2307/1803318?uid=3739256&amp;amp;uid=2&amp;amp;uid=4&amp;amp;sid=21106111045091&quot; rel=&quot;nofollow&quot;&gt;though they were not&lt;/a&gt;. &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-04-23T01:33:49.710" LastActivityDate="2015-04-23T01:33:49.710" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="5273" PostTypeId="2" ParentId="3020" CreationDate="2015-04-23T03:03:41.677" Score="13" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;I am not given wealth $w$ although I suppose I could assume any firm who&#xA;  is purchasing has some budget.&quot;&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;em&gt;No.&lt;/em&gt;&lt;/strong&gt; This is &lt;em&gt;exactly&lt;/em&gt; where the &lt;em&gt;fundamental&lt;/em&gt; microeconomic theory of the firm differs from the microeconomic Consumer Theory: the firm is &lt;em&gt;not&lt;/em&gt; constrained by a budget. The reason is that this fundamental theory deals most and foremost with the &quot;long-term&quot; view, or even better, with the &quot;planning view&quot;. So we assume that the amount necessary to cover expenses, will come from sales, since the firm won't enter production at a loss (remember also, this is a deterministic set-up, there is no uncertainty). Working capital considerations (the fact that usually first you have to actually pay expenses and then to actually collect revenues), does not enter the long-term view, justifiably, it is a short-phenomenon. Also, in the long-term or planning approach, there are no fixed costs, all factors are variable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, the &quot;cost-minimization&quot; approach to solve the firm's optimization problem, is &lt;em&gt;an alternative behavioral assumption&lt;/em&gt; to the profit-maximizing setup, and it is very relevant in many real-world cases: public utilities that exist mainly to satisfy demand, and their motive is not to maximize profits -rather they want to minimize cost for the &lt;em&gt;given&lt;/em&gt; level output, as determined by demand, in the context of efficient use of the always scarce resources.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But also, the case of a price-taking firm that is too small compared to its market, is closer to a cost-minimizing behavior rather than profit maximizing, since the firm has not really control over its production (except downward by direct decision). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In both of the above cases, an exogenous variable appears: the level of output itself. So we solve the problem by treating the level of output as a &quot;constant&quot; or better, we solve it for any given level of output, and the solution we obtain has the level of output as one of its components.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\min_{K,L} C\equiv rK + wL \\&#xA;s.t. F(K,L) = \bar Q$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;with the Lagrangean&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Lambda = rK + wL +\lambda[\bar Q - F(K,L)]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first order conditions are&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$r = \lambda F_K,\;\;\; w=\lambda F_L  \tag{1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which gives, at the optimum,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$rK + wL = C = \lambda\big(F_KK + F_L L) \tag{2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now assume that the production function is homogeneous of some degree $h$ (&lt;em&gt;not&lt;/em&gt; necessarily homogeneous of degree one, i.e. exhibiting &quot;constant returns to scale&quot;, but homogeneous -and yours is, of degree $h=1/2$.). From &lt;a href=&quot;http://en.wikipedia.org/wiki/Homogeneous_function#Positive_homogeneity&quot; rel=&quot;noreferrer&quot;&gt;Euler's theorem for homogeneous functions&lt;/a&gt; of degree $h$ we have that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$F_KK + F_L L = hF(K,L) = h\bar Q \tag{3}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;the last equality holding given the constraint of the initial problem. Inserting $(3)$ into $(2)$ we obtain&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$C = \lambda h \bar Q$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The multiplier $\lambda$ is &lt;em&gt;optimal marginal Cost&lt;/em&gt;, denote it $C'(\bar Q)$, so we arrive at&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$C = C'(\bar Q)\cdot (h\bar Q) \implies C'(\bar Q) + [(-1/h\bar Q)]\cdot C =0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is a simple homogeneous differential equation with solution&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$C = A\cdot \exp\left\{-\int(-1/h\bar Q) {\rm d}\bar Q \right\} = A\cdot \exp\left\{(1/h)\ln \bar Q\right\}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies C^* = A\cdot (\bar Q)^{1/h} \tag{4}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;for some constant $A &amp;gt;0$. To complete the solution, we need to express the object of interest, $C^*$, in terms of the exogenous entities: $r,w,\bar Q$.&#xA;To do that derive the optimal marginal cost (which is equal to the multiplier)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$(4) \implies \lambda^* = (1/h)A(\bar Q)^{1/h-1} \tag{5}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Inserting $(5)$ into the first-order conditions we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$r = (1/h)A(\bar Q)^{1/h-1} F_K,\;\;\; w=(1/h)A(\bar Q)^{1/h-1} F_L  \tag{6}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is time to use the specific functional form of the production function&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$F(K,L) = K^{1/2} + L^{1/2} \implies, F_K = \frac 12 K^{-1/2},\;\; F_L = \frac 12 L^{-1/2} \tag{7}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Inerting $(7)$ into $(6)$ together with $h=1/2$ we obtain, after manipulation,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$rK = \frac {A^2}{r}(\bar Q)^2,\;\; wL = \frac {A^2}{w}(\bar Q)^2 \tag{8}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sum the two to obtain an alternative expression for the Cost function&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$rK+wL = C^* = A(\bar Q)^2\cdot \left[\frac Ar + \frac Aw\right] \tag{9}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But inserting $h=1/2$ into $(4)$, we also have that &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$C^* = A(\bar Q)^2 \tag{10}$$&#xA;So&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ (9),(10) \implies   A(\bar Q)^2\cdot \left[\frac Ar + \frac Aw\right] = A(\bar Q)^2$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies \frac Ar + \frac Aw = 1 \implies A = \frac {wr}{w+r} \tag {11}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Inserting $(11)$ into $(4)$ we conclude obtaining&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$C^* = \frac {wr}{w+r}\cdot (\bar Q)^2 \tag{12}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Three things:&lt;/strong&gt;&lt;br&gt;&#xA;&lt;strong&gt;A)&lt;/strong&gt; Verify that the second-order-conditions hold for all this to indeed lead to the optimal cost-function.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;B)&lt;/strong&gt; Solve the unconstrained profit-maximization problem with the same production function, normalizing the price of output to $p=1$ (i.e. treating the exogenous prices, $w,r$ as expressed in real terms), to verify that it will lead to a cost level that it is consistent with $(12)$.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;C)&lt;/strong&gt; If you are interested in the theory of the firm under a budget constraint, a related paper is&#xA;&lt;a href=&quot;http://www.jstor.org/stable/1242132?seq=1#page_scan_tab_contents&quot; rel=&quot;noreferrer&quot;&gt;&lt;strong&gt;Lee, H., &amp;amp; Chambers, R. G. (1986). Expenditure constraints and profit maximization in US agriculture. American Journal of Agricultural Economics, 68(4), 857-865.&lt;/strong&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-08-07T15:23:47.167" LastActivityDate="2015-08-07T15:23:47.167" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5274" PostTypeId="2" ParentId="5269" CreationDate="2015-04-23T03:35:06.290" Score="0" Body="&lt;p&gt;&quot;Your solution&quot; is the &lt;em&gt;Future Value (FV)&lt;/em&gt; of the payments schedule as though you were saving money on $8\%$ interest calculated yearly, and made no withdrawals at all.  So this value &lt;em&gt;exists two years in the future&lt;/em&gt;, and not now. Your solution &lt;strong&gt;sends the payment schedule to a single point in the future&lt;/strong&gt;. Laura says to the school &quot;instead of paying $15,000$ now and $15,000$ one year from now to receive services up until the end of the 2nd year, it is the same to pay $33,696$ at the end of the second year&quot; (assuming that the school operates indeed under an $8\%$ interest rate, in the sense that the school will have to borrow the money and at the end of the 2nd year repay them with interest. You will have save the money at the same interest and you will have the nominal amount needed).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But the exercise asks for the &lt;em&gt;Present Value (PV)&lt;/em&gt; of this payment schedule. &lt;strong&gt;It asks to bring the payment schedule to the single point that it is &quot;now&quot;.&lt;/strong&gt; Here, Laura says to the school &quot;instead of the payment schedule of nominal value $30,000$ that you propose it is the same if I pay you now $28,889$&quot; -because the school will receive $15,000$ one year earlier than planned and it will have the opportunity to save it at a $8\%$ interest rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Both are legitimate concepts of course, they both calculate the value of a payment schedule spread out in time, if it were to be compacted into a single payment -but &lt;em&gt;each calculates this value for a different point in time&lt;/em&gt;.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-04-23T03:35:06.290" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5275" PostTypeId="1" CreationDate="2015-04-23T06:43:03.900" Score="1" ViewCount="28" Body="&lt;p&gt;I want to read some papers about negative and positive aspects of doing a lot of development projects by government funding from the viewpoint of macroeconomics. However, I can't find anything by searching in google. Can you suggest some papers or a way for finding some papers in this topic?&lt;/p&gt;&#xA;" OwnerUserId="4513" LastEditorUserId="43" LastEditDate="2015-04-23T14:40:58.333" LastActivityDate="2015-04-23T14:40:58.333" Title="Papers about doing development projects by government funding" Tags="&lt;macroeconomics&gt;&lt;reference-request&gt;&lt;development-economics&gt;" AnswerCount="0" CommentCount="0" ClosedDate="2015-08-13T19:14:46.767" ContentLicense="CC BY-SA 3.0" />
  <row Id="5276" PostTypeId="1" AcceptedAnswerId="5283" CreationDate="2015-04-23T09:42:32.613" Score="3" ViewCount="100" Body="&lt;p&gt;I'm new to this subject, and I'm looking for papers on measuring the 'quality' of institutions and their possible role in the development of a country.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;ANy help would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="118" LastActivityDate="2015-04-28T10:11:05.837" Title="Papers on measuring institutions" Tags="&lt;microeconomics&gt;&lt;development&gt;&lt;institutions&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5277" PostTypeId="2" ParentId="5258" CreationDate="2015-04-23T10:56:33.217" Score="3" Body="&lt;p&gt;&lt;strong&gt;TL;DR: I think the most probable reason is a (close to) constant supply of everything and that the demand for everything is declining but we have a slower decline in demand for keys.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lets start with the &lt;strong&gt;supply side&lt;/strong&gt; first:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Most items (as I understood) are created by playing the game. So when you play you generate these items and as people are (obviously) playing this game they are created and we have a supply. Assuming that there is no significant change in the games that are played, we get a constant supply of &quot;most items&quot; (i.e., weapons, metals) $s_n$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Keys however, are bought by players. I am assuming that players will also buy a constant amount of keys $s_k$ (which is probably not true, but I will discuss that later).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now the &lt;strong&gt;demand side&lt;/strong&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You said metal, guns and stuff like that is either used as as it is or used to create an item. You never said anything about consuming these items, so I guess (is this true?) that, once you have an item you keep it and don't need it anymore. Therefore, if the player base is not increasing fast enough, the demand will decrease at a certain rate $d_n$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The key are used to generate items of 3 different kinds (I hope I got that right): normal items (like above), hats (which can not be found and are pretty rare) and consumable items (like MvM). Normal items have a change in demand which is $d_n$ (as we defined it like that), hats have a slower decrease in demand, as they are a) more rare (and therefore more people still need them) and b) are randomly created (which means if one wants one specific (but very rare item) one has to open many chests), therefore their decrease in demand is lower $d_h &amp;lt; d_n$. The last item we can get is consumable, so I think it is save to assume that here the demand is also not decreasing that much as they are consumed, i.e. $d_c &amp;lt; d_n$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Combining demand and supply&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, what do we have? We have seen, that the difference between the change in supply $s_n$ and the change in demand $d_n$ of normal goods (lets call it $e_n = s_n - d_n$) is negative, so there if there would have been a (real and fixed) currency in this universe, the price would be dropping.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What about keys? Here we also have that the difference is decreasing, but at a much slower rate (as $e_k = s_k - d_k &amp;lt; s_k - d_n = s_n-d_n$). Therefore the relative price of keys, compared to the price of normal goods should be increasing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Why has it just started now?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There could me many reasons for that, some of them could be:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;not enough new players (many old players have most of the normal things and therefore only need keys)&lt;/li&gt;&#xA;&lt;li&gt;not enough old players are leaving (pretty much the same as with not&#xA;enough new players)&lt;/li&gt;&#xA;&lt;li&gt;we have a higher normal item drop rate that we are used to (maybe due to&lt;/li&gt;&#xA;&lt;li&gt;MvMs or something like that?) they added new normal items before that&#xA;on a regular basis and now slowed down / stopped&lt;/li&gt;&#xA;&lt;li&gt;...&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Could one change this?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sure, just check every possible demand and supply effect, you could for example buy many normal items (increases $d_n$), sell many keys (increases $s_k$), many people could ignore keys (decreases $d_k$) or don't sell normal items any more (decreases $s_n$). Another way to change the price in the right direction could be to get a constant stream of new players, which grows larger and larger over time or get enough old players to stop playing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As an economist, I actually see no point in doing that, the market seems to be working like it should. If the designers want to change this, they could do that pretty easily, e.g. by adding new normal items, increasing prices of the keys, add great and expensive consumable items that use up normal items, randomly destroying normal items or just decreasing the normal item drop rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Remarks:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Constant amount of keys:&lt;/em&gt; We don't really need a constant amount of keys bought, but that the supply of keys is not increasing much faster than the supply of normal items, so the assumption is not as bad as it sounds.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Other reasons?&lt;/em&gt; There are probably other possible explanations, but this one seems, at least to me, the most likely.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Some additional remarks, not really related to your question:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;You might be thinking,&quot; If it is a barter system, why do prices&#xA;  exist?&quot; The price part, comes from a community of people. This site,&#xA;  called Backpack TF is one of the (if not) biggest sites that give item&#xA;  value guide lines.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This is actually not surprising to an economist, in the end every market is is some kind of &quot;barter system&quot;.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;When a new [crate] is released, it can have a high initial value, that&#xA;  decays with time.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This is also expected, as the demand is pretty high from the start but the supply is (pretty much) constant over time.&lt;/p&gt;&#xA;" OwnerUserId="120" LastActivityDate="2015-04-23T10:56:33.217" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="5278" PostTypeId="1" CreationDate="2015-04-23T14:58:42.533" Score="4" ViewCount="443" Body="&lt;p&gt;Why are some currencies like CAD, AUD known as commodity currencies?&lt;/p&gt;&#xA;" OwnerUserId="2879" LastActivityDate="2015-09-19T04:48:11.457" Title="Why are CAD, AUD known as commodity currencies" Tags="&lt;currency&gt;&lt;commodities&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5279" PostTypeId="2" ParentId="5267" CreationDate="2015-04-23T15:29:48.663" Score="7" Body="&lt;p&gt;The translog function can be used not only in preferences but also in production and cost functions. I am not very familiar with its implications in consumer theory, but from the production point of view, i've seen it widely used.&lt;/p&gt;&#xA;&lt;p&gt;The Translog Function doesn't impose additivity and homogeneity, and hence Constant Elasticity of Substitution. This is interesting because it doesn't require a &amp;quot;smooth&amp;quot; substitution among the inputs (in production analysis). I guess that in consumer theory the interpretation would be similar.&lt;/p&gt;&#xA;&lt;p&gt;So basically, the translog function is less restrictive than a cobb-douglas. If you impose some restrictions while calculating the translog function parameters, you get a cobb-douglas function. That is why it is a &amp;quot;generalization&amp;quot;. In other words, the cobb-douglas is a specific case of the Translog function imposing additivity and homogeneity (i.e. imposing constant elasticity of substitution).&lt;/p&gt;&#xA;&lt;hr /&gt;&#xA;&lt;h1&gt;Edit: i added more info to reply your comment.&lt;/h1&gt;&#xA;&lt;p&gt;I think that the other reply is more complete than mine. But i'm just going to add something i consider useful for you to have a broader understanding. I assume that you're familiar with indifference curves. I refer you to &lt;a href=&quot;https://www.boundless.com/economics/textbooks/boundless-economics-textbook/consumer-choice-and-utility-5/theory-of-consumer-choice-53/mapping-preferences-with-indifference-curves-202-12329/&quot; rel=&quot;noreferrer&quot;&gt;this&lt;/a&gt; site (from where i took the graphs), in case you're not.&lt;/p&gt;&#xA;&lt;p&gt;An indifference curve is just a mapping of all the combinations of two (or more) goods that give you the same utility, or &amp;quot;make you happy at the same level&amp;quot;.&lt;/p&gt;&#xA;&lt;p&gt;First, see this indifference curve:&lt;/p&gt;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/rxiMa.png&quot; alt=&quot;Complements&quot; /&gt;&#xA;Fig 1: &lt;a href=&quot;https://www.boundless.com/economics/textbooks/boundless-economics-textbook/consumer-choice-and-utility-5/theory-of-consumer-choice-53/mapping-preferences-with-indifference-curves-202-12329/&quot; rel=&quot;noreferrer&quot;&gt;source&lt;/a&gt;&lt;/p&gt;&#xA;&lt;p&gt;This setting is known as &amp;quot;complements&amp;quot;. Because as you can see, adding one thousand units of good &lt;em&gt;x&lt;/em&gt; (that is moving to the right), without adding good &lt;em&gt;y&lt;/em&gt; (that is not move upwards) does not make you happier: you move along the indifference curve. Think of this as the left shoe and the right shoe. It is useless to have a thousand additional left shoes without adding a right shoe because they are &lt;strong&gt;perfect complements&lt;/strong&gt;.&lt;/p&gt;&#xA;&lt;p&gt;Now, look at this one:&#xA;&lt;img src=&quot;https://i.stack.imgur.com/F76Fd.png&quot; alt=&quot;Substitutes&quot; /&gt;&#xA;Fig 2: &lt;a href=&quot;https://www.boundless.com/economics/textbooks/boundless-economics-textbook/consumer-choice-and-utility-5/theory-of-consumer-choice-53/mapping-preferences-with-indifference-curves-202-12329/&quot; rel=&quot;noreferrer&quot;&gt;source&lt;/a&gt;&lt;/p&gt;&#xA;&lt;p&gt;This one is called &amp;quot;substitutes&amp;quot;. It's the opposite case to the complements. You can think of this as beef and chicken. You can cook using only beef, or you can &lt;em&gt;substitute&lt;/em&gt; and cook using only chicken. But you can cook with certain combination too, say 150 grams of beef and 100 grams of chicken beccause they are &lt;strong&gt;perfect substitutes&lt;/strong&gt; (Sorry, i couldn't come up with a better example but this one makes the point).&lt;/p&gt;&#xA;&lt;p&gt;Now, this extreme cases make easier to imagine all the settings that are &amp;quot;in the middle&amp;quot;. That is, two types of good that are not perfect complements neither perfect substitutes. Think of food and drinks. They can't be perfect substitutes because you can't have lots of food without drinks. The're not perfect complements either because the mix of food and drinks is not fixed. For this setting the cobb-douglas could be a nice approximation as can be seen in the next figure:&lt;/p&gt;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/brTSU.png&quot; alt=&quot;Cobb-Douglas&quot; /&gt;&lt;/p&gt;&#xA;&lt;p&gt;Fig 3: &lt;a href=&quot;http://www.yourarticlelibrary.com/economics/economic-problems/the-optimum-factor-combination-economics/36948/&quot; rel=&quot;noreferrer&quot;&gt;source&lt;/a&gt;&lt;/p&gt;&#xA;&lt;p&gt;Now, the Cobb-Douglas utility function doesn't solve everything, as it &lt;strong&gt;imposes&lt;/strong&gt; certain constraints by construction. For example, the line that goes from the origin through all the curves (the expansion path) is 45° and straight &lt;strong&gt;by construction&lt;/strong&gt;: it cannot be changed. This means that as you get richer (even infintely rich), your preferences over this goods remains constant. The formal name is &lt;em&gt;homotheticity&lt;/em&gt; or &lt;em&gt;homothetic preferences&lt;/em&gt;. This is empirically false, as it has been shown that the richer you are, you use a smaller share of your income for food. With Cobb-Douglas preferences, this cannot happen. Translog preferences relaxes this assumption.&lt;/p&gt;&#xA;&lt;p&gt;In the next figure, you have a utility map relaxing the homotheticity assumption:&lt;/p&gt;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/JaY1B.png&quot; alt=&quot;Non-homothetic preferences&quot; /&gt;&lt;/p&gt;&#xA;&lt;p&gt;Fig 4: &lt;a href=&quot;http://www.yourarticlelibrary.com/economics/economic-problems/the-optimum-factor-combination-economics/36948/&quot; rel=&quot;noreferrer&quot;&gt;source&lt;/a&gt;&lt;/p&gt;&#xA;&lt;p&gt;Think of this graph as good &lt;em&gt;y&lt;/em&gt; being food and good &lt;em&gt;x&lt;/em&gt; being entertainment. As you get richer (or farther from the origin), you will destin more of your income to entertainment.&lt;/p&gt;&#xA;&lt;p&gt;Finally, i will talk about the Elasticity of Substitution which is known as &lt;span class=&quot;math-container&quot;&gt;$\sigma$&lt;/span&gt; (sigma) which can be imagined as being the curvature of the indifference curve. In the Fig 1, the perfect complements &lt;span class=&quot;math-container&quot;&gt;$\sigma = 0$&lt;/span&gt;: No curvature. In the perfect substitutes, &lt;span class=&quot;math-container&quot;&gt;$\sigma = infinity$&lt;/span&gt;: straigt line. In Cobb-Douglas, &lt;span class=&quot;math-container&quot;&gt;$\sigma = 1$&lt;/span&gt;: a slight curvature. Nonetheless, as you get richer (distant to the origin), this Elasticity of substitution remain constant in the three settings. Even in the non homothetic preferences seen in Fig 4, the elasticity of substitution remains constant. These are the **Constant Elasticity of Substitution (CES)**preferences. But what if you allow the curve to have different shapes as you get richer? Look at Fig 5:&lt;/p&gt;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/Beywy.png&quot; alt=&quot;Non CES preferences&quot; /&gt;&lt;/p&gt;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.boundless.com/economics/textbooks/boundless-economics-textbook/consumer-choice-and-utility-5/theory-of-consumer-choice-53/mapping-preferences-with-indifference-curves-202-12329/&quot; rel=&quot;noreferrer&quot;&gt;source&lt;/a&gt;&lt;/p&gt;&#xA;&lt;p&gt;In this example, the indifference curves get less elastic every time. Hence, they are not CES preferences. The advantage of the Translog preferences is that, since you don't impose neither CES neither homotheticity, you can test this hypothesis with observed data. You can see that the Translog utility function is much less restrictive than the Cobb-Douglas preferences.&lt;/p&gt;&#xA;&lt;p&gt;As a final remark, i shall say that it can be the case that you do not reject the hypothesis of homotheticity, CES and &lt;span class=&quot;math-container&quot;&gt;$\sigma = 1$&lt;/span&gt; in a dataset of observed behavior. This would leave you in a Cobb-Douglas preferences setting. So, by using Translog you're not necessarily ruling out Cobb-Douglas.&lt;/p&gt;&#xA;" OwnerUserId="4409" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2015-04-28T10:46:00.027" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5280" PostTypeId="2" ParentId="4976" CreationDate="2015-04-23T16:25:47.283" Score="3" Body="&lt;p&gt;The proposal is to prohibit fractional reserve banking. So if enacted, Icelandic banks would have to have at least as much in reserves as they have in checking deposits. To do any lending, the bank would need to raise funds either from it's equity holders or by borrowing from investors. A number of US economists, such as Chicago economist John Cochrane, have endorsed this idea.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The main reason for abolishing fractional reserve banking is to eliminate the potential for bank runs. Standard banks don't keep enough money in reserve to pay out everyone's deposits, but they are obligated to let anyone withdraw their deposits at any time. Thus, if too many people withdraw at once the bank can go bankrupt, and that possibility of loosing their deposit in turn &lt;em&gt;causes&lt;/em&gt; everyone to try to withdraw at once. It's a self-fulfilling panic that can happen at anytime, and doesn't necessarily even need to be caused by anything in particular. In economics terms, fractional reserve banking has two equilibria at all times: the normal one with deposits and lending, and the bank run equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The US and most countries have tried to elimintate the bank-run equilibrium by insuring deposits--this is what the FDIC does. The problem, as countries like Cyprus found, is that if depositors don't believe the government really has the resources to pay out the full insured deposit amount for everyone, then you can still get a bankrun, this time not merely wiping out the banks and everyone's savings, but also the government's finances as well. Small countries that can't borrow and lend in their own currency are especially vulnerable here. Iceland does have its own currency, but often does business in US dollars or Euros anyway.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Additionally, there is concern that fractional reserve banking could lead to increased risk-taking by banks, since part of the risk is born by the depositors who (it is assumed) aren't as sophisticated as equity investors at measuring the banks' risks.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The drawback, of course, is that this likely makes checking more expensive to depositors since the bank can no longer lend the money out to make interest. Presumably it won't lead to higher borrowing costs because the central bank would offset the inability to lend out deposits with a larger base money stock, but it could exacerbate inequality as depositors would no longer share the returns to banks' investments (think Mr. Potter vs Bailey Savings and Loan from the movie &quot;It's a Wonderful Life&quot;).&lt;/p&gt;&#xA;" OwnerUserId="4514" LastActivityDate="2015-04-23T16:25:47.283" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5281" PostTypeId="2" ParentId="4763" CreationDate="2015-04-23T17:07:56.367" Score="2" Body="&lt;p&gt;Step 1) Improved manufacturing efficiency would lower the marginal cost of production for firms, thusly lowering the average total cost per unit.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Step 2) In a generic competitive market, lower ATC leads to profits in the short run, and increased number of producers in the long run.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Step 3) Increased number of producers moves the supply curve to the right (increasing supply), and the resulting equilibria has a lower price and a higher quantity. Profits for the individual firms decline as price falls, settling again at zero.&lt;/p&gt;&#xA;" OwnerUserId="4185" LastActivityDate="2015-04-23T17:07:56.367" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5282" PostTypeId="2" ParentId="5276" CreationDate="2015-04-23T17:40:46.623" Score="4" Body="&lt;p&gt;Daron Acemoglu's papers on institution could be a very good way to enter in this kind of issues. &lt;/p&gt;&#xA;" OwnerUserId="2938" LastActivityDate="2015-04-23T17:40:46.623" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5283" PostTypeId="2" ParentId="5276" CreationDate="2015-04-23T18:33:29.857" Score="4" Body="&lt;p&gt;&quot;Institutions&quot; can be defined in many ways... I will guess some things that might interest you:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Transparency international measures every year &lt;em&gt;corruption perceptions&lt;/em&gt; in many countries.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The World Bank also measures many aspects of instutional framework of countries, for example 'ease of doing business'.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;OECD does a lot of analysis, you might find something interesting.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Definitely check out Daron Acemoglu's work and maybe you can get some ideas from Niall Ferguson.&lt;/p&gt;&#xA;" OwnerUserId="4193" LastActivityDate="2015-04-23T18:33:29.857" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5284" PostTypeId="1" CreationDate="2015-04-23T20:23:27.833" Score="12" ViewCount="283" Body="&lt;p&gt;I'm interested to know economic justifications of forgetting in various fields.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On example is &lt;a href=&quot;http://www.nuff.ox.ac.uk/users/klemperer/IO_Files/nooncooperative%20collussion%20green%20and%20porter.pdf&quot;&gt;Green and Porter(1984)&lt;/a&gt;. To sustain a Cartel, Cartel members have incentive to forget deviations in a sufficiently distant past.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another is &lt;a href=&quot;https://www.sabanciuniv.edu/HaberlerDuyurular/Documents/DD20061109143555/MehmetEkmekci.pdf&quot;&gt;Ekmekciy(2011)&lt;/a&gt; which shows that a rating system works better if it stops publicize misconducts, once they're old enough.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Literature on a more abstract level is also welcomed, e.g. results like it's more socially desirable in a dynamic games, some agents are restricted to stationary strategies.&lt;/p&gt;&#xA;" OwnerUserId="73" LastEditorUserId="73" LastEditDate="2015-04-23T20:41:54.273" LastActivityDate="2015-09-24T14:40:22.320" Title="Economics of forgetting" Tags="&lt;game-theory&gt;&lt;reference-request&gt;&lt;uncertainty&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5285" PostTypeId="1" CreationDate="2015-04-23T20:27:40.463" Score="10" ViewCount="932" Body="&lt;p&gt;I've been given a question which I'm struggling with:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Take the standard Prisoner's Dilemma game and consider it is played twice. (Players observe the outcome of the first game before playing the second). Consider beliefs in terms of which node player 2 is in their information set. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Find a weak perfect bayesian equilibrium (strategies and beliefs) where the strategies aren't a sub-game perfect equilibria.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So in the Prisoner's Dilemma:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Defect, Defect) is unique nash and so is also the unique sub-game perfect equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;But how can we get a weak perfect bayesian equilibrium that doesn't involve Defect? Surely this is strictly dominant . . .&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is the question wrong?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It then goes on to ask for sequential equilibria (where we consider the sequence of mixed strategies). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this question wrong or am I misunderstanding these concepts?&lt;/p&gt;&#xA;" OwnerUserId="4515" LastActivityDate="2015-09-10T03:16:49.797" Title="Perfect Bayesian Equilibrium" Tags="&lt;game-theory&gt;&lt;bayesian-game&gt;" AnswerCount="1" CommentCount="11" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5286" PostTypeId="1" CreationDate="2015-04-23T21:59:24.173" Score="3" ViewCount="247" Body="&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/xg6Fo.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question I'm dealing with:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Let $x=3$, find any Nash equilibrium in pure or mixed strategies.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I have observed that the pure strategy Nash equilibrium is $(u,r)=(3,3)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The answer to this question is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$(\pi^*,\rho^*)=(1,0)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Am I correct in interpreting the above as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given the PSNE of $(u,r)$, the row player will play $u$ with probability $1$ and the column player will play $r$ with probability $1-0=1$?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks&lt;/p&gt;&#xA;" OwnerUserId="4201" LastEditorUserId="4201" LastEditDate="2015-04-23T22:21:34.047" LastActivityDate="2015-04-26T12:07:08.757" Title="Finding a nash equilibrium in pure or mixed strategies" Tags="&lt;game-theory&gt;" AnswerCount="1" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="5287" PostTypeId="2" ParentId="5230" CreationDate="2015-04-23T22:20:38.830" Score="2" Body="&lt;p&gt;The min operation is known as a Leontief production function &lt;a href=&quot;http://en.wikipedia.org/wiki/Leontief_production_function&quot; rel=&quot;nofollow&quot;&gt;http://en.wikipedia.org/wiki/Leontief_production_function&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You're right that with Leontief production functions, the equilibrium is always aE=uK, which is to say that production is linear, and factors are consumed in fixed proportion. There are some real world examples for this: to drive, for example, you need a car and wheels in an exact 1:4 proportion, and having 6 wheels per car doesn't let you produce anything more than 4 wheels per car. But for the most part the aim is just to motivate a linear approximation to a multi-sector economy, which we can easily plug into a computer and run economy-wide computations with. We didn't have high powered computers in those days (c. 1950), so computing multi-sector non-linear production technologies was simply out of the question.&lt;/p&gt;&#xA;" OwnerUserId="4514" LastActivityDate="2015-04-23T22:20:38.830" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5288" PostTypeId="1" AcceptedAnswerId="5296" CreationDate="2015-04-24T01:59:43.670" Score="3" ViewCount="493" Body="&lt;p&gt;I am studying for a Macroeconomics Test on the Money Market and was wondering how the Demand Curve for Money would shift when there are changes in Taxation, Income, and Price Levels? (i.e. it would move to the left / right because...)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is the graph and slide I am referring to:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/Zq68u.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If anyone can help explaining this I would really appreciate it!&lt;/p&gt;&#xA;" OwnerUserId="2748" LastActivityDate="2015-04-24T09:20:01.640" Title="Macro Economics Question: How will this curve shift?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5289" PostTypeId="2" ParentId="5267" CreationDate="2015-04-24T02:57:28.857" Score="4" Body="&lt;p&gt;In&lt;br&gt;&#xA;&lt;a href=&quot;http://www.jstor.org/stable/1927286?seq=1#page_scan_tab_contents&quot; rel=&quot;nofollow&quot;&gt;Arrow, K. J., Chenery, H. B., Minhas, B. S., &amp;amp; Solow, R. M. (1961). Capital-labor substitution and economic efficiency. The Review of Economics and Statistics, 225-250.&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;the authors introduced the C.E.S function to generalize the Cobb-Douglas production function as regards the elasticity of substitution parameter, which in the C.E.S. case is not constrained to be equal to unity as is in the CD case. But it is constant throughout the input space.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;12 years later,&#xA;&lt;a href=&quot;http://www.jstor.org/stable/1927992?seq=1#page_scan_tab_contents&quot; rel=&quot;nofollow&quot;&gt;Christensen, L. R., Jorgenson, D. W., &amp;amp; Lau, L. J. (1973). Transcendental logarithmic production frontiers. The review of economics and statistics, 28-45.&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;introduced the &quot;&lt;strong&gt;translog&lt;/strong&gt;&quot; specification by writing in the introduction, (bold my emphasis),&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;...the class of production possibility frontiers that are homogeneous and additive....coincide with the class of frontiers with&#xA;  constant elasticities of substitution... For more than one product or&#xA;  &lt;strong&gt;more than two factors of production&lt;/strong&gt;,&#xA;  &lt;strong&gt;constancy of elasticities of substitution and transformation is highly restrictive&lt;/strong&gt;... Our approach is to represent the production&#xA;  frontier by &lt;strong&gt;functions that are quadratic in the logarithms of the&#xA;  quantities of inputs&lt;/strong&gt; and outputs.&#xA;  &lt;strong&gt;These functions provide a local second-order approximation to any production frontier&lt;/strong&gt;...&quot;&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;and later&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;Our objective is to develop tests of the theory of production that &lt;strong&gt;do not employ additivity and homogeneity as part of the maintained hypothesis&lt;/strong&gt;.&quot;&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Note carefully that by &quot;homogeneity&quot; the authors clarify that they mean &lt;em&gt;homogeneity of degree one&lt;/em&gt; (i.e. &quot;constant returns to scale&quot;), while properly and mathematically speaking, a homogeneous function can have any degree of homogeneity. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, Christensen et al. note that &quot;additivity&quot; in their approach is equivalent to the concept of &quot;strong separability&quot; in the utility context. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a utility context the &quot;output&quot; is one -utility-, and in macroeconomics, the predominant approach has just one input (consumption). In such a framework there is no point in using the translog.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the case where we want to model also leisure labor-choice, and we make the utility function, bivariate, then in the theoretical specification we predominantly use &lt;em&gt;separable preferences&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The translog specification has more of an empirical focus. By estimating a translog specification, one obtains coefficients estimates that can be used to &lt;em&gt;test&lt;/em&gt; whether additivity and homogeneity holds in the data, while in the CD and CES functions, these properties are not testable. Another advantage is that the translog specification is suitable for a many-inputs/many outputs situation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Jorgenson and Lau moved to apply the translog function to a Utility context in &#xA;&lt;a href=&quot;http://www.nber.org/chapters/c10218.pdf&quot; rel=&quot;nofollow&quot;&gt;Jorgenson, Dale W., and Lawrence J. Lau. (1975), &quot;The structure of consumer preferences.&quot; Annals of Economic and Social Measurement, Volume 4, number 1. NBER, 1975. 49-101.&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;They write&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;By employing direct and indirect translog utility functions with time-varying preferences we can test additivity, homotheticity, and&#xA;  stationarity restrictions rather than maintaining these restrictions&#xA;  on preferences as part of our econometric model.&quot;&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-04-24T03:17:24.663" LastActivityDate="2015-04-24T03:17:24.663" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5293" PostTypeId="5" CreationDate="2015-04-24T03:33:08.610" Score="0" Body="" OwnerUserId="-1" LastEditorUserId="-1" LastEditDate="2015-04-24T03:33:08.610" LastActivityDate="2015-04-24T03:33:08.610" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5294" PostTypeId="4" CreationDate="2015-04-24T03:33:08.610" Score="0" Body="Industrial organization is a field that builds on the theory of the firm by examining the structure of (and, therefore, the boundaries between) firms and markets. Industrial organization adds real-world complications to the perfectly competitive model, complications such as transaction costs, limited information, and barriers to entry of new firms that may be associated with imperfect competition." OwnerUserId="40" LastEditorUserId="40" LastEditDate="2015-04-24T19:18:28.520" LastActivityDate="2015-04-24T19:18:28.520" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5296" PostTypeId="2" ParentId="5288" CreationDate="2015-04-24T09:20:01.640" Score="1" Body="&lt;p&gt;You can look at IS-LM models in order to understand the intuituion more deeply. &#xA;In this graphic, IS curve shifts to left when there exists a demand-sided economic policy like government spendings etc. This will for sure increase the demand of people in economy, which will increase price levels.  If the price level increases, with the same quantity of money circulated in economy, the interest rate will increase. (you can see it on the graph) So, a central bank must control these kind of policies with a monetary policy in order to stabilize its inflation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The same logic in increase of income. This will increase demand, which will increase price levels and agents will need more quantity of money in order to realize their transactions. &lt;/p&gt;&#xA;" OwnerUserId="2938" LastActivityDate="2015-04-24T09:20:01.640" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5297" PostTypeId="2" ParentId="35" CreationDate="2015-04-24T12:54:17.997" Score="7" Body="&lt;p&gt;It is already written but Euler equation in continous time yields &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\dot{C}}{C}=\sigma(r-\rho)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $\sigma$ is intertemporal elasticity of substitution, $r$ interest rate and $\rho$ is the discount rate (impatience level).&lt;/p&gt;&#xA;" OwnerUserId="2938" LastActivityDate="2015-04-24T12:54:17.997" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5298" PostTypeId="2" ParentId="4991" CreationDate="2015-04-24T15:37:48.900" Score="1" Body="&lt;p&gt;The answer lays in the way liquidity provision of the central bank works. Conventional framework is probably best represented by the ECB. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The ECB sets the amount of liquidity provision so that the interest on the money market would match their key rate. The demand for central bank liquidity stems from the need to service interbank payments and to meet reserve averaging requirements of the central bank.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In your simplified example the volume of central bank lending appears out of thin air, but in fact the offered volume is calculated so that the banking system is able to meet reserve averaging requirements set by the central bank. So for the sake of clarity assume that the only outflow of reserves from the banking system is interest payments to the central bank. Then the central bank would offer increasingly higher amounts so that to meet the demand of the banking system.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think that the mechanism is best described in &lt;a href=&quot;https://www.ecb.europa.eu/pub/pdf/other/pp41-53_mb200205en.pdf&quot; rel=&quot;nofollow&quot;&gt;(ECB,2002)&lt;/a&gt; and a bit more at length in &lt;a href=&quot;http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1658232&quot; rel=&quot;nofollow&quot;&gt;(Fullwiller,2008)&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="2713" LastActivityDate="2015-04-24T15:37:48.900" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5300" PostTypeId="1" CreationDate="2015-04-24T19:22:09.200" Score="10" ViewCount="1653" Body="&lt;p&gt;Animals living in packs must have ways to decide how to distribute their goods among the pack members.  Just like prices can appear in an exchange economy, prices could appear in pack economy.  Though money can serve many different functions, are there examples of money-like objects (abstract symbols of value?) in the animal kingdom?&lt;/p&gt;&#xA;" OwnerUserId="4520" LastEditorUserId="43" LastEditDate="2015-04-24T22:03:54.133" LastActivityDate="2015-04-25T18:25:39.917" Title="Money in the animal kingdom" Tags="&lt;money&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5301" PostTypeId="2" ParentId="5300" CreationDate="2015-04-24T20:28:14.153" Score="9" Body="&lt;p&gt;The only use of money (other than by humans— who, it should be noted, lived for most of human history without it) in the animal kingdom that I'm aware of has been when researchers have taught other primates (&lt;a href=&quot;http://www.anderson.ucla.edu/faculty/keith.chen/papers/Final_JPE06.pdf&quot; rel=&quot;noreferrer&quot;&gt;Capuchin monkeys&lt;/a&gt;) how to use it. While the introduction of currency was apparently successful (&lt;a href=&quot;http://www.nytimes.com/2005/06/05/magazine/05FREAK.html&quot; rel=&quot;noreferrer&quot;&gt;there was Capuchin prostitution&lt;/a&gt;), the research did not go so far as to show that equilibrium prices would arise endogenously through exchange.&lt;/p&gt;&#xA;" OwnerUserId="264" LastEditorUserId="264" LastEditDate="2015-04-25T00:09:03.473" LastActivityDate="2015-04-25T00:09:03.473" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5302" PostTypeId="2" ParentId="5300" CreationDate="2015-04-24T21:31:15.910" Score="4" Body="&lt;p&gt;This might not exactly get at the get of situations you are interested in, but you might be interested in the famous &quot;Fairness-study&quot; on capuchin monkeys. You can find a quick account of the study in this video&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.youtube.com/watch?v=lKhAd0Tyny0&quot; rel=&quot;nofollow&quot;&gt;https://www.youtube.com/watch?v=lKhAd0Tyny0&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course, this is a lab, not strictly speaking in a natural environment. Also, there is no trade through money between monkeys themselves, only something that resembles monetary trading between the monkeys and the experimenters.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Maybe this only suggests that monkeys potentially have the ability of engaging into monetary trading? But that might be taking the  results of the experiment a little too far.&lt;/p&gt;&#xA;" OwnerUserId="38" LastActivityDate="2015-04-24T21:31:15.910" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5303" PostTypeId="1" CreationDate="2015-04-24T21:48:18.470" Score="2" ViewCount="94" Body="&lt;p&gt;This year in the UK a residential property crowdfunding platform propertypartner.co went live and I would like to understand it from economic point of view.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The idea is that a flat/house is purchased and within couple of weeks the necessary amount will be collected from individuals and companies, that can invest 50+ gbp. A special purpose vehicle limited company will be created and investors will get shares in it, according to the amount they contributed. Let's say a 200k GBP property will be assigned to a limited company with 1m shares and so one share costs 20pence on the primary market. The property will be rented out and rental income will be distributed between the shareholders, with yield roughly 3%.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I heard about Real Estate Investment Trusts (REIT) and it seems similar, but in this case you can trade shares in one particular property and have several properties in your portfolio. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Several weeks after the purchase has been finalised, shares can be traded on the secondary market - shareholders put N shares on sale for price P and buyers can purchase 1 or more shares (or not, if they are not satisfied with the price).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;After a long introduction couple of questions:&#xA;1. Share prices are denominated in pence, so a 19.95 pence share can go up to the nearest pence, 20 (and 21), so the potential profit will be 0.25% or  ~5% for 21p. I know about the effect of &lt;a href=&quot;http://www.investopedia.com/terms/d/decimalization.asp&quot; rel=&quot;nofollow&quot;&gt;decimalization on the stock market&lt;/a&gt; increased volumes somewhat significantly. Would lowering the price increment always increase volumes?&lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;2&quot;&gt;&#xA;&lt;li&gt;&lt;p&gt;Buyers have no way to signal how many shares they want to buy at what price, they can only buy at offered prices or wait. Is there a name for this type of marketplaces with only offer listings? Are there any advantages compared to the usual exchanges with bid/ask listings?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Every several months properties are reevaluated, currently property prices grow at about 10-20% per year in the UK. But interestingly shares of some properties on the secondary market cost &lt;em&gt;already&lt;/em&gt; +20% compared to the last valuation, especially these with unusually high yield (3.5-3.8%). I understand like with fixed income securities, unusually high yield will drive up prices. Interesting that properties with similar yield and potential growth characteristics trade at somewhat different premiums. I presume such illiquid markets have lots of irrationalities?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Let's imagine the whole residential rental market will be securitised in such way, would it increase/decrease chances of bubbles? Are there any interesting papers about it?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Thanks, my question is rather long and I will try to rephrase it clearer later..&lt;/p&gt;&#xA;" OwnerUserId="4518" LastActivityDate="2015-04-24T21:48:18.470" Title="residential property shares trading (similar to REIT)" Tags="&lt;markets&gt;&lt;housing&gt;" AnswerCount="0" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5304" PostTypeId="1" CreationDate="2015-04-25T14:50:04.353" Score="5" ViewCount="1170" Body="&lt;p&gt;The &lt;a href=&quot;http://en.wikipedia.org/wiki/Von_Neumann%E2%80%93Morgenstern_utility_theorem&quot; rel=&quot;nofollow&quot;&gt;von Neumann-Morgenstern&lt;/a&gt; theorem states that, assuming a person's preferences under risk satisfy certain rationality axioms, then there exists a utility function u, the von Neumann utility function, such that the person will tend to maximize the expected value of u.  For this reason, the hypothesis that people satisfy the von Neumann-Morgenstern rationality axioms is known as expected utility theory.  Now one of the major challenges for expected utility theory is the Ellsberg Paradox.  It goes as follows.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose you have an urn which has a total of 90 balls, 30 of which are red and each of the other 60 balls is either black or yellow.  And suppose a ball is drawn at random from the urn.  Then would you rather have lottery A, where you get 100 dollars if a red ball is drawn, or lottery B, where you get 100 dollars if a black ball is drawn?  Most people would prefer lottery A.  And would you rather have lottery C, where you get 100 dollars if you draw a red or yellow ball, or lottery D, where you get 100 dollars if you draw a black or yellow ball?  Most people would prefer lottery D.  But the thing is, preferring both lottery A to lottery B and lottery D to lottery C is inconsistent with expected utility theory; see &lt;a href=&quot;http://en.m.wikipedia.org/wiki/Ellsberg_paradox&quot; rel=&quot;nofollow&quot;&gt;this Wikipedia article&lt;/a&gt; for the proof.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'd like to understand this logic a little better.  Consider a new urn that just has 60 balls, and each ball is either black or yellow.  Then would you rather have lottery A', where you get 30 dollars guaranteed, or lottery B', where you get a dollar for every black ball in the urn?  I think most people would prefer lottery A'.  And would you rather have lottery C', where you get 30 dollars plus a dollar for every yellow ball in the urn, or lottery D', where you get 60 dollars guaranteed?  I think most people would prefer lottery D'.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So my question is, does it violate expected utility theory to prefer both A' to B' and D' to C'?  I think it's consistent with expected utility theory.  Assuming I'm right, couldn't you just change the currency from &quot;dollars&quot; to &quot;lottery tickets&quot; everywhere in my example, where a lottery ticket entitles you to a 1/90 chance of getting a 100 dollars?  That would transform my example into the example in Ellsburg's paradox.  So where's the flaw in my reasoning?&lt;/p&gt;&#xA;" OwnerUserId="4447" LastEditorUserId="4447" LastEditDate="2015-05-02T15:05:27.533" LastActivityDate="2015-05-03T06:17:34.477" Title="Question about the Ellsberg Paradox in Expected Utility Theory" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;expected-utility&gt;&lt;risk-aversion&gt;&lt;social-choice&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5305" PostTypeId="1" CreationDate="2015-04-25T15:42:19.227" Score="45" ViewCount="3213" Body="&lt;p&gt;I was reading on institutions, and I came across Acemoglu, Johnson and Robinson (AJR) paper on &lt;a href=&quot;http://economics.mit.edu/files/4123&quot;&gt;The Colonial Origins of comparative development: An Empirical Investigation&lt;/a&gt;, and this paper seemed so 'perfect' that spawned a lot of other papers based on the data of ancient settler mortality rate and how it was used by AJR as an IV for the current quality of Institutions in former colonies. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, as I began searching more on this paper, I found out that the paper is in fact ridden with errors, specially on data treatment. (&lt;a href=&quot;http://www.anderson.ucla.edu/faculty/jason.snyder/albouy.pdf&quot;&gt;Albouy's 2012&lt;/a&gt; comment on the same paper, published by The American Economic Review)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would like to know, if, besides this paper on development economics, are there any other seminal papers, in any area of economics, that later on were proven to have crucial mistakes/errors that invalidated the paper conclusions?&lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="4163" LastEditDate="2015-10-28T23:16:11.257" LastActivityDate="2020-12-16T20:00:25.560" Title="Seminal papers that later were proven to contain errors" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;" AnswerCount="9" CommentCount="4" FavoriteCount="27" ContentLicense="CC BY-SA 3.0" />
  <row Id="5306" PostTypeId="2" ParentId="5305" CreationDate="2015-04-25T15:59:06.147" Score="27" Body="&lt;p&gt;Kydland and Prescott's seminal paper on RBC theory uses a log-log specification on consumption-leisure preferences, arguing it is the only one that matches long-run constant share of working hours (one of the Kaldor facts).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is false. In fact, there's a whole class of additively-separable utility functions (King-Rebelo-Plosser, which were discovered (published) in the same decade) where income and substitution effects from labor income cancel and do not affect the working hours decision.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why it is relevant? Well, because their log-log specification gives them a huge Frisch elasticity, which is the only reason why they match labor. The capital stock (as opposed to investment) doesn't vary that much over the business cycle. It is then circular logic to get TFP shocks as Solow residuals from the data, feed them into a model where capital does not move that much, and observe that you get back $AF(K,L)$ (where $K$ is almost constant and $A$ comes from the data).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Don't get me wrong, it is still a very important paper, as it is the basis of most modern macro. But people at that time were astonished how good RBC fits the data. Well, if you don't fit labor data, the rest isn't that surprising.&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-04-25T15:59:06.147" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5307" PostTypeId="1" CreationDate="2015-04-25T16:18:36.023" Score="4" ViewCount="242" Body="&lt;p&gt;Thomas Piketty's best-selling book on inequality, &quot;Capital in the Twenty-First Century&quot; has attracted a lot of criticism on the right for its data analysis.  Less well-known, however, is the criticism it's gotten from economists on the Left.  Piketty uses an aggregate production function, where capital is represented by a single number K.  This is a fairly standard thing to do in mainstream economics, but back in the 1960's there was a major debate in economics called the Cambridge Capital Controversy, revolving around the fact that capital is heterogenous and thus it may not be legitimate to represent it by a single number.  So some economists argued that many standard conclusions in economists, like the notion that capital is paid its marginal product, are flawed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Paul Krugman disagrees with this critique of mainstream economics, so in &lt;a href=&quot;http://krugman.blogs.nytimes.com/2014/04/24/on-gattopardo-economics/&quot; rel=&quot;nofollow&quot;&gt;this blog pos&lt;/a&gt;t he defended Piketty from the charge that his conclusions depend on assuming a homogenous capital stock:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The thing to bear in mind, however, is that you really don’t need to&#xA;  reject standard economics either to explain high inequality or to&#xA;  consider it a bad thing.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;There are a few economists on the left who seem to believe that:&lt;/p&gt;&#xA;  &#xA;  &lt;ol&gt;&#xA;  &lt;li&gt;You need to believe in the existence of a perfectly well-defined aggregate measure of capital to believe in the marginal productivity&#xA;  theory of income distribution;&lt;/li&gt;&#xA;  &lt;li&gt;If you believe in, or even use, marginal productivity theory, you are conceding that capitalists deserve their income.&lt;/li&gt;&#xA;  &lt;/ol&gt;&#xA;  &#xA;  &lt;p&gt;Neither of these things are true. &lt;strong&gt;Nothing about marginal productivity&#xA;  theory depends on the exact truth of a simple aggregate production&#xA;  function with capital defined by a single number.&lt;/strong&gt; And saying that&#xA;  capital gets its marginal product in no way says that the people who&#xA;  own that capital deserve what they get.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;My question is about the statement in bold, where Krugman says that you can still get the conclusions of marginal productivity theory without assuming that capital can be described by a single number.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So my question is, what is the basis of Krugman's assertion?  Can someone point me to a proof of the statement &quot;capital is paid its marginal product&quot; which doesn't depend on homogenous capital?&lt;/p&gt;&#xA;" OwnerUserId="4447" LastEditorUserId="4447" LastEditDate="2015-04-28T05:09:09.563" LastActivityDate="2015-04-28T05:09:09.563" Title="Can capital still be paid its marginal product in the absence of a homogeneous capital stock?" Tags="&lt;production-function&gt;&lt;productivity&gt;&lt;inequality&gt;&lt;capital-structure&gt;&lt;capital-returns&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5308" PostTypeId="1" CreationDate="2015-04-25T16:48:07.180" Score="8" ViewCount="1167" Body="&lt;p&gt;A bank's basic function is to &quot;borrow short and lend long&quot;. In other words, it borrows money from depositors over the short term, promising to repay it on demand, while it lends most of that money out over the long term to borrowers, for instance in the form of 30-year mortgages. This difference between these time frames, known as maturity mismatch, leads to systematic problems for banking. It makes banks vulnerable to crises, because if all the depositors show up one day asking for their money, the bank can't give it to them, because it's been lent out to borrowers, so the bank becomes instantly insolvent, even if it had no financial troubles before the depositors were worried about the bank's solvency.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Indeed, this used to happen frequently in the 1800's and early 1900's, most prominently in the Great Depression, until the FDIC came about. The FDIC makes all the banks pay a premium, and in exchange, whenever there's a run on a bank, the FDIC gives the bank money so that it can meet all its depositors' demands (at least up to a cap, like a hundred thousand dollars per account).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is, in the absence of the FDIC, why wouldn't banks just obtain private deposit insurance? Whenever people have significant risks, even if they're small, they tend to buy insurance. You don't have a very great risk of dying tomorrow, or having a car accident, or having a flood in your house, but still you buy insurance just in case. Companies of all kinds do the same: stores buy liability insurance, fire insurance, etc. So why wouldn't banks insure their risks similarly?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And it's not like banks don't buy private insurance already. For instance, when they lend out money, they buy insurance in case the borrower defaults on a loan - it's called a credit default swap. (Those were partially responsible for the financial crisis of 2008.) So what reason would they have for not buying insurance in case their depositors' demands exceed their reserves?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is the problem that the premiums they would have to pay on the free market would be too high to make banking profitable anymore? If that's the case, then does that mean that the FDIC is not charging actuarially fair premiums to banks right now?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be greatly appreciated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank You in Advance.&lt;/p&gt;&#xA;" OwnerUserId="4447" LastActivityDate="2015-04-27T15:01:01.947" Title="What is the necessity of the FDIC in the US banking system?" Tags="&lt;risk&gt;&lt;banking&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5309" PostTypeId="2" ParentId="5305" CreationDate="2015-04-25T16:54:28.137" Score="19" Body="&lt;p&gt;This is freebee, but I'm gonna grab it: &lt;a href=&quot;http://galileo.stmarys-ca.edu/awilliam/Winter%202012-%20Moraga%20-%20Saturday%20and%20Santa%20Clara%20-%20GMAN%20503/documents/Growth_in_Time_Debt-reinhardandrogoff.pdf&quot;&gt;Reinhard and Rogoff (2010, AER pp)&lt;/a&gt; argued that there is critical level of government debt-to-gdp ratio at around 90%, arguing that countries that cross this level of leverage typically grow less.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ignoring the whole point of correlation versus causality, UMass student + coauthors [reference needed] showed that this result only holds when&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Using a specific, controversial weighting method that, iirc, was not emphasized in their paper&lt;/li&gt;&#xA;&lt;li&gt;Specific and controversial sample selection (as above)&lt;/li&gt;&#xA;&lt;li&gt;An error in their excel calculations that ignored some of the observations&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Only when all these three coexist, one gets the 90% as a specific intolerance level. Otherwise, while higher debt-to-gdp ratios might &lt;em&gt;correlate&lt;/em&gt; with smaller growth, there has been no study that shows a structural break / discontinuity at 90%. &lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-04-25T16:54:28.137" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="5310" PostTypeId="2" ParentId="5305" CreationDate="2015-04-25T17:40:10.437" Score="22" Body="&lt;p&gt;An influential paper by Angrst and Krueger (1991) used quarter of birth as an instrument for effect of schooling on earnings. Since compulsory schooling stops when you reach a certain age (so many dropout when they can).  However, it turned out that quarter of birth is not a good instrument, correlated with family background and thus also earnings.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Buckles and Hungerman (2013) show that date of birth is correlated with characteristics of the mother. So the instrument is not satisfying the exogeneity assumption (since mother characteristics are clearly correlated with wage). &lt;img src=&quot;https://i.stack.imgur.com/4spow.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/XeIFB.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.ncbi.nlm.nih.gov/pmc/articles/PMC3777829/&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.ncbi.nlm.nih.gov/pmc/articles/PMC3777829/&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="4193" LastEditorUserId="4193" LastEditDate="2020-04-27T10:39:05.847" LastActivityDate="2020-04-27T10:39:05.847" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="5311" PostTypeId="2" ParentId="5308" CreationDate="2015-04-25T17:42:46.363" Score="2" Body="&lt;p&gt;A lot has already been written about this topic and there is absolutely no historical evidence that liquidity related problems should occur in a banking system without a deposit insurance (because of some inherent features of the system) or that deposit insurance can prevent these problems.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A book called &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/1491540575&quot; rel=&quot;nofollow&quot;&gt;Fragile by design&lt;/a&gt;, published recently by Princeton University Press, shows through historical narrative that there existed banking systems without any kind of deposit insurance (and very little other regulation as well), Scotland in 18th and first half of the 19th century and Canada until the second half of the 20th century, that experienced practically no problems related to liquidity. On the other hand in the USA you had many experiements with deposit insurance (before FDIC) which all just exacerbated these problems (because of moral hazard and the fact that the such system is designed to previlege weak banks).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In today's financial markets it is likely that, as you said, private insurers would offer some kind of insurance to other banks. In historical periods in Scotland and Canada mentioned above no such products were avalible however, the insurance that banks used was either a optional clause on the banknotes that enabled banks to delay the payment of deposits in case of a bank run or an implicit insurance by other banks in the system (who were also interested in maintaining trust in the banking system). Although these mechanism were rarely used as runs on healthy (solvent) banks were rare.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you are interested in reading more about these historical periods I recommend you to look around the &lt;a href=&quot;http://www.alt-m.org/&quot; rel=&quot;nofollow&quot;&gt;Alt-M&lt;/a&gt; (ex free banking) blog or read the books by the scholars who post there, namely George Selgin and Larry White, the former has written a lot about the Scotland's experience with free banking.&lt;/p&gt;&#xA;" OwnerUserId="4363" LastActivityDate="2015-04-25T17:42:46.363" CommentCount="12" ContentLicense="CC BY-SA 3.0" />
  <row Id="5312" PostTypeId="2" ParentId="5300" CreationDate="2015-04-25T18:25:39.917" Score="4" Body="&lt;p&gt;Consider a standard exchange economy (agents are endowed with some set of goods that they will use to trade with others). Piccione and Rubenstein wrote a somewhat &lt;a href=&quot;http://arielrubinstein.tau.ac.il/papers/eqjungle.pdf&quot; rel=&quot;nofollow&quot;&gt;interesting paper&lt;/a&gt; about &quot;jungle equilibria&quot; of an exchange economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In their paper, allocations are decided by allowing more powerful animals are able to take goods from weaker animals (I don't think their preferences were necessarily monotonic -- i.e. I think there was satiation). They not only show that an equilibrium of this form exists, but that it is Pareto efficient (you can't make anyone better off without making someone else worse off).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Obviously this paper isn't exactly a model of the jungle, but the point is that there could be an equilibrium in the wild which follows a framework similar to this (and I think it is a cool paper and your question reminded me of it).&lt;/p&gt;&#xA;" OwnerUserId="47" LastActivityDate="2015-04-25T18:25:39.917" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5313" PostTypeId="2" ParentId="5307" CreationDate="2015-04-25T19:13:07.307" Score="1" Body="&lt;p&gt;&lt;strong&gt;Nothing about marginal productivity theory depends on the exact truth of a simple aggregate production function with capital defined by a single number&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Different sorts of capital used as separate production technologies prevent clean aggregation to a representative form of capital but does not prevent capital from being paid its marginal product.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To make things simple, consider an economy with two kinds of capital $k_1$ and $k_2$ and no labor. There is only a single final good ($y$) but are two separate production technologies $y_1$ and $y_2$ where $y_1 =  k_{1}^{\alpha_1}$ and $y_2 =  k_{2}^{\alpha_2}$. Then aggregate production of $y$ is:&#xA;$$y =  k_{1}^{\alpha_1} + k_{2}^{\alpha_2}$$&#xA;If $0 &amp;lt; \alpha_1 &amp;lt; \alpha_2 &amp;lt; 1$ then for positive rental rates on capital $r_1$ and $r_2$ it will be efficient to choose a positive amount of both types of capital such that for each type $i$: &#xA;$$ \alpha_i \cdot k_{i}^{\alpha_i - 1} = r_i\Rightarrow k_{i}^{*} = (r_i/\alpha_i)^{1/(\alpha_i - 1)} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is no single $k$ that represents capital in this economy. Sure you could define $k=k_1 + k_2$, but that wouldn't mean exactly the same thing. On the margin the two sorts of capital don't have the same product and so aggregation doesn't make sense here. But in this setting, it is likely that the rental rate on capital would be equated ($r_1 = r_2$) because why would you buy one sort of capital when the other sort paid more? &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2015-04-25T19:13:07.307" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5315" PostTypeId="2" ParentId="5305" CreationDate="2015-04-25T23:10:10.743" Score="35" Body="&lt;p&gt;My favorite example is the initial formulation of &lt;strong&gt;Arrow's impossibility theorem&lt;/strong&gt; in the first edition of Arrows' &quot;Social Choice and Individual Values&quot; (1951). In the first edition, Arrow claimed that, &lt;em&gt;together with 4 other conditions&lt;/em&gt;, the following domain condition&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;``The domain &lt;span class=&quot;math-container&quot;&gt;$\mathcal{D}$&lt;/span&gt; is sufficiently extensive so that there exists at least one free triple of&#xA;  alternatives. (A triple is called &lt;em&gt;free&lt;/em&gt; if all conceivable&#xA;  combinations of individual orderings of this triple actually occur in&#xA;  &lt;span class=&quot;math-container&quot;&gt;$\mathcal{D}$&lt;/span&gt;&quot; (rewording from Blau(1957))&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;implied that there exists no social welfare function &lt;span class=&quot;math-container&quot;&gt;$S : \mathcal{D} \rightarrow \mathcal{R}$&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$\mathcal{R}$&lt;/span&gt; is the set of all possible orderings (i.e. complete and transitive binary relations) over the set of alternatives &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This was later showed to be false by &lt;a href=&quot;http://www.jstor.org/discover/10.2307/1910256?uid=3739912&amp;amp;uid=2&amp;amp;uid=4&amp;amp;uid=3739256&amp;amp;sid=21106146998721&quot; rel=&quot;noreferrer&quot;&gt;Blau (1957) The Existence of Social Welfare Functions&quot; Econometrica Vol. 25, No. 2 (Apr., 1957), pp. 302-313&lt;/a&gt; who provided a counter-example. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Blau also showed (among other things) that the theorem could be corrected by replacing the above domain condition by the following condition&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;Universal domain :&lt;/strong&gt; the domain &lt;span class=&quot;math-container&quot;&gt;$\mathcal{D}$&lt;/span&gt; of the social welfare function contains every possible profile of preferences over the set&#xA;  of alternatives &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt; (with &lt;span class=&quot;math-container&quot;&gt;$|A| \geq 3$&lt;/span&gt;).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Arrow later corrected this mistake in &lt;a href=&quot;http://cowles.econ.yale.edu/P/cm/m12-2/&quot; rel=&quot;noreferrer&quot;&gt;the second edition of Social Choice and Individual Values (1963)&lt;/a&gt;, and the formulation of Arrow's theorem using the Universal domain condition has now become standard.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This being said, the initial error in the first edition of Arrow's book was rather minor, and the solution proposed by Blau does not reduce in any strong sense the importance of Arrow's result and approach. Intuitively, the conclusion remains that on a vast domain of relevant economic problems, no social welfare function satisfies a set of rather basic and reasonable conditions. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So this might not be exactly the kind of errors you were looking for (definitely a seminal paper though!), but I like the example so much I could not resist posting it . If such brilliant people like Arrow make these kind of mistakes, I guess it takes a little bit of the pressure off for everyone else?&lt;/p&gt;&#xA;" OwnerUserId="38" LastEditorUserId="38" LastEditDate="2018-11-21T16:18:21.540" LastActivityDate="2018-11-21T16:18:21.540" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="5316" PostTypeId="1" AcceptedAnswerId="5398" CreationDate="2015-04-25T23:57:11.253" Score="3" ViewCount="61" Body="&lt;p&gt;Imagine there is a continuum of firms in the economy. Each draws its productivity from the same stochastic process. The stochastic process has unbounded support.&#xA;The only securities in the economy are the firm's shares. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The claim is that markets are incomplete because the cardinality of the states of the world is $\aleph_2$ and the cardinality of the securities is $\aleph_1$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However one could also argue that since there is a continuum of firms, the strong law of large numbers applies and one knows exactly the proportion of firms that will get each shock, hence there is no risk (and markets would be complete)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which of the two statements is correct?&lt;/p&gt;&#xA;" OwnerUserId="4440" LastActivityDate="2015-04-29T21:20:18.610" Title="Can we have incomplete markets with a continuum of securities?" Tags="&lt;portfolio-theory&gt;&lt;complete-markets&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5317" PostTypeId="2" ParentId="5304" CreationDate="2015-04-26T00:00:38.647" Score="2" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;...one of the major challenges for expected-value theory is the Ellsberg Paradox.&quot;&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Hmm, but in what way? Elsberg paradox is &lt;em&gt;not&lt;/em&gt; like other related paradoxes surrounding Expected Utility theory, (like Allais' or Machina's).&#xA;In the Elsberg paradox &lt;em&gt;something is missing from the framework into which Expected Utility theory confines itself&lt;/em&gt;: there are &lt;em&gt;unknown probabilities&lt;/em&gt;, or &lt;a href=&quot;http://en.wikipedia.org/wiki/Knightian_uncertainty&quot; rel=&quot;nofollow&quot;&gt;&quot;Knightian Uncertainty&quot;&lt;/a&gt; -and Expected Utility theory is not constructed to operate in such an environment. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But then, Expected Utility theory is &lt;em&gt;not&lt;/em&gt; refuted by the Ellsberg Paradox. What the paradox does, is bringing to our attention that there exist real-world situations where Expected Utility is &lt;em&gt;inapplicable&lt;/em&gt;. I.e. it cannot be a &lt;em&gt;universal&lt;/em&gt; theory. But that should not be surprising: what theory in Social Sciences holds universally through space and time?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The value of the Ellsberg paradox is that it presses us to  modify Expected Utility theory, or come up with some complementary theory to handle cases where there exists &quot;Knightian Uncertainty&quot;, and decision makers neither know the actual probabilities nor do they form subjective probabilities -but they decide in ways we have yet to fully understand how to model (although &lt;a href=&quot;http://en.wikipedia.org/wiki/Ambiguity_aversion&quot; rel=&quot;nofollow&quot;&gt;&quot;&lt;strong&gt;ambiguity aversion&lt;/strong&gt;&quot;&lt;/a&gt;, which is the predominant way to rationalize the Ellsberg Paradox has by now been formalized to a large degree). &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;As regards the decision-making framework you create in the second part of the answer, I note that the &lt;strong&gt;&quot;Ellsberg's Paradox&quot;&lt;/strong&gt; is an &lt;em&gt;observed empirical phenomenon&lt;/em&gt;. You create another framework and you just say &quot;I think people would prefer this or that&quot; -and you neither have actual observations to back that up, nor even a theoretical and/or mathematical argument as to why you think &quot;people would prefer&quot; what you think they will prefer. So if the framework you created is equivalent to the one characterizing &quot;Ellsberg's Paradox&quot; (and you should write down the mathematics to show that), then I am afraid recorded experience refutes your impression about &quot;what people would prefer&quot; in the framework you created.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-04-26T00:00:38.647" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="5318" PostTypeId="2" ParentId="1621" CreationDate="2015-04-26T01:53:37.603" Score="10" Body="&lt;p&gt;This is only half a joke : Nash-equilibrium gives a very good prediction on the  relative size of groups of foraging ducks on a pond when two food sources are established at opposite sides of the pond.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/U7R3k.png&quot; alt=&quot;enter image description here&quot;&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A very good explanation can be found at &lt;a href=&quot;https://headbiotech.wordpress.com/nash-equilibrium-example-on-ducks/&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://headbiotech.wordpress.com/nash-equilibrium-example-on-ducks/&lt;/a&gt;, among other places (&lt;a href=&quot;https://headbiotech.wordpress.com/&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://headbiotech.wordpress.com/&lt;/a&gt;... is where the image comes from).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In my views, this example illustrates how the Nash-equilibrium solution concept sometimes matches the &quot;steady states&quot; of implicitly dynamic/repeated games.&lt;/p&gt;&#xA;" OwnerUserId="38" LastEditorUserId="38" LastEditDate="2018-07-05T07:47:39.850" LastActivityDate="2018-07-05T07:47:39.850" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="5319" PostTypeId="2" ParentId="262" CreationDate="2015-04-26T10:03:22.247" Score="4" Body="&lt;p&gt;There is a quantification of this &quot;utility monstrousness&quot; in the &lt;a href=&quot;https://en.wikipedia.org/wiki/Fair_division&quot; rel=&quot;nofollow&quot;&gt;fair division&lt;/a&gt; model. In that model, a resource has to be divided among $n$ partners, all of whom have the same rights to that resource but different preferences over parts of the resource. A division is called &lt;em&gt;fair&lt;/em&gt; (according to one definition) if each person receives at least $1/n$ of the resource according to his own valuation (so there is no inter-personal utility comparisons).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here, too, there is a tradeoff between fairness and social welfare. It is quantified by the &lt;a href=&quot;https://en.wikipedia.org/wiki/Price_of_fairness&quot; rel=&quot;nofollow&quot;&gt;Price of Fairness&lt;/a&gt; concept.&lt;/p&gt;&#xA;" OwnerUserId="385" LastActivityDate="2015-04-26T10:03:22.247" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5320" PostTypeId="1" AcceptedAnswerId="5338" CreationDate="2015-04-26T11:08:02.320" Score="3" ViewCount="3315" Body="&lt;p&gt;This is a question about the derivation of Arrow-Pratt relative risk aversion measure $R(w)=-\dfrac{U^{''}(w)}{wU^{'}(w)}$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have an own way to derive it, but I really want how did the authors themselves come up with it. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I do not own the book &quot;Essays in theory of risk-bearing&quot; (1971), where this has been done, and neither does the library in my university, so I can't settle this question on my own.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;All I can read in online reviews is that measure was designed to stay stable under positive affine transformations, and that it's a measure of the curvature since it has the second derivative in the denominator, but that still does not answer the question of why and how the authors actually derived it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="4523" LastActivityDate="2015-04-27T12:49:33.180" Title="Derivation of Arrow-Pratt risk aversion measure" Tags="&lt;risk-aversion&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5321" PostTypeId="2" ParentId="5286" CreationDate="2015-04-26T12:07:08.757" Score="2" Body="&lt;p&gt;Once again, thanks to denesp (and Herr K.) for the help. I thought that I'd try to answer the question just for reference purposes, and I guess that it's also a step toward improving the &quot;answers per question&quot; metric on Economics SE.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/TEwap.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As aforementioned, the PSNE is $(u,r)=(3,3)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Player 2&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;ul&gt;&#xA;  &lt;li&gt;If $P1$ plays $u$, $P2$ can play either $l$ or $r$.&lt;/li&gt;&#xA;  &lt;li&gt;$l$ would give $P2$ a payoff of $2$ whilst $r$ would give $P2$ a    payoff of $3$.&lt;/li&gt;&#xA;  &lt;li&gt;Therefore, $P2$ will play $r$ with probability $\pi=1$&lt;/li&gt;&#xA;  &lt;/ul&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Player 1&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;ul&gt;&#xA;  &lt;li&gt;If $P2$ plays $r$, $P1$ can play either $u$ or $d$.&lt;/li&gt;&#xA;  &lt;li&gt;$u$ would give $P1$ a payoff of $3$ whilst $d$ would give $P1$ a    payoff of $2$&lt;/li&gt;&#xA;  &lt;li&gt;Therefore, $P1$ will play $u$ with probability $1-\rho=1$, $\rho=0$.&lt;/li&gt;&#xA;  &lt;/ul&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;The result&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$(\pi^*,\rho^*)=(1,0)$&lt;/p&gt;&#xA;" OwnerUserId="4201" LastActivityDate="2015-04-26T12:07:08.757" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5322" PostTypeId="1" CreationDate="2015-04-26T13:32:26.697" Score="3" ViewCount="61" Body="&lt;p&gt;I'm doing an optimisation problem but don't understand what the terms mean.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose someone wants to invest $110,000.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;They have 4 choices as to what they invest their money into:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;municipal bond yielding 6%,&lt;/li&gt;&#xA;&lt;li&gt;an industrial bond yielding 13%,&lt;/li&gt;&#xA;&lt;li&gt;Treasury bills at 10%,&lt;/li&gt;&#xA;&lt;li&gt;certificates of deposit (CDs) at 9%.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I want to maximise their annual interest (in dollars)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are some constraints (which I haven't typed) but I just want to know what these terms mean. Say, they invest $27,500 on each one, what would their annual interest be (in dollars)?&lt;/p&gt;&#xA;" OwnerUserId="4526" LastEditorDisplayName="user4169" LastEditDate="2016-03-18T19:55:38.830" LastActivityDate="2016-03-18T19:55:38.830" Title="Optimisation of bonds" Tags="&lt;investment&gt;&lt;optimization&gt;&lt;linear-programming&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="5323" PostTypeId="1" AcceptedAnswerId="5329" CreationDate="2015-04-26T17:14:56.960" Score="1" ViewCount="642" Body="&lt;p&gt;I am trying to make a pie chart of value added by economic activity (as a % of gdp). I am trying to use data from world bank for each of the four sectors: manufacturing, agriculture, industry, services &lt;a href=&quot;http://data.worldbank.org/indicator/NV.IND.TOTL.ZS?display=default&quot; rel=&quot;nofollow&quot;&gt;http://data.worldbank.org/indicator/NV.IND.TOTL.ZS?display=default&lt;/a&gt; , but surprisingly the percentage share for each of those sectors, for one country do not add up to 100 but to 120. Why is that?&lt;/p&gt;&#xA;" OwnerUserId="4264" LastEditorDisplayName="user4239" LastEditDate="2015-04-27T13:02:32.853" LastActivityDate="2015-04-27T13:02:32.853" Title="Value added by sector of economic activity" Tags="&lt;macroeconomics&gt;&lt;statistics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5324" PostTypeId="1" CreationDate="2015-04-26T18:23:38.147" Score="1" ViewCount="2489" Body="&lt;p&gt;What is the effect of government reforms (unspecified) that decrease customer's confidence about their future wages (analysed using the IS-LM model)? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think that less confidence about future wages will cause people to save more (rise in MPS or equivalently a fall in MPC). This causes the autonomous component of the IS curve to decrease, and the gradient to become flatter.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Using the following model:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$Y = \frac{1}{(1-c_1-d_1)}\cdot A - \frac{d_2}{(1-c_1-d_1)}\cdot i $$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;According to my textbook, however, this is incorrect. It suggests that the IS curve is shifted to the right, leading to an increase in &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Could somebody kindly shed some light on this for me? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks!&lt;/p&gt;&#xA;" OwnerUserId="4527" LastEditorUserId="23083" LastEditDate="2019-12-15T14:41:29.470" LastActivityDate="2019-12-15T14:41:29.470" Title="IS-LM Effect of Change in Consumer Confidence" Tags="&lt;macroeconomics&gt;&lt;keynes&gt;" AnswerCount="0" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="5326" PostTypeId="1" CreationDate="2015-04-26T19:28:16.743" Score="1" ViewCount="1650" Body="&lt;p&gt;I have successfully done the UMP for perfect complements. I got &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$x^* = y^* = \frac{m}{p_x +p_y}$$&#xA;This makes intuitive sense  because for whichever good I have the least of, I don't want to buy more units of the other. So the total amount I should spend should be the optimum quantity times $p_x + p_y$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, I am completely lost about how to do the EMP version of this. I keep going in circles.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have done the Lagrangian and gotten for $x &amp;gt; y$,  $e = p_y \bar{U}$ and for $x &amp;lt;y$ that $e = p_x \bar{U}$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is my work: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://math.stackexchange.com/questions/1252173/can-one-optimize-a-function-with-minx-y-as-a-constraint/1252341#1252341&quot;&gt;https://math.stackexchange.com/questions/1252173/can-one-optimize-a-function-with-minx-y-as-a-constraint/1252341#1252341&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But this doesn't make sense to me.  don't see how this relates to the solution I got for the UMP which did make sense. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I am misunderstanding about the EMP that is leading to these nonsensical results that don't match what I did for the UMP?&lt;/p&gt;&#xA;" OwnerUserId="2679" LastEditorUserId="-1" LastEditDate="2017-04-13T12:19:37.213" LastActivityDate="2015-04-29T19:34:16.760" Title="Confusion about the EMP approach to perfect complements. Solved UMP but struggling with EMP" Tags="&lt;consumer-theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5327" PostTypeId="1" CreationDate="2015-04-26T20:18:47.600" Score="13" ViewCount="785" Body="&lt;p&gt;According to my personal observation the majority of (prominent) economists &lt;s&gt;prefer&lt;/s&gt; use Stata for their statistical analysis and Matlab for other mathematical work. SAS and Excel are also used (especially in finance). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In my opinion R is a much better software for data cleaning, manipulation and analysis than Stata (not to mention that Stata costs) it is also seems on par with Matlab in what it does best. But I guess (as a graduate student) it will not make cooperation very smooth using a different statistical program than the rest. Use Stata like everyone else or suffer?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus a student who is an 'R expert' should, if having to choose between two equal departments, choose the one that uses R. But does such a department exist? A department where at least few researchers use R?&lt;/p&gt;&#xA;" OwnerUserId="4193" LastEditorUserId="4193" LastEditDate="2016-02-14T13:27:05.050" LastActivityDate="2018-02-09T15:46:49.840" Title="R in econ departments?" Tags="&lt;software&gt;&lt;r&gt;&lt;stata&gt;" AnswerCount="4" CommentCount="6" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5328" PostTypeId="2" ParentId="5327" CreationDate="2015-04-26T20:56:40.987" Score="7" Body="&lt;p&gt;If you are only looking for &amp;quot;A department where &lt;strong&gt;at least few&lt;/strong&gt; researchers use R?&#xA;&amp;quot;, I believe you should be able to find plenty. In my department (Vanderbilt University), I can count &lt;em&gt;at least&lt;/em&gt; 3 grad students using R instead of Stata (oh and I guess with myself it makes 4 ;)).&lt;/p&gt;&#xA;&lt;p&gt;If you are looking for more heavily R-oriented econ department, you might have a harder time. Not necessarily because they do not exist, but because it is not all that easy to figure out (I suspect you don't want to personally ask every graduate students/professors of the departments you are interested in).&lt;/p&gt;&#xA;&lt;p&gt;Some informative signals might be publicly available however, such as :&lt;/p&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Do people at the department use R in their publications?&lt;/p&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;as suggested by Jan Hoffler, you may want to use the Replication Wiki to figure this out.&lt;/li&gt;&#xA;&lt;li&gt;You can also look at people's website in case they provide data and replication files for published papers.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Is the use of R encouraged in classes given by faculty members at the department?&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Does the department offer R tutorials?&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Are some of the professors/grad student openly R enthusiasts (again look at personal websites)?&lt;/p&gt;&#xA;&lt;p&gt;For instance :&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;This looks like a bad signal : &lt;a href=&quot;http://www.bbk.ac.uk/ems/for_students/it/free&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.bbk.ac.uk/ems/for_students/it/free&lt;/a&gt;&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;This looks like a good signal : &lt;a href=&quot;http://www.clemson.edu/economics/faculty/wilson/Software/FEAR/fear.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.clemson.edu/economics/faculty/wilson/Software/FEAR/fear.html&lt;/a&gt;&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="38" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2016-02-14T14:38:12.530" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5329" PostTypeId="2" ParentId="5323" CreationDate="2015-04-26T21:20:35.740" Score="2" Body="&lt;p&gt;The first line of your World Bank link gives you the explanation:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Industry corresponds to ISIC divisions 10-45 and includes&#xA;  manufacturing (ISIC divisions 15-37)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Hence, if you add up industry and manufacturing you count some activities twice, the divisions 15-37 that is.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But even if you take this into account you should not find 100% if you are adding up the value added of all the activities. Gross domestic product (GDP) is not the sum of the gross value added (GVA) of all the activities but:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;GDP = GVA + Taxes on products - Subsidies on products&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;According to &lt;a href=&quot;http://ec.europa.eu/eurostat/statistics-explained/index.php/Glossary:Gross_value_added_at_market_prices&quot; rel=&quot;nofollow&quot;&gt;Statistics Explained&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Gross value added of the total economy usually accounts for more than&#xA;  90 % of GDP&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So, the message is to check carefully the definitions and concepts used by the World Bank. &lt;/p&gt;&#xA;" OwnerDisplayName="user4239" LastEditorDisplayName="user4239" LastEditDate="2015-04-27T07:09:39.367" LastActivityDate="2015-04-27T07:09:39.367" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5330" PostTypeId="2" ParentId="5327" CreationDate="2015-04-26T21:23:40.397" Score="14" Body="&lt;p&gt;In my university the choice of&#xA;program is considered generally irrelevant. We focus on results, and it is up to each student to determine which program is best suited for the task and user preference.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You will find that using one language translates very well to another. With resources like stackoverflow, I would not be too concerned about which.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would very carefully consider the statement &quot;two equal universities&quot;. My experience has suggested to me such a thing does not exist, granting personal ambitions, career goals, and topic preference. I think programming choices are perhaps only a proxy for technical rigor and budget, little more.  Given you are only accepted to a finite number of schools, take time to evaluate this criteria closely.&lt;/p&gt;&#xA;" OwnerUserId="4185" LastEditorUserId="4185" LastEditDate="2015-04-27T15:07:04.530" LastActivityDate="2015-04-27T15:07:04.530" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5331" PostTypeId="2" ParentId="5327" CreationDate="2015-04-26T21:54:00.360" Score="7" Body="&lt;p&gt;Basically it's better to use the software your PI uses! First (s)he will be able to correct your code. Second, if you're a TA for a class using one software, it's better to handle it...&#xA;To find the faculty using R, either have a look at the papers/books published by one department. &lt;strong&gt;Or look at the R-packages published&lt;/strong&gt; in your field and find the authors.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I wouldn't look at the cost of a software, because the university often provided it for free or can reimburse you. (Of course you can prefer free softwares for other aspects but then it's not a budget constraint).&lt;/p&gt;&#xA;" OwnerUserId="4415" LastActivityDate="2015-04-26T21:54:00.360" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5332" PostTypeId="2" ParentId="5308" CreationDate="2015-04-26T21:54:15.933" Score="6" Body="&lt;p&gt;You provide a generally correct impression of history (i.e., there were lots of runs on banks by depositors in the US until federal deposit insurance was established— a good history is provided by &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/019992290X&quot; rel=&quot;noreferrer&quot;&gt;Gorton (2012)&lt;/a&gt;), and then ask three questions: why isn't deposit insurance provided through the private sector, is it because the free market equilibrium premiums would be too high, and if so, does this mean that the FDIC premiums are set too low?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To answer, we should first back up to the reason for deposit insurance generally, which is twofold:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Monitoring costs&lt;/li&gt;&#xA;&lt;li&gt;Bank runs are a stable equilibrium &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Then, we can discuss the reasons for government provision of deposit insurance specifically, which are:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Externalities  &lt;/li&gt;&#xA;&lt;li&gt;Monitoring costs (still)&lt;/li&gt;&#xA;&lt;li&gt;Moral hazard&lt;/li&gt;&#xA;&lt;li&gt;Systemic crises&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;The monitoring costs issue is a real one, and has been discussed in the literature by &lt;a href=&quot;http://faculty.chicagobooth.edu/douglas.diamond/research/papers/fidm%20small.pdf&quot; rel=&quot;noreferrer&quot;&gt;Diamond (1984)&lt;/a&gt;, among others. It's derived from a prinicpal-agent issue: foremost, depositors want bank management to make safe investments that ensure that their deposits can be returned with certainty, while bank management is encouraged by its equity holders to take on as much risk as possible (for a general discussion of this principal-agent problem in the theory of the firm, see &lt;a href=&quot;http://www.nber.org/papers/w8285&quot; rel=&quot;noreferrer&quot;&gt;Hart (2001)&lt;/a&gt;). In short, management isn't looking out for depositors, and it's really expensive to ask all depositors to be aware at all times about the state of a bank's investments. This is additionally difficult as a practical matter, as bank balance sheets are not paragons of transparency.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Further, as &lt;a href=&quot;http://www.macroeconomics.tu-berlin.de/fileadmin/fg124/financial_crises/literature/Diamon_Dybvig_Bank_Runs__Deposit_Insurance__and_Liquidity.pdf&quot; rel=&quot;noreferrer&quot;&gt;Diamond and Dybvig (1983)&lt;/a&gt; showed, even if one ignores monitoring costs, bank runs are one stable equilibrium of a system without deposit insurance. The logic for this is described in your question: if an institution that holds illiquid assets is forced to liquidate them prior to maturity and within a short time period, it may face solvency issues as a result of that forced liquidation. This is known as the &quot;solvency-liquidity nexus&quot; and is discussed in a context including wholesale funding, as opposed to only deposit funding, in &lt;a href=&quot;http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2346606&quot; rel=&quot;noreferrer&quot;&gt;Pierret (2015)&lt;/a&gt;. As a result, if depositors believe that a bank may face a run, it's rational for depositors to run on that bank &lt;em&gt;even if it is fundamentally solvent&lt;/em&gt;. In fact, if one considers that a depositor's only recourse (in the event that monitoring reveals that management is taking on too much risk) is to withdraw his or her deposits, it should be clear that zero-cost monitoring of banks does not eliminate the possibility of runs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, why government-provided deposit insurance?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Perhaps the simplest reason, but the one that is least discussed in the literature, is that bank failures tend to occur together, as widespread episodes with significant externalities. For this reason alone, it's easy to understand why society (and on behalf of society, government) would have an interest in ensuring that they don't occur. But that doesn't really answer your question, which is, why doesn't the private sector handle the problem of bank runs through private insurance (and, contra another answer to this question, the private sector has never handled this issue well) so that the problem never becomes one that the government must address?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Well, a second reason would be that depositors would still face monitoring costs, as the value of the liquidity guarantee provided by a private insurer would only be as good as that entity's capacity to make good on its guarantees, which would require monitoring in turn. So that problem would still exist.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A third reason, as Diamond and Dybvig (1983) discussed in their conclusion, is that an insurer must be able to regulate the bank it's guaranteeing, because otherwise, the bank managers again have an incentive to make riskier choices: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The riskless technology used in the model isolates the rationale for&#xA;  deposit insurance, but in addition it abstracts from the choice of bank&#xA;  loan portfolio risk. If the risk of bank portfolios could be selected by a&#xA;  bank manager, unobserved by outsiders (to some extent), then a&#xA;  moral hazard problem would exist. In this case there is a trade-off&#xA;  between optimal risk sharing and proper incentives for portfolio&#xA;  choice, and introducing deposit insurance can influence the portfolio&#xA;  choice. [...]&#xA;  Introducing risky assets and moral hazard would be an interesting&#xA;  extension of our model. &lt;strong&gt;It appears likely that some form of government&#xA;  deposit insurance could again be desirable but that it would be&#xA;  accompanied by some sort of bank regulation.&lt;/strong&gt; Such bank regulation&#xA;  would serve a function similar to restrictive covenants in bond indentures.&#xA;  Interesting but hard to model are questions of regulator &quot;discretion&quot;&#xA;  which then arise. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Given this need for a regulator where deposit insurance exists, it makes quite a bit of sense to build a legal framework around a single regulator-insurer, which we've done in the US in the form of the FDIC and related entities (including Federal Reserve supervision and the OCC). This is largely because market-based regulation of banks by private deposit insurers (such as by allowing insurers to cancel coverage if banks breach certain risk limits) would be difficult (at best) to structure without the broad legal authority the government has to seize control of an institution that breaches risk limits and make necessary changes. If private deposit insurers can't rescind coverage, their ability to discipline banks is limited; if they can, then banks face a likely run if their coverage is rescinded, which solves nothing. It is also, of course, difficult as a practical matter because of the aforementioned opacity of bank balance sheets.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Fourth and finally, as discussed by Caballero (&lt;a href=&quot;http://economics.mit.edu/files/10508&quot; rel=&quot;noreferrer&quot;&gt;2009a&lt;/a&gt;, &lt;a href=&quot;http://economics.mit.edu/files/6010&quot; rel=&quot;noreferrer&quot;&gt;2009b&lt;/a&gt;), bank failures don't occur in isolation; institutions tend to be impaired at exactly the same moment that other institutions and markets are impaired. While you correctly note that a form of partial insurance is in use (in the form of credit-default swaps) today, it's worth considering what happened during the crisis, when outstanding CDS contracts caused the failure of the insurer AIG.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This leads us to a reasonable question: what would a private deposit insurer look like? We know at least two things. One, it would have to be very well-capitalized, for if it were not, the Diamond-Dybvig &quot;run&quot; equilibrium would still exist. Two, it would have to hold its significant reserves in the form of information-insensitive &quot;safe&quot; assets, most likely government-guaranteed securities, or else it may not be able to liquidate those assets under the conditions that lead to bank failures (which can be accompanied by fire sales and other phenomena that impair asset values). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This leads us to an answer to your second question, which is yes, this would be relatively expensive, as you'd have to insure the whole stack of deposits, rather than allowing the government to provide a tail risk guarantee as it does with the Deposit Insurance Fund (if the FDIC's DIF is run to zero during a crisis, the US government will make up the difference). That tail risk guarantee provided by the government is a conditional put— it costs nothing until the DIF needs a bailout, at which point the government can fund it by issuing debt at the very low rates that prevail (for safe assets) during times of financial distress.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To answer your third question, the DIF has never required a bailout, and its rates are adjusted to prevent it from holding reserves that are too great, so— the FDIC is probably charging an actuarially fair rate over a long time horizon, though the rate may be too high or too low at certain points in time.&lt;/p&gt;&#xA;" OwnerUserId="264" LastEditorUserId="264" LastEditDate="2015-04-27T15:01:01.947" LastActivityDate="2015-04-27T15:01:01.947" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5333" PostTypeId="1" AcceptedAnswerId="5704" CreationDate="2015-04-26T23:28:55.657" Score="17" ViewCount="4861" Body="&lt;p&gt;&lt;a href=&quot;http://en.wikipedia.org/wiki/Yanis_Varoufakis&quot;&gt;Yanis Varoufakis&lt;/a&gt;, the current finance minister of Greece, talks about a &lt;em&gt;&quot;surplus recycling mechanism&quot;&lt;/em&gt;, a term he coined and uses to describe (as I understand it) a relief valve for economies running a surplus.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;While I haven't read his book, I watched some of his talks and read his blog posts. I couldn't quite figure out what he means by this. Could someone please explain what he means by &quot;SRM&quot;, and why he considers it important, crucial even, to prevent major recessions?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here's what I've figured out so far. The surplus being talked about is the &lt;em&gt;trade surplus&lt;/em&gt;. That is, countries which export more goods than they import run a surplus, and get a net influx of cash (or, in the past, gold). This cash can either be hoarded, or reinvested. Internal expenditure is ignored as irrelevant, as only the interactions between countries are being looked at. If hoarded beyond a certain breaking point, bad things happen. A surplus recycling mechanism compels a country to reinvest the cash overseas.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or so it seems. Is my understanding of what &quot;SRM&quot; means correct? Also, if so, according to Varoufakis (or Keynes, who apparently had the exact same realisation around WW2 time), how exactly does hoarding without bound cause bad things / recession?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It would also help to know whether Varoufakis' ideas / interpretations are widely accepted by mainstream economists, currently being debated, or are a fringe/minority view.&lt;/p&gt;&#xA;" OwnerUserId="4528" LastEditorUserId="4528" LastEditDate="2015-04-28T09:54:46.583" LastActivityDate="2016-09-26T03:19:52.970" Title="What does Yanis Varoufakis mean by &quot;surplus recycling mechanism&quot;?" Tags="&lt;macroeconomics&gt;&lt;surplus&gt;" AnswerCount="3" CommentCount="3" FavoriteCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="5334" PostTypeId="1" AcceptedAnswerId="5336" CreationDate="2015-04-27T07:09:04.960" Score="2" ViewCount="9510" Body="&lt;p&gt;Given &#xA;$$U(x,y)= x^\alpha y^{1-\alpha}$$&#xA;$\alpha \in (0,1)$, &#xA;are Cobb Douglas goods (here $x$ and $y$) complements, substitutes, or neither? Why? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;An explanation with mixed partial derivatives would be great. My calculus is better than my economics skills. &lt;/p&gt;&#xA;" OwnerUserId="2679" LastEditorDisplayName="user4239" LastEditDate="2015-04-27T13:12:39.833" LastActivityDate="2015-04-27T19:19:45.540" Title="Are Cobb Douglas goods complements or substitutes?" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;&lt;cobb-douglas&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5335" PostTypeId="1" CreationDate="2015-04-27T08:58:20.307" Score="4" ViewCount="47931" Body="&lt;p&gt;I'm having trouble with understanding what the results would be...&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Let's suppose the situation where the newly formed government act to cut government spending and, by doing so eliminate the current federal government budget deficit.&lt;/p&gt;&#xA;&lt;p&gt;Does this shift the demand curve or the supply curve in the loanable funds market?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;I watched a Youtube video and it said demand would increase (crowding out) but my lecture notes contradict that by saying supply will decrease (crowding out) or does that result to the same thing?&lt;/p&gt;&#xA;" OwnerUserId="4531" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2017-09-18T10:10:31.377" Title="Effect of lower Government spending on Loanable Funds Market" Tags="&lt;macroeconomics&gt;&lt;government-spending&gt;" AnswerCount="4" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5336" PostTypeId="2" ParentId="5334" CreationDate="2015-04-27T10:31:03.347" Score="3" Body="&lt;p&gt;Start with the more general CES function  $U=[a*x^b+(1-a)*y^b]^{1/b}$. Compute the elasticity of substitution of this function. Then compute the functional form of U for $b=0$,$b=1$ and $b=-\infty$. You will find the two extreme (perfect complements / substitute) cases for CES, and the common case C-D for b=0.&lt;/p&gt;&#xA;" OwnerUserId="4415" LastEditorUserId="4534" LastEditDate="2015-04-27T19:19:45.540" LastActivityDate="2015-04-27T19:19:45.540" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="5337" PostTypeId="2" ParentId="5334" CreationDate="2015-04-27T10:54:57.860" Score="4" Body="&lt;p&gt;Try to think what you mean when you ask whether they're complements or substitutes. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You could mean: &quot;Does my marginal utility in $x$ increase when I get more $y$? That would correspond to the cross derivative $\frac{\partial U^2}{\partial x \partial y}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You could (and this is the convention) mean the response to a change in prices. Denote with stars the bundle that maximizes utility given a budget constraint.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$x^* (p_x, p_y), y^*(p_x, p_y) = \arg\max_{x,y} U(x,y) + \lambda(Y - p_x x - p_y y) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, the goods are complements if you increase the price of one of the goods, and the demand of the other one decreases:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{\partial x^* (p_x, p_y)}{\partial p_y} &amp;lt; 0 \\&#xA;\frac{\partial y^* (p_x, p_y)}{\partial p_x} &amp;lt; 0 $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And substitutes if that is larger than zero. For the case where that partial is exactly zero, the elasticity of substitution is zero. Try out yourself which case is correct for Cobb-Douglas!&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2015-04-27T12:22:10.933" LastActivityDate="2015-04-27T12:22:10.933" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="5338" PostTypeId="2" ParentId="5320" CreationDate="2015-04-27T10:56:13.067" Score="3" Body="&lt;p&gt;Please find below the pages which may interest you.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/FTfYD.jpg&quot; alt=&quot;Page 94&quot;&gt;&#xA;&lt;img src=&quot;https://i.stack.imgur.com/mBuj0.jpg&quot; alt=&quot;Page 95&quot;&gt;&#xA;&lt;img src=&quot;https://i.stack.imgur.com/NnkWg.jpg&quot; alt=&quot;Page 96&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Arrow, K. J. &lt;em&gt;&lt;a href=&quot;http://www.worldcat.org/title/essays-in-the-theory-of-risk-bearing/oclc/1106663&quot; rel=&quot;nofollow noreferrer&quot;&gt;Essays in the Theory of Risk-Bearing&lt;/a&gt;&lt;/em&gt;, North-Holland Publishing Company, 1971&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I let the admin delete this post if the few extracts are not allowed...&lt;/p&gt;&#xA;" OwnerUserId="4415" LastEditorUserId="69" LastEditDate="2015-04-27T12:49:33.180" LastActivityDate="2015-04-27T12:49:33.180" CommentCount="2" CommunityOwnedDate="2015-04-27T12:31:46.237" ContentLicense="CC BY-SA 3.0" />
  <row Id="5339" PostTypeId="2" ParentId="4487" CreationDate="2015-04-27T13:19:39.593" Score="3" Body="&lt;p&gt;The paper &lt;a href=&quot;http://hdl.handle.net/10355/2541&quot; rel=&quot;nofollow&quot;&gt;Cointegrating Regressions with Messy Regressors: Missingness, Mixed Frequency, and Measurement Error&lt;/a&gt; (J. Isaac Miller (2009)) seems to have what you are looking for. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;We consider a cointegrating regression in which the integrated&#xA;  regressors are messy in the sense that they contain data that may be&#xA;  mismeasured, missing, observed at mixed frequencies, or have other&#xA;  irregularities that cause the econo- metrician to observe them with&#xA;  mildly nonstationary noise. Least squares esti- mation of the&#xA;  cointegrating vector is consistent. Existing prototypical variance-&#xA;  based estimation techniques, such as canonical cointegrating&#xA;  regression (CCR), are both consistent and asymptotically mixed normal.&#xA;  This result is robust to weakly dependent but possibly nonstationary&#xA;  disturbances.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Here  is the bit on testing for cointegration:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In cases where cointegration between ($y_ t$) and ($x_t$) is not&#xA;  obvious or expected, 5 testing is desirable. The variance ratio test&#xA;  and multivariate trace statistic proposed by Phillips and Ouliaris&#xA;  (1990) rely on the estimation of the long-run variance of a different&#xA;  residual series. Specifically, ($y_ t, x'_t$ ) is regressed on one lag&#xA;  of itself, and the long-run variance of the residual series from that&#xA;  regression is estimated. This series is I(0) under the null, so we can&#xA;  expect that adding ($z^*_t$) – i.e., using ($y_ t, x^{'*}_t$)  – would&#xA;  have a similar effect to adding ($z^*_t$) to the residual series&#xA;  below. Specifically, it would inflate the variance of both the&#xA;  numerator and denominator of these statistics, so that the limits&#xA;  would be preserved. Approaches using more robust variance ratio tests&#xA;  (Wright, 2000; Müller and Watson, 2008) hold more promise still.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="69" LastActivityDate="2015-04-27T13:19:39.593" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5340" PostTypeId="1" AcceptedAnswerId="5467" CreationDate="2015-04-27T13:59:07.050" Score="11" ViewCount="9775" Body="&lt;p&gt;I am trying to understand how substitutability relates to mixed partial derivatives. I thought the change in marginal utility with respect to a change in the amount of $x$ would correspond to $$\frac{\partial U}{\partial x}$$ so I got confused when I take the partial of that with respect to $y$. Does this measure the rate MU changes wrt $x$ as we change $y$? How is that related to being a substitute? &lt;/p&gt;&#xA;" OwnerUserId="2679" LastActivityDate="2015-05-04T01:28:11.063" Title="What is a substitute/complement in terms of mixed partial derivatives?" Tags="&lt;microeconomics&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5341" PostTypeId="2" ParentId="5305" CreationDate="2015-04-27T14:12:29.210" Score="9" Body="&lt;p&gt;There is a book, &lt;a href=&quot;http://www.worldcat.org/title/halo-effect-and-the-eight-other-business-delusions-that-deceive-managers/oclc/70265638&quot; rel=&quot;noreferrer&quot;&gt;The Halo Effect: . . . and the Eight Other Business Delusions That Deceive Managers&lt;/a&gt; (Rosenzweig (2007)), that highlights the methodological problems with a number of prominent management theory books including &lt;a href=&quot;http://www.worldcat.org/title/in-search-of-excellence-lessons-from-americas-best-run-companies/oclc/8493620&amp;amp;referer=brief_results&quot; rel=&quot;noreferrer&quot;&gt;In search of excellence : lessons from America's best-run companies&lt;/a&gt;,  &lt;a href=&quot;http://www.worldcat.org/title/good-to-great-why-some-companies-make-the-leap-and-others-dont/oclc/46835556&quot; rel=&quot;noreferrer&quot;&gt;Good to Great&lt;/a&gt; and &lt;a href=&quot;http://www.worldcat.org/title/built-to-last/oclc/56884093&amp;amp;referer=brief_results&quot; rel=&quot;noreferrer&quot;&gt;Built to Last&lt;/a&gt;. They mostly amount to problems with selection bias. &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2015-04-27T14:12:29.210" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5342" PostTypeId="1" CreationDate="2015-04-27T15:44:14.357" Score="10" ViewCount="2049" Body="&lt;p&gt;Many mainstream economists say that such thing is impossible. Is there some specific reason why the financial system needs a central bank?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this video &lt;a href=&quot;http://m.youtube.com/watch?v=BcuAOdXD0Go&quot; rel=&quot;nofollow&quot;&gt;http://m.youtube.com/watch?v=BcuAOdXD0Go&lt;/a&gt;, Krugman says at 03:00 it's impossible to leave the central bank out of the equation today. Why is this?&lt;/p&gt;&#xA;" OwnerUserId="4536" LastEditorUserId="7" LastEditDate="2015-04-28T21:44:46.323" LastActivityDate="2018-04-09T10:37:14.137" Title="Is it possible to have a modern economy without a central bank?" Tags="&lt;central-banking&gt;" AnswerCount="3" CommentCount="2" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5343" PostTypeId="2" ParentId="5342" CreationDate="2015-04-27T16:03:32.407" Score="2" Body="&lt;p&gt;The central bank is not a physical necessity, like lungs.  So one could imagine a world where no central banks exist.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, the central banks do hold substantial power that can be used to lower inflation and unemployment.  Society seems to benefit from these organizations in many theoretical and practical settings. So societies without central banks may see fit to develop them over time.&lt;/p&gt;&#xA;" OwnerUserId="4185" LastActivityDate="2015-04-27T16:03:32.407" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5344" PostTypeId="2" ParentId="5342" CreationDate="2015-04-27T17:54:02.213" Score="7" Body="&lt;p&gt;It surely is possible: &lt;a href=&quot;http://en.wikipedia.org/wiki/Gold_standard&quot;&gt;For a long while&lt;/a&gt;, Gold was the basis for the value of money in many &quot;modern&quot; countries, leaving central banks with little room for policies. &lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2015-04-27T18:26:27.810" LastActivityDate="2015-04-27T18:26:27.810" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="5345" PostTypeId="1" AcceptedAnswerId="5348" CreationDate="2015-04-27T19:38:18.123" Score="6" ViewCount="88" Body="&lt;p&gt;I am looking for thorough statistics of budgetary spending and revenues by category for approx all oecd countries. If not for all oecd i will be happy to have data only for Switzerland. I am interested in time period from 1995 to 2013. Unfortunately i am not able to find comprehensive source for those data. Could you give me some hints with regard to possible source of such data?   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT: Precisely i am looking for something ( &lt;a href=&quot;http://en.wikipedia.org/wiki/Federal_budget_of_Switzerland&quot;&gt;http://en.wikipedia.org/wiki/Federal_budget_of_Switzerland&lt;/a&gt; ) like 4.1.  i.e. this table (but for both expenditures and revenues) with example budget but i want to have this year by year. &lt;/p&gt;&#xA;" OwnerUserId="4264" LastEditorUserId="4264" LastEditDate="2015-04-27T20:16:31.643" LastActivityDate="2015-06-11T19:53:46.767" Title="Government spending and revenue statistics" Tags="&lt;macroeconomics&gt;&lt;data-request&gt;&lt;statistics&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5346" PostTypeId="2" ParentId="5345" CreationDate="2015-04-27T20:04:31.477" Score="2" Body="&lt;p&gt;My usual go-to is FRED: &lt;a href=&quot;http://research.stlouisfed.org/fred2/search?st=government+spending&quot; rel=&quot;nofollow&quot;&gt;http://research.stlouisfed.org/fred2/search?st=government+spending&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;They normally have much more data then any other site I have managed to find. &lt;/p&gt;&#xA;" OwnerUserId="4540" LastActivityDate="2015-04-27T20:04:31.477" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5348" PostTypeId="2" ParentId="5345" CreationDate="2015-04-27T21:16:23.790" Score="4" Body="&lt;p&gt;As you want data for OECD countries have a look at the OECD's Statistics portal. You will find the data in the &quot;National Accounts&quot; as section as well as in the &quot;Public Sector, Taxation and Market Regulation&quot; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As an alternative or as a complement you can also have a look at the &lt;a href=&quot;http://ec.europa.eu/eurostat/web/government-finance-statistics/data/database&quot; rel=&quot;nofollow&quot;&gt;Eurostat database on Government Statistics&lt;/a&gt;. They do have data for Switzerland as well as for many OECD countries.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, as you seem to be focussed on Switzerland, you can also try to find the data via the Federal Statistical Office. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can obtain time series by following the links in the &quot;additional information&quot; column.&lt;/p&gt;&#xA;" OwnerDisplayName="user4239" LastEditorDisplayName="user4239" LastEditDate="2015-06-11T19:53:46.767" LastActivityDate="2015-06-11T19:53:46.767" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5350" PostTypeId="1" CreationDate="2015-04-27T22:11:27.480" Score="4" ViewCount="89" Body="&lt;p&gt;It's often said that the best thing you can do to help after a natural disaster is to give money.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have a simple question about how and where that money is sent. I imagine often resources can be donated, but money is still required to utilise them. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there a study showing the breakdown? &lt;/p&gt;&#xA;" OwnerUserId="96" LastEditorUserId="43" LastEditDate="2015-04-28T13:22:08.787" LastActivityDate="2017-08-07T09:00:34.353" Title="What is aid money for natural disasters spent on?" Tags="&lt;welfare-economics&gt;&lt;development-economics&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5351" PostTypeId="2" ParentId="5350" CreationDate="2015-04-27T23:28:38.270" Score="3" Body="&lt;p&gt;One thing such funds get spent on is corruption:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.nikolaymarinov.com/wp-content/files/Public%20Funds%20Corruption.pdf&quot; rel=&quot;nofollow&quot;&gt;Do Public Fund Windfalls Increase Corruption? Evidence from a Natural Disaster&lt;/a&gt;&#xA;(Nikolova and  Marinov (2015)) &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;We show that unexpected financial windfalls increase corruption in&#xA;  local government. Our analysis uses a unique data set on flood-related&#xA;  transfers, and the associated spending infringements, which the&#xA;  Bulgarian central government distributed to municipalities following&#xA;  torrential rains in 2004 and 2005. We build an index of corruption&#xA;  using information from the publicly available audit reports, and&#xA;  exploit the quasirandom nature of the rainfall shock (conditional on&#xA;  controls for ground flood risk) to isolate exogenous variation in the&#xA;  amount of funds received by each municipality. Our results imply that&#xA;  a 10% increase in the per capita amount of disbursed funds leads to a&#xA;  12.2% increase in corruption. We also present suggestive evidence that more corrupt mayors anticipated punishment by voters and dropped out&#xA;  of the next election race. Our results highlight the governance&#xA;  pitfalls of non-tax transfers, such as disaster relief or assistance&#xA;  from international organizations, in weak democracies.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://mercatus.org/uploadedFiles/Mercatus/Publications/20060823_Weathering_Corruption.pdf&quot; rel=&quot;nofollow&quot;&gt;Weathering Corruption&lt;/a&gt; (Leeson and Sobel (2006)) &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Could bad weather be responsible for U.S. corruption? Natural&#xA;  disasters create resource windfalls in the states they strike by&#xA;  triggering federally-provided natural disaster relief. Like windfalls&#xA;  created by the ìnatural resource curseî and foreign aid, disaster&#xA;  relief windfalls may also increase corruption. We investigate this&#xA;  hypothesis by exploring the e§ect of FEMA-provided disaster relief on&#xA;  public corruption. The results support our hypothesis. Each additional&#xA;  $1 per capita in average annual FEMA relief increases corruption&#xA;  nearly 2.5 percent in the average state. Eliminating FEMA disaster&#xA;  relief would reduce corruption more than 20 percent in the average&#xA;  state. Our Öndings suggest that notoriously corrupt regions of the&#xA;  United States, such as the Gulf Coast, are notoriously corrupt because&#xA;  natural disasters frequently strike them. They attract more disaster&#xA;  relief making them more corrupt.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="69" LastActivityDate="2015-04-27T23:28:38.270" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5352" PostTypeId="1" AcceptedAnswerId="5379" CreationDate="2015-04-28T00:06:11.553" Score="5" ViewCount="157" Body="&lt;p&gt;In under grad intermediate macro classes they often teach the Solow model. While intuitively it makes sense, it seems like it no longer is really taken seriously anymore (I could be wrong). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;From my understanding (which could I be wrong of course), there appears to be a move toward more endogenous growth theories that try to explain technology growth rather than taking it as a constant like the Solow model.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can anyone provide me some examples of growth models that, at the moment, are considered the most complete or correct?  &lt;/p&gt;&#xA;" OwnerUserId="1413" LastActivityDate="2015-04-30T18:32:20.950" Title="What are some growth theories that are considered the most correct at the moment?" Tags="&lt;economic-growth&gt;&lt;technology&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5354" PostTypeId="2" ParentId="5342" CreationDate="2015-04-28T00:55:44.257" Score="3" Body="&lt;p&gt;Mechanically speaking, there are two functions that have to be centralised, although the second one need not be performed by the central bank historically it usually is.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is an absolute requirement for a guaranteed lender of last resort, since banks can run into liquidity issues through no fault of their own. Liquidity in this context, is the availability of asset cash or equivalents to meet intra-bank transfers (say money is transferred between deposit holders at two different banks.) A bank can be solvent long term, i.e. their loan book is healthy so they are guaranteed to receive cash long term, but still have issues in the short term - if a big transfer occurs. (Inter-bank lending is necessary but not sufficient for sorting out short term liquidity issues because of competitive issues.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The second issue is how the banking system's expansion of the money supply is regulated. Historically reserve accounts at the central bank were used for this, and that mechanism can provide absolute control, provided it is applied to all liability deposit accounts in the system. Other mechanisms could be designed that didn't use a centralised method - indeed many banking systems currently no longer use reserve accounts, and are relying on a mixture of Basel capital controls, and control over other factors, such as direct limits on borrowing - the long term effectiveness of these controls is yet to be demonstrated though.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A third issue is who is going to handle physical clearing, generally these days that's not done by the central bank, but occasionally small countries do it that way for expediency (using the reserve accounts).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Apropos the old gold standard. Gold was treated as an asset in the system, and effectively regulated lending, and consequent deposit expansion. However, it wasn't a very good regulator in and of itself, since there was a feedback relationship embodied in the price of gold, which was affected not only by the banknotes issued by the banks, but also by deposit expansion. Every time somebody wrote a cheque, and bought gold with it, the quantity of bank deposits also impacted its price. (Leaving aside a whole bunch of other instabilities surrounding the quantity of bank notes being issued by private institutions.) &lt;/p&gt;&#xA;" OwnerUserId="84" LastEditorUserId="84" LastEditDate="2015-04-28T01:12:47.917" LastActivityDate="2015-04-28T01:12:47.917" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="5355" PostTypeId="2" ParentId="5340" CreationDate="2015-04-28T01:34:38.740" Score="4" Body="&lt;p&gt;Think about two goods that should be independent. Say, $x = $ shoes and $y = $ computer games. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Complements imply complementarity: You can enjoy $y$ more, when you have more $x$. Hence a positive cross derivative. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;One way to phrase that is with non-separable utility: $U(x, 0) + U(0, y) &amp;lt; U(x,y)$. An alternative is what you specified: &lt;em&gt;At the margin&lt;/em&gt;, having $x$ allows you to enjoy $y$ more.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With our shoes and computer games, certainly the cross derivative is 0. With ice cream and spoons, it most likely is positive: Having a spoon increases the marginal benefit you're getting from ice cream, hence a positive cross correlation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, think about chocolate and ice-cream. One could argue that they work as substitutes (think about desert, for example): You either want the one &lt;em&gt;or&lt;/em&gt; the other. &lt;em&gt;If you get them for free&lt;/em&gt;, sure, it doesn't hurt having both of them. But if you have to pay fair prices, you prefer to pay the price for one of the choices and stick to that.&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-04-28T01:34:38.740" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5357" PostTypeId="1" AcceptedAnswerId="5636" CreationDate="2015-04-28T04:12:44.577" Score="8" ViewCount="5531" Body="&lt;p&gt;Suppose I have a Marshallian demand function $x_M(p_x^0,p_y,m^0)$. As I understand it, Slutsky compensation is defined as &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$T_S = \Delta p_x \cdot x_M(p_x^0,p_y,m^0)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can someone explain why this compensation overcompensates the consumer?&lt;/p&gt;&#xA;" OwnerUserId="2679" LastActivityDate="2015-05-13T01:45:37.020" Title="Why does Slutsky compensation &quot;overcompensate&quot; the consumer?" Tags="&lt;consumer-theory&gt;" AnswerCount="3" CommentCount="2" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5359" PostTypeId="1" AcceptedAnswerId="5416" CreationDate="2015-04-28T08:40:29.373" Score="3" ViewCount="594" Body="&lt;p&gt;There are intersecting supply and demand curves. A tax is levied on suppliers. Say the tax is a fixed tax (for example, VAT) and not an ad valorem tax. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why can we not just move along the demand curve by the value of the tax (as producers just increase the price by the value of the tax)? So for any given point on the demand curve, just increase the price by the given value of the tax and that is the new demand - why does it not work like this? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Whilst I agree a parallel shift of the supply curve by the value of the tax makes sense I do not understand where is the flaw in the earlier method?&lt;/p&gt;&#xA;" OwnerUserId="4542" LastEditorUserId="405" LastEditDate="2015-05-09T04:14:51.163" LastActivityDate="2015-05-09T04:14:51.163" Title="Effect of specific tax on demand and supply" Tags="&lt;microeconomics&gt;&lt;public-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5360" PostTypeId="2" ParentId="4437" CreationDate="2015-04-28T08:42:45.310" Score="2" Body="&lt;p&gt;The annual macro-economic database of the European Commission (AMECO) provides the data you need. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The data is available for free, in formats that are easy to work with.&lt;/p&gt;&#xA;" OwnerDisplayName="user4239" LastEditorDisplayName="user4239" LastEditDate="2015-06-11T20:02:22.127" LastActivityDate="2015-06-11T20:02:22.127" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5362" PostTypeId="2" ParentId="5276" CreationDate="2015-04-28T10:11:05.837" Score="3" Body="&lt;h2&gt;Articles&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;These papers discuss institutions as institutions were covered in the economic literature. Better to read them in a chronological order.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Acemoglu, Daron, and Simon Johnson. “Unbundling Institutions.” Journal of Political Economy 113, no. 5 (2005): 949–95.&lt;/li&gt;&#xA;&lt;li&gt;Acemoglu, Daron, Simon Johnson, and James Robinson. “Institutions as the Fundamental Cause of Long-Run Growth.” National Bureau of Economic Research Working Paper Series No. 10481 (2004). &lt;a href=&quot;http://www.nber.org/papers/w10481&quot; rel=&quot;nofollow&quot;&gt;http://www.nber.org/papers/w10481&lt;/a&gt;.&lt;/li&gt;&#xA;&lt;li&gt;Acemoglu, Daron, Simon Johnson, and James A. Robinson. “The Colonial Origins of Comparative Development: An Empirical Investigation.” American Economic Review 91, no. 5 (2001): 1369–1401.&lt;/li&gt;&#xA;&lt;li&gt;Banerjee, Abhijit, and Esther Duflo. Under the Thumb of History? Political Institutions and the Scope for Action. Working Paper. National Bureau of Economic Research, January 2014. &lt;a href=&quot;http://www.nber.org/papers/w19848&quot; rel=&quot;nofollow&quot;&gt;http://www.nber.org/papers/w19848&lt;/a&gt;.&lt;/li&gt;&#xA;&lt;li&gt;Knack, Stephen, and Philip Keefer. “Institutions and Economic Performance: Cross-Country Tests Using Alternative Institutional Measures.” Economics &amp;amp; Politics 7, no. 3 (November 1, 1995): 207–27. doi:10.1111/j.1468-0343.1995.tb00111.x.&lt;/li&gt;&#xA;&lt;li&gt;North, Douglass C. “Institutions.” Journal of Economic Perspectives 5, no. 1 (February 1991): 97–112. doi:10.1257/jep.5.1.97.&lt;/li&gt;&#xA;&lt;li&gt;Rodrik, Dani. “Second-Best Institutions.” American Economic Review 98, no. 2 (2008): 100–104.&lt;/li&gt;&#xA;&lt;li&gt;Xu, Chenggang. “The Fundamental Institutions of China’s Reforms and Development.” Journal of Economic Literature 49, no. 4 (2011): 1076–1151.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;h2&gt;Data&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Many sources, actually. The best one is the Quality of Government dataset, which includes different measures of institutions in a single big panel:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://qog.pol.gu.se/data&quot; rel=&quot;nofollow&quot;&gt;http://qog.pol.gu.se/data&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="240" LastActivityDate="2015-04-28T10:11:05.837" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5363" PostTypeId="1" AcceptedAnswerId="5406" CreationDate="2015-04-28T11:05:54.610" Score="8" ViewCount="519" Body="&lt;p&gt;Twin-peak of economic growth is one of the concepts discussed in economics. Most of explanations for poverty traps are baseed on the lack of infrastructures and public goods.&#xA;How could be another main reasons to explain this important issue ? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any academic reference is appreciated.&lt;/p&gt;&#xA;" OwnerUserId="2938" LastEditorUserId="43" LastEditDate="2015-04-28T11:37:30.957" LastActivityDate="2015-04-30T12:31:34.500" Title="Why some countries are wealthier than others?" Tags="&lt;macroeconomics&gt;&lt;economic-growth&gt;&lt;development&gt;&lt;poverty&gt;&lt;institutions&gt;" AnswerCount="2" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5364" PostTypeId="2" ParentId="5363" CreationDate="2015-04-28T11:35:19.497" Score="7" Body="&lt;p&gt;One argument brought forward (it is a generalization/argument for lack of infrastructures) is the Acemoglu-Robinson hypothesis of extractive versus inclusive institutions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Long-story short: some institutions are good for (long term) growth (&quot;inclusive&quot;), and some are good for short-term extraction of resources (&quot;extractive&quot;). Depending on whether the elites / rulers of a country (colony) had long-term plans of &quot;staying in a country&quot; or whether they wanted to just &quot;quickly get everything they can&quot; out of the country, they installed these different type of institutions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;See also their &lt;a href=&quot;http://economics.mit.edu/files/7850&quot; rel=&quot;noreferrer&quot;&gt;slides&lt;/a&gt; and &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/B0058Z4NR8&quot; rel=&quot;noreferrer&quot;&gt;book&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-04-28T11:35:19.497" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5365" PostTypeId="2" ParentId="5304" CreationDate="2015-04-28T11:51:38.523" Score="1" Body="&lt;p&gt;Formally Ellsberg paradox is defined in a different choice environment that expected utility. Ellsberg paradox is a problem for Savage subjective utility where there is ambiguity. Superficially they look the same because the have the same affine form, but in Savage the probabilities over states are not objective (are not a primitive) rather they are part of the representation. Also Expected Utility is defined over lotteries, while Savage Subjective Utility is defined over &quot;acts&quot;.&#xA;A nice explanation of Ellsberg paradox and Savage Expected Subjective Utility is given in&#xA;&lt;a href=&quot;http://lesswrong.com/lw/9e4/the_savage_theorem_and_the_ellsberg_paradox/&quot; rel=&quot;nofollow&quot;&gt;http://lesswrong.com/lw/9e4/the_savage_theorem_and_the_ellsberg_paradox/&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="127" LastActivityDate="2015-04-28T11:51:38.523" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5366" PostTypeId="1" CreationDate="2015-04-28T11:54:10.870" Score="3" ViewCount="720" Body="&lt;p&gt;This is a homework question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose a consumer has preferences over two goods that can be represented by the utility function $U(x,y) = 2\sqrt{x} + y$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The marginal rate of substitution of $x$ for $y$ in this case is $\frac{1}{ 2\sqrt{x}}$, which is the negative of the slope of the indifference curve. It's well defined only for $x &amp;gt; 0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question asks to plot the indifference curve with $x$ on the horizontal axis and y on the vertical axis, and indicate if the graph of indifference curve will intersect either or both axes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I was thinking that since slope of the indifference curve tends to infinity as $x$ approaches $0$, therefore the indifference curve should not intersect the y-axis. However, the solution provided by the lecturer says &quot;since it's possible to have positive utility when either $x$ or $y$ is zero, the indifference curve intersects both axes&quot;, and I kinda agree this statement as well...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So what should be the answer?&lt;/p&gt;&#xA;" OwnerUserId="4485" LastEditorUserId="4193" LastEditDate="2015-04-29T10:31:36.627" LastActivityDate="2015-04-29T10:31:36.627" Title="Marginal rate of substitution" Tags="&lt;microeconomics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5367" PostTypeId="2" ParentId="5366" CreationDate="2015-04-28T12:15:14.043" Score="1" Body="&lt;p&gt;The slope does tend toward infinity but it does intersect. What's tricky about the question is that the &quot;indifference curve&quot; becomes a single point at $(y=0,x=0)$ for a utility value of $0$.&lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2015-04-28T12:15:14.043" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5368" PostTypeId="1" CreationDate="2015-04-28T12:31:49.980" Score="2" ViewCount="112" Body="&lt;p&gt;(&lt;em&gt;cross-posted from &lt;a href=&quot;https://money.stackexchange.com/q/47461/11768&quot;&gt;Personal Finance &amp;amp; Money&lt;/a&gt;&lt;/em&gt;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is the monetary system's debt basis* driving government policy on housing and property, and how could this ultimately affect personal housing affordability?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The UK has an ongoing 'situation' with property.  A recent topical example is the government's promise of a 'right to buy' for housing association properties, to acclaim and criticism.  The government seem generally keen to get citizens mortgaged up, or are they just aiming to satisfy the public's home-owning aspirations?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These are some typical headlines:-&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.theguardian.com/society/2015/apr/28/uk-housing-crisis-in-breach-of-human-rights&quot; rel=&quot;nofollow noreferrer&quot;&gt;UK housing crisis 'in breach of human rights'&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.mirror.co.uk/news/uk-news/uk-worlds-second-highest-house-prices-5577088&quot; rel=&quot;nofollow noreferrer&quot;&gt;UK has world's second-highest house prices beaten only by millionaire's playground Monaco&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is the monetary system's debt requirement driving this property bubble?  And if so, what are the characteristics of it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Edit&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, the US subprime debacle, considered by some to be caused by pressurised lending, possibly driven by a monetary system that needs to grow by increasing the debt pool.  If this is the case, it could be viewed that government would support the taking of mortgages and increasing debt, in order to keep the money pool growing and stave off recession.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;*Ref: &lt;a href=&quot;http://www.simondixon.org/what-is-a-debt-based-monetary-system/2009/02/02/&quot; rel=&quot;nofollow noreferrer&quot;&gt;What is a debt based monetary system?&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="4544" LastEditorUserId="-1" LastEditDate="2017-04-13T12:25:31.177" LastActivityDate="2018-02-13T11:22:34.413" Title="Is UK house price spiral connected to debt based monetary system?" Tags="&lt;macroeconomics&gt;&lt;economic-growth&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5369" PostTypeId="1" CreationDate="2015-04-28T13:17:52.513" Score="11" ViewCount="335" Body="&lt;p&gt;I apologise if this question is out of topic, but it is simultaneously an economy and a programming question. If it should go to another SE communality, please indicate me.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In theory, GNU software is entirely developed by volunteers during their free time, or by companies that voluntary fund programmers to develop GNU software (by using income from another sector of their activity).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand how it can work perfectly fine for small-scale project that can be done in a couple of rainy weekends by a single individual (let's say for example a sudoku game), because after all computer programming is an extremely fun and rewarding hobby, and I have no problem seeing people developing small or medium programs during their free time and sharing them to the world.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem is that this scales extremely poorly for larger programs for the following reasons:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;As fun as programming is, as the project that have to be implemented becomes larger, the time it takes to implement the desired functionality grows extremely quickly. A larger scale program takes an incredible amount of time to develop, for instance it could easily take 15 years of free time and vacation time for an individual to program an operating system, and by the time his software is released it'll be completely obsolete.&lt;/li&gt;&#xA;&lt;li&gt;As other people write programs in another way that the way you would have done it, reading and understanding someone else's code takes &lt;strong&gt;a lot&lt;/strong&gt; of time, in most cases as much as would writing your own code from scratch. Modifying another people's code and try to improve it, as it is encouraged by the GNU philosophy, is almost just as time consuming as developing your own clone of the said program with the functionality you'd like to add.&lt;/li&gt;&#xA;&lt;li&gt;As soon as 2 or more people will have to collaborate to develop a larger program, this creates lots of decision-taking issues that would never arose on a single-developer project. The result is that, for example if a group of 2 programmers collaborate for a project that would take 10 years for a single man to make, they won't make it in 5 years but probably in 8.&lt;/li&gt;&#xA;&lt;li&gt;If people that collaborate for the same project meets on the internet solely, it is easy for one member of the project to vanish suddenly (either because he lost interest or because he physically can't be on the internet anymore), thus making collaboration even harder&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;So, while I understand perfectly how simple programs can be developed with the GNU mindset, I absolutely don't see how such huge programs such as GNU/Linux or gcc are possible on this model. gcc is around 7 million lines of code. I know lines of code does not mean much, as in a later stage of a project the more productive programmer is the one that will actually remove lines of code (simplifying and/or optimizing the project), but this gives an overwiew how massive of a project gcc is.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So in theory, anyone can freely modify gcc during their free time, but in practice? It was developed by very professional people as a job, not as a hobby. Anyone making a compiler as a hobby will eventually give up as the cost/benefit is not worth it:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Developing a large program is such a long term huge project, they'd rather use their free time to have other activities that are more rewarding or more enjoyable in the short term&lt;/li&gt;&#xA;&lt;li&gt;If they were to develop a large program anyway, they'd rather do it for a company that will pay them than doing it for free&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;In order to get people interested at developing a program such as GNU/Linux, gcc or Open Office in the long run, it should be rewarding. So my question is: &lt;strong&gt;Why is there people contributing to large GNU project, if they aren't getting a salary for it?&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="4408" LastEditorUserId="4408" LastEditDate="2015-04-30T13:00:36.657" LastActivityDate="2018-04-24T21:03:41.360" Title="How does GNU software development sustain economically?" Tags="&lt;productivity&gt;&lt;social-choice&gt;&lt;software&gt;" AnswerCount="2" CommentCount="4" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5370" PostTypeId="1" CreationDate="2015-04-28T14:22:17.717" Score="2" ViewCount="795" Body="&lt;p&gt;Consider an economy that lasts for two periods populated by a representative consumer/worker, a representative firm, and a government. After these two periods, the economy ends. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question asks me to &#xA;- Define a competitive equilibrium for this economy.&#xA;- Show the demand and supply curve in a diagram with variables (r, Y ).&#xA;- Show the effect of an increase in the current capital stock K.&#xA;- Compare the equilibrium path with the case in which workers have a preference shock that reduces the disutility from work h − l in period one. Preferences are back to normal in period 2.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My Problems&lt;/strong&gt; I am so confused: what are the steps to defining a competitive equilibrium? Do I just rewrite what competitive equilibrium is from the lecture notes, or do I have to define one from the problem above? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, there are a lot of variables with no numbers. I am very confused to how to approach a question with no numbers. &lt;/p&gt;&#xA;" OwnerUserId="4548" LastEditorUserId="43" LastEditDate="2015-04-28T15:54:23.140" LastActivityDate="2015-04-28T15:54:23.140" Title="Defining a Competitive Equilibrium for a two Period Model" Tags="&lt;macroeconomics&gt;&lt;general-equilibrium&gt;&lt;competitive-equilibrium&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5371" PostTypeId="2" ParentId="5370" CreationDate="2015-04-28T14:32:25.607" Score="1" Body="&lt;p&gt;A competitive equilibrium is specific to the economy you're modeling. Your economy has three markets:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Capital market for $K$&lt;/li&gt;&#xA;&lt;li&gt;Labor market for $L$&lt;/li&gt;&#xA;&lt;li&gt;Goods market for $Y$&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Furthermore, there are several optimization problems / budget identities that have to hold.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;The household has a consumption/savings and a leisure/labor decision&lt;/li&gt;&#xA;&lt;li&gt;The firm has a labor and a capital choice&lt;/li&gt;&#xA;&lt;li&gt;You need to ensure that the government's budget constraint holds.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;In a competitive equilibrium, you need to clear all the markets, and any quantity that is chosen, needs to be done so optimally, given everything that's happening in your economy. Here, you have two periods which need to be in equilibrium at the same time. If I were grading your homework, I would expect you to write the above for minimum points. You should then show what the conditions/equations are for each of the bullet points.&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Example: Multi-Period Non-Equilibrium&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;For example, the household will chose savings in period 1, given what he expects to do with those savings in period 2. If you'd expect him to do something stupid with the savings in period 2 (say, throw them away), then it would be optimal to save nothing at all. In this case, you would be at an equilibrium in period 1. However, your choices for period 2 would be non-optimal, hence we do not have a 2-period equilibrium.&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-04-28T14:32:25.607" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5372" PostTypeId="2" ParentId="5368" CreationDate="2015-04-28T16:13:46.053" Score="5" Body="&lt;p&gt;The price of housesis determined by the supply and demand for housing. The consensus view is that house prices in the UK are so high because of low supply and buoyant demand. In particular, the UK is currently building houses at a rate of less than 150,000 per year, but is creating twice that many new households. This is a situation that has persisted for some time. If there are more buyers than sellers then sellers can increase their prices with little fear that they will be left without a buyer at the end of the day.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To understand the cause for high house prices, one therefore needs to understand the reason for supply being so low, and demand being so high. In the latter case, the availability and cost of credit is certainly an important factor. If banks are willing to lend (say, because the government provides guarantees or other subsidies for doing so--as in the Funding for Lending scheme), and if interest rates are low and stable then people will be very willing to take out a mortgage. This is an important precondition for strong demand because most people cannot afford to buy a house without a mortgage.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This, though, is only part of the picture. Note that many countries currently have low and stable interest rates, but have not experience the rapid inflation of house prices seen the in the UK. Here are some other factors that are important in the UK context:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Limiting supply:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;The UK has a restrictive planning regime that makes housebuilding (especially in high-demand areas) difficult. This has, for example prevented the expansion of towns into green belt land, or large increases in the density of housing in major cities.&lt;/li&gt;&#xA;&lt;li&gt;Much of the land best suited to development is so-called ``brown field'' land that was previously put to some other use. Cleaning and preparing this land for use in the housing sector is costly and represents a risk for developers. &lt;/li&gt;&#xA;&lt;li&gt;House builders earn essentially zero profit on affordable homes, making the development of such homes unattractive. This role was previously filled by the British government, but social house building has fallen dramatically since the 1980s.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Promoting strong demand:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;The UK government has introduced a number of policies that directly stimulate demand for housing (such as the Help to Buy scheme).&lt;/li&gt;&#xA;&lt;li&gt;The UK has a net inflow of migrants of around 200,000 per year--all of whom need to be housed.&lt;/li&gt;&#xA;&lt;li&gt;Demand is not evently spread across the country. The UK economy is unusually concentrated around London and the South East, which puts particular pressure on the housing market in this area. House prices elsewhere have seen more modest growth.&lt;/li&gt;&#xA;&lt;li&gt;The British are unusually attached to the concept of home ownership (unlike, for example, many continental Europeans who are perfectly happy to rent). This means that British buyers are less sensitive to prices and will continue to demand houses even as the prices increase--as we have seen.&lt;/li&gt;&#xA;&lt;li&gt;Related to the above, tennants have relatively few rights in Britain. This makes long-term renting less attractive, and pushes people to buy houses.&lt;/li&gt;&#xA;&lt;li&gt;Anecdotally, there appears to be strong demand for UK housing from foreign investors who treat the property as an asset, but do not occupy it.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Many of these things could be fixed with appropriate market interventions. However, there is a political economy dimension to the problem in that most of the British electorate lives in an owner-occupied house and therefore has a vested interest in maintaining the value of their house and preventing additional development in the area to the greatest extent possible. This possibly explains why candidates in the forthcoming election have focused mainly on proposals to subsidise demand (which would only exacerbate the problem!) or vague promises to build more houses, rather than on concrete plans (e.g. to reform planning) that would put-off a lot of middle-class voters.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2015-04-28T16:13:46.053" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="5373" PostTypeId="2" ParentId="5366" CreationDate="2015-04-28T17:17:02.290" Score="2" Body="&lt;p&gt;There is more than one indifference curve. There is one belonging to every utility level. So for any utility level $c$, the points $(x,y)$ that satisfy&#xA;$$2\cdot \sqrt{x} + y = c$$ are an indifference curve.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example let $c = 2$. Can you find a point $(x,y)$ that satisfies&#xA;$$2\cdot \sqrt{x} + y = 2$$&#xA;and is on the $y$-axis or the $x$-axis?&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2015-04-28T17:46:38.487" LastActivityDate="2015-04-28T17:46:38.487" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5374" PostTypeId="1" AcceptedAnswerId="5375" CreationDate="2015-04-28T22:30:43.103" Score="5" ViewCount="13188" Body="&lt;p&gt;The question asks what is the immediate effect of the cash deposit on the M1 measure of money supply. The official answer is &quot;There is no change in the M1 measure of the money supply. (Demand deposits increase by the same amount that cash holdings fall.).&quot; However, I think the some of the money deposited into the bank will be lend out and deposit into other banks and so on. So the multiplier also applies here, so the money supply should increase by the multiplier times the cash deposited minus the cash deposited(minus because cash holding has decreased). Why is that not true?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Please suggests if anything is not clear.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My guess: maybe it is because the question asks &quot;immediate&quot; effect and hence does not include the process of money being lend out again etc.?&lt;/p&gt;&#xA;" OwnerUserId="4551" LastEditorUserId="4551" LastEditDate="2015-04-28T22:43:12.713" LastActivityDate="2015-05-02T23:23:04.350" Title="How does a cash deposit change the M1 measure of the money supply?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5375" PostTypeId="2" ParentId="5374" CreationDate="2015-04-29T00:45:56.913" Score="6" Body="&lt;p&gt;It's best to always check the exact definitions for M questions, because they can vary a little between countries.  I'll use the US Federal Reserve's here, viz. &quot;M1 is defined as the sum of currency held by the public and transaction deposits at depository institutions (which are financial institutions that obtain their funds mainly through deposits from the public, such as commercial banks, savings and loan associations, savings banks, and credit unions).&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reason M1 doesn't increase is essentially semantic. Before the deposit occurs, M1 is the sum of currency held outside the banking system (&quot;held by the public&quot;) and deposits at banks etc. Notice that currency held by the banks is not included in the M1 definition.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When the deposit occurs, the accompanying double entry book keeping is [debit cash, credit customer deposit]. Now the cash is held by the bank, so not included in M1, but the customer deposit that was created by the cash deposit is - so there's no change. This is the best way to handle this btw., since once the cash is deposited at a bank, it's no longer playing an active role in the money supply.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As far as the potential impact on the reserve requirement, and multiplier effect. As you're quite rightly suggesting, the question is trying to avoid that by saying &quot;immediate&quot;. However, if you're in the USA, reserves no longer control the money supply the way the text book tries to describe, so there would not be expected to be a long term impact either. (reserve requirements only cover a fraction of bank deposits, and capital requirements actually dominate in terms of regulatory impact.)&lt;/p&gt;&#xA;" OwnerUserId="84" LastEditorUserId="405" LastEditDate="2015-05-02T23:23:04.350" LastActivityDate="2015-05-02T23:23:04.350" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5376" PostTypeId="1" CreationDate="2015-04-29T02:26:38.433" Score="2" ViewCount="66" Body="&lt;p&gt;I don't understand why the Marshallian and Hicksian demand have such different properties. &#xA;Both are functions from $$\Bbb{R}^n_+ \times \Bbb{R}_+ \rightarrow \Bbb{R}_+^n$$both are solved using the method of Lagrangian multipliers. Yet the properties of the two are very different. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does anyone know of any resources that discuss these differences in depth and in an organized way? My professor has us using his lecture notes. These are a good introduction but just don't rigorously discuss the differences. &lt;/p&gt;&#xA;" OwnerUserId="2679" LastActivityDate="2015-04-29T03:08:55.310" Title="Does anyone know of any resources that discuss the differences between Hicksian and Marshallian remanding in depth and in an organized way?" Tags="&lt;consumer-theory&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5377" PostTypeId="2" ParentId="5376" CreationDate="2015-04-29T03:06:10.967" Score="0" Body="&lt;p&gt;Marshallian and Hicksian demands are very different objects. If you want a very rigorous treatment, Jehle and Reny's graduate textbook on microeconomics is very good. For a more intermediate level check the book by Hal Varian&lt;/p&gt;&#xA;" OwnerUserId="4440" LastActivityDate="2015-04-29T03:06:10.967" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5378" PostTypeId="2" ParentId="5376" CreationDate="2015-04-29T03:08:55.310" Score="1" Body="&lt;p&gt;Technically they are related but are not the same Marshallian (or Walrasian henceforth) demand is the result of $x(p,w)\in argmax_{y\in\mathbb{R}^{L}_{+}}u(y)$ subject to $p'y(p,w)\leq w$. The Hicksian demand is the result of the dual problem $h(p,u)\in argmin_{y\in\mathbb{R}^{L}_{+}}p'y$ subject to $u(y)\geq u$. &#xA;The formal relationship is established trough the value functions of both problems, for the walrasian demand we have the value function or indirect utility $v(p,w)=u(x(p,w))$ and the value function of the second problem (hicksian demand) is the expenditure function $e(p,u)=p'h(p,u)$. &#xA;Now, the indirect utility and the expenditure are inverses of each other in the following sense:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;$e(p,v(p,w))=w$ &lt;/li&gt;&#xA;&lt;li&gt;$v(p,e(p,u))=u$&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;And to answer your question $x(p,e(p,u))=h(p,u)$ and $h(p,v(p,w))=x(p,w).$&#xA;This means that this demands have different properties but can be made equal by adjusting the wealth in the case of the walrasian demand such that I maintain the consumer in a fixed utility level u, thus obtaining the hickisan demand and vice-verse changing the utility level with changes in wealth using to go from the hicksian to the the walrasian. &#xA;The properties of each demand comes from the properties of the value functions and are a consequence of the theorem of the maximum. Like continuity of the objective.&lt;br&gt;&#xA;A good source is Nolan Miller notes &lt;a href=&quot;http://business.illinois.edu/nmiller/documents/notes/notes4.pdf&quot; rel=&quot;nofollow&quot;&gt;http://business.illinois.edu/nmiller/documents/notes/notes4.pdf&lt;/a&gt;. &#xA;But every micro theory books covers this material. &lt;/p&gt;&#xA;" OwnerUserId="127" LastActivityDate="2015-04-29T03:08:55.310" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5379" PostTypeId="2" ParentId="5352" CreationDate="2015-04-29T03:25:15.593" Score="3" Body="&lt;p&gt;Oded Galor's interesting work on Unified Growth Theory subsumes the Solow model, the Malthusian model and endogenous growth theories in a very stylized way. This model is of course &quot;long term&quot; and ignores institutions. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is a OLG model where the main problem from the household side is a choice between quantity versus quality of offspring (human capital intensity or number of children), increasing human capital is costly. From the factors side there is a fixed factor land, that plays the role of the Malthusian restriction when technology growth is non existent or low, human capital, and a labor augmenting technological or productivity factor that grows exogenously, this is understood as technological progress. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The model generates a first malthusian trap, that is only escaped after there is some population reduction shock (think black death) or some technological shock. Then the Solow stage, and then a endogenous growth phase. Population dynamics plays a vital role, in the malthusian stage population is stagnant and dependent on the fixed land factor, then in the second stage it grows exponentially and in the third stage households choose quality over quantity and the population decreases. Think of Middle Ages, 20th century US and Japan in this century respectively as examples of this stages. &#xA;Anyway I am a little rusty and it is not my field but this work is amazing.&lt;br&gt;&#xA;&lt;a href=&quot;http://www.econ.brown.edu/fac/Oded_Galor/pdf/UGT-April%2016-handout.pdf&quot; rel=&quot;nofollow&quot;&gt;Slides: Unified Growth Theory and Comparative Economic&#xA;Development&lt;/a&gt; &lt;/p&gt;&#xA;" OwnerUserId="127" LastEditorUserId="127" LastEditDate="2015-04-29T19:03:38.867" LastActivityDate="2015-04-29T19:03:38.867" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5380" PostTypeId="1" AcceptedAnswerId="5383" CreationDate="2015-04-29T04:24:45.120" Score="3" ViewCount="539" Body="&lt;p&gt;Two questions:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Given $v(\vec{p},m)$ and $e(\vec{p},\bar{U})$, is there only a single point at which these are inverses of each other?  &lt;/li&gt;&#xA;&lt;li&gt;Does an inverse always exist for a given price vector $\vec{p}$, income $m$ and $\bar{U}$, $v$ and $e$? &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;These are points my mates and I are arguing about as we prepare for our midterm. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, I prefer rigorous answers so if you can, feel free to be as thorough as you want.  &lt;/p&gt;&#xA;" OwnerUserId="2679" LastEditorUserId="43" LastEditDate="2015-05-04T01:00:43.393" LastActivityDate="2015-05-04T01:00:43.393" Title="Does there always exist a consumption bundle at which the indirect utility function is the inverse of the expenditure function?" Tags="&lt;consumer-theory&gt;&lt;academic-graduate&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5381" PostTypeId="1" CreationDate="2015-04-29T05:24:33.490" Score="3" ViewCount="514" Body="&lt;p&gt;I'm currently trying to wrap my head around modern portfolio theory and would love a simple explanation on how it differs from a marginal utility model (if at all).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As I am understanding it, MPT allows you to create a portfolio of assets in optimal quantities at a given risk factor.  However, isn't this basically the same as judging the marginal risk return of each asset and then funding each to its relative &quot;risk return&quot; (e.g. fund Asset A until marginal return is less than asset B, then fund asset B, fund asset B until marginal return is less than C, then fund C).&lt;/p&gt;&#xA;" OwnerUserId="4554" LastEditorUserId="120" LastEditDate="2015-04-29T10:31:42.847" LastActivityDate="2015-04-29T12:43:46.533" Title="Modern Portfolio Theory Vs Marginal Utility Theory" Tags="&lt;finance&gt;&lt;utility&gt;&lt;portfolio-theory&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5382" PostTypeId="2" ParentId="5381" CreationDate="2015-04-29T05:48:09.183" Score="2" Body="&lt;p&gt;Welcome to EC.SE! Hopefully this will help.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't think this characterization is correct. These are not opposing theories. Modern portfolio theory is based on the idea that people choose portfolios to maximize their utility. After that, it depends on the specification of utility. As a simple example, a person with a quadratic utility function will choose a portfolio that is mean-variance efficient. The particular portfolio allocation will depend on the risk-aversion parameter in the utility function.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For examples discussed in other questions on the site, see &lt;a href=&quot;https://economics.stackexchange.com/questions/4515/calculating-the-optimal-portfolio-for-an-investor-with-quadratic-utility&quot;&gt;Calculating the optimal portfolio for an investor with quadratic utility&lt;/a&gt; and &#xA;&lt;a href=&quot;https://economics.stackexchange.com/questions/3275/portfolio-choice-problem-of-a-cara-investor-with-n-risky-assets&quot;&gt;Portfolio choice problem of a CARA investor with n risky assets&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="59" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-04-29T05:48:09.183" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5383" PostTypeId="2" ParentId="5380" CreationDate="2015-04-29T07:49:21.537" Score="4" Body="&lt;p&gt;Regarding question 1:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From the assumption that the consumer has a single income value $m$, there can only be one value for $m$. So by the notion that $e$ and $v$ are inverses, there can only be one value $e$ for which $m$ corresponds to and thus only one $u$. So there is only one point. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regarding Question 2: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we have (1) a utility function that is continuous and locally non-satiated and (2) if $m &amp;gt; 0$ and (3) if both UMP and EMP exist, then they are equivalent. And $e$ and $v$ are inverses. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Claim 1: Solving UMP solves EMP. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Proof:  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose bundle $c^*$ solves the UMP but not EMP. Let $c'$ solve EMP. Then (1) amount spent on $c^*$ greater then that on $c'$ and so $u(c') \geq u(c^*) $ because obviously spending more means worse off or same utility. But (2) by local nonsatiation a consumption there exists a bundle $c''$ close enough to $c'$ such that amount spent on $c''$ is less than amount spent on $c^*$ and $u(c'') &amp;gt; u(c^*)$. (3) Contradiction because we assumed $c^*$ solves UMP. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Claim 2: Solving EMP solves UMP. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Proof: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose bundle $c^*$ solves EMP but not UMP. Let $c'$ solve UMP. Then (1) $u(c') &amp;gt; u(c^*)$ even though we spend the same amount on each. That is, $c^*$ doesn't solve UMP since less utility for same $m$.   Because amount spent positive, we can find $t$ where $0&amp;lt;t&amp;lt;1$ such that amount spent on $tc'$ is lower than that spent on $c^*$ yet $u(tc') &amp;gt; u(c^*)$ because $c^*$ does not solve the UMP. (3) Contradiction because we said $c^*$ solved EMP.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Summary: &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;If solutions exist either to UMP or EMP, then solutions exist for the other and they are inverse functions. &lt;/li&gt;&#xA;&lt;li&gt;If an inverse exists, it must be a point. &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="2679" LastEditorUserId="2679" LastEditDate="2015-04-29T21:47:29.943" LastActivityDate="2015-04-29T21:47:29.943" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5384" PostTypeId="1" CreationDate="2015-04-29T10:08:11.603" Score="1" ViewCount="49" Body="&lt;p&gt;Why switzerland managed to balance its budget after financial crisis? Why they had a surplus after 2008? I am not able to find comprehensive source for this type of information.&lt;/p&gt;&#xA;" OwnerUserId="4264" LastEditorUserId="2776" LastEditDate="2017-09-07T06:44:11.430" LastActivityDate="2017-09-07T06:44:11.430" Title="How did Switzerland manage to balance its budget?" Tags="&lt;reference-request&gt;&lt;government&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5385" PostTypeId="1" CreationDate="2015-04-29T10:24:04.850" Score="6" ViewCount="736" Body="&lt;p&gt;There are two consumers $A$ and $B$, and two producers $X$ and $Y$. he consumers are endowed with labour(L) and capital(K) $L_A,K_A$, and $L_B,K_B$ respectively. The preferences of the two consumers have the utility functions $U_A=X_A^4Y_A$ and $U_B=X_BY_B$. The technologies of the two producers are given by $X=\sqrt{K_XL_X}/2$ and $Y=2\sqrt{K_YL_Y}$. Setting the wage rate $w=1$, what are the competitive general equilibrium relative prices?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is inspired from a homework problem, but I wish to understand how to solve this general class of questions. Does this require pareto optimality? How does calculus feature in this question? Any help would be great! Thanks.&lt;/p&gt;&#xA;" OwnerUserId="4555" LastEditorUserId="43" LastEditDate="2015-04-29T12:17:59.280" LastActivityDate="2017-01-25T12:16:00.657" Title="Does a General Equilibrium here require Pareto Optimality?" Tags="&lt;microeconomics&gt;&lt;general-equilibrium&gt;&lt;pareto-efficiency&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5388" PostTypeId="1" CreationDate="2015-04-29T12:27:57.267" Score="1" ViewCount="530" Body="&lt;p&gt;When plotting a demand curve for a good, lets say carrots with price on the y-axis and quantity demanded on the x-axis. A shift any determinant of demand other than price of carrots results in a shift of the curve. Let us say that determinant in question is income. National income increases and as a result demand for carrots increases (as carrots are a normal good). The shift for an increased demand is referred to as a 'shift to right'. However is this not a vertical shift up. A vertical shift up of the demand curve means that for the same price people will demand more and for the same quantity people will pay a higher price. Is 'a vertical shift up' and 'a shift to the right' just different ways of describing the same movement or does a 'a shift to the right' achieve something different that I have not understood.&lt;/p&gt;&#xA;" OwnerUserId="4542" LastActivityDate="2015-04-29T12:49:57.753" Title="Shifts in demand curves" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;supply-and-demand&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5389" PostTypeId="2" ParentId="5381" CreationDate="2015-04-29T12:43:46.533" Score="0" Body="&lt;p&gt;Harry Markowitz invented &lt;a href=&quot;http://en.wikipedia.org/wiki/Modern_portfolio_theory&quot; rel=&quot;nofollow&quot;&gt;modern portfolio theory&lt;/a&gt;. If agents have quadratic utility or asset returns follow jointly normally distributed random variables, then his process describes how to construct optimal portfolios given the expected returns and forward-looking covariance of asset returns. If those are not your preferences and assets returns follow a different process (as we think they do), then you need a dynamic programming approach (&lt;a href=&quot;https://web.stanford.edu/~boyd/papers/pdf/dyn_port_opt.pdf&quot; rel=&quot;nofollow&quot;&gt;like this&lt;/a&gt;) for optimal portfolio construction. &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2015-04-29T12:43:46.533" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5390" PostTypeId="2" ParentId="5388" CreationDate="2015-04-29T12:49:57.753" Score="1" Body="&lt;p&gt;Consider a curve with a negative slope (such as the demand function for a normal good).&#xA;If you draw a second curve with a negative slope that does not intersect this one then it can either be in the &quot;right-up&quot; or the &quot;left-down&quot; direction from the first.&#xA;When they talk about shifts they sometimes just mean this general direction where the new curve will be. Sometimes (as with taxes) there really is a shift.&#xA;Let quantity be the vertical axis. If $D(p) = m - \frac{1}{p}$ then an increase in income will shift the demand curve up. But if $D(p) = \frac{m}{p}$ then an increase in income causes something that is not really a shift but a rescaling of the curve. You might still call this a shift up, as by moving up from the original demand curve you will reach the new one.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2015-04-29T12:49:57.753" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5391" PostTypeId="2" ParentId="4867" CreationDate="2015-04-29T17:23:07.493" Score="4" Body="&lt;p&gt;This is an old question. The first example of inefficiency caused by altruism that I know of is due to &lt;em&gt;Winter, S. (1969). A Simple Remark on the Second Optimality Theorem of Welfare Economics. Journal of Economic Theory, 1, 99–103&lt;/em&gt;, but I am sure others were around before that.&lt;/p&gt;&#xA;&lt;p&gt;Now, the example in Winter(1969) does not answer your question because it features altruism for &lt;em&gt;all&lt;/em&gt; agents in the economy. As mentioned by The Almighty Bob you can find another example in Heidhues and Riedel (2007). Another good reference is &lt;em&gt;Dufwenberg, M., Heidhues, P., Kirchsteiger, G., Riedel, F., &amp;amp; Sobel, J. (2011). Other-Regarding Preferences in General Equilibrium. The Review of Economic Studies, 78(2), 613–639&lt;/em&gt;, which is a summary paper of Heidhues and Riedel (2007) and contributions on the topics by the other authors.&lt;/p&gt;&#xA;&lt;p&gt;Without more constraints on the preferences, it is not hard to find an example satisfying the conditions of your question. I am sure you could find it yourself, if you haven't already. But in order to make the answer complete here is one:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\Omega \equiv \{(1,1),(1,1)\}$&lt;/span&gt; (individual endowements)&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$U_1 \equiv \min \{x_1,y_1\}$&lt;/span&gt; (perfect complement, no altruism)&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$U_2 \equiv \min \{x_2, y_2\} + 2*U_1$&lt;/span&gt; (perfect complement, with (strong) altruism toward &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt;)&lt;/p&gt;&#xA;&lt;p&gt;Walrasian equilibrium = {(1,1),(1,1)}, together with whatever (finite) relative price you like.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;I guess it is clear that the Walrasian equilibrium is not Pareto efficient. Notice that this &amp;quot;result&amp;quot; highly depends on the definition of the consumption space. If you add&lt;/p&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Donation of good &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; from &lt;span class=&quot;math-container&quot;&gt;$2$&lt;/span&gt; to &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt;, and&lt;/li&gt;&#xA;&lt;li&gt;Donation of good &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; from &lt;span class=&quot;math-container&quot;&gt;$2$&lt;/span&gt; to &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt;,&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;p&gt;to the consumption space, then you would recover efficiency (although it might take a little care to define a meaningful notion of Walrasian equilibrium in this case).&lt;/p&gt;&#xA;" OwnerUserId="38" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2016-04-15T13:22:01.613" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5392" PostTypeId="1" AcceptedAnswerId="5393" CreationDate="2015-04-29T17:42:02.430" Score="5" ViewCount="339" Body="&lt;p&gt;&lt;a href=&quot;http://scholar.princeton.edu/sites/default/files/SSRN-id2412263_0.pdf&quot; rel=&quot;nofollow&quot;&gt;Mian and Sufi (2014)&lt;/a&gt; say&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;We use individual and zip code level data, and exploit cross-sectional variation in house price growth to estimate the impact of rising home values on borrowing and spending. We use the Saiz (2010) housing supply elasticity of a CBSA as an instrument for house price growth, and focus on the heterogeneous effects of house price gains on borrowing and spending.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;And, later&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The question we seek to answer is: Are housing wealth shocks also shocks to cash on hand? We answer this question by empirically estimating how changes in housing wealth affect&#xA;  household borrowing and spending decisions.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I miss the step on how to get housing wealth &lt;em&gt;shocks&lt;/em&gt; as opposed to general equilibrium changes in housing prices. In general, changes in housing wealth are not necessarily exogenous and unanticipated. How does the housing elasticity help to extrapolate exogenous price movements in the housing sector?&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2015-04-29T18:00:45.987" LastActivityDate="2015-04-29T18:31:06.740" Title="Housing Supply Elasticity: Proxy for Exogenous House Price Movements" Tags="&lt;econometrics&gt;&lt;academic-graduate&gt;&lt;elasticity&gt;&lt;empirical-methods&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5393" PostTypeId="2" ParentId="5392" CreationDate="2015-04-29T18:19:00.223" Score="4" Body="&lt;p&gt;The idea is that all else equal, areas with inelastic housing supply (e.g., areas that are surrounded by water, so you can't just build some more houses &quot;over that way&quot;) will see greater house price growth, which increases household wealth, and that these differences in supply elasticity are exogenous and uncorrelated with other things that matter. In &lt;a href=&quot;http://mitcre.mit.edu/wp-content/uploads/2014/03/The-Quarterly-Journal-of-Economics-2010-Saiz-1253-96.pdf&quot; rel=&quot;nofollow&quot;&gt;Saiz (2010)&lt;/a&gt;, he uses terrain and water data to determine the degree to which the housing supply in different metropolitan areas is constrained by geographic features.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's a method that really only works (to the extent that it does) when house prices are rising, which would induce housing construction. If house prices are falling, supply elasticity tends to be pretty low— we don't tend to bulldoze homes at a particularly high rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With respect to the degree to which house price changes are anticipated, I think the best work on expectations is that done by Case and Shiller over the years, most recently &lt;a href=&quot;http://www.brookings.edu/~/media/Projects/BPEA/Fall-2012/2012b_Case.pdf?_lang=en&quot; rel=&quot;nofollow&quot;&gt;Case, Shiller, and Thompson (2012)&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="264" LastEditorUserId="264" LastEditDate="2015-04-29T18:31:06.740" LastActivityDate="2015-04-29T18:31:06.740" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5394" PostTypeId="1" AcceptedAnswerId="5396" CreationDate="2015-04-29T18:30:19.370" Score="2" ViewCount="76" Body="&lt;p&gt;What are the books usually called for studying the computation of GDP?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems that the economics growth by Barro doesn't discuss about that.&lt;/p&gt;&#xA;" OwnerUserId="95" LastEditorDisplayName="user4239" LastEditDate="2015-04-29T20:30:05.553" LastActivityDate="2015-06-11T17:39:38.437" Title="What are the books usually called for studying the computation of GDP?" Tags="&lt;reference-request&gt;&lt;gdp&gt;&lt;national-accounts&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5395" PostTypeId="1" AcceptedAnswerId="5464" CreationDate="2015-04-29T19:00:58.450" Score="5" ViewCount="132" Body="&lt;p&gt;I was going through overshooting of exchange rates (which I probably haven't seen since undergrad) and it seemed to me that the story is a bit of a stretch. I wonder if there is some empirical test that would convince me otherwise.&lt;/p&gt;&#xA;" OwnerUserId="4440" LastEditorDisplayName="user4239" LastEditDate="2015-04-29T20:30:12.353" LastActivityDate="2015-05-03T03:59:14.870" Title="Do we have some evidence of overshooting?" Tags="&lt;exchange-rates&gt;&lt;international-economics&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5396" PostTypeId="2" ParentId="5394" CreationDate="2015-04-29T19:04:00.887" Score="5" Body="&lt;p&gt;The ultimate reference is the &lt;a href=&quot;http://unstats.un.org/unsd/nationalaccount/sna2008.asp&quot; rel=&quot;nofollow&quot;&gt;UN's SNA 2008 manual&lt;/a&gt;. SNA stands for System of National Accounts. The SNA 2008 is the international statistical standard for the national accounts&lt;/p&gt;&#xA;" OwnerDisplayName="user4239" LastEditorDisplayName="user4239" LastEditDate="2015-06-11T17:39:38.437" LastActivityDate="2015-06-11T17:39:38.437" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5397" PostTypeId="2" ParentId="5326" CreationDate="2015-04-29T19:27:37.130" Score="1" Body="&lt;p&gt;You already got your answer in the math forum, from the economics point of view maybe it could help that you can use the relation between the expenditure function and the indirect utility to get your solution. &#xA;Your indirect utility of the UMP is $v(p,w)=\frac{m}{p_x+p_y}$, this provides the expenditure function for the EMP $e(p,\overline{u})=\overline{u}\ (p_x+p_y)$. Now the hicksian demand is $h(p,u)=(u,u)$. This is the case of course of the utility $u(x,y)=min(x,y)$.&lt;/p&gt;&#xA;" OwnerUserId="127" LastEditorUserId="127" LastEditDate="2015-04-29T19:34:16.760" LastActivityDate="2015-04-29T19:34:16.760" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5398" PostTypeId="2" ParentId="5316" CreationDate="2015-04-29T21:20:18.610" Score="1" Body="&lt;p&gt;Thanks a lot for the reference. I think the result does hold. Here is what I found:&#xA;The validity of such a law of large numbers what subject to some debate in the 1980s.&#xA;See Judd (1985), Feldman and Gilles (1985) and Uhlig (1996) for representative papers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Luckily Feldman and Gilles show that for a probability space $(Y; B(Y ); \Pi)$ there exists a continuum of random variables $y(i;.) : \Omega \rightarrow Y$ such that for all $i$ the random variable is distributed according to $\Pi$ and that for all $\omega \in \Omega$ and all $D \in b(Y)$&#xA;$$m(i \in I : \{y(i; \omega) \in D ) = \Pi(D)$$&#xA;that is, the population income distribution is nonstochastic and given by $\Pi$ The continuum of random variables cannot be pairwise independent.&lt;/p&gt;&#xA;" OwnerUserId="4440" LastActivityDate="2015-04-29T21:20:18.610" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5399" PostTypeId="1" CreationDate="2015-04-29T22:12:10.927" Score="3" ViewCount="2550" Body="&lt;p&gt;And if not, how are currency exchange rates accounted for?&lt;/p&gt;&#xA;" OwnerUserId="4558" LastEditorUserId="4558" LastEditDate="2015-04-30T14:24:44.647" LastActivityDate="2020-04-01T13:03:17.367" Title="Does each stock exchange only trade in one currency?" Tags="&lt;currency&gt;&lt;stock-market&gt;" AnswerCount="4" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5400" PostTypeId="1" AcceptedAnswerId="5403" CreationDate="2015-04-30T05:42:48.080" Score="3" ViewCount="86" Body="&lt;p&gt;Starting on p. 98 of Salanie's &quot;The Economic of Taxation&quot; (2nd edition), it explains&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;To probe it more rigorously, let us define the utility of taxpayer $w$ when he claims to have productivity $w'$:&#xA;  $$&#xA;V(w', w) = u(C(w'), Y(w'), w).&#xA;$$&#xA;  For the mechanism to be revealing, $V$ must be maximal in $w' = w$. Assume that all functions are differentiable and that income $Y$ is positive. Then we have the first-order necessary condition&#xA;  $$&#xA;\frac{\partial V}{\partial w'} (w, w) = 0 \tag{NC1}&#xA;$$&#xA;  and the second-order necessary condition&#xA;  $$&#xA;\frac{\partial^2 V}{\partial w'^2}(w,w) \leq 0 \tag{NC2}.&#xA;$$&#xA;  Differentiating (NC1) gives us&#xA;  $$&#xA;\frac{\partial^2 V}{\partial w'^2} + \frac{\partial^2 V}{\partial w' \partial w} = 0&#xA;$$&#xA;  ...&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;My question is this: How do we arrive at the last equation from (NC1)? If I differentiate &#xA;$$&#xA;\frac{\partial V}{\partial w'} (w', w)&#xA;$$&#xA;with respect to $w$, don't I just end up with $\frac{\partial^2 V}{\partial w'\partial w}$? Likewise, if I differentiate with respect to $w'$, I end up with&#xA;$\frac{\partial^2 V}{\partial w'^2}$. What am I missing?&lt;/p&gt;&#xA;" OwnerUserId="59" LastActivityDate="2015-04-30T09:19:52.593" Title="Derivation on p.99 of Salanie, The Economics of Taxation (2nd edition)" Tags="&lt;taxation&gt;&lt;mechanism-design&gt;&lt;optimal-taxation&gt;&lt;asymmetric-information&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5401" PostTypeId="1" CreationDate="2015-04-30T07:37:55.997" Score="2" ViewCount="83" Body="&lt;p&gt;This question arises from reading of &lt;a href=&quot;https://web.stanford.edu/~skrz/SannikovSkrzypaczAER07.pdf&quot; rel=&quot;nofollow&quot;&gt;Sannikov and Scrzypacz (2007)&lt;/a&gt; and &lt;a href=&quot;http://www.dklevine.com/archive/refs41147.pdf&quot; rel=&quot;nofollow&quot;&gt;Green and Porter(1984)&lt;/a&gt;, which are modeling the same thing, dynamic collusion under imperfect monitoring, in a continuous-time version and a discrete-time version. Their choice of different noises term are crucial to derivation of their conclusions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is how to decide which one is dominant for a particular market(e.g. European banana market) regarding the modeling of noises. My guess is that multiplicative noise term is more relevant to shocks of weather, additive accumulative noise term(following Brownian motion in Sannikov and Scrzypacz's case) is more relevant to shocks related to institution, say, cultural revolution and Khomeini's return to Iran.&lt;/p&gt;&#xA;" OwnerUserId="73" LastEditorUserId="40" LastEditDate="2015-07-16T23:02:38.280" LastActivityDate="2015-07-16T23:02:38.280" Title="Multiplicative Noise Term vs Additive Accumulative Noise Term" Tags="&lt;econometrics&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5402" PostTypeId="2" ParentId="5400" CreationDate="2015-04-30T08:22:11.780" Score="3" Body="&lt;p&gt;Why are you doing $\frac{\partial^2 V}{\partial w'^2}$ ? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Even if it is said that $w^{'}=w$ at the optimum, it should be taken different when you differentiate it for first order conditions. So, you differentiate it according to $w^{'}$ and $w$.&lt;/p&gt;&#xA;" OwnerUserId="2938" LastActivityDate="2015-04-30T08:22:11.780" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5403" PostTypeId="2" ParentId="5400" CreationDate="2015-04-30T09:19:52.593" Score="3" Body="&lt;p&gt;I think it is the chain rule. Let $w'(w) = w$, since we are looking for revealing mechanisms. The condition&#xA;$$&#xA;\frac{\partial V}{\partial w'} (w'(w),w) = 0&#xA;$$&#xA;holds for all $w$ because the mechanism is revealing for all types. As the (not partial) differentiate w.r.t. $w$ of the right hand side is 0, the same goes for the differentiate of the left hand size, hence&#xA;$$&#xA;\frac{d \frac{\partial V}{\partial w'} (w'(w),w)}{d w} = 0.&#xA;$$&#xA;According to the chain rule&#xA;$$&#xA;\frac{d \frac{\partial V}{\partial w'} (w'(w),w)}{d w} = \frac{d w'(w)}{d w}\cdot \frac{\partial^2 V}{\partial^2 w'} (w'(w),w) + \frac{d w}{d w}\cdot \frac{\partial^2 V}{\partial w \partial w'} (w'(w),w),&#xA;$$&#xA;which in a simplified form is&#xA;$$&#xA;\frac{\partial^2 V}{\partial^2 w'} (w'(w),w) + \frac{\partial^2 V}{\partial w \partial w'} (w'(w),w).&#xA;$$&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2015-04-30T09:19:52.593" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5404" PostTypeId="1" CreationDate="2015-04-30T09:44:51.140" Score="3" ViewCount="10868" Body="&lt;p&gt;Utility function&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;U=4{q_1}^{0.5}+q_2 \\&#xA;Y=10&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;p_1=p_2=1&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then $p_1$ rises to 2. I would like to ask how to calculate the substitution effect on the demand for q1?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I have done is calculate the optimal bundle initially which is (4,6) then subs into the utility function and get $U=14$. However, I am stuck here for calculating the subs effect on $q1$.&lt;/p&gt;&#xA;" OwnerUserId="4560" LastEditorUserId="87" LastEditDate="2015-11-15T22:15:04.700" LastActivityDate="2018-11-06T13:20:34.873" Title="Calculate the substitution effect" Tags="&lt;consumer-theory&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="5405" PostTypeId="2" ParentId="5404" CreationDate="2015-04-30T12:22:27.303" Score="2" Body="&lt;p&gt;You made the right start by calculating the utiltiy at $p_1=p_2=1$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When we change a price, two things happen. Firstly, one of the goods becomes relatively more expensive, so people &lt;strong&gt;substitute&lt;/strong&gt; away from that good.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Secondly, since the total amount of goods someone can afford is lower when a price increases, it is as if their &lt;strong&gt;income&lt;/strong&gt; went down.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To find the substitution effect, we need to shut down the second of these effects and focus on the first.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It sounds like you are after what is more properly known as the Hicksian substitution effect. To calculate that, we need to compensate the consumer for the aparent loss of income. In other words, we need to answer the following question: &quot;Given $p_1=2$ and $p_2=1$, what income would be needed to achieve the same utility as before (i.e. $U=14$)?&quot; Call the income level that answers this question $\widetilde{Y}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, all we need to do is calculate the optimal consumption bundle when $p_1=2$, $p_2=1$, and income is $\widetilde{Y}$. The substitution effect is the the difference in $q_1,q_2$ between this new bundle and the first one you calculated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hopefully, this is enough to help you figure out the solution.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2015-04-30T12:22:27.303" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5406" PostTypeId="2" ParentId="5363" CreationDate="2015-04-30T12:31:34.500" Score="3" Body="&lt;p&gt;While a lack of infrastructure and public goods may explain poverty in a short-term perspective, it is widely considered that institutions are the key factor in the long term (how could infrastructure and public goods be provided without suitable institutions?).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As well as Acemoglu &amp;amp; Robinson, referred to in FooBar's answer, two important writers on this topic are &lt;a href=&quot;http://en.wikipedia.org/wiki/Hernando_de_Soto_Polar&quot; rel=&quot;nofollow&quot;&gt;Hernando de Soto&lt;/a&gt; and &lt;a href=&quot;http://en.wikipedia.org/wiki/Douglass_North&quot; rel=&quot;nofollow&quot;&gt;Douglass North&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;De Soto's book &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0465016154&quot; rel=&quot;nofollow&quot;&gt;The Mystery of Capital&lt;/a&gt; argues that people in poor countries are often constrained by the absence of institutions providing effective property rights over capital.  Thus the land farmed by a villager may be informally recognised by other villagers as being his land, but his lack of formal property rights over the land means that he cannot use it as security for a loan to buy farm equipment, and cannot sell it if he wants to start a different business or move to a city.  As a result his economic options are heavily constrained.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;North, in his paper &lt;a href=&quot;http://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.5.1.97&quot; rel=&quot;nofollow&quot;&gt;Institutions&lt;/a&gt;, emphasizes the importance for economic development of institutions which:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;facilitate trade and specialisation, both within countries and&#xA;internationally, by lowering transactions costs between people in&#xA;circumstances where the informal constraints of village life do not&#xA;apply;&lt;/li&gt;&#xA;&lt;li&gt;facilitate mobility of capital, by developing a legal framework for &#xA;financial instruments and removing legal obstacles (eg usury laws);&lt;/li&gt;&#xA;&lt;li&gt;facilitate the spreading of risk, reducing the consequences of bad&#xA;luck for individuals and firms.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;While such institutions are largely taken for granted in developed countries, North suggests that their growth is not an inevitable development, and indeed that the historical norm is the absence of such a development (p 98 of Institutions).&lt;/p&gt;&#xA;" OwnerUserId="1417" LastActivityDate="2015-04-30T12:31:34.500" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5407" PostTypeId="1" CreationDate="2015-04-30T12:33:09.473" Score="2" ViewCount="172" Body="&lt;p&gt;The question is &quot;If the government of country Z increases spending by \$12 million dollars and raises tax collections by the same amount, then what will be the overall impact of theses moves on real GDP in country Z.&quot; The official solution is that real GDP will increase by \$12 million because it is a balanced budget move.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, I think it depends. Increased tax collection will discourage production while the spending would encourage production. Any suggestions will be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="4551" LastActivityDate="2015-04-30T23:57:28.660" Title="What are the consequences of government spending by imposing tax?" Tags="&lt;macroeconomics&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5408" PostTypeId="2" ParentId="5369" CreationDate="2015-04-30T12:41:58.477" Score="5" Body="&lt;p&gt;I would like to start by saying that I'm not a programmer and I have never contributed to any open source project. However, I have been interested in open source for a long time and I believe that I understand the general concepts of open source and how it works. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To start of, I would like to say that open source does not mean that you cannot make money on the software. It just means that the code has to be publicly available. Companies like Red Hat and Canonical make money not by selling the software, but by selling their expertise. If i wan't my company to run a Linux server, I can get the software for free. But I need somebody to install it, set it up and give support. This is where specialist from e.g. Red Hat comes in and makes money. For the company it makes sense, because hiring their own specialist would probably be much more expensive. This also gives these companies an incentive to contribute the the code. They want their product to be good so people will use it and by their services. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But lets talk about your points about scalability. &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;The cool thing about open source is that you do not have to develop everything from scratch. An operating system like Ubuntu has not been build by a single person. Instead a lot of people has contributed to different parts of the system (actually I think it would be hard to find one person with all the skills to make and effective operating system). For example, the Ubuntu people does not develop the Linux kernel. They just use one developed by others. So what was without open source probably impossible, is now possible,because you can build on other peoples work. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Reading and understanding others code it not more time consuming than writing your own. At least not in many cases. Beyond that, you do not have to understand all the code you use. If I want to write a program for Linux, I do not have to understand how all the parts in that program works in detail. I just have to know what they do. I can then take these parts and put them together with other parts to create my program. Or I can take an existing program and modify it for my needs.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;tools like git and github makes it incredibly easy to collaborate. You just get the code and make modifications. You then submit them to the person in charge of the project. If it is good, it will be accepted.  &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;people go in and out of projects all the time. But if the project is popular, enough will be working on it. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Here are some reasons why open source works. &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;I think the main reason that open source software has become so good is that the  large number of people working on the a project, insures a level of expertise that i hard to archive in a small team of developers. While it might seem weird, this single fact, seems to outweigh all the negative problems that can arise in open source. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;In commercial programming, the project dies with the firm. Lets say you  by some software from a company that then closes. Then your screwed, as you will not receive updates and bug fixes, and you will need to by new software to keep up. With open source you can just find another company to support you software or develop it yourself. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;If you are still interested, I suggest you read &lt;a href=&quot;http://www.catb.org/esr/writings/cathedral-bazaar/&quot; rel=&quot;noreferrer&quot;&gt;&#xA;The Cathedral and the Bazaar&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="3997" LastActivityDate="2015-04-30T12:41:58.477" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="5409" PostTypeId="2" ParentId="5394" CreationDate="2015-04-30T13:00:25.243" Score="1" Body="&lt;p&gt;Blanchard, Macroeconomics 6th, p. 20 is a good and easy start. If you want more, then yes good directly to the office' publications. The BEA has a very complete documentation. &lt;/p&gt;&#xA;" OwnerUserId="4415" LastActivityDate="2015-04-30T13:00:25.243" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5410" PostTypeId="2" ParentId="5407" CreationDate="2015-04-30T13:11:12.243" Score="2" Body="&lt;p&gt;Your professor want probably that you compute the keynesian multiplicator (hint: once you have the general formula, replace dT by dG and see what you get).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Intuition: if you raise G, you will raise your GDP. As Y increases, your consumption increases. But the taxes (T, lump sum) increase also, so the consumption decreases (it depends of the disposable income). The overall effect is a 1 to 1 increase of your GDP.&lt;/p&gt;&#xA;" OwnerUserId="4415" LastActivityDate="2015-04-30T13:11:12.243" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5411" PostTypeId="1" CreationDate="2015-04-30T15:50:30.720" Score="2" ViewCount="261" Body="&lt;p&gt;So the central question of my project is to what extent does a country's level of export contibution towards GDP (i.e. exports as a % of total GDP) affect its GDP growth.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm comparing this hypothesis for two different countries, China and India.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have annual time-series data for exports as a % of total GDP for both countries and their GDP growth for the last 30 years, but I have no idea how to choose a correct model to begin to anaylse it with.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I was thinking of pehaps using Autoregressive model one, any thoughts? If this is correct then I how would I begin to model it using my data?&lt;/p&gt;&#xA;" OwnerUserId="4569" OwnerDisplayName="Babar Sattar" LastActivityDate="2015-04-30T18:24:36.383" Title="How do I choose the correct model for a regression?" Tags="&lt;regression&gt;&lt;time-series&gt;&lt;autoregressive&gt;" AnswerCount="2" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="5412" PostTypeId="2" ParentId="5411" CreationDate="2015-04-30T16:15:02.883" Score="2" Body="&lt;p&gt;Plot things. Do the raw data look like they have cycles? (I assume so, given that you are talking about economic data and want to use an autoregressive model.) Next, try to get the order of the autoregressive model by taking differences until the cycles disappear. This can also be tested formally using (a version of) the Durbin-Watson test. There will likely be further patterns. What do you see? Does the variability stay constant over time (likely when you have percentages) or is there a tendency for the variability to grow? What smooth (and simple) function follows the general distribution of the data? Fit it, assess the fit, repeat with different functions, until you have something reasonable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Model selection is far more of an art than a science, and there often are several reasonable models that you can use. &lt;/p&gt;&#xA;" OwnerUserId="4562" OwnerDisplayName="user3697176" LastActivityDate="2015-04-30T16:15:02.883" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5413" PostTypeId="2" ParentId="5399" CreationDate="2015-04-30T16:54:38.987" Score="0" Body="&lt;p&gt;As I understand it, the answer is yes, you must convert to the exchange's currency before buying anything on the exchange. However, companies can be listed on more than one stock exchange and, in any case, a substantial portion of stocks are traded off the exchanges. &lt;/p&gt;&#xA;" OwnerUserId="4514" LastActivityDate="2015-04-30T16:54:38.987" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5414" PostTypeId="2" ParentId="5284" CreationDate="2015-04-30T16:57:27.693" Score="4" Body="&lt;p&gt;Maybe not what you are looking for, but a related concept is regret. Orphanides and Zervos (1995) is a classic paper on rational regret in a health economics concept &lt;a href=&quot;http://www.jstor.org/discover/10.2307/2138580?uid=3739840&amp;amp;uid=2&amp;amp;uid=4&amp;amp;uid=3739256&amp;amp;sid=21106216442271&quot; rel=&quot;nofollow&quot;&gt;http://www.jstor.org/discover/10.2307/2138580?uid=3739840&amp;amp;uid=2&amp;amp;uid=4&amp;amp;uid=3739256&amp;amp;sid=21106216442271&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There's also plenty of irrational regret papers, mostly just boiling down to hyperbolic discounting models.&lt;/p&gt;&#xA;" OwnerUserId="4514" LastActivityDate="2015-04-30T16:57:27.693" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5415" PostTypeId="1" CreationDate="2015-04-30T16:57:59.717" Score="3" ViewCount="2044" Body="&lt;p&gt;$$U(q_1,q_2)=4{q_1}^{0.5}+q_2$$ $$P_1=1$$ and $$P_2=2$$ Initially $$Income=40$$ Then the question asks :how do I know what income I can get a corner solution?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Anyone can help me with this?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you&lt;/p&gt;&#xA;" OwnerUserId="4560" LastActivityDate="2015-04-30T17:21:43.747" Title="Corner solution-consumer theory" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;" AnswerCount="1" CommentCount="7" ClosedDate="2015-04-30T19:23:34.660" ContentLicense="CC BY-SA 3.0" />
  <row Id="5416" PostTypeId="2" ParentId="5359" CreationDate="2015-04-30T17:10:30.247" Score="3" Body="&lt;p&gt;The answer has to do with the fact that (under typical assumptions) producers experience increasing marginal costs as output rises. This makes the supply curve upward-sloping. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose firms simply increased the price by the amount of the tax. Consumers would then buy fewer units of the good, resulting in less profits for producers. However, marginal costs are also lower at the lower level of production, meaning that firms could profitably produce at a lower price than that. So they lower the price and increase production a bit to partially offset the losses caused by the tax (note, the price remains above where it would be without the tax, and production still less than without the tax).&lt;/p&gt;&#xA;" OwnerUserId="4514" LastActivityDate="2015-04-30T17:10:30.247" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5417" PostTypeId="2" ParentId="5415" CreationDate="2015-04-30T17:21:43.747" Score="3" Body="&lt;p&gt;The corner solutions are where $q_1=0$ or $q_2=0$. So just take the first-order conditions, plug in zero for the value, and solve for income. For incomes less than that amount, the quantity demanded is zero.&lt;/p&gt;&#xA;" OwnerUserId="4514" LastActivityDate="2015-04-30T17:21:43.747" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5418" PostTypeId="2" ParentId="5411" CreationDate="2015-04-30T18:24:36.383" Score="1" Body="&lt;p&gt;I think you can use VAR models in these kind of applied policy issues. I think you are interested by some questions like &quot;how about the effect of exports on GDP and GDP on export ?&quot; So, if it is the case, I think the most appropriate way is to use VAR models in which you can analyze the causality (like Granger Causality) between your key varibles. But you must look at your data if your time series are cointegrated, if yes, you can use a VECM model (Vector Error Correction Model) which can be considered as a different version of VAR models. &lt;/p&gt;&#xA;" OwnerUserId="2938" LastActivityDate="2015-04-30T18:24:36.383" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="5419" PostTypeId="2" ParentId="412" CreationDate="2015-04-30T18:28:37.547" Score="1" Body="&lt;p&gt;After searching for a while, this is the best answer I can so far come up with.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) A formalized argument for why identification could break down under BBL is from &lt;a href=&quot;http://onlinelibrary.wiley.com/doi/10.3982/QE266/epdf&quot; rel=&quot;nofollow&quot;&gt;Srisuma ('13)&lt;/a&gt;. He gives two specific examples in the &lt;a href=&quot;http://qeconomics.org/supp/266/supplement.pdf&quot; rel=&quot;nofollow&quot;&gt;online appendix &lt;/a&gt; where identification is lost because of using additive rather than multiplicative perturbations to construct off-equilibrium value functions (as was suggested in the original BBL paper). This is indicative of a broader issue with BBL that there might be off-equilibrium parameters that satisfy the BBL minimum-distance estimator.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) The two examples given in the appendix are both quite basic and standard (single-agent and Cournot). This suggests that the phenomenon could be a problem in many/most applications.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;3) Be creative with policy perturbations. Although Srisuma doesn't show the benefit of multiplicative over additive perturbations in general, the couple examples given show that multiplicative perturbations could improve the estimator. Formalizing optimal perturbations seems a good place for further research.&lt;/p&gt;&#xA;" OwnerUserId="238" LastActivityDate="2015-04-30T18:28:37.547" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5420" PostTypeId="2" ParentId="5352" CreationDate="2015-04-30T18:32:20.950" Score="3" Body="&lt;p&gt;There exists also a tendancy to treat growth models with heterogeneous agents. I think the question is not to use the right growth model but contribute to the theory by trying to change &quot;representative agent&quot; framework. That's why there exists so many growth models with heterogeneous agents in recent years. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't think at all that endogenous growth models are better than Solow-Swan exogenous growth models. Using one of these models depends on what you are trying to show as an economic mechanism. For example, if you are interested by some economic questions as &quot;how it could be possible to maintain a growth path in a developping country ?&quot;, sure that it will be more appropriate to use an endogenous model. &lt;/p&gt;&#xA;" OwnerUserId="2938" LastActivityDate="2015-04-30T18:32:20.950" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5421" PostTypeId="2" ParentId="3072" CreationDate="2015-04-30T18:57:19.663" Score="8" Body="&lt;p&gt;The primary literature concerned with this type of question (at least where classical results break down) is behavioral economics. There's a great general compilation of papers put together by the Russell Sage Foundation called the &quot;Behavioral Economics Reading List&quot; that includes, among other things, a General Introduction section with overview papers by some of the big movers and shakers (Camerer, Kahneman, Laibson, etc.).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Many of the papers you will find through the Russell Sage paper list will be on alternative methods to classical consumer theory. If you want just the tests of assumptions/predictions, I would recommend looking through the abstracts of John Lists's papers on &lt;a href=&quot;http://home.uchicago.edu/jlist/research2/theory.html&quot;&gt;Testing Economic Theory&lt;/a&gt;. List is one of the most prolific experimentalist authors on the subject and has weighed in on most questions that other people work on in this field as well. Just reading his abstracts on that page should give you a pretty good idea of the state of the literature up through 2011 (the website isn't updated). His &lt;a href=&quot;http://home.uchicago.edu/~jlist/JLIST_CV.pdf&quot;&gt;CV&lt;/a&gt; is updated, but doesn't give you the abstracts without looking up the papers individually.&lt;/p&gt;&#xA;" OwnerUserId="238" LastActivityDate="2015-04-30T18:57:19.663" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5422" PostTypeId="2" ParentId="3072" CreationDate="2015-04-30T21:02:15.197" Score="2" Body="&lt;p&gt;Another interesting issue could be on intertemporal elasticity of substitution and risk aversion. There are lots of experimental studies that you can find easily on econbiz or in similar websites. &#xA;Also some other interesting studies focus on time inconsistency. You can find some famous articles by Laibson and Hepburn. &lt;/p&gt;&#xA;" OwnerUserId="2938" LastActivityDate="2015-04-30T21:02:15.197" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5423" PostTypeId="1" CreationDate="2015-04-30T21:40:36.443" Score="2" ViewCount="237" Body="&lt;p&gt;Basically, I have the full intertemporal model (the two period model) with the consumer, firm, and government, complete with the investment. And there is this question: Determine an equilibrium path with the case in which workers have a preference shock that reduces the disutility from work $h-l$ in first period. Preferences are back to normal in second period.&#xA;Note: $h$ is the number of hours available to work, $l$ is the number of hours spent on leisure, so essentially $h-l$ is the number of hours spent working.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is this question trying to ask? If I understand the question, I probably will be able to answer. &lt;/p&gt;&#xA;" OwnerUserId="4548" LastActivityDate="2015-08-29T01:42:51.320" Title="Intertemporal Model Macroeconomics" Tags="&lt;macroeconomics&gt;&lt;general-equilibrium&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5424" PostTypeId="2" ParentId="5423" CreationDate="2015-04-30T23:53:42.880" Score="2" Body="&lt;p&gt;You just have to write down some utility function that changes in each period, in the first there should be an additional term (shock) a constant multiplicative on the disutility of work that reduces it, and then in the second period this constant becomes one. &#xA;A dynamic model solution is a vector of $(l^*_1,l^*_2)$ of the equilibrium hours of work that the consumer chooses according to her preferences, and restrictions. &lt;/p&gt;&#xA;" OwnerUserId="127" LastActivityDate="2015-04-30T23:53:42.880" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5425" PostTypeId="2" ParentId="5407" CreationDate="2015-04-30T23:57:28.660" Score="0" Body="&lt;p&gt;This question is too vague to be answered, there are many factors. One, for example:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Do the households receive utility from how the government is spending the money? E.g. the government spends it on public education, and the households like that versus the government spends it on expensive parties / military / whatever the households don't favor.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;This is relevant because &lt;em&gt;if&lt;/em&gt; the households receive utility from what the government is doing with the money, they will &quot;&lt;em&gt;feel richer&lt;/em&gt;&quot; - the expenditure has a wealth effect (and is neutral in case of no other rigidities). In the other case, even with lump sump taxation, households will feel poorer and respond differently.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you want to look more into this, solve the following simple optimization problem:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \max_{c,l} U(c + G(T),l) \text{ s.t. } c = w(1-l) + a - T $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $a$ is assets, $T$ is the lump sump taxation, and $c$ and $l$ are consumption and leisure. Look at the impact of different functional forms of $G(T)$ onto the optimal choice. For example: $G(T) = T$, $G(T) = 0.5 T$, and $G(T) = 0$. &lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-04-30T23:57:28.660" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5426" PostTypeId="2" ParentId="3072" CreationDate="2015-04-30T23:59:15.987" Score="2" Body="&lt;p&gt;I'll do the opposite and tell you something that we do &lt;em&gt;not&lt;/em&gt; know a lot about: The elasticity of substitution between consumption and leisure. While many Macro models provide calibrations for that, there is no - as far as I know - proper econometric exercise based on micro data that gets to this value.&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-04-30T23:59:15.987" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5427" PostTypeId="1" CreationDate="2015-05-01T00:55:07.753" Score="1" ViewCount="46" Body="&lt;p&gt;So my question is simple but what I would like to know is if my method of calculating something like that plausible or not.&#xA;So it goes like this : the formula we took at lecture for calculating is &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;GDP = C + I + G + (X-Z)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;With :&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;C= consumption , I = investment, G = government spending (army defense, etc...), X = exportations, Z = importations&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;If a TTIP is put in place between Europe and USA, creating a free trade zone following theory exportations will rise causing the economic growth of European countrys, this will also cause our consumption (C) to grow, I will not explain why to not have to go into any details but this will cause our importations (z) to also grow.&#xA;So my question lies here, can I assume that exportations and importations are going to grow by the same quantity thus creating a balance and that the GDP will rise because of the rise in consumption or would that be an invalid theory? Will exportations and importations meet a certain equivalence at some point?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sorry for my English I am studying in french so it is kind of hard to explain.&lt;/p&gt;&#xA;" OwnerUserId="2797" LastActivityDate="2015-05-01T00:55:07.753" Title="Influence of a TTIP on the GDP of a european country" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="5428" PostTypeId="1" AcceptedAnswerId="5430" CreationDate="2015-05-01T01:35:21.023" Score="6" ViewCount="965" Body="&lt;p&gt;Is there any way to tell if a paper used R instead of Stata or Matlab for the estimation? I know it doesn't matter for the quality of the paper, but I'd just be interested to see how many papers use one software over the other. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm thinking an easy way might be by looking at the figures- ggplot means R, for example. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Again, not really an economics question, but it's about economics papers. &lt;/p&gt;&#xA;" OwnerUserId="4234" LastEditorUserId="38" LastEditDate="2015-05-01T02:11:08.510" LastActivityDate="2017-02-27T22:43:46.863" Title="Papers that use R vs Stata" Tags="&lt;software&gt;&lt;stata&gt;&lt;r&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5430" PostTypeId="2" ParentId="5428" CreationDate="2015-05-01T02:03:07.673" Score="7" Body="&lt;p&gt;The main economic journals are slowly starting to require authors to make their data &lt;strong&gt;and&lt;/strong&gt; the code of their analysis available as part of the online appendix. When this is the case, it is easy to figure out which software was used.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One example are recent publications in the American Economic Review. For instance,&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Calsamiglia, Caterina, Guillaume Haeringer, and Flip Klijn. 2010. &quot;Constrained School Choice: An Experimental Study.&quot; American Economic Review, 100(4): 1860-74. &lt;a href=&quot;https://www.aeaweb.org/articles.php?doi=10.1257/aer.100.4.1860&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.aeaweb.org/articles.php?doi=10.1257/aer.100.4.1860&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;the online appendix of which contains the complete STATA code of the statistical analysis.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the code is not available at the journal's webpage, other alternatives involve :&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Checking the website of the authors. &lt;/li&gt;&#xA;&lt;li&gt;Contacting the authors themselves to ask if they could send you their code.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;None of these methods are great if you're trying to gather a sizable or representative dataset of software used in econ papers, but for anecdotal data, they should do the trick.&lt;/p&gt;&#xA;" OwnerUserId="38" LastEditorUserId="38" LastEditDate="2017-02-27T22:43:46.863" LastActivityDate="2017-02-27T22:43:46.863" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5431" PostTypeId="1" AcceptedAnswerId="5433" CreationDate="2015-05-01T08:34:27.953" Score="8" ViewCount="99" Body="&lt;p&gt;In an economy with several agents who have different utility functions, it is common to define a &lt;em&gt;welfare function&lt;/em&gt;, defined as an aggregate of the utility functions of the different agents. Then we can ask if and how this welfare function can be maximized.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;AFAIK, the most common welfare function is the sum of utilities, also called &lt;em&gt;utilitarian welfare&lt;/em&gt;. A more general function is a weighted-sum, in which each agent has a different weight. Such functions are well-studied. For example, it can be proved (e.g. &lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/0047272776900189&quot;&gt;Varian, 1976&lt;/a&gt;) that an allocation is Pareto-efficient, if and only if it maximizes a weighted-sum welfare function, for some choice of weights.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am looking for references in which social welfare is measured using the &lt;em&gt;median&lt;/em&gt;, or a similar statistic (e.g. a certain percentile), instead of a weighted sum. Particularly, I am looking for references about existence of an allocation which maximizes the medial social welfare in various settings.&lt;/p&gt;&#xA;" OwnerUserId="385" LastActivityDate="2015-05-01T18:26:00.140" Title="The median as a welfare function" Tags="&lt;reference-request&gt;&lt;social-welfare&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5432" PostTypeId="1" AcceptedAnswerId="5434" CreationDate="2015-05-01T10:36:37.597" Score="1" ViewCount="940" Body="&lt;p&gt;Hi the textbook i am studding from simply states that 'the rule for rational consumer behaviour is know as the equi-marginal principle. This states that a consumer will get the highest utility from a given level of in come when the ratio of the marginal utilities is equal to the ratio of prices'. I was hoping someone could maybe give me a bit more intuition behind this. Maybe it is self-explanatory... maybe not.&lt;/p&gt;&#xA;" OwnerUserId="4542" LastActivityDate="2015-05-01T12:52:13.477" Title="Equi-marginal Principle" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5433" PostTypeId="2" ParentId="5431" CreationDate="2015-05-01T12:46:32.783" Score="4" Body="&lt;p&gt;John Rawls, in his book, A Theory of Justice, discusses the Maxi Min Principle, where he essentially says that societies can be compared based on how well they maximize the welfare of those with the lowest welfare (subject to caveats about certain basic human rights).  If the typical welfare function is a weighted average of individual welfare $U_i$ like: $$\sum a_i \cdot u_i$$ over all $i$, then this welfare function is $$\min u_i$$.&#xA;Since the minimum is the 0th percentile, I think this would just barely qualify as an answer to your question. I suspect that's not exactly what you had in mind, but it might be helpful. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This metric has appeared in a number of economics papers including Amartya Sen 's 1977 Econometrica paper,  &lt;a href=&quot;http://www.jstor.org/stable/1913949?seq=1#page_scan_tab_contents&quot; rel=&quot;nofollow noreferrer&quot;&gt;On Weights and Measures: Informational Constraints in Social Welfare Analysis&lt;/a&gt;, &lt;a href=&quot;http://link.springer.com/article/10.1023/A:1026420425961&quot; rel=&quot;nofollow noreferrer&quot;&gt;The Aggregation of Climate Change Damages: a Welfare Theoretic Approach&lt;/a&gt; (Fankhauser, Tol, and Pearce (1997)), and &lt;a href=&quot;http://www.jstor.org/stable/1883177?seq=1#page_scan_tab_contents&quot; rel=&quot;nofollow noreferrer&quot;&gt;Optimal Redistributive Taxation When Individual Welfare Depends Upon Relative Income&lt;/a&gt; (Boskin and Sheshinski (1978))&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One more thing:&#xA;I've also seen &lt;a href=&quot;http://super-economy.blogspot.com/2010/03/income-distribution-in-us-and-sweden.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;a blog post&lt;/a&gt; that compares Swedish and American incomes at all income deciles and shows the level of percentiles at which a poor person would be better off in Sweden:&#xA;&lt;img src=&quot;https://i.stack.imgur.com/MLlmA.jpg&quot; alt=&quot;sw and usa income deciles &quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &lt;a href=&quot;http://economistsview.typepad.com/economistsview/2010/09/the-distribution-of-income-in-oecd-countries.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Economist's View&lt;/a&gt; has a related figure for more countries. &#xA;&lt;img src=&quot;https://i.stack.imgur.com/gLf3w.gif&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-05-01T18:26:00.140" LastActivityDate="2015-05-01T18:26:00.140" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5434" PostTypeId="2" ParentId="5432" CreationDate="2015-05-01T12:52:13.477" Score="2" Body="&lt;p&gt;Suppose there are two goods $X$ and $Y$. A consumer has lots of $Y$ and very little $X$, and as a result his marginal utility of $Y$ is a lot lower than the marginal utility of $X$ (it helps here to think about a convex utility function such as $U=XY$). We could make him better off if we could convert some of those $Y$'s into $X$s (again, this follows from the convexity of utility, a standard assumption. Intuitively, people want more of everything but still prefer balanced consumption bundles to extremes). The question then becomes, &quot;how many $X$s can we buy for each unit of $Y$ we give up?&quot; The answer is that each $Y$ can buy $\frac{P_X}{P_Y}$ units of $X$.Thus, we convert $X$ into $Y$ until the slopes of the marginal utilities equals the price ratio, at which point additional conversion would result in a larger loss from less $Y$ than gain from more $X$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A more general way of looking at this is through calculus. For a constrained function that is continuously differentiable, the slopes at any interior maxima and minima must be parallel to the slope of the constraint. In this case, the function is the utility function, $\frac{P_X}{P_Y}$ is the slope of the constraint.&lt;/p&gt;&#xA;" OwnerUserId="4514" LastActivityDate="2015-05-01T12:52:13.477" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5435" PostTypeId="1" CreationDate="2015-05-01T13:38:34.473" Score="1" ViewCount="44" Body="&lt;p&gt;In the DMP family of labor models, we typically have $V$ denoting a vacancy and $J$ denoting the value of a job. $V$ typically becomes 0 through free entry. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Say a firm get matched with a worker of value $J_i$ and could reject him, to search again. In order to do so, it would need to hold that $V &amp;gt; J_i$. But as (through free entry) $V = 0$, that would only be the case if the worker has zero value to the firm. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, in the real world, we see firms rejecting applicants and searching for new applicants. How do DMP models achieve to generate this observation?&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2015-05-01T14:56:54.417" LastActivityDate="2015-05-02T09:39:50.113" Title="Reject worker after match" Tags="&lt;macroeconomics&gt;&lt;labor-economics&gt;&lt;unemployment&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5436" PostTypeId="1" CreationDate="2015-05-01T15:52:08.843" Score="6" ViewCount="65" Body="&lt;p&gt;Are there any recommendation for futures market or commodity trading books? I am not interested in trading myself, but would like to have a better understanding of it for my research. &lt;/p&gt;&#xA;" OwnerUserId="2674" LastActivityDate="2015-05-01T15:52:08.843" Title="Futures Market Books" Tags="&lt;finance&gt;&lt;reference-request&gt;&lt;financial-markets&gt;&lt;commodities&gt;&lt;agriculture&gt;" AnswerCount="0" CommentCount="5" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5437" PostTypeId="2" ParentId="5218" CreationDate="2015-05-01T16:02:42.393" Score="3" Body="&lt;p&gt;The simple answer is they estimate the demand curves for each product and, using their cost structure and market characteristics (competition structure, etc.) set price to maximize profits. This is standard for any firm, though.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How Google in particular and these big firms in general (Amazon, Microsoft, etc.) estimate demand curves is somewhat different than the usual economist might do it. For usual demand estimation, a researcher would have to make use of market idiosyncrasies to identify demand. For example, using supply shifters with 2SLS for basic demand estimation, BLP for discrete choice with heterogeneous products, etc. Identification is such a big issue for demand estimation because a researcher generally just observes equilibrium (p, q) combinations, not the actual demand curve. We are also often constrained purely by the amount of data available.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a big firm like Google, however, they 1) have the ability to enact exogenous perturbation in price to see how sales change and 2) have access to tons and tons of data. Using 1) they are constantly running little experiments to see how consumer behavior changes. They can then use the results to actually trace out the demand curve. In these experiments, the firm could easily take into account things like movie popularity, genre, etc. With respect to 2), Pat Bajari, chief economist at Amazon and one of the biggest names in modern empirical IO, has a (at this point) &lt;a href=&quot;https://www.utexas.edu/cola/_files/sr8456/DataMiningDemand2015-2-4.pdf&quot; rel=&quot;nofollow&quot;&gt;working paper&lt;/a&gt; with Nekipelov, Ryan, and Yang on how to use machine learning to estimate demand curves across products with lots of sample points bunches of characteristics (think thousands of product characteristics). As a &quot;fledgling computer science researcher,&quot; you'd probably be in to this. This approach is especially relevant for people/firms with access to tons of data (like Google, Amazon, etc.)&lt;/p&gt;&#xA;" OwnerUserId="238" LastActivityDate="2015-05-01T16:02:42.393" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5438" PostTypeId="2" ParentId="5399" CreationDate="2015-05-01T16:22:00.493" Score="2" Body="&lt;p&gt;An exchange can handle more than one currency, but this would be uncommon for equities.  An example is the ICE futures exchange in Europe. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Multiple currencies doesn't cause any particular problems - transactions are carried out in currency and it is up to you to convert to whatever currency you prefer.  Usually done by fx sweeps by your custodian bank.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For margin purposes combined exposure (e.g risk netting) can be calculated at prevailing fx rates.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Each security only trades in one currency, and each security trades basically like a mini exchange so there isn't really any problem.  Think of it like two exchanges run by the same company. &lt;/p&gt;&#xA;" OwnerUserId="119" LastActivityDate="2015-05-01T16:22:00.493" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5441" PostTypeId="1" AcceptedAnswerId="5444" CreationDate="2015-05-01T18:04:07.347" Score="9" ViewCount="367" Body="&lt;p&gt;I read an article in BusinessWeek that talked about income inequality in the US.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The article attributed the difference to the Intel chip that came in 1971. Since that time big hi-tech companies have grown in US, which caused income growth among wealthy people and also didn't lead to a relatively large growth in jobs because a lot of work was outsourced to places like China.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To what extent is this explanation valid in the US... or is it insignificant in accounting for the income differences between the rich and the poor?&lt;/p&gt;&#xA;" OwnerUserId="1533" LastEditorUserId="405" LastEditDate="2015-05-02T23:03:23.867" LastActivityDate="2015-09-21T10:34:25.417" Title="Causes of income inequality in the US" Tags="&lt;macroeconomics&gt;&lt;inequality&gt;&lt;wages&gt;" AnswerCount="3" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5442" PostTypeId="1" AcceptedAnswerId="5477" CreationDate="2015-05-01T18:18:33.200" Score="6" ViewCount="520" Body="&lt;p&gt;I'm looking at data for an online shop with clothing items listed at different prices. I'd like to use this information to do some kind of profit maximization (i.e. I'd like to have some understanding of the impact on sales if I raise/lower price of an individual item).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Unfortunately, I don't have information of the variety &quot;Q sales for clothing item X at price P&quot; for a variety of prices; this would be hard to estimate due to the small number of items in each category.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, I do have a distribution of sales vs. price and the distribution of price of items in the shop. I'm thinking if I compute&#xA;$$&#xA;\frac{\text{% of all sales at this price}}{\text{% of available items at this price}}&#xA;$$, that gives me something analogous to a &quot;quantity demanded&quot;. For simplicity, I bucketed the prices and sales into $5 increments.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Having done this and doing your traditional log-linear fit&#xA;$&#xA;\ln(P) = a\ln(Q)+b&#xA;$ I get a pretty good fit and a reasonable number (around $-.9$).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Question 1&lt;/strong&gt;: Does my methodology make sense? If so, what did I just calculate? I feel like it's an &quot;aggregate&quot; price elasticity of all items in the shop. The clothing items for sale are mostly substitutable with each other, the price elasticity of an individual item must be a lot higher (since there are substitutes available).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Question 2&lt;/strong&gt;: Is there a way to figure the &quot;average&quot; price elasticity of each item from this (approximating that they all have about the same price elasticity)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;EDIT:&lt;/strong&gt; Based on the suggestion from @optimal-control and @NickJ, it appears the issue is that I don't really have a good model of what's going on. Here's what I'm imagining:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose you have $n$ unique items, each with a fixed price $p$. Each item has a limited supply available $s$. I observe $q(p, t)$ sales for each unique item, limited by $s$. Let's say $q(p, t)$ is something like a homogeneous poisson process, for simplicity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The above is starting to look like a markdown optimization problem; I could imagine finding an optimal price for each item based on these factors and my cost structure (storage cost, time value of money, etc.), if I could, say, change prices and estimate the change in $q(p, t)$. Unfortunately, this function is so small, and $s$ is so small (maybe 1 to 5 items) that this may be impossible to estimate. What I'm trying to figure out is some way to estimate the response of $q(p, t)$ with respect to $p$ without modifying prices, off of the assumption that the $n$ items are partial substitutes for one another.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If they were perfect substitutes, I would expect ALL of my lowest price items to sell out, and then my next lowest, etc. going on upward and I could use these results to estimate $q(p, t)$. But clearly this isn't the case, because some more expensive items sell first. The problem is, $q(p, t)$ is dependent on the mix of items and prices available. Any thoughts on how to approach this?&lt;/p&gt;&#xA;" OwnerUserId="4570" LastEditorUserId="4570" LastEditDate="2015-05-03T20:43:23.670" LastActivityDate="2015-05-03T20:43:23.670" Title="Estimating Price Elasticity from sales" Tags="&lt;microeconomics&gt;&lt;elasticity&gt;" AnswerCount="1" CommentCount="8" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5444" PostTypeId="2" ParentId="5441" CreationDate="2015-05-01T20:03:59.253" Score="9" Body="&lt;p&gt;The reason you bring forward belongs to &lt;em&gt;technological directed change&lt;/em&gt;, which is regarded one of the main explanations for wage growth differentials. Keep in mind it's not exactly the way you're phrasing it: The growth in tech companies rewards people who are skilled well for their kind of jobs (as opposed to &quot;&lt;em&gt;wealthy people&lt;/em&gt;&quot;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Card and DiNardo have a &lt;a href=&quot;http://eml.berkeley.edu/~card/papers/skill-tech-change.pdf&quot;&gt;nice summary article on the issue&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The recent rise in wage inequality is usually attributed to skill-biased technical change (SBTC), associated with new computer technologies. We review the evidence for this hypothesis, focusing on the implica- tions of SBTC for overall wage inequality and for changes in wage differentials between groups. A key problem for the SBTC hypothesis is that wage inequality stabilized in the 1990s despite continuing ad- vances in computer technology; SBTC also fails to explain the evo- lution of other dimensions of wage inequality, including the gender and racial wage gaps and the age gradient in the return to education.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="43" LastEditorUserId="264" LastEditDate="2015-09-17T12:08:46.560" LastActivityDate="2015-09-17T12:08:46.560" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="5445" PostTypeId="1" AcceptedAnswerId="5463" CreationDate="2015-05-01T20:59:00.993" Score="4" ViewCount="171" Body="&lt;p&gt;Suppose I have two goods $x$ and $y$ and their associated prices $p_x$ and $p_y$. Income $m$. $x^H$ is Hicksian demand and $x^M$ is Marshallian demand. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Slutsky Equation: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\partial x^M}{\partial p_x} = \frac{\partial x^H}{\partial p_x}  -\frac{\partial x^M}{\partial m} x^M $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Elasticity Version: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\varepsilon_{x,p_x}^M = \varepsilon_{x,p_x}^H - \eta_x s_x$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$s_x = \frac{p_x x}{m}$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My professor claims $$\varepsilon_{x,p_x}^H =-s_y \sigma $$, but didn't give a proof even when asked. Nor could my TA provide one. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\sigma$ is the elasticity of substitution&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My Question:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can someone show why $\varepsilon_{x,p_x}^H =-s_y \sigma $?&lt;/p&gt;&#xA;" OwnerUserId="2679" LastEditorUserId="43" LastEditDate="2015-05-03T12:00:37.847" LastActivityDate="2015-05-09T00:01:31.437" Title="Why does $\varepsilon_{x,p_x}^H =-s_y \sigma $?" Tags="&lt;consumer-theory&gt;&lt;academic-graduate&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5446" PostTypeId="2" ParentId="5435" CreationDate="2015-05-01T22:11:25.833" Score="1" Body="&lt;p&gt;In the &lt;strong&gt;standard model, all workers have the same productivity&lt;/strong&gt;. So if J &amp;lt; 0, your expected value of a vacancy would also be negative. That the reason why, once a match is made, the only variable to be set is the wage. In the real world, they have to deal with different expected productivities.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Pissarides 94 distinguished between two kinds of applicants (but in this case, the firm is passive in the decisions).&lt;/p&gt;&#xA;" OwnerUserId="4415" LastEditorUserId="4415" LastEditDate="2015-05-02T09:39:50.113" LastActivityDate="2015-05-02T09:39:50.113" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5447" PostTypeId="2" ParentId="5428" CreationDate="2015-05-01T22:13:48.220" Score="5" Body="&lt;p&gt;See &lt;a href=&quot;http://logec.repec.org/scripts/itemstat.pf?type=redif-software;sortby=3d&quot; rel=&quot;noreferrer&quot;&gt;RePEc's software top&lt;/a&gt;. You'll find much Stata, a bit Matlab, and nothing else.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From long personal observations, economists' preferences are ranked like this:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Stata&lt;/li&gt;&#xA;&lt;li&gt;(none)&lt;/li&gt;&#xA;&lt;li&gt;Matlab&lt;/li&gt;&#xA;&lt;li&gt;Python, R&lt;/li&gt;&#xA;&lt;li&gt;SAS, Gauss &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Java, C#, C, Julia are used when performance is important (heavy simulations, combinatorics, etc.).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a specific paper, software is easy to identify uniquely with plots (google &quot;stata plots&quot; or &quot;r plots&quot; for gallery) or replication files, as mentioned here.&lt;/p&gt;&#xA;" OwnerUserId="240" LastActivityDate="2015-05-01T22:13:48.220" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5448" PostTypeId="1" CreationDate="2015-05-02T00:50:04.613" Score="9" ViewCount="191" Body="&lt;p&gt;Are there any data sources or variables that measure how protectionist a country is? If so, what are they?&lt;/p&gt;&#xA;" OwnerUserId="4572" LastEditorUserId="6168" LastEditDate="2016-06-12T02:30:51.727" LastActivityDate="2016-06-12T02:30:51.727" Title="Are there any datasets for protectionism?" Tags="&lt;data-request&gt;&lt;international-trade&gt;" AnswerCount="2" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="5449" PostTypeId="1" CreationDate="2015-05-02T03:21:11.843" Score="2" ViewCount="5218" Body="&lt;p&gt;I just want to confirm with my understanding.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is correct to say that no matter price increase or price decrease, the substitution effect is always &lt;strong&gt;negative&lt;/strong&gt; for both inferior goods and normal goods. Then for income effect, it is positive for inferior goods and negative for normal goods &lt;strong&gt;no matter price increase or decrease.&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="4560" LastActivityDate="2020-09-13T09:07:44.020" Title="Sign of substitution and income effect of a price change" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5450" PostTypeId="2" ParentId="5449" CreationDate="2015-05-02T04:36:18.853" Score="0" Body="&lt;p&gt;You are correct on the main point. The effect is the derivative of the demand with respect to its argument (price or income), the sign of which does not depend on what the size or sign of the change in the argument is. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You did make a mistake: the income effect is positive for normal goods, negative for inferior goods.&lt;/p&gt;&#xA;" OwnerUserId="4445" LastActivityDate="2015-05-02T04:36:18.853" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5451" PostTypeId="2" ParentId="5357" CreationDate="2015-05-02T05:02:16.200" Score="3" Body="&lt;p&gt;Slutsky compensation makes the original consumption bundle again exactly affordable after the price change. This implies that the original utility level is reachable. But higher utility may also be reachable by changing the consumption bundle. So there may be overcompensation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hicksian compensation makes the original utility level again exactly reachable after the price change. The consumption bundle provided may differ from the original one. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The overcompensation is explained in many textbooks and online sources, e.g. &lt;a href=&quot;http://www.econ.ohio-state.edu/miyazaki/econ804/HICKS1.PDF&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="4445" LastActivityDate="2015-05-02T05:02:16.200" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5452" PostTypeId="1" AcceptedAnswerId="5454" CreationDate="2015-05-02T06:00:44.733" Score="5" ViewCount="525" Body="&lt;p&gt;I pay the doctor before he conducts the surgery.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can anyone explain to me whether this statement shows moral hazard or adverse selection?&lt;/p&gt;&#xA;" OwnerUserId="4560" LastEditorUserId="120" LastEditDate="2015-05-02T23:25:53.297" LastActivityDate="2015-05-04T07:52:58.160" Title="Moral Hazard or Adverse Selection?" Tags="&lt;microeconomics&gt;&lt;game-theory&gt;&lt;asymmetric-information&gt;" AnswerCount="1" CommentCount="11" ContentLicense="CC BY-SA 3.0" />
  <row Id="5453" PostTypeId="2" ParentId="5357" CreationDate="2015-05-02T08:08:53.883" Score="11" Body="&lt;p&gt;Here's a figure to explain:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/8NpSw.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Starting from the old price line, where the optimal consumption bundle is point $A$, we increase the price of $y$ to get the new price line.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Slutsky compensation says that we have to give the consumer enough extra income so that he can afford to old bundle ($A$) at the new price. Thus, we shift the new budget constraint out to the dashed line.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reason this &quot;overcompensates&quot; is that, taking the dashed line as the budget constraint, the consumer could afford bundle $B$, which gives him higher utility than he started with.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2015-05-02T08:08:53.883" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="5454" PostTypeId="2" ParentId="5452" CreationDate="2015-05-02T11:42:51.407" Score="8" Body="&lt;p&gt;The problem you are facing has probably both: &lt;strong&gt;Moral Hazard and Adverse Selection&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We have &lt;strong&gt;hidden action&lt;/strong&gt; by the doctor (you can't really observe his level of effort during the surgery), therefore we have Moral Hazard.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Additionally, you (probably) can not know beforehand of the doctor is a good or bad doctor, so his type (good or bad) is unknown. So, there is &lt;strong&gt;hidden information&lt;/strong&gt; and therefore possibly Adverse Selection.&#xA;One example could be that a good doctor would never work for the amount you pay, so the doctor you hire is of the bad type.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Remark: I did not define good/bad doctor here, as it could be many different things; a bad doctor could just be a lazy doctor or a badly trained doctor.&lt;/em&gt;&lt;/p&gt;&#xA;" OwnerUserId="120" LastEditorUserId="4483" LastEditDate="2015-05-04T07:52:58.160" LastActivityDate="2015-05-04T07:52:58.160" CommentCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="5455" PostTypeId="1" CreationDate="2015-05-02T15:55:18.783" Score="3" ViewCount="269" Body="&lt;p&gt;What's the relationship among &lt;a href=&quot;http://www.ma.huji.ac.il/~zamir/papers/22_IJGT85.pdf&quot; rel=&quot;nofollow&quot;&gt;universal type space&lt;/a&gt;, &lt;a href=&quot;http://www.dklevine.com/archive/refs4512.pdf&quot; rel=&quot;nofollow&quot;&gt;Aumann's semantic knowledge model&lt;/a&gt; and &lt;a href=&quot;http://www.tau.ac.il/~samet/papers/ignoring.pdf&quot; rel=&quot;nofollow&quot;&gt;Samet's syntactic knowledge model&lt;/a&gt;?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here's my confusion:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regarding universal type space and the model in &lt;a href=&quot;http://www.dklevine.com/archive/refs4512.pdf&quot; rel=&quot;nofollow&quot;&gt;Aumann's Agreeing to disagree&lt;/a&gt;, I used to think they're really the same thing from two different angles. The type space construction is a bottom-up construction. It starts with all the payoff relevant parameters from players' point of view, and generates a set of states of world in the end. Aumann's model is top-down. The set of states of world and players' knowledge as partitions are exogenous. Interesting results are derived by imposing some consistency rules.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems to me, there's a one-to-one correspondence between a player's type in the former and a cell( or atom, block) in the selfsame player's partition in the latter, because a player's strategy has to be measurable with respect to them in these settings.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But after having a skimming of an unpublished paper by Robert Simon,&lt;a href=&quot;http://www.ratio.huji.ac.il/sites/default/files/publications/dp228.PDF&quot; rel=&quot;nofollow&quot;&gt;The Common Prior Assumption in Belief Spaces: An Example&lt;/a&gt;, I found it's not the case.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In that paper, he actually imposed a partition on &lt;a href=&quot;http://www.ma.huji.ac.il/~zamir/papers/22_IJGT85.pdf&quot; rel=&quot;nofollow&quot;&gt;Merten and Zamir's type space&lt;/a&gt;(he claimed so) for each player, so there's no such correspondence.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another thing that is weird is that it seems to me he's actually not working on on a belief space. It looks like he's working on a model in Dov Samet's &lt;a href=&quot;http://www.tau.ac.il/~samet/papers/ignoring.pdf&quot; rel=&quot;nofollow&quot;&gt;Ignoring ignorance and Agreeing to Disagree&lt;/a&gt;, which is homeomorphic to a Cantor set, a set which is generated by assigning truth values on underlying propositions and the use of non-repeated knowledge operators of the same player. It seems to me Dov Samet's model is not homeomorphic to Merten and Zamir's type space, because we might need to add operators of belief from probability 0 to probability 1 in Dov Samet's model to do that, and the generated set of state of state of world will have a cardinality strictly larger than a Cantor set.&lt;/p&gt;&#xA;" OwnerUserId="73" LastActivityDate="2015-05-10T14:45:40.350" Title="Relationship among universal type space, Aumann's semantic knowledge model and Samet's syntactic knowledge model" Tags="&lt;game-theory&gt;&lt;bayesian-game&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5456" PostTypeId="1" AcceptedAnswerId="5457" CreationDate="2015-05-02T16:17:57.693" Score="7" ViewCount="293" Body="&lt;p&gt;To understand the emergence of constitution, &lt;a href=&quot;http://home.uchicago.edu/~rmyerson/foundatn2008.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Myerson (2008)&lt;/a&gt; models a scernario that a political leader gathers supports from captains in order to defeat challengers whose arrival is modelled by a &lt;a href=&quot;http://en.wikipedia.org/wiki/Poisson_process&quot; rel=&quot;nofollow noreferrer&quot;&gt;Poisson process&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I found using Poisson process seems to be simple and reasonable, but it is the only model I know that utilizes Poisson process.Are there any other well-known models utilizing Poisson process in a similar way? If not, what's drawback of Poisson process?&lt;/p&gt;&#xA;" OwnerUserId="73" LastEditorUserId="6168" LastEditDate="2019-04-05T21:34:57.790" LastActivityDate="2019-04-05T21:36:06.217" Title="Application of Poisson process in economic modelling" Tags="&lt;reference-request&gt;&lt;stochastic-processes&gt;&lt;continuous-time&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="5457" PostTypeId="2" ParentId="5456" CreationDate="2015-05-02T16:51:54.320" Score="9" Body="&lt;p&gt;Most of the literature on &quot;&lt;strong&gt;Strategic experimentation&lt;/strong&gt;&quot; (or Bandits) uses Poisson processes. Here players can use either a risky or safe arm and one of them generates a fixed stream of payoffs (usually the safe arm) the other one generates lump-sum payments whose arrival times are described by a Poisson process.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some examples are:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Klein, Nicolas, and Sven Rady. &quot;&lt;a href=&quot;http://restud.oxfordjournals.org/content/early/2011/03/02/restud.rdq025.short&quot;&gt;Negatively correlated bandits.&lt;/a&gt;&quot; The Review of Economic Studies (2011).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Keller, Godfrey, and Sven Rady. &quot;&lt;a href=&quot;http://onlinelibrary.wiley.com/doi/10.3982/TE595/abstract&quot;&gt;Strategic experimentation with Poisson bandits.&lt;/a&gt;&quot; Theoretical Economics 5.2 (2010): 275-311.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Keller, Godfrey, Sven Rady, and Martin Cripps. &quot;&lt;a href=&quot;http://onlinelibrary.wiley.com/doi/10.1111/j.1468-0262.2005.00564.x/abstract&quot;&gt;Strategic experimentation with exponential bandits.&lt;/a&gt;&quot; Econometrica 73.1 (2005): 39-68.&lt;/p&gt;&#xA;" OwnerUserId="120" LastActivityDate="2015-05-02T16:51:54.320" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5458" PostTypeId="2" ParentId="5304" CreationDate="2015-05-02T20:06:59.007" Score="3" Body="&lt;p&gt;The short answer seems to be yes your example violates expected utility... It mostly seems to me like a simple transformation of the first example you gave (but you got rid of the red balls).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As mentioned in other answers expected utility is not equipped to handle uncertainty because it deals with taking expectations and expectations cannot be computed when you don't know probabilities. For that reason, I think it is relevant to my answer to specify the distinction between what risk and uncertainty are.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Risk: This deals with facing a set of probabilities over outcomes in which the agent knows/understands the possible outcomes that he is facing&lt;/li&gt;&#xA;&lt;li&gt;Uncertainty: This deals with an agent facing an unknown set of probabilities over possible outcomes&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;In a previous version of my answer, I wasn't careful in how I thought about and explained these ideas and I have clarified a few ideas in my head since then which hopefully translates to a clarified answer. Now to answer your question:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We have an urn with 60 balls. We are &lt;em&gt;uncertain&lt;/em&gt; about the number of black balls and yellow balls in this urn. Imagine we present this urn with the above specified lotteries to an individual (with a monotonic utility function $u$) and ask them to choose between $L_{A'}$ and $L_{B'}$. Without loss of generality, imagine they choose to take $L_{A'}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This tells us by revealed preference $L_{A'} \succ L_{B'}$ which then implies&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$u(30) &amp;gt; u(B)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $B$ is the number of black balls that are believed to be in the urn (no probabilities here, this is some number the decision maker arrived at and at this point we don't know how). This implies&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$B &amp;lt; 30$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now imagine that you give the agent the choice between $L_{C'}$ and $L_{D'}$ and the agent chooses to face lottery $D'$. Then&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$u(60) &amp;gt; u(30 + (60-B))$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $(60-B)$ is the number of yellow balls that the agent must think are in the urn. This implies&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$60 &amp;gt; 30 + (60-B) \Rightarrow B &amp;gt; 30$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This means that an agent cannot prefer $L_{A'}$ to $L_{B'}$ and prefer $L_{C'}$ to $L_{D'}$ because that would imply $B &amp;gt; 30$ and $B &amp;lt; 30$. It is difficult to talk about where $B$ comes from because it is a hard concept to think about when we are used to working in expected value terms, this agent &lt;em&gt;cannot&lt;/em&gt; compute any type of expectation over the sets of values that he thinks $B$ lies in. As an example of this, let me use a max-min approach.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Imagine that when he is presented the urn and lotteries that he is told that the number of black balls is either 15 or 45, but the agent doesn't know with what probability it is 15 and what probability it is 45.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Lottery $A'$ will give him $u(30)$ utility units for sure&lt;/li&gt;&#xA;&lt;li&gt;Lottery $B'$ will give him either $u(15)$ utility units or $u(45)$ utility units.&lt;/li&gt;&#xA;&lt;li&gt;Lottery $C'$ will give him either $u(75)$ utility units or $u(45)$ utility units.&lt;/li&gt;&#xA;&lt;li&gt;Lottery $D'$ will give him $u(60)$&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The agent is worried about uncertainty (an interpretation of the max-min is that he thinks it is a magic urn that tries its best to pay the least amount as possible, so it will choose the value that leaves him worse off if given a choice). Then using this in his decision process when comparing $L_{A'}$ and $L_{B'}$ he thinks these lotteries will pay the following amounts&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;$L_{A'}$ will pay $u(30)$&lt;/li&gt;&#xA;&lt;li&gt;$L_{B'}$ will pay $\min(u(15), u(45)) = u(15)$&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;thus he chooses lottery $A'$. Now consider $L_{C'}$ and $L_{D'}$. He thinks these lotteries will pay&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;$L_{C'}$ will pay $\min(u(45), u(75)) = u(45)$&lt;/li&gt;&#xA;&lt;li&gt;$L_{D'}$ will pay $u(60)$&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;thus he would choose lottery $D'$. This is one example of how uncertainty can be treated in a problem like this, but by no means is the only.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note: Earlier I thought had a piece of my answer that talked about priors over the value of $B$, but this wasn't carefully thought through. You can have multiple values that you might imagine $B$ takes, but as soon as you assign a probability distribution to any of these values then you have left the realm of uncertainty and moved to the realm of risk.&lt;/p&gt;&#xA;" OwnerUserId="47" LastEditorUserId="47" LastEditDate="2015-05-03T06:17:34.477" LastActivityDate="2015-05-03T06:17:34.477" CommentCount="15" ContentLicense="CC BY-SA 3.0" />
  <row Id="5459" PostTypeId="1" AcceptedAnswerId="5460" CreationDate="2015-05-02T20:32:57.773" Score="9" ViewCount="1480" Body="&lt;p&gt;I've found an interesting question looking at perfect-bayesian-equilibrium. I haven't seen a question where beliefs are not discrete.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is a single potential buyer of an object which has zero value to&#xA;the seller. This buyer’s valuation v is uniformly distributed on [0, 1] and is&#xA;private information. The seller names a price $p_1$ which the buyer accepts or&#xA;rejects. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If he accepts, the object is traded at the agreed price and the buyer’s&#xA;payoff is $v − p_1$ and the seller’s is $p_1$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If he rejects then the seller makes another&#xA;price offer, p2. If the buyer accepts this, his payoff is $\delta_(v − p_2)$ and the seller’s&#xA;is $\delta p_2$, where $\delta = 0.5$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If he rejects, both players get zero (there are no further&#xA;￼￼￼offers).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Find a Perfect Bayesian Equilibrium.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My usual approach is to fix beliefs, but I don't quite know how to do this with continuous beliefs. Any advice?&lt;/p&gt;&#xA;" OwnerUserId="4515" LastEditorUserId="43" LastEditDate="2015-05-03T13:51:51.017" LastActivityDate="2015-05-04T10:18:08.847" Title="Take-it-or-leave-it PBE" Tags="&lt;game-theory&gt;&lt;academic-graduate&gt;&lt;bayesian-game&gt;" AnswerCount="1" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5460" PostTypeId="2" ParentId="5459" CreationDate="2015-05-02T21:50:11.523" Score="6" Body="&lt;p&gt;After posting a bad solution yesterday I believe I got a better one:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The strategy of the buyer consists of two functions, $(f_1(v,p_1),f_2(v,p_1,p_2))$ where both functions map to $\left\{A,R\right\}$ (where $A$ stands for Accept, $R$ for Reject).&#xA;The strategy of the seller is $(p_1,p_2(f_1(v,p_1)))$. You get the solution via backward induction. In PBE $f_2(v,p_1,p_2)$ maps to $A$ if and only if $v \geq p_2$. (There is inconsequential leeway at equality.) In PBE the seller believes that there is a set $H$ of types for which the buyer refused her offer $p_1$. Then&#xA;$$&#xA;p_2^* = \arg\max_{p_2} p_2 \cdot Prob(f_2(v,p_1,p_2) = A | f_1(v,p_1) = R).&#xA;$$&#xA;The buyer will accept offer $p_1$ if and only if&#xA;$$&#xA;v - p_1 \geq \delta \cdot (v - p_2). &#xA;$$&#xA;From this you get&#xA;$$&#xA;v \cdot (1 - \delta) \geq p_1 - \delta \cdot p_2. &#xA;$$&#xA;The left hand side of this equation is increasing in $v$, so types with high valuation will Accept. This means that in PBE the set $H$ is such that &#xA;$$&#xA;H = [0, \bar{v}). &#xA;$$&#xA;From this we get the optimal $p_2$ given $\bar{v}$:&#xA;$$&#xA;p_2^* = \arg\max_{p_2} p_2 \cdot Prob(v \geq p_2 | v \in [0, \bar{v})) = \frac{\bar{v}}{2}.&#xA;$$&#xA;In PBE $\bar{v}$ is a function of $p_1$: &#xA;$$&#xA;\bar{v} \cdot (1 - \delta) = p_1 - \delta \cdot \frac{\bar{v}}{2}, &#xA;$$&#xA;so&#xA;$$&#xA;\bar{v} = \frac{p_1}{1 - \frac{\delta}{2}}.&#xA;$$&#xA;We have determined all the PBE strategies but $p_1$. &#xA;The expected payoff of the seller is&#xA;$$&#xA;p_1 \cdot \left( 1 - \frac{p_1 - \delta \cdot p_2(\bar{v}(p_1))}{1 - \delta} \right) + \frac{1}{2} \cdot p_2(\bar{v}(p_1)) \cdot \left( \frac{p_1 - \delta \cdot p_2(\bar{v}(p_1))}{1 - \delta} - p_2(\bar{v}(p_1)) \right),&#xA;$$&#xA;where&#xA;$$&#xA;p_2(\bar{v}(p_1)) = \frac{\bar{v}(p_1)}{2} = \frac{\frac{p_1}{1 - \frac{\delta}{2}}}{2} = \frac{p_1}{2 - \delta}.&#xA;$$&#xA;Substituting this we get&#xA;$$&#xA;p_1 \cdot \left( 1 - \frac{p_1 - \delta \cdot \frac{p_1}{2 - \delta}}{1 - \delta} \right) + \frac{1}{2} \cdot \frac{p_1}{2 - \delta} \cdot \left( \frac{p_1 - \delta \cdot \frac{p_1}{2 - \delta}}{1 - \delta} - \frac{p_1}{2 - \delta} \right),&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You have to maximize this w.r.t. $p_1$. With $\delta = 0.5$ I got&#xA;$$&#xA;p_1^* = \frac{9}{20}, \hskip 20pt \bar{v} = \frac{3}{5}, \hskip 20pt p_2^* = \frac{3}{10}.&#xA;$$&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2015-05-04T10:18:08.847" LastActivityDate="2015-05-04T10:18:08.847" CommentCount="9" ContentLicense="CC BY-SA 3.0" />
  <row Id="5462" PostTypeId="2" ParentId="4571" CreationDate="2015-05-03T02:21:07.913" Score="4" Body="&lt;p&gt;Although I'm not sure that Piketty ever directly discusses the exact definition of $r$, he does make it clear indirectly. On page 52 of the hardcover English-language edition of his book, Piketty declares his &quot;first fundamental law of capitalism&quot;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/yg3SB.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Piketty obtains the share of income $\alpha$ from capital in national income from the income side of the national accounts, dividing &quot;capital income&quot; by national income. The capital share $\alpha$ is just the inverse of the aggregate labor share of income, on which there is an extensive literature. (Of course, there are several methodological choices that must be made when defining these concepts, and some of Piketty's choices differ from choices elsewhere.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When finding $\beta$, Piketty appears to take the aggregate value of capital from respective countries' national accounts as well (though alternative sources are needed for older values). There is lots of information on the relevant choices in the &lt;a href=&quot;http://gabriel-zucman.eu/files/PikettyZucman2014Appendix.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;technical appendix of Piketty and Zucman (2014)&lt;/a&gt;, which is the basis of most discussion of $\alpha$ and $\beta$ in the book.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since Piketty makes clear that $r=\alpha/\beta$, his definition of $r$ for a given year is essentially&#xA;$$r=\frac{\alpha}{\beta}=\frac{\text{aggregate capital income taken from national accounts}}{\text{aggregate value of capital taken from national accounts}}$$&#xA;Note that this actually does not (directly) involve tax data. Tax data is the basis of much of Piketty's other work, but not this.&lt;/p&gt;&#xA;" OwnerUserId="405" LastActivityDate="2015-05-03T02:21:07.913" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5463" PostTypeId="2" ParentId="5445" CreationDate="2015-05-03T03:44:07.090" Score="5" Body="&lt;p&gt;First we need to define the elasticity of substitution $\sigma$. This can be a difficult and confusing concept. (If you want to have your mind blown, look at Table 2 in &lt;a href=&quot;http://mpra.ub.uni-muenchen.de/12454/1/MPRA_Version.pdf&quot; rel=&quot;nofollow&quot;&gt;this survey by Stern&lt;/a&gt;, which classifies no fewer than 10 notions of the elasticity of substitution!). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;That said, the formula that your professor mentions is true only when there are two goods, so I'm going to assume we're restricting ourselves to the two-good case - and there, defining the elasticity of substitution is (for the most part) unambiguous. I'm first going to define it as (minus) the inverse elasticity of the ratio of marginal utilities of $x$ and $y$ to the ratio of their quantities, holding the overall level of utility constant at some $u$:&#xA;$$\sigma\equiv - \left.\left(\frac{\partial \log(U_x/U_y)}{\log(x/y)}\right)^{-1}\,\right|_{U=u}$$&#xA;This measures the curvature of the indifference curve between $x$ and $y$: the higher $\sigma$ (i.e. the more substitutable $x$ and $y$ are), the closer the indifference curve is to a straight line.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, Hicksian demand minimizes expenditure subject to being on an indifference curve. This involves setting the ratio of marginal utilities equal to the ratio of prices: $$U_x(x^H,y^H)/U_y(x^H,y^H)=p_x/p_y$$&#xA;Hence we can reinterpret $\sigma$ as (minus) the elasticity of relative Hicksian demands with respect to relative prices:&#xA;$$\sigma=-\frac{\partial \log(x^H(p,u)/y^H(p,u))}{\log(p_x/p_y)}\tag{1}$$&#xA;Since the denominator has only the relative price $p_x/p_y$, it doesn't depend on how we change this relative price (say, by raising $p_x$ versus lowering $p_y$). Let's assuming that we're just raising $p_x$, and then use your $\varepsilon$ notation for elasticities for simplicity:&#xA;$$\sigma=-\frac{\partial \log(x^H(p,u)/y^H(p,u))}{\log(p_x)}=\varepsilon^H_{y,p_x}-\varepsilon^H_{x,p_x}\tag{2}$$&#xA;At this point, we bring in a simple identity for Hicksian demand, namely that the sum of elasticities of goods with respect to some price, weighted by their shares, is zero (proof included below):&#xA;$$s_x\varepsilon^H_{x,p_x}+s_y\varepsilon^H_{y,p_x}=0\tag{3}$$&#xA;Since $s_x=1-s_y$, we can rewrite (3) as&#xA;$$(1-s_y)\varepsilon^H_{x,p_x}+s_y\varepsilon^H_{y,p_x}=s_y\cdot(\varepsilon^H_{y,p_x}-\varepsilon^H_{x,p_x})+\varepsilon^H_{x,p_x}=0\tag{4}$$&#xA;But the term in parentheses in (4) is just the elasticity of substitution $\sigma$, as we showed in (2). Rearranging, we've proven your professor's statement&#xA;$$\varepsilon^H_{x,p_x}=-s_y\sigma$$&#xA;as desired.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Proof of (3)&lt;/strong&gt;. We know that holding income constant, Marshallian expenditure must remain constant after any change in prices. The elasticity of spending on $x$ with respect to $p_x$ is $1+\varepsilon^M_{x,p_x}$ (combining price and quantity changes), and the elasticity of spending on $y$ with respect to $p_x$ is $\varepsilon^M_{y,p_x}$. Weighted by initial shares, these must sum to 0:&#xA;$$s_x(1+\varepsilon^M_{x,p_x})+s_y\varepsilon^M_{y,p_x}=0$$&#xA;Substituting the elasticity Slutsky equation, we get&#xA;$$s_x + s_x(\varepsilon^H_{x,p_x}-\eta_xs_x)+s_y(\varepsilon^H_{x,p_x}-\eta_ys_x)=0$$&#xA;which, once we use the fact that $\eta_xs_x+\eta_ys_y=1$ (as income expands, total spending expands proportionately), has a $-s_x$ canceling out the $s_x$ at the front, and reduces to just (3):&#xA;$$s_x\varepsilon^H_{x,p_x}+s_y\varepsilon^H_{y,p_x}=0\tag{3}$$&#xA;as desired. This is a very important identity governing Hicksian demand: it says that as we change prices, to first order the cost of Hicksian demand at the &lt;em&gt;old prices&lt;/em&gt; stays constant (this is related to it being &quot;compensated&quot; demand: locally, it would cost the same at the old prices).&lt;/p&gt;&#xA;" OwnerUserId="405" LastEditorUserId="405" LastEditDate="2015-05-09T00:01:31.437" LastActivityDate="2015-05-09T00:01:31.437" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5464" PostTypeId="2" ParentId="5395" CreationDate="2015-05-03T03:59:14.870" Score="2" Body="&lt;p&gt;It depends on what you mean by overshooting. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The original Dornbusch (1976) story is that following a surprise permanent increase in the money supply, the nominal exchange rate &quot;overshoots&quot; its long-run level (the long-run level increases proportionately with the money supply). This is not a directly relevant story today (and I'm not sure that it ever was), because few changes in monetary policy take the form of surprise permanent changes in the money supply.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &lt;em&gt;mechanism&lt;/em&gt; for Dornbusch's &quot;overshooting&quot; is that since the price level takes time to adjust, in the short term there is an increase in the real money supply, leading to a decrease in nominal interest rates. This decrease in nominal interest rates leads the currency to weaken. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we cut out the first part about the shock to the money supply and just think about the mechanism itself, where (all else equal) lower nominal interest rates lead a currency to weaken relative to its long-term level, then we have a much more relevant and plausible story. Whenever central banks are looser or tighter than expected in policy, you usually see the exchange rate weaken or strengthen, respectively, as a result. This is related to the notion of &lt;a href=&quot;http://en.wikipedia.org/wiki/Interest_rate_parity#Uncovered_interest_rate_parity&quot; rel=&quot;nofollow&quot;&gt;uncovered interest rate parity&lt;/a&gt;, but it's a weaker version: it doesn't say that UIP always holds (which it definitely doesn't), just that it &lt;em&gt;conditionally&lt;/em&gt; holds in response to an interest rate shock.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Surprisingly, the international finance literature has been mixed on whether this is true or not, but Michael Kiley &lt;a href=&quot;http://www.federalreserve.gov/pubs/feds/2013/201317/201317pap.pdf&quot; rel=&quot;nofollow&quot;&gt;has recently shown that conditional UIP seems to hold in response to monetary policy surprises&lt;/a&gt;, as identified by monetary policy statement days. I suspect that the previous literature, which was based mainly on VARs without a clear identification strategy, struggled to find a consistent effect due to bad research design.&lt;/p&gt;&#xA;" OwnerUserId="405" LastActivityDate="2015-05-03T03:59:14.870" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5467" PostTypeId="2" ParentId="5340" CreationDate="2015-05-03T04:46:27.990" Score="16" Body="&lt;p&gt;It is very important here to note that there are multiple, mutually inconsistent, possibilities for how to define a substitute/complement.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One way is to say that $x$ and $y$ are complements if an increase in $y$ raises the marginal utility of $x$ (or, given symmetry of mixed partials, vice versa):&#xA;$$\frac{\partial^2 U}{\partial x\partial y}&amp;gt;0\tag{1}$$This is the suggestion in foobar's answer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another way is to say that $x$ and $y$ are complements if a decrease in the price of $y$ raises the Hicksian (aka compensated) demand for $x$. Since Hicksian demand is the derivative of the cost (aka expenditure) function by &lt;a href=&quot;http://en.wikipedia.org/wiki/Shephard%27s_lemma&quot;&gt;Shephard's lemma&lt;/a&gt;, this can also be expressed as a condition on mixed partials:&#xA;$$\frac{\partial^2 C}{\partial p_x\partial p_y}&amp;lt;0\tag{2}$$&#xA;This is the suggestion in snoram's comment, and it is the notion more commonly taught in micro classes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These definitions are not equivalent! Indeed, in &lt;em&gt;any&lt;/em&gt; case with only two goods, those two goods must be substitutes according to (2), regardless of whether the cross-partial of $U$ in (1) is positive or not.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One can give fruitful labels to these concepts (though these labels are more common in the case of production rather than utility functions). Following Hicks, we can call complements by definition (1) &lt;strong&gt;q-complements&lt;/strong&gt;: if $x$ and $y$ are q-complements, an increase in the &lt;strong&gt;quantity&lt;/strong&gt; of $y$ leads to an increase in the marginal value of $x$. Meanwhile, we can call complements by definition (2) &lt;strong&gt;p-complements&lt;/strong&gt;: if $x$ and $y$ are p-complements, a decrease in the &lt;strong&gt;price&lt;/strong&gt; of $y$ leads to an increase in the demand for $x$. See, for instance, &lt;a href=&quot;http://www.jstor.org/stable/1059065&quot;&gt;Seidman (1989)&lt;/a&gt; for a brief overview.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Both concepts are useful in different situations - it depends on what you're interested in!&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;More technical note:&lt;/strong&gt; you might notice that (1) and (2) do not seem very similar to each other: (2) is a &lt;em&gt;compensated&lt;/em&gt; concept, keeping us on the same indifference curve, while (1) is not. This is a valid criticism, and indeed there is an alternative notion of &quot;q-complements&quot; that is compensated, and a notion of &quot;p-complements&quot; that is not. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The compensated notion of q-complements, which is probably more relevant for most consumer theory applications than (1), asks whether the marginal return to $x$ increases as we increase $y$, while staying on the same indifference curve. (It's more relevant for consumer theory because it doesn't depend on the inherently ambiguous cardinality of $U$. Indeed, apparently Hicks introduced this as the consumer-theory definition of &quot;q-complements&quot; in his 1956 &lt;em&gt;Revision of Demand Theory&lt;/em&gt;, though I don't have a copy of it myself.) This notion also has a mixed partial characterization, in terms of something called the distance function, which is a cool micro theory tool that no one learns anymore; the matrix of mixed partials of the distance function is called the Antonelli matrix, and it is a generalized inverse of the beloved Slutsky matrix. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we wanted to think about other versions of p-complements, there are several options. One way is to hold income constant, and say that $x$ and $y$ are complementary if a decrease in the price of $y$ increases Marshallian demand for $x$. This is a valid notion (called &quot;gross&quot; complementarity rather than &quot;net&quot;), but it's not very nice because it's not symmetric (due to income effects) and hence doesn't have a mixed partial characterization. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another, nicer way is to hold &lt;strong&gt;marginal utility of wealth&lt;/strong&gt; constant (this is called &quot;Frisch&quot; demand, and is the consumer theory analog of profit maximization, which holds price of output constant), and then ask whether a decrease in the price of $y$ leads to an increase in the demand for $x$. This depends on entries in the &lt;em&gt;inverse&lt;/em&gt; of the Hessian matrix of mixed partials of $U$, revealing an inverse relationship with (1) (which depends on the Hessian matrix itself) that parallels the inverse relationship noted above between the Antonelli and Slutsky matrices.&lt;/p&gt;&#xA;" OwnerUserId="405" LastEditorUserId="405" LastEditDate="2015-05-04T01:28:11.063" LastActivityDate="2015-05-04T01:28:11.063" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="5468" PostTypeId="1" AcceptedAnswerId="5472" CreationDate="2015-05-03T05:24:13.790" Score="7" ViewCount="8225" Body="&lt;p&gt;I am told a quasilinear utility function is a function like $$U(x,y) = \sqrt{x}+y$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My Question:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can someone provide a real world example of a quasilinear utility function? &lt;/p&gt;&#xA;" OwnerUserId="2679" LastActivityDate="2019-01-11T14:32:37.163" Title="What is an example application of a quasilinear utility function?" Tags="&lt;consumer-theory&gt;" AnswerCount="2" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="5469" PostTypeId="1" CreationDate="2015-05-03T06:23:59.240" Score="2" ViewCount="287" Body="&lt;p&gt;Does it at all? If so, how?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is understood that size and value play a role in determining returns and there are proposed explanation those these, but what about covariance?&lt;/p&gt;&#xA;" OwnerDisplayName="user4574" LastActivityDate="2020-01-29T14:31:40.273" Title="How does the Fama and French 3-factor model explain stock covariance?" Tags="&lt;finance&gt;&lt;asset-pricing&gt;&lt;corporate-finance&gt;" AnswerCount="2" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="5470" PostTypeId="2" ParentId="4991" CreationDate="2015-05-03T07:03:52.900" Score="7" Body="&lt;p&gt;You anticipate the answer when you ask:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;This question can be easily answered if there were any way in which&#xA;  new money can leave the central bank without being paid back. Are&#xA;  there such transactions I don't know about?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Indeed, there is always a way that money leaves the central bank without being paid back: the central bank does something with its net interest earnings, usually sending them to the central government, which treats them as part of its revenue, and is therefore able to get by on a little less tax revenue than it would otherwise need. For instance, in 2013 the &lt;a href=&quot;https://www.google.com/url?sa=t&amp;amp;rct=j&amp;amp;q=&amp;amp;esrc=s&amp;amp;source=web&amp;amp;cd=4&amp;amp;ved=0CDEQFjAD&amp;amp;url=http%3A%2F%2Fblogs.wsj.com%2Feconomics%2F2014%2F01%2F10%2Ffed-sent-77-7-billion-in-profits-to-treasury-last-year%2F&amp;amp;ei=lMRFVaOJHIedsAW_toGgCw&amp;amp;usg=AFQjCNHQ_XxUxA36e7QVWCQ3E_2vI-Mb4w&amp;amp;sig2=dTrI7PLYtaLD3krYJiDfXw&amp;amp;bvm=bv.92291466,d.b2w&quot;&gt;Federal Reserve remitted $78 billion in profits&lt;/a&gt; to the US Treasury.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's incorporate this observation into an augmented version of your example. Suppose that the central bank keeps the supply of money at \$10, with a corresponding loan of \$10 to banks, and the annual nominal interest rate is 10%. Suppose that the central government spends \$5 per year and runs a balanced budget. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Each year, banks pay \$1 in interest to the central bank. This is profit and is sent to the central government, which then only needs to raise \$4 in taxes to pay for its \$5 in spending. The net effect of this is to put \$1 in the hands of the public, which ultimately finds its way to paying for the \$1 in interest that banks owed to the central bank. (After all, these banks are presumably lending out the money and collecting interest from the public themselves.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One can make the example much more intricate, but the key point is that we don't get an exponentially growing debt owed to the central bank by the rest of the economy - because the central bank sends its profits to the government, and then they're recycled into the rest of the economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(As user4385 points out in a comment, the situation is similar for any kind of debt. Suppose, for instance, that Connecticut is a net creditor to the rest of the country - where does the rest of the country get the money to pay interest to Connecticut? The answer is that Connecticut eventually spends its interest earnings on goods and services from the rest of the country - funds flow in both directions.)&lt;/p&gt;&#xA;" OwnerUserId="405" LastActivityDate="2015-05-03T07:03:52.900" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5471" PostTypeId="2" ParentId="4915" CreationDate="2015-05-03T07:16:01.197" Score="1" Body="&lt;p&gt;In principle, &lt;em&gt;not that much&lt;/em&gt; would necessarily happen: if people pulled out their bank deposits in the form of cash, then the central bank would just become a much bigger financial intermediary.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Cash is a liability of the central bank: when it introduces cash into the economy, it uses that cash to buy an asset. In a world where the public switched to cash en masse, a central bank fulfilling its usual operating procedure by targeting short-term interest rates would fully accommodate that spike in demand for cash by making much more of it, and accumulating assets in the process. What would these assets be? Well, in this situation they would naturally be loans to banks, which would need the funding.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So by withdrawing its funds from the banking system, &lt;strong&gt;the public would just trade off holding deposits &lt;em&gt;directly&lt;/em&gt; in banks for holding these assets &lt;em&gt;indirectly&lt;/em&gt; through the central bank&lt;/strong&gt; (by holding cash that is backed by loans to those banks).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course, this is all a bit idealized. In practice a mass withdrawal of funds would presumably be somewhat chaotic, and the central bank would have to be diligent about its role as lender of last resort to avoid disaster. But there is a natural way for the system to work here, and it's amusing to contemplate how in this scenario, we'd really just be adding one more layer of indirection to the financial system.&lt;/p&gt;&#xA;" OwnerUserId="405" LastActivityDate="2015-05-03T07:16:01.197" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5472" PostTypeId="2" ParentId="5468" CreationDate="2015-05-03T13:27:09.343" Score="10" Body="&lt;p&gt;Quasilinear utility functions are useful in much of the demand estimation literature, particularly in discrete choice. For instance, check out &lt;a href=&quot;http://pages.stern.nyu.edu/~rslee/teaching/io/papers.demand/Berry%20%281994%20RAND%29%20-%20Estimating%20Discrete%20Choice%20Models%20of%20Product%20Differentiation.pdf&quot; rel=&quot;nofollow&quot;&gt;Berry 1994&lt;/a&gt;,&lt;a href=&quot;http://pages.stern.nyu.edu/~acollard/BLP.pdf&quot; rel=&quot;nofollow&quot;&gt;Berry Levinsohn Pakes 1995&lt;/a&gt; and the many applications in &lt;a href=&quot;http://pages.stern.nyu.edu/~rslee/teaching/io/papers.demand/Nevo%20%282000%20JEMS%29%20-%20A%20Research%20Assistants%20Guide%20to%20Random%20Coefficients%20Discrete%20Choice%20Models%20of%20Demand.pdf&quot; rel=&quot;nofollow&quot;&gt;Nevo's papers on demand estimation (here's a &quot;practicioner's guide&quot;)&lt;/a&gt;. Ken Train's book on it is available for free &lt;a href=&quot;http://eml.berkeley.edu/books/choice2.html&quot; rel=&quot;nofollow&quot;&gt;here!&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To summarize, they can lead to indirect utility of the form $$u_{ijt}=\alpha_i\underbrace{(y_i-p_i)}_\text{real income}+\underbrace{X{jt}\beta_i}_\text{observed product characteristics$*\beta_i$}+\underbrace{\xi_{jt}}_\text{unobserved product characteristics}+\underbrace{\epsilon_{ijt}}_\text{mean zero stochastic term}$$&#xA;where $i$ represents individuals $i=1,\dots,I_t$ in each of the $t=1,\dots,T$ markets selling $j=1,\dots,J$ products. Here, $\alpha_i$ represents the marginal utility of income and $\beta_i$ represents the marginal utility from the product characteristics observed in $X_{jt}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose that we restrict the heterogeneity across consumers to only enter through the stochastic term $\epsilon_{ijt}$. Then both the individual specific parameters $(\alpha_i,\beta_i)$ must be equal to $(\alpha,\beta)$ and the market share of each good can be represented by&#xA;$$s_{jt}=\frac{exp(X_{jt}\beta-\alpha p_{jt}+\epsilon_{jt})}{1+\Sigma_{k=1}^{J}exp(X_{kt}\beta-\alpha p_{kt}+\xi_{kt})}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The equation for the market share is a function of variables that only vary at the product-market level, so you only need information on prices and quantities (and product characteristics) for a crude estimation. However it gives some quirky results. Particularly regarding the elasticity of market share wrt own price and cross price (market share) elasticities, and consumer subsitution patterns. Things can get more robust the more you read on demand estimation, you can introduce consumer characteristics and get results that have more desirable substitution properties. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are also many criticisms of the conclusions that this type of modeling can draw, but I'll leave that up to you to imagine should you want to read on the topic.&lt;/p&gt;&#xA;" OwnerUserId="2844" LastEditorUserId="2844" LastEditDate="2015-05-19T14:43:38.417" LastActivityDate="2015-05-19T14:43:38.417" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5473" PostTypeId="1" CreationDate="2015-05-03T13:47:24.310" Score="3" ViewCount="145" Body="&lt;p&gt;Facts :&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;*Algeria's GDP is 230 B$,&#xA;*Oil &amp;amp; Gas account for 30% (70 B$)&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;My simplistic reasoning would say : Substract 70 from 230 and get a new GDP of 160 B$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But I know that the concept of GDP is more complex than that: it also includes government spending :&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;*Government consumption accounts for 30% (70 B$)&#xA;*60% of the budget comes from Oil &amp;amp; Gas : 42 B$&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;So I'll continue substracting: 160 - 42 = 118 B$, the new GDP...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But still, I think it's too high: the household consumption accounts for 35%. Most purchasing power comes from fake jobs created by the government, if there were no Oil &amp;amp; Gas these fake jobs would not exist.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Should I still substract this component from the total GDP?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is my reasoning correct?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;NB:&lt;/strong&gt; All data come from &lt;a href=&quot;https://www.cia.gov/library/publications/the-world-factbook/geos/ag.html&quot; rel=&quot;nofollow&quot;&gt;this website&lt;/a&gt; (and I'm not sure if I picked up the right values):&lt;/p&gt;&#xA;" OwnerUserId="4575" LastEditorUserId="43" LastEditDate="2015-05-03T14:54:18.763" LastActivityDate="2015-05-03T14:54:18.763" Title="What would be the GDP of Algeria without Oil &amp; Gas?" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;&lt;empirical-evidence&gt;&lt;economic-measurement&gt;&lt;national-accounts&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5474" PostTypeId="2" ParentId="5473" CreationDate="2015-05-03T14:21:31.670" Score="1" Body="&lt;p&gt;If I interpret your question correctly, you're asking what percentage of Algerian national income is derived from oil and gas extraction. The answer appears to be 30% from the website. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think the problem is you're assuming that the 30% figure means something like '30% of private spending', and so you're trying to account for government spending as well.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The website says 30% of GDP comes from oil and gas, that means 30% of income in Algeria is derived from oil and gas. It should already include government spending, which is taxed from income. And government spending should already include the fake jobs you mention.&lt;/p&gt;&#xA;" OwnerUserId="4177" LastActivityDate="2015-05-03T14:21:31.670" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="5475" PostTypeId="1" CreationDate="2015-05-03T15:37:21.193" Score="1" ViewCount="285" Body="&lt;p&gt;A risk averse is given this: Option1: 1000 with p=0.25 and 100 with p=0.75. Option 2: 325 for sure. Which option would he choose?&#xA;For this part, I know the person will choose option 2 over option 1.&#xA;However, the question continues,change to $320 for sure, what would be his choice?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Anyone can guide?please &lt;/p&gt;&#xA;" OwnerUserId="4560" LastActivityDate="2015-05-03T15:37:21.193" Title="Risk and uncertainty" Tags="&lt;microeconomics&gt;" AnswerCount="0" CommentCount="4" ClosedDate="2015-05-03T23:27:35.860" ContentLicense="CC BY-SA 3.0" />
  <row Id="5476" PostTypeId="2" ParentId="5380" CreationDate="2015-05-03T15:46:31.490" Score="3" Body="&lt;p&gt;As regards  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;QUESTION 1&lt;/strong&gt;&lt;br&gt;&#xA;The concept of &quot;inverse&quot; is usually used for a &lt;em&gt;function&lt;/em&gt;. Here we are dealing not just with two functions, but with two &lt;em&gt;optimization problems&lt;/em&gt;: &quot;Duality&quot; is, in a sense, the analogous concept of &quot;function inverse&quot;,  for optimization problems.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If two optimization problems are dual (in a more or less rigorous sense), then the &lt;em&gt;solution&lt;/em&gt; of the one is, in a sense, the &quot;inverse&quot; of the solution of the other.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But what is a &quot;solution&quot; in an optimization problem? When the analysis is abstract, the solution does not take on a specific numerical value, but it is a &lt;em&gt;value function&lt;/em&gt;, i.e. a function that will give us the solution &lt;em&gt;for any values of the inputs on which the solution depends&lt;/em&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the Utility Maximization Problem (UMP), the value function is the &lt;strong&gt;Indirect Utility function&lt;/strong&gt;, $v(\mathbf p,m)$. &lt;strong&gt;Abusing notation&lt;/strong&gt; (but we gain something from this abuse) we can write&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$v(\mathbf p,m) = \bar U \implies m = v^{-1}(\mathbf p,\bar U)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the Expenditure Minimization Problem (EMP), its value function is the Expenditure function, $e(\mathbf p,\bar{U})$, and&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$e(\mathbf p,\bar{U}) = m \implies \bar U = e^{-1}(\mathbf p,m)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Looking at the two we see that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$v(\mathbf p,m) = e^{-1}(\mathbf p,m),\;\;\; v^{-1}(\mathbf p,\bar U) =e(\mathbf p,\bar{U})$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, I wouldn't think that it is correct to say that &quot;they are inverses for a single point&quot;. Stretching the concept of &quot;inverse&quot;, for &lt;em&gt;any given&lt;/em&gt; set $(\mathbf p,m)$, the &quot;inverse&quot; Expenditure function is the the Indirect Utility function, and for &lt;em&gt;any given&lt;/em&gt; set $(\mathbf p,\bar U)$ the &quot;inverse&quot; Indirect Utility function is the Expenditure function. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note: When the concept of &quot;inverse&quot; is treated in the proper manner (i.e. for univariate functions), then we examine the property &lt;em&gt;point-by-point&lt;/em&gt; to conclude that it holds.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-05-03T15:53:10.340" LastActivityDate="2015-05-03T15:53:10.340" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5477" PostTypeId="2" ParentId="5442" CreationDate="2015-05-03T18:55:02.340" Score="3" Body="&lt;p&gt;In this kind of cases, I think you can not use a simple OLS estimation because of endogeneity of your variables. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Probably, there would be causality between prices and sales data, this means that sales are influenced by prices but also prices are influenced by sales. So, in this case, in order to do a non-biaised estimation, you should use instrumental variables in order to avoid endogeneity issues between your variables.&lt;/p&gt;&#xA;" OwnerUserId="2938" LastActivityDate="2015-05-03T18:55:02.340" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5479" PostTypeId="1" AcceptedAnswerId="5480" CreationDate="2015-05-03T21:09:19.790" Score="2" ViewCount="125" Body="&lt;p&gt;The idea: By convincing the U.S. that ending world poverty would actually return so much money back to the U.S. that it would more than compensate for the cost of providing the resources needed to end poverty.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Example: The influence of terrorist groups in the Middle East could be dramatically decreased if we hire the locals there to be soldiers, and this could be far cheaper than risking the lives of our own soldiers and more importantly, more effective because we could afford more of them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Anyway, the proposal is here:&#xA;&lt;a href=&quot;http://genexie.com/the-most-realistic-solution-poverty-yet/2015/03/31/&quot; rel=&quot;nofollow&quot;&gt;http://genexie.com/the-most-realistic-solution-poverty-yet/2015/03/31/&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="4306" LastEditorUserId="405" LastEditDate="2015-05-03T22:13:51.360" LastActivityDate="2018-01-16T20:13:43.113" Title="Is this a realistic solution to world poverty?" Tags="&lt;welfare&gt;&lt;poverty&gt;" AnswerCount="2" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="5480" PostTypeId="2" ParentId="5479" CreationDate="2015-05-03T22:09:55.950" Score="3" Body="&lt;p&gt;I am afraid the solution to world poverty will not be two pages long. Some flaws:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You cannot simply give poor people in other countries money, their government controls their financial system. Even if the government agreed and you transferred millions of dollars it would not make more housing and consumer goods available at their location, they would just have credit. They could use these dollars to import the desired things but this may cause a lot of additional costs and again the government might interfere with large scale imports by controlling the distribution.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On hiring soldiers in Syria: This was an idea early on, but how can you be sure that they are doing what you pay them to do? Also there might not be a sufficient number of soldiers for hire at the desired location.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On giving poor people in the US unlimited access to basic goods. I like this idea, but to my knowledge no country in the world has implemented such a scheme. Also access to some goods does not eliminate crime, look at all the white collar crime that wealthy people commit or consider that they also struggle with drug problems.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Humans are complex creatures who will always compete with their environment.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2015-05-03T22:09:55.950" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="5481" PostTypeId="1" AcceptedAnswerId="5504" CreationDate="2015-05-03T23:51:58.793" Score="3" ViewCount="146" Body="&lt;p&gt;(1) This post is, first, regarding the issue from Romer's &lt;em&gt;Advanced Macroeconomics&lt;/em&gt;, 4 ed. Chapter 6.4 on nominal rigidity, pp. 264-266 to be precise.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;He sets out a simple model with microfounded IS curve, AS curve and MP curve, using standard notation with $\pi$ as an inflation, $y$ as an output and $r$ as an interest rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is why agents in this model cannot expect $y$ to diverge? Is this due to mathematical and/or economical reasons? Or did I miss some assumption in the text?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, does &lt;em&gt;diverge&lt;/em&gt; here mean &lt;em&gt;rise ad infinitum&lt;/em&gt; or only &lt;em&gt;rise fast enough to offset the convergence of $\phi^n$&lt;/em&gt;? [I know, this is a rather math than econ question, but entirely a propos the problem considered].&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So here's the model:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/V7IUp.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(2) Secondly, later in the text a similar issue recurs in chapter 11.5 when analyzing the model of optimal monetary policy in a forward-looking setting. Romer considers cases where self-fulfilling equilibria arise (I guess Blanchard-Khan conditions):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/kad2x.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So why do we have to assume that our variable is bounded? Again: is this due to mathematical and/or economical reasons?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(3) Finally, when I elswhere read about Blanchard-Kahn conditions there is stipulated that &quot;Blanchard-Kahn conditions apply to models that add as a requirement that the series do not explode&quot;. Why is that? Isn't that possible for an economic system to have such a property? Or why are we ruling out from our analysis models with that property?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Do all these 3 issues touch the same problem and have the same solution or this is just the coincidence that I don't get this assumptions/results(?) in different contexts?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;PS&#xA;&lt;a href=&quot;https://economics.stackexchange.com/a/1711&quot;&gt;This&lt;/a&gt; comment is really helpful claryfing some math related issues, but it does not pertain to the reason for the assumption/result(?) in question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit:&#xA;For the clarity reasons I've included more of Romer's solution to the (1) problem.&lt;/p&gt;&#xA;" OwnerUserId="207" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-05-05T18:47:53.587" Title="Divergence of a variable in forward-looking models. Blanchard-Khan conditions" Tags="&lt;macroeconomics&gt;&lt;mathematical-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5483" PostTypeId="1" CreationDate="2015-05-04T07:37:06.037" Score="3" ViewCount="281" Body="&lt;p&gt;This question is from subjective origins but is (supposed to be) objective.&lt;/p&gt;&#xA;&lt;p&gt;The context of this question arises from people in third world countries going abroad to work. Often they are seen as money-hungry people who don't 'love' their country (unless they are, say, physicists who do research abroad due to poor facilities or engineers or financiers simply looking for higher salary or something like that).&lt;/p&gt;&#xA;&lt;p&gt;I was thinking that &lt;strong&gt;those people help their country through foreign remittances&lt;/strong&gt;. I later additionally thought another help done is that whatever job they would have done in the country is likely ('likely' is probably the key word here) &lt;strong&gt;going to be replaced by someone else who would otherwise have been unemployed or underemployed&lt;/strong&gt; would have that job which in turn likely (hooray key words) means that someone else who would otherwise have been unemployed or underemployed would have that job, etc.&lt;/p&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;If the answer is no (working abroad necessarily causes less unemployment), under what kinds of situations might this be the case?&lt;/li&gt;&#xA;&lt;li&gt;If the answer is no (again, working abroad necessarily causes less unemployment) due to geographical variations, you may consider third world countries.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;Edited to add: Also my concern is understanding whether or not like: are the ones going abroad necessarily like money-hungry people who do not 'love' their country or something? If you choose to work in your country, then do you necessarily 'love' your country more or 'serve' your countrypeople more than if you didn't work in your country? Of course 'love' and 'serve' are subjective, but it's like &lt;strong&gt;I wanna understand if somehow working abroad is like more beneficial to the individual but harmful to the country or something.&lt;/strong&gt; To me, it seems like going abroad benefits everyone at least from 3rd to 1st world.&lt;/p&gt;&#xA;" OwnerUserId="4483" LastEditorUserId="4483" LastEditDate="2020-08-12T21:32:31.910" LastActivityDate="2020-08-12T21:32:31.910" Title="Does working abroad cause less unemployment? Or is it actually harmful (directly or opportunity cost)?" Tags="&lt;labor-economics&gt;&lt;unemployment&gt;&lt;migration&gt;&lt;remittance&gt;" AnswerCount="2" CommentCount="3" FavoriteCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="5484" PostTypeId="1" AcceptedAnswerId="5500" CreationDate="2015-05-04T10:26:22.353" Score="2" ViewCount="464" Body="&lt;p&gt;While every country has it's own political ideals, enforcing laws and rules, in an ever more globalized world, I believe the idea of fragmented economy is limiting big growth opportunities while creating a lot of unnecessary problems and bureaucracy around the world. So would changing to a globalized currency model be a good idea?&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;The model&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;A single currency would require an entiity whose would control it and be responsible for it. While we could create a new one, we might as well just use an already existing entity to be responsible for it, like the United Nations. Picking the UN to regulate this currency world wide (or at least to the big list of &lt;a href=&quot;http://www.un.org/en/members/&quot; rel=&quot;nofollow noreferrer&quot;&gt;State nations that are part of it&lt;/a&gt;), would give us the opportunity to add an extra layer to the government layers on top of the Nation layer, similar to what the European Union does.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/g0VbY.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This would allow the United Nations not only to suggest rules, like the &lt;a href=&quot;http://www.un.org/en/documents/udhr/index.shtml&quot; rel=&quot;nofollow noreferrer&quot;&gt;Human Rights&lt;/a&gt;, but to enforce them as law to its member states.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;The need&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;As mentioned before, we are living in a world more globalized every day. Some people work to different countries other than the ones they live in through the internet. This creates a currency exchange problem, where he is removing currency power from the country he's working for and giving it to the country he lives in, effectivelly lowering the first's value and raising the second's value. A single currency could solve this problem and also getting out of the way the whole exchange problem from the middle, and in some cases, the international bank transfer bureaucracy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A single currency with an enforing entity controling entity could use this power to help countries in the desperate need to grow, I'm thinking about places like Zimbabwe, Niger and Ethiopia. By retrieving in the form of taxes a percentage of each nation's Gross Domestic Product (let's say, 3%?), summing it all up, then averaging it by the number of member states, and then redistributing this to each country, we would be in fact spreading resources from wealthy parts of the world to the poorest in a fair way. Everyone contributes as they can so a few gets back. To avoid countries which could use this system to just sit back doing nothing, waiting for the money to come in, their governments are obligated to use this money to invest in the country's industries (or whatever are the country's activities which make money)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course, this is just a simple idea which I didn't develop, it can have much more potential and bring it's own problems, that's why I'm posting it here, so we can discuss about them. Also I'm sorry for my weird english and terms used, it's not my main language and I'm not an economics student, but I hope it's understandable.&lt;/p&gt;&#xA;" OwnerUserId="4580" LastActivityDate="2015-05-05T00:59:08.997" Title="Would a world-wide currency be a good idea?" Tags="&lt;currency&gt;&lt;money&gt;" AnswerCount="1" CommentCount="3" ClosedDate="2015-05-05T00:59:46.710" ContentLicense="CC BY-SA 3.0" />
  <row Id="5485" PostTypeId="1" CreationDate="2015-05-04T10:49:45.127" Score="4" ViewCount="3417" Body="&lt;p&gt;I encountered a question where it was given that the consumers had &lt;strong&gt;asymmetric preferences&lt;/strong&gt;. I couldn't find the definition of the term in any of the microeconomics book available to me.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can anybody explain the terms and the difference between symmetric and asymmetric preferences? Please!&lt;/p&gt;&#xA;" OwnerUserId="4345" LastActivityDate="2018-05-28T09:34:49.407" Title="Symmetric and asymmetric preferences" Tags="&lt;microeconomics&gt;&lt;preferences&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5486" PostTypeId="2" ParentId="5485" CreationDate="2015-05-04T11:11:15.353" Score="3" Body="&lt;p&gt;It is just a strict preference relation, an asymmetric (generic) relation $\succ$ is such that $a \succ b \implies \lnot b \succ a$. &#xA;With respect to symmetric preferences there are not really  pure symmetric ones in consumer theory at least, the only symmetric relation is total indifference ~ over the whole choice set. Clearly a ~b implies b ~a. A typical $\succeq$ preference relation is the union of an asymmetric and symmetric part. &lt;/p&gt;&#xA;" OwnerUserId="127" LastEditorUserId="127" LastEditDate="2015-05-04T18:42:31.530" LastActivityDate="2015-05-04T18:42:31.530" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5488" PostTypeId="1" AcceptedAnswerId="5510" CreationDate="2015-05-04T12:02:52.750" Score="9" ViewCount="341" Body="&lt;p&gt;In this &lt;a href=&quot;https://www.youtube.com/watch?v=0CDGhY2Ock8&quot; rel=&quot;nofollow&quot;&gt;video&lt;/a&gt; (from 7: 30 to 9: 00)on Youtube, Battigalli mentions the state of world for a simple three-legged centipede game, which, in his own word, is &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;$\ldots$a description of everything matters, which in traditional theory, must include strategies that characterize Ann and Bob. I don't use the word 'Ann chooses a strategy'. The reason is very simple. The object of choice is action, not stategy. Players can not choose strategies, they can only choose actions. If Ann can choose strategies $(C, C^\prime)$, they are playing a different game.&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;What does Pierpaolo Battigalli really mean? If the actions for a player chooses has been specified, then it automatically specify a pure strategy. By this methodology, he seems to want to distinguish a game structure with commitment and a game without, but how?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Added:&lt;/strong&gt; &lt;a href=&quot;http://crm.sns.it/media/course/3659/battigalli.pdf&quot; rel=&quot;nofollow&quot;&gt;Here&lt;/a&gt; is the slides used in the video, and &lt;a href=&quot;ftp://ftp.igier.unibocconi.it/wp/2011/375.pdf&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt; is the corresponding paper.&lt;/p&gt;&#xA;" OwnerUserId="73" LastEditorUserId="73" LastEditDate="2015-05-06T15:36:41.950" LastActivityDate="2017-10-31T18:43:17.300" Title="What does Battigalli really mean by &quot;Players can not choose strategies, they can only choose actions.&quot;?" Tags="&lt;game-theory&gt;&lt;dynamic-games&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5489" PostTypeId="1" AcceptedAnswerId="5491" CreationDate="2015-05-04T13:17:33.057" Score="13" ViewCount="7193" Body="&lt;p&gt;I know the US treasury is slowly selling its gold reserves, but what is the actual mission and purpose when it comes to the holdings?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is the reasoning behind the slow rate of liquidation? I have even heard &quot;tradition&quot; and &quot;propping up confidence&quot; as reasons. Tradition doesn't feel like more than an excuse. Confidence or creditworthiness should stem from the expected performance of the US economy and tax collected on that activity, since treasury securities are not backed by gold.&lt;/p&gt;&#xA;" OwnerUserId="4581" LastEditorUserId="8481" LastEditDate="2020-05-03T14:46:51.030" LastActivityDate="2020-05-03T14:46:51.030" Title="Why does any treasury / central bank hold gold?" Tags="&lt;currency&gt;&lt;government-debt&gt;&lt;central-banking&gt;&lt;commodities&gt;" AnswerCount="4" CommentCount="0" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="5490" PostTypeId="1" AcceptedAnswerId="5492" CreationDate="2015-05-04T14:58:45.497" Score="4" ViewCount="109" Body="&lt;p&gt;I am having trouble with something that should be pretty basic. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I need to invert a VAR (vector autoregression). Everything I have read just brushes past the actual inversion process, taking for granted that I already know how to invert a VAR. Does anyone know a good source (book, journal article, website) that walks through inverting? I've looked at Diebold's Elements of Forecasting and Enders' Applied Economic Times Series, as well as other sources with good coverage of VARs, but I can't find a good explanation of the basics of working with VARs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks!  &lt;/p&gt;&#xA;" OwnerUserId="4582" LastActivityDate="2015-05-04T18:55:11.890" Title="VAR inversion - looking for a good resource" Tags="&lt;econometrics&gt;&lt;time-series&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5491" PostTypeId="2" ParentId="5489" CreationDate="2015-05-04T18:51:28.540" Score="4" Body="&lt;p&gt;I guess it is for the same reason that other countries hold foreign reserves.&#xA;The argument is that for some reason foreign markets become suddenly very adverse to take your currency, you should have some other medium of exchange that allow you to finance imports or serve short term external debt.&#xA;This is very related to the Guidotti–Greenspan rule.&lt;/p&gt;&#xA;" OwnerUserId="4440" LastActivityDate="2015-05-04T18:51:28.540" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5492" PostTypeId="2" ParentId="5490" CreationDate="2015-05-04T18:55:11.890" Score="5" Body="&lt;p&gt;To get Quah and Vahey's method, you should probably get a good handle on the Wold Representation Theorem first. Christiano has good notes on it &lt;a href=&quot;http://faculty.wcas.northwestern.edu/~lchrist/finc520/wold.pdf&quot;&gt;here&lt;/a&gt;. Then, you can apply it to VAR. There's a pretty good basic explanation in Greene's &lt;em&gt;Econometric Analysis&lt;/em&gt;. In the Sixth Edition, it's in Chapter 20 (Models with Lagged Variables) starting with Section 20.6, &quot;Vector Autoregressions.&quot; It should be pretty straight forward to apply the Wold Theorem to VARs with Greene's notation. If it's still not quite clear to you, there's a pretty close example on page 704, subsection 20.6.8.b, &quot;The Sacrifice Ratio.&quot; The basic idea is that you just end up sort of inverting the matrix of lag operators and coefficients (the &quot;inversion&quot; part) so that you have your main variable on the left side and a lag polynomial in your errors on the right side.&lt;/p&gt;&#xA;" OwnerUserId="238" LastActivityDate="2015-05-04T18:55:11.890" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5493" PostTypeId="2" ParentId="5489" CreationDate="2015-05-04T19:10:17.763" Score="6" Body="&lt;p&gt;It's a holdover from the old Gold Standards. Gold standard regulation required all banks, including the central bank to hold gold as a regulatory asset. In the last gold standard, the Bretton Woods regime, the US in particular had to hold gold to back the dollar. The requirement went away with the collapse of the Bretton Woods agreement in 1973, but the gold didn't.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These days there isn't any requirement to hold gold, and indeed some countries - notably the UK in 1999 and 2002 have sold off significant amounts of their bank holdings. (Note though, it's been suggested there were stability issues behind this sale.) Gold on the Federal Reserve's book isn't even held at market prices, it's marked to a notional statutory value of ~$42.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By the same token, there isn't any requirement not to hold it, so why sell it? There tends to be a lot of inertia in these kinds of systems.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Interestingly, an examination of central bank annual reports shows a fair amount of variation in what they use for their assets. While government debt in the form of treasuries is usually present, the Norwegian central bank holds market securities - presumably due to a lack of government debt. The Federal Reserve added securitized loans in the wake of the 2007 crash in order to stabilise their financial system.&lt;/p&gt;&#xA;" OwnerUserId="84" LastActivityDate="2015-05-04T19:10:17.763" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5494" PostTypeId="1" CreationDate="2015-05-04T19:35:21.423" Score="3" ViewCount="51" Body="&lt;p&gt;I am working currently on EEX energy price data from Germany and so far I couldn't find out, if the prices already include taxes and the German Renewable Energy Act feed-in tarif (EEG-Umlage).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would appreciate help.&lt;/p&gt;&#xA;" OwnerUserId="4585" LastActivityDate="2015-05-07T08:42:00.187" Title="Composition of EEX energy prices" Tags="&lt;energy-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5495" PostTypeId="1" CreationDate="2015-05-04T19:52:05.210" Score="2" ViewCount="404" Body="&lt;p&gt;I've been given the following question and would really appreciate any help on part a. I've looked over all of my resources for this course and we have always been given the probability of the realisation of each state, so any hints on where to start would be great. I understand that they are not the same as the risk neutral probabilities, but that's about all we've been given on the topic! &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/cvHkN.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;" OwnerUserId="4586" LastActivityDate="2015-05-04T19:52:05.210" Title="Probability of states of nature" Tags="&lt;consumer-theory&gt;&lt;risk&gt;&lt;financial-markets&gt;&lt;uncertainty&gt;" AnswerCount="0" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="5496" PostTypeId="1" CreationDate="2015-05-04T20:12:08.270" Score="1" ViewCount="296" Body="&lt;p&gt;Thought I'd post interesting questions that come my way to try and boost activity!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A seller and a buyer negotiate over trade of a single indivisible&#xA;good. The good is either of low quality (in which case its value is 0&#xA;to the seller and $0.5$ to the buyer) or high quality (in which case its value is $1$ to the seller and $1.5$ to the buyer). The seller knows the quality but 2&#xA;the buyer knows only that the probability that the quality is high is $θ$ (0 &amp;lt; $θ$ &amp;lt; 1).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider a two-period bargaining game. If the buyer’s first-&#xA;period offer is rejected, the buyer makes a second price offer in&#xA;period 2. If the second offer is rejected, there is no trade. Both&#xA;players discount the future slightly. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume that in each period&#xA;the only offers permitted are $0.5$, $1$ and $1.5$ (the buyer could also decide not to make any offer). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;a) Define Perfect Bayesian Equilibrium&#xA;in this context. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;b) Does there exist a pure strategy perfect Bayesian&#xA;equilibrium in which the first price offer is $0.5$? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;c) Under what conditions does a pure strategy equilibrium exist?&lt;/p&gt;&#xA;" OwnerUserId="4515" LastActivityDate="2015-05-04T20:12:08.270" Title="A Perfect Bayesian Bargaining problem" Tags="&lt;game-theory&gt;&lt;academic-graduate&gt;&lt;bayesian-game&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="5497" PostTypeId="1" AcceptedAnswerId="5498" CreationDate="2015-05-04T21:17:13.583" Score="3" ViewCount="153" Body="&lt;p&gt;Recently many news articles mentioned the new luxury car Maybach Exelero. Only 2 cars have been manufactured. Moreover, one of the cars has been sold for 8 million dollars, which makes this car one of the most expensive cars ever sold.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, once you buy a car, the market value of the car depreciates once you drove it outside of the factory. For example, price of a new  6000 dollars car, will be  5800 dollars. Although, the market value of the car should be the same, no one will buy the car for the same price you bought it from the dealer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are two scenarios that I'm proposing. The first one is: the owner buys the car and never drives it (i.e., keeps it in a garage/show room). The second one is: he drives it every day like any other car.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is: what is the value of an object over time? how does it vary? The context of this question has been described above. Which are the properties of the object described above? and how do these compare with other properties of similar objects? (i.e., luxury products).&lt;/p&gt;&#xA;" OwnerUserId="4587" LastEditorUserId="4587" LastEditDate="2015-05-05T17:39:50.067" LastActivityDate="2015-05-05T17:39:50.067" Title="What is the market value of an object over time?" Tags="&lt;asset-pricing&gt;&lt;asset-prices&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5498" PostTypeId="2" ParentId="5497" CreationDate="2015-05-04T22:34:42.223" Score="3" Body="&lt;p&gt;The value of a tradeable good is equal to what the marginal buyer will pay for it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I will explain further, but first let me correct one misconception in your question. You state:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Now, once you buy a car, the value of the car depreciates once you drove it outside of the factory. For example, price of a new 6000 dollars car, will be 5800 dollars. &lt;strong&gt;Although, the value of the car should be the same&lt;/strong&gt;, no one will buy the car for the same price you bought it from the dealer.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The value of the car should not be the same. There's a very well-known reason that cars lose value as soon as they are sold used, rather than new: there might be something wrong with them which the seller might be aware of, but the buyer might not be able to spot. This is discussed at length in a well-known paper titled &lt;a href=&quot;https://en.wikipedia.org/wiki/The_Market_for_Lemons&quot; rel=&quot;nofollow&quot;&gt;&quot;The Market for Lemons: Quality Uncertainty and the Market Mechanism&quot;&lt;/a&gt; (see link for Wikipedia discussion).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Having said that, we can return to the discussion of the value of a car. Like any other tradeable good (it's easier to determine the value of a good that can be bought and sold than the value of services provided by an ecosystem, for example), a car is worth whatever someone is willing to pay for it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You ask about two scenarios, one in which the car is kept in a showroom, and another in which it is driven. The difference between these two scenarios is what is known as &lt;a href=&quot;https://en.wikipedia.org/wiki/Depreciation_(economics)&quot; rel=&quot;nofollow&quot;&gt;depreciation&lt;/a&gt;— as you drive a car, things wear down, and its future life becomes shorter, while it also becomes less good at being a car. Both because the car isn't as nice (maybe it's scratched up, or it is a bit slower, or it requires more maintenance), and because it won't last as long, all else equal (i.e., so long as nobody wins a famous race while driving that particular car) driving a car decreases its value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In practice, the value of many cars decreases for a long period, until at some point, the value slowly begins to increase as the number of cars dwindles and the model attracts interest from collectors. The collectors' market is actually in many ways a very different market from the original market for a car— the people buying a collectible car generally aren't interested in its value as an automobile; a classic car will tend to be slower, get worse gas mileage, be dramatically less safe, have higher maintenance costs, and offer fewer amenities than a modern car that costs a similar amount. Because this market is driven by factors other than the value of the services provided by the car (because, ayou are aware, most rare collectible cars are driven rarely, if at all), the value of these cars tends to be determined more by factors like taste or the value of financial assets held by the wealthy than by anything else. Nobody will be driving an Exelero to the grocery store; anyone who has one has another car to use for that task (or, more likely, someone to go to the store for them and cook them dinner).&lt;/p&gt;&#xA;" OwnerUserId="264" LastActivityDate="2015-05-04T22:34:42.223" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5499" PostTypeId="2" ParentId="4951" CreationDate="2015-05-05T00:42:41.057" Score="3" Body="&lt;p&gt;After a period of time they would switch back.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The monetary systems of each country are based on fractional reserve banking, which creates a leveraged relationship between currency and deposits within the banking system. Both forms of money are used interchangeably for purchases, although in practice the use of bank deposits dominates in modern systems.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The underlying problem posed by a single currency is that for a variety of reasons, every single country is expanding their bank deposits at different rates. In floating regimes, currency exchange values change over time to adjust for this, but in a single currency regime this can't happen. As a consequence goods become relatively more expensive in countries whose banking systems are expanding quickly, and less expensive in those which aren't - without this necessarily reflecting any underlying economic realities vis-à-vis production. Eventually (over decades - it's a slow system) the discrepancies become so extreme, that economic reality in the form of arbitrage intervenes in a way that invariably causes the destruction of the currency union.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Examples of this process can currently be seen in the Euro zone, it is left as an exercise for the reader to work out which countries are expanding faster than others. &lt;/p&gt;&#xA;" OwnerUserId="84" LastEditorUserId="4891" LastEditDate="2016-10-23T18:49:50.777" LastActivityDate="2016-10-23T18:49:50.777" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="5500" PostTypeId="2" ParentId="5484" CreationDate="2015-05-05T00:59:08.997" Score="2" Body="&lt;p&gt;I agree with the members that have voted to close, but I felt obliged to point out an important confusion in the question. The OP writes&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;A single currency with an enforcing entity controlling entity could use this power to help countries in the desperate need to grow,... By&#xA;  retrieving in the form of taxes a percentage of each nation's Gross&#xA;  Domestic Product... and then redistributing this to each country, we&#xA;  would be in fact spreading resources from wealthy parts of the world&#xA;  to the poorest in a fair way.&quot;&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It appears therefore that the OP focuses on issues of global income/wealth inequality, and he thinks that, under a common currency, redistribution would be easier... &lt;/p&gt;&#xA;&#xA;&lt;p&gt;...The OP fails to see that, &lt;em&gt;in order to have a global currency&lt;/em&gt;, it would take a &quot;geopolitical will&quot; from the parties involved, which, if it existed, the contribution of a common currency as a &quot;redistribution facilitator&quot; would be negligible.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;One important reason of why we do not have a global common currency, has to do with the fact that we do not feel that much &quot;connected&quot;, truly &quot;parts of a single whole&quot;. Hence, wealth redistribution to the extent imagined by the OP &lt;em&gt;is not something universally desired&lt;/em&gt;. Because if such a sense of being part of a single whole was the dominant flavor of human existence, the desire to redistribute would flow rather naturally from it, and then it could actually happen whether we had a common currency or not.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now I am voting to close also.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-05-05T00:59:08.997" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5502" PostTypeId="1" CreationDate="2015-05-05T02:59:01.037" Score="2" ViewCount="215" Body="&lt;p&gt;Greene's book is a drudgery to read book since it is theoretically based however does not provide what a theoretical book should provide especially on poorly explained the statistics definition both in math motivation and historical background, also it left out math proof on 40 percent of the theorem. Woolridge's more advanced econometric book is even worse although it list out historical background and reference, since not only it is too wordy, it is impossible to use these words to replace the abundant missing math details. The description on how to applied the econometric theorem is also too technical on that book but that is useless to general user since they won't understand any of theoretic and applied econometrics. Overall, Greene's book is better compare to woolridge even it is bad since it give hint to how to fill out the missing details&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That is why my friend sell these book back after he finish his courses&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are there good step by step math intense books substitute for greene's and woolridge more advanced Econometric Analysis books? I already had Hayashi's and Ruud's book and johnston's Econometric Method is also one of my books, however Johnston's book is also lack of detail to be a introductory graduate textbook. What else is a good one that cover general econometric topics and please explain in detail why do you think that they are as good as or even better than Hayashi and Ruud that cover some new topics other than the two that already teach?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;contents of Hayashi and Ruud&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) &lt;a href=&quot;http://press.princeton.edu/TOCs/c6946.html&quot; rel=&quot;nofollow&quot;&gt;http://press.princeton.edu/TOCs/c6946.html&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2)&lt;a href=&quot;http://ukcatalogue.oup.com/product/9780195111644.do&quot; rel=&quot;nofollow&quot;&gt;http://ukcatalogue.oup.com/product/9780195111644.do&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="95" LastEditorUserId="95" LastEditDate="2015-05-05T04:23:51.770" LastActivityDate="2015-05-05T04:23:51.770" Title="Are there good step by step math intense books substitute for greene's and woolridge Econometric Analysis" Tags="&lt;econometrics&gt;&lt;mathematical-economics&gt;&lt;reference-request&gt;" AnswerCount="0" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="5503" PostTypeId="2" ParentId="5483" CreationDate="2015-05-05T03:01:42.653" Score="6" Body="&lt;p&gt;On remittances:&lt;/p&gt;&#xA;&lt;p&gt;It is not unusual to hear about income being sent home by, say, US immigrants. However, the product of their labor and the side effects of their intellectual capital, sometimes called positive spillover, do not occur in the home country.  As such, they are not as beneficial to the &lt;strong&gt;home&lt;/strong&gt; country as some counterfactual world where an equally profitable job existed at home. The immigrants are then beneficial to the &lt;strong&gt;host&lt;/strong&gt; country.  The remittances still benefit the home country, however, and are particularly important when no employment is available at home.&lt;/p&gt;&#xA;&lt;p&gt;On unemployment:&lt;/p&gt;&#xA;&lt;p&gt;Broadly, immigration does not appear to have much of an impact on the unemployment in the &lt;strong&gt;host&lt;/strong&gt; country. Or at least, something happens which masks that effect and makes it tremendously difficult to measure.  There has been a lot of controversy on this study but it helps highlight a lot of the issues if you take the chain of papers and responses seriously: &lt;a href=&quot;https://www.jstor.org/stable/2523702?seq=1#metadata_info_tab_contents&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.jstor.org/stable/2523702?seq=1#metadata_info_tab_contents&lt;/a&gt;&lt;/p&gt;&#xA;&lt;p&gt;On the type of people immigrating:&lt;/p&gt;&#xA;&lt;p&gt;&amp;quot;Are the ones going abroad necessarily like money-hungry people who do not love their country or something.&amp;quot;  This isn't really the type of question economists answer. Everyone is money-hungry and equally self-interested, by default, and &lt;em&gt;that is fine&lt;/em&gt;.  This helps (in some ways) avoid stereotyping immigrants. You may want to open another question about the types of people who like to immigrate.&lt;/p&gt;&#xA;" OwnerUserId="4185" LastEditorUserId="4185" LastEditDate="2020-08-11T19:17:23.300" LastActivityDate="2020-08-11T19:17:23.300" CommentCount="14" ContentLicense="CC BY-SA 4.0" />
  <row Id="5504" PostTypeId="2" ParentId="5481" CreationDate="2015-05-05T03:47:31.933" Score="4" Body="&lt;p&gt;&lt;strong&gt;QUESTION 1&lt;/strong&gt;&lt;br&gt;&#xA;By inserting $(6.28)$ into $(6.29)$, re-arranging and applying direct forward substitution , we obtain&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$y_t = \lim_{n\rightarrow \infty}\left[\left(\frac {\theta}{\theta + b}\right)^nE_t[y_{t+n}]\right] +\frac {\theta}{\theta+b -\theta \rho}u_t \tag{1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then forwarding $n$ periods and taking the conditional expectation with respect to information available at $t$ we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$E_t[y_{t+n}] = E_t\left(\lim_{n\rightarrow \infty}\left[\left(\frac {\theta}{\theta + b}\right)^nE_{t+n}[y_{t+2n}]\right]\right) +E_{t}\left(\frac {\theta}{\theta+b -\theta \rho}u_{t+n} \right)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies E_t[y_{t+n}] = E_t\left(\lim_{n\rightarrow \infty}\left[\left(\frac {\theta}{\theta + b}\right)^nE_{t+n}[y_{t+2n}]\right]\right) \tag{2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The conditional expectation is an integral. Can we interchange integration and limit? To do that &lt;a href=&quot;http://en.wikipedia.org/wiki/Dominated_convergence_theorem&quot; rel=&quot;nofollow&quot;&gt;Dominated Convergence &amp;amp; Co should hold&lt;/a&gt; (they are only sufficient conditions, but we do not have something better). For our case, Dominated Convergence requires that the expression inside the limit is &lt;em&gt;bounded&lt;/em&gt;(&quot;dominated&quot;), and that the limit is finite. If it is then, using also the Law of Iterated Expectations, and the fact that under the limit $t+2n$ is equivalent to $t+n$ we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$E_t[y_{t+n}] = \lim_{n\rightarrow \infty}\left[\left(\frac {\theta}{\theta + b}\right)^nE_t[y_{t+n}]\right] \tag{3}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note carefully that in the left-hand side, $n$ does &lt;em&gt;not&lt;/em&gt; go to infinity. Also, remember that we obtained $(3)$ under the assumption that the limit is finite. So $(3)$ tells us that &lt;em&gt;for every finite $n$&lt;/em&gt;, the conditional expectation must be equal to the unique limit, i.e. equal to &lt;em&gt;the same number&lt;/em&gt;, i.e. it should be a constant. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can this constant be anything else than zero? Assume the limit is not zero. Then one can verify that the only other finite value that the limit can take is $1$. But for the limit to be $1$ we must have&#xA;$E_t[y_{t+n}]\rightarrow \left(\frac {\theta + b}{\theta}\right)^n$, which goes to infinity with $n$. So the left hand side would go to infinity and will not be equal to the limit. Hence we conclude that the limit must be zero, for $(3)$ to hold.&lt;br&gt;&#xA;This can happen if we assume that the expectation alone is a non-zero constant, or that it is growing but boundedly (say, it has an asymptote to which it converges from below). But then again, in both cases the left hand side will not be equal to the now zero limit. So we see that &lt;strong&gt;the only way that $(3)$ can hold is to assume that the expectation alone is zero.&lt;/strong&gt;   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So I would say that the approach &quot;if we assume that the limit is zero, then we obtain etc&quot; (as presented in the quoted text), is wrong: looking at our solution, which is equation $(1)$, we must &lt;em&gt;first&lt;/em&gt; assume/impose that the expectation is zero, to make it all consistent, and finite (note: if the solution $(1)$ included also a constant term in the right-hand side, things would be more flexible).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sticking with $(1)$, we also see that the only other consistent solution is to assume that the limit goes to infinity -and this can happen only if we assume that the expectation on its own goes to infinity. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;QUESTIONS 2 &amp;amp; 3&lt;/strong&gt;&lt;br&gt;&#xA;As I have wrote in another answer, everything in real-world economics is finite -even prices, even expectations. The above mathematical formulations and the mathematical possibility of an infinite solution represent in a colorful way the phenomenon of &quot;bubbles&quot;. In real life, bubbles eventually burst -but what we have managed to capture by using the &quot;infinity&quot; concept, is the abnormal inflation of the bubble while it hasn't burst yet. So agents &lt;em&gt;can&lt;/em&gt; &quot;expect infinity&quot;, in the metaphorical sense just described. But since &quot;bubbles&quot; is not your everyday economic phenomenon, these models usually assume them away in order to study the stable situation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Marx was the one that argued that capitalism will explode, or rather, implode. So you have an articulated theory that advances the view that a specific economic system possesses the property of (eventual) divergence. &lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-05-05T04:31:08.997" LastActivityDate="2015-05-05T04:31:08.997" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5505" PostTypeId="1" CreationDate="2015-05-05T04:45:24.930" Score="0" ViewCount="95" Body="&lt;p&gt;So there's been quite a bit of fuss over how the rich supposedly pay lower taxes (proportionally of course) than regular, hard-working Americans because of various tax schemes that &quot;let the rich get richer&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This website - &lt;a href=&quot;http://www.salon.com/2013/04/12/10_tax_dodges_that_help_the_rich_get_richer_partner/&quot; rel=&quot;nofollow&quot;&gt;http://www.salon.com/2013/04/12/10_tax_dodges_that_help_the_rich_get_richer_partner/&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;probably makes the boldest claims - according to it, a billionaire could &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;avoid even capital gains taxes by borrowing money because the tax isn't due until the shares are sold (and they don't ever need to be sold) - but wouldn't the interest rate over 30 years wipe out the savings? Also, couldn't a regular person do that too?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;It then (on #3.) it describes bartering - but I thought bartering was still taxable?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;(on #4) it then describes fake charity scams - but wouldn't the IRS (not to mention some other federal agencies) audit multi-billion dollar charities for that?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;(on #5) Couldn't a regular employee convince their boss to pay for their car &quot;on paper&quot; and split the tax savings?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;(on #6) I always thought you'd go to jail for that stuff?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;(on #7) Again, seems like just some more regular business expenses that incentivize R&amp;amp;D&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;(on #10) I don't understand how an IRA would benefit a billionaire more than a millionaire. Actually, 401(k) plans seem to be better than dividend stocks since they aren't taxed until it's converted to cash.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="4306" LastActivityDate="2015-05-05T17:37:18.730" Title="Are any of these tax dodging schemes actually realistic or exclusive to billionaires?" Tags="&lt;inequality&gt;" AnswerCount="2" CommentCount="1" ClosedDate="2015-05-06T14:54:50.210" ContentLicense="CC BY-SA 3.0" />
  <row Id="5506" PostTypeId="2" ParentId="5489" CreationDate="2015-05-05T07:42:19.287" Score="-2" Body="&lt;p&gt;It depends who you ask and which answers you believe. According to former Chairman Ben Bernanke, its because of &quot;Tradition&quot;. However, whether that is the true reason is up for debate. Central banks have a direct interest in making gold seem less valuable, because their motivated to ensure people believe dollars (fiat/paper) is valuable. All fiat currency is constantly competing with gold for value. If everyone stopped creating money demand and started hoarding gold, the central banks would, by definition be useless and powerless. Oddly enough, while they claim it's because of tradition, they sure do hold a lot of it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Gold, while not used as money today, is an asset class that retains it's value in the long run and is considered valuable in every corner of the globe. Central banks generally hold gold as a &quot;reserve&quot; and delegate a percentage of reserves based on how much paper currency they issue. Additionally, gold is an inflation hedge, so Governments and banks don't suffer as much from the very currency they issue themselves. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Prior to Alan Greenspan becoming Chairman of the Fed, he wrote a fascinating paper about Gold called: &quot;Gold and Economic Freedom&quot; (1966). As one of the most powerful people in the world, this is surely a good read.&lt;/p&gt;&#xA;" OwnerUserId="4591" LastActivityDate="2015-05-05T07:42:19.287" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5507" PostTypeId="2" ParentId="3048" CreationDate="2015-05-05T10:26:56.243" Score="6" Body="&lt;p&gt;The Central Bank of Russia (CBR) gives tons of &lt;a href=&quot;http://www.cbr.ru/eng/statistics/?Prtid=svs&quot; rel=&quot;nofollow noreferrer&quot;&gt;statistics&lt;/a&gt;. Take a look at &quot;Net Inflows/Outflows of Capital by Private Sector&quot; and “Balance of Payment” in different representations. I warn you ahead that it’s not that clear from the data what moves where. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are several reasons for capital flight:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Dollarization and flight to safety. That is related to high inflation and bank runs over the past 25 years, after the collapse of the USSR. Russians do not fully trust the ruble or the local financial system. A lot of Russians hold foreign cash, mainly dollars and euros. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Sanctions. Because of the Ukraine issues, the West put sanctions and effectively closed its financial markets. So, Russian banks and enterprises cannot refinance and have no way but to pay debts. Paying debts is like capital flight. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;NX = S – I. Russia has chronic CA surplus, which means capital outflow. It lasted for years. See &lt;a href=&quot;http://goo.gl/zBA0Eq&quot; rel=&quot;nofollow noreferrer&quot;&gt;this&lt;/a&gt;. If you have insufficient investment demand inside country for its savings that means capital outflow. That is related to point 1 also. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="4594" LastEditorUserId="8481" LastEditDate="2020-04-09T23:54:00.393" LastActivityDate="2020-04-09T23:54:00.393" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="5508" PostTypeId="1" CreationDate="2015-05-05T14:20:47.277" Score="4" ViewCount="59" Body="&lt;p&gt;Using R, assume the population income for N= {1.. 7} looks like $X_1$= c(1,3,5,7,7,19,21). Use the Lc() function from the &quot;ineq&quot; package to plot the corresponding Lorenz curve $L_{X_1}(p_1)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Next, rerank $n_2$ and $n_6$ so that $X_2$= c(1,18,5,7,7,4,21) while mean is same ($\mu = 9$). Plot the Lorenz curve $L_{X_2}(p_2)$ using Lc().&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Next, rerank $n_4$ and $n_5$ so that $X_3$= c(1,18,5,6,8,4,21) while mean is same. Plot the Lorenz curve $L_{X_3}(p_3)$ using Lc(). Note that this redistribution violates strict horizontal equity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Questions:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;strong&gt;Using the Lorenz curves above, may I say that all strictly increasing, concave social welfare functions will prefer $L_{X_2}(p_2)$ and $L_{X_3}(p_3)$ as dominant over $L_{X_1}(p_1)$?&lt;/strong&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;Can we discuss the &quot;equalizing effect&quot; of the redstribution even though reranking has caused $p_1$ to change?&lt;/strong&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I ask because Lambert (2001, 37-42) treats the total tax ratio &gt; 0 and the mean post-tax income &amp;lt; mean pre-tax income, and shows that the &quot;concentration curve for post-tax income with respect to pre-tax income&quot; is the same as the Lorenz curve if there is no reranking. In my example, however, the total tax ratio = 0, the mean post-tax income = mean pre-tax income, and there is reranking. I think my confusion relates to the &quot;concentration curve&quot; as an intermediary to our real goal, the comparison of Lorenz curves.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;All clarification appreciated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lambert. 2001. The Distribution and Redistribution of Income.&lt;/p&gt;&#xA;" OwnerUserId="4595" LastActivityDate="2015-05-05T14:20:47.277" Title="Post-redistribution Lorenz curve comparison with reranking in R" Tags="&lt;social-welfare&gt;&lt;inequality&gt;&lt;r&gt;&lt;ranking&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5509" PostTypeId="2" ParentId="5505" CreationDate="2015-05-05T14:48:35.363" Score="1" Body="&lt;p&gt;You're asking questions in a very disorganized manner, which will prevent most people from attempting to answer you.  Also, there's an emotional feel to your question - you sound upset that people are avoiding taxes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is economics and in economics we often discuss how people behave in the market, whether we like it or not.  For instance, socialism, emotionally sounds wonderful, yet anyone who's studied the Soviet Union knows it didn't work ... at all.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Will people avoid taxes?  Yes.  Do the rich?  Yes.  Do the poor?  Yes.  I worked at a bank for a while and we were required to report when we saw suspicious behavior of customers and I can tell you about the number of times I reported to my manager Americans who collected disability or unemployment while also working for people in cash - they were getting free money from the government, but working for people in cash and not reporting the cash (blatant fraud, which taxpayers funded).  For instance, &lt;a href=&quot;https://www.youtube.com/watch?v=bP_izYhdehY&quot; rel=&quot;nofollow&quot;&gt;this video&lt;/a&gt;, which many think is an embellishment, was not uncommon at all.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For some direct answers:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Bartering is one of the best ways to avoid taxes (as is negotiation) because if the bartering is more financially beneficial than the ease of taxes, a person may barter instead of paying income that was taxed.  Anyone, of any class, can barter.  To prevent bartering, an economic system wants the tax system to be arranged in a way that would make bartering more costly than just paying taxes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Charity scams will be favored by the rich, and no the IRS can't audit every charity, even if it's a multi million dollar charity.  It can only audit some and hope that deters the others; also, some charities, like the Susan G. Komen foundation, might not be audited because the IRS would fear something else, like being accused of sexism, so billionaires would probably choose politically correct charities, knowing they could get the media on their side and the IRS wouldn't touch them (if billionaires were to go this route).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Getting free stuff?  Any class can do this; this is really negotiation.  Most international people, who live or visit the US, negotiate and it makes sense.  Yes, the IRS loses money, but at the end of the day, it's the rational economic decision.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, things like cryptocurrencies (speculation) are ways the rich avoid taxes, as well as buying assets privately held in other countries (see the Chinese bureaucrats as examples).  The rich have many more ways to avoid taxes than the poor and middle class, though the other two income categories can avoid taxes as well.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Economically, a simple and fair tax system is the best way to prevent all of this.  No one wants to avoid something they perceive as easy and fair.  What you're seeing is that some don't think this about the U.S. system, whether any of us in particular agree or disagree.&lt;/p&gt;&#xA;" OwnerUserId="2746" LastActivityDate="2015-05-05T14:48:35.363" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5510" PostTypeId="2" ParentId="5488" CreationDate="2015-05-05T14:50:35.997" Score="9" Body="&lt;p&gt;The idea is precisely that players do not chose action&lt;strong&gt;s&lt;/strong&gt;, but only chose one action at the time at every node at which they play, based on their beliefs about the way other players &lt;strong&gt;and themselves&lt;/strong&gt; will play at future nodes in the game (where beliefs are conditional on the history that led to that node).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The interpretation is letting players choose full-fetched strategies is equivalent to letting players rely on a computer program to plays the game in their place. That is, they can commit via this computer program to playing a given action at each node.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Such games with commitment devices are in essence very different from games in which the actual players have to repeatedly chose an action at each of their decision nodes. When actual players play at nodes, players have to form beliefs about the way other players and themselves will play at future nodes, &lt;strong&gt;and these beliefs may depend on the history that led to future nodes&lt;/strong&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For instance, in a Stackelberg game, the leader could believe that the follower will be rational (i.e., utility maximizing) if the leader plays &quot;Low production&quot;, but will be irrational (i.e., non utility maximizing) if the leader plays &quot;High production&quot;. Maybe the leader anticipates that the follower will be angry if the leader plays &quot;High production&quot;, and that, blinded by her anger, the follower then then want to retaliate. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the follower could have committed through a strategy, the game would have been completely different. Maybe the follower could have committed not to retaliate before she gets angry, and she cannot help her desire to retaliate anymore. But here the idea is that the &lt;em&gt;actual&lt;/em&gt; follower has to choose an action later in the game given what the leader chose at the root node. Therefore, the behavioral rule through which the follower chooses an action at a node (e.g., utility max vs. non utility max), and the beliefs of the leader about these procedures may depend on the history that led to that node too. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This opens the way for many new outcomes of the game that would not have emerged from classical game theory. From a conceptual point of view, it also switches the focus from solution concepts to epistemic and behavioral assumption (i.e., from classical game theory to epistemic game theory). Instead of identifying a set of reasonable outcomes (e.g., Nash equilibrium outcomes) and look at the strategies that match these outcomes, one identifies reasonable properties of players' behaviors and beliefs (about each others' beliefs and behaviors), and derives the conclusions of these epistemic and behavioral assumptions for the outcome &lt;strong&gt;as the game unfolds&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, this is just to give some meat and intuition to Battigalli's framework, and it is does not do justice to the richness of the framework (in part because I don't know much about his work other that the video you linked to). If you haven't done it yet, I strongly recommend that you watch the whole video. I think Battigalli does a great job at making his framework accessible. He also present helpful and intuitive examples to connect his epistemic approach to &quot;classical&quot; game theory by identifying simple conditions on players beliefs and behaviors that allow to recover classical solutions to games such as backward induction.&lt;/p&gt;&#xA;" OwnerUserId="38" LastEditorUserId="38" LastEditDate="2017-10-31T18:43:17.300" LastActivityDate="2017-10-31T18:43:17.300" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="5511" PostTypeId="1" CreationDate="2015-05-05T15:15:32.037" Score="2" ViewCount="469" Body="&lt;p&gt;When we derive the LM curve, we assume that supply of money is exogenous.&#xA;However, let's say the central bank has some target interest,r1, and it adjust supply of money to keep interest rates equals to r1&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With this assumption, what is the slope of the LM curve?&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;I think it will be horizontal because supply of money is horizontal. &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;What is the slope of the AD curve?&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;I think it will be vertical because there will be no change in output since the LM curve is horizontal.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I am not sure about those two.. so can someone tell me whether they are right or wrong? &lt;/p&gt;&#xA;" OwnerUserId="4596" LastEditorUserId="43" LastEditDate="2015-05-05T15:19:20.443" LastActivityDate="2015-05-05T15:19:20.443" Title="AS-LM Model and derivation of the LM curve" Tags="&lt;macroeconomics&gt;&lt;keynesian-economics&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5513" PostTypeId="2" ParentId="5505" CreationDate="2015-05-05T16:37:15.263" Score="4" Body="&lt;p&gt;I understand the core point of your question as, &quot;Do people with extremely high incomes pay proportionately less in taxes than average Americans?&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Yes, extremely-high-income individuals do pay a lower percentage of their income in taxes than do upper-middle-class and high-income households, and even more than many middle-income households, but they tend to pay more in taxes than low-income households. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is due to a number of reasons, but it has less to do with elaborate tax strategies than it does the simple fact that people with very high incomes tend to derive a larger share of that income from dividends and capital gains than from normal cash compensation. Both of these have lower marginal tax rates than are paid to people who receive relatively high cash compensation— the top tax rate on dividend and long-term capital gains is 20%, which is roughly equal to the &lt;a href=&quot;http://en.wikipedia.org/wiki/Income_tax_in_the_United_States#Effective_income_tax_rates&quot; rel=&quot;nofollow&quot;&gt;effective marginal income and payroll tax rate&lt;/a&gt; paid by the top 20% of income earners.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From the Brookings Institution/Urban Institute Tax Policy Center, we can see the total average effective tax rates for &lt;a href=&quot;http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=456&quot; rel=&quot;nofollow&quot;&gt;different groups&lt;/a&gt; (for 2011, the most recent year for which detailed data have been released, but things haven't changed much since then):&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;   Quintile  Avg Eff Tax Rate&#xA;      0-20%:  1.9%&#xA;     21-40%:  7.0%&#xA;     41-60%: 11.2%&#xA;     61-80%: 15.2%&#xA;     81-90%: 18.6%&#xA;     91-95%: 21.1%&#xA;     96-99%: 24.3%&#xA;     Top 1%: 29.0%&#xA;    Top 400:  &amp;lt;20%&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;The last line of the table is from the IRS Statistics of Income division, which publishes a &lt;a href=&quot;http://www.irs.gov/pub/irs-soi/12intop400.pdf&quot; rel=&quot;nofollow&quot;&gt;distribution of the average effective tax rates&lt;/a&gt; for the 400 taxpayers with the highest adjusted gross incomes:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt; Rate    Number&#xA; 0-10%    32&#xA;10-15%   147&#xA;15-20%   123&#xA;20-25%    40&#xA;25-30%    28&#xA;30-35%    30&#xA;  &amp;gt;35%     0&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;So you can see that the average effective tax rates rise sharply as you go from the poor to the middle class, then more slowly as you move from the upper middle class through to the top 1%, but once you get to the very top, the 0.1% and 0.01% of income earners, they do actually pay less proportionately in taxes than many middle-income families.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, it's important to note that these statistics will tend to understate the degree to which people with extremely high incomes pay lower taxes than those with moderate incomes to the extent that those with high incomes make use of schemes (like the ones in the linked article) that lower their AGI.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To quickly answer your more specific questions:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;No, regular people can't borrow against unrealized capital gains, because by definition, regular people don't own large amounts of capital.&lt;/li&gt;&#xA;&lt;li&gt;Federal income taxes don't apply to a swap of similar assets (i.e., real estate for real estate). You're probably thinking about &quot;barter clubs,&quot; which do trigger tax consequences, but those aren't like-kind exchanges, they're barter exchanges (they're not similar assets).&lt;/li&gt;&#xA;&lt;li&gt;These aren't &quot;fake&quot; charities that are being described, they're real charities (if I recall correctly, they're required to spend 1% of their endowment annually on charitable purposes, which is more than offset by gains on capital income in most years). This is in fact a real and common tax-avoidance strategy that is entirely legal.&lt;/li&gt;&#xA;&lt;li&gt;No, a regular person could not legally do this— there has to be a business justification for something to count as a business expense, and while a taxi home from work when working late counts as a business expense, personal autos don't meet the test.&lt;/li&gt;&#xA;&lt;li&gt;If a tax strategy hasn't been determined to be illegal before it's tried, only civil penalties (i.e., no jail time) apply if it's ruled to be invalid.&lt;/li&gt;&#xA;&lt;li&gt;The tax benefits they describe in #8 accrue to corporations, which are disproportionately owned by wealthy individuals. (See page 156 of &lt;a href=&quot;http://www.federalreserve.gov/econresdata/scf/files/BulletinCharts.pdf&quot; rel=&quot;nofollow&quot;&gt;this FRB chart deck&lt;/a&gt; on the results of the most recent Survey of Consumer Finances for a quick overview of who owns financial assets in the US.)&lt;/li&gt;&#xA;&lt;li&gt;You're right that IRA plans benefit all very-high-income individuals equally, but they do provide greater benefits to high-income individuals than middle-income individuals (who are less likely to be able to contribute the maximum).&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="264" LastEditorUserId="264" LastEditDate="2015-05-05T17:37:18.730" LastActivityDate="2015-05-05T17:37:18.730" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5514" PostTypeId="2" ParentId="5489" CreationDate="2015-05-05T18:16:18.327" Score="0" Body="&lt;p&gt;To ask, &quot;Why does any Treasury/Central Bank hold gold?&quot;, consider, &quot;Why does anyone hold gold?&quot;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Gold is a store of value with a multi-millennia track record of perceived worth.  It is expected to retain its value through cataclysmic events.  The value of any currency, on the other hand, is dependent of the faith of the government or authority that backs it.&lt;/p&gt;&#xA;" OwnerUserId="4599" LastActivityDate="2015-05-05T18:16:18.327" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5516" PostTypeId="1" CreationDate="2015-05-05T22:57:30.060" Score="3" ViewCount="109" Body="&lt;p&gt;Many commodities are prices in US dollars. If the Dollar strengthens, then commodities (in non-US countries) will become more expensive. From the consumers' (suppliers') point of view, this should be a move along the demand (supply) curve, not a shift since nothing has inherently changed in their demand or supply of the actual commodity. For a stronger dollar, a consumer will simply demand less. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then why is it that a strong US dollars is highly correlated with low commodity prices? Is the efficient market adjusting to pre- strong dollar levels? &lt;/p&gt;&#xA;" OwnerUserId="2674" LastActivityDate="2015-05-06T12:52:27.230" Title="Effect of Strengthening US Dollar on Commodities" Tags="&lt;currency&gt;&lt;supply-and-demand&gt;&lt;commodities&gt;&lt;agriculture&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5517" PostTypeId="1" AcceptedAnswerId="5518" CreationDate="2015-05-06T03:14:16.500" Score="15" ViewCount="12027" Body="&lt;p&gt;For two goods $x$ and $y$, the elasticity of substitution is defined as $$\sigma \equiv \frac{d\log\left(\frac{y}{x}\right)}{ d\log\left(\frac{U_x}{U_y}\right) }= \frac{\frac{d\left(\frac{y}{x}\right)}{\frac{y}{x}}}{ \frac{d\left(\frac{U_x}{U_y}\right)}{\frac{U_x}{U_y}}} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am confused by two things: &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Why do we just write $d\log\left(\frac{y}{x}\right)$? What are we differentiating with respect to? &lt;/li&gt;&#xA;&lt;li&gt;How do I use that that to show the above relation? &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Can someone explain?  &lt;/p&gt;&#xA;" OwnerUserId="2679" LastEditorUserId="5635" LastEditDate="2015-10-27T01:51:41.923" LastActivityDate="2020-07-31T15:30:15.573" Title="How does one derive the elasticity of substitution?" Tags="&lt;elasticity&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="5518" PostTypeId="2" ParentId="5517" CreationDate="2015-05-06T03:35:00.193" Score="21" Body="&lt;p&gt;&lt;strong&gt;How to derive elasticity of substitution&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;p&gt;The first step is to recall the definition of a differential. If you have a function &lt;span class=&quot;math-container&quot;&gt;$f: \Bbb R^n \to \Bbb R$&lt;/span&gt;, say, &lt;span class=&quot;math-container&quot;&gt;$f(x_1,\cdots,x_n)$&lt;/span&gt;, then: &lt;span class=&quot;math-container&quot;&gt;$${\rm d}f = \frac{\partial f}{\partial x_1}{\rm d}x_1 + \cdots + \frac{\partial f}{\partial x_n}\,{\rm d}x_n. $$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;For example,  &lt;span class=&quot;math-container&quot;&gt;$$d\log v = \frac{1}{v}dv$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;Now suppose &lt;span class=&quot;math-container&quot;&gt;$v = \tfrac{y}{x}$&lt;/span&gt;, then we have &lt;span class=&quot;math-container&quot;&gt;$$ d\log(y/x)=\frac{d(y/x)}{(y/x)}$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;and for &lt;span class=&quot;math-container&quot;&gt;$v = \tfrac{U_x}{U_y}$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ d\log(U_x/U_y)=\frac{d(U_x/U_y)}{(U_x/U_y)}$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;In other words, &lt;strong&gt;if you reduce the problem to (1) understanding the definition of a differential and (2) use a simple change of variable&lt;/strong&gt;, the problem becomes very straightforward.&lt;/p&gt;&#xA;&lt;p&gt;You then get&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\sigma \equiv \frac{d\log\left(\frac{y}{x}\right)}{ d\log\left(\frac{U_x}{U_y}\right) }= \frac{ \frac{d(y/x)}{(y/x)} }{ \frac{d(U_x/U_y)}{(U_x/U_y)} } $$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;&lt;strong&gt;ASIDE:&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;p&gt;Note, it is important to recognize that &lt;span class=&quot;math-container&quot;&gt;$ d(y/x)$&lt;/span&gt; is a meaningful concept. You simply apply quotient rule and you find&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ d(y/x)= \frac{xdy-ydx}{x^2}$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;This makes sense because&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ d\log(y/x) = d\log(y) - d\log(x) = \frac{dy}{y}-\frac{dx}{x}$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;And if you compute&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ d\log(y/x)=\frac{d(y/x)}{(y/x)}=\frac{ \frac{xdy-ydx}{x^2}}{y/x} =  \frac{xdy-ydx}{xy} = \frac{dy}{y}-\frac{dx}{x}$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;Same logic applies to &lt;span class=&quot;math-container&quot;&gt;$d(U_x/U_y)$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;p&gt;Thus, all of &lt;span class=&quot;math-container&quot;&gt;$\sigma$&lt;/span&gt; is well-defined in the sense we are using the calculus tools correctly / legally.&lt;/p&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;&lt;strong&gt;What is elasticity of substitution?&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;p&gt;Elasticity is by how much % one thing changes relative to a % change in another. Therefore, in this case, it is % change in ratio of two goods  relative to a single % change in the &lt;span class=&quot;math-container&quot;&gt;$MRS$&lt;/span&gt; for those two goods.&lt;/p&gt;&#xA;" OwnerUserId="2679" LastEditorUserId="2679" LastEditDate="2020-07-31T15:30:15.573" LastActivityDate="2020-07-31T15:30:15.573" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="5519" PostTypeId="2" ParentId="5516" CreationDate="2015-05-06T08:10:31.633" Score="1" Body="&lt;p&gt;What happens if the demand for something falls? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The price falls. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, you have two different effects. 1) An increased dollar value and 2) A decreased demand. The dominating effect will tell you about the overall price movement. &lt;/p&gt;&#xA;" OwnerUserId="107" LastActivityDate="2015-05-06T08:10:31.633" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5520" PostTypeId="2" ParentId="5516" CreationDate="2015-05-06T10:36:14.600" Score="3" Body="&lt;p&gt;Most global commodities are quoted (priced) in US dollars. The more valuable a dollar becomes relative to other currencies, all other things equal, the more commodity prices have to fall to equilibrate. Imagine everything was priced in corn and people start to value corn more or the amount of corn falls. Either way, all the prices in terms of corn (e.g. ears per barrel of oil) would have to fall as a result. &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-05-06T12:52:27.230" LastActivityDate="2015-05-06T12:52:27.230" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5521" PostTypeId="2" ParentId="5494" CreationDate="2015-05-06T12:22:09.393" Score="2" Body="&lt;p&gt;They don't include anything. It is the pure price for 1 MWh.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The producers have been paid the tariffs, which lowers their short run marginal costs quite a lot. There has not been added any taxes to the consumers at this point, however.&lt;/p&gt;&#xA;" OwnerUserId="107" LastEditorUserId="107" LastEditDate="2015-05-07T08:42:00.187" LastActivityDate="2015-05-07T08:42:00.187" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5522" PostTypeId="1" AcceptedAnswerId="5523" CreationDate="2015-05-06T14:45:37.550" Score="1" ViewCount="201" Body="&lt;p&gt;An increase in Japan's demand for US goods would cause the value of dollar to appreciate? Why is that? The official answer is &quot;Japan will buy more U.S. dollars.&quot; However, my thought was that isn't it usually the case that US companies get paid of Japanese yen rather than U.S. dollars? And hence Japan will not need to buy more U.S. goods. What is the problem in my thought?&lt;/p&gt;&#xA;" OwnerUserId="4551" LastActivityDate="2015-05-06T15:12:12.707" Title="An increase in Japan's demand for US goods would cause the value of dollar to appreciate?" Tags="&lt;macroeconomics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5523" PostTypeId="2" ParentId="5522" CreationDate="2015-05-06T15:04:37.360" Score="2" Body="&lt;p&gt;You're just intermediating. The US companies would still have to pay their workers in USD, therefor, instead of the Japanese companies buying dollars in your scenario, the exporters are using the importers' Yen to buy dollars.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's the same net effect.&lt;/p&gt;&#xA;" OwnerUserId="31" LastActivityDate="2015-05-06T15:04:37.360" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5524" PostTypeId="2" ParentId="5522" CreationDate="2015-05-06T15:12:12.707" Score="2" Body="&lt;p&gt;Most of international trade actually occurs using the US Dollars. So if Japan wanted to purchase more US goods, they would pay in Dollars. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Using of the Dollar facilitates trade because it resolves the inconvenient situation of needing an exporting (non-US) country's local currency for purchasing. Actually, if Japan wanted to purchase more Argentinian goods they would likely also pay in Dollars. There are many reasons for this, but an important one is that the USD is a reputable currency that holds its value, and it is thus used as a global currency. Without the Dollar in the transaction, in order to purchase from Argentina, Japan would need to purchase pesos which they may not want to hold, and would have to pay currency exchange fees. &lt;/p&gt;&#xA;" OwnerUserId="2674" LastActivityDate="2015-05-06T15:12:12.707" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5525" PostTypeId="1" AcceptedAnswerId="5705" CreationDate="2015-05-06T15:40:21.847" Score="6" ViewCount="696" Body="&lt;p&gt;An allocation is in the core if there's no coalition that blocks it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A strong equilibrium (&lt;a href=&quot;http://www.ma.huji.ac.il/raumann/pdf/Acceptable%20Points%20in%20General.pdf&quot; rel=&quot;nofollow&quot;&gt;Aumann, 1959&lt;/a&gt;) is a Nash equilibrium in which no coalition, taking the actions of its complements as given, can cooperatively deviate in a way that benefits all members of the coalition.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How are these distinct? I usually don't think of the core as a solution concept, but I'm struggling to disentangle it from strong equilibrium.&lt;/p&gt;&#xA;" OwnerUserId="48" LastEditorUserId="73" LastEditDate="2015-05-06T16:27:24.990" LastActivityDate="2015-05-18T14:38:55.340" Title="How does the core relate to strong equilibrium?" Tags="&lt;game-theory&gt;&lt;nash-equilibrium&gt;&lt;cooperative-game-theory&gt;" AnswerCount="1" CommentCount="10" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5526" PostTypeId="1" CreationDate="2015-05-06T15:54:11.580" Score="4" ViewCount="696" Body="&lt;p&gt;I found the axis on the following &lt;a href=&quot;http://www.macrotrends.net/1369/crude-oil-price-history-chart&quot; rel=&quot;nofollow noreferrer&quot;&gt;graph of crude oil prices over 1950-2015 from MacroTrends&lt;/a&gt; surprising. &#xA;&lt;img src=&quot;https://i.stack.imgur.com/EqDLy.png&quot; alt=&quot;enter image description here&quot;&gt;&#xA;The y-axis labels are 20, 40, 60, 80, 100, ...but they are not equidistant. Why? &lt;/p&gt;&#xA;" OwnerUserId="4601" LastEditorUserId="69" LastEditDate="2015-05-07T11:56:24.367" LastActivityDate="2015-05-07T11:56:24.367" Title="Oil Price Chart Scale" Tags="&lt;price-level&gt;&lt;commodities&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5528" PostTypeId="2" ParentId="5526" CreationDate="2015-05-06T16:09:20.827" Score="6" Body="&lt;p&gt;Usually, when people use non-equidistant axis, it is because they want to emphasize some variation more than others. For example, if most of your data is between 0 and 1, but you have one outlier on 100, then an equidistant axis would make it hard to analyze most the variation, because it emphasizes the wrong parts.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this case you have a log-scale, which is a simple nonlinear axis that (in general) emphasizes small values over larger ones. Whether that makes sense with oil prices, is - to me - unclear.&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-05-06T16:09:20.827" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5529" PostTypeId="1" CreationDate="2015-05-06T16:57:11.140" Score="1" ViewCount="47" Body="&lt;p&gt;I read many web pages discussing the future plans of the &lt;a href=&quot;https://en.wikipedia.org/wiki/Line_3_Scarborough&quot; rel=&quot;nofollow&quot;&gt;Scarborough RT&lt;/a&gt; and the cost of plans they were planning to do but not the cost of the premium they decided not to carry on with. Without knowing the cost of the premium, how can ordinary citizen help research whether paying a premium is a good solution?&lt;/p&gt;&#xA;" OwnerUserId="4604" LastEditorUserId="4604" LastEditDate="2015-11-17T23:57:52.587" LastActivityDate="2015-11-17T23:57:52.587" Title="How much was it going to cost to pay Bombardier a premium to restart production of Mark I trains?" Tags="&lt;decision-theory&gt;" AnswerCount="0" CommentCount="3" ClosedDate="2015-11-18T15:47:13.737" ContentLicense="CC BY-SA 3.0" />
  <row Id="5530" PostTypeId="2" ParentId="5526" CreationDate="2015-05-06T17:13:31.957" Score="3" Body="&lt;p&gt;As it has already been explained, it's a logarithmic scale (also called log scale for short). The distance between values doesn't depend on their linear difference, but on their relative difference. The distance between 20 and 40 is the same as the distance between 40 and 80 or the distance between 60 and 120, because 40/20 = 80/40 = 120/60 = 2 or a 100% increase, a fixed rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An additional caveat about log scales is that they never go down to 0. After all, if you increase 0 by any percentage, you still get 0. The distance between 0 and any positive value is infinite.&lt;/p&gt;&#xA;" OwnerUserId="4603" LastActivityDate="2015-05-06T17:13:31.957" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="5532" PostTypeId="1" CreationDate="2015-05-06T18:27:24.617" Score="14" ViewCount="1527" Body="&lt;p&gt;What is the reason that China buys so much US debt in form of Treasuries? How does this help the Chinese economy? It seems they are willing to give money to USA so USA economy can function better (more cash more investing in infrastructure).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is in it for China, holding a bunch of paper yielding next to nothing?&lt;/p&gt;&#xA;" OwnerUserId="2879" LastEditorUserId="8481" LastEditDate="2020-05-03T14:54:09.217" LastActivityDate="2020-05-03T14:54:09.217" Title="Why does China buy so much U.S. Treasury debt?" Tags="&lt;government-debt&gt;&lt;international-economics&gt;&lt;bonds&gt;&lt;china&gt;" AnswerCount="3" CommentCount="7" FavoriteCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="5536" PostTypeId="1" CreationDate="2015-05-07T00:03:33.160" Score="2" ViewCount="2015" Body="&lt;p&gt;There are two people in the economy, A and B.  Both have the utility function: U=min{x,y}.  A has an initial endowment of (x,y)=(50,100) and B has (x,y)=(100,50).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know how to draw the Edgeworth box and establish the contract curve, but how do I determine the Walrasian equilibrium ratio of Px/Py?  I'm confused by the fact that I can't differentiate U, nor is there money exchanged to establish a budget constraint.&lt;/p&gt;&#xA;" OwnerUserId="4609" LastEditorUserId="43" LastEditDate="2015-05-07T01:19:23.887" LastActivityDate="2015-05-07T01:19:23.887" Title="Walrasian Equilibrium under Leontief Preferences" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5537" PostTypeId="2" ParentId="5536" CreationDate="2015-05-07T01:18:34.253" Score="5" Body="&lt;p&gt;You do not need money exchanged to establish a budget constraint, most of these standard micro questions work in cashless economies. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your Px/Py is just the exchange rate between the goods. If it's 3:1, it means that you exchange 3 $y$ for one $x$ - no cash involved.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Not being able to differentiate sucks, but actually requires you to know what you're doing. The point of differentiation is finding a place at which all Pareto improving trade has been exhausted. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here, that means that, indexing the two players by i: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ x_i, y_i \in \arg\max_{x,y} U^i(x, y) s.t. p_x x + p_y y = p_x x^i + p_y y^i \, , \forall i $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Without first-order conditions, this problem is potentially hard to solve. However, most non-differentiable utility functions give you a hint on how the outcome must look like.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here, aggregate resources add up: $A=x_1 + x_2 = y_1 + y_2$. Hence, the planner would chose some allocation where x=y for both players, as for any positive $a$ and $\epsilon$ it is inefficient to give one player $(a + \epsilon, a)$ and the other one $(A - a - \epsilon, A - a)$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, that leaves a continuum of distributions as potential outcomes: Those where we give players one and two $(a, a)$ and $(A-a, A-a)$ for any $0 \leq a \leq A$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which equilibrium we actually get depends on the relative value of the initial endowments. I will leave you with this: What does $p_x/p_y$ &lt;em&gt;necessarily&lt;/em&gt; have to be given total endowments and preferences? What does this imply for the unique equilibrium distribution of resources among the players?&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-05-07T01:18:34.253" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5538" PostTypeId="2" ParentId="3163" CreationDate="2015-05-07T02:02:08.147" Score="5" Body="&lt;p&gt;Complexity issues are always a factor in choosing model frameworks.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In addition, my feeling is that historically the impressive possibility brought to light by the OG models was that an economy &lt;em&gt;could&lt;/em&gt; be &quot;&lt;strong&gt;dynamically inefficient&lt;/strong&gt;&quot; (=being characterized by over-accumulation of capital). After some empirical studies provided evidence that the main western economies did not appear to over-accumulate capital, there was perhaps an impression that the model, while structurally more realistic, had not &quot;that much to offer&quot; to compensate for its added complexity...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Not so, according to Philipe Weil, who celebrated the model's first 50 years of existence in the paper&#xA;&lt;a href=&quot;https://www.aeaweb.org/articles.php?doi=10.1257/jep.22.4.115&quot; rel=&quot;nofollow&quot;&gt;Weil, Philippe. 2008. &quot;Overlapping Generations: The First Jubilee.&quot; Journal of Economic Perspectives, 22(4): 115-34.&lt;/a&gt;  (freely downloadable).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The paper is an enjoyable non-technical read, full of compacted information, knowledge and insights.  A quote (bold my emphasis):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;Samuelson’s stroke of genius was to construct a model that makes economies in which the first welfare theorem always holds, absent&#xA;  externalities and distortions, look like quite a special case. It is&#xA;  hard to escape the conclusion that the features of the overlapping&#xA;  generations model are the norm, rather than the exception: after all,&#xA;  can we seriously argue, &lt;strong&gt;once we understand what “new” means&lt;/strong&gt;, against&#xA;  the realism of a model that rests entirely on the assumption that “we&#xA;  live in a world where new generations are always coming along?” In&#xA;  that respect, it is not the overlapping generations model, with the&#xA;  wealth of interesting issues it raises and its rich welfare&#xA;  properties, that is a simple toy model, but rather the competing&#xA;  workhorse of modern macroeconomics, the Ramsey–Cass–Koopmans model&#xA;  that assumes that no “new” generation ever comes along as future&#xA;  agents are all part of pre-existing families. Barro’s (1974) famous&#xA;  paper on debt neutrality and Weil (1987) make it clear that such a&#xA;  model emerges only if parents love their children (or future&#xA;  immigrants) enough to leave all of them positive bequests. This&#xA;  condition is very restrictive, and therefore the Ramsey model, with&#xA;  its long-run interest rate that always exceeds the growth rate, is&#xA;  literally quite extraordinary compared to the overlapping generations&#xA;  model.&lt;/em&gt;&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This is the rallying cry -in his paper Weil details many aspects and issues raised by the model, and the insights that it can provide.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-05-07T09:23:40.183" LastActivityDate="2015-05-07T09:23:40.183" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5539" PostTypeId="1" CreationDate="2015-05-07T02:05:48.300" Score="8" ViewCount="373" Body="&lt;p&gt;In &lt;a href=&quot;http://www.thebigquestions.com/2013/05/13/whats-a-bitcoin-worth-wonkish/&quot; rel=&quot;nofollow noreferrer&quot;&gt;this blog post&lt;/a&gt;, economist Steve Landsburg posed a question about the value of Bitcoin which he didn't know the answer to.&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Imagine a future in which Bitcoins (or some other non-governmental&#xA;currency) are widely accepted and easily substitutable for dollars, at&#xA;an exchange rate of (say) &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; dollars per Bitcoin.&lt;/p&gt;&#xA;&lt;p&gt;Then if there are &lt;span class=&quot;math-container&quot;&gt;$M$&lt;/span&gt; dollars and &lt;span class=&quot;math-container&quot;&gt;$B$&lt;/span&gt; bitcoins in circulation, the money&#xA;supply (measured in dollars) is effectively &lt;span class=&quot;math-container&quot;&gt;$M + X B$&lt;/span&gt; .&lt;/p&gt;&#xA;&lt;p&gt;Money demand is presumably &lt;span class=&quot;math-container&quot;&gt;$P D$&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$P$&lt;/span&gt; is the general price level and&#xA;&lt;span class=&quot;math-container&quot;&gt;$D$&lt;/span&gt; depends on things like the volume of transactions and the payment&#xA;habits of the community. (If it helps, we can write &lt;span class=&quot;math-container&quot;&gt;$D = T/V$&lt;/span&gt; where &lt;span class=&quot;math-container&quot;&gt;$T$&lt;/span&gt; is&#xA;the volume of transactions and &lt;span class=&quot;math-container&quot;&gt;$V$&lt;/span&gt; is the velocity of money.)&lt;/p&gt;&#xA;&lt;p&gt;Equilibrium in the money market requires that supply equals demand, so&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$M + X B = P D$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;Now &lt;span class=&quot;math-container&quot;&gt;$M$&lt;/span&gt; is determined by the monetary authorities; &lt;span class=&quot;math-container&quot;&gt;$B$&lt;/span&gt; is&#xA;determined by the Bitcoin algorithm, and &lt;span class=&quot;math-container&quot;&gt;$D$&lt;/span&gt;, as noted above, is&#xA;determined outside the money market.&lt;/p&gt;&#xA;&lt;p&gt;That leaves me with two variables (&lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$P$&lt;/span&gt;) but only one equation.&#xA;What pins down the values of these variables?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;As he suggests in parenthesis, this isn't a problem specific to Bitcoin, it's a general problem for non-governmental currencies that are perfect substitutes for dollars.&lt;/p&gt;&#xA;&lt;p&gt;So does anyone know the answer to Landsburg's question?  Are there any models that shed light on what determines the exchange rate &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; and the price level &lt;span class=&quot;math-container&quot;&gt;$P$&lt;/span&gt; in a situation like this?&lt;/p&gt;&#xA;" OwnerUserId="4447" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2015-05-22T05:03:33.413" Title="What determines the exchange rate of two fiat currencies if the supply of each is known?" Tags="&lt;exchange-rates&gt;&lt;money-supply&gt;&lt;price-level&gt;&lt;cryptocurrency&gt;&lt;bitcoin&gt;" AnswerCount="3" CommentCount="16" ContentLicense="CC BY-SA 3.0" />
  <row Id="5541" PostTypeId="1" CreationDate="2015-05-07T10:16:19.860" Score="2" ViewCount="151" Body="&lt;p&gt;I have a time series model:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$y_t = \sigma_t \epsilon_t$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\sigma_t = w + \gamma|y_{t-1}|$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where $\epsilon_t$ are i.i.d normally distributed with mean zero and variance one. Suppose t = $0, ±1, ±2, ±3, \ldots$ and that the process $y_t$ is weakly and strongly stationary.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;a) What restrictions on the parameters w and $\gamma$ seem sensible? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;b) Calculate $E|y_t|$ assuming that this quantity is finite, noting that $E|\epsilon_{t-1}| = \sqrt{\frac{2}{\pi}}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(c) Write $|y_t|$ as an AR(1) process and hence calculate the autocorrelation function of absolute returns:&#xA;$$p_j = \frac{cov(|y_t|, |y_{t-j}|)}{cov(|y_t|, |y_{0}|)}$$&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;So for (a) I feel like: $\gamma \in [0, 1)$ should be reasonable as we expect periods of high-volatility to cluster. Do we need to assume w &gt; 0 for a positive standard deviation? I think these make a difference on the answer for b:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ E|y_t| = E[|\sigma_t \epsilon_t|] = E[|\sigma_t| |\epsilon_t|]$$&#xA;$$ \text{as they are independent:} $$&#xA;$$ = E[|\sigma_t|] E[|\epsilon_t|] = E[|w + \gamma|y_{t-1}||]\sqrt{\frac{2}{\pi}}$$&#xA;$$ \text{as we assumed w and $\gamma$ are positive:}$$&#xA;$$ = E[w + \gamma|y_{t-1}|]\sqrt{\frac{2}{\pi}} = \{w + \gamma E[|y_{t-1}|]\}\sqrt{\frac{2}{\pi}} $$&#xA;$$ \text{as we have a weakly stationary series:}$$&#xA;$$ E|y_t| = \{w + \gamma E[|y_{t}|]\}\sqrt{\frac{2}{\pi}} \implies E|y_t| = \frac{w\sqrt{\frac{2}{\pi}}}{1 - \gamma \sqrt{\frac{2}{\pi}}} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this right or have I done some hocus pocus?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For (c) I'm stuck:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I get $|y_t| = \{w + \gamma |y_{t-1}|\}|\epsilon_t|$ but can't make anything useful out of the covariance.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help is much appreciated. I'm not too familiar with ARCH/GARCH models.&lt;/p&gt;&#xA;" OwnerUserId="4515" LastActivityDate="2015-05-07T12:08:55.953" Title="ARCH Model - Expectation of Absolute Value" Tags="&lt;finance&gt;&lt;time-series&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5542" PostTypeId="5" CreationDate="2015-05-07T11:07:00.180" Score="0" Body="&lt;p&gt;Mathematical economics is the application of mathematical methods to represent theories and analyze problems in economics. By convention, the applied methods refer to those beyond simple geometry, such as differential and integral calculus, difference and differential equations, matrix algebra, mathematical programming, and other computational methods.&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2015-05-07T11:07:00.180" LastActivityDate="2015-05-07T11:07:00.180" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5543" PostTypeId="4" CreationDate="2015-05-07T11:07:00.180" Score="0" Body="The application of mathematical methods to represent theories and analyze problems in economics." OwnerUserId="108" LastEditorUserId="108" LastEditDate="2015-05-07T11:07:00.180" LastActivityDate="2015-05-07T11:07:00.180" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5544" PostTypeId="2" ParentId="5541" CreationDate="2015-05-07T12:08:55.953" Score="1" Body="&lt;p&gt;I don't believe $w&amp;gt;0$ is necessary or sufficient to get a positive standard deviation everywhere. I think you need $\sigma_0 \geq 0$ and $w\geq 0$ with one of the two inequalities strict.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If $\gamma  &amp;gt; 1$ then the series $\sigma$ will grow explosively if $w + \gamma \cdot \sigma_{t-1}  &amp;gt;0$ or behave explosively harmonic if $w + \gamma \cdot \sigma_{t-1} &amp;lt;0 $. Neither of those seems particularly desirable most for economic situations. &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2015-05-07T12:08:55.953" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5545" PostTypeId="2" ParentId="3340" CreationDate="2015-05-07T15:08:18.777" Score="6" Body="&lt;p&gt;A leader-leader Stackelberg is a situation in the Stackelberg model where both firms believe they are leaders. This leads to global production being much higher than expected by both firms, as they anticipate small production by the other firm in response to their high production.&lt;/p&gt;&#xA;" OwnerUserId="4578" LastActivityDate="2015-05-07T15:08:18.777" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5546" PostTypeId="2" ParentId="3163" CreationDate="2015-05-07T15:37:42.367" Score="0" Body="&lt;p&gt;One technical straightforward definition could be that dynamics in discrete time (except continuous time overlapping generations model) are often more difficult to deal with. &lt;/p&gt;&#xA;" OwnerUserId="2938" LastActivityDate="2015-05-07T15:37:42.367" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5547" PostTypeId="2" ParentId="3340" CreationDate="2015-05-07T15:38:23.730" Score="3" Body="&lt;p&gt;The original Stackelberg game is an asymmetric duopoly: Firm 1 takes on the role of leader, while Firm 2 takes on the role of follower. Firm 2 will follow her reaction curve. Firm 1 will observe the follower's reaction curve and choose the point which is best for him. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are some variations of this game, if both players are followers then you have a Cournot game. If both players believe themselves to be the leader, then neither one will be successful at following the strategy above. This is a leader-leader game, and it will lead to a Stackelberg disequilibrium. The leader-leader model will require both firms to start with incorrect assumptions about each other, and it will lead to non-optimal output in the market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a multi-stage game: as rational players, the firms will revise their expectations. As a result either one will take the role of follower, or a firm will exit the market, making the remaining leader a monopoly. &lt;/p&gt;&#xA;" OwnerUserId="2674" LastEditorUserId="2674" LastEditDate="2015-05-07T16:16:29.900" LastActivityDate="2015-05-07T16:16:29.900" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5548" PostTypeId="1" CreationDate="2015-05-07T15:46:36.497" Score="9" ViewCount="218" Body="&lt;p&gt;Consider the standard Diamonds coconut economy. One could imagine that people who search longer, have a different likelihood of matching someone to trade with.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Has there been something done akin this (in any part of matching theory)? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Second Example&lt;/strong&gt; Say, we want to match liver transplants between donors $d$ and recipients $r$. The longer anyone waits, the higher the likelihood of being matched with someone from the other side.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence, we would have a distribution of $r$ and $d$ w.r.t the time that they have already been waiting. And instead of an aggregate matching function $M(r, d)$ we would have something that takes into account these distributions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What has been done in this area so far?&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2016-12-25T18:14:20.320" Title="Matching Theory: Search Time" Tags="&lt;search-and-matching&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5549" PostTypeId="1" AcceptedAnswerId="5554" CreationDate="2015-05-07T15:59:09.207" Score="1" ViewCount="243" Body="&lt;p&gt;Which of the following best explains how an economy can experience stagflation.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Women and teenagers stayed out of the labor force.&lt;/li&gt;&#xA;&lt;li&gt;Negative supply shock cause the factor prices to increase.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Official answer : 2.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My thoughts: While 2 is correct, I think 1 is also correct. the fact the  women and teens stay out of the labor force will increase the wage and thus cause the supply curve to shift to the left and thus cause stagflation. Am I wrong?&lt;/p&gt;&#xA;" OwnerUserId="4551" LastEditorUserId="43" LastEditDate="2015-05-07T19:00:18.833" LastActivityDate="2015-05-07T19:05:16.560" Title="Stagflation and the Labor Force" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="5550" PostTypeId="1" CreationDate="2015-05-07T17:19:11.327" Score="1" ViewCount="1121" Body="&lt;p&gt;If, at full employment, the government wants to increase its spending by 100 billion without increasing inflation in the short run, it must do which of the following?&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Raise tax by more than 100 billion&lt;/li&gt;&#xA;&lt;li&gt;Raise tax by 100 billion.&lt;/li&gt;&#xA;&lt;li&gt;Raise tax by less than 100 billion.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Official solution:  1. Reason:  If the government does not want to increase inflation, it must increase taxes so that the policies are completely offset.  Remember, changes in government spending have a direct effect, whereas changes in taxes have an indirect effect.  Changes in taxes affect aggregate demand by changing incomes and, thus, consumer spending.  However, people don’t spend all of their income (they do save some portion of it).  Thus, the actual change in consumption is equal to the marginal propensity to consumer (MPC) times the change in taxes.  So, in order for no inflation to occur, the government is going to have to raise taxes by more than the $100 billion (which is the amount that they increased government spending by).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My thought: I think 2. is correct because the saving mentioned in the reasons should are also counted in aggregate demand as they become investment money and will also increase demand with money multiplier.&lt;/p&gt;&#xA;" OwnerUserId="4551" LastActivityDate="2015-05-07T17:19:11.327" Title="Government using tax to cover for spending without increasing inflation" Tags="&lt;macroeconomics&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5551" PostTypeId="1" CreationDate="2015-05-07T17:22:38.707" Score="2" ViewCount="1245" Body="&lt;p&gt;It is stated that saving equals investment. However, suppose the interest rate rises and people save more. However, businesses will borrow less so investment decreases. Hence investment is less than saving now. What happened?&lt;/p&gt;&#xA;" OwnerUserId="4551" LastEditorUserId="405" LastEditDate="2015-05-09T20:56:04.830" LastActivityDate="2015-05-09T20:56:04.830" Title="How do saving and investment work in macroeconomics?" Tags="&lt;macroeconomics&gt;" AnswerCount="2" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="5552" PostTypeId="1" AcceptedAnswerId="5594" CreationDate="2015-05-07T18:27:52.080" Score="7" ViewCount="1311" Body="&lt;p&gt;Suppose I have $n&amp;gt;2$ firms selling differentiated products. These firms form a cartel for the price. The cartel has size $n_c$. Let $\pi_{i,m}$ be the payoff of a firm $i$ outside the cartel and $\pi_{j,c}$ be the payoff of a firm $j$ inside the cartel. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would like to know whether there exists a set of assumptions (a reference to a paper in the literature describing that set of assumptions and relative proofs is sufficient) under which &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For any &lt;strong&gt;firm $j$ outside the cartel&lt;/strong&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(i) entering the cartel is weakly convenient in terms of        profits for any $n_c$, i.e. $\pi_{j,m}(n_c-1)\leq \pi_{j,c}(n_c)$ $\forall n_c$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(ii) the higher is $n_c$ the higher is the profit increase from entering the cartel for any $n_c$, i.e. $\pi_{j,c}(n_c)-\pi_{j,m}(n_c-1)\leq \pi_{j,c}(n_c+1)-\pi_{j,m}(n_c)$ $\forall n_c$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For any &lt;strong&gt;firm $i$ inside the cartel&lt;/strong&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(i) the profit is increasing in $n_c$, i.e. $\pi_{i,c}(n_c-1)\leq \pi_{i,c}(n_c)$ $\forall n_c$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(ii) the higher is $n_c$ the higher is the profit increase from letting someone else entering the cartel, i.e. $\pi_{i,c}(n_c)-\pi_{i,c}(n_c-1)\leq \pi_{i,c}(n_c+1)-\pi_{i,c}(n_c)$ $\forall n_c$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;All inequalities could hold also strictly.&lt;/p&gt;&#xA;" OwnerUserId="1505" LastEditorUserId="1505" LastEditDate="2015-05-08T10:06:23.517" LastActivityDate="2015-05-10T15:32:15.740" Title="Benefits of a cartel among firms" Tags="&lt;microeconomics&gt;&lt;game-theory&gt;&lt;markets&gt;&lt;monopoly&gt;&lt;competition&gt;" AnswerCount="1" CommentCount="5" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="5553" PostTypeId="2" ParentId="5551" CreationDate="2015-05-07T18:48:56.257" Score="0" Body="&lt;h3&gt;Are prices exogenous?&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;You assumed an exogenous shift in the interest rate. Typically, prices are endogenous in Macroeconomics (and the interest rate is nothing but the price of capital). Absent frictions, prices adjust such that supply equals demand. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;That is exactly why your thought experiment doesn't make much sense in the very stylized model: Suppose we somehow raise the interest rate, then supply does not equal demand anymore (unless there is storage, see below). Hence, the &lt;a href=&quot;http://en.wikipedia.org/wiki/Walrasian_auction&quot; rel=&quot;nofollow&quot;&gt;Walrasian auctioneer&lt;/a&gt; will decrease the interest rate until supply equals demand again - the original point.&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Can there be exogenous shocks to prices?&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;In a more sophisticated world, exogenous factors such as monetary policy affect the interest rate. Why? Well, because actually savings needn't be investment. For example, if households just hold cash at home and do not spend it, that is savings (defined as income minus consumption), but it is not invested. Similar stories hold for banks that hold cash (or store their money at their central bank).&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-05-07T18:48:56.257" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="5554" PostTypeId="2" ParentId="5549" CreationDate="2015-05-07T18:58:01.610" Score="2" Body="&lt;p&gt;&lt;a href=&quot;http://en.wikipedia.org/wiki/Stagflation&quot; rel=&quot;nofollow&quot;&gt;&lt;strong&gt;Definition&lt;/strong&gt;&lt;/a&gt; &lt;em&gt;In economics, stagflation, a portmanteau of stagnation and inflation, is a situation where the inflation rate is high, the economic growth rate slows down, and unemployment remains steadily high.&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Stagflation hence requires a high unemployment rate. The unemployment rate can be defined as &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ u = \frac{U}{POP}\\&#xA;u =\frac{U}{LF} &#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Direct increase of unemployment?&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;that is, either the number of unemployed over population (more common) or over the labor force. Removing women and teens from the labor force does not affect anything in the first definition, and decreases the unemployment rate by the second definition.&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Indirect increase of unemployment?&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;As stagflation requires a high unemployment rate, reducing the labor force size cannot directly create stagflation. Your only argument could then be that a reduced labor force somehow leads to a higher unemployment rate. Most likely, this is orthogonal. Equilibrium unemployment is a composite of frictional unemployment and voluntary unemployment. I cannot think of a reasonable argument why a reduction of the labor force should increase the relative share of either of these (unless of course, voluntary unemployment is higher among men than women, which is false).&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Level effects and growth rate effects&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;Even more importantly, there is an important distinction between shocks to the level versus shocks to the growth rate. To the extent that - after women and teens have left - the growth rate of the labor force is the same as before, long term effects are negligible. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a world with exponential growth, a shock to the level is - in the long run - negligible, as we will catch up quite quickly. A shock to the growth rate however, is permanent. Of course, &quot;&lt;em&gt;in the long run&lt;/em&gt;&quot; is relative, but there is some idea of persistence behind stagflation. An exit of women from the labor force would, in my opinion, cause a sudden drop in output, but &lt;em&gt;would not affect growth rates&lt;/em&gt;.&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2015-05-07T19:05:16.560" LastActivityDate="2015-05-07T19:05:16.560" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="5555" PostTypeId="2" ParentId="4956" CreationDate="2015-05-07T19:25:26.910" Score="7" Body="&lt;p&gt;Actual availability of regressors may be an issue here, but if all four mentioned variables are available, the situation is as @Michael mentioned in a comment:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since $X_2$ is correlated with $Y$, it should be included in the regression specification as a &quot;control&quot;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Y = \beta_0 + \beta_1X_1 + \beta_2X_2 + u$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is intuitive, but it also takes care of the technical aspect.&#xA;Then since $X_2$ is endogenous, i.e we have ${\rm Cov}(X_2,u) \neq 0$, but we have an instrument that is not correlated with the error term $u$ &lt;em&gt;since $X_2$ has been included in the specification&lt;/em&gt;, we end up with&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Y=\beta_0 + \beta_1Z + \beta_2X_2 + u$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;for which the OLS estimator will be asymptotically consistent, since (writing $\mathbf W = [1:Z:X_2]$)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \hat \beta = \beta + \left (\mathbf W'\mathbf W\right)^{-1}\mathbf W' \mathbf u$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and its consistency will depend on the following probability limit being zero&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$${\rm plim}\mathbf W' \mathbf u ={\rm plim} \left[\begin{matrix} &#xA;\frac 1n\sum u_i\\&#xA;\frac 1n\sum Z_iu_i\\&#xA;\frac 1n\sum X_{2i}u_i\\&#xA;\end{matrix}\right] \rightarrow  {\rm plim} \left[\begin{matrix} &#xA;\frac 1n\sum E(u_i)\\&#xA;\frac 1n\sum E(Z_iu_i)\\&#xA;\frac 1n\sum E(X_{2i}u_i)\\&#xA;\end{matrix}\right]= \left[\begin{matrix} &#xA;0\\&#xA;0\\&#xA;0\\&#xA;\end{matrix}\right]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;holds because both $Z$ and $X_2$ are orthogonal/uncorrelated to the error term $u$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words, the fact that the regressors $X_2$ and $Z$ are correlated with each other does not create any problem (as long as of course the co-linearity between them is not near-perfect), on the contrary it more generally justifies including both in the regression specification, making it &quot;multiple regression&quot; -it exists exactly for such cases.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2016-03-01T16:07:09.993" LastActivityDate="2016-03-01T16:07:09.993" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="5557" PostTypeId="1" CreationDate="2015-05-07T19:59:04.043" Score="9" ViewCount="9818" Body="&lt;p&gt;It used to be (and perhaps still is) standard to teach in economics classes that the nominal interest rate cannot possibly be negative. So why have some nominal interest rates gone negative?&lt;/p&gt;&#xA;&lt;p&gt;This includes not just interest rates on electronic reserves but also on government bonds.&lt;/p&gt;&#xA;&lt;p&gt;Interest rates (1990-2020) of 10-year government bonds for &lt;a href=&quot;https://fred.stlouisfed.org/series/IRLTLT01CHM156N&quot; rel=&quot;nofollow noreferrer&quot;&gt;Switzerland&lt;/a&gt;:&lt;/p&gt;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/FNWEX.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/FNWEX.png&quot; alt=&quot;enter image description here&quot; /&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&lt;p&gt;&lt;a href=&quot;https://fred.stlouisfed.org/series/IRLTLT01DEM156N&quot; rel=&quot;nofollow noreferrer&quot;&gt;Germany&lt;/a&gt;:&lt;/p&gt;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/KCKoZ.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/KCKoZ.png&quot; alt=&quot;enter image description here&quot; /&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&lt;p&gt;&lt;a href=&quot;https://fred.stlouisfed.org/series/IRLTLT01DKM156N&quot; rel=&quot;nofollow noreferrer&quot;&gt;Denmark&lt;/a&gt;:&lt;/p&gt;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/dyXBD.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/dyXBD.png&quot; alt=&quot;enter image description here&quot; /&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&lt;p&gt;&lt;a href=&quot;https://fred.stlouisfed.org/series/IRLTLT01SEM156N&quot; rel=&quot;nofollow noreferrer&quot;&gt;Sweden&lt;/a&gt;:&lt;/p&gt;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/813TB.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/813TB.png&quot; alt=&quot;enter image description here&quot; /&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;Related questions:&lt;/p&gt;&#xA;&lt;p&gt;The Swiss 10-year interest rate fell to as low as -0.975% in August 2019. I believe this means that if someone bought Fr 100M of these bonds, then in 10 years' time, they'd have lost Fr 9.75M and get back only Fr 90.25M.&lt;/p&gt;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Is it possible/plausible that the cost of storing Fr 100M in cash for 10 years exceeds Fr 9.75M (about US$11M)?&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;And even if storing cash were really so costly, why don't the holder(s) of Fr 100M have alternatives to buying Swiss government bonds? For example why aren't there banks that would gladly take those 100M as deposits at say -0.5% interest rate?&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerDisplayName="user18" LastEditorDisplayName="user18" LastEditDate="2021-01-31T02:44:58.047" LastActivityDate="2021-01-31T02:44:58.047" Title="How can nominal interest rates be negative?" Tags="&lt;interest-rate&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="5558" PostTypeId="2" ParentId="3346" CreationDate="2015-05-07T20:06:46.780" Score="4" Body="&lt;p&gt;It is my impression that it is &quot;&lt;strong&gt;bean-bricks&lt;/strong&gt;&quot; and it is not a book but a paper/essay under the title &lt;strong&gt;&quot;The long-range economic effects of automation&quot;&lt;/strong&gt;, which was included in the book&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://HERBERT,%20A.%20S.%20(1965).%20The%20Shape%20of%20Automation%20for%20Men%20and%20Management.&quot; rel=&quot;nofollow&quot;&gt;HERBERT, A. S. (1965). The Shape of Automation for Men and Management.&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Go to the &lt;a href=&quot;http://digitalcollections.library.cmu.edu/portal/index.jsp&quot; rel=&quot;nofollow&quot;&gt;on-line digital library of Carnegie Mellon University&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and enter in the search &quot;The Economic Effects of Automation&quot; (without the &quot;long-range&quot; part). It (freely) downloads what appears to be a first version of the work (20 pages). The file may appear to not be a .pdf one, but I opened it with .pdf software alright.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;At the end of page 9 Simon writes:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;In our hypothetical economy, only a single commodity, which we shall call &lt;strong&gt;beanbricks&lt;/strong&gt;, is produced. Beanbricks serve both as the sole&#xA;  consumption good (they are eaten), and as the sole form of capital&#xA;  (they are burned as fuel used in producing more beanbricks). The other&#xA;  productive resource in the economy, besides beanbricks, is labor&quot;.&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It does look like it is the first time Simon uses the term (the file is a scanned copy of Simon's manuscript).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;P.S:&lt;/strong&gt; Note that standard economic models of growth essentially assume exactly the same framework, since output is costlessly transformed into capital or becomes consumption.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-05-07T20:14:52.593" LastActivityDate="2015-05-07T20:14:52.593" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5559" PostTypeId="2" ParentId="5539" CreationDate="2015-05-08T00:16:23.140" Score="-4" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;That leaves me with two variables ($X$ and $P$) but only one equation. What pins down the values of these variables?&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;If Bitcoins are accepted as payment medium to &lt;em&gt;all transactions where USD is also accepted&lt;/em&gt; (always speaking for one national economy), as Landsburg's scenario asks us to imagine, then, it &lt;em&gt;must&lt;/em&gt; be the case that Bitcoin enjoys the exact same credibility like USD. If this is so, then their exchange rate cannot be anything else than unity.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I feel equally safe in accepting Bitcoins and USD (safe as regards what can I do with Bitcoins), why should I ever accept an exchange rate different than unity? The moment I demand a different exchange rate than unity, it implies that the risk profiles of the two currencies are no longer perceived as being the same (risk profiles in the very broad sense, taking into considerations everything) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's all about expectations then, what we project in the future for these two currencies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This in turn requires modelling: on what foundations does the credibility of USD relies, and on what foundations does Bitcoin credibility relies, and &quot;what we have in mind&quot; for these foundations. This will eventually provide &quot;the missing equation&quot;.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-05-08T00:16:23.140" CommentCount="9" ContentLicense="CC BY-SA 3.0" />
  <row Id="5560" PostTypeId="2" ParentId="4471" CreationDate="2015-05-08T01:10:40.210" Score="11" Body="&lt;p&gt;I'd add a historical perspective to the great answers already given. The data from a very illustrative article &quot;&lt;a href=&quot;http://www.iie.com/publications/wp/wp13-8.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;The Greek Debt Restructuring: An Autopsy&lt;/a&gt;&quot; by Jeromin Zettelmeyer, Christoph Trebesch, and Mitu Gulati.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;The private creditors would bear the losses if Greece defaulted before March 2012&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;These organizations held the Greek debt by 2011:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/mJYE3.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;The debt became public in March-April 2012&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Zettelmeyer et al.:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;After a €200 billion debt exchange in March/April 2012 and a buyback&#xA;  of a large portion of the newly exchanged sovereign bonds in December,&#xA;  the amount of Greek bonds in the hands of private creditors was down&#xA;  to just €35 billion—just 13 percent of where it had stood in April&#xA;  2010, when Greece lost access to capital markets.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/QyDvN.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;The citizens of the EU would pay the bill now&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/e5Vp1.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;" OwnerUserId="240" LastActivityDate="2015-05-08T01:10:40.210" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5561" PostTypeId="1" AcceptedAnswerId="5572" CreationDate="2015-05-08T01:15:20.637" Score="5" ViewCount="202" Body="&lt;p&gt;I am having difficulty with a particular bliss point problem. The basic issue I have is my approaches seem flawed and I can't tell why. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The equation is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U(x,y) = 36x -4x^2 + 6y-2y^2$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;subject to &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ 5x + 7y=40$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My first instinct was to use the method of Lagrangian multipliers. But I had this on an exam this afternoon and my professor said I shouldn't use it here. I don't understand why. I tried it using &lt;a href=&quot;https://www.wolframalpha.com/input/?i=maximize%2036x-4x%5E2%2B6y-2y%5E2%20in%205x%20%2B%207y%20%3D%2040&quot;&gt;wolfram alpha&lt;/a&gt; and also solved it by hand and got the same results&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$(4.78,2.29)$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;approximately as the optimum bundle. But seemingly this isn't the train of thought I was supposed to use. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I then had another idea. I can solve for $$U_x=U_y=0$$ because at the bliss point you should have MU equal to zero. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{align*}&#xA;36-8x &amp;amp;= 0 \\&#xA;x&amp;amp;=\frac{36}{8}=4.5\\&#xA;6-4y&amp;amp;=0\\&#xA; y&amp;amp;=\frac{6}{4}=1.5&#xA;\end{align*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But this lead to different results than just using TMoLM. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My Question:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can someone explain why TMoLM isn't the right approach? Why does it lead to different results then what my professor suggested and what others have said in the comments?&lt;/p&gt;&#xA;" OwnerUserId="2679" LastEditorUserId="2679" LastEditDate="2015-05-08T15:02:06.307" LastActivityDate="2015-05-09T00:12:33.843" Title="Why can't I use TMoLM for this bliss point problem?" Tags="&lt;consumer-theory&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="5562" PostTypeId="2" ParentId="5557" CreationDate="2015-05-08T03:21:29.333" Score="4" Body="&lt;p&gt;In banking, Rule 0 always applies: The central bank can do whatever it wants.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is no reason per se, why the nominal interest rate can't be &amp;lt; 0 for short periods, and there have been several incidents across Europe in the last few years, where this has impacted consumer loans. The typical mechanism was that a bank linked a loan's interest rate to the central bank rate minus some percentage for the first few years of the loan to attract business, and didn't consider that the central banks might lower their interest rate low enough that this would put them in negative territory. Absent that kind of carelessness, it's reasonable to assume that banks won't voluntarily put themselves in this position.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As to why the central banks in question are doing this. The logic of interest rates as applied to liquidity/reserve holdings is not always the same as that for other money in the system, as this money also plays a regulatory and mechanical role within the entire banking system. On the central bank's balance sheet, a negative interest rate not only means that the deposit owner get's less back than they deposited, it also means that the central bank must deduct the negative interest rate from their interest income. i.e. it acts to reduce total liquidity in that country's banking system.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Within the Eurozone we can speculate that the central banks are trying it as a method to reduce imbalances across the Euro-zone as more money is received by some central banks in inter-bank payments than they originate. Switzerland on the other hand, is believed to be trying to discourage the use of its currency as a store of value.&lt;/p&gt;&#xA;" OwnerUserId="84" LastActivityDate="2015-05-08T03:21:29.333" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5563" PostTypeId="1" AcceptedAnswerId="5658" CreationDate="2015-05-08T09:59:43.723" Score="6" ViewCount="255" Body="&lt;p&gt;In &quot;Section IV Shopping&quot; of Kőszegi / Rabin (A model of reference-dependent preferences, QJE 2006), the example of consumer buying a pair of shoes is given.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;They claim that &quot;her disutility from spending on the shoes is between $(1+\eta)p$ and $(1+ \eta \lambda)p$&quot; (p. 1146).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How do they get this result?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can see where the second term comes from, namely buying at $p$ when expectations were to buy at 0, which generates money-related utility of&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ -p - \eta \lambda p = - (1+\eta \lambda) p$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But the first term is beyond me: If she buys at $p$, but expected to buy at some $p' &amp;gt; p$, I would obtain&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ - p + \eta(p' - p) = -(1+\eta)p + \eta p' $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which is not the same as the $(1+\eta)p$ stated in the paper.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What am I missing here? Thank you.&lt;/p&gt;&#xA;" OwnerUserId="4619" LastEditorUserId="11590" LastEditDate="2019-03-21T15:17:47.747" LastActivityDate="2019-03-21T15:17:47.747" Title="Shopping example in Kőszegi / Rabin (2006)" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;consumer-theory&gt;&lt;loss-aversion&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5564" PostTypeId="1" AcceptedAnswerId="5569" CreationDate="2015-05-08T13:44:21.713" Score="1" ViewCount="61" Body="&lt;p&gt;We have a population of people with different age $a$, time is indexed with $t$. There is a rate at which people die, $d(a, t)$. For simplicity, ignore births. I want to compute the evolution of the distribution of ages over time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $m(a, t)$ denote the mass of people at age $a$ and point in time $t$. I will start with a discrete time approximation and let $\Delta$ go to zero. At each discrete point in time,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ m(a+\Delta, t+\Delta) = (1-P(a, t))m(a, t)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $P(a, t) = exp(-d(a,t)\Delta)$ is the discrete time analogue of $d(a,t)$. As I'm going to let $\Delta\to 0$, I can approximate $P$ with $(1-\Delta d)$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ m(a+\Delta, t+\Delta) = \Delta d(a,t)m(a, t)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Issue&lt;/strong&gt; Already here I'm having trouble understanding what happened: $\Delta d(a,t)$ denotes the mass of people who died during $\Delta$ at age $a$ and time $t$. Shouldn't this be &lt;strong&gt;negatively&lt;/strong&gt; affecting the mass of people alive? I was expecting something along the lines of &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ m(a+\Delta, t+\Delta) = (1- \Delta d(a,t))m(a, t)$$&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2015-05-08T19:38:30.173" LastActivityDate="2015-05-08T19:41:33.510" Title="Computing the continuous time survival rate" Tags="&lt;mathematical-economics&gt;&lt;continuous-time&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="5565" PostTypeId="1" AcceptedAnswerId="5925" CreationDate="2015-05-08T14:22:00.000" Score="10" ViewCount="264" Body="&lt;p&gt;The concept of evolutionary game theory has been around for about forty years. The mathematical details are worked out quite well. Yet this discipline is usually a side note in game theory classes and is seldom applied in economics research. Have there been any papers in this field that are considered influential in economics?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To clarify: &lt;br&gt; There are a lot of papers about the connection of game theory and evolutionary game theory, but only a few that seek to apply evolutionary game theory to explain some economic phenomenon.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know of &lt;a href=&quot;https://homepage.univie.ac.at/Ana-Begona.Ania-Martinez/ems.pdf&quot; rel=&quot;noreferrer&quot;&gt;this&lt;/a&gt; paper by Vega-Redondo and &lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/0167268189900759&quot; rel=&quot;noreferrer&quot;&gt;this&lt;/a&gt; paper by Schaffer.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2015-06-02T16:32:50.507" LastActivityDate="2015-06-02T16:32:50.507" Title="Are there papers in evolutionary game theory that are influential in economics?" Tags="&lt;game-theory&gt;&lt;reference-request&gt;" AnswerCount="1" CommentCount="5" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5566" PostTypeId="1" AcceptedAnswerId="5567" CreationDate="2015-05-08T14:29:31.107" Score="8" ViewCount="581" Body="&lt;p&gt;Has evolutionary game theory ever been used to successfully describe an ecosystem or a reasonably closed subsystem of the economy? A frequently used example is about &lt;a href=&quot;http://news.ucsc.edu/2010/02/3544.html&quot;&gt;side-blotched lizards&lt;/a&gt; but I don't know of any others. And has it ever been proven that in this case the main factor is really relative fitness of strategies and not some other factor, such as the dynamics of gene recombination?&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2015-05-08T16:32:43.770" LastActivityDate="2015-05-08T19:46:37.730" Title="Is evolutionary game theory a useful modelling tool?" Tags="&lt;game-theory&gt;" AnswerCount="2" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="5567" PostTypeId="2" ParentId="5566" CreationDate="2015-05-08T15:14:09.123" Score="10" Body="&lt;p&gt;You're looking at it from a particularly biological point of view. I know nothing of side-blotched lizards, but I can say that evolutionary game theory is often used for equilibrium selection. In games with more than one equilibrium (whether it be Nash or otherwise), evolutionary game theory can allow us to select a particular equilibrium that is a better prediction than others in that a population is, in some sense, &lt;em&gt;more likely&lt;/em&gt; to reach it and stay there than it is to reach and stay at other equilibria. Have a look at &lt;em&gt;&lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0262195879&quot;&gt;Population Games and Evolutionary Dynamics&lt;/a&gt;&lt;/em&gt; by William H. Sandholm if you want to see more of how economists use evolutionary game theory. What your question gets at is really more about creating a model with evolution to describe an ecosystem rather than evolutionary game theory, though the two are not unrelated.&lt;/p&gt;&#xA;" OwnerUserId="48" LastActivityDate="2015-05-08T15:14:09.123" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5568" PostTypeId="2" ParentId="4471" CreationDate="2015-05-08T16:00:58.967" Score="2" Body="&lt;p&gt;The answer is above. One important point to note that the other contributers missed is the effect of a default on derivative markets and greek corporations. Greek corporations credit ratings are heabily affected by the rating of the Greek Goverment. If Greece defaults or &lt;strong&gt;defaults&lt;/strong&gt; on a payment (misses or restructures) their credit rating will be stronly negativley affected. This is likely to have a knock-on effect to greek corporation which will be negativley affected as well. Finally, if the greek goverment is defaulting on foreign obligations, it is likely that local obligations will not be met either (local goverment contractors, pensions etc.). This would harm the greek economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In terms of derivatives and financial markets many instruments such as greek goverment CDS (Credit Default Swaps - essentially a contract where one side pays the other if greece defaults by a certain time) would be triggered or affected by a default.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So to answer your question - in addition to the holders of the actual debt described above by other commentators - a lot of people would 'pay for it' while the owners of CDSs would benefit.&lt;/p&gt;&#xA;" OwnerUserId="4598" LastEditorUserId="1601" LastEditDate="2016-05-12T05:17:39.870" LastActivityDate="2016-05-12T05:17:39.870" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5569" PostTypeId="2" ParentId="5564" CreationDate="2015-05-08T18:06:18.960" Score="2" Body="&lt;p&gt;I think the step&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;...where $P(a, t) = exp(-d(a,t)\Delta)$ is the discrete time analogue of $d(a,t)$...&quot;&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;is the problem.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In continuous time I guess we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\dot m(a,t) = -d(a,t)m(a,t) \implies m(a,t) = m_0\exp \{-d(a,t)t\}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We then have, discretizing,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {m(a,t+\Delta) - m(a,t)}{m(a,t)} = \frac {\exp \{-d(a,t)(t+\Delta)\}-\exp \{-d(a,t)t\}}{\exp \{-d(a,t)t\}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$=\exp \{-d(a,t)\Delta\}-1 \approx -d(a,t)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies d(a,t) \approx 1-\exp \{-d(a,t)\Delta\}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So it should be $P(a, t) = 1-\exp(-d(a,t)\Delta)$. Now $a$ changes exactly in the same way as $t$ does (at $t+\Delta$ those of age $a$ at $t$ will be of age $a+\Delta$). So $m$ changes in both arguments together.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$m(a+\Delta, t+\Delta) = (1-P(a, t))m(a, t) = \exp(-d(a,t)\Delta m(a, t)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\approx [1-d(a,t)\Delta]m(a, t)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand the left hand side as &quot;the people that were of age $a$ at time $t$, and are still alive at time $t+\Delta$, where they have become of age $a+\Delta$. Is this what you are after?&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-05-08T19:41:33.510" LastActivityDate="2015-05-08T19:41:33.510" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5570" PostTypeId="2" ParentId="5566" CreationDate="2015-05-08T19:46:37.730" Score="-5" Body="&lt;p&gt;Didnt Prof Robert Auman win the Knoble Prize for Game Theory in 2005? I think that he used it in an economic scenario. Look him up.&lt;/p&gt;&#xA;" OwnerUserId="4622" LastActivityDate="2015-05-08T19:46:37.730" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="5571" PostTypeId="1" CreationDate="2015-05-08T19:46:55.803" Score="7" ViewCount="321" Body="&lt;p&gt;We have a population of people with different age $a$, time is indexed with $t$. There is a rate at which people die, $d(a, t)$. For simplicity, ignore births. I want to compute the evolution of the distribution of ages over time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Denote the mass of people at or below age $a$ by $F(a,t)$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ F(a,t) = \int_0^{a} m(\tilde a,t) d\tilde a $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Ultimately, I am after some Kolmogorov forward equation&lt;/strong&gt;, that is, the solution for &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \partial_t F(a,t)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My approach&lt;/strong&gt; Let $f(a, t)$ denote the density of people at age $a$ and point in time $t$. I will start with a discrete time approximation and let $\Delta$ go to zero. At each discrete point in time,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ f(a+\Delta, t+\Delta) = (1-P(a, t))f(a, t)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $P(a, t)$ is the discrete time analogue of $d(a,t)$. As I'm going to let $\Delta\to 0$, I can approximate $1-P$ with $1-\Delta d)$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ f(a+\Delta, t+\Delta) = (1- \Delta d(a,t))f(a, t)\\&#xA;\frac{f(a+\Delta, t+\Delta) -f(a,t)}{\Delta} = -d(a,t))f(a, t)\\&#xA;(\partial_t + \partial_a)f(a,t) = \lim_{\Delta\to 0}\frac{f(a+\Delta, t+\Delta) -f(a,t)}{\Delta} = -d(a,t))f(a, t)\\&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can integrate both sides w.r.t. a and get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \partial_t F(t, a) = - f(t, a) - \int q(t, a) f(t, a) da \\&#xA;\partial_t F(t, a) = - \partial_a F(t, a) - \int q(t, a) \partial_a F(t, a) da $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know that $\partial_a q(t, a) = q(t, a) (1-q(t, a))$. However, that doesn't really help me with solving the integral. Is there perhaps another angle to attack this problem? Or did I miss something?&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2015-05-13T21:30:02.100" LastActivityDate="2015-05-18T17:56:10.397" Title="Compute evolution of a distribution over time" Tags="&lt;mathematical-economics&gt;&lt;continuous-time&gt;" AnswerCount="1" CommentCount="10" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5572" PostTypeId="2" ParentId="5561" CreationDate="2015-05-08T23:57:05.673" Score="6" Body="&lt;p&gt;It all depends on whether you treat the budget constraint as an &lt;strong&gt;equality&lt;/strong&gt; or &lt;strong&gt;inequality&lt;/strong&gt; constraint. These are two different problems, with two different solutions in this case.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One version of the problem (rewriting the objective in the form suggested by denesp, and dropping the constant, for clarity) is&#xA;\begin{align}&#xA;\max~&amp;amp;-4(x-4.5)^2 -2(y-1.5)^2\\\text{s.t. }&amp;amp;5x+7y=40&#xA;\end{align}&#xA;With this &lt;strong&gt;equality&lt;/strong&gt; constraint, the optimum &lt;em&gt;is&lt;/em&gt; $(x,y)=(4.78,2.29)$ as you found using the method of Lagrange multipliers and Wolfram alpha. It's true that you would prefer consuming less and staying at the bliss point, but if we assume that the budget constraint is an equality then you aren't allowed to consume less.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another version of the problem is&#xA;\begin{align}&#xA;\max~&amp;amp;-4(x-4.5)^2 -2(y-1.5)^2\\\text{s.t. }&amp;amp;5x+7y\leq40&#xA;\end{align}&#xA;with an &lt;strong&gt;inequality&lt;/strong&gt; in the budget constraint. Here, as you point out, it's clear that the optimum is $(x,y)=(4.5,1.5)$, because that's the consumption profile that globally maximizes the utility function (and it obeys the budget inequality). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assuming that the budget constraint is an inequality is usually more appropriate (presuming that you can always &quot;throw away&quot; extra wealth).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When solving constrained optimization problems where some of the constraints are inequalities, we need a generalization of the basic method of Lagrange multipliers called the &lt;a href=&quot;http://en.wikipedia.org/wiki/Karush%E2%80%93Kuhn%E2%80%93Tucker_conditions&quot;&gt;Karesh-Kuhn-Tucker (KKT) conditions&lt;/a&gt;, which has probably not been covered in your course. You can read about this in more detail in the linked wikipedia article, but the basic idea is simple: we can still set up the Lagrangian, where we write the constraint as $g(x,y)=5x+7x-40\leq 0$ and then subtract $\lambda g(x,y)$ from the objective:&#xA;$$\mathcal{L} = -4(x-4.5)^2 -2(y-1.5)^2 - \lambda(5x+7y-40)$$&#xA;We can then equate the partial derivatives to 0 ($\partial\mathcal{L}/\partial x = 0$ and $\partial\mathcal{L}/\partial y=0$) to get two conditions&#xA;\begin{align}&#xA;\frac{\partial\mathcal{L}}{\partial x}&amp;amp;=0 \Longleftrightarrow 8(x-4.5)=-5\lambda\tag{1}\\&#xA;\frac{\partial\mathcal{L}}{\partial y}&amp;amp;=0 \Longleftrightarrow 4(y-1.5)=-7\lambda\tag{2}&#xA;\end{align}&#xA;The question, then, is how to pin down $\lambda$. You're probably used to finding $\lambda$ by seeing which value causes the budget constraint to hold with equality. In this case, however, that implies $\lambda&amp;lt;0$. This is not allowed for an inequality constraint under the KKT conditions, which require $\lambda\geq 0$.** Since $\lambda$ turns out to be the marginal utility of wealth, this constraint is tantamount to saying that more wealth (which &lt;em&gt;relaxes&lt;/em&gt; the inequality) shouldn't hurt us.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The KKT conditions also have a requirement called &lt;strong&gt;complementary slackness&lt;/strong&gt;, which states that either the inequality must bind (holding with equality) at the optimum, or else $\lambda$ must be 0. (Since $\lambda$ measures the &quot;cost&quot; of the constraint, this is logical: if the constraint isn't binding, then the cost must be 0, and it shouldn't be affecting your local optimization problem.) We already saw that if the budget constraint holds with equality, we get $\lambda&amp;lt;0$, which isn't allowed, so complementary slackness implies our only remaining option is $\lambda=0$. Plugging this into (1) and (2) above, we get $(x,y) = (4.5,1.5)$, which is the solution you already found intuitively.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Usually, there is no need in introductory micro to use the full KKT conditions, because we work with utility functions that are monotonic, where you'll always want to exhaust your budget constraint. Simple concave quadratic utility with an interior bliss point, like in this case, is an exception where we need a very simple case of the KKT conditions to do the optimization properly.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;**Note: of course, if we add $\lambda g(x)$ rather than subtract it to the Lagrangian, the signs reverse. I've seen many different conventions, and I'm going with the one that makes $\lambda$ nonnegative. The Wikipedia article uses the opposite convention.&lt;/p&gt;&#xA;" OwnerUserId="405" LastEditorUserId="405" LastEditDate="2015-05-09T00:12:33.843" LastActivityDate="2015-05-09T00:12:33.843" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="5573" PostTypeId="2" ParentId="5539" CreationDate="2015-05-09T01:46:26.043" Score="2" Body="&lt;p&gt;There isn't any good way to rehabilitate the quantity theory when there are other currencies that are &lt;em&gt;perfect&lt;/em&gt; substitutes for dollars - so in that sense, there isn't any answer to Landsburg's question. Indeed, the irrelevance of the quantity theory under perfect substitutability - which has always been theoretically clear - has become a practical reality recently, &lt;a href=&quot;http://research.stlouisfed.org/fred2/graph/?g=1aMa&quot; rel=&quot;nofollow&quot;&gt;as reserves become a perfect substitute for other short-term nominal assets once the nominal interest rate hits zero&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That said, I'd make two points.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;1. Anything less than perfect substitutability rescues the quantity theory.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose we replace the left side of Landsburg's quantity theory equation with the more general form&#xA;$$F(M,XB) = PD$$ where $F$ is a homogenous production function that produces aggregate &quot;monetary services&quot; using money $M$ and bitcoins (with value stated in terms of money) $XB$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Landsburg's equation corresponds to the case of perfect substitutes, $F(M,XB) = M+XB$. In fact, there's another assumption that's implicit in Landsburg's formulation, which is that either $X$ is constant over time or, if $X$ varies, the risk-adjusted expected return on bitcoins relative to money is zero: otherwise, you'd strictly prefer to hold one or the other, whichever gives the highest return, given that they have equal transactional value. I'm going to continue assuming that this assumption holds for simplicity - but keep in mind that in a full-fledged dynamic model, allowing returns to differ and individuals to substitute on this basis might endogenously produce the extra equation that Landsburg seeks.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If money and bitcoins have the same returns, then anyone holding them will want to equate the marginal transactional value of the two, setting $F_M=F_{XB}$. This holds for any relative quantities of $M$ and $XB$ in Landsburg's perfect substitutes formulation, which is why he's struggling, but for general (homogenous) $F$ it will only hold for one ratio $M/XB$ of the two. This will pin down relative demand.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For instance, if $F$ is Cobb-Douglas, with $F(M,XB) = M^\alpha (XB)^{1-\alpha}$, then $F_M = \alpha F/M$ and $F_{XB} = (1-\alpha)F/XB$, and equating the two gives us $M/XB = \alpha/(1-\alpha)$. Suppose $\alpha=1/3$. Then we have $XB = 2M$, and it is trivial to solve for $P$ from $M$ and $D$:&#xA;$$F(M,XB)=PD\Longleftrightarrow M^{1/3} (2M)^{2/3} = PD\Longleftrightarrow P = 2^{2/3}\frac{M}{D}$$&#xA;Cobb-Douglas is just one parameterization I'm using for illustrative purposes, but we'll similarly be able to solve as long as $F$ has a declining marginal rate of substitution between $M$ and $XB$ - which would be true, for instance, if $M$ and $XB$ were &lt;em&gt;almost&lt;/em&gt; perfect substitutes, but not quite. Landsburg's case of perfect substitutes is very much non-generic in this sense: it's probably not true that fiat currency and bitcoins will ever be &lt;em&gt;perfect&lt;/em&gt; substitutes in absolutely every application.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By the way, the idea that two forms of currency combine in an imperfectly substitutable way to provide overall monetary services isn't just something I made up - you can see assumptions like this in the literature in a number of places, like equation (3) in &lt;a href=&quot;http://fmwww.bc.edu/ec-p/wp772.pdf&quot; rel=&quot;nofollow&quot;&gt;Ireland (2011)&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;2. The central bank can pin down the price level in other ways, even without the quantity theory.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The modern view on monetary policy is that what really matters is the central bank's ability to set the short-term interest rate. Traditionally, this has been done by changing the supply of money through open-market operations, but that doesn't need to be the case. Indeed, &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0691010498&quot; rel=&quot;nofollow&quot;&gt;Woodford's canonical text&lt;/a&gt; shows how it is possible to implement monetary policy even in a &quot;cashless&quot; world where there is no demand for money: the central bank simply pays interest on money. (By the way, this result is hard to escape when you try to microfound the &quot;quantity theory&quot; equation by writing down a dynamic, internally consistent model: you realize that the quantity theory operates in general equilibrium via the response of interest rates to money, and that by manipulating interest rates directly we can get the same outcome.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Indeed, we're moving closer to Woodford's hypothetical world all the time: for instance, one of the options for the Fed when it decides to raise interest rates in the coming months will be to push up the rate of interest on reserves, while keeping its expanded balance sheet intact.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From this viewpoint, Landsburg's observation just isn't very relevant. The central bank is dedicated to price stability, and it'll enforce this by adjusting interest rates in response to deviations of inflation from trend. If it can adjust interest rates through the traditional method of adjusting $M$ via open-market operations, great. But if it can't do this (because we live in Landsburg's world of perfect substitutability), then the central bank will just adjust nominal interest rates by changing the interest it pays on reserves, and ultimately accomplish exactly the same thing.&lt;/p&gt;&#xA;" OwnerUserId="405" LastEditorUserId="405" LastEditDate="2015-05-09T02:14:24.010" LastActivityDate="2015-05-09T02:14:24.010" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5574" PostTypeId="2" ParentId="5551" CreationDate="2015-05-09T02:48:31.370" Score="2" Body="&lt;p&gt;Kenny LJ and FooBar already did a great job of clarifying the broader conceptual issue here: in equilibrium, prices don't just increase or decrease without a cause (a shift in supply or demand), and any deviation from the equilibrium price will result in a surplus or deficit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But since you're talking about interest rates, I assume that you're interested in what happens when a central bank changes the interest rate. This is legitimately &lt;em&gt;very&lt;/em&gt; confusing, because at first glance it doesn't &lt;em&gt;seem&lt;/em&gt; like the central bank is affecting either the supply of savings or the demand for investment - and hence, by changing the interest rate, it &lt;em&gt;seems&lt;/em&gt; like the central bank will break the equality of savings and investment. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This isn't true. But it took me years to wrap my head around this, and I suspect that the vast majority of economists would get it wrong if asked to explain it (as evinced, perhaps, that someone as smart as FooBar misfired a little on this point). Indeed, John Taylor - an extremely well-known macroeconomist - recently fell victim to a fallacy here, as Miles Kimball pointed out (&lt;a href=&quot;http://blog.supplysideliberal.com/post/41785783895/contra-john-taylor&quot; rel=&quot;nofollow&quot;&gt;see point 7 here&lt;/a&gt;; as further proof of the difficulty of this topic, I'm not sure that Kimball got it quite right either!). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To clarify, let's split into two cases.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Case 1: flexible prices.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that what really matters for savings and investment is the &lt;em&gt;real&lt;/em&gt; interest rate, which is the nominal interest rate minus expected inflation, while the central bank sets the &lt;em&gt;nominal&lt;/em&gt; interest rate. Suppose that the central bank increases interest rates, and at first suppose that inflation expectations remain constant. Then as you point out, desired savings will increase while desired investment falls. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This means that there will be a glut in the economy: there will be more goods supplied than demanded. How is this resolved? In a world where prices are flexible, the price will fall until inflation expectations &lt;em&gt;rise&lt;/em&gt; exactly enough to offset the central bank's increase in the nominal interest rate, leaving the real interest rate ultimately unchanged (so that desired savings and investment balance again). For instance, if we have a certain expectation of where prices will be next year, then when prices fall today, that fall creates more expected inflation over the next year.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is the neoclassical, flexible price case, and it resolves your paradox in the simplest possible way - by saying that expected inflation will adjust such that real interest rates, and hence the desire to save and invest, are unchanged. But as you can probably guess, this is fairly unrealistic: prices don't always adjust that quickly, and it's counterfactual to say that higher nominal interest rates result in an equal rise in expected inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Case 2: sticky prices.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's suppose that prices are &quot;sticky&quot;, meaning that they don't change in response to events very quickly. This is the kind of assumption made in &quot;New Keynesian&quot; models (and, to some extent, &quot;Old Keynesian&quot; and monetarist models before them). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Indeed, for our purposes, let's suppose that prices are &lt;em&gt;so&lt;/em&gt; sticky that expected inflation is a constant, so that a change in the nominal interest rate translates exactly one-for-one to a change in the real interest rate. (This is not a bad assumption empirically, &lt;a href=&quot;http://www.columbia.edu/~en2198/papers/realrate.pdf&quot; rel=&quot;nofollow&quot;&gt;according to Nakamura and Steinsson&lt;/a&gt;!) This means that we can't use the dodge from before: when the central bank pushes up the nominal interest rate, the real interest rate that matters for the savings/investment market rises too, and it &lt;em&gt;seems&lt;/em&gt; like we should get some kind of disequilibrium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Indeed, if not all sides of the market react right away, something like this might happen. Suppose that in response to an interest rate hike, consumers quickly increase their savings, cutting back consumption, but producers are slow to respond and keep producing the same amount of goods. (Let's ignore the response of desired investment to interest rates, which complicates the story but doesn't change the basic lessons.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then there will be a surplus of unsold goods, which will accumulate as &lt;em&gt;inventories&lt;/em&gt;. This inventory accumulation is a form of investment (e.g. &lt;a href=&quot;http://bea.gov/iTable/iTableHtml.cfm?reqid=9&amp;amp;step=3&amp;amp;isuri=1&amp;amp;903=5&quot; rel=&quot;nofollow&quot;&gt;line 14 in the US national accounts here&lt;/a&gt;), so $S=I$ will continue to hold - but it will hold in a &lt;em&gt;weird&lt;/em&gt; way, where consumers' saving is matched by producers' unintended inventory accumulation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Alternatively, suppose that producers react right away. Then when consumers try to save more and consume less, producers will produce less, and there will be less income earned by workers and capitalists. How will consumers deal with this fall in income? Partly, they'll save less - because it makes less sense to save when your earnings are low relative to their usual level. Partly, though, they'll consume even less - which means that producers make less and incomes fall again, and so on and so on. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is just the &lt;a href=&quot;http://en.wikipedia.org/wiki/Multiplier_%28economics%29&quot; rel=&quot;nofollow&quot;&gt;Keynesian multiplier&lt;/a&gt;, and the process ends when income $Y$ has fallen by $\Delta Y = \Delta S/MPS$, where $\Delta S$ is the initial increase in desired savings and $MPS$ is the marginal propensity to save out of income. At the point, the decrease $MPS\times \Delta Y$ in desired savings from the $\Delta Y$ fall in income precisely offsets the initial increase $\Delta S$ in desired savings arising from the higher interest rate. (If there is an initial fall $\Delta I$ in investment in response to the higher interest rate too, then this becomes $\Delta Y = (\Delta S - \Delta I)/MPS$; and it becomes more complicated still if investment changes in response to income, etc..)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In short, $S=I$ continues to hold because &lt;em&gt;desired savings depends on income&lt;/em&gt; - which you can't see from the simple, partial equilibrium diagram showing S and I relative to the interest rate. Consumption (and therefore income) will eventually fall enough to cause a decline in savings that restores equilibrium.&lt;/p&gt;&#xA;" OwnerUserId="405" LastActivityDate="2015-05-09T02:48:31.370" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5575" PostTypeId="1" AcceptedAnswerId="8565" CreationDate="2015-05-09T03:29:30.737" Score="5" ViewCount="591" Body="&lt;p&gt;I was wondering if there is a classic instrument for minimum wage as there is for schooling or other variables. If so, how does it fares with respect to most established designs like spatial differences &lt;a href=&quot;http://davidcard.berkeley.edu/papers/njmin-aer.pdf&quot;&gt;http://davidcard.berkeley.edu/papers/njmin-aer.pdf&lt;/a&gt; or recent spatial regression discontinuity designs.&lt;br&gt;&#xA;Assume even that one has panel data is it enough to control for its deep lags. &#xA;This is a reference question but if you have your own ideas feel free to post. &lt;/p&gt;&#xA;" OwnerUserId="127" LastActivityDate="2015-10-07T01:28:25.827" Title="Instrumental variables for minimum wage" Tags="&lt;microeconomics&gt;&lt;labor-economics&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5577" PostTypeId="2" ParentId="5557" CreationDate="2015-05-09T04:12:15.383" Score="10" Body="&lt;p&gt;There was only one reason to ever think that nominal interest rates couldn't go negative, which is that the nominal return on both forms of base money (&lt;strong&gt;electronic reserves&lt;/strong&gt;, and &lt;strong&gt;paper currency&lt;/strong&gt;) had a floor of zero -- and investors wouldn't accept a below-zero nominal return when they could get a higher one by holding base money.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But for &lt;strong&gt;electronic reserves&lt;/strong&gt;, there's certainly no practical need for a floor of zero: the central bank can easily pay negative interest on reserves. (For instance, &lt;a href=&quot;http://www.snb.ch/en/mmr/reference/gwd_20150504/source/gwd_20150504.en.pdf&quot;&gt;the Swiss National Bank is now paying -0.75% on most &quot;sight deposits&quot;&lt;/a&gt;, which is their term for electronic bank reserves.) It's quite easy: they just tell the computer to charge a certain amount of interest on reserve accounts, just as they would normally tell it to pay interest.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The potentially serious problem is &lt;strong&gt;paper currency&lt;/strong&gt;, which by its very nature generally pays a nominal interest rate of zero. (If you have a \$5 bill, it will still be worth \$5 in a year - zero nominal interest.) The concern is that if we try to set nominal interest rates below zero, people will just massively switch to paper currency paying 0%, and the traditional financial system would disappear and be replaced by paper.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is where we reach a very important point, which is that &lt;em&gt;return isn't all that matters in an asset&lt;/em&gt;. Other factors, like convenience, play a role as well; different assets are convenient in different ways, and aren't perfect substitutes for each other. This is why in normal times, people are willing to hold paper currency even though it pays less than electronic accounts (because paper is useful in some ways that electronic accounts aren't); inversely, it's why in these abnormal times, when Swiss cash pays more than Swiss deposits, investors don't flock exclusively into cash.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence, when the SNB pays -0.75% on electronic reserves, rates in Swiss-denominated money markets (like &lt;a href=&quot;http://www.snb.ch/en/iabout/stat/statpub/zidea/id/current_interest_exchange_rates&quot;&gt;the SARON overnight rate or LIBOR CHF&lt;/a&gt;) also drop to near -0.75%, and not everyone converts their electronic assets into paper. Indeed, there has been very little response on that front: if you look at &lt;a href=&quot;http://www.snb.ch/ext/stats/balsnb/pdf/deen/A1_Ausweise_der_SNB.pdf&quot;&gt;SNB balance sheet column 16&lt;/a&gt;, banknotes in circulation, it hasn't budged very much thus far since negative rates began in December and the rates fell to 0.75% in January. Again, this is just a matter of imperfect substitutability: paper currency simply doesn't have the same kind of transactional and liquidity value that electronic accounts do. (And then there are the costs and risks of paper currency storage, as mentioned in the article you cite.) This is the feature of the world that wasn't adequately captured, before recent events, in the simple zero lower bound models used by many economists.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The one quasi-mystery, to me, is why banks haven't stockpiled paper. After all, even though an electronic account is more useful than paper to an end user, this doesn't apply to a bank that's already overflowing in electronic reserves. (Indeed, conceivably banks could be large-scale intermediaries here, stockpiling paper to back electronic deposits held by their customers - effectively transforming paper into a more convenient asset.) Yet the quantity of banknotes held by Swiss banks has remained low (&lt;a href=&quot;http://www.snb.ch/en/mmr/reference/gwd_20150504/source/gwd_20150504.en.pdf&quot;&gt;see the 4th column at the bottom of the 2nd page here&lt;/a&gt;). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are two possibilities here. One is that the logistical costs of holding cash are still higher than the 0.75% spread, so that it's still not worthwhile for banks to hoard. Another is that banks &lt;em&gt;could&lt;/em&gt; make a profit by embarking on some large-scale cash hoarding program, but they know that the central bank would quickly get angry and create new rules (like a 0.75% tax on excess cash holdings by banks) to stop this, so they don't bother -- and indeed, maybe there has been under-the-table pressure from the central bank already! &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ultimately, when the government has the authority to regulate financial institutions, it can always disallow organized cash hoarding schemes that threaten the negative interest rate policy, so none of this is a long-term threat. The real issue is cash hoarding by end users - and there, the disadvantages of cash apparently still loom large at -0.75%.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;(One complication, by the way, is that I think banks are generally not charging negative interest on small-scale retail deposits. At least superficially, then, the relevant interest rate isn't negative for the typical consumer; but I suspect that banks are making up the difference by charging fees, etc., which is already necessary to recover their costs even when interest rates are at 0%. For large-scale deposits, on the other hand, &lt;a href=&quot;http://www.ft.com/intl/cms/s/0/d16b13d6-a0d9-11e4-b8b9-00144feab7de.html#axzz3Zbpdgh4U&quot;&gt;banks are charging clients to hold cash&lt;/a&gt; - and, of course, this must be true, since money market rates wouldn't be negative if it was always possible to find some bank that would give you a zero rate.)&lt;/p&gt;&#xA;" OwnerUserId="405" LastActivityDate="2015-05-09T04:12:15.383" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5580" PostTypeId="1" CreationDate="2015-05-09T08:18:08.697" Score="3" ViewCount="75" Body="&lt;p&gt;I won't go into detail of this model because it's really just one point that i'm confused about. This question is based on a model by Matsuyama (2007).&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Agents are deciding whether to invest in a project or not&lt;/li&gt;&#xA;&lt;li&gt;The project gives a payoff of R units of capital&lt;/li&gt;&#xA;&lt;li&gt;R is a random, uniformly distributed variable over the interval [0,1]&lt;/li&gt;&#xA;&lt;li&gt;Agents only decide to&#xA;invest if return on investment &gt; return on saving; let's call this&#xA;cutoff level of capital R*&lt;/li&gt;&#xA;&lt;li&gt;Question: what is the total level of&#xA;capital in this economy?&lt;/li&gt;&#xA;&lt;li&gt;Answer: capital = the integral of R from R*&#xA;to 1.  [1]: &lt;a href=&quot;https://i.imgur.com/daYZz4A.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://i.imgur.com/daYZz4A.png&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I understand that an integral is like a continuous sum... I just don't quite understand how we can just sum of all the R's to obtain the total level of capital? What if all the R's don't actually occur?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you!&lt;/p&gt;&#xA;" OwnerUserId="4627" LastActivityDate="2015-05-09T16:52:38.917" Title="Capital in a credit frictions model" Tags="&lt;macroeconomics&gt;&lt;financial-economics&gt;&lt;investment&gt;&lt;capital-returns&gt;&lt;credit-friction&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5581" PostTypeId="1" CreationDate="2015-05-09T11:10:54.417" Score="2" ViewCount="69" Body="&lt;p&gt;Suppose there is an airline that wants to sell 200 seats in a flight. It can either sell them as business class or as economy. Ideally it would sell all  as business class, but it is willing to give away seats as economy in case not all can be sold as business class.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then there is a number of consumer, which all prefer economy seats, but each of them is willing to buy business class in case no economy seat is available.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Is this a well-known problem?&lt;/li&gt;&#xA;&lt;li&gt;What is it called?&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Edit:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I suppose this is roughly a &quot;&lt;a href=&quot;http://en.wikipedia.org/wiki/Chicken_%28game%29&quot; rel=&quot;nofollow&quot;&gt;game of chicken&lt;/a&gt;&quot;. But I believe in real markets there will some equilibrium, but I don't know what it depends on.&lt;/p&gt;&#xA;" OwnerUserId="4628" LastEditorUserId="4628" LastEditDate="2015-05-09T21:50:52.663" LastActivityDate="2017-01-31T20:11:04.470" Title="Trading in the presence of priorities" Tags="&lt;game-theory&gt;" AnswerCount="2" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="5582" PostTypeId="2" ParentId="5581" CreationDate="2015-05-09T15:10:06.807" Score="3" Body="&lt;p&gt;If I understand you correctly, all customers prefer economy class to business class (that is, they only care about the lower price).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, the way you've specified the problem, the airline will always make every seat a business class seat, because if no economy seats are available, the airline will (a) sell the same number of tickets (since customers buy business class if economy isn't available) and (b) sell all the tickets at a higher price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But maybe you meant something like, fewer people will buy business class seats because the price is higher, so the airline may wish to make some seats economy class so they fill every seat. That is, the airline may initially wish to offer tickets for business class, wait until they stop getting new orders, then lower the price to economy class in order to fill the rest of the seats. Depending on the underlying model of demand and purchasing you may get different results.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'll highlight one, the '&lt;a href=&quot;http://en.wikipedia.org/wiki/Coase_conjecture&quot; rel=&quot;nofollow&quot;&gt;Coase conjecture&lt;/a&gt;', which argues that the sort of pricing scheme I described above will break down because customers rationally anticipate that the airline will lower prices as soon as they stop getting new orders, so they wait for the price to drop.&lt;/p&gt;&#xA;" OwnerUserId="4177" LastActivityDate="2015-05-09T15:10:06.807" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5583" PostTypeId="2" ParentId="5580" CreationDate="2015-05-09T16:52:38.917" Score="4" Body="&lt;p&gt;The paper is assuming that some form of &quot;law of large numbers&quot; (LLN) applies for the continuum. The expected value of capital for an individual agent is&#xA;$$\mathbb{E}[R\cdot 1_{R\geq R^*}]=\int_{R^*}^1 R\,dR\tag{1}$$&#xA;The LLN assumption says that when we have a mass-1 continuum of agents, their actual total will equal their expectation in (1).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What justifies this assumption? Imagine that rather than having a continuum of agents, we simply had a very large number $N$, with each of these agents still having $R$ drawn from the same uniform distribution on $[0,1]$, resulting in an expected value of capital given by (1). Then as $N\rightarrow \infty$, the &lt;a href=&quot;http://en.wikipedia.org/wiki/Law_of_large_numbers&quot; rel=&quot;nofollow&quot;&gt;standard law of large numbers&lt;/a&gt; implies that the sample mean of capital will approach the value in (1). If, as we take this limit, we normalize each agent to have a size of $1/N$, then the sample mean will equal the total amount of capital - so in the limit, the amount of capital will always be (1).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here comes the weird and not-entirely-correct thing that economists do. We often say that having a mass-1 continuum of agents is &lt;em&gt;like&lt;/em&gt; taking this $N\rightarrow \infty$ limit (after all, there is an infinite number of agents in the continuum...). We therefore infer that the total value of capital in the continuum will equal the expected value given in (1).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Like I said, this is not entirely correct or rigorous. &lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/0022053185900596&quot; rel=&quot;nofollow&quot;&gt;Judd famously complained&lt;/a&gt; about it, pointing out that if we take a continuum of agents each with independent random values, then the resulting function will usually not even be Lebesgue integrable, so we can't even define the aggregate value in a rigorous way. &lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/S0899825603001751&quot; rel=&quot;nofollow&quot;&gt;Al-Najjar recently suggested&lt;/a&gt; that we replace the continuum assumption with a discrete construction that actually implements the $N\rightarrow \infty$ limit. There are some other suggestions out there too. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Most economists, though, just ignore these technical concerns and continue to assume that when you have a continuum with independently distributed values, you get the expected value when you integrate. I don't mind this, since it's just a convention, and they are right in spirit, since a continuum realistically is intended to model a very large number of agents. (This issue came up once with a coauthor, and after reading Judd and Al-Najjar and others for a few hours, we just threw our hands up and decided to ignore the problem! My personal, technically acceptable way to resolve it is to say that agents - rather than living on a continuum - live in the probability space itself, and define aggregation over agents as probability-weighted integration over this probability space. But this is pretty technical and obscure, and the basic point is that 95% of economists ignore these issues.)&lt;/p&gt;&#xA;" OwnerUserId="405" LastActivityDate="2015-05-09T16:52:38.917" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5584" PostTypeId="1" CreationDate="2015-05-09T17:15:49.213" Score="14" ViewCount="3907" Body="&lt;p&gt;In an influential &lt;a href=&quot;https://www.youtube.com/watch?v=KYpVzBbQIX0&quot; rel=&quot;nofollow noreferrer&quot;&gt;speech on November 8, 2013 at the IMF Annual Research Conference,&lt;/a&gt; Larry Summers suggested that slow economic growth in the years following the 2007–2008 financial crisis might be due to &quot;secular stagnation&quot; (a concept introduced in 1938 by Alvin Hansen in his book &lt;em&gt;Full Recovery or Stagnation?&lt;/em&gt;). The &lt;a href=&quot;http://lexicon.ft.com/Term?term=secular-stagnation&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;Financial Times&lt;/em&gt; defines &quot;secular stagnation&quot;&lt;/a&gt; as follows:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Secular stagnation is a condition of negligible or no economic growth in a market-based economy. When per capita income stays at relatively high levels,  the percentage of savings is likely to start exceeding the percentage of longer-term investments in, for example, infrastructure and education, that are necessary to sustain future economic growth. The absence of such investments (and consequently of the economic growth) leads to declining levels of per capita income (and consequently of per capita savings). With the reduced percentage savings rate converging with the reduced investment rate, economic growth comes to a standstill – ie, it stagnates. In a free economy, consumers anticipating secular stagnation, might transfer their savings to more attractive-looking foreign countries. This would lead to a devaluation of their domestic currency, which would potentially boost their exports, assuming that the country did have goods or services that could be exported.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Persistent low growth, especially in Europe, has been attributed by some to secular stagnation initiated by stronger European economies, such as Germany, in the past few years.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I think it may be useful to include a brief summary of Alvin Hansen's original secular stagnation theory. Paul Sweezy summarises the theory as follows:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Hansen’s position was best summed up in his 1938 book &lt;em&gt;Full Recovery or Stagnation?&lt;/em&gt; [...]&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;[Joseph] Schumpeter labeled Hansen’s theory the “theory of vanishing investment opportunities,” and it is an apt characterization. According to this theory, the modern developed capitalist economy has an enormous capacity to save, both because of its corporate structure and because of the very unequal distribution of personal income. But if adequate profitable investment opportunities are lacking, this saving potential translates not into real capital formation and sustained growth but into lowered income, mass unemployment, and chronic depression, a condition summed up in the term stagnation. (The framework of this analysis was of course derived directly from Keynes’s &lt;em&gt;General Theory&lt;/em&gt;, which was published in 1936, and of which Hansen was the best known interpreter and champion on this side of the Atlantic.)&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;To complete the theory, what was needed was an explanation of why there should be such a dearth of investment opportunities in the 1930s as compared to earlier times. Hansen’s attempt to fill this gap ran in terms of what he considered to be certain irreversible historical changes which had begun to build up in earlier decades and finally came to dominate the scene after what Schumpeter called the “world crisis” began in 1929. To oversimplify somewhat, these changes, according to Hansen, were (1) the end of geographical expansion, sometimes put in terms of the “closing of the frontier” but interpreted by Hansen in a wider global sense; (2) a decline in the rate of population growth; and (3) a tendency on the part of new technologies to be less capital-using than in earlier stages of capitalist development. In Hansen’s view, all these changes operated to restrict the demand for new capital investment and in this way transformed the system’s great capacity to save into a stagnation-producing force rather than an engine of rapid growth.&quot; (Paul M. Sweezy, &quot;Why Stagnation?&quot;, Monthly Review, June 1982)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I think the meaning of factors 1) and 2), as described above by Paul Sweezy, is fairly clear. To clarify the meaning of factor 3), I will quote from Alvin Hansen's 1938 book &lt;em&gt;Full Recovery or Stagnation?&lt;/em&gt;, in which he introduced the term &quot;secular stagnation&quot;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;A capitalistic economy with a machine method of production has taken the place of a handicraft economy with its direct production processes. The transformation of a rural economy into a capitalistic one is something distinctly different from the further evolution of a society which has already reached the status of a fully-developed machine technique. It is true that we are still engaged in making labor-saving inventions. Extremely important, however, is the question: Are these new labor-saving techniques likely to be preponderantly capital-using or neutral with respect to the use of capital?&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;If the labor-saving inventions are used to tap potential consumer demand through a sensible price policy, a widening of capital will of course occur. The importance of a flexible price structure thus comes again to the fore.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;It appears that the great advance made in the productivity of manufacturing in the United States in the decade of the twenties was made by reason of innovations in methods of production that to a large extent did not involve the use of more capital. I do not make any forecast; but it is a grave question whether inventions and innovations are not likely in the future to be less capital-using than in the nineteenth century. In contrast, while we were in process of changing over from a direct method of production to an elaborate capitalistic technique, as in the last century, innovations perforce had to be capital-using in character.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;It has been asserted that an increasingly rapid rate of obsolescence is likely to absorb large amounts of capital. Unfortunately, however, the high risk incurred in an economy with a rapid obsolescence rate forces corporate officials almost of necessity to set aside abnormally large depreciation reserves. Thus we encounter a vicious circle with attendant deflationary consequences. [...]&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Technical innovation may still bring about a very large increase in efficiency, even though manufacturing is not absorbing any appreciable amount of new capital. It is quite possible to have a continued rise in productivity even though there should be no material increase in producers' capital in the narrow sense of the term. Improved equipment, financed mainly out of depreciation allowances, will continue to raise the per capita output.&quot; (Alvin Hansen, &lt;em&gt;Full Recovery or Stagnation?&lt;/em&gt;, 1938, pp. 314–316, in Chapter 19 entitled &quot;Investment Outlets and Secular Stagnation&quot;)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In his speech at the IMF, &lt;a href=&quot;http://larrysummers.com/imf-fourteenth-annual-research-conference-in-honor-of-stanley-fischer/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Summers said&lt;/a&gt;: &quot;Suppose that the short-term real interest rate that was consistent with full employment had fallen to -2% or -3% sometime in the middle of the last decade.&quot; Edward Lambert of Effective Demand Research explains what this means in &lt;a href=&quot;https://www.youtube.com/watch?v=HbR8R3IiYfM&quot; rel=&quot;nofollow noreferrer&quot;&gt;this Youtube video&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In an interview with Chrystia Freeland on April 15, 2014 at a meeting organized by the Institute for New Economic Thinking (INET) think tank, Summers elaborated on his suggestion that recent slow economic growth is a result of secular stagnation. In particular, Summers listed several possible causes of secular stagnation. The whole interview can be watched on Youtube:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.youtube.com/watch?v=WjyRNiwlJ_U&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.youtube.com/watch?v=WjyRNiwlJ_U&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Freeland asks Summers about the causes of secular stagnation at 28 minutes, 23 seconds in the video. I have taken the liberty to transcribe Summers' answer (I added line breaks and numbers from (1) to (5) to distinguish the five possible causes mentioned by Summers).&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Chrystia Freeland: Moving to causes of secular stagnation. What do you think is driving it?&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Larry Summers: You know, I think this is something that there's room for a lot more research on and I certainly haven't done formal research. I think the first thing to say is that if you look at either econometric attempts to estimate the equilibrium real interest rate for the United States, or as the IMF has recently done, for the world, or you look at indexed bond yields, what you see -- and particularly forward indexed bond yields -- what you see is a clear downward trend going back fifteen to twenty-five years. So there's pretty clearly a phenomenon there, and then the question is, what's the explanation?&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;I can't give weights to these factors and I suspect the appropriate weight on the different factors I'm gonna mention, Chrystia, changes over time. But here would be a number of them:&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;(1) Greater concentration of wealth and income means lower spending propensities and more incipient saving&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;(2) A desire on the part of emerging markets to accumulate large amounts of reserves, and in particular by running current account surpluses, and in particular to hold those reserves in highly liquid instruments like U.S. bonds, tending to depress yields&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;are two major factors on the savings side.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;On the investment demand side,&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;(3) Slower population growth and labour force growth&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;and possibly also&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;(4) Slower technological change -- though that can be very much debated -- operates to reduce investment demand.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;(5) My explanation that feels right to me is that there have been structural changes in the economy that reduce the demand for investment in fundamental ways. Think about this: WhatsApp [an instant messaging app for smartphones] cost 19 billion dollars and it was 55 people working in some building in rented space. Sony is tens of thousands of people, it's capital, it's factories, it's all that stuff, and it's 18 billion dollars. Think about what the world was like when General Motors or AT&amp;amp;T or Exxon or IBM were iconic companies. They were issuing debt. They were investing on a massive scale to expand capacity and to build networks. Now think about iconic companies of today like Apple and Google. They have more cash flow, fundamentally, than they know what to do with. And the result of that, of course, is an excess supply of savings. Another way to approach the question is to say, what's happened to the relative price of durable equipment, either producer equipment or consumer equipment, appliances? And the answer is those prices have gone way down. Well, when those prices go way down it means a given unit of savings goes much further. &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;All of that, it seems to me, operates to reduce real interest rates. In just what sequence, and just which factors are most important at particular points of time, I think is very much open to question and research. But I think for now, we have to maintain a significant presumption that equilibrium real rates are lower than they have been in the past. That probably living with those low real rates... Well, pushing real rates well above equilibrium real rates, as many in the central banking community continue to advocate, and not doing anything else, is, it seems to me, a prescription for protracted stagnation. Accepting the reality of those lower real rates raises the questions that I posed before around financial stability. And what we need to be thinking about is how to do things in our economies... And I think increasing public investment where there is high-productivity public investment to be done, is the easiest and best way to do this. That will operate to raise equilibrium real rates and raise output at the same time.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Of these five possible causes of secular stagnation identified by Summers, 1) is basically the old underconsumption argument going all the way back to Simonde de Sismondi's &lt;em&gt;Nouveaux principes d'économie politique&lt;/em&gt; in 1819. 3) and 4) are factors included in Alvin Hansen's theory of secular stagnation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;5) is similar to a factor that has been discussed before in the literature on secular stagnation. Anthony Scaperlanda, in his article &quot;Hansen's Secular Stagnation Thesis Once Again&quot; (Journal of Economic Issues, Vol. 11, No. 2, June 1977, pp. 223–243) notes that &quot;a number of recent innovations have been capital saving.&quot; On page 231, he identifies the data processing industry as one industry in which this has taken place:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In summary, one can identify a number of new industries in recent decades. They, no doubt, stimulate autonomous investment. Without knowing precisely how much investment was stimulated it is easy to recognize that unless still newer industries are stimulated by technological innovation, this influence will not elicit as much autonomous investment as it has in the immediate past.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;This is especially true since a number of recent innovations have been capital saving. For example, in the major new industry of data processing the technological improvements and refinements have been so rapid that total investment may have increased very little &lt;em&gt;vis-à-vis&lt;/em&gt; what would have taken place in precomputer machines to handle data processing. Focusing only on the technological advances which have occurred in the computer-based data processing industry, one can note that &quot;on an early vacuum tube computer the cost to the customer of performing 100,000 multiplications was 1.38 dollars; in the second or 'transistorized' stage the cost was 24 cents; and in the current microminiature-circuit stage, the cost is down to 3.5 cents or less.&quot; [John M. Blair, &lt;em&gt;Economic Concentration: Structure, Behavior, and Public Policy&lt;/em&gt; (New York: Harcourt Brace, Jovanovich, 1972), p. 147]&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;One possible cause of secular stagnation which Larry Summers does not mention is increasing degree of monopoly in the economy as a whole. Josef Steindl argued in his 1952 book &lt;em&gt;Maturity and Stagnation in American Capitalism&lt;/em&gt; that &quot;development of monopoly ... is ... the main explanation of the decline in the rate of growth of capital which has been going on in the U.S. from the end of the last century. This is not to say that other factors have not played a role...&quot; Other economists such as Paul Sweezy, Paul Baran, and Keith Cowling have also argued that a high degree of monopoly in the economy as a whole causes secular stagnation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What theories have been proposed to explain secular stagnation? It might be interesting and useful to contrast alternative explanations of the phenomenon. What books or articles expound these alternative theories?&lt;/p&gt;&#xA;" OwnerUserId="4629" LastEditorUserId="4629" LastEditDate="2019-09-21T03:54:18.830" LastActivityDate="2019-09-21T03:54:18.830" Title="Larry Summers on the causes of secular stagnation" Tags="&lt;macroeconomics&gt;&lt;interest-rate&gt;&lt;reference-request&gt;&lt;financial-crises&gt;&lt;economic-growth&gt;" AnswerCount="2" CommentCount="11" FavoriteCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="5585" PostTypeId="1" CreationDate="2015-05-09T22:49:55.807" Score="2" ViewCount="84" Body="&lt;p&gt;I am implementing Arthur's paper &quot;&lt;a href=&quot;http://multiagent.martinsewell.com/Arth91.pdf&quot; rel=&quot;nofollow&quot;&gt;Designing economic agents that act like human agent: A behavioral approach to bounded rationality&lt;/a&gt;&quot; from 1991 in JAVA and I am having a problem understanding one part of the paper:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At one point it says: triggering actions randomly on the basis of their strengths and I don't know what this means.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The algorithm is described as follows:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1.) Actions are represented as $a = (1,2,...,A)$, these values represent the mean and all the actions have a fixed standard deviation. The mean of an action and its standard deviation help in plotting the normal distribution. The payoff of an action, which is unknown before is drawn after the action is chosen from the above described normal distribution.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2.) Ever action has a certain value of strength ($S(t)$) associated with it, the strength depends on prior beliefs (in my case it depends on prior skill set). The current sum of these strengths is C(t).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;3.)At every time $t$ I calculate the probability vector $p(t) = S(t)/C(t)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;4.) Choose one action from the set according to the probability &lt;/p&gt;&#xA;&#xA;&lt;p&gt;5.) Update the strength of that action (point 3, page 354) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;6.) Renormalized (point 4, page 354).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem occurs at point 4: choose an action according to the probability, what probability?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't know how to translate this statement into code.&lt;/p&gt;&#xA;" OwnerUserId="4631" LastEditorUserId="120" LastEditDate="2015-05-10T13:45:45.520" LastActivityDate="2015-05-12T01:06:14.557" Title="Doubts in modelling the Arthur(1991) paper: Designing economic agents that act like human agent" Tags="&lt;microeconomics&gt;&lt;bounded-rationality&gt;" AnswerCount="1" CommentCount="9" ContentLicense="CC BY-SA 3.0" />
  <row Id="5586" PostTypeId="2" ParentId="3270" CreationDate="2015-05-10T05:53:48.030" Score="0" Body="&lt;p&gt;I understand the economic evidence towards language unification is probably very positive. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But I would note it may have some negative effects on research and development. Establishing a single language lowers the diversity of human language possibly playing a role in learning and technological growth.  It may also lower the value of some types of language-important leisure time.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Outside of our field, beliefs about this particular subject are rather strong. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.scientificamerican.com/article/does-language-shape-what/&quot; rel=&quot;nofollow&quot;&gt;http://www.scientificamerican.com/article/does-language-shape-what/&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="4185" LastEditorUserId="4185" LastEditDate="2015-05-10T20:20:22.083" LastActivityDate="2015-05-10T20:20:22.083" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="5587" PostTypeId="1" CreationDate="2015-05-10T11:26:28.977" Score="3" ViewCount="327" Body="&lt;p&gt;&lt;em&gt;&lt;a href=&quot;http://orff.uc3m.es/handle/10016/5334&quot; rel=&quot;nofollow&quot;&gt;Estimating regional Gdp in Italy (1871-2001): &#xA;sources, methodology, and results&lt;/a&gt; (Felice, E)&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This article has Italian historical regional GDP figures, but they are in constant 2001 euros not in 1990 Geary–Khamis dollars where I can compare them more easily with other GDP figures. Would someone show me how you go about converting 2001 euros to 1990 Geary–Khamis dollars?   &lt;/p&gt;&#xA;" OwnerUserId="4633" LastEditorUserId="2776" LastEditDate="2017-06-06T09:46:49.343" LastActivityDate="2017-06-06T09:46:49.343" Title="Changing the base year of Real GDP from 2001 Euros to 1990 Geary–Khamis dollars" Tags="&lt;inflation&gt;&lt;gdp&gt;&lt;exchange-rates&gt;&lt;base-year&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5588" PostTypeId="1" CreationDate="2015-05-10T12:37:57.933" Score="1" ViewCount="150" Body="&lt;p&gt;Using a shift-share methodology, labour productivity growth can be arise from productvity growth within a sector (within effect) or reallocation of labour to sectors with higher productivity (reallocation effect).&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;1)&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;However we know that &lt;code&gt;Productivity = Real Value-added / Employment&lt;/code&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So won't an increase in employment in a sector result in a fall in the sector's productivity and hence overall productivity? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) Based on &#xA;&lt;a href=&quot;http://www.ilo.org/wcmsp5/groups/public/---ed_emp/---emp_elm/documents/publication/wcms_143163.pdf&quot; rel=&quot;nofollow&quot;&gt;http://www.ilo.org/wcmsp5/groups/public/---ed_emp/---emp_elm/documents/publication/wcms_143163.pdf&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;employment intensity is the direct inverse of labour productivity&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So does this mean the government should not employ policies to reallocate labour to higher productivity sectors?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It will be good to refer me to some paper that address these questions&lt;/p&gt;&#xA;" OwnerUserId="4497" LastEditorUserId="43" LastEditDate="2015-05-10T13:39:38.293" LastActivityDate="2018-11-18T12:23:07.553" Title="Labour Productivity Growth and Reallocation of Labour" Tags="&lt;macroeconomics&gt;&lt;reference-request&gt;&lt;labor-economics&gt;&lt;productivity&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5589" PostTypeId="2" ParentId="5587" CreationDate="2015-05-10T13:16:12.570" Score="3" Body="&lt;p&gt;In general, real output is  calculated like this:&#xA;$$RGDP_{t, b} = NGDP_t \cdot p_{base} / p_t$$&#xA;Where $NGDP_t$ is nominal GDP at time t, $p_t$ is the price level in time $t$ and $p_{base}$ is the price level in the base period.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To covert RGDP between base periods, note that the ratio to a common year's $RGDP_t$ in two different base years is:&#xA;$$RGDP_{t, b1} / RGDP_{t, b2}  =  p_{base1} /  p_{base2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can rearrange this equality to solve for what you want:&#xA;$$RGDP_{t, b2}  =RGDP_{t, b1} \cdot p_{base1} /  p_{base2}$$&lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-05-10T15:12:30.807" LastActivityDate="2015-05-10T15:12:30.807" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5590" PostTypeId="1" CreationDate="2015-05-10T13:16:47.053" Score="4" ViewCount="121" Body="&lt;p&gt;The probability of observing a binary outcome &lt;code&gt;y&lt;/code&gt; is a function of two variables, &lt;code&gt;y = f(x1, x2)&lt;/code&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Both &lt;code&gt;x1&lt;/code&gt; and &lt;code&gt;x2&lt;/code&gt; are continuous, and I have no prior on the functional form of &lt;code&gt;f&lt;/code&gt;. I have shallow knowledge of kernel density estimation, but have only seen that done in the case of a univariate variable. How should I proceed here / is there some basic literature on this? &lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-05-11T04:34:57.150" Title="Nonparametric estimation: Interaction of two continuous variables" Tags="&lt;econometrics&gt;&lt;nonparametrics&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5591" PostTypeId="2" ParentId="5588" CreationDate="2015-05-10T13:37:48.983" Score="2" Body="&lt;h3&gt;Ad 1)&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;You make a hand waiving claim. In these scenarios making concise mathematic statements helps improving your arguments.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Denote employment as $L$, define real value added as $F(L) - wL$, and productivity as real value / employment:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ A = \frac{F(L) - w(L)}{L}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The labor share should be some constant $\beta$ of total value added. Without going deep into mathematics, straight away assume $w(L) = \beta\alpha F(L)$. Hence, we have that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ A = \frac{F(L) (1 - \beta\alpha)}{L}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, what happens if $L$ increases? Let $L_2 &amp;gt; L_1$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ A_2 - A_1 = (1-\alpha\beta)(\frac{F(L_2)}{L_2} - \frac{F(L_1)}{L_1})$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume $F$ to be concave. Then we have that the change of productivity, $A_2 - A_1$ is negative - as you say.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, $A$ here is &lt;strong&gt;average productivity&lt;/strong&gt;. Total productivity is $AL$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ A_2L_2 - A_1L_1 = (1-\alpha\beta)(F(L_2) - F(L_1))$$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Independent of the curvature of $F$, for any strictly increasing production function, this will be positive&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;tl;dr&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Don't confuse average productivity with total productivity. &lt;/li&gt;&#xA;&lt;li&gt;Whenever you find something weird, use algebra to make your statements precise&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;h3&gt;Ad 2)&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;Again, you are not being precise enough. What is the government's objective? If government is only about maximizing &lt;em&gt;average productivity&lt;/em&gt;, the solution is to let $L\to 0$, as then $F'(L) \to \infty$ (and for Cobb-Douglas, $F'(L)$ is proportional to average productivity).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Maximizing total output implies allocating workers to the sectors with highest productivity. I do not understand how the functional relationship between employment intensity and labor productivity affects that premise. Furthermore, unless there is a market distortion, the role of &lt;em&gt;any&lt;/em&gt; government intervention is not clear at all.&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-05-10T13:37:48.983" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5592" PostTypeId="2" ParentId="5455" CreationDate="2015-05-10T14:45:40.350" Score="5" Body="&lt;p&gt;There is no &quot;universal Aumann model&quot;, as shown in &lt;a href=&quot;http://www.tau.ac.il/~samet/papers/high-rank.pdf&quot;&gt;Heifetz &amp;amp; Samet, GEB 1998, &quot;Knowledge Spaces with Arbitrarily High Rank&#xA;&quot;&lt;/a&gt;, even though there is a universal type space.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On a less technical level, Aumanns model does not allow for wrong beliefs. A generalization, so called &lt;em&gt;Kripke structures&lt;/em&gt;, do however.&lt;/p&gt;&#xA;" OwnerUserId="1442" LastActivityDate="2015-05-10T14:45:40.350" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5593" PostTypeId="1" CreationDate="2015-05-10T14:58:50.943" Score="2" ViewCount="100" Body="&lt;p&gt;Imagine following tiny nation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It consist only of 100 people running a car manufacturing plant.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The nation imports every resource it needs for manufacturing those cars. It also imports all energy, gas for transportation, food for people, clothing etc from outside.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Because of high competition, the nation ends up selling all cars it produced in a particular year, at a much lower price than resources/energy/gas etc cost them. Hence, the manufacturing cost is greater than the total income from selling the cars.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's say the total income from all cars sold is 2 billions for a given year. The total cost for imported goods to run the manufacturing plant and feed/cloth the people was 3 billions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;They also have to pay 200 millions total in debt rates for that year from loans taken at some point.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;a) What would be the GDP of such a nation for this particular year?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;b) I have been told that the GDP cannot be negative so i assumed that expenses for the imports/debt rates are not included in computing the GDP, or can the GDP actually become negative?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;c) Given you knew the GDP and the dept to GDP ratio of such a fictive nation. But you did not know the expenses for imports and also did not know the average interest rate this nation has to pay on it's debt, then would just knowing GDP and debt to GDP ratio of this nation allow you to make any estimates on the health of it's economy?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ignore salaries of the workers. They just work for food and do not pay taxes. The car manufacturing plant is owned by the state&lt;/p&gt;&#xA;" OwnerUserId="4634" LastEditorUserId="4634" LastEditDate="2015-05-11T00:54:01.393" LastActivityDate="2015-05-11T00:54:01.393" Title="GDP and DEBT/GDP ratio of a Nation" Tags="&lt;gdp&gt;&lt;debt&gt;" AnswerCount="0" CommentCount="1" ClosedDate="2015-05-11T02:37:36.240" ContentLicense="CC BY-SA 3.0" />
  <row Id="5594" PostTypeId="2" ParentId="5552" CreationDate="2015-05-10T15:32:15.740" Score="2" Body="&lt;p&gt;&lt;a href=&quot;http://doi:10.1016/j.econlet.2014.08.036&quot; rel=&quot;nofollow&quot;&gt;Cartel size and collusive stability with non-capitalistic players&lt;/a&gt; lists the reasons why it's highly unlikely that your question finds an answer for profit-seeking firms (see Friedman, 1971 for a threshold on cartel stability)&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;It is widely accepted from both the theoretical IO literature (e.g., Tirole, 1988) and policy reports (e.g., Ivaldi et al., 2003) that high market concentration is a facilitating factor for (tacit as well as explicit) collusion. In addition to coordination being likely more difficult in larger groups, the intuition that the incentive to collusion shrinks with too many competitors is fairly simple: as the number of firms grows larger, the individual share of cartel profits shrinks monotonically and therefore implicit collusion becomes harder to sustain (cf. Tirole, 1988, ch. 6).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So you may find &quot;toy&quot; answers for $n=4$ or the like but probably not for reasonably big $n$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, the same paper also proves that&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;An increase in cartel size makes implicit collusion among labour-managed firms easier to sustain.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;which is exactly what you're stating in your question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As the authors sum up,&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In words, the critical threshold for $LM$ firms is decreasing and convex in n and tends to zero as n becomes arbitrarily large. On the other hand, the critical threshold for profit-seeking firms is increasing and concave in n and tends to one as n becomes arbitrarily large. To complete the description of the critical thresholds w.r.t. n, we may also observe that&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So according to this reference, an answer to the question is &lt;strong&gt;yes, on the condition that the firms studied are not profit-seeking but $LM$-firms&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Note: A $LM$-firms is an enterprise that operates under the ultimate control &#xA;of those who work in it, which as for consequences, among others, that the firm aims at maximising profit per worker rather than profit.&lt;/p&gt;&#xA;" OwnerUserId="4578" LastActivityDate="2015-05-10T15:32:15.740" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5595" PostTypeId="2" ParentId="5590" CreationDate="2015-05-10T15:56:33.780" Score="1" Body="&lt;p&gt;(I misunderstood the question at the beginning) &#xA;The model is a binary non parametric regression. &#xA;I don't know of a general model, I know of a semiparametric model by Klein and Spady &#xA;&lt;a href=&quot;http://www.ssc.wisc.edu/~bhansen/718/NonParametrics7.pdf&quot; rel=&quot;nofollow&quot;&gt;http://www.ssc.wisc.edu/~bhansen/718/NonParametrics7.pdf&lt;/a&gt;&#xA;The model is as follows let $x´=[x_1´ \quad x_2´]$ &#xA;Now $P(y=1|x)=E[y=1|x]=g(x'\beta)=f(x)$. &#xA;The details in the link. &#xA;Another possibility is to estimate the joint distribution (that has both discrete and continuous variables). Let g(y,x) be the joint pdf, then estimate $g(y|x)=\frac{g(y,x)}{g(x)}=f(x)$. The estimation of a joint of this type needs a product kernel that you can check &#xA;Nonparametric estimation of regression functions with both categorical and continuous data&#xA;Journal of Econometrics, Volume 119, Issue 1, March 2004, Pages 99–130&#xA;Jeff Racine, Qi Li&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For $y$ continuous the following answer works.&#xA;First of all is your data deterministic or random. &#xA;If deterministic you may wish to do interpolation. Splines are your best option. &#xA;If you think your dataset has noise or you have unobserved variables then you can do a non-parametric regression, I think this is what you want. &#xA;The first step is to actually make assumptions about the structure of the randomness. &#xA;The usual assumption is that &#xA;$y=f(x_1,x_2)+\epsilon$ and you let $x´=[x_1´ \quad x_2´]$ be orthogonal -indepdent- of the unobserved variable $x\perp\epsilon$. Then you can replace $f$ by some high degree polynomial on $x$ and estimate this using Non linear least squares, technically this is called series or polynomial estimators (NLS is used when you know f, but you can argue that a high degree polynomial approximates the true f).&lt;br&gt;&#xA;Another way is using a ¨kernel¨ approach. &#xA;In fact  you can directly assume that f is the conditional expectation. &#xA;$E[y|x]=f(x_1,x_2)$. In that case you can estimate it using the joint distribution recall the definition of conditional expectation &#xA;$E[y|x]=\int yf(y|x)dy$, with $f(y|x)=\frac{f(y,x)}{f(x)}$. Replacing this elements by its kernel estimators you get the Nadaraya-Watson estimator, you can google it. &#xA;A third option is to use local linear regression. A more advanced option is to use Sieves estimators that use function basis to estimate the model. &#xA;If f is not the conditional expectation then you have to use non parametric regression with instrumental variables, this is more complicated there is a paper by Renault (and others) on Econometrica about this. &#xA;In summary it depends on the randomness structure that you are assuming. &#xA;The book to go if you want to learn non-parametric regression is Li &amp;amp; Racine &lt;a href=&quot;http://press.princeton.edu/titles/8355.html&quot; rel=&quot;nofollow&quot;&gt;http://press.princeton.edu/titles/8355.html&lt;/a&gt;&#xA;There is also a nice implementation of these econometric procedures in the open source statistical language &quot;R&quot; under the name (package) &quot;np&quot;. &lt;/p&gt;&#xA;" OwnerUserId="127" LastEditorUserId="127" LastEditDate="2015-05-11T04:34:57.150" LastActivityDate="2015-05-11T04:34:57.150" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5596" PostTypeId="1" AcceptedAnswerId="5637" CreationDate="2015-05-10T18:15:41.543" Score="4" ViewCount="530" Body="&lt;p&gt;TRAIN OF THOUGHT 1: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;From what I understand, $MRS$ is calculated as &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$dU = U_x dx +  U_y dy =0$$ &#xA;which by rearrangement yields &#xA;$$\frac{dy}{dx}= -\frac{U_x}{U_y}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So suppose I have $$U(x,y) = \ln x +\ln y$$ Then &#xA;$$ \frac{dy}{dx}= -\frac{1/x}{1/y} = -\frac{y}{x}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Okay. So I have a function $y$ in terms of $x$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;TRAIN OF THOUGHT 2: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now consider my $U(x,y)$ again. Let $$\mathbf{a} = \begin{bmatrix}&#xA;1\\&#xA;1&#xA;\end{bmatrix}$$ &#xA;and $$U(\mathbf{a})=0$$&#xA;We have $$DU(x,y) = \begin{bmatrix}&#xA;\frac{1}{x} &amp;amp; \frac{1}{y}&#xA;\end{bmatrix} $$&#xA;and $$\frac{\partial U}{\partial y} (\mathbf{a}) = \begin{bmatrix}\frac{1}{y}\end{bmatrix}= 1$$ which is nonsingular since $\det(1) = 1$ and so by the Implicit Function Theorem, $$U = 0$$ defines $y$ implicitly as a function of $x$ in a neighborhood of $\mathbf{a}$.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My Question:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How are these two trains of thought connected? The first is stated in terms of differentials. But the second is not. So I am confused why the definition of $MRS$ follows from the implicit function theorem. &lt;/p&gt;&#xA;" OwnerUserId="2679" LastEditorUserId="2679" LastEditDate="2015-05-12T17:35:48.953" LastActivityDate="2015-05-13T17:06:35.560" Title="Why does the definition of MRS follow from the implicit function theorem?" Tags="&lt;consumer-theory&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5597" PostTypeId="2" ParentId="5596" CreationDate="2015-05-10T18:40:35.027" Score="2" Body="&lt;p&gt;This is intended to be a partial answer. I hope more knowledgeable people will answer. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Apart from asserting that $\exists \phi(\mathbf{x}) =\mathbf{y}$ the implicit function theorem also asserts &lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{equation}&#xA;D \phi(\mathbf{x}) = - \left(\frac{\partial U}{\partial \mathbf{y}} \left( \begin{array}{c} x\\ \phi(\mathbf{x}) \\\end{array} \right) \right)^{-1}\left( \frac{\partial U}{\partial \mathbf{x}} \left( \begin{array}{c} x\\ \phi(\mathbf{x}) \\\end{array} \right) \right)&#xA;\end{equation}&#xA;in this case that corresponds to &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{d \phi(x)}{dx} = - \left(\frac{1}{y}\right)^{-1}\left(\frac{1}{x}\right) = -\frac{y}{x}$$&#xA;so thus &#xA;$$ \frac{dy}{dx}= -\frac{y}{x}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This shows that the definition of $MRS$ follows from the Implicit Function Theorem. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT 1: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider $$ dy = - (U_y)^{-1} U_x dx$$ which we agree follows from the implicit function theorem. Then by multiplying both sides by $U_y$ and rearranging we have &lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{align*}&#xA;U_y dy &amp;amp;=  -U_x dx \\&#xA;U_x dx + U_y dy &amp;amp;= 0 &#xA;\end{align*}&#xA;and thus by the definition of a differential, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ U_x dx + U_y dy = 0 = dU$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;so this is also a consequence of the implicit function theorem. This can also be seen trivially since $U = 0$, then by the definition of a differential, $dU =0$. &lt;/p&gt;&#xA;" OwnerUserId="2679" LastEditorUserId="2679" LastEditDate="2015-05-10T23:10:19.147" LastActivityDate="2015-05-10T23:10:19.147" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5598" PostTypeId="2" ParentId="4957" CreationDate="2015-05-10T19:17:20.313" Score="1" Body="&lt;p&gt;As stated by TMB, levels sets of points at which the same utility is achieved ($\{x\in \mathbb{R}^n|U(x)=\bar u\}$). These depend on pretty much nothing, except that the ensemble has an equality relation - not much to ask really.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1 and 2. The curves are defined as $f^{-1} (\bar u)$ and $\{\bar u\}$ is closed, so the antecedent by a continuous function of $\{\bar u\}$ is closed too.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;3,4 and 5 sounds like bullshit to me, maybe you can give us the reference of your course or a course refereeing to the same assumption? How do you define a maximum in  $\Bbb{R}^n$?&lt;/p&gt;&#xA;" OwnerUserId="4578" LastActivityDate="2015-05-10T19:17:20.313" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5601" PostTypeId="1" AcceptedAnswerId="5609" CreationDate="2015-05-10T21:00:10.273" Score="1" ViewCount="61" Body="&lt;p&gt;1) What does it mean that something (in this context the taxation) has (or doesn't) costs to first order?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, below is an excerpt from Romer's &lt;em&gt;Advanced Macro&lt;/em&gt; (p. 598) with such a statement that I've encountered and felt a bit lost. Altough the model developed later is pretty clear, I still don't get what the sentence with this 'costs to first order' really mean. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) Also: how the last sentence is implied by the sentence before the last one? That is: what exactly (this first-order&lt;em&gt;ness&lt;/em&gt;? how?) implies that $C \approx T^2$?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/c6J4j.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;" OwnerUserId="207" LastActivityDate="2015-05-11T12:00:23.403" Title="(tax with) costs to first order" Tags="&lt;taxation&gt;&lt;cost&gt;&lt;adjustment-costs&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5602" PostTypeId="2" ParentId="3288" CreationDate="2015-05-11T00:19:57.907" Score="4" Body="&lt;p&gt;If you take the standard Aumann model, but allow for states occuring with probability zero, you can taje some nonempty event $N$ such that for the agents prior $p$, one has $p(N)=0$. Let $K\cap N=\emptyset$ and $p(K)&amp;gt;0$. If the agent knows $K\cup N$ but not $K$, then she assigns probability $1$ to $K$, even though she does not know $K$.&lt;/p&gt;&#xA;" OwnerUserId="1442" LastActivityDate="2015-05-11T00:19:57.907" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5603" PostTypeId="2" ParentId="3404" CreationDate="2015-05-11T00:31:37.993" Score="2" Body="&lt;p&gt;There is an old result in dynamic programming due to David Blackwell, according to which stationary problems allow for stationary best responses. So if you would gain by changing your behavior after a certain history, you would gain by changing it at every history corresponding to the same state.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the original reference, see the corollary to Theorem 1 &lt;a href=&quot;http://projecteuclid.org/euclid.aoms/1177704593&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="1442" LastActivityDate="2015-05-11T00:31:37.993" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5604" PostTypeId="2" ParentId="4430" CreationDate="2015-05-11T00:58:12.770" Score="4" Body="&lt;p&gt;There is an unpublished 1982 working paper by Donald Brown and John Geanakoplos, called “Understanding Overlapping Generations Economies as a Lack of Market Clearing at Infinity” (a scan used to be available at Brown's homepage). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The authors show that there is a one-to-one correspondence between the equilibria of an OLG economy and almost-equilibria in a certain economy with a hyperfinite number of periods in which market clearing is not required in the last period. The approach requires some knowledge of non-standard analysis.  &lt;/p&gt;&#xA;" OwnerUserId="1442" LastActivityDate="2015-05-11T00:58:12.770" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5605" PostTypeId="1" AcceptedAnswerId="5610" CreationDate="2015-05-11T03:00:34.160" Score="1" ViewCount="79" Body="&lt;p&gt;I am walking on this problem set and can really not get my head around question 8.&#xA;Especially I don't understand what is meant by &quot; - Since “short XPDR” strategy is the same as “write call, buy put, borrow PV(strike)” strategy, it therefore follows that “buy put, borrow PV(strike)” strategy is equivalent to “short XPDR and buy call”.&quot;&#xA;I wanted to ask if somebody could maybe explain it in other words? :-/&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your help would be greatly appreciated.&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;7) Describe how to create a synthetic short using June options with strike price 30. &#xA;Specifically, replicate the 40,000 short position in XPDR.&#xA;&#xA;8) Writing a call is risky, and sometimes individuals do not receive permission (from &#xA;their broker) to write a call. If you simply buy a June 30 put, but &#xA;don’t write a June 30 call, you have not completely synthesized a short&#xA;position. Suppose you believe that, by June, the stub value of Metamor &#xA;will converge  to the $12 per share figure mentioned on p. 5 of the &#xA;case. In that case, what’s the most you could forgo by not writing a&#xA;call? That is, how much do you lose by being unable to write the call?&#xA;Would it be worth it to just buy the put alone (along of course with &#xA;buying MMWW)?&#xA;&#xA;&#xA;Answer to 8) The most you could lose is the premium, $5.5. In the &#xA;    best case scenario for you, the call options expires worthless and your &#xA;    net profit on the call is $5.5. Thus if you believe the stub will be &#xA;$12 in June, with perfect shorting you are going to get a profit of $12.71&#xA;(12+.71). By not writing a call, the worse you can get is:&#xA;12.71-5.5 = $7.21. So it is still worth it to just buy the put alone. Page 3&#xA;    Other comments.&#xA;    - Since “short XPDR” strategy is the same as “write call, buy put, &#xA;    borrow PV(strike)” strategy, it therefore follows that “buy put, &#xA;    borrow PV(strike)” strategy is equivalent to “short XPDR and buy &#xA;    call”. In others words, failing to write the put is the same as &#xA;    shorting one share of XPDR and then buying a call on XPDR.&#xA;    - If you can’t write a call, you can get closer to a synthetic &#xA;    short position by buying a very out-of-the-money put. &#xA;    Unfortunately, in this case there are no such puts trading, &#xA;    the best we can do is the strike price of 35.&#xA;    - By failing to write the call, you could think of yourself as &#xA;    insuring against the possibility that the spin-off is cancelled and &#xA;    XPDR goes way up (remember, “buy put, borrow PV(strike)” strategy &#xA;    is equivalent to “short XPDR and buy call”) . The price of this &#xA;    insurance is $5.5.&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;" OwnerUserId="4126" LastEditorUserId="43" LastEditDate="2015-05-11T12:46:38.653" LastActivityDate="2015-05-11T14:36:49.603" Title="Put Call Parity" Tags="&lt;finance&gt;&lt;asset-pricing&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5607" PostTypeId="1" CreationDate="2015-05-11T06:28:19.693" Score="2" ViewCount="60" Body="&lt;p&gt;Regular Slutsky Equation: &#xA;$$\frac{\partial x_M}{\partial p_x} = \frac{\partial x_H}{\partial p_x} - \frac{\partial x_M}{\partial m} x _M$$ &#xA;Elasticity Slutsky Equation: &#xA;\begin{align*}\varepsilon_{x,p_x}^M &amp;amp;= \varepsilon_{x,p_x}^H - \varepsilon_{x,m}^M s_x \\&amp;amp;=- s_y \sigma- \varepsilon_{x,m}^M s_x \end{align*}&#xA;Note: $\sigma$ is the &lt;a href=&quot;https://economics.stackexchange.com/a/5518/2679&quot;&gt;elasticity of substitution&lt;/a&gt;. &lt;a href=&quot;https://economics.stackexchange.com/questions/5445/why-does-varepsilon-x-p-xh-s-y-sigma&quot;&gt;Informal proof&lt;/a&gt; $\varepsilon_{x,p_x}^H = -s_y \sigma$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have always preferred to use the regular Slutsky equation. But as I was preparing for my midterm last week, I came across the following problem: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;Margarine is an inferior good, yet consumption of margarine has increased over the last several decades as has real per capita income. Can you explain the apparent contradiction?&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;My study buddy and I struggled and struggled and eventually decided the elasticity version of the Slutsky equation was a better way to think about the problem. It was the first example I encountered where the regular Slutsky equation didn't seem sufficient and that I really needed the elasticity version. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My Question:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are there any (other) situations where the elasticity version of the Slutsky equation can only be used compared with the regular Slutsky equation? &lt;/p&gt;&#xA;" OwnerUserId="2679" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-05-11T19:30:29.020" Title="Are there any situations where the elasticity version of the Slutsky equation can only be used compared with the regular Slutsky equation?" Tags="&lt;consumer-theory&gt;" AnswerCount="0" CommentCount="3" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5608" PostTypeId="2" ParentId="4460" CreationDate="2015-05-11T09:46:57.060" Score="10" Body="&lt;p&gt;This result is indeed a version of Berge's maximum theorem. If there is a continuous function $u:M\times H\to\mathbb{R}$ such that $x\preceq_e z$ if and only if $u(e,x)\leq u(e,z)$, one can derive the result directly from Berge's maximum theorem. If $H$ is locally compact, as it is the case if $H=\mathbb{R}^n$, then such a function can always be found, this follows from Theorem 1 in Mas-Colell's &lt;em&gt;&lt;a href=&quot;http://www.econ.upf.edu/~mcolell/research/art_023.pdf&quot;&gt;On the Continuous Representation of Preorders&lt;/a&gt;&lt;/em&gt; (at least if $M$ is metrizable, I'm not sure on that point). More on such &quot;jointly continuous utility functions&quot; can be found in chapter 8 of &lt;em&gt;Representations of preference orderings&lt;/em&gt;, 1995, by Bridges &amp;amp; Mehta.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now Debreu did not have such a result available, so he worked with preference relations and essentially reproved Berge's maximum theorem (the generalization is mathematically straightforward). Why did he do so? To understand that, one needs to understand the point of Debreu's paper, which is finding a topology on preference relations that has nioce properties and makes economic behavior continuous. The need for such a result comes from the literature on economies with a continuum of agents. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What does it mean that a continuum of agents economy is the limit of a sequence of finite eonomies? One answer is that the distribution on characteristics of agents converges to the distribution of characteristics in the continuum economy, so the notion of convergence is convergence in distribution. To make this idea operational, one needs to topologize the characteristics of agents. Now an agent is characterized by her endowment and by her preferences (and in more general models by her consumption set). There is a natural topology on endowments, the Euclidean topology, but it is less straightforward to topologize preferences, and that is what Debreu did in his paper. An exposition of this distributional approach can be found in Hildenbrand 1974, &lt;em&gt;Core and equilibria of a large economy&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, there are cases where one would like to apply Berge's theorem for non-compact sets of choices. This can be important when studying economies with infinite dimensional commodity spaces, in which being closed and bounded does not imply compactness. One way to deal with this problem is to find a compact set so that the correspondence is compact-valued and nonempty-valued when restricted to this set. There is a large, very technical, literature on &quot;generalized games&quot; or &quot;abstract economies&quot; (basically normalform games in which strategy spaces depend on the actions of others), and they implicitely often contain non-compact generalizations of Berge's theorem. If you can get your hands on the book, check chapter 4 of Xian-Zhi Yuan 1999, &lt;em&gt;KKM Theory and Applications in Nonlinear Analysis&lt;/em&gt;. My impression, however, is that these results proved to be not that useful in economic applications. To prove existence of Walrasian equilibria in models with infinite dimensional commodity spaces, one usually uses different methods.&lt;/p&gt;&#xA;" OwnerUserId="1442" LastActivityDate="2015-05-11T09:46:57.060" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5609" PostTypeId="2" ParentId="5601" CreationDate="2015-05-11T12:00:23.403" Score="2" Body="&lt;p&gt;&lt;strong&gt;1)&lt;/strong&gt; &quot;To first order&quot; appears to be a shorthand for &quot;to a first-order approximation&quot;, meaning in turn, &quot;to a linear approximation&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;2)&lt;/strong&gt; It is not that &quot;the one implies the other&quot;, it is that the one is consistent with the other.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In attempting to arrive at a functional specification for the &quot;tax distortion costs&quot; function, say $C_D=h(T)$, first we reason that if tax revenue is zero (not due to inefficiency of tax collection and/or tax evasion, but because the tax rate is set to zero), then distortions due to tax will also be zero. This implies that $h(T)$ should not contain a constant term, so that $h(0) = 0$.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Moreover &lt;em&gt;if&lt;/em&gt; we reason (as D. Romer does) that &quot;distortions by taxes are likely to increase more than proportionally with the amount of revenue raised&quot;, this implies that $h(T)$ should &lt;em&gt;not&lt;/em&gt; be linear in $T$, but it should be convex (this is what it means to say &quot;more than proportionally&quot;). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The natural step then is to consider a quadratic distortion cost function, without a constant term:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$C_D =  aT^2,\;\; a&amp;gt;0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which reflects &lt;em&gt;both&lt;/em&gt; our theoretical arguments (and in particular, $h(0) =0$).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But this also implies that &quot;distortion costs are zero to a first-order approximation&quot;, because we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$h'(T) = 2aT \implies h'(0)=0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;so a &lt;em&gt;first-order&lt;/em&gt; approximation (Taylor expansion) around zero would give&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$h(T) \approx h(0) + h'(0)\cdot T = 0+0\cdot T =0$$&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-05-11T12:00:23.403" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5610" PostTypeId="2" ParentId="5605" CreationDate="2015-05-11T12:18:06.213" Score="4" Body="&lt;p&gt;How about a hint rather than an exact answer? &lt;a href=&quot;http://en.wikipedia.org/wiki/Put%E2%80%93call_parity&quot; rel=&quot;nofollow&quot;&gt;Put Call Parity&lt;/a&gt; concerns the relationship between the prices of European put and call options (with matched strike and expiration dates):&#xA;$$ C - P = D(F-K) $$&#xA;where C and P are the current prices of calls and puts respectively, D is the discount factor, F is the forward price of the asset, and K is the strike price. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can rewrite the equation above to get a the price of a negative call, just solve for $-C$.   &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-05-11T14:36:49.603" LastActivityDate="2015-05-11T14:36:49.603" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5611" PostTypeId="2" ParentId="3288" CreationDate="2015-05-11T12:58:29.730" Score="1" Body="&lt;p&gt;An event with a probability $1$ happens &lt;strong&gt;almost surely&lt;/strong&gt;. There is the same difference between that and &lt;strong&gt;absolute certainty&lt;/strong&gt; that in English. One cannot definitively say that these outcomes will never occur, but can for most purposes assume this to be true. The distinction is important because if $A_n, n \in \mathbb{N} $, with for each $n$ $P(A_n)=1$, then you cannot assume $P(\cap_{n \in \mathbb{N}} A_n)=1 $, which you could if the events were absolutely certain, which is why one need to pay attention to the distinction, even though it has no impact on the immediate consequences of the statement.&lt;/p&gt;&#xA;" OwnerUserId="4578" LastActivityDate="2015-05-11T12:58:29.730" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5612" PostTypeId="1" AcceptedAnswerId="5613" CreationDate="2015-05-11T15:11:57.717" Score="2" ViewCount="200" Body="&lt;p&gt;I am having trouble understanding the meaning of the real value of an economic quantity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The concept is easy to grasp: take a year as a base and adjust for inflation by pricing a commodity with the prices from the base-year.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As I understand it, the real value of, let's say, an orange is, or should be, close to its intrinsic value. It measures the how we value an orange by its potential. This intrinsic value is dimensionless (?).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My difficulty is to reconcile the fact that humans do not think in real terms: we observe and value everything via its nominal value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the hypothetical case of comparing two objects that have the same use (let's say, oranges from X country and orange from Y), we always use its nominal value to determine what to buy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What could be an example that could convince me that the real value is a useful metric to analyze economic data?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is the philosophical reason to use real vs nominal value?&lt;/p&gt;&#xA;" OwnerUserId="2707" LastActivityDate="2015-05-11T19:24:04.130" Title="Real vs Nominal Value Concept" Tags="&lt;value&gt;&lt;money&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5613" PostTypeId="2" ParentId="5612" CreationDate="2015-05-11T15:56:51.517" Score="2" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;My difficulty is to reconcile the fact that humans do not think in&#xA;  real terms: we observe and value everything via its nominal value.&quot;&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Those who do that, suffer from what is called the &lt;a href=&quot;https://en.wikipedia.org/wiki/Money_illusion&quot; rel=&quot;nofollow&quot;&gt;&quot;money illusion&quot;&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;In the hypothetical case of comparing two objects that have the same use (let's say, oranges from X country and orange from Y), we always&#xA;  use its nominal value to determine what to buy.&quot;&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Indeed, because this is a comparison of &lt;em&gt;two distinct&lt;/em&gt; (even if comparable) products, &lt;em&gt;at a single point in time&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now just answer the following question:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Your wage today is 100 and the price of oranges today is&#xA;  100/kgr. Tomorrow, the price of oranges will be 200/Kgr and your wage&#xA;  will still be 100. Will your wage tomorrow be the same, &lt;strong&gt;&lt;em&gt;as regards&#xA;  what matters&lt;/em&gt;&lt;/strong&gt;, with your wage today?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Certainly, its &lt;em&gt;nominal&lt;/em&gt; value will be the same. But what about its &lt;em&gt;real&lt;/em&gt; value, i.e. &lt;strong&gt;the value in terms of what matters&lt;/strong&gt;? (how much you can consume, is what matters).&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="31" LastEditDate="2015-05-11T19:24:04.130" LastActivityDate="2015-05-11T19:24:04.130" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5614" PostTypeId="1" AcceptedAnswerId="5618" CreationDate="2015-05-11T20:49:00.153" Score="7" ViewCount="3629" Body="&lt;p&gt;Two goods $x,y$ are perfect complements if they have the utility function &#xA;$$U(x,y) = \min \lbrace ax,by \rbrace $$ &#xA;$$a,b \in \Bbb{Q}^+$$&#xA;My professor said $x,y$ have to be normal goods but didn't explain why well enough that I could understand. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My Question:&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are perfect complements always normal goods? If so, why?&lt;/p&gt;&#xA;" OwnerUserId="2679" LastActivityDate="2015-05-11T21:33:34.070" Title="Do perfect complements have to be normal goods? If so, why?" Tags="&lt;consumer-theory&gt;&lt;perfect-complements&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="5615" PostTypeId="1" CreationDate="2015-05-11T21:00:35.450" Score="3" ViewCount="753" Body="&lt;p&gt;In my last problem set, I had to solve both the Utility Maximization Problem (UMP) and Expenditure Minimization Problem (EMP)  for a Cobb Douglas utility function. Recall, Cobb Douglas is defined as&#xA;$$U(x,y) = x^\alpha y^\beta$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can compute the EMP or UMP. I can then find the other by &quot;duality&quot;. But writing the problem was very tedious and messy. I ended up with an indirect utility function like this &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$v(p_x,p_y,m) = \left(\frac{\alpha m}{p_x}\right)^\alpha \left( \frac{\beta m }{p_y}\right)^\beta$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and doing the Lagrangian was kind of clunky with all this multiplication going on. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there a simpler way to write the problem that can save me time / effort? &lt;/p&gt;&#xA;" OwnerUserId="2679" LastEditorUserId="2679" LastEditDate="2015-05-11T23:40:39.057" LastActivityDate="2020-01-17T16:17:15.957" Title="Fast way to write out the utility optimization problem for a Cobb-Douglas function?" Tags="&lt;consumer-theory&gt;&lt;cobb-douglas&gt;" AnswerCount="2" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5616" PostTypeId="2" ParentId="4765" CreationDate="2015-05-11T21:03:20.960" Score="2" Body="&lt;p&gt;Can't comment, or I'd ask for more specifics first. If you're trying to convert an AR(1) process fitted against a discrete time series to a continuous time process, I found a relevant resource &lt;a href=&quot;http://www.stat.columbia.edu/~rdavis/papers/pap2.pdf&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt; on page 4.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The computations are provided for estimating the coefficients of a CAR(2) process from an AR(2) process, but of course you can substitute a 0 for the second coefficient to get your conversion.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you're trying to convert a discrete time Markov Chain to continuous time, it's going to be more complicated and I'll have to do some more reading before I can give more help. :)&#xA;&lt;a href=&quot;http://www.math.wisc.edu/~anderson/605F11/Notes/StochBioChapter6.pdf&quot; rel=&quot;nofollow&quot;&gt;In the mean time, here's some good reading material I found regarding continuous time Markov Chains.&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="4570" LastActivityDate="2015-05-11T21:03:20.960" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5618" PostTypeId="2" ParentId="5614" CreationDate="2015-05-11T21:33:34.070" Score="11" Body="&lt;p&gt;A good is &lt;em&gt;normal&lt;/em&gt; if its demand is increasing in income. So let $p_x$ and $p_y$ be the price of the goods with quantities $x$ and $y$ and let $m$ be income.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose $ax&amp;gt;by$. Then $\min\{ax,by\}=by$. By slightly reducing $x$ by and spending the saved money on $y$, one gets a better bundle. For an optimal bundle, this cannot be.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Similarly, it cannot be optimal that $by&amp;gt;ax$. So in the optimal consumption bundle, it must be the case that $ax=by$. It is also not that hard to see that the consumer will spend all her income. So rewrite the condition as &#xA;$$y=\frac{a}{b}x$$ and plug it into the budget equation $$p_x x+p_y y=m$$ to get&#xA;$$p_x x+ p_y\frac{a}{b}x=m=x\Big(p_x+p_y\frac{a}{b}\Big).$$&#xA;Therefore, we get the demand function given by $$x(p_x,p_y,m)=\frac{m}{p_x+p_y\frac{a}{b}},$$ which is clearly increasing in $m$. Similarly, one shows that the other good is normal too.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Pedantic remark: A differentiable function can be increasing at every point without the derivative being strictly positve everywhere. The function given by $x\mapsto x^3$ has derivative $0$ at $0$ but is everywhere increasing.&lt;/p&gt;&#xA;" OwnerUserId="1442" LastActivityDate="2015-05-11T21:33:34.070" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="5619" PostTypeId="1" AcceptedAnswerId="5649" CreationDate="2015-05-11T22:39:13.087" Score="3" ViewCount="477" Body="&lt;p&gt;For instance, if one is running a regression with deflated prices for a given year and one of the independent variables is a price index for a given sector, does it make any sense to 'deflate' this variable or somehow extract the content that might be related to the general economy (assuming I am deflating with a more agregated variable, like a consumer price index)? One might think of demand estimation or supply estimation, if that helps.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My first thought was that I shouldn't bother, but now I'm thinking of running an auxiliary regression with the agreggated price index and the sectoral price index as a dependent variable and save the residuals -- does that make sense?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit: Added some more intuition, as follows:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Think of an equation of a residual demand such as $q_t$$=$$\beta p_t$+$\epsilon_t$, where $q_t$ are the quantities, $p_t$ is the price and $\epsilon_t$ is an estochastic error. But since $Cov(p_t,\epsilon_t)≠0$ -- the price $p_i$ is inherently endogenous in a demand function because of the existence of another equation defining price and quantities, the supply equation --, one should estimate demand adequately through instrumental variables estimation. Eligible instruments for demand are supply shifters, such as the company cost. But one could also use some sort price index of a sector as an instrument, a sector that sells inputs to the company out of which you are estimating the residual demand. The thing is that this price index might be related to the price index that you are using for deflating your variables. In that situation, how do you extract these fluctuations related to the general economy out of your price index being used as an instrument?&lt;/p&gt;&#xA;" OwnerUserId="4640" LastEditorUserId="4640" LastEditDate="2015-05-13T03:47:55.640" LastActivityDate="2015-05-13T23:49:17.877" Title="Does it make sense to 'deflate' a sectoral price index in a regression analysis?" Tags="&lt;econometrics&gt;&lt;deflation&gt;&lt;regression&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="5620" PostTypeId="2" ParentId="4957" CreationDate="2015-05-12T00:07:09.673" Score="1" Body="&lt;p&gt;Look take a rational preference $\succeq$ defined on X, endow X with some metric (thus a assume it is a metric space). Assume also X is separable (e.g. $\mathbb{R}^n$  satisfies this conditions but is more general). &#xA;Now we let $\succeq$ be (i) rational (complete, transitive), (ii) continuous (it means that if $x^n\rightarrow x$ , $y^n\rightarrow y$ and $x^n \succeq y^n$ $\forall n$, then $x \succeq y$. Under this assumptions, then it can be represented by a continuous utility function. &#xA;1. u is continuous by the above conditions. &#xA;2. Curves in the level set are closed. It follows from the fact that the indifference relation is a closed set and the continuous utility representation: take $x^n  \sim  y\quad \forall n$ by continuity of the preferences $x \sim y$, now this implies that $u(x^n)$ is a sequence on the level curve $u(x^n)=u(y)$ for fixed y and by above $u(x)\rightarrow u(y)$ thus making it closed.&#xA;The other properties are deeper in the sense that one needs more assumptions, for instance to have the gradient of u it has to be differentiable, uniqueness of the extremum needs some sort of convexity of the level curves and so on.   &lt;/p&gt;&#xA;" OwnerUserId="127" LastActivityDate="2015-05-12T00:07:09.673" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5621" PostTypeId="2" ParentId="5585" CreationDate="2015-05-12T01:06:14.557" Score="2" Body="&lt;p&gt;Although I still don't understand what these &quot;strengths&quot; are all about, still, mechanically, step $4)$ is now clear.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At each point in time, there is a certain allocation of Strengths to actions, $\{S_i(t),\; i=1,2,...,A\}$. This allocation changes through time.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The allocation is turned into a &lt;em&gt;relative frequency distribution&lt;/em&gt; by dividing each $S_i(t)$ by their sum $C(t)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But then &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\sum_{i=1}^A \frac {S_i(t)}{C(t)} =1 $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and (I presume), $S_i(t) \geq 0,\; \forall i$. So indeed this relative frequency distribution can be treated as a probability distribution, and each $S_i(t)/C(t)$ can be treated as a probability that characterizes action $i$ in period $t$.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So you have to &lt;em&gt;code&lt;/em&gt; this probability distribution, and then have the software &quot;randomly draw&quot; from it, as though this distribution was part of  the distributions available in a &quot;random number generator&quot;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The floor is yours now.  &lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-05-12T01:06:14.557" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5623" PostTypeId="2" ParentId="5615" CreationDate="2015-05-12T02:02:47.923" Score="2" Body="&lt;p&gt;Well all Cobb-Douglas have an structure, it is the utility that makes shares constants as budget shares independent of prices &#xA;$p_{l}x^{CD}_{l}(p,w)/w=\alpha_{l}$ with $u^{CD}(x)=\sum_{l}\alpha_{l}log(x_{l})$ and $\sum_{l}\alpha_{l}=1$. &#xA;then you can go back and compute $x_l(p,w)$, with this the indirect utility, then invert to obtain the expenditure and then derive to get the hicksian. &#xA;Not sure if this is what you want but some utility functions have a defining property, the same with the leontief or CES.&lt;/p&gt;&#xA;" OwnerUserId="127" LastActivityDate="2015-05-12T02:02:47.923" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5624" PostTypeId="2" ParentId="4765" CreationDate="2015-05-12T03:20:50.943" Score="6" Body="&lt;p&gt;Suppose $B$ is an $n\times n$ matrix of Poisson transition rates, where $B_{ij}\geq 0$ for $i\neq j$ denotes the rate at which state $i$ transitions to state $j$, and $B_{ii}\leq 0$ gives the rate at which state $i$ transitions to all other states. Each row of $B$ sums to 0. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then if $p(t)$ denotes the probability distribution at time $t$, by definition of $B$ we have the ODE&#xA;$$\dot{p}(t) = Bp(t)$$&#xA;We know what the solution to this kind of ODE looks like: $p(t)=e^{Bt}p(0)$, where $e^{Bt}$ is the &lt;a href=&quot;http://en.wikipedia.org/wiki/Matrix_exponential&quot; rel=&quot;noreferrer&quot;&gt;matrix exponential&lt;/a&gt; of $Bt$. So, if we want $B$ to generate the Markov transition matrix $A$ after $t=1$, we need to have $e^B=A$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In principle, to get $B$, we need to invert the matrix exponential, taking the &lt;a href=&quot;http://en.wikipedia.org/wiki/Logarithm_of_a_matrix#The_logarithm_of_a_non-diagonalizable_matrix&quot; rel=&quot;noreferrer&quot;&gt;matrix logarithm&lt;/a&gt; of $A$. The problem is that each matrix has many matrix logarithms - the logarithm in one-dimensional complex space has infinitely many branches, and this is compounded when we're talking about matrices in $n$-dimensional space. Most of these logarithms will not be satisfactory Poisson transition matrices: maybe they won't be real, or the entries won't have the right signs. Yet it is possible that more than one of them will be: in some cases there is more than one Poisson $B$ corresponding to a Markov $A$, just as in some cases there is &lt;em&gt;no&lt;/em&gt; Poisson $B$ corresponding to $A$. It's messy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Fortunately, there is a situation where life is relatively simple, and it almost certainly includes your own case: &lt;em&gt;when all the eigenvalues of $A$ are positive, distinct reals&lt;/em&gt;. In this case, there is only one logarithm of $A$ that will be real, and it's easy to compute: you just diagonalize the matrix as $A=V\Sigma V^{-1}$ and take the real logarithm of the eigenvalues, getting $B=V\Omega V^{-1}$, where $\omega_{ii} = \log(\sigma_{ii})$. Indeed, you don't need to do this yourself: if you use the command $\text{logm}(A)$ in Matlab (presumably Python too), it will give you precisely this $B$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given this $B$, all you have to do is to verify that it's actually a Poisson matrix. The first requirement, that the rows all sum to zero, is satisfied automatically due to the construction of $B$.** The second requirement, that the diagonal elements are negative and the off-diagonal elements are positive, does not always hold (I think), but it's easy for you to check.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To see this in action, I'll consider an $A$ for a 3-state Markov process that resembles a discretized AR(1).&#xA;$$A = \begin{pmatrix}0.5 &amp;amp; 0.4 &amp;amp; 0.1 \\ 0.2 &amp;amp; 0.6 &amp;amp; 0.2 \\ 0.1 &amp;amp; 0.4 &amp;amp; 0.5\end{pmatrix}$$&#xA;Now, if I type $B=\text{logm}(A)$ into Matlab, I get&#xA;$$B = \begin{pmatrix}-0.86 &amp;amp; 0.80 &amp;amp; 0.06 \\ 0.40 &amp;amp; -0.80 &amp;amp; 0.40 \\ 0.06 &amp;amp; 0.80 &amp;amp; -0.86\end{pmatrix}$$&#xA;This is indeed a valid Poisson transition matrix, as we can easily check that the rows sum to zero and have the right signs - so this is our answer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The case with positive eigenvalues is pretty important, since it spans all cases where there is not some kind of oscillatory behavior in the Markov chain (which would require negative or complex eigenvalues), presumably including your discretized AR(1).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;More generally, the $\text{logm}$ command on Matlab will give us the &lt;em&gt;principal&lt;/em&gt; matrix logarithm, an analogue of the principal scalar logarithm that takes all eigenvalues to have imaginary part between $-\pi$ and $\pi$. The problem is that this is not necessarily the logarithm we want, and by looking at it we might miss a Poisson $B$ that does generate $A$. (That's why the positive eigenvalue case, where we didn't have to worry about this, was so nice.) Still, even in these other cases it can't hurt to try and see if it works.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By the way, this problem of seeing whether there is a $B$ that generates some Markov matrix $A$ has been studied extensively. It is called the &lt;em&gt;embeddability problem&lt;/em&gt;: see some overview and references in &lt;a href=&quot;http://arxiv.org/pdf/1001.1693v1.pdf&quot; rel=&quot;noreferrer&quot;&gt;this excellent survey article by Davies&lt;/a&gt;. I'm not an expert on technical aspects of the problem, though; this answer is based more on my own hackish experience and intuition.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I feel obligated to close by seconding ecksc's comment and saying that there might be better, more direct ways to convert a discretely fitted AR(1) into a finite-state continuous time process - rather than just taking the matrix obtained via the Tauchen method and making it continuous. But I don't personally know what that better way is!&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;**Explanation (though I'm rusty): $A$ has a unique Perron-Frobenius eigenvalue of 1, and since $A$ is stochastic the right eigenvector of this eigenvalue is the unit vector $e$. This is still the right eigenvector, now with an eigenvalue of 0, when we take the matrix logarithm.&lt;/p&gt;&#xA;" OwnerUserId="405" LastEditorUserId="405" LastEditDate="2015-05-12T05:53:26.427" LastActivityDate="2015-05-12T05:53:26.427" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5625" PostTypeId="1" AcceptedAnswerId="5626" CreationDate="2015-05-12T06:27:36.810" Score="6" ViewCount="942" Body="&lt;p&gt;&lt;strong&gt;Need sources of information about&lt;/strong&gt; &quot;Why is life expectancy growing faster than retirement age?&quot; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there any literature about &quot;why the increased quality of life and medicine in rich countries doesn’t increase the ability to work for older people?&quot;&lt;/p&gt;&#xA;" OwnerUserId="4643" LastEditorUserId="120" LastEditDate="2015-05-12T08:07:52.587" LastActivityDate="2015-05-12T13:16:48.187" Title="Why life expectance is growing faster than retirement age? - source needed" Tags="&lt;labor-economics&gt;&lt;reference-request&gt;" AnswerCount="2" CommentCount="8" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5626" PostTypeId="2" ParentId="5625" CreationDate="2015-05-12T07:56:55.473" Score="6" Body="&lt;p&gt;Loss-aversion and political tactics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A lot of the elderly are no longer physical broke down - which was the original reason for retirement. But, if you can retire in good health, it is completely rational for the individual to do this, and to vote for the politicians who will provide this for you. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or, as a danish mayor once put it: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;When you first throw something into the monky cage, it is hard to&#xA;  get it back again&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Aka, when you first give people major entitlements and life improvements, it is next to political impossible to take them away. &lt;/p&gt;&#xA;" OwnerUserId="107" LastEditorUserId="4644" LastEditDate="2015-05-12T08:06:10.967" LastActivityDate="2015-05-12T08:06:10.967" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="5627" PostTypeId="1" CreationDate="2015-05-12T10:32:40.497" Score="6" ViewCount="150" Body="&lt;p&gt;Has Stack Overflow an overall positive impact on programmers productivity? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;On one side, it takes time and effort to ask and answer questions -- thus decreasing productivity. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other side, more and more programmer questions are answered and easily found through Google. This allows many programmers to find solutions to their problems quicker than ever before, thus increasing productivity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Has Stack Overflow been economically beneficial to programmer productivity? If so, can this be quantified in terms of money? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note: I've asked this &lt;a href=&quot;https://skeptics.stackexchange.com/questions/18539/has-stack-overflow-saved-billions-of-dollars-in-programmer-productivity&quot;&gt;related question&lt;/a&gt; on Skeptics.SE, but it turns out there is no peer-reviewed research on the matter.&lt;/p&gt;&#xA;" OwnerUserId="92" LastEditorUserId="-1" LastEditDate="2017-04-13T12:46:46.340" LastActivityDate="2015-05-12T19:20:49.233" Title="Has Stack Overflow been economically beneficial to programmer productivity?" Tags="&lt;labor-economics&gt;&lt;productivity&gt;&lt;software&gt;" AnswerCount="2" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="5629" PostTypeId="2" ParentId="5627" CreationDate="2015-05-12T12:29:09.843" Score="2" Body="&lt;h3&gt;Exogenous Variation&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;As Andre says, you are after &lt;em&gt;causality&lt;/em&gt;, not just correlation. And the best way to find that is exogenous variation - he mentions experiments. Unless you can randomly force some people to use SO - and forbid it to a control group, there is little you can do with true experiments.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There may be salvation, however. You are after the &quot;&lt;strong&gt;treatment of the treated&lt;/strong&gt;&quot; effect - those who are informed about SO, and decide to use it. That is hard to get, because the latter step will correlate with ability. Some people are just better/more efficient/smarter and hence can benefit from SO more/less. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In order to remove this self selection, you could instead look at something like the &quot;&lt;strong&gt;average treatment effect&lt;/strong&gt;&quot;. We inform a subsample about SO. Some will use it, some will not. What is the average increase of productivity in this sample?&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;IV Estimation&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;Now, you will either randomly inform individuals about SO (something that StackExchange as a company might actually do), or you/they might already have data on &quot;being informed about SO&quot;, lets call that &lt;em&gt;inform&lt;/em&gt;. As long as &lt;em&gt;inform&lt;/em&gt; does not correlate with relevant characteristics (such as skill), you can use that as a proxy. Unfortunately, one might argue that it actually does: Perhaps smarter/better programmers are also better at creating networks / using google, and hence are more likely to find SO and become &lt;em&gt;inform&lt;/em&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course, if you also have data for ability, you can control for that, so this particular bias would be removed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, all you have to do is regress some measure of productivity/success/career advancement onto &lt;em&gt;inform&lt;/em&gt;, and perhaps &lt;em&gt;ability&lt;/em&gt;.&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2015-05-12T12:38:41.897" LastActivityDate="2015-05-12T12:38:41.897" CommentCount="9" ContentLicense="CC BY-SA 3.0" />
  <row Id="5630" PostTypeId="2" ParentId="5625" CreationDate="2015-05-12T13:03:07.237" Score="1" Body="&lt;p&gt;There are fixed costs of working at a job. Commuting is one important example. Often so are certain work benefits like health insurance. But there are other challenges to adding an additional employee but not additional hours like managerial attention, scheduling difficulties and deadlines when people work less per week and where to put extra workers that are less tangible. Fixed costs create an incentive to do your working in a compressed part of the life cycle. In the presence of fixed costs, as people get richer and put this wealth to work in a way that increases life expectancy they wouldn't cut back on hours per day or hours per year even, rather they'd cut back on the years (starting work older and finishing work earlier). And that's exactly what happened in Japan: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/DfqXp.jpg&quot; alt=&quot;Japan’s Labour Force Participation Rate by Sex &amp;amp; Age: 1960-2012&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://japanfocus.org/-Helen-Macnaughtan/4302/article.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Womenomics for Japan: is the Abe policy for gendered employment viable in an era of precarity?&lt;/a&gt; &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-05-12T13:16:48.187" LastActivityDate="2015-05-12T13:16:48.187" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5631" PostTypeId="1" AcceptedAnswerId="5633" CreationDate="2015-05-12T16:31:10.370" Score="2" ViewCount="63" Body="&lt;p&gt;Fairly straight forward, Can I assume that Price Level and Inflation are interchangeable when looking at these graphs together?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Generally, are they equivalent in Macroeconomics?&lt;/p&gt;&#xA;" OwnerUserId="2748" LastActivityDate="2015-05-12T21:43:36.330" Title="Is Price Level equivalent to Inflation when looking at AD/AS and Phillips Curve graphs?" Tags="&lt;price-level&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5632" PostTypeId="2" ParentId="5627" CreationDate="2015-05-12T19:20:49.233" Score="0" Body="&lt;p&gt;As many have mentioned it can be quantified in monetary terms. As Foobar mentions what we need is exogenous variation* in access to Stack Exchange. Here is one study design: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Inform and give a short introduction to random cohorts in their second year at university about StackOverflow, then come back in few years and compare grades and maybe later work outcomes (such as salary). If it is done in second year, grades from first year can be introduced as controls and to see if randomization was truly successful.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;*Variation that is not (cor)related to other characteristics related to programming productivity.&lt;/p&gt;&#xA;" OwnerUserId="4193" LastActivityDate="2015-05-12T19:20:49.233" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5633" PostTypeId="2" ParentId="5631" CreationDate="2015-05-12T19:50:46.470" Score="0" Body="&lt;p&gt;Related but not equivalent. I assume you mean &lt;em&gt;inflation rate&lt;/em&gt; when you say inflation,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $p_t =$ price level at time t &lt;/p&gt;&#xA;&#xA;&lt;p&gt;=&gt; inflation rate at time t $ = \frac{p_{t}-p_{t-1}}{p_{t-1}} = \frac{p_{t}}{p_{t-1}} -1 $&lt;/p&gt;&#xA;" OwnerUserId="4193" LastActivityDate="2015-05-12T19:50:46.470" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5634" PostTypeId="2" ParentId="5631" CreationDate="2015-05-12T21:43:36.330" Score="3" Body="&lt;p&gt;Snoram is correct. Price level is a just that, the relative level of prices. Inflation/deflation is the act of moving up/down price levels. The inflation rate is the difference in price levels from one time period to another. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I.E. Year 1: Price level = 100 |  Year 2: Price level =105.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There was inflation in the economy (because price level increased). The inflation rate was 5%.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another example:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I.E. Year 1: Price level = 177&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this example we do NOT know if the economy is experiencing inflation or deflation becuase we only have a single point in time and thus cannot determine the rate or direction of change.&lt;/p&gt;&#xA;" OwnerUserId="4598" LastActivityDate="2015-05-12T21:43:36.330" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5635" PostTypeId="1" CreationDate="2015-05-12T23:38:16.097" Score="6" ViewCount="316" Body="&lt;p&gt;My professor stated four axioms in class &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Scarcity&lt;/li&gt;&#xA;&lt;li&gt;Rationality (aka purposive behavior) &lt;/li&gt;&#xA;&lt;li&gt;Stable Preferences &lt;/li&gt;&#xA;&lt;li&gt;Equilibrium &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I don't understand what these axioms are for. I am used to axioms with distinct mathematical properties (eg definition of a vector space) and these axioms don't have that. &#xA;I had an exam question that said &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;True/False/Uncertain. The Law of Demand is a direct result of diminishing marginal utility. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;and I was supposed to use the scarcity axiom. But what does it mean to show this claim is false? The principle of scarcity is just that &quot;resources are scarce&quot;. That's not mathematical. How can I prove the above statement is false using it? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My Question:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How can I tell when a question requires a proof versus merely conceptual reasoning / explaining? What is the difference between the two? &lt;/p&gt;&#xA;" OwnerUserId="2679" LastActivityDate="2015-05-17T07:08:19.463" Title="Do claims in economics require proofs?" Tags="&lt;consumer-theory&gt;" AnswerCount="3" CommentCount="8" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5636" PostTypeId="2" ParentId="5357" CreationDate="2015-05-13T01:45:37.020" Score="1" Body="&lt;p&gt;For both Slutsky transfer and Hicksian transfer, the only parameter changing in the problem is income $m$. You are adding money in the case of a price increase and removing money in the case of a price decrease.  For Hicksian, this means &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$T_H = e(p_x^f,p_y,v^o) - m$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For Slutsky &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$T_S = \Delta p x_M$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To understand why Slutsky overcompensates but Hicksian does not, we need to think more carefully about them. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider Hicksian compensation. The Hicksian transfer provides the consumer with just enough money to return to his original indifference curve. But he doesn't have enough to buy the original bundle. He only has enough to buy a bundle with the same utility level. This is the same point we would get if we solved &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\min p_x^f x + p_y y$$ &#xA;subject to &#xA;$$v^o = U(x,y)$$&#xA;In other words, the Hicksian transfer moves us to the bundle that solves that problem. So for this reason Hicks doesn't overcompensate. It is exactly the amount required given the final price and desired utility level. Hence, it is tangent. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now consider the Slutsky transfer. Algebraically, we can see it allows us to purchase the original bundle &lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{align*} &#xA;y &amp;amp;= -\frac{p_x^f}{p_y} x + \frac{m + T_s}{p_y}\\&#xA;y &amp;amp;= -\frac{p_x^f}{p_y} x + \frac{m + p_x^f x - p_x^o x}{p_y}\\&#xA;p_y y &amp;amp;= -p_x^fx + m + p_x^f x - p_x^o x\\&#xA;p_y y &amp;amp;=  m + - p_x^o x\\&#xA;p_y y + p_x^o x &amp;amp;=  m &#xA;\end{align*} &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So it restores the ability to purchase the original bundle. But this line doesn't have the same slope as our original budget constraint before the price change. This one is parallel to the Hicksian transfer. Yet we already established that the Hicksian transfer was the solution to the expenditure minimization problem and hence tangent. Given that we usually assume strictly convex curves, it must form a chord and thus have bundles that offer greater utility than the Hicksian transfer. Thus, the consumer can move to a higher indifference curve. And so Slutsky transfer overcompensates the consumer because we can now buy bundles on higher indifference curves than prior to the price increase.  &lt;/p&gt;&#xA;" OwnerUserId="2679" LastActivityDate="2015-05-13T01:45:37.020" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5637" PostTypeId="2" ParentId="5596" CreationDate="2015-05-13T03:18:31.013" Score="3" Body="&lt;p&gt;It's actually pretty straight forward. The implicit function theorem for two variables is given as follows (as long as some regularity conditions hold):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For $F(x, y) = 0$,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$&#xA;\frac{dy}{dx} = -\frac{\partial F / \partial x}{\partial F / \partial y}&#xA;$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the case of &lt;em&gt;MRS&lt;/em&gt;, we want the marginal change in $x$ associated with a marginal change in $y$ required to maintain a certain level of utility, $c$, such as (conveniently) $c=0$. So, starting with&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$U = U(x, y) = 0$,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac{dy}{dx} = -\frac{U_x}{U_y}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that $c=0$ is just a simplification for exposition. For a general $c$, you can just subtract it from either side of the equation and you get the same result since $c$ disappears in the derivative.&lt;/p&gt;&#xA;" OwnerUserId="238" LastEditorUserId="238" LastEditDate="2015-05-13T17:06:35.560" LastActivityDate="2015-05-13T17:06:35.560" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5638" PostTypeId="1" CreationDate="2015-05-13T06:15:35.817" Score="0" ViewCount="42190" Body="&lt;p&gt;I need help with this question. I do know the procedure to calculate the equilibrium income and can solve the following question without taking the employment factors in mind. However, I just can't get how the employment factor figures in the equilibrium calculations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose labour and capital are used in fixed proportions in the production of output in a closed economy. Suppose the existing capital equipment is utilised fully but a quarter of the labor force is unemployed. Let $Y$,$C$ and $I$ represent aggregate levels of income, consumption, and investment expenditure in the economy in dollars at constant prices. Let $C=100+0.6Y, I=500, G=200$&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Calculate the level of income in the economy.&lt;/li&gt;&#xA;&lt;li&gt;If the government raises its nominal expenditure to 400, then what is the increase in real income in the economy?&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;If the government raises its nominal expenditure to 400, then what is the fall in the percentage of unemployed in the economy?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is how I've solved it :&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Y=C+I+G = 800+0.6 Y So Y = 2000&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;With 400 as government expenditure, the new equilibrium income will be 2500. So the increase in the income is 500.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;I think this will be solved using Okun's law:&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;$$\Delta u_{t}=0.4(g_{y_{t}}-3)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But I'm not sure how to proceed.&lt;/p&gt;&#xA;" OwnerUserId="4653" LastEditorUserId="2776" LastEditDate="2016-09-04T00:48:52.700" LastActivityDate="2016-09-04T00:48:52.700" Title="How to calculate equilibrium income given a certain level of unemployment?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ClosedDate="2016-05-06T14:46:33.917" ContentLicense="CC BY-SA 3.0" />
  <row Id="5639" PostTypeId="1" AcceptedAnswerId="5640" CreationDate="2015-05-13T10:44:44.090" Score="6" ViewCount="249" Body="&lt;p&gt;I am currently doing a research work on quantitative easing and can't find any example of it occurring in Africa. Have any African central banks ever used QE?&lt;/p&gt;&#xA;" OwnerUserId="4655" LastEditorUserId="40" LastEditDate="2015-06-09T06:18:29.457" LastActivityDate="2016-11-22T16:57:42.550" Title="Quantitative Easing in Africa" Tags="&lt;monetary-policy&gt;&lt;inflation&gt;&lt;quantitative-easing&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5640" PostTypeId="2" ParentId="5639" CreationDate="2015-05-13T10:58:53.990" Score="9" Body="&lt;p&gt;For Quantitative Easing to happen, a central bank needs to expand its balance sheet by, more or less, &quot;printing money&quot; from scratch. Quantitative Easing is a difficult policy in that you want to encourage inflation to force investment, but at the same time you need to control that inflation. For this reason QE should be used only when central banks believe economy is growing slower than it could/should be, which does not happen a lot in Africa.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For QE to be efficient, you need a strong central bank/currency, ie printing new dollars will create more dollars, but printing new 1920s Deutschmarks will only bring down the value of an individual Deutschmark.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To my knowledge, the only African country that wandered in Quantitative Easing is &lt;a href=&quot;http://en.wikipedia.org/wiki/Economy_of_Zimbabwe#Hyperinflation_2004-2009&quot; rel=&quot;nofollow noreferrer&quot;&gt;Zimbabwe&lt;/a&gt;. The success of this policy may by itself discourage any other comparable country to engage in such a policy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;QE is a last resort policy for stalling economies. Japan, Western Europe and the USA are countries where QE has been widely discussed because it is sometimes believed investment is delayed in hope of better days - QE should prevent this, but this is not a typically African problem, to my knowledge.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;TL;DR: Even if African central banks were strong enough to engage in QE, African economies don't need such a policy to date.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that as mentionned in a comment, Quantitative Easing is a set of policies that has no standardized definition and that some examples above are anachronic with regard to the relatively recent introduction of the notion. While the term dates back to the early 2000s, what we know describe as QE was never practised as strongly as in the 1930s and 1940s against the Great Depression.&lt;/p&gt;&#xA;" OwnerUserId="4578" LastEditorUserId="4578" LastEditDate="2016-11-22T16:57:42.550" LastActivityDate="2016-11-22T16:57:42.550" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5641" PostTypeId="2" ParentId="5639" CreationDate="2015-05-13T12:02:34.730" Score="4" Body="&lt;p&gt;Quantitative easing (QE) is an historically unusual monetary policy tool that involves the purchase of financial assets by the central bank. Unlike similar assete purchases used for moving exchange rates, these assets are typically local currency denominated and not &lt;a href=&quot;http://en.wikipedia.org/wiki/Sterilization_%28economics%29#A_sterilized_intervention_to_prevent_currency_depreciation&quot; rel=&quot;nofollow noreferrer&quot;&gt;sterilized&lt;/a&gt;. Although central bank purchase of government debt occurs in both QE and &lt;a href=&quot;http://en.wikipedia.org/wiki/Monetization&quot; rel=&quot;nofollow noreferrer&quot;&gt;monetization&lt;/a&gt; (like what occurred in Zimbabwe and the Weimar inflation), they are actually quite different. Under QE asset purchases are usually expected to be temporary and accumulated assets (money) ultimately resold (returned in exchange  for assets). Monetization has neither expectation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;QE is typically been employed as a way of increasing the monetary base when interest rates at or close to the zero lower bound and therefore conventional monetary policy tools  like changing the federal funds rate are (thought to be) ineffective. Many African countries are poor candidates for QE because they have pegged currencies, participate in a currency union, or have high inflation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/HaVcC.png&quot; alt=&quot;High inflation across many African nations&quot;&gt;&#xA;&lt;a href=&quot;http://www.afdb.org/en/blogs/afdb-championing-inclusive-growth-across-africa/post/relentless-inflation-the-scourge-returns-8252/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Relentless Inflation: The Scourge Returns&lt;/a&gt; &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-05-19T09:20:50.947" LastActivityDate="2015-05-19T09:20:50.947" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5642" PostTypeId="2" ParentId="1815" CreationDate="2015-05-13T12:36:41.327" Score="2" Body="&lt;p&gt;&lt;em&gt;This was supposed to be a comment to @rumtscho, but it turns out to be too long, and then I kept adding information, so perhaps this deserves to be its own answer&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Is an increase in mobility really detrimental for efficiency?&lt;/strong&gt; Imagine a world with non-mobile capital and labor. Now we increase mobility of capital (but not labor). Now @rumtscho argues, this would decrease employment. In general, the opposite should happen: A decrease in rigidity increases efficiency (in almost any model I am aware of), and hence the utilization of previously unused resources. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Intuition&lt;/strong&gt; Intuitively, imagine some people being unemployed in region XYZ, because they are stuck in a region with labor but no capital. With mobility of capital, capital will move towards that region (because unused labor promises higher returns to capital). &lt;/p&gt;&#xA;&#xA;&lt;h3&gt;General Case&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;Technically, the change over time of the unemployment rate $u(t)$ can be denoted as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \dot u(t) = s(t)(1-u(t)) + u(t)e(t)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $s(t)$ is the rate of separations, and $e(t)$ is the rate at which unemployed find employment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, technology can affect both $s(t)$ and $e(t)$. I have brought forward reasons why $e(t)$ may increase, and @rumtscho has brought forward reasons for why $s(t)$ can increase.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Conclusion&lt;/strong&gt; The overall outcome is unknown. Anecdotal evidence and intuitive hand-waiving arguments have betrayed the economic profession quite often. To answer the question at hands, we need &lt;strong&gt;real data&lt;/strong&gt;. Of which I, unfortunately, am not aware of.&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2015-05-13T12:45:21.493" LastActivityDate="2015-05-13T12:45:21.493" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5643" PostTypeId="1" CreationDate="2015-05-13T12:43:47.430" Score="0" ViewCount="59" Body="&lt;p&gt;While evaluating the whole entrerprise value of &lt;a href=&quot;http://www.4-traders.com/FALCK-RENEWABLES-SPA-96876/financials/&quot; rel=&quot;nofollow&quot;&gt;Falck Renewables&lt;/a&gt; using the discounted cash flow method I end up with a negative continuing value and economic profit due to the negative spread between weighted average cost of capital (WACC) and Return On Invested Capital's (ROIC) values. The final evaluation is very low (100M€ vs 900M€ from other methods). The debt/equity ratio of the company is 70%/30% and 90% of that debt is project financing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem is that the massive amount of debt from project financing weighs heavily on the ratios and leads to very negative results. How can I handle the project financing debt to get a more consistent results?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some thoughts: &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;I could devalue the financial value of debt and investment using a project specific WACC (which would have to be lower than the company one)&lt;/li&gt;&#xA;&lt;li&gt;I could change the accounting of the debt | investment restating a the longest ones as non-operating assets and debts? Or by depreciating.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="2829" LastEditorUserId="69" LastEditDate="2015-05-13T13:49:57.643" LastActivityDate="2015-05-13T13:49:57.643" Title="Project Financing Evaluation and accounting" Tags="&lt;finance&gt;&lt;debt&gt;&lt;investment&gt;&lt;accounting&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5644" PostTypeId="2" ParentId="5635" CreationDate="2015-05-13T16:18:51.387" Score="5" Body="&lt;p&gt;These assumptions actually have distinct mathematical ground, but your professor likely decided to leave this out for (of course bad) pedagogic reasons.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;scarcity&lt;/strong&gt;: society has insufficient productive resources to fulfil all human wants and needs. Scarcity is the motive behind economics. If it is cheaper for everybody to get a given good from the ground than to produce it, then they are not economic goods, they don't have a market value and are not treated by introduction classes in economics. This can be stated as: for all actor, for all (studied) goods, the cost of acquiring the good is strictly positive.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;Rationality&lt;/strong&gt;: people adopt the best actions to achieve their goals. Usually, this is translated in maths by introducing a &lt;a href=&quot;http://en.wikipedia.org/wiki/Utility#Quantifying_utility&quot; rel=&quot;nofollow&quot;&gt;utility&lt;/a&gt; function from the possession set to a measuring set (usually $\mathbb{R}$), and stating people always act in order to maximize their utility.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;Stable Preferences&lt;/strong&gt;: Using the same utility function as above, this states that this function does not depend of time. This implies that if you prefer having a kilogram of soup than a kilogram of raw potatoes today, it will still be the case tomorrow.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;Equilibrium&lt;/strong&gt;: Here I have to guess, but given your example I suppose you're studying equilibrium on the market. I guess what your teacher meant is that you study the economy at a time when the amount of goods or services sought by buyers is equal to the amount of goods or services produced by sellers.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;All these definitions are not guaranteed to match with those implied by your teacher, but are consistent and widely taught in economics. When not otherwise specified, economical answers require referring to a consistent framework of axioms from which mathematics should be able to guide you to the solution you're trying to state. Different models can show different solution, but one model should give only one solution (which can be composite: &quot;people buy more or less goods at the end of the month&quot; is a valid solution, but &quot;people buy more goods at the end of the month&quot; and &quot;people buy less goods at the end of the month&quot; should not be obtained from the same data with the same model...).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, economic practice does not require you to re-demonstrate any known result (mostly, the results which you know a name for can be used as starting points for your answers). If you're not confident with &quot;explaining&quot;, you need to be able to think about a one-line mathematical justification for each explanation you give, and thus you will ensure your explanations give you the expected marks.&lt;/p&gt;&#xA;" OwnerUserId="4578" LastEditorUserId="4578" LastEditDate="2015-05-13T19:32:44.250" LastActivityDate="2015-05-13T19:32:44.250" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5645" PostTypeId="1" AcceptedAnswerId="5668" CreationDate="2015-05-13T18:01:33.347" Score="2" ViewCount="652" Body="&lt;p&gt;What is some intermediate or advanced macroeconomics textbook that use general approach, cover major formulas, math intense and focus on general topics similar to Romer's and Branson's Macroeconomics book?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Instead of being use more specific approach like Macroeconomic Theory: A Dynamic General Equilibrium Approach?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Foundations of Modern Macroeconomics by Ben and Lectures on Macroeconomics by Blanchard are both good, what else are out there and how would you compare those two of four i mentioned with your choices in your answer? I know that a graduate economics textbook that teach general topics tend to be easier.&lt;/p&gt;&#xA;" OwnerUserId="95" LastEditorUserId="95" LastEditDate="2015-05-14T01:58:36.593" LastActivityDate="2015-05-15T11:30:21.190" Title="What is some intermediate or advanced macroeconomics textbook use general approach and focus on general topics?" Tags="&lt;macroeconomics&gt;&lt;reference-request&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5646" PostTypeId="2" ParentId="5539" CreationDate="2015-05-13T18:33:24.723" Score="0" Body="&lt;p&gt;My guess would be that $\Delta B$, the amount of Bitcoins introduced in the economy in a given year (which you can get from the value of Bitcoin and characteristics of Bitcoin algorithm) and $\Delta S$ (same for dollars, supposingly given by the Fed) should verify $B/S = \Delta B / \Delta S$, or people would decide to keep their liquidities in the currency that is less eased to avoid depreciation.&lt;/p&gt;&#xA;" OwnerUserId="4578" LastActivityDate="2015-05-13T18:33:24.723" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5648" PostTypeId="2" ParentId="5635" CreationDate="2015-05-13T22:41:15.537" Score="2" Body="&lt;p&gt;Without going into rigorous formulations in the language of the logic discipline: outside the mathematics discipline, we can think of an &lt;em&gt;&lt;strong&gt;axiom&lt;/strong&gt;&lt;/em&gt; as something that is accepted as fact without rigorous proof, &lt;em&gt;usually because it appears self-evident&lt;/em&gt;, being  observed countless times, in many different historical, social, cultural etc contexts. What is the difference from an &lt;em&gt;assumption&lt;/em&gt;?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Well, by uttering the word &quot;&lt;strong&gt;assumption&lt;/strong&gt;&quot;, one already acknowledges that its generality is much less than that of an axiom. It may be an assumption that appears to hold widely, but not with the universality that an axiom carries. So changing assumptions is &quot;fair game&quot; -we try out different assumptions, to see what happens. On the other hand, ignoring an axiom, although certainly not &quot;forbidden&quot;, casts a shadow of doubt on any results that will be obtained thus.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Under this view, three out of four of what your professor stated as &quot;axioms&quot;, can indeed be seen as such, in my opinion and in the loose sense of the word we are applying here.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;SCARCITY:&lt;/strong&gt;  The economics discipline would not exist without Scarcity: both efficiency and distributional issues would be non-existent in the long-run, in the absence of scarcity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;PURPOSIVE BEHAVIOR&lt;/strong&gt;: In such abstract formulation, I could make it a theorem stemming from the axiom of Scarcity and the biological facts about the human body. But it is more convenient to treat it as an &quot;axiom&quot; (again, in the rather loose sense we are using the word here). Note that I avoided the word &quot;rationality&quot; because it has also a strict use in economics and then it means something different all together (we call preferences &quot;rational&quot; if they are complete and transitive, that's all -nothing to do with purposive behavior).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;EQUILIBRIUM&lt;/strong&gt; Why an axiom? Because it essentially reflects survival (biological or other), in an almost analytical sense (i.e. devoid of meaning). I understand &quot;equilibrium&quot; as a tendency, not as an always-holding situation. &lt;a href=&quot;https://economics.stackexchange.com/questions/35/what-are-the-foundational-equations-of-economics/49#49&quot;&gt;Also, an older answer of mine applies&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But in no way should we treat &quot;stable preferences&quot; as an &quot;axiom&quot;- on the contrary, it is an observed fact that preferences can be state-dependent, but also and more widely observed, time-varying (are your preferences the same when young, compared to when middle-aged? I don't think so). And there is a lot of economic research going on with non-stable preferences (the simplest I can think of is a time-varying pure rate of time-preference in growth models). Here we have a clear case of an &quot;assumption&quot;.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-05-14T00:18:45.930" CommentCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="5649" PostTypeId="2" ParentId="5619" CreationDate="2015-05-13T23:49:17.877" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;In that situation, how do you extract these fluctuations related to&#xA;  the general economy out of your price index being used as an&#xA;  instrument?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Regress the sectorial price index on the general price index, and use as instrument in the demand equation the &quot;residuals plus estimated constant&quot; from the previous regression.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;These residuals will be by construction orthogonal to the general price index which indeed could be also a demand shifter, something that would invalidate the sectorial price index as an instrument.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As is the case with any time-series data, one should also deal with possible issues of non-stationarity, co-integration etc.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-05-13T23:49:17.877" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5650" PostTypeId="1" CreationDate="2015-05-14T00:59:24.827" Score="3" ViewCount="130" Body="&lt;p&gt;Say we have an uniform price auction where 1 really rare stamp is for sale.  Only 5 randomly selected stamp collectors are invited to bid and the stamp ends up selling for 1 million dollars.  Now pretend that auction never happened.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If 6 randomly selected stamp collectors were invited instead of 5 in the previous example (again, original auction never happened), what expected percent increase in revenue should the stamp sell for - 10% more, 15% more?  Similarly, what if only 4 bidders were allowed to the auction?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In short, I'm trying to determine how increasing or decreasing bidder participation by 1 impacts the ultimate selling price on a percentage basis.  I'm sure lots of variables are at play, so am not sure if any economic theory can be used to address this.&lt;/p&gt;&#xA;" OwnerUserId="4659" LastEditorUserId="108" LastEditDate="2015-05-16T14:44:09.987" LastActivityDate="2015-05-16T15:11:28.760" Title="Bidder Count Impact on Uniform Price Economics" Tags="&lt;game-theory&gt;&lt;mathematical-economics&gt;&lt;mechanism-design&gt;&lt;auctions&gt;" AnswerCount="3" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5651" PostTypeId="2" ParentId="5650" CreationDate="2015-05-14T01:51:03.920" Score="1" Body="&lt;p&gt;I am not sure I have the knowledge to provide you with a complete answer, but I can provide you with some insight.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First assume a pool of potential bidders. They are normally distributed. Each bidder has their own marginal benefit for this stamp. Call this $\alpha$.&#xA;Each bidder is a utility maximiser with the utility function &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$u_i=\alpha_i-p_i$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A bidder will continue bidding until they assess that they will be happier with the money in their pocket.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;5 bidders are pulled from the pool and given the opportunity to participate in the auction. The result of the auction is that the price the stamp sold for is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$p_1=\alpha_2+\epsilon$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The price of the stamp is equal to the marginal benefit of the second highest bidder + an arbitarily small number. This is the price at which no party will raise the bid.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If there were a second auction with the same first 5 bidders+ an additional bidder, there is a possibility that this new bidder has a low marginal benefit of this product and has no impact on the price at an auction.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The condition for auction 2 to sell higher than auction one is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$p_2&amp;gt;p_1=P[\alpha_{entrant}&amp;gt;\alpha_2]$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The marginal benefit of the entrant has to be higher than the marginal benefit of the second highest bidder.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The potential price with the addition of a new bidder is bounded between $[\alpha_2,\alpha_1]$. The price will not go any higher than what the second highest bidder is prepared to pay for it.&lt;/p&gt;&#xA;" OwnerUserId="40" LastActivityDate="2015-05-14T01:51:03.920" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5652" PostTypeId="1" CreationDate="2015-05-14T03:03:50.727" Score="5" ViewCount="707" Body="&lt;p&gt;If it is assumed that every consumer within a particular region has the same 'valuation' for a certain product, and consumers will purchase no more than one unit of the product, is the market demand curve perfectly elastic (horizontal)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any insight would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="4662" LastEditorUserId="120" LastEditDate="2015-05-14T06:25:37.827" LastActivityDate="2015-05-18T05:38:01.023" Title="Horizontal demand curve" Tags="&lt;supply-and-demand&gt;&lt;elasticity&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5653" PostTypeId="2" ParentId="5650" CreationDate="2015-05-14T03:06:03.850" Score="5" Body="&lt;p&gt;It is a known result in Mechanism Design that both first-price as well as second-price auctions yield the same expected revenue, under certain conditions (like independence of valuations, private information, etc). Consult   &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0273731912&quot; rel=&quot;nofollow&quot;&gt;Jehle, G. A., &amp;amp; Reny, P. J. (2011). Advanced Microeconomic Theory (3d ed.)&lt;/a&gt;, ch.9 on Auctions and Mechanism Design, for a very accessible exposition of the basics, as well as for the full set of conditions that must hold.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The answer to your question is bound to be distribution-specific. Assume as an example, that, from the point of view of the seller, all (unknown to him) valuations of the bidders for the object for sale, come from a Uniform $U(0,1)$ distribution: this implies that we have normalized the value of the object for sale and that we express the possible valuations of it as a percentage of its &lt;em&gt;possible&lt;/em&gt; maximum value, which is assumed common for all bidders. I.e. What we say here is :&quot;we don't know how much each bidder actually values the object, but we do know that the maximum &lt;em&gt;possible&lt;/em&gt; valuation by a bidder will be some $V&amp;gt;0$, and this $V$ is common to all bidders&quot;. We do &lt;em&gt;not&lt;/em&gt; assert that there exists some bidder that actually values the object at $V$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In such a setup, the Expected Revenue of the Seller is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ER(N) = \frac {N-1}{N+1} \tag {1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $N$ is the number of bidders. Again, this essentially expresses expected revenue as a fraction of the object (unidentified) maximum value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now you can play around with $N$ to see how the expected revenue changes, in absolute, relative and percentage terms. It sure isn't changing linearly, but it is everywhere &lt;em&gt;increasing&lt;/em&gt; in $N$, approaching unity (i.e. the object maximum valuation).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This should be intuitive in the framework adopted: the more the bidders are, the more probable becomes to obtain higher and higher valuations of the object, and so also to sell it at a higher value.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-05-16T14:08:51.457" LastActivityDate="2015-05-16T14:08:51.457" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="5654" PostTypeId="2" ParentId="5638" CreationDate="2015-05-14T05:38:55.167" Score="2" Body="&lt;p&gt;this is how I've solved it :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(a) Y=C+I+G = 800+0.6 Y&#xA;    So Y = 2000&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(b) With 400 as government expenditure, the new equilibrium income will be 2500. So the increase in the income is 500.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(c) I think this will be solved using Okun's law ut-ut-1=0.4(gyt-3%). But I'm not sure how to proceed.&lt;/p&gt;&#xA;" OwnerUserId="4665" LastActivityDate="2015-05-14T05:38:55.167" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5655" PostTypeId="1" AcceptedAnswerId="5660" CreationDate="2015-05-14T06:05:11.070" Score="1" ViewCount="137" Body="&lt;p&gt;This is a question which was asked in the entrance to Jawaharlal Nehru University's (New Delhi) entrance for their post-grad program specializing in International Economics in 2014.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which of the following is true regarding the relation between IS and AD curves?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;a) The commodity market must be in equilibrium along the IS curve but it may not be in equilibrium along the AD curve.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;b) An increase in government spending will shift the IS curve but not the AD curve.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;c) The steeper the IS curve, the steeper the AD curve.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;d) A horizontal shift of the AD curve is typically greater than a horizontal shift in the IS curve due to crowding out.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm pretty sure the answer is A but I cannot find enough matter to convince my friends who are convinced it's D. Please help!&lt;/p&gt;&#xA;" OwnerUserId="4590" LastEditorUserId="4590" LastEditDate="2015-05-14T07:06:20.007" LastActivityDate="2015-05-14T16:01:58.507" Title="Will the goods market be in equilbrium along the AD curve?" Tags="&lt;macroeconomics&gt;&lt;markets&gt;&lt;theory&gt;&lt;investment&gt;&lt;consumption&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5656" PostTypeId="1" CreationDate="2015-05-14T13:27:20.270" Score="3" ViewCount="1219" Body="&lt;p&gt;I'm working on a problem set for my intermediate microeconomics course, but I'm having trouble deriving the compensated and uncompensated demand functions. This is the utility function:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$U(x, y, z) = aln(x) + bln(y) + z$, with goods $x$, $y$, $z$ and income $I$. I found the following optimal values:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$x = (P_z/P_x)a$, $y = (P_z/P_y)b$, $z = (I/P_z) - a - b$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Even though I followed the steps, I'm not completely sure this is right. Moreover, I have to find cross price effects and both the compensated and uncompensated demand functions, but I'm having some serious trouble solving this problem.&lt;/p&gt;&#xA;" OwnerUserId="4666" LastEditorUserId="4578" LastEditDate="2015-05-16T20:41:07.743" LastActivityDate="2015-05-21T12:59:52.327" Title="Struggling with uncompensated/compensated demand" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5657" PostTypeId="2" ParentId="5652" CreationDate="2015-05-14T13:27:30.233" Score="5" Body="&lt;p&gt;Let $v_i$ be the valuation that the $i$-th consumer has for the product, and $v^*$ the common valuation of the product, where the $v$'s are measured in monetary units, and are assumed continuous.  Consumers are here assumed binary -they either purchase $0$ or $1$ (i.e. the product is indivisible). We assume that if the valuation is equal to the price, they do want to purchase the product.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Write the indicator function $I\{v_i\geq p\}$, that takes the value $1$ if the valuation is greater or equal than the price (and so the consumer will want to buy the one unit of product. Let there be $N$ consumers. Then, demand can be expressed as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Q^{d} = \sum_{i=1}^NI\{v_i\geq p\}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and since the valuation is assumed common to all,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Q^{d} = N\cdot I\{v^*\geq p\}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We see that  if $p\leq v^*$, quantity demanded will be equal to $N$, while if $p&amp;gt; v^*$ quantity demanded will be equal to $0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Diagrammatically, this gives&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/Ezq1y.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-05-14T13:27:30.233" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5658" PostTypeId="2" ParentId="5563" CreationDate="2015-05-14T14:06:16.363" Score="5" Body="&lt;p&gt;I think it is just a matter of definition. The disutility from spending on the shoes is &lt;em&gt;not&lt;/em&gt; the utility obtained by purchasing the shoes: it is the difference between the utility obtained when she does not buy the shoes and the utility she gets when she buys them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose for instance that she expects to buy the shoes at price $p$. Her &quot;money&quot; utility of buying the shoes equals&#xA;\begin{equation*}&#xA;U(\text{Buying}) = -p&#xA;\end{equation*}&#xA;since there is no gain-loss utility in that case, and $-p$ is her final wealth (normalizing initial wealth to zero).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, if she finally decides not to buy the shoes, her money utility equals&#xA;\begin{equation*}&#xA;U(\text{Not Buying}) = \eta p&#xA;\end{equation*}&#xA;since her final wealth equals $0$, and in addition she experiences a gain-utility of $p$ with respect to the reference point (spending $p$).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore the disutility from buying is&#xA;\begin{equation*}&#xA;U(\text{Not Buying}) - U(\text{Buying}) = (1+\eta) p&#xA;\end{equation*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I hope it helps.&lt;/p&gt;&#xA;" OwnerUserId="4667" LastEditorUserId="4667" LastEditDate="2015-05-15T10:16:05.543" LastActivityDate="2015-05-15T10:16:05.543" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5659" PostTypeId="1" CreationDate="2015-05-14T15:12:45.337" Score="3" ViewCount="998" Body="&lt;p&gt;I am doing some research on a potential U.S. Nationwide Sales tax.  I found per-capita sales tax revenues and sales tax rates for each of the 50 states and conducted a quadratic regression on them.  I got a quadratic regression with a $R^2$ of approximately 0.4.  Is this $R^2$ sufficient to state a good correlation and are there any other statistical tests I may need to do?  Thank you in advance.&lt;/p&gt;&#xA;" OwnerUserId="4668" LastEditorUserId="69" LastEditDate="2015-05-14T17:55:31.043" LastActivityDate="2015-05-18T20:44:16.173" Title="Laffer Curve Regression" Tags="&lt;econometrics&gt;&lt;taxation&gt;" AnswerCount="2" CommentCount="10" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5660" PostTypeId="2" ParentId="5655" CreationDate="2015-05-14T16:01:58.507" Score="2" Body="&lt;p&gt;&lt;em&gt;Definition&lt;/em&gt;: The &lt;em&gt;Aggregate Demand curve&lt;/em&gt; shows the combinations of the price level and level of output at which the goods market and assets (money) markets are simultaneously in equilibrium. This definition proves option a) incorrect. The correct option is d)&lt;/p&gt;&#xA;" OwnerUserId="4474" LastActivityDate="2015-05-14T16:01:58.507" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5661" PostTypeId="1" CreationDate="2015-05-14T17:50:25.340" Score="5" ViewCount="173" Body="&lt;p&gt;You often hear economists (proudly) say that they don't take stated preferences seriously, but instead rely on observed preferences. Correct? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To me both are problematic if you want to understand preferences, since people often do things they don't &lt;em&gt;want&lt;/em&gt; to do. Example: I prefer to go to bed at 22:00 but I observe that I very often get caught up and don't do this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Decision making of individuals is complicated and I think everyone should be careful interpreting observerd preferences?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My &lt;strong&gt;question&lt;/strong&gt; is: Can anyone provide further points thinking about this issue and/or articles about the interpretability of observed preferences?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am aware there exists micro-models with &quot;Hyperbolic discounting&quot; making preferences time-inconsistent. I am looking for some more general discussion and frameworks.&lt;/p&gt;&#xA;" OwnerUserId="4193" LastEditorUserId="4193" LastEditDate="2015-05-16T18:03:20.850" LastActivityDate="2016-09-13T00:08:16.087" Title="Taking observed preferences seriously" Tags="&lt;soft-question&gt;&lt;methodology&gt;" AnswerCount="4" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="5664" PostTypeId="2" ParentId="5661" CreationDate="2015-05-14T18:36:11.110" Score="5" Body="&lt;p&gt;In my view, it is useful to distinguish two phenomena:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;individuals have time-inconsistent preferences (this fits your example).  There is a huge literature on that. The common practice is to evaluate welfare from the &lt;em&gt;ex ante&lt;/em&gt; perspective, thereby assuming that people have well-defined preferences over the long-run, but that their choices might deviate from it because of immediate impulses. In that case, the &lt;em&gt;true&lt;/em&gt; preference can be elicited by asking the individual to choose in advance. Some authors question the &lt;em&gt;ex ante&lt;/em&gt; perspective, see for instance &quot;The Welfare Economics of Default Options in 401(k) Plans&quot; by Bernheim, Fradkin &amp;amp; Popov.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;individuals make mistakes because of cognitive limitations. In this situation, it is very hard (impossible?) to recover the true preferences from the choices. At best, we can have a measure of the extent to which the individual makes consistent decisions. You can have a look for instance at &quot;The Money Pump as a Measure of Revealed Preference Violations&quot; by Echenique, Lee &amp;amp; Shum.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Overall, it is true that economists usually reject stated preferences, and there are many good reasons for that. It does not necessarily imply that we assume that observed choices are perfect; just that we do not have a better alternative to elicit people's preferences. However, some researchers are now studying how we could take advantage of non-choice data: (i) from a neuroscience perspective (many recent papers by Antonio Rangel and Colin Camerer for instance); (ii) using stated preferences, like &quot;Non-Choice Evaluations Predict Behavioral Responses to Changes in Economic Conditions&quot; by Bernheim, Bjorkegren, Naecker &amp;amp; Rangel.&lt;/p&gt;&#xA;" OwnerUserId="4667" LastActivityDate="2015-05-14T18:36:11.110" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5665" PostTypeId="2" ParentId="5659" CreationDate="2015-05-14T20:20:35.067" Score="1" Body="&lt;p&gt;&lt;strong&gt;What are you trying to do?&lt;/strong&gt; I hope you're not after finding evidence for or against the Laffer Curve, because your approach pretty much will not be able to say anything about that.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;The Laffer curve is a &lt;em&gt;causal&lt;/em&gt; relationship between taxation and government revenue, stating that there are two effects from higher tax rates: (i) they increase the rate of revenue (ii) they might disturb production, and hence reduce the tax base.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Laffer curve, while denoted as a &lt;em&gt;correlation&lt;/em&gt;, is hence in fact a &lt;em&gt;causal relationship&lt;/em&gt;. Individuals &lt;strong&gt;respond&lt;/strong&gt; to a higher tax rate. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What you will find is merely a correlation without any causal implications. While you may observe that tax revenue correlates non-linearly with tax rates, you cannot state whether the former is caused by the latter. &lt;em&gt;Hence you cannot speak towards the Laffer curve&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;So what you're saying is that I can't use the Laffer Curve to develop a causal relationship between per capita revenue and sales tax rate? Do you have any other techniques that I can use to find a revenue maximizing tax rate? Also is it possible to use correlation to estimate a revenue maximizing tax rate?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It is the other way around: The Laffer curve is a causal relationship between per capita revenue and sales tax rate. If you want to estimate this causal relationship, you need to identify it. What you instead are identifying is a correlation, but not the causal relationship. Don't be too upset, your issue is the issue of all Macroeconomics. We know too little about many effects just because it is hard to filter out the causal part from the mere correlation.   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To identify causality, you need either to &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;(i) be 100% sure you are controlling for anything else that could affect both tax rates and revenue, or &lt;/li&gt;&#xA;&lt;li&gt;(ii) find random variation in the tax rates. &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;You most likely will not convince any academic that you managed to do (i), just because there's too many channels through which omitted variables could work here (google &quot;omitted variable bias). The second channel gives you clean identification and is easy to do, the hard part is finding that random variation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The easiest and most-likely-successfull way would be to collect dates at which sales tax were changed at the state level and then do a second-order diff-in-diff (after tax change-before tax change, compared to other states). Then, your identification assumption relies only on &quot;changes in the tax rate are independent to the error term&quot;, which is still not great, but much - much - better than what you're doing now. Look at &lt;a href=&quot;http://people.fas.harvard.edu/~iversen/PDFfiles/LottKenny.pd&quot; rel=&quot;nofollow&quot;&gt;this paper&lt;/a&gt;, who look at the impact of introduction in female voting (women's suffrage) onto outcomes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Instead of &quot;Introduction of female voting&quot;, you would do &quot;change in sales tax rate&quot;. &lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2015-05-16T18:05:18.687" LastActivityDate="2015-05-16T18:05:18.687" CommentCount="19" ContentLicense="CC BY-SA 3.0" />
  <row Id="5666" PostTypeId="1" CreationDate="2015-05-15T00:10:29.273" Score="2" ViewCount="62" Body="&lt;p&gt;Banks currently have 2.7 trillion Federal Reserves that they hold at their Federal Reserve account. It's part of the monetary base and these reserves were created when the Fed purchased bonds in their QE program.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What will happen to these reserves? How will they get back to the Fed? How will they be retired and won't they have to be used to pay off the treasury bonds the Fed is holding?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://research.stlouisfed.org/fred2/series/NONBORRES&quot; rel=&quot;nofollow&quot;&gt;http://research.stlouisfed.org/fred2/series/NONBORRES&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That's a link to it.&lt;/p&gt;&#xA;" OwnerUserId="4672" LastActivityDate="2015-05-17T20:50:08.263" Title="What will happen to the reserves at the Fed?" Tags="&lt;currency&gt;&lt;banking&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5667" PostTypeId="1" CreationDate="2015-05-15T11:07:01.280" Score="4" ViewCount="56" Body="&lt;p&gt;I was reading up on participatory notes. Wikipedia defines these as &quot;instruments issued by registered foreign institutional investors (FII) to overseas investors, who wish to invest in the Indian stock markets without registering themselves with the market regulator, the Securities and Exchange Board of India - SEBI.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The same article and few other references described the kind of volatility P-Notes can induce into the stock market. All that I managed to understand from this is that the SEBI, in trying to lay ground rules for trading in P-Notes actually managed to rake up the bear sentiment (Expectations at work here, yes?) and actually brought upon the crisis, no matter how short-lived.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I want to know what in fact could have possibly happened had the crisis lasted longer. Could this have had lasting bearing on the working of the economy?&lt;/p&gt;&#xA;" OwnerUserId="4590" LastEditorUserId="4590" LastEditDate="2015-06-10T15:46:28.977" LastActivityDate="2015-06-10T15:46:28.977" Title="How exactly do Participatory Notes induce volatility into the economy?" Tags="&lt;money-supply&gt;&lt;interest-rate&gt;&lt;investment&gt;&lt;stock-market&gt;&lt;open-economy-macro&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5668" PostTypeId="2" ParentId="5645" CreationDate="2015-05-15T11:30:21.190" Score="2" Body="&lt;p&gt;Have you had a look at Dornbusch and Fischer's Macroeconomics? I would say that is a great book for both Introductory and Intermediate Macroeconomics. It emphasises on basic concepts (I used a really old edition but it still worked for me!) does a review after each section, the formulas are crystal-clear (I may be speaking only of myself though and I apologize in advance), brings up mathematical verification only occasionally, and there is nothing that the diagrams do not explain.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In addition, I used Greg Mankiw's Macroeconomics (still do) to run through topics- it covers most concepts and does not intimidate the reader at any point, but it is not so heavy on the math. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I do not have much idea as to what topics are covered under advanced Macroeconomics, but do take a look at these.&lt;/p&gt;&#xA;" OwnerUserId="4590" LastActivityDate="2015-05-15T11:30:21.190" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5671" PostTypeId="2" ParentId="142" CreationDate="2015-05-15T13:12:36.610" Score="3" Body="&lt;p&gt;Too long, didn't read: the market does not care.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Colombia's Pension Reform: Fiscal and Macroeconomic Effects&lt;/strong&gt;, by Klaus Schmidt-Hebbel, states black on white (p 22) that &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;issuing explicit domestic debt for paying off implicit government debt does not have first-round macroeconomic and financial effects&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;on the condition that the financial markets see through the debt swap. Fiscal illusion aimed at tax payers does not have any impact on tax payers, but the same Schmidt-Hebbel notes that the market could be fooled too.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://ideas.repec.org/p/nbr/nberwo/1358.html&quot; rel=&quot;nofollow&quot;&gt;Peek and Wilkox&lt;/a&gt; looked into it and conclude that there is no data showing that fiscal illusion ever had an impact on interest rates, which leads me to conclude that, despite KSH's prudence, there is &lt;strong&gt;no&lt;/strong&gt; (first hand) &lt;strong&gt;effect of fiscal illusion&lt;/strong&gt; on the financial market. Of course, it can have secondary advantages such as leading the market to assume more political stability by raising popularity, or leading the market to distrust you, but these are corollaries of the effects of fiscal illusion on the people rather than pros and cons of fiscal illusion to the market.&lt;/p&gt;&#xA;" OwnerUserId="4578" LastEditorUserId="264" LastEditDate="2015-05-15T13:40:39.780" LastActivityDate="2015-05-15T13:40:39.780" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5672" PostTypeId="1" CreationDate="2015-05-15T19:56:14.607" Score="1" ViewCount="45" Body="&lt;p&gt;&lt;strong&gt;Real Life Problem&lt;/strong&gt; This one is a tough one and some crowd sourcing seems like a good way to get some feedback. I am trying to determine the effect of Non-Farm Payroll surprises on a subsector of the economy. Furthermore, I want to forecast the effect on the subsector using my own surprise estimates for an upcoming non-farm payroll event. I want to take into account the subsector's movements due to its correlation with Equities and Rates.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Stats Problem&lt;/strong&gt; I am trying to determine the effect of an exogenous shock on a time series (so series of shocks over time of varying magnitude) taking into account the time series correlation with two other time series. I want to then forecast the result of an upcoming shock on the time series.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Current Solution Ideas&lt;/strong&gt; Listed in order of 'complexity'&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Linear regression of panel data focusing on day of changes in time series NFP in relation to the shock&lt;/li&gt;&#xA;&lt;li&gt;MultiLinear regression of panel data focusing on day of changes in time series NFP in relation to the shock taking into account Stock and Rates movements&lt;/li&gt;&#xA;&lt;li&gt;MultiLinear regression of time series data focusing on day of changes in time series NFP in relation to the shock taking into account Stock and Rates movements. Shock would be dummy crossed with magnitude.&lt;/li&gt;&#xA;&lt;li&gt;Autoregressive distributed lag model using BIC/AIC to determine lag numbers and checking inclusion of stock and rates timeseries with Granger causality. Shock would be dummy crossed with magnitude.&lt;/li&gt;&#xA;&lt;li&gt;Other? What am I missing? &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;The dataset is somewhat stationary, the timeframe is usually limited (3-5 years, with 36-60 shocks) so trend changes are minimal&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Note: Try them all and see best fit is not an answer, that's just data mining ;)&lt;/strong&gt; &lt;/p&gt;&#xA;" OwnerUserId="4598" LastEditorUserId="27" LastEditDate="2017-11-22T17:50:28.297" LastActivityDate="2017-11-22T17:50:28.297" Title="Analysis of exogenous shocks on equities" Tags="&lt;mathematical-economics&gt;&lt;finance&gt;&lt;time-series&gt;&lt;markets&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5673" PostTypeId="1" AcceptedAnswerId="5675" CreationDate="2015-05-15T20:32:25.750" Score="5" ViewCount="130" Body="&lt;p&gt;Source: &lt;em&gt;Economics&lt;/em&gt; (3 ed, 2014) by N Gregory Mankiw, Mark P. Taylor&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;structural unemployment&lt;/strong&gt; [=] unemployment that results because the number of jobs available in some labour markets is&#xA;  insufficient to provide a job for everyone who wants one&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Please help me dig deeper than the definition above, the meaning of which I already understand and so ask not about. Instead, I don't understand why &lt;strong&gt;structural&lt;/strong&gt; was selected for the above.  Why not adjectivize this type of unemployment with another word? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This definition (&lt;a href=&quot;http://www.merriam-webster.com/dictionary/structural&quot; rel=&quot;nofollow&quot;&gt;below&lt;/a&gt;) doesn't answer my question; all unemployment is caused by &lt;code&gt;structure of the economy&lt;/code&gt;. So what's so &lt;strong&gt;structural&lt;/strong&gt; about &lt;strong&gt;structural unemployment&lt;/strong&gt;? &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;ol start=&quot;2&quot;&gt;&#xA;  &lt;li&gt;c. :  involved in or caused by &lt;code&gt;structure&lt;/code&gt;[,] especially &lt;code&gt;of the economy&lt;/code&gt; &lt;/li&gt;&#xA;  &lt;/ol&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="4020" LastEditorDisplayName="user4239" LastEditDate="2015-05-16T21:08:11.910" LastActivityDate="2015-05-16T21:08:11.910" Title="Why was 'structural' chosen to mean 'structural unemployment'?" Tags="&lt;economic-terms&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5674" PostTypeId="2" ParentId="5659" CreationDate="2015-05-15T20:39:01.350" Score="5" Body="&lt;p&gt;The Laffer Curve is a theoretical argument that feels strongly true the moment one hears about it. The complexities around it once one wants to have a closer look are many (just for a taste the &lt;a href=&quot;http://en.wikipedia.org/wiki/Laffer_curve&quot; rel=&quot;nofollow&quot;&gt;wikipedia article&lt;/a&gt; can be consulted).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Even in the simplest econometric study, one has to make sure that what one does is consistent with the theory one wants to test (or the one on which one &lt;em&gt;relies&lt;/em&gt;), otherwise it won't be an econometric study but an exercise in pure mathematical approximation devoid of economic content (after all any bounded continuous function can be approximated by polynomials as per &lt;a href=&quot;http://en.wikipedia.org/wiki/Stone%E2%80%93Weierstrass_theorem&quot; rel=&quot;nofollow&quot;&gt;Stone-Weierstrass theorem&lt;/a&gt;).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So what does the Laffer Curve (very) basic theory (and in its strongest form) asserts?&lt;br&gt;&#xA;1) That output is a negative function of the tax rate.&lt;br&gt;&#xA;2) That a tax rate of $100\%=1$ should result in zero output, and so zero tax revenue.&lt;br&gt;&#xA;3) Moreover, logic says that if the tax rate is zero, tax revenues should be zero.&#xA;it appears then that we can start by an assumption that somewhere in between there is a point of maximum tax revenues (although one of the complexities mentioned earlier is that the curve may not be unimodal, i.e. it may also have a local maximum).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's see which conditions should the simplest &quot;quadratic regression&quot; satisfy in order to be consistent with the theory. We have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$T(\tau, Y(\tau)) = \beta_0 + \beta_1\tau + \beta_2\tau^2 + u$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $Y$ is output (or sales), $\tau$ is the tax rate, $T(\tau, Y(\tau))$ is Total tax revenues, and $u$ is an error term, to account from deviations from the mean-value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can deduce the following:&lt;br&gt;&#xA;&lt;strong&gt;A)&lt;/strong&gt; In order to satisfy point 3) above on average, $T(0, Y(0)) = 0$, it must be the case that $\beta_0 =0$.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;B)&lt;/strong&gt; This equation, in deterministic terms has derivatives&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {{\rm d}T(\tau)}{{\rm d} \tau} = \beta_1 + 2\beta_2\tau, \;\; \frac {{\rm d^2}T(\tau)}{{\rm d} \tau^2} = 2\beta_2$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and so it will have a maximum at the point &#xA;$\tau^* = -\frac {\beta_1}{2\beta_2}$ if and only if $\beta_2 &amp;lt; 0$.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;C)&lt;/strong&gt; Finally, in order for the equation to satisfy point 2) above, $T(1, Y(1)) = 0$, it must be the case that $\beta_1 = -\beta_2$.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But then &lt;em&gt;we also obtain that the maximizer will be&lt;/em&gt; $\tau^* = 0.5$. This last consequence is not good: our &lt;em&gt;tool&lt;/em&gt; (a specific mathematical functional form that appears convenient for our purposes), &lt;strong&gt;forces on us a very specific conclusion that is not predicted by the theory, something that should be left for the data to decide, even in the case were the data do indeed exhibit &quot;Laffer-curve&quot; properties.&lt;/strong&gt; In other words, the quadratic regression postulates not &quot;general Laffer curve properties&quot;, but a &lt;em&gt;very specific&lt;/em&gt; Laffer curve (this essentially comes from the fact that the independent variable $\tau$ is restricted to lie in $[0,1]$).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But run the regression we must: so we found that for this specific &quot;quadratic regression specification&quot; to be valid, theory imposes three restrictions on the parameters,  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\beta_0 =0,\;\;\; \beta_2 &amp;lt; 0,\;\; \beta_1 = -\beta_2$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since one of the restrictions is an inequality, one could use &lt;a href=&quot;http://www.jstor.org/discover/10.2307/2285614&quot; rel=&quot;nofollow&quot;&gt;Inequality-Constrained Least-squares&lt;/a&gt; which requires an iterated algorithm, but I won't go there.   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Otherwise, one should first run a regression with the coefficients unconstrained, and see whether at least, $\hat \beta_2 &amp;lt;0$.  Then run the regression imposing the two equality constraints, hope that in this restricted regression $\hat \beta_2$ remains negative, and conduct an $F$-test on the two specifications to determine which fits the data better.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now assume that the restricted model does have a $\hat \beta_2 &amp;lt;0$ and that it outperforms the unrestricted model: one can then argue that this data set behaves like the Laffer-curve theory would predict, but also, that &lt;strong&gt;the tax revenue maximizer is around the value $0.5$&lt;/strong&gt;. One cannot escape this last conclusion, if the restricted model prevails.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If it does not prevail, other aspects of Laffer-curve theory are not supported by the data, so to mechanically calculate a tax revenue maximizer based on the estimates from the unrestricted model will be rather shaky.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And there are also important statistical misspecification issues:&lt;br&gt;&#xA;1) Can we argue that the sales and the tax rates of the various states come from the same distribution, and are independent? (this would be needed to have the &quot;i.i.d. sample&quot; framework) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;and &lt;strong&gt;especially&lt;/strong&gt; (which I believe is what @FooBar 's answer focused upon)&lt;br&gt;&#xA;2) Is the tax rate uncorrelated with the error term, or is it endogenous? Are there factors that affect directly output/sales and are also correlated with the tax rate (e.g.: if a productivity or other mid-term range shock affects output, is there pressure to change the tax rates also, and do they adjust?)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In light of the above, I would say that the $R^2$ &quot;fit criterion&quot; is not the first thing to check, nor the primary method, in order to judge the quality of such a regression estimation.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-05-18T20:44:16.173" LastActivityDate="2015-05-18T20:44:16.173" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5675" PostTypeId="2" ParentId="5673" CreationDate="2015-05-15T20:56:17.590" Score="3" Body="&lt;p&gt;Cyclical unemployment is named after the business cycle, as in the part of unemployment that varies with the business cycle. Structures are things that last a long time, so structural unemployment is the part of unemployment that is driven by features of the economy, like structures, that last a long time. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But as you intuit, surely the length, frequency, and other details of business cycles are driven by such structural features. That's almost certainly true, and major reason why structural change and good policy are thought by many to explain the great moderation in business cycles. &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2015-05-15T20:56:17.590" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5677" PostTypeId="2" ParentId="5656" CreationDate="2015-05-15T23:50:34.020" Score="1" Body="&lt;p&gt;First, we want to find the optimal good baskets, &lt;em&gt;ie&lt;/em&gt; how much to buy of goods $x$,$y$ and $z$ to get the maximum value of U out of it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's write down the $MRS$ for $x$ and $y$ against $z$. For this we need to differentiate the utility function for each of the variables:&#xA;$d_xU(x,y,z)=a/x$ , $d_yU(x,y,z)=b/y$,$d_zU(z,y,z)=1$. We hence deduce the rates of substitution to be $-1a/x$ and $-b/y$ respectively.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So we have:&#xA;$p_x/p_z=a/x$ and $p_y/p_z=b/y$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The budget constraint is $p_xx+p_yy+p_zz=I$ which we rewrite&#xA;$p_x(ap_z/p_x)+p_y(bp_z/p_y)+p_zz=I$, which simplfies in&#xA;$ap_z+bp_z+zp_z=I$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$z^*=(I/p_z)-a-b$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$(x^*,y^*,z^*)=(ap_z/p_x, bp_z/p_y,(I/p_z)-a-b)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Good news, you were right :).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The cross price effect is the rise of demand in good $x$ following a rise in the price of good $z$. Just calculate the difference between $x^*$ for $p_z$ and $x^*$ for $p_z'=p_z+\epsilon$ (using $x^*=ap_z/p_x$).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, the six curves asked are how demand change when price change holding income ($I$) constant, or utility ($U$) constant. Draw same by taking two prices fixed for each situation.&lt;/p&gt;&#xA;" OwnerUserId="4578" LastActivityDate="2015-05-15T23:50:34.020" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5678" PostTypeId="2" ParentId="5661" CreationDate="2015-05-16T05:24:17.077" Score="3" Body="&lt;p&gt;You've walked into a serious philosophical landmine! To begin, this state of disharmony between &quot;actual action&quot; and &quot;right action&quot; is called &lt;a href=&quot;http://en.wikipedia.org/wiki/Akrasia&quot; rel=&quot;nofollow&quot;&gt;akrasia&lt;/a&gt;.  Your bedtime story is one of akrasia, and I suspect Aristotle might tell you your action is morally wrong.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reasoning why we disregard unobserved preferences is grounded deep in the philosophical history of economics. Economics has adapted the position that we do not inherently care about a person's feelings. We only care what they do about it. Do they actively apologize? Do they feel guilty? Do they adjust their future behavior? Do they offer concessions in some other real, overt, tangible, way?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Economics is following the consequentialist philosophy that defines the discipline, &lt;a href=&quot;http://en.wikipedia.org/wiki/Utilitarianism&quot; rel=&quot;nofollow&quot;&gt;utilitarianism&lt;/a&gt;. In this understanding of ethics, a person's invisible preferences are irrelevant, but their actions in the real world are relevant. The consequence matters, not the motive. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lastly, our goal is to predict &lt;em&gt;future observed behavior&lt;/em&gt;. Hopes and dreams are not in accordance with actual action, people are often in a state of akrasia. So why would we study the unobservables? Dreams and hopes remain as immaterial and ultimately pointless in comparison to that which is actually &lt;em&gt;done&lt;/em&gt;.   I admit there are cases where stated preferences are the topic, but to sell the idea as economics those preferences &lt;em&gt;must&lt;/em&gt; eventually be expressed as action.  For any paper on preferences, there will be a chain of literature that you can trace back explaining how feelings eventually lead to tangible action. What use is a dream deferred?&lt;/p&gt;&#xA;" OwnerUserId="4185" LastEditorUserId="4185" LastEditDate="2015-05-17T23:48:01.307" LastActivityDate="2015-05-17T23:48:01.307" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5679" PostTypeId="2" ParentId="5650" CreationDate="2015-05-16T14:35:02.430" Score="1" Body="&lt;p&gt;As Alecos noted in his answer, and standard auction results in the same revenue on average—the &lt;a href=&quot;http://en.wikipedia.org/wiki/Revenue_equivalence&quot; rel=&quot;nofollow&quot;&gt;revenue equivalence theorem&lt;/a&gt;. To keep things simple, suppose that the assumptions necessary for this theorem to apply are satisfied (i.e that bidders are risk neutral, etc.) I assume also that values are private and that each bidder's value is a draw from the same probability distribution $F$, with density $f$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We know from basic auction theory that the revenue from a second price auction is just the value of the second highest bidder. The revenue equivalence theorem therefore implies that if $v^{(i)}$ is the willingness to pay of the $i^\text{th}$ smallest value bidder and there are $n$ bidders then the expected revenue of essentially any auction is $E(v^{(n-1)})$. The probability density of the $n-1^\text{th}$ order statistic is $$nf(v)\frac{(n-1)!}{(n-2)!}F(v)^{n-2}(1-F(v)).$$&#xA;Thus, the expected revenue when there are $n$ bidders is&#xA;$$E(r_n)=\int_{-\infty}^{\infty}nf(v)\frac{(n-1)!}{(n-2)!}F(v)^{n-2}(1-F(v))v\,dv.$$&#xA;Similarly, when there are $n+1$ bidders, expected revenue is&#xA;$$E(r_{n+1})=\int_{-\infty}^{\infty}(n+1)f(v)\frac{(n)!}{(n-1)!}F(v)^{n-1}(1-F(v))v\,dv.$$&#xA;The percentage gain from the extra bidder is&#xA;$$\frac{E(r_{n+1})-E(r_n)}{E(r_n)}.$$&#xA;If you know the distribution, $F$ of bidder's values then you can put it into these equations and calculate the gain for any $n$.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Some caveats&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;This analysis works if bidders are smart enough to bid in accordance with the equilibrium of the auction. If they choose their bids heuristically then there will be an error in the forecast revenue gain.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;This gives the expected revenue gain. The actual revenue gain will depend upon the actual values of the bidders.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Obviously, the above is only accurate to the extent that the assumptions underlying it are satisfied.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;In particular, note that the private values assumption probably does not hold for stamp collectors where there is likely to be a strong common values component.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2015-05-16T15:11:28.760" LastActivityDate="2015-05-16T15:11:28.760" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5681" PostTypeId="2" ParentId="5661" CreationDate="2015-05-16T17:31:50.893" Score="1" Body="&lt;p&gt;Here are two quick references, which attack your question from two sides:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;On the behavioral side, it seems that people who make statements about preferences systematically choose differently than people who are forced to interact with the question more extensively before making choices. Specifically, when people people simply make a statement about a choice over risk vs simply &quot;trying the risky choice out,&quot; the former display much more risk aversion than the latter. See &lt;a href=&quot;https://custom.cvent.com/E1152AB199354903B8AD449CDA64763E/files/85acebb74157407096779110b8ce78b4.pdf&quot; rel=&quot;nofollow&quot;&gt;this paper&lt;/a&gt; and the literature cited therein for examples of people displaying different risk aversion when asked vs when forced to interact with a simple simulation of a risky process. That paper itself aims to apply these insights to trying to help people make better investment decisions. So why do people appear to act differently than they say they will? ? There are many possible stories -- one possibility is that thinking is costly, and when you simply answer a question, you aren't actually doing an enormous amount of &quot;thinking calculation&quot; work. However when you must actually make a real choice, the payoff is eminent and you actively mentally chew on the problem more -- and having done more actual mental calculations, you come up with a different answer. This is likely an open research question which would benefit from more applied (experimental) work. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;A little further afield: one possibility on the theoretical side is that there may be people who don't fully order their preferences over different baskets of consumption. In simple verbal questions about choices, there may be some easy mis-communication about choices then. However when choices are actually observed, they can still be ordered under a particularly  constructed preference ordering, such that they still fulfill the appropriate theoretical requirements to be useful for much of economic theory (eg. building utility functions). See the first question &lt;a href=&quot;http://people.bu.edu/blipman/Econ701/june2010.pdf&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;, and answer &lt;a href=&quot;http://people.bu.edu/blipman/Econ701/june2010-answers.pdf&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;. This is actually a very fun result from basic preference theory. (I'll note that if the consumer agent is careful and truthful with their wording, there shouldn't be a problem between words/actions, as both should be useful in the above-referenced preference orderings. Also, the observer needs to be careful as well in this context.)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;If you want to chew on the &quot;thinking is costly so I won't do a lot of it until I need to&quot; approach, Ariel Rubinstein's &lt;a href=&quot;http://arielrubinstein.tau.ac.il/books.html&quot; rel=&quot;nofollow&quot;&gt;&quot;Modeling Bounded Rationality&quot;&lt;/a&gt; takes an interesting approach. He attacks the question from the perspective of how to actually model costly calculation, from some interesting perspectives (including computational theory from computer science). It certainly isn't the only reference on this topic, but an interesting read and a good place to start. I will warn you that this is not a field that has been widely explored (that I am aware of).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You should also look into the experimental literature cited in the first paper I linked to above. Many interesting topics discussed there. &lt;/p&gt;&#xA;" OwnerUserId="17" LastActivityDate="2015-05-16T17:31:50.893" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5682" PostTypeId="2" ParentId="4613" CreationDate="2015-05-16T19:53:22.460" Score="2" Body="&lt;p&gt;I will set up a naive static/short run model to examine the case (so this post may be a bit long - I will try to dispense with some algebraic steps).  I will use convenient functional forms, which are nevertheless consistent with usual assumptions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;FIRMS&lt;/strong&gt;&lt;br&gt;&#xA;There are $i=1,...,n$ identical, price taking firms. In the short run they maximize the objective function&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$A\ln\ell_i - (1+s_f+\xi)w\ell_i\tag{1} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $A$ includes any component of the production function that is fixed in the short run, $\ell_i$ is the amount of labor firm $i$ employs, $s_f$ is the Employer's Social Security Fees (SSF) as a &lt;em&gt;percentage&lt;/em&gt; over the &quot;mixed&quot; wage $w$. $\xi$ is a possible change in this percentage, which I include from the start.&#xA;The concept of &quot;mixed wage&quot; is central in actual labor markets: in most cases bilateral or union negotiations over the wage are carried in terms of the &quot;mixed wage&quot;, not in terms of the &quot;take home&quot; wage.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Profit maximizing behavior will lead to market labor demand&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$L^d= n\cdot\frac {A}{(1+s_f+\xi)w} \tag{2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;WORKERS&lt;/strong&gt;&lt;br&gt;&#xA;There are $j=1,...,m$ workers, who posses one unit of labor and perform static maximization of the quasilinear utility function&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U = c + \gamma \ln(1-\ell_j)\;\; s.t\;\;  c= (1-s_w+\psi)w\ell_j \tag{3}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;i.e. there is no consumption-saving decision here. $s_w$ is the &quot;Employee's SSF&quot; and $\psi$ is a possible change of this percentage (a positive $\psi$ implies &lt;em&gt;lowering&lt;/em&gt; of the percentage)&#xA;Utility maximization leads to &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$L^s = m\cdot \frac{(1-s_w+\psi)w - \gamma}{(1-s_w+\psi)w} \tag{4}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assuming that the labor markets clears, we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$L^d = L^s \implies n\cdot\frac {A}{(1+s_f+\xi)w} = m\cdot \frac{(1-s_w+\psi)w - \gamma}{(1-s_w+\psi)w}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies (nA/m)\frac {(1-s_w+\psi)}{(1+s_f+\xi)} = (1-s_w+\psi)w - \gamma$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies w^* = \frac {(nA/m)}{(1+s_f+\xi)} + \frac {\gamma}{(1-s_w+\psi)} \tag{5}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Equation $(5)$ provides the first major conclusion : &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;If we increase &quot;Employer's SSF&quot; ($\xi &amp;gt;0$), the equilibrium mixed wage&#xA;  will fall. But also, if we &lt;em&gt;decrease&lt;/em&gt; &quot;Employee's SSF&quot; ($\psi &amp;gt;0$),&#xA;  the equilibrium mixed wage &lt;em&gt;will also fall&lt;/em&gt;.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This is because the &quot;take-home wage&quot; will &lt;em&gt;increase&lt;/em&gt; for any given level of mixed wage, and so the labor supply curve will &lt;em&gt;shift outwards&lt;/em&gt; in the $(w, L)$ space. Of course this result depends critically on labor-market clearing.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;What will happen to individual worker's income?&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Dividing $(2)$ by $m$ and using the equilibrium wage, equilibrium labor employed &lt;em&gt;per worker&lt;/em&gt; will be&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\ell_j^* = \frac {nA/m}{(1+s_f+\xi)w^*}$$ and so equilibrium &lt;em&gt;take-home&lt;/em&gt; (disposable) labor income per worker will be&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$DI^*=(1-s_w+\psi)w^*\ell_j^* = (1-s_w+\psi)w^*\frac {nA/m}{(1+s_f+\xi)w^*} \tag{6}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies DI^* = \frac {1-s_w+\psi}{1+s_f+\xi }(nA/m) \tag{7}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's now start to implement's the adviser's idea. We start by the situation where $\xi=\psi = 0$. We want to determine $\xi$ and $\psi$ so that disposable income increases. This requires&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$DI^* \uparrow \implies \frac {1-s_w+\psi}{1+s_f+\xi } &amp;gt; \frac {1-s_w}{1+s_f}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\rightarrow DI^* \uparrow  \implies \psi &amp;gt; \xi \frac {1-s_w}{1+s_f} \tag {8}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since $(1-sw)/(1+s_f) &amp;lt;1 $ we conclude that &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;We do not need to decrease the Employee's SSF percentage as much as we&#xA;  will increase the Employer's SSF percentage, in order to increase the&#xA;  worker's disposable income. But the decrease should satisfy $(8)$.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;But we want also to increase total Social Security Fees collected. Total Social Security Fees are&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$SSF^* = m\cdot\ell_j^*\cdot w^* \cdot (s_f+\xi + s_w - \psi) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies SSF^* = m\cdot \frac {nA/m}{(1+s_f+\xi)w^*} \cdot w^*\cdot (s_f+\xi + s_w - \psi) \tag{9}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies SSF^* = nA\cdot \frac {s_f+\xi + s_w - \psi}{(1+s_f+\xi)} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The condition to increase social security fees is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$SSF^* \uparrow \implies \frac {s_f+\xi + s_w - \psi}{(1+s_f+\xi)} &amp;gt; \frac {s_f+s_w}{(1+s_f)}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies (1+s_f)(\xi-\psi) &amp;gt; \xi(s_f+s_w)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies \xi + s_f\xi - (1+s_f)\psi &amp;gt; s_f\xi + s_w\xi$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\rightarrow SSF^* \uparrow \implies \psi &amp;lt; \xi \frac {1-s_w}{1+s_f} \tag{10}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But $(10)$ is the exact opposite condition than $(8)$. So:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;There exist no combination of $\xi, \psi$ that will increase worker's&#xA;  disposable income &lt;em&gt;and&lt;/em&gt; increase total social security collections.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In other words, the adviser's proposal is &lt;em&gt;infeasible&lt;/em&gt;.&#xA;Of course, I do &lt;em&gt;not&lt;/em&gt; claim that this result generalizes to all models -neither do I have at this point a clear view of what are the crucial assumptions on which this infeasibility results rests.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-05-16T19:53:22.460" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5683" PostTypeId="2" ParentId="4613" CreationDate="2015-05-16T20:26:24.867" Score="2" Body="&lt;p&gt;I attached three figures. Figure 1 shows the labor market without the tax. You can see the surplus that the firms and workers receive. They enjoy a surplus because some labor would be hired at even higher wages and some labor would be willing to work at lower wages. The sum of these surpluses gives the 'welfare' of the actors in the labor market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In figure 2 the government introduces a tax on labor. Whether this is collected from firms or workers does not matter as long as there is full information and all actors are rational. As you can see the surpluses are reduced. Even if you add together the surpluses and the tax collected by the government you do not get the welfare you had in the situation without tax. This is because the equilibrium amount of labor has decreased due to the tax. The welfare loss this creates is called the deadweight loss. This shows that these kind of taxes introduce some inefficiency. However that does not mean that all are worse off. If the government gives all the money to the secretary of Treasury he will be very happy. Similarly, if the government transfers all the tax to the workers (long live the proletariat) their total surplus may be bigger than in the situation without taxes. To see this, compare the area of the green polygons in figure 1 and figure 3. If the deadweight loss is too large this may not be possible.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What you could say is that you cannot compensate both firms and workers at the same time, as welfare is lost.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/Xa6aj.png&quot; alt=&quot;Surplus&quot;&gt;&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2015-05-16T20:26:24.867" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="5684" PostTypeId="1" CreationDate="2015-05-17T02:17:18.357" Score="1" ViewCount="318" Body="&lt;p&gt;I'm reading &lt;em&gt;Intermediate Microeconomics: A Modern Approach&lt;/em&gt; by Hal Varian. &#xA;On page 606, he states:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The Second Theorem of Welfare Economics states that as long as preferences are convex, then every Pareto efficient allocation can be supported as a competitive equilibrium. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;He then states on 604,&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The Second Welfare Theorem implies that the problems of distribution and efficiency can be separated...Prices play two roles in the market system system: an allocative role and a distributive role. The allocative role of prices is to indicate relative scarcity; the distributive role is to determine how much of different goods different agents can purchase. The Second Welfare Theorem says that these two roles can be separated: we can redistribute endowments of goods to determine how much wealth agents have, and then use prices to indicate relative scarcity. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My Question:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How does the second remark follow from the first? &lt;/p&gt;&#xA;" OwnerUserId="2679" LastEditorUserId="2679" LastEditDate="2015-05-17T02:29:04.500" LastActivityDate="2015-05-18T08:15:23.113" Title="Why are allocation and distribution important consequences of the second welfare theorem?" Tags="&lt;consumer-theory&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5686" PostTypeId="1" CreationDate="2015-05-17T06:42:32.060" Score="2" ViewCount="1739" Body="&lt;p&gt;Strict convexity is defined as &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Let $X$ be a convex set in a real vector space and let $f: X\rightarrow \Bbb{R}$ be a function. $f$ is called &lt;em&gt;strictly convex&lt;/em&gt; if $\forall x_1 \neq x_2 \in X,$ and $\forall t \in (0, 1)$:$$f(tx_1+(1-t)x_2) &amp;lt; t f(x_1)+(1-t)f(x_2)$$&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;If this doesn't hold, does marginal rate of substitution still have to be negative? &lt;/p&gt;&#xA;" OwnerUserId="2679" LastActivityDate="2015-05-17T15:39:36.953" Title="If strict convexity of indifference curves isn't assumed, does MRS have to be negative?" Tags="&lt;consumer-theory&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5687" PostTypeId="2" ParentId="5635" CreationDate="2015-05-17T07:08:19.463" Score="0" Body="&lt;p&gt;The behavior of any theoretical agent requires a traditional proof. These are the only ones fit which such a proof can be done, and serve as comparative benchmarks or predictive models.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Explaining, and/or empirical evidence is needed for any real agent, because they can't be &quot;solved&quot;.&lt;/p&gt;&#xA;" OwnerUserId="4185" LastActivityDate="2015-05-17T07:08:19.463" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5688" PostTypeId="1" CreationDate="2015-05-17T09:13:08.350" Score="4" ViewCount="327" Body="&lt;p&gt;I'm using the capital asset pricing model (CAPM) to estimate the values of some assets.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm curious if there are other (simple if possible) models similar to it.&#xA;I want to apply as many models on my assets as possible.&lt;/p&gt;&#xA;" OwnerUserId="4687" LastEditorUserId="84" LastEditDate="2015-05-17T13:30:43.133" LastActivityDate="2015-05-17T13:30:43.133" Title="Models similar to CAPM" Tags="&lt;finance&gt;" AnswerCount="0" CommentCount="2" FavoriteCount="1" ClosedDate="2015-05-31T13:22:39.840" ContentLicense="CC BY-SA 3.0" />
  <row Id="5689" PostTypeId="2" ParentId="5686" CreationDate="2015-05-17T09:55:35.750" Score="2" Body="&lt;p&gt;The marginal rate of substitution is the slope of the indifference curve multiplied by -1. Since the indifference curve is negatively sloped (as soon as the person prefers to consume the goods), the MRS is always &lt;em&gt;positive&lt;/em&gt;. This has nothing to do with the convexity of the preferences.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the indifference curve is convex without being strictly convex, then it is linear, i.e. it has constant slope. In that case, the marginal rate of substitution is constant (but still positive!).&lt;/p&gt;&#xA;" OwnerUserId="4667" LastEditorUserId="4667" LastEditDate="2015-05-17T10:53:23.340" LastActivityDate="2015-05-17T10:53:23.340" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5690" PostTypeId="2" ParentId="5686" CreationDate="2015-05-17T10:36:34.440" Score="2" Body="&lt;p&gt;If one of the goods is not beneficial and the other is then the slope of the indifference curve will be positive and hence the MRS negative. This is becuase&#xA;$$&#xA;MRS(x,y) = - \frac{MU_x(x,y)}{MU_y(x,y)},&#xA;$$&#xA;and if $x$ is beneficial then its marginal utility, $MU_x(x,y)$ is positive, whereas if $y$ is not beneficial then its marginal utility will be non-positive. (Zero if it is a neutral good.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As @Oliv stated this has nothing to do with convexity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An example: Let (y,t) denote the amount of money you have and the time it takes for you to get to work/school. You probably enjoy having as much money as possible. Because the same thing goes for free time you probably want to minimize the length of your commute. Two utility functions that could represent your preferences:&#xA;$$&#xA;U_1(y,t) = y^2 - t \hskip 20pt  U_2(y,t) = \sqrt{y} - t.&#xA;$$&#xA;Money is beneficial in both of these and travel time is not. But one represents convex preferences and the other concave.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2015-05-17T15:39:36.953" LastActivityDate="2015-05-17T15:39:36.953" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5692" PostTypeId="2" ParentId="5666" CreationDate="2015-05-17T20:50:08.263" Score="-1" Body="&lt;p&gt;Reserves are drained (destroyed) when the Fed sells the debt or allows it to be paid off.&lt;/p&gt;&#xA;" OwnerUserId="4693" LastActivityDate="2015-05-17T20:50:08.263" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5693" PostTypeId="1" AcceptedAnswerId="5769" CreationDate="2015-05-17T23:26:18.770" Score="5" ViewCount="2556" Body="&lt;p&gt;I have encountered this a lot in my exams and can not seem to understand how to use these functions here is an easy exemple :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A consumer who will only live 2 periods receives 1000€ in the first period and 5000€ in the second period, if the interest is at 0% how much will he consume in both periods knowing that his utility function is :&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;U(C¹,C²) = 3×C¹×C²&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Where C¹ is the consommation of first period and C² of second.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How do I make use of this utility function to calculate the consumption in both periods  ? &lt;/p&gt;&#xA;" OwnerUserId="2797" LastEditorUserId="2797" LastEditDate="2015-05-22T10:45:01.480" LastActivityDate="2016-05-11T13:47:11.297" Title="intertemporal utility function usage : calculating consumption" Tags="&lt;consumer-theory&gt;&lt;utility&gt;&lt;interest-rate&gt;&lt;choice-theory&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5694" PostTypeId="1" AcceptedAnswerId="5703" CreationDate="2015-05-18T00:32:25.940" Score="13" ViewCount="450" Body="&lt;p&gt;I'm taking kind of a crash-course in convex analysis to complement my mathematical skills and was wondering if anyone knew about nice ways in which this kind of tools were used in Economics.&#xA;To be more precise, some of the things I've seen so far are not strictly in the area of convex analysis but are very related, like dual spaces, weak topology, subdiferentials and Hahn-Banach theorem.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The only example I know of is the duality between the UMP and EMP in consumer theory (and of course the firm maximization and cost minimization problems). I also think that Hahn-Banach is used in the proof of the first welfare theorem.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Has anyone here used this kind of mathematical concepts in their work or has seen any interesting recent usage of them?&lt;/p&gt;&#xA;" OwnerUserId="4434" LastEditorUserId="2776" LastEditDate="2017-02-23T21:17:30.640" LastActivityDate="2017-02-24T01:04:27.390" Title="Uses of convex analysis in Economics" Tags="&lt;mathematical-economics&gt;&lt;reference-request&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="5695" PostTypeId="2" ParentId="5661" CreationDate="2015-05-18T01:29:13.050" Score="1" Body="&lt;p&gt;The idea that revealed preference is preferable to stated preference is pretty common. It makes a lot of sense. That said, there is a lot of value in stated preference. It does offer something that RP does not.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;It can be used to run estimate demand for products where revealed data does not exist. This is common in health economics to assess the value of an as yet, undeveloped product.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Methods such as contingent valuation can be used. It can provide a lot more information about the shape of a distribution.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;SP allows variation in attributes. (What if this product was $10 cheaper. Would you buy it then?)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;RP results may reflect market equilibrium. For example, under a specific choice set, individuals may choose a certain bundle. Not much can be gained about the proximity of this to other similar bundles.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;“Factors that are most important to consumers will often exhibit the least variation due to the natural forces or market equilibrium. Their importance might therefore be difficult to detect with revealed-preference data” Train (2003)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;There is a lot to be gained for stated preference data. Stated Preference data has enormous application in economics and in many cases is a better source to tackle certain problems.&lt;/p&gt;&#xA;" OwnerUserId="40" LastEditorUserId="40" LastEditDate="2016-09-13T00:08:16.087" LastActivityDate="2016-09-13T00:08:16.087" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5696" PostTypeId="1" CreationDate="2015-05-18T02:13:45.137" Score="8" ViewCount="487" Body="&lt;p&gt;A political science teacher of mine has said that the U.S. national debt has grown way beyond reach and is now just a political talking point with no real value.  He says that there is no point in trying to pay it back and that it should be left alone since all the money is fiat, thus &quot;imaginary&quot;.  What's your take on this?  Is it still possible to pay off the debt in 'x' amount of years without experiencing hyperinflation?  &lt;/p&gt;&#xA;" OwnerUserId="4668" LastActivityDate="2019-04-04T17:38:44.323" Title="Is it possible to eliminate the U.S. national debt?" Tags="&lt;macroeconomics&gt;&lt;debt&gt;&lt;government-debt&gt;" AnswerCount="4" CommentCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="5697" PostTypeId="2" ParentId="5696" CreationDate="2015-05-18T05:01:35.420" Score="10" Body="&lt;p&gt;Yes, I imagine there's reason to contest that claim. Consider the &lt;a href=&quot;http://en.wikipedia.org/wiki/Debt-to-GDP_ratio&quot; rel=&quot;nofollow&quot;&gt;GDP to debt ratio&lt;/a&gt;. While it has risen over time and with the recent recession, it was not too far away from Germany which is considered, I think, the absolute picture of fiscal health.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider also the critical point that the US government does not have a chance of death like a normal citizen. For example, if you take 30 year loan from JP Morgan, they consider the possibility that you might die. It is critical that they acquire this money before that happens- or they will lose their investment! The government does not have such concerns, and as a result face supernaturally low interest rates. Furthermore, they can pay back debt at a leisurely pace, extend their debt frequently, and if the interest rate is below the rate of inflation (&lt;a href=&quot;https://www.stlouisfed.org/publications/regional-economist/january-2013/how-low-can-you-go-negative-interest-rates-and-investors-flight-to-safety&quot; rel=&quot;nofollow&quot;&gt;Which it has been!&lt;/a&gt;), then they actually earn money by waiting to pay it back.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One of the main reasons for the increase in the debt-to-GDP ratio has been not an increase in spending, but a noticeable decline in government income.  The US tax rates are at &lt;a href=&quot;http://en.wikipedia.org/wiki/Income_tax_in_the_United_States&quot; rel=&quot;nofollow&quot;&gt;historic lows&lt;/a&gt;. Even worse &lt;a href=&quot;http://delong.typepad.com/.a/6a00e551f08003883401a73df0a1b8970d-pi&quot; rel=&quot;nofollow&quot;&gt;the US GDP has been smashed by the recession&lt;/a&gt;. The debt could be paid back eventually if it were politically feasible to raise taxes while keeping expenditures constant. The banks of the world have bet billions, trillions if you count derivative and second-stage investments, on this feasibility.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, despite the fact that it is fiat money, it would be very unwise to act as if the debt didn't exist.  Note the panic over &lt;a href=&quot;http://www.bloomberg.com/news/articles/2013-10-07/a-u-s-default-seen-as-catastrophe-dwarfing-lehman-s-fall&quot; rel=&quot;nofollow&quot;&gt;congress's threat to default&lt;/a&gt;. The consequences of even &lt;em&gt;contemplating&lt;/em&gt; a default included: higher future interest rates, lower GDP, and  typically, a devalued currency. Conversely, if money is printed to cover the debt, the consequence is &lt;a href=&quot;http://en.wikipedia.org/wiki/Hyperinflation&quot; rel=&quot;nofollow&quot;&gt;hyperinflation&lt;/a&gt;, leading to widespread drops in the standard of living. In my estimation,  if the United States did go into a spontaneous and total default, or hyperinflated to pay the debt- this would likely be the &lt;strong&gt;&lt;em&gt;greatest economic disaster of all time&lt;/em&gt;&lt;/strong&gt;, given the size of the US GDP currently. This is not hyperbole- I do not think there is a serious macroeconomist who would disagree.&lt;/p&gt;&#xA;" OwnerUserId="4185" LastEditorUserId="40" LastEditDate="2015-05-19T05:43:35.847" LastActivityDate="2015-05-19T05:43:35.847" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="5698" PostTypeId="2" ParentId="5652" CreationDate="2015-05-18T05:38:01.023" Score="1" Body="&lt;p&gt;A horizontal demand curve could be assembled if you had an sufficiently large number of customers who will buy of the price is $p*$ or less.  When $p \leq p*$ then they purchase all units available until they reach the limiting factor of the quantity supplied.  At any point, they purchase $Q_s$ units at a price of $p*$. The good would then be perfectly inelastic, a flat demand curve.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for why this behavior would exist, I imagine perhaps the good is a necessary input into a widely available machine. This machine produces another good worth only $p*$ plus the cost of other inputs. There are probably better examples for perfectly inelastic goods, but at the moment I'm drawing a relative blank.&lt;/p&gt;&#xA;" OwnerUserId="4185" LastActivityDate="2015-05-18T05:38:01.023" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5699" PostTypeId="1" CreationDate="2015-05-18T05:57:21.880" Score="2" ViewCount="26" Body="&lt;p&gt;My question is motivated by thinking about the prospect of attracting FDI into developing countries. Since developing countries do not have high skilled labor or better financial / governance institutions, the motivations for FDI are either 1) cheap labor force, or 2) local market. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first advantage (cheap labor) will gradually wither away as developing countries develop. But it seems that the second advantage will go away too if developing countries engage in trade liberalization and open up their local market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is it true that trade openness would reduce market seeking FDI? If so, is there any reason for FDI investors to bring to developing countries anymore?&lt;/p&gt;&#xA;" OwnerUserId="2819" LastActivityDate="2015-05-18T05:57:21.880" Title="Would trade openness reduce market-seeking FDI?" Tags="&lt;development&gt;&lt;free-trade&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5700" PostTypeId="2" ParentId="5571" CreationDate="2015-05-18T07:11:38.123" Score="4" Body="&lt;p&gt;Here's my best guess. I haven't checked to thoroughly if this is right, but maybe it will help.&lt;/p&gt;&#xA;&#xA;&lt;h1&gt;Evolution of population density&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;I understand the model as follows. $f(a,t)$&#xA;is the density of people of age $a$ at time $t$. Suppose at time $t=0$, the density of the population is $f_0(a)$. To model the aging process as well as the mortality rate, the density $f$ must evolve over time so that it satisfies the condition that you derived. Thus, $m$ must satisfy the following partial differential equation&#xA;$$&#xA;\frac{\partial f}{\partial t} + \frac{\partial f}{\partial a} + d(a, t) f(a,t) = 0&#xA;$$&#xA;and the initial condition&#xA;$$&#xA;f(a,0) = f_0(a).&#xA;$$&#xA;I believe that PDEs of this form can have relatively straightforward solutions depending on the functional form chosen for $d$. Here are some cases.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Case 1: Constant mortality rate, $d(a,t) = d_0$.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose a constant mortality rate, $d(a,t) = d_0$. Then (using Mathematica),&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;DSolve[&#xA; {D[f[a, t], t] + D[f[a, t], a] + d0 f[a, t] == 0, &#xA;  f[a, 0] ==  f0[a]},&#xA; f[a, t], {a, t}]&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;results in &lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;{{f[a, t] -&amp;gt; E^(-a d0 + d0 (a - t)) f0[a - t]}}&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;So, as we can see, this gives a simple solution&#xA;$$&#xA;f(a,t) = \exp\{-a d_0 + d_0 (a-t)\} \cdot f_0(a-t)&#xA;$$&#xA;&lt;strong&gt;Case 2: Log Mortality, $d(a,t) = \log(a+1)$.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here we have&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;DSolve[&#xA; {D[f[a, t], t] + D[f[a, t], a] + Log[a+1] f[a, t] == 0, &#xA;  f[a, 0] ==  f0[a]},&#xA; f[a, t], {a, t}]&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;which results in &lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;{{f[a, t] -&amp;gt; (1 + a)^(-1 - a) E^t (1 + a - t)^(1 + a - t) f0[a - t]}}&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;This also gives a simple solution&#xA;$$&#xA;f(a,t) = (1+a)^{-a-1} e^t (1+a-t)^{1+a-t} \cdot f_0(a-t)&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Case 3: The general case&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the case where we do not yet specify $d(a,t)$,&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;DSolve[&#xA; {D[f[a, t], t] + D[f[a, t], a] + d[a, t] f[a, t] == 0, &#xA;  f[a, 0] ==  f0[a]},&#xA; f[a, t], {a, t}]&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;gives us (in TeXForm for clarity)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\begin{align*}&#xA;\left\{\left\{f(a,t)\to \\&#xA;   \text{f0}(a-t) \cdot \\&#xA;   \exp \left(\int_1^a&#xA;   -d(K[1],K[1]-a+t) \, dK[1]-\int_1^{a-t} -d(K[1],K[1]-a+t) \,&#xA;   dK[1]\right)\right\}\right\}&#xA;\end{align*}&#xA;$$&lt;/p&gt;&#xA;" OwnerUserId="59" LastEditorUserId="59" LastEditDate="2015-05-18T17:56:10.397" LastActivityDate="2015-05-18T17:56:10.397" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="5701" PostTypeId="2" ParentId="5693" CreationDate="2015-05-18T07:40:56.027" Score="5" Body="&lt;p&gt;This is the two-period budget constraint:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;C1 + C2/(1+r) = Y1 + Y2/(1+r)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Derivation is straightforward. On the LHS, you have the present value of consumption (considered during period 1), and on the RHS you have the present value of income. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Intuitively, think about 1/(1+r) on the LHS as the price ratio between Good 1 and Good 2. Now you can solve the u-max problem as per usual. &lt;/p&gt;&#xA;" OwnerUserId="4683" LastActivityDate="2015-05-18T07:40:56.027" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="5702" PostTypeId="2" ParentId="5684" CreationDate="2015-05-18T08:15:23.113" Score="2" Body="&lt;p&gt;The First Welfare Theorem essentially says&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;price equilibrium with transfers =&gt; Pareto optimal&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The FWT hence solves the &quot;problem of efficiency&quot; i.e. If we let the market work through prices, we will achieve Pareto efficiency.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The SWT, on the other hand, states&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Pareto optimal =&gt; price quasi-equilibrium with transfers* &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It assures us that any Pareto optimal point can be achieved via the market. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that distribution and inequality are normative problems which must be addressed through say, the political process, rather than economics. &lt;strong&gt;The concept of Pareto efficiency does not tell us anything about distribution.&lt;/strong&gt; Oftentimes in a 2x2 model, giving Agent 1 all the resources and Agent 2 none of the resources counts as Pareto optimal.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore the SWT addresses the &quot;problem of distribution&quot; by saying that &quot;Ok, society has decided that a certain Pareto optimum is the most desirable outcome. We know that we can achieve this by redistributing endowments/incomes and then letting the market work.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;*PQWT is a weaker definition of PEWT&lt;/p&gt;&#xA;" OwnerUserId="4683" LastActivityDate="2015-05-18T08:15:23.113" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5703" PostTypeId="2" ParentId="5694" CreationDate="2015-05-18T08:58:07.790" Score="11" Body="&lt;p&gt;A partial answer: convex analysis is extensively used in axiomatic decision theory, at least in its recent developments. Most of these papers focus on individual behavior. You can have a look for instance at the following papers on ambiguity-averse preferences:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&quot;Maxmin Expected Utility with Non-Unique Prior&quot; (Gilboa &amp;amp; Schmeidler)&lt;/li&gt;&#xA;&lt;li&gt;&quot;Ambiguity Aversion, Robustness, and the Variational Representation of Preferences&quot; (Maccheroni, Marinacci &amp;amp; Rustichini)&lt;/li&gt;&#xA;&lt;li&gt;&quot;A Smooth Model of Decision-Making under Ambiguity&quot; (Klibanoff, Marinacci &amp;amp; Mukerji)&lt;/li&gt;&#xA;&lt;li&gt;&quot;Ambiguity in the Small and in the Large&quot; (Ghirardato and Siniscalchi)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Here is a paper that applies convex analysis to a model of trade under ambiguity aversion: &quot;Subjective Beliefs and Ex-Ante Trade&quot; (Rigotti, Shannon &amp;amp; Strzalecki).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Beyond models of ambiguity aversion, virtually all recent work in axiomatic decision theory makes use of convex analysis, and applies its tools to study various phenomena: regret aversion (Sarver, Ergin), cost of thinking (Ortoleva), random choice (Gul, Pesendorfer)... Please tell me if you want more precise suggestions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the mathematical part, a very good reference is &lt;em&gt;Convex Analysis&lt;/em&gt; by Rockafellar (1970). It is cited by most of the papers above ;-).&lt;/p&gt;&#xA;" OwnerUserId="4667" LastActivityDate="2015-05-18T08:58:07.790" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5704" PostTypeId="2" ParentId="5333" CreationDate="2015-05-18T10:30:55.480" Score="9" Body="&lt;p&gt;&quot;Surplus recycling&quot; is a term coined (to my knowledge) by Varoufakis to describe the fact that a country that enjoys a &lt;a href=&quot;http://en.wikipedia.org/wiki/Balance_of_trade&quot; rel=&quot;noreferrer&quot;&gt;trade surplus&lt;/a&gt; should reinvest the surplus in the domestic economies of its trading partners. Such a policy was conduced with success by the United States in the years following WW2, where the &lt;a href=&quot;http://en.wikipedia.org/wiki/Marshall_Plan&quot; rel=&quot;noreferrer&quot;&gt;Marshall plan&lt;/a&gt; and similar policies in Asia took place, mainly for political reasons.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As Varoufakis states it, there is no reason for the market to proceed to such a transfer, yet it does sound reasonable to keep trade partners in good shape.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In Europe, Germany's trade surplus is notable for being the only important European surplus. Surplus recycling is one way the Greek government is trying to get Germans to feel right about handing out money to European countries that are struggling with their economy, another infamous attempt being WW2 reparations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I believe you're somewhat wrong in your interpretation because the question here is not whether to reinvest or not (this is a problem which is well treated by &quot;classic&quot; macroeconomics), but where to reinvest the money. The alternative is hence between domestic and foreign investments, and there is no known economic mechanism that supports foreign investments unconditionally. Varoufakis work aims at fostering foreign investment from Germany to southern Europe. I don't see anything controversial in his definition, but he is defining a &lt;strong&gt;policy&lt;/strong&gt;, not a &lt;strong&gt;model&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem with solely-domestic investments is that, on the long term, it weakens trade partners, which weakens domestic economy in turn. I don't think there is much debate among the fact that trade balance &lt;a href=&quot;http://www.investopedia.com/terms/t/trade-surplus.asp&quot; rel=&quot;noreferrer&quot;&gt;is not a self-correcting problem&lt;/a&gt;. The real debate (and it's political for the moment, an open field for economic research) is on what end the policies to solve the problem has to be carried: the one for which it is easier to solve (Germany), or the one for which the problem is worse (Greece).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The amount of money we're talking about is sizable to say the least, and can be viewed &lt;a href=&quot;http://www.eurocrisismonitor.com/Data.htm&quot; rel=&quot;noreferrer&quot;&gt;here&lt;/a&gt; as suggested in a comment.&lt;/p&gt;&#xA;" OwnerUserId="4578" LastEditorUserId="1601" LastEditDate="2015-12-19T15:02:34.727" LastActivityDate="2015-12-19T15:02:34.727" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5705" PostTypeId="2" ParentId="5525" CreationDate="2015-05-18T14:38:55.340" Score="2" Body="&lt;p&gt;Strong Nash equilibrium is different from core mainly because of communication. In a Strong Nash, unlimited private communication is allowed. The core is a concept that is linked to &lt;a href=&quot;http://en.wikipedia.org/wiki/Coalition-proof_Nash_equilibrium&quot; rel=&quot;nofollow&quot;&gt;Coalition-proof Nash equilibrium&lt;/a&gt; rather than Strong Nash. People can freely communicate but &lt;strong&gt;cannot make binding commitment&lt;/strong&gt; before deciding.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In &lt;a href=&quot;http://link.springer.com/article/10.1007%2FBF01213445#page-1&quot; rel=&quot;nofollow&quot;&gt;some games&lt;/a&gt;, both happen to be the same, but in generality, the core is a concept derived from Coalition-proof Nash equilibrium rather than from Strong Nash Equilibrium.&lt;/p&gt;&#xA;" OwnerUserId="4578" LastActivityDate="2015-05-18T14:38:55.340" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5706" PostTypeId="1" AcceptedAnswerId="5734" CreationDate="2015-05-18T16:33:02.703" Score="19" ViewCount="17156" Body="&lt;p&gt;In my basic high school economics course, we've always used supply-demand curves that are lines to simplify calculations. In real markets for real goods, what do the supply and demand curves look like? From a mathematical perspective, what would be the concavity, asymptotes, and intercepts?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would imagine the quantity demanded would tend to zero as the price increased to infinity and the quantity demanded would grow very large as the price approached zero, but that is just what my intuition tells me.&lt;/p&gt;&#xA;" OwnerUserId="4697" LastActivityDate="2016-11-26T10:19:27.800" Title="What do supply-demand curves really look like?" Tags="&lt;microeconomics&gt;&lt;supply-and-demand&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="5707" PostTypeId="2" ParentId="5696" CreationDate="2015-05-18T17:09:28.267" Score="4" Body="&lt;p&gt;There is a lot of controversy in economics about the advisability or otherwise of government taxation and deficits, but let's skip that and just look at the figures.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The U.S. National debt held by the public, is approximately &lt;a href=&quot;http://www.treasurydirect.gov/NP/debt/current&quot; rel=&quot;nofollow&quot;&gt;\$13.3 trillion&lt;/a&gt;. Federal tax revenue for 2014 was slightly over \$3 trillion - which still left a \$500 billion deficit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Interest rates on this debt are at an all time low. Government 30 year treasuries have an interest rate of 1%. This is a steal. However, at the same time, although inflation at the moment is also low, the money supply is continuing to expand at its typical US rate, which is about ~5-7%/annum. Tax revenue over the long term is a function of the total money supply, but since money creation is concentrated in the financial sector, it is not currently being taxed at very high levels - capital gains and dividends for example attract a top tax rate of 20% in the US. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So on the one hand, the US government is borrowing at a very attractive rate, on the other, it is not taxing efficiently enough to collect enough in taxes to really take advantage of this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In order to break even, tax revenue would need to increase by ~18%. Any amount above that would eventually result in the debt being completely repaid, it's just a matter of time. Indeed, even if all the government did was balance the books, the progressive growth of the money supply (and accompanying inflation) would over time make the debt negligible.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Would this be economically advisable? This is an open research question. The annual cost of the debt (interest payments) is &lt;a href=&quot;https://www.treasurydirect.gov/govt/reports/ir/ir_expense.htm&quot; rel=&quot;nofollow&quot;&gt;~\$430 billion.&lt;/a&gt; So interestingly, even if the US government didn't have any debt it would still not be breaking even on its current tax revenue.That suggests that at some point in the future, as in a couple of years after interest rates rise significantly, there will be trouble in store, since the additional interest will significantly add to the deficit. Of course, one way to solve that, would be to tax the recipients of those interest payments (the finance sector for the most part) more appropriately.&lt;/p&gt;&#xA;" OwnerUserId="84" LastEditorUserId="84" LastEditDate="2015-05-18T17:17:46.723" LastActivityDate="2015-05-18T17:17:46.723" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5709" PostTypeId="1" CreationDate="2015-05-18T18:10:05.110" Score="4" ViewCount="10128" Body="&lt;p&gt;Foreword: I ask NOT about the whole question; so I quote only the following part of the answer.&lt;/p&gt;&#xA;&lt;p&gt;Source: p 153, Question 7c, &lt;em&gt;Principles of Microeconomics&lt;/em&gt;, 7 Ed, 2014, by NG Mankiw&lt;br /&gt;&#xA;= Chapter 7, Question 6c, &lt;em&gt;Principles of Microeconomics&lt;/em&gt;, 4 Ed, 2008, by NG Mankiw&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;... To take the most dramatic case, suppose the supply curve were&#xA;horizontal, as shown in Figure 12. Then there is no producer surplus at all.&lt;img src=&quot;https://i.stack.imgur.com/AEWI5.png&quot; alt=&quot;enter image description here&quot; /&gt; ...&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;From the graph, I see that perfectly elastic supply &lt;span class=&quot;math-container&quot;&gt;$\iff$&lt;/span&gt; a flat supply curve&lt;br /&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$\iff$&lt;/span&gt; producer surplus := Amount received by sellers &lt;span class=&quot;math-container&quot;&gt;$-$&lt;/span&gt; Cost to sellers &lt;span class=&quot;math-container&quot;&gt;$\qquad = 0$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;p&gt;But please help me dig deeper than the graph, which I already understand and so ask NOT about. Intuitively, why is the above true? I seek only intuition; no maths arguments or formal proofs please.&lt;/p&gt;&#xA;" OwnerUserId="4020" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2017-07-01T02:32:13.317" Title="Intuition: Why does perfectly elastic supply imply no producer surplus?" Tags="&lt;microeconomics&gt;&lt;elasticity&gt;" AnswerCount="4" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5710" PostTypeId="2" ParentId="5709" CreationDate="2015-05-18T20:18:08.637" Score="2" Body="&lt;p&gt;Since you understand the graph, let us note for casual viewers that the supply curve is perfectly flat. As such, we can see clearly the area of the consumer surplus, (the triangle between the equilibrium $p*$ and the supply curve) is 0. So the producer surplus, (and profits) are zero.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Intuition: The scenario must be one where the entire quantity demanded can be satisfied without having any diminishing marginal returns. Marginal costs and average costs across the industry must be flat along the relevant range. If you assume a linear production function, you may get this result.&lt;/p&gt;&#xA;" OwnerUserId="4185" LastActivityDate="2015-05-18T20:18:08.637" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5711" PostTypeId="2" ParentId="5709" CreationDate="2015-05-18T23:52:41.677" Score="3" Body="&lt;p&gt;If it costs you 50 cents a bag to make popcorn and you sell it for 50 cents a bag, you come out ahead by 0 cents a bag.&lt;/p&gt;&#xA;" OwnerUserId="250" LastActivityDate="2015-05-18T23:52:41.677" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5712" PostTypeId="1" AcceptedAnswerId="5982" CreationDate="2015-05-19T00:00:33.683" Score="3" ViewCount="191" Body="&lt;p&gt;What are some books for pricing theory with heavy math?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've finish reading pricing theory by Hirshleifer and another by Lansburg but both are not math intense.&lt;/p&gt;&#xA;" OwnerUserId="95" LastEditorUserId="95" LastEditDate="2015-05-19T00:21:52.353" LastActivityDate="2015-06-04T17:47:50.640" Title="What are some books for pricing theory with heavy math?" Tags="&lt;mathematical-economics&gt;&lt;reference-request&gt;&lt;price-theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5713" PostTypeId="1" AcceptedAnswerId="6103" CreationDate="2015-05-19T00:01:42.050" Score="9" ViewCount="479" Body="&lt;p&gt;I understand that &lt;a href=&quot;https://en.wikipedia.org/wiki/Georgism&quot; rel=&quot;noreferrer&quot;&gt;Georgism&lt;/a&gt; was a major economic idea in the late 19th century.  The idea of a simple &lt;a href=&quot;https://en.wikipedia.org/wiki/Land_value_tax&quot; rel=&quot;noreferrer&quot;&gt;land-value tax&lt;/a&gt; and &lt;a href=&quot;https://en.wikipedia.org/wiki/Basic_income&quot; rel=&quot;noreferrer&quot;&gt;basic income&lt;/a&gt; derived from an equitable distribution of natural resource exploitation seem to be great ideas solving many of the challenges faced in other economic systems.  Also, &lt;a href=&quot;https://en.wikipedia.org/wiki/Progress_and_Poverty&quot; rel=&quot;noreferrer&quot;&gt;Progress and Poverty&lt;/a&gt; was one of the most popular books on economics in the late 19th century.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why has this seemingly great concept lost popularity?  My speculations is that it either does not benefit the ruling elites (so, politics) or that, more plausibly, the idea of basic income derived from natural resources was calculated to be unsustainable amid the population growth of the turn of the century.&lt;/p&gt;&#xA;" OwnerUserId="4699" LastEditorUserId="2785" LastEditDate="2016-03-11T00:22:30.057" LastActivityDate="2017-06-02T17:24:37.850" Title="What are some reasons for decline of georgism?" Tags="&lt;macroeconomics&gt;&lt;history-economic-thought&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5714" PostTypeId="1" CreationDate="2015-05-19T06:31:47.867" Score="4" ViewCount="516" Body="&lt;p&gt;For instance, say I have a roll of quarters and a roll of dimes. I can use the dimes and quarters in a parking meter, but 50 cents in dimes gets me less time than 50 cents in quarters. Additionally, I can't even use dimes in the washing machine and dryer in my apartment, but I can use quarters. So even though both 50 cents in both dimes and quarters are worth 50 cents, quarters clearly have a higher &quot;meta-value&quot;, if you will, thus making them worth more.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm new to economics and am unsure how to Google this question.&lt;/p&gt;&#xA;" OwnerUserId="4700" LastActivityDate="2015-05-19T07:33:07.257" Title="What is the proper term for the &quot;meta-value&quot; of an object?" Tags="&lt;utility&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5716" PostTypeId="1" CreationDate="2015-05-19T14:16:32.380" Score="2" ViewCount="252" Body="&lt;p&gt;KPR preferences are given by&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ U(c, l) = \frac{\left(cv(l)\right)^{1-\sigma}-1}{1-\sigma}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;with concave increasing $v$ and $c$, $l$ denoting consumption and leisure. In the limiting case of $\sigma\to 1$, we receive the standard additively-separable preferences &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ U(c,l) = \log c + v(l)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the latter case, if I want to scale the relevance of leisure in total preferences, I can rewrite the preferences as $\log c + Av(l)$, and use $A$ for this matter.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;How do I do that - scale leisure - in the general case?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I rewrite the nominator as $(c A v(l))^{1-\sigma}$, it is not clear to me whether $A$ is scaling $c$ or $l$ (probably neither). &lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-05-19T18:21:06.980" Title="King-Plosser-Rebello Preferences: Scale leisure" Tags="&lt;utility&gt;&lt;labor-economics&gt;&lt;preferences&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5717" PostTypeId="2" ParentId="5716" CreationDate="2015-05-19T15:19:18.030" Score="2" Body="&lt;p&gt;One approach: Look at the unscaled preferences&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U(c,l) = \left(c v(l)\right)^{1-\sigma}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A log transformation reveals&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ (1-\sigma)\log\left(c \right) + (1-\sigma)\log v(l)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $v(l) = l^\gamma$. Then, $\log v(l) = \gamma \log l$. As $(1-\sigma)$ premultiplies both terms, the degree of curvature in $v(l)$ is the only way to shift the &lt;em&gt;level&lt;/em&gt; of leisure.&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-05-19T15:19:18.030" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5718" PostTypeId="1" CreationDate="2015-05-19T15:23:21.283" Score="1" ViewCount="63" Body="&lt;p&gt;I am struggling to understand the answer to this question (the answer was given as C): &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;If inflation in South Africa is lower than that in the United States (US), US exports are becoming relatively _____ in South African markets. This shifts the demand curve for US dollars to the _______ and the supply curve of US dollars to the ________.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;A. cheaper, left, right&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;B. more expensive, right, left&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;C. cheaper, right, left&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;D. more expensive, left, right&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;E. cheaper, left, left&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I selected B. Firstly, I think  that if you have to pay more for US exports because of inflation, they are more expensive compared to before. Secondly, using the equation E = RER x P*/P (where E is the exchange rate, RER stands for 'real exchange rate', P* is the foreign level of prices, and P is the domestic level of prices) I think that the rand depreciates and the dollar appreciates, which implies that the demand for dollars increased (presumably because more dollars are needed to pay the higher price), and the supply of dollars decreased (presumably because traders see that they should hold on to dollars until a later date, given the appreciation caused by increased demand).&lt;/p&gt;&#xA;" OwnerUserId="175" LastActivityDate="2015-05-19T16:08:43.293" Title="The effect of inflation differentials on the relative prices of goods across countries" Tags="&lt;exchange-rates&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5719" PostTypeId="2" ParentId="5718" CreationDate="2015-05-19T16:08:43.293" Score="1" Body="&lt;p&gt;During an inflationary period the value of the US Dollar has not increased, but decreased. From within the US, goods are becoming more expensive because each US Dollar is worth less. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Inflation is believed to be caused by an oversupply of money; if there is an oversupply of US Dollars, it will lead to a decrease in its value. If inflation is increasing at a higher rate in the US than in South Africa, the Dollar will be relatively cheaper, making it more desirable. Thus, an increase in the demand for the US Dollar, and a decrease in its supply. &lt;/p&gt;&#xA;" OwnerUserId="2674" LastActivityDate="2015-05-19T16:08:43.293" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5720" PostTypeId="1" CreationDate="2015-05-19T17:25:04.363" Score="3" ViewCount="111" Body="&lt;p&gt;In an attempt to evaluate a potential U.S. National Sales tax rate, it was suggested on this forum before that I consider a difference-in-difference on state sales tax rates before and after they changed.  How would I go about doing this?  Would I do a difference-in-difference on each of the states sales taxes, and then aggregate the data?  If so, how do I aggregate the data? &lt;/p&gt;&#xA;" OwnerUserId="4668" LastEditorDisplayName="user4239" LastEditDate="2015-05-19T21:30:25.417" LastActivityDate="2015-05-19T21:30:25.417" Title="Difference-in-Difference on State Sales Tax Rates" Tags="&lt;econometrics&gt;&lt;taxation&gt;&lt;optimal-taxation&gt;" AnswerCount="0" CommentCount="27" ContentLicense="CC BY-SA 3.0" />
  <row Id="5721" PostTypeId="2" ParentId="5716" CreationDate="2015-05-19T18:21:06.980" Score="3" Body="&lt;p&gt;If you specify&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ U(c, l) =\left(c\cdot [(v(l))^A]\right)^{1-\sigma}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;then &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\ln U(c,l) = (1-\sigma)\ln c + A(1-\sigma)\ln[v(l)]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;...and $A$ can be seen as regulating the relative weight of leisure, for any $v(l)$.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-05-19T18:21:06.980" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5722" PostTypeId="1" AcceptedAnswerId="5730" CreationDate="2015-05-19T19:15:13.663" Score="5" ViewCount="230" Body="&lt;p&gt;Consider the following version of KPR preferences (with $l$ being leisure):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ U(c,l) = \left(\left(c\right)^\gamma l^\omega\right)^{1-\sigma}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm after the Frisch elasticity:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{\partial(1-l)}{\partial w} \frac{w}{1-l}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that $\frac{\partial(1-l)}{\partial w} = -\frac{\partial(l)}{\partial w}$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In general, one can compute the first component as $$  w\frac{\partial l}{\partial w} = \frac{u_l}{u_{ll} - \frac{u^2_{lc}}{u_cc}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence, the Frisch elasticity is given by&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$  \eta = \frac{u_l}{\frac{u^2_{lc}}{u_cc} - u_{ll}}\frac{1}{1-l}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With the given preferences, I have that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ u_l = \omega l^{\omega-1} c^\gamma K\\&#xA;u_c = \gamma c^{\gamma-1}l^\omega K\\&#xA;u_{cc} = (2\gamma-1)\gamma c^{\gamma-2}l^\omega K\\&#xA;u_{ll} = (2\omega-1)\omega l^{\omega-2}c^\gamma K \\&#xA;u_{cl} = 2\gamma c^{\gamma-1} \omega l^{\omega-1}K&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and then the Frisch elasticity boils down to&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \eta = \frac{1}{\frac{4\omega}{2\gamma-1} + 1 - 2\omega}\frac{l}{1-l}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It makes sense to some degree: as $\sigma$ is the inter temporal elasticity of substitution, it does not appear here. However, the relative curvatures on $c$ and $l$ appear, which is fine. However, the elasticity is not independent of $l$. As I'm somewhat in the KPR environment (despite adding curvature to $c$), I didn't expect this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are my result correct? Does anyone have more insights on this matter?&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2015-07-14T12:44:26.637" LastActivityDate="2015-07-14T12:44:26.637" Title="Generalized KPR: Frisch Elasticity" Tags="&lt;utility&gt;&lt;labor-economics&gt;&lt;elasticity&gt;&lt;preferences&gt;&lt;frisch-elasticity&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5723" PostTypeId="2" ParentId="3396" CreationDate="2015-05-19T19:53:01.493" Score="0" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Blockquote&#xA;  Say your quasi-linear utility form is:&#xA;  U(x,v)=x+ln(v)&#xA;  Say Pv=Px=1 and so for wealth w=Pv⋅v+Px⋅x=x+v. If 01 is then exclusively x is purchased beyond that. So demand for x looks like this:&#xA;  w&amp;lt;1:x∗=0&#xA;  w&amp;lt;1:v∗=w&#xA;  w≥1:x∗=w−1&#xA;  w≥1:v∗=1&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;How does that make sense. If you allocate v=w and x=0 when w&amp;lt;1 then U(0,v=w&amp;lt;1) &amp;lt; 0 as ln(v) for v&amp;lt;1 is negative.&lt;/p&gt;&#xA;" OwnerUserId="4706" LastActivityDate="2015-05-19T19:53:01.493" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5724" PostTypeId="1" AcceptedAnswerId="5727" CreationDate="2015-05-19T20:18:38.293" Score="3" ViewCount="156" Body="&lt;p&gt;In the last twelve months, the argentine peso (ARS) &lt;a href=&quot;http://www.xe.com/currencycharts/?from=USD&amp;amp;to=ARS&amp;amp;view=1Y&quot; rel=&quot;nofollow&quot;&gt;lost about 11% of its value&lt;/a&gt; in comparison to USD.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the same time range the &lt;a href=&quot;http://www.lanacion.com.ar/1794138-inflacion&quot; rel=&quot;nofollow&quot;&gt;prices rouse about 29% (spanish)&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What's the reason for this effect? I am living in Argentina for about 2 years, and the prices even feel worse to the published statistics. The government is acting very &quot;special&quot;: it's starting social programs one after another and is building lots of (unneeded, or at least oversized) infrastructure using money with unclear origin (well, a lot of this money is draining in similar circumstances, too).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, who is willing to pay this price for Pesos, since they do not have any value outside of argentina? In my expectation the demand for Pesos is really low, and since Argentina maintains a trade deficit, it is forced to import lots of goods, payed with Dollars. They should have a pressing demand for Dollars. And economics say: low demand + great offer = low price.&lt;/p&gt;&#xA;" OwnerUserId="4705" LastActivityDate="2015-05-20T06:43:47.983" Title="Why is the Argentine Peso still so expensive?" Tags="&lt;inflation&gt;&lt;exchange-rates&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5725" PostTypeId="2" ParentId="5693" CreationDate="2015-05-19T20:58:19.930" Score="1" Body="&lt;p&gt;I finally figured out how to use the utility function so I will detail so anyone who needs a detailed answer as it was quite unclear even though I was well aware of the equation :&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;C1 + C2/(1+r) = Y1 + Y2/(1+r)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;But did not know how to use it so I will explain , &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Y1 = 1000&#xA;  Y2 = 5000&#xA;  r = 0%&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So we have &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;C1+C2/(1+0)=Y1+Y2/(1+0&#xA;  C1+C2=Y1+Y2&#xA;  So C1=Y1+Y2-C2 with Y1+Y2=6000&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Replace the value of C1 in the utility function :&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;U=3×(6000-C2)×C2&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;We know that utility is max when &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;dU/dC2 = 0 = -6C2+18000&#xA;  C2=3000&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;To get C1 we just have to put C2 in the two period budget constraint to get &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;C1=3000&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;And there it is, if i did something wrong feel free to comment &lt;/p&gt;&#xA;" OwnerUserId="2797" LastActivityDate="2015-05-19T20:58:19.930" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="5727" PostTypeId="2" ParentId="5724" CreationDate="2015-05-19T23:50:39.797" Score="4" Body="&lt;p&gt;Buying and selling of currencies in Argentina is currently strongly controlled by the government:&#xA;&lt;a href=&quot;http://www.reuters.com/article/2015/02/09/argentina-imports-idUSL5N0VJ4I520150209&quot; rel=&quot;nofollow&quot;&gt;http://www.reuters.com/article/2015/02/09/argentina-imports-idUSL5N0VJ4I520150209&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This means that you cannot buy as many Dollars as you want, but the ones you buy you get at a government controlled exchange rate, which is actually cheaper. The Argentine government might have to pay 10 Pesos for a Dollar, but they sell it to the importer for 8 Pesos. They do this so that consumer prices do not spiral out of control. Hence the current exchange rate is not what it would be in an uncontrolled market. Further devaluation (controlled by the government) is expected next year, because this subsidized exchange is too costly for the government:&#xA;&lt;a href=&quot;http://www.bloomberg.com/news/articles/2015-03-18/argentine-peso-forwards-at-record-show-devaluation-bet-for-2016&quot; rel=&quot;nofollow&quot;&gt;http://www.bloomberg.com/news/articles/2015-03-18/argentine-peso-forwards-at-record-show-devaluation-bet-for-2016&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for your second question: while the Peso may not have any value outside of Argentina, individuals and firms that buy products in Argentina will still have a use for it. For example a US firm importing and selling Argentine beef will trade Dollars for Pesos.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2015-05-20T06:43:47.983" LastActivityDate="2015-05-20T06:43:47.983" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5728" PostTypeId="5" CreationDate="2015-05-20T00:45:40.297" Score="0" Body="" OwnerUserId="-1" LastEditorUserId="-1" LastEditDate="2015-05-20T00:45:40.297" LastActivityDate="2015-05-20T00:45:40.297" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5729" PostTypeId="4" CreationDate="2015-05-20T00:45:40.297" Score="0" Body="Monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting an inflation rate or interest rate to ensure price stability and general trust in the currency. Further goals of a monetary policy are usually to contribute to economic growth and stability, to low unemployment, and to predictable exchange rates with other currencies." OwnerUserId="40" LastEditorUserId="40" LastEditDate="2015-05-20T22:55:56.317" LastActivityDate="2015-05-20T22:55:56.317" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5730" PostTypeId="2" ParentId="5722" CreationDate="2015-05-20T02:40:31.380" Score="2" Body="&lt;p&gt;Regarding the presence of $l$ in the Frisch elasticity, your result is correct. It is my impression that a Frisch elasticity free of $l$ requires very specific functional forms.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example we know that the following utility function &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U(c,l) = ln(c) +\alpha \frac {(1-l)^{1+1/v}}{1+1/v} \tag{1}$$&#xA;gives a Frisch elasticity independent of $l$ (and then $\eta=v$).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We could compare this with your utility specification and say &quot;ah, so we must have additive separability to obtain a Frisch elasticity independent of $l$&quot;...&lt;br&gt;&#xA;No, this is not enough. Note that essentially $(1)$ does not express utility as a positive non-linear function of leisure but as a negative non-linear function of labor, and so the term $1-l$ appears. This is critical to eliminate $l$ from the final expression.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Because, if  we assume additive separability in general, then the cross-partial derivative is zero and we would be left with&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\eta = \frac{u_l}{- u_{ll}}\frac{1}{1-l} \tag{2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the additively separable utility function is expressed as a non-linear positive function of $l$, &lt;em&gt;and not as a negative non-linear function of $1-l$&lt;/em&gt;, $(2)$ would also be dependent on $l$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;--&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, with your utility function specification, I do not find that $\sigma$ is out of the final picture. Instead I find&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \eta = \frac{\gamma(1-\sigma)-1}{(\omega+\gamma)(1-\sigma)-1}\frac{l}{1-l}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If $\omega = 1-\gamma$ this simplifies to&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \eta = \frac{1-\gamma(1-\sigma)}{\sigma}\frac{l}{1-l}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But these are treacherous algebraic calculations - you should recheck.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-05-22T09:29:09.337" LastActivityDate="2015-05-22T09:29:09.337" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5731" PostTypeId="1" CreationDate="2015-05-20T05:13:31.910" Score="9" ViewCount="153" Body="&lt;p&gt;I know that in New Zealand, &lt;a href=&quot;http://en.wikipedia.org/wiki/New_Zealand_electricity_market#Wholesale_Spot_Market&quot;&gt;the wholesale price of electricity is set using a spot market&lt;/a&gt;, whereby every half hour, each of the electricity producers provide offers for how much electricity they can supply at each price level, and then when the actual amount of electricity is used, they producers are paid at the highest value need for all units of electricity supplied, with the lowest offers being utilised first.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The market is regulated by the Electricity Authority, which is an independent crown entity, while the transmission of electricity is managed by Transpower, which is a state owned enterprise. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In practise what this means, is that the producers will offer their renewable energy for free, and price their coal/oil at a higher rate. Some coal/oil is always needed and so this higher rate is determines how much the producers are paid for their cheaper energy supplied. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is, how else can and are electricity prices determined around the world?&lt;/p&gt;&#xA;" OwnerUserId="96" LastEditorUserId="96" LastEditDate="2015-05-20T05:19:36.153" LastActivityDate="2015-05-20T08:13:35.613" Title="What are some different methods for pricing electricity?" Tags="&lt;pricing&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5732" PostTypeId="1" CreationDate="2015-05-20T08:04:10.290" Score="4" ViewCount="2338" Body="&lt;p&gt;For a single variable price change, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$CV = - \int_{p_x^o}^{p_x^f} x_H(\rho,p_y,v^o)d\rho$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$x_H$ is the Hicksian demand function for good $x$. What happens if both prices change? How does one calculate this? What about for an $n$ dimensional price vector where all the prices are changing? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Please give an example using double integrals. &lt;/p&gt;&#xA;" OwnerUserId="2679" LastEditorUserId="2679" LastEditDate="2015-05-20T16:04:03.020" LastActivityDate="2015-05-20T16:04:03.020" Title="How does one calculate compensating variation for multiple price change?" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5733" PostTypeId="2" ParentId="5731" CreationDate="2015-05-20T08:06:45.297" Score="1" Body="&lt;p&gt;I am not sure how they determine consumer prices in the Netherlands, but the amount that the distribution companies receive is determined by yardstick competition.&#xA;&lt;br&gt; Here is an &lt;a href=&quot;http://www.energyregulationquarterly.ca/articles/fostering-competition-amongst-regualted-ldcs-the-dutch-experience#sthash.HtyogXzG.dpbs&quot; rel=&quot;nofollow&quot;&gt;article&lt;/a&gt; describing the actual process.&#xA;&lt;br&gt; And here is &lt;a href=&quot;http://www.cpb.nl/en/publication/yardstick-competition-theory-design-and-practice&quot; rel=&quot;nofollow&quot;&gt;another one&lt;/a&gt; on the theory of yardstick competition.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2015-05-20T08:06:45.297" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5734" PostTypeId="2" ParentId="5706" CreationDate="2015-05-20T08:13:34.447" Score="15" Body="&lt;p&gt;You sometimes find textbooks drawing the supply and demand curves as concave upwards, as such:&lt;/p&gt;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/UBUfx.jpg&quot; alt=&quot;concave-upwards supply and demand curves&quot; /&gt;&lt;/p&gt;&#xA;&lt;p&gt;The straight-line supply and demand curves can be thought of as a magnification of this graph, where the two intersect. Thus, the units on the axes would give you a clue as to how high up the graph is being drawn, or how far to the right (if the units start at a number other than 0 or skip an interval). This shows you why they are indeed called 'curves', even when they are sometimes straight lines.&lt;/p&gt;&#xA;&lt;p&gt;Supply and demand curves are drawn using straight lines for simplicity. For example, two straight-line equations may be given, from which it is relatively simple to calculate the point of intersection.&lt;/p&gt;&#xA;&lt;h2&gt;In the real world&lt;/h2&gt;&#xA;&lt;p&gt;Supply and demand curves are an approximation of what happens in real life. The curves are a simplified model which show the general trend in the two functions. In reality, supply and demand curves are approximated using data that is collected over many years, with many short-term variables affecting the results, if the curves are even drawn up at all (the curves are more a theoretical model than a calculative method).&lt;/p&gt;&#xA;&lt;h2&gt;Economic factors which affect supply and demand&lt;/h2&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;strong&gt;Price elasticity&lt;/strong&gt; at different points of output affect the gradient of the curve at those points. A higher price elasticity results in a shallower gradient and vice versa. A unit price elasticity at all points on a demand curve will result in a hyperbola. In that case, the asymptotes of the demand curve are the x and y axis. FYI, the asymptotes of a demand curve will always be the x and y axis if the graph is drawn using this definition of price elasticities, but different elasticities will change the compression or expansion of the graph either vertically or horizontally so that it becomes not a hyperbola, but a hyperbolic graph.&lt;/li&gt;&#xA;&lt;li&gt;The supply curve for a firm (with any level of competition in the market) is the &lt;strong&gt;marginal cost&lt;/strong&gt; curve faced by that firm. The marginal cost curve looks like this:&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/5Vd9i.jpg&quot; alt=&quot;marginal cost curve&quot; /&gt;&lt;/p&gt;&#xA;&lt;p&gt;However, due to the firm's variable costs, output is always greater than that at the turning point of the marginal cost curve.&lt;/p&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;For interest, in the special case of an &lt;strong&gt;oligopoly&lt;/strong&gt;, there exists a kinked demand curve faced by an individual firm, as shown:&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/aFZkE.png&quot; alt=&quot;kinked demand curve&quot; /&gt;&lt;/p&gt;&#xA;" OwnerUserId="175" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2015-05-20T08:13:34.447" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5735" PostTypeId="2" ParentId="5731" CreationDate="2015-05-20T08:13:35.613" Score="4" Body="&lt;p&gt;In most of Europa the physical price for electricity is determined in day-ahead spot auctions. Essentially it is a free market, where anyone can buy and sell power, given you that you can fulfill the regulation set forth by the different national power exchanges and system operators. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This means that every day before 10.00 - 12.00 AM all producers and consumers must have told how much power they wish to sell and buy. From 12.00 and to around 12.42 a number of welfare optimization algorithms are run. After this, the different power area prices are published, along with the supply and demand curves for almost all countries. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In essence it is a where supply meets demand. This is complicated a lot by different bid-types, power connections across borders, physical constraints on cables and so on, but you can download the newest curves from Germany and France each day from epex.com if you want. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Because there is a lot of competition, you will mostly see power producers selling their power at their marginal costs. Because of subsidies this means that renewable energy sells as low as -300 euro pr. MWh - yes, they actually in some cases pay people to take their product. Nuclear and lignite power is around 10-18 EUR, the comes cheap coal and hydro (depending on season), the more expensive coal, gas and finally oil. From the price you can more or less tell which kind of production is running in any given hour. &lt;/p&gt;&#xA;" OwnerUserId="107" LastActivityDate="2015-05-20T08:13:35.613" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5736" PostTypeId="2" ParentId="5732" CreationDate="2015-05-20T12:59:34.827" Score="2" Body="&lt;p&gt;I think the good way to do that is to introduce the &lt;a href=&quot;http://en.wikipedia.org/wiki/Expenditure_function&quot; rel=&quot;nofollow&quot;&gt;Expenditure function&lt;/a&gt; which awesomely solves your problem.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;The &lt;strong&gt;Expenditure function&lt;/strong&gt; gives the money one has to spend to achieve a given level of utility, given a utility function $u$ and the vector of prices $p$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$e(p,u^*)=min_{x \in \mathbb{R}_+^n,u(x) \geq u^*}p \cdot x$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then you can express your compensating variation in two equivalent ways:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$CV=e(p_1,u_1)-e(p_1,u_0)=e(p_0,u_0)-e(p_1,u_0)$ where $p_0$ and $p_1$ are the old and new prices and $u_0$ and $u_1$ are the old and new utility. One can note that it can be translated as: if given $CV$ in compensation for the change, then the consumer would be indifferent to that change.&lt;/p&gt;&#xA;" OwnerUserId="4578" LastActivityDate="2015-05-20T12:59:34.827" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5737" PostTypeId="1" AcceptedAnswerId="5738" CreationDate="2015-05-20T15:44:30.927" Score="2" ViewCount="1806" Body="&lt;p&gt;The demand for rail travel is $Q^d = 600 - 2P$ where quantity is thousands of train journeys per quarter and $P$ is in £ per journey. How much would the consumer surplus change if rising cost of electricity led the train companies to raise price from £70 to £100. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Calculating the choke price, $600 = 2P$. Thefore $P = 300$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At £70, $Q^d = 460$. Therefore Consumer surplus is $(460-300)/2*460 = £36,800$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At £100, $Q^d = 400$. Therefore consumer surplus is $(400-300)/2*400 = £20,000$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Difference is $£16,800$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've got the answer wrong, but i'm sure where, any help is appreciated. &lt;/p&gt;&#xA;" OwnerUserId="4714" LastEditorUserId="4578" LastEditDate="2015-05-20T16:01:40.643" LastActivityDate="2015-05-21T23:52:24.590" Title="Consumer Surplus question" Tags="&lt;microeconomics&gt;&lt;consumer-surplus&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5738" PostTypeId="2" ParentId="5737" CreationDate="2015-05-20T16:07:08.260" Score="3" Body="&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/7jyya.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Image courtesy &lt;a href=&quot;http://economicsonline.co.uk/&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://economicsonline.co.uk/&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consumer surplus is the sum (integral) of differences between the price each consumer would have payed and the price they got to pay. You need to find out the area of the green zone on the above graph, in the case of your model.&lt;/p&gt;&#xA;" OwnerUserId="4578" LastActivityDate="2015-05-20T16:07:08.260" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5739" PostTypeId="1" CreationDate="2015-05-20T16:12:03.273" Score="16" ViewCount="2382" Body="&lt;p&gt;Finland's economic recovery from the shock of the global financial crisis of 2007–2008 has been very weak. The country has been in recession for the past three years, with GDP expected to expand by only 0.8 percent this year. See Chart 1 below (Source: &lt;a href=&quot;http://www.telegraph.co.uk/finance/economics/11541657/How-sleepy-Finland-could-tear-apart-the-euro-project.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Mehreen Khan, &quot;How sleepy Finland could tear apart the euro project,&quot; The Telegraph, April 18, 2015&lt;/a&gt;):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/CITmF.png&quot; alt=&quot;Finland&amp;#39;s stuttering recovery&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Before Finland adopted the Euro, the common European currency, it faced two severe recessions (or depressions) during its years of independence after 1917. The first was the Great Depression of the 1930s  and the second was during the early 1990s (the causes of which included the collapse of the Soviet Union in 1991 and a banking crisis in the Nordic countries). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As Lars Christensen, Danske Bank's chief analyst, has pointed out in his &lt;a href=&quot;http://marketmonetarist.com/2014/11/16/great-greater-greatest-three-finnish-depressions/&quot; rel=&quot;nofollow noreferrer&quot;&gt;blog&lt;/a&gt;, Finland recovered from its economic downturns in the 1930s and the early 1990s, at least partially as a result of devaluing its currency, the Markka. Finland gave up the gold standard in October 1931, which was followed by a very strong economic recovery. Similarly, during the early 1990s, Finland followed a &quot;strong Markka&quot; policy of high interest rates, tying the Markka's exchange rate to the ECU currency basket (in the run-up to the launch of the Euro in 1999).  This policy was abandoned in September 1992, allowing the Markka to float freely and devalue, which was followed by a strong economic recovery. See Chart 2 (Source: &lt;a href=&quot;http://marketmonetarist.com/2014/11/16/great-greater-greatest-three-finnish-depressions/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Lars Christensen, &quot;Great, Greater, Greatest -- Three Finnish Depressions&lt;/a&gt;&quot;, November 16, 2014) below, which compares the performance of the Finnish economy during three depressions:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/N0dbh.jpg&quot; alt=&quot;Three Finnish Depressions&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As can be seen from Chart 2, the tight monetary policy of the ECB in the years after the 2007–2008 global financial crisis has been accompanied by a very weak recovery in the Finnish economy. In fact, as Christensen notes, the ECB's interest rate hikes in 2011 were followed by a contraction in the Finnish economy after some initial recovery.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The evidence strongly suggests that Finland needs to devalue its currency to recover from serious recessions. Devaluations boost the country's important export sector, including the forest products industry. As a member of the eurozone, Finland cannot devalue its currency and its monetary policy is set by the European Central Bank. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;These problems were foreseen in the 1990s by economists and commentators, with Bernard Connolly's book &lt;a href=&quot;https://rads.stackoverflow.com/amzn/click/com/057117521X&quot; rel=&quot;nofollow noreferrer&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;The Rotten Heart of Europe: The Dirty War for Europe's Money&lt;/em&gt;&lt;/a&gt; being among the most vociferous criticisms. Connolly was fired by the European Commission for criticizing the European Exchange Rate Mechanism, which he used to help run. He saw the Euro as primarily a political project, not an economic one, part of the French and German project of ever-greater political integration in Europe.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As Connolly and others warned before the launch of the Euro, small countries situated on the periphery of Europe with economies whose structures differed from Germany and France, would suffer from asymmetric shocks that could not be appropriately dealt with as the small countries would lack an independent monetary and exchange-rate policy. The Finnish economy, for example, relies to a great extent on exports for economic growth. An asymmetric shock is a situation in which a shock to supply or demand differs from one geographic region to another, or when such shocks do not change in tandem.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The classic arguments in favour of flexible exchange rates are made by Milton Friedman in &quot;The Case for Flexible Exchange Rates,&quot; (in &lt;em&gt;Essays in Positive Economics&lt;/em&gt;, The University of Chicago Press, 1953, pp. 157–203) and Robert Mundell in &quot;A Theory of Optimum Currency Areas&quot; [&lt;em&gt;The American Economic Review&lt;/em&gt;, Vol. 51, No. 4 (September, 1961), pp. 657–665]. However, later in his career, Robert Mundell offered an &lt;a href=&quot;https://en.wikipedia.org/wiki/Optimum_currency_area#OCA_with_international_risk_sharing&quot; rel=&quot;nofollow noreferrer&quot;&gt;argument in favour of a shared European currency&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Should Finland leave the eurozone and return to its old national currency, the Markka? In light of my comments, obviously my strong suggestion is that it should, but leaving the eurozone would undoubtedly have various negative consequences, both for Finland and the European Union. Would these negative consequences outweigh the positive effects?&lt;/p&gt;&#xA;" OwnerUserId="4629" LastEditorUserId="4629" LastEditDate="2019-09-21T04:02:51.230" LastActivityDate="2021-02-16T06:46:13.263" Title="Should Finland leave the eurozone?" Tags="&lt;macroeconomics&gt;&lt;monetary-policy&gt;&lt;currency&gt;&lt;exchange-rates&gt;&lt;euro-area&gt;" AnswerCount="3" CommentCount="7" FavoriteCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="5740" PostTypeId="1" CreationDate="2015-05-20T16:30:14.467" Score="8" ViewCount="5659" Body="&lt;p&gt;I can solve most utility maximization problems using my mathematical knowledge .... but not when it comes to Leontief preferences. I do not have a book to lean on (am self-studying), so would really like some help. How does one solve a general maximization problem like $$\max [\alpha x_1, \beta x_2, \gamma x_3] \ \text{subject to } \ \lambda_1 x_1 + \lambda_2 x_2 + \lambda_3 x_3 = M$$&#xA;where $M$ is income and $\lambda_i$ is price for good $i$? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Really, everything I know about derivatives and slopes goes all out the window with this damn thing. If somebody told me what the prices and income were, the optimal choice, when there are only a few goods, could probably be found by just applying common sense, but what about the general case? Is there no general &quot;formula&quot; like there is for Cobb Douglas and CES functions? Is there some go-to method that we use in these cases?&lt;/p&gt;&#xA;" OwnerUserId="4715" LastEditorUserId="43" LastEditDate="2015-05-20T23:58:43.397" LastActivityDate="2015-05-20T23:58:43.397" Title="Leontief preferences" Tags="&lt;consumer-theory&gt;&lt;utility&gt;&lt;optimization&gt;&lt;leontief&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="5742" PostTypeId="2" ParentId="5740" CreationDate="2015-05-20T21:09:18.793" Score="5" Body="&lt;p&gt;You are missing a $\min$ operator just before the bracket. The utility maximization problem is as follows, $$\max \ \min [\alpha x_1, ..., \gamma x_3] \\ \ \ \text{such that} \ \ \lambda_1x_1 + ... + \lambda_3x_3 = M$$&#xA;Consider the case of two goods with utility $u$ given by $u(x) = \min[\alpha x_1, \beta x_2]$. At the optimum, what do you know about the relation between $\alpha x_1$ and $\beta x_2$? They must be equal, that is $$\alpha x_1 = \beta x_2$$ For if not, then assume without loss of generality that $\alpha x_1 &amp;gt; \beta x_1$. What is the utility of such choices of $x_1$ and $x_2$? It must be $\beta x_2$, which means that some of your money is being spent on $x_1$ (assuming prices are strictly positive) but it is not giving you any extra utility, and so this cannot be an optimal choice of consumption. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It follows that the equality must hold at an optimum (this is obvious graphically too). Along with the budget constraint, that gives you two equations and two unknowns, which can be solved for optimal consumption. A similar approach can be applied to the case of $n$ goods.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course above is assuming that we are dealing with a trivial utility maximization problem, and aren't doing integer programming and the like.&lt;/p&gt;&#xA;" OwnerUserId="4717" LastActivityDate="2015-05-20T21:09:18.793" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5743" PostTypeId="1" CreationDate="2015-05-20T21:44:15.330" Score="4" ViewCount="103" Body="&lt;p&gt;In reading the Wikipedia article about the &quot;financial accelerator,&quot; I read this&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Firms’ ability to borrow depends essentially on the market value of&#xA;  their net worth. The reason for this is the familiar story of&#xA;  asymmetric information between lenders and borrowers. Lenders are&#xA;  likely to have little information about the reliability of any given&#xA;  borrower. As such, they usually require borrowers to set forth their&#xA;  ability to repay, often in the form of collateralized assets.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So, I believe that models with a financial accelerator, such as Kiyotaki and Moore (1997), assume a credit constraint. I am looking form papers that derive these credit constraints. That is, where do they come from? Could someone provide the reference?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Papers that I can think of are, for example, Hart and Moore (1994), which derives constraints that are driven by asymmetric information and the inalienability of human capital, or Myers and Rajan (1998), which derives debt capacity from inefficient liquidation and the ability of the manager to engage in asset substitution. What are the classic papers on this topic? &lt;/p&gt;&#xA;" OwnerUserId="59" LastEditorUserId="59" LastEditDate="2015-05-21T20:39:08.680" LastActivityDate="2015-05-21T20:39:08.680" Title="What is the classic paper that derives borrowing constraints from asymmetric information?" Tags="&lt;reference-request&gt;&lt;corporate-finance&gt;&lt;asymmetric-information&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5744" PostTypeId="1" CreationDate="2015-05-20T22:21:12.193" Score="3" ViewCount="1868" Body="&lt;p&gt;&lt;a href=&quot;http://www.economics.utoronto.ca/jfloyd/modules/islm.html&quot; rel=&quot;nofollow&quot;&gt;Source&lt;/a&gt;: by &lt;a href=&quot;http://homes.chass.utoronto.ca/~floyd/&quot; rel=&quot;nofollow&quot;&gt;John Floyd&lt;/a&gt; PhD  (in Economics; U Chicago)&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The intuition behind the positive slope of LM is as follows:&lt;br&gt;&#xA;  An increase in the interest rate reduces the demand for money&lt;br&gt;&#xA;  and an increase&#xA;  in income increases it [the demand for money].&lt;br&gt;&#xA;  To [...] [equalize] the demand for money equal to a constant money supply&lt;br&gt;&#xA;   as the interest rate rises&#xA;  and we move along the LM curve,&lt;br&gt;&#xA;  &lt;strong&gt;the level of income must increase.&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Would someone please explain the bolded? It sounds too imperious and presumptuous:&lt;br&gt;&#xA;how MUST a rise in interest rate increase consumers' level of income?&lt;br&gt;&#xA;Eg, employers can still refuse to increase salary. Then income would NOT increase? &lt;/p&gt;&#xA;" OwnerUserId="4020" LastEditorUserId="4020" LastEditDate="2015-05-20T22:45:13.527" LastActivityDate="2016-09-04T00:49:08.360" Title="Intuition behind the positive slope of LM curve : 'Income must increase'?" Tags="&lt;macroeconomics&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5745" PostTypeId="1" CreationDate="2015-05-21T06:25:00.493" Score="5" ViewCount="87" Body="&lt;p&gt;The motivation to this question is the Biblical commandment of Sabbatical year, in which the land should be allowed to rest and should not be cultivated. I am trying to estimate how much would it cost to actually implement this commandment in an industrial economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For concreteness, I use data about the &lt;a href=&quot;http://www.cbs.gov.il/shnaton65/st19_14.pdf&quot;&gt;Israeli agricultural product&lt;/a&gt;; my main problem is the interpretation of the data, which is probably applicable in other countries.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here are the relevant data for 2013 (rounded and in billions of ILS):&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;INPUT (excluding compensation for employee jobs) = 19.7. Of these: Input (purchased and from intermediate produce) = 17.5;  depreciation = 2.2.&lt;/li&gt;&#xA;&lt;li&gt;OUTPUT: 30.0. Of these: crops = 18.1, animals = 11.9 (note that only land-cultivation is prohibited, while growing animals is permitted).&lt;/li&gt;&#xA;&lt;li&gt;DOMESTIC PRODUCT: Gross = 12.5, Net = 10.3 (&lt;em&gt;the difference between them is the depreciation.&lt;/em&gt;)&lt;/li&gt;&#xA;&lt;li&gt;INSURANCE COMPENSATION AND OTHER RECEIPTS: 1.0. &lt;/li&gt;&#xA;&lt;li&gt;INCOME ORIGINATING IN AGRICULTURE: 11.1.  Of these: Compensation for employee jobs: 5.3 (&lt;em&gt;Q1: where do the other 5.8 go to?&lt;/em&gt;)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;My assumptions are as follows:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;The consumers should still eat fruits and vegetables. So, instead of growing fresh fruits and vegetables, some of these will be imported, while others will be preserved from the previous year (e.g. dried fruits and other products with long shelf life).&lt;/li&gt;&#xA;&lt;li&gt;The farmers should be compensated on giving up the right to till their land, by giving them the same gross income that they have in a usual year.&lt;/li&gt;&#xA;&lt;li&gt;However, other workers that deal with agricultural produce, such as: truck drivers, traders, workers in fruit markets, etc., should not be compensated because they can still work with imported produce (&lt;em&gt;Q2: do the figures in the table include the income of these workers? Or do they belong to a different branch of economics?&lt;/em&gt;)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I did several calculations and got different results:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;When there is no land-tilling, there is no depreciation and no insurance reception. Hence, only the 10.3 net domestic product is relevant, and from this we should extract the 1.0 insurance, for a total of 9.3. This should be multiplied by 60%, which is the relevant part of &quot;crops&quot; (since the other 40% are &quot;animals&quot; which can be grown as usual). We get: &lt;strong&gt;5.6&lt;/strong&gt;.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;take only the compensation for employee jobs (5.3), since only employees should be compensated (&lt;em&gt;should the insurance receptions be subtracted?&lt;/em&gt;). Again multiply by 60% and get &lt;strong&gt;3.2&lt;/strong&gt;.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;in a different source, I found the fact that the total number of crop farmers is only about 7000. Assuming a gross annual income of 240,000, which a top decile income, I got to only &lt;strong&gt;1.7&lt;/strong&gt; (billion). AFAIK, most farmers make less than that, so the actual figure should be even lower.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Since the numbers in each calculation are quite different, I am interested to know what causes the difference, and which calculation should be used?&lt;/p&gt;&#xA;" OwnerUserId="385" LastEditorUserId="385" LastEditDate="2015-05-21T06:40:50.593" LastActivityDate="2015-08-09T20:03:39.893" Title="Calculating the cost of a year without land-tilling" Tags="&lt;macroeconomics&gt;&lt;agriculture&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5746" PostTypeId="2" ParentId="5739" CreationDate="2015-05-21T12:11:44.870" Score="7" Body="&lt;p&gt;The closest we can get to an answer would be by looking at previous exits from currency unions. Rose published a &lt;a href=&quot;http://www.mas.gov.sg/~/media/resource/publications/staff_papers/StaffPaper44Rose.pdf&quot; rel=&quot;noreferrer&quot;&gt;paper&lt;/a&gt; studying extensively all exits after WWII.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The abstract resumes well the conclusions of the paper:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;This paper studies the characteristics of departures from monetary unions. &#xA;  During the post-war period, almost seventy distinct countries or territories &#xA;  have left a currency union, while over sixty have remained continuously in &#xA;  currency unions. I compare countries leaving currency unions to those &#xA;  remaining within them, and find that leavers tend to be larger, richer, and &#xA;  more democratic; they also tend to have higher inflation. However, there are &#xA;  typically no sharp macroeconomic movements before, during, or after exits&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The effect denoted are very small, which leads me to conclude the choice should be made on political, not economical grounds, but everybody is free to have their own answer about this.&lt;/p&gt;&#xA;" OwnerUserId="4578" LastActivityDate="2015-05-21T12:11:44.870" CommentCount="14" ContentLicense="CC BY-SA 3.0" />
  <row Id="5747" PostTypeId="2" ParentId="5656" CreationDate="2015-05-21T12:59:52.327" Score="0" Body="&lt;p&gt;Hi don't forget that there is a possibility of corner solution as consumer's problem is:&#xA;\begin{matrix}&#xA;max_{x,y,z}U(x,y,z)=aln(x)+bln(y)+z &amp;amp;\text{subject to}  &amp;amp; xp_x+yp_y+zp_z=I, &amp;amp; x,y&amp;gt;0, &amp;amp; z\geq 0 &#xA;\end{matrix}.&#xA;With FOCs,&#xA;\begin{matrix}&#xA;\frac{ay}{bx}=\frac{p_x}{p_y}, &amp;amp;\frac{a}{x}=\frac{p_x}{p_z},  &amp;amp;\frac{b}{y} =\frac{p_y}{p_z}.&#xA;\end{matrix}&#xA;Now this condition is valid iff $$\frac{I}{p_z}\geq (a+b)$$ otherwise the consumer&quot;s problem reduces to optimal choice between good &lt;strong&gt;x&lt;/strong&gt; and good &lt;strong&gt;y&lt;/strong&gt; i.e.&#xA; \begin{matrix} max_{x,y}U(x,y)=aln(x)+bln(y) &amp;amp;\text{subject to}  &amp;amp; xp_x+yp_y=I, &amp;amp; x,y&amp;gt;0 \end{matrix}.&#xA;With FOCs,&#xA;$$\frac{ay}{bx}=\frac{p_x}{p_y}$$&#xA;By the above info the demand function (Uncompensated demand function) of this consumer is:&#xA;$$(x,y,z)(p_x,p_y,p_z,I)=\begin{cases}&#xA;\left ( \frac{ap_z}{p_x},\frac{bp_z}{p_y},\frac{I}{p_z}-a-b \right ), &amp;amp; \text{ if } \frac{I}{p_z}\geq (a+b),  \\ &#xA; \left ( \frac{Ia}{(a+b)p_x},\frac{Ib}{(a+b)p_y},0 \right )&amp;amp; \text{ otherwise. } &#xA;\end{cases}$$&lt;/p&gt;&#xA;" OwnerUserId="4474" LastActivityDate="2015-05-21T12:59:52.327" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5748" PostTypeId="2" ParentId="5737" CreationDate="2015-05-21T14:37:05.027" Score="1" Body="&lt;p&gt;Given the demand function: $$Q(P)=600-2P$$ The consumer surplus is the area under the demand curve  above the equilibrium price $P^*$ or algebraically;&#xA;$$\int_{0}^{P^*}Q(P)\text{dP}$$&#xA;The change in consumer surplus as a result of price change from $P_0^*$ to $P_1^*$ is then:&#xA;$$\begin{align*}\Delta CS&amp;amp;=&amp;amp;&#xA;\int_{P_1^*}^{P_0^*}Q(P)\text{dP}\\&#xA;\end{align*}$$ &lt;/p&gt;&#xA;" OwnerUserId="4474" LastEditorUserId="4474" LastEditDate="2015-05-21T23:52:24.590" LastActivityDate="2015-05-21T23:52:24.590" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5749" PostTypeId="2" ParentId="5743" CreationDate="2015-05-21T18:51:46.000" Score="4" Body="&lt;p&gt;I don't know if you refer to the extensive margin (some borrowers not being able to get credit) or to the intensive margin (one borrower not being able to get as much credit as (s)he wants). If you are referring to the former, one of the theoretical papers for borrowing constraints on markets with asymmetric information is the following one:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Stiglitz and Weiss (1981) AER's paper on Credit Rationing in Markets with Imperfect Information.&#xA;&lt;a href=&quot;http://www.jstor.org/stable/1802787?seq=1#page_scan_tab_contents&quot; rel=&quot;nofollow&quot;&gt;http://www.jstor.org/stable/1802787?seq=1#page_scan_tab_contents&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The argument is very interesting. If lenders cannot distinguish between high risk and low risk borrowers, then the ''market-clearing'' (loosely speaking) equilibrium interest rates will be such that identical (to the observer) consumers can be rationed out.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Other good papers are Bester's (1985) AER's paper on Screening vs. Rationing in Credit Markets with Imperfect Information. &lt;a href=&quot;http://www.jstor.org/stable/1821362?seq=1#page_scan_tab_contents&quot; rel=&quot;nofollow&quot;&gt;http://www.jstor.org/stable/1821362?seq=1#page_scan_tab_contents&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally Chapter 16 on the Handbook of Monetary Economics by Jaffee and Stiglitz may help you.&lt;/p&gt;&#xA;" OwnerUserId="4224" LastActivityDate="2015-05-21T18:51:46.000" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5750" PostTypeId="2" ParentId="5744" CreationDate="2015-05-21T21:15:35.863" Score="1" Body="&lt;p&gt;The intertemporal consumption equation is :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Y_{1}+\frac{Y_{2}}{(1+r)} = W$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $W$ is total wealth and $Y$ is revenue.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When interest rate rise investiment drops and savings rise, so lets say someone choses to save all his revenu from period 1 (this is just to calculate his total wealth), then in period 2 his total wealth will be :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Y_{1}(1+r)+Y_{2} = W(1+r)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So as you can see his total wealth in 2nd period grows when interest rate grows &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also we can isolate $Y_{1}$ : &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Y_{1}= W-\frac{Y_{2}}{(1+r)}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And you see that when interest rate rises your revenu in period one rises.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am not sure if this is a valid answer but it seems correct&lt;/p&gt;&#xA;" OwnerUserId="2797" LastEditorUserId="2776" LastEditDate="2016-09-04T00:49:08.360" LastActivityDate="2016-09-04T00:49:08.360" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5751" PostTypeId="2" ParentId="5744" CreationDate="2015-05-21T21:55:59.883" Score="1" Body="&lt;p&gt;The actors of an economy have a liquidity demand function $L(Y,i)$ where $Y$ is the real income in the economy and $i$ is the nominal interest rate. This function shows how much money the actors keep. (Not wealth, but wealth that is not tied down assets.) It is assumed in the IS-LM model that $L(Y,i)$ is increasing in $Y$ because if you have more income you also spend more and to do this you need more money. It is also assumed that $L(Y,i)$ is decreasing in $i$. If the interest rates are high you have an incentive to deposit more of your wealth and keep less of it liquid/instantly accessible.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now the points of the LM (Liquidity - Money Supply) curve are those $(Y,i)$  pairs for which the liquidity demand equals the money supply. Suppose that given some money supply $M$ and price level $P$ you have&#xA;$$&#xA;L(Y,i) = \frac{M}{P},&#xA;$$&#xA;so the market for money (liquidity) is in equilibrium. Then this point (Y,i) is on the LM curve. While we keep the exogenous variables $M$ and $P$ unchanged we would like to see if there is another pair (Y',i') such that&#xA;$$&#xA;L(Y',i') = \frac{M}{P}.&#xA;$$&#xA;Suppose that $i'&amp;gt;i$. Because the function $L$ is decreasing in $i$ this means $$&#xA;L(Y,i') &amp;lt; L(Y,i) = \frac{M}{P} = L(Y',i').&#xA;$$&#xA;Since $L(Y,i') &amp;lt; L(Y',i')$ and $L$ is increasing in $Y$ we have $Y &amp;lt; Y'$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus if there are two points on the same LM curve and the nominal interest rate is higher in one point, income must the higher in that point as well. I believe this is what Floyd meant.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you dislike dealing with general function forms you may assume&#xA;$$&#xA;L(Y,i) = \frac{Y}{i} \mbox { or } \frac{Y}{1+i}.&#xA;$$&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2015-05-21T21:55:59.883" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5752" PostTypeId="1" AcceptedAnswerId="5755" CreationDate="2015-05-22T00:47:41.390" Score="5" ViewCount="248" Body="&lt;p&gt;I want to ask about OLS White's 1980 &quot;robust&quot; standard errors. &#xA;The key assumption, is that regression errors $u_i$ have distinct variances $σ_i^2$. Then the variance matrix is: $$\Sigma = \operatorname{diag}(\sigma_1^2, \ldots, \sigma_n^2)$$ with its White's estimator: $$\hat\sigma_i^2 = \hat u_i^2$$ This is the HCE (heteroscedasticity-consistent estimator). &#xA; Is the White's robust variance of $\hat{\beta}$ estimated by OLS assuming  independence? For example, assume that there is some $i,j$ such that $$Cov(u_i,u_j)\neq0$$ Because $i,j$ are part of a cluster. In that case $\Sigma$ is not diagonal but has the same diagonal as before. Will the White estimator converge to the diagonal of the true $\Sigma$?  &lt;/p&gt;&#xA;" OwnerUserId="127" LastEditorUserId="4578" LastEditDate="2015-05-26T16:07:00.853" LastActivityDate="2016-01-10T01:42:34.207" Title="Are White's Robust standard errors robust to clustered errors?" Tags="&lt;econometrics&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5753" PostTypeId="2" ParentId="5584" CreationDate="2015-05-22T01:01:02.633" Score="4" Body="&lt;p&gt;I wanted to leave this as a comment but I dont have enough rep yet so I am putting this here even though it is not an answer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem with the lack of investiments is due to the fact that most of the companies who have a huge part of the consumers demand are technology based companies, I am talking in this case about social networks, etc... And these companies have no need for investiment what they want is saving their money to let it grow. A solution to this problem would be a negative interest rate which might help raise investiments.&#xA;Also salarys are either to low and only enough for consumption, or too high and in that case people will prefer saving what they can't consume.&#xA;Another problem is the fact that people do not want to take any risks in investing and prefer saving their money.&#xA;If we can make pensions higher the population will stop worrying about tomorrow thus lowering its savings and augmenting its consumption.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is just an idea some of what I said might be wrong and sorry for bad english.&lt;/p&gt;&#xA;" OwnerUserId="2797" LastEditorUserId="2797" LastEditDate="2015-05-22T01:11:08.017" LastActivityDate="2015-05-22T01:11:08.017" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="5754" PostTypeId="1" AcceptedAnswerId="5762" CreationDate="2015-05-22T01:14:41.353" Score="8" ViewCount="200" Body="&lt;p&gt;I'm studying financial derivatives, and became curiosity in volatility products, more specifically volatility swaps. It always intrigued me how can you create products based on volatility. Who is interested in buying them? Other than traders who want to speculate with the volatility I can't image how a large corporation could find a seller/buyer for this kind of product.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How can volatility swaps be used to reduce the risk of volatility in the markets (hedging strategies)? How is their fair value calculated?&lt;/p&gt;&#xA;" OwnerUserId="235" LastEditorUserId="84" LastEditDate="2015-05-22T14:36:06.867" LastActivityDate="2015-05-25T18:58:59.257" Title="Hedging with volatility swaps?" Tags="&lt;asset-pricing&gt;&lt;financial-markets&gt;&lt;pricing&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="5755" PostTypeId="2" ParentId="5752" CreationDate="2015-05-22T02:05:58.067" Score="4" Body="&lt;p&gt;No. White's robust errors are only robust to errors that vary linearly based on X(t).  If you have a type of serial correlation or clustering you will want to use Hansen method to adjust standard errors.&lt;/p&gt;&#xA;" OwnerUserId="4598" LastActivityDate="2015-05-22T02:05:58.067" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5757" PostTypeId="1" AcceptedAnswerId="5842" CreationDate="2015-05-22T02:12:00.270" Score="9" ViewCount="335" Body="&lt;p&gt;Source: p 710, &lt;em&gt;Economics&lt;/em&gt;, 3 Ed, 2014, by N G Mankiw, M P Taylor&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;... In that same article, Professor Mankiw recounted a&#xA;  discussion with one of his graduate students at Harvard about a scheme, put forward by the student,&#xA;  whereby the central bank announces that in one year’s time it would pick a digit from one to nine out of&#xA;  a hat and any currency ending in that number would cease to be legal tender. People would thus know&#xA;  that in one year’s time 10 per cent of the cash would cease to be legal tender, so what would they do? The&#xA;  logic is to spend it. The additional spending would increase aggregate demand and act as a boost to the&#xA;  economy. &lt;strong&gt;Such a policy might enable central banks to set negative interest rates provided the rate was&#xA;  less than 10% because there would then be an incentive to lend at (say) −4% rather than&#xA;  potentially losing 10%.&lt;/strong&gt; &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Please explain the last sentence (that I bolded). I don't understand the significance of the 10% and −4%. The foregoing discusses NEGATIVE interest rates, the maximum of which must be 0%.&lt;br&gt;&#xA;So why bound the interest rate above, with a POSITIVE number (10%)? &lt;/p&gt;&#xA;" OwnerUserId="4020" LastActivityDate="2015-05-27T18:55:41.933" Title="Why is 10% the necessary upper bound for a negative interest rate?" Tags="&lt;interest-rate&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5758" PostTypeId="2" ParentId="5757" CreationDate="2015-05-22T04:47:05.993" Score="9" Body="&lt;p&gt;Assuming your home is safe, would you keep your money in a bank that only gave 96% of it back? (-4% interest rate)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What if your home has mice which eat exactly 10% of your money? Would you then keep your money in the bank that only returns 96%?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And finally, what if every bill has a 10% chance of being eaten? This means that in expected value you lose 10% of your money.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the above situations, what would be the lowest interest rate you would accept from the bank?&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2015-05-22T04:47:05.993" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5759" PostTypeId="1" CreationDate="2015-05-22T04:57:49.937" Score="5" ViewCount="77" Body="&lt;p&gt;In his book &quot;The Armchair Economist&quot;, economist Steve Landsburg critiques an op-ed concerning the relative value of stocks and real estate:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;James K. Glassman wrote a piece in The New Republic to prove that stocks are better investments than real estate. He calculates that &quot;if you bought a 200,000 dollar home in Foggy Bottom [a neighborhood in Washington, D.C.] in 1979, it would have been worth 316,000 dollars [ten years later]. But if you bought 200,000 dollars worth of stock in 1979, it would be worth 556,000 dollars [ten years later]—and you'd have another 68,000 dollars in dividend income.&quot;&#xA;  Well, yes, but if you'd bought the house you would have had a place to live for those ten years, whereas if you'd bought the stock you'd have been making rental payments to a landlord. This renders Glassman's comparison meaningless. All he shows is that if you compare all of the benefits of owning stock to some of the benefits of owning real estate, then the stock comes out ahead. Big deal.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Glassman's piece has a place of honor in my Sound and Fury File because his conclusion is so exactly the opposite of the truth. He explains that &quot;stocks appreciate faster than real estate; they always have and they always will. The reason is that a share of stock is a piece of a company in which minds are producing value. Real estate just sits there.&quot; The truth is that stocks appreciate faster than houses precisely because a house does not just sit there; it provides shelter, warmth, and closet space every single day that you own it. &lt;strong&gt;Stocks need to appreciate faster to compensate for the fact that they don't provide any comparable stream of services. If stocks and real estate appreciated at the same rate, nobody would own stocks.&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;My question is, what are the mathematical details of Landsburg's claim in bold?  If A is an asset that produces a stream of rental income, and B is an asset that does not produce a stream of rental income, then must the relative price of B with respect to A be constantly increasing?  Is there a model that shows this?  And what exactly causes this relative price change?&lt;/p&gt;&#xA;" OwnerUserId="4447" LastEditorUserId="4447" LastEditDate="2015-05-26T21:56:39.127" LastActivityDate="2015-05-26T21:56:39.127" Title="Do assets without rental income streams appreciate relative to assets with rental income streams?" Tags="&lt;microeconomics&gt;&lt;asset-pricing&gt;&lt;interest-rate&gt;&lt;price-theory&gt;&lt;capital-returns&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5760" PostTypeId="2" ParentId="5759" CreationDate="2015-05-22T07:11:25.567" Score="1" Body="&lt;p&gt;I believe he assumes that there is no arbitrage and also that there are no pricing bubbles. So two assets that have the same price today would have the same net present value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $P_t$ denote the price of an asset in year $t$, $d_t$ the dividend (or rental income or cashflow) you get from said asset in year $t$ and let $r$ denote the interest rate (which I assume to be constant for simplicity's sake). Then the price of the asset today is&#xA;$$&#xA;P_1 = \frac{d_1}{1+r} + \frac{P_2}{1+r}.&#xA;$$&#xA;Using iteration&#xA;$$&#xA;P_1 = \sum_{t=1}^{n - 1} \frac{d_t}{(1+r)^t} + \frac{P_n}{(1+r)^{n-1}}.&#xA;$$&#xA;If you compare two assets with&#xA;$$&#xA;P_1^A = P_1^B&#xA;$$&#xA;where&#xA;$$&#xA;\forall t: \ d_t^A &amp;gt; 0, \ d_t^B = 0,&#xA;$$&#xA;then or all $t&amp;gt;1$ you will get:&#xA;$$&#xA;P_t^B &amp;gt; P_t^A.&#xA;$$&#xA;This is somewhat paradoxical, as a there is no clear reason why $P_t^B$ should be positive if it never pays dividends. You could assume that it has not yet payed any dividends but will start doing so soon.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However I think Landsburg's main argument is that $d_t&amp;gt;0$ holds for the house &#xA;as well, not just the stock.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2015-05-22T07:11:25.567" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="5762" PostTypeId="2" ParentId="5754" CreationDate="2015-05-22T12:13:25.733" Score="5" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;What are volatility swaps?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Before the introduction of what is now &lt;strong&gt;volatility swaps&lt;/strong&gt;, investors gained exposure to the market's volatility (yes, they already wanted to) through call and put options, products that depend on volatility, but also heavily on the price level of the underlying asset.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A volatility swap is a forward contract on future realized &lt;strong&gt;price volatility&lt;/strong&gt;. Similarly, a variance swap is a forward contract on future realized &lt;strong&gt;price variance&lt;/strong&gt;, variance being the square of volatility. It is basically an agreement between two parties on exchanging $N_{var} (\sigma_{realized}^2 - \sigma_{strike}^2)$ after a given period.      &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;How is the fair value calculated?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;A good way to catch the meaning of that fair value is to suppose both actors had to make a consensual prediction on volatility. For example, they expect a realized variance of $\sigma^2$ and they agree on $B$ giving $A$ $N_{var} (\sigma_{realized}^2 - \sigma_{strike}^2)$ at expiry. Then the fair value would be $N_{var} (\sigma^2 - \sigma_{strike}^2)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The strike is usually chosen such that the fair value of the swap is zero, &lt;em&gt;i.e.&lt;/em&gt; $\sigma_{strike} =\sigma$. This is not always the case, though. This was for the second, simpler question.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;How can volatility swaps be used to reduce risk of volatility in the&#xA;  markets?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Let's take the example of a life insurance company. The company offers many products with guaranteed benefits and these expose them to short volatility positions, that is, they are better off if volatility is low than if it is high. To balance this risk (they are insurance companies after all), they will buy long positions, that is, volatility swaps that gives them green notes if the volatility is higher than they expected. This does not modify their expected outcome, however it contributes to risk reduction. As they are risk-adverse, they may be willing to lower their expected value in order to bring risk down, which mean they are prepared to pay more than the fair price for a volatility swaps, which means other players will be interested in buying them whatever the composition of their portfolios, hence giving birth to the volatility market, which now-a-days has a daily trading volume of about $30-35 million.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Reference: &lt;a href=&quot;https://www0.gsb.columbia.edu/mygsb/faculty/research/pubfiles/3967/pricing_hedging.pdf&quot; rel=&quot;nofollow&quot;&gt;https://www0.gsb.columbia.edu/mygsb/faculty/research/pubfiles/3967/pricing_hedging.pdf&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="4578" LastEditorUserId="4374" LastEditDate="2015-05-25T18:58:59.257" LastActivityDate="2015-05-25T18:58:59.257" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5763" PostTypeId="1" CreationDate="2015-05-22T12:30:10.607" Score="4" ViewCount="56" Body="&lt;p&gt;A martingale is a model in which the expectation for the next value is equal to the presently observed value, even given knowledge of prior values, &lt;em&gt;ie&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$E(X_{n+1} |X_1, X_2, ..,X_n)=X_n$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What tests for testing if a time series is a martingale are available? I am particularly interested in non-parametric tests. Is there any relation with conditional moments literature?&lt;/p&gt;&#xA;" OwnerUserId="127" LastEditorUserId="4578" LastEditDate="2015-05-22T14:43:19.640" LastActivityDate="2015-05-22T14:43:19.640" Title="Non parametric and parametric tests of martingale?" Tags="&lt;econometrics&gt;&lt;time-series&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5764" PostTypeId="1" AcceptedAnswerId="5770" CreationDate="2015-05-22T14:36:51.300" Score="11" ViewCount="17707" Body="&lt;p&gt;Let's assume that the price of apples has risen and that the quantity of apples sold during the last couple of weeks has decreased. From that, we can infer that the supply curve must've shifted to the left.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I still have trouble fully understanding this. I was told that when the endogenous variables, such as price and quantity, change, only a movement on the demand/supply curve happens and when exogenous variables change (demand shocks etc.) the curves themselves will shift to the left or right.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this example a price increase takes place, so we're just moving up the demand curve, no? And when we reach the target price level, there'll be a corresponding quantity. And now because of market equilibrium the supply curve has to reach that spot, too? So it shifts to the left? Is that correct? So in a demand - supply model, there can't be singular movements on the curves, as there will always be immediate reactions that seek to recreate the equilibrium?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit: Thanks for all the answers!&lt;/p&gt;&#xA;" OwnerUserId="4726" LastEditorUserId="4726" LastEditDate="2015-05-23T23:28:40.140" LastActivityDate="2015-10-30T16:30:54.610" Title="When do supply and demand curves shift?" Tags="&lt;microeconomics&gt;" AnswerCount="5" CommentCount="1" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5765" PostTypeId="1" CreationDate="2015-05-22T15:00:46.483" Score="10" ViewCount="789" Body="&lt;p&gt;I am aware of Hurwickz Uzawa work in integability, neatly summarized by Border &lt;a href=&quot;http://people.hss.caltech.edu/~kcb/Notes/Demand4-Integrability.pdf&quot;&gt;http://people.hss.caltech.edu/~kcb/Notes/Demand4-Integrability.pdf&lt;/a&gt;&#xA;I am wondering if there is any modern treatment of the subject, for instance a version in Sobolev spaces, or taking advantage of new tools in PDE from Lie Algebra. In particular, I am interested in work that extends the integrability problem to non-linear budget constraints. &lt;/p&gt;&#xA;" OwnerUserId="127" LastActivityDate="2015-05-22T15:00:46.483" Title="Modern theory of integrability of demand?" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;" AnswerCount="0" CommentCount="1" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5766" PostTypeId="1" CreationDate="2015-05-22T15:52:21.610" Score="4" ViewCount="5036" Body="&lt;p&gt;I use this economics stack exchange for the first time. I have a question regarding the Cobb-Douglas production function. The question is this: GDP in an economy is growing at 3% a year in real terms. Population is constant. The government decides to allow a significant increase in immigration so that the population (and the workforce) starts to grow by 1% a year. Output is produced in the economy according to a Cobb-Douglas production function. The share of labour income in GDP is 70%. How much higher will GDP be as a result of the new immigration policy after 20 years? How much higher will GDP per capita be?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am not be able to understand how to use the function in this problem. Sorry if I put a question in a wrong way. Thank you.&lt;/p&gt;&#xA;" OwnerUserId="4727" LastActivityDate="2015-07-06T09:47:27.707" Title="How to calculate GDP increase using Cobb-Douglas production function?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5767" PostTypeId="2" ParentId="5764" CreationDate="2015-05-22T16:33:24.637" Score="6" Body="&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Has the price of apples risen because there was an increase in demand? Then the demand curve will shift to the right and you will have a new equilibrium where the new demand curve and the same supply curve intersect. At this higher price, suppliers will be willing to supply a larger amount of apples.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Has the price of apples risen because there was a decrease in supply? In that case, supply shifts left, causing the rise in prices where this new supply curve intersects the old demand curve. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;In other words, the price cannot simply increase by itself. It must be that something in the market has previously shifted to lead to this outcome. &lt;/p&gt;&#xA;" OwnerUserId="2674" LastActivityDate="2015-05-22T16:33:24.637" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="5768" PostTypeId="2" ParentId="5764" CreationDate="2015-05-22T18:31:04.013" Score="6" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Movements along both curves&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;can only happen when we're off equilibrium. Whenever we are at an equilibrium, nothing moves, until one of the curves shifts. Now, say one of the curves has shifted. Next, we will move along the curves until we're at an equilibrium again.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence, any movements along curves can only happen if there was a prior shift in the curves. Typically, we think about these movements happening &quot;quite quickly&quot; in many markets, such that most of the time, these are  &quot;almost in equilibrium&quot;, just because price responses to changes in shifts of the curves happen so quickly.&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-05-22T18:31:04.013" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5769" PostTypeId="2" ParentId="5693" CreationDate="2015-05-22T19:36:23.190" Score="2" Body="&lt;p&gt;Now that the OP has provided his own answer, let's also give the standard treatment of this problem.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is no production, the consumer receives windfall endowments in each period, $Y_1, Y_2$, and he can borrow (or lend) during the first period at an exogenous non-negative interest rate $r$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is the two-period budget constraint of the consumer? It is more intuitive to write it as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$C_2 = Y_2 + (1+r)(Y_1-C_1) \tag{1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The consumer can consume his second period endowment adjusted by the results of its borrowing or lending activities in the first: If his endowment is larger than his consumption in the first period, $Y_1-C_1 &amp;gt;0$, it means that the consumer acted as a creditor, and in the second period he will receive the principal plus interest, to consume in addition to his 2nd-period endowment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If $Y_1-C_1 &amp;lt;0$ it means that the consumer acted as a borrower, and in the second period he will have to return the loan with its interest. So $(1)$ covers both cases.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then the utility maximization problem is stated as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\max_{C_1,C_2} U(C_1,C_2) \\&#xA;s.t. C_2 = Y_2 + (1+r)(Y_1-C_1)  \tag{2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can insert the constraint into the objective function and maximize only with respect to $C_1$. So the first-order condition is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\partial U(C_1,C_2(C_1))}{\partial C_1} = 0 \tag {3}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and the second-order condition is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\partial^2 U(C_1,C_2(C_1))}{\partial C_1^2} &amp;lt; 0 \tag {4}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;at the critical point.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Using the specific functional form of the utility function of the question, $ U= 3C_1C_2$ we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\partial U(C_1,C_2(C_1))}{\partial C_1} = 3C_2 - 3C_1\cdot(1+r) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ = 3[Y_2 + (1+r)(Y_1-C_1)] - 3(1+r)C_1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ = 3Y_2+ 3(1+r)Y_1 - 6(1+r)C_1 \tag{5}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\partial^2 U(C_1,C_2(C_1))}{\partial C_1^2} = -6(1+r) &amp;lt;0$$&#xA;so the second-order condition for a maximum is satisfied.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Setting $(5)$ equal to zero we obtain&#xA;$$ C_1^* = \frac {Y_2}{2(1+r)}+ \frac 12 Y_1 \tag{6}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From $(6)$ we conclude that consumption in the first period will never fall below half of the period's endowment, and that it is a negative function of the interest. Moreover the consumer will find it optimal to borrow when&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$C_1^* &amp;gt; Y_1 \implies   \frac {Y_2}{2(1+r)}+ \frac 12 Y_1 &amp;gt; Y_1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies Y_2 &amp;gt; (1+r)Y_1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Using the specific numerical assumptions of the question, $Y_1 = 1000, Y_2 = 5000, r=0$, we obtain&#xA;$$C_1^* = \frac {5000}{2}+ \frac 12 1000 = 3000 $$&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2016-05-11T13:47:11.297" LastActivityDate="2016-05-11T13:47:11.297" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5770" PostTypeId="2" ParentId="5764" CreationDate="2015-05-22T21:06:18.477" Score="8" Body="&lt;p&gt;Supply and demand curves are a function of price and quantity.  If &lt;em&gt;anything&lt;/em&gt; else changes other than P or Q that is relevant to the curve, the curve shifts.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For supply, these shifters generally fall into three  categories:  &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Technology  &lt;/li&gt;&#xA;&lt;li&gt;Number of producers&lt;/li&gt;&#xA;&lt;li&gt;Price of inputs&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;For demand: &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Number of buyers &lt;/li&gt;&#xA;&lt;li&gt;Price of complements or substitutes &lt;/li&gt;&#xA;&lt;li&gt;Customer tastes and preferences&lt;/li&gt;&#xA;&lt;li&gt;Consumer income&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;If you come up with something that didn't fit into these categories, but is not P or Q, the result is still a shift! You probably just need your imagination to squeeze it into one of these 7 formal categories.  For example, if the supply curve was P=2Q+3, and there was a decrease in the cost of inputs, the demand curve could shift to P=2Q+2.  Note how the price levels are lower at every level of Q.&lt;a href=&quot;https://i.stack.imgur.com/EO3qZ.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/EO3qZ.png&quot; alt=&quot;Downward Shift in Supply&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Changes in supply and demand that are not &quot;shifts&quot; are called &quot;slides along the curve&quot;. They are any direct change in P or Q. This is easiest to see with a linear, mathematical example. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let us say the government wants to set the price of a product. If P=2Q+3 is the supply, then consider that if you set the price (by law) to be 7, then Q is now 2. The curve remains steady, but we slide along it to get to the new P=7, Q=2 position. From wherever P and Q started (P=12 in the example), we now end at point P=7,Q=2, and the curve remains unmoved along the entire line P=2Q+3.&lt;a href=&quot;https://i.stack.imgur.com/l9hby.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/l9hby.png&quot; alt=&quot;Downward Slide along Supply Curve, Reduction in Quantity Supplied&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="4185" LastEditorUserId="4185" LastEditDate="2015-10-30T16:30:54.610" LastActivityDate="2015-10-30T16:30:54.610" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="5771" PostTypeId="1" CreationDate="2015-05-22T21:11:18.600" Score="10" ViewCount="851" Body="&lt;p&gt;Some papers argue that OLS can produce less bias than IV estimation depending on the quality of your instruments. Suppose we consider a demand estimation equation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose the demand elasticity is negative in OLS. By my intuition weak instruments should produce biased estimates towards OLS, but no less negative. Can you guys produce an example? I cannot really grasp how it could lead to a more biased estimation with IV estimation.&lt;/p&gt;&#xA;" OwnerUserId="4640" LastEditorUserId="40" LastEditDate="2015-05-26T10:21:31.047" LastActivityDate="2016-11-20T15:41:28.400" Title="OLS bias in demand estimation: the bias always underestimate the demand's elasticity?" Tags="&lt;econometrics&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5772" PostTypeId="2" ParentId="5771" CreationDate="2015-05-22T21:31:09.707" Score="8" Body="&lt;p&gt;Usually, $\hat{\beta_1^{IV}} = \beta_1 + \frac{cov(z,u)}{cov(z,x)}$.  The denominator will go to zero. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;That is true unless there is some correlation between the instrument and the error term, and the nominator is the strength of the relationship between the instrument and the endogenous variable. The smaller the denominator gets, the greater the bias $\left[\frac{cov(z,u)}{cov(z,x)}\right]$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In addition,  weak instrument will have no precision, so that the variance will have a big upward bias. &#xA;\begin{eqnarray} var(\hat{\beta_1}) &amp;amp;\to_p&amp;amp; \frac{\sigma^2}{n \sigma^2_x} \nonumber \\&#xA;\hat{\beta_1^{IV}} &amp;amp;=&amp;amp; \frac{\sum (z_i - \bar{z})y_i}{\sum(z_i - \bar{z})x_i} = \beta_1 + \frac{\sum (z_i - \bar{z})u_i}{\sum(z_i - \bar{z})x_i} \nonumber \\&#xA;var(\hat{\beta_1^{IV}} &amp;amp;=&amp;amp; var \left( \frac{\sum (z_i - \bar{z})u_i}{\sum(z_i - \bar{z})x_i} \right) \nonumber\\&#xA;var(u | z) &amp;amp;=&amp;amp; \sigma^2 \nonumber\\&#xA;var(\hat{\beta_1^{IV}}) &amp;amp;=&amp;amp; \frac{\sigma^2 \frac{1}{n} \sum (z_i - \bar{z})}{n[ \frac{1}{n} \sum (z_i - \bar{z})(x_i - \bar{x})]^2} \nonumber&#xA;\end{eqnarray}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As $n \to \inf$&#xA;\begin{eqnarray} var(\hat{\beta_1^{IV}}) &amp;amp;\to_p&amp;amp; \frac{\sigma^2 \sigma_z^2 }{\sigma^2_{zx}} \nonumber\\&#xA;var(\hat{\beta_1^{IV}}) &amp;amp;\to_p&amp;amp;  \sigma^2 \frac{1}{n \sigma^2_x} \frac{1}{\rho^2_{xz}}\nonumber \\&#xA;\rho^2_{xz} &amp;amp;=&amp;amp; \frac{[\sigma^2 _{xz}]^2}{\sigma_x^2 \sigma_z^2} \textit{for} \rho \in [0,1]\nonumber&#xA;\end{eqnarray}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That is why if your instrument is weak, then you  may be better off running an OLS regression.    &lt;/p&gt;&#xA;" OwnerUserId="2674" LastEditorUserId="2674" LastEditDate="2015-05-22T21:41:12.367" LastActivityDate="2015-05-22T21:41:12.367" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5773" PostTypeId="1" CreationDate="2015-05-22T21:34:25.787" Score="5" ViewCount="315" Body="&lt;p&gt;Are they the same thing? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is yield the annualized return rate? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why when yield rise, yearly return increases but price falls?&lt;/p&gt;&#xA;" OwnerUserId="4685" LastActivityDate="2015-05-23T10:07:03.363" Title="Yield and interest rate?" Tags="&lt;macroeconomics&gt;&lt;finance&gt;&lt;interest-rate&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5774" PostTypeId="2" ParentId="5773" CreationDate="2015-05-23T10:01:07.193" Score="2" Body="&lt;p&gt;They are related, but not the same thing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The yield associated with an asset is the ratio of the (usually annual) return produced by that asset to its price: $$\text{Yield (%)}=\frac{\text{Annual Return (\$)}}{\text{Price of Asset (\$)}}.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Simple case: when yield = interest rate&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An interest rate is an example of a yield. For example, suppose a bank account pays an interest rate of x% p.a. That means that \$100 deposited in the account today would become \$(100+x) in a year's time. The annual return is therefore \$x. We can plug these numbers into our formula to calculate the yield: $$\text{Yield}=\frac{\$x}{\$100}=x\%.$$ In this example the yield is just the interest rate, so the two coincide.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;More complicated case: yields and asset prices&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Things get a little more complicated when the interest rate is fixed but the price of the asset can change over time. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, the government issues bonds when it needs to borrow money. Each bond has an initial price and a set annual return (known as the coupon payment) that does &lt;em&gt;not&lt;/em&gt; change over the entire life of the bond. Suppose that we have a bond that initially costs \$100 and has a coupon payment of \$5 (meaning that you get \$5 for each year that you hold the bond). We can check the bond's &lt;em&gt;coupon yield&lt;/em&gt;: $$\text{Coupon Yield}=\frac{\$5}{\$100}=5\%.$$&#xA;This is, again, just like an interest rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, though, suppose that banks start offering an interest rate of 10% on an ordinary savings account. Suddenly, your bond's 5% doesn't look so great! But the \$5 coupon payment can't change—it is permanently fixed when the bond is created. People are therefore going to want to try to sell their bonds to get their money back so that they can put it into a bank instead. As per normal supply &amp;amp; demand logic, lots of people selling bonds is going to make the price of bonds fall. So now you can buy a bond for, say, \$80. That means the yield has changed!&#xA;$$\text{Current Yield}=\frac{\$5}{\$80}=6.25\%.$$&#xA;Alas, people are still going to be reluctant to buy the bond because it still has a lower yield than the bank account—so the price is going to have to fall even further. Eventually, the price of the bond falls to \$50, at which point $$\text{Current Yield}=\frac{\$5}{\$50}=10\%.$$ Now the bond and bank account have the same yield (meaning that someone with money to invest would get the same return from either). People are now indifferent between holding the bond or a bank deposit and equilibrium is restored.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In practice, things are a little more complicated because people compare the returns on bonds to all kinds of assets—stocks, real estate, etc. But the principle is the same: the price of the bond adjusts to ensure that the yield on the bond is in keeping with the risk-adjusted return available elsewhere.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;A final note: yields where there are no interest payments&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The last important reason why we distinguish yields from interest rates is that some assets don't have any interest rate to speak of, but it nevertheless makes sense to talk of a yield. One example is stocks—there is no interest payment on such assets, but the board may decide to return some of the firm's profits to investors in the form of a dividend. A dividend is an amount that is paid to investors for each share that they hold. We can use the dividend to calculate a yield just as though it were an interest rate:$$\text{Dividend Yield}=\frac{\text{Dividend (\$)}}{\text{Stock Price (\$)}}.$$&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2015-05-23T10:07:03.363" LastActivityDate="2015-05-23T10:07:03.363" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5775" PostTypeId="2" ParentId="5764" CreationDate="2015-05-23T15:13:18.997" Score="3" Body="&lt;p&gt;&lt;br&gt;First, note that in the real world nearly everything moves the curve. Moving along the curve is just a math artefact to explain that we deal with function: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;q = f(p).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Of course, with axes confusingly exchanged their default mathematical seats.&#xA;So, when you study a demand function in isolation (in other words, local closed model) you may only consider price, &lt;code&gt;p&lt;/code&gt;, as exogenous variable and its change causes change in quantity, &lt;code&gt;q&lt;/code&gt;. That is all. Function itself is just given and unchanged. In that abstract model you can never know WHY prices have changed because you have no information about anything outside the primitive system.&#xA;In its simplest form we may consider: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;q = A – B * p,&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;where &lt;code&gt;A&lt;/code&gt; and &lt;code&gt;B&lt;/code&gt; – just positive constants. (In a sense they are also exogenous but the model prohibits them to change: they are parameters – not variables.) &#xA;&lt;br&gt;Second. If you treat your local market as a part of outer system, you may include the influence of the other factors (markets etc.) that are not included in you model explicitly. That is when &lt;code&gt;A&lt;/code&gt; (and, perhaps, &lt;code&gt;B&lt;/code&gt;) comes into play, and this play is crucial. Parameter &lt;code&gt;A&lt;/code&gt; stands for everything else in the world. So the change of a relevant exogenous factor (i.e. consumer’s income, &lt;code&gt;I&lt;/code&gt;) will cause change in value of &lt;code&gt;A&lt;/code&gt;. That is what makes your curve shifting – up or down (but we confusingly teach our first-year students that it shifts right or left, which is just visual effect of axes confusion).&#xA;To get a sense of it, think of your initial model as follows:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;q = A – B * p = (C + D * x) – B * p,&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;where &lt;code&gt;x&lt;/code&gt; can be anything that may practically influence your local market (if income, &lt;code&gt;x = I&lt;/code&gt;).&#xA;Now, &lt;code&gt;A&lt;/code&gt; can be seen as a function of &lt;code&gt;x&lt;/code&gt;, and there is nothing wrong to think of &lt;strong&gt;x&lt;/strong&gt; (and &lt;strong&gt;D&lt;/strong&gt; respectively) as a vector:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;A = C + &lt;strong&gt;D&lt;/strong&gt; * &lt;strong&gt;x&lt;/strong&gt;.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;You should now see that your simple initial model is just a projection of multifactor model:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;q = C + &lt;strong&gt;D&lt;/strong&gt; * &lt;strong&gt;x&lt;/strong&gt; – B * p.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;To sum up, there are 99.9% cases in the real world are shifts of demand (or supply) curves (the rest is for Economic textbook tests and quizzes).&lt;/p&gt;&#xA;" OwnerUserId="4184" LastEditorUserId="4184" LastEditDate="2015-05-23T15:24:27.210" LastActivityDate="2015-05-23T15:24:27.210" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="5776" PostTypeId="1" CreationDate="2015-05-23T16:03:32.890" Score="2" ViewCount="65" Body="&lt;p&gt;Knowing that share prices are determined by the forces of supply and demand, other factors can also play a role in this but lets consider the fact that prices are only based on supply and demand.In this case is it possible for someone to buy a big amount of shares thus making the price rise and then sell them to make a profit ? If so how can the impact on the price be calculated depending on the amount of shares bought ? &lt;/p&gt;&#xA;" OwnerUserId="2797" LastActivityDate="2015-05-25T14:18:42.053" Title="demand impact on shares price" Tags="&lt;microeconomics&gt;&lt;supply-and-demand&gt;&lt;stock-market&gt;" AnswerCount="1" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5777" PostTypeId="1" AcceptedAnswerId="5778" CreationDate="2015-05-23T22:09:28.163" Score="1" ViewCount="177" Body="&lt;p&gt;Source: p 594, &lt;em&gt;Economics&lt;/em&gt;, 3 Ed, 2014, by N G Mankiw, M P Taylor&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Yet further thought reveals a fallacy in this answer. When prices rise, buyers of goods and services pay&#xA;  more for what they buy. At the same time, however, sellers of goods and services get more for what they sell.&#xA;  Because most people earn their incomes by selling their services, such as their labour, &lt;strong&gt;inflation in incomes goes&#xA;  hand in hand with inflation in prices&lt;/strong&gt;. &lt;em&gt;Thus, inflation does not in itself reduce &lt;code&gt;people‘s real purchasing power&lt;/code&gt;&lt;/em&gt;.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Is the bolded (independent) clause too presumptuous? I doubt its truth. Even if &lt;strong&gt;hand in hand&lt;/strong&gt; means any positive correlation weaker than 100%, the bolded can be false. For example, despite being in view of inflation in prices, a greedy employer can simply refuse to increase wages. Then no inflation in incomes exists, and so inflation DOES reduce &lt;code&gt;people‘s real purchasing power&lt;/code&gt;? &lt;/p&gt;&#xA;" OwnerUserId="4020" LastActivityDate="2015-05-23T22:45:09.183" Title="How does inflation in income go 'hand in hand with inflation in prices'?" Tags="&lt;macroeconomics&gt;&lt;inflation&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5778" PostTypeId="2" ParentId="5777" CreationDate="2015-05-23T22:45:09.183" Score="2" Body="&lt;p&gt;In the situation you describe people's real purchasing power would indeed be reduced. However such a situation is not likely. If the employer was a monopolist, how come employees could afford more than the bare necessities in the first place? (See the works of Carl Marx.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In real life it is more likely that if an employer does not raise wages when businesses are doing well another employer will make a competitive wage offer. Thus inflation will result in the rise of wages.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Mind that Mankiw's book is not a mathematical treatise, his statements are not precise. The book is merely a collection of stories aimed at students who are just familiarizing themselves with economic phenomena. &lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2015-05-23T22:45:09.183" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5779" PostTypeId="1" CreationDate="2015-05-23T22:49:24.747" Score="2" ViewCount="66" Body="&lt;p&gt;Source: p 585, &lt;em&gt;Economics&lt;/em&gt;, 3 Ed, 2014, by NG Mankiw, MP Taylor&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Although many variables affect the demand for money, one variable stands out in importance: the&#xA;  average level of prices in the economy. People hold money because it is the medium of exchange. Unlike&#xA;  other assets, such as bonds or stocks, people can use money to buy the goods and services on their&#xA;  shopping lists. How much money they choose to hold for this purpose depends on the prices of those&#xA;  goods and services. The higher prices are,&lt;br&gt;&#xA;  the more money the typical transaction requires,&lt;br&gt;&#xA;  &lt;strong&gt;[1.] and the more&#xA;  money people will choose to hold in their pockets and bank accounts.&lt;/strong&gt;&lt;br&gt;&#xA;  [2.] That is, a higher price level (a lower&#xA;  value of money) increases the quantity of money demanded.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I doubt 1 and 2 that feels too absolutely certain. (They're also restated, but rephrased, on pp 683 and 705.) Why must 1 and 2 be true?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Abbreviate Prior Money as PM, i.e. consumers' money held '&lt;strong&gt;in their pockets and bank accounts&lt;/strong&gt;' before the price rise. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose that higher prices $\implies$ more money needed for each typical transaction. But even facing  a higher price level, consumers may already possess enough PM to transact, and so needn't more money. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Moreover, even with enough PM for their regular purchases, the price rise may cause consumers to spend less. Then money demand would DEcrease. &lt;/p&gt;&#xA;" OwnerUserId="4020" LastEditorUserId="4020" LastEditDate="2018-04-14T22:34:03.587" LastActivityDate="2018-04-15T05:48:43.197" Title="Why can't price level be negatively correlated with money demand?" Tags="&lt;macroeconomics&gt;&lt;price-level&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5780" PostTypeId="1" AcceptedAnswerId="5788" CreationDate="2015-05-24T00:15:31.490" Score="3" ViewCount="137" Body="&lt;p&gt;Here's the image of a money market with two different money supply and demand curves:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/B71fQ.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here are some questions regarding money market reactions. I'll always write my proposed reasoning underneath each questions, with a summed up answer at the end of the paragraph, and I need you to check if it's correct.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;1)&lt;/em&gt; There's a GDP increase and no monetary policy was implemented. Is a&#xA;  movement from point $A$ to $C$ or $D$ to $B$ a logical reaction?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The LM curve formula is $L(Y,i) = Money Demand/Price Level$&#xA;If the government has set the money supply to $M_B^S$ and we're in point $A$, then the reaction $A$ to $C$ is correct, because we're shifting the $M_B^D$ curve because of an increase in money demand ($Y$ has a positive influence on the $LM$-equation). Same applies to point $D$, except there we have a higher money supply, so we're moving to point $B$. Answer: &lt;strong&gt;Yes&lt;/strong&gt;. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;2)&lt;/em&gt; Are the opportunity costs of money saving higher in point $B$ or $D$?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;There's a higher nominal interest rate in point $B$, so saving money in $B$ is more profitable than in $D$, thus the decision not to save money in $B$ is associated with higher opportunity costs. Answer: &lt;strong&gt;Point $B$&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;3)&lt;/em&gt; Is the money demand in Point $B$ higher than in $C$, because of&#xA;  the transaction motive?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Both points lie on the curve $M_A^D$, and any point on that curve has the same amount of money demand, only the nominal interest rate and the money supply are different. Answer: Point $B$ and $C$ have the same money demand. Answer: &lt;strong&gt;no&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;4)&lt;/em&gt; Can an increase of money supply be interpreted as a movement from&#xA;  point $A$ to $C$?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The movement from $A$ to $C$ implies a shift/increase of money demand not money supply. The correct movement is from $A$ to $D$. Answer: &lt;strong&gt;No&lt;/strong&gt;, A to D is correct.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;5)&lt;/em&gt; We're in Point $A$ and the households suddenly want to keep less&#xA;  money in their savings accounts. Can this be construed as a shift of&#xA;  the $M_B^D$ curve to the right?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Consumers now have a higher demand for liquid money, because they don't want to save it but spend it instead. The money demand curve must shift to the right. This leads us from point $A$ to $C$. Answer: &lt;strong&gt;Yes&lt;/strong&gt;, the demand for liquid money is increased.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;6)&lt;/em&gt; We're in point $D$ and the nominal interest rate starts to increase.&#xA;  What's the money market's reaction?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I'm not sure about this one... the nominal interest rate has a negative effect on the LM curve, thus a higher nominal interest rate will lead to decreased money demand (or a higher price level). But wouldn't that imply a demand curve shift to the left? From the diagram, it's an impossible reaction, as the increase of nominal interest rate is associated with a lower money supply or an increase in demand, no?&lt;/p&gt;&#xA;" OwnerUserId="4726" LastEditorUserId="4578" LastEditDate="2015-05-24T15:31:31.440" LastActivityDate="2016-10-08T12:30:29.297" Title="Reactions of the Money Market" Tags="&lt;macroeconomics&gt;&lt;money-supply&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5781" PostTypeId="1" CreationDate="2015-05-24T00:18:00.143" Score="8" ViewCount="2569" Body="&lt;p&gt;I'm trying to understand intuitively what a homothetic preference is, and I am still not quite there. I understand the definition, that a homothetic preference implies that the slope of the indifference curve remains constant along any ray from origin.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But intuitively, like in real life, how would we know that a preference is not homothetic? If its not strictly monotonically increasing (i.e. you don't prefer more of a product to less of it always), does it mean that the preference is not homothetic? Can someone give an example of what exactly is not a homothetic preference so I understand what is?&lt;/p&gt;&#xA;" OwnerUserId="4253" LastEditorUserId="2776" LastEditDate="2017-04-12T15:19:19.293" LastActivityDate="2017-04-12T15:19:19.293" Title="Are homothetic preferences monotonic?" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;preferences&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5784" PostTypeId="1" AcceptedAnswerId="5789" CreationDate="2015-05-24T05:20:22.387" Score="8" ViewCount="161" Body="&lt;p&gt;In the early 1900s, you could buy a newspaper for 5 cents, a pound of apples for 10 cents and the average salary was about \$40 a month.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Nowadays, an issue of the NYT costs \$2.50 , a pound of apples can cost \$1.15 per pound and the median monthly income is about \$2,200.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Today, it makes sense to have a \$100 bill, we can spend it all on a meal at a restaurant and you would need a few of them to pay rent or make a car payment. But in 1900, I can't imagine anything that could be bought with a $100 bill. Perhaps rent? Or a worker's wages?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Compared to the average salary in 1900, a \$100 bill would be the comparable to a $5,500 bill. I can't imagine anything costing that much money today that would justify producing such a highly valued denomination.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is: why did we produce \$100 bills in the early 1900s, when there was probably no practical use for them? And also, did people carry $20 bills around in their wallets or were these considered big money?&lt;/p&gt;&#xA;" OwnerUserId="4735" LastEditorUserId="84" LastEditDate="2015-05-25T18:41:53.113" LastActivityDate="2015-05-25T18:41:53.113" Title="Why did large denomiations exist in the early 20th century?" Tags="&lt;inflation&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5785" PostTypeId="2" ParentId="5781" CreationDate="2015-05-24T12:22:24.840" Score="9" Body="&lt;h3&gt;Are homothetic preferences strictly monotonically increasing?&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;Homotheticity requires that &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \alpha^\gamma U(x,y) = U(\alpha x, \alpha y) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is not defined over the &quot;increasing&quot; part of strictly monotonously increasing. Indeed, you can have decreasing preferences $U(x,y) = -x -y$ for whom homotheticity holds. &lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Are nomothetic preferences weakly monotonic?&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;However, the &quot;strict&quot; part (in both jointly) is required, i.e. $U(\alpha x, \alpha y) \neq U(x,y)$ for $\alpha \neq 0$.. You cannot have homothetic and weakly increasing or weakly decreasing preferences. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Proof outline&lt;/strong&gt; To prove that, we assume otherwise. There is some homothetic $U$ with a strictly increasing part and a flat part. You will see that the $\gamma$ corresponding to the increasing part can potentially be any number (it depends on the functional form). However, the $\gamma$ corresponding to the flat part &lt;em&gt;needs&lt;/em&gt; to be 0.[1] Hence, there cannot be a $\gamma$ that holds for the utility function as a whole, for any general increasing part.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;[1]: Unless of course, $U(x,y) = 0$ at the flat part. However, as utility functions are immune to monotone transformations, we can ignore such cases.&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="4956" LastEditDate="2015-06-16T09:16:33.877" LastActivityDate="2015-06-16T09:16:33.877" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5786" PostTypeId="1" AcceptedAnswerId="6194" CreationDate="2015-05-24T12:33:00.743" Score="8" ViewCount="178" Body="&lt;p&gt;I was reading this neat piece by Fudenberg &lt;a href=&quot;http://fudenberg.fas.harvard.edu/predictive%20game%20theory.pdf&quot;&gt;http://fudenberg.fas.harvard.edu/predictive%20game%20theory.pdf&lt;/a&gt; on Predictive Game Theory. He argues correctly that most traditional work in Game Theory is not suited for prediction in real world set-ups. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Do you know any work that has advanced the theory or empirics of  predictive game theory? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am aware of some recent work of partial identification for games but I am more interested in learning in games and off-equilibrium dynamics. &lt;/p&gt;&#xA;" OwnerUserId="127" LastActivityDate="2015-06-20T17:52:31.570" Title="Predictive Game Theory" Tags="&lt;game-theory&gt;&lt;reference-request&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5787" PostTypeId="2" ParentId="5784" CreationDate="2015-05-24T14:37:03.433" Score="2" Body="&lt;p&gt;There were plenty of relatively large purchases that were regular enough to buy with large amounts of cash. If you wanted to buy a Model T in 1909 you'd need \$825-\$1000. A typical house could easily cost a few thousand dollars in an age when mortgage finance was much less common. So there were plenty of expensive things to need significant cash for, at least occasionally. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But why cash? The most important part of the answer is bounced checks. If you need to pay someone a lot of money by check you have problem. If Abby gives Betty a check and Abby walks off with the goods and the check bounces, Betty will have a problem. If Abby pays Betty but doesn't give Abby the goods until the check clears, Abby may have a problem if Betty never shows up with the goods after the check clears. You can do escrow, but that's expensive and complicated. Cash allows instantaneous settlement.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Other options existing in this era have other problems. Cashier's and certified checks, as well as money orders may serve in some cases, but don't easily allow negotiation because they denomination is fixed at the time of issuance. &lt;a href=&quot;https://en.wikipedia.org/wiki/Wire_transfer#History&quot; rel=&quot;nofollow noreferrer&quot;&gt;Wire transfers have existed since the age of the telegraph&lt;/a&gt; but like today remain an expensive technology for everyday use. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hundred dollar bills are the (update: second) most common denomination today, which may surprise you:&#xA;&lt;img src=&quot;https://i.stack.imgur.com/pLoxz.png&quot; alt=&quot;bill share&quot;&gt;&#xA;&lt;a href=&quot;http://mpra.ub.uni-muenchen.de/34778/1/MPRA_paper_34778.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Source: New estimates of U.S. currency abroad, the domestic money supply and the unreported Economy&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is mostly because the dollar is used internationally for business transactions. &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-05-25T15:26:40.307" LastActivityDate="2015-05-25T15:26:40.307" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5788" PostTypeId="2" ParentId="5780" CreationDate="2015-05-24T16:01:03.003" Score="1" Body="&lt;p&gt;All correct up to &lt;em&gt;6)&lt;/em&gt;, although you may want to be careful with &quot;$D$ to $A$ is correct&quot; kind of answer, &quot;$D$ to $A$ is consistent&quot; seems a better phrasing - one has no idea how hard it comes out to quantify those shifts, because they impact each other.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Point &lt;em&gt;6)&lt;/em&gt; changes interest rate, which means that money supply, demand and interest rate do not coincide: the equilibrium is lost on the money market. As it is lost with higher interest rate than the equilibrium rate, it means that people want less money than is available. Like every good, this causes money to lose value, which in turns means either &lt;strong&gt;inflation&lt;/strong&gt; on the open market, or a quick reaction via &lt;strong&gt;a decrease in supply&lt;/strong&gt; from the central bank. As the question explicitly ask for the effect on the market, you can suppose the central bank doesn't make a move, and let the market move into &lt;strong&gt;inflation&lt;/strong&gt;. This does happen in cases when the central bank doesn't want to or cannot cut money supply, usually because the central bank is controlled by the government, that needs the money, and led to some disastrous effects in the past. For this reason, usually central banks are relatively independent from governments, and hopefully the situation is addressed by central banks rather than by the market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/hmq4N.jpg&quot; alt=&quot;A case where the Government decided not to cut supply.&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Here is an example of a government-dependent central bank having decided not to cut money. Wheelbarrows were commonly used on the way to buy loaves of bread in 1920s Germany...&lt;/em&gt;&lt;/p&gt;&#xA;" OwnerUserId="4578" LastEditorDisplayName="user4169" LastEditDate="2016-10-08T12:30:29.297" LastActivityDate="2016-10-08T12:30:29.297" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5789" PostTypeId="2" ParentId="5784" CreationDate="2015-05-24T16:04:03.590" Score="2" Body="&lt;p&gt;Even back in the 19th century, the American economist Dunbar reported then that 90% of all financial transactions were being performed as transfers using cheques or bills of payment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, in the absence of modern electronic clearing systems, all transfers of money between banks, i.e. all payments with cheques that are drawn on the account of one bank's customer account, and transferred to an &lt;em&gt;account at a different bank&lt;/em&gt;, had to be performed via. cash transfers between the banks.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In practice banks used netting operations where they would add up all the cheques being submitted to them, subtract all cheques being drawn on them for payment to another bank, and only transfer the difference.  Even so sizeable sums were involved, and these required the higher denomination bills. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Today this is all done through electronic clearing systems, so the main demand for large denominated physical cash tends to come from a desire to avoid taxation, criminal activity, or gambling.&lt;/p&gt;&#xA;" OwnerUserId="84" LastActivityDate="2015-05-24T16:04:03.590" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5790" PostTypeId="2" ParentId="5779" CreationDate="2015-05-24T16:21:37.693" Score="1" Body="&lt;p&gt;You're supposing the amount of money held for transactions by players is arbitrary. This may be true if you look at an individual - I typically withdraw fixed amounts of money when my purse starts feeling empty - but is not true on average and in the long run.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But cash (in the wider sense, money on regular bank accounts count toward this) is also held by companies and foreign countries.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/03bym.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Even if you feel like discussing the rationality of the average person, you cannot discuss the rationality of the average money holder: the opportunity cost of holding too much money may be negligible for an employee with low savings. But it it isn't for a big multinational or a multi-millionaire that wants to stay richer than his neighbours in Beverly Hills.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consumers are also retailers, at some point, so you cannot suppose the price rise affects them in the way they buy less goods. A potato producer still produces 1kg of potatoes after a price rise, only they are worth more and he need more money to buy carrots. The money demand increases because there is less money available for the same goods. This is a very different situation than a productivity drop, in which case the money demand would decrease.&lt;/p&gt;&#xA;" OwnerUserId="4578" LastEditorUserId="4020" LastEditDate="2018-04-15T05:48:43.197" LastActivityDate="2018-04-15T05:48:43.197" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5791" PostTypeId="1" AcceptedAnswerId="6903" CreationDate="2015-05-24T19:54:31.087" Score="8" ViewCount="4764" Body="&lt;p&gt;I am using time series data in economic model estimation. I want determine proper lag for Error Correcting Model (&lt;a href=&quot;https://en.wikipedia.org/wiki/Error_correction_model&quot; rel=&quot;nofollow&quot;&gt;ECM&lt;/a&gt;) model for example. I can check &lt;a href=&quot;https://en.wikipedia.org/wiki/Akaike_information_criterion&quot; rel=&quot;nofollow&quot;&gt;AIC&lt;/a&gt;, SC and HQ criterion for determine proper lag. But I am not sure about max lag that I must start with it. What is max lag for annual, quarterly and monthly time series. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is max lag would be changed if I used another econometric approach for example ARDL, VAR or VECM? &lt;/p&gt;&#xA;" OwnerUserId="227" LastEditorUserId="69" LastEditDate="2015-08-14T14:04:01.060" LastActivityDate="2016-04-20T20:22:55.583" Title="How should one determine the proper number of lags in a time series regression?" Tags="&lt;econometrics&gt;&lt;time-series&gt;&lt;applied-econometrics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5792" PostTypeId="1" CreationDate="2015-05-24T20:57:53.960" Score="1" ViewCount="243" Body="&lt;p&gt;Can someone tell my how i can figure out which type of utility function the following maximization problem has. It is for an overlapping generations model.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\underset{x'}{\max} x'\big(E_t (P_{t+1}+δ_{t+1})-(1+r^f)P_t\big) - \tfrac{\gamma}{2} x'Ωx $$&lt;br&gt;&#xA;Where:&#xA;$x'=$ portfolio of shares &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$E_t (P_{t+1}+δ_{t+1}) =$ expected future payoff &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\gamma =$ agent i risk aversion&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$Ω=$ covariance matrix &lt;/p&gt;&#xA;" OwnerUserId="4377" LastEditorUserId="4177" LastEditDate="2015-05-25T19:38:17.333" LastActivityDate="2015-05-25T19:38:17.333" Title="How do I find out which form of utility function is being used?" Tags="&lt;utility&gt;&lt;expected-utility&gt;&lt;olg&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5793" PostTypeId="1" CreationDate="2015-05-24T21:35:49.073" Score="0" ViewCount="2765" Body="&lt;p&gt;Abbreviate 'Social Value' as SV. In some other resources such as &lt;a href=&quot;http://www.economics.utoronto.ca/jfloyd/modules/extn.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;this&lt;/a&gt;, the SV curve is known as the Social Marginal Benefit curve. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The following quotes explain &lt;strong&gt;[1.]&lt;/strong&gt; why the SV curve is the demand curve shifted upwards, but they don't explain &lt;strong&gt;[2.]&lt;/strong&gt; why the SV curve is NOT the supply curve shifted downwards. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here's my rationale for &lt;strong&gt;[2.]&lt;/strong&gt;: Assume $SV &amp;gt; 0$. Because SV benefits society, the suppliers of this SV can consider the SV supplied, as follows:&lt;br&gt;&#xA;Suppliers' true cost  $=$ their original costs $-$ SV, $\qquad$ for all quantities supplied.&lt;br&gt;&#xA;So the new supply curve must underlie, and be parallel to,   the old supply curve.   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Source: pp 179-180, &lt;em&gt;Modern Principles of Economics&lt;/em&gt; (2 ed, 2011) by Tyler Cowen, Alex Tabarrok&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/IICfb.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;[See Figure 10.3.]&lt;/a&gt; &#xA;  The social value curve counts all the benefits of vaccine&#xA;  use, the private value plus the external benefits, so the efficient quantity is&#xA;  found where the social value curve intersects the supply curve.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;A final way of illustrating the underuse of vaccines is to notice that if people&#xA;  who got a flu shot did receive all the benefits of vaccination, then their demand curve would shift upward by $20 and would be the same as the social&#xA;  value curve. ...&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The last way of thinking about the problem of external benefits also suggests&#xA;  one potential solution. If every time someone was vaccinated, they were given&#xA;  a subsidy of $\$20$, the monetary equivalent of the external benefit, they would&#xA;  demand the amount $Q_{Efficient}$. Recall from Chapter 6 that we can analyze a subsidy&#xA;  by shifting up the demand curve by the amount of the subsidy. Thus, in&#xA;  Figure 10.3, notice that a subsidy set equal to the level of the external benefit&#xA;  would shift the demand curve up and increase the market quantity from $Q_{Market}$&#xA;  to $Q_{Efficient}$.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Footnote: I was reading p 201, &lt;em&gt;Principles of Microeconomics&lt;/em&gt; (7 Ed, 2014) by N G Mankiw, when I encountered this problem. I don't quote Mankiw's book because it's brusquer than Cowen's above.&lt;/p&gt;&#xA;" OwnerUserId="4020" LastEditorUserId="4020" LastEditDate="2015-05-26T02:17:14.147" LastActivityDate="2015-05-26T17:38:05.260" Title="Why is the social value curve NOT the supply curve shifted downwards?" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="5794" PostTypeId="1" CreationDate="2015-05-24T23:38:17.107" Score="3" ViewCount="146" Body="&lt;p&gt;What are the differences and similarities between economics and finance theory formally and causally on their name of topics respectively?&lt;/p&gt;&#xA;" OwnerUserId="95" LastEditorUserId="95" LastEditDate="2015-05-27T02:47:02.163" LastActivityDate="2015-05-27T02:47:02.163" Title="Difference between economics and finance?" Tags="&lt;finance&gt;&lt;financial-economics&gt;" AnswerCount="0" CommentCount="1" FavoriteCount="0" ClosedDate="2015-05-26T17:41:00.240" ContentLicense="CC BY-SA 3.0" />
  <row Id="5795" PostTypeId="2" ParentId="5764" CreationDate="2015-05-25T03:42:26.730" Score="3" Body="&lt;p&gt;I see why you're confused but I feel like some other comments have addressed this but just incase you're still confused.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A curve shifts.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An equilibrium moves. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For an equilibrium to move, one &lt;em&gt;OR&lt;/em&gt; both curves need to move.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A demand curve cannot move along a demand curve.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/Z4ZMY.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you consider any point where the supply and demand curves intersect to be an equilibrium;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any shift of the demand curve will cause a movment along the supply curve.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any shift of the supply curve will cause a movement along the demand curve.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You cannot represent a shift in equilibrium movement along a curve with &lt;strong&gt;only one curve&lt;/strong&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You need to have the &lt;em&gt;intersecting curve&lt;/em&gt; to show where the equilibrium points lie.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/Kvufb.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here you see that a fall in the price of a good causes in extension in demand, but you can't tell where the market equillibrium will lie since the S curve hasn't crossed it yet.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And finally here are 3 shifts (AD1&gt;AD2, AD2&gt;AD3, AD3&gt;AD4) along a LRAS curve (ignore LRAS1). Here you can see that as AD shifts, the equilibrium point &lt;strong&gt;moves&lt;/strong&gt; along the other (supply) curve.&lt;/p&gt;&#xA;" OwnerUserId="4740" LastActivityDate="2015-05-25T03:42:26.730" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5796" PostTypeId="1" CreationDate="2015-05-25T11:41:10.427" Score="2" ViewCount="190" Body="&lt;p&gt;I'm interested in currently hot research topics within Labor Macro. I'm only aware of the debate on the recent &lt;a href=&quot;http://web.stanford.edu/~rehall/Labor%20Market%20Current%20Slump%202010.pdf&quot; rel=&quot;nofollow&quot;&gt;shift in the US Beveridge curve&lt;/a&gt;, and, of course, the olden but golden Shimer puzzle. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What else are current debates within Labor Macro?&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="84" LastEditDate="2015-05-25T18:42:52.483" LastActivityDate="2015-05-25T18:42:52.483" Title="Hot Topics in Labor-Macro" Tags="&lt;macroeconomics&gt;&lt;labor-economics&gt;&lt;academic-graduate&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5797" PostTypeId="2" ParentId="5792" CreationDate="2015-05-25T12:27:33.710" Score="2" Body="&lt;p&gt;I would call this a mean-variance utility function. The agent likes higher mean values, which is the first term, but trades that off against higher variance, which is the second term.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the random variable of interest is normally distributed with mean $P_{t+1} + \delta_{t+1} - (1+r^f)P_t$ and covariance matrix $\Omega$, and if the agent has constant absolute risk aversion utility, such as $u(w) = 1-e^{-\gamma w}$, then maximizing that utility is equivalent to maximizing mean-variance utility. &lt;a href=&quot;http://www.tau.ac.il/~spiegel/teaching/corpfin/mean-variance.pdf&quot; rel=&quot;nofollow&quot;&gt;Here are some details I found with a quick google search&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="4177" LastActivityDate="2015-05-25T12:27:33.710" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="5798" PostTypeId="2" ParentId="5776" CreationDate="2015-05-25T14:18:42.053" Score="2" Body="&lt;p&gt;What you're failing to consider here is that in buying a large amount of shares, the buyer also makes the price high for himself. And if he sells a large amount of shares at the same time, he's likely to lower the price of the actions while selling them. Poor boy has no chance.&lt;/p&gt;&#xA;" OwnerUserId="4578" LastActivityDate="2015-05-25T14:18:42.053" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5799" PostTypeId="1" CreationDate="2015-05-25T18:15:13.503" Score="0" ViewCount="45" Body="&lt;p&gt;I was looking at some numbers and saw that in USA in 2010 consumption was at 70% but savings were close to zero and that even places were there is high income savings are still low while the keynesian law says that when the salary rises savings also tend to rise, how come in USA even the people who have a high income tend to consume it all and not save ? Is there a main cause for this ? &lt;/p&gt;&#xA;" OwnerUserId="2797" LastActivityDate="2015-05-25T18:15:13.503" Title="Keynesian consumption law not applicable in USA ?" Tags="&lt;consumption&gt;&lt;saving&gt;&lt;keynes&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="5800" PostTypeId="1" AcceptedAnswerId="5801" CreationDate="2015-05-25T18:25:13.183" Score="3" ViewCount="5437" Body="&lt;p&gt;I have the following question to answer in my macroeconomics textbook. Steel producer makes steel worth 4000 out of which 0.25 is sold to machines producer and 0.75 of steel is being sold to the car producer. Machines are being sold to car producer for 2000. Car producer also buys tires from tires producer for 500. In effect he produces cars worth 5000 out of which 1/5 is being exported. &lt;strong&gt;Calculate GDP by three different methods.&lt;/strong&gt;&#xA;And below in my textbook there is a table to calculate transaction value, value added, final goods expenditures etc. But how out of those data calculate GDP by three different methods? I know the equation GDP=C+I+G+NX, but how does it help?&lt;/p&gt;&#xA;" OwnerUserId="4264" LastEditorUserId="4264" LastEditDate="2015-05-25T19:21:42.360" LastActivityDate="2018-03-26T03:32:50.973" Title="Calculate GDP by three different methods" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;&lt;national-accounts&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5801" PostTypeId="2" ParentId="5800" CreationDate="2015-05-25T19:58:17.907" Score="3" Body="&lt;p&gt;There are three ways to define GDP:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Expenditure approach: The sum of all expenditures on &lt;em&gt;final&lt;/em&gt; products. The only final products in this economy are cars; steel, machines, and tires are intermediate products. By this definition, GDP is 5000. Of this amount, 1000 is exported (&lt;em&gt;NX&lt;/em&gt;), so 4000 must be consumed domestically (&lt;em&gt;C&lt;/em&gt;). There is no information about &lt;em&gt;I&lt;/em&gt; and &lt;em&gt;G&lt;/em&gt;, so we must assume they're zero.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Production approach (value added approach). The output of the steel, machine tool, and tire sectors is worth 6500 combined (4000 for steel, 2000 for machines, 500 for tires). All output of these three sectors is &quot;consumed&quot; by the auto sector, whose output is worth 5000. Total sales of all four sectors: 11,500. GDP is obtained by subtracting sales of intermediate products from total sales: 11500 - 6500 = 5000. The car sector appears to be making a net loss of 1500.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Income approach (GDI: gross domestic income, i.e., sum of wages and net profits). By definition, one entity's expenditures is another entity's income. We have no information about income shares (wages, profits, losses) of the various sectors, but in the aggregate GDI = GDP. Therefore, total GDI is also 5000. Total domestic consumption &lt;em&gt;C&lt;/em&gt; on final products is 4000. Thus, aggregate saving &lt;em&gt;S&lt;/em&gt; must be 1000 (since GDP = &lt;em&gt;C+S&lt;/em&gt;). Of this aggregate, 2500 is net saving of the household, steel, machines, and tire sectors, and -1500 is the &lt;em&gt;dissaving&lt;/em&gt; of the car sector. For the non-car sectors, the only additional piece of information we have is that whereas the machine sector &quot;consumes&quot; 1000 in steel, its output is 2000. Thus, the entire &lt;em&gt;net&lt;/em&gt; saving in this economy is due to the machine sector.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="25" LastEditorUserId="25" LastEditDate="2018-03-25T20:40:00.110" LastActivityDate="2018-03-25T20:40:00.110" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5802" PostTypeId="1" AcceptedAnswerId="5803" CreationDate="2015-05-25T20:44:17.980" Score="2" ViewCount="76" Body="&lt;p&gt;Usually, the commodities asset class is considered being inversely correlated with other asset classes, due to its nature of an input for manufacturing (if the prices of commodities go down, the manufacturers can produce for less, and have a larger profit, and vice versa). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, why during the stock market crash of 2008, the commodities also went down, by far? What happened macro-economically to stop this inverse correlation from working?&lt;/p&gt;&#xA;" OwnerUserId="4747" OwnerDisplayName="MarinD" LastActivityDate="2015-05-25T21:17:38.003" Title="Why did the inverse correlation of stocks and commodities stopped working in 2008?" Tags="&lt;commodities&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5803" PostTypeId="2" ParentId="5802" CreationDate="2015-05-25T21:17:38.003" Score="4" Body="&lt;p&gt;The problem in your question is the &quot;and vice versa&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To give a very simplistic view, the problem in the 2008 crisis was not on production side - companies had enough to produce, but no-one to sell to. Given this, excess commodities found no buyers, even as the price lowers. The inverse correlation of stocks and commodities supposes full capital use, which is not the case during the 2008 crisis.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Globally, the correlation between commodities and other stocks &lt;a href=&quot;http://www.etf.com/publications/journalofindexes/joi-articles/19085-of-commodities-and-correlations.html?nopaging=1&quot; rel=&quot;nofollow&quot;&gt;is around 0&lt;/a&gt;, though during full capital use periods it does tend to be negative, there is usually a positive correlation during crisis.&lt;/p&gt;&#xA;" OwnerUserId="4578" LastActivityDate="2015-05-25T21:17:38.003" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5804" PostTypeId="1" AcceptedAnswerId="5806" CreationDate="2015-05-25T21:21:13.133" Score="8" ViewCount="1250" Body="&lt;p&gt;From this &lt;a href=&quot;http://en.wikipedia.org/wiki/Majority_rule#Other_properties&quot; rel=&quot;nofollow&quot;&gt;wikipedia link&lt;/a&gt; I would say that the majority rule is not transitive. Also I'm not sure I understand exactly what is transitivity in this situation... With a usual preference relation $x\succsim y$ and $y\succsim z$ then $x\succsim z$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, from the wikipedia, we could get a paradox ? &lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="43" LastEditDate="2015-05-26T14:33:01.100" LastActivityDate="2015-05-26T14:33:01.100" Title="Condorcet's paradox: Is the majority rule transitive?" Tags="&lt;social-choice&gt;&lt;choice-theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5805" PostTypeId="2" ParentId="1638" CreationDate="2015-05-25T21:54:00.820" Score="1" Body="&lt;p&gt;I know this is a bit out of date, but there is a new package available on CRAN now called 'matchingR' which I believe is much faster than the package recommended above. You can install it with &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;code&gt;install.packages('matchingR')&lt;/code&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, &lt;a href=&quot;https://github.com/jtilly/matchingR&quot; rel=&quot;nofollow&quot;&gt;here's a link to the source&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="4177" LastActivityDate="2015-05-25T21:54:00.820" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5806" PostTypeId="2" ParentId="5804" CreationDate="2015-05-25T21:56:53.530" Score="11" Body="&lt;p&gt;As you stated, transitivity is that overall $x \succeq y$ and $y \succeq z$ implies $x \succeq z$. I will show an example where majority rule isn't transitive and hopefully it will answer your question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Imagine that we live in a world with three people: Person 1, Person 2, and Person 3. Each of these people have preferences over three outcomes $x$, $y$, and $z$. Every decision in this world is made according to majority rules, i.e. The outcome chosen is the one preferred by at least two of the individuals.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now imagine that the three people have preferences according to:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Person 1: $x \succeq y \succeq z$&lt;/li&gt;&#xA;&lt;li&gt;Person 2: $y \succeq z \succeq x$&lt;/li&gt;&#xA;&lt;li&gt;Person 3: $z \succeq x \succeq y$&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The majority rule decision making implies that we rank the pairs according to the following:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;$ x \succeq y$ because Person 1 and Person 3 prefer $x$ to $y$&lt;/li&gt;&#xA;&lt;li&gt;$ y \succeq z$ because Person 2 and Person 3 prefer $y$ to $z$&lt;/li&gt;&#xA;&lt;li&gt;$ z \succeq x$ because Person 2 and Person 3 prefer $z$ to $x$&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Notice that this is exactly a violation of transitivity.&lt;/p&gt;&#xA;" OwnerUserId="47" LastActivityDate="2015-05-25T21:56:53.530" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5807" PostTypeId="1" CreationDate="2015-05-26T01:40:22.473" Score="2" ViewCount="81" Body="&lt;p&gt;When reading analysis papers of financial product, derivative or stock, tangible or not, I noticed that a lot of those papers seem to have similar structures.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This got me to the question if there exists some sort a basis structure to use when analysing a financial product. Or if there are some important topics we need to take in account, to have our analysis accepted by the Financial and Economic communities?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;em&gt;Please note that I'm referring to research/analysis that focuses on the financial product.&lt;/em&gt;&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;em&gt;Edit - 2015/05/29:&lt;/em&gt;&lt;/strong&gt; As commented: I'm interested in doing a theoretical analysis of, for example, a derivative that someone invented, this won't have any historical data.&#xA;Also, what is analysed when a central bank receives a proposal for a new product (i.e. new type of derivative)? What type of analysis is done? It's more in this sense, analysing a new formulation of a financial product that isn't on the market yet. How is this done? &lt;/p&gt;&#xA;" OwnerUserId="235" LastEditorUserId="235" LastEditDate="2015-05-29T07:40:53.170" LastActivityDate="2015-05-29T07:40:53.170" Title="What topics are important to analyse a financial product?" Tags="&lt;finance&gt;&lt;markets&gt;&lt;financial-markets&gt;&lt;stock-market&gt;&lt;corporate-finance&gt;" AnswerCount="0" CommentCount="8" ClosedDate="2015-05-28T04:29:32.690" ContentLicense="CC BY-SA 3.0" />
  <row Id="5808" PostTypeId="1" CreationDate="2015-05-26T01:46:47.123" Score="-2" ViewCount="957" Body="&lt;p&gt;Sources: p 289, &lt;em&gt;Principles of Microeconomics&lt;/em&gt; (7 Ed, 2014) by N G Mankiw&lt;br&gt;&#xA;p 259, &lt;em&gt;Modern Principles of Economics&lt;/em&gt; (2 ed, 2011) by Tyler Cowen, Alex Tabarrok&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;Definitions:&lt;/strong&gt; Profit $:=$ Total Revenue $−$ Total Cost = TR $−$ TC&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Total Revenue $:=$ Price $\times$ Quantity&#xA;  and Average Cost =&#xA;  $\dfrac{Total \, Cost}{Quantity}$&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;$\Rightarrow ... \Rightarrow$ $\color{darkred}{\text{ Profit = (Price $-$ Average Cost) $\times$ Quantity }}$&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Please help me dig deeper than the maths, which I already understand and so ask NOT about. Accordingly, I ellipted the mathematical proof with the ellipsis above. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What's the intuition behind the last (reddened) equation for profit? I ask only for intuition; please omit any formal arguments or math proofs. &lt;/p&gt;&#xA;" OwnerUserId="4020" LastEditorUserId="4020" LastEditDate="2015-05-26T02:31:15.583" LastActivityDate="2015-05-26T02:31:15.583" Title="Intuitively, why is Profit = (Price $-$ Average Cost) $\times$ Quantity?" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5809" PostTypeId="2" ParentId="5808" CreationDate="2015-05-26T01:53:26.943" Score="2" Body="&lt;p&gt;The intuition is simple: Profit can be represented as the profit per unit output, which is the discrepancy between what the firm receives for selling the unit (the price) and the average cost of producing that unit at the given level of output (ATC), multiplied with the number of units of output (taking you from profit per unit to total profit).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Example: You produce widgets at a constant marginal cost of \$1 per widget. You find it optimal to sell 10 widgets on the international widget market, where you can fetch \$1.05  per widget. You profit is the profit per unit of \$.05 times the 10 units you sold, summing to a total of \$0.50. &lt;/p&gt;&#xA;" OwnerUserId="2844" LastEditorUserId="2844" LastEditDate="2015-05-26T02:01:04.123" LastActivityDate="2015-05-26T02:01:04.123" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="5812" PostTypeId="1" CreationDate="2015-05-26T04:59:22.410" Score="1" ViewCount="2095" Body="&lt;p&gt;Source: p 312, &lt;em&gt;Principles of Microeconomics&lt;/em&gt; (7 Ed, 2014) by N G Mankiw&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Welfare in a monopolized market, like all markets, includes the welfare of both&#xA;  consumers and producers. Whenever a consumer pays an extra dollar to a producer&#xA;  because of a monopoly price, the consumer is worse off by a dollar and the&#xA;  producer is better off by the same amount. &lt;strong&gt;$\color{red} {[1.]} $ This transfer from the consumers of the&#xA;  good to the owners of the monopoly does not affect the market’s total surplus—&#xA;  the sum of consumer and producer surplus. In other words, the monopoly profit&#xA;  itself represents not a reduction in the size of the economic pie but merely a bigger&#xA;  slice for producers and a smaller slice for consumers.&lt;/strong&gt; Unless consumers are&#xA;  for some reason more deserving than producers—a normative judgment about&#xA;  equity that goes beyond the realm of economic efficiency—the monopoly profit is&#xA;  not a social problem.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The problem in a monopolized market arises because the firm produces and&#xA;  sells a quantity of output below the level that maximizes total surplus. $\color{green} {[2.]  \text { The&#xA;deadweight loss measures how much the economic pie shrinks as a result. }} $ This&#xA;  inefficiency&#xA;  is connected to the monopoly’s high price: Consumers buy fewer units&#xA;  when the firm raises its price above marginal cost. But keep in mind that the profit&#xA;  earned on the units that continue to be sold is not the problem. The problem stems&#xA;  from the inefficiently low quantity of output. Put differently, if the high monopoly&#xA;  price did not discourage some consumers from buying the good, it would raise&#xA;  producer surplus by exactly the amount it reduced consumer surplus, leaving&#xA;  total&#xA;  surplus the same as could be achieved by a benevolent social planner.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;On p 311, Mankiw discusses the deadweight loss (hereafter DWL) of a monopoly, which 2 above concerns. So what does 1 mean? It appears to contradict 2. DWL reduces the total market's surplus, and so &lt;strong&gt;the size of the economic pie&lt;/strong&gt;. &lt;/p&gt;&#xA;" OwnerUserId="4020" LastActivityDate="2018-04-15T05:32:16.240" Title="How does the monopoly's deadweight loss affect market surplus and the economic pie?" Tags="&lt;microeconomics&gt;&lt;monopoly&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5813" PostTypeId="1" AcceptedAnswerId="5815" CreationDate="2015-05-26T05:08:30.850" Score="2" ViewCount="21562" Body="&lt;p&gt;I have a formula for the long-run total cost curve,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$TC(Q) = 6000Q + 40Q^2 + Q^3$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and I'm trying to find the quantity that minimizes the long-run average total cost. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I assume I'm trying to find the value $Q$ (quantity) that produces the total cost ($TC(Q)$) where $\frac{TC(Q)}{Q}$ is the lowest. But how do I do this short of trial and error?&lt;/p&gt;&#xA;" OwnerUserId="4751" LastEditorUserId="61" LastEditDate="2015-05-26T07:41:07.433" LastActivityDate="2018-11-14T08:03:53.790" Title="How do I calculate quantity to minimize long-run average total cost?" Tags="&lt;microeconomics&gt;&lt;long-run&gt;&lt;cost&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="5814" PostTypeId="1" AcceptedAnswerId="6249" CreationDate="2015-05-26T05:18:35.333" Score="4" ViewCount="68" Body="&lt;p&gt;Suppose the Net Domestic Product in a certain sector (e.g. agriculture) is 10 billion. Who enjoys this 10 billion?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Initially, I thought that this 10 billion is the gross income of the farmers. So some of it is paid as taxes while the rest remains with the farmers as net income.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But, I did the math with some real-life data, and found out that the net income of the farmers is much smaller. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, where does the difference go to?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My conjecture is that the NDP include the income of other workers related to agriculture, e.g. truck drivers, traders and sellers in farmer markets. Is this correct? Or are they counted in a different sector?&lt;/p&gt;&#xA;" OwnerUserId="385" LastActivityDate="2015-06-25T16:24:27.143" Title="Who enjoys the Net Domestic Product?" Tags="&lt;macroeconomics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5815" PostTypeId="2" ParentId="5813" CreationDate="2015-05-26T05:55:34.103" Score="6" Body="&lt;p&gt;Your are right. You have to minimize the average cost.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$c(Q)=\frac{C(Q)}{Q}=6000 +40Q+Q^2$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Calculate the first derivative and set it equal to zero:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$ c'(Q)=40+2Q=0 $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Solve this equation for $Q$. Denote the optimal value as $Q^*$. $Q^*$ can be a local maximum or a local minimum&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If $c''(Q^*)&amp;gt;0$, then you have found the local minimum.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The local minimum is also the absolute minimum, because&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\lim_{Q \to \infty } 6000 +40Q+Q^2=\infty$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\lim_{Q \to -\infty } 6000 +40Q+Q^2=\infty$$&lt;/p&gt;&#xA;" OwnerUserId="371" LastEditorUserId="61" LastEditDate="2015-05-26T07:42:23.530" LastActivityDate="2015-05-26T07:42:23.530" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5816" PostTypeId="2" ParentId="5812" CreationDate="2015-05-26T06:06:29.917" Score="4" Body="&lt;p&gt;Consider the following two examples:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is a consumer who is willing to pay 50 dollars for a good. (Reservation price is 50.) There is a seller who is willing to sell for 30 dollars. (Marginal cost is constant 30.) If they make a deal at &lt;em&gt;any&lt;/em&gt; price $p$ the total surplus they enjoy will be $(50 - p) + (p - 30) = 20.$ The individual surpluses need only be non-negative because otherwise one party would probably not consent to the deal. The price that is finally reached depends on their bargaining power. With a monopoly all the bargaining power is on the seller's side, so the price would be $p = 50$. Total surplus is still 20. So there's no loss.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However if there are two consumers, one with a reservation price of 50 and the other with 31 then at price 50 only one of them (the former) will buy the good. At price 30, both of them would buy the good and total surplus would be $(50 - 30) + (31 - 30) + (30 - 30) = 21$. But the monopoly's profit is 20 dollars if it sets $p = 50$, and 0 dollars if it sets $p = 30$. So it will choose the former. Because of uniform pricing, a good that would increase the total surplus is unsold, creating deadweight loss.  &lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="4020" LastEditDate="2018-04-15T05:32:16.240" LastActivityDate="2018-04-15T05:32:16.240" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5818" PostTypeId="2" ParentId="5814" CreationDate="2015-05-26T12:13:23.087" Score="1" Body="&lt;p&gt;First, let's look at the difference nation-wide between income and domestic product.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;National income $Y = GDP –$ capital depreciation $+$ net foreign factor income&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$NDP = GDP$  $–$ capital depreciation&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note the difference between the two is the net foreign factor income, that is, the difference between what firms from the country earn outside the country and foreign firms earn in the country.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Depending on your definition of sector $NDP$, you need to add to that net foreign income a &quot;net outsider income&quot;, &lt;em&gt;i.e.&lt;/em&gt; what firms from other sectors earn in the agricultural sector. Also, the $NDP$ gives you an average of gross earnings for all players in the agricultural sector, that is, including the incomes of anyone considered a member of the sector.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Splitting $NDP$ among sectors is something that is hard to do (does the driver that drives the corn from the producer to the retailer count as service sector? Agricultural sector? Retail sector? What if that driver is actually the farmer? The retailer? ), so the links between average income and $NDP$ for a sector might be a little convoluted...&lt;/p&gt;&#xA;" OwnerUserId="4578" LastActivityDate="2015-05-26T12:13:23.087" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5819" PostTypeId="2" ParentId="5532" CreationDate="2015-05-26T12:19:19.027" Score="2" Body="&lt;p&gt;China's interior consumption only represents 30% of its GDP, it's economical growth is not based on its interior consumption but on its exportation, a big part of its consumers are the USA. China has a huge commercial surplus due to the fact that it exports way more than it imports and its main consumers are the USA, with this surplus China chooses to buy US debt to maintain their current consumption and thus maintaining its current economical situation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sorry if this is not really comprehensible I am studying in french and it's hard to get the right terms in english.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit : &#xA;Here are some stats on which this theory is based &lt;a href=&quot;http://www.worldstopexports.com/chinas-top-import-partners/&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.worldstopexports.com/chinas-top-import-partners/&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="2797" LastEditorUserId="2797" LastEditDate="2017-08-21T23:57:56.643" LastActivityDate="2017-08-21T23:57:56.643" CommentCount="12" ContentLicense="CC BY-SA 3.0" />
  <row Id="5820" PostTypeId="1" CreationDate="2015-05-26T13:46:25.993" Score="2" ViewCount="77" Body="&lt;p&gt;I have often listen to the old man who criticized the lack of morality in the Chinese people nowadays: &quot;&lt;em&gt;To get more money, break through to the bottom line to get more money!&lt;/em&gt;&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there a contradiction between economic development and morality? Are there any countries that are highly ethical standards that develop very well?&lt;/p&gt;&#xA;" OwnerUserId="4754" LastEditorUserId="43" LastEditDate="2015-05-26T14:32:06.907" LastActivityDate="2015-05-26T15:13:55.363" Title="Moral and economic development paradox?" Tags="&lt;reference-request&gt;&lt;data-request&gt;&lt;economic-growth&gt;&lt;development&gt;&lt;development-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5821" PostTypeId="1" CreationDate="2015-05-26T13:52:30.533" Score="10" ViewCount="6094" Body="&lt;p&gt;Is the phrase 'full employment' synonymous with the phrase 'the natural rate of unemployment'? Parkin, et al. (2010) seem to use these two terms interchangably in chapter 20, but looking up these two terms in the Oxford dictionary of economics (Black, Hashimzade &amp;amp; Myles 2009) shows two different meanings: Black, Hashimzade and Myles state that 'full employment' relates to the equilibrium point in the labour market, whereas 'the natural rate of unemployment' is a Keynesian concept which looks at the level of unemployment given constant inflation.&lt;/p&gt;&#xA;&lt;p&gt;My interpretation of this is that 'full employment' is a classical concept, whereas 'the natural rate of unemployment' is not, because it seems as if the latter varies according to the rate of inflation (a nominal variable).&lt;/p&gt;&#xA;&lt;p&gt;EDIT: The answers I have gotten so far are incorrect in that they say that 'full employment' means '100% employment'. This is incorrect because full employment actually takes into account frictional unemployment. I quote two dictionaries on the definition of &lt;strong&gt;full employment&lt;/strong&gt;:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;A situation where the labour market has reached a state of equilibrium, so that those in the active labour force who are willing and able to work at going wage rates are able to find work, and the only remaining unemployment is frictional unemployment.&lt;/p&gt;&#xA;&lt;p&gt;(Black, Hashimzade &amp;amp; Myles 2009)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;The following definition comes from &lt;a href=&quot;http://www.economist.com/economics-a-to-z/f#node-21529900&quot; rel=&quot;nofollow noreferrer&quot;&gt;The Economist&lt;/a&gt;&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Jobs for all that want them. This does not mean zero unemployment because at any point in time some people do not want to work. Also, because some people are always between jobs, there will usually be some frictional unemployment. Full employment means that everyone who wants work and is willing to work at the market wage is in work. Most governments aim to achieve full employment, although nowadays they rarely try to lower unemployment below the nairu: the lowest jobless rate consistent with stable, low inflation.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;The Economist &lt;a href=&quot;http://www.economist.com/economics-a-to-z/f#node-21529898&quot; rel=&quot;nofollow noreferrer&quot;&gt;goes on&lt;/a&gt; to define &lt;strong&gt;frictional unemployment&lt;/strong&gt; as&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;That part of the jobless total caused by people simply changing jobs and taking their time about it, because they are spending time on job search or are taking a break before starting with a new employer. There is likely to be some frictional unemployment even when there is technically full employment, because most people change jobs from time to time.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;In South Africa, unemployment is defined as those people who are actively seeking work, but who have not found work. &lt;em&gt;Frictional unemployment&lt;/em&gt; seems to be a looser concept: the citizen wants work, but is happy to give up their previous job. It may be entirely possible for them to &lt;em&gt;get&lt;/em&gt; work, just that it's taking them a while to secure their next contract. For this reason, one cannot say that an economy with a surplus of jobs is not at full employment.&lt;/p&gt;&#xA;&lt;p&gt;&lt;strong&gt;&lt;em&gt;References&lt;/em&gt;&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;p&gt;Black, J, Hashimzade, N &amp;amp; Myles, G. 2009. &lt;em&gt;Oxford dictionary of economics&lt;/em&gt;.  3rd edition. New York: Oxford University Press.&lt;/p&gt;&#xA;&lt;p&gt;Parkin, M, Kohler, M, Lakay, L, Rhodes, B, Saayman, A, Schöer, V, Scholtz, F &amp;amp; Thompson, K. 2010. &lt;em&gt;Economics: global and Southern African perspectives&lt;/em&gt;. Cape Town: Pearson.&lt;/p&gt;&#xA;" OwnerUserId="175" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2021-02-02T04:47:11.787" Title="Is 'full employment' synonymous with 'the natural rate of unemployment'?" Tags="&lt;macroeconomics&gt;&lt;unemployment&gt;&lt;natural-rate-unemployment&gt;&lt;definition&gt;" AnswerCount="3" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="5822" PostTypeId="2" ParentId="5821" CreationDate="2015-05-26T14:55:20.147" Score="8" Body="&lt;p&gt;&lt;strong&gt;Full employment&lt;/strong&gt; is a more general term, which has much less implication than &lt;strong&gt;natural rate of employment&lt;/strong&gt;. My experience reading &lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/S0927537115000573&quot; rel=&quot;nofollow&quot;&gt;a lot of economics papers&lt;/a&gt; is that careful authors do not mix the two concepts.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Stricto sensu&lt;/em&gt;, full employment should mean 100% of the workforce is employed. But when we are talking about periods such as the &lt;a href=&quot;http://en.wikipedia.org/wiki/Trente_Glorieuses&quot; rel=&quot;nofollow&quot;&gt;trente glorieuses&lt;/a&gt;, the term is often used to mean &quot;very low unemployment&quot;, which Keynesian economists associate with &lt;strong&gt;natural rate of employment&lt;/strong&gt;. Politicians will most certainly never use the later, while economists may not always be very careful about which one they use.&lt;/p&gt;&#xA;" OwnerUserId="4578" LastEditorUserId="108" LastEditDate="2015-07-12T10:48:38.010" LastActivityDate="2015-07-12T10:48:38.010" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="5823" PostTypeId="2" ParentId="5820" CreationDate="2015-05-26T15:13:55.363" Score="2" Body="&lt;p&gt;Yes, there is some evidence that immoral behavior, as exemplified though political corruption, is bad for economic development. The body of literature is large and to the extent that I am familiar with it, some corruption can &quot;grease the wheels&quot; and hasten development. In general, massive amounts of corruption is seen as a serious hinderence to development.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://scholar.google.com/scholar?q=corruption+and+economic+development&amp;amp;hl=en&amp;amp;as_sdt=0&amp;amp;as_vis=1&amp;amp;oi=scholart&amp;amp;sa=X&amp;amp;ei=8YxkVbyICYqzoQT5moKIBA&amp;amp;ved=0CBoQgQMwAA&quot; rel=&quot;nofollow&quot;&gt;https://scholar.google.com/scholar?q=corruption+and+economic+development&amp;amp;hl=en&amp;amp;as_sdt=0&amp;amp;as_vis=1&amp;amp;oi=scholart&amp;amp;sa=X&amp;amp;ei=8YxkVbyICYqzoQT5moKIBA&amp;amp;ved=0CBoQgQMwAA&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, I think that the utilitarian ideal suggests that all else being equal, more wealth and consumption is better. This implies that economic development carries a moral weight. That is to say, an ethical society should develop economically, to raise the standard of living and reduce suffering.&lt;/p&gt;&#xA;" OwnerUserId="4185" LastActivityDate="2015-05-26T15:13:55.363" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5824" PostTypeId="1" CreationDate="2015-05-26T16:50:29.630" Score="9" ViewCount="4125" Body="&lt;p&gt;What's the correct way to solve BNE in mixed strategies? I've found two conflicting methods used.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Two players. Player 1 knows which game is being played, player 2 knows the game is chosen with probability $\mu$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$&#xA;\begin{array}{c|c|c}&#xA;  \ &amp;amp; A &amp;amp; B \\&#xA;  \hline&#xA;  L &amp;amp; 1, 1 &amp;amp; 0, 0 \\&#xA;  \hline&#xA;  R &amp;amp; 0, 0 &amp;amp; 0, 0&#xA; \end{array}&#xA;$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;or&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$&#xA;\begin{array}{c|c|c}&#xA;  \ &amp;amp; A &amp;amp; B \\&#xA;  \hline&#xA;  L &amp;amp; 0, 0 &amp;amp; 0, 0 \\&#xA;  \hline&#xA;  R &amp;amp; 0, 0 &amp;amp; 2, 2&#xA; \end{array}&#xA;$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So for pure strategies I am finding a consistent method. Form a normal form game:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$&#xA;\begin{array}{c|c|c}&#xA;  \ &amp;amp; A &amp;amp; B \\&#xA;  \hline&#xA;  LL &amp;amp; \mu, \mu &amp;amp; 0, 0 \\&#xA;  \hline&#xA;  LR &amp;amp; \mu, \mu &amp;amp; 2\mu, 2\mu \\&#xA;  \hline&#xA;  RL &amp;amp; 0, 0 &amp;amp; 0, 0 \\&#xA;  \hline&#xA;  RR &amp;amp; 0, 0 &amp;amp; 2\mu,2\mu &#xA; \end{array}&#xA;$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This allows us to find the pure strategy solution by using the normal form. How do we calculate the mixed strategies?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've seen two different methods.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1: Look at mixing over (L, R) in game 1 with probability (a, 1-a) and (L, R) in game 2 with probability (b, 1-b).&lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;2&quot;&gt;&#xA;&lt;li&gt;Look at mixing over (LL, LR, RL, RR) with probability (a, b, c, 1-a-b-c).&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Any advice/reading is much appreciated.&lt;/p&gt;&#xA;" OwnerUserId="4515" LastActivityDate="2015-09-27T14:59:32.200" Title="Bayesian Nash Equilibrium - Mixed Strategies" Tags="&lt;game-theory&gt;&lt;bayesian-game&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5825" PostTypeId="1" CreationDate="2015-05-26T16:53:28.050" Score="3" ViewCount="3792" Body="&lt;p&gt;I'm really confused about how I'd tackle this. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have an equation, $TC(Q) = 100Q + 20Q^2 + 3Q^3$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And I'm trying to find where the economies of scale, diseconomies of scale and constant return to scale occurs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My instinct would be to take the derivative of that function, and then set it to 0, and then see what the values to the left and right of 0 are which would be the slope and allow me to see depending on whether or not they're positive or negative whether it's an economy or diseconomy of scale.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this along the right road?&lt;/p&gt;&#xA;" OwnerUserId="4751" LastEditorUserId="43" LastEditDate="2015-05-27T15:46:58.647" LastActivityDate="2019-08-01T21:00:42.017" Title="Total cost function and (dis)economies of scale" Tags="&lt;microeconomics&gt;&lt;production-function&gt;" AnswerCount="3" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5827" PostTypeId="2" ParentId="5793" CreationDate="2015-05-26T17:38:05.260" Score="1" Body="&lt;p&gt;Here is how I interpret your question: &quot;Why when modeling positive externalities do we shift the marginal benefit curve upward instead of shifting the marginal cost curve downward?&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Either way of thinking about it is fine. Positive externalities can be thought of as resulting in a social marginal benefit curve that's above the private marginal benefit curve, or as resulting in a social marginal cost curve that's below the private marginal cost curve. Which side you place it on is only a matter of accounting, since &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Private Marginal Benefit + Externality - Private Marginal Cost = Private Marginal Benefit - (Private Marginal Cost - Externality).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your question doesn't make sense in some ways though and I think it's important you understand why. You say &quot;Because SV benefits society, the suppliers of this SV can consider the SV supplied, as follows: Suppliers' true cost = their original costs − SV, for all quantities supplied.&#xA;So the new supply curve must underlie, and be parallel to, the old supply curve.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The positive externality in this case cannot shift the producer's supply curve downward, because the producer's supply curve is his &lt;strong&gt;private&lt;/strong&gt; marginal cost. Importantly, externalities only affect &lt;strong&gt;social&lt;/strong&gt; marginal cost. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Remember: The supply curve is a function that tells you what quantity a supplier will produce at any given price, whereas the marginal cost curve is the cost per unit of producing an additional unit. These two things only happen to coincide in the absence of externalities.&lt;/p&gt;&#xA;" OwnerUserId="4177" LastActivityDate="2015-05-26T17:38:05.260" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5828" PostTypeId="1" CreationDate="2015-05-26T19:30:09.800" Score="6" ViewCount="231" Body="&lt;p&gt;I have a general equilibrium problem, where households given objective function $U(c,n)$ solve for working hours and consumption $n, c$, and firms use labor to produce a consumption good - their objective function is $V(n)$. There are potentially profits, which is paid out to the workers through wages $w$. Households spend all their labor income on the production good.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is the externality that working more leads to higher income on the household side, and spending higher income onto the consumption good yields higher profits for the firm - in turn leads to higher wages for the household. These things just happen in my environment, take my word for it - I'm trying to simplify as much as possible.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Usual Equilibrium&lt;/strong&gt; Household optimality, firm-side optimality and market clearing means that all FOC have to hold. Usually, I would solve this taking the first-order conditions for $U(c,n)$, taking firm's demand $Y$ as exogenous, and replace - after taking the FOC - $Y = nw$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Here, instead&lt;/strong&gt; I want to rather find my equilibrium without FOC. It is $w, n, c$ such that &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Firms behave optimally: $V(n) \geq V(n')$ for all $n'$&lt;/li&gt;&#xA;&lt;li&gt;Households behave optimally: $U(c,n) \geq U(c',n')$ for all $c', n'$&lt;/li&gt;&#xA;&lt;li&gt;$wn = Y$&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;This makes much more sense for me since it is in this environment much easier to find the stationary state in the objective functions rather than the roots of the first-order conditions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, I'm worried that without two steps, I cannot &quot;first solve FOC, then replace $Y=wn$. How do I ensure that household's are neglecting the externality of their labor/consumption choice?&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-10-24T01:51:15.517" Title="Equilibrium with Externalities: Solving without FOC" Tags="&lt;general-equilibrium&gt;&lt;externalities&gt;&lt;solution-concept&gt;" AnswerCount="1" CommentCount="5" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5829" PostTypeId="2" ParentId="5825" CreationDate="2015-05-26T19:59:45.167" Score="1" Body="&lt;p&gt;This is easier when one has it formulated as $Q(TC)$. Here, we have $TC(Q)$. Intuitively, constant returns to scale (CRS) require that costs change one-for-one with quantity. However, this does not translate easily into an expression using $TC(Q)$ only. As @NickJ hinted at, it's easier to work with average costs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;em&gt;Using average costs&lt;/em&gt;&lt;/strong&gt; In other words, CRS implies that average costs do not change. &#xA;One way to look for that is to say that we have increasing (decreasing) returns to scale whenever $\frac{d \frac{TC(Q)}{Q}}{dQ}$ is negative (positive). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;em&gt;Using total costs&lt;/em&gt;&lt;/strong&gt; Let's start with the previous expression and see whether we can get a direct formula using $TC(Q)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{d \frac{TC(Q)}{Q}}{dQ} = (TC'(Q)Q-TC(Q))/Q^2 = 0 \\&#xA;TC'(Q)Q - TC(Q) = 0  \\&#xA;\frac{TC(Q)}{Q} = TC'(Q)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's not as simple as I initially thought, but we get a meaningful expression: We have CRS whenever average costs are equal to the marginal change in total costs.&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2015-05-27T14:45:17.720" LastActivityDate="2015-05-27T14:45:17.720" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="5830" PostTypeId="2" ParentId="5824" CreationDate="2015-05-26T20:19:10.743" Score="2" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;This answer is WRONG. I made the error of randomizing actions, not strategies. The probabilites I describe as $p$ and $q$ do not have to exist. As @jmbejara points out in &lt;a href=&quot;https://economics.stackexchange.com/a/5866/1601&quot;&gt;his excellent answer&lt;/a&gt; the method I used may find the subgame perfect equilibria in a sequential game. This is not the case in this problem, so the method was definitely used incorrectly. What follows this blockquote is the incorrect answer.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Method 1 seems to be the correct one.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reason why method two is flawed is that the probabilities $a$, $b$ and $c$ are not independent as&#xA;$$&#xA;a = p \cdot q, \hskip 20pt b = p \cdot (1 - q), \hskip 20pt c = (1 - p) \cdot q, \hskip 20pt 1 - a - b - c = (1 - p) \cdot (1 - q).&#xA;$$&#xA;For example you could not have a strategy for player 1 where $a$, $b$ and $c$ are $\frac{1}{3}$, because that would imply&#xA;$$&#xA;1 - a - b - c = 0.&#xA;$$&#xA;But since $1 - a - b - c = (1 - p) \cdot (1 - q)$ this would mean that $p$ or $q$ equals one. Then $b$ or $c$ would also be 0, so we can indeed not have a strategy where they all are equal to $\frac{1}{3}$. &lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-09-27T14:59:32.200" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="5832" PostTypeId="1" AcceptedAnswerId="6019" CreationDate="2015-05-26T23:23:27.120" Score="8" ViewCount="1333" Body="&lt;p&gt;I would like to understand one detail of how nominal GDP of a country in a given year is calculated. It seems to me that the GDP in each country is first calculated in the national currency and then is converted to dollars. Is this correct?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If yes, how can one make this conversion if a currency can weaken of strengthen itself significantly with respect to dollar within a year?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is the list of such GDP's per country per year in US dollars:&#xA;&lt;a href=&quot;http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)&quot;&gt;http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example take Russia, GDP in 2013 was 2,096,774 million dollars and in 2014 it is 2,057,000 million dollars.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, we know that the rouble weakened significantly in 2014, (almost twice). So it looks like Russian GDP in dollars should have dropped significantly as well. But it had not done so. Why?&lt;/p&gt;&#xA;" OwnerUserId="2727" LastEditorUserId="1601" LastEditDate="2015-05-27T12:16:35.267" LastActivityDate="2019-04-18T09:25:30.253" Title="Calculating nominal GDP" Tags="&lt;macroeconomics&gt;&lt;currency&gt;&lt;gdp&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5833" PostTypeId="2" ParentId="5828" CreationDate="2015-05-26T23:31:20.863" Score="1" Body="&lt;p&gt;It is my impression that there is an inconsistency here.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If firms want to maximize $V(n)$ which is some &quot;surplus revenue over costs&quot; function, then surplus they will produce. &lt;em&gt;Meaning&lt;/em&gt;, that this surplus/profits &lt;em&gt;cannot&lt;/em&gt; be given to workers, &lt;em&gt;in the form of wages&lt;/em&gt;, because wages are cost. It may be given as dividends or, say, end-year bonus, but in any case it won't be related to $n$.&lt;br&gt;&#xA;So we do &lt;em&gt;not&lt;/em&gt; have $Y=wn$ but rather $Y = wn + d$, and the externality appears to break down.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The $Y=wn$ relation is consistent with a &quot;non-profit&quot; organization, which would demand as much $n$ as needed in order to have zero profits. In such a case, the wage would be equal to the &lt;em&gt;average&lt;/em&gt; product of labor, not the marginal one.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-05-26T23:31:20.863" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5834" PostTypeId="2" ParentId="460" CreationDate="2015-05-27T00:25:38.277" Score="2" Body="&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;growth makes most sense as a percentage. looking at absolute numbers does have value but percentage growth allows for some pretty good comparisons.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;You seem to think exponential growth means infinite growth. It is a pretty logical assumption to make, but I believe it takes these models and uses them in a way they were not meant to be used. Economists seldom care about making predictions 200 years in the future. Exponential growth is quite bad at forecasting that far ahead in anything, in shorter time scales it isn't too bad (Source needed).&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I'll try and make it clearer:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider a basic model of GDP growth. Suppose GDP is growing at 1% per year ($r=1.01$) and initially is at \$1,000,000.  Let $Y_t$ denote the populations size $t$ years after the initial population of $Y_0 = \$1,000,000$. If one asks what the GDP will be in 50 years there are two options.&lt;/p&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At 1% per year growth, the dynamic equation would&#xA;be &#xA;\begin{gather*}&#xA;Y_{t+1} - P_t    = 0.01 \, Y_t&#xA;\end{gather*}&#xA;and the corresponding iteration&#xA;equation is&#xA;\begin{gather*}&#xA;Y_{t+1} = 1.01 \, Y_t&#xA;\end{gather*}&#xA;Starting with the initial condition, $Y_0 = 1,000,000$, we could calculate $P_1 = 1.01 \times 1,000,000 = 1,010,000$,&#xA;$P_2 = 1.01 \times 1,010,000 = 1,020,100$ and so on for 50 iterations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is equivalent to:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{gather*}&#xA;Y_t = 1.01^t \left( 1,000,000 \right)&#xA;\end{gather*}&#xA;so that we immediately have a formula for the population after 50 years:&#xA;\begin{gather*}&#xA;Y_{50} = 1.01^{50} \left( 1,000,000 \right) = 1,644,631.&#xA;\end{gather*}&#xA;&lt;/p&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A point I am trying to make here is that exponential growth is really just the size of something as a function of itself in a different state or time frame. If you want exponential growth over a longer timeframe, it makes sense to extend the model.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What if $r$ was endogenous to the model? As Y gets larger, r gets smaller. Still growing exponentially, and the size of the economy in $t+1$ is still dependent on the size of the economy in $t$.&lt;/p&gt;&#xA;" OwnerUserId="40" LastActivityDate="2015-05-27T00:25:38.277" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5835" PostTypeId="1" CreationDate="2015-05-27T02:37:22.157" Score="4" ViewCount="3004" Body="&lt;p&gt;Which of the following is most likely to reduce the size of the multiplier in the simple (2-sector) Keynesian model?&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Increased taxes on savings&lt;/li&gt;&#xA;&lt;li&gt;Reduced access to government funded medical care&lt;/li&gt;&#xA;&lt;li&gt;Reduced compulsory superannuation contributions for workers&lt;/li&gt;&#xA;&lt;li&gt;Increased competition in the banking sector, leading to lower borrowing costs&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Answer given by the lecturer was 2. Could some please explain why? I thought that it was 3 (Employees have to save more of their earned income for retirement because firms no longer supplement super contributions for their workers, which increases the marginal propensity to save and decreases the multiplier.) How could it be 2 if we are in the two-sector Keynesian model? Doesn't that condition imply that there is no government spending to begin with as we are only considering the interaction between households and firms?&lt;/p&gt;&#xA;" OwnerUserId="4739" LastEditorUserId="69" LastEditDate="2015-05-27T10:01:06.470" LastActivityDate="2018-03-21T08:21:08.077" Title="Multiplier in the two-sector Keynesian model" Tags="&lt;macroeconomics&gt;" AnswerCount="0" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="5838" PostTypeId="1" CreationDate="2015-05-27T03:18:07.937" Score="3" ViewCount="123" Body="&lt;p&gt;If $L$ represents the amount of labour in the Solow-Swan production function:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$Y/L$=$f(K/L)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;how can $Y/L$ equal 'per-capita income' if $K/L$ is the capital/labour ratio? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I thought per-capita income was income divided by the entire population.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks.&lt;/p&gt;&#xA;" OwnerUserId="4739" LastEditorUserId="4739" LastEditDate="2015-05-27T06:25:08.903" LastActivityDate="2015-05-27T11:56:43.217" Title="Solow-Swan production function- What is '$L$'" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="5839" PostTypeId="2" ParentId="5832" CreationDate="2015-05-27T05:05:31.320" Score="2" Body="&lt;p&gt;Institutions may differ in their exact approach, but GDP statistics probably use a moving average to calculate currency exchange rates to avoid rapid fluctuation. The rubel exchange rate only started falling at the very end of 2014, see this &lt;a href=&quot;http://finance.yahoo.com/echarts?s=USDRUB%3DX%20Interactive#%7B%22customRangeStart%22:1356994800,%22customRangeEnd%22:1420066800,%22range%22:%22custom%22,%22showPrePost%22:false%7D&quot; rel=&quot;nofollow&quot;&gt;graph.&lt;/a&gt;&#xA;Hence its effect was limited on the 2014 GDP. (There is still a 10% drop, which is huge!) The full effects of the current exchange rate will show in 2015 GDP data.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2015-05-27T05:05:31.320" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5840" PostTypeId="2" ParentId="5838" CreationDate="2015-05-27T11:56:43.217" Score="2" Body="&lt;p&gt;$L$ is labor, which is equal to population in Solow-Swan model. Solow did not actually believe the workforce and population had the same size, but what's important is that labor is supposed to be in direct relationship with population &lt;em&gt;i.e.&lt;/em&gt; there is a number w between 0 and 1 such that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$L = w *$ population&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Direct proportionality between population and workforce is one of the assumptions of the Solow model.&lt;/p&gt;&#xA;" OwnerUserId="4578" LastActivityDate="2015-05-27T11:56:43.217" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5841" PostTypeId="2" ParentId="4663" CreationDate="2015-05-27T12:32:57.127" Score="1" Body="&lt;p&gt;Perfectly inelastic demand means the consumer has no choice about buying the product or not: for some reason, he has to buy it. This means that consumer surplus is steady at 0: the consumer never pays less than he would be ready to pay, he always pays what he is asked to.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;According to your (wrong) graph, the quantity reached would be at the intersection of WP and Supply. While this is true for producers, it is not for consumers: the supply curve should be bent to follow WP when crossing it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You are right about producer surplus, which means we get a total surplus of $-A$, and a consumer surplus of $0$. There are no gains from trade and consumers do not benefit from trade.&lt;/p&gt;&#xA;" OwnerUserId="4578" LastEditorUserId="4578" LastEditDate="2015-08-26T21:00:08.810" LastActivityDate="2015-08-26T21:00:08.810" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="5842" PostTypeId="2" ParentId="5757" CreationDate="2015-05-27T18:55:41.933" Score="7" Body="&lt;p&gt;You're right to ask; the sentence you bolded is unclear in its wording. The effect of randomly invalidating 1/10th of the currency outstanding in one year is that in expectation, cash would have an interest rate of -10%. So when Mankiw says the policy &quot;might enable central banks to set negative interest rates provided the rate was less than 10%&quot;, he means &quot;provided the rate was &lt;em&gt;less negative&lt;/em&gt; than a -10% rate&quot;. This is equivalent to saying that a central bank could set negative rates just so long as the bank set the rate $r$ such that $ -10\% \leq r &amp;lt; 0\% $.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course, the effects of such a policy in the real world would be much more complicated. If there were certainty about the date of the invalidation, for example, people could just hold cash as usual until just before the invalidation date, then deposit the cash in a bank for a couple days (thus not exposing themselves to negative deposit rates for long periods), and withdraw (valid) currency after the invalidation date.&lt;/p&gt;&#xA;" OwnerUserId="264" LastActivityDate="2015-05-27T18:55:41.933" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5843" PostTypeId="2" ParentId="3170" CreationDate="2015-05-27T19:26:58.853" Score="1" Body="&lt;p&gt;Where do you see that this expansionary policy is itself causing interest rates to rise? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If capital flow restrictions are damping inflationary pressures then the increased stock of money minus the decrease in buying power might cause an increase in imports. This increase in imports increases demand for foreign currency and decreases demand for domestic currency. This method of exchange subverts the capital flow restriction and the depreciation follows. &lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-05-27T19:26:58.853" CommentCount="0" CommunityOwnedDate="2015-05-27T19:26:58.853" ContentLicense="CC BY-SA 3.0" />
  <row Id="5844" PostTypeId="1" CreationDate="2015-05-27T23:35:24.990" Score="9" ViewCount="4816" Body="&lt;p&gt;I had an interesting casual discussion with a colleague the other day. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A lot of western economies at least, such as New Zealand, have some form of retirement pension. It New Zealand it's called Superannuation. For a single pensioner, &lt;a href=&quot;https://www.sorted.org.nz/a-z-guides/nz-super&quot;&gt;the amount received is 40% of the average wage.&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I mentioned that as we get an aging population, the cost to the tax payer of paying this pension will increase. &lt;a href=&quot;http://www.wheresmytaxes.co.nz/&quot;&gt;Currently about 12% of the budget is used to pay Superannuation&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;One of the common solutions put forward is to raise the age that people are eligible to receive the pension. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, my colleague pointed out that raising the retirement age will likely keep older people in the workforce longer, and pointed out that India in fact &lt;a href=&quot;http://www.tribuneindia.com/2014/20141127/main7.htm&quot;&gt;lowered the retirement age, as to generate jobs for young people.&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So this poses an interesting problem - on one hand, increasing the retirement age saves the government and taxpayer money. On the other hand, it possibly takes jobs from young people and stiffles their career. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there any research on the effect of retirement ages and their effect on employment?&lt;/p&gt;&#xA;" OwnerUserId="96" LastEditorUserId="61" LastEditDate="2015-08-01T01:38:27.410" LastActivityDate="2015-09-30T02:06:17.780" Title="What effect does changing the retirement age have on employment?" Tags="&lt;unemployment&gt;&lt;social-welfare&gt;&lt;population-economics&gt;" AnswerCount="3" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5845" PostTypeId="1" CreationDate="2015-05-28T05:26:44.120" Score="0" ViewCount="64" Body="&lt;p&gt;Source: p 156, &lt;em&gt;Urban Geography&lt;/em&gt; (2009; 3rd ed) by Michael Pacione&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The main ideological battle is between pro-growth&#xA;  and anti-growth factions. The pro-growth ideology&#xA;  proclaims that more development results in increased&#xA;  population, greater aggregate sales, more local tax&#xA;  revenues and more local jobs, owing to increased local&#xA;  spending. Benefits therefore flow to those who need&#xA;  employment and those in favour of lower taxes. &#xA;  The&lt;br&gt;&#xA;  anti-growth ideology emphasises the other side of the&#xA;  coin: development brings &lt;strong&gt;more people to an area than&#xA;  local institutions can service, thus any&lt;/strong&gt; $\color{darkred} { \text { downward trend&#xA;in taxation  }   }$  is overcome in the later stages of growth&#xA;  by the need for $\color{green} { \text { greater fiscal expenditure  }   }$.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;1. How does excessive consumption in local institutions cause a $\color{darkred} { \text { downward trend&#xA;in taxation  }   }$? Excessive consumption ought to be boost tax revenue? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;2. The last sentence seems to contradict the  anti-growth ideology. Please clarify? I am guessing that the anti-growth ideologues want to avoid $\color{green} { \text { greater fiscal expenditure  }   }$; so why do they reject a growth (or overgrowth) in consumption? &lt;/p&gt;&#xA;" OwnerUserId="4020" LastActivityDate="2015-05-28T14:22:52.090" Title="How does excessive consumption in an area decrease tax revenue?" Tags="&lt;taxation&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5846" PostTypeId="1" CreationDate="2015-05-28T05:52:52.883" Score="3" ViewCount="143" Body="&lt;p&gt;I want to forecast demand for the cement industry. I have data for 10 years- Monthly data. Is that desirable for forecasting?&lt;/p&gt;&#xA;" OwnerUserId="4769" LastActivityDate="2015-05-29T01:37:14.430" Title="Is 10 years monthly data enough for forecasting?" Tags="&lt;time-series&gt;" AnswerCount="1" CommentCount="3" ClosedDate="2015-05-29T15:58:00.010" ContentLicense="CC BY-SA 3.0" />
  <row Id="5847" PostTypeId="2" ParentId="5305" CreationDate="2015-05-28T06:33:40.027" Score="23" Body="&lt;p&gt;In a 1929 paper, Harold Hotelling introduced what became the standard model of spatial competition. Two firms position themselves on an interval, which induces a certain demand structure, and then compete in prices. The model was influential and widely taught. The message was that firms diferentiate minimally, both locate in the center.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But in 1979 (!) &lt;a href=&quot;http://faculty.haas.berkeley.edu/giyer/PhD269C/d&amp;#39;aspermont%20et.%20al.pdf&quot;&gt;paper&lt;/a&gt;,  d'Aspremont,  Gabszewicz, and Thisse pointed out that the model has actually no equilibrium under Hotelling's original specifications. There is an important discontinuity that Hotelling and everyone afterwards ignored.&lt;/p&gt;&#xA;" OwnerUserId="1442" LastActivityDate="2015-05-28T06:33:40.027" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5849" PostTypeId="2" ParentId="5846" CreationDate="2015-05-28T14:06:35.443" Score="3" Body="&lt;p&gt;In your situation (after reading the comments) I would use the 10 year data over the 2 year company specific data, unless you can identify some reason why your specific company is especially atypical for the industry.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Considering the length of business cycles we typically see in the developed world, about 5 years, any 2 year period may not be reflective of the future, near or distant. The effects of independent variables like interest rate and inflation rate will not be accurately calculated because there is a strong possibility they will be very similar over a 2 year period (such as in the last two years in the United States), and therefore the data will not be sufficient to measure the difference these factors make.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Longer periods of time will solve this problem. There is no number of data that someone can point out and say &quot;10 years is not sufficient but 10 years and 1 month is&quot;. In other words there is no cutoff, but longer periods of time, or in general larger sample sizes, are better and in this case outweigh the benefits of more specific data (although this should be decided on a case by case basis).&lt;/p&gt;&#xA;" OwnerUserId="4773" LastEditorUserId="4773" LastEditDate="2015-05-29T01:37:14.430" LastActivityDate="2015-05-29T01:37:14.430" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5850" PostTypeId="2" ParentId="5845" CreationDate="2015-05-28T14:22:52.090" Score="1" Body="&lt;p&gt;Actually the text does not state that consumption leads to a downward trend in taxation, but actually the other way around--&lt;/p&gt;&#xA;&#xA;&lt;p&gt;According to the text, anti-growth ideology says that low taxes do indeed lead to development, mainly focusing on population increase, but that this population growth will strain local institutions, meaning public services like emergency response, sewage services, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Greater fiscal expenditure would be required to expand these services to accommodate the increased population.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;During its explanation of the anti-growth ideology the article is not referencing increasing consumption of private goods, such as at local businesses, but rather of public goods as explained above. &lt;/p&gt;&#xA;" OwnerUserId="4773" LastActivityDate="2015-05-28T14:22:52.090" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5851" PostTypeId="1" CreationDate="2015-05-28T17:26:06.680" Score="4" ViewCount="363" Body="&lt;p&gt;What is the relationship or difference between Nash and Coasian bargaining solutions? &lt;a href=&quot;http://en.wikipedia.org/wiki/Bargaining_problem#Nash_bargaining_solution&quot; rel=&quot;nofollow&quot;&gt;It is well-known&lt;/a&gt; that the Nash bargaining solution satisfies certain basic axioms. Which of these does the Coasian solution satisfy? Is the Nash solution applicable when there are externalities, and are the two solutions same/comparable in any sense?&lt;/p&gt;&#xA;" OwnerUserId="41" LastActivityDate="2015-06-02T00:26:21.957" Title="Relationship between Nash and Coasian bargaining solutions" Tags="&lt;game-theory&gt;&lt;coasian-bargaining&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="5852" PostTypeId="2" ParentId="5844" CreationDate="2015-05-28T23:14:51.750" Score="-6" Body="&lt;p&gt;I think it depends on the state of the economy. If it's an ageing economy where you don't have young generation to take up work and in essence govt. is strugguling to support public welfare initiatives, the easy option taken is to increase the retirement age. Even India later increased the retirement age to 60/62. Its all about money now a days anyways.&lt;/p&gt;&#xA;" OwnerUserId="4777" LastActivityDate="2015-05-28T23:14:51.750" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5853" PostTypeId="1" CreationDate="2015-05-29T00:35:18.557" Score="20" ViewCount="25974" Body="&lt;p&gt;I recently asked a professor if he was planning on hiring a research assistant for next semester. I thought I'd be a pretty good candidate since I have decent experience using STATA, SAS, SPSS, R Studio and Mathematica, but he started asking me about a couple programs I had never heard of before. That led me to wonder what are the most commonly used programs for Economics. A friend of mine suggested I also look into Matlab and Python.&lt;/p&gt;&#xA;" OwnerUserId="4657" LastEditorDisplayName="user4239" LastEditDate="2015-05-29T05:20:53.540" LastActivityDate="2020-12-28T19:20:26.823" Title="Most common programs used by Economists" Tags="&lt;computation&gt;&lt;software&gt;" AnswerCount="8" CommentCount="7" FavoriteCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="5854" PostTypeId="2" ParentId="5853" CreationDate="2015-05-29T01:10:46.743" Score="3" Body="&lt;p&gt;This really depends on your school or profession as to what is most prevalent.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Professors at my school seem to use mostly Matlab and Stata. Some subjects even require GAUSS, which I had never heard of before. There is also some python involved.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In my experience (anecdotal), the finance sector uses excel a lot.&lt;/p&gt;&#xA;" OwnerUserId="40" LastActivityDate="2015-05-29T01:10:46.743" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5855" PostTypeId="2" ParentId="5853" CreationDate="2015-05-29T01:45:30.543" Score="3" Body="&lt;p&gt;To add to the anecdotal evidence collection, I also have experienced that Stata is the most standard stats software.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EViews is another option.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for other programs, beside statistical analysis software, LaTeX is a programming language used to format documents for presentation.&lt;/p&gt;&#xA;" OwnerUserId="4773" LastActivityDate="2015-05-29T01:45:30.543" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="5856" PostTypeId="2" ParentId="5853" CreationDate="2015-05-29T04:52:03.477" Score="5" Body="&lt;p&gt;From my experience (buy-side economist role),&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Eviews - the GUI is very convenient to deal with the most of the&#xA;daily tasks e.g. updating econometrics models and forecasts; and its continuously improving interface with external databases make my life much easier &lt;/li&gt;&#xA;&lt;li&gt;R / Matlab - easy for monte carlo simulation and dealing with&#xA;financial data and stochastics models&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Excel is popular for equity financial modeling and corporate finance, but C++ / R are dominated in financial engineering / quants field&lt;/p&gt;&#xA;&#xA;&lt;p&gt;SPSS is more popular in other social science field as it is not really good at dealing with time series (major part of my work) in my opinion&lt;/p&gt;&#xA;&#xA;&lt;p&gt;SAS is good for huge set of data due to its unique memory management... but Eviews can handle most of situation in my case (unlike financial data, what we face with economic data is a lack of observation instead of too much data for the memory..)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Python is a fast program but not convenient to implement for daily analysis purpose.. and for the rest you mentioned, they evolve to provide quite similar functions nowadays &lt;/p&gt;&#xA;" OwnerUserId="4778" LastEditorUserId="4778" LastEditDate="2015-05-29T04:58:06.857" LastActivityDate="2015-05-29T04:58:06.857" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="5857" PostTypeId="1" CreationDate="2015-05-29T13:10:28.687" Score="3" ViewCount="33" Body="&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Private_equity_fund&quot; rel=&quot;nofollow&quot;&gt;Private equity funds&lt;/a&gt; are increasingly taking formerly &lt;a href=&quot;https://en.wikipedia.org/wiki/Public_company&quot; rel=&quot;nofollow&quot;&gt;public companies&lt;/a&gt; off the exchanges. Is there an economic reason for any public companies to exist and what is the equilibrium share of public companies in the total corporate 'population'?&lt;/p&gt;&#xA;" OwnerUserId="284" LastEditorUserId="284" LastEditDate="2015-05-29T18:40:29.340" LastActivityDate="2015-05-31T10:39:15.413" Title="Is there an equilibrium between privately owned and publicly listed companies?" Tags="&lt;corporate-finance&gt;" AnswerCount="1" CommentCount="5" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5859" PostTypeId="2" ParentId="5853" CreationDate="2015-05-29T14:50:42.023" Score="17" Body="&lt;p&gt;There's three important dimensions for programs/languages:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Convention: Having a program that everyone uses helps you to get feedback/help, work with coauthors, use other people's codes&lt;/li&gt;&#xA;&lt;li&gt;Ease of use: Since many uses in economics are routines, having the program doing these for you and making your implementation of the use easier is a big bonus&lt;/li&gt;&#xA;&lt;li&gt;Adaptability: A program that allows you doing covering most of your needs and learning only one syntax versus having to work with different programs at the same time&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;In terms of frequency of usage among academic economists, here's my ranking:&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Top tier&lt;/h3&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;For econometrics, by far, STATA. Mostly because of convention and ease of use. &lt;/li&gt;&#xA;&lt;li&gt;For dynamic programming, and to some extent monte carlo, by far, Matlab. Mostly because of convention and ease of use&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;h3&gt;Second tier&lt;/h3&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;For time series econometrics, Eviews (ease of use)&lt;/li&gt;&#xA;&lt;li&gt;For all kinds of econometrics, R (adaptability, somewhat convention)&lt;/li&gt;&#xA;&lt;li&gt;The swiss knife of really anything, Python (adaptability)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;h3&gt;Specialists&lt;/h3&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;SAS, for huge data sets&lt;/li&gt;&#xA;&lt;li&gt;Fortran, for efficient prebuilt routines and large scale computation&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;This list is of course my personal opinion, and for academic economists only. I believe that no one will dispute the top tier, but the second tier/specialists can be somewhat debated. And then there's some more who are even more specialist (for example, Octave as a open source Matlab alternative)&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2015-06-09T22:40:28.583" LastActivityDate="2015-06-09T22:40:28.583" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="5861" PostTypeId="1" AcceptedAnswerId="5862" CreationDate="2015-05-29T15:58:30.513" Score="33" ViewCount="5140" Body="&lt;p&gt;Is zero inflation really desirable?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To be more precise: Does inflation in real life have benefits that in some situations outweigh its social cost? E.g.: it works as a disincentive against holding money. The treasury derives income from printing new bills, which usually inflates prices.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2016-09-04T18:04:35.503" LastActivityDate="2018-12-30T05:26:08.587" Title="Is zero inflation desirable?" Tags="&lt;macroeconomics&gt;&lt;inflation&gt;&lt;monetary-policy&gt;" AnswerCount="6" CommentCount="6" FavoriteCount="18" ContentLicense="CC BY-SA 3.0" />
  <row Id="5862" PostTypeId="2" ParentId="5861" CreationDate="2015-05-29T16:25:22.657" Score="31" Body="&lt;p&gt;The optimal level of inflation is very debated with unclear answers. There are many reasons, and a great answer would be very long. It should also distinguish between expected inflation and surprises.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm not going to do any of this, but giving you three reasons for a desirable positive level of inflation. This list is of course incomplete, also there are many reasons against too high inflation.&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Downward-rigidity of wages&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;It is really unclear to economists why it is happening, but nominal wages seem to be downward rigid. It appears to be a behavioral thing (and might not be true at all, see &lt;a href=&quot;https://ideas.repec.org/a/eee/moneco/v3y1977i3p305-316.html&quot;&gt;Barro (1977)&lt;/a&gt;), but it appears that in crises, once presented with the choice of more firings or reduction of wages, most firms/workers decide to not cut wages but rather respond to the slump with increased separations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To the extent that we believe this lack of reduction in wages is suboptimal, the central bank can enforce a reduction in real wages through increased inflation rates, and thus preventing separations to some extent.&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Redistribution&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;This argument is based on Keynesian theory. Keynes claimed that the marginal propensity to consume out of income is smaller for rich households (and indeed, we do find this in the data  to some extent). &lt;strong&gt;Unexpected&lt;/strong&gt; inflation is similar to redistribution from debtors to borrowers, as long as debt contracts are not indexed to inflation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To the extent that poor people consume more out of this unexpected wealth shock and than rich people decrease their consumption, this redistribution will lead to an increase in aggregate consumption.&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Room to cutback interest rates&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;This argument was most prominently brought forward by Krugman around 2008. In recessions, you want to be able to decrease nominal interest rates in order to punish households and firms for &quot;holding cash&quot; and incentivize them to spend it instead. If you start with low (say, 2-3%) nominal interest rates during normal times, you don't have a lot of space to cut back nominal interest rates during the crises.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If, instead, you would have higher nominal interest rates (Krugman argued for around 8%) and relatedly higher inflation during normal times, you could easier cut back nominal interest rates during busts and stimulate the economy.&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-05-29T16:25:22.657" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5864" PostTypeId="1" CreationDate="2015-05-29T18:32:07.433" Score="6" ViewCount="519" Body="&lt;p&gt;P-value hacking is the &quot;art&quot; of looking at different outcomes and specifications until you get a &quot;false positive&quot;, i.e. a p value under, say, 0.05, which only noise and not true under the data generating process.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Say I have a treated group with size $N$ and a control group with size $M$,  $K$ outcome variables, and am targeting a p-value of $p$: How can I compute the ex-ante probability of getting at least one false positive significant result significant under $p$?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can assume that the $K$ characteristics are independently and normal distributed, and if it simplifies a lot, that $M=N$. &lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2015-05-30T18:20:57.133" LastActivityDate="2015-07-02T13:38:45.260" Title="P-value hacking" Tags="&lt;econometrics&gt;&lt;statistics&gt;" AnswerCount="4" CommentCount="10" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5865" PostTypeId="2" ParentId="4784" CreationDate="2015-05-29T20:18:44.003" Score="2" Body="&lt;p&gt;Here's another way, using the same notation as Adam, to get to the same result:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$P(\text{another match | being matched}) = P(\text{searching twice | being matched})\cdot P(\text{another match | searching twice}) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$P(\text{searching twice | being matched}) = \frac{P(\text{searching twice and being matched})}{P(\text{being matched})} \\&#xA;= \frac{\psi_u 2 \nu_s}{(1+\psi_u)\nu_s} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$P(\text{another match | searching twice}) = \frac{P(\text{another match and searching twice})}{P(\text{searching twice})} \\&#xA;= \frac{\psi_u  \nu}{\psi_u}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$P(\text{another match | being matched}) = \frac{\psi_u 2 \nu_s}{(1+\psi_u)\nu_s}\frac{\psi_u  \nu}{\psi_u} = \frac{2\psi_u\nu}{(1+\psi_u)}$$&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-05-29T20:18:44.003" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5866" PostTypeId="2" ParentId="5824" CreationDate="2015-05-29T23:01:01.347" Score="9" Body="&lt;p&gt;I believe that the answer given by @denesp is incorrect. The second method involves simply writing the game in strategic of &quot;normal&quot; form. I believe&#xA;the first method is better (easier to use), but I think that they can both be used.&#xA;In the answer given by @desesp, the following explanation is given.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The reason why method two is flawed is that the probabilities $a$, $b$&#xA;  and $c$ are not  independent as $$ a = p \cdot q, \hskip 20pt b = p&#xA; \cdot (1 - q), \hskip 20pt c = (1 - p) \cdot q, \hskip 20pt  1 - a - b&#xA; - c = (1 - p) \cdot (1 - q). $$&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Here, it appears that mixing is occurring over L in game 1 (with probability $p$) and L in game 2 (with probability $q$). This interpretation does make sense. I believe that @denesp is confusing conditional and unconditional probabilities. To better understand this, I'm going to start with a discussion of actions versus strategies. Then I'll discuss how the set of strategies considered in methods 1 is included in method 2. I'll note that method 2 contains a larger strategy set, which may or may not be useful. I'll conclude with an example of how both methods can produce the same answers.&lt;/p&gt;&#xA;&#xA;&lt;h1&gt;Difference between actions and strategies&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;In the explanation given above, it may appear that mixing is occurring over actions. This is not a&#xA;correct interpretation. It is technically incorrect because the player is not mixing over actions but mixing over strategies. This is because a player chooses strategies, not actions. A strategy is a plan&#xA;that denotes that actions that a player takes in any and every contingency.&#xA;We can think of it as mapping information sets to actions. This is important because we would like player 1's actions to depend on the state of nature---we want them to depend on which game he/she is playing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For reference, we can find definitions of actions and strategies in the first chapter of Rasmusen's book, &lt;em&gt;Games and Information&lt;/em&gt; (4th edition). The relevant text is given here:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/BjbHd.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/BjbHd.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&#xA;&lt;a href=&quot;https://i.stack.imgur.com/vBtKy.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/vBtKy.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&#xA;&lt;a href=&quot;https://i.stack.imgur.com/ASAZ8.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/ASAZ8.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;h1&gt;What are the sets of strategies considered in each method?&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;In the case of the game that you have given, the &lt;em&gt;pure&lt;/em&gt; strategies available can be written succinctly (LL, LR, RL, RR), as you have already done in method 2.&#xA;Therefore, the method that you described in method two mixes over the pure strategies, with probabilities: $a$, $b$, $c$, and $1 -a-b-c$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What strategies, then, are we mixing over in method 1? Suppose that $p$&#xA;is the probability of choosing L is game 1 and $q$ is the probability of choosing L in game 2. Then in method 1, we can see that we are choosing &#xA;&lt;em&gt;the conditional probability&lt;/em&gt; of taking each action in each contingency.&#xA;Suppose that game 1 is denoted $G_1$ and that game 2 is denoted $G_2$.&#xA;When we specify $p$ and $q$, we are really specifying&#xA;$$&#xA;p=P(L|G_1)\\ q=P(L|G_2). &#xA;$$&#xA;Now, in order to show that these two methods are equivalent, we need to show that the sets of strategies represented by each of these sets is the same.&lt;/p&gt;&#xA;&#xA;&lt;h1&gt;Method 2 contains the same strategies as method 1, plus more.&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;First, note that the pure strategies LL, LR, RL, and RR can be represented in method 1 by setting $p$ and $q$ to zero or 1.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose that we are using method 2 and that we choose a particular $a$,$b$, and $c$, as defined above. This can be represented in method 1&#xA;with&#xA;\begin{align*}&#xA;p &amp;amp;= a + b \\&#xA;q &amp;amp;= a + c.&#xA;\end{align*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, suppose we choose a particular $p$ and $q$ in method 1. It can be represented in method 2, but not uniquely.&#xA;Suppose $p=1/2$ and $q=1/2$. Then two possibilities are $(a,b,c) = (1/2,0,0)$&#xA;or another is $(a,b,c)=(0,1/2,1/2)$. &lt;/p&gt;&#xA;&#xA;&lt;h1&gt;Why does method 2 contain more strategies?&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;Method 2 contains more strategies because it allows more flexibility&#xA;to specify off-equilibrium behavior. This can end up capturing non-credible&#xA;threats. Depending on which equilibrium concept you're using, you may or may not want to include these. If you're only interested in Bayesian Nash equilibria, then you want to include these. If you're interested in sub-game perfect Nash equilibria or Bayesian sequential equilibria, then you don't want them.&lt;/p&gt;&#xA;&#xA;&lt;h1&gt;Here is an example of how method 1 can miss some equilibria&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;The following game is again take from Rasmusen's book. Suppose that in this game&#xA;Smith moves first. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/6usNs.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/6usNs.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, Jones must choose among 4 strategies. In each of these strategies, he specifies his actions in each contingency. The 4 strategies are listed here and the game is represented in strategic or &quot;normal&quot; form.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/Ziqd3.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Ziqd3.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are three equilibria, denoted $E_1$, $E_2$, and $E_3$.&#xA;If we were simply interested in the Nash equilibria of this game,&#xA;we would include all of these equilbria. However, if we are interested&#xA;in only the subgame perfect equilibria, we would only want $E_2$.&#xA;That is because $E_1$ and $E_3$ involve non-credible threats.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I believe that if we were to try to solve this game using method 1, we would not be able&#xA;to identify all three of these equilibria.&lt;/p&gt;&#xA;&#xA;&lt;h1&gt;Strategic, &quot;Normal&quot; form&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;In the question you've given, method 2 is essentially transforming this&#xA;into a static game in which we consider all the strategies. This means that we are considering the &quot;normal&quot; form of the game. This method is easy and appropriate if you're interested in finding the pure strategy equilibria. It can probably also used to find the mixed strategy BNE, but is perhaps more complicated then what is described in methods 2.&#xA;For reference, &#xA;here are some notes on the topic. &#xA;These notes give instructions on how to solve for the pure strategy Nash equilibria using the transformation that you've given. It also demonstrates how to solve the mixed strategy equilibria using method 1. (See &lt;a href=&quot;http://www.sas.upenn.edu/~ordonez/pdfs/ECON%20201/NoteBAYES.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.sas.upenn.edu/~ordonez/pdfs/ECON%20201/NoteBAYES.pdf&lt;/a&gt; .)&lt;/p&gt;&#xA;&#xA;&lt;h1&gt;Further reference&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;You can also use this online tool to test how the methods can give you the same answers. This is a &lt;a href=&quot;http://banach.lse.ac.uk/&quot; rel=&quot;nofollow noreferrer&quot;&gt;tool to solve for the Nash equilibria&lt;/a&gt; of n by n games. I would recommend using this tool on the examples given in the previous section. &#xA;I found this tool &lt;a href=&quot;https://math.stackexchange.com/questions/881906/computer-software-for-solving-mixed-strategy-nash-equilibrium&quot;&gt;referenced in this other question&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="59" LastEditorUserId="-1" LastEditDate="2017-04-13T12:19:37.213" LastActivityDate="2015-09-25T17:41:00.147" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5867" PostTypeId="1" CreationDate="2015-05-29T23:34:21.473" Score="16" ViewCount="4592" Body="&lt;p&gt;I learned about banks' fractional reserves and that revolted me. How is that not considered to be fraud? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The idea doesn't seem too sophisticated, on the contrary, it sounds very simple: the bank just loans money they don't even have and charges an interest rate (which is not low at all) on that virtual money. When I go to a bank to take out a loan, they will just type the amount of money in my account (but the money does not exist) and I will introduce the money into the economy (when I use that money to buy something). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why are fractional reserves not considered fraud?&lt;/p&gt;&#xA;" OwnerUserId="4785" LastEditorUserId="4891" LastEditDate="2016-10-23T18:49:12.527" LastActivityDate="2020-03-29T11:42:42.710" Title="Why is fractional reserve banking allowed?" Tags="&lt;money-supply&gt;&lt;banking&gt;" AnswerCount="4" CommentCount="13" FavoriteCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="5868" PostTypeId="2" ParentId="5867" CreationDate="2015-05-30T00:58:15.600" Score="12" Body="&lt;p&gt;I recommend a careful read of &lt;a href=&quot;https://en.wikipedia.org/wiki/Fractional-reserve_banking&quot; rel=&quot;nofollow&quot;&gt;the Wikipedia page for Fractional-reserve banking&lt;/a&gt; because it seems you are confused about how fractional reserve banking works.&lt;br&gt;&#xA;Banks only lend out money they have under fractional reserve banking and, in fact, strictly less than they have. Those funds are a mix of deposits, funds from other debt issuance, and bank equity. They don't lend out funds they don't have and they don't simply credit accounts at will in the way you suggest. When they credit a borrower's account with funds, they have to debit those funds from elsewhere on their balance sheet. So, lend-able funds go down as borrower's funds go up, and then the resulting loan is a new asset of the firm. While they do create money this way, they do so at the expense of these lone-able funds so the loaning out doesn't create new assets for the bank.&lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="4891" LastEditDate="2016-10-23T18:49:37.377" LastActivityDate="2016-10-23T18:49:37.377" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="5869" PostTypeId="1" CreationDate="2015-05-30T06:47:33.073" Score="3" ViewCount="62" Body="&lt;p&gt;This question came out as a multiple-choice in my A-Level Economics exam. The answer choices were: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A) Rising income inequality&#xA;B) Increased availability of consumer goods &#xA;C) Rising medical expenses &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Without actual information, the question is debatable. I am not sure why this we were asked to hypothesise without adequate information. &lt;/p&gt;&#xA;" OwnerUserId="4789" LastActivityDate="2018-05-21T05:40:10.567" Title="Why did the proportion of household savings in the USSR decrease during its transition period?" Tags="&lt;macroeconomics&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5870" PostTypeId="1" CreationDate="2015-05-30T14:40:42.113" Score="4" ViewCount="137" Body="&lt;p&gt;Regardless of the size of X (set of all possible objects), if a preference relation which is complete and transitive is defined on it, then the corresponding choice function generated by it will satisfy the property of finite nonemptiness.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The proof in the text is by induction on the set A which in turn is an element of the collection of all possible subsets of X. &#xA;But the proof assumes finiteness of A. I am not very sure about this assumption. Can anyone please help me understand this?&lt;/p&gt;&#xA;" OwnerUserId="4792" LastActivityDate="2015-05-30T14:40:42.113" Title="Proof of Proposition 1.4 from Microfoundations I by Kreps" Tags="&lt;microeconomics&gt;&lt;choice-theory&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5871" PostTypeId="1" AcceptedAnswerId="5872" CreationDate="2015-05-30T16:54:11.380" Score="0" ViewCount="1122" Body="&lt;p&gt;I am really stuck with this problem and not able to approach it. Any help will be much appreciated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I tried to draw edgeworth box with initial endowment point. I do know that for competitive equilibrium, tangency condition must be met such that both utility curves are tangent at equilibrium point. But here, i am not able to identify utility curves. Please help.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider an exchange economy with two agents,1 and 2 and two goods X and Y. Agent 1's endowment is (0,10) and Agents 2's endowment is (11,0). Agent 1 strictly prefers bundle (a,b) to (c,d) if,either a&gt;c or {a=c and b&gt;d}. Agent 2 strictly prefers bundle (a,b) to (c,d) if min{a,b} &gt; min{c,d}. For both agents, we say that bundle (a,b) is indifferent to bundle (c,d) if, neither (a,b) nor (c,d) is strictly preferred to each other.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Q. This exchange economy has:&#xA;a)one competitive equilibrium allocation.&#xA;b)two competitive equilibrium allocations.&#xA;c)infinite number of equilibrium allocations.&#xA;d) no competitive equilibrium allocations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Answer : a&lt;/p&gt;&#xA;" OwnerUserId="4725" LastEditorUserId="1601" LastEditDate="2017-02-28T07:53:55.553" LastActivityDate="2017-02-28T07:53:55.553" Title="Competitive equilibrium in an exchange economy with lexicographic preferences" Tags="&lt;preferences&gt;&lt;pareto-efficiency&gt;&lt;competitive-equilibrium&gt;&lt;pure-exchange-economy&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ClosedDate="2017-03-01T10:18:35.183" ContentLicense="CC BY-SA 3.0" />
  <row Id="5872" PostTypeId="2" ParentId="5871" CreationDate="2015-05-30T17:45:54.000" Score="2" Body="&lt;p&gt;The preferences of agent $A$ cannot be represented by any utility function and the prefeences of $B$ not by a differentiable utility function, so forget calculus approaches.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since $A$ has strictly monotone preferences, we must have $p_1&amp;gt;0$ and $p_2&amp;gt;0$ for every equilibrium. Also, $A$ is always willing to give up any amount of good $2$ to get more of good $1$. So he will spend his wealth on good $1$ with consumption of good 1 equal to $10 p_2/p_1$. Also, we know that $B$ must consume both goods in equal amounts, so you just have to plug the equality $x_1^B=x_2^B$ in the budget constraint (justification &lt;a href=&quot;https://economics.stackexchange.com/a/5618/1442&quot;&gt;here&lt;/a&gt;). Then you have the demand for both goods and can calculate their excess demands. Since only relative prices matter, you can normalize by, say, setting $p_1=1$. Since both agents will spend their whole wealth, &lt;a href=&quot;http://en.wikipedia.org/wiki/Walras&amp;#39;_law&quot; rel=&quot;nofollow noreferrer&quot;&gt;Walras' law&lt;/a&gt; applies, and in order to find an equilibrium, you just have to find prices under which the excess demand for one of the goods (your choice) is zero. If you find a unique solution, you have found a unique equilibrium (note that demand is unique given prices).&lt;/p&gt;&#xA;" OwnerUserId="1442" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-05-30T17:45:54.000" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5873" PostTypeId="2" ParentId="5853" CreationDate="2015-05-30T19:41:48.260" Score="12" Body="&lt;p&gt;For a general overview, let’s consider a following list:&lt;br&gt;&lt;/p&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Statistical Analysis: &lt;a href=&quot;http://www.r-project.org/&quot; rel=&quot;nofollow noreferrer&quot;&gt;R&lt;/a&gt; (&lt;a href=&quot;http://www.rstudio.com/&quot; rel=&quot;nofollow noreferrer&quot;&gt;R Studio&lt;/a&gt; as IDE), &lt;a href=&quot;http://www.stata.com/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Stata&lt;/a&gt;, &lt;a href=&quot;http://www.sas.com/en_us/software/analytics/stat.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;SAS/Stat&lt;/a&gt; and IBM &lt;a href=&quot;http://www-01.ibm.com/software/analytics/spss/products/statistics/&quot; rel=&quot;nofollow noreferrer&quot;&gt;SPSS&lt;/a&gt;.&lt;br&gt;&lt;/li&gt;&#xA;&lt;li&gt;Some general purpose languages: &lt;a href=&quot;https://www.python.org/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Python&lt;/a&gt;, including key packages like &lt;em&gt;Pandas&lt;/em&gt;, &lt;em&gt;Scipy&lt;/em&gt;, &lt;em&gt;Numpy&lt;/em&gt;, &lt;em&gt;Sympy&lt;/em&gt; etc., and machine learning packages. Recently &lt;a href=&quot;https://julialang.org/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Julia&lt;/a&gt;. May be also C++ or Java as object-oriented languages (just to mention).&lt;br&gt;&lt;/li&gt;&#xA;&lt;li&gt;Algebraic packages: &lt;a href=&quot;http://www.mathworks.com/products/matlab/index-b.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Matlab&lt;/a&gt; vs &lt;a href=&quot;http://www.wolfram.com/mathematica/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Mathematica&lt;/a&gt;.&lt;br&gt;&lt;/li&gt;&#xA;&lt;li&gt;Databases: SQL and NoSQL solutions like MongoDB.&lt;br&gt;&lt;/li&gt;&#xA;&lt;li&gt;BigData: &lt;a href=&quot;https://hadoop.apache.org/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Hadoop&lt;/a&gt; + &lt;a href=&quot;https://www.haskell.org/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Haskell&lt;/a&gt; as a functional programming language (actively used in finances).&lt;br&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;p&gt;Just for more focused issues:&lt;br&gt;&lt;/p&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Bayesian statistics: &lt;a href=&quot;https://mc-stan.org/&quot; rel=&quot;nofollow noreferrer&quot;&gt;STAN&lt;/a&gt;.&lt;/li&gt;&#xA;&lt;li&gt;Impact analysis: &lt;a href=&quot;http://www.implan.com/&quot; rel=&quot;nofollow noreferrer&quot;&gt;IMPLAN&lt;/a&gt;, &lt;a href=&quot;http://www.remi.com/&quot; rel=&quot;nofollow noreferrer&quot;&gt;REMI&lt;/a&gt;, to name a few.&lt;/li&gt;&#xA;&lt;li&gt;DSGE: &lt;a href=&quot;http://www.dynare.org/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Dynare&lt;/a&gt; backed by GNU &lt;a href=&quot;http://www.gnu.org/software/octave/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Octave&lt;/a&gt;.&lt;/li&gt;&#xA;&lt;li&gt;Agent-based modelling: &lt;a href=&quot;https://ccl.northwestern.edu/netlogo/&quot; rel=&quot;nofollow noreferrer&quot;&gt;NetLogo&lt;/a&gt;.&lt;/li&gt;&#xA;&lt;li&gt;Optimisation: &lt;a href=&quot;https://www.gams.com/&quot; rel=&quot;nofollow noreferrer&quot;&gt;GAMS&lt;/a&gt;.&lt;/li&gt;&#xA;&lt;li&gt;Legacy spreadsheet: Excel VBA.&lt;/li&gt;&#xA;&lt;li&gt;System modelling: &lt;a href=&quot;http://vensim.com/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Vensim&lt;/a&gt; and a whole lot of dynamic modelling software.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;p&gt;Hope that helps.&lt;/p&gt;&#xA;" OwnerUserId="4184" LastEditorUserId="4184" LastEditDate="2020-12-28T19:20:26.823" LastActivityDate="2020-12-28T19:20:26.823" CommentCount="7" ContentLicense="CC BY-SA 4.0" />
  <row Id="5874" PostTypeId="2" ParentId="5864" CreationDate="2015-05-30T23:16:00.943" Score="9" Body="&lt;p&gt;Under the assumption of i.i.d. Normal  characteristics, the situation described is taken care by separate &lt;a href=&quot;https://en.wikipedia.org/wiki/Welch%27s_t_test&quot; rel=&quot;nofollow noreferrer&quot;&gt;Welch's t-tests&lt;/a&gt; that account for possibly different sample sizes and different variances. Denote the statistics of these tests $t_j, j=1,...,K$.&#xA;The p-value associated with each is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$p_j = \Pr\big(|t_j|\geq t(\alpha)\mid H_0\big)  $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $H_0$ is the hypothesis that the populations means between treated and controlled group are equal, and $t$ depends on the significance level $1-\alpha$.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can write the probability in terms of the corresponding  cumulative distribution function,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Pr\big(|t_j|\geq t(\alpha)\mid H_0\big) = 1 - F(|t_j|)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$p_j = 1 - F(|t_j|) \implies 1-p_j = F(|t_j|)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we contemplate the situation a priori, before even looking at the data, then the p-values lie in the future and can be modelled as random variables. Viewed as a random variable, the &lt;a href=&quot;https://en.wikipedia.org/wiki/Probability_integral_transform&quot; rel=&quot;nofollow noreferrer&quot;&gt;probability integral transform&lt;/a&gt; tells us that $1-p_j$ follows a $U(0,1)$ Uniform distribution, and by the properties of this distribution so does $p_j$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Collecting all $p_j$, we have a sample of size $K$ of independent $U(0,1)$ uniforms. The probability that at least one of them is smaller that a specific value, say $p^*$, is equal to the probability that the minimum of them is lower than this threshold. This can be understood as follows:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Pr\Big (\text {At least one $p_j \leq p^*$} \Big) = \Pr\Big (\text {Not all $p_j &amp;gt; p^*$} \Big) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ = 1-\Pr\Big (\text {All $p_j &amp;gt; p^*$} \Big) =  1- \prod_{j=1}^K \Pr\Big ( p_j &amp;gt; p^* \Big)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;due to independence, and so, since they are identically distributed,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Pr\Big (\text {At least one $p_j \leq p^*$} \Big) = 1- \left [1-\Pr\Big ( p \leq p^* \Big)\right]^K = 1 - \left [1-F_U \big(p^* \big)\right]^K$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But this is the cumulative distribution function of the minimum of $K$ i.i.d random variables.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Denote this minimum $p_{(1)}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The CDF of the minimum of $K$ independent $U(0,1)$ variables is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$F_{p_{(1)}}(p_{(1)}) = 1 - \big [1-p_{(1)}\big]^K$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We want the probability&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \Pr(p_{(1)} \leq p^*) = 1- \big [1-p^*\big]^K$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Indicative values:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/BAnIC.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-05-30T23:16:00.943" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="5876" PostTypeId="2" ParentId="5861" CreationDate="2015-05-31T00:15:38.323" Score="13" Body="&lt;p&gt;Money is produced at zero social cost but held at a positive private cost (because to hold money you must forgo holding other assets).  Therefore there is a positive externality from holding money, which means that the usual arguments for subsidizing it apply.  This makes the optimal rate of inflation negative (because inflation is a tax on holding money).  In fact if you add a few details to the above argument, it's easy to see that the optimal rate of inflation is minus the real rate of interest.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand, funding the government is likely to require departing from an optimal tax system in which everything is taxed (or subsidized) according to the externalities it creates.  Presumably the optimal departure entails higher taxes on most things, including money holding, which means that the optimal inflation rate should be somewhere north of $-r$.  Whether it's north of zero is less clear.&lt;/p&gt;&#xA;" OwnerUserId="250" LastActivityDate="2015-05-31T00:15:38.323" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="5877" PostTypeId="2" ParentId="5857" CreationDate="2015-05-31T10:39:15.413" Score="1" Body="&lt;p&gt;I don't know exactly how the numbers would work out, but you would expect an equilibrium but it will depend on many factors.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A complication is that you have public companies taken private and private companies that never go public.  It may be there is some equilibrium between these as they are unlikely to be equivalent. Ex public companies are often highly levered,  while never public are often debt free and cash rich.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Particular important factors would be interest rates and credit spreads.  This is because it boils down to the distribution of capital.  If there is lots of money available to lend then LBOs become attractive and companies can be taken private. If there is strong demand for equity then IPOs become easy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think an economy with a shortage of public companies would show overvalued equities and hence IPOs are encouraged (think dot com bubble - shortage of public web companies vs demand). If debt is cheap and there are too many public companies then you will see either take overs or LBOs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I suspect the effect is most visible within sectors rather than the whole economy.&lt;/p&gt;&#xA;" OwnerUserId="119" LastActivityDate="2015-05-31T10:39:15.413" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5878" PostTypeId="1" AcceptedAnswerId="5890" CreationDate="2015-05-31T10:57:48.693" Score="10" ViewCount="537" Body="&lt;p&gt;Did any recipients of the economics Nobel prize receive their prize for work that was primarily or substantially empirical (rather than theoretical) in nature?&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="43" LastEditDate="2015-07-21T09:26:35.500" LastActivityDate="2019-03-06T10:24:37.960" Title="Nobel prize for empirical work" Tags="&lt;econometrics&gt;" AnswerCount="3" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="5879" PostTypeId="2" ParentId="5864" CreationDate="2015-05-31T11:12:15.277" Score="3" Body="&lt;p&gt;I agree with @AlecosPapadopoulos we want something like:&#xA;$$ \Pr(p_{(1)} \leq p^*) = 1- \big [1-p^*\big]^K$$&#xA;But I don't see how $n$ and $M$ couldn't enter into the proper test statistic. &#xA;For example, if the underlying data is normally distributed i.i.d. data then  $N$ and $M$ do matter. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider that noise mean $\mu$ and variance $\sigma$, which, by assumption is the same for the control and &quot;treated&quot; group.  The mean of the treated group with size N will be distributed $N(\mu, \sigma^2 / n)$ and $N(\mu, \sigma^2 / M)$ for the control. So the difference in means will be distributed $$N(0, \sigma^2 / n + \sigma^2 / m)$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But you won't know $\sigma$ or $\mu$, so we'll have to estimate it with $X_1$, $X_2$, and $s_{X_1X_2}$, and use a t-test. This setup gives a t-tatistic like this:&#xA;$$t = \frac{\bar {X}_1 - \bar{X}_2}{s_{X_1 X_2} \cdot \sqrt{\frac{1}{n}+\frac{1}{m}}}$$&#xA;where&#xA;$$s_{X_1X_2} = \sqrt{\frac{(n-1)s_{X_1}^2+(m-1)s_{X_2}^2}{n+m}}.$$&#xA;&lt;a href=&quot;https://en.wikipedia.org/wiki/Student%27s_t-test&quot; rel=&quot;nofollow&quot;&gt;SRC: Student's t-test on Wikipedia&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The unpaired sample t-test for this difference in means has degrees of freedom $N-M-2$. Therefore the rejection region should depend on both n and m, both in what critical value of the test to use through the degrees of freedom of that test and the test statistic calculation itself. &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-05-31T11:18:12.623" LastActivityDate="2015-05-31T11:18:12.623" CommentCount="9" ContentLicense="CC BY-SA 3.0" />
  <row Id="5880" PostTypeId="2" ParentId="4472" CreationDate="2015-05-31T11:22:54.480" Score="5" Body="&lt;ol&gt;&#xA;&lt;li&gt;You have, at least, 2 players. (To be able to compare them).&lt;br&gt;&lt;/li&gt;&#xA;&lt;li&gt;You have, at least, 2 goods, Q1 and Q2. (If you have only one you can make a conclusion only about absolute advantage.) Each player is capable to produce both goods.&#xA;&lt;br&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;em&gt;Intuition A&lt;/em&gt;&lt;/strong&gt;. To understand absolute advantage, note that both players have &lt;em&gt;the same amount of resources&lt;/em&gt;. This fact usually is not that visible and should be thought of thoroughly. Suppose that both players produce only one of goods. A player that can produce more has an absolute advantage. She simply can do more from the same resource, meaning that her &lt;strong&gt;average costs&lt;/strong&gt; are lower (Average costs = fixed_resources / quantity; so the larger the quantity, the less the costs). This is applicable to both goods. So we define max(Q1) and max(Q2) - corner solutions meaning that all resources are spent on Q1 or Q2 respectively.&#xA;&lt;br&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;em&gt;Intuition C&lt;/em&gt;&lt;/strong&gt;. Comparative advantages are based on &lt;strong&gt;marginal costs&lt;/strong&gt;, not average. That is why they are not intuitive (people cognitively have problems with marginal calculations). To ease comprehension, many textbooks use linear models. In a linear model (in goods Q1-Q2 space, where Q1 - horizontal) &lt;em&gt;slope&lt;/em&gt; of a production possibilities curve reflects opportunity costs: only in this case -dQ2/dQ1 = max(Q2)/max(Q1). So, opportunity costs are real costs of Q1 in terms of Q2. In other words, it looks like we pay in Q2 units for a unit of Q1. The player that has a lower slope - less opportunity costs - has a comparative advantage. Put it differently, the player that pays (or 'sacrifice') less Q2 for a unit of Q1 has comparative advantage in Q1. That's it.&lt;br&gt; &lt;/p&gt;&#xA;" OwnerUserId="4184" LastEditorUserId="4020" LastEditDate="2017-09-05T23:57:49.963" LastActivityDate="2017-09-05T23:57:49.963" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5881" PostTypeId="1" CreationDate="2015-05-31T13:09:55.167" Score="3" ViewCount="277" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Given a consumer with a utility function, $u(w)$, and a wealth of $w&amp;gt;1000$. Assuming that the consumers relative risk aversion is constant and equal to 1, that is $R_r(w)=1$ for $w&amp;gt;0$, the consumer is facing a lottery that gives him 50% chance to win 1000 and 50% chance to lose 1000.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;My question is, how much is the consumer willing to pay to avoid this lottery, and how does it depend on $w$? I can't seem to figure it out, and I really have no idea where to start.&lt;/p&gt;&#xA;" OwnerUserId="4796" LastEditorUserId="2776" LastEditDate="2017-08-21T07:54:22.270" LastActivityDate="2017-08-21T07:54:52.350" Title="Relative risk aversion and lotteries exercise" Tags="&lt;microeconomics&gt;&lt;risk&gt;&lt;risk-aversion&gt;" AnswerCount="1" CommentCount="3" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5882" PostTypeId="2" ParentId="5047" CreationDate="2015-05-31T13:10:51.470" Score="1" Body="&lt;p&gt;We have the &lt;em&gt;function&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ U = U(x,y)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;from which we create the &lt;em&gt;equation&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$x^*,y^*:  U(x^*,y^*) = \bar U$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;with $\bar U$ being fixed a constant, and so $d\bar U = 0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$dU(x^*,y^*) = d\bar U = 0 \implies U_x(x^*,y^*)dx^*+U_y(x^*,y^*)dy^* = 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies \frac {dy^*}{dx^*} = -\frac {U_x(x^*,y^*)}{U_y(x^*,y^*)}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Leaving aside the (mathematical) &quot;Civil War of differentials&quot;, there is no abuse of notation here, only simplification for reasons of compactness. Why? $x^*$ and $y^*$ are &lt;em&gt;solutions to the equation&lt;/em&gt;, not variables free to vary independently.So in reality we have $y^* = h(x^*,\bar U)$ and&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies \frac {dh(x^*,\bar U)}{dx^*} = -\frac {U_x(x^*,h(x^*,\bar U))}{U_y(x^*,h(x^*,\bar U))}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;NOTE:&lt;/strong&gt; these kinds of notation simplifications appear in all disciplines that use mathematics. They are not always beneficial though: for example M. Caputo in &lt;a href=&quot;https://books.google.gr/books?id=XZ2yYSVKWJkC&amp;amp;pg=PA582&amp;amp;lpg=PA582&amp;amp;dq=Caputo%20dynamic%20optimization%20book&amp;amp;source=bl&amp;amp;ots=FpgQhEcvm0&amp;amp;sig=8l4D_Ln0ESLzY9MeIoiZytaOcLE&amp;amp;hl=en&amp;amp;sa=X&amp;amp;ei=QQdrVbfuFMelsgGvlYP4Bw&amp;amp;ved=0CD8Q6AEwBg#v=onepage&amp;amp;q=Caputo%20dynamic%20optimization%20book&amp;amp;f=false&quot; rel=&quot;nofollow&quot;&gt;Foundations of Dynamic Economic Analysis&lt;/a&gt; more than most writes explicitly all dependencies. This makes notation cumbersome and confusing at first, but once you get the hang of it, you are never lost.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-05-31T13:20:05.367" LastActivityDate="2015-05-31T13:20:05.367" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5883" PostTypeId="1" CreationDate="2015-05-31T13:20:42.930" Score="1" ViewCount="304" Body="&lt;p&gt;So my question is this:&#xA;A company owns two factories, A and B, each with the following production functions:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$f_A(x_1,x_2)=x_1^{\alpha}x_2^{1-\alpha}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$f_B(x_1,x_2)=x_1^{\beta}x_2^{1-\beta}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now assuming that $\alpha=1/2$, $\beta=3/4$ and $w_1=w_2=1$ (prices on the input market), how will the company choose to produce $y$?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've solved the two production functions for the following demand functions:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\textbf{x}_A(\textbf{w},y)=\left(yr_1^{\alpha},yr_1^{\alpha-1}\right)$&#xA;  with $r_1=\dfrac{w_1(1-\alpha)}{w_2\alpha}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\textbf{x}_B(\textbf{w},y)=\left(yr_2^{\beta},yr_2^{\beta-1}\right)$  with $r_2=\dfrac{w_1(1-\beta)}{w_2\beta}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And the expenditure functions:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$c_A(\textbf{w},y)=w_1yr_1^{\alpha}+w_2yr_1^{\alpha-1}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$c_B(\textbf{w},y)=w_1yr_2^{\beta}+w_2yr_2^{\beta-1}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, I am no sure how to determine how the company will produce $y$. If I insert the values above I get some weird numbers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be much appreciated!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks.&lt;/p&gt;&#xA;" OwnerUserId="4796" LastActivityDate="2015-05-31T13:20:42.930" Title="Given Cobb-Douglas production functions for 2 factories (same owner), how will the owner produce $y$?" Tags="&lt;microeconomics&gt;&lt;production-function&gt;&lt;cobb-douglas&gt;&lt;producer-theory&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="5884" PostTypeId="2" ParentId="5244" CreationDate="2015-05-31T13:44:50.183" Score="1" Body="&lt;p&gt;Verbally:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;PERFECT&lt;/strong&gt; information: all information available is true (no errors).    &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;SYMMETRIC&lt;/strong&gt; information: all decision-makers involved have exactly the same Information set&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;COMPLETE&lt;/strong&gt; information: the information an agent posses includes all that is known about all aspects of the situation that we examine.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that when examining the information set of a single agent, neither of the above three presupposes or requires the other. &#xA;In some cases though, authors seem to use the word &quot;Complete&quot; in order to mean &quot;we know everything there is to be known&quot; about something, in some &quot;objective&quot; sense. Under this interpretation, it is hard (although not infeasible), to avoid identifying &quot;complete&quot; with &quot;perfect&quot;, and this is why I would not suggest this approach, because a clear distinction between &quot;complete&quot; and &quot;perfect&quot; is useful. It is subtle to say (although again, not logically inconsistent) &quot;I know everything there is to know, but some of this knowledge is wrong&quot;. It appears better to maintain a &quot;relative&quot; aspect to the concept of &quot;completeness&quot; (&quot;all information &lt;em&gt;available&lt;/em&gt;&quot;).&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-05-31T13:44:50.183" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5886" PostTypeId="2" ParentId="5881" CreationDate="2015-05-31T15:54:06.500" Score="2" Body="&lt;p&gt;You want the household to be &lt;em&gt;ex-ante&lt;/em&gt; indifferent between taking the lottery and paying some $p$ and voiding it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With van-Neumann-Morgenstein utility, the utility of taking the lottery is given by $$U_L(w) \equiv 0.5 U(w-1000) + 0.5U(w+1000)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, you're looking for a payment $p(w)$ such that $u(w - p(w)) = U_L(w)$. &lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="2776" LastEditDate="2017-08-21T07:54:52.350" LastActivityDate="2017-08-21T07:54:52.350" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5887" PostTypeId="2" ParentId="5878" CreationDate="2015-05-31T18:21:14.977" Score="3" Body="&lt;p&gt;In 1993, Robert Fogel and Douglass North received the Nobel Prize for applying quantitative methods in the field economic history&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred&#xA;  Nobel 1993 was awarded jointly to Robert W. Fogel and Douglass C.&#xA;  North &quot;for having renewed research in economic history by applying&#xA;  economic theory and quantitative methods in order to explain economic&#xA;  and institutional change&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/1993/index.html&quot; rel=&quot;nofollow&quot;&gt;Source&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerDisplayName="user4239" LastEditorDisplayName="user4239" LastEditDate="2015-05-31T18:27:48.487" LastActivityDate="2015-05-31T18:27:48.487" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5888" PostTypeId="2" ParentId="5878" CreationDate="2015-05-31T18:27:27.927" Score="4" Body="&lt;p&gt;In 1971, Simon Kuznets received the Nobel Memorial Prize for empirical work. The famous &lt;a href=&quot;http://en.wikipedia.org/wiki/Kuznets_curve&quot; rel=&quot;nofollow&quot;&gt;Kuznets Curvee&lt;/a&gt;, is based on empirical evidence, made on the basis of data collected by Simon Kuznets. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred&#xA;  Nobel 1971 was awarded to Simon Kuznets &quot;for his empirically founded&#xA;  interpretation of economic growth which has led to new and deepened&#xA;  insight into the economic and social structure and process of&#xA;  development&quot;.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/1971/&quot; rel=&quot;nofollow&quot;&gt;Source&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerDisplayName="user4239" LastActivityDate="2015-05-31T18:27:27.927" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5889" PostTypeId="1" CreationDate="2015-05-31T18:46:51.933" Score="2" ViewCount="162" Body="&lt;p&gt;I cannot figure out how the theta-formula would look like for a future option and a currency option.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know the formula and understand it for an ordinary stockoption - but not for future-option and currency option.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Concerning the future-option i think there would be a very slight modification - probably just replace the S (stock) with the future price. But I dont know if the interst-factor on the right-handside should be removed or not?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Concerning currencyoption - I know how to calculate the price but not the theta here either. I have googled a lot and cannot see any formulas in John C Hulls book (Option Futures and other derivatives).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But heres the formula for calculating the theta for a stockoption.&#xA;X = Strikeprice, S = Stockprice, q = divident, r = interest, T-t = Time to Maturity, and  sigma is volatility.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/tQJAr.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;" OwnerUserId="4797" LastEditorUserId="43" LastEditDate="2015-05-31T19:08:18.780" LastActivityDate="2015-05-31T19:08:18.780" Title="Black-Scholes - Theta formula Futureoption Currencyoption" Tags="&lt;finance&gt;&lt;asset-pricing&gt;&lt;black-scholes-model&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5890" PostTypeId="2" ParentId="5878" CreationDate="2015-05-31T21:24:27.933" Score="6" Body="&lt;p&gt;In 2011, Tom Sargent and Chris Sims were jointly awarded the Nobel Memorial prize for empirical work.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The Royal Swedish Academy of Sciences has decided to award The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel for 2011 to Thomas J. Sargent and Christopher A. Sims &quot;for their empirical research on cause and effect in the macroeconomy.&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Dr. Sargent's contribution was related to the use of structural macroeconometrics in policy and analysis and Dr. Sims' contribution was to the use of vector autoregressions (VAR) to analyze temporary changes in policy and other factors.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Source: &lt;a href=&quot;http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/2011/press.html&quot; rel=&quot;noreferrer&quot;&gt;Nobel Prize Website&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="47" LastActivityDate="2015-05-31T21:24:27.933" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5891" PostTypeId="1" CreationDate="2015-05-31T22:57:47.447" Score="4" ViewCount="103" Body="&lt;p&gt;How did 'crisis' spread through the financial system in '07-'08? Specifically, what is the process by which a subprime mortgage impacts the health of the credit markets as a whole? An explanation in the context of securitization would be appreciated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand that subprime mortgages are sold to special purpose vehicles but the process is muddled from there.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't need a mathematical explanation, a clear conceptual explanation would be perfect.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you!&lt;/p&gt;&#xA;" OwnerUserId="4798" LastEditorUserId="4798" LastEditDate="2015-06-01T02:53:21.577" LastActivityDate="2015-06-15T12:12:45.233" Title="How did 'crisis' spread through the financial system in '07-'08?" Tags="&lt;macroeconomics&gt;&lt;finance&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5892" PostTypeId="2" ParentId="3402" CreationDate="2015-05-31T23:05:53.503" Score="4" Body="&lt;p&gt;To answer your question of whether you &lt;em&gt;can&lt;/em&gt; get a number for 'total home value,' the answer is no–at least not easily.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Zillow (somewhat) recently made available a &lt;a href=&quot;http://www.zillow.com/blog/value-us-homes-to-top-25-trillion-141142/&quot; rel=&quot;nofollow&quot;&gt;data set&lt;/a&gt; similar to what you are searching for. I suspect, however, that they do not want the public to have access to aggregated value because it would showcase the volatility of Zillow home value estimates, i.e. their algorithm-based estimate fluctuates much more than the estimates coming out of research institutions, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sorry for the dissatisfying answer!&lt;/p&gt;&#xA;" OwnerUserId="4798" LastActivityDate="2015-05-31T23:05:53.503" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5893" PostTypeId="2" ParentId="5891" CreationDate="2015-05-31T23:07:50.693" Score="2" Body="&lt;p&gt;Essentially, there was a bank run in the repo market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The repo market is where big institutions (like, say, Fidelity) deposit large amounts of cash for short periods of time with institutions like, say, Bear Stearns.  Bear Stearns, in order to guarantee that it won't run away with the money, allows Fidelity to hold some valuable assets belonging to Bear Stearns in the meantime --- say some bonds.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now Fidelity comes to believe that these bonds are worth only, say, 80% as much as it previously believed, and therefore asks for more bonds by way of collateral.  So, at around the same time, does everyone else.  But Bear Stearns only owns so many bonds, so it can't satisfy everyone.  If you've ever seen &quot;It's A Wonderful Life&quot;, you know what happens next.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That, at least, is Gary Gorton's story, and it seems very plausible and is widely endorsed.  Of course there are many competing stories as well.&lt;/p&gt;&#xA;" OwnerUserId="250" LastActivityDate="2015-05-31T23:07:50.693" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5894" PostTypeId="1" AcceptedAnswerId="5897" CreationDate="2015-05-31T23:20:25.610" Score="2" ViewCount="138" Body="&lt;p&gt;Put aside the mathematics and jargon for a couple minutes. If you had to explain the concept of &lt;strong&gt;secular stagnation&lt;/strong&gt; to an (intelligent) person with no economics background, how would you go about doing so?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you want to use terms like &quot;zero lower bound&quot; or &quot;tight money&quot; ... explain them thoroughly!&lt;/p&gt;&#xA;" OwnerUserId="4798" LastActivityDate="2015-06-01T10:54:32.263" Title="Secular Stagnation: A Plain-English Explanation" Tags="&lt;macroeconomics&gt;&lt;monetary-policy&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5895" PostTypeId="1" AcceptedAnswerId="5896" CreationDate="2015-06-01T03:54:14.973" Score="2" ViewCount="1420" Body="&lt;p&gt;$B$ and $B'$ are elements of the family of subsets of $X$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;WARP&lt;br&gt;&#xA;For every pair $x,y \in B \cap B' $ and if $x \in c(B)$ , then if $y \in c(B'), x$ must $\in c(B').$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Choice Coherence&lt;br&gt;&#xA;For very pair $x,y \in B \cap B'$ and if $x \in c(B)$ and $y  \notin c(B)$, then $y$ must $\notin c(B').$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are these two equivalent. If yes, how can we prove it?&lt;/p&gt;&#xA;" OwnerUserId="4792" LastEditorUserId="4792" LastEditDate="2015-06-01T04:16:57.777" LastActivityDate="2015-06-17T12:12:45.983" Title="Weak axiom of revealed preference and choice coherence - how to show they are equivalent" Tags="&lt;microeconomics&gt;&lt;choice-theory&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5896" PostTypeId="2" ParentId="5895" CreationDate="2015-06-01T07:02:38.843" Score="1" Body="&lt;p&gt;Yes, they are equivalent. Here is a formal proof by contradiction.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;WARP $\Rightarrow$ Choice coherence&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose that WARP holds but that choice coherence is not true. There exists $B,B'$, $x,y \in B \cap B'$ such that $x \in c(B)$, $y \notin c(B)$ and $y \in c(B')$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But WARP applied to the conditions $y \in c(B')$ and $x \in c(B)$ implies $y \in c(B)$. This is a contradiction.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Choice coherence $\Rightarrow$ WARP&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose now that choice coherence is true but that WARP is falsified. There exists $B,B'$, $x,y \in B \cap B'$ such that $x \in c(B), y \in c(B')$ and $x \notin c(B')$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But choice coherence applied to the conditions $y \in c(B')$, $x \notin c(B')$ yields $x \notin c(B)$. This is a contradiction.&lt;/p&gt;&#xA;" OwnerUserId="4667" LastActivityDate="2015-06-01T07:02:38.843" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5897" PostTypeId="2" ParentId="5894" CreationDate="2015-06-01T10:54:32.263" Score="2" Body="&lt;p&gt;Quoting from &lt;a href=&quot;http://www.voxeu.org/content/secular-stagnation-facts-causes-and-cures&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;strong&gt;Coen Teulings C and&#xA;Richard Baldwin R (ed.) (2014) Secular Stagnation:&#xA;Facts, Causes and Cures&lt;/strong&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;(...) A workable definition of secular stagnation is that negative real interest rates are needed to equate saving and investment with&#xA;  full employment.&lt;/em&gt; (p.2)&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Later on they write (p.10)&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;Low real interest rates play a linchpin role in the secular stagnation debate for two reasons.&lt;br&gt;&#xA;  • &lt;strong&gt;First&lt;/strong&gt;, if real rates are&#xA;  low in normal times, adverse macroeconomic shocks are more likely to&#xA;  require negative real rates to restore a full-employment&#xA;  investment-savings balance. In today’s low-inflation environment, this&#xA;  tends to undermine the effectiveness of monetary policy.&lt;br&gt;&#xA;  •&#xA;  &lt;strong&gt;Second&lt;/strong&gt;, low nominal and real interest rates undermine financial stability.   Summers (i.e. Larry Summers, the economist that brought&#xA;  back the concept of Secular Stagnation) lists three channels through&#xA;  which low rates may foster instability:&lt;br&gt;&#xA;  &lt;strong&gt;(i)&lt;/strong&gt; they increase risk-taking as investors reach for yield;&lt;br&gt;&#xA;  &lt;strong&gt;(ii)&lt;/strong&gt; they promote irresponsible lending as coupon obligations become very low and easy to meet; and&lt;br&gt;&#xA;  &lt;strong&gt;(iii)&lt;/strong&gt; they make Ponzi financial structures more attractive as interest rates look low relative to expected growth rates.&quot;&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So if interest rates tend to be low, the need to push them down even more in order to deal with macroeconomic shocks, may lead to financially-born crises.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So why interest rates have historically fallen? From the supply side (i.e. &lt;strong&gt;savings behavior/supply of loans&lt;/strong&gt;) factors like,&lt;br&gt;&#xA;&lt;strong&gt;a)&lt;/strong&gt; increase in life expectancy&lt;br&gt;&#xA;&lt;strong&gt;b)&lt;/strong&gt; lower retirement age, and&lt;br&gt;&#xA;&lt;strong&gt;c)&lt;/strong&gt; the decline in the growth rate of the population,&lt;br&gt;&#xA;tend to &lt;em&gt;increase&lt;/em&gt; &lt;strong&gt;required life time savings&lt;/strong&gt; - required in order to smooth life-time consumption (at the individual level this goes like this: projecting that we will live more, and stay in pension for more years, we tend to save more during our working years).&#xA;I will add that supply of loans will tend to increase with &lt;em&gt;wealth&lt;/em&gt; inequality.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The effect from the demand side (i.e. investment behavior/demand for loans) is much less agreed upon, but it appears that the revolution of the Information Technology (IT) sector had a negative effect on this aspect, since it reduced the value of the investments needed. The authors write&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;The key is that the development of high value-added services by Google, Microsoft, Amazon, Facebook and the like require relatively&#xA;  little investment.&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So the loan supply schedule shifted outwards, while the loan demand scheduled shifted inwards. Schematically.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/AyseA.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which creates the needed environment for Secular Stagnation, if it goes too far down.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course this is not the whole story. The above e-book by CEPR is freely downloadable.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-06-01T10:54:32.263" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5898" PostTypeId="1" CreationDate="2015-06-01T13:08:03.020" Score="7" ViewCount="113" Body="&lt;p&gt;There are two agents $i=1,2$. The state $k$ is governed by $\tau_i\in[0,1]$ where &#xA;\begin{align}&#xA;\dot{k} = f(k,\tau_1,\tau_2).&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Define the value function of player $i$ by&#xA;\begin{align}&#xA;v_i(k) := \sup_{\tau_i}\int^\infty_0{e^{-\rho t}F(k,\tau_i,\sigma_{-i})dt}.&#xA;\end{align}&#xA;where $\sigma_{-i}(k)$ is the policy function or a markovian stratgey profile of player $-i$. And $\rho&amp;gt;0$ is the time preference rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Hamilton-Jacobi-Bellman equation reads&#xA;\begin{align}&#xA;\rho v_i(k) = \sup_{\tau_i}\{F(k,\tau_i,\sigma_{-i}) + v'(k)f(k,\tau_i,\sigma_{-i})\}.&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now assume I approximated a function $\hat{v}_i$ by value function iteration. How do I know that it's the true value function? &lt;/p&gt;&#xA;" OwnerUserId="4266" LastEditorUserId="4266" LastEditDate="2015-06-01T13:13:07.847" LastActivityDate="2015-06-08T11:29:55.653" Title="How to verify Value Function in nonzero sum two player Differential Game?" Tags="&lt;mathematical-economics&gt;&lt;dynamic-games&gt;&lt;dynamic-programming&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="5899" PostTypeId="2" ParentId="5832" CreationDate="2015-06-01T13:09:13.967" Score="2" Body="&lt;p&gt;The answer is mostly tradable goods priced in dollars and purchasing power parity (PPP). PPP:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;If goods were perfectly tradable across borders, with no trade&#xA;  barriers or transactions costs, then there would be no reason for&#xA;  prices to differ. This gives rise to the idea of purchasing power&#xA;  parity, a theory of exchange-rate adjustment based on the law of one&#xA;  price.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;If the same good sells for one hundred dollars in the United States&#xA;  and one hundred euros in Europe, then according to the law of one&#xA;  price the exchange rate between dollars and euros ought to be one. The&#xA;  theory of purchasing power parity is that this relationship holds for&#xA;  an overall market basket of goods and services.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Empirical tests tend to show only a weak tendency for exchange rates&#xA;  to move in the direction of purchasing power parity. This means that&#xA;  cross-border trade is not nearly friction free. The failure of&#xA;  purchasing power parity to hold, except perhaps in the long run,&#xA;  indicates that transportation costs, language-translation costs, and&#xA;  other factors limit the integration of global markets.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.econlib.org/library/Enc/InternationalTrade.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;The Concise Encyclopedia of Economics: International Trade by Arnold Kling&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Because PPP doesn't seem to hold always and everywhere, people who wish to compare nominal or real GDP across countries in a way that avoids the nuisance variation of transitory fluctuations in exchange rates report PPP NGDP and PPP GDP rather than RGDP and NGDP at exchange rates. This amounts to pricing tradable good at their prices in current exchange rates but correcting for that fact that non-tradable goods may be too cheap or expensive when converted at market exchange rates. The &lt;a href=&quot;http://en.wikipedia.org/wiki/Purchasing_power_parity&quot; rel=&quot;nofollow noreferrer&quot;&gt;purchasing power parity Wikipedia page has some nice example of how this works with the price of an iPad and a Big Mac&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In your case of Russia, because the exports of Russia are mostly oil priced in dollars, even as the exchange rate declines the value of their oil is worth more rubles, and so that should not decline much (except through the falling price of oil which probably is major reason why the ruble declined in the first place). The non-tradable sector similarly wouldn't be fully affected by the depreciation, although in this case through a different mechanism, the PPP correction.&#xA;...&lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="4816" LastEditDate="2019-04-18T09:25:30.253" LastActivityDate="2019-04-18T09:25:30.253" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="5900" PostTypeId="2" ParentId="5864" CreationDate="2015-06-01T13:40:42.957" Score="2" Body="&lt;p&gt;There is one thing perhaps worth adding to the excellent answers above, which is there is essentially a meta-numbers game going on as well. Lets say that 20 scientists all do the same set of experiments looking for something possibly weakly correlated like &quot;does chocolate cause heart attacks&quot;, and will accept the p value &amp;lt; 0.05 significant which frankly they shouldn't. The cumulative probability is that one scientist will get a significant finding, which is the one experiment that will get published, since negative results rarely get accepted. There is then a 100% chance that that finding will get picked up by the Bild Zeitungs of this world and mis-reported. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Unfortunately, because we don't report the absence of findings, we're essentially engaged in a planet wide exercise in reporting all the experiments that get lucky - in the wrong sense of the word.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For subjects with a strong theoretical basis, good experimental design provides some protection against this - for subjects which are pre-dominantly having to work with observational data, and try to work out the theory - like economics - it's a major issue.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Added: For an extensive - and very well written - discussion on the entire issue, see the paper that started the recent debate:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://rsos.royalsocietypublishing.org/content/1/3/140216&quot; rel=&quot;nofollow&quot;&gt;An Investigation of the false discovery rate and the misinterpretation of p-values David Colquhoun&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="84" LastEditorUserId="84" LastEditDate="2015-07-02T13:38:45.260" LastActivityDate="2015-07-02T13:38:45.260" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5901" PostTypeId="1" AcceptedAnswerId="5910" CreationDate="2015-06-01T14:53:40.233" Score="7" ViewCount="1093" Body="&lt;p&gt;Consider the very basic utility function&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ u(c, n) = \log (c) - \alpha \frac{n^{1 + \frac{1}{\nu}}}{1 + \frac{1}{\nu}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where $c$ is consumption and $n$ is working hours. As the Frisch elasticity here is given by $\nu$, I would calibrate $\nu$ to be between 0.5 and 1. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, I'm wondering what to do with $\alpha$: What do I calibrate that against?&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2015-07-14T12:43:56.523" LastActivityDate="2015-07-14T12:43:56.523" Title="Calibration of utility function parameters controlling labor disutility" Tags="&lt;macroeconomics&gt;&lt;utility&gt;&lt;elasticity&gt;&lt;frisch-elasticity&gt;" AnswerCount="2" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="5902" PostTypeId="1" AcceptedAnswerId="5908" CreationDate="2015-06-01T18:10:33.847" Score="4" ViewCount="278" Body="&lt;p&gt;I have a mock-up exam that my teacher gave me and one of the questions was the following:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Given these four graphs, which one represents regressive tax?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I'm quite sure it's graph A, but I don't seem to be able to find a proper reason why. Any help and/or tips are welcome!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks in advance&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT: As per request. How I interpret this: regressive means the higher the income, the lower the tax. Thus: tax drops with higher incomes. But I can't really determine to which graph this applies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/5EPOG.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(T is tax, Y is income)&lt;/p&gt;&#xA;" OwnerUserId="4806" LastEditorUserId="4806" LastEditDate="2015-06-01T18:36:26.483" LastActivityDate="2015-06-01T22:00:18.300" Title="How to determine regressive tax" Tags="&lt;taxation&gt;" AnswerCount="1" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="5903" PostTypeId="1" CreationDate="2015-06-01T18:56:08.903" Score="2" ViewCount="77" Body="&lt;p&gt;I am looking at the data &lt;a href=&quot;http://www.numbeo.com/property-investment/rankings.jsp&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt; (for 2015). There are data for 489 cities from around the world, of which 82 are in the US. &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Using the measure &quot;Price To Rent Ratio Outside Of City Centre&quot;, 69 of the 82 US cities are in the bottom 125 of all cities (roughly the bottom quartile) and the highest-ranked US city is Santa Barbara, CA at #206.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Using the measure &quot;Price To Rent Ratio City Centre&quot;, 67 of the 82 US cities are in the bottom 125 of all cities and the highest-ranked US city is again Santa Barbara, CA at #147.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;What might explain why the property price-to-rent ratio in the US is relatively low, when compared to the rest of the world?&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2015-06-01T20:40:59.853" Title="Why are property price-to-rent ratios relatively low in the US?" Tags="&lt;property&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5904" PostTypeId="1" AcceptedAnswerId="5957" CreationDate="2015-06-01T19:38:55.637" Score="1" ViewCount="76" Body="&lt;p&gt;Given the function:&#xA;$y=A K^\alpha L^\beta, A,\alpha,\beta &amp;gt;0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$y=aK+bL^{0.5}, a,b&amp;gt;0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Decide whether capital and labour are substitute or supportive factors of production. How to solve this question? To answer your possible questions i want to highlight the fact that this is neither my homework assignment nor anything i need to submit, furthermore i have simply no idea how to answer this question that is why i am not able to show any attempt to solve this question. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT: My ideas where to somehow look for the slope of MRTS curve if negative this will imply perfect substitutes if not existing then theoretically it should imply supportive factors, however the answer key states that:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;if $\frac{\Delta MP_L}{\Delta K}&amp;gt;0 \rightarrow$ supportive&lt;/p&gt;&#xA;&#xA;&lt;p&gt;if $\frac{\Delta MP_L}{\Delta K}&amp;lt;0 \rightarrow$ substitues&lt;/p&gt;&#xA;&#xA;&lt;p&gt;if $\frac{A\beta K^\alpha L^{\beta-1}}{A\beta \alpha K^{\alpha -1} L^{\beta-1}}&amp;gt;0 \rightarrow $ subsitutes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And here i am utterly lost.&lt;/p&gt;&#xA;" OwnerUserId="4264" LastEditorUserId="4264" LastEditDate="2015-06-01T20:18:46.293" LastActivityDate="2015-06-03T19:53:21.930" Title="Substitutive or supportive factors of production" Tags="&lt;microeconomics&gt;&lt;production-function&gt;&lt;producer-theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5905" PostTypeId="2" ParentId="5903" CreationDate="2015-06-01T20:40:59.853" Score="2" Body="&lt;p&gt;Reviewing &lt;a href=&quot;http://www.numbeo.com/property-investment/indicators_explained.jsp&quot; rel=&quot;nofollow&quot;&gt;their methodology&lt;/a&gt;, they make a number of assumptions that will affect their results. They don't provide the sources of the data they use as inputs, so it's impossible to fully evaluate their methodology, but it is worth noting their description:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Price to Rent Ratio - is the average cost of ownership divided by the&#xA;  received rent income (if buying to let) or the estimated rent that&#xA;  would be paid if renting (if buying to reside). Our formula to&#xA;  estimate rent per square meter assumes 1 bedroom apt has 50 square&#xA;  meters and 3 bedroom apartment has 110 square meters. It doesn't take&#xA;  into account taxes or maintenance fees.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Given the relatively simple assumptions, lack of transparency regarding input data, and reliance on assumed homogeneity in housing stock both internationally and intra-city, I wouldn't rely on these data to arrive at any conclusions, let alone the conclusion that price-to-rent ratios are particularly low in the US.&lt;/p&gt;&#xA;" OwnerUserId="264" LastActivityDate="2015-06-01T20:40:59.853" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5906" PostTypeId="2" ParentId="5844" CreationDate="2015-06-01T21:13:37.240" Score="0" Body="&lt;p&gt;The change of retirement age has been introduced due to the fact that in every 10 years humans live longer on an average of 2,5 years. Because of that there is an army of people who are  retired which affects the budget and overall financial indicators of a country. Theories show that productivity is actually on the same level at elderly people compared to certain age groups. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This change of retirement age policy affects also the chance for younger generation to start working by decreasing their chances, lowers the costs of pensions etc&lt;/p&gt;&#xA;" OwnerUserId="4807" LastActivityDate="2015-06-01T21:13:37.240" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5907" PostTypeId="1" CreationDate="2015-06-01T21:53:52.803" Score="3" ViewCount="1368" Body="&lt;p&gt;I have quarterly data for real GDP from 1981-2015. I also have quarterly chained-dollar real GDP from 61-2012. I need to have them converted into one series.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've looked up several different formulas but most of them require a price index. Any help would be appreciated. Thanks.&lt;/p&gt;&#xA;" OwnerUserId="4808" LastActivityDate="2015-06-01T21:53:52.803" Title="How do I convert real gdp into chained-dollar real GDP?" Tags="&lt;econometrics&gt;&lt;gdp&gt;" AnswerCount="0" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="5908" PostTypeId="2" ParentId="5902" CreationDate="2015-06-01T22:00:18.300" Score="4" Body="&lt;p&gt;You're correct it is graph A. Regressive tax means that the lower income you have the higher %tax you have. If you imagine at the lowest level of income, you still have a flat tax(The intercept).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since the slope is constant the %tax component is the same for all income levels.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore this flat tax component is the part you need to look at. The flat tax represents a larger proportion for lower income earners. As a whole (%tax + Flat tax) the tax is then a higher % for lower income earners, hence regressive taxation.&lt;/p&gt;&#xA;" OwnerUserId="4808" LastActivityDate="2015-06-01T22:00:18.300" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5909" PostTypeId="2" ParentId="5851" CreationDate="2015-06-02T00:26:21.957" Score="2" Body="&lt;p&gt;There is no such thing as the &quot;Coasian bargaining solution&quot;. This is a simple principle according to which parties find an agreement somewhere on the Pareto frontier when they bargain, which means that the outcome of the bargaining process is socially efficient (abstracting from equity issues).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Nash bargaining solution refines our predictions by specifying where the solution is likely to be located on the Pareto frontier. In some sense, it is a subset of the Coasian bargaining outcome, which can be anywhere on the Pareto frontier. In contrast to the Coase principle, it is a theorem that rests on an axiomatic characterization.&lt;/p&gt;&#xA;" OwnerUserId="4667" LastActivityDate="2015-06-02T00:26:21.957" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5910" PostTypeId="2" ParentId="5901" CreationDate="2015-06-02T01:45:08.640" Score="6" Body="&lt;p&gt;$\alpha$ handles the conversion between the units in which labor is measured and the the units in which consumption is measured. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider the leisure part of the utility function:&#xA;$$ - \alpha \frac{n^{1 + \frac{1}{\nu}}}{1 + \frac{1}{\nu}}$$&#xA;We can rewrite it like this:&#xA;$$ - (\alpha^{\frac{1}{1 + \frac{1}{\nu}}})^{1 + \frac{1}{\nu}} \frac{n^{1 + \frac{1}{\nu}}}{1 + \frac{1}{\nu}} = -  \frac{(n\cdot (\alpha^{\frac{1}{1 + \frac{1}{\nu}}}))^{1 + \frac{1}{\nu}}}{1 + \frac{1}{\nu}} $$&#xA;Define $\gamma = (\alpha^{\frac{1}{1 + \frac{1}{\nu}}})$&#xA;and rewrite the utility function in terms of $\gamma$ instead of $\alpha$&#xA;$$ u(c, n) = \log (c) -  \frac{(\gamma \cdot n)^{1 + \frac{1}{\nu}}}{1 + \frac{1}{\nu}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Written this way, I see $\gamma$ and therefore $\alpha$ as serving as a unit shifter. How many seconds of leisure makes you indifferent over one dollar less consumption? Say it were 60 seconds. What unit is $n$ measured in? Should we put in $n=1$ for minutes, $n=60$ for seconds, or $n=\frac{1}{60}$ for hours? $\nu$ can't answer that question because it controls the shape and curvature but not the scale of the utility function with respect to $n$. However, $\gamma$ can. If the &quot;true&quot; measure of $n$ is in hours and we guess wrong and choose seconds then $\gamma$ should be $\frac{1}{3600}$ and conditional on $\nu$ this implies $\alpha$.&#xA;In calibration the true units of $n$ it need not map cleanly to one of our time units. $n$ might be properly measured in units of 15.5 seconds or $\pi$ minutes, but the functional form is flexible enough to handle these cases regardless of if you input the labor in the calibration in any of the more standard units of hours, minutes, or seconds. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for how to calibrate this, you have to see the bundles of labor/ leisure and consumption chosen by households for given sets of prices. This, combined with the demand functions that follow from this utility setup, should give you the required calibration. The paper A Model of Housing in the Presence of Adjustment Costs: A Structural Interpretation of Habit Persistence (&lt;a href=&quot;https://www.jstor.org/stable/29729980?seq=1#page_scan_tab_contents&quot; rel=&quot;nofollow&quot;&gt;Flavin and Nakagawa (2008)&lt;/a&gt;, &lt;a href=&quot;http://econweb.ucsd.edu/~mflavin/pdfs/AERhabit.pdf&quot; rel=&quot;nofollow&quot;&gt;free copy here&lt;/a&gt;) shows the way to do this in a different (housing / non-housing consumption instead of consumption / leisure) problem. Their $\gamma$ parameter acts much like $\alpha$ does here. &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-06-02T11:24:17.143" LastActivityDate="2015-06-02T11:24:17.143" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5911" PostTypeId="1" CreationDate="2015-06-02T02:47:12.447" Score="6" ViewCount="341" Body="&lt;p&gt;I've just read &lt;a href=&quot;https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/money-creation-in-the-modern-economy&quot; rel=&quot;nofollow noreferrer&quot;&gt;Money Creation in the Modern Economy&lt;/a&gt;, an article published by the Bank of England. I'm trying to wrap my head around this from multiple points of view, since it brings about a lot of questions in my mind. This article talks about money being created through commercial bank loans, and that central banks only have the authority to set interest rates or to employ quantitative easing in order to stimulate the economy. Loans being repaid should theoretically destroy the money that was created and balance the books, but inflation grows in that economy as banks earn interest (and in this case, the interest is actually the money that never existed, assuming that they destroy the rest of the money paid back).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, my questions are:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;How is this fair for every other constituent in the economy who has earned money the hard way, by working and not by generating it so freely like interest returns on loans do for commercial banks? How is inflation fair, as populations increase and every time someone gets a bank loan, new money is added to the economy over time as they pay back that loan, and everyone else's currency is de-valuated? Consider country X which has one constituent named Roger who works at a commercial bank in X and, coincidentally is also the president of X. He gets a loan from his bank for 100 dollars (with an interest rate of 5%), however, in his economy, only 100 dollars of money exists as actual currency and he has 0 dollars in his bank account. He will never be able to pay off his interest rate of 5% without getting another loan. His bank or state will coincidentally not be able to pay him his wage over time without printing new money from a central bank or giving his bank a loan, or, perhaps a bail-out. All this interest will do is inflate the economy, and you can only fight interest with interest. Now apply this concept to our current economic system on a macro level, and you'll see that it will ultimately fail as a system, because inflation can only combat inflation for so long.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;How is this all regulated and who regulates the balancing of the books? Given how many commercial banks there are, how few central banks there are, and the lack of power of central banks to only be able to set interest rates or buy assets through quantitative easing, this must require a lot of regulation in order to be feasible. What's stopping a commercial bank from making a deposit into someone's bank account that isn't on the books or what's stopping them from not destroying the money they get paid back from loans?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;How does this make sense on a global scale? You have X number of countries employing the same mechanism, each one with Y number of commercial banks. These countries each compete on a commercial scale to increase the value of their currency, and yet each is inflating their own economy which in turn drives down their monetary value on a global scale. If your economy inflates very quickly, and constituents of your country don't spend their money locally for whatever political reasons (such as the state for example owning every property in the country, even if purchased by a constituent), people can leave your country quickly and the foreign state they go to will suffer further by more increased inflation when these people convert all of their money over to the new currency since they haven't spent it locally for it to have shifted its value on a global exchange rate scale. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;How does this make sense from the point of view of sustainability? Already, this article states that 97% of money exists as bank deposits and only 3% as actual cash. That's a staggering amount, and it makes me worried. Given my points above, we have not just one state to worry about, but all other states driving inflation on a global scale which can directly impact ours. Given the concept of currency as it works now, everything will soon be valued too high to be acquired without more, and more inflation, but the more inflation we have, the less sustainable the system is because we ultimately just end up needing more inflation to compensate for it to buy the things we need. Thus, the money we earn working is slowly worth less, things cost more, and even through quantitative easing, there are no guarantees that money will trickle down enough to stop the debt spiral.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;If you give someone a loan, they use it to buy something, and then repay their loan, the next person gets a loan to buy that thing from them, and eventually repays their loan. Its as if the things we buy keep exchanging hands as they become valued higher and higher because populations increase and more money is given out and in circulation. The real winners are the people who bought the thing first, who had the asset first. Does this not strike anyone else as crazy? This means that we are destroying the world for our kids who are growing up in completely unsustainable times as the value of everything will approach infinity.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="4810" LastEditorUserId="22991" LastEditDate="2019-07-29T21:28:00.990" LastActivityDate="2019-07-29T21:28:00.990" Title="How is monetary policy sustainable, or even fair, in the current economy?" Tags="&lt;macroeconomics&gt;&lt;monetary-policy&gt;&lt;banking&gt;&lt;central-banking&gt;&lt;quantitative-easing&gt;" AnswerCount="1" CommentCount="11" FavoriteCount="2" ClosedDate="2015-06-02T15:14:09.900" ContentLicense="CC BY-SA 4.0" />
  <row Id="5912" PostTypeId="2" ParentId="5911" CreationDate="2015-06-02T03:52:03.527" Score="2" Body="&lt;p&gt;I'll answer the first question. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;How is this fair for every other constituent in the economy who has earned money the hard way, by working and not by generating it so freely like interest returns on this free money do for commercial banks?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Remember that commercial banks don't create money from nothing at all. When they create a loan, they also create a liability for themselves. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So if Bank A creates a loan of $1000 to Bob, and Bob spends that money at Charlie's store, then absconds without paying the loan back, then Bank A is still required to give money to Charlie. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The bank's 'work' then, is assessing the risk of, and bearing the responsibility for making loans. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now of course, as the Global Financial Crisis demonstrated, the banks haven't always really taken responsibility for their loans, and required a bail out. &lt;/p&gt;&#xA;" OwnerUserId="96" LastEditorUserId="96" LastEditDate="2016-02-29T01:38:22.340" LastActivityDate="2016-02-29T01:38:22.340" CommentCount="13" ContentLicense="CC BY-SA 3.0" />
  <row Id="5913" PostTypeId="1" AcceptedAnswerId="5915" CreationDate="2015-06-02T07:09:34.023" Score="15" ViewCount="13668" Body="&lt;p&gt;On a very small scale, it's certainly true that if I gain, somebody else might lose. If I take away my brother's chocolate, then he will lose it, and will most probably not get anything comparable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But on greater scale, say, nationally, if one person (e.g. successful start-up founder) makes a fortune, will this generally be bad for the other players? Or can it be beneficial (e.g. if the money is not saved up)? Does it entirely depend on the rich person's spending behavior?&lt;/p&gt;&#xA;" OwnerUserId="4812" LastEditorUserId="120" LastEditDate="2015-06-02T10:14:12.107" LastActivityDate="2015-07-18T20:50:42.317" Title="If I gain, then someone else loses. Correct?" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;welfare&gt;" AnswerCount="12" CommentCount="13" FavoriteCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="5914" PostTypeId="2" ParentId="5913" CreationDate="2015-06-02T07:47:35.747" Score="4" Body="&lt;p&gt;I think this is more of a microeconomics question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As long as it is not forceful but voluntary reallocation of goods no one loses.&#xA;In fact even more can be said but you need to read up on it a little.&#xA;&lt;a href=&quot;http://en.wikipedia.org/wiki/Fundamental_theorems_of_welfare_economics&quot; rel=&quot;nofollow&quot;&gt;http://en.wikipedia.org/wiki/Fundamental_theorems_of_welfare_economics&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The basic idea is that trade benefits both parties.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An example: Your fridge is broken and you want to fix it. Let's say you know the problem, but it will cost you 100 dollars to fix it yourself. This can be because you do not have the tools to fix it or because you need to take time off from work to do so. Suppose the cost of fixing is merely 60 dollars for a repairman, because he already has the tools and/or has a lower hourly wage. Then if you pay him any amount between 60 and 100 dollars and he fixes your fridge you both benefit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your startup example may be a little different as it seems to about a restructuring of industry. Another example:&#xA;&lt;br&gt; Suppose someone invents low cost (virtually nil) teleportation. Now getting to work will take 1 second and you will only need to pay 20 cents on the dollar to get there. Pretty much everyone's life will be made easier by this invention, so a lot of people will use it on a daily basis, they are clearly beneficiaries. The inventor would also make a fortune. However this will probably cause a lot of unemployment in the transport industry. Given some assumptions you could fix this with transfers: You could transfer money from the people (in form of taxes) who benefited from the invention to the people (in form of social security) who suffered a loss because of it. Mind that this is a fairness and equility issue and is not itself incorporated in the idea of trade.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="4835" LastEditDate="2015-06-02T20:56:56.080" LastActivityDate="2015-06-02T20:56:56.080" CommentCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="5915" PostTypeId="2" ParentId="5913" CreationDate="2015-06-02T08:31:26.223" Score="29" Body="&lt;p&gt;I completely agree with denesp's answer, however I think you can make it even simpler.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;On a very small scale, it's certainly true that if I gain, somebody&#xA;  else might lose. If I take away my brother's chocolate, then he will&#xA;  lose it, and will most probably not get anything comparable.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;OK, let's say I prefer chocolate to wine gums and my brother likes wine gums better than chocolate. Then taking his chocolate away and giving him my wine gums is good for both of us, so we both win and no one loses. &lt;strong&gt;So the answer is no.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You could even consider the extreme case in which your brother hates chocolate and you are doing him a favor by taking it. (Works not as well with chocolate, but you might think of recycling.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In general these &quot;trades&quot; are called &lt;a href=&quot;http://en.wikipedia.org/wiki/Pareto_efficiency&quot;&gt;Pareto improvements&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But this is only one example, if you are interested in the subject, you might be interested in one of the following basic economic ideas:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Trade between two countries in which one of them is more efficient than the other: &lt;a href=&quot;http://en.wikipedia.org/wiki/Comparative_advantage#Ricardo.27s_example&quot;&gt;Ricardo's comparative advantage example&lt;/a&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Your brother likes to give: &lt;a href=&quot;http://en.wikipedia.org/wiki/Warm-glow_giving&quot;&gt;altruism / warm glow&lt;/a&gt; &lt;em&gt;(I really don't like the wiki page here, but was not able to find a decent non-scientific explanation of it.)&lt;/em&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Or maybe other other-regarding preferences, for example fairness (your brother has a lot of chocolate and feels better if he gives you some): &lt;a href=&quot;http://web.mit.edu/14.193/www/WorldCongress-IEW-Version6Oct03.pdf&quot;&gt;Theories of Fairness and Reciprocity&lt;/a&gt; &lt;em&gt;(On page 3 is a brief &quot;Non-technical summary&quot; which might be interesting.)&lt;/em&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;As you can see there are many examples for a &quot;win-win&quot; situation and there are many many others, depending on the situation.&lt;/p&gt;&#xA;" OwnerUserId="120" LastEditorUserId="264" LastEditDate="2015-06-04T14:52:11.237" LastActivityDate="2015-06-04T14:52:11.237" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="5916" PostTypeId="2" ParentId="5913" CreationDate="2015-06-02T08:35:15.287" Score="17" Body="&lt;p&gt;This is a fundamental question which economics can answer quite well.&#xA;I'll rephrase your question a little bit- Is economics a zero sum game?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The answer is no. Certainly some transactions are, but for the most part, no. It can be proven a little bit more rigorously and denesp has alluded to that by linking the fundamental theorems of welfare economics. I'll focus on an example showing why it isn't a zero sum game.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Value can be created. Say you are an artist and make a painting. The painting (assuming it is good) has some value to people. You can sell that painting and use that money to fund other purchases.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The purchaser of the painting is better off than without it. Why would he buy the painting if he would prefer having the money? He wouldn't. And you are better off because you prefer having the money over your painting.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A large part of economics involves the behavior of markets and mutually beneficial transactions.&lt;/p&gt;&#xA;" OwnerUserId="40" LastEditorUserId="40" LastEditDate="2015-07-09T00:59:21.143" LastActivityDate="2015-07-09T00:59:21.143" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="5917" PostTypeId="2" ParentId="5913" CreationDate="2015-06-02T08:59:08.230" Score="9" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;If I take away my brother's chocolate, then he will lose it, and will most probably not get anything comparable.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The problem with this example is that there is no economy between you and your brother.  You simply stole his chocolate.  Conquered it if you will.  No trade ever took place.  The best way I've ever heard this explained is by calling it the &quot;conquest paradigm.&quot;  Before capitalism dominated the world, tribes and countries would gain wealth by conquering other civilizations and taking their possessions.  This is what you have done, albeit without all the bloodshed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a market economy, you would have to make a deal with your brother in order to get his chocolate.  In exchange for his chocolate, he wants some of your broccoli because he is on a diet and wants to lose weight.  You trade him two heads of broccoli for his chocolate bar.  Who wins in this situation?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Nobody would ever make any trades if he stood to lose from the deal.  You benefit from giving up your broccoli for his chocolate because you wanted a tasty snack.  Your brother benefits from giving up his chocolate for your broccoli because health is important to him.  Though all the two of you did was exchange items, both of you benefited.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a market economy, every trade creates wealth because both parties involved benefit.  When the farmer sells you his wheat, he benefits because he would rather have your money than the wheat he sold you; he has lots more, after all.  You benefit because eating and staying alive is more important than the money you gave him.  Because you both benefited, both of you are said to be wealthier; you live a longer life and he has more money.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A lot of people will characterize capitalism and markets as competitive, but I prefer to think of it as cooperation on a grand scale.  Though it's true that Apple and Microsoft might be competing for the business of the consumer, it is important to remember that both of these companies are cooperating with the consumers, their employees, and their suppliers with every trade they make.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Capitalism does not have to be a zero-sum game.&lt;/p&gt;&#xA;" OwnerDisplayName="user4813" LastEditorUserId="4814" LastEditDate="2015-06-02T10:26:34.143" LastActivityDate="2015-06-02T10:26:34.143" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="5918" PostTypeId="2" ParentId="5913" CreationDate="2015-06-02T10:20:50.927" Score="-5" Body="&lt;p&gt;I would say yes, I know everyone else is saying NO but it wont let me comment. So an Answer must be the way..&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In given example &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;OK, let's say I prefer chocolate to wine gums and my brother likes wine gums better than chocolate. Then taking his chocolate away and giving him my wine gums is good for both of us, so we both win and no one looses. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;well the guy selling chocolate looses cause now he lost a possible sell to you. And the wine gum seller lost a possible sell to your brother due to your trade. So yes someone lost &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Next example&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Your fridge is broken and you want to fix it. Let's say you know the&#xA;  problem, but it will cost you 100 dollars to fix it yourself. This can&#xA;  be because you do not have the tools to fix it or because you need to&#xA;  take time off from work to do so. Suppose the cost of fixing is merely&#xA;  60 dollars for a repairman, because he already has the tools and/or&#xA;  has a lower hourly wage. Then if you pay him any amount between 60 and&#xA;  100 dollars and he fixes your fridge you both benefit.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The guy you would of paid the 100 to for the tool did not benifit. Thus someone loss..If you had to take time off work, then someone else must pick up your work load for the day, or the company you work for is down 1 employee for the day.. either way someone loses&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and the last answer, just cause two people gain from there trade does not mean someone else did not gain a loss...&lt;/p&gt;&#xA;" OwnerUserId="4818" LastEditorUserId="4818" LastEditDate="2015-06-02T10:24:50.073" LastActivityDate="2015-06-02T10:24:50.073" CommentCount="10" ContentLicense="CC BY-SA 3.0" />
  <row Id="5921" PostTypeId="2" ParentId="5913" CreationDate="2015-06-02T12:19:05.450" Score="3" Body="&lt;p&gt;I think the easiest way of looking at this is the macroeconomic perspective. If every transaction necessarily was a zero-sum game, there couldn't be growth.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Yet, we see that (under several measures) all economies are growing and getting richer - even if the underlying distribution is skewing, which is irrelevant for this point.&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-06-02T12:19:05.450" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="5922" PostTypeId="1" CreationDate="2015-06-02T13:18:18.413" Score="3" ViewCount="199" Body="&lt;p&gt;I just read that increase in aggregate demand increases investment for a given interest rate. How is it possible because when aggregate demand increases, this shifts the demand for money to the right leading to higher interest rates. Higher interest rates should reduce investment. Am I correct in with my argument? &#xA;And help will be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="4824" LastEditorUserId="43" LastEditDate="2015-06-02T15:22:38.730" LastActivityDate="2015-12-29T19:05:04.430" Title="Does aggregate demand increase investments?" Tags="&lt;macroeconomics&gt;&lt;supply-and-demand&gt;&lt;interest-rate&gt;&lt;investment&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5923" PostTypeId="2" ParentId="5922" CreationDate="2015-06-02T14:44:41.930" Score="1" Body="&lt;p&gt;Once again, the fixed thing is interest rates. There are numerous ways in which a government can control an interest rates: one of which is to control the money supply. I feel that in your case, you are assuming that the amount of money in the economy and the speed of money flow is fixed. However, we can control the interest rates by controlling the money supply. When we want to make an interest rates at a fixed term, we want to pump more money into the economy and thus increasing the supply of money and keeping the interest rates as low as it used to be. Thus it is possible for that to happen. Please note that I have also assume that the interest rates dixed and the economy is not running at the intermediate or full capacity&lt;/p&gt;&#xA;" OwnerUserId="4828" LastActivityDate="2015-06-02T14:44:41.930" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5924" PostTypeId="2" ParentId="5922" CreationDate="2015-06-02T15:21:58.787" Score="1" Body="&lt;p&gt;An investment project has expected returns $R$ and expected costs $C$. Investments will happen as long as $R &amp;gt; C$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;An increase demand will increase the potential return from projects, $R$. An increase in interest rates will increase the costs $C$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now all that matters is whether the change in $R$ through increased in demand is larger than the increase in $C$ through the interest rates. I would argue that the demand for money argument that you are bringing has rather second order effects. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To conclude, while your channel certainly exists, it's not strong enough to overcome the positive investment effects of increased aggregate demand.&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-06-02T15:21:58.787" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5925" PostTypeId="2" ParentId="5565" CreationDate="2015-06-02T15:42:50.477" Score="9" Body="&lt;p&gt;Kandori, Michihiro &amp;amp; Mailath, George J &amp;amp; Rob, Rafael, 1993. &quot;Learning, Mutation, and Long Run Equilibria in Games,&quot; Econometrica, Econometric Society, vol. 61(1), pages 29-56, January.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Young, H Peyton, 1993. &quot;The Evolution of Conventions,&quot; Econometrica, Econometric Society, vol. 61(1), pages 57-84, January.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I disagree with your assertion that EGT is seldom applied or that it has not been  influential.  Both of the papers referenced above appear in RePEc's list of the&#xA;top 1% of citations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Allowing preferences to 'change' can generate just about any equilibrium you want, so the premise behind EGT is a tough sell in many economic models - not to say compelling research hasn't done so.  The bottom line is that it isn't a part of the atmosphere where mere mortals can tread.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EGT has, in fact, been applied to many problems in economics as well as those traditionally parsed by the other social sciences - particularly the evolution of social norms, political representation, voting, and distributive justice.&lt;/p&gt;&#xA;" OwnerUserId="4829" LastActivityDate="2015-06-02T15:42:50.477" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5926" PostTypeId="1" AcceptedAnswerId="5928" CreationDate="2015-06-02T17:48:50.023" Score="2" ViewCount="65" Body="&lt;p&gt;I am trying to find &lt;strong&gt;L$^*$&lt;/strong&gt; and &lt;strong&gt;K$^*$&lt;/strong&gt; (Labour and Capital respectively) given the following:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Q = $K^{1/4}$ $L^{3/4}$ where Q = 120, w=$24, and r=$128 (Not sure if you need w and r)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I know that if I can find either &lt;strong&gt;L$^*$&lt;/strong&gt; or &lt;strong&gt;K$^*$&lt;/strong&gt;, I can find the other one easily.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have found several questions relating to Cobbs-Douglas on here, but none where Q is given. A close example is &lt;a href=&quot;https://math.stackexchange.com/questions/997041/finding-the-optimal-combination-for-the-cobb-douglas-function-given-a-budget&quot;&gt;this&lt;/a&gt;, but I don't have a budget constraint. &lt;/p&gt;&#xA;" OwnerUserId="4540" LastEditorUserId="-1" LastEditDate="2017-04-13T12:19:37.213" LastActivityDate="2015-06-02T19:23:20.770" Title="Optimizing Cobbs-Douglas given output" Tags="&lt;cobb-douglas&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5927" PostTypeId="2" ParentId="5901" CreationDate="2015-06-02T18:17:48.630" Score="1" Body="&lt;p&gt;In &lt;strong&gt;Yongsung Chang, Sun-Bin Kim, Frank Schorfheide (2010)&lt;/strong&gt;, &lt;a href=&quot;http://www.nber.org/papers/w16401&quot; rel=&quot;nofollow&quot;&gt;NBER paper&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;the authors use the exact same utility function and they write (p.9)&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;Given all other parameters, we set the preference parameter &lt;strong&gt;B&lt;/strong&gt; (i.e. your $\alpha$) such that the steady-state employment rate is&#xA;  60%, the average employment in our sample period.&lt;/em&gt;&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In Table 1 of the paper (p.34), we see that this means $\alpha = 101$.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-06-02T18:17:48.630" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5928" PostTypeId="2" ParentId="5926" CreationDate="2015-06-02T19:23:20.770" Score="2" Body="&lt;p&gt;The problem is basically to derive the cost function of a firm. What you need to do is minimize costs given the output. That is&#xA;$$&#xA;\min\limits_{K,L} w \cdot L + r \cdot K&#xA;$$&#xA;subject to&#xA;$$&#xA;K^{\frac{1}{4}} \cdot L^{\frac{3}{4}} = Q = 120.&#xA;$$&#xA;You can solve this using Lagrange or the implicit function theorem (similar application as the MRS).&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2015-06-02T19:23:20.770" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5929" PostTypeId="1" CreationDate="2015-06-02T21:49:26.293" Score="2" ViewCount="372" Body="&lt;p&gt;I've just read &lt;a href=&quot;http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf&quot; rel=&quot;nofollow&quot;&gt;Money Creation in the Modern Economy&lt;/a&gt;, an article published by the Bank of England.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This article brings about a lot of questions in my mind. This article talks about money being created through commercial bank loans, and that central banks only have the authority to set interest rates or to employ quantitative easing in order to stimulate the economy. Loans being repaid should theoretically destroy the money that was created and balance the books, but inflation grows in that economy as banks earn interest (and in this case, the interest is actually the money that never existed, assuming that they destroy the rest of the money paid back).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, my questions is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How is this fair for every other constituent in the economy who has earned money the hard way, by working and not by generating it so freely like interest returns on loans do for commercial banks?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How is inflation fair, as populations increase and every time someone gets a bank loan, new money is added to the economy over time as they pay back that loan, and everyone else's currency is de-valuated?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider country X which has one constituent named Roger who works at a commercial bank in X and, coincidentally is also the president of X. He gets a loan from his bank for 100 dollars (with an interest rate of 5%), however, in his economy, only 100 dollars of money exists as actual currency and he has 0 dollars in his bank account. He will never be able to pay off his interest rate of 5% without getting another loan. His bank or state will coincidentally not be able to pay him his wage over time without printing new money from a central bank or giving his bank a loan, or, perhaps a bail-out. All this interest will do is inflate the economy, and you can only fight interest with interest.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now apply this concept to our current economic system on a macro level, and it feels to me like it will ultimately fail as a system, because inflation can only combat inflation for so long until the price of every asset reaches infinity.&lt;/p&gt;&#xA;" OwnerUserId="4810" LastEditorUserId="40" LastEditDate="2015-07-29T02:09:58.130" LastActivityDate="2015-07-29T02:09:58.130" Title="How is monetary policy fair in the current economy?" Tags="&lt;macroeconomics&gt;&lt;monetary-policy&gt;&lt;banking&gt;&lt;central-banking&gt;" AnswerCount="1" CommentCount="15" FavoriteCount="2" ClosedDate="2015-07-30T14:20:35.600" ContentLicense="CC BY-SA 3.0" />
  <row Id="5930" PostTypeId="1" CreationDate="2015-06-02T21:55:02.767" Score="6" ViewCount="149" Body="&lt;p&gt;I've just read &lt;a href=&quot;http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Money Creation in the Modern Economy&lt;/a&gt;, an article published by the Bank of England. This article brings about a lot of questions in my mind. This article talks about money being created through commercial bank loans, and that central banks only have the authority to set interest rates or to employ quantitative easing in order to stimulate the economy. Loans being repaid should theoretically destroy the money that was created and balance the books, but inflation grows in that economy as banks earn interest (and in this case, the interest is actually the money that never existed, assuming that they destroy the rest of the money paid back). So my questions are:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;How is this all regulated? Who regulates the balancing of the books? &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;This must require a lot of regulation in order to be feasible, because there are many commercial banks, but few central banks, and because central banks lack power. E.g. central banks can only set interest rates thus defining the theoretical inflation rate, or buy assets through quantitative easing.&lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;2&quot;&gt;&#xA;&lt;li&gt;&lt;p&gt;What's stopping a commercial bank from making a deposit into someone's bank account that isn't on the books or what's stopping them from not destroying the money they get paid back from loans? &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Can I find out more about this stuff for each bank? In other words, is this public information or not?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="4810" LastEditorUserId="1601" LastEditDate="2020-05-09T07:04:42.727" LastActivityDate="2020-05-09T07:04:42.727" Title="Who regulates the balancing of the books for commercial banks? How? Is it public information?" Tags="&lt;macroeconomics&gt;&lt;monetary-policy&gt;&lt;banking&gt;&lt;central-banking&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="5931" PostTypeId="1" CreationDate="2015-06-02T21:58:42.320" Score="9" ViewCount="266" Body="&lt;p&gt;While I think my question is straight forward, I'm guessing the answer to it is anything but.  Thanks in advance for any insight you may be able to offer, even if it's just a directional assist.  Here's the question.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;What is the impact on total revenue when eBay has 1 additional seller join its ecosystem with X dollars in product inventory?  How does this differ in the short vs. long term?&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Acknowledgements, thoughts, and considerations:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;The type of product the seller carries, number of bidders (buyers), and their respective bidder budgets all certainly play a factor in calculating the additional sellers impact on revenue.  Feel free to consider the question with the seller selling &quot;average&quot; product, constant bidder budgets, and number of bidders before and after the seller joins. In short, please feel free to simplify these (and any other) assumptions.&lt;/li&gt;&#xA;&lt;li&gt;Seasonality should play a factor in the short term.  If the seller were to join in December, the impact would be different than if that same seller with the same X dollars in product joins in May.  In the long term, this shouldn't matter.&lt;/li&gt;&#xA;&lt;li&gt;Playing with some supply and demand curves on paper tells me that the steepness/slope of the curves has a dramatic impact on the expected total revenue when multiplying P2 and Q2.  The revenue could be incremental to the existing revenue, decrease it, or keep it flat depending on these slopes.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Again, any light you can shine on the above would be greatly appreciated.  In case you're up for it, please find a final follow-up question below.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Say the X dollars in product inventory were 5% of the total pre-existing available eBay inventory.  If we increase X to represent 10% of total pre-existing available eBay inventory, how would that change its impact on total revenue?&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="4659" LastEditorUserId="4578" LastEditDate="2015-06-03T17:54:33.297" LastActivityDate="2020-08-19T10:00:30.073" Title="eBay economics - total revenue impact from expanding ecosystem by 1 seller" Tags="&lt;microeconomics&gt;&lt;supply-and-demand&gt;&lt;auctions&gt;" AnswerCount="1" CommentCount="7" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5933" PostTypeId="1" AcceptedAnswerId="5961" CreationDate="2015-06-02T22:53:28.070" Score="5" ViewCount="12480" Body="&lt;p&gt;Suppose I have the utility function $$U(x,y) = \sqrt{x} + y$$&#xA;subject to budget constraint &#xA;$$p_x x + p_y y = m$$&#xA;Then &#xA;$$x_M =\frac{p_y^2}{4 p_x^2}$$ &#xA;$$y_M = \frac{m}{p_y} - \frac{p_y}{4 p_x}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $M$ denotes Marshallian. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now suppose I increase $p_x$ to $p_x'$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why is the income effect zero? &lt;/p&gt;&#xA;" OwnerUserId="2679" LastActivityDate="2015-06-03T22:29:53.430" Title="Why is the income effect zero for quasilinear utility functions?" Tags="&lt;consumer-theory&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="5934" PostTypeId="2" ParentId="5929" CreationDate="2015-06-02T23:09:51.287" Score="6" Body="&lt;p&gt;The description you're providing of how interest works is based on a couple of fairly common misunderstandings about how the system actually works, so lets clear that up first.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Fractional reserve banking and the gold smith banking systems preceding it, are a result of the development of an accounting technology called double entry book keeping in the 13th century.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Double entry book keeping grossly simplified. Each transaction must consist of a debit and a credit tuple, occurring in two separate books. Asset books are traditionally written on the left, and liability and equity on the right. On the right hand side (liability and equity side), credit adds, debit subtracts, and its the opposite on the left hand side, debit adds, credit subtracts. Just remember the right hand side is what you think it should be, the left hand side is the opposite.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When a bank makes a loan, it performs the book keeping operation:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;[debit loan, credit customer account]. &#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;This creates the loan, and it creates money in the form of the matching deposit. When  loan capital is repaid, the operation is:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;[credit loan, debit customer account] &#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;and this removes the deposit money that was created.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So how does interest get paid? Well in your example, Roger gets a loan for 100, lets say it's a 10 month, simple interest loan (easier math.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first month, Roger repays 10 capital, and 5 in interest. That's:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;[credit loan 10,        debit Roger account 10]     &#xA;&#xA;[                       debit Roger account 5, &#xA;                        credit bank interest income account 5] &#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;The bank's interest income account is also classified as a liability, although not strictly as a deposit account. Once the bank has recognised that income, it can then use it to pay expenses. Let's assume Roger works for the bank, and the Bank pays Roger a monthly salary of 5. That just reverses the operation above, ie.&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;[                       debit bank interest income account 5, &#xA;                        credit Roger account]&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;The next month, Roger pays another 10 in capital, and pays 5 interest, and gets the interest back in salary. This continues until the loan is repaid. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The key concept is that in an economy, money is exchanged and individual units of money are constantly circulating through the economy and being re-used, as in the example above. It's a flow system essentially, and this applies to interest payments just as much as payments for food, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Money in a fractional reserve monetary system today also predominantly takes the form of liability bank accounts, rather than physical currency, and most banking operations these days operate as transfers from bank account to account. The writers who concentrate on physical currency in describing this system seem to miss this point, and consequently get key points incorrect. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This doesn't mean that there isn't a very challenging accompanying inflation problem. Generally over time, banking systems tend to create more new loans at a slightly higher rate than they are repaid, and so the system is in a more or less continuous state of growth. There's no reason why it couldn't be regulated to be stable - but the problem is nobody at this time knows what that would do to the economy. The best guess at the moment is that a low but positive rate of expansion is optimal.&lt;/p&gt;&#xA;" OwnerUserId="84" LastEditorUserId="84" LastEditDate="2015-07-28T15:47:18.163" LastActivityDate="2015-07-28T15:47:18.163" CommentCount="9" ContentLicense="CC BY-SA 3.0" />
  <row Id="5935" PostTypeId="2" ParentId="5930" CreationDate="2015-06-02T23:18:54.957" Score="2" Body="&lt;p&gt;It's public information, and you can take courses, and even university degrees in it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The double entry book keeping technology used by banks is essentially designed to tackle exactly this problem, and all banks and commercial customers use it. The system itself provides a single error detection/correction mechanism, that guards against human error, and also originally required updates in two separate books, maintained by two separate clerks - which was deliberately done to make fraud more difficult. Essentially if the books don't balance, this is a red flag to find the mistake/fraud that caused this to occur and correct it. These days it's all computerised, but the underlying operations are identical.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The entire accountancy profession's job, is essentially to supervise this process, and periodically audit both banks and companies in order to make sure that the books are balanced, and that nothing illegal is being done.&lt;/p&gt;&#xA;" OwnerUserId="84" LastActivityDate="2015-06-02T23:18:54.957" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="5936" PostTypeId="2" ParentId="5933" CreationDate="2015-06-02T23:21:17.070" Score="3" Body="&lt;p&gt;Intuitively, the marginal utility of x falls faster than the marginal utility of y (which is actually constant), so with enough money all marginal funds go into y. Similarly, with enough money, an decrease in money only reduces the quantity of y, not x. But you should know this isn't true globally. If $$m &amp;lt; \frac{p_y^2}{4 p_x}$$&#xA;then the demand functions are:&#xA;$$x_M =\frac{m}{p_x}$$ &#xA;$$y_M = 0$$&lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2015-06-02T23:21:17.070" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="5937" PostTypeId="2" ParentId="5930" CreationDate="2015-06-02T23:21:20.453" Score="2" Body="&lt;p&gt;Banks are often very regulated and are required to follow the rule of law. Putting money into accounts not on the books is fraud and, due to the nature of double entry accounting, not that easy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This &lt;a href=&quot;http://en.wikipedia.org/wiki/List_of_financial_regulatory_authorities_by_country&quot; rel=&quot;nofollow&quot;&gt;wiki&lt;/a&gt; has a list of regulatory authorities which purport to keep the banks honest. The trust in the system has taken a few hits since the GFC and the idea of too big to fail etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Short answer, the law stops the banks from doing some of the things that you suggest and as with any industry, some people will break it.&lt;/p&gt;&#xA;" OwnerUserId="40" LastActivityDate="2015-06-02T23:21:20.453" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5938" PostTypeId="1" CreationDate="2015-06-03T01:35:06.580" Score="7" ViewCount="1697" Body="&lt;p&gt;If there are 3 types of goods(x,y,z) and 2 consumers (a,b) how can I draw the Edgeworth box? It must be 3 dimensional, right?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there a software or online tool that I can use to draw a 3D Edgeworth box?&lt;/p&gt;&#xA;" OwnerUserId="4839" LastEditorUserId="1601" LastEditDate="2017-02-28T07:57:40.887" LastActivityDate="2020-11-25T16:49:38.840" Title="How can I draw an edgeworth box with 3 different goods?" Tags="&lt;microeconomics&gt;&lt;general-equilibrium&gt;&lt;self-study&gt;" AnswerCount="3" CommentCount="9" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5939" PostTypeId="1" CreationDate="2015-06-03T05:47:32.803" Score="2" ViewCount="73" Body="&lt;p&gt;I was wondering if it is possible to make any economic implications by regressing the same set of independent variables with different outcome variables.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For instance, regressing [Industry, Years, Production Level] on [Revenue, Profits].&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given the above variables, if both models are significant, what would be the implications? Does it imply that [Industry, Years, Production Level] can be used to explained both the change of [Revenue, Profits].&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If it is, what are the appropriate regression models? Are there any concerned issues regarding the results?&lt;/p&gt;&#xA;" OwnerUserId="4641" LastEditorUserId="1442" LastEditDate="2015-06-03T10:37:17.663" LastActivityDate="2015-09-07T13:10:50.200" Title="What are the economic implications of regressing the same set of independent variables with different outcome variables" Tags="&lt;econometrics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5940" PostTypeId="1" AcceptedAnswerId="6018" CreationDate="2015-06-03T07:02:50.110" Score="1" ViewCount="782" Body="&lt;p&gt;I am having a lot of problems trying to find the equilibrium price when we are given a cost function and demand function, but no supply function.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;All firms have the following production function: $Q = \sqrt{K \cdot L}$&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Wages are w = 9, and the rental rate of capital is r = 36.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;In the short run, capital is fixed at ̅ = 3 units. Market Demand is given by P = 360 – 2Q &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;There are 9 firms in the market, find P*, Q*, and Total Surplus&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;In solving the production function with a fixed K:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$MPL$ = K$^{1/2}$ \cdot L$^{1/2}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$MPL$ = ${1/2} \cdot $K$^{1/2}$ $\cdot$ $L^{-1/2}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;= 1/2 \cdot (K$^{1/2}$ $\cdot$ L$^{1/2}$)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Substituting 3 for K:&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;= 1/2 \cdot ($\sqrt{3}$ \cdot $\sqrt{L}$)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\sqrt{3}$/2 =  $\sqrt{L}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\sqrt{L}$ = .8660254&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$L^*$ = .75&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Where C = wL + rK&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;C(Q) = w($L^*$) + r($K^*$)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;C(Q) = (9*.75) + (36*3)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;C(Q) = 114.75&lt;/p&gt;&#xA;&#xA;&lt;p&gt;C(Q) @ 9 Firms =  (114.75 * 9) = 1032.75 (I think???)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But this doesn't have a slope, so how does this make sense? Obviously you would normally find the equilibrium through Qd = Qs, but what do I equal Qd to now?&lt;/p&gt;&#xA;" OwnerUserId="4540" LastEditorUserId="1601" LastEditDate="2015-06-06T12:29:13.733" LastActivityDate="2015-06-06T12:35:33.727" Title="Finding equilibrium of perfect competition in the short run with a cost function" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="11" ContentLicense="CC BY-SA 3.0" />
  <row Id="5941" PostTypeId="1" AcceptedAnswerId="5942" CreationDate="2015-06-03T07:04:03.060" Score="5" ViewCount="132" Body="&lt;p&gt;On this &lt;a href=&quot;https://theoryclass.files.wordpress.com/2012/01/mktdesign11.pdf&quot; rel=&quot;noreferrer&quot;&gt;note&lt;/a&gt; for  Shapley-Shubik model, there's a maximization problem:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\max_{x_{ij} \in \mathbb{R}^{M \times N}}\sum_{j \in N}\sum_{i \in M}v_{ij}x_{ij}$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\text{s.t.}  \ \sum_{j \in N}x_{ij} \leq 1 \ \forall i \in M$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\\ \sum_{i \in M}x_{ij} \leq 1 \ \forall j \in N$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$x_{ij} \geq 0 \ \forall i \in M\forall j \in N$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;The dual problem of it is&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\min_{s_j \in \mathbb{R}^N, p_i \in \mathbb{R}^M }\sum_{j \in N}s_j+\sum_{i \in M}p_i$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\text{s.t.} s_j + p_i \geq v_ij \ \forall i \in M\forall j \in N$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\\ s_j, p_i \geq 0 \forall i \in M\forall j \in N$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;What's the rule of writing this dual problem?&lt;/p&gt;&#xA;" OwnerUserId="73" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2015-06-03T07:19:54.187" Title="How to write the dual problem of this maximization problem?" Tags="&lt;microeconomics&gt;&lt;reference-request&gt;&lt;academic-graduate&gt;&lt;linear-programming&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5942" PostTypeId="2" ParentId="5941" CreationDate="2015-06-03T07:19:54.187" Score="2" Body="&lt;p&gt;Everything is explained here: &lt;a href=&quot;http://en.wikipedia.org/wiki/Linear_programming#Another_example&quot; rel=&quot;nofollow&quot;&gt;http://en.wikipedia.org/wiki/Linear_programming#Another_example&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="4667" LastActivityDate="2015-06-03T07:19:54.187" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5943" PostTypeId="1" AcceptedAnswerId="5946" CreationDate="2015-06-03T10:23:37.880" Score="3" ViewCount="903" Body="&lt;p&gt;This question is driving me nuts. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose, an individual lives for two periods. In each period she consumes only one good,which is rice. In period 2, she can costlessly produce 1 unit of rice, but inperiod 1 she produces nothing. However, in period 1 she can borrow rice at&#xA;an interest rate $r$ &gt; 0. That is, if she borrows $z$ units of rice in period 1,&#xA;then in Period 2, she must return $z(1 + r)$ units of rice. Let $x_1$ and $x_2$ denote her consumption of rice in period 1 and period 2, respectively; $x_1$, $x_2$ ≥ 0. Her utility function is given by $$U(x_1, x_2) = x_1 + βx_2$$, where β is the discount factor, 0 &amp;lt; β &amp;lt; 1. Note that there are only two sources through which rice can be available; own production and borrowing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now suppose that there are N agents in the above two period&#xA;economy. The agents are identical (in terms of production and utility&#xA;function) except that they have different discount factors. Suppose that&#xA;β follows uniform distribution in the interval [ 1/2, 1]. Assuming r ≤ 1, what would be the demand function for rice in period 1?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My approach is integrating $\beta$ from 1/2 to $\frac{1}{1+r}$, and my answer comes out to be $\frac {N(1-r)} {1+r}$, but I dont think that's right. &lt;/p&gt;&#xA;" OwnerUserId="4253" LastEditorUserId="69" LastEditDate="2015-06-03T12:35:09.977" LastActivityDate="2019-12-25T00:40:48.047" Title="Intertemporal consumption question" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;&lt;decision-theory&gt;" AnswerCount="1" CommentCount="6" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5944" PostTypeId="2" ParentId="5913" CreationDate="2015-06-03T12:16:12.770" Score="-1" Body="&lt;p&gt;I have flaged this question to be closed, because it is hopelessly vague -and the many answers here prove it: it is obvious that the terms &quot;gain&quot; and &quot;loss&quot; mean very different things to the answerers, which means that the problem is in the question, which used the words as though there exists a single, universally agreed upon meaning for each.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To give the most interesting (to me) example, I pick an excerpt from another answer:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;Well, the guy selling chocolate looses cause now he lost a &lt;strong&gt;possible&lt;/strong&gt; sell to you.&quot;&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The emphasis is mine. Such reasoning is sustained by the following interpretation of the meaning/ definition of the word &quot;loss&quot;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\text{Loss is any foregone opportunity for gain.}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's see how this works. Assume I enter willfully and freely into a transaction and the same holds for the other guy, who after the transaction will move abroad. Expressing utilities in monetary (willingness-to-pay) terms, what I give has willingness-to-pay for me say $10$, while what I receive has $12$. So it appears that, after the transaction, I am better off, by $12-10 = 2$... &lt;em&gt;No I am not&lt;/em&gt;: I just experienced a loss here: I forfeited the opportunity to get the other guy's stuff without giving up anything. In that case I would have ended up with $10+12 = 22$. Currently, I have only $12$. So &lt;strong&gt;this transaction created a loss for me, equal to $22-12 = 10$, given how &quot;loss&quot; is defined.&lt;/strong&gt; Mind you, there is folk belief that such a definition for &quot;loss&quot; is not just a twisting of words and meanings, but it characterizes the &quot;venturous spirits&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The above only shows that if such terms are not defined somewhat strictly and, unavoidably, narrowly, useful conversation around them is difficult if not impossible -let alone &lt;em&gt;answering a question&lt;/em&gt; about them.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-06-03T12:16:12.770" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="5945" PostTypeId="1" AcceptedAnswerId="5983" CreationDate="2015-06-03T12:34:06.190" Score="0" ViewCount="122" Body="&lt;p&gt;Given the production function $D(x,y,z)=\min\{2x, \left( 2y+4z\right)\}$, and knowing that P-price $P_x=30,P_y=20,P_z=5$ and volume of production $D=200$. How much of x,y and z is needed to minimize the costs?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know that i should write:&#xA;$2x=2y+4z=200$ but how to find proper values for x,y and z? I general i think i should write this because those factors are complementary thus each of the &quot;components&quot; of the function should be equal to 200 which is the production volume.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The only thing i've managed to do is to guess the numbers: $x=100,z=50, y=0$.&#xA;Is there a method to justify that those numbers will minimize the function?&lt;/p&gt;&#xA;" OwnerUserId="4264" LastEditorUserId="4264" LastEditDate="2015-06-06T09:25:53.253" LastActivityDate="2015-06-06T12:27:53.497" Title="Minimization of costs combination of factors of production" Tags="&lt;microeconomics&gt;&lt;production-function&gt;&lt;producer-theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5946" PostTypeId="2" ParentId="5943" CreationDate="2015-06-03T13:47:22.800" Score="2" Body="&lt;p&gt;Due to the linearity of the utility function the utility maximization problem for individual $i$ has either one of the two corner solutions, or it is indeterminate.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The individual $i$ has to solve the following problem&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\max_{x_{1i},x_{2i}}[ x_{1i} + \beta_i x_{2i}]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$s.t. x_{2i} = 1-(1+r)x_{1i}, \;\;x_{1i} \geq 0,\;\;x_{2i} \geq 0 $$&#xA;Solvency is also imposed -i.e. the individual cannot borrow in the first period more than what he can repay in the second period (including interest).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One can deduce that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\text {&quot;flatter&quot; budget constraint:}\;\; -(1+r) &amp;gt; -\beta_i^{-1}   \implies \{x_{1i}^* = (1+r)^{-1},\;\;x_{2i}^* = 0\} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\text {&quot;steeper&quot; budget constraint:}\;\; -(1+r) &amp;lt; -\beta_i^{-1}  \implies  \{x_{1i}^* = 0,\;\;x_{2i}^* = 1\}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;..&quot;steeper&quot; and &quot;flatter&quot; with respect to the utility (linear) indiference map, and with $x_{2i}$ in the vertical axis.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/uBRC0.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Working the implied inequalities we re-write the solution as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\beta_i &amp;lt; \frac 1{1+r} \implies \{x_{1i}^* = (1+r)^{-1},\;\;x_{2i}^* = 0\}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\beta_i &amp;gt; \frac 1{1+r} \implies \{x_{1i}^* = 0,\;\;x_{2i}^* = 1\}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the $N$-identical individuals case, and with $\beta_i, i=1,...,N$ being a random variable we can only talk about expected demand in the first period, denote it $E(d_{1i})$ for the individual and $E(D_1) = N\cdot E(d_{1i})$ on aggregate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$E(d_{1i}) = \frac 1{1+r} \cdot \Pr\left[\beta_i &amp;lt; \frac 1{1+r}\right] + 0 \cdot \Pr\left[\beta_i &amp;gt; \frac 1{1+r}\right] $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The second term vanishes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given the assumptions on the distribution of the $\beta$'s its density function over the domain is $f(\beta_i) =2$ and so the remaining probability is (as long as $r \leq 1$)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Pr\left[\beta_i \leq \frac 1{1+r}\right] = \int_{1/2}^{(1+r)^{-1}}2{\rm d}\beta_i = 2\left(\frac 1{1+r}-\frac 12\right) = \frac {1-r}{1+r}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and so we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$E(D_1) = \frac N{1+r}\cdot \frac {1-r}{1+r} = \frac {1-r}{(1+r)^2}N$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which is decreasing in $r$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If $r$ hits unity, &lt;em&gt;expected&lt;/em&gt; demand will be zero -because&lt;br&gt;&#xA;&lt;strong&gt;a)&lt;/strong&gt; It would place a solvency ceiling to loan demand to be not higher than $1/2$ so that with interest rate $100\%$ all production of the second period would then be needed to repay the loans. This means that with $r=1$, maximum consumption (and utility) in the first period will not exceed $1/2$.&lt;br&gt;&#xA;&lt;strong&gt;b)&lt;/strong&gt; the discount factor being greater or equal than $1/2$, implies that by taking zero loan in the first period, one would enjoy the full unitary production of the second period, with utility higher than $1/2$. So for non-zero demand for loans in the first period, it &lt;em&gt;must&lt;/em&gt; be the case that this demand can exceed $1/2$. When $r\geq 1$ it cannot, hence the zero expected demand. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Note:&lt;/strong&gt; if instead of a &quot;stochastic distribution&quot; of the $\beta$'s we think of a &quot;uniform allocation&quot; of them in the $[1/2,1]$ interval, then we can think of expected demand as deterministic demand.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-06-04T20:30:15.747" LastActivityDate="2015-06-04T20:30:15.747" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5947" PostTypeId="2" ParentId="5913" CreationDate="2015-06-03T14:16:36.357" Score="15" Body="&lt;p&gt;As a complement to the great answers already here, let me give an even simpler small scale example in which you win and no one else loses:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose you have a broken fan at home.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Scenario A: you relax on your couch then go to sleep.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Scenario B: you take your fan apart, figure it's just a loose screw, tighten it, put it back together again, and it's fixed. BAM, value created. Then you go to sleep.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In Scenario B, you gained and nobody lost. When you went to sleep there was literally more material wealth in the world compared to Scenario A. And measurably more so: you can certainly sell the fan for more money now that it's fixed.&lt;/p&gt;&#xA;" OwnerUserId="4845" LastEditorUserId="1601" LastEditDate="2015-07-18T20:50:42.317" LastActivityDate="2015-07-18T20:50:42.317" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5948" PostTypeId="2" ParentId="5938" CreationDate="2015-06-03T14:26:20.087" Score="4" Body="&lt;p&gt;I assume what you're asking based on your comments is: &quot;How can I visualize indifference curves for 3 goods?&quot; I can think of three options:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) Use a tool like Matlab, or its open-source equivalent, Octave, to plot 3 dimensional indifference curves. &lt;a href=&quot;https://www.gnu.org/software/octave/doc/interpreter/Three_002dDimensional-Plots.html&quot; rel=&quot;nofollow&quot;&gt;Here&lt;/a&gt; is a tutorial on how to do that.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) Make a series of 2-dimensional indifference curves for two of the goods, and fix a different level of the third good for each one, that is, plot a series of cross-sections of the 3 dimensional box.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;3) Using paper and pencil, draw a general $n$ dimensional Edgeworth box, then, set $n = 3$.&lt;/p&gt;&#xA;" OwnerUserId="4177" LastActivityDate="2015-06-03T14:26:20.087" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5949" PostTypeId="2" ParentId="5913" CreationDate="2015-06-03T15:46:16.137" Score="-2" Body="&lt;p&gt;Not every action means that somebody is losing. Let's look at &lt;a href=&quot;http://en.wikipedia.org/wiki/Economic_sector&quot; rel=&quot;nofollow&quot;&gt;the 3 economical sectors&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Extracting natural resources will add value in our economical chain (e.g. &lt;strong&gt;solar power&lt;/strong&gt;, &lt;strong&gt;recycling paper&lt;/strong&gt;).&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;But also production companies add value. They buy goods which will be used as a resource to create new products. The value of the end-product is often much bigger than the value of the consumed input products. (e.g. &lt;strong&gt;producing furniture&lt;/strong&gt;)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;But the same goes for distribution and services. Most economical activities are actually win-win situations. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;However, it is true that &lt;a href=&quot;http://en.wikipedia.org/wiki/Economic_inequality&quot; rel=&quot;nofollow&quot;&gt;&lt;strong&gt;economical balance&lt;/strong&gt;&lt;/a&gt; can be disturbed if one region is doing better than another. (e.g. &lt;strong&gt;Is globalization a good thing or a bad thing?&lt;/strong&gt;). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Competition also plays an important role. It can be positive (win-win) or negative (e.g. price wars, ...). On the other hand, without competition you get monopolies, which are bad for the consumer. It is partially &lt;strong&gt;the task of the government&lt;/strong&gt; to avoid these kind of situations.&lt;/p&gt;&#xA;" OwnerUserId="4846" LastEditorUserId="4846" LastEditDate="2015-06-04T15:08:09.227" LastActivityDate="2015-06-04T15:08:09.227" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="5950" PostTypeId="2" ParentId="5938" CreationDate="2015-06-03T15:51:03.290" Score="1" Body="&lt;p&gt;Yea. If you have n number of goods and you would like to visualize it, you should use n-dimension of graph. Therefore, in your case, it is three dimensional. In terms of visualizing it, you can:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Manually draw it on paper although this will not help the visualization a lot.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;If you are looking for software, I think that any software that can help you visualize a graph using certain set function can help you. For me, I personally will go for Matematica, but there are other programs like Matlab, which are also fine. Just look for programs that can get certain mathematics function and project it into a 3D graph.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="4828" LastActivityDate="2015-06-03T15:51:03.290" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5951" PostTypeId="1" AcceptedAnswerId="5952" CreationDate="2015-06-03T15:57:18.410" Score="2" ViewCount="523" Body="&lt;p&gt;&lt;em&gt;A firm produces 231 doohickeys with 8.4 units of labour and 22.1 units of capital. the marginal product of labour is 18, the marginal product of capital is 20. Approximately how many doohickeys will it produce with 8.6 units of labour and 22 units of capital?&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this just as simple as taking the difference between the new and original values and multiplying that by the marginal product? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;i.e. (8.6-8.4) x 18 + (22-22.1) x 20 = 1.6&lt;/p&gt;&#xA;&#xA;&lt;p&gt;so they will produce approximately 232.6 doohickeys&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or am i supposed to take the integral of the marginal products and do something with those? i tried that but I couldnt get any where&lt;/p&gt;&#xA;" OwnerUserId="4848" LastEditorUserId="4578" LastEditDate="2015-06-03T17:54:20.590" LastActivityDate="2015-06-03T17:54:20.590" Title="Find Change in output from marginal products of labor/capital" Tags="&lt;microeconomics&gt;&lt;production-function&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5952" PostTypeId="2" ParentId="5951" CreationDate="2015-06-03T16:55:50.777" Score="0" Body="&lt;p&gt;I think your solution is golden.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Taking the integral of the marginal products could only work if the marginal products were constant everywhere. This is not mentioned in the text, and in fact if you assume it to be constant then production given this level of $K$ and $L$ would not be 231.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another interesting tidbit:&#xA;&lt;br&gt; If you knew the marginal product function of $L$ and also that of $K$ taking the integrals and summing them up would only work if $MPL$ is constant in $K$ and vice-versa.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2015-06-03T16:55:50.777" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5953" PostTypeId="1" CreationDate="2015-06-03T17:25:45.333" Score="1" ViewCount="165" Body="&lt;p&gt;$MC = (TC)'(q) = 3q^2 - 40q+220, \quad  where \quad  1 \leq q \leq 20 $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The task is to deduce a function of $TC$, if for the production of the first item we need 291 monetary units, and to write out the cost value if $q$ = 8 units.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have found that $TC = q^3-20q^2+220q$, but i can't understand how to use that 291 monetary units for finding the cost value&lt;/p&gt;&#xA;" OwnerUserId="4849" LastEditorUserId="4849" LastEditDate="2015-06-03T17:32:42.917" LastActivityDate="2015-06-03T23:08:33.187" Title="Deducing the Total Cost function" Tags="&lt;cost&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5954" PostTypeId="2" ParentId="5953" CreationDate="2015-06-03T19:43:40.623" Score="3" Body="&lt;p&gt;The total cost was 291 m.u. for 1 unit given $MC(q) \equiv \frac{dC(q)}{q} = 3 q^2 - 40 q + 220$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, the area under the Marginal Cost gives the Total Variable Cost, $TVC(q)$. To find this area, we will integrate the Marginal Cost:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\begin{align}&#xA;TVC(q) &amp;amp;= \int_0^q\frac{dTVC(q)}{dq} dq = \int_0^q (3q^2 - 40 q + 220) dq\\&#xA;&amp;amp;= \left. \left(q^3 -20q^2 +220q  \right) \right|_q - \left. \left(q^3 -20q^2 +220q\right)  \right|_0\\&#xA;&amp;amp;= {q^3 -20q^2 +220q}&#xA;\end{align}&#xA;$$&#xA;Now, you have to use the additional information of 291 m. u. to find the Fixed Cost. The Total Cost equals the Variable Cost plus the Fixed Cost (which does not depend on q):&#xA;$$\begin{align}&#xA;TC(1) = TVC(1) + FC &amp;amp;=  291\\ &#xA;1^3 -20 \cdot 1^2 + 220 \cdot 1 + FC &amp;amp;= 291\\&#xA;FC &amp;amp;= 90&#xA;\end{align}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence, for the 8 units:&#xA;$$&#xA;\begin{align}&#xA;TC(8) = TVC(8) + FC &amp;amp;= 8^3-20 \cdot 8^2 + 220 \cdot 8 + 90\\&#xA;&amp;amp;= 1082&#xA;\end{align}&#xA;$$&lt;/p&gt;&#xA;" OwnerUserId="246" LastEditorUserId="246" LastEditDate="2015-06-03T23:08:33.187" LastActivityDate="2015-06-03T23:08:33.187" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5955" PostTypeId="2" ParentId="5913" CreationDate="2015-06-03T19:43:51.070" Score="-3" Body="&lt;p&gt;I think that is true, for example when a company gains an important place in the market with a certain number of customers the other company will lose these customers. Other example: when &quot;Carrefour market&quot; is open on Sunday it makes profits that the other super market will not make. So for me this relation between lost and gained seems valid...&lt;/p&gt;&#xA;" OwnerUserId="4853" LastEditorUserId="1601" LastEditDate="2015-06-03T19:49:43.423" LastActivityDate="2015-06-03T19:49:43.423" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5956" PostTypeId="1" CreationDate="2015-06-03T19:52:58.577" Score="2" ViewCount="1541" Body="&lt;p&gt;&lt;strong&gt;Situation 1&lt;/strong&gt; In a situation where we have two markets one with good quality products and the other with bad quality products, if we are in a situation where the buyer knows which is the good product and which is the bad we can say that the demand for good quality products is superior to the bad quality ones.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Situation 2&lt;/strong&gt; Now if we go from situation 1 to situation 2 where the buyer does not know which is the good or the bad product we can say that the demand for good quality products decreases since the buyer is willing to pay less because he does not kbow if what he is buying is a good product.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now what I dont understand is why do we say that the demand for bad quality products will increase when the demand for good quality products decreases?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is it just because the decrease in demand for the good products is the same quantity as the increase in demand of bad product since the two products are the same type but not quality? Or is there another explanation for this ? &lt;/p&gt;&#xA;" OwnerUserId="2797" LastEditorUserId="43" LastEditDate="2015-06-05T18:53:20.570" LastActivityDate="2015-06-05T18:53:20.570" Title="Does the demand for bad quality products increase when there is information asymmetry?" Tags="&lt;supply-and-demand&gt;&lt;asymmetric-information&gt;&lt;adverse-selection&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5957" PostTypeId="2" ParentId="5904" CreationDate="2015-06-03T19:53:21.930" Score="1" Body="&lt;p&gt;Let's find the Marginal Product of Labor, $MP_L$:&#xA;$$&#xA;\begin{align}&#xA;MP_L \equiv \frac{\partial Y(K,L)}{\partial L} &amp;amp;=\frac{\partial }{\partial L}\left( aK + b L^{0.5} \right) \\&#xA;&amp;amp;= 0.5\cdot b \cdot L^{-0.5}&#xA;\end{align}&#xA;$$&#xA;Now finding $\frac{dMP_L}{dK}$ is trivial:&#xA;$$&#xA;\begin{align}&#xA;\frac{dMP_L}{dK} &amp;amp;= \frac{d}{dK} \left( 0.5\cdot b \cdot L^{-0.5}\right) = 0&#xA;\end{align}&#xA;$$&#xA;We see that it does not depend on the capital. So a change in $MP_L$&lt;/p&gt;&#xA;" OwnerUserId="246" LastActivityDate="2015-06-03T19:53:21.930" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5958" PostTypeId="2" ParentId="5956" CreationDate="2015-06-03T20:51:43.027" Score="1" Body="&lt;p&gt;In the second case (information asymmetry) there is only a single market. This may be the market for the product with unknown quality or in case of adverse selection it may be a market for the bad quality product alone. Assuming there is no adverse selection the reservation price of a consumer w.r.t. the unknown good is the expected value of his reservation prices from the full information case. Thus it is a weighted average and will fall between the reservation prices of the good quality product and the bad quality product. Since this is true for all consumers, the demand function adjusts in the way you described.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What happens exactly (number of products sold) depends on the market structure, whether the seller of the goods is a monopoly or there is supply-side competition. &lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2015-06-03T20:51:43.027" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5959" PostTypeId="1" AcceptedAnswerId="5966" CreationDate="2015-06-03T21:31:09.080" Score="2" ViewCount="421" Body="&lt;p&gt;This question relates to a &lt;a href=&quot;http://faculty.chicagobooth.edu/eric.budish/research/budish-approxceei-jpe-2011.pdf&quot; rel=&quot;nofollow&quot;&gt;specific paper by Eric Budish, published in 2011 in JPE&lt;/a&gt;, but I've tried to put all relevant information in this question. On page 1072, he defines &lt;em&gt;budget constraint hyperplanes&lt;/em&gt; as follows:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Let $H(i,x) = \{\mathbf{p}:\mathbf{p} \cdot x = b_i \}$ denote the&#xA;  hyperplane in $M$-dimensional price space along which agent $i$ can&#xA;  exactly afford bundle $x$. As prices cross $H(i,x)$ from below, bundle&#xA;  $x$ goes from being affordable for $i$ to being unaffordable for $i$.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;$\textbf{p}$ represents a price vector for the $M$ goods, which, importantly, are indivisible. $b_i$ is agent $i$'s budget. I think the rest is sufficiently self-explanatory. My confusion is with this subsequent statement:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Importantly, the number of such hyperplanes is finite because the&#xA;  number of agents and the number of bundles are finite. This is an&#xA;  advantage of having only indivisible goods.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This I don't see. For example, suppose $M=2$. Then aren't all $\textbf{p}=(\alpha b_i, (1-\alpha)b_i)$ such that $\alpha \in [0,1]$ hyperplanes meeting that definition, and thus I have infinitely many?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Having said that, a hyperplane is the set of those price vectors, not each of the vectors, so maybe the full set of price vectors I've just described together define just one hyperplane? I suppose my issue is understanding what a hyperplane is in this setting, and how the indivisibility gives us just a finite set of hyperplanes to work with. Any guidance would be very much appreciated.&lt;/p&gt;&#xA;" OwnerUserId="48" LastActivityDate="2015-06-04T06:18:09.283" Title="Budget constraint hyperplanes" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;" AnswerCount="1" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="5960" PostTypeId="2" ParentId="5913" CreationDate="2015-06-03T21:54:10.673" Score="0" Body="&lt;p&gt;As an additional answer, i.e. to supplement others, I think there is one further concept you might want to look into. &quot;If I gain, somebody else loses,&quot; is, I would argue, at least roughly speaking, a good description of &lt;a href=&quot;http://en.wikipedia.org/wiki/Mercantilism&quot; rel=&quot;nofollow&quot;&gt;mercantilism&lt;/a&gt;, a pretty dominant economic theory until a few centuries ago. I'm bringing this to your attention because a) it is a manifestation of your philosophy at the national level, as you specify, and b) it's a neat historical example of a fairly prevalent economic theory that seems pretty silly today.&lt;/p&gt;&#xA;" OwnerUserId="48" LastActivityDate="2015-06-03T21:54:10.673" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5961" PostTypeId="2" ParentId="5933" CreationDate="2015-06-03T22:29:53.430" Score="4" Body="&lt;p&gt;From the formula for $x_M$, we see it has no dependence on income $m$. So $$\frac{\partial x_M}{\partial m} =0$$ Thus, the Slutsky equation &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\partial x_M}{\partial p_x} = \frac{\partial x_H}{\partial p_x} +-\frac{\partial x_M}{\partial m}x_M$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;implies &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\partial x_M}{\partial p_x} = \frac{\partial x_H}{\partial p_x} +(0)x_M $$&#xA;$$\frac{\partial x_M}{\partial p_x} = \frac{\partial x_H}{\partial p_x}  $$&#xA;Hence, and since $-\frac{\partial x_M}{\partial m}x_M$ is the income effect, this implies the income effect is zero and all the change is due to the substitution effect. &lt;/p&gt;&#xA;" OwnerUserId="2679" LastActivityDate="2015-06-03T22:29:53.430" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5962" PostTypeId="1" CreationDate="2015-06-03T23:47:57.593" Score="10" ViewCount="707" Body="&lt;p&gt;I'm a bit perplexed that eBay has auctions that have a fixed time ending, and so winners are often determined by who can &lt;a href=&quot;http://en.wikipedia.org/wiki/Auction_sniping&quot;&gt;'snipe'&lt;/a&gt; the auction, by putting in the winning bid at the last possible microsecond.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Often specialised software is used to achieve this. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;An alternative system, like New Zealand's &lt;a href=&quot;http://www.trademe.co.nz/&quot;&gt;Trade Me&lt;/a&gt; auction site uses, is that the auction is auto-extended by two minutes, if a bid is put within the last two minutes of the auction. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What this means in practise (from what I've seen in auctions I've particpated in) is that an auction might be extended by 10-30 minutes due to 'last minute' bids between two or more bidders.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, it should be noted that the auto-extending dynamic doesn't completely negate the sniping dynamic. For example if Bob sees that Alice has put a bid on a item for \$1000, which is due to close in two days, and Bob is willing to spend \$2000 on that item, it still makes sense for Bob to hold off bidding on the auction until closing time. Alice may not be paying attention\be at her computer (though trade me allows auto-bids) at closing time, and by bidding at the last minute, he reduces the window in which she can outbid him. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This auto-extending system seems like it evaluates the market value more genuinely than the sniping system. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ebay is surely aware of this dynamic, and it must be a conscious decision to keep the sniping-allowed system. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My hypothesis is that systems that allow sniping encourage higher selling prices, as bidders pre-emptively increase their bids as to stay out of the sniper's willing-to-bid range. &lt;/p&gt;&#xA;" OwnerUserId="96" LastEditorUserId="96" LastEditDate="2015-06-04T03:51:14.243" LastActivityDate="2015-06-07T11:48:18.537" Title="Impact of auction systems that allow 'sniping'" Tags="&lt;auctions&gt;" AnswerCount="3" CommentCount="4" FavoriteCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="5963" PostTypeId="2" ParentId="5913" CreationDate="2015-06-04T03:15:03.730" Score="-1" Body="&lt;p&gt;I agree with several other posts here, but let me add a simple logical proof:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose I sell my used car for, whatever amount, say \$1000. So someone gives me \$1000 and I give him the car.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why did we do this? You could reason like this: If the car is worth more than \$1000, then I am being cheated. If the car is worth less than \$1000, than the person who buys it is being cheated. Perhaps one of us is a fool who was duped by a con man. But there are plenty of places you can look up the &quot;book value&quot; of a car today quickly and easily. And people make these sort of transactions all the time. There must be thousands of used cars sold in America every day. In every transaction, is one of the people a fool?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You might reply that the deal is fair if the car is worth EXACTLY \$1000. But if that's the case, why should we go to the trouble to make the exchange? If having ten \$100 bills in his pocket is EXACTLY as good as having this used car, why should the buyer look up classified ads and run all over town just to exchange something for something else that has exactly the same value?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;No, the only possible explanation is that to me, the seller, ten \$100 bills are worth more than the car, but that to the buyer, the car is worth more than ten \$100 bills. Perhaps I have another car and have little use for two cars, while the buyer's only car was destroyed in an accident yesterday. There are all sorts of things that I can buy with the cash that are more valuable to me than having a second car sitting in the driveway. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is what makes transactions possible: There is no such thing as &quot;THE value&quot; of a product. What a product is worth to me has nothing to do with what it is worth to you. Thus it is possible for two people to trade products and both to come out ahead. By the values that each person assigned to the products involved, both got more than they gave.&lt;/p&gt;&#xA;" OwnerUserId="1621" LastActivityDate="2015-06-04T03:15:03.730" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5964" PostTypeId="2" ParentId="5956" CreationDate="2015-06-04T03:43:49.407" Score="0" Body="&lt;p&gt;Let's take simple, extreme cases.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Scenario 1: The good quality product and the bad quality product are being sold for exactly the same price. Buyers have absolutely zero information about the quality of either. Both have equivalent marketing and availability, i.e. the same number of each are offered for sale, they are in the same number of stores, stores are equally convenient to customers, etc. Then presumably people would buy about 50% good product and 50% bad product.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Scenario 2: Everything the same as scenario 1, except now buyers now exactly which products are good and which are bad. Again, assuming both are readily available to all customers, then presumably people would buy 100% good product and 0% bad product.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the &quot;no information&quot; market reduces sales of the good product from 100% to 50%, and increases sales of the bad product from 0% to 50%.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course in real life the situation is rarely if ever that clear cut. Some consumers will know which products are good and which are bad, while other consumers will not. Even people with perfect information may disagree about which is better. (I may prefer a car that can haul more luggage while you prefer a car that gets better gas mileage.) I may buy a product that I know is lower quality because I can get it at a store that is nearby while getting the higher quality product would require me to travel a long distance and I don't think it's worth the trouble. Etc.&lt;/p&gt;&#xA;" OwnerUserId="1621" LastActivityDate="2015-06-04T03:43:49.407" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5965" PostTypeId="2" ParentId="482" CreationDate="2015-06-04T04:00:43.693" Score="2" Body="&lt;p&gt;Because nothing is really free. Even if the seller is not charging money for the product, you have to go to some time and effort to get it. Once you get it, it will take up space in your home. It may require maintenance. If someone is giving things away for free at a table, you may have to listen to their speech about whatever to get the free item, and you'd rather not. Etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Recently my daughter and I saw an advertisement for some new product that talked about how it would change our lives and all, the usual advertising hype, and I commented that it seemed pretty useless to me. Then I said, &quot;I wouldn't walk across a room to pick one up if they were giving them away for free.&quot; Surely you can imagine products that you would consider similarly worthless to you. Food that you don't like, clothes that don't fit your style, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In some cases the value I attach to a product is quite literally less than the value I attach to the 5 minutes of my time that it would take to pick one up and carry it home.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And by the way, some people may value a product as having negative value, so even if you offered to deliver it to their door they wouldn't want it. To take a silly case, there was a Monty Python skit about the &quot;Poetry Book of the Month Club&quot; sending free buckets of cow manure to every customer. If someone came to your door offering you a free bucket of cow manure, would you want it? I think for most of us the answer would be no. Less dramatically, if someone offered me a free T-shirt with a slogan advocating some political cause that I totally disagree with, I wouldn't want it. (Well, I suppose I could cynically ask for not just one but enough for my whole family and then throw them away, just to cost these people money. But whatever.)&lt;/p&gt;&#xA;" OwnerUserId="1621" LastActivityDate="2015-06-04T04:00:43.693" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5966" PostTypeId="2" ParentId="5959" CreationDate="2015-06-04T06:18:09.283" Score="1" Body="&lt;p&gt;The set $\{\mathbb{p}:\exists \alpha \in (0,1), \mathbb{p}_1=\alpha b_i, \mathbb{p}_2=(1-\alpha)b_i\}$ coincides with the hyperplane $\{\mathbb{p}:p_1+p_2=b_i\}$, therefore you are not finding extra hyperplanes by doing this and varying $\alpha$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;More generally, if you fix $x=(x_1,x_2)$ and $b_i$, you obtain one hyperplane characterized by the equation $\{\mathbb{p}:p_1 x_1+p_2 x_2=b_i\}$. Since there are finitely many such $x$ (and $b_i$ is given), there are finitely many such hyperplanes.&lt;/p&gt;&#xA;" OwnerUserId="4667" LastActivityDate="2015-06-04T06:18:09.283" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5967" PostTypeId="1" CreationDate="2015-06-04T08:14:45.923" Score="5" ViewCount="796" Body="&lt;p&gt;As a research project, we're investigating various algorithms developed for non-differentiable, convex (or concave, if you're into economics) optimization. I'd like to find some good examples of real problem formulations that arise in different fields, especially economics. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any example is welcome, as long as it is non-smooth in some sense, either in the objective function or the feasible set. Ideally I'd like examples of both strictly concave and not strictly concave functions. Both problems that are separably concave and problems that aren't are of interest.&lt;/p&gt;&#xA;" OwnerUserId="4861" LastActivityDate="2015-06-04T12:07:56.807" Title="Examples of non-differentiable problems in economics" Tags="&lt;optimization&gt;" AnswerCount="4" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5969" PostTypeId="2" ParentId="5967" CreationDate="2015-06-04T09:39:01.030" Score="3" Body="&lt;p&gt;Here are four I could think of:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Leontief and Lexicographic functions, used in preferences or&#xA;production functions are non-differentiable.&lt;/li&gt;&#xA;&lt;li&gt;Labor models often employ a discrete labor supply (work or don't&#xA;work, sometimes alongside the decision of how much or how hard to&#xA;work).&lt;/li&gt;&#xA;&lt;li&gt;Housing models often employ a non-convex adjustment cost to ensure&#xA;that there is a discontinuity in the cost function for the choice of&#xA;housing.&lt;/li&gt;&#xA;&lt;li&gt;Kinked objective functions, where at one or more points the&#xA;left-hand and right-hand limits  differ, are also common in&#xA;economics (e.g. optimal option exercise at maturity)&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="69" LastActivityDate="2015-06-04T09:39:01.030" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5970" PostTypeId="2" ParentId="5967" CreationDate="2015-06-04T10:14:49.193" Score="2" Body="&lt;p&gt;&lt;strong&gt;&quot;Indivisibillity of goods&quot;&lt;/strong&gt; is a standard example of a non-differentiable feasible set. Still, while it has produced a number of theoretical results in microeconomics mainly regarding individual behavior, when examining real-world markets and economies, the smoothing effects of aggregation allows to treat it as though it was smooth and differentiable, with the approximation error being negligible (and indeed it is). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;An interesting case that might qualify for what you are asking, is &lt;strong&gt;dynamic problems where investment becomes a step-function&lt;/strong&gt; (&lt;a href=&quot;https://economics.stackexchange.com/questions/462/arent-all-cost-functions-step-functions/&quot;&gt;&lt;strong&gt;see this post also&lt;/strong&gt;&lt;/a&gt;). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A classic example is Telecommunications market. Companies invest in building an initial network that has a capacity &quot;to last certain periods&quot;. As (or if) they grow commercially, it comes a time that capacity is indeed reached (typically 80% of theoretical capacity, validating once more the &lt;a href=&quot;https://en.wikipedia.org/wiki/Pareto_principle&quot; rel=&quot;nofollow noreferrer&quot;&gt;Pareto principle/rule-of-thumb&lt;/a&gt;), and then they have to invest, not a little something to smoothly increase capacity say by 1%, but again a sizeable amount to increase capacity to &quot;last for some periods&quot;. Etc.&lt;br&gt;&#xA;This sometimes is inherent in the nature of things and the technology involved, and/or takes into account economies of scale from volume-purchases and project-management costs.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What this does is to impose an additional dynamic constraint on the decision variable &quot;investment&quot;: &quot;if network saturation is below XX, Investment is &quot;zero&quot;, if it has reached XX, invest, and not less than YY&quot;. So in the first subset of periods, the feasible set for investment is just a single point (zero), while in the rest, it has a non-trivial lower bound. In turn the &quot;network saturation&quot; will depend on other decision variables of the firm (like marketing efforts etc) as well as on past investments that have determined the current maximum capacity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Again, at the macroeconomic level, one could invoke the smoothing effects of aggregation, but not when doing micro-economic work on how to solve the problem of a particular firm. Obviously, this has specific applied uses.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-06-04T10:14:49.193" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5971" PostTypeId="2" ParentId="5967" CreationDate="2015-06-04T11:17:53.490" Score="2" Body="&lt;p&gt;I think there are some problems like this cooperative game theory. The one that jumps to mind is the &lt;a href=&quot;http://en.wikipedia.org/wiki/Stable_marriage_problem#Algorithm&quot; rel=&quot;nofollow&quot;&gt;Gale-Shapley&lt;/a&gt; algorithm.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2015-06-04T11:17:53.490" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5972" PostTypeId="1" AcceptedAnswerId="5973" CreationDate="2015-06-04T11:39:49.673" Score="2" ViewCount="9752" Body="&lt;p&gt;The function of demand is:\begin{align*} D(p) = 66-3p-p^2 \\\end{align*}&#xA;The function of supply is: \begin{align*}S(p) = 4p^2+8p-114\\&#xA;\end{align*}&#xA;The task is to find price elasticity of demand in the point of economic equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have found out that the equilibrium price is 5 and equilibrium demand is 26.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I also have a formula that states that $E = k * P/Q$&#xA;, where $P$ - equilibrium price, $Q$ - equilibrium demand and $k$ - coefficient  of $S(p)$ slope&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How to find $k$ or are there another methods to solve this task?&lt;/p&gt;&#xA;" OwnerUserId="4849" LastActivityDate="2015-06-04T11:45:16.600" Title="Price elasticity of demand in the point of economic equilibrium" Tags="&lt;supply-and-demand&gt;&lt;elasticity&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5973" PostTypeId="2" ParentId="5972" CreationDate="2015-06-04T11:45:16.600" Score="0" Body="&lt;p&gt;Your formula is overly simplified.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The elasticity is supposed to be &quot;&lt;em&gt;how much does supply change if the price changes&lt;/em&gt;&quot;. Now, the natural way of looking at this is $S'(p)$, the derivative of $S$. However, the units of that are hard to make use of. Hence, we normalize $S'(p)$ by multiplying it with $P/S(p)$, hence getting the &quot;&lt;em&gt;percentage response of $S$ to a percent change in $P$&lt;/em&gt;&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Long story short, your $k$ should satisfy &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ k = S'(p)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that this is the price elasticity of supply. For the price elasticity of demand, you would instead use $D'(p) P / D(p)$.&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-06-04T11:45:16.600" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5974" PostTypeId="2" ParentId="5962" CreationDate="2015-06-04T11:50:22.717" Score="1" Body="&lt;p&gt;I believe (and eBay &lt;a href=&quot;http://www.ebay.com/gds/Bidding-Strategies-Tips-for-Successfully-Winning-Items-/10000000004396516/g.html&quot; rel=&quot;nofollow&quot;&gt;seems to agree with me&lt;/a&gt;) the system was designed to encourage proxy bidding. Proxy bidding is the best possible strategy for eBay.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Proxy bidding&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Proxy bidding is a pretty simple system: you tell a tier (the proxy) the maximum price you're ready to pay for an item and send him to the auction. Hopefully he will get the item for less than the price. Every time the auction stalls at a lower price than your max bid, your proxy will increment the price by 5$ (or some other arbitrary amount).&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Why eBay likes it&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Because if 2 bidders are willing to pay more than $M$ for an item, eBay is sure to sell it for more than $M$ (the proxies beat each other to $M$). This kind of defeats any strategy from the bidder to get the item for less than $M$ except if he is the only one using a proxy.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Why sniping encourages proxy&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Fixed time bidding allows snipers to defeat people at bids lower than their maximum bid. As a consequence, it makes any bid other than the maximum price you're ready to pay a risky bid: the item might go at a lower price than your max, to someone else than you. People don't like this, and so are more likely to bid higher.&lt;/p&gt;&#xA;" OwnerUserId="4578" LastActivityDate="2015-06-04T11:50:22.717" CommentCount="14" ContentLicense="CC BY-SA 3.0" />
  <row Id="5975" PostTypeId="2" ParentId="5967" CreationDate="2015-06-04T12:07:56.807" Score="2" Body="&lt;p&gt;Let me just add two research areas which where not mentioned so far:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://link.springer.com/article/10.1007/BF00122574&quot; rel=&quot;nofollow&quot;&gt;(Cumulative) &lt;strong&gt;Prospect Theory&lt;/strong&gt;&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;(Some form of) &lt;strong&gt;Knightian Uncertainty/Ambiguity&lt;/strong&gt;:&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Chris Shannon has a &lt;a href=&quot;http://eml.berkeley.edu/~cshannon/e207b_sp01/1.pdf&quot; rel=&quot;nofollow&quot;&gt;nice reading list of the &quot;classics&quot;&lt;/a&gt; and there is an article by Truman Bewley on &lt;a href=&quot;http://link.springer.com/article/10.1007/s102030200006&quot; rel=&quot;nofollow&quot;&gt;Knightian decision theory&lt;/a&gt; which is pretty good. But there are many other problems in which it is applied.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As this is not really my research area, I can't really give you an example but you should be able to find some in the articles mentioned, as these fields mostly deal with problems of the kind you are looking for.&lt;/p&gt;&#xA;" OwnerUserId="120" LastActivityDate="2015-06-04T12:07:56.807" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5977" PostTypeId="2" ParentId="5962" CreationDate="2015-06-04T12:41:47.260" Score="5" Body="&lt;p&gt;If bidder valuations are dependent on the information revealed by other bids (particularly increasing in their number and level), then we would expect too low bids because bidders have to internalize the effects of their bids on others and reduce them in response. Allowing sniping fixes this problem because last second bids don't give others an opportunity to profit from the new information. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Evidence demonstrating the influences of these  unique features of&#xA;  online auctions on the prices consumers are willing to pay has&#xA;  shown that final winning prices are positively related to the total&#xA;  number    of bids and to the total number of bidders (Ariely &amp;amp;&#xA;    Simonson, 2003). It has also been shown that bidders    place too much&#xA;  value on information gathered within  the particular auction in which&#xA;  they are participating,   and are thus unduly influenced by that&#xA;  auction’s reserve price (Häubl &amp;amp; Popkowski-Leszczyc, 2001).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;...&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;One explanation for sniping is that bidders might hold off bidding to&#xA;  the last moment in order to strategically hold back information&#xA;  until the last minute of the auction, to avoid price wars triggered by&#xA;  competition (Bajari &amp;amp; Hortacsu, 2003; Häubl &amp;amp; Popkowski-Leszczyc,&#xA;  2004). This explanation for sniping emphasizes the sensitivity of&#xA;  online bidders to other bidders, as well as the competitive nature of&#xA;  online auctions.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://AUCTION%20FEVER:%20THE%20EFFECT%20OF%20OPPONENTS%20AND%20QUASI-ENDOWMENT%20ON%20PRODUCT%20VALUATIONS&quot;&gt;AUCTION FEVER: THE EFFECT OF OPPONENTS AND QUASI-ENDOWMENT ON PRODUCT VALUATIONS&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2015-06-04T12:41:47.260" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5981" PostTypeId="1" CreationDate="2015-06-04T15:57:21.050" Score="0" ViewCount="149" Body="&lt;p&gt;Apartment builders have a constrained optimization problem whereby they balance building different amenities to attract tenants with varying preferences. Recently when searching for apartments I noticed that every single apartment seemed to have a pool. I feel like many people would prefer a small decrease in rent and open space, more parking, a larger fitness center, ect to a pool. Apartments have many other variances in terms of parking, landscaping, price, ect, yet the pool seemed to be a universal. Does this simply reflect that the apartment market cannot be perfectly competitive or that preferences for pools is near universal? Is there an economic explanation or cognitive bias that would explain this kind of convergence?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;PS: I will not be offended if this is closed. I'm not sure if this type of question is not on topic for this site.&lt;/p&gt;&#xA;" OwnerUserId="176" LastEditorUserId="4578" LastEditDate="2015-06-04T17:41:10.847" LastActivityDate="2015-06-04T20:58:45.757" Title="Why do all apartment complexes in Albuquerque have pools?" Tags="&lt;microeconomics&gt;&lt;preferences&gt;&lt;behavioral-economics&gt;&lt;efficient-markets&gt;&lt;competition&gt;" AnswerCount="1" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="5982" PostTypeId="2" ParentId="5712" CreationDate="2015-06-04T17:47:50.640" Score="1" Body="&lt;p&gt;&lt;a href=&quot;https://books.google.com/books/about/Dynamic_Asset_Pricing_Theory.html?id=eBy9QgAACAAJ&quot; rel=&quot;nofollow&quot;&gt;Darrel Duffie&lt;/a&gt; is the graduate school standard for asset pricing:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Gary Becker and Milton Friedman also have titles that fall within your prompt and are very accessible given your background&lt;/p&gt;&#xA;" OwnerUserId="4829" LastActivityDate="2015-06-04T17:47:50.640" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5983" PostTypeId="2" ParentId="5945" CreationDate="2015-06-04T19:18:37.613" Score="1" Body="&lt;p&gt;Working with $\min$ (or $\max$) functions can be tricky, especially if one wants to write down the general solution in a fully rigorous way. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But in your case you have simple linear functions &lt;em&gt;and&lt;/em&gt; a numerically given fixed production level ($200$) for which you want to minimize costs.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, make sure you understand the production function $\min$  expression and what restrictions it poses: A frequently seen initial approach here is to think  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;&quot;ah, this means either the one, or the other. So I will either use $x$ only, *or* a combination of $y$ and $z$ and perhaps only one from the two. There is no point in buying, say, $x$, if production is to be determined by the a combination of $y$ and $z$&quot;.&lt;/em&gt;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is the fallacy in this line of reasoning? And what the resolution of the fallacy implies?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Next, think what it means to want to examine only a given fixed production level: on the right hand side you have the $\min$ function. On the left hand side, you have &lt;em&gt;a specific number&lt;/em&gt;, not a general label/symbol anymore.&#xA;So you have an &lt;em&gt;equation&lt;/em&gt;, not a function anymore. And then you have the cost function. And you want to minimize the cost function given the equation, and &lt;em&gt;given what the &quot;fallacy resolution&quot; mentioned previously implies&lt;/em&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Take it from there.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And please, once you figure it out, post it as an answer here (you can answer your own question is perfectly fine, and even encouraged).&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-06-06T12:27:53.497" LastActivityDate="2015-06-06T12:27:53.497" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5984" PostTypeId="2" ParentId="5981" CreationDate="2015-06-04T20:38:07.797" Score="1" Body="&lt;p&gt;In most places, it's probably more efficient to invest in more houses than to put pools for the same value in the houses you own. In some place, having a pool might even decrease the renting value of your house: the maintenance cost compensate the rent increase. In Albuquerque, it is possible that it's more relevant to invest in pools than in houses, hence all landowners invest in pools, hence, no more houses to rent without a pool.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With $P$ the cost of a pool, $H$ the cost of an house, $r_H$ the revenue you get for renting a naked house and $r_P$ the revenue you get for renting a house with a pool and $c$ the upkeep of a pool, every house owner is going to build a pool before renting or selling if $$(r_p - c)/P &amp;gt; r_H/H$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If this isn't true (and it isn't in most places), some people we choose to build a pool for other reasons but not all houses will have pools.&lt;/p&gt;&#xA;" OwnerUserId="4578" LastEditorUserId="4578" LastEditDate="2015-06-04T20:58:45.757" LastActivityDate="2015-06-04T20:58:45.757" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="5987" PostTypeId="2" ParentId="5864" CreationDate="2015-06-04T21:39:38.743" Score="2" Body="&lt;p&gt;The other answers are good, but I thought that another answer with a slighlty different focus might be a good complement.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Does the sample size usually affect the false-positive rate?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Judging from the comments, I think that the question has been prompted by &lt;a href=&quot;http://io9.com/i-fooled-millions-into-thinking-chocolate-helps-weight-1707251800&quot; rel=&quot;nofollow&quot;&gt;this article&lt;/a&gt;, which includes a couple of mistakes (or at least miswordings).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Firstly (and most worryingly in general) it defines p-values incorrectly, but more relevantly it includes the sentence &lt;em&gt;&quot;If you measure a large number of things about a small number of people, you are almost guaranteed to get a “statistically significant” result.&quot;&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The p-value is the probability, assuming that the null hypothesis is true, of observing a result as least as extreme as the one that was actually observed. As pointed out in the other answers, this means that it should be uniformly distributed between 0 and 1 regardless of sample size, underlying distributions, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the sentence should have read &lt;em&gt;&quot;If you measure a large number of things &lt;s&gt;about a small number of people&lt;/s&gt;, you are almost guaranteed to get a “statistically significant” result.&quot;&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As correctly calculated in the article, even if chocolate does exactly nothing there was a 60% chance (assuming independence, etc.) of getting a significant result.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;They actually got three significant results, which is quite surprising (p=0.06 under the -- probably unrealistic -- assumption of independence).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Does the sample size ever affect the false-positive rate?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Actually sometimes it does, though it only really makes a difference if the sample size is &lt;em&gt;really&lt;/em&gt; small.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I said that (assuming that the null hypothesis is true) the p-value should be uniformly distributed. But the uniform distribution is continuous, while a lot of data is discrete with only finitely many possible outcomes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I toss a coin a few times to check whether it is biased, there are only a few possible outcomes and hence a few possible p-values, so the distribution of the potential p-values is a very bad approximation to the uniform distribution. If I flip it few enough times, it might be impossible to get a significant result.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://lesswrong.com/lw/1sk/case_study_abuse_of_frequentist_statistics/&quot; rel=&quot;nofollow&quot;&gt;Here&lt;/a&gt; is an example of a case where that actually happened.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So you would have something like &lt;em&gt;&quot;If you measure certain types of things about a sufficiently small number of people, you are never going to get a “statistically significant” result, no matter how many things you try.&quot;&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Does this mean that you shouldn't worry about the sample size if a result is positive?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;No. Some positive results are false positives and some are true positives. As discussed above, it's usually safe to assume that the false-positive rate is fixed (generally at 5%). But a smaller sample size always makes true positives less likely (having a smaller sample size means that the test has lower &lt;a href=&quot;http://en.wikipedia.org/wiki/Statistical_power&quot; rel=&quot;nofollow&quot;&gt;power&lt;/a&gt;). And if you have the same number of false positives but fewer true positives, a randomly chosen positive result is more likely to be false.&lt;/p&gt;&#xA;" OwnerUserId="2730" LastEditorUserId="2730" LastEditDate="2015-06-06T08:40:51.600" LastActivityDate="2015-06-06T08:40:51.600" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="5988" PostTypeId="1" AcceptedAnswerId="5990" CreationDate="2015-06-04T22:58:01.340" Score="4" ViewCount="829" Body="&lt;p&gt;Suppose I have the following structural equation for demand estimation in time-series:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$q_t=\beta_0+\beta_1\hat{p_t}+\beta_2incom_t+\beta_3q_{t-1}+\epsilon_t$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where $q_t$ stands for the quantity of the product, $\hat{p}$ stands for the instrumented price with supply shifters, $incom_t$ stands for income, $q_{t-1}$ stands for the lagged quantity and $\epsilon_t$ are the random residuals. All the betas are estimated coefficients -- say, through two-stage least squares. All variables are log-transformed too.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose also that the lagged variable seems to solve the problem of autocorrelation between the residuals and its coefficient is also significant. Suppose also that the model passes through all the necessary tests for a viable two-stage least squares estimation -- the sargan test is ok, the instruments are strong in the first stage etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Knowing this, what are the possible problems of having a lagged variable in your estimation? Does it change any interpretation of the elasticity ($\beta_1$)? I understand that I could also have some sort of long-run inferred elasticity if I set $q_t=q_{t-1}$ after estimating the coefficients of the equation (Am I wrong?).  &lt;/p&gt;&#xA;" OwnerUserId="4640" LastActivityDate="2015-06-05T16:21:35.660" Title="Demand estimation with a lagged dependent variable" Tags="&lt;econometrics&gt;&lt;supply-and-demand&gt;&lt;time-series&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5989" PostTypeId="1" CreationDate="2015-06-05T00:11:38.353" Score="3" ViewCount="212" Body="&lt;p&gt;I am trying to estimate $\lambda$ from this equation:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$(1+ t_t) = \left(\dfrac{C_t}{Y_t}\right)^{\frac{1-\lambda}{\lambda}}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;After taking logs and approximations, I get:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$t_t \approx \left( \frac{1-\lambda}{\lambda} \right)(\ln C_t - \ln Y_t) $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can get data on the consumption (C) and GDP (Y), but I wasn't sure about what to do with the taxes (t) and asked my professor about it, and this is what I heard back:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot; ... won't need to estimate the tax level.  The tax is basically a proxy variable for capital market frictions.  If you assume that it is a function of the difference between domestic consumption and domestic income (in logs) then you need only data on those variables, not on any tax rates. ...&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I was wondering whether you would happen to know of any techniques that I can use here for estimating $\lambda$? GMM or MLE or whatever helps, without needing to get data for $t_t$.&lt;/p&gt;&#xA;" OwnerUserId="4870" LastEditorUserId="43" LastEditDate="2015-06-05T19:17:40.523" LastActivityDate="2015-06-05T19:17:40.523" Title="Estimation technique: Independent variable (taxation) unknown" Tags="&lt;econometrics&gt;&lt;applied-econometrics&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="5990" PostTypeId="2" ParentId="5988" CreationDate="2015-06-05T00:26:58.623" Score="4" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Does it change any interpretation of the elasticity ($β_1$)?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;You walk into the firm where you work as an analyst, and the Sales Director calls and asks &quot;I want to raise the price $10\%$ today. How will demand be affected &lt;em&gt;in percentage terms&lt;/em&gt;?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Well, you don't expect income to have changed from one day to the next, and what was demanded yesterday -it was yesterday. So the only &lt;em&gt;variable&lt;/em&gt; (for today) in the equation is price, and the best you can say is &quot;I expect a $(10 \times \hat \beta_1) \% $ effect&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So it is the short term price elasticity of demand, &lt;em&gt;irrespective&lt;/em&gt; of the fact that the &lt;em&gt;level&lt;/em&gt; of demand is determined by other factors also, lagged demand included.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;I understand that I could also have some sort of long-run inferred&#xA;  elasticity if I set $q_t=q_{t−1}$ after estimating the coefficients of the&#xA;  equation.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Yes, either in an old fashioned &quot;deterministic&quot;, $q_t=q_{t−1}$ way, or in a stochastic, $E(q_t) = E(q_{t−1})$ &quot;mean-stationary&quot; way.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Assume now that demand is already mean-stationary according to your analysis , and you get the same question from the Sales Director as before. Will your answer change compared to the previous one?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;ANSWER&lt;/strong&gt;  &lt;/p&gt;&#xA;&#xA;&lt;blockquote class=&quot;spoiler&quot;&gt;&#xA;  &lt;p&gt;  &lt;strong&gt;The answer to the Sales Director should not change&lt;/strong&gt;, because &lt;em&gt;you can&lt;/em&gt; &lt;em&gt;condition&lt;/em&gt; on the given and known past, for a more accurate (= focused on the specific situation) answer so you use $\hat E(q_t \mid p_t, I_t, q_{t-1}) = \hat \beta_0+ \hat \beta_1\hat{p_t}+\hat \beta_2I_t+\hat \beta_3q_{t-1}$ and not the unconditional (estimated) relation $\hat E(q_t) = \hat \beta_0+ \hat \beta_1E[\hat{p_t}]+\hat \beta_2E[I_t]+\hat \beta_3E[q_{t-1}]$,which would lead to the long-run (unconditional) elasticity.  But if he was to ask, say, &lt;em&gt;&quot;I want to introduce the product to a new market where the consumers are comparable in income to what we already have. What demand-responsiveness to price should I have in mind?&quot;&lt;/em&gt;, then the best you could do is provide the long-run elasticity.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-06-05T16:21:35.660" LastActivityDate="2015-06-05T16:21:35.660" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="5991" PostTypeId="1" CreationDate="2015-06-05T04:11:54.427" Score="9" ViewCount="397" Body="&lt;p&gt;In a lot of models with capital, I find different variants of capital accumulation formula as follows:&#xA;$K_t = (1-\delta)K_{t-1} +I_t$ or &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$K_t = (1-\delta)K_{t-1}+I_{t-1}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which one is more economics-sound formula? &lt;/p&gt;&#xA;" OwnerUserId="4871" LastActivityDate="2015-06-08T21:05:51.643" Title="Which capital accumulation is right? $K_t = (1-\delta)K_{t-1} +I_t$ or $K_t = (1-\delta)K_{t-1}+I_{t-1}$?" Tags="&lt;macroeconomics&gt;&lt;investment&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="5992" PostTypeId="1" CreationDate="2015-06-05T04:17:47.880" Score="0" ViewCount="80" Body="&lt;p&gt;As title says, is $y$ output per person in DSGE/RBC model? If so, why did macroeconomics decide not using Solow/Cobb-Douglas style of using full labor to characterize economy?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Model reference: &lt;a href=&quot;http://crei.cat/people/gali/pdf_files/monograph/slides-ch3.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://crei.cat/people/gali/pdf_files/monograph/slides-ch3.pdf&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For Gali's model, would $y$ represent output per worker? Or the whole output of the economy represented by representative household? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Reference: &lt;a href=&quot;https://economics.stackexchange.com/questions/1850/why-is-labor-h-t-often-average-working-time-percentage-of-non-sleeping-time-in&quot;&gt;why is labor $h_t$ often average working time percentage of non-sleeping time in RBC?&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;this for me seems to say that full maximum working time is assumed to be 1 with $h_t$ representing working time per labor unit. Thus it seems to be that $y$ is output per person..&lt;/p&gt;&#xA;" OwnerUserId="4871" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-09-03T18:30:30.057" Title="Is $y$ always output per person in DSGE/RBC models?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="5993" PostTypeId="2" ParentId="5991" CreationDate="2015-06-05T05:38:19.843" Score="9" Body="&lt;p&gt;Both are economically sound. The notation is just a question of convention. The reason behind the ambiguity is that capital is a stock and investment is a flow variable. You are looking at capital in two different instants. Investment happens during the time between the two instants and its index is either the starting or the ending instant. &lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2015-06-08T21:05:51.643" LastActivityDate="2015-06-08T21:05:51.643" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5994" PostTypeId="1" CreationDate="2015-06-05T07:00:46.097" Score="0" ViewCount="203" Body="&lt;p&gt;This question has been posted on &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://forums.eviews.com/viewtopic.php?f=18&amp;amp;t=12403&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://forums.eviews.com/viewtopic.php?f=18&amp;amp;t=12403&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But no reply.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Question:&#xA;How do I tell if the F-stat is significant at 1%, 5%, or 10% level?&#xA;Or not significant?&lt;img src=&quot;https://i.stack.imgur.com/vYKLa.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;" OwnerUserId="4497" LastActivityDate="2015-06-05T10:13:08.897" Title="How to tell if F-Stat is significant? And at which significance level?" Tags="&lt;econometrics&gt;" AnswerCount="1" CommentCount="1" ClosedDate="2015-06-05T13:54:49.753" ContentLicense="CC BY-SA 3.0" />
  <row Id="5995" PostTypeId="1" AcceptedAnswerId="6001" CreationDate="2015-06-05T07:41:16.413" Score="2" ViewCount="5128" Body="&lt;p&gt;I am trying to solve a problem but I don't see the role of initial endowments.&#xA;For instance, the question is about finding competitive equilibria.&#xA;But there is information about initial endowment.&#xA;How should I make use of it?&lt;/p&gt;&#xA;" OwnerUserId="4839" LastEditorUserId="1601" LastEditDate="2017-02-28T07:56:53.333" LastActivityDate="2017-03-04T17:02:54.580" Title="What's the role of initial endowments in an edgeworth box?" Tags="&lt;microeconomics&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="5996" PostTypeId="2" ParentId="5995" CreationDate="2015-06-05T07:44:02.043" Score="2" Body="&lt;p&gt;In the budget constraints of the competitive equilibrium.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2015-06-05T07:44:02.043" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="5998" PostTypeId="1" CreationDate="2015-06-05T09:32:02.703" Score="3" ViewCount="70" Body="&lt;p&gt;Suppose three advertisers, I, II, III are participating in an auction for three positions for online advertising, top, middle and bottom. Assume that click per second  for a position is not affected by who poses an advertisement there. For top, the click through rate is 3 click per second, for middle, it's 2, for bottom, it's 1. But advertisers have private value per click. For I, it's \$16 per click. For II, it's \$15. For III, it's \$14. The one who submits the highest wins the top position and pays the second highest bid, second highest bidder got the middle position and pays the third highest bid. The third highest bidder end up with bottom position, but pays zero. If there's a tie, then choose the winner ramdomly by a fair dice. The strategy space for each bidder is $\mathbb{R}_{+}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There're a lot of NE for this game. For example, I,II,III simultaneously submit bids of, \$7 per click, \$9 per click, \$11 per click respectively. Their payoff will be $1 \times (16-0)$ dollars, $2\times (15-7)$ dollars, and $3 \times (14-9)$ dollars respectively. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\begin{array}{c|l|c|r}&#xA;\hline&#xA; &amp;amp;(0,7) &amp;amp; (7,9) &amp;amp; (9,11) &amp;amp; (11, +\infty)\\&#xA;\hline&#xA;\text{player I}&amp;amp; \color{blue}{16}  &amp;amp;  \color{blue}{16}  &amp;amp; 2(16-9)=14&amp;amp; 3(16-11)=15 \\ &#xA;\hline&#xA;\text{player II}&amp;amp; 15 &amp;amp; 2(15-7)=\color{blue}{16} &amp;amp; 2(15-7)=\color{blue}{16}&amp;amp; 3(15-11)=12 \\ &#xA;\hline&#xA;\text{player III}&amp;amp; 14 &amp;amp; 2(14-7)=14 &amp;amp; 3(14-9)= \color{blue}{15} &amp;amp; 3(14-9)= \color{blue}{15}\\ &#xA;\hline&#xA;\end{array}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How to find other NE?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Added&lt;/strong&gt;: I want to study this numerical example, because I want to understand better the motivation of &lt;a href=&quot;http://users.cms.caltech.edu/~adamw/courses/241/lectures/search2.pdf&quot; rel=&quot;nofollow&quot;&gt;this paper&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="73" LastEditorUserId="73" LastEditDate="2015-06-05T12:15:47.670" LastActivityDate="2015-06-05T12:15:47.670" Title="Is there an algorithm to find as many NE as possible in this generalized second price auction?" Tags="&lt;mechanism-design&gt;&lt;auctions&gt;&lt;algorithms&gt;&lt;search-and-matching&gt;" AnswerCount="1" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="5999" PostTypeId="2" ParentId="5998" CreationDate="2015-06-05T10:12:31.460" Score="1" Body="&lt;p&gt;This is a pretty general algorithm, you can probably tailor a better one to your specific problem.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you stick to this discreet strategy space it seems to me you would have to find the equilibria via brute force. Basically you would look at all bid profiles $(x_1,x_2,x_3)$ and check whether it is an equilibrium. To do this, you would have to check if player 1 would be better off by making another bid. Let us denote the payoff of player 1 by $\pi_1$. This is a function of the bids. Let's assume $x_2 &amp;gt; x_3 + 1$. Then you would have to check&#xA;\begin{eqnarray*}&#xA;\pi_1(x_1,x_2,x_3) &amp;amp; \geq &amp;amp; \pi_1(x_2+1,x_2,x_3) \\&#xA;\\&#xA;\pi_1(x_1,x_2,x_3) &amp;amp; \geq &amp;amp; \pi_1(x_2-1,x_2,x_3) \\&#xA;\\&#xA;\pi_1(x_1,x_2,x_3) &amp;amp; \geq &amp;amp; \pi_1(x_3-1,x_2,x_3) \\&#xA;\\&#xA;\end{eqnarray*}&#xA;If all these and the corresponding inequialites for other players hold then you have found an equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If $x_2 = x_3 + 1$ you need to take the tie breaking rule into consideration.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You could limit the number of profiles $(x_1,x_2,x_3)$ you check by reasoning about the reservation prices. (E.g. for any N.E. where someone bids higher than their reservation price you have an N.E. where they bid just that.)&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2015-06-05T10:22:01.847" LastActivityDate="2015-06-05T10:22:01.847" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6000" PostTypeId="2" ParentId="5994" CreationDate="2015-06-05T10:13:08.897" Score="2" Body="&lt;p&gt;You get:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;F-statistic          24.60231&#xA;Prob(F-statistic)    0.000000&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;You observe that the &lt;a href=&quot;http://en.wikipedia.org/wiki/P-value&quot; rel=&quot;nofollow&quot;&gt;p-value&lt;/a&gt; is 0.00, so this means that the F-statistic is significant at at 99+%, and also obviously at 95% and 90%.&lt;/p&gt;&#xA;" OwnerUserId="246" LastActivityDate="2015-06-05T10:13:08.897" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6001" PostTypeId="2" ParentId="5995" CreationDate="2015-06-05T10:27:25.887" Score="2" Body="&lt;p&gt;First, according to &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0195073401&quot; rel=&quot;nofollow&quot;&gt;MWG&lt;/a&gt;, Def 15.B.1, &lt;em&gt;&quot;a Walrasian (or competitive) equilibrium for an Edgeworth box exonomy is a price vector $p^\star$ and an allocation $x^\star = (x_1^\star, x_2^\star)$ in the Edgeworth box such that for $i=1,2$:&quot;&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ x_i^\star \succeq_i x_i^\prime \qquad \text{for all} \quad x_i^\prime \in B_i(p^\star) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Typically in such problems, you must have the Walrasian demands for each consumer and good, and the initial endowments for each consumer. From every endowment, $\omega_i$, you can infer the individual's wealth, just and obviously multiplying the endowment's quantities for each good with the respective prices. For example, having $\omega_1=(2,3)$, means that the individual 1 is endowed with 2 &quot;units&quot; of good 1 and 3 of good 2. So his/her wealth would be $w_1 = 2 \cdot p_1 + 3 \cdot p_2$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;With these, you can proceed to find the Walrasian equilibrium; however, a more detailed question on your behalf would be more enlightening.&lt;/p&gt;&#xA;" OwnerUserId="246" LastActivityDate="2015-06-05T10:27:25.887" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6002" PostTypeId="2" ParentId="5995" CreationDate="2015-06-05T11:01:23.230" Score="8" Body="&lt;p&gt;It's crucial to understand that only initial endowments and preferences matter. Everything else (utility functions, prices, equilibria, core etc) follows from them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your initial endowment shows how strong is your negotiation position. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Situation I&lt;/strong&gt;. Imagine that the wealth is equally distributed (50/50) and the 1-st player slightly prefers good A to good B and the 2-nd player slightly (to the same extent) prefers good B to good A  than something like this happens.&lt;img src=&quot;https://i.stack.imgur.com/4WETj.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;i.e. you get extra 10 units of A and give 10 units of B (1 to 1 exchange).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Situation II&lt;/strong&gt;. Now, consider that by the same initial endowment, the 2-nd player prefers B to A much more than you prefer A to B. Then, something like this happens:&lt;img src=&quot;https://i.stack.imgur.com/3j5Fm.png&quot; alt=&quot;enter image description here&quot;&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;i.e. by the same initial endowment and preferences you get more, now e.g. 35 units of extra giving away 20 units of B (better conditions of exchange as before).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Situation III&lt;/strong&gt;. Now, imagine that you have only 10% of wealth. Then your negotiation position is weak and by the preferences as in &lt;em&gt;situation I&lt;/em&gt; you get much less after exchange.&lt;img src=&quot;https://i.stack.imgur.com/jvSHO.png&quot; alt=&quot;enter image description here&quot;&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;p.s. Calculations and plotting were made with &lt;a href=&quot;https://github.com/maxlit/pyEdgeworthBox&quot; rel=&quot;nofollow noreferrer&quot;&gt;pyEdgeworthBox&lt;/a&gt; package (I wrote it).&lt;/p&gt;&#xA;" OwnerUserId="236" LastEditorUserId="236" LastEditDate="2017-03-04T17:02:54.580" LastActivityDate="2017-03-04T17:02:54.580" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6003" PostTypeId="2" ParentId="5991" CreationDate="2015-06-05T13:09:45.677" Score="8" Body="&lt;p&gt;This is a bit more complicated than it looks.&#xA;The two are different but equivalent notational conventions, &lt;strong&gt;only if it is clear&lt;/strong&gt; that they incorporate the same assumption of essence (that is rarely stated explicitly nowadays), i.e. that it takes only one period for investment to become part of capital and so productive.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Under this assumption&#xA;the notational difference comes from what is the meaning that we assign to the index for the &lt;em&gt;&lt;strong&gt;state&lt;/strong&gt;&lt;/em&gt; variable, the capital.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some models designate $K_t$ to mean &quot;Capital stock &lt;strong&gt;at the beginning&lt;/strong&gt; of period $t$. In such a case, for example the production function for period $t$ should include $K_t$.  As for the law of motion of capital, since investment happens &lt;em&gt;during&lt;/em&gt; period $t$, and augments the capital that was there at the beginning of the period, here the law of motion is usually written, for clarity,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$K_{t+1} = (1-\delta) K_t + I_t$$&#xA;and lagging it, we obtain $K_t = (1-\delta)K_{t-1}+I_{t-1}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Others designate $K_t$ to mean &quot;Capital stock &lt;strong&gt;at the end&lt;/strong&gt; of period $t$. With the same logic as before, the production function for period $t$ should include $K_{t-1}$ and the law of motion of capital should be written&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$K_{t} = (1-\delta)K_{t-1} + I_t$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;But assume that I want to create a model where investment takes two periods to become part of capital (i.e. productive), and I also want to use the second notational convention of the above.&lt;/strong&gt; I will have to write the law of motion of capital as&#xA;$$K_{t} = (1-\delta)K_{t-1} + I_{t-1}$$&#xA;which looks exactly like &quot;capital at the beginning of the period plus investment productive in one period&quot;, &lt;em&gt;but&lt;/em&gt; on the (totally) contrary, it is here meant to be translated &quot;capital stock at the end of period $t$ (and hence available for production in period $t+1$), that is &lt;em&gt;productively&lt;/em&gt; augmented by investment made during period $t-1$&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It would perhaps be better then to use the first notational convention and write&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$K_{t+1} = (1-\delta) K_t + I_{t-1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But in general  one has to carefully read the assumptions and the notational conventions of the model. &lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-06-05T13:09:45.677" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6005" PostTypeId="1" AcceptedAnswerId="6008" CreationDate="2015-06-05T16:22:19.733" Score="3" ViewCount="429" Body="&lt;p&gt;I am reading a book about the Mundell-Fleming Model and I have encountered a part which says:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The Fed raised U.S. interest rates several times during 1994 to prevent U.S. inflation.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Isn't it the other way round? I thought that rising interest rates causes the investment to decrease and so the money demand to decrease. When money demand decreases, price level increases. Am I wrong?&lt;/p&gt;&#xA;" OwnerUserId="4874" LastEditorUserId="264" LastEditDate="2015-06-08T23:33:06.313" LastActivityDate="2015-06-15T15:24:12.473" Title="Raising interest rates to prevent inflation" Tags="&lt;macroeconomics&gt;&lt;keynesian-economics&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6007" PostTypeId="2" ParentId="5992" CreationDate="2015-06-05T17:38:21.817" Score="1" Body="&lt;p&gt;As far as Gali is concerned he defines (on page 16 of his book) $N$ as &quot;hours of work or employment&quot;, noting that &quot;$N_t$ can be interpreted as the number of household members employed, assuming a large household and ignoring integer constraints&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then on chapter 3 he talks about a continuum of firms $Y_t(i), \ \ i \in [0,1]$ producing the &lt;em&gt;aggregate&lt;/em&gt; output: &#xA;$$&#xA;Y_t \equiv \left( \int_0^1 Y_t(i)^{1 - \frac{1}{\epsilon}}\mathrm{d}i\right)^\frac{\epsilon}{\epsilon -1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But small-case $y_t$ refers to the output of the log-linearized equations. Somebody can use $y_t$ as the logarithm of the Gross National Product, so as I perceive it that, this is not output per person.&lt;/p&gt;&#xA;" OwnerUserId="246" LastActivityDate="2015-06-05T17:38:21.817" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6008" PostTypeId="2" ParentId="6005" CreationDate="2015-06-05T18:16:30.057" Score="5" Body="&lt;p&gt;The increase in interest rates make borrowing more expensive and therefore businesses and people will borrow less. Therefore, investment and consumption decrease. Through the multiplier effects, this will cause a reduction in real GDP. This will also increase the unemployment rate. Therefore, people who sell these goods and services will reduce their prices. As a result, the overall price level will fall and the inflation rate is reduced. I understand that explanation where the money demand decreases cause a probable eventual reduction in the interest rates. However, this assume that the money supply is fixed. Now, you must understand how the Fed controls the interest rates. It controls the interest rates by controlling the money supply. It reduces the money supply by selling bonds into the economy. Therefore, the money supply shift to the left and initially, the interest rates soar. The demand and supply analysis:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;First we must define some basics: We are going to use the supply and demand graph with the interest rates as the y axis and the money in x axis. Now since we know that there is a fixed amount of money in the economy and the Fed is controlling it, we know that the supply of money is strictly vertical and the demand for money is downward-sloping (with a certain elasticity)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The mechanism of the money diagram: In a fixed money supply, if there is an increase in demand of money, the demand curve will shift to the right. Now if there is a a positive inflation rate, there is an increase in demand of money with every inflation rate and therefore the demand curve will shift to the right.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;The fed aims to  reduce inflation by increasing interest rates. They do this by reducing the amount of money in the economy and thus shifting the supply curve of money to the left. You are right when the total quantity of money in the equilibrium point will be reduced. However, I think that you are confused why the interest rates will not go down. This is because the Fed aims to &lt;em&gt;reduce&lt;/em&gt; positive interest rates and &lt;em&gt;not&lt;/em&gt; cause a &lt;em&gt;negative&lt;/em&gt; inflation rate. In argument (2) I have explained that with a positive inflation rate, the money demand curve will always be shifting to the right. Therefore, the Fed &lt;em&gt;only wants&lt;/em&gt; to reduce the speed of that shift.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Now you wonder why the Fed wants to reduce the inflation rate. This is because it is always desirable to have a steady price level. A high inflation rate causes some cost to the economy that it does not want. You need to google or search in the wikipedia for the negative effects of high inflation rates.&lt;/p&gt;&#xA;" OwnerUserId="4828" LastEditorUserId="264" LastEditDate="2015-06-15T15:24:12.473" LastActivityDate="2015-06-15T15:24:12.473" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6009" PostTypeId="2" ParentId="5956" CreationDate="2015-06-05T18:33:34.950" Score="0" Body="&lt;p&gt;Assuming the products are substitutes (to some extent), and are distinguishable: an increase in price of the higher quality good will increase demand for the lower quality good. The reverse is also true. The intuition is that as the price of one good increases, all else equal, people prefer to abandon it in favor of the substitute.  You may find yourself switching from traditional pig bacon to so-called turkey bacon as the price of pig bacon increases, for example. This happens even though most people believe turkey bacon is of lower quality than traditional bacon.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sometimes high and low quality products do not substitute, they may be too different to serve the same purpose. For example, consider parachutes. Some fabric is high quality for parachutes and will be used. The low quality fabric for parachutes may never be used (no burlap parachutes!). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you cannot distinguish the products from one another, in the short run, the chance to get a good (at random) from the combined high/low quality market has a price somewhere between the price of the original high and low quality goods.  The larger the proportion of high quality goods in the market, the closer the price will be to that of the high quality good. Speculatively, when the products cannot be distinguished you might have a &quot;&lt;a href=&quot;http://socsci2.ucsd.edu/~aronatas/project/academic/Akerlof%20on%20Lemons.pdf&quot; rel=&quot;nofollow&quot;&gt;market for lemons&lt;/a&gt;&quot; in the long run. That is, eventually, high quality producers would choose to cut costs and produce lower quality products instead.  The consumers have no incentive to trust the new mix of products, and eventually the market fails or converges to the low-quality price.&lt;/p&gt;&#xA;" OwnerUserId="4185" LastEditorUserId="4185" LastEditDate="2015-06-05T18:39:14.797" LastActivityDate="2015-06-05T18:39:14.797" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6010" PostTypeId="2" ParentId="467" CreationDate="2015-06-05T18:56:02.947" Score="0" Body="&lt;p&gt;I would note that the value of a stock is highly speculative and prone to &lt;a href=&quot;http://en.wikipedia.org/wiki/Rational_herding&quot; rel=&quot;nofollow&quot;&gt;herding effects&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's say today the stock of company X is worth $100 dollars, but the price is subject to fluctuation by &lt;em&gt;chance&lt;/em&gt;, &lt;em&gt;investor decisions&lt;/em&gt;, and &lt;em&gt;real improvements in company X&lt;/em&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;When the stock price of company X goes up to \$101 tomorrow, an uninformed investor may reason that informed investors know something about real improvements in company X and have bought into it, driving the price up.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a result, the rational, but uninformed investor also buys company X.  This behavior persists even if the price increased by random chance because it is &lt;em&gt;possible that the price increase is legitimately due to improvements in the company&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A critical thing about this is that the investment good is not the same on each day. In the first period it is a &quot;good with no known information&quot;. In the second period it is a &quot;good &lt;strong&gt;and&lt;/strong&gt; a positive signal&quot;. You are paying extra for the attached signal, whether or not the signal is accurate.&lt;/p&gt;&#xA;" OwnerUserId="4185" LastActivityDate="2015-06-05T18:56:02.947" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6013" PostTypeId="1" CreationDate="2015-06-06T03:26:27.850" Score="4" ViewCount="2113" Body="&lt;p&gt;I learnt IS-LM model but I got curious whether it is applicable to the real world. I mean it's just an model, so I doubt that the realtionship between Y and r actually exists. Are there any real life examples that prove the model? I want to know if something like a recent world event or fiscal and monetary policies in sone countries actually affects output and interest rate.&lt;/p&gt;&#xA;" OwnerUserId="4839" LastActivityDate="2015-06-06T18:46:35.513" Title="Real world application of IS-LM model" Tags="&lt;macroeconomics&gt;&lt;keynesian-economics&gt;&lt;self-study&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6015" PostTypeId="2" ParentId="5962" CreationDate="2015-06-06T08:09:54.663" Score="10" Body="&lt;p&gt;Firstly, it's right to say that the hard ending rule on ebay seems to be behind sniping. Here's a figure from &lt;a href=&quot;https://www.aeaweb.org/articles.php?doi=10.1257/00028280260344632&quot; rel=&quot;noreferrer&quot;&gt;Roth &amp;amp; Ockenfels' AER paper&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/97ZY1.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On eBay (fixed end time) bids arrive much later than on the now defunct Amazon auction platform (which used an extendable end time).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One explanation (see &lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/S089982560500059X&quot; rel=&quot;noreferrer&quot;&gt;here&lt;/a&gt; and &lt;a href=&quot;http://www.jstor.org/stable/1593721&quot; rel=&quot;noreferrer&quot;&gt;here&lt;/a&gt;) for this is that people want to hide their private information. If you think that you discovered a 'hidden gem' then the last thing you want to do is start bidding and let everyone else know that it's valuable! Note, from the figure, that sniping seems to be more acute in antiques auctions, where private information is likely to be more important.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The other leading explanation is that some bidders do not understand that they can use the automatic proxy system to take care of the bidding, and 'naively' sit incrementing their bid manually. Sniping is then a way to take advantage of such bidders' poor reaction speed. An experiment by Ely &amp;amp; Hossain that &lt;a href=&quot;https://www.aeaweb.org/articles.php?doi=10.1257/mic.1.2.68&quot; rel=&quot;noreferrer&quot;&gt;appeared in AEJ Micro&lt;/a&gt; verified that sniping indeed gives you an advantage over such naive bidders. &lt;a href=&quot;http://pubsonline.informs.org/doi/abs/10.1287/mksc.1100.0561&quot; rel=&quot;noreferrer&quot;&gt;This marketing Science paper by Zeithammer and Adams&lt;/a&gt; also provides evidence that manual incremental bidding is common and that it is therefore wrong to think of eBay as a simple implementation of a second price auction.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;So, two perspectives on what is going on here: concealment of private information and exploitation of naive bidders. &lt;strong&gt;Both of these have one thing in common: they imply that Sniping leads to lower prices, not higher.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So why does eBay persist in the use of such a mechanism? Only they know. But here is what I suspect:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;eBay is a two-sided market. It must attract both sellers &lt;em&gt;and&lt;/em&gt; buyers. Usually, optimal pricing in a two-sided market involves subsidizing one side of the market to get them onto the platform before milking the other side. But buyers already pay $0 to eBay; what if a bigger subsidy is needed? One way to implicitly subsidize buyers and attract them to the platform is to choose a mechanism that results in a lower selling price. In the end, if the result is indeed to attract more bidders, this might not even be that bad for eBay. &lt;a href=&quot;https://www.aeaweb.org/articles.php?doi=10.1257/aer.99.4.1544&quot; rel=&quot;noreferrer&quot;&gt;Bulow and Klemperer have shown that&lt;/a&gt; adding bidders to an auction is almost always more profitable for the seller than redesigning the auction but keeping the number of bidders the same.&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2015-06-07T11:48:18.537" LastActivityDate="2015-06-07T11:48:18.537" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6018" PostTypeId="2" ParentId="5940" CreationDate="2015-06-06T12:18:13.187" Score="2" Body="&lt;p&gt;In these problems, you are generally dealing with identical firms - all of whom will supply the market according to their marginal cost curve.  If we were solving for a long run equilibrium the first thing we would do is get the supply curve - which can be done by finding the optimal mix of capital and labor via:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;MPL/W = MPK/r&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This will get you L = 4K.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this situation you can skip to:&#xA;$$&#xA;Q = \sqrt{3}\sqrt{L}\\&#xA;L = Q^{2}/3&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Plug those into $C(Q) = Kr + Lw$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;C(Q) = 108 + 3Q^{2}\,&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The fixed cost is \$108 (but that is sunk in the short run, so the firm will ignore it), the variable cost is $3Q^{2}$, making the marginal cost $6Q$.  For the market, this will be $\frac{Q}{1.5}$ (the horizontal sum of all firms' production)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Marginal revenue in this market is just the price since we assume it is perfect competition, so setting market supply = demand gives you&#xA;$$&#xA;360 - 2Q = \frac{Q}{1.5}\\&#xA;Q = 135\,&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$Q/n = q$  tells us that each of the 9 firms must produce 15 units for the market to supply 135 total units.  According to the demand curve, the market price is \$90 when 135 units are sold.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Total surplus can be found by calculating the area of two triangles:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;CS = (1/2)135*(360-90) = \$18,225\\&#xA;PS = (1/2)135*(90) = \$6,075\\&#xA;TS = \$24,300\,&#xA;$$&lt;/p&gt;&#xA;" OwnerUserId="4829" LastEditorUserId="4829" LastEditDate="2015-06-06T12:35:33.727" LastActivityDate="2015-06-06T12:35:33.727" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6019" PostTypeId="2" ParentId="5832" CreationDate="2015-06-06T13:00:39.543" Score="3" Body="&lt;p&gt;There is no need to complicate things here - just try to find &lt;strong&gt;annual exchange rate&lt;/strong&gt; used by IMF. Worldbank's data are &lt;a href=&quot;http://data.worldbank.org/indicator/PA.NUS.FCRF?order=wbapi_data_value_2014+wbapi_data_value+wbapi_data_value-last&amp;amp;sort=asc&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;. LCU stands for Local Currency Units&lt;br&gt;You may see a drop of &lt;code&gt;Rub/$&lt;/code&gt; rate from 31.84 to 38.38. (Drop of Ruble, of course.)&#xA;&lt;br&gt;National statistics provides input figures for international accounts. &lt;br&gt;According to Rosstat, Russian &lt;strong&gt;nominal&lt;/strong&gt; &lt;a href=&quot;http://www.gks.ru/wps/wcm/connect/rosstat_main/rosstat/ru/rates/46880c804a41fb53bdcebf78e6889fb6&quot; rel=&quot;nofollow&quot;&gt;GDP&lt;/a&gt; grew in the Y2014: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Y2013 - 66,190 bil. &lt;code&gt;Rub&lt;/code&gt;, &lt;/li&gt;&#xA;&lt;li&gt;Y2014 - 71,406 bil. &lt;code&gt;Rub&lt;/code&gt;. &#xA;&lt;br&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Using  NGDP dollar evaluation from your post, annual exchange rate for Y2013 is 31.5 &lt;code&gt;Rub/$&lt;/code&gt;; in Y2014 rate is 34.7 &lt;code&gt;Rub/$&lt;/code&gt;, which makes some sense. &lt;br&gt;But indeed &lt;code&gt;Rub/$&lt;/code&gt; rate was somewhat closer to 38.5 (&lt;a href=&quot;http://www.ozforex.com.au/forex-tools/historical-rate-tools/yearly-average-rates&quot; rel=&quot;nofollow&quot;&gt;see here&lt;/a&gt;). So, IMF figure for the Y2014 from your wiki reference seems to be more correct: bil. &lt;code&gt;$&lt;/code&gt;1,857,461 for Russian NGDP. (do not forget about Crimea correction to appreciate the difference).&lt;br&gt;&#xA;So, in fact Russian nominal GDP did drop significantly in current dollar terms in the Y2014. &#xA;&lt;br&gt;Imho, PPP is not applicable for your question as Russian GDP by &lt;a href=&quot;http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)&quot; rel=&quot;nofollow&quot;&gt;PPP&lt;/a&gt; is of different magnitude. &lt;/p&gt;&#xA;" OwnerUserId="4184" LastEditorUserId="4184" LastEditDate="2015-06-07T09:50:07.440" LastActivityDate="2015-06-07T09:50:07.440" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6020" PostTypeId="2" ParentId="6013" CreationDate="2015-06-06T14:40:04.090" Score="2" Body="&lt;p&gt;There is a huge discussion about structural Macroeconomics models - especially on their theoretical and practical relevance - with IS-LM being on the forefront of the battle some 40+ years ago. Many people simply reject LM existence. Advanced level textbooks ignore this approach for two decades. However it ironically dominates introductory courses.&#xA;&lt;br&gt; Here is a nice &lt;a href=&quot;http://www.bloombergview.com/articles/2014-12-12/krugman-gets-the-big-picture-right&quot; rel=&quot;nofollow&quot;&gt;discussion&lt;/a&gt; from Bloomberg that claims that, perhaps, the most instructive paper on the matter was published in QJE back in 1992 - &lt;a href=&quot;http://qje.oxfordjournals.org/content/107/2/709.abstract&quot; rel=&quot;nofollow&quot;&gt;link&lt;/a&gt;. (Full text can be downloaded elsewhere.)&#xA;&lt;br&gt;From personal experience I could add that IS-LM is a great tool to build initial schematic intuition about the issue in question even though its microfoundations are not clear at all (put it another way, we have no idea why does the model work, but it does).&lt;/p&gt;&#xA;" OwnerUserId="4184" LastEditorUserId="4184" LastEditDate="2015-06-06T18:46:35.513" LastActivityDate="2015-06-06T18:46:35.513" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6022" PostTypeId="1" AcceptedAnswerId="6044" CreationDate="2015-06-06T23:28:29.203" Score="2" ViewCount="1396" Body="&lt;p&gt;The cubic total cost function usually take the form&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$TC(q)=a+bq+cq^{2}+dq^{3} \qquad a,b,d&amp;gt;0, c&amp;lt;0$ and $c^{2}&amp;lt;4bd$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know that from a constraint maximization problem &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$min\quad wL+vK$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;subject to &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$q_{0}=f(k,l)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;i can express it with the lagrangean function &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\mathcal{L}=wl+vk+\lambda(q_{0}-f(k,l))$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;with some algebra for the case of a Cobb-Douglas production function $q_{0}=k^{\alpha}l^{\beta}$ i can reach &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$TC=q^{\frac{1}{\alpha+\beta}}w^{\frac{\beta}{\alpha+\beta}}v^{\frac{\alpha}{\alpha+\beta}}\left(\frac{\alpha+\beta}{\alpha^{\frac{\alpha}{\alpha+\beta}}\beta^{\frac{\beta}{\alpha+\beta}}}\right)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I could give values to $\alpha$ and $\beta$ to obtain a cubic function, but not the one I described in the preamble. It could also fix some other factor such as the size of the factory, but would not work.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any idea? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks in advance&lt;/p&gt;&#xA;" OwnerUserId="4741" LastEditorUserId="4741" LastEditDate="2015-06-11T03:10:24.363" LastActivityDate="2019-11-18T13:52:16.190" Title="How to derive cubic cost function from a problem of constrained optimization?" Tags="&lt;microeconomics&gt;&lt;production-function&gt;&lt;cost&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6023" PostTypeId="2" ParentId="6022" CreationDate="2015-06-06T23:35:58.093" Score="2" Body="&lt;p&gt;Given a Cobb-Douglas production function your cost function will be cubic exactly if $\alpha + \beta = \frac{1}{3}$, and in this case you will have $a = b = c = 0$. There is no going around this. If you want to have the kind of cost function you describe you will have to slightly alter your Cobb-Douglas function, e.g.&#xA;$$&#xA;f(k,l) = (k-1)^{\alpha} \cdot (l-2)^{\frac{1}{3} - \alpha}.&#xA;$$&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2015-06-06T23:35:58.093" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6024" PostTypeId="1" CreationDate="2015-06-06T23:50:53.560" Score="5" ViewCount="157" Body="&lt;p&gt;Now I have a data from an African country concerning (i) levels of corruption across public sectors and (ii) perceptions of service quality from households (bad, medium and high). The data consist two types of household: those who have used the public services and those who have NOT. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have read several papers from some respected journals (World Development, Journal of Development Economics) that address the problem of selectivity bias: those who have not engaged in public services might do so because they knew they would have to bribe (corruption) or they had bad experience from the past, and they would end up feeling bad. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Authors from the papers, however, do not use Heckit models, that I have learned from my degree. Instead, they argue that by running two regressions: (i) using data on those who actually used the services and (ii) all households in the sample, regardless of the service usage. I feel this approach is not correct. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I wish to understand further how selection bias, particularly in this example, should be handled. Some problems with the data are that the data might be subjective, quite small (around 500 households), and prone to measurement errors. Do you have any suggestions on dealing with the problems? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Many thanks.  &lt;/p&gt;&#xA;" OwnerUserId="4882" LastEditorUserId="40" LastEditDate="2015-10-07T04:36:14.727" LastActivityDate="2015-10-07T04:41:50.547" Title="Selection bias - Will multiple regressions solve the problem?" Tags="&lt;selection-bias&gt;&lt;endogeneity&gt;" AnswerCount="1" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="6025" PostTypeId="1" CreationDate="2015-06-07T03:06:42.860" Score="4" ViewCount="105" Body="&lt;p&gt;I was recently reading this &lt;a href=&quot;http://www.pnas.org/content/111/36/13117.full&quot; rel=&quot;nofollow&quot;&gt;article&lt;/a&gt; about some research that was done concerning the illegal killing of elephants.  There were two quotes that caught my attention: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;...illegal killing [of the elephants] increased markedly after 2008 and was correlated strongly with the local black market ivory price and increased seizures of ivory destined for China...&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;and &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;...Illegal killing rates were strongly correlated with black market ivory prices in the Samburu ecosystem...&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In the article, the correlation is treated as a previously unknown fact that was &quot;discovered&quot; by the research team and appears to be one of the major finds of the study.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, it does not seem like the researchers can take credit for this &quot;discovery.&quot;  It seems that an economist can reach the same conclusion by a much simpler method: &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Increased seizures of ivory reduce the supply of ivory on the market.  &lt;/li&gt;&#xA;&lt;li&gt;Since the supply of ivory has decreased and the demand has remained constant, the price of ivory will increase.  &lt;/li&gt;&#xA;&lt;li&gt;The higher price will motivate individuals to enter the ivory market as suppliers (which, therefore, will lead to more elephants being killed).  &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Is there a particluar reason as to why the economic principles of supply and demand were not applied to this study in order to more rapidly reach this result?  &lt;/p&gt;&#xA;" OwnerUserId="27" LastEditorUserId="43" LastEditDate="2015-06-07T13:36:58.907" LastActivityDate="2015-06-07T13:36:58.907" Title="Applying Economic Principles to Other Studies" Tags="&lt;supply-and-demand&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6026" PostTypeId="2" ParentId="6025" CreationDate="2015-06-07T07:16:03.307" Score="1" Body="&lt;p&gt;This paper seems to be about practical policy. It seeks to understand what drives the killing of elephants. While what you write makes sense in theory, there might be some hidden factor that we do not perceive that has a much bigger effect (for example the actors of the market may not be rational) so looking at the data is always welcome.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would also say that your economic reasoning is not the only possible one. I could also provide a line of reasoning reverses causality &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;More elephants are killed (this may be random, or it may be a result of unemployment in other sectors).&lt;/li&gt;&#xA;&lt;li&gt;Because demand is unchanged, prices fall. &lt;/li&gt;&#xA;&lt;li&gt;Since authorities always seize half of the ivory contraband, more contraband is seized.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;If this is true then the seizures and the price change is a result, implying a different market dynamic. Unfortunately the paper only tested correlation, not causality, but this highlights that there can be more than one explanation to a phenomenon. In fact it is even possible to argue that the price of ivory and the number of elephants killed is negatively correlated:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;More elephants are killed (this may be random, or it may be a result of unemployment in other sectors). &lt;br&gt;&lt;/li&gt;&#xA;&lt;li&gt;The authorities, who until now looked the other way, notice this and start seizing ivory, leaving almost none on the market. &lt;br&gt;&lt;/li&gt;&#xA;&lt;li&gt;The price of ivory rises.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Which of these explanations you find logical is somewhat subjective. Because there can more than one, a logical explanation may not be the right one. That is why econometric papers (could) provide useful insights.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="43" LastEditDate="2015-06-07T12:51:58.500" LastActivityDate="2015-06-07T12:51:58.500" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6027" PostTypeId="1" CreationDate="2015-06-07T11:25:00.723" Score="5" ViewCount="99" Body="&lt;p&gt;In &lt;a href=&quot;http://users.cms.caltech.edu/~adamw/courses/241/lectures/search2.pdf&quot; rel=&quot;noreferrer&quot;&gt;Benjamin Edelman, Michael Ostrovsky, and Michael Schwarz(2007)&lt;/a&gt;, there's a hand-waving argument to justify their setting as a game of complete information:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;we assume that all values are common&#xA;  knowledge: over time, advertisers are likely to&#xA;  learn all relevant information about each other's&#xA;  values.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;My question is, to what degree, this reasoning can be justified?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My feeling is that, for an auction with an infinite type space and at least one bidder having a partition of infinite cells, it is wrong(see &lt;a href=&quot;http://www.polemarchakis.org/a14-cdf.pdf&quot; rel=&quot;noreferrer&quot;&gt;Geanakoplos and Polemarchakis (1982)&lt;/a&gt;). To proceed, it seems to me, one needs to represent a bidder's bidding strategy as a function measurable with respect to her own type, and history records of bidding, which seems to be quite complicated.&lt;/p&gt;&#xA;" OwnerUserId="73" LastActivityDate="2015-06-07T11:25:00.723" Title="Can repeated bidding in an auction make each player's type common knowledge?" Tags="&lt;reference-request&gt;&lt;academic-graduate&gt;&lt;auctions&gt;&lt;bayesian-game&gt;&lt;dynamic-games&gt;" AnswerCount="0" CommentCount="6" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6028" PostTypeId="2" ParentId="6025" CreationDate="2015-06-07T12:38:15.410" Score="1" Body="&lt;p&gt;This case can be used as a fine example of factual research, economic theory and applied econometrics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;FACTUAL RESEARCH&lt;/strong&gt;&lt;br&gt;&#xA;Since the authors examine a specific real-world case, the actual facts can help to establish a plausible causal sequence.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example: was there a rush in the numbers of elephants killed, &lt;em&gt;in response to which&lt;/em&gt; authorities announced and implemented a more aggressive and effective seizure policy?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or, although the numbers of elephants killed remained relatively stable per period, but, the authorities, eventually yielded to political pressure and implemented this more aggressive and effective seizure policy?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Presumably, there are data and information to conclude on the above. Assume that it is the second situation.  Then...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;ECONOMIC THEORY&lt;/strong&gt;&lt;br&gt;&#xA;Argue that &quot;Economic Theory tells us that...&quot; and lay out the &lt;em&gt;theoretical&lt;/em&gt; argument that the OP described in his question. Then&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;APPLIED ECONOMETRICS&lt;/strong&gt;&lt;br&gt;&#xA;Estimate the relationship between the magnitudes of interest, in order to check whether the theoretical argument is consistent with the available data. Here, one should control for other factors, for example as @denesp writes, was there a rush of unemployment in other sectors of the economy that could have contributed to labor turning for work to the black market for ivory?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Illegal goods are very interesting, because supply deviates from production by the amount of goods confiscated prior to reaching the market. As long as the demand is there, increased confiscations will tend to increase production also, which tends in turn to offset the intended result of the seizure policy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;VARIANT&lt;/strong&gt;&lt;br&gt;&#xA;Assume now that the record shows that first we had an increase in the numbers of elephants killed, and then the authorities responded with increased seizures. Then one should establish first the likely reasons for the &lt;em&gt;initial&lt;/em&gt; increase in production/supply. Are there indications that demand shifted? Are there indications that supply increased because of unemployment in other sectors? Assume that it was unemployment that pushed people to this activity, and that there is no indications that demand shifted. Then economic theory would predict that price should tend to initially &lt;em&gt;fall&lt;/em&gt;. &lt;em&gt;Then&lt;/em&gt; the authorities stepped in harder, and mitigated the increased supply, pushing the price back up.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But if it was demand that originally shifted, then we should observe an initial &lt;em&gt;rise&lt;/em&gt; in price, &lt;em&gt;then&lt;/em&gt; an increase in production and a tendency for the price to fall, and then the effect from the harder seizure policy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hopefully, since things in the real world do not happen all at once, there could be indications in the data on these price movements.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-06-07T12:38:15.410" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6029" PostTypeId="1" CreationDate="2015-06-07T14:21:18.540" Score="2" ViewCount="92" Body="&lt;p&gt;In &lt;a href=&quot;http://www.uni-hamburg.de/fachbereiche-einrichtungen/fb03/iwwt/makro/slides3.pdf&quot; rel=&quot;nofollow&quot;&gt;http://www.uni-hamburg.de/fachbereiche-einrichtungen/fb03/iwwt/makro/slides3.pdf&lt;/a&gt;, you can see New Keynesian IS equation being solved forward to yield a formula for output gap (page 40 of the pdf slides). I do get that it is based on output gap becoming zero at infinity. But exactly what condition is this justification based on? Is it $\lim_{T \to \infty}E_t[\tilde{y_T}] = 0$? Or $E_t[\lim_{T \to \infty}\tilde{y_T}] = 0$ Or other conditions?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also when getting the solution for new keyneisan models as done in later pages of the pdf (especially Blanchard-Kahn in page 44), if it is true that the above output gap formula depends on $\lim_{T \to \infty}E_t[\tilde{y_T}] = 0$ or $E_t[\lim_{T \to \infty}\tilde{y_T}] = 0$, does the solution mechanism also depend on these? &lt;/p&gt;&#xA;" OwnerUserId="4883" LastEditorUserId="43" LastEditDate="2015-06-07T18:41:26.137" LastActivityDate="2015-06-07T18:41:26.137" Title="What condition is exactly used to solve forward New Keynesian IS equation?" Tags="&lt;macroeconomics&gt;&lt;new-keynesian-economics&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6030" PostTypeId="1" CreationDate="2015-06-07T15:26:22.610" Score="1" ViewCount="83" Body="&lt;p&gt;I am trying to decipher certain abbreviations related to balance of payments. They are strange, and i have to admit i have no idea what did they mean furthermore i was not able to find anything relevant via google and also i am not able to find them in my macroeconomics textbook. So the abbreviations are: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;rb, ka (capital account), rf, eo, bop (Balance of payments). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Those i know are in brackets. Could you help me find the meaning of those abbreviations?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT: The question was the following given:&#xA;$rb=-1491, ka=2280, rf=-1551, rb+ka+eo=-3282$ calculate $bop$ and $eo$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;answer is:&#xA;$eo=-4071$ and $bop=-1731$&#xA;and one more thing:&#xA;$rb+ka+eo-rf=bop$ and $rb+ka+eo-ka-rb=eo$ that is all i know.&lt;/p&gt;&#xA;" OwnerUserId="4264" LastEditorUserId="4264" LastEditDate="2015-06-07T17:46:37.467" LastActivityDate="2017-10-05T16:11:35.270" Title="Balance of payments abbreviations" Tags="&lt;macroeconomics&gt;&lt;national-accounts&gt;" AnswerCount="0" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="6031" PostTypeId="1" CreationDate="2015-06-07T22:40:40.690" Score="1" ViewCount="71" Body="&lt;p&gt;Sorry for my ignorance, but I was doing research and noticed that the US's budget is made up of taxes. Is that for all countries? Where is the line between the economy and the government budget? Are natural resources used for government spending?&lt;/p&gt;&#xA;" OwnerUserId="4886" LastEditorUserId="1601" LastEditDate="2015-06-07T22:55:08.070" LastActivityDate="2015-07-14T16:53:18.883" Title="Are all country government budgets made up of taxes?" Tags="&lt;finance&gt;&lt;government&gt;" AnswerCount="3" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6032" PostTypeId="2" ParentId="6031" CreationDate="2015-06-07T22:53:35.583" Score="4" Body="&lt;p&gt;The answer to your first question is no.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example in &lt;a href=&quot;https://www.expat.hsbc.com/1/PA_ES_Content_Mgmt/content/hsbc_expat/pdf/en/global_tax_navigator/going_to_saudi_arabia.pdf&quot; rel=&quot;nofollow&quot;&gt;Saudi Arabia&lt;/a&gt; only foreign residents are taxed. The state can afford to do this because it owns the oil fields and receives a lot revenue from them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In Russia the oil and gas companies gave &lt;a href=&quot;http://en.wikipedia.org/wiki/Economy_of_Russia&quot; rel=&quot;nofollow&quot;&gt;52% of the federal budget&lt;/a&gt;. Part of this is in the form of taxes, but it is mostly the profit of Gazprom, the state owned gas company. The Russian government also collects personal income taxes as well as other kinds, so taxes are also a source of their budget. &lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2015-06-07T22:53:35.583" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6033" PostTypeId="2" ParentId="6031" CreationDate="2015-06-08T02:43:13.440" Score="1" Body="&lt;p&gt;Budgets are often made up things which are not tax in some instance rent from assets such as natural resources (good example is Norway or Saudi Arabia) or in case of many African countries foreign aid makes up big part of the budget.&lt;/p&gt;&#xA;" OwnerUserId="4193" LastActivityDate="2015-06-08T02:43:13.440" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6034" PostTypeId="2" ParentId="4642" CreationDate="2015-06-08T03:27:30.190" Score="3" Body="&lt;p&gt;Whether the tax is imposed on the buyer or the seller doesn't make any practical difference. It's just an accounting detail. One might even say, it's just an accounting trick.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I haven't read this particular book but I imagine what he was driving at with the &quot;bowl&quot; example was this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose that instead of filing tax forms, etc, the government collected taxes on the spot: There is a tax collector standing beside the counter with a bowl to collect the tax money. The price not including the tax is \$10. The government charges a \$1 tax.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, scenario 1: The government declares that the buyer must pay the tax. So when you buy the product, you hand the seller \$10, and then you drop \$1 into the tax man's bowl.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Scenario 2: The government declares that the seller must pay the tax. So the seller increases the price to \$11. When you buy the product, you hand the seller \$11. He then drops \$1 into the tax man's bowl, and keeps the remaining \$10.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Either way, the buyer has \$11 less cash, the seller has \$10 more cash, and the tax man has \$1 more cash. Whether the buyer hands the tax money directly to the tax man, or the buyer hands the money to the seller and the seller hands it to the tax man, makes very little practical difference.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We could discuss what portion of the tax is really born by the seller and what portion by the buyer. If today the tax is zero and tomorrow the government begins imposing a \$1 tax, it doesn't necessarily follow that the seller can continue to collect \$10 and the buyer will pay \$11. Increasing the cost to the buyer to \$11 would mean that fewer units are sold -- some number of people will not buy or will not buy as many for \$11. So the seller may conclude that to maintain sales sufficient to maximize his profits, he must drop the price to, say, \$9.60, so with tax the total price is now \$10.60, and the seller is paying 40 cents of the tax while the buyer is paying 60 cents. Or he may have to drop the price further, or not drop it as much. But whatever the optimum price ends up being, whether the government nominally collects the \$1 from the buyer or from the seller has nothing to do with how the tax is really being split between buyer and seller.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is the technicality that there may be costs involved in record-keeping or other mechanics of the tax. Like if the seller is required to collect the tax and turn if over to the government, then the seller has additional book-keeping costs. If the buyer is expected to keep records and pay the tax, then the buyer has book-keeping costs. But this isn't the main point.&lt;/p&gt;&#xA;" OwnerUserId="1621" LastActivityDate="2015-06-08T03:27:30.190" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6035" PostTypeId="1" CreationDate="2015-06-08T07:38:27.427" Score="0" ViewCount="25" Body="&lt;p&gt;A beveridge curve show the relationship between unemployment and vacancy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some papers add additional variables like Real GDP, real interest rate, etc to test for the matching efficiency of the BC.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However when it comes to age structure. Some researchers  use&#xA;1) Young Share in Unemployed, or&#xA;2) Young Share in labour force&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What's the difference between 1) and 2)? How would a smaller young share in the unemployed vs the labour force affect the unemployment, vacancy and hence matching efficiency?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you&lt;/p&gt;&#xA;" OwnerUserId="4497" LastActivityDate="2015-06-08T07:38:27.427" Title="Beveridge Curve: Add a Variable for Young Share" Tags="&lt;unemployment&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="6036" PostTypeId="2" ParentId="6005" CreationDate="2015-06-08T09:02:36.510" Score="-1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;The Fed raised U.S. interest rates several times during 1994 to&#xA;  prevent U.S. inflation.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I'm not an economist. I'm simply interested in the aspect of economics which doesn't require a degree to understand and appreciate. It might well be better categorized as common sense, if only it were a little more commonly sensed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Inflation is generally thought of as rising prices. But this diverts attention from who is doing the raising... or who is forcing others to raise prices?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;'Price inflation' should be distinguished from 'inflation'. Price inflation means putting prices up. Inflation, on the other hand means causing others to put prices up. How is this done?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Well, governments increase the money supply, through their central banking agents. This i.e. the money supply,is what is really being inflated, which causes a secondary - price - inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When people put up prices, part of that is genuinely finding a suitable price to move goods and services. And the other part of it - the part central planners generally don't like to talk about - is goods and service providers trying to limit the effect of money-supply inflation i.e. the erosion of their currency's purchasing power.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Whenever the Fed raises or lowers rates it is engaging in price-fixing. But to answer your question, when the Fed raises rates, it is making borrowing more expensive and lending more rewarding. So the effect is to encourage investment in capital infrastructure. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The only problem is that the signals, that this change (in the amount of increased investment in any particular industry) emanated from, did not originate from consumers expressing their needs and wants - with the attendant risks which &lt;em&gt;should&lt;/em&gt; be theirs to bear or mitigate. No, instead the signal came from a third, intervening, party, who bears virtually none of the risk if the change turns out to have negative consequences for those who's expressed preferences in the market were overridden by the third party i.e. the government agent (the Fed), setting interest rates. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Interest rates are merely the price of money i.e. what 'borrowing it' is selling for on the market. As such, interest rates are like any other price... they should be set by consumers who bear the risk, where they do not mitigate against the risk. They should not be fixed any more than cellphone prices or the prices of bananas, or t-shirts.&lt;/p&gt;&#xA;" OwnerUserId="4887" LastEditorUserId="4887" LastEditDate="2015-06-08T09:07:58.310" LastActivityDate="2015-06-08T09:07:58.310" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6037" PostTypeId="1" CreationDate="2015-06-08T09:16:51.907" Score="9" ViewCount="13594" Body="&lt;p&gt;In &lt;a href=&quot;http://www.uni-hamburg.de/fachbereiche-einrichtungen/fb03/iwwt/makro/slides2.pdf&quot; rel=&quot;noreferrer&quot;&gt;http://www.uni-hamburg.de/fachbereiche-einrichtungen/fb03/iwwt/makro/slides2.pdf&lt;/a&gt; page 8, lagrangian is written as follow: $$L = E_0 \sum_{t=0}^{\infty}\beta^t\{U(C_t,N_t) + \lambda_t(P_tC_t + Q_tB_t - B_{t-1}-W_tN_t+T_t)+\psi_t(\lim_{T \to \infty} B_T)\}$$&#xA;where bond $B_t$ has solvency condition $\lim_{T \to \infty} B_T \geq 0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In page 9 then all first-order conditions are derived, but I don't see anything related to $\psi_t$ and solvency condition. Why can the first-order condition relating to $\psi_t$ be dropped? &lt;/p&gt;&#xA;" OwnerUserId="4883" LastEditorUserId="43" LastEditDate="2015-06-08T12:53:47.170" LastActivityDate="2020-03-13T21:55:43.107" Title="Lagrangian: How to understand the No-Ponzi Condition" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6038" PostTypeId="2" ParentId="5898" CreationDate="2015-06-08T11:29:55.653" Score="1" Body="&lt;p&gt;The first panel shows the final value function after iterating 80k (!). Should probably try an implicit method. The second panel shows the evolution from frist guess to final result $v^0\to v^j$, $j=80k$. Third panel is the distance between the value functions and fourth shows the error. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that the value function is convex-concave. This is due to the fact that for the limit case the law of motion tends to infinty $\lim_{k\to 0} \dot{k} = \infty$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;By the maximum principle optimality requires that the Hamiltonian &#xA;\begin{align}&#xA;H_1(k,\tau_1,\tau_2^*,\lambda_1) := F(k,\tau_1,\tau_2^*) + \lambda_1 f(k,\tau_1,\tau_2^*)&#xA;\end{align}&#xA;is concave in $(k,\tau_1,\tau_2)$ (sufficient condition). Now we have&lt;br&gt;&#xA;\begin{align}&#xA;\rho v(k) = \max_{\tau_1} H_1(k,\tau_1,\tau_2^*,\lambda_1).&#xA;\end{align} &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;I was wondering if the value function must be (strictly) concave to ensure optimality?&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Any reference is appreciated.    &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/SFGwR.jpg&quot; alt=&quot;vfi&quot;&gt;&lt;/p&gt;&#xA;" OwnerUserId="4266" LastActivityDate="2015-06-08T11:29:55.653" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6039" PostTypeId="2" ParentId="5853" CreationDate="2015-06-08T12:50:59.923" Score="3" Body="&lt;p&gt;Just to add to what is here, a lot of economists who do heavy work (dynamic programming, structural estimation) can't get away with using a language like Matlab that isn't compiled. From older economists (tenured faculty, say) I see a surprising amount of fortran for these applications. C++ may be more popular among younger economists for the same job, but fortran has had surprising staying power.&lt;/p&gt;&#xA;" OwnerUserId="54" LastActivityDate="2015-06-08T12:50:59.923" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6040" PostTypeId="2" ParentId="6037" CreationDate="2015-06-08T12:53:09.817" Score="9" Body="&lt;p&gt;The condition is mostly referred to as the No-Ponzi (-scheme) [NP] condition. It is &lt;strong&gt;one&lt;/strong&gt; additional constraint, that prevents Ponzi-schemes: Paying debt with new higher debt, ad infinitum. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;By the way: The NP condition is &lt;strong&gt;one&lt;/strong&gt; condition, hence the associated multiplier should be &lt;span class=&quot;math-container&quot;&gt;$\psi$&lt;/span&gt; instead of &lt;span class=&quot;math-container&quot;&gt;$\psi_t$&lt;/span&gt;. While certainly nothing is lost repeating the same condition over and over again (for any &lt;span class=&quot;math-container&quot;&gt;$t$&lt;/span&gt;), we don't need it more than once, and it is being imprecise.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Think about optimization for finite &lt;span class=&quot;math-container&quot;&gt;$T$&lt;/span&gt; periods. Then, you have the condition that &lt;span class=&quot;math-container&quot;&gt;$B_T \geq 0$&lt;/span&gt;. The Lagrangian optimization gives you the local optimization between &lt;span class=&quot;math-container&quot;&gt;$0, 1, 2$&lt;/span&gt;... There are many solutions that are locally optimal, but you will only allow solutions that in the end lead to &lt;span class=&quot;math-container&quot;&gt;$B_T &amp;gt; 0$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;A simple example&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;Your example is much too messy to think about these core issues. Look instead at the problem &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ \max_{\{c_t, a_{t+1}\}_t} \sum_t \beta^t U(c_t) + \lambda_t (a_{t+1} + c_t - Ra_t)$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That is, a household that choses assets &lt;span class=&quot;math-container&quot;&gt;$a$&lt;/span&gt; and consumption &lt;span class=&quot;math-container&quot;&gt;$c$&lt;/span&gt; to maximize his utility. You can summarize the FOC as &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ \beta^t U'(c_t) = \lambda_t \\&#xA;\lambda_t = R\lambda_{t+1}\\&#xA;\Leftrightarrow U'(c_t) = \beta R U'(c_{t+1})&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Look for a moment at the special case where &lt;span class=&quot;math-container&quot;&gt;$\beta R = 1$&lt;/span&gt; (what does that imply?). With most preferences, this necessarily leads to &lt;span class=&quot;math-container&quot;&gt;$c_t = c_{t+1}$&lt;/span&gt;. This is the local optimization that I was referring to, which is what the Lagrangian gives you. There are, however, infinitely many solutions that satisfy &lt;span class=&quot;math-container&quot;&gt;$c_t = c_{t+1}$&lt;/span&gt;. Next, we try to use the budget constraint:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ a_{t+1} + c_t = R a_t\\&#xA;\Leftrightarrow R a_0 = \lim_{T\to\infty}\sum_{t=0}^T \frac{c_t}{R^t} + \frac{a_{T+1}}{R^T}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is as far we get using the (infinite) set of local budget constraints, where I have used forward iteration (hopefully correctly), assuming any start date &lt;span class=&quot;math-container&quot;&gt;$t=0$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, &lt;em&gt;if&lt;/em&gt; the household also has to satisfy the NP condition, this boils down to &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$R a_0 = \lim_{T\to\infty}\sum_{t=0}^T \frac{c_t}{R^t}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which, as we showed &lt;span class=&quot;math-container&quot;&gt;$c_t$&lt;/span&gt; to be constant, we can solve easily and receive a single budget constraint. The &lt;strong&gt;unique&lt;/strong&gt; solution to the problem that satisfies the NP condition is the solution where &lt;span class=&quot;math-container&quot;&gt;$c_t$&lt;/span&gt; is a constant and this last equation holds.&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="25888" LastEditDate="2020-03-13T21:55:43.107" LastActivityDate="2020-03-13T21:55:43.107" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="6042" PostTypeId="1" CreationDate="2015-06-08T14:11:38.710" Score="1" ViewCount="802" Body="&lt;p&gt;In an economy with two agents whose utility functions are&#xA;$$&#xA;U_A(x_1,x_2) = \alpha \cdot x_1 + x_2 \hskip 20pt U_B(y_1,y_2) = y_1 \cdot y_2.&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The given allocations are bundle (4,0) for A and bundle (1,5) for B.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider the following question&#xA;&lt;img src=&quot;https://i.stack.imgur.com/3PyTo.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Taking into consideration the respective utilities for the bundles, we have $U_A=4\alpha$ and $U_B=5$. For this allocation to be a No Envy allocation, it has to be $4\alpha \geq 5$, which means alpha has to be greater than or equal to $\frac{5}{4}$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this the right approach to solve this problem? If its not, please find the solution and show me the steps.&lt;/p&gt;&#xA;" OwnerUserId="4889" LastEditorUserId="1601" LastEditDate="2015-06-09T06:44:52.373" LastActivityDate="2015-07-27T06:13:37.413" Title="Question on Pareto optimality problem" Tags="&lt;pareto-efficiency&gt;" AnswerCount="1" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6043" PostTypeId="2" ParentId="5991" CreationDate="2015-06-08T20:25:07.067" Score="2" Body="&lt;p&gt;Both can be correct, depending on the timing of three events--namely production, investment, and depreciation. &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;$K_t = (1-\delta)K_{t-1} +I_t$&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;This would correspond to a model where depreciation takes place at the end of yesterday, investment at the start of today, and production in the middle of today.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;$K_t = (1-\delta)K_{t-1}+I_{t-1}$&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;This would correspond to a model where depreciation and then investment take place at the end of yesterday, and production at the start of today.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2015-06-08T20:25:07.067" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6044" PostTypeId="2" ParentId="6022" CreationDate="2015-06-08T23:39:06.673" Score="2" Body="&lt;p&gt;&lt;strong&gt;A note on the parameter constraints:&lt;/strong&gt;&#xA;$$TC(q)=a+bq+cq^{2}+dq^{3} = a + q(b+cq+dq^{2})$$&#xA;It appears that what we want is that for the second degree polynomial to not take negative values. This would require for it to not have real and positive roots. Since $c&amp;lt;0$, then if there are real roots one of them will be positive. This would imply that for an interval of positive values of $q$ the 2nd degree polynomial will take on negative values, and marginal cost will turn negative. So we need the discriminant to be negative, and so $c^2 - 4bd &amp;lt; 0 \implies c^2 &amp;lt; 4bd$. I don't see whey they write &quot;$3$&quot; instead of &quot;$4$&quot;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;-__________________________________&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for obtaining such a cost function rigorously from a production function:&lt;br&gt;&#xA;The reference is &lt;strong&gt;&lt;a href=&quot;https://books.google.gr/books/about/The_Structure_of_Economics.html?id=DuW6AAAAIAAJ&amp;amp;redir_esc=y&quot; rel=&quot;nofollow&quot;&gt;Silberberg. E (1990), &quot;The Structure of Economics&quot; (2nd ed)&lt;/a&gt;&lt;/strong&gt;, ch. 9.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;A)&lt;/strong&gt; &lt;strong&gt;When the production function is homogeneous of degree&lt;/strong&gt; $r$, then the cost function has the form&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$C(q,\mathbb w) = q^{1/r} \cdot h(\mathbb w)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $h(\mathbb w)$ is a function of prices (of input factors), and it is homogeneous of degree one (or &quot;linearly homogeneous&quot;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;B) When the production function is homothetic&lt;/strong&gt;, which can be represented as a monotonic function of a homogeneous of degree one function, then the cost function remains multiplicatively separable in output and prices for some function $J(q)$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$C(q,\mathbb w) = J(q)\cdot h(\mathbb w)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But again, since homotheticity is a monotonic transformation of homogeneity of degree one, $J(q)$ should not be expected to take any polynomial form like the one you seek.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So none of the usual functional specifications for production functions will give a cost function like the one you want to arrive at.  And indeed in papers with such cost functions I have never seen a derivation of the underlying production function.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If any positive result comes up, I will return.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-06-08T23:39:06.673" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6045" PostTypeId="2" ParentId="5639" CreationDate="2015-06-09T06:13:46.353" Score="0" Body="&lt;p&gt;QE can be done in Africa but it would be of no benefit to us as most of our debt and bop payments are dominated in hard foreign currencies ($ € £ ¥) so any attempt by an African or any other small economy to print money to stimulate its economy will do the opposite. The currency gets devalued making both debt and bop obligations more expensive, leading to higher inflation, which will lead to higher budget deficits as more local money is needed to pay for debts and imports, which leads to either: &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;More QE (which only worsens the situation) or &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;More foreign borrowing that opens the country up to foreign exchange risks.&#xA;For this reason, Africa and other developing countries stick to conventional economic stimulus programmes like rate hikes/cuts, reserve ratio balancing, increased government spending and the (un)conventional yet widely employed borrowing.&#xA;QE assumes economies thrive when 3/4 of the economy consumes and the rest produces even if the consumption is debt driven.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="4893" LastEditorUserId="40" LastEditDate="2015-06-09T06:20:34.040" LastActivityDate="2015-06-09T06:20:34.040" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6046" PostTypeId="1" CreationDate="2015-06-09T09:45:22.997" Score="-1" ViewCount="160" Body="&lt;p&gt;HOw can it all be linked? I think I know but I am only a fresher so. &lt;/p&gt;&#xA;" OwnerUserId="4894" LastActivityDate="2015-06-09T10:18:37.153" Title="Savings and investment relation to interest rate, loanable funds theory, paradox of thrift" Tags="&lt;investment&gt;&lt;saving&gt;" AnswerCount="1" CommentCount="0" ClosedDate="2015-06-09T13:50:20.043" ContentLicense="CC BY-SA 3.0" />
  <row Id="6047" PostTypeId="2" ParentId="5335" CreationDate="2015-06-09T10:00:33.633" Score="0" Body="&lt;p&gt;Supply will increase, as more money becomes available for the government to lend out to borrowers. This is the opposite of the crowding out effect, as mathtastic says, because investment increases.&lt;/p&gt;&#xA;" OwnerUserId="175" LastActivityDate="2015-06-09T10:00:33.633" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6048" PostTypeId="1" CreationDate="2015-06-09T10:06:02.437" Score="2" ViewCount="3432" Body="&lt;p&gt;If the demand for loanable funds decreases, investment increases because the real interest rate decreases. Isn't that a contradiction, because loanable funds are used for investment, and a decrease in demand for loanable funds must come from a decrease in investment?&lt;/p&gt;&#xA;" OwnerUserId="175" LastActivityDate="2015-06-10T03:28:20.880" Title="What is the relationship between the demand for loanable funds and investment?" Tags="&lt;supply-and-demand&gt;&lt;interest-rate&gt;&lt;investment&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6049" PostTypeId="2" ParentId="6046" CreationDate="2015-06-09T10:18:37.153" Score="1" Body="&lt;p&gt;Investment is inversely proportional to the interest rate and savings is proportional to the interest rate, but if the quantity of savings increases, investment also increases according to the equation $I = S + T-G+M-X$. You can illustrate this by graphing the demand and supply of loanable funds on a 2-D plane (savings affects the supply of loanable funds), which shows how the two curves determine the real interest rate.&lt;/p&gt;&#xA;" OwnerUserId="175" LastActivityDate="2015-06-09T10:18:37.153" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6050" PostTypeId="1" AcceptedAnswerId="6052" CreationDate="2015-06-09T11:07:45.610" Score="3" ViewCount="133" Body="&lt;p&gt;I am currently studying economics in college and taking course Macroeconomics and International Finance which covers foreign exchange market topic. The class is very crowded since there are more than 500 students taking this course and I find myself as the youngest in the class so psychologically it's not easy for me to ask a question when I don't understand certain topics. Here are my complete questions regarding this topic:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;How does 'taking sell position' in foreign exchange trading work? How come a trader takes sell position despite not owning currency pairs?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;How come when a trader takes sell position his transaction is immediately executed without waiting? Does it mean when he takes that position there is another trader who takes buy position at the same price?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Is  it possible there is imbalance transaction between buy and sell  position? I mean there are more traders who taking sell position (in  term of volume transaction/ lots) than those who taking buy position or  vice versa?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Is one person’s profit meaning another person’s loss?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Those questions are not my homework but they arise due to lack of my understanding in this topic and my fear of asking those questions in my class. I apologize in advance for asking too many questions. Any help would be greatly appreciated. Thanks.&lt;/p&gt;&#xA;" OwnerUserId="4895" LastActivityDate="2015-06-09T14:29:33.903" Title="Questions regarding foreign exchange online trading" Tags="&lt;macroeconomics&gt;&lt;currency&gt;&lt;financial-economics&gt;&lt;international-trade&gt;&lt;self-study&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6051" PostTypeId="1" CreationDate="2015-06-09T11:45:29.377" Score="2" ViewCount="55" Body="&lt;p&gt;When a model is linear, one can use Kalman filter to get likelihood function and use ML techniques. While nonlinear Kalman filter exists, it is suboptimal. What is the standard way to get likelihood function and apply maximum likelihood(ML) methods when a model is non-linear and not linearized?&lt;/p&gt;&#xA;" OwnerUserId="4883" LastEditorUserId="43" LastEditDate="2015-06-09T13:07:51.217" LastActivityDate="2015-06-09T13:07:51.217" Title="How to derive likelihood functions for non-linear model for ML estimation" Tags="&lt;econometrics&gt;&lt;mathematical-economics&gt;&lt;statistics&gt;" AnswerCount="0" CommentCount="1" ClosedDate="2015-06-11T18:12:58.717" ContentLicense="CC BY-SA 3.0" />
  <row Id="6052" PostTypeId="2" ParentId="6050" CreationDate="2015-06-09T14:29:33.903" Score="3" Body="&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;&quot;Short selling&quot; is a method of trading that includes selling a security (in this case currency) that the trader doesn't own, by borrowing it from a broker.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Prices on forex trading websites are quoted at the current market price, meaning that people around the world are buying and selling at that price at that time. Brokers buy for slightly under market price and sell for slightly over, and they are the ones who actually trade with the average currency trader. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;In the scenario where there are more sellers than buyers at a current price, all buyers at that price level will make their purchases and then the price will drop so the market includes more buyers. Demand &amp;lt; Supply so price falls.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;People trade currencies for many reasons. Forex trading as an investment does not make up the majority of currency exchange. Businesses that are involved in international trade need different currencies to pay for operations in other countries, to import goods from other countries, etc. and visitors to foreign countries have to buy the currency of those countries. Therefore price changes are not primarily affected by investor activity and many people/businesses do not win or lose on purchasing a currency because they do not hold it as an investment but just spend it.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Hope this helps. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.dailyfx.com/forex/education/trading_tips/trend_of_the_day/2012/02/07/Short_Sell_Basics.html&quot; rel=&quot;nofollow&quot;&gt;http://www.dailyfx.com/forex/education/trading_tips/trend_of_the_day/2012/02/07/Short_Sell_Basics.html&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.econedlink.org/lessons/index.php?lid=342&amp;amp;type=student&quot; rel=&quot;nofollow&quot;&gt;http://www.econedlink.org/lessons/index.php?lid=342&amp;amp;type=student&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="4773" LastActivityDate="2015-06-09T14:29:33.903" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6053" PostTypeId="1" CreationDate="2015-06-09T15:21:41.520" Score="10" ViewCount="252" Body="&lt;p&gt;Say for example I sell ZAR and buy USD. What happens behind the scenes so that the local ZAR bank is able to deposit USD into my account? &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Does the bank require some sort of USD cash reserve?&lt;/li&gt;&#xA;&lt;li&gt;How do the banks interact/negotiate with each other?&lt;/li&gt;&#xA;&lt;li&gt;What if the bank selling ZAR cannot find a bank/trader selling USD who wants ZAR?&lt;/li&gt;&#xA;&lt;li&gt;If the bank does find a source of USD, is any physical money like notes/bills/gold ever moved from one bank to another to settle the account? &lt;/li&gt;&#xA;&lt;li&gt;How are these transactions regulated or monitored to &#xA;avoid fraud?&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="4896" LastEditorUserId="4773" LastEditDate="2015-06-10T08:29:10.613" LastActivityDate="2020-07-05T21:09:26.037" Title="How does a bank convert one currency to another?" Tags="&lt;currency&gt;&lt;exchange-rates&gt;&lt;international-trade&gt;&lt;banking&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6055" PostTypeId="1" AcceptedAnswerId="6056" CreationDate="2015-06-09T20:27:24.047" Score="6" ViewCount="8686" Body="&lt;p&gt;In a fractional reserve system when banks lend out money, that money is created out of thin air by a accounting journal entry, and the money supply goes up by the amount of the loan &amp;amp; when the loan gets paid off, that money disappears back into thin air and the money supply goes back down which is often also described as &quot;destroying the money&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As under normally amortized loan, out of monthly payments, some part goes towards interest &amp;amp; some towards principal repayment, so the question is does the money equivalent of principal repayment disappears into thin air every time the payment is made towards principal of the loan, or does it only disappears at end of the loan term all at once when the loan has been repaid in full?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the money gets destroyed or rather disappears from the money cycle every time the principal is repaid from the monthly payments, then does it means that the banks are only left with the interest parts &amp;amp; nothing out of the principal portion on their books?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also how does the money gets depleted from the money cycle and disappears into thin air in the case of &quot;interest only loans&quot;, where during the term of the loan only interest payments are being paid by the borrower &amp;amp; the principal is repaid all at once at the end of the term of loan in form of a single one time payment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So is it that in such interest only loans because the principal gets repaid all at once at the end of the loan term so at that time immediately it gets depleted from the money cycle all at once &amp;amp; disappears into the thin air?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And most importantly: if all of the money equivalent of the principal amount of loans disappears then how does the banks end up recovering the actual amount loaned by them to the others &amp;amp; not just the interest on that loan?&lt;/p&gt;&#xA;" OwnerUserId="4900" LastEditorUserId="43" LastEditDate="2015-06-10T02:26:01.650" LastActivityDate="2017-02-14T19:46:36.343" Title="How does the money supply behave when bank loans are repaid?" Tags="&lt;macroeconomics&gt;&lt;money-supply&gt;&lt;banking&gt;" AnswerCount="4" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6056" PostTypeId="2" ParentId="6055" CreationDate="2015-06-10T02:20:44.503" Score="5" Body="&lt;p&gt;The money is removed when the loan principal is repaid. The actual point in the loan this occurs depends on the loan terms. For a typical compound interest rate loan, this means a small portion of the principal is repaid every month, and a matching liability deposit (money in the customers account) is removed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For an interest only loan, this occurs at the end of the loan - assuming all the principal is repaid then.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Interest payments essentially circulate through the monetary system. They're deducted from the customer's account, recognised as income by the bank, and then paid out as some form of expense, e.g. salaries, rent, taxes, etc. They may also be moved into an internal account to provide required loss provisions on loans. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Loan defaults are also an expense, and this is the achilles heel of the banking system. If defaults on loans exceed the bank's loss provisions and profits from interest, then the bank will have to write off against its capital - and this interferes with the regulatory controls on lending, causing the money supply to shrink. In practice, central bank or government intervention is inevitable if this occurs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As far as the relationship of principal to the money supply. Essentially the banking system relies on new lending always being sufficient to replace the money being removed. In most banking systems, new lending is typically in excess of loan repayment, and so we see the money supply more or less continuously expanding. &lt;/p&gt;&#xA;" OwnerUserId="84" LastActivityDate="2015-06-10T02:20:44.503" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="6057" PostTypeId="2" ParentId="6048" CreationDate="2015-06-10T03:28:20.880" Score="2" Body="&lt;p&gt;Assuming loanable funds are all used for investment, loanable funds = investment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The interest rate can be though of as the price for loanable funds. Take a look at the following graph.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/A8Pt5.gif&quot; alt=&quot;Demand shift left&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can think of the change from point A to C in two steps, with B as the intermediary, even though in reality both steps probably happen simultaneously.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First the shift in demand from D to D2 (decrease in demand for loanable funds) is reflected by the move from A to B. Price has not yet changed at this point.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, a new equilibrium is reached with quantity demanded moving down the new demand curve (as price decreases) to point C. In this step price decreases so the quantity demanded actually increases. But it does not reach the quantity demanded at the original point A. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So as the demand curve shifts to the left both price and quantity demanded decrease. &lt;/p&gt;&#xA;" OwnerUserId="4773" LastActivityDate="2015-06-10T03:28:20.880" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6058" PostTypeId="1" AcceptedAnswerId="6063" CreationDate="2015-06-10T07:59:40.400" Score="10" ViewCount="935" Body="&lt;p&gt;Consider the following dynamic optimization problem&#xA;\begin{align}&#xA;&amp;amp;\max_u \int^T_0{F(x,u)dt}\\&#xA;\text{s.t.}~&amp;amp; \dot{x} = f(x,u)&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;FOCs&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;The Hamiltonian is given by&#xA;\begin{align}&#xA;H(x,u,\lambda) = F(x,u) + \lambda f(x,u)&#xA;\end{align}&#xA;The necessary condtions for optimality are given by the maximum principle&#xA;\begin{align}&#xA;\frac{\partial H}{\partial u} &amp;amp;= 0\\[2mm]&#xA;\frac{\partial H}{\partial x} &amp;amp;= -\dot{\lambda}&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose $u^*=\arg\max_u H(x,u,\lambda)$ is a maximizer, i.e. $H_{uu} &amp;lt; 0$. &lt;/p&gt;&#xA;&#xA;&lt;h2&gt;SOC&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;The Arrow Sufficient Theorem states, that the necessary condtions are sufficient if the maximized Hamiltonian&#xA;\begin{align}&#xA;H^0(x,\lambda) = \max_u H(x,u,\lambda)&#xA;\end{align}&#xA;is concave in $x$, i.e. if $H_{xx} &amp;lt; 0$. &lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Problem&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Suppose the FOCs hold, but the SOC fails to hold.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;What can be said about the optimality of the solution?&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="4266" LastEditorUserId="120" LastEditDate="2015-06-10T12:26:13.840" LastActivityDate="2015-06-10T14:35:42.047" Title="Dynamic Optimization: What if the second order condition does not hold?" Tags="&lt;optimization&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6059" PostTypeId="2" ParentId="6055" CreationDate="2015-06-10T09:07:35.580" Score="0" Body="&lt;p&gt;When an unpaid loan is written off against the bookkeeping profits sitting on a bank's P&amp;amp;L account, the endogenous money supply (total spendable money swilling around the economy) remains unchanged - please correct me if you think I am wrong. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'll explain this by way of an example: If I take out a loan to buy a car, every time I make a repayment my current account (spendable money) is reduced, as is the outstanding balance on my loan account with the bank - so what was spendable money sitting in my current account effectively disappears into thin air. However, when a bank writes off an unpaid loan it has made to one its customers, it doesn't reduce its own cash reserves, but instead reduces the bookkeeping profit sitting in its Profit and Loss Account - no 'spendable' bank account balances anywhere are reduced by doing this!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The net profit of a bank only becomes 'spendable' money when bookkeeping entries are made to transfer and credit it to customers' (and its own?) bank accounts.&lt;/p&gt;&#xA;" OwnerUserId="4905" LastEditorUserId="4905" LastEditDate="2015-06-10T09:15:17.203" LastActivityDate="2015-06-10T09:15:17.203" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6063" PostTypeId="2" ParentId="6058" CreationDate="2015-06-10T11:47:03.960" Score="6" Body="&lt;p&gt;There is not a single answer, it will depend on the particulars of each problem. Let's look at a standard example.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider the benchmark intertemporal optimization problem for the Ramsey model&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\begin{align}&#xA;&amp;amp;\max_u \int^{\infty}_0{e^{-\rho t}u(c)dt}\\&#xA;\\&#xA;&amp;amp; \text{s.t.}\;\; \dot{k} = i-\delta k\\&#xA;&amp;amp; \text{s.t.}\;\; y = f(k)=c+i&#xA;\end{align}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The current value Hamiltonian is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\tilde H = u(c) +\lambda [f(k)-c-\delta k]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Maximizing over $c$ &lt;strong&gt;alone&lt;/strong&gt; we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\partial \tilde H}{\partial c} = u'(c) - \lambda =0 \implies u'(c^*) = \lambda \implies c^* = (u')^{-1}(\lambda)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and the 2nd-order condition will hold if the utility function is concave, &#xA;$$\frac {\partial^2 H}{\partial c^2} = u''(c^*) &amp;lt; 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Moreover, from the first-order condition with respect to consumption, $\lambda &amp;gt;0$ if local non-satiation holds. Assume that we do have such &quot;usual&quot; preferences.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The maximized over consumption Hamiltonian is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\tilde H^0 = u[(u')^{-1}(\lambda)]+\lambda [f(k)-(u')^{-1}(\lambda)-\delta k]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The partial derivatives with respect to the state variable, $k$ are&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\partial \tilde H^0}{\partial k} = \lambda[f'(k) - \delta],  \;\;\;\; \frac {\partial^2 \tilde H^0}{\partial k^2} = \lambda f''(k)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So here, the Arrow-Kurz sufficiency condition boils down to whether the marginal product of capital is decreasing, constant, or increasing (which will depend on the sign of the second derivative of the production function). In the standard case $f''(k) &amp;lt; 0$ and we have the sufficient condition.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the most famous case of deviation, Romer's $AK$ model that initiated the Endogenous Growth literature, $f''(k) =0$, and the marginal product of capital is a positive constant.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So what can we say in this case?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here, &#xA;&lt;a href=&quot;http://www.jstor.org/stable/2525753?seq=1#page_scan_tab_contents&quot; rel=&quot;nofollow&quot;&gt;&lt;strong&gt;Seierstad, A., &amp;amp; Sydsaeter, K. (1977). Sufficient conditions in optimal control theory. International Economic Review, 367-391.&lt;/strong&gt;&lt;/a&gt; provide various results that can help us.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In particular, they prove that if the Hamiltonian is &lt;em&gt;jointly concave&lt;/em&gt; in $c$ and $k$, it is a sufficient condition for a maximum.&#xA;The Hessian of the Hamiltonian is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(we can ignore the discount term) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$${\rm He}_H = \left [ \begin{matrix} u''(c) &amp;amp; 0\\&#xA;0 &amp;amp; \lambda f''(k)\\&#xA;\end{matrix} \right]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the standard case with $u''(c) &amp;lt;0, \; f''(k) &amp;lt;0$ this is a negative definite matrix and so the Hamiltonian is jointly strictly concave in $c$ and $k$.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;When $f''(k) =0$, checking that the matrix is negative-semidefinite is straightforward using the definition. Consider a vector $\mathbf z = (z_1, z_2)^T \in \mathbb R^2$ and the product&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\mathbf z^T{\rm He}_H\mathbf z = z_1^2u''(c) \leq 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;this weak inequality holds $\forall \mathbf z \in \mathbb R^2$, and so the Hessian is jointly concave in $c$ and $k$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So in the $AK$ model of endogenous growth, the solution is indeed a maximum (subject to the parameter constraints needed for the problem to be well-defined of course).&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-06-10T14:35:42.047" LastActivityDate="2015-06-10T14:35:42.047" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6064" PostTypeId="1" AcceptedAnswerId="6066" CreationDate="2015-06-10T13:31:45.867" Score="3" ViewCount="570" Body="&lt;p&gt;Do stock prices have any effect on the money supply of an economy? Please provide a simple example if possible.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Intuition suggests there is more money around when prices are high (consider for instance the dotcom boom). I guess the answer may be dependent on what definition of money supply one uses (M0-M4).&lt;/p&gt;&#xA;" OwnerUserId="4909" LastEditorUserId="4909" LastEditDate="2015-06-10T13:42:23.527" LastActivityDate="2015-06-11T17:50:59.963" Title="Is money supply affected by the stock market?" Tags="&lt;stock-market&gt;&lt;money&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6065" PostTypeId="2" ParentId="6064" CreationDate="2015-06-10T13:46:16.840" Score="0" Body="&lt;p&gt;The short answer to your question is no, stock prices have no direct effect on the total amount of money in an economy, just as the price of apples has no effect on the total amount of money in an economy. The &lt;a href=&quot;http://en.wikipedia.org/wiki/Money_supply#Empirical_measures_in_the_United_States_Federal_Reserve_System&quot; rel=&quot;nofollow&quot;&gt;wikipedia page&lt;/a&gt; on money has an explanation of the various ways you might define money, and none of them include the valuation of stocks. Here's the requested simple example: Say there are \$100 in circulation. There is one stock traded, and it is valued at \$10. Then, it is valued at \$20. But there is still \$100 in circulation.&lt;/p&gt;&#xA;" OwnerUserId="4177" LastActivityDate="2015-06-10T13:46:16.840" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6066" PostTypeId="2" ParentId="6064" CreationDate="2015-06-10T13:56:44.807" Score="2" Body="&lt;p&gt;They may, but probably not much. Because stocks cannot be used as a substitute for money in most transactions there is no direct channel. However, because stocks can act as collateral for loans, and loans have the capacity to create money through the money multiplier mechanism they can have some effect, just as anything that relaxes borrowing constraints could increase the money supply. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Collateralized loans make up the vast majority of bank debt. Suppose, for example, that banks only made collateralized loans. Then when stock prices go up, some borrowers formerly at the limits of borrowing constraints due to limited collateral, would be able to take out additional loans. These loan proceeds could then be deposited in banks or spent, either way likely ending up in banks eventually where, through the mechanism of fractional reserve banking, they could be used to create additional money. However, as you can see in the figures below, margin debt is a very low fraction of GDP in contrast to say household overall debt. So in general this is not going to be a big channel. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/1ISea.jpg&quot; alt=&quot;enter image description here&quot;&gt;&#xA;Source: &lt;a href=&quot;http://www.fool.com/investing/general/2014/03/07/ominous-sign-as-margin-debt-continues-to-rise.aspx&quot; rel=&quot;nofollow noreferrer&quot;&gt;Ominous Sign as Margin Debt Continues to Rise&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/uZNoT.png&quot; alt=&quot;enter image description here&quot;&gt;&#xA;Source: &lt;a href=&quot;http://en.wikipedia.org/wiki/Subprime_mortgage_crisis&quot; rel=&quot;nofollow noreferrer&quot;&gt;Wikipedia Subprime mortgage crisis page&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-06-11T17:50:59.963" LastActivityDate="2015-06-11T17:50:59.963" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6067" PostTypeId="2" ParentId="5469" CreationDate="2015-06-10T14:05:58.183" Score="1" Body="&lt;p&gt;It is not clear to what covariance this question refers to. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As in the CAPM model the covariance among assets is reduced to $\beta$, through the covariance with the market index.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\beta_i=\sigma_{i,M}/\sigma_M^2$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, if CAPM is correct, we could explain the covariance relating the $\beta$s&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\sigma_{i,j}=\beta_i*\beta_j*\sigma_M^2$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the context of multifactor models something similar occurs, since, in order to use those models, it is necessary to estimate $\beta$s, or sensitivities, related to each proposed factors.&lt;/p&gt;&#xA;" OwnerUserId="4910" LastActivityDate="2015-06-10T14:05:58.183" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6071" PostTypeId="1" CreationDate="2015-06-10T19:17:58.597" Score="4" ViewCount="147" Body="&lt;p&gt;I'm trying to estimate $\lambda$ from this intratemporal Euler equation:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\left[ \dfrac{C_t^{-\sigma}}{C_t^{*-\sigma}} \dfrac{P_t}{S_t P_t^*} \right]^{\lambda} \left[ \dfrac{\bar{P_t} Y_t - \Delta (FR_t)}{P_t C_t} \right]^{1-\lambda}  = 1 $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Log-linearizing this gives: (done in paper)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\Rightarrow \lambda \left[ \sigma (c_t - c_t^*) - \ln (RER) \right] = (1-\lambda) \left[ y_t - c_t - \ln (P_t / \bar{P_t}) - (fr_t - fr_{t-1}) \right] $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, there are a bunch of assumptions and approximations taken into account, but at the end of the day, I will have data on all the macro variables, and my project is to estimate the values of $\lambda$ for different countries (FYI: $\lambda$ represents the presence of risk sharing).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've heard that there exists GMM methods for such estimations, but Hayashi only has a small section of intertemporal Euler equation GMM work. I was wondering if you guys could advise me on how I can estimate for this $\lambda$ parameter, or perhaps some guideline as to where I can look. Just to note again, I will have all the variables' data. :)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks!&lt;/p&gt;&#xA;" OwnerUserId="4870" LastActivityDate="2015-09-03T14:32:26.797" Title="GMM Estimation of a parameter from Intratemporal Euler of capital constraints" Tags="&lt;macroeconomics&gt;&lt;open-economy-macro&gt;&lt;capital-structure&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6072" PostTypeId="2" ParentId="5745" CreationDate="2015-06-10T19:53:33.747" Score="1" Body="&lt;p&gt;The approach appears to be static. An intertemporal approach would recognize that part of the period's forgone production would have been used for investment, augmenting the capital base. So we also lose future consumption. But let's skip that.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In order to categorize what the country will lose (and who is going to lose it) I decompose output into certain categories and comment on each one&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Output&lt;/strong&gt; =&lt;br&gt;&#xA;&lt;strong&gt;+ Imported materials&lt;/strong&gt;  (we don't care what happens to them)&lt;br&gt;&#xA;&lt;strong&gt;+ Services offered from abroad&lt;/strong&gt;  (we don't care what happens to them)&lt;br&gt;&#xA;&lt;strong&gt;+ Locally produced materials in other sectors&lt;/strong&gt;  (will there be demand for their products from other sectors of the economy? Will they be able to export them? -possibly lost income here)&lt;br&gt;&#xA;&lt;strong&gt;+ Services offered by locals&lt;/strong&gt; (How much of them will be used to manage the compensating imports? -possibly lost income here)&lt;br&gt;&#xA;&lt;strong&gt;+ Rents of land owners who do not engage in farming&lt;/strong&gt; (lost income)&lt;br&gt;&#xA;&lt;strong&gt;+ Wages of people working the land,&lt;/strong&gt; i.e. &quot;Direct Labor&quot; (lost income)&lt;br&gt;&#xA;&lt;strong&gt;+ Wages of other personnel &lt;em&gt;in&lt;/em&gt; the sector&lt;/strong&gt; (will they be needed to manage imports? -possibly lost income here)&lt;br&gt;&#xA;&lt;strong&gt;+ Depreciation&lt;/strong&gt; (equipment will erode by the simple passage of time, but land may even appreciate in terms of productivity-after all the biblical commandment has clear practical motives. So on the balance?)&lt;br&gt;&#xA;&lt;strong&gt;+ Profits of farmers/entrepreneurs&lt;/strong&gt; (lost income)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A basic conclusion from the above, is that by stopping production in one sector, we may also lose some production in other sectors.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;...and think also about taxes.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-06-10T19:53:33.747" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6073" PostTypeId="2" ParentId="4662" CreationDate="2015-06-10T19:57:31.350" Score="1" Body="&lt;p&gt;I have to disagree on some points in @Michale answer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a Weak Law of Large numbers to hold, stationarity, either strict or &quot;weak&quot;(alternatively called  &quot;2nd-order&quot; or &quot;covariance-stationarity&quot;), is not a necessary condition.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are simple versions of LLN where each random variable in the sequence examined may have a different mean and/or variance. This rules out stationarity, but the probability limit may exist, subject to a condition on the variance (&quot;Markov's condition&quot;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course, the probability limit being an average of the &lt;em&gt;different&lt;/em&gt; expected values, it may not have a useful interpretation -but this is not a &quot;technical&quot; problem as regards the validity of the LLN, but rather whether we can interpret, in a useful way, the averaging over a sequence of random variables that each has different moments.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a compromise, we assume that the mean is the same, but the variance may differ.  This imposes only &quot;mean-stationarity&quot;, but not covariance-stationarity, and certainly not strict stationarity (strict stationarity requires that the joint distribution of any subsequence is identical).  Again, we make this assumption not in order for the LLN to hold, but in order to be able to interpret usefully the results of the LLN: after all, to pool and examine data together, they &lt;em&gt;must&lt;/em&gt; have something in common, otherwise, what's the point?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But ergodicity is required in order for the sample averages to converge to the theoretical quantity, this is what Kinchine's Law is all about.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-06-10T20:33:00.960" LastActivityDate="2015-06-10T20:33:00.960" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6074" PostTypeId="2" ParentId="4426" CreationDate="2015-06-10T20:32:09.423" Score="2" Body="&lt;p&gt;Indeed the IMF reports on this. A recent review-overview paper is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www18.georgetown.edu/data/people/quinnd/publication-64463.pdf&quot; rel=&quot;nofollow&quot;&gt;&lt;strong&gt;Quinn, D., Schindler, M., &amp;amp; Toyoda, A. M. (2011). Assessing measures of financial openness and integration. IMF Economic Review, 59(3), 488-522.&lt;/strong&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the introduction, the authors write&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;The aim of this article is to help researchers better understand the range of choices they have in measuring financial integration and&#xA;  globalization, the pros and cons associated with each, and some of the&#xA;  reasons behind the divergence in findings in the literature. In&#xA;  particular, it describes de jure, de facto, and “hybrid” indicators,&#xA;  and comparatively analyzes their data properties and how these&#xA;  measures relate to one another&quot;&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The main &quot;De jure&quot; (as the authors characterize it) resource (on which many scholars have built various indexes using wildly different methodologies) is the IMF's report &lt;a href=&quot;http://www.imf.org/external/ns/search.aspx?NewQuery=Annual%20Report%20on%20Exchange%20Arrangements%20and%20Exchange%20Restrictions&amp;amp;submit.x=13&amp;amp;submit.y=14&amp;amp;col=&quot; rel=&quot;nofollow&quot;&gt;&lt;strong&gt;&lt;em&gt;Annual Report on Exchange&#xA;Arrangements and Exchange Restrictions (AREAER)&lt;/em&gt;&lt;/strong&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As the authors write, after presenting the various &quot;De jure&quot; indices,&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;De jure indices of financial globalization do not reflect the extent to which actual capital flows evolve in response to legal&#xA;  restrictions, either because of a lack of enforcement, or because&#xA;  controls in one area may induce a response in other asset flows. Also,&#xA;  even the more disaggregated indices may not capture subtle, but&#xA;  possibly important differences between countries’ capital control&#xA;  regimes. De jure measures, therefore, do not necessarily reflect a&#xA;  country’s actual degree of financial integration, highlighted by the&#xA;  fact that even countries with relatively closed capital accounts&#xA;  became substantially more financially integrated over the past&#xA;  decades... Thus, &quot;de facto&quot;, or in some cases “blended,” measures&#xA;  present an alternative way to measure a country’s integration into&#xA;  global finance markets. These can be divided into three categories:&#xA;  quantity-based, price-based, and hybrid measures.&quot;&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;They then move on to a detailed study of many of all the above indices, and they conclude (they have also conveniently summarized qualitative assessments of each index in tables):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;A key result is that most of the measures provide information that is linked in a meaningful way to economic outcomes. The exception is&#xA;  IF-Heritage, an indicator that we found not to be correlated with&#xA;  other indices, to have no measurable impact on economic growth, and to&#xA;  be linked in the factor analysis to unique dynamics that are not&#xA;  easily interpretable. Correlation and factor analyses suggest that&#xA;  investigators using de facto indicators of financial globalization&#xA;  will find differing identifying variances from those found in the de&#xA;  jure measures. In part, this is because de facto measures likely&#xA;  reflect the influences of many political and economic factors, of&#xA;  which legal restrictions of the capital accounts, as indicated by the&#xA;  de jure measures, are but one.&quot;&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;and &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;The bottom line of this paper is that researchers in this field have an unusually large choice of indicators, most of which are valid, with&#xA;  unique advantages and disadvantages.&quot;&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-06-10T20:47:44.107" LastActivityDate="2015-06-10T20:47:44.107" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6076" PostTypeId="2" ParentId="3081" CreationDate="2015-06-10T23:20:56.390" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;Was factory beef farming (in the USA) the result of&#xA;  government-subsidized corn?&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Answer A)&lt;/strong&gt; The answer is &lt;strong&gt;negative&lt;/strong&gt;, according to &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;a href=&quot;http://www.ers.usda.gov/media/184977/eib43.pdf&quot; rel=&quot;nofollow&quot;&gt;MacDonald, J. M., &amp;amp; McBride, W. D. (2009). The transformation of US livestock agriculture scale, efficiency, and risks. Economic Information Bulletin, (43). USDA.&lt;/a&gt;&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Although not a historical-statistical account, they write (p. 21, bold my emphasis)&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;Two recent reports argue that Federal commodity programs reduce prices for a particular input, purchased feeds, and that those&#xA;  reductions drive structural change (Pew Commission on Industrial Farm&#xA;  Animal Production, 2008; Union of Concerned Scientists, 2008).&#xA;  Specifically, they assert, drawing on Starmer and Wise (2007), that&#xA;  policy encourages increased production of feedgrains, that the&#xA;  increased production substantially reduces feedgrain prices, and that&#xA;  the buyers of purchased feed benefit from lower feed prices. While&#xA;  producers of homegrown feed have been the direct recipients of&#xA;  commodity payments, the reports argue that the payments have not been&#xA;  large enough to offset lower commodity prices, so that commodity&#xA;  programs have largely benefited large-scale animal feeding operations&#xA;  at the expense of smaller diversified crop and livestock farms.&#xA;  However, the size-related differences in production costs that are&#xA;  summarized in figures 6-8 cannot be attributed to the effects of&#xA;  commodity programs. &lt;strong&gt;In developing cost-of-production estimates, ERS&#xA;  prices homegrown feed at its market value—that is, the price that&#xA;  homegrown feed would have drawn as feed in regional feed markets&lt;/strong&gt;—and&#xA;  does not attempt to estimate the actual cost of producing the feed. To&#xA;  the extent that larger operations realize lower feed costs in ERS&#xA;  estimates, it is because they use less feed per cwt of production and&#xA;  not because purchased feed costs them less.&#xA;  &lt;strong&gt;But even if commodity policies reduce purchased feed prices, there’s no reason why that should alter the size structure of livestock farms.&#xA;  No technological barrier prevents small farms from replacing homegrown&#xA;  feed with purchased feed: if purchased feed prices are lower than the&#xA;  costs of growing feed, then small livestock operations can simply buy&#xA;  feed and realize the same savings as large farms.&lt;/strong&gt; A difference&#xA;  between the price of purchased feed and the cost of homegrown feed&#xA;  does not explain why feeders build large rather than small&#xA;  operations.&lt;/em&gt;&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;-__________________________________________________________________&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Answer B)&lt;/strong&gt; The answer is &lt;strong&gt;positive&lt;/strong&gt; according to&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;a href=&quot;http://ageconsearch.umn.edu/bitstream/37709/2/07-04LivingHighOnHog.pdf&quot; rel=&quot;nofollow&quot;&gt;Starmer, E., &amp;amp; Wise, T. A. (2007). Living high on the hog: factory farms, federal policy, and the structural transformation of swine production. Tufts University.&lt;/a&gt;&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;They report the following estimations, among others: The feed costs for Hog represent ~$60\%$ of operating costs of CAFO's. That in the period $1997-2005$ feed subsidies meant that feed was sold at a price $26\%$ below production cost. Hence, the savings in operating costs for CAFO's was around $60 \% \times 26\% \approx 15\%$ (of Costs, not of Revenues). For  the top four CAFOs in terms of market share, the authors estimated that this amounted to total cost-savings of $\approx 4.4$ billion USD for the 1997-2005 period.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This paper appears to be an aggregator of previous more detailed studies, so lots of references.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-06-11T01:56:15.293" LastActivityDate="2015-06-11T01:56:15.293" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="6079" PostTypeId="2" ParentId="4805" CreationDate="2015-06-11T06:36:32.377" Score="4" Body="&lt;p&gt;The Mexican government has a complicated history of currency intervention, which can be read about in a detailed timeline &lt;a href=&quot;http://intl.econ.cuhk.edu.hk/exchange_rate_regime/index.php?cid=17&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, in 1994 the devaluation was caused by the end of government intervention. Up until that date the Mexican government had a set range of USD values that the peso could float within, so a sort of flexible peg to the USD. In December of 1994 the government decided to allow the peso to float freely and the peso was devalued naturally through market forces.&lt;/p&gt;&#xA;" OwnerUserId="4773" LastEditorUserId="69" LastEditDate="2015-06-11T14:41:42.510" LastActivityDate="2015-06-11T14:41:42.510" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6080" PostTypeId="1" AcceptedAnswerId="6081" CreationDate="2015-06-11T12:52:24.650" Score="1" ViewCount="94" Body="&lt;p&gt;Given &lt;a href=&quot;http://studentbounty.com/pastpapers/Edexcel/International%20GCSE/Business%20Studies/2007%20Nov/4330_1F_que_20071109.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;this story&lt;/a&gt;, I am (my younger brother is) asked why (rather than how?) a particular company &lt;em&gt;Pepper plc&lt;/em&gt; is likely to benefit from &lt;a href=&quot;http://www.investopedia.com/terms/e/economiesofscale.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;economies of scale&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In short, Jo has a shop that sells electrical goods made by &lt;em&gt;Pepper plc&lt;/em&gt;, a large-scale business. Nearby, many people are unemployed so they can't really buy new stuff. However, they might be able to pay to repair their old stuff.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What exactly is the relevance?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Economies of scale is, from what I vaguely remember from introductory micreoceonomics (if I remembered, I guess I wouldn't be here) and understand on Investopedia, an advantage that comes from more production namely that if more of a particular product is produced, &lt;a href=&quot;http://en.wikipedia.org/wiki/Economies_of_scale#/media/File:Economies_of_scale.PNG&quot; rel=&quot;nofollow noreferrer&quot;&gt;but only up to a certain point&lt;/a&gt;, any particular unit would cost less.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is because fixed costs per unit decrease with more units, again, only up to a certain point.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Help please?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that for some reason we are talking about Jo's shop while we are asked about &lt;em&gt;Pepper plc&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;For reference, here is the whole story:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/UqqYt.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;" OwnerUserId="4483" LastActivityDate="2015-06-11T13:18:31.980" Title="How does this company gain from economies of scale?" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="6081" PostTypeId="2" ParentId="6080" CreationDate="2015-06-11T13:18:31.980" Score="1" Body="&lt;p&gt;The story (and Jo) have basically nothing to do with the benefits Pepper plc will get from economies of scale. As you have stated economies of scale means that the average cost (cost per unit) is less if you produce in large quantities.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An example: Assembling a car with drills and screwdrivers is really difficult and time consuming but a robotized assembly line can do it quite quickly. However, the assembly line costs a lot of money so it will only pay off if a lot of cars are produced.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since Birmingham, where Pepper plc. is located, is a large city it has a large market for electronic consumer goods. Therefore Pepper plc. can sell a lot of these goods, hence it has reason to produce in bulk, so the unit cost is less. Thus the company may sell its products cheaper or have a higher profit. (This depends on the market environment.)&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2015-06-11T13:18:31.980" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6082" PostTypeId="2" ParentId="6055" CreationDate="2015-06-11T16:21:28.953" Score="0" Body="&lt;p&gt;I appreciate the order of write-off is loss reserve, profits and then capital - but reducing these balances when writing off loans does NOT 'destroy' spendable money in accounting terms. I'll explain why: in double-entry bookkeeping, moving 'money' to a loss reserve keeps it on the debit side of the ledger - the same side that the outstanding balance on a loan account sits (loans are assets to the bank). Therefore, one cannot cancel the other out. Instead, what happens is that a provision for bad debts account is created, and some of the profit sitting in the P&amp;amp;L is moved and credited to it. When the a loan is written-off, the accounting entries are: Debit Bad Debts Account &amp;amp; Credit Loan Account. Doing this does NOT diminish the quantity of 'money' in existence in the bank's accounts.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From the bank's perspective, and in accounting terms, only its customers can 'destroy' money by paying-off their loans and reducing the balances on their bank accounts. It is impossible for the bank to 'destroy' money it has created itself through the act of lending.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, I do concede that when the bank destroys money by charging its customers interest and moving it to the P&amp;amp;L, that can be used later to write off bad loans - but the money is effectively destroyed when it is taken from customers' accounts.&lt;/p&gt;&#xA;" OwnerUserId="4905" LastEditorUserId="4905" LastEditDate="2015-06-11T18:06:34.143" LastActivityDate="2015-06-11T18:06:34.143" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6084" PostTypeId="1" AcceptedAnswerId="6085" CreationDate="2015-06-11T21:04:34.243" Score="0" ViewCount="43" Body="&lt;p&gt;I am trying to find the growth rate of a stock over a given year.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's say I wanted to find the growth rate from today, June 11, 2015 to June 11, 2014. This is easy enough when you have perfect information and both sets of data exist.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However let's say June 11,2014 stock data does not exist, but June 10th and June 12th do. Which date do I compare to? Do I extend the &quot;year&quot; by a day and go to June 10th, or do I shorten the year and go to June 12th?&lt;/p&gt;&#xA;" OwnerUserId="4540" LastActivityDate="2015-06-12T18:12:37.700" Title="Calculating the growth rate of a stock over a year with imperfect information" Tags="&lt;finance&gt;&lt;capital-returns&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6085" PostTypeId="2" ParentId="6084" CreationDate="2015-06-12T00:56:34.407" Score="2" Body="&lt;p&gt;I don't think that on yearly returns, a day more or less matters too much. In the unlikely case it actually does, you could interpolate the final day. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A first approximation would be the average over June 12th and June 11.&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-06-12T00:56:34.407" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6086" PostTypeId="1" CreationDate="2015-06-12T06:30:26.410" Score="3" ViewCount="375" Body="&lt;p&gt;I wonder what it means if the statistic (ratio) of &lt;a href=&quot;https://en.wikipedia.org/wiki/Goldfeld%E2%80%93Quandt_test&quot; rel=&quot;nofollow&quot;&gt;this test&lt;/a&gt; is one?&#xA;The statistic is built from sample splitting. Then you have to calculate the ratio RSS2 / RSS1, which are the Residual Sum Squares of the new subsamples. &lt;br&gt;&#xA;I think it means that both subsamples have the same variance but I am not sure at all.&lt;br&gt;&#xA;Thank you in advance.&lt;/p&gt;&#xA;" OwnerUserId="4923" LastEditorUserId="1601" LastEditDate="2015-06-12T10:49:38.260" LastActivityDate="2015-06-12T16:17:58.767" Title="Goldfeld - Quandt test statistic equal to 1" Tags="&lt;econometrics&gt;&lt;statistics&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="6088" PostTypeId="2" ParentId="502" CreationDate="2015-06-12T14:28:10.313" Score="5" Body="&lt;p&gt;The &lt;a href=&quot;http://www.economicsbulletin.com/&quot; rel=&quot;nofollow&quot;&gt;Economic Bulletin&lt;/a&gt; is (among other things) an attempt to provide an open access alternative to &lt;a href=&quot;http://www.journals.elsevier.com/economics-letters/&quot; rel=&quot;nofollow&quot;&gt;Economics Letters&lt;/a&gt;. For authors, it has the additional advantage of not requirering submission fees (as Economic Letter does).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't know in details the extent of editorial content in the Economic Bulletin, but there is definitively some. I am far from a regular reader, so I wouldn't dare to judge of its quality.&lt;/p&gt;&#xA;" OwnerUserId="38" LastEditorUserId="38" LastEditDate="2016-05-08T17:52:16.653" LastActivityDate="2016-05-08T17:52:16.653" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6089" PostTypeId="2" ParentId="502" CreationDate="2015-06-12T15:12:54.323" Score="7" Body="&lt;p&gt;The &lt;a href=&quot;http://www.brookings.edu/about/projects/bpea/past-editions&quot; rel=&quot;noreferrer&quot;&gt;Brookings Papers on Economic Activity&lt;/a&gt; is non-paywalled, highly-regarded, and is among the top economics journals in citation metrics (&lt;a href=&quot;https://ideas.repec.org/top/top.journals.simple.html&quot; rel=&quot;noreferrer&quot;&gt;RePEc ranking&lt;/a&gt; of #13).&lt;/p&gt;&#xA;" OwnerUserId="264" LastActivityDate="2015-06-12T15:12:54.323" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6090" PostTypeId="1" AcceptedAnswerId="6093" CreationDate="2015-06-12T15:33:10.470" Score="0" ViewCount="1055" Body="&lt;p&gt;There seems to be two formula to calculate a selling price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first formula that I came upon would be&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;Cost * (1+Margin) = Selling price&#xA;Example : 10 * (1+0.25) = 12.5&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;However, a lot of people uses the following :&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;Cost / (1 - Margin) = Selling price&#xA;Example : 10 / (1-0.25) = 13.33...&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;This gives a very different number.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As far as I know, the margin and selling prices can be anything you want for most products.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also note that the second formula fails if you have a margin of more dans 100%.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is why is the second formula the most popular ? Is it only a gimmick to get a bigger price?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Am I missing something subtle at work here ?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, what should I do if the wanted margin is more than 100% ?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks!&lt;/p&gt;&#xA;" OwnerUserId="4927" LastActivityDate="2015-06-12T16:29:09.490" Title="What is the correct way to calculate a selling price from margin and a cost?" Tags="&lt;pricing&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6092" PostTypeId="2" ParentId="6086" CreationDate="2015-06-12T16:17:58.767" Score="1" Body="&lt;p&gt;The situation implicitly described in the question assumes that the two sub-samples have equal size (which is not necessary for the test to go through).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In such a situation, if the ratio $RSS2/RSS1$ equals &lt;strong&gt;unity&lt;/strong&gt;, then the null-hypothesis of homoskedasticity won't indeed be rejected &lt;em&gt;for any significance level up to $0.5$&lt;/em&gt;, (to be compared to the conventional levels of $0.1,\; 0.05,\; 0.01$)  because the statistic used, under the null hypothesis follows an &lt;a href=&quot;https://en.wikipedia.org/wiki/F-distribution&quot; rel=&quot;nofollow&quot;&gt;&lt;strong&gt;F-distribution&lt;/strong&gt;&lt;/a&gt; (exactly or asymptotically), and more over, one that has equal degrees of freedom for the numerator and the denominator (due to the equal sub-sample sizes). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This also makes intuitive sense: if the obtained estimates for the sub-sample variance are equal, then, in order to reject the null, we should accept that it would be more probable than not, that the rejection will be mistaken.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-06-12T16:17:58.767" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6093" PostTypeId="2" ParentId="6090" CreationDate="2015-06-12T16:29:09.490" Score="1" Body="&lt;p&gt;The &quot;&lt;strong&gt;margin&lt;/strong&gt;&quot; is a &lt;em&gt;portion of the selling price&lt;/em&gt;. It is defined as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\text {margin} \equiv \frac {P-C}{P}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From the above &lt;em&gt;definition&lt;/em&gt;, we see that the margin cannot exceed $100\%$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If one has the cost and he wants to calculate the price in order to have a specific margin, one must calculate&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$P(\text {margin}^*) = \frac {C}{1-\text {margin}^*}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first formula written in the question is wrong, because it uses &quot;margin&quot;, but it would become correct if instead one used the concept of &quot;markup&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &quot;&lt;strong&gt;markup&lt;/strong&gt;&quot; is defined as the percentage increase of cost in order to determine the selling price:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\text {markup} \equiv \frac {P-C}{C}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is easy to obtain that the relation between them is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\text {margin} = \frac {\text {markup}}{1+\text {markup}}$$&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-06-12T16:29:09.490" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6094" PostTypeId="2" ParentId="6071" CreationDate="2015-06-12T17:51:06.570" Score="5" Body="&lt;p&gt;To elaborate on what has been said in the comments already, using GMM based on Euler Equations generally involves uncertainty that motivates some sort of expected orthogonality between a moment equation and some instruments. Here is a common example of a &quot;Consumption-Based Asset-Pricing Model&quot; (see, for example, Campbell, 1993, 1996) posted by &lt;a href=&quot;http://davegiles.blogspot.com/2013/05/estimating-euler-equation-using-gmm.html&quot; rel=&quot;noreferrer&quot;&gt;Dave Giles&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;A representative agent chooses a consumption time-path to maximize expected discounted utility&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$E\left[\sum_{i=0}^\infty\beta^i U(c_{t+i})|\Omega_t\right]$,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $\Omega_t$ is the information set at time $t$, subject to the inter-temporal budget constraint,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$c_t + p_tq_t = r_tq_{t-1} + w_t$, for all $t$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The optimal consumption path satisfies:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$p_tU'(c_t) = \beta E[r_{t+1}U'(c_{t+1})|\Omega_t]$, for all $t$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which gives the Euler equation:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$E[\beta(r_{t+1}/p_t)[U'(c_{t+1}) / U'(c_t)]|\Omega_t] - 1 = 0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;He then imposes the CRRA utility function $U(c_t) = c_t^{1-\gamma}/(1-\gamma)$, making the Euler equation become&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$E[\beta(r_{t+1}/p_t)(c_{t+1}/c_t)^{-\gamma}|\Omega_t] - 1 = 0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This yields the moment equations:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$E[\{\beta(r_{t+1} / p_t)(c_{t+1} / c_t)^{-\gamma} - 1\}z_t] =&#xA; E[E[\beta(r_{t+1} / p_t)(c_{t+1} / c_t)^{-\gamma} - 1|\Omega_t]z_t] = 0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;with $z_t$ a vector of instruments belonging to $\Omega_t$.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;In this scenario, the uncertainty referred to is captured in the expectation operator over the information set $\Omega$. Notice that the interpretation of $\Omega$ motivates which instruments to use in the estimation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Takeaway: if you want to use Euler equations to motivate GMM, you need some kind of uncertainty. Use uncertainty structure to decide instruments.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Sources&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Campbell, J. Y., 1993. Intertemporal asset pricing without consumption data. American Economic Review, 83, 487-512.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Campbell, J. Y., 1996. Understanding risk and return. Journal of Political Economy, 104, 298-345.&lt;/p&gt;&#xA;" OwnerUserId="238" LastActivityDate="2015-06-12T17:51:06.570" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6095" PostTypeId="2" ParentId="6084" CreationDate="2015-06-12T18:12:37.700" Score="0" Body="&lt;p&gt;If you do not want to lose any day, you can copy the last price of your day without price (in your case june 10th). This a commom practice in financial industry.&lt;/p&gt;&#xA;" OwnerUserId="4923" LastActivityDate="2015-06-12T18:12:37.700" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6099" PostTypeId="1" CreationDate="2015-06-13T01:56:25.620" Score="6" ViewCount="353" Body="&lt;p&gt;The von Neumann-Morgenstern theorem states that, assuming a person's preferences under risk satisfy certain rationality axioms, then there exists a utility function u, the von Neumann utility function, such that the person will tend to maximize the expected value of u. For this reason, the hypothesis that people satisfy the von Neumann-Morgenstern rationality axioms is known as expected utility theory. Now in my question &lt;a href=&quot;https://economics.stackexchange.com/q/5304/4447&quot;&gt;here&lt;/a&gt;, I asked about a confusion I had concerning the Ellsberg paradox, one of the major challenges to expected utility theory.  But as I thought more about it, it seems to me that the fundamental issue was more general than the Ellsberg paradox. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider some good X. Let $L_1$ be the lottery that gives you a guaranteed 2 units of X, and let $L_2$ be the lottery that gives you a 50% chance of 1 unit of X, and a 50% chance of 3 units of X.  Then my question is, is it always consistent with the von Neumann-Morgenstern axioms to prefer lottery $L_1$ to lottery $L_2$?  Or are there some goods X such that it's inconsistent with the vNM axioms to prefer $L_1$ to $L_2$?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Well, suppose that good X is dollars.  Then if u is the vNM utility function, then the expected utility of $L_1$ is equal to $u(2)$, and the expected utility of $L_2$ is equal to $.5u(1) + .5u(3)$.  And it's certainly not inconsistent with the vNM axioms for $u(2)$ to be greater than $.5u(1) + .5u(3)$; that just means the person has diminishing marginal utility/risk aversion.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But now let's choose a different good X.  Consider a raffle where four raffle tickets are placed in a hat, a single ticket is pulled out, and whoever the ticket belongs to wins a 100 dollars.  Let good X be raffle tickets in this raffle.  Then the probability of winning a 100 dollars is equal to .25 times the number of tickets you own.  So under this scenario, the expected value of $L_1$ is $.5u(100)$, and the expected value of $L_2$ is $(.5)(.25)u(100)+(.5)(.75)u(100) = .5u(100)$.  Thus the expected value of the two lotteries are equal, so it is irrational to prefer $L_1$ to $L_2$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So what is going on here?  How is preferring 2 units of X to a 50% chance of 1 unit of X and a 50% chance of 3 units of X vNM-rational for one good X but not vNM-rational for another?  Just to add to the absurdity, what if someone were making a decision between lottery $L_1$ and $L_2$ where good X  is dollars, and then was planning to use the money he made to buy raffle tickets?  Then wouldn't the choice between $L_1$ and $L_2$ where X is dollars reduce to the choice between $L_1$ and $L_2$ where X is raffle tickets?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be greatly appreciated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank You in Advance.&lt;/p&gt;&#xA;" OwnerUserId="4447" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-11-04T12:47:16.913" Title="Does vNM rationality depend on the good chosen?" Tags="&lt;microeconomics&gt;&lt;expected-utility&gt;&lt;risk-aversion&gt;&lt;social-choice&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6100" PostTypeId="2" ParentId="6099" CreationDate="2015-06-13T07:15:14.103" Score="2" Body="&lt;p&gt;In the Von Neumann-Morgenstern theory, arguments of the utility function are final consumption goods. The utility function is extended over lotteries by linearity but it does not really make sense to assume that the individual &quot;consumes&quot; the lotteries L1 and L2 in your scenario with the raffle tickets: what he ultimately consumes is the 100 dollars monetary prize. Therefore there is no reason to expect something like diminishing marginal utility over lottery tickets - but only over final monetary prizes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This property comes from the independence axiom: intuitively, the decision-maker views randomizations over lotteries and randomizations over final consumption goods differently. This behavioral pattern (that you find paradoxical) is usually called Reduction of Compound Lotteries. In your scenario, it says that the agent views the lottery L2 and the lottery that is computed by compounding the second-order probabilities as equivalent objects. There are some reasons to question the relevance of this axiom if you want to dig deeper (for instance, it has been found that Ellsberg-like behavior is associated with an aversion to compound lotteries).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I hope it helps.&lt;/p&gt;&#xA;" OwnerUserId="4667" LastActivityDate="2015-06-13T07:15:14.103" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="6102" PostTypeId="2" ParentId="6055" CreationDate="2015-06-13T14:54:24.167" Score="0" Body="&lt;p&gt;The creation of money occurs when the bank loans out any amount not backed by its reserves to a borrower. The borrower's debt is the excess money. As the borrower pays back the money to the bank, the supply of money in the system contracts. This is of course until the bank lends further against its reserves to another borrower.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Interest payments are akin to money received for a product, that is the loan, and management of the risk held by the bank in lending money. Interest only loans pay for the service of holding the money you and the bank created by borrowing from the bank. Then like all loans, once the payment is made, the supply of money you the borrower created is shrunk. The bank however has made money on the interest.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Over time supply and demand for loans and lending expand and contract the money supply. This coupled with the reserve rate requirements dictated by central banks dictates the supply of money in the system.&lt;/p&gt;&#xA;" OwnerUserId="4932" LastEditorUserId="1601" LastEditDate="2015-06-13T15:03:07.703" LastActivityDate="2015-06-13T15:03:07.703" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6103" PostTypeId="2" ParentId="5713" CreationDate="2015-06-13T17:03:58.243" Score="6" Body="&lt;p&gt;Warren Samuels addresses this issue in his article &quot;Why the Georgist Movement Has Not Succeeded: A Speculative Memorandum.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In summary he argues first that Georgism did not succeed because of the conflation of the ideas of income and productivity, leading people to view a tax on land as a tax on productivity even though the tax is meant to equate income with productivity as referenced in the question. This idea, he says, was reinforced by self-interested beliefs of land owners as well as traders in other markets (he names equities) including preference for passing property through inheritance and viewing the proposed tax system as a threat to income through speculation (such as through the stock market), since it would eliminate speculative gains in land prices. The rise of mortgages and home-ownership increased the number of people with these self-interests.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Second, Samuels addresses the fact that George was viewed by many, including mainstream economists, as a radical and admits that relative to the status quo of changes in tax policy being incremental, the proposed single tax system is radical. The Bolshevik revolution in the 1910's and subsequent red scare caused people to distance themselves from ideas that could be viewed as radical leftist. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Samuels continues on to discuss possible internal reasons, such as lack of leadership amongst George' successors, but notes that he is less confident in discussing these factors. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In addition to this article, four responses and Samuel's response to the respondents can be found in the Jul 2003 issue of American Journal of Economics and Sociology.&lt;/p&gt;&#xA;" OwnerUserId="4773" LastEditorUserId="4773" LastEditDate="2015-06-14T05:15:48.640" LastActivityDate="2015-06-14T05:15:48.640" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6104" PostTypeId="1" AcceptedAnswerId="6105" CreationDate="2015-06-13T18:32:30.850" Score="7" ViewCount="1969" Body="&lt;p&gt;Can you all please suggest books that I can read to get started in the fields of political economy and the history of economic thought? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;While my major in Mathematical Economics has given me a good grounding in the theoretical models of economics and the empirical methods used to test them in the real world, I feel that my knowledge of political economy and economic history is sadly lacking. I would like to get a more holistic understanding of the discipline(s) and would greatly appreciate your advice.&lt;/p&gt;&#xA;" OwnerUserId="4933" LastEditorUserId="43" LastEditDate="2015-06-13T18:40:08.157" LastActivityDate="2015-06-18T04:31:35.323" Title="Reading list: history of economic thought / political economy" Tags="&lt;reference-request&gt;&lt;political-economy&gt;&lt;history-economic-thought&gt;" AnswerCount="5" CommentCount="1" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="6105" PostTypeId="2" ParentId="6104" CreationDate="2015-06-13T19:47:25.667" Score="3" Body="&lt;p&gt;As a first read in these fields I would recommend J K Galbraith's &lt;a href=&quot;http://www.amazon.co.uk/History-Economics-Past-Present-Penguin/dp/0140153950/ref=sr_1_1?s=books&amp;amp;ie=UTF8&amp;amp;qid=1434222976&amp;amp;sr=1-1&amp;amp;keywords=Galbraith%20History&quot; rel=&quot;nofollow&quot;&gt;A History of Economics&lt;/a&gt;. It covers, in a concise and highly readable way, major developments in economic thought from ancient times until around 1980, making links with major economic and political events.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A much more detailed book on the history of economic theory is Ekelund &amp;amp; Hebert's &lt;a href=&quot;http://www.amazon.co.uk/History-Economic-Theory-Method/dp/147860638X/ref=sr_1_1?s=books&amp;amp;ie=UTF8&amp;amp;qid=1434223031&amp;amp;sr=1-1&amp;amp;keywords=ekelund%20%26%20hebert&quot; rel=&quot;nofollow&quot;&gt;A History of Economic Theory and Method&lt;/a&gt;. This is not light reading but through use of formulae and diagrams would probably make some clear links with economic models you have studied and describe the historical context in which they were developed.&lt;/p&gt;&#xA;" OwnerUserId="1417" LastActivityDate="2015-06-13T19:47:25.667" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6107" PostTypeId="1" AcceptedAnswerId="6108" CreationDate="2015-06-14T01:11:47.547" Score="2" ViewCount="115" Body="&lt;p&gt;First of all, I would like to apologise for the fact that I will include a link in my question rather than a direct question, however, I have no idea how to do it in a different way.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have been reading this paper recently:&#xA;&lt;a href=&quot;http://www3.nd.edu/~esims1/rbc_extensions_sp15.pdf&quot; rel=&quot;nofollow&quot;&gt;RBC extensions&lt;/a&gt;&#xA;,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't understand one thing completely. On the second page when we are reducing the equation for utility, why cannot we just drop the term:&#xA;$$\theta \frac{(1)^{1-\xi}-1}{1-\xi}$$&#xA;I was wondering how this could possibly work, because common-sensically:&#xA;$$(1)^{1-\xi}=1 \Rightarrow \theta \frac{(1)^{1-\xi}-1}{1-\xi}=0$$&#xA;Am I wrong?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you guys!&lt;/p&gt;&#xA;" OwnerUserId="4874" LastActivityDate="2015-06-14T03:50:25.117" Title="RBC model and indivisible labour" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;econometrics&gt;&lt;labor-economics&gt;&lt;real-business-cycles&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6108" PostTypeId="2" ParentId="6107" CreationDate="2015-06-14T03:50:25.117" Score="2" Body="&lt;p&gt;The only reason I can see right now could possibly be pedagogical. While that term does indeed just equal zero, there could be generalizations where the agent works a high amount with probability $\tau$ and a low, but positive, amount with probability $1-\tau$. In this case, the term would still go through. There are also plenty of functional forms that would result in that term not being zero (taking away the -1, for example, which is often done in applied work). At any rate, this is an idiosyncratic enough case that the professor might have thought it best to show the process of rearranging terms for future reference and to give help with other scenarios. On the other hand, he may just not have noticed it. :)&lt;/p&gt;&#xA;" OwnerUserId="238" LastActivityDate="2015-06-14T03:50:25.117" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6109" PostTypeId="1" AcceptedAnswerId="6141" CreationDate="2015-06-14T04:38:33.133" Score="4" ViewCount="429" Body="&lt;p&gt;The world is now more complicated than ever. We are all building upon the shoulders of our forerunners. We cannot understand where everything came from and how everything has evolved, and hence we don't understand how everything interacts. But the building blocks of the world today interact with each other intensively and sometimes unnoticeably. And clearly, it is hard to follow every lead to calculate every interaction's influence. I mention this because in macroeconomics many effects can cause secondary effects and these secondary effects may also cause tertiary effects, so it seems to me like an unending loop.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus it seems to me that in macroeconomics we use statistics to find associations and then try to explain certain associations using intuitive notions (maybe a dominant underlying reason) given the results. It seems to me that results in macroeconomics cannot be rigorously argued like the ones in mathematics or even physics. Rather these results are merely approximations learned from the past which are not confirmed each time like the laws in physics, let alone mathematical theorems.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So is what I am saying correct or is it simply that I do not understand macroeconomics enough?&lt;/p&gt;&#xA;" OwnerUserId="4551" LastEditorUserId="264" LastEditDate="2015-11-08T19:07:39.710" LastActivityDate="2015-11-08T19:13:20.700" Title="Is economics a science based more on statistics (observations) rather than rigorous reasoning?" Tags="&lt;macroeconomics&gt;" AnswerCount="2" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6110" PostTypeId="1" AcceptedAnswerId="6111" CreationDate="2015-06-14T09:55:47.990" Score="4" ViewCount="193" Body="&lt;p&gt;I don't think they can be, but I'm not very sure. Are their special cases where the equilibrium is competitive even when prices are zero?&lt;/p&gt;&#xA;" OwnerUserId="4253" LastActivityDate="2015-06-14T10:35:03.267" Title="In a competitive equilibrium, can price of a commodity ever be zero?" Tags="&lt;microeconomics&gt;&lt;competitive-equilibrium&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6111" PostTypeId="2" ParentId="6110" CreationDate="2015-06-14T10:35:03.267" Score="3" Body="&lt;p&gt;It depends on the assumptions you make.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you assume that preferences are &lt;a href=&quot;https://books.google.hu/books?id=8tW9KAnkx04C&amp;amp;pg=PA256&amp;amp;lpg=PA256&amp;amp;dq=locally%20insatiable&amp;amp;source=bl&amp;amp;ots=zhsgeinWKc&amp;amp;sig=W0NxaFP4Anin1vNpXIwSu2oslgI&amp;amp;hl=en&amp;amp;sa=X&amp;amp;ved=0CDMQ6AEwA2oVChMIjJbuyfyOxgIV4RTbCh3WbQAS#v=onepage&amp;amp;q=locally%20insatiable&amp;amp;f=false&quot; rel=&quot;nofollow&quot;&gt;locally insatiable&lt;/a&gt; then no.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Without this assumption, it is easy to construct counterexamples. &lt;br&gt; Consider an economy with two consumers ($A,B$) and two goods ($x,y$). Both consumers have preferences represented by their utility function&#xA;$$&#xA;U_i(x_i,y_i) = \min(x_i,1) + y_i.&#xA;$$ &#xA;If the initial endowments are such that the total supply of $x$ is larger than 2 then the equilibrium price of $x$ is 0. (The numeraire is the good $y$.)&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2015-06-14T10:35:03.267" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6112" PostTypeId="1" AcceptedAnswerId="6192" CreationDate="2015-06-14T11:45:08.813" Score="7" ViewCount="439" Body="&lt;p&gt;I am really a beginner guy in game theory. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which kind of books could you suggest me as beginner/intermediate/advanced textbooks in game theory ? &#xA;I have no problem in maths, so any books with full of maths are ok for me. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As I don't really know so much about this tool, I can not evaluate which book fits well to my situation.&lt;/p&gt;&#xA;" OwnerUserId="2938" LastEditorUserId="2938" LastEditDate="2015-06-14T16:16:52.477" LastActivityDate="2015-06-20T17:17:55.130" Title="Game theory: Textbooks" Tags="&lt;game-theory&gt;&lt;reference-request&gt;" AnswerCount="1" CommentCount="5" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6113" PostTypeId="1" CreationDate="2015-06-14T14:20:31.640" Score="1" ViewCount="2467" Body="&lt;p&gt;I'm confused because my textbook says  the higher interest elasticity of money demand is , the flatter slope of the LM curve is.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the interest changes, then isn't it the movement along the curve in the money demand curve? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can't understand how interest elasticity of money demand is related with the slope of the LM curve. Can someone explain this GRAPHICALLY? &lt;/p&gt;&#xA;" OwnerUserId="4936" LastEditorUserId="4936" LastEditDate="2015-06-20T02:48:44.163" LastActivityDate="2015-06-20T02:48:44.163" Title="the slope of the LM curve" Tags="&lt;macroeconomics&gt;&lt;keynesian-economics&gt;&lt;self-study&gt;" AnswerCount="1" CommentCount="0" ClosedDate="2015-06-15T15:28:36.643" ContentLicense="CC BY-SA 3.0" />
  <row Id="6114" PostTypeId="2" ParentId="6113" CreationDate="2015-06-14T16:38:01.243" Score="1" Body="&lt;p&gt;It is normal that the slope of the LM is related to the elasticity of money demand. If in an economy, the elasticity of money demand is so high, for little changes in the interest rate will make fluctuate the demand so much. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you think about the extreme case, you will understand much easily. Suppose that the elasticity of money is near to infinity, (which makes the slope of your LM near to something horizontal on (interest rate, money demand) coordinate plane. (so in this case, your response to change of an interest rate is so huge.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The symmetrical extreme case is that this curve becomes vertical, which makes that your money demand never changes whatever the change of interest rate. &lt;/p&gt;&#xA;" OwnerUserId="2938" LastActivityDate="2015-06-14T16:38:01.243" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6116" PostTypeId="1" AcceptedAnswerId="6117" CreationDate="2015-06-14T19:15:52.120" Score="3" ViewCount="255" Body="&lt;p&gt;So I'm looking at a 2-agent Arrow-Debreu economy with one good. Consumption and endowments are zero in t=0, and 2 states are possible in t=1 with aggregate endowment in both states equal to 1. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;We assume utility is strictly increasing and strictly quasiconcave. My question is this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My professor says by strict monotonicity &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\dfrac{v^{'}_{1}\left(x^1_1\right)}{v^{'}_{1}\left(x^2_1\right)} = \dfrac{v^{'}_{2}\left(1 - x^1_1\right)}{v^{'}_{2}\left(1 - x^2_1\right)} \Rightarrow x^1_1 = x^2_1$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can see this is obviously true if $v(\cdot)$ is concave, but we only have strict quasi-concavity. For example $f(x) = x^2$ is strictly convex yet strictly quasiconcave. Since agent 1 and agent 2 are not required to have the same utility function, it is possible for agent 1 to have a convex utility and agent 2 to have a concave one. In short, we cannot say the second derivatives are the same sign without the concavity assumption. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Moreover, wouldn't a counter example be aif $v_i(x) = x$ for $i = 1,2$. Then $x_1^1 \neq x_1^2$ would still imply the ratio holds. Is it then something about an interior solution?&lt;/p&gt;&#xA;" OwnerUserId="4938" LastEditorUserId="40" LastEditDate="2015-06-15T00:07:24.703" LastActivityDate="2015-06-16T21:10:55.583" Title="Perfect risk sharing in Arrow-Debreu w/ the same subjective beliefs over states" Tags="&lt;general-equilibrium&gt;&lt;risk&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6117" PostTypeId="2" ParentId="6116" CreationDate="2015-06-14T22:05:08.057" Score="2" Body="&lt;p&gt;In two details you seem to be mistaken:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;You need strict concavity of $v(\cdot)$, not concavity.&lt;/li&gt;&#xA;&lt;li&gt;According to the &lt;a href=&quot;https://en.wikipedia.org/wiki/Quasiconvex_function&quot; rel=&quot;nofollow&quot;&gt;definition&lt;/a&gt; of quasiconcavity, the function $x^2$ is not quasiconcave, it is quasiconvex.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Your main point is correct. If both functions are linear, then $x_i^1 = x_i^2$ no longer needs to hold, as the goods $x_i^1$ and $x_i^2$&#xA;are perfect substitutes for consumer $i$. Hence all consumption decisions are correct as long as $i$ trades at a price ratio of 1. This is indeed the equilibrium price ratio. The same can be said for the other consumer.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2015-06-16T21:10:55.583" LastActivityDate="2015-06-16T21:10:55.583" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="6118" PostTypeId="1" CreationDate="2015-06-14T22:54:24.413" Score="7" ViewCount="1681" Body="&lt;p&gt;I am trying to wrap my head around the 'no arbitrage' (NA) and 'efficient market' (EM) assumptions, in particular their difference. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Please correct me if I am wrong, but NA just claims that there is no trading strategy that generates profit but has zero risk, while by contrast EM states that the (historical) price data of an asset already contains all that there is to know about its future development. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does one of them imply the other?&lt;/p&gt;&#xA;" OwnerUserId="4940" LastEditorUserId="18006" LastEditDate="2019-07-23T06:24:09.127" LastActivityDate="2019-07-23T12:29:46.497" Title="'No arbitrage' vs 'Efficient market'" Tags="&lt;financial-economics&gt;&lt;financial-markets&gt;&lt;efficient-markets&gt;" AnswerCount="3" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="6119" PostTypeId="1" CreationDate="2015-06-15T08:09:38.190" Score="5" ViewCount="349" Body="&lt;p&gt;Marginal costs MC is defined as $MC=\frac{dC}{dq}$. Taking into account that $C=wL+rK$,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$MC=\frac{dC}{dq}=w\frac{dL}{dq}+r\frac{dK}{dq}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Recall that marginal product of labor $MP_{L}=\frac{\partial q}{\partial L}$ and marginal product of capital $MP_{K}=\frac{\partial q}{\partial K}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Question: is the following correct &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{dL}{dq}=1/\frac{\partial q}{\partial L},\;\frac{dK}{dq}=1/\frac{\partial q}{\partial K}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which implies&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$MC=w\frac{1}{MP_{L}}+r\frac{1}{MP_{K}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If no, then no need to read further.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If yes, then, consider profit maximization of a firm.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\max_{L,K}pq\left(L,K\right)-wL-rK$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;FOC:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\begin{cases}pMP_{L}=w\\pMP_{K}=r\end{cases}\Rightarrow\begin{cases}MP_{L}=\frac{w}{p}\\MP_{K}=\frac{r}{p}\end{cases}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$MC=w\frac{1}{MP_{L}}+r\frac{1}{MP_{K}}=w\frac{1}{w/p}+r\frac{1}{r/p}=p+p=2p$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The result is wrong for sure. I wonder, at what step of derivation I made a mistake?&lt;/p&gt;&#xA;" OwnerUserId="4942" LastActivityDate="2015-07-08T12:44:50.497" Title="Is it true that $\frac{dL}{dq}=1/\frac{\partial q}{\partial L}$?" Tags="&lt;microeconomics&gt;&lt;production-function&gt;&lt;producer-theory&gt;" AnswerCount="2" CommentCount="6" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6120" PostTypeId="2" ParentId="6005" CreationDate="2015-06-15T11:46:07.027" Score="-3" Body="&lt;p&gt;Raising interest rates increases inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Economists rarely study Business eve less Cost Accounting.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Companies sell with 30 to 60 terms of trade, and when interest increases from zero, to 10%, a didactic example, their Trade Prices increase 10 or 22%. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Unfortunaely, Economics do not incude these prices in their inflation indexes when they are paid, 60 days in the future, but when the transaction occurs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So they are including tomorrow's inflation, 60 days into to future, in today's inflation rate. That will create a vicious spiral of inflationary pressures.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have explained this to every single government Economists in Brazil, and I get the sense that cannot admit that they have been the main cause of inflation over the last 100 years. &lt;/p&gt;&#xA;" OwnerUserId="4943" LastActivityDate="2015-06-15T11:46:07.027" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6121" PostTypeId="2" ParentId="5891" CreationDate="2015-06-15T12:12:45.233" Score="-3" Body="&lt;p&gt;Anyone with an MBA will tell you that most industries have a leverage ratio around 20% to 50% on equity. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Having to much debt can destroy your business and having say 20 parts debt to 100 parts equity is as far most industries will go.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But the Banking system, run mainly by economists, 4 out the 5 top directors at Bear Sterns were economists, also at Lehman Brothers, has a leverage ratio between 1200 parts debt to 100 parts equity, 25 times more than industry.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How do these economists turned business men sleep at night?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By the Institution they themselves created, of a helping Central Bank, FDIC, allowing competitors to Interbank Lending, and so on.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This  has two very undersirable effects.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Banking has more power than say 25 industries combined. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Banking is the more profitable than 25 industries combined.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks to Government protecionism. &lt;/p&gt;&#xA;" OwnerUserId="4943" LastActivityDate="2015-06-15T12:12:45.233" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6123" PostTypeId="1" CreationDate="2015-06-15T14:19:34.213" Score="7" ViewCount="104" Body="&lt;p&gt;In the UK and EU austerity programmes are rife. However, bond yields are also historically low, and have even been negative! At a time when debt is cheaper than ever, and below the accepted long term rate of inflation, why do governments not take this &quot;free&quot; money to maintain their states? Or, is it the austerity itself that is driving the rates?&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;UK bond yields:&#xA;&lt;a href=&quot;http://www.tradingeconomics.com/united-kingdom/government-bond-yield&quot;&gt;http://www.tradingeconomics.com/united-kingdom/government-bond-yield&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;EU bond yields:&#xA;&lt;a href=&quot;http://www.tradingeconomics.com/euro-area/government-bond-yield&quot;&gt;http://www.tradingeconomics.com/euro-area/government-bond-yield&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="4945" LastEditorUserId="43" LastEditDate="2015-07-15T11:57:25.607" LastActivityDate="2015-07-15T12:09:33.117" Title="Why are nations engaging in austerity when bond yields are historically low?" Tags="&lt;government-debt&gt;&lt;fiscal-policy&gt;" AnswerCount="3" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="6125" PostTypeId="1" CreationDate="2015-06-15T16:50:53.020" Score="4" ViewCount="300" Body="&lt;p&gt;In networks economics, the socially optimum equilibrium is bigger than the one in perfect competition (see for instance, &lt;a href=&quot;http://www.cs.cornell.edu/home/kleinber/networks-book/networks-book-ch17.pdf&quot; rel=&quot;nofollow&quot;&gt;Easley and Kleinberg 2010, Ch. 17&lt;/a&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why is that so? Could you provide me with an example?&lt;/p&gt;&#xA;" OwnerUserId="4899" LastEditorUserId="108" LastEditDate="2015-07-19T17:11:18.807" LastActivityDate="2015-07-19T17:11:18.807" Title="Network goods in competitive markets vs. socially optimal network size" Tags="&lt;externalities&gt;&lt;networks&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6126" PostTypeId="1" CreationDate="2015-06-15T18:01:20.900" Score="4" ViewCount="176" Body="&lt;p&gt;Universal Classification Code (UCCs) are six digit codes that identify items or groups of items. Here are some UCCs:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;190903 Food and non-alcoholic beverages at restaurants, cafes, fast food places on trips&lt;/li&gt;&#xA;&lt;li&gt;190904 Food and beverages purchased and prepared by CU on trips&lt;/li&gt;&#xA;&lt;li&gt;200900 Alcoholic beverages at restaurants, cafes, bars on trips 210110 Rent of dwelling&lt;/li&gt;&#xA;&lt;li&gt;210210 Lodging away from home on trips&lt;/li&gt;&#xA;&lt;li&gt;210310 Housing for someone at school&lt;/li&gt;&#xA;&lt;li&gt;210901 Ground rent - owned home&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;They are for example being used in the consumption expenditure survey to identify consumption items. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there any way (e.g. existing bridge data base) to link these UCC to the sector of production? For example, NAICS?&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2015-06-16T10:22:29.997" LastActivityDate="2015-06-16T13:12:58.190" Title="Link goods to sector (UCC to NAICS)" Tags="&lt;data-request&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6127" PostTypeId="2" ParentId="6119" CreationDate="2015-06-15T20:31:13.120" Score="6" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Question: is the following correct ?&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;$$\frac{dL}{dq}=1/\frac{\partial q}{\partial L},\;\frac{dK}{dq}=1/\frac{\partial q}{\partial K}$$&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In general, no. Since $q= f(L,K)$ is a &lt;em&gt;multivariable&lt;/em&gt;, single-valued function, then by the implicit function theorem applied on the implied &lt;em&gt;equation&lt;/em&gt; $H = f(L,K)-q=0$, what we can say is only that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\partial L}{\partial q} = -\frac {\partial H/\partial q}{\partial H /\partial L} = -\frac {-1}{MP_L} = \frac {1}{\partial q /\partial L}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Essentially, here we treat $q$ as a univariate function (by taking partial derivatives, we keep all other variables fixed).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But total derivatives are another matter.&lt;br&gt;&#xA;For $q = f(L,K)$, we have the implicit relation $L = L(q,K)$ and so by taking the total differential and divide throughout by $dq$ we get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {d L(q,K)}{d q} = \frac {\partial L(q,K)}{\partial q} + \frac {\partial L(q,K)}{\partial K}\frac {dK}{dq}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But $\frac {\partial L}{\partial K} \neq 0$, because we implicitly keep $q$ constant in order to calculate this partial derivative, and so by changing $K$ we have also to change $L$. The other possibility would be that $dK/dq$ is zero. If we do not have such a production function (or we are not in a range where such a thing holds), we obtain &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {dL}{dq} \neq  \frac {\partial L}{\partial q} =  \frac {1}{\partial q/\partial L}$$&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-06-15T20:31:13.120" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6128" PostTypeId="1" AcceptedAnswerId="6132" CreationDate="2015-06-15T20:51:14.907" Score="4" ViewCount="82" Body="&lt;p&gt;When I see data like monthly return on news or tv, I always find the concept a bit strange, because obviously if you calculate monthly return for February and March, all things being equal, the monthly return of March would be slightly larger than February due to the fact March has more days than February. Is this the case in real life?&lt;/p&gt;&#xA;" OwnerUserId="4953" LastEditorUserId="1601" LastEditDate="2015-06-16T06:32:30.233" LastActivityDate="2015-06-16T06:32:30.233" Title="Do the number of days in a month affect monthly return? (seasonality)" Tags="&lt;finance&gt;&lt;asset-pricing&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6130" PostTypeId="2" ParentId="6128" CreationDate="2015-06-15T22:59:09.703" Score="2" Body="&lt;p&gt;Let's make a fake example.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Compound interest of 0.1% over 30 days gives&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$1.001^{30} = 1.030439088$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Compound interest of 0.1% over 31 days is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$1.001^{31} = 1.031469527$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And the percentage change is 1.000970497. That is, you would over estimate the growth rate of a stock by 0.009% if you would compare 30days and 31days without adjusting for it.&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="40" LastEditDate="2015-06-16T00:09:24.660" LastActivityDate="2015-06-16T00:09:24.660" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6132" PostTypeId="2" ParentId="6128" CreationDate="2015-06-16T01:26:34.813" Score="2" Body="&lt;p&gt;It usually does not matter, at least in practical applications, because to compute monthly we usually take end of month closes. See the MSFT case:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;&lt;pre&gt;&lt;code&gt;           MSFT.Adjusted        Return&#xA;2014-12-31      45.82396              NA&#xA;2015-01-31      39.85550     -0.13024755&#xA;2015-02-28      43.56686      0.09312032&#xA;2015-03-31      40.39746     -0.07274798&#xA;2015-04-30      48.32593      0.19626168&#xA;2015-05-31      46.86000     -0.03033425&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;$R_{Jan}=\frac{39.85550}{45.82396}-1$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$R_{Feb}=\frac{43.56686}{39.85550}-1$&lt;/p&gt;&#xA;" OwnerUserId="4910" LastActivityDate="2015-06-16T01:26:34.813" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6133" PostTypeId="1" AcceptedAnswerId="6360" CreationDate="2015-06-16T09:25:10.357" Score="2" ViewCount="158" Body="&lt;p&gt;What correlation is there between (1) long-term interest rates and (2) the stock market valuation? Please provide a simple intuitive explanation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, as I understand it from &lt;a href=&quot;http://www.nytimes.com/2015/05/13/business/daily-stock-market-activity.html&quot; rel=&quot;nofollow&quot;&gt;recent news reports&lt;/a&gt;, rising long-term interest rates put pressure on the stock market. Why?&lt;/p&gt;&#xA;" OwnerUserId="4909" LastActivityDate="2015-07-03T18:01:01.783" Title="Long-term interest rate and stock market correlation" Tags="&lt;interest-rate&gt;&lt;stock-market&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6134" PostTypeId="1" CreationDate="2015-06-16T09:51:26.390" Score="6" ViewCount="306" Body="&lt;p&gt;Should Greece default, a forced conversion from euros to drachmas will be a further catastrophe to Greek economy as the drachma will quickly collapse. However, if Greece leaves the Eurozone, but keeps the Euro as a national currency (at least for a year), its value will be kept stable because of the implicit trust in the euro.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There already are precedents of countries using the euro without being members of the Eurozone (Montenegro, Kosovo, Monaco, etc.). Is that possible for Greece?&lt;/p&gt;&#xA;" OwnerDisplayName="Alek Andreev" LastEditorUserId="1601" LastEditDate="2015-06-16T14:21:00.857" LastActivityDate="2015-12-22T20:34:52.730" Title="If Greece defaults, can it still stay with the euro?" Tags="&lt;exchange-rates&gt;&lt;international-economics&gt;" AnswerCount="2" CommentCount="6" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6135" PostTypeId="2" ParentId="3156" CreationDate="2015-06-16T11:38:15.780" Score="-2" Body="&lt;p&gt;For this discussion one should use debt to equity, since we are talking about leverage.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In 2008, banks were leveraged 12 to 25 times their equity, 2500%, 25 parts debt, 1 part equity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your 30% is actually 30 parts debt to 70 parts equity, or 0.4 parts debt 1 part equity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A dramatic difference.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Industry does not have a supporting government guaranteeing liquidity. Industry cannot lend and borrow from their competitors while interbank lending is allowed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Industry does not have a FDIC which tricks consumer into thinking lending to banks is safe.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Industrial capitalism is one thing, but financial capitalism, which gets all the flack, is only possible due to the intervention of the state.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Banks are up to 60 times more powerful than any industry, so all industries combined thanks to the institution of government backed Central Banks etc etc etc. &lt;/p&gt;&#xA;" OwnerUserId="4943" LastEditorUserId="1601" LastEditDate="2015-06-16T13:39:47.053" LastActivityDate="2015-06-16T13:39:47.053" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6136" PostTypeId="1" CreationDate="2015-06-16T12:43:32.547" Score="8" ViewCount="708" Body="&lt;p&gt;It's widely accepted among people who follow finance that various governments around the world, including the US government, are doing (or their central banks are doing) everything possible to keep their economy out of a deflationary state. (cf. Ben Bernanke's &quot;drop dollars from helicopters&quot; comment.)  The rationale given is that deflation makes your debt more expensive and harder to service.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This rationale doesn't make sense, at least not on the surface.  With inflation, prices in general go up as the value of the currency goes down; with deflation, prices in general go down as the value of the currency goes up.  Therefore, in a deflationary environment, debt service would become more expensive &lt;em&gt;but all the other things on your budget become cheaper&lt;/em&gt;, and therefore, as long as debt service comprises less than 50% of the budget, doesn't the country come out ahead?&lt;/p&gt;&#xA;" OwnerUserId="4958" LastEditorUserId="8481" LastEditDate="2020-05-04T14:29:12.980" LastActivityDate="2020-05-04T14:29:12.980" Title="Why do indebted governments fear deflation?" Tags="&lt;inflation&gt;&lt;government-debt&gt;&lt;debt&gt;&lt;deflation&gt;" AnswerCount="3" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6137" PostTypeId="2" ParentId="6126" CreationDate="2015-06-16T13:12:58.190" Score="1" Body="&lt;p&gt;Unfortunately, I'm not aware of any publicly-available concordance, and I can promise you that there's no clean mapping between UCC and NAICS. Obviously, some categories will map well at low granularity (UCC 190903 will definitely map to 722, for example). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;While I'm sure it's fine for whatever you're doing if multiple UCC codes map to a single NAICS code, the big problem is that some UCC codes will map to multiple NAICS codes. For example, 190113, &quot;lunch at vending machines and mobile vendors&quot; will map to some combination of NAICS 454210, &quot;vending machine operators&quot; and NAICS 722330, &quot;mobile food services&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The way this is usually handled is through some form of allocation— you assume, for example, that the CES population you're observing has exactly the same distribution of expenditures as the overall economy.&lt;/p&gt;&#xA;" OwnerUserId="264" LastActivityDate="2015-06-16T13:12:58.190" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6138" PostTypeId="2" ParentId="6136" CreationDate="2015-06-16T13:41:24.620" Score="3" Body="&lt;p&gt;They don't or shouldn't, fear deflation absolutely. But it's a complicated issue because there are two causes of deflation/inflation. One is changes in the money supply, the other is changes in production.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Changes in production that cause prices to fall are beneficial to everybody. Society becomes materially richer, and this is the great economic success of the last 100 years.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, prices will also shrink if the money supply falls, since there is less money to buy things with. That in and of itself wouldn't be such a big problem in a market based environment where prices could adjust up and down. However the one thing that can't adjust its price is debt, debtors have made a commitment to  re-payments irrespective of whatever the money supply and deflationary situation is.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It depends where you are in the world right now, as to whether the money supply is expanding or contracting. The situation in Greece is particularly problematic:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/lCnhH.png&quot; alt=&quot;Greece M3&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is very similar to the Great Depression pattern in the US which saw a 30% drop in the money supply 1929-1932. Once something like this gets established, it creates self-reinforcing negative feedback loops throughout the economy. For example, part of the reason for the drop is Greeks moving money to banks in other countries that they expect to stay in the Euro. But because of that, Greek banks can't make new loans without violating their regulatory requirements, and that further causes the money supply to shrink.&lt;/p&gt;&#xA;" OwnerUserId="84" LastActivityDate="2015-06-16T13:41:24.620" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6140" PostTypeId="1" AcceptedAnswerId="6359" CreationDate="2015-06-16T14:28:52.003" Score="6" ViewCount="246" Body="&lt;p&gt;Suppose there are two countries: $A$ and $B$. $A$ is a large, stable, democratic country with its own currency, the dollar. $B$ does not have its own currency. All prices and financial transactions in $B$ use the dollar and $B$'s citizens have a positive quantity of dollars that they hold domestically.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Country $B$ has a monopoly retail bank that is required to hold 5% of the value of its deposits as reserves in the safe keeping of an independent central bank, also located and controlled within $B$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is: does this suffice for the bank in country $B$ to practice fractional reserve banking? If so, am I correct in thinking that the bank in country $B$ is exerting an externality on the people of country $A$ by devaluing their currency every time it creates a new loan? Is there anything that $A$ can do to prevent this?&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2015-12-21T02:53:57.203" Title="Fractional reserve banking and the value of someone else's currency" Tags="&lt;currency&gt;&lt;monetary-policy&gt;&lt;money-supply&gt;&lt;banking&gt;" AnswerCount="3" CommentCount="1" FavoriteCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="6141" PostTypeId="2" ParentId="6109" CreationDate="2015-06-16T15:05:38.133" Score="10" Body="&lt;p&gt;At the very foundation of sciences like Physics, rest relations and properties that they just &lt;em&gt;are&lt;/em&gt;, no explanation can be given, but they have been found directly or indirectly to continue to hold, or at least to change at an inconsequential rate compared to the time-span (or space-span) of humans.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Moreover, although Physics laws are also idealizations of reality (and they hold under &quot;normal circumstances&quot;, too, as regards for example temperature or pressure), it has been found that &lt;strong&gt;a)&lt;/strong&gt; &quot;normal circumstances&quot; abound, &lt;strong&gt;b)&lt;/strong&gt; these idealized versions suffer negligible variation in the real world for any of (or most) practical purposes and &lt;strong&gt;c)&lt;/strong&gt; what happens under &quot;special circumstances&quot; is also stable, a complementary law in essence.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For Mathematics, the foundations are also arbitrary, but not being of this world but purely mental concepts, they can be whatever we define them to be -no reality will come crushing in to refute them (it is a different matter when we want to map abstract Mathematics to the real world).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the Social Sciences, to which Economics belongs, the foundations contain relations and properties that have been found to change over time and over space, at rates much higher than physical properties change, and certainly within the time-span and space-span of humans. Plus, the observed variation around their idealized formulation is much larger.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is what makes Social Sciences much more treacherous and harder than the Hard Sciences, and this is why progression towards more universally valid results is so much slower, or even, the arrival at a bouquet of results for which we will know with enough certainty to which observed relations do they correspond.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;It seems to me that results in macroeconomics cannot be rigorously&#xA;  argued like the ones in mathematics or even physics.&quot;&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Results in Economics can be &lt;em&gt;fully rigorously argued&lt;/em&gt;, ever since Economics adopted mathematical symbolism to express itself. The issue is not with the process of argumentation, but with the premises one starts from.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-06-16T18:28:09.347" LastActivityDate="2015-06-16T18:28:09.347" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6142" PostTypeId="1" AcceptedAnswerId="6170" CreationDate="2015-06-16T15:31:56.420" Score="17" ViewCount="804" Body="&lt;p&gt;Let's destroy the USD dollar: I am the government of a small, economically and geopolitically unimportant country that has its own currency and a local central bank. I order the local central bank (at gun point, if need be) to lend me &lt;em&gt;dollars&lt;/em&gt;. Is there a &lt;em&gt;technical&lt;/em&gt; problem to do this? No, this is just an exchange of papers and electronic messages -we can write on them anything we want, especially with a gun in our head. We can attach to these electronic records any three-letter code we want, so why not &quot;USD&quot;?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now I have a bank account with a balance of gazillions and gazillions of dollars- and USD ones, the heavy stuff.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can pay off my public debt, make every citizen rich (or just those that I like), import all the luxuries in the world, buy as much energy as I want, whatever. After all, I will be paying in &lt;em&gt;USD dollars&lt;/em&gt; right? I will be wire-transferring from a bank account, an electronic signal that will contain some digits and the code &quot;USD&quot; attached.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;So let's hear it from the experts: what kind of checks has the international community in place in order to effectively avoid such a situation?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And what if, as the most long-lasting counterfeiters know, we were to do this &lt;em&gt;modestly&lt;/em&gt;, just a little at the time to help a tad with the local government budget, but without &quot;showing-off riches&quot; to the rest of the world??&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2016-01-04T00:42:26.440" Title="Destroying the dollar" Tags="&lt;money-supply&gt;&lt;international-economics&gt;" AnswerCount="3" CommentCount="4" FavoriteCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="6143" PostTypeId="2" ParentId="3156" CreationDate="2015-06-16T15:47:59.607" Score="2" Body="&lt;p&gt;The point @EnergyNumbers raises is correct, and it's easy to understand from an intuitive standpoint: One of the key roles of financial intermediaries is to match the demand for liabilities of a given tenor to the demand for assets of a given tenor. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Financial intermediation allows maturity mismatches to exist in non-finance sectors of the economy by taking the opposite position. To do this, though, financial intermediaries such as banks must have far higher leverage than firms in the rest of the economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider, for a moment, the tenors of assets that consumers hold: outside of retirement investments (for consumers who are far from retirement age), most consumers have long-dated liabilities (mortgage loans, student loans, etc.), and short-dated assets (bank deposits, money market fund holdings, etc.). This mismatch exists for good reasons. On the liability side, for example, it's not insane for someone to want to own a house and consume housing services before having 100% of the cash necessary to purchase one outright. This sort of consumption smoothing, where one with a long horizon for future earnings brings forward a fraction of their lifetime consumption, is generally considered to be optimal behavior from a utility standpoint. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;At the same time, on the asset side, consumers have to be able to smooth shocks to their income, and thus having short-dated, liquid assets, like bank deposits, is also optimal. If you're a consumer who holds all his extra cash in equities, you're going to be really sad when the stock market tanks at the same time that you lose your job and need to cash out of the stock market to cover your expenses for the next few months.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Similarly, non-financial firms have the same sort of demand for assets of particular tenors— they need a certain amount of cash for liquidity management, but at the same time, they want to be able to invest in capital projects (purchase equipment, etc.) that will pay off over a long time horizon. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course, in a closed system, the tenor of assets has to equal the tenor of liabilities. So how do we balance this? Financial firms take the other side of these trades, accepting significant maturity mismatches.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Non-financial firms are able to do engage in productive investments by making a deal with financial firms in which the non-financial firms give up a share of their future production in the form of interest payments in exchange for long-dated liabilities. Similarly, consumers are able to engage in consumption smoothing by giving up a share of their future labor income to financial firms in exchange for long-dated liabilities. The financial firms, for their part, end up holding a lot of long-dated assets, while being funded to a great extent by short-dated liabilities (such as bank deposits and money market fund holdings through the wholesale funding market). Financial firms make their money on the spread between maturities (the &quot;carry&quot;)— the whole &quot;borrow at 3%, lend at 6%, be at the tee by 3pm&quot; thing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This has a couple of implications:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;The amount of liabilities financial firms must hold relative to assets is a function both of the demand for assets and liabilities of differing tenors in the rest of the economy (i.e., the maturity mismatch in the rest of the economy) and of &lt;em&gt;the size of the financial intermediation sector relative to the rest of the economy&lt;/em&gt;. The smaller financial intermediation is relative to the rest of the economy, the higher the leverage necessary in financial firms to rebalance maturity mismatches elsewhere.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The existence of significant maturity mismatches in finance means that liquidity risk is concentrated in financial firms, which could lead to bank runs. This is &lt;a href=&quot;https://economics.stackexchange.com/questions/5308/what-is-the-necessity-of-the-fdic-in-the-us-banking-system&quot;&gt;why deposit insurance is used&lt;/a&gt;, and also why banks are given access to the Fed's discount window.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="264" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-06-16T15:47:59.607" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6144" PostTypeId="2" ParentId="6142" CreationDate="2015-06-16T18:51:53.677" Score="4" Body="&lt;p&gt;When you go to spend the proceeds of the bank loan you do one of three things:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Transfer money to another account at the same bank&lt;/li&gt;&#xA;&lt;li&gt;Withdraw cash&lt;/li&gt;&#xA;&lt;li&gt;Transfer the money another institution&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;We'll ignore case 1 because eventually someone you transfer money to will want access to two or three, so we can just consider those eventualities directly. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you go to withdraw cash, the bank has limited cash, as opposed to an unlimited (at least in principle, ignoring the requirements of integrity and law) ability to make changes in their account ledgers. So they can't actually give you more cash then they have. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you go to transfer money to another bank, it helps to consider why is some other bank is willing to credit an account when some other bank says that it should. The basic answer, notwithstanding complexities like clearing houses and central bank check clearing, is that banks have accounts with each other. When customer Anabel tells bank Bryce to move \$100 to bank Charlie in the account of customer David Bryce does so by debiting \$100 from Anabel's account and crediting their own \$100. Bryce then tells Charlie to debit \$100 from his account (and credit his own) and delivers additional instructions to credit David. Charlie then debits \$100 from his own account and credits \$100 to David. Which gives you a hint as to Bryce's ability to credit anyone outside the bank, even at gunpoint. Bryce can't get Charlie to credit Charlie's accounts for more than the total credits that Bryce has with Charlie's bank. Maybe he can get a &quot;check float loan&quot; to process a limited number of transactions like this, maybe he can get some direct credit from David, but eventually these margins will be exhausted. Cash or securities will need to be deposited at Charlie's bank before Charlie will allow additional transactions on Bryce's behalf. &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2015-06-16T18:51:53.677" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="6145" PostTypeId="2" ParentId="4693" CreationDate="2015-06-16T18:56:38.040" Score="1" Body="&lt;p&gt;When we talk about inflation, it helps to look at where the money goes after it is &quot;printed.&quot; More accurately, written down as a loan on another bank's balance sheet.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's imagine that the central bank loans a bank 1,000, and has a 10% reserve requirement. That bank can loan out 900 of the original 1,000. The borrower then pays for goods/services, and the person paid deposits the money in their bank.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, there is 1,900 in the system; The original 1,000 which exists as 100 in bank reserves and 900 loaned out, plus the 900 deposited. Inflation, therefore, is not only from money printing, but also the ability of fractional reserve banking to 'create' money through the loan process described above. If you do the math, a 10% reserve requirement will ultimately let you multiply the original money by a factor of 10, a 5% reserve requirement will multiply it by 20, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With this in mind, here's how you can speed or slow inflation:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) By changing the monetary base, you can change the base amount of money that can be multiplied in the fractional reserve system. So, when a central bank creates new money, the total &lt;em&gt;possible&lt;/em&gt; amount of money in the system increases proportionately. However, the money must be loaned out and re-deposited many times to reach the highest possible amount: hence the next two items.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) By changing the reserve requirement, you can permit banks to loan out more of the money they have, which permits more money to be created via the banking system. In our above case, with 1,000 to start, changing the reserve requirement from 5% to 10% would decrease the total possible money supply from 20,000 to 10,000. This is as powerful or moreso than the original money printing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;3) Finally, the multiplication mentioned above can't happen if the money isn't loaned out. Therefore, with very low interest rates, borrowing is easy, the money supply expands via fractional reserve banking, and we get inflation. If you raise the interest rate significantly, people stop borrowing, start saving and paying off debt, and the money supply drops.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;All three can affect inflation/deflation, but the key here is that borrowing drives the money supply as much as the central bank's creating money drives it. Since banks borrow money from the central bank, they must lend at higher rates than they are borrowing in order to turn a profit, so setting the interest rate is a potent means of encouraging or halting inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, for &quot;what about printing while raising rates?&quot; If the central bank is creating money to buy government debt, it is likely that the high interest rates are meant to prop up the value of that debt, so the government can continue to make expenditures. At the same time, it's nearly impossible for civilians to borrow. I don't know the monetary rules for the Ukraine, but I will speculate that their central bank is trying to keep the government funded (given the political situation) by diverting money away from other sectors.&lt;/p&gt;&#xA;" OwnerUserId="4963" LastActivityDate="2015-06-16T18:56:38.040" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6146" PostTypeId="1" CreationDate="2015-06-16T20:40:51.403" Score="2" ViewCount="27" Body="&lt;p&gt;Source: p 123 of 296, &lt;em&gt;Understanding Housing Policy&lt;/em&gt;, by Brian Lund&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Although&#xA;  housing immobility limits the impact of globalisation, its influence on financial and labour markets&#xA;  magnifies regional and local variations in economic conditions within countries through internal and&#xA;  international migration. This may have prompted a more ‘selective’ response from national&#xA;  governments. &lt;strong&gt;Globalisation also magnifies ‘risk’ and prompts governments to deflect this ‘risk’&#xA;  onto homeowners in the context of greater volatility in the housing market.&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Please explain the bold, which suggests that governments want greater volatility. &lt;/p&gt;&#xA;" OwnerUserId="4020" LastActivityDate="2015-06-16T20:40:51.403" Title="How do governments deflect risk through greater volatility in the housing market?" Tags="&lt;risk&gt;&lt;housing&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6147" PostTypeId="2" ParentId="6109" CreationDate="2015-06-16T21:27:29.043" Score="2" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Is economics a science based more on statistics (observations) rather&#xA;  than rigorous reasoning?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I would like to reformulate the question ;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Should economics be a science based more on statistics rather than rigorous reasoning ?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Theory and empirics are both very important and they are complementary rather than substitutes. So, the immediate answer is both of them. There are some guys who are telling that theory is just &quot;entertainement&quot; and emprics/data is the science. Note that this kind of view is somewhat risky because rigrous reasoning (or mathematical models) is necessary in order to understand economic mechanisms that we could hardly understand without these models and econometricians are here to look at it if the &quot;story&quot; of the model fits the reality or in which circumstances it fits to it. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://paulromer.net/wp-content/uploads/2015/05/Mathiness.pdf&quot; rel=&quot;nofollow&quot;&gt;Mathiness in the Theory of Economic Growth&lt;/a&gt; could be an interesting lecture about the question that you have asked. &lt;/p&gt;&#xA;" OwnerUserId="2938" LastActivityDate="2015-06-16T21:27:29.043" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6148" PostTypeId="2" ParentId="1880" CreationDate="2015-06-17T02:49:33.523" Score="1" Body="&lt;p&gt;He's just thinking of $\mathbb{S}$ as being a deterministic and $\omega$ as being unobservable.  Then we observe $X(\omega)$ as a form of incomplete information about $\omega$.  $\mathbb{S}$ and $X$ then help us deduce a joint probability distribution over $\{X_t\}_{t=0}^\infty$.&lt;/p&gt;&#xA;" OwnerUserId="4961" LastActivityDate="2015-06-17T02:49:33.523" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6149" PostTypeId="2" ParentId="6104" CreationDate="2015-06-17T03:56:14.597" Score="3" Body="&lt;p&gt;Personally, I feel like Joseph Schumpeter's history of economic analysis does a great job at developing the scope of how economic methodology and analysis has changed with age. It's dense and will take time. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I also have a few shorter books that help translate the history of the discipline with more ease:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://www.goodreads.com/book/show/82120.The_Worldly_Philosophers&quot; rel=&quot;nofollow&quot;&gt;Worldly Philiosophers&lt;/a&gt;-Robert Heilbroner&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://www.goodreads.com/book/show/714185.Teachings_from_the_Worldly_Philosophy&quot; rel=&quot;nofollow&quot;&gt;Teachings from the Worldly Philosophy&lt;/a&gt;-Robert Heilbroner&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://www.goodreads.com/book/show/2926243-the-ordinary-business-of-life&quot; rel=&quot;nofollow&quot;&gt;The ordinary business of life&lt;/a&gt;- Roger Backhouse&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;All three are great, quick reads and classics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Being a college student and also majoring in math and economics I feel as if the discipline is moving towards a math based discipline, which I don't necessarily agree with. Math should be a tool, and not the fundamental bastion of any other field - other than math itself. With that being said, I do suggest Schumpeter's book, if time allows, because he displays a great scheme of how/why the analytics were involved; along with delivering a great historical appreciation of the field. Other than that I'd suggest just reading the great economic classics. It's something I find great fascination in.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Best of luck on your academic endeavors!&lt;/p&gt;&#xA;" OwnerUserId="4968" LastEditorUserId="40" LastEditDate="2015-06-17T05:21:50.727" LastActivityDate="2015-06-17T05:21:50.727" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="6150" PostTypeId="2" ParentId="6104" CreationDate="2015-06-17T09:53:54.563" Score="-1" Body="&lt;p&gt;&lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0199767203&quot; rel=&quot;nofollow&quot;&gt;Economics of Good and Evil&lt;/a&gt; is a great read and covers a wide range of economic thought across human history and would be a good complement to the more technical curriculum of mathematical economics. While its focus isn't on the history of economics per se, it covers a broad range of ideas beyond simply modern liberal/classical economics.&lt;/p&gt;&#xA;" OwnerUserId="4970" LastActivityDate="2015-06-17T09:53:54.563" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6151" PostTypeId="2" ParentId="5895" CreationDate="2015-06-17T12:12:45.983" Score="0" Body="&lt;p&gt;The new Kreps is clearer about it! Choice coherence and WARP are contrapositives. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Starting from choice coherence, write the contrapositive as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For all x,y in B and B', &lt;/p&gt;&#xA;&#xA;&lt;p&gt;y in C(B') =&gt; not { [x in C(B)] and [y not in C(B)]} &lt;/p&gt;&#xA;&#xA;&lt;p&gt;which is equivalent to &lt;/p&gt;&#xA;&#xA;&lt;p&gt;y in C(B') =&gt; [x not in C(B)] or [y in C(B)]&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So if x is in C(B), then y must be in C(B). &lt;/p&gt;&#xA;" OwnerUserId="4971" LastActivityDate="2015-06-17T12:12:45.983" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6152" PostTypeId="1" CreationDate="2015-06-17T14:14:24.000" Score="2" ViewCount="440" Body="&lt;p&gt;I was looking through my textbook on Money, Banking, and the Economy and I came to the chart of the hypothetical short-term business cycle deviating around an upward sloping long-term cycle trend. My quarrel with this is does there necessarily have to be an upward sloping long-term trend? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm pondering that if we were to look at economies from different times (that are isolated in our analysis) couldn't there exist a possibility that in the more grandiose long-term an economy may exhibit flat, or perhaps negative long-term trends. Perhaps nations that are on the decline may exhibit these traits. Just a random question that I wanted to throw out there.&lt;/p&gt;&#xA;" OwnerUserId="4968" LastEditorUserId="43" LastEditDate="2015-06-18T17:49:43.290" LastActivityDate="2015-11-15T19:39:21.677" Title="Hypothetical Long-term Business Cycle" Tags="&lt;macroeconomics&gt;&lt;economic-growth&gt;&lt;business-cycles&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6153" PostTypeId="2" ParentId="6152" CreationDate="2015-06-17T15:05:57.770" Score="1" Body="&lt;p&gt;You are correct that there have in fact been periods of time when growth was flat, or even negative. For example, if one could observe the economy of the &lt;a href=&quot;https://en.wikipedia.org/?title=Cahokia&quot; rel=&quot;nofollow&quot;&gt;Cahokia&lt;/a&gt; over time, one would expect to see a period of negative growth. Further, the rapid growth we're to which we are accustomed is &lt;a href=&quot;http://delong.typepad.com/sdj/2013/09/lighting-the-rocket-of-growth-and-lightening-the-toil-of-work-another-outtake-from-my-slouching-towards-utopia-ms.html&quot; rel=&quot;nofollow&quot;&gt;a very recent phenomenon&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's impossible to know whether growth will continue at such a pace or slow dramatically; prominent economists such as Robert Gordon &lt;a href=&quot;http://www.voxeu.org/article/us-economic-growth-over&quot; rel=&quot;nofollow&quot;&gt;have argued&lt;/a&gt; that future growth may be much slower (though few argue that it will be flat or negative), a set of hypotheses known as &quot;secular stagnation&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So while your textbook, showing cyclical variation around a positive long-term trend, correctly depicts modern business cycles, there's no reason to believe that such a trend must appear in all societies at all times.&lt;/p&gt;&#xA;" OwnerUserId="264" LastActivityDate="2015-06-17T15:05:57.770" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6154" PostTypeId="1" CreationDate="2015-06-17T15:13:36.480" Score="3" ViewCount="67" Body="&lt;p&gt;(The question is loosely relatet to this &lt;a href=&quot;https://economics.stackexchange.com/questions/6058/dynamic-optimization-what-if-the-second-order-condition-does-not-hold/6063?noredirect=1#comment7370_6063&quot;&gt;thread&lt;/a&gt;.) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the &lt;a href=&quot;http://www.beijer.kva.se/PDF/93942267_Disc152.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;paper&lt;/a&gt; &quot;Feedback Equilibria for a class of non-linear Differential Games&quot; by Mäler et al. it is stated (p. 14)&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In fact sufficiency is satisfied for trajectories converging to the locally stable steady states of the cooperative solution and open-loop equilibria.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Can someone elaborate on this statement? &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Say, I haven't checked for sufficiency. However, I'm able to approximate the saddle path by the first order conditions. That is, the dynamic system converges to the (unique) fixed point for a given initial condition. &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Is the sufficiency for optimality then given?  &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="4266" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-06-23T15:51:59.610" Title="Converging Trajectories and Sufficiency for Optimality" Tags="&lt;optimization&gt;&lt;dynamic-games&gt;&lt;optimal-control&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6155" PostTypeId="1" CreationDate="2015-06-17T16:56:21.010" Score="4" ViewCount="1485" Body="&lt;p&gt;There is a huge literature in economics that studies time-inconsistencies in decision-making and that consistently finds that individuals make present-biased choices in a variety of contexts: we do not save enough for retirement, we procrastinate at work, we invest too little in our human capital, we drink and eat too much, we exercise too rarely, etc. It is widely accepted in our profession that human beings are distracted away from their long-term goals by their short-term impulses.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At the same time, a major theme in philosophy and literature (that goes back to Greek philosophy) is our inability to enjoy the present moment. According to this view, we are constantly dreaming of future imaginary pleasures and unable to satisfy ourselves with our present situation. An archetypal example is someone who always sacrifices the present for a mid-term goal (graduating, earning money, buying a house, getting tenured, ...), who always believes that she will enjoy life once the goal is achieved but who always finds a next step - and who realizes that too late. In the economics terminology, this person's most important decisions (work-life balance for instance) are actually future-biased.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am aware that both phenomena are difficult to compare since the first one is extensively documented quantitatively whereas the second one is more speculative. But it strikes me that our view of intertemporal trade-offs is so dramatically different from what philosophers and psychologists think. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there any attempt in economics to reconcile both views? For instance, are you aware of a study that finds that people are future biased? Any reference or thought about this topic would be greatly appreciated. Thanks!&lt;/p&gt;&#xA;" OwnerUserId="4667" LastActivityDate="2015-06-28T17:28:36.500" Title="Present-bias vs future-bias" Tags="&lt;microeconomics&gt;&lt;reference-request&gt;&lt;preferences&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="6156" PostTypeId="2" ParentId="6125" CreationDate="2015-06-17T19:23:53.760" Score="3" Body="&lt;p&gt;There are two sorts of network effects a network good might have. It might have consumption externalities (such as with traffic) or it might have positive network externalities (such as with operating systems). The latter case is the case that your link discusses. I don't see a discussion of perfect competition in your link, but if you imagine a model in which consumers choose a level of some good with a positive network externality to buy at some price, equilibrium production should be less than socially optimal for the same reason that there is underproduction in perfect competition with any positive externality -- at the margin, consumers don't take into account the value buying the network good brings to other consumers. &lt;/p&gt;&#xA;" OwnerUserId="4177" LastActivityDate="2015-06-17T19:23:53.760" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6157" PostTypeId="2" ParentId="6136" CreationDate="2015-06-17T19:32:21.227" Score="2" Body="&lt;p&gt;There are numerous reasons why deflation is bad and countries are doing as much as they can to fight against deflation:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Debt becomes more expensive: As mentioned by others, this can make it more difficult to pay off.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The economy is dwindling: I feel that this is a more dangerous effects of deflation. Now when deflation occurs, it may seems that our current purchasing power increases. So effectively, people should purchase more goods. The problem in this is that if price does not recover, this signify that people do not respond to the initial price reduction and thus it also signify that people are spending less money on goods and services. This can be very detrimental since it will cause less overall demand for goods and services in the economy. This, will in turn, cause reduction in revenue and profits. Thus, businesses will react to the dwindling demand by cutting down cost through closing factories and firing people. Persistent deflation can cause a spiral downward effects in which businesses cut down on production or go bankrupt, causing a further reduction in the economy's overall income and increase in the economy's unemployment rate. This spiral effect is one of the reasons why deflation is not desired.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;The difficulty in getting rid of it: a persistent reduction in price signify that the people either are losing income or they do not have faith the current economy. For example, if prices are falling, people should generally spend more since now they have higher purchasing power. However, if the price keep falling means that the economy as a whole is cutting down on its spendings. Adding to the effects described in two (2), people will continue to lose faith in the economy and saving more. This can cause a feedback loop where people see the price falling -&gt; see their income falling -&gt; see the economy is getting worse -&gt; spend less -&gt; price falls -&gt; repeat. Thus this spiral effects can cause much headache to the goverment especially if the government try to do as much as they can to increase the price.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Thats my take for why deflation is not desired.&lt;/p&gt;&#xA;" OwnerUserId="4828" LastActivityDate="2015-06-17T19:32:21.227" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6159" PostTypeId="2" ParentId="6134" CreationDate="2015-06-17T20:18:13.310" Score="-2" Body="&lt;p&gt;What is the point in staying Euro, if Greece defaults in its debt. If they default, they want to devalue the salary of the employees. If they still stay in Euro, they need to pay same salary in Euros to all their employees. Where will they get the Euros to pay those. The market to Greece will be closed more than now, there will be no emergency assistance from ECB. &lt;/p&gt;&#xA;" OwnerUserId="2758" LastActivityDate="2015-06-17T20:18:13.310" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6160" PostTypeId="1" AcceptedAnswerId="6211" CreationDate="2015-06-17T20:28:11.423" Score="4" ViewCount="282" Body="&lt;p&gt;Real estate sales sometimes occur at an official auction.  But sometimes a seller who does not take their house to auction may find themselves entertaining multiple bids for the house.  In this case, the articles on real estate always seem to talk about managing a &quot;bidding war&quot;.  What is the difference between a bidding war and an auction?  Are there regulatory issues that prevent a seller from converting their bidding war into a straight-up auction?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(For instance, a seller with multiple bids could simply notify all bidders of the current highest bid, set a minimum bidding increment, and see if anyone bids higher, and repeat until one bidder is left.)&lt;/p&gt;&#xA;" OwnerUserId="2732" LastActivityDate="2015-06-22T15:58:01.853" Title="&quot;Auction&quot; versus &quot;Bidding war&quot;" Tags="&lt;auctions&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6161" PostTypeId="2" ParentId="6155" CreationDate="2015-06-17T20:36:11.577" Score="3" Body="&lt;p&gt;The tradeoff between work and leisure has been extensively studied.&#xA;I would start with the wikipedia entries on labor supply: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Labour_supply&quot; rel=&quot;nofollow&quot;&gt;https://en.wikipedia.org/wiki/Labour_supply&lt;/a&gt;&#xA;  &lt;a href=&quot;https://en.wikipedia.org/wiki/Labour_economics#Neoclassical_microeconomic_model_.E2.80.94_Supply&quot; rel=&quot;nofollow&quot;&gt;https://en.wikipedia.org/wiki/Labour_economics#Neoclassical_microeconomic_model_.E2.80.94_Supply&lt;/a&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;If you are looking for more complex articles, &lt;a href=&quot;http://www.researchgate.net/profile/James_Heckman3/publication/4813273_The_Estimation_of_Income_and_Substitution_Effects_in_a_Model_of_Family_Labor_Supply/links/546be0340cf2f5eb180926e4.pdf&quot; rel=&quot;nofollow&quot;&gt;Heckman in particular studies this&lt;/a&gt;, but it is econometrically heavy for undergraduates.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that there are two different effects you are asking about. First, you are looking for an economic explanation or model of why people find themselves regretting the amount of work they are doing after the fact. Depending on how you define regret, this can be modeled by allowing the agents to be surprised by their own mortality or other statuses.  They will, after the fact, wish they had not valued the money so highly!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Secondly, you are looking for agents who explicitly value money tomorrow &lt;em&gt;more than today&lt;/em&gt;. Awkwardly, the literal interpretation of this will not get the behavior you are looking for. If agents actually valued having money tomorrow more than today, they would never spend money and only save it! But, it is perfectly possible that agents value the money in the future &lt;em&gt;too much&lt;/em&gt;, just not &lt;em&gt;more than today&lt;/em&gt;.  If this still describes what you are looking for, you should take a look at inter-temporal choice, particularly hyperbolic discounting.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Intertemporal_choice&quot; rel=&quot;nofollow&quot;&gt;https://en.wikipedia.org/wiki/Intertemporal_choice&lt;/a&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;To help exemplify this second point, let us consider the case of normal discounting rates $\beta$, where each period is worth a fraction of the prior period, say $\beta=1/2$ the value. The value from now to forever is:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;$=1*0.5^0+1*0.5^1+1*0.5^2+....$&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;$=1/(1-0.5)=2$ by infinitely repeated fractions.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;But what if $\beta$ is greater than 1? Say $\beta=1.1$?&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;$=1*1.1^0+1*1.1^1+1*1.1^2+...1*1.1^{999}+...$ &#xA;  diverges to $\infty$ by sum of infinitely repeated values, a sign of problems to&#xA;  come.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="4185" LastEditorUserId="4185" LastEditDate="2015-06-28T17:28:36.500" LastActivityDate="2015-06-28T17:28:36.500" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6162" PostTypeId="2" ParentId="6104" CreationDate="2015-06-17T20:57:52.343" Score="2" Body="&lt;h2&gt;Technical books on political economy&lt;/h2&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Persson, &lt;em&gt;Political Economics&lt;/em&gt;&lt;/li&gt;&#xA;&lt;li&gt;Persson and Tabellini, &lt;em&gt;The Economic Effects of Constitutions&lt;/em&gt;&lt;/li&gt;&#xA;&lt;li&gt;Acemoglu, “Political Economy Lecture Notes.” (&lt;a href=&quot;http://economics.mit.edu/files/8753&quot; rel=&quot;nofollow&quot;&gt;full pdf&lt;/a&gt;)&lt;/li&gt;&#xA;&lt;li&gt;MIT Political economy and development: &lt;a href=&quot;http://ocw.mit.edu/courses/economics/14-75-political-economy-and-economic-development-fall-2012/readings/&quot; rel=&quot;nofollow&quot;&gt;Reading list&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;h2&gt;Non-technical books&lt;/h2&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Smith, &lt;em&gt;The Wealth of Nations&lt;/em&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;In fact, most major 19th century economists, such as David Ricardo and Karl Marx, wrote pure political economy, which was overcome by economics after the &lt;a href=&quot;https://en.wikipedia.org/wiki/Marginalism#The_Marginal_Revolution&quot; rel=&quot;nofollow&quot;&gt;Marginal Revolution&lt;/a&gt;. You may read them, but be aware that their theories happen to be mostly wrong or incomplete.&lt;/p&gt;&#xA;" OwnerUserId="240" LastActivityDate="2015-06-17T20:57:52.343" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6163" PostTypeId="2" ParentId="6152" CreationDate="2015-06-17T23:13:24.360" Score="0" Body="&lt;p&gt;Not really. The long term upwards trend is what we deal with in growth theory. And the reasons that are brought up for that trend typically are inventions/technology, population growth, increases in human capital.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are reasons to believe that technological growth - an important driver - may stop, and hence long term growth may flatten out. But there's nothing inherent in these drivers of growth that necessarily implies mean reversion (and eventually negative growth). &lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-06-17T23:13:24.360" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6164" PostTypeId="2" ParentId="6104" CreationDate="2015-06-18T02:51:54.823" Score="4" Body="&lt;p&gt;My app is acting odd and won't allow me to comment, but here's my follow up comment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Yeah, for sure! My list consists of this: &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;em&gt;Wealth of Nations&lt;/em&gt; - Adam Smith &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;em&gt;Capital&lt;/em&gt; - Karl Marx &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;em&gt;Principles of Economics&lt;/em&gt; - Alfred Marshall &lt;/li&gt;&#xA;&lt;li&gt;&lt;em&gt;General Theory of Employment, Interest and Money&lt;/em&gt; - John Maynard Keynes. &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Those are just the most definitive works in the field that I've found, so there are many more I've yet to discover. If I remember correctly I think Marshall put most of his analytic work in the appendices at the back of his Principles. Marshall had the body of his work written - not in math, but in words - to be concise, but yet understandable for most of the laymen of his day.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Anyways, I pulled out those four books because they establish a turning point in some way for the field (i.e. General Theory caused a bifurcation between macro and microeconomics where it left Marshall's Principles for micro and Keynes for macro.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you are pressed for time, then I'd suggest reading Backhouse's book along with the Teachings book by Heilbroner. Those will give you a very broad and quick view of where the fields come from and almost catch you up to modern day economics. And unfortunately a lot of the classics are lengthy and hard to decipher. Karl Marx writes his critique of capitalism in a full three or four volume set! (I can't remember the exact number.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think if you approach this adventure in the right manner, you may become hooked. That's how I got fascinated with the field, I read &lt;em&gt;Worldly Philosophers&lt;/em&gt; when I was younger and just fell head over heels for the subject.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hopefully this helps out, just let me know if you have any more questions or concerns.&lt;/p&gt;&#xA;" OwnerUserId="4973" LastEditorUserId="40" LastEditDate="2015-06-18T04:31:35.323" LastActivityDate="2015-06-18T04:31:35.323" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6167" PostTypeId="1" CreationDate="2015-06-18T05:28:08.290" Score="0" ViewCount="143" Body="&lt;p&gt;When a bank receives payments towards repayment of the principal of a loan, it is called &quot;Repaid Principal&quot;. What does a bank do with this amount?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does &quot;Repaid Principal&quot; add up to their pool of funds or reserves which they lend again in form of new loans, or do they utilize it in some other ways?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where exactly does the &quot;Repaid Principal&quot; end up?&lt;/p&gt;&#xA;" OwnerUserId="4900" LastEditorUserId="43" LastEditDate="2015-07-20T07:14:38.487" LastActivityDate="2015-07-20T07:14:38.487" Title="What do banks do with &quot;Repaid Principal&quot;?" Tags="&lt;finance&gt;&lt;banking&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6169" PostTypeId="1" AcceptedAnswerId="6174" CreationDate="2015-06-18T14:51:06.783" Score="2" ViewCount="560" Body="&lt;p&gt;My grandfather raises, sells and resells livestock and I want to help him by calculating when and for what price to (re)sell or buy livestock. As far as I understand(although I have a hunch that I need something more), I need to calculate the so-called &quot;equilibrium price&quot;. I know only school level of mathematics(I know how to plot functions, find a derivative, find a primitive function).&lt;/p&gt;&#xA;" OwnerUserId="4979" LastEditorUserId="1601" LastEditDate="2015-06-18T15:24:33.217" LastActivityDate="2015-06-18T20:43:49.827" Title="I need something like “how to calculate equilibrium price for complete idiots”" Tags="&lt;microeconomics&gt;&lt;supply-and-demand&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="6170" PostTypeId="2" ParentId="6142" CreationDate="2015-06-18T15:32:25.290" Score="25" Body="&lt;p&gt;I think you misunderstand what &quot;electronic money&quot; is - moving electronic money around isn't simply a matter of sending the right &quot;codes&quot; - it is ultimately about asking the central bank of that currency to move money around.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sure you can open up excel and write in it &quot;I have \$100&quot; but that isn't USD, much as writing \$100 on a piece of paper doesn't make it a \$100 bill.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In order to lend you dollars I actually have to have some dollars to lend you.  That means I need a reserve account with one of the 12 Federal Reserve banks.  &lt;strong&gt;There are no electronic USD that are not ultimately in a Federal Reserve Account&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &quot;ultimately&quot; in that sentence is there because banks can (and do) form hierarchies.  Only the largest (&quot;Tier 1&quot; banks, sometimes called &quot;clearing banks&quot;) actually have a reserve account with the central bank in a given currency.  Other, Tier 2, banks will simple hold accounts with Tier 1 banks.  Smaller local banks may even be Tier 3.  When it comes to foreign currency dealing, you could be even further down the chain (i.e. a small bank in Australia may be Tier 4 for USD)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Because of this hierarchy a certain amount of electronic banking can be done without moving reserves.  A transfer only needs to progress up the hierarchy until it gets to a common bank between the two customers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So for example:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;A payment between two accounts at the same bank, can be done on that bank's systems.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;A payment from an account at a Tier 2 bank, to a different Tier 2 bank might be done using a shared Tier 1 bank.  The Tier 2 bank's are &quot;customers&quot; of the Tier 1 bank, and so the Tier 1 bank can do the transaction on their system.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;A payment between customers that ultimately fall under two different Tier 1 banks &lt;strong&gt;must&lt;/strong&gt; be done by at a Federal Reserve bank.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The US adds an extra complication, because there are 12 Fed Reserve banks - if two Tier 1 banks don't bank with the same Fed Branch, then the Fed Reserve System also has to go &quot;one step higher&quot; and the New York Fed acts as the very top bank: &quot;&lt;a href=&quot;https://economics.stackexchange.com/q/194/119&quot;&gt;How do reserves move between the 12 federal reserve banks?&lt;/a&gt;&quot; explores exactly how that is done.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;So the problem in your scheme is you couldn't get your central bank &quot;into&quot; this pyramid of banks.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your central bank's computer can show $1tr on screen but the only way to transfer to another bank, would be to instruct YOUR Fed bank to take money out of YOUR fed reserve account and put it into the other bank's account.  Your central bank can't make reserve dollars.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Aside:&lt;/strong&gt;  An alternative way of looking at this, for those familiar with how BitCoins work, is to note that the important feature of electronic money is to prevent double spending.  BitCoin does this with the BlockChain; the USD equivalent of the block-chain is held on the Fed Reserve computers.  You can't just declare yourself to have billions of bitcoins - to spend them you have to get your transactions onto the BlockChain.  With electronic USD you have to get your transactions onto the Fed ledger.  Only the Fed has a copy of this and their say is final.  There would be no way for your central bank to change the Fed ledgers.&lt;/p&gt;&#xA;" OwnerUserId="119" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-06-19T12:18:20.103" CommentCount="9" ContentLicense="CC BY-SA 3.0" />
  <row Id="6171" PostTypeId="1" CreationDate="2015-06-18T15:59:10.650" Score="3" ViewCount="90" Body="&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;I have to find the consumer's demand at prices $\textbf{p} = (1,1,1)$&#xA;and budget $m=4$ when the utility function is given by&#xA;$$u(x_1,x_2,x_3) = 3 \sqrt{x_1+x_2+2x_3}$$ or when transformed&#xA;$$\hat{u}(x_1,x_2,x_3) = x_1+x_2+2x_3 $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know the answer is $\textbf{x} = (0,0,4)$&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;What I don't understand:&lt;/em&gt; For perfect substitutes the demand is given by $x_1^* = \frac{m}{p_1}$ so the demand should have been&#xA;   $\textbf{x} = (4,4,4)$. But why is $x_1^*,x_2^* = 0$?&lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;2&quot;&gt;&#xA;&lt;li&gt;&lt;p&gt;For the same utility function I want to find the demand at prices&#xA;$p=(2,3,p_3) &amp;gt;&amp;gt;0$ and budget $m&amp;gt;0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The answer is  \begin{equation} \textbf{x} = \left(0,0,&#xA;    \frac{m}{p_3} \right) \quad \text{when} \quad p_3&amp;lt;4 \end{equation}&#xA;\begin{equation} \textbf{x} = \left(\frac{m}{2},0,0 \right) \quad&#xA;    \text{when} \quad p_3&amp;gt;4 \end{equation} \begin{equation} \textbf{x} =&#xA;    \left(\frac{\alpha m}{2}, 0, \frac{(1-\alpha)m}{4} \right) \quad&#xA;    \text{when} \quad p_3=4 \end{equation}&#xA;where $\alpha \in [0,1]$ because the consumer is indifferent between the bundles&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;What I don't understand:&lt;/em&gt; Why is the demand different depending on what $p_3$ is and how do I know when the demand is different? Personally, I would've said the demand is $\textbf{x} = \left( \frac{m}{2}, \ \frac{m}{3}, \ \frac{m}{p_3} \right)$&lt;/p&gt;&#xA;" OwnerUserId="4931" LastActivityDate="2015-06-19T17:27:29.783" Title="Demand for utility function given prices and budget" Tags="&lt;supply-and-demand&gt;" AnswerCount="1" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="6172" PostTypeId="2" ParentId="6167" CreationDate="2015-06-18T16:49:43.283" Score="0" Body="&lt;p&gt;Just as when a loan is made, a matching liability deposit is created by the underlying double entry book keeping operations, when a loan is repaid that money is effectively removed from the system. i.e.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Loan creation:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;[debit loan, credit customer account]&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Loan repayment of principal&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;[credit loan, debit customer account]&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;The regulatory and accounting framework within which these operations occur, then allow the bank to re-create the repaid money, by making a new loan. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Essentially modern banking systems exist in a state where money is continuously being destroyed and re-recreated as loan principal is repaid or written off. As there is typically a slight excess of new lending over loan repayment, most banking systems expand the money supply (their customer's liability deposits) over time, but if there is less new lending than repayment, then the system can also contract.&lt;/p&gt;&#xA;" OwnerUserId="84" LastActivityDate="2015-06-18T16:49:43.283" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6173" PostTypeId="1" CreationDate="2015-06-18T17:18:08.697" Score="4" ViewCount="8548" Body="&lt;p&gt;I'm trying to derive the utility possibility frontier of a economy whose consumption contract curve is $$y_A = \frac {y} {x} x_A$$ and $$y_B = \frac {y} {x} x_B$$where $x_A + x_B = x$ and $y_A + y_B= y$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U_i = \sqrt {x_iy_i}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;While deriving the UPF. they have added up $U_A$ and $U_B$, and I don't understand why. Why do we add up utilities while deriving UPF?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(I gave all the details of the question because I'm not sure if they added the utilities only because of the peculiarities of the question or if its an algorithm. )&lt;/p&gt;&#xA;" OwnerUserId="4253" LastActivityDate="2020-05-08T18:59:10.773" Title="How to derive utility possibility frontier?" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;&lt;utility&gt;" AnswerCount="2" CommentCount="3" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6174" PostTypeId="2" ParentId="6169" CreationDate="2015-06-18T20:43:49.827" Score="3" Body="&lt;p&gt;First, the equilibrium price is, at a very basic level, just the market price for livestock. If you have a perfectly competitive market (a lot of suppliers) and all livestock is about the same, then the market price should be about the best your grandfather can do.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That being said, there are lots of reasons why perfect competition breaks down. This can come from number of sellers (just a few for a buyer to pick from), unobserved product heterogeneity (some livestock is better than others, but can't always see it just by looking), and more. Preferences over different types of products also interact with these other issues (if there's only one person selling and he knows how much a buyer is willing to pay, he can charge exactly that amount, etc.).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is where the profit-maximizing price issue comes in to play. Your grandfather wants to charge the price that maximizes his profit&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\pi = p*q(p) - c(q)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;with $q$ the demand function (how much he can sell at price $p$) and $c$ the cost function (how much it costs, including what is being given up, to &quot;produce&quot; -- whatever that means in this market -- $q$ units of the good). (Quick note: I'm abusing notation a little in the profit function, but I'm doing it to make the point). The profit maximizing price is just the price level at which the first order condition of $\pi$ is equal to zero (assuming $\pi$ satisfies some regularity conditions). This will end up in the solution that he should produce/charge such that the marginal revenue is equal to marginal cost.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Taking advantage of this in practice requires having a really good measure of both $q$ and $c$. Although difficult for economists, $c$ is usually straight forward for firms themselves to get because they can actually calculate their own costs. The difficult part for everyone is estimating $q$. It takes a lot of data and a really good model of the market, taking into account all the issues previously discussed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://economics.stackexchange.com/questions/5218/how-does-google-price-the-items-on-google-play/5437#5437&quot;&gt;This answer&lt;/a&gt; discusses how this might be done by really big firms. Note that one of the main methods they use is experimentation. Large firms can do this easily and often. For smaller firms -- like your grandfather's, I'd expect -- some of the best data your grandfather might have is, like @denesp pointed out in a comment, his experience. If he's been at it for a while, the data that he has gathered over time selling in this market has likely given him a pretty good feel for what he can charge for what and to whom.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To give an example of this type of experience in practice, an economist friend of mine as an undergrad used his father's hardware business as the motivation behind a paper he was writing. He decided that he would use the store's data to estimate preferences and improve profits. He ended up pitting his estimates against his father's experience-based pricing and, try as he might, could not outperform his father's method.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is not to say that you can't use models and estimation to improve profits. It does indicate, however, that this is not a simple problem and can require a lot of pretty sophisticated methods to outperform the natural market evolution that would be in many ways already internalized by your grandfather.&lt;/p&gt;&#xA;" OwnerUserId="238" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-06-18T20:43:49.827" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6175" PostTypeId="2" ParentId="6173" CreationDate="2015-06-18T21:09:14.750" Score="2" Body="&lt;p&gt;In general, one could use the following procedure to find UPF (in a two-person case):&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;fix one person's utility at some arbitrary level, say $U_A=\bar u$&lt;/li&gt;&#xA;&lt;li&gt;maximize the other person's (i.e. person $B$) utility subject to the resource constraints, as well as $U_A=\bar u$&lt;/li&gt;&#xA;&lt;li&gt;$B$'s maximum utility, call it $U_B^*$, found in step 2 should be a function of $\bar u$, and other parameters of the problem: $U_B^*(\bar u,\dots)$&lt;/li&gt;&#xA;&lt;li&gt;lastly, you can vary the value of $\bar u$ (in the range of acceptable values for $\bar u$) to trace out the UPF.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;There's no &lt;em&gt;a priori&lt;/em&gt; reason that points on the UPF should equal to the sum of individual utilities, since utility is ordinal (unless assumed otherwise). It may be that the square root utility chosen for this question is what's causing the result. But I haven't done the math to verify it.&lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2015-06-18T21:09:14.750" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6176" PostTypeId="1" AcceptedAnswerId="6178" CreationDate="2015-06-18T22:26:28.973" Score="10" ViewCount="886" Body="&lt;p&gt;The more cynical (or perhaps realistic) of us would argue that there's a fair amount of game theory going on in the dating game. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example a classic ploy is '&lt;a href=&quot;http://nevertoolate.biz/2014/03/31/three-day-rule/&quot;&gt;Don't ring for three days&lt;/a&gt;, because you don't want to come across too keen'.  Of course this rule &lt;a href=&quot;http://www.smh.com.au/lifestyle/life/citykat/man-up-and-ditch-the-threeday-rule-gents-20130423-2iclm.html&quot;&gt;is now widely considered obsolete&lt;/a&gt; (as would be natural in any game).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A fairly straight forward hypothesis I would put forward is:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Everybody in the dating game is looking to get hitched with their highest possible value match. &lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;By conveying unconditional interest in the other partner, you let them know that they can safetly 'get you' and so it's safe to pursue higher value mates knowing that they can score at least as highly as you.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Therefore, the smarter strategy is to not let your dating interest know how available you are for them, so that they are incentivised to make commitments to you. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Now I know, this seems like a deeply cynical and flawed way of thinking. I'm not looking for a social criticism of this thinking. Rather I'm interested if there have been any studies carried out, where by the attractiveness of someone is assessed according to the availability they've communicated, etc. &lt;/p&gt;&#xA;" OwnerUserId="96" LastEditorUserId="120" LastEditDate="2015-06-19T06:45:47.103" LastActivityDate="2020-01-02T23:16:26.150" Title="Game theory for showing interest and availability when dating" Tags="&lt;game-theory&gt;&lt;reference-request&gt;&lt;social-choice&gt;" AnswerCount="3" CommentCount="3" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6177" PostTypeId="2" ParentId="6176" CreationDate="2015-06-19T03:09:19.273" Score="4" Body="&lt;p&gt;In serious economics journals, no, as far as I know of. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other areas there has been done something, but it concerns availability and communication with God: &lt;a href=&quot;http://www.tandfonline.com/doi/abs/10.1080/00223980.1983.9923562&quot; rel=&quot;nofollow&quot;&gt;The Journal of Psychology: Interdisciplinary and Applied&lt;/a&gt;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Perhaps one problem is that several assumptions should be addressed, like: &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Why shouldn't we date many partners in the first place? (so you have two types: monogamic and polygamic --- there are scientific &lt;a href=&quot;http://www.slate.com/articles/health_and_science/human_evolution/2012/10/are_humans_monogamous_or_polygamous_the_evolution_of_human_mating_strategies_.single.html&quot; rel=&quot;nofollow&quot;&gt;hints&lt;/a&gt; that human's are polygamic). &lt;/li&gt;&#xA;&lt;li&gt;That the other partner regards the other's &quot;unconditional interest&quot; as truthful (it can't be truthful to begin with). &lt;/li&gt;&#xA;&lt;li&gt;That they think that making commitments is indeed incentivizing (which is also related to 1).&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;To estimate the &quot;correct&quot; answer would obviously be a very interesting idea. &lt;/p&gt;&#xA;" OwnerUserId="246" LastActivityDate="2015-06-19T03:09:19.273" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6178" PostTypeId="2" ParentId="6176" CreationDate="2015-06-19T04:40:52.123" Score="14" Body="&lt;p&gt;Sending costly signals &lt;a href=&quot;https://www.nber.org/papers/w17340&quot; rel=&quot;noreferrer&quot;&gt;may work&lt;/a&gt;, at least when the recipient is less attractive than the sender.&lt;/p&gt;&#xA;&lt;p&gt;There's also a nice popular science book by Paul Oyer called Everything I Ever Needed to Know About Economics I Learned from Online Dating that covers some of this ground, including the paper linked above.&lt;/p&gt;&#xA;&lt;p&gt;Another &lt;a href=&quot;http://www.ens-lyon.fr/DI/wp-content/uploads/2009/07/Proc.-R.-Soc.-B-2005-Sozou-1877-84.pdf&quot; rel=&quot;noreferrer&quot;&gt;theoretical paper&lt;/a&gt; suggests that costly signals that are worthless to the recipient work nicely, because the cost signals to the recipient that the donor has resources and values her highly, but by being worthless, it screens out &amp;quot;gold-diggers&amp;quot; that merely want the gift. Perhaps setting a pile of cash on fire would do the trick?&lt;/p&gt;&#xA;" OwnerUserId="159" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2020-01-02T23:16:26.150" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="6179" PostTypeId="1" CreationDate="2015-06-19T07:54:17.777" Score="2" ViewCount="485" Body="&lt;p&gt;In September 1985, Japan, the US, and three other nations agreed to the &quot;&lt;a href=&quot;https://en.wikipedia.org/wiki/Plaza_Accord&quot; rel=&quot;nofollow&quot;&gt;Plaza Accord&lt;/a&gt;,&quot; which appreciated the Yen and Deutsche Mark. The value of the Japanese Yen appreciated from 200 Yen per Dollar to 100 Yen per Dollar.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How was this implemented? What of the free market? Did interest rates in Japan double? What are the mechanics by which an external intervention like this is made to hold in the &quot;free&quot; market (especially the FX market which is renowned for being so liquid and so &quot;free&quot;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks&lt;/p&gt;&#xA;" OwnerUserId="4982" LastEditorUserId="264" LastEditDate="2015-06-19T20:12:42.363" LastActivityDate="2020-05-07T00:10:07.013" Title="How did the Plaza Accord revalue the Japanese Yen?" Tags="&lt;macroeconomics&gt;&lt;exchange-rates&gt;&lt;currency-peg&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6180" PostTypeId="2" ParentId="6179" CreationDate="2015-06-19T08:18:52.593" Score="2" Body="&lt;p&gt;The Plaza Accord was implemented through market mechanisms. According to &lt;a href=&quot;https://en.wikipedia.org/wiki/Plaza_Accord&quot; rel=&quot;nofollow&quot;&gt;Wikipedia&lt;/a&gt; Central banks of the signatory nations spent $10 billion dollars. They exchanged these dollars for other currencies. This increases the supply of dollars and may even decrease demand if so far the central banks have been purchasing dollars. Due to the higher supply and not higher demand the 'price' or exchange rate of the dollar fell. At the same time the countries also implemented policy changes. This would effect the mid to long term exchange rates.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Japanese interest rate did indeed fall. &lt;br&gt; &#xA;&lt;a href=&quot;http://www.tradingeconomics.com/japan/interest-rate&quot; rel=&quot;nofollow&quot;&gt;http://www.tradingeconomics.com/japan/interest-rate&lt;/a&gt;&#xA;&lt;br&gt; Mind though that the US interest rate also fell &lt;br&gt; &#xA;&lt;a href=&quot;http://www.tradingeconomics.com/united-states/interest-rate&quot; rel=&quot;nofollow&quot;&gt;http://www.tradingeconomics.com/united-states/interest-rate&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2015-06-19T08:18:52.593" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6181" PostTypeId="1" CreationDate="2015-06-19T03:48:03.233" Score="1" ViewCount="517" Body="&lt;p&gt;I think they are quite similar. I am a bit confused. Can anyone explain this to me?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I got the name and the information about the cue utilitarian theory from a journal article that related to organic food consumption. According to the authors, when people buy products like organic food, they could hardly evaluate the quality by merely observing it, since organic food could be kind of credence product. It is difficult to evaluate whether it is really free from chemicals and pesticides. So, people tend to rely on some cues to make the quality evaluation indirectly. This is how the Cue Utilitarian Theory works.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let me narrow it down to a consumer behavior context. It seems to me that both theories can be used to explain that when there is an information asymmetric between retailers and consumers, some product attributes will be used as cues to evaluate product quality. I just wonder if they are basically the same in concept, then how and which one should I use them respectively.&lt;/p&gt;&#xA;" OwnerUserId="4984" OwnerDisplayName="user20849" LastEditorUserId="4984" LastEditDate="2015-06-23T07:33:20.307" LastActivityDate="2015-07-23T08:14:04.100" Title="How is signaling theory different from cue utilization theory?" Tags="&lt;theory&gt;" AnswerCount="1" CommentCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="6182" PostTypeId="2" ParentId="75" CreationDate="2015-06-19T10:19:56.397" Score="0" Body="&lt;p&gt;the main difference of partial equilibrium and general equilibrium is the determination of price and quantity in the market where by partial deal with only one market while general deal with the market in the economy and their interaction. &lt;/p&gt;&#xA;" OwnerUserId="4983" LastActivityDate="2015-06-19T10:19:56.397" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6184" PostTypeId="2" ParentId="6171" CreationDate="2015-06-19T12:21:19.303" Score="1" Body="&lt;p&gt;Regarding the first question, @Oliv suggestion in the comments to formally write down the consumer's problem, budget constraint, &lt;em&gt;Kunh-Tucker&lt;/em&gt; multipliers and all, and solve it (carefully -linear objective functions easily mislead when we are used to deal with non-linear ones), is the way to go in order to see how the mathematical set-up will lead you to the answer that stares you in the face:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Our purpose here is to maximize the utility index. Given unitary prices, isn't it obvious that the multivariable function&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\hat{u}(x_1,x_2,x_3) = x_1+x_2+2x_3$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;will take its maximum value if we purchase only good $x_3$? For any tiny amount $\Delta x_3$ of $x_3$ that you don't purchase, you lose $2\Delta x_3$ in utility terms, while you gain (in utility terms) only $\Delta x_1 + \Delta x_2 = \Delta x_3$ for any combination of $\Delta x_1$ and $\Delta x_2$. Since $2\Delta x_3 &amp;gt; \Delta x_3$ it will be suboptimal to purchase anything else than $x_3$. That was the &quot;plain logic&quot; part, and I hope it answers the &quot;&lt;em&gt;what I don't understand&lt;/em&gt;...&quot; aspect of your question. Put the model in math to reconcile this obvious arithmetic with the formal approach.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-06-19T17:27:29.783" LastActivityDate="2015-06-19T17:27:29.783" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6185" PostTypeId="1" AcceptedAnswerId="6186" CreationDate="2015-06-19T18:36:46.563" Score="12" ViewCount="1281" Body="&lt;p&gt;How does Marxism view freelance workers? Since a freelancer is the owner of their means of production, are they still viewed as exploited by the bourgeoisie? Could freelancing exist in a Marxist society?&lt;/p&gt;&#xA;" OwnerUserId="4990" LastEditorUserId="-1" LastEditDate="2015-06-19T22:07:19.220" LastActivityDate="2018-10-22T07:10:19.023" Title="How is freelancing viewed under Marxism?" Tags="&lt;marxism&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6186" PostTypeId="2" ParentId="6185" CreationDate="2015-06-19T18:52:42.177" Score="15" Body="&lt;p&gt;Marx addresses this about two-thirds of the way through Section 1 of the &lt;em&gt;Manifesto&lt;/em&gt;. In the standard English edition of 1888, it reads:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The lower strata of the middle class - the small tradespeople,&#xA;  shopkeepers, and retired tradesmen generally, the handicraftsmen and&#xA;  peasants - all these sink gradually into the proletariat, partly&#xA;  because their diminutive capital does not suffice for the scale on&#xA;  which Modern Industry is carried on, and is swamped in the competition&#xA;  with the large capitalists, partly because their specialized skill is&#xA;  rendered worthless by new methods of production. Thus the proletariat&#xA;  is recruited from all classes of the population.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So his basic argument is that, sure there might be small business owners (freelancers in this example), but that because of 1) inability to compete against large firms ostensibly taking advantage of economies of scale and 2) rapid development of technology, they become obsolete and are driven to the proletariat.&lt;/p&gt;&#xA;" OwnerUserId="238" LastEditorUserId="4394" LastEditDate="2015-06-20T08:38:20.787" LastActivityDate="2015-06-20T08:38:20.787" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6187" PostTypeId="1" CreationDate="2015-06-19T19:01:45.500" Score="1" ViewCount="14" Body="&lt;p&gt;I am trying to rank sectors in Serbia based on how &quot;inclusive&quot; they are in their development, i.e. I have some indicators such as &quot;share of profitable firms within sector&quot;, &quot;share of exporting firms within tradable sector&quot;, etc. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, Serbian sectors that have less firms overall inevitably end up either always at the higher or lower end of the ranking because their sample size is smaller I end up with larger variance among them... &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Anyone know any methods to adapt measure such as those I mentioned above as to minimize the effects of these variances, but still retain some of the originally intended information? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you!&lt;/p&gt;&#xA;" OwnerUserId="4917" LastActivityDate="2015-06-19T19:01:45.500" Title="Ranking Sectors Based on &quot;Inclusiveness&quot;, greater variance among sectors with less firms" Tags="&lt;firm&gt;&lt;ranking&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6188" PostTypeId="2" ParentId="6167" CreationDate="2015-06-19T21:05:18.760" Score="1" Body="&lt;p&gt;When you repay principal of 90 USD, the bank makes two accounting entries in its computerized books.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One is called a debit and it goes like this.  If you pay by check drawn on another bank, their reserves at the Fed are increased by 90 USD. If you paid in currency, their vault cash asset account, which is also an asset of the bank, increases by 90 USD and the cash is dumped into the vault with all the other cash.  If you pay out of your checking account at the same bank, their &quot;deposits&quot; book entry, which is a liability of the bank, is &lt;em&gt;decreased&lt;/em&gt; by 90 USD.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The other entry is called a credit.  Your loan balance, which is an asset to the bank, is decreased by the 90 USD.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You asked what they do with &quot;it&quot;, meaning the principal paid.  As you can see above, when the currency was dumped into the vault and mixed with all the other dollar bills, or a computerized balance was increased or decreased by 90 USD, &quot;it&quot; ceased to exist.  The 90 USD are no longer distinguishable from any other dollars.  So it is a meaningless question. A lot of people don't understand this!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But if you are asking what the bank does with its reserves (vault cash plus reserve account at the Fed), in general: in normal times, they keep them as low as allowed by the Fed.  As their reserves increase higher than required, they reduce them by lending money to customers and other banks, purchasing securities, or paying their expenses.  Transactions that make their reserves increase are things like (a) loan principal is repaid, (b) currency or checks drawn on other banks is deposited, (c) paying their expenses, (d) loan interest is paid by their debtors.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At present, banks are holding on to more than they are required to, because they are relatively afraid to lend.  The extra is called &quot;excess reserves&quot;.&lt;/p&gt;&#xA;" OwnerUserId="4693" LastActivityDate="2015-06-19T21:05:18.760" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="6189" PostTypeId="1" CreationDate="2015-06-19T23:50:46.883" Score="5" ViewCount="59" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;A study done in Sweden on 153 female, would-be blood donors showed&#xA;  surprising results. The women were divided into three groups–&#xA;  voluntary donation, paid donation, and paid donation with the&#xA;  immediate option to donate to children’s charity. Contrary to what you&#xA;  might expect, the paid women decided to donate at a significantly&#xA;  lower rate– only 30% compared to the 52% by voluntary donors and 53%&#xA;  by paid-with-donation-option donors. The selfish reward “tainted” the&#xA;  altruistic desire.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;You can find the cited article &lt;a href=&quot;http://blog.silkroad.com/index.php/2013/10/intrinsic-vs-extrinsic-motivation&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The original article is Mellström, Carl, and Magnus Johannesson. &quot;&lt;a href=&quot;http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.319.3943&amp;amp;rep=rep1&amp;amp;type=pdf&quot; rel=&quot;nofollow&quot;&gt;Crowding out in blood donation: was Titmuss right?.&lt;/a&gt;&quot; Journal of the European Economic Association (2008).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This one data-point suggests that donations on your behalf have no effect. Are there other studies that can help answer whether charitable donations on your behalf are&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;valued&lt;/li&gt;&#xA;&lt;li&gt;as effective as other incentives (e.g. money)?&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="4991" LastEditorUserId="120" LastEditDate="2015-06-20T08:51:44.963" LastActivityDate="2015-06-20T08:51:44.963" Title="Are charitable donations on someone's behalf generally an effective incentive?" Tags="&lt;reference-request&gt;&lt;behavioral-economics&gt;&lt;experimental-economics&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6191" PostTypeId="1" CreationDate="2015-06-20T16:55:19.390" Score="2" ViewCount="603" Body="&lt;p&gt;The problem is simple. However, I'm having trouble deriving the price vector for the system. What exactly am I doing wrong/missing out? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Two consumers. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;U_A = \min(x,y), \hskip 20pt U_B = x+y.&#xA;$$    &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Initial endowments&#xA;$$&#xA;(x_A,y_A)=(100,100), \hskip 20pt (x_B,y_B)=(50,0).&#xA;$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Putting A on the bottom left, the contract curve will be a line with slope 1 from A, from point (0,0) to (100,100), A's endowment point. [Seen from A's perspective.] All points on this contract curve are points of 'tangency' between A's kinked indifference curves, and B's linear indifference map.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$x_A= 100(p_x+p_y)/p_x $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$x_B = 0$  (if  $p_x&amp;gt;p_y$)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$x_B = 50$  (if  $p_x&amp;lt;p_y$)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A cannot benefit from more than (100,100), while B will benefit from as much of either good as she can get: i.e. endowment point lies on contract. Thus, the endowment point can be the competitive equilibrium allocation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question is, what will be the equilibrium price vector. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we keep the price vector as (1,1), X can sell and buy back endowment, and so can B. So, (1,1) makes the endowment point affordable. However, so does any price vector where $p_x&amp;lt;p_y$ (ensuring 0 demand for Y from B.) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does a unique price vector (ratio) exist for this system? How do we derive it? And what am I doing wrong?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help (resources on CE problems of this kind) will be wonderful. Thanks. &lt;/p&gt;&#xA;" OwnerUserId="4247" LastEditorUserId="1601" LastEditDate="2017-02-28T08:01:29.667" LastActivityDate="2017-02-28T14:59:27.067" Title="Unable to determine price ratio for a pure exchange economy" Tags="&lt;general-equilibrium&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6192" PostTypeId="2" ParentId="6112" CreationDate="2015-06-20T17:17:55.130" Score="6" Body="&lt;p&gt;My suggestions:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;the best ever written advanced book on game theory is 'Game Theory' by Fudenberg and Tirole: it deals with a lot of material used in research and many applications. When you work on a game theory paper and, for instance, u'r unsure about what kind of equilibrium applies to your case, the book will save your life. It's a bible&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;but if you want to get inside the game theory world, learn about what kind of problems game theory is able to deal wth, or even getting some interesting ideas to work on your own, after learning the necessary tools..in these cases I strongly suggests to use &lt;strong&gt;'Game theory evolving' by Herbert Gintis&lt;/strong&gt;. He was my professor at the PhD, and I appreciated his ability as educator (other than a researcher)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I hope you'll find it useful.&#xA;Enjoy!&lt;/p&gt;&#xA;" OwnerUserId="4996" LastActivityDate="2015-06-20T17:17:55.130" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6193" PostTypeId="2" ParentId="6191" CreationDate="2015-06-20T17:32:57.270" Score="2" Body="&lt;p&gt;Your analysis seems to be spot on, except for some minor typos:&#xA;$$&#xA;x_A^* = 100 \frac{p_x + p_y}{p_x + p_y} = 100,&#xA;$$&#xA;because the value of A's endowment is $100 \cdot (p_x + p_y)$. And you could include the case of&#xA;$$&#xA;x_B^* \in [0,50]  \mbox{ if } p_x = p_y.&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As you state at the end the equilibrium price vector is not unique, there is equilibrium for all $\frac{p_x}{p_y} &amp;lt; 1$, because with this price vector we have&#xA;$$&#xA;(x_A^*,y_A^*) = (100,100), \hskip 20pt (x_B^*,y_B^*) = (50,0) &#xA;$$&#xA;and the market is then indeed in equilibrium as&#xA;$$&#xA;x_A^* + x_B^* = x_A + x_B, \hskip 20pt y_A^* + y_B^* = y_A + y_B.&#xA;$$&#xA;The price ratio $\frac{p_x}{p_y} = 1$ also results in equilibrium, because one of the optimal consumptions of B is still $(x_B^*,y_B^*) = (50,0)$.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2015-06-20T17:32:57.270" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6194" PostTypeId="2" ParentId="5786" CreationDate="2015-06-20T17:52:31.570" Score="5" Body="&lt;p&gt;Actually, Section 3 of the paper you linked is probably one of the most comprehensive lists you could find of the movers and the shakers with regard to predictive game theory. I know that many of them have both published and working papers addressing these issues. Fudenberg even addresses those specific two topics. A few selections from the paper:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Ignacio Esponda, Philippe Jehiel, and David K. Levine are leaders in studying adaptive processes in extensive form games, and the sorts of non-Nash equilibrium outcomes that can persist even when players have a lot of experience with the game.&lt;/p&gt;&#xA;&lt;p&gt;Michel Benaïm, Josef Hofbauer, William Sandholm, and Sylvain Sorin are making important advances in the mathematics of dynamical systems and applying them to non-equilibrium dynamics.&lt;/p&gt;&#xA;&lt;p&gt;Chaim Fershtman and Ariel Pakes are developing estimation methods for field data that allow for incorrect off-path beliefs.&lt;/p&gt;&#xA;&lt;p&gt;Jeff Shamma is a pioneer in bringing techniques from the feedback-control literature to the study of learning in games.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;I would recommend going through these authors' websites and looking for papers that fit.&lt;/p&gt;&#xA;" OwnerUserId="238" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2015-06-20T17:52:31.570" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6195" PostTypeId="1" AcceptedAnswerId="6201" CreationDate="2015-06-20T18:30:38.450" Score="7" ViewCount="1241" Body="&lt;p&gt;List of math intense graduate level microeconomics books?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Except Reny's book, krep's books, varian's book and mas-collell's book&lt;/p&gt;&#xA;&#xA;&lt;p&gt;books from subfields are acceptable, however by math intense i mean most of the books pages contain some level of math&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Please categorize the book&lt;/p&gt;&#xA;" OwnerUserId="95" LastEditorUserId="95" LastEditDate="2015-06-21T20:53:18.697" LastActivityDate="2021-03-30T07:53:03.763" Title="list of math intense graduate level microeconomics books?" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;reference-request&gt;" AnswerCount="5" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6196" PostTypeId="1" CreationDate="2015-06-20T19:22:50.530" Score="4" ViewCount="405" Body="&lt;p&gt;How does the concept of weak dominance work with infinite games? The abundance of concepts seems to muddy things. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In particular, suppose two players play the following game an infinite number of times.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\begin{array}{l*{2}{c}r}&#xA;             &amp;amp; A &amp;amp; B  \\&#xA;\hline&#xA;A &amp;amp; 1,1 &amp;amp; 0,0 \\&#xA;B &amp;amp; 0,0 &amp;amp; 0,0&#xA;\end{array}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the one shot game, it is clear that playing $A$ weakly dominates the action $B$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, what if we consider a bizarre kind of grim trigger:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;In the first period, a player plays $B$.&lt;/li&gt;&#xA;&lt;li&gt;If the other played $A$ in the first period, play $B$ forever.&lt;/li&gt;&#xA;&lt;li&gt;Otherwise, play $A$ forever.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;For a patient enough player, it is weakly best to respond to this strategy with the same one. Any strategy that begins with $B$ and then $A$ afterwards is a best response (the off-path details can be different, so that a best response may not stipulate $B$ forever if the other chooses $A$ at the beginning). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The pareto efficient equilibria involve always playing $A$ on the equilibrium path, and it's tempting to say that playing $A$ no matter what should be weakly dominant, but that doesn't seem to be the case. Has much been written on this kind of thing? What kind of ideas exist to rule out the kind of strategy described above? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is the strategy in question itself weakly dominated? I would guess that we could concoct an equally sinister trigger strategy $s'$ so that the strategy in question is not dominated by any other $s''$.&lt;/p&gt;&#xA;" OwnerUserId="14" LastEditorUserId="14" LastEditDate="2015-06-28T18:33:03.540" LastActivityDate="2015-06-28T22:00:05.553" Title="Dominated Strategies in an Infinitely vs Finitely Repeated Game" Tags="&lt;game-theory&gt;&lt;repeated-games&gt;" AnswerCount="3" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="6197" PostTypeId="1" CreationDate="2015-06-20T20:25:15.437" Score="0" ViewCount="121" Body="&lt;p&gt;Can I classify the fuel trading market (wholesalers buying and selling fuel by phone) as a market with near-perfect competition?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is a market with many sellers and buyers, the product is homogeneous, relatively low barriers to entry, non-increasing returns to scale, rational buyers, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know they use third degree price discrimination since they are selling the same product to different prices to different buyers, but since they also provide support through phone, they are somehow differentiating their product.&lt;/p&gt;&#xA;" OwnerUserId="4110" LastEditorUserId="1601" LastEditDate="2015-06-21T06:05:22.117" LastActivityDate="2015-06-21T06:05:22.117" Title="Fuel trading a market with near-perfect competition" Tags="&lt;competition&gt;&lt;price-discrimination&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6198" PostTypeId="2" ParentId="6196" CreationDate="2015-06-20T20:35:38.510" Score="3" Body="&lt;p&gt;A usual refinement concept used to deal with weakly dominated strategies is the &lt;a href=&quot;http://core.ac.uk/download/pdf/6805957.pdf&quot; rel=&quot;nofollow&quot;&gt;trembling hand perfect equilibrium&lt;/a&gt;. (I do not know others but this one works quite well.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The strategy in question is indeed weakly dominated by the following strategy&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;In the first period, player plays $B$.&lt;/li&gt;&#xA;&lt;li&gt;In all other periods, player plays $A$.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2015-06-20T20:35:38.510" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6199" PostTypeId="2" ParentId="6196" CreationDate="2015-06-20T21:46:45.827" Score="3" Body="&lt;p&gt;The problem you mentioned is why dominance is not really used frequently. It is a very weak concept in the sense that is usually has no &quot;grip&quot;, i.e. not many strategies are eliminated. That is why we use Nash equilibria or even other concepts (e.g., the trembling hand perfect equilibrium which was mentioned by @desnesp, or, some form of subgame perfection).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And this has nothing to do with finitely or infinitely repeated games, this is true for every repeated game (or every game in general).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In &lt;em&gt;finitely repeated games&lt;/em&gt; the only strategies that are weakly dominated (in your example) are strategies that play $B$ in the very last round, given some history.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let me show you:&#xA;It is clear that it is dominated (by just switching to $A$ in the last round for this history).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now the other direction: Assume there is a dominated strategy $S$ that plays $A$ in the last round, then there is a strategy which plays $B$ everywhere, but if you played $S$, then plays $A$ in the last round. To this strategy $S$ is strictly better than any other strategy and therefore not dominated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How does that work for &lt;em&gt;infinitely repeated games&lt;/em&gt;? In the same manner: You think $S$ is dominated and in $S$ there is always a chance that $A$ is played later? Then there is a strategy which plays $A$ then, iff $S$ was played. (I know this is a little bit sloppy, but I hope you still get the idea.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;So, in short:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Is the strategy in question itself weakly dominated?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Yes, for example by switching to always play $A$ in the last round.&lt;/p&gt;&#xA;" OwnerUserId="120" LastEditorUserId="120" LastEditDate="2015-06-20T21:53:39.933" LastActivityDate="2015-06-20T21:53:39.933" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6200" PostTypeId="1" CreationDate="2015-06-21T16:38:22.787" Score="5" ViewCount="1100" Body="&lt;p&gt;As per the definition i found in the internet, &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Oligopoly, in which a market is run by a small number of firms that together control the majority of the market share. &lt;/li&gt;&#xA;&lt;li&gt;Monopoly, where there is only one provider of a product or service.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Consider this situation in a country.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are 4 main bus operators in this country. A,B,C and D and some individual bus owners.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The bus fare is controlled by a national body.&#xA;Some particular bus owners  who has AC installed in the bus, charges a 0.2$ extra per route.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the above scenario in what classification would you put the transport sector of this country. Is it a monopoly as the price is regulated by a single body? or is it an oligopoly as the market share is dominated by these four main company. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Further more for my upcoming exam if I get a question on Market structure of this country transport system how can I elaborate?&lt;/p&gt;&#xA;" OwnerUserId="5001" LastEditorUserId="6149" LastEditDate="2016-03-15T20:19:32.753" LastActivityDate="2016-03-15T20:19:32.753" Title="Clarification about Market Structure Oligopoly or Monopoly" Tags="&lt;microeconomics&gt;&lt;monopoly&gt;&lt;oligopoly&gt;" AnswerCount="3" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6201" PostTypeId="2" ParentId="6195" CreationDate="2015-06-21T18:41:42.173" Score="5" Body="&lt;p&gt;For game theory:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;&lt;a href=&quot;https://mitpress.mit.edu/index.php?q=books/game-theory&quot; rel=&quot;noreferrer&quot;&gt;Game Theory&lt;/a&gt;&lt;/em&gt; by Fudenberg and Tirole&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;&lt;a href=&quot;https://books.google.ca/books?id=jhEU8f6J0IQC&amp;amp;dq=mailath%20samuelson%20repeated%20games%20and%20reputations&amp;amp;source=gbs_navlinks_s&quot; rel=&quot;noreferrer&quot;&gt;Repeated Games and Reputations : Long-Run Relationships&lt;/a&gt;&lt;/em&gt; by Mailath and Samuelson&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;&lt;a href=&quot;https://mitpress.mit.edu/index.php?q=books/theory-learning-games&quot; rel=&quot;noreferrer&quot;&gt;The Theory of Learning in Games&lt;/a&gt;&lt;/em&gt; by Fudenberg and Levine&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;&lt;a href=&quot;https://mitpress.mit.edu/books/evolutionary-game-theory&quot; rel=&quot;noreferrer&quot;&gt;Evolutionary Game Theory&lt;/a&gt;&lt;/em&gt; by Weibull&lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2015-06-21T18:41:42.173" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6202" PostTypeId="2" ParentId="6200" CreationDate="2015-06-21T19:08:53.630" Score="0" Body="&lt;p&gt;&lt;em&gt;Partial answer...&lt;/em&gt; &lt;br&gt;&#xA;Transportation is an example of perfect substitute. If A increases the price, demand of A will decrease. Price is regulated by national body but no single firm can dominate the market alone. So this is not monopoly.&lt;/p&gt;&#xA;" OwnerUserId="5002" LastEditorUserId="1601" LastEditDate="2015-06-21T19:44:57.013" LastActivityDate="2015-06-21T19:44:57.013" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6203" PostTypeId="2" ParentId="6195" CreationDate="2015-06-21T22:36:53.293" Score="7" Body="&lt;p&gt;&lt;a href=&quot;https://rads.stackoverflow.com/amzn/click/com/0195073401&quot; rel=&quot;nofollow noreferrer&quot; rel=&quot;nofollow noreferrer&quot;&gt;Mas-Collel&lt;/a&gt; is very popular. It is very math-heavy. Every idea and concept is done pretty rigorously and it pretty well covers everything. The book is a very slow read and is sometimes uneven. Very detailed in some sections and not as good in others. That said, in my experience, it is the &lt;strong&gt;graduate microeconomics&lt;/strong&gt; bible. If you have a question, your answer is somewhere in there.&lt;/p&gt;&#xA;" OwnerUserId="40" LastEditorUserId="40" LastEditDate="2021-03-29T23:12:42.963" LastActivityDate="2021-03-29T23:12:42.963" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="6204" PostTypeId="2" ParentId="4454" CreationDate="2015-06-22T08:29:35.533" Score="3" Body="&lt;p&gt;When you dig down, this questions is very nearly a duplicate of this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://economics.stackexchange.com/q/444/119&quot;&gt;Implications of abolishing Fractional Reserve Banking on mortgages and interest rates&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;but based on the comments, it seems that the connection isn't obvious.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This question asking about what would happen if only a government institution could create money, but equally you say the proposal is &lt;em&gt;not&lt;/em&gt; to have a fixed money supply.  They are, in practice, the same thing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The central bank makes the money base, M0, and then the banks create the money supply, with some multiplier to this.  In a full reserve system, that multiplier is 1.0, and so the money supply is always equal to the money base.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In your question, we consider having a M0, but also have a state run bank that chooses the money multiplier to some number, that may or may not be 1.0.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From that point on things become almost identical - it doesn't really matter from the point of view of the economy, whether you make M0 ten times larger or smaller, if you offset it with changing multiplier.  It should be the total money supply that matters - the money base never leaves the central bank, and so may be thought of as a &quot;construct&quot; onto which the monetary system is hung.  The important point is that the government gets to directly control the money supply.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Before the era of quantitative easing, when a central bank wanted to increase the money supply, they lowered rates and that increased the multiplier.  With quantitative easing, they simply increase M0 and force the money supply up in a 1:1 ratio.  Either works (for a given value of &quot;work&quot;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is, however, one very important difference:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;With full reserve banking borrowing money is very expensive - it is economically the same as capital&lt;/li&gt;&#xA;&lt;li&gt;With a state run lending bank, borrowing could be done at any rate the government chooses, including at an economic loss.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;So, in your system, you could have a state run bank, that effectively subsidises business and/or people's mortgages using money raised from taxes or elsewhere.  This would be like an extreme version of the UK forcing RBS and Lloyds to increase lending.&lt;/p&gt;&#xA;" OwnerUserId="119" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-06-22T10:48:37.487" CommentCount="9" ContentLicense="CC BY-SA 3.0" />
  <row Id="6205" PostTypeId="1" AcceptedAnswerId="6210" CreationDate="2015-06-22T13:44:15.223" Score="0" ViewCount="135" Body="&lt;p&gt;I have some money in Euros but living in USA. Today they are going to decide if the Greece will stay in Euro-zone.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I was wondering what will happen to Euro if Greece leave the EU. Or what is expected to happen?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm planning to exchange the Euros in August. Is it a good idea or should I do it right now or just keep the Euros?&lt;/p&gt;&#xA;" OwnerUserId="5008" LastActivityDate="2015-06-22T15:50:39.877" Title="What happen to Euro if Greece defaults" Tags="&lt;exchange-rates&gt;" AnswerCount="2" CommentCount="8" ClosedDate="2015-06-23T08:14:52.017" ContentLicense="CC BY-SA 3.0" />
  <row Id="6206" PostTypeId="1" AcceptedAnswerId="6216" CreationDate="2015-06-22T13:53:08.057" Score="1" ViewCount="84" Body="&lt;p&gt;Under &lt;a href=&quot;https://en.wikipedia.org/wiki/Deposit_insurance&quot; rel=&quot;nofollow&quot;&gt;deposit insurance&lt;/a&gt;, if my bank goes bankrupt, the government reimburses my deposit up to a specified maximum.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Do banks pay for this insurance, and does it depend on their risk-taking?  If not, what is to stop banks from taking very high risks with deposits from private citizens (the ones unimportant enough to be below the threshold), knowing that the government takes the risk (and will likely opt to rescue the bank rather than repay all account-holders, should the bank fail)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Relevant: &lt;a href=&quot;http://positivemoney.org/2013/05/two-main-problems-with-deposit-insurance/&quot; rel=&quot;nofollow&quot;&gt;&lt;em&gt;two main problems with deposit insurance&lt;/em&gt;&lt;/a&gt;)&lt;/p&gt;&#xA;" OwnerUserId="332" LastActivityDate="2015-06-22T17:26:10.567" Title="Do banks pay for deposit insurance?" Tags="&lt;banking&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6207" PostTypeId="2" ParentId="6134" CreationDate="2015-06-22T14:21:12.593" Score="1" Body="&lt;p&gt;The Greek banks will not be able to get any Euro to give out, if the IMF and the EU cuts of all the loans to Greece.   Therefore if Greeces remains in the Euro, there will be no banking system in Greece.&lt;/p&gt;&#xA;" OwnerUserId="1584" LastActivityDate="2015-06-22T14:21:12.593" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6208" PostTypeId="2" ParentId="6205" CreationDate="2015-06-22T14:34:04.757" Score="1" Body="&lt;p&gt;Depends on WHY you have the Euros.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you are saving up with a BMW or a holiday in France, it is very different to you holding them just hoping the Euros will go up.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I expect that if Greece leaves OR if Greece remains after a REAL agreement is made and KEPT TO, then the Euro will not be effected much.   But if Greece remains, but nothing changes in Greece, then the Euro will be dragged down by the next set of counties that think they can getaway with it.&lt;/p&gt;&#xA;" OwnerUserId="1584" LastActivityDate="2015-06-22T14:34:04.757" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6209" PostTypeId="2" ParentId="6200" CreationDate="2015-06-22T14:41:43.683" Score="3" Body="&lt;p&gt;This market is an oligopoly that is &lt;em&gt;subject to government regulation&lt;/em&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It cannot be a monopoly because there is more than one firm. The presence of the regulating government body is a &quot;red herring&quot;, it distracts from the main point- there are multiple firms. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It does not appear to be competitive because:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Four is subjectively few firms&lt;/li&gt;&#xA;&lt;li&gt;Implicitly, regulation would be entirely pointless in a competitive market.&lt;/li&gt;&#xA;&lt;li&gt;One firm has managed to differentiate themselves by adding air conditioners. Firms in perfect competition cannot be differentiated from one another.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="4185" LastEditorUserId="4185" LastEditDate="2015-06-28T17:03:02.090" LastActivityDate="2015-06-28T17:03:02.090" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6210" PostTypeId="2" ParentId="6205" CreationDate="2015-06-22T15:50:39.877" Score="1" Body="&lt;p&gt;I guess it is possible to say something about expectations based on the exchange rate:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://freecurrencyrates.com/en/exchange-rate-history/EUR-USD/2015/eucb&quot; rel=&quot;nofollow&quot;&gt;http://freecurrencyrates.com/en/exchange-rate-history/EUR-USD/2015/eucb&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The euro is strengthening relative to the dollar since April. So I believe that either they think Greece will not leave the eurozone or that it will not have significant consequences. Either way, it seems that the USD/EUR exchange rate is not expected to fall. Of course surprising things do happen.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This answer cannot extend to your personal finance problem, I do not know any of the details. (Even if I did, you are probably as wise as I am.)&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2015-06-22T15:50:39.877" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6211" PostTypeId="2" ParentId="6160" CreationDate="2015-06-22T15:58:01.853" Score="4" Body="&lt;p&gt;From a practical standpoint, bidding wars are effectively informal auctions. What is usually done is that the buyers inform their agents of their maximum price, and the buyers' agents tell the seller's agent &quot;This is my client's bid, but please let us know if we're outbid.&quot; Sometimes this is formalized through what is known as an &lt;a href=&quot;http://www.bankrate.com/finance/real-estate/escalation-clause.aspx&quot; rel=&quot;nofollow&quot;&gt;escalation clause&lt;/a&gt;, which is essentially an offer to bid some increment more than any other highest bid, up to some reservation price. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some sellers accept escalation clauses, some don't, and this decision appears to be influenced partially through strategy and partially through custom in the area. Not accepting an escalation clause can force buyers into what is effectively a &lt;a href=&quot;https://en.wikipedia.org/wiki/Auction#Sealed_first-price_auction&quot; rel=&quot;nofollow&quot;&gt;first-price sealed-bid auction&lt;/a&gt;, while accepting them turns it into more of a traditional (&lt;a href=&quot;https://en.wikipedia.org/wiki/English_auction&quot; rel=&quot;nofollow&quot;&gt;English&lt;/a&gt;) auction.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As an additional note, the point that @desnep makes is true— while proof of other bids is required, it's not always possible to determine that those bids in fact represent genuine offers to buy. My understanding is that for this reason, when bids are expected to be few, buyers are encouraged to submit fixed bids and be prepared to walk away if they lose out, as there's a stronger incentive for sellers to fabricate bids (i.e., market manipulation is more effective in less-liquid markets).&lt;/p&gt;&#xA;" OwnerUserId="264" LastActivityDate="2015-06-22T15:58:01.853" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6212" PostTypeId="2" ParentId="6176" CreationDate="2015-06-22T16:10:38.633" Score="2" Body="&lt;p&gt;Dr. Gary Becker does work on marriage. So does Dr. Scott Drewiankia. I believe both have high quality publications on the sorting and matching processes of marriage.&lt;/p&gt;&#xA;" OwnerUserId="4185" LastActivityDate="2015-06-22T16:10:38.633" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6213" PostTypeId="1" AcceptedAnswerId="6214" CreationDate="2015-06-22T16:54:36.737" Score="0" ViewCount="49" Body="&lt;p&gt;When price is deflated according to some base year, what does the real value mean? E.g. if we are deflating \$5.000 from year 2000 (base year, deflator=1) to 1980, using the CPI 1.6 from 1980, we get \$3.125. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this real value equivalent to $5.000 in 1980?&lt;/p&gt;&#xA;" OwnerUserId="1482" LastEditorUserId="264" LastEditDate="2015-06-22T17:02:04.080" LastActivityDate="2015-06-23T15:02:45.997" Title="Real and nominal value interpretation" Tags="&lt;deflation&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6214" PostTypeId="2" ParentId="6213" CreationDate="2015-06-22T17:09:47.310" Score="0" Body="&lt;p&gt;The formula for calculating the real value of an amount $x$ in a given year using dollars from a particular reference year is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\frac{x_{baseyear}}{x_{current year}}=\frac{CPI_{base year}}{CPI_{current year}} &#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So in your hypothetical example (where the deflator is higher in 1980 than in 2000, which indicates deflation over the period), the value of \$5 in 2000 is equal in 1980 to:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;x_{current year}=x_{base year}*\frac{CPI_{current year}}{CPI_{base year}} &#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;or&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;$5*\frac{1.6}{1}=$8 &#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So in your example, a basket of goods costing \$5 in 2000 would cost \$8 in 1980.&lt;/p&gt;&#xA;" OwnerUserId="264" LastEditorUserId="264" LastEditDate="2015-06-23T15:02:45.997" LastActivityDate="2015-06-23T15:02:45.997" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="6215" PostTypeId="2" ParentId="6181" CreationDate="2015-06-22T17:15:46.210" Score="2" Body="&lt;p&gt;I think you do mean &lt;strong&gt;cue utilization theory&lt;/strong&gt;. According to &lt;a href=&quot;https://books.google.ca/books?id=CUYVBQAAQBAJ&amp;amp;pg=PA294&amp;amp;lpg=PA294&amp;amp;dq=cue%20utilitarian%20theory%20organic&amp;amp;source=bl&amp;amp;ots=WGEAx3lsZ2&amp;amp;sig=kwMsigNfE31wQldLJzeMqI66a7s&amp;amp;hl=en&amp;amp;sa=X&amp;amp;ei=WX2FVbmPONDjsATpy4HYDQ&amp;amp;redir_esc=y#v=onepage&amp;amp;q=cue%20utilitarian%20theory%20organic&amp;amp;f=false&quot; rel=&quot;nofollow&quot;&gt;the link provided in @NickJ's comment&lt;/a&gt;, and as far as economic theory goes, I'd say that cue utilization is basically a signaling story.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Putting &quot;cues&quot; on organic food products (e.g. the &quot;organic&quot; label, information on nutrition and natural content) amounts to a signaling act committed by the seller. Since the organic cues is less costly for the real organic food producers to produce (for instance, labeling non-organic foods as organic would face legal disputes, and hence a negative expected cost), these cues (or signals) are reliable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus in principle, organic food sellers sending cues to consumers is no different from the classical signaling model where job seekers uses university degrees to signal their ability. &lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2015-06-22T17:15:46.210" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6216" PostTypeId="2" ParentId="6206" CreationDate="2015-06-22T17:26:10.567" Score="4" Body="&lt;p&gt;There's additional information in &lt;a href=&quot;https://economics.stackexchange.com/a/5332/264&quot;&gt;this answer&lt;/a&gt;, but in the US, banks pay into the FDIC &lt;a href=&quot;https://www.fdic.gov/deposit/insurance/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Deposit Insurance Fund&lt;/a&gt;, and regulation and capital requirements are used to stop banks from taking excessive risks with deposits. In the event of a bank failure, depositors below the insured limit are repaid in full, but equity-holders are generally wiped out and other creditors must often take losses as well. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The DIF premiums do vary somewhat with risk (see page 2 &lt;a href=&quot;https://www.fdic.gov/deposit/insurance/assuringconfidence.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The FDIC charges premiums based upon&#xA;  the risk that the insured bank poses, and it inspects, or examines, banks to further manage that&#xA;  risk.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="264" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-06-22T17:26:10.567" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6217" PostTypeId="1" CreationDate="2015-06-22T18:31:11.767" Score="2" ViewCount="34" Body="&lt;p&gt;Below is a picture of today's Rough Rice Options Quote. I would like to understand how to interpret the information in the table below. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Firstly, with regards to the future contract we see that it expires in July, which settled yesterday for $9.720 (per 100 lb, or hundredweight), today the price has increased by about 11 cents.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When we look at the American Options (i.e. right to exercise at any point before July, we see data for Calls (right to buy for a seller, obligation to sell for a seller) and Puts (right to sell for a buyer, obligation to buy for a seller). As well we see that there are a range of available strike prices for this delivery. How can the numbers of &quot;prior settle&quot; for call/puts be interpreted. Meaning what do the numbers &quot;2'5&quot; or &quot;10682'5&quot; mean? Similarly, I know the strike price is the specified price the underlying future contract will change hands for, but how can &quot;2040.00&quot; be interpreted in relation to the futures price?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edited to add that specifically when looking at the rough rice options, there are the contract specs: &lt;a href=&quot;http://www.cmegroup.com/trading/agricultural/grain-and-oilseed/rough-rice_contractSpecs_options.html?optionProductId=337#optionProductId=337&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.cmegroup.com/trading/agricultural/grain-and-oilseed/rough-rice_contractSpecs_options.html?optionProductId=337#optionProductId=337&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/IiS5k.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;" OwnerUserId="2674" LastEditorUserId="2674" LastEditDate="2015-06-22T18:52:59.263" LastActivityDate="2015-06-22T18:52:59.263" Title="Understanding Options Quotes" Tags="&lt;markets&gt;&lt;financial-markets&gt;&lt;commodities&gt;&lt;agriculture&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="6219" PostTypeId="1" AcceptedAnswerId="6266" CreationDate="2015-06-22T20:41:40.660" Score="7" ViewCount="613" Body="&lt;p&gt;I have the impression that everyone has more net money than in the past. By net money I means cash + money lent to others - money borrowed from others. If this is true, where does the extra net money come from? Is it right to say that originally all the extra net money comes to the world as interest paid by the central bank for the reserve deposit of commercial banks?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I read that commercial banks create money by making loans. But when one person borrows money from banks, his net money doesn't increase. And when people make transactions, money just goes from one to another. How does it come that finally everyone has more net money than before?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have a second thought that my impression is simply wrong. It's only true to say that generally everyone is wealthier than in the past. If we look at the richest businessmen in the world, their &quot;net money&quot; as defined above can often be hugely negative, but they are still wealthy since they possess a lot of other things like buildings, factories etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And besides those business men, the &quot;net money&quot; of the government is also hugely negative(almost every country's government has a large public debt). So if the &quot;net money&quot; of the popluation as a whole remains more or less constant(in the spirit of &quot;loans + cash == liability deposits&quot; mentioned by @Lumi), a few entities having hugely negative &quot;net money&quot; make others's net money increase, so one could have the impression that the &quot;net money&quot; of the majority of the population has increased.&lt;/p&gt;&#xA;" OwnerUserId="5013" LastEditorUserId="5013" LastEditDate="2015-06-27T22:31:38.747" LastActivityDate="2015-07-03T23:17:56.380" Title="How is money created on net?" Tags="&lt;money-supply&gt;&lt;money&gt;" AnswerCount="4" CommentCount="14" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="6220" PostTypeId="1" CreationDate="2015-06-23T03:37:59.713" Score="6" ViewCount="1027" Body="&lt;p&gt;When doing VAR analysis, it is almost always a linear form that gets used. Is there any justifying reason (most DSGE models are non-linear unless linearized) to use a linear form? &lt;/p&gt;&#xA;" OwnerUserId="5016" LastActivityDate="2015-06-23T15:44:52.883" Title="Why is VAR analysis all linear? Why not nonlinear?" Tags="&lt;econometrics&gt;&lt;time-series&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6221" PostTypeId="1" AcceptedAnswerId="6222" CreationDate="2015-06-23T06:14:58.847" Score="2" ViewCount="3123" Body="&lt;p&gt;I am looking for a case study or data which shows a negative (fiscal/spending) multiplier effect.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does anyone know a study where this is analyzed?&lt;/p&gt;&#xA;" OwnerUserId="5017" LastEditorUserId="120" LastEditDate="2015-06-29T07:17:05.667" LastActivityDate="2017-07-11T22:53:01.387" Title="When can the fiscal multiplier be negative?" Tags="&lt;macroeconomics&gt;&lt;reference-request&gt;&lt;economic-growth&gt;" AnswerCount="3" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6222" PostTypeId="2" ParentId="6221" CreationDate="2015-06-23T07:34:03.257" Score="5" Body="&lt;p&gt;The paper &lt;a href=&quot;http://www.nber.org/papers/w16479&quot; rel=&quot;nofollow&quot;&gt;How Big (Small?) are Fiscal Multipliers?&lt;/a&gt; by Ethan Ilzetzki, Enrique G. Mendoza, Carlos A. Végh (2010)should give you useful information.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;We contribute to the debate on the macroeconomic effects of fiscal&#xA;  stimuli by showing that the impact of government expenditure shocks&#xA;  depends crucially on key country characteristics, such as the level of&#xA;  development, exchange rate regime, openness to trade, and public&#xA;  indebtedness. Based on a novel quarterly dataset of government&#xA;  expenditure in 44 countries, we find that (i) the output effect of an&#xA;  increase in government consumption is larger in industrial than in&#xA;  developing countries, (ii) the fiscal multiplier is relatively large&#xA;  in economies operating under predetermined exchange rates but is zero&#xA;  in economies operating under flexible exchange rates; (iii) fiscal&#xA;  multipliers in open economies are smaller than in closed economies;&#xA;  (iv) fiscal multipliers in high-debt countries are negative.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="69" LastEditDate="2015-06-23T18:23:39.803" LastActivityDate="2015-06-23T18:23:39.803" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6224" PostTypeId="1" CreationDate="2015-06-23T13:12:31.677" Score="0" ViewCount="151" Body="&lt;p&gt;I want to test the causality of part-time workers on unemployment rate.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Should i use part-time workers as a share of total employment or total labour force?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;If I run a regression of part-time workers on unemployment rate, there could be reverse causality. So I would have to use 2 stage least square. What are the possible instruments I could use?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="4497" LastEditorUserId="43" LastEditDate="2015-06-23T14:57:38.313" LastActivityDate="2015-06-23T14:57:38.313" Title="Test: Part-time Workers Effect on Unemployment Rate" Tags="&lt;labor-economics&gt;&lt;applied-econometrics&gt;&lt;unemployment&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6225" PostTypeId="2" ParentId="6224" CreationDate="2015-06-23T14:57:16.663" Score="2" Body="&lt;p&gt;This is mostly related to &lt;strong&gt;2)&lt;/strong&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Not only is there reversed causality, but also potential for omitted variable bias. Identifying causality instead of correlation is something that no econometric method can do for you, you will have to work for that yourself.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, you can&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Find some proxy that is going to move part-time employment, but not any other variable that could be somehow linked to the unemployment rate&lt;/li&gt;&#xA;&lt;li&gt;Find exogenous (random?) variation in part-time employment. The most common tool here are (quasi-) natural experiments.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-06-23T14:57:16.663" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6226" PostTypeId="1" CreationDate="2015-06-23T15:21:12.680" Score="6" ViewCount="294" Body="&lt;p&gt;Just a question to satisfy my Mathematical itch, but is there anything in Economics that uses Chaos Theory from Math?&lt;/p&gt;&#xA;" OwnerUserId="4973" LastEditorUserId="238" LastEditDate="2015-06-25T18:11:02.933" LastActivityDate="2015-06-25T18:11:02.933" Title="Applied Chaos to Economics" Tags="&lt;mathematical-economics&gt;&lt;reference-request&gt;" AnswerCount="3" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6227" PostTypeId="2" ParentId="6226" CreationDate="2015-06-23T15:31:49.987" Score="2" Body="&lt;p&gt;I once read this paper on overlapping generations with environment that uses chaotic dynamics&#xA;&lt;a href=&quot;http://mpra.ub.uni-muenchen.de/13750/1/MPRA_paper_13750.pdf&quot; rel=&quot;nofollow&quot;&gt;http://mpra.ub.uni-muenchen.de/13750/1/MPRA_paper_13750.pdf&lt;/a&gt;&#xA;Many models with environmental variables have strange dynamics, because they induce boundary conditions, non linear dynamic rules and initial conditions become very important due to non-renew-ability. &lt;/p&gt;&#xA;" OwnerUserId="127" LastActivityDate="2015-06-23T15:31:49.987" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6228" PostTypeId="1" CreationDate="2015-06-23T15:36:13.803" Score="2" ViewCount="63" Body="&lt;p&gt;There is one input factor $k$. The representative firm maximizes profits with respect to employed capital, i.e.&#xA;\begin{align}&#xA;\max_k{\pi(k) = f(k)-(r+\tau)k}&#xA;\end{align} &#xA;where $f(\cdot)$ is the production function, $r$ the rent of capital and $\tau$ the tax rate to be paid for a unit of capital.&#xA;The FOC reads&#xA;\begin{align}&#xA;\pi'(k)=0\quad\Longleftrightarrow\quad r = f'(k) - \tau&#xA;\end{align}&#xA;Now $r$ can be interpreted as a net of tax return on capital for the household (who owns the capital stock).&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Is there a standard proxy for $r$?&lt;/li&gt;&#xA;&lt;li&gt;Can you point to empirical literatur, where $r$ is shown for different countries.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Any suggestion is appreciated.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Edit I&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;I think I was searching for net national accounts seperated for factor income (firms and workers). I added a picture from the german national stats. I think the last two columns might be appropriate (I hope it's readable). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/DTLpI.png&quot; alt=&quot;net national account&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Edit II&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Found the net return on net capital in AMECO. The variable is named APNDK and you can find a description on page 65 of that &lt;a href=&quot;http://ec.europa.eu/economy_finance/db_indicators/ameco/documents/list_of_variables.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;list&lt;/a&gt;. Is this any good? I don't do empirics.&lt;/p&gt;&#xA;" OwnerUserId="4266" LastEditorUserId="4266" LastEditDate="2015-07-11T08:23:34.757" LastActivityDate="2015-07-11T08:23:34.757" Title="Net of Tax Return on Capital: Definition, Proxy and Data" Tags="&lt;data-request&gt;&lt;reference-request&gt;&lt;capital-returns&gt;" AnswerCount="0" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6229" PostTypeId="2" ParentId="6220" CreationDate="2015-06-23T15:44:52.883" Score="6" Body="&lt;p&gt;First, it is important to note that there is a substantial literature both developing and using nonlinear VAR estimation (for example, see papers &lt;a href=&quot;http://www.jstor.org/stable/2601141?seq=1#page_scan_tab_contents&quot;&gt;here&lt;/a&gt;, &lt;a href=&quot;http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.463.9763&amp;amp;rep=rep1&amp;amp;type=pdf&quot;&gt;here&lt;/a&gt;, &lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/0304407695017534&quot;&gt;here&lt;/a&gt;, and &lt;a href=&quot;http://onlinelibrary.wiley.com/doi/10.1002/fut.10116/abstract&quot;&gt;here&lt;/a&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reasons linear VARs are seen a lot, though, are similar to the reasons that least squares (in its varying forms) is seen a lot. The model is very transparent and analytically tractable. This is a benefit for both pedagogy (analysis can be done on linear VARs just using lag polynomials) and for interpretation of results. You also don't run in to the concavity and global vs. local solution issues you do with big nonlinear problems, which can make your results more credible in many circles.&lt;/p&gt;&#xA;" OwnerUserId="238" LastActivityDate="2015-06-23T15:44:52.883" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6230" PostTypeId="2" ParentId="6221" CreationDate="2015-06-23T15:49:33.137" Score="4" Body="&lt;p&gt;The fiscal multiplier is &lt;a href=&quot;https://en.wikipedia.org/wiki/Fiscal_multiplier#Examples&quot; rel=&quot;nofollow noreferrer&quot;&gt;the ratio of a change in national income to the change in government spending that causes it&lt;/a&gt;.&lt;/p&gt;&#xA;&lt;p&gt;Assume that the government runs a balanced budget and so any raise in spending comes with a raise in taxes. Imagine there are three types of people in this economy, Friday has a low marginal propensity (&lt;span class=&quot;math-container&quot;&gt;$\alpha\in(0,1)$&lt;/span&gt;) to consume (MPC) and Robinson Crusoe has a high (&lt;span class=&quot;math-container&quot;&gt;$\beta\in(0,1)$&lt;/span&gt;) MPC, and a massive number of other people with an MPC of &lt;span class=&quot;math-container&quot;&gt;$\gamma\in(0,1)$&lt;/span&gt; such that the economy wide MPC can be thought of &lt;span class=&quot;math-container&quot;&gt;$\gamma$&lt;/span&gt;. Assume Crusoe's labor supply does not respond to taxes.&lt;/p&gt;&#xA;&lt;p&gt;If you tax Crusoe \$1 and spend that \$1 on Friday then Crusoe cuts his consumption by &lt;span class=&quot;math-container&quot;&gt;$\beta$&lt;/span&gt; dollars and Friday increases his by alpha dollars. Therefore, the the change in consumption, is:&lt;span class=&quot;math-container&quot;&gt;$$\alpha - \beta$$&lt;/span&gt; which is negative by construction. In representative agent models the relationship between the multiplier and the MPC is:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$Multiplier = 1 / (1 - MPC) $$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;Here is a summary from the Investopedia how this works:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Suppose a large corporation decides to build a factory in a small town&#xA;and that spending on the factory for the first year is \$5 million.&#xA;That \$5 million will go to electricians, engineers and other various&#xA;people building the factory. If MPC is equal to 0.8, those people will&#xA;spend \$4 million on various goods and services. The various business&#xA;and individual receiving that \$4 million will in turn spend \$3.2&#xA;million and so on.&lt;/p&gt;&#xA;&lt;p&gt;If the marginal propensity to consume is equal to 0.8 (4 / 5), then&#xA;the multiplier can be calculated as:&lt;/p&gt;&#xA;&lt;p&gt;Multiplier = 1 / (1 - MPC) = 1 / (1 - 0.8) = 1 / 0.2 = 5&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;But in our example, there really are two shocks, one negative to Crusoe and one positive to Friday. The total effect is:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\frac{\alpha}{1-\gamma} - \frac{\beta}{1-\gamma} =  \frac{\alpha - \beta}{1-\gamma} &amp;lt;0$$&lt;/span&gt;&#xA;because the consumption reduction of Crusoe and the consumption increase of Friday both propagate into the same population with MPC of &lt;span class=&quot;math-container&quot;&gt;$\gamma$&lt;/span&gt;. So the multiplier if this policy would be negative.&lt;/p&gt;&#xA;&lt;p&gt;It is also possible to get a negative multiplier from a deadweight loss of taxation.&lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2015-06-24T14:50:35.463" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6231" PostTypeId="2" ParentId="6226" CreationDate="2015-06-23T15:57:25.013" Score="3" Body="&lt;p&gt;If you're into growth economics the &lt;a href=&quot;http://www.springer.com/de/book/9783642223969&quot; rel=&quot;nofollow&quot;&gt;Nonlinear Dynamics in Equilibrium Models&lt;/a&gt; (Eds. Stachurski, Venditti, Yano) collection might be an interesting read.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hommes' book &lt;a href=&quot;http://www.cambridge.org/us/academic/subjects/economics/microeconomics/behavioral-rationality-and-heterogeneous-expectations-complex-economic-systems?format=HB&quot; rel=&quot;nofollow&quot;&gt;Behavioral Rationality and Heterogeneous Expectations in Complex Economic Systems&lt;/a&gt; seems to be nice fit as well.&lt;/p&gt;&#xA;" OwnerUserId="4266" LastActivityDate="2015-06-23T15:57:25.013" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6233" PostTypeId="2" ParentId="110" CreationDate="2015-06-23T18:01:16.317" Score="1" Body="&lt;p&gt;&lt;a href=&quot;https://drive.google.com/file/d/0BzEnDoIVCepWc3dMSllfTmp3SzQ/edit&quot; rel=&quot;nofollow&quot;&gt;Here&lt;/a&gt; is an introductory set of self-published notes by Tony Cookson from an honors-level undergraduate course.  They're clear in distinguishing causation from mere statistical relationships.&lt;/p&gt;&#xA;" OwnerUserId="4961" LastActivityDate="2015-06-23T18:01:16.317" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6234" PostTypeId="2" ParentId="6226" CreationDate="2015-06-23T18:48:02.380" Score="1" Body="&lt;p&gt;You might be interested in &lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/S1367578809000054&quot; rel=&quot;nofollow&quot;&gt;this&lt;/a&gt; meta-styled approach.&lt;/p&gt;&#xA;" OwnerUserId="4961" LastActivityDate="2015-06-23T18:48:02.380" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6235" PostTypeId="2" ParentId="6195" CreationDate="2015-06-23T18:53:57.040" Score="2" Body="&lt;p&gt;Myerson is pretty well-structured in his math: &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0674341163&quot; rel=&quot;nofollow&quot;&gt;Game Theory&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="4961" LastActivityDate="2015-06-23T18:53:57.040" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6236" PostTypeId="1" CreationDate="2015-06-24T09:26:15.190" Score="6" ViewCount="736" Body="&lt;p&gt;Given a set of structural equations:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Demand Function: $$Q_1 = \alpha_0 + \alpha_1 P_t + \alpha_2 I_t + \alpha_3 R_t + \mu_{1, t}$$&lt;/li&gt;&#xA;&lt;li&gt;Supply Function: $$Q = \beta_0 + \beta_1 P_t + \mu_{2, t}$$&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Where&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;$P$ = price&lt;/li&gt;&#xA;&lt;li&gt;$Q$ = quantity&lt;/li&gt;&#xA;&lt;li&gt;$I$ = income&lt;/li&gt;&#xA;&lt;li&gt;$R$ = wealth&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;How would you proceed with the Hausman test of simultaneity? Suppose you &lt;em&gt;reject the null&lt;/em&gt;, which states there is no simultaneity between the error term and the endogenous variable; how can you proceed to obtain the parameters in the model?&lt;/p&gt;&#xA;" OwnerUserId="5031" LastEditorUserId="108" LastEditDate="2015-06-25T06:29:42.523" LastActivityDate="2015-06-25T15:31:27.357" Title="Hausman Test for Simultaneous Equations" Tags="&lt;econometrics&gt;&lt;structural-estimation&gt;&lt;reduced-form-estimation&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="6237" PostTypeId="2" ParentId="6195" CreationDate="2015-06-24T13:41:23.517" Score="3" Body="&lt;p&gt;For stochastic processes and calc, Dixit's &lt;em&gt;The Art of Smooth Pasting&lt;/em&gt; is written for the econ audience.&lt;/p&gt;&#xA;" OwnerUserId="14" LastActivityDate="2015-06-24T13:41:23.517" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6238" PostTypeId="2" ParentId="4854" CreationDate="2015-06-24T17:49:30.607" Score="2" Body="&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Constant_elasticity_of_substitution&quot; rel=&quot;nofollow&quot;&gt;Constant elasticity of substitution&lt;/a&gt; (CES) Utility functions imply demand functions that are linear in (i.e. conditional on prices they are constant fractions of) income (see &lt;a href=&quot;http://www.gamsworld.eu/mpsge/debreu/ces.pdf&quot; rel=&quot;nofollow&quot;&gt;Rutherford's Lecture Notes on Constant Elasticity Functions&lt;/a&gt;). However, there is empirical evidence for both &lt;a href=&quot;https://en.wikipedia.org/wiki/Superior_good&quot; rel=&quot;nofollow&quot;&gt;superior goods&lt;/a&gt; (demand that increases faster than income) and &lt;a href=&quot;https://en.wikipedia.org/wiki/Inferior_good&quot; rel=&quot;nofollow&quot;&gt;inferior goods&lt;/a&gt; (goods that decrease in income), this does not actually hold for real preferences. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The fact that household budget shares on each consumption good (or even category) are not constant is probably additional evidence against CES. In principle it is explainable if different consumers face different costs for goods but shouldn't explain why some people choose to do entirely without certain categories of consumption (no TV rather than an inexpensive one). I say probably because: &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;If you define the category wide enough (say two, durable and non-durable consumption), everyone does likely does consume something in every category and maybe in close to fixed proportions. &lt;/li&gt;&#xA;&lt;li&gt;For certain important forms of consumption like cars and house, adjustment costs and indivisibility may make households face very different prices.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;But, as @regressforward suggests, it may still be an acceptable approximation. &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-06-25T13:26:01.733" LastActivityDate="2015-06-25T13:26:01.733" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6239" PostTypeId="1" AcceptedAnswerId="6242" CreationDate="2015-06-24T21:08:11.680" Score="0" ViewCount="257" Body="&lt;p&gt;Why Profit maximization implies that rate of return to capital equals the net marginal product of capital. Prove and give intuition why both are equal.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I also wonder that why it doesn't implies rate of return to capital equals the net marginal product of labor?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The highlight part and equation (6.32) is my concern&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Please zoom in the web browser to view the image more clearly(press ctrl + turn the scroll wheel of the mouse simultaneously).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/giKEy.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/pqBwG.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/cQ7uL.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;" OwnerUserId="95" LastEditorUserId="95" LastEditDate="2015-06-25T00:23:55.463" LastActivityDate="2015-06-25T09:36:55.017" Title="Why does profit maximization implies that both of the following are equal?" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;" AnswerCount="1" CommentCount="8" ClosedDate="2015-06-25T22:50:30.420" ContentLicense="CC BY-SA 3.0" />
  <row Id="6240" PostTypeId="1" CreationDate="2015-06-24T22:10:34.663" Score="3" ViewCount="70" Body="&lt;p&gt;I am interested in understanding the algorithm/methodology of the WGI  (the most cited and popular corruption/governance) &lt;a href=&quot;http://info.worldbank.org/governance/wgi/index.aspx#doc&quot; rel=&quot;nofollow&quot;&gt;World Bank Methodology&lt;/a&gt;. They try to publish as detailed as possible to the public but I struggle to figure out how they manage to solve the maximisation at page 97-99 here &lt;a href=&quot;http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1148386&quot; rel=&quot;nofollow&quot; title=&quot;Governance Matters VII: Aggregate and Individual Governance Indicators, 1996-2007&quot;&gt;Governance Matters VII: Aggregate and Individual Governance Indicators, 1996-2007&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Basically, they end up with a maximum-likehood estimation with three unknown parameters and state that it is a standard estimation. I am not an expert in Stata/Mata/Mathlab but honestly I can't see the trivial point. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can anyone help and refer me to some statistical packages?&lt;/p&gt;&#xA;" OwnerUserId="4882" LastEditorUserId="84" LastEditDate="2015-06-25T02:01:56.713" LastActivityDate="2015-06-25T02:01:56.713" Title="What is the statistical program used in the Worldwide Governance Indicators?" Tags="&lt;econometrics&gt;&lt;software&gt;&lt;stata&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6241" PostTypeId="1" CreationDate="2015-06-24T22:40:40.740" Score="3" ViewCount="79" Body="&lt;p&gt;Is there a good survey that covers the theory and empirics of loyalty programs? I am thinking of programs like Amazon Prime, Starbucks, and airlines miles/points. What are the mechanisms? Are they effective in a causal sense?&lt;/p&gt;&#xA;" OwnerUserId="159" LastActivityDate="2015-06-25T10:45:11.920" Title="A survey on the economics of loyalty programs" Tags="&lt;reference-request&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6242" PostTypeId="2" ParentId="6239" CreationDate="2015-06-25T00:55:51.510" Score="6" Body="&lt;p&gt;The production side is modeled as follows:&#xA;There are $m=1,...,j$ identical firms (the number of firms is not necessarily equal to the number of workers of course), that operate in a perfectly competitive environment. This means that firms are price takers, both in the goods market and in the production input market, i.e. they take prices as given when they seek to attain their objective. It also means that markets &quot;clear&quot;: in particular, prices adjust without frictions/delay so that all capital and all labor are employed. The firms solve a static (not intertemporal) problem: maximize profits period-by-period separately. Labor is provided totally inelastically, no labor-leisure choice here from the part of workers. Moreover each firm has a constant-returns to scale production function in capital and labor, i.e. the function is homogeneous of degree one.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Omitting the time subscript, the typical firm's production function is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$F(K_j, L_j),\;\; j=1,...,m$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and the objective of the firms is to maximize profits which are defined as the surplus of production over payments to labor $wL_j$, net payments to rented capital $rK_j$, and depreciation $\delta K_j$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\max_{K_j, L_j} \pi = F(K_j, L_j)-wL_j-rK_j-\delta K_j$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that these are &quot;real&quot; magnitudes in the &lt;em&gt;economics&lt;/em&gt; sense of the word, i.e. that we have divided throughout by the price of output (we do not show it usually, we just say, &quot;expressed in real terms&quot;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Denote $\kappa_j \equiv K_j/L_j$, the capital-labor ratio &lt;strong&gt;at firm level&lt;/strong&gt;. Due to the homogeneity of degree one we can re-write the maximization problem of the firm as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\max_{\kappa_j} \pi = L_j\cdot \big[F(\kappa_j, 1)-w-r\kappa_j-\delta \kappa_j\big]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that $L_j$ has become a multiplicative factor, so we can maximize only the term in brackets, and so only with respect to the capital-labor ratio. We also set $F(\kappa_j, 1) \equiv f(\kappa_j)$ to arrive at&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\max_{\kappa_j} \pi = \max_{\kappa_j} \big[f(\kappa_j)-w-r\kappa_j-\delta \kappa_j\big]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first order condition for a maximum is for the first derivative to be set equal to zero so&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$f'(\kappa_j) - r - \delta = 0 \implies f'(\kappa_j) - \delta = r$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is not yet the funky equation $(6.32)$,although it looks a lot like it, because the latter is expressed in terms of &quot;per capita&quot; capital $k\equiv K/N_1$,  i.e. at the level of individuals/consumers/workers, not at firm level.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How do we arrive at $(6.32)$? Well, since we have assumed that all firms are identical, that labor is provided inellastically, and also that the markets for production inputs clear, we have that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$mK_j = K \implies K_j = K/m,\;\;\; mL_j = N_1 \implies L_j = N_1/m $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\kappa_j = \frac {K_j}{L_j} = \frac {K/m}{N_1/m} = K/N_1 \equiv k$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and now we have obtained $(6.32)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note how all the assumptions made have been used in order to arrive at this result.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-06-25T09:36:55.017" LastActivityDate="2015-06-25T09:36:55.017" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6243" PostTypeId="2" ParentId="6240" CreationDate="2015-06-25T01:34:01.987" Score="1" Body="&lt;p&gt;This isn't a matter of statistical packages as much as it is a matter of how to write a program to maximize/minimize a function. You can do this readily in Stata, Matlab, R, Python, etc. No matter what language you use, though, the process is basically the same. You write a function that specifies the functional form your trying to, say, minimize, set the parameters you're optimizing over as the function arguments, then call some built-in minimization routine on that function. &lt;a href=&quot;http://www.steenbergen.ch/uploads/3/1/9/5/3195968/statamle.pdf&quot; rel=&quot;nofollow&quot;&gt;Here&lt;/a&gt; is a primer for doing this in Stata and &lt;a href=&quot;http://polisci2.ucsd.edu/dhughes/teaching/MLE_in_R.pdf&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt; is an introduction for R. Matlab and Python will both be very similar to R, with the primary exception being that you will have to declare the function in a different .m file for Matlab.&lt;/p&gt;&#xA;" OwnerUserId="238" LastActivityDate="2015-06-25T01:34:01.987" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6244" PostTypeId="2" ParentId="6241" CreationDate="2015-06-25T10:45:11.920" Score="1" Body="&lt;p&gt;A relevant literature is that on &lt;strong&gt;the economics of switching costs&lt;/strong&gt;. There are many papers in this literature and a number of surveys, but I would recommend &lt;a href=&quot;http://www.nuffield.ox.ac.uk/users/klemperer/competition.pdf&quot; rel=&quot;nofollow&quot;&gt;this paper&lt;/a&gt; by Klemperer for a concise combination of survey and theory. A more comprehensive survey can be found in &lt;a href=&quot;http://www.nuff.ox.ac.uk/users/klemperer/Farrell_klempererWP.pdf&quot; rel=&quot;nofollow&quot;&gt;this handbook chapter&lt;/a&gt; by Farrell and Klemperer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The basic idea is that loyalty programmes (among other things) create a cost for consumers who contemplate switching to another supplier. This literature studies how such costs influence strategic behaviour and competition between firms.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2015-06-25T10:45:11.920" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6245" PostTypeId="1" CreationDate="2015-06-25T13:53:01.167" Score="1" ViewCount="51" Body="&lt;p&gt;I would like know the correlation between depreciation rate and variance of output in RBC model.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As you know, the basic motion of capital is as follows.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$K_{t+1} = (1-\delta) K_t + I_t$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If $\delta$ increases, what could happen in the variance of output?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My intuition is this; if $\delta = 1$, explanatory variable is only $I_t$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, the variance of output might increase.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, I do not know how exactly this is going.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Anyone has specifically economic explanation of this?&lt;/p&gt;&#xA;" OwnerUserId="5033" LastEditorUserId="43" LastEditDate="2015-07-18T15:28:40.767" LastActivityDate="2015-07-18T15:28:40.767" Title="The correlation between depreciation rate and variance of output in RBC model" Tags="&lt;real-business-cycles&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6246" PostTypeId="1" CreationDate="2015-06-25T14:02:04.253" Score="2" ViewCount="100" Body="&lt;p&gt;&lt;a href=&quot;http://economixcomix.com/home/tpp/&quot; rel=&quot;nofollow&quot;&gt;http://economixcomix.com/home/tpp/&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Discussion of the cartoon spawned a &lt;a href=&quot;http://www.reddit.com/r/explainlikeimfive/comments/3az0fa/eli5_what_does_the_tpp_transpacific_partnership/csh9neu&quot; rel=&quot;nofollow&quot;&gt;very argumentative thread&lt;/a&gt; on reddit, with as far as I can tell no hint of a consensus.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm specifically interested in whether the cartoon has any specific factual errors or economic misconceptions, and if so whether those mistakes are serious or not.&lt;/p&gt;&#xA;" OwnerUserId="5034" LastEditorUserId="5034" LastEditDate="2015-06-25T14:09:39.610" LastActivityDate="2015-06-27T13:45:08.050" Title="Does this cartoon about the transpacific partnership contain errors?" Tags="&lt;free-trade&gt;" AnswerCount="1" CommentCount="7" ClosedDate="2015-06-29T00:55:50.533" ContentLicense="CC BY-SA 3.0" />
  <row Id="6247" PostTypeId="1" CreationDate="2015-06-25T15:17:09.240" Score="2" ViewCount="96" Body="&lt;p&gt;It would seem to me that the two keys to success for an NFL franchise are player acquisition and player development. That is, you have to draft well and then you have to successfully develop the players that you draft. You often hear commentators and analysts talking about franchises being good or bad at either or both of those. Of course, it's hard to separate the two. Were good NFL players destined to be good on any team, or is their development within the teams that determines their ultimate success? Obviously the answer is both, to some extent, but have their been studies that have tried to disentangle the two and compare their relative importances? Has it been done for other sports? Obviously it could be challenging to get the econometrics right, but it seems possible.&lt;/p&gt;&#xA;" OwnerUserId="48" LastActivityDate="2015-06-28T01:00:51.717" Title="Nature or nurture in the NFL" Tags="&lt;econometrics&gt;&lt;sports&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="6248" PostTypeId="2" ParentId="6236" CreationDate="2015-06-25T15:31:27.357" Score="3" Body="&lt;p&gt;Generally, price is endogenous in this set of simultaneous equations.  One strategy we can use to overcome the bias is to find a valid instrument for price—call it $Z$.  We’d need something that satisfies $Cov(P, Z) \neq 0$ and $Cov(Z, \mu_1) = 0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The trouble with simultaneous equations is that upon observing some $(P, Q)$ pair, all we know is that it lies at the intersection of supply and demand. As we get more pairs (more data), we’re not tracing out supply or demand curves—we’re just getting a bunch of equilibrium points and aren’t&#xA;certain whether it’s supply or demand (or both) that moved!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To estimate the demand curve, what we'd like to do conceptually is to hold it fixed while we shift the supply curve around.  In theory, these new equilibrium points would trace out the demand curve itself.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Returning to the instrument, the statement $Cov(P, Z) \neq 0$ means we'd like to find some variable $Z$ that shifts the supply curve.  Maybe this is something like subsidies to tech firms or weather in agricultural regions.  Then you'd hope $Cov(Z, \mu_1) = 0$ so $Z$ doesn't shift demand around, too (then we'd be back where we started).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the instrument were to be valid, you could form a consistent estimator.&lt;/p&gt;&#xA;" OwnerUserId="4961" LastActivityDate="2015-06-25T15:31:27.357" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6249" PostTypeId="2" ParentId="5814" CreationDate="2015-06-25T16:18:40.263" Score="2" Body="&lt;p&gt;In terms of attribution. Recall that Net Domestic Product is the total cost of goods produced minus capital depreciation. In terms of why farmers income is lower, than the NDP, you must subtract out all the costs the farmers have to pay to create that good. So fertalizer cost, reinvestment, wages, interest costs, supplies, insurance etc. etc. all need to be subtracted. Finally, the remainder is split between farmers (in terms of income) and shareholder of corporations that operate in agriculture who recieve a return on thier investment (retained earnings for corporation or dividend payments). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, your farmer income dataset is not an accurate description of the rewards of thier labours. Many farmers are small business owner so, in addition to thier income, they are building equity by making the land more productive and creating a business.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words, you are almost looking at the gross margin of a farming business. The NDP is the Revenues (minus capital costs) to get to the farmers net income you have a a substnatial number of other costs to subtract (taxes, amortization, operating expense, interest expense etc.). Finally, the farmers net income is not nescairly the same as the FARM/ FARM BUSINESS' net income so the actual farmers income will be lower still.&lt;/p&gt;&#xA;" OwnerUserId="4598" LastEditorUserId="4598" LastEditDate="2015-06-25T16:24:27.143" LastActivityDate="2015-06-25T16:24:27.143" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6250" PostTypeId="1" CreationDate="2015-06-26T09:13:45.590" Score="7" ViewCount="526" Body="&lt;p&gt;How does US (its economy, banks, industry, &quot;finance industry&quot;) profit from dollar being the &quot;standard currency&quot;? I am not seeking &quot;ideological&quot; explanations, but explanations of the mechanisms involved, of the kind of &quot;how things work&quot;, better backed by actual numbers. Could one recommend some &lt;b&gt;honest&lt;/b&gt;, preferably not ideologically coloured, accessible reference which discusses such mechanisms?&lt;/p&gt;&#xA;" OwnerUserId="4025" LastEditorUserId="1601" LastEditDate="2015-06-26T11:32:01.680" LastActivityDate="2015-06-26T20:30:46.480" Title="How does US (its economy, banks, industry) profit from dollar being the &quot;standard currency&quot;?" Tags="&lt;reference-request&gt;&lt;currency&gt;&lt;exchange-rates&gt;&lt;international-trade&gt;&lt;usa&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6251" PostTypeId="1" CreationDate="2015-06-26T12:12:57.193" Score="2" ViewCount="20228" Body="&lt;p&gt;Using the &lt;strong&gt;Microeconomic Theory Basic Principles and Extensions, Nicholson, W. and Snyder, C.&lt;/strong&gt;, I've reached to the point where Monopoly and Imperfect Competition is discussed (Chapter 14 and 15 to be more specific).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's kind of easy to deduce that Marginal Cost equals Marginal Revenue at the point of profit maximization. In the imperfect competition in the long-run (or in the perfect competition) no one can surpass the point where price equals marginal cost equals average cost, because above this point firms will have negative economic profit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The main question is why (and not only the graphic explanation please) the firm will choose AC (average cost) = MC (marginal cost)? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Graphically, it looks like the slope of the Demand Curve makes this choice the best one, but why in imperfect competition is this choice not pursued by the firm instead of the Supply Curve?&lt;/p&gt;&#xA;" OwnerUserId="4949" LastEditorUserId="10826" LastEditDate="2016-10-24T07:13:30.660" LastActivityDate="2016-10-28T03:14:18.730" Title="Why is AC = MC in the monopoly?" Tags="&lt;microeconomics&gt;&lt;supply-and-demand&gt;&lt;monopoly&gt;&lt;profit-maximization&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6252" PostTypeId="2" ParentId="6250" CreationDate="2015-06-26T12:25:50.933" Score="9" Body="&lt;p&gt;Some major benefits include:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Seigniorage&quot; rel=&quot;nofollow&quot;&gt;Seigniorage&lt;/a&gt; on currency acts as a source of government revenue, allowing for lower taxes and higher spending. One paper (&lt;a href=&quot;https://research.stlouisfed.org/publications/review/92/03/Seigniorage_Mar_Apr1992.pdf&quot; rel=&quot;nofollow&quot;&gt;Neumann (1992)&lt;/a&gt;) puts this at about \$15 billion a year. &lt;/li&gt;&#xA;&lt;li&gt;Lower borrowing costs on public and private debts due to greater demand for financial assets denominated in the currency, particularly credit risk-free assets. A McKinsey report (&lt;a href=&quot;http://www.mckinsey.com/insights/economic_studies/an_exorbitant_privilege&quot; rel=&quot;nofollow&quot;&gt;An exorbitant privilege? Implications of reserve currencies for competitiveness (2009)&lt;/a&gt;) estimates that this lowered the &quot;...US borrowing rate by 50 to 60 basis points in recent years, generating a financial benefit of $90 billion&quot;.&lt;/li&gt;&#xA;&lt;li&gt;Because households consume many non-tradable goods and services and earn income denominated in local currency, households naturally have hedges on the fluctuation of local currency. Increasing the scope of dollar denominated goods and assets increases the strength of this hedge, reducing currency risk in consumption, trade and finance. For example, Euro-ization is thought to have increased GDP on in the Eurozone by 0.4 percent per year (about 40 billion Euros) from the reduction of transaction and hedging costs (&lt;a href=&quot;http://ec.europa.eu/economy_finance/publications/publication7454_en.pdf&quot; rel=&quot;nofollow&quot;&gt;Emerson, Gros, Italianer, Pisani-Ferry, and Reichenbach(1992)&lt;/a&gt;). &lt;/li&gt;&#xA;&lt;li&gt;More liquid capital markets, because there are many more buyers and sellers of dollar denominated assets.&lt;/li&gt;&#xA;&lt;li&gt;Deeper capital markets, because liquid and cheap capital encourages the raising of capital&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;You many also be interested in the book Exorbitant Privilege (&lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0199931097&quot; rel=&quot;nofollow&quot;&gt;Eichengreen (2012)&lt;/a&gt;) which includes an extensive discussion of this topic.        &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-06-26T20:30:46.480" LastActivityDate="2015-06-26T20:30:46.480" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6254" PostTypeId="1" AcceptedAnswerId="8283" CreationDate="2015-06-26T14:53:13.230" Score="8" ViewCount="521" Body="&lt;p&gt;I am looking for economics papers which use concepts, techniques and theorems from geometry. I am mainly interested in Euclidean geometry, the kind of material that is taught on high-schools (e.g. proving theorems about triangles, squares, circles, etc.). But, other kinds of geometry are also interesting.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I looked at some papers about land economics, thinking that it geometry can be useful there (after all, the word &quot;geometry&quot; means &quot;measurement of land&quot;). But, the papers I found used mostly advanced measure theory and topology. I am looking for more basic geometric methods. &lt;/p&gt;&#xA;" OwnerUserId="385" LastActivityDate="2017-09-20T14:31:15.057" Title="Economics and Euclidean geometry" Tags="&lt;reference-request&gt;" AnswerCount="6" CommentCount="3" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="6255" PostTypeId="2" ParentId="6254" CreationDate="2015-06-26T15:28:42.130" Score="1" Body="&lt;p&gt;Here are two problems (not papers, though the results are probably used in many papers)&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;In the case of a three asset &lt;a href=&quot;https://en.wikipedia.org/wiki/Modern_portfolio_theory&quot; rel=&quot;nofollow&quot;&gt;Markowitz portfolio optimization problem&lt;/a&gt; the feasible set of portfolios in $\mu$ / $\sigma$ space can be shown to be an ellipse. &lt;/li&gt;&#xA;&lt;li&gt;When a &lt;a href=&quot;http://www.economics.utoronto.ca/jfloyd/modules/eltr.html&quot; rel=&quot;nofollow&quot;&gt;demand curve is a straight line the marginal revenue curve bisects the demand curve&lt;/a&gt;. &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-06-26T17:43:57.910" LastActivityDate="2015-06-26T17:43:57.910" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6256" PostTypeId="2" ParentId="6254" CreationDate="2015-06-26T20:23:27.773" Score="8" Body="&lt;p&gt;&lt;strong&gt;UPDATE 19-9-2017&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I just received word from the author that the book is now freely downloadable &lt;strong&gt;in English&lt;/strong&gt;, &lt;a href=&quot;https://www.centralbank.cy/en/publications/books/euclidean-economics-a-mathematical-method-for-construction-and-application-of-economics-models&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;strong&gt;at this link&lt;/strong&gt;&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Got it. I remember browsing the pages of this book. But it was in Greek, and it does not appear to have been published also in English:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;a href=&quot;http://www.centralbank.gov.cy/nqcontent.cfm?a_id=12483&amp;amp;lang=en&quot; rel=&quot;nofollow noreferrer&quot;&gt;Euclidean Economics: A Mathematical Method for Construction and Application of Economics Models&lt;/a&gt;&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;&lt;em&gt;The book establishes that economics can be studied and utilised on&#xA;  the basis of a minimum of fundamental hypotheses and the general laws&#xA;  of mathematics. Starting from 12 major propositions, it proves that&#xA;  closed exchange networks are replicated by systems of 2n first-order&#xA;  non-homogeneous linear differential equations, which simulate&#xA;  household, business, bank and government receipts and payments. Such&#xA;  networks are defined in the (R2n, t) vector space, where n is the&#xA;  number of sectors or markets and countries or currencies, while t is&#xA;  the elapsed time. Uniqueness, stability and controllability of the&#xA;  steady state as well as takings and outgoings are functions of&#xA;  behaviour coefficients and policy parameters. Annual sales of&#xA;  services, products and securities divided by average salaries, prices&#xA;  and values yield the man hours, output items and liquidity units&#xA;  traded. Demanded quantities do not coincide with available quantities.&#xA;  Potential inflation or deflation is proportional to the weighted&#xA;  deficit or surplus of market goods. Digital animation of the&#xA;  endogenous variables is possible on the basis of historical, projected&#xA;  or hypothetical data about the exogenous variables.&lt;/em&gt;&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Author: &lt;strong&gt;Sophocles Michaelides&lt;/strong&gt;&lt;br&gt;&#xA;Language: Greek&lt;br&gt;&#xA;Publisher: Mesogios Publications – Ellinika Grammata&lt;br&gt;&#xA;ISBN: 9963-9176-0-7&lt;br&gt;&#xA;Year: 2006&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The summary does not state it clearly, but the &quot;12 major propositions&quot; are Euclidean, as I recall.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2017-09-19T10:33:27.760" LastActivityDate="2017-09-19T10:33:27.760" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6257" PostTypeId="2" ParentId="6254" CreationDate="2015-06-26T23:51:38.630" Score="2" Body="&lt;p&gt;Harry Johnson frequently applied euclidean geometry to trade theory and growth theory.  Have a look at his many papers and books.   For a more or less randomly chosen starting point, try his &quot;Trade and Growth:  A Geometrical Exposition&quot;.  &lt;/p&gt;&#xA;" OwnerUserId="250" LastActivityDate="2015-06-26T23:51:38.630" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6258" PostTypeId="2" ParentId="6219" CreationDate="2015-06-27T00:03:58.000" Score="4" Body="&lt;p&gt;Suppose I define &quot;net appliances&quot; as dishwashers plus appliances lent to others minus appliances borrowed from others.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose I build a refrigerator and lend it to you.  Then your &quot;net appliances&quot; have been reduced by one, my &quot;net appliances&quot; have increased by one, and the total of the world's &quot;net appliances&quot; has not changed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand, the world does now have one more refrigerator, which suggests that &quot;net appliances&quot; was never a very interesting notion in the first place.  &lt;/p&gt;&#xA;" OwnerUserId="250" LastActivityDate="2015-06-27T00:03:58.000" CommentCount="10" ContentLicense="CC BY-SA 3.0" />
  <row Id="6260" PostTypeId="1" CreationDate="2015-06-27T09:45:28.140" Score="4" ViewCount="299" Body="&lt;p&gt;I'm doing my Msc dissertation on production networks and business cycles and I want to learn graph theory. I need to be able to model the evolution of the network and identify equilibrium graphs. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Could someone recommend a textbook for me?&lt;/p&gt;&#xA;" OwnerUserId="5042" LastEditorUserId="108" LastEditDate="2015-08-09T13:27:23.937" LastActivityDate="2015-08-10T20:30:53.367" Title="What graph theory textbook should I use?" Tags="&lt;reference-request&gt;&lt;mathematical-economics&gt;&lt;networks&gt;" AnswerCount="3" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6261" PostTypeId="2" ParentId="424" CreationDate="2015-06-27T09:52:00.807" Score="0" Body="&lt;p&gt;There was recently a seminar at Cambridge university on 'Network Econometrics'. The list of speakers and their papers should still be on the website. If they aren't then I can email you a scanned copy. &lt;/p&gt;&#xA;" OwnerUserId="5042" LastEditorUserId="5042" LastEditDate="2015-06-27T10:31:23.807" LastActivityDate="2015-06-27T10:31:23.807" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6262" PostTypeId="2" ParentId="6254" CreationDate="2015-06-27T12:49:43.953" Score="1" Body="&lt;p&gt;One random example is this paper which uses similar triangles in the analysis of tax burdens. I think at least that bit of the paper (section 2) could be used in the high school context: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hines, Hlinko, &amp;amp; Lubke (1995). &quot;From each according to his surplus: Equi-proportionate sharing of commodity tax burdens&quot; (&lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/004727279401489B&quot; rel=&quot;nofollow&quot;&gt;ScienceDirect link, gated&lt;/a&gt;)&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2015-06-27T12:49:43.953" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6263" PostTypeId="2" ParentId="6260" CreationDate="2015-06-27T12:51:54.813" Score="3" Body="&lt;p&gt;&lt;a href=&quot;http://press.princeton.edu/titles/8767.html&quot; rel=&quot;nofollow&quot;&gt;Social and Economic Networks&lt;/a&gt;, by Matthew O. Jackson, and its associated MOOC at &lt;a href=&quot;https://www.coursera.org/course/networksonline&quot; rel=&quot;nofollow&quot;&gt;https://www.coursera.org/course/networksonline&lt;/a&gt; (videos from the 2014 session available, new live session starting September 2015).&lt;/p&gt;&#xA;" OwnerUserId="38" LastActivityDate="2015-06-27T12:51:54.813" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6264" PostTypeId="2" ParentId="6246" CreationDate="2015-06-27T13:45:08.050" Score="2" Body="&lt;p&gt;&lt;strong&gt;Small mistake #1: What capital is&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The author identifies &quot;bonds, real estate deeds, stock certificates&quot; with &quot;capital&quot; (p. 5). But in mainstream economics, capital refers not to these, but to durable goods that can be used to produce other goods and services. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It may be argued that this is a mere quibble, since the author is communicating to a mass audience and in everyday parlance, that is what people think of as capital. Unfortunately, &quot;capital&quot; recurs throughout the comic and is, indeed, a key component of his arguments against free trade. He frequently conflates &quot;capital&quot; in the fuzzy, ill-defined layman sense and &quot;capital&quot; in the more precisely defined sense that is used in academic economics.   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;On pp. 5-6, capital is depicted as pieces of paper (&quot;bonds, real estate deeds, stock certificates&quot;) that China owns. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/66GZm.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then on p. 12, capital is depicted as businesses that are shipped off on boats from Iceland to Guatemala. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/QZZ0O.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then on p. 13, &quot;stocks, bonds, and real estate&quot; (which he defined earlier to be capital) are given to some Chinese-looking man on the left, who then gives back in turn $ \$ $ to the grouchy, jowly man in the middle, who then distributes this $ \$ $ either as savings or investment. Investment is depicted as some excavators constructing some buildings. The text below then claims, &quot;People who 'buy capital' are &lt;em&gt;investing&lt;/em&gt; their money.&quot; This is all terribly wrong and confusing: So what exactly is capital? Is it something that corresponds to the $ \$ $ symbol? Is it &quot;stocks, bonds, and real estate&quot;? Is it excavators or buildings? What is its relation to savings and investment? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As already said above, capital refers to durable goods used to produce other goods and services. Investment in turn refers simply to the purchase of capital. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/3ENgu.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On p. 21, capital is depicted instead as boxes being shipped off on a boat by some corporate fat-cat displaying his middle finger. It is unclear what is in the boxes (pieces of paper? excavators? office buildings?).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/IrsBw.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;P.S. I am not an expert on trade. This small mistake is merely one I managed to spot. In my opinion there are many more mistakes. But this post is long enough, so I hope someone who is an expert on trade will find it her duty to explain the other mistakes, especially since this comic has for some reason received undeserved attention.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2015-06-27T13:45:08.050" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6265" PostTypeId="1" AcceptedAnswerId="6268" CreationDate="2015-06-27T14:13:13.870" Score="1" ViewCount="80" Body="&lt;p&gt;Discussing chapter 18 on Microeconomic Theory Basic Principles and Extensions - Nicholson and Snyder book - regarding Asymmetric information a student raise an interesting point of view regarding the available information on credit utilization, defaults and so on. According to him, in Brazil, the information from each customer (e.g.: if he has already defaulted anytime during his life) is not available and this is also because banks do not want. He mentioned that banks would have to provide better prices and fees for customers with a good historical behaviour on the use of credit lines and bank products. However, I was thinking and if we consider the capital ratio of a bank, provisioning and other charges banks has to deal with due to the lack of information of their clients, there would be a trade off. And banks wouldn't have great benefits from this lack of information on customers behavior. Additionally, banks could charge a reasonable interest and fees from all customers even if they know the probability of default of the customer is low. &#xA;How does this work in other countries? Is the student opinion reasonable?&lt;/p&gt;&#xA;" OwnerUserId="4949" LastActivityDate="2015-06-27T23:05:14.170" Title="Is the lack of information on customer behaviour good for banks?" Tags="&lt;microeconomics&gt;&lt;banking&gt;&lt;asymmetric-information&gt;&lt;capital-structure&gt;&lt;consumer-credit&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6266" PostTypeId="2" ParentId="6219" CreationDate="2015-06-27T15:18:59.677" Score="3" Body="&lt;p&gt;No, it's not correct to say that extra cash money comes into the world as interest paid on the reserve accounts of commercial banks.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In today's banking world, physical cash money is printed on demand. That is to say, the commercial banks estimate how much money they need to satisfy demand from ATM's and customer cash withdrawals and buy that amount from the central bank. In turn the central bank buys the cash from the treasury. The money they use to buy it with, is the electronic liability deposit account, that sits on the other side of the double entry book keeping used by banks. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is of course possible for politicians to intervene in this process, and then this happens:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.npr.org/2011/06/28/137394348/-1-billion-that-nobody-wants&quot; rel=&quot;nofollow&quot;&gt;US Physical Coin surplus&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As to the equation: net money = cash + money lent to others - money borrowed from others.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is incorrect as written, since as usual in economic discussions on money, we have the confusion introduced by the banking system as to what exactly is money? Money lent or received from others can be physical cash, but it can also be money created as a liability deposit account as a result of a bank loan. Because a loan itself is just a contractual agreement to repay money over time, it's also not strictly correct to say that money lent to other must equal money borrowed from others, since there's no notion of time in that statement, or repayment over time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we take the larger definition of money, i.e. the total sum of cash and bank liability deposits, then this is more or less continuously growing as banks generally lend at a faster rate than loans are repaid. (Check your central bank's web site to see what's currently happening to your countries money supply, there are considerable variations in this.) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;While it's true in a banking system where banks are only allowed to make customer loans that loans + cash == liability deposits, most banking systems today also allow banks to sell loans using securitzed lending, or covered loans. This actually allows banks to originate more loans than money, and as a result at the same time as we have a growth in the general money supply - due to banks generally lending at a faster rate than loan repayment occurs, there will be slightly faster increase in the total amount of bank originated debt.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So in some sense of net money that includes all the money supply, i.e. bank deposits and cash, it is debt that is growing faster than money, and not the other way around. &lt;/p&gt;&#xA;" OwnerUserId="84" LastEditorUserId="84" LastEditDate="2015-06-27T18:53:01.870" LastActivityDate="2015-06-27T18:53:01.870" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="6267" PostTypeId="2" ParentId="424" CreationDate="2015-06-27T16:00:22.090" Score="0" Body="&lt;p&gt;A couple of recent empirical works on networks:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Graham, Bryan S. “Methods of Identification in Social Networks.” NBER Working Paper. National Bureau of Economic Research, Inc, 2014. &lt;a href=&quot;https://ideas.repec.org/p/nbr/nberwo/20414.html&quot; rel=&quot;nofollow&quot;&gt;https://ideas.repec.org/p/nbr/nberwo/20414.html&lt;/a&gt;.&lt;/li&gt;&#xA;&lt;li&gt;Banerjee, Abhijit, Arun G. Chandrasekhar, Esther Duflo, and Matthew O. Jackson. “Gossip: Identifying Central Individuals in a Social Network.” NBER Working Paper. National Bureau of Economic Research, Inc, 2014. &lt;a href=&quot;https://ideas.repec.org/p/nbr/nberwo/20422.html&quot; rel=&quot;nofollow&quot;&gt;https://ideas.repec.org/p/nbr/nberwo/20422.html&lt;/a&gt;.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The first paper is a very good overview of both models and real data.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There're many empirical papers, in fact. Even the US special services made research on networks. In one case, they tried to identify key officials in the Iran government. In another, they used network structure for dealing with insurgents in Afghanistan.&lt;/p&gt;&#xA;" OwnerUserId="240" LastActivityDate="2015-06-27T16:00:22.090" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6268" PostTypeId="2" ParentId="6265" CreationDate="2015-06-27T17:51:26.503" Score="1" Body="&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Basel_II&quot; rel=&quot;nofollow&quot;&gt;Basel II&lt;/a&gt; opened the possibility towards &quot;your &lt;em&gt;individual&lt;/em&gt; interest rate&quot; by allowing (and encouraging) banks to use more advanced methods of estimating Credit Risk, individualizing even, customer-per-customer, for example using &lt;a href=&quot;https://en.wikipedia.org/wiki/Advanced_IRB&quot; rel=&quot;nofollow&quot;&gt;Advanced-Internal ratings-based approach&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This means that the banks &lt;em&gt;can&lt;/em&gt; lower interest rates towards clients that score better according to these presumably more sophisticated methods of credit risk assessment. They are not &lt;em&gt;obliged&lt;/em&gt; to do so (to the degree that interest rates are determined by the interaction of market participants and not decided by the state). On the other hand, by making credit risk assessment more accurate, banks can select the customers with good credit ratings because this, in the end, lowers their overall credit risk exposure and ultimately, lowers also the &lt;em&gt;obligatory&lt;/em&gt; capital that they must hold.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So indeed, individual credit rating and individual interest rates may increase the competition among firms and bring &lt;em&gt;contractual&lt;/em&gt; interest rates down, reducing the banks' &lt;em&gt;nominal&lt;/em&gt; profit rate -while it may keep intact the &lt;em&gt;actual&lt;/em&gt; profit rate, since credit risk (and so, statistical losses) will also go down.&lt;br&gt;&#xA;Moreover this may lessen the burden of capital reserves. In some cases (and I would say, in the current situation), banks may even care more about the latter than the former.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-06-27T23:05:14.170" LastActivityDate="2015-06-27T23:05:14.170" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6269" PostTypeId="1" AcceptedAnswerId="6284" CreationDate="2015-06-27T19:54:33.743" Score="3" ViewCount="9099" Body="&lt;p&gt;I have read something about the short and long run aggregate supplies, but I don't know what the &lt;strong&gt;main&lt;/strong&gt; difference is about these two models. Does someone know the difference(s) between these two models?&lt;/p&gt;&#xA;" OwnerUserId="5047" LastEditorUserId="1601" LastEditDate="2015-06-28T07:27:20.360" LastActivityDate="2015-06-28T21:37:56.583" Title="What is the difference between the Classical and Keynesian models?" Tags="&lt;macroeconomics&gt;&lt;keynesian-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6270" PostTypeId="1" CreationDate="2015-06-27T23:08:36.947" Score="11" ViewCount="2674" Body="&lt;p&gt;I am looking for a dataset to show (to a group of engineers) how the instrumental variables technique is used in econometric practice. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I could always make up my own data, but I think it might be more interesting to everyone using real (not to complicated) data to replicate an actual study.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;ps. Forgive me if this is off-topic for this site. &lt;/p&gt;&#xA;" OwnerUserId="4193" LastEditorUserId="4193" LastEditDate="2015-06-28T03:58:48.257" LastActivityDate="2016-02-12T14:33:37.900" Title="Open access datasets for teaching IV regression" Tags="&lt;econometrics&gt;" AnswerCount="3" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6273" PostTypeId="1" AcceptedAnswerId="6282" CreationDate="2015-06-28T09:58:08.160" Score="12" ViewCount="754" Body="&lt;p&gt;A simple linear regression only shows correlation between two variables. To establish causation, two commonly taught methods are IV regression and natural experiments. What are the other methods people use to establish causation?&lt;/p&gt;&#xA;" OwnerUserId="41" LastEditorUserId="43" LastEditDate="2015-06-28T10:16:54.353" LastActivityDate="2015-06-29T19:57:15.027" Title="What are the empirical techniques to show causation?" Tags="&lt;econometrics&gt;&lt;identification&gt;" AnswerCount="4" CommentCount="1" FavoriteCount="12" ContentLicense="CC BY-SA 3.0" />
  <row Id="6274" PostTypeId="5" CreationDate="2015-06-28T10:18:11.637" Score="0" Body="" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2015-06-28T10:18:11.637" LastActivityDate="2015-06-28T10:18:11.637" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6275" PostTypeId="4" CreationDate="2015-06-28T10:18:11.637" Score="0" Body="Identification is the challenge of identifying the targeted channel or mechanism. Mostly, this is about disentangling correlation and causation." OwnerUserId="43" LastEditorUserId="43" LastEditDate="2015-06-28T10:18:11.637" LastActivityDate="2015-06-28T10:18:11.637" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6276" PostTypeId="2" ParentId="6273" CreationDate="2015-06-28T11:24:58.317" Score="1" Body="&lt;p&gt;Difference in Difference is probably the &lt;a href=&quot;http://qje.oxfordjournals.org/content/119/1/249.short&quot; rel=&quot;nofollow&quot;&gt;favourite method in econometrics&lt;/a&gt; (although it requires bootstraping, i.e. correcting the data from self-correlation). It basically compares the evolution of two groups, from a point at which none is subject to the given factor to a point at which one of them is subject to the factor. A famous example is &lt;a href=&quot;https://en.wikipedia.org/wiki/Difference_in_differences#Card_.26_Krueger_.281994.29_example&quot; rel=&quot;nofollow&quot;&gt;Card and Krueger's&lt;/a&gt; use of the method to investigate the impact of a minimum wage.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://upload.wikimedia.org/wikipedia/commons/d/da/Illustration_of_Difference_in_Differences.png&quot; width=&quot;400&quot; height=&quot;400&quot;&gt;&lt;/p&gt;&#xA;" OwnerUserId="4578" LastEditorUserId="69" LastEditDate="2015-06-28T17:49:40.657" LastActivityDate="2015-06-28T17:49:40.657" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="6277" PostTypeId="2" ParentId="6219" CreationDate="2015-06-28T13:47:49.033" Score="1" Body="&lt;p&gt;This is in response to your new edit, and hence completely separate from my earlier answer.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The public debt does not contribute negatively to the government's &quot;net money&quot;, because whenever the government borrows a dollar, it implicitly promises to raise future taxes by (the present value of) that dollar in order to eventually pay down the debt.  Thus it has, in effect, lent a dollar to the taxpayers (who receive government services today but won't be billed for them till later).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So every dollar borrowed from bondholders is offset by a dollar loaned to taxpayers.  This means that the government's net money is exactly equal to the government's cash holdings.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It remains the case that &quot;net money&quot; is an entirely silly thing to be thinking about in the first place, but as long as you insist on thinking about it, you'll want to get this right.&lt;/p&gt;&#xA;" OwnerUserId="250" LastActivityDate="2015-06-28T13:47:49.033" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6279" PostTypeId="2" ParentId="6270" CreationDate="2015-06-28T17:44:39.233" Score="5" Body="&lt;p&gt;By open access do you mean free online access? &lt;em&gt;Does Compulsory School Attendance Affect Schooling and Earnings?&lt;/em&gt; (&lt;a href=&quot;https://www.jstor.org/stable/2937954?seq=1#page_scan_tab_contents&quot;&gt;Angrist and Krueger (1991)&lt;/a&gt;) uses month of birth as an instrument for educational attainment:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;This paper presents evidence showing that individuals' season of birth&#xA;  is related to their educational attainment because of the combined&#xA;  effects of school start age policy and compulsory school attendance&#xA;  laws. In most school districts, individuals born in the beginning of&#xA;  the year start school at a slightly older age, and therefore are&#xA;  eligible to drop out of school after completing fewer years of&#xA;  schooling than individuals born near the end of the year. Our&#xA;  estimates suggest that as many as 25 percent of potential dropouts&#xA;  remain in school because of compulsory schooling laws. We estimate the&#xA;  impact of compulsory schooling on earnings by using quarter of birth&#xA;  as an instrumental variable for education in an earnings equation.&#xA;  This provides a valid identification strategy because date of birth is&#xA;  unlikely to be correlated with omitted earnings determinants. The&#xA;  instrumental variables estimate of the rate of return to education is&#xA;  remarkably close to the ordinary least squares estimate, suggesting&#xA;  that there is little ability bias in conventional estimates of the&#xA;  return to education. The results also imply that individuals who are&#xA;  compelled to attend school longer than they desire by compulsory&#xA;  schooling laws reap a substantial return for their extra schooling.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The authors make their &lt;a href=&quot;http://economics.mit.edu/faculty/angrist/data1/data/angkru1991&quot;&gt;data and Stata code&lt;/a&gt; available on the internet without restriction. That said, &lt;a href=&quot;https://economics.stackexchange.com/questions/5305/seminal-papers-that-later-were-proven-to-contain-errors/5341#5341&quot;&gt;this instrument has problems&lt;/a&gt;. &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2015-06-28T17:44:39.233" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6280" PostTypeId="2" ParentId="6270" CreationDate="2015-06-28T17:53:59.110" Score="9" Body="&lt;p&gt;I can recommend this paper as an example:&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;The Colonial Origins of Comparative Development: An Empirical Investigation&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Daron Acemoglu, Simon Johnson, and James A. Robinson&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://economics.mit.edu/faculty/acemoglu/data/ajr2001&quot; rel=&quot;nofollow&quot;&gt;http://economics.mit.edu/faculty/acemoglu/data/ajr2001&lt;/a&gt; (paper and data)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;This example is famous not only thanks to the creative use of instrumental variables, but also because of the subsequent discussion about the validity of the instruments.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And relevant discussions:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Bazzi, Samuel, and Michael A. Clemens. “Blunt Instruments: Avoiding Common Pitfalls in Identifying the Causes of Economic Growth.” American Economic Journal: Macroeconomics 5, no. 2 (2013): 152–86.&lt;/li&gt;&#xA;&lt;li&gt;Deaton, Angus. “Instruments, Randomization, and Learning about Development.” Journal of Economic Literature 48, no. 2 (2010): 424–55.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Secondly,&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Instrumental Variables and the Search for Identification: From Supply and Demand to Natural Experiments&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Angrist, Joshua D., and Alan B. Krueger&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://economics.mit.edu/files/18&quot; rel=&quot;nofollow&quot;&gt;http://economics.mit.edu/files/18&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;We discuss the mechanics of instrumental variables and the qualities&#xA;  that make for a good instrument, devoting particular attention to&#xA;  instruments derived from &quot;natural experiments.&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Examples follow.&lt;/p&gt;&#xA;" OwnerUserId="240" LastEditorUserId="59" LastEditDate="2016-02-09T22:47:56.837" LastActivityDate="2016-02-09T22:47:56.837" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6281" PostTypeId="2" ParentId="6273" CreationDate="2015-06-28T19:06:56.657" Score="1" Body="&lt;p&gt;Regression discontinuity design just as difference in differences is a method for exploiting natural experiments. It builds on arbitrary rules that give different &quot;treatments&quot; to otherwise similar units.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An example from Wikipedia:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;If all students above a given grade—for example 80%—are given the&#xA;  scholarship, it is possible to elicit the local treatment effect by&#xA;  comparing students around the 80% cut-off: The intuition here is that&#xA;  a student scoring 79% is likely to be very similar to a student&#xA;  scoring 81%—given the pre-defined threshold of 80%, however, one&#xA;  student will receive the scholarship while the other will not.&#xA;  Comparing the outcome of the awardee (treatment group) to the&#xA;  counterfactual outcome of the non-recipient (control group) will hence&#xA;  deliver the local treatment effect.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="4193" LastActivityDate="2015-06-28T19:06:56.657" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6282" PostTypeId="2" ParentId="6273" CreationDate="2015-06-28T19:08:43.277" Score="15" Body="&lt;p&gt;Natural experiments are usually a setting for causal inference rather than a causal inference tool per se. You often need to employ something like difference-in-difference or instrumental variables anyway even when you have a natural experiment.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt; Here a list of statistical causal inference approaches (Approach: Lay description)&lt;/h2&gt; &#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Instrumental_variable&quot;&gt;Instrumental Variables&lt;/a&gt;: Randomly assigned variable X influences Z only through Y &lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Difference_in_differences&quot;&gt;Difference in Differences&lt;/a&gt;:  If two groups have a common trend and only one group is treated then the change in the difference between the groups is the treatment effect&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Regression_discontinuity_design&quot;&gt;Regression Discontinuity&lt;/a&gt;: If a hard threshold determined treatment, look at difference right around that threshold&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Propensity_score_matching&quot;&gt;Propensity score matching&lt;/a&gt;: Create a control group by matching untreated observations that were likely to be treated (but not in fact treated) with treated observations with a similar probability of treatment. &lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://www.statsols.com/mahalanobis-distance-matching-method/&quot;&gt;Manhalobis distance matching&lt;/a&gt;:   Create a control group by matching untreated observations that look similar to treated. Another notable distance measure is &lt;a href=&quot;http://gking.harvard.edu/cem&quot;&gt;Coarsened Exact Matching&lt;/a&gt;.  &lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://web.stanford.edu/~jhain/synthpage.html&quot;&gt;Synthetic control&lt;/a&gt;: When you have only one treated observation, create a composite of untreated observations that individually are imperfect controls but collectively act as a good control.&lt;/li&gt;&#xA;&lt;li&gt;Synthetic Cohorts - Treat repeated observations of groups like a panel of individuals and employ panel techniques. &lt;/li&gt;&#xA;&lt;li&gt;Selection bias modeling like &lt;a href=&quot;https://en.wikipedia.org/wiki/Heckman_correction&quot;&gt;Heckman correction&lt;/a&gt;: Assume a parametric form for selection bias and remove it, so the corrected regression results can be interpreted causally.&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://www.nber.org/papers/w14083.pdf&quot;&gt;Sample weighting more broadly&lt;/a&gt; - fix bias resulting from endogenous participation and un-modeled heterogeneity by weighting sample units to look more like the true population of interest.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-06-29T12:44:37.983" LastActivityDate="2015-06-29T12:44:37.983" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6283" PostTypeId="2" ParentId="3229" CreationDate="2015-06-28T19:24:46.553" Score="-2" Body="&lt;p&gt;free trade is the unrestricted purchase and sale of goods and services between countries without the imposition of constraints such as tariffs, duties and quotas. Free trade is a win-win proposition because it enables nations to focus on their core competitive advantage(s), thereby maximizing economic output and fostering income growth for their citizens.&#xA;Formerly insular economies such as China and India have expanded at much faster growth rates since they adopted free trade principles in the 1980s and 1990s, respectively.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Free trade enables nations to concentrate their efforts on manufacturing products or providing services where they have a distinct comparative advantage, according to the theory first espoused by economist David Ricardo two centuries ago. A free trade policy should enable a nation to generate enough foreign currency to purchase the products or services that it does not produce indigenously. The process works best when there are few if any barriers to entry for such imports. The imposition of artificial constraints such as tariffs on imports or the provision of subsidies to exports will introduce distortions and impede free trade.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;While....&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;trade agreement is any contractual arrangement between states concerning their trade relationships. Trade agreements may be bilateral or multilateral—that is, between two states or more than two states.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For most countries international trade is regulated by unilateral barriers of several types, including tariffs, non-tariff barriers, and outright prohibitions. Trade agreements are one way to reduce these barriers, thereby opening all parties to the benefits of increased trade.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In most modern economies the possible coalitions of interested groups are numerous, and the variety of possible unilateral barriers is great. Further, some trade barriers are created for other, non-economic reasons, such as national security or the desire to preserve or insulate local culture from foreign influences. Thus, it is not surprising that successful trade agreements are very complicated. Some common features of trade agreements are reciprocity, a most-favored-nation (MFN) clause, and national treatment of non tariff barriers.&lt;/p&gt;&#xA;" OwnerUserId="5053" LastActivityDate="2015-06-28T19:24:46.553" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6284" PostTypeId="2" ParentId="6269" CreationDate="2015-06-28T21:37:56.583" Score="4" Body="&lt;p&gt;In the classical model, aggregate supply curve is vertical (price level on the y axis), meaning that output is fixed, constrained by technology and inputs. Prices are flexible. So that if the demand curve changes, the effect will be entirely on price level and not on output.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the keynesian model, aggregate supply curve is horizontal at some price level. If demand changes, the effect will be entirely on output.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the main difference lies on price flexibility and the power of increasing output through aggregate demand stimulus.&lt;/p&gt;&#xA;" OwnerUserId="5054" LastActivityDate="2015-06-28T21:37:56.583" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6285" PostTypeId="2" ParentId="6196" CreationDate="2015-06-28T22:00:05.553" Score="0" Body="&lt;p&gt;Repeated games are a special class of extensive form games. And to the extent that such games admit a strategic form representation, the usual dominance notions apply:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;Definition 1.&lt;/strong&gt; Pure strategy $s_i\in S_i$ is &lt;em&gt;weakly dominated&lt;/em&gt; for player $i$ if there exists a (mixed) strategy $\sigma_i'\in\Delta(S_i)$ such that $$u_i(\sigma_i',s_{-i})\ge u_i(s_i,s_{-i})\tag{1}$$ for all $s_{-i}\in S_{-i}$, and &lt;strong&gt;the above inequality is strict for at least one $s_{-i}$&lt;/strong&gt;.    &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;and&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;Definition 2.&lt;/strong&gt; Pure strategy $s_i^*\in S_i$ is &lt;em&gt;weakly dominant&lt;/em&gt; for player $i$ if every other strategy $s_i\in S_i\setminus\{s_i^*\}$ is weakly dominated by $s_i^*$. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Let's apply this definition to your example. Call the two players $i$ and $j$,  denote the grim trigger strategy you propose by $s_i^G$ (if used by player $i$, and $s_j^G$ if used by $j$) and denote by $s_i^A$ player $i$'s strategy that plays $A$ regardless of history (and similarly for $j$).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As you recognize, $s_i^A$ is not weakly dominant: $s_i^G$ is not dominated by $s_i^A$ in that there exists a strategy $s_j^G$ such that $u_i(s_i^A,s_j^G)&amp;lt;u_i(s_i^G,s_j^G)$. But this doesn't imply that $s_i^A$ is weakly dominated. In particular, it's not dominated by $s_i^G$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In their game theory textbook, Fudenberg and Tirole commented that &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The notion of iterated strict dominance extends to extensive-form games as well; however, as we mentioned above, this concepts turns out to have little force in most extensive forms. The point is that a player cannot strictly prefer one action over another at an information set that is not reached given his opponents' play.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="42" LastActivityDate="2015-06-28T22:00:05.553" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6286" PostTypeId="1" CreationDate="2015-06-29T08:32:19.603" Score="3" ViewCount="180" Body="&lt;p&gt;A city has a single electricity supplier. Electricity production cost is $c$ per unit. Utility function $U(q,t)=a\ln(1+q) - t$, where $q$ is electricity consumption and $t$ is electricity tariff. What is the profit maximizing tariff?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have figured out $\text{MC}=c$ and the supplier is monopolist so $\text{MR}=\text{MC}$ condition have to be used but I can't figure out how to get MR from the utility function.&lt;/p&gt;&#xA;" OwnerUserId="5056" LastEditorUserId="108" LastEditDate="2015-06-29T16:48:20.770" LastActivityDate="2015-06-30T10:52:47.097" Title="Monopoly with price discrimination" Tags="&lt;microeconomics&gt;&lt;monopoly&gt;" AnswerCount="1" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="6287" PostTypeId="1" AcceptedAnswerId="6288" CreationDate="2015-06-29T13:16:15.733" Score="5" ViewCount="169" Body="&lt;p&gt;What benefit is there to shutting down the banks in Greece? It seems that this would do more harm than good. Won't this impede economic growth by not allowing companies and startups access to capital? This, I believe, would cause the crisis to last longer or get worse.&lt;/p&gt;&#xA;" OwnerUserId="5063" LastEditorUserId="4891" LastEditDate="2016-10-23T18:49:45.527" LastActivityDate="2020-02-27T11:47:44.553" Title="Why shutdown the banks (Greece)?" Tags="&lt;banking&gt;&lt;financial-crises&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6288" PostTypeId="2" ParentId="6287" CreationDate="2015-06-29T13:19:25.640" Score="4" Body="&lt;p&gt;The deposits that people have in the banks is a lot more than the money that the banks actually have.  This is due to fractional reserve banking.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a consequence, if everybody tries to take out their money, the banks will run out of cash: the banks themselves will be unable to meet their financial obligations, and go bankrupt.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When the bank goes bankrupt, people lose their deposits.  Normally the government guarantees the deposits, but in the case of Greece the government is running out of money as well, so it will not be able to meet this guarantee.  Usually a government can print money to meet the demand &lt;em&gt;anyway&lt;/em&gt;, but Greece is in the Eurozone so it cannot do this (and the European Central Bank is unwilling).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That's why there are closed banks and capital controls (i.e. at most €60/day withdrawal and other limits).  It's intended to be temporary.  Right now there is a lot of unclarity what will happen.  When there is more clarity the banks will surely open again.&lt;/p&gt;&#xA;" OwnerUserId="332" LastEditorUserId="332" LastEditDate="2020-02-27T11:47:44.553" LastActivityDate="2020-02-27T11:47:44.553" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="6289" PostTypeId="1" AcceptedAnswerId="6293" CreationDate="2015-06-29T13:39:20.700" Score="3" ViewCount="50" Body="&lt;p&gt;I've been looking for prior research by economists that predict the number of house listings in a particular city (or even, say, the probability that an individual in the city will list his house that year).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, for example, the former would be something like:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$NumListings=1.5*GDP+ 2*income+3*interestRate+unemployment+.3*population$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and the second could be a logit regression like &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$ProbListing=\frac{(GDP+1.1*income)}{population}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there any existing literature on this? The only things I have been able to find is literature on people using the number of listings to predict house prices-- I want to know if anyone has used exogeneous data like unemployment, income, consumption, gdp, interest rate, unsold listings, etc.. to predict the number of listings in the future.&lt;/p&gt;&#xA;" OwnerUserId="5064" LastEditorUserId="238" LastEditDate="2015-06-29T18:56:57.320" LastActivityDate="2015-06-29T18:56:57.320" Title="Is there existing research on predicting the number of house listings based on exogenous data?" Tags="&lt;microeconomics&gt;&lt;reference-request&gt;&lt;housing&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6290" PostTypeId="1" CreationDate="2015-06-29T15:02:24.433" Score="3" ViewCount="134" Body="&lt;p&gt;I'm trying to determine which micro-economic/econometrics concepts, models, and/or tools are appropriate for an analysis of promotions. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Below I &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Describe the problem in general terms&lt;/li&gt;&#xA;&lt;li&gt;Give illustrative details&lt;/li&gt;&#xA;&lt;li&gt;Describe my approach thusfar&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;em&gt;General Description of the Problem&lt;/em&gt;&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As is common in microeconometrics, I have a situation wherein a decision maker seeks to analyze returns from promotions (promotions meaning various forms of discounts, not advertising, in this case) with the objective of selecting a promotion strategy which maximizes profits.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given several practical constraints, in terms of &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;strong&gt;data&lt;/strong&gt; -- which is on the customer-level, going ranging 2.5 years to present&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;time&lt;/strong&gt; -- I need to conduct this relatively quickly, with very little time for literature review, etc (though I read this tangentially related &lt;a href=&quot;http://som.yale.edu/sites/default/files/files/Maxime%20Cohen%20Promo%20Paper%20Final.pdf&quot; rel=&quot;nofollow&quot;&gt;paper by MIT and Oracle&lt;/a&gt; which used Integer Linear Programming to optimize grocery store discounts)&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;scope&lt;/strong&gt; -- which requires me to consider the following&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;retention -- the idea that promotions attract customers who will remain active for shorter periods of time&lt;/li&gt;&#xA;&lt;li&gt;targeting/segmentation &lt;/li&gt;&#xA;&lt;li&gt;consider the possibility of no promotion as a best solution&lt;/li&gt;&#xA;&lt;li&gt;consider the possibility of 1 past promotion type as optimal&lt;/li&gt;&#xA;&lt;li&gt;consider the possibility of some optimal combination of past promotions types as optimal &#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;there are around 10 different types of promotion (10% off for yoga classes, 6 weeks free during Summer, 20% off for military students, etc) &lt;/li&gt;&#xA;&lt;li&gt;each type of promotion can be offered to a segment of customers or to all customers&lt;/li&gt;&#xA;&lt;li&gt;promotions can be temporary (seasonal) or ongoing&lt;/li&gt;&#xA;&lt;/ul&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;This analysis is being conducted on the prospect and customer level (within-firm), meaning that we have data on customers and people who we've interacted with who may or may not become customers (&quot;prospects&quot;). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;em&gt;Specific Details for Illustrative Purposes&lt;/em&gt;&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A close proxy for the specific type of firm at hand would be a chain of mixed martial arts studios.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In addition to basic student &lt;strong&gt;demographics&lt;/strong&gt;, we have the follow dimensions which may be considered: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Class types&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Kickboxing &lt;/li&gt;&#xA;&lt;li&gt;Kung Fu&lt;/li&gt;&#xA;&lt;li&gt;Tae Kwon Do&lt;/li&gt;&#xA;&lt;li&gt;Yoga&lt;/li&gt;&#xA;&lt;li&gt;Women's self defense&lt;/li&gt;&#xA;&lt;li&gt;Access to all classes&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Student/class &lt;strong&gt;skill levels&lt;/strong&gt;:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Beginner (white belt - green belt)&lt;/li&gt;&#xA;&lt;li&gt;Intermediate (blue belt - red belt)&lt;/li&gt;&#xA;&lt;li&gt;Advanced (brown belt - black belt)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Class loads&lt;/strong&gt;:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;1 class per week&lt;/li&gt;&#xA;&lt;li&gt;3 classes per week&lt;/li&gt;&#xA;&lt;li&gt;Unlimited &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;em&gt;My Approach Thusfar&lt;/em&gt;&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Without much time to find an appropriate theoretical framework or empirical model from the literature, I began by creating an ad hoc demand model using &lt;strong&gt;Poission regression&lt;/strong&gt;, wherein &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The independent variable, &lt;strong&gt;Y&lt;/strong&gt; = the number of enrollments in a given time period&#xA;The independent variables, &lt;strong&gt;X&lt;/strong&gt; included: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;a vector of prospect/student demographics&lt;/li&gt;&#xA;&lt;li&gt;the type of class, class load, and skill level a prospect/student considered or enrolled in &lt;/li&gt;&#xA;&lt;li&gt;the promotions being offered&lt;/li&gt;&#xA;&lt;li&gt;lag and lead effects to capture the &quot;cannibalization&quot; of promotion from one term on enrollments in adjacent terms&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;This gave me some rough estimates of the effects of promotion on leads. However, it did not directly answer questions of optimization, segmentation, or changes in revenue per student from changes in retention.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My 2nd step was to conduct an analysis that estimated the change in revenue per student (over the maximum time range available). I utilized &lt;strong&gt;Propensity Score Matching&lt;/strong&gt; to balance quasi-treatment and quasi-control groups (those who were prospects during time periods where a promotion was offered versus those during a time period with no promotion).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The results showed the decline in revenue per student (broken down by class type, class load, and skill level). The decline revenue comes in part from the cost of the promotion (i.e. the reduction in price) and in part from the change in retention (i.e. students remain active for shorter periods of time, often quitting after their discount ends, etc).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The decision makers would like to know which segments of students respond best/worst to promotion, what's the optimal type of promotion or mix of promotions, etc. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Before going further with ad hoc statistical analyses, I wanted to see what guidance economic/econometric theory can provide to this research project. &lt;/p&gt;&#xA;" OwnerUserId="3998" LastActivityDate="2015-06-29T15:02:24.433" Title="Appropriate economic/econometric tools to analyze segmented promotion optimization problem" Tags="&lt;microeconomics&gt;&lt;econometrics&gt;&lt;financial-economics&gt;&lt;optimization&gt;&lt;profit-maximization&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6291" PostTypeId="1" CreationDate="2015-06-29T15:03:33.783" Score="2" ViewCount="81" Body="&lt;p&gt;On 24 June 2015, the Dutch District Court in The Hague &lt;a href=&quot;http://www.bbc.com/news/world-europe-33253772&quot; rel=&quot;nofollow&quot;&gt;ruled that the government must put policies in place to deliver, by 2020, cuts in the country's greenhouse gas emissions of at least 25%, relative to 1990 levels&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The government, for months leading up to the tribunal appearances, had been saying that it was hard for them to cut it down by any more than 17%. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What are the likely economic consequences of this ruling?&lt;/p&gt;&#xA;" OwnerUserId="5066" LastEditorUserId="40" LastEditDate="2015-06-30T06:56:52.880" LastActivityDate="2015-07-01T06:45:51.743" Title="Indirect Impacts Of The Netherlands Cutting Greenhouse Emissions?" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;environmental-economics&gt;&lt;climate-change&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6292" PostTypeId="1" CreationDate="2015-06-29T17:21:20.970" Score="4" ViewCount="139" Body="&lt;p&gt;I don't have a formal education in economics but I had an idea for creating a better and fairer currency. So the gold standard ties gold to the dollar. Gold is usually used in luxury items like jewellery and electronics. So as the economy booms demand for luxury goods increases and thus the demand for dollars. So this would reduce capital investment as dollars would be better to have right, which would reduce growth?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you tied the dollar to say the Big Mac, then as the economy boomed the dollars relative value would decrease as people are more well off so they would be more likely to invest in businesses. Also the advantage of this system is that in a crash people are poorer so the demand for more basic goods goes up thus the dollar goes up. This would have the effect of making recessions easier on poor people as they mainly have their assets in cash. Also as means of production for the big mac become more refined, inflation will occur so it doesn't have the gold standard problem.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I might be wrong about some points above but in general could making 1 dollar always give you 1 big mac work as a standard for a currency?&lt;/p&gt;&#xA;" OwnerUserId="5067" LastEditorUserId="5067" LastEditDate="2015-06-30T09:06:27.973" LastActivityDate="2015-07-01T13:14:45.300" Title="Could money be tied to a basic good like the gold standard?" Tags="&lt;money-supply&gt;&lt;money&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6293" PostTypeId="2" ParentId="6289" CreationDate="2015-06-29T18:14:46.393" Score="2" Body="&lt;p&gt;It looks like what you're really after is determinants of housing mobility or migration. You get that, you can then just apply it to a specific city and aggregate to predict. One of the earliest and most seminal works in this field was Rossi's &lt;em&gt;Why Families Move&lt;/em&gt;, originally published in '56 and redone in '80. The book is &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0803913494&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt; and a review is &lt;a href=&quot;http://www.jstor.org/stable/3348417?seq=1#page_scan_tab_contents&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another giant paper in the literature is Massey &lt;a href=&quot;http://www.jstor.org/stable/3644186?seq=1#page_scan_tab_contents&quot; rel=&quot;nofollow&quot;&gt;&quot;Social Structure, Household Strategies, and the Cumulative Causation of Migration&quot;&lt;/a&gt;. It is also a little older (1990), but brings together a lot of the previous literature (great paper for lit review) and formalizes the decision making process of migration.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Newer papers in the literature look more at specific issues related to relocation, like &lt;a href=&quot;http://www.jstor.org/stable/10.1086/666082?seq=1#page_scan_tab_contents&quot; rel=&quot;nofollow&quot;&gt;eviction&lt;/a&gt;, &lt;a href=&quot;http://link.springer.com/article/10.1007/s13524-013-0216-2#page-1&quot; rel=&quot;nofollow&quot;&gt;fertility and housing decisions&lt;/a&gt;, and &lt;a href=&quot;http://esr.oxfordjournals.org/content/27/4/469.abstract&quot; rel=&quot;nofollow&quot;&gt;connection with life-course events&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="238" LastActivityDate="2015-06-29T18:14:46.393" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6294" PostTypeId="2" ParentId="6273" CreationDate="2015-06-29T19:57:15.027" Score="1" Body="&lt;p&gt;To follow up the comment by @EnergyNumbers, &lt;em&gt;causality flows from your theory&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A key distinction is this: the math in any of the methods in @BKay's answer is designed to spit out numbers at the end of the procedure.  For example, consider a diff-in-diff where your treatment is something silly like being licked in the face by a dog.  You can always set up a diff-in-diff to see whether being licked in the face by dogs causes people to become astronauts.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Silliness aside, thinking about causality from the ground up can be pretty helpful--to include your choice of procedure.  Seminars in economics frequently revolve around the viability of the theory and the validity of the assumptions.&lt;/p&gt;&#xA;" OwnerUserId="4961" LastActivityDate="2015-06-29T19:57:15.027" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6295" PostTypeId="1" CreationDate="2015-06-29T21:35:40.533" Score="4" ViewCount="75" Body="&lt;p&gt;I have (what I believe to be) a microeconomics question that I'd like to explore:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;How long are consumers willing to wait to find a bargain on an item they'd like to purchase?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I believe the question is easy to understand, but I'm unsure of the methodology to collect proper and relevant data to solve the question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The answer, I'm sure, is a bit complicated. Though I'm not completely certain, I suspect the relationship is such that time, $t$, is a function of the change in price, $\Delta P$, of a given item (i.e.,$\quad f:\Delta P \rightarrow t).$ The price change could be relative or absolute.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There might be a schedule of different coefficients, depending on the price bracket of different items. For example, one class would include items that many households could afford on a weekly basis (video games, books, t-shirts, etc.), while another class would include items that the average household doesn't buy every week or year (refrigerators, cars, overseas vacations, etc.), and another class would include luxurious items that only the top 2-5% percentile of income earners could afford (court-side tickets to a basketball game, a Ferrari, a bottle of Dom Perignon, etc).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So here's my question to the community here: does anyone know of any study or previous work that addresses this question? If not, does anyone know how I could go about researching this topic? I guess &quot;SurveyMonkey&quot; would be one route, but it seems like a daunting task, considering how many variables I might have to account for. &lt;/p&gt;&#xA;" OwnerUserId="81" LastActivityDate="2015-07-03T03:51:39.077" Title="How long are consumers willing to wait in order to find a bargain?" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;&lt;price-theory&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6296" PostTypeId="1" AcceptedAnswerId="6297" CreationDate="2015-06-29T22:38:49.493" Score="4" ViewCount="198" Body="&lt;p&gt;A (discrete time) martingale is a stochastic process $\{X_t\}_{t\in\mathbb N}$ that satisfies, for all $t\in\mathbb N$, &#xA;$$&#xA;E(|X_t|)&amp;lt;\infty&#xA;$$&#xA;and &#xA;$$&#xA;E(X_{t+1}|X_1,\dots,X_t）=X_t.&#xA;$$&#xA;And a submartingale is one with $E(X_{t+1}|X_1,\dots,X_t）\ge X_t$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know the classic example of the gambler's payoff in a fair game. But I'm hoping to find other real world examples of martingales and submartingales, particularly those pertaining to economics. Ideally, these examples would have some sort of empirical backing.&lt;/p&gt;&#xA;" OwnerUserId="42" LastEditorUserId="42" LastEditDate="2015-06-29T22:50:53.347" LastActivityDate="2015-06-30T10:16:57.783" Title="Economic examples of (sub)martingales" Tags="&lt;reference-request&gt;&lt;empirical-evidence&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6297" PostTypeId="2" ParentId="6296" CreationDate="2015-06-30T00:27:13.340" Score="2" Body="&lt;p&gt;Applying the Law of Iterated Expectations on the defining property of a sub-martingale $E(X_{t+1}|X_1,\dots,X_t）\ge X_t$ we have that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$E\Big[E(X_{t+1}|X_1,\dots,X_t)\Big]=E(X_{t+1}) \geq E(X_t)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So a sub-martingale has also its &lt;em&gt;unconditional&lt;/em&gt; expected value non-decreasing. Therefore any economic variable that appears to consistently increase in value is a candidate for being a sub-martingale, since the defining property here conditions only on the variable's past, not on any other factors that may influence it. National Output/GDP could be reasonably modeled as a sub-martingale, since it historically &quot;always&quot; increases, bar catastrophic events.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In general, any economic variable that can be modeled as a random walk with non-negative drift, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$X_{t+1} = \alpha + X_{t} + u_t,\;\; \alpha \geq 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;is a sub-martingale.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-06-30T10:16:57.783" LastActivityDate="2015-06-30T10:16:57.783" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6298" PostTypeId="5" CreationDate="2015-06-30T04:48:06.800" Score="0" Body="&lt;p&gt;Gross Domestic Product - The monetary value of all the finished goods and services produced within a country's borders in a specific time period, though GDP is usually calculated on an annual basis.&lt;/p&gt;&#xA;" OwnerUserId="40" LastEditorUserId="40" LastEditDate="2015-07-02T01:37:57.957" LastActivityDate="2015-07-02T01:37:57.957" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6299" PostTypeId="4" CreationDate="2015-06-30T04:48:06.800" Score="0" Body="Gross Domestic Product (GDP) is a flow measure of the value of finished goods and services produced within a country's borders in a specific time period. GDP is typically calculated on an annual basis. " OwnerUserId="40" LastEditorUserId="108" LastEditDate="2015-07-22T10:37:55.227" LastActivityDate="2015-07-22T10:37:55.227" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6300" PostTypeId="5" CreationDate="2015-06-30T04:49:27.723" Score="0" Body="&lt;p&gt;Labor economics looks at the suppliers of labor services (workers), the demands of labor services (employers), and attempts to understand the resulting pattern of wages, employment, and income.&lt;/p&gt;&#xA;" OwnerUserId="40" LastEditorUserId="31" LastEditDate="2015-07-02T01:37:42.043" LastActivityDate="2015-07-02T01:37:42.043" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6301" PostTypeId="4" CreationDate="2015-06-30T04:49:27.723" Score="0" Body="Labor economics is the branch of microeconomics that studies labor markets and its peculiarities. Labor economists usually study topics such as career choice, returns to schooling, determinants of labor productivity, wages, gender and racial gaps." OwnerUserId="40" LastEditorUserId="42" LastEditDate="2018-09-01T01:41:27.237" LastActivityDate="2018-09-01T01:41:27.237" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="6302" PostTypeId="5" CreationDate="2015-06-30T05:07:09.423" Score="0" Body="&lt;p&gt;Elasticity is the measurement of how responsive an economic variable is to a change in another. Elasticity can be quantified as the ratio of the percentage change in one variable to the percentage change in another variable, when the latter variable has a causal influence on the former.&lt;/p&gt;&#xA;" OwnerUserId="40" LastEditorUserId="40" LastEditDate="2015-06-30T09:17:04.130" LastActivityDate="2015-06-30T09:17:04.130" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6303" PostTypeId="4" CreationDate="2015-06-30T05:07:09.423" Score="0" Body="Elasticity is the measurement of how responsive an economic variable is to a change in another." OwnerUserId="40" LastEditorUserId="40" LastEditDate="2015-07-02T01:37:00.323" LastActivityDate="2015-07-02T01:37:00.323" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6304" PostTypeId="1" CreationDate="2015-06-30T06:15:23.777" Score="5" ViewCount="110" Body="&lt;p&gt;Major US stock indices are down ~2% on Jun 29, and it's mostly associated with investor's worries related to the Greece crisis.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand about possible &quot;chain reaction&quot; and that a lot of companies may be exposed indirectly to Greece debt.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But given that, it seems silly that investors think that because of this average US companies lose 2% in values. I mean, Greece is relatively a small country and it doesn't have a very close link to the US economy (unlike, say, Canada). Even if all Greek government and banking bonds evaporate, the impact of all those would still be way less than 2% of an average US company, right?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/YCjjI.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;" OwnerUserId="4297" LastActivityDate="2015-07-01T14:48:31.433" Title="How could Greece-related worries drive US stocks down about 2% in a day?" Tags="&lt;finance&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6305" PostTypeId="2" ParentId="6304" CreationDate="2015-06-30T07:21:27.250" Score="8" Body="&lt;p&gt;Because Greece sets a precedent for Italy, Spain and Portugal (and others). &lt;br /&gt;&#xA;And a default of Italy (and Greece) &lt;del&gt;might&lt;/del&gt; will cause financial difficulties in France. &lt;br /&gt;&#xA;&lt;img src=&quot;https://i.stack.imgur.com/3eKGq.png&quot; alt=&quot;Contagion&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the interest rates for Italy and Portugal rise (they do now), then those countries are even more unlikely to repay their debt. &#xA;And meanwhile, &lt;a href=&quot;http://www.nytimes.com/interactive/2011/10/23/sunday-review/an-overview-of-the-euro-crisis.html?_r=3&amp;amp;&quot; rel=&quot;nofollow noreferrer&quot;&gt;somebody&lt;/a&gt;  has to write them off.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Greece in itselfs really is kind of unimportant (except for France). &#xA;That the debt really cannot be repaid is at this point kinda obvious to everyone. And while a write-off of 80*10&lt;sup&gt;9&lt;/sup&gt; € (or part thereof) is painful for Germany (and others), it's simply not the size that can seriously jeopardize an economy of 8 times the polulation and 15 times the GDP of Greece. The risks of political fallout in Germany are another story (and the problem of Merkel).&#xA;&lt;br /&gt;&lt;br /&gt;&#xA;Greece mainly is kind of an experimental laboratory of things to come (Syriza in Greece = Podemos in Spain, Italy =&gt; ? ...)&#xA;&lt;br /&gt;&#xA;And the experiment seems to spell disaster. &#xA;&lt;br /&gt;Meanwhile, nobody likes to be the labrat. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As always, the stock-exchange is the place where the expectations of the future generate the prices of today (together with the panic of the moment).&lt;/p&gt;&#xA;" OwnerUserId="5068" LastEditorUserId="5068" LastEditDate="2015-06-30T15:24:44.030" LastActivityDate="2015-06-30T15:24:44.030" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6306" PostTypeId="1" CreationDate="2015-06-30T08:59:17.430" Score="5" ViewCount="429" Body="&lt;p&gt;Leading economists in my country (Sweden) recommend and predict that (in the case of default) the Greek government will destroy all the euro bills in the country. Making holes in them and stamp them to become drachmer which are maybe 80% or 90% less valuable than they were. There seems to be about €80 billion (M0) in euro bills in Greece, about a third of one year's GDP.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What would the upside be with destroying this fortune? Wouldn't it be better to for example use those €80 bn to pay the debts? Do any prominent non-Swedish speaking economists give the same advice?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In Sweden former heads of the central bank, the highest government officials, economists at several financial firms and the publicly profiled academic economists (including professors in the committee which chooses so called Nobel prize winners in economics) all talk about destroying the cash euros as if it was some kind of solution. Have they all gone raving mad, or what am i missing? How could it even be done? How force people to destroy their own cash? And I think they have to cut away more than 1/3 of the bill to maculate it, or else they can be exchanged for new euro bills.&lt;/p&gt;&#xA;" OwnerUserId="5071" LastEditorUserId="5071" LastEditDate="2015-07-02T17:33:13.150" LastActivityDate="2015-07-05T11:07:53.623" Title="Why should Greece destroy their cash euros?" Tags="&lt;currency&gt;&lt;monetary-policy&gt;" AnswerCount="5" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="6307" PostTypeId="2" ParentId="6286" CreationDate="2015-06-30T10:44:17.997" Score="1" Body="&lt;p&gt;I assume $t=pq$ is meant. $p$ is the price per unit. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;We want to know when&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U(q,p)=a \ln(1+q) - pq$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;is maximal, given $a&amp;gt;0$ and $p&amp;gt;0$, since this is the utility function and the quantity $q$ the customer buys is the quantity where the utility function is maximal. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The derivative with respect to $q$ is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{d}{dq} U(q,p) = \frac{a}{1+q} - p$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Set derivative to zero gives $q =\frac{a-p}{p}$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now we want to know when $(p-c)q$ is maximal, since that gives maximal profit. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Insert $q =\frac{a-p}{p}$ to get $\frac{(a-p)(p-c)}{p}$ is maximal. Rewrite this to $-p+a+c-\frac{ac}{p}$. Take the derivative with respect to $p$ and set to zero to get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$-1+\frac{ac}{p^2}=0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$-p^2+ac=0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$p^2=ac$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$p=\sqrt{ac}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus we get $t=pq=a-p=a-\sqrt{ac}$.&lt;/p&gt;&#xA;" OwnerUserId="5061" LastEditorUserId="5061" LastEditDate="2015-06-30T10:52:47.097" LastActivityDate="2015-06-30T10:52:47.097" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6308" PostTypeId="2" ParentId="5739" CreationDate="2015-06-30T13:25:10.410" Score="6" Body="&lt;p&gt;&lt;em&gt;(I guess a long answer can be fitting to a long question...)&lt;/em&gt;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The current state of knowledge as to &quot;how to run a socioeconomic area (SEA)&quot; could be grossly summarized as follows:&lt;br&gt;&#xA;There is a Government that has the right to collect taxes and conducts fiscal policy, in order to provide some public goods, and also to partially smooth economic inequality through redistribution (not because we are good and humanitarian people, but so as not for the inequality to eventually threaten the SEA's existence).&lt;br&gt;&#xA;There is the area's fiat money, backed by the Government's sovereignty.&lt;br&gt;&#xA;There is a Central Bank that makes loans to the Government, so as for monetary policy to be a &quot;negotiated outcome&quot; between the Government and the Central Bank, attempting to partly offset the short-horizon that politicians are forced (or like) to have. The Central Bank has also the role of &quot;lender of last resort&quot; for the commercial banks, so as to secure the stability of the fiat money system. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If a &lt;strong&gt;SEA-wide&lt;/strong&gt; shock hits, and an economic recession or crisis sets in, monetary policy can be used in what is in effect a &quot;reverse-causation&quot; scheme: instead of first producing and then creating the money in order to match this new production for exchange purposes, we first create the fiat money, that now functions as windfall-wealth, in order to increase demand and thus generate new production that will eventually match the money (that's what &quot;demand side policy&quot; is all about). If the economy is in a recession, and there is a large amount of unemployed factors of production, it has some good chances of succeeding (i.e. the increased demand will activate again factors of production rather than just create inflation). Note that the use of fiscal policy in such a situation essentially amounts to the same thing -but instead of strengthening the demand of the private sector towards the private sector, it is the government that directly, through fiscal policy, purposefully raises aggregate demand in order to induce supply.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If an &lt;strong&gt;asymmetric shock hits selectively only some parts of the SEA&lt;/strong&gt;, then the government can use its tax revenues for (usually geographic, but also sectoral) redistributive purposes, channeling resources to the regions/sectors that are hit. &lt;strong&gt;Moreover&lt;/strong&gt;, if factors of production are mobile enough, they will move towards the comparatively more economically healthy regions/sectors, alleviating the problem of production factors' unemployment, which if it persists, will create a &lt;em&gt;social&lt;/em&gt; problem, and will threaten the SEA's cohesion.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now &lt;strong&gt;consider the European Union&lt;/strong&gt;:&#xA;It has a currency alright, and a Central Bank -but the Central Bank is not permitted to act as a lender of last resort proper -the currently observed &quot;quantitative easing&quot; is a silently accepted bending (not breaking) of the official rules of the ECB. Why deprive the European Central Bank of such a fundamental function of a central bank? Because it was Germany's non-negotiable condition in order to create a common currency, originating from Germany's experience with  hyperinflation. Germany did not impose this to others, having made an exception for itself: when there was still a Deutsche mark, Germany's central bank also was not permitted to act as a lender of last resort for the commercial banks (and Germany's economy proved strong enough to not ever come in need of such a safety valve).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The EU also has a &quot;Government&quot; (the European Commission) -but its fiscal budget is so small compared to the EU's economy, that it cannot adequately perform any redistributive function to the required degree, in the case of an asymmetric shock (redistribution happens alright -but it is slow and long-term). Also, members' national budgets are under scrutiny and hard-pressed at a political level in order not to go south. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, due to history and culture, factors of production, especially human ones, have very low mobility.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So while a SEA-wide shock is not really likely for such a diverse area like the EU, asymmetric shocks are much more likely for the very same reasons -and it is for these asymmetric shocks that the EU is really lacking the tools to deal with, at least the tools that are currently known and used.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, it appears that we have to concede that the European Union, including monetary union, was a &quot;premature&quot; action, if judged by macroeconomic criteria: on the balance, the tangible economic benefits appear to be outweighed by the hardships introduced. Theoretically, we should have first wait for economic homogeneity and integration to happen or nearly-happen, and then strengthen it through the creation of the EU. And indeed, this was the original plan: the European Union started as partial (country-wise and sector-wise) economic semi-unions here and there, to slowly and gradually help economic integration -and then it accelerated, because the global geopolitical situation suddenly changed and (deep) uncertainty once more ruled the land...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;...We should make a mental effort to imagine what the experience of two devastating World Wars (which are not that old, anyway), has imprinted on this continent. The forced/hurried economic unity/integration represented by the EU, was and still is in my opinion mainly an attempt to lay these continent-wide nightmares to rest. Since this is a &quot;negative&quot; motive, it is only natural that &quot;positive&quot; motives emerged in the process.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Especially after the crisis of 2008, one could argue with some strength that currently, the European Union is little more than &quot;feeling asphyxiated, but sticking together, grinding our teeth&quot;... &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;...So, perhaps &quot;everyone should exit&quot;?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The real issue as I see it is whether the alternative will be eventually along the lines of (economically and/or physically) &quot;sharpening our teeth to each others' neck&quot; -or not.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-06-30T13:25:10.410" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="6309" PostTypeId="1" CreationDate="2015-06-30T13:51:26.313" Score="3" ViewCount="525" Body="&lt;p&gt;New Zealand seems to have strong economy and governed well by the RBNZ. Agreed that recent decrease in the dairy prices globally has some negative effects on the economy. But with the large service sector of the country, why is the Kiwi dollar weakening against USD, GBP, AUD, etc. in recent months? Is the economy of the country really in a bad shape?&lt;/p&gt;&#xA;" OwnerUserId="4980" LastEditorUserId="1601" LastEditDate="2015-06-30T14:48:13.420" LastActivityDate="2015-07-02T15:49:02.247" Title="Why New Zealand dollar keeps falling against USD and other currencies?" Tags="&lt;macroeconomics&gt;&lt;exchange-rates&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6310" PostTypeId="1" CreationDate="2015-06-30T15:11:42.027" Score="1" ViewCount="58" Body="&lt;p&gt;Can someone provide a formula (or set of formulas) for growth models for subscription based businesses?  I've looked, but could only find general references about this business model -- no formulas.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I could probably re-purpose a growth formula and model churn (and other parameters) by adjusting the growth rate, but I was hoping for something tailored to a subscription based business.&lt;/p&gt;&#xA;" OwnerUserId="5073" LastEditorUserId="5073" LastEditDate="2015-06-30T15:17:58.320" LastActivityDate="2015-06-30T15:17:58.320" Title="Subscription Growth Rate Model?" Tags="&lt;finance&gt;&lt;economic-growth&gt;" AnswerCount="0" CommentCount="1" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6311" PostTypeId="2" ParentId="6295" CreationDate="2015-06-30T15:12:32.707" Score="4" Body="&lt;p&gt;Check this paper out: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.researchgate.net/profile/Dhruv_Grewal/publication/24098726_The_Value_of_Time_Spent_in_Price-Comparison_Shopping_Survey_and_Experimental_Evidence/links/00b7d52f3873bf40a0000000.pdf&quot; rel=&quot;nofollow&quot;&gt;The Value of Time Spent in Price-Comparison Shopping: Survey and Experimental Evidence&lt;/a&gt;&#xA;Author(s): Howard Marmorstein, Dhruv Grewal and Raymond P. H. Fishe&#xA;Source: Journal of Consumer Research, Vol. 19, No. 1 (Jun., 1992), pp. 52-61&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With a bit of hand-waving, you can say that consumers are willing to search as long as value of time &amp;lt; amount saved. &lt;/p&gt;&#xA;" OwnerUserId="4971" LastEditorUserId="31" LastEditDate="2015-07-03T03:51:39.077" LastActivityDate="2015-07-03T03:51:39.077" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6312" PostTypeId="1" CreationDate="2015-06-30T17:42:14.730" Score="3" ViewCount="40" Body="&lt;p&gt;Since each news outlet says something about Greece these days, I wonder what serious economic research backs decisions made over the last seven years?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The IMF papers on austerity, both early ones and revisions (such those by Blanchard), are relevant here, but Greece now faces a more specific choice: a hypothetical default and introduction of a new currency. (Economics aside: Yes, maybe Greece isn't considering this choice right now and just negotiates with creditors.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The default is relatively boring: The country stops paying off the debt, &lt;a href=&quot;https://economics.stackexchange.com/questions/4471/who-exactly-foots-the-bill-if-greece-defaults&quot;&gt;belonging mostly to the EU sovereigns&lt;/a&gt;, and then restructures it on different conditions. No idea how much of the debt will be written off in the end.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The impact of the new currency is more interesting because the Greek government will no longer depend on the ECB. It can now reduce real wages with devaluation. So, employment increases and the economy gradually returns to its potential GDP level. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But I didn't locate the research that would carefully model these counterfactuals under plausible assumptions. Did you?&lt;/p&gt;&#xA;" OwnerUserId="240" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-06-30T17:42:14.730" Title="Any serious macro models for Greece's possible default or eurozone exit?" Tags="&lt;monetary-policy&gt;&lt;international-economics&gt;&lt;government-debt&gt;&lt;default&gt;" AnswerCount="0" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6313" PostTypeId="2" ParentId="6292" CreationDate="2015-06-30T17:43:53.250" Score="2" Body="&lt;p&gt;The way that the gold standard ties the value of a dollar to gold is usually by making a dollar exchangeable for a fixed amount of gold. For example, &lt;a href=&quot;http://www.history.com/this-day-in-history/fdr-takes-united-states-off-gold-standard&quot; rel=&quot;nofollow&quot;&gt;from 1934 until 1971 the US government would exchange \$1 for 1/35th of an ounce of gold&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;One of the charms of using gold as a currency is that it is durable and extremely valuable for how much room it takes up. How would anyone actually implement monetary conversion for Big Macs? Would there be a Fort Kroc where 3 billion Big Macs (worth the &lt;a href=&quot;https://www.fiscal.treasury.gov/fsreports/rpt/goldRpt/current_report.htm&quot; rel=&quot;nofollow&quot;&gt;\$11 billion of the current US Gold stockpiles&lt;/a&gt;) would be kept? The same  perishability and low value per unit volume of make Big Macs  delicious meals to millions also make them a terrible anchor for a commodity currency. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is true that consumption of gold services in the form of gold jewelry and the like make demand for gold pro-cyclical. But empirically, prices were stable and inflation low during the gold standard. Therefore it is hard to imagine this was a severe problem. Of course, the gold standard has lots of problems including:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;The supply of gold increases slowly over time relative to the economy, leading to gradual deflation which is thought to make recessions worse. &lt;/li&gt;&#xA;&lt;li&gt;The use of gold as a backing for currency significantly increased demand for gold, leading to tremendous diversion of resources into gold production.&lt;/li&gt;&#xA;&lt;li&gt;Like any pegged currency, a gold standard depends on reserves which can be exhausted in a panic about the future ability of a government to convert. &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Big Macs might not suffer from all these problems but, as mentioned above, suffer from lots of other problems that make it problematic to use them as or a backing for money. And how would you handle counterfeiting?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One reason all major counties have moved to fiat money is that it doesn't suffer from any of the problems of gold listed above. It also doesn't suffer from the additional weaknesses of Big Mac being both perishable and a low value item. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;One negative of fiat money is that the monetary authority (e. g. the central bank) can't abuse their discretion to create high inflation. But Big Macs suffer from this problem too. Because Big Macs are easy to create in large quantities and short run demand is relatively inelastic, the government could create lots of inflation by just grilling up their own, just as they could run their printing presses. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Yes, it is true that consumers of Big Macs are probably poorer on average, and so they would benefit relatively more from cheaper burgers if the government tried to inflate away the debt by printing money (grilling up burgers) but even if they were free how many would people eat? That's why their demand is inelastic, people don't want that fourth burger in one day nor do they want to eat them everyday forever. As for the other costs of higher inflation, that's a more complex issue and probably best posed as another question about what are the benefits and costs of higher inflation and who gets what. But original question asks would it be workable. The costs of conversion to a commodity backed money based on Big Macs seem to have little to recommend it and enormous costs both in transition off fiat money, governance (counterfeiting and monetary policy), and ongoing implementation owing to low value per item and perishability. &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-07-01T13:14:45.300" LastActivityDate="2015-07-01T13:14:45.300" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="6314" PostTypeId="2" ParentId="3366" CreationDate="2015-06-30T18:00:55.123" Score="2" Body="&lt;p&gt;Until the euro remains the official currency, the public and private sector in Greece have to pay wages and invoices in euro. They're also paying external debt in euros. But euros are fleeing the country and the banking system. And Greece can't print more of them. It means that firms and people have less and less liquidity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To escape the barter economy, Greece needs some sort of money that can circulate legally within the country. And this money needs to be printed without ECB's permission. So, this is &lt;em&gt;the exit&lt;/em&gt; everyone discusses. Notice that no one, in fact, takes away the euros. Two currencies may coexist.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And what's &lt;em&gt;the default&lt;/em&gt; everyone is talking about? Just a failure to keep up with the payment schedule, mostly to the IMF. It says nothing about how much of its public debt Greece will never pay. So, it depends on the negotiations whether the creditors will agree to stretch the payments or reduce the interest rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;This default is not directly related to &lt;em&gt;this exit&lt;/em&gt;. But both depend on how much euros the country gets from abroad.&lt;/strong&gt; Until export is weak, the IMF/EU credit line remains an important source of euros. The failing negotiations regarding this line may cause both default (on public and private debts) and the exit.&lt;/p&gt;&#xA;" OwnerUserId="240" LastEditorUserId="240" LastEditDate="2015-07-01T02:10:01.697" LastActivityDate="2015-07-01T02:10:01.697" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6315" PostTypeId="1" AcceptedAnswerId="6318" CreationDate="2015-06-30T20:04:22.393" Score="5" ViewCount="657" Body="&lt;p&gt;Today I suddenly became aware of how the term &quot;discount rate&quot; are frequently used in two different contexts:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;When people prefer to have something now rather than in the future. The reason is supposedly human psychology. The discount rate in this case is inherent to the individual.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The same amount of money now is more valuable than in the future. The reason is that if one has that money now, he can invest and earn interest. The discount rate in this case is the real interest rate, determined by the market.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Am I correct in thinking that these are essentially two distinct phenomena subsumed under the same term? Or there is actually a deeper connection between them?&lt;/p&gt;&#xA;" OwnerUserId="2819" LastActivityDate="2015-07-01T09:05:05.303" Title="Are there two different meanings of the discount rate?" Tags="&lt;microeconomics&gt;&lt;interest-rate&gt;&lt;behavioral-economics&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6316" PostTypeId="2" ParentId="6315" CreationDate="2015-06-30T20:10:09.080" Score="2" Body="&lt;p&gt;You're correct to think of them as different phenomena.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Often there is what's called the &lt;em&gt;personal discount&lt;/em&gt; rate $\rho$.  Typically it gets rolled up into a personal discount factor $\beta\equiv\frac{1}{1+\rho}$.  You refer to this object in #1.  We often see it in lifetime problems where a return function (like utility) is maximized over time.  Here are a few perspectives: &lt;a href=&quot;https://faculty.fuqua.duke.edu/~mela/bio/papers/Rates_2011.pdf&quot; rel=&quot;nofollow&quot;&gt;Yao et al.&lt;/a&gt;, &lt;a href=&quot;http://www.cmu.edu/dietrich/sds/docs/loewenstein/TimeDiscounting.pdf&quot; rel=&quot;nofollow&quot;&gt;Frederick et al.&lt;/a&gt;, or &lt;a href=&quot;http://mikael.cozic.free.fr/samuelson37.pdf&quot; rel=&quot;nofollow&quot;&gt;Samuelson&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There's also a distinct discount rate (often $r$ or potentially $r_t$ if you allow it to vary with time) on assets.  You seize on this in #2.&lt;/p&gt;&#xA;" OwnerUserId="4961" LastEditorUserId="4961" LastEditDate="2015-06-30T20:24:08.983" LastActivityDate="2015-06-30T20:24:08.983" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6317" PostTypeId="2" ParentId="6315" CreationDate="2015-06-30T21:30:09.953" Score="1" Body="&lt;p&gt;If we think of a discount factor, $\delta$, as the probability of survival to the next period and the utility of death is normalized to $0$, then a simple intertemporal utility function can be written as &#xA;$$&#xA;u(x_t)+\delta u(x_{t+1})+(1-\delta)u(\text{death})=u(x_t)+\delta u(x_{t+1}),&#xA;$$&#xA;where the argument in the utility function can either be consumption goods (your case 1) or financial assets (your case 2).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.sfu.ca/~robson/&quot; rel=&quot;nofollow&quot;&gt;Arthur Robson&lt;/a&gt; also proposes that time preferences have, aside from possible mortality, deeper evolutionary underpinnings, which has to do with the growth rate of offspring. See &lt;a href=&quot;https://www.aeaweb.org/articles.php?doi=10.1257/aer.97.2.496&quot; rel=&quot;nofollow&quot;&gt;Robson and Samuelson (2007)&lt;/a&gt;, &lt;a href=&quot;https://www.aeaweb.org/articles.php?doi=10.1257/aer.99.5.1925&quot; rel=&quot;nofollow&quot;&gt;Robson and Samuelson (2009)&lt;/a&gt;, and &lt;a href=&quot;https://www.aeaweb.org/articles.php?doi=10.1257/aer.104.11.3481&quot; rel=&quot;nofollow&quot;&gt;Robson and Szentes (2014)&lt;/a&gt;. &lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2015-06-30T21:30:09.953" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6318" PostTypeId="2" ParentId="6315" CreationDate="2015-06-30T22:37:55.860" Score="4" Body="&lt;p&gt;It is standard approach by now to acknowledge the existence of a &quot;rate of &lt;em&gt;pure time preference&lt;/em&gt;&quot;, denoted usually by $\rho$, that characterizes individuals. This is a fundamental aspect of preferences - a &quot;primitive&quot; parameter. It is not a proxy for the existence of uncertainty (this is why it is found also in deterministic models), neither does it reflect &quot;economic opportunity costs&quot; (this is why it discounts future &lt;em&gt;utility&lt;/em&gt; also).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In continuous-time model this discount factor takes the form $e^{-\rho t}$, while in discrete-time models, this discount factor takes the form $\beta = 1/(1+\rho)$.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the individual's intertemporal maximization problem, the interest rate does not enter in the utility/objective function, but in the law of motion of personal wealth. So a negative real interest rate does not reflect on the personal discount rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Traditionally also, firms are considered to discount the future only with respect to the opportunity cost which in turn is assumed to be reflected in the (real) interest rate $r$. So when modelling the intertemporal problem of a firm we usually see $e^{-r t}$ and $\beta = 1/(1+ r)$.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-07-01T09:05:05.303" LastActivityDate="2015-07-01T09:05:05.303" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6319" PostTypeId="1" AcceptedAnswerId="6395" CreationDate="2015-06-30T22:50:13.283" Score="0" ViewCount="195" Body="&lt;p&gt;Suppose I have a vector &lt;em&gt;&lt;strong&gt;x&lt;/strong&gt;&lt;/em&gt; = ($x_1,x_2,x_3,x_4,x_5$) of inputs. How it is the MRTS($x_1,x_2,x_3,x_4,x_5$) ?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And which is the relation with the marginal products of inputs 1-5 ?&lt;/p&gt;&#xA;" OwnerUserId="5075" LastEditorUserId="40" LastEditDate="2015-06-30T23:30:45.680" LastActivityDate="2015-07-06T11:50:19.203" Title="Marginal rate of technical substitution for multi-dimension inputs?" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="2" ClosedDate="2015-07-08T10:39:58.173" ContentLicense="CC BY-SA 3.0" />
  <row Id="6320" PostTypeId="1" CreationDate="2015-07-01T01:04:43.987" Score="1" ViewCount="29" Body="&lt;p&gt;In the undergoing Greek financial crisis, I’ve heard more than once that the three prime sufferers in any economic crisis are the 'bankers', 'supermarkets 'and 'chemists'. I do understand why the bankers could have trying times in a situation like this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, how does a recession like this impact supermarkets and chemists?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The only thing I can think of is it being a result of a hyper-inflation scare. If you could put it to me in the context of Greece's current situation, it'll help me understand it a lot better. So, for instance, how can dropping the Euro cause prices to rise?&lt;/p&gt;&#xA;" OwnerUserId="5066" LastActivityDate="2015-07-01T01:04:43.987" Title="Impact of Economic Crisis on Supermarkets And Chemists?" Tags="&lt;microeconomics&gt;&lt;financial-economics&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6322" PostTypeId="5" CreationDate="2015-07-01T05:42:48.503" Score="0" Body="&lt;p&gt;Financial economics is the branch of economics characterized by a concentration on monetary activities, in which money of one type or another is likely to appear on both sides of a trade. Its concern is thus the interrelation of financial variables, such as prices, interest rates and shares, as opposed to those concerning the real economy. It has two main areas of focus: asset pricing and corporate finance; the first being the perspective of providers of capital, i.e. investors, and the second of users of capital. It thus provides the theoretical underpinning for much of finance. (Source: &lt;a href=&quot;https://en.wikipedia.org/wiki/Financial_economics&quot; rel=&quot;nofollow noreferrer&quot;&gt;Wkipedia&lt;/a&gt;.)&lt;/p&gt;&#xA;" OwnerUserId="40" LastEditorUserId="4230" LastEditDate="2020-12-30T15:13:26.197" LastActivityDate="2020-12-30T15:13:26.197" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="6323" PostTypeId="4" CreationDate="2015-07-01T05:42:48.503" Score="0" Body="A branch of economics focusing on monetary activities, in which money of one type or another is likely to appear on both sides of a trade" OwnerUserId="40" LastEditorUserId="4230" LastEditDate="2020-12-31T12:12:07.477" LastActivityDate="2020-12-31T12:12:07.477" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="6324" PostTypeId="2" ParentId="6291" CreationDate="2015-07-01T06:13:12.687" Score="3" Body="&lt;h3&gt;global&lt;/h3&gt;&#xA;&lt;p&gt;The Dutch energy system is small enough that the ripples to the global supply chain will be very small. However, it is looking possible that there might be some temporary tightness in the global PV module supply chain coming up, after years of capacity expanding faster than demand, so there might be a price-spike up, there, if the Dutch go for rapid PV deployment 2015-6. Conversely, there is a bit of a dip coming in the global offshore wind pipeline, so the Dutch might help there; they do have a deployment pipeline set out to 2023, so one approach would be to accelerate that to deliver all of those windfarms by 2020, smoothing the work of the global supply chain, and reducing wastage there. But the Dutch energy system is small, and so all of these consequences would be small at the global scale.&lt;/p&gt;&#xA;&lt;p&gt;The much larger potential impact is that of the ruling itself, on other countries. This successful application of tort in one country may well prompt similar cases in other countries, as tort is a principle found in legal codes around the world. Further successful tort cases might help push the world along the decarbonisation trajectory much faster than it is at present. Now, as there is a non-negligible chance that business-as-usual could result in the destruction of much of the global economy, the option value of reducing the probability and scale of that wipe-out is very high; so the ruling may yet have very high, very positive economic consequences beyond the Netherlands.&lt;/p&gt;&#xA;&lt;h3&gt;overview&lt;/h3&gt;&#xA;&lt;p&gt;In many ways, the Dutch are about to go through, at small scale, what the rest of the world is about to go through at much larger scale. We've known for about 30 years that almost-complete global decarbonisation was necessary, and that the later we left it, the more expensive it would be. And then there was very little action in most countries. So now, not only do we have to decarbonise in about half the time we originally had (which will thus be more expensive), but we'll also have to spend a huge amount on adaptation too, as a lot of global warming is already in the pipeline and almost completely unavoidable over the next 40 years.&lt;/p&gt;&#xA;&lt;h3&gt;costs, benefits, prices, quantities&lt;/h3&gt;&#xA;&lt;p&gt;The negative externalities of the current system outweigh the benefits; so once we've transitioned away from fossil fuels, we'll be more economically efficient that we would otherwise have been; but there are short-term costs attached to that transition, and so resources will be diverted from other activities and into an accelerated transition.&lt;/p&gt;&#xA;&lt;p&gt;The accelerated action required in the Netherlands 2015-2020 will be to temporarily increase prices for the mitigation measures deployed; and those prices will then, post-2020, be lower than they would otherwise have been, as the supply chains will have expanded.&lt;/p&gt;&#xA;&lt;p&gt;Regarding demand for oil, coal and gas: they are all internationally traded commodities, so a decrease in Dutch demand will add a little downward pressure on their prices across Europe; however, Dutch demand is a small proportion of total European demand , so this price effect will be very small.&lt;/p&gt;&#xA;&lt;p&gt;The Dutch have been investigating various forms of road pricing for around 30 years; and planned out to some detail. So we may see some version of that finally implemented. Now, that would be more economically efficient in the long run: fossil-fuelled car travel has a lot of externalities in addition to greenhouse gas emissions. But in the short run, there are additional costs as land-use patterns change, and people change where they shop, where they live, where they work.&lt;/p&gt;&#xA;" OwnerUserId="44" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2015-07-01T06:45:51.743" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6325" PostTypeId="1" CreationDate="2015-07-01T06:55:52.557" Score="3" ViewCount="198" Body="&lt;p&gt;Say there is a linear regression model to estimate Y, that is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$Y_i = B_0 + B_1X_i + u$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When testing the Betas of our sample's regression model for significance the null hypothesis for $B_1$ would naturally be set as zero (assuming X has no impact on Y).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, what would the null hypothesis for $B_0$ be set as?&#xA;If it is set as zero, is that not assuming that a certain value is taken by Y in the absence of X, i.e. zero?&#xA;In general is there any non-arbitrary setting for $B_0$ we would test against?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or does the value of $B_0$ vary from case to case?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am aware that a sampling test is conducted on $B_0$ and as such am curious as to what the exact purpose of this test would be? Is there any actual null hypothesis $B_0$ is being tested against or is the data presented only to illustrate the confidence intervals and other statistics, such as variance?&lt;/p&gt;&#xA;" OwnerUserId="5078" LastEditorUserId="5078" LastEditDate="2015-07-01T08:52:04.473" LastActivityDate="2015-07-01T22:07:31.737" Title="What value does one set, in general, for the null hypothesis of $\beta_0$ (&quot;Y-intercept&quot;)?" Tags="&lt;econometrics&gt;" AnswerCount="4" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6326" PostTypeId="2" ParentId="6325" CreationDate="2015-07-01T08:07:55.210" Score="1" Body="&lt;p&gt;It would vary from case to case. To clarify: You can set whatever you want as a null hypothesis, even $B_0 = \pi$. You have to choose your null based on what you are testing for.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An example:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose I flip a 1 euro coin once everyday and you win it if it comes out heads. Let $Y_i$ denote your winnings on day $i$ and let $X_i$ be the average temperature of day $i$. If you gathered data for a year you could probably not reject $B_1 = 0$.&#xA;&lt;br&gt; If the coin is fair (50% chance of heads) then you can also not reject $B_0 = \frac{1}{2}$.&#xA;&lt;br&gt; (This makes $u$ a random variable with mean 0.) &lt;br&gt; &#xA;But suppose it is a trick coin that never comes out heads. Then $B_0$ is 0. So if you want to test fairness, you would say in your null hypothesis that $B_0 = \frac{1}{2}$. If you reject this then you assume the coin is not fair. But remember that the unit of measurement of $B_0$ here is not probability, but euros. If I had a 2 euro coin instead of a 1 euro coin your null to measure fairness should be $B_0 = 1$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus even when testing for the same thing, the value of $B_0$ in your null would vary from case to case. &lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2015-07-01T08:07:55.210" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6327" PostTypeId="2" ParentId="6325" CreationDate="2015-07-01T08:09:01.863" Score="1" Body="&lt;p&gt;'When testing your sample's regression model ' --&gt; Testing for significance you mean?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think it depends on what X and Y are. Sometimes testing $B_0 = 0$ is meaningless. Iirc, one replaces zero with some other number depending on the data or the variables.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Check out the section '&lt;a href=&quot;http://sites.stat.psu.edu/~lsimon/stat501wc/sp05/01simple/06simple_conclude.html&quot; rel=&quot;nofollow&quot;&gt;An α-level hypothesis test for intercept parameter β0&lt;/a&gt;'.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://mtweb.mtsu.edu/stats/regression/level2/yintercept/ht_and_ci.htm&quot; rel=&quot;nofollow&quot;&gt;This&lt;/a&gt; seems to disagree with me. Not really sure. I think you'll get faster and better answers in Stats SE.&lt;/p&gt;&#xA;" OwnerUserId="4483" LastActivityDate="2015-07-01T08:09:01.863" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6328" PostTypeId="1" CreationDate="2015-07-01T08:46:43.180" Score="3" ViewCount="59" Body="&lt;p&gt;There are a number of things that are confusing me about the current Greek financial crisis.  The first is this.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Is it plausible that if Greece did everything the Troika asked then&#xA;  the Greek economy would revert to high growth and high employment in a&#xA;  small number of years?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="5079" LastEditorUserId="5079" LastEditDate="2015-07-01T10:10:44.257" LastActivityDate="2015-07-01T10:10:44.257" Title="Could the Troika's economic plan work for Greece?" Tags="&lt;banking&gt;&lt;financial-crises&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="6329" PostTypeId="1" CreationDate="2015-07-01T09:01:33.527" Score="9" ViewCount="1409" Body="&lt;p&gt;&lt;strong&gt;Update&lt;/strong&gt;: I have spent 750 reputation points for bounties on this 6 year old question, and it looks like ONLY NOW this question might be closed. LOL. this must be such a huge guinness book of stackex records: longest duration of post or most reputations points spent for bounties (or both) on question that is supposed to be closed before question is actually closed.&lt;/p&gt;&#xA;&lt;hr /&gt;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;strong&gt;Question&lt;/strong&gt;: Why aren't songs, movies or ebooks given for free (+ads) like TV?&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;i. &lt;strong&gt;Sub-question&lt;/strong&gt;: &lt;strong&gt;Every minute, people are pirating and there is no stopping that.&lt;/strong&gt; If people see 0.99 for a song on iTunes and 0.00 for a song on a torrent site, I don't see anything stopping majority of people from going to that torrent site in the same way I don't see anything stopping them from going to a library or asking a friend to &lt;a href=&quot;https://youtu.be/bdvL3FBwHEc?t=239&quot; rel=&quot;nofollow noreferrer&quot;&gt;borrow a book instead of buying the book in Borders&lt;/a&gt; or &lt;a href=&quot;https://en.wikipedia.org/wiki/Home_Taping_Is_Killing_Music&quot; rel=&quot;nofollow noreferrer&quot;&gt;taping a song off the radio&lt;/a&gt;. In particular, there's &lt;a href=&quot;https://en.wikipedia.org/wiki/Sony_Corp._of_America_v._Universal_City_Studios,_Inc.&quot; rel=&quot;nofollow noreferrer&quot;&gt;betamax. It was thought illegal until this case or something.&lt;/a&gt;&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;(Anyway that's about legality not economic benefit/loss. Also betamax is more like &lt;a href=&quot;https://en.wikipedia.org/wiki/Positive_economics&quot; rel=&quot;nofollow noreferrer&quot;&gt;is or positive&lt;/a&gt; rather than &lt;a href=&quot;https://en.wikipedia.org/wiki/Normative_economics&quot; rel=&quot;nofollow noreferrer&quot;&gt;should or normative&lt;/a&gt;, I guess.)&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;So, why don't companies, like the RIAA or MPAA, release their songs, movies or ebooks for free but put in &lt;a href=&quot;https://www.techdirt.com/articles/20100525/1040569564.shtml&quot; rel=&quot;nofollow noreferrer&quot;&gt;ads&lt;/a&gt; kind of like how cable TV was/is done?&lt;/strong&gt; In my opinion, companies incur a huge &lt;a href=&quot;https://en.wikipedia.org/wiki/Opportunity_cost&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;strong&gt;opportunity cost&lt;/strong&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;eg '&lt;a href=&quot;http://jakonrath.blogspot.hk/2010/05/piracy-again.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;JK Rowling has lost millions of dollars, because she refused to let Harry Potter come out in ebook form. Newsflash: you can get ebooks of all the Potter books from pirate sites. She didn't cater to her fans, so her fans catered to themselves.&lt;/a&gt;'.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;ii. &lt;strong&gt;Sub-question&lt;/strong&gt;: &lt;strong&gt;What I guess is that they think they can actually stop piracy&lt;/strong&gt; with things like DRM or scaring people into believing that they will be caught even though &lt;a href=&quot;http://www.reddit.com/r/theydidthemath/comments/2n9ske/request_what_are_the_actual_odds_of_being_caught/cmbqwyh&quot; rel=&quot;nofollow noreferrer&quot;&gt;such is unlikely&lt;/a&gt; so as to keep making &lt;a href=&quot;https://youtu.be/usaOKXVErqc?t=217&quot; rel=&quot;nofollow noreferrer&quot;&gt;money&lt;/a&gt; on iTunes, Netflix or whatever.&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;However, I read that in a &lt;a href=&quot;https://en.wikipedia.org/wiki/Good_Copy_Bad_Copy&quot; rel=&quot;nofollow noreferrer&quot;&gt;documentary&lt;/a&gt;, Chairman and CEO of the Motion Picture Association of America (MPAA) Glickman 'concedes that piracy will never be stopped, but states that they will try to make it as difficult and tedious as possible.'&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;So he ADMITS piracy cannot be stopped, which makes my &lt;strong&gt;guess wrong&lt;/strong&gt;. &lt;strong&gt;So what, are the RIAA and MPAA actually &lt;a href=&quot;http://www.investopedia.com/terms/r/rational-behavior.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;irrational&lt;/a&gt;?&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;hr /&gt;&#xA;&lt;ol start=&quot;2&quot;&gt;&#xA;&lt;li&gt;&lt;strong&gt;Question&lt;/strong&gt;: What are some &lt;strong&gt;economic concepts or theories&lt;/strong&gt; involved in file sharing/piracy besides opportunity cost and free rider problem?&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;&lt;strong&gt;Notes&lt;/strong&gt;:&lt;/p&gt;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;This can also &lt;a href=&quot;https://en.wikipedia.org/wiki/Intellectual_property#Copyright&quot; rel=&quot;nofollow noreferrer&quot;&gt;extend&lt;/a&gt; to games, apps, etc.&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;To clarify, I don't mean to ask why songs, movies and ebooks are not given ONLY for free. They should continue to be given for payment since there will still be demand. If people want to buy CDs, DVDs or ebooks, attend concerts or go to cinema before songs, movies and ebooks would be given free, they would likely not want to do less if ever songs, movies and ebooks would be given free, I think because it seems that if people like the cinema or concert experience, don't have Internet access or like smelling books, they will continue to purchase as much.&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;My question is not 'Why do people go to netflix instead of torrent?', a question focused on the consumers &lt;em&gt;given&lt;/em&gt; the law and the companies' decisions. My question is instead 'Why aren't songs, movies or ebooks given for free?', a question focused &lt;em&gt;on&lt;/em&gt; the law and the companies' decisions given, well:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;&lt;a href=&quot;https://cyberlaw.org.uk/2008/09/07/furious-author-cancels-pirated-book/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Pirate Coelho's 'Sharing is part of the human condition. A person who does not share is not only selfish, but bitter and alone.'&lt;/a&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Btw I just discovered &lt;a href=&quot;https://en.wikipedia.org/wiki/Artificial_scarcity&quot; rel=&quot;nofollow noreferrer&quot;&gt;artificial scarcity&lt;/a&gt;.&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;&lt;strong&gt;Edit&lt;/strong&gt;: in re my badge, thanks for the upvotes everyone! This is so weird that this has only 3 downvotes. I could've sworn this was at 0 score sometime in the past year or so with like at least 10 downvotes. I got a lot of 'user was removed' in notifications recently, so maybe that's relevant.&lt;/p&gt;&#xA;" OwnerUserId="4483" LastEditorUserId="4483" LastEditDate="2021-05-01T11:12:34.147" LastActivityDate="2021-05-01T11:12:34.147" Title="Piracy/File sharing - Why aren't songs, movies or ebooks given for free (+ads) like TV?" Tags="&lt;consumer-theory&gt;&lt;opportunity-cost&gt;&lt;intellectual-property&gt;&lt;free-riding&gt;&lt;artificial-scarcity&gt;" AnswerCount="7" CommentCount="48" FavoriteCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="6330" PostTypeId="2" ParentId="6329" CreationDate="2015-07-01T09:13:56.103" Score="9" Body="&lt;p&gt;The simple answer is that they don't think they would make as much money.&lt;/p&gt;&#xA;&lt;p&gt;In many countries illegally downloading music or movies is getting harder and harder. The recording industry has achieved this by  persuading governments to instruct the ISPs to block torrent sites, torrent proxy sites and sites that list proxy sites completely so no one can access them.&lt;/p&gt;&#xA;&lt;p&gt;Also, a lot of people who legally download music/movies do it more because of the convenience despite the financial disadvantage. If you own an iphone or ipad, for example, it is much simpler to download what you want from itunes or subscribe to netflix than to find a way to get it illegally.&lt;/p&gt;&#xA;&lt;p&gt;Finally, your example of cable companies also seems a little odd as you always pay a subscription fee as well as having to watch the ads.&lt;/p&gt;&#xA;" OwnerUserId="5079" LastEditorUserId="4483" LastEditDate="2020-09-24T08:03:04.257" LastActivityDate="2020-09-24T08:03:04.257" CommentCount="25" ContentLicense="CC BY-SA 4.0" />
  <row Id="6331" PostTypeId="2" ParentId="6325" CreationDate="2015-07-01T09:31:14.057" Score="3" Body="&lt;p&gt;If you simply want to estimate the values of Y corresponding to particular values of X, you can calculate the regression to obtain estimates of $\beta_0$ and $\beta_1$, and need not be concerned with hypothesis testing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you want to test one or more hypotheses, then the choice of hypotheses should be driven by the purpose of your research. A common aim is to assess the relevance of an independent variable by testing the hypothesis that its parameter equals zero, but that is just one choice.  In this case you might want to test the hypothesis that $\beta_1=0$, and you can do so without testing any hypothesis about $\beta_0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where matters possibly become confusing is that regression software often, by default, generates t-values for all the independent variables and the constant. If you want to test the hypotheses that $\beta_0=0$ or $\beta_1=0$, these t-values are useful.  But you can also ignore them if you are not interested in testing those hypotheses.  The estimated parameters don't depend on these hypotheses or t-values, so you can still use them in estimating values of Y.&lt;/p&gt;&#xA;" OwnerUserId="1417" LastActivityDate="2015-07-01T09:31:14.057" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6332" PostTypeId="2" ParentId="6328" CreationDate="2015-07-01T09:41:22.707" Score="4" Body="&lt;p&gt;The short answer is &quot;No&quot;, if by &quot;small number&quot; we mean something no more than &quot;five&quot;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The two characteristics you mention are rather different: &quot;high growth&quot; describes &lt;em&gt;a rate of evolution&lt;/em&gt;. Now, it is standard corporate speak to say &quot;we are in an excellent position to grow&quot; to express in a diplomatic way the fact that you have hit rock-bottom. Given the unprecedented fall in Greece's GDP, to obtain some positive growth rate it is not that hard, since the base has shrunk so much.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for &quot;high employment&quot;, if by that we mean reverting back to the country's &quot;natural rate of unemployment&quot; (which was $7-8\%$ for decades), to do that in $10$ years, &lt;a href=&quot;https://alecospapadopoulos.wordpress.com/2015/01/26/a-few-naive-economics-on-greeces-economic-challenge-that-lies-ahead/&quot; rel=&quot;nofollow&quot;&gt;back-of-the-envelope calculations&lt;/a&gt; show that one would need $50$ billion euros &lt;em&gt;additional&lt;/em&gt; investments &lt;em&gt;yearly&lt;/em&gt; for $10$ years in a row to achieve that. This represents a $128\%$ increase in yearly investments from current level, or almost &quot;two times and a half more&quot; than now. Yearly.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From a structural point of view, what is required is a massive increase in Greek exports, or a massive increase in import-substituting economic activities. These things do not happen &quot;in a small number of years&quot;.  The first has to deal with international competition, the second requires extended geographical and sectoral relocation of productive resources.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But Greece returning to &quot;high growth-high employment&quot; was not and is not the main concern of the creditors -not unsurprisingly, and perhaps rightfully, since it should be the main concern of the Greeks and their (our) political system.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As to whether the approach taken by the creditors do indeed serve their own interests, is a totally different question, and a very complex to answer -because we would have first to clearly identify &quot;their interests&quot;.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-07-01T10:04:52.303" LastActivityDate="2015-07-01T10:04:52.303" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="6333" PostTypeId="2" ParentId="5128" CreationDate="2015-07-01T12:13:28.613" Score="0" Body="&lt;p&gt;MCAP = sum(iStockWeight * iStockMCAP)&lt;/p&gt;&#xA;" OwnerUserId="5075" LastActivityDate="2015-07-01T12:13:28.613" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6334" PostTypeId="2" ParentId="5128" CreationDate="2015-07-01T13:02:00.203" Score="2" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;An ETF’s assets will fluctuate based on both changes in the value of&#xA;  the underlying securities and the creation of new shares or redemption&#xA;  of existing shares. It is worth noting that there may be a difference&#xA;  between an ETF’s market capitalization and the net asset value (NAV)&#xA;  of its underlying securities. The difference results in either a&#xA;  discount or a premium in the trading price of the ETF.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://etfdb.com/compare/market-cap/&quot; rel=&quot;nofollow&quot;&gt;ETF DB: Largest ETFs: Top 100 ETFs By Assets&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The market capitalization at time $t$ is therefore  the number of shares at $t$ times the price of those shares at $t$. The net assets are the total value of all the assets in the fund at 't':&#xA;$$ Net\ Assets_t = U_{t} \cdot NAV_t = U_{t} \cdot \sum_{i} (S_{i,t} \cdot weight_{i,t})$$&#xA;where $S_{i,t} $ is the value of a share of stock $i$ at time $t$, $weight_{i,t}$ is the fraction of the index invested in stock $i$ at time $t$, and $U_{t}$ is the number of shares of the index.&#xA;Or equivalently:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ Net\ Assets_t = \cdot \sum_{i} (S_{i,t} \cdot q_{i,t}) $$&#xA;Where $q_{i,t}$ is the number of shares of stock $i$ at time $t$ held by the ETF. This sounds simpler but it is often easier to find index weights than exact share holdings measured in number of shares. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But for &lt;a href=&quot;http://journals.cambridge.org/action/displayAbstract?fromPage=online&amp;amp;aid=4488072&amp;amp;fileId=S0022109000011509&quot; rel=&quot;nofollow&quot;&gt;open-ended&lt;/a&gt; funds that allow &lt;a href=&quot;https://www.flexshares.com/education/what-are-etfs/how-do-etfs-work&quot; rel=&quot;nofollow&quot;&gt;creation and redemption&lt;/a&gt; or have minimal expenses these NAV and market price based approaches will give similar answers. &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-07-02T09:42:20.780" LastActivityDate="2015-07-02T09:42:20.780" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6335" PostTypeId="2" ParentId="6219" CreationDate="2015-07-01T13:58:47.627" Score="2" Body="&lt;p&gt;The answer to your question is complicated by the fact that there are (at least) two distinct types of &quot;money&quot; in our economy: &quot;base money&quot; and &quot;broad money&quot;. You can think of base money as tokens that get passed from person to person as trade is carried out, much like a non-economist would guess that money worked. This however constitutes only a small fraction of the money in our economy. The majority, broad money, can be thought of as &quot;spendable IOUs&quot;. We all know that IOUs can spontaneously come into existence when a loan agreement is made, and conversely disappear back out of existence when a loan is repaid. This is why, when a bank makes a &quot;loan&quot;, they are not transferring money from savers to the borrower, but instead create spendable IOUs. Later when the loan is repaid, the spendable IOUs disappear back out of existence.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The total amount of money in an economy is therefore not necessarily always growing. Instead it depends on the relative rates of new loans being made (creating new money) and pre-existing loans being repaid (destroying money). If the rate of new lending stalls, but existing loans still have to be repaid, then the money supply can shrink. This is what happened in the great depression, where the money supply fell by around a third.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you see an explanation of fractional reserve banking in a textbook that contradicts my explanation - the textbook is probably wrong. This can be confirmed by reading a recent paper published by the Bank of England &lt;a href=&quot;http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt; which totally condemns most popular textbooks.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;See &lt;a href=&quot;http://www.fractionalreserves.com/chap1.htm&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt; for a more detailed, but jargon free, explanation that is compatible with the latest BoE paper.&lt;/p&gt;&#xA;" OwnerUserId="5081" LastEditorUserId="5081" LastEditDate="2015-07-01T19:44:18.407" LastActivityDate="2015-07-01T19:44:18.407" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="6336" PostTypeId="2" ParentId="6304" CreationDate="2015-07-01T14:48:31.433" Score="0" Body="&lt;p&gt;A 'chain-reaction', as you describe it, seems like a very plausible possibility at the moment. As strange as it may sound, there is actually quite a lot of panic in the streets of Athens right now. Not only is it unclear where Greece is heading, but there are possibilities as far-out as the current government getting dissolved.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let there be no doubt that it will have far-reaching consequences. The Eurozone is currently giving Greece a serious side-eye. No one is quite sure about the extent to which Greece's exit could hurt them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What this, in turn, means is that the European economy could come to a grinding standstill. There is no saying how far the Eurozone could go to protect their currency. They already have a watchful eye on the stock markets and within the first sight of a looming disaster, they could shut down all trade and try their level-best to ensure that no money leaves the Eurozone. This could mean temporary trade barriers and a big no-no to business outsourcing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I firmly believe that the Euro is resilient enough to stabilise itself again in due time. However, most investors would prefer to sit on their money until then.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are, of course, other factors involved as well. Greece could, for instance, increase import tariffs and do away with its liberal policies until the local economy is strengthened and can stand on its feet. &lt;/p&gt;&#xA;" OwnerUserId="5066" LastActivityDate="2015-07-01T14:48:31.433" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6337" PostTypeId="1" AcceptedAnswerId="6352" CreationDate="2015-07-01T17:33:42.993" Score="1" ViewCount="98" Body="&lt;p&gt;If a country forcibly leaves the Eurozone, is it possible for banks within this country to maintain existing euro deposits?  Or does leaving the eurozone mean those deposits are automatically converted?&lt;/p&gt;&#xA;" OwnerUserId="332" LastEditorUserId="2776" LastEditDate="2017-08-07T17:25:51.543" LastActivityDate="2017-08-07T17:25:51.543" Title="Can banks maintain Euro accounts if the country they're in leaves the eurozone?" Tags="&lt;monetary-policy&gt;&lt;currency&gt;&lt;central-banking&gt;&lt;euro-area&gt;" AnswerCount="2" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="6338" PostTypeId="2" ParentId="6337" CreationDate="2015-07-01T18:57:54.620" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;there is no treaty provision at present for a Member State to be expelled from the EU or EMU&#xA;  (&lt;a href=&quot;http://www.ecb.europa.eu/pub/pdf/scplps/ecblwp10.pdf&quot; rel=&quot;nofollow&quot;&gt;http://www.ecb.europa.eu/pub/pdf/scplps/ecblwp10.pdf&lt;/a&gt;)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Now could such a provision be added?&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The first objection to reading a right of expulsion into the treaties is a &#xA;  formal one. A Member State’s expulsion from the EU or EMU would inevitably result in an amendment of the reaties, for which the unanimous consent of all Member States is necessary under Article 48 TEU. Given that a Member State’s expulsion would, by definition, be contrary to the presumed wish of that Member State to continue its membership of the EU, a right of expulsion would be inconceivable, since it would have to entail an unauthorised Treaty amendment, in breach of Article 48 TEU. Besides, it is likely that some Member States would object to the introduction of a right of expulsion in the treaties, coupled with an amendment of Article 48 TEU to make that &#xA;  possible, since this would expose them to the risk of being forced out at some future date.  &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Moreover, apart from it being politically almost inconceivable, forcing a Member State out of the EU or EMU would inevitably give rise to tremendous legal complexities. ... ‘participation in the European Union gives rise to a wide web of rights and obligations to citizens, companies and governments. To erase all those obligations at a stroke by expelling the member state would create huge confusion and penalise ordinary citizens and ordinary businesses, who rely on their rights of residence and free movement, to &#xA;  name but two’&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="1499" LastActivityDate="2015-07-01T18:57:54.620" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="6339" PostTypeId="2" ParentId="6325" CreationDate="2015-07-01T22:07:31.737" Score="1" Body="&lt;p&gt;The &quot;constant term&quot; in the regression specification may be a consequence of the theoretical model that is estimated. For example, if we assume a production function of the form&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Q = AK^aL^b$$&#xA;then taking logarithms we obtain the linear-in-logarithms specification&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\ln Q = \ln A + a\ln K + b\ln L$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and it appears that the constant term in the econometric regression specification will be estimating the logarithm of the production shifter (technology) $A$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;...but also, the constant term guards to a degree against misspecification: if we wrongly assume that the error term that will appear in the stochastic specification has a zero mean, then the inclusion of the constant term, even if it is not provided by the theory, effectively &quot;takes on&quot; this non-zero value, permitting to treat the now transformed stochastic error as indeed zero-mean. This is important for one of the dominant methods of estimation in econometrics, Least-squares: this method produces unavoidably &lt;em&gt;residuals&lt;/em&gt; that have zero mean. And we want to be able to assume that the unknown error is also zero-mean, so that we can treat the residuals as a good estimator of the unknown error.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now if one puts these two together, one realizes that &lt;em&gt;interpreting&lt;/em&gt; the constant term is problematic: does it represent the constant postulated by the theory, or the non-zero mean of the error term? And if both, what meaning could we give to its magnitude, so as to subsequently &lt;em&gt;test&lt;/em&gt; this magnitude?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;...this is why, in many econometrics papers, the constant term is not discussed at all, while in others, &lt;em&gt;it is not even reported&lt;/em&gt;.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-07-01T22:07:31.737" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6340" PostTypeId="2" ParentId="5128" CreationDate="2015-07-02T02:07:05.907" Score="1" Body="&lt;p&gt;One problem you should see with the way you are calculating market cap for ETF is by the following example:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume there are 100 shares of Stock A for \$5 per share (MKTCAP for A = \$ 500) and 200 shares of stock B for \$10 per share (MKTCAP for B = \$ 2000) . &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Say ETF1 contains \$100 worth of stock A and \$100 worth of stock B. And ETF2 contains \$200 worth of stock A and \$200 worth of stock B.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By your formula, MKTCAP for ETF1 is equal to MKTCAP for ETF2 since both contain same weights (0.5, 0.5). Instead the formula should be &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\sum_{i} \left(\frac{\textrm{# of shares in ETF for Stock }i}{\textrm{# of total shares of Stock }i}\right)\textrm{MKT CAP}_i$$&lt;/p&gt;&#xA;" OwnerUserId="1515" LastEditorUserId="1515" LastEditDate="2015-07-02T08:20:12.670" LastActivityDate="2015-07-02T08:20:12.670" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6343" PostTypeId="2" ParentId="48" CreationDate="2015-07-02T06:56:21.500" Score="1" Body="&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/V6FwQ.png&quot; alt=&quot;enter image description here&quot;&gt;Ben Tamari (1997). &quot;Conservation and Symmetry Laws and Stabilization Programs in Economics.&quot; English.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Conservation and Symmetry Laws and Stabilization Programs in Economics &#xA;Abstract: An autonomous economic system, i.e., a country, tends to be a conservative and a symmetrical system in Keynes space (Output, Money and Time [Ot,  Mt ; t]), and can therefore be represented as a &lt;strong&gt;complex numbers system&lt;/strong&gt;. This presentation makes it possible to aggregate (or disaggregate) the system at all levels, from the individual to the most general aggregate (and vice versa). It also offers a simultaneous solution to the problem of allocating and distributing useful resources in the market.&lt;/p&gt;&#xA;" OwnerUserId="5087" LastActivityDate="2015-07-02T06:56:21.500" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6344" PostTypeId="2" ParentId="6329" CreationDate="2015-07-02T07:51:24.813" Score="4" Body="&lt;p&gt;Firstly there are services like this in Spotify, and even radio and tv, but it sounds like you are talking about downloading the material with ads in.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That causes a problem. Revenue from ads relies on giving many ads to many people.  Each time you listen to a song the provider needs to be able to provide a new ad. If you download a song or book with ads then those ads are fixed.  So you might listen to it 100 times but no advertiser will pay 100x as much because it is not valuable to give the same ad to the same person many times.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Secondly you would need some added security on the files to make it hard to simply remove the ads. That is easily as difficult and expensive as DRM anyway.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The third problem is ads are annoying.  I think for many people an ad would be more incentive to pirate than a small cost. Early music DRM eventually failed (in part) because it was to motivate piracy in itself. Xkcd had a nice comic on that idea.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And that leads to the forth point.  Much of economics is about equilibria and long run expectation. In reality everything takes time and big bold change is even harder to start. Initially music was DRM protected but they eventually realised most people will pay 99c to avoid the hassle of piracy, but will pirate to avoid DRM  Nothing changed in the economics, it just took time for the industry to realise that was a better way yo do things. There may well be a book publisher out there working on an ad supported eReader library, but it will take time. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To put the price of a song in context:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The US median hourly wage is \$17.09&lt;sup&gt;&lt;a href=&quot;http://www.bls.gov/oes/current/oes_nat.htm&quot; rel=&quot;nofollow&quot;&gt;1&lt;/a&gt;&lt;/sup&gt;, the median song length of the top 100 iTunes songs is 223 seconds&lt;sup&gt;&lt;a href=&quot;http://www.statcrunch.com/5.0/viewreport.php?reportid=28647&amp;amp;groupid=948&quot; rel=&quot;nofollow&quot;&gt;2&lt;/a&gt;&lt;/sup&gt;.  So 50% of US workers earn \$1.06 in the time it takes to play a song.&lt;/p&gt;&#xA;" OwnerUserId="119" LastEditorUserId="119" LastEditDate="2015-07-13T11:13:28.580" LastActivityDate="2015-07-13T11:13:28.580" CommentCount="10" ContentLicense="CC BY-SA 3.0" />
  <row Id="6345" PostTypeId="1" CreationDate="2015-07-02T09:13:16.910" Score="7" ViewCount="159" Body="&lt;p&gt;There's an interesting situation with the likes of Photoshop, where the software being pirated actually increases its market usage, and the software becomes the de facto standard, in part due to software piracy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the instance of Photoshop for example, it's likely that people creating funny doctored ('photoshopped') images and spreading them via the internet, were using pirated Photoshop software. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://lifehacker.com/how-piracy-benefits-companies-even-if-they-dont-admit-1649353452&quot; rel=&quot;nofollow&quot;&gt;Here's a Life Hacker article on it.&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What it means, is that especially for a creative software like Photoshop, or Ableton (music production software), the developers shouldn't make their copyright protection too strict. It should be easy enough to crack so that people can actually use it, but pain enough to get people to fork out if they're serious enough. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is - is this a well researched phenomena in economics?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there an optimal either pricing strategy, or copyright protection strategy, that takes this into account? &lt;/p&gt;&#xA;" OwnerUserId="96" LastEditorUserId="4483" LastEditDate="2015-07-06T12:59:19.023" LastActivityDate="2016-08-13T04:14:21.200" Title="Is there an economic analysis of how piracy allows a product to take a hegemonic position?" Tags="&lt;pricing&gt;&lt;free-riding&gt;" AnswerCount="3" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="6346" PostTypeId="1" CreationDate="2015-07-02T10:49:20.647" Score="2" ViewCount="60" Body="&lt;p&gt;sorry I am not sure to post this question in quant stackexchange or in here. I have posted it previously in the below link&#xA;&lt;a href=&quot;https://quant.stackexchange.com/questions/18633/total-market-cap-in-country-and-average-p-e-per-country-and-continenteurope&quot;&gt;https://quant.stackexchange.com/questions/18633/total-market-cap-in-country-and-average-p-e-per-country-and-continenteurope&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I want to invest my monthly saving on index fund. However, I am not sure to pick which country index fund that I want to invest. I am afraid i am investing in an index fund that is so overvalued goes over the roof and haven't manage to come back after such a long time like nikkei 1989 or 1929 or Nasdaq in 2000 maybe?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I just read the article about Warren Buffett indicator that says something like the ratio of gdp compare to the total market cap per country helps to define whether the stock market is overvalued or not for that country. I also hear a lot that the average p/e ratio of the market helps to define whether the market is overvalue or not.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In my place, I have an access to invest with an index fund in the following market: China, Hongkong , SIngapore, US, Europe, taiwan, SOuth Korea, Japan, Australia, India, Russia, Brazil.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is, where can I get the historical total market cap, GDP and average p/e of the market for those countries above? This really helps me to allocate my saving and prevent investing my money in an overvalued market. Thanks heaps.&lt;/p&gt;&#xA;" OwnerUserId="5089" LastEditorUserId="-1" LastEditDate="2017-04-13T12:46:23.963" LastActivityDate="2015-07-04T17:48:28.753" Title="Total market cap in country, and average p/e per country and continent(europe)" Tags="&lt;macroeconomics&gt;&lt;finance&gt;&lt;data-request&gt;" AnswerCount="0" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6347" PostTypeId="2" ParentId="5211" CreationDate="2015-07-02T11:45:54.017" Score="2" Body="&lt;p&gt;QE is designed to increase the money supply, usually in economic environment in which the money supply would otherwise be falling. The process by which this happens is not easy to understand unless you already have a very good grasp of fractional reserve banking, and it certainly isn't as simple as &quot;printing money&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the first instance QE increases &lt;a href=&quot;https://en.wikipedia.org/wiki/Monetary_base&quot; rel=&quot;nofollow&quot;&gt;base money&lt;/a&gt; and &lt;a href=&quot;https://en.wikipedia.org/wiki/Broad_money&quot; rel=&quot;nofollow&quot;&gt;broad money&lt;/a&gt; simultaneously and in equal quantities. In theory the additional base money in the system could enable banks to lend more money than they otherwise would, but this is a secondary effect, any may not happen at all.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A feature of QE that is not often mentioned is the fact that, without further QE, the money created will expire back out of existence dependent on the duration of the bonds purchased.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The popular explanations of QE are almost invariably incorrect and or miss important features. But a good explanation can be found within &lt;a href=&quot;http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf&quot; rel=&quot;nofollow&quot;&gt;this&lt;/a&gt; document from the Bank of England.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The downside of QE is that it artificially boosts asset prices, which tend to be owned by richer people, so it can be considered as a flow of wealth from poor to rich.&lt;/p&gt;&#xA;" OwnerUserId="5081" LastEditorUserId="5081" LastEditDate="2015-07-03T07:26:50.427" LastActivityDate="2015-07-03T07:26:50.427" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6349" PostTypeId="2" ParentId="6306" CreationDate="2015-07-02T15:37:31.187" Score="0" Body="&lt;p&gt;1) I think it is not legal. Coins are produced by single countries; in theory Greece could destroy her own coins, but in Greece you may find not only Greek coins, but also coins from other EU countries, what do you do with this coins?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) Paper bills are produced by the BCE, which --if I am not wrong-- has the property of these bills. This is the same in most of the countries: central banks have the property of the bills. (this is linked to the previous point, do central banks from single countries have the property of the coins they produce? if yes, can you destroy these coins?)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;3) There could be retaliations of some kind. It is an act that would acquire potent meanings, that go beyond the simple material act of destroying coins and bills; Greece would destroy a symbol of the EU, which only a few years ago got the Nobel prize for peace. Sure, the &quot;Euros destruction&quot; would be charged with political negative meanings (e.g., Greeks reckless people enemies of the peace).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In conclusion, this solution is out of the realm of the possible things to do for Greece. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I think that they advocate is not actually destruction of the euros, but their conversion. People would have to go to banks and convert the euros into drachmas. So, they would not destroy their own cash, but only convert into a new currency, like they did when they converted drachmas into euros some years ago. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But I see that ultimately the question would be similar to your original one.&#xA;What could single banks do with the collected euros? Can they destroy it or put it back into the foreign market or use it as a currency reserve for trades with countries that still use the euros.&lt;/p&gt;&#xA;" OwnerUserId="4997" LastEditorUserId="4997" LastEditDate="2015-07-02T15:43:36.357" LastActivityDate="2015-07-02T15:43:36.357" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6350" PostTypeId="1" AcceptedAnswerId="6353" CreationDate="2015-07-02T15:40:39.380" Score="3" ViewCount="146" Body="&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Currency_substitution&quot; rel=&quot;nofollow&quot;&gt;Currency substitution&lt;/a&gt; is the situation where a country uses a foreign currency.  For example, Montenegro and Kosovo unilaterally use the euro, El Salvador and Panama unilaterally use the dollar.  In the scenario that a country would be forced to leave an existing currency union (&lt;a href=&quot;https://en.wikipedia.org/wiki/Greek_withdrawal_from_the_eurozone#Legality&quot; rel=&quot;nofollow&quot;&gt;if at all possible&lt;/a&gt;), what would be the advantages and disadvantages should this country unilaterally decide to keep using the larger currency?&lt;/p&gt;&#xA;" OwnerUserId="332" LastActivityDate="2015-10-21T12:10:20.977" Title="Currency substitution after withdrawal from a currency union?" Tags="&lt;currency&gt;&lt;monetary-policy&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6351" PostTypeId="2" ParentId="6309" CreationDate="2015-07-02T15:49:02.247" Score="2" Body="&lt;p&gt;If you look at the NZD against the USD over the last 10 years, it looks like this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/lEgTr.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Obviously there has been a pretty sharp decline lately, but it's still not that far below the 10-year average of 74.27. It's also interesting to look at how it's been doing against the Australian dollar:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/taP6x.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As you can see, at 88c currently, the NZD is still well above its 10-year average against the AUD. Again, there's been a sharp dropoff of late -- NZD almost reached parity with the AUD quite recently.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In terms of why there has been a dropoff of late, I think you've hit the nail on the head regarding dairy prices. Dairy (including baby formula) accounts for a large share of NZ's exports, and &lt;a href=&quot;http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&amp;amp;objectid=11474545&quot; rel=&quot;nofollow noreferrer&quot;&gt;dairy prices are at a 6-year low currently&lt;/a&gt;. Fonterra, the dairy exporter, is &lt;a href=&quot;http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&amp;amp;objectid=11474201&quot; rel=&quot;nofollow noreferrer&quot;&gt;scrambling to restructure&lt;/a&gt;. That alone probably explains the majority of the NZD's recent decline against the AUD. I think the NZD decline more broadly against the USD is probably partially attributable to the weakness of the AUD -- New Zealand's economy has close ties with the Australian economy, and the Aussies have suffered from decreasing commodity prices. Also, it takes two countries to calculate an exchange rate, so when looking at the NZD's decline against the USD, you might note that the US economy has been doing quite well over the last few years (at least if you're naively tracking the DJIA or something).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Anyway, there's no need to panic about the NZ economy. Exporters benefit from a weak NZD. The tourism industry, another key sector in the NZ economy, benefits significantly from a weaker NZD also. If you're a Kiwi that likes to travel, and most seem to, the weak dollar isn't much fun, but such is life.&lt;/p&gt;&#xA;" OwnerUserId="48" LastActivityDate="2015-07-02T15:49:02.247" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6352" PostTypeId="2" ParentId="6337" CreationDate="2015-07-02T16:18:06.230" Score="2" Body="&lt;p&gt;Arguably the problem all along with the Eurozone (and any other currency union) is the operational mechanics of the underlying banking system.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From a systems perspective, banking systems statistically multiplex liability bank deposits against asset cash and electronic equivalents. (It is mostly electronic these days.) Broadly speaking, the main function of the asset money is to provide an interchange mechanism between banks, and the deposit money is what is actually used to perform economic transactions. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is no way of enforcing what physical currency gets used as the interchange mechanism. It doesn't really even need to be a recognised currency, and several precious metals have been used in the past. However, if a banking system uses a physical currency whose quantity is outside of its control - i.e. the money is printed by somebody else, then the banking system will collapse over time, unless there is net flow of the currency into the system. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/S4mMv.png&quot; alt=&quot;Greece Money Supply &quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, if we look at the greek money supply figures, and we know that that there are essentially three ways for liability deposits to decrease as shown - loan repayment, loan write-off and cash withdrawals, we can deduce pretty easily that Greece is experiencing a massive outflow of cash. We can assume that some of it is cash withdrawals particularly recently, but some of it also debt repayment to debt owners outside of the Greek banking system. As a very rough rule of thumb, on a 25 year loan, about twice as much money will have to flow back to the lender, as was originally borrowed, and this is what's causing the underlying systemic problems.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;According to the Wall Street Journal, this is a summary of the debt picture:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://graphics.wsj.com/greece-debt-timeline/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Greek Debt&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Mechanically speaking then, the only way a country can unilaterally stay in the Eurozone is if they are experiencing a net inflow of asset cash/money, in which case it's unlikely that they'd be under pressure to leave it. What this counter-situation does to the economy depends very much on how the banking system is regulated, and since most countries no longer depend on asset cash/aka reserve regulation as a control, the answer as also seen in the US with TARP is not necessarily very much. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A water analogy may be slightly helpful. As long as there is enough water, and any excess can be stored, then it doesn't matter if over time more water comes in than can be used. However, it's disastrous to not have enough water - and that's essentially the problem that the banking system is currently causing for Greece. The various attempts to &quot;solve&quot; the problem by issuing more debt, simply act to make it worse over time. &lt;/p&gt;&#xA;" OwnerUserId="84" LastEditorUserId="84" LastEditDate="2015-07-02T16:24:05.197" LastActivityDate="2015-07-02T16:24:05.197" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6353" PostTypeId="2" ParentId="6350" CreationDate="2015-07-02T16:34:40.443" Score="2" Body="&lt;p&gt;Summary:&lt;br&gt;&#xA;Using a national currency gives you full control over monetary policy while using a larger foreign currency provides stability. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Detailed answer:&lt;br&gt;&#xA;If a country has its own currency then the government, or to be more precise the central bank, can intervene and change exchange rates. This might be necessary if the countries products are not competitive on the international markets on the current exchange rates. An example:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Cost of a foreign laptop: 200 USD. Cost of a domestic laptop: 100 Peruvian Nuevo Sol (PEN). The domestic laptop can only be sold if the USD/PEN exchange rate is over 1/2.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In theory the government of a country using a foreign currency could launch policies that would simply reduce all salaries and rents, but this is politically and psychologically undesirable (downward rigidity of wages).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Unless big shocks (drastic events or drastic new information) occur such interventions would not be necessary as prices, wages and exchange rates slowly adjust thanks to the free market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So a benefit of having a national currency is that it gives a country full control over its monetary policy and this makes such interventions possible. A disadvantage would be that a small nation's currency may be less stable than a large ones, for an example see this &lt;a href=&quot;https://economics.stackexchange.com/questions/6309/why-new-zealand-dollar-keeps-falling-against-usd-and-other-currencies&quot;&gt;question&lt;/a&gt;. Stability (or at least predictability) of exchange rates is important for foreign investments and as they have a direct effect on the prices of imported goods and on the profit of export firms it is also important for the citizens of the country.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the circumstances described there may also be a secondary effect: &lt;br&gt;&#xA;A government in control of its monetary policy and facing extremely serious problems may start printing extreme amounts of cash because it turns up indirectly as income in the governments balance sheet (this is known as seigniorage). This can cause undesirable rates of inflation. Most economies avoid this problem by delegating money printing to a central bank which is independent from the government (to some extent). The mandate of the central bank is not to provide the government with income but to stabilize prices so it will probably try not to cause hyperinflation. This however is ultimately a political decision and in drastic times it may be overruled. &lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-10-21T12:10:20.977" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6354" PostTypeId="2" ParentId="6329" CreationDate="2015-07-02T17:15:50.533" Score="13" Body="&lt;p&gt;It's called a &lt;a href=&quot;https://en.wikipedia.org/wiki/Principal%E2%80%93agent_problem&quot; rel=&quot;nofollow noreferrer&quot;&gt;Principal-Agent Conflict&lt;/a&gt;.&lt;/p&gt;&#xA;&lt;p&gt;The RIAA/MPAA act as agents on behalf of the people who actually produce content (and consequently end-consumer value).&lt;/p&gt;&#xA;&lt;p&gt;To maintain relevance to their principals', the RIAA/MPAA must signal value to them (i.e. claim loudly and repeatedly that they do something good for them [regardless of the validity of that claim]).&lt;/p&gt;&#xA;&lt;p&gt;Firstly, this &lt;a href=&quot;https://en.wikipedia.org/wiki/Signalling_(economics)&quot; rel=&quot;nofollow noreferrer&quot;&gt;signaling&lt;/a&gt; is demonstrably an example of the Principal-Agent problem, in that it diverts resources away from actually advancing the principals' interests, but more so in that it creates a &lt;a href=&quot;https://en.wikipedia.org/wiki/Perverse_incentive&quot; rel=&quot;nofollow noreferrer&quot;&gt;perverse incentive&lt;/a&gt; for lobbying groups to fight &lt;a href=&quot;http://www.gao.gov/products/GAO-10-423&quot; rel=&quot;nofollow noreferrer&quot;&gt;imaginary fires&lt;/a&gt;.&lt;/p&gt;&#xA;&lt;p&gt;&lt;a href=&quot;http://freakonomics.com/2012/01/12/how-much-do-music-and-movie-piracy-really-hurt-the-u-s-economy/&quot; rel=&quot;nofollow noreferrer&quot;&gt;The impact of piracy on the broad economy is believed to be near zero&lt;/a&gt;, so IP laws are effectively just &lt;a href=&quot;https://en.wikipedia.org/wiki/Rent-seeking&quot; rel=&quot;nofollow noreferrer&quot;&gt;rent-seeking&lt;/a&gt; &lt;a href=&quot;https://web.archive.org/web/20170810080507/http://levine.sscnet.ucla.edu/papers/cr35.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;span class=&quot;math-container&quot;&gt;$^{[2]}$&lt;/span&gt;&lt;/a&gt; anyway.&lt;/p&gt;&#xA;&lt;p&gt;Whether or not that particular type of rent-seeking is &lt;strong&gt;always&lt;/strong&gt; a drain on the broad economy (in that it distorts markets producing &lt;a href=&quot;https://en.wikipedia.org/wiki/Deadweight_loss&quot; rel=&quot;nofollow noreferrer&quot;&gt;deadweight loss&lt;/a&gt; in excess of the &lt;a href=&quot;https://en.wikipedia.org/wiki/Externality&quot; rel=&quot;nofollow noreferrer&quot;&gt;externalities&lt;/a&gt; corrected) is up for discussion, though it is &lt;a href=&quot;http://eml.berkeley.edu/%7Eauerbach/ftp/ebot.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;known to be possible&lt;/a&gt; (insofar as the existence of an optimal tax [or government induced market distortion] is necessarilyy proof of the existence of an excessive tax).&lt;/p&gt;&#xA;" OwnerUserId="31" LastEditorUserId="4483" LastEditDate="2020-08-18T17:24:25.997" LastActivityDate="2020-08-18T17:24:25.997" CommentCount="12" ContentLicense="CC BY-SA 4.0" />
  <row Id="6355" PostTypeId="2" ParentId="6306" CreationDate="2015-07-02T18:43:35.593" Score="4" Body="&lt;p&gt;Using Google translate I have read some of the articles you referred. It seems to me that the problem the Swedish economists are talking about is that Greece will need its own currency (this is debatable). However it takes a long time to get currency in sufficient amounts.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Before the 2003 invasion of Iraq, citizens in many parts of the country began to ditch their own currency, believing that it would soon be worthless as all notes carried a depiction of Saddam Hussein, the country’s president. De La Rue, the world’s largest printer of banknotes, began work on new cash. “In the case of Iraq, the issues may not have been dramatically different from any other currency change; but the timescale was,” the company said. “Working out the details … is all very well when you have a year or two to think about it. Make that a month or two, and things start to get interesting.” &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.telegraph.co.uk/finance/economics/11425429/How-the-eurozone-could-tear-apart.html&quot; rel=&quot;nofollow&quot;&gt;Source&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence the recommendation is to use what they have at hand: euro bills. But if their euros would be the same as other euros, then the exchange rate between a Greek euro and a 'normal' euro could not go over 1, because you could always take a Greek euro abroad and use it there. So if the government wants the exchange rate to change (this would increase competitiveness and this is the biggest advantage Greece could get out of a new currency) they will have to modify the existing euros they have. For example they can stamp holes in them. You can read about such speculation in more detail&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;During a “euro pause” the Greek Central Bank is granted a three-year licence by the European Central Bank to create euros that are non-exchangeable for other euros.&#xA;  The euros in Greek ATM machines have “GT” (Greek Transactions) stamped prominently on them. In Greece, these euros circulate normally but a Greek individual planning a transaction outside Greece will need to convert their GT euros to non-GT euros at a market rate.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.ft.com/intl/cms/s/0/0f9ba22a-c410-11e4-a02e-00144feab7de.html#axzz3el9Yk7W2&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is debatable whether having a national currency two months ahead of time is worth the cost of 80 billion euros. However it might also be that the ECB will demand 80 billion euros from Greece if it leaves the Eurozone. (I am not sure whose property the cash allocated to Greece is.) In this case, stamping the euros may satisfy the ECB and give Greece their temporary currency.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2015-07-03T05:14:20.713" LastActivityDate="2015-07-03T05:14:20.713" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="6356" PostTypeId="2" ParentId="6345" CreationDate="2015-07-03T03:49:07.527" Score="3" Body="&lt;p&gt;The model is a variant on &lt;a href=&quot;https://en.wikipedia.org/wiki/Penetration_pricing&quot; rel=&quot;nofollow&quot;&gt;penetration pricing&lt;/a&gt; (effectively $0 for pirates) which is used to gain market share. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem is while monopoly may be desirable, the path to monopoly is generally not, as the &lt;a href=&quot;http://web.mit.edu/bwerner/www/papers/Therelationbetweenmarketshareandprofitability.PDF&quot; rel=&quot;nofollow&quot;&gt;cost to acquire market share rises relative to the value of each additional unit of market share&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;While there is no specific study of Adobe that I know of, penetration pricing and market share are generally well understood concepts in economics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That being said while the linked MIT paper implies an &quot;uncanny valley&quot; of sub-optimal over-penetration before a monopolistic (~100%) market share/maximal profit scenario, to my knowledge the empirical data on ologopolistic firms and cartels is scant, outside of the energy industry. Historically, however, OPEC and the &lt;a href=&quot;https://en.wikipedia.org/wiki/Seven_Sisters_(oil_companies)&quot; rel=&quot;nofollow&quot;&gt;Seven Sisters&lt;/a&gt;, have never actually combined to a monopoly, nor engaged in penetration pricing by giving away oil (again, to my knowledge).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One thing that is agreed on is that a &lt;a href=&quot;http://pascal.iseg.utl.pt/~carlosfr/ses/BW.pdf&quot; rel=&quot;nofollow&quot;&gt;monopoly is only as valuable as the barrier to enter the market&lt;/a&gt; (broadly speaking).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Combining those facts one could surmise that for Adobe to maximize profits they would need to choose a strategy that allowed for either:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;a)&lt;/strong&gt; optimal penetration &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$or$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;b)&lt;/strong&gt; monopolistic dominance of an industry that would need to produce profit per year less than roughly the barrier to entry divided by the discount rate they erected through a combination of R&amp;amp;D costs and $0 penetration pricing strategies. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$P_{Total} &amp;lt;  \frac{B}{r}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Monopoly of a more valuable market would entice a rational actor to break it and leave both in the sub-optimal valley of oligopoly (&lt;a href=&quot;http://home.uchicago.edu/~vlima/courses/econ201/pricetext/Oligopoly.pdf&quot; rel=&quot;nofollow&quot;&gt;unless they colluded&lt;/a&gt;), hence the prevalence in niche technical markets you mentioned. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Not to say graphic design is a small niche, but of the population at large they represent rouhgly &lt;a href=&quot;http://www.bls.gov/ooh/arts-and-design/graphic-designers.htm&quot; rel=&quot;nofollow&quot;&gt;0.08%&lt;/a&gt; (at least in America).&lt;/p&gt;&#xA;" OwnerUserId="31" LastEditorUserId="31" LastEditDate="2015-07-07T18:58:57.683" LastActivityDate="2015-07-07T18:58:57.683" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6358" PostTypeId="2" ParentId="6306" CreationDate="2015-07-03T08:32:49.907" Score="3" Body="&lt;p&gt;In case you abandon the Euro you need a new currency quickly. You can't just order money to be printed by one of the usual suspects, because that will take time and it most likely will leak out. And leaking out that you're printing a new currency is quite detrimental.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So in essence, yes, it will be destruction of value, as the new currency/Drachme will have an exchange rate lower than 1, but it is the cheapest way of transitioning to a new currency. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Whether it is legal or not, I cannot judge. However, it is likely that the ECB would permit such measure.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;See also &lt;a href=&quot;https://economics.stackexchange.com/questions/1824/how-could-the-euro-zone-be-broken-up-in-an-ordered-way/3188#3188&quot;&gt;my answer here&lt;/a&gt;, which elaborates on this idea [leaving/breaking up the currency union] in more detail.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Also, I'm not sure whether this is as expensive as it sounds. I suspect that cash in circulation / hands of people make up a small fraction of the Greek GDP.&lt;/em&gt; As @EnergyNumbers comments, this may actually have zero cost:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;It would not be a destruction of value. Let's say the Greek Central Bank takes in €20bn in notes. ECB verifies it, and credits them €20bn; then the notes are hole-punched &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="43" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-07-03T10:07:35.360" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="6359" PostTypeId="2" ParentId="6140" CreationDate="2015-07-03T09:57:54.700" Score="3" Body="&lt;p&gt;It is the policy of pretty much every central bank on the planet to supply reserves on demand when private banks request (in return for assets). But a central bank in country B can not do this, it can not create new dollars. So if dollar based fractional reserve banking were to start up in country B, it would behave rather differently to everyone else's fractional reserve banking.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With regard to whether this could devalue the dollar - yes it could.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With regard whether there is anything A could do about this - well I guess it would be possible for the authorities in A to refuse to accept or process broad money (IOUs of dollars) created by banks in country B.&lt;/p&gt;&#xA;" OwnerUserId="5081" LastEditorUserId="5081" LastEditDate="2015-07-03T12:26:36.467" LastActivityDate="2015-07-03T12:26:36.467" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6360" PostTypeId="2" ParentId="6133" CreationDate="2015-07-03T13:51:00.950" Score="3" Body="&lt;p&gt;Many organisations &lt;em&gt;borrow&lt;/em&gt; money to purchase shares (trading on margin). Their enthusiasm for doing this will depend on the interest rate. So lower interest rates means more borrowing for purchasing shares, which means prices rise.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A similar thing happens with other stuff that people tend to buy with borrowed money - like housing.&lt;/p&gt;&#xA;" OwnerUserId="5081" LastEditorUserId="5081" LastEditDate="2015-07-03T18:01:01.783" LastActivityDate="2015-07-03T18:01:01.783" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6361" PostTypeId="1" CreationDate="2015-07-03T15:54:11.873" Score="5" ViewCount="1026" Body="&lt;p&gt;Many economists, including Nobel laureates Paul Krugman and Joseph Stiglitz, have said that the Euro was a bad idea from the beginning and is a major reason for all the current economic problems. My general understanding of this issue is that different countries with different monetary policies would have more control over how to control their debt and financial obligations instead of being tied to the same rules that all the other countries have to follow. This makes sense to me.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However why does the USA and China not have similar issues even though they are very large countries with a single currency as well? Should the US and China actually be using different currencies for different regions?&lt;/p&gt;&#xA;" OwnerUserId="4267" LastEditorUserId="2776" LastEditDate="2017-08-07T17:23:44.007" LastActivityDate="2017-08-07T17:23:44.007" Title="Why is the Euro a bad idea compared to other currencies?" Tags="&lt;currency&gt;&lt;currency-peg&gt;&lt;euro-area&gt;" AnswerCount="3" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6362" PostTypeId="2" ParentId="6133" CreationDate="2015-07-03T16:36:02.043" Score="1" Body="&lt;p&gt;It's worth starting by noting that when we talk about what the stock market does, we're talking about something we believe, not something that's necessarily true.&#xA;That said, we believe long term interest rates are correlated with economic growth. If the growth rate decreases, the P/E multiple of the market has to go down (because earnings growth is in the numerator of a discounted earnings stream, and earnings growth will be related, over the entire market, to overall economic growth). Also, when companies finance by borrowing, which they all do, earnings will be lower if interest rates are higher (for each non financial company, in this case). Finally, higher interest rates make financial assets other than equity more appealing, although I personally think that effect is far smaller than the earnings effect. &lt;/p&gt;&#xA;" OwnerUserId="4151" LastActivityDate="2015-07-03T16:36:02.043" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6363" PostTypeId="2" ParentId="6306" CreationDate="2015-07-03T16:36:39.320" Score="2" Body="&lt;p&gt;Somebody from Germany lends me late tonight 5 euros, while both Germany and Greece have as their official currency the euro. Tomorrow early morning, euro is no longer the official currency of Greece. I still owe the German guy 5 euros. And I still have in my hands a bank note of 5 euros. I can give it back to him, no problem. Euro is still legal tender for him, while it has become &lt;em&gt;&lt;strong&gt;foreign currency reserve&lt;/strong&gt;&lt;/em&gt; for me.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The fact that I owe the amount, does not change its international legal status: it is a bank note that the legal issuer, the European Central Bank, will accept. So it is a perfectly valid foreign currency reserve, if it is held by somebody whose official currency is not the euro. The fact that euro &lt;em&gt;used to be&lt;/em&gt; the official currency of the holder, makes no difference in that respect.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So declaring that the legal and authentic bank note that writes on it &quot;5 euros&quot; should from now on be understood as meaning &quot;5 drachmas&quot;, and undergo the corresponding change in purchasing power and/or value-stored, (by the help of a hole, say), while realistically assuming that the exchange rate will be abysmal, &lt;strong&gt;is indeed a bona fide destruction of value&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now the question (and the special aspect of the situation) is &lt;strong&gt;&quot;who holds these foreign currency reserves?&quot;&lt;/strong&gt; In normal situations, the private sector has a rather small amount of foreign currency reserves of a country under its ownership. In the situation that we are discussing, presumably a visible portion of these foreign currency reserves are legally and/or physically in the hands of the private sector (legally, if they are in private bank accounts, physically, if they are in their wallets or mattresses).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why should the Greek state do anything to try to gain ownership over these foreign currency reserves? Well, for one thing, because the newly introduced drachma will be weak, and the state will think that the state's needs are above individuals' needs, as states always do. So if someone is to suffer, individuals have priority in the suffering. It is better to have foreign currency reserve in order to secure say imports of food, pharmaceuticals, or energy, than leave these foreign currency reserves at the hands of individuals to be used for private consumption needs (or even individual business needs). I am describing here, not assessing, evaluating or judging.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So we should consider as almost certain that the Greek state will think of various ways through which it will attempt to acquire these foreign currency reserves.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As regards bank deposits, the Greek Central bank could (forcibly, by law) buy the reserves in exchange for newly created drachmas. (I didn't say &quot;printed&quot; -we will return to that).&lt;br&gt;&#xA;As regards bank notes held outside the banks, the Greek state could&lt;br&gt;&#xA;a) Accept euros when the citizens have to pay taxes etc.,&lt;br&gt;&#xA;b) declare illegal any physical transfer of euros outside the country (we will return to that and to smuggling),&lt;br&gt;&#xA;c) declare illegal any transaction between individuals using euros. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the only legal way to use your hand-held euros would be to give it to the state or to the banks (which will hand them over to the Greek CB).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, it is easy to bring up the issue of smuggling, illegal activities, defying the law etc. But everything is a matter of degree. If the state is serious about enforcing these laws, not much of the amount of euros outside the banks will eventually leave the country. It is also important to take into account the fact that these foreign currency reserves are scattered over the whole population. Coordinating smuggling operations given such dispersion, will be a real issue.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, let's turn to the other very real issue that @FooBar discussed, the amount of time it takes to actually print the new money in sufficient quantities. Again, this is a matter of degree. How much actual paper money is needed, in the modern electronic banking/credit-card/commercial-credit environment? I should also mention that the Greek state has an active money-printing facility, since it has been printing euros all these time (as many eurozone states do).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So it is a matter of sitting down and measuring the time-table to print the new money in the quantities actually needed, assess the damage to economic activity because these new money will become available only gradually (while again, taking into account the ability to transact electronically/paperless-ly), and compare this damage to the damage done by outright destructing euro bank notes/foreign currency reserves, by punching holes in them, and count them as drachmas.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Once more, everything boils down to a cost-benefit analysis. And no - I will not venture any &quot;impression&quot; as to which cost is bigger.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-07-03T16:41:48.497" LastActivityDate="2015-07-03T16:41:48.497" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6364" PostTypeId="2" ParentId="6306" CreationDate="2015-07-03T18:20:23.003" Score="3" Body="&lt;p&gt;Having read the machine translations of the news articles, it seems to me that there is a misunderstanding about what is being proposed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The proposal is not to destroy value. The proposal is to introduce notes for a new currency, very quickly, in a way that does not involve destroying value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The cash economy needs tokens of exchange: notes and coins. A new currency normally has months or even years of preparation, to do the design, testing and massive-scale printing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A New Drachma simply wouldn't have that time to come into existence. So, the problem to solve is: how to get a sufficient number of currency notes into circulation to keep the Greek cash economy moving? Greece already has lots of Euro notes, but a New Drachma would be a different currency with a floating (and in this case rapidly dropping) exchange rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the proposal is to use existing notes, but to transform them with an irreversible process into New Drachma. This would be undertaken by the State. Every time a Euro note comes into a bank, the bank would get a digital Euro credit in exchange for the physical note. The note then gets transformed into a New Drachma note, and returned to circulation. The ECB gives a digital Euro credit to the Greek government for the total value of the notes so transformed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Remember, physical currency has no intrinsic value: that's part of the reason it's so useful and so effective.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's break the process up into stages:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Greeks deposit notes and coins with the bank, and in exchange gain a credit to their bank account to the same value in Euro. Has anyone lost value? No.&lt;/li&gt;&#xA;&lt;li&gt;Greek banks deposit the physical currency with the Greek Central Bank, and in exchange gain a credit to their account with the Greek Central Bank, to the same value in Euro. Has anyone lost value? No.&lt;/li&gt;&#xA;&lt;li&gt;The Greek Central Bank punches holes in all the notes, and in exchange gain a credit to their account at the European Central Bank, to the same value in Euro. Has anyone lost value? No.&lt;/li&gt;&#xA;&lt;li&gt;The Greek Central Bank now switches to the New Drachma, and reintroduces the New Drachma notes (Euro notes with holes in them) back into circulation. Has anyone lost value? No.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Only after the New Drachma becomes a floating currency against the Euro does anyone lose money. That will be caused by rapid devaluation of the New Drachma against the Euro, and it will affect the millions of Greeks who weren't rich enough to be able to move a large proportion of their assets abroad in the last few months.  And if the ECB and Northern European states insist on keeping Greek national debt in Euro, rather than converting it to New Drachma, then you can expect catastrophe, as Germany puts Greece into the very situation that Germany itself was in, in the 1920s, 1930s. But punching holes in notes in order to give the New Drachma some physical currency quickly? No, there's no value lost, and it's not a catastrophe.&lt;/p&gt;&#xA;" OwnerUserId="44" LastEditorUserId="44" LastEditDate="2015-07-05T11:07:53.623" LastActivityDate="2015-07-05T11:07:53.623" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="6365" PostTypeId="2" ParentId="6361" CreationDate="2015-07-03T20:20:39.740" Score="2" Body="&lt;p&gt;The systemic problem with currency unions, and this is true of all historical currency unions, not just the current Eurozone, is that the banking systems that comprise them expand their money supplies (money in this answer is the total sum of bank deposits) at different rates. Banking systems can also contract their money supplies, this is rarer, but equally problematic. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Between different currencies this issue is reflected in the valuation of currencies relative to each other, and over time this shifts more or less in relation to the different expansion rates, and to economic changes which can also influence the price level.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Within a currency however, this can't happen, and the pricing issues created by different expansion rates have to be resolved within the economy, in so much as they can be. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This problem can and does occur within individual countries. Different banks also expand at different rates within a banking system, and because banking is structured geographically, unbalanced flows occur everywhere. The London problem is good example of this in the UK.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, within a country, it is usually possible to politically intervene and direct tax spending by the government to the regions that are expanding at slower rates. Germany does this very well, the US increasingly not so well, as banking becomes more concentrated there, and political pressure is being put on the US Government to reduce spending,  and since China has been reduced to building empty cities in an attempt to re-direct funds, I wouldn't describe that as exactly healthy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A large part of the problem is that this effect is very slow. Monetary expansion rates in fiscally stable countries are typically of the order of 1.3 - 3 times per decade. The stresses on the systems build up very slowly, are generally misunderstood - the symptoms are economic and so people's behaviour can be blamed. In that borrowing is the trigger for the expansion, behaviour also influences the problem (and generally amplifies it).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Whether or not breaking currencies down further would be a solution to this is an open research question. Back in the 18th century in the USA there was a time when this was effectively occurring as each bank issued its own notes, and these notes traded at different rates to each other. It can be done, whether or not we would want to live in that world is another matter entirely. The Eurozone was created for a number of reasons, and one was that having a single currency significantly simplified commercial transactions. The idea at the time was that countries who joined it would have sufficiently similar economies and be fiscally responsible with respect to debt and government spending. The intrinsic monetary expansion issues inherent in fractional reserve banking appear to have never been explicitly acknowledged. &lt;/p&gt;&#xA;" OwnerUserId="84" LastActivityDate="2015-07-03T20:20:39.740" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="6366" PostTypeId="2" ParentId="6361" CreationDate="2015-07-03T20:45:32.803" Score="8" Body="&lt;p&gt;One of the key requirements for a currency area to be successful is that there must be a sustainable political mandate to support fiscal transfers between regions, to provide the balancing mechanism that would otherwise have been performed by fluctuating currency rates between those regions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another is that labour can move freely between regions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Eurozone, it turns out, met neither of those requirements:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Language barriers have impaired freedom of movement.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And although Northern Europe was happy to reap the benefits of currency union during the good times, it has proven to be unwilling to make the fiscal transfers to the South during the bad times.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Exacerbating this, Greek admission to the Euro zone was created on the back of some &lt;a href=&quot;http://www.spiegel.de/international/europe/greek-debt-crisis-how-goldman-sachs-helped-greece-to-mask-its-true-debt-a-676634.html&quot;&gt;fraudulent accounting courtesy of Goldman Sachs&lt;/a&gt;. Based on the real numbers, Greece would never have been admitted.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2015-07-03T20:45:32.803" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="6367" PostTypeId="1" AcceptedAnswerId="6933" CreationDate="2015-07-03T22:57:18.897" Score="4" ViewCount="338" Body="&lt;p&gt;Reading various articles, it is clear that Greece is in the situation simply due to the fact that they have indulged in overspending on their national budget for over a decade, and with the 2008 financial crisis this have have worsen as they have lost additional revenue.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Every US state and city is also responsible for their own budgets, and making sure that they are kept in balance -- while a handful of US cities have gone bankrupt, there have not been any news about US state getting into a crisis of the same scale as Greece has.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there a difference between how a national budget is run in the Euro Zone versus how a US State budget is run with respect to oversight where a US State cannot get insolvent to the same degree as Greece before the US Fed steps in?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What are the lessons from the US model which would need to be implemented in the Euro Zone to prevent another Euro Zone member to end up in a similar situation?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;EDIT&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Specifically; Are there any specific laws in the US which allows the Feds to step in before a state defaults?&lt;/p&gt;&#xA;" OwnerUserId="5097" LastEditorUserId="5097" LastEditDate="2015-08-17T23:22:04.223" LastActivityDate="2015-08-27T13:24:17.683" Title="Greece default and why are US States not seen defaulting?" Tags="&lt;monetary-policy&gt;&lt;government-debt&gt;&lt;default&gt;" AnswerCount="4" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="6369" PostTypeId="2" ParentId="6367" CreationDate="2015-07-04T01:47:31.767" Score="5" Body="&lt;p&gt;Two reasons:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;The United States has a capable federal government that takes care of social insurance transfers and countercyclical economic policies. The American states spend less.&lt;/li&gt;&#xA;&lt;li&gt;The American states have stronger anti-tax sentiments, and increasing public spendings face opposition from business and rich people.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Take the 2008 crisis for example.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for 2008, all developed countries, including Greece, had a lot of bad debt in the private sector and a subsequent recession due to the credit crunch. The United States immediately approved two things in response: a $700 bn stimulus and the Fed's QE programs. They cleared bad debt and supported business in 2009.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These measures was done at the federal level. It's the federal government that took additional debt. And the debt looked like this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/mI7Jw.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(McKinsey - 2012 - Debt and deleveraging)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The EU was slower. And its recovery fund lent money to European countries (as if the US fed government lent money to the states), so increasing their debt-to-GDP levels. This is how &lt;a href=&quot;https://economics.stackexchange.com/questions/4471/who-exactly-foots-the-bill-if-greece-defaults&quot;&gt;the EU, IMF, ECB happened to be the holders of all Greek bonds&lt;/a&gt; and a demanding creditor, as for now.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In short, US states got their federal stimulus for free, while Greece had to buy the stimulus on its own.&lt;/p&gt;&#xA;" OwnerUserId="240" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-07-04T17:48:41.147" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6370" PostTypeId="1" AcceptedAnswerId="6371" CreationDate="2015-07-04T06:04:26.100" Score="1" ViewCount="59" Body="&lt;p&gt;While reading &lt;a href=&quot;http://www.econ.yale.edu/~dirkb/teach/pdf/p/pearce/1984%20rationalizability.pdf&quot; rel=&quot;nofollow&quot;&gt;Pearce(1984)&lt;/a&gt;, I can't understand what &quot;agent&quot; $j$ and agent $ij$ mean on page 1041:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Consequently I associate a &lt;em&gt;conjecture&lt;/em&gt; $$ c^{ij} = (c^{ij}(1), ... ,&#xA;&amp;gt; c^{ij}(N)) $$ with each information set $I^{ij}$ in $\Gamma$;&#xA;  $c^{ij}(k)$ represents what an &quot;agent&quot; $j$ for player $i$ believes,&#xA;  once $I^{ij}$ is reached, about what player $k$'s mixed strategy is. A&#xA;  conjecture $c^{ij}(k)$ over a set $A^k \subseteq M^k$ can be regarded&#xA;  as an element of $\bar{A}^k$ (see Appendix A). &lt;br&gt; I have noted that&#xA;  an agent $ij$, upon being reached, should not entertain a conjecture&#xA;  that does not reach $I^{ij}$. A further restriction, not invoked in&#xA;  other solution concepts, is appropriate: if the information set can be&#xA;  reached without violating the rationality of any player, then the&#xA;  agent's conjecture must not attribute an irrational strategy to any&#xA;  player.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Some notations: &lt;br&gt; $I_{ij}$ is player $i$'s $j$th information set, $M_k$ is player $k$'s mixed strategy set and $\bar{A}^k$ is the convex cone of $A^k$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So an agent is definitely different from a player, but what else can it be to form a belief?&lt;/p&gt;&#xA;" OwnerUserId="73" LastEditorUserId="1601" LastEditDate="2015-07-04T07:15:51.233" LastActivityDate="2015-07-05T09:23:29.077" Title="What does &quot;agent&quot; mean in Pearce's formulation of extensive form rationalizability?" Tags="&lt;game-theory&gt;&lt;academic-graduate&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6371" PostTypeId="2" ParentId="6370" CreationDate="2015-07-04T07:28:39.827" Score="2" Body="&lt;p&gt;I have not read this paper in full, I am merely guessing based on some parts.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems to me that agent $ij$ is short for &quot;agent $j$ for player $i$&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A player's strategy assigns a move/choice of action to each information set $I^{ij}$. Depending on the story of the game you can think about this move as being executed by the player herself or maybe just agents of the player. Kind of like with subgame perfection you can assume that the strategy must fullfil some conditions in each information set $I^{ij}$. When explaining these conditions it is easier to assume that the player does not have independent but somehow 'logically restricted beliefs' in every information set, but that all her agents have 'logically restricted beliefs'. So an agent $ij$ is basically just a player's strategy in $I^{ij}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By 'logically restricted beliefs' I mean the restrictions posed on conjectures.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2015-07-05T09:23:29.077" LastActivityDate="2015-07-05T09:23:29.077" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6373" PostTypeId="5" CreationDate="2015-07-04T08:52:27.727" Score="0" Body="&lt;p&gt;The grey economy is a part of the economy that is not taxed because it is not reported to the authorities. It is illegal in the sense that it's a form of free riding, but it is not considered damaging by society so it is not illegal in a sense that stealing, counterfeiting or drug trafficking is.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2015-07-14T17:24:28.327" LastActivityDate="2015-07-14T17:24:28.327" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6374" PostTypeId="4" CreationDate="2015-07-04T08:52:27.727" Score="0" Body="The grey economy is a part of the economy that is not taxed because it is not reported to the authorities." OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2015-07-05T23:56:56.617" LastActivityDate="2015-07-05T23:56:56.617" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6375" PostTypeId="5" CreationDate="2015-07-04T08:53:33.867" Score="0" Body="&lt;p&gt;The black economy (conducted on the black market) is part of the economy that is illegal not merely because it is not taxed but also because it is considered damaging by society.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2015-07-05T23:57:19.480" LastActivityDate="2015-07-05T23:57:19.480" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6376" PostTypeId="4" CreationDate="2015-07-04T08:53:33.867" Score="0" Body="The black economy (conducted on the black market) is part of the economy that is illegal not merely because it is not taxed but also because it is considered damaging by society." OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2015-07-05T23:57:14.963" LastActivityDate="2015-07-05T23:57:14.963" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6378" PostTypeId="2" ParentId="1857" CreationDate="2015-07-05T09:30:05.620" Score="4" Body="&lt;p&gt;I think this is a poor oversimplication of Robert Lucas's maxim. It's one thing that Robert Lucas models markets as if &quot;always in equilibrium&quot;, it's quite another Robert Lucas claims it's an empirical truth that  &quot;market is always in equilibrium&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://people.hss.caltech.edu/~pbs/expfinance/Readings/Lucas1978.pdf&quot; rel=&quot;nofollow&quot;&gt;Lucas(1978)&lt;/a&gt; explained briefly why he chose such methodology which doesn't faithfully reflects reality:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;As always, there are innumerable ways for the economy to be out of equilibrium, so we must expect any treatment of out-of-equilibrium behavior to have considerable arbitrariness, not resolvable by economic reasoning.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="73" LastEditorUserId="73" LastEditDate="2015-07-05T15:40:32.167" LastActivityDate="2015-07-05T15:40:32.167" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6380" PostTypeId="1" CreationDate="2015-07-05T11:57:30.280" Score="3" ViewCount="51" Body="&lt;p&gt;A very weird question I agree. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am interested in understanding the motives behind firm behaviours of diversification. Why would some firms choose new target sectors/activities?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there any difference between for profit and non-profit organisations, particularly those grassroots NGOs. I have read newspaper, sociological articles about their altruism, needs of the community they serve and so on. But, perhaps they are money-driven, they choose some activities where the money/funding goes. For example, if there is a huge wave funding for HIV prevention (Gates Foundation), there is a substantial number of newly registered NGOs. This case, in my opinion, should be distinguished with those organisations working on disaster relief (such as after 2004 Tsunami, 9/11 ...). But well, I still feel that NGOs now are not purely altruistic, they might shield their true motive under their brand. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My questions are of economics and related literatures:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Could you please point out some (economics) relevant readings, both theoretical and empirical at micro-level, on how a non-profit organisation may choose some certain activities? and how it may introduce some activities? &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Could you please point out some relevant readings at micro-level on how/why organisations may choose/introduce/switch to some activities?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;I am aware of some papers of entrepreneurs, but I feel that the body of literature is still growing and most evidence is macro-based. Am I right? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you very much.&lt;/p&gt;&#xA;" OwnerUserId="4882" LastEditorUserId="4882" LastEditDate="2015-07-11T23:23:17.753" LastActivityDate="2015-07-11T23:23:17.753" Title="How do organisations diversify? Determinants of choosing new target industries" Tags="&lt;reference-request&gt;&lt;producer-theory&gt;&lt;profit-maximization&gt;&lt;profits&gt;" AnswerCount="0" CommentCount="6" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6381" PostTypeId="1" AcceptedAnswerId="6385" CreationDate="2015-07-05T12:25:50.260" Score="4" ViewCount="98" Body="&lt;p&gt;It is easy to see that if $\sigma$ is mixed rationalizable strategy, then a pure strategy $a$ such that $\sigma(a)&amp;gt;0$ is also rationalizable, but it seems not vice versa.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a two-player finite game, let $P_1$ be the set of all pure rationalizable strategies for player 1, then the set of her rationalizable strategies is simply $\Delta(P_1)$, which can be seen as a corollary of equivalence of iterated strict dominance and rationalizability for two-player finite games.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is an example for a finite game with more than two players such that the set of rationalizable strategies is strictly smaller than the mixed extension of the set of pure rationalizable strategies?&lt;/p&gt;&#xA;" OwnerUserId="73" LastEditorUserId="1601" LastEditDate="2015-07-05T15:17:29.483" LastActivityDate="2015-07-05T15:47:04.260" Title="If $a$ and $b$ are two pure rationalizable strategies, can $0.5a+0.5b$ fail to be a rationalizable strategy?" Tags="&lt;game-theory&gt;&lt;academic-graduate&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6382" PostTypeId="1" CreationDate="2015-07-05T13:07:25.153" Score="4" ViewCount="1895" Body="&lt;p&gt;I apologize if this is gonna be very basic, but I am a beginner. My question is: why do markets (expressed as indices) grow? Is it because money is constantly moved from the real economy into stock markets, but the ingoing flow surpasses the outgoing flow?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose no money can flow in or out a market, besides what is already in. Would that market (or a stock index that represents that market) just reach a dynamical equilibrium? I would say yes, but please correct me.&lt;/p&gt;&#xA;" OwnerUserId="5106" LastActivityDate="2015-07-24T05:05:27.917" Title="Basic question: why do markets grow?" Tags="&lt;finance&gt;" AnswerCount="5" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6383" PostTypeId="2" ParentId="6382" CreationDate="2015-07-05T13:45:35.373" Score="-1" Body="&lt;p&gt;The key concept is what exactly &quot;markets (expressed as indices) means. The term stands for &quot;market value&quot; of public cooperations (those issue stocks, in America this simply means the S&amp;amp;P 500). As you can see, market value does not necessarily mean the same as the total money the corporations hold. There are three reasons why market values can increase: &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;strong&gt;When the financial environment exceeds previous expectation.&lt;/strong&gt; For example, if the US government announce a better fiscal quarter of inflation/housing prices, the market rallies up in response because&#xA;everyone (not literally, but most of investors) expects stocks in&#xA;hands will worth more in the future. The current market value&#xA;increases. &lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;When there exist less worrisome threats.&lt;/strong&gt; Basically, when the markets can safely be sure that the critical events have passed&#xA;(the US financial crisis, ...), the market recovers. Business cycle&#xA;can be of help here.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;These two reasons, in my opinion, are of &quot;artificial money&quot; created by expectations of investors. The last reason might be of real money. &lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;3&quot;&gt;&#xA;&lt;li&gt;&lt;strong&gt;When demand exceeds supply.&lt;/strong&gt; I am thinking of a simple example. Holding every other S&amp;amp;P 499 constant, if Apple issues their financial report claiming that last quarters they sold better than ever, more investors (in quantity) want to buy more stocks of Apple. The price of Apple stocks increases (though they are not issuing more stocks). This increase the market value of Apple (and of those investors holding the stocks already). In turn, this excess drives up the whole market. &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;The last reason might not be seen often in my opinion.&lt;/p&gt;&#xA;" OwnerUserId="4882" LastActivityDate="2015-07-05T13:45:35.373" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="6384" PostTypeId="2" ParentId="6382" CreationDate="2015-07-05T14:18:32.713" Score="2" Body="&lt;p&gt;The general answer is no, a closed market with only money circulating within the market, and that money never leaving it or entering it, cannot increase its aggregate price level - provided that the quantity of goods being sold on that market also remains constant. Price wise however, it can display variations over time, so share values can change - even if the money circulating that creates them doesn't.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The main reason market prices grow and shrink in the real world is that not only are new companies always being listed, but money is entering them and sometimes leaving them at different rates. In a typical western economy for example, the money supply is continuously growing due to bank lending, a percentage of that growth it being invested in the stock market through pension funds, and so there is a linkage between monetary growth and the market. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consequently any time some kind of conduit between lending and stock market purchases gets created, things tend to get exciting. cf. 1929 US Crash.&lt;/p&gt;&#xA;" OwnerUserId="84" LastEditorUserId="84" LastEditDate="2015-07-05T14:45:53.723" LastActivityDate="2015-07-05T14:45:53.723" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6385" PostTypeId="2" ParentId="6381" CreationDate="2015-07-05T15:27:20.717" Score="5" Body="&lt;p&gt;Yes. Consider a two player game described by the following matrix&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{array}{|c|c|c|}&#xA;\hline&#xA;&amp;amp;  L &amp;amp; R   \\&#xA;\hline&#xA;a &amp;amp; 3,0 &amp;amp; 0,0   \\&#xA;\hline&#xA;b &amp;amp; 0,0 &amp;amp; 3,0    \\&#xA;\hline&#xA;c &amp;amp; 2,0 &amp;amp; 2,0    \\&#xA;\hline&#xA;\end{array}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If only pure strategies are allowed, only $a$ and $b$ are rationalizable because they are best responses to $L$ and $R$ respectively while $c$ is not a best response to anything. But if you look at the mixed extension of the game then $c$ strictly dominates 0.5$a$+0.5$b$, hence 0.5$a$+0.5$b$ is not rationalizable. As a result, in the mixed extension all $a$, $b$ and $c$ are rationalizable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you insist on an example with three players I can add a third one to this. This third player has exactly one possible strategy, so it does not really matter what his payoffs are and what he does. &lt;br&gt;&#xA;If you think that is cheating, the third player can have multiple strategies that do not at all influence the payoff of the first two players.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2015-07-05T15:47:04.260" LastActivityDate="2015-07-05T15:47:04.260" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6386" PostTypeId="2" ParentId="6382" CreationDate="2015-07-05T15:57:05.770" Score="1" Body="&lt;p&gt;Price movements don't need large money inflows.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Indices are generally built on spot prices, meaning the price of the last deal. This deal reflects the valuation of the company, but not the volume of transactions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The market capitalization of Microsoft is $360 bn (&lt;a href=&quot;https://www.google.com/finance?ei=WJtdUOj3LuqPwAOMRg&amp;amp;q=msft&quot; rel=&quot;nofollow&quot;&gt;MSFT&lt;/a&gt;). It's growing for the last 30 years, but it's only the number of shares outstanding times the price of one share (44). If someone starts buying MSFT, he pushes the share price up, while spending a fraction of percent of the total valuation. But this can't last forever because soon too many people will sell MSFT, and the guy will need more money to increase the price per share.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;The fundamental factor that keeps the prices high is expectations about the company's earnings.&lt;/strong&gt; This is why people don't sell MSFT when someone is trying to buy it. But you don't need much money to synchronize expectations and the price per share.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That said, prices do react to the money influx, which can be triggered by changes in the interest rate and international capital flows.&lt;/p&gt;&#xA;" OwnerUserId="240" LastActivityDate="2015-07-05T15:57:05.770" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6389" PostTypeId="2" ParentId="6382" CreationDate="2015-07-05T23:15:03.807" Score="2" Body="&lt;p&gt;I'm not really sure what you're asking, but I'll try to answer what I think the question is. In an equity market, people trade certain financial assets. The first point is, trading these assets on a secondary market is not consumption, and it's not investment. If you buy a stock for 100 on NASDAQ, you basically give the previous owner of the stock 100, and you get a piece of paper in return. That piece of paper entitles you to a share of earnings of the company, and that's why you think it's worth something. You can either enjoy the earnings over time, or sell the thing later.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So you had $100, and you could have consumed something, or you could have invested it, but you chose to trade that choice to someone else. Now he has to decide whether to consume or invest. In terms of the &quot;real&quot; economy, nothing happens. And nothing happens when you sell that stock. &lt;strong&gt;Money never &quot;comes into&quot; the market, and it never &quot;leaves&quot; the market.&lt;/strong&gt; It just gets transferred between the buyers and sellers, and shares get transferred in the opposite direction.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So we see the question of what happens if money can't come into the system doesn't really make any sense. So what do indices reflect? They reflect some kind of expectation of the aggregate value of the shares in an index. That value is the expected discounted streams of earnings of the companies in the index. When the expectations rise, the indices rise. When they fall, the indices fall. Obviously, if we expect inflation, we expect earnings in nominal terms to rise, so that will make the indices rise. But that shouldn't be thought of as &quot;more dollars chasing the same number of stocks.&quot; It's purely an earnings effect. The only thing that can make a stock more valuable is if its earnings expectations rise. Supply and demand, as understood in consumer goods markets, do not have much of anything to do with secondary equity markets. Just because people have more money to buy stocks with does not mean anyone will spend 100 dollars to buy a stream of earnings worth 95 dollars. (I say &quot;much of anything&quot;. It would make this post too long to go into details, but if there is a surplus of demand for financial assets, risk premiums will drop, and prices will rise. This is a long story for a relatively small effect.)&#xA;I should mention another reason indices rise, because it's why we expect them to rise faster than economic growth. And that's because there's a selection bias in companies in indices: very poorly performing companies are booted, and more successful up-and-coming companies replace them. &lt;/p&gt;&#xA;" OwnerUserId="4151" LastActivityDate="2015-07-05T23:15:03.807" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6390" PostTypeId="2" ParentId="1767" CreationDate="2015-07-06T03:06:30.830" Score="4" Body="&lt;p&gt;Drago Bergholt has all math steps for Gali's book:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://bergholt.weebly.com/uploads/1/1/8/4/11843961/the_basic_new_keynesian_model_-_drago_bergholt.pdf&quot; rel=&quot;nofollow&quot;&gt;The Basic New Keynesian Model&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="5107" LastEditorUserId="40" LastEditDate="2015-07-06T04:23:15.810" LastActivityDate="2015-07-06T04:23:15.810" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6391" PostTypeId="1" CreationDate="2015-07-06T03:47:39.010" Score="6" ViewCount="55" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;What is was the total corporate income earned in the United States in 2014?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The question may seem simple, but I have been looking for a reliable source to inform me of this figure, and I hope someone out there can help me find a reliable figure and source.&lt;/p&gt;&#xA;" OwnerUserId="5108" LastEditorUserId="69" LastEditDate="2016-02-02T02:43:56.813" LastActivityDate="2016-02-02T03:00:58.870" Title="What is was the total corporate Income earned in the United States in 2014?" Tags="&lt;data-request&gt;&lt;taxation&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6392" PostTypeId="2" ParentId="5766" CreationDate="2015-07-06T09:40:52.347" Score="2" Body="&lt;p&gt;I think this approach might be useful.The Cobb douglas production function with constant returns to scale is &#xA;\begin{equation}&#xA;Q=K^{\alpha}L^{1-\alpha}&#xA;\end{equation}&#xA;For simplicity, we use logarithms for the rates of change of its determinants&#xA;\begin{equation}&#xA;ln(Q)=\alpha ln(K)+(1-\alpha)ln(L)&#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Differentiating with respect to time on both sides of the equation&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{equation}&#xA;\frac{1}{Q}\frac{dQ}{dt}=\alpha\frac{1}{K}\frac{dK}{dt}+(1-\alpha)\frac{1}{L}\frac{dL}{dt} &#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{equation}&#xA;\begin{array}{l}&#xA; \text{Growth rate of GDP:}\frac{1}{Q}\frac{dQ}{dt}=G_{Q} \\&#xA;\text{Growth rate of Capital:}\frac{1}{K}\frac{dK}{dt}=G_{K} \\&#xA;\text{Growth rate of Labor:}\frac{1}{L}\frac{dL}{dt}=G_{L}&#xA;\end{array}&#xA;\end{equation}&#xA;\begin{equation}&#xA;G_{Q}=\alpha G_{K}+(1-\alpha)G_{L}&#xA;\end{equation}&#xA;Where $\alpha$ is the capital share in the gross domestic product. In your case $(1-\alpha)=70\%$, hence $\alpha=30\%$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, &#xA;$G_{k}=0\%$ (The capital in this case does not change.), $G_{L}=1\%$ &#xA;Substituting in the original equation&#xA;\begin{equation}&#xA;G_{Q}=0.7\cdot 1\%=0.7\%&#xA;\end{equation}&#xA;for further growth rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Adding to the previous growth rate ($3\%$), we obtain&#xA;$3\%+0.7\%=3.7\%$&#xA;To find the new GDP after 20 years.&#xA;\begin{equation}&#xA; (1+0.037)^{20}=2.068117 &#xA;\end{equation}&lt;/p&gt;&#xA;" OwnerUserId="4741" LastEditorUserId="4741" LastEditDate="2015-07-06T09:47:27.707" LastActivityDate="2015-07-06T09:47:27.707" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6393" PostTypeId="1" AcceptedAnswerId="10381" CreationDate="2015-07-06T11:14:07.880" Score="5" ViewCount="177" Body="&lt;p&gt;In virtually all texts of intermediate Macroeconomics$^1$ the &lt;a href=&quot;https://en.wikipedia.org/wiki/Mundell%E2%80%93Fleming_model&quot;&gt;Mundell-Fleming&lt;/a&gt; model is taught. But his estimate is not addressed in the classical texts of econometrics. I've always wanted to read some reference, but my searches have not worked&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1: &quot;Most open macroeconomy models in the textbooks are variations of the Mundell-Fleming model.&quot; &lt;a href=&quot;http://www.grips.ac.jp/teacher/oono/hp/lecture_F/lec08.htm&quot;&gt;Ohno Lecture notes: Mundell-Fleming Model with a Floating Exchange Rate&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="4741" LastEditorUserId="238" LastEditDate="2015-07-07T00:42:55.067" LastActivityDate="2019-06-13T19:46:44.110" Title="Can anyone give me some reference on Mundell-Fleming model estimated empirically?" Tags="&lt;macroeconomics&gt;&lt;econometrics&gt;&lt;reference-request&gt;&lt;open-economy-macro&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6394" PostTypeId="1" CreationDate="2015-07-06T11:18:23.567" Score="3" ViewCount="89" Body="&lt;p&gt;Please excuse anything i get wrong here i am in no way a economics expert but i am interested in the subject.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Earlier today I saw someone make a post about how banks like CitiGroup have been given $trillions in bailouts, and that Greece is in need of a much smaller bailout yet they are finding it difficult to get that. just want to reiterate that is not my opinion as i dont have enough information to form one yet but its just something i read. I'm guessing the post is massively misinformed and its probably not that simple since it was on Facebook.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would assume that the reason banks like CitiGroup get larger bailouts is because their decline is more detrimental to global economy than Greece's decline would be? (just a guess) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So to my question, Can anyone explain (or point me to a resource than can explain) to me why banks tend to get larger bailouts (if that's even true) and what effects a large bank failing has on world economy verses a country similar to Greece's economy collapsing and what effects that would have on the rest of the world.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Again apologies for any incorrect terminology, as i said at the top im not an expert or even a student in the field of economics i'm just trying to get a better understanding on how banks affect the global economy verses how a country affects the global economy&lt;/p&gt;&#xA;&#xA;&lt;p&gt;for reference here is a copy and past of the post i saw;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The current estimate is that Greece needs a bailout of around&#xA;  370billion. No one wants to know. meanwhile have a look at these&#xA;  bailouts and the banks that had no problem getting them from tax&#xA;  payers like you and me.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;citigroup - $2.513 trillion, &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Morgan Stanley - $2.041 trillion,&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Merrill Lynch - $1.949 trillion,&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Bank of America - $1.344 trillion,&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Barclays PLC - $868 billion,&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Goldman Sachs - $814 billion,&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Royal Bank Of Scotland - $541 billion,&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;JP Morgan CHase - $391 billion,&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Deutsche Bank - $354 Billion&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="5110" LastActivityDate="2015-07-09T19:14:41.803" Title="Large banks collapsing verses a single countries economic decline" Tags="&lt;banking&gt;&lt;financial-crises&gt;" AnswerCount="0" CommentCount="2" ClosedDate="2015-07-14T11:37:26.607" ContentLicense="CC BY-SA 3.0" />
  <row Id="6395" PostTypeId="2" ParentId="6319" CreationDate="2015-07-06T11:50:19.203" Score="1" Body="&lt;p&gt;\begin{equation}&#xA;MRTS_{x_{i};x_{j}}=\frac{\partial f(X)}{\partial x_{i}}/\frac{\partial f(X)}{\partial x_{j}} \qquad \forall i\neq j&#xA;\end{equation}&lt;/p&gt;&#xA;" OwnerUserId="4741" LastActivityDate="2015-07-06T11:50:19.203" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6396" PostTypeId="2" ParentId="6361" CreationDate="2015-07-06T12:41:05.613" Score="2" Body="&lt;p&gt;If I remember correctly reading Krugman's opinion, he stated that to be successful, a central bank has to be associated with a government. This is to harmonize fiscal and monetary policies. If you compare France and Germany in the 1960-1970s, France was playing with inflation-devaluation, whereas Germany (as is does the ECB today) tried to be more stable.&lt;/p&gt;&#xA;&lt;p&gt;The euro created a union for monetary policies. But no union was achieved for fiscal policies. This created the problem that the ECB cannot know to which country it should adapt its policy. And the more countries, the more they diverge, and the harder it gets for the ECB. Ultimately, the Euro is too strong for exports of Southern countries, but it is too low for imports in Northern countries.&lt;/p&gt;&#xA;&lt;p&gt;IIRC, for Krugman, the euro wasn't in itself wrong. But the failure to get a European constitution in 2005, or any fiscal hamonisation, lead to its downfall.&lt;/p&gt;&#xA;&lt;p&gt;I can't find the article that I read some years ago, but for example, he asks&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;what would happen if countries couldn’t use monetary and fiscal policy to fight recessions.&lt;/p&gt;&#xA;&lt;p&gt;-- &lt;a href=&quot;http://www.nytimes.com/2011/11/11/opinion/legends-of-the-fail.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Paul Krugman&lt;/a&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;But also concludes that the reason the euro was a failure &lt;em&gt;a posteriori&lt;/em&gt; was that the EU had&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;There is no fiscal union, no common taxes&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;No banking union&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Not the degree of labour market mobility needed&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;p&gt;-- &lt;a href=&quot;http://www.akesandberg.se/paul-krugman-big-mistake-to-introduce-the-euro/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Paul Krugman&lt;/a&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="4817" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2015-07-06T13:12:38.767" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6397" PostTypeId="1" CreationDate="2015-07-06T12:41:45.627" Score="3" ViewCount="95" Body="&lt;p&gt;Greeces owes billions of Euros to the IMF and European Union. What happens to those debts if it leaves the Euro? Do the debts get translated into Drachma or can the government just print Drachma to convert to Euros freely?&lt;/p&gt;&#xA;" OwnerUserId="5079" LastEditorUserId="1601" LastEditDate="2015-07-06T13:06:39.860" LastActivityDate="2015-07-06T16:54:57.067" Title="What happens to the billions in Euros that Greece owes if it leaves the Euro" Tags="&lt;debt&gt;&lt;financial-crises&gt;&lt;government-debt&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6398" PostTypeId="1" CreationDate="2015-07-06T12:54:32.090" Score="5" ViewCount="85" Body="&lt;p&gt;A lot of people (mainly journalists and politicians) say that Eurozone taxpayers pay for the Greek bailouts. On the other hand, a lot of economists say that those money have not been added in the yearly state budgets of the Eurozone members because they are not physical money coming from the tax payers. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Contrary, most of the Greek bailout funds are given in the form of intergovernmental guarantees for which Greece pays actual real interests. Additionally, the bailouts not being bond-like give the creditors as the Eurozone countries the right to ask back the value of these guarantees whenever they like.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can someone objectively clarify the situation? Specifically, can you give some details on the form of these intergovernmental guarantees? &lt;/p&gt;&#xA;" OwnerUserId="5112" LastEditorUserId="69" LastEditDate="2015-07-06T13:48:51.047" LastActivityDate="2015-07-10T18:22:33.737" Title="Have the Greek bailouts been included in state budgets Eurozone members?" Tags="&lt;debt&gt;&lt;government-debt&gt;&lt;financial-crises&gt;&lt;accounting&gt;&lt;national-accounts&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6399" PostTypeId="2" ParentId="6397" CreationDate="2015-07-06T12:57:33.210" Score="3" Body="&lt;p&gt;If you owe euros you have to pay in euros. If for example the British government owes euros, then they get some funds (perhaps take another loan) and in case this is in a currency different from euros they convert it to euros on the market. If the sum is large enough it is wise not to convert it all at once but in smaller installments. This way the exchange rate stays stable and you can also get a better deal.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So nothing will happen to Greece's debt &lt;em&gt;because&lt;/em&gt; they leave the Eurozone. But as the whole issue is political, there could be debt relief/partial bankruptcy because of the same reasons that might cause them to leave the Eurozone.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;About printing drachmas: &lt;br&gt;&#xA;There is a technical issue to be addressed: It is not the government that prints money but the central bank and their goal is maintaining price stability, not providing the government with revenue. (In time of crisis this may change.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Printing money causes inflation which in turn will weaken the drachma relative to the euro. Usually when the state prints drachmas all drachmas would be worth less, but states wealth may increase because their share of drachmas increases. &lt;br&gt;&#xA;However, this is a special case because there are no drachmas at all. So initially all drachmas would be owned by the state. Hence I think if they print more the worsening exchange rate would balance it out. &lt;br&gt;&#xA;What they could do would be to print some drachmas, exchange it with whomever was willing for euros, and then print more. This would only work if printing more is not expected.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2015-07-06T16:54:57.067" LastActivityDate="2015-07-06T16:54:57.067" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="6400" PostTypeId="2" ParentId="5869" CreationDate="2015-07-06T13:16:22.710" Score="2" Body="&lt;p&gt;I couldn't say what was the actual explanation but &lt;em&gt;Increased availability of consumer goods&lt;/em&gt; could deliver this result. Say people in the USSR expected that eventually there would be a consumer revolution where their choice of goods would be better. Then utility would look like something like this:&#xA;$$ U(c_1, c_2, c_3) = ln(c_1) + \beta \cdot \xi \cdot ln( c_2) + \beta^2 \cdot \xi \cdot ln( c_3)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $c_i$ is the consumption in period $i$, $\beta$ is the discount rate, and $\xi &amp;gt; 1$ indicates how much better consumption is in time 2 than 1. A higher value of $\xi$, meaning a greater improvement in consumption acts like a higher value of $\beta$, meaning lower discounting of future consumption in period $1$. That means that households will (all else equal) save more in period 1. In period 2 there is no expected increase in the quality of consumption, only the standard time discounting differentiates consumption in the present and future, and so the savings rate (relative to period 1) falls, just as it would if $\beta$ fell. &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-07-06T14:05:55.080" LastActivityDate="2015-07-06T14:05:55.080" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6401" PostTypeId="2" ParentId="6398" CreationDate="2015-07-06T14:21:13.560" Score="1" Body="&lt;p&gt;I don't know of a full accounting in the Eurozone but Measuring the True Cost of Government Bailout (&lt;a href=&quot;http://openscholarship.wustl.edu/cgi/viewcontent.cgi?article=1027&amp;amp;context=law_lawreview&quot; rel=&quot;nofollow&quot;&gt;Block (2010)&lt;/a&gt;) provides a look at the on- and off-budget costs of the bailouts in the United States and finds they were substantially off-budget. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Government intervention to assist individual businesses and industries&#xA;  during the 2008–2009 economic crisis was extraordinary in variety and&#xA;  scope. Despite official protestations of &quot;no more bailout&quot; in the&#xA;  Dodd- Frank Wall Street Reform and Consumer Protection Act of 2010,&#xA;  future government interventions are inevitable, should economic&#xA;  circumstances become sufficiently dire. Moreover, even if Congress&#xA;  eliminates overt bailout-type interventions, indirect forms of public&#xA;  bailout are likely to continue. Understandably, taxpayers have been&#xA;  concerned about the cost. A simple tally of dollars authorized or&#xA;  disbursed is wholly inadequate to accurately assess the costs of&#xA;  various interventions. &lt;strong&gt;This Article addresses the challenges of&#xA;  providing reasonable budgetary information with respect to different&#xA;  types of bailout expenditures. In addition to looking at costs for the&#xA;  more obvious bailout programs, the analysis explores the special cost&#xA;  estimation challenges for other more covert actions, such as special&#xA;  tax breaks or relief from burdensome regulation, that serve a&#xA;  &quot;bailout&quot; function. The Article also takes issue with the&#xA;  fragmentation of intervention efforts among different &quot;on-budget&quot; and&#xA;  &quot;off-budget&quot; entities and with some of the methodologies used by the&#xA;  government to value assets obtained in its bailout efforts, arguing&#xA;  that decision making about the appropriate allocation of aggregate&#xA;  resources is hampered when some expenditures are &quot;off-budget&quot;&#xA;  altogether and when even &quot;on-budget&quot; agencies use different accounting&#xA;  methods.&lt;/strong&gt; Finally, the Article calls for transparency and budget&#xA;  accounting for public bailouts accomplished more indirectly through&#xA;  the tax system and other regulatory regimes. Adequate and transparent&#xA;  budget accounting for bailout costs requires greater consistency in&#xA;  valuation and accounting methods, and a more unified presentation of&#xA;  aggregate information in the budget with respect to all government&#xA;  bailout-type activities.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Pages 23-25 explain what she means by off-budget and it takes her 3 pages to say exactly what she means, but approximately &quot;on-budget&quot; means upfront costs that appear on the government's budget while &quot;off-budget&quot; is everything else, including the value of contingent liabilities and expenditures by entities in the control of the US government but for whatever reason do not have accounts fully consolidated into the budget. &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-07-10T18:22:33.737" LastActivityDate="2015-07-10T18:22:33.737" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6402" PostTypeId="1" AcceptedAnswerId="6405" CreationDate="2015-07-06T14:47:32.313" Score="3" ViewCount="135" Body="&lt;p&gt;I am writing a business plan based on some old notes from a master in economics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However I am I bit confused. Can you please confirm the following is right? (above all what's &lt;strong&gt;marked in bold&lt;/strong&gt;)&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Assets: anything I can sell and make money from (patents, real estates, the product I sell, etc. &amp;lt;-- the price &lt;strong&gt;I have paid them on the first place&lt;/strong&gt;)&lt;/li&gt;&#xA;&lt;li&gt;Liabilities: all my costs (salaries, leasings, &lt;strong&gt;equity given to investors&lt;/strong&gt;, ...)&lt;/li&gt;&#xA;&lt;li&gt;Equity: what I own (possibly &lt;strong&gt;not already paid&lt;/strong&gt;) = actual money I get from selling these things, &lt;strong&gt;without&lt;/strong&gt; subtracting costs (i.e. liabilities) ==&gt; e.g.  the economic value of selling patents, real estates, my product etc. (possibly &lt;strong&gt;higher&lt;/strong&gt; than the original assets cost)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="5113" LastEditorUserId="69" LastEditDate="2015-07-06T14:52:51.317" LastActivityDate="2015-07-06T15:27:03.343" Title="Assets, Liabilities, Equity" Tags="&lt;asset-pricing&gt;&lt;accounting&gt;" AnswerCount="1" CommentCount="0" ClosedDate="2015-07-07T14:33:45.503" ContentLicense="CC BY-SA 3.0" />
  <row Id="6404" PostTypeId="1" CreationDate="2015-07-06T15:07:53.207" Score="0" ViewCount="87" Body="&lt;h2&gt;Disclaimer&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;The question pertains mostly to EU but I believe counterparts to Deposits Guarantee Scheme exist world-wide.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Assumption&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Let’s suppose that support for liberal ideas and free market rises in European nations what results in taxpayers withdrawing their support for majority of state’s interventions in the free market, including Deposit Guarantee Schemes. Taxpayers would also demand that the minimum capital to open one’s own bank would be dropped from 5mln Euro to 100k Euro, so that the competition in the banking sector is at a much higher level that it is nowadays which is an interesting topic in itself but let’s just focus on DGS exclusively.&#xA;I am far from judging who would benefit on that or whether such a situation is even likely - it’s simply an axiom for this question.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Question&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Now, given that Fractional Reserve Banking model makes it impossible for banks to guarantee even a small fraction of deposits in their own capital as clearly banks juggle money supplies rows of magnitude higher than they own, what can we reasonable expect to happen if taxpayers turn their back on banks and demand banks to provide their own guarantees?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I presume that once the taxpayers’ guarantees are gone, for banks to be perceived as a safe place, they would have to own capital that at least equals the deposits to be handed over to them?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Otherwise, I cannot see what would people base their trust to banks on?&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;References&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:31994L0019&quot; rel=&quot;nofollow&quot;&gt;Directive 94/19/EC on DGS&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://europa.eu/rapid/press-release_MEMO-14-296_en.htm&quot; rel=&quot;nofollow&quot;&gt;DGS FAQ&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="324" LastEditorUserId="324" LastEditDate="2015-07-06T19:11:05.043" LastActivityDate="2015-07-07T15:12:55.597" Title="How would banking in EU change if taxpayers withdrew their support for Deposit Guarantee Scheme?" Tags="&lt;macroeconomics&gt;&lt;monetary-policy&gt;&lt;money-supply&gt;&lt;banking&gt;" AnswerCount="1" CommentCount="14" ContentLicense="CC BY-SA 3.0" />
  <row Id="6405" PostTypeId="2" ParentId="6402" CreationDate="2015-07-06T15:27:03.343" Score="3" Body="&lt;p&gt;You are confusing your balance sheet with your income statement, and putting a few things in the wrong bins. The basic accounting identity is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ Assets=Liabilities+Owners' Equity$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assets are generally valued not at cost (or as you put it, &quot;the price I have paid them on the first place&quot;), but at either their hold-to-maturity value (i.e., the present discounted value of all future cash flows from the asset), or their mark-to-market value (what you can sell the thing for).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Liabilities are money owed to others &lt;em&gt;that is unpaid as of the date of the financial report&lt;/em&gt;— salaries do not generally appear on the balance sheet, except for a small amount that has accrued but hasn't been paid out yet. Salaries will primarily appear on the income statement. &lt;a href=&quot;https://en.wikipedia.org/wiki/Accounting_for_leases_in_the_United_States&quot; rel=&quot;nofollow&quot;&gt;Lease accounting&lt;/a&gt; is complicated, but if you have capital (not operating) leases, those will show up on both sides of the balance sheet under GAAP.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Equity (including equity held by investors other than yourself) is simply the residual once the value of outstanding liabilities is subtracted from the value of assets. It is &lt;em&gt;definitely not&lt;/em&gt; the &quot;actual money [you] get from selling these things without subtracting costs.&quot;&lt;/p&gt;&#xA;" OwnerUserId="264" LastActivityDate="2015-07-06T15:27:03.343" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="6406" PostTypeId="2" ParentId="6398" CreationDate="2015-07-06T19:46:06.067" Score="1" Body="&lt;p&gt;I'd like to read more on &quot;intergovernmental guarantees&quot;, but I believe it's something similar to how the US government implemented the bailout. The 2008 stimulus of $700 bn was &lt;em&gt;the right&lt;/em&gt; to spend this money over time. So, this amount entered government spending only gradually. (I think that's also what @BKay's quote says.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But as we found out &lt;a href=&quot;https://economics.stackexchange.com/questions/4471/who-exactly-foots-the-bill-if-greece-defaults&quot;&gt;here&lt;/a&gt;, the troika in fact owns the Greek debt, that is, money had already been spent on buying Greek bonds. So, even if direct payments may be stretched over time due to bilateral settlements, the bond-related payments are in the agreements already and soon could be expected in the books.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which means, the taxpayer does pay. &lt;/p&gt;&#xA;" OwnerUserId="240" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-07-06T19:46:06.067" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="6407" PostTypeId="1" CreationDate="2015-07-06T20:30:30.350" Score="-1" ViewCount="1276" Body="&lt;p&gt;I need to estimate the function expressions for $TVC$ and $AVC$ from the $MC$ function for different amounts of quantity $(Q)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From the solutions I have, that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For $Q \leq 50$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$MC1(Q) = -Q + 100$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$TVC1(Q) = -0.5 Q^2 + 100Q$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$AVC1(Q) = -0.5Q+100$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\\$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For $50 &amp;lt; Q \leq 100$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$MC2(Q) = 50$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$TVC2(Q) = 50Q + 1250$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$AVC2(Q) =50 + \frac{1250}{Q}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\\$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For $Q &amp;gt; 100$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$MC3(Q) = 0.5Q$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$TVC3(Q) = 0.25 Q^2 + 3750$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$AVC3(Q) = 0.25Q + \frac{3750}{Q}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How can I estimate the constants in $TVC2(Q)$ and $TVC3(Q)$?&lt;/p&gt;&#xA;" OwnerUserId="5115" LastEditorUserId="1601" LastEditDate="2015-07-07T17:50:49.537" LastActivityDate="2015-07-07T17:50:49.537" Title="Estimate total variable cost function (TVC) and average variable cost function (AVP) from marginal cost function (MC)" Tags="&lt;microeconomics&gt;&lt;cost&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6408" PostTypeId="2" ParentId="6407" CreationDate="2015-07-06T20:58:18.293" Score="1" Body="&lt;p&gt;You lost a constant at&#xA;$$TVC(Q)=\int{MC(Q)}dQ$$&#xA;because for any $\alpha \in \mathbb{R}$ the derivative of $TVC(Q) + \alpha$  will be $MC(Q)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The way to get this constant: &lt;br&gt;&#xA;If there is no quasi-fixed cost then $TVC(0) = 0$. From this and by calculating $TVC(Q)$ for $Q \leq 50$ you will get the value for $TVC(50)$. (Seems to be 3750.) Because $TVC(Q)$ is a continuous function&#xA;$$&#xA;\lim_{Q \to 50^{+}} TVC(Q) = TVC(50)&#xA;$$&#xA;where by $Q \to 50^{+}$ I mean that $Q$ converges to 50 from above (you take the right hand side limit). This, together with $$TVC(Q)=\int{MC(Q)}dQ$$ should give you $TVC(Q)$ for $Q &amp;gt; 50$.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2015-07-06T20:58:18.293" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="6409" PostTypeId="1" AcceptedAnswerId="6451" CreationDate="2015-07-07T01:03:44.523" Score="1" ViewCount="58" Body="&lt;p&gt;What are the key drivers of growth for these small pacific island nations? I would expect tourism and natural resources to be pretty central to these economies. Is there anything else? What are the key barriers to growth here? I would imagine tyranny of distance and small populations couldn't help.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am interested in answers which related both to macro and microeconomics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would be happy with any references pointing me in the right direction as well.&lt;/p&gt;&#xA;" OwnerUserId="40" LastActivityDate="2015-07-09T00:24:51.390" Title="Economic Overview of Pacific Island Nations" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;development-economics&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6411" PostTypeId="1" CreationDate="2015-07-07T08:28:11.770" Score="8" ViewCount="2102" Body="&lt;p&gt;Is there a concise explanation of how software is treated in GDP calculations? It seems a bit complicated. I can only figure out &lt;em&gt;part&lt;/em&gt; of the story:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;For consumer purchases, I think all software spending shows up as final consumption, whether it's purchased shrinkwrapped software or whether it's access to a software-as-a-service (SaaS) website like TurboTax.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Business purchases confuse me more. In the US anyway, software &lt;a href=&quot;http://www.bea.gov/national/pdf/chapter6.pdf&quot;&gt;is now counted as&lt;/a&gt; part of Private Fixed Investment. But I don't fully understand all the jargon, e.g. about &quot;originals&quot;/&quot;copies&quot;/&quot;own-account&quot;/etc.. Some of the main cases that need to be addressed seem to be: 1) software written purely for internal use, 2) software written by one company and sold to others, and 3) software-as-a-service (SaaS) tools like Salesforce.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Another wrinkle is open source software, or other types of software that are given away at no cost. Does that always count as $0 in GDP? Does the answer change depending on whether the open source project has a corporate sponsor or two that pay for much of the development work?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And what about updates to software -- Major releases? Minor releases? Bug fixes?&lt;/p&gt;&#xA;" OwnerUserId="5117" LastActivityDate="2019-11-17T18:32:58.513" Title="How is software treated in Gross Domestic Product calculations?" Tags="&lt;gdp&gt;&lt;software&gt;&lt;national-accounts&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6412" PostTypeId="2" ParentId="6118" CreationDate="2015-07-07T12:05:12.430" Score="3" Body="&lt;p&gt;NA, in my opinion, is the lack of a trading strategy to generate excess returns, that means returns greater than those of assets in the same risk category. Note that it doesn't mean no risk.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A market is efficient, again in my own understanding, when all the contents of an information set are reflected in the market's assets prices. There are 3 forms of market efficiency weak, semi-strong and strong.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Weak form efficiency is given when the information set contains historical data about the assets, for example past prices, returns, past news about the companies, etc. An example of weak form efficiency would be when past growth data of a company is incorporated into its equity prices.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Semi-strong form efficiency occurs when the market is weak form efficient and the information set also includes all currently available public data about the assets in the market. For example press releases, macroeconomic indicators, etc. An example of semi-strong efficiency would be when due to an increase in the interest rate, the cost of capital of a company increases and the equity prices fall.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Strong form efficiency takes place when a market is semi-strong form efficient and the information set also includes all available private information about assets in the market. For example, plans yet not publicly available about a new product release or private events in the lives of the members of the management team. An example of strong form efficiency would be if, due to the CEO of the company going through a divorce, the company's shares prices fall.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="5119" LastEditorUserId="5119" LastEditDate="2015-07-07T14:42:19.287" LastActivityDate="2015-07-07T14:42:19.287" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6414" PostTypeId="2" ParentId="6404" CreationDate="2015-07-07T15:12:55.597" Score="2" Body="&lt;p&gt;Based on the discussion in comments, the core of your question appears to be &quot;What would happen if European governments stopped providing deposit insurance?&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question and answer about the US deposit insurance program &lt;a href=&quot;https://economics.stackexchange.com/a/5332/264&quot;&gt;here&lt;/a&gt; provides useful background, but the short answer would be that we would expect bank runs to be more likely, though how much more likely would be a function of the institutional relationships between banks, banks' access to liquidity backstops, the extent of bank regulation, and economic fundamentals. This is because (as discussed in the linked answer) private deposit insurance doesn't entirely relieve depositors of monitoring burdens, and private deposit insurers lack the ability to discipline the banks they insure without potentially creating bank runs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Theory aside, it's not difficult to find examples (particularly historical examples) where deposit insurance has not existed, and while bank runs were generally more likely in those cases, they were not always common, as emphasized by &lt;a href=&quot;http://aida.econ.yale.edu/~nordhaus/homepage/documents/calomiris_gorton_panic.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Calomiris and Gorton (1991)&lt;/a&gt;. Institutional arrangements such as credit mutuals, where shares in the depository institution are allocated based on deposits, can mitigate run risk, for example. A decent review of banking from an industrial organization view can be found in &lt;a href=&quot;http://www.researchgate.net/profile/Doris_Neuberger/publication/24081480_Industrial_Organization_of_Banking_A_Review/links/0912f50be4d8395f27000000.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Neuberger (1998)&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="264" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-07-07T15:12:55.597" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6415" PostTypeId="1" AcceptedAnswerId="6417" CreationDate="2015-07-07T16:50:06.983" Score="19" ViewCount="668" Body="&lt;p&gt;Normally, when you don't pay a debt, your creditors take your goods (house, car, etc).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If Greece cannot pay its debt, can its creditors take Greek goods (structures, cities, industries, lands, etc)? Can Germany, or other organizations, become owners of Greece?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Maybe that's a silly question, but for a non-expert it sounds logical.&lt;/p&gt;&#xA;" OwnerUserId="5123" LastEditorUserId="8481" LastEditDate="2020-05-04T09:38:29.783" LastActivityDate="2020-05-08T09:54:41.177" Title="If I don't pay a debt, then the creditor takes my goods. Why, then, do Greek creditors not take Greece?" Tags="&lt;government-debt&gt;&lt;debt&gt;&lt;bonds&gt;&lt;financial-crises&gt;&lt;default&gt;" AnswerCount="3" CommentCount="1" FavoriteCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="6417" PostTypeId="2" ParentId="6415" CreationDate="2015-07-07T17:24:13.720" Score="20" Body="&lt;p&gt;In general, there are three kinds of debt:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Secured debt, like a mortgage or a repurchase agreement. With a mortgage, for example, the debt is secured by a lien on the home, and if the debtor does not pay, the creditor can seize the home.&lt;/li&gt;&#xA;&lt;li&gt;Unsecured debt, like a credit card or corporate bond. Governments will generally allow creditors to liquidate many of the assets of an insolvent individual or firm to meet unsecured obligations, subject to (often significant) limits. For individuals, things like retirement accounts and primary residences are often off-limits for debt collection.&lt;/li&gt;&#xA;&lt;li&gt;Sovereign debt. Sovereigns typically issue debt under their own law, and countries generally don't set up their legal systems in such a way as to allow other countries to take their things. However, when sovereigns issue debt under foreign countries' law, as &lt;a href=&quot;http://www.forbes.com/sites/timworstall/2012/05/16/the-value-of-foreign-law-in-investing-greece-pays-out-on-english-bonds/&quot;&gt;Greece has done with some UK-law bonds&lt;/a&gt;, payouts tend to be higher, and overseas property is in fact &lt;a href=&quot;http://www.businessinsider.com/ghana-court-says-argentine-ship-left-illegally-2014-10&quot;&gt;occasionally seized&lt;/a&gt;. However, seizing the domestic property of a defaulted sovereign is effectively impossible, as one of the benefits of being a sovereign is that you control your own territory— attempting to seize another nation's &quot;structures, cities, industries, lands, etc.&quot; (setting aside the fact that most structures, cities, industries, and land in Greece are not owned by the government) is what is known as an act of war.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="264" LastActivityDate="2015-07-07T17:24:13.720" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="6418" PostTypeId="1" AcceptedAnswerId="6424" CreationDate="2015-07-07T20:12:03.673" Score="3" ViewCount="111" Body="&lt;p&gt;Apparently (&lt;a href=&quot;http://www.reuters.com/article/2015/07/07/us-eurozone-greece-idUSKBN0P40EO20150707&quot; rel=&quot;nofollow noreferrer&quot;&gt;1&lt;/a&gt;, &lt;a href=&quot;http://www.aljazeera.com/news/2015/07/greek-banks-running-cash-key-eu-meeting-150707071756470.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;2&lt;/a&gt;) Greece is running out of cash right now. I am wondering where the cash went.&lt;/p&gt;&#xA;&lt;p&gt;One option that I can image is people withdrawing funds and taking them out of the country but this cannot be the core of the problem, can it?&lt;/p&gt;&#xA;&lt;p&gt;The other possibility would be people just withdrawing money and saving it but eventually the money will have to be spend because people need to buy things so the problem might solve itself?&lt;/p&gt;&#xA;&lt;p&gt;What am I missing here?&lt;/p&gt;&#xA;" OwnerUserId="5126" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2015-07-08T09:23:44.957" Title="Where did the Greek cash go?" Tags="&lt;monetary-policy&gt;&lt;money-supply&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6419" PostTypeId="1" CreationDate="2015-07-07T20:57:36.490" Score="1" ViewCount="204" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;DIRECTIVE 2013/36/EU &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Article 12&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Initial capital&lt;/p&gt;&#xA;  &#xA;  &lt;ol&gt;&#xA;  &lt;li&gt;Without prejudice to other general conditions laid down in national law, the competent authorities shall refuse authorisation to&#xA;  commence the activity of a credit institution where a credit&#xA;  institution does not hold separate own funds or where its initial&#xA;  capital is less than &lt;strong&gt;EUR 5 million&lt;/strong&gt;.&lt;/li&gt;&#xA;  &lt;/ol&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;h2&gt;Assumption&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Let's assume that at some point people realized how great the banking profession is and a lot of entrepreneurs were willing to take the burden off the bankers by starting their own bank. The only problem they had was lack of required capital, which for the UK, or any bank in an EU member state, was about €5m. In the following parliamentary election people voted for a liberal (not just by name) party that promised to lower the minimum required capital to £100k, so that banking would no longer be a privilege of the super rich. Every middle class entrepreneur can now easily gather the required capital and start competing in the free market of banking services.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know that there is an exception to the minimum required capital for &lt;em&gt;particular categories of credit institutions&lt;/em&gt; which the UK used for building societies but let's focus on fully-fledged banks exclusively. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;ol start=&quot;4&quot;&gt;&#xA;  &lt;li&gt;Member States may grant authorisation to particular categories of credit institutions the initial capital of which is less than that&#xA;  specified in paragraph 1, subject to the following conditions: (a) the&#xA;  initial capital is no less than &lt;strong&gt;EUR 1 million&lt;/strong&gt;; (b) the Member States&#xA;  concerned notify the Commission and EBA of their reasons for&#xA;  exercising that option.&lt;/li&gt;&#xA;  &lt;/ol&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;h2&gt;Question&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Given that banking, Fractional Reserve Banking especially, heavily relies on support from taxpayers, mostly through Deposit Guarantee Schemes (DGS) without which we can safely assume that FRB wouldn't be possible, banks would have to find other ways to build trust than simply rely on always-solvent taxpayers, and the fact that the minimum capital to open one's own bank in the UK is €5m, what can we reasonably expect to happen if that minimum required capital was lowered to, say, £100k?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words, is there any justification, other than &lt;em&gt;we are a cartel go away&lt;/em&gt;, that banking, or FRB in particular whose biggest asset is taxpayers guarantees through DGS, be restricted to super rich people that can afford the €5m minimum required capital?&#xA;Why can't we have &lt;em&gt;real&lt;/em&gt; competition in the banking sector by allowing for creation of micro banks?&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;My own prediction&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Competition in the banking sector would take an unprecedented turn and, as with every liberalisation of market rules, quality of the services would rise.&#xA;Regular as sine wave financial crises would then be occurring with higher frequency but a lot smaller amplitude.&#xA;No bank will be too big to fail as small banks would take a substantial part of the market. &lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Community bank&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;An example of small lending company which is &lt;em&gt;not&lt;/em&gt; a bank in regulatory terms but despite its micro capital it successfully competes with big banks on the lending market - &#xA;&lt;a href=&quot;https://www.burnleysavingsandloans.co.uk/faqs//&quot; rel=&quot;nofollow&quot;&gt;Burnley Savings and Loans&lt;/a&gt;. Not directly the kind of changes that I am requesting but it shows that it is possible for a small company to succeed on the lending market.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;References&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32013L0036&quot; rel=&quot;nofollow&quot;&gt;http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32013L0036&lt;/a&gt;&#xA;&lt;a href=&quot;http://www.fsa.gov.uk/pages/doing/how/deposit_taking/index.shtml&quot; rel=&quot;nofollow&quot;&gt;http://www.fsa.gov.uk/pages/doing/how/deposit_taking/index.shtml&lt;/a&gt;&#xA;&lt;a href=&quot;http://www.bankofengland.co.uk/publications/Documents/joint/barriers.pdf&quot; rel=&quot;nofollow&quot;&gt;http://www.bankofengland.co.uk/publications/Documents/joint/barriers.pdf&lt;/a&gt;&#xA;&lt;a href=&quot;http://www.fsa.gov.uk/&quot; rel=&quot;nofollow&quot;&gt;http://www.fsa.gov.uk/&lt;/a&gt;&#xA;&lt;a href=&quot;https://en.wikipedia.org/wiki/Capital_requirement&quot; rel=&quot;nofollow&quot;&gt;https://en.wikipedia.org/wiki/Capital_requirement&lt;/a&gt;&#xA;&lt;a href=&quot;https://en.wikipedia.org/wiki/Capital_Requirements_Directive&quot; rel=&quot;nofollow&quot;&gt;https://en.wikipedia.org/wiki/Capital_Requirements_Directive&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="324" LastEditorUserId="4773" LastEditDate="2015-07-10T06:22:26.557" LastActivityDate="2015-07-10T06:22:26.557" Title="How would banking in UK change if minimum required capital to open own bank would be £100k instead of €5m?" Tags="&lt;monetary-policy&gt;&lt;money-supply&gt;&lt;banking&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6420" PostTypeId="2" ParentId="6419" CreationDate="2015-07-07T21:30:56.350" Score="5" Body="&lt;p&gt;The minimum required capital matters, but in the opposite direction: the more capital you have, the more likely you can challenge big banks. Because the costs of a new bank look like this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/Rw1K5.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(&lt;a href=&quot;http://www2.deloitte.com/content/dam/Deloitte/pt/Documents/financial-services/dttl-fsi-uk-Banking-Disrupted-2014-06.pdf&quot; rel=&quot;noreferrer&quot;&gt;http://www2.deloitte.com/content/dam/Deloitte/pt/Documents/financial-services/dttl-fsi-uk-Banking-Disrupted-2014-06.pdf&lt;/a&gt;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You need $15 mn just to keep it alive. Recall that, meanwhile, you are supposed to provide credit, so you'll have to borrow more money for this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With 150K GBP in capital and fractional reserve rules, a new bank will be wiped out with losses. And it has no impact on the competition in banking, which is already quite tough.&lt;/p&gt;&#xA;" OwnerUserId="240" LastActivityDate="2015-07-07T21:30:56.350" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="6421" PostTypeId="1" AcceptedAnswerId="6422" CreationDate="2015-07-07T15:09:40.277" Score="5" ViewCount="110" Body="&lt;p&gt;I'm kind of curious to learn why US markets are falling due to Greece - Eurozone crisis. US had almost no exposure to Greece bonds and the fear of Grexit and the future of Euro has made the investors to pull out of the European market. But their investments must go somewhere right? Ideally, they could try to invest in US markets, since the macroeconomic indicators of US has been reasonably stable this year. But instead, I see the US markets are also falling? Why is this the case and where is the money pulled out of Eurozone is getting invested? &lt;/p&gt;&#xA;" OwnerUserId="5125" OwnerDisplayName="WanderingMind" LastEditorUserId="40" LastEditDate="2015-07-09T00:52:27.763" LastActivityDate="2015-07-09T00:52:27.763" Title="Why US market is falling due to greece fear?" Tags="&lt;stock-market&gt;" AnswerCount="2" CommentCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="6422" PostTypeId="2" ParentId="6421" CreationDate="2015-07-07T17:20:53.683" Score="2" Body="&lt;p&gt;As dg99 mentioned the response has actually been relatively muted so far in the American markets  (SPX down 3% or so from its peak).  Generally, problems in major world equity markets cause cascading problems in their trading partners.  In this case there are many American companies that have European stores or otherwise sell into European markets that are affected by the turmoil.  There are secondary effects as well as companies that trade with affected companies feel the pain and so on.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As you mention the news out of the US has been fairly positive, but a melt down in the EU would likely overwhelm the tepid growth in the North American region.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The important thing to note here is that the investments do not necessarily need to go somewhere.  We can just all agree that the value of European investments is significantly less now because future earnings is likely lower (really for any reason) and &lt;em&gt;the price will change even if no one sells and no money leaves the region&lt;/em&gt;.  In a very real sense billions of value just no longer exists.   However, it is true some people have been selling and investing elsewhere.  The main beneficiary is generally safer instruments like bonds which have rallied somewhat.&lt;/p&gt;&#xA;" OwnerUserId="5130" OwnerDisplayName="rhaskett" LastActivityDate="2015-07-07T17:20:53.683" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="6423" PostTypeId="2" ParentId="6415" CreationDate="2015-07-08T00:41:48.167" Score="-3" Body="&lt;p&gt;In short, Greece has already been taken.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The key point to note is that money does &lt;em&gt;not&lt;/em&gt; have any value until it gets exchanged for either goods or services. Until that exchange happens money does not have any value whatsoever; it is merely a &lt;em&gt;promise&lt;/em&gt; and creating promises costs literally nothing. Every country (except for those in currency unions, yes, Greece) can create endless money supplies at no cost because money as we use it today does not have any value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Goods and services have value&lt;/strong&gt;, not money. For anybody that happened to live through hyperinflation times or even quantitative easing periods which is happening as I am writing these words as ECB launched 1 trillion (!) QE program, it's obvious how burning money can be. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;ECB is not after money as it can easily create endless money supplies, just to mention, quantitative easing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;What ECB is after is control.&lt;/strong&gt;&#xA;ECB wants to control country's domestic matters and make sure that ECB, or wider, the whole banking sector, maintains its supreme position in the country's economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Both Lucas Papademos and Mario Monti (yes, Italy) have strong ties to the biggest banks, yet they were supposed to represent their country's interest. Whose interest do you think they were defending? And these two guys &lt;a href=&quot;http://www.independent.co.uk/news/business/analysis-and-features/what-price-the-new-democracy-goldman-sachs-conquers-europe-6264091.html&quot; rel=&quot;nofollow&quot;&gt;aren't even an exception&lt;/a&gt;.    &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So for ECB, the main player in the Euro currency union, it makes sense to keep buying Greek bonds because it costs them nothing and, most importantly, assures Greece stays in Euro Zone which in turn means that ECB essentially controls the country.&#xA;The only challenge is how long other countries who are &lt;em&gt;not&lt;/em&gt; directly the lenders, will tolerate such a scenario because they are the real losers.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Update&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;As predicted in my answer, ECB just confirmed that it will step in and provide liquidity for Greek lenders. ECB did so because it is in its own interest to keep Greece in Euro zone regardless of how much money they require to maintain liquidity as creating money does not cost anything. Greece will only leave Euro zone if 1) decides to do so 2) other Euro zones countries will kick Greece out.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Lucas_Papademos&quot; rel=&quot;nofollow&quot;&gt;https://en.wikipedia.org/wiki/Lucas_Papademos&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://uk.reuters.com/article/2015/03/31/uk-markets-bonds-qe-idUKKBN0MR0FG20150331&quot; rel=&quot;nofollow&quot;&gt;http://uk.reuters.com/article/2015/03/31/uk-markets-bonds-qe-idUKKBN0MR0FG20150331&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.wsj.com/articles/eurozone-leaders-reach-unanimous-agreement-on-greece-says-eus-tusk-1436771076&quot; rel=&quot;nofollow&quot;&gt;http://www.wsj.com/articles/eurozone-leaders-reach-unanimous-agreement-on-greece-says-eus-tusk-1436771076&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="324" LastEditorUserId="324" LastEditDate="2015-07-13T21:44:21.127" LastActivityDate="2015-07-13T21:44:21.127" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="6424" PostTypeId="2" ParentId="6418" CreationDate="2015-07-08T01:57:29.683" Score="3" Body="&lt;p&gt;Relaying from &lt;a href=&quot;https://economics.stackexchange.com/questions/6337/can-banks-maintain-euro-accounts-if-the-country-theyre-in-leaves-the-eurozone/6352#6352&quot;&gt;@lumi's answer to this question&lt;/a&gt; (not a duplicate though) we see that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/S4mMv.png&quot; alt=&quot;diagram&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As @lumi writes &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;...&quot;if we look at the Greek money supply figures, and we know that that there are essentially three ways for liability deposits to&#xA;  decrease as shown - loan repayment, loan write-off and cash&#xA;  withdrawals, we can deduce pretty easily that Greece is experiencing a&#xA;  massive outflow of cash. We can assume that some of it is cash&#xA;  withdrawals particularly recently, but some of it also debt repayment&#xA;  to debt owners outside of the Greek banking system.&quot;&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;For the last months, I would increase a bit the emphasis on &quot;people withdrawing funds and taking them out of the country&quot;.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-07-08T01:57:29.683" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6426" PostTypeId="1" AcceptedAnswerId="18113" CreationDate="2015-07-08T03:39:22.827" Score="4" ViewCount="415" Body="&lt;p&gt;I am currently reading the book &quot;Microeconomics: Principles and Analysis&quot; by Cowell on my own. I'm interested in the section of the multiproduct firm, but i'm confused with the use of the profit function. Specifically, about how to pose the target for the maximization problem. Here an example with two goods $x$ and $y$, two factor $k$ and $l$ and two Cobb-Douglas production functions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{equation}&#xA;\begin{array}{l}&#xA;\text{Max}\quad \pi=p_{x}q_{x}+p_{y}q_{y}-w(l_{x}+l_{y})-v(k_{x}+k_{y}) \\ &#xA;\text{subject to:} \\&#xA; q_{x}\leq k_{x}^{\alpha}l_{x}^{\beta} \\&#xA;q_{y}\leq k_{y}^{\gamma}l_{y}^{\delta} \\&#xA;L=l_{x}+l_{y} \\ &#xA;K=k_{x}+l_{y}&#xA;\end{array}&#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Am I posing the question well? How are the first order conditions?&lt;/p&gt;&#xA;" OwnerUserId="4741" LastEditorUserId="2776" LastEditDate="2017-09-02T07:47:44.830" LastActivityDate="2017-09-02T07:47:44.830" Title="Maximisation problem in a multiproduct firm" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;producer-theory&gt;&lt;competitive-equilibrium&gt;" AnswerCount="1" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6427" PostTypeId="2" ParentId="6418" CreationDate="2015-07-08T09:23:44.957" Score="1" Body="&lt;p&gt;I am not 100% sure what you are asking, but the shortage of cash &lt;em&gt;this&lt;/em&gt; month in Greece is due to the &lt;strong&gt;closing of banks&lt;/strong&gt; and &lt;strong&gt;prevention of&lt;/strong&gt; most &lt;strong&gt;banks transaction&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When, middle/end of June discussions looked like there would be no agreement, and that a Grexit would probably be the only way out, people went to withdraw their money from their bank account. As a possible Grexit would imply a change of currency, combined with a rapid devaluation. That would make the value of banks accounts quite uncertain. People prefered to withdraw to be on the safe side. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, to prevent a total collapse of their banking system, the government had to try to prevent the huge amount of money getting out of the banks. Their first measure was to limit the amound of cash that can be withdrawn: 60€/day for each inhabitant. The inhabitants being skeptic, tend to accumulate that money at home (not all flee outside).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However that doesn't prevent bank transfers towards foreign countries (probably favoured by high/middle class members). So they also stopped that. As a consequence, cash is the only mean of payment in Greece, even for salaries. Which amplify the need for the Greeks to collect cash with themselves to pay employee's income, food, and all kind of services that are needed and that can't be paid for with alternative means (credit cards, check, transfers, etc.).&lt;/p&gt;&#xA;" OwnerUserId="4817" LastActivityDate="2015-07-08T09:23:44.957" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6428" PostTypeId="1" CreationDate="2015-07-08T09:34:43.233" Score="6" ViewCount="199" Body="&lt;p&gt;There are two agents $i=1,2$. Consider the following programm&#xA;\begin{align}&#xA;&amp;amp;V_1(x_0) := \max_u \int^\infty_0 e^{-\rho t}F_1(x(t),u(t),v(t))dt\\&#xA;&amp;amp;V_2(x_0) := \max_v \int^\infty_0 e^{-\rho t}F_2(x(t),u(t),v(t))dt\\&#xA;s.t.~&amp;amp;\dot x(t)=f(x(t),u(t),v(t))\\&#xA;&amp;amp;x(0) = x_0&#xA;\end{align}&#xA;where $\rho &amp;gt; 0$ denotes time preference, $V_i(\cdot)$ is the value and $F_i(\cdot)$ an objective function. $x\in X = [0,2]$ is the state variable and $u\in U=[0,1]$ the control of agent 1 and $v\in V=[0,1]$ the control of agent 2 respectively. The state is governed by $f(\cdot)$. The Hamilton-Jacobi-Bellman equation for each agent is given by&#xA;\begin{align}&#xA;\rho V_1(x)=\max_u [F(x,u,v^*) + V_1'(x)f(x,u,v^*)],\quad \forall t\in[0,\infty)\\&#xA;\rho V_2(x)=\max_v [F(x,u^*,v) + V_2'(x)f(x,u^*,v)],\quad \forall t\in[0,\infty)\\&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;given the respective maximizers&#xA;\begin{align}&#xA;u^* &amp;amp;= \max_u [F(x,u,v^*) + V_1'(x)f(x,u,v^*)]\\&#xA;v^* &amp;amp;=\max_v [F(x,u^*,v) + V_2'(x)f(x,u^*,v)]&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;such that the HJBs become&#xA;\begin{align}&#xA;\rho V_1(x)=F(x,u^*,v^*) + V_1'(x)f(x,u^*,v^*)\\&#xA;\rho V_2(x)=F(x,u^*,v^*) + V_2'(x)f(x,u^*,v^*)&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Symmetric equilibirum&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;A symmetric equilibirum is given at $\dot x = 0 \Leftrightarrow f(\tilde x,\tilde u,\tilde v) = 0$ with $\tilde x = 1$ and $\tilde u=\tilde v$ and $V_1(\tilde x) = V_2(\tilde x) =: V(\tilde x)$. &lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Problem&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;The equilibirum controls $\tilde u$ and $\tilde v$ can't be determinend with the information at hand. The equation&#xA;\begin{align}&#xA;\rho V(\tilde x)=F(\tilde x,\tilde u, \tilde v) + V'(\tilde x)\underbrace{f(\tilde x,\tilde u, \tilde v)}_{=0}&#xA;\end{align}&#xA; is true for every $\{(u,v)\in[0,1]\times[0,1]:u=v\}$. That is, we have multiple equilibria. &lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Select Equilibrium&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;My idea is (I made this up, haven't read anything about it) that I select the equilibrium associated with the highest value. We can determine $V(\tilde x)$ for all $\{(u,v)\in[0,1]\times[0,1]:u=v\}$. &#xA;Say  $V(\tilde x)$ is monoton increasing in $u$ and $v$, i.e.&#xA;\begin{align}&#xA;\lim_{u=v\to 0} V(\tilde x) &amp;lt; \lim_{u=v\to 1} V(\tilde x)&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Perosnal I would choose the fixed point $(k = 1, u = 1, v = 1)$. I'd like to know if I can motivate it formally as the unique solution.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Do I select the equilibrium associated with the highest value, by definition of the value function? &lt;/li&gt;&#xA;&lt;li&gt;Can you point me to some literature concerning this point?&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;h2&gt;Motivating example&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Let $F_1(x,u,v) = xu^2$ and $F_2(x,u,v) = (2-x)v^2$ with $f(x,u,v) = v-u$. The HJBs read (with $\rho=1$)&#xA;\begin{align}&#xA;V_1(x)&amp;amp;=\max_u [xu^2 + V_1'(x)(v^*-u)]\\&#xA;V_2(x)&amp;amp;=\max_v [(2-x)v^2 + V_2'(x)(v-u^*)]&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Maximizers are&#xA;\begin{align}&#xA;u^*&amp;amp;= \frac{V'_1(x)}{2x}\in[0,1]\\[2mm]&#xA;v^*&amp;amp;=\frac{V'_2(x)}{2(2-x)}\in[0,1]&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In symmetric equilibrium we have $\tilde x = 1$ and $\tilde v = \tilde u \Leftrightarrow \dot x = 0$ which gives&#xA;\begin{align}&#xA;V'_1(1) = -V'_2(1)&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The HJb simplifies to &#xA;\begin{align}&#xA;V_1(1)=\left(\frac{V'_1(1)}{2}\right)^2 = \left(\frac{-V'_2(1)}{2}\right)^2 = V_2(1)&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since both vlaues are equal in equilibirum we proceed with 1. We know from the control space that &#xA;\begin{align}&#xA;0\leq V'_1(x) \leq 2x&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which is in equilibirum&#xA;\begin{align}&#xA;0\leq V'_1(1) \leq 2&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can evaluate $V(1)$ for all $V'_1(1)\in[0,2]$ or since $\tilde u=V'_1(1)/2$ for all $\tilde u \in[0,1]$. In the picture I highlighted two possible equilibria $E^A$ and $E^B$. Since the payoff is inreasing with the control we have a higher value associated with equilibirum $E^A$, i.e. $V^A(1) &amp;gt; V^B(1)$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/F2oDO.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;" OwnerUserId="4266" LastEditorUserId="4266" LastEditDate="2015-07-16T13:48:03.917" LastActivityDate="2015-07-16T16:06:58.963" Title="Multiple equilibria: which one to select?" Tags="&lt;reference-request&gt;&lt;mathematical-economics&gt;&lt;dynamic-games&gt;&lt;dynamic-programming&gt;&lt;steady-state&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6429" PostTypeId="1" CreationDate="2015-07-08T09:37:45.763" Score="3" ViewCount="548" Body="&lt;p&gt;If a bank borrow money from a central bank but keeps it as a reserve instead of lending it to someone else, is it counted in the monetary base (MB) or money supply measure &lt;a href=&quot;http://www.investopedia.com/terms/m/m1.asp&quot; rel=&quot;nofollow&quot;&gt;M1&lt;/a&gt;, using US definitions ?&#xA;Maybe that case just doesn't happen.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT: A related question: if every debt is paid back (including money lent by central banks), does MB remain constant (which could not be the case according to the answer to the previous question) ?&lt;/p&gt;&#xA;" OwnerUserId="5132" LastEditorUserId="5132" LastEditDate="2015-07-10T08:07:18.367" LastActivityDate="2015-07-10T08:07:18.367" Title="Is money lent by central banks to private banks counted in MB or M1?" Tags="&lt;macroeconomics&gt;&lt;monetary-policy&gt;&lt;money-supply&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6430" PostTypeId="2" ParentId="6345" CreationDate="2015-07-08T10:20:49.010" Score="2" Body="&lt;p&gt;I know of at least one paper that deals with exactly this issue.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://onlinelibrary.wiley.com/doi/10.1111/j.1430-9134.1999.00163.x/abstract&quot; rel=&quot;nofollow&quot;&gt;Shy &amp;amp; Thisse (2004): &quot;A Strategic Approach to Software Protection&quot;, &lt;em&gt;Journal of Economics and Management Strategy&lt;/em&gt;, 8(2).&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The link above is to the (paywalled) published version. An ungated version is &lt;a href=&quot;http://oz.stern.nyu.edu/phd04/shy.pdf&quot; rel=&quot;nofollow&quot;&gt;on the author's website here&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here's the abstract:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;This paper demonstrates that there is a strategic reason why software firms have followed consumers' desire to drop software protection. We analyze software protection policies in a price-setting duopoly software industry selling differentiated software packages, where consumers' preference for particular software is affected by the number of other consumers who (legally or illegally) use the same software. Increasing network effects make software more attractive to consumers, thereby enabling firms to raise prices. However, it also generates a competitive effect resulting from feircer competition for market shares. We show that when network effects are strong, unprotecting is an equilibrium for a noncooperative industry.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The basic story is that there are network effects in software (e.g., graphic designers benefit if, when they show up for a new job, the software there is the same as the one at their last job). Markets with network effects tend to tip and, as you conjecture, this means that firms will want to compete fiercely to become the standard. Shy &amp;amp; Thisse show that this can be enough for firms to rationally tolerate piracy of their products in order to build a large installed base of users.&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2015-07-08T13:30:55.760" LastActivityDate="2015-07-08T13:30:55.760" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6431" PostTypeId="1" CreationDate="2015-07-08T10:41:57.360" Score="1" ViewCount="71" Body="&lt;p&gt;Why has competition evolved to be the leading principle of market based economies? Can this sustain in the long run?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am thinking about cooperation as a better principle of doing things in the long term... However, this probably goes back to consumerism and maximizing utility by consumers and thus a necessary &quot;competition&quot; between manufacturers...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the end, consumerism (consumption?) may lead to environmental damages.&lt;/p&gt;&#xA;" OwnerUserId="229" LastActivityDate="2015-07-08T10:41:57.360" Title="Competition vs. cooperation" Tags="&lt;markets&gt;&lt;consumption&gt;&lt;competition&gt;" AnswerCount="0" CommentCount="2" ClosedDate="2015-07-08T17:07:29.133" ContentLicense="CC BY-SA 3.0" />
  <row Id="6432" PostTypeId="2" ParentId="6429" CreationDate="2015-07-08T12:37:25.607" Score="1" Body="&lt;p&gt;Yes, it is in both but we have to be careful not to double count:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The Fed’s definition of M1 is the sum of (1) currency outside bank&#xA;  vaults, (2) traveler's checks of nonbank issuers, (3) customers’demand&#xA;  deposits at commercial banks (with minor deductions), and (4) other&#xA;  checkable deposits, like negotiable order of withdrawal (NOW) and&#xA;  automatic transfer service (ATS) accounts. Basically, this is currency&#xA;  held by the public plus demand deposit balances outside the Fed. M2&#xA;  consists of M1 plus (1) savings deposits (including money market&#xA;  deposit accounts), (2) small-denomination time deposits (less than&#xA;  $100,000), and (3) balances in retail money market mutual funds.&#xA;  Individual retirement account (IRA) and Keogh account balances are&#xA;  excluded from M2. &lt;strong&gt;Excess reserves, required reserves, clearing&#xA;  balances held at the Federal Reserve banks, and the like, are&#xA;  components of the Fed’s monetary base but would constitute&#xA;  double-counting of the same factors if included in M1 and other&#xA;  monetary aggregates.&lt;/strong&gt; Such accounts are readily spendable media of&#xA;  exchange (transaction accounts), but counterparts of these accounts&#xA;  already are included in M1, for example, as components of customers’&#xA;  demand deposits at commercial banks. The quantities of liquidity to&#xA;  fear for inflationary consequences are either monetary base or M1/M2,&#xA;  but not both simultaneously.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The Problem of Excess Reserves, Then and Now (&lt;a href=&quot;http://www.levyinstitute.org/pubs/wp_763.pdf&quot; rel=&quot;nofollow&quot;&gt;Todd (2013)&lt;/a&gt;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is the monetary base?&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In economics, the monetary base (also base money, money base,&#xA;  high-powered money, reserve money, outside money, central bank money&#xA;  or, in the UK, narrow money) in a country is defined as the portion of&#xA;  the commercial banks' reserves that are maintained in accounts with&#xA;  their central bank plus the total currency circulating in the public&#xA;  (which includes the currency, also known as vault cash, that is&#xA;  physically held in the banks' vault).&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The monetary base should not be confused with the money supply which&#xA;  consists of the total currency circulating in the public plus the&#xA;  non-bank deposits with commercial banks.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Monetary_base&quot; rel=&quot;nofollow&quot;&gt;Wikipedia: Monetary base&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is how it works:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Creating Money through the Discount Window.  When a bank needs new&#xA;  reserves to support loans and investments it has already made or&#xA;  anticipates making, it ordinarily borrows from other banks at the&#xA;  Federal Funds rate.  But during times of stress, which are reflected&#xA;  by a shortage of liquidity in many banks, the whole banking system&#xA;  needs new reserves — hence the Fed's discount window. When a bank&#xA;  borrows funds overnight from the Fed's discount window (at an interest&#xA;  rate the Fed sets, called the discount rate), the bank's reserve&#xA;  account at the Fed is credited with the amount borrowed (and the Fed&#xA;  adds to its assets the additional amount owed to it by the borrowing&#xA;  bank).  Since the borrowing bank gets new reserves and no other bank&#xA;  lost reserves, net new reserves have been created for the banking&#xA;  system as a whole.  If the amount is also \$10 million, the banking&#xA;  system as a whole has a new capacity to expand loans and deposits by&#xA;  as much as \$100 million.  Thus, the Fed's open market purchases and&#xA;  discount window loans have the same ultimate impact on the money&#xA;  supply, at least until the discount window loans are repaid.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;How the Fed Creates Money (&lt;a href=&quot;http://www.ncpa.org/pub/ba611&quot; rel=&quot;nofollow&quot;&gt;McTeer and Villarreal (2008)&lt;/a&gt;) &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2015-07-08T12:37:25.607" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6433" PostTypeId="2" ParentId="6119" CreationDate="2015-07-08T12:44:50.497" Score="5" Body="&lt;p&gt;It is valid but only in the short run with the assumption that the capital is fixed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By assuming that output depends on labor and capital you can write&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$q=q(L,K)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now taking the total derivative&#xA;$$dq=\frac{\partial q}{\partial L}dL+\frac{\partial q}{\partial K}dK$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the short run capital is fixed such as $dK=0$&#xA;$$\longrightarrow\quad dq=\frac{\partial q}{\partial L}dL\longrightarrow \frac{dL}{dq}=1/\frac{\partial q}{\partial L}$$&lt;/p&gt;&#xA;" OwnerUserId="5133" LastActivityDate="2015-07-08T12:44:50.497" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6435" PostTypeId="1" CreationDate="2015-07-08T13:56:20.083" Score="14" ViewCount="1646" Body="&lt;p&gt;Consider the following differential equation&#xA;\begin{align}&#xA;\dot x(t)=f(x(t),u(t))&#xA;\end{align}&#xA;where  $x$ is the state and $u$ the control variable. The solution is given by&#xA;\begin{align}&#xA;x(t)=x_0 + \int^t_0f(x(s),u(s))ds.&#xA;\end{align}&#xA;where $x_0:=x(0)$ is the given inital state.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now consider the following programm&#xA;\begin{align}&#xA;&amp;amp;V(x_0) := \max_u \int^\infty_0 e^{-\rho t}F(x(t),u(t))dt\\&#xA;s.t.~&amp;amp;\dot x(t)=f(x(t),u(t))\\&#xA;&amp;amp;x(0) = x_0&#xA;\end{align}&#xA;where $\rho &amp;gt; 0$ denotes time preference, $V(\cdot)$ is the value and $F(\cdot)$ an objective function. A classical economic application is the Ramsey-Cass-Koopmans model of optimal growth. The Hamilton-Jacobi-Bellman equation is given by&#xA;\begin{align}&#xA;\rho V(x)=\max_u [F(x,u) + V'(x)f(x,u)],\quad \forall t\in[0,\infty).&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Say I've solved the HJB for $V$. The optimal control is then given by&#xA;\begin{align}&#xA;u^*=\arg\max_u [F(x,u) + V'(x)f(x,u)].&#xA;\end{align}&#xA;I'll get optimal trajectories for the state and control $\{(x^*(t),u^*(t)):t\in[0,\infty)\}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &lt;a href=&quot;https://en.wikipedia.org/wiki/Hamilton%E2%80%93Jacobi%E2%80%93Bellman_equation&quot; rel=&quot;noreferrer&quot;&gt;wiki&lt;/a&gt; article says &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;...but when solved over the whole of state space, the HJB equation is a necessary and sufficient condition for an optimum. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In Bertsekas (2005) &lt;em&gt;Dynamic Programming and Optimal Control&lt;/em&gt;, Vol 1, 3rd ed., in Proposition 3.2.1 he states that solving for $V$ is the optimal cost-to-go function and the associated $u^*$ is optimal. However, he explicitly declares it as a sufficiency theorem. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Actually, I just want to make sure, that if I've solved the HJB and recoverd the associated state and control trajectories, that I don't have to be concerned with any additional optimality conditions.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Solution&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;I Attempt&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think I was able to derive necessary conditions from the maximum principle by the HJB equation itself.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Define the hamiltonian&#xA;\begin{align}&#xA;H(x,u,V'(x)) := F(x,u) + V'(x)f(x,u)&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;then we have&#xA;\begin{align}&#xA;\rho V(x)=\max_u H(x,u,V'(x))&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which is&#xA;\begin{align}&#xA;\rho V(x)= H(x,u^*,V'(x)).&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Define an arbitrary function $q:[0,\infty)\to\mathbb{R}$ with $q(0)=\lim_{t\to\infty} q(t)=0$. Now fix&#xA;\begin{align}&#xA;x = x^*+\varepsilon q&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $\varepsilon\in\mathbb{R}$ is a parameter. Plug the term into the maximized hamiltonian which gives&#xA;\begin{align}&#xA;\rho V(x^*+\varepsilon q)= H(x^*+\varepsilon q,u^*,V'(x^*+\varepsilon q)).&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At $\varepsilon = 0$ we have the optimal solution. Thus differentite over $\varepsilon$ to get a first order condition&#xA;\begin{align}&#xA;\rho V'q = H_x q + H_{V'}V''q.&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now define the adjoint variable with&#xA;\begin{align}&#xA;\lambda = V'(x).&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Differentiate over time&#xA;\begin{align}&#xA;\dot \lambda = V''\dot x.&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and note that&#xA;\begin{align}&#xA;H_{V'} = f(x,u) = \dot x.&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Plug everthing into the foc wich gives&#xA;\begin{align}&#xA;\rho \lambda = H_x  + \dot \lambda.&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That's it pretty much. So solving the HJB is indeed necessary and sufficient (omitted here) for optimality. Someone should add it to wiki. Might save time for people thinking about such problems (won't be a lot I reckon).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However the transversality condition&#xA;\begin{align}&#xA;\lim_{t\to\infty} e^{-\rho t}\lambda(t) = 0&#xA;\end{align}&#xA;is missing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;II Attempt&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Define the payoff functional&#xA;\begin{align}&#xA;J(u):=\int^\infty_0 e^{-\rho t}F(x,u)dt&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that &#xA;\begin{align}&#xA;\int^\infty_0{e^{-\rho t}\lambda[f(x,u) - \dot x]dt} = 0&#xA;\end{align}&#xA;by definition of $\dot x = f(x,u)$. Add the neutral Term to the payoff funtional&#xA;\begin{align}&#xA;J(u)&amp;amp;=\int^\infty_0 e^{-\rho t}[F(x,u)+\lambda f(x,u)]dt -  \int^\infty_0{e^{-\rho t}\lambda\dot xdt}\\&#xA;&amp;amp;=\int^\infty_0 e^{-\rho t}H(x,u,\lambda) -  \int^\infty_0{e^{-\rho t}\lambda\dot xdt}&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Integration by parts of the right term ond the rhs yields&#xA;\begin{align}&#xA;\int^\infty_0{e^{-\rho t}\lambda\dot xdt} = [e^{-\rho t}\lambda(t)x(t)]^\infty_0 - \int^\infty_0{e^{-\rho t}x(\dot \lambda-\rho\lambda)dt}&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Resubstitute that term&#xA;\begin{align}&#xA;J(u)=\int^\infty_0 e^{-\rho t}[H(x,u,\lambda) + x(\dot \lambda-\rho\lambda)]dt - \lim_{t\to\infty}e^{-\rho t}\lambda(t)x(t) +  \lambda(0)x(0)&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Define &#xA;\begin{align}&#xA;x &amp;amp;= x^*+\varepsilon q\\&#xA;u &amp;amp;= u^*+\varepsilon p&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which gives &#xA;\begin{align}&#xA;J(\varepsilon)=\int^\infty_0 e^{-\rho t}[H(x^*+\varepsilon q,u^*+\varepsilon p,\lambda) + (x^*+\varepsilon q)(\dot \lambda-\rho\lambda)]dt - \lim_{t\to\infty}e^{-\rho t}\lambda(t)[x^*(t)+\varepsilon q(t)] +  \lambda(0)x(0)&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;FOC for maximum $J_\varepsilon = 0$&#xA;\begin{align}&#xA;J_\varepsilon=\int^\infty_0 e^{-\rho t}[H_x q + H_u p + q(\dot \lambda-\rho\lambda)]dt - \lim_{t\to\infty}e^{-\rho t}\lambda(t)q(t) = 0&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since $q$ and $p$ are unconstrained we must have&#xA;\begin{align}&#xA;H_u &amp;amp;= 0\\&#xA;H_x &amp;amp;= \rho\lambda - \dot \lambda\\&#xA;\lim_{t\to\infty}e^{-\rho t}\lambda(t) &amp;amp;= 0&#xA;\end{align}&lt;/p&gt;&#xA;" OwnerUserId="4266" LastEditorUserId="4266" LastEditDate="2015-07-14T09:52:56.623" LastActivityDate="2017-10-13T03:17:07.663" Title="Solving the Hamilton-Jacobi-Bellman equation; necessary and sufficient for optimality?" Tags="&lt;mathematical-economics&gt;&lt;reference-request&gt;&lt;dynamic-programming&gt;" AnswerCount="1" CommentCount="6" FavoriteCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="6437" PostTypeId="1" CreationDate="2015-07-08T14:32:40.533" Score="2" ViewCount="48" Body="&lt;p&gt;I was reading about the frequent congestion in US ports and the resulting effect on the US economy. I feel there are unique features to this setting. When ports face congestion, they levy charges, and these are transferred on to the buyers by the shippers. On top of this, costs of delayed reception of goods are also borne by the retailers only. The only 'catch' for ports arises if the congestion is so high that firms shift to air transport or reroute through a farther port and incur road transport expenses. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are there papers which model the economic interactions like competition between ports, or the interactions between firms, ports and labour unions?&lt;/p&gt;&#xA;" OwnerUserId="41" LastEditorUserId="238" LastEditDate="2015-07-08T15:51:56.517" LastActivityDate="2015-07-10T12:59:40.517" Title="Competition between utilities like ports" Tags="&lt;microeconomics&gt;&lt;international-trade&gt;&lt;reference-request&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6438" PostTypeId="1" CreationDate="2015-07-08T14:47:55.850" Score="7" ViewCount="195" Body="&lt;p&gt;Is there any existing literature on the various factors affecting the number of houses constructed in a particular city over, say, a given month? Factors might include: quality of housing stock, a lagging value of housing sale price, house price to earnings ratio. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Preferably, I would like to see literature that describes the relative importance of these factors, perhaps by running a regression--so that way, when I do my own regression on the factors, I can compare the magnitude and direction with existing research. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Anything related to this would be useful too; for example, if there is no paper which predicts the number of houses built, then something which gives, say, a utility yield for constructors would be helpful.&lt;/p&gt;&#xA;" OwnerUserId="5135" LastActivityDate="2015-07-08T18:00:30.350" Title="Literature on factors affecting number of houses built" Tags="&lt;econometrics&gt;&lt;reference-request&gt;&lt;regression&gt;&lt;housing&gt;" AnswerCount="1" CommentCount="3" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6439" PostTypeId="2" ParentId="6437" CreationDate="2015-07-08T16:58:39.273" Score="1" Body="&lt;p&gt;In America, on the West coast, unions negotiate a common contract:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Ironically, the International Longshore and Warehouse Union is a&#xA;  beneficiary of the same forces that are killing unions everywhere&#xA;  else: Its workers are the folks who unload the stuff that comes in&#xA;  from abroad. Those workers are sitting right at the bottleneck through&#xA;  which all that foreign competition flows to the U.S., and due to some&#xA;  smart planning by the union in earlier decades -- &lt;strong&gt;such as insisting&#xA;  that the West Coast ports would bargain as a bloc so that they can't&#xA;  play different locals against each other&lt;/strong&gt; -- they can cork that&#xA;  bottle anytime they want. That gives them the ability to extract a&#xA;  little tariff on all that trade. Their rake-off is a tiny fraction of&#xA;  the overall flows, but that still translates into substantial sums for&#xA;  the few thousand workers who are holding onto that cork. The more&#xA;  trade, the better the concessions the ILWU is able to extract -- and&#xA;  the worse workers in other unions do.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.bloombergview.com/articles/2015-03-24/unions-wages-and-the-hand-of-competition&quot; rel=&quot;nofollow&quot;&gt;Where Have All Our Wages Gone?&lt;/a&gt; by Megan Mcardle &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There used to be a pre-anti-trust era railroad cartel in the USA:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The [Joint Executive Committee (JEC)] was a cartel formed by the&#xA;  railroads which controlled eastbound freight shipments from Chicago to&#xA;  the Atlantic seaboard in the  I  88os. The agreement was publicly&#xA;  acknowledged, as it preceded the passage of the Sherman Act (1890) &#xA;  and the formation of the Interstate Commerce Commission (1887). ...&#xA;  The JEC cartel agreement took the form of market share allotments&#xA;  rather than absolute amounts of quantity shipped. Firms set their&#xA;  rates individually, and the JEC office took weekly accounts so that&#xA;  each railroad could see the total amount transported. Total demand was&#xA;  quite variable, and the actual market share of any particular firm&#xA;  depended on both the prices charged by all the firms and unpredictable&#xA;  stochastic forces.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;On the Incidence and Duration of Price Wars (&lt;a href=&quot;http://www.jstor.org/stable/2098384?seq=1#page_scan_tab_contents&quot; rel=&quot;nofollow&quot;&gt;Porter (1985)&lt;/a&gt;) &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-07-10T12:59:40.517" LastActivityDate="2015-07-10T12:59:40.517" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6440" PostTypeId="2" ParentId="6438" CreationDate="2015-07-08T18:00:30.350" Score="4" Body="&lt;p&gt;It won't help much with the high frequency variation of interest to you but this is a famous and important paper on this topic:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;I process satellite-generated data on terrain elevation and presence&#xA;  of water bodies to precisely estimate the amount of developable land&#xA;  in U.S. metropolitan areas. The data show that residential development&#xA;  is effectively curtailed by the presence of steep-sloped terrain. I&#xA;  also find that most areas in which housing supply is regarded as&#xA;  inelastic are severely land-constrained by their geography.&#xA;  Econometrically, supply elasticities can be well characterized as&#xA;  functions of both physical and regulatory constraints, which in turn&#xA;  are endogenous to prices and demographic growth. Geography is a key&#xA;  factor in the contemporaneous urban development of the United States.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The Geographic Determinants of Housing Supply (Saiz (2010))&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This paper may also be useful:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The long-run price elasticity for alternative specifications of new&#xA;  housing supply is estimated using U.S. annual data for 1950 through&#xA;  1994. The basic model expresses residential construction as a linear function of new housing price and the prices of construction inputs.&#xA;  Long-run elasticities range from 1.6 to 3.7, suggesting that new&#xA;  housing supply is price elastic. Residential construction responds to&#xA;  both the real interest and expected inflation rates, but other&#xA;  construction cost variables perform poorly. However, the results are&#xA;  sensitive to the time-series processes underlying the variables. A&#xA;  modified model that expresses residential construction as a function&#xA;  of changes in input prices, rather than their levels, produces a&#xA;  long-run elasticity of about 0.8 and a significant inverse&#xA;  relationship between new housing supply and the construction wage&#xA;  rate.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The Long-Run Elasticity of New Housing Supply in the United States: Empirical Evidence for 1950 to 1994 (&lt;a href=&quot;http://link.springer.com/article/10.1023/A:1007781228328&quot; rel=&quot;nofollow&quot;&gt;Blackley (1999)&lt;/a&gt;)&lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2015-07-08T18:00:30.350" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6441" PostTypeId="1" AcceptedAnswerId="17111" CreationDate="2015-07-08T18:08:51.777" Score="1" ViewCount="62" Body="&lt;p&gt;I've got this question:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Explain why the FCFF does not incorporate interest expenses and what is the potential bias in the valuation if corporate taxes exist.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Now, we know that in the Free Cash Flow to the Firm we do not include interests because we account for the cost of debt capital in the discount rate. But what is the bias when corporate taxes exist? The flows are computed after-taxes, and then discounted. Maybe can emerge a problem when computing the tax shield, but this is easily tackled by using either Weighted Average Cost of Capital (if the project's flows have the same risk of the firm, and the firm keeps constantly the Debt/Value rate constant) or by using Adjusted Present Value when the debt ratio changes during the lifetime of the project. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any suggestions?&lt;/p&gt;&#xA;" OwnerUserId="5137" LastEditorUserId="2776" LastEditDate="2017-02-19T13:20:38.823" LastActivityDate="2017-09-07T22:10:43.393" Title="Free Cash Flow to the Firm" Tags="&lt;taxation&gt;&lt;corporate-finance&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6442" PostTypeId="1" CreationDate="2015-07-08T18:41:30.683" Score="4" ViewCount="275" Body="&lt;p&gt;If I would like to say, in a technical way, that the problem of a place is its lazy people, then I could say that its workforce productivity is low. However, &quot;workforce productivity&quot; is composed by these elements:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Physical-organic, location, and technological factors;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Cultural belief-value and individual attitudinal, motivational&#xA;and behavioural factors;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;International influences – e.g. levels of innovativeness and&#xA;efficiency on the part of the owners and managers of inward&#xA;investing foreign companies;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Managerial-organizational and wider economic and political-legal&#xA;environments;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Levels of flexibility in internal labour markets and the&#xA;organization of work activities – e.g. the presence or absence of&#xA;traditional craft demarcation lines and barriers to occupational&#xA;entry; and&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Individual rewards and payment systems, and the effectiveness of&#xA;personnel managers and others in recruiting, training, communicating&#xA;with, and performance-motivating employees on the basis of pay and&#xA;other incentives.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;In that sense, saying that the problem of a place is lazyness, some advocates would ask: How do you measure it? The answer would be: With workforce productivity. However, those advocates of lazy people could argue that workforce productivity is low because it is affected by any components from 1 to 6.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there any technical term to refer lazyness?&lt;/p&gt;&#xA;" OwnerUserId="5136" LastActivityDate="2019-02-06T15:35:54.733" Title="Workforce productivity" Tags="&lt;productivity&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6443" PostTypeId="2" ParentId="6442" CreationDate="2015-07-08T19:18:16.370" Score="2" Body="&lt;p&gt;The terms of art here for laziness like concepts are &quot;shirking&quot; and &quot;effort&quot;, particularly  &quot;endogenous effort&quot; or &quot;variable effort&quot;. You should also look into &quot;&lt;a href=&quot;http://www.jstor.org/stable/1816355?seq=1#page_scan_tab_contents&quot; rel=&quot;nofollow&quot;&gt;efficiency wages&lt;/a&gt;&quot;. &quot;Free riding&quot; sometimes appears in this literature but because it is used heavily in the public goods literature it will have more false positives. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This paper may also be of interest:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Using a sample of male and female workers from the 1992 Employment in&#xA;  Britain survey we estimate a model of employees’ self-reported effort&#xA;  levels. Effort is modelled as a function of wages, the perceived&#xA;  monitoring and supervision environment in the individual's workplace,&#xA;  labour-leisure preferences, local unemployment rates and unionisation.&#xA;  Using a two-step estimation strategy to account for the endogeneity of&#xA;  the wage, we find that effort levels are increasing in wages and in&#xA;  preferences for work over leisure. While the extent of monitoring&#xA;  seems not to affect workers’ effort levels the ease with which they&#xA;  can be dismissed is a motivating factor. Unionisation reduces&#xA;  self-reported effort levels which may reflect the outcome of an&#xA;  effort-bargain and, in contrast to the efficiency wage shirking story,&#xA;  local unemployment rates do not affect effort. Finally, in spite of&#xA;  being paid more than women, men report exerting less effort at work.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The Determinants of Work Effort: Evidence from the Employment in Britain Survey&#xA;(&lt;a href=&quot;http://core.ac.uk/download/pdf/7358822.pdf&quot; rel=&quot;nofollow&quot;&gt;Clark and Tomlinson (2001)&lt;/a&gt;)&lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2015-07-08T19:18:16.370" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6444" PostTypeId="1" CreationDate="2015-07-08T19:20:47.277" Score="4" ViewCount="2480" Body="&lt;p&gt;I want to learn Economics by myself and I'm looking to build a path with people who're in this field to how and in what order should I learn Economics, I did some research and I've found many resources to learn from and I'm sure all of the information could be helpful to me in the future but I'm quite sure that not all of the material is practical. I'm ready to invest as many hours and buy all of the books required in-order to learn the material but there's just one thing to keep in mind in this path that I'm asking you to help me build which is: Practicality of the material and how fast I could start to use this knowledge to do trial and error to maximize my learning with the available resources of money I currently have.&lt;/p&gt;&#xA;" OwnerUserId="5139" LastActivityDate="2015-07-08T20:05:49.673" Title="Best resources to self-educate myself in economics" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;finance&gt;&lt;investment&gt;&lt;money&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="6445" PostTypeId="2" ParentId="6444" CreationDate="2015-07-08T20:05:49.673" Score="5" Body="&lt;p&gt;If I'm to give a single reference on learning six years of economics by yourself, it would be&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;MIT Economics Course&lt;/h2&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://ocw.mit.edu/courses/economics/&quot;&gt;http://ocw.mit.edu/courses/economics/&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The MIT has the best graduate economic program, and its undergrad program is definitely in the top 3. The faculty is technical-oriented, which means a lot of math, so you'll be well prepared.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The list of requirements included in a syllabus of each course says what other courses you must complete before approaching this one. So, you'll know your learning path in advance.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Each course includes lecture notes and recommended literature.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'd also keep in mind that while you save money learning this way, the process is quite difficult (especially due to solving math problems alone) and puts you out of sync with institutional aspects of formal education. Like, it's harder to enroll in a grad program or get an advantage in employment.&lt;/p&gt;&#xA;" OwnerUserId="240" LastActivityDate="2015-07-08T20:05:49.673" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6446" PostTypeId="1" CreationDate="2015-07-08T20:51:54.467" Score="6" ViewCount="106" Body="&lt;p&gt;&lt;a href=&quot;http://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.11.4.23&quot;&gt;Martin Feldstein (1997, p. 36)&lt;/a&gt; claims that workers within the US are more geographically mobile than say within Germany. I had known that US workers were mobile. But one sentence of his seems a bit hyperbolic:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;While Americans don't hesitate to move from Ohio and Massachusetts to Arizona and California, Germans are loathe to leave one part of Germany for another.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Boston to say San Francisco (about 5,000km) is about seven times the distance from Hamburg to Munich (about 700km). It would seem surprising that Americans don't hesitate to move from one end of their country to another, while Germans are loathe to do so.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course there are many ways this could be measured. But here is my attempt at a question that is in principle answerable:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Each year, what percentages of US and German workers relocate to a different state (within the same country) for work? Is the figure for the US greater than that for Germany?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;P.S. Feldstein was writing in 1997 but I imagine the numbers do not differ very greatly between now and then--correct me if I'm wrong.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastEditorUserId="8481" LastEditDate="2020-05-03T06:40:30.233" LastActivityDate="2020-05-03T06:40:30.233" Title="Geographic mobility of workers within Germany, as compared to within the US?" Tags="&lt;labor-economics&gt;&lt;germany&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6448" PostTypeId="2" ParentId="6421" CreationDate="2015-07-08T22:58:51.787" Score="0" Body="&lt;p&gt;Beyond what some of the other answers and comments have mentioned, there are other psychological factors at play:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Greece leaving the Euro sets a precedent for other countries such as Spain and Portugal who have had austerity measures in place. This could theoretically cascade in to many other countries also leaving the Euro which then adds some major turbulence to global economies.&lt;/li&gt;&#xA;&lt;li&gt;More recently, there has also been another mini-correction in the price of oil with Brent falling below $60.&lt;/li&gt;&#xA;&lt;li&gt;Heavy turbulence in the Chinese markets must also be considered.&lt;/li&gt;&#xA;&lt;li&gt;Markets are trying to predict and factor in upcoming policy decisions by the Fed. Perhaps there is a reduced chance of a U.S. interest rate hike because of poor economic data.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="5140" LastActivityDate="2015-07-08T22:58:51.787" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6450" PostTypeId="1" AcceptedAnswerId="9647" CreationDate="2015-07-08T23:56:27.197" Score="5" ViewCount="244" Body="&lt;p&gt;I work for a start-up that has encountered an economics problem no one on our team has been able to crack.&lt;/p&gt;&#xA;&lt;p&gt;A story form and a general form of the problem are below. I believe they are equivalent, but if there is a difference, please defer to the general form.&lt;/p&gt;&#xA;&lt;p&gt;We understand there is no precise answer to this question and that the value of any currency considers prices in other factors that this question ignores. Still, we figured, or hoped, that there was some general way of approximating this, even if it's under idealized conditions. Thanks!&lt;/p&gt;&#xA;&lt;p&gt;&lt;strong&gt;Story Form&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;The sultan of Slickcrudistan has gone insane. He has decreed that his country will only accept pre-2015 sand dollars in exchange for oil&lt;sup&gt;1&lt;/sup&gt;. Barrels of oil will be sold to the bidder offering the most sand dollars per barrel. Additionally, the sultan is willing to sell sand dollars back to the public at approximately the current US dollar to sand dollar exchange rate.&lt;/p&gt;&#xA;&lt;p&gt;His country produces 20,000,000 barrels of oil at a market value of $1,000,000,000 USD/year. Additionally, 100,000,000 pre-2015 sand dollars exist. Assuming liquid and efficient markets, what is the equilibrium price of a sand dollar? How would this change if there were a stable inflation in the quantity of sand dollars?&lt;/p&gt;&#xA;&lt;p&gt;&lt;sup&gt;1&lt;/sup&gt; Suppose an extremely cheap process exists for verifying this.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;&lt;strong&gt;General Form&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Currency &lt;em&gt;X&lt;/em&gt; has a total circulation of &lt;em&gt;a&lt;/em&gt; units and a stable inflation rate of currency units of &lt;em&gt;m&lt;/em&gt; percent.&lt;/p&gt;&#xA;&lt;p&gt;Currency &lt;em&gt;Y&lt;/em&gt; has a total circulation of &lt;em&gt;b&lt;/em&gt; units and a stable inflation rate of currency units of &lt;em&gt;n&lt;/em&gt; percent.&lt;/p&gt;&#xA;&lt;p&gt;Currency &lt;em&gt;Y&lt;/em&gt; is completely debased and of no value in comparison to currency &lt;em&gt;X&lt;/em&gt; (at market exchange rates, &lt;em&gt;b&lt;/em&gt; &amp;lt;&amp;lt; &lt;em&gt;a&lt;/em&gt; ).&lt;/p&gt;&#xA;&lt;p&gt;A market with a value of &lt;em&gt;c&lt;/em&gt; units per year in currency &lt;em&gt;X&lt;/em&gt; can now only be transacted in a currency &lt;em&gt;Y&lt;/em&gt;. &lt;em&gt;c&lt;/em&gt; is growing at a stable rate of &lt;em&gt;p&lt;/em&gt; percent.&lt;/p&gt;&#xA;&lt;p&gt;Assuming liquid and efficient market, what is the new equilibrium of exchange?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="5127" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2015-12-08T17:33:58.783" Title="The Insane Sultan of Slickcrudistan: Calculating Currency Equilibrium" Tags="&lt;macroeconomics&gt;&lt;econometrics&gt;&lt;mathematical-economics&gt;&lt;currency&gt;&lt;asset-pricing&gt;" AnswerCount="1" CommentCount="8" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="6451" PostTypeId="2" ParentId="6409" CreationDate="2015-07-09T00:24:51.390" Score="0" Body="&lt;p&gt;As a group, there are similarities. They are all small and remote island economies. None have a population over 1 million people. Fiji is the largest with a population of roughly 900k. It is important to remember that they are still different countries and it can be unhelpful and misleading treating them all as identical.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Pacific island region has considerable potential for development, especially in the areas of tourism, &lt;a href=&quot;http://www.adb.org/sites/default/files/publication/27511/pacific-fisheries.pdf&quot; rel=&quot;nofollow&quot;&gt;fisheries&lt;/a&gt;, forestry, mining, and agriculture.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Challenges&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Small size&lt;/li&gt;&#xA;&lt;li&gt;limited natural resources (diversity and capacity to capitalise on)&lt;/li&gt;&#xA;&lt;li&gt;narrowly based economies (small populations and isolation limit capacity to diversify production.)&lt;/li&gt;&#xA;&lt;li&gt;large distances to major markets&lt;/li&gt;&#xA;&lt;li&gt;vulnerability to exogenous shocks, can affect growth and have often led to a high degree of economic volatility.&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;They are some of the most vulnerable nations in the world to disaster.&lt;/strong&gt; In particular, climate change and rising sea levels.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Long term viability of economies has been questioned. Fiji is the only one &lt;a href=&quot;http://devpolicy.org/are-pacific-island-economies-viable20120209/&quot; rel=&quot;nofollow&quot;&gt;approaching independence from aid.&lt;/a&gt;. &lt;a href=&quot;http://igps.victoria.ac.nz/events/completed-activities/Pasifika%20project/Gibson%20Pacific%20Economies.pdf&quot; rel=&quot;nofollow&quot;&gt;Many Pacific Island economies have found it difficult to achieve sustained economic growth and hence sustained growth in living standards&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.worldbank.org/en/country/pacificislands/overview#1&quot; rel=&quot;nofollow&quot;&gt;See this link for a brief overview by the world bank.&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="40" LastActivityDate="2015-07-09T00:24:51.390" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6454" PostTypeId="1" AcceptedAnswerId="6456" CreationDate="2015-07-09T07:11:47.540" Score="8" ViewCount="1190" Body="&lt;p&gt;Suppose the minimum wage increases to \$$x$. Is there any evidence on the effect (if any) this is likely to have upon the wage profile of workers higher in the hierarchy, who are already paid more than \$$x$?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is inspired by the following comment from the Financial Times (&lt;a href=&quot;http://www.ft.com/cms/s/0/611460a8-2584-11e5-9c4e-a775d2b173ca.html?siteedition=uk#axzz3fKj3NZf0&quot; rel=&quot;nofollow&quot;&gt;paywalled link&lt;/a&gt;):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;As an employer with an annual payroll of around £650k pa the impact of the introduction of the minimum wage in 1997 led us to pay our lowest paid staff ( casual bar staff back then on about £3ph ) the increased minimum wage so they at least benefited. Everyone else higher in the hierachy ( full timers, supervisors, asst managers, managers) all suffered because at every opportunity ( as people left and needed to be replaced) we tried to replace these higher paid staff with the same caliber person but on lower wages. And we were successful at dong this; and we had to be because we could not afford our overall wage bill to increase. So in 2000 I was paying a General Manager 35k a year. Now I can find and pay a general manager 25k pa and thats a massive nominal decline over 15 years. So the real impact of the minimum wage introduction in the real world of small husiness was to pay the lowest casual staff a little more but most of the higher paid staff ended up being paid less .&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Is there any evidence to support the claim that the described response is a widespread phenomenon?&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="43" LastEditDate="2015-07-09T10:59:22.970" LastActivityDate="2016-12-17T08:34:08.443" Title="Effect of minimum wage on higher levels of pay" Tags="&lt;macroeconomics&gt;&lt;labor-economics&gt;&lt;minimum-wage&gt;" AnswerCount="4" CommentCount="5" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="6455" PostTypeId="2" ParentId="6454" CreationDate="2015-07-09T10:06:32.370" Score="-3" Body="&lt;p&gt;From employer's perspective minimum wage, in most cases, is simply an overpayment. There wouldn't be any point for minimum wage if it was not an overpayment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The work done by minimum wage workers can potentially be worth a lot less than the cost of employing them, thus the value of work performed by other workers need to balance this gap. Workers earning above minimum wage need to make up for those earning minimum wage and whose work is worth less than that, so that the employer still makes a profit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's consider a simple scenario.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Before minimum wage&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Suppose we don't have a minimum wage regulations and the following scenario happens.&#xA;We have two workers, one skilled, one unskilled. The difference in their work efficiency is x2, that is work of the skilled worker is worth twice as much as the work of unskilled. The workers are rewarded accordingly to their work performance, so gross salary of the more efficient one is twice as big as the unskilled worker's salary.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, minimum wage gets introduced.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Minimum wage&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;The initial value of minimum wage is set to 150% of unskilled worker's salary.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Clearly, unskilled worker's work is not worth that much, so at least one of two things must happen now:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Skilled worker needs to agree to be paid less or&lt;/li&gt;&#xA;&lt;li&gt;If no skilled worker with x2 efficiency agrees to be paid less then the skilled worker will be replaced with even more skilled worker whose efficiency is higher than x2, so that the employer can maintain the same profit margin.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Yes, I have made a lot of assumptions along the way but still this could be a likely explanation why minimum wage causes drop in the salary of higher paid workers.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Update&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Upon receiving the feedback for this answer I am adding references to sources that back up my arguments.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;enacting a higher minimum wage clearly benefi ts low-skilled workers.&#xA;  By contrast, if one’s initial premise is that there are alternative&#xA;  means to produce a product, and employers will seek the least-cost&#xA;  method of doing so, then raising the minimum wage will cause employers&#xA;  to seek substitutes such as automation or relocation overseas, thereby&#xA;  &lt;strong&gt;reducing the amount of workers&lt;/strong&gt; they hire.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Demand for workers falls, clearly.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.iea.org.uk/sites/default/files/publications/files/upldbook351pdf.pdf&quot; rel=&quot;nofollow&quot;&gt;The Road to Serfdom with the Intellectuals and Socialism&lt;/a&gt; F. Hayek, p.15&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Legislative bodies have the power to legislate a wage increase, but&#xA;  unfortunately, they have not found a way to legislate a worker&#xA;  productivity increase. Further, while Congress can legislate the price&#xA;  of a labor transaction, it cannot require that the transaction&#xA;  actually be made. To the extent that the minimum wage law raises&#xA;  the pay level to that which may exceed the productivity of some&#xA;  workers, employers will predictably make adjustments in their use of&#xA;  labor. Such an adjustment will produce gains for some workers at the&#xA;  expense of other workers. Those workers who retain their jobs and&#xA;  receive a higher wage clearly gain. The adverse effects are borne by&#xA;  those workers who are lost disadvantaged in terms of marketable&#xA;  skills, &lt;strong&gt;who lose their jobs and their income or who are not hired in&#xA;  the first place.&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Again, demand for workers drops, thus by supply-demand law we expect salaries to drop.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://books.google.co.uk/books?id=GfN-1O0VZ8wC&amp;amp;lpg=PA7&amp;amp;ots=f-eJ1m9bSO&amp;amp;dq=%22To%20the%20extent%20that%20the%20minimum%20wage%20law%20raises%20the%20pay%20level%22&amp;amp;pg=PP1#v=onepage&amp;amp;q&amp;amp;f=false&quot; rel=&quot;nofollow&quot;&gt;Youth and minority unemployment&lt;/a&gt;, Dr. Walter E. Williams, p.7&lt;/p&gt;&#xA;" OwnerUserId="324" LastEditorUserId="324" LastEditDate="2015-07-09T17:00:24.953" LastActivityDate="2015-07-09T17:00:24.953" CommentCount="12" ContentLicense="CC BY-SA 3.0" />
  <row Id="6456" PostTypeId="2" ParentId="6454" CreationDate="2015-07-09T10:25:20.720" Score="9" Body="&lt;p&gt;This phenomenon is sometimes called &quot;wage compression&quot; because the range of wages is compressed by the minimum wage laws. &#xA;One paper on this subject is &lt;a href=&quot;http://www.jstor.org/stable/145206&quot;&gt;The Impact of the Minimum Wage on Other Wages&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="1601" LastEditDate="2015-07-09T10:50:03.467" LastActivityDate="2015-07-09T10:50:03.467" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6457" PostTypeId="1" AcceptedAnswerId="6464" CreationDate="2015-07-09T12:29:17.757" Score="2" ViewCount="75" Body="&lt;p&gt;We live in continuous time $t$ and something terrible is happening at a poisson rate of $r(t)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How can I compute the length $T$ such that with a probability of $P$ (for example, 0.99), at least one terrible thing has happened?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know that for a constant rate $r(t) = \bar r$, the expected value is $1/\bar r$. How can I go on?&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2015-07-09T13:42:48.960" LastActivityDate="2015-07-09T21:54:07.817" Title="Something Terrible is Happening - But When Is it Likely to have Happened?" Tags="&lt;probability&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6459" PostTypeId="1" CreationDate="2015-07-09T15:11:01.043" Score="6" ViewCount="263" Body="&lt;p&gt;I am currently studying and experimenting the input-output methodology. It is a 1930's method based on national accountings that allows to measure the interindustry flow of good and services. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Currently, I am experimenting it on the french economy. More precisely, I wish to measure the direct and indirect impact of the state-funded renewable energy funding scheme (the state buys renewable energy at a fixed price to producers since it is not currently competitive on the electricity market, as regards to to nuclear electricity production)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I want to measure the direct growth of the industry and the indirect growth of the associated industries that is created by the investment in the said industries due to this funding scheme.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know how much production from 4 sectors is needed to install 1Gw of renewable electricity production capacity and I know how many Gw are installed each year since 2006. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now my question aims directly at the input-output table that is provided by the National Institute of Statistics and Economic Studies. It is an extremely serious state-owned institution and I have no doubt that the information (the table) they provide is accurate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But I have a problem since my calculator ( the R software) returns the information that the table that I must use to execute the calculs is singular. And since the formula that I have to use is the following : &lt;/p&gt;&#xA;&#xA;&lt;p&gt;x = [I-A]^-1 . f &lt;/p&gt;&#xA;&#xA;&lt;p&gt;... by definition, if this [I-A] matrix is singular, it has no inverse. And that is exactly my problem : my calculator returns a message error that prevents me from get through the calculus : &quot; objet is exactly singular : the determinant of the matrix (the leontiev inverted matrix) is zero on the last line, which means that the inversion calculs cannot be opérated. Any idea of the cause ?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;NB : to obtain that matrix, I first created an A matrix of technical coefficients by dividing the original input-output table from INSEE by the total production of each branch. This way, each cell of the A matrix of technical coefficients shows how much of any input is needed in euro for the production of one euro of total output. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope someone can direct me toward the answer, best regards. &lt;/p&gt;&#xA;" OwnerUserId="5155" LastEditorUserId="1601" LastEditDate="2015-07-09T16:37:44.230" LastActivityDate="2015-07-09T18:21:01.533" Title="How to deal with a singular Leontiev inverted matrix?" Tags="&lt;mathematical-economics&gt;&lt;linear-algebra&gt;&lt;input-output&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6460" PostTypeId="1" AcceptedAnswerId="6473" CreationDate="2015-07-09T15:28:20.683" Score="8" ViewCount="1985" Body="&lt;p&gt;This question has been bothering me for a long time and I’m hoping that someone here can help to answer it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I will use Greece as an example, but my question could really be applied to any country or even a bank:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;While a government in the Eurozone, the Greeks for example, might have an actual building in which Euro coins are minted and Euro banknotes printed, these are most likely tightly regulated, with lots of physical checks to ensure that the Greek government doesn’t just print more whenever they want to.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand that physical money typically makes up a small portion of the actual money supply, so I assume that “printing them selves out of debt” regardless of whether it would be legal, isn’t an actual option for them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, what prevents the Greek national bank from simply going into their computer system and adding some zeros to their bank account? What system prevents any bank anywhere from doing the same? Does the bank of international settlements in Basel keep some kind of record of the total global money supply? How is this kind of fraud prevented?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I’m very curious to hear the answer!&lt;/p&gt;&#xA;" OwnerUserId="5156" LastActivityDate="2015-07-09T21:20:43.883" Title="What prevents a bank from simply going into their computer system and adding some zeros to their bank account?" Tags="&lt;money-supply&gt;&lt;central-banking&gt;&lt;money&gt;" AnswerCount="3" CommentCount="3" FavoriteCount="1" ClosedDate="2015-07-10T01:20:22.040" ContentLicense="CC BY-SA 3.0" />
  <row Id="6461" PostTypeId="2" ParentId="6459" CreationDate="2015-07-09T16:32:27.527" Score="2" Body="&lt;p&gt;I am not sure exactly what you divided by what, but suppose your input-output table looks like this:&#xA;$$&#xA;A = &#xA;\left[&#xA;\begin{array}{lll}&#xA;a_{11} &amp;amp; a_{12} &amp;amp; a_{13} \\&#xA;a_{21} &amp;amp; a_{22} &amp;amp; a_{23} \\&#xA;a_{31} &amp;amp; a_{32} &amp;amp; a_{33}&#xA;\end{array}&#xA;\right]&#xA;$$&#xA;If you proceed to divide the first column by $\sum\limits_i a_{i,1}$ the second by $\sum\limits_i a_{i,2}$ and the third by $\sum\limits_i a_{i,3}$ then your new matrix will have 1 as an eigenvalue. (You can show this by showing that the norm of any vector is unchanging upon multiplication with the matrix by straightforward calculation.) This is problematic, because if $s$ is an eigenvector then&#xA;$$&#xA;A \cdot s = s = I \cdot s &#xA;$$&#xA;which implies&#xA;$$&#xA;(I - A) \cdot s = 0&#xA;$$&#xA;which in turn implies that $I - A$ is not invertible (singular). So my guess would be that the problem is the division.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I thought (incorrectly, see comment below) that input-output models usually deal in physical goods, not the value of physical goods, so the unit of measurement for $a_{11}$ would not be euros by say liters (of milk). In this case you would not have to divide the value of individual inputs by the sum of the value, but the number of goods used in the individual inputs by the total output of a good. This &lt;em&gt;may&lt;/em&gt; make your problem go away.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2015-07-09T16:45:51.367" LastActivityDate="2015-07-09T16:45:51.367" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="6462" PostTypeId="5" CreationDate="2015-07-09T16:41:50.843" Score="0" Body="&lt;p&gt;An input–output model is a quantitative economic technique developed by Wassily Leontief that approximates linearly the interdependence of different sectors of an economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Input%E2%80%93output_model&quot; rel=&quot;nofollow&quot;&gt;https://en.wikipedia.org/wiki/Input%E2%80%93output_model&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="69" LastEditDate="2015-07-09T17:04:56.150" LastActivityDate="2015-07-09T17:04:56.150" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6463" PostTypeId="4" CreationDate="2015-07-09T16:41:50.843" Score="0" Body="Input-output models as used by Wassily Leontief." OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2015-07-09T17:32:49.283" LastActivityDate="2015-07-09T17:32:49.283" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6464" PostTypeId="2" ParentId="6457" CreationDate="2015-07-09T16:47:13.683" Score="3" Body="&lt;p&gt;I assume that $r(t)$ is continuous.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The idea is that, this Poisson process with time-varying parameter $r(t)$, as the limit of Bernoulli trial with time-varying probability of success, is memoryless:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a generic finite partition $\mathscr{P}$ of $[0, T]$ as $\{[0,t_1),[t_1,t_2),[t_2,t_3) \ldots,[t_{n-1},T]\}$, let the $n$th cell following a Poisson distribution with a fixed parameter $r(t_n)$, so &#xA; $$P_{\mathscr{P}} = 1 - \underbrace{e^{\sum_{k=1}^n-r(t_k)(t_k-t_{k-1})}}_{\text{Probability of no accidents}}$$. So  $P = 1 - e^{-\int_0^Tr(t)dt}$. Notice that the Riemann integral $\int_0^Tr(t)dt$ is the limit of a net indexed by the set of all finite partitions of $[0,T]$ with vanishing maximal length of cell with respect to number of cells. $f(x)=1-e^{-x}$ is continuous, so this limit preserves.&lt;/p&gt;&#xA;" OwnerUserId="73" LastEditorUserId="73" LastEditDate="2015-07-09T21:54:07.817" LastActivityDate="2015-07-09T21:54:07.817" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6466" PostTypeId="1" CreationDate="2015-07-09T17:28:31.923" Score="1" ViewCount="761" Body="&lt;p&gt;Some might say I have an addiction to Priceline Name Your Own Price, however, what I can tell you is that NYOP rates for 2.5* and 3* hotels are always better than the room options offered through airbnb.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I cannot understand is why do so many people believe otherwise, claiming that going with airbnb is cheaper?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Likewise, why the landlords are asking for such high rates all the while NYOP and even published Express Deals are often half the price, yet include gyms / pools / breakfasts for the whole family.&lt;/p&gt;&#xA;" OwnerUserId="4552" LastEditorUserId="40" LastEditDate="2015-07-09T23:47:00.347" LastActivityDate="2015-08-14T06:57:15.893" Title="Why is airbnb more expensive than priceline?" Tags="&lt;microeconomics&gt;&lt;preferences&gt;&lt;housing&gt;" AnswerCount="2" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="6467" PostTypeId="2" ParentId="6460" CreationDate="2015-07-09T17:39:04.053" Score="-4" Body="&lt;p&gt;My guess is that sometimes any value of money in a bank is tied with the physical representation of that value. Although fiat money is not tied with any form of minerals (gold or silver), but it is tied with some form of paper money. If banks just adding zero to its bank account without any tangible representation of that value, people in the future, when they are about to draw physical cash, the bank will not provide that cash. This can cause much trouble for the banks itself. This is why when the Feds want to &quot;pump&quot; money into the money supply, they print money and buy treasury bonds, instead of just &quot;adding zero&quot; to the back of its bank account. Since Greece cannot just print money at their own will, adding zero to their currency will cause much problem. In the case of the debt crisis now, imagine if they DID add zero and people are drawing their cash. Their books says that they still have money but the banks cannot provide the cash that people demanded. Another proposal is to just print money. Greece cannot do this and if a country can, it can cause a rapid inflation, another economic problem that can backfire...&lt;/p&gt;&#xA;" OwnerUserId="4828" LastActivityDate="2015-07-09T17:39:04.053" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6468" PostTypeId="2" ParentId="6460" CreationDate="2015-07-09T17:52:25.707" Score="-5" Body="&lt;p&gt;Nothing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In essence that's exactly how banking works nowadays, see &lt;a href=&quot;https://en.wikipedia.org/wiki/Fractional-reserve_banking&quot; rel=&quot;nofollow&quot;&gt;Fractional Reserve Banking&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Furthermore, it's perfectly legal.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It works because people rarely ever want to withdraw all the money they have in cash. Instead, they are happy to just check their bank account balance and keep the cash secure in bank.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Obviously there are limits and even Fractional Reserve Banking can't go on for ever but, in essence, majority of money supplies gets created by shuffling account balances. It does not even have to zeros and ones as you can do the same on paper.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Banks do not go bankrupt because they have team of statisticians at hand that calculates how much cash should they have at any time to maintain liquidity.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Update&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Regarding Greece. Since &lt;a href=&quot;https://en.wikipedia.org/wiki/Nixon_Shock&quot; rel=&quot;nofollow&quot;&gt;Nixon Shock&lt;/a&gt;, any country can create endless supplies of money at no cost but only if that country did not deprive itself from that right by joining currency union as Greece did.&#xA;Once Greece quits the Euro zone, they will regain the power to create money supplies.&lt;/p&gt;&#xA;" OwnerUserId="324" LastEditorUserId="324" LastEditDate="2015-07-09T18:03:21.323" LastActivityDate="2015-07-09T18:03:21.323" CommentCount="17" ContentLicense="CC BY-SA 3.0" />
  <row Id="6469" PostTypeId="2" ParentId="6459" CreationDate="2015-07-09T18:02:01.950" Score="1" Body="&lt;p&gt;I didn't divided each column by the sum of the column. This would make no sence since the goal is to produce a technical coefficient matrix that links each input (row) needed by the industry (column) in order to produce their output.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I divided each element of the input-output table by the total output of the branch, according to the method presented in Input-Output analysis Foundation and extension : Miller / Blair, Cambridge University press. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This way, in 2006 when the soup industry has &lt;/p&gt;&#xA;&#xA;&lt;p&gt;50 € worth of soup production (output)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;10 € of inputs of tomatoes&lt;/p&gt;&#xA;&#xA;&lt;p&gt;10 € of input of carrots&lt;/p&gt;&#xA;&#xA;&lt;p&gt;5 € of inputs of water&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The technical coefficients (A) will be : &lt;/p&gt;&#xA;&#xA;&lt;p&gt;10/50 = 0,2 = technical coefficient of the tomatoes input&lt;/p&gt;&#xA;&#xA;&lt;p&gt;10/50 = 0,2 = technical coefficient of the carrot input&lt;/p&gt;&#xA;&#xA;&lt;p&gt;5/50 = 0,1 = technical coefficient of the water input&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It can be read like this : if you want to produce one euro of soup, you'ill need to buy 0,2 € of tomatoes, 0,2 € of carrots and 0,1 € of water. &lt;/p&gt;&#xA;" OwnerUserId="5155" LastActivityDate="2015-07-09T18:02:01.950" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6470" PostTypeId="2" ParentId="6459" CreationDate="2015-07-09T18:21:01.533" Score="1" Body="&lt;p&gt;All right kids. You gave me the answer when Dismalscience wrote &quot;this is still not a problem as long as the value of the good produced differs from the sum of the value of its inputs&quot; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;... actually, one of the branches had a complete set of zeros in the input table exept for one input and a zero in terms of production ... and another one had a complete set of zeros in terms of inputs and an existing production ... determinants dont like the second case and logic doesn't like the first problem.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I was a data problem after all, thanks for all. &lt;/p&gt;&#xA;" OwnerUserId="5155" LastActivityDate="2015-07-09T18:21:01.533" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6472" PostTypeId="1" AcceptedAnswerId="6482" CreationDate="2015-07-09T21:04:00.593" Score="2" ViewCount="172" Body="&lt;p&gt;I would like to have an example of a common case of buying government bonds. (&lt;a href=&quot;https://en.wikipedia.org/wiki/Government_bond&quot; rel=&quot;nofollow&quot;&gt;Wikipedia&lt;/a&gt;: &lt;em&gt;it is issued generally with a promise to pay periodic interest payments and to repay the face value on the maturity date&lt;/em&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is the maturity date (years I guess), how much is that period of &quot;periodic interest payments&quot;, how much is that interest, and what is the &quot;face value&quot;?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A simple example of the most common case. Or at least a known case of such a transaction. Say for example one of the latest government bonds issuing of Germany or Spain.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Say for example I buy German government bonds at a maturity date of N years, with a periodic interest of M months, and with the interest at P percent each month. Replace N, M, and P with a known case. In case I spend 100,000 Euros for such bonds, how much do I get back? (periodically, in the end and in total)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think such example would make it easier for the common people like me to understand how government bonds work.&lt;/p&gt;&#xA;" OwnerUserId="5161" LastEditorUserId="1601" LastEditDate="2015-07-10T08:59:29.730" LastActivityDate="2015-07-11T17:15:16.100" Title="Government bonds - the most simple example" Tags="&lt;finance&gt;&lt;government-debt&gt;&lt;bonds&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6473" PostTypeId="2" ParentId="6460" CreationDate="2015-07-09T21:04:13.570" Score="6" Body="&lt;p&gt;Double entry book keeping.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we take the example given here, of the Greek Central Bank (bank nerd trivia - interestingly the GCB is a commercial bank, listed on the Greek Stock Exchange), arbitrarily adding 000's to its deposit account.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This cannot be done as stated. The double entry book keeping accounting system on which all banking is based, requires that two ledgers are simultaneously updated, one with a credit and one with a debit. So if the GCB credits its own deposit account (which in practice would be a liability income account of some kind), there has to be a matching debit on another ledger. Those are the rules.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Typically deposit accounts increase their value either by people depositing cash in them (see below), by direct transfer from another deposit account, or by receiving a loan.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, if the government prints physical cash then this can be deposited at the central bank:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;[debit cash account, credit GCB bank deposit account]&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;and this is how the US TARP intervention was performed. The federal reserve then used the money to buy loans from the US Banks. Note that a debit to an asset account increases its value, and a credit reduces it, whilst on the liability (right hand side), a debit reduces the account, and a credit increases it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the European central bank makes the Greek Central bank a loan then on the Greek side, the book keeping is:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;[debit cash, credit interbank loan]&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;The GCB has received cash, and now has a debt that it owes the ECB among its liabilities.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The one thing it can't do is just arbitrarily increase the value of a single account, one of the main reasons for double entry book keeping is in fact to prevent that. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Bank fraud and the various forms of banking system abuse that do occur typically involve manipulations of banking operations within the framework of double entry book keeping. So while DEB. prevents accounts from having zero's tacked on the end, it doesn't prevent Mr. Smith the bank manager, lending his very good friend Mr. Brown a large sum of money that Mr. Brown has no intention of repaying. &lt;/p&gt;&#xA;" OwnerUserId="84" LastEditorUserId="84" LastEditDate="2015-07-09T21:20:43.883" LastActivityDate="2015-07-09T21:20:43.883" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6474" PostTypeId="1" CreationDate="2015-07-09T21:37:51.883" Score="4" ViewCount="44" Body="&lt;p&gt;I am looking for a database that has longitudinal microdata for housing migration patterns.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Optimistically, the data would look something like:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In 2006, Person #2341 made $X, was Y years old, and lived in a Z year old house. In 2007, Person #2341 moved houses.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This way, I can see if we can use microdata to predict if a person is going to move within a year using his information currently via a logit regression.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The ACS database almost works, but it is ex post facto; it tells you the person moved a year ago (so I would be using a persons current information to predict if he moved LAST year; not what I want). I want to know if the person will move the following year, and theres no way to do this using ACS since it doesnt track the same person year to year.&lt;/p&gt;&#xA;" OwnerUserId="5162" LastActivityDate="2015-07-24T13:16:17.607" Title="Longitudinal microdata on house migration patterns" Tags="&lt;data-request&gt;&lt;regression&gt;&lt;micro-data&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6475" PostTypeId="1" CreationDate="2015-07-10T02:39:31.233" Score="1" ViewCount="46" Body="&lt;p&gt;Actually I'm asking because of two reasons.  I'm still not clear how everything works.  First money is supposedly a debt, and it is created by creating loans?  Second central banks seem to want countries to take on huge loans.  Based on these two points (assuming they are true)  If they stopped providing loans or had no one left to provide huge loans to - what would happen to certain aspects of the economy like inflation, employment, etc. What would happen to the banks?&lt;/p&gt;&#xA;" OwnerUserId="5164" LastEditorUserId="5164" LastEditDate="2015-07-10T12:20:04.307" LastActivityDate="2015-07-10T12:20:04.307" Title="What would happen if central banks were no longer able to provide loans" Tags="&lt;central-banking&gt;&lt;money&gt;" AnswerCount="0" CommentCount="6" ClosedDate="2015-07-11T20:31:12.443" ContentLicense="CC BY-SA 3.0" />
  <row Id="6476" PostTypeId="1" AcceptedAnswerId="6478" CreationDate="2015-07-10T06:44:58.700" Score="6" ViewCount="8521" Body="&lt;p&gt;Wikipedia: &lt;em&gt;If a central bank purchases a government security, such as a bond or treasury bill, it increases the money supply, in effect creating money.&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is: what is the difference between this (government issues bonds and the central bank buys them) and directly printing money? If any. If there is no difference, then why would a government chose one way or the other?&lt;/p&gt;&#xA;" OwnerUserId="5161" LastActivityDate="2019-11-30T17:36:22.030" Title="Government bonds and printing money" Tags="&lt;government-debt&gt;" AnswerCount="4" CommentCount="0" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="6478" PostTypeId="2" ParentId="6476" CreationDate="2015-07-10T07:10:46.473" Score="4" Body="&lt;p&gt;The difference is that in buying the bond, the central bank now owns a bond, and a fiscal deficit has not been directly monetised.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That means that:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;the government will have to keep paying interest on the bond, to the central bank, and will have to redeem it if it's not a perpetual. Remember, some governments are completely distinct entities from central banks, with no guaranteed way to move money between them in a consequence-free manner: the Eurozone governments are a good example.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The central bank can sell that bond when it wants to, giving it an extra means of contracting the money supply.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Currency speculators are less likely to start circulating around the currency like vultures that have spotted dying prey.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="44" LastActivityDate="2015-07-10T07:10:46.473" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6479" PostTypeId="1" AcceptedAnswerId="10134" CreationDate="2015-07-10T08:32:47.250" Score="1" ViewCount="77" Body="&lt;p&gt;If you buy stocks of a company you are buying a share in that business. &lt;br&gt;&#xA;If you buy bonds from the same company you are essentially loaning them money for future payment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am guessing (correct me if I am wrong!) that if you buy a bond the terms of repayment have to be very concrete, i.e. you get 2 dollars next year and 10 after that. Otherwise they could tag the repayment to the stock price and what you would have is a bond that behaves like a stock with automated dividends.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question: &lt;br&gt;&#xA;What body of law governs what you can and cannot promise in a bond contract and what agency is overseeing this? (Corporate law and the SEC?) I am most interested in the US setting, but info about other countries is also welcome.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A secondary question is what big practical differences between stocks and bonds the regulation causes. (The common economics/finance wisdom is that stocks have higher yields but bigger 'risk'. I am more interested in practical differences that lie in the mechanisms, such as bond owners having precedence in case of bankruptcy.) &lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2016-01-09T09:28:19.780" LastActivityDate="2016-01-09T09:28:19.780" Title="Regulatory differences between stocks and bonds" Tags="&lt;regulation&gt;&lt;law&gt;&lt;bonds&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6480" PostTypeId="5" CreationDate="2015-07-10T08:40:40.127" Score="0" Body="" OwnerUserId="-1" LastEditorUserId="-1" LastEditDate="2015-07-10T08:40:40.127" LastActivityDate="2015-07-10T08:40:40.127" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6481" PostTypeId="4" CreationDate="2015-07-10T08:40:40.127" Score="0" Body="Bond markets and legal aspects of bonds. For government debt use the tag &quot;government debt&quot; unless the fact the the debt is in the form of bonds has significance." OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2015-07-10T11:31:44.277" LastActivityDate="2015-07-10T11:31:44.277" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6482" PostTypeId="2" ParentId="6472" CreationDate="2015-07-10T09:43:26.237" Score="2" Body="&lt;p&gt;Using an example from the US treasury's &lt;a href=&quot;http://www.treasurydirect.gov/instit/annceresult/annceresult.htm&quot; rel=&quot;nofollow&quot;&gt;website&lt;/a&gt; you can buy a \$100 dollar face value bond that pays 3% annual interest semiannually for thirty years. That means you would get $100 \cdot 3\% / 2 = 1.5$ dollars every six months, and at the end of the thirty years you also get \$100. In total you would get $1.5 \cdot 2 \cdot 30 + 100 = 190$ dollars but as it is explained in the &lt;a href=&quot;http://accountingexplained.com/financial/lt-liabilities/bond-price&quot; rel=&quot;nofollow&quot;&gt;link&lt;/a&gt; in Jamzy's comment adding up dollars in this case is not very sensible, because dollars in different years have different value. &lt;br&gt; (If you disagree I would love to trade with you. For 1000 dollars today I will happily give you 1000 dollars 10 years from now.)&#xA;&lt;br&gt; The price you pay for this bond is determined by auction. Using this you can calculate the yield of the bond. (Again, please see the explanation in the &lt;a href=&quot;http://accountingexplained.com/financial/lt-liabilities/bond-price&quot; rel=&quot;nofollow&quot;&gt;link&lt;/a&gt;.)&#xA;&lt;br&gt; The answer would follow the same logic for €100,000. You can convert the euros to dollars or find a suitable European bond.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2015-07-10T09:43:26.237" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6483" PostTypeId="1" CreationDate="2015-07-10T12:23:33.937" Score="3" ViewCount="103" Body="&lt;p&gt;Let $0 &amp;lt; \rho &amp;lt; 1$ be the discount rate, $V$ some option value, and $F$ some fundamental.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \rho V = \beta V + F$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You have access to some option value $V$ that will always deliver you some fundamental flow value $F$, and you get access to another $\beta$ of the initial option value (some sort of amplification of the initial value/claim). Solving for the value of the option, we get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ V = \frac{F}{\rho - \beta}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now that's maybe just me being confused talking, but typically here we only check whether $\rho - \beta$ is not exactly zero.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For $\rho &amp;gt; \beta$, we have that $V$ is valued much more than the original $F$. How can I understand cases where $\rho &amp;lt; \beta$? These are very possible, even for both $\beta$ and $\rho$ between zero and one. In that case, the denominator turns negative, and the value of the option $V$ is negative. What is happening?&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Extended Example&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;Per popular request, here is a more general version of the model (still an abstraction, but hopefully this delivers enough context.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Think about $V$ as the value of a vacancy, in a search-and-matching context. Given market tightness $\theta$, you will find a match at rate $q(\theta)$. Vacancies are associated with flow costs $c$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, once you've matched with an unemployed worker, you can decide to either accept that match ($\beta = 1)$, or to reject him ($\beta = 0$). In fact, the whole line $\beta \in [0, 1]$ is allowed, understanding it as a mixed strategy. In fact, the mixed strategy can be understood as population shares, given that the vacancy is representative.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, given strategy $\beta$, the value of a vacancy is given by&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \rho V(\beta) = -c + q(\theta)[ \beta(V(\beta)-J) + (1-\beta)J]\\&#xA;\Leftrightarrow V(\beta) = \frac{-c + q(\theta)(1-2\beta)J}{\rho - q(\theta)\beta}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Note that setting $F\equiv - c+ q(\theta)(1-2\beta)J$ almost recovers the initial equation.&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, I tried to solve this (or rather, a more complicated setup) using a grid for $\beta$. But sometimes, the solution was given by a $\beta$ such that the denominator was negative (and small), and the numerator, too, was small. I tried wrapping my head around that, but I couldn't intuitively understand what that even means.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Note that while the current answer goes a long way on solving the model for me, it does not actually answer my question - about the meaning of a negative denominator. Hence, at the current state, I will not award that bounty and invite more answers.&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="2776" LastEditDate="2017-08-03T13:38:10.683" LastActivityDate="2017-08-03T13:38:10.683" Title="Amplification Effects: Negative Denominator" Tags="&lt;labor-economics&gt;&lt;search-and-matching&gt;" AnswerCount="1" CommentCount="9" ContentLicense="CC BY-SA 3.0" />
  <row Id="6486" PostTypeId="1" AcceptedAnswerId="10131" CreationDate="2015-07-11T16:39:22.550" Score="5" ViewCount="63" Body="&lt;p&gt;Compared to commodity markets, money markets move a lot. My guess is that commodity markets are less elastic due to fixed production costs. But I don't know if that is the correct explanation. &lt;/p&gt;&#xA;" OwnerUserId="5174" LastEditorUserId="264" LastEditDate="2015-07-12T17:09:54.433" LastActivityDate="2016-01-08T21:47:39.793" Title="Why do money markets fluctuate so much?" Tags="&lt;elasticity&gt;&lt;financial-markets&gt;" AnswerCount="1" CommentCount="7" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6487" PostTypeId="1" CreationDate="2015-07-11T20:14:36.630" Score="7" ViewCount="830" Body="&lt;p&gt;As I understand the implementation of the Euro as a common currency caused labor prices to spike in certain countries, Greece being one of them. Why did this happen? Why did it affect certain countries more than others?&lt;/p&gt;&#xA;" OwnerUserId="5179" LastEditorUserId="43" LastEditDate="2015-07-14T12:39:36.367" LastActivityDate="2015-07-14T12:39:36.367" Title="Why did creating the Eurozone cause the cost of labor to rise in Greece?" Tags="&lt;macroeconomics&gt;&lt;labor-economics&gt;&lt;labor-cost&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6488" PostTypeId="1" CreationDate="2015-07-11T20:18:06.283" Score="4" ViewCount="230" Body="&lt;p&gt;Reading the paper &lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/002205319190155W&quot; rel=&quot;nofollow&quot;&gt;http://www.sciencedirect.com/science/article/pii/002205319190155W&lt;/a&gt;&#xA;I came up with the following question. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given that this paper deals with games in which players move simultaneously, the formula in (1) of Definition 3.1 makes perfectly sense. If someone considers sequential movements of the players, how Definition 3.1 (and hence formula in (1)) would change?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any good reference about &quot;sequential moving&quot; games?&lt;/p&gt;&#xA;" OwnerUserId="4593" LastEditorUserId="43" LastEditDate="2015-07-12T12:54:37.907" LastActivityDate="2017-01-14T20:30:36.703" Title="Sequential games and Perfect Bayesian Equilibrium" Tags="&lt;microeconomics&gt;&lt;game-theory&gt;&lt;mathematical-economics&gt;&lt;reference-request&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6489" PostTypeId="1" AcceptedAnswerId="6499" CreationDate="2015-07-11T20:28:28.820" Score="11" ViewCount="1584" Body="&lt;p&gt;Many basketball fans/players believe that having made several shots in a row,  the next shot is more likely to go in. This is sometimes called the hot hand.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Starting (I think) with &lt;a href=&quot;http://wexler.free.fr/library/files/gilovich%20(1985)%20the%20hot%20hand%20in%20basketball.%20on%20the%20misperception%20of%20random%20sequences.pdf&quot; rel=&quot;noreferrer&quot;&gt;Gilovich, Mallone, and Tversky (1985)&lt;/a&gt;, it was &quot;shown&quot;  that this was in fact a fallacy. Even if several shots in a row have gone in, the next shot is no more likely to go in than your average shooting percentage would dictate. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2627354&quot; rel=&quot;noreferrer&quot;&gt;Miller and Sanjurjo (2015)&lt;/a&gt; argue that the hot hand does in fact exist and previous researchers had simply fallen prey to a fairly basic statistical fallacy. Their argument is something like this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Flip a coin four times. Compute the probability that H follows H. To give a few examples: HHTT would have probability 1/2, HTHT would have probability 0/2, TTHH would have probability &lt;s&gt;0/1&lt;/s&gt; 1/1, and both TTTT and TTTH would be N.A.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Miller and Sanjurjo's punchline is that the expected value of this probability is not 0.5, but ≈0.4. And the error made by previous researchers was to incorrectly assume that the expected value of this probability is 0.5. So if for example these previous researchers conducted the above coin-flipping experiment and found the average probability to be say 0.497, they incorrectly concluded that there was no evidence of a hot hand (not significantly different from 0.5), when in fact there was very strong evidence of a hot hand (significantly different from 0.4).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is this: &lt;strong&gt;Are Miller and Sanjurjo correct that previous researchers failed to detect the hot hand simply because of this mistake?&lt;/strong&gt; I have only skimmed one or two papers on this so I wanted to get some confirmation from someone here who might know this literature better. This seems like a surprisingly silly error to have persisted for three decades or more.  &lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastEditorDisplayName="user18" LastEditDate="2015-07-12T15:23:49.057" LastActivityDate="2017-07-30T23:37:11.430" Title="Did previous researchers fail to detect the hot hand simply because of a statistical fallacy?" Tags="&lt;academic-graduate&gt;&lt;statistics&gt;" AnswerCount="6" CommentCount="7" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="6490" PostTypeId="1" AcceptedAnswerId="6492" CreationDate="2015-07-11T23:14:53.057" Score="4" ViewCount="115" Body="&lt;p&gt;The idea of a minimum wage and its effects in &lt;a href=&quot;https://en.wikipedia.org/wiki/Minimum_wage#Supply_and_demand&quot; rel=&quot;nofollow&quot;&gt;terms of supply and demand&lt;/a&gt; are well-known in mainstream economic theory.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm constructing an argument regarding the minimum wage, and what I'm curious about is whether there is actual &lt;em&gt;empirical data&lt;/em&gt; that indicates that demand for minimum wage jobs is greater than their supply, and if so, by how much? I'm looking for data particular to the U.S., but if such data exists for other countries, that would be helpful too.&lt;/p&gt;&#xA;" OwnerUserId="5172" LastEditorUserId="43" LastEditDate="2015-07-12T11:57:49.260" LastActivityDate="2015-07-12T11:57:49.260" Title="Empirical Data on Demand for Minimum-Wage Jobs in the USA" Tags="&lt;macroeconomics&gt;&lt;reference-request&gt;&lt;labor-economics&gt;&lt;empirical-evidence&gt;&lt;minimum-wage&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6491" PostTypeId="2" ParentId="6487" CreationDate="2015-07-12T09:08:07.043" Score="-1" Body="&lt;p&gt;Greece had a relative large (and inefficent) public sector. At the time of the financial crisis greece wasn´t able to finance it and it reduced the expansion for the public sector. Thus the demand of the public sector was decreasing. And therefore the gdp decreased. The relative small private sector wasn´t able to compensate the decrease of the public sector. Additionally the private sector wasn´t, and still isn´t, very competitive. This cannot be changed very quickly, if a country cannot depreciate it´s currency. That´s why some people say, that a Grexit is the only way, that greece could manage the crisis. In the past years Greece is trying to get competitive in the euro zone. But this is a difficult way. Greece has to produce more high quality goods. To achieve this, greece has to make the &quot;right&quot; reforms education sector, taxation, public services, etc. But it is taking a long time that these reforms make the greece economy competitive.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ireland had a relative large financial sector. Therefore Ireland has hit hard by the financial crisis. Because of the recovering of the worldwide financial industry in the past years ireland was able to grow. &lt;/p&gt;&#xA;" OwnerUserId="371" LastActivityDate="2015-07-12T09:08:07.043" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="6492" PostTypeId="2" ParentId="6490" CreationDate="2015-07-12T10:33:51.220" Score="3" Body="&lt;p&gt;Neumark and Wascher &lt;a href=&quot;http://economicgrowthdc.org/work/assets/Minimum-Wage-Employment-Effect.pdf&quot; rel=&quot;nofollow&quot;&gt;&lt;strong&gt;have a paper&lt;/strong&gt;&lt;/a&gt; that surveys recent empirical work on the effects of the minimum wage in detail. It includes a number of tables that nicely summarise the results of a large number (102!) of studies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;They conclude the paper with the following remarks:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Nonetheless, the oft-stated assertion that the new minimum wage&#xA;  research fails to support the conclusion that the minimum wage reduces&#xA;  the employment of low-skilled workers is clearly incorrect. Indeed, in our view, the preponderance of the evidence points to disemployment&#xA;  effects. For example, the studies surveyed in this monograph correspond&#xA;  to 102 entries in our summary tables. Of these, nearly two thirds&#xA;  give a relatively consistent (although by no means always statistically&#xA;  significant) indication of negative employment effects of minimum&#xA;  wages, while only eight give a relatively consistent indication of positive&#xA;  employment effects. In addition, we have highlighted in the tables&#xA;  33 studies (or entries) that we regard as providing the most credible&#xA;  evidence, and 28 (85 percent) of these point to negative employment&#xA;  effects. Moreover, when researchers focus on the least-skilled groups&#xA;  most likely to be adversely affected by minimum wages, the evidence&#xA;  for disemployment effects seems especially strong. In contrast, we see&#xA;  very few – if any – cases where a study provides convincing evidence of&#xA;  positive employment effects of minimum wages, especially among the&#xA;  studies that focus on broader groups for which the competitive model&#xA;  predicts disemployment effects.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="108" LastActivityDate="2015-07-12T10:33:51.220" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6494" PostTypeId="1" CreationDate="2015-07-12T13:29:08.683" Score="1" ViewCount="23" Body="&lt;p&gt;Where can I find multipliers to convert a certain amount in a currency, say USD of 1960 to say present EUR taking account of purchase power parity ?&lt;/p&gt;&#xA;" OwnerUserId="5183" LastActivityDate="2015-07-12T13:29:08.683" Title="Currency conversion and Purchase Power Data" Tags="&lt;currency&gt;" AnswerCount="0" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="6496" PostTypeId="1" AcceptedAnswerId="6502" CreationDate="2015-07-12T17:10:04.223" Score="5" ViewCount="126" Body="&lt;p&gt;Can ongoing economic growth occur without use of additional non-renewable inputs? That is, any additional inputs would only be from renewable resources: all non-renewable resources would be reused, recycled or removed from the economy.&lt;/p&gt;&#xA;" OwnerUserId="4979" LastEditorUserId="4979" LastEditDate="2020-08-04T09:01:33.977" LastActivityDate="2020-08-04T09:01:33.977" Title="Is ongoing economic growth possible without additional non-renewable inputs?" Tags="&lt;macroeconomics&gt;&lt;environmental-economics&gt;" AnswerCount="2" CommentCount="5" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6497" PostTypeId="2" ParentId="6496" CreationDate="2015-07-12T17:24:31.650" Score="8" Body="&lt;p&gt;I don't think anyone knows how to &quot;make&quot; an economy grow, but there's a simple channel through which economic growth can occur under fixed non-renewable inputs: innovation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Economic growth does not require increasing use of inputs; if there's profit to be gained through more efficient use of fixed quantities of inputs, or by increasing output of renewable resources, people will have an incentive to figure out how to do so.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regarding whether fixing a minimum price of a nonrenewable resource is a good idea: possibly, but likely no. Typically, the most efficient ways to reduce the use of a particular input are to either charge the marginal social cost of the use of that input as a tax (allowing quantities to vary freely, which you disallow in your scenario), which incidentally has the effect of setting a minimum price but which requires that you know the marginal social cost of the use of that resource, or to do cap-and-trade, where you fix the quantity available and let market prices determine the most efficient allocation. Setting a minimum price in a cap-and-trade scenario can result in inefficient underuse of the resource.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you're interested in the theory of the price of nonrenewable resources, you might want to start with &lt;a href=&quot;https://en.wikipedia.org/wiki/Hotelling%27s_rule&quot;&gt;Hotelling's Rule&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="264" LastEditorUserId="264" LastEditDate="2015-07-12T17:48:48.933" LastActivityDate="2015-07-12T17:48:48.933" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6498" PostTypeId="2" ParentId="6489" CreationDate="2015-07-12T21:10:42.720" Score="4" Body="&lt;p&gt;(Disclaimer: I don't know this literature.) It seems to me that Miller and Sanjurjo have a valid criticism of a particular statistical measure. I don't know if this should be considered to invalidate all prior work on the hot-hand effect, since they focus on only this particular measure.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The measure is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ M := P(\text{make shot }|\text{ made previous shot}) - P(\text{make shot }|\text{ miss previous shot}) $$&#xA;where $P(X)$ really means &quot;fraction of times $X$ occurred&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Prior work, such as [Gilovich, Mallone, Tversky, 1985], claims that $M$ being close to zero or negative is evidence of a lack of the hot-hand effect. The implicit assumption is that $\mathbb{E} M &amp;gt; 0$ if there is a hot-hand effect and $\mathbb{E} M = 0$ otherwise. (See the subsection &lt;em&gt;Analysis of Conditional Probabilities&lt;/em&gt; under Study 2.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, Miller and Sanjurjo point out that $\mathbb{E} M &amp;lt; 0$ if there is no hot-hand effect. Hence $M$ being close to zero does not suggest a lack of the hot-hand effect.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So again in summary, I have not actually answered your question on whether this paper invalidates prior work on the hot hand effect (which uses many different statistical measures), but it seems to me that the paper makes a valid point regarding this particular statistical measure. Specifically, for example, Gilovich, Mallone, Tversky uses non-positivity of $M$ as one piece of supporting evidence, and this paper shows the flaw in that argument.&lt;/p&gt;&#xA;" OwnerUserId="2856" LastActivityDate="2015-07-12T21:10:42.720" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6499" PostTypeId="2" ParentId="6489" CreationDate="2015-07-12T21:46:06.667" Score="6" Body="&lt;p&gt;(This answer was completely rewritten for greater clarity and readability in July 2017.)&lt;/p&gt;&#xA;&lt;p&gt;Flip a coin 100 times in a row.&lt;/p&gt;&#xA;&lt;p&gt;Examine the flip immediately after a streak of three tails. Let &lt;span class=&quot;math-container&quot;&gt;$\hat{p}(H|3T)$&lt;/span&gt; be the proportion of coin flips after each streak of three tails in a row that are heads. Similarly, let &lt;span class=&quot;math-container&quot;&gt;$\hat{p}(H|3H)$&lt;/span&gt; be the proportion of coin flips after each streak of three heads in a row that are heads. (&lt;em&gt;Example at bottom of this answer.&lt;/em&gt;)&lt;/p&gt;&#xA;&lt;p&gt;Let &lt;span class=&quot;math-container&quot;&gt;$x:=\hat{p}(H|3H)-\hat{p}(H|3T)$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;p&gt;If the coin-flips are i.i.d., then &amp;quot;obviously&amp;quot;, across many sequences of 100 coin-flips,&lt;/p&gt;&#xA;&lt;p&gt;(1) &lt;span class=&quot;math-container&quot;&gt;$x&amp;gt;0$&lt;/span&gt; is expected to happen as often as &lt;span class=&quot;math-container&quot;&gt;$x&amp;lt;0$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;p&gt;(2) &lt;span class=&quot;math-container&quot;&gt;$E(X)=0$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;p&gt;We generate a million sequences of 100 coin-flips and get the following two results:&lt;/p&gt;&#xA;&lt;p&gt;(I) &lt;span class=&quot;math-container&quot;&gt;$x&amp;gt;0$&lt;/span&gt; happens roughly as often as as &lt;span class=&quot;math-container&quot;&gt;$x&amp;lt;0$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;p&gt;(II) &lt;span class=&quot;math-container&quot;&gt;$\bar{x} \approx 0$&lt;/span&gt; (&lt;span class=&quot;math-container&quot;&gt;$\bar{x}$&lt;/span&gt; is the average of &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; across the million sequences).&lt;/p&gt;&#xA;&lt;p&gt;And so we conclude that the coin-flips are indeed i.i.d. and there is no evidence of a hot hand. This is what GVT (1985) did (but with basketball shots in place of coin-flips). And this is how they concluded that the hot hand does not exist.&lt;/p&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;&lt;strong&gt;Punchline: Shockingly, (1) and (2) are incorrect.&lt;/strong&gt; If the coin-flips are i.i.d., then it should instead be that&lt;/p&gt;&#xA;&lt;p&gt;(1-corrected) &lt;span class=&quot;math-container&quot;&gt;$x&amp;gt;0$&lt;/span&gt; occurs only about 37% of the time, while &lt;span class=&quot;math-container&quot;&gt;$x&amp;lt;0$&lt;/span&gt; occurs about 60% of the time. (In the remaining 3% of the time, either &lt;span class=&quot;math-container&quot;&gt;$x=0$&lt;/span&gt; or &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; is undefined — either because there was no streak of 3H or no streak of 3T in the 100 flips.)&lt;/p&gt;&#xA;&lt;p&gt;(2-corrected) &lt;span class=&quot;math-container&quot;&gt;$E(X) \approx -0.08$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;p&gt;The intuition (or counter-intuition) involved is similar to that in several other famous probability puzzles: the Monty Hall problem, the two-boys problem, and the principle of restricted choice (in the card game bridge). This answer is already long enough and so I'll skip the explanation of this intuition.&lt;/p&gt;&#xA;&lt;p&gt;&lt;strong&gt;And so the very results (I) and (II) obtained by GVT (1985) are actually strong evidence in favor of the hot hand.&lt;/strong&gt; This is what Miller and Sanjurjo (2015) showed.&lt;/p&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;&lt;strong&gt;Further analysis of GVT's Table 4.&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;p&gt;Many (e.g. @scerwin below) have — without bothering to read GVT (1985) — expressed disbelief that any &amp;quot;trained statistician would ever&amp;quot; take an  average of averages in this context.&lt;/p&gt;&#xA;&lt;p&gt;But that is exactly what GVT (1985) did in their Table 4.&#xA;See their Table 4, columns 2-4 and 5-6, bottom row. They find that averaged across the 26 players,&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\hat{p}(H|1M) \approx 0.47$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\hat{p}(H|1H) \approx 0.48$&lt;/span&gt;,&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\hat{p}(H|2M) \approx 0.47$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\hat{p}(H|2H) \approx 0.49$&lt;/span&gt;,&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\hat{p}(H|3M) \approx 0.45$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\hat{p}(H|3H) \approx 0.49$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Actually it is the case that for each &lt;span class=&quot;math-container&quot;&gt;$k=1,2,3$&lt;/span&gt;, the averaged &lt;span class=&quot;math-container&quot;&gt;$\hat{p}(H|kH)&amp;gt;\hat{p}(H|kM)$&lt;/span&gt;. But GVT's argument seems to be that these are not statistically significant and so these are not evidence in favor of the hot hand. OK fair enough.&lt;/p&gt;&#xA;&lt;p&gt;But if instead of taking the average of averages (a move considered unbelievably stupid by some), we redo their analysis and aggregate across the 26 players (100 shots for each, with some exceptions), we get the following table of weighted averages.&lt;/p&gt;&#xA;&lt;pre&gt;&lt;code&gt;Any                     1175/2515 = 0.4672&#xA;&#xA;3 misses in a row       161/400 = 0.4025&#xA;3 hits in a row         179/313 = 0.5719&#xA;&#xA;2 misses in a row       315/719 = 0.4381&#xA;2 hits in a row         316/581 = 0.5439        &#xA;&#xA;1 miss in a row         592/1317 = 0.4495&#xA;1 hit in a row          581/1150 = 0.5052&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&lt;p&gt;The table says, for example, that a total of 2,515 shots were taken by the 26 players, of which 1,175 or 46.72% were made.&lt;/p&gt;&#xA;&lt;p&gt;And of the 400 instances where a player missed 3 in a row, 161 or 40.25% were immediately followed by a hit. And of the 313 instances where a player hit 3 in a row, 179 or 57.19% were immediately followed by a hit.&lt;/p&gt;&#xA;&lt;p&gt;The above weighted averages seem to be strong evidence in favor of the hot hand.&lt;/p&gt;&#xA;&lt;p&gt;Bear in mind that the shooting experiment was set up so that each player was shooting from where it had been determined he/she could make roughly 50% of his/her shots.&lt;/p&gt;&#xA;&lt;p&gt;(Note: &amp;quot;Strangely&amp;quot; enough, in Table 1 for a very similar analysis with the Sixers' in-game shooting, GVT instead present the weighted averages. So why didn't they do the same for Table 4? My guess is that they certainly did calculate the weighted averages for Table 4 — the numbers I present above, didn't like what they saw, and chose to suppress them. This sort of behavior is unfortunately par for the course in academia.)&lt;/p&gt;&#xA;&lt;hr /&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;&lt;strong&gt;Example&lt;/strong&gt;: Say we have the sequence &lt;span class=&quot;math-container&quot;&gt;$HHHTTTHHHHH…H$&lt;/span&gt; (only flips #4-#6 are tails, the remaining 97 flips are all heads). Then &lt;span class=&quot;math-container&quot;&gt;$\hat{p}(H|3T)=1/1=1$&lt;/span&gt; because there is only 1 streak of three tails and the flip immediately after that streak is heads.&lt;/p&gt;&#xA;&lt;p&gt;And &lt;span class=&quot;math-container&quot;&gt;$\hat{p}(H|3H)=91/92 \approx 0.989$&lt;/span&gt; because there are 92 streaks of three heads and for 91 of those 92 streaks, the flip immediately after is heads.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;P.S. GVT's (1985) Table 4 contains several errors. I spotted at least two rounding errors. And also for player 10, the parenthetical values in columns 4 and 6 do not add up to one less than that in column 5 (contrary to the note at the bottom). I contacted Gilovich (Tversky is dead and Vallone I am not sure), but unfortunately he no longer has the original sequences of hits and misses. Table 4 is all we have.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2017-07-30T23:37:11.430" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6500" PostTypeId="1" CreationDate="2015-07-13T00:11:08.430" Score="9" ViewCount="119" Body="&lt;p&gt;Most of the social sciences and even disciplines have a stable relationship with economics. And rightly so because our world is so interconnected. But there are certain fields which remained separated from this interdisciplinary connection. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;One of them is anthropology. Reading on the web there isn't much work done by both researchers in collaboration. What are some examples in the literature of this? And which papers would have benefited from an interdisciplinary approach but didn't take the chance to do so?   &lt;/p&gt;&#xA;" OwnerUserId="4673" LastEditorUserId="4673" LastEditDate="2015-07-15T02:42:44.903" LastActivityDate="2015-07-15T13:35:50.587" Title="Which economic research articles or books use anthropological methods?" Tags="&lt;reference-request&gt;&lt;interdisciplinary&gt;" AnswerCount="1" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="6501" PostTypeId="1" CreationDate="2015-07-13T00:56:28.380" Score="5" ViewCount="103" Body="&lt;p&gt;Amongst the negotiations between Greece and the Eurozone leaders, there currently exists the possibility of Greece leaving the Eurozone for five years.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does this imply Greece would have to use a different currency for only the next five years?&lt;/p&gt;&#xA;" OwnerUserId="5185" LastEditorUserId="8481" LastEditDate="2020-05-04T20:15:34.603" LastActivityDate="2020-05-05T17:43:34.983" Title="How would Greece &quot;temporarily&quot; leave the Eurozone?" Tags="&lt;currency&gt;&lt;law&gt;&lt;euro-area&gt;&lt;greece&gt;" AnswerCount="2" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="6502" PostTypeId="2" ParentId="6496" CreationDate="2015-07-13T05:20:09.027" Score="5" Body="&lt;p&gt;This would fall under the category of endogenous growth models. As dismalscience pointed out innovation is one source of growth, however it is important to distinguish between innovation and technological change. Innovation is sometimes confused with technological change, which is an exogenous process, but is more often associated with endogenous growth.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Endogenous growth theory involves knowledge spillover, learning by doing and more generally increases in human capital as the driver of economic growth. These models were explored extensively by Romer(1986), Lucas(1988) and Rebelo(1991). In essence these models result in growth through the assumption that people get better at doing things the more they do them. Growth is often modeled as an externality in the form of knowledge spillover or through human capital making physical capital more productive. This can result in a violation of the Inada conditions, which differs from the growth models developed by Robert Solow.&lt;/p&gt;&#xA;" OwnerUserId="5188" LastActivityDate="2015-07-13T05:20:09.027" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6503" PostTypeId="1" AcceptedAnswerId="6524" CreationDate="2015-07-13T13:15:35.677" Score="8" ViewCount="2020" Body="&lt;p&gt;In dynamic programming, the method of undetermined coefficients is sometimes known as &quot;guess and verify.&quot;  I've periodically heard there are canonical guesses one might make.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In particular, I've seen &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$V(k) = A + B\ln(k)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$V(k) = \frac{Bk^{1-\sigma}}{1-\sigma}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The former applies to log utility while the latter is related to CRRA preferences.  &lt;em&gt;What other canonical guesses exist, and are these generally tied to the particular form of the return function?&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Edit&lt;/strong&gt;: For those not familiar with dynamic programs, what we're trying to do here is come up with closed-forms for the coefficients (&lt;em&gt;e.g.&lt;/em&gt; $A$ and $B$).  To over-simplify, the functional equation typically takes the generic form $V(k) = \max\bigl\{F(k,u) +\beta V\bigl(g(k,u)\bigr)\bigr\}$, where $g(\cdot,\cdot)$ describes the evolution of the state variable $k$.  Essentially, the value of being in state $k$ today depends on today's return function $F(k,u)$ and some discounted value of whatever $k$ is going to be tomorrow $\beta V\bigl(g(k,u)\bigr)$.  $u$ represents whatever other non-state variables you think influence the return.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sometimes it's possible to get a closed-form solution for $V(k)$ (...note: we don't just solve for $V(k)$ since the right-hand side is a maximized quantity).  This typically involves knowing something about the return function $F(k,u)$ and then making a guess about the functional form of $V(k)$.  We can then iterate to see if our guess yields a closed-form solution for $V(k)$.  In particular, this would include closed-forms for the coefficients in the guess (hence the method of undetermined coefficients).&lt;/p&gt;&#xA;" OwnerUserId="4961" LastEditorUserId="4961" LastEditDate="2015-07-13T16:12:41.250" LastActivityDate="2015-07-15T20:27:04.310" Title="Guess and Verify" Tags="&lt;macroeconomics&gt;&lt;dynamic-programming&gt;" AnswerCount="1" CommentCount="3" FavoriteCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="6504" PostTypeId="5" CreationDate="2015-07-13T18:23:23.763" Score="0" Body="" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2015-07-13T18:23:23.763" LastActivityDate="2015-07-13T18:23:23.763" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6505" PostTypeId="4" CreationDate="2015-07-13T18:23:23.763" Score="0" Body="Inflation is generalized increase of prices of goods and services in an economy, along with a corresponding fall in the purchasing value of money. The rate of inflation refers to the increase of the price of goods and services over time." OwnerUserId="108" LastEditorUserId="20812" LastEditDate="2019-01-29T20:34:01.833" LastActivityDate="2019-01-29T20:34:01.833" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="6506" PostTypeId="5" CreationDate="2015-07-13T18:23:56.243" Score="0" Body="" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2015-07-13T18:23:56.243" LastActivityDate="2015-07-13T18:23:56.243" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6507" PostTypeId="4" CreationDate="2015-07-13T18:23:56.243" Score="0" Body="the price at which one currency may be exchanged for another." OwnerUserId="108" LastEditorUserId="108" LastEditDate="2015-07-13T18:23:56.243" LastActivityDate="2015-07-13T18:23:56.243" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6508" PostTypeId="5" CreationDate="2015-07-13T18:25:28.800" Score="0" Body="&lt;p&gt;&lt;strong&gt;Overview&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;p&gt;Time series are data observed over time, either in continuous time or at discrete time periods.&lt;/p&gt;&#xA;&lt;p&gt;Time series analysis includes trend identification, temporal pattern recognition, spectral analysis, and forecasting future values based on the past.&lt;/p&gt;&#xA;&lt;p&gt;The salient characteristic of methods of time series analysis (as opposed to more general methods to analyze relationships among data) is accounting for the possibility of &lt;em&gt;serial correlation&lt;/em&gt; (also known as autocorrelation and temporal correlation) among the data.  Positive serial correlation means successive observations in time tend to be close to one another, whereas negative serial correlation means successive observations tend to oscillate between extremes.  Time series analysis also differs from analyses of more general stochastic processes by focusing on the &lt;em&gt;inherent direction&lt;/em&gt; of time, creating a potential asymmetry between past and future.&lt;/p&gt;&#xA;&lt;p&gt;&lt;strong&gt;References&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;p&gt;The following threads contain a list of references on time series:&lt;/p&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://stats.stackexchange.com/questions/20514/books-for-self-studying-time-series-analysis&quot;&gt;Books for self-studying time series analysis?&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;p&gt;The following journals are dedicated to researching time series:&lt;/p&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://onlinelibrary.wiley.com/journal/10.1111/%28ISSN%291467-9892&quot; rel=&quot;nofollow noreferrer&quot;&gt;Journal of Time Series Analysis&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://www.degruyter.com/view/j/jtse&quot; rel=&quot;nofollow noreferrer&quot;&gt;Journal of Time Series Econometrics&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="108" LastEditorUserId="4230" LastEditDate="2020-12-30T15:11:36.243" LastActivityDate="2020-12-30T15:11:36.243" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="6509" PostTypeId="4" CreationDate="2015-07-13T18:25:28.800" Score="0" Body="statistical techniques for application to data whose observations concern an entity or phenomenon at different points in time." OwnerUserId="108" LastEditorUserId="108" LastEditDate="2015-07-13T18:25:28.800" LastActivityDate="2015-07-13T18:25:28.800" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6510" PostTypeId="5" CreationDate="2015-07-13T18:27:17.760" Score="0" Body="" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2015-07-13T18:27:17.760" LastActivityDate="2015-07-13T18:27:17.760" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6511" PostTypeId="4" CreationDate="2015-07-13T18:27:17.760" Score="0" Body="Binary relations that reflect which states of the world an agent considers to be most desirable. Preferences are a fundamental ingredient in the axiomatic study of consumer choice decision theory." OwnerUserId="108" LastEditorUserId="108" LastEditDate="2016-04-10T07:24:23.627" LastActivityDate="2016-04-10T07:24:23.627" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6512" PostTypeId="5" CreationDate="2015-07-13T18:28:35.700" Score="0" Body="" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2015-07-13T18:28:35.700" LastActivityDate="2015-07-13T18:28:35.700" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6513" PostTypeId="4" CreationDate="2015-07-13T18:28:35.700" Score="0" Body="requests for information about papers, books, or other sources that address a particular economic question or issue." OwnerUserId="108" LastEditorUserId="108" LastEditDate="2015-07-13T18:28:35.700" LastActivityDate="2015-07-13T18:28:35.700" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6514" PostTypeId="5" CreationDate="2015-07-13T18:28:56.340" Score="0" Body="" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2015-07-13T18:28:56.340" LastActivityDate="2015-07-13T18:28:56.340" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6515" PostTypeId="4" CreationDate="2015-07-13T18:28:56.340" Score="0" Body="requests for information about papers, books, or other sources that address a particular economic question or issue." OwnerUserId="108" LastEditorUserId="108" LastEditDate="2015-07-13T18:28:56.340" LastActivityDate="2015-07-13T18:28:56.340" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6516" PostTypeId="5" CreationDate="2015-07-13T18:29:32.493" Score="0" Body="" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2015-07-13T18:29:32.493" LastActivityDate="2015-07-13T18:29:32.493" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6517" PostTypeId="4" CreationDate="2015-07-13T18:29:32.493" Score="0" Body="the study of consumer choice and its fundamental underpinnings in preferences and constraints." OwnerUserId="108" LastEditorUserId="108" LastEditDate="2015-07-13T18:29:32.493" LastActivityDate="2015-07-13T18:29:32.493" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6518" PostTypeId="2" ParentId="6500" CreationDate="2015-07-13T19:20:13.020" Score="4" Body="&lt;p&gt;In economics, people usually use mathematics as an intermediary to understand some economic mechanisms that would be difficult to understand without maths. &#xA;Economists usually focus more on mechanisms in an analytic way than some historical facts in these mechanisms. That's a little bit what it is said &quot;homo economicus&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.youtube.com/watch?v=tfImiUTwwhU&quot; rel=&quot;nofollow&quot;&gt;Youtube Lecture Link&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This link could be interesting for you but I don't know really (and don't think) some mainstream orthodox economists interested in the link between anthropology and economics. &lt;/p&gt;&#xA;" OwnerUserId="2938" LastEditorUserId="2938" LastEditDate="2015-07-13T21:50:14.807" LastActivityDate="2015-07-13T21:50:14.807" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6519" PostTypeId="1" AcceptedAnswerId="6520" CreationDate="2015-07-13T19:37:00.613" Score="2" ViewCount="102" Body="&lt;p&gt;From 60's to 70's, the real GDP growth per capita of the world fluctuated about 3%. Since then, it fluctuated about 1.8% or somewhere around. (I mean, the average would be about 1.8% since 1970.) I  found this trend from the data provided by Google public data. Is there a consensus among economists that the real GDP growth per capita of the world will be stable or gradually decrease in the future?    &lt;/p&gt;&#xA;" OwnerUserId="5192" LastActivityDate="2015-07-13T19:53:18.700" Title="Estimation of the future growth of real GDP per capita of the world" Tags="&lt;gdp&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6520" PostTypeId="2" ParentId="6519" CreationDate="2015-07-13T19:47:18.757" Score="1" Body="&lt;p&gt;I don't think there is a consensus about this. In 1980s and 1990s, growth theorists have tried to endogeneize the technological progress in growth models, that shows a &quot;balanced growth path&quot; (in which economy grows at a constant rate in long distance.) So, we can say that economists don't want a decrease in GDP.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But note that there are some people who support the idea of &quot;degrowth&quot;. You can find a definition on &lt;a href=&quot;https://en.wikipedia.org/wiki/Degrowth&quot; rel=&quot;nofollow&quot;&gt;Wikipedia&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="2938" LastEditorUserId="2938" LastEditDate="2015-07-13T19:53:18.700" LastActivityDate="2015-07-13T19:53:18.700" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6521" PostTypeId="1" CreationDate="2015-07-13T19:52:16.490" Score="4" ViewCount="79" Body="&lt;p&gt;I'm asking this question, since it was not explained in my textbook and since I couldn't find the answer in Internet. For example, 1 TB HDD costs 50 dollars now, and 100 GB HDD costed 50 dollars in year X. They are the same products but have different performances. Is the difference of performance neglected for real GDP? &lt;/p&gt;&#xA;" OwnerUserId="5192" LastActivityDate="2015-07-13T19:52:16.490" Title="How does real GDP take into account technological advancement?" Tags="&lt;gdp&gt;" AnswerCount="0" CommentCount="1" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6522" PostTypeId="2" ParentId="6487" CreationDate="2015-07-13T21:50:44.893" Score="4" Body="&lt;p&gt;I think we should ask why didn't Germany's labor cost increase, while everyone else's did:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/TAXYB.gif&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The eurozone had economic growth before 2008, so appreciating labor was expected, especially due to increasing labor mobility. Wages were converging to Germany's.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In addition, Southern Europe saw an influx of capital (this is how they caught the debt crisis). Capital triggered some speculative economic growth — 4% in Greece — and an increase in wages.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One more thing. When the crisis hit in 2008, the private sector fired a lot of people. But high-paid employee remained. Which lead to this 12% pike in the business sector alone, as the average wage of the remaining workers increased:&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Unit labor cost, year-to-year change: Business sector services only&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/ioDpZ.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;em&gt;&lt;a href=&quot;https://stats.oecd.org/Index.aspx?DataSetCode=PDBI_I4&quot; rel=&quot;nofollow noreferrer&quot;&gt;Data source&lt;/a&gt;&lt;/em&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The public sector kept its employees, so on average you have no peaks in 2010 (the first figure). And after 2010, you see a decline — basically caused by the same determinants, now working in the opposite direction.&lt;/p&gt;&#xA;" OwnerUserId="240" LastEditorUserId="240" LastEditDate="2015-07-14T11:55:50.490" LastActivityDate="2015-07-14T11:55:50.490" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6523" PostTypeId="2" ParentId="6415" CreationDate="2015-07-13T22:07:36.410" Score="2" Body="&lt;p&gt;@dismalscience said it all. I'd add that the EU is trying to get Greece's property in two indirect ways.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, the troika demanded Greece to privatize some of its public assets. While privatization benefits the bull market, asset prices in Greece are, of course, at their prehistoric levels. Greek companies are all cash constrained now, and the likely buyer of this discounted property will be other European companies, mostly the net creditor countries.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Second, the &lt;a href=&quot;https://twitter.com/EdConwaySky/status/620272062771429377/photo/1&quot; rel=&quot;nofollow noreferrer&quot;&gt;leaked drafts&lt;/a&gt; of the troika's new demands asked Greece to put its &quot;valuable assets&quot; in a Luxembourg-based fund. The only point of this transaction, as I see it, is to seize the assets if Greece defaults later.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Correct me if my suspicion about the latter are wrong.&lt;/p&gt;&#xA;" OwnerUserId="240" LastEditorUserId="4020" LastEditDate="2020-05-08T09:54:41.177" LastActivityDate="2020-05-08T09:54:41.177" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="6524" PostTypeId="2" ParentId="6503" CreationDate="2015-07-13T22:27:17.923" Score="5" Body="&lt;p&gt;Another somewhat canonical form is the value function for risk-sensitive preferences when consumption follows a random walk with drift (there are also versions including capital -- see Backus Ferriere Zin 2014).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$c_t = \mu + c_{t-1} + \sigma_c \varepsilon_{t}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Begin with preferences given as Epstein-Zin with a certainty equivalence function of the form $\mu_t(x) = E_t[x_{t+1}^\alpha]^{\frac{1}{\alpha}}$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$V_t = \left( (1 - \beta) C_t^{\rho} + \beta \mu_t(V_{t+1}) \right)^{\frac{1}{\rho}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;then letting $\rho \rightarrow 0$ gives us&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$V_t = C_t^{1 - \beta} \left[\mu_t(V_t) \right]^{\beta}$$&#xA;$$V_t = C_t^{1 - \beta} \left[E_t[V_t^{\alpha}]^{\frac{1}{\alpha}} \right]^{\beta}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Taking logs gives us risk-sensitive preferences as presented in Hansen Sargent 1995, Tallarini 2000, etc...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Define $U_t = \log(V_t)/(1-\beta)$ and $\theta = \frac{-1}{(1-\beta) \alpha}$ then we see that:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U_t = \log(C_t) - \beta \theta \log \left[ E_t \left[ \exp \left( \frac{-U_{t+1}}{\theta} \right) \right] \right]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The form of this value function can be guessed as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U_t = \gamma_0 + \gamma c_t$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;References:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;David Backus, Axelle Ferriere, and Stanely Zin. Risk and Ambiguity in Models of Business Cycles. Carnegie-Rochester-NYU Conference. 2014.&lt;/li&gt;&#xA;&lt;li&gt;Lars Ljunqvist and Thomas J. Sargent. Recursive Macroeconomic Theory, 3rd Edition. 2013.&lt;/li&gt;&#xA;&lt;li&gt;T.D. Tallarini Jr. Risk-sensitive real business cycles. Journal of Monetary Economics. 2000.&lt;/li&gt;&#xA;&lt;li&gt;L.P. Hansen and T.J. Sargent. Discounted linear exponential quadratic gaussian control. IEEE Trans Automatic Control. 1995.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Additional Comment: The two cases you present are more or less covered by the guess $V(k) = A + B \frac{k^{1-\sigma}}{1 - \sigma}$ since this reduces to logs as $\sigma \rightarrow 1$. The guesses are certainly tied to the particular form of the return function as the value function is related to the one period return (reward) function repeatedly obtained throughout an infinite history (if consumption were constant then it would reduce to a geometric sum).&lt;/p&gt;&#xA;" OwnerUserId="47" LastEditorUserId="47" LastEditDate="2015-07-13T22:36:25.560" LastActivityDate="2015-07-13T22:36:25.560" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6525" PostTypeId="2" ParentId="373" CreationDate="2015-07-13T23:30:28.910" Score="3" Body="&lt;p&gt;This is about lexicographic probability and hyperreal-valued probability in the third paragraph. From the question and comment, it seems to me this question is more related to the usefulness of hyperreal numbers rather than surreal numbers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One of central and controversial question in game theory was under what setting, common belief of rationality implies backward induction(see &lt;a href=&quot;http://www.ma.huji.ac.il/raumann/pdf/36.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Aumann(1995)&lt;/a&gt;, &lt;a href=&quot;http://www.ma.huji.ac.il/raumann/pdf/Centipede%20Game.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;(1998)&lt;/a&gt; and &lt;a href=&quot;ftp://lists.repec.org/RePEc/els/esrcls/bi.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Binmore(1996)&lt;/a&gt;). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/demA8.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider a three-legged centipede game of incomplete information with Harsanyi's universal type space. Ann of type $t_a$ believes that Bob plays $``In&quot;$, &#xA;while Ann of type $u_a$ believes that Bob plays $“Out”$ . Bob, on the other hand believes Ann is type $u_a$ and plays $``Out&quot;$. Then at the state $(t_a, (In,Out),Out)$ that is not the backward induction path, common belief of rationality still holds. What we need to verify are, at the given state: &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;What Ann believes implies Ann is rational. &lt;/li&gt;&#xA;&lt;li&gt;What Ann believes Bob believes implies that Ann believes Bob is rational.&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;What Ann believes Bob believes Ann believes implies Ann believes Bob believes Ann is rational.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\ldots \ \ldots$&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Notice that we only need to check the first three steps, what Ann believes Bob believes Ann believes is the same as what Ann believes Bob believes Ann believes  $\ldots$ Bob believes Ann believes. The same procedure applies to a similar situation of interchanging Ann and Bob in the above reasoning.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To make the baseline result that common belief implies backward induction, we can switch to hyperreal-valued belief system. Specifically, a player will not rule out any of her opponent's strategies. If she believes an opponent is rational, and strategy $s_1$ yields higher payoff compared with $s_2$ for this opponent, then she will believe that $s_1$ is infinitely more likely than $s_2$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, if it's  the case that Ann believes Bob is rational, then Bob should believe that then the chance Ann plays $“Out&quot;$ at the third node conditional on that she plays $“In&quot;$ at the first node is smaller than $\frac{2}{3}$. But if Ann believes  Ann believes Bob believes Ann of type $t_a$ and $u_a$ is rational, then the standard part of the probability that Ann plays $“Out&quot;$ at the third node conditional on that she plays $“In&quot;$ at the first node equals $1$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course, exactly the same argument works for lexicographic probability which is more parsimonious.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My guess is that one of drawback to prevent hyperreal probability form wide application may be that we can't define infinite product of infinitesimal number. For example, in an infinite extensive game, a player believe that the probability that the probability of reaching each node of a path equals $\epsilon$ which is the equivalence class of $(1, \frac{1}{2},\frac{1}{3},\frac{1}{4},\frac{1}{5}, \ldots,)$ up to a fixed ultrafilter on $\mathbb{N}$. Of course, we expect that the chance that this path is realized should also be infinitesimal. But notice that $\epsilon = \epsilon_n := \{a_i^n\}_{i \in \mathbb{Z_+}}$ in which&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{eqnarray}a_i^n=&#xA;\begin{cases}&#xA;1, &amp;amp;i&amp;lt;n \cr mn^{n-1}, &amp;amp;i=n \cr \frac{1}{i}, &amp;amp;i&amp;gt;n\end{cases}&#xA;\end{eqnarray}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Contrasted with finite product, if we define the inifinite product of hyperreal numbers as their componentwise product, then, in this case, we can make it equal any real number $m$.&lt;/p&gt;&#xA;" OwnerUserId="73" LastEditorUserId="73" LastEditDate="2015-07-14T00:16:36.200" LastActivityDate="2015-07-14T00:16:36.200" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6526" PostTypeId="1" AcceptedAnswerId="6528" CreationDate="2015-07-14T01:35:42.740" Score="3" ViewCount="139" Body="&lt;p&gt;Since the Greek vehemently opposed the conditions imposed by the EU for the 3rd bailout, I don't understand why the Greek government did not raise the money needed to repay the previous loans by selling treasury bond or privatizing public assets before the full blown of this whole crisis.&lt;/p&gt;&#xA;" OwnerUserId="5194" LastEditorUserId="4020" LastEditDate="2020-03-30T04:38:57.617" LastActivityDate="2020-03-30T04:38:57.617" Title="Why did Greece not solve its debt problem by selling treasury bond to its own people?" Tags="&lt;government-debt&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="6527" PostTypeId="2" ParentId="6489" CreationDate="2015-07-14T01:35:54.223" Score="4" Body="&lt;p&gt;Neither of the two papers are clear enough as regards their applications of Statistics, so in this answer I will attempt a clarification.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://wexler.free.fr/library/files/gilovich%20(1985)%20the%20hot%20hand%20in%20basketball.%20on%20the%20misperception%20of%20random%20sequences.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Gilovich, Mallone, and Tversky (1985)&lt;/a&gt; in their Abstract &lt;em&gt;define&lt;/em&gt; the &quot;Hot-Hand effect&quot; as follows:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;&lt;em&gt;Basketball players and fans alike tend to believe that a player’s&#xA;  chance of hitting a shot are greater following a hit than following a&#xA;  miss on the previous shot.&lt;/em&gt;&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&quot;Previous shot&quot; is then extended to previous &quot;one, two or three&quot; shots. Denoting a series of $k$ sequential Hits by $H_k$ and a series of $k$ sequential misses by $M_k$, the presence of the Hot-Hand effect is &lt;strong&gt;defined&lt;/strong&gt; as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$P(H \mid H_k) &amp;gt; P(H\mid M_k),\;\;\; k\geq 1 \tag{1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where for compactness, it is understood that the shot in question is the one immediately following the sequential hits or misses. These are &lt;strong&gt;theoretical conditional probabilities&lt;/strong&gt; (i.e. constants), not conditional relative empirical frequencies.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;How do the authors attempt to test the existence of the Hot-Hand Effect?&#xA;They obtain empirical data, they calculate conditional relative empirical frequencies $\hat P(H \mid H_k) ,\; \hat P(H\mid M_k)$ (which are random variables) and they perform  t-tests with  null hypothesis (pp. 299-300)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$${\rm H_o:} P(H \mid H_k) - P(H\mid M_k) =0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note by the way that this test is &lt;em&gt;weaker&lt;/em&gt; than a test for independence of shots: these probabilities could be equal but still differing from the unconditional probability $P(H)$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Naturally, the statistic used is $T\equiv \hat P(H \mid H_k) - \hat P(H\mid M_k)$. The authors find that the null is &lt;em&gt;rejected&lt;/em&gt; at conventional significance levels, but in a direction &lt;em&gt;against&lt;/em&gt; the Hot-Hand Hypothesis: the t-value is large enough but negative. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question then is: &lt;strong&gt;is the test valid?&lt;/strong&gt; First, in order for empirical frequencies to consistently estimate unknown probabilities, it must be the case that the sample is ergodic-stationary. It is, in this case (see the discussion on p.297). Then the other thing left to question is &lt;strong&gt;what is the distribution of the statistic $T$? Is it well approximated by a Student distribution for finite samples (since it is the critical values from the Student distribution that are used)? And for what sizes?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What &lt;a href=&quot;http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2627354&quot; rel=&quot;nofollow noreferrer&quot;&gt;Miller and Sanjurjo (2015)&lt;/a&gt; do is to argue (and apparently, prove) that the &quot;exact&quot; (finite-sample) distribution of $T$ has a non-negligible negative skew and a non-zero expected value,(see pp 18-19). If this is so, &lt;strong&gt;&lt;em&gt;the use of the t-test can be misleading&lt;/em&gt;&lt;/strong&gt;, at least for finite samples, event though it may remain valid asymptotically/for &quot;large&quot; samples.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, if there is a problem with the Gilovich &lt;em&gt;et al.&lt;/em&gt; paper, it is not the definition of the Hot-Hand, it is not the formulation of the null-hypothesis, it is not the selection of the statistic to be used: it is the validity of the critical values used to execute the tests (and so of the implicit distributional assumption), if indeed the finite, small-sample distribution (under the null hypothesis) is visibly non-centered at zero and also asymmetric.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In such cases, what one does usually is to obtain by simulation special critical values in order to perform the test (remember for example the special critical values for the Dickey-Fuller test for a unit root). I failed to see such an approach in the Miller-Sanjurjo paper -instead, they perform &quot;mean bias adjustment&quot;, and find that after this adjustment the conclusion from the test is reversed. I am not sure this is the way to go.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Nevertheless a rough simulation validates the Miller-Sanjurjo results as regards the distribution of the statistic. I simulated $200$ samples each of size $n=100$, of independent Bernoullis with $p=0.5$.&lt;br&gt;&#xA;The empirical distribution of the statistic $T_3 = \hat P(H \mid H_3) - \hat P(H\mid M_3)$ has a sample mean of $-0.0807$ and a median of $-0.072$, with $62.5\%$ of the values being negative. The empirical histogram is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/vwfW6.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-07-14T02:55:55.347" LastActivityDate="2015-07-14T02:55:55.347" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6528" PostTypeId="2" ParentId="6526" CreationDate="2015-07-14T02:22:02.460" Score="4" Body="&lt;p&gt;there are a few reasons:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Directly selling bonds isn't a common method to get money from your people. Raising taxes works more effectively. A promise of future spending would be roughly equivalent to selling bonds.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;why not sell bonds to everybody? not just the Greeks? To a large extent, this has already been done. You don't get to &lt;a href=&quot;https://en.wikipedia.org/wiki/List_of_countries_by_public_debt&quot; rel=&quot;nofollow&quot;&gt;158% Dept to GDP&lt;/a&gt; without a lot of borrowing. Borrowing to pay interest is common. It isn't a long term solution.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The Greeks have been negotiating the terms of the bailout for many months now. Liquidating assets would have been considered and I expect will happen as part of these new measures.&lt;/p&gt;&#xA;" OwnerUserId="40" LastActivityDate="2015-07-14T02:22:02.460" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6532" PostTypeId="1" CreationDate="2015-07-14T08:48:13.983" Score="7" ViewCount="197" Body="&lt;p&gt;Wiki's &lt;a href=&quot;https://en.wikipedia.org/wiki/List_of_countries_by_GDP_%28PPP%29&quot;&gt;article&lt;/a&gt; provides with 3 sources for GDP data: IMF, World Bank and CIA.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I wonder which of them is better (i.e. more accurate)? Also, what about reliability of so called Penn tables?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If anyone is aware of the source which is better than the above mentioned, please, share it.&lt;/p&gt;&#xA;" OwnerUserId="5197" LastActivityDate="2017-08-16T09:02:29.317" Title="Which data on GDP to use?" Tags="&lt;data-request&gt;&lt;gdp&gt;" AnswerCount="1" CommentCount="5" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6535" PostTypeId="2" ParentId="6487" CreationDate="2015-07-14T12:39:14.920" Score="2" Body="&lt;p&gt;I would emphasize Anton's last point. Many countries have regulations that prevent senior/tenured workers from being fired first. This quickly implies that as firings increase, average costs tend to increase (ignoring inter-firm wage dispersion). Or, in other words: Any country with a highly regulated labor market will tend to see increased labor costs as an immediate response to a crises.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The only way to overcome this - given regulations - is if firms/sectors with higher average wages lay off more workers than the average.&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-07-14T12:39:14.920" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6536" PostTypeId="2" ParentId="6483" CreationDate="2015-07-14T13:01:46.310" Score="2" Body="&lt;p&gt;$\beta$ appears to be a &lt;em&gt;decision&lt;/em&gt; variable, &lt;strong&gt;at firm level&lt;/strong&gt;. Then its value should be determined optimally, under some criterion. So what is the criterion, what is the objective function which should be optimized over the value of $\beta$?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It appears that we should maximize the value of the option $V(\beta)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$V(\beta) = \frac{-c + q(\theta)(1-2\beta)J}{\rho - q(\theta)\beta}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first derivative is (I will dispense with $\theta$)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\partial V(\beta)}{\partial \beta} = \frac{-2qJ\cdot[\rho - q\beta]+q\cdot[-c + q(1-2\beta)J]}{[\rho - q\beta]^2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies \frac {\partial V(\beta)}{\partial \beta} = \frac{-2qJ\rho -cq + q^2J}{[\rho - q\beta]^2} = \frac{q}{[\rho - q\beta]^2}\cdot (-2J\rho -c + qJ)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies {\rm sign}\frac {\partial V(\beta)}{\partial \beta} = {\rm sign}\big\{(q-2\rho)J-c\big\} \tag {1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So $V(\beta)$ is monotonic in $\beta$. Therefore, depending on the values taken by $J,\rho, c, q$, it will be optimal to set $\beta$ equal to either $0$ or $1$.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume now that $\partial V(\beta)/\partial \beta &amp;gt;0$. This requires that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$(q-2\rho)J-c &amp;gt; 0 \implies q &amp;gt; \frac {c}{J} + 2\rho \implies q &amp;gt; \rho \tag {2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then $\beta^* =1$ and&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$V^*|_{\beta =1} = \frac{-c - qJ}{\rho - q} = \frac{c + qJ}{q-\rho } &amp;gt; 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;given $(2)$.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In turn, assume that $\partial V(\beta)/\partial \beta &amp;lt;0$. This requires that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$(q-2\rho)J-c &amp;lt; 0 \implies q &amp;lt; \frac {c}{J} + 2\rho  \tag {3}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then $\beta^* =0$ and&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$V^*|_{\beta =0} = \frac{-c + qJ}{\rho} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To have $V^*|_{\beta =0} &amp;gt;0 $ we need&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {c}{J} &amp;lt; q &amp;lt; \frac {c}{J} + 2\rho \tag {4}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;to respect also $(3)$. So here a necessary restriction on the parameters is imposed, in order to obtain a positive value for $V$.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Combining, if we impose the restrictions&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$q &amp;gt; \rho, \;\;\; q &amp;gt; c/J$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;we allow for either $\beta =1$ or $\beta =0$ (it will depend on the exact parameter values), while at the same time guaranteeing that $V&amp;gt;0$ in all cases.&#xA;This is not unusual in economic models -i.e. the need to restrict the parameters in such a way so as for the model to provide solutions that are economically meaningful. And we need $V$ to be positive, because otherwise the vacancy would not exist in the first place, as I understand the set up.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-07-14T13:01:46.310" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6538" PostTypeId="2" ParentId="6382" CreationDate="2015-07-14T16:29:13.120" Score="1" Body="&lt;p&gt;Index level change is different from the change in the underlying stock. The way the index is calculated will determine the effect of change of underlying assets. As a stock trader, I change my valuations of stocks all the time. Valuations depend on many factors including economic environment, expected profitability of the stock company and interest. The supply and demand curve for each stock in the index will change constantly as the environment and investor sentiment changes. But this does not mean that the index will change because of the implication of a closed stock market.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The implication of a closed stock market is that market capital is constant. any dollar increase in stock A means that there must be an identical dollar decrease in stock B . The change in index level will depend on the way each stock is represented in the index e.g the weighting method &quot; Capital weight, price weight, equal weight...etc&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For capital weighted indexes such as S&amp;amp;P 500, there is  more representation of larger firms than smaller ones in the index. In our hypothetical example of the closed stock market, as more $ shift from stock A to stock B, the more the market will be affected by changes in the company with larger market cap. &lt;/p&gt;&#xA;" OwnerUserId="5048" LastEditorUserId="1601" LastEditDate="2015-07-24T05:05:27.917" LastActivityDate="2015-07-24T05:05:27.917" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6539" PostTypeId="2" ParentId="6031" CreationDate="2015-07-14T16:53:18.883" Score="2" Body="&lt;p&gt;Possible revenue sources of government  &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Taxes &lt;/li&gt;&#xA;&lt;li&gt;Sovereign funds investment (Norway, UAE)&lt;/li&gt;&#xA;&lt;li&gt;Natural Resources (Saudi Arabia, Russia)&lt;/li&gt;&#xA;&lt;li&gt;State Owned Enterprises &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="5048" LastActivityDate="2015-07-14T16:53:18.883" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6540" PostTypeId="1" CreationDate="2015-07-14T17:15:29.843" Score="5" ViewCount="11745" Body="&lt;p&gt;Why if there's a higher inflation rate in country A then its exports are less competitive and its trading partners prefer to buy from countries with lower inflation rates?&lt;/p&gt;&#xA;" OwnerUserId="5088" LastEditorUserId="5635" LastEditDate="2015-10-28T23:16:01.190" LastActivityDate="2015-10-28T23:16:01.190" Title="Why is a higher inflation rate bad for international competitiveness?" Tags="&lt;inflation&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6541" PostTypeId="1" CreationDate="2015-07-14T19:14:54.540" Score="1" ViewCount="31" Body="&lt;p&gt;I'm trying to understand this paper, but I'm having some difficulties in understanding some parts. Is there good quick introduction about how the sovereign debt market works?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The paper is about greek debt 2012 restructure:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://scholarship.law.duke.edu/cgi/viewcontent.cgi?article=5343&amp;amp;context=faculty_scholarship&quot; rel=&quot;nofollow&quot;&gt;http://scholarship.law.duke.edu/cgi/viewcontent.cgi?article=5343&amp;amp;context=faculty_scholarship&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="1472" LastEditorUserId="1601" LastEditDate="2015-07-16T06:57:31.137" LastActivityDate="2015-07-16T06:57:31.137" Title="Sovereign debt market learning resources" Tags="&lt;reference-request&gt;&lt;government-debt&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="6542" PostTypeId="1" CreationDate="2015-07-14T20:00:46.027" Score="3" ViewCount="181" Body="&lt;p&gt;I am new to finance and recently came across the LIBOR scandal that happened some time in 2008. From my limited understanding of finance, it looks like a scandal that was obviously going to happen and the fix also seems obvious. Clearly, the fix I suggest has issues, or else they would've already been implemented. I want to understand why my proposed solutions will not work.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here's some background on LIBOR and the scandal. LIBOR is an index maintained by Thomson Reuters on behalf of the British Bankers' Association that attempts to track the interest rate at which world's major banks are borrowing and lending from each other on a daily basis. It is calculated by asking 18 main banks the question &quot;At what rate could you borrow funds, were you to do so by asking for and then accepting interbank offers in a reasonable market size just prior to 11am?&quot; and then taking the average of the numbers reported after removing the top 4 and the bottom 4. Some time in 2008, the people responsible for answering the question started collaborating with each other and reporting incorrect interest rates in order to manipulate Thomson Reuters' calculations. This was good for the participating banks but bad for the world in general since several financial products traded throughout the world are defined in terms of the LIBOR rate and thus misreporting could potentially lead to harmful effects worldwide.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From what I understand after reading many articles, the two main incentives that lead a bank to misreport its borrowing rates are: 1) reporting a higher borrowing rate is bad for your own reputation since if everyone is charging you high rates on loans then it means they don't trust you, 2) if you are one of those 18 banks that are polled for calculating LIBOR and you also happen to be dealing in a financial product that is defined based on LIBOR, then you might be incentivised to manipulate it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is my proposed solution. Following things can be done to handle #1:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Anonymize the answers. Thomson Reuters doesn't need to know exactly which bank reported what. All it needs is the 18 numbers from 18 different banks. Anonymizing should be easy to do with the help of technology. Or law, i.e., Thomson Reuters can promise to not reveal the data to anyone. The technological solution will probably be less prone to future scandals than the legal one.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Instead of asking what rate a bank can borrow at, ask them what rate they will lend at. Of course you will need to specify &quot;to which bank&quot;. So do this for each pair of banks. Ask each bank A what rate it will lend at to each bank B. You can't manipulate your own image by answering incorrectly. The only thing you can potentially do is manipulate another bank's image. But with roughly 18^2 numbers to look at, I am sure you can detect a lot of manipulation attempts. For someone to make one specific bank to look bad, they will have to collaborate with several banks at once and ask them to report poor lending rates for that specific bank.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To handle #2, the obvious way is to take the median instead of the mean. Median is much more resilient to manipulation than mean. All 18 banks will have to collaborate to be able to manipulate the median. Is it possible that all of them want LIBOR rate to move in the same direction? Even if it is, I imagine it will be much harder for all of them to collaborate at once.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, one solution to all these problems is to base LIBOR on the actual rates at which trades are being made as opposed to the estimates of those rates. I guess this one will be hard to implement because if the trades are happening over the counter then the records will not be public. And there is probably no way to force the banks to trade on some sort of exchange without invoking law, which as we have seen, is always open to manipulation.&lt;/p&gt;&#xA;" OwnerUserId="5199" LastActivityDate="2015-07-15T14:11:17.977" Title="Why will these steps NOT fix the problems with LIBOR?" Tags="&lt;banking&gt;&lt;interest-rate&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6544" PostTypeId="1" CreationDate="2015-07-15T06:47:44.070" Score="17" ViewCount="4390" Body="&lt;p&gt;These days, we hear again and again about the so-called &amp;quot;need&amp;quot; for economic growth. But &lt;strong&gt;how&lt;/strong&gt; do countries actually grow economically? That is, why/how does their &lt;a href=&quot;https://en.wikipedia.org/wiki/Gross_domestic_product&quot; rel=&quot;noreferrer&quot;&gt;GDP&lt;/a&gt; increase over time?&lt;/p&gt;&#xA;&lt;p&gt;Related, what are policies that are believed by economists to interact the most with growth? And what are these channels of interaction? &lt;em&gt;I'm not looking for dogmatic answers on this part, make sure that you state the causal chain as neutral as possible and link references when possible.&lt;/em&gt;&lt;/p&gt;&#xA;&lt;p&gt;See also&lt;/p&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://economics.stackexchange.com/questions/6545/what-is-the-economic-relevance-of-gdp-growth&quot;&gt;What is the relevance of economic growth?&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://economics.stackexchange.com/questions/6633/what-is-the-gross-domestic-product-gdp&quot;&gt;What is the Gross Domestic Product (GDP)?&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="43" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2017-12-20T21:33:25.397" Title="How do economies grow?" Tags="&lt;macroeconomics&gt;&lt;economic-growth&gt;" AnswerCount="5" CommentCount="7" FavoriteCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="6545" PostTypeId="1" CreationDate="2015-07-15T06:53:19.497" Score="8" ViewCount="984" Body="&lt;p&gt;Economic policies often mention high economic growth as a desirable path. For example,&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;&amp;quot;We started to lay a new foundation for stronger, more durable economic growth.&amp;quot;&lt;/p&gt;&#xA;&lt;p&gt;-- President Obama, &lt;a href=&quot;http://www.nytimes.com/2013/07/25/us/politics/obamas-economics-speech-at-knox-college.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Speech in 2013&lt;/a&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;But also&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;&amp;quot;Jeb Bush pledged Monday to give the U.S. an economic growth rate of 4 percent a year&amp;quot;&lt;/p&gt;&#xA;&lt;p&gt;-- &lt;a href=&quot;http://www.politico.com/story/2015/06/jeb-bush-2016-economic-growth-4-percent-119042.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Politico&lt;/a&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;and many others in the USA and abroad (&lt;a href=&quot;http://www.ambafrance-uk.org/Francois-Hollande-s-speech-on-the&quot; rel=&quot;nofollow noreferrer&quot;&gt;Hollande&lt;/a&gt;, &lt;a href=&quot;http://www.sandiegouniontribune.com/news/2014/Jul/07/merkel-argues-for-sustainability-economic-growth/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Merkel&lt;/a&gt;, etc.)&lt;/p&gt;&#xA;&lt;p&gt;Politicians from different sides seem to agree that economic growth is desired. For example, some of them say that &lt;a href=&quot;http://www.economist.com/news/leaders/21578665-nearly-1-billion-people-have-been-taken-out-extreme-poverty-20-years-world-should-aim&quot; rel=&quot;nofollow noreferrer&quot;&gt;growth helps against misery&lt;/a&gt;. Some of them say that higher growth helps a government with paying back their debt.&lt;/p&gt;&#xA;&lt;p&gt;How does economic growth help the economy and the society? Through which mechanism does that work?&lt;/p&gt;&#xA;&lt;p&gt;&lt;em&gt;See also &lt;a href=&quot;https://economics.stackexchange.com/questions/6544/how-do-economies-grow&quot;&gt;How do economies grow?&lt;/a&gt;&lt;/em&gt;&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2020-05-26T03:29:57.240" Title="What is the relevance of economic growth?" Tags="&lt;macroeconomics&gt;&lt;economic-growth&gt;" AnswerCount="6" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6546" PostTypeId="1" CreationDate="2015-07-15T10:19:02.817" Score="5" ViewCount="11217" Body="&lt;p&gt;The supply of new Bitcoins and Dogecoins is depicted in the graph below.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Bitcoin inflation rate is currently higher than the Dogecoin rate, but it reduces sharply to a rate close to zero. It eventually reaches 0% in 2140, after which there will be no new Bitcoins.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are currently 100 billion Dogecoins. The Dogecoin inflation rate is fixed at an additional 5.256 billion coins per year for every year henceforth.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/bSpuf.png&quot; alt=&quot;Dogecoin inflation vs Bitcoin inflation&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which inflation rate is more appropriate for a general-use currency intended for use for transactions of all sizes? I realise this isn't necessarily the stated aim of either currency.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Answerers should assume that the inflation rates are sacrosanct and can't be altered in years to come.&lt;/p&gt;&#xA;" OwnerUserId="5034" LastEditorUserId="59" LastEditDate="2021-03-18T18:04:30.547" LastActivityDate="2021-03-18T18:04:30.547" Title="Does Dogecoin or Bitcoin have a more appropriate rate of monetary inflation?" Tags="&lt;inflation&gt;&lt;currency&gt;&lt;nonexpert&gt;&lt;cryptocurrency&gt;&lt;bitcoin&gt;" AnswerCount="2" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="6547" PostTypeId="2" ParentId="6546" CreationDate="2015-07-15T11:12:56.413" Score="11" Body="&lt;h2&gt;Your coins do not have 0 inflation in the long run&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;First, we need to set straight that you have a &lt;strong&gt;critical error&lt;/strong&gt; in your supposition: &lt;strong&gt;The rate of creation of money is not the only determinant of the inflation rate&lt;/strong&gt;, &lt;a href=&quot;https://economics.stackexchange.com/questions/166/from-an-economics-perspective-what-are-the-ramifications-of-a-currency-with-fix/167#167&quot;&gt;see here&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Even if we ignore these equilibrium effects, is any of these coins superior in its rate of money creation?&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Suppose hereinafter that the actual inflation rate mirrors the money creation rate&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The optimal inflation rate is something that is not clearly understood, but most Economists agree that it is somehow related to the current state of the economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence, an inflation rate that is independent of the state of the economy cannot be that great. It basically removes the central banking authority to manipulate the inflation rate to the greater good of society - but removing this power is also an explicit goal of many advocates of these coins. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have answered few reasons for and again higher inflation &lt;a href=&quot;https://economics.stackexchange.com/questions/5861/is-zero-inflation-desirable&quot;&gt;here&lt;/a&gt;. These make a case for a positive inflation rate. However importantly, they make a case for positive &lt;em&gt;unexpected&lt;/em&gt; inflation rate. If high inflation is expected, all these benefits fall down. What remains is the shoe-leather-cost of inflation, implying that the lower inflation rate, bit coin, would be weakly better.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Remember: This is based on the false supposition that the money creation rate is the only determinant of the  inflation rate.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the optimal rate of inflation, see also&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://www.frbsf.org/economic-research/publications/economic-letter/1997/september/what-is-the-optimal-rate-of-inflation/&quot; rel=&quot;noreferrer&quot;&gt;http://www.frbsf.org/economic-research/publications/economic-letter/1997/september/what-is-the-optimal-rate-of-inflation/&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://www.nber.org/papers/w16054&quot; rel=&quot;noreferrer&quot;&gt;http://www.nber.org/papers/w16054&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="43" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-07-15T11:12:56.413" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6548" PostTypeId="2" ParentId="6123" CreationDate="2015-07-15T11:33:24.993" Score="0" Body="&lt;p&gt;I guess a very demagogic answer from one of such governments would be &quot;if we take on more debt, we'll end up like Greece&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, a more serious government may try to justify the low level of debt in different ways:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;The levels of unemployment in the &lt;a href=&quot;http://www.ons.gov.uk/ons/rel/lms/labour-market-statistics/july-2015/table-a01.xls&quot; rel=&quot;nofollow&quot;&gt;UK&lt;/a&gt; 5.6% and in the &lt;a href=&quot;http://ec.europa.eu/eurostat/statistics-explained/index.php/File:Unemployment_rates,_seasonally_adjusted,_May_2015.png&quot; rel=&quot;nofollow&quot;&gt;EU&lt;/a&gt; 9.6%, are not far from their historical averages. One of the reasons to take on more government debt is usually to increase government spending which, in the Mundell-Fleming model, translates into higher output. This higher output translates into a shift of the aggregated demand (AD) curve to the right which implies an increase in inflation ceteris paribus (which implies fixed aggregated supply curve (AS)). The fixed AS curve can be thought of as a consequence of nominal wage rigidities in the short term. Anyway, the shift of the AD curve will imply higher inflation, as said before, as well as a decrease in the unemployment rate. The exact impact on inflation and unemployment will depend on how far the unemployment rate is from its natural level. All this is to say that one possible reason for governments to not increase their level of debt is that either the government is satisfied with the current unemployment level and wants to maintain a stable level of inflation or the government gives more priority to the level of inflation than the level of unemployment. The latter case is usually right for conservative governments.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Another possible justification is, and this might apply more to governments in the south of Europe were inflation is low and unemployment high (i.e. they could really use something that boosts up output like an increase in government spending), is that the low bond yields are subject to them following a fiscal policy aimed at austerity (low or no deficit and pay back the existing debt) due to their high levels of debt to GDP. This means that if those countries were to take on more debt, they'd probable be seen as irresponsible and fiscally undisciplined by the market and their yields would rise, causing some, if not all, of the benefits of taking on the new debt to disappear, for example all the gain in output goes to pay off the increased debt interest.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I'm sure there are more ways that I left out in which a government could justify not issuing more debt, but I hope these two give you a good idea.&lt;/p&gt;&#xA;" OwnerUserId="5119" LastEditorUserId="5119" LastEditDate="2015-07-15T12:04:28.103" LastActivityDate="2015-07-15T12:04:28.103" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6549" PostTypeId="2" ParentId="6489" CreationDate="2015-07-15T11:46:01.693" Score="0" Body="&lt;p&gt;I'm going to change a comment I made above to an answer, and claim the answer to the original question is that the original papers are correct. The authors of the 2015 paper throw out sequences which should logically be included in their analysis, as I describe in the comment, and therefore introduce a bias which supports their claims. The world works as it should.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Addendum in response to comment:&#xA;We look at table 1 in the paper. We see we're throwing out 4 values from the last column, so to get the expected difference we only average over 12 of the 16 sequences. If we look at these probabilities as frequencies, and we say, for the first line TTTT, what is the frequency at which a head follows a head, then logically it always happens, and we should put a 1 in the p(H, H) column, not a dash. We do that for the other three sequences we threw out, and we conclude the expected value of the difference is 0, not -.33.&#xA;We can't just throw out data like that, when there is a clear logical interpretation of the data.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that in order to make the drift vanish, we have to calculate the probabilities correctly, which isn't done in the paper. The probabilities in the table are claimed to be the &quot;probability that a head follows a tail, in this given sequence of four tosses.&quot; And we see that for the row TTTH, we're supposed to believe that probability is 1/3. It's not. There are four tosses in the row, and one of the four tosses in that row is the event &quot;a head follows a tail&quot;. The probability is 1/4. So calculate the probabilities correctly, and use all the rows, and you get the answer that's been accepted for 30 years.&lt;/p&gt;&#xA;" OwnerUserId="4151" LastEditorUserId="4151" LastEditDate="2015-07-15T20:11:43.120" LastActivityDate="2015-07-15T20:11:43.120" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6550" PostTypeId="2" ParentId="6123" CreationDate="2015-07-15T11:55:26.410" Score="3" Body="&lt;p&gt;Debt being cheaper than ever doesn't mean that it is optimal to borrow. Unless you plan to invest the borrowed money into projects that yield higher returns with certainty (we would call this arbitrage), &lt;strong&gt;any debt implies a tradeoff between the welfare of current versus future generations&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Perhaps the borrowing before to higher rates was non-optimal under the current government's perspective. I.e. now we place a higher value onto future generations versus current generations&lt;/li&gt;&#xA;&lt;li&gt;Perhaps now in the slump, the government doesn't see investment opportunities that yield a sufficiently high return.&lt;/li&gt;&#xA;&lt;li&gt;Perhaps the current government has a different prior on how high returns to debt are. Different governments (or the same government over time) can have a different prior (guess) on how important/productive government spending onto infrastructure, education, health, military etc. is. &lt;strong&gt;This also includes a prior on how large the Keynesian multiplier is, and how effective demand stimuli are&lt;/strong&gt;. Then, even presented with the same investment opportunities at a&#xA;lower interest rate, a current government might chose differently&#xA;than the previous government.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;This was all without political economy consideration. There are arguments on optimal spending that take into account how your current budget will affect the budget of future (different) governments. Have a look at &lt;a href=&quot;http://isites.harvard.edu/fs/docs/icb.topic500592.files/Persson%20Svensson.pdf&quot; rel=&quot;nofollow&quot;&gt;Persson and Svensson (1989)&lt;/a&gt; to get a feel for this kind of political economy reasoning. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that the argument in the cited paper would go the wrong way (i.e., too much spending of a conservative government), but it shows you how optimal policies under a permanent ruler can differ from optimal policies in a democracy.&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-07-15T11:55:26.410" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6551" PostTypeId="2" ParentId="6123" CreationDate="2015-07-15T12:09:33.117" Score="0" Body="&lt;p&gt;Three key reasons:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;Public spending spillovers.&lt;/strong&gt; The European Union isn't very united, and national governments still think locally. When they implement a stimulus, its effect on demand and employment spills over the neighboring countries. (That's one reason why the US is effective: the American states relied on the federal stimulus after 2008.)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;Business lobby.&lt;/strong&gt; The public debt coupled with fiscal deficit are associated with higher taxation. And some European countries did raise taxes. Naturally, in this case, business and the rich prefer austerity over taxation. Leave alone the ideology of government intervention, which they also dislike.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;Government inefficiency versus demand.&lt;/strong&gt; Some national governments in Europe score low at public governance. The logic is, if you give them more discretion, they'll spend money on hiring other inefficient public officials without much effect on the economy. See, for example, &lt;a href=&quot;http://ec.europa.eu/economy_finance/publications/qr_euro_area/2013/pdf/qrea4_section_2_en.pdf&quot; rel=&quot;nofollow&quot;&gt;what the EU thinks about GIIPS&lt;/a&gt;. Ex-post, fiscal multipliers happened to be higher than the EU thought, but the time was wasted.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;These are bad reasons, but they work for austerity.&lt;/p&gt;&#xA;" OwnerUserId="240" LastActivityDate="2015-07-15T12:09:33.117" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6552" PostTypeId="2" ParentId="6542" CreationDate="2015-07-15T14:11:17.977" Score="3" Body="&lt;p&gt;Rather than answer regarding your specific proposal, as that would be of less use generally than providing the current state of thought about interest rate benchmarks, I will provide a quick review of the literature, allowing you to think more generally about the issue. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regarding LIBOR specifically, the &lt;a href=&quot;https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/191762/wheatley_review_libor_finalreport_280912.pdf&quot; rel=&quot;nofollow&quot;&gt;Wheatley Review of LIBOR&lt;/a&gt; was the foundational document outlining the general issues with LIBOR and setting a path for reform. After this review, the International Organization of Securities Commissions (IOSCO) published a report, &quot;&lt;a href=&quot;http://www.iosco.org/library/pubdocs/pdf/IOSCOPD415.pdf&quot; rel=&quot;nofollow&quot;&gt;Principles for Financial Benchmarks&lt;/a&gt;&quot; that addresses general issues surrounding benchmark governance, quality, methodology, and accountability. You will find that this report is particularly important in thinking about benchmark calculation approaches, as it provides a framework for evaluation of benchmark proposals, yours included.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since then, the Financial Stability Board's Official Sector Steering Group has issued &lt;a href=&quot;http://www.financialstabilityboard.org/wp-content/uploads/r_140722.pdf&quot; rel=&quot;nofollow&quot;&gt;specific recommendations&lt;/a&gt; relating to LIBOR reform; this document relates the general IOSCO principles to the specific issues that arise in interest rate benchmarks.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, two academic articles may prove of interest to you. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Duffie and Dworczak's &quot;&lt;a href=&quot;http://www.nber.org/papers/w20540&quot; rel=&quot;nofollow&quot;&gt;Robust Benchmark Design&lt;/a&gt;&quot; discusses the design of robust estimators in situations where a benchmark is based on transactions and agents attempt to manipulate these transactions to profit on derivatives based on the benchmark. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, Duffie and Stein discuss LIBOR reform and alternative reference rates in &quot;&lt;a href=&quot;http://www.darrellduffie.com/uploads/working/DuffieSteinLIBOR2014.pdf&quot; rel=&quot;nofollow&quot;&gt;Reforming LIBOR and Other Financial-Market Benchmarks&lt;/a&gt;.&quot;&lt;/p&gt;&#xA;" OwnerUserId="264" LastActivityDate="2015-07-15T14:11:17.977" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6553" PostTypeId="1" AcceptedAnswerId="6554" CreationDate="2015-07-15T14:18:06.937" Score="1" ViewCount="85" Body="&lt;p&gt;In &quot;Silicon Valley TV Series&quot; (in first episode of the second season) a bunch of guys, designed a new algorithm, and asked big companies to invest in that project and value their product.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At a certain time in the episode, they realized that instead of negotiating with companies for higher investment and higher valuation, they must somehow negotiate for the lowest possible valuation as they are new to the market, otherwise they will be bankrupt.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can't figure out the reason!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a simple language (as I know nothing about economy) can anyone explain it?&lt;/p&gt;&#xA;" OwnerUserId="5201" LastActivityDate="2015-07-15T14:27:46.423" Title="Why a new startup should ask a big investment company to value them as low as possible?" Tags="&lt;investment&gt;&lt;value&gt;" AnswerCount="1" CommentCount="1" ClosedDate="2015-07-20T15:05:15.053" ContentLicense="CC BY-SA 3.0" />
  <row Id="6554" PostTypeId="2" ParentId="6553" CreationDate="2015-07-15T14:27:46.423" Score="0" Body="&lt;p&gt;Each startup typically attracts multiple investors, each having its own evaluation of the company. Investors participate in funding series, when equity is sold at the same per-share price. Otherwise, it's difficult to explain an investor why he paid more for the startup than others did.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When a startup finds investors who buy their stakes at high evaluation, the startup cuts off more reasonable investors. And reputable VC funds don't like overpaying.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, the startup ends with some silly investors holding their equity, while unable to find more money at comparable prices.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the end, founders are better off while targeting realistic evaluation, not milking a single naive investor.&lt;/p&gt;&#xA;" OwnerUserId="240" LastActivityDate="2015-07-15T14:27:46.423" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6555" PostTypeId="2" ParentId="6545" CreationDate="2015-07-15T15:12:13.913" Score="-2" Body="&lt;p&gt;I think it's clear why a nation should aspire for economic growth. It's competition with other nations. Given that most other countries are growing, if you don't, then soon you will be unable to trade with them, which will lead to poverty in your own coutnry. Why the entire world as a whole needs to grow is a different issue. I don't think the world needs to grow, but it just happens to grow because of, again, competition at every level&lt;/p&gt;&#xA;" OwnerUserId="5199" LastActivityDate="2015-07-15T15:12:13.913" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6556" PostTypeId="5" CreationDate="2015-07-15T16:24:30.220" Score="0" Body="" OwnerUserId="-1" LastEditorUserId="-1" LastEditDate="2015-07-15T16:24:30.220" LastActivityDate="2015-07-15T16:24:30.220" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6557" PostTypeId="4" CreationDate="2015-07-15T16:24:30.220" Score="0" Body="Natural resource economics deals with the supply, demand, and allocation of natural resources." OwnerUserId="264" LastEditorUserId="264" LastEditDate="2015-07-16T06:52:57.080" LastActivityDate="2015-07-16T06:52:57.080" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6558" PostTypeId="1" CreationDate="2015-07-15T16:27:39.617" Score="2" ViewCount="52" Body="&lt;p&gt;According to an article I read, one of the steps that was used to contribute to the Greek downfall was that bankers downgraded the bonds of the country. This immediately makes the interest rates (“yields”) on the bonds go up, making it more and more expensive for the country to borrow money or even just roll over the existing bonds.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't understand the impact this has.  Why it makes it more expensive for the country to borrow money?  And what is &quot;roll over existing bonds&quot;?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also what are the warning signs in the economy that this is happening?  Is a weak currency one sign?&lt;/p&gt;&#xA;" OwnerUserId="5164" LastEditorUserId="43" LastEditDate="2015-07-15T16:54:22.263" LastActivityDate="2015-07-15T18:49:41.457" Title="How did downgrading bonds contribute to Greek crisis?" Tags="&lt;government-debt&gt;&lt;bonds&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6559" PostTypeId="2" ParentId="3243" CreationDate="2015-07-15T16:56:00.710" Score="6" Body="&lt;p&gt;An oil price of 0 will make any extraction of oil unprofitable and hence imply no further oil extraction.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You should think about how prices carry signals. A low oil price (even if not 0) carries the signal that we, as society, do not value that oil as much. The conclusion is imminent.&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-07-15T16:56:00.710" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6560" PostTypeId="2" ParentId="6558" CreationDate="2015-07-15T18:49:41.457" Score="3" Body="&lt;p&gt;Here's a non-technical answer:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Bonds are a form of debt.  What the issuer is selling is essentially a &lt;em&gt;promise&lt;/em&gt; to repay the principal (&lt;em&gt;i.e.&lt;/em&gt; whatever price the buyer paid) and some interest to the buyer.  (Note: since we're talking about debt, you could also think of the buyer as a lender.)  In return, the issuer gets to use the money from the sale for whatever current projects needed funding in the first place.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Skirting some technical stuff, assume the yield is the same thing as the interest rate.  When lenders think there's a higher risk of not getting their money back, they'll either 1) not lend in the first place, or 2) if they do lend, demand higher a higher interest rate to compensate them for the higher probability of not getting repaid.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When someone downgrades your credit, it's a statement about you: they believe you're at a higher risk of not fulfilling your promise to repay the lender.  So any lender that does decide to take a risk and loan you money (&lt;em&gt;i.e.&lt;/em&gt; buy your bond) is going to be in situation #2 above: they'll demand you pay more interest on the loan (here, higher bond yield) to compensate them for your riskiness.  That makes borrowing more expensive for you since you now have to pay a higher interest rate than you would have if you had better credit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Rollovers are a type of reinvestment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At the heart of the matter, credit downgrades happen when lenders lose faith in your ability to fulfill your promises.  This happens for a multitude of reasons.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As an example, S&amp;amp;P's 2011 &lt;a href=&quot;http://money.cnn.com/2011/08/06/news/economy/sp_rating_faq/&quot; rel=&quot;nofollow&quot;&gt;downgrade&lt;/a&gt; of U.S. debt happened because they believed 1) that the pattern of running deficits most years might eventually put the U.S. at risk of not repaying (that is, the debt-to-GDP ratio might not be sustainable), and 2) that political leaders lacked a credible plan to tackle the problem.&lt;/p&gt;&#xA;" OwnerUserId="4961" LastActivityDate="2015-07-15T18:49:41.457" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6561" PostTypeId="2" ParentId="3243" CreationDate="2015-07-15T19:57:27.430" Score="4" Body="&lt;p&gt;What would be economically most efficient is that for the price of oil to reflect all its costs, including all the pollution costs. A price that high would destroy a lot of demand, and incentivise all the cleaner alternatives with less need to subsidise them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://blogs.ucl.ac.uk/sustainable-resources/2015/01/23/negotiating-climate-change-guest-seminar-by-jeffrey-sachs/&quot; rel=&quot;nofollow&quot;&gt;Professor Jeff Sachs has spoken emphatically&lt;/a&gt; of the advantage of a low oil price, for the COP21 negotiations. Firstly, it makes a lot of the existing resource uneconomic. And secondly, it cuts oil companies profits; they are a very powerful, very vocal lobby, and deep cuts to their revenue weakens them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, low prices received by producers is good, because it will minimise new resource extraction (and exploration); and high prices paid by consumers is good (because it reduces oil consumption). And the gap between the two is optimally filled by a carbon tax across all greenhouse-gas emitters.&lt;/p&gt;&#xA;" OwnerUserId="44" LastEditorUserId="44" LastEditDate="2015-09-21T19:22:39.143" LastActivityDate="2015-09-21T19:22:39.143" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6563" PostTypeId="2" ParentId="6545" CreationDate="2015-07-15T22:44:30.790" Score="5" Body="&lt;p&gt;World population currently is estimated at $7.3$ billion people, while world GDP at $74.5$ trillion USD (nominal). So the global average of per capita GDP currently stands at USD $10,205$, again nominal, not adjusted for purchasing-power-parity. But in any case, this number, although not negligible, it is small enough so that, even if we had absolute global equidistribution, we would hardly be in an &quot;Affluent Society&quot;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This alone could justify why Growth is still the main economic target of societies all over the world: even if inequality was out of the picture, we will still be far from living really &quot;comfortably&quot;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Add inequality to the picture, and one realizes that Growth is also seen as something that can help mitigate possible social tensions due to inequality: one accepts the existence of inequality easier, if ones sees his own fortunes getting better (this requires of course that everybody gets something out of Growth, even in unequal shares).&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-07-15T22:44:30.790" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="6564" PostTypeId="2" ParentId="6428" CreationDate="2015-07-16T09:18:00.753" Score="3" Body="&lt;p&gt;I'm not sure I follow the logic on that equation having infinitely many solutions and steady states. In any case, in what follows are some guidelines for equilibrium selection.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It depends a lot on the context. Here are some criteria, in descending order of relevance&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Clean Ways&lt;/h2&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Is any of the steady states unstable? If so, it's less likely to be the one that we*re observing in reality. See for example the 0-steady state in the Solow model. &lt;/li&gt;&#xA;&lt;li&gt;The last point, somewhat generalized; Is there any meaningful starting value? Due to path dependence, you will only converge to one steady state from your meaningful value. &lt;/li&gt;&#xA;&lt;li&gt;The last point, somewhat generalized; Do we converge more often to one than the other? Basically take a range of meaningful starting values and see whether most of them lead to the same steady state&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;h2&gt;Believe in Coordination&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;If all these fail... make the government powerful. &lt;a href=&quot;http://www.google.se/url?sa=t&amp;amp;rct=j&amp;amp;q=&amp;amp;esrc=s&amp;amp;source=web&amp;amp;cd=1&amp;amp;ved=0CCoQFjAAahUKEwjR3sTqp9_GAhUDjXIKHaMcDGs&amp;amp;url=http%3A%2F%2Fweb-facstaff.sas.upenn.edu%2F~gmenzio%2Flinkies%2FKM.pdf&amp;amp;ei=znWnVdG_CoOaygOjubDYBg&amp;amp;usg=AFQjCNGHa683ExmT2TL8_1ckrIN-4jnshw&amp;amp;bvm=bv.97949915,d.bGQ&quot; rel=&quot;nofollow&quot;&gt;Kaplan and Menzio (2015)&lt;/a&gt; model unemployment, and can get two steady states given their calibration. They take the lower unemployment level as the &quot;reasonable&quot; steady state, that they use to calibrate parameters against. I don't think they spell it out, but the argument most likely is that if there are two steady states, a powerful government could steer the economy to the steady state implying the highest welfare.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is basically your &quot;highest value&quot; point - but it should be clear that there is some reason why that is achieved. That's why I said &quot;it depends a lot on the context&quot; - many coordination failure models hinge critically on the assumption that no higher power can steer the economy. See also the &lt;a href=&quot;http://newmonetarism.blogspot.se/2010/10/history-of-economic-thought-chicken.html&quot; rel=&quot;nofollow&quot;&gt;Chicken Economy model&lt;/a&gt;, a term I believe originally to be coined in Minnesota.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Sunspots&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Finally, if all else fails, &lt;a href=&quot;https://en.wikipedia.org/wiki/Sunspots_%28economics%29&quot; rel=&quot;nofollow&quot;&gt;sun spots&lt;/a&gt; are what determine which equilibrium you are in. In economics, we mean by that basically a random exogenous variable, something not modeled. They're very disputed as they have no economic meaning and are hard to digest. Basically, if there was anything that had economic meaning and could determine the equilibrium, you would rather put it into your model than having a coin flip determine it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;See also Karl Shell's &lt;a href=&quot;http://www.karlshell.com/pdfs/PalgraveSunspots20070510.pdf&quot; rel=&quot;nofollow&quot;&gt;summary on the subject&lt;/a&gt; for &lt;em&gt;The New Palgrave: A Dictionary of Economics&lt;/em&gt;.&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2015-07-16T09:27:08.013" LastActivityDate="2015-07-16T09:27:08.013" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6565" PostTypeId="1" AcceptedAnswerId="6567" CreationDate="2015-07-16T13:54:50.523" Score="4" ViewCount="1118" Body="&lt;p&gt;I'm beginner in &lt;code&gt;DSGE&lt;/code&gt; models. Are they only based on simulations and approximations? Don't we have any real data-sets (for example interest rate, labor force, etc) to estimate the equations? I opened some &lt;code&gt;.Mod&lt;/code&gt; files and I can only see equations, variable names and other functions. If yes, why do we have this structure in &lt;code&gt;DSGE&lt;/code&gt; models and why can't we use real data-sets in these models?&lt;/p&gt;&#xA;" OwnerUserId="5208" LastEditorUserId="1601" LastEditDate="2015-07-16T15:44:22.290" LastActivityDate="2016-07-04T14:03:31.550" Title="DSGE models (Dynare) are only based on simulations and approximations? (without data)" Tags="&lt;dsge&gt;&lt;dynare&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6566" PostTypeId="1" AcceptedAnswerId="6570" CreationDate="2015-07-16T15:35:09.397" Score="2" ViewCount="503" Body="&lt;p&gt;Where can I find lists with public debt of European countries such as the UK, by year? (or by fiscal year)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If there are such lists on Eurostat but only for the last 10 year or so, I would like to have longer lists, for each country in part.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Later edit: If possible, having both the amount in Euros and in percentage of GDP, would be great. Like for example this list for Spain: &lt;a href=&quot;http://www.datosmacro.com/deuda/espana&quot; rel=&quot;nofollow&quot;&gt;http://www.datosmacro.com/deuda/espana&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you know lists for a single country, please mention them. For example if you are from Germany and you have links with such a list for Germany, from the National Institute of Statistics or another site, please let me know about it, I'll vote your answer.&lt;/p&gt;&#xA;" OwnerUserId="5161" LastEditorUserId="5161" LastEditDate="2015-07-16T19:39:30.583" LastActivityDate="2015-07-16T19:39:30.583" Title="Public debt of European countries, by year" Tags="&lt;data-request&gt;&lt;government-debt&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6567" PostTypeId="2" ParentId="6565" CreationDate="2015-07-16T15:45:52.253" Score="7" Body="&lt;h1&gt;Short answer&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;It doesn't seem like you've tried very hard to find estimation using Dynare (&lt;a href=&quot;https://www.google.com/webhp?sourceid=chrome-instant&amp;amp;ion=1&amp;amp;espv=2&amp;amp;ie=UTF-8#q=Dynare+estimation&quot;&gt;google results&lt;/a&gt; of &quot;Dynare estimation&quot;). Dynare is in fact capable of doing estimation and typically people use some sort of data to estimate the parameters that govern their model.&lt;/p&gt;&#xA;&#xA;&lt;h1&gt;Longer Answer&lt;/h1&gt;&#xA;&#xA;&lt;h2&gt;What is a DSGE model?&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;A DSGE model is a series of equations (and variables and parameters) that describe a &quot;model&quot; economy. Once you write everything down and take into consideration the optimizing decisions made by the agents, it is simply a system of stochastic difference (differential) equation that you can imagine writing in some form along the lines of:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ E_t F(y_{t+1}, y_t, y_{t-1}, u_t) = 0$$&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;What does Dynare do?&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;The majority of introductory examples only use Dynare to solve the model and run some simple simulations. In addition to being able to solve the model, Dynare is also capable of doing Bayesian estimation of the parameters that make up the model by feeding in data.&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Solves and simulates the Model&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;Dynare takes this system of equations (and the given parameter values) and solves them using perturbation methods. One of the outputs of the solution is a law of motion for all of the variables in the economy -- i.e. one can write something along the lines of&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$y_{t+1} = F(y_t, u_{t+1})$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This law of motion allows you to generate model analogues of the data that you are interested in -- i.e. capital, labor, consumption etc...&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Estimates the model&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;Once Dynare has a law of motion and has obtained simulated moments, it can compare the output of the model to data that you have provided. Dynare uses Bayesian estimation (though it is possible it does other types, but I'm not familiar with it) to estimate parameters which means that you need to provide it with a prior for each variable that you would like to estimate. It then uses a simple Metropolis Hastings algorithm to obtain estimates for the distribution over parameter values.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;References&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;I would recommend you read both of the following references.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Tommaso Mancini Griffoli. &lt;em&gt;Dynare User Guide: An introduction to the solution &amp;amp; estimation of DSGE models&lt;/em&gt;. 2007-2008. &lt;a href=&quot;http://www.dynare.org/documentation-and-support/user-guide/Dynare-UserGuide-WebBeta.pdf/view&quot;&gt;found here&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;Stefanie Flotho. &lt;em&gt;DSGE Models - solution strategies&lt;/em&gt;. December 2009. &lt;a href=&quot;https://www.macro.uni-freiburg.de/publications/research_flotho/dsge_models&quot;&gt;found here&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="47" LastActivityDate="2015-07-16T15:45:52.253" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6568" PostTypeId="2" ParentId="6566" CreationDate="2015-07-16T15:50:25.137" Score="5" Body="&lt;p&gt;Would you be satisfied with a graph of the last 20 years? &lt;br&gt;&#xA;Is yes, you can use &lt;a href=&quot;https://www.google.hu/publicdata/explore?ds=ds22a34krhq5p_&amp;amp;met_y=gd_pc_gdp&amp;amp;idim=country:uk:de:fr&amp;amp;hl=en&amp;amp;dl=en#!ctype=l&amp;amp;strail=false&amp;amp;bcs=d&amp;amp;nselm=h&amp;amp;met_y=gd_pc_gdp&amp;amp;scale_y=lin&amp;amp;ind_y=false&amp;amp;rdim=country_group&amp;amp;idim=country:uk&amp;amp;ifdim=country_group&amp;amp;hl=en_US&amp;amp;dl=en&amp;amp;ind=false&quot;&gt;Google Data Explorer&lt;/a&gt;. &lt;br&gt;&#xA;It seems to rely on Eurostat as well, so the data is probably available from them somewhere.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2015-07-16T15:50:25.137" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6569" PostTypeId="2" ParentId="6428" CreationDate="2015-07-16T16:00:25.290" Score="0" Body="&lt;p&gt;In addition to the solutions that FooBar presented in his answer, one of the ways that people are able to get rid of multiple equilibria is incomplete information. I can't find the papers that are most relevant to your example at the moment, but the &quot;canonical&quot; example that I think of is &lt;a href=&quot;http://www.jstor.org/stable/116850?seq=1#page_scan_tab_contents&quot; rel=&quot;nofollow&quot;&gt;Morris Shin 1998&lt;/a&gt;. Essentially what happens is the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Their model is a model of a &quot;currency attack.&quot; There is a state of the world that determines whether a currency attack is worthwhile or not and to successfully attack a currency a certain number of investors (which depends on the state) must participate in the attack. Under complete information multiple equilibria can be supported, but with even a very small amount of noise in their signal about the underlying state of the world the equilibrium becomes unique.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One relevant paper could be &quot;Coordinating Business Cycles.&quot; I don't remember most of the details in &lt;a href=&quot;https://dl.dropboxusercontent.com/u/71914/Papers/Coordinating%20Business%20Cycles/paper.pdf&quot; rel=&quot;nofollow&quot;&gt;this paper&lt;/a&gt;, but it essentially has the same type of result in a more fully developed model.&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;References:&lt;/h3&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Stephen Morris and Hyun Song Shin. *Unique Equilibrium in a Model of Self-Fulfilling Currency Attacks. The American Economic Review. 1998.&lt;/li&gt;&#xA;&lt;li&gt;Edouard Schaal and Mathieu Taschereau-Dumouchel. &lt;em&gt;Coordinating Business Cycles.&lt;/em&gt; Working Paper. 2014.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="47" LastEditorUserId="47" LastEditDate="2015-07-16T16:06:58.963" LastActivityDate="2015-07-16T16:06:58.963" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6570" PostTypeId="2" ParentId="6566" CreationDate="2015-07-16T16:25:40.500" Score="4" Body="&lt;p&gt;The IMF created its Historical Public Debt Database a few years back; that should do the trick for you. It's described in &lt;a href=&quot;https://www.imf.org/external/pubs/cat/longres.cfm?sk=24332.0&quot; rel=&quot;nofollow&quot;&gt;this paper&lt;/a&gt;, with annual data from 2012 back to as far as the late-1800s for some countries. You could pair that with the IMF/World Bank &lt;a href=&quot;http://datatopics.worldbank.org/debt/home&quot; rel=&quot;nofollow&quot;&gt;Quarterly Public Sector Debt&lt;/a&gt; statistics.&lt;/p&gt;&#xA;" OwnerUserId="264" LastActivityDate="2015-07-16T16:25:40.500" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6571" PostTypeId="1" CreationDate="2015-07-16T18:23:02.850" Score="7" ViewCount="146" Body="&lt;p&gt;I'm working on a SPA where we solve:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\max_{\beta \ge 0} Pr\{Winning\}[v - \mathbb{E}(b^{[2]} \ | \ b^{[2]} \le \beta)]$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We assume all beliefs on bids are independently and identically distributed on $[0,1]$ given by CDF $F(b)$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$b^{[2]}$ denotes the second highest bid.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've found $Pr\{Winning\} = Pr\{\beta \ge b_1, \ldots , b_n\} = F(b)^N$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In my lecture notes we are given:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\mathbb{E}(b^{[2]} \ | \ b^{[2]} \le \beta) = \frac{1}{Pr(b^{[2]} \le beta)} \int_0^{\beta} bdF(b)^N$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm assuming this comes from $P(A|B) = \frac{P(A \cap B)}{P(B)} $, but can't quite figure it out. Especially the $F(b)^N$ in the integral. &lt;/p&gt;&#xA;" OwnerUserId="4938" LastActivityDate="2018-05-20T16:19:08.673" Title="Can't Derive Expectation in Second Price Auction" Tags="&lt;microeconomics&gt;&lt;auctions&gt;" AnswerCount="2" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6572" PostTypeId="1" AcceptedAnswerId="6749" CreationDate="2015-07-16T18:53:56.347" Score="1" ViewCount="137" Body="&lt;p&gt;What are some of the economic arguments for same-sex or gender-neutral marriage (GNM)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which arguments have merit, don't have merit or have yet to be decided/tested?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, it is hypothesized that '&lt;a href=&quot;http://www.news.com.au/lifestyle/relationships/legalising-gay-marriage-could-give-the-economy-a-1-billion-boost/story-fnet09y4-1226699929512&quot; rel=&quot;nofollow&quot;&gt;Legalising gay marriage could give the economy a \$1 billion boost&lt;/a&gt;', at least in Australia. Also, apparently, '&lt;a href=&quot;http://money.cnn.com/2012/07/24/pf/gay-marriage-economic-impact/#sthash.z4KVq8l1.dpuf&quot; rel=&quot;nofollow&quot;&gt;Gay marriage boosts NYC's economy by $259 million in first year&lt;/a&gt;'. Will such benefits hold elsewhere?&lt;/p&gt;&#xA;" OwnerUserId="4483" LastEditorUserId="264" LastEditDate="2015-07-16T18:55:46.393" LastActivityDate="2015-07-31T19:46:17.547" Title="What are some of the economic arguments for gender-neutral marriage?" Tags="&lt;consumption&gt;" AnswerCount="2" CommentCount="9" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6573" PostTypeId="1" CreationDate="2015-07-16T19:01:00.503" Score="5" ViewCount="191" Body="&lt;p&gt;Spin-off from &lt;a href=&quot;https://economics.stackexchange.com/questions/6329&quot;&gt;Piracy/File sharing - Why aren&amp;#39;t songs, movies or ebooks given for free (+ads) like TV?&lt;/a&gt;&lt;/p&gt;&#xA;&lt;p&gt;&lt;strong&gt;What are the economic benefits of &lt;a href=&quot;https://en.wikipedia.org/wiki/Strategic_lawsuit_against_public_participation&quot; rel=&quot;nofollow noreferrer&quot;&gt;SLAPP&lt;/a&gt; in or out of file sharing/piracy?&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;p&gt;There's a comment in above link that says 'The relevance is that the recording industry is not obviously losing the piracy battle. The basis of the OP's question is that they are' (I'm OP, btw ^-^).&lt;/p&gt;&#xA;&lt;p&gt;If that's the case, &lt;strong&gt;why did the RIAA heavily prosecute people&lt;/strong&gt; for what some (yay, weasel words!) people may consider outrageous fines for outrageous expenses (not to mention &lt;a href=&quot;https://imgur.com/gallery/R4fODtb&quot; rel=&quot;nofollow noreferrer&quot;&gt;opportunity cost&lt;/a&gt;)? Examples are Joel Tenenbaum (4.5m USD at one point) and Jammie Thomas-Rasset (1.92m USD at one point).&lt;/p&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;From Wiki (emphasis mine):&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;A strategic lawsuit against public participation (SLAPP) is a lawsuit&#xA;that is intended to &lt;strong&gt;censor, intimidate, and silence critics&lt;/strong&gt; by&#xA;burdening them with the cost of a legal defense until they abandon&#xA;their criticism or opposition.&lt;/p&gt;&#xA;&lt;p&gt;The typical SLAPP plaintiff &lt;strong&gt;does not normally expect to win&lt;/strong&gt; the&#xA;lawsuit. The plaintiff's goals are accomplished if the defendant&#xA;succumbs to fear, intimidation, mounting legal costs or simple&#xA;exhaustion and abandons the criticism. In some cases, repeated&#xA;frivolous litigation against a defendant may raise the cost of&#xA;directors and officers liability insurance for that party, interfering&#xA;with an organization's ability to operate.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;I'm assuming that there are some economic benefits to the government, society, the RIAA/the plaintiffs, someone or something by having pursued those individuals so persistently. But then again if it was so beneficial, then I expect we'd hear about a lot more than just these 2 SLAPP cases. (Or, what, everyone else really decided to settle? Idk. I kinda think it's more like RIAA/MPAA decreased its litigious tendencies.)&lt;/p&gt;&#xA;&lt;p&gt;Perhaps in cases besides file sharing, this might have some benefits, but when it comes to current copyright law, file sharing, piracy, a digital world, etc, I'm drawing blanks particularly due to the '&lt;a href=&quot;http://stanfordartsreview.com/citizenfour-cinema-verite-and-using-humanity-as-a-call-to-action/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Internet principle of the Hydra: You know, you can stomp one person, but there’s going to be seven more of us&lt;/a&gt;.'&lt;/p&gt;&#xA;&lt;p&gt;Chairman and CEO of the Motion Picture Association of America (MPAA) Glickman 'concedes that piracy will never be stopped, but states that they will try to make it as difficult and tedious as possible.'&lt;/p&gt;&#xA;&lt;p&gt;So, &lt;strong&gt;what exactly is the MPAA/RIAA getting out of SLAPP's&lt;/strong&gt;? If there is no direct answer to be given, &lt;strong&gt;an alternative could be: What are the benefits of SLAPP's in general (then reader e.g. me infers analogous benefits)?&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="4483" LastEditorUserId="4483" LastEditDate="2021-05-01T11:15:09.983" LastActivityDate="2021-05-01T11:15:09.983" Title="What are the economic benefits of SLAPP in file sharing/piracy?" Tags="&lt;consumer-theory&gt;&lt;preferences&gt;&lt;consumption&gt;&lt;free-riding&gt;&lt;intellectual-property&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="6574" PostTypeId="1" CreationDate="2015-07-16T19:26:14.270" Score="2" ViewCount="138" Body="&lt;p&gt;Adult Swim roughly brings forward the following argument in the video '&lt;a href=&quot;https://www.youtube.com/watch?v=t4kqp9mutPQ&quot; rel=&quot;nofollow noreferrer&quot;&gt;film piracy feeds babies&lt;/a&gt;':&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;While jobs may be lost in the movie or music industry, they might be created in another. Money that a pirate doesn’t spend on movies and songs is almost certain to be spent elsewhere. Let’s say it gets spent on skateboards — the same dollar lost by Sony Pictures may be gained by Alien Workshop, a company that makes skateboards. - &lt;a href=&quot;http://freakonomics.com/2012/01/12/how-much-do-music-and-movie-piracy-really-hurt-the-u-s-economy/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Source&lt;/a&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Is this the opposite of the &lt;a href=&quot;https://en.wikipedia.org/wiki/Parable_of_the_broken_window#The_parable&quot; rel=&quot;nofollow noreferrer&quot;&gt;broken window fallacy&lt;/a&gt;? &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;If so, is it correct or still a fallacy (much like survivorship bias and its &lt;a href=&quot;http://www.investopedia.com/terms/r/reverse-survivorship-bias.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;reverse&lt;/a&gt;)?&lt;/li&gt;&#xA;&lt;li&gt;If not...is it right or wrong? (I guess its relationship to the broken window fallacy doesn't affect my second question)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;I discovered such from &lt;a href=&quot;https://economics.stackexchange.com/a/6354/4483&quot;&gt;answer in related question&lt;/a&gt;.&lt;/em&gt;&lt;/p&gt;&#xA;" OwnerUserId="4483" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-07-18T14:24:36.640" Title="Reverse of broken window fallacy for file sharing/piracy" Tags="&lt;consumer-theory&gt;&lt;preferences&gt;&lt;consumption&gt;&lt;free-riding&gt;" AnswerCount="2" CommentCount="4" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6575" PostTypeId="1" AcceptedAnswerId="6582" CreationDate="2015-07-16T20:41:06.857" Score="1" ViewCount="2221" Body="&lt;p&gt;I'm learning about quotas from my textbook but I've found one thing that doesn't make sense to me at all and I think it may be a mistake in the book.&#xA;The context: $P_w$ is the price of wheat on the world market. So far the domestic government has allowed free trade but now they set an import quota of $Q_3 - Q_1$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/BsMwE.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The text accompanying the graph says:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Domestic producers now supply $0Q_1$ and $Q_3Q_4$ tons of wheat at a&#xA;  price of $P_{quota}$. Their revenue rises from $a$ to $a+c+d+f+i+j$.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;What I can't understand is why they included $f$ in the last sentence. In my opinion their revenue rises from $a$ to $a+c+d+i+j$. Domestic producers first sell $0Q_1$ quantity for price $P_w$ so they make profit of $a$ and then they sell quantity $Q_3Q4$ for price $P_{quota}$ which gives area of the rectangle: $c+i+j+d$.  I have no idea what that $f$ is doing there. Can anyone explain?&lt;/p&gt;&#xA;" OwnerUserId="5088" LastEditorUserId="43" LastEditDate="2015-07-17T07:58:36.613" LastActivityDate="2015-07-17T08:26:41.867" Title="Impact of Import Quota onto Revenues" Tags="&lt;international-economics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6576" PostTypeId="1" CreationDate="2015-07-16T21:07:41.440" Score="11" ViewCount="3988" Body="&lt;p&gt;IMHO, &lt;a href=&quot;https://en.wikipedia.org/wiki/Ticket_resale&quot;&gt;scalping tickets&lt;/a&gt; is no different from &lt;a href=&quot;https://en.wikipedia.org/wiki/Scalping_(trading)&quot;&gt;legitimate arbitrage&lt;/a&gt; unless &lt;a href=&quot;http://www.cnbc.com/2015/04/21/futures-trader-charged-for-manipulating-stock-market-contributing-to-2010-flash-crash.html&quot;&gt;manipulative&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Iirc, arbitrage increases surplus and hindering scalping is setting a &lt;a href=&quot;https://en.wikipedia.org/wiki/Price_ceiling&quot;&gt;price ceiling&lt;/a&gt; which leads to deadweight loss or something like that.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So why do some states ban scalping tickets?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm assuming that such states think there is some perceived harm to their economy. Strangely enough, why tickets? Why not bags, clothes or phones?&lt;/p&gt;&#xA;" OwnerUserId="4483" LastActivityDate="2015-07-17T14:54:01.533" Title="Is scalping tickets harmful?" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;&lt;surplus&gt;&lt;arbitrage&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="6577" PostTypeId="2" ParentId="6576" CreationDate="2015-07-16T21:28:06.660" Score="15" Body="&lt;p&gt;There is a good &lt;a href=&quot;http://www.npr.org/sections/money/2013/06/27/196277836/kid-rock-takes-on-the-scalpers&quot;&gt;Planet Money episode&lt;/a&gt; on ticket scalping; I recommend it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reason for banning ticket scalping has nothing to do with economic harm, and everything to do with making the arts (or sports, whatever) accessible to people of more-modest means. Consider the fact that artists could, if they wanted, just auction off all the seats to their shows, capturing all the surplus and putting scalpers out of business.* &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If artists did this, however, lots of people wouldn't be able to afford to see popular artists perform. Many artists (the Planet Money episode uses Kid Rock as an example) want to try to make sure that their fans have a reasonable shot at attending, which means that they want to price the tickets low... but the only way this can work is if resale is illegal.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.nytimes.com/2013/06/09/magazine/the-secret-science-of-scalping-tickets.html&quot;&gt;It's been suggested&lt;/a&gt; that artists (again, the same goes for sports teams) might benefit from making low-priced tickets available to fans for two reasons: because they plan on selling stuff to people once they're inside, and because an artist-fan relationship is hopefully not just a one-shot transaction. The idea is that fans who can attend the occasional show might be more likely to buy recordings, merchandise, and tickets in the future, providing the sort of long-running support that can keep an artist viable over many years.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;[P]erformers who undercharge their fans can paradoxically reap higher profits than those who maximize each ticket price. It’s a strategy similar to the one employed by ventures like casinos and cruise ships, which take a hit on admission prices but make their money once the customers are inside. Concert promoters can overcharge on everything from beer sales to T-shirts, and the benefits of low-priced tickets can accrue significantly over the years as loyal fans return.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;*For the most part— there's some amount of resale that is sort of frictional, which arises from people not being able to attend a show and unloading tickets so they don't just eat the full cost, etc.&lt;/p&gt;&#xA;" OwnerUserId="264" LastActivityDate="2015-07-16T21:28:06.660" CommentCount="10" ContentLicense="CC BY-SA 3.0" />
  <row Id="6578" PostTypeId="1" CreationDate="2015-07-16T23:15:25.000" Score="1" ViewCount="142" Body="&lt;p&gt;Consider some time series data $X=\{x_t:t\in[0,\infty)\}$. Define a steady state by&#xA;\begin{align}&#xA;x\in X:x_{t+1} - x_t = 0&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and the log deviation from steady state with&#xA;\begin{align}&#xA;\hat x_t:=\ln x_t - \ln_x.&#xA;\end{align} &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now we can express $x_t$ as&#xA;\begin{align}&#xA;x_t=x\exp(\hat x_t).&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider the the following equation &#xA;\begin{align}&#xA;a_t = b_t c_t^\alpha + D\mathbb{E}_t\left[\left(\frac{e_{t+1}}{e_t}\right)\left(\frac{f_t}{g_t}\right)^\beta a_{t+1}\right]&#xA;\end{align}&#xA;where $D$ is some constant, which is ought to be log linearized for every time dependent variable around steady state.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;First Attempt&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Express every variable by its new definition,i.e.&#xA;\begin{align}&#xA;a\exp(\hat a_t) = b c^\alpha \exp(\hat b_t + \alpha\hat c_t)+ D\left(\frac{f}{g}\right)^\beta a\mathbb{E}_t\left[\exp(\hat e_{t+1} - \hat e_t + \beta(\hat f_t - \hat g_t) + \hat a_{t+1})\right]&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which should simplify to&#xA;\begin{align}&#xA;\exp(\hat a_t) = \exp(\hat b_t + \alpha\hat c_t)+\mathbb{E}_t\left[\exp(\hat e_{t+1} - \hat e_t + \beta(\hat f_t - \hat g_t) + \hat a_{t+1})\right]&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Is this correct?&lt;/li&gt;&#xA;&lt;li&gt;What can be done to further improve/simplify the equation at hand?&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="4266" LastEditorUserId="4266" LastEditDate="2015-07-18T13:32:28.660" LastActivityDate="2015-07-18T13:32:28.660" Title="Log linearization" Tags="&lt;steady-state&gt;" AnswerCount="0" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="6579" PostTypeId="2" ParentId="6576" CreationDate="2015-07-16T23:26:20.793" Score="2" Body="&lt;p&gt;It is my impression that the fact that &quot;scalping tickets&quot; is considered illegal (or at least restricted) in many parts of the world, may be due to the following reasons:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;A) Transactional:&lt;/strong&gt; A ticket has &lt;em&gt;a &lt;strong&gt;consumer&lt;/strong&gt; price &lt;strong&gt;printed&lt;/strong&gt; on it&lt;/em&gt;. This means that the supplier of the service has announced/committed to a price at which he is willing to provide the service/product. This creates a different transactional framework than the one where by design a market works auction-style, or bargaining-style. In many places, re-selling such products at prices higher than the printed one, is legally considered a violation of consumer rights, &lt;em&gt;even if only indirectly&lt;/em&gt;, because, in such cases one has to at least clearly disclose also the nominal price (i.e. the seller should &quot;shout&quot; something like &quot;I sell a ticket that has a nominal value of 10 USD for 13 USD &quot;). Have you ever heard such an announcement?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;B) Tax:&lt;/strong&gt; In many cases, ticket scalpers are not official wholesalers (who in any case would have bought the tickets at prices lower than the nominal one, and then would resell it at the nominal price), but rather, undeclared entrepreneurs buying tickets at the nominal price as though they were consumers, and counting on excess demand to sell them at higher prices  in under-the-counter transactions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;C) Ethical:&lt;/strong&gt;  While event-going cannot be considered life-critical, it does have a strong element of &quot;psychological/emotional&quot; (i.e. not-rational) desire. When one counts on such an aspect to sell at a price higher than the actual supplier of the object/service of desire demands, it is more often than not deemed as &quot;exploitation&quot;, in many cultural settings. While from the point of view of Economics, this is just market-clearing, we should not forget that how Economics views the world is not necessarily how societal ethics (or ideals), do: Although no third party is forcing an event-goer to go to the event, societies tend to consider a buyer driven by such desires as &quot;having the right to be protected from any negative side-effects of his own desires&quot; -and themeselves as having the obligation to provide such protection.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An interesting article/review of the matter, with some examples regarding anti-ticket-scalping regulation in the USA can be found &lt;strong&gt;&lt;a href=&quot;http://www.thesmartjournal.com/SMART-ticket%20scalping.pdf&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;&lt;/strong&gt;. The article discusses also the underlying worries/views that appear to lead to such rules and regulations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It appears that ticket-scalping is treated as a special case of scalping, and has its own legislation.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-07-17T14:54:01.533" LastActivityDate="2015-07-17T14:54:01.533" CommentCount="10" ContentLicense="CC BY-SA 3.0" />
  <row Id="6580" PostTypeId="1" CreationDate="2015-07-17T00:53:11.057" Score="5" ViewCount="237" Body="&lt;p&gt;New Zealand is relatively new country. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It essentially was founded in 1840 in a contract between the native Maori people and the British Government. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For some reason a large chunk of the housing stock in New Zealand is badly insulated and drafty and cold, compared to houses in Europe for example.* &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't understand how a country that was essentially built in the modern era, has built such bad houses. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What economic factors contribute to this? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;*&lt;a href=&quot;http://igps.victoria.ac.nz/publications/files/f79b9f69dfa.pdf&quot; rel=&quot;noreferrer&quot;&gt;Here's a good paper about the subject. PDF.&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="96" LastActivityDate="2015-07-17T05:39:24.883" Title="Why are New Zealand houses so badly insulated?" Tags="&lt;housing&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6581" PostTypeId="2" ParentId="6580" CreationDate="2015-07-17T05:39:24.883" Score="1" Body="&lt;p&gt;Insulation is more of a luxury than a necessity in the oceanic climate. If you don't have insulation in a continental climate, you'll die. In NZ, it will be uncomfortable, but you'll be ok.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Dunedin may provide arelevant counter argument. It gets below freezing often there. I don't know about insulation rates.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My second answer is: We're just tough mate. Harden up.&lt;/p&gt;&#xA;" OwnerUserId="5216" LastActivityDate="2015-07-17T05:39:24.883" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="6582" PostTypeId="2" ParentId="6575" CreationDate="2015-07-17T07:09:53.223" Score="3" Body="&lt;p&gt;There is no mistake. The solution: it is assumed that there is only one price at the domestic wheat market. Hence domestic producers will not sell at price $P_w$ and price $P_{Quota}$ as well. This makes sense: Suppose you are a domestic producer and you are aware that the price that results from the quota system is $P_{Quota}$. Knowing this you would not sell your goods for the lower $P_w$.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2015-07-17T08:26:41.867" LastActivityDate="2015-07-17T08:26:41.867" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="6583" PostTypeId="1" CreationDate="2015-07-17T09:17:10.910" Score="5" ViewCount="101" Body="&lt;p&gt;Say I have a time series of two variables, $X$ and $Y$, and want to find out which one of these two moves first. One example is the one of GDP growth and investment growth, where we usually tell the story that at a business cycle frequency, investment moves &quot;earlier&quot; than production or consumption.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I dont want to do eyeballing econometrics (&quot;this thingy here clearly moved first&quot;). What is the standard way of dealing with these things in the literature? What methodology can be used? Answers that allow for more than two variables are very welcome.&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-07-18T00:53:56.040" Title="Two variables: Which moves first?" Tags="&lt;econometrics&gt;&lt;time-series&gt;" AnswerCount="3" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6584" PostTypeId="2" ParentId="6545" CreationDate="2015-07-17T10:03:47.490" Score="1" Body="&lt;p&gt;A couple of weeks ago I read a very good, in my opinion, &lt;a href=&quot;http://www.bankofengland.co.uk/publications/Documents/speeches/2015/speech797.pdf&quot; rel=&quot;nofollow&quot;&gt;speech on growth&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;While far from the quality of the aforementioned speech, I'm going to try to answer the questions in a shorter and simpler way. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Economic growth helps the economy by shifting the production possibility frontier (PPF) outwards, meaning more can be produced, and therefore consumed, with the limited amount of inputs available. Of course this assumes that the utility function of the agents in the economy is increasing with the amount of goods and services consumed. Through this increase in total utility is how growth helps society.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When it comes to discussing the mechanisms through which the above works, I feel a discussion of growth models is unavoidable. The PPF is shifted outwards with growth mainly due to an increase in technological progress, which, in exogenous growth models, like the &lt;a href=&quot;https://en.wikipedia.org/wiki/Solow%E2%80%93Swan_model&quot; rel=&quot;nofollow&quot;&gt;Solow-Swan model&lt;/a&gt;, dictates the growth rate when the economy is a steady state (SS). Basically the increase in technological progress increases productivity and the same output can be produced with less amount of labor and capital. The newly available factors of production can now be allocated to produce other goods and services. Assuming the savings rate in the economy is unchanged, the level of consumption increases.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where does the growth in technological progress come from? To know that, we either have to accept that we get waves of innovation, like the industrial revolution, from an unidentified source or we have to look into endogenous growth models. Examples of such models are the simple AK model or a more realistic model which includes human as well as physical capital as parameters in the production function, see &lt;a href=&quot;http://www.econ.brown.edu/fac/Peter_Howitt/publication/endogenous.pdf&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="5119" LastActivityDate="2015-07-17T10:03:47.490" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6585" PostTypeId="2" ParentId="6583" CreationDate="2015-07-17T10:32:25.673" Score="0" Body="&lt;p&gt;Is there some sort of causation between $X$ and $Y$? For example, $X$ increasing by 1 unit in period $t$ caused an increase in $Y$ in period $t+1$? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If this is the case you can create lagged variables and look at their coefficients and statistical significance. You may run into serial correlation problems running OLS which is another issue altogether.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Model $Y_t = \beta_1 Y_{t-1} + \beta_2 Y_{t-2} + \ldots + \beta_n Y_{t-n} + \beta_{n+1} X_t + \beta_{n+2} X_{t-1} + \ldots + \beta_{n+m} X_{t-m}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can run a similar model treating $X_t$ as the dependent variable. Most likely $m$ and $n$ need not be too large. And for your purposes it may be appropiate to use $n=0$.&lt;/p&gt;&#xA;" OwnerUserId="4938" LastActivityDate="2015-07-17T10:32:25.673" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="6586" PostTypeId="1" CreationDate="2015-07-17T13:56:49.490" Score="1" ViewCount="164" Body="&lt;p&gt;How we can call a function (for example &lt;code&gt;dynare_sensitivity();&lt;/code&gt;) in command prompt of MATLAB not in &lt;code&gt;.Mod&lt;/code&gt; file of Dynare? I can see function in Command Prompt but How can i use it?&lt;/p&gt;&#xA;" OwnerUserId="5208" LastActivityDate="2015-07-18T11:28:43.310" Title="How call a function outside of .Mod file of Dynare? (using Command Prompt of MATLAB)" Tags="&lt;dynare&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6587" PostTypeId="2" ParentId="6576" CreationDate="2015-07-17T13:58:31.290" Score="2" Body="&lt;p&gt;I'm going to look more generalized at the producer's side of things.&lt;/p&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Either the producer wants to use price discrimination to maximize his own profits. In that case, earlier tickets may be cheaper, and later bought tickets are more expensive. Then, all tickets scalpers do is reap the producer surplus. It would be similar to a student buying items at student discount and then selling for the full price.&lt;/li&gt;&#xA;&lt;li&gt;Or the producer has some alternative reasons for &lt;strong&gt;not&lt;/strong&gt; doing the above mentioned: He is giving up profits, in order to achieve alternative goals. For example, as dismalscience mentioned, he may be interested in giving many customers the idea that they could afford a ticket (for whatever reason). In that case, the ticket scalper has disabled the producer from doing so, effectively again reaping producer surplus.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;h2&gt;tl;dr: No matter how you look at it, ticket scalpers are freeloading off the producers and reaping producer surplus.&lt;/h2&gt;&#xA;&lt;p&gt;&lt;em&gt;Side comment: Just because something is arbitrage, doesnt mean it is good for the economy. Hence, declaring something as arbitrage is no ground what-so-ever for legalizing it&lt;/em&gt;&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2015-07-17T13:58:31.290" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="6588" PostTypeId="2" ParentId="6583" CreationDate="2015-07-17T16:01:50.867" Score="6" Body="&lt;p&gt;&quot;Who moves first&quot; can be conveniently &lt;em&gt;detached&lt;/em&gt; from any &lt;em&gt;causal&lt;/em&gt; inference, since there may be some third variable influencing both. Certainly one could build a logical and reasonable argument that links increases in investment to increases in GDP (or vice versa), but it is not necessary.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, examining cross-correlation coefficients on the levels or on an appropriate transformation (like first differences, or first log-differences) is a simple and valid way to examine the issue, as long as the chosen transformation will provide stationary series.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Specifically, one can examine (sample) ${\rm Corr} (X_t, Y_{t})$, ${\rm Corr} (X_t, Y_{t-k})$ and ${\rm Corr} (X_{t}, Y_{t+k})$, where, again, $X$ and $Y$ can represent the chosen transformation and not necessarily the levels of the variables. Also, what calendar time length will $t$ represent should also be decided according to the phenomenon under study. In turn, the distance represented by $k$ is a matter of experimentation, but it is advisable to start with $k=1$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If there is a temporal order, then the contemporaneous cross-correlation ${\rm Corr} (X_t, Y_{t})$ should be negligible. Then, the magnitude and sign of the other two cross-correlations should provide statistical evidence as to &quot;who moves first&quot;.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-07-17T16:01:50.867" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6589" PostTypeId="1" CreationDate="2015-07-17T16:49:32.483" Score="4" ViewCount="1795" Body="&lt;p&gt;Let's suppose that I want to maximize total welfare (Social Planner Problem) using lump sum transfers to individuals.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's known then that the price ratio changes relative to when there are no lump sum transfers. Total income and total endowments are fixed in the model, only distribution of initial endowments is changed between the individuals by planner.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My Question is :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why do lump sum transfers affect the price ratio in the social planners problem?&lt;/p&gt;&#xA;" OwnerUserId="5222" LastEditorUserId="1601" LastEditDate="2015-07-18T08:47:32.630" LastActivityDate="2015-07-18T08:52:52.460" Title="Why do lump sum transfers affect prices?" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6590" PostTypeId="2" ParentId="6589" CreationDate="2015-07-17T17:25:33.630" Score="1" Body="&lt;p&gt;Prices (and hence price ratios) carry information about what people want, and what is supplied.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You're only changing initial endowments, hence you're not affecting what is supplied. However, as you change the initial distribution, you change what each individual wants, and possibly (not necessarily) also what the economy as an aggregate wants. This change in wants and haves is reflected in prices.&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-07-17T17:25:33.630" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6591" PostTypeId="1" CreationDate="2015-07-17T19:38:07.773" Score="3" ViewCount="4521" Body="&lt;p&gt;I have a question regarding the impact of inflation on exchange rate between trading countries.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's assume a hypothetical situation where the UK and the USA trade with each other. The USA import goods from the UK and the UK exports goods to the USA. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume the exchange rate £1=$5 at the beginning. The UK is selling one widget to the USA for £10. Now let's imagine an inflation of 100% happened so that the UK prices this widget £20.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, my reasoning is that £ should weaken against dollar so that £1 = \$2.5.&#xA;So inflation weakens country's currency.&#xA;My reasoning is that this is logical that this should happen because now £1 is worth less than it was before the inflation (with the same amount of pounds you could buy twice as much before the inflation than you can now) so £1 should cost \$2.5 instead of \$5. Is my reasoning correct?&lt;/p&gt;&#xA;" OwnerUserId="5088" LastActivityDate="2016-01-25T02:22:43.947" Title="How inflation affects exchange rates?" Tags="&lt;inflation&gt;&lt;exchange-rates&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6592" PostTypeId="1" CreationDate="2015-07-18T00:11:47.923" Score="3" ViewCount="1949" Body="&lt;p&gt;Can someone explain how the equilibrium points in the image below (source: &lt;a href=&quot;https://books.google.hu/books?id=kS5c5LVNPPMC&amp;amp;pg=PA210&amp;amp;lpg=PA210&amp;amp;dq=%22etc.,%20represent%20the%20conditions%20of%20increasing%20demand%22&amp;amp;source=bl&amp;amp;ots=p7oLrCiG0C&amp;amp;sig=Ya-z-MBctsmhZ4bWlFwAqPOdbGs&amp;amp;hl=en&amp;amp;sa=X&amp;amp;ved=0CB8Q6AEwAGoVChMI7ry2_ZfkxgIVRO0UCh0jiADZ#v=onepage&amp;amp;q=%22etc.%2C%20represent%20the%20conditions%20of%20increasing%20demand%22&amp;amp;f=false&quot; rel=&quot;nofollow noreferrer&quot;&gt;The Foundations of Econometric Analysis&lt;/a&gt;) represent marginal utilities.  I have read about the relationship between the marginal rate of substitution and the ratio of marginal utilities in terms of the theory of consumer behavior but have not seen marginal utility in this context.  I imagine this use is similar but my logic is failing me.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The figure represents a demand curve progressively shifting to the right with a lagging supply.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/GE328.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;" OwnerUserId="5227" LastEditorUserId="5227" LastEditDate="2015-07-19T00:06:20.217" LastActivityDate="2015-07-19T21:37:38.737" Title="Marginal Utility with Supply and Demand Curves" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;supply-and-demand&gt;&lt;self-study&gt;" AnswerCount="2" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="6593" PostTypeId="2" ParentId="6583" CreationDate="2015-07-18T00:53:56.040" Score="4" Body="&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Granger_causality&quot; rel=&quot;nofollow&quot;&gt;Granger Causality&lt;/a&gt; is exactly what you are looking for.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Don't be fooled: Granger Causality does not imply causality. To say that $X$ Granger-causes $Y$ merely means that lagged values of $X$ add some predictive power when predicting $Y$ as compared to a univariate autoregression of $Y$. &lt;/p&gt;&#xA;" OwnerUserId="264" LastActivityDate="2015-07-18T00:53:56.040" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6594" PostTypeId="2" ParentId="6592" CreationDate="2015-07-18T08:08:25.517" Score="3" Body="&lt;p&gt;Suppose there is only one good and I fix a price, $p$. The demand curve implies a corresponding quantity $q$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, reduce the price by a &lt;em&gt;tiny&lt;/em&gt; amount to the new level $p'$. The demand curve tells us that this reduction in price will cause an increase in quantity to $q'$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, let's think about what happens here. Our consumer was willing to buy the some extra units at the price of $p'$, but not willing to buy those units at the price of $p$. We can infer that the consumer's willingness to pay for these units satisfies $p'&amp;lt;\text{WTP}&amp;lt;p$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/IqNXM.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Remember that I said the change in $p$ was &lt;em&gt;tiny&lt;/em&gt;? If this change is almost zero then the number of extra units demanded will also be small and we can get an exact value for the consumer's willingness to pay for these units: $p\approx \text{WTP}\approx p'$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the willingness to pay for the &lt;em&gt;marginal unit&lt;/em&gt; is just the price. But the price is also the height of the demand curve!$^†$ Note that if I had started with a different price and performed the same exercise then I could have calculated the willingness to pay for a different unit of the good. So the height of the demand curve at a given point measures the consumer's willingness to pay for the unit of the good below that point.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lastly, how much should the consumer be willing to pay for a unit? The answer is that he should be willing to pay as much utility as that unit gives him (a.k.a. the marginal utility). Thus, the demand curve's height measures willingness to pay, which is just another way of saying it measures marginal utility.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$^†$ Note that the distance $PQ$ in your figure is just the height of the demand curve too.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;h1&gt;Appendix&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;To see how this works in maths and with an arbitrary number of goods: note that the optimal solution to the consumer choice problem occurs where the marginal rate of substitution between each pair of demanded goods is equal to their relative price&#xA;$$\frac{\text{MU}_x}{\text{MU}_y}=\frac{p_x}{p_y}.$$&#xA;Rearranging:&#xA;$$\frac{\text{MU}_x}{p_x}=\frac{\text{MU}_y}{p_y}=\text{some number}.$$&#xA;Rearranging&#xA;$$\frac{1}{\text{some number}}\text{MU}_x=p_x$$&#xA;so the price is just some constant multiplied by the marginal utility. By appropriate normalisation of either the units in which money is measured or the utility function (which is invariant to monotone transformations) we can make $\text{some number}=1$ so that $\text{MU}_x=p_x$.&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2015-07-18T08:46:58.467" LastActivityDate="2015-07-18T08:46:58.467" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="6595" PostTypeId="2" ParentId="6589" CreationDate="2015-07-18T08:46:00.570" Score="0" Body="&lt;p&gt;I find that @FooBar already gave the meaningful answer, all mine aims to do is provide a more technical perspective.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Short answer: &lt;br&gt;&#xA;Because given the equilibrium price the income offer curves of the consumers do not perfectly complement each other. If the income of some increase while those of the others decrease the total change in demand is not zero. Given such a change no equilibrium belongs to old equilibrium price ratio.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Long answer: &lt;br&gt;&#xA;Before addressing your question let us think about homothetic preferences a bit. A property of homothetic preferences is that if you move radially out of the origin all indifference curves that you intersect will have the same slope at the point of intersection. This means that if a consumer has homothetic preferences then any change in her income/value of her initial endowment will result in a proportional change in her consumption if prices are fixed. Another way of saying this is that the income offer curve is linear. Linear and Cobb-Douglas preferences are homothetic, quasilinear preferences are not.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now to your question: &lt;br&gt;&#xA;Suppose all consumers in your model had homothetic preferences. We want to test whether the current equilibrium price would also provide an equilibrium if a lump sum transfer was made. By making a transfer the social planner increases the wealth of some consumers and decreases the wealth of others. Because of homothetic preferences he also makes a proportional change in their consumption. The price ratio will only result in equilibrium if these proportional changes balance each other out perfectly so there is no change in aggregate demand. This is needed because the quantity of goods to be consumed is fixed. (Even if you allow for production because the price ratio is the same.) In terms of an Edgeworth box this would mean that the set of Pareto-optimal points is exactly the diagonal and the two consumers have the same income offer curve, which is again the diagonal. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now that we have seen what the problem is let us lose homothetic preferences. Still considering an Edgeworth box, lump sum transfers would not change the price ratio if and only if given the current price ratio both consumers have an income offer curve that coincides with the contract curve. Without homothetic preferences this can be non-linear and since the consumers are in different corners they are likely not identical: the income offer curve coincide with the contract curve in each consumer's own perspective. This condition is not fulfilled given generic utility functions (even if we severly restrict the class of utility functions considered).&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2015-07-18T08:52:52.460" LastActivityDate="2015-07-18T08:52:52.460" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6598" PostTypeId="2" ParentId="6574" CreationDate="2015-07-18T13:12:59.547" Score="0" Body="&lt;p&gt;The argument relayed in the question is &lt;em&gt;trivially true&lt;/em&gt;&#xA;and also, &lt;em&gt;irrelevant&lt;/em&gt; as regards the debate over piracy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At the micro-economic level, piracy has to do with violation of property rights, and so with &lt;em&gt;distribution&lt;/em&gt; of output, not with its level (to which the argument in the question alludes). It has to do with the principle &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;This is &lt;em&gt;mine&lt;/em&gt;, and if you don't pay for it, you have no right to consume it.&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;While in... principle, this is a principle that is accepted by most humans on earth, it has been observed that when the entity saying this is perceived as rich/wealthy etc, people start to question (even if indirectly) whether the principle should be upheld to the maximum: art piracy is &quot;felt&quot; by many as a &lt;em&gt;rightful redistribution&lt;/em&gt; (and this is why, strategically, the Entertainment Industry tries to shift the focus of the debate to the negative effects as regards loss of jobs etc, against which an approach like the one relayed in the question is a valid counter-argument).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At the macro-economic level, a widespread disrespect of, and the failure to protect the, property rights, leads to increased uncertainty and reduced output, because economic agents will start spending considerable and disproportionate resources to protect their property rights (on wealth and on production), and hence withdraw these resources from the production of output itself. The fact that in National Accounting these protection services will turn up like production themselves, does not change the fact that the other forms of output will be lower.  Such protection services are already widespread: most of the legal system and the military expenses are about protecting property rights at one level or the other, as are private security services.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In an economy where property rights are more or less adequately protected, piracy can be said to also affect the &lt;em&gt;composition&lt;/em&gt; of output. &lt;em&gt;Who&lt;/em&gt;, and &lt;em&gt;through which means&lt;/em&gt;, gets to influence how many films and how many skateboards will be produced? And when these influences come partly through the violation of such a fundamental social principle as rights to property, do they have a detrimental effect?&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-07-18T13:12:59.547" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="6600" PostTypeId="2" ParentId="6574" CreationDate="2015-07-18T14:07:06.957" Score="1" Body="&lt;p&gt;If I understand correctly, the claim is is:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;Proposition&lt;/strong&gt;: Take a budget as given, and consider a world with two goods, $A$ and $B$. In the first scenario, the price of $A$ is positive, and the household spends $E_A$ on $A$, and nothing on $B$. In a second scenario, the price of $A$ is zero.The household will now spend the same amount $E_A$ on $B$.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;How did this abstraction work? A represents the copyrighted work, B contains all other consumption goods. I don't think there is strong empirical evidence for or against the claim. So then, what does the theory say?&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Neoclassical Theory&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;The rational agent under a general class of preferences does first decide his optimal consumption level given (permanent) income, and then decides how to allocate that consumption expenditure between different goods. For him, the answer would be &lt;strong&gt;Yes&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Caveats&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;However, what happens if we depart from the rationality assumption? Many weird things can happen. For example, instead of optimally choosing how much to save, the consumer could first decide, what he wants to consume, and then save the remainder. In this case, since he already has A &quot;for free&quot; he might be contempt with that, think that &quot;having some B&quot; is sufficient, and then save the remainder. In that case, it may very well be that the answer is &lt;strong&gt;No&lt;/strong&gt; (or at least, &lt;strong&gt;not necessarily&lt;/strong&gt;). Not all the money not spend on copyrighted material will be used for consumption on other goods.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;There are many reasons to believe why the rationality assumption is not always giving us the full story, especially when you look at life-cycle consumption, saving rates and divergence of savings at retirement ages.&lt;/em&gt;&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2015-07-18T14:13:23.723" LastActivityDate="2015-07-18T14:13:23.723" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="6602" PostTypeId="1" AcceptedAnswerId="6608" CreationDate="2015-07-18T15:53:47.440" Score="1" ViewCount="1060" Body="&lt;p&gt;I have a trouble understanding the following text from my textbook. I bolded the fragments that don't make sense to me.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;Disadvantages of a floating exchange rate:&#xA;A floating exchange rate regime may worsen existing levels of inflation. If a country has high inflation relative to other countries then this will make its exports less competitive and its &lt;strong&gt;imports relatively less expensive&lt;/strong&gt;. The exchange rate will then fall, in order to rectify the situation. However, this could lead to &lt;strong&gt;even higher&lt;/strong&gt; import prices of finished goods, componetns, and raw materials, and thus cost-push inflation, which may further fuel the overall inflation rate.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If there's high inflation, exports become less competitive and imports become &lt;strong&gt;less expensive&lt;/strong&gt; - that's obvious. But why do they say that it would make imports' prices &lt;strong&gt;even higher&lt;/strong&gt;? Why &quot;&lt;strong&gt;even&lt;/strong&gt;&quot; and why &quot;&lt;strong&gt;higher&lt;/strong&gt;&quot;? They've said that imports are cheaper after inflation, so imported raw materials, etc. should be cheaper as well so the costs of productions should be cheaper too and don't cause cost-push inflation but totally opposite.&lt;/p&gt;&#xA;" OwnerUserId="5088" LastActivityDate="2015-07-20T15:23:02.677" Title="Floating exchange rate and cost-push inflation?" Tags="&lt;currency&gt;&lt;monetary-policy&gt;&lt;inflation&gt;&lt;international-economics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6603" PostTypeId="2" ParentId="5199" CreationDate="2015-07-18T21:24:53.230" Score="1" Body="&lt;p&gt;I believe this answer is relevant:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://economics.stackexchange.com/questions/6553/why-a-new-startup-should-ask-a-big-investment-company-to-value-them-as-low-as-po/6554#6554&quot;&gt;Why a new startup should ask a big investment company to value them as low as possible?&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;In brief, if founders accepted the investor offering at the highest valuation, this investor would be their last one.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But if a startup is looking for money alone, it is a bad startup.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The access to reputable investors (who valuate realistically) gives more opportunities. It includes experienced members of the board, better brand to attract candidate employees, and the track record of closing investment rounds with famous investors.&lt;/p&gt;&#xA;" OwnerUserId="240" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-07-18T21:24:53.230" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6604" PostTypeId="1" CreationDate="2015-07-18T22:04:49.017" Score="0" ViewCount="533" Body="&lt;p&gt;I am studying a model that relates incentives (money) and a set of actions. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $f(x) = k\frac{x^2}{2}$ be the disutility function of the agent, where $x$ is the level of effort that the agent is exerting and $k$ is set exogenously. I found that if $k &amp;gt; \theta$, $\theta$ is also set exogenously, then the incentive plays an insignificant role at determining the set of actions. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;How should I interpret that? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My own interpretation is that the agent has low intention to exert a high level of efforts that even being compensated, they would not exert the necessary level of actions. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Am I right? How can microeconomics interpret the coefficient $k$? I understand that it is the marginal disutility, but it does not sound very practical. Can anyone please give me some reading/intuition behind the disutility function?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Updated: I am thinking of using the work: disutility tolerance but I cannot find any literature on the term.  &lt;/p&gt;&#xA;" OwnerUserId="4882" LastEditorUserId="4882" LastEditDate="2015-07-22T12:11:12.997" LastActivityDate="2015-07-22T12:11:12.997" Title="Interpreting coefficient in the disutility function as disutility tolerance?" Tags="&lt;microeconomics&gt;&lt;utility&gt;" AnswerCount="0" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="6605" PostTypeId="2" ParentId="6602" CreationDate="2015-07-19T05:54:51.687" Score="2" Body="&lt;p&gt;I would imagine that a falling exchange rate causes the price of imports to rise as the foreign currency becomes stronger against the local currency.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With high inflation exports become more expensive because foreign buyers have to exchange more of their currency to account for the increase in price. This means they cost more per unit in terms of the foreign currency and consequently become less competitive.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The subsequent fall in demand for exports causes the fall in the exchange rate as the demand for exports and local currency are complementary. A weaker local currency means that one unit of local currency is now worth fewer units of foreign currency.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus the result is that imports become more expensive as any given amount of imports now costs more in terms of the local currency. Imagine that the exporting nation, say England, sells teddy bears for £5.00 a piece. If the dollar weakened against the pound from \$1.50 to a pound to \$1.56, then as far as a buyer from the United States is concerned, the price of a teddy bear increases from \$7.5 (i.e. 1.50 * 5.00) to \$7.8 (i.e. 1.56 * 5.00).&lt;/p&gt;&#xA;" OwnerUserId="5239" LastEditorUserId="1601" LastEditDate="2015-07-19T07:03:14.357" LastActivityDate="2015-07-19T07:03:14.357" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6606" PostTypeId="1" CreationDate="2015-07-19T08:10:54.530" Score="3" ViewCount="228" Body="&lt;p&gt;I managed to forecast a GARCH model yesterday and run a Monte Carlo simulation on R. Nevertheless, I can't do the same with an ARMA-GARCH. I tested 4 different method but without achieving an ARMA-GARCH simulation with my data.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The packages and the data I used:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;library(quantmod)&#xA;library(tseries)&#xA;library(TSA)&#xA;library(betategarch)&#xA;library(mcsm)&#xA;library(PerformanceAnalytics)&#xA;library(forecast)&#xA;library(fGarch)&#xA;library(GEVStableGarch)&#xA;&#xA;getSymbols(&quot;DEXB.BR&quot;,from=&quot;2005-07-01&quot;, to=&quot;2015-07-01&quot;)&#xA;STOCK = DEXB.BR&#xA;STOCK.rtn=diff(STOCK[,6] )&#xA;STOCK.diff = STOCK.rtn[2:length(STOCK.rtn)]&#xA;ARI_2_1=arima(STOCK[,6],order=c(2,1,1))&#xA;GA_1_1=garch(ARI_2_1$residuals, order = c(1,1)) &#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;h1&gt;First tested method&lt;/h1&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;specifi = garchSpec(model = list(ar = c(0.49840, -0.0628), ma =c(-0.4551), omega = 8.393e-08, alpha = 1.356e-01, beta = 8.844e-01))&#xA;&#xA;garchSim(spec = specifi, n = 500, n.start = 200, extended = FALSE)&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;This lead to a &quot;NaN&quot; forecast.&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;garchSim(spec = specifi, n = 500)&#xA;&#xA;n=1000&#xA;armagarch.sim_1 = rep(0,n)&#xA;armagarch.sim_50 = rep(0,n)&#xA;armagarch.sim_100 = rep(0,n)&#xA;for(i in 1:n)&#xA;{&#xA;    armagarch.sim=garchSim(spec = specifi, n = 500, n.start = 200, extended = FALSE)&#xA;    armagarch.sim_1[i] = armagarch.sim[1]&#xA;    armagarch.sim_50[i] = armagarch.sim[50]&#xA;    armagarch.sim_100[i] = armagarch.sim[100]&#xA;&#xA;}&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;h1&gt;Second tested method&lt;/h1&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;GSgarch.Sim(N = 500, mu = 0, a = c(0.49840, -0.0628), b = c(-0.4551),&#xA;omega = 8.393e-08, alpha = c(1.356e-01), gm = c(0), beta = c(8.844e-01),&#xA; cond.dist = &quot;norm&quot;)&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;This part works.&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;n=10000&#xA;&#xA;Garmagarch.sim_1 = rep(0,n)&#xA;Garmagarch.sim_50 = rep(0,n)&#xA;Garmagarch.sim_100 = rep(0,n)&#xA;&#xA;for(i in 1:n)&#xA;{&#xA;    Garmagarch.sim= GSgarch.Sim(N = 500, mu = 0, a = c(0.49840, -0.0628), b = c(-0.4551),omega = 8.393e-08, alpha = c(1.356e-01), gm = c(0), beta c(8.844e-01), cond.dist = &quot;norm&quot;)&#xA;&#xA;    Garmagarch.sim_1[i] = Garmagarch.sim[1]&#xA;    Garmagarch.sim_50[i] = Garmagarch.sim[50]&#xA;    Garmagarch.sim_100[i] = Garmagarch.sim[100]&#xA;&#xA;}&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;The simulation runs but&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;&amp;gt; Garmagarch.sim[1]&#xA;$model&#xA;[1] &quot;arma(2,1)-aparch(1,1) ## Intercept:FALSE&quot;&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;and &lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;&amp;gt; Garmagarch.sim[50]&#xA;$&amp;lt;NA&amp;gt;&#xA;NULL&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;h1&gt;Third tested method&lt;/h1&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;ga_arma = garch.sim(alpha=c(8.393e-08,1.356e-01),beta =8.844e-01 ,n=500, ntrans=200)&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;This lead to&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;Error in garch.sim(alpha = c(8.393e-08, 0.1356), beta = 0.8844, n = 500,  : &#xA;  Check model: it does not have finite variance&#xA;&#xA;&#xA;arima.sim(ARI_2_1, 500, innov = ga_arma ,n.start = 200)&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;And this to&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;Error in arima.sim(ARI_2_1, 500, innov = ga_arma, n.start = 200) : &#xA;  la partie 'ar' du mopdèle n'est pas stationaire&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;which mean that the 'ar' part of the model isn't stationnary.&lt;/p&gt;&#xA;&#xA;&lt;h1&gt;Fourth tested method&lt;/h1&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;forecast(ARI_2_1, h = 500, bootstrap = TRUE, npaths=200)&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;This one actually works but I don't know how to add the GARCH component.&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;forecast(specifi, h = 500, bootstrap = TRUE, npaths=200)&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;" OwnerUserId="5242" LastEditorUserId="43" LastEditDate="2015-07-19T11:20:25.363" LastActivityDate="2016-03-23T13:51:37.420" Title="Forecast of ARMA-GARCH model in R" Tags="&lt;econometrics&gt;&lt;r&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6608" PostTypeId="2" ParentId="6602" CreationDate="2015-07-19T13:28:13.957" Score="2" Body="&lt;p&gt;The passage quoted is (at least) sloppy as regards language, in that it writes first &quot;relatively &lt;em&gt;less&lt;/em&gt; expensive&quot;, and then uses &quot;&lt;em&gt;even&lt;/em&gt; more&quot;, which would be correct if previously it had described a &quot;more&quot; expensive rather than a &quot;less&quot; expensive situation.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What happens here is that, under the assumption that Purchasing Power Parity holds (or tends to hold), we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\pi = \pi^* - \dot S/S$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where $\pi$ is local inflation, $\pi^*$ is &quot;foreign&quot; inflation, and $\dot S/S$ is the growth rate of &quot;local&quot; exchange rate (units of foreign currency per unit of local currency). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, if $\pi &amp;gt; \pi^* \implies \dot S/S &amp;lt;0 \implies \dot S &amp;lt;0$, at least as a tendency, and the local currency will, eventually, depreciate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For clarity, assume that we start from a situation where both inflation rates are zero. Then, local positive inflation happens, for some local reason.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Initially, &lt;em&gt;before&lt;/em&gt; the exchange rate starts to adjust, local exports become more expensive for the foreigners (as the answer by @user3522240 describes), while imports (whose nominal price in terms of foreign currency has not changed, due to zero foreign inflation) become &lt;em&gt;relatively&lt;/em&gt; less expensive, with &quot;relatively&quot; referring to the &lt;em&gt;relative contribution&lt;/em&gt; of imported resources to local costs of production, compared to the cost of local resources. Imports do not become &quot;cheaper&quot; in nominal terms, in either currency. Only their &lt;em&gt;percentage&lt;/em&gt; contribution to total costs becomes smaller.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But since eventually, we assume that the exchange rate will depreciate, weakening the local currency, the nominal cost of imports in terms of local currency will increase. But this will now increase the total cost of production in terms of local currency, and it will tend to &lt;em&gt;add&lt;/em&gt; inflation to the already existing, locally generated, inflation rate, as firms will attempt to pass this imports-linked increase in costs to consumers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;APPENDIX&lt;/strong&gt;&lt;br&gt;&#xA;The Purchasing Power Parity in terms of inflation rates is derived as follows: Denote $P$ the local price level and $P^*$ the foreign price level. Then PPP is expressed as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$P\cdot S = P^*$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Differentiate with respect to time,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\dot PS + P\dot S = \dot P^*$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Manipulate (and use the PPP relation)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies  \frac {\dot P}{P}S + \frac {P}{P}\dot S = \frac {\dot P^*}{P^*}\frac {P^*}{P} \implies \pi S + \dot S = \pi^* S$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Divide by $S$ and re-arrange to obtain&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\pi = \pi^* - \dot S/S$$&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-07-20T15:23:02.677" LastActivityDate="2015-07-20T15:23:02.677" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="6610" PostTypeId="1" CreationDate="2015-07-19T14:37:19.807" Score="1" ViewCount="425" Body="&lt;p&gt;I was asked:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;A man planned to endow 1000000 USD to his son on his son's 21'st&#xA;  birthday. How much is his semi-annual deposit in a special account&#xA;  that earns 5% compounded quarterly if the first deposit was made when&#xA;  the son was 4.5 years old?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Answer is 16640.20 USD&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My Solution:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Comparing Effective Rates:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$${ ER_{semiannually} = ER_{quarterly} }$$&#xA;$${ (1+i_{semiannually})^{m_{semiannually}} - 1 = (1+i_{quarterly})^{m_{quarterly}} - 1 }$$&#xA;$${ (1+i_{semiannually})^{2} - 1 = (1+0.05)^{4} - 1 }$$&#xA;$${ i_{semiannually} = 0.1025 }$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Get the number of periods for Semi-Annual Payment&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$${ 21-4.5 = 16.5 {yrs} }$$&#xA;$${ n = 16.5 \times 2 = 33 payments }$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am going to use the formula for Future Worth of Annuity since it is equal payments&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$${ F = A\frac{ (1+i)^n - 1 }{i} }$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Wherein &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$${F = 1000000}$$&#xA;$${A = ? }$$&#xA;$${i = 0.1025 }$$&#xA;$${n = 33 }$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I get an Annuity of 4265.165002&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What am I doing wrong? is it not Future Annuity? Are my interest rates correct?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;--&#xA;P.S. this isnt homework; this is for a board exam review in mechanical engineering. I don't know why they include finance/accounting in the &quot;Engineering Economics&quot; section but I have no solid background in business mathematics.&lt;/p&gt;&#xA;" OwnerUserId="5246" LastActivityDate="2015-07-19T14:37:19.807" Title="Semi Annual Deposit that earns 5% Compounded Quarterly" Tags="&lt;microeconomics&gt;&lt;finance&gt;&lt;accounting&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6611" PostTypeId="2" ParentId="6544" CreationDate="2015-07-19T17:17:19.100" Score="0" Body="&lt;p&gt;The one party things: we need growing economics because we want to get a better and better life over time. The mechanics of inflation and growing markets creates more flexibility for new products and prevents deflation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The other party thinks more the way we could also have products stay alive 20 years (instead to planned obsolescence) and a country can have a working cycle of economics growing with the number of people instead of inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Both theories have much deeper arguments and I only added both points of view to stay neutral. It shouldn't place one of them into a bad corner.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit: &lt;a href=&quot;https://en.wikipedia.org/wiki/Economic_growth#Theories_and_models&quot; rel=&quot;nofollow&quot;&gt;Wikipedia tell you how and what different theories are out there.&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit 2: &lt;strong&gt;Economics grow by the &quot;speed&quot; money cycles comparing to the previous period&lt;/strong&gt;. The worth/costs of goods and services (reason for cycling money) is affected by different factors like inflation and production factors (human, ground, ...). Explaining this the easy way will not be complete - the complete way would be to much. Finally explaining &lt;em&gt;economic growing&lt;/em&gt; is a question of perspective and motivation. So measuring &lt;em&gt;economic growing&lt;/em&gt; has goals: Govern, comparing, deciding.&lt;/p&gt;&#xA;" OwnerUserId="5229" LastEditorUserId="5229" LastEditDate="2015-07-20T13:49:01.957" LastActivityDate="2015-07-20T13:49:01.957" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="6612" PostTypeId="2" ParentId="6592" CreationDate="2015-07-19T21:37:38.737" Score="3" Body="&lt;p&gt;Assume that a consumer can spend his money on commodity X or retain it with himself as money. The utility function becomes&#xA;$$U=U(q_x,M)$$&#xA;where M is for monetary asset. The budget constraint is as below&#xA;$$p_xq_x+M=I$$&#xA;where I is the income. To maximize its utility below condition must be satisfied&#xA;$$dU=\frac{\partial U}{\partial q_x}dq_x+\frac{\partial U}{\partial M}dM=0$$&#xA;and budget constraint becomes&#xA;$$p_xdq_x+dM=0\rightarrow dM=-p_xdq_x$$&#xA;Replacing $dM$ to utility maximizer&#xA;$$\frac{\partial U}{\partial q_x}dq_x-\frac{\partial U}{\partial M}p_xdq_x=0$$&#xA;$$\bigg(\frac{\partial U}{\partial q_x}-\frac{\partial U}{\partial M}p_x\bigg)dq_x=0$$&#xA;$$\Rightarrow\frac{\partial U}{\partial q_x}-\frac{\partial U}{\partial M}p_x=0$$&#xA;The term $\frac{\partial U}{\partial M}$ stands for marginal utility of money. Marshall assumed the marginal utility for money as constant and equal to one (cardinal utility approach: &lt;a href=&quot;https://books.google.com.tr/books?id=6M7r-gGAV24C&amp;amp;lpg=PA122&amp;amp;ots=Pne8B_DEgK&amp;amp;dq=consumer&amp;#39;s%20equilibrium%20one%20commodity%20model&amp;amp;hl=tr&amp;amp;pg=PA122#v=onepage&amp;amp;q&amp;amp;f=false&quot; rel=&quot;nofollow&quot;&gt;ref&lt;/a&gt;); and it follows&#xA;$$\Rightarrow\frac{\partial U}{\partial q_x}=p_x$$&lt;/p&gt;&#xA;" OwnerUserId="5133" LastActivityDate="2015-07-19T21:37:38.737" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6613" PostTypeId="1" AcceptedAnswerId="6614" CreationDate="2015-07-20T03:13:27.430" Score="4" ViewCount="70" Body="&lt;p&gt;I refer specifically to &lt;a href=&quot;http://www.telegraph.co.uk/finance/newsbysector/industry/mining/11749706/Commodities-crash-could-turn-Australia-into-a-new-Greece.html&quot; rel=&quot;nofollow&quot;&gt;this article&lt;/a&gt; in which Andrew Critchlow paints a pretty dire view of the Australian economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The line which challenged my priors was:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;code&gt;Just like Saudi Arabia, which is now burning its foreign reserves to compensate for falling oil prices, Australia faces a collapse in export revenue.&lt;/code&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This did not match my perception of the Australian economy at all. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What similarities does the Australian economy have with the Saudi economy? Is the comparison fair? In particular, I am interested in structural issues the economies face.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Secondly, is the quoted line accurate? My understanding was that the extraction cost for oil was very low in the gulf and the lower prices served to make other countries unprofitable before it cost them.&lt;/p&gt;&#xA;" OwnerUserId="40" LastEditorUserId="6210" LastEditDate="2019-04-05T21:26:46.677" LastActivityDate="2019-04-05T21:26:46.677" Title="Australia and Saudi Arabia - Structural Similarities" Tags="&lt;debt&gt;&lt;resource-economics&gt;&lt;dutch-disease&gt;&lt;comparative-economics&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6614" PostTypeId="2" ParentId="6613" CreationDate="2015-07-20T07:02:43.457" Score="4" Body="&lt;p&gt;It's an analogy. The Saudi economy as an analogy for the Australian economy. Like any other analogy, you can stretch it to a certain point, but then it breaks.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The article sets out the ways in which the analogy holds. Stretching it further will probably break it. Let's look at how the article says the analogy holds:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;both economies have a significant dependency on exports of a very small number of commodities: for Saudi, it's oil and gas; for Australia, iron and coal.&lt;/li&gt;&#xA;&lt;li&gt;both boomed during the good times of the commodity super-cycle, both fuelled in part by huge and rapidly-rising demand from China; this flattered their domestic economies.&lt;/li&gt;&#xA;&lt;li&gt;both now see a large drop in export revenues from falling demand and falling global prices in their key commodities; this exposes weaknesses elsewhere in each of their economies.&lt;/li&gt;&#xA;&lt;li&gt;In Australia's case, this has caused a rapid increase in its net foreign debt; for Saudi, they're eating into their foreign reserves. So in each case, they're taking a big hit to the balance sheet, and for both countries, net foreign reserves have decreased a lot.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="44" LastActivityDate="2015-07-20T07:02:43.457" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="6615" PostTypeId="1" CreationDate="2015-07-20T08:51:42.600" Score="5" ViewCount="197" Body="&lt;p&gt;I may be asking the wrong question here, but I wonder if there is a term/theory that describes/studies the evolution of an economy that continually improves the utilization and allocation of certain resource? The resource here can be different things, e.g. physical goods, human labor, financial capital. In fact, I am more interested in the former two than the latter.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, living space used to be mostly utilized by the its owner or long-term occupier, and many were under-utilized in terms of both the utility of having people living in them and the monetary value extracted from them. Now some significant portion of these spaces is better utilized by services like Airbnb. A similar case is car-sharing services like Uber and Lyft, where both cars and human labor are arguably better utilized and allocated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To clarify, I am not specifically interested in the so-called 'share economy' concept though the two examples above are closely related to it. Actually it'd be better if you can identify other examples in different contexts. Pointers to any related term/concept/theory is welcome and appreciated.&lt;/p&gt;&#xA;" OwnerUserId="5250" LastEditorUserId="1601" LastEditDate="2015-07-20T12:02:53.370" LastActivityDate="2015-07-20T12:02:53.370" Title="What term/theory describes more efficient utilization of a resource?" Tags="&lt;microeconomics&gt;&lt;labor-economics&gt;&lt;theory&gt;&lt;economic-terms&gt;&lt;definition&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6616" PostTypeId="1" AcceptedAnswerId="6654" CreationDate="2015-07-20T08:59:12.963" Score="1" ViewCount="5404" Body="&lt;p&gt;(1) Toyland earns $$100,000 revenue in cash this week.  Toyland managers use this $100,000 to pay down a short-term loan from Bank One.  Bank One keeps the cash in reserve.   As a result of this transaction M1 [x] and M2 [y]&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(2) Bank of America takes $25,000 from reserves and makes a loan to Sissy.  Sissy uses the funds to purchase a Mini Cooper.  The funds are then deposited in the car dealer's checking account.   As a result of this transaction M1 [x] and M2 [y]&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The answers for these 2 are: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(1) [x] = decreases, [y] = decreases&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(2) [x] = increases, [y] = increases &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I had gotten both of these questions incorrect because I considered Bank Reserves to be that part of the money that the money keeps in vaults, etc. in a fractional reserve system. &#xA;Usually the bank reserves would be considered about 10% of the total bank's worth. &#xA;Am I correct? Or wrong? If so, why?&lt;/p&gt;&#xA;" OwnerUserId="5252" LastActivityDate="2018-12-02T19:30:19.967" Title="Are bank reserves part of M1 or only part of M2, and why?" Tags="&lt;finance&gt;&lt;monetary-policy&gt;&lt;federal-reserve&gt;&lt;corporate-finance&gt;" AnswerCount="1" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="6617" PostTypeId="2" ParentId="6615" CreationDate="2015-07-20T10:17:30.453" Score="2" Body="&lt;p&gt;At the abstract level, this phenomenon is covered by the concept of &quot;Technological Change&quot;, which, in Economics, does not have a strict/narrow &quot;Engineering&quot; interpretation: here, &quot;Technology&quot; is not only &quot;how things are done&quot; but also &quot;how things are &lt;em&gt;organized&lt;/em&gt;&quot;, and includes also new business models like the one you mentioned (see also &lt;a href=&quot;https://economics.stackexchange.com/questions/2942/why-in-most-macro-models-technology-is-labor-augmenting/2945#2945&quot;&gt;&lt;strong&gt;this post&lt;/strong&gt;&lt;/a&gt;).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the phenomenon is already embedded in the logic of economic models.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Stochastic Frontier Analysis (SFA)&lt;/strong&gt; and &lt;strong&gt;Data Envelopment Analysis (DEA)&lt;/strong&gt;, are two sub-fields focusing on modeling and measuring the degree of efficiency (under various interpretations of the term), in the use of factors of production at the micro-level.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is my impression though that since the examples you describe are relatively new, we still do not have enough data available to subject them to econometric analysis, so I cannot say if there are already papers that examine them (in a quantitative way).&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-07-20T10:17:30.453" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6618" PostTypeId="1" AcceptedAnswerId="6619" CreationDate="2015-07-20T10:36:43.670" Score="5" ViewCount="21227" Body="&lt;p&gt;What is the difference between present value and face value? &#xA;When I search this question on Google is says they're the same in some cases and different in others. It says they are the same when the market interest rate is the same as the contractual interest rate. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I need help understanding what this means. I do not understand the difference between these  types of interest rates, etc. &#xA;And also does this have anything to do with discounting vs. coupon bonds, etc?&lt;/p&gt;&#xA;" OwnerUserId="5252" LastActivityDate="2016-08-26T15:43:19.147" Title="What is the difference between present value and face value?" Tags="&lt;interest-rate&gt;&lt;investment&gt;&lt;value&gt;&lt;bonds&gt;" AnswerCount="5" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6619" PostTypeId="2" ParentId="6618" CreationDate="2015-07-20T11:46:57.947" Score="6" Body="&lt;p&gt;Suppose the &lt;em&gt;face value&lt;/em&gt; of a bond is $M$ and its &lt;em&gt;interest rate&lt;/em&gt; is $\tau$. This means it will pay $\tau \cdot M$ interest every year (other periods are also possible) and at the end of its run (its maturity) it will also repay the face value $M$. Government bonds are usually sold in auctions. Whatever ends up being the market price is considered to be the &lt;em&gt;present value&lt;/em&gt; of the bond. Using the cash flow you can also calculate the &lt;em&gt;yield&lt;/em&gt; of the bond. If and only if the face value and the present value are equal the yield will be equal to the interest rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For an example see the US treasury's &lt;a href=&quot;http://www.treasurydirect.gov/instit/annceresult/annceresult.htm&quot; rel=&quot;nofollow&quot;&gt;website&lt;/a&gt;. Click on bonds to see face value, interest rate and maturity, click on the bond serial to see its price (present value).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Further reading &lt;a href=&quot;http://accountingexplained.com/financial/lt-liabilities/bond-price&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;. (Link copied from a comment by @Jamzy .)&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2015-07-20T18:56:11.023" LastActivityDate="2015-07-20T18:56:11.023" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6620" PostTypeId="2" ParentId="6544" CreationDate="2015-07-20T13:06:16.897" Score="3" Body="&lt;p&gt;You mentioned in the question that economy grow, when their GDP increase over time. Before going further one needs to understand what makes the GDP.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://economics.stackexchange.com/questions/6633/what-is-the-gross-domestic-product-gdp&quot;&gt;What is the Gross Domestic Product (GDP)?&lt;/a&gt; and one of its &lt;a href=&quot;https://economics.stackexchange.com/a/6634/4817&quot;&gt;answer&lt;/a&gt; provide some defintion and helps us to learn that GDP can be calculated as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$GDP = C + I + X - M + P$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $C$ is the consumption, $I$ the investments, $X$ the exports, $M$ the imports and $P$ the public spending.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From there the evolution of the GDP over time can be analysed.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Factors influencing the evolution of the GDP&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Trivially, since all those parameters are based on the price, a huge inflation will effectlively create a large growth. This is why one can often read about GDP in constant dollars (once the inflation has been corrected for). In the following the inflation will be omitted.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this discussion, we will only consider the terms above, in brief ways, the full analysis could cover several Ph.D Thesis. We have&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Consumption ($C$): this will be affected by unemployment, conjectural situation (in &quot;crisis&quot;, people tend to consume less), fiscal (more taxes, less consumption), and monetary (&lt;a href=&quot;https://en.wikipedia.org/wiki/Federal_funds_rate&quot; rel=&quot;nofollow noreferrer&quot;&gt;fund rates&lt;/a&gt; may convince people to save their money instead of spending it);&lt;/li&gt;&#xA;&lt;li&gt;Investment ($I$): companies are more inclined to invest, if they could increase their profit, if the perspective look good, and if they are presented with the opportunity;&lt;/li&gt;&#xA;&lt;li&gt;Export ($X$): if your market is competitive (quality/price), and your production amount to enough to cover the international needs, you can export goods, which will increase the GDP;&lt;/li&gt;&#xA;&lt;li&gt;Import ($M$): inversely, if you lack some goods (primary ressources, for example), you need to import them. That money goes to other countries and lowers your GDP;&lt;/li&gt;&#xA;&lt;li&gt;Public spending ($P$): the states, regions, cities or any administration spend money by buying services or products from private companies. All those are missing in $C$ and $X$. So the more the state spends, the more the GDP rises. It should be noted, particularly in the current context, that if the state spends more than what it has, problems may occur. But here is not the place for that.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;So policies to create economic growth are policies that will (eventually) affect those parameters (in the &quot;good&quot; direction). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem is that most policies are not one-dimensional. &lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Example 1: Lowering Taxes&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;For example, lowering the taxes (in general), will &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;help the population by providing more means for consumption (increase $C$), &lt;/li&gt;&#xA;&lt;li&gt;help the companies to get a surplus so they could (most of the time) choose between two paths: lower the cost of their products (and increase $C$ or $X$), or invest in a new product or new branches (increasing $I$). &lt;/li&gt;&#xA;&lt;li&gt;However, it will lower the potential for the state to invests (lowering $P$). &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Some might argue that increasing two parameters ($C$ and $I$ or $C$ and $X$) at the cost of lowering one ($P$) is worth it. But one should see that not 100% of non-collected taxes will be spent. Some will help the population to increase their bank account, pay their mortgage (which is not productive); and companies may give higher bonuses, dividends, etc. So lowering the taxes may not increase those parameters as much as expected. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Furthermore increasing $C$ may result in the increase of $M$. If people are richer, they are more likely to import some of those famous French Wine. Worst, the government may choose to continue the public investment, increasing the debt. So in the worst case, the GDP is unaffected, and a public debt is converted in inactive wealth for both population and companies.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Example 2: Decrease of Unemployment&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;A second example to give an idea of the complexity of policy making. Having a lower unemployment, and more jobs in the private sector will probably improve the GDP. &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Indeed, the public money can be more directed to investments (increase of $P$) than taking care of social issues (unemployment income, health help, training and schooling, etc.), &lt;/li&gt;&#xA;&lt;li&gt;and that will increase the taxes they perceive, so they have more money available to spend. &lt;/li&gt;&#xA;&lt;li&gt;People receiving higher salaries (employed rather than at home on national help), are more likely to consume (increasing $C$), which will increase the imports ($M$), but also increase the sales of your own companies. &lt;/li&gt;&#xA;&lt;li&gt;The extra work, means your companies will produce more and/or better, which will help to increase the exports ($X$), and they can then secure a given surplus, which can be used to invest ($I$) in expanding their business (which creates more employment). &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;That sounds wonderful, doesn't it? But now the tricky part. How do you create employment? That's where there aren't any single answer, but several depending on dogmatic view. Just to summarise two &quot;classic&quot; views, &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;lower the taxes on the companies, such that they get more money to invest, and expand their business, by creating jobs. This is associated with classic liberals, neo-conservative and generally right-wing politicians. The problem, as we have seen above, is that not all the money invested (by means of lowering income) by the state will be used for investment, and not all of it in your country. And it either lowers $P$ or increase the debt (or both).&lt;/li&gt;&#xA;&lt;li&gt;increase the public spending, for examples building roads, employing more people, etc. This directly creates more jobs, usually quite low income, who are more likely to spend all of it. As a consequence $C$ should increase, and thus the profits of the companies should increase in consequence, starting a virtuous circle. This is a more direct way. However it is very expensive, as you start to invest, you need to either have savings, or more likely increase the public debt. &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;If your market is &lt;em&gt;rigid&lt;/em&gt;, that is to say it does not adapt very fast, you might be spending a lot of money before any effect occurs. And if your companies aren't competitive, you will increase considerably the imports ($M$). This approach is more associated with socialists/&quot;liberals&quot;/... centre-left politicians.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Both approaches are very nice in theory but both have been shown to fail at times.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think that at this point, the complexity of policies is understood, and it is also understood that full analysis could fill in several books (and there are a few good ones on the market).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Just another note, GDP of most (all?) countries is measured at regular intervals (monthly/every trimester). If the &lt;strong&gt;change&lt;/strong&gt;/&lt;strong&gt;increase&lt;/strong&gt; of GDP during two consecutive trimesters (meaning 6 months) is negative (meaning if the GDP lowers for 6 months in a row), we talk about a &lt;em&gt;recession&lt;/em&gt;.&lt;/p&gt;&#xA;" OwnerUserId="4817" LastEditorUserId="27" LastEditDate="2017-12-20T21:33:25.397" LastActivityDate="2017-12-20T21:33:25.397" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6621" PostTypeId="1" CreationDate="2015-07-20T15:10:33.733" Score="2" ViewCount="48" Body="&lt;p&gt;What does it mean for a country to have access to the markets. E.g: There is an ongoing discussion when Greece will follow a prosperity path in order to enter again the &quot;markets&quot;.&lt;/p&gt;&#xA;" OwnerUserId="5255" LastActivityDate="2015-07-20T22:48:54.473" Title="Access to the markets for a country" Tags="&lt;markets&gt;" AnswerCount="1" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="6622" PostTypeId="2" ParentId="6618" CreationDate="2015-07-20T17:13:36.707" Score="3" Body="&lt;p&gt;Think of it this way:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;A dollar today is worth more than a dollar tomorrow&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why? Because today you can invest it, and have more money tomorrow!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How much more money? It depends on the interest rate. The interest rate on government bonds basically says: &quot;Whoever you are, if you lend me this money I am going to give you back all of it plus a certain interest&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since you can be sure that the bond will be repaid, and you're allowed to lend money to the government in any situation, what this means is that a dollar today is worth like a dollar tomorrow plus the interest the government gives! &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are a number of formulas for interest rates (but it's just a matter of convention).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Anyhow, if you lend today to the government $S$, and it will give you back tomorrow $S(1+i)$, then the face value is $S(1+i)$ (by definition) and the &lt;em&gt;present value&lt;/em&gt; of $S(1+i)$ is $S$.&lt;/p&gt;&#xA;" OwnerUserId="4137" LastActivityDate="2015-07-20T17:13:36.707" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6623" PostTypeId="2" ParentId="6621" CreationDate="2015-07-20T19:37:53.190" Score="6" Body="&lt;p&gt;When a country loses access to markets they mean access to debt markets. Here is a quote from a paper if you need a citation:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Greece lost access to credit markets when debt exceeded 130% of GDP,&#xA;  whereas Belgium successfully handled identical debt relative to GDP.&#xA;  What determines the highest debt that a country could repay, defined&#xA;  as “fiscal limit?” Can we estimate the fiscal limit for a country&#xA;  which has never lost access to markets? We use historical data on&#xA;  primary surpluses (surpluses excluding interest payments) and debt&#xA;  relative to GDP for six high-debt, developed countries, two of which&#xA;  lost access to markets after the 2008 global financial crisis, to&#xA;  estimate the behavior of the primary surplus in response to changes in&#xA;  debt. The high-debt countries include Belgium, Canada, France, Greece,&#xA;  Italy, and Portugal.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Predicting Sovereign Fiscal Crises: High-Debt Developed Countries (&lt;a href=&quot;http://www.albany.edu/~bd892/Papers/UK032618.pdf&quot; rel=&quot;nofollow&quot;&gt;Daniel and Shiamptanis&lt;/a&gt; (2015))&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Specifically, &quot;closed&quot; means that that the sovereign can no longer raise funds from capital markets. Depending on the specific situation, some entities within that country can continue to raise external funds. A business with significant assets or good prospects may be able to continue to raise funds even when the country cannot. In Greece, at least until recently, this was the case. See the article &lt;a href=&quot;http://www.globalcapital.com/article/lmmnh5qg9px0/greek-companies-get-back-on-the-road-with-help-from-bonds&quot; rel=&quot;nofollow&quot;&gt;Greek companies get back on the road, with help from bonds&lt;/a&gt;.  &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-07-20T22:48:54.473" LastActivityDate="2015-07-20T22:48:54.473" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6624" PostTypeId="2" ParentId="6618" CreationDate="2015-07-20T19:56:07.900" Score="3" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;And also does this have anything to do with discounting vs. coupon bonds, etc?&lt;/em&gt;&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It does.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume a bond without coupons, to be fully re-paid in a single payment. On it (&quot;face value&quot; $\equiv B$) the bond writes &lt;em&gt;the amount to be paid&lt;/em&gt;, as well as the &lt;em&gt;date of payment&lt;/em&gt;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In such a situation, the &quot;face value&quot; includes both the principal amount  &lt;em&gt;and&lt;/em&gt; the interest. But the bond will be transformed to cash in say, one year's time. Then the &quot;present value&quot; of the bond is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$${\rm PV} = \frac {B}{1+r}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $r$ does not equal the contractual yearly interest rate of the bond, but an interest rate that reflects current market conditions and expectations, as well as the current assessment of the solvency of the debtor &lt;em&gt;at payment time&lt;/em&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course both &quot;face value&quot; and &quot;present value&quot; are very general terms, used in a variety of situations, in which their meaning is similar but not identical to the above described.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-07-20T19:56:07.900" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6625" PostTypeId="1" CreationDate="2015-07-20T20:38:27.957" Score="2" ViewCount="57" Body="&lt;p&gt;I am trying to show that 2 groups of individuals are intrinsically the same. I have various characteristics to measure for both group A and group B, such as height, weight, age, etc. I have taken the averages of both groups, and by inference I can see that they are similar - is there a more robust way of doing this?&lt;/p&gt;&#xA;" OwnerUserId="5257" LastActivityDate="2015-07-20T22:55:49.020" Title="Comparing two groups of individuals" Tags="&lt;microeconomics&gt;&lt;econometrics&gt;&lt;statistics&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6626" PostTypeId="1" CreationDate="2015-07-20T21:00:12.793" Score="3" ViewCount="73" Body="&lt;p&gt;What is the rate of new house construction in Auckland, New Zealand, where the housing market seems to have gone to the roof? Assuming that the current high prices of Auckland houses are a result of less supply compared to demand (and not a bubble), is the number of houses to number of buyers going to stabilize anytime soon?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, if so many new houses are warranted in Auckland, is it also having high activity in the construction industry?&lt;/p&gt;&#xA;" OwnerUserId="4980" LastEditorUserId="264" LastEditDate="2015-07-22T19:33:33.757" LastActivityDate="2015-10-08T04:46:27.337" Title="What is the rate of new house construction in Auckland, New Zealand?" Tags="&lt;macroeconomics&gt;&lt;data-request&gt;&lt;housing&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6627" PostTypeId="2" ParentId="3283" CreationDate="2015-07-20T21:37:33.693" Score="2" Body="&lt;p&gt;ICAAP stress tests are for internal capital or economic capital, which are requirements under Basel II pillar II. &#xA;CCAR stress testing is for regulatory capital, which is also under Basel II. US regulators provide specific scenarios and risk factor shocks. &lt;/p&gt;&#xA;" OwnerUserId="5258" LastActivityDate="2015-07-20T21:37:33.693" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6628" PostTypeId="2" ParentId="6625" CreationDate="2015-07-20T22:37:32.917" Score="2" Body="&lt;p&gt;It sounds like you've basically eyeballed the groups to decide they're similar.  A more advanced way of eyeballing would be to plot the distribution of each characteristic to see how similar they look.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In order to move beyond eyeballing, though, you'd need recourse to statistics.  One common method--that comes up frequently in two-group studies--is to do a statistical test to verify that the groups are similar.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Broadly speaking, you'd look at each characteristic, say height, and assert your hypothesis: average height is the same in both groups.  Then you could do a hypothesis test to see if the average height is actually the same or if it's different.  The specific statistical test you'd use depends on the data in your possession.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, see the &lt;a href=&quot;https://en.wikipedia.org/wiki/Student%27s_t-test&quot; rel=&quot;nofollow&quot;&gt;t-test&lt;/a&gt; or the &lt;a href=&quot;https://en.wikipedia.org/wiki/Chi-squared_test&quot; rel=&quot;nofollow&quot;&gt;chi-squared&lt;/a&gt; test for a difference in means (or just search for &quot;difference in means test&quot;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You'd run the test (statistical software generally has a feature like this) to determine if it shows a significant difference.  If so, you might be comfortable saying the groups are not similar inasmuch as that characteristic (height) is concerned.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then you'd repeat the procedure for weight and each of the other characteristics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At the end, many researchers make a little table that shows the $p$-values (which you get from running the test) for each of the characteristics.  This gives your readers the ability to see and decide for themselves whether the groups are similar.&lt;/p&gt;&#xA;" OwnerUserId="4961" LastEditorUserId="4961" LastEditDate="2015-07-20T22:55:49.020" LastActivityDate="2015-07-20T22:55:49.020" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6629" PostTypeId="5" CreationDate="2015-07-20T23:00:14.847" Score="0" Body="&lt;p&gt;Dutch disease is the negative impact on an economy of anything that gives rise to a sharp inflow of foreign currency, such as the discovery of large oil reserves. The currency inflows lead to currency appreciation, making the country's other products less price competitive on the export market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The term was coined in 1977 by The Economist to describe the decline of the manufacturing sector in the Netherlands after the discovery of the large Groningen natural gas field in 1959&lt;/p&gt;&#xA;" OwnerUserId="40" LastEditorUserId="40" LastEditDate="2015-07-21T00:33:05.047" LastActivityDate="2015-07-21T00:33:05.047" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6630" PostTypeId="4" CreationDate="2015-07-20T23:00:14.847" Score="0" Body="Dutch disease is the apparent relationship between the increase in the economic development of natural resources and a decline in the manufacturing sector (or agriculture)." OwnerUserId="40" LastEditorUserId="40" LastEditDate="2015-07-21T19:14:16.670" LastActivityDate="2015-07-21T19:14:16.670" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6631" PostTypeId="1" CreationDate="2015-07-21T06:17:02.393" Score="3" ViewCount="312" Body="&lt;p&gt;Cobb-Douglas is $Y = AK^{1-\alpha}L^{\alpha}$.&#xA;What exactly is $L$ in Cobb-Douglas? Is $L$ the number of workers available in a single year? Working hours?&lt;/p&gt;&#xA;" OwnerUserId="5260" LastEditorUserId="264" LastEditDate="2015-07-23T22:09:55.060" LastActivityDate="2015-07-23T22:09:55.060" Title="What exactly is L in a Cobb-Douglas production function?" Tags="&lt;macroeconomics&gt;&lt;production-function&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6632" PostTypeId="2" ParentId="6631" CreationDate="2015-07-21T11:47:39.310" Score="6" Body="&lt;p&gt;It can be both. The number of working hours are of course easier to interpret. You can also make the assumption that every employee works some fixed number of hours, say 8 per day (or 220 per month, or 38 a week, etc). In this case if you denote by $n$ the number of workers and $L$ the number of hours worked you have of course&#xA;$$&#xA;n \cdot 8 = L&#xA;$$&#xA;and then&#xA;$$&#xA;A \cdot K^{1-\alpha} \cdot L^{\alpha} = A \cdot K^{1-\alpha}  \cdot ( n \cdot 8 ) ^{\alpha} = 8^{\alpha} \cdot A \cdot K^{1-\alpha}  \cdot n ^{\alpha} = \left(8^{\alpha} \cdot A\right) \cdot K^{1-\alpha}  \cdot n ^{\alpha}.&#xA;$$&#xA;So you can choose $L$ to represent either quantity as long as you take it into consideration when choosing/calibrating $A$. &lt;br&gt; (Provided that some conditions like $n \cdot 8 = L$ hold or are a reasonable approximation of reality.)&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2015-07-21T11:47:39.310" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6633" PostTypeId="1" CreationDate="2015-07-21T11:48:23.560" Score="12" ViewCount="2370" Body="&lt;p&gt;I suppose GDP is supposed to create a measure of a country's wealth/welfare, something easily indexable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But how exactly is it composed? And is its composition disputed? How good is it at measuring a country's economic well-being?&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-07-21T18:57:32.227" Title="What is the Gross Domestic Product (GDP)?" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6634" PostTypeId="2" ParentId="6633" CreationDate="2015-07-21T11:53:57.830" Score="11" Body="&lt;p&gt;&lt;strong&gt;Gross Domestic Product&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;p&gt;As per &lt;a href=&quot;https://en.wikipedia.org/wiki/Gross_domestic_product&quot; rel=&quot;noreferrer&quot;&gt;wikipedia&lt;/a&gt;, we learn that the &lt;a href=&quot;https://en.wikipedia.org/wiki/Organization_for_Economic_Co-operation_and_Development&quot; rel=&quot;noreferrer&quot;&gt;OECD&lt;/a&gt;, an organisation of international recognition for economic policies and macroeconomy, defined the GDP as&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Gross domestic product is an aggregate measure of production equal to the sum of the gross values added of all resident institutional units engaged in production (plus any taxes, and minus any subsidies, on products not included in the value of their outputs). The sum of the final uses of goods and services (all uses except intermediate consumption) measured in purchasers' prices, less the value of imports of goods and services, or the sum of primary incomes distributed by resident producer units.&lt;/p&gt;&#xA;&lt;p&gt;-- OECD, &lt;a href=&quot;http://stats.oecd.org/glossary/detail.asp?ID=1163&quot; rel=&quot;noreferrer&quot;&gt;Glossary&lt;/a&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;In somewhat simpler terms, it is a quantitative measure of the amount of values produced by all industries and services of a given country. For example, if a company buy some tomatoes and produce a tomato sauce, the difference between the &lt;em&gt;money&lt;/em&gt; received for selling the sauce and the &lt;em&gt;money&lt;/em&gt; spent for buying the tomatoes (and possibly other products) will be added to the GDP of the country where the tomatoes are being transformed&lt;sup&gt;1&lt;/sup&gt;.&lt;/p&gt;&#xA;&lt;p&gt;The GDP is based on price, and not all prices are known (for example, prostitution, black market, etc.) or need to be estimated, like public services. Therefore the determination of the actual GDP cannot be reached, but some statistical approaches offer various ways to estimate that number. One should note that the different approaches do not always provide similar results. Furthermore slight variations in the definition of the GDP may provide different results. Even if the GDP is used since decades everywhere, there are still some discussion about how to measure it. Some details are provided in &lt;a href=&quot;https://en.wikipedia.org/wiki/Gross_domestic_product#Determining_GDP&quot; rel=&quot;noreferrer&quot;&gt;Wikipedia&lt;/a&gt; and in the references therein. But one way, is to use the expenses approach where the GDP is calculated as&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$GDP = C + I + X - M + P$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;where &lt;span class=&quot;math-container&quot;&gt;$C$&lt;/span&gt; is the consumption, &lt;span class=&quot;math-container&quot;&gt;$I$&lt;/span&gt; the investments, &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; the exports, &lt;span class=&quot;math-container&quot;&gt;$M$&lt;/span&gt; the imports and &lt;span class=&quot;math-container&quot;&gt;$P$&lt;/span&gt; the public spending. More details can be found &lt;a href=&quot;http://www.bea.gov/national/pdf/nipaguid.pdf&quot; rel=&quot;noreferrer&quot;&gt;here&lt;/a&gt; or in the already cited wikipedia.&lt;/p&gt;&#xA;&lt;p&gt;The GDP number is used to indicate the performance of an economy. The higher it is, the more value the country's econmy produced. It is used to&lt;/p&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;compare two countries' economy, regardless of the types of industries they have,&lt;/li&gt;&#xA;&lt;li&gt;see the evolution of a given country economy as a function of time.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;p&gt;Please note that those are only valid with a constant definition and equal estimation approach. One approach&lt;/p&gt;&#xA;&lt;p&gt;It can be noted that the GDP value of a country is often normalised by the number of inhabitants of that country. This, to simplify the comparison between countries like Luxembourg and India, which have US\$54,940,000,000 (US\$111,716 per capita) and US\$2,308,018,000,000 (US\$1,627 per capita) respectively (as per IMF in &lt;a href=&quot;https://www.imf.org/external/pubs/ft/weo/2015/01/weodata/weorept.aspx?sy=2014&amp;amp;ey=2014&amp;amp;ssd=1&amp;amp;sort=country&amp;amp;ds=.&amp;amp;br=1&amp;amp;c=512%2C668%2C914%2C672%2C612%2C946%2C614%2C137%2C311%2C962%2C213%2C674%2C911%2C676%2C193%2C548%2C122%2C556%2C912%2C678%2C313%2C181%2C419%2C867%2C513%2C682%2C316%2C684%2C913%2C273%2C124%2C868%2C339%2C921%2C638%2C948%2C514%2C943%2C218%2C686%2C963%2C688%2C616%2C518%2C223%2C728%2C516%2C558%2C918%2C138%2C748%2C196%2C618%2C278%2C624%2C692%2C522%2C694%2C622%2C142%2C156%2C449%2C626%2C564%2C628%2C565%2C228%2C283%2C924%2C853%2C233%2C288%2C632%2C293%2C636%2C566%2C634%2C964%2C238%2C182%2C662%2C453%2C960%2C968%2C423%2C922%2C935%2C714%2C128%2C862%2C611%2C135%2C321%2C716%2C243%2C456%2C248%2C722%2C469%2C942%2C253%2C718%2C642%2C724%2C643%2C576%2C939%2C936%2C644%2C961%2C819%2C813%2C172%2C199%2C132%2C733%2C646%2C184%2C648%2C524%2C915%2C361%2C134%2C362%2C652%2C364%2C174%2C732%2C328%2C366%2C258%2C734%2C656%2C144%2C654%2C146%2C336%2C463%2C263%2C528%2C268%2C923%2C532%2C738%2C944%2C578%2C176%2C537%2C534%2C742%2C536%2C866%2C429%2C369%2C433%2C744%2C178%2C186%2C436%2C925%2C136%2C869%2C343%2C746%2C158%2C926%2C439%2C466%2C916%2C112%2C664%2C111%2C826%2C298%2C542%2C927%2C967%2C846%2C443%2C299%2C917%2C582%2C544%2C474%2C941%2C754%2C446%2C698%2C666&amp;amp;s=NGDPDPC&amp;amp;grp=0&amp;amp;a=&amp;amp;pr.x=37&amp;amp;pr.y=10&quot; rel=&quot;noreferrer&quot;&gt;2014&lt;/a&gt; and &lt;a href=&quot;https://www.imf.org/external/pubs/ft/weo/2015/01/weodata/weorept.aspx?pr.x=48&amp;amp;pr.y=13&amp;amp;sy=2015&amp;amp;ey=2015&amp;amp;scsm=1&amp;amp;ssd=1&amp;amp;sort=country&amp;amp;ds=.&amp;amp;br=1&amp;amp;c=512%2C668%2C914%2C672%2C612%2C946%2C614%2C137%2C311%2C962%2C213%2C674%2C911%2C676%2C193%2C548%2C122%2C556%2C912%2C678%2C313%2C181%2C419%2C867%2C513%2C682%2C316%2C684%2C913%2C273%2C124%2C868%2C339%2C921%2C638%2C948%2C514%2C943%2C218%2C686%2C963%2C688%2C616%2C518%2C223%2C728%2C516%2C558%2C918%2C138%2C748%2C196%2C618%2C278%2C624%2C692%2C522%2C694%2C622%2C142%2C156%2C449%2C626%2C564%2C628%2C565%2C228%2C283%2C924%2C853%2C233%2C288%2C632%2C293%2C636%2C566%2C634%2C964%2C238%2C182%2C662%2C453%2C960%2C968%2C423%2C922%2C935%2C714%2C128%2C862%2C611%2C135%2C321%2C716%2C243%2C456%2C248%2C722%2C469%2C942%2C253%2C718%2C642%2C724%2C643%2C576%2C939%2C936%2C644%2C961%2C819%2C813%2C172%2C199%2C132%2C733%2C646%2C184%2C648%2C524%2C915%2C361%2C134%2C362%2C652%2C364%2C174%2C732%2C328%2C366%2C258%2C734%2C656%2C144%2C654%2C146%2C336%2C463%2C263%2C528%2C268%2C923%2C532%2C738%2C944%2C578%2C176%2C537%2C534%2C742%2C536%2C866%2C429%2C369%2C433%2C744%2C178%2C186%2C436%2C925%2C136%2C869%2C343%2C746%2C158%2C926%2C439%2C466%2C916%2C112%2C664%2C111%2C826%2C298%2C542%2C927%2C967%2C846%2C443%2C299%2C917%2C582%2C544%2C474%2C941%2C754%2C446%2C698%2C666&amp;amp;s=NGDPD&amp;amp;grp=0&amp;amp;a=&quot; rel=&quot;noreferrer&quot;&gt;2015&lt;/a&gt; via the corresponding Wikipedia's lists: &lt;a href=&quot;https://en.wikipedia.org/wiki/List_of_countries_by_GDP_%28nominal%29&quot; rel=&quot;noreferrer&quot;&gt;nominal&lt;/a&gt; and &lt;a href=&quot;https://en.wikipedia.org/wiki/List_of_countries_by_GDP_%28nominal%29_per_capita&quot; rel=&quot;noreferrer&quot;&gt;per capita&lt;/a&gt;). The higher the GDP/capita, the richer the population. But this, however is assuming a good repartition of the wealth, which is &lt;a href=&quot;http://www.unicef.org/socialpolicy/files/Global_Inequality.pdf&quot; rel=&quot;noreferrer&quot;&gt;not always granted&lt;/a&gt;.&lt;/p&gt;&#xA;&lt;p&gt;&lt;strong&gt;Discussions on the validity of GDP&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;p&gt;The GDP is &lt;strong&gt;an&lt;/strong&gt; indicator of the current state of an economy. However it tends to be used everywhere, every day by policy makers, economic analysts, journalists, etc. This overpowers other complementary indicators. Which, for policy making is probably insufficient.&lt;/p&gt;&#xA;&lt;p&gt;As mentioned before, the GDP is used as a measure of how rich the inhabitants of a country are, but due to (sometimes &lt;em&gt;very&lt;/em&gt;) inequal repartition of wealth, the GDP could be misleading. Apart from the document cited above, some claim that&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;neither GDP nor this balance sheet takes account of environmental degradation, insecurity or inequality.&lt;/p&gt;&#xA;&lt;p&gt;-- François Lequiller, &lt;a href=&quot;http://www.oecdobserver.org/news/archivestory.php/aid/1518/Is_GDP_a_satisfactory_measure_of_growth_.html&quot; rel=&quot;noreferrer&quot;&gt;OECD&lt;/a&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;And, as &lt;a href=&quot;https://duckduckgo.com/?q=alternative%20to%20GDP%20&quot; rel=&quot;noreferrer&quot;&gt;can be found&lt;/a&gt;, there are some discussions about alternative indicators to replace or complement the GDP, which should indicate the wealth as well as environmental, equality and some other parameters.&lt;/p&gt;&#xA;&lt;p&gt;&lt;sub&gt;1. That is the main difference with GNP, which concerns residents, that is to say where the company is registered. More on the subject can be found &lt;a href=&quot;http://www.bea.gov/scb/pdf/NATIONAL/NIPA/1991/0891od.pdf&quot; rel=&quot;noreferrer&quot;&gt;here&lt;/a&gt;.&lt;/sub&gt;&lt;/p&gt;&#xA;" OwnerUserId="4817" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2015-07-21T15:40:54.770" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="6635" PostTypeId="2" ParentId="6489" CreationDate="2015-07-21T15:06:15.813" Score="2" Body="&lt;p&gt;In my view, Miller and Sanjurjo simply calculated the relative frequencies in Table 1 incorrectly. Their table is shown below with two new columns added, which count the number of subsequences HH and HT that occur within each sequence of 4 coin flips. To get the desired conditional probability p(H|H) one must sum these counts N(HH) and N(HT) and then divide as shown below. Doing this gives p(H|H)=0.5, as expected. For some reason, Miller and Sanjurjo first calculated the relative frequency for each sequence and then averaged over the sequences. That's just wrong.&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;Sequence     Subsequences       N(HH) N(HT)    p(H|H)&#xA;TTTT  -&amp;gt;  TT.. , .TT. , ..TT      0     0        -  &#xA;TTTH  -&amp;gt;  TT.. , .TT. , ..TH      0     0        -  &#xA;TTHT  -&amp;gt;  TT.. , .TH. , ..HT      0     1       0.0 &#xA;THTT  -&amp;gt;  TH.. , .HT. , ..TT      0     1       0.0 &#xA;HTTT  -&amp;gt;  HT.. , .TT. , ..TT      0     1       0.0 &#xA;TTHH  -&amp;gt;  TT.. , .TH. , ..HH      1     0       1.0 &#xA;THTH  -&amp;gt;  TH.. , .HT. , ..TH      0     1       0.0 &#xA;THHT  -&amp;gt;  TH.. , .HH. , ..HT      1     1       0.5 &#xA;HTTH  -&amp;gt;  HT.. , .TT. , ..TH      0     1       0.0 &#xA;HTHT  -&amp;gt;  HT.. , .TH. , ..HT      0     2       0.0 &#xA;HHTT  -&amp;gt;  HH.. , .HT. , ..TT      1     1       0.5 &#xA;THHH  -&amp;gt;  TH.. , .HH. , ..HH      2     0       1.0 &#xA;HTHH  -&amp;gt;  HT.. , .TH. , ..HH      1     1       0.5 &#xA;HHTH  -&amp;gt;  HH.. , .HT. , ..TH      1     1       0.5 &#xA;HHHT  -&amp;gt;  HH.. , .HH. , ..HT      2     1       0.66&#xA;HHHH  -&amp;gt;  HH.. , .HH. , ..HH      3     0       1.0 &#xA;                                 --    --       ----&#xA;                                 12    12       0.40&#xA;                            p(H|H)=N(HH)/N(H*)&#xA;                                  =12/(12+12)&#xA;                                  =0.5&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;" OwnerUserId="5263" LastActivityDate="2015-07-21T15:06:15.813" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="6638" PostTypeId="2" ParentId="6633" CreationDate="2015-07-21T18:46:06.950" Score="1" Body="&lt;p&gt;Although GDP and GNP are promoted as &quot;measuring a country's well-being&quot;, that is &lt;em&gt;not&lt;/em&gt; their primary purpose.  Instead, their purpose is to measure the amount of taxable economic activity in a country.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;GDP can be computed in two different ways.  Notice that governments can collect taxes on all of the components of these calculations:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;By adding up the &quot;value-added&quot; of businesses and governments.  In&#xA;other words, for each product or service that the entity manages to&#xA;charge people for, add what the entity was able to charge, and&#xA;subtract what the entity paid for the ingredients of the product.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;By adding up the total monetary income of individuals, businesses,&#xA;and governments.  Typically, this income is in the forms of wages,&#xA;salaries, purchased fringe benefits (such as medical insurance),&#xA;interest, dividends, and capital gains.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Here are some activities that are relatively easy for a country to tax:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Any transaction where the government records a title transfer.&lt;/li&gt;&#xA;&lt;li&gt;Any transaction &lt;em&gt;in the country&lt;/em&gt; involving a government or licensed business with auditable books.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;And here are some activities that are relatively hard for a country to tax:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Volunteer work&lt;/li&gt;&#xA;&lt;li&gt;Unpaid house-keeping done by members of a household.&lt;/li&gt;&#xA;&lt;li&gt;Unpaid child-care done by members of a household.&lt;/li&gt;&#xA;&lt;li&gt;Unpaid home maintenance done by members of a household.&lt;/li&gt;&#xA;&lt;li&gt;The growth of animals or plants that are not intended for sale through legitimate markets.&lt;/li&gt;&#xA;&lt;li&gt;Learning that people do at home (e.g. by reading, by home-schooling, or by using the internet).&lt;/li&gt;&#xA;&lt;li&gt;Black market activities (&quot;Crime doesn't pay... taxes.&quot;)&lt;/li&gt;&#xA;&lt;li&gt;Paper profits on investments in foreign countries.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Bilbo's excellent answer suggests some features of GDP calculations that appear to make it bad at &quot;measuring a country's well-being&quot;.  These are the exact features that make GDP calculations useful for measuring taxable economic activity:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;GDP measures the value of things using market prices.  Tax-men can do audits of the prices businesses charge and pay.&lt;/li&gt;&#xA;&lt;li&gt;Countries switched from measuring GNP to GDP when they realized that they were unlikely to be able to collect taxes on &quot;paper profits on investments in foreign countries.&quot;  (These profits are the difference between GNP and GDP.)&lt;/li&gt;&#xA;&lt;li&gt;If the tax system encourages high-income people to declare taxable income, GDP will reflect that income -- and show that high-income people have a larger share of total income.  If high-income people never declare paper profits as taxable income, GDP will not reflect that income -- and the official statistics will understate the high-income people's share of total income.&lt;/li&gt;&#xA;&lt;li&gt;Re-sale of most used products is not included in GDP -- but used car sales (through licensed businesses) are included.  Specifically, the difference between what a licensed used-car dealer pays for a car, and what the dealer sells the car for, is included.&lt;/li&gt;&#xA;&lt;li&gt;Environmental improvement and degradation are not explicitly included in GDP, because it is hard to tax the growth of plants and animals that are not intended for sale.&lt;/li&gt;&#xA;&lt;li&gt;Good things that are done for love (instead of money) are not part of GDP calculations, because governments have a hard time taxing love.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="5266" LastEditorUserId="5266" LastEditDate="2015-07-21T18:57:32.227" LastActivityDate="2015-07-21T18:57:32.227" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6639" PostTypeId="1" CreationDate="2015-07-21T20:52:22.123" Score="3" ViewCount="2172" Body="&lt;p&gt;The Indian Rupee (INR) seems fairly stable against the USD (1 USD = 62-64 INR) in the recent times even though most other currencies have weakened against USD, some by 20-30%. Apparently, INR is responsive to most other currencies these days except the USA. Is it related to the strength of the Indian economy, or that INR has already fallen to its lowest point well before other currencies?&lt;/p&gt;&#xA;" OwnerUserId="4980" LastActivityDate="2015-09-23T12:40:13.463" Title="Why is Indian rupee is stable against the USD even though most other currencies weakening?" Tags="&lt;macroeconomics&gt;&lt;currency&gt;&lt;exchange-rates&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6640" PostTypeId="1" AcceptedAnswerId="6641" CreationDate="2015-07-21T21:57:34.613" Score="4" ViewCount="608" Body="&lt;p&gt;It is well known that &lt;strong&gt;debt&lt;/strong&gt; can cause &lt;strong&gt;deflation&lt;/strong&gt;, especially during &lt;strong&gt;crisis&lt;/strong&gt;: to repay their debts agents sell their goods which causes a fall in prices.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But if there is no crisis and agents &quot;have the time&quot; to repay their debt, would it be possible to have the opposite mechanism, &lt;strong&gt;inflation&lt;/strong&gt;: to repay their debts (and make their investments profitable) agents would sell their products for an higher price causing a raise in prices?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the general case it seems difficult because this could destroy market shares if there is competition.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But in some cases I wonder if it could:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;monopolys (especially state monopolys, and this would be a kind of hidden tax),&lt;/li&gt;&#xA;&lt;li&gt;competition but with all competitors in debt so that all have to sell at higher prices to survive,&lt;/li&gt;&#xA;&lt;li&gt;...&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="5267" LastEditorUserId="5267" LastEditDate="2015-10-22T08:43:22.397" LastActivityDate="2015-10-22T08:43:22.397" Title="Could debt cause inflation instead of deflation?" Tags="&lt;macroeconomics&gt;&lt;inflation&gt;&lt;debt&gt;&lt;financial-crises&gt;&lt;deflation&gt;" AnswerCount="1" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="6641" PostTypeId="2" ParentId="6640" CreationDate="2015-07-22T01:26:58.140" Score="6" Body="&lt;p&gt;Yes it can.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If debt originates from the banking system, then it potentially has a side effect of money creation. Whether or not money is actually created when a bank loan is made depends on the banking system's regulatory framework, and the lending policies of its banks, and these can vary widely. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However if there is net excess of bank lending over bank loan repayment and loan default, then money creation is occurring, and the additional money can and indeed usually does, result in inflation.&lt;/p&gt;&#xA;" OwnerUserId="84" LastActivityDate="2015-07-22T01:26:58.140" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6642" PostTypeId="2" ParentId="6544" CreationDate="2015-07-22T09:09:17.813" Score="7" Body="&lt;p&gt;GDP is a measure of economic activity. One typical way to look at the question is the way shown in &lt;a href=&quot;https://economics.stackexchange.com/a/6620/4817&quot;&gt;another answer&lt;/a&gt;. Here I want to put some assumptions in place in order to give a bit more structure.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is widely accepted that economic output is created through capital and labor, and facilitated by technology. For the sake of answering this question, we can assume that somehow we can aggregate all the decentralized small economic activities into one aggregate economic activity. For our economy then, GDP $Y$ is produced using labor $L$, capital $K$, and technology $A$, and some sort of production function $F$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ Y = F(A, K,L)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This entails all ways that growth can happen, and I shall walk quickly through them.&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Labor&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;When there is more work being done, we produce more. This includes both the &lt;em&gt;intensive margin&lt;/em&gt; (each worker spending more time per week, month, year on on his job(s)), and the extensive margin (there being more workers, due to larger population). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that it is unlikely to get &lt;em&gt;persistent&lt;/em&gt; growth from the intensive margin - eventually people are working as much as they can. The extensive margin, however, can give you persistent growth. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;One can also think about $L$ as &lt;em&gt;effective&lt;/em&gt; labor, in the sense that human capital also influences output. A stronger man can harvest more fields than a weak one, and a smart man can design more bridges. If workers get more skills that are useful in their economic activity, that will also stimulate growth.&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Capital&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;When there is more machines, we can produce more, for the same amount of labor. $K$ in that equation entails both quantity and quality of machinery, similar to the human capital point. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Capital is part of economic output. Hence, in order to create GDP, we need GDP. We also need people to actually decide that saving previously earned GDP and &quot;transforming it into capital&quot; is better than consuming it. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Capital naturally depreciates. This is because technology may change, and hence old tools might be of less use, but also naturally due to fatigue etc. Hence, even if we don't want to grow, we still need to consistently devote a share of GDP towards investment. If we want positive growth, we need to invest further.&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Technology&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;Technically, &lt;em&gt;technology&lt;/em&gt; incorporates both $A$ and $F$ in the previous equation. If we have a large population, but only little capital, creating technologies that make more efficient use of labor, and need less capital, will increase growth. Regarding $A$, using technologies that allow us to produce at a higher level of efficiency we can produce a higher level of output for the same amount of inputs. &lt;/p&gt;&#xA;&#xA;&lt;h2&gt;So then, what are good policies/channels?&lt;/h2&gt;&#xA;&#xA;&lt;h3&gt;Increase investment&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;Higher investment means more capital, and hence more to produce. An example policies to increase investment are decreasing capital taxation, and anything that increases the return to capital.&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Increase effective labor&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;We cannot get persistent growth from increasing the working hour per person, although this may be a valid policy in the short run. Increasing the labor force (more immigration, higher fertility) is a  second. Be cautioned, that that also means that the population gets a smaller share of the GDP, as we have more people to split the cake. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Increasing human capital hence seems like the natural way. Policies that allow people to become better at their jobs will increase growth. That could be &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;better education&lt;/li&gt;&#xA;&lt;li&gt;training on the job&lt;/li&gt;&#xA;&lt;li&gt;couching of unemployed&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;h2&gt;Increase technology&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;This is a no-brainer, and most likely the most important driver of economic growth over the past century. In effect, many people are worried that the time of big growth is over, just because the time of big inventions and technological booms appears to be over. Policies that incentivize research and development will increase growth. Such as&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Patents (but they are a double edged sword) and anything else that will increase the returns to research&lt;/li&gt;&#xA;&lt;li&gt;Better education, make &quot;research&quot; more attractive&lt;/li&gt;&#xA;&lt;li&gt;Technological/research hubs, similar to silicon valley: Anything that facilitates research&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="43" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-07-22T14:54:43.553" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6643" PostTypeId="2" ParentId="6573" CreationDate="2015-07-22T09:33:16.107" Score="3" Body="&lt;p&gt;&lt;strong&gt;Background&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since the marginal cost of distribution for a creative work such as a song is now essentially zero, the efficient thing to do would be to provide all songs to listeners at a price of zero (i.e. to allow piracy). However, this neglects the fact that producing creative works involves a fixed up-front cost (e.g. studio recording time, or simply the artist's time composing the work) that cannot be covered if the price is zero. Moreover, it is efficient for producers of 'good' songs (i.e. those that create value in excess of the production cost) to incur the fixed cost, and for producers of bad songs not to do so.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The way that society mostly addresses this issue is through the grant of intellectual property (specifically, copyright) protection. The trade-off made is that artists are allowed to act as monopolist suppliers (with all of the attendant inefficiencies) because the resulting profits will give them an incentive to produce in the first place. The fact that a seller's rewards are tied to their monopoly profits means that the most popular artists should, in principle, have the biggest incentive to create.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Efficiency effect of piracy&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If one buys the idea that we need IP protection to induce the production of creative work then tolerating widespread piracy is a bad idea because it takes away the profit that is supposed to provide artists with the incentive to create. Whilst each individual instance of piracy might be efficient, the overall effect of reducing the number of works produced might not. It is then necessary to ensure that enough people do not pirate enough of the time to keep the rewards from production at a sufficient level.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;People should be expected to pirate if the benefits from doing do (free consumption of creative works) exceed the costs (determined by likelihood of being prosecuted and the penalty when prosecuted). An obvious way to stop people from pirating is to increase this cost by prosecuting more people—even if you don't really care that much about winning. Indeed, the main objective is not to win the case and get what, to the RIAA is pocket change; rather, the objective is to scare people enough that they start buying rather than pirating music. [n.b. The RIAA would have to win at least some of the cases, otherwise the threat would be completely empty. As Densep notes in a comment, this raises the issue of whether we can really call these cases SLAPPs or not].&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the result is that artists earn more money and respond by producing more creative works then this can indeed be efficient.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Some tangential remarks&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The last qualifier (if the result is that artists earn more money and respond by producing more creative works then this can indeed be efficient) is non-trivial. There is some debate about how elastic the supply of creative works really is to the rate of piracy and whether this effect is big enough to offset the efficiency gains that come from consuming creative goods at marginal cost (i.e. zero).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My sense is also that there is a consensus among economists that the existing degree of copyright protection (typically something like the entire life of the author plus an additional seventy years) is far more generous than the level necessary to induce efficient levels of creative goods production.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lastly, there are other ways of providing an incentive to create. For example, instead of granting an intellectual monopoly, the state can insist that all creative works are freely available and instead reward artists with a lump-sum prize. This avoids the monopoly distortion, but has a couple of drawbacks: (i) the prize would have to be funded somehow (e.g. from taxation, which is itself distortionary); (ii) it would be necessary to find a way to ensure that prizes are only given to reward the right kinds of music. The advantage of the intellectual property approach is that the market automatically rewards popular songs more.&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2015-07-22T12:48:32.027" LastActivityDate="2015-07-22T12:48:32.027" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="6644" PostTypeId="5" CreationDate="2015-07-22T12:18:01.867" Score="0" Body="" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2015-07-22T12:18:01.867" LastActivityDate="2015-07-22T12:18:01.867" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6645" PostTypeId="4" CreationDate="2015-07-22T12:18:01.867" Score="0" Body="A property of preferences that causes an agent to prefer alternatives whose outcomes are relatively certain, even when the associated expected payoff is lower." OwnerUserId="108" LastEditorUserId="108" LastEditDate="2015-07-22T12:18:01.867" LastActivityDate="2015-07-22T12:18:01.867" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6646" PostTypeId="5" CreationDate="2015-07-22T12:19:35.130" Score="0" Body="" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2015-07-22T12:19:35.130" LastActivityDate="2015-07-22T12:19:35.130" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6647" PostTypeId="4" CreationDate="2015-07-22T12:19:35.130" Score="0" Body="The application of the statistical programming language &quot;r&quot; to economic problems." OwnerUserId="108" LastEditorUserId="108" LastEditDate="2015-07-22T12:19:35.130" LastActivityDate="2015-07-22T12:19:35.130" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6648" PostTypeId="2" ParentId="6544" CreationDate="2015-07-22T13:47:08.833" Score="1" Body="&lt;p&gt;To answer your first question (how do economies grow): By creating surplus value. I always wondered why surplus value was not studied more deeply because it explains the paradox of how 1 + 1 could equal 3. Now, how you create/increase surplus value is a topic that I cannot explain in few words (so, no chance for me to get the bounty).&lt;/p&gt;&#xA;" OwnerDisplayName="user4954" LastActivityDate="2015-07-22T13:47:08.833" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6649" PostTypeId="2" ParentId="6618" CreationDate="2015-07-22T14:07:33.163" Score="1" Body="&lt;p&gt;In short:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;strong&gt;Present Value&lt;/strong&gt; is the value of an &lt;em&gt;expected&lt;/em&gt; (as in, you didn't receive it yet) income stream determined as of the date of valuation.&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;Face Value&lt;/strong&gt; commonly refers to the value that &lt;em&gt;is&lt;/em&gt; paid to you at the maturity date.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I don't usually think of these two in the same way, but I see why it can get confusing to do so. The difference between these two terms of a temporal (time) nature. With present value, you're thinking about the &lt;em&gt;current&lt;/em&gt; value of the money that you're &lt;strong&gt;&lt;em&gt;soon to receive&lt;/em&gt;&lt;/strong&gt;; with face value, you're thinking of the money that you're &lt;strong&gt;&lt;em&gt;currently receiving&lt;/em&gt;&lt;/strong&gt; as a result of the maturity in its value. &lt;/p&gt;&#xA;" OwnerUserId="5271" LastActivityDate="2015-07-22T14:07:33.163" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6650" PostTypeId="2" ParentId="6545" CreationDate="2015-07-22T14:36:20.290" Score="1" Body="&lt;p&gt;In a &lt;a href=&quot;https://economics.stackexchange.com/questions/6544/how-do-economies-grow&quot;&gt;previous question&lt;/a&gt;, the economic growth has been explained to be a rise of the &lt;a href=&quot;https://economics.stackexchange.com/questions/6633/what-is-the-gross-domestic-product-gdp&quot;&gt;GDP&lt;/a&gt; as a function of time. The answers to the said question discusses the mechanisms or parameters which influence the GDP, and which can contribute to its rise.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First let's clear the situation of the inflation away from the remainder of the discussion. Then we will try to see the advantages for a society of an economic growth, and finally we will discuss the pertinence of those perceived advantage, and some alternative theories.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Inflation&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;The measure of the GDP is based on the prices of products and services. As such, it is very dependent on the inflation. Indeed, everything else being equal, the increase in GDP should be exactly the inflation rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Effect of the inflation on the society&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &lt;a href=&quot;https://en.wikipedia.org/wiki/Inflation&quot; rel=&quot;nofollow noreferrer&quot;&gt;inflation&lt;/a&gt; corresponds to the overall increase of prices within a country, typically from one year to the next. There are &lt;a href=&quot;https://en.wikipedia.org/wiki/Inflation#Effects&quot; rel=&quot;nofollow noreferrer&quot;&gt;various effects&lt;/a&gt; on the inflation, and here is not the place to discuss all of them. We will just mention two&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Debts: due to the inflation, the relative value of debts decreases. So people or countries who have debts benefit from the inflation, as they are required to pay conparatively less. That is a way in which&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Transfers Money from Savers and Investors to Debtors (&lt;a href=&quot;http://beginnersinvest.about.com/od/inflationrate/a/What-Are-The-Effects-Of-Inflation.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;source&lt;/a&gt;)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;which make the capital more active for the economy.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Lower acquisition power: if the income stays constant, one gets less of one month's work. This is &lt;a href=&quot;https://en.wikipedia.org/wiki/Inflation#Effects&quot; rel=&quot;nofollow noreferrer&quot;&gt;argued&lt;/a&gt; to be a natural adjustment of income, as it can effectively be reduced, without actually reducing it.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Thus, &lt;em&gt;some&lt;/em&gt; inflation might be wanted, and this, in consequence, favours an increase of the GDP.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But most of the time, the economic growth is corrected for the inflation. And so will we discuss in the rest of the post.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Expected Advantages&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Now that we are inflation free, what are the advantages of an growth? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;One has to keep in mind that a growth is a &lt;em&gt;consequence&lt;/em&gt; of changes in the economy, not the &lt;em&gt;cause&lt;/em&gt;. Without trying to be fully &lt;a href=&quot;http://www.economicshelp.org/macroeconomics/economic-growth/benefits-growth/&quot; rel=&quot;nofollow noreferrer&quot;&gt;exhaustive&lt;/a&gt;, one can the following points which would explain the growth:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;lower unemployment: with more people working, the government needs to spend less on social helps, collects more taxes and thus can spend more in public contracts, or any other public investment. Furthermore, it means more people have more money to consume.&lt;/li&gt;&#xA;&lt;li&gt;higher salaries: similar to above, higher salaries mean more consumption and investment.&lt;/li&gt;&#xA;&lt;li&gt;Improved public finances: either less debt, or more savings, which in turn mean more spending (e.g. improving services or reducing taxes).&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Higher salaries, richer state and lower unemployment, mean a reduction of poverty, and has been associated to increase the happiness of the population and even to improved quality of life. This is understood by having better services and health system, changing to a primarily agricultural economy to one based on services, improved the health condition, and combined with an improve wealth, is associated with happiness and better life quality.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Politicians who are (at least indirectly&lt;sup&gt;1&lt;/sup&gt;) concerned with their citizens happiness and life quality, strives to create economic growth. Even without the relation to happiness and life quality, policies which aims at reducing the unemployment are perceived as positive by the voters.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Discussion&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;However all those benefits of growth are subject to debate. I don't want to give too many details, as many points are given in &lt;a href=&quot;https://en.wikipedia.org/wiki/Economic_growth#Quality_of_life&quot; rel=&quot;nofollow noreferrer&quot;&gt;Wikipedia&lt;/a&gt; and the references therein.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In particular, &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;a strict relation between the GDP and happiness is a &lt;a href=&quot;http://www.cato.org/publications/policy-analysis/pursuit-happiness-research-is-it-reliable-what-does-it-imply-policy&quot; rel=&quot;nofollow noreferrer&quot;&gt;subject&lt;/a&gt; of discussion;&lt;/li&gt;&#xA;&lt;li&gt;the quality of life isn't directly related to the spendings by the state, or the perceived income;&lt;/li&gt;&#xA;&lt;li&gt;poverty isn't necessarily positively affected by rise of GDP;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;and even the most direct factors are not necessarily included in an ecoomic growth, namely lower unemployment and higher salaries. For most of those to actually take place, the generated extra revenue (growth ca be seen as a revenue), isn't necessarily equally distributed. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To put it in a simple way, if the rich become richer, they won't be fundamentally much more happy. But the poor will at best stay as unhappy as before.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a &lt;a href=&quot;https://economics.stackexchange.com/a/6634/4817&quot;&gt;previous answer&lt;/a&gt;, I already discussed why GDP is not a good measure.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Furthermore, the economic growth is also associated to &lt;a href=&quot;https://en.wikipedia.org/wiki/Economic_growth#Negative_effects&quot; rel=&quot;nofollow noreferrer&quot;&gt;negative effects&lt;/a&gt;, mostly related to ecological issues. As a consequence, some claim that we should strive for a &lt;a href=&quot;https://en.wikipedia.org/wiki/Degrowth&quot; rel=&quot;nofollow noreferrer&quot;&gt;degrowth&lt;/a&gt;, due to the claim of unsustainability of a continuous economic growth.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;sub&gt;1. Indirectly: if the voters are happier, they are more likely to vote for them, and thus for them to stay in power.&lt;/sub&gt;&lt;/p&gt;&#xA;" OwnerUserId="4817" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-07-22T15:28:07.983" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6651" PostTypeId="1" CreationDate="2015-07-22T15:06:54.623" Score="1" ViewCount="499" Body="&lt;p&gt;When people talk about the size of an economy, they often refer to the GDP or changes to it, but seldom refer to the Net National Wealth. Obviously there are some superficial differences:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;GDP is Gross not Net&lt;/li&gt;&#xA;&lt;li&gt;GDP is Domestic not National (Within borders vs. owned by citizens)&lt;/li&gt;&#xA;&lt;li&gt;GDP is $\Delta$Capital whereas NNW is theoretically all the capital stock owned by a country's citizens.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;It appears the US switched from publishing GNP to GDP relatively recently (~1970), which seems like a less direct measure of its citizens economic welfare, but even that seems like an already abstracted measure from NNW.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So again, what are the differences between the two measures as economic indices that makes one more desirable (or at least discussed) than the other.&lt;/p&gt;&#xA;" OwnerUserId="31" LastActivityDate="2016-02-17T19:16:02.830" Title="How Does GDP Differ From NNW as an economic measure?" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="6652" PostTypeId="2" ParentId="6651" CreationDate="2015-07-22T15:44:17.350" Score="1" Body="&lt;p&gt;I cannot find any reference to a specific &quot;Net National Wealth&quot;. But I assume that you refer to the &lt;a href=&quot;https://en.wikipedia.org/wiki/National_wealth&quot; rel=&quot;nofollow&quot;&gt;National Wealth&lt;/a&gt;, in general (also called Net National Worth).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The GDP has been explained in &lt;a href=&quot;https://economics.stackexchange.com/questions/6633/what-is-the-gross-domestic-product-gdp&quot;&gt;another question&lt;/a&gt;, so I will not come back to it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The National Wealth is a measure of the total wealth of a country: assets, liability, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To my understanding, the main difference resides on the fact that the NW is a rather &lt;strong&gt;static&lt;/strong&gt; measure, whereas the GDP focuses on the &lt;strong&gt;dynamic&lt;/strong&gt; part. Some examples&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;the value of a house will appear in NW, but not in the GDP;&lt;/li&gt;&#xA;&lt;li&gt;if you buy a product from your neighbour, the NW will stay constant, but the GDP will increase.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;If a country has a high GDP, its citizens/companies should accumulate wealth, and thus the NW should increase. But as the GDP also contains movement within the country those are not reflected in the NW. A diamond is in NW, the operations to cut it is in the GDP.&lt;/p&gt;&#xA;" OwnerUserId="4817" LastActivityDate="2015-07-22T15:44:17.350" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6654" PostTypeId="2" ParentId="6616" CreationDate="2015-07-22T16:32:44.707" Score="2" Body="&lt;p&gt;Using the Federal Reserve's definition for M1 (warning, M definitions can vary between countries, so always check the local definition):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;M1 is defined as the sum of currency held by the public and transaction deposits at depository institutions (which are financial institutions that obtain their funds mainly through deposits from the public, such as commercial banks, savings and loan associations, savings banks, and credit unions).&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Note, reserves are not counted as part of M1. The explanation for that is in the answer here:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://economics.stackexchange.com/questions/5374/how-does-a-cash-deposit-change-the-m1-measure-of-the-money-supply/5375#5375&quot;&gt;How does a cash deposit change the M1 Measure of the Money Supply&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So in question 1) we are told that Toyland earns cash and uses it to pay down a short term loan from Bank One. Critically we are not told where Toyland has its account. Note, we can't assume that Toyland doesn't have a bank account, since the bank would have insisted on it having one to receive the loan. We'll assume to make things simple it was Bank One.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If it receives cash from the public that was not in the banking system, then Bank One's cash reserves would increase. At the same time so would Toyland's deposit account, so there is no change to M1 at that point in time. The decrease in the 'cash held by the public' outside the system is matched by the increase in the deposit account at Bank One.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now Toyland pays off its loan. There is no change to the cash reserves, Bank One simply decreases its loan book, and removes the money from Toyland's deposit account. So M1 decreases, because the loan is repaid and the liability deposit money is removed from the banking system. M2 is essentially M1 + some savings deposits and money market funds, so M2 will decrease as well.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) Bank of America takes $25k from its cash reserves and makes a loan.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Actually, Bank of America doesn't do that. Bank of America makes a loan by creating a liability deposit account/entry for that amount, and a matching entry in its loan book. Creating that deposit money increases M1 (and M2). Whatever Sissy does with the money subsequently is irrelevant. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Bank Nerd Trivia... 10% is the figure used for reserves in the example Keynes wrote for the 1931 Macmillan report, which has been subsequently copy and pasted into the textbooks. I've never seen an actual banking system that uses 10% - in 1930's reserve ratios were usually 20%+, whereas these days they are down to 1-2% in Europe. Although the US has a 10% reserve rate on &quot;Net Transaction Accounts&quot;, it has a 0% rate on all other accounts, which makes the actual rate open to account classification decisions by the US banks.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Keynes has a lot to answer for btw., the textbook description is horribly confusing, and also partially incorrect. (Try applying loan repayments to the examples it uses.)&lt;/p&gt;&#xA;" OwnerUserId="84" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-07-22T16:32:44.707" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6655" PostTypeId="1" CreationDate="2015-07-22T17:22:56.160" Score="7" ViewCount="83" Body="&lt;p&gt;I am aware of some work such as &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;O'Donoghue (1998): &quot;&lt;a href=&quot;http://www.jstor.org/stable/2556088?seq=1#page_scan_tab_contents&quot;&gt;A Patentability Requirement for Sequential&#xA;  Innovation&lt;/a&gt;&quot;, RAND Journal of Economics&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;and&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Hunt (1999): &quot;&lt;a href=&quot;http://papers.ssrn.com/sol3/papers.cfm?abstract_id=160674&quot;&gt;Nonobviousness and the incentive to innovate: an&#xA;  economics analysis of intellectual property reform&lt;/a&gt;&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;that discuss cases in which offering better protection for intellectual property (in these cases, by lowering patentability requirements) might &lt;em&gt;reduce&lt;/em&gt; the incentive for firms to innovate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Very roughly, the basic mechanism in these papers is that lowering the threshold for patentability means that an incumbent with a patent expects to be superseded by someone else with a better patent very quickly. Since the advantage to a patent does not last long, the incentives to invest in innovation to acquire such a patent are reduced.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am curious whether people can suggest other mechanisms by which strengthening intellectual property protection (including moving from no protection to a positive degree of protection) can reduce innovation, and provide relevant references.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2015-07-23T13:16:23.133" Title="Intellectual property as a retarder of innovation" Tags="&lt;reference-request&gt;&lt;intellectual-property&gt;&lt;innovation&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6656" PostTypeId="1" AcceptedAnswerId="6669" CreationDate="2015-07-22T19:01:06.633" Score="1" ViewCount="402" Body="&lt;p&gt;What is the process used to distinguish the change in Gross Domestic Product (GDP) due to an increased output of goods and services from the change due to an increased prices? Why do we make it distinction?&lt;/p&gt;&#xA;" OwnerUserId="5272" LastEditorUserId="2776" LastEditDate="2017-02-16T10:41:50.577" LastActivityDate="2017-02-16T10:41:50.577" Title="How to distinguish between nominal and real GSP growth?" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6657" PostTypeId="1" CreationDate="2015-07-22T19:32:25.553" Score="2" ViewCount="579" Body="&lt;p&gt;I'm a complete statistics rookie but I'm looking for some general advice on workarounds if I'm trying to calculate the &lt;a href=&quot;https://en.wikipedia.org/wiki/Shapley_value&quot; rel=&quot;nofollow&quot;&gt;Shapley Value&lt;/a&gt; in games featuring many players.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;i.e. If I have 20 players, I need to run all combinations (n!) which is 2,432,902,008,176,640,000.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there a solid method of solving the problem by taking a sample of the combinations?  What do I need to look out for in order to make the results of using a sample as accurate as possible?&lt;/p&gt;&#xA;" OwnerUserId="5273" LastEditorUserId="69" LastEditDate="2015-07-22T19:35:59.113" LastActivityDate="2015-07-26T17:57:05.833" Title="Shapley value with large number of players" Tags="&lt;game-theory&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="6658" PostTypeId="1" AcceptedAnswerId="6659" CreationDate="2015-07-23T00:03:21.220" Score="0" ViewCount="123" Body="&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Dominique_Strauss-Kahn&quot; rel=&quot;nofollow&quot;&gt;Dominique Strauss-Khan&lt;/a&gt; (often called DSK) is a French politician, from the Socialist Party. He has been Minister of Economics and managing director of the International Monetary Fund (IMF) from 2007 to 2011. He may have been the candidate for the Socialist Party during the election of the French President in 2012, and is assumed to have good chances to win. He was lecturer in economics for some years in several French universities. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;French often nickname him as &quot;the best economist of France&quot; newspapers (e.g. &lt;a href=&quot;http://www.lefigaro.fr/vox/politique/2014/05/13/31001-20140513ARTFIG00343-dsk-un-retour-impossible.php&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;) . To be simple:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Is DSK the best economics of France?&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This question is certainly opinion-based, but economics is, among other things, the science of evaluation and of utility, I hope there may exist some metrics (directing the IMF may be one of these)  that allows to estimate his importance in the current economic world so the question may be understood as &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;In which perspective can DSK be considered as the best economist of France?&lt;/em&gt; Under which criteria?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;PS: I didn't know exactly how to tag this question. I used macroeconomics because of his position at IMF and his involvement in the Greek crisis.&lt;/p&gt;&#xA;" OwnerUserId="2677" LastEditorUserId="69" LastEditDate="2015-07-23T12:42:41.987" LastActivityDate="2015-07-23T15:43:47.590" Title="Is Dominique Strauss-Khan really &quot;the best economist of France&quot;?" Tags="&lt;macroeconomics&gt;" AnswerCount="2" CommentCount="7" ClosedDate="2015-07-23T16:25:44.333" ContentLicense="CC BY-SA 3.0" />
  <row Id="6659" PostTypeId="2" ParentId="6658" CreationDate="2015-07-23T01:41:51.700" Score="9" Body="&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Jean_Tirole&quot; rel=&quot;nofollow&quot;&gt;Jean Tirole&lt;/a&gt; is a French economist, with a degree from a French school, working at a French school, and as of the June 2015 &lt;a href=&quot;https://ideas.repec.org/top/top.person.nbcites.html&quot; rel=&quot;nofollow&quot;&gt;the tenth most cited living economist as measured by Repec&lt;/a&gt; with &lt;strong&gt;13,649&lt;/strong&gt; citations. That's about the same citation count as an entire top 100 ranked department. Everyone else in the top 10 works in an American institution and was born in the USA (8) or Russia (1). Dominique Strauss-Khan doesn't even make the top 5 percent list.  &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-07-23T15:43:47.590" LastActivityDate="2015-07-23T15:43:47.590" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6660" PostTypeId="1" AcceptedAnswerId="6661" CreationDate="2015-07-23T09:19:59.743" Score="2" ViewCount="146" Body="&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)_per_capita&quot; rel=&quot;nofollow&quot;&gt;According to the IMF&lt;/a&gt;, the GDP per capita in the USA is about \$57,000 per year. In many central African countries the figure is more like \$500 or less. These examples are indicative of the incredibly broad spectrum of levels of development observed globally.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;What is the state of the art as far as economists are concerned in explaining where these income disparities have come from? Why have countries like the US grown so much quicker that those of central Africa?&lt;/li&gt;&#xA;&lt;li&gt;What do we know about the prospects for closing this gap in the future? What are the main prerequisites for very poor countries to begin to grow quickly?&lt;/li&gt;&#xA;&lt;li&gt;Is there a sense in which developed countries could be said to be perpetuating global inequality (for example, via unfavorable trade policies), or is the state of the developing world largely independent of &quot;the West&quot;?&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Three questions, but I think they are fairly closely related (in the sense that the answer to 1. might well also answer 2. and 3.) so I am asking them all together here.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2015-07-23T09:55:49.460" Title="What do we know about the causes of global income inequality?" Tags="&lt;economic-growth&gt;&lt;inequality&gt;&lt;development&gt;&lt;development-economics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6661" PostTypeId="2" ParentId="6660" CreationDate="2015-07-23T09:55:49.460" Score="3" Body="&lt;p&gt;I have to say I do not believe in simple all encompassing answers. The reasons behind the differences are probably complex and multitude, varying from country to country. Below are some answers that one runs into and I think these probably account for a &lt;em&gt;share&lt;/em&gt; of the inequality.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;The book &lt;a href=&quot;http://whynationsfail.com/&quot; rel=&quot;nofollow&quot;&gt;Why Nations Fail&lt;/a&gt; deals with the first question extensively. It is a highly acclaimed work (though personally I was not always convinced by their reasoning) by renowned economists Daron Acemoglu and James Robinson. Their basic argument is that inclusive democratic institutions lead to greater growth because it safeguards business and economic interests of the people.&lt;/li&gt;&#xA;&lt;li&gt;Hence they see the biggest obstacle in undemocratic cultural traditions and lack of institutions. &lt;/li&gt;&#xA;&lt;li&gt;An argument I read somewhere (perhaps it was the &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/1610391845&quot; rel=&quot;nofollow&quot;&gt;Dictator's Handbook&lt;/a&gt;) is that developed countries prefer dictators in power to fledgling democracies in other countries. The reason is that fledgling democracies are not very stable, and that is bad for investment. Also dictators may be bribed more cheaply to disregard their people's best interest. (For example they may not implement environmental regulation for a price. The same may be said for democracies, but the price is usually higher.) In this way business interests in developed countries may directly contribute to dictatorships, which according Acemoglu and Robinson is what hinders economic growth.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2015-07-23T09:55:49.460" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6662" PostTypeId="1" CreationDate="2015-07-23T11:56:53.713" Score="7" ViewCount="225" Body="&lt;p&gt;Is there a journal that publishes replications (failed and successful) of (published) experiments? And, if not, why not?&#xA;And what about failed experiments (i.e. experiments with insignificant results)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;I think replications of experiments are very important, as experiments in economics depend on many different things and most of them we don't really understand. Having replicated an experiment helps to make sure that the results obtained are not by pure chance (or worse). And, more importantly, failed attempts to replicate a study shows that there was something wrong in one of the studies.&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As this was not clear: I am talking about lab experiments, not field experiments.&lt;/p&gt;&#xA;" OwnerUserId="120" LastEditorUserId="7215" LastEditDate="2016-02-10T22:15:56.243" LastActivityDate="2016-02-10T22:15:56.243" Title="Is there a journal for replications in experimental economics?" Tags="&lt;reference-request&gt;&lt;experimental-economics&gt;&lt;replication&gt;" AnswerCount="3" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6663" PostTypeId="2" ParentId="6658" CreationDate="2015-07-23T12:34:40.997" Score="1" Body="&lt;p&gt;DSK is an ordinary guy... Especially in theoretical economics, there are lots of very good french economists like Thomas Piketty, Emmanuel Farhi, Xavier Gabaix, Phillipe Aghion, François Bourguignon, Roger Guesnerie, Daniel Cohen, Pierre Cahuc, Antoine d'Autume and the list goes on.&lt;/p&gt;&#xA;" OwnerUserId="2938" LastActivityDate="2015-07-23T12:34:40.997" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6664" PostTypeId="2" ParentId="6655" CreationDate="2015-07-23T13:11:10.717" Score="3" Body="&lt;p&gt;The cuisine and fashion industries both largely exist without intellectual property protection other than trademarks (n.b., they can use copyright on certain aspects of their work but this is generally thought to give little protection) yet they seem to flourish. How is this possible?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In fashion, &lt;a href=&quot;http://www.nytimes.com/roomfordebate/2014/09/07/who-owns-fashion/piracy-fuels-the-fashion-industry&quot; rel=&quot;nofollow noreferrer&quot;&gt;it is thought that copying the work of other designers can be good for everyone&lt;/a&gt;, allowing the industry to have a color of the year and products like bags and dresses at various quality, fit, and price levels. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There may be related forces at play in cuisine. It is difficult to imagine the &lt;a href=&quot;https://en.wikipedia.org/wiki/Cronut&quot; rel=&quot;nofollow noreferrer&quot;&gt;Cronut&lt;/a&gt; fad lasting as long as it did without other bakeries making very similar efforts to keep customers interested and the product in the news.   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is only one mechanism. Another mechanism giving rise to negative outcomes is barriers to entry. Think of patents as raising the returns and costs both to entry into an industry. They raise returns because conditional on getting greater IP protection you have more economic rents from your IP based monopoly. But because others already have these heavy protections the cost to a new entrant of innovating and litigating in a way that permits entry to the industry will be much higher. The consensus seems to be that at some point the marginal benefits of greater protection fall faster than the marginal costs of entry increase, leading to something like the &lt;a href=&quot;http://www.forbes.com/sites/timworstall/2013/06/23/the-tabarrok-curve-why-the-patent-system-is-not-fit-for-purpose/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Tabarrok Curve&lt;/a&gt; for patent protection:&#xA;&lt;a href=&quot;https://i.stack.imgur.com/ZSvoz.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/ZSvoz.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&#xA;Source: &lt;a href=&quot;http://marginalrevolution.com/marginalrevolution/2013/06/the-tabarrok-curve-in-the-wsj.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Marginal Revolution&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-07-23T13:16:23.133" LastActivityDate="2015-07-23T13:16:23.133" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6665" PostTypeId="2" ParentId="6662" CreationDate="2015-07-23T14:53:22.577" Score="3" Body="&lt;p&gt;I assume you're talking about field experiments and empirical work in general. (Not Vernon Smith's style lab experiments.)&lt;/p&gt;&#xA;&#xA;&lt;h1&gt;AidGrade&lt;/h1&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://www.aidgrade.org/compare-programs-by-outcome&quot; rel=&quot;nofollow&quot;&gt;http://www.aidgrade.org/compare-programs-by-outcome&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The website aggregates results from multiple programs, including those that showed no significant relationships.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also read &lt;a href=&quot;http://evavivalt.com/wp-content/uploads/2014/12/Vivalt-JMP-latest.pdf&quot; rel=&quot;nofollow&quot;&gt;Vivalt, “How Much Can We Generalize from Impact Evaluations?”&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;h1&gt;But also any academic journal publishing the empirics&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;Some researchers publish insignificant results of empirical work as a matter of refutation someone else's theory, usually along with significant results. Field experiments in economics allow for this, since you're trying to test as many hypotheses as possible when running a $1M-plus experiment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Reshaping Institutions: Evidence on Aid Impacts Using a Preanalysis Plan, &lt;a href=&quot;https://ideas.repec.org/a/oup/qjecon/v127y2012i4p1755-1812.html&quot; rel=&quot;nofollow&quot;&gt;https://ideas.repec.org/a/oup/qjecon/v127y2012i4p1755-1812.html&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;Direct Democracy and Resource Allocation: Experimental Evidence from Afghanistan, &lt;a href=&quot;https://ideas.repec.org/p/cfr/cefirw/w0192.html&quot; rel=&quot;nofollow&quot;&gt;https://ideas.repec.org/p/cfr/cefirw/w0192.html&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;You can see that these papers address many issues at once, including &quot;failed&quot; hypotheses. So, any journal that includes empirics also includes failed experiments.&lt;/p&gt;&#xA;" OwnerUserId="240" LastActivityDate="2015-07-23T14:53:22.577" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="6666" PostTypeId="1" CreationDate="2015-07-23T15:33:04.877" Score="3" ViewCount="820" Body="&lt;p&gt;Newspapers like Forbes, CNet, WSJ and many other say that it is possible to have total profit of industry more than 100 %.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Examples:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Apple and Samsung account for more than 100% of industry profits&#xA;  because other makers broke even or lost money&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Samsung and Apple combined to take 106% percent of the industry's&#xA;  profits. How do they take more than 100%? Well, it's a quirk of the&#xA;  fact that everyone else in the industry is losing money, or breaking&#xA;  even. Apple has 65% of the industry's profits, and Samsung has 41%.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Source: &lt;a href=&quot;http://www.businessinsider.com/apple-and-samsung-have-106-of-the-smartphone-industrys-profits-2014-5&quot; rel=&quot;nofollow&quot;&gt;Business Insider: Apple And Samsung Have 106% Of The Smartphone Industry's Profits&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can't imagine that. Profit means positive value. Negative value is loss. Is it possible to count loss into total industry profit?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When I create an example like this:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Company A - loss 100&lt;br&gt;&#xA;  Company B - loss 100&lt;br&gt;&#xA;  Company C - profit 10&lt;br&gt;&#xA;  Company D - loss 10&#xA;  = total &quot;profit&quot; -200.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Company C would take -5 % of industry profits.&lt;br&gt;&#xA;Company D would take 5 % ...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How it is possible that big newspapers use such irrational math?&lt;/p&gt;&#xA;" OwnerUserId="5277" LastEditorUserId="120" LastEditDate="2015-07-23T18:48:15.447" LastActivityDate="2015-07-24T14:49:14.087" Title="Total profit greater than 100 %" Tags="&lt;profits&gt;" AnswerCount="2" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6668" PostTypeId="2" ParentId="6666" CreationDate="2015-07-23T18:24:50.487" Score="3" Body="&lt;p&gt;I think this is just a reflection of the casual language of the popular press. What appears to be in dispute in this question is if profits can be negative or if that case is properly referred to as losses.  I agree that in many contexts this is at best a confusing usage. Most &lt;a href=&quot;http://www.onelook.com/?w=profit&amp;amp;ls=a&quot; rel=&quot;nofollow&quot;&gt;dictionary definitions&lt;/a&gt; are clearly implying that profits must be positive (e.g., &quot;A financial gain&quot;, &quot;Advantage&quot;, &quot;Benefit&quot;, or &quot;income in excess of costs&quot;). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm comfortable thinking about negative profits as being a synonym for losses. Industry profits can be thought of as the sum of profits and losses of individual firms just like a firm's profits can be thought of as the sum of profits and losses of subsidiary firms. That seems uncontroversial, at least if this total is positive but that doesn't seem like a standard usage. If we accept that profits can be negative and this aggregate is negative we have weird things happening like firms with positive profits making a negative fraction of total profits. Nothing wrong with the math here, but the math may be telling you something difficult to translate into words. If firm level profits were by definition positive then in @denesp's example Apple and Samsung's share of profits would be 100 percent. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The more technical term for a variable that when positive is profits and when negative is losses is &lt;em&gt;Net Income&lt;/em&gt;. &lt;a href=&quot;https://en.wikipedia.org/wiki/Net_income&quot; rel=&quot;nofollow&quot;&gt;Wikipedia's page on Net Income&lt;/a&gt; says:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In the context of the presentation of financial statements, the IFRS&#xA;  Foundation defines net income as synonymous with profit and loss.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I'd avoid the confusion and not refer to losses as negative profits. Instead I would use the term &lt;em&gt;Net Income&lt;/em&gt;.  Let's fix that Business Insider quote to use net income:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Apple and Samsung account for more than 100% of industry &lt;em&gt;net income&lt;/em&gt;&#xA;  because other makers broke even or lost money&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Samsung and Apple combined to take 106% percent of the industry's&#xA;  &lt;em&gt;net income&lt;/em&gt;. How do they take more than 100%? Well, it's a quirk of the&#xA;  fact that everyone else in the industry is losing money, or breaking&#xA;  even. Apple has 65% of the industry's &lt;em&gt;net income&lt;/em&gt;, and Samsung has 41%.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Now let's use @denesp's example:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Company / Net Income &lt;br&gt;&#xA;Apple / \$53 &lt;br&gt;&#xA;Samsung / \$53 &lt;br&gt;&#xA;Other / -\$6 &lt;br&gt;&#xA;Total / \$100&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Everything looks good to me here after the change in terms. &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-07-23T19:43:07.077" LastActivityDate="2015-07-23T19:43:07.077" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="6669" PostTypeId="2" ParentId="6656" CreationDate="2015-07-23T18:49:48.690" Score="2" Body="&lt;p&gt;Real GDP (RGDP) is a measure of the value of goods and services produced in an economy over a period of time for a &lt;strong&gt;fixed set of prices&lt;/strong&gt;. Nominal GDP (NGDP) is a measure of the value of goods and services produced in an economy over a period of time for  &lt;strong&gt;the prices over that period in time&lt;/strong&gt;. The way they calculate changes in RGDP is to first measure changes in NGDP, separately measure prices, and then subtract the difference. For NGDP in year $t$ and reference price year for RGDP of $k$ it works like this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$NGDP_t = RGDP_{t,k} \cdot \frac{P_t}{P_k}$$&#xA;Rearrange:&#xA;$$\Rightarrow RGDP_{t,k} = NGDP_t \cdot \frac{P_k}{P_t}$$&#xA;Take logs:&#xA;$$\Rightarrow \ln(RGDP_{t,k}) = \ln(NGDP_t) +\ln(P_k) - \ln(P_t)$$&#xA;Now we can calculate a change ($\Delta X_t = X_t - X_{t-1}$):&#xA;$$ \Delta \ln(RGDP_{t,k}) = \Delta \ln(NGDP_t) + \Delta \ln(P_k) - \Delta \ln(P_t)$$&#xA;But by definition $\Delta \ln(P_k)=0$ because the reference year prices don't change so:&#xA;$$ \Delta \ln(RGDP_{t,k}) = \Delta \ln(NGDP_t) - \Delta \ln(P_t)$$&#xA;So as claimed above, the percent change in real GDP ($\ln(RGDP_{t,k})$) equals the percent change in nominal GDP ($\Delta \ln(NGDP_t)$) less the percent change in prices ($\Delta \ln(P_t)$). &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-07-24T10:35:06.473" LastActivityDate="2015-07-24T10:35:06.473" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6670" PostTypeId="1" AcceptedAnswerId="6694" CreationDate="2015-07-23T21:34:05.070" Score="1" ViewCount="45" Body="&lt;p&gt;I am trying to understand all the details of the nested logit and what confuses me is the formula for marginal probability of choosing the nest. In more details: the joint probability of individual n choosing alternative j can be factored as the probability of individual n choosing nest k, multiplied by the probability of individual i choosing j conditional on having chosen nest k. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As I understand we are decomposing the decision process into two models: upper and lower. In the upper model decision maker chooses a nest and in the lower - alternative within the nest. Say utility of individual n choosing alternative j in the nest k is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ U_{njk} = W_{nk} + Y_{nj} + \epsilon_{nk} + e_{nj} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $e_{nj}$ is EV I with scale parameter $\lambda_k$ and $\epsilon_{nk}$ is such that composite error term is EV I with scale parameter 1. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The lower model is trivial, it is a simple logit. However, the upper model is not clear for me. The expected utility of individual n from choosing nest k is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ EU_{nk} = W_{nk} + \lambda_kI_{nk} + \epsilon_{nk}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $\lambda_kI_{nk}$ is expected utility that n will get from choice within the nest. And the marginal probability of choosing nest k is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$P_{nB_k}=\frac{e^{W_{nk}+\lambda_kI_{nk}}}{\sum_{l=1}^K e^{W_{nl}+\lambda_kI_{n}}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is how does this probability have a logit form if $\epsilon_{nk}$ is not extreme value? Or is it? Because as far as I understand the sum of two extreme value variables is not an extreme value. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you!&lt;/p&gt;&#xA;" OwnerUserId="5280" LastEditorUserId="5280" LastEditDate="2015-07-24T19:00:37.350" LastActivityDate="2015-07-26T02:07:35.850" Title="How to derive formula for marginal probability of choosing nest in nested logit model?" Tags="&lt;academic-graduate&gt;&lt;decision-theory&gt;&lt;choice-theory&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6671" PostTypeId="2" ParentId="6666" CreationDate="2015-07-24T00:49:15.977" Score="3" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;profit (v.)&#xA;      early 14c., &quot;to advance, benefit, gain,&quot; from profit (n.) and from Old French prufiter, porfiter &quot;to benefit,&quot; from prufit (see profit&#xA;  (n.)). Related: Profited; profiting. profit (n.) &#xA;      mid-13c., &quot;income;&quot; c. 1300, &quot;benefit, advantage;&quot;from Old French prufit, porfit &quot;profit, gain&quot; (mid-12c.), from Latin profectus&#xA;  &quot;profit, advance, increase, success, progress,&quot; noun use of past&#xA;  participle of proficere (see proficiency). &lt;strong&gt;As the opposite of loss&lt;/strong&gt;, it&#xA;  replaced Old English gewinn. Profit margin attested from 1853.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Apart from etymological issues (and one cannot ignore that words acquire new uses all the times), the important question is &lt;strong&gt;&quot;yes the Math part is clear. &lt;em&gt;Where are the Economics&lt;/em&gt;?&lt;/strong&gt;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And the answer is &quot;nowhere&quot;. To consider how much of its Industry's profits does a corporation claim in percentage terms, may be a valid additional datum in an overall assessment of the performance of the corporation. But here, the reporter just wanted to fill some space and make some useless noise, which he knew an expression like &quot;$106\%$ of profits&quot; could create.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;On another front, the OP asks,&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;Is it possible to count loss into total industry profit?&lt;/em&gt;&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It should always be counted that way. When we decide to look at a whole Industry, we treat it as a &quot;single economic entity&quot;. Then to arrive at the Industry's total profit, we naturally add all sales revenues from all participating companies, and subtract all expenses from all participating companies, as though it was one company:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\pi_I = R_1 + ...+R_n - E_1 - ...-E_n = (R_1-E_1) + ...+(R_n-E_n) = \pi_1 +...+\pi_n$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where some of the $\pi$'s may be negative, i.e losses.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is the logical thing to do because we ask &quot;how much sales revenue did the Industry had, and how much expenses&quot;?&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-07-24T14:49:14.087" LastActivityDate="2015-07-24T14:49:14.087" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6672" PostTypeId="2" ParentId="6639" CreationDate="2015-07-24T12:44:38.990" Score="1" Body="&lt;p&gt;That is because India maintains strong economic relations with the United States. In addition, India might be looking at maintaining a fixed currency with the US. In exchange, India would have to give up Monetary Autonomy, or Free Flow of Capital. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As far as I know, India does not restrict the flow of capital to and from the country, so I assume that most policies are more government related when it comes to the US (although the new bilateral agreement is to work to reduce that). Overall, India's strong economic relations with the United States and a tied trade allows them to maintain growth. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In fact, recently with numerous trade agreements, I wouldn't say India has reached it's lowest point (that would be a few years ago), but is rather trying to secure a very high peak for the next 5-10 years.&lt;/p&gt;&#xA;" OwnerUserId="5282" LastEditorUserId="43" LastEditDate="2015-09-23T12:40:13.463" LastActivityDate="2015-09-23T12:40:13.463" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="6673" PostTypeId="2" ParentId="6474" CreationDate="2015-07-24T13:16:17.607" Score="2" Body="&lt;p&gt;The US Panel Survey of Income Dynamics (PSID) has this  data,  at least if pre-tax income will do. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;We use the 1999-2009 Panel Survey of Income Dynamics to estimate household move probabilities as a function of, among other things, current housing equity. The lock-in effect supposes that mobility decreases with equity, particularly as equity becomes negative. We find that while owners do move less than renters, the move probability increases as homeowners become underwater. The propensity to move out of state in particular increases dramatically for sand state homeowners who have negative equity. There is no lock in effect from negative equity.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://econ.la.psu.edu/~ecoulson/MobilityMortgage.pdf&quot; rel=&quot;nofollow&quot;&gt;Mobility and Mortgages: Evidence from the PSID&lt;/a&gt; (Colson and Greece (2013))&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The NLSY may also have this data. &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2015-07-24T13:16:17.607" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6674" PostTypeId="1" CreationDate="2015-07-24T14:13:06.360" Score="2" ViewCount="85" Body="&lt;p&gt;When Anthem Insurance acquired Cigna Insurance in July 2015, this reduced consumer choice and possibly transferred negotiating power from the consumer to the insurance provider.  But the merger also probably conferred some economic benefit on society by increasing the economy of scale.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These two possible effects are opposed from the perspective of the consumer.  The consumer benefits from the economy of scale, but the consumer loses when negotiating power is reduced.  So one could say the merger had good and bad effects to the consumer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is the net effect of the merger from the perspective of the consumer?  Are consumers better off when mergers occur?  Obviously monopolies are not good for consumers, so at what point do mergers approach monopolies and no longer have a net benefit to society?&lt;/p&gt;&#xA;" OwnerUserId="5283" LastActivityDate="2015-07-24T14:13:06.360" Title="Net effects of mergers from consumers' perspective" Tags="&lt;consumer-theory&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6675" PostTypeId="1" CreationDate="2015-07-24T18:39:56.137" Score="2" ViewCount="31" Body="&lt;p&gt;I would like to know which countries do not allow companies with offices registered in tax havens to operate on their territory. And if there are such countries, to what degree their restrictions apply.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Probably the former communist countries had lot of restrictions against tax havens (because they were isolated from the West anyways), although I heard of cases when communists made joint ventures with Western corporations which could very well had offices in tax havens.&lt;/p&gt;&#xA;" OwnerUserId="5161" LastActivityDate="2015-07-24T18:39:56.137" Title="Example of countries restricting companies registered in tax havens?" Tags="&lt;taxation&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6676" PostTypeId="1" AcceptedAnswerId="8169" CreationDate="2015-07-24T18:46:13.387" Score="3" ViewCount="69" Body="&lt;p&gt;I am stuck with the following problem from research. Is there an econometric test which detects change from trend stationary to stationary process. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I tried to search for this but the literature is quite vast. Can somebody point to the relevant literature ?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help is appreciated. &lt;/p&gt;&#xA;" OwnerUserId="5093" LastEditorUserId="5093" LastEditDate="2015-07-29T18:18:38.113" LastActivityDate="2015-09-07T13:01:21.997" Title="Econometric test for detecting change from trend stationary to stationary process" Tags="&lt;macroeconomics&gt;&lt;econometrics&gt;&lt;mathematical-economics&gt;&lt;time-series&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6677" PostTypeId="1" CreationDate="2015-07-24T19:07:49.780" Score="4" ViewCount="1492" Body="&lt;p&gt;National Income can be expressed in two ways :&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;In can be derived from the GDP, as, roughly, a sum of &quot;money spent&quot; : GDP is equal to C + G + I + NX, where C, G, I and NX are houshold consumption, government expenditures, investment, and net exports. National Income is then obtained by adding net income from abroad and removing consumption of fixed capital.&lt;/li&gt;&#xA;&lt;li&gt;It can be calculated as the sum of incomes (details &lt;a href=&quot;https://en.wikipedia.org/wiki/National_Income_and_Product_Accounts&quot; rel=&quot;noreferrer&quot;&gt;here&lt;/a&gt;) : mainly pre-tax employee compensation, pre-tax corporate profits, and taxes on production and imports.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The fact that the two ways give the same results (let alone the &quot;statistical discrepancy&quot;) is usually taken for granted.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course the principle makes sense, but I am looking for a rigorous approach / mathematical proof.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;One could say that whatever agents earn, they spend. But what if they spare some money ?&lt;/li&gt;&#xA;&lt;li&gt;One could say that whatever is spent, is earned by some agent. But I tried this and couldn't get rid of the 'I' in the first formula.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Could somebody enlighten me ?&lt;/p&gt;&#xA;" OwnerUserId="5285" LastActivityDate="2015-10-24T16:19:32.940" Title="Why is GDP equal to the sum of revenues?" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;&lt;national-accounts&gt;" AnswerCount="2" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="6678" PostTypeId="1" AcceptedAnswerId="6689" CreationDate="2015-07-24T19:25:41.743" Score="1" ViewCount="294" Body="&lt;p&gt;Is there a book along these criteria?&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;introductory&lt;/li&gt;&#xA;&lt;li&gt;discuss both theory and writing program&lt;/li&gt;&#xA;&lt;li&gt;focus on social science (economics / politics / sociology)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;There are bunch of tutorials on the Internet, but journal articles tend not to have code, and a lot of work is not relevant to social science. Thus I think I'll get better recommendation from Econs SE.&lt;/p&gt;&#xA;" OwnerUserId="2819" LastActivityDate="2015-07-25T16:33:07.630" Title="Book recommendation: agent based modeling?" Tags="&lt;reference-request&gt;&lt;computation&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6679" PostTypeId="1" AcceptedAnswerId="6681" CreationDate="2015-07-24T19:33:27.543" Score="1" ViewCount="412" Body="&lt;p&gt;If the private banks never learn from history and keep giving credits to it's clients for overpriced acquisitions, and then they enter default why would the government give them free money or buy those banks?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I buy overpriced apples to sell them in my fruit shop and I fail to sell them, the government will not bail me out and pay my debts.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Just as my company running the fruit shop should go bankrupt, those banks should go bankrupt, other private investors should buy their assets and start doing better banking business, removing that incompetent staff who buy (or give credits for buying) overpriced things (in this case: houses).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On a first thought, that's my conclusion. And also on a second and third thought.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The whole point of default and bankruptcy should be to allow those competent businesses to survive and those incompetent to leave the sector and do something else. And that looks like a fundamental piece of a working capitalist system that encourages the players to be competitive. Therefore the bailout of private banks looks like a bonus for incompetence. Sponsoring incompetents doesn't look like a good option for making the banking sector work well and totally not suitable for restoring confidence of customers in such banks.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Example: If Compaq is selling bad computers and Gateway is selling good computers, then Compaq should go bankrupt instead of getting government subsidies in order to keep being incompetent. Their owners can try to do something else, like for example Barbie toys, maybe they can do it better than making computers. Gateway will buy their assets and they will survive and grow because they are competent.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would like to know the arguments used by the governments for bailing out the banks, like for example in Spain where they gave &lt;a href=&quot;http://www.theguardian.com/business/2012/jun/11/question-answer-spain-banking-bailout&quot; rel=&quot;nofollow&quot;&gt;100 billion Euro&lt;/a&gt; for the private banks.&lt;/p&gt;&#xA;" OwnerUserId="5161" LastEditorUserId="5161" LastEditDate="2015-07-24T20:44:45.820" LastActivityDate="2015-07-25T07:20:51.863" Title="Why would a government bail out private banks?" Tags="&lt;default&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6680" PostTypeId="1" CreationDate="2015-07-24T19:59:35.447" Score="10" ViewCount="444" Body="&lt;p&gt;I have panel data for counts of new firms in different regions for six years. I am estimating a static poisson regression with multiplicative fixed effects$^*$; I have also tried to estimate a dynamic model by introducing a lagged dependent variable, but could not make that latter model work. Now, I would like to test the residuals from the static model for autocorrelation, so that I have an idea of the importance of the dynamics. However, I cannot find any diagnostic tests for this in a textbook (I've looked at Wooldridge, Cameron &amp;amp; Trivedi, Winkelmann, Greene), and also have not seen such a test in a research paper. Since the individual effects in the model are not identified, I don't know how to compute meaningful residuals in the first place.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does anyone 1) know how to compute meaningful residuals; and 2) know of any diagnostic tests for these panel fixed effect poisson models?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;FYI: I am using Stata (version 12.1) -xtpoisson, fe vce(robust)- command for the static model. Stata's postestimation commands can compute predicted values etc, but only assuming that the individual effects are all zero.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$^*$ The cross-section (or pooled) Poisson regression models the expected number of counts $y$ as $E[y_i|x_i]=\exp(X_i\beta)$, with $\beta$ the coefficients and $X_i$ the variables. A common way to add individual fixed effects with panel data is to let the effects $\alpha_{i}$ enter the model multiplicatively: $E[y_{it}|X_{it},\alpha_i]=\alpha_i\exp(X_{it}\beta)$.&lt;/p&gt;&#xA;" OwnerUserId="5288" LastEditorUserId="5288" LastEditDate="2015-07-29T10:03:11.990" LastActivityDate="2015-07-29T10:03:11.990" Title="How can I test for autoregressive residual terms in a fixed effects panel Poisson model?" Tags="&lt;econometrics&gt;&lt;fixed-effects&gt;" AnswerCount="0" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6681" PostTypeId="2" ParentId="6679" CreationDate="2015-07-24T20:04:31.883" Score="3" Body="&lt;p&gt;Because the banks are not loaning their own money but that of depositors. One may also argue that the depositors should know the risks and if their bank makes bad investments it is partly their fault so they cannot complain should they lose their deposits. But a functioning banking system is essential to the current economic system. The bankruptcy of a big bank would cause panic and banks runs, which because of fractional reserve banking would probably result in the insolvency of other banks, banks that perhaps made good investments but ones that cannot immediately be liquidated. After the closing of the banks considerably less savings would be deposited in financial institutions. This will hinder consumption because credit/debit card traffic would cease and getting investment funds would also be considerably more difficult.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the governments have considered the damage the bankruptcy of a bank would cause to their economy and decided it is better to bail them out. (&quot;Too big to fail.&quot;) Of course since banks have a very large revenue stream they can also afford lobbying for intervention as well, but this does not mean that the intervention is not beneficial to the public. Furthermore, if you lose your deposits you may very well (wrongly) blame the government, so a bail-out is also politically prudent.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you are interested in what could be done I recommend reading about the &lt;a href=&quot;https://en.wikipedia.org/wiki/Glass%E2%80%93Steagall_Legislation&quot; rel=&quot;nofollow&quot;&gt;Glass-Steagall act&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you are not satisfied with my answer there are any number of conspiracy theories that offer unconvincing alternative explanations.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2015-07-25T06:00:52.767" LastActivityDate="2015-07-25T06:00:52.767" CommentCount="12" ContentLicense="CC BY-SA 3.0" />
  <row Id="6682" PostTypeId="1" AcceptedAnswerId="6683" CreationDate="2015-07-24T22:25:19.480" Score="3" ViewCount="905" Body="&lt;p&gt;In a book on Corporate Finance, the author writes that 'all other things constant' the higher the rate of growth in sales or assets, the greater will be the need for external financing(bank loans, debt securities, or equity). His reasoning is based on the $\text{Assets}=\text{Liabilities} + \text{Equity}$ equation. My question is why can't a company manager use his cash, in the current-assets, to drive the growth in sales or assets? And why should this equality be maintained in this situation? To answer just that by def. of equity, i.e. assets minus liabilities, in this last question seems to be not answering at all...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated&lt;/p&gt;&#xA;" OwnerUserId="118" LastActivityDate="2016-05-07T17:54:15.710" Title="External Financing and Corporate Growth" Tags="&lt;corporate-finance&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6683" PostTypeId="2" ParentId="6682" CreationDate="2015-07-25T00:49:28.457" Score="2" Body="&lt;p&gt;The assertion of the book is based on the phenomenon of &lt;strong&gt;commercial credit&lt;/strong&gt; - the fact that business-to-business sales almost always are on credit, and the differences between terms-of-credit that a company gives to its customers, compared to the terms of credit that enjoys from its suppliers. It describes the (short-term) phenomenon, peculiar to some, that &quot;the higher the sales and the profits, the lower the cash available&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A simplified bottom-up unfolding of how this can happen is as follows: Assume that a company has steady monthly sales $S$ for the years 2013 and 2014. Assume that the terms-of-credit that extends to its customers is &quot;60 days/two months&quot;. Roughly, this means that the Accounts Receivables at the end of, say, year 2013 equal the amount of two months of sales (assume away any seasonality), denote it $AR_{2014} =2S$. On the other side, the company has only a &quot;1 month&quot; period to pay its suppliers. Assume the monthly Costs of Sales is $cS$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So during year 2014 the Cash flow from the Customers-Suppliers loop has been&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$CF_{2014}=12\cdot S - 12\cdot cS = 12(1-c)S$$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now assume that starting from January 2015, Sales go up 20%.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;During the year 2015  the Collections will be $2S + 10\cdot 1.2\cdot S$: November-December 2014 Sales collected in January-February 2015, and 10 months of collecting the increased sales amount.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for Accounts Payable, during 2015 the company will have to pay $CSpay = cS + 111\cdot 1.2\cdot cS$ (we keep Inventories constant in value for simplicity).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So for 2015 we will have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$CF_{2015}=2S + 1.2\cdot 10\cdot S - cS - 1.2\cdot11\cdot cS$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$=[14 - 14.2c]S$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Depending on the value of $c$ we may have $CF_{2015} &amp;lt; CF_{2014}$ (in the specific example, we will need to have $c &amp;gt;0.91$ , i.e. a very small mixed profit margin $1-c$).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Namely, the combination of sales growth with the gap in the terms of credit, may result in the company having less cash available to cover its other, operational expenses like salaries etc. But even if this is not the case, the increase in Cash Flow may not be enough to cover the increase in other Assets that accompany an increase in Sales: an increase of the value of Inventories, but also possibly investments. Both will require increased cash. Also, operational expenses, like marketing or labor cost may have to increase. If the terms-of-credit gap is large and the sales growth aggressive, the company will require a Cash injection from shareholders or a bank loan to be able to pay all its obligations, even though its Sales has gone up.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The above are compacted nicely into a Balance-Sheet-point of view (where the equality $\text{Assets}=\text{Liabilities} + \text{Equity}$ holds always by construction, given how the terms involved are defined and measured). In fact, the Balance Sheet approach is the way many Finance Directors use to get a quick taste of what kind of financing will the company need next year. Essentially, the increased funds &quot;automatically&quot; injected by increased suppliers credit (due to increased purchases), plus any projected increased retained profits, may not be enough to cover the increase in the Current Assets due to the increase in Accounts Receivable (and possibly the increase in Inventories and in Fixed Assets that accompany the growth of Sales growth).&#xA;It may be the case that such an expansion may be profitable in terms of &quot;Profit &amp;amp; Loss&quot; while at the  same time having a negative effect on the Cash Flow, in the short-term.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Indeed, the difference could be covered by running down the cash reserves of the company, but in many cases, companies do not hold so much cash to do that. Then, one has to close the gap by for example, increasing Liabilities, say, taking a loan. &lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-07-25T11:21:37.483" LastActivityDate="2015-07-25T11:21:37.483" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6684" PostTypeId="2" ParentId="6679" CreationDate="2015-07-25T07:20:51.863" Score="3" Body="&lt;p&gt;There were two substantial reasons why Britain &lt;a href=&quot;http://www.theguardian.com/politics/2010/feb/21/gordon-brown-saved-banks&quot; rel=&quot;nofollow&quot;&gt;led&lt;/a&gt;, and the world followed, in recapitalising the banking system.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first is that a very large proportion of citizens' money on deposit at banks is protected by the State anyway, so the State was already liable for that cost.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The second is that the banks are responsible for carrying a very large proportion of transactions. And if a bank can't deal with other banks, either because it's insolvent or because it presents significant counter-party risk, it ceases to be part of the global network of transactions. If that network jams up, then a huge chunk of global economic activity ceases, both within the affected countries, and between them and the rest of the world. The consequential global depression would have been much deeper, and potentially even longer, than what came about.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are a bunch of other things that happened, that needn't; and they made things worse (e.g. the open-ended bailout of bank bond-holders). And there were things that could have been done, that would have made things better, quicker, that weren't (e.g. the cancelling of the personal debts that triggered the massive liquidity crunch in the collateralised-debt markets). But in terms of the lessening of a global economic disaster, bank recapitalisation was very effective.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2015-07-25T07:20:51.863" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6685" PostTypeId="2" ParentId="240" CreationDate="2015-07-25T08:51:24.457" Score="3" Body="&lt;p&gt;Just to add to the discussion of momentum, there is a new paper by Novy Marx on this topic: &lt;a href=&quot;http://rnm.simon.rochester.edu/research/FMFM.pdf&quot; rel=&quot;nofollow&quot;&gt;http://rnm.simon.rochester.edu/research/FMFM.pdf&lt;/a&gt;. In the paper, he argues that the price momentum that we observe is actually earning momentum. So this pushes the puzzle to a more fundamental variable rather than just pure price. However, earning momentum itself is also hard to justify under efficient market hypothesis. The underreaction story seems to be very compelling.&lt;/p&gt;&#xA;" OwnerUserId="4065" LastActivityDate="2015-07-25T08:51:24.457" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6686" PostTypeId="1" CreationDate="2015-07-25T11:58:33.150" Score="5" ViewCount="8170" Body="&lt;p&gt;Are the followings considered a form of money&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;prepaid (debit) cards &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;gift cards (both bank-issued such as American Express gift cards, and store-issued such as Walmart gift cards) ?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Are their balances considered demand deposits, and therefore in &lt;a href=&quot;https://en.wikipedia.org/wiki/Money_supply#Empirical_measures_in_the_United_States_Federal_Reserve_System&quot; rel=&quot;nofollow noreferrer&quot;&gt;M1&lt;/a&gt;?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Taking gift cards for example. They seem a form of money, but not exactly. Bank-issued gift cards are more likely to be a form of money than store-issued ones.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;They can be used to buy products.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;But gift cards are usually not allowed to resell, but I don't understand why they are resold on ebay and many websites if reselling them is illegal. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Cashing the balance of new or used gift cards are usually difficult. Cashing bank-issued gift cards seem more difficult than store-issued ones.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;bank-issued gift cards are usually sold above their face values, while store-issued ones are usually not.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;bank-issued gift cards can be used to purchase anywhere the bank is accepted (e.g. Amex), while store-issued gift cards can be only in specific stores.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="90" LastEditorUserId="2776" LastEditDate="2017-08-02T13:00:38.853" LastActivityDate="2017-08-02T13:00:38.853" Title="Are prepaid cards, and gift cards considered a form of money?" Tags="&lt;money-supply&gt;&lt;money&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6687" PostTypeId="1" AcceptedAnswerId="6703" CreationDate="2015-07-25T13:31:58.307" Score="0" ViewCount="1650" Body="&lt;p&gt;Well in &lt;a href=&quot;http://www.zenwealth.com/businessfinanceonline/FF/EFN.html&quot; rel=&quot;nofollow&quot;&gt;this link&lt;/a&gt; I get the EFN definition that I know of, with the spontaneous liabilities term included. I'm trying to derive the Sustainable Growth Rate for a corporation, from this definition of EFN.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How does one calculate the liabilities-that-change-directly-with-sales term, using just previous year's sales (S), total assets(A), total debt(D), total equity(E), projected growth in sales(g), profit margin(PM) and retention ratio(b) as variables?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I found &lt;a href=&quot;http://homes.chass.utoronto.ca/~krybakov/teaching_files/finance/notes/ch3%20long-term%20planning.pdf&quot; rel=&quot;nofollow&quot;&gt;this link&lt;/a&gt;(page 11-12) that does the required derivation, but I don't understand the reasoning...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="118" LastActivityDate="2015-07-26T20:21:10.250" Title="Corporate Finance: From External Financing Needed(EFN) to Sustainable Growth Rate" Tags="&lt;corporate-finance&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6688" PostTypeId="2" ParentId="6678" CreationDate="2015-07-25T16:29:00.273" Score="2" Body="&lt;p&gt;One book that comes to mind is &quot;Economic Dynamics&quot; by John Stachurski &lt;a href=&quot;http://johnstachurski.net/edtc.html&quot; rel=&quot;nofollow&quot;&gt;found here&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This book discusses programming methods that are applied to economics. All of its accompanying code is kept on &lt;a href=&quot;https://github.com/jstac/edtc-code&quot; rel=&quot;nofollow&quot;&gt;this&lt;/a&gt; github repository.&lt;/p&gt;&#xA;" OwnerUserId="47" LastActivityDate="2015-07-25T16:29:00.273" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6689" PostTypeId="2" ParentId="6678" CreationDate="2015-07-25T16:33:07.630" Score="2" Body="&lt;p&gt;Another book that comes to mind (in keeping with the 1 book per answer guideline) is the Quant-Econ book that is being put together by Tom Sargent and John Stachurski. This book is a little more geared towards programming than John's Economic Dynamics book and can be found (for free) online at &lt;a href=&quot;http://quant-econ.net/&quot; rel=&quot;nofollow&quot;&gt;http://quant-econ.net/&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;All of the book's code is on github and I think it provides a pretty strong introduction to the two programming languages that it uses (Python and Julia).&lt;/p&gt;&#xA;" OwnerUserId="47" LastActivityDate="2015-07-25T16:33:07.630" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6691" PostTypeId="1" AcceptedAnswerId="6701" CreationDate="2015-07-25T22:29:50.703" Score="3" ViewCount="92" Body="&lt;p&gt;Recently I've learned that Inditex (owner of Zara brand) is the biggest fashion group in the world and it's using almost no advertising at all.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would like to know more examples of such big companies that use no advertising and why might a large company not invest directly in advertising?&lt;/p&gt;&#xA;" OwnerUserId="5161" LastEditorUserId="108" LastEditDate="2015-07-30T09:13:31.597" LastActivityDate="2015-07-30T09:13:31.597" Title="Large consumer goods companies not using advertising, and what their reasons are" Tags="&lt;marketing&gt;" AnswerCount="2" CommentCount="5" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6692" PostTypeId="1" CreationDate="2015-07-25T23:50:59.997" Score="4" ViewCount="850" Body="&lt;p&gt;I'm in STATA and using 2010 data from Ipums. I'm trying to measure the wage differential between single men, married men, single women, and married women. I ran my first regression and got the following results:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;    lwage |      Coef.   Std. Err.      t    P&amp;gt;|t|     [95% Conf. Interval]&#xA;     educ |   .1297281   .0003132   414.22   0.000     .1291142    .1303419&#xA;      age |   .0130395   .0000535   243.56   0.000     .0129346    .0131444&#xA; uhrswork |   .0454742   .0000613   741.81   0.000      .045354    .0455943&#xA; singlefemale |  -.0749253   .0021686   -34.55   0.000    -.0791756    -.070675&#xA; marriedfemale |   .0853371   .0021692    39.34   0.000     .0810856    .0895886&#xA; marriedmale |   .3149997   .0021153   148.92   0.000     .3108539    .3191455&#xA;    _cons |   6.826747    .003847  1774.56   0.000     6.819207    6.834287&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Next I added age^2 as an additional explanatory variable. My results changed dramatically:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;   lwage |      Coef.   Std. Err.      t    P&amp;gt;|t|     [95% Conf. Interval]&#xA;     educ |   .1258587   .0003049   412.83   0.000     .1252612    .1264563&#xA;      age |   .0961006   .0003096   310.38   0.000     .0954938    .0967075&#xA;    agesq |  -.0009427   3.46e-06  -272.14   0.000    -.0009495   -.0009359&#xA; uhrswork |   .0406035   .0000622   652.40   0.000     .0404815    .0407255&#xA; singlefemale |  -.0865127   .0021091   -41.02   0.000    -.0906465    -.082379&#xA; marriedfemale |   -.035098   .0021552   -16.29   0.000    -.0393221    -.030874&#xA; marriedmale |   .2403908    .002075   115.85   0.000     .2363239    .2444578&#xA;    _cons |   5.455941   .0062742   869.58   0.000     5.443643    5.468238&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;So basically, when I assume age is linearly related to logwage, married women are estimated to earn more than single men, but when I assume a quadratic form I get the reverse. Both are statistically significant. Why is this happening? And how do I choose the better model?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, is this common in other applications? I'm surprised that I can change the sign on something just by adding an unrelated quadratic term -- this seems like a source of potential abuse. &lt;/p&gt;&#xA;" OwnerUserId="5296" LastEditorUserId="40" LastEditDate="2015-07-26T08:25:42.530" LastActivityDate="2015-07-27T15:26:14.657" Title="Why does adding a quadratic term to a regression change unrelated coefficients?" Tags="&lt;econometrics&gt;&lt;labor-economics&gt;&lt;statistics&gt;&lt;stata&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6693" PostTypeId="2" ParentId="6692" CreationDate="2015-07-26T01:21:23.593" Score="2" Body="&lt;p&gt;Your errors aren't the same anymore.  For example, instead of writing $Y = \beta_1 + \beta_2 X + U$, you're actually writing  $Y = \alpha_1 + \alpha_2 X + \alpha_3 X^2 + V$.  There is no expectation that they should be the same.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other areas, the trouble is that the error term is likely correlated with your regressors.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Fear not: running wages on education is a common specification.  Searching for something like &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;wages education endogeneity&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;should bring up a whole slew of papers that treat the topic.&lt;/p&gt;&#xA;" OwnerUserId="4961" LastActivityDate="2015-07-26T01:21:23.593" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6694" PostTypeId="2" ParentId="6670" CreationDate="2015-07-26T02:07:35.850" Score="1" Body="&lt;p&gt;As it turned out, my previous logic was wrong. Here is how it should be done.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Marginal probability of choosing nest $k$ is&#xA;$$P_{nB_k} = P\left[\max_{j\in B_k} U_{njk} \geq \max_{j\in B_s} U_{njs}, \forall s\neq k \right]\\&#xA;= P\left[W_{nk}+\epsilon_{nk}+\max_{j\in B_k}(Y_{nj}+e_{nj}) \geq W_{ns}+\epsilon_{ns}+\max_{j\in B_s}(Y_{nj}+e_{nj}), \forall s\neq k \right]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then as $e_{nj}$ is iid $Gumbel(0,\lambda_t)$, $\max_{j\in B_k}(Y_{nj}+e_{nj})$ is iid Gumbel with location parameter $\lambda_kI_{nk}$ and scale parameter $\lambda_k$. The Gumbel distribution is preserved over linear transformations so &#xA;$$ \max_{j\in B_k}(Y_{nj}+e_{nj})=\lambda_kI_{nk}+\xi_{nk}$$&#xA;where $\xi_{nk}$ is iid $Gumbel(0,\lambda_t)$. Substituting back to marginal probability, get&#xA;$$P_{nB_k} = P\left[(\epsilon_{nk}+\xi_{nk})-(\epsilon_{nk}+\xi_{nk}) \geq (W_{nk}+\lambda_kI_{nk})-(W_{ns}+\lambda_sI_{ns}), \forall s\neq k \right]\\&#xA;=\frac{e^{W_{nk}+\lambda_kI_{nk}}}{\sum_{s=1}^Ke^{W_{ns}+\lambda_sI_{ns}}} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;the last equality follows from the fact that $\epsilon_{nk}+\xi_{nk}$ is iid $Gumbel(0,1)$ by assumption on $\epsilon_{nk}$.&lt;/p&gt;&#xA;" OwnerUserId="5280" LastActivityDate="2015-07-26T02:07:35.850" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6695" PostTypeId="1" CreationDate="2015-07-26T09:12:34.763" Score="1" ViewCount="94" Body="&lt;p&gt;The real estate sector represents a substantial share of the economy. Analysing such a sector provides it's own unique challenges. For example, it is important to variables such as population forecasts, proximity to CBD, rental rates among others.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;What are the main tools, metrics and considerations used in property market analysis?&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="40" LastEditorUserId="40" LastEditDate="2015-07-27T01:39:57.623" LastActivityDate="2015-09-01T06:14:22.333" Title="Unique features of Property &amp; Urban Economics" Tags="&lt;reference-request&gt;&lt;property&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="6696" PostTypeId="2" ParentId="6657" CreationDate="2015-07-26T13:04:56.720" Score="1" Body="&lt;p&gt;The sampling approach rigorously would look like this. For each player $i$, we want to estimate the expected marginal contribution, where the expectation is taken over a the subset of players that precede $i$ in the permutation ordering. So for each $i$, we do the following.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $X_i$ be a random variable equal to the marginal contribution of $i$, when we draw the permutation of players randomly. Let $\mu_i$ be the true Shapley value of $i$ (which we do not know). Then $\mathbb{E} X_i = \mu_i$. Now, if we sample many independent copies of $X_i$ and average them, this average, call it $\bar{X}_i$, should be very close to $\mu_i$, and the closeness is given by &lt;em&gt;e.g.&lt;/em&gt; &lt;a href=&quot;https://en.wikipedia.org/wiki/Hoeffding%27s_inequality&quot; rel=&quot;nofollow&quot;&gt;Hoeffding's inequality&lt;/a&gt;, which says&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Let $K$ be an upper bound on any marginal contribution (so they are always between $0$ and $K$). Let $m$ be the number of independent copies of $X_i$ that we draw. Then&#xA;  $$ \Pr[ | \bar{X}_i - \mu_i | \geq \epsilon ] \leq 2e^{-2m \epsilon^2 / K^2} . $$&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So for each $i$, we sample $m$ permutations randomly and calculate the average marginal contribution $\bar{X}_i$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, if $K=100$ and we want an accuracy of $\epsilon = 0.01$ and a probability of failure of $2e^{-50}$, then we need $2m\epsilon^2/K^2 = 50$, so $m = 25K^2/\epsilon^2 = 2.5$ billion. So we need to sample $2.5$ billion permutations to &quot;guarantee&quot; accuracy of $0.01$, except with a miniscule $2e^{-50}$ chance of failure.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As comments have mentioned, there are big improvements for many special cases.&lt;/p&gt;&#xA;" OwnerUserId="2856" LastActivityDate="2015-07-26T13:04:56.720" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6697" PostTypeId="2" ParentId="6677" CreationDate="2015-07-26T14:26:19.903" Score="1" Body="&lt;p&gt;It is right that the whole savings are invested. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can use the (simplified) national income and the national output to show the equality. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The national income is $NI=S+I$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The national product is equal to the national income: $NP=NI$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The national product is equal to the sum of consumption and investment: $NP=C+I$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By using this three equations it can be shown, that $I=S$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This presumption is made for the &lt;a href=&quot;https://en.wikipedia.org/wiki/IS%E2%80%93LM_model#IS_curve&quot; rel=&quot;nofollow&quot;&gt;IS-Curve&lt;/a&gt; at the IS-LM-Model.&lt;/p&gt;&#xA;" OwnerUserId="371" LastActivityDate="2015-07-26T14:26:19.903" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6698" PostTypeId="2" ParentId="6677" CreationDate="2015-07-26T14:40:41.263" Score="1" Body="&lt;p&gt;Ok so I think I'm starting to get it. But I'll still be glad if somebody confirms this + corrects the flaws there still are.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reasoning is that everything that is spent (GDP) goes to somebody. If we remove Govt employees salaries, VTA and imports from G, C and I, and add exports, we get companies sales. So :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Companies sales = G + C + I - Govt Salaries - VTA - Imports + Exports&lt;br&gt;&#xA;=&gt; Companies sales = G + C + I + NX - Govt Salaries - VTA&lt;br&gt;&#xA;=&gt; &lt;strong&gt;GDP = G + C + I + NX = Companies sales + Govt salaries + VTA&lt;/strong&gt;   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Companies sales then can be divided into salaries and benefits. Charges disappear in this aggregated view (but there still is a problem with imports in think).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So :&#xA;GDP = Benefits + Private companies salaries + Profits + Govt salaries + VTA&lt;br&gt;&#xA;=&gt; &lt;strong&gt;GDP = (pre-tax) employee compensation + (pre-tax) profits + taxes on production&lt;/strong&gt;, which is what I wanted to prove.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/hy5eM.gif&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/hy5eM.gif&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="5285" LastActivityDate="2015-07-26T14:40:41.263" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6699" PostTypeId="2" ParentId="6691" CreationDate="2015-07-26T14:46:09.710" Score="3" Body="&lt;p&gt;A standard example would be firms like &lt;a href=&quot;https://en.wikipedia.org/wiki/Tupperware&quot; rel=&quot;nofollow&quot;&gt;Tupperware&lt;/a&gt;, which employed a variant of the &lt;a href=&quot;https://en.wikipedia.org/wiki/Direct_marketing&quot; rel=&quot;nofollow&quot;&gt;direct marketing&lt;/a&gt; model (at least historically).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this business model, Sales depend on &quot;salesperson networking&quot; and little else: the vintage method is for the salesperson to organize get-togethers with possible customers in houses, where the salesperson exhibits the firm's products and obtains orders.  There is no advertisement -even, there are no stores.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-07-26T14:46:09.710" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6700" PostTypeId="2" ParentId="6686" CreationDate="2015-07-26T16:37:39.097" Score="3" Body="&lt;p&gt;Prepaid cards are definitely money by any definition— they are essentially demand deposits. &lt;a href=&quot;http://www.frbsf.org/education/publications/doctor-econ/2005/september/credit-card-money-supply-demand-deposits&quot; rel=&quot;nofollow&quot;&gt;An article from the SF Fed&lt;/a&gt; states this clearly:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In contrast to purchases with credit cards, debit card purchases transfer money electronically from individual and business bank accounts to the sellers’ accounts. Spending with a debit card would affect demand deposits and the money supply in the same way that purchases with a check or cash does. Because a debit card transfers your existing financial assets—the financial assets that you may access with a debit card are included in the money supply.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Gift cards, in contrast, aren't generally considered to be part of the measured money supply, but they are in some sense also a form of money. They can be used as a medium of exchange; they are tied to a broader unit of account, and they're (in a manner that depends significantly on the terms of the gift card) a store of value. Rather than being liabilities of banks, as deposits are, they're liabilities of non-financial firms. As a result, gift cards are not quite as fungible as currency is; as you note, they typically trade at a discount to face value. This isn't terribly unusual for money— money during the free banking period often traded at discounts to its face value, particularly as the distance from the issuing bank increased. One of many discussions of this phenomenon can be found in &lt;a href=&quot;http://faculty.som.yale.edu/garygorton/documents/Pricingfreebankingnotes.pdf&quot; rel=&quot;nofollow&quot;&gt;Gorton (1999)&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="264" LastActivityDate="2015-07-26T16:37:39.097" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="6701" PostTypeId="2" ParentId="6691" CreationDate="2015-07-26T16:59:33.650" Score="4" Body="&lt;p&gt;I'd argue that the best example is &lt;a href=&quot;https://en.wikipedia.org/wiki/Jiffy_mix&quot; rel=&quot;nofollow&quot;&gt;Jiffy Mix&lt;/a&gt;, which spends literally no money on advertising, even in the form of the implicit advertising fees paid to direct marketing affiliates. They just put their product on a shelf and people buy it. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;We'd expect to see this no-advertising strategy more often in industries where advertising has a significant impact on the cost of the product, and where consumers are very price-sensitive. As Jiffy is very nearly a commodity good, this holds. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In Zara's case, it's &quot;&lt;a href=&quot;https://en.wikipedia.org/wiki/Fast_fashion&quot; rel=&quot;nofollow&quot;&gt;fast-fashion&lt;/a&gt;&quot;, a segment of the fashion industry where the goal is to provide popular styles of clothing (so product differentiation, a major goal of advertising, does not apply), at low cost (they're targeting price-sensitive consumers), so this strategy is in some sense not a surprise.&lt;/p&gt;&#xA;" OwnerUserId="264" LastActivityDate="2015-07-26T16:59:33.650" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="6702" PostTypeId="2" ParentId="6692" CreationDate="2015-07-26T18:33:36.073" Score="1" Body="&lt;p&gt;This is a well known phenomenon called collinearity. Basically your two independent variables (age and age-squared) are correlated strongly. In the presence of collinearity the coefficient estimates can change significantly. To overcome this problem you may use robust regression, such as ridge regression.&lt;/p&gt;&#xA;" OwnerUserId="5133" LastActivityDate="2015-07-26T18:33:36.073" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6703" PostTypeId="2" ParentId="6687" CreationDate="2015-07-26T20:21:10.250" Score="0" Body="&lt;p&gt;We can replace growth rate in the formulation as below&#xA;$$\frac{A_0}{S_0}gS_0-\frac{L_0}{S_0}gS_0-PM(1+g)S_0b=0$$&#xA;$$(A_0-L_0)g-PMS_0b-PMS_0bg=0$$&#xA;$$g=\frac{bPMS_0}{A_0-L_0-bPMS_0}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the paper you linked the author assumed $A_0$ and $L_0$ to be total assets and total debt (pg.11); therefore $A_0-L_0=E_0$&#xA;$$g=\frac{bPMS_0}{E_0-bPMS_0}$$&#xA;$$g=\frac{b\frac{PMS_0}{E_0}}{1-b\frac{PMS_0}{E_0}}$$&#xA;$$g=\frac{b\times ROE}{1-b\times ROE}$$&lt;/p&gt;&#xA;" OwnerUserId="5133" LastActivityDate="2015-07-26T20:21:10.250" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6704" PostTypeId="2" ParentId="6695" CreationDate="2015-07-27T01:39:18.727" Score="2" Body="&lt;p&gt;There are many different models used in this field, depending on the question being asked. For example, commercial and residential properties have very different needs. That said, there is a key model which can be the framework for a broad analysis:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://facweb.knowlton.ohio-state.edu/pviton/courses2/crp781/781-mono.pdf&quot; rel=&quot;nofollow&quot;&gt;The monocentric model&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The key model in urban economics is the monocentric model, which is a derivation of the rural land price theory and has industry concentrated in the central business district (CBD). Start with closed model (a city in isolation). Then look at the open model (allow for movement between cities) and competition between cities (inter - regional equilibrium). Density and distribution of population and sectors. Interaction with the labour market – why wages are higher in larger ‘skilled’ cities but real wages are not.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This model has extensions which can help explain why some industries choose to operate outside of the CBD.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are some special considerations often used for analysis of property:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Spacial externalities&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Cities offer advantages and disadvantages. Amenities are more available (both publicly and privately provided) but there are also negative externalities such as congestion, pollution and cost of living.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Development and speculation&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Speculation has a large role in the property market. There are many external factors which encourage such speculation. For example, zoning limits supply of available land very quickly. With good population growth forecasts, it is very easy to anticipate demand growth for land.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Public policy and government intervention.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;In many economies, it is a highly regulated industry for a few reasons. Often times it is highly politicised (housing affordability is very important for many voters), policy decisions in this sector have direct and salient impacts in the day to day lives of residents. Think: rent control, public housing, zoning.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Real_estate_economics&quot; rel=&quot;nofollow&quot;&gt;Wikipedia on real-estate&lt;/a&gt; is pretty well resourced. Included in there (among others) is information on:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Demand for housing&lt;/li&gt;&#xA;&lt;li&gt;Supply of housing&lt;/li&gt;&#xA;&lt;li&gt;Real estate financing&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;In such a diverse field, there are many other factors to consider. The importance these variables are vary dependent on the type of analysis required. &lt;/p&gt;&#xA;" OwnerUserId="40" LastEditorUserId="40" LastEditDate="2015-08-02T05:43:46.750" LastActivityDate="2015-08-02T05:43:46.750" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6705" PostTypeId="2" ParentId="6042" CreationDate="2015-07-27T06:13:37.413" Score="2" Body="&lt;p&gt;As denesp mentioned, your solution is incorrect. To check whether there is envy, you have to compare the two bundles from the point of view of &lt;em&gt;the same&lt;/em&gt; agent. So in our case we have:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;For agent A: the utility of his own bundle is $4 \alpha$ and the utility of the other bundle is $\alpha+5$. So he feels no envy as long as $4\alpha \geq \alpha+5$, which is equivalent to: $\alpha \geq 5/3$.&lt;/li&gt;&#xA;&lt;li&gt;For agent B: the utility of his own bundle is 5 and the utility of the other bundle is 0. So he never feels envy.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;This means that the correct answer is (c).&lt;/p&gt;&#xA;" OwnerUserId="385" LastActivityDate="2015-07-27T06:13:37.413" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6706" PostTypeId="1" AcceptedAnswerId="27827" CreationDate="2015-07-27T06:20:52.000" Score="1" ViewCount="103" Body="&lt;p&gt;This question is about Pareto optimality (PO) in cake-cutting.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The basic definition is: an allocation is PO if there does not exist another allocation in which all players are weakly better off and at least one player is strictly better off. For example, consider the following cake (where &quot;C&quot; means Chocolate and &quot;V&quot; means Vanilla):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;CVCV&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Suppose there are two players: Alice wants only chocolate and Bob wants only vanilla. Then, there is only one PO allocation, and that is to give slices 1 and 3 to Alice and pieces 2 and 4 to Bob.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, suppose we restrict the cake-cutting such that the pieces must be connected. With this restriction, there are two possible definitions of PO:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;If we remain with the previous definition, then there exits &lt;em&gt;no&lt;/em&gt; PO allocations with connected pieces, since the only PO allocation requires disconnected pieces.&lt;/li&gt;&#xA;&lt;li&gt;On the other hand, we can change the definition and say that an allocation is PO if there does not exist another allocation &lt;em&gt;with connected pieces&lt;/em&gt; in which all players are weakly better off and at least one player is strictly better off. Under this definition, of course there exist PO allocations, such as, giving slice 1 to Alice and slices 2-4 to Bob.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Both definitions are reasonable. My question is: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;which definition is more common in the economics literature?&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="385" LastActivityDate="2019-04-17T16:21:34.177" Title="Pareto optimality when the allocations are restricted" Tags="&lt;reference-request&gt;&lt;pareto-efficiency&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6707" PostTypeId="5" CreationDate="2015-07-27T10:20:25.663" Score="0" Body="" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2015-07-27T10:20:25.663" LastActivityDate="2015-07-27T10:20:25.663" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6708" PostTypeId="4" CreationDate="2015-07-27T10:20:25.663" Score="0" Body="Use for questions about banks, their operations, and their role in the broader economic and financial system." OwnerUserId="108" LastEditorUserId="2776" LastEditDate="2017-08-04T17:15:08.747" LastActivityDate="2017-08-04T17:15:08.747" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6709" PostTypeId="5" CreationDate="2015-07-27T10:28:55.083" Score="0" Body="" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2015-07-27T10:28:55.083" LastActivityDate="2015-07-27T10:28:55.083" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6710" PostTypeId="4" CreationDate="2015-07-27T10:28:55.083" Score="0" Body="Markets in which ownership stakes of firms (e.g. stocks/shares) can be traded." OwnerUserId="108" LastEditorUserId="108" LastEditDate="2015-07-27T10:28:55.083" LastActivityDate="2015-07-27T10:28:55.083" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6711" PostTypeId="2" ParentId="6692" CreationDate="2015-07-27T13:27:08.467" Score="1" Body="&lt;p&gt;@OccupyGezi 's suggestion is good -you should check for severe collinearity, that may render the estimations unstable and unreliable for purely technical reasons.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for choosing between the models, there are technical, purely statistical criteria, but there is also the economic essence of the matter, which should not be forgotten: by including the variable &quot;age-squared&quot; you postulate an &quot;inverted U&quot; relationship between the logarithm of wage and age, i.e. that the logarithm of wage peaks at some age, and then starts to fall. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The fact that the coefficient on age-squared is negative while the coefficient on age is positive, provides evidence that support such a relation. But since it may be the case that the coefficient estimates are affected by multicollineaity, it would be good if could you back-up the claim of an inverted-U relationship with economic arguments or out-of-sample information.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-07-27T15:26:14.657" LastActivityDate="2015-07-27T15:26:14.657" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6712" PostTypeId="1" CreationDate="2015-07-27T14:21:39.777" Score="3" ViewCount="62" Body="&lt;p&gt;I am dealing with what I believe to be cointegrated statistics (Johansen says cointegration is present) however, when regressing the model the error terms are not stationary.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One of the causes of this is autocorrelation in the dependent regressor. So by imposing an AR structure on the model, I do get stationarity of the error terms, but is this cooking the equation to make it stationary? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks!&lt;/p&gt;&#xA;" OwnerUserId="5302" LastActivityDate="2015-10-27T21:24:51.313" Title="Cointegration and imposing AR terms" Tags="&lt;macroeconomics&gt;&lt;econometrics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6715" PostTypeId="1" AcceptedAnswerId="6717" CreationDate="2015-07-27T20:11:26.343" Score="4" ViewCount="70" Body="&lt;p&gt;Given a normal prior with mean $\mu_0$ and variance $\sigma_0^2$, and a normal likelihood with known variance $\sigma^2$, the Bayesian posterior, after observing $n$ iid signals $x_1,\dots,x_n$, is also a normal distribution with mean&#xA;$$&#xA;\left(\frac{\mu_0}{\sigma_0^2}+\frac{\sum_{i=1}^nx_i}{\sigma^2}\right)&#xA;\left(\frac{1}{\sigma_0^2}+\frac{n}{\sigma^2}\right)^{-1}&#xA;$$&#xA;and variance&#xA;$$\left(\frac{1}{\sigma_0^2}+\frac{n}{\sigma^2}\right)^{-1}.$$&#xA;See &lt;a href=&quot;https://en.wikipedia.org/wiki/Conjugate_prior#Continuous_distributions&quot; rel=&quot;nofollow&quot;&gt;https://en.wikipedia.org/wiki/Conjugate_prior#Continuous_distributions&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://mitpress.mit.edu/books/introduction-statistical-decision-theory&quot; rel=&quot;nofollow&quot;&gt;Pratt, Raiffa, and Schlaifer (2008)&lt;/a&gt; suggest that we could define&#xA;$$n'=\frac{\sigma^2}{\sigma_0^2}$$&#xA;so that the posterior mean and variance can be written as &#xA;$$&#xA;\frac{n'\mu_0+\sum_{i=1}^nx_i}{n'+n}\quad\text{and}\quad\frac{\sigma^2}{n'+n}.&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;They say that&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The parameter $n'$ can be interpreted therefore as the &quot;fictitious sample size&quot; or equivalent number of sample observations that describes the amount of information implicit in the prior distribution.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I'm having difficulty understanding the interpretation of $n'$, especially the part after &quot;or&quot;. Could anyone help me understand it, by perhaps putting it in a different way, or elaborate it a little?&lt;/p&gt;&#xA;" OwnerUserId="42" LastEditorUserId="61" LastEditDate="2015-07-28T02:07:45.003" LastActivityDate="2015-07-28T02:07:45.003" Title="Interpreting the ratio of two variances in a Bayesian decision problem" Tags="&lt;decision-theory&gt;&lt;statistics&gt;" AnswerCount="1" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="6717" PostTypeId="2" ParentId="6715" CreationDate="2015-07-28T02:07:11.523" Score="4" Body="&lt;p&gt;Excuse the word-play, but the interpretation of $n'$ is a... posterior one. Meaning, the important thing is not how $n'$ is defined (ratio of variances, although this will prove consistent with the interpretation), but how it functions in the posterior mean and variance.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;What does it do?&lt;/strong&gt; For the &lt;strong&gt;posterior variance&lt;/strong&gt;, it is easiest: firstly, it appears as an addition to the expression's denominator, an addition &lt;em&gt;comparable to the actual sample size&lt;/em&gt;. This permits the authors to talk about &quot;equivalent number of sample observations&quot;. Secondly, its effect is to &lt;em&gt;lower&lt;/em&gt; the variance, which is a metric of dispersion but also of uncertainty. This effect now permits the authors to talk about &quot;the amount of information implicit in the prior distribution&quot;: more information in the prior - lower uncertainty in the prior - lower uncertainty in the posterior - and indeed, $\sigma^2_0 \downarrow \implies n' \uparrow \implies \text{Posterior Variance} \downarrow$.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the &lt;strong&gt;posterior mean&lt;/strong&gt; we have (setting $N \equiv  n' + n$)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\text {Posterior Mean} = \frac{n'\mu_0 +\sum_{i=1}^nx_i}{n'+n} = &#xA;\frac{n'}{N}\mu_0 + \frac{n}{N}\bar x$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;i.e. a convex combination of the prior mean and the sample mean - so the magnitude $n'$ weighs the prior information against the sample information, &lt;em&gt;as though you had two separate samples from the same population of sizes $n'$ and $n$, and considered their pooled average&lt;/em&gt;. Again, this can be interpreted as &quot;information implicit in the prior distribution expressed in terms of virtual/fictitious sample size&quot;. &lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-07-28T02:07:11.523" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6718" PostTypeId="1" AcceptedAnswerId="6724" CreationDate="2015-07-28T04:49:52.907" Score="3" ViewCount="500" Body="&lt;p&gt;If the Phillipine peso falls in value against the USD by 5% in a year, but the domestic inflation rate in the Phillipines is 10%, compared to 2% in the USA, the nominal exchange rate has fallen (by 5%), but the real exchange rate has risen by 3%.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Could anyone help me explain why &quot;the real exchange rate has risen by 3%.&quot;?&lt;/p&gt;&#xA;" OwnerUserId="5101" LastEditorUserId="40" LastEditDate="2015-07-28T05:28:08.933" LastActivityDate="2015-08-16T11:31:47.580" Title="Question on real exchange rate" Tags="&lt;macroeconomics&gt;&lt;inflation&gt;&lt;exchange-rates&gt;&lt;self-study&gt;" AnswerCount="3" CommentCount="4" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="6720" PostTypeId="2" ParentId="1767" CreationDate="2015-07-28T05:37:58.170" Score="0" Body="&lt;p&gt;It is really worrisome that none of respondents has an idea of what &quot;New Keynesian Economics&quot; really is. One thing is the New Classical monetary model (also called New Keynesian Monetary model to which most respondents refer) and the other is the New Keynesian Economics as exemplified by papers collected in the two volumes by Mankiw and Romer. This is what NK economics really is. There is only one book on the subject which, by the way, is an excellent textbook: Benassi, Chirco and Colombo (1994), The New Keynesian Economics. You can find an undergraduate presetnation in Gordon's Macroeconomics book (latest editions) and a somewhat more advanced, but streamlined presentation in Romer's Advanced Macroeconomics book. All the best.&lt;/p&gt;&#xA;" OwnerUserId="5307" LastActivityDate="2015-07-28T05:37:58.170" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6723" PostTypeId="1" CreationDate="2015-07-28T11:44:34.223" Score="1" ViewCount="45" Body="&lt;p&gt;We live in continuous time. Let there be some discount rate $D(t)$, which consists of a discount rate, and some death probability. $V(t)$ contains the flow value of, say, being alive. If you are alive, you get some flow value $A(t)$ every period. I have started at the following discrete-time equation&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ V(t) = \Delta_t A(t) + \beta(\Delta_t)V(t+\Delta_t)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $\beta(\Delta_t)$ is related to the discrete-time analog of $D(t)$. I have derived, through some reordering of terms, and letting $\Delta_t \to 0$, the following equation:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ V(t) = \frac{A(t)}{D(t)} + \frac{V'(t)}{D(t)}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Unfortunately, I cannot trust in the flow values $A(t)$ being continuously differentiable, and hence I don't think that $V(t)$ is continuously differentiable. I hence want to rephrase this equation in a way that does not require the derivative $V'(t)$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I was expecting the resulting $V(t)$ to have the shape of&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ V(t) = \int_{t}^\infty D(s) A(s) ds  $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That is, the discounted sum of future fundamental values. Basically, I'm looking for the continous-time equivalent of&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ V(t) = \Delta_t A(t) + \beta(t)A(t+\Delta_t) + \beta(t)\beta(t+\Delta_t) A(t+2\Delta_t) + \cdots$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I tried to get there by integration:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \int_t^{\bar t} V'(s) ds = \int_t^{\bar t} D(s)V(s) - A(s) ds \\&#xA;V(\bar t) - V(t) = \int_t^{\bar t} D(s)V(s) - A(s) ds&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, this doesn't seem to help into getting it as a present discounted sum. What would be a correct approach here?&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2015-07-28T11:57:27.697" LastActivityDate="2015-07-28T11:57:27.697" Title="Forward-Looking HJB: Rewrite as PDV" Tags="&lt;continuous-time&gt;&lt;bellman-equations&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6724" PostTypeId="2" ParentId="6718" CreationDate="2015-07-28T12:44:01.090" Score="4" Body="&lt;p&gt;Note that I am not 100% sure. But in my understanding, we have &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Year 1&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Price for a product in the US :  $p_{US}=v$ \$&lt;/li&gt;&#xA;&lt;li&gt;Exchange rate: $x$ pesos for $1$\$&lt;/li&gt;&#xA;&lt;li&gt;Price of the product in the Philipines: $p_{Ph})=v.x$ pesos&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Year 2&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Price for the same product in the US : $p^\prime_{US} = (1+\alpha_v)v$ \$. The price increased due to the inflation $\alpha_v$.&lt;/li&gt;&#xA;&lt;li&gt;Nominal exchange rate: $(1+\alpha_x)x$ pesos for $1$\$. A drop in value means you need more pesos for one USD.&lt;/li&gt;&#xA;&lt;li&gt;Inflation in the Philipines: $p^\prime_{Ph} = \frac{P_{Ph}}{1+\alpha_p}$. Due to the inflation, the acquisitive power of the pesos is reduced.&lt;/li&gt;&#xA;&lt;li&gt;Price of that product : $p^\prime_{Ph}=[(1+\alpha_v)v].[(1+\alpha_x)x].[\frac{1}{1+\alpha_p}] = \frac{(1+\alpha_v).(1+\alpha_x)}{1+\alpha_p}.v.x$&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Variation&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;The effective variation compared to the previous year is thus, $\frac{(1+\alpha_v).(1+\alpha_x)}{1+\alpha_p}$, which corresponds to a &lt;em&gt;rise&lt;/em&gt; in effective exchange rate of &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;$$\frac{1+\alpha_p}{(1+\alpha_v).(1+\alpha_x)}-1=2.7\%$$&lt;/p&gt;&#xA;" OwnerUserId="4817" LastActivityDate="2015-07-28T12:44:01.090" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="6725" PostTypeId="2" ParentId="6718" CreationDate="2015-07-28T15:10:59.163" Score="0" Body="&lt;p&gt;Mainly based on the idea of @bilbo_pingouin, this is my understanding:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Year 0: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Price of product X in the US is: 1 dollar&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Exchange rate is $x$ pesos for 1 USD&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;So, price of X in the P is $x$ pesos&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Year 1:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Price of product X in the US is: $(1+\pi_{US})$ dollars, due to inflation&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Exchange rate is $(1+\alpha)*x$ pesos for 1 USD, due to depreciation of peso.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;So price of X in the P is $(1+\pi_{US})(1+\alpha)*x$ pesos.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;But this price has NOT been adjusted for inflation in the P, so its real price in the P should be: $\frac{(1+\pi_{US})(1+\alpha)}{1+\pi_P}*x$ pesos&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the real change in exchange rate should be $\frac{(1+\pi_{US})(1+\alpha)}{1+\pi_P}-1 = -2.4\%$, which corresponds to an appreciation in peso.&lt;/p&gt;&#xA;" OwnerUserId="5101" LastEditorUserId="5101" LastEditDate="2015-07-29T03:36:09.867" LastActivityDate="2015-07-29T03:36:09.867" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6726" PostTypeId="2" ParentId="6591" CreationDate="2015-07-28T15:42:21.827" Score="0" Body="&lt;p&gt;&lt;sub&gt;Someone can probably answer that question better than I could., but let us give a try nonetheless.&lt;/sub&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let us consider that we have an independent market between the US and the UK and that the values of their respective money is only depending on that market. That is no influence outside those two countries will be considered.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At this market, the exchange rate between the pounds and the dollars is a consequence of the buying and selling of dollars against pounds. If we further simplify, supposing that no government, currency speculation, or otherwise take place, we can reduce the exchange rate to be a consequence of the commercial balance between those two countries. The more the US import, the more the pound/dollar ratio increases. And the more they export, the more the ratio decreases.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, we consider that the prices in the UK rises as an effect of the inflation. The US inflation on the same period is 0. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;At first, the exchange rate was unchanged. Export goods are kept at the same price (no inflation in the US and constant exchange rate). However import goods are more expensive due to the inflation. This favours the US export in comparison to its import. As a consequence, there is a higher demand of US goods in the UK (cheaper) and a lower demand of UK goods in the US.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The effect is &lt;strong&gt;a fall of the pound in comparison to the dollar&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It can be seen in another way, the acquisition power of the pound has lowered due to the inflation, and the exchange rate reflects that against the non-inflated dollar.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a consequence, the prices of the US exported goods will rise, whereas the prices of the UK exported goods will lower. This will re-establish the variation of demand and offer caused by the inflation to what it was before, but with a new echange rate, reflecting the new acquisition power of the pound.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is a theoretical illustration of the self-regulation of the market.&lt;/p&gt;&#xA;" OwnerUserId="4817" LastActivityDate="2015-07-28T15:42:21.827" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6728" PostTypeId="1" CreationDate="2015-07-28T22:12:23.353" Score="4" ViewCount="82" Body="&lt;p&gt;The question is related to this &lt;a href=&quot;https://economics.stackexchange.com/questions/6428/multiple-equilibria-which-one-to-select&quot;&gt;thread&lt;/a&gt;. I'd like to derive a unique steady state for an optimal control problem.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider the following programm&#xA;\begin{align}&#xA;&amp;amp;V(x_0) := \max_u \int^\infty_0 e^{-\rho t}F(x(t),u(t))dt\\&#xA;s.t.~&amp;amp;\dot x(t)=f(x(t),u(t))\\&#xA;&amp;amp;x(0) = x_0&#xA;\end{align}&#xA;where $\rho &amp;gt; 0$ denotes time preference, $V(\cdot)$ is the value and $F(\cdot)$ an objective function. $x\in X$ is the state variable and $u\in U=[0,1]$ the control. The state is governed by $f(\cdot)$. The Hamilton-Jacobi-Bellman equation reads&#xA;\begin{align}&#xA;\rho V(x)=\max_u [F(x,u) + V'(x)f(x,u)],\quad \forall t\in[0,\infty)&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now presume that the feedback control is given by&#xA;\begin{align}&#xA;u(x) = \frac{1}{1+V'(x)} = \arg\max_u [F(x,u) + V'(x)f(x,u)],\quad \forall x\in X.&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose there is a fixed point at $x = \tilde x$ and we can derive an alternative representation for the optimal control in the fixed point with&#xA;\begin{align}&#xA;u(\tilde x) = \frac{\rho + u'(\tilde x)}{\rho + u'(\tilde x) + 1}.&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose additionaly the HJB in the fixed point is given by&#xA;\begin{align}&#xA;\rho V(x)=\ln\left(\frac{1}{1+V'(x)}\right) + 1 - \frac{1}{1+V'(x)}.&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If $\rho\to 0$ approches zero we must have $V'(\tilde x) = 0 \Rightarrow u(\tilde x) = 1 \Rightarrow u'(\tilde x) = \infty$. On the other hand if  $\rho\to\infty$ approches infinity we must have $V(\tilde x) = 0$ by the definition of the value function and thus again $V'(\tilde x) = 0 \Rightarrow u(\tilde x) = 1$. Summarizing we have the following properties in equilibrium&#xA;\begin{align}&#xA;\lim_{\rho\to 0} u(\tilde x)=\lim_{\rho\to\infty} u(\tilde x) = 1.&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Well, that's at odds with&#xA; \begin{align}&#xA;\frac{\partial u(\tilde x)}{\partial \rho}=\frac{1}{(\rho + u'(\tilde x) + 1)^2} &amp;gt; 0&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;being a strictly monoton increasing function, contradicting our previous result. Note, however, that we may resolve the issue by observing&#xA;\begin{align}&#xA;\lim_{u'(\tilde x)\to\infty}\frac{\partial u(\tilde x)}{\partial \rho}= 0&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, can we finally conjecture that we must have in the fixed point $u'(\tilde x) = \infty \Rightarrow u(\tilde x) = 1$ such that &#xA;\begin{align}&#xA;\rho V(\tilde x)=\ln(1) + 1 - 1 \Leftrightarrow V(\tilde x) = 0.&#xA;\end{align} &lt;/p&gt;&#xA;" OwnerUserId="4266" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-10-28T00:24:50.787" Title="Conjecture Steady State from limit properties" Tags="&lt;mathematical-economics&gt;&lt;dynamic-programming&gt;&lt;steady-state&gt;" AnswerCount="1" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6729" PostTypeId="2" ParentId="4444" CreationDate="2015-07-29T02:14:11.360" Score="8" Body="&lt;p&gt;Thanks to densp for identifying &lt;a href=&quot;http://www.bignam.org/Publications/BIG_Assessment_report_08b.pdf&quot; rel=&quot;noreferrer&quot;&gt;this paper&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It refers to a major pilot project undertaken in Namibia&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Background:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Basic Income Grant (BIG) pilot project took place in the Otjivero-Omitara area, about 100 kilometres east of Windhoek. All residents below the age of 60 years receive a Basic Income Grant of N$100 per person per month, without any conditions being attached. The grant is being given to every person registered as living there in July 2007, whatever their social and economic status.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Before the pilot project, the area was characterised by unemployment, hunger and poverty. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Conclusions:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Since the introduction of the Basic Income Guarantee (BIG), household poverty has dropped significantly. Using the food poverty line, 76% of residents fell below this line in November 2007. This was reduced to 37% within one year of the BIG. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;There was a dramatic increase in economic activity. The rate of those engaged in income generating activities (above the age of 15) increased from 44% to 55%. Thus the BIG enabled recipients to increase their work both for pay, profit or family gain as well as self-employment. The grant enabled recipients to increase their productive income earned, particularly through starting their own small business, including brick-making, baking of bread and dress-making. The BIG contributed to the creation of a local market by increasing households' buying power. This finding contradicts critics' claims that the BIG would lead to laziness and dependency.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Huge reduction in child malnutrition from 42% to 17% in 6 months.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Increase in school attendances (non attendance due to financial reasons dropped 42%)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Drop in crime (theft down 42%)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Estimated cost for a nationwide program in Namibia would be 2-3% of GDP. Not cheap, not unaffordable either.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;All thing considered, the author of this report seemed pretty happy with the outcome. There were some issues impacting the data. Since it was a localised study, there was a fair bit of migration towards the treatment area. The long term impacts are not yet known as well.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Additional resources:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Haarmann, Claudia; Haarmann, Dirk; Jauch, Herbert; Mote Hilma et al 2008. Towards a Basic Income Grant for all. Basic Income Grant Pilot Project. First Assessment Report, September 2008. Windhoek&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Kameeta, Zephania; Haarmann, Claudia; Haarmann, Dirk; Jauch, Herbert 2007. Promoting employment and decent work for all - Towards a good practice model in Namibia. - Research Paper - Presentation to the United Nations Commission for Social Development. Windhoek &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Haarmann, Claudia; Haarmann, Dirk (ed.) 2005. The Basic Income Grant in Namibia. Resource Book. Windhoek&lt;/p&gt;&#xA;" OwnerUserId="40" LastEditorUserId="40" LastEditDate="2015-11-27T04:22:12.783" LastActivityDate="2015-11-27T04:22:12.783" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6730" PostTypeId="5" CreationDate="2015-07-29T05:56:17.293" Score="0" Body="" OwnerUserId="-1" LastEditorUserId="-1" LastEditDate="2015-07-29T05:56:17.293" LastActivityDate="2015-07-29T05:56:17.293" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6731" PostTypeId="4" CreationDate="2015-07-29T05:56:17.293" Score="0" Body="A branch of economics that focuses on the optimal allocation of resources and goods and how this affects social welfare. Welfare economics analyzes the total good or welfare that is achieve at a current state as well as how it is distributed. This relates to the study of income distribution and how it affects the common good." OwnerUserId="40" LastEditorUserId="40" LastEditDate="2015-07-29T12:39:13.837" LastActivityDate="2015-07-29T12:39:13.837" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6732" PostTypeId="5" CreationDate="2015-07-29T06:00:32.890" Score="0" Body="&lt;blockquote&gt;&#xA;&lt;p&gt;A basic income (also called unconditional basic income, basic income guarantee, universal basic income, universal demogrant, or citizen’s income) is a form of social security system in which all citizens or residents of a country regularly receive an unconditional sum of money, either from a government or some other public institution, in addition to any income received from elsewhere.&lt;/p&gt;&#xA;&lt;p&gt;An unconditional income transfer of less than the poverty line is sometimes referred to as a &amp;quot;partial basic income&amp;quot;.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Source: &lt;a href=&quot;https://en.wikipedia.org/wiki/Basic_income&quot; rel=&quot;nofollow noreferrer&quot;&gt;Wikipedia&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="40" LastEditorUserId="4816" LastEditDate="2020-08-03T06:18:23.390" LastActivityDate="2020-08-03T06:18:23.390" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="6733" PostTypeId="4" CreationDate="2015-07-29T06:00:32.890" Score="0" Body="A basic income (also called unconditional basic income, basic income guarantee, universal basic income, universal demogrant, or citizen’s income) is a form of social security system in which all citizens or residents of a country regularly receive an unconditional sum of money, either from a government or some other public institution, in addition to any income received from elsewhere." OwnerUserId="40" LastEditorUserId="69" LastEditDate="2015-11-19T13:53:02.330" LastActivityDate="2015-11-19T13:53:02.330" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6734" PostTypeId="5" CreationDate="2015-07-29T06:06:51.260" Score="0" Body="&lt;p&gt;Development economics is a branch of economics which deals with economic aspects of the development process in low-income countries. Its focus is not only on methods of promoting economic development, economic growth and structural change but also on improving the potential for the mass of the population, for example, through health and education and workplace conditions, whether through public or private channels.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Development economics involves the creation of theories and methods that aid in the determination of policies and practices and can be implemented at either the domestic or international level. This may involve restructuring market incentives or using mathematical methods such as inter-temporal optimization for project analysis, or it may involve a mixture of quantitative and qualitative methods.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Unlike in many other fields of economics, approaches in development economics may incorporate social and political factors to devise particular plans. Also unlike many other fields of economics, there is no consensus on what students should know. Different approaches may consider the factors that contribute to economic convergence or non-convergence across households, regions, and countries.&lt;/p&gt;&#xA;" OwnerUserId="40" LastEditorUserId="40" LastEditDate="2015-07-29T12:39:11.447" LastActivityDate="2015-07-29T12:39:11.447" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6735" PostTypeId="4" CreationDate="2015-07-29T06:06:51.260" Score="0" Body="Development economics is a branch of economics which deals with economic aspects of the development process in low-income countries." OwnerUserId="40" LastEditorUserId="40" LastEditDate="2015-07-29T12:39:08.413" LastActivityDate="2015-07-29T12:39:08.413" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6736" PostTypeId="1" CreationDate="2015-07-29T12:17:54.357" Score="4" ViewCount="87" Body="&lt;p&gt;Is recycling plastic, all things considered, efficient as compared to disposing of them and making new plastic?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm looking in efficiency rates in free market environment and also full process of production and disposal. No moral agenda, no subsidies, simply, is it worth to recycle plastic.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is not easy task to find all the costs involved and it surely depends on place and politics so I understand some assumptions have to be set. I understand that keeping our backyard clean is also important so when disposal is considered it should be done in proper manner. No enforcement should be speculated (such as enforced sorting by the public), although voluntary action may be considered (motivated public).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The costs of production option of plastic should involve:&#xA;production (costs), introducing to the market (gain), disposal (costs)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The costs of recycling option of plastic should involve:&#xA;collecting (costs), processing (costs), reintroducing to the market (gain)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Anyone help is appreciated. It's not any project, just curiosity of my own. If anyone can at least point me to good resources and outline how to calculate everything objectively, I would much appreciate that.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One document that deals with the topic is here:&#xA;&lt;a href=&quot;http://cdn.intechopen.com/pdfs-wm/37109.pdf&quot; rel=&quot;nofollow&quot;&gt;http://cdn.intechopen.com/pdfs-wm/37109.pdf&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Although it doesn't give clear answer (hard numbers).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Update: What I seek here mostly is proper methodology of objective economic calculation of this very matter.&#xA;1. What are the partial processes to consider - the major contributor of costs/profits.&#xA;2. How to determine the costs/profits of each part.&#xA;3. Where to find objective data or how to get it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I should have probably attempted to try something on my own, and I intend to. But once I start thinking about it I find that I either don't have objective output or that the calculation would require too much detail.&#xA;Example: landfill cost according to the EU document in comment, p.64 ( &lt;a href=&quot;http://ec.europa.eu/environment/waste/studies/pdf/eucostwaste.pdf&quot; rel=&quot;nofollow&quot;&gt;http://ec.europa.eu/environment/waste/studies/pdf/eucostwaste.pdf&lt;/a&gt; ) the prices range from 6 EUR/ton in Poland to 164 EUR/ton in Netherlands. Now, is the difference due to higher labor costs or due to taxes and directives?&lt;/p&gt;&#xA;" OwnerUserId="5314" LastEditorUserId="5314" LastEditDate="2015-07-31T09:09:16.717" LastActivityDate="2015-08-30T12:41:48.697" Title="Effectiveness of recycling (consumer PET) plastic" Tags="&lt;asset-pricing&gt;&lt;environmental-economics&gt;&lt;effective-price&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6737" PostTypeId="2" ParentId="6718" CreationDate="2015-07-29T18:51:41.883" Score="3" Body="&lt;blockquote&gt;&#xA;&lt;p&gt;If the Phillipine peso falls in value against the USD by 5% in a year, but the domestic inflation rate in the Phillipines is 10%, compared to 2% in the USA, the nominal exchange rate has fallen (by 5%), but the real exchange rate has risen by 3%.&lt;/p&gt;&#xA;&lt;p&gt; Could anyone help me explain why &amp;quot;the real exchange rate has risen by 3%.&amp;quot;?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;A Word of caution: it is not the RER that rises or falls. It is currencies. A currency (in this case the PH peso) either appreciates or depreciates relative to another. The PH peso appreciates in real terms when the cost of a PH basket of godos falls relative to the cost of the same basket in the US, when both baskets are expressed in the same currency.  Let P be the Price index for PH and P* be the Price index for US. If E is defines as the number of dollars that must be given up in Exchange for one PH peso, then the RER can be defined as:&lt;/p&gt;&#xA;&lt;p&gt;RER=P/EP*&lt;/p&gt;&#xA;&lt;p&gt;This indicates the number of PH baskets that must be given up in exchange to obtain a similar basket of US godos. If this number raises then the PH peso has appreciated in real terms vis-avis the US dollar.&lt;/p&gt;&#xA;&lt;p&gt;Taking percentage changes and ignoring second order terms:&lt;/p&gt;&#xA;&lt;p&gt;%CH_RER=%CH_P-(%CH_E+%CH_P*)&lt;/p&gt;&#xA;&lt;p&gt;Thus,&lt;/p&gt;&#xA;&lt;p&gt;%CH_RER=10%-(5%+2%)=3%   Voila!&lt;/p&gt;&#xA;" OwnerUserId="5317" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2015-08-16T11:31:47.580" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6738" PostTypeId="2" ParentId="6572" CreationDate="2015-07-29T19:01:20.133" Score="2" Body="&lt;p&gt;Read the economics textbook by Gary Becker. He does not deal with NG marriage but he offers the first economic theory of marriage. Also, read &quot;A Treatise on the Family: Enlarged Edition&quot;, 441 pages, Gary S. Becker, Harvard University Press.  &lt;/p&gt;&#xA;" OwnerUserId="5317" LastActivityDate="2015-07-29T19:01:20.133" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="6739" PostTypeId="2" ParentId="6712" CreationDate="2015-07-29T19:15:41.627" Score="1" Body="&lt;p&gt;Johansen cointegration will usually yield more than one cointegrating vectors (cointegration regression coefficients). By definition, for a cointegrating vector, residuals must be stationary. And a stationary process can take any stationary ARMA form. So, adding AR term is cheating. What you shall do is to test for stationarity of residuals obtianed from cointegration vector. I do not mean to be rude, but you must be doing something wrong. Perhaps, your original variables are not I(1), or you need to include a determinsitc or stationary trend in your stationarity test, and the like. Just for comparison purposes, how do your Johansen results compare to Engel-Granger test. This might shed some light.&#xA;Best,&lt;/p&gt;&#xA;" OwnerUserId="5317" LastActivityDate="2015-07-29T19:15:41.627" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6740" PostTypeId="1" AcceptedAnswerId="6756" CreationDate="2015-07-29T21:23:16.190" Score="4" ViewCount="143" Body="&lt;p&gt;What exactly makes a small and youg company a &quot;Start-Up&quot;, among other small and young companies which are not necessarly start-ups?&lt;/p&gt;&#xA;" OwnerUserId="4408" LastEditorUserId="43" LastEditDate="2015-07-30T11:43:08.460" LastActivityDate="2018-05-18T13:41:23.440" Title="What is the difference between a Start-Up and a small company which is not a Start-Up?" Tags="&lt;economic-terms&gt;&lt;definition&gt;" AnswerCount="3" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6742" PostTypeId="1" CreationDate="2015-07-29T21:48:23.857" Score="1" ViewCount="70" Body="&lt;blockquote&gt;&#xA;&lt;p&gt;&lt;a href=&quot;http://canadiancouchpotato.com/2011/07/07/holding-your-bond-fund-for-the-duration/&quot; rel=&quot;nofollow noreferrer&quot;&gt;[Source:]&lt;/a&gt; Which leads us to the key message for investors: &lt;strong&gt;as long as your time horizon is at least as long as the duration of your bond fund, you won’t lose any capital&lt;/strong&gt;.&lt;/p&gt;&#xA;&lt;p&gt;You’ve probably heard people say they prefer &lt;a href=&quot;http://canadiancouchpotato.com/2010/03/29/bonds-v-bond-funds/&quot; rel=&quot;nofollow noreferrer&quot;&gt;individual bonds to bond funds&lt;/a&gt;, because as long as they hold on until maturity, they won’t lose principal. &lt;strong&gt;Well, the same is true if you hold a bond fund for a period equal to its duration.&lt;/strong&gt; You can be sure that XBB will not have a negative total return over any period longer than 6.3 years: any price decline from rising interest rates will be offset by higher coupons within that time frame. In fact, history suggests the recovery is likely to be more swift than that: even a three-year period of negative bond returns is extremely rare.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;1. Are the bolded clauses true absolutely? To wit, capital loss is identically (and NOT just near) 0?&lt;/p&gt;&#xA;&lt;p&gt;2. Why are the bolded true?&lt;/p&gt;&#xA;" OwnerUserId="4020" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2018-09-22T09:22:48.910" Title="Why can principal not be lost, if a bond fund is held for a period equal to its duration?" Tags="&lt;bonds&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6743" PostTypeId="2" ParentId="6728" CreationDate="2015-07-29T23:33:32.053" Score="1" Body="&lt;p&gt;Upgrading an exchange of comments, a critical point in the question is the expression&#xA;\begin{align}&#xA;\frac{\partial u(\tilde x)}{\partial \rho}=\frac{1}{(\rho + u'(\tilde x) + 1)^2} &#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which is mistaken , because from &lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{align}&#xA;u(\tilde x) = \frac{\rho + u'(\tilde x)}{\rho + u'(\tilde x) + 1}.&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;we obtain&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{align}&#xA;\frac{\partial u(\tilde x)}{\partial \rho}=\frac{1+\partial u'(\tilde x)/\partial \rho}{(\rho + u'(\tilde x) + 1)^2} &#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The OP notes that the sign of $\partial u'(\tilde x)/\partial \rho$ is indeterinate, and so $\partial u(\tilde x)/\partial \rho$ cannot be said to be monotonically increasing, which was what drove the pinning-down of the steady state.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-07-29T23:33:32.053" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6744" PostTypeId="2" ParentId="6740" CreationDate="2015-07-30T09:04:03.917" Score="1" Body="&lt;p&gt;There is no clear separation between what is and what is not a start-up. It's a non-technical term, and so has all the usual blurriness and context-sensitivity that goes along with that. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A start-up is usually taken to have come from nothing, with a new product or service (or new variation of existing ones). Its founders typically put in all the equity themselves, perhaps leveraged with some debt (maxing out personal credit cards, for example); and then manage it, and typically provide (almost) all the labour inputs themselves. And as a founder, it consumes all your time and energy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Whereas some young companies are spun out of existing enterprises. Some young companies start with an existing product, and/or have separation of ownership, management and workforce. They would typically not be referred to as start-ups.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2015-07-30T09:04:03.917" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6745" PostTypeId="2" ParentId="6742" CreationDate="2015-07-30T09:06:27.347" Score="1" Body="&lt;p&gt;A bond is basically a contract between the debtor and the creditor, which roughly usually says something like&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;You, the creditor, agree to lend me \$10,000 today. In return, I, the debtor, will make the following payments to you (or, in the event that you sell this bond, to the new owner of the bond):&lt;/p&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;\$500 every year for the next five years.&lt;/li&gt;&#xA;&lt;li&gt;An additional final payment five years from now to return your $10,000.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;That the original invested principal is returned to the investor at the end of the bond's life is fundamentally written into the terms of the agreement. Thus, provided you don't sell the bond before its maturity, the terms of the bond guarantee that your original principle will be returned. This means that, under normal circumstances, capital loss will be zero if the bond is held to maturity.&lt;/p&gt;&#xA;&lt;p&gt;Here are some reasons why capital loss might be non-zero for a bond investor:&lt;/p&gt;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;The debtor defaults (for example, by declaring bankruptcy) and ceases making the payments required by the bond.&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;A minority of bonds have terms that require an amount different to the original invested principal be returned at the end of the bond's lifetime. In this case, the amount to be returned will be described in the bond, but might be less than the original investment.&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;or, of course, you sell the bond before its maturity date, and the amount for which you sell it is less than the amount you originally invested.&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&lt;p&gt;It is also important to remember that even if nominal capital loss is zero, inflation will erode the value of the invested capital over the lifetime of the bond. Thus, the real value of the returned principle will be lower than the value of the amount invested.&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2018-09-22T09:22:48.910" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="6746" PostTypeId="1" CreationDate="2015-07-30T10:45:14.063" Score="3" ViewCount="77" Body="&lt;p&gt;In a recent conversation, I was suggested that national working hours aggregates, as provided by bureaus of statistics, are based on surveys on time use. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is that true? Can macro labor data, which is used for so many different puzzles and theories, be vulnerable to things such as time-varying biases in estimating time use? How are national working hour statistics computed?&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-08-01T02:09:24.770" Title="How are working hours statistics computed?" Tags="&lt;macroeconomics&gt;&lt;labor-economics&gt;&lt;empirical-methods&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6747" PostTypeId="1" CreationDate="2015-07-30T11:14:59.310" Score="1" ViewCount="23" Body="&lt;p&gt;The EIB is holding large quantities of Greek bonds. if Greece would default on these bonds, how would these (paper) losses be felt by individual tax payers in the other EU countries? Would this be through direct resource transfers out of tax income by the otehr EU governments (to cover these losses)? or would the EIB simply &quot;print&quot; money, and the effect would hence be felt through general price inflation? Many thanks in advance, Wouter &lt;/p&gt;&#xA;" OwnerUserId="5322" LastActivityDate="2015-08-03T13:33:30.690" Title="EIB - losses on Greek bonds" Tags="&lt;macroeconomics&gt;&lt;monetary-policy&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6748" PostTypeId="1" AcceptedAnswerId="6750" CreationDate="2015-07-30T11:21:53.507" Score="3" ViewCount="135" Body="&lt;p&gt;My Geography textbook defines the &lt;em&gt;size of an economy&lt;/em&gt; as:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Size of economy is measured in terms of value of goods and services&#xA;  and grows over&#xA;      time. This is caused by increase in population, improvement in income levels,&#xA;      advancement of technology and other associated factors.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I found these statements to be a little iffy. I don't understand how things like &lt;code&gt;advancement of technology&lt;/code&gt; could possibly make the economy larger in size. I do get that they could give the secondary or tertiary sector a larger chunk of the economy, but could it make the economy larger as a whole?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Netherlands, for an example, has just as elaborate an economy as any other country; with possibly the same factors acting on it. However, even with all the &lt;em&gt;advancements in technology&lt;/em&gt; and &lt;em&gt;increased income levels&lt;/em&gt;, it is no where as gigantic and mammoth (we are talking size, remember?) an economy as India or China when it comes to sheer scale.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I thus concluded that this statement was erroneous. Am I right in propounding that the &lt;strong&gt;size of an economy&lt;/strong&gt; has nothing (absolutely nothing) to do with the intricacies and coming-together of processes, and solely to do with the scale or largeness of it? &lt;/p&gt;&#xA;" OwnerUserId="5066" LastEditorUserId="1601" LastEditDate="2015-07-30T11:51:03.870" LastActivityDate="2015-07-30T13:29:58.360" Title="What Constitutes The Size Of An Economy?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6749" PostTypeId="2" ParentId="6572" CreationDate="2015-07-30T11:42:15.373" Score="4" Body="&lt;p&gt;&lt;strong&gt;tl,dr&lt;/strong&gt;: I don't see an &lt;strong&gt;economic&lt;/strong&gt; argument for GN marriage, or marriage in general what-so-ever. &lt;/p&gt;&#xA;&#xA;&lt;h3&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Frictionless_market&quot; rel=&quot;nofollow&quot;&gt;Frictionless&lt;/a&gt; environment&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;All spending on marriage, are nothing more than consumption goods. There is no reason to believe that marriage-related spending have a higher Keynesian multiplier than other consumption categories.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As long as this is the case, as &lt;em&gt;@denesp&lt;/em&gt; argues, &quot;money spent on marriage&quot; is money that would instead be spend on different consumption goods. Legalizing marriages would be a boost to the economy, and useful in crises and slumps - but again, by Keynesian logic, the same would be true for burying money in the ground. There is no reason it has to be marriage specifically.&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;But&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;However, the real world is no frictionless environment. &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;To the extent that there are different tax rates for married couples, which set up incentives for working more, increasing the size of the married population may increase total output. But then again, the welfare improving solution is not to increase the share of married couples, but removing tax benefits for married couples.&lt;/li&gt;&#xA;&lt;li&gt;There may be &quot;efficiency gains&quot; from being married. This is the only possible &quot;real&quot; economic argument: If, being married, and having a state-legalized marriage contract makes people very happy and productive workers, increasing the size of the married population will increase TFP. However, this is a very big if, and I am not aware of research supporting this. In contrast, happiness research seems to indicate that the impact of positive or negative events fades away quickly, and an invididuals &quot;happiness&quot; moves back to average levels quite quickly, even in case of losing a leg (&lt;a href=&quot;http://psycnet.apa.org/psycinfo/1980-01001-001&quot; rel=&quot;nofollow&quot;&gt;Brickman et al, 1978&lt;/a&gt;;   &lt;a href=&quot;http://pages.ucsd.edu/~nchristenfeld/Happiness_Readings_files/Class%203%20-%20Brickman%201978.pdf&quot; rel=&quot;nofollow&quot;&gt;ungated&lt;/a&gt;)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="43" LastEditorUserId="4483" LastEditDate="2015-07-31T19:46:17.547" LastActivityDate="2015-07-31T19:46:17.547" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="6750" PostTypeId="2" ParentId="6748" CreationDate="2015-07-30T11:50:05.617" Score="2" Body="&lt;p&gt;Your book is correct.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To quote it&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Size of economy is measured in terms of value of goods and services.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Suppose the Netherlands had its current population of 16 million people but only 14th century technology. I hope you'll agree that the value of whatever they produced would be significantly less than the value of their current production.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another comparison: &lt;br&gt;&#xA;The Indian economy is currently smaller (in terms of value) than the US economy&#xA;despite the difference in population. The reason for this is that the US has much more capital in advanced technology.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To address the question whether value is a good indication of size is good question: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are several arguments for this. Imagine that a country produces something that it consumes very little of (e.g. cash crops). In this case they will not care at all about the weight, volume etc. of their production, they will want to know how much they can sell it for so they can import other things. I would say in such a case value is much more relevant then other measures.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another example:&#xA;&lt;br&gt;&#xA;Imagine that the A pill immunizes you against malaria for a day and the B pill immunizes you for a year. Would you say a plant producing 100 A pills produces more than a plant producing a B pill? &lt;br&gt; I would argue in some sense it does, in some sense it does not. There is no absolutely clear method of comparison. For reasons of international trade, value is used. Is the word size confusing? Perhaps. But not overly so.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2015-07-30T13:29:58.360" LastActivityDate="2015-07-30T13:29:58.360" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6752" PostTypeId="1" AcceptedAnswerId="6753" CreationDate="2015-07-30T13:20:50.757" Score="3" ViewCount="48" Body="&lt;p&gt;In footnote 3 of their paper &quot;&lt;a href=&quot;http://onlinelibrary.wiley.com/doi/10.1111/j.1430-9134.1998.00001.x/abstract&quot; rel=&quot;nofollow&quot;&gt;Patent Breadth, Patent Life, and the Pace of Technological Progress&lt;/a&gt;&quot;, O'Donoghue Scotchmer and Thisse take a discount rate of $r$ and write&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;If the flow of profit $\Delta$ lasts for length $t$, the discounted profit is $\Delta(1 − e^{−rt})/r$.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Can someone explain where the expression $\Delta(1 − e^{−rt})/r$ comes from?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Whilst I am familiar with continuous time discounting, I have never seen it formulated in this way before. I would usually expect the expression for discounted profit to be $\Delta e^{-rt}$.&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="43" LastEditDate="2015-07-30T13:30:46.293" LastActivityDate="2015-07-30T15:19:37.350" Title="Help understanding expression for continuous discounting" Tags="&lt;mathematical-economics&gt;&lt;continuous-time&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6753" PostTypeId="2" ParentId="6752" CreationDate="2015-07-30T13:38:05.353" Score="2" Body="&lt;p&gt;From time $0$ to time $t$ the profit flow is constant $\Delta$. The discounted value of the profit flow of any instance $s$ is $\Delta \cdot e^{-r s}$. To get the total discounted profit we will need the integral of this from $0$ to $t$:&#xA;$$&#xA;\int_0^t \Delta \cdot e^{-r s} \ ds = \left. \frac{\Delta \cdot e^{-r s}}{-r} \right]_0^t = \frac{\Delta \cdot e^{-r t}}{-r} - \frac{\Delta \cdot e^{-r \cdot 0}}{-r}&#xA;$$&#xA;And as $e^{-r \cdot 0} = e^0 = 1$, this is&#xA;$$&#xA;- \frac{\Delta \cdot e^{-r t}}{r} + \frac{\Delta \cdot 1}{r} = \Delta \cdot \frac{1 -e^{-r t}}{r}.&#xA;$$&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2015-07-30T15:19:37.350" LastActivityDate="2015-07-30T15:19:37.350" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6754" PostTypeId="1" AcceptedAnswerId="6800" CreationDate="2015-07-30T15:47:15.667" Score="3" ViewCount="70" Body="&lt;p&gt;For example: &lt;a href=&quot;http://www.ams.usda.gov/mnreports/nx_fv010.txt&quot; rel=&quot;nofollow&quot;&gt;http://www.ams.usda.gov/mnreports/nx_fv010.txt&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The data for mangos is :&#xA;MANGOES:  MARKET STEADY.  flats 1 layer HT Francis (Francine) 9s 11.00 10s&lt;br&gt;&#xA;12.00 12s 10.00-12.00 MX Keitt 7s 5.00-6.00 few 6.50 8s 5.00-6.00 few 6.50-7.00&#xA;9s 5.00-6.00 few 6.50 10s 5.00-6.00 few 6.50 12s 5.00 occas higher Kent 6s&lt;br&gt;&#xA;6.00-7.00 fr appear 4.50 7s 5.00-6.00 8s 5.00-6.00 9s 5.00-6.00 10s 5.00-5.50&lt;br&gt;&#xA;few 4.00 12s 5.00 Ataulfo 18s 12.00 25 lb cartons DR Banilejos 36.00           &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What exactly do these numbers mean?&lt;/p&gt;&#xA;" OwnerUserId="5324" LastActivityDate="2015-08-05T13:41:49.613" Title="How does one interpret the usda wholesale market price reports?" Tags="&lt;international-trade&gt;&lt;commodities&gt;&lt;agriculture&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6755" PostTypeId="1" AcceptedAnswerId="6761" CreationDate="2015-07-30T16:28:14.160" Score="3" ViewCount="48" Body="&lt;p&gt;I need a list (or separate lists) with average prices of precious metals (gold, silver, platinum, palladium, etc.), by year. I prefer the annual average price or at least the price at the end/beginning of the year and I do not need graphs with prices fluctuations from one day/week/month to another.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also price ratios (like gold/silver, gold/platinum - e.g. &quot;in year 1900, with 33.33 ounces of silver you could buy one ounce of gold&quot;) are very useful for me.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;International prices are desired of course, but the national prices are also very welcomed (like historical price of gold in the UK/US/France/Germany or any other country where someone actually bothered to record such facts).&lt;/p&gt;&#xA;" OwnerUserId="5161" LastEditorUserId="5161" LastEditDate="2015-07-30T16:45:21.077" LastActivityDate="2015-07-31T05:08:54.083" Title="Annual price of precious metals" Tags="&lt;data-request&gt;&lt;commodities&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6756" PostTypeId="2" ParentId="6740" CreationDate="2015-07-30T17:07:41.200" Score="5" Body="&lt;p&gt;Probably, there's no clear-cut definition, however, there's an article of Paul Graham called &lt;a href=&quot;http://www.paulgraham.com/growth.html&quot;&gt;Startup=Growth&lt;/a&gt; which represents the opinion many agree upon: &lt;strong&gt;startup is a company that plans to grow fast&lt;/strong&gt; (... and scale). A quote:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;A startup is a company designed to grow fast. &#xA;      Being newly founded does not in itself make a company a startup. Nor is it necessary for a startup to work on technology, or take&#xA;  venture funding, or have some sort of &quot;exit.&quot; The only essential thing&#xA;  is growth. The only essential thing is growth. Everything else we associate with startups follows from growth.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;That's why a new barbershop isn't a startup since&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;A barbershop doesn't scale.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This definition probably still leaves some space for interpretation, but not that much.&lt;/p&gt;&#xA;" OwnerUserId="236" LastActivityDate="2015-07-30T17:07:41.200" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6757" PostTypeId="2" ParentId="1636" CreationDate="2015-07-30T17:46:57.283" Score="1" Body="&lt;p&gt;In my question, I rewrite the joint probability as the product of the conditionals probabilities but I wrongly implemented the markov assumption of this model. The markov assumption is:&#xA;$$&#xA;p(s_{t}=j|s_{t-1}=i,\Omega_{t-1})=p(s_{t}=j|s_{t-1}=i)=p_{ij}&#xA;$$&#xA;But, when conditioned to information available at date t&#xA;$$&#xA;p(s_{t}=j|s_{t-1}=i,\Omega_{t})\neq p(s_{t}=j|s_{t-1}=i)=p_{ij}&#xA;$$&#xA;Meaning that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;p(s_{t}=j,s_{t-1}=i|\Omega_{t})\neq p(s_{t}=j|s_{t-1}=i)p(s_{t-1}=i|\Omega_{t})&#xA;$$&lt;/p&gt;&#xA;" OwnerUserId="1452" LastActivityDate="2015-07-30T17:46:57.283" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6758" PostTypeId="2" ParentId="1767" CreationDate="2015-07-30T17:50:30.920" Score="2" Body="&lt;p&gt;I often dip into &quot;advanced undergrad&quot; texts when I really want something broken down. Sometimes they deliver, sometimes not. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;With that beaming endorsement, I'll offer this suggestion: pair Romer's &lt;a href=&quot;http://highered.mheducation.com/sites/0073511374/index.html&quot; rel=&quot;nofollow&quot;&gt;Advanced Macroeconomics&lt;/a&gt;, with Jeffery Parker's &lt;a href=&quot;http://www.reed.edu/economics/parker/s11/314/coursebook.html&quot; rel=&quot;nofollow&quot;&gt;Coursebook (for Romer) for Macro Theory&lt;/a&gt; at Reed College. His coursebook takes the time to really work through some of the derivations in Romer carefully. Unfortunately I haven't used the NK portions so can't directly speak to them. &lt;/p&gt;&#xA;" OwnerUserId="17" LastActivityDate="2015-07-30T17:50:30.920" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6760" PostTypeId="1" AcceptedAnswerId="6764" CreationDate="2015-07-31T05:07:42.010" Score="2" ViewCount="63" Body="&lt;p&gt;Is there a term for not being able to pay your mortgage(s)? Like &quot;personal bankruptcy&quot;, &quot;consumer default&quot; or something like that?&lt;/p&gt;&#xA;" OwnerUserId="5161" LastEditorUserId="1601" LastEditDate="2019-04-03T07:36:33.413" LastActivityDate="2019-04-03T07:36:33.413" Title="What's the term for consumers not being able to pay their mortgage?" Tags="&lt;finance&gt;&lt;definition&gt;" AnswerCount="2" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="6761" PostTypeId="2" ParentId="6755" CreationDate="2015-07-31T05:08:54.083" Score="5" Body="&lt;p&gt;You have a few options for data. With questions of this nature, Quandl is your friend.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;https://www.quandl.com/data/NMA/HIST_GOLD_PR-Historical-Gold-Prices-1833-Present&quot;&gt;See here&lt;/a&gt; for historical gold prices, 1833 until present. I've not read about the methodology here though.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;https://www.quandl.com/data/MWORTH/10_3-Gold-Silver-Price-Ratio&quot;&gt;This resource&lt;/a&gt; has the gold/silver price ratio. Annual data. It seems pretty easy to transform this into price of silver.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;https://www.quandl.com/data/JOHNMATT/PLAT-Platinum-Prices&quot;&gt;For platinum&lt;/a&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;It also looks like the &lt;a href=&quot;https://www.quandl.com/data/PERTH?keyword=historical%20platinum%20price&quot;&gt;Perth Mint&lt;/a&gt; keeps a decent amount of historical data. I noticed in that list paladium as well.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The &lt;a href=&quot;http://www.databank.rbs.com/default.aspx&quot;&gt;Reserve Bank of Scotland&lt;/a&gt; has a set which can give you prices of commodities, monthly and daily going back 15 years. I am not sure if there are any precious metals in that list.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="40" LastActivityDate="2015-07-31T05:08:54.083" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6762" PostTypeId="2" ParentId="6760" CreationDate="2015-07-31T11:27:56.280" Score="2" Body="&lt;p&gt;Insolvent household, maybe?&#xA;For a person or a household, the most common term is insolvency.&lt;/p&gt;&#xA;" OwnerUserId="5328" LastActivityDate="2015-07-31T11:27:56.280" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6763" PostTypeId="2" ParentId="6736" CreationDate="2015-07-31T12:03:29.733" Score="2" Body="&lt;p&gt;I'm just going to answer one part of the question, the trickiest and most controversial one in my opinion:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;ol start=&quot;2&quot;&gt;&#xA;  &lt;li&gt;How to determine the costs/profits of each part.&lt;/li&gt;&#xA;  &lt;/ol&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It sounds tricky: Even if you find the most efficient way of not-recycling trash (be it burning, dumping on a lake, on the moon, or in a third world country), how do you evaluate the &lt;em&gt;costs&lt;/em&gt; of doing that? &lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Coase: How can we evaluate the costs of dumping the trash?&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;Without loss of generality, Say the most efficient solution is to drop the trash into the sea.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you are familiar with &lt;a href=&quot;https://en.wikipedia.org/wiki/Externality&quot; rel=&quot;nofollow&quot;&gt;externalities&lt;/a&gt; and the &lt;a href=&quot;https://en.wikipedia.org/wiki/Coase_theorem&quot; rel=&quot;nofollow&quot;&gt;Coase Theorem&lt;/a&gt;, you will believe that the obvious solution is to designate ownership: Under certain circumstances, if we allow someone to own &quot;the sea&quot;, and then allow trading the sea, the person/coalition that &quot;cares most&quot; about the sea, given same initial endowments, will own it. If you want to trash the sea, you will have to pay them a fee, which depends on &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;how important is it for you to get rid of the trash&lt;/li&gt;&#xA;&lt;li&gt;how important is it for the owner to have a clean sea&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;You can already see the &lt;em&gt;wlog&lt;/em&gt; applying: You just assign ownership to all $n$ different trash-dumping possibilities, and look which owner asks for the lowest price. That will be the &quot;most efficient place of dumping trash&quot;, from society's point of view. And the social costs of trashing that place are exactly the costs that the owner asks for (ignoring imperfect market structures).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;However, you can already feel the big smelly but coming up.&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;The free market's fundamental problem of evaluating the optimal value of finite resources&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;But this is only true, if actors in the economy care about future generations as much &lt;em&gt;as they should&lt;/em&gt;. Let me give a simple example. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In macroeconomics, we usually have a single representative agent, which lives for all eternity, and tries to maximize consumption. He does something like&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \max_{\{c_t\}_t} \sum_{t=0}^\infty \beta^tU(c_t)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where $U$ is his utility function, $\beta$ is a discount factor (which we have assumed to be constant), and $c_t$ denotes consumption.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We then argue that &lt;strong&gt;the representative infinitively-lived agent model is equivalent to a model with finitely lived agents, that care about their children with some discount factor related to $\beta$&lt;/strong&gt;. Intuitively, in the first model, you care about next period at rate $\beta$ because you are impatient and want things rather today than tomorrow. In the second model, you die in the next period. However, your child will be alive in the next period, and you care about it at rate $\beta$. Under these circumstances, these two models are identical (mathematicians like to say &lt;em&gt;isomorphic&lt;/em&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;However&lt;/strong&gt;, you can immediately see that there is no inherent reason why you should care about your own children at the same rate, as you care about your own future self. Even more importantly, there is no ex-ante normative reason why future generation's utility should be $\beta$ less important than the current generation's.&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;tl;dr: While it is true that we can evaluate the de-facto social costs to common goods using the Coase Theorem, there is reason to believe that these de-facto social costs do not correspond to normative social costs.&lt;/h3&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-07-31T12:03:29.733" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6764" PostTypeId="2" ParentId="6760" CreationDate="2015-07-31T20:06:53.897" Score="4" Body="&lt;p&gt;&lt;em&gt;Not paying&lt;/em&gt; a mortgage is first known as &lt;em&gt;delinquency&lt;/em&gt; (when payments are missed) and later, &lt;em&gt;default&lt;/em&gt; (when the loan is written down and the lender seeks foreclosure). But an inability to pay has no particular term of art attached to it, because an inability to pay can arise either out of &lt;em&gt;illiquidity&lt;/em&gt; (debts exceed liquid assets) or &lt;em&gt;insolvency&lt;/em&gt; (debts exceed liquid assets and ability to borrow against future income).&lt;/p&gt;&#xA;" OwnerUserId="264" LastActivityDate="2015-07-31T20:06:53.897" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6765" PostTypeId="2" ParentId="5844" CreationDate="2015-08-01T01:40:42.150" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;&lt;em&gt;(...) increasing the retirement age (...) possibly takes jobs from&#xA;  young people and &lt;strong&gt;stifles their career&lt;/strong&gt;.&lt;/em&gt;&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Since this is often surfaces as &quot;the conventional wisdom&quot; (not necessarily in economics circles), let's present a simple argument, that shows that there are bound to be distinct effects for people already in the labor force, compared to the people that have not yet started their working period in life.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To bring in the surface the core effect, assume a constant population, and a constant demand for workers (that does not mean necessarily constant output of course, since productivity and efficiency may rise).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume that in this society, people start working as they enter their 21st year, and retire when the enter their 61th year (40 years of work). An old person should retire today -but he doesn't: he will stay on for another year (say, because the government raised the mandatory retirement age).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, the young person that was about to enter the labor force in order to replace him, will have to stay out of it for one more year. He will now enter the labor force when entering his 22nd year and he will exit when he will enter his 62nd year. &lt;em&gt;But this means that this person will work again for 40 years&lt;/em&gt;: Raising the retirement age, does &lt;em&gt;not&lt;/em&gt; mean raising the numbers of years worked &lt;em&gt;for the new/future workers&lt;/em&gt;. What happens is that their working life shifts as regards its beginning and end on their personal age-time, but not as regards its lifetime duration.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does this &quot;stifle their careers&quot;? One could reasonably argue that starting one year later gives you one more year to accumulate human capital through education and training -and so when you enter the labor force, you will enter it better prepared than if the change in retirement age had not happened.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Casually observing western societies, this is what appears to be happening: people tend to acquire more and more education, and so also start working later in life. At the individual (or mass media) level, this may be negatively experienced/pictured as &quot;high unemployment for young people&quot; and &quot;difficulty to get a job that makes the young people accumulating more education in their attempt to find a job&quot;. I presented above an alternative perspective on the matter.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;But as regards those that were already workers when the change happened&lt;/strong&gt;, and so have entered on the labor force in the beginning of their 21st year, will now work in total 41 years. If we envision a gradual rise in professional ranks and income, the change in retirement age will mean that they may have to stay one more year &quot;where they were&quot;, and in that sense, increasing the retirement age may appear to &quot;stifle their careers&quot;. But there is also Arrow's &quot;Learning by doing&quot;: human capital increase due to on-the-job experience (a verified phenomenon even in a perfectly static environments). So this one more year will not be a total waste in terms of increases in income earning capacity -and it may pay off more for the younger workers, than for the older ones (since the former will gain it earlier in their working life). So the &quot;career-stifling&quot; argument gets a little weaker, even for the class of workers-already.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Obviously this is a very abstract approach to the matter... for example, what happens to societies where population is rising? How many people can a society afford to invest in -create human capital for young non-workers- at any given time?&lt;br&gt;&#xA;...but I believe it reveals one aspect of the matter that we tend to overlook.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-08-01T01:47:26.490" LastActivityDate="2015-08-01T01:47:26.490" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6766" PostTypeId="2" ParentId="6746" CreationDate="2015-08-01T02:09:24.770" Score="1" Body="&lt;p&gt;Referring to USA, the place to go and learn a lot (if not everything) about the matter is &lt;a href=&quot;http://www.bls.gov/&quot; rel=&quot;nofollow&quot;&gt;&lt;strong&gt;The Bureau of Labor Staitstics&lt;/strong&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Indicatively, for one of BLS's many outputs, &lt;a href=&quot;http://www.bls.gov/bls/empsitquickguide.htm&quot; rel=&quot;nofollow&quot;&gt;they report that&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;Payroll survey — methods and measurement issues&lt;/strong&gt;&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The Current Employment Statistics (CES) program, also known as the&#xA;  payroll survey or the establishment survey, is a monthly survey of&#xA;  approximately 143,000 businesses and government agencies representing&#xA;  approximately 588,000 worksites throughout the United States. From the&#xA;  sample, CES produces and publishes employment, hours, and earnings&#xA;  estimates for the nation, states, and metropolitan areas at detailed&#xA;  industry levels.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The CES employment series are estimates of nonfarm wage and salary&#xA;  &lt;strong&gt;jobs&lt;/strong&gt;, not an estimate of employed persons; an individual with two jobs is counted twice by the payroll survey. The CES employment series&#xA;  excludes employees in agriculture, private households, and the&#xA;  self-employed.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;...The entire sample is redrawn annually, and a supplemental sample of&#xA;  new business births is selected midway through the year. About&#xA;  one-fourth of the sample is rotated out each year and replaced with&#xA;  newly selected businesses.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;All new sample is solicited by computer-assisted telephone interview&#xA;  (CATI), and data are collected for the first 5 months via this mode.&#xA;  After the initiation period, many sample units are transferred to one&#xA;  of several less costly reporting methods that are self-initiated by&#xA;  the respondent...&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&lt;strong&gt;Estimation Methodology.&lt;/strong&gt; &#xA;  CES monthly employment estimates are made using a two-part estimator.&#xA;  The sample reports are used to estimate month-to-month employment&#xA;  change from continuing businesses and a birth/death model is used to&#xA;  account for new firm births that otherwise would not be sampled in a&#xA;  timely fashion.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&lt;strong&gt;Estimate review.&lt;/strong&gt;&#xA;  CES uses automated edit and screening techniques to identify potentially erroneous sample data; respondents are&#xA;  re-contacted as needed to validate or correct their reported&#xA;  information. After the microdata edit process is complete, monthly&#xA;  estimates are calculated. Automated edits of the estimates are&#xA;  supplemented by analysts who look for errors and outliers and provide&#xA;  final validation of the series before publication.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&lt;strong&gt;Seasonal Adjustment.&lt;/strong&gt;&#xA;  The seasonal adjustment process removes from the series the effects of&#xA;  normal variation from recurring events within a year, such as holidays&#xA;  and weather changes, and helps reveal underlying economic trends. CES&#xA;  uses a concurrent seasonal adjustment methodology, meaning that it&#xA;  incorporates estimates up through and including the current month’s&#xA;  data to achieve the best possible series.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&lt;strong&gt;Monthly Revisions.&lt;/strong&gt;&#xA;   CES first preliminary estimates of employment, hours, and earnings are published each month approximately 3 weeks&#xA;  after the reference period. Estimates are then revised twice before&#xA;  being held constant until the annual benchmarking process. Second&#xA;  preliminary estimates for a given month are published the month&#xA;  following the initial release, and final sample-based estimates are&#xA;  published 2 months after the initial release.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-08-01T02:09:24.770" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6767" PostTypeId="1" CreationDate="2015-08-01T03:09:49.903" Score="6" ViewCount="268" Body="&lt;p&gt;Are there any studies that show that &quot;Affirmative Action&quot; (an action or policy favoring those who tend to suffer from discrimination, especially in relation to employment or education) hurts the economy?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Based on personal research/reasoning, I believe that &quot;Affirmative Action&quot; &lt;strong&gt;could&lt;/strong&gt; hurt the economy, but I would like to do more research on the subject.  Any links to (credible) studies showing that &quot;Affirmative Action&quot; hurts the economy would be greatly appreciated.  &lt;/p&gt;&#xA;" OwnerUserId="27" LastEditorUserId="27" LastEditDate="2015-08-01T18:17:35.013" LastActivityDate="2015-10-22T01:56:40.433" Title="Are there any studies that show that &quot;Affirmative Action&quot; hurts the economy?" Tags="&lt;macroeconomics&gt;&lt;reference-request&gt;&lt;labor-economics&gt;&lt;research&gt;&lt;discrimination&gt;" AnswerCount="1" CommentCount="7" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6768" PostTypeId="1" AcceptedAnswerId="6775" CreationDate="2015-08-01T05:00:05.030" Score="1" ViewCount="25" Body="&lt;p&gt;I was reading an article about bitcoin in which a description was given of a chart/theory related to investor hype when an investment is first discovered by the mainstream. I've been unable to locate the article a second time. The phenomenon is as follows. There is an initial hype period during which the price soars, followed by a resounding crash, and finally a much more sustainably trajectory of growth. I'm looking for any information on this phenomenon. Who's work it is, article, paper, etc?&lt;/p&gt;&#xA;" OwnerUserId="5336" LastEditorUserId="43" LastEditDate="2015-08-01T07:57:09.613" LastActivityDate="2015-08-01T17:20:44.187" Title="Newly discovered (by mainstream investors) asset chart/theory" Tags="&lt;reference-request&gt;&lt;price-theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6769" PostTypeId="1" CreationDate="2015-08-01T11:27:13.527" Score="1" ViewCount="68" Body="&lt;p&gt;Given a simplistic economical model with a finite number of possible resources, and a set of machines that can be produced (with a cost) that that take some or none input, and give some output per time-division, I wish to find the time-optimal production chain for a goal. What sources of information and fields of production management and economics could I use to find a solution? Can the solution be found with any other method rather than a deep search of a Markov-decision chain?&lt;/p&gt;&#xA;" OwnerUserId="5337" LastActivityDate="2015-08-01T11:27:13.527" Title="Model for simple production chain economy" Tags="&lt;mathematical-economics&gt;&lt;production-function&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6770" PostTypeId="1" AcceptedAnswerId="6828" CreationDate="2015-08-01T11:29:10.793" Score="2" ViewCount="186" Body="&lt;p&gt;Which books can be recommended for a beginner with a strong math background, who wishes to learn how markets work, what is a stock, what is a bond, how to trade e.t.c. and has a minimal knowledge of economics?&lt;/p&gt;&#xA;" OwnerUserId="5338" LastEditorUserId="108" LastEditDate="2017-04-09T07:47:42.000" LastActivityDate="2017-04-09T07:47:42.000" Title="Beginner level books on market economics" Tags="&lt;reference-request&gt;&lt;stock-market&gt;&lt;self-study&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6771" PostTypeId="1" AcceptedAnswerId="7128" CreationDate="2015-08-01T13:57:51.353" Score="4" ViewCount="1595" Body="&lt;p&gt;Recently, I have become interested in numerical analysis withinin macroeconomics. In particular, I have been trying to learn algorithms such as &quot;backwards iteration&quot;, the &quot;shooting method&quot; etc, in order to numerically solve an optimal control model, more specifically a growth model. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Could you give me some references for introductory and intermediate numerical analysis textbooks ? &lt;/p&gt;&#xA;" OwnerUserId="2938" LastEditorUserId="84" LastEditDate="2015-08-24T12:10:31.793" LastActivityDate="2015-09-03T17:13:19.960" Title="Numerical analysis in economics" Tags="&lt;macroeconomics&gt;&lt;numerical-methods&gt;" AnswerCount="3" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6772" PostTypeId="1" CreationDate="2015-08-01T14:25:47.547" Score="2" ViewCount="88" Body="&lt;p&gt;The &lt;a href=&quot;https://www.sec.gov/Archives/edgar/data/104169/000010416915000022/wmtform10-qx4302015.htm&quot; rel=&quot;nofollow&quot;&gt;Walmart 10-Q form covers the period for the three months ending April 30th&lt;/a&gt; while other companies post their first quarter reports for the three months ending March 30th. Why does Walmart end one month earlier than other companies? How are companies regulated in this regard?&lt;/p&gt;&#xA;" OwnerUserId="5048" LastEditorUserId="264" LastEditDate="2015-08-12T14:07:22.150" LastActivityDate="2015-08-12T14:07:22.150" Title="Why does Walmart (SYMBOL:WMT) have its Q1 2015 end April 30 instead of March 30" Tags="&lt;corporate-finance&gt;&lt;accounting&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6773" PostTypeId="1" CreationDate="2015-08-01T15:46:14.567" Score="5" ViewCount="214" Body="&lt;p&gt;I am trying to put forth a theory for endogenous supply chain formation. A set of $K$ complementary tasks need to be performed to manufacture a good $G$. If manufactured, there exists a demand function $d(p_G,q_G)$ that governs the price of the good in the market. Of the $K$ tasks involved in making the good, some are sequential and some are parallel (two complementary products combined to make one). In other words, there is a network (tree) structure that describes the ordering of the tasks. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now let us assume there are $N&amp;gt;K$ firms in the market. If a firm decides to take up a task, it incurs some fixed cost for the plant, and some variable cost, depending on the number of units produced. However if altogether only a subset of the $K$ tasks are alone accomplished by the firms, then there is no good produced. Thus each firm's decision to produce is contingent on its wealth, its expected profit and the decisions of other firms.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question: is there a similar theory for supply chain formation? I have read the following papers which come close to describing such formation but I find they are sufficiently different from what I have in mind.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Ostrovsky, Michael. &quot;Stability in supply chain networks.&quot; The American Economic Review (2008): 897-923.&lt;/li&gt;&#xA;&lt;li&gt;Corbett, Charles J., and Uday S. Karmarkar. &quot;Competition and structure in serial supply chains with deterministic demand.&quot; Management Science 47.7 (2001): 966-978.&lt;/li&gt;&#xA;&lt;li&gt;Goyal, Sanjeev, and Fernando Vega-Redondo. &quot;Structural holes in social networks.&quot; Journal of Economic Theory 137.1 (2007): 460-492.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="41" LastEditorUserId="41" LastEditDate="2015-08-01T17:42:45.983" LastActivityDate="2015-08-01T17:42:45.983" Title="How do supply chains form?" Tags="&lt;microeconomics&gt;&lt;game-theory&gt;" AnswerCount="0" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6774" PostTypeId="2" ParentId="6771" CreationDate="2015-08-01T17:09:40.197" Score="1" Body="&lt;p&gt;Recursive Macroeconomic Theory isn't a &quot;numerical analysis&quot; book per se, but it has an excellent exposition of the shooting algorithm in a growth model in Chapter 11 of the second edition (I don't think the chapter numbers changed much, but chapter is called &quot;Fiscal Policies in the Nonstochastic Growth Model&quot;). I would recommend starting there.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;References&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ljungqvist, Lars and Sargent, Thomas J. &quot;Recursive Macroeconomic Theory.&quot; MIT Press, Cambridge, Mass., 2000.&lt;/p&gt;&#xA;" OwnerUserId="47" LastActivityDate="2015-08-01T17:09:40.197" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6775" PostTypeId="2" ParentId="6768" CreationDate="2015-08-01T17:20:44.187" Score="1" Body="&lt;p&gt;It was the &lt;a href=&quot;http://www.gartner.com/technology/research/methodologies/hype-cycle.jsp&quot; rel=&quot;nofollow&quot;&gt;Gartner Hype Cycle&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="5336" LastActivityDate="2015-08-01T17:20:44.187" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6776" PostTypeId="1" CreationDate="2015-08-02T01:25:55.250" Score="12" ViewCount="818" Body="&lt;p&gt;In the final battle in the movie, the Dark Knight (2008), the Joker has rigged two ferries carrying people out of Manhattan Gotham to explode. One ferry carries mostly civilians with a substantial National Guard presence. The other ferry contains large numbers of prison inmates and some guards. The Joker has rigged both to explode, and he has given the crew on each boat the detonators — only they have the detonator for the other boat. He announces the rules of the game to the crew and passengers of each vessel.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;ol&gt;&#xA;  &lt;li&gt;Each of them have the power to blow up the other boat and then their boat will live.&lt;/li&gt;&#xA;  &lt;li&gt;If they get to midnight with know no exploded boats, the Joker will detonate both.&lt;/li&gt;&#xA;  &lt;li&gt;Any attempt to leave or defuse the bombs will result in the destruction of both boats.&lt;/li&gt;&#xA;  &lt;/ol&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Is this a known variant of the prisoner's dilemma? How to model this game and what is the actual solution? Why is the equilibrium as shown in the game attained?&lt;/p&gt;&#xA;" OwnerUserId="5343" LastEditorUserId="61" LastEditDate="2015-08-02T03:37:23.880" LastActivityDate="2016-12-05T01:42:08.543" Title="Is there a solution to the Joker's game in The Dark Knight?" Tags="&lt;game-theory&gt;" AnswerCount="2" CommentCount="4" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6777" PostTypeId="1" AcceptedAnswerId="8602" CreationDate="2015-08-02T05:36:24.393" Score="5" ViewCount="843" Body="&lt;p&gt;Anecdotally, the story often goes like this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A land owner leases his commercial retail space at an expensive price. The place stays vacant for months or years at a time. Eventually someone decides to lease the place. The rents are very expensive and eventually the leaser goes out of business. &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;http://www.smh.com.au/news/national/empty-dwellings-in-a-city-desperate-for-places-to-live/2008/05/25/1211653847174.html?page=fullpage#contentSwap2&quot; rel=&quot;nofollow&quot;&gt;This article goes someway to describing the phenomenon I am looking to explain&lt;/a&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;http://www.smh.com.au/nsw/leichhardt-mayor-darcy-byrne-says-landlords-should-pay-for-dying-high-streets-20151005-gk1fb8.html&quot; rel=&quot;nofollow&quot;&gt;This article&lt;/a&gt; has the Leichhardt mayor signal an attempt to address the problem.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;There are many other families like the Wakils, who are content leaving their property vacant. This example is largely relating to Australia but it does happen elsewhere. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Why would they do that?&lt;/strong&gt; Surely any rent earned would be better than no rent.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My thoughts are:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;There could be some sort of tax concession in place. If a landowner tries to lease for \$5k a month, the tax write-off could make the owner better off than if they actually leased it for \$4k a month. The below suggests this happens to at least some degree.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Leichhardt mayor is calling for a range of legislative changes to allow rates to be increased and tax concessions reduced for landlords who leave their shop fronts empty unnecessarily... there is currently no allowance to reduce rates for those property owners who keep their properties tenanted or to increase rates for landlords who are using their properties as a tax write-off.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The returns to land-price speculation make leasing a secondary priority.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Structural change in how valuable retail space is. With the increase in grocery deliveries and other forms of online shopping, maybe people don't have as much need to shop. This, coupled with possible stickiness in rental prices will result in a significant drop in quantity demanded.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Some people just don't care. (I find this particularly unsatisfying considering the magnitude of the values involved)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;To me, it is clear there is at least some form of regulatory failure present here. If these places were rezoned into residential, they would get filled very quickly as this phenomenon seems primarily restricted to commercial real-estate. The council (and probably the community) would prefer to have this area remain commercial but residential is surely better than vacant.&lt;/p&gt;&#xA;" OwnerUserId="40" LastEditorUserId="40" LastEditDate="2015-10-07T23:20:22.500" LastActivityDate="2016-05-05T00:25:40.850" Title="How can valuable retail real-estate stay vacant for an extended period of time?" Tags="&lt;property&gt;" AnswerCount="3" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6778" PostTypeId="2" ParentId="6776" CreationDate="2015-08-02T09:48:05.087" Score="3" Body="&lt;p&gt;Suppose first that the groups are not altruistic and care only about their own survival. It is not exactly a prisoner's dilemma since the outcome obtained by mutual cooperation (if both groups wait) is not Pareto-improving: everyone dies in that case. The only equilibrium is that one of the groups destroys the other boat as soon as possible; and any action played initially by the other group is possible in equilibrium, since this team is indifferent between waiting and triggering other the bomb (they will die one second later anyway).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As @Alecos_Papadopoulos wrote, the game becomes more interesting if the groups have pro-social preferences. For instance, they might be reluctant to sacrifice the other group and prefer that everyone dies (including themselves). If there is no uncertainty, the outcome is trivial: the only equilibrium is that both groups wait until the Joker triggers the bombs. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The most interesting scenario is the one in which the types of the groups are uncertain: each boat can be either selfish or altruistic. In that case, it seems reasonable (but other specifications are possible) to assume that cooperation is desirable only if the other group is also altruistic, but if the other group is selfish the individuals prefer to kill them first and survive. The equilibrium strategies are the following: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;If the group is selfish, it triggers the bomb of the other group as soon as possible (it is a dominant strategy).&lt;/li&gt;&#xA;&lt;li&gt;If the group is altruistic, its initial action depends on its beliefs about the other boat. If it is sufficiently optimistic (i.e it believes that its opponent is altruistic with a sufficiently high prior), the group waits. If it has not exploded one second later, the group understands that it faces an altruistic opponent and therefore waits until the Joker kills everyone. Notice that the explosions happen either at $t=0$ (as soon as the game starts) or at midnight (when the game ends) but never in between.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="4667" LastActivityDate="2015-08-02T09:48:05.087" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="6779" PostTypeId="1" CreationDate="2015-08-02T10:37:23.203" Score="5" ViewCount="941" Body="&lt;p&gt;If I have a model with heteroskedasticity issue, can I tell the bias direction of the coefficents variance estimator?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would think that because I would correct it with WLS then I get BLUE (Best Linear, Unbiased Estimator) which means the variance estimator is the smallest for unbiased coefficient but i am wrong.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can someone please explain to me if I can know the direction of the bias and how?&lt;/p&gt;&#xA;" OwnerUserId="5344" LastEditorUserId="40" LastEditDate="2015-08-02T11:29:18.980" LastActivityDate="2015-09-02T19:41:37.173" Title="heteroskedasticity variance estimator bias direction" Tags="&lt;econometrics&gt;" AnswerCount="2" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6781" PostTypeId="1" CreationDate="2015-08-02T16:01:13.960" Score="2" ViewCount="243" Body="&lt;p&gt;The consequences of decriminalizing illegal drugs have long been debated. Some claim that legalization will lower the price of these drugs and reduce related crime and that more people will use these drugs. Suppose that some of these drugs are legalized so that anyone may sell them and use them. Based of positive economic analysis, how are the price and quantity demanded going to be affected? How will the legalization affect related crime? &lt;/p&gt;&#xA;" OwnerUserId="5347" LastActivityDate="2015-08-02T16:01:13.960" Title="How are price and quantity demanded going to be affected?" Tags="&lt;microeconomics&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6782" PostTypeId="1" AcceptedAnswerId="6788" CreationDate="2015-08-02T16:42:54.323" Score="2" ViewCount="42" Body="&lt;p&gt;I am working at &lt;a href=&quot;http://countrystats.wikia.com/wiki/United_Kingdom_-_Germany_trade&quot; rel=&quot;nofollow&quot;&gt;lists&lt;/a&gt; &lt;a href=&quot;http://countrystats.wikia.com/wiki/United_Kingdom_exports_-_top_markets&quot; rel=&quot;nofollow&quot;&gt;like&lt;/a&gt; &lt;a href=&quot;http://countrystats.wikia.com/wiki/United_Kingdom_imports_-_top_markets&quot; rel=&quot;nofollow&quot;&gt;these&lt;/a&gt;, filling them with numbers about UK's trade with it's biggest partners. The problem is, I can't find &lt;a href=&quot;http://www.ons.gov.uk/ons/rel/uktrade/uk-trade/december-2014/stb-uk-trade--december-2014.html&quot; rel=&quot;nofollow&quot;&gt;such&lt;/a&gt; &lt;a href=&quot;http://www.ons.gov.uk/ons/rel/uktrade/uk-trade/december-2013/stb-uk-trade-december-2013.html&quot; rel=&quot;nofollow&quot;&gt;data&lt;/a&gt; for the years before 2010. I know that the institution (Office for National Statistics - ONS) &lt;a href=&quot;https://en.wikipedia.org/w/index.php?title=Office_for_National_Statistics&amp;amp;diff=320580350&amp;amp;oldid=313240014&quot; rel=&quot;nofollow&quot;&gt;changed it's website in 2009 or so&lt;/a&gt;, and maybe it has to do something with that, but I can't find the data on the older site also.&lt;/p&gt;&#xA;" OwnerUserId="5161" LastEditorUserId="5161" LastEditDate="2015-08-02T21:35:11.517" LastActivityDate="2015-08-03T03:23:41.173" Title="UK trade with biggest partners, by year" Tags="&lt;data-request&gt;&lt;international-trade&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6783" PostTypeId="2" ParentId="6779" CreationDate="2015-08-02T17:09:53.007" Score="3" Body="&lt;p&gt;I think the problem is that you are mixing up terminology. The statment about an estimator being BLUE states &lt;em&gt;given the Gauss-Markov assumption, OLS is the best linear unbiased estimator&lt;/em&gt;. But as your model is heteroskedastic the Gauss-Markov assumptions no longer hold and the proof of OLS being BLUE is no longer true. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Unfortunalty there is no general result that shows whether a estimater is the &quot;best&quot; in the case of hetroskedacity. In theory if you know the exact functional form of the heteroskedascity you can perfectly correct for the hetroskadicity and you WLS is just as effective as OLS when the Gauss-Markov assumptions hold. But in reality this is never the case, and unless you have a small sample or a very strong argument of why you know the functional form of the hetroskedacity then you are better of using Whites robust standart errors. &lt;/p&gt;&#xA;" OwnerUserId="3997" LastEditorUserId="3997" LastEditDate="2015-09-02T19:41:37.173" LastActivityDate="2015-09-02T19:41:37.173" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6785" PostTypeId="1" AcceptedAnswerId="6786" CreationDate="2015-08-02T19:55:50.177" Score="4" ViewCount="891" Body="&lt;p&gt;The interesting paper &lt;a href=&quot;https://www.dropbox.com/s/huhv6uzfnlvojbi/Calvo%2C%20Obstfeld%20-%201988%20-%20Optimal%20Time-Consistent%20Fiscal%20Policy%20with%20Finite%20Lifetimes.pdf?dl=0&quot; rel=&quot;nofollow&quot;&gt;Calvo and Obstfeld (1988)&lt;/a&gt; uses two-stage optimization on an OLG model which then reduces to a standard representative agent framework. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;First stage optimization consists on a static optimization which makes the optimal allocation between different cohorts vertically(c.f equation (9) in the paper.) Authors solve this first stage problem as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\mathcal{L}=u\left[c\left(t-n,t\right)\right]\Delta\left(n\right)P\left(n\right)e^{\rho n}+\lambda\left[C\left(t\right)-\int_{0}^{\infty}c\left(t-n,t\right)P\left(n\right)d\left(n\right)\right]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $C\left(t\right)=\int_{0}^{\infty}c\left(t-n,t\right)P\left(n\right)dn$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$n, P(n), \Delta\left(n\right)$ are given in the paper and not relevant for my question at this moment. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Normally, in this paper, the dynamics of capital accumulation are given as follows:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\dot{K}\left(t\right)=Y\left[K\left(t\right)\right]-C\left(t\right)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In fact, my question is trivial but I could not be sure.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is the part with bracket in Lagrangian comes from $\dot{K}=0$ which gives us the equality $Y\left[K\left(t\right)\right]=C\left(t\right)=\int_{0}^{\infty}c\left(t-n,t\right)P\left(n\right)dn$ ?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As the Lagrangian is for a &quot;static&quot; problem, I think it makes sense but I can not be sure if this is the case.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any suggestion or hints are welcome. &lt;/p&gt;&#xA;" OwnerUserId="2938" LastEditorUserId="69" LastEditDate="2015-08-04T23:10:10.980" LastActivityDate="2015-08-04T23:10:10.980" Title="static/dynamic optimization" Tags="&lt;macroeconomics&gt;&lt;optimization&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6786" PostTypeId="2" ParentId="6785" CreationDate="2015-08-02T21:28:01.503" Score="2" Body="&lt;p&gt;That's a coincidence, because they assume nondepreciating capital. If $\delta&amp;gt;0$ was positive we'd have&#xA;\begin{align}&#xA;\dot K = Y - C - \delta K&#xA;\end{align}&#xA;which gives&#xA;\begin{align}&#xA;\dot K = 0  \quad \Rightarrow\quad C = Y - \delta K.&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But the static optimization would still read&#xA;\begin{align}&#xA;&amp;amp;U(C(t)):=\max_{c(t-n,n)}\int^\infty_0 u(c(t-n,n))dn \\&#xA;&amp;amp;s.t.\quad \int^\infty_0 u(c(t-n,n))dn \leq C(t) &#xA;\end{align} &#xA;Actually they define an indirect utility function with subject to a resource constraint. In every period (thus static) the sum of individual consumption cannot exceed aggregate consumption. &lt;/p&gt;&#xA;" OwnerUserId="4266" LastEditorUserId="4266" LastEditDate="2015-08-02T21:46:15.810" LastActivityDate="2015-08-02T21:46:15.810" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="6788" PostTypeId="2" ParentId="6782" CreationDate="2015-08-03T03:23:41.173" Score="4" Body="&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;https://stats.oecd.org/Index.aspx?DataSetCode=BTDIXE&quot; rel=&quot;nofollow noreferrer&quot;&gt;The OECD&lt;/a&gt; has nearly the exact data you are looking for. I haven't figured out how to get it into a raw data dump. I am pretty confident that this problem has more to do with me than it does with the data available.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;http://imts.wto.org/CDS/gp/tsselection.aspx&quot; rel=&quot;nofollow noreferrer&quot;&gt;The WTO&lt;/a&gt; holds similar quality information. I think somewhere a UK govt body is publishing this. Not sure where exactly though.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;http://comtrade.un.org/monthly/Main/Data.aspx#&quot; rel=&quot;nofollow noreferrer&quot;&gt;The UN&lt;/a&gt; has everything you need but you need to sign up.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;See this question for other trade related sources:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://economics.stackexchange.com/questions/283/can-anyone-recommend-a-resource-for-monthly-trade-data-for-mexico-from-before-20&quot;&gt;Can anyone recommend a resource for monthly trade data for Mexico from before 2010?&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="40" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-08-03T03:23:41.173" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6789" PostTypeId="1" CreationDate="2015-08-03T08:26:00.477" Score="3" ViewCount="1417" Body="&lt;p&gt;Consider a two period model of consumption.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm confused by the fact that in the optimum condition it is the marginal utility of the current period that is discounted, not the marginal utility of the next period.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Could someone give me an intuition behind this result?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Below, the derivation is presented.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \max_{c_{t},c_{t+1}}u_{t}\left(c_{t},c_{t+1}\right)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;such that &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$c_{t}+\frac{1}{1+r_{t+1}}c_{t+1}=w_{t}+\frac{1}{1+r_{t+1}}w_{t+1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;FOC: (MU denotes marginal (aka instantaneous) utility)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\begin{cases}&#xA;MU_{t}=\lambda\\&#xA;MU_{t+1}=\lambda\frac{1}{1+r_{t+1}}\\&#xA;c_{t}+\frac{1}{1+r_{t+1}}c_{t+1}=w_{t}+\frac{1}{1+r_{t+1}}w_{t+1}&#xA;\end{cases}\Rightarrow\frac{1}{1+r_{t+1}}MU_{t}=MU_{t+1}$$&lt;/p&gt;&#xA;" OwnerUserId="5349" LastEditorUserId="1601" LastEditDate="2015-08-03T09:11:26.697" LastActivityDate="2015-08-04T18:58:26.187" Title="Why is instantaneous utility of current period discounted?" Tags="&lt;microeconomics&gt;&lt;optimization&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6790" PostTypeId="2" ParentId="6789" CreationDate="2015-08-03T08:38:29.700" Score="2" Body="&lt;p&gt;What you see as&#xA;$$&#xA;\frac{1}{1+r_{t+1}}MU_t = MU_{t+1} &#xA;$$&#xA;can also be seen as&#xA;$$&#xA;\frac{1}{1+r_{t+1}}MU_t = \frac{1}{1}MU_{t+1} &#xA;$$&#xA;where $1+r_{t+1}$ and $1$ are the respective prices of current and future money measured in future money. So basically what is happening is that you calculate how much utility an additional unit of future money would buy you in the current and in the future period. In optimum these quantities are equal. You can also rewrite the equation into the form of the familiar MRS condition:&#xA;$$&#xA;\frac{MU_t}{MU_{t+1} } = \frac{1}{\frac{1}{1+r_{t+1}}}.&#xA;$$&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2015-08-04T07:19:09.763" LastActivityDate="2015-08-04T07:19:09.763" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6791" PostTypeId="1" AcceptedAnswerId="6792" CreationDate="2015-08-03T09:43:49.530" Score="3" ViewCount="1098" Body="&lt;p&gt;Am I right to say in an Exchange Economy with two consumers with identical preferences, the equilibrium price (WEA) of the two goods would be determined by availability of two goods, i.e, total endowment? &#xA;Whereas if their preferences are not identical, this is not true, the equilibrium(WEA) would be determined by utility functions and endowments together?&lt;/p&gt;&#xA;" OwnerUserId="5351" LastEditorUserId="1601" LastEditDate="2015-08-03T10:51:13.250" LastActivityDate="2015-08-03T10:51:13.250" Title="Price ratio determined by endowments only?" Tags="&lt;microeconomics&gt;&lt;general-equilibrium&gt;&lt;pure-exchange-economy&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6792" PostTypeId="2" ParentId="6791" CreationDate="2015-08-03T09:50:33.740" Score="3" Body="&lt;p&gt;No you are not. Preferences determine the equilibrium, even if they are identical, because they determine the &lt;em&gt;value&lt;/em&gt; of the endowments.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider two agents, one (&quot;A&quot;) having ice cream only, and one (&quot;B&quot;) having lava only.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Case 1: Both hate lava&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume lava burns tongues and is useless (typical Economist). Then, the initial endowments of &lt;em&gt;B&lt;/em&gt; have zero value, as no one wants them. The equilibrium allocation equals the initial allocation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Case 2: Both find lava useful&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, imagine lava being useful for lava lamps (whatever). They still have identical preferences, but now they attach some positive value to lava. The value of &lt;em&gt;B&lt;/em&gt;'s initial endowment has changed, and hence he can trade at least some of it for ice cream. The equilibrium allocation no longer equals the initial allocation.&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-08-03T09:50:33.740" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="6793" PostTypeId="1" CreationDate="2015-08-03T11:21:33.147" Score="3" ViewCount="154" Body="&lt;p&gt;Please explain the difference between &lt;a href=&quot;https://en.wikipedia.org/wiki/Bank_rate&quot; rel=&quot;nofollow&quot;&gt;Bank rate&lt;/a&gt; and &lt;a href=&quot;http://economictimes.indiatimes.com/definition/repo-rate&quot; rel=&quot;nofollow&quot;&gt;Repo rate&lt;/a&gt;. Do the Bank and Repo rates affect each other?&lt;/p&gt;&#xA;" OwnerUserId="5352" LastEditorUserId="69" LastEditDate="2015-08-03T13:03:52.120" LastActivityDate="2015-08-03T18:28:04.033" Title="Bank rate and Repo rate" Tags="&lt;finance&gt;&lt;banking&gt;&lt;interest-rate&gt;&lt;central-banking&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="6794" PostTypeId="2" ParentId="6793" CreationDate="2015-08-03T13:01:29.103" Score="1" Body="&lt;p&gt;The Bank Rate / Discount rate is the interest rate charged by the central bank to member institutions for loans from the central bank. These are typically thought of as &lt;em&gt;emergency&lt;/em&gt; funds to meet the liquidity needs of solvent banks with illiquid assets, thought since Bagehot to be properly set at a &lt;em&gt;penalty rate&lt;/em&gt; to discourage abuse.* In contrast, the repo rate is the interest charged on repurchase / rehypothecation transactions, which are short term over-collateralized (e.g. \$100 collateral to borrow \$95) loans where a much larger set of institutions including banks, insurance companies, hedge funds, and others can participate on similar financial terms. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The discount rate is a policy rate where the repo rate is an emergent market price for funds. These rates are linked but not in a mechanical way. For example, if the discount rate were set very low, banks would prefer to borrow from the central bank than the collateralized loan market at the repo rate and therefore quantities and rates in the repo market would likely fall. Or it would if there weren't generally speaking a stigma to using the discount window to borrow at the discount rate. But if it were profitable maybe that stigma could be overcome. And there may be other differences like changes in terms or the suitable assets usable as collateral that make comparisons of rates imperfect.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;* -&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;This penalty explains the positive difference between the fed funds&#xA;  rate and the discount rate. If there were no penalty, banks would be&#xA;  indifferent between borrowing from other banks and the Fed’s discount&#xA;  window.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Is the Discount Window Necessary? A Penn Central Perspective (&lt;a href=&quot;http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.198.6486&amp;amp;rep=rep1&amp;amp;type=pdf&quot; rel=&quot;nofollow&quot;&gt;Calomiris (1993)&lt;/a&gt;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That is, banks would rather borrow from the Fed than each other, so the Fed sets its policy rate higher to push banks back into market sources of funds. Then only those shut out of such markets will avail themselves of such funding. &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-08-03T18:28:04.033" LastActivityDate="2015-08-03T18:28:04.033" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6795" PostTypeId="2" ParentId="6747" CreationDate="2015-08-03T13:33:30.690" Score="1" Body="&lt;p&gt;It just arrived to the Swiss Central Banks. Its assets were depreciated of $50 billion in six months. &#xA;&lt;a href=&quot;http://fortune.com/2015/07/31/swiss-central-bank-losses/?xid=soc_socialflow_facebook_FORTUNE&quot; rel=&quot;nofollow&quot;&gt;As fortune summarized&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Luckily for the Swiss National Bank, it can’t actually become insolvent, since it can simply print francs to cover any losses it suffers. The announcement caused the value of the Swiss Franc to tumble, falling as much as 0.4% against the euro on Friday.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;If the ECB would lose money because its assets'value is decreasing, the ECB would print money as well.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By the way, there was an article in voxeu from Paul de Grauwe and Yuemei Ji which title was &quot;&lt;em&gt;&lt;a href=&quot;http://www.voxeu.org/article/why-ecb-should-not-insist-repayment-its-greek-bonds&quot; rel=&quot;nofollow&quot;&gt;Why the ECB should not insist on repayment of its Greek bonds&lt;/a&gt;&lt;/em&gt;&quot;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;It would be easy for the ECB to solve this problem. The easiest way&#xA;  would be to write off the Geek bonds. As we have argued earlier such a&#xA;  write-off has no fiscal implications. It means that the circular flow&#xA;  of interest from Greece to the ECB and back is discontinued. In&#xA;  contrast, the repayment of the bonds by Greece has fiscal implications&#xA;  and leads to transfers from Greece to the other member countries. This&#xA;  is quite a perverse transfer given the sorry state of the Greek public&#xA;  finances.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I am giving you the advise to read the article from de Grauwe and Ji really. I think it would answer most of your questions.&lt;/p&gt;&#xA;" OwnerUserId="5328" LastActivityDate="2015-08-03T13:33:30.690" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6796" PostTypeId="1" CreationDate="2015-08-03T15:03:26.900" Score="3" ViewCount="74" Body="&lt;p&gt;How does the CPS CEPR store employment information for the non-ORG months?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am trying to reproduce &lt;a href=&quot;http://ftp.iza.org/dp6849.pdf&quot; rel=&quot;nofollow&quot;&gt;Mueller (2012)&lt;/a&gt;. He says&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The CPS is the main labor force survey for the U.S., representative of the population aged 15 and older. It has a rotating panel structure, where households are surveyed in four consecutive months, rotated out of the panel for eight months, and then surveyed again for another four consecutive months.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;But it also says &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Note that the CPS records the labor-force status for each person in the sample each month. Weekly hours and earnings, however, are collected only in the fourth and eighth interview of the survey,&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This means that the CEPR has&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;ORG files that contain the wages&lt;/li&gt;&#xA;&lt;li&gt;monthly files that contain labor force status&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;On the &lt;a href=&quot;http://ceprdata.org/cps-uniform-data-extracts/cps-basic-programs/cps-basic-monthly-data/&quot; rel=&quot;nofollow&quot;&gt;CEPR Monthly site&lt;/a&gt;, it says that &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The CPS Basic Monthly data variables are incorporated into CEPR CPS ORG data.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Which means that I only have to download the CEPR ORG data. Sounds like good news. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I downloaded 2013 and 2014 from &lt;a href=&quot;http://ceprdata.org/cps-uniform-data-extracts/cps-outgoing-rotation-group/cps-org-data/&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;. &lt;code&gt;Minsamp&lt;/code&gt; corresponds to the monthly interview, the variable has unique values &lt;code&gt;4&lt;/code&gt; and &lt;code&gt;8&lt;/code&gt; (which are the outgoing interview months). So far, so good. There is an &lt;code&gt;empl&lt;/code&gt; variable which appears to encode employment status. However, I cannot find the employment status for other months than the interview months. I can't find neither additional rows, which would carry that information in long form, nor additional columns, which could carry it in wide form.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here's how some data extract (restricting some columns and rows) looks:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;                              age      wage4  year  month  minsamp  empl&#xA;hhid            hhid2 lineno                                            &#xA;000000113071409 03011 1        67        NaN  2014     12        4     0&#xA;000005890210971 02011 1        25        NaN  2014      8        4   NaN&#xA;                      2        26        NaN  2014      8        4     0&#xA;000005893210371 03011 1        24  15.600000  2014     12        4     1&#xA;                      2        25  30.333334  2014     12        4     1&#xA;                      3        24  51.000000  2014     12        4     1&#xA;000008171510365 02011 1        61  19.225000  2014      8        4     1&#xA;                02111 1        37  16.250000  2014      7        4     1&#xA;                      2        39        NaN  2014      7        4     0&#xA;000010415001537 03011 1        45  18.000000  2014     11        4     1&#xA;                      2        42  26.442249  2014     11        4     1&#xA;000010666500851 02011 1        49  21.538401  2014      8        4     1&#xA;                      2        44  20.000000  2014      8        4     1&#xA;                      3        19  14.500000  2014      8        4     1&#xA;                      4        19   7.750000  2014      8        4     1&#xA;                02111 1        61        NaN  2014      8        4     1&#xA;                      2        54  15.000000  2014      8        4     1&#xA;                      3        53        NaN  2014      8        4     1&#xA;000011141520290 90001 1        40   7.500000  2013      4        8     1&#xA;                      2        46        NaN  2013      4        8   NaN&#xA;                91001 1        62        NaN  2013     12        8     0&#xA;                92001 1        32  30.000000  2013      8        4     1&#xA;                      1        33  20.150000  2014      8        8     1&#xA;                      2        30        NaN  2013      8        4     0&#xA;                      2        32        NaN  2014      8        8     0&#xA;                93001 1        52  30.250000  2014      4        4     1&#xA;                      2        55  18.025000  2014      4        4     1&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;As you can see, for every unique household member (every hhid-hhid2-lineno combination), there is only one row. And if its somehow stored in the wide format, I'd expect the name to contain 'emp' somewhere:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;... [x for x in df.columns if 'emp' in x]&#xA;['empl', 'unempt', 'selfemp', 'pdemp1', 'pdemp2', 'nmemp1', 'nmemp2']&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;where the first four correspond to the individuals employment status (but not in different months), and the last for correspond to the number of employees linked to the individual (and similar).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Clearly, the information must be there somewhere. So, &lt;strong&gt;How does the CPS CEPR store employment information for the non-ORG months?&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2015-08-03T15:21:24.697" LastActivityDate="2015-11-07T07:24:52.497" Title="CPS CEPR: ORG and Monthly" Tags="&lt;labor-economics&gt;&lt;data-request&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6797" PostTypeId="2" ParentId="6772" CreationDate="2015-08-03T19:29:49.130" Score="3" Body="&lt;p&gt;A December fiscal year end, which gives a first quarter of three months ending March 30, aligns the fiscal and the tax year. This can be very convenient and &lt;a href=&quot;http://www.irs.gov/Businesses/Small-Businesses-&amp;amp;-Self-Employed/Tax-Years&quot; rel=&quot;nofollow noreferrer&quot;&gt;in the United States is sometimes required&lt;/a&gt;. In addition, some regulated firms like &lt;a href=&quot;http://www.federalreserve.gov/apps/reportforms/reportdetail.aspx?sOoYJ%205BzDal8cbqnRxZRg==&quot; rel=&quot;nofollow noreferrer&quot;&gt;banks are required to prepare documents on calendar quarters regardless of the month of their fiscal year end&lt;/a&gt;, and it is often cheaper and easier to have them be synchronized rather than close the books additionally for regulators. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Firms may be motivated to alter their fiscal years so that they can better serve their customers or investors. For example, some banks have a fiscal year end not in December so that customers needing to do financial transactions at the end of their year could do so without the bank simultaneously having to close their own books. &lt;a href=&quot;http://www.wikinvest.com/stock/Morgan_Stanley_(MS)/Change_End&quot; rel=&quot;nofollow noreferrer&quot;&gt;For many years Morgan Stanley did this&lt;/a&gt;. Walmart may be doing this because December is the Christmas shopping season in the United States and management wants to focus on that critical shopping period without the distraction of accounting issues. Additionally, if some shopping comes in after the holiday (say if Hanukkah comes late or because of a rash of belated Festivus shopping), it might split a single shopping season into different fiscal years which could be undesirable for investors trying to compare retailer performance. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't want to lean too hard on any of these explanations for Walmart's timing. If I recall correctly from looking in Compustat a few years ago more than 80 percent of US listed firms have a December FYE and this didn't vary a huge amount across industries.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;UPDATE:&#xA;I went into Compustat and I redid the table of retail, banking, and other firms showing the months of fiscal year end the last 12 months (8/2014-7/2015). &#xA;I was surprised to see that retail was indeed vastly (&gt;20 times) more likely to have a January FYE than a typical publicly listed firm in 2015.  The results appear in the figure below. &#xA;&lt;a href=&quot;https://i.stack.imgur.com/6Hb75.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/6Hb75.png&quot; alt=&quot;FYE by industry&quot;&gt;&lt;/a&gt;&#xA;Source: Compustat&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This gives credence to the hypothesis that as a retailer with significant holiday sales, Walmart may have a January FYE to highlight those results.  &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-08-12T13:18:55.003" LastActivityDate="2015-08-12T13:18:55.003" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6798" PostTypeId="1" CreationDate="2015-08-04T10:41:38.230" Score="5" ViewCount="845" Body="&lt;p&gt;Consider an exchange economy with two consumers A and B, two goods x, y. Consumers have identical preferences $U=xy$. Total available endowment are $E_x$ and $E_y$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is the background of a homework question which does not ask but I got this question when I try to draw the Edgeworth Box. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I find the contract curve to be the diagonal of the Edgeworth Box, with slope $\dfrac{E_y}{E_x}$. I also find the price in this economy to be $\dfrac{p_x}{p_y}=\dfrac{E_y}{E_x}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then I got confused that if we start from an endowment point (for example, at the bottom right corner) and trade to the contract curve to get an equilibrium, then the line we trade along is called the priceline right? And its slope should be $-\dfrac{p_x}{p_y}$ right? If I did all these correct, I find my priceline is not orthogonal to the contract curve. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is more likely I made something conceptually wrong? Is the contract curve in this economy the diagonal?&lt;/p&gt;&#xA;" OwnerUserId="5351" LastEditorUserId="2776" LastEditDate="2017-02-28T20:26:40.860" LastActivityDate="2017-03-04T17:01:43.157" Title="Is the contract curve orthogonal to the priceline?" Tags="&lt;microeconomics&gt;&lt;general-equilibrium&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6799" PostTypeId="2" ParentId="6798" CreationDate="2015-08-04T12:44:56.810" Score="4" Body="&lt;p&gt;You write that the slope of one line is px/py and of another is -px/py. Take a piece of paper and draw the line y=2x and y=-2x are they orthogonal (answer: no)? In particular case the lines y=x and y=-x are orthogonal.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we regard it more formally, the vectors are orthogonal if the product is 0. Thus, &lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;&amp;lt;1,-p&amp;gt;*&amp;lt;1,p&amp;gt; = 1-p^2 &#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;This is 0 only if p=1 or p=-1, i.e. if the quantities of the 1-st and 2-nd good are equal.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To take a loon on it. Consider the wealth distribution something like 1-st player: [5;&#xA;15], 2-nd: [25;5], thus ex=30,ey=20,px/py = 2/3, then it looks like this: &lt;a href=&quot;https://i.stack.imgur.com/ESDeV.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/ESDeV.jpg&quot; alt=&quot;Edgeworth Box&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;p.s. Calculations and plotting were made with &lt;a href=&quot;https://github.com/maxlit/pyEdgeworthBox&quot; rel=&quot;nofollow noreferrer&quot;&gt;pyEdgeworthBox&lt;/a&gt; package (I wrote it).&lt;/p&gt;&#xA;" OwnerUserId="236" LastEditorUserId="236" LastEditDate="2017-03-04T17:01:43.157" LastActivityDate="2017-03-04T17:01:43.157" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="6800" PostTypeId="2" ParentId="6754" CreationDate="2015-08-04T14:58:34.590" Score="4" Body="&lt;p&gt;MANGOES: MARKET STEADY. flats 1 layer [[&lt;em&gt;cargo type&lt;/em&gt;]] HT [[&lt;em&gt;Haitii&lt;/em&gt;]] Francis [[&lt;em&gt;variety&lt;/em&gt;]] 9s [[&lt;em&gt;9 fruits in 1 layer flat&lt;/em&gt;]] 11.00 [[&lt;em&gt;price for 9 fruits&lt;/em&gt;]] 10s [[&lt;em&gt;10 fruits in 1 layer flat&lt;/em&gt;]] 12.00 [[&lt;em&gt;price for 10 fruits&lt;/em&gt;]] MX [[&lt;em&gt;Mexico&lt;/em&gt;]] Keitt [[&lt;em&gt;Variety&lt;/em&gt;]] 7s [[&lt;em&gt;count&lt;/em&gt;]] 5.00-6.00 [[&lt;em&gt;price&lt;/em&gt;]] few 6.50 [[&lt;em&gt;a few at a different price&lt;/em&gt;]] ...etc... 25 lb cartons [[&lt;em&gt;cargo type&lt;/em&gt;]] DR [[&lt;em&gt;dominican republic&lt;/em&gt;]] Banilejos [[&lt;em&gt;variety&lt;/em&gt;]] 36.00 [[&lt;em&gt;price&lt;/em&gt;]]&lt;/p&gt;&#xA;" OwnerUserId="5324" LastEditorUserId="5324" LastEditDate="2015-08-05T13:41:49.613" LastActivityDate="2015-08-05T13:41:49.613" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6801" PostTypeId="1" CreationDate="2015-08-04T18:06:36.923" Score="3" ViewCount="64" Body="&lt;p&gt;I read &lt;a href=&quot;http://www.gmanetwork.com/news/story/306370/money/agriculture-the-decline-of-the-poor-man-s-sector&quot; rel=&quot;nofollow&quot;&gt;this article&lt;/a&gt; earlier, and the &quot;experts&quot; there say:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;The incidence of poverty is very high in agriculture because of its low productivity.&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;The incidence of poverty is very high in agriculture because of its relatively slow growth.&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;But why do they say that? How about you? What do you think is the cause? To me, they keep saying that:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;[T]he share of agriculture in GDP, and not the demand for agriculture per se, which declines as income per capita increases&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;But why would you want to be more productive/produce more goods when people in general are going to have a pretty much similar demand for the product ('cause it says there that demand for agri products don't necessarily decline)?&lt;/p&gt;&#xA;" OwnerUserId="5359" LastActivityDate="2015-08-17T14:57:23.803" Title="Why is it that poverty incidence is high in the agricultural sector?" Tags="&lt;agriculture&gt;&lt;poverty&gt;" AnswerCount="3" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6802" PostTypeId="2" ParentId="6789" CreationDate="2015-08-04T18:58:26.187" Score="0" Body="&lt;p&gt;It is important to note that the OP uses a general form of a utility function, where utility is not necessarily separable per period. But in such a general setting, $MU_t$ is &lt;em&gt;not&lt;/em&gt; &quot;marginal utility&quot;, but only the &lt;strong&gt;partial derivative&lt;/strong&gt; of $u(c_t, c_{t+1})$ with respect to $c_t$. &quot;Marginal utility&quot; is a concept suited for a uni-variate utility function.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So it is more accurate to write the optimal relationship as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{1}{1+r_{t+1}}\frac {\partial u(c_t, c_{t+1})}{\partial c_t} = \frac {\partial u(c_t, c_{t+1})}{\partial c_{t+1}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Indeed, it appears that we are &quot;discounting&quot; the effect of the present, rather than that of the future. But it perhaps becomes more clear if we view it not as dividing the &quot;present&quot; by a discount factor, but rather as &lt;em&gt;multiplying it&lt;/em&gt; by the relative price between present and future: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can &quot;buy&quot; one unit of future consumption by trading only $1/(1+r_{t+1})$ units of current consumption (i.e. by saving $1/(1+r_{t+1})$ amount now and obtain $1$ unit tomorrow). So by &lt;em&gt;multiplying&lt;/em&gt; the &quot;effect of the present on utility&quot; by $[1/(1+r_{t+1})]$, we express it in terms of the future.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-08-04T18:58:26.187" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6803" PostTypeId="2" ParentId="6772" CreationDate="2015-08-04T19:12:35.247" Score="1" Body="&lt;p&gt;I offer the following reason why a business like Walmart may desire to have January end as its closing-date for the fiscal year: in anticipation of the high-season of Christmas, it is natural that inventories rise &quot;abnormally&quot;, in order not to lose sales. Most probably Walmart has return-contracts with suppliers. So during January is when any products that did not fulfill forecasted sales are returned (especially for Christmas-specific products) in order to optimize inventories.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Optimizing the value of inventories is essential for a commercial company. Assume now that such optimization takes place during January, but the fiscal year closes on Decemeber 31: &lt;em&gt;the optimization would never show in the official yearly Financial Statements&lt;/em&gt;. The company would have to include Notes saying things like &quot;inventories may appear high, but during January we have returned... etc&quot;. But a note in the Financial Statement is never as strong as the magnitude appearing on the Balance Sheet itself. So the company, in order to allow for an actual management practice to show in the Financial Statements (and not in order to artificially embellish its financial picture), closes the year on January end.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-08-04T23:23:06.293" LastActivityDate="2015-08-04T23:23:06.293" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6804" PostTypeId="5" CreationDate="2015-08-04T23:19:33.233" Score="0" Body="" OwnerUserId="-1" LastEditorUserId="-1" LastEditDate="2015-08-04T23:19:33.233" LastActivityDate="2015-08-04T23:19:33.233" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6805" PostTypeId="4" CreationDate="2015-08-04T23:19:33.233" Score="0" Body="Linear programming (also called linear optimization) is a method to achieve the best outcome (such as maximum profit or lowest cost) in a mathematical model whose requirements are represented by linear relationships. Linear programming is a special case of mathematical programming (mathematical optimization)." OwnerUserId="40" LastEditorUserId="40" LastEditDate="2015-08-05T03:39:11.437" LastActivityDate="2015-08-05T03:39:11.437" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6806" PostTypeId="1" CreationDate="2015-08-05T16:37:26.250" Score="0" ViewCount="93" Body="&lt;p&gt;With the debate surrounding the upcoming re-authorization of the Ex-Im Bank of the US, I wanted to hear from someone who might know. What is the best case to be made for its continued operation? I understand the &quot;loans as corporate welfare&quot; case, but I think you could probably classify improved export conditions and the resulting job growth, tax revenue, etc. as a Public Good.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If this is true, do these benefits justify the bank's existence despite the corporate welfare?&lt;/p&gt;&#xA;" OwnerUserId="5365" LastEditorUserId="43" LastEditDate="2015-08-06T08:25:40.113" LastActivityDate="2015-08-06T08:41:06.143" Title="Can the benefits provided by the Ex-Im Bank of the US be considered a Public Good?" Tags="&lt;international-economics&gt;&lt;public-economics&gt;" AnswerCount="1" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="6808" PostTypeId="1" AcceptedAnswerId="6819" CreationDate="2015-08-06T01:56:36.577" Score="6" ViewCount="370" Body="&lt;p&gt;I am working on a problem in my Auction Theory textbook regarding a two-player asymmetric first price auction. Assume the bidders are risk neutral. The problem statement is as follows:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;blockquote&gt;&#xA;    &lt;p&gt;Suppose that bidder $1$'s value $X_{1}$ is distributed according to $F_{1}(x) = \frac{1}{4}(x-1)^{2}$ over $[1, 3]$, and bidder $2$'s value is distributed according to $\text{exp}(\frac{2}{3}x - 2)$ over $[0, 3]$. Show that $\beta_{1}(x) = x - 1$ and $\beta_{2}(x) = \frac{2}{3}x$ constitute equilibrium bidding strategies in a first price auction.&lt;/p&gt;&#xA;  &lt;/blockquote&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I am trying to work on deriving $\beta_{1}$ and $\beta_{2}$. Unfortunately, my knowledge of differential equations isn't terribly strong. Would someone be able to double check my work and let me know if I have logic errors? I have derived the correct bidding functions, but am not entirely confident my work is sound.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, suppose the equilibrium bidding functions $\beta_{1} : [1, 3] \to \mathbb{R}_{+}, \beta_{2} : [0, 3] \to \mathbb{R}_{+}$ are strictly increasing and differentiable. Define $g_{1}(x) = \beta_{1}^{-1}(x)$ and $g_{2}(x) = \beta_{2}^{-1}(x)$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Player $i$ with valuation $v$ can only vary his bid, so he seeks to find the optimal bid given by the optimization problem below.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\max_{b} F_{-i}(g_{-i}(b)) \cdot (v - b)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We consider the First Order Conditions:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$F_{-i}(g_{-i}(b)) = \dfrac{f_{-i}(g_{-i}(b))}{\beta_{-i}^{\prime}(g_{-i}(b))} \cdot (v-b)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At equilibrium, $v = g_{i}(b)$. Applying this and noting $\dfrac{1}{\beta_{-i}^{\prime}(g_{-i}(b))} = (g_{-i}(b))^{\prime}$, we have:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$(g_{-i}(b))^{\prime} = \dfrac{F_{-i}(g_{-i}(b))}{f_{-i}(g_{-i}(b))} \cdot \dfrac{1}{g_{i}(b) - b}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Plugging in each $F_{i}$, we obtain:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$g_{2}^{\prime}(b) = \dfrac{3}{2} \cdot \dfrac{1}{g_{1}(b) - b}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$g_{1}^{\prime}(b) = \dfrac{1}{2} \cdot \dfrac{g_{1}(b) - 1}{g_{2}(b) - b}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At equilibrium, we have $\beta_{1}(3) = \beta_{2}(3)$. By individual rationality, $\beta_{2}(0) = 0 \implies g_{2}(0) = 0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;While I could obviously use the problem statement that $\beta_{1}(x) = x - 1$ to conclude that $g_{1}(0) = 1$, I don't know how to justify this boundary condition independently. Does anyone have any insights into this?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assuming this boundary condition though, I note:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$g_{2}^{\prime}(0) = \dfrac{3}{2} \cdot \dfrac{1}{1 - 0} = \dfrac{3}{2}$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;From here, I can wave my hand and guess that $g_{2}^{\prime}(b) = \dfrac{3}{2}$, which would imply $g_{2}(b) = \dfrac{3}{2}b$. I'm not sure how to formally derive this though. Would anyone have insights into this?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Once I have $g_{2}(b) = \dfrac{3}{2}b$, I can plug into $g_{1}^{\prime}(b)$ to get:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$g_{1}^{\prime}(b) = \dfrac{1}{2} \cdot \dfrac{g_{1}(b) - 1}{\dfrac{3}{2}b - b} = \dfrac{g_{1}(b) - 1}{b}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which is a first order linear differential equation, whose solution is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$g_{1}(b) = b + 1 \implies \beta_{1}(v) = v - 1$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And we have $\beta_{2}(v) = \dfrac{2}{3}v$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My work is certainly a little hand-wavy. I would greatly appreciate any help in solidifying the details. Thank you in advance for any help!&lt;/p&gt;&#xA;" OwnerUserId="5368" LastActivityDate="2015-08-07T00:32:52.870" Title="System of Differential Equations- Asymmetric First-Price Auction" Tags="&lt;game-theory&gt;&lt;auctions&gt;" AnswerCount="1" CommentCount="4" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="6809" PostTypeId="2" ParentId="6806" CreationDate="2015-08-06T08:41:06.143" Score="1" Body="&lt;p&gt;Since you keep stressing the public good part of the argument..&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From wikipedia:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The Export-Import Bank of the United States (Ex-Im Bank) is the official export credit agency of the United States federal government.[1] Operating as a government corporation, the bank finances and insures foreign purchases of United States goods for customers unable or unwilling to accept credit risk. According to its charter, the Ex-Im Bank does not compete with private sector lenders, but rather provides financing for transactions that would otherwise not take place because commercial lenders are either unable or unwilling to accept the political or commercial risks inherent in the deal.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So the service at hand is &lt;em&gt;lending to higher risk customers&lt;/em&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In economics, a public good is&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;a good that is both non-excludable and non-rivalrous in that individuals cannot be effectively excluded from use and where use by one individual does not reduce availability to others.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Lending is very much excludable. To the extent that funds of the ex-im bank are limited, it is also rivalrous. Hence &lt;strong&gt;no&lt;/strong&gt;, the services of the ex-im bank are not a public good.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Second order public good&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;To quote you: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;that might result in what you might call a Public Good  i.e. improved export conditions, job growth, tax revenue,&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This part is irrelevant. Either you provide a public good, or you don't. Providing a private good, that may result in benefits for society doesn't make you a special provider that warrants special benefits. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Any&lt;/em&gt; producer of consumption goods creates &quot;&lt;em&gt;improved export conditions, job growth, tax revenue,&lt;/em&gt;&quot;. That doesn't warrant the government sponsoring them, because they create something &quot;akin to a public good&quot;.&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-08-06T08:41:06.143" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="6810" PostTypeId="2" ParentId="6476" CreationDate="2015-08-06T11:54:36.637" Score="-1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Question 1: What is the difference between this (government issues&#xA;  bonds and the central bank buys them) and directly printing money?&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Answer 1: Same as EnergyNumbers pointed, the difference is that in&#xA;  buying the bond, the central bank now owns a bond, but when the&#xA;  central bank printed the money, they just printed and inject the money&#xA;  to the economy.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;One of the purpose of the central bank is, &lt;strong&gt;they control the amount of printed money in the economy&lt;/strong&gt;, to create a stable economy. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If there are too much printed money in the economy, then, the value of the printed money is fall. They call it &lt;strong&gt;&quot;Inflation&quot;&lt;/strong&gt;, and hyperinflation if the inflation is too much. When inflation happen, the price of goods and services is rise high. When the goods and services are rise high, the goods and services are too expensive. There will be many protester in the street.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If there are too little printed money in the economy, then, the value of the printed money is raise. So the same money can buy more goods and services, but the companies don't like it, because the goods they have produced now are low in value, so they decrease the production of goods. When they decrease the production of goods, the want to lay off the workers, when they lay off many workers, the situation is bad, many demonstration in the street. They call this phenomena as &lt;strong&gt;&quot;Recession&quot;&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When they are too much printed money in the economy, the economy is unstable. So to make it stable again, we must decrease the printed money in the economy. How? Well, one of the three methods used is: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;ol&gt;&#xA;  &lt;li&gt;The central bank sell a new bonds to the citizen, and when the citizens or companies or banks buy the bonds, they give the money to&#xA;  the central bank. Now, the central bank can keep the printed money in&#xA;  their vault, thus, decreasing the printed money in the economy.&lt;/li&gt;&#xA;  &lt;/ol&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;When they are too little printed money in the economy, the economy is unstable. So to make it stable again, we must increase the printed money in the economy. How? Well, one of the three methods used is:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;ol&gt;&#xA;  &lt;li&gt;The central bank buy back the bonds from the citizens, companies, banks. The central bank give the money to them, thus, increasing the printed&#xA;  money in the economy (in effect creating money).&lt;/li&gt;&#xA;  &lt;/ol&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Source: &lt;a href=&quot;http://www.investopedia.com/ask/answers/07/central-banks.asp&quot; rel=&quot;nofollow&quot;&gt;http://www.investopedia.com/ask/answers/07/central-banks.asp&lt;/a&gt; , &lt;a href=&quot;https://www.youtube.com/watch?v=y1OJlJ9COg0&quot; rel=&quot;nofollow&quot;&gt;https://www.youtube.com/watch?v=y1OJlJ9COg0&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="5369" LastEditorUserId="5369" LastEditDate="2015-08-06T11:59:51.427" LastActivityDate="2015-08-06T11:59:51.427" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="6811" PostTypeId="1" CreationDate="2015-08-06T13:43:06.483" Score="9" ViewCount="1719" Body="&lt;p&gt;My current limited understanding is that the &lt;a href=&quot;https://en.wikipedia.org/wiki/Gold_standard&quot; rel=&quot;nofollow noreferrer&quot;&gt;gold standard&lt;/a&gt; was a system in which there was a fixed currency amount per unit of gold. For example, 1 ounce of gold might be 100 USD. Another country like UK might peg their currency to be 1 ounce of gold for 50 GBP. &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;This means that GBP and USD would also be fixed at 1 GBP for 2 USD? &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;What would be an example of how trade would occur between these two countries? Say that the US had oil that the UK wanted to buy. Would the UK give the US GBP in exchange for the oil? Then in return, the US would use this GBP and return it to the UK government in exchange for some predetermined amount of gold? So in the end US gold reserves would increase and UK gold reserves would decrease? But doesn't this then mean that the US would have to print more money to keep the gold/USD exchange rate fixed?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;In today's fiat currency, how does trade occur? I understand that different factors like interest rates and inflation can affect exchange rates. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;But why do countries hold currencies of other countries in &quot;reserve&quot;? Why is this necessary?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="5370" LastEditorUserId="4020" LastEditDate="2018-09-11T09:49:12.253" LastActivityDate="2018-09-11T09:54:23.113" Title="What are the differences between the older gold standard and the current fiat money standard?" Tags="&lt;currency&gt;&lt;exchange-rates&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="6814" PostTypeId="1" CreationDate="2015-08-06T19:07:44.653" Score="2" ViewCount="341" Body="&lt;p&gt;I was thinking about the idea of hoarding and the kind of news it is making in India. What strikes me is that hoarding of pulses and cereals does not happen the way people thinks because they are a perishable commodity and by hoarding any such product a trader will loose turnover and will have lower return of capital although he can get higher margin. I don't think that except for rice any other produce can be hold for long, as they are perishable. Even rice will turn blackish with time. And if anybody thinks that storing them in cold storage will preserve then then also then it does not make sense as  the traders sunk cost will remain the same whether he hoard or look for more turnover.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So could please anybody help me have a more clear understanding of this hoarding news or is it just a hoax.&lt;/p&gt;&#xA;" OwnerUserId="5372" LastEditorUserId="84" LastEditDate="2015-08-06T20:06:51.923" LastActivityDate="2015-08-06T22:00:08.407" Title="Does the hoarding of perishable goods such as pulses and cereals make economic sense?" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6816" PostTypeId="1" CreationDate="2015-08-06T19:33:52.820" Score="1" ViewCount="44" Body="&lt;p&gt;I am trying to generalize the media buying problem, the first steps are to use media buying approach to several advertising channels at once. But there should be next steps as well. Are there works that try to model the entire ICM? ICM planning at the enterprise level for one or several product groups. Google and Google scholar give none. Maybe such endeavours exists but under different names (terms)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is lot of literature under terms &quot;mathematical model of marketing mix&quot;.&lt;/p&gt;&#xA;" OwnerUserId="5373" LastEditorUserId="5373" LastEditDate="2015-08-06T20:05:28.323" LastActivityDate="2015-08-06T20:05:28.323" Title="The mathematical model of integrated marketing communications" Tags="&lt;mathematical-economics&gt;&lt;marketing&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6817" PostTypeId="2" ParentId="6814" CreationDate="2015-08-06T21:51:16.837" Score="3" Body="&lt;p&gt;It does not make economic sense. Disclaimer that I am responding directly to your Thai example, and not talking about economics of storage. Rice can be safely stored for a period of time, and it is in the United States. Many developing countries struggle with proper storage of grain. For example, the World Bank estimates that 10-20% of South Saharan Africa's grain crop is lost to spoilage each year, roughly equivalent the amount of grain that they import yearly which can feed 48 million people. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Thai government, not traders, where hoarding rice under their rice pledging scheme. The government has lost billions of dollars under the scheme and the Thai prime minister Yingluck Shinawatra faces possible jail time. During the 2011 crop year, the Thai government announced the rice pledging scheme which would establish the price floor and pay growers 50% over market price (subsidy). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Thai government also greatly reduced exports, so it had a large stockpile of old crop rice (for several years). Part of the plan was to help their producers, the other possibly to have a hold of the global market (large control over the global supply). What ended up occurring was that their new crops had to compete against the old crops. The &quot;alternative&quot; product brought Thai and world prices down. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In addition, this was a very strange way of the Thai government to give aid to producers since it would have been more efficient to directly pay an equal amount of the additional producer surplus gained from the price floor straight to the producers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A large percentage of the rice did in fact rot, and the government is now auctioning off rice that is not fit for human consumption. Some of it is also not fit for animal consumption and will have to be auctioned off for ethanol producers.&lt;/p&gt;&#xA;" OwnerUserId="2674" LastEditorUserId="2674" LastEditDate="2015-08-06T22:00:08.407" LastActivityDate="2015-08-06T22:00:08.407" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6819" PostTypeId="2" ParentId="6808" CreationDate="2015-08-06T23:17:38.560" Score="3" Body="&lt;p&gt;I followed Oliv's suggestion, which was quite fruitful. So we have the differential equations:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$g_{1}^{\prime}(b) = \dfrac{1}{2} \cdot \dfrac{g_{1}(b) - 1}{g_{2}(b) - b}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$g_{2}^{\prime}(b) = \dfrac{3}{2} \cdot \dfrac{1}{g_{1}(b) - b}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With the boundary conditions $g_{2}(0) = 0$ and $g_{1}(\overline{b}) = g_{2}(\overline{b}) = 3$, where $\overline{b}$ is the maximum bid. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now we guess that $g_{1}(b) = \alpha b + \gamma$ and $g_{2}(b) = \delta b + \lambda$. Applying $g_{2}(b) = 0$ yields that $\lambda = 0$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Next, I substitute $g_{1}(b)$ into $g_{2}^{\prime}(b)$ to obtain:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$g_{2}^{\prime}(b) = \dfrac{3}{2} \cdot \dfrac{1}{(\alpha - 1)b + \gamma}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Integrating $g_{2}^{\prime}(b)$ yields &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$g_{2}(b) = \dfrac{3}{2(\alpha - 1)} ln( (\alpha - 1)b + \gamma)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We note there is no constant when integrating, as $g_{2}(b) = \delta b$. We now apply $g_{2}(0) = 0$ again, concluding that $ln( \gamma) = 0$. And so $\gamma = 1$. Thus, $g_{1}(b) = \alpha b + 1$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We now solve:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$g_{2}(\overline{b}) = 3 = \dfrac{3}{2(\alpha - 1)} ln( (\alpha - 1)\overline{b} + \gamma)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From this and noting that $g_{1}(\overline{b}) = 3 = \alpha \overline{b} + 1$, we obtain:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$e^{2(\alpha - 1)} = 3 - \overline{b} \implies \overline{b} = 3 - e^{2(\alpha - 1)}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Plugging this into $g_{1}(b)$ yields:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$g_{1}(\overline{b}) = \alpha(3 - e^{2(\alpha - 1)}) + 1 = 3$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which implies that the solution $\alpha = 1$. Thus, $\overline{b} = 2$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So $\delta = \dfrac{3}{2}$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, $g_{1}(b) = b + 1 \implies \beta_{1}(v) = v - 1$; and $g_{2}(b) = \dfrac{3}{2}b$ implies $\beta_{2}(v) = \dfrac{2}{3}v$ as desired.&lt;/p&gt;&#xA;" OwnerUserId="5368" LastEditorUserId="5368" LastEditDate="2015-08-07T00:32:52.870" LastActivityDate="2015-08-07T00:32:52.870" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="6820" PostTypeId="2" ParentId="6260" CreationDate="2015-08-06T23:37:31.427" Score="2" Body="&lt;p&gt;If you are looking for a good, general graph theory reference, Doug West's textbook is the way to go. It's very readable, and has good material on network flows, matchings, and random graphs as well (which are particularly relevant in economic networks).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You may also be interested in reading some of Hans Haller's papers on economic networks. Haller has recently focused on strategic network formation. He isn't on Ideas, but his CV as of March 2015 is here: &lt;a href=&quot;http://www.econ.vt.edu/cvsandresearch/hallercv.pdf&quot; rel=&quot;nofollow&quot;&gt;http://www.econ.vt.edu/cvsandresearch/hallercv.pdf&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Networks, Crowds, and Markets is another good read: &lt;a href=&quot;http://www.cs.cornell.edu/home/kleinber/networks-book/&quot; rel=&quot;nofollow&quot;&gt;http://www.cs.cornell.edu/home/kleinber/networks-book/&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="5368" LastEditorUserId="5368" LastEditDate="2015-08-08T06:20:13.227" LastActivityDate="2015-08-08T06:20:13.227" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6821" PostTypeId="2" ParentId="6571" CreationDate="2015-08-07T04:02:22.443" Score="4" Body="&lt;p&gt;There are $N+1$ bidders. So we only care about the second highest bid. That's the same as finding the highest bid amongst the remaining $N$ bidders. The expected second highest bid is given by: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$b \cdot Pr[b] \cdot Pr[b \geq b_{-i}] = b \cdot f(b) \cdot F(b)^{N-1} = b \cdot dF(b)^{N}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As expected value is an average, we divide out by the probability that $b \leq \beta$, which is $F(\beta)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, we have:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\mathbb{E}[b^{[2]} | b^{[2]} \leq \beta] = \dfrac{1}{F(\beta)}\int_{0}^{\beta} bdF(b)^{N}$$&lt;/p&gt;&#xA;" OwnerUserId="5368" LastActivityDate="2015-08-07T04:02:22.443" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6822" PostTypeId="1" CreationDate="2015-08-07T08:40:48.197" Score="1" ViewCount="147" Body="&lt;p&gt;Anyone care to explain how exactly decreasing returns to scale (DRS) can lead to specialization? Having come across a few studies showing how large farm enterprises tend to experience DRS, I came to think about this but never really understood the logic behind it. How does specializing increase efficiency in such a case?&lt;/p&gt;&#xA;" OwnerUserId="5379" LastEditorUserId="1601" LastEditDate="2015-08-07T08:51:00.017" LastActivityDate="2015-08-07T08:51:00.017" Title="Returns to scale and specialization" Tags="&lt;capital-returns&gt;&lt;economies-of-scale&gt;" AnswerCount="0" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6823" PostTypeId="2" ParentId="6811" CreationDate="2015-08-07T14:28:42.863" Score="3" Body="&lt;p&gt;You made some assumptions which are rather unreal: 1st - government is a party of sales contract, 2nd - GBP is used to pay for oil. Assumptions are unreal because oil as other products are rather sold by private owned (or at least government owned) companies than governments. USD (not GBP) is unit of account to price oil in the international market &lt;em&gt;(petrocurrency)&lt;/em&gt;. I can, however, stick to your assumptions to explain the case described.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Let's assume that US has 50 units of oil. UK buys those units for 50 GBP. US Federal Reserve exchanges 50 GBP for 1 ounce of gold. Reduction of UK's gold is not important, since unit of currency was (in times of gold standard) backed up by unit of specie. The unit of specie was ascribed to the unit of currency. If someone exchanged banknote for gold, the obligation incorporated within the banknote was cancelled. The function of specie was to make central banks unable to emit banknotes without needed amount of specie. In our case US Federal Reserve obtained ounce of gold and is now able to produce 100 USD. Creation of more than 100 USD would have been illegal.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;So in the end US gold reserves would increase and UK gold reserves would &#xA;  decrease? But doesn’t this then mean that the US would have to print more &#xA;  money in order to keep the gold/USD exchange rate fixed?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;No, because banknote/gold ratio had not changed. The overall change of gold is not important. What is important: relation of unit of specie to unit of money.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I sketched briefly the answer above to provide you with basic understanding of the specie-based currency. I have to emphasize that Bretton Woods system was different. Overseas dollars were pegged to gold and other currency pegged to overseas dollars. So, GBP was pegged to gold indirectly. Bretton Woods combined gold standard (USD) with fiat money (other currencies). US Federal Reserve started to lose amounts of gold from 1959 to 1969 because of monetary inflation. Dollar was overvalued e.g. in 1960. There were simply more USD banknotes than units of specie pegged to those dollars. This was impossible then to exchange all dollars for predefined amount of gold, for USA started to break Bretton Woods regulations.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;By 1966, non-US central banks held 14 billion USD, while the United States &#xA;  had only 13.2 billion USD in gold reserve. Of those reserves, only 3.2 &#xA;  billion USD was able to cover foreign holdings as the rest was covering &#xA;  domestic holdings (&lt;a href=&quot;http://www.imf.org/external/np/exr/center/mm/eng/sc_sub_3.htm&quot; rel=&quot;nofollow&quot;&gt;IMF&lt;/a&gt;).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;It costs only a few cents for the Bureau of Engraving and Printing to &#xA;produce a 100 USD bill, but other countries had to pony up 100 USD of &#xA;actual goods in order to obtain one&lt;/em&gt; (&lt;a href=&quot;https://en.wikipedia.org/wiki/Nixon_Shock#cite_note-4&quot; rel=&quot;nofollow&quot;&gt;Wikipedia&lt;/a&gt;) as Barry Eichengreen posited. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;GBP was backed up by goods and services (fiat money). Since GBP was pegged to USD, UK has to produce goods and services worth x GBP (where x GBP was equal to 100 USD) to change it for 100 USD. &lt;em&gt;Vice versa&lt;/em&gt; US has only to print &#xA;banknote to acquire predefined sum of GBP. As gold standard was broken it cost only few cents to create such sum of paper.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In today's fiat currency, how does trade occur? I understand that &#xA;  different factors like interest rates and inflation can effect exchange &#xA;  rates. However, why do countries hold currencies of other countries in &#xA;  &quot;reserve&quot;? Why is this necessary?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Fiat money is backed up by sum of goods and services. As number of banknotes, goods and services changes, so the value of banknote does.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Central banks hold foreign currencies for open market operations. Via open market operations, central bank can affect supply of given currency, changing its value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Further reading: Jesús Huerta de Soto, &lt;em&gt;Money, Bank Credit, and Economic Cycles&lt;/em&gt;, LvMI, Auburn (Alabama).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;/questions/tagged/gold&quot; class=&quot;post-tag&quot; title=&quot;show questions tagged &amp;#39;gold&amp;#39;&quot; rel=&quot;tag&quot;&gt;gold&lt;/a&gt; &lt;a href=&quot;/questions/tagged/specie&quot; class=&quot;post-tag&quot; title=&quot;show questions tagged &amp;#39;specie&amp;#39;&quot; rel=&quot;tag&quot;&gt;specie&lt;/a&gt; &lt;a href=&quot;/questions/tagged/austrian&quot; class=&quot;post-tag&quot; title=&quot;show questions tagged &amp;#39;austrian&amp;#39;&quot; rel=&quot;tag&quot;&gt;austrian&lt;/a&gt; &lt;a href=&quot;/questions/tagged/central-banking&quot; class=&quot;post-tag&quot; title=&quot;show questions tagged &amp;#39;central-banking&amp;#39;&quot; rel=&quot;tag&quot;&gt;central-banking&lt;/a&gt; &lt;a href=&quot;/questions/tagged/macroeconomics&quot; class=&quot;post-tag&quot; title=&quot;show questions tagged &amp;#39;macroeconomics&amp;#39;&quot; rel=&quot;tag&quot;&gt;macroeconomics&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="5380" LastEditorUserId="5380" LastEditDate="2015-08-07T14:51:47.863" LastActivityDate="2015-08-07T14:51:47.863" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="6824" PostTypeId="1" CreationDate="2015-08-07T14:32:48.707" Score="3" ViewCount="842" Body="&lt;p&gt;I would like to know the reasons for any government to allow currency speculation. What is the benefit for a country and for it's people if the currency speculation is allowed?&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;My cousin's farm is producing vegetables. Providing some goods that the consumers need or desire and they are ready to pay for.&lt;/li&gt;&#xA;&lt;li&gt;My fruit shop is selling fruits and vegetables. Providing a service that the consumers need or desire and they are ready to pay for.&lt;/li&gt;&#xA;&lt;li&gt;My uncle's credit bank is helping the people who can save enough to buy a car today instead of waiting many years until they saved enough. Providing a service that the consumers need or desire and they are ready to pay for.&lt;/li&gt;&#xA;&lt;li&gt;My aunt's currency trading company is helping the people based in the EU to buy products or services made in the USA. Providing a service that the consumers need or desire and they are ready to pay for.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;If I, or my cousin or my uncle create monopolies or cartels and speculate and fix prices, artificially inflating the cost of the goods/services we provide, the government will put punish us for that, because we harm the consumers. That's why most countries have a Competition Council. But if my aunt creates a monopoly or cartel and buys large amounts of currency (becoming a speculator instead of being a trader) artificially increasing the price of the US dollar for the EU based consumers, reducing their buying power and therefore harming them, shouldn't the government react in the same manner?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, the currency speculators do not produce any good or service that consumers actually need or desire. Not even the international traders need to buy currency from speculators—they can buy the currency from the international traders based in the targeted country, or from the currency traders. So, nobody actually need the speculators &quot;services&quot;.&#xA;By the contrary, their actions will make the target currency to be weaker (so the working people can buy less with their money - they have less buying power), and they will make profit from this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At the end of the day, me, my cousin, my uncle and my aunt will be able to buy less food or clothes or computers with our income, even though we keep producing goods and services the consumer need, helping them to get what they need.&#xA;And in the same time, the speculators can buy a lot of food or clothes or computers even though they produced nothing that the consumers needed, all that at the expense of the consumers, harming them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So we have a situation where money do not measure work anymore. Your money do not measure your capacity to produce some needed goods or services. Now the money measure your capacity to speculate and to harm other people by reducing their buying power, driving them poorer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A very basic logic says that the money were created in order to help the people who produce goods and services to trade those goods and services. So the reason for using money (currency) is because it's supposed that the use of money will help them, instead of harming them. If using money hurts me more than helps me, I will think very seriously about not using money anymore.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It can't be hard at all for a government to detect if Brian Jones buys currency in order to actually buy goods with it or to simply speculate the currency value. They simply have to look at what Brian Jones is buying with the currency once it has it. The government can put a penalty (a fine) for speculating the currency so the consumers and the working people do not have to suffer from the speculation. And then it won't be profitable anymore to speculate a currency.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And then, what would be a government's arguments for allowing the speculation with it's own currency?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I provided all the data above in order to avoid superficial answers like &quot;currency speculators help the people to buy foreign currency&quot; - there are currency traders for that.&lt;/p&gt;&#xA;" OwnerUserId="5161" LastEditorUserId="5161" LastEditDate="2015-08-07T15:06:47.603" LastActivityDate="2015-08-07T15:38:13.853" Title="Why would a government allow currency speculation?" Tags="&lt;currency&gt;&lt;financial-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6825" PostTypeId="2" ParentId="6824" CreationDate="2015-08-07T14:56:01.670" Score="1" Body="&lt;ol&gt;&#xA;&lt;li&gt;Speculators very rarely have large positions that come anywhere near what would count as a monopoly in other sectors. When Soros bet on the pound devaluing he only had &lt;a href=&quot;http://www.theatlantic.com/business/archive/2010/06/go-for-the-jugular/57696/&quot; rel=&quot;nofollow&quot;&gt;a couple of billion dollar in his position&lt;/a&gt;. &lt;/li&gt;&#xA;&lt;li&gt;The distinction between a currency trader and a currency speculator can be hard to make in practice. The difference between market making and market speculation is one reason why the Volker rule has been difficult to write and implement. &lt;/li&gt;&#xA;&lt;li&gt;There is tremendous social value to informative prices. When prices are right, consumer and producers can rely on them to make better plans of economic activity. When prices are wrong (not reflecting the best information and most informed beliefs) those same agents are mislead by prices, leading to malinvestment and sub-optimal savings and consumption decisions.&lt;/li&gt;&#xA;&lt;li&gt;It can be difficult to ban such speculative activity because it moves off-shore. In general, a country could ban speculation locally but not in other countries. The UK has little motive to help France ban speculation on the Euro in London. The only way to really do this effectively is with currency controls that make it difficult to bring currency out of the country. But currency controls can bring additional complications into currency markets, often a serious form of financial repression and results in exchange rates even less informative. &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Faced with these issues, most well run countries, most of the time,  would take functioning currency markets with the warts and wrinkles of speculators, volatility, and the like, over the downsides of trying to control the price of their own currency. &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-08-07T15:38:13.853" LastActivityDate="2015-08-07T15:38:13.853" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="6826" PostTypeId="1" AcceptedAnswerId="6827" CreationDate="2015-08-07T16:04:13.567" Score="0" ViewCount="61" Body="&lt;p&gt;What is a stock exchange, I understand that it is a place where one buys and sells shares but I would like to know in more detail.&lt;/p&gt;&#xA;" OwnerUserId="5383" LastActivityDate="2015-08-07T17:21:01.890" Title="What is a Stock exchange?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="1" ClosedDate="2015-08-07T22:04:24.110" ContentLicense="CC BY-SA 3.0" />
  <row Id="6827" PostTypeId="2" ParentId="6826" CreationDate="2015-08-07T17:21:01.890" Score="0" Body="&lt;p&gt;Generally, it's the place (e.g. NYSE) where the equity portion of company's capital structure trades publicly. The exchange creates a market for buyers and sellers of equity to meet and trade (think Ebay but for equity). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Equity is in contrast to the debt portion of a company's capital structure, which is often comprised mainly of term loans and revolvers provided by banks as well as as secured and unsecured bonds of the company purchased by investors. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To understand a stock market, it's important to understand priority of payments in a capital structure. Imagine a company goes bankrupt - this is the order in which stakeholders lose money (first to last): equity, unsecured bonds, secured bonds, 2nd lien term loan, 1st lien term loan.&lt;/p&gt;&#xA;" OwnerUserId="5385" LastActivityDate="2015-08-07T17:21:01.890" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6828" PostTypeId="2" ParentId="6770" CreationDate="2015-08-07T18:50:09.580" Score="1" Body="&lt;p&gt;For introductory learning nearly any introductory economics textbook would do. For example, &lt;a href=&quot;http://www.cengage.com/search/productOverview.do?Ntt=Mankiw%7C%7C42577214915126807451484525927531744829&amp;amp;N=16&amp;amp;Ntk=APG%7C%7CP_EPI&amp;amp;Ntx=mode%2Bmatchallpartial&quot; rel=&quot;nofollow&quot;&gt;Mankiw's 7th edition&lt;/a&gt; has a section on &quot;How Markets Work&quot; and &quot;Saving, Investment, and the Financial System&quot;. The latter discusses stock and bonds. &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2015-08-07T18:50:09.580" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6829" PostTypeId="1" CreationDate="2015-08-08T05:09:09.027" Score="2" ViewCount="99" Body="&lt;p&gt;A friend of mines says that the US dollar is so &quot;heavily intertwined&quot; in other nations that if the US Dollar was to become worthless then that would have a major impact on the world. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However with the little to no backing in gold and division of the US dollar by digital currency as well as referring to history, isn't the US headed down hill? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is the argument that the US dollar was able to buy more in the past however it seems to be proportional; the dollar bought more however we made less as a normal wage eg. cents versus dollars. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, other countries buying our food producing land, concrete factories being owned by other nations when our highway infrastructure needs repair, small factories closing and machinery being auctioned at little to no cost. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So... I was thinking about starting to save in Euros and perhaps looking into Bitcoin which I understand is volatile but it is rare and capped...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any thoughts on this? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Further I am not heavily into economics (that's probably pretty obvious) so if you can fill in any additional gaps I missed, I would appreciate that.&lt;/p&gt;&#xA;" OwnerUserId="5387" LastActivityDate="2017-06-11T04:24:04.950" Title="Can the US dollar collapse and what are steps that I should take in the event that this happens?" Tags="&lt;money&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6830" PostTypeId="1" CreationDate="2015-08-08T05:47:28.543" Score="1" ViewCount="44" Body="&lt;p&gt;The analogy would be stirring water in a bucket; without adding more water to the bucket, there is no gain... &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Obviously the various resources to create say an iPod came from different countries... but this general concept of x = 4x therefore the company made 3x (as an over simplification) so where did the 3x come from? From people yes, but if it's always subtracting then how do we get to positive?&lt;/p&gt;&#xA;" OwnerUserId="5387" LastActivityDate="2015-08-08T06:20:15.700" Title="If a business charges more for a product than the cost to make it, how is our economy not inevitably doomed for debt?" Tags="&lt;money&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6831" PostTypeId="2" ParentId="6830" CreationDate="2015-08-08T06:20:15.700" Score="4" Body="&lt;p&gt;To continue your example: &lt;br&gt;&#xA;Resources (including labor) cost $x$, product sells for 4$x$. The fat cat business owner makes 3$x$. What does he do with it? If he spends it, for example plays golf or gets his hair done then the people providing those services get the money. Thus there need not be debt, the hairdresser can use these earnings to buy the product the fat cat's business was selling. The usual water analogy is of a circulatory system: water (money) flows from one vessel to the other.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2015-08-08T06:20:15.700" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6833" PostTypeId="2" ParentId="4891" CreationDate="2015-08-08T12:58:19.887" Score="1" Body="&lt;p&gt;Depends on some factors:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;A. Who pays the subsidy tax (depends on corruption)&lt;/li&gt;&#xA;&lt;li&gt;B. Corruption&lt;/li&gt;&#xA;&lt;li&gt;C. Cutting taxes (or not) after reducing the subsidy.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;A. If the (most of the) money for the subsidy tax is collected from the people with big revenues (from the rich), then the rich pay for cheaper fuel, helping the poor people to get cheaper commodities (food, clothes, etc). And that's not bad at all. And then, cutting the subsidy makes the food more expensive and that has a negative impact on the many.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But if the money for the subsidy is collected from the average citizen and and from the poor, then the poor will pay for slightly cheaper food &lt;em&gt;but also&lt;/em&gt; for cheaper fuel for the rich who want to enjoy car/airplane trips for pleasure. Because not all the subsidized fuel is used for transporting commodities - a part of it is used for personal cars/taxi/airplane for enjoying a good time. That means that not all the money paid in subsidy return in cheaper food for the many. In this case, cutting the subsidy (and subsequently reducing the tax for the subsidy — (C.)) will have a beneficial effect—the average citizen will not pay a tax that doesn't return entirely back to him.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;B. Example: Brian Jones has to pay \$10 US in fuel subsidy tax. The owner of the truck transporting the food from the producer to the supermarket will pay \$10 less in fuel expenses (say \$90 instead of \$100). The supermarket will get the food for \$10 less and it will sell with \$10 less. Brian Jones goes to the supermarket and buys all that food for \$10 less. In the end, Brian Jones pays \$10 but he gets \$10 back. So if the average citizen pays the subsidy then, in the best case, there is no benefit at all.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem is:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Not all the subsidized fuel is used for transporting basic goods. Therefore only a part of the subsidy will return in cheaper goods.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The distribution company and the supermarket won't price the products for 10 \$US less. Instead of providing cheaper goods/services, they will increase their profits. They will make all that food just 5 \$US cheaper or even for just 1 \$US cheaper, and the rest of 5 \$US or 9 \$US will be used to increase their profits. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;If the government is corrupt, the Competition Council will not do it's job and it will allow this. That's what happens in most of the poor and corrupt countries.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a country with a corrupt government, the food will be more expensive than say in France, even with free fuel. Because the small producers can't sell directly to the consumer—they have to sell to monopolies/cartels/mafias of distribution companies or supermarkets that artificially inflate the prices.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example a man from Philippines working in Denmark told me that most of the food is two or three times more expensive in Philippines than in Denmark. Even rice is much more expensive, although the country is a rice exporter. Also the fuel is more expensive. This is by far the biggest impact of corruption on the people everywhere in this world - consumers get overpriced goods.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To have an idea, in Spain a kilogram of rice costs &lt;a href=&quot;http://countrystats.wikia.com/wiki/Price_of_commodities_in_Spain&quot; rel=&quot;nofollow noreferrer&quot;&gt;0.65 Euro, a kilogram of sugar - 0.65 Euro, a liter of sunflower oil - 1.20 Euro&lt;/a&gt;. In Indonesia should be much cheaper because the workers wages are much lower. But most likely it's not cheaper, maybe it's even more expensive to buy such things.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Considering all the above, now we can give the short answer:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;The government reduces a subsidy paid by the rich and that increase the price of food. OR&lt;/li&gt;&#xA;&lt;li&gt;The government reduces a subsidy paid by the poor, that increases the price of the food, but the government doesn't return the subsidy to the poor in tax cuts (no subsidy, no tax for subsidy). OR&lt;/li&gt;&#xA;&lt;li&gt;The government reduces a subsidy paid by the poor, returns the money to the poor by cutting their taxes, but in the same time it allows the cartels/monopoly to further artificially increase the price of the food, and then blames the reducing of fuel subsidy for increasing the food price.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;So in the end this is all about corruption. Cutting the subsidy serves just as an excuse. The negative effect comes because of the corruption not because of reducing subsidies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think however that such questions better fit on a Q&amp;amp;A site about corruption/society than on a site about economy.&lt;/p&gt;&#xA;" OwnerUserId="5161" LastEditorUserId="-1" LastEditDate="2019-12-27T14:01:39.007" LastActivityDate="2019-12-27T14:01:39.007" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="6834" PostTypeId="2" ParentId="6796" CreationDate="2015-08-08T20:46:49.510" Score="1" Body="&lt;p&gt;Dusting off the cobwebs... The microdata &quot;wage file&quot; as I call it and the ORG file as you call it only has information for the month for which the respondent was asked about wages.  The CPS is a timeseries only in the form of aggregated data. I do not know the study you are replicating so can't be more helpful.  Try adding what your objective is, e.g. I want to measure the wage differential of age groups in the XYZ industry/occupation or whatever.  My experience was in estimated the hourly wage distribution of workers in California.&lt;/p&gt;&#xA;" OwnerUserId="5391" LastEditorUserId="1601" LastEditDate="2015-08-09T06:30:00.393" LastActivityDate="2015-08-09T06:30:00.393" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6835" PostTypeId="1" CreationDate="2015-08-09T01:09:25.080" Score="12" ViewCount="6630" Body="&lt;p&gt;I've frequently seen references in blogs and articles about how banks and other lending agencies like to refer to people who repay loans on an accelerated schedule as &quot;deadbeats&quot;, because they get less interest out of that person.  Some institutions even implement early-repayment penalties in debt contracts, a practice that's been outlawed in some places.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But when I think about it, this doesn't make a lick of sense.  It seems to me that creditors should regard these &quot;deadbeats&quot; as their very best friends:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;The lender gets their principal back ahead of schedule, improving their liquidity and making them able to loan it out again more quickly, should they wish to.&lt;/li&gt;&#xA;&lt;li&gt;By reducing the principal outstanding, the amount at risk in the event of a default is reduced.&lt;/li&gt;&#xA;&lt;li&gt;By demonstrating that the borrower has the ability to pay beyond the minimum, the risk of default is reduced.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;What's not to like?&lt;/p&gt;&#xA;" OwnerUserId="4958" LastEditorUserId="264" LastEditDate="2015-08-09T02:44:07.200" LastActivityDate="2016-03-14T17:51:54.423" Title="Why do lenders dislike early loan repayments?" Tags="&lt;debt&gt;" AnswerCount="4" CommentCount="1" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="6836" PostTypeId="1" AcceptedAnswerId="6839" CreationDate="2015-08-09T02:08:14.823" Score="5" ViewCount="423" Body="&lt;p&gt;So I have a game in which home owners prefer certain other's homes.  The owners are A, B, C, and D with a, b, c, and d referring to their respective homes.  They each prefer homes according to the ranking &lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;A: bdac&#xA;B: cadb&#xA;C: dbca&#xA;D: acbd&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;I've read an article by Shapley about an algorithm to find one assignment in the strict core, but I'm asked to &quot;determine the strict core&quot; which I assume means finding &lt;em&gt;all&lt;/em&gt; assignments in the strict core.  How does one do that?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In case it's of any use, I'll describe the algorithm in the Shapley article.  Make a graph of people's top preferences and select &quot;top cycles&quot;, then delete the people who were in top cycles and do it again.  Repeat the process until everyone has occurred in a top cycle and every cycle represents a permutation of people and houses that will be in the strict core.  &lt;/p&gt;&#xA;" OwnerUserId="4138" LastEditorUserId="5368" LastEditDate="2015-08-09T06:39:27.313" LastActivityDate="2015-08-13T18:47:53.027" Title="How do you determine the strict core in a matching game?" Tags="&lt;game-theory&gt;&lt;cooperative-game-theory&gt;&lt;search-and-matching&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6837" PostTypeId="2" ParentId="5335" CreationDate="2015-08-09T03:07:54.880" Score="-2" Body="&lt;p&gt;Before answering this question please take in mind the following&lt;/p&gt;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Borrowing and lending is achieved by selling and buying bonds respectively. Lending is demonstrated by a demand curve while borrowing is demonstrated by supply curve&lt;/li&gt;&#xA;&lt;li&gt;Bond prices have negative relation with interest rates.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/FvAgO.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/FvAgO.png&quot; alt=&quot;Graph showing Supply (S) and Demand (D) bond market curves&quot; /&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&lt;p&gt;A government spending cut and a decrease in government borrowing as a result of favorable decrease in budget deficit will shift the supply curve of bond markets to the left leading to higher bond prices and lower interest rates.&lt;/p&gt;&#xA;&lt;p&gt;Crowding out occurs when government borrowing is raising interest rates by issuing  new bonds to finance its deficits and shifting the supply curve of bond market to the right. A decrease in government spending and borrowing will decrease interest rates. This will encourage corporation to borrow and participate in the bonds market.&lt;/p&gt;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/KwBkI.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/KwBkI.png&quot; alt=&quot;enter image description here&quot; /&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&lt;p&gt;For more information about the fundamentals of bonds market as well as factors shifing supply and demand for bonds please visit &lt;a href=&quot;http://www.oswego.edu/%7Eedunne/340ch6part2.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.oswego.edu/~edunne/340ch6part2.htm&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="5048" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2015-08-09T03:07:54.880" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6838" PostTypeId="2" ParentId="6835" CreationDate="2015-08-09T03:23:33.593" Score="17" Body="&lt;p&gt;The reason that lenders dislike early repayments (known as &quot;prepayments&quot; or &quot;voluntary prepayments&quot;) is that most lenders match their assets— the loans they've made to others— with liabilities of their own. This can lead to lenders facing significant interest rate risk. This is important to understand— while default risk is certainly significant, interest rate risk can be very large as well, sometimes greater than default risk.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider: a lender loans you money at 6.5% for 30 years to take out a mortgage, and funds this by issuing debt in the secondary market for 10 years at 4%. A recession comes along, the Fed drastically cuts interest rates, and the prevailing interest rate for mortgages drops to 3.5%. You repay your mortgage early by taking out a loan from another lender at 3.5%, and now the original lender has the principal back, but cannot reinvest it at a rate high enough to repay its own interest rate expense. If this happens on a broad enough scale, the lender is now bankrupt, with all that entails. That is why they don't like it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With regard to prepayment penalties— the option to prepay debt is what is known as a &lt;a href=&quot;https://en.wikipedia.org/wiki/Call_option&quot;&gt;call option&lt;/a&gt;, and it's often quite valuable. Prepayment penalties are simply a way for lenders to be compensated for the exercise of that option.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The specific case that you're talking about sounds an awful lot like the way that some credit card lenders feel about consumers who take out loans at low (often zero) &quot;teaser&quot; rates and refinance them before they ever have to pay anything to the lender, which bears its own interest expense in the meantime. That's probably best regarded as a strategy by consumers that takes advantage of lenders who are hoping that the consumers will not repay the debt in time. This hope on the part of lenders can sometimes cross the line into predatory behavior (see, for example, the discussion of teaser rates on mortgages in the &lt;a href=&quot;http://fcic.law.stanford.edu/report&quot;&gt;Financial Crisis Inquiry Commission&lt;/a&gt; report), so the fact that the borrowers and lenders in such a situation aren't particularly fond of one another comes as little surprise.&lt;/p&gt;&#xA;" OwnerUserId="264" LastActivityDate="2015-08-09T03:23:33.593" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="6839" PostTypeId="2" ParentId="6836" CreationDate="2015-08-09T04:02:43.327" Score="6" Body="&lt;p&gt;When preferences are strict, the strong core is unique and the top-trading cycle procedure (TTCP) is the unique mechanism yielding the strong core allocation. Here are the highlights.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Lemma 1&lt;/strong&gt;: Let $x$ be the allocation generated by the Top-Trading Cycle Procedure. Then $x$ is in the strong core. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Lemma 2&lt;/strong&gt;: Let $P$ be the set of players, $\Omega = \{ \omega^{i} = i : i \in P \}$ be the set of initial allocations, and $\succ^{i}$ be the set of strict preferences. We have $(P, \Omega, (\succ^{i})_{i=1}^{|P|})$ as the instance of the house allocation problem. The strong core is unique.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Proof&lt;/strong&gt;: Suppose to the contrary that there exist two allocations $x, y$ in the strong core and suppose $x$ is the allocation returned by the TTCP. As $x \neq y$, $S = \{ i : x_{i} \neq y_{i} \}$ has at least two elements. Observe that if there is a player $i \in S$ such that $x_{i} \succ^{i} y_{i}$, then $x_{i}$ can form a weakly improving coalition with the other players in $x_{i}$'s cycle whose allocations are the same in $x$ and $y$. As preferences are strict, every player in $S$ strictly prefers either $x$ or $y$. We construct a weakly improving coalition to block $y$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $i \in S$ such that $y_{i} \succ^{i} x_{i}$. Let $i$ be matched in iteration $k$ of the TTCP. Since $y_{i} \succ^{i} x_{i}$, we have that player $i$ prefers some other house $j$ to $x_{i}$ and that $j$ was assigned in a previous iteration by the fact that $x$ belongs to the strong core. And so using the allocation $y$ displaces the player who received house $j$ under the TTCP. As preferences are strict, each player who received a house when $j$ was allocated under the TTCP can form a weakly improving coalition to block $y$. And so the fact that $S \neq \emptyset$ implies that $y$ is not in the strong core. QED.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I actually have a blog entry going into more detail about this: &lt;a href=&quot;https://michaellevet.wordpress.com/2015/06/01/algorithmic-game-theory-house-allocation-problem/&quot; rel=&quot;nofollow&quot;&gt;https://michaellevet.wordpress.com/2015/06/01/algorithmic-game-theory-house-allocation-problem/&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="5368" LastEditorUserId="5368" LastEditDate="2015-08-13T18:47:53.027" LastActivityDate="2015-08-13T18:47:53.027" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6840" PostTypeId="1" AcceptedAnswerId="6869" CreationDate="2015-08-09T04:56:29.887" Score="0" ViewCount="164" Body="&lt;p&gt;For example they always invest every available wealth they have (or they burn money for cooking or dump money into the sea to make artificial islands)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In some sense that money is not returned to the economic system.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words what are the effects besides the money supply decreasing?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am asking this to satisfy my curiosity. &lt;/p&gt;&#xA;" OwnerUserId="95" LastEditorUserId="1601" LastEditDate="2015-08-09T05:58:51.117" LastActivityDate="2015-08-13T13:04:16.343" Title="If billionaires stopped spending what would the economic effect be?" Tags="&lt;macroeconomics&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6841" PostTypeId="2" ParentId="6835" CreationDate="2015-08-09T10:00:43.090" Score="6" Body="&lt;p&gt;The fundamental reason, beyond any details about shifting interest rates, is that lenders &lt;em&gt;are in the business of lending money&lt;/em&gt;. If you pay off the loan early, then they're doing less business. If you pay off part of the loan, you're paying less interest, which means they have to go out and find another source of income to replace you.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Extreme case, suppose you pay off the full loan the very first day, and they don't charge any fees, it's as if they never made a loan at all. They could have stayed in bed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The thought of getting out of bed for nothing makes them so angry (I exaggerate) that they may well charge fees for early repayments and/or setting up the loan in the first place, to ensure that (aside from being paid for their capital) they still get paid for their time. You can think of early repayment fees as making up for any part of the cost of their time that they rolled into the interest rate, although that's not all there is to it. Addressing your specific points:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The lender gets their principal back ahead of schedule&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So &lt;em&gt;if&lt;/em&gt; they can find another customer, they can get back to where they started before you made the early payment. That's not an advantage, that's an opportunity to break even.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;the amount at risk in the event of a default is reduced [and] the risk of default is reduced&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;If they wanted to avoid risk then they could not lend money to you in the first place. They made the loan because they think the interest rate in return for the risk is a good deal. You're ending something they thought was a good deal for them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lenders do like people who've demonstrated that they can pay off loans, but mainly because it proves that they might be able to take bigger loans in future and generate more income for the lender. What lenders really want, above all else, is the interest[*]. And who they like, most of all, is people who borrow money from them and make the payments. If you pay off early, you're not that person any more.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, why do they even let you make early payments? Firstly because in many cases the law says so, and secondly because they have to offer customers enough flexibility that they'll actually take the deal.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is all in general, of course. There might be specific circumstances where a lender does have a liquidity problem and does want to solve it (in part) by taking as many early repayments as they can. But that's akin to a retailer solving a short-term problem by closing stores: if the solution to your problem is &quot;do less business&quot; then things are pretty bad.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Speaking of the market in general rather than retail lending in particular, there are loans that can't be repaid early under the terms that banks might offer for personal loans. For example, a government acting as a borrower can buy back its bonds on the market, but the terms of the bond don't (usually?) allow it to just &quot;pay off the loan early&quot; by requiring the bold holders (lenders) to give them back in return for the bond's face value. They have to pay the market price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;[*] For a while they used to like above all else the ability to trade and use as capital reserve, obscure derivatives of the loans, for prices and ratings that amounted to a wild-ass-guess and therefore in many cases were way too high ;-) That became suddenly less respectable in 2008.&lt;/p&gt;&#xA;" OwnerUserId="338" LastEditorUserId="338" LastEditDate="2015-08-09T10:45:58.757" LastActivityDate="2015-08-09T10:45:58.757" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6843" PostTypeId="1" CreationDate="2015-08-09T12:24:56.550" Score="3" ViewCount="87" Body="&lt;p&gt;Why would a sovereign state choose an exchange rate peg over the demonetization of the local currency, replaced by hard currency?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the case of the West and Central African CFA Francs, France has an obligation to support the peg to the Euro. Would it not be more advantageous for both parties to facilitate the distribution of Euros throughout the CFA Franc area instead?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Considering Ecuador's and Zimbabwe's experiences, it would appear demonetization is the end result of very dramatic currency crises and never really a choice. But it seems to have all the advantages of a peg (stability, trade facilitation, etc) without any of the disadvantages (currency speculators, need to maintain reserves, etc).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What am I missing here?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;EDIT&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Economy_of_Ecuador#Economy_1998.E2.80.932006&quot; rel=&quot;nofollow&quot;&gt;A brief description&lt;/a&gt; from Wikipedia of the conditions in Ecuador leading up to the official adoption of the USD in 2000. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And for Zimbabwe, &lt;a href=&quot;http://www.bbc.com/news/world-africa-33105400&quot; rel=&quot;nofollow&quot;&gt;an article&lt;/a&gt; from the BBC describing the well-known hyperinflation the country suffered through before abandoning it's currency.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are a few more links I wanted to include, but unfortunately my rep is too low.&lt;/p&gt;&#xA;" OwnerUserId="5399" LastEditorUserId="5399" LastEditDate="2015-08-09T15:43:10.640" LastActivityDate="2015-08-09T15:43:10.640" Title="Currency Peg or Currency Substitution/Dollarize?" Tags="&lt;monetary-policy&gt;&lt;exchange-rates&gt;&lt;currency-peg&gt;" AnswerCount="0" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="6844" PostTypeId="1" CreationDate="2015-08-09T13:02:49.880" Score="2" ViewCount="45" Body="&lt;p&gt;A few years ago in the US, everyone who filed taxes received a check for $1000. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If this method of inflation was logistically more feasible, how could this be used in monetary policy, and what existing monetary controls would it affect?&lt;/p&gt;&#xA;" OwnerUserId="5396" LastActivityDate="2015-08-09T16:55:48.607" Title="How could monetary policy be affected if cash &quot;gifts&quot; to consumers were more frequently used?" Tags="&lt;monetary-policy&gt;&lt;inflation&gt;&lt;money-supply&gt;&lt;fiscal-policy&gt;&lt;federal-reserve&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6845" PostTypeId="2" ParentId="6260" CreationDate="2015-08-09T13:27:04.140" Score="2" Body="&lt;p&gt;Another option is &quot;&lt;a href=&quot;http://press.princeton.edu/titles/8538.html&quot; rel=&quot;nofollow&quot;&gt;Connections&lt;/a&gt;&quot; by Sanjeev Goyal. It is more concise that Jackson's book (suggested by Martin Van der Linden), but also denser and, I therefore think, slightly less helpful when starting out with network models. But both are great books.&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2015-08-10T20:30:53.367" LastActivityDate="2015-08-10T20:30:53.367" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6846" PostTypeId="2" ParentId="6844" CreationDate="2015-08-09T13:48:08.883" Score="1" Body="&lt;p&gt;This is only inflationary if the monetary authority monetizes the borrowing. If the Treasury borrows $1000 on the open market by issuing a bond and sends the money to a consumer, no money has been created— it has simply been borrowed from one person and given to another. However, if the monetary authority purchases that bond (swapping base money for the bond), then it is indeed inflationary, as the amount of money now in circulation has increased. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As far as its role in monetary policy— the decision of whether to monetize fiscal authority borrowing is part of standard monetary policy. The phrase you'll often hear is, &quot;the monetary authority moves last,&quot; which reflects the fact that the monetary authority can either accommodate spending by monetizing it, increasing inflation, or do nothing, which has the effect of increasing interest rates on government borrowing. &lt;/p&gt;&#xA;" OwnerUserId="264" LastEditorUserId="264" LastEditDate="2015-08-09T16:55:48.607" LastActivityDate="2015-08-09T16:55:48.607" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="6847" PostTypeId="1" CreationDate="2015-08-09T16:58:45.860" Score="3" ViewCount="473" Body="&lt;p&gt;We hear a lot about how the economy changed under a certain president, but how much does the incumbent actually affect the economy? Are the fluctuations we see in economic growth due to natural market fluctuations or can they be attributed to policy changes?&lt;/p&gt;&#xA;" OwnerUserId="5402" LastActivityDate="2015-08-11T10:55:38.687" Title="How much influence does the president really have on US economy?" Tags="&lt;fiscal-policy&gt;&lt;usa&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6850" PostTypeId="2" ParentId="6835" CreationDate="2015-08-10T07:22:57.380" Score="-2" Body="&lt;p&gt;A regular payer is a valuable customer for a bank. Banks can and do pay an introduction fee to third parties (such as Home Improvement companies) to generate new business. If that business terminates early, they have effectively wasted the commission and some of their staff salaries. Back when I bought my first house, interest rates were above 10%. If a customer takes out a mortgage over 25 years they will end up paying 3 times the value of the house before they have finished. Similar egregious deals apply to vehicle finance, except frequently the interest rate is higher and, at the end of the deal, the vehicle is all but worthless.&lt;/p&gt;&#xA;" OwnerUserId="5412" LastActivityDate="2015-08-10T07:22:57.380" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6851" PostTypeId="1" CreationDate="2015-08-10T09:59:28.053" Score="4" ViewCount="83" Body="&lt;p&gt;What happens to undated government stocks (debt— known as &quot;bonds&quot; in the US) which pay a coupon and have an embedded call option, when interest rates dip below the coupon rate? Will the market value of the bond exceed its par value, or is the risk that the bond will be redeemed at any time liable to depress the price?&lt;/p&gt;&#xA;" OwnerUserId="5412" LastEditorUserId="264" LastEditDate="2015-08-15T16:19:15.133" LastActivityDate="2015-08-16T01:47:29.857" Title="What happens to undated government stocks when interest rates dip below the coupon rate?" Tags="&lt;government-debt&gt;&lt;bonds&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6852" PostTypeId="1" AcceptedAnswerId="6853" CreationDate="2015-08-10T10:19:33.420" Score="7" ViewCount="1205" Body="&lt;p&gt;We often see news that some company destroys items they couldn't &lt;a href=&quot;http://www.huffingtonpost.com/2010/01/06/hm-wal-mart-destroy-unsol_n_413234.html&quot;&gt;sell&lt;/a&gt; in time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also we can see &lt;a href=&quot;http://www.theatlantic.com/health/archive/2012/01/second-life-what-happens-to-old-and-expired-supermarket-products/251052/&quot;&gt;news of supermarkets destroying food&lt;/a&gt; just because it's not fresh although it's perfectly edible. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If someone destroy goods, he would get $0 for it or even need pay for the disposal. How can this act be profitable for a company? &lt;/p&gt;&#xA;" OwnerUserId="4150" LastEditorUserId="69" LastEditDate="2015-08-10T12:59:25.303" LastActivityDate="2015-08-11T14:31:27.430" Title="Can destruction be profitable?" Tags="&lt;industrial-organisation&gt;&lt;monopoly&gt;&lt;profit-maximization&gt;" AnswerCount="4" CommentCount="6" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6853" PostTypeId="2" ParentId="6852" CreationDate="2015-08-10T12:56:57.600" Score="9" Body="&lt;p&gt;It can be profitable for the monopolist to do so. For the conventional producer who is a price taker the profit objective function looks like this:&#xA;$$\max_{q} \Pi^c $$&#xA;where $\Pi^c = P \cdot q - C(q)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That is, they seek to maximize profits, facing an exogenous price to sell goods and where costs are a function of amount produced. If everything is nice and differentiable and concave this gives a first order maximizing condition of:&#xA;$$ 0 = \frac{\partial\Pi^c}{\partial q} = P - \frac{\partial C(q)}{\partial q} \rightarrow q = g(P) $$  where $g(P)$ is the inverse of function $\frac{\partial C(q)}{\partial q}$ (increase q from zero until marginal cost equals the price).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But for a monopolist $\Pi^m = P(q) \cdot q - C(q)$. That is, the monopolist is not a price taker, they know that when they produce more prices will fall. Resulting FOC:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ 0 = \frac{\partial\Pi^m}{\partial q} = P(q)+q(\frac{\partial P(q)}{\partial q}) - \frac{\partial C(q)}{\partial q}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a result, a monopolist in this setting will not want to sell where price equals marginal cost but rather a higher price than marginal cost:&#xA; $$ \frac{\partial C(q)}{\partial q} - q(\frac{\partial P(q)}{\partial q})= P(q) $$&#xA;Recall: $- q(\frac{\partial P(q)}{\partial q}) &amp;gt; 0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Indeed, it is this selling of goods above their marginal cost that is the source of the monopolist's monopoly rents. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now back to the question itself which asks about when &quot;company destroys items they couldn't sell in time.&quot; We can think of inventory as a good with low or zero marginal cost, so yes, by the argument above, it can be profit maximizing to not sell goods with a price above costs as long as it lowers the profits on the other goods you sell enough to offset the additional revenue. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Other forces are likely at play as well. Stores often worry about their brand value and low quality, low price, goods may harm their relationship with their customers. Many people shop at stores specifically for the high quality goods and others at different stores for low prices and it may be too costly to move spoiling goods from one venue to the other and cheaper just to toss it. We can also think of &lt;a href=&quot;https://en.wikipedia.org/wiki/The_Muffin_Tops&quot; rel=&quot;nofollow&quot;&gt;the muffin stumps of the TV show Seinfeld&lt;/a&gt; as an example of this high transaction costs / missing markets problem.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;That said, there are sometimes innovative alternative methods of disposal:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Rotisserie chickens have been around for a while. I used to bypass&#xA;  them and roast my own, until I noticed something: The rotisserie&#xA;  chickens were actually cheaper than buying and roasting my own.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Cat Vasko noticed the same thing and decided to figure out why. The&#xA;  answer makes a surprising amount of sense: Grocery stores make them&#xA;  out of unsold chicken that is about to pass its expiration date. It's&#xA;  an elegant way to make a profit out of food that would otherwise be a&#xA;  net loss. And it's not just chicken -- according to Vasko, the&#xA;  ever-expanding prepared-foods section of the supermarket uses up all&#xA;  sorts of unsold produce and meat. It is, as she says, a bit like&#xA;  hunter-gatherers using every inch of the animal.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.bloombergview.com/articles/2014-07-24/everyone-wins-when-you-buy-a-rotisserie-chicken&quot; rel=&quot;nofollow&quot;&gt;Everyone Wins When You Buy a Rotisserie Chicken&lt;/a&gt; &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-08-11T14:31:27.430" LastActivityDate="2015-08-11T14:31:27.430" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6854" PostTypeId="2" ParentId="6852" CreationDate="2015-08-10T13:07:51.040" Score="3" Body="&lt;p&gt;In addition to BKay's answer, selling expired food opens a firm to suit.  This occurs either via breach of an implied warranty (that the food is fit for consumption) or, in many jurisdictions, strict tort.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;While grocers do carry products liability insurance, the policies require that stores adopt certain standards of practice.  It should make sense that refrigeration practices, expiration management, quality control, and the like feature heavily.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This enters a profit function through increasing costs.  Specifically, the expected payouts line will increase either by upping the average liability payout (in a simple cash flow approach) or modifying the shape of the distribution of payouts (in a theory context).&lt;/p&gt;&#xA;" OwnerUserId="4961" LastEditorUserId="4961" LastEditDate="2015-08-10T13:23:44.727" LastActivityDate="2015-08-10T13:23:44.727" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6855" PostTypeId="1" CreationDate="2015-08-10T14:55:28.137" Score="4" ViewCount="171" Body="&lt;p&gt;Let's say I have a regression of the form: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$y_j=a_0+a_1*T_j+a_2*X_j+u_j$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $j$ stands for county, and $y$ and $X$ are averages over worker outcomes/characteristics for each county, and $T$ is a continuous treatment variable that varies at county level. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;When estimating in Stata I was suggested to use &quot;aweight&quot; option, where analytical weights are derived from county population. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Question: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now I want to include county population as a control variable. Wouldn't this cause a problem as I am already using county population for weights? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks! &lt;/p&gt;&#xA;" OwnerUserId="5331" LastEditorUserId="5331" LastEditDate="2015-08-10T19:16:03.190" LastActivityDate="2015-08-10T19:16:03.190" Title="Econometrics: Weights in regression that contains averages" Tags="&lt;econometrics&gt;&lt;stata&gt;" AnswerCount="0" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6856" PostTypeId="1" CreationDate="2015-08-10T17:42:42.657" Score="2" ViewCount="32" Body="&lt;p&gt;I want to get the raw number of units of housing stock that there is in a particular city in month $X$ of year $Y$ (even yearly data would be fine). &lt;a href=&quot;http://factfinder.census.gov/faces/tableservices/jsf/pages/productview.xhtml?src=bkmk&quot; rel=&quot;nofollow&quot;&gt;This place&lt;/a&gt; shows yearly stock from 2010 onwards. &lt;a href=&quot;https://www.census.gov/hhes/www/housing/census/historic/units.html&quot; rel=&quot;nofollow&quot;&gt;Here&lt;/a&gt; shows data for every 10 years. This &lt;a href=&quot;http://www.washingtoncitypaper.com/blogs/housingcomplex/2014/10/24/d-c-s-housing-stock-in-charts/&quot; rel=&quot;nofollow&quot;&gt;link&lt;/a&gt; makes me think there should be more yearly data since this has 2013 data.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there anywhere I can find a more comprehensive data set?&lt;/p&gt;&#xA;" OwnerUserId="5415" LastEditorUserId="69" LastEditDate="2015-08-10T18:08:15.827" LastActivityDate="2015-08-10T20:45:02.570" Title="Data Request: Raw housing stock of particular city" Tags="&lt;data-request&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6857" PostTypeId="2" ParentId="6847" CreationDate="2015-08-10T17:59:33.047" Score="3" Body="&lt;p&gt;Here is one paper that may be of interest:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Analyses of the effects of election outcomes on the economy have been&#xA;  hampered by the problem that economic outcomes also influence&#xA;  elections. We sidestep these problems by analyzing movements in&#xA;  economic indicators caused by clearly exogenous changes in&#xA;  expectations about the likely winner during Election Day. Analyzing&#xA;  high frequency financial fluctuations following the release of flawed&#xA;  exit poll data on Election Day 2004, and then during the vote count,&#xA;  we find that markets anticipated higher equity prices, interest rates&#xA;  and oil prices and a stronger dollar under a Bush presidency than&#xA;  under Kerry. A similar Republican-Democrat differential was also&#xA;  observed for the 2000 Bush-Gore contest. Prediction market based&#xA;  analyses of all Presidential elections since 1880 also reveal a&#xA;  similar pattern of partisan impacts, suggesting that electing a&#xA;  Republican President raises equity valuations by 2-3 percent, and that&#xA;  since Reagan, Republican Presidents have tended to raise bond yields.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Partisan Impacts on the Economy: Evidence from Prediction Markets and Close Elections &lt;a href=&quot;http://www.nber.org/papers/w12073&quot; rel=&quot;nofollow&quot;&gt;Snowberg, Wolfers, and Zitzewitz (2006)&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This might give some indication of an upper bound on these effects since only some of the increase in stock market wealth is from an increase in aggregate wealth. The rest comes from a change in transfers and so not really an effect on the economy. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here's a similar paper from Germany:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Rational partisan theory suggests that firms perform better under&#xA;  right- than left-leaning governments. In the pre-election time,&#xA;  investors should anticipate these effects of government partisanship.&#xA;  This is the first study to investigate such anticipated partisan&#xA;  effects in Germany. Applying conditional volatility models we analyze&#xA;  the impact of expected government partisanship on stock market&#xA;  performance in the 2002 German federal election. Our results show that&#xA;  small-firm stock returns were positively (negatively) linked to the&#xA;  probability of a right- (left-) leaning coalition winning the&#xA;  election. Moreover, we find that volatility increased as the electoral&#xA;  prospects of right-leaning parties improved, while greater electoral&#xA;  uncertainty had a volatility-reducing effect.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Partisan politics and stock market performance: The effect of expected government partisanship on stock returns in the 2002 German federal election   (&lt;a href=&quot;http://link.springer.com/article/10.1007/s11127-007-9250-1&quot; rel=&quot;nofollow&quot;&gt;Füss, Bechtel (2002)&lt;/a&gt;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It also depends on the baseline way of measuring impact. A really terrible president might be able to wreck serious damage on the economy while the other branches and electorate would take time to undo that damage and remove him. Should presidential performance be measured against the very worst that an incompetent or malicious person could deliver? Or are they best compared with other likely serious contenders? These papers above are much more measures of the latter than the former. &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-08-11T10:55:38.687" LastActivityDate="2015-08-11T10:55:38.687" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6858" PostTypeId="2" ParentId="6852" CreationDate="2015-08-10T18:43:29.150" Score="6" Body="&lt;h2&gt;Cannibalization&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Assuming that the [near] expired goods cannot be sold at full cost anymore, offering them for sale at a significant discount (instead of destroying them) will compete with your own offer of full-priced goods that presumably have much higher margins.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is pretty much the definition of &lt;a href=&quot;https://en.wikipedia.org/wiki/Cannibalization_(marketing)&quot;&gt;https://en.wikipedia.org/wiki/Cannibalization_(marketing)&lt;/a&gt; which is something that producers have good reason to avoid.&lt;/p&gt;&#xA;" OwnerUserId="4145" LastActivityDate="2015-08-10T18:43:29.150" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6859" PostTypeId="1" AcceptedAnswerId="6867" CreationDate="2015-08-10T19:15:28.237" Score="0" ViewCount="453" Body="&lt;p&gt;When a company issues new shares in order to raise it's capital, can it sell those shares on the stock market? Or they have to be sold outside of the stock market?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I mean in general, rules can differ from one country to another.&lt;/p&gt;&#xA;" OwnerUserId="5161" LastEditorUserId="5161" LastEditDate="2015-08-10T19:54:07.953" LastActivityDate="2015-08-11T16:37:42.887" Title="Newly issued shares are sold on the stock market?" Tags="&lt;stock-market&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6860" PostTypeId="2" ParentId="6852" CreationDate="2015-08-10T19:39:31.853" Score="3" Body="&lt;p&gt;Simple answer: It cost companies money to do any, even doing nothing. The immediate issues with selling out of date food in most jurisdictions would be:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Do nothing (stockpile non-perishable.)&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Goods are assets of the company and affect internal and external accounting, especially accounting of value of publicly traded companies. &lt;/li&gt;&#xA;&lt;li&gt;Goods as assets are likely still assessed a value which the company will have to pay taxes, insurances and regulatory compliance.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Give away or sell at loss:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Will likely reduce demand for future sales to some degree as noted in other answers. &lt;/li&gt;&#xA;&lt;li&gt;In case of perishables like food, could expose company to liability risk (I worked with some charities years back for the homeless and many food distributors simply couldn't donate surplus food because they are liable, in Texas, USA, for the quality and safety of all food that passes through their system to anyone for any reason.)&lt;/li&gt;&#xA;&lt;li&gt;Bad PR is also an issue, either when some one gets sick or simply that the managers misjudged demand so badly.&lt;/li&gt;&#xA;&lt;li&gt;Without a market to set prices for the goods, the fiduciary officers will find it hard to defend any price they set for the items either to stock holder or regulators. They could be personally sued for giving away assets of the company or face criminal action for stealing from the company's stockowners or taking action that manipulates the stock price.E.g. How would Sarbanes–Oxley in the US treat giving company assets away?&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Back before detailed regulation and stockowner law suits on a hair trigger, officers of companies public and privately-held, large and small, had a little more flexibility in such matters but gradually they have lost almost all discretion. Most regulation today operates under the &quot;everything not allowed is forbidden,&quot; model so if the regulators did not anticipate a need for an action, an officer takes the action at his/her personal risk. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Marketwise, there is an interesting analog in the petroleum industry. It's prohibitively expensive to store large amounts of oil, destroying it is economically impossible and today, way to costly in environmental regulations and only a few oil fields have the geology that allows oil to be returned to the ground.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The vast majority of the oil pumped out the ground will be sent through the whole system and end up as an end product 90-120 days at most after it leaves the ground. This lag time causes a significant market inefficiency in petroleum, because &quot;Lifters&quot; those who pump the oil out of the ground can only guess what the demand will be 'X' number of days outward. The oil will be sold period, at some price.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If collectively, the lifters pump to much, the price at the consumer end drop precipitately, but if they pump to little, a spike occurs. When oil prices suddenly plummet, you do see situations where companies are selling oil or oil products at a loss. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regulation aggravates the problem, particularly the switch over in refining from seasonal versions of products like gasoline as well as regional difference e.g. California, in versions that make the products none fungible between jurisdictions. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The violent oscillations in petroleum prices caused by this lag is one of the reason that petroleum producers from the late-1800s up the present day have such powerful incentives to form cartels and/or have governments regulate the overall oil supply e.g. Texas Railroad commission, OPEC.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's easy to see that any industry that operated under the conditions that whatever products they had in their channels would end up in consumer's hands eventually, regardless of supply, demand or finale cost, would end up as volatile as the oil industry. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For another example, one could argue that various &quot;agricultural supports&quot; of most nations are primarily devoted to preventing just such volatility. Farmers face the same problem, they plant in spring, harvest in fall, and then sell their crop for whatever the price might be. Perversely, the better the growing season, the more productive the farmers as a whole, the more likely they are to go broke. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In developed nations at least, vastly more amounts of food are destroyed or more often, farmers are paid to never grow it, than get wasted in the distribution system. Most governments believe it's better that food prices remain somewhat higher overall, within certain ranges, than food prices oscillate to much. &lt;/p&gt;&#xA;" OwnerUserId="5416" LastActivityDate="2015-08-10T19:39:31.853" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6862" PostTypeId="2" ParentId="6856" CreationDate="2015-08-10T20:45:02.570" Score="1" Body="&lt;p&gt;There really isn't high-frequency data out there for free, but bi-annual data are available from the Census &lt;a href=&quot;http://www.census.gov/programs-surveys/ahs/data.2013.html&quot; rel=&quot;nofollow&quot;&gt;American Housing Survey&lt;/a&gt;. The survey goes back to 1973, though data at the metropolitan area level don't go back that far. Also, the data are extrapolated from a sample, so caveats apply.&lt;/p&gt;&#xA;" OwnerUserId="264" LastActivityDate="2015-08-10T20:45:02.570" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6864" PostTypeId="1" CreationDate="2015-08-11T03:33:38.663" Score="2" ViewCount="307" Body="&lt;p&gt;I'm given a demand function ( $p = 60-.002q$), Marginal Cost (\$10) and Fixed Costs (\$300,000) for a monopoly. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've figured the profit maximizing output and price:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Marginal revenue function $MR = 60 -.004q$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$10 = 60-.004q$  # To find monopoly output.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$q = 12500 \implies$ Price of monopolist is $35$  #  $p = 60-.002(12500)$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, I usually figure out the economic profit by taking the area of the rectangle formed by the bounds of the demand function (at monopolist output) down and stopping where it meets the AC function, and then across to the y-intercept of the graph; but they didn't give me an average cost function. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;How can I figure out the economic profit? Please help and thanks for your time. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;P.S. Is there a way of finding what Average Cost is at output(12500) with the given information?&lt;/p&gt;&#xA;" OwnerUserId="5404" LastEditorUserId="5404" LastEditDate="2015-08-11T04:06:44.527" LastActivityDate="2019-12-25T19:46:15.023" Title="Help trying to find Economic Profit for a Monopoly" Tags="&lt;microeconomics&gt;&lt;monopoly&gt;" AnswerCount="2" CommentCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="6865" PostTypeId="2" ParentId="6864" CreationDate="2015-08-11T04:11:21.017" Score="2" Body="&lt;p&gt;Profit is revenue minus costs. So we have $q = 12500$ and $p = 35$. (Note that I'm assuming you've correctly figured this out.) Then we have revenue:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$R = \int_{0}^{12500} MR dq = \int_{0}^{12500} (60 - 0.004q)dq$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And costs:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$C = 300000 + \int_{0}^{12500} 10dq = 300000 + 125000 = 425000$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The profit is $\Pi = R - C$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The average cost is $C/12500$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I leave you to crunch the integrals.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Edit&lt;/strong&gt;: In looking at your problem, $p(q) = 60 - 0.002q$ is definitely an inverse demand function. The revenue $R = qp(q) = (60q - 0.002q^{2})$ (quantity times prices). This yields the profit maximization problem (maximizing with respect to quantity produced):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\max_{q} qp(q) - c(q) = (60q - 0.004q^{2}) - 10q - 300000$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The First Order Conditions are:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$60 - 0.004q - 10 = 0 \implies 60 -0.004q = 10$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You did the work from there to solve for $q$.&lt;/p&gt;&#xA;" OwnerUserId="5368" LastEditorUserId="5368" LastEditDate="2015-08-11T04:21:46.820" LastActivityDate="2015-08-11T04:21:46.820" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6866" PostTypeId="1" AcceptedAnswerId="6880" CreationDate="2015-08-11T04:38:40.557" Score="4" ViewCount="153" Body="&lt;p&gt;How much of the Greece trade deficit reflects into it's public debt?&#xA;Each year, &lt;a href=&quot;http://countrystats.wikia.com/wiki/Greece_foreign_trade_%28OECD%29&quot; rel=&quot;nofollow&quot;&gt;Greece is importing about two times as much as it's exporting&lt;/a&gt;. In some years, even three times more. How much of that is converted into public debt?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assuming that the Greek citizens and companies are not sitting on large amounts of cash reserves to afford to spend double the money they make and they can't make such huge credits to cover such expenses (and that looks very much to be the case), the only way to cover that deficit that I can think of is this: The government doesn't have enough money to pay the people working in the public sector, then it borrows money from external creditors, making public debt, then it pays the wages of those workers, and then the workers buy imported goods and at the end of the year, Greece imports more than it exports. And then it's the public debt that supports/fuels that huge trade deficit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can't imagine another way of having trade deficit than having reserves or by making private or public debt. But maybe there are such ways and that's why I'm asking.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Later edit: I managed to squeeze another example out of my brains: The Greek ship owners (who don't pay taxes) make such huge profits that they can afford to import materials and technology that's worth 35 billion Euro each year, so they can build more ships for their business. They build the ships and they keep them, doing a lot of imports and no exports. But that works only if their shipping services do not count as exports.&lt;/p&gt;&#xA;" OwnerUserId="5161" LastEditorUserId="264" LastEditDate="2015-08-12T20:04:12.247" LastActivityDate="2015-08-12T20:19:43.330" Title="How much of the Greece's public debt is created by its trade deficit?" Tags="&lt;debt&gt;&lt;international-trade&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6867" PostTypeId="2" ParentId="6859" CreationDate="2015-08-11T16:37:42.887" Score="2" Body="&lt;p&gt;A company will typically employ an investment bank to act as an underwriter when it wishes to issue new stock. The investment bank essentially agrees to buy the issued stocks from the issuing company and its job is then to sell them to investors.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Investment banks employ a sales force who try to persuade large investors (such as pension funds) to commit to buy the stocks before the date of issue. If the investment bank does a good job then all of the issued stocks will be allocated to a buyer in advance. If the investment bank fails to fails to find enough buyers then it is stuck with the unsold stock and must try to sell them to the public in the stock market.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2015-08-11T16:37:42.887" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6868" PostTypeId="1" CreationDate="2015-08-11T20:52:43.920" Score="0" ViewCount="70" Body="&lt;p&gt;The costs of running a university are $C = F + m_{1}*q_{1} + m_{1}*q_{1}^{2} + m_{2}*q_{2} + m_{2}*q_{2}^{2}$ where $ q_{1} $ is the number of students taking courses during the academic year and $q_{2}$ is the number of student taking summer courses. How large are the economies of scope that result from offering courses throughout the year, and how do they vary with the number of either type of students?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is a question in a old exam I am trying to understand, I have no solution or answer. I only know about this way for economical scope $\frac{ C(Q_{1}, 0) + C(0, Q_{2}) - C(Q_{1}, Q_{2}) }       {    C(Q_{1}, Q_{2})    } &amp;gt; 0$ , which I dont know if could be used for this question, or how to use it in this question.&lt;/p&gt;&#xA;" OwnerUserId="5417" LastEditorUserId="5417" LastEditDate="2015-08-12T16:01:07.097" LastActivityDate="2015-08-12T16:01:07.097" Title="Calculating economic scope" Tags="&lt;industrial-organisation&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6869" PostTypeId="2" ParentId="6840" CreationDate="2015-08-11T21:44:21.473" Score="2" Body="&lt;p&gt;If one person decides to reduce his lifetime consumption by (say) \$100, then someone else (or many someone else's) is made richer by \$100.  For example, that $100 might be left to a single heir.  Or at the other extreme, the person might decide to burn a \$100 bill in which case the benefits are spread to everyone who holds money.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;When people are richer, they can decide to consume more, or to work less, or some of each.  Because income elasticities of labor supply are empirically quite small, you'd expect most of this to come out in increased consumption.&lt;/p&gt;&#xA;" OwnerUserId="250" LastActivityDate="2015-08-11T21:44:21.473" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6872" PostTypeId="1" CreationDate="2015-08-12T00:58:54.683" Score="2" ViewCount="480" Body="&lt;p&gt;I am learning basic Oligopoly models.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know that :&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;In Cournot model firms set output - output is the strategic variable.   &lt;/li&gt;&#xA;&lt;li&gt;In Bertrand model firms set prices - price is the strategic variable.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Simple problems I see are usually given demand/cost fucntion for a differentiated duopoly and let us determine the Bertrand or Cournot equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here however is a mixed market: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume the following duopoly (firms are denoted by 1 and 2) with the following demand functions: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$P_1=100-0.5Q_1-0.4Q_2 \\ &#xA;P_2=100-0.5Q_2-0.4Q_1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Firm 1 plays Cournot while firm 2 plays Bertrand. Assuming that there are no costs, find the optimal Nash quantity-price solution.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How can I solve for the equilibrium?&lt;/p&gt;&#xA;" OwnerUserId="5421" LastEditorUserId="43" LastEditDate="2015-08-12T07:39:34.110" LastActivityDate="2018-12-28T05:36:26.667" Title="Mixed Cournot/Bertrand Duopoly" Tags="&lt;industrial-organisation&gt;&lt;oligopoly&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="2" ClosedDate="2018-12-30T01:54:10.217" ContentLicense="CC BY-SA 3.0" />
  <row Id="6873" PostTypeId="2" ParentId="6872" CreationDate="2015-08-12T05:40:45.360" Score="1" Body="&lt;p&gt;Each player seeks to maximize his or her revenue. As you said, in the Cournot model, the player varies the output. In the Bertrand model, the player varies the price. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So we first solve for $Q_{2}$ as a function of $P_{2}$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Q_{2} = 200 - 2P_{2} - 0.8Q_{1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We then substitute $Q_{2}$ into $P_{1}$ to get:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$P_{1} = 100 - 0.5Q_{1} - 0.4 (200 - 2P_{2} - 0.8Q_{1}) = 50 - 0.18Q_{1} + 0.8P_{2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Player $1$'s maximization problem is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\max_{Q_{1}} 50Q_{1} - 0.18Q_{1}^{2} + 0.8P_{2}Q_{1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which yields the first order conditions:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$0.36Q_{1} = 50 + 0.8P_{2} \implies Q_{1}^{*} = \frac{1250}{9} + \frac{20}{9}P_{2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now we can substitute $Q_{1}^{*}$ into $Q_{2}$ to get:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Q_{2} = 200 - 2P_{2} - \frac{4}{5}(\frac{1250}{9} + \frac{20}{9}P_{2})$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now maximize $Q_{2}$ with respect to $P_{2}$. Can you take it from here?&lt;/p&gt;&#xA;" OwnerUserId="5368" LastActivityDate="2015-08-12T05:40:45.360" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6875" PostTypeId="1" AcceptedAnswerId="6883" CreationDate="2015-08-12T12:13:31.400" Score="11" ViewCount="28879" Body="&lt;p&gt;I recently read an article in the New York Times that talked about China devaluing its currency (which I believe is held to a peg against the US Dollar). My question is: specifically what tools does a central bank of a country employ to devalue its currency artificially and what effects does it have on its foreign trade?&lt;/p&gt;&#xA;" OwnerUserId="5125" LastEditorUserId="264" LastEditDate="2015-08-12T14:09:28.943" LastActivityDate="2020-03-20T00:52:16.740" Title="How does a country devalue its currency?" Tags="&lt;currency&gt;&lt;exchange-rates&gt;&lt;international-trade&gt;" AnswerCount="5" CommentCount="0" FavoriteCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="6876" PostTypeId="2" ParentId="6411" CreationDate="2015-08-12T14:08:22.933" Score="4" Body="&lt;p&gt;The National Income and Product Accounts (NIPA) are used to calculate GDP. The Bureau of Economic Analysis (BEA) prepares methodology papers discussing how they calculate various contributions to the NIPA. They happen to have one on software for business software and this paper should be of use:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;This section describes the methodologies used to prepare (1) annual&#xA;  estimates of business and government purchases of software&#xA;  (prepackaged and custom), (2) annual estimates of own-account&#xA;  production of software, and (3) price indexes that are needed to&#xA;  prepare the real estimates of capitalized software. The description is&#xA;  limited to the period beginning with 1992.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Estimation of Software in the U.S. National Accounts: New Developments (&lt;a href=&quot;https://www.bea.gov/papers/pdf/USSoftware.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Moylan (2003)&lt;/a&gt;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &lt;a href=&quot;http://www.bea.gov/national/pdf/chapter5.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;methodology for household consumption of software is in the personal consumption expenditures document&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Open-source software is a non-market transaction and not in GDP directly though it may boost the value of goods (like computers) and services (like consulting):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;But by the 1950s, critics of GDP as a metric were emerging, critics&#xA;  such as the economist Moses Abramovitz. Indeed, Kuznets himself had&#xA;  written that ‘the welfare of a nation can scarcely he inferred from a&#xA;  measure of national income. One criticism of the use of GDP focuses on&#xA;  the effectiveness of GDP as an economic measure per se. As a number of&#xA;  critics have pointed out, GDP can he considered flawed. It does not,&#xA;  for example, measure volunteer or non-market transactions. These types&#xA;  of transactions are both numerous and wide ranging and can cover&#xA;  anything from the care of sick relatives to the creation of&#xA;  open-source software. Furthermore, GDP is either a sum total or per&#xA;  capita measure. As such, it does not reveal the distributions of&#xA;  wealth behind the per capita figure. Indeed, the GOP per capita&#xA;  figures may hide important and potentially divisive wealth&#xA;  inequalities within a country.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Government for a new age: The transformation agenda by &lt;a href=&quot;https://rads.stackoverflow.com/amzn/click/com/B00X61P8CK&quot; rel=&quot;nofollow noreferrer&quot; rel=&quot;nofollow noreferrer&quot;&gt;Khoury and Abouchakra&lt;/a&gt; (p. 190)&lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2019-11-17T18:32:58.513" LastActivityDate="2019-11-17T18:32:58.513" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="6877" PostTypeId="1" AcceptedAnswerId="6897" CreationDate="2015-08-12T15:56:09.490" Score="2" ViewCount="14815" Body="&lt;p&gt;I encountered this phrase while reading up on growth models - that is to work with a function in intensive form. What does it mean when a function is in intensive form?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks!&lt;/p&gt;&#xA;" OwnerUserId="5427" LastEditorUserId="69" LastEditDate="2015-08-12T20:39:50.103" LastActivityDate="2015-08-14T03:07:56.170" Title="What does it mean by 'intensive form'?" Tags="&lt;macroeconomics&gt;&lt;economic-growth&gt;&lt;production-function&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6878" PostTypeId="1" CreationDate="2015-08-12T16:38:54.493" Score="1" ViewCount="65" Body="&lt;p&gt;A Greek ship owner transports mouse traps from Albania to Japan, making every year ten million Euro in revenue and one million Euro in profits.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The total value of the mouse traps he transports every year is one hundred million Euro. So Albania is exporting one hundred million Euro every year. The ship owner charges 10% of the value of the goods, making a revenue of 10 million Euro (Albanians are paying him that money for transporting the goods to Japan). After paying his expenses: fuel, food, ship repair, taxes, etc., he gets one million Euro in profits.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question is: does his revenue count as a Greek export? One can argue that Greece is exporting a transporting service so it should count as Greek export.&#xA;Also the revenue should count as Albanian imports since they pay an external company for the service.&lt;/p&gt;&#xA;" OwnerUserId="5161" LastEditorUserId="5161" LastEditDate="2015-08-13T01:47:22.157" LastActivityDate="2015-08-13T16:31:06.467" Title="International shipping services count as exports?" Tags="&lt;gdp&gt;&lt;international-trade&gt;&lt;national-accounts&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6879" PostTypeId="2" ParentId="6878" CreationDate="2015-08-12T18:20:53.683" Score="5" Body="&lt;p&gt;It's complicated, and it is supposed to depend on where the ships are generally operating from, rather than the country of the firm that owns the ships or the flag under which they are flown. Under the &lt;a href=&quot;https://unstats.un.org/unsd/nationalaccount/docs/SNA2008.pdf&quot; rel=&quot;nofollow&quot;&gt;2008 System of National Accounts&lt;/a&gt; (the international standard for calculating GDP), overseas shipping is generally to be allocated on the basis of the ports out of which the fleet is serviced. See 4.13, on page 62. The document to which it refers is the &lt;a href=&quot;https://www.imf.org/external/pubs/ft/bop/2007/bopman6.htm&quot; rel=&quot;nofollow&quot;&gt;Sixth Edition of the IMF's Balance of Payments and International Investment Position Manual&lt;/a&gt;. You'll want to look specifically at Chapter 4, 4.131-4.136.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So if we assume that the ship owner is actually operating out of Greece, in your example he would be considered to be exporting the service for which he is paid 10 million in revenue.&lt;/p&gt;&#xA;" OwnerUserId="264" LastEditorUserId="264" LastEditDate="2015-08-13T16:31:06.467" LastActivityDate="2015-08-13T16:31:06.467" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6880" PostTypeId="2" ParentId="6866" CreationDate="2015-08-12T18:50:23.020" Score="3" Body="&lt;p&gt;As an accounting identity, it is required that the current account surplus (deficit) +  capital account surplus (deficit) = 0. &lt;a href=&quot;https://en.wikipedia.org/wiki/Balance_of_payments&quot; rel=&quot;nofollow&quot;&gt;This is known as the balance of payments (BOP) identity &lt;/a&gt;. So if Greeks are importing more Euros worth of goods and services than they are exporting it must be that, consolidating across those outside of Greece, non-Greeks are buying more Euros worth of Greek assets than they are selling. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, this accounting identity says nothing about who in Greece is selling and who outside of Greece is buying. It need not be that the government is involved at all. If the Greek government borrows more than before the household sector might offset this greater borrowing more than one for one with greater savings (BOP decreases), exactly offset (no change in BOP), partially offset it (change in balance of payments less than increase in government spending), or also borrow (increases in BOP more than change in government spending). &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-08-12T20:19:43.330" LastActivityDate="2015-08-12T20:19:43.330" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6883" PostTypeId="2" ParentId="6875" CreationDate="2015-08-12T19:28:56.300" Score="12" Body="&lt;p&gt;Typically, a devaluation is achieved by selling the domestic currency in the foreign exchange market and buying other currencies. Suppose China sells one trillion Renminbi and buys 157 billion US dollars. From the point of view of the market, it is as if the supply of Renminbi just increased. As in any competitive market, an increase in supply will cause the price (i.e. the exchange rate) to fall: one Yuan will be worth less than before.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Devaluations are good for a country's balance of trade. Companies based in China ultimately care about how many Yuan they end up with. Suppose that the value of the Renminbi is 10 Yuan = \$1US. That means that a Chinese product priced at 10 Yuan would cost an American \$1 to buy. Now suppose that the value of the Renmimbi falls by half: 10 Yuan = \$0.50. Now the same product, still priced at 10 Yuan, will only cost an American 50 cents. It's as if everything China exports just got cheaper! This fall in the apparent price of Chinese exports will make people in other countries want to buy more Chinese products so that China will experience an increase in its exports. The argument also works in reverse: to a Chinese person, the devaluation makes it look as if American products got more expensive, so Chinese will demand fewer American (and British, and German, etc.) products and China will import less. Together, these two effects mean that China's balance of trade (i.e. the difference between exports and imports) will improve as a consequence of the devaluation.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2015-08-12T19:28:56.300" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6886" PostTypeId="1" CreationDate="2015-08-13T11:24:50.103" Score="2" ViewCount="252" Body="&lt;p&gt;My question is related to the following equation:&#xA;$$\beta_{asset}=\frac{Equity}{Equity+Debt}\beta_{equity}+\frac{Debt}{Equity+Debt}\beta_{debt} $$&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Why can the $\beta_{asset}$ be seen as if the firm had been financed only with equity?&lt;/li&gt;&#xA;&lt;li&gt;We can measure the $\beta_{equity}$ by CAPM, but how can we measure $\beta_{debt}$?&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated&lt;/p&gt;&#xA;" OwnerUserId="118" LastActivityDate="2016-04-13T22:20:39.560" Title="Firms Betas - Equity, Debt betas" Tags="&lt;corporate-finance&gt;" AnswerCount="2" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6887" PostTypeId="2" ParentId="6446" CreationDate="2015-08-13T12:38:04.743" Score="3" Body="&lt;p&gt;Here is a figure documenting annual (I think) internal migration rates in Germany:&#xA;&lt;a href=&quot;https://i.stack.imgur.com/SJxrF.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/SJxrF.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Internal Migration in Germany, 1995-2010: New Insights into East-West Migration and Re-urbanisation  (&lt;a href=&quot;http://www.comparativepopulationstudies.de/index.php/CPoS/article/viewFile/89/174&quot; rel=&quot;nofollow noreferrer&quot;&gt;Sander (2014)&lt;/a&gt;) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This table show 5 year migration rates in many countries, including the USA:&#xA;&lt;a href=&quot;https://i.stack.imgur.com/ohruS.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/ohruS.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&#xA;&lt;a href=&quot;https://i.stack.imgur.com/7ysJ7.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/7ysJ7.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&#xA;Cross-national comparisons of internal migration: An update on global patterns and trends (&lt;a href=&quot;http://www.un.org/en/development/desa/population/publications/pdf/technical/TP2013-1.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;United Nations Department of Economic and Social Affairs (2013)&lt;/a&gt;) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Depending on methodology, annual and 5-year rates can't exactly be compared because some people will move to another area and move back within five years, so asking people if they live in the same state as 5 years ago won't give the same result as asking someone if they lived in a different state last year for five years. That said, if we can make some rough comparisons if we treat the five year rate as roughly comparable to five times the annual rate. The USA rate is about 9 percent every 5 years or 1.8 percent per year. This would be higher (but not much higher) than the West-East, East-East, and East-West German internal migration rates but quite a bit lower than the internal migration rate within West Germany. It might be that this converts the 5-year rates to annual ones that are too low, but the sizes seem roughly comparable. This is just two sources but they provide little or no evidence for Feldstein's claim that the German rates are far lower than in the US. &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2015-08-13T12:38:04.743" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6888" PostTypeId="2" ParentId="6840" CreationDate="2015-08-13T13:04:16.343" Score="1" Body="&lt;p&gt;I have hesitated to put my answer as an answer or comment. First of all, you could get interesting insights by looking at Thomas Pikkety's seminal work (even if he got some severe critics by a large group of economists.) To tell very succintly, he suggests to tax heavily ultra billionnaires as he thinks that inequality will finally cause social tensions etc. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think your question depends on how to spend. Spending on luxury goods or spending on investment ? &#xA;If they stop to invest in real sector and put their wealth on financial equities etc, it will surely affect the whole economy. If these billionnaires have some big factories, it will also affect unemployment rate and so on. &lt;/p&gt;&#xA;" OwnerUserId="2938" LastActivityDate="2015-08-13T13:04:16.343" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6889" PostTypeId="1" AcceptedAnswerId="6892" CreationDate="2015-08-13T13:18:51.913" Score="12" ViewCount="19066" Body="&lt;p&gt;I am stuck on the following exercise, related to preference relations and &lt;a href=&quot;https://en.wikipedia.org/wiki/Von_Neumann%E2%80%93Morgenstern_utility_theorem&quot; rel=&quot;noreferrer&quot;&gt;von-Neumann-Morgenstern utility function&lt;/a&gt;.&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;A farmer wants to dig a well in a square field &lt;span class=&quot;math-container&quot;&gt;$[0,1000]\times[0,1000]$&lt;/span&gt;. The preferences of the farmer on the possible locations are lexicographic, i.e:&lt;/p&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;If &lt;span class=&quot;math-container&quot;&gt;$x_1&amp;lt;x_2$&lt;/span&gt; then &lt;span class=&quot;math-container&quot;&gt;$(x_1,y_1)\prec(x_2,y_2)$&lt;/span&gt; for all &lt;span class=&quot;math-container&quot;&gt;$y_1,y_2$&lt;/span&gt;.&lt;/li&gt;&#xA;&lt;li&gt;If &lt;span class=&quot;math-container&quot;&gt;$x_1=x_2=x$&lt;/span&gt;, then &lt;span class=&quot;math-container&quot;&gt;$(x,y_1)\prec(x,y_2)$&lt;/span&gt; iff &lt;span class=&quot;math-container&quot;&gt;$y_1 &amp;lt; y_2$&lt;/span&gt;.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;p&gt;Initially, assume that the well location must have integer coordinates.&#xA;Is there a preference relation on lotteries, that satisfies the von-Neumann-Morgenstern axioms, and extends the lexicographic preference relation? If so, what is a linear utility function that represents this relation?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;I think the answer is yes, and a possible linear utility function is: &lt;span class=&quot;math-container&quot;&gt;$u(x,y)=100000x + y$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Now, assume that the well location can have real coordinates. Prove that there is no linear utility function that represents the preference relation on lotteries.&#xA;Which one of von-Neumann-Morgenstern axioms is violated by the preference relation on lotteries?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Here I am stuck. I don't understand why the utility function I suggested above doesn't work? And what axiom is violated here?&lt;/p&gt;&#xA;" OwnerUserId="385" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2015-08-13T18:46:43.403" Title="Lexicographic preference relation cannot be represented by a utility function" Tags="&lt;utility&gt;&lt;preferences&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="6890" PostTypeId="2" ParentId="6889" CreationDate="2015-08-13T14:32:32.277" Score="6" Body="&lt;p&gt;Consider the locations (1) $(0.000001,1)$ and (2) $(0.0000005,10)$. $U\left(x_1,y_1\right) = 1.1$.$U\left(x_2,y_2\right) = 10.05$. However, $x_2 &amp;lt; x_1$, so this is not a lexicographic ordering. It is only with the additional constraint that the values of $x$ and $y$ be integers $\in[0,1000]$ that the function you proposes has this attribute. Because real values of $x$ and $y$ implies that $x_i / y_i$ can be made arbitrarily large or small, no linear function can guarantee a lexicographic ordering over all possible values of $x$ and $y$.  That is, specify a utility function of the form $$U = \beta \cdot X + Y$$&#xA; If $X$ has to be an integer then as long as $\beta&amp;gt;1000$ this will be lexicographic on the domain of the problem because a one unit increase in $X$ will always pay off more utility than 1,000 units of $Y$. But if $X$ is a real number, the problem changes. Consider any arbitrarily value of $\beta &amp;gt; 1000$ that would have satisfied the integer problem. For changes in $X &amp;gt; 1/\beta$ this continues to work (preserve the lex. prefs)  in the real number problem. But for changes in $\Delta  X &amp;lt; 1000 / \beta$:&#xA;$$ U(X + \Delta  X,0) = \beta (X+\Delta  X) &amp;lt; \beta X + 1000= U(X,1000)$$&#xA;Because by construction $\beta \cdot \Delta X &amp;lt; 1000$. So these preferences are not lexicographic over arbitrary values of $X$ and $Y$. &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2015-08-13T14:32:32.277" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6892" PostTypeId="2" ParentId="6889" CreationDate="2015-08-13T16:52:20.767" Score="11" Body="&lt;p&gt;We can say more generally that lexical preferences are not representable using a continuous utility function. Lexical preferences are not continuous. Note the definition of a continuous preference relation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The preference relation $\succeq$ is continuous if for any sequences of consumption bundles $(x_{i})_{i \in \mathbb{N}}$ and $(y_{i})_{i \in \mathbb{N}}$ with $x_{i} \to x$, $y_{i} \to y$, and $x_{i} \succeq y_{i}$ for each $i \in \mathbb{N}$, then $x \succeq y$. That is, continuity preserves the relation at the limit point.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider $(x_{i})_{i \in \mathbb{N}}$ defined by $x_{i} = (\frac{1}{2^{i}}, 0)$ and $(y_{i})_{i \in \mathbb{N}}$ defined by $y_{i} = (0, 1)$. Clearly, $x_{i} \succeq y_{i}$ for each $i \in \mathbb{N}$. However, $x_{i} \to (0, 0)$ while $y_{i} \to (0, 1)$. So this preference relation is not preserved at the limit point.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Even more generally, no utility function represents the lexical preference relation. I prove for $\mathbb{R}_{+}^{2}$, but this argument extends to $\mathbb{R}_{+}^{n}$ by projecting into $\mathbb{R}_{+}^{2}$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Proof&lt;/strong&gt;: Suppose to the contrary that some utility function $u : \mathbb{R}_{+}^{2} \to \mathbb{R}$ represents $\succ_{lex}$. We thus have $u(x, 1) &amp;gt; u(x, 0)$, as $(x, 1) \succ (x, 0)$. We construct the interval $I(x) = [u(x, 0), u(x, 1)]$. Now for any two distinct $x, y \in \mathbb{R}_{+}$, $I(x) \cap I(y) = \emptyset$ as we have either $x &amp;gt; y$ or $y &amp;gt; x$ (so WLOG, we have $(x, 0) \succ (y, 1)$). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Define $\mathbb{I} = \{ I(x) : x \in \mathbb{R}_{+} \}$, and let $\phi : \mathbb{R}_{+} \to \mathbb{I}$ be given by $\phi(x) = I(x)$. Observe that $\phi$ is an injection, as each $I(x), I(y)$ are disjoint for distinct $x, y$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that $\mathbb{Q}$ is dense in $\mathbb{R}$. So there exists a rational number in each interval. Define $\tau : \mathbb{I} \to \mathbb{Q}$ such that $\tau(I(x))$ returns a rational number contained in $I(x)$. So $\tau$ is an injection. We have $\tau$ composed with $\phi$ an injection, which implies $|\mathbb{R}_{+}| \leq |\mathbb{Q}_{+}|$, a contradiction. QED.&lt;/p&gt;&#xA;" OwnerUserId="5368" LastEditorUserId="5368" LastEditDate="2015-08-13T18:46:43.403" LastActivityDate="2015-08-13T18:46:43.403" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="6894" PostTypeId="1" CreationDate="2015-08-13T18:17:43.043" Score="8" ViewCount="256" Body="&lt;p&gt;Are there studies about the impact on per-hour output (productivity) of increasing the number of hours worked each week by employees? If every employee works 3hrs/week longer (from 41 to 44hrs), does productivity  increase or decrease?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Edit&lt;/strong&gt;&#xA;About who and how much; if every worker works 3hrs more. So there is more time spent on building machines with the same amount of money. But my hypothesis is, that the more time demotivation overcompensates this marginal plus.&lt;/p&gt;&#xA;" OwnerUserId="5435" LastEditorUserId="5435" LastEditDate="2015-08-14T22:23:24.923" LastActivityDate="2017-08-23T17:53:34.970" Title="Can higher working hours reduce productivity?" Tags="&lt;reference-request&gt;&lt;labor-economics&gt;&lt;productivity&gt;" AnswerCount="4" CommentCount="1" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6895" PostTypeId="2" ParentId="6466" CreationDate="2015-08-14T00:50:24.410" Score="-3" Body="&lt;p&gt;Because women usually book for the family trip, and AirBNB specifically targets women really well with its &quot;social&quot; appeal. Also, Women enjoy looking at photos of the apartment instead of focusing solely on features, and AirBNB allows them to examine a ton of them before making a booking. In contrast, Priceline/Hotwire does not even let you know which property is going to be booked when you browse, and this significantly reduced the &quot;shopping experience&quot;, so to speak.&lt;/p&gt;&#xA;" OwnerUserId="5437" LastActivityDate="2015-08-14T00:50:24.410" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="6896" PostTypeId="1" CreationDate="2015-08-14T01:13:21.733" Score="2" ViewCount="267" Body="&lt;p&gt;Economics isn't my home field, but I'm looking for references for a paper I'm working on and I'm hoping one of you can help.  Are there many good references for optimizing a Cobb-Douglas like utility function for current consumption $x$, and future consumption $f(w-x)$: $$U(x)= x^\alpha f(1-x)^{1-\alpha},$$ where $x\in[0,w]$ and $f$ is assumed non-decreasing? I've worked out what restrictions $x(w)$ must have so that there exists some $f$ which gives $x(w)$ as the rational response, but I was curious if there is a stock reference I should cite.  Thanks! &lt;/p&gt;&#xA;" OwnerUserId="5438" LastEditorUserId="40" LastEditDate="2015-08-14T02:45:23.033" LastActivityDate="2015-08-14T02:45:23.033" Title="Optimizing Cobb-Douglas like functions" Tags="&lt;utility&gt;&lt;optimization&gt;&lt;cobb-douglas&gt;&lt;saving&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6897" PostTypeId="2" ParentId="6877" CreationDate="2015-08-14T03:07:56.170" Score="5" Body="&lt;p&gt;The intensive form of the production function is derived from the following. Let us assume a production function, F, with inputs of capital, K, and labor and technology, AL. Thus, output, $Y = F(K,AL)$. Assuming constant returns to scale, i.e. $F(cK,cAL) = cF(K,AL)$, we can say $F(K,AL) = ALF(K/AL, 1)$. The intensive form of the production function, f, takes the argument k = K/AL. k is ratio of capital to labour, or how much capital is there per effective unit of labour. $f(k) = Y/AL = F(K/AL, 1)$, or the output per effective unit of labour.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The intensive form is relevant because although the production function may have constant returns to scale, each individual input may exhibit diminishing returns. In other words, if you increase both labour and capital, this will increase your output proportionally, but if you increase only capital, your output will rise proportionally less. It is also easier to express interest rates and wages in the intensive form. For more, you can read any graduate level macroeconomic textbook. (I've used Romer's Macroeconomics.) Hope this helps!&lt;/p&gt;&#xA;" OwnerUserId="5439" LastActivityDate="2015-08-14T03:07:56.170" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6898" PostTypeId="2" ParentId="6466" CreationDate="2015-08-14T06:11:13.207" Score="5" Body="&lt;p&gt;It should not be at all surprising that different people choose different offers: the short-stay accommodation market (let's say 1-30 nights) is characterised by a great deal of &lt;strong&gt;product differentiation&lt;/strong&gt; and &lt;strong&gt;yield management&lt;/strong&gt;. Airbnb has &lt;strong&gt;reciprocity&lt;/strong&gt; at play, as guests and hosts switch roles. Additionally, hotels and airbnb hosts have different &lt;strong&gt;cost structures&lt;/strong&gt; and different &lt;strong&gt;business models&lt;/strong&gt;.&lt;/p&gt;&#xA;&lt;p&gt;Furthermore, consumers have different amounts of information: &lt;strong&gt;bounded rationality&lt;/strong&gt; and &lt;strong&gt;satisficing&lt;/strong&gt; are at work. So even if the offers were identical (they're not), and people's preferences were identical (they're not), then people would still make different decisions.&lt;/p&gt;&#xA;&lt;h3&gt;product differentation&lt;/h3&gt;&#xA;&lt;p&gt;Although you always prefer a lower-cost hotel-room to airbnb, some other people will prefer airbnb, even when presented with identical information. That's because they are not identical offers: they have many  different characteristics (flexibility, physical space, presence of host, services offered, location, the P2P feelgood effect, doing business with individuals rather than faceless chains, staying in someone's unique home rather than just another clone room that looks almost identical in most of the world). And different people weight those characteristics differently: no two consumers have identical preferences.&lt;/p&gt;&#xA;&lt;h3&gt;yield management&lt;/h3&gt;&#xA;&lt;p&gt;Different people will also be booking at different times, with varying flexibility. Hotel rooms, (like airline seats), are one of the paragons of yield management, used in many textbooks' explanations of it.&lt;/p&gt;&#xA;&lt;h3&gt;reciprocity&lt;/h3&gt;&#xA;&lt;p&gt;Because with airbnb hosts can become guests, and guests can become hosts; and because reputation plays a major role in the market, there is reciprocity at play: both sides are incentivised to deal fairly with each other, rather than the practice of many hotels of making repeated attempts at getting more and more money from the customer from additional goods and services sold in addition to the basic accommodation, sometimes by using deception in the initial offer.&lt;/p&gt;&#xA;&lt;h3&gt;cost structures&lt;/h3&gt;&#xA;&lt;p&gt;On the supply side, airbnb and hotel rooms have different cost structures: an hotel room that's empty for the night is a wasted asset, and there may be little opportunity to reduce associated costs. Whereas a home without an airbnb guest is still a home, the residents get to have it all to themselves, and don't have to do any additional hosting, laundry, cleaning or tidying.&lt;/p&gt;&#xA;&lt;h3&gt;business models&lt;/h3&gt;&#xA;&lt;p&gt;A hotel's entire income is dependent on it renting its rooms out and selling associated services. For an airbnb host, the airbnb income is usually an additional source of income, a bonus rather than the thing that keeps a roof over the head and puts food on the table. So there is not an urgent and immediate need to find a guest, allowing them to set higher prices and tolerate a lower take-up.&lt;/p&gt;&#xA;" OwnerUserId="44" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2015-08-14T06:57:15.893" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6899" PostTypeId="1" AcceptedAnswerId="17380" CreationDate="2015-08-14T07:17:05.747" Score="2" ViewCount="37" Body="&lt;p&gt;Are there any quarterly data on industry-level productivity growth (i.e., by NAICS code) in the United States? I've looked around for a while but haven't been able to find anything. BLS publishes aggregate productivity growth quarterly, so I find it hard to believe that there isn't a breakdown by industry.&lt;/p&gt;&#xA;" OwnerUserId="89" LastEditorUserId="89" LastEditDate="2015-08-14T07:23:15.977" LastActivityDate="2017-07-03T12:49:21.137" Title="Quarterly industry-level productivity growth?" Tags="&lt;labor-economics&gt;&lt;data-request&gt;&lt;productivity&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6901" PostTypeId="1" CreationDate="2015-08-14T12:45:04.720" Score="1" ViewCount="28" Body="&lt;p&gt;I try to simulate a growth model with two state (capital $K$ and resource stock $S$) and two control variables. (consumption $C$ and resource extraction $R$ )&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When I try to find steady state from which I could find after the initial conditions for $K_{0}$, $S_{0}$ and $R_{0}$ , $C_{0}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For $S_{0}=1$ I find a negative value for $K_{0}$ and all other initial conditions are positive.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is that possible ? I think mathematically, a negative initial condition can be fine but economically I have doubts. I have found nothing about this issue on literature. &lt;/p&gt;&#xA;" OwnerUserId="2938" LastEditorUserId="2938" LastEditDate="2015-08-14T12:57:09.097" LastActivityDate="2015-08-14T12:57:09.097" Title="negative initial conditions in a growth model" Tags="&lt;simulations&gt;" AnswerCount="0" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="6902" PostTypeId="1" CreationDate="2015-08-14T12:45:28.707" Score="4" ViewCount="872" Body="&lt;p&gt;Where I can find a good Matlab sample code that performs Euler equation iteration with piece-wise linear approximation of policy functions? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Projection method I have in mind is something like described in the Finite Elements method in Aruoba, Fernandez-Villaverde, Rubio-Ramirez (JEDC 2006) or more generically Chapter 4 in Heer and Maussner &quot;Dynamic General equilibrium models&quot; (the examples in the cited references are either Fortran or Gauss). &lt;/p&gt;&#xA;" OwnerUserId="5441" LastEditorUserId="108" LastEditDate="2015-09-05T20:21:45.037" LastActivityDate="2020-07-27T11:06:37.220" Title="Matlab code example for piecewise linear approximation and Euler Equation Iteration" Tags="&lt;macroeconomics&gt;&lt;computation&gt;&lt;software&gt;" AnswerCount="2" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6903" PostTypeId="2" ParentId="5791" CreationDate="2015-08-14T12:58:22.327" Score="6" Body="&lt;p&gt;I don't have advice specific to error correcting model (ECM) setting, but in undergraduate applied econometric class they gave us the generic advice to continue to extend lags in the model until the residuals of the fitted model were serially uncorrelated. For example, in the US life expectancy data, residuals of male life expectancy is serially uncorrelated in the AR(5) model but not the AR(4) model. You can see this for yourself with the following Stata code:   &lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;use http://www.stata-press.com/data/r8/uslifeexp.dta&#xA;tsset year, yearly&#xA;reg le_male L(1/4).le_male&#xA;estat durbinalt, small&#xA;reg le_male L(1/5).le_male&#xA;estat durbinalt, small&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;The &lt;a href=&quot;http://www.stata.com/manuals13/tsvecintro.pdf&quot; rel=&quot;nofollow&quot;&gt;Stata documentation for the vector error-correction&lt;/a&gt; models also seems to roughly follow this approach but it looks like it is automated under the &lt;strong&gt;varsoc&lt;/strong&gt; function and additionally the AIC, HQIC, and SBIC are all generated programmatically. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;To test for cointegration or fit cointegrating VECMs, we must specify&#xA;  how many lags to include. Building on the work of Tsay (1984) and&#xA;  Paulsen (1984), Nielsen (2001) has shown that the methods implemented&#xA;  in varsoc can be used to determine the lag order for a VAR model with&#xA;  I(1) variables. As can be seen from (9), the order of the&#xA;  corresponding VECM is always one less than the VAR. vec makes this&#xA;  adjustment automatically, so we will always refer to the order of the&#xA;  underlying VAR. The output below uses varsoc to determine the lag&#xA;  order of the VAR of the average housing prices in Dallas and&#xA;  Houston....&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;We will use two lags for this bivariate model because the Hannan–Quinn&#xA;  information criterion (HQIC) method, Schwarz Bayesian information&#xA;  criterion (SBIC) method, and sequential likelihood-ratio (LR) test all&#xA;  chose two lags, as indicated by the “*” in the output.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;. clear all&#xA;&#xA;. use http://www.stata-press.com/data/r13/txhprice&#xA;&#xA;. varsoc dallas houston&#xA;&#xA;   Selection-order criteria&#xA;   Sample:  1990m5 - 2003m12                    Number of obs      =       164&#xA;  +---------------------------------------------------------------------------+&#xA;  |lag |    LL      LR      df    p      FPE       AIC      HQIC      SBIC    |&#xA;  |----+----------------------------------------------------------------------|&#xA;  |  0 |  299.525                      .000091  -3.62835  -3.61301  -3.59055  |&#xA;  |  1 |  577.483  555.92    4  0.000  3.2e-06   -6.9693  -6.92326  -6.85589  |&#xA;  |  2 |  590.978  26.991*   4  0.000  2.9e-06*  -7.0851* -7.00837* -6.89608* |&#xA;  |  3 |  593.437   4.918    4  0.296  2.9e-06  -7.06631  -6.95888  -6.80168  |&#xA;  |  4 |  596.364  5.8532    4  0.210  3.0e-06  -7.05322   -6.9151  -6.71299  |&#xA;  +---------------------------------------------------------------------------+&#xA;   Endogenous:  dallas houston&#xA;    Exogenous:  _cons&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;If, as @GraemeWalsh suggests, you would like to use an &lt;a href=&quot;http://davegiles.blogspot.com/2013/03/ardl-models-part-i.html&quot; rel=&quot;nofollow&quot;&gt;auto-regressive distributed lags methodology&lt;/a&gt; (ARDL) you can do so without having to code it up yourself.&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;use http://www.stata-press.com/data/r13/txhprice&#xA;sort t&#xA;net install ardl.pkg&#xA;ardl dallas houston,  maxlag(4)&#xA;&#xA;&#xA;ARDL regression&#xA;Model: level&#xA;&#xA;Sample:  1990m5 - 2003m12 &#xA;Number of obs  = 164&#xA;Log likelihood = 313.86816&#xA;R-squared      = .96315461&#xA;Adj R-squared  = .96246376&#xA;Root MSE       = .03613756&#xA;&#xA;------------------------------------------------------------------------------&#xA;      dallas |      Coef.   Std. Err.      t    P&amp;gt;|t|     [95% Conf. Interval]&#xA;-------------+----------------------------------------------------------------&#xA;      dallas |&#xA;         L1. |    .427744   .0789194     5.42   0.000      .271886     .583602&#xA;         L2. |   .1747019   .0720507     2.42   0.016     .0324089    .3169948&#xA;             |&#xA;     houston |   .3404766   .0567884     6.00   0.000     .2283252     .452628&#xA;       _cons |   .7276476   .2061803     3.53   0.001     .3204618    1.134833&#xA;------------------------------------------------------------------------------&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2016-04-20T20:22:55.583" LastActivityDate="2016-04-20T20:22:55.583" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6905" PostTypeId="2" ParentId="2983" CreationDate="2015-08-14T16:36:45.917" Score="5" Body="&lt;p&gt;The precise question the OP asked was what does $K_j N_j$ represent. As Alecos' response says, the statement  $\sum_j K_j N_j = 1$, i.e. the weighted average of the income elasticities equals one, means that if total income goes up by one percent then total expenditures/consumption also increases by one percent. The total market expenditure for some goods (with income elasticity of demand &gt; 1) will go up more than one percent, for some goods (with income elasticity of demand between 0 and 1) will go up but less than one percent, and for some goods (with income elasticity &amp;lt;0) will go down. But taking all goods together, expenditures will go up one percent when total income goes up one percent.&#xA;(Becker makes this point in the context of an individual rather than the complete market on p. 16 and footnote 2 of the text.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now I provide the solution to the exercise statement:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Start with the notion that when individual $i$'s income $y_i$ increases by one percent, his demand for good $j$ increases by $\eta_{ij}$ percent. What effect does this have on total market demand for good $j$? It depends on what fraction $w_{ij}$ of the total demand for good $j$ individual $i$ accounts for. Total market elasticity for good $j$, $N_j$ is the weighted sum of the increases in demand of each individual: $N_j = \sum_i w_{ij} \eta_{ij}$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Algebra can get this in terms of $k_{ij}$ and $\eta_{ij}$ (and $y_i$) as the exercise statement requests. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;First find an expression for $w_{ij}$, the fraction of total demand (or expenditure) of person $i$ for good $j$: Letting $q_{ij}$ denote $i$'s demand for $j$, this fraction is &#xA;$$w_{ij}=\frac{q_{ij}}{\sum_i q_{ij}} = \frac{k_{ij} y_i}{\sum_I k_{Ij} y_I}$$&#xA; where the second equality comes from the definition $k_{ij} \equiv \frac{p_j q_{ij}}{y_i}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then $N_j = \sum_i f_{ij} \eta_{ij} = \sum_i \frac{k_{ij} y_i}{\sum_I{k_{Ij} y_I}} \eta_{ij}$. The weight/fraction $w_{ij}$ is increasing in $y_i$: for a given $k_{ij}$ a higher income person's elasticity is weight more. (Actually, what matters for how heavily and individual's elasticity is weight is not just income but actually $k_{ij} y_i$, their expenditures on good $j$, relative to the total market expenditures on good $j$. This makes intuitive sense: the elasticity of a heavy consumer of a good will have a bigger effect on that good's market elasticity than that of a light consumer, regardless of income.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The fraction of total market expenditures spent on good $j$ is $K_j = \frac{\sum_i k_{ij} y_i}{\sum_i y_i}$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So with some simple algebra we have $K_j N_j = \frac{\sum_i k_{ij} y_i \eta_{ij}}{\sum_i{y_i}}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With more algebra and using the identity $\sum_j k_{ij}\eta_{ij} = 1$ (see p. 16) you can confirm that $\sum K_j N_j = \frac{\sum_i (y_i \sum_j k_{ij}\eta_{ij})} {\sum_i{y_i}} = 1$.&lt;/p&gt;&#xA;" OwnerUserId="5433" LastActivityDate="2015-08-14T16:36:45.917" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6906" PostTypeId="2" ParentId="6851" CreationDate="2015-08-14T20:02:14.763" Score="3" Body="&lt;p&gt;This is a pretty standard bond pricing issue. The short answer is yes, the market value of the bond can and often will exceed its par value if interest rates are below the coupon rate, just &lt;em&gt;so long as the call option is structured such that the government must pay any interest that has accrued between the last coupon date and the time that the call option is exercised&lt;/em&gt;. However, the extent to which the bond will pay more than its face is a question of how the call option is structured: whether it can be called at any time, or whether it can only be called on coupon dates.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider an example where the government has issued a \$100 bond paying 4% per period and (for whatever reason) chooses not to exercise the option immediately, the prevailing interest rate is 3% per period, and the coupon rate is 4% per period:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Period 1: \$4 payment, discounted present value is \$3.88&lt;/li&gt;&#xA;&lt;li&gt;Period 2: \$4 payment, DPV is \$3.77&lt;/li&gt;&#xA;&lt;li&gt;Period 3: \$4 payment, DPV is \$3.66&lt;/li&gt;&#xA;&lt;li&gt;Period 4: \$4 payment, call option exercised, \$100 principal returned, DPV is \$92.40&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Total value: \$103.72 (difference due to rounding).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now consider the case where the bond is outstanding, rates drop to 3%, and the bond is immediately called— the bond pays out \$100, plus whatever interest has accrued.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;US government bonds are discretely callable— they can only be called on the coupon date, as in the first example. So in the case you give they'll generally trade above par at any date between coupon payments. UK bonds can be called at any time, so there's a lot more uncertainty— it's possible that you could buy the bond today and have it called immediately. However, given that there's little reinvestment risk and that in the event that they're called they will pay out the face value plus accrued interest, the lower bound of their value should be right around par. Thus, to the extent that there's uncertainty as to whether and when the call option will be exercised, it's reasonable to expect that they will trade strictly above par.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Interestingly, as the interest rate drops and the spread between a callable bond and market rates becomes larger, the likelihood that the bond will be called increases, so the value of the bond continues to increase, but at a decreasing rate. This is known as negative convexity. It's a common feature in US mortgage markets, because most borrowers in US mortgage markets (unlike mortgage markets in many other countries) have an implicit option to prepay at any time without penalty. As a result, mortgages and mortgage-backed securities display significant negative convexity, making hedging interest rate risk a big deal for mortgage lenders. For this reason, your question is actually closely related to the question, &quot;&lt;a href=&quot;https://economics.stackexchange.com/questions/6835/why-do-lenders-dislike-early-loan-repayments/6838#6838&quot;&gt;Why do lenders dislike early loan repayments?&lt;/a&gt;&quot;. &lt;/p&gt;&#xA;" OwnerUserId="264" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-08-16T01:47:29.857" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6908" PostTypeId="1" AcceptedAnswerId="6916" CreationDate="2015-08-15T22:33:10.180" Score="4" ViewCount="1270" Body="&lt;p&gt;Call a utility function $u(x,y)$ &lt;em&gt;additive&lt;/em&gt; if there exist functions $v_x,v_y$ such that:&#xA;$$u(x,y)=v_x(x)+v_y(y)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider the function $u(x,y)=xy$. It is not additive, but, it can transformed using a positive-monotonic-transformation (PMT) to the function: $u'(x,y)=\log u(x,y) = \log{x}+\log{y}$, and the function $u'$ is additive.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is: what conditions on a function $u(x,y)$ guarantee that it can be transformed using a PMT to an additive function?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I.e, if I see a function $u(x,y)$, how can I know whether it represents a preference relation which can also be represented by an additive utility function?&lt;/p&gt;&#xA;" OwnerUserId="385" LastActivityDate="2015-08-17T13:33:11.653" Title="What utility functions are equivalent to additive functions?" Tags="&lt;utility&gt;&lt;preferences&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6909" PostTypeId="2" ParentId="6908" CreationDate="2015-08-15T22:57:46.107" Score="1" Body="&lt;p&gt;If and only if (If $(x1, x2)R(y1, y2)$ and $(y1, z2)R(z1, x2)$,&#xA;then $(x1, z2)R(z1, y2)$) then with a two good functions, then the variables are separable. Hence additively separable. This is the Debreu theorem.&lt;/p&gt;&#xA;" OwnerUserId="4578" LastEditorUserId="47" LastEditDate="2015-08-16T07:23:09.873" LastActivityDate="2015-08-16T07:23:09.873" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6910" PostTypeId="1" CreationDate="2015-08-16T18:07:16.053" Score="4" ViewCount="398" Body="&lt;p&gt;Sometimes in the course of pursuing its primary business, a company discovers an unexpected source of revenue.  It is particularly interesting in cases when a humble support function is found to be more profitable than the final product or service. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, I was reading about a company which set up an aluminum smelter in a developing country.  Aluminum smelters require a lot of electricity, and since the power supply in this country was unreliable, they also had to build their own mini power station. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;They soon realized that the power they could generate from their power station was more valuable than the aluminum they could produce, so they shut down their aluminum smelter and made money from selling power! &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are there other examples of this?  Is there a name for this, other than listening to the market and being responsive?  (I don't like the word &quot;pivot&quot; because that has the connotation of what entrepreneurs and startups do when their effort has failed and they're trying to put a brave face on it.) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am looking for more examples of joyful serendipity in business. &lt;/p&gt;&#xA;" OwnerUserId="5451" LastActivityDate="2016-02-12T19:34:47.873" Title="When a support function is found to be more profitable than the primary business" Tags="&lt;consumer-theory&gt;&lt;financial-economics&gt;" AnswerCount="4" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6911" PostTypeId="2" ParentId="6910" CreationDate="2015-08-16T18:33:44.530" Score="4" Body="&lt;p&gt;&lt;a href=&quot;http://www.nytimes.com/2011/01/12/dining/12united.html?pagewanted=all&quot; rel=&quot;nofollow&quot;&gt;Microplane graters&lt;/a&gt; grew out of a company that was manufacturing dot-matrix printer parts, using a process that created extremely sharp metal bands— which was, at the time, more of a liability than a strength. As dot-matrix printers fell into obsolescence, the company decided to find a use for its unnaturally sharp strips of metal, and &quot;pivoted&quot; toward making woodworking tools, specifically rasps. Chefs then discovered that these rasps made excellent graters, and in response to growing demand from the culinary world, the company eventually began focusing on producing culinary tools.&lt;/p&gt;&#xA;" OwnerUserId="264" LastActivityDate="2015-08-16T18:33:44.530" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6912" PostTypeId="2" ParentId="6910" CreationDate="2015-08-17T00:01:24.313" Score="5" Body="&lt;p&gt;&lt;a href=&quot;http://priceonomics.com/the-invention-of-the-aeropress/&quot; rel=&quot;nofollow&quot;&gt;The Aerobie Sports company mostly makes odd-ball equipment for having a catch. But they made a coffee maker called the Aeropress as a side project and now it makes up more than half of their sales&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Foot_Locker&quot; rel=&quot;nofollow&quot;&gt;The Woolworth Company (of five and dime fame) founded the Foot Locker shoe store as a side business&lt;/a&gt; and now it is the core-surviving brand of that corporation when the main Woolworth business was closed. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://qz.com/161626/3m-has-a-plan-to-keep-the-post-it-note-relevant-to-young-smartphone-addicts/&quot; rel=&quot;nofollow&quot;&gt;Post it notes were a side business for 3M but now amount to \$1 billion in sales a year&lt;/a&gt;. But that's only about 3 percent of revenue. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.ft.com/intl/cms/s/2/b02d5c1a-adcb-11e0-9038-00144feabdc0.html#axzz1RhOUr2hp&quot; rel=&quot;nofollow&quot;&gt;The Michelin Guide books were developed to help promote the sale of tires&lt;/a&gt; through encouraging road touring. It survives today and though the business might be a small fraction of the revenue produced by the tire business it has significant cultural influence and an independent life. &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-08-17T09:04:11.533" LastActivityDate="2015-08-17T09:04:11.533" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6913" PostTypeId="2" ParentId="3153" CreationDate="2015-08-17T13:18:03.597" Score="1" Body="&lt;p&gt;This paper may be of interest:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This paper examines the impact of regulatory intervention to cut termination rates of calls from fixed lines to mobile phones. Under quite general conditions of competition, theory suggests that lower termination charges will result in higher prices for mobile subscribers, a phenomenon known as the waterbed effect. The waterbed effect has long been hypothesized as a feature of many two-sided markets and especially the mobile telephony industry. Using a uniquely constructed panel of mobile operators’ prices and profit margins across more than twenty countries over six years, we document empirically the existence and magnitude of this effect. Our results suggest that although regulation reduced termination rates by about 10%, this also led to a 5% increase in mobile retail prices. We also provide evidence that both competition and market saturation, and most importantly their interaction, affect the overall impact of the waterbed effect on prices.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;TESTING THE “WATERBED” EFFECT IN MOBILE TELEPHONY (&lt;a href=&quot;http://onlinelibrary.wiley.com/doi/10.1111/j.1542-4774.2011.01040.x/abstract&quot; rel=&quot;nofollow&quot;&gt;Genakos and Valletti (2011)&lt;/a&gt;)&lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2015-08-17T13:18:03.597" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6914" PostTypeId="2" ParentId="6886" CreationDate="2015-08-17T13:18:07.640" Score="0" Body="&lt;p&gt;Usually Beta of debt is hard to find and is assumed to be zero however it's not actually zero as we do have a bond market and it certainly fluctuates but not like equity markets. We compute asset beta to know what beta company would have if it's all equity financed and then compare it with it's peers and take a average of it. Once we have an average then we could do the reverse calculation and find equity beta for the company. Now why we do this because Beta has to capture industry and company specific risk and should be free of non systematic risk. Hence once we have that we can compute company specific risk by computing gearing ratio.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope this answers your query.&lt;/p&gt;&#xA;" OwnerUserId="5372" LastActivityDate="2015-08-17T13:18:07.640" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6915" PostTypeId="2" ParentId="6801" CreationDate="2015-08-17T13:26:01.437" Score="1" Body="&lt;p&gt;Well I think that agriculture poverty is there because farmer can't store its product and sell that when prices are good as his product is perishable. With this he has to remain busy throughout the year either harvesting or in production and has no control over markets.&lt;/p&gt;&#xA;" OwnerUserId="5372" LastActivityDate="2015-08-17T13:26:01.437" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6916" PostTypeId="2" ParentId="6908" CreationDate="2015-08-17T13:33:11.653" Score="2" Body="&lt;p&gt;Ted Bergstrom has &lt;a href=&quot;http://www.econ.ucsb.edu/~tedb/Courses/GraduateTheoryUCSB/separabilitynotes.pdf&quot; rel=&quot;nofollow&quot;&gt;Lecture Notes on Separable Preferences&lt;/a&gt; that seem to have what you are looking for. For example:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;When are preferences additively separable?&lt;/strong&gt; &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The most useful necessary and sufficient condition for preferences to be additively&#xA;  separable is that every subset of the set of all commodities is&#xA;  separable. The proofs that I know of for this proposition are a bit&#xA;  more elaborate than seems appropriate here. A somewhat more general&#xA;  version of this theorem can be found in a paper by Gerard Debreu (Topological methods in cardinal utility).&#xA;  Debreu’s paper seems to be the first satisfactorily general solution&#xA;  to this problem. Other proofs can be found in (Foundations of Measurement) and (Utility theory for decision making).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="69" LastActivityDate="2015-08-17T13:33:11.653" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6917" PostTypeId="2" ParentId="6801" CreationDate="2015-08-17T14:51:41.560" Score="1" Body="&lt;h3&gt;Is what the quoted experts say so unreasonable?&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;Can't productivity explain poverty? Take profits under a very simplistic and linear production function:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \pi = AL - wL = (A-w)L$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume that $w$ equalizes between sectors, and hence is given. Then, the larger the productivity $A$, the larger the profits made in a certain sector. This is not to say it is the unique reason, but it certainly makes sense to me.&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Two Caveats&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;Now Econ 101 teaches us that there is &lt;strong&gt;free entry&lt;/strong&gt; and $\pi$ is zero anyways. However, there are several frictions imaginable where that is certainly not true. Think for example about Search&amp;amp;Matching environments pioneered by Diamonds-Mortensen-Pissarides, where the worker gains a surplus above his marginal productivity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Second, here, &lt;strong&gt;the production function is linear&lt;/strong&gt;. Again, by Econ 101, A linear production function typically implies zero production, or infinitely many. And again, there is a true spirit behind it, which we don't have to take too serious. For one, this only necessarily holds under a frictionless environment (see above). Ultimately, the spirit of the analysis carries through with a nonlinear production function, but makes the disposition unnecessarily intractable.&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-08-17T14:51:41.560" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6918" PostTypeId="2" ParentId="6801" CreationDate="2015-08-17T14:57:23.803" Score="1" Body="&lt;p&gt;It made me think about Lewis Model. In this model, the main idea is that if the agricultural sector is highly productive, there will be a transition of labor from agricultural sector to industrial sector, which will probably produce more value added products. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;With maintaining at least the same quantity of subsistance good, the industrial sector will develop. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Dual-sector_model&quot; rel=&quot;nofollow&quot;&gt;https://en.wikipedia.org/wiki/Dual-sector_model&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="2938" LastActivityDate="2015-08-17T14:57:23.803" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6919" PostTypeId="1" CreationDate="2015-08-17T19:49:21.737" Score="3" ViewCount="40" Body="&lt;p&gt;Is there existing literature on how the distribution of housing quality changes with time? For example, literature saying &quot;using 2000 as a baseline distribution $X$, the housing quality distribution is $1.2X$ in years when GDP is rising and $0.8X$ in years when GDP is decreasing.&quot; This is of course very naive, but hopefully it gets my point across. Perhaps housing price distribution could be used as a proxy for house quality, as there may not be data on the latter.&lt;/p&gt;&#xA;" OwnerUserId="5456" LastEditorUserId="69" LastEditDate="2015-08-18T12:40:25.320" LastActivityDate="2015-09-17T13:30:19.797" Title="Literature Request: how does the house quality distribution change endogenously over time?" Tags="&lt;macroeconomics&gt;&lt;reference-request&gt;&lt;housing&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6920" PostTypeId="2" ParentId="6367" CreationDate="2015-08-17T21:26:22.847" Score="2" Body="&lt;p&gt;Unsustainable is a strong word for describing state budgets.  The three worse states going by credit rating are Illinois, California, and New Jersey. Each of them has a better credit rating then Greece. &#xA;First you need to understand why Greece defaulted and not Spain or Portugal. Greece is a mess (technically speaking). First, Wiki tax evasion and corruption in Greece. The infrastructure for a sustainable tax revenue is just unrealistic. &#xA;Second; Greece, Spain, and Portugal (and you may even say Iceland, but they are not part of the Euro and had other tools in their belt) were in the same boat after the financial crisis. Spain and Portugal took their medicine. They adopted austerity policies that gave them flexibility. Greece did not. When the Euro experienced a double dip recession, Spain and Portugal's previous reforms gave the markets confidence in them. Greece inspired no confidence. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To compare Greece to the states, Anton's description of the feds fiscal policy is dead on. Instead of trying to generalize all three, I will focus on one, New Jersey. New Jersey has the third worse credit rating for any state. The reason for this is purely political. New Jersey is number 8 in GDP by state (Illinois is 5 and Cali is 1) and 11 in population (Illinois in 5 and Cali is 1). The media in NJ consistently talks about a bloated pension system. While the system may be high, it is not unsuitable. The real problem is the political dead lock between the governor and legislator. With out picking sides, both have failed to finance the budget. Instead they choose to sell assets to fill budget deficits. An example is a lawsuit they won against cigarette companies that pays NJ money every year. NJ sold this to fill a gap in the budget.  Actions like these makes the markets lose confidence and pushes NJ closer to default.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That being said, NJ problems and Greece's problems are two different beasts. For all NJ short comings, they have a massive tax base that actually pays taxes, a responsible and effective legal system, the US FED, non-corrupt politicians (but not effective), New York City, and industry. Greece has none of these things ( I am still not sure what Greece exports other than unfinished goods). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The second question was what could be learned.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You should read this &lt;a href=&quot;http://www.nber.org/papers/w7365.pdf&quot; rel=&quot;nofollow&quot;&gt;paper written in 1999&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;is there a point where the Feds will step in and take over all the responsibility of the state, ensure that a state cannot go bankrupt ?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Federal Bankruptcy law does not allow states to go bankrupt.  I am unaware of a time where the Feds had to step in to float a insolvent  state. California issued iou's to people in 2009 but received no help.  Remember that for most of US history, good practice was considered to have a balanced budget. It was not till the mid 20th century that states started to take on serious debt. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If a state was to be seriously insolvent, the Feds would have to bail them out. Now, the Fed doesn't have to legally, but to save the economy from a dip it would (just how it bails out financial institutions). It would most likely be a buy bonding program and the federal courts and federal administrations would be heavily involved with things such as pension reform or whatever the case may be. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As to what Europe can do from the fed model:&#xA;&lt;a href=&quot;http://www.nber.org/papers/w7365.pdf&quot; rel=&quot;nofollow&quot;&gt;Read the paper&lt;/a&gt;. A brief explanation is that in America, the citizens consider themselves Americans, not New Jersians or Californians.  They are willing to accept the rule of a federal system. In Europe this is not the case. A citizen of Germany considers herself a German, and a person from Italy an Italian. Neither of them would be willing to give up their independence to submit to a federal system the way the states do. For the EU to work, they would need complete separation from the National governments. For example, Merkel would not be involved in the Greek bailout talks (she would be more of a governor), France's legislator would not vote on it (it would be a state legislator), and Greece would have to accept whatever the EU says (because all Federal law trumps State). The people of those countries would have to appoint a leader (the German word is Führer) and Germany would have to accept an almost equal say in things as Malta (just as NY has just as many senators as Alaska). I do not know how realistic that is, and history suggest that it would not be peaceful. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And as a side note, Greece is like Argentina. Every person who bought a bond from Greece knew it would default, it was just a matter of time. This is not the first or last time Greece will fail. &lt;/p&gt;&#xA;" OwnerUserId="5457" LastEditorUserId="5457" LastEditDate="2015-08-18T12:53:28.853" LastActivityDate="2015-08-18T12:53:28.853" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="6922" PostTypeId="2" ParentId="6919" CreationDate="2015-08-18T12:53:17.930" Score="2" Body="&lt;p&gt;A paper of interest but it is mostly about trend changes in quality and not business cycle fluctuations:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;This paper employs a new national data set to estimate constant&#xA;  quality dwelling prices for four regions of the country. The data set,&#xA;  collected by the National Association of Realtors, provides sale&#xA;  prices, locations, and characteristics of 5581 dwellings sold during&#xA;  the years 1986–1992 inclusive. The paper provides the first national&#xA;  hedonic analysis based upon transaction prices of sample dwellings.&#xA;  The estimated equation implies that more than half of dwelling price&#xA;  increases during the period resulted from quality improvements in&#xA;  dwellings.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;New Hedonic Estimates of Regional Constant Quality House Prices (&lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/S009411909690011X&quot; rel=&quot;nofollow noreferrer&quot;&gt;Millsa and Simenauerb (1996)&lt;/a&gt;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Because housing is a long lived asset and it is somewhat unusual to significantly change the size of a house after it is built we could explore your question with the quantity and quality of new housing, assuming existing housing is largely unchanged. The &lt;a href=&quot;http://www.census.gov/construction/nrc/about_the_surveys/soc.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;US Census's New Residential Construction Survey&lt;/a&gt; has rich information about new housing. For example, on &lt;a href=&quot;http://www.census.gov/construction/chars/sold.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Characteristics of New Single-Family Houses Sold&lt;/a&gt; one can see many attributes of new houses including size, bedrooms, bathrooms, number sold, and much more. The Median and Average Square Feet of Floor Area in New Single-Family Houses Sold by Location table goes back annually to 1978. So you could compare it with RGDP per capita to get an idea of how this varies with wages.&#xA;&lt;a href=&quot;https://i.stack.imgur.com/b4gFV.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/b4gFV.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2015-08-18T12:53:17.930" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6923" PostTypeId="1" CreationDate="2015-08-18T13:36:21.207" Score="1" ViewCount="15" Body="&lt;p&gt;Why would the powers to be drop the price of petro while their currency's value declines?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Thai Baht has been dropping significantly in value the past few weeks at the same time the price per liter has been dropping. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why would that be? &lt;/p&gt;&#xA;" OwnerUserId="1542" LastActivityDate="2015-08-18T13:36:21.207" Title="Baht drops and Gas Prices too?" Tags="&lt;currency&gt;" AnswerCount="0" CommentCount="0" ClosedDate="2015-08-22T16:13:08.823" ContentLicense="CC BY-SA 3.0" />
  <row Id="6924" PostTypeId="1" AcceptedAnswerId="18194" CreationDate="2015-08-18T13:48:10.333" Score="2" ViewCount="97" Body="&lt;p&gt;I am writing an empirical paper with &lt;em&gt;National Account&lt;/em&gt;'s data from the OECD. The analysis of the data consists basically in calculating the cross-correlations among countries of GDP, investment, consumption etc, over a period from 1960:1 to 2015:1.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem is that there is a huge amount of measurements available in OECD's website and I don't know which one to choose. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The OECD's website suggests that:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;To extract the historical series, the measures to be selected are: CARSA or VOBARSA for data expressed in national currency (respectively in current prices or volumes estimates) and CPCARSA or VPVOBARSA for data expressed in US dollars and GPSA or GYSA for quarter-on-quarter and year-on-year growth rates.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I think that might be adequate for me. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But I still don't know if I should choose between the data in &lt;strong&gt;current prices&lt;/strong&gt; or in &lt;strong&gt;volumes estimates&lt;/strong&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What are the differences between the two approaches? Which implications would I be faced with by choosing each of them?&lt;/p&gt;&#xA;" OwnerUserId="5044" LastEditorUserId="2776" LastEditDate="2017-09-07T06:42:45.860" LastActivityDate="2017-09-08T14:42:03.173" Title="Should I use current prices or volumes estimates?" Tags="&lt;macroeconomics&gt;&lt;international-economics&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6925" PostTypeId="1" AcceptedAnswerId="6936" CreationDate="2015-08-18T14:04:32.623" Score="2" ViewCount="269" Body="&lt;p&gt;And when the ECB started QE this year, the 10 year bunds rate naturally plummetted, but so did the 10 year US treasury rate. What fundamental reason could cause the US rate to drop in synchrony? &lt;/p&gt;&#xA;" OwnerUserId="5463" LastActivityDate="2015-08-20T22:36:01.683" Title="Why are the 10 year German bunds and 10 year US treasury yield highly correlated?" Tags="&lt;macroeconomics&gt;&lt;interest-rate&gt;&lt;central-banking&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6926" PostTypeId="1" CreationDate="2015-08-18T15:11:22.613" Score="1" ViewCount="93" Body="&lt;p&gt;In Nepal and Bhutan, Indian rupee is accepted but 500 Rs. And 1000 Rs note is not accepted. Cam there be any specific reason behind this?  &lt;/p&gt;&#xA;" OwnerUserId="5464" LastActivityDate="2015-08-18T15:11:22.613" Title="Why 1000 Rs and 500 Rs not accepted in Bhutan and Nepal?" Tags="&lt;currency&gt;&lt;optimal-currency-area&gt;" AnswerCount="0" CommentCount="1" ClosedDate="2015-08-22T16:13:02.223" ContentLicense="CC BY-SA 3.0" />
  <row Id="6927" PostTypeId="1" AcceptedAnswerId="6937" CreationDate="2015-08-18T17:01:30.303" Score="5" ViewCount="1790" Body="&lt;p&gt;The &lt;a href=&quot;https://en.wikipedia.org/wiki/Modigliani%E2%80%93Miller_theorem&quot; rel=&quot;nofollow&quot;&gt;Modigliani-Miller theorem&lt;/a&gt;*, a foundation of modern corporate finance, basically states that, in a no-frictions world, two identical firms have the same enterprise value, regardless of their financial structure.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given a firm A, whose liabilities are 50% equity, and 50% debt, and a firm B which is financed 100% by equity, the value of firm A and the value of firm B are the same.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Isn't it just obvious? What am I missing?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;* -&#xA;Modigliani, F.; Miller, M. (1958). &quot;&lt;a href=&quot;http://www.jstor.org/stable/1809766&quot; rel=&quot;nofollow&quot;&gt;The Cost of Capital, Corporation Finance and the Theory of Investment&lt;/a&gt;&quot;. American Economic Review 48 (3): 261–297. JSTOR 1809766.&lt;/p&gt;&#xA;" OwnerUserId="5465" LastEditorUserId="69" LastEditDate="2015-08-19T14:54:08.437" LastActivityDate="2015-08-22T19:35:35.703" Title="Why was Modigliani-Miller so relevant and innovative when it came out?" Tags="&lt;finance&gt;&lt;stock-market&gt;&lt;corporate-finance&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6928" PostTypeId="2" ParentId="6910" CreationDate="2015-08-18T21:24:25.730" Score="1" Body="&lt;p&gt;SlowMagic,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think the terms you are looking for are ‘backward vertical integration’ and ‘horizontal integration’.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A company uses the process of backward vertical integration as it decides to independently carry out a previous production stage. It can also exhibit backward vertical integration when it controls subsidiaries that produce some of the inputs used in the production of its products.&#xA;By mentioning the construction of a mini power station, in order to provide the necessary power for the smelting process, you gave an example of backward vertical integration.&#xA;Another example is an automobile company that owns a tire company, a glass company, and a metal company. Control of these three subsidiaries is intended to create a stable supply of inputs and ensure a consistent quality in their final product. It was the main business approach of Ford and other car companies in the 1920s, who sought to minimize costs by integrating the production of cars and car parts as exemplified in the Ford River Rouge Complex.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Horizontal integration, however, is an economic term that indicates that a company integrates multiple activities at the same level in different production chains.&#xA;Regarding your example, starting to sell the electricity that the mini power plant generated, is an example of horizontal integration. The shutdown of the aluminum smelter, however, is a logical decision because in your case, selling the generated power is more lucrative than the original core business of the company.&#xA;    A familiar example of horizontal integration is a fuel station that also sells grocery items. Music shops that nowadays also sell films and computer games are also a common phenomenon. &#xA;    At production level, we can think of companies like Philips. They produce a large variety of products, ranging from consumer electronics to medical equipment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The discovery of penicillin is attributed to Scottish scientist and Nobel laureate Alexander Fleming in 1928. He showed that, if Penicillium chrysogenum was grown in the appropriate substrate, it would exude a substance with antibiotic properties, which he dubbed penicillin. This serendipitous observation began the modern era of antibiotic discovery.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Last but not least, the beginning of another era, the era of the smartphones and tablets, is also linked to the vertical approach of integration: &lt;a href=&quot;http://venturebeat.com/2010/05/06/vertical-vs-horizontal-silicon-apple-google&quot; rel=&quot;nofollow&quot;&gt;http://venturebeat.com/2010/05/06/vertical-vs-horizontal-silicon-apple-google&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I hope this will help you&lt;/p&gt;&#xA;" OwnerUserId="5468" LastActivityDate="2015-08-18T21:24:25.730" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6929" PostTypeId="1" CreationDate="2015-08-18T21:26:54.453" Score="5" ViewCount="145" Body="&lt;p&gt;In Western society, one's salary is often a taboo topic and people tend to not tell other people what they earn. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In China by contrast, I have been told that asking one's salary is fairly normal social discourse. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems that employees being aware of each other's salaries would be an advantage, as they have more information about what the organization is willing and able to pay. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there an economic reason why people don't reveal their salaries, or is this entirely a cultural taboo?&lt;/p&gt;&#xA;" OwnerUserId="96" LastEditorUserId="264" LastEditDate="2015-08-19T03:32:54.283" LastActivityDate="2015-08-19T20:55:11.457" Title="Is there an economic reason why employees don't share salary information with each other?" Tags="&lt;social-choice&gt;&lt;asymmetric-information&gt;" AnswerCount="3" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="6930" PostTypeId="1" AcceptedAnswerId="6932" CreationDate="2015-08-19T01:37:12.267" Score="5" ViewCount="266" Body="&lt;p&gt;An economics professor told me that General Equilibrium models are a sophistication of barter. Does that imply that they don't include money? And if that is the case, are there any attempts to include it?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Moreover, does this have any implications on the way we understand macroeconomics?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks.&lt;/p&gt;&#xA;" OwnerUserId="5454" LastActivityDate="2015-08-20T02:12:02.597" Title="Do general equilibrium models include money?" Tags="&lt;general-equilibrium&gt;&lt;money&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6931" PostTypeId="2" ParentId="6929" CreationDate="2015-08-19T01:43:05.750" Score="3" Body="&lt;p&gt;dwjohnston,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To answer your question briefly: no, because it is rather a social or psychological matter than it is an economic matter.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is already asked a good question about this subject in The Workplace community: &lt;a href=&quot;https://workplace.stackexchange.com/questions/15397/why-is-discussing-pay-such-a-taboo-how-can-i-get-people-to-talk-about-concrete/15431#15431&quot;&gt;https://workplace.stackexchange.com/questions/15397/why-is-discussing-pay-such-a-taboo-how-can-i-get-people-to-talk-about-concrete/15431#15431&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Feel free to read the (also good) answers. The answer section also contains some handy tips and tricks that you and your co-workers could try.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I hope this will be useful for you.&lt;/p&gt;&#xA;" OwnerUserId="5468" LastEditorUserId="-1" LastEditDate="2017-04-13T12:48:50.357" LastActivityDate="2015-08-19T01:43:05.750" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6932" PostTypeId="2" ParentId="6930" CreationDate="2015-08-19T02:58:48.260" Score="6" Body="&lt;p&gt;While many general equilibrium models do not need to model money to approach the questions that they would like to answer, there are many models that do include money to address questions that need money to be a relevant feature of the model. These models do it in a variety of ways -- some might be more relevant than others. I will try and describe two of the approaches briefly.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Cash-in-advance&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;When I think of a cash-in-advance (CIA) model, the first models that come to mind are Lucas (1982) and Lucas Stokey (1987). Models that take this approach have agents saving in assets and money, but they must finance any consumption solely through their money holdings (basically assets are less liquid than money which isn't the worst approach). There are many critiques of the CIA of which I find Wallace (1998) to be one of the more thoroughly presented.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;New Monetarist&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;More recently there has been a push to use models of money that are less &quot;ad-hoc&quot; about how money works. Some foundational papers of this field are the Kiyotaki Wright papers (1989, 1991, 1993). These papers build a very basic model of money and show what role it plays in economics -- There is a good discussion on Randall Wright's &lt;a href=&quot;https://en.wikipedia.org/wiki/Randall_Wright&quot; rel=&quot;nofollow&quot;&gt;Wikipedia page&lt;/a&gt; under the sub-title &quot;Research contribution.&quot; While these models confirmed some of the reasons for money to exist in a model, they were quite simplistic and lacked many other features of the real economy. A monetary course I took labeled these types of models as &quot;Generation 1 models of money.&quot; There was a group of papers that were known as &quot;Generation 2 models of money, but these shared many of the simplifications made in Generation 1 (so I won't discuss them here).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since this time Lagos Wright (2004) introduced a more complete framework (we referred to these as &quot;Generation 3 models of money.&quot; One of the issues faced by these new monetarist models is that in order to solve the model, one must keep track of the entire distribution of money -- This is computationally infeasible unless the authors introduce a simplification in a different area of the model (in the Lagos Wright model, they simplify the form of utility in order to be able to compute the distribution of money next period). There is on-going research in this area and, in my opinion, is an open area for improvement in the literature.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;References&lt;/h2&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Nobuhiro Kiyotaki and Randall Wright. &quot;On Money as a Medium of Exchange.&quot; Journal of Political Economics. 1989.&lt;/li&gt;&#xA;&lt;li&gt;Nobuhiro Kiyotaki and Randall Wright. &quot;A Contribution to the Pure Theory of Money.&quot; Journal of Economic Theory. 1991.&lt;/li&gt;&#xA;&lt;li&gt;Nobuhiro Kiyotaki and Randall Wright. &quot;A search-theoretic approach to monetary economics.&quot; American Economic Review. 1993.&lt;/li&gt;&#xA;&lt;li&gt;Ricardo Lagos and Randall Wright. &quot;A Unified Framework for Monetary Theory and Policy Analysis.&quot; Journal of Political Economy. 2005.&lt;/li&gt;&#xA;&lt;li&gt;Robert E. Lucas Jr. &quot;Interest Rates and Currency Prices in a Two Country Model.&quot; Journal of Monetary Economics. 1982.&lt;/li&gt;&#xA;&lt;li&gt;Robert E. Lucas Jr and Nancy L. Stokey. &quot;Money and Interest in a Cash-In-Advance Economy.&quot; Econometrica. 1987.&lt;/li&gt;&#xA;&lt;li&gt;Neil Wallace. &quot;A Dictum for Monetary Theory.&quot; Federal Reserve Bank of Minneapolis Quarterly Review. Winter 1998.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="47" LastEditorUserId="47" LastEditDate="2015-08-19T12:20:59.143" LastActivityDate="2015-08-19T12:20:59.143" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6933" PostTypeId="2" ParentId="6367" CreationDate="2015-08-19T10:38:46.633" Score="5" Body="&lt;p&gt;Every of the United States except Vermont is required by law to balance their budgets. 45 states have some sort of constitutional balanced budget provision and another 4 have it by statute. &lt;a href=&quot;http://www.ncsl.org/research/fiscal-policy/state-balanced-budget-requirements-provisions-and.aspx&quot; rel=&quot;nofollow noreferrer&quot;&gt;(Source)&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;According to &lt;a href=&quot;https://books.google.com/books?id=h6DWIXi3CdYC&amp;amp;pg=PA67&quot; rel=&quot;nofollow noreferrer&quot;&gt;Inman (2003)&lt;/a&gt;, such balanced budget provisions were mostly adopted after &lt;a href=&quot;https://en.wikipedia.org/wiki/State_bankruptcies_in_the_1840s&quot; rel=&quot;nofollow noreferrer&quot;&gt;the state defaults of the 1840s&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Following the defaults of state debts during the 1840s, the European&#xA;  bond market was naturally reluctant to lend to U.S. states. The states&#xA;  responded by agreeing to debt repayment schedules for their&#xA;  outstanding debt and then by promising never to default again.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The promise took the form of a constitutional or statutory commitment&#xA;  to run balanced budgets on the current accounts--that is, not to play&#xA;  the default-bailout game. The nondefaulting states and new states&#xA;  entering the Union after 1850 found it important to signal their&#xA;  commitment to balanced budgets; they too passed balanced budget rules.&#xA;  Today, all U.S. states--except Vermont, whose fiscal prudence is&#xA;  legendary--have either constitutional or statuory balanced budget&#xA;  rules aimed at constraining state and local deficit behaviors.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;States have apparently paid some respect to their own balanced budget rules, given that no state has defaulted since the Great Depression: &lt;a href=&quot;http://learnbonds.com/6364/state-bond-defaults/6364/&quot; rel=&quot;nofollow noreferrer&quot;&gt;this source&lt;/a&gt; lists all state bond defaults.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(I am not aware of any federal legislation requiring states to balance their budgets. I suspect, but am not sure, that it would be difficult if not unconstitutional for the federal government to try to foist some balanced budget requirements on the states.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Most sovereign states in contrast do not have balanced budget rules, though some European countries have adopted such rules in the past few years (&lt;a href=&quot;https://en.wikipedia.org/wiki/Balanced_budget_amendment&quot; rel=&quot;nofollow noreferrer&quot;&gt;Wikipedia&lt;/a&gt;). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;P.S. A &lt;a href=&quot;https://money.stackexchange.com/questions/4849/why-cant-a-us-state-default-but-a-eu-state-can&quot;&gt;very similar question&lt;/a&gt; was asked over at money.SE a few years ago.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastEditorUserId="-1" LastEditDate="2017-04-13T12:25:31.177" LastActivityDate="2015-08-19T11:04:11.707" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6934" PostTypeId="2" ParentId="6929" CreationDate="2015-08-19T13:12:34.520" Score="-3" Body="&lt;p&gt;No there shouldn't be an economic reason. As the previous answer says, it regards mainly sociological/cultural aspects. Anyway, if you want to be a bit &quot;abstracted&quot;, if you'd live in a World where everyone knows very perfectly your salary, at parity of jobs, he would demand more if he earns less, and who earns more would earn less. Information asymmetries contributes to let companies discriminate better salaries because they have a lot information more than the single worker and because they live in a more &quot;colluded&quot; framework. It could be a &lt;strong&gt;&lt;em&gt;NON DEMONSTRATED&lt;/em&gt;&lt;/strong&gt; explanation that in China, with a sort of modern Communist thinking, people tend to be more &quot;standardized&quot; (&lt;strong&gt;&lt;em&gt;only in an economical view, without any other meaning&lt;/em&gt;&lt;/strong&gt;) while in capitalism discrimination is more frequent and convenient.&lt;/p&gt;&#xA;" OwnerUserId="5472" LastActivityDate="2015-08-19T13:12:34.520" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6935" PostTypeId="2" ParentId="6927" CreationDate="2015-08-19T13:27:32.170" Score="1" Body="&lt;p&gt;Just think to one main point: there is a good example about &quot;the farmer and the milk&quot; made by Merton Miller (a man that has no need to be presented). If a farmer has a huge quantity of milk to sell, and it sells the whole milk it earns N. Another farmer, with the same amount and kind of milk, decides to sell milk cream at an higher price but the skim milk at much lower price than the cream. If you sum the two you will have N again. So, according to theorem's assumptions, &lt;strong&gt;selling whole milk (Unlevered) or milk cream + skim milk (Levered)&lt;/strong&gt; let these two farmers earn the same.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It would surely sound you abstract, but it reflects a lot about capital structure! You will learn while advancing your skills in Corporate Finance and related topics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;source: &lt;a href=&quot;http://www.investopedia.com/terms/m/modigliani-millertheorem.asp&quot; rel=&quot;nofollow&quot;&gt;http://www.investopedia.com/terms/m/modigliani-millertheorem.asp&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="5472" LastActivityDate="2015-08-19T13:27:32.170" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6936" PostTypeId="2" ParentId="6925" CreationDate="2015-08-19T13:43:41.543" Score="2" Body="&lt;p&gt;Because they are the so called &quot;Fly to Quality&quot;. When markets turmoil investors look where to safely invest their money to avoid volatility and risk. This lead to a depreciation (because of the more demand in bonds, the less bond rate) in rates. After the QE, as you said, the left risk about the already solid Germany was cut out because of the unlimited coverage by the ECB on European Bonds. Germany and US are considered the two solid major economics of the World and every rational investor who wants to do not run too risk (because it is impossible to avoid it entirely, see &quot;idiosyncratic risk&quot; for further information) prefers to invest there. A similar but slightly different chapter is for gold, considered a &quot;Fly-to-Quality&quot; good as well. Concluding, part of the correlation is due to economic relationships that there are between US and EU and it also accentuates the effects of important macroeconomic news of one or the other party. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;TIP&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Do you know why, sometimes, it is possible to see negative rates (as Danish or Switzerland or some Scandinavians)? Because sometimes, even if the rate is negative (you have to pay the issuer) the cost of carry is higher and then investors just leave their money there, paying less than to disinvest and invest again in another kind of security. This happened for some days to German rates too!&lt;/p&gt;&#xA;" OwnerUserId="5472" LastEditorUserId="5472" LastEditDate="2015-08-20T22:36:01.683" LastActivityDate="2015-08-20T22:36:01.683" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6937" PostTypeId="2" ParentId="6927" CreationDate="2015-08-19T14:43:50.463" Score="5" Body="&lt;p&gt;People, particularly business leaders, seem to remain confused about this issue even today. At the core of is the question &lt;em&gt;Is equity finance expensive?&lt;/em&gt;. We certainly observe in the data that the realized returns on firm debt are much lower than the realized returns on firm equity. &lt;em&gt;Does this mean that firms have too much equity?&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If equity capital always costs 9 percent per year and debt always 3 percent then a firm would be worth more if management kept equity to a minimum and used as much debt as possible. But in the real world there are lots of complications that might make debt cheaper than equity. Monitoring costs are real, default is costly, tax wedges are large, equity is riskier, and contracts are incomplete. It may be that factoring in these costs, which are hard to measure, provides a complete explanation for the differences in return between debt and equity. Or maybe not. If observable characteristics fail to explain this difference does this mean that firms should take on more debt? Or does it mean that these characteristics are poorly measured?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Modigliani-Miller provide a clear way of thinking about this question. In the absence of frictions, as you shrink the amount of equity and offset it with more debt the required returns adjust to leave the firm's cost of capital unchanged. But even so, there is no problem with return on debt being lower than the return on equity. So in and of itself, there is nothing to learn from the lower cost of debt compared with equity. This is a surprisingly robust result:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The two Modigliani-Miller theorems hold good, irrespective of&#xA;  individual differences between shareholders' valuations of risk,&#xA;  leverage effects, durability of loans, etc. The logic of the theorems&#xA;  rests in fact upon the assumption of perfect markets, namely that a&#xA;  shareholder can always, through his own borrowing or lending, compose&#xA;  his asset portfolio as he sees fit and that he can, without costs,&#xA;  give it the composition he desires with respect to risk, leverage,&#xA;  etc. If for instance the risk level of a firm's assets is increased,&#xA;  the shareholders can neutralize this by lowering the risk of other&#xA;  assets in their portfolios.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/1985/press.html&quot; rel=&quot;nofollow&quot;&gt;Press Release: 15 October 1985 THIS YEAR'S ECONOMICS PRIZE AWARDED FOR PIONEERING STUDIES OF SAVING AND OF FINANCIAL MARKETS&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is an extremely valuable insight. The explanation is also clear and powerful. So good and powerful that it is hard to see the world any different once you hear it. In one of the Sherlock Holmes stories, Holmes says &quot;The world is full of obvious things which nobody by any chance ever observes.&quot; In TV tropes this is called &lt;a href=&quot;http://tvtropes.org/pmwiki/pmwiki.php/Main/SeinfeldIsUnfunny&quot; rel=&quot;nofollow&quot;&gt;Seinfeld Is Unfunny&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;It wasn't old or overdone when they did it. But the things it created&#xA;  were so brilliant and popular, they became woven into the fabric of&#xA;  that show's genre. They ended up being taken for granted, copied and&#xA;  endlessly repeated. Although they often began by saying something new,&#xA;  they in turn became the status quo.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Additionally, it is hard to remember from the perspective of the present how devoid of theory was corporate finance in the period before Modigliani and Miller. Here's a quote from an award ceremony speech related to the Nobel award:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Until the latter part of the 1950s, no viable theory of corporate&#xA;  financing of investment, debt, taxes, and so forth had been developed.&#xA;  It was not till Modigliani and Miller presented their theorems that&#xA;  more stringent theorizing began to appear in this field. By treating&#xA;  financing decisions within the framework of a theory of&#xA;  financial-marketplace equilibrium, Modigliani and Miller provided the&#xA;  general guidelines for continued research in this area.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/1985/presentation-speech.html&quot; rel=&quot;nofollow&quot;&gt;Award Ceremony Speech: Presentation Speech by Professor Ragnar Bentzel of the Royal Academy of Sciences&lt;/a&gt; &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-08-20T12:50:29.193" LastActivityDate="2015-08-20T12:50:29.193" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6938" PostTypeId="2" ParentId="6929" CreationDate="2015-08-19T20:55:11.457" Score="3" Body="&lt;p&gt;Two remarks:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Firstly, there is some research on subjective wellbeing, where a common theme is that people's happiness seems to depend more on a relative comparison of their material wellbeing to that of those around them than it does on their absolute level of material wellbeing. If two people share salary information then it will generally be true that one of the two will be subjected to the disappointment of learning that his/her salary is below that of the other. Since, in many societies, making others feel uncomfortable is in itself embarrassing, neither party is likely to be happy with this exchange of information.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A more strategic reason: I would like my employer to think that I have a reputation for keeping my salary secret. Why? Suppose my employer expects that I will tell people about my significant pay increases. If my colleagues learn that I get a pay rise they can rationally infer that the company is able to pay its employees more. They might respond to this new knowledge by also demanding a pay increases. If the firm anticipates that giving me a pay rise means that it has to give everyone else a pay rise too then it will be more reluctant to increase my pay. Thus, I would prefer not to tell anyone about my pay rise.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2015-08-19T20:55:11.457" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6939" PostTypeId="2" ParentId="6930" CreationDate="2015-08-20T02:12:02.597" Score="1" Body="&lt;p&gt;This might be more of a comment, but hopefully it helps. If you think of the classic Walrasian equilibrium, it can be called a &quot;generalization of barter&quot; in the sense that: In the beginning, everyone starts with some set of goods (and no money). In the end, everyone finishes with a different set of goods (and no money).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now unlike with barter, in a Walrasian equilibrium you usually tell a nice story that &lt;em&gt;does&lt;/em&gt; involve money about what just took place in the middle. Namely, you can suppose that people used money in the process of exchanging these goods, and note that there exist constant prices for each of the goods such that the money exchanged all &quot;adds up&quot; correctly. And often you extend that story by assuming that people start with initial endowments or so on. But it's still a sophistication of barter in that the money has no intrinsic value and is just a means/mechanism/storytelling device for people to exchange goods in order to Pareto-improve.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Edit/PS, it occurs to me on re-reading the question that you may not have heard of Walrasian equilibrium or general equilibrium models, in which case I definitely recommend reading about them, as it should help clarify the comment.)&lt;/p&gt;&#xA;" OwnerUserId="2856" LastActivityDate="2015-08-20T02:12:02.597" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6940" PostTypeId="2" ParentId="5278" CreationDate="2015-08-20T04:29:32.163" Score="4" Body="&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Commodity_currency&quot; rel=&quot;nofollow&quot;&gt;From wikipedia&lt;/a&gt;: A commodity currency is a name given to currencies of countries which depend heavily on the export of certain raw materials for income. These countries are typically developing countries, e.g. countries like Burundi, Tanzania, Papua New Guinea; but also include developed countries like Canada and Australia.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a more practical sense, if the value of a currency is heavily dependent on the value of the natural resources exported, it can be considered a commodity currency. For example, look at the appreciation of the AUD during the recent mining boom. This appreciation was driven primarily by increased Chinese demand raising prices of commodities Australia was endowed with.&lt;/p&gt;&#xA;" OwnerUserId="40" LastActivityDate="2015-08-20T04:29:32.163" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6941" PostTypeId="1" CreationDate="2015-08-20T14:06:43.333" Score="8" ViewCount="7878" Body="&lt;p&gt;Let's say we introduce a monetary system where each piece of money is printed with an expiration date - a year, perhaps.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm imagining something rather different from inflation (although I do not know whether it would actually behave much differently) :&lt;br&gt;&#xA;With inflation, the entire money supply gradually devalues at some set rate.&lt;br&gt;&#xA;With an expiration date, there is no devaluation for a while, and then a sudden drop. However, at that point (and in fact for quite some while already) there will be new money in print, which will still have the same value the old money would have had a day ago (plus/minus the undoubtedly still existing inflation rates on top of that, but unless that's somehow important in this, let's ignore that for the purpose of this question.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the setup would essentially be a government infinitely printing money BUT to prevent hyperinflation, old money is suddenly and permanently lost from the economy. Presumably the printing rate would roughly coincide with the expiration date such that, at any given, about the same amount of money (plus/minus external demand but let's ignore that as well) is available. It may just suddenly change owner.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What will happen, short- and long term? (Obviously short time a lot of things, like savings plans and how banks work would have to significantly change or they would downright fall flat, but after a while, assuming our hypothetical government wouldn't just frightenedly revert the laws after two years of resulting economic failure or something, a new economy would build around these new restrictions. What would that be like - without delving too deeply into pure speculation. Are there useful models adaptable/built for such a situation?)&lt;/p&gt;&#xA;" OwnerUserId="5478" LastActivityDate="2019-05-19T22:52:09.387" Title="What would be the effects of an expiration date on currency?" Tags="&lt;currency&gt;&lt;money-supply&gt;&lt;money&gt;" AnswerCount="8" CommentCount="10" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6942" PostTypeId="1" CreationDate="2015-08-20T14:07:20.370" Score="1" ViewCount="105" Body="&lt;p&gt;ln(Q) = 10-0.7ln(P), where P is price and Q is demand.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is the price elasticity of demand?&lt;/p&gt;&#xA;" OwnerUserId="4560" LastEditorUserId="2776" LastEditDate="2017-04-24T14:35:24.787" LastActivityDate="2017-04-24T14:35:24.787" Title="Find Price elasticity of demand in this example" Tags="&lt;microeconomics&gt;&lt;econometrics&gt;" AnswerCount="2" CommentCount="1" ClosedDate="2015-08-20T19:19:54.490" ContentLicense="CC BY-SA 3.0" />
  <row Id="6943" PostTypeId="1" AcceptedAnswerId="6945" CreationDate="2015-08-20T14:16:36.713" Score="3" ViewCount="180" Body="&lt;p&gt;US law restricts the &lt;a href=&quot;https://en.wikipedia.org/wiki/Government-sponsored_enterprise&quot; rel=&quot;nofollow noreferrer&quot;&gt;Government-sponsored enterprises&lt;/a&gt; (GSE) &lt;a href=&quot;https://en.wikipedia.org/wiki/Fannie_Mae&quot; rel=&quot;nofollow noreferrer&quot;&gt;Fannie Mae&lt;/a&gt; and &lt;a href=&quot;https://en.wikipedia.org/wiki/Freddie_Mac&quot; rel=&quot;nofollow noreferrer&quot;&gt;Freddie Mac&lt;/a&gt; to purchase only those residential mortgages smaller (by origination balance) than a limit, the &quot;conforming loan limit&quot;. This limit is generally speaking fixed by the number of units in the residence and the year of origination (or purchase by the GSE). For example in 2015:&#xA;&lt;a href=&quot;https://i.stack.imgur.com/lLJob.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/lLJob.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, in some counties, where the median sale price of homes is high enough the limit is set higher and these are known as high cost counties. Additionally, limits are higher for Alaska, Hawaii, Virgin Islands (since 1992) and Guam (since 2001). The &quot;jumbo conforming loan limit&quot; for 2015 was:&#xA;&lt;a href=&quot;https://i.stack.imgur.com/23nS9.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/23nS9.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Loans above these limits are known as &quot;jumbo loans&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;I would like to classify particular mortgages where I know the state, county, the year, the number of units, and the loan amount into conforming, jumbo conforming, and jumbo loans. Is there a cross-walk using this data available? If so, where might I find it?&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For some years, like 2015, this is straightforward, just &lt;a href=&quot;http://www.fhfa.gov/DataTools/Downloads/Pages/Conforming-Loan-Limits.aspx&quot; rel=&quot;nofollow noreferrer&quot;&gt;download the files from the FHFA website&lt;/a&gt;. But that site only has years 2008 - 2014. Unfortunately, conforming loan limits have existed since 1970 when Fannie Mae was authorized to purchase residential mortgage loans. And many of the important mortgage data sets go back long before 2008 including LPS, HMDA, and Corelogic. As such, I need a much longer time series for these limits. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In case this feels like a pure data request and not economics, please note that these limits are used in numerous economics and finance papers. To name a few:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://link.springer.com/article/10.1007/BF00159793&quot; rel=&quot;nofollow noreferrer&quot;&gt;The impact of the agencies on conventional fixed-rate mortgage&#xA;yields&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2391941&quot; rel=&quot;nofollow noreferrer&quot;&gt;The Interest Rate Elasticity of Mortgage Demand: Evidence from&#xA;Bunching at the Conforming Loan Limit&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://papers.ssrn.com/sol3/papers.cfm?abstract_id=298379&quot; rel=&quot;nofollow noreferrer&quot;&gt;The Effect of Conforming Loan Status on Mortgage Yield Spreads: A&#xA;Loan Level Analysis&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;http://link.springer.com/article/10.1007/s10693-005-4358-2&quot; rel=&quot;nofollow noreferrer&quot;&gt;Does Regulatory Capital Arbitrage, Reputation, or Asymmetric&#xA;Information Drive Securitization&lt;/a&gt;?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://scholar.google.com/scholar?start=10&amp;amp;q=conforming%20loan&quot; rel=&quot;nofollow noreferrer&quot;&gt;and many more&lt;/a&gt;.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="69" LastActivityDate="2015-08-21T20:33:20.733" Title="Conforming mortgage loan limits by county and year" Tags="&lt;finance&gt;&lt;data-request&gt;&lt;financial-markets&gt;&lt;property&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6944" PostTypeId="1" AcceptedAnswerId="6953" CreationDate="2015-08-20T15:29:12.853" Score="3" ViewCount="147" Body="&lt;p&gt;If the government prints money to build housing for cheap rental.  Is that a good idea? Or will it damage the economy causing inflation?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Rent will generate income.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Low rent will give poorer more spending money. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This would be government housing, rental only.  Not for sale.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is looking at the UK, based on the idea of one of the opposition leader candidate's idea.&lt;/p&gt;&#xA;" OwnerUserId="5479" LastEditorUserId="5479" LastEditDate="2015-09-03T10:18:04.187" LastActivityDate="2015-09-03T10:18:04.187" Title="&quot;Printing&quot; money to build housing" Tags="&lt;quantitative-easing&gt;" AnswerCount="2" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="6945" PostTypeId="2" ParentId="6943" CreationDate="2015-08-20T15:59:31.187" Score="3" Body="&lt;p&gt;The high-cost area conforming loan limits within the contiguous United States &lt;a href=&quot;https://www.fanniemae.com/content/announcement/0827.pdf&quot; rel=&quot;nofollow&quot;&gt;were created by HERA&lt;/a&gt; (the Housing and Economic Recovery Act of 2008) and therefore do not exist prior to 2008. For periods prior to the enactment of HERA, just use the &lt;a href=&quot;https://www.fanniemae.com/content/fact_sheet/historical-loan-limits.pdf&quot; rel=&quot;nofollow&quot;&gt;historical nationwide conforming limits&lt;/a&gt;. There was also a temporary bump to the conforming limits enacted a few months before the passage of HERA, in the &lt;a href=&quot;https://en.wikipedia.org/wiki/Economic_Stimulus_Act_of_2008&quot; rel=&quot;nofollow&quot;&gt;Economic Stimulus Act of 2008&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The high-cost areas that you identify (Alaska, Hawaii, Virgin Islands since 1992, and Guam since 2001) had, by statute, high-cost area loan limits that were capped at, and as a result effectively always, 1.5 times the conforming loan limits for the contiguous US states. Somewhat amusingly, the legal text responsible for the cap at 1.5x is actually still in the law; the authority granted to the Director of the FHFA to modify conforming loan limits was just tacked on to the end. You can find this text at &lt;a href=&quot;https://www.law.cornell.edu/uscode/text/12/1717&quot; rel=&quot;nofollow&quot;&gt;12 USC § 1717(b)(2)(C)&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="264" LastEditorUserId="264" LastEditDate="2015-08-21T01:45:11.863" LastActivityDate="2015-08-21T01:45:11.863" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6946" PostTypeId="2" ParentId="6942" CreationDate="2015-08-20T17:34:25.173" Score="2" Body="&lt;p&gt;The price elacitiy of demand is $\frac{\partial Q}{\partial P}\cdot \frac{P}{Q(P)}$. To get Q(P) you have to write both sides of the equations as an exponent of the base e. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ e^{ln(Q)}=e^{10-0.7ln(P)} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ Q=e^{10}\cdot e^{-0.7ln(P)}\Rightarrow Q= e^{10}\cdot \left(e^{ln(P)}\right)^{-0.7}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Q(P)=e^{10}\cdot p^{-0.7} $$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therfore&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{\partial Q}{\partial P}=e^{10}\cdot (-0.7)\cdot p^{-1.7}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think you can take it from here. If not, feel free to ask.&lt;/p&gt;&#xA;" OwnerUserId="371" LastEditorUserId="371" LastEditDate="2015-08-21T02:06:58.607" LastActivityDate="2015-08-21T02:06:58.607" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6947" PostTypeId="2" ParentId="6944" CreationDate="2015-08-20T17:45:24.043" Score="3" Body="&lt;p&gt;Money doesn't build houses: people do. Building houses requires real resources. Money is not a real resource, it is just a means of exchanging resources. So, as a first approximation, printing money just leads to inflation.&lt;sup&gt;1&lt;/sup&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is an additional problem to consider. People who spend their time building houses cannot use that time for producing other goods, for example food. Even if we forget about inflation, it is clear that if more people are building houses, fewer must be growing food. With less food being produced, its price will increase.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A good maxim to remember is &quot;there is no such thing as a free lunch&quot;. The nature of the economy is that resources are limited and valuable. Unfortunately, in political discourse there is a notable tendency to focus too much on the benefits and too little on the costs.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;sub&gt;1. There is some evidence that a relatively low rate of inflation can actually be beneficial for an economy (versus no inflation). There a few explanations for this, for example wage-stickiness, but I think that discussion is beyond the scope of this question. Note that, even then, the benefit is from the &lt;em&gt;inflation itself&lt;/em&gt;, not from &lt;em&gt;what&lt;/em&gt; the government spends the money on.&lt;/sub&gt;&lt;/p&gt;&#xA;" OwnerUserId="2" LastActivityDate="2015-08-20T17:45:24.043" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6948" PostTypeId="2" ParentId="6942" CreationDate="2015-08-20T19:01:50.540" Score="3" Body="&lt;p&gt;Did you know you can write price elasticity $\varepsilon$ as $\varepsilon \equiv  \frac{d \log Q}{d \log P}$? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Indeed, $\frac{d \log Q}{d \log P} =\frac{dQ}{dP} \frac{P}{Q}$. Check out wiki on elasticity of a function if you want more detail!) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Using this &quot;log notation&quot; for elasticity, it is easy to see without putting pen to paper that in this example, $\varepsilon = -0.7$.&lt;/p&gt;&#xA;" OwnerUserId="5433" LastActivityDate="2015-08-20T19:01:50.540" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6949" PostTypeId="2" ParentId="6941" CreationDate="2015-08-20T19:12:22.093" Score="5" Body="&lt;p&gt;A bill with an expiration date does not become worthless suddenly. Clearly its value would decrease over time until, just before the expiration date, it was next to worthless. Think about it: how much would you pay for a $1 bill that expires in 5 minutes? Certainly a lot less than you would for one that expires in 6 months.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This constantly changing value would make it hard to use as a medium of exchange. Whenever buying or selling something, one would have to look not just at the face value of the bill, but also at the expiration date, to be able to calculate its real value. People would probably start carrying calculators next to their wallets.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Cattle (which obviously &quot;expire&quot;) were once &lt;a href=&quot;http://storyarchaeology.com/cows-as-currency/&quot; rel=&quot;noreferrer&quot;&gt;used as currency&lt;/a&gt;, so it certainly could work. But that does not mean it is ideal.&lt;/p&gt;&#xA;" OwnerUserId="2" LastActivityDate="2015-08-20T19:12:22.093" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6950" PostTypeId="2" ParentId="6941" CreationDate="2015-08-20T19:43:35.313" Score="3" Body="&lt;p&gt;Having paper money expire is equivalent to setting a negative interest rate. In fact, your question is closely related to one asked before, &quot;&lt;a href=&quot;https://economics.stackexchange.com/questions/5757/why-is-10-the-necessary-upper-bound-for-a-negative-interest-rate&quot;&gt;Why is 10% the necessary upper bound for a negative interest rate?&lt;/a&gt;&quot; The practical issues raised in suriv's answer are real— the particular way in which you've designed it isn't ideal. Miles Kimball has a more complicated proposal, &lt;a href=&quot;http://blog.supplysideliberal.com/post/46244331402/quartz-5-how-subordinating-paper-currency-to&quot; rel=&quot;nofollow noreferrer&quot;&gt;described on his blog&lt;/a&gt;, that would in theory address a lot of the practical concerns that are generated by approaches like expiration dates or random invalidation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The application for this is, obviously, to break through the zero lower bound on interest rates— it's designed to increase, not decrease, inflation, as it lowers the value of the outstanding money supply.&lt;/p&gt;&#xA;" OwnerUserId="264" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-08-20T19:43:35.313" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6951" PostTypeId="1" CreationDate="2015-08-20T19:59:35.260" Score="1" ViewCount="34" Body="&lt;p&gt;In Michael Carter's &quot;Foundation of Mathematical Economics&quot; we have the following exercise: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Prove that the input requirement sets are nested. That is, prove that $V(y') \supseteq V(y)$ $ \forall $ $y' \leq y$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This seems a bit odd. I have the following: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $X \in V(y)$ Then $(y,-x) \in Y$ where Y is the production possibility set. &#xA;Then by free disposal, it follows that $(y',-x) \in Y $ $\forall$  $y' \leq y$  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems like the conclusion should be then that $V(y) \supseteq V(y') \forall y' \leq y$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In words: It seems like the input requirement for out y' where $y' \leq y$ should be less than or equal to the input requirement for y. And because of this, the input requirement for y should contain the input requirements for y'. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can someone give some direction here? Why is it that we are saying the input requirements for a lesser output is somehow a super set for the input requirements of a greater output? &lt;/p&gt;&#xA;" OwnerUserId="5481" LastActivityDate="2015-08-20T19:59:35.260" Title="Question about nested input requirements" Tags="&lt;microeconomics&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6952" PostTypeId="2" ParentId="6941" CreationDate="2015-08-20T20:13:34.980" Score="2" Body="&lt;p&gt;I haven't earned enough reputation to comment and so I will post this here: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This money would very obviously devalue as it reaches maturation because it loses its ability to function as a store of value. We could also assume that it would lose value exponentially and become completely valueless before the actual date of expiration. And it actually seems such a currency should be valueless. Assume person A has 10 dollars of this currency and wants to buy some good from person B. Person B must discount the 10 dollars in accordance with whatever value he thinks person C - from whom B will buy some goods - will ascribe the currency. Carry this chain of thought forward ad infinitum. Given that each successive transaction occurs more closely to the expiration date, such a chain of thought yields that the currency is valueless. This currency would only be valuable if a person was stupid enough to accept it. &lt;/p&gt;&#xA;" OwnerUserId="5482" LastActivityDate="2015-08-20T20:13:34.980" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6953" PostTypeId="2" ParentId="6944" CreationDate="2015-08-21T08:32:04.347" Score="4" Body="&lt;p&gt;This is a partial answer, in the sense that it addresses the case for state-sponsored house building, rather than the question of how that should be financed. In general, any means by which the state might finance spending is likely to introduce some kind of distortion into the economy. The question then faced is whether that spending generates benefits sufficient to offset the cost of the distortion.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I agree with the general sentiment of others that &lt;em&gt;if&lt;/em&gt; there is a well-functioning, uninhibited market for housing then any intervention in that market (such as an artificial increase in supply) is likely to reduce overall efficiency and, in particular, lead to the misallocation of resources within the economy more broadly. @suriv outlined the intuition for this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, if there are distortions that prevent the housing market from functioning efficiently then a state-sponsored increase in housing supply can be efficiency enhancing. This is a simple application of the more general &quot;Theory of the Second Best&quot;, which holds that if there is pre-existing distortion in the economy then introducing another distortion can sometimes make things better, not worse.&#xA; There are various reasons why the housing market might not function efficiently. Here are a couple:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Planning laws are sufficiently restrictive so as to reduce the market's ability to supply housing. For example, if planning permission is hard to obtain then developers who have planning permission have a kind of monopoly power over the ability to build houses and are likely to ration supply in order to increase profits. N.B If this is really the problem, then reform of the planning system is likely to be more efficient than a direct housing market intervention. But such reform might also be politically problematic.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Property builders are extremely vulnerable to economic downturns because housing demand is pro-cyclical. They are therefore unwilling to commit to risky, large-scale construction programmes that have long time-horizons.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Speculation on rising property prices induces people to hold undeveloped land or un(der)occupied properties in the hope of selling later when the price is higher.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;All of these factors seem to be important considerations in the UK market (which is, I guess, the example that motivated your question). Since we are talking about state-sponsored house building, here is a graph that shows how much of the slack private-sector housebuilders in the UK took-up when the state withdrew from house building in the 1980s:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/ex0hV.gif&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/ex0hV.gif&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The answer is &quot;basically none&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But does that mean that the market is now failing to supply enough housing, or just that there was previously an inefficient excess of supply that the market has now corrected? A figure that, I think, is broadly indicative of the fact that the UK housing marketing is currently not functioning well comes from &lt;a href=&quot;http://researchbriefings.files.parliament.uk/documents/SN06921/SN06921.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;this UK government report&lt;/a&gt;. It states that the UK is currently building houses at a rate of 135,000/year, but creating new households at a rate of 240,000/year. The 240,000 figure does not include either backlog from undersupply in past years, or demand for housing from foreign speculators (&lt;a href=&quot;http://www.ft.com/cms/s/0/605cdea2-fb69-11e2-a641-00144feabdc0.html#axzz3jR1v4E8k&quot; rel=&quot;nofollow noreferrer&quot;&gt;the FT reports&lt;/a&gt; that 75% of new homes in London are bought by foreigners, many of whom are speculators or will otherwise not occupy the property full-time). The UK has never in its history managed to build 240,000 homes per year except at times when the state accounted for close to half of all house building.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;As somewhat of an aside, the effects of this long-term failure to meet demand upon the price of UK housing has been significant. Here is a comparison of various national house price indices from &lt;a href=&quot;http://www.economist.com/blogs/dailychart/2011/11/global-house-prices&quot; rel=&quot;nofollow noreferrer&quot;&gt;The Economist&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/9w7Bh.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/9w7Bh.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If one believes that such price growth is the consequence of a distortion in the market then it has important knock-on consequences for other aspects of economic efficiency: it encourages speculation and high levels of indebtedness, distorts investment decisions, and induces internationally mobile workers to leave the UK. As regional price disparities are magnified by rapid price growth, internal migration is also potentially distorted. If we care about equality then this kind of price growth also implies a growing wealth gap between property owners and non-owners.&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2015-08-21T13:11:43.970" LastActivityDate="2015-08-21T13:11:43.970" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6954" PostTypeId="1" CreationDate="2015-08-21T11:23:55.800" Score="1" ViewCount="206" Body="&lt;p&gt;A monopoly firm has an incentive to increase the price and decrease the produced quantity in order to increase its revenues. But this decreases the social welfare. The government can intervene in several ways, one of which is to set a maximum price for the product. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ideally, the price set by the government should be equal to the equilibrium price, because then the social welfare is maximized. However, in order to know this socially-optimal price, the government must know the cost curve of the seller. A monopolist seller might decide to hide the true cost curve and claim that the cost is higher than it is, in order to make the government raise the maximum price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;MY QUESTION IS: what can a government do in order to approximate the socially-optimal price? I am interested in references to both theoretical suggestions and practical case-studies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;NOTE: I am interested even in a very simple case, in which the monopolist's price per unit can be assumed to be constant, so that the only hidden information is that constant.&lt;/p&gt;&#xA;" OwnerUserId="385" LastActivityDate="2015-12-20T17:09:18.857" Title="Approximating the socially-optimal price in a monopolist market" Tags="&lt;reference-request&gt;&lt;monopoly&gt;&lt;pricing&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6955" PostTypeId="1" AcceptedAnswerId="7022" CreationDate="2015-08-21T11:56:25.190" Score="2" ViewCount="43" Body="&lt;p&gt;The standard analysis of repeated games assumes that the payoff of a player from a repeated game is a sum (or arithmetic mean, or discounted sum) of the payoffs in the basic games.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But what if the players have decreasing marginal returns?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, suppose the basic game is &lt;a href=&quot;https://en.wikipedia.org/wiki/Matching_pennies&quot; rel=&quot;nofollow&quot;&gt;Matching Pennies&lt;/a&gt;. In each basic game, a player can either win 1 or lose 1. However, the average utility of a player from winning e.g. 10 times, is &lt;em&gt;not&lt;/em&gt; 1 - it may be less than 1 if the player has decreasing marginal returns.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are there references that deal with such repeated games?&lt;/p&gt;&#xA;" OwnerUserId="385" LastEditorUserId="1601" LastEditDate="2015-08-26T13:47:45.287" LastActivityDate="2015-08-26T13:53:36.157" Title="Repeated games with decreasing marginal returns" Tags="&lt;reference-request&gt;&lt;game-theory&gt;&lt;repeated-games&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6956" PostTypeId="1" AcceptedAnswerId="6957" CreationDate="2015-08-21T12:23:44.173" Score="1" ViewCount="1414" Body="&lt;p&gt;Given the company's production function $f(L,K)=L^{1/3}K^{3/4}$, find slope of the isoquant passing through $(L,K)=(20,40)$ is equal to $-4/5$ (K is on the vertical axis). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I need to state whether the statement above is true or false. In my opinion that is true because i need to calculate $MRTS_{LK}$ which is obviously equal to $-4/5$, but the answer in my textbook is: $-8/9$. Thus my question is am i doing something wrong or just the answer in my textbook is wrong?&lt;/p&gt;&#xA;" OwnerUserId="5486" LastActivityDate="2015-08-21T14:46:18.927" Title="Production function and isoquant slope" Tags="&lt;microeconomics&gt;&lt;production-function&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6957" PostTypeId="2" ParentId="6956" CreationDate="2015-08-21T13:52:32.417" Score="2" Body="&lt;p&gt;The book is right. The proper way to go about this is of course to work out the theory and the math before plugging in any specific numbers. Fixing the quantity produced, we have &#xA;$$ \bar Q = L^bK^a \implies K = (\bar Q)^{1/a}L^{-b/a}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, since capital is on the vertical axis&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {dK}{dL} = -\frac{b}{a}(\bar Q)^{1/a}L^{(-b/a)-1} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that we do &lt;em&gt;not&lt;/em&gt; differentiate $\bar Q$ since we &lt;em&gt;want&lt;/em&gt; it to be fixed, for different combinations of inputs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Inserting the production function expression&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {dK}{dL}= -\frac{b}{a}[L^bK^a]^{1/a}L^{(-b/a)-1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies \frac {dK}{dL}= -\frac{b}{a}\frac{K}{L}$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, plug in the specific numbers: $b=1/3, a=3/4, K = 40, L = 20$ so&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {dK}{dL} = -\frac{1/3}{3/4}\frac{40}{20} = -\frac{4}{9}\cdot 2 = -\frac{8}{9}$$&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-08-21T14:46:18.927" LastActivityDate="2015-08-21T14:46:18.927" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6958" PostTypeId="1" CreationDate="2015-08-21T18:44:35.960" Score="1" ViewCount="54" Body="&lt;p&gt;I am asking to myself if we must use a different discount rate on rival and non rival goods. In standard Solow-Swann model, we use generally the discount factor $\rho$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;More formally, let's give the workhorse model used in environmental economics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$max \int_{0}^{\infty} u(c(t),s(t)) e^{-\rho t}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $c(t)$ is consumption (rival good) and $s(t)$ is the environmental quality (or amenities) which is a non rival good by definition.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's say that $u(c(t),s(t))$ is an additive utility function which could be defined as &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$u(c,s)=\frac{c^{1-\sigma}}{1-\sigma}+\frac{s^{1-\phi}}{1-\phi}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $\phi$ and $\sigma$ are elasticities. Also, to be complete, the constraint would be as &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\dot{s}\left(t\right)=-c(t)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question that I ask to myself is why an agent (or social planner) uses the same discount rate for a rival (consumption) and non rival (environmental quality.) ? For example, I have completely different preferences for consumption and environment for future. So, how can I use the same discount $\rho$ ?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is an interesting paper of &lt;a href=&quot;https://www.dropbox.com/s/x0sqfpyjo6schln/Endres%20et%20al.%20-%202014%20-%20Intergenerational%20equity%20with%20individual%20impatience%20in%20a%20model%20of%20optimal%20and%20sustainable%20growth.pdf?dl=0&quot; rel=&quot;nofollow&quot;&gt;Endres et al. (2014)&lt;/a&gt; where authors use individual and social discount rates which are different. &#xA;In appendix B. (at page 631 of the paper), they define $A$ and $B$ where they say $A\neq B$ because they say each person treats differently rival and non rival goods.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, is there a big caveat of growth models which contain rival and non rival goods in utility function ?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks in advance for your hints.&lt;/p&gt;&#xA;" OwnerUserId="2938" LastEditorUserId="2938" LastEditDate="2015-08-21T18:49:39.413" LastActivityDate="2015-08-21T18:49:39.413" Title="discount factor on rival and non-rival goods" Tags="&lt;economic-growth&gt;&lt;optimal-control&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6961" PostTypeId="1" AcceptedAnswerId="6963" CreationDate="2015-08-21T21:03:18.120" Score="4" ViewCount="1156" Body="&lt;p&gt;I have been reading a BBC news article about inflation in the UK, which is saying that inflation has recently become negative (&lt;a href=&quot;http://www.bbc.co.uk/news/business-33147660&quot; rel=&quot;nofollow&quot;&gt;http://www.bbc.co.uk/news/business-33147660&lt;/a&gt;). The article suggests that this is a bad thing. However, I would have thought that positive inflation is generally a bad thing, because it creates instability, resulting in people spending all their money rather than saving it. Certainly, I know that hyperinflation can cause a huge deal of trouble. Can somebody explain why positive inflation (in modest quantities) is necessarily a good thing?&lt;/p&gt;&#xA;" OwnerUserId="5493" LastActivityDate="2015-08-22T20:51:18.553" Title="Why is modest inflation a good thing?" Tags="&lt;macroeconomics&gt;&lt;inflation&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ClosedDate="2017-02-07T21:33:58.113" ContentLicense="CC BY-SA 3.0" />
  <row Id="6963" PostTypeId="2" ParentId="6961" CreationDate="2015-08-22T08:03:35.323" Score="3" Body="&lt;p&gt;I am copying and pasting from an answer I wrote at &lt;a href=&quot;https://economics.stackexchange.com/questions/166/from-an-economics-perspective-what-are-the-ramifications-of-a-currency-with-fix/168#168&quot;&gt;From an economics perspective, what are the ramifications of a currency with fixed money supply?&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;A moderate degree of currency inflation serves a number of useful functions in the economy. The most obvious are:&lt;/p&gt;&#xA;  &#xA;  &lt;ul&gt;&#xA;  &lt;li&gt;It induces people to spend their money before it loses its value. In&#xA;  a deflationary environment there is an incentive to put money under&#xA;  your mattress and spend it in a year when it has greater purchasing&#xA;  power. If everbody does this then the lack of demand will lead to a&#xA;  decrease in overall economic activity (i.e. a recession).&lt;/li&gt;&#xA;  &lt;li&gt;It provides a weapon against downward nominal rigidities. For example, workers are generally reluctant to accept a nominal pay cut, even if market conditions are such that the current wage is above the equilibrium level. Inflation means that their employer can simply increase wages at less than the inflation rate so that the real wage is decreasing.&lt;/li&gt;&#xA;  &lt;li&gt;It erodes the real value of nominally denominated debt. Now, this is obviously only a pseudo-advantage because (whilst it benefits debtors) it harms creditors. However, this kind of erosion of debt may be desirable if national economic stability is threatened by high debt levels. Also, since debtors are usually poorer on average than creditors, it can reduce inequality, which may be a normative objective for the government.&lt;/li&gt;&#xA;  &lt;/ul&gt;&#xA;  &#xA;  &lt;p&gt;Without inflation you miss out on these benefits. The first benefit might not seem like a big deal if you think you can simply set the rate of inflation at zero percent. But it is very hard to hold inflation constant at some target level so attempting to hit zero inflation will almost certainly result in occasional lapses into deflation, with the attendant negative economic consequences.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="108" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.103" LastActivityDate="2015-08-22T08:03:35.323" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6964" PostTypeId="1" CreationDate="2015-08-22T15:25:43.190" Score="17" ViewCount="891" Body="&lt;p&gt;I lost a 100 dollars bill in the laundry (it was destroyed).&#xA;I clearly lost 100 dollars.&#xA;Where are they now? Who won 100 dollars?&lt;/p&gt;&#xA;" OwnerUserId="5498" LastActivityDate="2015-08-24T10:32:12.297" Title="I lost $100 in the laundry, who won?" Tags="&lt;currency&gt;" AnswerCount="4" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6966" PostTypeId="2" ParentId="6964" CreationDate="2015-08-22T18:46:01.457" Score="13" Body="&lt;p&gt;The central bank that issues the currency won; they can now issue an additional $100 without increasing the price level. This is similar to seignorage rents due to &lt;a href=&quot;https://en.wikipedia.org/wiki/Seigniorage#Overseas_circulation&quot;&gt;overseas circulation&lt;/a&gt;— in fact, to a central bank, the two are indistinguishable, as the central bank would be unaware that your note had been destroyed.&lt;/p&gt;&#xA;" OwnerUserId="5485" LastEditorUserId="264" LastEditDate="2015-08-23T21:58:41.597" LastActivityDate="2015-08-23T21:58:41.597" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6967" PostTypeId="2" ParentId="6927" CreationDate="2015-08-22T19:35:35.703" Score="0" Body="&lt;p&gt;This has important policy consequences that seem to be widely misunderstood. In the book &lt;em&gt;The Bankers' New Clothes&lt;/em&gt; by Admati and Hellwig, the authors argue, fundamentally realying on MM, that higher equity requirements for Banks may reduce their profits, but will not reduce economic investment. This very much contradicts the story lobbyists for banks like to tell.&lt;/p&gt;&#xA;" OwnerUserId="1442" LastActivityDate="2015-08-22T19:35:35.703" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6968" PostTypeId="2" ParentId="6964" CreationDate="2015-08-22T20:21:29.073" Score="5" Body="&lt;p&gt;Nobody won, you have just lost 100 \$  :) you made a contractionnary monetary policy with a $10^{-1000000000000}$ amplitude on economy. It means that you have reduced the quantity of money in whole economy which will have the same effects (but very very tiny) of a contractionnary monetary policy of a central bank.&lt;/p&gt;&#xA;" OwnerUserId="2938" LastActivityDate="2015-08-22T20:21:29.073" CommentCount="10" ContentLicense="CC BY-SA 3.0" />
  <row Id="6969" PostTypeId="2" ParentId="6961" CreationDate="2015-08-22T20:51:18.553" Score="1" Body="&lt;p&gt;currency is like a taxi for your wealth, and inflation is indirectly the fare that you are charged while using this method of transportation for your wealth. If deflation becomes a reality, you are being paid to take a taxi instead of paying for it, so you are gonna stay in the taxi when you really should be getting on with your life. On the other hand, when there's too high an inflation, its as if the fare was too expensive, and then you'll prefer walking.&lt;/p&gt;&#xA;" OwnerUserId="5485" LastActivityDate="2015-08-22T20:51:18.553" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6970" PostTypeId="1" CreationDate="2015-08-23T02:34:46.243" Score="6" ViewCount="5912" Body="&lt;p&gt;According to Wikipedia's &lt;a href=&quot;https://en.wikipedia.org/wiki/History_of_banking&quot;&gt;history of banking&lt;/a&gt; article:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Modern banking practice, including &lt;strong&gt;fractional reserve banking&lt;/strong&gt; and the issue of banknotes &lt;strong&gt;emerged in the 17th century&lt;/strong&gt;.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The article on &lt;a href=&quot;https://en.wikipedia.org/wiki/Fractional-reserve_banking&quot;&gt;fractional reserve banking&lt;/a&gt; seems to &lt;em&gt;suggest&lt;/em&gt; that the Bank of Amsterdam is the earliest example:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In the past, savers looking to keep their coins and valuables in safekeeping depositories deposited gold and silver at goldsmiths, receiving in exchange a note for their deposit (&lt;em&gt;see &lt;a href=&quot;https://en.wikipedia.org/wiki/Bank_of_Amsterdam&quot;&gt;Bank of Amsterdam&lt;/a&gt;&lt;/em&gt;). These notes gained acceptance as a medium of exchange for commercial transactions and thus became an early form of circulating paper money. As the notes were used directly in trade, the goldsmiths observed that people would not usually redeem all their notes at the same time, and they saw the opportunity to invest their coin reserves in interest-bearing loans and bills. This generated income for the goldsmiths but left them with more notes on issue than reserves with which to pay them. A process was started that altered the role of the goldsmiths from passive guardians of bullion, charging fees for safe storage, to interest-paying and interest-earning banks. Thus fractional-reserve banking was born.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;But it does not state that, nor does the article on the Bank of Amsterdam.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I imagine the exact details might be murky, but I'm looking for a summary of the recognized possibilities. What organizations are candidates for the earliest fractional reserve banking system, and when did they begin their fractional reserve banking?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I also realize that there may have been organizations which did so a &lt;em&gt;long&lt;/em&gt; time before it became an established practice. If that's the case, please mention those organizations, but please &lt;em&gt;also&lt;/em&gt; summarize who the early pioneers of our &lt;em&gt;present system&lt;/em&gt; of fractional reserve banking are.&lt;/p&gt;&#xA;" OwnerUserId="1478" LastActivityDate="2018-08-08T01:03:00.527" Title="When was fractional reserve banking introduced?" Tags="&lt;banking&gt;&lt;history&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6971" PostTypeId="2" ParentId="6964" CreationDate="2015-08-23T07:09:55.710" Score="8" Body="&lt;p&gt;You have make a simple model to understand it more easily:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Jack, Diane and you all bought coupons called &quot;share of the cake&quot;.&#xA;If you go to redeem it you will get 1/3 of the cake, because there are 3 coupons in existence.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But then you had your laundry disaster and suddenly there are only 2 coupons so Jack and Diane can now get 1/2 of the cake for one coupon.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the answer is: other money holders benefit.&#xA;By the same principle the money holders lose purchasing power when inflation strikes. &lt;/p&gt;&#xA;" OwnerUserId="5499" LastActivityDate="2015-08-23T07:09:55.710" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="6973" PostTypeId="1" CreationDate="2015-08-23T07:29:56.277" Score="5" ViewCount="1908" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;The country of Kingsland is considering the introduction of a&#xA;  compulsory retirement saving scheme. Under this scheme all workers are&#xA;  required to save ten per cent of their annual wages and salaries until&#xA;  they retire. Use the supply and demand model (and a diagram) for&#xA;  saving and investment to explain the likely effects of this scheme on&#xA;  national saving, investment and the real interest rate in Kingsland.&#xA;  Explain the effects on employment of the saving scheme. (You can&#xA;  assume that Kingsland is a closed economy).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Since the level of national savings has increased, I understand how the savings curve shifts to the right and thus decreases the real interest rate and increases the levels of savings and investment in the economy. I am unable to understand how I can relate this back to the level of unemployment in the economy.&lt;/p&gt;&#xA;" OwnerUserId="5500" LastActivityDate="2021-01-02T14:08:10.793" Title="Relationship between Real Interest Rate and Employment" Tags="&lt;macroeconomics&gt;&lt;interest-rate&gt;&lt;investment&gt;&lt;unemployment&gt;&lt;saving&gt;" AnswerCount="4" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6975" PostTypeId="2" ParentId="6771" CreationDate="2015-08-23T21:03:56.363" Score="3" Body="&lt;p&gt;You can also find Kenneth Judd's book on numerical analysis &lt;a href=&quot;https://mitpress.mit.edu/books/numerical-methods-economics&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;. It is one of the very known and notorious books in that field.&lt;/p&gt;&#xA;" OwnerUserId="5507" LastActivityDate="2015-08-23T21:03:56.363" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6976" PostTypeId="2" ParentId="5073" CreationDate="2015-08-23T21:08:34.020" Score="2" Body="&lt;p&gt;You can always keep in mind the motto of Paul Krugman for his modelling style which is &quot;KISS&quot; (keep it simple and stupid). &#xA;It is also the recommendation of Hal Varian as mentionned by Ubiquitous. You can start by a simple model and work on it in order to understand the mechanism in your simple model after that you could add some other stuff on it according to your idea. &lt;/p&gt;&#xA;" OwnerUserId="5507" LastActivityDate="2015-08-23T21:08:34.020" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6977" PostTypeId="1" CreationDate="2015-08-24T05:55:02.320" Score="1" ViewCount="74" Body="&lt;p&gt;I know there has got to be a standard set of theories or formulas to chart this but I don't know how to search for it. Other than a great place like this. :)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm a software developer and not an economist but I need to analyze data of factories that have simple defined expense to set up, each has a specified output and a length of time to build. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;While a larger factory might have the lowest cost per unit of production and therefore be the best bang the buck (assuming the setup cost was zero), the actual setup cost might be so large that it would take a long time to actually build the factory. It is actually more economical in the long run to build less costly and lower performing factories because in the long run you will have produced more and aquire the cost of the larger factory faster. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I am attempting to build is a formula/program that will advise on the next most profitable move and the required time to get there. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you haven't guessed this is actually to be tested an ran on a game scenario. However, I have many other applications and thought this would be a good start. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I hope that makes sense. The cost of production, the output and such are all intentionally simplistic. There's no need to account for outside/variable factors in this particular scenario. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you can lead me to a theory/concept, perhaps a link or two or examples of this type of analysis given as set of inputs that would be great!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks!&lt;/p&gt;&#xA;" OwnerUserId="5506" LastEditorUserId="1601" LastEditDate="2015-08-26T19:44:02.307" LastActivityDate="2015-08-26T19:44:02.307" Title="What is this economic theory? Cost of investment vs production accounting for time?" Tags="&lt;reference-request&gt;&lt;investment&gt;&lt;producer-theory&gt;&lt;profit-maximization&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6978" PostTypeId="1" AcceptedAnswerId="7023" CreationDate="2015-08-24T08:06:36.807" Score="1" ViewCount="45" Body="&lt;p&gt;What is a formal proof to this known fact about repeated games?&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The situation in which, in every time step, the players play a Nash equilibrium in the basic game unconditioned on history, is a Nash equilibrium in the repeated game.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="385" LastEditorUserId="385" LastEditDate="2015-08-26T14:11:01.257" LastActivityDate="2015-08-26T14:11:01.257" Title="Repeatedly playing an equilibrium in a repeated game" Tags="&lt;game-theory&gt;&lt;repeated-games&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6979" PostTypeId="2" ParentId="6964" CreationDate="2015-08-24T10:32:12.297" Score="2" Body="&lt;p&gt;My intuition says that theoretically the disappearance of 100 $ from the money supply should increase the value of all other money in circulation so everyone else with any money gains a marginal benefit that is higher the more money they have.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The benefit a person gains = (100$/total money supply)*(amount of money held by the person)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The disappearance has to be public knowledge, though, so the market can take it into account.&lt;/p&gt;&#xA;" OwnerUserId="5512" LastActivityDate="2015-08-24T10:32:12.297" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6982" PostTypeId="1" CreationDate="2015-08-24T13:49:00.777" Score="3" ViewCount="6524" Body="&lt;p&gt;We have learned that any &quot;strictly positive monotonous transformation&quot; of utility functions is okay, as long as they preserve the ranking of choices implied by the underlying preferences.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider $U(x, y) = (x/y)^\alpha$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The cross derivative is $\frac{\partial^2}{\partial y \partial x} U(x,y) =&#xA;-\alpha^2 (\frac{x}{y})^{\alpha - 1}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, consider the monotonous transformation $V(x,y) = \log U(x,y) = \alpha \log x - \alpha \log y$. The cross-derivative of $V$ is $0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The cross-derivative incorporates important information on how the ranking of choices of $x$ changes, as we change $y$. Clearly, these two different cross-derivatives cannot be generated from the same underlying preference ranking - or am I mistaken?&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-08-24T18:57:00.947" Title="Monotone transformation of utility" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;preferences&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6983" PostTypeId="1" AcceptedAnswerId="8159" CreationDate="2015-08-24T15:02:07.943" Score="4" ViewCount="130" Body="&lt;p&gt;I have read articles about the Swiss Franc breaking its peg with the dollar and I would like to understand what indicators people look at to determine whether a currency break/depegging is imminent. More which of these useful economic aggregates are most important in determining a currency peg break? &lt;/p&gt;&#xA;" OwnerUserId="5515" LastEditorUserId="5515" LastEditDate="2015-12-21T22:54:29.683" LastActivityDate="2020-08-05T06:11:59.933" Title="What economics aggregate(s) could suggest an imminent change in exchange rates?" Tags="&lt;macroeconomics&gt;&lt;exchange-rates&gt;&lt;financial-economics&gt;&lt;currency-peg&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="6984" PostTypeId="2" ParentId="6982" CreationDate="2015-08-24T18:57:00.947" Score="4" Body="&lt;p&gt;The preservation of ranking is over consumption &lt;em&gt;bundles&lt;/em&gt;, not individual goods. So the &lt;strong&gt;one and only&lt;/strong&gt; question is whether the ranking of bundles $(x_i,y_i),\; (x_k,y_k); \forall i,k$ is preserved or not.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If preferences are rational (complete and transitive), and continuous, then they can be represented by a continuous utility function. So if these hold and &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$(x_i,y_i)&amp;gt;_{pr}\; (x_k,y_k) \implies \exists \;U, U_i &amp;gt; U_k$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The logarithm is a strictly monotonic transformation of any amenable to it function as a mathematical fact, irrespective of what we use the function for. So it follows that &#xA;$$U_i &amp;gt; U_k \implies \ln U_i &amp;gt; \ln U_k ,\; \forall i,k$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and the ranking of bundles is preserved. Whether due to the transformation we lose other information or not (that we may have wished we could have kept) does not concern the representation/transformation theorem.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-08-24T18:57:00.947" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6985" PostTypeId="1" AcceptedAnswerId="6988" CreationDate="2015-08-24T19:29:58.823" Score="1" ViewCount="270" Body="&lt;p&gt;According to the Labor Theory of Value, a good is worth as much as the labor put into it. We might then go further and assume that the labor put into it was as valuable as the goods used to fuel that labor (and so on and so on). &#xA;How then can a theory of exploitation be maintained? Since laborers by definition receive the worth of their labor as subsistence wages? &lt;/p&gt;&#xA;" OwnerUserId="5516" LastActivityDate="2015-08-24T21:15:02.880" Title="The Myth of Exploitation According to the Labor Theory of Value" Tags="&lt;value&gt;&lt;labor-cost&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="6986" PostTypeId="1" CreationDate="2015-08-24T20:57:38.447" Score="11" ViewCount="105359" Body="&lt;p&gt;I am quite new to economics. I was reading about changes in interest rates and its effect on currency value. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The fact is as interest rates increases, the currency value also increases and vice versa. However I want to understand the reason.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At first, I thought following: As interest rate increase, people borrow less, spend less, so cost of goods decreases, value of currency increases.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However when I read in investopedia, it says following:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Generally, higher interest rates increase the value of a given country's currency. The higher interest rates that can be earned tend to attract foreign investment, increasing the demand for and value of the home country's currency. Conversely, lower interest rates tend to be unattractive for foreign investment and decrease the currency's relative value.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Q1.&lt;/strong&gt; Now I dont understand what does it mean by &lt;strong&gt;&lt;em&gt;increasing the demand for and value of the home country's currency&lt;/em&gt;&lt;/strong&gt;. What is it meant by demand for currency by foreign investors?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In &lt;a href=&quot;http://www.investopedia.com/ask/answers/040315/how-do-changes-national-interest-rates-affect-currencys-value-and-exchange-rate.asp&quot;&gt;another article&lt;/a&gt; it says:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The rise of interest rates in a country often spurs inflation, and higher inflation tends to decrease the value of a currency. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;But on the same page, it says:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Generally, higher interest rates increase the value of a given country's currency. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Q2.&lt;/strong&gt; Why these two different statements are there?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I understand it correct, the word &quot;spurs&quot; here means increases inflation. But this confuses me.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My understanding is: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;interest rate increases, people can borrow less, spend less, economy slows, inflation decreases, currency value increases&lt;/li&gt;&#xA;&lt;li&gt;interest rate decreases, people borrow more, spend more, economy grow, inflation increases, currency value decreases&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Q3.&lt;/strong&gt; Are these understanding correct in general (though I understand the relation is not that straight forward and there are other factors too that affects currency value / inflation)?&lt;/p&gt;&#xA;" OwnerUserId="5517" LastEditorUserId="5517" LastEditDate="2015-08-24T21:05:24.850" LastActivityDate="2021-04-20T16:09:48.450" Title="How interest rate affects currency" Tags="&lt;macroeconomics&gt;&lt;currency&gt;&lt;inflation&gt;&lt;interest-rate&gt;" AnswerCount="7" CommentCount="1" FavoriteCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="6988" PostTypeId="2" ParentId="6985" CreationDate="2015-08-24T21:15:02.880" Score="5" Body="&lt;p&gt;The whole point of the (specific) Labor Theory of Value that you apparently refer to, is that, what Labor &quot;injects&quot; as value into goods produced, is more than what Labor needs to consume in order to survive. This is a fundamental &lt;em&gt;assumption/argument&lt;/em&gt;, in order to answer the question &quot;how profits come about?&quot;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, since the theory argues that profits spring &lt;em&gt;solely&lt;/em&gt; from Labor, it follows that they should not be appropriated by the holders of capital (the holders of capital should only get the value of capital etc that goes into the goods produced, a value that does &lt;em&gt;not&lt;/em&gt; &quot;inject more&quot; than what it already is). Simply put, after paying third parties for purchases etc out of Sales, and calculating depreciation (which is what the holders of capital should receive), the rest, that would appear as profits, should be distributed to the workers (because it is the workers that created this surplus, not the capital) and not retained by the capital holders. But because they are not thus distributed, the theory of exploitation emerges.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Even more simply, I need to eat one Kgr of bread to produce two Kgr of bread, in which production other goods, equipment etc have participated, whose value amounts to &lt;em&gt;only&lt;/em&gt; half-Kgr of bread. I take as wage the one Kgr of bread, and all other factors of production take their half-Kgr of bread. Another half-Kgr of bread remains. It is taken by the owner of the bread business as &quot;profits&quot;. It should be given to me, because it materialized solely because of the participation of my labor in the production process -or so the theory &lt;em&gt;argues&lt;/em&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore the phrase in the question&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;We might then go further and assume that the labor put into it was as&#xA;  valuable as the goods used to fuel that labor (and so on and so on)&quot;&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;negates the fundamental &lt;em&gt;premise&lt;/em&gt; of this theory, and leads to some other theory, one apparently incorporating a general principle of &quot;preservation of value&quot; (which by the way, is what the Accounting discipline is based on).&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-08-24T21:15:02.880" CommentCount="9" ContentLicense="CC BY-SA 3.0" />
  <row Id="6989" PostTypeId="2" ParentId="6986" CreationDate="2015-08-25T03:59:07.183" Score="0" Body="&lt;p&gt;Well, maybe it's poor phrasing by Investopedia. Inflation would drive interest rates up, but not the other way around.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;All things being equal, increasing interest rates will reduce inflation or generate deflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the real world, all things are not equal and when interest rates start going up, it's often trying to keep up with inflation, so they end up linked together.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for the currency appreciation, higher interest rates won't drive all form of investment up, only lending from global markets will increase. On the other hand, businesses will be incentivized to relocate outside the country and also consumers will be importing a lot more.&lt;/p&gt;&#xA;" OwnerUserId="5485" LastEditorUserId="5906" LastEditDate="2015-10-24T17:47:44.943" LastActivityDate="2015-10-24T17:47:44.943" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6992" PostTypeId="1" AcceptedAnswerId="6995" CreationDate="2015-08-25T09:40:22.233" Score="3" ViewCount="767" Body="&lt;p&gt;On &lt;a href=&quot;http://www.econ.umn.edu/~vr0j/ec8503-10/daolufrisch.pdf&quot; rel=&quot;nofollow&quot;&gt;this presentation&lt;/a&gt;, the last slide is titled &quot;Non Separable Utility&quot;, and the preferences given are&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{\left(c^\gamma (1-n)^{1-\gamma}\right)^{1-\sigma}}{1-\sigma}$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, I can log-transform them as &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \log\left[ c^{\gamma(1-\sigma)} (1-n)^{(1-\gamma)(1-\sigma)} (1-\sigma)^{-1}\right]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which are clearly separable. Did I miss something?&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-08-26T16:48:28.253" Title="Is this non-separable utility?" Tags="&lt;utility&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6993" PostTypeId="1" AcceptedAnswerId="6998" CreationDate="2015-08-25T10:03:00.687" Score="0" ViewCount="458" Body="&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Greenwood%E2%80%93Hercowitz%E2%80%93Huffman_preferences&quot; rel=&quot;nofollow&quot;&gt;Wikipedia&lt;/a&gt; states GHH preferences to have the general form&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$V(c, l) =  U(c - G(l))$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;with $U$ increasing concave, and $G$ increasing convex.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In interior solution w.r.t. $l$ requires&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ U'(c - G(l))(\frac{dc}{dl} - G'(l)) = 0$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As wikipedia says, this is given by &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{dc}{dl} = G'(l)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, what about the peculiar case where $c = G(l)$? Could someone elaborate a bit on the intuition &lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-08-25T11:40:34.943" Title="GHH Preferences: FOC" Tags="&lt;utility&gt;" AnswerCount="1" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="6995" PostTypeId="2" ParentId="6992" CreationDate="2015-08-25T10:23:22.433" Score="5" Body="&lt;p&gt;You are right, these preferences are separable. A way to see it is to notice that&#xA;\begin{equation*}&#xA;U(c,n) \geq U(c',n) \Rightarrow U(c,n') \geq U(c',n')&#xA;\end{equation*}&#xA;for any $n,n'$, and &#xA;\begin{equation*}&#xA;U(c,n) \geq U(c,n') \Rightarrow U(c',n) \geq U(c',n')&#xA;\end{equation*}&#xA;for any $c,c'$.&#xA;They are even additively separable, as your log-transformation shows.&lt;/p&gt;&#xA;" OwnerUserId="4667" LastEditorUserId="4667" LastEditDate="2015-08-25T10:29:15.353" LastActivityDate="2015-08-25T10:29:15.353" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6998" PostTypeId="2" ParentId="6993" CreationDate="2015-08-25T11:40:34.943" Score="1" Body="&lt;p&gt;The first-order condition would be satisfied under the assumption $c=G(l)$ if $U'(0)=0$. But this latter requirement is incompatible with the assumptions: indeed, $U'$ is nonincreasing (by the concavity of $U$) which yields $U'(x) \leq 0$ for any $x \geq 0$, which contradicts the fact that $U$ is increasing. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If $U'(x)&amp;gt;0$ for all $x$, the only possibility to meet the first-order condition is indeed $\dfrac{dc}{dl}=G'(l)$.&lt;/p&gt;&#xA;" OwnerUserId="4667" LastActivityDate="2015-08-25T11:40:34.943" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="6999" PostTypeId="1" CreationDate="2015-08-25T13:44:10.903" Score="5" ViewCount="560" Body="&lt;ul&gt;&#xA;&lt;li&gt;King-Plosser-Rebelo preferences satisfy balanced growth requirements, we have that income and substitution effects of labor cancel. Labor does not respond to a change in the wage level.&lt;/li&gt;&#xA;&lt;li&gt;Greenwood-Hercowitz-Huffman preferences shut off the wealth channel: There is only a substitution effect left, hence labor co-moves with wages.&lt;/li&gt;&#xA;&lt;li&gt;Jaimovich-Rebelo create the nested case with a wealth effect within the two aforementioned.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Is there any commonly used preference specification for which the wealth effect &lt;strong&gt;dominates&lt;/strong&gt; the substitution effect, and hence labor supply reduces as a response to an increase in wages?&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="5635" LastEditDate="2015-09-30T08:11:15.323" LastActivityDate="2015-09-30T08:11:15.323" Title="Preferences where wealth effect dominates" Tags="&lt;utility&gt;&lt;preferences&gt;" AnswerCount="3" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="7000" PostTypeId="2" ParentId="6999" CreationDate="2015-08-25T14:10:36.090" Score="2" Body="&lt;p&gt;In open macroeconomic models some cases of logarithmic preferences cause the wealth effect to dominate the intertemporal substitution effect.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I recall correctly, at least Vegh's book &quot;Open Economy Macroeconomics in Developing Countries&quot; (2013, MIT Press) presents this case.&lt;/p&gt;&#xA;" OwnerUserId="5512" LastActivityDate="2015-08-25T14:10:36.090" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="7002" PostTypeId="1" CreationDate="2015-08-25T14:19:30.533" Score="2" ViewCount="351" Body="&lt;p&gt;Are there any countries that applied austerity measures and had a positive outcome that was attributed to it? Why do institutions like the IMF often encourage or require it?&lt;/p&gt;&#xA;" OwnerUserId="5525" LastEditorUserId="40" LastEditDate="2015-08-26T02:54:48.017" LastActivityDate="2015-08-27T03:48:48.720" Title="Why does the IMF push for austerity?" Tags="&lt;macroeconomics&gt;&lt;international-economics&gt;" AnswerCount="3" CommentCount="1" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="7003" PostTypeId="1" AcceptedAnswerId="7011" CreationDate="2015-08-25T15:23:09.677" Score="2" ViewCount="662" Body="&lt;p&gt;In a standard constrained utility maximization problem with an agent's preferences defined over good(s), does the imposition of Inada conditions on the utility function preclude us from adding non-negativity constraints while setting up the Lagrangean? The latter seem redundant because the Inada conditions will guarantee an interior solution.&#xA;Thanks!&lt;/p&gt;&#xA;" OwnerUserId="5233" LastActivityDate="2015-08-25T19:36:44.067" Title="Equivalence of inada conditions and non-negativity constraints?" Tags="&lt;consumer-theory&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="7007" PostTypeId="2" ParentId="7002" CreationDate="2015-08-25T17:56:58.913" Score="1" Body="&lt;p&gt;You can categorize their reasons for doing so in many ways, depending on each scenario.  Here are a few examples:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;To control bond yields. &lt;/li&gt;&#xA;&lt;li&gt;State sector to large.&lt;/li&gt;&#xA;&lt;li&gt;Crushing debt.&lt;/li&gt;&#xA;&lt;li&gt;Some past evidence of austerity leading to rapid growth.  New Zealand is a good example.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Note: 4) is hotly debated. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Attempt to control bond yields was an important issue for Greece, and one that the average voter in a referendum could not be expected to understand.  The other points are self explanatory, although the evidence for them are surely not scientific by any standard. &lt;/p&gt;&#xA;" OwnerUserId="5531" LastEditorUserId="5531" LastEditDate="2015-08-27T03:48:48.720" LastActivityDate="2015-08-27T03:48:48.720" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="7009" PostTypeId="1" AcceptedAnswerId="7012" CreationDate="2015-08-25T18:10:08.560" Score="0" ViewCount="953" Body="&lt;p&gt;When would you use the difference quotient in an economic model rather than the derivative to assess the change in some endogenous variable?  Real world examples seem to be lacking in textbooks on basic mathematical economics. &lt;/p&gt;&#xA;" OwnerUserId="5531" LastActivityDate="2015-08-25T18:39:26.090" Title="Real world example of using difference quotient vs. derivative" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="7010" PostTypeId="1" CreationDate="2015-08-25T18:20:20.113" Score="0" ViewCount="25" Body="&lt;p&gt;I apologise in advance if this is not the right stack exchange site to ask this question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;China has started investing its state pension fund in the stock market on full scale recently.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know Norway has a pension fund which is built from its profits from oil profit. Canada also has a fund. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am wondering how common this is? What are the effect on the stock market or economy as a whole when the government take such action?&lt;/p&gt;&#xA;" OwnerUserId="4258" LastActivityDate="2015-08-25T18:20:20.113" Title="Which countries invest their state pension in their stock market and its effects?" Tags="&lt;financial-economics&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="7011" PostTypeId="2" ParentId="7003" CreationDate="2015-08-25T18:20:29.167" Score="2" Body="&lt;p&gt;In a standard growth model, people don't put non-negativity constraints as you have mentionned. Theoretically, concavity of the Hamiltonian (or Lagrangian in discrete time) is the sufficient condition for the optimality of the program.&#xA;Just for some additional details, the non-negativity constraints are so usefulin some subfields of economics, like in environmental economics. &#xA;For example, if you want to put a ceiling for stock of pollution in atmosphere as $\overline{P}$. You can use it if you want that economy do not pass beyond this critical threshold. So, basically you can make as &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$max \int_{0}^{\infty} u(c,P)  e^{-\rho t} dt $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;s.t&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\dot{K}=F(K)-c\\&#xA;\dot{P}=\epsilon K - \delta P$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $\epsilon$ is the emission rate from the use of capital and $\delta$ is the decay rate of pollution.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\mathcal{H} = u(c,P) + \lambda (F(K)-c) - \mu (\epsilon K - \delta P) + \alpha (\overline{P} - P) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The constraint $\alpha$ is a non-negativity constraint which will ensure that pollution level will not pass beyond the threshold $\overline{P}$. As long as the pollution level is below the threshold, $\alpha$ will be non-binding (and will be equal to zero).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hint : You can look at the Kuhn-Tucker conditions in order to understand better the role of non-negativity constraint.&lt;/p&gt;&#xA;" OwnerUserId="2938" LastEditorUserId="2938" LastEditDate="2015-08-25T19:36:44.067" LastActivityDate="2015-08-25T19:36:44.067" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="7012" PostTypeId="2" ParentId="7009" CreationDate="2015-08-25T18:39:26.090" Score="1" Body="&lt;p&gt;You can see the applications in microeconomics. A tiny example could be on elasticity of demand. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's say &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ D = \frac{tC}{P+t} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $P, t, C$ are respectively price, tax and constant. If you like to see the effect of tax change on demand you can use the difference quotient ;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Delta D = \frac{(t + \Delta t C)}{P + t + \Delta t} - \frac{tC}{P + t}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I skip the intermediary calculations. This one yields ;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\Delta P}{\Delta t} = \frac{P.C}{(P+t)^{2}+\Delta t.(P+t)}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope that it helps.&lt;/p&gt;&#xA;" OwnerUserId="2938" LastActivityDate="2015-08-25T18:39:26.090" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="7013" PostTypeId="1" AcceptedAnswerId="7016" CreationDate="2015-08-25T18:49:34.980" Score="1" ViewCount="644" Body="&lt;p&gt;I'm reading a book on macroeconomics, and on a chapter on the money market, when explaining how the central banks(CB) determine the interest rate, there is a balance sheet for the CB. In it, under the assets we have bonds, and under liabilities we have currency and bank reserves. My question is which bonds are these? Do these bonds belong to the same country that the CB belongs to? Isn't in this case the bond of the CB a liability/debt that will have to be repaid in the future? Because if so, it seems that we're just exchanging one liability (bond) for another (money).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or are these bonds from any entities other than the CB itself?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="118" LastActivityDate="2015-08-25T22:16:46.963" Title="Central Bank liabilities and assets - Money and Bonds" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="7015" PostTypeId="1" AcceptedAnswerId="7021" CreationDate="2015-08-25T22:14:07.817" Score="1" ViewCount="49" Body="&lt;p&gt;Question is basically in the title. With interest rates so low for such a long period of time, I wonder where are that injected cash has gone? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I realize that the economy has definetly grown quite consistently for years now, but the middling growth and simulatenous near-zero interest rates would seem to indicate that the economic climate is &lt;strong&gt;so&lt;/strong&gt; bad in the country that we basically have to ignite a nuclear bomb to boil a pot of water. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is that the case? It doesn't seem so, and it seems worrying that maybe this cash from monetary policy is somehow disappearing into thin air as we create it or disappearing somewhere problematic&lt;/p&gt;&#xA;" OwnerUserId="5533" LastEditorUserId="264" LastEditDate="2015-08-26T14:42:34.790" LastActivityDate="2015-08-26T14:42:34.790" Title="With interest rates and inflation in the U.S. low and growth moderate, where is the money going?" Tags="&lt;gdp&gt;&lt;inflation&gt;&lt;interest-rate&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="7016" PostTypeId="2" ParentId="7013" CreationDate="2015-08-25T22:16:46.963" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;My question is which bonds are these? Do these bonds belong to the same country that the CB belongs to?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This will vary a lot from central bank to central bank. Most of the assets of the US Federal Reserve are indeed government securities, but the European Central Bank is prohibited from buying such securities (because of the crisis, it now buys limited amounts of them, but the legal grounds are shaky).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since 2009, central bank balance sheets have changed quite a bit. In 2008 the Federal Reserve did not hold any mortgage backed securities. Now, they comprise about 40% of the Fed's total assets.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Take a look at the Fed's balance sheet in Table 1 of the &lt;a href=&quot;http://www.federalreserve.gov/monetarypolicy/files/quarterly_balance_sheet_developments_report_201508.pdf&quot; rel=&quot;nofollow&quot;&gt;August 2015 report&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Because if so, it seems that we're just exchanging one liability (bond) for another (money). Or are these bonds from any entities other than the CB itself?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Yes, they are from other entities. For example, US Treasury bonds are about half of the Fed's balance sheet. These bonds are issued by the Department of the Treasury and must be pay back to the Fed on maturity, using money collected from taxes or the proceeds from new bond issues.&lt;/p&gt;&#xA;" OwnerUserId="2" LastActivityDate="2015-08-25T22:16:46.963" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="7020" PostTypeId="2" ParentId="7002" CreationDate="2015-08-26T11:13:37.457" Score="6" Body="&lt;p&gt;Why do so many people die in hospitals? Aren't doctors there supoosed to save lives?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The IMF is the trauma surgeon of government finances. When a country asks the IMF for help, it is because its finances are in very bad shape. They no longer have enough money to pay for public services, infrastructure, pensions, salaries. Without some kind of external help, the government has to fix the problem by some combination of reduced spending, increased taxes, or by printing money (which will increase inflation).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What this shows is that austerity is not imposed by the IMF. Austerity is &quot;imposed&quot; by the inability of the government to finance its own spending.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The IMF, by providing loans when no one else will, actually helps to soften the adjustment. With the extra funding, the government is able to cut spending and raise taxes &lt;em&gt;less than they otherwise would&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course, one thing to keep in mind is that the IMF is not a charity. It expects its money back. If the IMF provided grants instead of loans, there would be no need for austerity. But then the IMF wouldn't exist, because it would have run out of money long ago.&lt;/p&gt;&#xA;" OwnerUserId="2" LastActivityDate="2015-08-26T11:13:37.457" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="7021" PostTypeId="2" ParentId="7015" CreationDate="2015-08-26T11:45:08.137" Score="3" Body="&lt;p&gt;The money is not going anywhere. In fact, it never even &quot;left the building&quot;. The banks simply increased their &lt;a href=&quot;https://research.stlouisfed.org/fred2/series/WRESBAL/&quot; rel=&quot;nofollow noreferrer&quot;&gt;reserve balances with the Federal Reserve&lt;/a&gt;, mainly because the Fed began paying interest on reserves in October 2008.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/SW1qL.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/SW1qL.png&quot; alt=&quot;Reserve Balances with Federal Reserve Banks&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="2" LastActivityDate="2015-08-26T11:45:08.137" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="7022" PostTypeId="2" ParentId="6955" CreationDate="2015-08-26T13:53:36.157" Score="1" Body="&lt;p&gt;It seems to me that this will not make a difference if you only consider pure strategies. Consider that player $i$'s winnings is $x$ and from this he gets utility $U_i(x)$. As long as $U_i()$ is increasing in $x$ player $i$ will prefer outcomes with larger winnings to lower ones, which is exactly what he would do if he had constant marginal returns.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another way of forming this argument is that as long as $U_i()$ is increasing another utility function representing the same preferences over outcomes would be $\hat{U}_i(x) = x$. (You can perform a monotone transformation that transfers $U_i()$ to this.) &lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2015-08-26T13:53:36.157" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="7023" PostTypeId="2" ParentId="6978" CreationDate="2015-08-26T14:10:24.387" Score="1" Body="&lt;p&gt;Suppose all players play unconditioned Nash equilibria, except player $i$ who diverts and plays another strategy. The other strategy of player $i$ may depend on history. We have to show that player $i$'s payoff in the repeated game does not increase.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For every time-period t, define the following random variables:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;$X^{t}$ - the utility of player $i$ in time t when all players, including player $i$, play the basic Nash equilibrium.&lt;/li&gt;&#xA;&lt;li&gt;$Y_{h}^{t}$ (where $h$ is a history vector of length $t-1$) - the utility of player $i$ in time $t$ when player $i$ diverts and plays the alternative strategy while all other players continue to play the basic Nash equilibrium.&lt;/li&gt;&#xA;&lt;li&gt;$Y^{t}$ - the utility of player $i$  in time $t$ when player $i$  diverts while all other players continue to play the basic Nash equilibrium:&#xA;$$Y^{t}=\sum_{h}Prob[h]\cdot Y_{h}^{t}$$&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;By definition of a Nash equilibrium, for every time $t$&#xA;and for every history $h$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$E[Y_{h}^{t}]\leq E[X^{t}]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence also:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$E[Y^{t}]\,=\,\sum_{h}Pr[h]\cdot E[Y_{h}^{t}]\,\leq\,\sum_{h}Pr[h]\cdot E[X^{t}]\,\leq\,E[X^{t}]\cdot\sum_{h}Pr[h]\,\leq\,E[X^{t}]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Summing over the entire series, and using the fact that the expectation of a sum is the sum of expectations:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$E[\sum_{t=1}^{T}Y^{t}]\leq E[\sum_{t=1}^{T}X^{t}]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the player cannot gain by deviating.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Thanks to @denesp for verifying this proof!&lt;/p&gt;&#xA;" OwnerUserId="385" LastActivityDate="2015-08-26T14:10:24.387" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="7024" PostTypeId="2" ParentId="6367" CreationDate="2015-08-26T16:44:34.907" Score="0" Body="&lt;p&gt;I globally wanted to back @Sha’s answer, providing slightly more details. To me, your question is biased in the sense that you asking to compare a sovereign state as Greece and a state of a federal country. I underline this cause once you accept it, different type of answers come up.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Comparing Greece and US as the whole would be more relevant, and then, the main difference in laws of those two entities is that one controls its currency and this other does not. And Euro is definitely not tailor-made for Greece. EU central bank (ECB) is independent and has officially only one mandate, control inflation. For instance, the talks that went on recently about whether keeping Greece into Euro are just out status, so they can’t really be compared to something like ‘the Fed would intervene’. All is really new and mechanisms are really being tested lately. A Greece with Drachma and its own central bank would have had leverage to get more solvent over the years, or an EU with more transfers between States (See EU shared budget compared to US, 1.10% versus 17.5% 2007 : way less leverage for common policies , wiki) . Also, I do not want to be interpreted as the guy who says ‘Greeks would have done great by themselves’, as I really think that the fact their politicians have been keeping such high deficits for so many years was a really big mistake. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This was concerning the legislation point of view, also a main difference is the greenback power, which as stated by @Sha, permits US to keep getting low rates even if some measure of risk values are really similar between the two. Debt/GDP ratio as of 2008 : Greece 105 % US 80 % . &lt;/p&gt;&#xA;" OwnerUserId="5539" LastEditorUserId="1601" LastEditDate="2015-08-26T20:12:41.343" LastActivityDate="2015-08-26T20:12:41.343" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="7025" PostTypeId="2" ParentId="6992" CreationDate="2015-08-26T16:48:28.253" Score="2" Body="&lt;p&gt;Looking two slides before, the author provides another utility function, under &quot;Separable Utility&quot; this time:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U(c,n) = \ln(c) - a\frac {n^{1+1/v}}{1+1/v}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Comparing the two I believe we can safely reach the conclusion that the author had implicitly in mind &quot;additive separability&quot;, i.e. a functional form where second partials are zero, irrespective of whether a transformation can separate the arguments of the function. At least in some corners, when one needs the logarithmic transformation to induce separability, one talks about &quot;multiplicatively separable&quot; preferences.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-08-26T16:48:28.253" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="7026" PostTypeId="1" CreationDate="2015-08-26T17:30:34.870" Score="4" ViewCount="4923" Body="&lt;p&gt;Could the difference between &quot;labor embodied&quot; (production cost in labor value) and &quot;labor commanded&quot; (selling price in labor value) as described in the labor theory of value be attributable to the disparity between &lt;strong&gt;individual&lt;/strong&gt; and &lt;strong&gt;social&lt;/strong&gt; labor power? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Individual&lt;/strong&gt; labor power is the labor required to produce a good. &lt;strong&gt;Social&lt;/strong&gt; labor power is the average labor of the society to produce the good. If the social labor is higher than the individual labor, the selling price in labor, or labor commanded as Adam Smith would say, would be higher than the labor embodied, or the labor required to produce, and profit would be possible. However, this profit might also be attributable to the utilization of frozen labor in the form of capital by the laborer. A Marxist would of course say that profits are a subtraction of the total product of living labor. Since all frozen labor was once living labor, true profit would then be theft.&lt;/p&gt;&#xA;" OwnerUserId="5516" LastEditorUserId="2776" LastEditDate="2017-07-04T09:35:09.027" LastActivityDate="2017-07-04T09:35:09.027" Title="Difference between embodied and commanded labor in the Labor Theory of Value?" Tags="&lt;labor-economics&gt;&lt;marxism&gt;&lt;labor-cost&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="7027" PostTypeId="2" ParentId="6977" CreationDate="2015-08-26T17:30:49.770" Score="1" Body="&lt;p&gt;This is perhaps a bit more complex than you might suspect. Let $F(q), F'&amp;gt;0$ the fixed (setup) cost, which is a positive function of the productive capacity, which here is represented by actual production level (we assume that the factory will operate at full capacity). Also, variable cost per unit produced is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$V(q, F) = [c-h(F)]\cdot q,\;\; h&amp;lt;c , h'&amp;gt; 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This incorporates the assumption that there are cost-reducing economies of scale if the factory is larger.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Before even factoring in also &quot;time to build&quot;, consider an average cost minimization problem&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\min_q AC = \Big[\frac {1}{q}F(q) + \frac {1}{q} [c-h(F)]\cdot q \Big]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which simplifies to &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\min_q AC =\Big[\frac {1}{q}F(q) + c-h(F(q))\Big]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first-order condition for minimization is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\partial AC}{q} = \frac{F'q-F(q)}{q^2}-h'\cdot F' =0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies F'q-F(q) =q^2h'\cdot F' \implies (h'\cdot F')q^2-F'q+F(q) = 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is an (implicit) quadratic in $q$, and in order to have a real and strictly positive $q^*$ as a candidate minimizer, one can deduce that the following condition must be imposed (otherwise the AC will always be increasing):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$4h'(F/F') \leq 1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My point is that all these must acquire specific functional forms that behave realistically for a wide range of values... and then you say you want to bring in the intertemporal aspect, going for optimal control/dynamic programming.... hmm.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-08-26T17:30:49.770" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="7028" PostTypeId="1" AcceptedAnswerId="25116" CreationDate="2015-08-26T18:08:01.690" Score="9" ViewCount="1826" Body="&lt;p&gt;In a &lt;a href=&quot;https://politics.stackexchange.com/questions/8878/what-is-the-basic-difference-between-marxism-socialism-and-communism&quot;&gt;post on the politics stack exchange&lt;/a&gt;, I came across the following description of how Marxism fits into the history of economic thought:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Most professional economists consider Marx' work on economic theory to be a substantial part of economic theory. Marx and Engels are included in the list of great classical economists, along with Adam Smith, Jeremy Bentham, David Ricardo, and Thomas Malthus. Marx pointed out that the long-term equilibrium for the &quot;standard of living&quot; is what a class insists upon before having, raising, and equipping enough children to replace itself. Several key concepts of economics (including &quot;Cobb-Douglas production functions&quot; and &quot;value added&quot;) are designed to explain Marx' observations about the fraction of a factory's revenue that is not paid out for materials or proletarian labor.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The idea that &quot;the long-term equilibrium for the 'standard of living' is what a class insists upon before having, raising, and equipping enough children to replace itself.&quot; seems foreign to me as an idea in economics and I am curious about the accuracy of the claims about Cobb Douglass and Value added, since they were not supported with references.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is Marx commonly considered to be an influential classical economist, and if so, what is an example of an idea he added to economics as a discipline?&lt;/p&gt;&#xA;" OwnerUserId="176" LastEditorUserId="-1" LastEditDate="2017-04-13T12:54:44.007" LastActivityDate="2018-12-16T23:50:13.650" Title="Is Marx considered an important classical economist?" Tags="&lt;history-economic-thought&gt;&lt;marxism&gt;" AnswerCount="3" CommentCount="2" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="7029" PostTypeId="2" ParentId="6977" CreationDate="2015-08-26T18:28:50.303" Score="2" Body="&lt;p&gt;Sorry I don't have enough reputation yet in the Economics community to comment. But the answer provided by @Alecos Papadopoulos can be illustrated further. Please feel free to move my &quot;answer&quot; to comments of his answer. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;With the assumption of only $F' &amp;gt; 0$ and $F &amp;gt; 0$ and $h' &amp;gt; 0$, then there is a simple case where the minimization problem has no solution. Consider when $F(q) = \sqrt{q}$ and $h(x) = x$. Then the objective function becomes $1 / \sqrt{q} - \sqrt{q} - c$, and if you're considering for any $q &amp;gt; 0$, then there is no global minimizer for this (i.e. globally decreasing for all $q &amp;gt; 0$ and hence the minimizer is $q \to \infty$. Thus, the FOC you'd derived is not true. Indeed, the condition you'd provided would render as $4 \le 1$ --- clearly impossible. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In general, an increasing function $F$ over a linear function (i.e. say $F(x) / x$ in your case) will &lt;em&gt;not&lt;/em&gt; necessarily be convex. And furthermore, when you subtract off the form $h \circ F$, the resulting $-h \circ F$ could again depend on the form of $F$ (which may not have any particular geometric form you could exploit). I think what would fix this model is a form such that $F(q) / q$ is convex in $q$ and $h \circ F$ is concave, so that $-h \circ F$ is convex, then the whole problem will be convex. &lt;/p&gt;&#xA;" OwnerUserId="5537" LastEditorUserId="5537" LastEditDate="2015-08-26T18:40:46.487" LastActivityDate="2015-08-26T18:40:46.487" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="7030" PostTypeId="1" AcceptedAnswerId="7047" CreationDate="2015-08-26T18:35:25.783" Score="3" ViewCount="652" Body="&lt;p&gt;Probably this question is a bit(or very) stupid.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm self-teaching by reading a book on macro, and the author states that in the Money Market, when the output increases the demand for money also increases, and given a certain money supply, the interest rate must go up to maintain the equilibrium. So, in this case, the Central bank(CB) would just sell bonds =&gt; diminish price of bonds=&gt; increase interest rate. &#xA;My question is, why should this equilibrium be maintained? Isn't there a situation, when people may want more money to acquire/trade, but the CB just won't sell bonds?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated&lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="118" LastEditDate="2015-08-26T23:04:41.670" LastActivityDate="2015-08-27T15:21:30.073" Title="Why must there be an equilibrium in the money market?" Tags="&lt;macroeconomics&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="7031" PostTypeId="2" ParentId="7002" CreationDate="2015-08-26T18:36:24.150" Score="0" Body="&lt;p&gt;That any entity that becomes overburdened with debt, should cut back on its expenses, is so self-evident it does not need explaining. So &quot;austerity&quot; (if that is what the OP means by the word) need not be required by anybody in particular, it is self understood the moment one starts to talk with &quot;lenders of last resort&quot; like the IMF is.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The fact that in many cases, these &quot;austerity measures&quot; appear to not lead to a stroner &lt;em&gt;economy&lt;/em&gt; (which is something bigger than just the public sector), has to do not with the imposition of austerity itself, but of the specific mix of measures taken in order to reduce public spending.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I used to think that IMF was so &quot;enslaved&quot; to &quot;Supply side economics&quot;, that it was indeed the one responsible for the &lt;em&gt;wrong&lt;/em&gt; mix of measures: demand doesn't matter, what drives the economy is production. So cut wages and raise indirect taxes - but decrease income tax to provide incentives for investments... and the like (a recent failure on the matter was Japan, see &lt;a href=&quot;https://economics.stackexchange.com/questions/4434/abenomics-and-the-japanese-vat-tax-hike/4447#4447&quot;&gt;&lt;strong&gt;this post&lt;/strong&gt;&lt;/a&gt;).   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But after experiencing the crisis in my country (Greece), I came to appreciate that IMF does not go as far as substituting for the Government. What this means? It means that to a respectable degree, the measures decided and taken are determined by what the political system (and the people) of a country are willing to accept.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And the thing is, a public sector overburdened with debt is without exception a public sector larger than what the domestic economy can sustain. But this also implies that the economy, and the society, have come to &lt;em&gt;depend&lt;/em&gt; on the public sector &lt;em&gt;more than they should&lt;/em&gt; (given the wealth and the income generating potential of the country). So when it comes to cut public sending, &lt;em&gt;they&lt;/em&gt; (the locals) do not want to see this happening by reducing the &lt;em&gt;size&lt;/em&gt; of the public sector. So &quot;reducing the size&quot; becomes the secondary strategy and &quot;reducing expenses&quot; becomes the primary strategy -the domestic resistance is too great even for a powerful lender to not take it into account, when setting its conditions for the loan.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But this leaves no option but to propose and arrive at measures like wages cuts etc, hurting demand, and worsening the recession that has set in as the public sector (on which the economy depends to an unhealthy degree) went into debt crisis.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It should be the other way around: shrink decisively the size of the public sector by transferring activities (and employees) to the private sector, and do it fast. In this way disposable income will be reduced less (or not at all), and tax increases may not even be needed...  but I doubt there will ever be any &lt;em&gt;domestic&lt;/em&gt; consensus on such a policy, in a society that has come to consider a large public sector as a self-understood &quot;constant&quot; in its life. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I do not endorse the stance that there is an unconditional &quot;small is better&quot; dictum for the public sector of an economy. What I &lt;em&gt;do&lt;/em&gt; endorse, is that &quot;the size of the public sector should be no bigger than what the economy can sustain&quot;. It is in this &lt;em&gt;relative&lt;/em&gt; sense that a public sector can become &quot;overblown&quot;. And then it is obvious that the problem (in quantitative terms, which is what matters) is not &quot;wasteful expense&quot; but the size of public sector itself.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.103" LastActivityDate="2015-08-26T18:36:24.150" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="7032" PostTypeId="2" ParentId="7028" CreationDate="2015-08-26T19:41:39.480" Score="6" Body="&lt;p&gt;Marx is indeed an influential classical economist, however he added almost nothing to economics as a discipline. His theories of labor value, exploitation and modes of production were all articulated before him, which he acknowledged. What he did do was systematize and popularize these theories as scientific. Marx was closer to Malthus than to Smith in terms of his historical influence and present unpopularity. &lt;/p&gt;&#xA;" OwnerUserId="5516" LastActivityDate="2015-08-26T19:41:39.480" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="7033" PostTypeId="2" ParentId="7030" CreationDate="2015-08-26T20:21:16.907" Score="0" Body="&lt;p&gt;Another reasoning could be that people would be willing to take larger loans from commercial banks to cover their increased spending needs. This increased demand for loans drives up interest rates as well.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2015-08-26T20:21:16.907" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="7034" PostTypeId="2" ParentId="7028" CreationDate="2015-08-27T02:44:32.527" Score="14" Body="&lt;p&gt;Among economic historians, Marx is often considered the most important economist of the 19th century.  His attempts to provide a systematic explanation of the functioning of capitalism  was on a far grander scale than anyone who preceded him, and in that sense, he reset the bar very high for what would henceforth be considered comprehensive economic theory, even if parts of it were fundamentally flawed. Refer to Mark Blaug's classic text &lt;em&gt;Economic Theory in Retrospect&lt;/em&gt; (Chapter 7) for a nice attempt to parse out Marx's economic theory from the rest of his ideas.  This is a standard and authoritative text in the history of economic theory. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Blaug says of Marx &quot;Marx the economist is alive and relevant today in a way none of the writers we have thus far considered.&quot; Those considered were Smith, Malthus, Say, Ricardo, &amp;amp; Mill.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In terms of his understanding of the dynamic long run evolution of economic systems, the nature of technical change, business cycles, and volume of employment, his insights were often brilliant, transformative and unparalleled in any writers that preceded him, and remain deeply influential.  (I'm paraphrasing Blaug here)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;[It's worth mentioning that Blaug did his Ph.D at Columbian under George Stigler, who was a key leader in the Chicago School. So Blaug was hardly a lightweight, nor a &quot;pinko&quot; ;) ]  &lt;/p&gt;&#xA;" OwnerUserId="5531" LastEditorUserId="4988" LastEditDate="2015-08-27T22:39:38.207" LastActivityDate="2015-08-27T22:39:38.207" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="7035" PostTypeId="1" AcceptedAnswerId="7068" CreationDate="2015-08-27T07:51:41.320" Score="6" ViewCount="321" Body="&lt;p&gt;I have read that the &lt;em&gt;Labour Theory of Value&lt;/em&gt; holds that the value of a good or service is determined by the total amount of labour involved in its production. To account for this properly, we must count not only the labour directly involved in finishing a good, but also the labour needed to produce the tools used in that process. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am curious: how does the LTV suggest the labour involved in producing a machine should be divided across the goods that machine is used to make. In particular,&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;If the output of a machine is arbitrarily reduced, what happens to the value of the goods being produced? If we simply divide the labour put into the machine across the units produced then it seems like their value should increase, but then it seems like the whole notion of value becomes quite arbitrary.&lt;/li&gt;&#xA;&lt;li&gt;Suppose I built a machine that, in any given hour, produces one unit of penicillin and one unit of randomly mixed chemicals (from the same raw materials). Does this mean that penicillin and mixed chemicals should have equal value?&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="108" LastActivityDate="2018-01-22T15:21:17.797" Title="Accounting for machines in the labor theory of value" Tags="&lt;value&gt;&lt;marxism&gt;" AnswerCount="3" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="7037" PostTypeId="1" CreationDate="2015-08-27T08:05:52.273" Score="2" ViewCount="939" Body="&lt;p&gt;Can someone guide me in acquiring an application similar to EViews? I need a free application where I can incorporate the ARIMA model.&lt;/p&gt;&#xA;" OwnerUserId="5544" LastEditorUserId="1601" LastEditDate="2015-08-27T09:37:51.093" LastActivityDate="2015-08-27T09:37:51.093" Title="Free alternative to EViews for ARIMA modelling" Tags="&lt;econometrics&gt;&lt;software&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="7038" PostTypeId="1" CreationDate="2015-08-27T08:13:42.953" Score="-1" ViewCount="396" Body="&lt;p&gt;How to incorporate I parameter in GRETL application for ARIMA model?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Able to incorporate parameter AR and MA but not sure how to incoporate the I parameter?&lt;/p&gt;&#xA;" OwnerUserId="5545" LastActivityDate="2015-08-31T21:32:16.200" Title="How to incorporate I parameter in GRETL application for ARIMA model?" Tags="&lt;econometrics&gt;&lt;time-series&gt;" AnswerCount="2" CommentCount="1" ClosedDate="2015-09-02T12:44:14.150" ContentLicense="CC BY-SA 3.0" />
  <row Id="7039" PostTypeId="2" ParentId="7037" CreationDate="2015-08-27T08:24:07.020" Score="5" Body="&lt;p&gt;The standard open source statistical language is &lt;em&gt;R&lt;/em&gt;. The R-Project homepage is &lt;a href=&quot;https://www.r-project.org/&quot;&gt;here&lt;/a&gt;. Here is a page about &lt;a href=&quot;https://stat.ethz.ch/R-manual/R-devel/library/stats/html/arima.html&quot;&gt;ARIMA in R&lt;/a&gt;. If you want to try using R without having to install anything, then I would recommend &lt;a href=&quot;https://www.getdatajoy.com/&quot;&gt;DataJoy&lt;/a&gt;, which provides a free web-based R environment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that R is an entire statistical computing language, so you may find that there is quite a big overhead for learning the language before you can start doing your ARIMA analysis.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2015-08-27T08:24:07.020" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="7040" PostTypeId="2" ParentId="7037" CreationDate="2015-08-27T09:26:35.000" Score="4" Body="&lt;p&gt;As suggested above, R is an excellent language/program and suitable for almost anything in economics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, if you're looking for a free graphical interface program like Eviews, I'd give gretl (&lt;a href=&quot;http://gretl.sourceforge.net/&quot; rel=&quot;nofollow&quot;&gt;http://gretl.sourceforge.net/&lt;/a&gt;) a try.&lt;/p&gt;&#xA;" OwnerUserId="5512" LastActivityDate="2015-08-27T09:26:35.000" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="7041" PostTypeId="2" ParentId="7038" CreationDate="2015-08-27T09:56:08.457" Score="1" Body="&lt;p&gt;What you do with the I-term in ARIMA is to make the series stationary, so an easy way to do this is to take the difference of the series (increasing the magnitude until you reach stationarity) and create a new series. Then use the ARMA-model on that.&lt;/p&gt;&#xA;" OwnerUserId="5512" LastEditorUserId="5512" LastEditDate="2015-08-27T10:02:10.070" LastActivityDate="2015-08-27T10:02:10.070" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="7042" PostTypeId="5" CreationDate="2015-08-27T10:04:38.343" Score="0" Body="" OwnerUserId="-1" LastEditorUserId="-1" LastEditDate="2015-08-27T10:04:38.343" LastActivityDate="2015-08-27T10:04:38.343" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="7043" PostTypeId="4" CreationDate="2015-08-27T10:04:38.343" Score="0" Body="a conglomerate of models and results concerning the aggregation of individual choices into collective choices" OwnerUserId="5547" LastEditorUserId="5547" LastEditDate="2015-08-29T13:19:40.510" LastActivityDate="2015-08-29T13:19:40.510" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="7044" PostTypeId="1" CreationDate="2015-08-27T10:10:55.560" Score="7" ViewCount="7317" Body="&lt;p&gt;I need to know the difference between Social Choice, Public Choice and collective decision-making. Also, Is public choice, social choice the same as collective choice? Thank you&lt;/p&gt;&#xA;" OwnerUserId="5547" LastActivityDate="2019-01-06T08:04:27.497" Title="What is the difference between &quot;Social Choice Theory&quot;, &quot;Public Choice Theory&quot;, and &quot;Collective decision-making?" Tags="&lt;choice-theory&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="7045" PostTypeId="2" ParentId="7030" CreationDate="2015-08-27T12:02:37.113" Score="2" Body="&lt;p&gt;I assume you are currently reading about the IS LM model, which covers a goods (IS: interest and savings) and a capital market (LM: liquidity and money). In this model type, the central bank controls the money (cash) supply; and people “decide” whether to hold cash or bonds.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So from the model perspective your question would assume that the central bank keeps the money supply fixed and people have a higher demand for cash. Thus, if e.g. production increases, people need more money to conduct the transactions (everything else being equal). Hence, bonds would be sold to acquire cash. With bonds being held by the population the central bank has no direct influence. The increased supply of bonds then reduces their price and increases the implied interest rate. This has an effect on the goods market, where higher interest rates reduce investments (overall demand) so that production/output decreases.&lt;/p&gt;&#xA;" OwnerUserId="5548" LastActivityDate="2015-08-27T12:02:37.113" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="7047" PostTypeId="2" ParentId="7030" CreationDate="2015-08-27T15:21:30.073" Score="3" Body="&lt;p&gt;In your textbook, it says that &lt;em&gt;given a certain money supply&lt;/em&gt;, the interest rate must increase if the demand for money increases.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The money supply is determined by the central bank, which can buy bonds (which takes bonds out of circulation and increases the supply of money in circulation), or sell bonds (putting bonds in circulation but decreasing the supply of money in circulation). It can also, as in your example, do nothing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the demand for money increases, then market participants are willing to either &quot;buy&quot; more money at a given price (where the &quot;price&quot; of money is the interest rate), or pay a higher price for a given amount of money. This is true of all goods— and so long as demand isn't either perfectly elastic or perfectly inelastic, both are true.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So since in your example the money supply is fixed (i.e., the supply curve is perfectly inelastic), if the demand for money increases, the interest rate will increase. The interest rate increasing as a result of increased demand for money isn't dependent on the central bank doing anything, it's dependent on the central bank doing nothing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In practice, central banks usually target a particular interest rate. When they do so, they can't directly observe the demand for money, but they can observe the equilibrium price (i.e., the interest rate). So what they do is engage in open-market operations— buying [or selling] bonds to increase [or decrease] the supply of money, in turn decreasing [or increasing] the interest rate until it is close to their target.&lt;/p&gt;&#xA;" OwnerUserId="264" LastActivityDate="2015-08-27T15:21:30.073" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="7048" PostTypeId="1" AcceptedAnswerId="8165" CreationDate="2015-08-27T18:55:06.017" Score="4" ViewCount="853" Body="&lt;p&gt;Well I'm reading a &lt;a href=&quot;http://www.amazon.co.uk/gp/product/0273766333?keywords=blanchard%20macroeconomics&amp;amp;qid=1440701025&amp;amp;ref_=sr_1_1&amp;amp;sr=8-1&quot; rel=&quot;nofollow&quot;&gt;book&lt;/a&gt; on the IS-LM model. &#xA;At the end of the chapter, page 125 in my edition, the author presents one &lt;a href=&quot;http://faculty.wcas.northwestern.edu/~lchrist/research/fofa/flowoffunds.pdf&quot; rel=&quot;nofollow&quot;&gt;paper&lt;/a&gt; showing some graphs where the monetary policy (monetary contraction - increasing 1% of the federal funds rate) influencing output, but with its greatest impact only being felt after 4 quarters, and continues well into the 8th quarter.&#xA;At the same time, when the impact of the monetary policy is the greatest, is when the price level also begins to noticeably change.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;According to the author, since in the IS-LM model we've assumed that the price level is given, the fact that the price level only begins changes at 4th quarter, is a good support for our assumption. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Well, my question then is, why should we study the monetary policy as if it had the same time to impact as fiscal policy in the short-run, when the graphs support more the medium-run impact? Or is it a matter of magnitude of the policy at hand?(The Central Bank can move the interest rate with a lot more leeway than just a 1%)&lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="118" LastEditDate="2015-08-28T16:29:15.807" LastActivityDate="2015-09-06T23:52:56.893" Title="Monetary policy takes medium run time to take effect. Why study it in short run?" Tags="&lt;macroeconomics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="7049" PostTypeId="2" ParentId="6999" CreationDate="2015-08-27T21:09:44.123" Score="2" Body="&lt;p&gt;I think it was in one of Joan Robinson's books where a not just backward-bending but &quot;mirrored S&quot;-shaped labour supply was presented, referring to agricultural societies:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/Brwnr.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Brwnr.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The rationale of course is that if your productivity is very low, you have to work very long and exhausting hours to even survive. As your productivity raises, what you want is not to work even more for the extra income, but thankfully to get some rest.&lt;br&gt;&#xA;The empirical regularity is that most of workers in the world are away from the upper &quot;backward&quot; movement of labor supply - but in poor countries, they may very well be in the lower backward part. And I think this resonates with the information presented in @JohnL. answer. So chances are, you will find such preferences modeled in studies that focus on poor/developing economies.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-08-27T21:09:44.123" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="7050" PostTypeId="1" CreationDate="2015-08-27T21:54:08.027" Score="5" ViewCount="139" Body="&lt;p&gt;You regularly see stories about &lt;a href=&quot;http://www.bloomberg.com/news/articles/2015-08-26/venezuela-said-to-ready-larger-bank-notes-as-inflation-soars&quot; rel=&quot;nofollow noreferrer&quot;&gt;hyper-inflated economies&lt;/a&gt;. The common feature is that as prices spiral out of control, stores continually raise their prices to match the level of inflation, leading to insane costs for basic items and with note-values being increased to match prices. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's say that I'm running a cake stall. How do I know that I need to be charging 100 trillion fakedollars per cake rather than 200 trillion? &lt;strong&gt;Where do normal vendors get that kind of in-depth market info?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/0uLEa.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/0uLEa.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="5552" LastActivityDate="2015-08-29T00:55:39.220" Title="In a hyper-inflated economy, how do vendors know how much to raise their prices?" Tags="&lt;inflation&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="7053" PostTypeId="2" ParentId="7048" CreationDate="2015-08-28T11:37:55.710" Score="0" Body="&lt;p&gt;In an IS-LM model, expansionary monetary policy increases output and decreases the interest rate. Expansionary fiscal policy increases output and increases the interest rate, so the two types of policies are not equivalent.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Furthermore, monetary policy does not work in the long-run. See an AS-AD model for more details on that. The only reason monetary policy actually works, is because of the fixed prices and their &lt;em&gt;slowly&lt;/em&gt; changing (increase) in the medium run. Otherwise inflation would rise immediately in response thereby making monetary policy not have any effect on &lt;strong&gt;real&lt;/strong&gt; GDP.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To really get to the medium run you have to understand the short run first. Effects observed in the actual economy often are not as quick as in our models and take time. I wouldn't consider 4-8 quarters the medium run.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope this helps.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastActivityDate="2015-08-28T11:37:55.710" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="7054" PostTypeId="1" CreationDate="2015-08-28T13:36:29.327" Score="4" ViewCount="44" Body="&lt;p&gt;In my understanding, the seminal contribution of Easterlin (1974) showed that within a single cross section, both within and across countries, happiness correlates positively with income. However, growth in income &lt;em&gt;over time&lt;/em&gt;  within a country is not met with similar increases in happiness. Is my understanding correct?&lt;/p&gt;&#xA;" OwnerUserId="5233" LastActivityDate="2015-09-27T19:37:43.763" Title="Easterlin hypothesis" Tags="&lt;utility&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="7055" PostTypeId="1" CreationDate="2015-08-28T13:49:51.253" Score="5" ViewCount="562" Body="&lt;p&gt;Say I'm solving for consumption given income, and we assume that an interior solution exists:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \max_c U(c, Y)\\&#xA;C(Y) = \arg\max_c U(c, Y)\\&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, there is no closed-form solution for $C(Y)$. But I know it is cont. differentiable. Now I am not interested in $C(Y)$, but I want to know the sign of $C'(Y)$. Here was my approach:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Define the first-order condition as $G(c,Y) = 0$. Differentiate:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ &#xA;\frac{d}{d Y} G(c,Y) = \frac{\partial G(c,Y)}{\partial Y} + \frac{\partial G(c,Y)}{\partial c}\frac{d c}{d Y} = 0&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now I am somewhat stuck: How can I actually compute $\frac{d c}{d Y}$? That's what I'm, after all. I seem to remember that the envelope theorem says that $\partial c/\partial Y$ should be zero. How do I proceed?&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-08-28T19:20:38.670" Title="Envelope Theorem" Tags="&lt;mathematical-economics&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="7056" PostTypeId="2" ParentId="6894" CreationDate="2015-08-28T14:07:32.780" Score="3" Body="&lt;p&gt;The closest study I could find was that by John Pencavel titled '&lt;a href=&quot;http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2429648&quot; rel=&quot;nofollow&quot;&gt;The Productivity of Working Hours&lt;/a&gt;.'&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Abstract:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Observations on munition workers, most of them women, are organized to examine the relationship between their output and their working hours. The relationship is nonlinear: below an hours threshold, output is proportional to hours; above a threshold, output rises at a decreasing rate as hours increase. Implications of these results for the estimation of labor supply functions are taken up. The findings also link up with current research on the effects of long working hours on accidents and injuries.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="5233" LastEditorUserId="264" LastEditDate="2015-08-29T03:13:34.683" LastActivityDate="2015-08-29T03:13:34.683" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="7057" PostTypeId="2" ParentId="7050" CreationDate="2015-08-28T17:56:21.880" Score="1" Body="&lt;p&gt;How do normal vendors know at what level to set their selling prices when times are normal? They look around to see what competitors do, look at their costs, and engage in a trial-and-error process.  Where it all starts? We don't know that for the normal times, how are we supposed to know it for the abnormal ones?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is different in hyperinflationary times? &lt;em&gt;That a wrong &quot;guess&quot; can have devastating consequences&lt;/em&gt;. So vendors intensify their information gathering search, they change prices daily or even, more than one times during the same day, and also (I would venture), in order to guard against the devastating consequences, they tend to set their prices even higher than what a &quot;rational&quot; processing of information would suggest (since they know they face great Knightian uncertainty rather than merely &quot;risk&quot;), fueling hyperinflation even more...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;...and then, many of them still get it &quot;wrong&quot;, and suffer huge losses as a consequence.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;PS:&lt;/strong&gt; I cannot resist the temptation to link to the fascinating paper by T.J. Sargent &lt;strong&gt;&quot;The Ends of Four Big Inflations&quot; (1982)&lt;/strong&gt;, &lt;a href=&quot;http://faculty.ses.wsu.edu/rayb/420/Sargent_end%20of%204%20inflations.pdf&quot; rel=&quot;nofollow&quot;&gt;(freely downloadable here)&lt;/a&gt;. It is only very indirectly relevant to what the OP asks, in that it provides ample data that show how fast inflation rose in the four countries examined (Austria, Hungary, Poland, Germany), during their hyperinflation incidents, and so gives a feeling of what where the time constraints under which vendors had to decide on pricing... but it is relevant to the general subject of hyperinflation of course.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-08-28T17:56:21.880" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="7058" PostTypeId="2" ParentId="7055" CreationDate="2015-08-28T19:11:33.740" Score="5" Body="&lt;p&gt;The first order condition is $U_1(C(Y),Y)=0$, where $U_i$ means the partial derivative with respect to the $i$th argument.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, totally differentiate with respect to $Y$:&#xA;$$U_{12}(C(Y),Y)+U_{11}(C(Y),Y)C'(Y)=0.$$&#xA;This can be rearranged to give&#xA;$$C'(Y)=-\frac{U_{12}(C(Y),Y)}{U_{11}(C(Y),Y)}.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Usually, we expect the objective function is concave (i.e. $U_{11}&amp;lt;0$), so the sign of $C'(Y)$ is the same as the sign of $U_{12}(C(Y),Y)$.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Usually, when applying this kind of comparative static trick, the theory tells us what the sign of $U_{12}$ should be. As an example, if a entrepreneur's output as a function of effort and skill is $y(e,s)$, you might think that $y_{12}&amp;gt;0$ (i.e. an increase in effort yields a bigger increase in output for more skilled people). The analagous exercise to the one you are conducting above would then yield $y_{12}&amp;gt;0\implies e'(s)&amp;gt;0$ so more skilled entrepreneurs try harder.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's hard to know what the appropriate assumption on $U_{12}$ in your example might be because it's not clear why income is in the utility function in the first place and why $U$ isn't just increasing in $c$. Perhaps you have some application in mind that can pin this down.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;The envelope theorem would have a different use here. Suppose we found the optimal $C(Y)$ and are interested in the question &quot;evaluated at $C(Y)$, how does an increase in income affect utility&quot;?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The answer is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{d U(C(Y),Y)}{dY}=\underbrace{U_1(C(Y),Y)}_{=0}C'(Y)+U_2(C(Y),Y)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The envelope theorem tells us that we can ignore the first term (i.e. the indirect effect of $Y$ on $C$) because the first order condition for optimal choice of $C$ (i.e. $U_1=0$) guarantees this effect is zero.&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2015-08-28T19:20:38.670" LastActivityDate="2015-08-28T19:20:38.670" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="7059" PostTypeId="2" ParentId="7054" CreationDate="2015-08-28T19:22:26.907" Score="-1" Body="&lt;p&gt;The basic idea of Easterlin hypothesis is that 10 units of additional income does not require 10 units of additional happiness. The idea is close to the decreasing marginal utility of consumption. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, commiting suicides are less in countries where there are so many conflicts. Commiting suicide is more often in countries where prosperity level is higher. &lt;/p&gt;&#xA;" OwnerUserId="2938" LastActivityDate="2015-08-28T19:22:26.907" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="7060" PostTypeId="1" AcceptedAnswerId="7062" CreationDate="2015-08-28T20:05:03.843" Score="7" ViewCount="8958" Body="&lt;p&gt;How do we define consumer surplus in the case of perfectly inelastic demand?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This question was inspired by the comments following this &lt;a href=&quot;https://economics.stackexchange.com/a/5841/1601&quot;&gt;answer&lt;/a&gt;. For a graph of inelastic demand please also see the linked question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A motivation for a definition would be that while consumer surplus would be strange in this special case, change in consumer surplus may still be measurable easily with quite reasonable definitions.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2017-02-12T18:29:24.617" Title="Consumer surplus in case of perfectly inelastic demand" Tags="&lt;consumer-surplus&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="7061" PostTypeId="2" ParentId="7050" CreationDate="2015-08-29T00:55:39.220" Score="3" Body="&lt;p&gt;It's anecdote, but in this &lt;a href=&quot;http://www.npr.org/sections/money/2010/10/01/130267274/the-friday-podcast-how-four-drinking-buddies-saved-brazil&quot; rel=&quot;nofollow&quot;&gt;fantastic Planet Money piece&lt;/a&gt; on breaking Brazil's hyperinflation, there's a pretty good description of how in Brazil, shopkeepers would raise their prices multiple times a day. The strategies described (starting around the 10:00 mark, after the description of people running ahead of the guys with the price guns to buy things before they could raise the prices) include:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Assuming that inflation will run at some constant rate&lt;/li&gt;&#xA;&lt;li&gt;Running around checking competitors' prices&lt;/li&gt;&#xA;&lt;li&gt;Using the exchange rate against the US Dollar as a benchmark&lt;/li&gt;&#xA;&lt;li&gt;Pooling information and colluding with competitors, agreeing to all raise prices by the same fixed amount each day.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="264" LastActivityDate="2015-08-29T00:55:39.220" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="7062" PostTypeId="2" ParentId="7060" CreationDate="2015-08-29T01:31:21.997" Score="7" Body="&lt;p&gt;From a purely theoretical perspective, if an &lt;em&gt;individual's&lt;/em&gt; demand curve is perfectly inelastic, then her willingness to pay for the good is infinite. NB this also implies that she has an infinite budget. Thus, consumer surplus is well defined: it is the willingness to pay minus the price she pays, so as long as the price is finite her consumer surplus is finite.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In practice, no one has an infinite budget. So if the individual's demand curve is truly perfectly inelastic (i.e. the inverse demand is vertical), there exists a price such that beyond that price she can no longer afford to buy the good. This price is her willingness to pay, so consumer surplus is again well defined: the willingness to pay minus the price.&lt;/p&gt;&#xA;" OwnerUserId="5560" LastEditorUserId="8828" LastEditDate="2016-07-30T10:14:08.453" LastActivityDate="2016-07-30T10:14:08.453" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="7063" PostTypeId="2" ParentId="4663" CreationDate="2015-08-29T01:35:27.127" Score="4" Body="&lt;p&gt;@VicAche this is incorrect. While the consumer may be willing to pay a large amount, consumer surplus is defined as the willingness to pay minus the price she pays. So if the willingness to pay is infinite as you correctly asserted, then the consumer surplus is also infinite. See my answer to &lt;a href=&quot;https://economics.stackexchange.com/questions/7060/consumer-surplus-in-case-of-perfectly-inelastic-demand/7062#7062&quot;&gt;this question&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="5560" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-08-29T01:35:27.127" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="7065" PostTypeId="1" AcceptedAnswerId="7066" CreationDate="2015-08-29T14:10:38.273" Score="7" ViewCount="450" Body="&lt;p&gt;I heard one professor of my university say that &quot;&lt;em&gt;lottery is a kind of auction. So we can predict it! Then we could get a lot of money!&lt;/em&gt;&quot; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since he is in the mathematics department, and I know little about that matter, I couldn't answer to my gut feeling which told me that he was wrong.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, from the Economist's perspective, is it true? Is a lottery some kind of an auction?&lt;/p&gt;&#xA;" OwnerUserId="5563" LastEditorUserId="43" LastEditDate="2015-08-29T14:59:41.443" LastActivityDate="2015-08-30T19:19:58.827" Title="Are lotteries auctions?" Tags="&lt;auctions&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="7066" PostTypeId="2" ParentId="7065" CreationDate="2015-08-29T14:45:08.967" Score="6" Body="&lt;p&gt;Generally, and surprisingly, &lt;strong&gt;yes&lt;/strong&gt;, lotteries are similar to auctions. What do I mean by that?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In an auction, you increase the likelihood of winning by increasing your bid. In many auctions, if you increase the bid sufficiently much, that probability will go to one.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A similar thing is true for lotteries: the more tickets you buy, the higher is the likelihood of success. It is not a one-for-one correspondence, but it holds. And again, by predicting other people's actions (are they more likely to bid/gamble on week days or week ends), you can increase your chances of winning the lottery.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;However&lt;/strong&gt;, this means that you can increase your chances of winning, not that you will make a net surplus (&quot;get a lot of money&quot;). In the same way as sometimes, you can bid &quot;too high&quot; and make a net loss in an auction, you can pay a too high price for the (expected) win. In a lottery, this is quite often the case.&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2015-08-29T15:25:55.830" LastActivityDate="2015-08-29T15:25:55.830" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="7067" PostTypeId="1" AcceptedAnswerId="7069" CreationDate="2015-08-29T15:49:44.583" Score="2" ViewCount="175" Body="&lt;p&gt;Hi I am reading Hayashi's econometrics and have got stuck in the review question 1.5.1. The question asks us to prove that the multicollinearity assumption of the CLRM is satisfied by the transformed data matrix CX where C is (n by n) invertible matrix and X is an (n by k) matrix with rank = k. We have to show that the rank of CX = k. I know this is a theorem in matrix algebra and we can prove that rank CX = Rank X = k. But Hayashi suggests in the hint to the question another way to prove it and says that we must show that for all non-zero vectors c it must be that Xc is not equal to zero. Now, I could easily show this from the the fact that X has a full rank. But I get stuck in showing the final result that rank (CX) = rank (X) = k. Any suggestions on how to go about this, will be very helpful. It might something very straightforward that I am missing. Thanks a lot in advance. P.S. In case you are interested in looking at the question it is on page 59 of chapter 1.&lt;a href=&quot;http://press.princeton.edu/chapters/s6946.pdf&quot; rel=&quot;nofollow&quot;&gt;http://press.princeton.edu/chapters/s6946.pdf&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="2904" LastEditorUserId="2904" LastEditDate="2015-08-29T17:33:14.420" LastActivityDate="2015-08-29T17:50:21.180" Title="Multicollinearity in Transformed model: GLS" Tags="&lt;econometrics&gt;&lt;statistics&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="7068" PostTypeId="2" ParentId="7035" CreationDate="2015-08-29T17:31:43.820" Score="5" Body="&lt;p&gt;&quot;I have read that the Labour Theory of Value holds that the value of a good or service is determined by the total amount of labour involved in its production.&quot;&#xA;That would be Adam Smith's version of the LTV, which according to him only holds in pre-capitalist societies. &#xA;Karl Marx's version is thus:&#xA;the value of a good or service is determined by the total amount of socially-necessary labor involved in its production.&#xA;Socially necessary labor is basically the average amount of labor a society (industry, trading network or whatever) requires to produce a good. &#xA;It takes far less labor time on average to produce randomly mixed chemicals than to produce penicillin from chemical precursors. &lt;/p&gt;&#xA;" OwnerUserId="5516" LastActivityDate="2015-08-29T17:31:43.820" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="7069" PostTypeId="2" ParentId="7067" CreationDate="2015-08-29T17:50:21.180" Score="2" Body="&lt;p&gt;For every $k \times 1$ vector $\mathbf c\neq \mathbf 0$, we have that $\mathbf X \mathbf c \neq \mathbf 0$.&#xA;Choose $\mathbf e_i$ to be a standard basis $k \times 1$ vector having $1$ in the $i$-th position, and $0$ everywhere else. $\mathbf X\mathbf e_i \neq \mathbf 0$ is a $n \times 1$ vector, and equal to the $i$-th column of $\mathbf X$.&#xA;So in block matrix notation we have that &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\mathbf X = \left[ \begin{matrix} \mathbf X\mathbf e_1\;\; ...\;\;\mathbf X\mathbf e_k\end{matrix}\right] $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that the set of vectors $\mathbf X\mathbf e_i$ also form a basis.&#xA;Now,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\mathbf C \mathbf X =\left[ \begin{matrix} \mathbf C\mathbf X\mathbf e_1\;\; ...\;\;\mathbf C\mathbf X\mathbf e_k\end{matrix}\right]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since $\mathbf C$ is non-singular (and so of full column rank), and $n \times n$,it follows that the $n \times 1$ vectors $\mathbf C(\mathbf X \mathbf e_i) \neq \mathbf 0$. Moreover they are linearly independent by virtue of the full set of basis vectors used. So $\mathbf CX$ is of full column rank.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-08-29T17:50:21.180" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="7070" PostTypeId="1" AcceptedAnswerId="7071" CreationDate="2015-08-29T18:08:23.070" Score="0" ViewCount="107" Body="&lt;p&gt;Bit of a weird one, but here goes. Say there is a human society whose diet is 100% the human flesh of their own members. Would this society be able to maintain replacement population, or even &lt;em&gt;shudder&lt;/em&gt; grow? I suppose figuring this out would require daily caloric requirements, caloric value of human flesh, length of gestation, average age and a host of other variables, but is there some economic principle to short-cut to a solution here? Apologies if you've been sick. &lt;/p&gt;&#xA;" OwnerUserId="5516" LastActivityDate="2015-08-29T20:04:16.053" Title="Would a society of cannibals be self-sustaining?" Tags="&lt;population-economics&gt;" AnswerCount="1" CommentCount="3" ClosedDate="2015-08-30T07:43:16.690" ContentLicense="CC BY-SA 3.0" />
  <row Id="7071" PostTypeId="2" ParentId="7070" CreationDate="2015-08-29T20:04:16.053" Score="4" Body="&lt;p&gt;No, an animal population that subsist solely by consuming its own members is not sustainable.  This is easy to see because there's no external energy input into the population (all energy comes from other members of the same population), yet the individuals will necessarily expend some energy in their metabolism (turning it into heat).  Eventually, if the population cannot find any other food sources, the individuals will die (and be consumed) one by one, until the last one will run out of food and starve.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That said, there &lt;em&gt;are&lt;/em&gt; animal populations in nature where &lt;em&gt;some&lt;/em&gt; of the individuals may subsist almost entirely on cannibalism.  This is typical of e.g. &lt;a href=&quot;http://www.researchgate.net/publication/226857633_Cannibalism_in_teleost_fish&quot; rel=&quot;nofollow&quot;&gt;fish&lt;/a&gt;, which are very tiny when born, grow gradually over their lifetime, and tend to consume prey smaller than themselves.  Thus, in small lakes that happen to host only one species of fish, it's not uncommon for the large adult fish to mostly eat smaller juvenile fish of the same species (which in turn eat plankton and invertebrates, providing an external source of energy to the system).&lt;/p&gt;&#xA;" OwnerUserId="341" LastActivityDate="2015-08-29T20:04:16.053" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="7072" PostTypeId="1" AcceptedAnswerId="8298" CreationDate="2015-08-29T20:20:28.150" Score="8" ViewCount="1057" Body="&lt;p&gt;What are some scenarios in which the theory of repeated games have been applied?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am looking, for example, for scenarios in which a government, a firm or a person accepted a decision which relied upon a result such as the &lt;a href=&quot;https://en.wikipedia.org/wiki/Folk_theorem_%28game_theory%29#cite_note-fisher-2&quot;&gt;Folk theorem&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="385" LastActivityDate="2016-02-20T21:55:36.543" Title="Real-life applications of repeated games theory" Tags="&lt;game-theory&gt;&lt;repeated-games&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="7074" PostTypeId="1" AcceptedAnswerId="7079" CreationDate="2015-08-29T22:23:54.853" Score="1" ViewCount="67" Body="&lt;p&gt;I'm reading Blanchard's Macroeconomics, and on page 206 of the 5th edition, he writes: &#xA;«Let $u_t$ denote the unemployment rate in year t, and $u_{t-1}$ the unemployment rate in year t-1, and $g_{yt}$ the growth rate of output from year t-1 to year t. Then under these two conditions ($Y_t=N_t$ i.e. Output=Employment, and labour force $L_t=L$ constant), the following relation would hold: $$ u_t-u_{t-1}=-g_{yt}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But what I get is $\frac{Y_{t-1}-Y_t}{L}=-\frac{Y_t-Y_{t-1}}{Y_{t-1}}$ which is not true... where did I go wrong, or is there a typo?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="118" LastEditDate="2015-08-30T08:59:53.533" LastActivityDate="2015-08-30T23:32:44.637" Title="A simple question on a relationship between output growth rate and unemployment rate" Tags="&lt;macroeconomics&gt;" AnswerCount="2" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="7075" PostTypeId="1" CreationDate="2015-08-29T22:45:42.950" Score="0" ViewCount="135" Body="&lt;p&gt;In the Marxist concept, animals, machines and slaves are incapable of producing surplus value. They only produce as much as they have to in order to function, and no more. Doesn't this also describe the condition of &quot;wage-slaves&quot;? I have heard that the difference is that the wage-slave sells his labor. But I fail to see how a machine that sells its labor for fuel and spare parts would suddenly be able to produce surplus value. Explain please. &lt;/p&gt;&#xA;" OwnerUserId="5516" LastActivityDate="2016-04-19T05:02:14.233" Title="Difference between automated and living labor pertaining to surplus value" Tags="&lt;marxism&gt;&lt;surplus&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="7076" PostTypeId="2" ParentId="7060" CreationDate="2015-08-29T23:43:00.553" Score="5" Body="&lt;p&gt;Let $Q^d = D(p)$ be the market demand function, depending on price $p$. Let $p^*$ be equilibrium price (that depends also on supply of course). Then Consumer Surplus is usually defined as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\text{CS}=\int_{p^*}^\infty\!D(p)\,dp$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;i.e. the &quot;area under the demand curve&quot;, starting from equilibrium price. So it appears, that if $D(p) =\bar q&amp;gt;0$ (perfectly inelastic demand), then we would have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\text{CS}=\int_{p^*}^\infty\!\bar q\,dp =\bar q \cdot p\Big|^{\infty}_{p^*}\rightarrow \infty$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hmm, this is mathematically sound, but is it useful/meaningful from an economics perspective? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The critical point is the upper limit of the integral of course: by putting it equal to &quot;infinity&quot; we assume that for &lt;em&gt;any&lt;/em&gt; price, however high, there will be &lt;em&gt;some&lt;/em&gt; demand, however minuscule. In reality, after a price demand will drop to zero (simple linear downward sloping demand curves have this realistic property). Even for totally inelastic demand, after a price all consumers will be &quot;budgeted out&quot; of the market -that they &quot;desperately need&quot; to have the product does not mean that they will indeed get it if the price exceeds, say, their total wealth. In a graph, this means that the vertical line representing demand has an upper end, it does not extend to the sky. So if we realistically take into account this fact, and denote this supremum price by $P_s&amp;lt;\infty$, we can redefine Consumer Surplus as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\text{CS}=\int_{p^*}^{P_s}\!D(p)\,dp$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and for totally inelastic demand we obtain&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\text{CS}=\int_{p^*}^{P_s}\!\bar q\,dp =\bar q \cdot (P_s-p^*)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Graphically,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/Iu8hY.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Iu8hY.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-08-29T23:43:00.553" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="7079" PostTypeId="2" ParentId="7074" CreationDate="2015-08-30T09:18:20.233" Score="3" Body="&lt;p&gt;I get the same equation as you do. So you are correct. But tough usually $u_t - u_{t-1} \neq -g_{y_{t}}$, for small values of $g_{y_{t}}$ &#xA;$$&#xA;u_t - u_{t-1} \approx - g_{y_{t}}&#xA;$$&#xA;does hold. In macroeconomics these kind of (in my opinion annoying) approximations are used every now and then. The author perhaps neglected to mention that he was using an approximation. For example the &lt;a href=&quot;https://en.wikipedia.org/wiki/Fisher_equation&quot; rel=&quot;nofollow&quot;&gt;Fisher equation&lt;/a&gt; is &lt;a href=&quot;https://en.wikipedia.org/wiki/Fisher_hypothesis&quot; rel=&quot;nofollow&quot;&gt;sometimes written&lt;/a&gt; as $i = r + \pi$, even though it is actually $i \approx r + \pi$ and that only for small values of $r,\pi$.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2015-08-30T09:18:20.233" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="7080" PostTypeId="1" AcceptedAnswerId="7086" CreationDate="2015-08-30T09:55:49.283" Score="1" ViewCount="207" Body="&lt;p&gt;Think of the following balls as individuals of populations. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Say I have $U$ urns, and some balls. Both numbers are &lt;em&gt;really&lt;/em&gt; large. So large, that authors like Blanchard and Diamond have approximated the binomial operations that follow with Poisson probabilities.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The balls are either red ($R$) or green ($G$). At the beginning of the period, every ball is (randomly, iid) tossed into an urn. There is no miss chance (i.e. every ball is in &lt;em&gt;some&lt;/em&gt; urn). Some urns will have more than one ball, some might have none.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are two exercises I want to do in this setup, and I'm not sure to what extent they're overlapping (i.e. helping me understand one would help me understand the other one as well), so I will post both.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My issue is kind of that I have a binomial thinking going on, and you can see that from the structure that I have imposed onto solving the following probabilities. Should I switch to Poisson probabilities instead? What is the &lt;em&gt;neatest&lt;/em&gt; way to solve the following setups?&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Red Ball Solo&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;I would like to compute the ex-ante probability of a red ball (from the perspective of a red ball) of being tossed into an urn where there is no other red ball.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So far, I was thinking about doing&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ &#xA;Prob(\text{sole red ball}) = \sum_{x = 1}^{R + G} Prob(\text{Urn has $x$ balls}) \cdot \sum_{y=0}^{x-1}Prob(\text{No other red ball }  | x \text{ balls})&#xA;$$ &lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Red Ball Super Ball&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;Out of each urn, one red ball becomes a super ball. This probability is uniform. I would like to compute the probability of a red ball becoming a super ball.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My abstract idea was again similar:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ &#xA;Prob(\text{red ball becomes super ball}) = \sum_{x = 1}^{R + G} Prob(\text{Urn has $x$ balls}) \cdot \sum_{y=0}^{x-1}Prob(\text{$y$ other red balls | $x$ total balls }) \frac{1}{1+y}&#xA;$$ &lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-09-11T08:34:53.610" Title="Urn balls and probabilities" Tags="&lt;probability&gt;&lt;stochastic-calculus&gt;" AnswerCount="3" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="7081" PostTypeId="1" AcceptedAnswerId="8189" CreationDate="2015-08-30T11:39:16.047" Score="3" ViewCount="279" Body="&lt;p&gt;In Haag et al. 2009 Testing and imposing Slutsky symmetry in nonparametric demand systems, the authors claim that the Slutsky matrix can be computed from share functions expressed in terms of logged prices and logged wealth. &#xA;In particular they claim that, let $p$ and $w$ be logged prices and logged wealth.&#xA;$s_{ij}=\frac{\partial{b_i(p,w)}}{\partial{p_j}}+\frac{\partial(b(p,w))}{\partial w}b_j(p,w)+b_j(p,w)b_i(p,w)-\delta_{i,j}b_i(p,w)$&#xA;where $\delta_{i,j}$ is the kronecker delta function that says that in the diagonal terms we have to substract $b_i(p,w)$. &#xA;He claims that this is the Slutsky matrix in unlogged prices terms, but how can this beif everything is in terms of shares. I have tried to derive it myself but I cannot reproduce what they have, but maybe I am making some mistake. The authors cite Mas-Colell et al. do you know the exact reference in the book they only provide the general reference.&#xA;Reference:Haag, B. R., Hoderlein, S., &amp;amp; Pendakur, K. (2009). &lt;a href=&quot;http://dx.doi.org/10.1016/j.jeconom.2009.04.003&quot; rel=&quot;nofollow&quot;&gt;Testing and imposing Slutsky symmetry in nonparametric demand systems&lt;/a&gt;. Journal of Econometrics, 153(1), 33–50.&lt;/p&gt;&#xA;" OwnerUserId="127" LastEditorUserId="7215" LastEditDate="2016-02-09T16:38:27.167" LastActivityDate="2016-02-09T16:38:27.167" Title="Slutsky matrix computed from budget shares" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="7082" PostTypeId="1" AcceptedAnswerId="8176" CreationDate="2015-08-30T13:12:45.460" Score="2" ViewCount="2056" Body="&lt;p&gt;In Blanchard's Macroeconomics, page 211, 5th edition, the author using the following three mathematical equalities&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Okun's law : $u_t-u_{t-1}=-\beta(g_{yt}-\bar{g_y})$, where&#xA;$\bar{g_y}$ is defined as the output growth rate when the&#xA;unemployment rate is constant, $g_{yt}$ output growth rate from year&#xA;t-1 to t.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;expectations-augmented Philips curve, &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;and assuming a functional form  for the aggregate demand relation&#xA;that allows to deduce  $g_{yt}=g_{mt}-\pi_t$, where $g_{mt}$ is nominal&#xA;money growth rate&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;makes a reasoning on what happens in the medium-run when the central bank maintains a constant growth rate of nominal money, concluding that although changes in the growth rate of nominal money doesn't change unemployment rate, it does change the inflation rate one-for-one. One of the first assumptions of the reasoning is that in the medium run the unemployment rate is constant. But why can we assume this?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In previous chapters, we had assumed that output would change one-for-one with employment, and that the labour force was constant. Then, when the expected price level were equal to the actual price level, the economy would be in natural output level, and that would imply from previous two assumptions that unemployment rate would also be the natural one. However, in this chapter, when the author was deriving the Okun's law, we explicitly assumed that labour force was no longer constant, and that employment would respond less than one-for-one to output, and that changes in employment are not negatively reflected one-for-one in the unemployment. &#xA;Also, in same page 211, it's the author's conclusion that the unemployment rate in the medium-run is the natural unemployment rate. So, we cannot assume what we're trying to conclude... &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, why can we assume that the unemployment rate must be constant in the medium run?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated. &lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="118" LastEditDate="2015-08-30T14:32:34.560" LastActivityDate="2015-09-07T23:15:53.677" Title="Medium run conclusions from Okun's Law and Expectations-Augmented Philips Curve" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="7085" PostTypeId="2" ParentId="7065" CreationDate="2015-08-30T19:19:58.827" Score="1" Body="&lt;p&gt;&lt;strong&gt;No&lt;/strong&gt;. The winner of an auction is the highest bidder, while the winner of a lottery is chosen at random. Even if you buy more tickets than anyone else, you are not guaranteed to win.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An auction is a price discovery mechanism. You can get useful information from the result of an auction, e.g. how much a similar item might be worth.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The value of the prize of a lottery is usually known upfront, and anyway no information is gained by rolling dice.&lt;/p&gt;&#xA;" OwnerUserId="2" LastActivityDate="2015-08-30T19:19:58.827" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="7086" PostTypeId="2" ParentId="7080" CreationDate="2015-08-30T20:09:53.637" Score="2" Body="&lt;p&gt;&lt;em&gt;(If urns are vacancies and balls are unemployed, what distinction between unemployed workers does the Red/Green dichotomy reflects?)&lt;/em&gt;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Each ball has in front of it an identical box, each with the exact same lottery tickets, its ticket has a number on it, and each number corresponds to an urn. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;We say &quot;Go!&quot; and each ball draws &quot;randomly&quot; (i.e. with equal probability) a ticket from the box in front of it. Note that the requirement that the probabilities are Uniform, impose the condition that, if we want to have proper distributions, the number of urns must be &lt;em&gt;finite&lt;/em&gt; (not even countably infinite -see &lt;a href=&quot;https://stats.stackexchange.com/questions/103930/discrete-uniform-random-variable-taking-all-rational-values-in-a-closed-inter&quot;&gt;this post in statistics.se&lt;/a&gt;) Then:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;RED BALL SOLO&lt;/strong&gt;&lt;br&gt;&#xA;&lt;strong&gt;From the point of view of a single Red ball, what is the probability that it will draw a number that no other Red ball draws?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since each ball draws independently from the others, it is clear that we don't care at all about the existence of Green balls, to the degree that no upper limit of &quot;number of balls in an urn&quot; exists (if it existed the draws would not be independent). So Green balls (their number and what they draw from their boxes) can be kept out of the picture.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since Red balls are indistinguishable, let's take $R_1$ as our hero. If it draws the number $1$ (i.e. conditional on) we want the probability&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Pr(R_j \neq 1 \mid R_1 =1)\;\;  j=2,...N_R$$&#xA;But draws are independent so we want simply&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Pr(R_j \neq 1) = \prod_{j=2}^{N_R}[1-\Pr(R_j = 1)] =  (1-1/N_U)^{N_R-1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But $R_1$ can draw not just $&quot;1&quot;$, but any number, and each with probability $1/N_U$. So the probability of the event that we want, denote it $\Pr(\text{RBS})$ is (&lt;a href=&quot;https://en.wikipedia.org/wiki/Law_of_total_probability&quot; rel=&quot;nofollow noreferrer&quot;&gt;Law of Total Probability&lt;/a&gt;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \Pr(\text{RBS}) = \sum_{i=1}^{N_U}\left(\frac {1}{N_U}\right)\cdot \Pr(R_j \neq i \mid R_1 =i) = \left(\frac {1}{N_U}\right)\sum_{i=1}^{N_U}(1-1/N_U)^{N_R-1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies \Pr(\text{RBS}) = \left(\frac {1}{N_U}\right) \cdot N_U \cdot (1-1/N_U)^{N_R-1} = (1-1/N_U)^{N_R-1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;...again.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is intuitive: the greater the number of urns, the higher the probability. The greater the number of Red balls, the lower the probability.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, define job market tightness as usual by &#xA;$$\theta = N_U/N_R \implies N_R = \frac 1 {\theta} N_U$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(here &quot;U&quot; denotes &quot;urns&quot; so vacancies). Then&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Pr(\text{RBS}) = \left(1-\frac 1{N_U}\right)^{\frac 1 {\theta}  N_U-1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If $N_U$ grows &quot;large&quot; then the above is well approximated by &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Pr(\text{RBS}) \approx e^{-\frac 1 {\theta} }$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The higher job market tightness, the higher the probability that an unemployed will be matched solo to a vacancy (again, ignoring what the Greens represent).&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="-1" LastEditDate="2017-04-13T12:44:19.590" LastActivityDate="2015-08-30T20:23:14.323" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="7087" PostTypeId="1" CreationDate="2015-08-30T20:32:51.317" Score="5" ViewCount="361" Body="&lt;p&gt;Exercise 2.5 in Vijay Krishna's &lt;em&gt;Auction Theory&lt;/em&gt; (slightly modified):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Consider a two-bidder ﬁrst-price auction in which bidders’ values&#xA;  are distributed according to $F$. Let $\beta$ be the symmetric equilibrium, i.e., $$\beta(x)=E[Y\mid Y&amp;lt;x],$$ where $Y$ is drawn from $F$. &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Now suppose that after the auction is over, both the losing and winning bids are publicly announced. In addition, there is the possibility of postauction resale: The winner of the auction may, if he so wishes, offer the object to the other bidder at a ﬁxed “take-it-or-leave-it” price of $p$. If the other bidder agrees, then the object changes hands, and the losing bidder pays the winning bidder $p$. Otherwise, the object stays with the winning bidder, and no money changes hands. The&#xA;  possibility of postauction resale in this manner is commonly known to&#xA;  both bidders prior to participating in the auction. Show that $\beta$ remains an&#xA;  equilibrium even if resale is allowed. In particular, show that a bidder with&#xA;  value $x$ cannot gain by bidding an amount $b&amp;gt;\beta(x)$ even when he has the&#xA;  option of reselling the object to the other bidder.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Call the two bidders Jane and Mike. Given Mike's bid, and assuming that Mike follows the equilibrium strategy $\beta$, Jane can determine Mike's exact value. This implies that if Jane wins the item but realizes that she has lower value than Mike, she will resell it to Mike at exactly Mike's value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We should calculate Jane's expected payoff when bidding $\beta(z)$ with $z\geq x$ when her value is $x$, and show that the expected payoff is maximized when $z=x$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Jane wins with probability $F(z)$. If she loses, her payoff is $0$. If she wins and her value is higher than Mike's value, her payoff is $x-\beta(z)$. If she wins and her value is lower than Mike's value, $Y$, her payoff is $y-\beta(z)$. As a result, her expected payoff is $$-F(z)\beta(z)+F(x)x+(F(z)-F(x))E[Y\mid x&amp;lt;Y&amp;lt;z].$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The term $F(x)x$ does not depend on $z$, so we are left to maximize $$-F(z)\beta(z)+(F(z)-F(x))E[Y\mid x&amp;lt;Y&amp;lt;z].$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How do we maximize this?&lt;/p&gt;&#xA;" OwnerUserId="1475" LastActivityDate="2015-09-13T02:09:22.277" Title="Two-player first-price auction with resale" Tags="&lt;game-theory&gt;&lt;auctions&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="7088" PostTypeId="2" ParentId="7074" CreationDate="2015-08-30T22:16:42.447" Score="0" Body="&lt;p&gt;Under the stated assumptions, we have that (using $N_t = Y_t$ and $L_t = L$)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$u_t - u_{t-1} = \frac {L-Y_t}{L} - \frac {L-Y_{t-1}}{L}  = \frac {Y_{t-1} - Y_t}{L}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &quot;growth rate of output&quot; is defined as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$g_{yt} \equiv \frac{Y_t-Y_{t-1}}{Y_{t-1}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So we can manipulate the first equation as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$u_t - u_{t-1}  = -\frac {Y_t-Y_{t-1}}{L} \frac{Y_{t-1}}{Y_{t-1}} = -g_{yt}\cdot (1-u_{t-1})$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies u_t - u_{t-1} = -g_{yt} + g_{yt}\cdot u_{t-1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So we do have an approximation. Such are fine for theoretical expositions (educational or not), but whether they should be acceptable in real-world studies depends on the actual magnitudes of the two rates involved. For example with a growth rate of $3\%$ and a previous-period unemployment rate of $5\%$ we would get an approximation error of $0.0015$.  The true drop in unemployment would be over-estimated ($3$ percentage points instead of $2.85$ percentage points), which appears acceptable.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-08-30T23:32:44.637" LastActivityDate="2015-08-30T23:32:44.637" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="7089" PostTypeId="1" CreationDate="2015-08-30T23:32:57.437" Score="2" ViewCount="205" Body="&lt;p&gt;Consider a preference relation $\succeq$ on $X=\mathbb{R^2_{+}}$. If $\succeq$ satisifies:&#xA;$$&#xA;\begin{align}&#xA;&amp;amp;1.\mbox{ }(a_1,a_2)\succeq (b_1,b_2)\implies(a_1+t,a_2+s)\succeq (b_1+t,b_2+s),\forall t,s\\&#xA;&amp;amp;2.\mbox{ }a_1\geq b_1 \mbox{ and } a_2\geq b_2 \implies (a_1,a_2)\succeq (b_1,b_2)\mbox{ (and the analogous for }\succ\mbox{)}\\&#xA;&amp;amp;3.\mbox{ Continuity }&#xA;\end{align}&#xA;$$&#xA;Then: exists a linear representation for $\succeq$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Could anyone give me some hints on how to prove this?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks for helping! :D&lt;/p&gt;&#xA;" OwnerUserId="4195" LastActivityDate="2018-12-07T01:02:25.490" Title="Existence of Linear Representation" Tags="&lt;utility&gt;&lt;preferences&gt;" AnswerCount="1" CommentCount="5" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="7090" PostTypeId="1" AcceptedAnswerId="7095" CreationDate="2015-08-31T00:54:56.130" Score="3" ViewCount="155" Body="&lt;p&gt;Sometimes, companies influence users in order to make them use inferior software and other services. For example, Microsoft makes it difficult to use anything other than Bing for Cortana, even though Google is mostly considered to be better. Similarly, Siri uses Safari instead of Chrome and it is difficult to change this, even though the latter is generally considered superior.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At first glance, the answer seems obvious: companies push users to use their products because they are the ones who get revenue from their own products, due to advertisements in search results.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, this answer seems insufficient. Suppose Microsoft generates $n$ USD in revenue per unit time from using Bing with Cortana. It seems reasonable to suppose that if Cortana had used Google, Google would generate $n + \epsilon$ USD per unit time from her, where $\epsilon &amp;gt; 0$ due to Cortana using a superior search engine, which would cause her her to be at least slightly more popular. If this is the case, why doesn't Microsoft make Cortana use Google under the condition that Google gives $n + \epsilon'$ to Microsoft, where $0 &amp;lt; \epsilon' &amp;lt; \epsilon$? Wouldn't this roughly give Microsoft an additional $\epsilon' &amp;gt; 0$ in profit and give Google an additional $\epsilon - \epsilon' &amp;gt; 0$? If Microsoft using Google would further increase Google's name recognition and decrease Microsoft's, then why not just increase $\epsilon'$ to take this into account?&lt;/p&gt;&#xA;" OwnerUserId="4157" LastEditorUserId="4157" LastEditDate="2015-08-31T17:13:41.567" LastActivityDate="2015-11-24T15:26:30.630" Title="Why do companies push users to use inferior software?" Tags="&lt;microeconomics&gt;&lt;behavioral-economics&gt;&lt;software&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="7091" PostTypeId="1" CreationDate="2015-08-31T02:58:49.510" Score="4" ViewCount="1348" Body="&lt;p&gt;Exercise 4.5 in Vijay Krishna's &lt;em&gt;Auction Theory&lt;/em&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Suppose that bidder 1 always has value $X_1=2$, while bidder 2's value, $X_2$ is equally likely to be $0$ or $2$. Find equilibrium bidding strategies in a first-price auction. (Note that since values are discrete, the equilibrium will be in mixed strategies.)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;I don't understand why it is that since values are discrete, the equilibrium will be in mixed strategies. Is there some rule/principle to this?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;How do I set up for the problem? Since equilibrium are in mixed strategies, I can suppose that player 1 bids $b_1,\ldots,b_k$ with probabilities $p_1,\ldots,p_k$ respectively. But that seems too general to make any progress.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="1475" LastActivityDate="2016-04-26T21:02:51.790" Title="First-price auction with discrete values" Tags="&lt;game-theory&gt;&lt;auctions&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="7092" PostTypeId="1" AcceptedAnswerId="7102" CreationDate="2015-08-31T06:40:50.160" Score="3" ViewCount="483" Body="&lt;p&gt;According to my common knowledge, the price should drop when supply increases. Why doesn't the price of gold drop slowly as more gold is produced from mining?&lt;/p&gt;&#xA;" OwnerUserId="5573" LastEditorUserId="264" LastEditDate="2015-08-31T13:16:50.460" LastActivityDate="2015-09-01T10:28:46.453" Title="Why doesn't the price of gold drop as mining occurs that produces more gold?" Tags="&lt;price-level&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="7093" PostTypeId="2" ParentId="7092" CreationDate="2015-08-31T07:27:52.720" Score="0" Body="&lt;p&gt;To be fair, the price of gold remained quite stationary from 1980-around 2005 after which it rose rapidly and has now fallen for several years. Whether the price will drop to its old level remains to be seen). This is the market defining the value of a resource, i.e. consumers believing in an inherent value in gold and the fact that gold has some value even if more of it is mined daily and that the amount of gold in the market won't increase rapidly, so it can be sold for similar value in the future.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Basic economic theory states exactly what you're thinking (supply rises =&gt; prices should drop). This should happen if a market had perfect competition and automatically reached a theoretical equilibrium. However, what you should consider is that in a real world economy such a perfect market is hard to find and, in a market with a low number of firms, the suppliers push the price up to gain a higher portion of the total economic surplus (&lt;a href=&quot;https://en.wikipedia.org/wiki/Economic_surplus&quot; rel=&quot;nofollow&quot;&gt;https://en.wikipedia.org/wiki/Economic_surplus&lt;/a&gt;). As long as there is demand for a good with higher prices, there is an incentive for the suppliers to (slowly) increase the price and supply.&lt;/p&gt;&#xA;" OwnerUserId="5512" LastEditorUserId="5512" LastEditDate="2015-08-31T07:51:53.737" LastActivityDate="2015-08-31T07:51:53.737" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="7094" PostTypeId="2" ParentId="7044" CreationDate="2015-08-31T12:54:49.733" Score="5" Body="&lt;blockquote&gt;&#xA;&lt;p&gt;Social choice theory or social choice is a theoretical framework for analysis of combining individual opinions, preferences, interests, or welfares to reach a collective decision or social welfare in some sense.&lt;sup&gt;1&lt;/sup&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;A social choice is related to a collective decision. Many different opinions, preferences and interests are taken into account to form a decision which is acceptable by everyone who is involved. Opinions, preferences and interests don't just have a personal background, but a social one, too. The society around you influences your thinking and doing by socializing. Hence the name: Social choice theory.&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Group decision-making (also known as collaborative decision-making) is a situation faced when individuals collectively make a choice from the alternatives before them. The decision is then no longer attributable to any single individual who is a member of the group.&lt;sup&gt;2&lt;/sup&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Collective decision-making refers to a group of people who are committed to make a decision. Collective means that the decision isn't made upon the ideas of one person but of several. Responsibility is shared among these people. One alone can't be held responsible for the decision as several people agreed to it.&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;A. What is Public Choice? Public choice is the study of political decision making.&lt;/p&gt;&#xA;&lt;p&gt;i. It attempts to understand how public policies come to be adopted using economic models of the impacts of policies on individuals,&lt;/p&gt;&#xA;&lt;p&gt;ii. and models of individual political behavior under a variety of political institutions.&lt;/p&gt;&#xA;&lt;p&gt;iii. It tends to use rational choice models to do so, which is largely what distinguishes it from mainstream and classical political economy.&lt;sup&gt;3&lt;/sup&gt;&lt;/p&gt;&#xA;&lt;p&gt;[...] iii. (Roughly speaking, public choice, and/or rational politics, is the application of&#xA;economic models of human action to politics.)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;The theory of Public choice believes that every politician is rational and economically (self-)interested. The goal of Public choice is to analyze and predict the behaviour of politicians and bureaucrats - analyzing their public choice.&lt;/p&gt;&#xA;&lt;p&gt;Social choice theory and group decision-making are somewhat related to each other. However, a social choice doesn't need to be made by several people, it just has to represent several people. By considering a lot of interests and preferences, one or more make a decision to achieve the best.&lt;/p&gt;&#xA;&lt;p&gt;Public choice is more like a field of research. Hence, it's related to both Social choice and group decision-making. As it's the application of economic models of human action to politics, you research the advantages and disadvantages of doing public decisions.&lt;/p&gt;&#xA;&lt;p&gt;Long story short: Social choices and group decision-making are actions, Public choice is a field of study which researches political behaviour out of a economic view. All three are related to each other but still are independent approaches for making a decision.&lt;/p&gt;&#xA;&lt;hr&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;sup&gt;1&lt;/sup&gt; &lt;a href=&quot;https://en.wikipedia.org/wiki/Social_choice_theory&quot; rel=&quot;noreferrer&quot;&gt;Wikipedia: Social choice theory&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;sup&gt;2&lt;/sup&gt; &lt;a href=&quot;https://en.wikipedia.org/wiki/Group_decision-making&quot; rel=&quot;noreferrer&quot;&gt;Wikipedia: Group decision-making&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;sup&gt;3&lt;/sup&gt; &lt;a href=&quot;http://rdc1.net/class/BayreuthU/PUBCL1.pdf&quot; rel=&quot;noreferrer&quot;&gt;http://rdc1.net/class/BayreuthU/PUBCL1.pdf&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="5575" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2015-08-31T12:54:49.733" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="7095" PostTypeId="2" ParentId="7090" CreationDate="2015-08-31T15:34:08.373" Score="2" Body="&lt;p&gt;There are a lot of factors that can explain why they do not. The stackexchange says to avoid &quot;Making statements based on opinion;&quot; but I do not think that this is possible.  There is most likely no one answer to this, and I would mark it a behavioral economic question instead of just micro economics. This answer assumes that your example gives each firm an additional profit. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) Microeconomics assumes that each firm acts rationally; that is maximizes utility. Traditionally this means maximizing profit. This major assumption has been proved wrong again and again, and evidence suggest that the pure neo-classical model is not a sufficient indicator of firms actions. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) While the end result of a contract will lead to a higher profit, the transaction cost between the firms may be high. &lt;a href=&quot;http://down.cenet.org.cn/upfile/39/20057517433183.pdf&quot; rel=&quot;nofollow&quot;&gt;Transaction Cost Theory&lt;/a&gt; basically adds friction to the invisible hand of neo-classical economics. Read the introduction, section 2.2-.3, and all of section 3.1. The external transaction cost between the two firms would be huge. Both companies are opportunistic, both firms have their own strategic intent, and assume both firms would not trust each other. What would have to result is an extremely ridged contract trying to encompass all possibilities, which can offset the additional profit both would obtain and lead to an extremely bureaucratic system that is not a characteristic of a successful tech company.  For example, if I was using a Windows Cortana and searched via a joint venture with Google for a pc, would my search be directed to Microsoft's store or Google's store? A better example would Googles licensing rights. Would google be able to license it's product to other firms. If it was, it could charge a lower price else where via more favorable terms and undercut Microsoft all together (much like Microsoft did to IBM with DOS). If it couldn't, it would be depended to Microsoft, something the firm certainly does not need. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;3) Google is dealing with anti-trust suits in Europe. For Google, teaming up with Microsoft to gain further market share would not go well in their efforts to prove they are not a monopoly, and it may bring anti-trust suit in the US. For Microsoft, given their history, I am positive they want to stay as far away from this as possible.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;4) Potential may be the most over valued asset. While a search engine is valuable today, in the future having your own may be infinitely valuable. I am not a tech guy, but I can see the value in controlling what people find when they search certain key words. The short-term lose of potential profits as a result of an inferior search engine can be far out weighed by devolving one that meets industry standards. Add that with the fact that Microsoft's core business (OS) is not going to be undermined by a poor search engine, I can understand why they want to deploy their own.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As I said earlier, these are just possibilities, and a combination of factors leads them not to collaborate. &lt;/p&gt;&#xA;" OwnerUserId="5457" LastActivityDate="2015-08-31T15:34:08.373" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="7096" PostTypeId="1" AcceptedAnswerId="7097" CreationDate="2015-08-31T16:26:46.273" Score="5" ViewCount="225" Body="&lt;p&gt;Advanced theory of individual economic behaviour in production, consumption, and general equilibrium. Are these topics useful to study environmental economics a the graduate level, or is there not a lot of overlap?&lt;/p&gt;&#xA;" OwnerUserId="5531" LastEditorUserId="43" LastEditDate="2015-08-31T17:02:27.987" LastActivityDate="2015-09-01T10:56:07.933" Title="Is a strong foundation in advanced microeconomic theory essential to study environmental economics at the graduate level?" Tags="&lt;microeconomics&gt;&lt;environmental-economics&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="7097" PostTypeId="2" ParentId="7096" CreationDate="2015-08-31T18:01:25.843" Score="5" Body="&lt;p&gt;It depends on what you like to do in environmental economics. There are lots of people who are working on moral hazard issues on environmental economics by principal-agent models. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;More specifically, an interesting question arises from non-point source pollution. Let's say farmers are using pesticides which cause pollution. Probably, you don't know specifically which of farmers are responsible. How could you create &quot;incentives&quot; in order to avoid this situation(pollution) ? &#xA;You can look at the Segerson (1988), published in Journal of Environmental Economics and Management in order to understand this issue more precisely. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another field could be about social choice theory (and decision theory) in environmental economics, especially on equity between individuals and generations. These issues can be included in microeconomics but more in applied math as they use topology etc. (Geir Asheim, Stéphane Zuber's papers could be interesing for this subject.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Just to finish, I think there are more things to do in environmental economics at a macroeconomic level. (Note that my opinion could be biased as I am working at macro level.)&lt;/p&gt;&#xA;" OwnerUserId="2938" LastActivityDate="2015-08-31T18:01:25.843" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="7098" PostTypeId="2" ParentId="7038" CreationDate="2015-08-31T21:32:16.200" Score="2" Body="&lt;p&gt;In gretl, the command&lt;/p&gt;&#xA;&#xA;&lt;p&gt;arima 1 3 ; y&lt;/p&gt;&#xA;&#xA;&lt;p&gt;will estimate an ARMA(1,3) model on y. However, the syntax &lt;/p&gt;&#xA;&#xA;&lt;p&gt;arima 1 2 3 ; y&lt;/p&gt;&#xA;&#xA;&lt;p&gt;will estimate an ARIMA(1,2,3) model on y, that is, an ARMA(1,3) model on y, differenced twice.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You also have ways to estimate models with seasonal filters etcetera. You'll want tpo have a look at:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;the help provided in the program abot the &quot;arima&quot; command, and&lt;/li&gt;&#xA;&lt;li&gt;chapter 25 of the User's Guide.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The User's Guide is accessible from within the program via the Help menu, or can be downloaded from &lt;a href=&quot;http://sourceforge.net/projects/gretl/files/manual/&quot; rel=&quot;nofollow&quot;&gt;http://sourceforge.net/projects/gretl/files/manual/&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="5580" LastActivityDate="2015-08-31T21:32:16.200" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="7099" PostTypeId="1" CreationDate="2015-08-31T21:51:54.773" Score="0" ViewCount="1688" Body="&lt;p&gt;0&#xA;down vote&#xA;favorite&#xA;In the following game, the mixed strategy equilibrium is found as player 2 playing B 3 out of 5 times and A 2 out of 5 times but I am not able to get it. Please find the mistake in the following calculation: &#xA;                         Player 2 &#xA;                    A                      B&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;         A     3,2                    1,1 &#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Player 1&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;         B     0,0                    2,3  &#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Payoff for player 1 if he plays A: 3q+1(1-q)  assuming player 2 plays A with probability q. And if he plays B payoff is 0q + 2(1-q)&#xA;For an equilibrium both payoffs should equal so 3q+1(1-q)=2(1-q) which gives q=1/4 i.e. probability of player 2 playing A which is not correct.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks in advance.&lt;/p&gt;&#xA;" OwnerUserId="5581" LastEditorUserId="5582" LastEditDate="2015-09-01T09:55:15.397" LastActivityDate="2015-09-01T10:09:04.790" Title="Calculating mixed strategy equilibrium in battle of sexes" Tags="&lt;game-theory&gt;" AnswerCount="1" CommentCount="1" ClosedDate="2015-09-02T11:39:04.623" ContentLicense="CC BY-SA 3.0" />
  <row Id="7100" PostTypeId="2" ParentId="7080" CreationDate="2015-08-31T22:08:13.173" Score="1" Body="&lt;p&gt;&lt;strong&gt;Red ball solo&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For any red ball in some urn, the probability that another red ball misses that urn is $1-\frac{1}{U}$. The probability that all other red balls miss that urn is the product of the chance they all miss that urn, or $\left(1-\frac{1}{U}\right)^{R-1}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Red ball super ball&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The balls are symmetric, so $\Pr[\text{a red ball is a superball}] = \frac{\mathbb{E}[\text{# superballs}]}{R}$. The expected number of superballs is the expected number of urns with a nonzero number of red balls. The probability that an urn has $\geq 1$ red ball is $1 - \left(1-\frac{1}{U}\right)^R$, because the chance that every red ball misses the urn is $\left(1-\frac{1}{U}\right)^R$. The expected number of urns with a nonzero number of red balls is therefore $U$ times this probability. So&#xA; $$ \Pr[\text{a red ball is a superball}] = \frac{U}{R}\left(1 - \left(1-\frac{1}{U}\right)^R\right) . $$&lt;/p&gt;&#xA;" OwnerUserId="2856" LastActivityDate="2015-08-31T22:08:13.173" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="7101" PostTypeId="1" AcceptedAnswerId="7107" CreationDate="2015-08-31T23:41:23.823" Score="6" ViewCount="664" Body="&lt;p&gt;Given a continuous preference relation $\succeq$ over $X=\mathbb{R}^2_{+}$ where all sets:&#xA;$$&#xA;I_x\equiv\{y\in X:y\sim x\}&#xA;$$&#xA;are lines on $X,\forall x\in X$, and are parallel to $I_y,\forall y\notin I_x$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;How can I show that $\succeq$ has a linear representation?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems intuitive that if every indifference curve is a line, then the utility itself must be a line, but I'm not sure how to go back to it. Would someone be willing to help me?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks! Any helpful tips are appreciated! :D&lt;/p&gt;&#xA;" OwnerUserId="4195" LastEditorUserId="4195" LastEditDate="2015-08-31T23:55:35.610" LastActivityDate="2015-09-01T11:36:59.100" Title="If all indifference curves are parallel lines, then preference has linear representation" Tags="&lt;utility&gt;&lt;preferences&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="7102" PostTypeId="2" ParentId="7092" CreationDate="2015-09-01T00:21:37.900" Score="8" Body="&lt;p&gt;You cannot reason directly from a price change. Prices may increase because supply has fallen or demand has changed. In general we can't distinguish between the two unless we know something about the demand and supply curve in particular and not just prices and quantities. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, when demand increases (the demand curve shifts to the right but supply curves are held fixed) this increases demand for gold at all prices. Which means that equilibrium quantity increases (more gold is produced) as well.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/zHuF3.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/zHuF3.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But that gold doesn't decrease prices. The only reason more gold was produced was because prices were higher. If prices fell in response to higher quantity produced the producers (who have the same supply function by assumption) would not produce more. So in response to a demand shock for gold prices increase in order to clear the market for gold. Otherwise there is not enough gold at the old prices. &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-09-01T10:28:46.453" LastActivityDate="2015-09-01T10:28:46.453" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="7103" PostTypeId="1" AcceptedAnswerId="7105" CreationDate="2015-09-01T08:52:01.160" Score="3" ViewCount="43" Body="&lt;p&gt;I want to know the market value (market capitalization) of a company on a particular day in the recent past (within the past 5 years). How can I do this, may be with the help of Google Finance or Yahoo Finance or some other tool?&lt;/p&gt;&#xA;" OwnerUserId="2867" LastEditorUserId="108" LastEditDate="2015-09-01T10:15:30.007" LastActivityDate="2015-09-01T10:22:35.230" Title="Market Value of a publicly traded company" Tags="&lt;data-request&gt;&lt;stock-market&gt;&lt;financial-markets&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="7104" PostTypeId="2" ParentId="7099" CreationDate="2015-09-01T10:09:04.790" Score="4" Body="&lt;p&gt;Your calculations are correct. If we take this game: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{array}{| r | r |}&#xA;  \hline &#xA;\hline                       &#xA;  &amp;amp; A&amp;amp; B\\&#xA;  \hline                      &#xA;A&amp;amp;3,2&amp;amp;1,1\\&#xA;B&amp;amp;0,0&amp;amp;2,3\\&#xA;  \hline &#xA;\end{array}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;then the mixed strategy probability used by the column player must make the row player indifferent: $3q+1(1-q)=0q+2(q-1)$, implying $q=1/4$.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;From your question, I infer that you have a solution claiming that the answer should be $q=2/5$. In that case, it looks to me like there has been a typo somewhere. Indeed, if we take the following game:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{array}{| r | r |}&#xA;  \hline &#xA;\hline                       &#xA;  &amp;amp; A&amp;amp; B\\&#xA;  \hline                      &#xA;A&amp;amp;3,2&amp;amp;0,0\\&#xA;B&amp;amp;0,0&amp;amp;2,3\\&#xA;  \hline &#xA;\end{array}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We find the mixed strategy equilibrium implies the column player using probability $q$, with $3q=2(1-q)$ so $q=2/5$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that this second, modified game is symmetric (as textbook battle of the sexes games usually are), further strengthening my suspicion that the confusion has been caused by a typo in the description of the game.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2015-09-01T10:09:04.790" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="7105" PostTypeId="2" ParentId="7103" CreationDate="2015-09-01T10:15:11.627" Score="4" Body="&lt;p&gt;One possibility would be to use &lt;a href=&quot;http://www.wolframalpha.com/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Wolfram Alpha&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I type the search phrase &lt;code&gt;market capitalization msft 3rd December 2010&lt;/code&gt; then the search engine returns the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/ZAIZY.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/ZAIZY.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you use Wolfram Mathematica on your PC then you can import the data directly for processing using the &lt;code&gt;FinancialData&lt;/code&gt; command (see &lt;a href=&quot;https://reference.wolfram.com/language/ref/FinancialData.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;).&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2015-09-01T10:22:35.230" LastActivityDate="2015-09-01T10:22:35.230" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="7106" PostTypeId="2" ParentId="7096" CreationDate="2015-09-01T10:56:07.933" Score="4" Body="&lt;p&gt;Microeconomic theory is relevant to many topics in environmental economics, eg pollution control, valuation of environmental goods, economics of natural resources.  A knowledge of more advanced theory would enable you to go more deeply into such topics and understand more of the literature.  However, you can get quite a long way in environmental economics by applying basic microeconomic theory to situations with environmental features such as negative externalities (pollution), non-market environmental goods (many parks) public goods and &quot;bads&quot; (climate change), renewable resources (fish, forests) and non-renewable resources (minerals).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you are considering taking a graduate-level course in environmental economics, I suggest you look at the detailed content of particular courses to get an idea of what previous knowledge is assumed.  I took an MSc in environmental economics several years ago which included a module on &quot;economic principles&quot; - essentially basic microeconomics, and obviously designed so that the course could be offered to those with backgrounds in related fields such as environmental science or agriculture but no previous study of economics.&lt;/p&gt;&#xA;" OwnerUserId="1417" LastActivityDate="2015-09-01T10:56:07.933" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="7107" PostTypeId="2" ParentId="7101" CreationDate="2015-09-01T11:36:59.100" Score="7" Body="&lt;p&gt;The indifference curves are constructed by viewing the utility function as an equation (for a fixed utility index value per curve).  So from&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U = U(x_1,x_2)$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;where the left side is just a symbol, we move to&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\bar U = U(x_1,x_2)$$&#xA;where now the left side is a specific number.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Take the total differential on both sides to obtain&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$0 = U_1dx_1 + U_2dx_2 \implies \frac {dx_2}{dx_1} = -\frac {U_1}{U_2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any straight line in the two-dimensional plane has a constant slope so also&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {dx_2}{dx_1} =c$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Same for $y$-bundle. Etc.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-09-01T11:36:59.100" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="7108" PostTypeId="1" AcceptedAnswerId="7111" CreationDate="2015-09-01T16:52:47.073" Score="6" ViewCount="2220" Body="&lt;p&gt;Q. According to the Taylor Rule, what should the central bank do to stabilize the economy after an increase in oil price?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My points:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Increase in oil prices (1970's) raises the price of production for producers and hence shifts the AS curve to the left.&lt;/li&gt;&#xA;&lt;li&gt;With lower AS and a constant demand the price for goods is raised and inflation increases.&lt;/li&gt;&#xA;&lt;li&gt;Taylor rule suggests that in order to counter the effect of inflation and lower it back down to its target (usually 2%), for every percentage point that inflation is above its target, the Fed funds rate should be raised by 0.5%. For example if inflation is at 8% and the target is 2%, 8-2=6% above target so Fed funds rate should be raised by 6x0.5 = 3%.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I think I am correct in saying this but if am not please let me know. What I don't understand is why raising interest rates will actually help?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A higher Fed funds rate means banks will have to charge higher interest to its customers which will surely discourage consumption?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand the relationship between inflation and Real interest rate:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;i = r + pi (Fisher Equation)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm just finding it hard to explain why increased interest will lower inflation in practice, i.e. what this means for consumers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does anyone have any pointers?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks again in advance&lt;/p&gt;&#xA;" OwnerUserId="5585" LastEditorUserId="264" LastEditDate="2015-09-01T17:59:29.090" LastActivityDate="2019-05-21T08:08:10.897" Title="Taylor Rule: Relationship between interest rate and inflation" Tags="&lt;inflation&gt;&lt;interest-rate&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="7109" PostTypeId="1" CreationDate="2015-09-01T17:00:44.200" Score="1" ViewCount="387" Body="&lt;p&gt;Propeties the model should have:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Well motivated: the game is actually is a plausible model of a real world situation. Maybe with some parameters learnt from data.&lt;/li&gt;&#xA;&lt;li&gt;Complete: it is a complete game theory model. This will probably using a Harsanyi-style completion to form the imperfect information game.&lt;/li&gt;&#xA;&lt;li&gt;Asymmetric information is important. Players have private information and deducing the information of other players is important to the strategy of the game.&lt;/li&gt;&#xA;&lt;li&gt;Complex enough: so that it can't be analysed with pen and paper. But not so complex that coding up a simulation would be difficult.  &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;(Note that poker has all the properties except the first.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reason I ask is that there has been a lot of progress on poker by participants in &lt;a href=&quot;http://www.computerpokercompetition.org/&quot; rel=&quot;nofollow&quot;&gt;http://www.computerpokercompetition.org/&lt;/a&gt; . (I am a former participant). And there has been discussion of adding to the games played in the competition. So an economics researcher might get some quite sophisticated AI programmers to work out optimal play in their model, if they can frame it as a poker game and get it accepted into the contest.&lt;/p&gt;&#xA;" OwnerUserId="5584" LastActivityDate="2015-09-01T17:00:44.200" Title="Which economic game theory model is most similar to poker?" Tags="&lt;game-theory&gt;&lt;computation&gt;&lt;bayesian-game&gt;&lt;asymmetric-information&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="7110" PostTypeId="1" CreationDate="2015-09-01T17:46:41.547" Score="6" ViewCount="2159" Body="&lt;p&gt;Recently, &lt;a href=&quot;https://en.wikipedia.org/wiki/Raghuram_Rajan&quot; rel=&quot;nofollow&quot;&gt;Raghuram Rajan&lt;/a&gt;, a &lt;a href=&quot;https://www.youtube.com/watch?v=Mfd6B9IKTBc&quot; rel=&quot;nofollow&quot;&gt;former chief economist at the International Monetary Fund&lt;/a&gt; and current Governor of central bank of India, while addressing undergraduate students of Economics, said:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;... In this country there is a tremendous need for capable economists. I see that every day in my work. There is a need in Delhi, in Mumbai and all over the country. We have lost a generation of economists...&lt;strong&gt;The kind of economics we need is based on a good understanding of the fundamentals of economics, such as price theory and general equilibrium, which is the hardest concept to understand.&lt;/strong&gt; &lt;em&gt;A lot of policy-making is done without an understanding of general equilibrium&lt;/em&gt; which is often the key contribution that an economist can make to the dialog. The kind of economics we need is based on rigorous fundamentals – blood, sweat, tears, and toil. ...&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I am a student of public policy in India, aiming to achieve a key position in public policy making. As much as his above statements make me worry at many levels, they also set a a goal for me to achieve. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this context, given my background, what do I read to gain &lt;em&gt;&quot;that expected level&quot;&lt;/em&gt; of understanding? How should my learning path look like?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;EDIT:&lt;/strong&gt; I'm asked to provide my mathematical background. I have done following undergrad math courses:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;Algebra&#xA;Linear Algebra&#xA;Real Analysis&#xA;Complex Analysis&#xA;Calculus&#xA;Analytic Geometry&#xA;Ordinary Differential Equations&#xA;Partial Differential Equations&#xA;Linear Algebra&#xA;Vector Analysis&#xA;Linear Programming&#xA;Numerical Analysis and Computer programming&#xA;Dynamics &amp;amp; Statics&#xA;Mechanics and Fluid Dynamics&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;You can say, I can solve most of the problems from undergrad textbooks on above subjects. I dealt with statistics only at my Senior High School level.&lt;/p&gt;&#xA;" OwnerUserId="5586" LastEditorUserId="5586" LastEditDate="2015-09-12T13:23:41.780" LastActivityDate="2018-07-21T21:35:43.827" Title="What are the best books for developing a solid understanding of fundamentals of Economics?" Tags="&lt;reference-request&gt;&lt;soft-question&gt;" AnswerCount="3" CommentCount="5" FavoriteCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="7111" PostTypeId="2" ParentId="7108" CreationDate="2015-09-02T00:36:07.330" Score="9" Body="&lt;p&gt;It's true that in response to an oil shock, the Taylor rule could recommend increasing the interest rate to reduce inflation. In practice it would mean that as interest increases, consumption falls. This could be from less credit financed spending, or because the opportunity cost of holding money has increased, therefore people invest more in illiquid assets (bonds in an IS-LM context) and therefore consume less. As consumption falls, aggregate demand falls, therefore putting pressure off prices causing a reduction in inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note: an oil shock might also increase the output gap, so its not inherently clear what the taylor rule would say in this situation.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastEditorUserId="5557" LastEditDate="2019-05-21T08:08:10.897" LastActivityDate="2019-05-21T08:08:10.897" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="7113" PostTypeId="2" ParentId="7110" CreationDate="2015-09-02T02:14:56.490" Score="5" Body="&lt;p&gt;Read Hal Varian's textbook &quot;Microeconomic Analysis&quot;. It's brief, yet a standard text in a 4th year or graduate course in advanced micro.  Then grab a good book on mathematical economics that's &lt;em&gt;actually&lt;/em&gt; well written, and includes suggestions on how to develop good mathematical intuition, not just a bunch of recipes on how to solve problems.  For example, you can learn how to use determinants in matrix algebra, but how many actually know what a determinant is, both algebraically and geometrically? That's the blood, sweat, and tears bit, I think.   I suggest the two volumes by Knut Sydsaeter (check Amazon)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You may also want to learn some advanced macroeconomic theory, and some spatial, urban and resource economics. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Take a good course in econometrics, and learn a programming language like Python or Julia so your are not always beholden to other people to provide you with data, which may be dirty or faulty, but you won't know it. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Watch lots of Youtube videos on economics, esp. controversial topics. Take some cool courses on Coursera or other MOOCS. They are often from some of the top universities in the world, and they are free. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;OK, so now you have some basic tools; if you enjoy using them, and find that real work gets done, why not go to graduate school? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then go practice for 20 years, and keep in mind that some aspects of economics may just be bunk anyway, so stay modest, don't get too overly seduced by beautiful models. &lt;/p&gt;&#xA;" OwnerUserId="5531" LastEditorUserId="5531" LastEditDate="2015-09-02T11:39:40.190" LastActivityDate="2015-09-02T11:39:40.190" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="7114" PostTypeId="1" CreationDate="2015-09-02T05:00:38.967" Score="0" ViewCount="57" Body="&lt;p&gt;I need data for forex rates because I'm working on a project to predict the rise and fall of the rates. Where can I find such data?&lt;/p&gt;&#xA;" OwnerUserId="5589" LastActivityDate="2015-09-02T14:50:54.737" Title="Foreign Currencies Exchange Data" Tags="&lt;currency&gt;&lt;data-request&gt;&lt;exchange-rates&gt;" AnswerCount="2" CommentCount="3" ClosedDate="2015-09-02T20:12:18.627" ContentLicense="CC BY-SA 3.0" />
  <row Id="7115" PostTypeId="2" ParentId="7114" CreationDate="2015-09-02T05:57:35.630" Score="1" Body="&lt;p&gt;This isn't really a proper question for this network, but try:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://data.worldbank.org/indicator/PA.NUS.FCRF&quot; rel=&quot;nofollow&quot;&gt;http://data.worldbank.org/indicator/PA.NUS.FCRF&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.imf.org/external/np/fin/data/param_rms_mth.aspx&quot; rel=&quot;nofollow&quot;&gt;https://www.imf.org/external/np/fin/data/param_rms_mth.aspx&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="5512" LastActivityDate="2015-09-02T05:57:35.630" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="7116" PostTypeId="2" ParentId="7110" CreationDate="2015-09-02T13:28:14.117" Score="1" Body="&lt;p&gt;There are lots of very good introduction textbooks that may help you.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Gregory Mankiw - Principles of Economics&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Olivier Blanchard - Macroeconomics&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Especially, the first one is a great one. Simple and gives the fundamentals of economics. The second one is an intermediate textbook. Personally, I did not read it but as the author is Blanchard, I am pretty sure that it is a great book. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Daron Acemoğlu - An Introduction to Modern Economic Growth&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This book is also great but not an introduction book at all but very helpful to understand the principles of growth theory which is so important in order to understand the development trajectories of countries.&lt;/p&gt;&#xA;" OwnerUserId="2938" LastActivityDate="2015-09-02T13:28:14.117" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="7117" PostTypeId="2" ParentId="7114" CreationDate="2015-09-02T14:50:54.737" Score="0" Body="&lt;p&gt;You may find the following website helpful:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.fxstreet.com/rates-charts/currency-rates/&quot; rel=&quot;nofollow&quot;&gt;http://www.fxstreet.com/rates-charts/currency-rates/&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="5233" LastActivityDate="2015-09-02T14:50:54.737" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="7118" PostTypeId="2" ParentId="6779" CreationDate="2015-09-02T15:07:16.797" Score="1" Body="&lt;p&gt;$\hat{\beta}_{OLS}=(x'x)^{-1}(x'y)$. Under homoskedasticity, the&#xA;(estimated) variance of this estimator is $var(\beta)=\sigma^{2}(x'x)^{-1}$.&#xA;Under heteroskedasticity, it becomes $(x'x)^{-1}(x'\Omega x)(x'x)^{-1}$.&#xA;The $\Omega$ is the variance-covariance matrix of the error terms.&#xA;OLS is a nested case of GLS under homoskedasticity. $\hat{\beta}\,_{GLS}=(x'\Omega^{-1}x)^{-1}(x'\Omega^{-1}y)$.&#xA;As you can see, when the variance-covariance matrix is a scalar, the&#xA;omegas drop out. WLS is a special form of GLS where $\Omega=\left(\begin{array}{cccc}&#xA;e_{1}^{2} &amp;amp; 0 &amp;amp; . &amp;amp; 0\\&#xA;0 &amp;amp; .\\&#xA;. &amp;amp;  &amp;amp; .\\&#xA;0 &amp;amp; . &amp;amp; 0 &amp;amp; e_{N}^{2}&#xA;\end{array}\right)$ and the $e's$ stand for the residuals. The HCCME (White) standard&#xA;errors use a model estimated by OLS but correct for the standard errors&#xA;by using the squared residuals obtained from OLS estimation in the&#xA;sandwich form of the estimate of the variance. One can never know&#xA;the true form of heteroskedasticity and therefore one can never know&#xA;if the standard errors of the OLS estimates are biased upwards or&#xA;downwards. The problem with using the robust standard errors is that&#xA;this is an asymptotic result and can therefore be biased in small&#xA;samples. Personally, I would use the small-sample correction of the&#xA;HCCME. &lt;/p&gt;&#xA;" OwnerUserId="5233" LastActivityDate="2015-09-02T15:07:16.797" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="7119" PostTypeId="1" CreationDate="2015-09-02T15:49:21.390" Score="3" ViewCount="30" Body="&lt;p&gt;I am an amateur economist at best, more a person with an economic BS looking to explore data science (I will be using python). I have a theory that I want opinion on that will allow the Fed to raise the interest rate while offsetting the lose in domestic investment by lowering or eliminating the &lt;a href=&quot;http://www.economist.com/news/finance-and-economics/21642196-presidents-plan-makes-no-sense-offer-they-could-refuse&quot; rel=&quot;nofollow&quot;&gt;repatriate tax laws&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My assumptions are that raising the interest rates will lower investment overall, lower the money supply, and decrease demand.  That lowering the repatriate tax laws will have American firms import a higher level of liquid capital, spur domestic investment, and create jobs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ultimately I want to make a formula with as little dependencies as possible where $f(x)+g(y)=0$. $f(x)$ will be the effect on the economy due to the interest rate and $g(y)$ will be the effect of the tax. So if you raise the interest rate $f(x)$ then you must lower the repatriate tax rate $g(y)$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My questions are:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;1)&lt;/strong&gt; Are you aware of a study like this?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;2)&lt;/strong&gt; Are my assumptions correct?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;3)&lt;/strong&gt; Any advice would be greatly appreciated such as data sources, economic papers on parts of what I am trying to do, possible factors to include.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;4)&lt;/strong&gt; Just looking at it, does it seem logical?&lt;/p&gt;&#xA;" OwnerUserId="5457" LastEditorUserId="2938" LastEditDate="2015-09-02T19:10:06.057" LastActivityDate="2015-09-02T19:10:06.057" Title="Using US foreign tax policy to offset a raise in interest rates" Tags="&lt;monetary-policy&gt;&lt;money-supply&gt;&lt;taxation&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="7120" PostTypeId="1" AcceptedAnswerId="7124" CreationDate="2015-09-02T18:12:54.180" Score="2" ViewCount="1905" Body="&lt;p&gt;I have read douzons of explanations and they all basically claim the following:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;China's stock market continued to boom despite the country's increasingly gloomy economic outlook, and this eventually created a bubble that popped.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The above sentence cannot be more vague and although everyone claims it's true, no one seems to give an explanation for why it is true.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why is there a bubble? what is a bubble? Can someone explain to me in more depth how would a booming stock market accompanied with a slow growth economy create a crash?&lt;/p&gt;&#xA;" OwnerUserId="5593" LastEditorUserId="5593" LastEditDate="2015-09-02T19:47:00.983" LastActivityDate="2015-09-03T01:53:58.763" Title="What is the real reason for china's stock market crash (August 2015)?" Tags="&lt;macroeconomics&gt;&lt;stock-market&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="7121" PostTypeId="1" AcceptedAnswerId="7122" CreationDate="2015-09-02T18:19:56.057" Score="1" ViewCount="132" Body="&lt;p&gt;My knowledge of economics is very small so I would be grateful if anyone could answer this question in the style of 'economics for dummies'! &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is meant by the term 'credit-based investment' or 'credit-fuelled investment'? I have come across the term a number of times describing China's fiscal policy. &lt;/p&gt;&#xA;" OwnerUserId="5594" LastActivityDate="2015-09-02T18:54:15.603" Title="What is meant by credit-based investment?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="7122" PostTypeId="2" ParentId="7121" CreationDate="2015-09-02T18:54:15.603" Score="1" Body="&lt;p&gt;As the name suggests, credit based investment is investment that takes place based on funds that are themselves borrowed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An example of credit-based investment is leverage. &lt;/p&gt;&#xA;" OwnerUserId="5233" LastActivityDate="2015-09-02T18:54:15.603" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="7123" PostTypeId="2" ParentId="7120" CreationDate="2015-09-02T21:05:21.660" Score="1" Body="&lt;p&gt;Robert J. Shiller defines a speculative bubble in &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0691166269&quot; rel=&quot;nofollow&quot;&gt;Irrational Exuberance&lt;/a&gt; as:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;Irrational exuberance is a psychological basis of a speculative bubble. I define a speculative bubble as a situation in which news of a price spurs investors enthusiasm, which spreads by psychological contagion from person to person, in the process amplifying stories that might justify the price increase and bring in a larger and larger class of investors, who, despite doubts about the real value of an investment, are drawn to it partly through envy of others successes and partly through a gambler's excitement&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;He gives a few cultural reasons for this, but since his book is based on the US I would take it with a grain of salt. They are the advancement of capitalism (he includes China here), the increase emphasis on business success, the revolution of information technology, the demographics of the baby boom, the decline of inflation and the money illusion, and the rise of gambling and pleasure in risk taking in general. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I will be focusing on what he says operate on the foreground, which are greatly increased media coverage, the aggressively optimistic forecast of stock analysts, the rise of 401(k) plans, the mutual funds explosion, and the expanding volume of trade in the market. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;The real reason&quot; is such a large amount of factors that it probably will never be known fully.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I cannot stress enough on how I have no idea on Chinese culture. I have no idea what their media says, what the individual China man thinks about inflation or market movements, what Chinese forecast models look like, or if China has been experiencing a rise in middle class gambling (although lately I have been making a killing shorting WYNN casinos, that's a whole other story).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I do know a few things however. China does sort of fit the baby boom theory, because of the one child policy. They artificially have created an aging population. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;They also do fit the rise of 401(k). Now I have no idea if the employer matches benefits of employees (my guess would be no), but I do know that China's emerging middle class has very little options when it comes to investments and savings. The first major investment choice is real estate, then not to long ago they where allowed to enter the financial markets. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, with that said, we can examine what happened. While much of China's GDP is exports, a large part is also construction. The last 30 years has been unreal. Whole cities have been built all over the East coast. &lt;a href=&quot;https://www.youtube.com/watch?v=uxjwhk1ktNw&quot; rel=&quot;nofollow&quot;&gt;Watch this 60 minute report&lt;/a&gt;. The dramatic slowdown in building hit the economy and effected the GDP, but more importantly for this discussion the Chinese investor lost his best investment vehicle. Many investors started to look at the market. As more investors jumped in, stock prices rose, returns rose, investors became irrationally exuberant, invested more, stock prices rose more, returns rose more, more investors became irrationally exuberant, so on and so on.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://finance.yahoo.com/echarts?s=000001.SS+Interactive#%7B&amp;quot;range&amp;quot;:&amp;quot;5y&amp;quot;,&amp;quot;allowChartStacking&amp;quot;:true%7D&quot; rel=&quot;nofollow&quot;&gt;You should look at this graph&lt;/a&gt;. For professional investors, it is startling. You do not need a PhD to realize that this a bubble. Investors started to hedge their positions, and once the herd spooked, the bottom fell. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is a over simplification. You should also read how China has opened up their markets over the past decade. People can come up with technical details of why, but it is almost irrelevant. When you have companies valued at millions of dollars that haven't made one sale, something is going to happen. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;China's actions aren't helping either. The Chinese government has been claiming to open up the markets, but they are regressing back to their old ways. Putting out inaccurate data, placing short sellers in jail, devaluing their currency over 2% in a day; these actions are not inspiring confidence. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A common misconception on bubble's is that they start because of economic slow down.  This is not required though. A bubble is when the financial markets no longer reflect the real market; and eventually that bubble gets corrected. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;All that being said, a buying opportunity is when everyone is selling. Crashes happen fast and swift, gains are long and slow.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I leave you with one more quote from Robert Shiller, a book I definitely recommend you read if you want to know more. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;But it was never my intent to argue that one can explain the ups and downs of the markets well in terms of the precipitating factors alone. The markets have lives of their own due to the effects of feedback, the amplification mechanism that spreads out the effect of the precipitating factors through time and that sometimes makes the effects of the factors so big and so important as to take our breath away.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="5457" LastEditorUserId="5457" LastEditDate="2015-09-02T21:32:45.773" LastActivityDate="2015-09-02T21:32:45.773" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="7124" PostTypeId="2" ParentId="7120" CreationDate="2015-09-02T21:16:01.617" Score="5" Body="&lt;p&gt;Stock prices predominantly are a quantification of the company's future growth and profit prospects. These are expectations, and are partly based on how the specific company performs currently and has performed in the recent past, but also on what the &quot;general economic outlook&quot; looks like (expectations again): if it is &quot;gloomy&quot;, we expect that this will constrain even the best of companies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A usual &quot;stock market bubble&quot; is a situation where there is a unabated inflow of new investors (so new money, available to buy stocks, flows in the market), and where the general tendency of the prices of the stocks is to rise, and at a fast rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Experience has taught us that even in a sample of a few hundred companies, there is no way that the majority of them will excel in economic performance at the same time. So the &quot;short-term general tendency of stock prices to rise&quot; must come either from positive expectations on the &quot;general economic outlook&quot; (rather than the assessment of each individual company separately), or from a &quot;Ponzi-scheme&quot; climate, which is often the case at least in new stock markets in emerging economies: investors demand to buy stocks simply because they believe they will be able to quickly sell them at a higher price to somebody else, irrespective of what the &quot;economic fundamentals&quot; are, as regards actual economic performance. This fuels stock prices which in turn represent a signal to outsiders that indeed, they too can come in and play this game.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The thing with Expectations is that they may have no inertia: they can swing abruptly. So if in the middle of such a rising-stock-prices trend (which already may not be based on the actual economic performance, as said), comes a change of Expectations for the gloomier, suddenly investors &quot;see&quot; that the prices are over-inflated. The inflow of willing investors to buy at even higher prices suddenly stops, and those with the papers in their hands (but not with the money) start to accept lower and lower prices in order to reduce the damage. And this too happens &lt;em&gt;fast&lt;/em&gt;.  And this is when &quot;the bubble bursts&quot;.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-09-03T01:53:58.763" LastActivityDate="2015-09-03T01:53:58.763" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="7125" PostTypeId="1" CreationDate="2015-09-03T02:19:34.253" Score="1" ViewCount="43" Body="&lt;p&gt;Datasets on GDP and value added abound, but where do I find datasets on &lt;em&gt;gross output&lt;/em&gt; and &lt;em&gt;intermediate consumption&lt;/em&gt; for as many countries as possible with observations from 1980 onward?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Annual data for the total economy is fine, and OECD countries are most important.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm looking for a ready-made dataset, and want to avoid tedious dataset construction from multiple sources.&lt;/p&gt;&#xA;" OwnerUserId="5508" LastActivityDate="2015-09-03T02:19:34.253" Title="Where's data on gross output and intermediate consumption for many countries from 1980-today?" Tags="&lt;data-request&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="7126" PostTypeId="1" CreationDate="2015-09-03T05:31:41.093" Score="2" ViewCount="447" Body="&lt;p&gt;I am an undergraduate taking an upper-year introductory course in econometrics. I have taken calculus but I am not familiar with mathematical statistics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What are the basic concepts from statistics that I can read up on in preparation for the course? I am familiar with the idea of distributions but my knowledge is very limited.&lt;/p&gt;&#xA;" OwnerUserId="5600" LastActivityDate="2015-09-03T06:00:41.247" Title="What statistical concepts are used in introductory econometrics?" Tags="&lt;econometrics&gt;" AnswerCount="1" CommentCount="3" ClosedDate="2015-09-06T20:28:18.073" ContentLicense="CC BY-SA 3.0" />
  <row Id="7127" PostTypeId="2" ParentId="7126" CreationDate="2015-09-03T06:00:41.247" Score="1" Body="&lt;p&gt;I'll list the statistics-related topics from my basic econometrics course.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Expected value, mean, variance and covariance as well as conditional expectation and conditional variance.&lt;/li&gt;&#xA;&lt;li&gt;Basic probability and probability density functions (I'd suggest getting somewhat familiar at least with Normal, Student's T, and F distribution and maybe Bernoulli, Chi-Square and Poisson) and what random variables mean.&lt;/li&gt;&#xA;&lt;li&gt;The central limit theorem (closely related with PDFs).&lt;/li&gt;&#xA;&lt;li&gt;Correlation. Also understanding why correlation does not imply causation is useful, but you'll probably discuss this in class.&lt;/li&gt;&#xA;&lt;li&gt;Methods of regression/estimation. You'll probably be introduced to Ordinary Least Squares early on and a basic understanding of what regression models are for might be useful although probably not assumed.&lt;/li&gt;&#xA;&lt;li&gt;Statistical hypothesis testing. This will probably be a main subject in any applied econometrics course, so you might take a sneak peek on the basics.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;You might have to understand some matrix and equation algebra depending on how theoretical the lecturer makes the course, but these were probably included in your calculus course.&lt;/p&gt;&#xA;" OwnerUserId="5512" LastActivityDate="2015-09-03T06:00:41.247" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="7128" PostTypeId="2" ParentId="6771" CreationDate="2015-09-03T13:54:23.603" Score="2" Body="&lt;p&gt;Read the theory and then try coding. But you're lucky, because I was eager to develope and implement the forward shooting algorithm myself and thus provide it.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Optimal Growth&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;(See &lt;a href=&quot;http://www.princeton.edu/~moll/ECO503Web/Lecture3_ECO503.pdf&quot; rel=&quot;nofollow&quot;&gt;Ben Moll&lt;/a&gt; for details.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Optimal growth model in continuous time reads&#xA;\begin{align}&#xA;&amp;amp;\max_c\int^\infty_0 e^{-\rho t}u(c)dt\\&#xA;\text{s.t.}~~~&amp;amp; \dot k = f(k) - \delta k - c\\&#xA;&amp;amp;c\in[0,f(k)]\\&#xA;&amp;amp;k(0) = k_0&#xA;\end{align}&#xA;where &#xA;\begin{align}&#xA;f(k)&amp;amp;=Ak^\alpha\\&#xA;u(c)&amp;amp;=\frac{c^{1-\sigma}}{1-\sigma}.&#xA;\end{align}&#xA;From the first order conditions we derive a system of differential equations &#xA;\begin{align}&#xA;\dot k &amp;amp;= f(k) - \delta k - c\\&#xA;\dot c &amp;amp;= \frac{c}{\sigma}(f'(k) - \delta - \rho)&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Fixed points given at&#xA;\begin{align}&#xA;\dot k &amp;amp;= 0 \quad \Longrightarrow\quad \tilde k = \left(\frac{\alpha A}{\delta+\rho}\right)^\frac{1}{1-\alpha}\\[2mm]&#xA;\dot c &amp;amp;= 0 \quad \Longrightarrow\quad \tilde c = f(\tilde k) -\delta \tilde k&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since the system is saddlepoint stable there is only one trajectory converging to the unique steady state. Initial stock is given and thus optimal $k^*(0) = k_0$. We aim to solve for $c^*(0)$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The idea of shooting is to guess $c(0)$ and then iterate over time. If the time paths lead to the steady state we are done, otherwise we have to try a different guess. First of all we need to discretize the differential equations. (Computer works with discrete steps. However, if you like to work with the differential equations try Matlab's boundary value solver &lt;code&gt;bvp4c()&lt;/code&gt;. This works out quite easy. Since we have no clue what the solver is doing, we'd like to solve the equations &quot;manually&quot;.) The forward difference of some function $\dot x$ is defined as&#xA;\begin{align}&#xA;\dot x(t) :\approx \frac{x(t+1)-x(t)}{\Delta t}&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which gives&#xA;\begin{align}&#xA;k(t+1) &amp;amp;= \Delta t(f(k(t)) - \delta k(t) - c(t)) + k(t)\\[2mm]&#xA;c(t+1) &amp;amp;= \Delta t\frac{c(t)}{\sigma}(f'(k(t)) - \delta - \rho) + c(t).&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since the probability of guessing the correct $c^*(0)$ tends to be zero, we need to apply an algorithm which converges towards the true value. &lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Shooting&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;The following code snipped is written in Matlab and presents the main idea. &lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;c_lo = 0;&#xA;c_hi = A*k(1)^a;&#xA;i = 0;&#xA;dist_k = tol + 1;&#xA;dist_c = tol + 1;&#xA;while (i &amp;lt; I) &amp;amp; (dist_k &amp;gt; tol | dist_c &amp;gt; tol);&#xA;c(1) = (c_lo + c_hi)/2;&#xA;    for t = 1:T-1;&#xA;        k(t+1) = del_t*(A*k(t)^a - d*k(t) - c(t)) + k(t);&#xA;        c(t+1) = del_t*c(t)/s*(a*A*k(t)^(a-1) - p - d) + c(t);&#xA;        if c(t+1) &amp;gt; A*k(t+1)^a&#xA;           c(t+1) = A*k(t+1)^a;&#xA;        elseif c(t+1) &amp;lt; 0 &#xA;               c(t+1) = 0;&#xA;        end&#xA;    end&#xA;    if k(T) &amp;gt; k_ss &amp;amp; c(T) &amp;lt; c_ss&#xA;        c_lo = c(1);&#xA;        elseif k(T) &amp;lt; k_ss &amp;amp; c(T) &amp;lt; c_ss&#xA;        c_hi = c(1);&#xA;        elseif k(T) &amp;lt; k_ss &amp;amp; c(T) &amp;gt; c_ss&#xA;        c_hi = c(1);&#xA;    end&#xA;dist_k = abs(k(T) - k(T-1));&#xA;dist_c = abs(c(T) - c(T-1));&#xA;i = i + 1;&#xA;end&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Due to time constraint I can't provide a detaild explanation. I hope it's self-explaining. I may answer specific questions which show some effort.  &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;h2&gt;Boundary Value Problem&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;As I mentioned above we can easily solve the system by applying Matlab's boundary value problem solver &lt;code&gt;bvp4c&lt;/code&gt;. Using $\tilde c = c(T)$ as a terminal condition we have two ODEs and two boundary conditions.&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;% differential equations with y(1) = k, y(2) = c&#xA;dy = @(t,y) [A*y(1)^a - d*y(1) - y(2); ...     % dk/dt;&#xA;             y(2)/s*(a*y(1)^(a-1) - p - d)];   % dc/dt&#xA;% boundary conditions&#xA;bc = @(y0,yT) [y0(1) - k0;     % initial condition&#xA;               yT(2) - c_ss];  % terminal condition&#xA;&#xA;solinit = bvpinit(linspace(0,T,10), [k0 c0]);   % initital guess&#xA;sol = bvp4c(dy, bc, solinit);                   % call solver&#xA;t = linspace(0,T)';  % time axis&#xA;y = deval(sol,t)';   % call solution values&#xA;k = y(:,1);    % transform variables&#xA;c = y(:,2);    % transform variables&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;" OwnerUserId="4266" LastEditorUserId="4266" LastEditDate="2015-09-03T17:13:19.960" LastActivityDate="2015-09-03T17:13:19.960" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="7129" PostTypeId="1" AcceptedAnswerId="7130" CreationDate="2015-09-03T13:54:46.190" Score="6" ViewCount="66" Body="&lt;p&gt;Stiglitz argues that increasing free movement of labor would be a much more effective way of increasing living standards, compared to free movement of capital (see for instance &lt;a href=&quot;https://www.youtube.com/watch?v=PCuFcJRE6XI&quot;&gt;this&lt;/a&gt; video).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does someone know which theoretical frameworks have been used to derive such conclusions? (I am looking for papers published in peer reviewed journals or theory books).&lt;/p&gt;&#xA;" OwnerUserId="5601" LastActivityDate="2015-09-03T14:17:57.507" Title="Stiglitz: movement capital vs labor, effect on living standars" Tags="&lt;open-economy-macro&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="7130" PostTypeId="2" ParentId="7129" CreationDate="2015-09-03T14:17:57.507" Score="1" Body="&lt;p&gt;The Roy model ( a much celebrated model in labor economics) deals with this issue. It can be arguably be directly mapped to this issue.&lt;/p&gt;&#xA;" OwnerUserId="5233" LastActivityDate="2015-09-03T14:17:57.507" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="7131" PostTypeId="2" ParentId="6071" CreationDate="2015-09-03T14:32:26.797" Score="0" Body="&lt;p&gt;You do not need any fancy GMM here. You can consistently estimate the parameter of interest using Non-linear least squares. &lt;/p&gt;&#xA;" OwnerUserId="5233" LastActivityDate="2015-09-03T14:32:26.797" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="7132" PostTypeId="1" AcceptedAnswerId="7133" CreationDate="2015-09-03T14:33:28.137" Score="1" ViewCount="179" Body="&lt;p&gt;Assuming we're dealing with rational investors, the stock price is equal to the present value of all future dividends(supposedly discounting at the nominal or real interest rates should give the same present value).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Imagine the Central Bank increases the real money supply, from an initial state of equilibrium, and this increase is unexpected by the investors of the stock market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now we have the consequences of monetary expansion in the 'physical' economy:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;In the short run, the expansion causes the &lt;strong&gt;nominal&lt;/strong&gt; interest rate to decrease and the output to increase. However, in the medium run, the output reverts back to the natural level, and assuming for simplicity that the output growth rate is zero, the nominal interest rate also increases when compared to initial medium run equilibrium.&lt;/li&gt;&#xA;&lt;li&gt;In the short run, &lt;strong&gt;real&lt;/strong&gt; interest rate decrease. In the medium run it increases to the natural level, and remains equal to initial levels.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;In a book I'm reading on macroeconomics, it's stated that since in the short run the output (and dividends) increase, and the nominal interest rate decreases, the stock prices will go up, because the monetary expansion was unexpected. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is: shouldn't the rational investor know that changes in the nominal interest rate are only short term, with the longer term effect being in the opposite direction, and hence it's not clear cut that stocks' price should go up? Or should they always go up? Is it due to expected inflation that counteracts the higher expected nominal interest rate?&lt;/p&gt;&#xA;" OwnerUserId="118" LastActivityDate="2015-09-03T16:02:12.267" Title="Stock Markets and Monetary Policies" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="7133" PostTypeId="2" ParentId="7132" CreationDate="2015-09-03T16:02:12.267" Score="1" Body="&lt;p&gt;I think at the outset you have to make the distinction between the real interest rate and the nominal interest rate. The nominal interest rate is the real interest rate less inflation. Assuming the money supple curve is a vertical line in M-r space, then a shift of the line to the right (as indicated by a monetary expansion) implies a decrease in the nominal interest rate. Some books make the distinction between money demand being dependent on nominal interest rates, but it makes intuitively more sense that money demand be a function of real interest rate rather than nominal. The &lt;strong&gt;real&lt;/strong&gt; interest rate decreases as the nominal return on assets stays constant but the price level increases (increase in inflation as a result of the monetary expansion). Remember that the price of a stock in a perfect world is the net present value of all future dividends, discounted by &lt;strong&gt;real&lt;/strong&gt; interest rate. As this interest rate decreases, we discount stocks less, and hence price increases. This is the intuition behind the inverse relationship between asset prices and interest rates. This however, is a short run effect, so stock prices increase in the short run. When the real interest rate returns to its original level in the medium run, the stock prices decrease again. In short, the fluctuations in stock prices reflect fluctuations in interest rate. (the illustration is simplest for a fixed coupon bond that pays &lt;em&gt;C&lt;/em&gt; every period). Basically, it all depends &lt;em&gt;when&lt;/em&gt; you examine the price.  &lt;/p&gt;&#xA;" OwnerUserId="5233" LastActivityDate="2015-09-03T16:02:12.267" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="7134" PostTypeId="1" AcceptedAnswerId="8186" CreationDate="2015-09-03T17:36:44.243" Score="8" ViewCount="17072" Body="&lt;p&gt;I want to derive the Euler Equation for the following: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$max \sum\limits_{t=0}^{T} = \beta^{t}U(C_t)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$s.t. C_t+K_{t+1} \leq f(K_t) , t=0,1,2,...,T-1$$ &#xA;$$-K_{T+1} \leq 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm a bit confused about why the F.O.C. have that: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{d\mathcal{L}}{dK_{t+1}}=-\lambda_t+\lambda_{t+1}f'(k_{t+1})$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and how we combine the F.O.C to yield the Euler equation: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U'(C_t)= \beta U'(C_{t+1})f'(k_{t+1})$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I assume the F.O.C w.r.t. $K_{t+1}$ is such because of the inclusion of the intensive form of the production function but I am not exactly sure how and I really want to understand this completely.  I also need to make sure I understand how we are using the FOC to produce the Euler Equation. &#xA;Can anyone provide a bit of clarity? &lt;/p&gt;&#xA;" OwnerUserId="1655" LastEditorUserId="1601" LastEditDate="2015-09-03T18:03:13.647" LastActivityDate="2020-07-18T16:12:54.937" Title="Deriving the Euler Equation" Tags="&lt;macroeconomics&gt;" AnswerCount="5" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="7135" PostTypeId="2" ParentId="7134" CreationDate="2015-09-03T18:02:17.833" Score="2" Body="&lt;p&gt;I'm not sure if I fully understand your question, but I'll give it a try.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you're confused about the first FOC you've written (it seems correct):&#xA;You don't only have one constraint anymore, like you may be used to from basic economics courses. You have T constraints, the constraint once for each time period. Therefore you have t Lagrange multipliers Lambda. Write out the constraint for example for three t's and you'll see what I mean.&#xA;Your constraint is something like lammbda_t*(C_t + Kt+1 - f(Kt)) + lambda_t+1*(C_t+1 + Kt+2 - f(Kt+1)) + lambda_t+2*(C_t+2 + Kt+3 - f(Kt+2)) and so on up to T.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now to get the Euler equation:&#xA;If you take the derivative of that with respect to K_t+1 you will get your FOC there. (This is the FOC for the whole Lagrangian, because the derivative of U(C) with respect to K is 0 here, as any dependence of C on K is already in the constraint.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your Euler equation involves 3 unknown variables: Ct, Ct+1 and Kt+1. Therefore you will need three FOCs. The maximum nr. of FOCs you have here is 2T (T times for each C and T times for each K).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As you see, the FOC you already have has 2 things you want to get rid of lambda_t and lambda_t+1. Also you want to get the marginal utilities of C_t and C_t+1 in there. So take a derivative with respect ot Ct and Ct+1 of your lagrangian. Hint: One of them will be: ß^t * U'(Ct) - lambda_t = 0.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Put those 3 equations together now, eliminate the lambdas and you should get your Euler Equation.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastActivityDate="2015-09-03T18:02:17.833" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="7138" PostTypeId="2" ParentId="7134" CreationDate="2015-09-03T22:45:10.610" Score="4" Body="&lt;p&gt;The question is quite straightforward, and you do not need the first&#xA;step that you have. You have (for some reason) a different multiplier&#xA;here for each time period. That is not the case- you simply have a&#xA;no-ponzi scheme condition, aka a transversality constraint. The problem&#xA;is expressed as &lt;span class=&quot;math-container&quot;&gt;$max\,\sum\beta^{t}U(c_{t})$&lt;/span&gt; st &lt;span class=&quot;math-container&quot;&gt;$c_{t}+k_{t+1}\leq f(k_{t})$&lt;/span&gt;.&#xA;The stream of utility to the agent is &lt;span class=&quot;math-container&quot;&gt;$U=\sum\beta^{t}U(c_{t})=U(c_{0})+....\beta^{t}U(c_{t})+\beta^{t+1}U(c_{t+1})+...+\beta^{T}U(c_{T}).$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Substitute in &lt;span class=&quot;math-container&quot;&gt;$f(k_{t})-k_{t+1}$&lt;/span&gt; for &lt;span class=&quot;math-container&quot;&gt;$c_{t}$&lt;/span&gt;. Then, we derive wrt&#xA;&lt;span class=&quot;math-container&quot;&gt;$k_{t+1}$&lt;/span&gt; and set equal to 0:&lt;span class=&quot;math-container&quot;&gt;$\frac{\partial U}{\partial k_{t+1}}=\beta^{t}U'(c_{t})-\beta^{t+1}U'(c_{t+1})f'(k_{t+1})=0\Rightarrow U'(c_{t})=\beta U'(c_{t+1})f'(k_{t+1}).$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You do not need the other equation you referred to.&lt;/p&gt;&#xA;" OwnerUserId="5233" LastEditorUserId="25888" LastEditDate="2020-03-18T02:14:07.803" LastActivityDate="2020-03-18T02:14:07.803" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="7139" PostTypeId="1" AcceptedAnswerId="8160" CreationDate="2015-09-03T22:45:23.433" Score="2" ViewCount="70" Body="&lt;p&gt;&lt;a href=&quot;http://www.marketwatch.com/story/treasury-yields-rise-on-strong-us-gdp-report-2015-08-27?mod=mw_share_twitter&quot; rel=&quot;nofollow&quot;&gt;In this link&lt;/a&gt;, we can read &quot;The revised reading of second-quarter gross domestic product growth beat analysts’ expectations triggering a stock-market rally and a bond selloff.&quot; Well, why can we assume that the upward pressure on the nominal interest rate won't be enough to decrease the stock values by counteracting the increasing nominal dividends that stocks provide?(i.e. the LM curve is flat)&lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="118" LastEditDate="2015-09-03T22:58:17.863" LastActivityDate="2015-10-06T15:27:38.227" Title="Economics and Stock Market/Bond Market" Tags="&lt;macroeconomics&gt;&lt;financial-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="7140" PostTypeId="2" ParentId="7134" CreationDate="2015-09-03T22:52:41.280" Score="2" Body="&lt;p&gt;There is not a period-to-period borrowing constraint. You only have a transversality condition. However, the constraint will be binding if you have Inada conditions, in which case you do not &lt;em&gt;need&lt;/em&gt; the multipliers.&lt;/p&gt;&#xA;" OwnerUserId="5233" LastActivityDate="2015-09-03T22:52:41.280" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="7141" PostTypeId="1" AcceptedAnswerId="8146" CreationDate="2015-09-03T23:18:55.970" Score="1" ViewCount="119" Body="&lt;p&gt;I'm not sure how to put it. I'm currently reading Blanchard's Macroeconomics. In a chapter, he explains how for example an unexpected shift in monetary policy, or in consumption or in fiscal policy, can affect the stock values, and the yield curves of bonds, but not how for example a financial bubble (stock/bond overpricing) can affect the economic activity of consumption, investment, etc. The perspective presented in the book seems a bit too one-way. I'm interested also in the other direction, from finance to economic activity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there any bibliography that presents, in a academic way, this other perspective of finance affecting the economy? &lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="43" LastEditDate="2015-09-04T10:53:46.260" LastActivityDate="2015-09-04T17:09:45.007" Title="How can Finance influence economic activity?" Tags="&lt;macroeconomics&gt;&lt;reference-request&gt;&lt;financial-economics&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8141" PostTypeId="1" AcceptedAnswerId="8166" CreationDate="2015-09-04T09:00:04.930" Score="1" ViewCount="476" Body="&lt;p&gt;I do not have any economics background, but currently I have some data sets regarding price index. I have some doubts regarding if my way of conversion is correct?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have 4 data set. So let it be DS1, DS1 PI, DS2 and DS2 PI.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Note that DS1 PI and DS2 PI are both different variables price index.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;DS1 is price index in Base Year 2012, while DS2 is in Base Year 2014. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am using DS1 to convert the nominal value of attribute 1 to a real value. This adjustment is done to convert all DS1 variables to the current real value at May 2015. The formula is shown below.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Adjusted Price 1 =\frac{DS1 Variables}{DS 1 PI} \times DS1 PI_{May 2015}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Similarly, I am doing the same thing for DS2.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Adjusted Price 2 =\frac{DS2 Variables}{DS 2 PI} \times DS2 PI_{May 2015}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, I would make a comparison between these 2 adjusted price variables. So my question is since the base year are different, would the adjustment to May 2015 be correct? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Both of the adjusted/real price are now in the same current value and would be comparable. It does not matter if the base year are different in this case?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sorry if the question is confusing. I would appreciate your help in this matter.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks.&lt;/p&gt;&#xA;" OwnerUserId="5606" LastEditorUserId="5606" LastEditDate="2015-09-07T07:51:10.177" LastActivityDate="2015-09-07T08:07:30.627" Title="Does different Base Year in Price Index affected conversion of nominal value to the real value?" Tags="&lt;mathematical-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8143" PostTypeId="2" ParentId="7141" CreationDate="2015-09-04T10:46:11.877" Score="0" Body="&lt;p&gt;Short version: &lt;br&gt;&#xA;Economic decisions (investment, consumer spending) are based on expectations. The financial market is considered to be a good indicator of some future processes. When stock prices fall it represents a change in expectations which results in a change in economic decisions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Longer version: &lt;br&gt;&#xA;A key factor in the stock price of a company is the expected cashflow of said company. I would argue that if the stock prices fall then the expectation about the economic environment is that businesses will make less money than previously expected. This makes investment less profitable than before hence it will be reduced. (Note that it is here that we pass from finance to so called 'real' factors, things that are measured in physical goods.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Labor complements capital. The higher the capital the more productive labor is, and the more workers can be profitably employed. Because capital levels will not be rising as before, firms will not be hiring as much as before. In case of a significant stock price drop firms may even let people go. You can explain this with liquidity concerns, decrease in capital due to amortization, and a dozen other ways.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Because of reduced (or reduced comparatively to prior expectations) employment people will have less income and will probably consume less. This can even result in a feedback loop that further decreases firms' profits.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2015-09-04T10:46:11.877" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8144" PostTypeId="1" AcceptedAnswerId="8145" CreationDate="2015-09-04T13:18:36.467" Score="1" ViewCount="93" Body="&lt;p&gt;Why does the US consider non-farm payrolls when looking at employment levels? What are the reasons for not including farms? Are the workers too transitive, does it not contribute in a certain way to economy which is undesirable to measure? Other countries seem to have similar ways to measure employment levels which suggests farms payrolls are problematic.&lt;/p&gt;&#xA;" OwnerUserId="5515" LastActivityDate="2015-09-04T16:04:08.400" Title="Why consider non-farm payrolls?" Tags="&lt;labor-economics&gt;&lt;unemployment&gt;&lt;usa&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8145" PostTypeId="2" ParentId="8144" CreationDate="2015-09-04T16:04:08.400" Score="0" Body="&lt;p&gt;Here is a link to a &lt;a href=&quot;http://blog.trading212.com/why-non-farm-payrolls-influence-the-dollar-and-stock-markets-so-much/&quot; rel=&quot;nofollow&quot;&gt;blog post&lt;/a&gt; aiming to answer your question. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, I am not sure if you mean the NFP is problematic or if general payroll estimations are problematic. I would say the later is, and the blog post highlights some reasons why. &lt;/p&gt;&#xA;" OwnerUserId="5610" LastActivityDate="2015-09-04T16:04:08.400" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8146" PostTypeId="2" ParentId="7141" CreationDate="2015-09-04T17:09:45.007" Score="1" Body="&lt;p&gt;This question, as mentioned, in incredibly broad. So, of course, this answer will not be complete. Also, I am unsure what you mean by &quot;financial&quot;. I will try to answer this question, assuming that by &quot;financial&quot; you mean, specifically 'stock/bond' market.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is one link from &lt;a href=&quot;http://www.nber.org/papers/w17719&quot; rel=&quot;nofollow&quot;&gt;NBER&lt;/a&gt; which should help you get started, kinda, since it only scrapes the surface. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are two sections to consider: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;Theoretical&lt;/strong&gt;: As far as traditional, not necessarily classical, economic theory is concerned, stock and bond markets are corollaries and ancillaries of several factors of economic activity, e.g. capital market, money market, investment, employment etc.. That is, the financial market should just be an indication and investing mechanism based on real economic factors. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;and, &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;Practical, Modern:&lt;/strong&gt; Now, since so many different corporations and businesses invest and are invested in the stock/financial markets, volatility in the stock/financial market will affect them directly, or indirectly. &lt;/p&gt;&#xA;  &#xA;  &lt;blockquote&gt;&#xA;    &lt;p&gt;Directly: If these companies invest and are invested in, their valuation and/or income will be affect by market swings. For example, many of the financial firms which went under in the crisis. &lt;/p&gt;&#xA;    &#xA;    &lt;p&gt;Indirectly: The shifts in the market can affect the global position of investing. Attitude is perhaps the largest impact felt from the shifts in financial markets. If the general attitude on investing shifts, it makes it harder for new companies to gain investors, i.e. capital. &lt;/p&gt;&#xA;  &lt;/blockquote&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="5610" LastActivityDate="2015-09-04T17:09:45.007" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8147" PostTypeId="1" CreationDate="2015-09-04T20:23:19.580" Score="3" ViewCount="6543" Body="&lt;p&gt;This should be fairly simple but I think I am missing something here.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Gross Investments:    46  &lt;/li&gt;&#xA;&lt;li&gt;Exports:  9   &lt;/li&gt;&#xA;&lt;li&gt;Disposable&lt;/li&gt;&#xA;&lt;li&gt;Income:  190 &lt;/li&gt;&#xA;&lt;li&gt;Personal Savings: 10  &lt;/li&gt;&#xA;&lt;li&gt;Purchases:    84  &lt;/li&gt;&#xA;&lt;li&gt;Net Foreign Factor Income:    10  &lt;/li&gt;&#xA;&lt;li&gt;Consumption of Fixed Capital: 52  &lt;/li&gt;&#xA;&lt;li&gt;Dividends:  13  &lt;/li&gt;&#xA;&lt;li&gt;Imports of the U.S.:  12  &lt;/li&gt;&#xA;&lt;li&gt;Taxes on Production and Imports:  22  &lt;/li&gt;&#xA;&lt;li&gt;Personal Taxes:   38  &lt;/li&gt;&#xA;&lt;li&gt;SS   Contributions:   23  &lt;/li&gt;&#xA;&lt;li&gt;Statistical Discrepancy:  0   &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;h3&gt;What is the net domestic product?&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;I am calculating 265 but being told it is 255. Am I suppose to subtract savings afterwards? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is how I am calculating it: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Investments + Purchases + Disposable Income + Exports - Imports - Depreciation(Consumption of Fixed Capital)&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;46 + 84 + 190 + 9-12 - 52 = 265 then apply - 10 from Personal Savings?&lt;/p&gt;&#xA;" OwnerUserId="5612" LastEditorUserId="43" LastEditDate="2015-09-09T09:28:13.150" LastActivityDate="2015-09-09T09:28:13.150" Title="Calculating the Net Domestic Product" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8148" PostTypeId="1" CreationDate="2015-09-04T22:15:01.093" Score="2" ViewCount="41" Body="&lt;p&gt;I own lots of collectable coins from the 70's (mostly mint dollars and quarters.)  Some of my friends are telling me that the US economy is going to crash and the the dollar is going to lose its value.  This got me thinking.  In the unlikely event that this happens (hyper inflation, a drastic drop in value compared to other currencies or a complete loss of value), how would that effect the value on my coins?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This may not be the best place to ask this question.  Please help me get it to the right place.&lt;/p&gt;&#xA;" OwnerUserId="5614" LastActivityDate="2015-09-05T08:14:38.113" Title="If a currency crashes, does that effect the value of rare or collector coins?" Tags="&lt;investment&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8149" PostTypeId="2" ParentId="8148" CreationDate="2015-09-05T08:14:38.113" Score="4" Body="&lt;p&gt;Yes, their value would collapse.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But not for the reason you might think.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's not because they're the same currency, &lt;em&gt;per se&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But rather because a major collapse in the US dollar's value would be part of a much larger economic collapse. Which means that disposable wealth would be rare, and the demand for indulgences such as collectors' coins would dry up. At the same time, you'd have lots of owners of such coins trying to liquidate their assets. So, there'd probably be both a big increase in supply, and a big decrease in demand, leading to plummeting prices.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Promoters of any number of yieldless &quot;investments&quot; such as bitcoin, gold, or collectables, will tell you that &lt;em&gt;their&lt;/em&gt; investment would be a safe-haven in times of crisis. But at times of major crises, the correlations (the betas) tend towards one. Hedges stop being hedges.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2015-09-05T08:14:38.113" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="8150" PostTypeId="1" AcceptedAnswerId="8152" CreationDate="2015-09-05T13:33:44.790" Score="1" ViewCount="1220" Body="&lt;p&gt;I came across a question in first year's finance book.The question is: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a tax-paying firm, an increase in ______will cause the cash flow from assets to increase.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A. Change in net working capital&#xA;B. Production costs&#xA;C. Depreciation&#xA;D. Taxes&#xA;E. Net capital spending&lt;/p&gt;&#xA;&#xA;&lt;p&gt;C is the right answer, however I am not clear why depreciation increase the cash flow. Thanks for your help.&lt;/p&gt;&#xA;" OwnerUserId="5618" LastEditorUserId="1601" LastEditDate="2015-09-05T14:06:13.043" LastActivityDate="2015-09-05T15:20:33.687" Title="How does depreciation affect the cash flow in a tax-paying company?" Tags="&lt;corporate-finance&gt;&lt;accounting&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8152" PostTypeId="2" ParentId="8150" CreationDate="2015-09-05T15:20:33.687" Score="1" Body="&lt;p&gt;Depreciation is tax-deductible. The firm in question pays taxes. If depreciation increases, then taxes paid decrease. If taxes paid decrease, then cash flow increases. &lt;em&gt;ceteris paribus&lt;/em&gt;&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2015-09-05T15:20:33.687" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8153" PostTypeId="1" CreationDate="2015-09-05T15:40:39.477" Score="2" ViewCount="25" Body="&lt;p&gt;I'm looking for an introduction to economic evaluation of healthcare systems. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, maybe the most obvious answer is &lt;em&gt;Methods for the Economic Evaluation of Health Care Programmes by Drummond et al.&lt;/em&gt; but I'm waiting with ordering until the release of the latest edition on the 24th of September.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the mean time I would like to start reading a bit. Are there any suggested (review) articles (journals / web) which can serve as a good introduction? My main focus is on cost-effectiveness analyses.&lt;/p&gt;&#xA;" OwnerUserId="5621" LastEditorUserId="43" LastEditDate="2015-09-06T08:17:43.160" LastActivityDate="2015-09-06T08:17:43.160" Title="Any suggestion for a good intro to the theory behind economic evaluation of healthcare programmes?" Tags="&lt;reference-request&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8155" PostTypeId="2" ParentId="5939" CreationDate="2015-09-06T00:02:25.897" Score="4" Body="&lt;p&gt;Using matrix notation, denote profits by $\Pi$, revenues by $R$, and the explanatory variables by $\mathbf X$.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assuming a linear setup, we look at&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\mathbf \Pi = \mathbf X\mathbf a + \mathbf u \tag{1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and &#xA;$$\mathbf R = \mathbf X \mathbf b + \mathbf v \tag{2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are profits correlated with Revenues? Experience say they are. So there is also a relationship&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\mathbf \Pi = \gamma \mathbf R  + \mathbf \varepsilon \tag{3}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Inserting $(2)$ into $(3)$ we get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\mathbf \Pi = \mathbf X(\gamma\mathbf b) + \gamma \mathbf v + \mathbf \varepsilon \tag{4}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Looking at $(1)$ and $(4)$, we have the equivalence &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\mathbf a = \gamma \mathbf b \tag{5}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Will we obtain it through estimation? Not that easily.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Least -squares estimation will give us, for $(1)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \mathbf  {\hat a} = \left(\mathbf X'\mathbf X\right)^{-1}\mathbf X'\mathbf \Pi \tag{6}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and for $(2)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\mathbf  {\hat b} = \left(\mathbf X'\mathbf X\right)^{-1}\mathbf X'\mathbf R \tag{7}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Insert $(3)$ into $(6)$ to get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\mathbf  {\hat a} = \left(\mathbf X'\mathbf X\right)^{-1}\mathbf X'\left(\gamma \mathbf R  + \mathbf \varepsilon\right) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies \mathbf  {\hat a} = \gamma \mathbf  {\hat b} + \left(\mathbf X'\mathbf X\right)^{-1}\mathbf X'\mathbf \varepsilon \tag{8}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The interesting realization comes at this point: given the postulated relation $(1)$ it is unlikely that the variables in $\mathbf X$ will be uncorrelated with $\mathbf \varepsilon$, the error term in $(3)$.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This means that even with a large sample, calculating the ratios of the individual coefficients in the vectors $\mathbf  {\hat a},\;\mathbf  {\hat b}$, we will &lt;em&gt;not&lt;/em&gt; recover $\gamma$, since $\left(\mathbf X'\mathbf X\right)^{-1}\mathbf X'\mathbf \varepsilon$ won't converge to zero.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-09-07T13:10:50.200" LastActivityDate="2015-09-07T13:10:50.200" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8156" PostTypeId="1" CreationDate="2015-09-06T05:10:33.287" Score="2" ViewCount="994" Body="&lt;p&gt;If GDP increases (due to tech change/good investment), interest rates would move up along the LM curve and down along the IS curve, so what happens to the equilibrium? Do we assume GDP cannot grow without money supply growth, because an increase in interest rates along the LM curve would kill investment, bringing GDP back to equilibrium?&lt;/p&gt;&#xA;" OwnerUserId="5624" LastActivityDate="2015-09-06T14:07:29.500" Title="How does the IS/LM model respond to organic GDP growth when the money supply is held constant?" Tags="&lt;macroeconomics&gt;&lt;monetary-policy&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8157" PostTypeId="2" ParentId="8156" CreationDate="2015-09-06T14:01:58.547" Score="1" Body="&lt;p&gt;We would move upward along the LM curve. However if there is growth because of investment or some technology shock that would cause the IS curve to also shift upward. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;IS: When the growth &quot;shock&quot; you mention happens, there is now more demand for goods (Demand= C+I+G in a closed economy), without any change in interest rates. Since demand shifts, supply goes along with it in IS-LM and GDP increases &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The IS captures the GDP-to-interest rate relationship (along the curve) since this relationship has now changed, we must shift the curve. Specifically we have more GDP now per unit of interest rate compared to before. Since interest rates didn't change in your example, but there is more GDP (caused not by an interest rate increase) the IS curve must represent more GDP for each interest rate, which - if you draw it now - is a shift to the right of the IS.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;LM: Represents what happens to interest rates when GDP increases. This relationship has not changed, so we don't have a shift. The reason this relationship has not changed is because the only reason interest rates are increasing now, is because of GDP, something the current LM curve already captures. (If it would be for something else, like money supply change, there would have to be a shift.) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So there can be growth without money supply increases. However since there is now more demand for money (because there are more things that we can buy) but not more supply of money, then money increases in value, i.e. the &quot;price of money&quot; which in a way is the interest rate must go up. For that reason, part of the growth will be reduced (as investment goes down), but we will still have growth. If money supply also increases exactly enough to accomodate the GDP increase (typically is the case in reality) the interest rate will not increase and the LM would also shift and we do not have the mentioned negative effect.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastEditorUserId="5557" LastEditDate="2015-09-06T14:07:29.500" LastActivityDate="2015-09-06T14:07:29.500" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8159" PostTypeId="2" ParentId="6983" CreationDate="2015-09-06T14:22:41.767" Score="1" Body="&lt;p&gt;If they expected the peg to break then it is clear that the franc would gain in value. Since the currency has been held artifically cheap by the central bank, i.e. would have gained value if the central bank had not intervened, then the moment the central bank stops intervening (abandons the peg) the currency will appreciate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why would it have gone up otherwise, i.e. what are the factors driving exchange rates? We call these &quot;fundamentals&quot;. Basically exchange rates are determined by supply and demand for a currency, just like for anything else. So basically anything influencing supply and demand for currencies would be cause for a change in exchange rates. Further expectations of changes in fundamentals cause them as well. These include the trade balance (typically governs the long run behavior of exchange rates in reality) and the difference between domestic and foreign interest rates (typically govern the short run behavior in reality).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now one might ask, why did they expect the peg to be abandoned? That depends on the specifics about Switzerland. I'm not an expert there, so I'm sorry if I cannot give a very concrete answer. However pegs are typically unstable and usually abandoned eventually. This is because the longer the central bank keeps a currency at the &quot;wrong&quot; price, the more pressure from the market there is to correct it which means the central bank must fight harder and harder to keep it and eventually gives up or decides its not worth it anymore.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastEditorUserId="5557" LastEditDate="2015-09-06T14:35:32.333" LastActivityDate="2015-09-06T14:35:32.333" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8160" PostTypeId="2" ParentId="7139" CreationDate="2015-09-06T14:31:19.243" Score="0" Body="&lt;p&gt;Consider an investor who splits up his portfolio into stocks and bonds according to some ratio that considers all things that need to be considered. These include returns etc. Assume the portfolio is &quot;correct&quot; i.e. in equilibrium. Through the GDP revision, stocks become more attractive compared to bonds for the individual investor, so each individual investor has to adjust his ratios and increase the nr. of stocks, which means he has to sell bonds. The individual investor does not expect his action to actually influence government bond yields as he is small compared to the market. If all investors do this, then we get the result mentioned in the link. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Further dividends are not the only reason stocks have value. Many companies don't pay out dividends, because the shareholders then have to pay tax on them, but rather re-invest the profits which increases the stock value, which can then be sold.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also its not clear that the government bond interest rate is the relevant interest rate for discounting for these investors (the effect you are referring to).&lt;/p&gt;&#xA;" OwnerUserId="5557" LastActivityDate="2015-09-06T14:31:19.243" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8162" PostTypeId="1" AcceptedAnswerId="8188" CreationDate="2015-09-06T15:31:35.960" Score="7" ViewCount="169" Body="&lt;p&gt;At the time of writing (September 2015), Europe is dealing with a large influx of refugees/migrants. Many are fleeing violence in Syria and elsewhere, others come from Africa and the Middle East in search of economic opportunity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am interested in knowing &lt;em&gt;what is the current state of the art in understanding the net economic impact of these inflows for the recipient countries&lt;/em&gt; in North Western Europe? I am interested in impact along a wide range of dimensions, growth, employment, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In particular, I am interested in evidence that allows us to account for the specific demographic and skills profiles of these migrants. Assuming that the migrants reflect the typical UK asylum seeker, some demographic information can be seen &lt;a href=&quot;http://migrationobservatory.ox.ac.uk/briefings/migration-uk-asylum&quot;&gt;here&lt;/a&gt;. The majority are male, between 20 and 50. At least in the current &quot;crisis&quot;, the majority of migrants appear to be muslim, if that is of any consequence. I was not able to find information about skills.&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2015-09-08T07:30:39.637" LastActivityDate="2015-09-08T22:56:46.170" Title="Evidence on economic impact of 2015 European refugee/migrant influx" Tags="&lt;reference-request&gt;&lt;empirical-evidence&gt;&lt;population-economics&gt;&lt;migration&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8163" PostTypeId="2" ParentId="3218" CreationDate="2015-09-06T23:13:37.150" Score="4" Body="&lt;p&gt;To clarify notation, and treating summarily the other variables we have a system&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$y = a_0 +a_1x + \mathbf w_1'\gamma_1 + u_1 \\&#xA;x = b_0 + b_1y + \mathbf w_2'\gamma_2 + u_2$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If $b_1 \neq 0$, then solving for $x$ we obtain&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ x = b_0 + b_1(a_0 +a_1x + \mathbf w_1'\gamma_1+ u_1) + \mathbf w_2'\gamma_2 + u_2 \\&#xA;\implies x = c + \mathbf w_1'\frac {\gamma_1}{1-a_1b_1}+\frac {b_1}{1-a_1b_1}u_1 + \mathbf w_2'\frac {\gamma_2}{1-a_1b_1}+\frac {1}{1-a_1b_1}u_2$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and  $x$ is correlated with $u_1$ in the first equation, and so it is endogenous (we would obtain an analogous result if we solved for $y$ -it would be endogenous in the second equation). Historically, this is the &quot;original&quot; endogeneity problem, the one realized back in the '20s when looking at market equilibrium, where the assumption of market-clearing created the endogeneity. Namely it is not the usual &quot;omitted variables&quot; endogeneity problem, but the form of endogeneity due to &quot;simultaneity&quot;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So endogeneity of $x$ hinges on $b_1\neq 0$. But running OLS on the second equation and testing whether $b_1=0$ is not valid, because, as said, $y$ is endogenous in the second equation, so the OLS estimation is unreliable, being inconsistent.&lt;br&gt;&#xA;This is a bit subtle. We want to &lt;em&gt;test&lt;/em&gt; $b_1 =0$, so under the null hypothesis $y$ does not belong in the second equation. But inference will &lt;em&gt;use&lt;/em&gt; $y$ itself. This means that if the null is &lt;em&gt;rejected&lt;/em&gt;, the rejection is not reliable, because if the null is not true, then $b_1 \neq 0$ and automatically the estimator, t-tests etc become inconsistent.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question asks to test for endogeneity in the first equation, so the evident thing to do is to search for an instrument, or instruments, for $x$ and then, for example, apply the &lt;a href=&quot;https://en.wikipedia.org/wiki/Durbin%E2%80%93Wu%E2%80%93Hausman_test&quot; rel=&quot;nofollow&quot;&gt;Hausman test&lt;/a&gt; in the &lt;em&gt;first&lt;/em&gt; equation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume that we applied the Hausman test in the second equation, as the OP suggested. This would mean searching for instruments for $y$. Here if the null is &lt;em&gt;not&lt;/em&gt; rejected, it would mean that $y$ is not correlated with $u_2$. But from this it does not necessarily follow that $b_1\neq 0$, and so it &lt;em&gt;does not guarantee that $x$ is uncorrelated with $u_1$&lt;/em&gt;. If the null is rejected, it means that $y$ is correlated with $u_2$. But this could happen for any other reasons, not necessarily due to the simultaneity.&#xA;So the endogeneity tests should be conducted on the first equation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that in reality, the Hausman test  in IV estimation has as its null hypothesis that both the OLS and the IVE estimator are consistent. If the null is rejected, it only tells us that &lt;em&gt;at least one of the two is inconsistent&lt;/em&gt;. It cannot tell us which one, and it cannot guarantee that not both are inconsistent: The Hausman test is more informative and specific in its conclusions when the null is not rejected, rather than when the null is rejected. (This is a point usually not clearly stressed in the literature, although side remarks and footnotes do exist to that effect).&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-09-06T23:13:37.150" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8164" PostTypeId="2" ParentId="4845" CreationDate="2015-09-06T23:28:18.107" Score="2" Body="&lt;p&gt;Since the dependent variable is log-wage, I presume this is some form of earnings equation that it is estimated.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To the degree that nominal wages may be correlated with the price level (or some appropriate delfator), using the nominal wages as dependent variable, immediately requires that the (log) deflator be included as an explanatory variable in the right hand side of the equation. This some times is useful, because it essentially tests whether the coefficient attached to the deflator is equal to unity. If it appears to be so, then using the nominal wage with log-deflator in the right hand side is statistically equivalent to use the real wage.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If this coefficient does not (statistically) appear to be equal to unity, it means that, in the presence of the other variables, nominal wages do not correct fully for inflation. In such a case, it is perhaps better to use real wages, and estimates the effect of the regressors on them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Controlling for years is an indirect way to account for inflation, usually used in hedonic price analysis.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-09-06T23:28:18.107" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8165" PostTypeId="2" ParentId="7048" CreationDate="2015-09-06T23:52:56.893" Score="0" Body="&lt;p&gt;It is one point in time, when the effects of a policy can be measured. It may be an earlier, point in time when these effects start their workings.&lt;br&gt;&#xA;Assume that monetary policy does affect output, and prices take some time to respond. Assume that we observe that output and prices appear to respond at the same point in time. But hey, if prices change, why after all, output responds?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In normal times with not much productive factors lying idle, expanding output means new investments. This takes time, to actually complete these investments and make them productive. Decisions on investments are made &quot;now&quot;, but actual final production increase appears &quot;later&quot;. In the first stage one should expect an increase of output only in those sectors whose services are required to build machinery etc, and it is only in the second stage that we will see final output increase. This can account for why &quot;monetary policy's greatest impact is only felt after 4 quarters&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This of course makes actual empirical macroeconomic models much more complicated than what we see in textbooks. The &quot;size&quot; of the policy also matters of course. But the message is there: price sluggishness may make monetary policy effective on output.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In my opinion, at the textbook level, segmenting time in a more accurate way would not be fruitful for educational purposes -it would create a more complicated picture which, although truer to the real world, it would weaken the lesson of &quot;what to look for&quot; -when eventually one will be confronted with the latter.  &lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-09-06T23:52:56.893" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8166" PostTypeId="2" ParentId="8141" CreationDate="2015-09-07T07:52:34.583" Score="0" Body="&lt;p&gt;This question might be better suited for a statistics group, but if I understand you correctly you're going to compare two prices from different price indeces and see if there's a difference in the growth? There's really nothing wrong with the reasoning, but you should take the results you get with a grain of salt as you'll be comparing two indeces with different samples.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The different base year is not a problem as long as the variables you're dividing are from the same dataset. When price indices are renewed, the sample is often changed, so this is why you should be aware what you're doing when comparing between different base years.&lt;/p&gt;&#xA;" OwnerUserId="5512" LastEditorUserId="5512" LastEditDate="2015-09-07T08:07:30.627" LastActivityDate="2015-09-07T08:07:30.627" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8167" PostTypeId="1" AcceptedAnswerId="8170" CreationDate="2015-09-07T08:46:41.563" Score="5" ViewCount="56" Body="&lt;p&gt;I understand that prices are set by actors' offers to buy and sell within the market, however, when analyzing the data it seems to often be treated as though the price is continuously varying like some natural process that is independent of the actors' choices to buy/sell at certain prices... said offers being what actually creates the &lt;em&gt;discrete&lt;/em&gt; datasets. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there a reasoning/rationale behind this? Does it make a difference? Am I missing something here?&lt;/p&gt;&#xA;" OwnerUserId="5603" LastEditorUserId="43" LastEditDate="2015-09-07T12:09:06.360" LastActivityDate="2015-09-07T17:02:16.373" Title="Why are pricing charts treated as continuous series?" Tags="&lt;econometrics&gt;&lt;general-equilibrium&gt;&lt;empirical-methods&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8168" PostTypeId="1" CreationDate="2015-09-07T09:26:09.480" Score="4" ViewCount="542" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;What happens to the Nash equilibria and minimax values of a strategic game, when we take its payoff table and modify all payoffs by raising them to the 3rd power?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;My conjecture is that it depends:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;If, in the original game, all Nash equilibria and minimax points are attained using pure strategies alone - then a positive monotone transformation should have no effect on them. When everything is pure (deterministic), the utility function is ordinal and it is robust to monotone transformation.&lt;/li&gt;&#xA;&lt;li&gt;But if, in the original game, some Nash equilibria / minimax points are attained using mixed strategies - then a non-linear transformation might change them substantially.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;For example, in the following zero-sum game:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;4 0&#xA;0 4&#xA;3 3 &#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;The maxinim value is 3 and a maximin strategy for the row player is selecting the bottom row (the column player can guarantee at most 3 by mixing the two columns with equal probability).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But if we raise to the 3rd power:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;64 00&#xA;00 64&#xA;27 27 &#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Now the minimax value is 32, and a maximin strategy for the row player is mixing the two top rows.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So my question is: &lt;strong&gt;In what conditions does a positive monotone transformation on a game's payoff not change its maximin and Nash equilibrium strategies?&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="385" LastActivityDate="2015-09-08T04:13:04.927" Title="Monotone transformation of a game" Tags="&lt;game-theory&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="8169" PostTypeId="2" ParentId="6676" CreationDate="2015-09-07T13:01:21.997" Score="2" Body="&lt;p&gt;The OP is examining a deterministic trend, and whether it stops being present after a point in time. So the model could be something like&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$y_t = \alpha t + \beta y_{t-1} + u_t,\;\;\; t=1,...,T_A$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$y_t = \beta y_{t-1} + u_t,\;\;\;\; t=T_A+1,...,T$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So we want to test whether $\alpha =0,\;\; t=T_A+1,...,T$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is a test for &quot;structural change&quot;. Interestingly, in the last 15 years there has been a lot of research around &lt;em&gt;unit root testing&lt;/em&gt; if a stuctural break in deterministic components is present, but I could not find anything that tests directly for the disappearance of a deterministic trend.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;At least &quot;in spirit&quot;, it will be a &lt;strong&gt;Chow test&lt;/strong&gt; (don't lookup the wiki page, it says really nothing), when the point of the structural break is assumed known -for example, we can &quot;see it with our own eyes&quot; because the effect of the trend was strong (steep slope) and &quot;suddenly&quot; the series levels off and starts to fluctuate around what appears to be a constant mean.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we want to search for the point of structural change to a rather wide interval of observations (typically the middle 70%), then this is a &lt;strong&gt;Quandt Likelihood Ratio (&quot;QLR&quot;)&lt;/strong&gt; test.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;...And the main question is: Do these tests need modification because a deterministic trend is assumed initially present and then absent? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://press.princeton.edu/titles/5386.html&quot; rel=&quot;nofollow&quot;&gt;Hamilton (1994)&lt;/a&gt;, ch. 16.3 &quot;Asymptotic Inference for an Autoregressive Process Around a Deterministic Time Trend&quot; (pp. 463-472), analyzes in detail the first equation in the above model. By providing the asymptotic distribution of the coefficient estimators (it is &lt;em&gt;not&lt;/em&gt; the same as when the autoregressive term is absent - for this last case, see Ch. 16.1) I believe it provides all that is necessary to execute validly a Chow or QLR test. &lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-09-07T13:01:21.997" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8170" PostTypeId="2" ParentId="8167" CreationDate="2015-09-07T16:11:35.753" Score="5" Body="&lt;p&gt;&lt;em&gt;Inherently&lt;/em&gt; discrete variables (like &quot;count data&quot;) have special properties, and it matters when it comes to econometric estimation.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The usual criterion to treat a variable as continuous or discrete, is I believe not what we observe but what could be &lt;em&gt;conceivably observable&lt;/em&gt;.&lt;br&gt;&#xA;Example: if one counts number of people, the variable is inherently discrete. In large samples, the continuous approximation may not matter -in numerical analysis, starting the search for a solution by &quot;pretending&quot; that the data is continuous is done all the time. But in small samples it may matter. Also, there are variables that take only a few specific values (usually integers). Here, taking into account the discreteness is crucial.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Prices have no reason to be treated as discrete. They are continuous because in principle nothing constrains a price to &lt;em&gt;not&lt;/em&gt; take any value on the half-real line. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for the data sets: data is always discrete -simply because between any two real numbers there is an &quot;infinite&quot; number of other real numbers (with the appropriate mathematical definition of infinity). So since the sample is always of finite size, it will always be discrete. The issue is whether the Data Generating Mechanism can be conceived as being continuous or not. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, for certain purposes continuity is a great analytical helper bar one-dimension: the time-dimension, especially in stochastic setups. Continuous stochastic calculus notoriously carries a mathematical baggage that many times (but not always) one feels that is not worth the trouble. &lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-09-07T17:02:16.373" LastActivityDate="2015-09-07T17:02:16.373" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8172" PostTypeId="1" CreationDate="2015-09-07T18:01:19.280" Score="4" ViewCount="1214" Body="&lt;p&gt;I have the utility equation $U(a,b) = a^{2}b^{3}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How can I tell if the indifference curves are convex?&#xA;I was under the impression that if:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$U_{a} &amp;gt; 0$  and $U_{b} &amp;lt; 0$  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;then the curve would be convex. In this case, those conditions don't hold, but when I try graphing the equation, the curve appears convex. What am I missing?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also are these conditions true:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;if $U_{a} &amp;gt; 0$ , there is not diminishing marginal utility.&#xA;if &amp;lt; 0 , there is diminishing marginal utility,&#xA;and if = 0 , constant. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are these conditions the same for good $b$ ?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've been given lots of conflicting info and am now just confused. &lt;/p&gt;&#xA;" OwnerUserId="5631" LastEditorUserId="40" LastEditDate="2015-09-07T23:01:02.043" LastActivityDate="2015-09-10T02:52:57.693" Title="A few clarifications on Utility equations and indifference curves?" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;&lt;utility&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8173" PostTypeId="1" CreationDate="2015-09-07T18:26:21.777" Score="2" ViewCount="54" Body="&lt;p&gt;I use to buy bitcoins through localbitcoins.com in my country, Argentina, and I noticed that there is an important gap between the buying and the selling price. This gap is around 200 ARS (~20 EUR). This way, if you want to buy/sell fast, you choose one of the available buy/sell ads. Otherwise, if you can wait, you can post your own ad with more convenient prices. Even further, you can post both sell and buy ads and make profit of the price gap. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, when I was in Spain, I noticed that there was no gap between both prices. Why is that? Are they just good willed people who just wants to exchange coins and don't care about profit? Or is because there is more people posting ads and because of their competition prices tends to balance? Or is because another reason I don't see? It happens the same in the whole EU? What happens in other countries?&lt;/p&gt;&#xA;" OwnerUserId="5632" LastActivityDate="2015-09-07T18:26:21.777" Title="Why in localbitcoins Spain, the selling price is the same as the buying price?" Tags="&lt;bitcoin&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8174" PostTypeId="2" ParentId="8172" CreationDate="2015-09-07T19:26:45.100" Score="4" Body="&lt;p&gt;Convexity is defined by the 5th Axiom of Consumer preferences [A5']. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Convexity is defined thus: &#xA;$$&#xA;    if \ x^1 \succeq x^2&#xA;$$&#xA;then &#xA;$$&#xA;tx^1 + (1-t)x^2 \succeq x^1 \ \ \forall \ x \in \ [0,1]&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This can be made to define strictly convex by changing $\succeq$ to $\succ$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In English, this means that if you take any two points that lie along the same indifference curve (IC), than any combination $t(\cdot) +(1-t)(\cdot)$ of the two will have a larger utility. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In economics, this is the mathematical basis for our intuition of balanced preferences. Consumers prefer a balanced basket of goods to one containing &quot;extreme&quot; amounts of either good.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From this you derive your relationship to the MRS. The weaker form of would imply that as you move from northwest to southeast along the IC, the slope (MRS) is either constant or decreasing. Strict convexity would force the above to be strictly decreasing. &lt;/p&gt;&#xA;" OwnerUserId="5633" LastActivityDate="2015-09-07T19:26:45.100" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8175" PostTypeId="2" ParentId="8172" CreationDate="2015-09-07T20:02:19.750" Score="4" Body="&lt;p&gt;You need to check for a diminishing &lt;em&gt;Marginal Rate of Substitution&lt;/em&gt; ($MRS$) in order to have convexity. The $MRS$ is defined as: $$-\frac{db}{da}=\frac{MU_a}{MU_b}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With $U(a,b)=a^2b^3$ you have that:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;$MU_a=\frac{\partial U(a,b)}{\partial a}=2ab^3$&lt;/li&gt;&#xA;&lt;li&gt;$MU_b=\frac{\partial U(a,b)}{\partial b}= 3a^2b^2$&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;This means that in this case:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$MRS_{ab}=\frac{2ab^3}{3a^2b^2}=\frac{2}{3} \frac{b}{a}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now you need to interpret the $MRS$, which is quite simple. Suppose that you have $a=1$ and $b=6$, then $MRS_{ab}=4$ which means that you are willing to give up four units of $b$ for one additional unit of $a$. Now suppose you have $a \to +\infty $, then your Marginal Rate of Substitution would be equal to zero. This means that you are not willing to give up an additional unit of $b$ for an additional unit of $a$. The MRS is decreasing if $a$ is increasing thus you have convexity. A diminishing Marginal Rate of Substitution tells us that the individual we are examining prefers balanced bundles of goods over unbalanced ones (5th axiom of Consumer Preference).&lt;/p&gt;&#xA;" OwnerUserId="1642" LastEditorUserId="1642" LastEditDate="2015-09-07T20:07:21.617" LastActivityDate="2015-09-07T20:07:21.617" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8176" PostTypeId="2" ParentId="7082" CreationDate="2015-09-07T23:15:53.677" Score="1" Body="&lt;p&gt;At least in the 3d edition, Blanchard writes:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;In the medium run, the unemployment rate &lt;em&gt;must&lt;/em&gt; be constant (my emphasis).&#xA;  The unemployment rate cannot be decreasing or increasing forever.&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This is an inherent characteristic of &lt;em&gt;the definition&lt;/em&gt; of the &quot;medium run&quot;: that in it, some &lt;em&gt;core&lt;/em&gt; magnitudes are constant. In some models, &lt;em&gt;levels&lt;/em&gt; are constant (eg. aggregate consumption, aggregate capital stock, etc). In other models, &lt;em&gt;growth rates&lt;/em&gt; are constant, and the model &quot;has a steady-sate in growth rates&quot;. This means that &lt;em&gt;levels&lt;/em&gt; grow indefinitely of course, but it is not wise (or useful, or meaningful) to project economic concepts to &quot;infinite future&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now for unemployment, it makes no sense to &lt;em&gt;not&lt;/em&gt; be constant in equilibrium (at this simple level of exposition). In more sophisticated models, one could have the unemployment rate approaching asymptotically a constant (zero or not) without ever actually reaching it, but this is usually mathematical gadgetry with not much of economic intuition. (And in futuristic models, one could have unemployment approaching asymptotically unity, as machines and Artificial Intelligence take over all jobs). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can this constant-by-conception-in-the-medium-run unemployment rate $u^* =const.$ be something else than the &quot;natural rate of unemployment&quot; $u_n$?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The natural rate of unemployment is  &lt;em&gt;defined&lt;/em&gt; through the Phillips Curve, as that rate of unemployment at which realized inflation equals expected inflation (see previous chapters). Note that it is not assumed a priori that the natural rate of unemployment will be strictly positive -it could very well be zero. It is actual data that tells us that inflation stabilizes at strictly positive rates of unemployment. Then it is constant when inflation is a constant, and Blanchard discusses why inflation will also be a constant in the medium run. So it obtains that in the medium run $u_t = u_n =const.$.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since the current unemployment rate stabilizes when inflation becomes constant, which happens in the medium run, the constants &lt;em&gt;must&lt;/em&gt; coincide. If $u^* \neq u_n$ inflation will not be constant and we would violate another condition for the characterization of the medium run.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And Blanchard writes correctly&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;In the medium run the unemployment rate &lt;strong&gt;&lt;em&gt;must&lt;/em&gt;&lt;/strong&gt; be equal to the&#xA;  natural rate of unemployment&quot;. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So it does &lt;em&gt;not&lt;/em&gt; assume what he wants to prove. The natural rate of unemployment is defined separately and with its own logic to be a constant, from the medium-run unemployment rate which is constant based on other arguments than those related to the natural rate of unemployment. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I hope this helps.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-09-07T23:15:53.677" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="8177" PostTypeId="2" ParentId="8168" CreationDate="2015-09-08T04:13:04.927" Score="3" Body="&lt;p&gt;I interpret the question as follows:&#xA;Suppose we have a finite normal form game (with finitely many players and a finite set of actions for each outcomes). For simplicity, assume a strict ordering of payoffs for each player. That is, the payoff matrix of each player does not contain any identical elements.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We furthermore need to be clear what is meant by a positive monotone transformation of the payoffs. The first option is to transform all payoffs by the same increasing function. The second option is to apply positive monotone transformations to the payoffs of each player separately. I interpret the question as meaning the latter, but the results should also go through for the former.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We want to characterize all Nash equilibria such that in any game resulting from an arbitrary monotone transformation of the payoffs the same strategies are also a Nash equilibrium. Call any Nash equilibrium which fulfills this property &quot;robust to monotone transformations&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With your conjecture, you have pretty much answered the question. The set of Nash equilibria robust to monotone transformations is the set of pure strategy Nash equilibria. Here is a quick sketch of why this is so:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose player i plays a mixed strategy. In this case, the player must be indifferent between all pure strategies in the support of the mixed strategy. This indifference is given by an equation which is a linear combination of payoffs. Since none of these payoffs are equal, we can change any payoff by a small amount to break the indifference. It follows that mixed strategy equilibria are not robust to monotone transformations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We still need to show that all pure strategy equilibria are robust to monotone transformations. A pure strategy equilibrium is given if all players play their best responses to all other players' strategies. This involves maximizing over a finite set of actions. Given the other players' actions, the actions of player i are in one-to-one correspondence with a set of payoffs. Since the monotone transformation of the payoffs does not change their relative ordering, the set of best responses does not change. Since this holds for every player, the pure strategy Nash equilibrium is robust to monotone transformations.&lt;/p&gt;&#xA;" OwnerUserId="5635" LastActivityDate="2015-09-08T04:13:04.927" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8178" PostTypeId="1" CreationDate="2015-09-08T07:27:48.927" Score="4" ViewCount="445" Body="&lt;p&gt;The following exercise is from Wooldrige: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Show that $\hat{\beta} =\frac{1}{N} \sum\limits_{i=1}^{N}\hat{u_i^{2}}x'x $ is a consistent estimator for $E(u^2x'x)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;by showing: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{1}{N} \sum\limits_{i=1}^{N}\hat{u_i^{2}}x'x = \frac{1}{N} \sum\limits_{i=1}^{N}{u_i^{2}}x'x + o_p(1) $$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where $o_p(1)$ is read &quot;little oh p 1&quot; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And we use the hints that: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;1.) $\hat{u}_i^2$ = $u_i^2 - 2x_iu_i(\hat{\beta}-\beta) + [x_i(\hat{\beta}-\beta)]^2$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2.) $\hat{\beta} - \beta$ = $o_p(1)$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;3.)Sample averages are $O_p(1)$  read as &quot;Big Oh P 1&quot; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;4.) we assume all necessary expectations exist and are finite &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm getting stuck with this. I know I must be missing some simple sort of substitution or there is some gap in my knowledge or understanding preventing me from making the necessary manipulations.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would love if someone could walk me through this and explain the intuition a bit here. &lt;/p&gt;&#xA;" OwnerUserId="1655" LastEditorUserId="43" LastEditDate="2015-09-08T07:54:58.067" LastActivityDate="2015-09-08T13:01:39.607" Title="Prove that an estimator is consistent" Tags="&lt;econometrics&gt;" AnswerCount="2" CommentCount="6" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8179" PostTypeId="2" ParentId="8178" CreationDate="2015-09-08T08:38:51.287" Score="1" Body="&lt;p&gt;In hint 1 substitute $\hat{\beta}-\beta$ by little o, and remember that the sum of little o 's is still little o's. Then substitute on the LHS of your equality abouve. and you get what you want. (multiplication of $x'x$ by little o is also little o) I hope this is enough. If not, I'll show more later. I'm pressed for time right now... sorry&lt;/p&gt;&#xA;" OwnerUserId="118" LastActivityDate="2015-09-08T08:38:51.287" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8180" PostTypeId="1" AcceptedAnswerId="8183" CreationDate="2015-09-08T12:38:20.103" Score="3" ViewCount="61" Body="&lt;p&gt;I am looking for some source of data on trade imbalance at a county level in the US, preferably for years 1990-2007. Does anyone know if such data can be publicly available? Or any paper that have been using data like this? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;UPD: to break this down, I am looking for:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;international import/export statistics by US county,&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;intra-state trade statistics, meaning shipments between counties within the US. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Thanks in advance!&lt;/p&gt;&#xA;" OwnerUserId="5331" LastEditorUserId="5331" LastEditDate="2015-09-08T13:52:11.100" LastActivityDate="2015-09-08T15:02:43.443" Title="Data: Trade imbalance at the County level in the US" Tags="&lt;data-request&gt;&lt;international-trade&gt;&lt;usa&gt;&lt;balance-of-trade&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8181" PostTypeId="2" ParentId="8178" CreationDate="2015-09-08T13:01:39.607" Score="3" Body="&lt;p&gt;I will provide another hint, more &quot;primitive&quot; than the one offered by @Anoldmaninthesea, for those that are not still very familiar with the &quot;big-Oh/little oh&quot; notation and arithmetic.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What we are examining here is a sum, which, following the first obvious &quot;hint&quot; given, is to be decomposed in &lt;em&gt;three&lt;/em&gt; separate sums.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, we are interested in what happens to the value of these sums as the number of summands goes to infinity... In such cases, essentially we are looking if &quot;we have enough &quot;$N$&quot;'s for the infinite sum to go in value to something finite (given the a priori assumptions), and if yes, whether this finite limit is zero or not.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider the middle sum&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{1}{n} \sum\limits_{i=1}^{n}[-2x_iu_i(\hat{\beta_n}-\beta)\mathbf x_i'\mathbf x_i] = -2(\hat{\beta_n}-\beta)\frac{1}{n} \sum\limits_{i=1}^{n}(x_iu_i\mathbf x_i'\mathbf x_i)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$(\hat{\beta_n}-\beta)$ was taken out of the sum because it does not depend on the &lt;em&gt;index&lt;/em&gt; $i$. It does depend on $n$, since it is an estimator function and not a specific estimate, but not on $i$.&#xA;The assumptions of the model tell us what happens to $(\hat{\beta_n}-\beta)$, if it remains unscaled, as $n\rightarrow \infty$. As for the summands, $(\mathbf x_i'\mathbf x_i)$ is a $k\times k$ matrix, that does not include itself any sum. So it is finite (the fact that the random variables involved have possibly infinite support does not bother us -the probability that they will take the value &quot;infinity&quot; is zero). So it is only the whole expression $(x_iu_i\mathbf x_i'\mathbf x_i)$ that multiplies in cardinality as $n$ increases - and by the assumptions of the model we know things about $x_i$ and $u_i$ and what happens to the average of their product. Etc.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;An unrelated example to show what this &quot;how many $n$'s&quot; business means is to consider, for example, a random vector like&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{1}{\sqrt n}\left(\mathbf X'\mathbf X (\hat \beta_n - \beta)\right)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We &quot;know&quot; that this random vector converges to a multivariate distribution, i.e. it neither converges to a constant, nor does it diverge. Can we see this in our primitive way? We would want a finite asymptotic variance. The asymptotic mean will be zero so we need only to examine &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$V_n=E\left[\frac{1}{\sqrt n}\mathbf X'\mathbf X(\hat \beta_n - \beta)(\hat \beta_n - \beta)'\mathbf X'\mathbf X\frac{1}{\sqrt n}\right] = E\left[\left(\frac{1}{n}\mathbf X'\mathbf X\right)[(\hat \beta_n - \beta)(\hat \beta_n - \beta)']\left(\mathbf X' \mathbf X\right)\right]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is the problem with the above expectation? The first term wll converge to something finite and non-zero (per initial assumptions), the second goes to zero, the third goes to infinity(because it includes sums whose cardinality will go to infinity). So the expectation is still of undetermined fate. But if we multiply and divide by $n$ (we &lt;em&gt;can&lt;/em&gt; do that, we have not yet send $n$ to infinity) we obtain&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$V_n= E\left[\left(\frac{1}{n}\mathbf X'\mathbf X\right)[n\cdot(\hat \beta_n - \beta)(\hat \beta_n - \beta)']\left(\frac{1}{n}\mathbf X' \mathbf X\right)\right]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now things begin to clear: the first and second terms will converge to expected values, &lt;em&gt;so they can be taken out of the external expected value&lt;/em&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$V_n\rightarrow \left(\lim_{n\rightarrow \infty} E\frac{1}{n}\mathbf X'\mathbf X\right)\lim_{n\rightarrow \infty} E\left[n\cdot(\hat \beta_n - \beta)(\hat \beta_n - \beta)'\right]\left(\lim_{n\rightarrow \infty}E\frac{1}{n}\mathbf X' \mathbf X\right)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The middle term inside the expectation  is the (multivariate) &quot;square&quot; of $\sqrt n (\hat \beta_n - \beta)$. We know that this last one converges to a zero-mean random vector, so the limit of the expected value of its &quot;square&quot; is its asymptotic variance, which is finite. So we have the product of three asymptotically finite expected values, and so the whole expression is finite, and so the variance of the expression we started with is finite, and moreover, non-zero (by the usual initial assumptions of the model).&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-09-08T13:01:39.607" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8182" PostTypeId="1" AcceptedAnswerId="8190" CreationDate="2015-09-08T13:40:53.590" Score="4" ViewCount="2240" Body="&lt;p&gt;Well I'm having a some difficulty in understanding completely what the following sentence means and I would like to be sure. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;«(...) a country running a trade deficit is buying more from the rest of the world than it is selling to the rest of the world. In order to pay for the difference between what it buys and what it sells, the country must borrow from the rest of the world. &lt;em&gt;It borrows by making it attractive for foreign financial investors to increase their holdings of domestic assets&lt;/em&gt;- in effect, to lend to the country.»&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How does this borrowing(in italic) work? I'm not understanding the italic part. Does the country A sells bonds in domestic currency, receives foreign currency, when the foreign investor buys the domestic currency of A to buy the domestic bond of A?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also why should the current account plus the capital account be equal to zero (up to a statistical discrepancy)? &lt;/p&gt;&#xA;" OwnerUserId="118" LastActivityDate="2021-02-24T12:01:51.920" Title="A country borrowing from the rest of the world" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8183" PostTypeId="2" ParentId="8180" CreationDate="2015-09-08T14:55:17.437" Score="2" Body="&lt;p&gt;The data you're asking for doesn't exist.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Most data on things like this are captured through the taxing authority, which means that there are entities that want to collect taxes and therefore care very much where you do something and where your inputs came from. That's very true when there are international borders involved, and it's true to a &lt;em&gt;much lesser&lt;/em&gt; degree when there are state borders involved, but in the US, there's generally no administrative interest in tracking the flow of goods across county borders.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Source&lt;/strong&gt;: I used to create state and local area GDP estimates for the Bureau of Economic Analysis.&lt;/p&gt;&#xA;" OwnerUserId="264" LastEditorUserId="264" LastEditDate="2015-09-08T15:02:43.443" LastActivityDate="2015-09-08T15:02:43.443" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8185" PostTypeId="2" ParentId="8172" CreationDate="2015-09-08T18:05:43.400" Score="5" Body="&lt;p&gt;From a mathematical point of view, the indifference curve is an &lt;em&gt;equation&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$I_{\bar u}:a^{2}b^{3} = \bar u$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;for every fixed $\bar u$. Put $b$ on the vertical axis and $a$ on the horizontal axis and write this as a function of $a$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$b^3 = \bar ua^{-2} \implies b = (\bar u)^{1/3} a^{-2/3}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This fully characterizes the indifference curve for $\bar u$. Now you have a one-dimensional function, and for it to be convex, its second derivative with respect to $a$ must be non-negative. In fact it is strictly positive (we assume goods are measured in positive quantities, and we ignore the uninteresting corner solution for $\bar u=0$ which is a single point).&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-09-10T02:52:57.693" LastActivityDate="2015-09-10T02:52:57.693" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8186" PostTypeId="2" ParentId="7134" CreationDate="2015-09-08T19:19:48.893" Score="4" Body="&lt;p&gt;The full problem is&#xA;$$\max_{\{C_t,K_{t+1}\}_0^{\infty}} \sum\limits_{t=0}^{T}  \beta^{t}U(C_t)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$s.t. \;\;C_t+K_{t+1} \leq f(K_t) , t=0,1,2,...,T-1,\;\;\;\; -K_{T+1} \leq 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So we maximize also with respect to &lt;em&gt;consumption&lt;/em&gt;. The lagrangean is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\mathcal L = \sum\limits_{t=0}^{T} \Big(\beta^{t}\big[U(C_t) + \lambda_t\big(f(K_t) - C_t-K_{t+1}\big)\big]\Big) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that the discount factor discounts also the constraint.&#xA;Then&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{d\mathcal{L}}{dC_t}= \beta^{t}\big(U'(C_t)- \lambda_t\big) = 0 \implies U'(C_t) = \lambda_t$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and so also $U'(C_{t+1}) = \lambda_{t+1}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Moreover,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{d\mathcal{L}}{dK_{t+1}}=-\beta^t\lambda_t+\beta^{t+1}\lambda_{t+1}f'(k_{t+1}) = 0 \implies -\lambda_t+\beta\lambda_{t+1}f'(k_{t+1}) = 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Combining and re-arranging, one gets the Euler equation.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-09-09T15:04:54.223" LastActivityDate="2015-09-09T15:04:54.223" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8188" PostTypeId="2" ParentId="8162" CreationDate="2015-09-08T22:56:46.170" Score="5" Body="&lt;p&gt;I didn't see the evidences on the recent European immigration, but the event is similar to the Mariel Boatlift story in Card (&lt;a href=&quot;https://ideas.repec.org/p/nbr/nberwo/3069.html&quot; rel=&quot;noreferrer&quot;&gt;1990&lt;/a&gt;):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The Mariel immigrants increased the population and labor force of the Miami metropolitan area by 7 percent. Most of the immigrants were relatively unskilled: as a result, the proportional increase in labor supply to less-skilled occupations and industries was much greater. Nevertheless, an analysis of wages of non-Cuban workers over the 1979-85 period reveals virtually no effect of the Mariel influx. Likewise, there is no indication that the Boatlift lead to an increase in the unemployment rates of less-skilled blacks or other non-Cuban workers. Even among the Cuban population wages and unemployment rates of earlier immigrants were not substantially effected by the arrival of the Mariels.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;That's for a 7% shock. In contrast, Europe experience a 0.1% shock in labor supply. Maybe the only difference we'd find will be in the areas where immigrants settle densely.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For more reading:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Card, “&lt;a href=&quot;https://ideas.repec.org/a/aea/aecrev/v99y2009i2p1-21.html&quot; rel=&quot;noreferrer&quot;&gt;Immigration and Inequality&lt;/a&gt;”;&lt;/li&gt;&#xA;&lt;li&gt;Card, “&lt;a href=&quot;https://ideas.repec.org/a/ecj/econjl/v115y2005i507pf300-f323.html&quot; rel=&quot;noreferrer&quot;&gt;Is the New Immigration Really so Bad?&lt;/a&gt;”&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;In general, economists suggest that low-skilled natives suffer a bit from an influx of low-skilled immigrants (but again, we're talking about large numbers, &gt;1% of population):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/khjly.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/khjly.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://www.igmchicago.org/igm-economic-experts-panel/poll-results?SurveyID=SV_5vuNnqkBeAMAfHv&quot; rel=&quot;noreferrer&quot;&gt;http://www.igmchicago.org/igm-economic-experts-panel/poll-results?SurveyID=SV_5vuNnqkBeAMAfHv&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="240" LastActivityDate="2015-09-08T22:56:46.170" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8189" PostTypeId="2" ParentId="7081" CreationDate="2015-09-09T01:20:19.860" Score="4" Body="&lt;p&gt;In all indexed references to the Slutsky matrix in Mas-Collel et al. no such relation can be found. It is my impression that the authors meant that the expression they write &lt;em&gt;conveys the same information and restrictions&lt;/em&gt; with the original, being a scaled version of it.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I will use indices $i$, $k$, and write the logarithm explicitly in order to avoid confusion. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\partial b_i}{\partial \ln p_k} = \frac {\partial (x_ip_i/w)}{\partial \ln p_k}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Get liberal with partial differentiation, think of it as a differential, which gives&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\partial \ln p_k = \partial p_k/p_k$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Insert above to get&#xA;$$\frac {\partial b_i}{\partial \ln p_k} = p_k\frac {\partial (x_ip_i/w)}{\partial p_k} = \frac{p_ip_k}{w}\cdot \frac {\partial x_i}{\partial p_k}$$&#xA;and rearranging&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies \frac {\partial x_i}{\partial p_k} = \frac{w}{p_ip_k} \cdot \frac {\partial b_i}{\partial \ln p_k} \tag{1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So we have expressed the first term of the usual Slutsky element in terms of logarithmic derivatives of budget shares. For the second component we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\partial b_i}{\partial \ln w} = w\frac {\partial (x_ip_i/w)}{\partial w} = w \frac {(\partial x_i/\partial w)p_iw - x_ip_i}{w^2} = p_i\frac {\partial x_i}{\partial w} - b_i$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;rearranging and also multiplying by $x_k$ we get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\partial x_i}{\partial w} x_k = \frac {x_k}{p_i}\frac {\partial b_i}{\partial \ln w} + \frac {x_k}{p_i} b_i$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Multiply and divide each element by $p_kw$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\partial x_i}{\partial w} x_k = \frac {x_kp_kw}{p_ip_kw}\frac {\partial b_i}{\partial \ln w} + \frac {x_kp_kw}{p_ip_kw}  b_i$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies \frac {\partial x_i}{\partial w} x_k = \frac {w}{p_ip_k}\frac {\partial b_i}{\partial \ln w}  b_k + \frac {w}{p_ip_k}  b_ib_k \tag{2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Combining,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$(1),(2) \implies s_{ik} = \frac {\partial x_i}{\partial p_k} + \frac {\partial x_i}{\partial w} x_k \\&#xA;=\frac{w}{p_ip_k} \cdot \frac {\partial b_i}{\partial \ln p_k} + \frac {w}{p_ip_k}\cdot \frac {\partial b_i}{\partial \ln w}  b_k + \frac {w}{p_ip_k}\cdot  b_ib_k $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies s_{ik} = \frac{w}{p_ip_k} \Big(\frac {\partial b_i}{\partial \ln p_k} + \frac {\partial b_i}{\partial \ln w}  b_k +  b_ib_k\Big) \tag{3}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The term in the big parenthesis is what the authors give as the off-diagonal element of the Slutsky matrix. The scaling factor $\frac{w}{p_ip_k}$ is symmetrical, so the expression in the big parenthesis nevertheless reflects the same symmetry conditions as the usual $s_{ik}$ terms.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you apply the same method for the diagonal elements you will get the $-b_i$ term.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This form of the Slutsky matrix I believe is old story, and it has come about for purposes of econometric estimation of demand systems. For example, in &lt;a href=&quot;http://eric.ed.gov/?id=EJ231058&quot; rel=&quot;nofollow&quot;&gt;Theil, H., &amp;amp; Clements, K. W. (1980). Recent Methodological Advances in Economic Equation Systems. American Behavioral Scientist, 23(6), 789-809.&lt;/a&gt; we find this form of the Slutsky elements, which the authors call &quot;elements of the Slutsky matrix&quot; without any &quot;explanation&quot; as to why the textbook expressions are scaled.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But I would advise to go ahead and e-mail the authors asking for clarifications.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-09-09T01:47:34.987" LastActivityDate="2015-09-09T01:47:34.987" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8190" PostTypeId="2" ParentId="8182" CreationDate="2015-09-09T09:12:20.613" Score="6" Body="&lt;p&gt;The idea is that the world economy is closed and value only comes from production. It is maybe best to forget about money for a moment here. Since money derives its value directly from production, anything we say about production applies to money as well.&lt;/p&gt;&#xA;&lt;p&gt;Since the world economy is closed, a country that is producing less than it consumes must &amp;quot;borrow goods&amp;quot; from other countries to consume (otherwise it cannot consume more than it produces by definition). We can't have the whole world consuming more than it produces, so someone else must be consuming less, i.e. &amp;quot;lends&amp;quot;. This is the case of a trade deficit, i.e. positive net imports. If a country &amp;quot;borrow goods&amp;quot; it effectively also borrows money.&lt;/p&gt;&#xA;&lt;p&gt;A currency's value (purchasing power) is proportionate to the number of goods in that economy, since all money must be able to buy all goods by definition and legally. (If only 1 loaf of bread and only 1 dollar exist, the dollar has a purchasing power of 1. If (only) 2 dollars exist then each dollar has a purchasing power of 0.5).&lt;/p&gt;&#xA;&lt;p&gt;How this may work is that the exporting country lends money to the importing country in order to be able to buy more than it sells. In a barter economy this happens directly without money, the extra goods given are loans (as goods in equal value have not been receieved). Since money is not &amp;quot;real&amp;quot; in an economic sense, the same must happen with money. This happens, since each currency's value is related to production and the importing country is producing less (as it doesn't have enough to spare), while the exporting country is producing more (it has more than enough), therefore the respective currency values reflect this.&lt;/p&gt;&#xA;&lt;p&gt;Very often an importing company will take out a credit from the exporting company and this reflects itself at the country level. Even if money isn't actually lent, it happens through adjustment in exchange rates and interest rates.&lt;/p&gt;&#xA;&lt;p&gt;Since money's value depends on production value, this is also the  reason the current acount + the capital account must be equal to 0. For any goods bought or sold, money must be paid. Its like saying the value of goods you receive at the store must equal the value of money you give to the cashier. If you get more goods than you have money for you'll simply owe the cashier. Internationally (but alson domestically) you only have money in value of what you produce. Therefore if you produce less than you consume, you don't have enough money (production=money) to pay the cashier for the goods you consume.&lt;/p&gt;&#xA;&lt;p&gt;Further, the current account is constructed similarly as an account from accounting. It sums up to 0 by (that) construction. Goods leave, money enters, they must have the same value. For more on this you can also consult any introductory accounting book.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastEditorUserId="5557" LastEditDate="2021-02-24T12:01:51.920" LastActivityDate="2021-02-24T12:01:51.920" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="8191" PostTypeId="2" ParentId="8147" CreationDate="2015-09-09T09:17:34.100" Score="2" Body="&lt;p&gt;After you get 265 you should take out -10 from Net Foreign Factor Income. This is in there implicity through disposable income etc, but was not produced in the country. Since you want domestic production you must take that out.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastActivityDate="2015-09-09T09:17:34.100" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8193" PostTypeId="1" AcceptedAnswerId="8198" CreationDate="2015-09-09T15:15:20.883" Score="5" ViewCount="837" Body="&lt;p&gt;So I understand the derivation of the Kolmogorov Forward and Backward Equations, but I don't quite understand the intuition.  Here is from Stokey, 2008:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;The backward equation involves time $t$ and the initial condition $x$, with&#xA;the current state $y$ held fixed. A similar PDE, the Kolmogorov forward&#xA;equation (KFE), involves $t$ and $y$, with the initial state $x$ fixed. The forward&#xA;equation is useful for characterizing the limiting distribution, if one exists.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In what situations do the two arrise?  For instance, if I know the current state and am interested in a probability distribution over possible initial states, I use the backward equation.  If I know the current state and am interested in the probability distribution over the state in the future, I use the forward equation.  Is this correct?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On a more technical note, how does one define boundary conditions for these PDE's?  Are the boundary conditions a result of the derivation?  Perhaps Stokey is not the best reference on this topic...&lt;/p&gt;&#xA;" OwnerUserId="5645" LastEditorUserId="2938" LastEditDate="2015-09-10T10:00:43.600" LastActivityDate="2018-11-18T04:12:05.417" Title="Intuition of the Kolmogorov Equations" Tags="&lt;continuous-time&gt;&lt;stochastic-calculus&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8194" PostTypeId="1" AcceptedAnswerId="8195" CreationDate="2015-09-09T15:22:03.447" Score="3" ViewCount="286" Body="&lt;p&gt;I would like to understand better exactly how this works. I have heard a lot recently (particularly since the 2007-08 crash and Occupy movement) about money creation in particular (usually with a very negative bias). However, these descriptions often only go so far into it and I am curious whether it is really so bad once one has the full picture.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'd like to go through a simple example and point out where I am unsure what is actually supposed to happen.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, we have one Bank, with perhaps two customers. Alice and Bob. Alice has deposits at the Bank worth £500. Bob has £100 at this bank. A total of £600 of deposits, which the bank is liable make available to the customers at any time. The Bank has £5000 worth of its own capital. Totaling £5600 cash held (I realize that the banks' capital and the deposits are not the same - capital is an asset and deposits are a liability, for one - but this sum represents the full reserve amount, yes? The money which would be used if needed to serve depositors requests for withdrawal). We will say that the capital ratio is 10%. As I understand it, this makes the total &lt;em&gt;lendable&lt;/em&gt; capital at the bank £5000 + £450 (Alice) + £90 (Bob) = £5540. I am pretty sure I am correct in my understanding so far.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, Bob owes Alice a lot of money. He needs to pay her £1000. So, he takes out a loan at 5% interest. The Bank decreases its &lt;em&gt;lendable&lt;/em&gt; capital by the amount of the loan, so it can now only loan a further £4540, however it still technically possesses the full £5540 as the £1000 loan is &quot;new&quot; money. Naturally, Alice now deposits Bob's £1000 payment in her account. The banks total deposits now sit at £1600, the amount it is holding is now £6600. Due to the new £1000 deposit on Alice's account, £900 is added to the &lt;em&gt;lendable&lt;/em&gt; capital. Making it £5440. Is this correct? So far - besides the amount of &lt;em&gt;lendable&lt;/em&gt; capital against which &quot;new&quot; money may be created - no deductions have been made. In addition, the £1000 loan is considered an asset that the bank owns.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, now, the loan has eventually accumulated £80 interest and Bob manages to complete his payments to the bank. Bob pays the bank £1080 in total. Here is where I am most confused. What happens to this amount? I have heard people talk about &quot;money destruction&quot;, implying that the bank quite literally throws away the £1000 originally lent to Bob. But somehow I find that hard to believe, and I am further confused because people mention removing it from circulation - presumably simply not making any use of it - as being the mechanism by which it is &quot;destroyed&quot;. However, I do not believe it can be effectively removed completely from circulation, as the bank would surely either invest it or use it to make more loans, no? If indeed the money is not really destroyed, the bank has effectively just made £1080 out of nothng, right?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Perhaps I have gone wrong somewhere in my accounting. I have a Software Engineering background so a lot of this is very new/alien to me. I am just very interested in understanding it. I feel like if something is hard to believe (such as many of the claims made about money creation) it usually is for good reason, so I just wanted to understand the full picture for myself.&lt;/p&gt;&#xA;" OwnerUserId="5603" LastActivityDate="2015-09-09T16:06:38.560" Title="How does the fractional reserve banking system work?" Tags="&lt;finance&gt;&lt;banking&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="8195" PostTypeId="2" ParentId="8194" CreationDate="2015-09-09T16:06:38.560" Score="1" Body="&lt;p&gt;The bank hasn't made £1080 out of nothing. Bob paid that money into the bank. It wasn't in the bank earlier, and it is in the bank now. Alice's account has been increased by £1000. And the bank has £80 extra that it earnt by lending to Bob.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's helpful to distinguish the money that the bank holds, from the amount of money in the whole system, and from the amount of money the bank owns.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;£1080 has left the rest of the system, and entered the bank.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The bank's own capital starts at £5000 and finishes at £5080 (ignoring any interest it's paid to Alice, and its operating costs).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Alice's account starts at £500, and finishes at £1500.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Bob's account starts and ends at £100.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2015-09-09T16:06:38.560" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8196" PostTypeId="1" AcceptedAnswerId="8835" CreationDate="2015-09-09T16:17:56.597" Score="4" ViewCount="899" Body="&lt;p&gt;This is somewhat of a follow up question to &lt;a href=&quot;https://economics.stackexchange.com/questions/1638/available-code-for-computing-solutions-to-matching-algorithms&quot;&gt;Available code for computing solutions to matching algorithms?&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the above question, I got great answers, but all of them were for &lt;code&gt;R&lt;/code&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am now programming a lab experiment in &lt;a href=&quot;http://www.otree.org/&quot; rel=&quot;nofollow&quot;&gt;otree&lt;/a&gt;, which means I am working with Python.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is fairly easy to find code in &lt;code&gt;python&lt;/code&gt; solving matching problems using the Deferred Acceptance mechanism, but I wondered if anyone knew of &lt;code&gt;python&lt;/code&gt; code for some of the other common mechanisms in the  literature. Specifically, I am looking for &lt;code&gt;python&lt;/code&gt; code for&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;The Boston mechanism (aka. Immediate acceptance)&lt;/li&gt;&#xA;&lt;li&gt;The Top-trading cycle algorithm&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;In the best of the worlds, these codes would &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Be compatible with the school choice model (i.e. many-to-one matching problem in which agents in one side of the &quot;market&quot; can be matched to many agents on the other side)&lt;/li&gt;&#xA;&lt;li&gt;Allow for constrains on the lenght of the preference list agents can report (see &lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/S002205310900057X&quot; rel=&quot;nofollow&quot;&gt;http://www.sciencedirect.com/science/article/pii/S002205310900057X&lt;/a&gt;)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;However, I would already be very happy with &lt;code&gt;python&lt;/code&gt; code for Boston and TTC, even if the two last features are not implemented.&lt;/p&gt;&#xA;" OwnerUserId="38" LastEditorUserId="38" LastEditDate="2015-10-22T19:23:48.380" LastActivityDate="2016-01-07T05:31:12.433" Title="Computing Boston and TTC in Python" Tags="&lt;mechanism-design&gt;&lt;algorithms&gt;&lt;python&gt;&lt;matching&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8197" PostTypeId="2" ParentId="8196" CreationDate="2015-09-09T16:29:31.877" Score="1" Body="&lt;p&gt;I found one implementation of TTC in &lt;code&gt;python&lt;/code&gt; at &lt;a href=&quot;http://www.dreamincode.net/forums/topic/377004-algorithmic-game-theory-top-trading-cycle-procedure/?ref=dzone&quot; rel=&quot;nofollow&quot;&gt;http://www.dreamincode.net/forums/topic/377004-algorithmic-game-theory-top-trading-cycle-procedure/?ref=dzone&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, it does not seem to include the two additional features I was mentionning.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With of without these two features : I would still love to hear about more implementation of TTC, and about implementations of Boston.&lt;/p&gt;&#xA;" OwnerUserId="38" LastEditorUserId="38" LastEditDate="2016-01-07T05:31:12.433" LastActivityDate="2016-01-07T05:31:12.433" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8198" PostTypeId="2" ParentId="8193" CreationDate="2015-09-09T19:07:42.763" Score="1" Body="&lt;p&gt;I will try to answer to your last question. I did not read the paper but in models with higher dimensions, it is always difficult to find an analytical solution. &#xA;If there exists an analytical solution (for a very basic model with a one-state variable), it is possible to derive the initial conditions for your control and state variable from your differential equations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, in systems where there does not exist an analytical solution, you are supposed to solve it numerically, in which case you must give a numerical value for one of your variables (or more until you find steady state values for all your variables.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;After, you can find the steady-state values of your variables in which case, your initial conditions should not be so far from the steady state level (otherwise, there would be some convergence problems in your model if you don't choose the appropriate initial values, close to steady state. It is another issue.)&lt;/p&gt;&#xA;" OwnerUserId="2938" LastEditorUserId="2938" LastEditDate="2015-09-09T19:12:46.903" LastActivityDate="2015-09-09T19:12:46.903" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8200" PostTypeId="2" ParentId="7087" CreationDate="2015-09-09T21:09:54.763" Score="1" Body="&lt;p&gt;Let's look at this with backward induction. Let $v_{i}$ be my valuation and $v_{-i}$ be your valuation. Suppose I've won the item. Then $v_{i} \geq v_{-i}$. If I sell you the item at price $v_{-i}$, then my utility is $v_{-i} - b_{i} \leq v_{i} - b_{i}$, where $b_{i}$ is my bid according to the symmetric equilibrium bidding strategy (which may not necessarily be $\beta$). Notice that I do not gain $v_{i}$ by selling you the item, as I do not possess it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We see that I will never have incentive to sell you the item. So I should bid as if I'm not going to sell you the item. We have an equilibrium bidding strategy for this anyways, given by the first price auction.&lt;/p&gt;&#xA;" OwnerUserId="5368" LastEditorUserId="5368" LastEditDate="2015-09-09T21:30:13.023" LastActivityDate="2015-09-09T21:30:13.023" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="8201" PostTypeId="2" ParentId="7091" CreationDate="2015-09-09T21:23:00.840" Score="0" Body="&lt;p&gt;Any pure strategy Nash equilibrium is implicitly a mixed-strategies Nash equilibrium. Since the valuations vary, it's a good indicator we want to consider mixed-strategies. The fact that the problem tells us this is a stronger indicator, though I'm sure not the axiomatic justification you are seeking. :-)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider player $1$. We have player $1$'s expected profit: $\mathbb{E}[\Pi_{1}(b)] = (2-b) Pr[b \geq \beta_{2}(v_{2})]$, where $b$ is player $1$'s bid, $\beta_{2}$ is player $2$'s bidding strategy, and $v_{2}$ is player $2$'s valuation. We can assume $\beta_{2}(0) = 0$ (because if $\beta_{2}(0) &amp;gt; 0$, player $2$ can improve upon this by decreasing his bid). Since we are only considering two potential valuations for player $2$, we can assume $\beta_{2}(v) = av$, for some constant $a \in \mathbb{R}_{++}$. (That is, given the two points $(0, 0)$ and $(2, \beta_{2}(2))$, we just draw a line between them). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Observe that $Pr[b \geq av] = Pr[v \leq \frac{b}{a}] = \frac{b}{2a}$, with the last inequality since we have a 50-50 chance on the valuation of player $2$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now for a Nash equilibrium, player $1$ seeks to maximize his expected value. This is given by the following optimization problem:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\max_{b} (2-b) \cdot (\frac{b}{2a})$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This yields the first order conditions:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac{1}{2a} \cdot (2 - 2b) = 0$, and we obtain that $b = 1$ is our only solution for player $1$. This answer should be reasonably intuitive.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now player $2$ only wins if his valuation is $2$. So he players $\beta_{2}(2) = 1$ and $\beta_{2}(0) = 0$. &lt;/p&gt;&#xA;" OwnerUserId="5368" LastActivityDate="2015-09-09T21:23:00.840" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8202" PostTypeId="1" AcceptedAnswerId="8206" CreationDate="2015-09-10T02:44:38.047" Score="2" ViewCount="15" Body="&lt;p&gt;Apparently &lt;a href=&quot;http://cnsnews.com/news/article/terence-p-jeffrey/175-days-treasury-says-debt-has-been-frozen-18112975000000&quot; rel=&quot;nofollow&quot;&gt;the United States has been in a &quot;debt suspension period&quot; for the last 175 days&lt;/a&gt;, or almost 6 months.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does that mean for the last 6 months no new US Treasury Notes and Bills have been issued?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If so, doesn't that create a problem for the Wall Street desks that broker such debt (participate in debt auctions), the so-called &quot;&lt;a href=&quot;https://en.wikipedia.org/wiki/Primary_dealer&quot; rel=&quot;nofollow&quot;&gt;primary dealers&lt;/a&gt;&quot;?&lt;/p&gt;&#xA;" OwnerUserId="1448" LastActivityDate="2015-10-10T15:35:58.833" Title="Do new treasuries stop being issued during a debt suspension period?" Tags="&lt;government-debt&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8203" PostTypeId="1" AcceptedAnswerId="8205" CreationDate="2015-09-10T03:12:12.780" Score="4" ViewCount="1707" Body="&lt;p&gt;Suppose you are a broker or a trader, and the stock markets will be open 24 hours a day.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What would be the implication for you as a broker in this scenario? &#xA;I mean:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;How will your strategies change?&lt;/li&gt;&#xA;&lt;li&gt;Will it be more difficult or easier to trade?&lt;/li&gt;&#xA;&lt;li&gt;What algorithms that you know that would have to be adjusted in this scenario?&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="5649" LastEditorUserId="264" LastEditDate="2015-09-10T17:21:35.757" LastActivityDate="2019-06-09T15:24:48.897" Title="What would happen if stock markets were open 24 hours?" Tags="&lt;stock-market&gt;&lt;markets&gt;" AnswerCount="2" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="8204" PostTypeId="2" ParentId="5285" CreationDate="2015-09-10T03:16:49.797" Score="3" Body="&lt;p&gt;Let the strategy of player 1 be represented by $(x1_1,xDD_1,xDC_1,xCD_1,xCC_1)$ where $x1$ is the first round action of player 1, $xDD_1$ is the action taken at the information set where both players have defected in the first round, $xDC_1$ is the action taken at the information set where player 1 has defected and player 2 has cooperated in round 1, etc.. Note that something like $(x1_1,x2_1)$ (with $x2_1$ being the action taken in round 2) is never a full specification of the strategy of player 1, since we need to specify behavior at each information set separately. Define the strategies of player 2 similarly. However, a perfect Bayesian equilibrium must also specify the beliefs of the player, $\mu_1,\mu_2$. This is an important part of the specification of an equilibrium. As we will see below, the question is geared towards understanding that a different equilibrium does not require the strategies to differ. A difference in beliefs is sufficient to count as a different equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The perfect equilibrium is given by: $((D,D,D,D,D),\mu_1)$ for player 1 and $((D,D,D,D,D),\mu_2)$ for player 2, where $\mu_1$ and $\mu_2$ are consistent beliefs at all information sets.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As has been noted in the comments, since &quot;defect&quot; is a dominated strategy irrespective of beliefs, even in a weak perfect Bayesian equilibrium the strategy profiles must be $(D,D,D,D,D)$ for both players. However, the following is now also a weak perfect Bayesian Nash equilibrium: $((D,D,D,D,D),\mu_1')$ and $((D,D,D,D,D),\mu_2')$ with $\mu_1'$, $\mu_2'$ consistent on the equilibrium path.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, the question is not wrong, it simply shows that two weak perfect Bayesian Nash equilibria can have identical strategies as long as they differ in beliefs off the equilibrium path.&lt;/p&gt;&#xA;" OwnerUserId="5635" LastActivityDate="2015-09-10T03:16:49.797" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8205" PostTypeId="2" ParentId="8203" CreationDate="2015-09-10T06:37:23.207" Score="2" Body="&lt;p&gt;You would have trading teams who work shifts like any other 24-hour business areas. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The power market is open 24-7; many companies have around-the-clock trading teams. A lot of analysis and other work that can be done in the daytime is still done in the daytime. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A major source of income during nighttime - in the power market - is just being there and executing trades - when other people are not there. I think that is the main change, that liquidity would shrink and give more arbitrage opportunities.&lt;/p&gt;&#xA;" OwnerUserId="107" LastActivityDate="2015-09-10T06:37:23.207" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8206" PostTypeId="2" ParentId="8202" CreationDate="2015-09-10T12:57:36.667" Score="1" Body="&lt;p&gt;No, it does not mean that no new debt is issued. All it means is that the value of new debt issuances cannot exceed the value of debt that reaches maturity and is paid off.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here's a list of &lt;a href=&quot;http://www.treasurydirect.gov/instit/annceresult/annceresult.htm&quot; rel=&quot;nofollow&quot;&gt;recent Treasury debt auctions&lt;/a&gt;. You'll note that many T-bills have maturities as short as 4 weeks— a hint that the debt is actively managed.  Simplifying somewhat, when receipts do not exceed outlays by an amount greater than currently-maturing debt, new debt must be issued to generate enough cash to retire the maturing issues. &lt;/p&gt;&#xA;" OwnerUserId="264" LastEditorUserId="264" LastEditDate="2015-09-10T14:54:04.117" LastActivityDate="2015-09-10T14:54:04.117" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8207" PostTypeId="2" ParentId="7087" CreationDate="2015-09-10T13:35:17.053" Score="1" Body="&lt;p&gt;Let's first see why this problem is interesting:&#xA;Suppose both players shade their bid according to the usual first price auction equilibrium. Whether these strategies are optimal crucially depends on what happens in the later subgames. Let's consider Jane who has 0 valuation for the good. In the usual first price auction, Jane should bid 0. However, this is now no longer true. In fact, Jane now has a positive valuation from winning the good in the auction, since she can sell it with some probability to Mike. Since the take-it-or-leave-it offer extracts the complete willingness to pay of Mike, Jane's valuation for the good is now $E[Y]$ where $Y$ is drawn from $F$. Similarly, all other types should behave as if they add to their valuation $y$ the amount $E[\bar Y|\bar Y&amp;gt;y]$ since this is the expected resale value of the good.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From this simple reasoning, it is straightforward to change the provided first price auction equilibrium condition&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\beta(x) = E[Y|Y&amp;lt;x]$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;into a version which accounts for the increased valuation from resale:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\beta(x) = E[Y+E[\bar Y|\bar Y &amp;gt; Y]\, | \, (Y+E[\bar Y|\bar Y &amp;gt; Y]) &amp;lt; (x + E[\bar Y|\bar Y &amp;gt; x]) ]$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where both $Y$ and $\bar Y$ are drawn from $F$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note 1: the equilibrium concept was not specified. The above solution assumes subgame perfection. The set of Nash equilibria is much larger, since offers can be rejected off the equilibrium path.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note 2: since the strategies are one-to-one mappings of the drawn valuation, the players can always infer the valuation of the other player from the observed bid.&lt;/p&gt;&#xA;" OwnerUserId="5635" LastEditorUserId="5635" LastEditDate="2015-09-13T02:09:22.277" LastActivityDate="2015-09-13T02:09:22.277" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8208" PostTypeId="1" AcceptedAnswerId="8210" CreationDate="2015-09-10T15:05:43.987" Score="1" ViewCount="2275" Body="&lt;p&gt;Say for example a person gets a home loan of $100,000 in a certain country at an interest rate of 10%. Inflation is normally around 5% in this country.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What could happen to that person's loan if the country's inflation rises to say 1000%?&lt;/p&gt;&#xA;" OwnerUserId="4896" LastEditorUserId="1601" LastEditDate="2015-09-10T15:12:29.677" LastActivityDate="2015-09-10T16:23:24.900" Title="What will happen to bank loans in the event of hyper inflation?" Tags="&lt;inflation&gt;&lt;debt&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8209" PostTypeId="2" ParentId="8208" CreationDate="2015-09-10T15:13:51.980" Score="4" Body="&lt;p&gt;If the loan is indexed to inflation, &quot;nothing&quot; would happen. The remaining loan payments would simply increase.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the loan is not indexed to inflation, when inflation occurs, the debtor's wage would most likely increase with the inflation rate. Hence, he would very quickly have the money (in nominal terms) required to pay back the debt (which is now less worth, in real terms). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider the loan $L$ in monetary terms, and denote the price level by $P$. The lender was expecting $L/P$ when he formulated $L$. Now, instead, he is getting $L/P_2$ in real terms, which is (for the much larger price level $P_2$) a much smaller real value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which leads us to the conclusion that in this case (and very often), higher inflation is a redistribution from lenders to debtors.&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-09-10T15:13:51.980" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8210" PostTypeId="2" ParentId="8208" CreationDate="2015-09-10T15:39:30.380" Score="3" Body="&lt;p&gt;Complementing @FooBar 's answer, a more and more usual contractual arrangement observed is for the debt principal to &lt;em&gt;not&lt;/em&gt; be indexed to inflation, but for the contractual (nominal) interest rate of the loan to be &quot;variable&quot;, something like &quot;base + premium&quot;. In such a case, nominal interest rates will adjust to inflation, and so the loan repayments will increase to a degree from that channel, although the nominal value of the debt principal will not change. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, another contractual arrangement, seen in countries with weaker economies, is to have the debt indexed to an exchange rate, usually of one of the &quot;international currencies&quot;. The &quot;lure&quot; for borrowers is that in such a case the interest rate is lower to what it would be otherwise. The risk is that if the exchange rate deteriorates (which will happen in high inflation cases), they will see the nominal value of their debt jump (while their income does not necessarily follow suit).&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="264" LastEditDate="2015-09-10T16:23:24.900" LastActivityDate="2015-09-10T16:23:24.900" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8211" PostTypeId="1" AcceptedAnswerId="8212" CreationDate="2015-09-10T16:01:54.360" Score="4" ViewCount="1906" Body="&lt;p&gt;Is it possible to derive a demand curve from a discrete choice multinomial model. For instance, a logit model would give the probability of purchasing each good. But can I translate that into a demand curve.            &lt;/p&gt;&#xA;" OwnerUserId="151" LastActivityDate="2015-09-27T00:46:28.073" Title="Demand curve from logit model" Tags="&lt;supply-and-demand&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="8212" PostTypeId="2" ParentId="8211" CreationDate="2015-09-10T17:17:57.010" Score="8" Body="&lt;p&gt;We cannot obtain &quot;demand&quot; in the usual sense, because demand is a random variable. The &quot;best&quot; we can do is first, to obtain the Conditional Expectation of individual demand (conditional on the variables that determine the probability of whether the consumer will demand/buy).&lt;br&gt;&#xA;Let a situation where consumers decide to buy or not to buy a single (for simplicity) item of a good $A$. We can model this underlying utility framework by&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$u_i(A) = \alpha p_i+\mathbf x_i'\beta +e_i$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;with $i$ denoting the consumer, $p_i$ is the good's price, &lt;em&gt;faced by consumer $i$&lt;/em&gt;, $\mathbf x_i$ containing various other variables pertinent to the case, and $e_i$ representing a &quot;random&quot; preference shock, assumed, say, to follow the standard logistic distribution, conditional on the $x$'s.&#xA;The consumer will demand/buy, $q^d_i=1$, if (by convention) $u_i(A)&amp;gt;0$, so we can model the conditional probability of buying by &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$E(q_i^d =1\mid p, \mathbf x_i) = \Lambda(\alpha p_i+\mathbf x_i'\beta)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then the conditional expectation of Market demand is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Q_d = \sum_{i=1}^nq^d_i = \sum_{i=1}^n\Lambda(\alpha p_i+\mathbf x_i'\beta)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is still a random variable, and with unknown parameters. To obtain something one dimensional, given a sample of size $n$ on $\mathbf x_i$ and on relevant transactions (and so on $p_i$), one can estimate $\hat \alpha, \; \hat \beta $, say by maximum likelihood. Then we can obtain some concept of &quot;average market demand curve&quot; by using the sample means of the $x$'s as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\hat Q_d(p\,; \mathbf {\bar x}) = \sum_{i=1}^n\Lambda(\hat \alpha p+ \mathbf {\bar x'}\hat \beta) = n\cdot \Lambda(\hat \alpha p+ \mathbf {\bar x'}\hat \beta)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where here the price $p$ is not indexed anymore, and we vary it to obtain a curve.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a toy numerical example, assume there are $100$ consumers, that ${\bar x'}\hat \beta =1$, and  $\hat \alpha = -2$. Then $\hat Q_d(p\,; \mathbf {\bar x_i})$ will look like&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/qI6rz.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/qI6rz.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;MULTINOMIAL LOGIT&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a multinomial logit where we examine the choice to buy &quot;this &lt;em&gt;or&lt;/em&gt; this &lt;em&gt;or&lt;/em&gt; this&quot; (mutually exclusive choices $k=1,..,K$), we end up with (after the usual normalization)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\hat E(q^d_{ik} \mid p_{ik}, \mathbf x_{ik}) = \frac {\exp\{\hat \alpha p_{ik} + \mathbf x'_{ik}\hat \beta\}}{1+\sum_{k=2}^K\exp\{\hat \alpha p_{ik} + \mathbf x'_{ik}\hat \beta\}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then we can obtain $K$ demands (each conditional on the rest) using (say, for good $1$)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\hat Q^{(1)}_d(p_1) = \frac {n\cdot \exp\{\hat \alpha p_1 + \mathbf {\bar x}_{1}'\hat \beta\}}{1 + \sum_{k=2}^{K}\exp\{\hat \alpha \bar p_{k} + \mathbf {\bar x}_k'\hat \beta\}} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that here we have to average the prices of the other goods also.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-09-27T00:46:28.073" LastActivityDate="2015-09-27T00:46:28.073" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="8213" PostTypeId="2" ParentId="97" CreationDate="2015-09-10T17:43:05.573" Score="1" Body="&lt;p&gt;Since Ben's notes were already mentioned I'm not quite sure why you don't iterate over time using a forward approximation as he suggests&#xA;\begin{align}&#xA;\dot k(t) :\approx \frac{k(t+1) - k(t)}{\Delta t} \Leftrightarrow k(t+1) \approx \Delta t \dot k(t) + k(t)&#xA;\end{align} &lt;/p&gt;&#xA;&#xA;&lt;p&gt;which gives &#xA;\begin{align}&#xA;k(1) \approx \Delta t (z-c(0)) + k(0)&#xA;\end{align}&lt;/p&gt;&#xA;" OwnerUserId="4266" LastActivityDate="2015-09-10T17:43:05.573" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8214" PostTypeId="1" AcceptedAnswerId="8222" CreationDate="2015-09-10T20:39:12.153" Score="2" ViewCount="1114" Body="&lt;p&gt;I know that Germany has huge external debt. I don't know how to find out which entities own this and especially which country they belong to.&lt;/p&gt;&#xA;" OwnerUserId="5656" LastEditorUserId="6168" LastEditDate="2020-05-03T09:48:02.317" LastActivityDate="2020-05-03T09:48:02.317" Title="Who owns German debt?" Tags="&lt;finance&gt;&lt;government-debt&gt;&lt;debt&gt;&lt;bonds&gt;&lt;germany&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8215" PostTypeId="1" CreationDate="2015-09-10T21:45:16.603" Score="6" ViewCount="579" Body="&lt;p&gt;There is speculation that the Federal Reserve of the United States will raise interest rates by 0.25% in the near future. What is the expected effect on the stock market if interest rates &lt;em&gt;do&lt;/em&gt; rise by that amount? More specifically, what is the predicted effect on the Dow Jones Industrial Average?&lt;/p&gt;&#xA;" OwnerUserId="5659" LastActivityDate="2016-03-09T04:20:15.373" Title="Effect of a US Federal Reserve rate hike on the Dow Jones Industrial Average" Tags="&lt;econometrics&gt;&lt;mathematical-economics&gt;&lt;monetary-policy&gt;&lt;interest-rate&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8216" PostTypeId="2" ParentId="8215" CreationDate="2015-09-10T21:45:16.603" Score="3" Body="&lt;p&gt;Each component of the Dow Jones Industrial Average (DJIA) has a yield, computed as the earnings divided by the price, expressed as a percentage. For example, if a stock is priced at &lt;code&gt;$100.00&lt;/code&gt; and yearly earnings of &lt;code&gt;$10.00&lt;/code&gt; per share, then the yield for that stock is&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;yield = earnings / price = $10.00 / $100.00 = 10%&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;That yield could be paid out as a dividend, or retained and reinvested to grow the company, doesn't matter to this analysis. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first step in the analysis is to determine the yield for each of the 30 components of the DJIA. On August 18, 2015 the DJIA closed at 17511.34, and the yields for the component companies were&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;    Company     Price Earnings  P/E  Yield&#xA;Visa            74.47   2.16   34.5  2.90%&#xA;Microsoft       47.27   1.46   32.4  3.09%&#xA;Nike           114.82   3.70   31.0  3.22%&#xA;Procter         75.13   2.44   30.8  3.25%&#xA;HomeDepot      122.80   4.71   26.1  3.84%&#xA;Coca-Cola       41.30   1.60   25.8  3.87%&#xA;WaltDisney     106.94   4.26   25.1  3.98%&#xA;Pfizer          35.52   1.42   25.0  4.00%&#xA;UnitedHealth   125.50   5.70   22.0  4.54%&#xA;McDonald's     100.76   4.82   20.9  4.78%&#xA;3M             148.31   7.49   19.8  5.05%&#xA;Verizon         47.46   2.42   19.6  5.10%&#xA;Boeing         144.60   7.38   19.6  5.10%&#xA;Johnson         99.37   5.70   17.4  5.74%&#xA;GE              26.07   1.50   17.4  5.75%&#xA;Cisco           28.25   1.73   16.3  6.12%&#xA;Merck           59.66   4.07   14.7  6.82%&#xA;AmExpress       81.24   5.56   14.6  6.84%&#xA;UnitedTech      99.41   6.82   14.6  6.86%&#xA;WalMart         69.48   5.05   13.8  7.27%&#xA;DuPont          53.90   3.92   13.8  7.27%&#xA;Apple          116.50   8.66   13.5  7.43%&#xA;Caterpillar     78.82   5.88   13.4  7.46%&#xA;IBM            156.01  11.90   13.1  7.63%&#xA;JPMorgan        68.21   5.29   12.9  7.76%&#xA;Intel           28.91   2.36   12.2  8.16%&#xA;Goldman        201.18  17.07   11.8  8.48%&#xA;Exxon           77.90   7.60   10.3  9.76%&#xA;Travelers      107.82  10.70   10.1  9.92%&#xA;Chevron         83.44  10.14    8.2 12.15%&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;The next step in the analysis is to determine the adjusted yield after the Federal Reserve increases the interest rates by 0.25%.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;The expectation is that the market will adjust prices to increase yields by 0.25%. In other words, market yields represent a premium above the Federal Reserve rate.&lt;/strong&gt;   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So for example, the yield on Visa must increase from 2.90% to 3.15% to compensate for a 0.25% increase in the Federal Reserve rate. Given earnings of &lt;code&gt;$2.16&lt;/code&gt;, the price must drop from &lt;code&gt;$74.47&lt;/code&gt; to &lt;code&gt;$68.56&lt;/code&gt; (a 7.9% drop) to compensate for the rate increase.  At the other end of the scale, the yield on Chevron must increase from 12.15% to 12.40%. Given earnings of &lt;code&gt;$10.14&lt;/code&gt;, the price must drop from &lt;code&gt;$83.44&lt;/code&gt; to &lt;code&gt;$81.76&lt;/code&gt; (a 2% drop).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can now augment the previous table to include the adjusted yields, adjusted prices, and the drop in price as a percentage of the original price.&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;                                                  Adjusted    Price&#xA;    Company     Price Earnings  P/E  Yield     Yield   Price  Change&#xA;Visa            74.47   2.16   34.5  2.90%     3.15%   68.56  -7.94%&#xA;Microsoft       47.27   1.46   32.4  3.09%     3.34%   43.73  -7.49%&#xA;Nike           114.82   3.70   31.0  3.22%     3.47%  106.55  -7.20%&#xA;Procter         75.13   2.44   30.8  3.25%     3.50%   69.76  -7.15%&#xA;HomeDepot      122.80   4.71   26.1  3.84%     4.09%  115.29  -6.12%&#xA;Coca-Cola       41.30   1.60   25.8  3.87%     4.12%   38.80  -6.06%&#xA;WaltDisney     106.94   4.26   25.1  3.98%     4.23%  100.62  -5.91%&#xA;Pfizer          35.52   1.42   25.0  4.00%     4.25%   33.43  -5.89%&#xA;UnitedHealth   125.50   5.70   22.0  4.54%     4.79%  118.95  -5.22%&#xA;McDonald's     100.76   4.82   20.9  4.78%     5.03%   95.76  -4.97%&#xA;3M             148.31   7.49   19.8  5.05%     5.30%  141.31  -4.72%&#xA;Verizon         47.46   2.42   19.6  5.10%     5.35%   45.24  -4.67%&#xA;Boeing         144.60   7.38   19.6  5.10%     5.35%  137.85  -4.67%&#xA;Johnson         99.37   5.70   17.4  5.74%     5.99%   95.22  -4.18%&#xA;GE              26.07   1.50   17.4  5.75%     6.00%   24.98  -4.16%&#xA;Cisco           28.25   1.73   16.3  6.12%     6.37%   27.14  -3.92%&#xA;Merck           59.66   4.07   14.7  6.82%     7.07%   57.55  -3.54%&#xA;AmExpress       81.24   5.56   14.6  6.84%     7.09%   78.38  -3.52%&#xA;UnitedTech      99.41   6.82   14.6  6.86%     7.11%   95.91  -3.52%&#xA;WalMart         69.48   5.05   13.8  7.27%     7.52%   67.17  -3.33%&#xA;DuPont          53.90   3.92   13.8  7.27%     7.52%   52.11  -3.32%&#xA;Apple          116.50   8.66   13.5  7.43%     7.68%  112.71  -3.25%&#xA;Caterpillar     78.82   5.88   13.4  7.46%     7.71%   76.26  -3.24%&#xA;IBM            156.01  11.90   13.1  7.63%     7.88%  151.06  -3.17%&#xA;JPMorgan        68.21   5.29   12.9  7.76%     8.01%   66.08  -3.12%&#xA;Intel           28.91   2.36   12.2  8.16%     8.41%   28.05  -2.97%&#xA;Goldman        201.18  17.07   11.8  8.48%     8.73%  195.42  -2.86%&#xA;Exxon           77.90   7.60   10.3  9.76%    10.01%   75.95  -2.50%&#xA;Travelers      107.82  10.70   10.1  9.92%    10.17%  105.17  -2.46%&#xA;Chevron         83.44  10.14    8.2 12.15%    12.40%   81.76  -2.02%&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;The adjusted DJIA computed from the adjusted prices is 16747.96. Thus, the DJIA was expected to drop from 17511.34 to 16747.96 (a 760 point 4.4% drop) to compensate for a 0.25% increase in the Federal Reserve rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What actually happened was the DJIA dropped to a low of 15666.44 low on August 25, 2015 (an 1840 point 10.5% drop) before recovering to a range between 16300 and 16500, slightly below the expectation.&lt;/p&gt;&#xA;" OwnerUserId="5659" LastActivityDate="2015-09-10T21:45:16.603" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="8217" PostTypeId="2" ParentId="8215" CreationDate="2015-09-10T23:28:04.123" Score="2" Body="&lt;p&gt;From a less analytical standpoint: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;user3386109's answer is a good one, and based on the assumptions he/she made, this would/should occur. In this case, a couple things could occur. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;On the one hand, there may no change. That is, from a traditional economic analysis, we would expect the stock holder to have perfect information, be rational, and as a result there would not be any change in the buying and selling habits of brokers. That is, every agent would notice there was an equal drop across the board, and not that universally something has changed. &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;This may not be far from the truth, since more, if not all, trading is done via computer systems. However because of this, there may be incremental lag for those computers and programs which see the shift in yield, due to interest rates late. This is a result of connection times and frequency of trade issues. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;A more practical approach: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;It is hard to say exactly what will happen if there is an increase in interest rate. But, from a more practical standpoint, it is hard to assume that all agents are rational, and have perfect information, with no time-lag in trade deals or recognition.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;For instance those businesses which do not deal in the loan market as frequently may do better than expected; they will not feel the pinch of the interest rate as greatly as a company which deals frequently in the loan market. &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;There, also, may be different effects for emerging companies that hope(d) to go public. Raising the interest rate effects the loan market in the simple sense that it makes paying back harder. If new business, which are growing because of such and such a reason find difficulty in the interest hike, there could be psychological factors which deter other investors, and the company itself. &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;But, for a majority of the business on the NASDAQ, or Dow, it would be shocking if they did not look forward. Many of these companies have divisions and persons dedicated to making sure that they stay current with future changes. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="5610" LastActivityDate="2015-09-10T23:28:04.123" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8218" PostTypeId="1" CreationDate="2015-09-11T00:36:14.357" Score="0" ViewCount="67" Body="&lt;p&gt;Let $\succeq$ be a rational preference relation over a non-empty set $X\equiv\mathbb{R}$ and suppose it satisfies:&#xA;$$&#xA;x\succeq y \implies x+z\succeq y+z,\forall z\in X&#xA;$$&#xA;Then I want to show that if $x\succeq 0$ then, $\forall\lambda=\frac{m}{2^n}$, we have $\lambda x\succeq 0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How can I show that?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks for helping! :D&lt;/p&gt;&#xA;&#xA;&lt;p&gt;P.S.: The book I'm using is not really clear on the math hypothesis, especially on what sets everything is defined and so on, so I'm assuming $m,n\in\mathbb{N}$.&lt;/p&gt;&#xA;" OwnerUserId="4195" LastActivityDate="2015-09-13T08:44:59.780" Title="Finite's expected utility" Tags="&lt;expected-utility&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8219" PostTypeId="1" CreationDate="2015-09-11T01:31:17.353" Score="3" ViewCount="4147" Body="&lt;p&gt;I didn't understand how quarterly GDP is calculated. If GDP means Gross Domestic Product in a year, then what does quarterly GDP mean Gross Domestic Product in a quarter? OR it is multiplied by $4$ to estimate for a annual number? I appreciate the help. I tried google but cannot seem to find a page that explains it.&lt;/p&gt;&#xA;" OwnerUserId="4551" LastActivityDate="2015-11-10T07:40:08.397" Title="What is the difference between quarterly GDP and annual GDP?" Tags="&lt;macroeconomics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8220" PostTypeId="1" CreationDate="2015-09-11T01:56:19.053" Score="2" ViewCount="1511" Body="&lt;p&gt;How would I go about solving this question:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assuming consumer's utility function is $U(C,L)=c+2l^{0.5}$, consumer earns a wage of 0.5/hour, $h=24$ and there is no real dividend and tax is $T=11$. find:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;a. The maximum amount of leisure the house hold can have and still pay taxes &lt;br&gt;&#xA;b. find the optimal bundle of consumption and leisure.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For part (a), I took the derivative of $U$ with respect to $L$ and set it to 0, giving me $l^{0.5}=0$ and $l=0$. Is this part correct? Intuitively, this feels very wrong to me. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm also stuck on part (b). I took the derivative of the utility with respect to $C$. From my understanding, MRS is the derivative of $U$ with respect to $L$ over the derivative of $U$ with respect to $C$. I ended up getting $1/(L^{0.5})$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know the optimal bundle is when the budget line is tangent to the indifference curve and I also know that the slope of the budget line would be $-W$. However, when I solve for $1/(L^{0.5})=0.5$, I end up getting $L=4$ and $C=-1$. It doesn't make sense to me that a consumer will be able to have negative consumption.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Would greatly appreciate it if someone could point out where I went wrong!&lt;/p&gt;&#xA;" OwnerUserId="5660" LastEditorUserId="61" LastEditDate="2015-09-12T20:27:26.293" LastActivityDate="2015-09-12T20:43:02.820" Title="Intermediate macroeconomics: optimal bundle for quasilinear utility?" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;&lt;optimization&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8221" PostTypeId="1" AcceptedAnswerId="8304" CreationDate="2015-09-11T02:20:48.907" Score="3" ViewCount="621" Body="&lt;p&gt;I am building a lab experiment through &lt;a href=&quot;http://www.otree.org/&quot; rel=&quot;nofollow&quot;&gt;otree&lt;/a&gt;, ``a Django-based framework for implementing multiplayer decision strategy games.&quot; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Basics about otree's forms&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is an example of how otree gets the players to report their choices (based on the &quot;matching_pennies&quot; game which is part of the templates provided by otree).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a file named &lt;code&gt;model.py&lt;/code&gt;, one finds the following code&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;class Player(otree.models.BasePlayer):&#xA;&#xA;[...]&#xA;&#xA;penny_side = models.CharField(choices=['Heads', 'Tails'])&#xA;&#xA;[...]&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Then in &lt;code&gt;views.py&lt;/code&gt; one finds&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;class Choice(Page):&#xA;&#xA;form_model = models.Player&#xA;form_fields = ['penny_side']&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Finally, the form is displayed to the end user through &lt;code&gt;choice.html&lt;/code&gt; by inserting&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;{% formfield player.penny_side with label=&quot;I choose:&quot; %}&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;What I would like to do&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;is create a flexible experiment in which the number of choices that players have to make varies with a parameter &lt;code&gt;x&lt;/code&gt;. That is, I want the whole framework to generate &lt;code&gt;x&lt;/code&gt; possible choices by just setting a parameter &lt;code&gt;x&lt;/code&gt;, and not having to go update all the files manually. This is in order to make my life easier if we ever change the experimental design, and to make the code useful to others with different experimental design (I plan to release it on Github at some point).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems like it should be fairly easy to do with a couple of loops, but I am having trouble using lists given the way &lt;code&gt;otree&lt;/code&gt; is structured. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;From what I understand,  I only see one &lt;em&gt;very nasty&lt;/em&gt; way to have the number of choices depend on a parameter &lt;code&gt;x&lt;/code&gt;. I first give each choice a different name in &lt;code&gt;model.py&lt;/code&gt;, e.g.&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;class Player(otree.models.BasePlayer):&#xA;&#xA;[...]&#xA;&#xA;for i in range(x):&#xA;        exec(&quot;&quot;&quot;choice%d = models.IntegerField(&#xA;        choices= ['Heads','Tails'])&quot;&quot;&quot; %i)&#xA;&#xA;[...]&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;then pass the name of all those choices along to &lt;code&gt;view.py&lt;/code&gt;, e.g.&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;class Choice(Page):&#xA;&#xA;all_forms = list()&#xA;for i in range(x):&#xA;    all_forms.append('choice%d' %i)&#xA;&#xA;form_model = models.Player&#xA;form_fields = all_forms&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;and finally, find a way to loop through all the forms in Choice.html; something like (I know the code below does not work, just to give the gist of it)&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;{% for p in range(x)  %}&#xA;&#xA;{% formfield player.choice{{p}} with label=&quot;I choose:&quot; %}&#xA;&#xA;{% endfor %}&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My question are:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;This is all very dirty, and looks overly complicated : lists have been invented to avoid this kind of crazy naming process. Do you see a way to make this work with lists instead?&lt;/li&gt;&#xA;&lt;li&gt;If that's the only way to hack into otree and have the number off choices depend on a parameter &lt;code&gt;x&lt;/code&gt;, so be it. But I am still unable to figure out a way to generate the desired set of forms via a loop in Django (obviously the example above does not work, for many reasons.).&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="38" LastEditorUserId="38" LastEditDate="2015-09-11T02:37:17.177" LastActivityDate="2016-01-07T05:33:10.920" Title="Flexible lab experiment in otree" Tags="&lt;software&gt;&lt;experimental-economics&gt;" AnswerCount="1" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="8222" PostTypeId="2" ParentId="8214" CreationDate="2015-09-11T02:34:39.330" Score="3" Body="&lt;p&gt;This is at the same time 1) a little old and 2) provides a deeper and more general answer that what you might be looking for, but I would still encourage you to go through it. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.its.caltech.edu/~melliott/papers/financial_networks.pdf&quot; rel=&quot;nofollow&quot;&gt;http://www.its.caltech.edu/~melliott/papers/financial_networks.pdf&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;with a preview in&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.youtube.com/watch?v=mjS81EoBQOU&quot; rel=&quot;nofollow&quot;&gt;https://www.youtube.com/watch?v=mjS81EoBQOU&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(starting around 1'07)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and a complete didactic overview at&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://class.coursera.org/networksonline-003/lecture/211&quot; rel=&quot;nofollow&quot;&gt;https://class.coursera.org/networksonline-003/lecture/211&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://class.coursera.org/networksonline-003/lecture/215&quot; rel=&quot;nofollow&quot;&gt;https://class.coursera.org/networksonline-003/lecture/215&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Among other things, you will learn that -- for most purposes -- it does not matter that much how much or in which country Germany (or any other country for that sake) has debts, but that the whole network or obligations is really what matters.&lt;/p&gt;&#xA;" OwnerUserId="38" LastEditorUserId="38" LastEditDate="2015-09-11T13:24:28.160" LastActivityDate="2015-09-11T13:24:28.160" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8223" PostTypeId="1" AcceptedAnswerId="8232" CreationDate="2015-09-11T05:05:08.777" Score="3" ViewCount="1407" Body="&lt;p&gt;I know little about the field of economics. I realize this question may be too rudimentary for this forum but I am sure someone here can explain this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question concerns &lt;strong&gt;Costco&lt;/strong&gt;, which is a wholesale retailer that sells groceries, as well as electronics, clothes, and home goods. &lt;strong&gt;To even enter the store, one must have a Costco membership.&lt;/strong&gt;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is simple: What purpose does the Costco membership fee serve? More specifically, why doesn't Costco get rid of the the whole &quot;paid membership&quot; idea, open its doors to anyone and everyone, and raise its prices to make up for the lost revenue? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Costco basically offers two different memberships, the standard membership with an annual fee of \$55 and the Executive membership costing \$110. The primary benefit of the Executive membership is that members receive 2% cash back on every Costco purchase (which is in addition to whatever cash back your credit card is earning for you). Thus, it only makes sense to purchase the Executive membership if one's yearly spending at Costco exceeds \$2,750 per year.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is Costco's defense:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;Costco's membership fee provides a means of covering part of our operating costs and overheads thereby reducing our prices on the products we sell. This way the more members we have, the lower our prices and the more you buy, the more you save.&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;If Costco did not require a membership fee, Costco would generate more revenue from a significant increase in customers. Costco could raise prices slightly on every item to compensate for the loss.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If Costco is indeed making the smart decision economically by requiring a membership fee, then why don't more stores adopt this model?&lt;/p&gt;&#xA;" OwnerUserId="5661" LastEditorUserId="5661" LastEditDate="2015-09-11T11:20:16.207" LastActivityDate="2015-09-12T04:26:26.013" Title="Why doesn't Costco simply raise prices and nix the membership fee?" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;&lt;pricing&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8224" PostTypeId="2" ParentId="8219" CreationDate="2015-09-11T06:34:09.817" Score="2" Body="&lt;p&gt;You might not find a page explaining (in an easy manner) how quarterly GDP is calculated because it is done by several different means in different countries and the calculation/estimation methods can get confusing. If you want to know how a certain country generates a quarterly GDP figure, you should check the country's official economic statistics page - the descriptions of the statistic usually list at least something about the collection process.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Usually quarterly GDP is done with a smaller sample and has some estimations done (often based on last year's data). Annual GDP is usually the more accurate measure with a larger sample and more revision time between collection of data and publishing it.&lt;/p&gt;&#xA;" OwnerUserId="5512" LastActivityDate="2015-09-11T06:34:09.817" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8225" PostTypeId="2" ParentId="7080" CreationDate="2015-09-11T08:34:53.610" Score="1" Body="&lt;p&gt;This is a complement/comment to Alecos' answer, who said that &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;blockquote&gt;&#xA;    &lt;p&gt;Note that the requirement that the probabilities are Uniform, impose the condition that, if we want to have proper distributions, the number of urns must be finite&lt;/p&gt;&#xA;  &lt;/blockquote&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Denote the total size of the world as $N$. Denote urns as $U_N$, balls as $B_N$, and say that we randomly toss every ball into an urn. Urns and balls are &quot;scaled&quot;, i.e.  $U_N = uN$, $B_N = bN$, for two constants $u$, $b$. Then the distribution of balls for any urn is Binomial&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ Prob(k \text{ balls arrive}) = Binomial(k; n=B_N, p=1/U_N)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the next step, I want to let the number of urns and balls go to infinity. Note that if $np$ converges to a finite number as we let $N\to \infty$, the distribution of ball arrivals for any particular urn is approximated (pretty accurately) by&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ Prob(k \text{ balls arrive for N ``large''}) = Poisson(k; \lambda=np)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And indeed, due to the setup, $np = B_N/U_N = b/u$ converges as $N\to \infty$. &lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-09-11T08:34:53.610" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8226" PostTypeId="1" CreationDate="2015-09-11T08:41:27.207" Score="5" ViewCount="967" Body="&lt;p&gt;I am looking for a suggestion of programs that can be used to illustrate effects like the income/substitution effect with regards to the consumption choice etc. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;With many programs, need you to specify functional forms, but if you are just illustrating the effects it can be a hassle to conjure up some functional form to make a mere sketch of the effects.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And using paint is just... wrong... and ugly. &lt;/p&gt;&#xA;" OwnerUserId="4450" LastEditorUserId="108" LastEditDate="2015-09-11T09:46:27.237" LastActivityDate="2018-02-12T15:49:26.067" Title="Create simple graphs without functional forms" Tags="&lt;computation&gt;&lt;software&gt;" AnswerCount="6" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8228" PostTypeId="2" ParentId="8223" CreationDate="2015-09-11T09:07:23.070" Score="4" Body="&lt;p&gt;Because there is not a single successful model of &lt;em&gt;actually&lt;/em&gt; doing business. Costco's model is pretty text-book level, but not &lt;em&gt;economics&lt;/em&gt; textbook level, but rather &lt;em&gt;marketing&lt;/em&gt; textbook level:  &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Differentiate (&quot;In Costco we do things differently&quot;).&lt;/li&gt;&#xA;&lt;li&gt;Make the customer feel special (hey, here is &quot;members &lt;em&gt;only&lt;/em&gt;&quot;!).  &lt;/li&gt;&#xA;&lt;li&gt;Induce loyalty or at least &quot;loyalty&quot; (&quot;now that I paid the executive fee I might as well buy from Costco to get part of it back&quot;)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Whether it will indeed be successful or not, depends on time, place, culture it operates in, as well as a few boring economic facts like, whether Costco's prices are indeed lower, etc.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Economics analyzes firm behavior at a much more abstract level, &quot;losing sight&quot; of all these different business strategies because Economics is ultimately interested in market outcomes (and then economy-wide outcomes), not individual-firm outcomes.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-09-11T09:07:23.070" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8229" PostTypeId="2" ParentId="8226" CreationDate="2015-09-11T09:14:05.047" Score="1" Body="&lt;p&gt;If I understood this correctly, you're just looking to draw simple graphs? If you're not willing to create functions in a program like R or similar, I'd suggest a simple solution: the drawing function in Google Drive.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Open Google Drive and then open Google Drawings. It is actually pretty good and easy to learn for basic graphs.&lt;/p&gt;&#xA;" OwnerUserId="5512" LastActivityDate="2015-09-11T09:14:05.047" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8230" PostTypeId="2" ParentId="8226" CreationDate="2015-09-11T09:46:00.650" Score="4" Body="&lt;p&gt;My main suggestions would be:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;Adobe Illustrator&lt;/strong&gt;, which will let you draw graphs freehand. This is a very powerful professional illustration tool that will allow you to produce crisp vector images (if you don't know the difference between a vector image and a raster image then you should look that up before starting).&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;PGF TikZ / PGFplots&lt;/strong&gt;. This is my preferred way of producing figures. It requires that you code the figures (and therefore that you specify either a functional form or some points on the function), but produces extremely precise and crisp images. The main advantage of this approach, though, is that it is completely integrated with LaTeX. The fonts will match those in the rest of your document/presentation (assuming you are using LaTeX) and you don't need to mess around with any external files since the code can be included in your main LaTeX document.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="108" LastActivityDate="2015-09-11T09:46:00.650" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8231" PostTypeId="2" ParentId="8226" CreationDate="2015-09-11T09:48:36.573" Score="1" Body="&lt;p&gt;I recommend the &quot;The Ipe extensible drawing editor&quot;, available for free:&#xA;&lt;a href=&quot;http://ipe.otfried.org/&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://ipe.otfried.org/&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a sample here is an image I made from scratch using this software.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/gtbTw.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/gtbTw.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Once you get used to the software this takes about 5 minutes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The main feature I use is the ability to snap objects to geometric locations such as intersections and boundaries. Sometimes you have to use invisible lines to make a nice graph but I guess there are some tricks to most software.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2015-09-11T11:40:54.980" LastActivityDate="2015-09-11T11:40:54.980" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8232" PostTypeId="2" ParentId="8223" CreationDate="2015-09-11T10:07:13.297" Score="4" Body="&lt;p&gt;I agree with @Alecos Papadopoulos that this is probably a marketing/product differentiation trick. You attract a specific type of consumers with a specific mindset.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another theoretical explanation also exists: &lt;br&gt;&#xA;This could be a version of second degree price discrimination. Costco may maximize its profits by selling at different prices to bulk buyers and small quantity consumers. If it would simply set two prices no one would make purchases at a higher price. By collecting a club card fee and then charging a lower price Costco can make sure that only bulk buyers will choose this option, thus achieving price discrimination.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2015-09-11T10:07:13.297" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8233" PostTypeId="1" AcceptedAnswerId="8277" CreationDate="2015-09-11T11:16:10.153" Score="6" ViewCount="532" Body="&lt;p&gt;I sell variations of an item on eBay. It is an unusual commodity which I purchase in bulk lengths and then cut to various sizes. They come in about 20 types, which I then sell as 10 different lengths, giving a total of 200 variations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My goal is to determine what price I should charge for each, to maximise monthly profit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem is I only make an average of one sale per day. I have no idea how I can establish a demand curve for the products, given such limited data. (Some variations I only get one sale per 18 months!)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;What techniques could I use for this problem?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How could I go about establishing the most profitable price for each of the variations, with such limited information? (Given known costs). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The only clear idea I have is this:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Treat all 200 variations as a single product, and vary all their prices simultaneously, to derive a single demand curve. So for example, one month I might set all prices to generate 10% profit on top of the costs, then next month, set all prices to generate 20% profit, and so on, and this way establish what price generates the highest monthly profit.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;But the variations tend to have wildly different applications, as well as, I expect, alternative products that can satisfy the customers' requirements, and so on - so having a single demand curve could leave significant profits untapped.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The only other idea I have is to profile the demand curve for each item in a different way:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;For each product, take an example: one that only sells approx every 6 months on average: On each sale, if the time since the last sale was 6 months, I divide the total profit made on that item by 6 - or for a product that sold twice in one month, multiply by two. And then each time there is a sale I can some how establish the demand curve for it. &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;But the snag is for a product that sells infrequently, the demand curve could be static, but obviously this does not mean it would sell, say, once every 6 months like clockwork. So it could take years to establish a demand curve for that variation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm wondering if I should entirely forget about the demand curve and concentrate instead on a marketing-oriented approach, for example:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Surveys: (How I would phrase this I'm not sure - I doubt customers would tell me the maximum they'd pay!)&lt;/li&gt;&#xA;&lt;li&gt;Market research: plot graphs of how much other retailers/distributors charge for each variation. (Although I have seen very few indeed that sell small lengths such as those that I offer)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="5664" LastEditorUserId="5664" LastEditDate="2015-09-14T09:00:10.260" LastActivityDate="2015-09-18T11:18:53.550" Title="Establish demand curve with infrequent sales" Tags="&lt;microeconomics&gt;&lt;supply-and-demand&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8234" PostTypeId="2" ParentId="1861" CreationDate="2015-09-11T11:58:20.910" Score="2" Body="&lt;h1&gt;The World Bank: &lt;a href=&quot;http://data.worldbank.org/indicator/DT.DOD.DECT.GN.ZS?order=wbapi_data_value_2013%20wbapi_data_value%20wbapi_data_value-last&amp;amp;sort=asc&quot; rel=&quot;nofollow noreferrer&quot;&gt;External debt stocks (% of GNI)&lt;/a&gt;&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/Z2YPi.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Z2YPi.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There're two types of countries that have little debt: resource-rich economies (Turkmenistan, Iran) and those who can't borrow (Afghanistan, Haiti).&lt;/p&gt;&#xA;" OwnerUserId="240" LastActivityDate="2015-09-11T11:58:20.910" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8236" PostTypeId="2" ParentId="8226" CreationDate="2015-09-11T14:17:15.533" Score="1" Body="&lt;p&gt;I am a big supporter (and user of) &lt;a href=&quot;http://latexdraw.sourceforge.net&quot; rel=&quot;nofollow noreferrer&quot;&gt;LatexDraw&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;LaterDraw uses Pstricks which is the main alternative to Tikz to draw graphs in  in LaTex. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you are not familiar with LaTex, one advantage of LatexDraw is that it allows you to generate pdf (and png, and jpeg, and tiff, and ...) versions of your graphs without having to paste the code of the picture in a Tex document and compile the document.&lt;/p&gt;&#xA;" OwnerUserId="38" LastEditorUserId="38" LastEditDate="2018-02-12T15:49:26.067" LastActivityDate="2018-02-12T15:49:26.067" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8237" PostTypeId="1" CreationDate="2015-09-11T14:39:12.093" Score="7" ViewCount="3802" Body="&lt;p&gt;As far as I know 'Fixed Capital' includes things which don't deteriorate or get used up upto a long, e.g. tools, machinery and building etc. My question is that since Land fulfills this criteria, why is it not considered as a Fixed Capital?&lt;/p&gt;&#xA;" OwnerUserId="5665" LastActivityDate="2015-09-15T07:05:18.350" Title="Why is Land not considered as a fixed capital?" Tags="&lt;productivity&gt;" AnswerCount="3" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8239" PostTypeId="2" ParentId="8226" CreationDate="2015-09-11T14:43:49.980" Score="1" Body="&lt;p&gt;Excel - its trivial to put in some dummy values to get a graph, but easily the best way to do it, and has a &lt;em&gt;lot&lt;/em&gt; of configuratable options to get the look and feel just right.&lt;/p&gt;&#xA;" OwnerUserId="5668" LastActivityDate="2015-09-11T14:43:49.980" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8240" PostTypeId="1" AcceptedAnswerId="8241" CreationDate="2015-09-11T15:39:48.803" Score="1" ViewCount="108" Body="&lt;p&gt;Can &lt;strong&gt;beta&lt;/strong&gt; be an exponent within a function prior to taking the log of that function to arrive at a simple, log-linear estimation equation?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am curious because I found an equation that had beta as an exponent on &lt;strong&gt;page 7&lt;/strong&gt; of this article by Lee Branstetter(2004): &lt;a href=&quot;http://bit.ly/1OGSFx9&quot; rel=&quot;nofollow&quot;&gt;http://bit.ly/1OGSFx9&lt;/a&gt; titled: &lt;em&gt;Is Foreign Direct Investment a Channel of Knowledge Spillovers? Evidence from Japan’s FDI in the United States&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I believe there this is not out-of-order. I am however, seeking an explanation to the equation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have tried to check different sources and the closest explanation is that the function is a linear-log function.&lt;/p&gt;&#xA;" OwnerUserId="5168" LastActivityDate="2015-09-11T15:54:44.060" Title="Beta as an exponent?" Tags="&lt;econometrics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8241" PostTypeId="2" ParentId="8240" CreationDate="2015-09-11T15:54:44.060" Score="2" Body="&lt;p&gt;This is not a structural paper. The authors are not &quot;&lt;em&gt;deriving&lt;/em&gt;&quot; a log-linear relationship from a model, which they then proceed to estimate. They rather start by postulat the relationship: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Let $C^J_{it}$ be the number of citations made by the patent&#xA;  applications Japanese firm i filed in year t to the cumulated stock of&#xA;  bindigenousQ U.S.-invented patents granted as of year $t$. I can then&#xA;  write the log of $C^J_{it}$ as a simple log-linear function of several&#xA;  other observables&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;$$ c^J_{it} = \beta_0 + \beta_1 p_{it} + \beta_2 FDI_{it} + \gamma_i +&#xA;&amp;gt; \alpha_t + \epsilon_{it}$$&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;which is their equation (1).&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-09-11T15:54:44.060" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8242" PostTypeId="2" ParentId="8237" CreationDate="2015-09-11T19:31:55.127" Score="0" Body="&lt;p&gt;Land itself is not included in the statistical concept of fixed capital, even though it is a fixed asset. &lt;strong&gt;The main reason is that land is not regarded as a product (a reproducible good)&lt;/strong&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But the value of land improvements is included in the statistical concept of fixed capital, being regarded as the creation of value-added through production.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A little bit of research could have spared this question as I found it on wikipedia here: &lt;a href=&quot;https://en.wikipedia.org/wiki/Fixed_capital&quot; rel=&quot;nofollow&quot;&gt;https://en.wikipedia.org/wiki/Fixed_capital&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="5168" LastActivityDate="2015-09-11T19:31:55.127" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="8243" PostTypeId="1" AcceptedAnswerId="8251" CreationDate="2015-09-11T20:44:51.250" Score="8" ViewCount="2844" Body="&lt;p&gt;Take the following definition of continuity.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The preference relation $\succsim$ over the space of lotteries&#xA;  $\mathcal L$ is continuous if for any $L,L',L''\in\mathcal L$, the&#xA;  sets $$S_1=\{\alpha\in[0,1]:\alpha L+(1-\alpha)L'\succsim L''\}$$ and&#xA;  $$S_2=\{\alpha\in[0,1]:L''\succsim \alpha L+(1-\alpha)L'\}$$ are both&#xA;  closed.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Is it necessarily true that $S_1\cup S_2=[0,1]$? If so, why?&lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2015-09-12T17:54:35.337" Title="Continuity Axiom in Expected Utility Theory" Tags="&lt;microeconomics&gt;&lt;decision-theory&gt;&lt;expected-utility&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8244" PostTypeId="2" ParentId="8220" CreationDate="2015-09-11T20:47:22.513" Score="1" Body="&lt;p&gt;From the utility function it seems L is leisure.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;a) I think you went about a) in a wrong way. For a, simply you want to work as little as possible but be able to pay 11 in taxes. So you will want to earn exactly 11USD and not more (earning more means working more, which you want to minimize). So at 0,50USD an hour you have to work 22 hours. Since h=24 the maximum leisure you can have is 24-22=2.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;b) Where you are going wrong in your analytical approach for b) is not including the budget constraint in your problem (when taking derivatives), which you should as you explained for the graphic analysis. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For consumption you have expenditures - income: p*c=wage*labor - T (technically an inequality, but in this case you can assume it holds with equality). I would suggest using a langrangian with this constraint. You also have the constraint that Leisure=24-labor. This you can plug in directly and is advisable so that your problem only has two unknowns (c and labor).&#xA;Solving this problem now should do the trick.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastEditorUserId="5557" LastEditDate="2015-09-12T12:59:52.890" LastActivityDate="2015-09-12T12:59:52.890" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8245" PostTypeId="2" ParentId="8226" CreationDate="2015-09-11T21:01:09.097" Score="3" Body="&lt;p&gt;Ah, this is a question I have struggled with. I think the answer depends wether you are intending to use the image in LaTeX or not. That said, in my opinion most answers provide good solutions (I've tried them all), but my recommendation is something that hasn't been mentioned:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Inkscape&lt;/strong&gt;: Inkscape is a free, open source software similar to Adobe Illustrator. It is very simple to create elegant vector graphics that scale up nicely.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;*Inkscape+PDFLaTeX&lt;/strong&gt;: If you want to use LaTeX then you can use the same images created normally in Inkscape and then save them as PDFs using the &lt;code&gt;Inkscape+PDFLaTeX&lt;/code&gt; option. This will produce a PDF with all but the text, which then can be rendered on top using the LaTeX engine. This has the advantages of &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Maintaining font consistency between the surrounding text and the graphics' text.&lt;/li&gt;&#xA;&lt;li&gt;Greatly improving the typesetting pf mathematical text, which can be written &quot;in code&quot; in Inkscape and then be rendered correctly on the document. This is a great advantage over the non-LaTeX options.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="72" LastActivityDate="2015-09-11T21:01:09.097" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8246" PostTypeId="1" AcceptedAnswerId="8249" CreationDate="2015-09-11T21:14:44.560" Score="1" ViewCount="31" Body="&lt;p&gt;Why monthly present in on line monthly payment calculator calculated as annual percent divided by 12? I think it's wrong, it should be exponential. For instance annual percent 4%. To calculate monthly percent we need to 1.04^(1/12). So monthly percent should be 0.327%, but if we use approach on on line calculators it is going to be 0.333.&lt;/p&gt;&#xA;" OwnerUserId="5670" LastActivityDate="2015-09-12T00:36:49.260" Title="Why monthly present in on line monthly payment calculator calculates as annual percent divided by 12?" Tags="&lt;finance&gt;&lt;banking&gt;&lt;interest-rate&gt;&lt;debt&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8247" PostTypeId="2" ParentId="1614" CreationDate="2015-09-11T23:35:57.317" Score="0" Body="&lt;p&gt;&lt;strong&gt;FIXED&lt;/strong&gt;  Monetary base money supply is adjusted automatically based on market exchange signals (central banks with a hard price rule) OR a currency board arrangement where there is a 1:1 ratio of foreign currency or bonds denominated in that foreign currency and the currency boards monetary base in circulation.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, say Bulgaria -- which as a currency board -- has defined 2 levs to be equal to one euro and.  A 2:1 exchange rate. So, if there are 20 billion levs in circulation then there must be 10 billion euros on deposit at the ECB in the Bulgarian currency board's name or 10 billion in actual euro cash notes in its vaults OR 10 billion in highest quality euro denominated bonds OR (and 99.999% the case) combinations of all of these.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words, the Bulgarians have a national currency -- the lev -- that is really tokens for euros and euro denominated assets held by the currency board. The currency board is legally obligated to exchange one form of the currency for the other and vice-versa. And since it has 100% reserves, nobody tries to challenge this exchange rate in the speculation markets.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In my opinion, for a modern economy it is just actually an extra layer of administration so someone can float the fixed currency and make money just like our banks float our check clearing times to make money when we pay our bills. This layer of unnecessary complexity can be easily removed by simply adopting the desired currency (in Bulgaria's case -- the euro) for direct use in question. Maybe an exception can be made for hard cash notes as they make up less than 3% of totally currency outstanding in most first world nations so you can have bills with pretty pictures of national figures native to your own land and all that.  Better yet: Just let the chartered banks in your nation in this case print their own cash notes under certain guidelines instead.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But, Bulgaria doesn't need a currency board with 100% reserves to  maintain a credible price parity if it wants to keep the lev. It can do so via a normal national bank instead that has a hard price rule fixed rate instead.  In this case, the bank monitors the natural exchange activity of the two currencies to immediately detect any deviation of fixed rule price.  If the price of the national currency goes up relative to the foreign currency, then that is a signal for the central bank to buy assets (debt) while releasing new national currency into circulation to pay for those assets.  It does this until the price in the national currency drops back to where it should be.  If it sees the opposite activity, it sells assets and removes currency it got from the sale of those assets from circulation until the price goes back up. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The main reason why nations adopt currency boards is because they so thoroughly trashed their non-currency board money supply in the past that nobody trusts them to manage it well again via that process.  Think of the individual equivalent where someone without credit or good credit goes to a bank and forks over $500 for a secured credit card with a $500 limit.  That secured credit card is like your own personal 'currency board' arrangement with the bank.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note, these days no actual reserves in the foreign currency fixed is involved -- the only thing being adjusted is the national currency supply, which the central bank has complete control over.  It is possible to operate this way with 0% foreign currency reserves, actually.  This is how the gold standard systems worked as invented by the Bank of England in the 19th century and adopted by other central banks. Only they monitored actual cash to gold/gold for cash redemptions at their banks instead of globally instantaneous, traded internet forex pricing that they didn't have back then.  They had gold reserves back then to, but they were 40% or lower depending on the nation's central bank.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;BTW, whenever someone -- even someone with a Ph.D in Economics -- says that it is 'impossible' to return to a gold standard, they are only admitting their gross ignorance of the central banking version of this process by doing so.  It is not only easily possible but would provide a lot more price stability as a result. That is because gold isn't used as money rather the currency is instead and its supply under this system is ALWAYS just right as far as demand is concerned.  We did quite well under it in the '50s and '60s, if you recall.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;PEGGED:&lt;/strong&gt;  Whereas 'pegged' currencies can range to being similar to the 'central bank with automatic currency supply adjustment example above' to much looser and less regulated options.  The central bank wants to avoid declaring a hard price rule policy so it can fiddle with interest rates or do Keynesian witchcraft with the money supply or wants to outright lie about serious of its commitment to keeping currency parity either at the get go or later on (Argentina, Nixon closing the Gold Window, etc.).  This is why speculators attack such currencies and why George Soros made a lot of money doing so.  China is presently having difficulties and has adjusted its 'peg' to the US dollar as a result, as well.  Almost all loose peg arrangements ultimately fail. &lt;/p&gt;&#xA;" OwnerUserId="5671" LastActivityDate="2015-09-11T23:35:57.317" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8248" PostTypeId="1" CreationDate="2015-09-12T00:12:32.213" Score="3" ViewCount="197" Body="&lt;p&gt;&lt;a href=&quot;https://research.stlouisfed.org/fred2/series/EXCSRESNS&quot; rel=&quot;nofollow&quot;&gt;Excess reserve @ Fed&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the past it was assumed that excess reserves should be kept around 0 and banks should be lending to each other as much as they are borrowing. The central banks would correct the negative or positive balance at the end of the day by lending or borrowing at premium rates, but that was only a short term solution.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now we have 5 years of excess reserves at the Fed and a lot of articles about how banks don't care about cash deposits. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this the failure of QE? The money being lent and given frivolously circles right back into the Fed in the form of excess reserve it seems.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this making it categorically impossible to raise real interest rates? Maybe interest rates could go up if a devaluation process was launched and inflation started climbing, but I'm more interested in understanding what makes the real interest rate move. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Am I misunderstanding something or everything?&lt;/p&gt;&#xA;" OwnerUserId="5485" LastEditorUserId="43" LastEditDate="2015-10-02T09:07:43.997" LastActivityDate="2015-10-22T16:14:27.350" Title="Does the current situation of excess reserve imply failure of QE?" Tags="&lt;banking&gt;&lt;interest-rate&gt;&lt;federal-reserve&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8249" PostTypeId="2" ParentId="8246" CreationDate="2015-09-12T00:36:49.260" Score="2" Body="&lt;p&gt;Basically the way that APR is calculated varies depending on the industry and who quoted it. On a car they calculate the APR by taking the monthly percent and multiplying by 12, the calculator is actually right.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You probably want to calculate APY (annual percentage yield). Check this article out: &lt;a href=&quot;http://www.finweb.com/loans/how-do-they-calculate-your-car-loan-apr.html#axzz3lTowC0op&quot; rel=&quot;nofollow&quot;&gt;http://www.finweb.com/loans/how-do-they-calculate-your-car-loan-apr.html#axzz3lTowC0op&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="5672" LastActivityDate="2015-09-12T00:36:49.260" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8251" PostTypeId="2" ParentId="8243" CreationDate="2015-09-12T02:44:16.563" Score="11" Body="&lt;p&gt;It is.&lt;br&gt;&#xA;Prior to continuity, which is a &lt;em&gt;property&lt;/em&gt; of the preference relation,  the preference relation $\succsim$ itself has been &lt;em&gt;defined&lt;/em&gt; to be a binary relation that is characterized by transitivity, and, to begin with,  by &lt;em&gt;completeness&lt;/em&gt;.&lt;br&gt;&#xA;  Then if $S_1\cup S_2 \neq [0,1]$, it means that there exist some values of $\alpha$ somewhere in $[0,1]$, call them $\tilde \alpha$ for which  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;neither &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\{\tilde \alpha L+(1-\tilde \alpha)L'\succsim L''\}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;nor &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\{L''\succsim \tilde \alpha L+(1-\tilde \alpha)L'\}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In words, for these $\tilde \alpha$'s, the pair cannot be ordered &lt;em&gt;at all&lt;/em&gt;. But this contradicts the completeness foundation that is needed to even obtain a &lt;em&gt;preference&lt;/em&gt; relation (as of course used in our theory. Psychologists I guess would disagree). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, note that completeness is defined over all conceivable pairs, even if, in a specific situation, we chose to restrict the space of lotteries to something smaller. Whether the lotteries under consideration belong to the specified lottery space, is really irrelevant. The person having the preferences has to be able to order them in any case, even as a &quot;hypothetical&quot; scenario (although strictly speaking, for a specific problem we have the &quot;luxury&quot; to impose completeness only as regards the lotteries available, while &quot;remaining agnostic&quot; as regards completeness if we expand the lottery space. Still this &quot;weakening&quot; on the imposition of the completeness axiom, does not really bring any gain).&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-09-12T17:54:35.337" LastActivityDate="2015-09-12T17:54:35.337" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8253" PostTypeId="2" ParentId="8218" CreationDate="2015-09-12T11:01:12.680" Score="3" Body="&lt;p&gt;Here is a proof by induction on $n$, for any $(n,m) \in \mathbb{N}^2$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We will need the following preliminary result, which strengthens the assumption on $\succeq$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Lemma&lt;/strong&gt;&#xA;\begin{equation*}&#xA;\forall x,y,z \in \mathbb{R}, x \succ y \Rightarrow x+z \succ y + z&#xA;\end{equation*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Proof&lt;/strong&gt;&#xA;Suppose that $x+z \preceq y+z$. By your assumption on $\succeq$, we can add $-z$ to both sides of this inequality (since $-z \in X=\mathbb{R}$) and obtain&#xA;\begin{equation*}&#xA;x+z+(-z) \preceq y+z+(-z)&#xA;\end{equation*}&#xA;i.e. $x \preceq y$. This proves the lemma (by contrapositive).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, let us prove the main result.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Basis ($n=0$)&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;We need to prove that $mx \succeq 0$ for any $m \in \mathbb{N}$. This part can itself be proved by induction on $m$. It is trivial for $m=0$ and $m=1$. If the property holds for $m$, then &#xA;\begin{equation*}&#xA;(m+1)x = mx +x \succeq mx + 0 \text{ since } x \succeq 0&#xA;\end{equation*}&#xA;Therefore $(m+1)x \succeq mx$, and since $mx \succeq 0$ by the induction hypothesis, by transitivity we obtain $(m+1)x \succeq 0$: the result holds for $m+1$. This proves the result for $m \in \mathbb{N}, n=0$.&lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;2&quot;&gt;&#xA;&lt;li&gt;Inductive step&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Let us fix $m,n \in \mathbb{N}^2$ and suppose that $\dfrac{m}{2^n}x \succeq 0$. Let us show that $\dfrac{m}{2^{n+1}}x \succeq 0$. To this end, we proceed by contradiction and we assume, otherwise, that $\dfrac{m}{2^{n+1}}x \prec 0$. Our lemma yields&#xA;\begin{equation*}&#xA;\dfrac{m}{2^{n+1}}x + \dfrac{m}{2^{n+1}}x \prec 0 + \dfrac{m}{2^{n+1}}x&#xA;\end{equation*}&#xA;and therefore (computing each side of the inequality)&#xA;\begin{equation*}&#xA;\dfrac{m}{2^{n}}x \prec \dfrac{m}{2^{n+1}}x&#xA;\end{equation*}&#xA;By assumption $\dfrac{m}{2^{n+1}}x \prec 0$, and we just showed that $\dfrac{m}{2^{n}}x \prec \dfrac{m}{2^{n+1}}x$. By transitivity we obtain $\dfrac{m}{2^{n}}x \prec 0$. This is a contradiction, since the result was supposed to hold for $n$.&lt;/p&gt;&#xA;" OwnerUserId="4667" LastEditorUserId="4667" LastEditDate="2015-09-13T08:44:59.780" LastActivityDate="2015-09-13T08:44:59.780" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8254" PostTypeId="2" ParentId="8248" CreationDate="2015-09-12T13:55:01.890" Score="2" Body="&lt;p&gt;You ask a few questions. I'll try to generally answer them:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Is this the failure of QE? The money being lent and given frivolously circles right back into the Fed in the form of excess reserve it seems.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;No, the existence of excess reserves is &lt;a href=&quot;http://www.newyorkfed.org/research/staff_reports/sr380.pdf&quot; rel=&quot;nofollow&quot;&gt;not a reflection on bank lending&lt;/a&gt;. A significant fraction of excess reserves originate in money market mutual fund holdings. This is very clearly explained in &lt;a href=&quot;http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2672997&quot; rel=&quot;nofollow&quot;&gt;Singh (2015)&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The interest rates in most of these markets are in the range of zero and 25 basis points (bps). The Federal Funds (FF) rate or policy rate has been around 10–15 bps since the crisis, and is largely a negotiated rate stemming from the excess cash balances of nonbanks such as GSEs (i.e., Fannie Mae, Freddie Mac etc.), and banks. Only banks have access to the 25 bps interest on excess reserves (IOER) and thus arbitrage by depositing nonbanks cash at the Fed.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The reason for nonbanks' extra cash showing up as the excess reserves of banks is that it flows through money markets to the Fed because it allows banks and nonbanks to split the 25bps IOER. Singh again:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The Fed’s balance sheet increased from roughly \$1 trillion (end-2007) to over \$4 trillion by end-2014, owing mainly to some \$3.4 trillion of asset purchases that sit on its asset side. The approximate corresponding entry are excess reserves of \$2.9 trillion on the liabilities side— these are deposits of nonbanks (who sold assets to the Fed) at banks, who then place them as deposits at the Fed. Since October 2008, the Fed offers banks 25 basis points per annum for their deposits (including excess deposits over the required reserves), but pays zero interest on deposits from nonbanks, especially GSEs.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;As I note in the discussion in the comments, zero dollars of QE were &quot;lent&quot; or &quot;given&quot;— QE consisted entirely of purchases of government and agency securities on the open market, at market prices. What QE does is change the mix of &quot;safe assets&quot; versus cash. There's nothing &quot;frivolous&quot; about it.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Is this making it categorically impossible to raise real interest rates? &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Due to the payment of &lt;a href=&quot;http://www.frbsf.org/education/publications/doctor-econ/2013/march/federal-reserve-interest-balances-reserves&quot; rel=&quot;nofollow&quot;&gt;interest on excess reserves&lt;/a&gt; (IOER) and the creation of the &lt;a href=&quot;http://www.newyorkfed.org/aboutthefed/fedpoint/fed04.html&quot; rel=&quot;nofollow&quot;&gt;Reverse Repurchase Program&lt;/a&gt; (RRP), the existence of excess reserves does not prevent the Fed from raising real interest rates. As noted above, IOER effectively provides a reason for banks to continue to borrow funds from money markets by subsidizing them at a fixed rate, while RRP provides a floor under risk-free rates (by providing a place to park excess collateral at a positive rate, independently of the supply of collateral at dealers banks) that is under the control of the Fed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Real interest rates are low because the FOMC has decided not to raise them yet for policy reasons.&lt;/p&gt;&#xA;" OwnerUserId="264" LastEditorUserId="264" LastEditDate="2015-10-22T16:14:27.350" LastActivityDate="2015-10-22T16:14:27.350" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="8255" PostTypeId="2" ParentId="8248" CreationDate="2015-09-12T16:29:41.000" Score="1" Body="&lt;p&gt;As part of QE, the Fed has purchased approximately \$2.5 trillion in bonds, increasing total (required + excess) reserves by the same amount.  Irrespective of whether banks engage in additional lending or not, the total reserves remain basically fixed, although the amount of required vs excess reserves can very.  Right now required reserves are about \$100bn, and excess reserves are about \$2.5 trillion.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Really, the Fed isn't lending \$2.5T to the banks.  It is the opposite!  By depositing \$2.5T in reserves at the Fed, the banks are lending to the Fed.  But the Fed IS lending the \$2.5T to the federal gov't, since the Fed's bond holdings are Treasuries and agencies.  But since the federal government owns the Fed, it becomes circular.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now suppose that zero interest is paid on reserves.  Even at zero rates, there are still limits to banks' demand for reserves in order to make loans (since loans aren't risk free).  Maybe around 0% Fed funds rate, banks would only need around say \$120bn of required reserves.  So the rest (around \$2.5T) is just excess reserves.  And raising the interest paid on reserves from 0% to 0.25% only changes things marginally, we go from say \$120bn to \$100bn demanded required reserves.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So what is the point of QE?  It seems that the main point is to take long-dated bond risk (duration risk) off the banks' hands and transfer it to the Fed.  The same thing would have been accomplished it the federal government had shifted their debt composition by \$2.5T from 10-yr notes to T-bills.  I think it is an open question has to if and how much this reduces long-term interest rates and whether it has much stimulative impact on the economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'd be keen to hear other point of view on this.&lt;/p&gt;&#xA;" OwnerUserId="5678" LastActivityDate="2015-09-12T16:29:41.000" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8256" PostTypeId="1" CreationDate="2015-09-12T18:15:57.577" Score="0" ViewCount="1867" Body="&lt;p&gt;If too much labor is added to a country's production, what happens to the production possibilities curve? &lt;/p&gt;&#xA;" OwnerUserId="5679" LastEditorUserId="5679" LastEditDate="2015-09-12T18:28:33.577" LastActivityDate="2015-09-12T20:11:16.877" Title="What happens to a production possibilities curve whenever there is too much labor?" Tags="&lt;microeconomics&gt;&lt;economic-growth&gt;" AnswerCount="1" CommentCount="3" ClosedDate="2015-09-13T02:48:26.640" ContentLicense="CC BY-SA 3.0" />
  <row Id="8257" PostTypeId="1" CreationDate="2015-09-12T19:09:50.383" Score="13" ViewCount="474" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Literature: See &lt;a href=&quot;http://www.jstor.org/stable/1911845?seq=1#page_scan_tab_contents&quot; rel=&quot;nofollow noreferrer&quot;&gt;Chang (1988)&lt;/a&gt; for theoretical part and &lt;a href=&quot;http://www.princeton.edu/~moll/HACTproject/HACT_Numerical_Appendix.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Achdou et&#xA;  al. (2015)&lt;/a&gt; for numerical part respectively.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;h2&gt;Model&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Consider the following stochastic optimal growth problem in per capita notation.&#xA;\begin{align}&#xA;&amp;amp;\max_{c}\int^\infty_0 e^{-\rho t}u(c)dt\\&#xA;\text{s.t.}~~~&amp;amp;  dk = [f(k) - (n-\sigma^2) k - c]dt - \sigma kdz\\&#xA;&amp;amp;c\in[0,f(k)]\\&#xA;&amp;amp;k(0) = k_0&#xA;\end{align}&#xA;everthing is standard except for $dz$ which is the increment of a standard Wiener process, i.e. $z(t)\sim\mathcal{N}(0,t)$. The population growth rate has mean $n$ and variance $\sigma^2$.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Analytical Solution&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;We presume Cobb-Douglas technology&#xA;\begin{align}&#xA;f(k) = k^\alpha,\quad \alpha\in(0,1)&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and CRRA utility&#xA;\begin{align}&#xA;u(c) = \frac{c^{1-\gamma}}{1-\gamma},\quad \gamma &amp;gt; 1.&#xA;\end{align}&#xA;Set up the Hamilton-Jacobi-Bellman equation (HJB-e)&#xA;\begin{align}&#xA;\rho v(k) = \max_c\left\{\frac{c^{1-\gamma}}{1-\gamma} + v'(k)(k^\alpha - (n - \sigma^2)k - c) + v''(k)\frac{k^2\sigma^2}{2}\right\}&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first order condition (FOC) reads&#xA;\begin{align}&#xA;c = v'(k)^{-\frac{1}{\gamma}}=:\pi(k)&#xA;\end{align}&#xA;where $\pi(\cdot)$ denotes the policy function.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Resubstitute FOC into HJB-e&#xA;\begin{align}&#xA;\rho v(k) = \frac{v'(k)^{\frac{\gamma-1}{\gamma}}}{1-\gamma} + v'(k)k^\alpha - v'(k)(n - \sigma^2)k  -  v'(k)^{\frac{\gamma-1}{\gamma}} + v''(k)\frac{k^2\sigma^2}{2}.&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We guess a functional form of $v(k)$ with (&lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/S0304407609001456&quot; rel=&quot;nofollow noreferrer&quot;&gt;Posch (2009, eq. 41)&lt;/a&gt;)&#xA;\begin{align}&#xA;v(k) = \Psi \frac{k^{1-\alpha\gamma}}{1-\alpha\gamma}&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $\Psi$ is some constant. The first and second order derivative of $v$ are given by&#xA;\begin{align}&#xA;v'(k) &amp;amp;= \Psi k^{-\alpha\gamma}\\&#xA;v''(k) &amp;amp;= -\alpha\gamma\Psi k^{-1-\alpha\gamma}.&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The HJB-e then reads&#xA;\begin{align}&#xA;&amp;amp;\rho \Psi\frac{k^{1-\alpha\gamma}}{1-\alpha\gamma} = \frac{\Psi^{\frac{\gamma-1}{\gamma}}k^{\alpha(1-\gamma)}}{1-\gamma} + \Psi k^{\alpha(1-\gamma)} - (n-\sigma^2) \Psi k^{1-\alpha\gamma} -  \Psi^{\frac{\gamma-1}{\gamma}} k^{\alpha(1-\gamma)}  - \alpha\gamma\Psi k^{1-\alpha\gamma}\frac{\sigma^2}{2}\\[2mm]&#xA;\Longleftrightarrow \quad &amp;amp;&#xA;k^{1-\alpha\gamma}\left(\frac{\rho}{1-\alpha\gamma} + n - \sigma^2\left(1 - \frac{\alpha\gamma}{2}\right)\right) = k^{\alpha(1-\gamma)}\left[1+\Psi^{-\frac{1}{\gamma}}\frac{\gamma}{1-\gamma}\right]&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The maximized HJB-e is true iff the following conditions hold&#xA;\begin{align}&#xA;\rho = \left(-n + \sigma^2\left(1 - \frac{\alpha\gamma}{2}\right)\right)(1-\alpha\gamma)\quad \wedge \quad \Psi = \left(\frac{\gamma-1}{\gamma}\right)^{-\gamma}&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Resubstitute $\Psi$ into $v$ which finally gives the true value function&#xA;\begin{align}&#xA;v(k) = \left(\frac{\gamma-1}{\gamma}\right)^{-\gamma} \frac{k^{1-\alpha\gamma}}{1-\alpha\gamma}.&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;How come that $v$ does not depend on $\sigma$? &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;So the deterministic and stochastic value function must be the same. The policy function is then readily given by (use FOC and derivative of value function)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{align}&#xA;\pi(k) = \left(1-\frac{1}{\gamma}\right)k^\alpha.&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that this function does not depend on $\sigma$ either.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Numerical Approximation&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;I solved the HJB-e by an upwind scheme. Error tolerance $\epsilon=1e-10$. In the figure below I plot the policy function for varying $\sigma$. For $\sigma\to 0$ I arrive at the true solution (purple). But for $\sigma&amp;gt;0$ the approximated policy function deviates from the true one. Which should not be the case, since $\pi(k)$ does not depend on $\sigma$, right?  &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Can anyone confirm that the approximated policy functions should be the same for any $\sigma$, since the true one is independent of $\sigma$?&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/ne5BA.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/ne5BA.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="4266" LastEditorUserId="59" LastEditDate="2017-07-13T19:00:08.890" LastActivityDate="2017-08-26T15:33:27.983" Title="Stochastic growth in continuous time" Tags="&lt;academic-graduate&gt;&lt;continuous-time&gt;&lt;optimal-control&gt;&lt;numerical-methods&gt;" AnswerCount="1" CommentCount="5" FavoriteCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="8258" PostTypeId="2" ParentId="8256" CreationDate="2015-09-12T20:11:16.877" Score="1" Body="&lt;p&gt;What should happen? It grows. A production possibilty curve shows that the number of goods that can be produced is limited. If there is &quot;more workforce than needed&quot; (supply of work exceeds demand), prices for work descend, due to competition. That means that you can employ more people with the same capital. So if there are enough of the other limiting production factors (such as soil) available, you can produce more of both products.&#xA;Of course the product which is more labour-intensive (in the often used example of butter and guns that would probably be the guns) will profit much more from that.&lt;/p&gt;&#xA;" OwnerUserId="5680" LastActivityDate="2015-09-12T20:11:16.877" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="8259" PostTypeId="2" ParentId="8220" CreationDate="2015-09-12T20:43:02.820" Score="1" Body="&lt;p&gt;The first question has nothing to do with utility optimization, and so with the utility function. It just determines a bound, and it is the solution to the inequality&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$(24-l)\cdot \frac 12 \geq 11$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;since $(24-l)$ represents amount of work in hours.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The optimization task is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\max _{c,l}U(c,l)=c+2l^{1/2} \\$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$s.t. \;\;c = (24-l)\cdot \frac 12 -11,\;\; c\geq 0,\;\; l \geq 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Due to the existence of the lump-sum tax, &lt;strong&gt;the non-negativity constraints matter&lt;/strong&gt;. This is why the OP ended up with a negative consumption, because she did not consider the non-negativity constraints.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now instead of going for a formal treatment with non-negative Karush-Kuhn-Tucker multipliers, the first question comes handy. Since there is a &lt;em&gt;maximum&lt;/em&gt; amount of leisure at which point the consumer is just able to pay taxes (and so have zero consumption), it follows that the variable &quot;leisure&quot; cannot take a greater value than that, because it will lead to negative consumption.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then one can reason by taking the partial derivatives of the utility function, and wonder &quot;if a decrease leisure a little below its maximum permissible level, what do I lose in terms of utility from leisure lost, and what do I gain in terms of utility in terms of consumption gained?&quot; It will also help to consider the two extremes: What is the utility when leisure is maximum and consumption is zero? What is the utility when leisure is zero and consumption is maximum? Don't forget to pay the (very heavy) taxes first.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-09-12T20:43:02.820" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8260" PostTypeId="1" CreationDate="2015-09-12T23:38:17.700" Score="2" ViewCount="107" Body="&lt;p&gt;My professor gave us two formulas for GDP for 2012 in 2010 dollars:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;code&gt;y = P1 (2010) * Q1 (2012) + P2 (2010) * Q2 (2012) ...&lt;/code&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;code&gt;y = x1 / (1 + inflation rate 2010 to 2012)&lt;/code&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where &lt;code&gt;x1&lt;/code&gt; is the nominal GDP for 2012. Do those formula produce the same result? If not, under what assumptions are they close to one another? Which one is used by governments to calculate GDP figures?&lt;/p&gt;&#xA;" OwnerUserId="5681" LastActivityDate="2015-09-12T23:38:17.700" Title="Two ways of calculating real GDP: do they produce the same result?" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="8261" PostTypeId="1" AcceptedAnswerId="8262" CreationDate="2015-09-13T10:41:39.527" Score="2" ViewCount="2040" Body="&lt;p&gt;Assume a case of perfect price inelasticity of demand. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/PAXFR.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/PAXFR.png&quot; alt=&quot;Graph depicting perfect price inelasticity&quot;&gt;&lt;/a&gt;&#xA;&lt;br&gt; &#xA;In such a case, &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;PED = 0&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The quantity demanded does not respond to changes in price, i.e. it remains constant, even when price increases or decreases (instead of falling or rising, as it should if it conformed to the inverse relation defined by the law of demand).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, shouldn't perfect price inelasticity also be considered as an exception to the law of demand, just as Giffen goods and Veblen goods are?&lt;/p&gt;&#xA;" OwnerUserId="5685" LastEditorUserId="1601" LastEditDate="2015-09-13T14:04:42.657" LastActivityDate="2015-09-14T02:52:22.603" Title="Why is perfect price inelasticity of demand not considered an exception to the law of demand?" Tags="&lt;supply-and-demand&gt;&lt;elasticity&gt;" AnswerCount="3" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8262" PostTypeId="2" ParentId="8261" CreationDate="2015-09-13T10:56:48.857" Score="4" Body="&lt;p&gt;Because although some goods have perfect inelasticity over some interval, they are not perfectly inelastic over the whole demand curve - over the rest of the curve, quantity and demand will be strictly inversely related. And the law of demand doesn't have a &quot;strictly&quot; in there. Price and quantity are inversely related, but not &lt;em&gt;strictly&lt;/em&gt; so, which (in the mathematical sense) means that parts of the demand curve are allowed to be perfectly inelastic.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2015-09-13T10:56:48.857" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8263" PostTypeId="2" ParentId="8261" CreationDate="2015-09-13T14:22:23.623" Score="1" Body="&lt;p&gt;It is a bit of an exaggeration to call anything a 'law' in economics. So, there is in the first place not really any 'law of demand' (except in introductory economics). And as such no one is too interested in carefully specifying all the exceptions to the 'law of demand'.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(There is though a 'compensated law of demand', which is a much less sweeping statement than the 'law of demand' - see e.g. Ch 2F of Mas-Colell, Whinston, and Green.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To use an analogy, the law of gravity says (inter alia) that two bodies attract each other. The 'law' of demand says that the higher price is, the lower the quantity demanded. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But the first law is meant to be an iron-clad rule (possibly subject to corrections later on, as new discoveries are made). Two bodies ALWAYS attract each other. If ever it is found that two bodies do not attract each other, then we must find some way to explain it, or otherwise rethink our understanding of physics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Whereas the second law is meant as a loose generalization: &lt;em&gt;It tends generally to be the case that&lt;/em&gt; higher price ⇒ lower demand. But we are not terribly bothered when this general rule occasionally fails.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastEditorDisplayName="user18" LastEditDate="2015-09-14T02:52:22.603" LastActivityDate="2015-09-14T02:52:22.603" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8264" PostTypeId="2" ParentId="8261" CreationDate="2015-09-13T14:28:45.050" Score="0" Body="&lt;p&gt;If a consumer's demand for a good is perfectly inelastic with respect to the price, this means that the consumer is prepared to spend all his available income to that one good, even if this means that he won't consume anything else. This means that the consumer has &lt;em&gt;lexicographic preferences&lt;/em&gt;, with this one good above everything else.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lexicographic preferences are not continuous, and so they cannot be represented by a continuous utility function. They have indifference &quot;curves&quot; that are single points, etc. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the case of perfectly inelastic demand represents an &quot;exception&quot; at a  deeper level than for example Giffen goods represent. Giffen goods are manageable in the context of &quot;usual&quot; preferences, tweaked but not scrapped altogether.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, note that &quot;perfectly inelastic demand&quot; represented as a straight vertical line, does not answer the question &quot;what will happen if, given his budget constraint, the consumer cannot afford to buy the specific quantity $\bar q$?&quot; Will he buy as much as his budget $B$ allows, or will he buy nothing?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If, when he cannot afford the desired quantity $\bar q$, he buys as much as he can, then in reality the demand curve becomes negatively sloped after a price level, and it acquires a &quot;forced&quot; elasticity, dictated by the budget constraint:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/SSB3S.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/SSB3S.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The above represents that case of truly lexicographic preferences. In the case where, if the consumer cannot afford $\bar q$, then he buys no quantity of the good, things are more complicated.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-09-13T14:28:45.050" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8265" PostTypeId="1" CreationDate="2015-09-13T15:02:13.213" Score="2" ViewCount="233" Body="&lt;p&gt;From The Penn World Tables (PWT7):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/HfUSI.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/HfUSI.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Before 1970, the price levels of the three GDP components had been going in parallel. In the late 60s, the price level of government consumption went up (the Nixon Shock + Vietnam War?), and then it steadily increased since after 1980. Investments also behaved differently since then.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this price behavior due to the budget deficit (for government consumption) and trade deficit (for investment deflation) or there're some other important factors?&lt;/p&gt;&#xA;" OwnerUserId="240" LastEditorUserId="264" LastEditDate="2015-09-13T20:47:58.270" LastActivityDate="2016-07-22T20:45:42.260" Title="Why did the price level of government consumption increase in the United States?" Tags="&lt;macroeconomics&gt;&lt;government&gt;&lt;price-level&gt;&lt;pricing&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8266" PostTypeId="1" CreationDate="2015-09-13T15:50:27.560" Score="4" ViewCount="14267" Body="&lt;p&gt;Suppose you bought a new house in the year of 2010. Then the price of the house in counted toward the 2010 GDP. Say then you live in the new house in the following years. So in these years, the GDP includes the housing rental you paid yourself. But then why is it not an overcount? I mean, when we counted the house price into GDP in2010, we have already counted all the utility of the house in one year and there is no need to count the de sequent rental.&lt;/p&gt;&#xA;" OwnerUserId="4551" LastEditorUserId="264" LastEditDate="2015-09-13T20:46:16.627" LastActivityDate="2018-01-02T07:29:12.117" Title="Does GDP count both the investment and the house rental?" Tags="&lt;macroeconomics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8267" PostTypeId="2" ParentId="8266" CreationDate="2015-09-13T17:08:16.590" Score="8" Body="&lt;p&gt;You are correct that what you describe would be an overcount, but fortunately, your description of what is counted in GDP is incorrect. When a new home is constructed and sold, the full sales price is not counted in GDP. Instead, only the value of the construction put in place is counted in GDP— when the construction is completed. Then, the value of the stream of housing services (i.e., the imputation for owners' equivalent rent) is counted annually as an output of the asset.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Quoting &quot;&lt;a href=&quot;https://www.bea.gov/scb/pdf/2009/02%20February/0209_briefing_structures.pdf&quot; rel=&quot;noreferrer&quot;&gt;How BEA Accounts for Investment in Private Structures&lt;/a&gt;&quot;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In the NIPAs, private investment in new construction&#xA;  is measured mainly as the sum of the costs of inputs&#xA;  of all construction “put in place,” that is, all&#xA;  construction activity completed in a given period. For&#xA;  individual projects, BEA’s measure of investment in&#xA;  structures includes the following:&lt;/p&gt;&#xA;  &#xA;  &lt;ul&gt;&#xA;  &lt;li&gt;Cost of materials installed or erected&lt;/li&gt;&#xA;  &lt;li&gt;Cost of labor and the cost of construction equipment&#xA;  rental for the period&lt;/li&gt;&#xA;  &lt;li&gt;Cost of architectural and engineering work&lt;/li&gt;&#xA;  &lt;li&gt;Miscellaneous overhead and office costs incurred&#xA;  by the project’s owners&lt;/li&gt;&#xA;  &lt;li&gt;Interest and taxes paid during construction&lt;/li&gt;&#xA;  &lt;li&gt;Contractors’ profits&lt;/li&gt;&#xA;  &lt;/ul&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Houses are therefore counted just as any other capital asset is. Just as a machine that makes bolts first appears in GDP when the machine is constructed then later its output is also counted, a house appears in GDP as output when it is constructed (or renovated) and its output— housing services— is also counted.&lt;/p&gt;&#xA;" OwnerUserId="264" LastEditorUserId="264" LastEditDate="2015-09-13T18:24:05.457" LastActivityDate="2015-09-13T18:24:05.457" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8268" PostTypeId="1" AcceptedAnswerId="8272" CreationDate="2015-09-13T20:11:52.983" Score="2" ViewCount="120" Body="&lt;p&gt;I'm reading a macro book (Blanchard's) and the way he values shares is by calculating the net present value of all dividends we expect to receive by owning some stock, discounted by the interest rates (assuming investors are risk-neutral and only care about expected return). Well, by reading some newspapers and some chapters of a book on corporate finance, I've noticed that not many firms' shares pay dividends, being the paid dividends concentrated in a few firms only. In fact, in corporate finance, it seems managers are taught that with the existence of taxes on personal income(dividends apply), it's preferable to repurchase shares which increase the earnings per share ratio (EPS), which in turn multiplied by the price-per-earnings of the industry the firm is in, gives an expected price for the stock. My question is why should we value stock if no dividend is paid? Aren't selling stock and receiving dividend the only two sources of current income that owning shares give? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated&lt;/p&gt;&#xA;" OwnerUserId="118" LastActivityDate="2015-09-13T21:24:15.077" Title="Stock Valuation - Interest rates, Dividends, and Shares Repurchases" Tags="&lt;macroeconomics&gt;&lt;corporate-finance&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8269" PostTypeId="1" CreationDate="2015-09-13T20:42:38.400" Score="2" ViewCount="34" Body="&lt;p&gt;It says &quot;get extra 40 days to pay your bills&quot; with no interest!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is it just based on the statistics that people will eventually forget paying and then charge interests from those 40 days, or are there any other things they must be considering to offer this kind of service with no interest?&lt;/p&gt;&#xA;" OwnerUserId="5688" LastActivityDate="2015-09-14T05:47:34.997" Title="What's the benefit the bank gets on offering me to pay my water/electricity/gas with credit card?" Tags="&lt;interest-rate&gt;&lt;consumer-credit&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8271" PostTypeId="2" ParentId="8269" CreationDate="2015-09-13T21:15:53.890" Score="1" Body="&lt;p&gt;From a marketing point of view it's a very effective way of acquiring customers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And you raise a good point, people often do forget these things, so banks can also profit that way.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastEditorUserId="1601" LastEditDate="2015-09-14T05:47:34.997" LastActivityDate="2015-09-14T05:47:34.997" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="8272" PostTypeId="2" ParentId="8268" CreationDate="2015-09-13T21:24:15.077" Score="0" Body="&lt;p&gt;We value stock if no dividends are paid, exactly for the reason you mention, we can sell them at a higher value later on. The value added to the stock if we invest the profits (would be dividends) into the company should be around the same value the dividends would pay off. However instead of paying taxes each time we get a dividend we can pay them just once when the stock is sold potentially saving on taxes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;P.s. Blanchard is a great book and how I first started learning macro :).&lt;/p&gt;&#xA;" OwnerUserId="5557" LastActivityDate="2015-09-13T21:24:15.077" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8273" PostTypeId="2" ParentId="8269" CreationDate="2015-09-14T00:11:40.883" Score="1" Body="&lt;p&gt;By getting into a &lt;em&gt;credit&lt;/em&gt; card contract, you effectively obtain a revolving credit limit, essentially a loan that once paid is again available (in contrast, under a &lt;em&gt;debit&lt;/em&gt; card contract you only get the facilitation of &quot;plastic money/carry no cash&quot;, but you are contractually obliged to fully pay the balance on the date due. Diner's Club, the first card, was and remained for decades, such a &quot;debit&quot; card).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, people don't just &quot;forget&quot; to pay the credit card on time in order to not incur interest costs: they may purposefully leave some amount unpaid, in order to smooth their consumption patterns, effectively using the credit card as a loan facility to do that. What? With the usual &quot;exorbitant&quot; interest rates credit cards charge? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Well, if you cannot get any other kind of credit, you take what you &lt;em&gt;can&lt;/em&gt; get, if you really need it, or want it.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the bank looks at:  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) The fees that collects from the supplier&lt;br&gt;&#xA;2) Handsome interest income from customers leaving some amount of the utility bills unpaid, turning it into a loan&lt;br&gt;&#xA;3) If they are new customers, lured from the &quot;bills payment&quot; ad, that they will use the credit available to make other purchases also, so more fees and more interest income.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-09-14T00:11:40.883" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8274" PostTypeId="2" ParentId="8233" CreationDate="2015-09-14T01:27:47.140" Score="2" Body="&lt;p&gt;What you're looking for is the &lt;a href=&quot;https://en.wikipedia.org/wiki/Price_elasticity_of_demand&quot; rel=&quot;nofollow&quot;&gt;price elasticity of demand&lt;/a&gt; of your product.  That is: by how much will your sales rise or fall depending on how you manipulate price?  It depends on what you're selling and, like you said, each variation of your product will have a different elasticity.  So, say you increase prices by 5% and experience a %5 decrease in sales; your price elasticity of demand would be -1 (unit free).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The strategy you outlined to parse out the price elasticity sounds reasonable from a data collection standpoint, albeit a bit risky.  I might change the price of just one of your variations (maybe one that sells somewhat more frequently)  to assess the sensitivity your customers are to price changes.  However, if your product's elasticity is high, your sales might drop dramatically or stop altogether.&lt;/p&gt;&#xA;" OwnerUserId="5689" LastActivityDate="2015-09-14T01:27:47.140" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8275" PostTypeId="1" CreationDate="2015-09-14T10:40:08.737" Score="5" ViewCount="579" Body="&lt;p&gt;I have 25 quarterly observations and I want to estimate price elasticity of demand. I intented to use GMM-IV estimator. However, I read that it is not good for small samples. What can you suggest me? Please keep in mind that I am not econometrician by profession.&lt;/p&gt;&#xA;" OwnerUserId="1482" LastActivityDate="2016-02-12T10:17:15.340" Title="Estimating price elasticity of demand" Tags="&lt;elasticity&gt;&lt;regression&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8276" PostTypeId="1" CreationDate="2015-09-14T10:59:31.577" Score="2" ViewCount="166" Body="&lt;p&gt;I have just read &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/1586486683&quot; rel=&quot;nofollow&quot;&gt;Erik Reinert's, &quot;How Rich Countries Got Rich… and Why Poor Countries Stay Poor&quot;&lt;/a&gt;. Can anybody advise me some further reading on this topic? I wonder, in particular, &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;if there were investigations on the influence of the international specialization of labour on the migration processes?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;if there were &lt;a href=&quot;https://en.wikipedia.org/wiki/Experimental_economics&quot; rel=&quot;nofollow&quot;&gt;experiments&lt;/a&gt; in this field?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Thank you.&lt;/p&gt;&#xA;" OwnerUserId="5528" LastEditorUserId="5528" LastEditDate="2015-09-14T13:46:14.107" LastActivityDate="2015-09-14T23:52:11.757" Title="Erik Reinert's conclusions and experiments in economics" Tags="&lt;reference-request&gt;&lt;poverty&gt;&lt;experimental-economics&gt;&lt;migration&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8277" PostTypeId="2" ParentId="8233" CreationDate="2015-09-14T12:29:18.623" Score="2" Body="&lt;p&gt;If you are fairly confident that your current price is not too far from the real profit-maximising price then there is little loss in accuracy from assuming the demand curve to be locally linear (i.e. a straight line in the area around your current point). This is illustrated in the figure below: note how the red (linear) approximation to the curve much more closely follows the shape of the curve when the two endpoints are close together than when they are far apart.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/CTZLu.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/CTZLu.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This observation can help you a little because it means you only need two data points to characterize the demand curve provided the price adjustments are small. Moreover, note that you can implement one large price change as a sequence of smaller changes. As soon as you have two datapoints, you can work out which direction you should be adjusting your price in. One procedure would be as follows:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;reduce your price by a small amount—say, 1–5%. (note: a price decrease might work better than an increase because you have said that you do not sell often and increasing your price will just mean you end up with even fewer sales and hence even less data). Unless there is a kink in the demand curve, a sufficiently small price increase and a small price decrease should give you approximately the same estimate for the demand curve's slope.&lt;/li&gt;&#xA;&lt;li&gt;observe demanded quantity at the new price (e.g. '$q_\text{new}$ sales per month').&lt;/li&gt;&#xA;&lt;li&gt;calculate the slope of the inverse demand curve:&#xA;$$\text{slope}=\frac{p_\text{new}-p_\text{old}}{q_\text{new}-q_\text{old}}$$&#xA;where $q$ means quantity and $p$ means price.&lt;/li&gt;&#xA;&lt;li&gt;The profit maximising price, $p^*$, solves the equation&#xA;$$p^*=c-(q\times \text{slope})$$&#xA;where $c$ is your unit cost, slope is calculated above, and $q$ is quantity sold at price $p^*$. If you find that neither $p_\text{new}$ nor $p_\text{old}$ is equal to $p^*$ then you need to make an adjustment to the price (see step 5.).&lt;/li&gt;&#xA;&lt;li&gt;The linear approximation to demand introduces very little error so long as you don't venture far from the starting price. It therefore makes sense to incrementally adjust towards optimum. For example, suppose that you do steps 1–4 and find that, at your current $p$ and $q$, $p&amp;gt;c-(q\times \text{slope})$ (meaning that your price is above the profit-maximising level). Then it makes sense to reduce the price by a &lt;em&gt;small&lt;/em&gt; amount and  repeat steps 2–3 to get a new estimate for the slope of the demand function that is more accurate in the region surrounding the new lower price. Repeated application of this procedure should allow you to converge towards the optimal price.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Important caveat:&lt;/strong&gt; You should be mindful that the quantity you sell will change not only because you reduced price (i.e. a movement &lt;em&gt;along&lt;/em&gt; the demand curve), but also if the whole demand curve changes (e.g. demand for toys will be higher at Christmas independent of whether price changes or not). For this exercise to work, you need to be confident that the demand curve doesn't change too much over time (and to re-estimate the demand curve during periods when it is likely to be different).&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2015-09-18T11:18:53.550" LastActivityDate="2015-09-18T11:18:53.550" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8278" PostTypeId="2" ParentId="8276" CreationDate="2015-09-14T13:54:52.883" Score="1" Body="&lt;p&gt;It's been too long since I read those, so I don't exactly remember  whether they answer your two specific questions, but if you are interested in the topic you should definitely have a look at:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/The_Bottom_Billion&quot; rel=&quot;nofollow&quot;&gt;https://en.wikipedia.org/wiki/The_Bottom_Billion&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/The_New_Bottom_Billion&quot; rel=&quot;nofollow&quot;&gt;https://en.wikipedia.org/wiki/The_New_Bottom_Billion&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;and the corresponding TED talk at&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://www.ted.com/talks/paul_collier_shares_4_ways_to_help_the_bottom_billion?language=en&quot; rel=&quot;nofollow&quot;&gt;http://www.ted.com/talks/paul_collier_shares_4_ways_to_help_the_bottom_billion?language=en&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="38" LastEditorUserId="38" LastEditDate="2015-09-14T23:52:11.757" LastActivityDate="2015-09-14T23:52:11.757" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8279" PostTypeId="1" CreationDate="2015-09-14T14:13:27.113" Score="0" ViewCount="964" Body="&lt;p&gt;In Russia we currently have 11% of Central Bank's interest rate and you can get credit in commercial bank for about 25% in year. Why are interest rates so high?&lt;/p&gt;&#xA;" OwnerUserId="5690" LastEditorUserId="2776" LastEditDate="2017-08-24T14:43:27.473" LastActivityDate="2017-11-22T22:40:13.600" Title="Why are interest rates so high in Russia?" Tags="&lt;finance&gt;&lt;inflation&gt;&lt;interest-rate&gt;" AnswerCount="3" CommentCount="19" ContentLicense="CC BY-SA 3.0" />
  <row Id="8281" PostTypeId="2" ParentId="8276" CreationDate="2015-09-14T15:05:16.303" Score="0" Body="&lt;p&gt;If Reinert's central claim is that protectionist trade policies promote economic growth, the only empirical evidence I've seen points in exactly the opposite direction. That would be Xavier Sala-i-Martin's papers on growth accounting, such as &quot;The Economic Tragedy of the XXth Century: Growth in Africa&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.nber.org/papers/w9865&quot; rel=&quot;nofollow&quot;&gt;http://www.nber.org/papers/w9865&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="5694" LastActivityDate="2015-09-14T15:05:16.303" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8282" PostTypeId="2" ParentId="8275" CreationDate="2015-09-14T19:57:13.030" Score="-1" Body="&lt;p&gt;Price elasticity of demand is computed as follows:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;Percent Change in Quantity Demanded (Qd) / Percent Change in Price (P)&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Say you have price and demand quantity data from two years (t=1,2).  To calculate change in Q demanded you would do the following:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;[(Qd in t=2)-(Qd in t=1)] / (Qd in t=1)&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;The process is the same for price (substitute P for Qd above).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Elasticity may be calculated for other variables as well; not just price and demand.  For example, if you wanted to see how a 1% change in IQ affects the relative change in a student's GRE score you could.  This is done by messing with logs and regression functions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hopefully this helps you out a bit.&lt;/p&gt;&#xA;" OwnerUserId="5689" LastActivityDate="2015-09-14T19:57:13.030" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8283" PostTypeId="2" ParentId="6254" CreationDate="2015-09-14T21:38:24.950" Score="5" Body="&lt;p&gt;Another example is &lt;a href=&quot;http://onlinelibrary.wiley.com/doi/10.1111/1097-3923.00006/abstract&quot; rel=&quot;nofollow noreferrer&quot;&gt;Economies with Public Goods: An Elementary Geometric Exposition&lt;/a&gt; by William Thomson, which relies extensively on the geometry of equilateral triangles. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In general, William Thomson is known for making a heavy and interesting usage of geometry in his papers. See for instance a recent working paper of his : &lt;a href=&quot;http://rcer.econ.rochester.edu/RCERPAPERS/rcer_584.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Compromising between the proportional and constrained equal awards rules&lt;/a&gt; (although this one might be further from basic high-school euclidean geometry than what you're looking for). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Other somewhat similar examples include papers relying on the geometry of simplices. An example I came across recently is&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://www.jstor.org.proxy.library.vanderbilt.edu/stable/41106883?seq=3#page_scan_tab_contents&quot; rel=&quot;nofollow noreferrer&quot;&gt;A graphical analysis of some basic results in social choice,  Estelle Cantillon and Antonio Rangel, Social Choice and Welfare Vol. 19, No. 3 (2002), pp. 587-611&lt;/a&gt; &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;but there are many others, starting with the exposition of the expected utility theorem in Mas-Collel, Whinston and Green.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am also tempted to point at the following recent paper, although it definitely uses geometric tools which go far beyond high-school euclidean geometry:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1974922&quot; rel=&quot;nofollow noreferrer&quot;&gt;A Geometric Approach to Mechanism Design,   Jacob K. Goeree and  Alexey I. Kushnir Carnegie Mellon University Tepper Business School, 2013,  University of Zurich Department of Economics Working Paper No. 56&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I don't have a specific paper for it (any intro to econ textbook would do), but I would also add the classical graphical measure of consumer and producer surpluses in ECON 101. (Especially for linear demand and consumer curves where is simplifies to measuring the area of a triangle. Can't do much more &quot;measurement of land&quot; than that)&lt;/p&gt;&#xA;" OwnerUserId="38" LastEditorUserId="38" LastEditDate="2017-09-20T14:31:15.057" LastActivityDate="2017-09-20T14:31:15.057" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8284" PostTypeId="2" ParentId="8237" CreationDate="2015-09-14T23:18:10.683" Score="0" Body="&lt;p&gt;What everyone else has said is true when viewed from an economics standpoint.  However, accountants see land as fixed capital with its value being the total amount invested.  They (accountants) define any resource that is effectively static for a long period of time to be fixed capital.&lt;/p&gt;&#xA;" OwnerUserId="5689" LastActivityDate="2015-09-14T23:18:10.683" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="8285" PostTypeId="1" AcceptedAnswerId="8288" CreationDate="2015-09-14T23:26:23.660" Score="6" ViewCount="130" Body="&lt;p&gt;I am currently in an Econometrics class that requires us to write a research paper that showcases our skills in regression/ modeling.  What is slightly more complex than simple and multiple regressions that I may be able to learn and utilize in my research project?  I realize that the model depends on the research question, but I'd like to learn different types of modeling anyhow.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks.&lt;/p&gt;&#xA;" OwnerUserId="5689" LastActivityDate="2016-02-12T16:51:06.350" Title="More complex than simple and multiple regressions?" Tags="&lt;econometrics&gt;&lt;regression&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8286" PostTypeId="1" CreationDate="2015-09-15T00:48:41.253" Score="1" ViewCount="83" Body="&lt;p&gt;Source: p 185 , &lt;em&gt;ETFs for Canadians for Dummies&lt;/em&gt; (2013; by Russell Wild and Bryan Borzykowski).&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In a recent interview with the &lt;em&gt;Journal of Indexes&lt;/em&gt;, famed investment guru&#xA;  Burton G. Malkiel, professor of economics at Princeton and author of &lt;em&gt;A Random Walk Down Wall Street&lt;/em&gt;, had this to say about commodity investing:&#xA;  “I think [commodities] should be in every portfolio, but for individuals, my&#xA;  sense is that the way they should get them is through ensuring that they have&#xA;  in their portfolios companies that mine or manufacture the commodities.”&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;He is not alone. Frustrated with the problems of commodity investing I’ve&#xA;  outlined in this chapter, and doubtful that commodity investing in the very&#xA;  long run will provide returns commensurate with the risk, many investment&#xA;  advisors of late have turned to Malkiel’s solution. The drawback is that&#xA;  stocks in commodity-producing companies are not going to show the&#xA;  same lack of correlation, or offer the same diversification power, as pure&#xA;  commodities do. Investing in commodities this way is a trade-off.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;However, a Google search revealed &lt;a href=&quot;https://books.google.com/books?id=ZmJP-yCUPFEC&amp;amp;lpg=PA37&amp;amp;ots=hgKuIRMJYr&amp;amp;dq=%22commodity-producing%20companies&amp;amp;pg=PA37#v=onepage&amp;amp;q=%22commodity-producing%20companies&amp;amp;f=false&quot; rel=&quot;nofollow&quot;&gt;this&lt;/a&gt; which rebuts Prof Malkiel's recommendation above. &lt;/p&gt;&#xA;" OwnerUserId="4020" LastActivityDate="2015-09-15T00:48:41.253" Title="Why does Burton Malkiel recommend investing in commodity companies instead of commodities?" Tags="&lt;investment&gt;&lt;commodities&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8287" PostTypeId="2" ParentId="8237" CreationDate="2015-09-15T07:05:18.350" Score="4" Body="&lt;p&gt;The distinction between land and physical capital is based on some of their economic properties, particularly relating to investment: whether it can be reproduced or not; whether it has a finite lifetime (compared to the human lifetime).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Almost all land is &lt;em&gt;not&lt;/em&gt; reproducible, and does &lt;em&gt;not&lt;/em&gt; have a finite lifetime.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Physical capital &lt;em&gt;is&lt;/em&gt; reproducible, and &lt;em&gt;does&lt;/em&gt; have a finite lifetime.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence, almost all land is not physical capital.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are corner cases, where land is reproducible, and may appear and then disappear again in less than a handful of human lifetimes: in those very rare cases, that particular land behaves more like physical capital rather than how land generally behaves, and so could be classed as such.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2015-09-15T07:05:18.350" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8288" PostTypeId="2" ParentId="8285" CreationDate="2015-09-15T08:11:09.270" Score="9" Body="&lt;p&gt;Welcome to the wonderful world of econometrics! Most introductory econometrics courses will extend Ordinary Least Squares (OLS) by considering binary outcomes models such as the logit and probit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Whilst OLS is typically restricted to modelling continuous outcomes bound between $-\infty$ and $\infty$, in research one will often come across data where this is not the case. The most elementary extension is the binary (yes/no) outcome data.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This data takes the form of a yes/no (coded 1/0). Clearly, OLS runs into several problems. First and foremost (for your purposes) is the fact that you can predict outcomes outside of the range $[0,1]$. The simplest solution: logistic regression.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Logistic regression estimates the probability that $y=1$ conditional on your explanatory variables. It does this creating a mapping of your regression equation $\beta_0 + \beta_1 x$ on to the space $[0,1]$ by considering:&#xA;$$ \ln \left( \frac{P(y=1)}{1-P(y=1)} \right) = \beta_0 + \beta_1x $$&#xA;Depending on what data you can find (and what software you have available - for example EViews, R, Stata and SPSS all have built in routines for logistic regression) this might be an interesting way to proceed.&lt;/p&gt;&#xA;" OwnerUserId="5691" LastActivityDate="2015-09-15T08:11:09.270" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8289" PostTypeId="2" ParentId="8275" CreationDate="2015-09-15T08:18:05.387" Score="1" Body="&lt;p&gt;Unfortunately for your case all GMM estimators suffer from finite sample bias. In the presence of an endogenous explanatory variable the GMM estimator is only consistent.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There's not much you can do to remedy this issue, except collect more data. Check for consistency of sign and magnitude of estimates between OLS and GMM, as well as sensitivity to instrument choice (if your model is over-identified).&lt;/p&gt;&#xA;" OwnerUserId="5691" LastActivityDate="2015-09-15T08:18:05.387" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8290" PostTypeId="1" CreationDate="2015-09-15T08:30:05.883" Score="6" ViewCount="2501" Body="&lt;p&gt;In textbooks on economics the &lt;a href=&quot;https://en.wikipedia.org/wiki/Comparative_advantage&quot; rel=&quot;nofollow noreferrer&quot;&gt;Ricardo theory of comparative advantages&lt;/a&gt; is explained on the example of two countries with two goods. I suppose, there must be generalizations of Ricardo's theory for several countries with several goods. Can anybody advise me reading on this topic?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT. I see that I have to explain, why I think that there must be a more complicated theory, than just the trick with the comparison of two countries with two goods. I have two reasonings.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;If we consider three or more countries, we can come to a situation of uncertainty on what a given country should produce. For example, suppose we have 3 countries, $A$, $B$, $C$, and each of them produces two goods, $G_1$ and $G_2$, and the table of expenses is as follows:&#xA;$$&#xA;\begin{matrix}&#xA; &amp;amp; G_1 &amp;amp; G_2 \\&#xA;A: &amp;amp; 1 &amp;amp; 1 \\&#xA;B: &amp;amp; 2 &amp;amp; 4 \\&#xA;C: &amp;amp; 4 &amp;amp; 2 \\&#xA;\end{matrix}&#xA;$$&#xA;(i.e. in the country $A$ one unit of $G_1$ costs 1 man-hour, and the same for $G_2$, in the country $B$ one unit of $G_1$ costs 2 man-hours, while one unit of $G_2$ costs 4 man-hours, and in the country $C$ one unit of $G_1$ costs 4 man-hours, while one unit of $G_2$ costs 2 man-hours). &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;According to Ricardo, &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;the least comparative expenses for producing the good $G_1$ are in the country $B$, so the good $G_1$ must be produced in the country $B$,&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;at the same time the least comparative expenses for producing the good $G_2$ are in the country $C$, so the good $G_2$ must be produced in the country $C$.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;And the problem appears, &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;what the country $A$ should produce?  &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;ol start=&quot;2&quot;&gt;&#xA;&lt;li&gt;Even if we consider two countries which produce two goods, there must be an explanation of what must be done with the third good, the workforce (that exists everywhere). For example, suppose we have 2 countries, $A$ and $B$, and each of them produces two goods, $G_1$ and $G_2$, and the table of expenses is the following:&#xA;$$&#xA;\begin{matrix}&#xA; &amp;amp; G_1 &amp;amp; G_2 \\&#xA;A: &amp;amp; 1 &amp;amp; 1 \\&#xA;B: &amp;amp; 2 &amp;amp; 4 \\&#xA;\end{matrix}&#xA;$$&#xA;(i.e. in the country $A$ one unit of $G_1$ costs 1 man-hour, and the same for $G_2$, and in the country $B$ one unit of $G_1$ costs 2 man-hours, while one unit of $G_2$ costs 4 man-hours). We can change the unit of measure, and use the good $G_1$ instead of the &quot;man-hours&quot;, then the table becomes the following:&#xA;$$&#xA;\begin{matrix}&#xA; &amp;amp; \text{man-hour} &amp;amp; G_2 \\&#xA;A: &amp;amp; 1 &amp;amp; 1 \\&#xA;B: &amp;amp; 1/2 &amp;amp; 2 \\&#xA;\end{matrix}&#xA;$$&#xA;(this means that in the country $A$ one man-hour costs one unit of $G_1$ and the same for one unit of $G_2$, and in the country $B$ one man-hour costs $1/2$ unit of $G_1$, while one unit of $G_2$ costs 2 units of $G_1$). &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;And the Ricardo trick gives the conclusion that &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;the contry $B$ must abandon the production of the good $G_2$ (in favour of its import from the country $A$), and&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;the country $A$ must &quot;abandon the production of its own workforce (in favour of its import from the country $B$)&quot;.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Of course this is impossible. So the question arises, &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;how is this logical paradox resolved in economic theory? &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;NEW EDIT. My point is that if the scheme of reasoning is as simple as it is presented in textbooks on economics (and up to now I see nothing contradicting to  what I say in the book by Krugman, Obstfeld and Melitz) -- &quot;just look at the comparative expences and you'll see what is more profitable!&quot;  -- then nothing prevents us to consider workforce as another commodity, and to look at the comparative expences in its production. And logically, purely by the Ricardian scheme, we come to a conclusion that for some countries it is much cheaper to abandon the production of workforce (i.e. to make all or at least most of their citizens jobless, this is my example 2). Moreover, some contries must disappear at all (or isolate themselves from the international trade), since all the production there is unprofitable from the point of view of Ricardian theory (this is my example 1). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So my question is, &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;who studied these logical paradoxes in Ricardo's theory, which corrections for overcoming them were found, and where is this written?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;NEW EDIT. I asked this question in a &lt;a href=&quot;https://mathoverflow.net/questions/218456/logical-paradoxes-in-economic-theory&quot;&gt;mathematical forum&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="5528" LastEditorUserId="2776" LastEditDate="2017-06-14T07:21:42.343" LastActivityDate="2017-06-14T07:21:42.343" Title="Ricardo's theory of comparative advantage for many countries" Tags="&lt;international-trade&gt;&lt;free-trade&gt;&lt;comparative-advantage&gt;" AnswerCount="2" CommentCount="10" ContentLicense="CC BY-SA 3.0" />
  <row Id="8291" PostTypeId="1" CreationDate="2015-09-15T09:40:06.163" Score="4" ViewCount="79" Body="&lt;p&gt;I'm looking at the Job Openings and Labor Turnover Survey (&lt;a href=&quot;http://www.bls.gov/jlt/data.htm&quot; rel=&quot;nofollow&quot;&gt;JOLTS&lt;/a&gt;). It also allows you to disentangle separations between layoffs and quits. The data &lt;a href=&quot;http://www.bls.gov/jlt/jltcoll.htm&quot; rel=&quot;nofollow&quot;&gt;comes from surveys&lt;/a&gt;, i.e. is self reported.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There's several reasons why the quit/layoff data may be misreported, e.g.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Quits that anticipate layoffs, will bias up the number of quits&lt;/li&gt;&#xA;&lt;li&gt;Firms might not care / not know  exactly, and assume it was a quit/layoff (direction ambiguous)&lt;/li&gt;&#xA;&lt;li&gt;Responder may purposefully or subconsciously try to defend the firm's image, and misreport&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Importantly, there's no reason that the aforementioned reasons should average out to the true data, or that the bias is constant over the business cycle.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since there are many studies that actually rely on layoff versus quits - is there a study on the reliance of this data? &lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2019-02-08T16:24:47.750" Title="How reliable is BLS / JOLTS data on quits?" Tags="&lt;macroeconomics&gt;&lt;reference-request&gt;&lt;labor-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8292" PostTypeId="2" ParentId="8285" CreationDate="2015-09-15T13:14:11.310" Score="3" Body="&lt;p&gt;I would recommend taking a copy of Stock and Watson's &lt;em&gt;&lt;a href=&quot;https://books.google.co.uk/books/about/Introduction_to_Econometrics.html?id=mIe7QgAACAAJ&amp;amp;hl=en&quot; rel=&quot;nofollow&quot;&gt;Introduction to Econometrics&lt;/a&gt;&lt;/em&gt;, which provides a fairly easy to grasp overview of many such techniques. A selection includes:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;binary outcome models (as mentioned by Alan): logit, probit, linear probability&lt;/li&gt;&#xA;&lt;li&gt;panel data models and fixed effects&lt;/li&gt;&#xA;&lt;li&gt;non-linear regression, including dummy variables and interaction effects&lt;/li&gt;&#xA;&lt;li&gt;instrumental variables and two-stage least squares models.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="108" LastActivityDate="2015-09-15T13:14:11.310" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8293" PostTypeId="2" ParentId="8290" CreationDate="2015-09-15T13:14:36.193" Score="1" Body="&lt;p&gt;International Economics: Theory and Policy by Krugman, Obstfeld, Melitz meets part of your requirement. The chapter on comparative advantages discusses two countries with several goods. I have to admit I am not sure what adding more than two countries would bring to the mix unless you want to change the equilibrium concept.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In response to your edit: &lt;br&gt;&#xA;Actually the modell does not conclude what you claim in 2. The actual claim is that if country B abandons the production on any good, it will be $G_2$. But it could also be that it produces both goods. This occurs if at the price where country B is indifferent between producing $G_1$ and $G_2$, (all effective production choices maximize the value of country B's production) the entire labor force of country A  is not be sufficient to meet the aggregate demand of $G_2$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In your example this price ratio between $G_1$ and $G_2$ is $\frac{1}{2}$. It is not possible to say whether country A can meet the demand at this price level, this depends on the demand functions and the size of the labor pools.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With respect to claim 1.: &lt;br&gt;&#xA;Again the demand and supply of the goods at price ratio 1 would determine the production of country A.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2015-09-15T21:50:45.567" LastActivityDate="2015-09-15T21:50:45.567" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="8294" PostTypeId="1" CreationDate="2015-09-15T17:51:34.910" Score="1" ViewCount="31" Body="&lt;p&gt;Recently, or maybe not so recently, there has been talk of the Fed going to enter in cycle of raising the interest rates. When interest rates are expected to be risen in the future, bonds with long-term maturity(&gt;1year) will suffer the most since their price is expected to drop to have the same increasing interest rate. &#xA;But will this put pressure on the long-term European bonds of countries like Portugal, Greece, etc? (I'm new to this, hence the lack of specificity in my question. Sorry ;). Also feel free to correct me any time. I'm learning.) I would expect them to be obliged to follow the current, and also have a decrease in price(increase in rates), unless the ECB is willing to allow devaluation of the Euro against Dollar. Is this a strong hypothesis?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, I've heard that since this talk of increasing the rates has been going for sometime now, and if the markets are at least semi-strong, then there really should be no change, since they have already incorporated this public information. I'm not expecting no change whatsoever if the Fed increases the rates, but should we give some weight to this perspective, and expect little changes?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="118" LastEditDate="2015-09-15T18:22:39.683" LastActivityDate="2015-09-15T18:22:39.683" Title="The coming US interest rates rise by the Fed. Will it affect the european bonds?" Tags="&lt;macroeconomics&gt;&lt;finance&gt;&lt;financial-economics&gt;&lt;open-economy-macro&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8295" PostTypeId="1" AcceptedAnswerId="8297" CreationDate="2015-09-15T20:14:56.757" Score="6" ViewCount="5883" Body="&lt;p&gt;Suppose the government puts a tax on all apartment owners (e.g. a certain percentage of the apartment value), whether or not the apartment is rented. Will this tax cause an increase in rent?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From an economics point of view, it seems the answer should be no (at least in the short run): the tax has no effect on the supply or the demand so there is no reason that the rent should change. If landlords could take a higher rent, they would do so now. If they don't take a higher rent, it means that they cannot do so in the current market conditions, so they will not be able to raise the rent even when there is tax.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But from a psychological point of view, the answer may be yes. Why? Because landlords often don't raise the rent to the maximum possible level given the market conditions. Often, when a tenant rents an apartment for many years, the landlord prefers to keep the rent constant in order to keep good relations with the tenant. But, when there is tax, the landlords have an excuse to raise the rent. They can say &quot;we are sorry, we would really like to keep the rent as it is, but we must raise it to cover the new tax&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are these considerations correct?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is more likely to happen in reality?&lt;/p&gt;&#xA;" OwnerUserId="385" LastActivityDate="2015-09-24T15:14:51.450" Title="Effect of property tax on rent" Tags="&lt;taxation&gt;&lt;pricing&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8296" PostTypeId="2" ParentId="8233" CreationDate="2015-09-15T20:20:55.163" Score="1" Body="&lt;p&gt;While you only make 1 sale per day and you said that the market is limited; you should still find your competitors listings as well. I would rip that data from the internet, including the sellers name, buyers name, and the names of the bidders. Look to other sites for the same product, again getting data on seller, buyers, whatever you can find. This way you have an idea on what your market is. Break it down by type. What type has the most liquid market? Which type has the lowest turnover rate? These factors must go into the price. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You should also find information on substitutes. That is, if the buyer does not buy your product, how much does he have to spend to still complete his task. While the exact dollar amount matters, also think about non-tangible things, like enjoyment or time. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To use eBay's bidding system, let the most popular type and length go to auction for a few rounds so you get an idea on what the auction price would be. Note however that only bargain hunters are bidding looking for the lowest cost so expect them to be lower. Then find other products that are similar to yours(same market, same demand, or same price range, etc) and find out how much of a discount they bid for, then apply that rate to your product. Make sure that it is still in range of the competitors, and that your option is equal or less then substitutes. For your rarer variations, pro-rate them and add storage. For example, if A sells once a day and B sells once a week, and you could make 2 A's with one B, then B should be twice as much as A plus a week of storage. Price it a little high, and place a best offer on it. The fact that they are rarer should make them more expensive. &lt;/p&gt;&#xA;" OwnerUserId="5457" LastActivityDate="2015-09-15T20:20:55.163" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8297" PostTypeId="2" ParentId="8295" CreationDate="2015-09-15T21:06:11.393" Score="6" Body="&lt;p&gt;&lt;strong&gt;A property tax:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the short run, a property tax will have no effect on rent, as the supply of homes is fixed (i.e., supply is totally inelastic in the short run), and demand is relatively inelastic but not completely so, so the incidence will fall on property owners. In the long run, a property tax will increase rental costs because supply of new units (i.e., construction) is highly elastic and long-run demand for housing looks just like short-run demand— relatively inelastic. As a result, the incidence of the tax will fall on occupants (both renters and owner-occupiers). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Intuitively, one could think of it this way: the cost of ownership will increase due to the tax, so for someone to see it as worthwhile to buy a newly-constructed home to rent out, the rental income would have to be relatively higher in the presence of a property tax than if one were not in place.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;A tax on rental income:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The tax will increase rent; it will decrease the supply (and demand) of rental units (and increase the supply and demand of owner-occupied units). This will happen because the tax will reduce the return on apartments as revenue assets, causing some number of landlords to sell them to owner-occupiers, taking them out of the rental market. More importantly, though, there will be some renters who do not have the option of switching to owner-occupancy, and they'll bear the incidence of a tax on rental income.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am assuming that there are three populations:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Landlords, &lt;em&gt;who can choose to purchase homes for rent&lt;/em&gt;, but live elsewhere, so their choice to buy a unit to rent out can be analyzed separately from their own housing consumption&lt;/li&gt;&#xA;&lt;li&gt;Renters, &lt;em&gt;who must rent&lt;/em&gt;, due to some frictions (inability to afford a down payment, poor credit, unstable or difficult-to-document income history, etc.)&lt;/li&gt;&#xA;&lt;li&gt;Potential owner-occupiers, &lt;em&gt;who can choose between owning their own home and renting from a landlord&lt;/em&gt;, and who have some set of preferences between ownership and rental&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Thus potential owner-occupiers and landlords compete for units for sale, while renters and potential owner-occupiers compete for rental units. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this case, the choice of landlords to exit due to taxes will not pass through perfectly to the rental market due to the fact that while &lt;em&gt;potential owner-occupiers&lt;/em&gt; who are currently renting can escape the tax by switching to ownership, there are some &lt;em&gt;renters&lt;/em&gt; who are renting whose demand for renting is pretty inelastic— these people will bear the incidence of the tax.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Interestingly, in the US there is such a tax on rental income, though it's implicit. We have a bunch of incentives for home ownership, notably the exemption from capital gains for owner-occupied homes, but most importantly &lt;em&gt;the fact that income on rental properties is taxed like any other business income&lt;/em&gt;, while owner-occupiers effectively rent their homes to themselves without paying tax on the implied rental income. (As an aside, people often point to the income tax deduction for mortgage interest payments, but this actually just creates tax equivalence between homeowners and landlords, who can deduct interest as a business expense.)&lt;/p&gt;&#xA;" OwnerUserId="264" LastEditorUserId="264" LastEditDate="2015-09-17T12:02:36.967" LastActivityDate="2015-09-17T12:02:36.967" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="8298" PostTypeId="2" ParentId="7072" CreationDate="2015-09-15T21:33:04.720" Score="7" Body="&lt;p&gt;I believe insights from repeated game theory have been used in designing the assignment scheme for security patrols in many occasions. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this matter, the main research projects with close connections to applications that I know of are  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(a) &lt;a href=&quot;http://teamcore.usc.edu/projects/coastguard/&quot; rel=&quot;nofollow&quot;&gt;PROTECT for the US Coast Guard&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(b) &lt;a href=&quot;http://teamcore.usc.edu/projects/TRUSTS/&quot; rel=&quot;nofollow&quot;&gt;TRUSTS for the Los Angeles Sheriff's Department&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(c) &lt;a href=&quot;http://teamcore.usc.edu/projects/fam/&quot; rel=&quot;nofollow&quot;&gt;IRIS for the Federal Air Marshal's Service&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(d) &lt;a href=&quot;http://teamcore.usc.edu/ARMOR-LAX/&quot; rel=&quot;nofollow&quot;&gt;LAX for the Los Angeles Airport Police&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(e) &lt;a href=&quot;http://teamcore.usc.edu/GUARDS/&quot; rel=&quot;nofollow&quot;&gt;GUARDS for the Transportation Security Administration&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which all revolve around the &lt;a href=&quot;http://teamcore.usc.edu/projects/security/&quot; rel=&quot;nofollow&quot;&gt;teamcore research group at the University of Southern California&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Examples of papers involving members of the group and repeated games (usually repeated Stackelberg security games) include:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://dl.acm.org/citation.cfm?id=2773374&quot; rel=&quot;nofollow&quot;&gt;Defender Strategies In Domains Involving Frequent Adversary Interaction&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://www.ntu.edu.sg/home/boan/papers/ALA15_Debarun.pdf&quot; rel=&quot;nofollow&quot;&gt;Learning Bounded Rationality Models of the Adversary in&#xA;Repeated Stackelberg Security Games&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://teamcore.usc.edu/papers/2015/AAMAS15-HAIDM-CRC-DebarunKar.pdf&quot; rel=&quot;nofollow&quot;&gt;Conducting Longitudinal Experiments with Behavioral&#xA;Models in Repeated Stackelberg Security Games on&#xA;Amazon Mechanical Turk&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://dl.acm.org/citation.cfm?id=2773329&quot; rel=&quot;nofollow&quot;&gt;A Game of Thrones&quot;: When Human Behavior Models Compete in Repeated Stackelberg Security Games&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="38" LastEditorUserId="38" LastEditDate="2016-02-20T21:55:36.543" LastActivityDate="2016-02-20T21:55:36.543" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8300" PostTypeId="1" CreationDate="2015-09-16T01:52:12.283" Score="3" ViewCount="1072" Body="&lt;p&gt;I have read that high output gaps (GDP gaps) are directly related to high unemployment rates. However, I did not find any source clarifying whether this &quot;rule&quot; apply to both positive and negative gaps or just to one of them. I can see how this relate to recessionary (negative) gaps, but I am not sure about the inflationary (positive) gaps. Some articles say that positive gaps cause unemployment rates to fall, but I just found a graph showing a rise in such rates also when positive gaps increase:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/69bt8.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/69bt8.jpg&quot; alt=&quot;source: http://www.niesr.ac.uk/blog/largest-and-longest-unemployment-gap-wwii#.VfjKOBFViko&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.niesr.ac.uk/blog/largest-and-longest-unemployment-gap-wwii#.VfjKOBFViko&quot; rel=&quot;nofollow noreferrer&quot;&gt;Image source&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="5705" LastEditorUserId="2776" LastEditDate="2016-09-04T00:49:00.617" LastActivityDate="2016-09-04T00:49:00.617" Title="Does a high positive output gap relate to high unemployment rates?" Tags="&lt;macroeconomics&gt;" AnswerCount="2" CommentCount="1" ClosedDate="2015-10-19T20:08:51.390" ContentLicense="CC BY-SA 3.0" />
  <row Id="8301" PostTypeId="1" AcceptedAnswerId="8302" CreationDate="2015-09-16T11:09:01.263" Score="1" ViewCount="93" Body="&lt;p&gt;What is there that links computational Bayesian statistics and Economics(preferably macro)? &#xA;I'm looking for a primer or gentle introduction on the matter. It doesn't need to go into much detail.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="118" LastActivityDate="2015-09-16T12:53:23.720" Title="Computational Bayesian Statistics and Economics" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;statistics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8302" PostTypeId="2" ParentId="8301" CreationDate="2015-09-16T12:53:23.720" Score="1" Body="&lt;p&gt;Not aware if there exists a &quot;gentle&quot; introduction, but you might try Zellner's &quot;Bayesian Analysis in Econometrics and Statistics&quot; (1997) or Koop's &quot;Bayesian Econometrics&quot; (2003).&lt;/p&gt;&#xA;" OwnerUserId="5512" LastActivityDate="2015-09-16T12:53:23.720" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8303" PostTypeId="2" ParentId="8300" CreationDate="2015-09-16T13:43:27.363" Score="1" Body="&lt;p&gt;As denesp said, you're looking at a graph with no output gap.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A positive output gap usually does lead to employment being higher than the natural rate (=unemployment is lower than the natural rate).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Reading these lecture notes might help: &lt;a href=&quot;http://eml.berkeley.edu/~jaya/lecture/Econ1_lecture9.pdf&quot; rel=&quot;nofollow&quot;&gt;http://eml.berkeley.edu/~jaya/lecture/Econ1_lecture9.pdf&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="5512" LastActivityDate="2015-09-16T13:43:27.363" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8304" PostTypeId="2" ParentId="8221" CreationDate="2015-09-16T14:08:07.750" Score="2" Body="&lt;p&gt;I found an answer to the second part of the question here &lt;a href=&quot;https://github.com/oTree-org/otree-docs/issues/2&quot; rel=&quot;nofollow&quot;&gt;https://github.com/oTree-org/otree-docs/issues/2&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It turns out that in &lt;code&gt;oTree&lt;/code&gt;,  the variable &lt;code&gt;form&lt;/code&gt; which is passed to the template is iterable. Thus one the following code does the job:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;{% for field in form %}&#xA;        {% formfield field %}&#xA;    {% endfor %}&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Regarding the first part of the question, I contacted a programmer working at oTree. He confirmed that, in its current version, oTree can only define a fixed number of field. He advised to define in &lt;code&gt;model.py&lt;/code&gt; a large maximal number of fields and then use &lt;code&gt;get_form_fields&lt;/code&gt; in views.py to dynamically return a list with desired subset of fields.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Notice that if you want to create a really large maximal number of fields, the trick presented in the question using &lt;code&gt;loop&lt;/code&gt; and &lt;code&gt;exec&lt;/code&gt; remains — I believe — the easiest way to proceed.&lt;/p&gt;&#xA;" OwnerUserId="38" LastEditorUserId="38" LastEditDate="2016-01-07T05:33:10.920" LastActivityDate="2016-01-07T05:33:10.920" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8305" PostTypeId="1" CreationDate="2015-09-16T15:55:48.567" Score="8" ViewCount="130" Body="&lt;p&gt;I am assuming that not all M&amp;amp;A deals announced are completed. There are factors such as anti trust laws and consumer protection agencies that legally prohibit the two companies from completing the M&amp;amp;A. Statistically, what is the percentage of completed M&amp;amp;A deals to announced M&amp;amp;A deals . &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Please provide reference if possible&lt;/p&gt;&#xA;" OwnerUserId="5048" LastEditorUserId="108" LastEditDate="2015-09-17T15:10:12.877" LastActivityDate="2016-02-01T13:07:53.930" Title="What is the percentage of announced Merger &amp; Acquistion deals actaully completed?" Tags="&lt;finance&gt;&lt;data-request&gt;&lt;corporate-finance&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8306" PostTypeId="1" AcceptedAnswerId="8322" CreationDate="2015-09-16T16:38:43.593" Score="3" ViewCount="243" Body="&lt;p&gt;In some new country, there's 1 million credits in circulation, and Product X costs 10 credits. If I were to print, say, 500,000 credits and build a new swimming pool with this, how exactly would inflation increase? Why would the cost of Product X increase (to approximately 15 credits?)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If prices and thus inflation are set by humans, then how would they know to hike up prices? Is it the increase in 'supply' of money, since whomever received some portion of the 500k stacked on top of what they already had and now they have more to spend?&lt;/p&gt;&#xA;" OwnerUserId="5711" LastActivityDate="2015-09-18T05:47:40.310" Title="Inflation basics and understanding" Tags="&lt;inflation&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8307" PostTypeId="1" AcceptedAnswerId="8315" CreationDate="2015-09-16T20:41:00.410" Score="6" ViewCount="779" Body="&lt;p&gt;It is widely accepted, that the Marshall Plan had a major role in the economic recovery of Western Europe after the end of the Second World War.&#xA;The reality is that the total economic support was less than 7% of the &lt;a href=&quot;http://knoema.com/HSWE/historical-statistics-of-the-world-economy-1-2008-ad?tsId=1000910&quot;&gt;1946 GDP (PPP) of the region&lt;/a&gt;. How could that have any statistical significance?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the period between 1943 and 1945, the GDP (PPP) of Western Europe fell by more than 19%. So, was that caused because there was no Martial Plan then? :)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Before the Keynesians jump on the multiplier effect bandwagon, I would point out, that the US quantitative easing after the 2008 economic crisis was 3.5 trillion USD, which is 20% of the 2013 US nominal GDP.&lt;/p&gt;&#xA;" OwnerUserId="5712" LastActivityDate="2015-09-17T09:02:34.697" Title="Did the Marshall Plan cause Western Europe's economic expansion after WWII?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8309" PostTypeId="2" ParentId="5441" CreationDate="2015-09-16T21:57:28.097" Score="-1" Body="&lt;p&gt;The biggest factor is capital accumulation. As Einstein put it &quot;The most powerful force in the universe is compound interest.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Income inequality has been growing ever since the start of the Industrial Revolution. Technological advance has allowed for the resent exponential economic growth. The advance in the cost of computing is also exponential (Moore's law), but a lot steeper, so there must be some saturation and diminishing return.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;People who live form paycheck to paycheck are not able to accumulate much capital and never enter the exponential game. There is some correlation between deferral of gratification at young age and wealth later on in life, amongst other things:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.pnas.org/content/108/7/2693.short&quot; rel=&quot;nofollow&quot;&gt;A gradient of childhood self-control predicts health, wealth, and public safety (2010)&lt;/a&gt;&#xA;(There is a pdf link on the page)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Three more interesting charts:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Income_inequality_in_the_United_States#/media/File:U.S._Income_Shares_of_Top_1%25_and_0.1%25_1913-2013.png&quot; rel=&quot;nofollow&quot;&gt;U.S. income shares of the top 1% and top 0.1% of households 1913-2013, including capital gains.&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.businessinsider.com/money-illusion-helps-determine-between-nominal-and-inflation-adjusted-dow-2011-3&quot; rel=&quot;nofollow&quot;&gt;A Look At The Huge Gap Between The Nominal And Inflation Adjusted Dow&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.simplestockinvesting.com/SP500-historical-real-total-returns.htm&quot; rel=&quot;nofollow&quot;&gt;S&amp;amp;P 500: Total and Inflation-Adjusted Historical Returns&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't have a correlation number to present, but let the most powerful visual pattern processor know to man do its job.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Obvious correlation between share of income of the wealthy and stock market performance. The period deserving attention is between 1950 and the early 80s. Despite that there was a strong bull market between 1950 and 1965, income inequity did not rise. That is a period of sustained high taxes for the rich. The federal income tax for the highest income bracket was 90% in that period. Then it was really slashed between 1963 and 1988, form 91% to 28%. And that is partly why we saw a rise in income inequality during a bear market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The world slowly become more global after the Second World War** and then really globalization kicked in after the fall of the Soviet Bloc and the free market reforms in China, India, Africa. This made it safe for American capital to be invested there. Usually any nation is a tax haven for foreign capital and capital gains taxes are low to absent. As an unintended consequence, the capital of the rich Americans lifted out of poverty millions around the world, especially in Asia. They chose to invest their savings to create capital, that would make the labour of workers in other countries more productive, not in the US.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;** Before the Great War, in many parts of the the Western World and Eastern Europe freedom of trade was widely adopted and property rights enforced and the world was very global. In the 19th century a person could travel across Europe without a passport, with the exception of the Russian and Ottoman Empires.&lt;/p&gt;&#xA;" OwnerUserId="5712" LastEditorUserId="5712" LastEditDate="2015-09-19T13:10:01.873" LastActivityDate="2015-09-19T13:10:01.873" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8312" PostTypeId="1" AcceptedAnswerId="13791" CreationDate="2015-09-17T03:21:21.293" Score="5" ViewCount="326" Body="&lt;p&gt;E.g., according to &lt;a href=&quot;http://www.visionofearth.org/economics/ending-poverty/how-much-would-it-cost-to-end-extreme-poverty-in-the-world/&quot;&gt;this page&lt;/a&gt;, Jeffrey Sachs estimated that it would take $175bn/year for 20 years to do so.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What are some other estimates?&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastEditorDisplayName="user18" LastEditDate="2015-09-17T04:14:34.983" LastActivityDate="2016-10-17T08:21:47.110" Title="How much would it take to end global extreme poverty?" Tags="&lt;poverty&gt;&lt;development-economics&gt;" AnswerCount="2" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="8314" PostTypeId="2" ParentId="8295" CreationDate="2015-09-17T06:06:13.267" Score="-2" Body="&lt;p&gt;Ultimately it is the individual who pays taxes. I believe this is why the framers of the US Constitution vested the House of Representatives with the power to levy taxes. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;From where do landlords obtain the money to pay the taxes? They obtain the money from the renters. So it is the renters that pay the taxes levied by government on landlords. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT:For some reason I am unable to add the following as a comment on the comment given below, so I am putting it here. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In an economy,  with sufficient competition, the profit margin of the landlord is driven down to a reasonable level. Without profit the owner of the house is not motivated to rent out his property. It is not 'evil' for the house owner to receive profit. In my investment portfolio I own a REIT. From that REIT I receive a quarterly profit. Yet I, myself, am a renter of the house in which I live. As a renter I get to call on my landlord anytime that I have a problem with the house. For that privilege my landlord makes a modest profit. If I accept the profit from the REIT which I own yet deny my landlord his profit from the house in which I live then I am a two-faced cheat. &lt;/p&gt;&#xA;" OwnerUserId="5715" LastEditorUserId="5715" LastEditDate="2015-09-24T15:14:51.450" LastActivityDate="2015-09-24T15:14:51.450" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8315" PostTypeId="2" ParentId="8307" CreationDate="2015-09-17T09:02:34.697" Score="5" Body="&lt;p&gt;Barry Eichengreen is one of my favourites for this period. So, I am just going to let him explain it.&lt;/p&gt;&#xA;&lt;p&gt;From : &lt;a href=&quot;http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.207.1592&amp;amp;rep=rep1&amp;amp;type=pdf&quot; rel=&quot;noreferrer&quot;&gt;http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.207.1592&amp;amp;rep=rep1&amp;amp;type=pdf&lt;/a&gt;&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Our central conclusion is that the Marshall Plan did matter. But it&#xA;did not matter in the way that the “folk wisdom” of international&#xA;relations assumes. Milward (1984) is correct in arguing that Marshall&#xA;Plan aid was simply not large enough to significantly stimulate&#xA;Western European growth by accelerating the replacement and expansion&#xA;of its capital stock. Nor did the Marshall Plan matter by financing&#xA;the reconstruction of devastated infrastructure, for as we show below,&#xA;reconstruction was largely complete before the program came on&#xA;stream.&lt;/p&gt;&#xA;&lt;p&gt;The Marshall Plan did play a role in alleviating resource&#xA;shortages. But this channel was not strong enough to justify the&#xA;regard in which the program is held. By 1948 and the beginning of&#xA;Marshall Plan aid bottlenecks were scarce, and markets were good at&#xA;alleviating their impact. Rather, the Marshall Plan significantly sped&#xA;Western European growth by altering the environment in which economic&#xA;policy was made. In the immediate aftermath of World War II&#xA;politicians who recalled the disasters of the Great Depression were&#xA;ill-disposed to “trust the market,” and eager to embrace regulation&#xA;and government control. Had European political economy taken a&#xA;different turn, post-World War II European&lt;/p&gt;&#xA;&lt;p&gt;Wartime relief, post-World War II UNRRA aid, and pre-Marshall Plan&#xA;“interim aid” may well have significantly speeded up the&#xA;reconstruction process. ... recovery might have been hobbled by clumsy&#xA;allocative bureaucracies that rationed scarce foreign exchange and&#xA;placed ceiling prices on exportables to protect the consumption of&#xA;urban working classes. Yet in fact the Marshall Plan era saw a rapid&#xA;dismantling of controls over product and factor markets in Western&#xA;Europe. It saw the restoration of price and exchange rate stability.&#xA;To some degree this came about because underlying political-economic&#xA;conditions were favorable (and no one in Europe wanted a repeat of&#xA;interwar experience). To some degree it came about because the&#xA;governments in power believed that the “mixed economies” they were&#xA;building should have a strong pro-market orientation. Marshall Plan&#xA;aid gave them room to maneuver in order to carry out their intentions:&#xA;without such aid, they would have soon faced a harsh choice between&#xA;contraction to balance their international payments and severe&#xA;controls on admissible imports.&lt;/p&gt;&#xA;&lt;p&gt;To some degree it came about because&#xA;Marshall Plan administrators it pressured European governments to&#xA;decontrol and liberalize even when they wished to do otherwise. In&#xA;post-World War II Western Europe the conditions imposed, formally and&#xA;informally, for the receipt of U.S. aid encouraged the reductions in&#xA;spending needed for financial stability, the relaxation of controls&#xA;that prevented markets from allocating resources, and the opening of&#xA;economies to trade. Marshall Plan “conditionality” pushed governments&#xA;toward versions of the “mixed economy” that had more market&#xA;orientation and less directive planning in the mix. While postWorld&#xA;War II European welfare states and governments are among the most&#xA;extensive in proportion to economic life in history, they are built on&#xA;top of, and do not supplant or bypass, the market allocation of goods&#xA;5 and factors of production. The Marshall Plan should thus be thought&#xA;of as a large and highly successful structural adjustment program.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="107" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2015-09-17T09:02:34.697" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8318" PostTypeId="1" AcceptedAnswerId="8325" CreationDate="2015-09-17T20:23:17.737" Score="7" ViewCount="1198" Body="&lt;p&gt;In fractional reserve banking commercial banks &lt;a href=&quot;https://en.wikipedia.org/wiki/Money_creation&quot;&gt;create money&lt;/a&gt; when they make loans. When these loans are paid back the account is zeroed, the created money disappears, but the bank is still entitled interest. Where does the money to pay the interest come from? Does the central bank necessarily have to inflate the currency to pay it? Does money in circulation generally cover it?&lt;/p&gt;&#xA;" OwnerUserId="5253" LastEditorUserId="5253" LastEditDate="2015-09-19T00:13:50.530" LastActivityDate="2016-11-11T10:13:12.063" Title="How is the interest on fractional reserve money creation paid?" Tags="&lt;money-supply&gt;&lt;central-banking&gt;" AnswerCount="5" CommentCount="3" FavoriteCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="8319" PostTypeId="1" CreationDate="2015-09-17T20:30:02.993" Score="2" ViewCount="112" Body="&lt;p&gt;I am new to economics, I am reading a post on &lt;a href=&quot;http://www.cnbc.com/2015/09/16/us-markets-fed.html&quot; rel=&quot;nofollow&quot;&gt;CNBC&lt;/a&gt; which states &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Weekly crude oil inventories unexpectedly fell, supporting further gains in oil prices.&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;1)&lt;/strong&gt; Why does crude oil inventories unexpetedly falling make oil prices rise?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;2)&lt;/strong&gt; By Crude oil inventories falling do they mean stock running out due to mass purchase?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;3)&lt;/strong&gt; What could cause oil inventories to unexpectedly fall?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am assuming a purchase from somebody lowering stock overall could cause panic buying from others therefore temp demand making prices rise? - Probably wrong.&lt;/p&gt;&#xA;" OwnerUserId="5721" LastEditorUserId="264" LastEditDate="2015-09-18T19:48:54.947" LastActivityDate="2015-09-18T19:48:54.947" Title="How do oil prices rise when crude oil inventories fall?" Tags="&lt;commodities&gt;&lt;energy-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8320" PostTypeId="1" CreationDate="2015-09-17T21:42:33.660" Score="8" ViewCount="824" Body="&lt;p&gt;&lt;a href=&quot;http://www.federalreserve.gov/paymentsystems/coin_currency_orders.htm&quot; rel=&quot;noreferrer&quot;&gt;The Federal Reserve Coin and Currency Service Website&lt;/a&gt;&#xA;describes their currency order process thus:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;The 7.2 billion notes included in the FY 2015 order reflect the Board’s estimate of net demand for currency from domestic and international customers.&lt;/p&gt;&#xA;&lt;p&gt;The print order is determined, by denomination, based on historical&#xA;payments to and receipts from circulation, destruction rates, and also&#xA;to build inventories of new-design notes before issuance.&#xA;Historically, most of the notes that the Board orders each year&#xA;replace unfit currency that Reserve Banks receive from circulation.&lt;/p&gt;&#xA;&lt;p&gt;The estimated number of notes that Reserve Banks will destroy accounts&#xA;for nearly 85 percent of the proposed FY 2015 print order and includes&#xA;both unfit currency, as well as all old-design $100 notes received&#xA;from circulation.  The expected growth of Reserve Bank net payments&#xA;(payments less receipts) to circulation primarily accounts for the&#xA;remainder of the notes in the FY 2015 print order.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;From this description, it is unclear to me how and when M0 Money is created. It seems this is tied to 'Reserve Bank net payments'.&lt;/p&gt;&#xA;&lt;p&gt;How and when is M0 money created?&lt;/p&gt;&#xA;" OwnerUserId="5722" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2017-08-05T15:45:01.680" Title="How and when is M0 money created?" Tags="&lt;money-supply&gt;&lt;money&gt;&lt;federal-reserve&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8321" PostTypeId="2" ParentId="8319" CreationDate="2015-09-17T21:44:50.270" Score="1" Body="&lt;p&gt;1) Supply and Demand. When supply falls, what supply remains becomes more valuable&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) There are massive storage tanks across the US (Cushing, Oklahoma comes to mind) where oil companies can purchase/rent storage space. Refineries cannot process crude as fast as it is extracted, so the backlog must be stored somewhere.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;3) Any number of reasons. Increased consumption from industry or consumers. &quot;unexpectedly fell&quot; could actually mean that inventories grew slower than expected because drillers have reduced output. Perhaps a refinery came online after being shut down and helped draw down the crude stockpile. &lt;/p&gt;&#xA;" OwnerUserId="5459" LastActivityDate="2015-09-17T21:44:50.270" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8322" PostTypeId="2" ParentId="8306" CreationDate="2015-09-18T00:36:08.097" Score="7" Body="&lt;p&gt;The grey-haired &quot;Quantity Theory of Money&quot; is a good initial way to gain some clear understanding for inflation. This theory is just one equation,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$PQ = VM$$&#xA;where&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$P$ is the price level, $Q$ is quantity produced, $M$ is money supply, and $V$ is &quot;velocity of money&quot;, which represents how &quot;fast&quot; money circulate, given the transactional technology and other institutional aspects of an economy. For example, in an economy where bank branches are interconnected by a real-time on-line system, money circulates faster compared to an economy where bank branches are interconnected only through, say, telegraph, which in turn move money faster compared to an economy where banks are not interconnected at all, and money has to move physically from one person to another.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume that we produce $Q=10$ pieces each at a price of $P=15$ kudos. Do we need $10 \times 15 = 150$ kudos to complete all buy-and-sell transactions? No. If velocity of money is, say $V=3$, we only need $M=50$ kudos to facilitate all transactions, because money circulates &quot;three times around&quot; (before the next production cycle is completed).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, in standard economic theory, economies are close to &quot;full employment level of production factors&quot; (which may allow for friction unemployment of humans, machines etc). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, assume we increase the money supply to $M=100$. The right-hand-side of the equation becomes $VM = 3 \times 100 = 300$. What happens to the left-hand-side? Well, since production &lt;em&gt;cannot&lt;/em&gt; increase (because all available production factors are already employed), it has to be the Price level that will increase to $P=30 \implies PQ = 30 \times 10 = 300$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Intuitively, buyers with more money in their hands will increase their demand (the demand schedule will shift rightwards in a diagrammatic representation), but supply won't change, because it cannot change. Suppliers will increase their prices since there is now &quot;competition among buyers&quot;. Hence, inflation.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is the most simple explanation about how increasing the quantity of money in a full-employment situation, will create inflation.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-09-18T05:47:40.310" LastActivityDate="2015-09-18T05:47:40.310" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8323" PostTypeId="2" ParentId="8318" CreationDate="2015-09-18T00:51:15.197" Score="2" Body="&lt;p&gt;Interest is &lt;em&gt;&lt;strong&gt;income&lt;/strong&gt;&lt;/em&gt;, the reward for a service offered: the renting of (here, financial) capital. From this aspect, it is no different from say, a salary earned for a month's work. This is income too. So,&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;How salaries are paid?&lt;/strong&gt; Does the central bank necessarily have to&#xA;  inflate the currency in order for them to be paid? Does money in circulation generally cover it?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;and in general&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;How &lt;em&gt;any kind of income&lt;/em&gt; is paid?&lt;/strong&gt; Does the central bank necessarily have to&#xA;  inflate the currency in order for it to be paid? Does money in circulation generally cover it?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The answer, simply and perhaps boringly, is, &quot;it depends&quot;. On whether the existing money supply covers adequately the transactions needed for the existing level of &lt;em&gt;total income&lt;/em&gt;. If interest income increases while salaries fall, it may be the case that no additional money is needed, for example.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or it may be the case that both kinds of income increase, but &lt;a href=&quot;https://economics.stackexchange.com/questions/8306/inflation-basics-and-understanding/8322#8322&quot;&gt;&lt;strong&gt;velocity of money&lt;/strong&gt;&lt;/a&gt; also increases - so again, no need for extra money.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-09-18T05:18:57.227" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8324" PostTypeId="2" ParentId="8290" CreationDate="2015-09-18T12:15:26.073" Score="0" Body="&lt;p&gt;i think you need at least as many goods as you have countries for the theory to work, in your case, country A ends up with no comparative advantage in any goods, its like the case where one country is excatly twice as productive for every good and so there is no comparative advantage to be gained.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If a third good existed, where A=1 B=2 C=2, A would be able to have a comparative advantage for that good&lt;/p&gt;&#xA;" OwnerUserId="5485" LastActivityDate="2015-09-18T12:15:26.073" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8325" PostTypeId="2" ParentId="8318" CreationDate="2015-09-18T18:58:07.390" Score="5" Body="&lt;p&gt;Repayment of interest does require an expansion of the money supply, but not in a way that is inflationary. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider first the way that commercial banks make loans. The whole purpose of loans is to borrow against future output— so if you imagine a firm that wants to purchase a machine that will allow it to produce more stuff— and thus have greater future income— the firm may go to a commercial bank and ask to take out a loan. The commercial bank will price that loan at a premium to the risk-free interest rate that reflects the risk of the loan, so that in expectation (taking into account that some loans will be repaid only in part or not at all), banks making riskier loans will be repaid at a slightly higher rate than ones making safer loans.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So firms will be offered an interest rate, and if that rate is less than their expected return on their investment, they'll make the investment. Notably, in this case, they're only borrowing money and investing &lt;em&gt;because their future output will be higher&lt;/em&gt;. So when all of this works out (that is, when there isn't a credit bubble in which people are borrowing against future output that won't materialize), future output $Y$ (i.e., GDP) will be higher by an amount that is  the amount of additional money $M$ required to repay the interest on the loans.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \% \Delta Y \geq \% \Delta M $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now if you recall the relationship between the money stock $M$, output $Y$,  the price level $P$, and money velocity $V$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ PY=MV \rightarrow P=\frac{MV}{Y} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's easy to see that if $V$ is constant, then:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \% \Delta P = \frac{\% \Delta M}{\% \Delta Y}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which, when combined with the observation that $ \% \Delta Y \geq \% \Delta M $, implies that an expansion of the money supply that is &lt;em&gt;merely&lt;/em&gt; sufficient to allow for repayment of interest would actually be &lt;em&gt;deflationary&lt;/em&gt;. This should make perfect sense: in expectation, output must increase by more than the amount captured by banks in the form of interest, otherwise firms in the real economy would never bother investing in fixed capital. So the money supply will in all likelihood increase by an amount strictly greater than the level required to repay interest, yet without any increase in inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Loans to consumers are similar, so I won't give them a full treatment. Consumers are borrowing against their own future output, and foreclosures are generally priced in to the interest rate on a loan.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You'll note that I left out the case where in the aggregate, future output is less than that required to repay outstanding loans. This is intentional, as it's worth treating as a separate question.&lt;/p&gt;&#xA;" OwnerUserId="264" LastActivityDate="2015-09-18T18:58:07.390" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="8326" PostTypeId="1" CreationDate="2015-09-18T23:49:33.333" Score="6" ViewCount="178" Body="&lt;p&gt;Today, StatsCan revealed that Canada's CPI rose by 1.3%. They are attributing it to lower energy prices, led by the fall in the gasoline index (down 12.6% since one year ago).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From my understanding, an increase in Canada's CPI means Canadian goods/services cost more CAD to purchase.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But if energy has become cheaper, why are things overall becoming more expensive to purchase?&lt;/p&gt;&#xA;" OwnerUserId="5185" LastActivityDate="2020-10-26T17:49:31.303" Title="If the price of oil and energy goes down, why does CPI go up?" Tags="&lt;inflation&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8327" PostTypeId="2" ParentId="8326" CreationDate="2015-09-19T02:15:45.633" Score="7" Body="&lt;p&gt;Canadian prices will tend to rise when energy prices fall because Canada tends to export oil and import other things. As a major oil exporter, a fall in the price of oil decreases the value of the Canadian currency— because foreigners have less need to purchase Canadian dollars with which to buy oil— causing other things to be more expensive to purchase (due to an increase in the prices of imported production inputs and finished goods).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Incidentally, this is &lt;a href=&quot;https://economics.stackexchange.com/q/5278/264&quot;&gt;why the Canadian Dollar is known as a commodity currency&lt;/a&gt;. &lt;/p&gt;&#xA;" OwnerUserId="264" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-09-22T14:04:46.277" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8328" PostTypeId="1" CreationDate="2015-09-19T06:41:35.320" Score="1" ViewCount="85" Body="&lt;p&gt;Say that the conversion rate of a local currency changes so that the currency is now relatively weaker against foreign currencies and as a result the inflation rate increases and as a result of that the central bank raises the interest rates.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the one hand more locals will be forced to sell their properties because they cannot afford the increased interest rates on their home loans. With the over supply of properties and the shortage of buyers who can still afford properties, I would suspect the property prices should drop.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand, only the currency weakens not the property. So if the conversion rate was 1:10 against the USD and now the conversion rate is 1:20, shouldn't the prices of the properties double as well?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What could be expected to happen to the property prices in such a country?&lt;/p&gt;&#xA;" OwnerUserId="4896" LastActivityDate="2015-09-19T06:41:35.320" Title="What will happen to property prices if local currency weakens against USD?" Tags="&lt;inflation&gt;&lt;supply-and-demand&gt;&lt;exchange-rates&gt;&lt;interest-rate&gt;&lt;property&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8329" PostTypeId="1" AcceptedAnswerId="8785" CreationDate="2015-09-19T15:41:19.153" Score="4" ViewCount="2512" Body="&lt;p&gt;The author of &lt;a href=&quot;http://indianexpress.com/article/business/business-others/cheaper-imports-to-rise-devaluation-of-yuan-by-china-to-hit-indias-exports/#sthash.DwVYGCt9.dpuf&quot; rel=&quot;nofollow&quot;&gt;this article&lt;/a&gt; says &quot;[the devaluation of the yuan] may also have impact on [foreign direct investment (FDI)] if China becomes a more attractive destination vis-a-vis India&quot;. Why is this?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand that the following sentence then says &quot;investors would go there where with the exchange rate he will get more kick for his dollar&quot;, but what makes China a more attractive destination for FDI than India following the devaluation of the yuan?&lt;/p&gt;&#xA;" OwnerUserId="5243" LastEditorUserId="264" LastEditDate="2015-09-19T16:50:57.637" LastActivityDate="2015-10-19T23:30:07.910" Title="Why does a currency devaluation make a country more attractive for foreign direct investment?" Tags="&lt;currency&gt;&lt;international-trade&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8330" PostTypeId="1" AcceptedAnswerId="8343" CreationDate="2015-09-19T16:43:00.437" Score="6" ViewCount="644" Body="&lt;p&gt;This question is closely related to &lt;em&gt;Mas-colell, Whinston, Green: Microeconomic Theory&lt;/em&gt;, &lt;strong&gt;Question 3.C.5b&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Let $\succsim$ be a strictly monotone, continuous, and rational&#xA;  preference relation on $(-\infty, \infty)\times \mathbb{R}^{L-1}_{+}$.&#xA;  Furthermore, suppose $\succsim$ is quasilinear in good $L$. Let us&#xA;  write $x \in X$ as $x=(y,x_{L})$ where $y \in  \mathbb{R}^{L-1}_{+}$. &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;It can be shown that if $v(y,x_{L})$ is a utility function that represents $\succsim$, then there&#xA;  is a unique $x_{L}(y) \in \mathbb{R}$ such that  $v(y,x_{L}(y))=0$. &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Let $\phi(y)=-x_{L}(y)$ and show the utility function of the form&#xA;  $u(x) = x_{L} + \phi(y)$ represents $\succsim$.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Proof:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To show that $u(x)$ represents $\succsim$ I need to show that for every $x,x' \in X$, $x'\succsim x \iff u(x') \geq u(x)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, I have found an example that may not be satisfied: suppose that $x$ and $x'$ are such that $x=(y,x_{L})$ and $x'=(y',x'_{L})$, with $x\precsim x'$, $(y,z_{L}) \precsim (y',z_{L})$  $\forall z_{L}$ and $(z,x'_{L}) \precsim (z,x_{L})$  $\forall z$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These preferences imply:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$(y,x_{L}') \precsim (y,x_{L}) \precsim (y',x_{L}') \precsim (y',x_{L})$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To show that $u(x)$ is consistent with this I need to show that this preference implies:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;$u(y, x_{L}') \leq u(y,x_{L}) \leq u(y',x_{L}') \leq u(y',x_{L})$&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;and not&lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;2&quot;&gt;&#xA;&lt;li&gt;$u(y, x_{L}') \leq u(y',x_{L}') &amp;lt;  u(y,x_{L}) \leq u(y',x_{L})$&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;However I can find no reason why 2. presents any sort of contradiction! I have been thinking about this for two days, and am sure by now I am making some logical errors. Either the example I have come up with is not valid, or it must imply some sort of contradiction!  Any comments will help. And please hints only, no full solutions.  &lt;/p&gt;&#xA;" OwnerUserId="5731" LastEditorUserId="5731" LastEditDate="2015-09-19T19:41:55.157" LastActivityDate="2015-09-20T10:32:11.950" Title="Prove that a continuous $\succsim$ is quasilinear" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;&lt;choice-theory&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8331" PostTypeId="1" AcceptedAnswerId="16599" CreationDate="2015-09-19T16:43:02.927" Score="4" ViewCount="881" Body="&lt;p&gt;I'm looking at two charts from world bank on GDP per capita for Croatia and Russia - and this is what I get:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/oPSew.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/oPSew.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/56PS5.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/56PS5.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, from what I gathered, the first chart should represent nominal gdp and the second one real gdp (in 2005 US$).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Shouldn't the charts look similar, only with different absolute values? I thought that, for example, you could get 2014 real values simply by adjusting nominal values for total inflation between 2005 and 2014. If that inflation was 25%, then 2014 real = 2014 nominal / 1.25 (in 2005 US$).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How come that in the first chart GDP per capita is almost the same in 2014, and in the second one Croatia's GDP per capita is more than 50% larger?&lt;/p&gt;&#xA;" OwnerUserId="5729" LastEditorUserId="5729" LastEditDate="2015-09-19T17:35:24.910" LastActivityDate="2017-05-02T08:14:15.357" Title="World bank data - GDP per capita current US\$ vs constant 2005 US\$" Tags="&lt;gdp&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8332" PostTypeId="1" CreationDate="2015-09-19T18:41:29.310" Score="1" ViewCount="50" Body="&lt;p&gt;Could you give an example of the situation when if you input wrong (economic-wise, but not mathematically) parameters the model could fit/forecast better? &lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="2776" LastEditDate="2017-08-27T09:04:23.063" LastActivityDate="2017-08-27T09:04:23.063" Title="Macroeconometric models with wrong input but better fit/forecast" Tags="&lt;macroeconomics&gt;&lt;econometrics&gt;" AnswerCount="0" CommentCount="4" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8333" PostTypeId="1" AcceptedAnswerId="8357" CreationDate="2015-09-19T18:50:05.757" Score="12" ViewCount="258" Body="&lt;p&gt;With high probability this question is duplicate, and I tried to find one already in the community, but I was unsuccessful. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;According to the &lt;a href=&quot;https://en.wikipedia.org/wiki/Lucas_critique&quot;&gt;Lucas Critique, in its more general terms,&lt;/a&gt; the problem with empirical macroeconomic models is that they are not invariant to policy changes, and hence we cannot take any policy conclusions out of them. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question then is why do we still use them? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated. &lt;/p&gt;&#xA;" OwnerUserId="118" LastActivityDate="2015-09-21T22:09:42.787" Title="Why use empirical macroeconomic models when they are not policy invariant (Lucas Critique)?" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;statistics&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8334" PostTypeId="2" ParentId="8329" CreationDate="2015-09-19T19:42:24.740" Score="0" Body="&lt;p&gt;Here's my take: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;From your article «its[India's] overseas shipments had contracted for the seventh consecutive month in June its industries like steel and tyres are reeling under cheaper Chinese imports.» If the Chinese companies gain more market, they become more desirable, specially when the yuan suffers a devaluation, because with the same amount of dollars you can buy more of companies that are expanding.&lt;/p&gt;&#xA;" OwnerUserId="118" LastActivityDate="2015-09-19T19:42:24.740" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8339" PostTypeId="1" CreationDate="2015-09-20T01:43:49.323" Score="2" ViewCount="1180" Body="&lt;p&gt;As I understand it, a company buying a robot -- something that depreciates over time and will eventually break -- is included in investment because it provides a long term benefit (increase in GDP). But then why is a car considered consumption? It also depreciates over time (though not in a year) and provides long term benefits to GDP.&lt;/p&gt;&#xA;" OwnerUserId="5681" LastEditorUserId="264" LastEditDate="2015-09-20T16:42:10.263" LastActivityDate="2015-09-20T16:42:10.263" Title="If a company buys a robot, it's part of investment. If a person buys a car, it's part of consumption. Why?" Tags="&lt;gdp&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8342" PostTypeId="2" ParentId="8339" CreationDate="2015-09-20T07:04:37.880" Score="2" Body="&lt;p&gt;If the statisticians knew what each and every car was used for, it might be different. If you only use your car to transport furniture when you are moving it would make sense to count it as an investment because you can avoid renting a moving truck. Unfortunately we do not know what individual cars are used for, and this example is probably very rare, so it is assumed that most cars are used for leisure, e.g. getting to places faster and in more comfort.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why is there a need to count leasure and economic activites in separate accounts (consumption and investment)? It is because people behave differently when they are making decisions about personal consumption and when they do so about business. Corporations also have a different decision making process to achieve this. An example: You may be reluctant to sell your car when you lose your job, but a corporation will probably start downsizing if it loses a big customer. Because of this, the size of these accounts (money spent on consumption, and on investment) reacts in differing degrees to changes in the economic environment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we separate the two accounts it is easier to model what their main determining factors are and you can use econometric models to estimate the paramaters separately.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;I could not find a reference but I believe there is some debate about which account should include puchasing newly built housing, for similar reasons. (Please correct me if I am wrong.)&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2015-09-20T07:57:28.727" LastActivityDate="2015-09-20T07:57:28.727" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8343" PostTypeId="2" ParentId="8330" CreationDate="2015-09-20T10:25:55.257" Score="4" Body="&lt;p&gt;First off it seems to me you are proceeding in a manner more complicated than necessary. (Perhaps this is intentional because you wish to face a harder exercise.) Since it is given that $v(x)$ represents $\succsim$ you only have to show&#xA;$$&#xA;\forall x,x' \in X: v(x') \geq v(x) \iff u(x') \geq u(x).&#xA;$$&#xA;I think this would be a lot simpler than what you are currently doing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On to your question:&#xA;&lt;br&gt; The function $u(x)$ is very well defined, as&#xA;$$&#xA;u(y,x_{L}) =  x_{L} + \phi(y) = x_{L} - x_L(y) &#xA;$$&#xA;and we know that $v(y,x_L(y)) = 0$ describes the indifference curves of $\succsim$. The conditions you describe would violate this assumption because from&#xA;$$&#xA;(y,x_{L}) \precsim (y',x_{L}')&#xA;$$&#xA;it follows that&#xA;$$&#xA;v(y,x_{L}) \leq v(y',x_{L}').&#xA;$$&#xA;We can assume $v(y,x_{L}) = 0$, this is an affine transformation of any $v(y,x_{L})$. So $x_L(y) = x_{L}$.&#xA;&lt;br&gt; (I am not crazy about the notation, feel free to edit my post as long as it remains consistent with the question.)&#xA;&lt;br&gt;&#xA; Then we also have $0 \leq v(y',x_{L}')$, and because of monotonicity this means&#xA;$x_L(y') &amp;lt; x_{L}'$.&#xA;&lt;br&gt; Then&#xA;$$&#xA;u(y',x_{L}') &amp;lt; u(y,x_{L})&#xA;$$&#xA;cannot hold as&#xA;$$&#xA;u(y,x_{L}) = x_{L} + \phi(y) = x_{L} - x_{L}(y) = 0&#xA;$$&#xA;and&#xA;$$&#xA;u(y',x_{L}') = x_{L}' + \phi(y') = x_{L}' - x_{L}(y') &amp;gt; 0,&#xA;$$&#xA;because of what we have shown earlier, $x_L(y') &amp;lt; x_{L}'$.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2015-09-20T10:32:11.950" LastActivityDate="2015-09-20T10:32:11.950" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8344" PostTypeId="1" AcceptedAnswerId="8346" CreationDate="2015-09-20T13:15:08.717" Score="15" ViewCount="1988" Body="&lt;p&gt;Let $\succsim$ be a strictly monotonic and continuous preference relation, and let $X=\mathbb{R}^{n}$ be the consumption set.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is rationality of $\succsim$ implied by these conditions? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think transitivity is implied by continuity. However, completeness is troubling, as there are elements $x,y \in X$ that cannot be ordered with respect to $\leq$ or $\geq$, and so we cannot use monotonicity to show that $\succsim$ is complete.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have thought of constructing a sequence $x_{n}$ with $x_{1}=x$ such that $x_{n} \to y$ and either $x_{n}\succsim x_{n+1}$ or $x_{n+1} \succsim x_{n}$. Then by transitivity and continuity we could show that $x$ and $y$ can be ordered with respect to $\succsim$, but I do not think it is possible to construct such a sequence. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated, but please give hints and not full solutions.&lt;/p&gt;&#xA;" OwnerUserId="5731" LastActivityDate="2015-09-25T06:19:30.283" Title="Are monotonic and continuous preferences necessarily rational?" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;" AnswerCount="3" CommentCount="2" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8345" PostTypeId="2" ParentId="8339" CreationDate="2015-09-20T15:47:52.240" Score="3" Body="&lt;p&gt;Because there is a definition of what is production and what is consumption, and households are generally outside the production boundary. From the &lt;a href=&quot;http://unstats.un.org/unsd/nationalaccount/docs/SNA2008.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;2008 System of National Accounts&lt;/a&gt; (at 6.24):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Economic production may be defined as an activity carried&#xA;  out under the control and responsibility of an institutional&#xA;  unit that uses inputs of labour, capital, and goods and&#xA;  services to produce outputs of goods or services. There&#xA;  must be an institutional unit that assumes responsibility for&#xA;  the process of production and owns any resulting goods or&#xA;  knowledge-capturing products or is entitled to be paid, or&#xA;  otherwise compensated, for the change-effecting or margin&#xA;  services provided.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The distinction therefore has nothing to do with cars versus robots, and everything to do with who purchases the car or robot. A car purchased by a consumer is considered consumption, but a car purchased by a firm &lt;em&gt;is&lt;/em&gt; considered investment. This is intuitively reasonable; the stream of transport services that a household receives from owning an automobile &lt;em&gt;is generally&lt;/em&gt; consumption, and likewise for a business it is generally an input into production. While it's true that a car owned by an individual may be used both for production and consumption, the point raised by denesp is precisely why no distinction is made: we simply do not know how people are using their personal cars at any moment in time, and it's probably not worthwhile to spend the resources to know, so we use the ownership of the automobile as a proxy for how it is used.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, one might reasonably argue that even though the purchases are made by consumers, one should count &lt;em&gt;the stream of transport services&lt;/em&gt; received by the household as consumption, and capitalize the purchase of the automobile. This is how we treat housing, as &lt;a href=&quot;https://economics.stackexchange.com/questions/8266/does-gdp-count-both-the-investment-and-the-house-rental&quot;&gt;described in part in the answer here&lt;/a&gt;. Indeed, &lt;a href=&quot;http://www.bea.gov/about/pdf/sna_neweconomy_1003.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;this point has been raised&lt;/a&gt; even by researchers at the US Bureau of Economic Analysis:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The treatment of consumer durable goods other than owner-occupied housing as&#xA;  final consumption expenditure rather than as fixed capital formation is also a long-standing&#xA;  criticism made by many users of the national accounts. Consumer durables are similar in&#xA;  many ways to owner-occupied dwellings, but the treatment in the accounts is quite&#xA;  different. The owner of a dwelling is treated as an owner of an unincorporated enterprise&#xA;  that produces housing services, but consumer durables are not assumed to provide services&#xA;  within the SNA production boundary (SNA 6.89, 9.40). Many durables, such as cars, trucks,&#xA;  and furniture, can be used either by consumers or by business enterprises—the SNA&#xA;  definitions count their purchase by households immediately as final consumption&#xA;  expenditure whereas they are to be capitalized by enterprises. “Extended” national&#xA;  accounts developed by researchers such as Eisner, Jorgenson and associates, Kendrick, and&#xA;  Ruggles and Ruggles include the services of consumer durables (for a review, see Eisner&#xA;  1988). Fraumeni and Okubo (2001) illustrate the possible options of capitalizing motor&#xA;  vehicles or all consumer durables.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Why this is not done is a fair question, but I would speculate that (in the US at least) the answer is probably simply that given the limited resources available to the BEA, this potential improvement to the national accounts simply isn't as high a priority as other projects.&lt;/p&gt;&#xA;" OwnerUserId="264" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-09-20T16:25:09.577" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8346" PostTypeId="2" ParentId="8344" CreationDate="2015-09-20T19:54:44.017" Score="8" Body="&lt;p&gt;Consider a preference relation in $\mathbb{R}^2$ such that $x=(x_1,x_2)\succsim (y_1,y_2)=y$ $\iff$ $x_1\geq y_1$ and $x_2\geq y_2$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) You might like to argue whether this preference relation is strictly monotonic and continuous. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) Is the relation defined above complete?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, as a side dish, you might also reconsider your claim that continuity is the cause of transitivity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note: I just wrote this particular one with the purpose of providing a thought experiment. More in a way to challenge your understanding. I am not sure whether this example provides an answer to your question or not.&lt;/p&gt;&#xA;" OwnerUserId="5739" LastEditorUserId="1601" LastEditDate="2015-09-20T20:08:36.220" LastActivityDate="2015-09-20T20:08:36.220" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8347" PostTypeId="2" ParentId="8344" CreationDate="2015-09-20T20:25:02.033" Score="2" Body="&lt;p&gt;Transitivity of preferences appeals to some &quot;intuitive&quot; notion of &quot;consistency of human mind&quot; and it can be argued that any exceptions are the &quot;exceptions to the &lt;em&gt;rule&lt;/em&gt;&quot;, and so we &lt;em&gt;do&lt;/em&gt; have an adequate abstract rule.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In comparison, Completeness is much more of a &quot;leap of faith&quot;. It hangs in the air, stemming from nothing, related to nothing (&lt;strong&gt;so the answer to your question is no&lt;/strong&gt;). Perhaps it can be supported by some vulgar remark that &quot;if you &lt;em&gt;press&lt;/em&gt; a person enough, then he will eventually order any pair you will put in front of him, even if only to get rid of you&quot;, but of course this, while looking good in practice, will never work in theory.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So we just define Completeness to exist... why? In order to avoid rather &lt;em&gt;unmanageable&lt;/em&gt; issues down the road. How useful will it be to work with non-complete preferences? How useful would it be to say &quot;I have this model, it may result, it may not, depending on whether preferences are complete or not&quot;... what's the use of it? We would then be forced to come up with an &lt;em&gt;alternative&lt;/em&gt; decision rule: &quot;Assuming that preferences are not complete, then if the person encounters a pair that he cannot order...&quot; -he does &lt;em&gt;what&lt;/em&gt;? Flip a coin? But this would make &quot;incompleteness&quot; equivalent to indifference...  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What else? This line of thought may be very stimulating, but it is also very challenging, and certainly path-breaking, if indeed, such a path exists or can be created. (In my opinion, various theoretical explorations of the &quot;fuzzy&quot; variety try to find a &quot;middle way&quot; for exactly this problem -where they consider a situation where the person neither has complete preferences, nor is completely &quot;frozen&quot; when a &quot;difficult&quot; pair comes up).&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-09-20T20:25:02.033" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8348" PostTypeId="2" ParentId="8326" CreationDate="2015-09-20T20:32:34.983" Score="3" Body="&lt;p&gt;I would like to provide a personal understanding of &lt;a href=&quot;https://economics.stackexchange.com/users/264/dismalscience&quot;&gt;dismalscience&lt;/a&gt;'s argument. So, to the best of my understanding, the mechanism with which the oil prices affect the CPI is through general equilibrium. When CAD loses value, to import things, we will need to sell more of the stuff we produce at home. This is going to imply a downward shift in domestic supply even if the total production is constant. If everything else is constant, this is going to raise the prices in terms of CAD. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Maybe this is something really obvious. I was just providing an understanding of my own about how the previous argument would apply.&lt;/p&gt;&#xA;" OwnerUserId="5739" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-09-20T20:32:34.983" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="8349" PostTypeId="2" ParentId="5441" CreationDate="2015-09-20T22:09:36.077" Score="1" Body="&lt;p&gt;One of the very fast explanation would be made by canonical growth model of Robert Solow. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this model, the countries with different levels of saving converge to their own steady state (convergence clubs), which means that countries with different savings rate would have different steady states. (so the capital level $K$ and income level $Y$ would be different.) In this case, with capital accumulation, there would be an income inequality. This can be a basic theoretical explanation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, there exists some growth models with technological progress. For example, the South-North economic model. Basically, north is supposed to create the technology by investing in high-tech and there exists some spillovers from North countries to South countries. (You can easily find the formal mathematical model in literature.)&#xA;By this simple model, there exists a divergence of economies in terms of their steady state levels of capital and income. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, there exists another recent findings of Thomas Piketty which states the famous equality $r&amp;gt;g$ which says that interest rates have been higher than the growth rates of economies, which basically states that people having money have earned more money. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit : All points mentionned above is about the inequality between countries but at some point, the inequality between countries could also explain the inequality within country. As between countries, inequality rises, probably, inequality rises in a one country (US or other). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Because the inequality in my explanation stems from capital accumulation. So, it is straightforward to say that, people in a given country, having more savings make investment, accumulate capital and this could probably increase income inequality between capital holders (who have savings) and workers (who have not sufficient savings for investment in technology, machines etc.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, there will be some cycles. People having interest rate from their capital will invest these interests in other investments again from which they could increase more their wealth (I mean capital from wealth.) This also will create more income inequality within a country and I think this explanation is valid not only for US but also for other countries. &lt;/p&gt;&#xA;" OwnerUserId="2938" LastEditorUserId="2938" LastEditDate="2015-09-21T10:34:25.417" LastActivityDate="2015-09-21T10:34:25.417" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8353" PostTypeId="1" AcceptedAnswerId="8359" CreationDate="2015-09-21T08:11:18.560" Score="6" ViewCount="147" Body="&lt;p&gt;I'm trying to derive an HJB from a discrete time setting. At some point, I am left with&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \lim_{\Delta\to 0} \frac{v(c_{t+\Delta}, u_{t+\Delta}, t+\Delta) - v(c_{t}, u_{t}, t)}{\Delta}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and am not sure what to do. If $\Delta$ was only in one argument, this would be a partial differential. My hunch is that this is the total derivative in $t$, but I dont know how to show that.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How do I proceed with the expression above?&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-09-22T07:17:45.523" Title="From Discrete to Continuous time: Total Differential" Tags="&lt;mathematical-economics&gt;&lt;continuous-time&gt;" AnswerCount="1" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8354" PostTypeId="1" AcceptedAnswerId="10132" CreationDate="2015-09-21T08:28:29.570" Score="8" ViewCount="532" Body="&lt;p&gt;The aim of this question is to better explore the mathematical economics model behind Ricardo's theory of comparative advantage and the claims that can be made based on this model. This seems necessary because of &lt;a href=&quot;https://economics.stackexchange.com/questions/8290/ricardos-theory-of-comparative-advantage-for-many-countries&quot;&gt;this question&lt;/a&gt; and some of the answers given to it. Following is a description of the model as I understand it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose there are two countries (England and Portugal, denoted by E and P) producing two goods (good x and good y). The only input needed to produce these goods is labor. The economics of scale are constant in both industries of both countries and the labor requirement to produce good $m$ (where $m \in \left\{x,y\right\}$) in country $i$ is denoted by $a_{m,i}$. Without loss of generality I will assume that England enjoys comparative advantage in producing the good $x$, meaning&#xA;$$&#xA;\frac{a_{x,E}}{a_{y,E}} &amp;lt; \frac{a_{x,P}}{a_{y,P}}.&#xA;$$&#xA;Let us denote the size of the English labor pool by $L_E$, that of the Portuguese by $L_P$. Denote the produced quantities by $\left(q_{x,E},q_{y,E}\right), \left(q_{x,P},q_{y,P}\right)$. So England may choose any production $\left(q_{x,E},q_{y,E}\right)$ as long as&#xA;$$&#xA;q_{x,E} \cdot a_{x,E} + q_{y,E} \cdot a_{y,E} \leq L_E.&#xA;$$&#xA;The income of a country is determined by the value of its production. Denote the equilibrium prices by $p_x, p_y$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now follow some assumptions that do result in some loss of generality, but I think these are necessary for simple illustrations. &lt;br&gt;&#xA;Assume that the English public's consumption (denoted by $c_{m,E}$) preferences of said goods, $\left(c_{x,E},c_{y,E}\right)$, are described by symmetric a Cobb-Douglas utility function. Assume the same for Portugal, where Portuguese consumption is denoted by $\left(c_{x,P},c_{y,P}\right)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A discussion of how England can maximize her profit is probably useful, but I seek to focus on the following claims and whether they are true given this model:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;England will always produce good $x$ (in some positive quantity).&lt;/li&gt;&#xA;&lt;li&gt;England will never produce good $y$.&lt;/li&gt;&#xA;&lt;li&gt;England will never export good $y$.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;In case you are wondering: No, this is not a homework question. But because you do not have to take my word for this I tried to phrase the question in accordance with the current &lt;a href=&quot;https://economics.meta.stackexchange.com/questions/1420/an-alternative-suggestion-regarding-homework-questions&quot;&gt;guidelines&lt;/a&gt; for exercises.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2016-01-09T06:48:32.753" Title="Ricardo's theory of comparative advantage" Tags="&lt;international-trade&gt;&lt;international-economics&gt;" AnswerCount="2" CommentCount="3" FavoriteCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="8355" PostTypeId="2" ParentId="8344" CreationDate="2015-09-21T08:47:43.967" Score="4" Body="&lt;p&gt;The question is whether rationality is implied by continuity and monotonicity. To show that this is not the case, a counterexample would suffice. We are therefore looking for an intransitive, incomplete, monotone, continuous preference relation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose $X=\{x\geq 0,y\geq 0:x+y=1\}$. Thus, we form preferences over points of a line from $(0,1)$ to $(1,0)$.&#xA;Consider the preference relation defined by $(1,0) \succ (.5,.5) \succ (0,1) \succ (1,0)$ which is incomplete otherwise.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Rationality&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Rationality consist of completeness and transitivity of the preference relation, defined as follows:&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Completeness&lt;/h2&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;A preference relation is complete, if for all $x,y \in X$, we have $x\succsim y$, $y\succsim x$, or both.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;$(.5,.5)\not \succsim (.5,.5)$, thus the preference relation is not complete.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Transitivity&lt;/h2&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;A preference relation is transitive, if $x\succsim y$ and $y \succsim z$ imply $x\succsim z$.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;$(1,0)\succsim (.5,.5)$ and $(.5,.5) \succsim (0,1)$ hold but $(1,0)\not \succsim (0,1)$, thus the preference relation is not transitive.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Continuity&lt;/h2&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;A preference relation is continuous if for all sequences ${(x_i,y_i)}_{i=1}^{\infty}$ converging to $(x,y)$ with $\forall i: x_i \succsim y_i$ we have $x \succsim y$.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The preference relation does not violate continuity. Consider a sequence $x_i \succsim y_i$ which converges to $x,y$. These sequences can only be such that $x_i=x$ and $y_i=y$, and $x\neq y$, since all other $x_i,y_i$ either do not converge to $x,y$, or do not fulfill $x_i \succsim y_i$. But clearly if $x_i\succsim y_i$ then $x\succsim y$.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Monotonicity&lt;/h2&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;A preference relation is monotone, if $x \geq y$ implies $x \succsim y$.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The $\geq$ relation considers all elements of $X$ incomparable, thus the preference relation is monotone.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, we have an intransitive, incomplete, monotone, continuous preference relation.&lt;/p&gt;&#xA;" OwnerUserId="5635" LastEditorUserId="5635" LastEditDate="2015-09-25T06:19:30.283" LastActivityDate="2015-09-25T06:19:30.283" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="8356" PostTypeId="2" ParentId="8333" CreationDate="2015-09-21T09:08:08.053" Score="2" Body="&lt;p&gt;The most obvious answer is: What is the alternative? To do nothing? If you do the best you can - with the best knowledge you have at the time, it is hard to fault people for wanting to change something they think can be done better. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Second part - When the Lucas critique was published - it was part of a movement towards micro-economic models - which is great. However, these models where all/mostly based on an assumption of rationality. As behavioural economics have show - homo economicus is a horrible way to model actual human behaviour. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Basically, You should use rational assumptions to see how your model behaves in the most simple settings. Then see what happens - stepwise - when you let real-world behaviour influence your models. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This was not the aim of the Lucas critique. But it should have been. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, there is so much inertia in the economic world. It seems that most of the current professors where educated in the 70-80's, and most economic students have to study many years before they meet something else than strict rational assumptions. Or actual just have to stumble out into the real world :) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And in the real world there is pressure from the politicians to actual do something about the economy - probably the real answer to your question. &lt;/p&gt;&#xA;" OwnerUserId="107" LastEditorUserId="107" LastEditDate="2015-09-21T13:03:30.243" LastActivityDate="2015-09-21T13:03:30.243" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8357" PostTypeId="2" ParentId="8333" CreationDate="2015-09-21T18:37:10.917" Score="4" Body="&lt;p&gt;The response to the Lucas Critique was the emergence of RBC and DSGE models. Using microeconomic foundations of macro models we can simulate how behavior changes when policy changes and only estimate &quot;deep&quot; structural paramateres that are not policy variant. Before microfoundations we were estimating models where the estimation included the actions of people. With microfounded models today we try to seperate the actions. This was not possible in older models as we actually did not consider how people act or react, whereas microfoundations tell you how people would react.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However this is a difficult task as once you introduce agents that actively think about their actions you must take into acount their future expectations, which are unknown. One way to deal with this are rational expectations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A further issue is that such models predict reactions that are quicker than in the data. If agents are perfectly rational, have perfect foresight and all information, they react quickly and perfectly. The solution to this today is to add frictions that slow these reactions down. However old models that we used to estimate (think about IS-LM and especially AS-AD models) also have the huge issue that people are too stupid (only adaptive (backward looking) expectations, do not take information into account when forming expectations, don't think about what may come in the future) and this is partially a piece of the Lucas Critique. Now we have the problem that people are too smart or super-rational. Some models (see models where some fraction of agents are &quot;Rule of Thumb Consumers&quot;) now also assume that some agents are fully rational (many indeed are) while some just are backward looking (as in the normal IS-LM or AS-AD model), as a balance of the two things to generate a more realistic picture.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for the critique of rationality: In many experimental micro studies rationality fails. However this does not tell us how many small deviations from rationality aggregate, which is what macro is interested in. It may occur that from many different deviations in different directions that in aggregate rationality is still a good approximation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Furthermore approaches have been developed now to deviate from rational expectations. These are very difficult to solve though. One interesting way is to assume people are rational, but do not have all the information, which is a reason most people make mistakes. These are models of information frictions. Key words: Rational Inattention (e.g. Sims) and Inattentiveness (e.g. Reis). Another related approach includes Learning Models.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To summarize: we try to have models that are immune to the Lucas Critique. These often require rational expectations to be solved, but other approaches are also being developed.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastEditorUserId="5557" LastEditDate="2015-09-21T22:09:42.787" LastActivityDate="2015-09-21T22:09:42.787" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8358" PostTypeId="1" CreationDate="2015-09-21T18:44:21.280" Score="2" ViewCount="131" Body="&lt;p&gt;Some data from Ireland SEMO (weekday electricity prices) and quarterly prices from the European Commission imply that Irish weekend prices are greater than weekday prices. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The same datasets used showed the correct relationship (weekend prices lower) for France, Denmark, Netherlands, Belgium, and Norway. &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Is this actually the case? &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;If so, why is it the case? Typically wholesale electricity prices are lower during weekends in most countries. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;To clarify, I have wholesale hourly prices for weekdays only for Ireland in 2013 and 2014, from the power exchange: &lt;a href=&quot;http://sem-o.com/marketdata/Pages/default.aspx&quot; rel=&quot;nofollow&quot;&gt;http://sem-o.com/marketdata/Pages/default.aspx&lt;/a&gt; For intellectual property reasons I cannot upload them, but taking the mean across these weekday-only prices gives quarterly means in 2014 which are lower than that reported by the European Commission Quarterly Report on European Electricity Markets. An example of a quarterly report: &lt;a href=&quot;https://ec.europa.eu/energy/sites/ener/files/documents/quarterly-electricity_q3_2014_final_0.pdf&quot; rel=&quot;nofollow&quot;&gt;https://ec.europa.eu/energy/sites/ener/files/documents/quarterly-electricity_q3_2014_final_0.pdf&lt;/a&gt; (page 14, in the little map of Europe with average prices on the map)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since the mean of weekdays only is below the mean of all days in a given quarter, this implies that the weekends have higher mean prices than the weekdays. This isn't usually the case for most countries, since generally factories and offices use up more energy than people relaxing at home.&lt;/p&gt;&#xA;" OwnerUserId="5746" LastEditorUserId="44" LastEditDate="2015-09-24T19:32:50.860" LastActivityDate="2015-09-24T19:32:50.860" Title="Ireland wholesale electricity prices are higher during the weekends" Tags="&lt;energy-economics&gt;" AnswerCount="1" CommentCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="8359" PostTypeId="2" ParentId="8353" CreationDate="2015-09-22T07:17:45.523" Score="5" Body="&lt;p&gt;You can separate your function in three terms by writing&#xA;\begin{align}&#xA;&amp;amp; v(c_{t+\Delta},u_{t+\Delta},t+\Delta)-v(c_t,u_t,t) = \\&#xA;&amp;amp; v(c_{t+\Delta},u_{t+\Delta},t+\Delta)-v(c_t,u_{t+\Delta},t+\Delta) \\&#xA;+ &amp;amp; v(c_{t},u_{t+\Delta},t+\Delta)-v(c_t,u_t,t+\Delta) \\&#xA;+ &amp;amp; v(c_t,u_t,t+\Delta)-v(c_t,u_t,t)&#xA;\end{align}&#xA;When you divide by $\Delta$ and take the limit $\Delta \rightarrow 0$, the first expression converges to $\dfrac{\partial v}{\partial c} \dfrac{dc}{dt}$, the second expression to $\dfrac{\partial v}{\partial u} \dfrac{du}{dt}$, and the third expression to $\dfrac{\partial v}{\partial t}$. Therefore your total derivative equals&#xA;\begin{equation}&#xA;\dfrac{\partial v}{\partial c} \dfrac{dc}{dt} + \dfrac{\partial v}{\partial u} \dfrac{du}{dt} + \dfrac{\partial v}{\partial t}&#xA;\end{equation}&lt;/p&gt;&#xA;" OwnerUserId="4667" LastActivityDate="2015-09-22T07:17:45.523" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8360" PostTypeId="1" AcceptedAnswerId="8365" CreationDate="2015-09-22T07:47:55.070" Score="2" ViewCount="47" Body="&lt;p&gt;Suppose the price indexes are adequately measured and there are no problems regarding the data in itself. By my experience, using a sector price index -- for the industry sector that you might be analyzing -- is more adequate than a more general price index for deflating the series. But there could be a situation in which it is more adequate to use a more general price index than a sectoral price index for deflating the variables?&lt;/p&gt;&#xA;" OwnerUserId="4640" LastEditorUserId="4640" LastEditDate="2015-09-22T15:42:57.087" LastActivityDate="2015-09-23T00:11:04.910" Title="Heuristics with time series measured in dollars" Tags="&lt;econometrics&gt;&lt;time-series&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8361" PostTypeId="1" AcceptedAnswerId="8371" CreationDate="2015-09-22T08:40:09.510" Score="2" ViewCount="374" Body="&lt;p&gt;In a standard problem of &lt;a href=&quot;https://en.wikipedia.org/wiki/Far_cake-cutting&quot; rel=&quot;nofollow noreferrer&quot;&gt;fair cake-cutting&lt;/a&gt;, there is a real interval which is called &amp;quot;cake&amp;quot;, and it has to be divided among &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt; partners. Each partner &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; has a subjective value function &lt;span class=&quot;math-container&quot;&gt;$v_i$&lt;/span&gt;, which is an &lt;em&gt;additive&lt;/em&gt; function on subsets of the cake. This means that, for every two disjoint subsets &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$B$&lt;/span&gt;:&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$v_i(A\cup B)=v_i(A)+v_i(B)$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;Suppose that, instead of a value function, each partner has a &lt;em&gt;preference relation&lt;/em&gt; &lt;span class=&quot;math-container&quot;&gt;$\succeq_i$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;p&gt;A preference relation &lt;span class=&quot;math-container&quot;&gt;$\succeq_i$&lt;/span&gt; is &lt;em&gt;represented&lt;/em&gt; by a value function &lt;span class=&quot;math-container&quot;&gt;$v_i$&lt;/span&gt; iff:&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$A\succeq_i B \iff v_i(A)\geq v_i(B) $$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;What properties on the preference relation guarantee that it can be represented by an &lt;em&gt;additive&lt;/em&gt; value function?&lt;/p&gt;&#xA;&lt;p&gt;NOTE: The Wikipedia page &lt;a href=&quot;https://en.wikipedia.org/wiki/Ordinal_utility&quot; rel=&quot;nofollow noreferrer&quot;&gt;Ordinal utility&lt;/a&gt; describes some conditions under which a preference relation can be represented by an additive value function. But, it deals with preferences on bundles of homogeneous goods. Here, the preferences are on subsets of a heterogeneous good.&lt;/p&gt;&#xA;&lt;p&gt;EXAMPLES:&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$u_1(A) = \text{len}(A)^2$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$u_1$&lt;/span&gt; is not additive, but the preference relation it represents can be represented by the additive function &lt;span class=&quot;math-container&quot;&gt;$v_1(A) = \text{len}(A)$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$u_2(A) = \min[\text{len}(A\cap[0,4]),\text{len}(A\cap[4,8])]$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;The preference relation represented by &lt;span class=&quot;math-container&quot;&gt;$u_2$&lt;/span&gt; cannot be represented by an additive function. Proof: suppose by contradiction that the preference relation is represented by an additive function &lt;span class=&quot;math-container&quot;&gt;$v_2$&lt;/span&gt;. Then, because:&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$u_2([0,1])=u_2([4,5])=u_2(\emptyset)$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;this must also be true for &lt;span class=&quot;math-container&quot;&gt;$v_2$&lt;/span&gt;:&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$v_2([0,1])=v_2([4,5])=v_2(\emptyset)$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;By additivity:&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$v_2([0,1]\cup[4,5])=v_2(\emptyset\cup\emptyset)=v_2(\emptyset)$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;This must also be true for &lt;span class=&quot;math-container&quot;&gt;$u_2$&lt;/span&gt;:&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$u_2([0,1]\cup[4,5])=u_2(\emptyset)$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;a contradiction.&lt;/p&gt;&#xA;" OwnerUserId="385" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2016-01-07T05:27:41.970" Title="Conditions for an additive value function" Tags="&lt;utility&gt;&lt;preferences&gt;" AnswerCount="2" CommentCount="5" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8362" PostTypeId="1" CreationDate="2015-09-22T13:46:43.820" Score="3" ViewCount="103" Body="&lt;p&gt;A &lt;a href=&quot;https://en.wikipedia.org/wiki/Proportional_division&quot; rel=&quot;nofollow&quot;&gt;proportional division&lt;/a&gt; is a kind of fair division in which a resource is divided among $n$ partners with subjective valuations, and each partner receives a share which is worth for him at least $1/n$ of the total resource value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This definition is cardinal in nature: it relies on the assumption that each partner has a numeric value function which is unique up to scaling.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose that all we know about the partners is that they have an ordinal preference relation. Is there a natural way to define the notion of proportional fairness in this case?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I thought of several possibilities myself, but I would like to know if something like this has already been done in the literature.&lt;/p&gt;&#xA;" OwnerUserId="385" LastActivityDate="2015-10-03T22:59:08.077" Title="Ordinal axiomatization of proportional division" Tags="&lt;reference-request&gt;&lt;social-welfare&gt;&lt;fairness&gt;" AnswerCount="1" CommentCount="9" ContentLicense="CC BY-SA 3.0" />
  <row Id="8363" PostTypeId="2" ParentId="6639" CreationDate="2015-09-22T15:05:56.610" Score="0" Body="&lt;p&gt;In economic theory, the primary determinants of exchange rates are the supply and demand of &lt;strong&gt;tradable&lt;/strong&gt; goods and services (of course, these include capital as well). According to textbook economics, the exchange rate is determined by the intersection of these supply and demand curves. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The fact that the US-India exchange rate has remained relatively stable implies that not much has changed in the &lt;em&gt;fundamentals&lt;/em&gt;  that determine this supply and demand, i.e. these curves have not shifted. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To answer your question, you would have to look at what goods and services constitute trade between US and India and if there have been any recent changes in policy/production concerning those goods. &lt;/p&gt;&#xA;" OwnerUserId="5233" LastEditorUserId="43" LastEditDate="2015-09-23T12:39:41.247" LastActivityDate="2015-09-23T12:39:41.247" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8364" PostTypeId="2" ParentId="8361" CreationDate="2015-09-22T15:14:50.787" Score="0" Body="&lt;p&gt;The only thing I can think of which may be related to your question is Debreu's theorem, which states that preferences which are continuous can be represented by a continuous utility function. Of course, if the utility function is continuous, so is the value function. Also, I think monotonicity could play a role.&lt;/p&gt;&#xA;" OwnerUserId="5233" LastActivityDate="2015-09-22T15:14:50.787" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="8365" PostTypeId="2" ParentId="8360" CreationDate="2015-09-23T00:11:04.910" Score="1" Body="&lt;p&gt;If your analysis is trying to provide predictions for the particular sector at hand in isolation, then one would ask why would you go for more than the index for that sector. However, one then notices that your index is the most comprehensive one possible for your research due to the isolation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The last point brings one to ask the question of what happens whether the analysis will need a different index if the aforementioned isolation is relaxed. In that case, it is highly likely that you would need to change the benchmark index depending on the purpose. For instance, if a capital owner is trying to find a sector to invest in, it might be in his best interest to see how different sector are doing with respect to each other (or a benchmark) to come up with a better educated decision. An equivalent concern would be subsidies for instance.&lt;/p&gt;&#xA;" OwnerUserId="5739" LastActivityDate="2015-09-23T00:11:04.910" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8367" PostTypeId="2" ParentId="6639" CreationDate="2015-09-23T07:22:19.480" Score="1" Body="&lt;p&gt;India maintains a de facto floating peg to the US dollar.  They run fairly high trade deficits driven by their fast growth.  Because of this, the Reserve Bank of India has needed to devalue the currency several times over the last five years.  The first event occuring in mid 2011, the second in mid 2013.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So yes, it's true that the Rupee is fairly stable against the dollar, but this is because of foreign exchange manipulation by the Indian central bank.  Alongside this, it is important to keep in mind that they cannot maintain their control over the exchange rate and have free flow of capital and monetary authority, so this peg will inevitably break down.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you take a look at the IRB balance sheet you'll probably see a falling foreign exchange reserves balance, and judging by the time between the last two events the Rupee probably won't stay stable for long.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.google.com/finance?q=USDINR&quot; rel=&quot;nofollow&quot;&gt;http://www.google.com/finance?q=USDINR&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="5645" LastEditorUserId="43" LastEditDate="2015-09-23T12:39:59.687" LastActivityDate="2015-09-23T12:39:59.687" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8369" PostTypeId="1" CreationDate="2015-09-23T16:12:36.197" Score="2" ViewCount="97" Body="&lt;p&gt;Hello I want to find a instrument variable for airline &quot;bankruptcy&quot; but that instrument should not affect ticket prices? can any one help me out? I have already tried out the cash flows, current assets and liabilities. &lt;/p&gt;&#xA;" OwnerUserId="5754" LastActivityDate="2015-09-23T16:12:36.197" Title="Suitable Instrumental Variables" Tags="&lt;econometrics&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8371" PostTypeId="2" ParentId="8361" CreationDate="2015-09-23T19:58:26.807" Score="4" Body="&lt;p&gt;This is only a partial answer because it does not exactly fit your framework, but I hope it will still be helpful (and it's too long for a comment).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you are ok with discretizing your cake into (possibly arbitrarilly small) pieces of cake, then you will find an answer in &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Kraft, C. H., Pratt, J. W., &amp;amp; Seidenberg, A. (1959). Intuitive Probability on Finite Sets. The Annals of Mathematical Statistics, 30(2), 408–419.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;the bulk of which is very well summarized in the introduction of&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Fishburn, P. C. (1996). Finite linear qualitative probability. Journal of Mathematical Psychology, 40(1), 64–77.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Althought the setup of the papers is in terms of probability jugments, it can be reinterpreted from a preference point of view as follows :&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;A finite set of objects $S = \{1,2,\dots,n\}$ (in your problem $S$ could contain the pieces of the cake)&lt;/li&gt;&#xA;&lt;li&gt;A preference relation $\succeq$ over $2^S$ the set of subsets of $S$.&lt;/li&gt;&#xA;&lt;li&gt;The question : when is $\succeq$ representable by an additive utility function $U$ on $2^S$.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;A classical conjecture by de Finetti's was that the following conditions should suffice (here I follows the presentation in Fishburn (1996)):&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;(Order) : $\succeq$ on $2^S$ is a weak order,&lt;/li&gt;&#xA;&lt;li&gt;(Nonnegativity) : $A \succeq \emptyset$ for every $A \in 2^S$,&lt;/li&gt;&#xA;&lt;li&gt;(Nontriviality) : $S \succ \emptyset$,&lt;/li&gt;&#xA;&lt;li&gt;(Additivity) :  For all $A,B,C \in 2^S$, if $(A\cup B) \cap C = \emptyset$, then $[A \succ B] \Leftrightarrow [(A\cup C) \succ (B\cup C)]$.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;de Finneti observed that these were necessary but could not determine whether they were sufficient. Eventually, Kraft, Pratt &amp;amp; Seidenberg (1959) provided a counter-example as well as an additional condition which, together with the four others implied the existence of an additive representation:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;(Strong additivity) : for all $m\geq 2$ and all $A_j,B_j \in 2^S$, if $(A_1,\dots,A_M)$ and $(B_1,\dots,B_M)$ contain the same number of replicas of each elements of $S$ (i.e. if $s_1$ appears three times in all the $A_j$ sets, it also appears three times in all the $B_j$ sets, etc) and $A_j \succeq B_j$ for all $j&amp;lt;m$, then we do not have $[A_m \succ B_m]$.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The last condition is often referred to in the literature as the &quot;cancelation&quot; property. Now (Strong additivity) is not the most intuitive condition. In general, it can be hard to to check and navigate, which has spurred a large literature on alternative sufficient condition. I can send you a reading list if you are interested. Unfortunately, I don't remember of any paper directly tackling preferences over subsets of &lt;em&gt;infinite&lt;/em&gt; sets, like your real interval.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From my experience with these kinds of problems, changing the domain over which preferences are defined makes a huge difference in terms of the results that hold and the proof techniques you can use. If a result is not already out there in the literature, it is rarely easy to derive it from apparently similar results on different domains.&lt;/p&gt;&#xA;" OwnerUserId="38" LastEditorUserId="38" LastEditDate="2016-01-07T05:27:41.970" LastActivityDate="2016-01-07T05:27:41.970" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8372" PostTypeId="2" ParentId="233" CreationDate="2015-09-23T20:29:14.250" Score="3" Body="&lt;p&gt;Empirical Evidence on rational inattention:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;-&lt;em&gt;Title:&lt;/em&gt; Attention Discrimination: Theory and Field Experiments with Monitoring Information Acquisition,&#xA;&lt;em&gt;Authors:&lt;/em&gt; Vojtěch Bartoš, Michal Bauer, Julie Chytilová, and Filip Matějka.&#xA;&lt;em&gt;Source:&lt;/em&gt; IZA Discussion Paper No. 8058. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Link&lt;/em&gt;: &lt;a href=&quot;http://ftp.iza.org/dp8058.pdf&quot; rel=&quot;nofollow&quot;&gt;Attention Discrimination: Theory and Field Experiments with Monitoring Information Acquisition&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;-&lt;em&gt;Title:&lt;/em&gt; What Can Survey Forecasts Tell Us about Information Rigidities?&#xA;&lt;em&gt;Authors:&lt;/em&gt; Olivier Coibion and Yuriy Gorodnichenko.&#xA;&lt;em&gt;Source:&lt;/em&gt; Journal of Political Economy, Vol. 120, No. 1 (February 2012), pp. 116-159&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Link:&lt;/em&gt; &lt;a href=&quot;http://goo.gl/3OPzQB&quot; rel=&quot;nofollow&quot;&gt;What Can Survey Forecasts Tell Us about Information Rigidities?&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;-&lt;em&gt;Title:&lt;/em&gt; A Rational Theory of Mutual Funds’ Attention Allocation,&#xA;&lt;em&gt;Authors:&lt;/em&gt; Marcin Kacperczyk, Stijn Van Nieuwerburgh, Laura Veldkamp.&#xA;&lt;em&gt;Source&lt;/em&gt;: NYU Working Paper No. 2451/28347 June 5, 2014&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Link:&lt;/em&gt; &lt;a href=&quot;http://goo.gl/Hdsnai&quot; rel=&quot;nofollow&quot;&gt;A Rational Theory of Mutual Funds’ Attention Allocation&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="5557" LastEditorUserId="5557" LastEditDate="2015-09-24T10:30:37.090" LastActivityDate="2015-09-24T10:30:37.090" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8373" PostTypeId="2" ParentId="5257" CreationDate="2015-09-23T20:47:32.283" Score="1" Body="&lt;p&gt;You are not likely to find New Keynesian DSGE models where money or currency plays an explicit role. These models mostly abstract from these considerations altogether and monetary policy is simply represented by the interest rate. I understand your situation as I myself have tried to write papers and searched for literature where dollarization plays a role. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you can, try to circumvent the explicit use of currency in your model. Think about what the currency's role is in your model, e.g. if it is to have different inerest rates in different countries or in different currencies, then simply use different interest rates instead of different currencies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another way would be to go outside of the standard DSGE framework and use other international finance, open economy models, as you would find in the Obstfeld/Rogoff book.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you really want to stick with DSGE, I would recommend looking into open economy DSGE models as well as DSGE models with &quot;Money in the Utility Function&quot;.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastEditorUserId="5557" LastEditDate="2015-10-24T09:00:35.353" LastActivityDate="2015-10-24T09:00:35.353" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8374" PostTypeId="2" ParentId="4858" CreationDate="2015-09-23T20:58:30.637" Score="1" Body="&lt;p&gt;I assume you are referring to first generation currency crisis models, a la Krugman. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Before t0: Here there is of course no benefit to attacking and causing a currency crisis (by definition). That is, before the pegged currency is overpriced (i.e. it is not overpriced) there is no profit from attacking/short selling the currency as a drop in the value of the currency is not expected and therefore short selling is not profitable. So before it is profitable to cause a crisis there can be no crisis.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;After t0: It would be profitable to cause a crisis and short sell a currency as long as it has not happened yet. However perfectly rational agents would react immediately, why wait? Like with investing in stocks, once you find a mispriced stock, you can profit anytime, but why wouldn't you profit immediately? Or lets say you find 100USD on the ground. You can profit from picking it up anytime after you find it, but why wait and risk that it could be too late later?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence it happens exactly at t0 as there is no reason to wait. An investor in currency would try to be faster than others to get arbitrage profits so others would try to be even faster than him and this goes on as much as possible. Its not possible to attack before (as its not possible to pick up 100USD found on the ground before its found there) so it happens as soon as it is possible, i.e. in t0.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a second generation crisis a la Obstfeld it would take a coordination of several investors attacking at once to cause the crisis, so you don't have the effect of everyone trying to be faster than the other as they must &quot;work together&quot; to be successful and thus the time of the attack/crisis is not so straightforward to predict.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastEditorUserId="5557" LastEditDate="2015-10-24T08:59:03.257" LastActivityDate="2015-10-24T08:59:03.257" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8375" PostTypeId="2" ParentId="4883" CreationDate="2015-09-23T21:00:58.577" Score="2" Body="&lt;p&gt;I would highly recommend Blanchard's Macroeconomics, especially for the short and medium run.&#xA;Another book to look at, especially for the long run and growth is Burda and Wyplosz (2012)&lt;/p&gt;&#xA;" OwnerUserId="5557" LastEditorUserId="5557" LastEditDate="2015-09-23T22:33:08.010" LastActivityDate="2015-09-23T22:33:08.010" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8376" PostTypeId="2" ParentId="6540" CreationDate="2015-09-23T21:17:32.697" Score="3" Body="&lt;p&gt;Competitiveness simply means how expensive goods of a country are when compared. To correctly compare we would need to transform everything into a(ny) single currency. To do this correctly we need two elements: a) the actual price of the good and b) its exchange rate. If a country has higher inflation, then nominal prices increase, the goods are more expensive, less desirable and therefore due to (a) competitiveness decreases.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However over time purchasing power partiy (called PPP) holds. If it holds (typically does in the long run) then due to higher inflation in a country, the currency will likely lose value (depreciate) and competitiveness will increase due to (b), in which case it will eventually cancel the aforementioned effect (a) in which case your confusion is completely justified, there should be no effect.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However since PPP does not always hold and especially not immediately, higher inflation reduces competitiveness.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastEditorUserId="5557" LastEditDate="2015-10-28T08:24:22.733" LastActivityDate="2015-10-28T08:24:22.733" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8377" PostTypeId="2" ParentId="5867" CreationDate="2015-09-23T22:16:18.693" Score="6" Body="&lt;p&gt;This is meant to add to @BKay's answer. Here are some examples that might help to see what's happening when a bank makes a loan. &lt;/p&gt;&#xA;&#xA;&lt;h2&gt;A bank's balance sheet&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;The image below is text taken from Greg Mankiw's textbook &lt;em&gt;Macroeconomics&lt;/em&gt; (7th edition, p. 555). This is a simplified version of a typical bank's balance sheet. Notice that reserves, loans, and securities are considered assets and that deposits, debt, and equity are considered liabilities.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/hqT6S.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/hqT6S.png&quot; alt=&quot;*Macroeconomics* (Mankiw, 7th edition, p. 555)&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;What happens when I deposit money into a bank?&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Now, let's first consider what happens when someone deposits money into this bank. For example, suppose someone deposits \$10. The new money goes to the vault which may then be deposited in the bank's account at the Federal Reserve (the central bank). This is a new asset. At the same time, the new deposit is a new liability. All together, this will increase the reserves of the bank by \$10 and the deposits by \$10. Both the assets and liabilities of the bank increased by \$10.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;What happens when a bank makes a loan?&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Now, what happens when a bank makes a loan? Suppose a bank makes a loan to someone for \$10. In the picture, it's clear that this will increase the amount of loans from \$500 to \$510. Now, remember that loans are considered assets. That is, the borrower has an obligation to pay the bank back. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But, where will the money come from? A few things can happen. One example of what could happen is the following. The bank could use its reserves. In this case, reserves would drop from \$200 to \$190. However, in a fractional reserve system, banks have reserve requirements. The ratio of reserves to deposits must stay above a certain percentage. More realistically, loans might go up by \$11 (because of interest), reserves down by \$10, and owner's equity up by \$1.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(However, I believe that often times, a bank might issue the loan but immediately sell the new asset to another party, while taking only a small cut.)&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;The benefits of fractional reserve banking&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Economists typically agree that the fractional reserve system adds some instability to the economy. However, it also adds many great benefits as well. There is a big literature about the trade-offs here and the many functions of (fractional reserve) banking, in general. (One of the most important economic functions is that it allows us to better smooth out liquidity shocks. See an important paper by Diamond and Dybvig).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is simply too much to get into here. You might consider opening a new question that specifically asks for a list of the summarized benefits. Also, check out Mishkin's Money and Banking book (undergraduate level) or &lt;em&gt;Microeconomics of Banking&lt;/em&gt; by Freixas and Rochet (graduate level, but still very accessible).&lt;/p&gt;&#xA;" OwnerUserId="59" LastEditorUserId="59" LastEditDate="2015-09-23T22:26:38.837" LastActivityDate="2015-09-23T22:26:38.837" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8378" PostTypeId="1" AcceptedAnswerId="8387" CreationDate="2015-09-24T03:23:36.043" Score="7" ViewCount="1943" Body="&lt;p&gt;I'm curious if anyone here can summarize the differences between the I.V. and control function approach to handling endogeneity. I think endogeneity is usually addressed using the 2SLS or IV approach and, having briefly studied the control function approach, am unsure what the CF approach offers that 2SLS and IV approaches do not offer. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can anyone help me clarify here? When would I use a CF approach rather than 2SLS, what does this approach offer that the other two do not etc. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am a newbie with metrics so any and all input is appreciated.  &lt;/p&gt;&#xA;" OwnerUserId="1655" LastEditorUserId="264" LastEditDate="2015-10-24T15:59:20.507" LastActivityDate="2015-10-24T15:59:20.507" Title="Instrumental variables vs control function: Which approach and why to handle endogeneity?" Tags="&lt;econometrics&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="8379" PostTypeId="1" CreationDate="2015-09-24T01:41:03.680" Score="4" ViewCount="66" Body="&lt;p&gt;How does stronger dollar drive down prices of commodities and/or materials like oil?&lt;/p&gt;&#xA;" OwnerDisplayName="GoldenSugar" LastActivityDate="2015-10-24T06:52:10.300" Title="Dollar Value And Commodity Prices" Tags="&lt;commodities&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8380" PostTypeId="2" ParentId="8379" CreationDate="2015-09-24T02:39:10.017" Score="1" Body="&lt;p&gt;There are two reasons I can think of for this effect.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;The more economic reason is that commodity prices are usually pro-cyclical. In economic booms those commodity producing countries and their currencies do quite well (their currency goes up and hence USD goes down). And vice versa, in uncertain economic times, there is not as much demand for commodities, and hence less demand for currencies of commodity producing countries (USD goes up and price of commodity declines).&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Another reason is more due to unit of account. Many of these commodities are traded in dollars even though the end users are global. If USD went up 1% against all currencies, however the main suppliers and end users of a commodity (say copper) are mostly in Chile and China respectively, then conceivably the cost of copper denominated in Chilean Peso might not have changed at all. This could happen because the Chilean supplier would be willing to sell their copper at 1% lower in USD terms and still get the same profit in Chilean Pesos terms. Therefore, in certain cases it is just a matter of perspective. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="5818" OwnerDisplayName="mirage007" LastActivityDate="2015-09-24T02:39:10.017" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8381" PostTypeId="1" AcceptedAnswerId="8385" CreationDate="2015-09-24T08:32:40.257" Score="7" ViewCount="670" Body="&lt;p&gt;This is the data published on &lt;strong&gt;20 March 2013 FOMC meeting&lt;/strong&gt;:&#xA;(&lt;a href=&quot;http://www.federalreserve.gov/monetarypolicy/fomcprojtabl20130320.htm&quot; rel=&quot;noreferrer&quot;&gt;http://www.federalreserve.gov/monetarypolicy/fomcprojtabl20130320.htm&lt;/a&gt;)&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;&lt;strong&gt;20 March 2013,&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;p&gt;&lt;strong&gt;Change in real GDP (actual):&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;year 2008: &lt;strong&gt;-3.3%&lt;/strong&gt;&lt;/li&gt;&#xA;&lt;li&gt;year 2009: &lt;strong&gt;-0.1%&lt;/strong&gt;&lt;/li&gt;&#xA;&lt;li&gt;year 2010: &lt;strong&gt;+2.4%&lt;/strong&gt;&lt;/li&gt;&#xA;&lt;li&gt;year 2011: +2.0%&lt;/li&gt;&#xA;&lt;li&gt;year 2012: &lt;strong&gt;+1.6%&lt;/strong&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;This is the data published on &lt;strong&gt;18 September 2013 FOMC meeting:&lt;/strong&gt;&#xA;(&lt;a href=&quot;http://www.federalreserve.gov/monetarypolicy/fomcprojtabl20130918.htm&quot; rel=&quot;noreferrer&quot;&gt;http://www.federalreserve.gov/monetarypolicy/fomcprojtabl20130918.htm&lt;/a&gt;)&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;&lt;strong&gt;18 September 2013,&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;p&gt;&lt;strong&gt;Change in real GDP (actual):&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;year 2008: &lt;strong&gt;-2.8%&lt;/strong&gt;&lt;/li&gt;&#xA;&lt;li&gt;year 2009: &lt;strong&gt;-0.2%&lt;/strong&gt;&lt;/li&gt;&#xA;&lt;li&gt;year 2010: &lt;strong&gt;+2.8%&lt;/strong&gt;&lt;/li&gt;&#xA;&lt;li&gt;year 2011: +2.0%&lt;/li&gt;&#xA;&lt;li&gt;year 2012: &lt;strong&gt;+2.0%&lt;/strong&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;As you can see, the GDP data for year 2008, 2009, 2010 and 2012 that published on 20 March 2013, and the data that published on 18 September 2013 is different.&lt;/p&gt;&#xA;&lt;p&gt;&lt;strong&gt;Why did the Fed change the data?&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="5369" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2020-01-24T23:51:41.313" Title="Why did the Federal Reserve change the data about USA GDP?" Tags="&lt;data-request&gt;&lt;gdp&gt;&lt;federal-reserve&gt;&lt;usa&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8382" PostTypeId="2" ParentId="1916" CreationDate="2015-09-24T09:13:00.340" Score="2" Body="&lt;p&gt;&lt;a href=&quot;http://www.waelde.com/pdf/AIO.pdf&quot; rel=&quot;nofollow&quot;&gt; Applied Intertemporal Optimization&lt;/a&gt; by Klaus Wälde is a very very nice book, even for those who are not really familiar with mathematics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The book treats deterministic and stochastic models, both in discrete and continuous time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would really say for this book &quot;Dynamic Optimization for dummies&quot;. I was not familiar at all with dynamic optimization but this book let me to get through.&lt;/p&gt;&#xA;" OwnerUserId="2938" LastActivityDate="2015-09-24T09:13:00.340" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8383" PostTypeId="2" ParentId="8381" CreationDate="2015-09-24T10:40:43.800" Score="9" Body="&lt;p&gt;This happens all the time and is normal. It's due to measurement error. It is hard to measure these things in real time and as time goes by more data comes in, which allows measurement of GDP and other macroeconomic variables to be better so they are revised. Sometimes the revisions can be quite large. Typically the latest data is also the least reliable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For some advanced information on how such measurements are made, the issue of measurement error and a discussion of how to improve estimates see &lt;a href=&quot;http://www.nber.org/papers/w18954.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;this paper&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a discussion on the issues these revisions of GDP data and measurement error pose for monetary policy, see the work of Orphanides, for example &lt;a href=&quot;http://www.federalreserve.gov/PUBS/FEDS/1998/199803/199803pap.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; and &lt;a href=&quot;http://www.federalreserve.gov/Pubs/FEDS/1999/199945/199945pap.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;. For his discussion on the reliability of GDP estimates in real time see &lt;a href=&quot;http://econwpa.repec.org/eps/mac/papers/9907/9907006.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;this paper&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastEditorUserId="5557" LastEditDate="2020-01-24T23:51:41.313" LastActivityDate="2020-01-24T23:51:41.313" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="8384" PostTypeId="2" ParentId="6986" CreationDate="2015-09-24T11:24:17.477" Score="10" Body="&lt;p&gt;Its important to keep in mind that the exchange rate is a &amp;quot;price for currency&amp;quot; and just like any other price it is determined by supply and demand. The main question now is what determines supply and demand for currency?&lt;/p&gt;&#xA;&lt;p&gt;There are two main models that tell us how exchange rates behave based on the two main forces driving demand (and supply) for currency.&lt;/p&gt;&#xA;&lt;p&gt;One factor is trade of goods (the goods market). If foreigners buy our goods they need our currency, so they demand our currency and higher demand ceteris paribus (all else staying constant) leads to a higher price and the value of the domestic currency increases. Based on such considerations in the goods markets we have the model of Purchasing Power Parity (PPP). However empirically it does not always hold and in reality it is mostly expected to hold in the long run.&lt;/p&gt;&#xA;&lt;p&gt;&lt;strong&gt;Answer to Q1:&lt;/strong&gt; Beyond the goods market discussed above, the second main factor is the capital market and that is what Investopedia is referring to. This gives rise to the model of Uncovered Interest Rate Parity, called UIP (there is also a &amp;quot;Covered Interest Rate Parity Model&amp;quot;). This says that if interest rates are higher in the domestic country compared to the foreign country, then foreign investors would like to invest in our country to get the higher returns. To do so they need our currency. So they buy it (&lt;strong&gt;demand it&lt;/strong&gt;) and therefore as long as supply of currency doesn't increase (the central bank printing more money) the price and value of a currency must increase. Also note that there's no reason to expect the central bank to change the supply in a floating exchange rate regime, which most countries have (i.e. there is no attempt to intervene in the exchange rate to keep it fixed).&lt;/p&gt;&#xA;&lt;p&gt;&lt;strong&gt;Answer to Q2:&lt;/strong&gt; It is not necessarily true that a higher interest rate should increase inflation in general. However increasing the interest rate can decrease inflation. Your understanding of inflation is correct. The second part of the second quote you gave, that higher inflation decreases the value of the currency, however is correct. This is due to the first model we discussed, the PPP. The idea is that inflation makes goods more expensive and therefore our goods have less foreign demand, which leads foreigners to have less demand for our currency (they buy less of our goods so they need less of our money to buy our goods) and less demand for the currency reduces the value of the currency.&lt;/p&gt;&#xA;&lt;p&gt;&lt;strong&gt;Answer to Q3:&lt;/strong&gt; I believe this follows from the general discussion above.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastEditorUserId="5557" LastEditDate="2021-04-20T16:09:48.450" LastActivityDate="2021-04-20T16:09:48.450" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="8385" PostTypeId="2" ParentId="8381" CreationDate="2015-09-24T13:50:39.280" Score="5" Body="&lt;p&gt;@BB King's answer is good, but I want to make one point very clear:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;The Fed did not change the data.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;The Bureau of Economic Analysis revised the data&lt;/em&gt; as a part of its 2013 comprehensive revision process, which it engages in every five years using data from the most recent &lt;a href=&quot;http://www.census.gov/econ/census/&quot;&gt;Economic Census&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It may be worth noting that the BEA, which is the agency that is responsible for estimating US GDP, is housed in the US Department of Commerce, and as such is wholly independent of the Federal Reserve.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The changes made in the 2013 comprehensive revision are &lt;a href=&quot;http://www.bea.gov/scb/pdf/2013/09%20September/0913_comprehensive_nipa_revision.pdf&quot;&gt;discussed here&lt;/a&gt;, with a table showing annual changes on page 16. Note that the annual numbers shown in the article do not align with the numbers shown in the Fed's table because the BEA publishes percent change in &lt;em&gt;annual&lt;/em&gt; real output, while the numbers used by the Fed in your links are showing the percent change in &lt;em&gt;4th-quarter&lt;/em&gt; real output, which can affect how the timing of changes appears. As a result, the major slowdown that occurred in 2008 Q4, for example, shows as a large drop in 2008 4th-quarter output and a small change in 2009 4th-quarter output using the quarterly comparison shown by the Fed, while it shows up as a small decrease in overall 2008 output and a large decrease in overall 2009 output using the annual numbers shown in the BEA's table.&lt;/p&gt;&#xA;" OwnerUserId="264" LastEditorUserId="264" LastEditDate="2015-09-24T14:06:29.607" LastActivityDate="2015-09-24T14:06:29.607" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8386" PostTypeId="2" ParentId="5284" CreationDate="2015-09-24T14:40:22.320" Score="4" Body="&lt;p&gt;This topic has been studied widely in the theory of repeated games. See for example:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Robert J. Aumann, Sylvain Sorin: &lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/0899825689900031&quot; rel=&quot;nofollow&quot;&gt;Cooperation and bounded recall&lt;/a&gt;, Games and Economic Behavior, Vol. 1, No. 1. (March 1989)&lt;/p&gt;&#xA;" OwnerUserId="385" LastActivityDate="2015-09-24T14:40:22.320" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8387" PostTypeId="2" ParentId="8378" CreationDate="2015-09-24T15:00:35.930" Score="6" Body="&lt;p&gt;The Control Function Approach (proposed by Heckman-1979 if I remember correctly) , is similar to an IV strategy in spirit, except that it can be used in a non-linear setting, such as Probit/Logit models etc. For instance, if you have endogeneity in a logit model, you cannot just run a 2SLS procedure as the first step is a linear projection of your x on your z, and the second step is nonlinear. There are two ways of handling endogeneity in nonlinear models: control function approach and a special regressor approach. &lt;/p&gt;&#xA;" OwnerUserId="5233" LastActivityDate="2015-09-24T15:00:35.930" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8388" PostTypeId="1" CreationDate="2015-09-24T15:09:07.243" Score="3" ViewCount="42" Body="&lt;p&gt;The USA and some other countries are not using the SI-system. Are there any estimates of how much productivity is lost because of having to convert numbers? (non-SI countries, SI-countries)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I imagine that the loss not only affects the non-SI countries, because the SI-countries wanting to export to non-SI countries would also use time for conversions in order to comply with local laws and customer demands.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The costs are probably difficult to measure because they are small amounts that are across every industry. For example car companies having to switch the km/h to mph speedometer; schools that have to spend much more time on explaining the non-SI system; or the the many goods that need double labelling.&lt;/p&gt;&#xA;" OwnerUserId="5759" LastActivityDate="2015-10-24T17:19:44.060" Title="What is the loss of productivity of not using the international system of measurments (SI)" Tags="&lt;political-economy&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8389" PostTypeId="2" ParentId="8388" CreationDate="2015-09-24T15:43:20.187" Score="2" Body="&lt;p&gt;This is a good example of &quot;transactional costs&quot; -and of the small &quot;menu costs&quot; as Mankiw has once called them. His paper Mankiw (1985) &lt;strong&gt;&lt;a href=&quot;https://notendur.hi.is/ajonsson/kennsla2003/Mankiw_menucost.pdf&quot; rel=&quot;nofollow&quot;&gt;&quot;Small Menu Costs and Large Business Cycles: A Macroeconomic Model of Monopoly&quot; The Quarterly Journal of Economics, 100(2):529-537&lt;/a&gt;&lt;/strong&gt; contains a model where in his own words, shows that &lt;em&gt;&quot;sticky prices can be both privately efficient&#xA;and socially inefficient.&quot;&lt;/em&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The basic mechanism of the model is as follows: a monopolistic firm has to set the selling price one period in advance, based on expectations about future demand. If demand is realized lower than expected, the firm can reduce its price but at a &quot;menu cost&quot; (alluding to the costs that restaurants have to bear in order to re-print their catalogs with new prices).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Mankiw shows that even though this cost may be small, still it may prevent the firm from adjusting the price. So prices become sticky, which is socially inefficient.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course this is an underlying theory that justifies the &lt;em&gt;existence&lt;/em&gt; of inefficiency due to such &quot;transactional costs&quot;. Actually measuring and estimating them would require a detailed audit approach as regards the time spent and other costs involved to change measurement units.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-09-24T15:43:20.187" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8390" PostTypeId="1" AcceptedAnswerId="8402" CreationDate="2015-09-24T15:50:38.570" Score="0" ViewCount="28" Body="&lt;p&gt;I remember once finding a graphic which let you slide back and forth, showing how third world countries had developed over time. It would be really handy to find it again, but I've tried all the keywords I can think of and it's not coming up.&lt;/p&gt;&#xA;" OwnerUserId="5761" LastActivityDate="2015-09-25T07:17:05.807" Title="Where can I find an interactive graphic showing the development of countries?" Tags="&lt;development&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8391" PostTypeId="1" AcceptedAnswerId="8395" CreationDate="2015-09-24T16:27:18.297" Score="3" ViewCount="92" Body="&lt;p&gt;I'll try to state my question clearly:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&amp;nbsp;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a given a &quot;wealth&quot; allocation &lt;strong&gt;W&lt;/strong&gt;&lt;sub&gt;t&lt;/sub&gt; = (w&lt;sub&gt;1&lt;/sub&gt;, w&lt;sub&gt;2&lt;/sub&gt;, w&lt;sub&gt;3&lt;/sub&gt;, ... ) for individuals &lt;strong&gt;I&lt;/strong&gt; = (i&lt;sub&gt;1&lt;/sub&gt;, i&lt;sub&gt;2&lt;/sub&gt;, i&lt;sub&gt;3&lt;/sub&gt;, ... ).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And a distribution of &lt;strong&gt;D&lt;/strong&gt;= (w&lt;sub&gt;1&lt;/sub&gt;/|&lt;strong&gt;W&lt;/strong&gt;|, w&lt;sub&gt;2&lt;/sub&gt;/|&lt;strong&gt;W&lt;/strong&gt;|, w&lt;sub&gt;3&lt;/sub&gt;/|&lt;strong&gt;W&lt;/strong&gt;|, ... ), that is, as a percentage of the total.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where &lt;strong&gt;W&lt;/strong&gt;&lt;sub&gt;t&lt;/sub&gt; is Pareto Efficient at a given time frame &amp;nbsp;t&amp;nbsp;, and &lt;strong&gt;W&lt;/strong&gt;&lt;sub&gt;(t+1)&lt;/sub&gt; is Pareto Efficient at &amp;nbsp;t+1&amp;nbsp;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When there is growth such that &amp;nbsp; &amp;nbsp;&amp;nbsp;|&lt;strong&gt;W&lt;/strong&gt;&lt;sub&gt;(t+1)&lt;/sub&gt;| &gt; |&lt;strong&gt;W&lt;/strong&gt;&lt;sub&gt;t&lt;/sub&gt;| &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is &lt;strong&gt;D&lt;/strong&gt;&lt;sub&gt;t&lt;/sub&gt;=&lt;strong&gt;D&lt;/strong&gt;&lt;sub&gt;(t+1)&lt;/sub&gt;?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If so, why? If not, how do you allocate say, capital, whose value is intrinsically linked to growth?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand many of my assumptions may be plain wrong or badly stated, I am still an undergrad. Sorry about that. And thanks in advance.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Further clarifications:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For each element &amp;nbsp;w&amp;nbsp; of &lt;strong&gt;W&lt;/strong&gt;&lt;sub&gt;t&lt;/sub&gt; = (w&lt;sub&gt;1&lt;/sub&gt;, w&lt;sub&gt;2&lt;/sub&gt;, w&lt;sub&gt;3&lt;/sub&gt;, ... ),&lt;/p&gt;&#xA;&#xA;&lt;p&gt;w= &lt;strong&gt;P&lt;/strong&gt; * &lt;strong&gt;B&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where &lt;strong&gt;P&lt;/strong&gt; is the price vector of a commodity bundle &lt;strong&gt;B&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I hope that my representation of growth as an increase in the magnitude of the &lt;strong&gt;W&lt;/strong&gt; vector is correct. This is what has been bugging me the most. It's safe to assume that growth causes an increase in |&lt;strong&gt;W&lt;/strong&gt;|, right?&lt;/p&gt;&#xA;" OwnerUserId="5174" LastActivityDate="2015-09-25T08:03:35.123" Title="Does Pareto-efficency take into account growth?" Tags="&lt;economic-growth&gt;&lt;pareto-efficiency&gt;" AnswerCount="3" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="8392" PostTypeId="2" ParentId="8358" CreationDate="2015-09-24T18:23:46.283" Score="1" Body="&lt;p&gt;From looking at the data I have access to, I'd say that things stop early on Friday afternoon in Ireland. So the Friday evening peak is lower than evening peaks on other weekdays: it's the only day of the week where the evening peak is about the same price as the morning peak.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As you haven't provided the metadata of the data you're using, nor links to find that out, I've looked at the &lt;a href=&quot;http://www.sem-o.com/&quot; rel=&quot;nofollow noreferrer&quot;&gt;SEMO&lt;/a&gt; data I know about.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Single Electricity Market Organisation (SEMO) for Ireland gives prices by trading period (half-hours, starting at midnight), for every day of the year. So I took a 3-month period at random, 1 Feb - 1 May 2015, and looked at the average price for each half-hourly period, for each day of the week. Note that this is a simple arithmetic mean: there's no weighting by volume, no special handling of public holidays, no weather adjustments.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/bBqG9.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/bBqG9.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Friday, Saturday, Sunday have heavier lines, because they're the ones I'm emphasising. The four weekdays Monday-Thursday are very similar to each other. Saturday and Sunday each have later and lower morning peaks than Mon-Fri.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But Friday's evening peak is the lowest evening peak of the week. Much lower than any other day. Whereas in-day prices normally peak around 18.00-18.30, due to most industry still being powered, most commerce still being powered, and most homes being active, that's not the case on Friday: peak prices are a lot lower.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that there is no single price of any one MWh of electricity. Electricity gets traded many times over, starting maybe a year in advance, a month, a week, a day, an hour in advance, and then within the half-hour trading period itself there will be varying sell and buy prices. So there are huge dangers in trying to draw inferences from two different sets of price data, particularly when you don't have the metatadata that tells you what the data actually represents. The SMP price data I've used here is the System Marginal Price. There's a good description of &lt;a href=&quot;http://www.sem-o.com/Publications/General/Pricing%20and%20Scheduling%20FAQ.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;pricing and scheduling from SEMO here (pdf)&lt;/a&gt;, including on page 9 the calculation of the SMP.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Electricity prices are complicated. Unit commitment is complicated.&lt;/p&gt;&#xA;" OwnerUserId="44" LastEditorUserId="44" LastEditDate="2015-09-24T19:29:43.447" LastActivityDate="2015-09-24T19:29:43.447" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8393" PostTypeId="2" ParentId="233" CreationDate="2015-09-24T19:21:01.567" Score="2" Body="&lt;p&gt;The following two papers by Andrew Caplin and Mark Dean focus on tests of rational inattention in a lab setting (i.e. with data one could in principle find the field). As BB King said, I won't do it any justice summarizing myself. The second is about Shannon entropy specifically.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.econ.brown.edu/fac/Mark_Dean/Pub_Paper_8.pdf&quot; rel=&quot;nofollow&quot;&gt;http://www.econ.brown.edu/fac/Mark_Dean/Pub_Paper_8.pdf&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.econ.brown.edu/fac/Mark_Dean/Working_Paper_10.pdf&quot; rel=&quot;nofollow&quot;&gt;http://www.econ.brown.edu/fac/Mark_Dean/Working_Paper_10.pdf&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="5560" LastActivityDate="2015-09-24T19:21:01.567" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8394" PostTypeId="2" ParentId="8391" CreationDate="2015-09-24T19:29:01.913" Score="-2" Body="&lt;p&gt;In general classical economics, the answer to your question is &quot;ABSOLUTELY!&quot; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Now the TL;DR answer ...&lt;/em&gt; &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Classical models assume that all actors are rational, discount the future equivalently and equally concerned about&#xA;  their future well-being over time AND able to comprehend the future&#xA;  with perfect certainty ... a &lt;a href=&quot;https://en.wikipedia.org/wiki/Pareto_efficiency&quot; rel=&quot;nofollow&quot;&gt;Pareto efficient&lt;/a&gt;  allocation of&#xA;  resources exists when it is impossible to make any one individual&#xA;  better off without making at least one individual worse off.  &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Clearly the real issue is not Pareto efficiency, but rather in whether&#xA;  or not the actors really are rational, have static preferences over&#xA;  time, are able to coherently use all information available and know&#xA;  the future [and impacts of growth in their lives] with perfect&#xA;  certainty.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Your conclusion is going to depend on how you construct your model ...&#xA;  you model might be flawed (HINT: all models are flawed) ...  or you&#xA;  have introduced [artificial] constraints to help you [implicitly] test&#xA;  some hypothesis or prove a point. If you change the premises and&#xA;  architecture of your model, you can prove anything ... that's why no&#xA;  one should ever trust &lt;a href=&quot;http://www.nytimes.com/column/paul-krugman&quot; rel=&quot;nofollow&quot;&gt;some opinionated joker&lt;/a&gt; claiming to be an&#xA;  economic expert, simply because he received some &lt;a href=&quot;https://en.wikipedia.org/wiki/Nobel_Memorial_Prize_in_Economic_Sciences&quot; rel=&quot;nofollow&quot;&gt;&lt;em&gt;teacher's pet&#xA;  award&lt;/em&gt; for brilliant models that were popular with powerful&#xA;  people&lt;/a&gt;.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="5766" LastEditorUserId="40" LastEditDate="2015-09-24T22:47:39.453" LastActivityDate="2015-09-24T22:47:39.453" CommentCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="8395" PostTypeId="2" ParentId="8391" CreationDate="2015-09-24T22:46:46.557" Score="3" Body="&lt;p&gt;It seems to me that as long as every person likes wealth any allocation $W_t$ will be Pareto-optimal.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Even if this was not the case, so supposing that $w_1, w_2,...$ are not real numbers representing wealth but vectors representing bundles of goods the distribution from one time to another can change drastically if you do not specify how growth occurs. At $t=1$ someone might have everything, then at $t=2$ someone else might have everything. Both of these states are Pareto-optimal, but the distributions are quite different.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So no, it does not follow from your conditions that $D_t$ necessarily equals $D_{t+1}$.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2015-09-24T22:53:55.827" LastActivityDate="2015-09-24T22:53:55.827" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8397" PostTypeId="1" CreationDate="2015-09-25T06:27:08.383" Score="8" ViewCount="484" Body="&lt;p&gt;Consider a very basic discrete time representative consumer maximization problem with CRRA utility. There exist a risky asset with time $t$ price $p_t$ that pays time $t+1$ dividend $d_{t+1}$ , and a riskless asset with price $p_t^f$ that pays a constant payoff 1 at $t+1$. We assume that the dividends are a sequence of random variables that follow a Markov process. Assume further that the consumer has no other income streams (i.e. $y_t = 0 \ \forall t$). At time t consumer invests amount $\pi_t$ in the risky asset and amount $\pi_t^0$ in the riskless asset. Therefore, the maximization problem can be stated as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{align*} &#xA;&amp;amp; \underset{\{ c_t, \pi \}_0^\infty}{\text{max}} \ \ E_0 \sum_{t=0}^\infty \ \beta^t \ \frac{c_t^{1-\gamma} -1}{1-\gamma} \\ &#xA;\\&#xA;\&#xA;s.t  \ \ \ \ &amp;amp; c_t + \pi_t p_t + \pi_t^0 p_t^0 = (d_t+p_t) \pi_{t-1} + \pi_{t-1}^0  \\&#xA;&amp;amp; c_t \geq 0&#xA;\end{align*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Say we want to find the equilibrium riskless rate and expected equity premium. In order to close the model, it is often assumed assumed (see e.g. Claus Munk's book &lt;em&gt;Financial Asset Pricing Theory&lt;/em&gt; chapter 8.3) that the log-consumption growth and log-risky gross returns are jointly normally distributed. I.e&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{align*} &#xA;&amp;amp; ln \ \Big(\dfrac{c_{t+1}}{c_t} \Big) \equiv \bar{g}_{t+1} \sim N(\mu_g, \sigma_g^2) \\ &#xA;&amp;amp; ln R_{t+1} \equiv \bar{r}_{t+1} \sim N(\mu_r, \sigma_r^2) \ , \\&#xA;\end{align*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where gross returns are defined as &#xA;$$R_{t+1} \equiv \frac{p_{t+1} + d_{t+1}}{p_t} \ .$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I don't completely understand is where do thelog-normal distribution assumptions &quot;come from&quot;. I know that since this is a representative agent economy, consumption of the agent must equal the aggregate dividend in the economy.  But since we assumed that there is no income, $y_t = 0 \ \forall t$, the only exogenous dividend process in the economy is $d_t$ and therefore it should have the same distribution as the consumption growth. However, my impression is that when we say the risky rate has log-normal distribution this actually means the dividend process, since it is the 'random part' in the definition of returns (price $p_{t+1}$ is not exogenous but determined inside the model). To me it seems now that we have made two different assumptions about the same endowment process $d_t$. Where does the assumption for consumption come from or what does it stand for? How would the situation change if the consumer had some income stream $y_t &amp;gt; 0$?&lt;/p&gt;&#xA;" OwnerUserId="5764" LastEditorUserId="2776" LastEditDate="2016-09-05T00:44:53.003" LastActivityDate="2018-02-13T04:02:21.183" Title="Log-normality assumption in consumption based asset pricing" Tags="&lt;macroeconomics&gt;&lt;consumer-theory&gt;&lt;asset-pricing&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8398" PostTypeId="1" AcceptedAnswerId="8400" CreationDate="2015-09-25T06:37:32.963" Score="7" ViewCount="1062" Body="&lt;p&gt;Mary is making a hefty profit manufacturing and selling widgets. Jim has some money laying around and he is trying to figure out if he shouldn't start manufacturing some widgets too. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this example assume that the marginal cost to produce a widget is zero (time, money, etc are all close enough to zero to be indistinguishable), but the cost of making a widget manufacturing plant is quite high. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also assume that the market for widgets is fairly centralized. There are two bins with widgets in them and consumers can purchase their widgets from either bin. They cannot be resold, however. There are laws against that for whatever reason, and they are ruthlessly enforced. You may only sell widgets that you manufacture yourself.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What does Jim decide? And if he decides to enter the widget business, what is the eventual price per widget and how long does it take to reach that price?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;More (but not too) formally:&lt;/strong&gt; &#xA;Our situation can be modeled by a few different games,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Case 1: assume the rules of the price war are&lt;/p&gt;&#xA;&#xA;&lt;p&gt;players take turns setting a new, lower price from $\mathbb R$ or passing. When both players pass, the prices are locked and the market is allowed to run for t.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;in this case the optimal strategy to set your price to whatever price your opponent sets, if the prices are already equal, then pass.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Case 2: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The market is allowed to run for time t after each player sets a (lesser or equal) price, they take turns setting prices, and they choose prices from $\Bbb Z$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here the optimal strategy is in fact no different. if the price starts at $p1$, and the sharing strategy is $S$, then there exists some $t$ such that for all $t'$&gt;$t$ $$EV(S,S,t)=\frac{t*p}{2} &amp;gt;tk(p-1) &amp;gt; EV(S,S',t)$$ for all $p,k,S'$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Case 3: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Both players set prices in each timestep t without the information of the price their opponent sets in that time step, and the market is run. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this case, no pure strategy is guaranteed to exist, because the information is not perfect. I don't know what the Nash equilibrium would end up being, nor do I know that there is any reason to suspect that it converges (as t -&gt; 0) to the same price as the previous two cases, despite the game seeming to do so.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So I guess the question becomes, why does competition even exist at all in this market, and since all of these scenarios seem to converge towards the reality. ?&lt;/p&gt;&#xA;" OwnerUserId="5774" LastEditorUserId="5774" LastEditDate="2015-09-29T23:25:12.240" LastActivityDate="2015-09-30T19:56:42.010" Title="What determines the outcome of a price war, and why isn't that outcome reached instantaneously?" Tags="&lt;game-theory&gt;&lt;elasticity&gt;&lt;price-theory&gt;&lt;competitive-equilibrium&gt;" AnswerCount="2" CommentCount="11" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8399" PostTypeId="2" ParentId="5111" CreationDate="2015-09-25T06:56:30.050" Score="0" Body="&lt;p&gt;I do not know of any theory of repeated games without a beginning. However, some formalization may help regarding your question about stationary equilibria. I will answer your question with respect to the simple Nash equilibrium, but my remarks should also apply to more refined equilibrium concepts. Note first that we do not need to change our definition of a Nash equilibrium, as it is abstractly defined for any strategy space. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A Nash equilibrium in a repeated game with a starting point does not need to be stationary. For example, an infinitely repeated prisoners dilemma can have any sequence of &quot;cooperate&quot; and &quot;defect&quot; for both players given players do not discount future payoffs too much. This is the same for a game without a starting point. Suppose that the players have access to a binary randomization device to coordinate their strategies. Suppose they both play &quot;cooperate&quot; if the randomization device is 1 and &quot;defect&quot; otherwise. Any player deviating from this, will be punished with the other player playing &quot;defect&quot; for the remainder of the game. Now set the randomization device to probability $\frac{t^2}{t^2-1}$ of being 1 in period t. Clearly, the equilibrium strategies are non-stationary. However, players have no incentive to deviate as long as their time discounting is not too high.&lt;/p&gt;&#xA;" OwnerUserId="5635" LastActivityDate="2015-09-25T06:56:30.050" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8400" PostTypeId="2" ParentId="8398" CreationDate="2015-09-25T07:06:06.400" Score="7" Body="&lt;p&gt;&lt;strong&gt;Answer to question&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we take your assumptions literally, Jim will decide not to enter the widget business. For suppose he did incur the cost of entry and that Mary is selling at price $p_m$. Jim can only sell to consumers if his price $p_j\leq p_m$. The best price for Jim is $p_m-\epsilon$ (where $\epsilon$ is some very small, positive amount). But this would leave Mary with no sales, so she will have an incentive to reduce her price to $p_j-\epsilon$. This is the price war you describe and it will result in both parties reducing their price to marginal cost (i.e. zero—this is known as &lt;a href=&quot;https://en.wikipedia.org/wiki/Bertrand_competition&quot; rel=&quot;nofollow&quot;&gt;Bertrand competition&lt;/a&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since there are no frictions in your model, this will all happen very quickly. Moreover, because a price of zero implies zero profits, Jim has no incentive to incur the cost of entry in the first place, so he will instead opt to stay out of the market.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Effect of relaxing assumptions&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is obviously quite a stylised result owing to the stark assumptions of the model. But it makes a good foundation for thinking about some more realistic settings. For example:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;If Mary's factory has a marginal cost $c_m$ and Jim has a patent on a new technology that implies cost $c_j&amp;lt;c_m$ then Jim can profitably set a price below the lowest price Mary is willing to set. Good news: if someone invents a more efficient technology they can enter the market and displace the older, less efficient technology.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Suppose that the factory has a monthly fixed maintenance cost. If Mary is a small, credit-constrained independent firm and Jim is a huge conglomerate with large reserves of cash then Jim can enter and practice &lt;a href=&quot;https://en.wikipedia.org/wiki/Predatory_pricing&quot; rel=&quot;nofollow&quot;&gt;predatory pricing&lt;/a&gt;. If he is patient enough, he can enter the market, set $p_j=0$, and wait for Mary to run out of money. She will then leave the market and Jim becomes a profitable monopoly. This kind of anti-competitive behaviour is illegal in most jurisdictions (yes, there are laws against setting too low a price!).&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Suppose that Mary's widgets are blue and Jim's are pink. Consumers have an idiosyncratic preference for either blue or pink widgets. Then both firms can set a positive price and sell to the consumers who like their colour more. The more are products &lt;em&gt;differentiated&lt;/em&gt; the more there is scope for both firms to exist profitably in the industry and Jim may find it worthwhile to enter. This is why firms talk so much about differentiation and unique selling points. There are various ways to model this in economics. &lt;a href=&quot;http://www.people.fas.harvard.edu/~zlai/teaching/AppliedIO_Note3_HotellingSalop.pdf&quot; rel=&quot;nofollow&quot;&gt;Here is an example&lt;/a&gt;.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;More formally, $p_j=p_m=0$ is the unique pure strategy Nash equilibrium&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To be slightly more formal, let us check that $p_m=p_j=0$ is indeed a (Nash) equilibrium of the subgame in which both firms simultaneously set $p\in\mathbb{R}$ with the lowest priced firm capturing the entire (finite) demand. Neither party can profit by deviating to $p&amp;lt;0$ as this yields negative profits. A deviation to any $p&amp;gt;0$ results in the rival firm having a lower price so demand (and profits) are zero---again not profitable. Thus, there is no profitable deviation and $p_i=p_m=0$ is &lt;em&gt;an&lt;/em&gt; equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there another pure strategy equilibrium with some $p&amp;gt;0$? The answer is no. Consider the three possibilities and observe how a profitable deviation can be constructed for each:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;$p_m&amp;gt;p_j$. In this case $j$ could increase his price to some $p_j'\in(p_j,p_m)$ without losing any demand. Such a $p_j'$ exists by the connectedness of the real line.&lt;/li&gt;&#xA;&lt;li&gt;$p_m=p_j=p$. In this case at least one of the firms must be capturing less than all of the consumers. But by deviating to $p'=p-\epsilon$ it can capture all consumers. If we write $D$ for demand before the deviation and $D'&amp;gt;D$ for demand afterwards then the change in profits is $D'(p-\epsilon)-Dp$. By the connectedness of the real line, there exists an $\epsilon$ sufficiently small that this is positive.&lt;/li&gt;&#xA;&lt;li&gt;$p_m&amp;lt;p_j$. This case is symmetric to $p_m&amp;gt;p_j$.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Thus, the only pure strategy equilibrium of this one-shot game is $p_j=p_m=0$.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;If we repeat the game then we can sustain other (collusive) equilibria&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What if we repeat the game infinitely many times? Suppose the two firms have an implicit understanding (an explicit agreement would be illegal) that they will both set $p=p^*$ for some $p^*&amp;gt;0$. Moreover, it is understood that if one firm deviates from this behaviour today, then both firms will revert to playing the static equilibrium ($p_j=p_m=0$) forever. Firms discount the future at rate $\delta$. For simplicity, suppose that demand is constant: $D(p)=1$ (not crucial).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If a firm plays in accordance with this understanding (and expects its rival to do likewise) then its profit is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\sum_{t=0}^\infty\frac{1}{2}\delta^t p^*=\frac{p^*}{2(1-\delta)}.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If a firm cheats and sets $p^*-\epsilon$ ($\epsilon$ small) then it captures the whole demand today, but expects to be punished forever thereafter, so profit is $p^*$. Thus, both firms wish to comply with their implicit understanding if&#xA;$$\frac{p^*}{2(1-\delta)}&amp;gt;p^*\iff \delta&amp;gt;\frac{1}{2}$$&#xA;(i.e. if they are sufficiently patient).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, if we repeat the game and firms are very patient, &lt;em&gt;we can sustain any price in equilibrium&lt;/em&gt;. But note that these equilibria require not only that firms are patient, but also that a) there is no threat of future entry that could destabilise the equilibrium; b) firms are able to coordinate on a $p^*$ without ever making an (illegal) explicit agreement; and c) firms are able to constantly and accurately monitor rivals behaviour in order to detect cheating.&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2015-09-30T19:56:42.010" LastActivityDate="2015-09-30T19:56:42.010" CommentCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="8401" PostTypeId="2" ParentId="8398" CreationDate="2015-09-25T07:15:46.523" Score="0" Body="&lt;p&gt;Mary's marginal cost is zero so she can sell at that price when Jim enters the market. Thus Jim needs to have deep pockets to survive a price war.If both Jim and Mary's financial resources and opportunity cost (i.e what they can earn elsewhere) are 'common knowledge' then, in an indefinitely repeated game, there is a 'Muth Rational' solution such that price is set where the demand curve has elasticity of one- i.e. Marginal Revenue is zero- and the market is shared according to a formula which takes account of what resources each can commit and what opportunity cost this entails. In your example it appears Jim has 'money lying around'- i.e. no opportunity cost as such while Mary has sunk costs only and no recurring or depreciation costs. Jim may as well produce widgets. If there is no cost of disposing of widgets and assuming both Jim and Mary are rational then the Muth rational solution obtains. However it is not stable, one defection is likely to collapse the market. However, the defector realizes that their greed destroyed future profit so they will set the Muth rational price twice- allowing the other to recoup lost profit- after which the Muth rational price obtains till another defection occurs.&#xA;It is rational to enter this market for Jim because he seems to have zero opportunity cost for the investment and there is a positive expected value for the investment- provided common knowledge and Muth rationality obtain.&lt;/p&gt;&#xA;" OwnerUserId="5775" LastEditorUserId="5775" LastEditDate="2015-09-25T07:22:48.053" LastActivityDate="2015-09-25T07:22:48.053" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8402" PostTypeId="2" ParentId="8390" CreationDate="2015-09-25T07:17:05.807" Score="0" Body="&lt;p&gt;I don't know if it is the original that you had in mind, but &lt;a href=&quot;http://www.gapminder.org/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Gapminder&lt;/a&gt; allows you to interactively explore a variety of data sets relating to both developed and developing countries.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/6MRog.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/6MRog.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2015-09-25T07:17:05.807" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8404" PostTypeId="2" ParentId="8391" CreationDate="2015-09-25T08:03:35.123" Score="0" Body="&lt;p&gt;Perfectly fair question. Let the price vector be expressed in terms of a numeraire- i.e. a physical good. Stipulate that all economic activity is voluntary, there is no preference revelation problem (i.e. no strategic behaviour), no hedging etc (i.e. the standard perfect competition assumptions) then the answer is no if there is preference and endowment diversity provided some goods are consumed in each period. If agents are identical, then the answer is yes.&#xA;This is because a Wt is Pareto efficient if you can make a mutually advantageous trade which enables you to consume more- assuming that is your preference- provided you find someone who wants more assets and prefers to be thrifty for the moment. If Preference diversity obtains this happens so Dt will differ from the previous Dt-1.&#xA;Interestingly, if preference diversity is too great or too little and markets use up scarce resources then no conclusion can be drawn. The same thing happens when you introduce a little uncertainty- i.e. hedging appears- or a bit of information asymmetry- so preference revelation becomes problematic.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I take it you want an answer the question 'what type of allocatively efficient Growth is distributionally neutral'- this was a big topic in the Sixties- turnpike theorems and so on. It's good to see young people pondering these things in our present climate!&#xA;My tuppence is that it may be that some distributions are better for human beings than others- if so there is a Muth Rational economic theory which, under common knowledge, would be the Schelling focal solution to Society's coordination problem. This means Preferences change so that Society can still get to where it really wants to be- even if the Maths is intractable!&#xA;There was a Japanese 'peasant sage'- Ninomiya- who redefined what we call saving as 'concession'- i.e. a voluntary foregoing of consumption so the worst off can eat- and what we call Return on Investment- as 'obligation to acknowledge Virtue' which can be discharged collectively. There has been some General Eqbm work based on this sort of thinking. Here there is no 'Paradox of Thrift' nor naughty 'Income effects' to spoil our nice models because people are Muth rational- not zero intelligence rule following droids!&#xA;This does not mean that basic existential problems- Uncertainty, Concurrency, Co-ordination etc disappear- it's just that mathematical models can give better, more human, insights into profound dilemmas.&#xA;You asked a good question- that's the point of going to College. The good questions you ask there- not the answers you are required to give- will enrich your life to the end of your days. &lt;/p&gt;&#xA;" OwnerUserId="5775" LastActivityDate="2015-09-25T08:03:35.123" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="8405" PostTypeId="2" ParentId="8362" CreationDate="2015-09-25T08:38:34.173" Score="-2" Body="&lt;p&gt;The answer hinges on the level of 'atomicity' dictated by the problem. If the decision making unit is non atomic- i.e. can make infinitesmal decisions- then there is always an algorithm corresponding to the competitive allocation such that it is known also to be a 'cardinal' value allocation under certain conditions- vide Aumann &amp;amp; Shapley. However this would not be robust to even a small perturbation towards atomicity. My understanding is that this field is interesting because of how small changes in the lower limit to what is within the agent's decision making scope can lead to big changes in behavior&lt;/p&gt;&#xA;&#xA;&lt;p&gt;D.G Saari's work may be of interest if only as an awful warning- vide &lt;a href=&quot;http://socioproctology.blogspot.co.uk/search?q=dark+matter&quot; rel=&quot;nofollow&quot;&gt;http://socioproctology.blogspot.co.uk/search?q=dark+matter&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="5775" LastEditorUserId="5775" LastEditDate="2015-09-27T17:34:27.737" LastActivityDate="2015-09-27T17:34:27.737" CommentCount="10" ContentLicense="CC BY-SA 3.0" />
  <row Id="8406" PostTypeId="1" AcceptedAnswerId="8416" CreationDate="2015-09-25T15:57:45.663" Score="7" ViewCount="3034" Body="&lt;p&gt;How do I know which utility function I can use to find an isoelastic demand function, e.g., $x(p)=Ap^a$? &#xA;And similarly, which cost function can I use to find an isoelastic supply function?&#xA;Does it work through trial and error, or is there a particular method?&lt;/p&gt;&#xA;" OwnerUserId="5776" LastEditorUserId="108" LastEditDate="2015-09-25T18:31:48.500" LastActivityDate="2015-09-27T13:00:59.173" Title="Which utility function yields a constant price elasticity of demand function?" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;&lt;utility&gt;&lt;supply-and-demand&gt;&lt;producer-theory&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8408" PostTypeId="2" ParentId="8406" CreationDate="2015-09-26T12:17:46.237" Score="1" Body="&lt;p&gt;Simply, an iso-elastic demand function exhibits a constant elasticity. For example, CRRA type of utility function is an iso elastic function. &#xA;The best way to see if the demand function is iso elastic or not, you could differenciate it as ;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your demand function is ;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$x\left(p\right)=Ap^{a}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To see that if elasticity is constant or not ;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$elasticity=\frac{\frac{\partial x\left(p\right)}{\partial p}}{\frac{x\left(p\right)}{p}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When you make the calculations, you will see that elasticity will be simply equal to $a$ which is a constant term. (of course in iso elastic demand function.)&#xA;Same counts for the cost function.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope that it helps.&lt;/p&gt;&#xA;" OwnerUserId="2938" LastActivityDate="2015-09-26T12:17:46.237" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8409" PostTypeId="2" ParentId="438" CreationDate="2015-09-26T16:41:56.333" Score="1" Body="&lt;p&gt;To add a paper with a, in my opinion, better identification than cross-state fixed effects as added by charlotte's answer, here is Dube et al (2010 &lt;a href=&quot;http://www.mitpressjournals.org/doi/abs/10.1162/REST_a_00039#.VgbIJUYppJ8&quot; rel=&quot;nofollow&quot;&gt;ReStat&lt;/a&gt;; &lt;a href=&quot;http://www.irle.berkeley.edu/workingpapers/157-07.pdf&quot; rel=&quot;nofollow&quot;&gt;paywall-free&lt;/a&gt;) - in my opinion the paper with the best identification and external validity out there.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;They do first-difference in counties with different minimum wages and &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;find &lt;strong&gt;no adverse employment&lt;/strong&gt; effects. We show that traditional approaches that do not account for local economic conditions tend to produce spurious negative effects due to spatial heterogeneities in employment trends that are unrelated tto minimum wage policies. Our findings are robust to allowing for long-term effects of minimum wage changes.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;(emphasis mine). In contrast, they find that the elasticity of earnings (food sector) w.r.t. the minimum wages is consistently around $0.2$ for many different specifications.&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2015-09-26T17:16:08.230" LastActivityDate="2015-09-26T17:16:08.230" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8410" PostTypeId="1" AcceptedAnswerId="8415" CreationDate="2015-09-26T18:03:28.663" Score="4" ViewCount="155" Body="&lt;p&gt;In the past I have used Khan Academy to great success to practice advanced math problems. It is useful because it gives simple questions in a multiple choice fashion then it quickly tells whether your were right or wrong, and it will walk you through the correct approach as needed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now I am in my first semester of a PhD in economics. Khan Academy has a series on economics, but it is no longer sufficient. The series is not accompanied with practice problems and it is done largely in algebra rather than calculus. Finally, there are a number of graduate topics it entirely misses such as:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Phase diagrams&lt;/li&gt;&#xA;&lt;li&gt;Lagrangian multipliers to solve for optimal allocation&lt;/li&gt;&#xA;&lt;li&gt;Compare/contrast of using different models for the same question (Austrian, Solow, Diamond, RCK, DSGE...)&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;If it helps, a primary course text is Romer's Advanced Macroeconomics, 4ed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What are some online resources to practice such problems?&lt;/p&gt;&#xA;" OwnerUserId="5781" LastEditorUserId="43" LastEditDate="2015-09-26T18:52:32.503" LastActivityDate="2015-09-26T21:02:29.827" Title="Good Site for Practicing Advanced Problems" Tags="&lt;reference-request&gt;&lt;mathematical-economics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8412" PostTypeId="2" ParentId="8410" CreationDate="2015-09-26T19:05:19.053" Score="1" Body="&lt;p&gt;As far as I know, a lot of universities offer online courses that map closely to the topics you have mentioned. Coursera is one such online resource that amalgamates courses across universities. Perhaps you can check out  Mathematics for Economics class if its available. &lt;/p&gt;&#xA;" OwnerUserId="5233" LastActivityDate="2015-09-26T19:05:19.053" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8413" PostTypeId="1" CreationDate="2015-09-26T19:29:39.380" Score="1" ViewCount="524" Body="&lt;p&gt;What does the fact that the goods in an industry are fungible add to a market power analysis if you already know demand is relatively inelastic? &lt;/p&gt;&#xA;" OwnerUserId="5782" LastEditorUserId="43" LastEditDate="2015-09-27T13:35:59.230" LastActivityDate="2015-11-28T20:57:36.497" Title="Why is market power presumably high when goods are fungible and demand relatively inelastic?" Tags="&lt;microeconomics&gt;&lt;monopoly&gt;" AnswerCount="3" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8414" PostTypeId="2" ParentId="8413" CreationDate="2015-09-26T20:49:16.850" Score="0" Body="&lt;p&gt;I will give it a try, we might not be on the same page about the meanings of the words in your question, so I will use an example.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Say demand for coke is relatively inelastic in a particular economy. There is your big firm, Mapsi, is strong in the market, and there are other off brand competitors, such as Coke-Mart, bangCoke etc. Now, in a world in which all consumers are homogenous, we do not have much room for fun-gibility. This world looks something like people interested in buying 2 liter (half a gallon) bottles. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand, if we have a realistic consumer base whose demands for soda are relatively inelastic, but who are heterogeneous in how much soda they like, then you have an extra instrument for discriminatory pricing. As your product is fungible in the sense I am hoping to communicate, you can start selling 1 liter bottles, smaller cans etc, each of which gives you some extra ability to satisfy your greed, or as it so happens in worldly possessions, provoke your greed even further. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Silly remarks aside, I hope that my guess might suggest some perspective. &lt;/p&gt;&#xA;" OwnerUserId="5739" LastActivityDate="2015-09-26T20:49:16.850" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8415" PostTypeId="2" ParentId="8410" CreationDate="2015-09-26T21:02:29.827" Score="2" Body="&lt;p&gt;There are lots of good courses (economics, math etc.) on &lt;a href=&quot;http://ocw.mit.edu/index.htm&quot; rel=&quot;nofollow&quot;&gt;MIT OpenCourseware&lt;/a&gt; or interestingly, there are also very very good lectures in YouTube.&#xA;But I think the web site for MIT opencourseware is a real treasure. (at least for me).&lt;/p&gt;&#xA;" OwnerUserId="2938" LastActivityDate="2015-09-26T21:02:29.827" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8416" PostTypeId="2" ParentId="8406" CreationDate="2015-09-26T23:17:13.873" Score="3" Body="&lt;p&gt;By &lt;strong&gt;Roy's Identity&lt;/strong&gt; we have that Marshallian (uncompensated) demand for good $x_i$ is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$x_i^M = \frac {\partial U^*/\partial p_i}{\partial U^*/\partial B} \tag{1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $U^*$ is optimized utility over goods vector $\mathbf x = (x_1,...,x_i,...x_n)$ and $B$, which is the available budget, and given the price vector $\mathbf p = (p_1,...,p_i,...,p_n)$. To obtain a constant elasticity demand function we require&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\eta \equiv \frac {\partial x_i^M}{\partial p_i}\cdot \frac{p_i} {x_i^M}=const. \tag{2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Using $(1)$ we have that &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\partial x_i^M}{\partial p_i} = \frac {(\partial^2 U^*/\partial p^2_i)\cdot(\partial U^*/\partial B) -(\partial^2 U^*/\partial B^2)\cdot (\partial U^*/\partial p_i)}{\big[\partial U^*/\partial B\big]^2} \tag{3}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Inserting $(3)$ &lt;em&gt;and&lt;/em&gt; $(1)$ into $(2)$ we have &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\eta \equiv \frac {(\partial^2 U^*/\partial p^2_i)\cdot(\partial U^*/\partial B) -(\partial^2 U^*/\partial B^2)\cdot (\partial U^*/\partial p_i)}{\big[\partial U^*/\partial B\big]^2}\cdot \frac{p_i} {\frac {\partial U^*/\partial p_i}{\partial U^*/\partial B}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$= \frac {(\partial^2 U^*/\partial p^2_i)\cdot(\partial U^*/\partial B) -(\partial^2 U^*/\partial B^2)\cdot (\partial U^*/\partial p_i)}{(\partial U^*/\partial B)\cdot (\partial U^*/\partial p_i)} \cdot p_i$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies \eta = p_i\left(\frac {\partial^2 U^*/\partial p^2_i}{ \partial U^*/\partial p_i}- \frac{\partial^2 U^*/\partial B^2}{\partial U^*/\partial B}\right) \tag{4}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For this expression to be constant over the whole range of $p_i$ we need that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\left(\frac {\partial^2 U^*/\partial p^2_i}{ \partial U^*/\partial p_i}- \frac{\partial^2 U^*/\partial B^2}{\partial U^*/\partial B}\right) = \frac {C}{p_i} \tag{5}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;for some constant $C$, which becomes the constant value of the price elasticity of demand.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That's the general condition that must be satisfied.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You could check whether the generalized Cobb-Douglas standard Utility function specification&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U(\mathbf x) = \prod_{i=1}^n x_i^{a_i}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;satisfies the condition, perhaps under some restrictions.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;THE CASE OF QUASI-LINEAR UTILITY FUNCTION&lt;/strong&gt;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The OP ponders the case of a quasi-linear utility function, so let's solve this forward. We have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\max_{x,m} [cx^{\theta} +m],;\;\;\; s.t. \;\;\;p_xx + m = B,\;\;\; 0&amp;lt;\theta &amp;lt;1,\;\; c&amp;gt;0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $m$ is residual income for all other goods. The Lagrangean is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Lambda = cx^{\theta} +m + \lambda[B-p_xx - m]$$&#xA;and first order conditions are&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$c\theta x^{\theta-1}=\lambda p_x,\\\;\;\; \lambda =1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$x^* = \left(\frac {c\theta}{p_x}\right)^{1/(1-\theta)},\;\;\; m^* = B-p_xx^*$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the indirect utility function is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U^* = c\left(\frac {c\theta}{p_x}\right)^{\theta/(1-\theta)} + B-p_x\left(\frac {c\theta}{p_x}\right)^{1/(1-\theta)}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$= \left[c(c\theta)^{\theta/(1-\theta)} - (c\theta)^{1/(1-\theta)}\right] \cdot \frac {1}{p_x^{\theta/(1-\theta)}} + B$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One can easily verify that this indirect utility function satisfies the required condition $(5)$ for isoelastic demand, and also see how the preference parameters map to the demand parameters.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-09-27T13:00:59.173" LastActivityDate="2015-09-27T13:00:59.173" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="8417" PostTypeId="2" ParentId="8413" CreationDate="2015-09-27T00:44:41.373" Score="1" Body="&lt;p&gt;&quot;Fungibility&quot;, when referring to goods, essentially means homogeneity -all units of the good are exactly the same from all aspects that matter to consumers (including &quot;exterior&quot; aspects, like location etc), and so one can substitute for another. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If one knows that in a market essentially only one homogeneous good is traded, then one knows that he must look for market-power sources elsewhere and not in product differentiation (since the latter is non-existent), like for example in barriers to entry, cost structure etc. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If &quot;fungibility&quot; is narrowed down to the inherent characteristics of the good, then geographical location or other such aspects, may become possible sources of product-differentiation, and so of market power.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Fungibility is a property coming from the supply side, so by construction is unrelated to the elasticity of demand (which depends on preferences). Therefore it is a useful piece of information on its own.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-09-27T00:44:41.373" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8418" PostTypeId="1" AcceptedAnswerId="8421" CreationDate="2015-09-27T03:08:01.403" Score="3" ViewCount="1230" Body="&lt;p&gt;If, for example, Health Canada issues a public statement that states eating pizza is good for your overall physical health, would this result in both a shift in the demand curve for pizza to the right, and a shift in the supply curve of pizza to the right?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If not, could you give more information on when this would actually happen?&lt;/p&gt;&#xA;" OwnerUserId="5785" LastEditorUserId="43" LastEditDate="2015-09-27T13:35:36.207" LastActivityDate="2015-09-28T06:38:30.060" Title="When Does a Shift to the Right Happen in the Demand and Supply Curves Simultaneously?" Tags="&lt;macroeconomics&gt;&lt;supply-and-demand&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8419" PostTypeId="1" AcceptedAnswerId="8422" CreationDate="2015-09-27T10:56:48.500" Score="4" ViewCount="963" Body="&lt;p&gt;Is craigslist part of the Shadow Economy? Many if not most of the purchases that take place there are done without taxation.&lt;/p&gt;&#xA;" OwnerUserId="5788" LastActivityDate="2020-05-30T11:50:14.437" Title="Is craigslist part of the Shadow Economy?" Tags="&lt;black-market&gt;" AnswerCount="3" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8420" PostTypeId="2" ParentId="1652" CreationDate="2015-09-27T11:02:06.110" Score="0" Body="&lt;p&gt;I am not familiar with real options in macroeconomics but in investment theory. In general, real option analysis is a concept to evaluate investments under uncertainty and irreversibility. Hence, if your fixed cost are reversible, you can simply use net-present-value or to consider uncertainty, you can also work with an investment tree. However, in the case where your investment is irreversible, that is, if the project stops, the investment costs are sunk, real options are the right approach. Hence, the question is not about fixed or irreversible cost, but rather whether your fixed costs are reversible or irreversible.&lt;/p&gt;&#xA;" OwnerUserId="5776" LastActivityDate="2015-09-27T11:02:06.110" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8421" PostTypeId="2" ParentId="8418" CreationDate="2015-09-27T11:26:33.213" Score="3" Body="&lt;p&gt;To answer your first question: No, it shifts out only the demand curve but not the supply curve. However, the quantity supplied increases.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To understand why the advertisement does only shift out the demand curve but not the supply, you have to understand two important concepts: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(1) Shift of the demand curve = Increase of demand;&#xA;(2) Movement along the demand curve = Increase of quantity demanded.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Similarly with supply:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(1) Shift of supply curve = Increase of supply;&#xA;(2) Movement along the supply curve = Increase of quantity supplied.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now what happens, if you advertise for pizza? The demand as well as the quantity supplied increase. To see this, consider the following. More people demand pizza so the demand curve shift out and the demand increases. At the same time, the supply curve does not move. BUT, the outwards shift of the demand curve intersects the supply curve further to the right, and hence, the quantity supplied increases.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Shifts of the demand curve can be caused, for example, when people's income increases or decreases. Demand increases usually increase the quantity supplied.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Shifts of the supply curve can be caused, for example, through the the use of better technology that lowers producers marginal production costs. Supply increase usually increases the quantity demanded. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Increases or decreases of quantity demanded or quantity supplied can be caused through price changes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A simultaneous increase of demand and supply can be cause if consumers get a higher income and firms get a better technology at the same time.&lt;/p&gt;&#xA;" OwnerUserId="5776" LastActivityDate="2015-09-27T11:26:33.213" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8422" PostTypeId="2" ParentId="8419" CreationDate="2015-09-27T15:05:57.233" Score="2" Body="&lt;p&gt;If we take the definition of shadow economy to be illicit economic activity existing alongside the traditional economy and further pin down illicit to mean any sort of economic activity that violates laws governing our conduct (civil, economic etc.) then the short answer is - yes. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why? Many reasons. I think the easiest to verify and perhaps most obvious is that the majority of gigs, services, temporary labor positions, etc. on Craigslist are paid in cash. Here I make an assumption: most of the people doing these jobs for cash are not reporting these extra earnings. Thus, they are generating a supplemental income that goes untaxed. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I read a bit of (non-academic) research about how these sorts of sites often provide a lifeline to illegal immigrants precisely because they facilitate economic illicit activity (I will update this post with the link if I can dig it up).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why else? Again I speculate (but reasonably). Craigslist, I think, is often used to move stolen property. Because transactions are largely anonymous and conducted on a cash basis and with little or no record of sale, CL is a safe place for petty criminals to liquidate stolen assets. This also clearly aligns with our given definition. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You could probably think of other reasons to support the claim that CL fuels (alternatively: is part of) the shadow economy in America. Then again, I think these two examples make it clear (if you are willing to accept the assumptions throughout the post). &lt;/p&gt;&#xA;" OwnerUserId="1655" LastActivityDate="2015-09-27T15:05:57.233" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8423" PostTypeId="1" AcceptedAnswerId="8424" CreationDate="2015-09-27T16:46:46.367" Score="8" ViewCount="3787" Body="&lt;p&gt;I was studying games when one of the players seems to be indifferent between two or more pure strategies because he gets the same payoff with each strategy. We say that there are infinite Nash equillibria in the game but I am unable to calculate it and get an intuitive idea of how is it happening. &#xA;For example in the following game &#xA;$$\begin{array}{c|a|c} &amp;amp; L_2 &amp;amp; R_2&amp;amp; \\ \hline L_1 &amp;amp; (3,1) &amp;amp; (0,1) \\ \hline R_1 &amp;amp; (0,1) &amp;amp; (4,1) \\ \hline \end{array}$$                 &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Seemingly, P2 should not even bother about anything even if he is playing pure strategy or randomizing. But here if we assume that P2 plays L with probability q and P1 plays L with probability p then making them indifferent we see that we cannot calculate p but q comes out to be 4/7. How is it possible or what is the interpretation ? If I am doing it wrong then what is the correct way to determine equilibria in this case ?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another example is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\begin{array}{c|a|c} &amp;amp; L_2 &amp;amp; R_2&amp;amp; \\ \hline L_1 &amp;amp; (1,1) &amp;amp; (0,0) \\ \hline R_1 &amp;amp; (0,0) &amp;amp; (0,0) \\ \hline \end{array}$$   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;How many Nash's equilibria are possible in this ?&lt;/p&gt;&#xA;" OwnerUserId="5582" LastEditorUserId="40" LastEditDate="2015-09-27T23:06:46.857" LastActivityDate="2015-09-28T17:45:54.033" Title="How infinite Nash equilibria are possible in a game?" Tags="&lt;game-theory&gt;&lt;nash-equilibrium&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8424" PostTypeId="2" ParentId="8423" CreationDate="2015-09-27T17:16:51.790" Score="4" Body="&lt;p&gt;Well the intuition is quite straightforward: as you have mentioned yourself, player 2 is indifferent between playing any action in pure strategies, &lt;em&gt;or&lt;/em&gt; randomizing in any possible way. So, for a mixed strategy equilibrium to exist, player 2 needs to play L w/ probability 4/7. If this is the case, it is &lt;em&gt;irrelevant&lt;/em&gt; what Player 1 player---player 2's outcome is the same. As a result, in pure strategies the Equilibria are L,L and R,R and, in Mixed strategies, q=4/7 and p can take any value between 0 and 1. Hence, there exist infinite possible Nash Equilibria (p just has to obey the fundamental laws of probability). &lt;/p&gt;&#xA;" OwnerUserId="5233" LastEditorUserId="59" LastEditDate="2015-09-28T17:45:54.033" LastActivityDate="2015-09-28T17:45:54.033" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="8425" PostTypeId="1" AcceptedAnswerId="8433" CreationDate="2015-09-27T19:04:38.443" Score="-2" ViewCount="256" Body="&lt;p&gt;How to find the mixed strategy equilibrium in the following game:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;                     P2&#xA;&#xA;               L            R&#xA;&#xA;     L      (3,1)         (0,1)&#xA;P1   M      (1,1)         (1,1)&#xA;     R      (0,1)         (4,1)&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;" OwnerUserId="5582" LastActivityDate="2015-09-28T04:29:37.347" Title="Finding Nash's Equilibrium in mixed strategies" Tags="&lt;game-theory&gt;&lt;nash-equilibrium&gt;" AnswerCount="1" CommentCount="3" ClosedDate="2015-09-28T15:07:30.053" ContentLicense="CC BY-SA 3.0" />
  <row Id="8426" PostTypeId="1" CreationDate="2015-09-27T19:13:26.050" Score="1" ViewCount="29" Body="&lt;p&gt;I am working on schemas how advertisement space is sold to the ad agencies, ad networks and individual customers. There are lot of questions involved how to design the business agreement. E.g. one can agree about predefined budget and minimum rating level. In other case one can agree about predefined rating level and free floating budget to achieve. In the third case one can pack ad space and sell it in packages, maybe using some kind of auction.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question is - is there science behind decision what type of agreement, what kind of agreement conditions the company should choose and present to the customer? What arguments are used in such decisions? One can say, that the key argument is optimization of profit, but how one can decide that scheme 1 bring greater profit thatn scheme 2? And profit is not the sole argument, because customer can decide not to agree with some kind of schema. Then negotiation process starts (it may be even automatic) and there should be found some common ground - e.g. maximal utilisation of resources, there should be compromise between the possibly contradictory goals of maximizing the profits of each company.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So - is there such kind of science as design of business agreements, design of sale conditions?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have heard about mechanism design and auction design, maybe there is agreement design as well?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks of any suggestions! I am technical person, but sometimes I feel that I should know the business side as well. And there should be &quot;first principles&quot;, some optimization criteria that can form the basis for business agreements, proposals and negotiations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Added: I have heard about contract theory - maybe that is the direction where I should look? Maybe my question is about unexplored area?&lt;/p&gt;&#xA;" OwnerUserId="5373" LastActivityDate="2015-09-27T19:13:26.050" Title="Business agreement design - is there science behind this?" Tags="&lt;microeconomics&gt;&lt;mechanism-design&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8430" PostTypeId="2" ParentId="8423" CreationDate="2015-09-28T02:23:26.687" Score="3" Body="&lt;p&gt;The second game has two equilibria, $(L_1, L_2)$ and $(R_1,R_2)$. It is straightforward to note that these two are Nash equilibria. On the other hand, if one player plays $R_i$ with probability strictly greater than 0, then it is in the other's best interest to play $L_j$ with probability 1. This last observation shows that no other equilibrium exits.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, there is nothing wrong with having infinitely many equilibrium points. Your simplest example is &#xA;$$&#xA;\begin{array}{|c|c|c|}&#xA;\hline&#xA; &amp;amp; L_2 &amp;amp; R_2 \\ \hline&#xA;L_1 &amp;amp; 0,0 &amp;amp; 0,0 \\ \hline&#xA;R_1 &amp;amp; 0,0 &amp;amp; 0,0 \\ \hline \end{array} &#xA;$$&#xA;for which every strategy profile is a Nash equilibrium.&lt;/p&gt;&#xA;" OwnerUserId="5739" LastEditorUserId="5739" LastEditDate="2015-09-28T02:32:47.537" LastActivityDate="2015-09-28T02:32:47.537" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8431" PostTypeId="2" ParentId="6540" CreationDate="2015-09-28T02:42:29.573" Score="0" Body="&lt;p&gt;In classical economic models prices have no effect on economic variables. Thus, high inflation would be fully compensated by changes in the exchange rate. However, in models with frictions, this is no longer the case. For example, in a model with sticky prices the inflation rate does affect exports. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose that each seller can reset prices with some fixed probability in each time period (Calvo-type price setting). Then in a country with high inflation, the seller will choose a price that is much higher than the current efficient price. The reason is that the seller anticipates price level increases in future time periods in which he cannot reset prices. However, if the seller has not reset his prices for a long time, his prices will be too low since inflation has decreased the real price over time. Note that these inefficient prices are not compensated by the exchange rate, since the exchange rate can at most compensate for the inefficient price of a single seller.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We have now seen that high inflation rates can lead to inefficient prices, but sometimes these prices may also be too low and thus should encourage sellers abroad. However, two empirical facts may explain why trading partners abroad may avoid buying from high-inflation countries. First, many sales contracts are made for longer terms. Second, countries with higher inflation usually also have a higher inflation volatility. Both these points add significant risks to buyers and sellers in addition to the aforementioned inefficient pricing. Therefore, the reason why buyers may prefer sellers from countries with less inflation (if true), may simply be risk aversion.&lt;/p&gt;&#xA;" OwnerUserId="5635" LastActivityDate="2015-09-28T02:42:29.573" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8432" PostTypeId="2" ParentId="6540" CreationDate="2015-09-28T03:43:43.107" Score="0" Body="&lt;p&gt;It is less likely that a country with a strong economic environment has high inflation. This calls for an attempt in figuring out what factors high inflation is correlated with in a particular country and what the externality of these factors have on a trading partner in that country compared to another candidate which is unaffected from those externalities.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Many relevant correlations might be observed. I will make some guesses even though they should be confirmed. Take risk of default by firms for instance. One might claim that the causes of high inflation have a negative impact on these default risks. Then, regardless of risk attitudes of buyers, a firm in a high inflation country needs to be producing at a lower cost than a competitor in a low inflation country to be as competitive as the other candidate which is enjoying lesser of the justified bias from the buyers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One another correlation would be the quality of legal institutions in the high inflation country. Again, one would expect a less desirable legal system in a high inflation country, and a potential importer in another country would discount the benefits of trading with someone from a country which has such a legal system. This in turn will imply some extra hurdles to overcome for the exporter in the high inflation country. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There may be many other such negative externalities. Also, one of course needs to take into account the possible correlations that will have a positive externality for a high inflation country's exporters. A very simple one is that if a firm is able to survive in a high inflation country, then it is more likely that this firm is stronger than a firm that can offer trading benefits similar to another one in a less inflation country.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Intuition suggests that there would be an overall negative impact, which would reduce competitiveness in international trade.&lt;/p&gt;&#xA;" OwnerUserId="5739" LastActivityDate="2015-09-28T03:43:43.107" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8433" PostTypeId="2" ParentId="8425" CreationDate="2015-09-28T04:29:37.347" Score="1" Body="&lt;p&gt;As you have suggested in a comment, $M$ will not be played with positive probability in any Nash equilibrium. This is true for any strictly dominated action. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given that $M$ has zero probability, the rest of your question is answered in another question of yours in another thread at &#xA;&lt;a href=&quot;https://economics.stackexchange.com/q/8423/5739&quot;&gt;How infinite Nash equilibria are possible in a game?&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="5739" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-09-28T04:29:37.347" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="8434" PostTypeId="1" CreationDate="2015-09-28T04:53:28.543" Score="8" ViewCount="228" Body="&lt;p&gt;A common argument against safety net social welfare for people with children is that it can incentivise people without better options to have children. This could be considered a &lt;a href=&quot;http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&amp;amp;objectid=11519734&quot;&gt;problem if it means people who aren't fit to be parents continue having children.&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example in New Zealand the the Domestic Purposes Benefit (a benefit paid to people with children, if child support from the other parent does not exceed the base rate) pays about the same rate as a minimum wage full time job. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;An argument could be made that the economically rational decision for an uneducated person is to have children, where they can't be fired, aren't subject to starting times or drug tests etc. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there any evidence for what the effect of welfare payments for children has? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In particular I'm interested in any situation where the entitlement has either increased or decreased, and what the effects on birthrate or people applying for the benefit has been after that. &lt;/p&gt;&#xA;" OwnerUserId="96" LastEditorUserId="264" LastEditDate="2015-09-28T22:13:46.023" LastActivityDate="2015-09-28T22:13:46.023" Title="Do welfare payments for children incentivise having children?" Tags="&lt;taxation&gt;&lt;empirical-evidence&gt;&lt;population-economics&gt;" AnswerCount="2" CommentCount="12" ContentLicense="CC BY-SA 3.0" />
  <row Id="8435" PostTypeId="2" ParentId="8434" CreationDate="2015-09-28T05:12:01.313" Score="2" Body="&lt;p&gt;I'm not really an expert on the subject, but for welfare reforms I've been suggested to read Grogger and Karoly: &quot;Welfare Reform: Effects of a Decade of Change&quot; (2009) in the past.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I believe it tackles at least some of the subjects you're thinking about and might be a good place to start.&lt;/p&gt;&#xA;" OwnerUserId="5512" LastActivityDate="2015-09-28T05:12:01.313" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8436" PostTypeId="1" AcceptedAnswerId="8439" CreationDate="2015-09-28T05:30:32.597" Score="2" ViewCount="102" Body="&lt;p&gt;Kuwaiti Dinar shows up as the most expensive in the world. Does that mean I better invest in KWD (or the safe USD) instead of my home currency (IDR)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A little background: I am just an ordinary person without economics / finance background and hope to learn from the experts here. My home currency never fails to show up in the top 5 least valuable currencies in the world. Economic crises that come too often and stay too long make me wonder if I make the right decision to put all of my retirement savings in local equity mutual funds.&lt;/p&gt;&#xA;" OwnerUserId="5794" LastEditorUserId="5794" LastEditDate="2015-09-28T05:53:56.567" LastActivityDate="2015-09-28T07:15:30.163" Title="What does &quot;the world's strongest currency&quot; title mean for investors?" Tags="&lt;currency&gt;&lt;investment&gt;" AnswerCount="1" CommentCount="5" ClosedDate="2015-09-30T00:51:46.433" ContentLicense="CC BY-SA 3.0" />
  <row Id="8437" PostTypeId="2" ParentId="1652" CreationDate="2015-09-28T05:43:48.457" Score="2" Body="&lt;p&gt;There exists a post on capital adjustment costs, which gives a good overview of the different types of capital adjustment costs. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://economictheoryblog.com/2015/08/20/capital-adjustment-costs&quot; rel=&quot;nofollow&quot;&gt;http://economictheoryblog.com/2015/08/20/capital-adjustment-costs&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, ultimately the post summarizes Cooper, R. W., &amp;amp; Haltiwanger, J. C. (2006). On the nature of capital adjustment costs. The Review of Economic Studies, 73(3), 611-633.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regarding your question, I guess as long as there are any sunk costs associated to investment you destroy future option, regardless the nature of these costs. Consequently the nature of capital adjustment cost should not really change the way uncertainty affect investment through real option effects.&lt;/p&gt;&#xA;" OwnerUserId="2963" LastActivityDate="2015-09-28T05:43:48.457" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8438" PostTypeId="2" ParentId="8418" CreationDate="2015-09-28T06:38:30.060" Score="1" Body="&lt;p&gt;Indeed it can shift the supply curve. You would see that nowadays a ton of firms are labeling themselves as 'responsible' towards making the world better in situations even though this might hurt their profits. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;One can claim that this is an attempt to bring in more cash as the customer appreciation for this company policy increases profit channels above that of the costs of the assumed responsibility. However, a less cynical (or naive) perspective might think that there are firms which are acting responsibly regardless of the monetary consequences. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If one buys the second interpretation above, then we would start seeing firms who previously would reject to produce pizza at a given price changing their decisions towards the alternative. This argument would imply that supply curve shifts right. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It should be apparent that I favor the premise that implies no-shift on the supply side. On the other hand, given that the question is asked in a fashion to understand fundamentals, rather than the pizza industry, I try to communicate the message that in principle the shifts in both sides of the market is possible.&lt;/p&gt;&#xA;" OwnerUserId="5739" LastActivityDate="2015-09-28T06:38:30.060" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8439" PostTypeId="2" ParentId="8436" CreationDate="2015-09-28T07:15:30.163" Score="2" Body="&lt;p&gt;The strong currency understanding in your question does not have any interpretation that would be an economic factor that should effect investment, or any other decision. It is merely units.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It answers the question of '1 US dollar buys least of which currency?'. It also answers the question of '1 Colombian peso buys least of which currency?', or any other benchmark currency of your choice.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Kuwait government could say that they decided to replace KWD by KWD2 and 1 KWD would equal 1000 KWD2. Then everything that has a price of $x$ KWD would now have a price of $1000x$ KWD2. Now, your US dollar would buy a lot of KWD2, but your investment decision would not be effected by this change because there has been only a change in units, and no other intrinsic differences.&lt;/p&gt;&#xA;" OwnerUserId="5739" LastActivityDate="2015-09-28T07:15:30.163" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8440" PostTypeId="1" AcceptedAnswerId="8513" CreationDate="2015-09-28T09:29:12.960" Score="8" ViewCount="442" Body="&lt;p&gt;I have a following system with endogeneous discounting.&#xA;$c,k$ and $h(k)$ are consumption, capital and endogeneous discount function based on physical capital. (the properties of this function are not relevant with the question, so I don't write them in order to take less space in this post. The production function is increasing and concave as usual.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\underset{\left\{ c_{t}\right\} }{max}\int_{t=0}^{\infty}\left[u\left(c_{t}\right)\right]e^{-\triangle}dt$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My state variables are &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\begin{align}&#xA;\dot{k_{t}}=f\left(k_{t}\right)-c_{t}\\&#xA;\dot{\triangle}_{t}=\rho + h\left(k_{t}\right)&#xA;\end{align}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I note $\triangle=\int_{0}^{t} (\rho + h\left(k_{t}\right))dt$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I write the present-value Hamiltonian as &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\mathcal{H}^{present}=u\left(c\right)e^{-\triangle}+\tilde{\lambda_{1}}\left[f\left(k\right)-c\right]+\tilde{\lambda_{2}}\left[\rho + h\left(k\right)\right]$$&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In this model, my doubt is that if the system is autonomous or not because when I integrate $\dot{\triangle}$, I have $\triangle=&#xA;\rho t+ \int_{0}^{t}h\left(k_{t}\right)dt$, which depends explicitly on time $t$. So, evidently, this differential equation is non-autonomous.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Is this system really non-autonomous ? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I try to do, in order to have an autonomous system is to define variables. Let's say $\lambda_{1}=\tilde{\lambda_{1}}e^{\triangle}$ and $\lambda_{2}=\tilde{\lambda_{2}}e^{\triangle}$. In this way, I write the current-value Hamiltonian ;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\mathcal{H}^{current}=u\left(c\right) +\lambda_{1}\left[f\left(k\right)-c\right]+\lambda_{2}\left[\rho + h\left(k\right)\right]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am really stuck at this point. For the moment, the system seems to be autonomous as the Hamiltonian does not depend explicitly on time here but I can not really be sure.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hints or suggestions are all welcome.&lt;/p&gt;&#xA;" OwnerUserId="2938" LastEditorUserId="264" LastEditDate="2015-10-05T17:02:24.443" LastActivityDate="2015-10-05T17:02:24.443" Title="Autonomous or non-autonomous optimal control system?" Tags="&lt;macroeconomics&gt;&lt;optimal-control&gt;" AnswerCount="4" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8441" PostTypeId="2" ParentId="8434" CreationDate="2015-09-28T10:50:47.307" Score="4" Body="&lt;p&gt;For example, &quot;Assessing the Impact of the Maternity Capital Policy in Russia&quot; (&lt;a href=&quot;https://ideas.repec.org/p/iza/izadps/dp7705.html&quot; rel=&quot;nofollow&quot;&gt;2014&lt;/a&gt;):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Starting in 2007, the federal government has pursued an ambitious pro-natalist policy. Women who give birth to at least two children are entitled to &quot;maternity capital&quot; assistance ($11,000). In this paper we estimate a structural dynamic programming model of fertility and labor force participation in order to evaluate the effectiveness of the policy. &lt;strong&gt;We find that the program increased long-run fertility by about 0.15 children per woman.&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Of course, the impact varies by country and incentive. See &lt;a href=&quot;https://ideas.repec.org/p/iza/izadps/dp7705.html#references-body&quot; rel=&quot;nofollow&quot;&gt;references and citations&lt;/a&gt; of this paper for more research.&lt;/p&gt;&#xA;" OwnerUserId="240" LastActivityDate="2015-09-28T10:50:47.307" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8443" PostTypeId="2" ParentId="6999" CreationDate="2015-09-28T16:27:40.103" Score="2" Body="&lt;p&gt;Note first that if an individual generally reacts to increases in the wage by a decrease in labor supply, then the individual must have maximal labor supply at a wage of 0. I will supply such an example but the example can be adjusted to a more realistic setting.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's start with the consumer problem. Suppose there is no capital income, such that $c=w\cdot l$ where $w$ is the real wage. If we think of a reason why labor supply is decreasing in income, then one idea is that the higher the consumption, the larger the disutility from labor. (This is actually not that far fetched, think of how lovely leisure can be with a yacht.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So let's take a standard quasilinear utility function and adjust it to $u=\ln c+(1-l\cdot c)$. Inserting the budget constraint yields: $u=\ln (w \cdot l) + (1-w\cdot l^2)$. As the function is concave in $l$, first order conditions are necessary and sufficient for a maximum:&#xA;$$1/l - 2wl = 0$$&#xA;from which follows&#xA;$l=(1/(2w))^{.5}$ and labor supply is decreasing in the wage. We could generalize this function by adding an offset to $c$ and $l$ in order to create the income effect dominance only after a certain wage rate.&lt;/p&gt;&#xA;" OwnerUserId="5635" LastActivityDate="2015-09-28T16:27:40.103" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8444" PostTypeId="1" AcceptedAnswerId="8446" CreationDate="2015-09-28T21:45:55.950" Score="2" ViewCount="77" Body="&lt;p&gt;When we solve Bellman equations, I normally would think of the Blanchard Kahn technique. But in the case that I have an optimal stopping problem, or where the decision that the agent has to take is to choose the maximum from  two alternatives , I am not sure about how am I supposed to solve/proceed. There is no Euler equation  because the problem is discrete. Any suggestions are welcome. Thanks!&lt;/p&gt;&#xA;" OwnerUserId="5233" LastActivityDate="2015-09-29T00:23:16.770" Title="Optimal Stopping" Tags="&lt;macroeconomics&gt;&lt;optimal-control&gt;&lt;bellman-equations&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8445" PostTypeId="2" ParentId="8440" CreationDate="2015-09-29T00:07:36.737" Score="5" Body="&lt;p&gt;What about rewriting the problem in the following way?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\underset{\left\{ c_{t}\right\} }{max}\int_{t=0}^{\infty}\left[u\left(c_{t}\right) e^{y_t}\right]e^{-\rho t}dt$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;with the new state variables defined as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\begin{align}&#xA;\dot{k_{t}}=f\left(k_{t}\right)-c_{t}\\&#xA;\dot{y}_{t}=-h\left(k_{t}\right)&#xA;\end{align}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;given the initial conditions $(k(0),y(0))=(k_0,0)$.&lt;/p&gt;&#xA;" OwnerUserId="5739" LastEditorUserId="5739" LastEditDate="2015-09-29T03:53:34.087" LastActivityDate="2015-09-29T03:53:34.087" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8446" PostTypeId="2" ParentId="8444" CreationDate="2015-09-29T00:23:16.770" Score="2" Body="&lt;p&gt;I recommend the manuscript &lt;a href=&quot;https://math.berkeley.edu/~evans/control.course.pdf&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt; by Lawrence Evans. The related example is described as 'Rocket Railroad Car'. The first instance is on pages 9-12 where a geometric solution is provided. The choice set is not constrained to a discrete set in principle but the first part shows optimality when only the highest and lowest actions are chosen. On pages 35-36, Evans is proving that the geometric approach results in the correct solution, i.e. the discrete solution arises endogenously. Therefore, the remark is that you can consider a wider choice set and end up showing that the solution with discrete choices is also a solution when a larger choice set is considered.&lt;/p&gt;&#xA;" OwnerUserId="5739" LastActivityDate="2015-09-29T00:23:16.770" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8447" PostTypeId="2" ParentId="8440" CreationDate="2015-09-29T02:48:36.227" Score="5" Body="&lt;p&gt;Following Caputo, an Optimal Control problem is autonomous when none of the functions appearing in the description of the problem depends explicitly on the time-variable. &lt;strong&gt;But this means that the standard setup with an exogenous utility-discount factor is not autonomous&lt;/strong&gt;, &lt;em&gt;but&lt;/em&gt; it can be made so by redefining the multiplier(s) and then using the current-value Hamiltonian.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;@ramazan approach starts correctly, by breaking the discount factor and including the naughty part in the instantaneous objective function. Nothing forbids the state variable to appear in the instantaneous objective function, on the contrary, the general theoretical treatment always includes it. Denoting $y_t = \int_{0}^{t}h\left(k_{s}\right)ds$, your problem now becomes&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\underset{\left\{ c_{t}\right\} }{\max}\int_{t=0}^{\infty}\left[u\left(c_{t}\right)e^{-y_t}\right]e^{-\rho t}dt$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\dot{k_{t}}=f\left(k_{t}\right)-c_{t}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;with current value Hamiltonian&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\mathcal{H}^{current}=u\left(c_t\right)e^{-y_t} +\lambda_t\left[f\left(k_t\right)-c_t\right]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;While taking the derivative with respect to consumption presents no issues, the derivative of the Hamiltonian with respect to capital needs some care (and this is why I kept the $t$-index in the Hamiltonian). If $G$ is the antiderivative of $h$, then $y_t = G(k_t) - G(k_0)$. I guess the rest are easy for you, although of course the first-order conditions will be more complicated.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-09-29T02:48:36.227" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8448" PostTypeId="1" AcceptedAnswerId="8482" CreationDate="2015-09-29T02:55:26.647" Score="7" ViewCount="112" Body="&lt;p&gt;Suppose we want to estimate for many goods in the economy (or classifications thereof) the preferences of each household for these goods. We may want to restrict the analysis to specific utility classes, e.g. translog or CES utility. Naturally, we can not obtain the utility function but only the value function.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To my knowledge the Nielsen Datasets from U Chicago seem to provide such a possibility, but have highly restrictive access. What are good alternatives?&lt;/p&gt;&#xA;" OwnerUserId="5635" LastEditorUserId="43" LastEditDate="2015-10-01T07:42:46.767" LastActivityDate="2015-10-01T07:42:46.767" Title="What are good dataset alternatives to estimate value functions?" Tags="&lt;reference-request&gt;&lt;utility&gt;&lt;data-request&gt;&lt;preferences&gt;&lt;micro-data&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8449" PostTypeId="1" AcceptedAnswerId="8450" CreationDate="2015-09-29T03:53:53.717" Score="6" ViewCount="3322" Body="&lt;p&gt;I have been having trouble with how to go forward with a proof for about three days now. I know the basic structure of the proof, but can't seem to construct it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Basically, I am trying to do a proof by contradiction for the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Say $u: x \rightarrow \mathbb{R}$ has no local maxima. Let $p \in \mathbb{R^l}_{++}$ and $w&amp;gt;0$. Show that if $x^*$ is a solution to the maximization problem:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\max_x \ (u(x)) \ \text{s.t.} \ x \in B(p) = [x \in \mathbb{R^l}_{++} : p \cdot x \leq w]$$&#xA;then for all $y \in \mathbb{R^l_{++}}$ such that $u(y) \geq u(x^*)$, then it must be that $p \cdot y \geq w$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So I'm supposed to do this proof by contradiction, (suppose we have $y \in \mathbb{R^l_{++}}$ such that $u(y) \geq u(x^*)$, then it must be that $p \cdot y &amp;lt; w$) and use the fact that $u$ doesn't have a local max implies that the function $u$ is locally non-satiated:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\forall y \in \mathbb{R^l_{+}, \forall \epsilon &amp;gt; 0, \exists {y'} \in \mathbb{R^l_{+}}} \ \text{s.t.} \ \|y - y'\| &amp;lt; \epsilon \ \text{and} \ y' \succ  y$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But I've been stuck for a while now. Any help would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastEditorUserId="4251" LastEditDate="2015-09-30T01:12:18.450" LastActivityDate="2015-09-30T01:12:18.450" Title="Local Non-Satiation Proof" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;utility&gt;&lt;preferences&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8450" PostTypeId="2" ParentId="8449" CreationDate="2015-09-29T04:37:24.553" Score="4" Body="&lt;p&gt;Assume for a contradiction that there exists $y$ such that $p\cdot y&amp;lt;w$ and $u(y)\geq u(x^\ast)$. Let &#xA;$$\epsilon^\ast= \frac{w-p\cdot y}{ \sum_i p_i}.$$ Then, for all $y'$, if $\ \|y - y'\| &amp;lt; \epsilon^\ast$, we would have $\left|y_i-y_i'\right|&amp;lt;\epsilon^\ast$. Notice that the cost of any bundle $y'$ would satisfy&#xA;$$&#xA;\begin{eqnarray}&#xA;p\cdot y' &amp;amp;=&amp;amp; p_1 y'_1 + p_2 y'_2 + \dots +p_n y'_n\\&#xA;&amp;amp;&amp;lt;&amp;amp;p_1 (y_1+\epsilon^\ast) + p_2 (y_2+\epsilon^\ast) + \dots +p_n (y_n+\epsilon^\ast)\\&#xA;&amp;amp;=&amp;amp; p\cdot y+\epsilon^\ast\sum_i p_i \\&#xA;&amp;amp;=&amp;amp;p\cdot y + \frac{w-p\cdot y}{ \sum_i p_i} \sum_i p_i\\&#xA;&amp;amp;=&amp;amp; w&#xA;\end{eqnarray}&#xA;$$&#xA;which shows that for $\epsilon^\ast$, every $y'$ satisfying $\ \|y - y'\| &amp;lt; \epsilon^\ast$ is affordable. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, since $u$ is locally non satiated, there exists $y^\ast$ with $\ \|y - y^\ast\| &amp;lt; \epsilon^\ast$ such that $y^\ast\succ y$. Since $y^\ast$ is affordable, i.e. $y^\ast\in B(p)$ this leads to a contradiction with the assumption that $x^\ast$ solves the utility maximization problem because transitivity implies that $y^\ast\succ x^\ast.$&lt;/p&gt;&#xA;" OwnerUserId="5739" LastActivityDate="2015-09-29T04:37:24.553" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="8454" PostTypeId="2" ParentId="46" CreationDate="2015-09-29T14:56:11.090" Score="2" Body="&lt;p&gt;I am quite surprised that none of the answers above have mentioned the classic Barro article &quot;Are Government Bonds Net Wealth&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The way I understand it is that given that the utility function is increasing &lt;em&gt;and&lt;/em&gt; concave in consumption, increasing consumption increases utility but at a decreasing rate. Using the same logic, decreasing consumption decreases utility at an increasing rate! So, you can think of this in a representative consumer's framework- the marginal costs of increasing taxation are increasing. If the government wants to expend money for a certain project- building a damn for instance- many fixed costs have to be borne immediately. In order to not tax the public all at once, they smooth out taxation- providing the service while at the same time not making the consumer pay all at once. There is a side of the argument that the governments have a comparative advantage in providing loans compared to, for ex, banks. So, in effect, they take out a loan in the name of the public at lower interest rates. &lt;/p&gt;&#xA;" OwnerUserId="5233" LastActivityDate="2015-09-29T14:56:11.090" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8455" PostTypeId="1" CreationDate="2015-09-29T15:24:50.160" Score="0" ViewCount="30" Body="&lt;p&gt;Does the Federal Reserve have conditions attached to the money that's created and distributed to major banks?&lt;/p&gt;&#xA;" OwnerUserId="5803" LastActivityDate="2015-09-29T15:24:50.160" Title="Federal Reserve conditions" Tags="&lt;banking&gt;&lt;money-supply&gt;&lt;central-banking&gt;&lt;federal-reserve&gt;" AnswerCount="0" CommentCount="4" ClosedDate="2015-10-01T23:55:21.343" ContentLicense="CC BY-SA 3.0" />
  <row Id="8456" PostTypeId="1" CreationDate="2015-09-29T18:26:38.780" Score="4" ViewCount="186" Body="&lt;p&gt;What were the specific conditions that the Federal Reserve attached to the capital injections forced upon the major Wall St. banks during the Great Recession? How and why do they differ from normally legal and binding regulations?&lt;/p&gt;&#xA;" OwnerUserId="5803" LastActivityDate="2015-09-29T22:33:06.147" Title="Federal Reserve capital injections" Tags="&lt;banking&gt;&lt;central-banking&gt;&lt;federal-reserve&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8457" PostTypeId="1" CreationDate="2015-09-29T18:45:57.973" Score="5" ViewCount="71" Body="&lt;p&gt;Is there peer reviewed evidence that open source &lt;strong&gt;&lt;em&gt;production processes&lt;/em&gt;&lt;/strong&gt; increase efficiency and/or consumer surplus? It seems that the first theorem of welfare economics requires complete markets which requires that all actors have perfect information. Yet, producers zealously seek to keep their own production processes secret rather than public.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;For example, Soda Co. has an unpatented secret recipe at time $t_0$ that sells in the market. Are there economists who argue that if Soda Co. must patent and publicly reveal the secret recipe at time $t_x$, efficiency and/or consumer surplus would increase in comparison to current economy?&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;If not, are there good economic reasons why economic regulation does not require all suppliers to publicly reveal secret recipes, i.e., &lt;strong&gt;&lt;em&gt;all information&lt;/em&gt;&lt;/strong&gt; about the production process that would allow other producers to compete in production of the &lt;strong&gt;&lt;em&gt;identical product&lt;/em&gt;&lt;/strong&gt; (whether that be Soda Co.'s management techniques, scheduling practices, shipping arrangements, leasing terms, model number of vats, speed of conveyor belts, actual secret recipe for a beverage, etc.)? That is to say, are there good economic reasons that secrets anywhere in the entire production process are not simply barriers to entry?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Maybe Drink Co. can produce and sell Soda Co.'s recipe for 0.01 less than Soda Co. after they &lt;strong&gt;&lt;em&gt;clone Soda Co.'s land, labor, capital, entrepreneurship, and recipe&lt;/em&gt;&lt;/strong&gt; due to one tweak? Maybe consumers will only pay 0.10 less after they possess perfect information on how Soda Co. produces the beverage?&lt;/p&gt;&#xA;" OwnerUserId="4595" LastEditorUserId="4595" LastEditDate="2015-09-30T12:02:05.540" LastActivityDate="2015-09-30T12:02:05.540" Title="Evidence that open source production processes increase efficiency and/or consumer surplus?" Tags="&lt;producer-theory&gt;&lt;asymmetric-information&gt;&lt;consumer-surplus&gt;&lt;information&gt;&lt;intellectual-property&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8460" PostTypeId="2" ParentId="8456" CreationDate="2015-09-29T22:33:06.147" Score="2" Body="&lt;p&gt;First, two clarifying points:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;The capital injection program, known as the Capital Purchase Program (CPP), was authorized by Congress as a part of the &lt;a href=&quot;http://www.treasury.gov/initiatives/financial-stability/TARP-Programs/bank-investment-programs/Pages/default.aspx&quot; rel=&quot;nofollow&quot;&gt;Troubled Asset Relief Program&lt;/a&gt;, and run by the US Treasury, not the Federal Reserve. However, the Federal Reserve Board and in particular the Federal Reserve Bank of New York (FRBNY, primary regulator of the major dealer banks) were both involved in the design of the program.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The program was voluntary, not mandatory, though the heads of the nine largest institutions were certainly strongly encouraged to participate, as described by Timothy Geithner, then-President of the FRBNY, in &lt;em&gt;Stress Test&lt;/em&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;As we developed our scripts, I pushed hard to make the capital investments sound as close to mandatory as possible. We couldn't force participation, but we could make it sound inevitable. I expected some firms to resist taking new capital with government strings attached. But in a financial crisis, no firm is ever as well capitalized as it thinks. Lehman thought it had plenty of capital until it didn't.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Having made that clear, we can turn to your question, which is about the &quot;government strings&quot; that Geithner mentions. These took three primary forms:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Dividends and warrants. These were in the authorizing law. Quoting the &lt;a href=&quot;http://www.treasury.gov/initiatives/financial-stability/TARP-Programs/bank-investment-programs/cap/Pages/overview.aspx&quot; rel=&quot;nofollow&quot;&gt;Treasury's CPP page&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Most financial institutions participating in the CPP pay Treasury a five percent dividend on preferred shares for the first five years and a nine percent rate thereafter. In addition, Treasury received warrants to purchase common shares or other securities from the banks at the time of the CPP investment. The purpose of the additional securities was to enable taxpayers to reap additional returns on their investments as banks recover.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;http://www.treasury.gov/initiatives/financial-stability/TARP-Programs/bank-investment-programs/cap/Documents/CPP%20Directors%20-%20Observer%20Fact%20Sheet.pdf&quot; rel=&quot;nofollow&quot;&gt;The ability to nominate&lt;/a&gt; up to two members to the board of directors of a participating institution, should the institution miss six quarterly payments to the Treasury, per the CPP contracts.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Limits on executive compensation. These were in the authorizing law that Congress passed (titled the &quot;Emergency Economic Stabilization Act of 2008&quot;), and they're well-described on the law's &lt;a href=&quot;https://en.wikipedia.org/wiki/Emergency_Economic_Stabilization_Act_of_2008&quot; rel=&quot;nofollow&quot;&gt;Wikipedia page&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;If the Treasury purchases assets directly from a company, and also receives a meaningful equity or debt position in that company, the company is not allowed to offer incentives that encourage &quot;unnecessary and excessive risks&quot; to its senior executives (that is, the top five executives). Also, the company is prohibited from making golden parachute payments to a senior executive. Both of these prohibitions expire when the Treasury no longer holds an equity or debt position in that company. The company also is given &quot;clawback&quot; permission; that is, the opportunity to recover senior executive bonus or incentive pay based on earnings, gains, or other data that proves to be inaccurate.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;If the Treasury purchases assets via auction, and that purchase exceeds $300 million, any new employment contract for a senior officer may not include a golden parachute provision in the case of involuntary termination, bankruptcy filing, insolvency, or receivership. This prohibition only applies to future contracts; golden parachutes already in place will remain unaffected.&#xA;  In either scenario, no limits are placed on executive salary, and existing golden parachutes will not be altered.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="264" LastActivityDate="2015-09-29T22:33:06.147" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8461" PostTypeId="2" ParentId="8449" CreationDate="2015-09-29T22:43:19.393" Score="1" Body="&lt;p&gt;I am not sure how the contradiction method of proof should work here. Here is my take: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Ad absurdum&lt;/em&gt;, assume that $x^*$ solves the utility maximization problem, and that we have $y \in \mathbb{R^l_{++}}$ such that $u(y) \geq u(x^*)$, and that that $p \cdot y &amp;lt; w$. So $y$ is feasible, and since $u()$ represents a (rational and continuous) preference relation, $u(y) \geq u(x^*) \implies y \succeq x^*$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Moreover, there is some budget left. Since $x^*$ is not equal to the zero vector, at least one of the elements in the bundles must be a good (not all of them can be bads), say the first one, $y_1$. Define the bundle $y'$ to be equal to $y$ bar $y_1$ and set the quantity $y_1'&amp;gt;y_1$ such that $p \cdot y' = w$.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So $y'$ is feasible, and $y'&amp;gt; y \implies y' \succeq y$ since $y_1$ is a good (but we do &lt;em&gt;not&lt;/em&gt; assume that local non-satiation holds, and this is why the preference relation is weak. $y_1$ being a good only guarantees that increasing its quantity does not diminish utility). So also  $y' \succeq x^*$.&lt;br&gt;&#xA;Since by assumption $x^*$ solves the utility maximization problem, it has to be the case that $u(y') \leq u(x^*) \leq u(y)$.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, under the &lt;em&gt;ad absurdum&lt;/em&gt; assumption, we have that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ y' &amp;gt; y, \;\;\;\; u(y') \leq u(y) \tag{1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that this relation that we ended up with, does not involve anymore anything related to the utility maximization problem and/or the budget constraint. It is a conclusion describing a property of $u()$ as a function, under the &lt;em&gt;ad absurdum&lt;/em&gt; assumption. Note also that $y'$ is not unique -we can form many such bundles, and if we accept that other elements of the bundles are also goods and not bads, we can spread the remaining available budget to increase more than one element...  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Concluding the proof by showing that $(1)$ (and how it can be further extended) contradicts the premise that $u()$ has no local maxima is now easy.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-09-29T22:43:19.393" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8463" PostTypeId="1" CreationDate="2015-09-29T23:49:46.653" Score="1" ViewCount="90" Body="&lt;p&gt;Let an agent with utility function $U(x_1,x_2,x_3)=min\{ x_1, x_2 \} +x_3$. We want to maximize $U$ subject to $p_1 x_1+p_2 x_2 +p_3 x_3= I$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First intuitively $x_1^*=x_2^*$ substituting en the budget constraint I have $$x_1^*=x_2^*=\frac{I-p_3 x_3}{p_1+p_2}$$ I don't know how to solve for $x_3$. Then i thought in Kuhn-Tucker but I can't see how to solve it.&lt;/p&gt;&#xA;" OwnerUserId="5812" LastActivityDate="2015-09-30T00:05:30.870" Title="About marshallian demands" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8464" PostTypeId="2" ParentId="8463" CreationDate="2015-09-30T00:05:30.870" Score="1" Body="&lt;p&gt;I will give a hint. To increase/decrease utility by 1 unit, you can do two things. Increase $x_1$ and $x_2$ by $\frac{1}{2}$ units and this would cost you $\frac{p_1+p_2}{2}$. The second option is changing $x_3$ by one unit that would cost $p_3$. One other option is of course using a linear combination of the above changes. If you remember from well behaved utility functions, you would like to buy things for which utility per price is higher. Now you would go for a similar reasoning here and would try to buy extra utility at a cheapest price.&lt;/p&gt;&#xA;" OwnerUserId="5739" LastActivityDate="2015-09-30T00:05:30.870" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8465" PostTypeId="1" AcceptedAnswerId="8467" CreationDate="2015-09-30T00:26:42.367" Score="2" ViewCount="186" Body="&lt;p&gt;I'd like to ask a question about  producer surplus. Basically I got the concept and how we calculate when a demand or price changes on a graph, but I cannot figure out how I should apply to real life.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I mean, let's say A = 10, B = 20 and Q = 5.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At first the producers accept to sell at the price $10. Is that right? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And the revenue they get would be  &lt;span class=&quot;math-container&quot;&gt;$10 \cdot 5 = 50 $&lt;/span&gt;   but the producers managed to sell at the price of 20 and the revenue they get is  &lt;span class=&quot;math-container&quot;&gt;$ 20 \cdot 5 = 100$&lt;/span&gt;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And the difference between what the producers get and what the producers would ask for is &lt;span class=&quot;math-container&quot;&gt;$100 - 50 = 50$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But when I calculate producer surplus using graphic (ABC), I get  &lt;span class=&quot;math-container&quot;&gt;$\frac{(20 -10 ) \cdot 5} { 2 } = 25 $&lt;/span&gt;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So I come to different conclusion in real life than when I calculate using graph. Why? Could anyone explain to me please?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/QyuzU.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/QyuzU.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt; &lt;/p&gt;&#xA;" OwnerUserId="5813" LastEditorUserId="28159" LastEditDate="2020-05-29T10:51:56.500" LastActivityDate="2020-05-29T10:51:56.500" Title="Real life producer surplus" Tags="&lt;producer-surplus&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="8466" PostTypeId="2" ParentId="8457" CreationDate="2015-09-30T01:51:45.443" Score="4" Body="&lt;p&gt;There is a large economic literature on intellectual property rights. However, the issue seems far from settled on what even the optimal duration for patents are. Note that open source is even a step further than a 0 day patent duration. A strong case for your view would probably be found in Boldrin/Levine:&#xA;&lt;a href=&quot;http://levine.sscnet.ucla.edu/general/intellectual/againstnew.htm&quot; rel=&quot;nofollow&quot;&gt;http://levine.sscnet.ucla.edu/general/intellectual/againstnew.htm&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here are several further starting points in the literature:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Scotchmer, Suzanne. &quot;Standing on the shoulders of giants: cumulative research and the patent law.&quot; The Journal of Economic Perspectives (1991): 29-41.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Besen, Stanley M., and Leo J. Raskind. &quot;An introduction to the law and economics of intellectual property.&quot; The Journal of Economic Perspectives (1991): 3-27.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Posner, Richard A. &quot;Intellectual property: The law and economics approach.&quot; Journal of Economic Perspectives (2005): 57-73.&lt;/p&gt;&#xA;" OwnerUserId="5635" LastActivityDate="2015-09-30T01:51:45.443" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="8467" PostTypeId="2" ParentId="8465" CreationDate="2015-09-30T02:31:24.557" Score="5" Body="&lt;p&gt;I think you misunderstood what the supply line represents. The function takes as its argument the number of units sold. It then returns the lowest price which the supplier of the last unit requires such that he is willing to sell.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, the profit would not be $10*5$. Instead, the last person willing to sell the good receives 0 profit as he is selling at the lowest price he is willing to accept. Counting in discrete units, we would have something like $10+7.5+5+2.5+0=25$ profit. Each additional seller of a unit makes less profit than the previous one.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The flaw in your logic was that the first seller can really only provide a single unit at price 10 and not 5 units. The next unit already costs a bit more in production all the way till the last unit makes its producer just break even.&lt;/p&gt;&#xA;" OwnerUserId="5635" LastActivityDate="2015-09-30T02:31:24.557" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8468" PostTypeId="1" AcceptedAnswerId="8469" CreationDate="2015-09-30T08:08:39.273" Score="4" ViewCount="1185" Body="&lt;p&gt;I'm working on a paper on the sharing economy, and in particular on its economic implications.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am aware of the surge pricing model that Uber adopts, and of how it works. But I'm wondering on what criteria and how Uber estimates the base fares of each city.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would like, ultimately, to understand whether and why this artificial pricing model is better than the &quot;natural&quot; pricing models of other peer-to-peer services (e.g. AirBnB), that allow the users to set their own rates.&lt;/p&gt;&#xA;" OwnerUserId="5465" LastActivityDate="2015-09-30T08:35:36.690" Title="How does the Uber's pricing model work?" Tags="&lt;supply-and-demand&gt;&lt;pricing&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="8469" PostTypeId="2" ParentId="8468" CreationDate="2015-09-30T08:35:36.690" Score="1" Body="&lt;p&gt;It is important to distinguish between optimal pricing from Uber's perspective and optimal pricing from an efficiency standpoint. If Uber was the only company matching drivers and customers, it would adopt a monopoly pricing strategy on selling rides to consumers and buying rides from drivers. These rates may be very far from the efficient rates. It is therefore important to state what you mean by a &quot;better&quot; pricing model.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From the perspective of Uber/Airbnb, profit maximizing pricing strategies may differ because of many reasons. AirBnB is in a business where the quality of a service can vary greatly and is often unobserved to them. Uber in contrast matches customers with services that have little to no variation in quality (speed, safety), which are fairly well observable due to their GPS data. But even depending on expected company growth may lead the two companies to have optimal pricing strategies closer or further from efficient prices. Finally, the competition in each city may be very different for Uber, since cab rates are fixed by a central planner. The competition of AirBnB usually has decentralized pricing except where a hotel chain has a local monopoly.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Even from an efficiency standpoint, there may be large advantages from a centralized pricing strategy in the market for rides. Most urban areas have fixed cab ride rates to increase transparency. Anybody can get into a cab without worrying about being charged an unexpectedly high amount. This can greatly enhance market outcomes.&lt;/p&gt;&#xA;" OwnerUserId="5635" LastActivityDate="2015-09-30T08:35:36.690" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8470" PostTypeId="1" CreationDate="2015-09-30T14:13:57.373" Score="-1" ViewCount="109" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;[Thymology] is what a man knows about the way in which people value&#xA;  different conditions,&lt;/strong&gt; about their wishes and desires and their plans&#xA;  to realize these wishes and desires. It is the knowledge of the social&#xA;  environment in which a man lives and acts or, with historians, of a&#xA;  foreign milieu about which he has learned by studying special&#xA;  sources.[2] &lt;strong&gt;Why one man chooses water and another man wine is a&#xA;  thymological (or, in traditional terminology, psychological) problem.&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Thymology is a branch of history or, as Collingwood formulated it, it&#xA;  belongs in 'the sphere of history.' &lt;strong&gt;It deals with the mental&#xA;  activities of men that determine their actions.&lt;/strong&gt; It deals with the&#xA;  mental processes that result in a definite kind of behavior, with the&#xA;  reactions of the mind to the conditions of the individual's&#xA;  environment. &lt;strong&gt;It deals with something invisible and intangible that&#xA;  cannot be perceived by the methods of the natural sciences.&lt;/strong&gt; But the&#xA;  natural sciences must admit that this factor must be considered as&#xA;  real also from their point of view, as it is a link in a chain of&#xA;  events that result in changes in the sphere the description of which&#xA;  they consider as the specific field of their studies.[4]&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Having not studied Behavioural Economics, I wonder if they have any of their scholars or branches could be said to focus on this particular area&lt;/p&gt;&#xA;" OwnerUserId="5814" LastEditorUserId="5814" LastEditDate="2015-09-30T16:59:39.277" LastActivityDate="2015-10-02T10:53:02.783" Title="Is Behavioural Economics Thymological, or does any branch or scholar concern itself with Thymology?" Tags="&lt;behavioral-economics&gt;&lt;austrian&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8471" PostTypeId="2" ParentId="8470" CreationDate="2015-09-30T14:39:53.170" Score="3" Body="&lt;p&gt;Your first quote makes it clear that &quot;thymology&quot; is a wilfully abstruse word for psychology (though it's unclear why only male psychology is considered).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And psychology has been part of economics for as long as economics has been discussed. You can find psychology in Adam Smith and Aristotle. There was something of a barren period within the twentieth century when some economists disregarded psychology, but taking a historical perspective of the study of economics, that was a temporary aberration.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2015-09-30T14:39:53.170" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8473" PostTypeId="1" CreationDate="2015-09-30T18:45:29.003" Score="6" ViewCount="368" Body="&lt;p&gt;Consider the following game:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;There are two players, $i\in\{1,2\}$&lt;/li&gt;&#xA;&lt;li&gt;Time is discrete and runs to infinity during periods $t=\{1,2,\ldots\}$&lt;/li&gt;&#xA;&lt;li&gt;At eat point in time, players have a price $p_i(t)\in\mathbb{R}_+$&lt;/li&gt;&#xA;&lt;li&gt;Initialise the game with $p_1=p_2=p(0)$.&lt;/li&gt;&#xA;&lt;li&gt;In odd-numbered periods, player 1 can change his price to any $p_1\in\mathbb{R}_+$. Player 2 cannot change his price.&lt;/li&gt;&#xA;&lt;li&gt;In even-numbered periods, player 2 can change his price to any $p_2\in\mathbb{R}_+$. Player 1 cannot change his price.&lt;/li&gt;&#xA;&lt;li&gt;For each price, there is a demand $D(p)$, which is a decreasing function. The firm with the lowest price at the end of each period captures the whole demand, receiving payoff $D(p_i)p_i$ for that period. The firm with the highest price receives a payoff of zero for the period. If prices are equal then each firm gets a payoff of $pD(p)/2$.&lt;/li&gt;&#xA;&lt;li&gt;Players discount the future at common rate $0\leq\delta\leq1$ so a payoff of $\pi$ that occurs $t$ periods in the future has present value $\pi\delta^t$.&lt;/li&gt;&#xA;&lt;li&gt;Write $p^*$ for the monopoly price that maximises $D(p)p$.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The question is: can we identify a complete characterization of the set of Nash equilibria of this game?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that a valid strategy is a complete contingent plan, which specifies the choice of action for any history of the game.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This question follows the discussion here: &lt;a href=&quot;https://economics.stackexchange.com/questions/8398/what-determines-the-outcome-of-a-price-war-and-why-isnt-that-outcome-reached-i?noredirect=1#comment10737_8398&quot;&gt;What determines the outcome of a price war, and why isn&amp;#39;t that outcome reached instantaneously?&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-09-30T19:08:46.100" Title="Dynamic Bertrand competition when players take turns" Tags="&lt;game-theory&gt;&lt;oligopoly&gt;&lt;repeated-games&gt;" AnswerCount="0" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="8474" PostTypeId="1" CreationDate="2015-09-30T19:21:10.113" Score="11" ViewCount="856" Body="&lt;p&gt;Can anyone provide an intuitive explanation of why the Slutsky matrix right multiplied by the price vector yields a zero matrix? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know this is true but I do not really understand why it is true. Can anyone help here? &lt;/p&gt;&#xA;" OwnerUserId="5816" LastEditorUserId="61" LastEditDate="2015-10-01T23:47:59.157" LastActivityDate="2015-10-02T17:20:18.663" Title="Intuitive explanation of $S(p,w)\cdot p=0$" Tags="&lt;microeconomics&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="8476" PostTypeId="1" CreationDate="2015-09-30T19:18:13.787" Score="2" ViewCount="91" Body="&lt;p&gt;India has just dropped its lending rates. Is the drop in interest rates linked to the country's inflation?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Link to article - &lt;a href=&quot;http://in.reuters.com/article/2015/09/14/india-economy-inflation-idINKCN0RE04V20150914&quot; rel=&quot;nofollow&quot;&gt;http://in.reuters.com/article/2015/09/14/india-economy-inflation-idINKCN0RE04V20150914&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerDisplayName="letterhead" LastEditorUserId="44" LastEditDate="2016-10-14T12:18:39.797" LastActivityDate="2016-10-14T13:20:27.120" Title="How is a country's interest rate and inflation linked?" Tags="&lt;inflation&gt;&lt;interest-rate&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8477" PostTypeId="1" CreationDate="2015-09-30T19:15:20.260" Score="4" ViewCount="204" Body="&lt;p&gt;America's Fed Funds rate is below 1% and its growth rate is 3.9%. India's lending rate is approximately 9.5% and its growth rate is 5.1%. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;India just dropped its lending rate while the US is considering increasing its own rates. Isn't this counterintuitive? Wouldn't the increase in the 'cost of capital' slow down the US economy? &lt;/p&gt;&#xA;" OwnerDisplayName="letterhead" LastEditorUserId="264" LastEditDate="2015-10-03T18:30:44.707" LastActivityDate="2015-11-02T18:33:09.223" Title="Why is the Fed considering increasing interest rates?" Tags="&lt;macroeconomics&gt;&lt;interest-rate&gt;&lt;federal-reserve&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="8479" PostTypeId="2" ParentId="8474" CreationDate="2015-10-01T00:48:30.007" Score="1" Body="&lt;p&gt;I don't know if you will regard this as an explanation, or rather as a proof. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What we have a better understanding from univariate calculus is the first order Taylor approximation, i.e. a function satisfying some regularity conditions can be well-approximated by a linear function at a point. Say $f:\mathbb{R}\rightarrow\mathbb{R}$, then around $p^\ast$ (i.e. when $\delta$ is small)&#xA;$$&#xA;f(p^\ast+\delta)\simeq f(p^\ast)+\delta\times \left.\frac{df}{dp}\right|_{p=p^\ast}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, we can do something similar for multivariable functions. If $h_i:\mathbb{R}^n\rightarrow\mathbb{R}$, then &#xA;$$&#xA;h_i(\mathbf{p^\ast+\delta})\simeq h_i(\mathbf{p^\ast})+\left.\frac{\partial h_i(\mathbf{p})}{\partial p_1}\delta_1\right|_{p=p^\ast}+\dots+\left.\frac{\partial h_i(\mathbf{p})}{\partial p_n} \delta_n\right|_{p=p^\ast}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, it should be apparent that when we multiply all prices by the same number, the Hicksian demand does not change. So let's say we increase prices from $\mathbf{p^\ast}$ to $\mathbf{p^\ast(1+\Delta)}$. So each price ${p_j^\ast}$ changes proportionally at the amount of $\Delta \times {p_j^\ast}$. We should see no change in the value of $h_i$ above if we replace $\delta$ with $\Delta \mathbf{p^\ast}$. Then it must be true that the additional terms including partial derivatives would sum to 0, which basically results in your $S(\mathbf{p},w)\cdot \mathbf{p}=0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Put another way, since the Hicksian demand for any good is not responsive to a change in prices that keeps the relative prices the same, then if we look at the total of the individual affects of these price changes on a good, we should observe a 0 change.&lt;/p&gt;&#xA;" OwnerUserId="5739" LastEditorUserId="5739" LastEditDate="2015-10-01T02:59:55.733" LastActivityDate="2015-10-01T02:59:55.733" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8480" PostTypeId="2" ParentId="5004" CreationDate="2015-10-01T03:04:59.377" Score="1" Body="&lt;p&gt;It seems the utility function is not only cardinal here, but even defined on a ratio scale. Consider two outcomes with utilities 1/4 and 3/4. Clearly, we can apply the affine transformation: $v=v*2-0.5$ in which case the utilities become 0 and 1. However, we have now changed the entropy from a strictly positive value to zero!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, you would need to first provide a meaningful ratio scale to your utility. One way to do this is to give an interpretation to the natural 0 utility level. Without this specification the entropy is meaningless.&lt;/p&gt;&#xA;" OwnerUserId="5635" LastActivityDate="2015-10-01T03:04:59.377" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8481" PostTypeId="1" AcceptedAnswerId="9270" CreationDate="2015-10-01T05:58:08.887" Score="7" ViewCount="161" Body="&lt;p&gt;So here's a few ideas that have been floating around my head since undergraduate university. It seems that money owned by the highest net wealth owners is always moving around and making a return, but only in markets that don't particularly affect the lower classes (debt and equity trading for example). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So might there be significantly different rates of inflation or expected rates of inflation for different income groups? As income inequality rises, would money demand also be lower for lower income groups and higher for high income groups, which would create inflation for luxury goods and such? If a central bank cares about population welfare and they know their policy may impact inflation differently for different income groups, couldn't this affect their planning/optimal policy?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know these are a lot of questions. &lt;strong&gt;I am mainly interested in whether there have been studies or theories about any of these sorts of questions before&lt;/strong&gt; and whether these questions are actually interesting, empirically. Feel free to give me suggestions on how to hone in this post; it's a lot of speculative questions, I know.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Edit:&lt;/strong&gt; Otherwise, how might you guys approach this problem? How might you guys and gals try to model inflation for different income groups?&lt;/p&gt;&#xA;" OwnerUserId="4251" LastEditorUserId="4251" LastEditDate="2015-11-19T22:09:40.283" LastActivityDate="2015-11-20T09:14:53.693" Title="Differing Inflation Rates for Separate Income Groups; Literature?" Tags="&lt;macroeconomics&gt;&lt;inflation&gt;&lt;central-banking&gt;&lt;empirical-evidence&gt;&lt;inequality&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8482" PostTypeId="2" ParentId="8448" CreationDate="2015-10-01T07:41:18.680" Score="4" Body="&lt;p&gt;As I understand it, you're trying to estimate a &lt;strong&gt;demand system&lt;/strong&gt; for different goods.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Have a look at &lt;a href=&quot;http://scholar.princeton.edu/maguiar/publications/has-Consumption-Inequality-Mirrored-Income-Inequality&quot; rel=&quot;nofollow&quot;&gt;Aguiar and Bils (forthcoming AER)&lt;/a&gt;, who use the consumption expenditure survey to do exactly that. The previous link also contains their data and code. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;From their abstract: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;We do so by constructing an alternative measure of consumption expenditure, using data from the Consumer Expenditure Survey (CE), that employs a demand system to correct for systematic measurement error. Specifically, we consider trends in the relative expenditure of high-income and low-income households for different goods with different expenditure elasticities.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-10-01T07:41:18.680" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8483" PostTypeId="2" ParentId="8476" CreationDate="2015-10-01T09:31:30.807" Score="2" Body="&lt;p&gt;You're probably not looking for a complex scientifical discussion on the subject, so here's a very simplified description of the mechanism:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lower interest rate =&gt; Loaning money is cheaper =&gt; More money in the system =&gt; Higher inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the change in inflation is one of the products of government/central bank changing interest rates.&lt;/p&gt;&#xA;" OwnerUserId="5512" LastActivityDate="2015-10-01T09:31:30.807" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8484" PostTypeId="2" ParentId="8474" CreationDate="2015-10-01T10:57:41.673" Score="8" Body="&lt;p&gt;This is a general mathematical property of the second derivative/Hessian matrix of multivariate functions that are homogeneous of degree one.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Expenditure function $E$ is homogeneous of degree one in prices. Why?&#xA;If all prices change in the same proportion (which is how we check for the mathematical property of homogeneity), &lt;em&gt;relative&lt;/em&gt; prices do not change. If relative prices do not change, the quantitative composition of the minimum-cost compensated consumption bundle in order to achieve a given utility does not change &lt;em&gt;at all&lt;/em&gt;. Then, since all prices have increased by the same proportion, budget shares remain the same, and the Expenditure needed to achieve the same utility, rises in that same proportion: homogeneity of degree one. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;By duality, the Hicksian demand vector is the gradient of the Expenditure function, $H = \nabla_p E$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Hicksian demand vector, gives us minimum-cost quantities demanded. Due to the homogeneity of degree one of the Expenditure function, the inner product of the Hicksian demand vector times the price vector equals the Expenditure function. This also should be intuitive: we just multiply each quantity demanded by the unit price that must be paid for it, and by summing these products we obtain the total Expenditure we must incur in order to acquire the minimum-cost bundle for given utility.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So we have  (simplifying differentiation notation) $ E = H\cdot p$ while also $\frac {\partial}{\partial p}E = H$. Therefore also &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\partial}{\partial p}(H\cdot p) = H \implies H + \frac {\partial H}{\partial p}\cdot p = H$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and it must be the case that &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\partial H}{\partial p}\cdot p = 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the Hicksian demand vector is homogeneous of degree &lt;em&gt;zero&lt;/em&gt; in prices (mathematically, this is a consequence of Euler's theorem for homogeneous functions, i.e. that if a function is homogeneous with degree of homogeneity $k$, its gradient has degree of homogeneity $k-1$).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But the 1st derivative (Jacobian) of Hicksian demand (which is the Hessian-matrix of second derivatives of the Expenditure function) is the Slutsky matrix, $\frac {\partial^2 E}{\partial p^2}=\frac {\partial H}{\partial p} = S(p,w)$. So $S(w,p) \cdot p = 0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the result stems from the homogeneity of degree one of the Expenditure function. Is there an intuitive explanation, analogously with the intuition behind the homogeneity of degree one of the Expenditure function? Well, the former &lt;em&gt;comes directly&lt;/em&gt; from the latter, so it is difficult to come up with a &quot;separate&quot; intuitive argument. One could informally say that compensated quantities demanded are &quot;independent&quot; of (not affected by) price variation when relative prices remain the same. Then in geometric terms, this means that the vectors of rates of change of compensated quantities demanded (which is what each row of the Slutsky matrix contains), are &lt;em&gt;orthogonal&lt;/em&gt; to the price vector.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-10-01T10:57:41.673" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8486" PostTypeId="1" CreationDate="2015-10-01T11:10:03.713" Score="1" ViewCount="88" Body="&lt;p&gt;I have data about a few (subnational) geographical units. For each of these units, I know: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) the proportion of workers by level of education &lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) the average income by level of education&lt;/p&gt;&#xA;&#xA;&lt;p&gt;3) the average income for the all the population (across all levels of education)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I do not have access to micro-data, and I realise that this prevents me from taking within-group inequality into account. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;That being said, what would be a way to calculate between-group (level of education) inequality, so I can compare its values across units?&lt;/p&gt;&#xA;" OwnerUserId="5822" LastActivityDate="2015-10-01T11:10:03.713" Title="Calculating between-group inequality without microdata" Tags="&lt;inequality&gt;" AnswerCount="0" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8489" PostTypeId="2" ParentId="8248" CreationDate="2015-10-02T03:57:08.027" Score="0" Body="&lt;p&gt;Since there really is no &quot;real&quot; money, being that all money is issued out of debt this raises the obvious question about risk. The Fed risks nothing since it actually has &quot;nothing&quot; but keyboard entries on a computer, all the rest is just a jugglers game. If I can create all the money I want out of nothing for what ever purpose I desire then the only risk is &quot;over filling&quot; the bucket, i.e., inflation, but whoa, why does the Fed insist on the two percent inflation?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Because that is how the system has to work. Credit money created leaves a residue and that residue is inflation and here is the reason why the Fed is paranoid about deflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, the monkey in the woodpile is that the forced growth in the money supply is without end. The Keynsian formula always provides that &quot;stimulus&quot; to force people to spend and if they don't, well, step on the accelerator pedal some more. In the end analysis, in mathematics, the Keynes formula fails because it is a powered function meaning that eventually the rate of increase of money supply has to go to infinity, however, before it gets there the little wheels always fall of the money cart. The reason is that you can't &quot;taper&quot;. Tapering works in the short term, zirp, but this in turn brings about the failure of the credit money system simply because then money has no return value as a commodity anymore. It has to fail and there is no way to prevent the failure.&lt;/p&gt;&#xA;" OwnerUserId="5827" LastActivityDate="2015-10-02T03:57:08.027" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8490" PostTypeId="1" AcceptedAnswerId="8498" CreationDate="2015-10-02T09:41:40.100" Score="-2" ViewCount="153" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;The Congress established the statutory objectives for monetary&#xA;  policy--&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;maximum employment, &lt;/li&gt;&#xA;&lt;li&gt;stable prices, and &lt;/li&gt;&#xA;&lt;li&gt;moderate long-term interest rates&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;--in the Federal Reserve Act.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.federalreserve.gov/faqs/money_12848.htm&quot; rel=&quot;nofollow&quot;&gt;http://www.federalreserve.gov/faqs/money_12848.htm&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does the Fed ever use misinformation as a tool to help achieve these mandates?&lt;/p&gt;&#xA;" OwnerUserId="5814" LastEditorUserId="5814" LastEditDate="2015-10-04T06:10:51.717" LastActivityDate="2015-11-24T03:29:32.620" Title="Does the Fed use misinformation as a tool for good monetary policy?" Tags="&lt;interest-rate&gt;&lt;central-banking&gt;&lt;federal-reserve&gt;&lt;unemployment&gt;&lt;price-level&gt;" AnswerCount="3" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="8491" PostTypeId="1" CreationDate="2015-10-02T09:59:04.787" Score="2" ViewCount="112" Body="&lt;p&gt;The first time I saw it, was in Stephen Harper's Master's Thesis&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://dspace.ucalgary.ca/bitstream/1880/24345/1/1991_Harper.pdf&quot; rel=&quot;nofollow&quot;&gt;http://dspace.ucalgary.ca/bitstream/1880/24345/1/1991_Harper.pdf&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It comes across as being very similar to the Austrian Business Cycle Theory, but I have not come across it in their writings as of yet.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Who was the one to first coin and formulate the theory?&lt;/p&gt;&#xA;" OwnerUserId="5814" LastActivityDate="2017-03-05T16:52:14.047" Title="Who first formulated the Political Business Cycle Theory?" Tags="&lt;business-cycles&gt;&lt;austrian&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8494" PostTypeId="2" ParentId="8470" CreationDate="2015-10-02T10:53:02.783" Score="0" Body="&lt;p&gt;Let's all agree that the use of &quot;thymology&quot; is annyoing and instead call it psychology. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then the answer is easy; Yes, behavioural economics looks specifically at factors that determine choice, and tries to understand what factors influence choice.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But, even better - psychology really studies this area! &lt;/p&gt;&#xA;" OwnerUserId="107" LastActivityDate="2015-10-02T10:53:02.783" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8495" PostTypeId="2" ParentId="8491" CreationDate="2015-10-02T10:57:54.750" Score="2" Body="&lt;p&gt;Quick Wikipedia found :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Business_cycle&quot; rel=&quot;nofollow&quot;&gt;https://en.wikipedia.org/wiki/Business_cycle&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Look at the section of Politically based business cycle&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The political business cycle theory is strongly linked to the name of&#xA;  &lt;strong&gt;Michał Kalecki&lt;/strong&gt; who discussed &quot;the reluctance of the 'captains of&#xA;  industry' to accept government intervention in the matter of&#xA;  employment.&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Micha%C5%82_Kalecki&quot; rel=&quot;nofollow&quot;&gt;https://en.wikipedia.org/wiki/Micha%C5%82_Kalecki&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="107" LastActivityDate="2015-10-02T10:57:54.750" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8496" PostTypeId="2" ParentId="8440" CreationDate="2015-10-02T11:09:35.143" Score="3" Body="&lt;p&gt;I think I proved in a rigorous way that the system is autonomous for the model that I have written 3-4 days and I think it is useful for the community, especially for those who are working on macroeconomics of growth.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's write the present-value Hamiltonian ;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\mathcal{H}=e^{-\triangle}\left[ U\left( c\right)\right]&#xA;+\lambda _{2}^{}\left[ f(k)-c\right] +\lambda _{2}\left[ \rho&#xA;+h(k)\right] $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We know that ;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\dot{\lambda}_{1}=- \frac{\partial \mathcal{H}}{\partial k}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\dot{\lambda}_{2}=- \frac{\partial \mathcal{H}}{\partial \triangle}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When I differenciate Hamiltonian according to time $t$ ;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{d \mathcal{H}}{dt}=\frac{\partial \mathcal{H}}{\partial t} + \mathcal{H}_k \dot{k} + \mathcal{H}_{\lambda_1} \dot{\lambda}_{1} + \mathcal{H}_\triangle \dot{\triangle} + \mathcal{H}_{\lambda_2} \dot{\lambda}_{2} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is straightforward to see that this term reduces to the following one ;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{d \mathcal{H}}{dt}=\frac{\partial \mathcal{H}}{\partial t}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From page 299, theorem 9.6.1 of Léonard and Dockner &lt;strong&gt;&lt;em&gt;(Optimal Control Theory and Static Optimization in Economics)&lt;/em&gt;&lt;/strong&gt; about the transversality condition which shows that &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\underset{t\rightarrow\infty}{lim}\mathcal{H}\left(t\right)=0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;when $\rho &amp;gt; 0$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this case, it is obvious that along the optimal path, the Hamiltonian takes the value 0, which ensures a autonomous dynamical system.&lt;/p&gt;&#xA;" OwnerUserId="2938" LastActivityDate="2015-10-02T11:09:35.143" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8497" PostTypeId="1" CreationDate="2015-10-02T12:10:03.780" Score="1" ViewCount="58" Body="&lt;p&gt;Is there any research about the cumulative amount of working hours for consumer products like cars or mobile phones?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With cumulative amount of working hours I mean the total amount of working hours that is spend to create 1 quantity of that product, including research &amp;amp; development, extracting resources, transportation, manufacturing, distributiong, etc.&lt;/p&gt;&#xA;" OwnerUserId="5831" LastActivityDate="2015-10-02T12:10:03.780" Title="What is the cumulative amount of working hours for consumer products?" Tags="&lt;mathematical-economics&gt;&lt;labor-economics&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8498" PostTypeId="2" ParentId="8490" CreationDate="2015-10-02T12:21:41.310" Score="4" Body="&lt;p&gt;&lt;em&gt;This question as is (October 2, 2015, 15:07 Athens time) should be closed and I voted to that effect. I provide an answer in order to show why it should be closed.&lt;/em&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As any natural or legal entity, the &quot;Fed&quot; engages in &lt;em&gt;strategic&lt;/em&gt; behavior. Strategic behavior is not a priori constrained by moral considerations (and this is why Game Theory has come under fire for moral reasons in a normative approach). Under strategic behavior &lt;em&gt;anything goes&lt;/em&gt; at first, and then the actual course of action is decided based on whatever constraint the decision maker feels it has to take into account, for whatever reasons.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore &quot;manipulation of facts&quot; of any short and to any degree may in principle be employed in order for the decision maker to (attempt to) reach its goals.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the question as is has the above trivial and uninformative answer. It could be improved by asking, for example:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;Has there been any study that tried to assess whether &quot;fact&#xA;  manipulation&quot; was critical in achieving the goals of the Fed?&quot;&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;, or&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;Are there any econometric papers studying the correlation between macroeconomic outcomes and some index of &quot;fact manipulation&quot;?&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;These kinds of questions would be manageable and in principle interesting and answerable, but I personally am not aware of any such study.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-10-02T12:21:41.310" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="8499" PostTypeId="1" AcceptedAnswerId="8512" CreationDate="2015-10-02T12:27:23.337" Score="8" ViewCount="1381" Body="&lt;p&gt;Consider the problem of fairly sharing a homogeneous cake between two people. It is well-known that a fair division can be achieved through the divide and choose procedure: player 1 cuts the cake into two pieces and player 2 chooses a piece.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This problem can be generalized to non-homogeneous cake, more than two players, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is: are there any concrete examples of people using the fair division procedures (such as divide and choose) that emerge as the solution to such problems in practical applications?&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2015-10-03T17:47:41.270" Title="Practical examples of fair division algorithms being used" Tags="&lt;game-theory&gt;&lt;empirical-evidence&gt;&lt;social-choice&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8500" PostTypeId="1" CreationDate="2015-10-02T13:03:51.783" Score="4" ViewCount="158" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;What is the financialization process of wealth in the economy? What&#xA;  are the determining factors? What are its consequences?&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;What is the role of financialization in the economic crisis of 2008?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I do not know if my ideas are right, but&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Financialization of the economy would not be the process of selling debt in the form of financial securities?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The relationship between financialization and the 2008 crisis would be the fact of the credit facility and the sale of debts caused an imbalance in the economy.&lt;/p&gt;&#xA;" OwnerUserId="5494" LastActivityDate="2015-11-02T06:47:47.410" Title="Financialization of the economy" Tags="&lt;macroeconomics&gt;&lt;financial-crises&gt;&lt;self-study&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8501" PostTypeId="2" ParentId="8499" CreationDate="2015-10-02T15:28:55.227" Score="1" Body="&lt;p&gt;Most division problems are over land/property or belongings of the deceased or business acquisitions, things that aren't infinitely divisible, are not homogeneous, and often that involve more than two players. Cut and choose collapses with more than two players. There is a lot more literature about specific procedures such as:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;strong&gt;Surplus Procedure&lt;/strong&gt;: referee game, cannot guarantee both envy-free and equitable cut, may or may not be maxmin strategy proof, given which of those properties you go for&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;Banach-Knaster Procedure&lt;/strong&gt;: generalizable to n players, proportional but not envy free&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;Dubins-Spanier Moving Knife Procedure, Steinhaus Procedure&lt;/strong&gt;: 3 players, proportional but not envy free&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;Stromquist Procedure&lt;/strong&gt;: envy-free&lt;/li&gt;&#xA;&lt;li&gt;and in particular, &lt;strong&gt;Adjusted Winner&lt;/strong&gt; for two people&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Try a quick search of these with Google Scholar or &lt;a href=&quot;http://fairoutcomes.com&quot; rel=&quot;nofollow&quot;&gt;www.fairoutcomes.com&lt;/a&gt; Fair division is a fascinating branch of economics and looking at efficiency vs welfare.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2015-10-02T15:28:55.227" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8502" PostTypeId="2" ParentId="8490" CreationDate="2015-10-02T15:41:37.970" Score="2" Body="&lt;p&gt;The closest thing to an answer I could give to this is that it is not in the Federal Reserve's interest to lie, particularly about the targeted inflation rate. Businesses would catch on to what the state of the economy is and the Federal Reserve would lose credibility. Too much discretion in the Federal Reserve's policy leads to Ramsey's Time Inconsistency Problem, where if the Fed kept lying about their policy, they would no longer have power even in the short run to affect employment or apply any sort of exogenous shock to the system.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question seems to hold some sort of suspicion over the Federal Reserve, given its association to that &quot;spooky&quot; thing we call government, but the Federal Reserve makes its policy independent of government. Central banks need independence to operate properly, and we see in other countries where they aren't (i.e. Zimbabwe) that seignorage, debt, or unemployment can easily get out of control.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2015-10-02T15:41:37.970" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="8503" PostTypeId="2" ParentId="8474" CreationDate="2015-10-02T17:20:18.663" Score="1" Body="&lt;p&gt;I suppose that you know already the answer given in Mas-Colell, this property has to do with no money illusion in fact (under some regularity conditions) it is if and only if with the property of the demand $x(\alpha p,\alpha w)=x(p,w) \forall \alpha &amp;gt; 0$. Now, it is trivial to show that this means that $D_px(p,w)p+D_wx(p,w)w=0$, under Walras' law $p'x(p,w)=w$ or equivalently $x(p,w)'p=w$, replacing it in the firs expression one gets $S(p,w)p=0$. We can go the other way using integration. In other words, I think that the robust intuition is that your consumer does not suffer from money illusion. Note that the consumer may not be rational but she will at least not be subject to this behavioral bias. &lt;/p&gt;&#xA;" OwnerUserId="127" LastActivityDate="2015-10-02T17:20:18.663" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8504" PostTypeId="2" ParentId="8500" CreationDate="2015-10-02T18:30:21.633" Score="1" Body="&lt;p&gt;Financialization is just a broad term for when financial markets become bigger and have more influence on the market economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'd say that it wasn't so much markets becoming bigger that directly caused the 2008 crisis, but more that the shadow banking financial market became bigger (intermediaries not subject to the same regulation as normal banks). Financialization arguably caused the need for more niche ways of getting money into the market in this way, and as financial markets got bigger, particualrly in regards to housing, more banks ended up securitizing subprime mortgages, and that was a big factor in causing the 2008 recession.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2015-10-02T18:30:21.633" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8505" PostTypeId="1" CreationDate="2015-10-02T22:50:56.547" Score="0" ViewCount="44" Body="&lt;p&gt;I was solving for a stable equilibrium in the following 2 player zero sum game. I need to calculate the equilibrium using maxmin and minmax strategies. In this game they should come out to be identical and coincide with the mixed strategy Nash's equilibrium. &lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;                            P2&#xA;                   L                R&#xA;       L       (0.6,0.4)         (0.8,0.2)&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;P1   &lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;      R        (0.9,0.1)         (0.7,0.3)&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;If I solve it formally, the expected payoff of P1 will be the expression:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;em&gt;E = { 0.6(pq) + 0.8p(1-q) + 0.9(1-p)(q) + 0.7(1-p)(1-q) }&lt;/em&gt;&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where p is probability of P1 playing L and q is the probability pf P2 playing L. Now, P2 is trying to minimize E keeping in mind that P1 is trying to maximize it&lt;/p&gt;&#xA;&#xA;&lt;p&gt;i.e. min max {E} &lt;/p&gt;&#xA;&#xA;&lt;p&gt;and P1 is trying to maximize E keeping in mind that P1 will try to minimize E &#xA;i.e. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;max min {E}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and vice versa.&#xA;Essentially both strategies played simultaneously should give the same equilibrium. How to go about it, I am stuck in the maths part of the problem now.&lt;/p&gt;&#xA;" OwnerUserId="5834" LastEditorUserId="5582" LastEditDate="2015-10-03T15:50:54.617" LastActivityDate="2015-10-03T15:50:54.617" Title="Finding maxmin equilibrium in a game" Tags="&lt;game-theory&gt;" AnswerCount="0" CommentCount="3" ClosedDate="2015-10-05T08:34:22.757" ContentLicense="CC BY-SA 3.0" />
  <row Id="8506" PostTypeId="1" CreationDate="2015-10-02T23:09:01.183" Score="4" ViewCount="235" Body="&lt;p&gt;For someone who already knows micro and macro economics, are there any good books to understand chaos theory in economics and mathematical economics in general?&lt;/p&gt;&#xA;" OwnerUserId="5835" LastEditorUserId="43" LastEditDate="2015-10-03T12:28:53.410" LastActivityDate="2015-12-05T19:56:04.260" Title="Books about chaos theory" Tags="&lt;reference-request&gt;&lt;mathematical-economics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8507" PostTypeId="1" AcceptedAnswerId="8510" CreationDate="2015-10-03T11:00:20.270" Score="3" ViewCount="1837" Body="&lt;p&gt;I was solving for a stable equilibrium in the following 2 player zero sum game. I need to calculate the equilibrium using maxmin and minmax strategies. In this game they should come out to be identical and coincide with the mixed strategy Nash's equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;                        P2&#xA;               L                R&#xA;   L       (0.6,0.4)         (0.8,0.2)&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;P1&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;  R        (0.9,0.1)         (0.7,0.3)&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;If I solve it formally, the expected payoff of P1 will be the expression:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$E = 0.6(pq) + 0.8p(1-q) + 0.9(1-p)(q) + 0.7(1-p)(1-q)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where p is probability of P1 playing L and q is the probability pf P2 playing L. Now, P2 is trying to minimize E keeping in mind that P1 is trying to maximize it&lt;/p&gt;&#xA;&#xA;&lt;p&gt;i.e. min max {E}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and P1 is trying to maximize E keeping in mind that P1 will try to minimize E i.e.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;max min {E}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and vice versa. Essentially both strategies played simultaneously should give the same equilibrium. How to go about it, I am stuck in the maths part of the problem now.&lt;/p&gt;&#xA;" OwnerUserId="5582" LastEditorUserId="2938" LastEditDate="2015-10-03T12:37:47.207" LastActivityDate="2015-10-03T17:25:12.693" Title="Maxmin and minmax strategies" Tags="&lt;game-theory&gt;" AnswerCount="1" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="8510" PostTypeId="2" ParentId="8507" CreationDate="2015-10-03T15:25:57.427" Score="2" Body="&lt;p&gt;The question was clarified in the comments as&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;How to calculate $\min\limits_q \max\limits_p E(p,q)$ for a given function $E(p,q)$?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;What this notation means is that $p$ is chosen first, and $q$ is chosen afterwards.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume that $p$ is a given parameter. Then $E(p,\cdot)$ is a function over $q$ only. So you take the minimum of the function $E(p,\cdot)$. In economics this usually means taking the first derivative with respect to $q$. From this you get the optimal value of $q$, given $p$. This is basically a function $q^*(p)$. So you know how $q$ will be chosen given the choice of $p$. This gives you the function $E(q^*(p),p)$. You choose $p$ to maximize this function. Again in economics this usually means taking the first derivative w.r.t. $p$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With $\max\limits_p \min\limits_q$ the procedure is essentially the same, but there you first derive the maximum for $p$ given $q$. This yields $p^*(q)$. Using this, you minimize $E(p^*(q),q)$ w.r.t. $q$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A sidenote:&lt;br&gt;&#xA;If $E(p,q)$ is linear in both $p$ and $q$ the functions $q^*(p)$ and $p^*(q)$ are usually not continuous. To be more precise they are not functions but mappings. As such, they upper hemicontinuous but that is very technical and you may not need to know what it means.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2015-10-03T17:25:12.693" LastActivityDate="2015-10-03T17:25:12.693" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8511" PostTypeId="2" ParentId="8477" CreationDate="2015-10-03T16:02:53.067" Score="1" Body="&lt;p&gt;The Fed recently decided not to raise rates because the economy is still recovering.  In theory, as unemployment goes down, it should start to increase inflation.  However, unemployment is low and inflation is also low.  This is probably because people have left the labor force and are no longer counted.  Having low interest rates does stimulate the economy but the Fed wants to raise rates, when possible, for several reasons.  Policy is supposed to be countercyclical so keeping low interest rates indefinitely could lead to inflation.  Also, low interest rates encourage investors to pursue more risky investments for higher yields which can cause bubbles and crashes.  Also, staying at low interest rates limits the Fed's ability to use monetary policy at the zero-lower-bound where they cannot stimulate the economy anymore by using conventional monetary policy.&lt;/p&gt;&#xA;" OwnerUserId="5840" LastActivityDate="2015-10-03T16:02:53.067" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8512" PostTypeId="2" ParentId="8499" CreationDate="2015-10-03T17:47:41.270" Score="3" Body="&lt;p&gt;The easiest generalization, of envy free sharing of a heterogeneous cake between two cake eaters is quite common. My family growing up frequently used the you divide and I choose method for sharing a lone piece of dessert. Depending on what you'd accept for &quot;concrete example&quot;, &lt;a href=&quot;https://en.wikipedia.org/wiki/Divide_and_choose&quot; rel=&quot;nofollow&quot;&gt;Abraham and Lot use this method to divide the land of Canaan&lt;/a&gt;.  A  two-stage fair division problem was used in the partitioning of Germany after World War II. &lt;a href=&quot;http://mindyourdecisions.com/blog/2008/06/10/how-game-theory-solved-a-religious-mystery/&quot; rel=&quot;nofollow&quot;&gt;The Talmud has examples of fair division rules&lt;/a&gt;, which though are only thought experiments, are thought to have been applied in the Jewish diaspora over inheritance matters. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would also argue that the &lt;a href=&quot;http://www.slate.com/articles/business/moneybox/2012/10/nobel_prize_in_economics_lloyd_shapley_and_alvin_roth_win_for_deferred_acceptance.html&quot; rel=&quot;nofollow&quot;&gt;marriage / matching problems of Lloyd Shapley and Alvin Roth&lt;/a&gt; are a form of fair division, and one that scales to very large numbers of players and applies only to multiple, indivisible &quot;cakes. Their methods have been used extensively in real world problems of school, job, and kidney assignment.    &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2015-10-03T17:47:41.270" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8513" PostTypeId="2" ParentId="8440" CreationDate="2015-10-03T19:50:42.493" Score="4" Body="&lt;p&gt;The OP's answer is correct in its conclusion, but he applies a strange argument at the end to arrive there.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Applying brute-force differentiation, the present value Hamiltonian is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\mathcal{H}=e^{-\triangle} U\left( c\right)&#xA;+\lambda _{1}^{}\left[ f(k)-c\right] +\lambda _{2}\left[ \rho&#xA;+h(k)\right] $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and so &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {d\mathcal{H}}{dt} = -\dot \triangle e^{-\triangle}U\left( c\right)+&#xA;e^{-\triangle} U'(c)\dot c + \dot \lambda_1\left[ f(k)-c\right]  + \lambda_1\left[ f'(k)\dot k-\dot c\right] + \dot \lambda _{2}\left[ \rho&#xA;+h(k)\right]+\lambda _{2}h'(k) \dot k$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Re-arranging, and using $\rho +h(k) = \dot \triangle$ we get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {d\mathcal{H}}{dt} = -\dot \triangle e^{-\triangle}U\left( c\right)+ [e^{-\triangle}U'(c)-\lambda_1]\dot c   + [\lambda_1f'(k)+\lambda _{2}h'(k)]\dot k + \dot \lambda _{2}\dot \triangle + \dot \lambda_1\left[ f(k)-c\right] $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Along the optimal path, we have $e^{-\triangle}U'(c)=\lambda_1$ so the second term above vanishes. Also optimally we have $\dot{\lambda}_{1}=- \frac{\partial \mathcal{H}}{\partial k}$ and observe that $\frac{\partial \mathcal{H}}{\partial k} = [\lambda_1f'(k)+\lambda _{2}h'(k)]$. Substituting we get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {d\mathcal{H}}{dt} = -\dot \triangle e^{-\triangle}U\left( c\right)+ \frac{\partial \mathcal{H}}{\partial k}\dot k + \dot \lambda _{2}\dot \triangle  - \frac{\partial \mathcal{H}}{\partial k}\left[ f(k)-c\right] $$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$=\frac{\partial \mathcal{H}}{\partial k}[\dot k - f(k)+c] + \dot \triangle \cdot\big[\dot \lambda _{2} - e^{-\triangle}U\left( c\right)\big] $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first term is zero, from the law of motion of capital. Moreover, another necessary condition for the optimal path, given how the problem has been formulated,  is $\dot{\lambda}_{2}=- \frac{\partial \mathcal{H}}{\partial \triangle}$.  so we arrive at&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {d\mathcal{H}}{dt} =-\dot \triangle \cdot\left[ \frac{\partial \mathcal{H}}{\partial \triangle} + e^{-\triangle}U\left( c\right)\right]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now&#xA;$$\frac{\partial \mathcal{H}}{\partial \triangle} = -e^{-\triangle} U\left( c\right)$$&#xA;so we obtain &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {d\mathcal{H}}{dt} =0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This directly proves that the problem is autonomous.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;More generally, irrespective of whether the problem is autonomous or not, we have that along the optimal path&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {d\mathcal{H}}{dt} =\frac {\partial \mathcal{H}}{\partial t}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So &lt;em&gt;if&lt;/em&gt; it is autonomous, then we get the zero-derivative result.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-10-03T19:50:42.493" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8515" PostTypeId="1" CreationDate="2015-10-03T01:49:19.477" Score="4" ViewCount="779" Body="&lt;p&gt;The Fed more or less controls interest rates using open market operations, but why?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why are interests rate not controlled by supply and demand?&lt;/p&gt;&#xA;" OwnerDisplayName="cph2117" LastActivityDate="2015-11-24T04:05:37.283" Title="Why does the Fed control interest rates?" Tags="&lt;interest-rate&gt;&lt;federal-reserve&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8516" PostTypeId="2" ParentId="8515" CreationDate="2015-10-03T02:32:38.247" Score="4" Body="&lt;p&gt;The fed controls interest rates &lt;strong&gt;&lt;em&gt;via&lt;/em&gt;&lt;/strong&gt; supply and demand. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The fed directly controls only one rate, the rate at which banks can borrow from the government. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lowering this rate permits banks to lower the rates they charge while making the same profit. They don't have to do so, but supply and demand says that those banks who do lower their rate can take business away from those which don't, so the market pressures them to more-or-less follow the fed rate's shifts.&lt;/p&gt;&#xA;" OwnerDisplayName="keshlam" LastActivityDate="2015-10-03T02:32:38.247" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="8518" PostTypeId="1" CreationDate="2015-10-04T00:48:35.177" Score="2" ViewCount="312" Body="&lt;p&gt;As I understand it, interest rates are set by supply and demand, like any price. Money can be thought of like any other finite commodity. Lenders are willing to supply a certain amount of money at each interest rate, and borrowers are willing to borrow a certain amount at each interest rate. The rate can be calculated by setting supply equal to demand.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, with fractional reserve banking, this picture seems to fall apart. While the demand curve can still be found, the supply of money is not so easy to quantify. If the reserve requirement were low enough, banks could loan out an arbitrarily large finite amount of money. The only limit to the money supply is the reserve requirement. It doesn't make as much sense to say here that the interest rate is set by supply and demand. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I see a two possibilities:&#xA;1) There is a supply curve that depends on the reserve requirement. This means that the interest rate would be a function of the reserve requirement.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) There is no supply curve. As far as I know, no one sets interest rates (the Fed included, since they only influence rates via open market operations: if they didn't do anything there would still be an interest rate). How can interest rates be calculated in this case?&lt;/p&gt;&#xA;" OwnerUserId="5845" LastEditorUserId="264" LastEditDate="2015-10-04T17:02:35.110" LastActivityDate="2015-12-20T15:12:53.967" Title="How to find interest rates with fractional reserve banking?" Tags="&lt;banking&gt;&lt;interest-rate&gt;&lt;federal-reserve&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8519" PostTypeId="1" CreationDate="2015-10-04T01:59:04.623" Score="10" ViewCount="11838" Body="&lt;p&gt;A homothetic utility function is one which is a monotonic transformation of a homogeneous utility function. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am asked to show that if a utility function is homothetic then the associated demand functions are linear in income.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In general if $H$ is monotonic and we compose it with a function $g$ which is homogeneous we get $H(g(x,y))$ which is homothetic and so the ratio of derivatives of $H$ with respect to $x$ and $y$ is the same as the ratio of the derivatives of $g$ with respect to $x$ and $y$ since the outer function cancels out. This means all income expansion paths are rays from the origin and the slope of indifference curves (level sets) have the same slope along the income expansion path.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is how does one show generally that the demand functions are linear in income? If you don't have the functional form of the utility function then what can you substitute into the budget constraint to solve for $x$ or $y$ as functions of prices and income only?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;All you know is that the negative ratio of derivatives is equal to $p_1/p_2$ but you can't substitute anything into the budget constraint for $x$ or $y$ since you only have general partial derivatives.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The only way I can think to do that is take the inverse of the derivative of the inner (homogenous) function g in order to solve for $x$ (or $y$).&lt;/p&gt;&#xA;" OwnerUserId="5847" LastEditorUserId="5847" LastEditDate="2015-11-21T16:39:43.840" LastActivityDate="2019-10-22T08:15:39.343" Title="How to show that a homothetic utility function has demand functions which are linear in income" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;self-study&gt;" AnswerCount="3" CommentCount="2" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8521" PostTypeId="1" AcceptedAnswerId="8879" CreationDate="2015-10-04T11:10:56.000" Score="4" ViewCount="116" Body="&lt;p&gt;What behaviour does it imply that Relative Risk Aversion of consumption, say R(c) is less than 1, equal to 1 or greater than 1? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am reading an article of Diamond &amp;amp; Dybvig (1983), about Bank Runs, Deposit Insurance and liquidity and they assume a relative risk aversion greater than 1. Unfortunately, some of my microeconomics are a couple of years ago. I know the formulas and so on, but am unsure of the intuitive implications on behaviour for different values of Relative Risk Aversion.&lt;/p&gt;&#xA;" OwnerUserId="4450" LastEditorUserId="4450" LastEditDate="2016-09-06T14:44:10.657" LastActivityDate="2016-09-06T14:44:10.657" Title="What behaviour do different values of Relative Risk Aversion imply?" Tags="&lt;microeconomics&gt;&lt;risk-aversion&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8522" PostTypeId="1" AcceptedAnswerId="8523" CreationDate="2015-10-04T11:13:06.287" Score="5" ViewCount="994" Body="&lt;p&gt;I have the following utility function:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U(x_i)=x_1x_2+x_3$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;with budget constraint:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$p_1x_1+p_2x_2+p_3x_3\leq I$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I use the Kuhn-Tucker method to find the optimal choices of the Utility maximization problem.&#xA;My equations are:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$x_2-\lambda p_1+M_1=0$$&#xA;$$x_1-\lambda p_2+M_2=0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$1-\lambda p_3+M_3=0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$p_1M_1=0$$&#xA;$$p_2M_2=0$$&#xA;$$p_3M_3=0$$&#xA;$$p_1x_1+p_2x_2+p_3x_3-I=0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$(M_1,M_2,M_3,\lambda \geq 0)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When I set $M_1=M_2=M_3=0$ (Lagrangian case), I got the optimal solutions for $x_1,x_2$ as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$x_1=\frac{p2}{p3}$$ and $$x_2=\frac{p_1}{p_3}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How could I construct a Marshallian demand function in this case? The optimal solutions haven't got the I (income) variable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is it correct to define a Marshallian demand function for good $x_1$ as:&#xA;$x_1(p,I)=\frac{p_2}{p_3}$?&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Marshallian demand function (named after Alfred Marshall) specifies&#xA;  what the consumer would buy in each price and income or wealth&#xA;  situation, assuming it perfectly solves the utility maximization&#xA;  problem&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="5017" LastEditorUserId="2776" LastEditDate="2017-08-19T10:39:12.190" LastActivityDate="2017-08-19T10:39:12.190" Title="Does the Marshallian demand function always include prices and income?" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;&lt;optimization&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8523" PostTypeId="2" ParentId="8522" CreationDate="2015-10-04T12:03:43.627" Score="4" Body="&lt;p&gt;These are proper Marshallian demand functions, even though Income does not appear in them. This is due to specific form of the utility function (and the candidate solution of all goods being purchased at strictly positive quantities). It emerges that there is no income effect for goods $x_1$ and $x_2$ - optimal uncompensated demand does not depend after all on the level of income, but only on the relative prices.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reason why Marshallian demand is defined as it is, is to make clear that it does not include any kind of &quot;income compensation&quot; as Hicksian demand does. But this does not preclude a case like yours, which again, depends on the form of the utility function.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thinking economically, what goods can you think of whose demand may realistically not depend on the level of income but only on relative prices? Answering this question would be useful in order to map the mathematical expression of the utility function to real-world economic phenomena.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, note that the specific utility function points to &lt;em&gt;&quot;quasi-linear&quot;&lt;/em&gt; frameworks, where the good that enters additively, essentially functions as Income itself.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-10-04T12:03:43.627" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8524" PostTypeId="1" CreationDate="2015-10-04T13:17:18.003" Score="-1" ViewCount="859" Body="&lt;p&gt;it's 2015 now but still, I can't find any USD bills of 2013 series. All my bills are 2009 series (not even 2009A series). I'm looking for 100 dollar denomination. what's the latest series for USD bills?&#xA;thanks&lt;/p&gt;&#xA;" OwnerUserId="5849" LastEditorUserId="1601" LastEditDate="2015-10-04T13:33:12.817" LastActivityDate="2015-10-04T13:36:33.537" Title="Series 2013 US dollar bills" Tags="&lt;currency&gt;&lt;money&gt;&lt;usa&gt;" AnswerCount="1" CommentCount="0" ClosedDate="2015-10-04T22:37:13.940" ContentLicense="CC BY-SA 3.0" />
  <row Id="8525" PostTypeId="2" ParentId="8524" CreationDate="2015-10-04T13:36:33.537" Score="1" Body="&lt;p&gt;Your question seems out of place at an Economics forum. &lt;br&gt;&#xA;This site gives you information about US paper currency releases:&#xA;&lt;a href=&quot;http://www.uspapermoney.info/general/chron_s.html&quot; rel=&quot;nofollow&quot;&gt;http://www.uspapermoney.info/general/chron_s.html&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2015-10-04T13:36:33.537" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8526" PostTypeId="2" ParentId="8519" CreationDate="2015-10-04T14:32:06.980" Score="10" Body="&lt;p&gt;I think what you need is that if $U(x,y)$ is homothetic then&#xA;$$&#xA;\forall \alpha \in \mathbb{R}_{++}, \forall (x,y) : \hskip 6pt&#xA;\frac{\frac{\partial U(x,y)}{\partial x}}{\frac{\partial U(x,y)}{\partial y}} = &#xA;\frac{\frac{\partial U(\alpha \cdot x,\alpha \cdot y)}{\partial x}}{\frac{\partial U(\alpha \cdot x,\alpha \cdot y)}{\partial y}}&#xA;$$&#xA;and love.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2015-10-04T14:32:06.980" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8527" PostTypeId="1" CreationDate="2015-10-04T16:37:03.080" Score="2" ViewCount="389" Body="&lt;p&gt;First note that the question comes out from Mankiw's intermediate macroeconomics textbook.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Question&lt;/strong&gt;: The Fed increases the interest rate it pays banks for holding reserves.  Explain how each of the following events affects the monetary base, the money multiplier, and the money supply.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Textbook Solution&lt;/strong&gt;: It will cause the bank to have more money in reserve, which increase its reserve-deposit ratio, and cause a decrease in the money multiplier. And thus the money supply decreases. But the monetary base will increase because of the increase in reserve.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My wonderings&lt;/strong&gt;: A decrease in money supply means a decrease in demand deposit. And hence the reserve-deposit ratio will drop as it is equal to $\frac{\text{Reserve}}{\text{Demand Deposit}}$.To keep the reserve ratio same, it will then have to decrease its reserve, which might offsets the increase in reserve before, maybe partially. So it is not at all certain whether the actual reserve has increased or not and thus not sure whether monetary base has increased or not. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any answers or comments is appreciated.&lt;/p&gt;&#xA;" OwnerUserId="4551" LastEditorUserId="2776" LastEditDate="2017-03-07T15:39:48.540" LastActivityDate="2017-03-07T15:39:48.540" Title="How to keep a constant reserve deposit ratio" Tags="&lt;macroeconomics&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8528" PostTypeId="2" ParentId="8518" CreationDate="2015-10-04T17:09:48.290" Score="2" Body="&lt;p&gt;This question is sufficiently confused about basic concepts that I'm reluctant to go through the effort of clarifying everything enough to provide a meaningful answer, but here is a quick stab...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, you need to understand that interest rates are not set by the supply of cash provided by banks and the demand from borrowers. They're set in money markets, which is the other side of the credit intermediation that banks perform. Banks lend to borrowers and borrow in money markets (if they didn't borrow, then it wouldn't be fractional reserve banking) to fund a significant portion of their lending.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Second, reserve requirements are far from the only constraint on bank money creation, and I frankly cannot think of a single bank for which they're the binding constraint. Banks are more likely to be constrained by risk-weighted capital requirements, the liquidity coverage ratio, or stress test scenarios than by reserve requirements.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So to answer your question as to how interest rates are determined under fractional reserve banking: bank &lt;em&gt;demand&lt;/em&gt; for funds is determined by their set of profitable lending opportunities under a set of constraints including capital requirements (and they face some competition for these funds from firms that have direct access to capital markets and which issue short-term liabilities), while the &lt;em&gt;supply&lt;/em&gt; of funds is determined by the amount of uncommitted cash held by firms (and to a much lesser extent, households). These intersect at some point, which determines the interest rate. The Fed affects the risk-free rate by engaging in transactions which swap safe, usually interest-bearing collateral for cash, affecting the relative supply of each.&lt;/p&gt;&#xA;" OwnerUserId="264" LastActivityDate="2015-10-04T17:09:48.290" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="8529" PostTypeId="1" AcceptedAnswerId="8530" CreationDate="2015-10-04T18:11:47.657" Score="4" ViewCount="684" Body="&lt;p&gt;I'm a first year PhD student and I randomly go to different professors' websites to admire their works. Usually an economist has around 20 published papers when he/she reaches professorship. But there are a few outliers, like Andrew Lo, Darrell Duffie, Kenneth Singleton and Paul Samuelson, who have like a few hundred of papers published. Are they simply more productive than others? Is the number of publications (of course above a certain standard of quality) a good indicator of the economist's ability?&lt;/p&gt;&#xA;" OwnerUserId="5850" LastEditorUserId="264" LastEditDate="2015-10-04T19:37:02.923" LastActivityDate="2015-10-04T19:37:02.923" Title="Why are some economists remarkably productive?" Tags="&lt;academic-graduate&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8530" PostTypeId="2" ParentId="8529" CreationDate="2015-10-04T18:33:22.950" Score="6" Body="&lt;p&gt;A short answer to your question is both yes and no. You have to first define productivity: productivity, in my opinion, cannot simply mean publishing the &lt;em&gt;number&lt;/em&gt; of articles, but rather, their impact. A typical way of modelling the impact of authors is by looking at their h-index. There are many other ways of measuring productivity as well- &lt;em&gt;where&lt;/em&gt; the articles are published is important as well. The top 5 journals in economics are (in no particular order): Econometrica, AER, QJE, JPE and ReStud. Articles published in these journals are generally of high quality. However, there are many articles that are published in these journals that do not always have the desired impact. Many a time, articles ranked in lower journals have a high impact. Consequently, it is extremely difficult to measure productivity. To me, the h-index is a good measure.&lt;/p&gt;&#xA;" OwnerUserId="5233" LastActivityDate="2015-10-04T18:33:22.950" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8531" PostTypeId="2" ParentId="8529" CreationDate="2015-10-04T19:01:44.877" Score="6" Body="&lt;p&gt;Another aspect is a little bit about network effect. Suppose for a one moment that there are two researchers, one in USA and another in Asia, having both the same paper, do you really think that two researchers have the same chances to publish in Econometrica or in another top journal ? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, the term of productivity is highly biased by this network effect. &#xA;It is a little bit close to ChinG's response. People not having chance to publish a very good high impact paper in Econometrica, publish in another good journals like Journal of Economic Dynamics and Control, Journal of Economic Theory and etc.&#xA;For me, a guy publishing in Econometrica being in Europe and another guy in USA with an Econometrica paper are not same. &lt;/p&gt;&#xA;" OwnerUserId="2938" LastActivityDate="2015-10-04T19:01:44.877" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8532" PostTypeId="1" AcceptedAnswerId="8545" CreationDate="2015-10-04T20:22:52.250" Score="2" ViewCount="933" Body="&lt;p&gt;I am trying the answer the question: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;If a good is produced using inputs for which there are no substitutes, the good's&lt;/p&gt;&#xA;  &#xA;  &lt;ul&gt;&#xA;  &lt;li&gt;A. Elasticity of supply is likely to be small&lt;/li&gt;&#xA;  &lt;li&gt;B. Elasticity of supply is likely to be large&lt;/li&gt;&#xA;  &lt;li&gt;C. Elasticity for demand will be small&lt;/li&gt;&#xA;  &lt;li&gt;D. Elasticity of demand will be large&lt;/li&gt;&#xA;  &lt;/ul&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I am unsure of the correct answer. I don't think it would be (C) or (D) as the question notes that what goes into the good is likely substitutes, not the good itself. That leaves (A) and (B) I don't however see how these would effect the elasticity of supply. Elasticity of supply is defined as % change in quantity supplied divided by % change in price. I am failing to see how the price of a substitute would affect what is in the numerator or denominator. How is the quantity supplied of a product and the price at which it is sold dependent on the fact the substitutes are unavailable? Producers could adjust either quantity or price in order to make up for the substitute-less good. I would greatly appreciate some insight. &lt;/p&gt;&#xA;" OwnerUserId="5853" LastEditorUserId="264" LastEditDate="2015-10-05T03:09:30.233" LastActivityDate="2015-10-06T07:10:03.820" Title="Effect of a good's inputs on elasticity of supply" Tags="&lt;microeconomics&gt;&lt;supply-and-demand&gt;&lt;elasticity&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8534" PostTypeId="1" AcceptedAnswerId="11444" CreationDate="2015-10-04T22:14:54.140" Score="4" ViewCount="220" Body="&lt;p&gt;Below is a lemma which I believe to be true and which I would like to use to derive other results&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Take any two games in extensive form (complete information) $\Gamma$ and $\Gamma'$ differing &lt;em&gt;only&lt;/em&gt; through their collections of information sets $\mathcal{H}$ and $\mathcal{H'}$. Suppose that for each decision node $x$ in the set of decisions nodes $\mathcal{X} = \mathcal{X}'$, $H(x)$ is a finer partition of the set of actions $c(x) = c'(x)$ than $H'(x)$.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Then for ever subgame perfect equilibrium &lt;em&gt;outcome&lt;/em&gt; of $\Gamma$, there exists a subgame perfect equilibrium of $\Gamma'$ with the same outcome (but the converse does not need to be true).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I could try to write a complete proof but this seems to be basic enough a statement and I don't want to re-invent the wheel (or fail to pay tribute to former proofs). So my question is:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Do you know of any reference where that result is proven (or maybe disproven in case I got something wrong)?&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Edit :&lt;/strong&gt; I am only interested in pure strategies equilibria.&lt;/p&gt;&#xA;" OwnerUserId="38" LastEditorUserId="38" LastEditDate="2016-04-07T14:14:27.437" LastActivityDate="2016-04-07T14:14:27.437" Title="Proof of nestedness of subgame perfect equilibria" Tags="&lt;game-theory&gt;&lt;extensive-games&gt;&lt;proof-reference&gt;" AnswerCount="2" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="8535" PostTypeId="2" ParentId="8534" CreationDate="2015-10-05T00:56:25.433" Score="2" Body="&lt;p&gt;Would this (and why or why not) provide an answer to your question?&lt;a href=&quot;https://i.stack.imgur.com/XfL2K.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/XfL2K.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="5739" LastActivityDate="2015-10-05T00:56:25.433" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8536" PostTypeId="2" ParentId="8532" CreationDate="2015-10-05T03:27:09.307" Score="2" Body="&lt;p&gt;First, think about the elasticity of supply as being the additional amount that suppliers are willing to produce for a given change in price. Elasticity is high when suppliers are willing to produce a lot more for a small change in price, and it's low when suppliers produce only a little more even when prices increase by a lot. We can, of course, invert this, and say that elasticity is high when the price has to increase only a little to convince suppliers to make an additional unit, and low when the price has to increase a lot to convince suppliers to make an additional unit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question is about a good that is produced using inputs for which there are no substitutes. So in this question, there are firms that are suppliers of a good, and those firms are also demanders of a substitute-less input that is used to make that good. So for each additional unit of the good that is produced, the supplier must buy some additional amount of inputs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now let's think about those inputs. Consider two cases, one in which a good has substitutes, and one in which it does not. Comparing those two cases: when demand increases, does the price of the input rise more or less when there are substitutes for that good, as compared to when there are no substitutes? Now, take your answer from that and ask yourself— what impact would this have on a supplier's willingness to produce an additional unit of a good, given that this means increasing one's demand for the input? What does this say about the elasticity of supply?&lt;/p&gt;&#xA;" OwnerUserId="264" LastActivityDate="2015-10-05T03:27:09.307" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8537" PostTypeId="1" CreationDate="2015-10-05T04:50:40.607" Score="1" ViewCount="136" Body="&lt;p&gt;Suppose we are in an economy with only two kinds of investment, business investment and residential investment. Suppose also that government gives tax-credit on business investment. Will there be a substitution effect like the one happens in microeconomics where the demand curve for residential investment is shifted downwards and the demand curve for business investment is shifted upwards? I mean, a textbook would say there will be an upward shift for business investment demand curve and no changing in residential investment curve. Any comments will help!&lt;/p&gt;&#xA;" OwnerUserId="4551" LastActivityDate="2015-10-05T06:20:21.430" Title="Substitution effect on investment due to tax credit" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8538" PostTypeId="2" ParentId="8537" CreationDate="2015-10-05T06:20:21.430" Score="1" Body="&lt;p&gt;I think we should regard these more like supply curves. Moreover, I will regard this economy being composed of agents with heterogeneous levels of profitability ratios between business and residential investment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the business side, there will be an average return on investment curve, and at lower investment levels, there will be higher returns and vice versa, which makes this look more like a demand curve. Moreover, this might be regarded as an exogenous curve in your scenario.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From the perspective of investors, when the average return on investment is low, only those who have higher levels of private returns to investment (compared to residential investment) will invest in business and more people will be attracted to business investment as the return increases. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A similar picture would hold for the residential investment. The economy arrives at an equilibrium when each of these markets are in equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A person would allocate his wealth among his choices based on the additional gains per cost of each alternative. Here, when you have lower the cost of business investment by reducing taxes, all agents will find business investment comparably desirable, and there will be less people investing in residential industry. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the supply in residential investment will be lower simultaneously with the increase in supply of the business investment. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course you can consider scenarios in which an investor's optimal decision requires diversifying to some degree, but as long as the complementarity is not extremely strong, which would be expected in this case, the economy-wide supply curves would shift in opposing directions.&lt;/p&gt;&#xA;" OwnerUserId="5739" LastActivityDate="2015-10-05T06:20:21.430" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8539" PostTypeId="1" AcceptedAnswerId="8540" CreationDate="2015-10-05T07:45:34.773" Score="8" ViewCount="1656" Body="&lt;p&gt;I'm trying to understand this Australian Bureau of Statistics &lt;a href=&quot;http://www.abs.gov.au/ausstats/abs@.nsf/mf/8165.0&quot; rel=&quot;nofollow noreferrer&quot;&gt;release&lt;/a&gt;, which says:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In June 2014, 61% of actively trading businesses in Australia had no&#xA;  employees, 27% had 1-4, 10% had 5-19, 2% had 20-199, and less than 1%&#xA;  had 200 or more.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I didn't realise so many businesses didn't have employees. Why is this percentage so high?&lt;/p&gt;&#xA;" OwnerUserId="5856" LastEditorUserId="8481" LastEditDate="2020-05-03T14:48:09.567" LastActivityDate="2020-05-03T14:48:09.567" Title="Why is the percentage of Australian businesses that don't have any employees so high?" Tags="&lt;labor-economics&gt;&lt;economic-measurement&gt;&lt;australia&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="8540" PostTypeId="2" ParentId="8539" CreationDate="2015-10-05T08:24:51.247" Score="11" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Employment excludes non-salaried directors, volunteers, persons paid by commission only, and self employed persons such as consultants and contractors.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The actively trading businesses with zero employees are therefore those businesses where the staff members are drawn exclusively from that group. That may cover most one-person outfits, perhaps some family firms, groups of self-employed people, and so on. These businesses are typically formed in that way as a response to particular regulations, usually tax rules.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The answer is in &lt;a href=&quot;http://www.abs.gov.au/AUSSTATS/abs@.nsf/Lookup/8165.0Explanatory%20Notes1Jun%202010%20to%20Jun%202014?OpenDocument&quot;&gt;the explanatory notes attached to that dataset&lt;/a&gt;, section 56, from where the above quote is taken.  The explanatory notes are attached to that dataset to answer questions such as this. When you have questions about a particular dataset, the explanatory notes (which might also be called metadata, data descriptors, or similar), will usually have the answer, as they do in this case, and should be any enquirer's first place to look.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2015-10-05T08:24:51.247" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8541" PostTypeId="1" CreationDate="2015-10-05T11:55:05.787" Score="2" ViewCount="31" Body="&lt;p&gt;I'm trying to get a measure of market power in the US. Here's what I'd be interested in, ranked from best (what I'm really after) to worst (stuff that kind of hints at my measure, but isn't really it. &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Price distributions of similar goods in the US, by county/state&lt;/li&gt;&#xA;&lt;li&gt;Average markups for different goods, by county/state&lt;/li&gt;&#xA;&lt;li&gt;Average [other characteristic that correlates with higher firm market power], by county/state&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Importantly, I'm after price distributions of goods &lt;em&gt;consumed&lt;/em&gt; in state A, not produced in state A.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I guess I could use the Nielson data set to get some proxy of price distributions, but I don't think that's the strength of the data set. What else is there?&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="2776" LastEditDate="2017-08-29T13:43:25.903" LastActivityDate="2017-08-29T13:45:35.813" Title="Market Power and Prices in the US" Tags="&lt;data-request&gt;&lt;industrial-organisation&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8543" PostTypeId="1" CreationDate="2015-10-05T12:53:31.583" Score="4" ViewCount="232" Body="&lt;p&gt;The authors of this paper (&lt;a href=&quot;http://andrewleigh.org/pdf/GunBuyback_Panel.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://andrewleigh.org/pdf/GunBuyback_Panel.pdf&lt;/a&gt;) appear to be essentially regressing the change in the death rate to the change in guns from a gun buy back in Australia, at the state level: $\Delta$death rate involving guns= $\Delta$guns + $\epsilon$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Specifically, they state on page 16 of the pdf:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In this paper, we ask whether firearm deaths dropped proportionately&#xA;  more in states where relatively more firearms were bought back. If&#xA;  the gun buyback itself was effective in reducing firearm-related&#xA;  deaths, then this would imply that states where more firearms were&#xA;  removed from the population should have seen a greater reduction in&#xA;  firearm death rates than the Australian average&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;On page 17 (of the pdf) it states the following:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;For the purposes of our empirical strategy, what matters is that differences in buyback rates were not correlated with other factors that&#xA;  might have affected gun deaths. In particular, we are concerned&#xA;  about two potential confounders. First, if differences in buyback&#xA;  rates were driven by pre-existing gun ownership rates and if the&#xA;  relationship between gun ownership and gun deaths is non-linear, this&#xA;  could lead to a spurious correlation. However, although a non-linear&#xA;  relationship is theoretically plausible, we have been unable to locate&#xA;  any studies supporting such a theory.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I &lt;em&gt;think&lt;/em&gt; the concern that the differences in buy back rates were driven by pre-existing gun ownership is because if this was the case (and given that we assume that pre-existing gun ownership could also impact the change in deaths) we would have confounding.  &lt;strong&gt;Is this correct?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;But I don't understand the concern that the relationship is non-linear?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can anyone explain the econometric issues?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;ADD 1: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I was also interested in page 17 where this is stated. I wanted to link what I read in a paper with the textbook econometrics. &lt;strong&gt;Is this an example of the authors arguing that if they find drivers of why the gun buy back rates differ between states, that is not the death rates, that this is evidence that there is no reverse causation?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Second, our empirical strategy relies on the assumption that the&#xA;  state- level gun buyback rate is exogenous with respect to firearms&#xA;  death rates. It is thus important to consider the various factors that&#xA;  might explain why the buyback rate varied across states.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;ADD 2:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The final model used is on page 26 of the pdf. I am a little confused by it but what I think they are doing is the following (I note there is data and stata code &lt;a href=&quot;https://dataverse.harvard.edu/dataset.xhtml?persistentId=hdl:1902.1/21943&quot; rel=&quot;nofollow noreferrer&quot;&gt;HERE&lt;/a&gt; but I dont know how to read stata): I believe the change in guns (gun buy back) here is the difference in average guns pre and post 1997 and thus is a constant value for a given state, repeated for each records for a state in the data (each state as multiple records, one for each year).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/EIIXr.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/EIIXr.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="5859" LastEditorUserId="5859" LastEditDate="2015-10-06T13:18:59.373" LastActivityDate="2015-10-06T13:18:59.373" Title="Explanation of paper's econometric assumptions" Tags="&lt;econometrics&gt;&lt;regression&gt;" AnswerCount="0" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="8545" PostTypeId="2" ParentId="8532" CreationDate="2015-10-06T00:45:11.547" Score="3" Body="&lt;p&gt;Consider the extreme case: all available quantity of the no-substitute input is already employed.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To trace the supply function, let's assume that we are already at some price level, and let's increase the price of the final good: will quantity supplied increase? No, &lt;em&gt;because it cannot do so&lt;/em&gt; -there is no available additional input to use for this increase. In this extreme case the price elasticity of supply of the final good is &lt;em&gt;zero&lt;/em&gt;, due to the situation in the inputs market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume now that a little quantity of the no-substitute input is still unemployed. Being unique, we expect that it will command a high price if it is demanded for employment. So increasing quantity supplied of the final good, bears a high cost in terms of steeply increasing production costs. In this case, the price elasticity of supply of the final good is not zero, but &quot;small&quot;...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;...compared to the case where the inputs needed for production are generally available and so the cost to employ them is smaller than in the previous case. Here we expect that under the same as before final-good price increase, final-good suppliers will find it profitable to increase their quantity supplied more than in the former case -so here the price elasticity of supply of the final good will be &quot;large&quot;(er).&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-10-06T07:10:03.820" LastActivityDate="2015-10-06T07:10:03.820" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8546" PostTypeId="1" CreationDate="2015-10-06T02:06:08.613" Score="2" ViewCount="110" Body="&lt;p&gt;From a given preference structure (not the utility function), how can one tell if it satisfies the continuity axiom of preferences?&lt;/p&gt;&#xA;" OwnerUserId="5863" LastEditorUserId="1601" LastEditDate="2015-10-06T11:13:00.040" LastActivityDate="2015-10-06T11:13:00.040" Title="How can you tell if any given preference structure is continuous or not?" Tags="&lt;consumer-theory&gt;&lt;utility&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8547" PostTypeId="2" ParentId="8546" CreationDate="2015-10-06T02:16:25.910" Score="1" Body="&lt;p&gt;By trying to prove whether the following holds. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/nKgNg.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/nKgNg.png&quot; alt=&quot;&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note: Image taken from &lt;a href=&quot;http://www.econ.ucla.edu/iobara/lecturepreferenceandutility201a.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.econ.ucla.edu/iobara/lecturepreferenceandutility201a.pdf&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="5739" LastActivityDate="2015-10-06T02:16:25.910" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8548" PostTypeId="1" AcceptedAnswerId="8549" CreationDate="2015-10-06T04:28:32.647" Score="4" ViewCount="1307" Body="&lt;p&gt;I'm a first year grad student and we're learning about the utility maximization problem and the producer's problem now. We have been assuming that a solution to these problems exists. But every now and then there's an exercise problem asking us to show that a solution exists. I have encountered once that &quot;A maximization problem on a compact set has a solution&quot;. I wonder if there's any good reference on this? We're using MGW's Microeconomic Theory as our textbook; I thought I could find something in the appendix but I failed.  &lt;/p&gt;&#xA;" OwnerUserId="5850" LastEditorUserId="-1" LastEditDate="2015-10-06T15:08:48.527" LastActivityDate="2015-10-06T17:32:06.377" Title="Existence of solution to maximization problem" Tags="&lt;microeconomics&gt;" AnswerCount="2" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8549" PostTypeId="2" ParentId="8548" CreationDate="2015-10-06T05:31:40.377" Score="5" Body="&lt;p&gt;It is most likely that the statement is in the form of 'A utility maximization problem on a compact set has a solution when the utility function is continuous.' In the one dimensional case, this is a direct corollary of the extreme value theorem. A reference to this theorem can be found at &lt;a href=&quot;https://en.wikipedia.org/wiki/Extreme_value_theorem&quot;&gt;https://en.wikipedia.org/wiki/Extreme_value_theorem&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, discontinuity of the utility function may break this result. Consider the following function.&#xA;$$&#xA;u(x) =  \begin{cases} x \mbox{ if $x\in[0,\frac{1}{2})$,} \\ \frac{1}{4} \mbox{ if $x \in [\frac{1}{2},1].$   } \end{cases} &#xA;$$&#xA;It should be immediate to recognize that this function does not have attain a maximum for any $x\in [0,1]$ even though we have a compact set.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A book that I had used before is &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0521497701&quot;&gt;here&lt;/a&gt; which deals with optimization problems of the sort of an economist would encounter in a rigorous way. Also, &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0393957330&quot;&gt;this book&lt;/a&gt; provides a more intuitive way of establishing the main results, which would be a better start.&lt;/p&gt;&#xA;" OwnerUserId="5739" LastActivityDate="2015-10-06T05:31:40.377" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8550" PostTypeId="1" AcceptedAnswerId="8581" CreationDate="2015-10-06T06:14:27.927" Score="7" ViewCount="281" Body="&lt;p&gt;The &lt;a href=&quot;https://en.wikipedia.org/wiki/Throw_away_paradox&quot; rel=&quot;nofollow&quot;&gt;throw-away paradox&lt;/a&gt; is a situation in which a trader can gain by throwing away some of his initial endowment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The specific example, brought by &lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/0304406874900123&quot; rel=&quot;nofollow&quot;&gt;Aumann and Peleg in 1974&lt;/a&gt;, concerns an economy with two commodities and two traders:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;In one situation, the initial endowments are (20,0) and (0,10). In competitive equilibrium, the bundle of trader A is (4,2).&lt;/li&gt;&#xA;&lt;li&gt;In the second situation, trader A throws away 10 units of commodity x, so the initial endowment is now (10,0) and (0,10). In equilibrium, the bundle of trader A is (5,5) - more of ''every'' commodity than in the first situation!&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;In their example, both traders have the same utility function, which has the following characteristics:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;It is homothetic;&lt;/li&gt;&#xA;&lt;li&gt;The slope of the indifference curves at (y,y) is -1;&lt;/li&gt;&#xA;&lt;li&gt;The slope of the indifference curves at (2y,y) is -1/8.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;One such function is $$u(x,y)=\frac{1}{(x+ay)^{-3}+(ax+y)^{-3}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But, in this example, the products are dependent.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;MY QUESTION IS: Is there an example of such a &quot;throw away paradox&quot;, when the products are independent?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;NOTE: both products are goods (have non-negative utility).&lt;/p&gt;&#xA;" OwnerUserId="385" LastEditorUserId="385" LastEditDate="2015-10-08T07:46:04.023" LastActivityDate="2015-10-08T07:46:04.023" Title="Throw-away paradox with independent goods" Tags="&lt;microeconomics&gt;&lt;general-equilibrium&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8551" PostTypeId="1" CreationDate="2015-10-06T07:48:47.180" Score="1" ViewCount="86" Body="&lt;p&gt;how can devaluation of a nation's currency  lead to increase in government expenditure, hence facilitating economic growth.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I was reading through a textbook and saw that the devaluation of a nation's currency  can lead to increase in government expenditure, hence facilitating economic growth.... But it wasn't really explained. How is this possible please? I need an economist perspective. I'm an accountant.&lt;/p&gt;&#xA;" OwnerUserId="5864" LastEditorUserId="5864" LastEditDate="2015-10-06T08:13:15.127" LastActivityDate="2015-10-06T08:13:15.127" Title="how can devaluation of a nation's currency lead to increase in government expenditure, hence facilitating economic growth" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;supply-and-demand&gt;&lt;international-trade&gt;" AnswerCount="0" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="8552" PostTypeId="1" CreationDate="2015-10-06T10:58:48.150" Score="6" ViewCount="281" Body="&lt;p&gt;I got one question about the Nash-SWF. Typically it is defined as the product of individual utilities, ie. &#xA;$$&#xA;NSWF:=u_1(x_1) \cdot u_2(x_2) \cdot u_3(x_3) \cdot ...&#xA;$$&#xA;For this to make sense, individual utilities are restricted to always being positive. Is there a way to adjust the Nash-SWF to work for utility fcts that are always negative, like $-e^{-ax}$? Meaning all individuals have the same utility fct. which is $-e^{-ax}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks a lot!&lt;/p&gt;&#xA;" OwnerUserId="5866" LastEditorUserId="1601" LastEditDate="2015-10-06T11:03:44.657" LastActivityDate="2015-10-06T14:35:53.983" Title="Nash social welfare function with negative exponential utilities" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;social-welfare&gt;&lt;social-choice&gt;" AnswerCount="1" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="8553" PostTypeId="2" ParentId="8552" CreationDate="2015-10-06T13:59:56.107" Score="1" Body="&lt;p&gt;I completely agree with @FooBar. Of course the utility function can be negative in some of its range. Conceptually, one could invoke the cardinality vs. the ordinality argument as a response to your question. I would think that your problem is as follows:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\&#xA;max\, SWF=u(x_{1})\times u(x_{2})\times...\times u(x_{N})&#xA;\&#xA; s.t&#xA;\&#xA;f(x_{1}....x_{N})\leq g&#xA;\&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The constraint(s) can be some resource constraint. All that matters here is that the SWF satisfies the normal properties associated with the existence of a maximum on the constraint set (You can invoke the assumptions of the Weierstrass Theorem here). Moreover, you should check Second Order Sufficient Conditions (in this case the negative definiteness of the Bordered Hessian) for a maximum. The &lt;em&gt;value&lt;/em&gt; of the welfare function by itself is irrelevant as long as it is a maximum on the constraint set. &lt;/p&gt;&#xA;" OwnerUserId="5233" LastEditorUserId="1601" LastEditDate="2015-10-06T14:35:53.983" LastActivityDate="2015-10-06T14:35:53.983" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="8554" PostTypeId="1" AcceptedAnswerId="8555" CreationDate="2015-10-06T14:36:58.640" Score="5" ViewCount="2727" Body="&lt;p&gt;So let us agree that the fisher equation is $1 + i = (1 + r)(1 + \pi).$ Is it a definiton or good estimate. Intuition tells me this make so much sense and almost qualify as an equation that must hold. However, sources online tell me that it is a good approximation. If we accept that, can anyone suggest examples when the equation fails and why? Thank you!&lt;/p&gt;&#xA;" OwnerUserId="4551" LastActivityDate="2015-10-06T23:31:49.437" Title="Is fisher equation a definition, identity? Or is it rather a very good estimate" Tags="&lt;interest-rate&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8555" PostTypeId="2" ParentId="8554" CreationDate="2015-10-06T14:46:38.367" Score="4" Body="&lt;p&gt;The fisher equation has its basis in the fact that the real return on an asset is the nominal return divided by the inflation rate. If you hold a bond today, it gives you back $1+r_{t+1}$ tomorrow. This is basically $\frac{1+\iota_{t}}{1+\pi_{t+1}}$ such that the promised nominal rate is deflated by the inflation rate. Rearranging terms, you get your definition. This is exact and always holds conceptually. The approximation is that $i\approx r+\pi$  which is obtained via a Taylor series expansion.&lt;/p&gt;&#xA;" OwnerUserId="5233" LastActivityDate="2015-10-06T14:46:38.367" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="8556" PostTypeId="1" AcceptedAnswerId="8574" CreationDate="2015-10-06T16:43:42.573" Score="7" ViewCount="18416" Body="&lt;p&gt;When deriving the substitution effect for both Slutskian and Hicksian definitions, a 'phantom' budget line is drawn.However, for a Slutskian definition, the 'phantom' budget line is drawn parallel to the new budget line(change in price) and &lt;strong&gt;through&lt;/strong&gt; the point of tangency for the original budget line and indifference curve.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand, for a Hicksian definition, the phantom budget line is drawn parallel to the new budget line(change in price) and lies on the original indifference curve on a different point of tangency.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there any significance to this inherent difference between the Slutskian and Hicksian approaches when deriving the substitution effect?I'm familiar with the definition of the Slutskian and Hicksian approaches but am unable to reconcile the definitions of the approaches with the differences in drawing the phantom budget line, and subsequently deriving the substitution effect.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any clarifications or attempts to enlighten me would be much appreciated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks!&lt;/p&gt;&#xA;" OwnerUserId="5869" LastActivityDate="2021-01-08T08:10:29.160" Title="Differences between Hicksian and Slutskian approaches" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8557" PostTypeId="1" CreationDate="2015-10-06T16:44:26.587" Score="2" ViewCount="123" Body="&lt;p&gt;I am in need of a variable measuring &quot;demand for banking services&quot; in general, on a country level. &lt;em&gt;Specifically&lt;/em&gt; the (maximum) &lt;em&gt;size of the market&lt;/em&gt; for banking services for a given country. This will be used as a control variable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does anyone know any standard proxies or measures used in the literature to measure something like &quot;total demand for banks&quot;? I need something general, not a specific banking service. Something that summarizes the different sources of demand for banking services, such as some kind of constructed index or so. Something that summarizes everything/most services through which banks make profits. If that is not possible, are there maybe two standard measures that each cover demand for deposits and demand for loans? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What variables are generally used? If nobody knows what is standard, does anyone have any plausible suggestions of proxies/measures for &quot;demand for banking services&quot;? Further, any suggestions on data sources I could use to get country level data (preferably a panel starting around the '80s or '90s) for such a variable?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The proxy/measure need not be perfect. The only &lt;strong&gt;important&lt;/strong&gt; thing is that it captures &lt;strong&gt;&quot;the size of the market for banking services&lt;/strong&gt; (in general)&quot; in some way. Especially a measure of demand that would &lt;strong&gt;determine the (maximum) number of banks&lt;/strong&gt; in a given country.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastEditorUserId="5557" LastEditDate="2015-10-06T20:35:57.000" LastActivityDate="2015-12-20T14:43:25.893" Title="Measuring demand for banking services - (Maximum) Market Size" Tags="&lt;finance&gt;&lt;data-request&gt;&lt;banking&gt;&lt;economic-measurement&gt;" AnswerCount="1" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="8558" PostTypeId="2" ParentId="8548" CreationDate="2015-10-06T17:09:31.353" Score="4" Body="&lt;p&gt;This makes use of &lt;a href=&quot;https://en.wikipedia.org/wiki/Extreme_value_theorem&quot; rel=&quot;nofollow&quot;&gt;Weierstrass&lt;/a&gt; theorem: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;Any continuous function mapping from a non-empty compact set to a a subset of $\mathbb{R}$ attains a maximum and minimum. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, for example: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;We know by &lt;a href=&quot;https://en.wikipedia.org/wiki/Heine%E2%80%93Borel_theorem&quot; rel=&quot;nofollow&quot;&gt;Hein-Borel&lt;/a&gt; that a $B(p,w)$ (the budget set) is compact. Since it is compact, we know by Weierstrass theorem that there exists a solution to the utility maximization problem on B(p,w). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In general, optimization on a compact set will have a solution if you have a continuous objective function.&lt;/p&gt;&#xA;" OwnerUserId="1655" LastEditorUserId="1655" LastEditDate="2015-10-06T17:32:06.377" LastActivityDate="2015-10-06T17:32:06.377" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="8559" PostTypeId="1" AcceptedAnswerId="8560" CreationDate="2015-10-06T18:23:22.370" Score="1" ViewCount="154" Body="&lt;p&gt;Can someone please explain the concept of absolute advantage with an example? I know it has to do with the fact that a nation should produce a commodity that is cheap relative to other commodities but I don't really understand the concept.&lt;/p&gt;&#xA;" OwnerUserId="5864" LastEditorUserId="2776" LastEditDate="2017-06-14T07:27:47.083" LastActivityDate="2017-06-14T07:27:47.083" Title="Concept of absolute advantage" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;supply-and-demand&gt;&lt;international-trade&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8560" PostTypeId="2" ParentId="8559" CreationDate="2015-10-06T18:29:48.383" Score="4" Body="&lt;p&gt;Say two countries have the same amount of resources. A has an absolute advantage relative to B if A has technology such that A produces a larger quantity of output using that given level of resources relative to B. So, lets say potatoes are inputs and mashed potatoes are outputs. A has an absolute advantage in mashed potato production if it can produce more pounds of mashed potatoes than B. Comparative advantage, on the other hand, deals with the opportunity cost. For example, the french fries foregone by each country when they decide to produce mashed potatoes. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is worth noting that comparative advantage is the basis of trade. Not absolute advantage. &lt;/p&gt;&#xA;" OwnerUserId="1655" LastActivityDate="2015-10-06T18:29:48.383" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8561" PostTypeId="1" CreationDate="2015-10-06T18:44:29.487" Score="4" ViewCount="312" Body="&lt;p&gt;I want to calculate the classic mean variance portfolio (Markowitz) with a risk aversion parameter $\gamma$. &#xA;I have the following problem where I want to maximize:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;$max(x_t) \ \ x_t^T\mu_t - \frac{\gamma}{2}x_t^T\Sigma_tx_t$&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Where $\mu$ = mean &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$x_t$ = portfolio at time $t$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\Sigma$ = sample covariance matrix&lt;/p&gt;&#xA;&#xA;&lt;p&gt;w(t) is the vector of relative weights in the portfolio, calculated as follows: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$w_t=\frac{x_t}{1_N^Tx_t}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1_N is a vector of ones (N elements)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My concern is that in the literature I have seen only solution for the above maximization problem where the risk aversion parameter drops out:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$w_t=\frac{\Sigma_t^{-1}\mu_t}{1_N\Sigma_t^{-1}\mu_t}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm wondering at which point do we account for the risk aversion parameter during the optimization?&lt;/p&gt;&#xA;" OwnerUserId="5870" LastEditorUserId="5870" LastEditDate="2015-10-06T20:26:28.947" LastActivityDate="2015-10-07T00:38:12.207" Title="Calculating mean variance portfolio with risk aversion parameter" Tags="&lt;optimization&gt;&lt;portfolio-theory&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="8563" PostTypeId="2" ParentId="8554" CreationDate="2015-10-06T23:31:49.437" Score="2" Body="&lt;p&gt;The Fisher equation is &lt;strong&gt;not true by definition&lt;/strong&gt;. It is not even &lt;em&gt;approximately&lt;/em&gt; true by definition. This view is just a misconception.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Fisher equation is a &lt;em&gt;hypothesis&lt;/em&gt; that is, in principle, testable. All the components in the equation are defined independently, and we can just test whether the two sides of the equation are equal.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Don't believe me? Here are the definitions of the three parts:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Real interest rate&lt;/strong&gt;: The real interest rate $R$ is the rate at which one can transform &lt;em&gt;units of consumption&lt;/em&gt; today into &lt;em&gt;units of consumption&lt;/em&gt; next year. For example, suppose cookies are the only good in the economy. I offer for you to deposit a cookie with me today, and I promise you 1.03 cookies next year. That's an $R=3\%$ real interest rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Expected inflation&lt;/strong&gt;: Expected inflation $E\left(\Pi\right)$ is the expected rate of increase in the consumer price index. In the cookie example, it's the expected increase in the price of a cookie.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Nominal interest rate&lt;/strong&gt;: The nominal interest rate $I$ is the rate at which one can transform &lt;em&gt;dollars&lt;/em&gt; today into &lt;em&gt;dollars&lt;/em&gt; tomorrow. This would be like a bank account in the cookie economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Fisher hypothesis says:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ 1+R = \frac{1+I}{1+E\left(\Pi\right)} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This could easily be false. Suppose you can deposit cookies at a 3% real interest rate, and expected inflation is 2%. That doesn't necessarily mean your bank account has to pay 5%. The bank might choose to pay less. This would be a stupid business decision, but wouldn't violate any definitions. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now you might say, we can assume that there are many banks that compete, so dumb banks wouldn't really exist in real life. Even in that case, one could argue that the bank might choose to pay &lt;em&gt;more&lt;/em&gt; than 5%, since you have to take the risk of inflation with a dollar deposit, while if you just bought a cookie today and deposited it, you would get paid back in cookies. So the bank needs to pay a risk premium to the customer on top of inflation compensation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My point? The equation might be true, but it's not true &lt;em&gt;by definition&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, even supposing the above equation is true, it is still an approximation to say that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ R = I - E\left(\Pi\right) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;but this is not a bad approximation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Why does this misconception persist?&lt;/strong&gt; There is a tendency to &lt;em&gt;define&lt;/em&gt; the real interest rate by using a strange version of the Fisher equation:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ 1+R = \frac{1+I}{1+\Pi} \quad\leftarrow\text{wrong}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $\Pi$ is the actual inflation that took place between this year and next year. This is &lt;em&gt;not&lt;/em&gt; a formula for the real interest rate, however. It is a formula for the real &lt;em&gt;return&lt;/em&gt; you earned by putting money in your bank account and earning the nominal rate $I$. The difference? Returns are random — in this case, based on how much inflation occurred. Interest rates are fixed numbers that are observable in advance, and that goes for the real interest rate too.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By the way, the idea of a &quot;cookie deposit&quot; is not just a thought experiment. The U.S. Treasury sells inflation-protected bonds (TIPS) that are guaranteed to give you a certain real return on your investment. The rates on these bonds are true real interest rates.&lt;/p&gt;&#xA;" OwnerUserId="5874" LastActivityDate="2015-10-06T23:31:49.437" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8564" PostTypeId="2" ParentId="8561" CreationDate="2015-10-07T00:38:12.207" Score="2" Body="&lt;p&gt;Here's how you would account for risk aversion.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First of all, I think this problem is usually set up using weights as the variables (see here &lt;a href=&quot;http://www.math.ku.dk/~rolf/CT_FinOpt.pdf&quot; rel=&quot;nofollow&quot;&gt;http://www.math.ku.dk/~rolf/CT_FinOpt.pdf&lt;/a&gt;, page 141). If you want to use dollar weights, you will have to transform the result.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The optimization problem is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \max_w \quad  w'\mu −\frac{\gamma}{2} w'\Sigma w$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Weights add up to 1:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ w'e = 1 $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where you have $N$ assets, $w$ and $\mu$ are $N\times1$ vectors, and $\Sigma$ is an $N\times N$ matrix. $e$ is an $N\times1$ vector of ones.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Lagrangian for the problem is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \max_w \quad  w'\mu −\frac{\gamma}{2} w'\Sigma w + \lambda (w'e - 1)$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To optimize, we take the gradient of the objective function, and set each element equal to zero. So we will have an $N\times 1$ vector equation:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$0 = \mu - \gamma \Sigma w + \lambda e$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This can be solved for $w$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$w = \left(\gamma \Sigma\right)^{-1} \left(\mu + \lambda e\right)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Plugging this back into the constraint, we get:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \left(\left(\gamma \Sigma\right)^{-1} \left(\mu + \lambda e\right)\right)'e = 1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The transpose reverses the order of the terms, and has no effect on the symmetric $\Sigma^{-1}$ matrix:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \left(\left(\mu' + \lambda e'\right)\frac{\Sigma^{-1}}{\gamma} \right)e = 1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This can be simplified to:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \mu' \Sigma^{-1} e + \lambda e' \Sigma^{-1} e = \gamma$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Solving for $\lambda$, we get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \lambda = \frac{\gamma - \mu' \Sigma^{-1} e}{e'\Sigma^{-1} e} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the overall formula for the weights is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$w = \left(\gamma\Sigma\right)^{-1} \left(\mu + \frac{\gamma - \mu' \Sigma^{-1} e}{e'\Sigma^{-1} e} e\right)$$&lt;/p&gt;&#xA;" OwnerUserId="5874" LastActivityDate="2015-10-07T00:38:12.207" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8565" PostTypeId="2" ParentId="5575" CreationDate="2015-10-07T01:28:25.827" Score="2" Body="&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://ftp.iza.org/dp1136.pdf&quot; rel=&quot;nofollow&quot;&gt;This Discussion Paper&lt;/a&gt; (PDF) suggests the use of political variables as an instrument for minimum wage.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;See abstract (emphasis mine):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Following the early 1980s apparent consensus, there has been a controversial debate in the literature over the direction of the minimum wage employment effect. Explanations to non-negative effects range from theoretical to empirical identification and data issues. An explanation, however, that has not been sufficiently explored is that a non-negative effect might be an upward biased estimate of a truly negative effect, resulting from the simultaneous determination of the minimum wage and employment. &lt;strong&gt;This paper estimates the employment effect of the minimum wage using a number of political variables – not previously used in the literature – as excluded exogenous instruments to control for the endogeneity of the minimum wage variable.&lt;/strong&gt; The data used is an under-explored Brazilian monthly household survey from 1982 to 2000. Robust results indicate that an increase in the minimum wage has very small adverse effects on employment.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://economics.uchicago.edu/workshops/Rubinstein%20Yona%20Using%20Federal%20Minimum%20Wages%20Paper.pdf&quot; rel=&quot;nofollow&quot;&gt;This article&lt;/a&gt; (PDF) (Which I like better anyway) uses the differences in the changes on minimum wages wrt to the federal minimum wages. It is worth noting that this paper has a pretty good reference list and useful introduction as well. I'd start here looking for further reading.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;See abstract (emphasis mine):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The magnitude of the impact of minimum wages on employment is a hotly debated topic in policy and academic circles. In this paper, we use cross-state differences in the impact of adjustments in federal minimum wages on effective minimum wages in each state - the maximum of federal and state minimum wages - to reassess this question and explain biases in past research. &lt;strong&gt;A rise in the federal minimum wage will have a larger impact on a state's effective minimum wage in states in which federal minimum wages are binding&lt;/strong&gt;. Using CPS data for 1977-2007, we find notable wage impacts and large corresponding disemployment effects, yet only when we utilize the differential influences of federal minimum wages to instrument for state wage floors. State effective minimum wages are procyclical. Accounting for the endogenous determination of effective minimum wages at the state level turns out to be materially important for drawing accurate inferences about the impact of minimum wages on employment&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="40" LastActivityDate="2015-10-07T01:28:25.827" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8566" PostTypeId="1" AcceptedAnswerId="8567" CreationDate="2015-10-07T02:11:42.440" Score="6" ViewCount="2279" Body="&lt;p&gt;Let $p \in \mathbb{R}_+^L$ be price vector and let $w \in \mathbb{R}_+$ be wealth of the consumer. Define the Budget correspondence $B(p,w) =\{x \in \mathbb{R}_+^L : p\cdot x\le w  \}$ . How to prove that this budget correspondence is upper hemi-continuous?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A correspondence $Γ:R_+^{L+1}+→R^L_+$ is upper hemi-continuous if, $(p_n,w_n)→(p,w) $ and $x_n \to x$ where for each $n$ it's true $x_n \in &#xA;\Gamma(p_n,w_n)$, will ensure $x \in \Gamma(p,w)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've seen a possible solution using Bolzano–Weierstrass theorem by Mark Dean at the following link &lt;a href=&quot;http://www.econ.brown.edu/fac/mark_dean/Maths_HW4_13.pdf&quot; rel=&quot;noreferrer&quot;&gt;http://www.econ.brown.edu/fac/mark_dean/Maths_HW4_13.pdf&lt;/a&gt;. But I failed to understand the last step in his approach where he claims that if every sequence $x_m \in B(p^m, w_m)$ has convergent sub-sequence converging to a point in set $B(p^*, w^*)$, then we have hemi-continuity for budget set, aren't we supposed to show that $x_m$ converge to $B(p,w)$? Am I missing any theorem?&lt;/p&gt;&#xA;" OwnerUserId="5850" LastEditorUserId="5850" LastEditDate="2015-10-07T07:03:08.230" LastActivityDate="2016-03-09T13:45:16.443" Title="Prove the budget correspondence is upper hemi-continuous" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8567" PostTypeId="2" ParentId="8566" CreationDate="2015-10-07T03:30:59.470" Score="6" Body="&lt;p&gt;I am assuming that the following facts do not require proofs for the purposes of this question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Fact 1:&lt;/strong&gt; Let $h_n$ be a sequence in $\mathbb{R}^K$ such that $\lim_{n\rightarrow \infty} h_n =h\in \mathbb{R}^K$. Then, for each $i\in \{1,2,\ldots,K\}$, we have $h^i_n\rightarrow h^i$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Fact 2:&lt;/strong&gt; Let $z_n$ and $q_n$ be sequence in $\mathbb{R}$ such that $\lim_{n\rightarrow \infty} z_n =z\in \mathbb{R}$ and $\lim_{n\rightarrow \infty} q_n =q\in \mathbb{R}$. Then, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;i)&lt;/strong&gt; $\lim_{n\rightarrow \infty}(z_n\pm q_n)=z\pm q$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;ii)&lt;/strong&gt; $\lim_{n\rightarrow \infty}(z_n \times q_n)=z\times q$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Fact 3:&lt;/strong&gt; Let $z_n$ in $\mathbb{R}$ such that for each $n$, $z_n\leq a\in \mathbb{R}$ and $\lim_{n\rightarrow \infty} z_n =z$. Then, $z\leq a$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Definition:&lt;/strong&gt; A correspondence $G:X\rightrightarrows Y $ is upper hemicontinuous at $x\in X$ if for any open neighborhood of $V$ of $G(x)$. There exists a neighborhood $U$ of $x$ such that for all $x'$ in $U$, $G(x')\subseteq V$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Unlike the previous remarks, the following fact requires proof. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Fact 4:&lt;/strong&gt; Let $G:X\rightrightarrows Y $ be a correspondence. If for every $x_n\rightarrow x\in X$ and $y_n\in G(x_n)$ there exists a subsequence $y_{n_k}$ of $y_n$ with $y_{n_k}\rightarrow y$ and $y\in G(x)$, then $G$ is upper hemicontinuous. Moreover, if $G$ is compact valued, then the converse is also true.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, let's go back to your question. Let $(p_n,w_n)$ be a sequence in $\mathbb{R}^{L+1}_{++}$ such that $\lim_{n\rightarrow \infty} (p_n,w_n) =(p,w)\in \mathbb{R}^{L+1}_{++}$. Moreover, let $x_n\in B(p_n,w_n)$ for all $n$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $w^\ast = \sup_n w_n$. Since $w_n\rightarrow w\in \mathbb{R}_{++}$, it must be true that $w^\ast \in \mathbb{R}_{++}$ because otherwise we could have created a subsequence $w_{n_k}$ of $w_n$ for which $w_{n_k}\rightarrow\infty$ which would contradict with $w_n\rightarrow w$. Similar arguments would imply that $p^{\ast} = \min_i( \inf_n p^i_n)&amp;gt;0$ since $p^n\rightarrow p\in\mathbb{R}_{++}^L$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The previous observations imply that for all $n$ and for all $i$ we have $x_n^i\leq w^\ast/p^\ast$. Therefore, the sequence $x_n$ is bounded. By Bolzano-Weierstrass Theorem, $x_n$ has a convergent subsequence $x_{n_k}$ with $x_{n_k}\rightarrow x$. From here onwards, we will suppress the subscript $k$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since $x_n\in B(p_n,w_n)$, we have $\sum_i p_n^i\times x_n^i-w_n\leq 0$. Let $c_n = \sum_i p_n^i\times x_n^i$. By fact 1, we have $p_n^i\rightarrow p_i$ and $x_n^i\rightarrow x_i$ for each $i$, and by fact 2, we have $c_n=\sum_i p_n^i\times x_n^i\rightarrow p\cdot  x$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;By fact 2, $c_n-w_n\rightarrow (p\cdot  x-w)$. Fact 3 implies that $(p\cdot  x-w)\leq 0$, which in turn implies that $x\in B(p,w)$. This concludes the proof that the budget correspondence is upper hemicontinuous.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Original (incorrect) Answer&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The following answer has been posted earlier. However, I realized that there is a mistake with this one. I am keeping this here since the original question had been wondering specifically about how Bolzano-Weierstrass theorem is relevant to the question and comparison of this incorrect answer and the correct version shows why we would need this theorem.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Definition:&lt;/strong&gt; A correspondence $G:X\rightrightarrows Y $ is upper hemicontinuous at $x\in X$ if for all sequences $x_n\in X$ with $x_n\rightarrow x$, for all $y_n\in G(x_n)$ with $y_n \rightarrow y \in Y$, we have $y\in G(x)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, let's go back to your question. Let $(p_n,w_n)$ be a sequence in $\mathbb{R}^{L+1}$ such that $\lim_{n\rightarrow \infty} (p_n,w_n) =(p,w)$. Moreover, let $x_n\in B(p_n,w_n)$ for all $n$, with $x_n\rightarrow x$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since $x_n\in B(p_n,w_n)$, we have $\sum_i p_n^i\times x_n^i-w_n\leq 0$. Let $c_n = \sum_i p_n^i\times x_n^i$. By fact 1, we have $p_n^i\rightarrow p_i$ and $x_n^i\rightarrow x_i$ for each $i$, and by fact 2, we have $c_n=\sum_i p_n^i\times x_n^i\rightarrow p\cdot  x$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;By fact 2, $c_n-w_n\rightarrow (p\cdot  x-w)$. Fact 3 implies that $(p\cdot  x-w)\leq 0$, which in turn implies that $x\in B(p,w)$. This concludes the proof that the budget correspondence is upper hemicontinuous.&lt;/p&gt;&#xA;" OwnerUserId="5739" LastEditorUserId="5739" LastEditDate="2015-10-07T07:56:32.950" LastActivityDate="2015-10-07T07:56:32.950" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="8568" PostTypeId="2" ParentId="6024" CreationDate="2015-10-07T04:12:01.773" Score="3" Body="&lt;p&gt;What you are referring to is two-stage least squares. This is an instrumental variable commonly applied to correct for endogeniety and selection bias. It is a pretty hot topic in economics at the moment and, when applied correctly, can be very useful and will remove the selection bias.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are a few conditions and assumptions -&#xA;Suppose you want to estimate this equation&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$y_i = \beta x_i +\epsilon_i$&#xA;where&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;$i$ indexes observations,&lt;/li&gt;&#xA;&lt;li&gt;$y_i$ is the dependent variable,&lt;/li&gt;&#xA;&lt;li&gt;$x_i$ is an independent variable,&lt;/li&gt;&#xA;&lt;li&gt;$\epsilon_i$ is an unobserved error term representing all causes of $y_i$ other than $x_i$&lt;/li&gt;&#xA;&lt;li&gt;$\beta$ is an unobserved scalar parameter.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;we suspect $x_i$ is endogenous&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;($cov(x_i, \epsilon)\neq 0$)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;but we have a variable $z_i$ which is correlated to $x_i$ but uncorrelated with $\epsilon$&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;($cov(z_i, x_i) \neq 0$ and $cov(z_i, \epsilon)=0$). &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;This is a candidate for 2SLS:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Stage one is to estimate $x_i$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\hat x_i= \hat \gamma z_i + \epsilon$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Stage 2 is to estimate $y_i$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$y_i= \beta \hat x_i+ \epsilon$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The difference between this and the first regression is that $\hat x_i$ is uncorrelated with the error term and this selection bias has been corrected for. There are lot's of different uses of this. In principle, the two-stage regression used in the paper could correct for some of the biases discussed in the paper. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Further Reading:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www2.warwick.ac.uk/fac/soc/economics/staff/ffwaldinger/teaching/ec9a8/slides/lecture_2_-_iv.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;This ppt&lt;/a&gt; (Slide 20 onwards) descibes an excellent (and very famous) example of IV.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www3.grips.ac.jp/~yamanota/Lecture_Note_8_IV_and_2SLS.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;These notes&lt;/a&gt; are also pretty solid as well.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://economics.stackexchange.com/questions/110/book-recommendations-on-empirical-methods-in-economic-research-and-econometrics/146#146&quot;&gt;This question&lt;/a&gt; provides some textbooks which are also very helpful. My personal favourite is &quot;Mostly Harmless Econometrics&quot; by Angrist and Pischkes (Written by the guy who did that famous example example above) and &quot;Econometric Analysis of Cross Section and Panel Data&quot; by Wooldridge. It is worth noting that both of these are graduate level books.&lt;/p&gt;&#xA;" OwnerUserId="40" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-10-07T04:41:50.547" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="8569" PostTypeId="1" CreationDate="2015-10-07T06:02:53.087" Score="3" ViewCount="1494" Body="&lt;p&gt;Is there a difference between the two? If so can you intuitively explain it? I see internet resources saying these are equivalent, but I thought I remember someone telling me once shadow price was different than marginal cost, but I may be misremembering it. Bonus points if you can place the definition in the context of a non-equilibrium setting.&lt;/p&gt;&#xA;" OwnerUserId="5877" LastEditorUserId="1601" LastEditDate="2015-10-07T06:53:08.693" LastActivityDate="2015-10-07T07:03:11.547" Title="Shadow Price vs Marginal Cost" Tags="&lt;microeconomics&gt;&lt;cost&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8570" PostTypeId="2" ParentId="8569" CreationDate="2015-10-07T07:03:11.547" Score="3" Body="&lt;p&gt;Marginal cost is always the same as the shadow price in the cost minimization problem&#xA;\begin{eqnarray*}&#xA;\min_x &amp;amp;&amp;amp; w \cdot x \\&#xA;s.t. &amp;amp;&amp;amp; f(x) = y.&#xA;\end{eqnarray*}&#xA;In optimum the shadow price (Lagrange multiplier) belonging to the condition $f(x) = y$ is the marginal cost.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However there are other optimization problems where the shadow price is something else, for example in the utility maximization problem&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{eqnarray*}&#xA;\max_{x,y} &amp;amp;&amp;amp; U(x,y) \\&#xA;s.t. &amp;amp;&amp;amp; p_x \cdot x + p_y \cdot y = m&#xA;\end{eqnarray*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;the shadow prices correspond to the marginal utility of money. (One could argue that this is the reciprocal of the marginal cost of producing more utility.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Neither of these examples had anything to do with equilibrium, just individual optima.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2015-10-07T07:03:11.547" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8572" PostTypeId="1" CreationDate="2015-10-07T10:23:33.503" Score="1" ViewCount="107" Body="&lt;p&gt;Some argue that if a government runs a budgetary deficit, it is a drag on the public finances because taxpayers must fund interest payments to external creditors. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the interest payments were an issue, we might expect governments to stop borrowing when in surplus. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But a budgetary surplus won't reduce demand for government bonds. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So what, in practice, do governments do?&lt;/p&gt;&#xA;" OwnerUserId="2816" LastActivityDate="2015-10-07T10:23:33.503" Title="Why might a country with a budget surplus continue issuing bonds - ie borrowing?" Tags="&lt;debt&gt;&lt;government-debt&gt;&lt;public-economics&gt;&lt;government&gt;&lt;empirical-evidence&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8573" PostTypeId="1" AcceptedAnswerId="8580" CreationDate="2015-10-07T10:49:07.070" Score="3" ViewCount="166" Body="&lt;p&gt;I have the following task:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At some moment of time (1953), the government of a country (Israel) signs an agreement with&#xA;another country (West Germany) stipulating that West Germany would pay reparations to Israel&#xA;during the following N years. For simplicity assume that N is large enough, that the amount or&#xA;reparations is proportional to Israeli output, and that the economy of Israel reaches the new steady&#xA;state while the reparations are stil paid.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Need to use Solow model. But I really do not understand what the change will happen. Probably it is the same as an increase in s. Help is needed. &lt;/p&gt;&#xA;" OwnerUserId="5735" LastActivityDate="2015-10-07T19:25:01.297" Title="Solow model reparations" Tags="&lt;macroeconomics&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8574" PostTypeId="2" ParentId="8556" CreationDate="2015-10-07T10:51:50.020" Score="5" Body="&lt;p&gt;The income effect (IE) is about assessing purchasing-power impacts of a price change, while the substitution effect (SE) is about the impact of that price change on the relative attractiveness of the different goods. In reality these effects are not observable - when a price changes, your consumption choices will change for both reasons. But we can conceptually decompose the overall effect into IE/SE. In the SE we will be looking to isolate the impact of relative prices changing, without the purchasing-power effect.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, there are two ways of thinking about this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;-&lt;strong&gt;Slutsky&lt;/strong&gt;: what if price changes but my purchasing power were (literally) to remain constant (i.e. I could still buy the exact same bundle as before)? How would the relative price change &lt;em&gt;by itself&lt;/em&gt; affect my decision?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;-&lt;strong&gt;Hicks&lt;/strong&gt;: what if the price changes but my purchasing power were adjusted so I am still able to achieve my initial level of utility (i.e. I would be as well-off as before)? How would the relative price change &lt;em&gt;by itself&lt;/em&gt; affect my decision?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Either way, the SE is always negative, that is, a higher price for one good will tend to make consumption of that good lower.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;After you understand the SE, the IE is just the income adjustment needed in either case to get us to the &lt;em&gt;actual&lt;/em&gt; final decision. It can reinforce the SE or contradict it, depending on whether the good is normal or inferior.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope this helps.&lt;/p&gt;&#xA;" OwnerUserId="5878" LastActivityDate="2015-10-07T10:51:50.020" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8575" PostTypeId="2" ParentId="8550" CreationDate="2015-10-07T11:56:23.457" Score="0" Body="&lt;p&gt;This might be a trivial case, but what if the utility from one of the goods is negative? That would result in utility being gained by throwing away the good, but it would also eliminate any trading.&lt;/p&gt;&#xA;" OwnerUserId="5512" LastActivityDate="2015-10-07T11:56:23.457" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8576" PostTypeId="2" ParentId="8573" CreationDate="2015-10-07T12:18:51.847" Score="-1" Body="&lt;p&gt;In which context did you have this question ? Is it an homework ? It is interesting. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What happens with this reparations ? Are they redistributed in the economy by some social system ? the more crucial question is if these reparations make increase savings of people.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, how this money is redistributed between different social classes ? as propensity to save changes according to social classes, the increase in savings will be different.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the classical solow growth model, countries with different levels of savings will converge to their &quot;own&quot; steady state, which we name as &quot;conditional convergence&quot;. So, the long term equilibrium is dependent on the structural characteristics of this economy. In this case, for sure, a country receving huge amounts of money will have another steady state. (by the channel of increase of savings, there could be other structural changes other than changes in savings) &lt;/p&gt;&#xA;" OwnerUserId="2938" LastActivityDate="2015-10-07T12:18:51.847" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8577" PostTypeId="1" CreationDate="2015-10-07T12:35:26.913" Score="4" ViewCount="587" Body="&lt;p&gt;I hope this question is not too general in nature; I just wanted to ask the members of this community their opinion on the following question:  How can one choose between the Bayesian approach and the Frequentist Approach? In what context is one approach better than the other? &#xA;The reason I ask this is because whenever I attempt to answer &lt;em&gt;causal&lt;/em&gt; empirical questions, I immediately think of trying to estimate Treatment Effects (for instance using difference in means, Difference-in-differences or matching estimators). On the other hand, when I wish to forecast, Ive heard that Bayesian Model Averaging Techniques often outpeform linear projections. On what basis can I choose between the two approaches? Thanks!&lt;/p&gt;&#xA;" OwnerUserId="5233" LastActivityDate="2015-10-07T19:10:38.823" Title="Bayesian vs. Frequentist Approach" Tags="&lt;econometrics&gt;&lt;applied-econometrics&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8578" PostTypeId="2" ParentId="8577" CreationDate="2015-10-07T12:53:14.080" Score="0" Body="&lt;p&gt;Do you want something backed up by solid theory, and can accept a numerical approximation as the answer? Bayes&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are you working with open systems, and need rigour? Bayes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you don't mind that it doesn't stand up in theory, but do need it to have an analytic solution? Frequentist.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You don't care about rigour, you want a quick and dirty answer, and you can bear to use the justification: &quot;lots of other people have done it this way previously&quot;? Frequentist&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are you working with closed systems with well-defined unknowns, and no informed probabilistic priors? Frequentist or Bayes. (usually frequentists will have an off-the-shelf recipe to do it quicker and more efficiently, but you should get the same answer either way)&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2015-10-07T12:53:14.080" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8579" PostTypeId="1" CreationDate="2015-10-07T13:27:56.383" Score="1" ViewCount="29" Body="&lt;p&gt;Do you know of a package allowing to create objects representing agents with (strict) preferences over (a finite set of) discrete objects $A,B,C,…$, and profiles thereof.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A minimal requirement would be to have  a method like &lt;code&gt;compare&lt;/code&gt; defined on any instance &lt;code&gt;agent&lt;/code&gt; of the class, with &lt;code&gt;agent.compare(X,Y)&lt;/code&gt; returning &lt;code&gt;True&lt;/code&gt; if the agent likes $X$ more than $Y$, and &lt;code&gt;False&lt;/code&gt; otherwise.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The only related package I have found so far is &lt;a href=&quot;https://pypi.python.org/pypi/svvamp&quot; rel=&quot;nofollow&quot;&gt;&lt;code&gt;svvamp&lt;/code&gt;&lt;/a&gt;. Do you know of any other?&lt;/p&gt;&#xA;" OwnerUserId="38" LastEditorUserId="38" LastEditDate="2015-10-07T13:34:07.143" LastActivityDate="2015-10-07T13:34:07.143" Title="Python package for discrete preferences" Tags="&lt;software&gt;&lt;python&gt;&lt;discrete-preferences&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8580" PostTypeId="2" ParentId="8573" CreationDate="2015-10-07T13:52:32.197" Score="0" Body="&lt;p&gt;No, savings is a structural parameter in the Solow model and is not affected by income level. The basic differential equation of the Solow model is given by     $$&#xA;\dot{k}=sk^{\alpha}-(\delta+n+g)k&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In steady state, as you pointed out, both output and capital only depend on the structural parameters. What would happen is that the output would shoot beyond its steady state level till the time the reparations are being paid, and then go back to the original level. Logically you are right- The marginal propensity to save increases in income. However, in no way is this implied by the Solow model.&lt;/p&gt;&#xA;" OwnerUserId="5233" LastActivityDate="2015-10-07T13:52:32.197" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8581" PostTypeId="2" ParentId="8550" CreationDate="2015-10-07T14:30:28.820" Score="1" Body="&lt;p&gt;It seems (from the first page, at least; I don't have JSTOR access right now) that the essence of Aumann and Peleg's example is that&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;this rise in &lt;em&gt;price&lt;/em&gt; of the commodity [trader A] holds is more than enough to compensate for the drop in the amount.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;One similar situation from history occurred during the New Deal, when farmers were paid to plough over cotton fields and send hogs to be slaughtered for no reason, in order to take excess quantities of these goods off the market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Obviously, the difference here is that this was a centralized intervention in a decentralized (and huge) market. The set of incentives are more complicated, and the many &quot;trader A's&quot; in this scenario were compensated for throwing away their goods. But the sentiment is very similar.&lt;/p&gt;&#xA;" OwnerUserId="379" LastActivityDate="2015-10-07T14:30:28.820" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8582" PostTypeId="1" CreationDate="2015-10-07T15:36:42.287" Score="5" ViewCount="2200" Body="&lt;p&gt;I am reading a &lt;a href=&quot;http://core.ac.uk/download/pdf/6725525.pdf&quot; rel=&quot;nofollow&quot;&gt;paper on structural change&lt;/a&gt;. It has three sectors and it features non homothetic utility function, namely a CES with some thresholds for the consumption of the three goods. The UMP is as follows:&#xA;$$&#xA;\max_{C_k; k=1,2,3} \left(\sum_{k}\omega^{\frac{1}{\epsilon}}_k\left(C_k-\bar{C}_k\right)^{\frac{\epsilon-1}{\epsilon}}\right)^\frac{\epsilon}{\epsilon-1}&#xA;$$&#xA;Subject to the budget constraint&#xA;$$&#xA;\sum_{K}\left(P_k C_k\right)=W&#xA;$$&#xA;with $\omega_k$ summing up to 1.&#xA;What I find online is mainly a derivation of the log-utility case, which is not that suitable for my case. Also, in the paper authors use a price index which is really close to the one of the Dixit-Stiglitz case.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm currently stuck at the level of the FOC, and I wonder what are the steps to derive a proper demand function from these premises. Can anyone show me how to find this demand function?&lt;/p&gt;&#xA;" OwnerUserId="5879" LastEditorUserId="5879" LastEditDate="2015-10-08T09:12:16.697" LastActivityDate="2017-08-30T15:09:03.180" Title="Stone-Geary utility function, derivation of Marshallian demand" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;&lt;utility&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8583" PostTypeId="1" CreationDate="2015-10-07T16:31:28.507" Score="1" ViewCount="67" Body="&lt;p&gt;Typically in market clearing, the supply and demand (ask and bid) curves meet at a certain point, and the projection of these curves creates a quantity and price. Does this price have a deeper meaning than the clearing mechanism? As in, could the price be defined in another way, so volume weighted average?&lt;/p&gt;&#xA;" OwnerUserId="5880" LastActivityDate="2015-10-07T17:09:29.010" Title="The notion of price" Tags="&lt;stock-market&gt;&lt;financial-markets&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8584" PostTypeId="2" ParentId="8583" CreationDate="2015-10-07T16:47:00.680" Score="2" Body="&lt;p&gt;A &quot;volume-weighted average&quot; is how &quot;market price&quot; is (theoretically) &lt;em&gt;measured&lt;/em&gt;, when we acknowledge that transactions happen at different prices due to differentiated aspects that may, in theory, be handled in the context of monopolistic competition, but in practice, the different prices are so many that taking them into account would deprive us of any chance to understand the whole. So we (would like to) consider a volume-weighted index as a &quot;market price&quot; (in practice we may be content with simple arithmetic averages).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But the weighted average is the proper theoretical measure because it answers the following question: &quot;if all transactions were condensed in one transaction with the sum of all volumes, what would be the price so as the total value would be the same?&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Denote $p_i$ the price of transaction $i$,$q_i$ the corresponding quantity, $Q_m$ total quantity of all transactions and $V = \sum_{i=1}^n p_iq_i$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We want a &quot;market price&quot; $P_m$, such that &#xA;$$P_mQ_m = \sum_{i=1}^n p_iq_i \implies P_m = \sum_{i=1}^n \frac {q_i}{Q_m}p_i$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which is a convex combination of individual prices, since $\sum_{i=1}^n \frac {q_i}{Q_m}=1$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this way we preserve the total value of transactions and we can consider the evolution of the market through time for example, using a single time series.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-10-07T17:09:29.010" LastActivityDate="2015-10-07T17:09:29.010" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8585" PostTypeId="2" ParentId="8583" CreationDate="2015-10-07T16:57:45.570" Score="0" Body="&lt;p&gt;In general equilibrium that combination of price and quantity determines the allocation of goods according to the shape of the utility functions and the production functions. But when you say that it could be the volume weighted average, I think you refer to stock prices, which have a different behaviour. On that you have different theories and assumptions, ranging from the assumption that prices incorporate all the past information, to the assumption that financial markets are perfect and thus prices are a result of all the future (discounted) events.&lt;/p&gt;&#xA;" OwnerUserId="5879" LastActivityDate="2015-10-07T16:57:45.570" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8586" PostTypeId="2" ParentId="8573" CreationDate="2015-10-07T19:01:04.620" Score="1" Body="&lt;p&gt;What changes is the macroeconomic identity of the model: from&#xA;$$F(K,L) = S + C$$&#xA;it becomes&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$F(K,L) + V = S+ C = (1+v)F(K,L) = S+C$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $V$ denotes the value of reparations per period, and the last expression reflects an assumption made in the question, that reparations are a constant proportion of domestic output.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;Using the Solow model&quot; means I guess, using the &lt;em&gt;standard&lt;/em&gt; Solow model, and so it implies that you don't change its basic assumptions. So there is no distributional issues related to this transfer payment from abroad, while also the savings rate remains fixed, and it is applied to the whole available income (irrespective of how it becomes available). I guess you can take it from here.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;PS:&lt;/strong&gt; It appears interesting to also consider a fixed &lt;em&gt;level&lt;/em&gt; of $V$, which would reflect a situation where as time passes and the domestic economy grows, reparations become less important in relative size (which is a &quot;reasonable&quot; scenario, something like &quot;we will help more when you are weak, and as you get economically stronger, helped also by the reparations, our contribution will diminish in relative importance&quot;)&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-10-07T19:25:01.297" LastActivityDate="2015-10-07T19:25:01.297" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8587" PostTypeId="2" ParentId="8577" CreationDate="2015-10-07T19:10:38.823" Score="4" Body="&lt;p&gt;This is a more &quot;practical&quot; answer, vs a deeper theoretical one, or even a specific one. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Take it as &quot;a broad answer to a broad question.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, since it is a &quot;Bayes vs frequentist&quot; issue, at least the last few suggestions must be taken tongue-in-cheek.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Step 1: Use simple models you understand to start. Lowering researcher error due to misapplication should always be a first-order priority.&lt;/li&gt;&#xA;&lt;li&gt;Step 2: Learn more about each approach as much as possible. Implement the same estimator from both perspectives if at all possible, for purposes of really wrestling with what is going on at a deep level. Again, start simple. replicate things you already know work and are well established. (Can you write a basic regression from scratch using both approaches? This is much deeper than it may appear.) Get some good introductory texts. Don't be afraid of &quot;lowly undergrad&quot; texts for introduction. The &quot;puppy book&quot; on Amazon is good here, as is &quot;Think Bayes&quot; from Green Tea (both for initial intro to Bayes).  &lt;/li&gt;&#xA;&lt;li&gt;Step 3: Hopefully the earlier efforts will start revealing that some problems are more naturally approached in one framework vs. the other. When you start getting a good feel for this, re-examine the problem you want to address. Which approach seems appropriate to you now? &lt;/li&gt;&#xA;&lt;li&gt;Step 4: realize that if you are using likelihood-based methods, Bayesian and frequentist are two sides of a similar coin. (Or to quote the ever-entertaining &lt;a href=&quot;http://www.stat.cmu.edu/~cshalizi/&quot; rel=&quot;nofollow&quot;&gt;Cosma&lt;/a&gt;, &quot;&lt;a href=&quot;http://bactra.org/reviews/simulation-based-econometric-methods/&quot; rel=&quot;nofollow&quot;&gt;Bayesian estimation is a likelihood-based method in which the impact of facts and experience is blunted and smoothed by prejudice.&lt;/a&gt;,&quot; haha.)&lt;/li&gt;&#xA;&lt;li&gt;Step 5: realize that there are even more varieties of estimation which don't neatly fit into previously-understood categories -- non-parametric, semi-parametric, semi-non-parametric -- and begin to despair that you will ever know or understand all there is to know about estimation, and which is the absolute best method for any one particular question. &lt;/li&gt;&#xA;&lt;li&gt;Step 6: Enlightenment. Use the tool that you believe is best for the task, in your own honest opinion -- even if it is &quot;best&quot; based only on Step 1, which is simply &quot;I use this because I understand it the best and I know I am not accidentally doing something extremely wrong.&quot;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;So there you have it, &quot;a broad answer to a broad question.&quot; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;All that said, I really do like both Bayesian and frequentist approaches. A lot of things goes into deciding which to use. Some problems lend themselves well to one vs the other. Some audiences lend themselves to understanding one vs the other (recall that often effective communication of a concept can be very important). It's up to you to learn enough about both the methods and the problems you are trying to address to choose well. &lt;/p&gt;&#xA;" OwnerUserId="17" LastActivityDate="2015-10-07T19:10:38.823" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="8588" PostTypeId="1" CreationDate="2015-10-07T19:22:11.150" Score="1" ViewCount="2472" Body="&lt;p&gt;Given the total cost function $C(Q)=Q^3-5Q^2+12Q+75$, write out a variable cost function. Find the derivative of the variable cost function and interpret the economic meaning of that derivative. &#xA;Note: the derived variable cost function is 3Q^2-10Q+12&lt;/p&gt;&#xA;" OwnerUserId="5882" LastEditorUserId="5882" LastEditDate="2015-10-08T00:27:53.910" LastActivityDate="2015-10-08T15:50:44.750" Title="What is the economic meaning of a differentiated variable cost function" Tags="&lt;cost&gt;" AnswerCount="1" CommentCount="1" ClosedDate="2015-10-07T23:10:06.717" ContentLicense="CC BY-SA 3.0" />
  <row Id="8589" PostTypeId="2" ParentId="8588" CreationDate="2015-10-07T19:42:31.700" Score="1" Body="&lt;p&gt;&lt;strong&gt;HINT&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is the difference between variable and fixed cost? Try separating your total cost into fixed and variable cost. To do this, think about what costs the firm faces even when they have no output (let quantity produced be zero.) For a bit of intuition, think of these costs perhaps as rents paid by a firm during the initial setup stage (time spent fitting a factory with production equipment). They have a certain amount of bills to pay even though they produce nothing. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;After doing this it should be a straight forward thing to differentiate and interpret. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;MEANING&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's take your example. We can see that we have a cost of 75 (let's assume American dollars) regardless of how much output we produce. So Q=0 still incurs a cost of $75. Then by definition, this is the &lt;em&gt;fixed cost&lt;/em&gt; portion of your total cost function. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then since any cost function is the sum of fixed and variable costs, we have that your variable cost function is $$C(Q)=Q^3-5Q^2+12Q$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;differentiating with respect to $Q$ yields: $$3Q^2-10Q+12$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is your marginal variable cost. Notice this is the same function achieved by simply differentiating the total cost function. This is because fixed costs are constants (and not functions of Q) and therefore disappear when C is differentiated with respect to Q.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then we can just refer to the equation above as &lt;strong&gt;marginal cost&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Marginal cost equations tell you how much your total cost rises when you decide to produce an additional unit of output. Notice here that making the production decision incurs a new sort of &quot;fixed&quot; cost. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So let's examine what happens when Q increases: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Q=1 \implies MC=5$$&#xA;$$Q=2 \implies MC=2$$&#xA;$$Q=3 \implies MC=9$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;and this is enough for us to tease out another important part of this function! Notice that marginal costs decrease as production increases over our initial range and then, at a certain point, marginal costs begin to increase as production continues to increase. This is a example of increasing marginal returns and decreasing marginal returns (respectively) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In general, you can picture a marginal cost curve as a differentiable nike symbol or a U where the right side of the U is drawn much higher than the left side(and where it is a bit slanted to the right This would tend to infinity as Q tends to infinity). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Alright - hope that cleared some things up. And to top it off, you can do a bit of reading about &lt;a href=&quot;https://en.wikipedia.org/wiki/Marginal_cost&quot; rel=&quot;nofollow&quot;&gt;marginal cost&lt;/a&gt;. &lt;/p&gt;&#xA;" OwnerUserId="1655" LastEditorUserId="1655" LastEditDate="2015-10-08T15:50:44.750" LastActivityDate="2015-10-08T15:50:44.750" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8590" PostTypeId="1" CreationDate="2015-10-07T20:20:49.760" Score="3" ViewCount="386" Body="&lt;p&gt;I know that when we sell some goods abroad, we credit Goods&amp;amp;Services part within Trade balance, which is a part of Current Account.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What part of the Financial Account is debited with the sum received for the exported goods?&lt;/p&gt;&#xA;" OwnerUserId="5884" LastActivityDate="2016-03-19T21:36:28.563" Title="Where are the payments for export in the balance of payment?" Tags="&lt;macroeconomics&gt;&lt;open-economy-macro&gt;&lt;balance-of-trade&gt;" AnswerCount="5" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8591" PostTypeId="1" CreationDate="2015-10-07T22:45:15.143" Score="1" ViewCount="31" Body="&lt;p&gt;I have seen in several places references to &quot;capturing value&quot;. For example:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://svpg.com/value-creation-vs-value-capture/&quot; rel=&quot;nofollow&quot;&gt;Value Creation vs. Value Capture&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://radar.oreilly.com/2009/01/work-on-stuff-that-matters-fir.html&quot; rel=&quot;nofollow&quot;&gt;Work on Stuff that Matters: First Principles&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I think that such considerations are particularly useful. For example digital rights management (DRM) does not create any value, it is there to ensure capturing some value. We may discuss whether that is good, bad, necessary or useless, but the concept of &quot;capturing value&quot; is very useful to describe this and much more.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question is: Has this concept been properly defined in some &quot;citable&quot; reference? (a book, a journal paper, a conference paper, or similar)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As much as I consider it a very interesting and useful concept, it looks like few people are aware of it and providing links as the previous ones may help to understand what it means but they are not particularly descriptive on this concept. To me, the concept is obvious and correct (or so I think) but other people have problems grasping it (or perhaps they refuse to consider its validity without proper definitions). Therefore I would be interested in more reputed, rigorous or explanatory (better if all three) sources.&lt;/p&gt;&#xA;" OwnerUserId="4435" LastEditorUserId="2776" LastEditDate="2017-08-27T09:02:14.170" LastActivityDate="2017-08-27T09:02:14.170" Title="References for &quot;Capturing value&quot;" Tags="&lt;reference-request&gt;&lt;utility&gt;&lt;markets&gt;&lt;value&gt;" AnswerCount="0" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8592" PostTypeId="1" CreationDate="2015-10-08T00:34:33.080" Score="0" ViewCount="1815" Body="&lt;p&gt;Provide a mathematical proof for the general result that, given a linear average curve, the corresponding marginal curve must have the same vertical intercept but will be twice as steep as the average curve &lt;/p&gt;&#xA;" OwnerUserId="5882" LastActivityDate="2015-10-08T00:44:49.610" Title="How to derive a marginal cost curve" Tags="&lt;cost&gt;" AnswerCount="1" CommentCount="1" ClosedDate="2015-10-08T21:43:09.937" ContentLicense="CC BY-SA 3.0" />
  <row Id="8593" PostTypeId="2" ParentId="8592" CreationDate="2015-10-08T00:44:49.610" Score="2" Body="&lt;p&gt;That comment said, I can provide an answer here.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Take an average cost function:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$f(x) = mx + b$$ where x is output, b is the intercept, and m is the gradient.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So total cost is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$C(x) = x(mx + b) = mx^2 + bx$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And that makes marginal cost the derivative of this function:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$C'(x) = 2mx + b$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Best of luck with your homework.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2015-10-08T00:44:49.610" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8594" PostTypeId="1" AcceptedAnswerId="8683" CreationDate="2015-10-08T01:00:30.367" Score="5" ViewCount="695" Body="&lt;p&gt;How do people calculate Tobin'q empirically? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does anyone use it to make investment decisions? In particular, the version I learnt has no company debt involved with only capital under consideration, will this affect empirical research? &lt;/p&gt;&#xA;" OwnerUserId="5850" LastEditorUserId="43" LastEditDate="2015-10-08T08:58:04.213" LastActivityDate="2015-10-12T17:47:18.113" Title="How to measure Tobin's q?" Tags="&lt;reference-request&gt;&lt;finance&gt;&lt;empirical-evidence&gt;" AnswerCount="1" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8595" PostTypeId="2" ParentId="6626" CreationDate="2015-10-08T04:46:27.337" Score="2" Body="&lt;p&gt;If you're really serious about researching this data, I'd suggest contacting the Real Estate Institution of New Zealand: &lt;a href=&quot;https://www.reinz.co.nz/reinz/public/reinz-statistics/reinz-statistics_home.cfm&quot; rel=&quot;nofollow&quot;&gt;https://www.reinz.co.nz/reinz/public/reinz-statistics/reinz-statistics_home.cfm&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As long as there are reasons to move to Auckland (more work etc.) and the supplied housing is not high enough to match the demand, the prices will continue to rise. This effect is visible in many major cities where the supply of housing is (for some reason like goverment rules or slow building) inelastic.&lt;/p&gt;&#xA;" OwnerUserId="5512" LastActivityDate="2015-10-08T04:46:27.337" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8596" PostTypeId="2" ParentId="8590" CreationDate="2015-10-08T05:12:58.460" Score="1" Body="&lt;p&gt;I'm not quite sure what you're asking here. Trade in goods and services is not included in the financial account which consists of (as per BPM6) direct investments, portfolio investments, derivatives, other investments and reserve assets.&lt;/p&gt;&#xA;" OwnerUserId="5512" LastActivityDate="2015-10-08T05:12:58.460" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8597" PostTypeId="1" AcceptedAnswerId="8599" CreationDate="2015-10-08T08:07:15.490" Score="2" ViewCount="245" Body="&lt;p&gt;Suppose several traders are given some initial endowment of goods. Then, a free market opens and they trade until the market is at a competitive equilibrium. Each trader now has a final utility which is at least as high as his initial utility.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;MY QUESTION: Is the vector of final utilities unique? I.e, is this possible that, with the same initial endowments and the same utility functions, there will be two different equilibria in which the final utilities are different?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EXAMPLE: Suppose there are two goods and two traders, Alice and Bob, with the same utility function: $u(x,y)=x+y$. The initial endowment is $(10,0)$ for Alice and $(0,10)$ for Bob. In competitive equilibrium, the price vector has $p_x=p_y$. There are many different equilibrium allocations, for example: $(10,0),(0,10)$, $(9,1),(1,9)$ and $(5,5),(5,5)$ are all equilibrium allocations. But, in all these allocations, the utilities of both traders are the same: $(10,10)$. I would like to know in what cases this uniqueness happens.&lt;/p&gt;&#xA;" OwnerUserId="385" LastActivityDate="2015-10-08T23:39:29.853" Title="Uniqueness of utilities in competitive equilibrium" Tags="&lt;general-equilibrium&gt;&lt;competitive-equilibrium&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8598" PostTypeId="1" CreationDate="2015-10-08T08:52:40.053" Score="4" ViewCount="888" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;I was asked what the relationship of $\bar m$ and $\bar n$ are with the taylor rule. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Using $\bar m$'s definition which is the sensitivity of real interest rate to inflation in a market's monetary policy rule. I said $\bar n$ is the sensitivity of the interest rate to changes in short run output in a monetary policy rule.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To answer the question, i said the parameters  $\bar m$ and $\bar n$ indicate the sensitivity of the taylor rule towards changes inflation and short-run output.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The taylor rule being&#xA;$$R_t-\bar r  = \bar m (\pi_t -\bar \pi)+ \bar{n}\bar{Y}   \quad \bar m&amp;gt;0, \, \bar n&amp;gt;0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And the resulting new AD curve being&#xA; $$Y^t_t = \bar a - \bar{b} \bar m (\pi_t -\bar \pi)-\bar{b} \bar{n}\bar{Y}$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ Y^t_t = \frac{\bar a}{(1+\bar{b}\bar{n})} - \frac{\bar{b}\bar m}{(1+\bar{b}\bar{n})} (\pi_t -\bar \pi) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As in the addition $\bar{n}\bar{Y}$ &lt;/p&gt;&#xA;" OwnerUserId="4941" LastEditorUserId="4941" LastEditDate="2015-10-08T09:37:18.167" LastActivityDate="2017-05-27T10:08:46.407" Title="What does n stand for in the taylor rule?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8599" PostTypeId="2" ParentId="8597" CreationDate="2015-10-08T09:07:15.907" Score="1" Body="&lt;p&gt;A sufficient but perhaps not necessary condition would be if the demand functions of all consumers were decreasing in price. (Price ratio to be exact.) This would cause the aggregate demand to be decreasing in price, and since the aggregate supply is constant there could only be one equilibrium price.  If there is only one equilibrim price then for each consumer there is only one utility maximization problem and it has a maximum.&#xA;&lt;br&gt; Denote by $\omega_m$ the initial endowment of good $m$. Let $e$ denote the income derived from the initial endowments given the prices, so $e = p_x\cdot \omega_x + p_y\cdot \omega_y$ Then the condition would be&#xA;$$&#xA;\frac{d \ x(p_x,p_y,e)}{d \ p_x}&#xA;=&#xA;\frac{\partial x(p_x,p_y,e)}{\partial p_x} + \frac{\partial x(p_x,p_y,e)}{\partial e} \cdot \frac{d \ (p_x\cdot \omega_x + p_y\cdot \omega_y)}{d \ p_x} &#xA;&amp;lt; 0&#xA;$$&#xA;This looks like the &lt;a href=&quot;https://en.wikipedia.org/wiki/Slutsky_equation&quot; rel=&quot;nofollow&quot;&gt;Slutsky equation&lt;/a&gt; so there are probably some theorems on what this implies, but I cannot readily say what this says about the underlying utility function. Most common examples (perfect substitutes, Cobb-Douglas, quasilinear) fulfill this condition.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT: I first said the perfect complement utility functions always fulfill this condition but this is not true. &lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2015-10-08T13:25:03.707" LastActivityDate="2015-10-08T13:25:03.707" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="8600" PostTypeId="1" CreationDate="2015-10-08T09:45:49.223" Score="1" ViewCount="36" Body="&lt;p&gt;Does anyone have feedbacks or analysis on Amazon's 1-Click Check Out ?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any numbers about the conversion rates (before/after using the 1-click checkout button) , etc. ?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.uie.com/articles/three_hund_million_button/&quot; rel=&quot;nofollow&quot;&gt;This page&lt;/a&gt; is about a $300 Million per year magic button, but doesn't mention which site is using it. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Zaky &lt;/p&gt;&#xA;" OwnerUserId="5889" LastEditorUserId="5889" LastEditDate="2015-10-08T09:55:32.857" LastActivityDate="2015-10-08T09:55:32.857" Title="Amazon's 1-Click Check Out : any feedback?" Tags="&lt;business-cycles&gt;" AnswerCount="0" CommentCount="4" ClosedDate="2015-10-08T14:43:48.453" ContentLicense="CC BY-SA 3.0" />
  <row Id="8601" PostTypeId="1" CreationDate="2015-10-08T11:51:48.530" Score="5" ViewCount="121" Body="&lt;p&gt;In inner cities in the US there is more poverty (as a proportion of the population) than in mid-sized cities or small towns.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Do we have a definitive answer as to why this is?&lt;/p&gt;&#xA;" OwnerUserId="5661" LastEditorUserId="25624" LastEditDate="2020-12-21T12:41:25.640" LastActivityDate="2020-12-21T12:41:25.640" Title="Why is poverty worse in larger cities?" Tags="&lt;macroeconomics&gt;&lt;poverty&gt;&lt;urban-economics&gt;" AnswerCount="0" CommentCount="3" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="8602" PostTypeId="2" ParentId="6777" CreationDate="2015-10-08T13:09:03.147" Score="4" Body="&lt;p&gt;Before applying irrationality to explain the phenomenon, consider the following simplistic model of a rational owner: assume there is the high rent $R^h$ and the low rent $R^{\ell}$. The owner faces the prospect of earning either&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$V(h) = \sum_{t=1}^{T_1} \beta^{t-1}R^h + \sum_{t=T_1+1}^{T_2} \beta^{t-1}\cdot 0+ \sum_{t=T_2+1}^{T_3} \beta^{t-1}R^h +...$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;or&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$V(\ell) = \sum_{t=1}^{\infty} \beta^{t-1}R^{\ell} = \frac{1}{1-\beta}R^{\ell}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Favor&lt;/strong&gt; the &quot;low-rent&quot; scenario by ignoring all terms in $V(h)$ except the first sum (this reflects that the property may go unleased for &quot;many years&quot;, so remote-future income gets fully discounted). Based on these considerations alone, if we observe the &quot;high rent&quot; scenario, it must be the case that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$V(h) &amp;gt; V(\ell) \implies \frac{1-\beta^{T_1}}{1-\beta}R^{h} &amp;gt; \frac{1}{1-\beta}R^{\ell} \implies R^{h} &amp;gt; \frac{1}{1-\beta^{T_1}} R^{\ell}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which can be re-arranged to give&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\beta &amp;lt; \left(\frac {R^h-R^{\ell}}{R^h}\right)^{1/T_1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The right hand side can be estimated by real world data: obtain average magnitudes for the high and the low rent, as well as the average time a business under the higher rent pays it prior to fold (the $T_1$ parameter). These will lead to an estimation of the upper bound for $\beta$ in order for the above inequality to hold, and justify the &quot;high rent&quot; scenario observed.&lt;br&gt;&#xA;&lt;em&gt;Then&lt;/em&gt; one can examine this upper bound and contemplate whether it appears &quot;reasonable&quot;.&lt;br&gt;&#xA;As a numerical example, assume $R^h = 2R^{\ell}$ and $T_1=2$ (say years). Then it must be the case that &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\beta &amp;lt; (1/2)^{1/2} \approx 0.71$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;Too low&quot; (i.e. too high discounting) one would tend to say. But don't look at benchmark values of $\beta$ that are used in macro-models. Try to think what the discount factor attempts to capture here.  And in any case, a person with very high discounting, is not &quot;irrational&quot; -this is how he experiences the world.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And then, there are other considerations: accepting low rents tends to drive the asset values down. Also, It may be the case that this is incremental income for land owners, above some comfortable level from other sources, meaning declining utility of wealth may kick in. Further, constant occupation physically wears the asset down faster. Etc.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My point is, &quot;people are just jerks&quot; (i.e. arguing for irrationality) can explain &lt;em&gt;everything&lt;/em&gt; - and so it really explains nothing.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2016-03-11T17:19:04.183" LastActivityDate="2016-03-11T17:19:04.183" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8604" PostTypeId="1" CreationDate="2015-10-08T14:48:04.017" Score="1" ViewCount="198" Body="&lt;p&gt;I'm reading this great intermediate level macroeconomic book by &lt;a href=&quot;http://www.bookdepository.com/Macroeconomics-Institutions-Instability-Financial-System-Wendy-Carlin/9780199655793&quot; rel=&quot;nofollow&quot;&gt;Carlin and Soskice&lt;/a&gt;, and on page 31, when discussing the empirical studies testing the Tobin's q theory to explain the behaviour of investment (excess sensitivity of investment over GDP), the following sentence appears « A testable prediction of the q theory is that current cash flow should have no impact on investment. The reason is that forward-looking firms should take into account any credit constraints that they face:  these should already be incorporated into the stock market valuation, Q.» &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that 'Q' is the average q, and 'q' is the marginal q. (sorry for the redundancy)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is the following: This incorporation of information is only valid for semi-strong efficient markets hypothesis (EMH), i.e., only for publicly foreseeable changes, which are the one incorporated in the market valuation, right? It seems that the average Q theory fundamentally depends on that semi-strong EMH. If the EMH fails, so will the average Q theory?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="118" LastActivityDate="2015-10-08T14:48:04.017" Title="Testing Tobin's q theory predictions" Tags="&lt;macroeconomics&gt;&lt;financial-economics&gt;&lt;investment&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8605" PostTypeId="1" CreationDate="2015-10-08T16:28:18.993" Score="2" ViewCount="58" Body="&lt;p&gt;At the highest level, would you say that regardless of market/economic environment (free/regulated), a company's value &lt;strong&gt;should&lt;/strong&gt; reflect its ability to efficiently and effectively bring products and services to market that improve the lives of consumers?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Perhaps this is more of a philosophy/ethics question; cant think of any valid argument against this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For some context, my train of thought is:&#xA;If the values of all companies do reflect their ability to improve the lives of consumers, then an equity index should therefore be an indication of how good the private sector is at improving life. The value of an equity index allows us to consider the health of a particular market. The financial markets are complex systems in which both physical and mental health are two large constituents. By physical health, I mean the bodies of employees, the buildings in which they work and the technology they use for example. By mental health, I refer to the emotional and psychological well-being of individuals, teams, whole companies and markets.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thoughts please.&lt;/p&gt;&#xA;" OwnerUserId="5891" LastActivityDate="2015-10-08T19:04:45.197" Title="What should the value of a private sector company tell us?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="4" ClosedDate="2015-10-13T22:36:34.900" ContentLicense="CC BY-SA 3.0" />
  <row Id="8606" PostTypeId="1" CreationDate="2015-10-08T12:53:51.170" Score="1" ViewCount="82" Body="&lt;p&gt;I took statistics class years ago in my college and I don't remember much of it now. I am into public policy research now and I am bit confused about about what conclusion to make from available evidence.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;code&gt;Poverty is the 'root cause' of child labour&lt;/code&gt; is what is claimed by International Labour organization (ILO) and thus by lot of other countries. Evidence often cited for this is: &lt;em&gt;most&lt;/em&gt; of the child labourers are from poor backgrounds in most of the countries where child labour is prevalent. So there is a correlation and for causality, if we think about it, no money =&gt; to earn money =&gt; all healthy individuals must work including children =&gt; child labourers. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now I've read few research studies which claim that &lt;code&gt;Poverty is not the root cause of child labour&lt;/code&gt; and the evidence they cite is, &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;There are poor countries where there is hardly any child labourers. &lt;/li&gt;&#xA;&lt;li&gt;There are children studying in schools who are lot more impoverished than those who are working.&lt;/li&gt;&#xA;&lt;li&gt;There doesn't exist a poverty line below which a parent is compelled to send their child to school.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;So people on this end say, if poverty is the root cause then could we explain this. But this argument could be reversed too. Either way, I'm confused.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How should I go about interpreting and understanding this? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What data is required, and what analysis has to be carried out to settle the question, whether poverty is the cause or not? In other words, I want to set my hypothesis to be &quot;Poverty is not the root cause of child labour&quot;, what should I do to either prove or disprove it?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I want to see this to the end. So feel free suggest some readings if you need to.&lt;/p&gt;&#xA;" OwnerUserId="5586" OwnerDisplayName="claws" LastEditorUserId="4251" LastEditDate="2015-10-08T21:49:22.403" LastActivityDate="2015-10-10T01:59:38.657" Title="Proving or disproving hypothesis?" Tags="&lt;labor-economics&gt;&lt;empirical-evidence&gt;&lt;poverty&gt;&lt;welfare-economics&gt;" AnswerCount="2" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="8607" PostTypeId="2" ParentId="8606" CreationDate="2015-10-08T13:17:52.303" Score="1" Body="&lt;p&gt;This is more of a logic question than it is a statistics question. I would say that the first point to address would be to define &quot;root cause.&quot; Does that mean it is a sufficient condition? A necessary condition? Line of evidence #1 (there exist poor countries with few child labourers) precludes the possibility that child labour is a necessary condition of poverty as clearly poverty can exist without it. #2 reinforces that conclusion (again, poverty existing without child labour, just at a different scale). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regarding point of evidence #3, I don't see how that is relevant: whether or not some policy exists compelling parents to act in a certain way doesn't affect the relationship between child labour and poverty. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As you allude to above, correlation is not causality. In this case, it seems from the correlation you can make equally strong arguments going both directions: child labour causing poverty; poverty causing child labour. You can make a logical case for it built on case studies, but making a statistical case for causality would require digging much further into the data. &lt;/p&gt;&#xA;" OwnerUserId="5901" OwnerDisplayName="Tim H" LastActivityDate="2015-10-08T13:17:52.303" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="8608" PostTypeId="2" ParentId="8605" CreationDate="2015-10-08T19:04:45.197" Score="0" Body="&lt;p&gt;A company's value, in financial terms is given by its equity, or its difference between its assets and liabilities. The well known expression $E=A-L$ reflects this. When you buy a share, you buy a part of the equity. The point is that since the world we live in is dynamic, decisions today affect outcomes tomorrow. As a result, when you buy part of this equity, you are buying part of the claims on the firms' &lt;em&gt;expected future profits&lt;/em&gt;. The market rewards those goods that consumers demand more with a higher price and one can definitely make the argument that a firm's future profits are conditional on it producing goods/services that are valued by the public. Whether or not the goods themselves improve the lives of consumers is a separate question altogether. Do we always buy goods that improve our lives? What does that even mean? &lt;/p&gt;&#xA;" OwnerUserId="5233" LastActivityDate="2015-10-08T19:04:45.197" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="8609" PostTypeId="1" AcceptedAnswerId="8610" CreationDate="2015-10-08T20:00:41.410" Score="8" ViewCount="7555" Body="&lt;p&gt;Let's assume we have an increasing production function $f:\mathbb{R^+} \to \mathbb{R^+}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, assume this production function is concave and that the price of input z is fixed (this is a single-input and single output case). I want to show this implies the corresponding cost function $C^f(w,q)$ is convex. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My thoughts: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;let $z,z' \in \mathbb{R^+}$ where W.L.O.G $z'&amp;gt;z$ and let $f(z)=q$ and $f(z')=q$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since $f$ is concave, we take $\alpha \in [0,1]$  $s.t$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$f(\alpha z +(1- \alpha)z') \geq \alpha f(z) +(1- \alpha)f(z')$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;let $\alpha z +(1- \alpha)z'=z''\in \mathbb{R^+}$ where by necessity $z\leq z'' \leq z'$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since cost of $z=w$ is fixed at some $w \in \mathbb{R^+}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;we can rewrite our cost function as $C^f(q)$ which is convex if for $\alpha \in [0,1]$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$C(\alpha q +(1- \alpha)q') \leq \alpha c(q) +(1- \alpha)c(q')$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, since $f$ is concave, it cannot be the case that $f$ experiences increasing returns to scale. Then $f$ has constant returns to scale or diminishing returns to scale. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since $z''$ is clearly feasible then we have that:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$C(w,q'') \leq w*z''$$ &#xA;$$=\alpha w*z + (1- \alpha) w*z'$$&#xA;$$= \alpha c(w,q) + (1- \alpha) c(w,q')$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does this look correct? &lt;/p&gt;&#xA;" OwnerUserId="1655" LastEditorUserId="1655" LastEditDate="2015-10-08T20:07:26.983" LastActivityDate="2017-10-30T07:13:06.700" Title="Concave production function implies convex cost function" Tags="&lt;production-function&gt;&lt;proof-reference&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="8610" PostTypeId="2" ParentId="8609" CreationDate="2015-10-08T21:59:46.037" Score="7" Body="&lt;p&gt;Given the fixed input price $w$, the cost function can be written as&#xA;$$&#xA;C(q)=f^{-1}(q)\times w&#xA;$$&#xA;where $f^{-1}$ is the inverse of the production function $f$. From the discussion &lt;a href=&quot;https://proofwiki.org/wiki/Inverse_of_Strictly_Increasing_Convex_Real_Function_is_Concave&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;, one can conclude that the inverse of a concave strictly increasing function is convex. Thus, $C(q)$ is convex as well. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Going back to your approach, you might like to have this clearly stated. Let $q''=\alpha q + (1-\alpha)q'$, $f(z)=q$, $f(z')=q'$, and $f(z'')=q''$ Then &#xA;$$&#xA;\begin{align}&#xA;f(z'')&amp;amp;=&amp;amp;q''\\&#xA;&amp;amp;=&amp;amp;(\alpha q + (1-\alpha)q')\\&#xA;&amp;amp;=&amp;amp;\alpha f(z)+(1-\alpha) f(z')\\&#xA;&amp;amp;\leq&amp;amp;f(\alpha z +(1-\alpha z'))&#xA;\end{align}&#xA;$$&#xA;Then $f(z'')\leq f(\alpha z +(1-\alpha z'))$ implying that $\alpha z +(1-\alpha z')\geq z''$ since $f$ is (strictly) increasing. Hence, &#xA;$$&#xA;z''w=C(q'')\leq \alpha C(q)+ (1-\alpha) C(q')&#xA;$$&lt;/p&gt;&#xA;" OwnerUserId="5739" LastEditorUserId="-1" LastEditDate="2017-10-30T07:13:06.700" LastActivityDate="2017-10-30T07:13:06.700" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="8611" PostTypeId="1" AcceptedAnswerId="8630" CreationDate="2015-10-08T23:18:23.877" Score="2" ViewCount="43" Body="&lt;p&gt;Is there a term for an externality in which prices for a good go up due to consumers being subsidized to purchase or consume that good?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So for example, let us say that the government covers part of your medical costs, and in response, private clinics raise their prices because they estimate that they can charge what they were before and then-some, proportional to the added subsidy provided by the government.&lt;/p&gt;&#xA;" OwnerUserId="5814" LastActivityDate="2015-10-09T22:22:42.117" Title="Is there a term for an externality in which prices for a good go up due to consumers being subsidized to purchase or consume that good?" Tags="&lt;price-theory&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="8612" PostTypeId="2" ParentId="8597" CreationDate="2015-10-08T23:39:29.853" Score="2" Body="&lt;p&gt;If you look at &lt;a href=&quot;https://web.stanford.edu/~jdlevin/Econ%20202/General%20Equilibrium.pdf&quot; rel=&quot;nofollow&quot;&gt;this manuscript&lt;/a&gt; by Jonathan Levin (2006), pages 25-26 provide an example where there is multiple equilibria, and calculating payoffs in this case (if I am not making any calculation mistakes) gives different levels of utilities in these different equilibria.&lt;/p&gt;&#xA;" OwnerUserId="5739" LastActivityDate="2015-10-08T23:39:29.853" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8613" PostTypeId="2" ParentId="8609" CreationDate="2015-10-09T00:35:47.917" Score="2" Body="&lt;p&gt;The economic intuition here is clear: if the single-input production function is concave, the marginal product is diminishing. So for equal increases of the single input (and given fixed unit cost), say unit per unit, production increases less and less, while cost increases equally. Flip it, and then for sequential unit increases in output, cost increases more and more per incremental output unit. This is the primitive description of a strictly positive second derivative, which is the condition for a strictly convex function.  &lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-10-09T00:35:47.917" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8616" PostTypeId="1" CreationDate="2015-10-09T03:03:20.400" Score="2" ViewCount="89" Body="&lt;p&gt;Sorry for asking such a silly question, but something seems odd about my answer to this question: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Suppose that two consumers, Jeff and Walt, are the only consumers in the market for carrots.  Jeff’s demand curve is given by $Q_{Jeff}=10-2P$ and Walt’s demand curve is given by $Q_{Walt}=15-3P$.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;a) Find the market demand curve for carrots.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;b) Suppose the market supply curve is given by $Q_S = 2P$.  Find the market equilibrium price and quantity.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So, this is how I answered the question:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;(a)&#xA;  Let $Q_{Jeff} = 10 – 2P$ and $Q_{Walt} = 15 – 3P$. Then, $Q_{Jeff} + Q_{Walt} = Q_D = (10 – 2P) + (15 – 3P) = 10 + 15 – 2P – 3P = 25 – 5P$. Therefore, the demand curve for carrots is $Q_D(P) = 25 – 5P$.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;(b)&#xA;    Let $Q_S = 2P$ and $Q_D = 25 – 5P$. At the market equilibrium price:&#xA;    $$2P = 25 – 5P&#xA;\implies	2P + 5P = 25&#xA;\implies	7P = 25&#xA;\implies	P = 25/7.$$&#xA;  Thus, $P_E = 25/7$. Hence, $Q_E = 2P = 2(25/7) = 50/7$.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I guess I just wasn't expecting fractions in my answer. As far as I can tell, I did everything right. Did I screw up somewhere?&lt;/p&gt;&#xA;" OwnerUserId="5895" LastEditorUserId="4251" LastEditDate="2015-10-09T12:27:35.300" LastActivityDate="2015-10-09T12:27:35.300" Title="Did I do something wrong in calculating the market equilibrium?" Tags="&lt;supply-and-demand&gt;&lt;markets&gt;" AnswerCount="0" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="8617" PostTypeId="1" CreationDate="2015-10-09T03:22:15.110" Score="2" ViewCount="18" Body="&lt;p&gt;A large part of why the CAD has been weakening (against the USD) is because the value is crude oil has been falling, and Canada is a big exporter of oil.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But this oil doesn't belong to Canada. It belongs to the private companies that extracted the oil from the ground, such as Suncor Energy, EnCana Corp, and Canadian Oil Sands.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So if the value of crude oil falls, then these oil companies become less valuable because their inventory of oil decreases in value. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the oil company's oil-inventory decreases in value, then the company's equity decreases (as &quot;assets = equity - liabilities&quot;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the oil company exports this less-valuable oil, they'll receive less money for it, as they'll have to sell it for a low-than-usual price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So if the oil company's equity decreases, then the company's shares decrease in value, leading to a decrease in the company's market capitalization.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where does the drop in the value of the Canadian dollar come into play?&lt;/p&gt;&#xA;" OwnerUserId="5185" LastActivityDate="2015-10-09T03:22:15.110" Title="What is the chain of events that occur when oil price drops that makes the Canadian dollar lose value?" Tags="&lt;currency&gt;" AnswerCount="0" CommentCount="2" FavoriteCount="1" ClosedDate="2015-10-09T12:09:31.623" ContentLicense="CC BY-SA 3.0" />
  <row Id="8618" PostTypeId="1" CreationDate="2015-10-09T03:26:14.667" Score="0" ViewCount="136" Body="&lt;p&gt;Suppose the government increase its spending by $100 million. And suppose we are talking about intermediate level macroeconomic class. Let the marginal propensity to spend be 0.5. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now the total GDP should increase by 100/0.5=200 because the increased spending increases people's income and thus further increase the spending, so on and so forth. But wait, what if the marginal propensity to spend is 0! Then we have an infinite increase in GDP! OR if this sounds just wrong, let us consider where the unspent money get saved in banks. And banks will lend the money out which induce firm to invest more. So the investment will increase people's income, and hence the same effect as before. So in the end, we see that the increase in government spending will increase income by the same amount, and then increase spending again by the same amount (the saving also get invested, so it increases the GDP), and etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is clearly not the case in the world we live in. What is the catch?&lt;/p&gt;&#xA;" OwnerUserId="4551" LastActivityDate="2015-11-09T15:01:32.070" Title="Logic Fallacy in a single government purchase creates infinite GDP?" Tags="&lt;macroeconomics&gt;" AnswerCount="3" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8619" PostTypeId="1" AcceptedAnswerId="8623" CreationDate="2015-10-09T04:11:35.187" Score="4" ViewCount="495" Body="&lt;p&gt;If two utility functions represent homothetic preferences, will their sum also be homothetic?&lt;/p&gt;&#xA;" OwnerUserId="5863" LastEditorUserId="1601" LastEditDate="2015-10-09T10:03:53.650" LastActivityDate="2015-10-09T10:03:53.650" Title="Sum of Homothetic Functions" Tags="&lt;utility&gt;&lt;preferences&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8620" PostTypeId="2" ParentId="8618" CreationDate="2015-10-09T04:21:54.817" Score="0" Body="&lt;p&gt;There's a steady state level of capital and prices of capital, and similarly a steady state for the labor supply. Banks at some point don't lend more out, or whatever lending they do, firms use to invest in capital to replace depreciation. I'd probably also hazard a guess that some investment is just repaying loans, so money velocity can't just grow forever. Those are the first things that come to my mind, but I'm sure there's a more direct answer to this.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2015-10-09T04:21:54.817" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8621" PostTypeId="1" CreationDate="2015-10-09T04:33:25.463" Score="3" ViewCount="304" Body="&lt;p&gt;The fisher equation is &lt;code&gt;nominal interest rate = real interest rate + inflation rate&lt;/code&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If nominal interest rate is kept to zero, and real interest rate remains constant positive in the long term, then the inflation rate will be negative, representing deflation!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When the central bank drops nominal interest rate at 0%, the negative delta in the nominal interest rate increases money supply and increases the price level - for a period of time. The boost in demand is because demand is brought forward due to the fall in interest rates. Producers increases production to match this surge in demand, and in doing so, increasing supply of goods come into the market. If there are no more negative deltas in interest rate coming, as is the case under a zero interest rate policy where the nominal interest rate is zero bound, the increased supply is going to cause a decrease in price level due to decreased demand that was consumed to produce the earlier demand surge from the negative interest rate delta, causing deflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm sure there is a flaw to the logic above, and to the fisher equation, otherwise it would mean a ZIRP, held for a long time, would produce the deflation it was implemented to prevent! Can you point it out?&lt;/p&gt;&#xA;" OwnerUserId="5896" LastEditorUserId="69" LastEditDate="2015-10-09T12:48:36.647" LastActivityDate="2015-10-09T14:45:05.733" Title="Can holding interest rates at zero (ZIRP) for a very long time cause the deflation it is trying to prevent?" Tags="&lt;monetary-policy&gt;&lt;inflation&gt;&lt;interest-rate&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8622" PostTypeId="2" ParentId="8619" CreationDate="2015-10-09T04:34:05.063" Score="1" Body="&lt;p&gt;A homothetic preference means that for some utility function representing the preferences,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$u(\alpha x, \ \alpha y) = \alpha u(x, \ y)$$ for any bundle $(x, \ y)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So now consider the sum of two different homothetic utility functions, $w$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$u(x, \ y), v(x, \ y)$$&#xA;$$w(x, \ y) = u(x, \ y) + v(x, \ y)$$&#xA;$$\alpha w(x, \ y) = \alpha u(x, \ y) + \alpha v(x, \ y)$$&#xA;$$= u(\alpha x, \ \alpha y) + v(\alpha x, \ \alpha y)$$&#xA;$$= w(\alpha x, \ \alpha y)$$&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2015-10-09T04:34:05.063" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="8623" PostTypeId="2" ParentId="8619" CreationDate="2015-10-09T08:08:00.447" Score="9" Body="&lt;p&gt;Defn: A function $h:\mathbb{R}^2\rightarrow \mathbb{R}$ is homogenous of degree $k$ if for every nonzero $\alpha$, $h(\alpha x, \alpha y)=\alpha^k h(x,y)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Defn: A function is homothetic if it is a monotonic transformation of a homogenous function.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lemma: If $f$ is homothetic, i.e. $f=g\circ u$ for some strictly increasing $g$ and homogenous $u$ then &#xA;$$&#xA;\frac{\frac{\partial f}{\partial x}}{\frac{\partial f}{\partial y}} = \frac{g'(u(x,y))\frac{\partial u}{\partial x}}{g'(u(x,y))\frac{\partial u}{\partial y}}=\frac{\frac{\partial u}{\partial x}}{\frac{\partial u}{\partial y}}&#xA;$$&#xA;is homogenous of degree zero. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let&lt;/p&gt;&#xA;&#xA;&lt;p&gt;i) $u_1(x,y)=x+y$, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;ii) $u_2(x,y)=\log(2x+y)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, $u_1$ and $u_2$ are homothetic functions since they are monotonic transformations of homogenous functions (of degree 1). Let&lt;/p&gt;&#xA;&#xA;&lt;p&gt;iii) $u_3(x,y)=x+y+log(2x+y)$. Then&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;MRS_{u_3}=\frac{\frac{\partial u_3}{\partial x}}{\frac{\partial u_3}{\partial y}}=\frac{1+\frac{2}{2x+y}}{1+\frac{1}{2x+y}}=\frac{2x+y+2}{2x+y+1}&#xA;$$&#xA;which is not homogenous of degree 0. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence, sum of homothetic functions is not necessarily homothetic. &lt;/p&gt;&#xA;" OwnerUserId="5739" LastEditorUserId="5739" LastEditDate="2015-10-09T08:13:46.033" LastActivityDate="2015-10-09T08:13:46.033" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8624" PostTypeId="2" ParentId="8621" CreationDate="2015-10-09T12:27:05.643" Score="1" Body="&lt;p&gt;While my answer would depend on how, why, and what the central bank said about why they pushed nominal interest rates to zero, I suspect in most situations the answer is no.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider the simplest case of quantitative easing. Continuously injects cash into the economy and uses it to purchase public debt and if that is exhausted private debts. With this massive increase in the money supply, and the expectation that the money supply would continue to increase in the future, it would be unlikely that prices would be &lt;strong&gt;falling&lt;/strong&gt; (deflation) in such a situation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why? Recall Milton Friedman's quip that &quot;Inflation is always and everywhere a monetary phenomenon.&quot; While it may not be an iron law, there does seem to be good evidence that when the money supply increases prices are likely to go up after. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Is inflation always a monetary phenomenon? Many economists believe&#xA;  that the link between money growth and inflation in the U.S. has&#xA;  weakened over the last two decades due in part to the Federal&#xA;  Reserve's policy experiment in 1979–1982 and innovations in the&#xA;  financial sector of the economy. &lt;strong&gt;I find that the long-run relationship&#xA;  between money growth and inflation is strong in a statistical sense&#xA;  and important economically.&lt;/strong&gt; The key result is that the trend or growth&#xA;  component in CPI inflation is entirely due to the trend component of&#xA;  monetary base growth.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;THE LONG-RUN LINK BETWEEN MONEY GROWTH AND INFLATION (&lt;a href=&quot;http://onlinelibrary.wiley.com/doi/10.1111/j.1465-7295.1998.tb01709.x/abstract&quot; rel=&quot;nofollow&quot;&gt;CROWDER (2007)&lt;/a&gt;) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since most zero interest rate policies are likely to hold rates down by increasing the money supply, it is unlikely they will be deflationary. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My major caveat is that a zero interest policy may be accompanied by overt or implicit indication that the central bank has a inflation target that is near zero. If the central bank tightens rates whenever they go above 0 percent they may have zero or even negative average nominal rates and deflation. But in that situation it it is the expectations of low future inflation and aggressive inflation fighting that hold down prices and the low inflation holds down the interest rates. &lt;a href=&quot;http://www.telegraph.co.uk/finance/comment/11399762/The-ECB-has-learnt-nothing-from-Japans-lost-decade.html&quot; rel=&quot;nofollow&quot;&gt;Scott Sumner and others have argued that this was essentially the Japanese central bank's policy for many years&lt;/a&gt;. &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-10-09T14:45:05.733" LastActivityDate="2015-10-09T14:45:05.733" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="8626" PostTypeId="1" CreationDate="2015-10-09T18:48:48.130" Score="4" ViewCount="12504" Body="&lt;p&gt;Why does the marginal cost equation (as the derivative of total cost equation) make predictions of variable costs that are very different from costs calculated using the Total Cost equation?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Marginal cost is simply the change in cost divided by the change in quantity.&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;MC = ΔC / ΔQ&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;However, marginal cost also can be computed using the derivative of the Total Cost function.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose you have a short-term Total Cost equation for a production case in which no capital is used; labor is the only input.&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;TC = w * L&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;The production function is&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;Q = L^(1/3)   ... therefore&#xA;L = Q^3&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;And given that the w = 1, then&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;TC = Q^3&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Therefore the Marginal Cost equation, as the derivative of the Total Cost equation, would be...&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;MC = 3Q^2&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Of course, when Q = 0 then the TC equation and MC equation = 0.&#xA;But raise Q to 1, and TC is now 1. Therefore, MC = ΔC / ΔQ = 1.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But the MC equation gives MC = 3.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The difference grows as Q increases more. When Q = 2, the TC equation returns 8, a cost change of 7, while the MC equation returns 12.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand mathematically why these are different, but I don't understand why both are supposedly correct and useful in economics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Marginal analysis says to only produce a quantity if the marginal cost is less than or equal to the price at that quantity. But in this example, if the price were \$2, someone using the TC equation would produce the first unit for a profit of \$1 while someone using the MC equation would not produce the first unit because the MC equation predicts a \$1 loss. It seems like at least one of these methods lacks practical value. So, could someone explain the difference?&lt;/p&gt;&#xA;" OwnerUserId="5902" LastEditorUserId="1601" LastEditDate="2015-10-09T19:42:12.350" LastActivityDate="2015-10-09T20:46:10.853" Title="Why does marginal cost (derivative of total cost) differ from variable cost at each level?" Tags="&lt;microeconomics&gt;&lt;production-function&gt;&lt;cost&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="8627" PostTypeId="1" AcceptedAnswerId="8671" CreationDate="2015-10-09T18:51:03.607" Score="4" ViewCount="57" Body="&lt;p&gt;Are there any empirical studies on political elections that focus on the &quot;tightness&quot; of the race and how much attention the election receives from the public (or perhaps voter turnout).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By &quot;tightness&quot; I mean ex ante probabilities of winning the election are not too different among the candidates. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I suspect that tight races should be able to garner more public attention, but I would like some evidence to back this up. &lt;/p&gt;&#xA;" OwnerUserId="42" LastEditorUserId="42" LastEditDate="2015-10-09T18:59:14.220" LastActivityDate="2015-10-11T22:25:31.660" Title="&quot;Tightness&quot; of political elections and public attention" Tags="&lt;reference-request&gt;&lt;empirical-evidence&gt;&lt;political-economy&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8628" PostTypeId="1" AcceptedAnswerId="8684" CreationDate="2015-10-09T19:21:48.343" Score="0" ViewCount="1815" Body="&lt;p&gt;We know that a rise in real interest rates will cool down the economy in terms of investments. An increase in interest rate will provide higher incentive for saving rather than consumption. So people will start to save in banks and banks would be having a high stock of these savings. Now, effectively this stock should compel banks to lend more to the people needing it and hence it should drive down interest rates and raise investment levels. How is this fallacy arising ? Please explain&lt;/p&gt;&#xA;" OwnerUserId="5582" LastActivityDate="2015-10-12T17:55:05.057" Title="How interest rates affect investment" Tags="&lt;interest-rate&gt;&lt;investment&gt;" AnswerCount="2" CommentCount="0" ClosedDate="2015-10-13T13:58:47.973" ContentLicense="CC BY-SA 3.0" />
  <row Id="8629" PostTypeId="2" ParentId="8626" CreationDate="2015-10-09T20:46:10.853" Score="1" Body="&lt;p&gt;For $Q_1 = 1, Q_2 =2$, you calculate&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$TC(Q_2) - TC(Q_1)=7$$&#xA;which is the additional (&lt;em&gt;incremental&lt;/em&gt;) cost to produce the second unit of output, and then you compare this to&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {dTC}{dQ} |_{Q=Q_2} = 12$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which is &lt;em&gt;marginal&lt;/em&gt; cost when &lt;em&gt;you are already&lt;/em&gt; at production level $Q_2$. From this observation alone, the two are not comparable.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for practical value: assume marginal revenue is a straight line at $P=8$. What to do? The &quot;marginal cost equals marginal revenue&quot; leads to  $3Q^2 \leq 8 \implies Q^*= \sqrt {8/3} \approx 1.633$. What's the problem with that?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Well, the product we are examining may not be divisible so much as to make incremental cost adequately close to marginal cost. This not-sufficient divisibility  may force us to resort to integer-value calculus, and use the concept of incremental cost instead : produce the highest quantity for which incremental cost is lower or equal to incremental revenue - and we will obtain the correct answer $Q^* =2$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note: &quot;sufficient divisibility&quot; is not a strictly &quot;physical constraint&quot; but is judged also on economic considerations. If we are contemplating producing, say, cars to the range of hundreds of thousands, then, even if each car costs say 20 thousand euros, the pains and computational inconvenience of integer-valued calculus may not worth the small reduction in profits if (by using marginal calculus) we end up producing one unit more than optimal given indivisibility.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-10-09T20:46:10.853" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="8630" PostTypeId="2" ParentId="8611" CreationDate="2015-10-09T22:16:24.417" Score="2" Body="&lt;p&gt;That's a standard case of a Consumer Price subsidy. &lt;strong&gt;Its effect will be that of &lt;em&gt;market expansion&lt;/em&gt;&lt;/strong&gt;: higher quantity at higher equilibrium price, irrespective of whether it will be lump-sum (a fixed monetary amount) or a fixed proportion of the price.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;A) LUMP SUM SUBSIDY&lt;/strong&gt;&lt;br&gt;&#xA;Consider a monopolist. The monopoly faces a downward-sloping demand curve, say&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$q_d = a -b(p-S) = (a+bS) - bp$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $S$ is the lump-sum subsidy. Here the demand schedule shifts upwards by $bS$ maintaining the same slope. Profits are (assume linear costs for simplicity)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\pi = p\cdot q_d -c\cdot q_d = (p-c)\cdot [(a+bS) - bp]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and the first order condition  for a maximum gives&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$(a+bS) - bp -b(p-c) = 0 \implies p^* = \frac {a+ bS +bc}{2b} = p^*|_{S=0} + \frac {1}{2}S$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Profit-maximizing price is increasing in the lump-sum subsidy. Now substitute this into the demand equation&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$q_d^* = (a+bS) - b\frac {a+ bS +bc}{2b} = \frac {a-bc}{2} + \frac{b}{2}S = q_d^*|_{s=0} + \frac {b}{2}S$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Quantity demanded also increased. So the lump-sum subsidy leads to market expansion.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;B) PROPORTIONAL SUBSIDY&lt;/strong&gt;&lt;br&gt;&#xA;Here we have &#xA;$$q_d = a -b(1-s)p,\;\;\; 0\leq s&amp;lt;1$$&#xA;The demand schedule changes slope (becomes more &quot;flat&quot;), maintaining the same intercept. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\pi = p\cdot q_d -c\cdot q_d = (p-c)\cdot [a -b(1-s)p]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and the first order condition  for a maximum gives&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$a -b(1-s)p -b(1-s)(p-c) = 0 \implies p^* = \frac {a+ b(1-s)c}{2b(1-s)} = \frac {a}{2b(1-s)} + (c/2)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Equilibrium price is (non-linearly) increasing in the proportional subsidy. Substitute this into the demand schedule to get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$q_d^* = a -b(1-s)\frac {a+ b(1-s)c}{2b(1-s)} = a -\frac {a+ b(1-s)c}{2} = \frac {a-bc}{2} + \frac {bc}{2}s$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here too equilibrium quantity is increasing in the subsidy.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a sector like Health services, where &lt;em&gt;increased market access&lt;/em&gt; is of concern (in some countries) due to societal values (and/or cold calculations as regards the material benefits to society in having more healthy members), and where &quot;quantity demanded&quot; is not based so much on desires but rather on not-negotiable needs (illnesses, accidents, etc), the rationale for such subsidies is that the quantity increased will mainly come from new &quot;consumers&quot;, previously &lt;em&gt;excluded&lt;/em&gt; from the market due to the pre-subsidy equilibrium price in combination with their income level.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-10-09T22:22:42.117" LastActivityDate="2015-10-09T22:22:42.117" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8631" PostTypeId="2" ParentId="8628" CreationDate="2015-10-10T01:49:35.293" Score="3" Body="&lt;p&gt;The price and quantity of a scarce resource are determined by supply and demand.  The quantity which &lt;em&gt;would&lt;/em&gt; be offered at some imagined price increases with that price.  The quantity which &lt;em&gt;would&lt;/em&gt; be purchased at some given price decreases with price.  The actual quantity and price of every transaction will then naturally be the level where the quantity offered equals the quantity demanded.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the case of savings and investment, the price is the interest rate and the quantity is the amount lent and borrowed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So there is no fallacy.  The interest rate is the one agreed to when a lender (saver) and a borrower make a deal.  The interest rate isn't the cause, it is the result of the agreement.  The interest rate bid and offered at a given moment are two different numbers.  There is no fallacy because there is no transaction.  At the moment of transaction, there is a single number: the &quot;interest rate&quot; itself. So again, no fallacy. &lt;/p&gt;&#xA;" OwnerUserId="5906" LastActivityDate="2015-10-10T01:49:35.293" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="8632" PostTypeId="2" ParentId="8606" CreationDate="2015-10-10T01:59:38.657" Score="-1" Body="&lt;p&gt;Being poorer makes a person of any age work more (engage less in idleness or the pursuit of pleasure, and more in activities involving sacrifice in order to provide for necessities). This is just common sense.  It doesn't require statistics to understand this, does it?&lt;/p&gt;&#xA;" OwnerUserId="5906" LastActivityDate="2015-10-10T01:59:38.657" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8633" PostTypeId="1" AcceptedAnswerId="8634" CreationDate="2015-10-10T02:39:01.907" Score="5" ViewCount="2764" Body="&lt;p&gt;This problem I am working on comes out of--surprise--the Mas-Colell book for graduate micro (3.D.6). I think I have correctly used the FOC of the Lagrangian of the utility maximization problem to derive the consumer's Walrasian demand. My answer does not match the book. We are given that&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$u(x) = (x_1-b_1)^\alpha (x_2-b_2)^\beta(x_3-b_3)^\gamma$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;(and then from the first part we can say that &lt;span class=&quot;math-container&quot;&gt;$\alpha + \beta + \gamma = 1 $&lt;/span&gt; WLOG.)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;The solutions say that we take a monotonic transformation:&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\ln(u(x)) = \alpha \ln(x_1-b_1) + \beta \ln(x_2-b_2) + \gamma \ln(x_3-b_3)$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;and then I set up the Lagrangian of this:&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$ \mathcal{L} = \alpha \ln(x_1-b_1) + \beta \ln(x_2-b_2) + \gamma \ln(x_3-b_3) - \lambda(p_1x_1 + p_2x_2 + p_3x_3 - w)$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;and the FOCs are:&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\frac{\alpha}{x_1-b_1} - \lambda p_1 = 0$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\frac{\beta}{x_2-b_2} - \lambda p_2 = 0$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\frac{\gamma}{x_3-b_3} - \lambda p_3 = 0$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;Solve for the x's:&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$x_1 = \frac{\alpha}{\lambda p_1} + b_1$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$x_2 = \frac{\beta}{\lambda p_2} + b_2$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$x_3 = \frac{\gamma}{\lambda p_3} + b_3$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;Which leads us to:&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$x(p,w) = (b_1, b_2, b_3) + \left(\frac{\alpha}{\lambda p_1},\frac{\beta}{\lambda p_2},\frac{\gamma}{\lambda p_3}\right)$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;This is not what the book got, so I used Walras law to get the desired result:&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$p \cdot x = w$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\implies w - (b \cdot p) = \frac{1}{\lambda}(\alpha + \beta + \gamma)= \frac{1}{\lambda}$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\implies x(p,w) = (b_1, b_2, b_3) + (w - (b \cdot p))\left(\frac{\alpha}{p_1},\frac{\beta}{p_2},\frac{\gamma}{p_3}\right)$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;which is the book's solution.&lt;/p&gt;&#xA;&lt;p&gt;So my questions are:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Did I do the derivation right? How should I know to take a log transformation of the original utility function? Is there any particular information that is supposed to tip me off?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="4251" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2018-06-12T03:34:29.807" Title="Linear Expenditure System of Demands, Derivation Help" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;linear-expenditure-system&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8634" PostTypeId="2" ParentId="8633" CreationDate="2015-10-10T05:55:29.273" Score="3" Body="&lt;p&gt;I am not sure I understand your question. $\lambda$ is a Lagrange multiplicator which has a value in the optimum. It is not a parameter and hence you cannot leave it in your solution.&#xA;&lt;br&gt; When solving the Lagrangian the optimal solution has the form $(x,\lambda)$ and in addition to your conditions&#xA;$$x_1 = \frac{\alpha}{\lambda p_1} + b_1$$&#xA;$$x_2 = \frac{\beta}{\lambda p_2} + b_2$$&#xA;$$x_3 = \frac{\gamma}{\lambda p_3} + b_3$$&#xA;it also has to fulfill&#xA;$$&#xA;(p \cdot x - w) \lambda = 0.&#xA;$$&#xA;If $\lambda \neq 0$ this also means $p \cdot x = w$. $\lambda$ cannot be equal to zero because it is in the denominator of your optimal solution for $x$:&#xA;$$x(p,w) = (b_1, b_2, b_3) + \left(\frac{\alpha}{\lambda p_1},\frac{\beta}{\lambda p_2},\frac{\gamma}{\lambda p_3}\right)$$&#xA;and hence you were correct to use the Walras law or budget constraint.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For more on optimality conditions see the &lt;a href=&quot;https://en.wikipedia.org/wiki/Karush%E2%80%93Kuhn%E2%80%93Tucker_conditions#Necessary_conditions&quot; rel=&quot;nofollow&quot;&gt;Karush-Kuhn-Tucker theorem&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;About $b_1, b_2$ and $b_3$: I think this is supposed to be a bliss point.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2015-10-10T06:00:41.457" LastActivityDate="2015-10-10T06:00:41.457" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="8635" PostTypeId="1" CreationDate="2015-10-10T08:39:31.070" Score="15" ViewCount="5596" Body="&lt;p&gt;You probably are familiar with &lt;a href=&quot;https://en.wikipedia.org/wiki/Malthusian_growth_model&quot; rel=&quot;noreferrer&quot;&gt;Malthus' Theory of Population Growth&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you are not, Malthusian model has the following mathematically form:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$P(t) = P_0e^{rt}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A basic graphic representation is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/laRnc.gif&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/laRnc.gif&quot; alt=&quot;Malthusian population&quot;&gt;&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that population is growing in a exponential form where as the resources are growing only linearly. By resources, I do not only mean food resources, but they also include water, energy, land and anything else that support the continuation of expansion of human societies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Malthusian theory of population growth has been subjected to criticism, mostly, IMHO,  a reaction for the theory being too pessimistic. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But let's have a look at the real population growth for the past couple of thousand years:&lt;a href=&quot;https://i.stack.imgur.com/bNtrJ.gif&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/bNtrJ.gif&quot; alt=&quot;pop1&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, let's smooth the graph out:&#xA;&lt;a href=&quot;https://i.stack.imgur.com/bo3KE.gif&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/bo3KE.gif&quot; alt=&quot;pop2&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Do you see what I see?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Still not convinced? Let's zoom in for the more recent times (vertical axis is in billions):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/uOKne.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/uOKne.png&quot; alt=&quot;pop3&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Those are the figures from &lt;a href=&quot;https://en.wikipedia.org/wiki/World_population&quot; rel=&quot;noreferrer&quot;&gt;wikipedia&lt;/a&gt;, on which I have calculated percentage change per five years:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/rZpUp.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/rZpUp.png&quot; alt=&quot;percentage change&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that even at the current stage, we are still at an above the average trend for over the past 211 years (since 1804 when the world population hit 1 billion):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$1.0095^{211} = 7.35$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are, currently 7.35 billion people on earth.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The average of annual population increase is 0.95% per year, but we are increasing at a rate of more than 1% per year.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is Malthusian theory of population growth being realized? If this is true, are we going to hit the point of crisis soon because of the limited resources?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If not, why not? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Please support it with number and figures, I would appreciate a more scientific than opinion based discussion.&lt;/p&gt;&#xA;" OwnerUserId="5194" LastEditorUserId="5061" LastEditDate="2015-10-12T18:29:46.690" LastActivityDate="2020-10-20T20:04:09.593" Title="Is Malthusian theory of population growth being realized?" Tags="&lt;resource-economics&gt;&lt;population-economics&gt;" AnswerCount="4" CommentCount="1" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="8636" PostTypeId="2" ParentId="8635" CreationDate="2015-10-10T10:05:28.920" Score="20" Body="&lt;p&gt;&lt;strong&gt;The annual growth rate of the global population has been in decline since about 1967 (five decades ago).&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;The absolute annual growth peaked in 1987 (three decades ago).&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Malthusians claim that:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;population growth is geometric or higher; and &lt;/li&gt;&#xA;&lt;li&gt;food production growth is arithmetic or lower.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;If &lt;em&gt;either&lt;/em&gt; of those do not hold, then Malthusian theory does not hold. And it turns out that &lt;em&gt;neither&lt;/em&gt; of them hold:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Population is not growing geometrically (not even arithmetically); and&lt;/li&gt;&#xA;&lt;li&gt;food production turned out to be capable of greater than arithmetic leaps in growth: food production &lt;em&gt;per capita&lt;/em&gt; grew by 45% between 1961 and 2013 (source: &lt;a href=&quot;http://faostat3.fao.org/download/Q/QI/E&quot; rel=&quot;noreferrer&quot;&gt;UN Food &amp;amp; Agriculture Organization FAOSTAT Food Production Indices for the world, element code 434, domain code QI, Area code 5000, Item code 2051, Agriculture (PIN)&lt;/a&gt;;)&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Some relevant factors: cheap, reliable, ubiquitous contraceptives; education and emancipation, particularly for women; cheap and plentiful crop fertilisers; mechanisation of farming; and selective crop breeding, by taking the old practice of eating the best of each crop and sowing the worst, and doing the exact opposite.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here are two charts, using the &lt;a href=&quot;http://www.census.gov/population/international/data/worldpop/table_history.php&quot; rel=&quot;noreferrer&quot;&gt;global historic data from the US Census organisation for 1800-1950&lt;/a&gt;, and &lt;a href=&quot;http://esa.un.org/unpd/wpp/DVD/&quot; rel=&quot;noreferrer&quot;&gt;the UN data for 1950-2014&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/ydeBJ.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/ydeBJ.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="44" LastEditorUserId="44" LastEditDate="2015-10-12T17:57:51.777" LastActivityDate="2015-10-12T17:57:51.777" CommentCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="8637" PostTypeId="1" AcceptedAnswerId="8654" CreationDate="2015-10-10T10:58:54.043" Score="2" ViewCount="197" Body="&lt;p&gt;In EU countries like Poland, Czech Republic, Hungary, etc, people are happy that they are not in Euro zone and Euro crises like that of Greece do not affect their economics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, some European currencies outside the Eurozone are pegged to a narrow band around the Euro, so their values largely change in line with the Euro's. So, what is the difference if we call a currency Euro or something else, when its value is changing by Euro crises?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, what is the advantage of currency in Czech over Slovakia now?&lt;/p&gt;&#xA;" OwnerUserId="5907" LastEditorUserId="2776" LastEditDate="2017-08-07T17:23:16.273" LastActivityDate="2017-08-07T17:23:16.273" Title="Why are European countries happy to be outside Eurozone?" Tags="&lt;currency&gt;&lt;currency-peg&gt;&lt;euro-area&gt;" AnswerCount="2" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8638" PostTypeId="1" AcceptedAnswerId="8642" CreationDate="2015-10-10T16:48:43.943" Score="5" ViewCount="967" Body="&lt;p&gt;A follow up to my &lt;a href=&quot;https://economics.stackexchange.com/questions/8633/linear-expenditure-system-of-demands-derivation-help/8634&quot;&gt;previous question&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Given $u(x) = (x_1-b_1)^\alpha (x_2-b_2)^\beta(x_3-b_3)^\gamma$&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;and ending up with from a maximization that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$x(p,w) = (b_1, b_2, b_3) + (w - (b \cdot p))\left(\frac{\alpha}{p_1},\frac{\beta}{p_2},\frac{\gamma}{p_3}\right)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How do I show that $x(p, w)$ is convex? I already showed that it is homogeneous of degree zero and satisfies Walras' Law. The book from Mas-Colell says that the solution is obvious, but I have not gotten anywhere with it. My setup for showing convexity is that I want to show:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$x(tp + (1-t)p', tw + (1-t)w') &amp;lt; tx(p,w) + (1-t)x(p',w')$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But I'm not finding anyway to simplify this expression to show it is true. Any help would be appreciated, as I feel like I am missing something very obvious.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastEditorUserId="8815" LastEditDate="2018-06-12T03:35:11.170" LastActivityDate="2018-06-12T03:35:11.170" Title="Convexity of Walrasian Demand" Tags="&lt;microeconomics&gt;&lt;walrasian&gt;&lt;linear-expenditure-system&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8639" PostTypeId="1" CreationDate="2015-10-10T17:05:07.223" Score="4" ViewCount="197" Body="&lt;p&gt;I am a Physics student and would like to learn some Economics in my spare time. Preferably, I would chronologically go through textbooks which cover entire Bachelors and Masters degrees. For instance, in Physics there is a fixed set of topics that is covered within a Bachelor and Master degree. If you happen to know German, you could take the book series by Wolfgang Nolting (seven or eight books, numbered consecutively) and read them. When you're through, you will have covered an entire Bachelors and Masters in Physics (and more, actually). So I wonder if there is such a canonical series of books (maybe from different authors) in Economics that you could recommend to me? Thanks for any suggestion.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;PS:&#xA;It should be textbooks and not courses or videos, since textbooks usually have a higher information density and transmission rate. Also, preferably it should be a canonical series, to ensure seamless transition from one book to another (no information gaps).&lt;/p&gt;&#xA;" OwnerUserId="5909" LastActivityDate="2015-10-15T00:53:26.743" Title="Canonical set of books covering Bachelors and Masters in Economics?" Tags="&lt;reference-request&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8640" PostTypeId="1" AcceptedAnswerId="12202" CreationDate="2015-10-10T17:17:24.573" Score="4" ViewCount="159" Body="&lt;p&gt;I am reviewing old midterms to prepare for my upcoming midterm and ran across this question: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $\alpha , \beta \in (0,1)$. Now, let $f_{\alpha}$ and $f_{\beta}$ on $\mathbb{R^2}$ be defined as $f_{\alpha}(x)=x_1^{\alpha} x_2^{1 - \alpha}$ and $f_{\beta}(x)=x_1^{\beta} x_2^{1 - \beta}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, let R be a binary relation on $\mathbb{R_x^2}$. Let ${x,y} \subset R_+^2$ We have that: $$xRy \leftrightarrow f_{\alpha}(x) \geq f_{\alpha}(y) \land  f_{\beta}(x) \geq f_{\beta}(y)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For which combinations of $\alpha$ and $\beta$ is this binary relation complete, for which combinations is it transitive and for which combinations is it continuous. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My thoughts&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;It seems this can only be complete if $\alpha=\beta$ but I can't quite finish the proof whenever I proceed WLOG with $\alpha &amp;lt; \beta$ Can anyone here offer an attempt at formally proving that this is complete iff $\alpha = \beta$ ?  &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;I think that anytime we have xRy, yRz we will necessarily have xRz. That is. And so, I think this is transitive for all combinations of $\alpha,\beta$. My proof involves using the well-ordering of the reals and the definition given for this particular relation. If anyone thinks that this is not true for all $\alpha,\beta$ please let me know why/how. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;I know what continuity is and how to prove it. However, I am not sure for which combinations of $\alpha,\beta$ this relation is continuous. I suspect it is continuous for all combinations of $\alpha,\beta$. Is this true? If so, can you prove it?   &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="1655" LastEditorUserId="1655" LastEditDate="2015-10-11T19:03:39.023" LastActivityDate="2016-05-29T15:58:56.563" Title="Binary Relations for Cobb-Douglas" Tags="&lt;preferences&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8641" PostTypeId="2" ParentId="8639" CreationDate="2015-10-10T17:46:11.650" Score="8" Body="&lt;p&gt;Econ isn't as sequential as physics. The two core undergrad classes that everyone takes are Intermediate Micro and Intermediate Macro. Varian is the standard for Intermediate Micro.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Undergrads also take some sort of econometrics class, which can widely vary depending on the target audience (i.e., business majors vs double-majors). It's not uncommon for there to be an Econ degree geared towards double majoring.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;After these courses, students generally pick about 5 electives. The classic books largely depend on the subjects at the undergrad levels. For Game Theory, Osborne is a good text as is Fudenberg and Tirole. The latter is a solid grad textbook as well. A good Auction Theory text is Krishna's. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;At the grad level, folks generally go for PhDs over Masters degrees. While Masters programs exist, they aren't as common as in math, physics, or CS. A good math for economists text is Simon and Blume. Mas-Collel is the classic for the grad micro sequence, which highlights game theory, IO, and general equilibrium. Jehl and Reyni is another good reference for micro, and it's a friendlier read.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Folks at the grad level also take sequences in macro and metrics. You may wish to check out Aris Spanos' text for metrics.&lt;/p&gt;&#xA;" OwnerUserId="5368" LastEditorUserId="5368" LastEditDate="2015-10-15T00:53:26.743" LastActivityDate="2015-10-15T00:53:26.743" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8642" PostTypeId="2" ParentId="8638" CreationDate="2015-10-10T17:47:29.927" Score="2" Body="&lt;p&gt;I am not sure whether the question asks about the function being convex, or simply the demand correspondence/function being a convex set. The latter is often asked and if that is the case here is an answer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is a general answer to your question which may be more useful to you and future readers than a specific one.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The following theorem holds in general:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Theorem: If preferences are convex, then the marshallian demand x(p,w) is a convex set for every p&gt;&gt;0 and $w \ge 0$.&#xA;Note: p&gt;&gt;0 here means that every element of the price vector is strictly positive.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Proof:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Budget set $B(p,w) \equiv \{ x \in \mathbb{R}_+^n:px \le w \} $ is a convex set.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If two points $ x, x' \in x(p,w )$, then x ~ x' (the consumer must be indifferent between the two as they are both part of x(p,w), i.e. his best choice. If one of them would be better than the other, then only the best one would be part of x(p,w) as the marshallian demand is derived from maximization.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For all $\alpha \in [0,1]$ we have that $\alpha x + (1-\alpha)x' \in B(p,w)$ by convexity of B(p,w). Furthermore, $\alpha x + (1-\alpha)x'\succeq x$ by the convexity of preferences. Therefore $\alpha x + (1-\alpha)x'\in x(p,w)$&#xA;Q.E.D.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your preference relation is convex, so the theorem applies and your set x(p,w) is convex. Note that a preference relation is (strictly) convex if and only if the utility function  is (strictly) quasiconcave. Your utility function as far as I can see is concave, which implies it is quasiconcave, which implies convex preferences.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Further note that if preferences are strictly convex, then x(p,w) is single-valued for every p&gt;&gt;0 and $w \ge 0$. Hence in that case x(p,w) would be a convex set as a point is a convex set.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastEditorUserId="5557" LastEditDate="2015-11-16T20:41:07.090" LastActivityDate="2015-11-16T20:41:07.090" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8643" PostTypeId="2" ParentId="8637" CreationDate="2015-10-10T19:13:56.857" Score="2" Body="&lt;p&gt;I personally think one of the main factors (maybe the main factor) is that any country that chooses to participate in the Euro zone necessarily sacrifices monetary autonomy. That is, those countries (Greece is a good example) lose the ability to enact monetary policy to mitigate negative domestic economic trends. Further (consider Germany), joining the monetary union necessarily slaves a nation to the economic performance of other participants. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;America's central bank enacted quantitative easing after the Great Recession, thereby driving interest rates to the zero lower bound, which helped bolstered investment. This increase in investment caused job creation, thereby slowing/reversing the negative employment trend. This ability to enact monetary policy allowed the Fed to gain control of a spiraling unemployment rate. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Greece, on the other hand, was not able to do something similar to address its dismal employment situation. This is because Greece has no authority to independently manipulate the Euro.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And in this example, consider the economic sacrifices (debt extension etc.) made by Germany in an effort to prop-up and correct the Greek economic crisis. &lt;/p&gt;&#xA;" OwnerUserId="1655" LastEditorUserId="1655" LastEditDate="2015-10-12T01:21:32.557" LastActivityDate="2015-10-12T01:21:32.557" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8644" PostTypeId="1" CreationDate="2015-10-10T20:50:09.490" Score="3" ViewCount="116" Body="&lt;p&gt;I have the following not locally non-satiated utility function:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U(x,y)=-(x-1)^2-(y-2)^2$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $U(x,y): \, \!R^n_+ \rightarrow \!R $ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The 3D plot of this function is an infinite paraboloid; therefore, $U(x,y)$ can be considered as a not locally non-satiated utility function.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;After I've found the Marshallian demand and the indirect utility functions, I'd like to determine the Hicksian demand curve and the expenditure functions using the duality theorem. Can be the duality theorem applied to this type of not locally non-satiated utility functions?&lt;/p&gt;&#xA;" OwnerUserId="5017" LastEditorUserId="2776" LastEditDate="2017-07-28T06:32:47.883" LastActivityDate="2019-09-27T17:46:01.100" Title="Can be the duality theorem applied to not locally non-satiated utility functions?" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;optimization&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8645" PostTypeId="1" CreationDate="2015-10-10T21:48:26.703" Score="2" ViewCount="1576" Body="&lt;p&gt;One explanation I have read for the resistance of the dollar to inflation is that it is &quot;exported&quot; meaning that excess dollars go abroad and foreign use of the dollar increases, thus preventing the dollar from inflating domestically.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't understand the rationale here. Why should dollar printing result in greater adoption of the dollar in foreign markets? I would think the two would be independent variables.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One possible explanation is that the relationship is actually the REVERSE: foreign adoption causes printing. In other words, what may happen is that foreign countries increasingly adopt the use of the dollar and the Federal Reserve reacts by producing more dollars.&lt;/p&gt;&#xA;" OwnerUserId="1448" LastActivityDate="2015-12-04T04:08:32.720" Title="Exporting inflation" Tags="&lt;currency&gt;&lt;monetary-policy&gt;&lt;financial-economics&gt;&lt;money-supply&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8646" PostTypeId="2" ParentId="8640" CreationDate="2015-10-10T23:44:20.580" Score="2" Body="&lt;p&gt;I will be using the following definition of continuity for binary relations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Definition 1:&lt;/strong&gt; A binary relation $\mathcal{R}$ on $\mathbb{R}^2_+$ is continuous if for every $x$, the following sets are closed.&#xA;$$&#xA;USC_x = \{y\in \mathbb{R}^2_+|y\mathcal{R}x\}&#xA;$$&#xA;$$&#xA;LSC_x = \{y\in \mathbb{R}^2_+|x\mathcal{R}y\}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Definition 2:&lt;/strong&gt; A set $Z$ is closed if $z_n$ is a sequence in $Z$ and $z_n\rightarrow z$, then $z\in Z$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, let $\mathcal{R}$ be defined as in your question, i.e.&#xA;$$&#xA;x\mathcal{R} y\iff f_\alpha(x) \geq f_\alpha(y)\text{ and }f_\beta(x) \geq f_\beta(y)&#xA;$$&#xA;Let $x\in \mathbb{R}^2_+$. Let $x_n$ be a sequence in $USC_x$ converging to $x^\ast$. Then, for each $n$, &#xA;$$&#xA;f_\alpha(x_n) \geq f_\alpha(x)\text{ and }f_\beta(x_n) \geq f_\beta(x).&#xA;$$&#xA;Since $f_\alpha$ and $f_\beta$ are continuous, we have &#xA;$$&#xA;f_\alpha(x^\ast) \geq f_\alpha(x)\text{ and }f_\beta(x^\ast) \geq f_\beta(x).&#xA;$$&#xA;implying that $x^\ast\in USC_x$; hence, $USC_x$ is closed. We can show also that $LCS_x$ is closed by using identical arguments. This concludes that $\mathcal{R}$ is continuous.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Remark 1:&lt;/strong&gt; The arguments above provide a general strategy of analyzing statements regarding $\mathcal{R}$. Transitivity of $\mathcal{R}$ can be proven in a couple of simple steps. Your statement regarding this property is a bit vague, and should be more rigorous imho.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Remark 2:&lt;/strong&gt; Your explanation about completeness needs a clearly written argument as well. While it is true that $\alpha=\beta$ implies completeness of $\mathcal{R}$, the reasoning that makes it true is not exactly what you are proposing. It is also necessary to show that $\alpha\neq \beta$ implies that $\mathcal{R}$ wouldn't be complete (I believe that this should be the case). This would require a bit more work on your part. Let me know if you run into troubles in this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Bottomline:&lt;/strong&gt; In my sincerely humble opinion, you should exercise a lot with proving things. Maybe grab a book on introduction to abstract mathematics and such. &lt;/p&gt;&#xA;" OwnerUserId="5739" LastEditorUserId="5739" LastEditDate="2015-10-11T02:07:56.687" LastActivityDate="2015-10-11T02:07:56.687" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8647" PostTypeId="2" ParentId="8640" CreationDate="2015-10-10T23:46:37.947" Score="0" Body="&lt;p&gt;A few thoughts:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For completeness, I think you can make a slightly stronger case that for any $x_1  \geq y_1, x_2 \geq y_2$, this satisfies completeness $\forall \alpha, \beta$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$x_1^\alpha x_2^{1-\alpha} \geq y_1^\alpha y_2^{1-\alpha}$$&#xA;$$x_1^\beta x_2^{1-\beta} \geq y_1^\beta y_2^{1-\beta}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For continuity, there are two definitions you can use, one with sequences and one with epsilon-balls around a point in your binary relation.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2015-10-10T23:46:37.947" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8648" PostTypeId="1" AcceptedAnswerId="8649" CreationDate="2015-10-11T01:59:14.367" Score="1" ViewCount="5082" Body="&lt;p&gt;$$AC(q) = \frac {C(q)}{q}$$&#xA;$$MC(q) = \frac{\partial C(q)}{\partial q}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These are the definitions. But I don't understand what the difference is. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is the average cost the cost per unit while the marginal cost is about infinitesimals? &lt;/p&gt;&#xA;" OwnerUserId="2679" LastActivityDate="2015-10-11T03:14:58.783" Title="What is the difference between average cost and marginal cost?" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8649" PostTypeId="2" ParentId="8648" CreationDate="2015-10-11T03:14:58.783" Score="2" Body="&lt;p&gt;The average cost is the cost on average: total costs (C) divided by total number of units of production (q). Just as the equation you gave, says&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The marginal cost is the cost at the margin: the additional cost of one extra unit of production, just as the equation you gave, says. Most goods and services come in discrete units: in those cases, it is not about infinitesimals, it is about the last unit of production, the unit that was produced to meet demand, the unit that would not have been produced had demand been one unit lower. In cases of continuous supply, the marginal cost is the gradient of the curve of total cost plotted with respect to total supply.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In pretty much all real-world circumstances, marginal cost is generally greater than average cost: that's guaranteed by a strictly monotonically increasing supply curve (with the trivial exception of the first unit of production, where average cost is by definition equal to marginal cost).&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2015-10-11T03:14:58.783" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8650" PostTypeId="1" CreationDate="2015-10-11T04:43:49.357" Score="4" ViewCount="1111" Body="&lt;p&gt;How should one proceed if he wanted to master the microecon theory course typically taught in the 1st year of a PhD program on his own? Which text(s) and/or online course(s) should he follow? Suppose the guy has had a good training of econ up to the intermediate level and is familiar to the math topics the microecon course would typically demand.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks in advance.&lt;/p&gt;&#xA;" OwnerUserId="5910" LastEditorUserId="5910" LastEditDate="2015-10-11T08:05:10.770" LastActivityDate="2015-10-11T08:05:10.770" Title="Self-teaching 1st year PhD Microeconomic Theory" Tags="&lt;microeconomics&gt;&lt;self-study&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8651" PostTypeId="2" ParentId="8650" CreationDate="2015-10-11T07:20:38.793" Score="7" Body="&lt;p&gt;My prof is always telling us, if we want to pursue PhD level Econ in the future, we should master the full content of the following book:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Microeconomic Theory. Andreu Mas—Colell Michael D. Whinston and. Jerry R. Green. New York Oxford OXFORD UNIVERSITY PRESS 1995.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;He also mentioned that there's main difference in viewpoint between graduate-level and top-level PhD Microeconomics. While in Grad School students calculate and theorize in the vector space, PhD students do mathematical operations using set theory almost all the time.&lt;/p&gt;&#xA;" OwnerUserId="5017" LastActivityDate="2015-10-11T07:20:38.793" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8652" PostTypeId="1" CreationDate="2015-10-11T07:59:46.113" Score="4" ViewCount="2241" Body="&lt;p&gt;I am learning the basics of Supply/Demand, and I came across this question (it's not a part of my homework; I just want to know the answer/explanation because I'm doing some extra practice problems for a test).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Question: &quot;Starch from the stalks of potato plants is used to make packing peanuts, a complement in production. A decrease in potato demand that lowers potato prices will cause which of the following in the packing-peanut market?&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My thoughts:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, we know potato prices decrease, and potatoes are a complement in production. From what I've learned, a decrease in the price of a complement in production leads to a decrease in supply of the original good (ie decrease in potato prices leads to decrease in supply of packing peanuts). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, what I don't understand is how demand plays a factor.  I know that when the price of a complementary good is decreased, demand for the original good increases.  But what's different in this case is that potatoes are a complement in production, NOT consumption.  From the examples given in the text, everytime they mention how changes in complement goods affect demand, they are referring to a complement in CONSUMPTION.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I'm confused about is potatoes' relationship to packing peanuts.  Potatoes are a complement in production, so I'm thinking it shouldn't have any affect on demand for packing peanuts, since consumers are not concerned with processes of production, right? (So my answer would be that a decrease in potato prices leads to a DECREASE in supply of packing peanuts and NO CHANGE in demand of packing peanuts).&lt;/p&gt;&#xA;" OwnerUserId="5914" LastEditorUserId="2776" LastEditDate="2016-09-04T00:48:50.183" LastActivityDate="2016-09-04T00:48:50.183" Title="Question About Basic Supply/Demand Concepts" Tags="&lt;supply-and-demand&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8653" PostTypeId="1" AcceptedAnswerId="8657" CreationDate="2015-10-11T10:48:49.253" Score="1" ViewCount="4864" Body="&lt;p&gt;The period of the business cycle in which the real GDP is increasing is called the?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And no, this is not an homework question. I'm a college student and we starting our exams soon. I'm just going through a lot of questions. Both online and previous year's questions from my school. This is quite confusing. I think it is expansion. Then I saw an article on trough on wikipedia that says it is trough. &lt;a href=&quot;https://en.wikipedia.org/wiki/Trough_(economics)&quot; rel=&quot;nofollow&quot;&gt;https://en.wikipedia.org/wiki/Trough_(economics)&lt;/a&gt;&#xA; Please explain&lt;/p&gt;&#xA;" OwnerUserId="5864" LastActivityDate="2015-10-11T12:02:18.943" Title="The period of the business cycle in which the real GDP is increasing is called the?" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;gdp&gt;&lt;business-cycles&gt;&lt;real-business-cycles&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8654" PostTypeId="2" ParentId="8637" CreationDate="2015-10-11T11:23:07.803" Score="3" Body="&lt;p&gt;I largely agree with mathtastic, but I think it is necessary to add something.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When joining a monetary union a country does indeed lose its power to conduct monetary policy. However simply not being able to reduce the interest rate was not the main issue that Greece and other countries faced because of being in the Eurozone. This is because the ECB lowered interest rates (almost) down to the zero lower bound.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To adequately address your question we have to distinguish advantages of a country from having its own currency while in a crisis, vs. advantages from always having had its own currency in the first place.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Reasons why it is helpful to have your own currency when a crisis has already hit:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The issue in this case was the impossibility of devaluation of the currency. One way to understand the Greek crisis is as a current account crisis. Not only was the government over indebted, but the country as a whole. That is to say that there was a too large trade deficit for too long. The trade deficit creates a sort of debt that the whole country owes to other countries in total and was a main point of focus in the debates about Greek debt. You might have heard the issue of competitiveness being cited as a factor in the Greek crisis, which simply means the impossibiliy of the Greek economy to export sufficiently. You may have also heard about &quot;living above their means&quot; or &quot;BMWs going to Greece financed by German money&quot;. All this refers to the trade deficit, i.e. the current accuont crisis.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To help itself out of this current account crisis, Greece would have to reduce its trade deficit, i.e export more and import less. If Greece would have had its own currency, a natural reaction to the crisis (without any government intervention even required) would be that Greece's currency loses value. Hence its exports are cheaper which leads to more exports and its imports are more expensive, which leads to less imports. In this way Greece would have an easier time dealing with the crisis and could also &quot;grow its way out of the crisis&quot; - policy advice often heard in this whole debate. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In addition to reducing the trade deficit, a currency devaluation would have helped Greece's economy grow and help with debt service, because the private and public sector were over indebted and not in a position to borrow. This means that domestic demand was very low, so foreign demand- i.e. exports- would have to pick up the slack.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, you might say that Greece could export more by simply reducing its prices even without currency devaluation. This is in theory true and is indeed what was recommended and what was attempted in Greece. You can look this up under the term &lt;em&gt;&quot;internal devaluation&quot;&lt;/em&gt;. However there are several problems with this. First of all it is easier to simply devalue the currency (one price adjustment) than to reduce prices of all export goods (many price adjustments). Furthermore, price decreases mean deflation, which brings with it further problems and is hard to combat later on, when it is no longer desired. A term to look up for more information on this would be &lt;em&gt;&quot;deflationary spiral&quot;&lt;/em&gt;. Third and perhaps most importantly is the issue of &lt;em&gt;&quot;downward nominal rigidity&quot;&lt;/em&gt;. This is the empirically observed phenomenon that nominal prices tend to not go down as much as they should or at all, i.e. are rigid in going downwards. This come perhaps from money illusion. It is easier to inflate away workers' wages than to actually reduce them, because the former doesn't cause any protest, while the latter does. Although this is not rational, it happens. Hence it is very difficult to reduce prices and export more (i.e. be more competitive) without an own currency. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is the reason many countries are likely happy to have their own currency. As to why they are happy despite possibly being &quot;pegged&quot; to the Euro, is because they can break that peg much more easily than Greece if they wanted to.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Reasons why it is helpful to have your own currency before a crisis hits:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For information on how it could have come to such a loss of competitiveness in Greece I can recommend looking up the &lt;em&gt;&quot;Balassa-Samuelson effect&quot;&lt;/em&gt;, although this may not be the whole story.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Personally, I am not totally convinced by the conventional wisdom, especially popular in European media, that if Greece were to return now to the Drachma that things would be better. This is because their debts may then legally still be denominated in Euro and after the inevitable devaluation of the Drachma against the Euro (the whole point of having the Drachma now) would cause the debt burden to increase even further. For more on models where such effects are present see so-called &lt;em&gt;&quot;third generation currency crisis models&quot;&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However had they not had the Euro in the first place, like the &quot;happy&quot; European countries you are mentioning, then their debts would have likely never been denominated in Euro in the first place and could more easily pay that debt through a currency devluation / inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another reason countries are happy to not have had the Euro in the first place is because the Euro created interest rates for Greece's public debt that were too low than what they should have been. This means the government became over-indebted, which lead to the problems we see today. Had the interest rates been (correctly) higher the government would have perhaps borrowed less and not too much. This is to say that due to the Euro (and the false positie expectations caused by it) the &quot;price signal&quot; was not working so well. Other countries that never adopted the Euro did not experience such a loss of information from the price signal.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastEditorUserId="5557" LastEditDate="2015-10-14T17:13:41.470" LastActivityDate="2015-10-14T17:13:41.470" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8655" PostTypeId="2" ParentId="8652" CreationDate="2015-10-11T11:43:41.830" Score="1" Body="&lt;p&gt;You are right that most discussions talk about complementarity in consumption, which is why this question is all the more interesting.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Demand falls for potatoes, which causes the price of potatoes to fall, which causes the supply of potatoes to fall. This means there is less starch available. This in turn means that we can make less packing-peanuts, hence supply of packing peanuts falls.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You are right that demand for packing peanuts does not change. The supply will nevertheless change however. This is because the supply of starch falls and the input factor of packaging peanuts is more expensive, so less is optimally produced. I.e. the supply &lt;strong&gt;curve&lt;/strong&gt; of packaging peanuts changes, in this case shifts to the left so there is less equilibrium supply even though demand for packaging peanuts has not changed. &lt;/p&gt;&#xA;" OwnerUserId="5557" LastActivityDate="2015-10-11T11:43:41.830" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8656" PostTypeId="2" ParentId="8645" CreationDate="2015-10-11T11:54:37.877" Score="1" Body="&lt;p&gt;You are correct in thinking that greater dollar printing does not necessarily result in greater adoption of the dollar. However, that is not the point in the explanation you have read.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The point there is that compared to another currency the dollar is more resistant to inflation from printing than others are, because there is more foreign demand for dollars than there is foreign demand for other currencies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;More dollars only lead to inflation in the U.S. if the dollars are actually there, otherwise they may just as well not have been printed as far as the domestic market is concerned. Since the dollar is a famous reserve currency and is held in significant amounts in many other contries, the relationship between dollar printing and inflation is different compared to other currencies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A numerical example might illustrate the point:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume 1000 units more of a domestic currency lead to a 10% increase in inflation in that country. This is true for all countries in our example.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If e.g. Mexico prints 1000 pesos then all of those pesos will stay in Mexico (no foreing demand). So inflation in Mexico will be 10%.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the U.S. prints 1000 dollars, 500 of those go abroad. So the U.S. has 500 more dollars domestically. So inflation will be 5%.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So if the U.S. prints 1000 units of currency inflation is 5%, but if Mexico prints 1000 units of currency, inflation is 10%. In conclusion the U.S. has a different, relationship of printing to inflation. Specifically it has less inflation, i.e. is more resistant to inflation compared to other countries.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastActivityDate="2015-10-11T11:54:37.877" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8657" PostTypeId="2" ParentId="8653" CreationDate="2015-10-11T12:02:18.943" Score="0" Body="&lt;p&gt;The trough is not a period, it is simply the lowest &lt;strong&gt;point&lt;/strong&gt;. The opposite of this is a peak, i.e. the highest point. The answer you are looking for is &quot;Expansion&quot; or &quot;Boom&quot;. The period in which GDP is falling is called &quot;Recession&quot; or &quot;Contraction&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also note that the business cycle is typically not defined using real GDP, but rather nominal GDP.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastActivityDate="2015-10-11T12:02:18.943" CommentCount="10" ContentLicense="CC BY-SA 3.0" />
  <row Id="8658" PostTypeId="1" CreationDate="2015-10-11T15:10:18.483" Score="10" ViewCount="1897" Body="&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Marginal_cost&quot; rel=&quot;nofollow noreferrer&quot;&gt;Marginal cost&lt;/a&gt; is defined as &quot;the change in the total cost that arises when the quantity produced is incremented by one unit.&quot; And given a total cost function $C(q)$ that's differentiable, the marginal cost is the derivative, $C'(q)$. But if I were given $C$ and asked the cost that arises when the quantity produced is increased from 2 to 3, I would simply calculate $C(3)-C(2)$; no need to bring calculus into the picture.  In general, $ C(3)-C(2) \neq C'(2)$. For example, if $C(q) = q^2$, then $C(3)-C(2) = 5$, but $C'(2) = 4$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus my question is:&#xA;&lt;strong&gt;Why is the derivative used to represent marginal cost instead of the difference?&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note: I thought this question must've been what's being asked &lt;a href=&quot;https://economics.stackexchange.com/questions/8626/why-does-marginal-cost-derivative-of-total-cost-differ-from-variable-cost-at-e&quot;&gt;here&lt;/a&gt;, but evidently not; there what's being asked is (essentially) why $C'(3) \neq C(3)-C(2)$.&lt;/p&gt;&#xA;" OwnerUserId="5908" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2017-08-25T08:28:15.347" Title="Why is the derivative used to represent marginal cost instead of the difference?" Tags="&lt;mathematical-economics&gt;&lt;cost&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8660" PostTypeId="2" ParentId="8658" CreationDate="2015-10-11T15:33:12.310" Score="2" Body="&lt;p&gt;The function $C(q) = q^2$ is non-linear, therefore the rate of change of $C(q)$ with respect to q is constantly changing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When you take $\frac{C(3)-C(2)} {3-2}$ you are finding the rate of change over a range of $q$, not the rate of change at $q = 3$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is where taking a derivative is needed, because it gives you the rate of change at the point $(q,C)$ as the change in $q$ approaches $0$, rather than an average of the rate of change for every $q$ value from $2 \leq q \leq 3$.&lt;/p&gt;&#xA;" OwnerUserId="5904" LastEditorUserId="1601" LastEditDate="2015-10-12T07:10:45.430" LastActivityDate="2015-10-12T07:10:45.430" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8661" PostTypeId="2" ParentId="8658" CreationDate="2015-10-11T15:51:25.680" Score="5" Body="&lt;p&gt;The derivative is used in some contexts, but not all, when the cost function is differentiable. In those contexts, it tends to be assumed that supply is continuous, not discrete. This is a matter of convention and of analytic convenience. It has the advantage of being consistent, whether you're approaching the supply point from above or from below.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But in other contexts, given your cost function, assuming that the thing being supplied is discrete and &lt;em&gt;not&lt;/em&gt; continuous (that is, it is possible to supply 2 units or 3 units, but not 2.9 or 3.5 or any other fractional unit) then the marginal cost of the third item is indeed 5, not 4.&lt;/p&gt;&#xA;" OwnerUserId="44" LastEditorUserId="2776" LastEditDate="2017-08-25T08:22:02.610" LastActivityDate="2017-08-25T08:22:02.610" CommentCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="8663" PostTypeId="1" CreationDate="2015-10-11T18:46:04.447" Score="3" ViewCount="71" Body="&lt;p&gt;I'm working through Kerry Back's &quot;Asset Pricing and Portfolio Choice Theory&quot; book. Trying to work through the proof of the First Welfare Theorem in the context of securities markets on page 58.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Back is more general but for the context of my question let us assume that we have H investors, each with CARA utility with absolute risk aversion coefficient $\alpha_h$. The proof tries to establish that a competitive equilibrium in this economy is Pareto optimal. It proceeds by contradiction: assume that a competitive equilibrium (with random wealth for the set of investors given by $(w_1, \ldots, w_H)$) is Pareto dominated by some feasible allocation. WLOG assume the first investors expected utility can be increased without reducing the expected utility of the other investors.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now Back defines a Pareto optimum that increases the expected utility of the first investor without changing the the expected utilities of other investors. For $h&amp;gt;1$, define $a_h$ by&#xA;$E[u_h( a_h + b_h w_m ) ] = E[u_h(w_h)]$&#xA;Where $w_m$ is the random variable giving the market wealth in the next period and $b_h = \tau_h/\tau$ where $\tau_h$ is the risk tolerance of investor $h$ and $\tau = \sum_{h=1}^H \tau_h$. Then set $a_1 = - \sum_{h=2}^H a_h$ and $w'_h =a_h + b_hw_m$ for all $h$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now here's the statement I don't understand &quot;$w'_h$ is feasible for each investor&quot;. I guess maybe the phrase &quot;for each investor&quot; is throwing me off. I can see how this allocation would make the market clear. Is that all that is meant? But I don't see how we know that any budget constraints would be satisfied for each investor, which is how I would interpret his statement.&lt;/p&gt;&#xA;" OwnerUserId="5920" LastEditorUserId="40" LastEditDate="2015-10-11T21:56:57.980" LastActivityDate="2015-10-11T21:56:57.980" Title="Competitive Equilibrium in Securities Market: First Welfare Theorem" Tags="&lt;consumer-theory&gt;&lt;asset-pricing&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="8664" PostTypeId="2" ParentId="8652" CreationDate="2015-10-11T19:15:35.207" Score="0" Body="&lt;p&gt;Here is the chain of logic: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Demand for P falls $\implies$ Price of P falls $\implies$ supply for P falls/harvest of P falls $\implies$ supply of starch falls. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The supply of starch falls because the decrease in the harvest of potatoes causes a decrease in the availability of the input needed to produce the starch.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Keep in mind that there is no pressure placed on the demand for starch. So,you will not shift the demand curve in your simply supply and demand graph used to represent the market for starch. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The only shock to the starch market comes from the decrease in supply of starch that results from the decreased harvest of potatoes. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;And so to finish it all off&lt;/strong&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you hold demand for starch constant and decrease the supply of starch, the equilibrium price of starch rises. &lt;/p&gt;&#xA;" OwnerUserId="1655" LastActivityDate="2015-10-11T19:15:35.207" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8668" PostTypeId="2" ParentId="8658" CreationDate="2015-10-11T20:54:30.593" Score="3" Body="&lt;p&gt;To help you discern the two, let's try to explain with words and understand what information are we getting from the derivative and from the difference, respectively:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;The derivative gives you information about the &lt;em&gt;change in cost&lt;/em&gt; relative to change in &lt;em&gt;quantity produced&lt;/em&gt;, in a specific, local, point(quantity)&lt;sup&gt;1&lt;/sup&gt;. In other words you are measuring the change in cost in terms of change in quantity. More mathematically, the derivative of the cost with respect to the quantity gives you the rate of change of the cost over the rate of change in quantity or the &lt;em&gt;slope of the cost curve&lt;/em&gt;.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The difference between two points (quantities) on the cost curve: $C(3) − C(2) = 5$ gives you the relative difference in price only of those two points, not accounting for all the intermediate values&lt;sup&gt;2&lt;/sup&gt;. Again more mathematically, the difference just gives you the &lt;em&gt;distance in price&lt;/em&gt; between the two points(quantities).&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;To conclude, the difference between the two is the information they give you, namely:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;derivative: rate of change of cost in terms of quantity.  &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;difference: difference between the total cost for two quantities.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;sup&gt;1. In your example, the marginal cost for quantity: $2$, given the total cost function: $C(q) = q^2$ is: $C′(2) = 4$, which means that &lt;strong&gt;if you're producing currently 2 items, the next item will increase the cost with $4$ units&lt;/strong&gt;.&lt;/sup&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;sup&gt;2. The relation $C(3) − C(2) = 5$ means that &lt;strong&gt;the total cost for producing 3 items is 5 units more than the total cost of producing 2 items&lt;/strong&gt;.&lt;/sup&gt;&lt;/p&gt;&#xA;" OwnerUserId="4374" LastEditorUserId="4374" LastEditDate="2017-08-25T08:28:15.347" LastActivityDate="2017-08-25T08:28:15.347" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="8670" PostTypeId="1" AcceptedAnswerId="8672" CreationDate="2015-10-11T22:12:04.373" Score="3" ViewCount="4015" Body="&lt;p&gt;I wonder what the most interesting applications of imaginary numbers in mainstream economics are. I read about the unit root test (Dickey-Fuller test) in time-series analysis; and I studied System Dynamics about phase portraits that were determined by complex numbers. So maybe the maths of these numbers are necessary for econometrics and for more sophisticated macroeconomic modelling. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To sum up, what are the most important application of complex numbers in economics? Could you give me some examples, models relevant to complex numbers?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I will be grateful if you can send me this information.&lt;/p&gt;&#xA;" OwnerUserId="5017" LastActivityDate="2015-10-11T23:23:00.160" Title="What are the applications of complex numbers in modern economics?" Tags="&lt;macroeconomics&gt;&lt;econometrics&gt;&lt;mathematical-economics&gt;" AnswerCount="1" CommentCount="0" ClosedDate="2015-10-12T15:54:35.230" ContentLicense="CC BY-SA 3.0" />
  <row Id="8671" PostTypeId="2" ParentId="8627" CreationDate="2015-10-11T22:25:31.660" Score="5" Body="&lt;p&gt;Yes, you should look at the regression discontinuity literature in political economy that uses close elections as the identification strategy. For example, see &lt;a href=&quot;http://sekhon.berkeley.edu/papers/CaugheySekhonRD.pdf&quot; rel=&quot;noreferrer&quot;&gt;http://sekhon.berkeley.edu/papers/CaugheySekhonRD.pdf&lt;/a&gt;  and &lt;a href=&quot;http://www.polmeth.wustl.edu/media/Paper/EggersetalRDD.pdf&quot; rel=&quot;noreferrer&quot;&gt;http://www.polmeth.wustl.edu/media/Paper/EggersetalRDD.pdf&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="5924" LastActivityDate="2015-10-11T22:25:31.660" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8672" PostTypeId="2" ParentId="8670" CreationDate="2015-10-11T22:49:00.900" Score="1" Body="&lt;p&gt;You might refer to this answer to a &lt;a href=&quot;https://economics.stackexchange.com/questions/48/is-complex-analysis-used-in-economics&quot;&gt;question similar to yours.&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Financial economics often use the complex plane to visualize duration and the internal rate of return, to which &lt;a href=&quot;https://www.economicsnetwork.ac.uk/cheer/ch14_1/ch14_1p04.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;this resource&lt;/a&gt; proves very helpful.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-10-11T23:23:00.160" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8673" PostTypeId="1" AcceptedAnswerId="8712" CreationDate="2015-10-12T00:50:22.797" Score="3" ViewCount="85" Body="&lt;p&gt;I ask about the survey results of some prominent Australian economists shown &lt;a href=&quot;http://esacentral.org.au/results-q1-2/&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt; (Which is a similar Australian-centric version of the very interesting IGM Forum Surveys). The results of the survey surprised me as it isn't what I was expecting.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;strong&gt;“Increasing government revenue collected through the &lt;a href=&quot;https://en.wikipedia.org/wiki/Goods_and_Services_Tax_%28Australia%29&quot; rel=&quot;nofollow&quot;&gt;Goods and Services Tax (GST)&lt;/a&gt; by removing exemptions (such as food, health and education) is better than achieving the same extra revenue by increasing the GST rate while retaining the existing exemptions.”&lt;/strong&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;My question is, is there any empirical or other research on the impact of transition from a distortionary to a less distortionary tax which could be applied to the Australian case?&lt;/p&gt;&#xA;" OwnerUserId="40" LastEditorUserId="40" LastEditDate="2015-10-12T12:02:32.103" LastActivityDate="2015-10-14T23:50:17.833" Title="Impact of a reduction of distortions in a flat consumption tax" Tags="&lt;reference-request&gt;&lt;taxation&gt;&lt;consumption&gt;&lt;welfare-economics&gt;&lt;consumer-surplus&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8674" PostTypeId="1" CreationDate="2015-10-12T02:58:43.947" Score="0" ViewCount="76" Body="&lt;p&gt;Is there any confirmed saying on this problem?&lt;/p&gt;&#xA;" OwnerUserId="5927" LastActivityDate="2015-10-12T05:20:23.377" Title="Why is trade openness positively correlated with economic prosperity?" Tags="&lt;macroeconomics&gt;&lt;international-trade&gt;" AnswerCount="1" CommentCount="1" ClosedDate="2015-10-12T23:17:04.277" ContentLicense="CC BY-SA 3.0" />
  <row Id="8675" PostTypeId="2" ParentId="8674" CreationDate="2015-10-12T05:15:05.870" Score="1" Body="&lt;p&gt;In short: Yes and due to comparative advantage.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The level of GDP growth gained with opening trade does vary by country and time. I'd suggest Wacziarg &amp;amp; Welch (2008). Trade Liberalization and Growth: New Evidence, World Bank Economic Review, vol. 22(2) for a relatively new study on the subject.&lt;/p&gt;&#xA;" OwnerUserId="5512" LastEditorUserId="5512" LastEditDate="2015-10-12T05:20:23.377" LastActivityDate="2015-10-12T05:20:23.377" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8676" PostTypeId="1" CreationDate="2015-10-12T09:27:00.990" Score="4" ViewCount="1413" Body="&lt;p&gt;I am a young man studying economics on his own. In every microeconomics text I find, they teach you what a production function is, but they never show examples (or practice problems) on how one comes up with a production function of a firm on his/her own. Even in practice problems, a production function is already given. I can never find practice problems that help you practice finding an actual production function (ex: A firm has 3 ovens, 2 computers, 10 special extractors, and 15 workers in an olive oil plant. Find the production function for this firm).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I personally want to see how an economist makes up his/her own production function of a firm he/she is observing. I know this takes some sort of mathematical ability. I personally am not that good at modeling real life situations into functions yet (I am practicing that as well). This is why I want to practice this particular skill. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can anyone please show me examples of this? Does anyone have any good websites or books that show great examples of this, along with practice problems? I have found nothing in almost every book/website I've found. Please help. Thank you.&lt;/p&gt;&#xA;" OwnerUserId="5929" LastActivityDate="2015-10-14T07:26:14.333" Title="Examples of how economists come up with a production function for a firm?" Tags="&lt;microeconomics&gt;&lt;production-function&gt;&lt;firm&gt;" AnswerCount="3" CommentCount="3" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8677" PostTypeId="2" ParentId="8635" CreationDate="2015-10-12T11:48:54.950" Score="4" Body="&lt;p&gt;I think the &lt;a href=&quot;https://economics.stackexchange.com/a/8636/1601&quot;&gt;answer&lt;/a&gt; of @EnergyNumbers covers most of the important points but I would like to emphasize something else. When setting up a model you should not give the same weights to data from 500 years ago as you give to the data of last year. Since circumstances can change a lot in that time the trends may change as well. For example world population was nearly constant between 1000 and 1300 but it did exhibit significant growth in the last two centuries. There was perhaps geometric growth in the 19th and 20th century as modern medicine spread to all parts of the world but this process is now over (most places have basic forms of modern medicine) and the current growth may be better described by a linear curve. Who knows, maybe in a year the shape of the curve will change again. I would not bet on this though. &lt;br&gt;&#xA;To highlight the importance of changing circumstances here is an anecdote (which is not proof of anything):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In 1894, the Times of London estimated that in under 60 years, every street in the city would be buried nine feet deep in horse manure. Similarly, a New York prognosticator in the 1890s predicted by 1930 the citizens of that not-so-fair city would see that selfsame horse excrement rise three stories high if nothing were done. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-10-12T11:48:54.950" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8678" PostTypeId="1" CreationDate="2015-10-12T12:08:26.613" Score="1" ViewCount="71" Body="&lt;p&gt;Let's say in a few decades we can find a new technology to produce gold at low cost which will cause the price of gold to be as low as other metals.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is that how would this have an impact on the economy of countries which hold significant amount of golds? And how would this impact on the economy of other countries?&lt;/p&gt;&#xA;" OwnerUserId="5931" LastActivityDate="2015-10-12T12:08:26.613" Title="What is the impact of a technology to produce gold at low cost?" Tags="&lt;currency&gt;&lt;commodities&gt;" AnswerCount="0" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="8679" PostTypeId="2" ParentId="8673" CreationDate="2015-10-12T13:40:33.137" Score="1" Body="&lt;p&gt;There is theoretical work on the matter in general. In fact, many standard models of optimal consumption taxation will typically yield a distortion that is increasing and convex in the rate of taxation. This means that increasing a tax on a good from 5% to 6% results in higher distortion than increasing it from 2% to 3%. Following this logic, it is better to tax many goods at a low rate than to tax few goods at a high rate, as the distortion would be smaller. This means that removing the exemptions (taxing goods with a currently lower rate of taxation than the rest) is better than increasing the tax rate on previously taxed goods (since they have a currently higher rate than the exempt goods). To conclude, it means that the distortion from taxing exempt goods, which would mean going from 0% to e.g. 20%  (assumed current VAT in Australia) is lower than going from 20% (current tax rate on non-exempt goods) to 40%, or so.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a reference, see for example slide 30 (and a few before) in &lt;a href=&quot;http://de.slideshare.net/ListianiKumalaSari/mankiw-chp8&quot; rel=&quot;nofollow&quot;&gt;this&lt;/a&gt; slide set I found online. Its from Mankiw's Microeconomic Principles.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This however does not take into account any &quot;fairness&quot; considerations or welfare implications for the case of households not being able to afford enough food as a result. So the standard theory may not apply in cases where taxing food at all may lead to starvation, as starvation is not considered. However this is likely not the case anyway for such a rich economy as Australia that has other means of providing welfare (incl. food) to the needy.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastEditorUserId="5557" LastEditDate="2015-10-12T13:47:43.157" LastActivityDate="2015-10-12T13:47:43.157" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8680" PostTypeId="1" CreationDate="2015-10-12T17:11:47.450" Score="10" ViewCount="212" Body="&lt;p&gt;&lt;strong&gt;Angus Deaton&lt;/strong&gt; is only the sixth economist to &lt;em&gt;not&lt;/em&gt; share the &quot;Economics Nobel&quot; (the &lt;strong&gt;&quot;Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel&quot;&lt;/strong&gt;) &lt;a href=&quot;http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/index.html&quot;&gt;in the last 20 years&lt;/a&gt; (i.e. from 1996 onwards). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Press Release reads:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Press Release&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;13 October 2015&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&lt;strong&gt;The Royal Swedish Academy of Sciences has decided to award The&#xA;  Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel&#xA;  for 2015 to&lt;/strong&gt;&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&lt;strong&gt;Angus Deaton, Princeton University, NJ, USA&lt;/strong&gt;&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&quot;for his analysis of consumption, poverty, and welfare&quot;.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&lt;strong&gt;Consumption, great and small&lt;/strong&gt;&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;To design economic policy that promotes welfare and reduces poverty,&#xA;  we must first understand individual consumption choices. More than&#xA;  anyone else, Angus Deaton has enhanced this understanding. By linking&#xA;  detailed individual choices and aggregate outcomes, his research has&#xA;  helped transform the fields of microeconomics, macroeconomics, and&#xA;  development economics.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&lt;strong&gt;The work for which Deaton is now being honored revolves around three&#xA;  central questions:&lt;/strong&gt;&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&lt;strong&gt;How do consumers distribute their spending among different goods?&lt;/strong&gt;&#xA;  Answering this question is not only necessary for explaining and&#xA;  forecasting actual consumption patterns, but also crucial in&#xA;  evaluating how policy reforms, like changes in consumption taxes,&#xA;  affect the welfare of different groups. In his early work around 1980,&#xA;  Deaton developed the Almost Ideal Demand System – a flexible, yet&#xA;  simple, way of estimating how the demand for each good depends on the&#xA;  prices of all goods and on individual incomes. His approach and its&#xA;  later modifications are now standard tools, both in academia and in&#xA;  practical policy evaluation.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&lt;strong&gt;How much of society's income is spent and how much is saved?&lt;/strong&gt; To&#xA;  explain capital formation and the magnitudes of business cycles, it is&#xA;  necessary to understand the interplay between income and consumption&#xA;  over time. In a few papers around 1990, Deaton showed that the&#xA;  prevailing consumption theory could not explain the actual&#xA;  relationships if the starting point was aggregate income and&#xA;  consumption. Instead, one should sum up how individuals adapt their&#xA;  own consumption to their individual income, which fluctuates in a very&#xA;  different way to aggregate income. This research clearly demonstrated&#xA;  why the analysis of individual data is key to untangling the patterns&#xA;  we see in aggregate data, an approach that has since become widely&#xA;  adopted in modern macroeconomics.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&lt;strong&gt;How do we best measure and analyze welfare and poverty?&lt;/strong&gt; In his more&#xA;  recent research, Deaton highlights how reliable measures of individual&#xA;  household consumption levels can be used to discern mechanisms behind&#xA;  economic development. His research has uncovered important pitfalls&#xA;  when comparing the extent of poverty across time and place. It has&#xA;  also exemplified how the clever use of household data may shed light&#xA;  on such issues as the relationships between income and calorie intake,&#xA;  and the extent of gender discrimination within the family. Deaton's&#xA;  focus on household surveys has helped transform development economics&#xA;  from a theoretical field based on aggregate data to an empirical field&#xA;  based on detailed individual data.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;His account in Google scholar provides the following &quot;impact&quot; data&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{array}{| r | r |}&#xA;  \hline &#xA;\hline                       &#xA;  \text {Index name} &amp;amp;  \text{All} &amp;amp; \text{Since 2010} \\&#xA;  \hline                      &#xA;\text {Citations}   &amp;amp; 53,873 &amp;amp; 20,851 \\&#xA;\text{h-index}   &amp;amp; 92 &amp;amp; 66 \\&#xA;\text{i10-index} &amp;amp; 184	&amp;amp; 143\\&#xA;  \hline  &#xA;\end{array}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;See for starters the wikipedia article, for the &quot;&lt;a href=&quot;https://en.wikipedia.org/wiki/H-index&quot;&gt;h-index&lt;/a&gt;&quot; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the &quot;&lt;a href=&quot;https://en.wikipedia.org/wiki/H-index#i10-index&quot;&gt;i10-index&lt;/a&gt;&quot; it reads:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;The i10-index indicates the number of academic publications an author has written that have at least ten citations from others. It was&#xA;  introduced in July 2011 by Google as part of their work on Google&#xA;  Scholar.&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My question?&lt;/strong&gt;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Have you used A. Deaton's work in your studies or in your research? How?&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="4816" LastEditDate="2018-09-02T19:29:34.783" LastActivityDate="2018-09-02T19:29:34.783" Title="The 2015 Economics &quot;Nobel&quot;: Angus Deaton" Tags="&lt;research&gt;" AnswerCount="2" CommentCount="0" ClosedDate="2015-10-16T15:29:46.417" ContentLicense="CC BY-SA 3.0" />
  <row Id="8681" PostTypeId="2" ParentId="8635" CreationDate="2015-10-12T17:38:25.537" Score="7" Body="&lt;p&gt;The Malthusian crisis has two parts. The first is exponential population growth. As others have noted, there is a trend for declining fertility once countries achieve an advanced state of development. Here's another figure showing this fact:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/0V9c1.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/0V9c1.png&quot; alt=&quot;Trends in fertility rates&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that fertility (number of children per adult female) is decreasing essentially everywhere, and is forecast to be only slightly above replacement level worldwide by the middle of the century. &lt;a href=&quot;https://en.wikipedia.org/wiki/Total_fertility_rate&quot; rel=&quot;nofollow noreferrer&quot;&gt;Here's the source&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It also turns out that Malthus greatly underestimated the importance and potential of technological development for agriculture.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here's the amount of wheat produced from one hectare of land in the developing world (where most population growth takes place; &lt;a href=&quot;https://en.wikipedia.org/wiki/Agricultural_productivity&quot; rel=&quot;nofollow noreferrer&quot;&gt;figure source&lt;/a&gt;):&#xA;&lt;a href=&quot;https://i.stack.imgur.com/UlomS.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/UlomS.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The consequence for food producting is shown in the following figure, which shows an index of food production per-capita (&lt;a href=&quot;https://en.wikipedia.org/wiki/Agricultural_productivity&quot; rel=&quot;nofollow noreferrer&quot;&gt;source&lt;/a&gt;):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/a6Gar.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/a6Gar.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's increasing, meaning that the rate of growth in agricultural productivity has actually exceeded the rate of population growth over the last half-century (despite this being the period of fastest recorded population growth).&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2015-10-12T17:38:25.537" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8683" PostTypeId="2" ParentId="8594" CreationDate="2015-10-12T17:47:18.113" Score="1" Body="&lt;p&gt;If you are interested in Tobin's (average) q,  you might find useful &lt;em&gt;A Simple Approximation of Tobin's q&lt;/em&gt; (&lt;a href=&quot;http://www.jstor.org/stable/3665623?seq=1#page_scan_tab_contents&quot; rel=&quot;nofollow&quot;&gt;Chung and Pruitt (1994)&lt;/a&gt;). That paper has a highly accurate approximation for Tobin's Q using Compustat. While the JSTOR copy I linked to is pay-walled, other versions appear not to be. &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2015-10-12T17:47:18.113" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8684" PostTypeId="2" ParentId="8628" CreationDate="2015-10-12T17:55:05.057" Score="2" Body="&lt;p&gt;You are getting confused because you are &quot;reasoning from a price change.&quot; Interest rate changes don't just happen by themselves, so they cannot be the cause of other effects in the economy. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What actually happens is:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;The central bank drains money from the economy.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The interest rate has to rise, otherwise people would try to borrow more money than there is available.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;The fact that other people can step in and become lenders may mean that the real interest rate wouldn't rise very much. But the central bank can take this into account. It can just drain extra money from the system to achieve its interest rate target.&lt;/p&gt;&#xA;" OwnerUserId="5874" LastActivityDate="2015-10-12T17:55:05.057" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="8687" PostTypeId="2" ParentId="8635" CreationDate="2015-10-12T19:02:07.327" Score="4" Body="&lt;p&gt;The other excellent answers provided data - mine will provide a simple look into &lt;em&gt;at what stage we are, if Malthusian Theory holds&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I replicate here the first graph of the OP:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/laRnc.gif&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/laRnc.gif&quot; alt=&quot;Malthusian population&quot;&gt;&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the graph to be meaningful, &quot;resources&quot; in it must be measured in &quot;number of people that can be sustained by existing resources&quot;. To the degree that the amount of resources needed to sustain one person have not really changed -we are talking about survival here, not &quot;good living&quot;-, this normalization does not affect the remarks that follow.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Contemplating the above graph, we realize the following: there is an &quot;initial period&quot;, during which the growth rate of resources is &lt;em&gt;larger&lt;/em&gt; than the growth rate of the population. Then the exponential growth of population starts to show, and its growth rate becomes greater than the growth rate of resources (which is assumed in the Theory to remain constant). And these happen &lt;em&gt;before&lt;/em&gt; the &quot;Point of Crisis&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is the implication of this? That there is an initial period where &quot;resources per capita&quot; grow, and then we enter a second stage where &quot;resources per capita&quot; &lt;em&gt;fall&lt;/em&gt; as we start to approach the &quot;point of crisis&quot;. &lt;strong&gt;Note that this has &lt;em&gt;nothing&lt;/em&gt; to do with how resources are &lt;em&gt;distributed&lt;/em&gt; among humans.&lt;/strong&gt;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, according to the Malthusian Theory itself, &lt;strong&gt;a clear sign that we have started to approach the point of crisis, will be the observation that &quot;resources per capita&quot; start to exhibit a downward trend.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is a general conclusion, even if we assume that resources do not grow linearly but may exhibit exponential growth (albeit weaker than that of the population).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, the OP reminded us that the rise in population during the 20th century, was &lt;em&gt;immense&lt;/em&gt;. Looking at the (excel) figures provided by the OP, in the period $1960-2010$  &lt;strong&gt;population rose from 3 bill to 7 bill, i.e. by 134%&lt;/strong&gt;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand, as @EnergyNumbers' answer reports, &lt;strong&gt;food production per capita grew by 45% between 1961 and 2013&lt;/strong&gt;. But this means that &lt;strong&gt;food production itself grew by 235%&lt;/strong&gt;: the &quot;resources per capita&quot; figure still grows comfortably.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So to the question&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;Is Malthusian theory of population growth being realized?&quot;&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The answer is &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;Even if the theory in its essence is correct, we are still at a point where resources grow at a rate greater than the population. So the&#xA;  answer is no, we have no evidence that this is so, that &quot;the theory is being realized&quot;,&#xA;  because currently, the (positive) distance between resources and&#xA;  population &lt;strong&gt;grows&lt;/strong&gt; and doesn't shrink, so no &quot;crisis point&quot; in sight.&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-10-14T09:54:17.110" LastActivityDate="2015-10-14T09:54:17.110" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8688" PostTypeId="2" ParentId="8676" CreationDate="2015-10-12T19:22:53.430" Score="2" Body="&lt;p&gt;The &quot;production function&quot; in economics and econometrics &lt;em&gt;is not an engineering concept&lt;/em&gt;. It is a highly abstract construction where the myriads of inputs used are lumped together in very few categories: &quot;capital&quot; and &quot;labor&quot; being the most usual ones, while sometimes inputs critical to an industry like say &quot;Energy&quot; may be singled out and appear in the production-function formulation. At such an abstract level, it is easily implementable without the need to go into particulars of each firm.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Moreover, in many if not most of the cases, what is modeled is the production of &lt;em&gt;value added&lt;/em&gt;, not the total output (either in quantities or in values).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Applied work commissioned by specific (usually very large) firms, and also, applied research into &quot;adjustment costs&quot; or what is called &quot;insider econometrics&quot;, may go some steps towards creating much more complex production functions, that essentially try to take into account the actual physical relations and interactions between the various inputs. But these are very specialized areas -remember that the Economics discipline ultimately is about markets and economic systems -the &quot;individual&quot; (firm or person) level is researched mainly in order to have sound foundations for the aggregation that follows.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-10-12T19:22:53.430" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8689" PostTypeId="1" CreationDate="2015-10-12T20:12:31.180" Score="10" ViewCount="129" Body="&lt;p&gt;I was &lt;a href=&quot;https://editorialexpress.com/cgi-bin/conference/download.cgi?db_name=SSCWatBC&amp;amp;paper_id=150&quot; rel=&quot;noreferrer&quot;&gt;reading a paper&lt;/a&gt; by &lt;em&gt;Platz and Østerdal&lt;/em&gt; (2014) titled &quot;&lt;strong&gt;The curse of the first-in-first-out queue discipline&lt;/strong&gt;&quot;. I was wondering about a particular section of it, particularly the part about last-in-first-out mechanisms. &lt;span class=&quot;math-container&quot;&gt;$R(t)$&lt;/span&gt; is defined as the cumulative arrival distribution, and they try and show:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;Let &lt;span class=&quot;math-container&quot;&gt;$R(t)$&lt;/span&gt; be a Nash Equilibrium for the FIFO (first-in-first-out) queue discipline. Then &lt;span class=&quot;math-container&quot;&gt;$R(t)$&lt;/span&gt; is Lipschitz continuous.&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This is the second Lemma on page 2.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am not quite understanding why we are trying to show this property to lead into the third Lemma. What is the importance of Lipschitz continuity here? A basic intuitive answer should be okay, but some math would help me I think. Are they trying to ultimately show that &lt;span class=&quot;math-container&quot;&gt;$R(t)$&lt;/span&gt; is a unique Nash equilibrium for FIFO? &lt;/p&gt;&#xA;" OwnerUserId="4251" LastEditorUserId="4251" LastEditDate="2019-04-17T19:04:15.573" LastActivityDate="2019-04-17T19:04:15.573" Title="Queuing Discipline and Lipschitz Continuity" Tags="&lt;microeconomics&gt;" AnswerCount="0" CommentCount="6" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="8690" PostTypeId="1" CreationDate="2015-10-13T00:23:57.873" Score="1" ViewCount="334" Body="&lt;p&gt;If Fed buys more mortgage-backed securities, does it necessary mean that the interest rate will go down? Consider the supply and demand market for mortgages  and let us assume the supply side is the commercial banks and the demand side is households. It follows that supply increases as Fed buys mortgage-backed securities, which causes the interest rate to fall. However, suppose that although the Fed starts buying mortgage-backed securities from the banks, the banks think it is too risky to hold mortgages after the increase in the delinquency rate during the financial crisis. So the supply does not actually increase and thus the interest rate does not increase. Is this scenario possible?&lt;/p&gt;&#xA;" OwnerUserId="4551" LastEditorUserId="264" LastEditDate="2015-10-13T19:26:37.573" LastActivityDate="2015-10-13T19:26:37.573" Title="Why does Fed buying mortgage backed security help lower the interest rate for mortgages?" Tags="&lt;quantitative-easing&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8691" PostTypeId="2" ParentId="8690" CreationDate="2015-10-13T01:02:47.780" Score="2" Body="&lt;p&gt;Addressing your question directly, yes, the rate will necessarily decrease. The Fed's purchases of MBS were entirely MBS that were securitized by the government-sponsored enterprises (GSEs). GSE MBS are not subject to credit risk, as the credit risk is guaranteed by the GSEs. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Further, banks underwriting mortgages that are securitized through this channel aren't holding any credit risk— the only real risk they face is that if a loan that defaults is found to have underwriting defects, the originating bank can be forced to repurchase the loan from the GSE through which it was securitized. This repurchase risk isn't trivial, but it can be controlled in a number of ways (proper underwriting being foremost among them). As a result, the channel that you posit— bank perceptions of mortgage risk increasing, offsetting rate decreases brought about by QE— is not possible.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Empirical evidence supports the above assertion— rates did in fact decrease. &lt;a href=&quot;http://www.nber.org/papers/w17555&quot; rel=&quot;nofollow&quot;&gt;Krishnamurthy and Vissing-Jorgensen&lt;/a&gt; say:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;We document that the Federal Reserve’s purchase of long-term Treasuries and other long-term&#xA;  bonds (&quot;QE1&quot; in 2008-2009 and &quot;QE2&quot; in 2010-2011) significantly lowered nominal interest&#xA;  rates on Treasuries, Agencies, corporate bonds, and mortgage-backed securities, but with&#xA;  magnitudes that differed across bonds, across maturities, and across QE1 and QE2.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="264" LastEditorUserId="264" LastEditDate="2015-10-13T02:13:12.857" LastActivityDate="2015-10-13T02:13:12.857" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8692" PostTypeId="1" AcceptedAnswerId="8695" CreationDate="2015-10-13T01:20:03.107" Score="5" ViewCount="479" Body="&lt;p&gt;When studying preference over lotteries we learned the independence axiom which goes like this:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;The preference relation &lt;span class=&quot;math-container&quot;&gt;$\succsim$&lt;/span&gt; on the space of simple lotteries &lt;span class=&quot;math-container&quot;&gt;$\mathscr{L}$&lt;/span&gt; satisfies the independence axiom if for all &lt;span class=&quot;math-container&quot;&gt;$L$&lt;/span&gt;，&lt;span class=&quot;math-container&quot;&gt;$L^\prime$&lt;/span&gt;，&lt;span class=&quot;math-container&quot;&gt;$L^{\prime \prime} \in \mathscr{L}$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\alpha \in (0,1)$&lt;/span&gt; we have&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$L \succsim L^\prime \iff \alpha L + (1 - \alpha) L^{\prime \prime} \succsim \alpha L^{\prime} + (1 - \alpha) L^{\prime \prime} $$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;What if &lt;span class=&quot;math-container&quot;&gt;$\alpha \ge 1$&lt;/span&gt;?  I guess that will be a quick extension for the case of &lt;span class=&quot;math-container&quot;&gt;$\alpha \in (0,1)$&lt;/span&gt; but I don't know how to show it.&lt;/p&gt;&#xA;" OwnerUserId="5850" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2015-10-14T21:03:36.813" Title="Independence axiom of lottery when $\alpha \ge 1$" Tags="&lt;microeconomics&gt;&lt;decision-theory&gt;&lt;risk&gt;&lt;uncertainty&gt;" AnswerCount="1" CommentCount="10" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8693" PostTypeId="1" CreationDate="2015-10-13T03:35:10.027" Score="2" ViewCount="31" Body="&lt;p&gt;I was reading an article on Becker Social Pricing, where your demand for a good depends on other people's demand for the good. So basically &lt;a href=&quot;https://fbaum.unc.edu/teaching/PLSC541_Fall06/Becker%20JPE%201991.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;this paper&lt;/a&gt; is meant to be a primer into explaining why some places price in such a way that they have chronic shortages (think of big concerts or popular restaurants). I think the idea is that seeing many people want to attend this event actually is part of what contributes to this high demand for the good, and the demand is not convex.&lt;/p&gt;&#xA;&lt;p&gt;Since demand is not convex, as in Walrasian smooth demand, (if of course I am interpreting this model correctly), then how do utility maximization problems work here, say, if we had two goods that followed this model? Assuming we still have Kuhn-Tucker sufficiency, would we just set up a Lagrangian as normal, or are there some stronger conditions we need to make sure a maximum exists?&lt;/p&gt;&#xA;" OwnerUserId="4251" LastEditorUserId="4251" LastEditDate="2020-11-20T19:18:51.197" LastActivityDate="2020-11-20T19:18:51.197" Title="Becker Social Pricing and Lack of Smooth Demand" Tags="&lt;utility&gt;&lt;pricing&gt;&lt;walrasian&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="8694" PostTypeId="1" CreationDate="2015-10-13T09:35:55.853" Score="1" ViewCount="184" Body="&lt;p&gt;Could you please help me with the following question:&#xA;Suppose the saving rate is $20$%, population increases $3$% annually, and capital depreciates $3.5$% annually. What is the steady state value of per capita consumption. $\alpha = 0.6$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I want to use this formula but we do not know $A$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$(1-s)A (sA /n + d)^{1/1-α}$&lt;/p&gt;&#xA;" OwnerUserId="5941" LastEditorUserId="4251" LastEditDate="2015-10-13T17:37:57.477" LastActivityDate="2015-10-13T17:37:57.477" Title="Per capita consumption in the steady state" Tags="&lt;macroeconomics&gt;" AnswerCount="0" CommentCount="11" ClosedDate="2015-10-13T21:59:43.013" ContentLicense="CC BY-SA 3.0" />
  <row Id="8695" PostTypeId="2" ParentId="8692" CreationDate="2015-10-13T15:23:22.857" Score="8" Body="&lt;p&gt;To understand why $\alpha$ &lt;em&gt;must&lt;/em&gt; be constrained in $(0,1)$, one has to contemplate the meaning of the expression&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\alpha L$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;when $L$ is a &quot;lottery&quot;. How is a lottery denoted mathematically? Authors do not agree on that: for example, the way &lt;strong&gt;&lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0273731912&quot; rel=&quot;nofollow&quot;&gt;Jahle and Reny&lt;/a&gt;&lt;/strong&gt; define a lottery (a &quot;gamble&quot; in their terminology), a lottery can be written as a vector whose elements are bivariate vectors themselves:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$L=\{(p_1,w_1),...,(p_n, w_n)\}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $p_i$ are probabilities, and $w_i$ are quantitative outcomes. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But &lt;strong&gt;&lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0195073401&quot; rel=&quot;nofollow&quot;&gt;MasColell, Whinston and Green&lt;/a&gt;&lt;/strong&gt;, define a lottery as a vector &lt;em&gt;containing only the probabilities&lt;/em&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$L=\{p_1,...,p_n\}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and so the &quot;Lottery Space&quot; is a vector space, including vectors each containing only probabilities.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But in both cases, the authors make clear that an expression like $\alpha L$, when the time comes to translate it into a mathematical operation, denotes a &lt;em&gt;multiplication&lt;/em&gt; of only the &lt;em&gt;probabilities&lt;/em&gt; linked with $L$ by &lt;em&gt;another probability&lt;/em&gt;, $\alpha$. This is implementing the reduction of compound lotteries to simple ones. &lt;strong&gt;JR&lt;/strong&gt; describe it as &quot;the decision maker cares only about &lt;em&gt;effective&lt;/em&gt; probabilities of each outcome&quot;. &lt;strong&gt;MWG&lt;/strong&gt; call it the &quot;consequentialist premise&quot;, that allows them to work only with simple lotteries.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So it is not valid to consider $\alpha$ outside $(0,1)$, because it is defined as a probability (the open bounds are used in order to avoid triviality in the statement of the Independence axiom).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, the above imply that $\alpha$ does not directly interact with the quantitative outcomes of the lottery/gamble...  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;...which points to a (perhaps interesting, perhaps not) research direction: What can we say (if anything), if we start tweaking the &lt;em&gt;outcomes&lt;/em&gt; linked with a lottery? Will &quot;attitude towards risk&quot; get in the way and prevent us from drawing any general conclusions? Or not?&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-10-14T21:03:36.813" LastActivityDate="2015-10-14T21:03:36.813" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8697" PostTypeId="1" CreationDate="2015-10-13T20:33:13.397" Score="2" ViewCount="69" Body="&lt;p&gt;Many leading Austrian thinkers propose a 100% reserve gold standard banking.  They agree that such a system leads inevitably to monetary deflation if productivity continually improves.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Austrians also believe that markets free of distortions are optimal.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, some Austrians must either believe that (a) the monetary deflation resulting from the proposed monetary system doesn't distort credit markets, or (b) it does, but there is no practical alternative that does provide for free credit markets, or (c) something I've not thought of.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which do they believe?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am having trouble seeing how deflation could NOT distort credit markets, since if the free-market real interest rate for a given loan, as determined by time preference for consumption, is less than the expected deflation rate, no transaction will take place even though both parties would benefit by making one. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But then which rationale is given for 100% reserve banking with gold standard?&lt;/p&gt;&#xA;" OwnerUserId="5906" LastActivityDate="2018-03-01T15:50:54.603" Title="In Austrian theory, does constant, predicted deflation distort credit markets?" Tags="&lt;deflation&gt;&lt;austrian&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8698" PostTypeId="1" AcceptedAnswerId="8699" CreationDate="2015-10-13T21:29:36.040" Score="4" ViewCount="386" Body="&lt;p&gt;Suppose I have a rational preference relation $\succsim$ on some consumption set $X$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose also that there is a utility function $u:X \to \mathbb{R}$ representing $\succsim$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Definition: A function $u: X \to \mathbb{R}$ is a utility function representing preference relation $\succsim$ if, for all $x, y  \in X$, $$x \succsim y \iff u(x) \geq u(y)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is it possible to prove that $x \succ y \iff u(x) &amp;gt; u(y)$ without a continuity condition on $\succsim$?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My intuition says no, but am having difficult finding a suitable counter example. Any help is appreciated.&lt;/p&gt;&#xA;" OwnerUserId="5731" LastActivityDate="2015-10-13T22:05:17.350" Title="Strict preference relations and utility representations" Tags="&lt;consumer-theory&gt;&lt;utility&gt;&lt;preferences&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8699" PostTypeId="2" ParentId="8698" CreationDate="2015-10-13T21:42:05.113" Score="7" Body="&lt;p&gt;Yes it is: &lt;br&gt;&#xA;If direction&#xA;$$&#xA;x \succ y \Rightarrow x \not \precsim y \Rightarrow u(x) &amp;gt; u(y).&#xA;$$&#xA;Only if direction: &lt;br&gt;&#xA;For all $x, y  \in X$, &#xA;$$&#xA;x \succsim y \iff u(x) \geq u(y)&#xA;$$&#xA;implies&#xA;$$&#xA;x \sim y \iff u(x) = u(y).&#xA;$$&#xA;Also&#xA;$$&#xA;u(x) &amp;gt; u(y) \Rightarrow u(x) \geq u(y) \Rightarrow  x \succsim y ,&#xA;$$&#xA;$$&#xA;u(x) &amp;gt; u(y) \Rightarrow u(x) \not = u(y) \Rightarrow  x \not\sim y.&#xA;$$&#xA;and&#xA;$$&#xA;x \succsim y \mbox{ AND } x \not\sim y \Rightarrow x \succ y.&#xA;$$&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2015-10-13T21:54:33.150" LastActivityDate="2015-10-13T21:54:33.150" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8701" PostTypeId="2" ParentId="8676" CreationDate="2015-10-13T22:36:46.990" Score="1" Body="&lt;p&gt;&lt;strong&gt;It's about mathematical modelling. We model real-world phenomenon by applying mathematics. We approximate real-world parameters using these models.&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For modelling the production function of a commodity you need to do, chronologically, &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;For the commodity, observe the factory, its laborers, the owner, the machines, the plant-size, the productions, the production process, etc..&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Now, since you want the production function of the commodity, you look for the factors that influence the amount of production of units the most. Discard those factors that have negligible influence.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Now, make a function(f) of these selected factors treating them as independent variables, observing the relationships among them and the f.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Test your function for a huge number of instances by comparing the real measurement and the functional value on each instance. Look at the error part in the comparison. The error has to be low. Too much error discards the function.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Negligible error establishes the function, otherwise you go to step 1 and restart.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;{When you show your established function, mention all the assumptions that have been made.}&lt;/p&gt;&#xA;" OwnerUserId="4365" LastActivityDate="2015-10-13T22:36:46.990" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8702" PostTypeId="1" AcceptedAnswerId="8711" CreationDate="2015-10-13T23:39:03.530" Score="2" ViewCount="75125" Body="&lt;p&gt;Suppose the supply of a good is given by the equation $Q_S = 360*P_S - 720$. And the demand for a good is given by $Q_D = 960 - 120*P_D$. The government decides to levy a tax of \$2 per unit on the good, to be paid by the seller.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And I must find the equilibrium quantity of the curves, after the \$2 tax has been taken into account for. I know the equilibrium quantity is 540 before the tax based on the following calculations:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;$Q_S=Q_D$&lt;/li&gt;&#xA;&lt;li&gt;$360P-720 = 960-120P$&lt;/li&gt;&#xA;&lt;li&gt;$480P = 1680$&lt;/li&gt;&#xA;&lt;li&gt;$P = 3.5$&lt;/li&gt;&#xA;&lt;li&gt;If we sub in 3.5 into both equations ($Q_S$ and $Q_D$) then we get 540.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Therefore, the equilibrium quantity is 540 before taxes have been taken into account. However, I am unsure how to figure out the equilibrium quantity after the tax.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does anyone know how to go about solving this issue?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;All help is appreciated.&lt;/p&gt;&#xA;" OwnerUserId="5785" LastEditorUserId="264" LastEditDate="2015-10-14T00:18:51.023" LastActivityDate="2015-10-14T21:30:07.897" Title="How Do I Calculate the After-Tax Equilibrium Quantity of a Supply and Demand Graph?" Tags="&lt;supply-and-demand&gt;&lt;taxation&gt;&lt;general-equilibrium&gt;" AnswerCount="1" CommentCount="4" ClosedDate="2015-10-14T18:27:12.160" ContentLicense="CC BY-SA 3.0" />
  <row Id="8704" PostTypeId="2" ParentId="8676" CreationDate="2015-10-14T07:26:14.333" Score="2" Body="&lt;p&gt;Actually there is a large literature on the estimation of production functions. Usually, one starts out with assuming a particular functional form (CES, Cobb-Douglas, etc.) and then estimating the parameters of the model. As indicated, the mathematics of this estimation are often nontrivial. However, here are some early references which can provide you with an entry point to the literature:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Aigner, D., Lovell, C. K., &amp;amp; Schmidt, P. (1977). Formulation and estimation of stochastic frontier production function models. Journal of Econometrics, 6(1), 21-37.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Førsund, F. R., Lovell, C. K., &amp;amp; Schmidt, P. (1980). A survey of frontier production functions and of their relationship to efficiency measurement. Journal of Econometrics, 13(1), 5-25.&lt;/p&gt;&#xA;" OwnerUserId="5635" LastActivityDate="2015-10-14T07:26:14.333" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8705" PostTypeId="2" ParentId="8680" CreationDate="2015-10-14T16:00:00.037" Score="4" Body="&lt;p&gt;Deaton's &quot;Understanding Consumption&quot; (1993) was one of the major sources I used when doing seminar work for my master's. In the end I decided to write my thesis about a different (somewhat related) subject after realising the empirical difficulties with what I planned on doing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have since chosen a different research subject, but Understanding Consumption is a book I have spent many hours with. It's a bit dated now, but still a decent read if you want to know about consumption and saving.&lt;/p&gt;&#xA;" OwnerUserId="5512" LastActivityDate="2015-10-14T16:00:00.037" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8706" PostTypeId="2" ParentId="4424" CreationDate="2015-10-14T17:38:30.173" Score="3" Body="&lt;p&gt;To the question &quot;can't computer scientists be just as corrupt?&quot; of course the answer is yes.  The thing of it is that every bit of bitcoin is open source so everything is trust and verify with bitcoin.  With status quo banking everything is trust and.... trust some more.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Everything that I'll list as a benefit could equally be seen as a deterrent to a statist.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Bitcoins are decentralized.  That means that no matter what a court says, they can't be confiscated, assuming a secure wallet.  There's no amount of banking security you can instill that supersedes a court from ordering a bank to transfer your funds out.  Of course, this sounds bad if you live in a country with low corruption and will never become corrupt.  However, if you live in a country that is or may become corrupt then this is clearly good.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Being decentralized also allows for cheaper transfers of money.  I can send a bitcoin to someone on the other side of the globe with the same ease that I can send bitcoin to someone in the same room as me.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Keeping money secure with bitcoin doesn't require a bank so you are never forced to choose between keeping cash under a mattress or accepting a negative savings rate.  &lt;/p&gt;&#xA;" OwnerUserId="5947" LastActivityDate="2015-10-14T17:38:30.173" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8707" PostTypeId="1" CreationDate="2015-10-14T17:52:29.933" Score="1" ViewCount="412" Body="&lt;p&gt;Could you guys help me with this question:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is the long run effect of a decrease in savings on output per capita ?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To me a decrease in savings will mainly increase increase consumtption and push the steady state  to the left. I don't really see the impact on output per capita in the long run&lt;/p&gt;&#xA;" OwnerUserId="5948" LastActivityDate="2015-10-14T17:52:29.933" Title="Long run effect of decrease in savings on output per capita" Tags="&lt;macroeconomics&gt;" AnswerCount="0" CommentCount="5" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8708" PostTypeId="1" CreationDate="2015-10-14T18:45:45.047" Score="2" ViewCount="413" Body="&lt;p&gt;Bear with me - this is a long question. But I did do few of the parts, but I'm posting it because it seems necessary that you know what I previously did. Sorry for the &quot;length&quot;! Answers are given in blockquotes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;MAC = Marginal Abatement Cost MDF = Marginal Damage Function &lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) A policy maker is faced with the following MDF from the emissions of nitrous oxide: MDF = 1000 E (where E = tons of emissions). Research leads the policy maker to perceive that the industry MAC function is MAC = 130,000 – 1000E. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;a) What will be the perceived economically efficient target of emissions?&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Efficient target would be the situation where &#xA;  MDF = MAC&#xA;  | 1000E = 130,000 – 1000E&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;E = 65&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;b) What is the emissions fee that generates that target?&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Emission fee = MDF = 1,000E = 1,000 × 65 = 65,000&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;c) What is the aggregate level of permits that generates that target?&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Aggregate level of permit = MDF × E = 65,000 × 65 = 4,225,000&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;d) If there is a thick market for permits, what will be the market price of a permit?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;e)The actual MAC is MAC = 150,000 – 500E. Find or show the cost of an error from using an emission fee.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;f) The actual MAC is MAC = 150,000 – 500E. Find or show the cost of an error from using cap and trade.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Could someone help me figure out on how to do part d, e and f?  &lt;/p&gt;&#xA;" OwnerUserId="5950" LastEditorUserId="5950" LastEditDate="2015-10-14T19:59:19.137" LastActivityDate="2015-10-14T19:59:19.137" Title="MDF/MAC emissions and policies" Tags="&lt;environmental-economics&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8709" PostTypeId="1" CreationDate="2015-10-14T20:18:39.697" Score="6" ViewCount="1591" Body="&lt;p&gt;I could really use some advice. I am a new PhD student in Economics and Finance. My background is in economics, and while I did mathematics in my Master's course, it was more data-analysis based rather than formal proofs. So, for instance, I have become quite adept at analysing data in SPSS, STATA, R etc, but struggle when it comes to being given a formal problem and then having to prove using formal means; e.g. proving that a particular sequence is Cauchy or Martingale, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What are the best ways to become better at formal theorem-proofs? I know that practice is the most obvious answer, but is there a base from which I should be starting? e.g. are there certain &quot;bread-and-butter&quot; proofs in mathematical economics such as law of large numbers, central limit theorem etc, that being able to prove would make it easier to prove others?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Would appreciate some advice on how to get better at the theorem-proof method, or even some textbooks/resources that would help with this, given that my background in this area is very limited.&lt;/p&gt;&#xA;" OwnerUserId="5951" LastEditorUserId="5951" LastEditDate="2015-10-14T21:32:55.517" LastActivityDate="2021-04-22T10:02:48.350" Title="Doing a PhD Economics without background in formal theorems?" Tags="&lt;econometrics&gt;&lt;mathematical-economics&gt;&lt;academic-graduate&gt;" AnswerCount="1" CommentCount="4" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8710" PostTypeId="1" CreationDate="2015-10-14T21:02:20.777" Score="4" ViewCount="69" Body="&lt;p&gt;The rationale for giving tax cuts to the income brackets is that this money is then invested in new businesses which increases jobs. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the saved money is being saved/invested instead of being spent, this would increase the amount of lending capital available and decrease interest rates. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given that changing tax rates is a distinct and frequent occurrence around the world in a variety of contexts, there must be a lot of data available to perform a regression on. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Do tax cuts to higher income brackets cause a subsequent lowering of interest rates? &lt;/p&gt;&#xA;" OwnerUserId="96" LastEditorUserId="5635" LastEditDate="2015-10-15T20:54:06.800" LastActivityDate="2015-12-14T21:49:26.000" Title="Do tax cuts to the rich lower interest rates?" Tags="&lt;interest-rate&gt;&lt;taxation&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8711" PostTypeId="2" ParentId="8702" CreationDate="2015-10-14T21:30:07.897" Score="2" Body="&lt;p&gt;Implementing @dismalscience comment suggestion, the unit tax burdens the suppliers. So the demand schedule is not affected, only supply. How? Since the tax is fixed per unit sold (and not a percentage charge), then the slope of the supply curve should not change. Therefore what remains is an upwards shift, that will lead to increased equilibrium price-decreased equilibrium quantity. The algebra should lead one to&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/FZFex.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/FZFex.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One could see this as a fixed shift in overall (not just production) &lt;em&gt;marginal&lt;/em&gt; cost: the quantity has the same production marginal cost as before -but now &quot;$2&quot; is added as an obligation per unit, to cover the tax.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-10-14T21:30:07.897" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8712" PostTypeId="2" ParentId="8673" CreationDate="2015-10-14T23:50:17.833" Score="0" Body="&lt;p&gt;I came across &lt;a href=&quot;http://www.ferdi.fr/sites/www.ferdi.fr/files/evenements/presentations/2011_10_24%2625_Conf%20fiscalite%20et%20developpement_presentation_DeQuatrebarbes_EN.pdf&quot; rel=&quot;nofollow&quot;&gt;this presentation&lt;/a&gt;  which attempts to model something very similar to the question asked. &lt;a href=&quot;http://www.google.com/url?sa=t&amp;amp;rct=j&amp;amp;q=&amp;amp;esrc=s&amp;amp;source=web&amp;amp;cd=5&amp;amp;ved=0CDkQFjAEahUKEwicq9jUjsPIAhXBez4KHaEZASI&amp;amp;url=http%3A%2F%2Fecomod.net%2Fsystem%2Ffiles%2Fde_Quatrebarbes_cerdi.pdf&amp;amp;usg=AFQjCNFQDpkvuVeZb-_HmN3i0ysG5CNMlA&amp;amp;sig2=hE3IYDiBP7tYvmBPAJ8Jvg&amp;amp;cad=rja&quot; rel=&quot;nofollow&quot;&gt;Here is the full article&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It uses the VAT instead of the GST but they are basically equivalent.&#xA;&lt;strong&gt;Abstract&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In order to have the public funds necessary for its development, Niger is examining the possibility of broadening its Value- added tax (VAT) base to exempted goods and basic food products. This proposal has prompted violent opposition leading to the question of the social impacts of taxation. The question whether indirect taxes should be uniform or differentiated has already received a lot of attention in the literature but only the consumer’s consideration used to taking into account. Due to public administration inefficiencies, VAT can also become a production tax and not only a tax on consumption. This new approach can change the usual conclusion about the optimal VAT design. The first micro-macro computable general equilibrium model of Niger's actual economy has been developed to answer these questions. The model’s results show that although restoring the VAT rate would be socially costly compared to the initial situation, the distributional impact of the VAT differs according to the system implemented in the country. First of all the multiple rates VAT design can only be socially preferable compared to a single rate if VAT credits are refunded. In addition, associating the preservation of VAT exemptions in the food crop agriculture sector with a tax base expansion in the remaining sectors turns out to be the best option in Niger. Indeed it will increase public revenue while taking into account the national goal of poverty reduction.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Conclusions&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;A uniform VAT favours GDP&lt;/li&gt;&#xA;&lt;li&gt;Having a reduced rate on agricultural products is more progressive.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Having the VAT (or GST) as a consumption tax &lt;strong&gt;and&lt;/strong&gt; a production tax has some slightly different conclusions:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;the impact of the tax is ambiguous and dependent on the structure of the sector.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;In summary&lt;/strong&gt;, there is at least some empirical evidence that these consumption tax exemptions increase welfare and mitigate their slightly regressive nature.&lt;/p&gt;&#xA;" OwnerUserId="40" LastActivityDate="2015-10-14T23:50:17.833" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8713" PostTypeId="2" ParentId="8709" CreationDate="2015-10-15T00:40:10.940" Score="8" Body="&lt;p&gt;I did my undergraduate double majoring in discrete mathematics and economics. I went through the grad micro sequence, the math for economists grad course, and the game theory field course, though. So I have a good idea of what the courses are like on both ends. (Doing the grad school route now, but that's additional commentary with which I won't bore everyone).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Traditionally, coursework like abstract Linear Algebra and Number Theory have been used by math departments to teach proof writing. In the last 15-20 years, an Intro to Proofs class has been added. Number theory doesn't come up appreciably in economics. So I'd punt that. But a solid course in linear algebra is so important. And if you have a strong data science background, then you should be very comfortable with the material, though perhaps not the formalization. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Real analysis is the maturity sequence in the math departments. Rudin is the standard textbook. If you take it, expect to be putting in a solid 20 hours per week, but you will be razor sharp by the end of it. Real analysis is usually a senior or introductory grad sequence. There is often times an introductory analysis class that uses a text like Abbott. This introductory class is still something you shouldn't take lightly, but it should be much easier and sufficient for a lot of what you'll do in economics. If you are working in stochastic processes, martingales, etc., then measure is likely to come up, and so you should take the Rudin sequence at some point and follow it up with measure theory (which is a very tough grad course).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The math for economists course compresses much of these courses (usually not measure) into a semester. When I took it, we trucked through the abstract linear algebra semester-long course in three weeks. It was also an ugly presentation, but that's what happens when you push for speed rather than elegance. And this is one more reason why you should take these courses in the math department.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Combinatorics and graph theory is also becoming increasingly important in economics, with regards to networks. So a course in graph theory wouldn't hurt either. Graph theory proofs are picky in the sense that you have to be very precise in saying &quot;because it looks like it.&quot; This is different than analysis and algebra proofs. Graph theory is my particular area, so I can definitely speak to it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A course in analysis of algorithms or theory of computation wouldn't be a bad thing to have either, with complexity becoming increasingly important in economics (algorithmic mechanism design, algorithmic game theory, strategic network formation, showing computing equilibria is computationally difficult for certain classes of games, etc.). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To sum it up, I'd strongly recommend:  &lt;br/&gt;&#xA;Abstract Linear Algebra &lt;br/&gt; &#xA;Intro to Real Analysis&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'd recommend you consider: &lt;br/&gt;&#xA;Real Analysis (Rudin) &lt;br/&gt;&#xA;Measure Theory&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Nice to Have courses: &lt;br/&gt;&#xA;Graph Theory &lt;br/&gt;&#xA;Combinatorics &lt;br/&gt;&#xA;Theory of Computation &lt;br/&gt;&#xA;Analysis of Algorithms&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let me know if you want book recommendations for any of these courses.&lt;/p&gt;&#xA;" OwnerUserId="5368" LastActivityDate="2015-10-15T00:40:10.940" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8714" PostTypeId="1" AcceptedAnswerId="8717" CreationDate="2015-10-15T04:05:15.607" Score="3" ViewCount="46" Body="&lt;p&gt;According to &lt;a href=&quot;http://trade.ec.europa.eu/doclib/docs/2013/september/tradoc_151787.pdf#page=7&quot; rel=&quot;nofollow&quot;&gt;this TTIP paper&lt;/a&gt;, a European family of four will see their annual disposable income increase by €545 on average:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;These gains can also be translated into household&#xA;  disposable income. One of the most widely quoted&#xA;  figures from the CEPR study is its estimation that&#xA;  a European family of four would see their annual&#xA;  disposable income increase by an average of €545&#xA;  per year as a result of the agreement. This figure&#xA;  takes account not only of increases in wages and&#xA;  other household income but also price reductions.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;If on average all European households gain €545, does my purchasing power actually increase? If not (what I presume), why is this seen as an advantage?&lt;/p&gt;&#xA;" OwnerDisplayName="user5960" LastActivityDate="2015-10-15T06:36:13.270" Title="What will I see of the €545 from TTIP?" Tags="&lt;international-trade&gt;&lt;purchasing-power-partity&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8715" PostTypeId="1" CreationDate="2015-10-15T05:54:22.783" Score="3" ViewCount="167" Body="&lt;p&gt;In continuation to this question: &lt;a href=&quot;https://economics.stackexchange.com/questions/8597/uniqueness-of-utilities-in-competitive-equilibrium&quot;&gt;Uniqueness of utilities in competitive equilibrium&lt;/a&gt; I think I found a simple example in which the utilities in equilibrium are not unique, and wanted to check if it is true.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is an exchange economy with two goods and two agents with utilities:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$u_1(x,y)=2x+y$$&#xA;$$u_2(x,y)=3x+y$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Initially, each agent has 1 unit of $x$ and 5 units of $y$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose $p_y=1$. Then, whenever $p_x\in[2,3]$, the economy is in equilibrium, since agent 1 wants to sell all his $x$ endowment and agent 2 wants to buy all $x$. So the equilibrium utilities will be:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$u_1 = 5+p_x$$&#xA;$$u_2 = 11-p_x$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This shows that utilities are not unique.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A. Are my calculations correct?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;B. If they are correct, what is going to happen in a real competitive economy? Since the equilibria are essentially different, which of them will prevail?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT: After the price theory book again, I am not sure about my calculations. The book defines a competitive equilibirum as a situation in which the sum of demands exactly equals the sum of endowments. The demand of an agent is defined as the optimal bundle he can afford using his initial endowment. Now:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Whenever $p_x&amp;lt;3$, the demand of agent 2 is $(1+5/p_x,0)$ - he wants to buy $x$ with all his endowment of $y$. Since the total amount of $x$ is 2, this implies $p_x\geq 5$ - a contradiction.&lt;/li&gt;&#xA;&lt;li&gt;Whenever $p_x&amp;gt;3$, the demand of both agents is $(0,5+p_x)$ - both want to buy only $y$, which is obviously not an equilibrium.&lt;/li&gt;&#xA;&lt;li&gt;Hence we must have $p_x=3$. Now agent 2 is indifferent between buying or selling $x$, while agent 1 wants to buy only $y$. Hence, the demand of agent 1 is $(0,5+p_x)=(0,8)$. &lt;/li&gt;&#xA;&lt;li&gt;So, in this case there is a unique eqilibrium in which $p_x=3$, agent 1 gets $(0,8)$ and agent 2 gets $(2,2)$; the utilities are 8 and 8.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Now I am confused: is the utility vector unique or not?&lt;/p&gt;&#xA;" OwnerUserId="385" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-10-16T11:38:53.987" Title="Non-unique utilities in a competitive equilibrium" Tags="&lt;general-equilibrium&gt;&lt;competitive-equilibrium&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8716" PostTypeId="1" AcceptedAnswerId="8718" CreationDate="2015-10-15T05:57:32.700" Score="7" ViewCount="5765" Body="&lt;p&gt;What is the difference between the term &quot;competitive equilibrium&quot; and the term &quot;general equilibrium&quot;? Here in econ.SE, they are two different tags, so there is probably a difference between them, but I don't understand what exactly.&lt;/p&gt;&#xA;" OwnerUserId="385" LastActivityDate="2015-10-15T07:09:55.400" Title="&quot;Competitive equilibrium&quot; vs. &quot;General equilibrium&quot;" Tags="&lt;general-equilibrium&gt;&lt;definition&gt;&lt;competitive-equilibrium&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8717" PostTypeId="2" ParentId="8714" CreationDate="2015-10-15T06:36:13.270" Score="1" Body="&lt;p&gt;Interpreting the paper you linked:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;a European family of four would see their annual&#xA;  disposable income increase by an average of €545&#xA;  per year as a result of the agreement. This figure&#xA;  takes account not only of increases in wages and&#xA;  other household income but also price reductions.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This means that price changes have been taken into consideration and so this income change is already corrected for any inflation. It is possible that a trade deal results in more disposable income, for a basic example see Ricardo's theory of comparative advantages.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can't say how this figure was arrived at by the paper because no explanation is given.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;The following has very little to do with your question, it is more of a reaction to what I perceive to be your anti-TTIP stance. If I am mistaken, apologies. &lt;br&gt;&#xA;I find that people who don't like TTIP focus on strange things even though there are some valid critiques. The paper you linked says that the gains are a result of, among other causes, a&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;more aligned regulatory systems agreed&#xA;  under the TTIP&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Some critiques claim that the regulatory system will be closer to US regulation which favours companies over consumers. In terms of patent rights it may also not be optimal, though the effect of patent systems on long term growth is unclear anyway. I find that these are valid worries. Even if TTIP does decrease prices (which I think it will) there may be hidden costs. I don't know if there are, but I think it should be this that is scrutinized about TTIP.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2015-10-15T06:36:13.270" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8718" PostTypeId="2" ParentId="8716" CreationDate="2015-10-15T07:09:55.400" Score="6" Body="&lt;h3&gt;Competitive Equilibrium&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;A competitive equilibrium (&quot;Walrasian Equilibrium&quot;)'s defining characteristic is that it's competitive. It's about an equilibrium in which market forces (say, consumers, firms)' supply and demand responds to prices, and prices respond to supply and demand, and no Pareto-improving trade possibility remains in the end.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To be technical, consider a market with $I$ agents, $J$ goods, and initial endowments $E$ of shape $I\times J$. Also, each agent has rational preferences over the of goods.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A CE consists of a ($J\times 1$) vector of prices $P$ and a ($I\times j$) vector of allocations $X_i$ with two characteristics:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Feasibility: $\sum_i J_i \geq \sum_i X_i \, \forall j\in J$&lt;/li&gt;&#xA;&lt;li&gt;Rationality: $X_i \succsim_i \, H \forall H: HP \leq E_iP, \forall i$&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;h3&gt;General Equilibrium&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;The general equilibrium's defining characteristic is that it is an equilibrium on more than one market; as opposed to the partial equilibrium in which we hold at least one price fixed and analyze the response of other markets/prices only.  &lt;/p&gt;&#xA;&#xA;&lt;h3&gt;So, what's the difference?&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;It's about the emphasis. Any GE is a CE, but not any CE is necessarily a GE. We could look at a CE of consumer goods, but not analyze labor supply (i.e., not even model labor). Would this then &lt;em&gt;really&lt;/em&gt; be a general equilibrium? Mostly, it is about the field. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In macroeconomics, it is a standard procedure to shut off several general equilibrium response mechanisms (for example, fix labor supply) and first look at a toy model in which only one margin is allowed to vary, and understand the mechanism - the partial equilibrium. Then, after that was understood, understand to which extent the mechanism is valid and relevant once one allows other margins to adjust. Therefore, here, it is important to be able to emphasize the difference - i.e. partial versus general equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other fields, one may not care as much about &quot;completely different&quot; markets. The distinction is for example not as important in many IO topics, and hence many there use the notion of the competitive equilibrium instead.&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-10-15T07:09:55.400" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8719" PostTypeId="1" CreationDate="2015-10-15T07:19:41.510" Score="1" ViewCount="31" Body="&lt;p&gt;What are the advantages of Import Substitution Industrialization?&#xA;I had been researching and cant find answers.&lt;/p&gt;&#xA;" OwnerUserId="5962" LastActivityDate="2015-10-15T07:19:41.510" Title="Import Substitution Industrialization" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;" AnswerCount="0" CommentCount="1" ClosedDate="2015-10-16T14:53:46.563" ContentLicense="CC BY-SA 3.0" />
  <row Id="8720" PostTypeId="1" CreationDate="2015-10-15T08:03:19.353" Score="1" ViewCount="55" Body="&lt;p&gt;Hi i like to invest in the stock market around the world does &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;it require to have a citizenship in that country&lt;/li&gt;&#xA;&lt;li&gt;is there any specific amount to invest in it with a deadlock period&lt;/li&gt;&#xA;&lt;li&gt;how can i track my investment around the globe with a single software/app&lt;/li&gt;&#xA;&lt;li&gt;As the global economic growth is moving into Asian market &lt;strong&gt;BRICKS&lt;/strong&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;hope have raised some interesting topics&lt;/p&gt;&#xA;" OwnerUserId="4885" LastActivityDate="2015-10-15T10:57:44.787" Title="Invest in stock market around the world" Tags="&lt;stock-market&gt;&lt;financial-markets&gt;" AnswerCount="0" CommentCount="0" ClosedDate="2015-10-15T10:58:05.037" ContentLicense="CC BY-SA 3.0" />
  <row Id="8721" PostTypeId="2" ParentId="8710" CreationDate="2015-10-15T09:12:34.403" Score="2" Body="&lt;p&gt;You may want to look at the literature of the effects of taxation on savings. A survey is given in: Sandmo. A. (1985) The effects of taxation on savings and risk-taking, in: Auerbach &amp;amp; Feldstein, &lt;em&gt;Handbook of Public Economics&lt;/em&gt;, Elsevier.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this survey, the (simpler) problem of the overall effect of taxation on saving behavior is analyzed. A change in tax progression is much more subtle and harder to measure.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The survey states the problems associated with estimation of this simpler problem and the author comes to the conclusion that the empirical results are inconclusive. Since then there may have been some move in the literature, however.&lt;/p&gt;&#xA;" OwnerUserId="5635" LastActivityDate="2015-10-15T09:12:34.403" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8723" PostTypeId="1" CreationDate="2015-10-15T14:33:58.617" Score="7" ViewCount="156" Body="&lt;p&gt;Consider the simplest problem of optimal control&#xA;\begin{align}&#xA;						&amp;amp;\max_u\int^T_0{F(y,u)dt}\\&#xA;\text{s.t.} \quad&amp;amp;\dot y = f(y,u)\\&#xA;&amp;amp; y(0) = y_0\\&#xA;&amp;amp; y(T)~~\text{free}&#xA;\end{align}&#xA;where $y$ is the state and $u$ the control. I'd like to use a static-like approach to derive the necessary conditions of the maximum principle. Build Lagrangian: &#xA;\begin{align}&#xA;L^1(y,u,\lambda) = \int^T_0{[F(y,u) + \lambda(f(y,u)-\dot y)]dt}&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Necessary conditionds for optimum are given by&#xA;\begin{align}&#xA;L^1_u &amp;amp;= \int^T_0{[F_u + \lambda f_u] dt} = 0\\&#xA;L^1_\lambda &amp;amp;= \int^T_0{[f(y,u)-\dot y ]dt} = 0&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Define Hamiltonian&#xA;\begin{align}&#xA;H(y,u,\lambda) := F(y,u) + \lambda f(y,u)&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;such that the FOCs can be written as&#xA;\begin{align}&#xA;H_u &amp;amp;= 0~\forall t\\&#xA;H_\lambda &amp;amp;= \dot y~\forall t&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For last FOC we write Lagrangian as (integrating by parts)&#xA;\begin{align}&#xA;L^2(y,u,\lambda) = \int^T_0{[H(y,u,\lambda) + \dot\lambda y]dt} + y_0\lambda(0) - y(t)|_{t=T}\lambda(T)&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that $L^1=L^2$. Last FOC is given by differentiating over $y$ ($y_0$ drops, cause it's fixed)&#xA;\begin{align}&#xA;L^2_y &amp;amp;= \int^T_0{[H_y + \dot \lambda] dt} - \lambda(T) = 0\\&#xA;\end{align}    &lt;/p&gt;&#xA;&#xA;&lt;p&gt;and finally &#xA;\begin{align}&#xA;H_y &amp;amp;= -\dot \lambda ~\forall t\\&#xA;\lambda(T) &amp;amp;= 0 &#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So we are done here. &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;How can I get those conditions without varying the Lagrangian, i.e. stick to either $L^1$ or $L^2$? &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="4266" LastActivityDate="2015-10-17T15:50:19.500" Title="Simple Derivation of Maximum Principle" Tags="&lt;optimization&gt;&lt;optimal-control&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8724" PostTypeId="1" CreationDate="2015-10-15T15:21:28.113" Score="2" ViewCount="74" Body="&lt;p&gt;I just have a question, if you know an example where the consumers form a habit about their consumption in a perfect competition setup. I found this paper by &lt;a href=&quot;http://www.federalreserve.gov/pubs/oss/oss4/papers/habitmatlab/habit_aer.pdf&quot; rel=&quot;nofollow&quot;&gt;Fuhrer&lt;/a&gt;, but it does not solve the it in a proper setup.&lt;/p&gt;&#xA;" OwnerUserId="5720" LastActivityDate="2015-10-15T15:21:28.113" Title="Forming of consumption habits in dynamic equilibrium model?" Tags="&lt;macroeconomics&gt;&lt;competition&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="8725" PostTypeId="1" CreationDate="2015-10-15T18:07:14.243" Score="6" ViewCount="504" Body="&lt;p&gt;It seems one factor ignored (or is it?) in economic theory is saturation of durable goods. By this I mean the fulfillment of fixed need for durable goods.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can imagine income to be divided between consumables, durable goods, capital investments (like real property) and savings. Spending on durable goods is often equated to that on consumables, but this does not seem right to me.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For me personally, for example, I notice that I am spending less money overall and saving more money, not because I want to save more, but because I have simply bought all the stuff I need. After 30 years of buying tools, appliances, books, furniture I literally have every single tool and appliance I need. Ten years ago I was still buying all kinds of stuff, drill presses, rotary saws, juicers, you name it. But now that I have all that stuff I don't need to buy anymore. I mean I don't need two lathes, I just need one lathe.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, especially if we consider a static or aging population there would seem to be an effect whereby the population is &quot;all tooled up&quot; and no longer needs to spend on durable goods (except for maintenance purposes). &lt;strong&gt;Is this phenomenon recognized by any economic theory?&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="1448" LastActivityDate="2015-10-16T07:22:53.267" Title="Saturation of durable goods" Tags="&lt;consumer-theory&gt;&lt;consumption&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8726" PostTypeId="1" AcceptedAnswerId="8838" CreationDate="2015-10-15T18:07:24.120" Score="5" ViewCount="153" Body="&lt;p&gt;We went over a lemma in class leading up to a larger theorem. The Lemma states:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Let $\succeq$ be a rational preference relation on $\mathscr{L}$ and let $\succeq$ admit utility representation under Von-Neumann-Morgenstern expectations. Then&lt;/p&gt;&#xA;  &#xA;  &lt;ol&gt;&#xA;  &lt;li&gt;$U(\sum_{k=1}^{K} \alpha_k L_k) = \sum_{k=1}^{K} \alpha_k \ U(L_k)$&lt;/li&gt;&#xA;  &lt;li&gt;$\succeq$ satisfies independence&lt;/li&gt;&#xA;  &lt;li&gt;Every linear representation $V$ of $\succeq$ is a positive affine transformation of $U$. So $V = \beta U + \gamma$ where $\beta &amp;gt; 0$&lt;/li&gt;&#xA;  &lt;/ol&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So in proving this, here is some work so far:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $L_k = (\Pi^k_1, \Pi^k_2, ..., \Pi_s^k)$&#xA;$$U(\sum_{k=1}^{K} \alpha_k L_k) = \sum^s_{i=1}\sum^K_{k=1}\Pi^k_i \alpha_k u_i$$ by Von-Neumann-Morgenstern, where $U(L) = \sum^s_{i=1}\Pi_i u_i $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\sum^s_{i=1}\sum^K_{k=1}\Pi^k_i \alpha_k u_i =  \sum^K_{k=1} \alpha_k \sum^s_{i=1}\Pi^k_i u_i = \sum_{k=1}^{K} \alpha_k \ U(L_k)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider $L_1, L_2, L_3 \in \mathscr{L}$ and say $L_1 \succeq L_2$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$L_1 \succeq L_2 \iff U(L_1) \geq U(L_2)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Take $\alpha \in (0,1)$ and define&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$L_4 = \alpha L_1 + (1-\alpha)L_3$$&#xA;$$L_5 = \alpha L_2 + (1-\alpha)L_3$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Say $L_5 \succ L_4$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\implies U(L_5) &amp;gt; U(L_4)$&#xA;and from 1.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U(L_5) = \alpha U(L_2) + (1-\alpha) U(L_3)$$ &#xA;$$U(L_4) = \alpha U(L_1) + (1-\alpha) U(L_3)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies \alpha U(L_2) + (1-\alpha) U(L_3) &amp;gt; \alpha U(L_1) + (1-\alpha) U(L_3) \implies U(L_2) &amp;gt; U(L_1)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which is a contradiction, so independence must hold.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;I assume 3. is some sort of &quot;monotonicity&quot; condition. How would I approach the proof for this condition? Any hints would be appreciated. I also am wondering what this Lemma is leading up to, so I can study for that in advance. Does anyone have any idea?&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2015-10-23T00:00:47.327" Title="Utility Representation of Lotteries" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;preferences&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8727" PostTypeId="2" ParentId="8725" CreationDate="2015-10-15T21:01:29.080" Score="4" Body="&lt;p&gt;&quot;Durable goods&quot; are a form of &lt;em&gt;utility-generating capital&lt;/em&gt;. But they are capital, and what is actually generating utility is the &lt;em&gt;flow of services&lt;/em&gt; from them, not them directly. So when we buy a durable good, this is not consumption, it is investment. The phenomenon of uneven intertemporal allocation of purchasing expenses in durable goods is not related to &quot;saturation&quot;, in the sense the word is used in microeconomic theory: saturation and non-saturation is a &lt;em&gt;static&lt;/em&gt; concept. Intertemporally, the capital stock may very well decline, as an optimal choice : we pile up capital early on, and then, the rate of &lt;em&gt;usage&lt;/em&gt; is greater than the rate of further accumulation: we use what we have bought in the past, wearing down the stock. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The right way to model durable goods (and it has been done of course), is to specify a utility function like&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U = U(C, h(D))$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $C$ are non-durable goods and $h(D)$ is the service-flow function related to durables $D$. Sometimes we simply write $C_D$ (consumption of the service flow). The difference is that the stock of durable goods is a state variable, alongside any other state variables the model has.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a recent example of a theoretical model (not a canonical one), see the paper&lt;br&gt;&#xA;&lt;strong&gt;&lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/S0165176510000388&quot; rel=&quot;nofollow&quot;&gt;Mansoorian, A., &amp;amp; Michelis, L. (2010). Monetary policy in a small open economy with durable goods and differing cash-in-advance constraints. Economics Letters, 107(2), 246-248.&lt;/a&gt;&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Public Capital also enters sometimes the utility function, to represent the services flow that come from public infrastructure (contrasted to current public expenses). See for example&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://bura.brunel.ac.uk/bitstream/2438/3453/1/0907.pdf&quot; rel=&quot;nofollow&quot;&gt;&lt;strong&gt;Chatterjee, S., &amp;amp; Ghosh, S. (2009). Public goods, congestion, and fiscal policy: Do consumption-based instruments matter?&lt;/strong&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-10-16T07:22:53.267" LastActivityDate="2015-10-16T07:22:53.267" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8728" PostTypeId="2" ParentId="8680" CreationDate="2015-10-15T22:11:39.907" Score="3" Body="&lt;p&gt;I am currently doing my graduate studies in Economics; and I came across the name of Deaton in Microeconomics class the very first time. In my opinion, his work became the integral part of modern mainstream microeconomics. I studied the Almost Ideal Demand System (AIDS), the model what was mentioned above. His work builds a bridge between microeconomics and econometrics enabling statistical estimations and forecasts of micro models. Using Roy's identity and AIDS makes it easy to determine the expenditure structure of the consumer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These technique is broadly used by academics and public policy professionals. Beside them, there's a new trend called quantitative marketing. Nowadays marketing professionals use deep microeconomic background to design their product. A &quot;heavy&quot; micro course is a must for any modern business schools. AIDS became a standard tool for economic analysts, too.&lt;/p&gt;&#xA;" OwnerUserId="5017" LastActivityDate="2015-10-15T22:11:39.907" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8729" PostTypeId="1" AcceptedAnswerId="8752" CreationDate="2015-10-15T22:39:13.873" Score="7" ViewCount="525" Body="&lt;p&gt;Notation: Throughout I will let $\Delta X$ denote the set of probability distributions over the set $X$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have been studying expected utility theory, and especially Savage Acts and Anscombe-Aumann Acts. However I am new to it and am not sure if I have the terminology correct.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $S$ be the finite set of possible states, let $Z$ be the set of possible outcomes. An Anscombe-Aumann act is defined as a function $f:S \to \Delta Z$. Let the space of acts be denoted $X$. Preferences are defined over acts.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If preferences have a state independent expected utility representation (SIEU) we have that there is a function $u: Z \to \mathbb{R}$ and a distribution over states $p \in \Delta S$ such that for any two acts $f,g \in X$,  $$f \precsim g \iff  \sum_{s \in S} p(s) \sum_{z \in Z} u(z) f(s,z) \leq \sum_{s \in S} p(s) \sum_{z \in Z} u(z) g(s,z)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose I want to define a lottery $L \in \Delta Z$ in this situation. For simplicity, suppose $L$ is the lottery that assigns probability $1$ to outcome $z^{*}$ and probability $0$ to all other outcomes. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My Question is: Is this lottery (or any lottery for that matter) a compound lottery first over states ($p$) and then over anscombe -aumann acts ($f$)? Or how is a lottery defined in this situation?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let me know if any clarification is required. &lt;/p&gt;&#xA;" OwnerUserId="5731" LastActivityDate="2015-10-17T07:34:03.777" Title="Anscombe-Aumann Acts and Lotteries" Tags="&lt;expected-utility&gt;&lt;uncertainty&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8730" PostTypeId="1" CreationDate="2015-10-16T00:39:39.417" Score="1" ViewCount="259" Body="&lt;p&gt;The state of Minnesota is considering building a highway through undeveloped wilderness. The construction will take 1 year and the construction costs are estimated at 10 million. The annual routine maintenance costs are expected to be 1 million per year. The relevant interest rate is 5%. The expected estimated annual benefits to the public and environment are $2 million per year. Assume an infinite project life.&#xA; is my attempt on the first 3, feel free to correct me if I am wrong.*&#xA;I do not understand the parts d and e if anyone could shed some light on it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;PV = Present Value&lt;/p&gt;&#xA;&#xA;&lt;p&gt;a. Find the PV of the Costs of this project.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;10,000,000 + 1/0.05 = 30000000&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;b. The PV of the benefits of this project.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;2,000,000/0.05 = 40000000&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;c. The PV of the Benefits – PV of the Costs.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Subtract the above we get 10000000&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;d. Find the annual value of benefits which generates a zero net present value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;e. Assuming an infinite project life, find the increase in annual routine maintenance costs that make the NPV = 0.&lt;/p&gt;&#xA;" OwnerUserId="5950" LastActivityDate="2015-10-20T03:37:43.650" Title="Present Value of Costs and Benefits" Tags="&lt;microeconomics&gt;" AnswerCount="0" CommentCount="8" ClosedDate="2015-10-21T01:58:42.070" ContentLicense="CC BY-SA 3.0" />
  <row Id="8731" PostTypeId="1" AcceptedAnswerId="8739" CreationDate="2015-10-16T04:59:34.590" Score="4" ViewCount="2311" Body="&lt;p&gt;As an example, take a country where real GDP (measured in base year dollars) increases every year, but where the real GDP per capita (also measured in base year dollars) fluctuates, increasing and decreasing in equal measure. In this example, does the country experience economic growth every year? That is, does economic growth reflect the consistent increasing of RGDP or does it reflect the sometimes increasing, sometimes decreasing RGDP per capita?&lt;/p&gt;&#xA;" OwnerUserId="5895" LastActivityDate="2020-10-22T18:39:08.840" Title="Is economic growth measured in real GDP or in real GDP per capita?" Tags="&lt;gdp&gt;&lt;economic-growth&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8732" PostTypeId="2" ParentId="8731" CreationDate="2015-10-16T05:23:37.913" Score="0" Body="&lt;p&gt;Real GDP (or even nominal GDP) is probably the most often used measurement of growth. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can you give an example of a country where real GDP constantly grows, but real GDP per capita fluctuates between positive and negative growth? This seems, at first glance, like a very theoretical idea as it would require large fluctuations in population growth which is usually quite constant.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The recent migrations might be a special case where you might find something like this happening in the short run, but the effect will probably vary by country with different statistical methods (for example, there are differences between countries about when an asylum seeker enters the population).&lt;/p&gt;&#xA;" OwnerUserId="5512" LastActivityDate="2015-10-16T05:23:37.913" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8733" PostTypeId="1" CreationDate="2015-10-16T06:03:57.907" Score="2" ViewCount="129" Body="&lt;p&gt;Is there a specific Austrian definition in accordance to the concept of Labour Productivity?&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;If Labour Productivity is too broad of a term, then I will qualify to be speaking about it in context of this &lt;a href=&quot;https://www.youtube.com/watch?v=Np1xWfmRZm8&quot; rel=&quot;nofollow&quot;&gt;video&lt;/a&gt; which speaks about Labour Productivity comparing Canada to the United States.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;If Canada's Labour Productivity matched that of the United States&#xA;  between the years 1988 and 2008, how would our [Canadians] lives be different?&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Real GDP - $8,500 higher &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Personal Disposable Income - $7,500 higher&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Corporate Profits - 40% higher&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Federal Government Revenues - 31% higher&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="5814" LastEditorUserId="8481" LastEditDate="2020-04-09T23:51:50.313" LastActivityDate="2020-07-26T19:25:08.530" Title="How does Austrian Economics define Labour Productivity?" Tags="&lt;labor-economics&gt;&lt;productivity&gt;&lt;austrian&gt;" AnswerCount="0" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="8734" PostTypeId="2" ParentId="8419" CreationDate="2015-10-16T06:53:08.573" Score="0" Body="&lt;p&gt;&lt;a href=&quot;http://www.revenue.ie/en/business/shadow-economy/index.html&quot; rel=&quot;nofollow&quot;&gt;http://www.revenue.ie/en/business/shadow-economy/index.html&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here, one of the examples listed is:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;non-operation of the VAT system;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;VAT being the Value Added Tax, such as a GST. When you buy a product on Craigslist, you typically would not pay GST on products you purchase here.&lt;/p&gt;&#xA;" OwnerUserId="5814" LastActivityDate="2015-10-16T06:53:08.573" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8735" PostTypeId="1" CreationDate="2015-10-16T07:20:46.140" Score="1" ViewCount="128" Body="&lt;p&gt;Given&#xA;1) Perfect substitutes: X and Y&#xA;2) Compliments: Z and X&#xA;is it possible to generate a utility function that relates them?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;X and Z must always be consumed together, and you can substitute Y for X.&lt;/p&gt;&#xA;" OwnerUserId="5966" LastActivityDate="2015-10-17T03:00:29.053" Title="Combining Compliment and Substitue Goods" Tags="&lt;macroeconomics&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8737" PostTypeId="1" CreationDate="2015-10-16T11:22:34.370" Score="2" ViewCount="156" Body="&lt;p&gt;When a central bank increases the money supply, how much of it goes directly into the government purse? Say for example:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;The money supply is $150&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The populace has $100&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The government has $50.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;If the Fed decided to increase the money supply to \$200, does any of the extra $50 go into directly into the government purse? Does it vary? &lt;/p&gt;&#xA;" OwnerUserId="5814" LastEditorUserId="264" LastEditDate="2015-10-16T19:24:10.790" LastActivityDate="2015-11-24T22:58:59.807" Title="When the Fed increases the money supply, does any of the additional supply go directly to the government?" Tags="&lt;money-supply&gt;&lt;federal-reserve&gt;&lt;government&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8738" PostTypeId="2" ParentId="8715" CreationDate="2015-10-16T11:38:53.987" Score="1" Body="&lt;p&gt;This answer is in response to the edited (2015.10.16 ca. 12:30 CET) question. &lt;br&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think the concept of equilibrium means that given the circumstances you have no incentive to alter your behavior. (This is pretty much based on the Nash-equilibrium.) &lt;br&gt;&#xA; In this situation equilibrium consists of a price and an allocation of goods. Given the price everyone makes a trade decision. The decision has to be feasible both with respect to the budget and the physical availability of the goods, i.e. you cannot buy goods that do not exist. We are in equilibrium if everyone's decision was optimal (for themselves). &lt;br&gt;&#xA;In your situation for any $p_x \in [0,2]$ there exists an equilibrium allocation, where consumer 2 bought the good $x$ from consumer 1 for $p_x$ units of good $y$. There is no better &lt;em&gt;feasible&lt;/em&gt; decision for either of them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you were to adhere to the strict/dogmatic interpretation there would be no equilibrium at all, because for any $p_x &amp;lt;3$ consumer 2 wants to buy an infinite amount of good $x$ and for any $p_x &amp;gt; 2$ consumer 1 wants to sell an infinite amount of good $x$. Since there is no $p_x$ such that $p_x \leq 2, \ p_x \geq 3$ you could not have an equilibrium with finite amounts.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2015-10-16T11:38:53.987" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="8739" PostTypeId="2" ParentId="8731" CreationDate="2015-10-16T13:50:22.840" Score="8" Body="&lt;p&gt;Usually GDP growth rates are publicly talked about in real terms but not per capita, see for example &lt;a href=&quot;http://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG&quot; rel=&quot;nofollow noreferrer&quot;&gt;World Bank&lt;/a&gt; where, above the relevant table we read&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;Annual percentage growth rate of GDP at market prices based on constant local currency. Aggregates are based on constant 2005 U.S.&#xA;  dollars. GDP is the sum of gross value added by all resident producers&#xA;  in the economy plus any product taxes and minus any subsidies not&#xA;  included in the value of the products. It is calculated without making&#xA;  deductions for depreciation of fabricated assets or for depletion and&#xA;  degradation of natural resources.&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Real GDP levels are also used in empirical research papers and books -for example, in &lt;a href=&quot;https://mitpress.mit.edu/books/lectures-macroeconomics&quot; rel=&quot;nofollow noreferrer&quot;&gt;Blanchard &amp;amp; Fischer&lt;/a&gt;, the first figure in the book is real GNP (not per capita).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A technical issue regarding per capita magnitudes is that population is not measured quarterly, or yearly (in fact it is usually measured per decade). So any attempt to provide quarterly or yearly &quot;GDP per capita&quot; figures would require extrapolating the population from sparser data. While this is not necessarily catastrophic as regards accuracy, it requires more resources to be devoted to its calculation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Per capita&lt;/em&gt; concepts certainly appear more often in theoretical research papers. The main reason is that theoretical models look also for possible &quot;steady-states&quot; (as attractors of the economy's evolution). Since GDP in levels exhibits a long-run upward trend, the next step is to consider &quot;GDP per capita&quot; (to &quot;take out&quot; the effect of population growth), and then the next step is to consider efficiency-indexed growth, like &quot;GDP per labor efficiency unit&quot;, in order to look for the model's steady-state.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorDisplayName="user18" LastEditDate="2019-02-19T02:35:55.823" LastActivityDate="2019-02-19T02:35:55.823" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="8740" PostTypeId="1" CreationDate="2015-10-16T14:00:35.523" Score="1" ViewCount="37" Body="&lt;p&gt;I am trying to calculate a price to sell my software suite to another company. Let say my revenue is \$500,000 a year with only about \$50,000 costs each year. The rate of growth of revenue has been 20% per year. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any idea how I should price my software?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The buyer might be a company with between 300-10.000 employees and making billions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Please excuse me for being a novice - I am just a developer. Also, any links to further information is highly appreciated.&lt;/p&gt;&#xA;" OwnerUserId="5968" LastEditorUserId="264" LastEditDate="2015-10-16T14:48:33.783" LastActivityDate="2015-10-16T18:28:09.440" Title="Selling my software suite to another company (acquisition)" Tags="&lt;finance&gt;&lt;investment&gt;" AnswerCount="0" CommentCount="2" ClosedDate="2015-10-16T19:25:47.923" ContentLicense="CC BY-SA 3.0" />
  <row Id="8741" PostTypeId="1" CreationDate="2015-10-16T14:28:20.907" Score="4" ViewCount="2683" Body="&lt;p&gt;In my economics class, we were introduced to the idea that if the government imposes an indirect tax on a good, the price consumers have to pay increases, but along with this increase in price for consumers, the price producers receive decreases. I understand the former perfectly, however, don't understand why the price producers receive decreases.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/JKYWB.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/JKYWB.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$P^*$ is the original price prior to the imposition of taxes, and $Q^*$ is the quantity demanded prior to the imposition of taxes. $P_c$ is the price paid by consumers after the government's decision, and $P_p$ is the price received by firms, once again, after the imposition of taxes. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is, why isn't $P^*$ equal to $P_p$?&lt;/p&gt;&#xA;" OwnerUserId="5969" LastEditorUserId="1601" LastEditDate="2015-10-16T19:25:07.897" LastActivityDate="2015-10-16T19:25:07.897" Title="Price Producers Receive as a Result of Indirect Taxes" Tags="&lt;supply-and-demand&gt;&lt;taxation&gt;&lt;government&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8742" PostTypeId="2" ParentId="8741" CreationDate="2015-10-16T14:57:23.807" Score="1" Body="&lt;p&gt;The idea is that both the consumer and the producer of a good take on some of the burden of a tax, even if you don't intend to levy the tax on one or the other. So if you have a sales tax that consumers have to pay, what will happen is that consumers won't take the full brunt of that tax. They will demand less and producers will have to make the product cheaper in response, so they get less revenue overall anyway.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How much tax burden each side will have to pay depends on their relative elasticities, which I imagine you'll be going over soon if you're going over tax incidence. Elasticity is a measure of sensitivity to a change in price to in this case, quantity supplies or demanded.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So $P* \neq P_p$ because the producer will have to shift from the equilibrium just like the producer will have to. It's the same idea for the consumer as for the producer, since the tax burden falls on both of them.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2015-10-16T14:57:23.807" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="8743" PostTypeId="1" AcceptedAnswerId="8744" CreationDate="2015-10-16T15:05:35.210" Score="2" ViewCount="96" Body="&lt;p&gt;Hello in the moment I am working with the book &quot;&lt;a href=&quot;http://rupertstudies.weebly.com/uploads/9/5/8/4/9584887/introduction_to_the_economics_and_mathematics_of_financial_markets-cvitanic_and_zapatero_the_mit.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Introduction to the Economics and Mathematics of Financial Markets&lt;/a&gt;&quot; by Jakˇsa Cvitani ́c and Fernando Zapatero, which can be accessed at the link.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, at the moment I am struggling with the third chapter &quot;Models and Securities Prices in Financial Markets&quot;. Right in the beginning at page 56 there is an introduction of a formula, which I do not understand completely.&#xA;&lt;a href=&quot;https://i.stack.imgur.com/TdMT2.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/TdMT2.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;X(1) should display the worth of all the assets (securities,stocks, bonds etc.). Therefore B=Bonds, S=Securities or Stocks. The numbers 0 and 1 illustrate the time. So 1 for the end and 0 for the beginning. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But what is the this sign &quot;δ&quot;. Actually it is a delta isn't it? And it actually illustrates a changing process. However, here it is described as follows &quot;Denote by δi , i = 1, . . . , N the number of security i shares that Taf holds between time zero and time one. We denote by δ0 the amount invested in the bank account at time zero, “the number of shares” of the bank account.&quot; (page 55, at the same book). My problem is that I really do not understand the meaning of this sign. Also the Sentence, which is illustrated in the picture talks about a vector. I completely do not understand the word vector in this relationship. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I hope I can get some insight to this topic through your help. Overall it should be an introduction to the two periods binomial models. &lt;/p&gt;&#xA;" OwnerUserId="4407" LastEditorUserId="264" LastEditDate="2015-10-16T15:56:33.207" LastActivityDate="2015-10-16T15:56:33.207" Title="Securities Prices in Financial Markets" Tags="&lt;finance&gt;&lt;financial-markets&gt;&lt;value&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8744" PostTypeId="2" ParentId="8743" CreationDate="2015-10-16T15:37:38.143" Score="3" Body="&lt;p&gt;The total wealth (as is pointed out in the book) is given as :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;X(1)=\delta_{0}B(1)+\delta_{1}S_{1}(1)+...\delta_{N}S_{N}(1)&#xA;$$&#xA;The wealth at period one is just the sum of the securities (including amount invested in the bank) times their number. In other words, the total wealth is the amount of money this individual has invested in the different assets. It has nothing to do with a &quot;changing process.&quot; Asssume that the individual does not buy any more assets during period 1 and the assets promise a return of $(1+r_{i})$ where $i$ denotes the asset in question. In period 2, the individuals wealth is then&#xA;$$&#xA;X(2)=\delta_{0}B(1)(1+r_{0})+\delta_{1}S_{1}(1)(1+r_{1})+...\delta_{N}S_{N}(1)(1+r_{N})&#xA;$$&lt;/p&gt;&#xA;" OwnerUserId="5233" LastActivityDate="2015-10-16T15:37:38.143" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8745" PostTypeId="2" ParentId="5532" CreationDate="2015-10-16T16:45:05.653" Score="3" Body="&lt;p&gt;As was said above, buying debt to affect the exchange rate and make Chinese exports more attractive may be one reason to buy these Treasuries. Surely all of these are not reinvested into buying more debt and some of it is put into other civic projects.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The other reason to buy debt is to have a string of payments over time that may become more valuable later on. Since the US is a large nation and powerful nation, China probably feels it is very unlikely that the USA will default, and if they did, that would give China a legitimate complaint against the US, that might help them in foreign relations. It may even be that they want the US to be stable so as not to crash the global economy and so that they can still sell lots of products to the US, so they buy up the debt to keep the USA stable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The more important part of that whole paragraph though is to have a string of payments. For the same reason that governments like to hold debt even when they have the ability to pay it off, China might find that investing into debt will provide a better rate of return than infrastructure at the moment, and later on, once infrastructure has a better rate of return (capital steady state changes) then they can take a stream of income from interest payments from the US and taxes and then invest into that.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, I couldn't help but notice that you see China as needing to lift itself out of poverty. That may be true, but why would investments into infrastructure be the solution to helping the rural poor--places that don't need as much infrstructure? Most of the poor in China are in rural areas, so there's something to think about.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2015-10-16T16:45:05.653" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8747" PostTypeId="2" ParentId="8737" CreationDate="2015-10-16T18:30:53.977" Score="2" Body="&lt;p&gt;The answer to this question is maybe (but most likely not).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The most common method central banks use to increase money supply (assuming they control their own monetary policy) is through open market operations. Open market operations is when the central bank purchases or sells treasuries in the secondary market (typically). The answer to your question depends on where the central bank buys the treasuries.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the central bank uses an open market purchase of treasuries in the secondary market, then the money goes to the entities which sold them the treasuries, so none of the money would go directly to the government. However, hypothetically in some countries where corruption is prominent, there may be a situation where the government forces the central bank to purchase treasuries in the primary market (directly from the government). In this situation, all of the money that is being pumped into the economy would go directly to the government.   &lt;/p&gt;&#xA;" OwnerUserId="5825" LastActivityDate="2015-10-16T18:30:53.977" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8748" PostTypeId="2" ParentId="8300" CreationDate="2015-10-16T18:56:10.160" Score="0" Body="&lt;p&gt;&lt;strong&gt;Okun's Law - the Basics&lt;/strong&gt;:&#xA;In its most basic form, Okun's law investigates the statistical relationship between a country's unemployment rate and the growth rate of its economy. The economics research arm of the Federal Reserve Bank of St. Louis explains that Okun's law &quot;is intended to tell us how much of a country's gross domestic product (GDP) may be lost when the unemployment rate is above its natural rate.&quot; It goes on to explain that &quot;the logic behind Okun's law is simple. Output depends on the amount of labor used in the production process, so there is a positive relationship between output and employment. Total employment equals the labor force minus the unemployed, so there is a negative relationship between output and unemployment (conditional on the labor force).&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Read more: Okun's Law: Economic Growth And Unemployment &lt;a href=&quot;http://www.investopedia.com/articles/economics/12/okuns-law.asp#ixzz3ol5l7KNz&quot; rel=&quot;nofollow&quot;&gt;http://www.investopedia.com/articles/economics/12/okuns-law.asp#ixzz3ol5l7KNz&lt;/a&gt; &lt;/p&gt;&#xA;" OwnerUserId="5970" LastActivityDate="2015-10-16T18:56:10.160" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8749" PostTypeId="2" ParentId="8735" CreationDate="2015-10-16T20:10:34.400" Score="1" Body="&lt;p&gt;If you are just asking for a utility function, then as BB King has noted, $U(x,y,z) = \min\left\{x+y, z\right\}$ works for perfect complements. If you are working with just complements in general, then you can put a weight on the goods to show their complementariness.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U(x,y,z) = \min \left\{\alpha(x + y), (1-\alpha)z \right\}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Remember though that the price of x and y may determine whether you actually buy x or y. If $p_x &amp;gt; p_y$, then the consumer will not purchase any of good $x$, and similarly for $p_y &amp;gt; p_x$.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2015-10-16T20:10:34.400" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8750" PostTypeId="2" ParentId="8735" CreationDate="2015-10-17T03:00:29.053" Score="2" Body="&lt;p&gt;I will leave the clarity of the question aside. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) If what is meant by perfect substitutes/complements do not imply that these products are necessarily relevant for the preferences of an agent, then the answer is positive, with the utility function $U(x,y,z)$ being defined as &#xA;$$&#xA;U(x,y,z)=0 \text{ for all } x,y, \text{ and }z.&#xA;$$&#xA;2) If it is implicitly understood that increasing $x$ and $z$ together would yield a higher utility and one for one transfer between $x$ and $y$ consumption yields the same utility for the agent, then the answer is negative. The reasoning can be seen as follows.&#xA;$$&#xA;\begin{eqnarray}&#xA;\mathbf{U(1,2,0)}&amp;amp;=&amp;amp;U(0,2,0) \text{ by perfect complementarity}\\&#xA;&amp;amp;&amp;lt;&amp;amp;U(1,2,1) \text{ since $x$ and $z$ consumption together is good}\\&#xA;&amp;amp;=&amp;amp;U(0,3,1) \text{ since $x$ and $y$ are perfect substitutes}\\&#xA;&amp;amp;=&amp;amp;U(0,3,0) \text{ due to perfect complementarity between $x$ and $z$}\\&#xA;&amp;amp;=&amp;amp;\mathbf{U(1,2,0)} \text{ since $x$ and $y$ are perfect substitutes}\\&#xA;\end{eqnarray}&#xA;$$&#xA;leading to a contradiction. A general proof can be written when the assumptions are relaxed, but I believe this is sufficiently clarifying.&lt;/p&gt;&#xA;" OwnerUserId="5739" LastActivityDate="2015-10-17T03:00:29.053" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8751" PostTypeId="1" CreationDate="2015-10-17T06:21:53.140" Score="1" ViewCount="837" Body="&lt;p&gt;I have researched two seemingly contradictory definitions for Aggregate Supply, and I don't know how to reconcile them:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;The total level of income in an economy over a given period of time.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;or&lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;2&quot;&gt;&#xA;&lt;li&gt;The total productive capacity of an economy, i.e the potential output when all factors of production are fully utilised.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;How can these both be true?&lt;/p&gt;&#xA;" OwnerUserId="5973" LastEditorUserId="1601" LastEditDate="2015-10-18T10:17:49.273" LastActivityDate="2015-10-18T17:27:41.077" Title="How can Aggregate Supply = National Income" Tags="&lt;gdp&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8752" PostTypeId="2" ParentId="8729" CreationDate="2015-10-17T07:34:03.777" Score="3" Body="&lt;p&gt;You are right, but to make sure that the odds are really exogenous (&quot;objective&quot;) you need to make sure that the subjective uncertainty has no bite here. In other words, you need to assume that the objective lottery played after the horse race is independent of the result of the horse race (in Anscombe-Aumann's terminology). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's assume that $Z$ is finite, $Z=\{z_1,\cdots,z_n\}$ and that $L$ is the objective lottery that puts weight $l_i$ on the prize $z_i$, with $l_i \geq 0$ and $\sum_{i=1}^{n}{l_i}=1$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can identify the lottery $L$ with the act $f:s \rightarrow \Delta Z$ such that $f(s)=L$ for any $s \in S$. That is, for any $s \in S$, $f(s)$ is the objective lottery that puts weight $l_i$ on the prize $z_i$, exactly as $L$ does.&lt;/p&gt;&#xA;" OwnerUserId="4667" LastActivityDate="2015-10-17T07:34:03.777" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8753" PostTypeId="1" CreationDate="2015-10-17T11:02:34.873" Score="4" ViewCount="254" Body="&lt;p&gt;What would happen in Venezuela if the government all of a sudden starts offering currency exchange by the prices of the free market?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To my knowledge, the main reason for the government in Venezuela to have currency exchange controls is that they don't want everybody to start buying less volatile currency in order to protect their savings from inflation. What would lead in turn to the government losing all of its reserve currency.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Would that hypothesis hold true in such situation?&lt;/p&gt;&#xA;" OwnerUserId="5976" LastActivityDate="2015-10-18T01:28:05.697" Title="What would happen in Venezuela if the currency exchange control is removed overnight?" Tags="&lt;currency&gt;&lt;exchange-rates&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8754" PostTypeId="2" ParentId="8723" CreationDate="2015-10-17T11:56:28.333" Score="2" Body="&lt;p&gt;After a comment exchange, let's provide the answer under disrete-time formulation. The problem is now written&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{align}&#xA;						&amp;amp;\max_{\{u\}_1^T, \{y\}_1^T}\sum^T_{t=1}{F(y_t,u_t)}\\&#xA;\text{s.t.} \quad &amp;amp; y_{t+1}-y_t = f(y_t,u_t)\\&#xA;&amp;amp; y_1 = \text{given}\\&#xA;&amp;amp; y_{T+1}~~\text{free}&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $y_{t+1}$ is the value of the stock variable at the begining of period $t+1$/end of period $t$.&#xA;The Lagrangean is&#xA;\begin{align}&#xA;\Lambda = \sum^T_{t=1}{\big(F(y_t,u_t) + \lambda_t[f(y_t,u_t)-y_{t+1}+y_t]\big)}&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that $\lambda_t$ is associated with $y_{t+1}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The FOCS are (to hold $\forall t$ in the horizon)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\partial \Lambda}{\partial u_t} = F_u(y_t,u_t) + \lambda_tf_u(y_t,u_t) = 0 \tag{1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\partial \Lambda}{\partial y_{t+1}} = -\lambda_{t} + F_y(y_{t+1},u_{t+1}) + \lambda_{t+1}[f_u(y_{t+1},u_{t+1}) +1]    = 0 $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies F_y(y_{t+1},u_{t+1}) + \lambda_{t+1}f_y(y_{t+1},u_{t+1}) = -(\lambda_{t+1}-\lambda_{t}) \tag{2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which are the conditions we would have obtain if we have used the Hamiltonian formulation. To obtain the terminal value for $\lambda_t$, we set $t=T$ in $(2)$, (since the last variable in the $y$-sequence is $y_{T+1}$), and we obtain:  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$F_y(y_{T+1},0) + \lambda_{T+1}f_y(y_{T+1},0) = -(\lambda_{T+1}-\lambda_{T})$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$u_{T+1}=0$ because there is no decision to be made in period $T+1$. Moreover $\lambda_{T+1}$ should also be set to zero, since it is associated with $y_{T+2}$ (end of period $T+1$) and we are out of the horizon. So we are left with&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$F_y(y_{T+1},0) = \lambda_{T}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Whether now we will get $\lambda_T=0$ or not depends on the formulation of the objective function  $F(y_{t},u_t)$: does it indeed include the state variable? If yes what is the value of its derivative with respect to the state variable when the decision variable is set to zero? Etc&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-10-17T15:50:19.500" LastActivityDate="2015-10-17T15:50:19.500" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8755" PostTypeId="1" CreationDate="2015-10-17T16:56:35.893" Score="3" ViewCount="455" Body="&lt;p&gt;Does the 2nd welfare theorem hold with Leontief preferences?  If not, which of the assumptions does not hold?&lt;/p&gt;&#xA;" OwnerUserId="5978" LastActivityDate="2015-10-18T03:52:38.990" Title="Leontief preferences and 2nd welfare theorem" Tags="&lt;preferences&gt;&lt;welfare&gt;&lt;leontief&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8756" PostTypeId="2" ParentId="8755" CreationDate="2015-10-17T17:41:03.940" Score="4" Body="&lt;p&gt;Hint:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;Second Welfare Theorem&lt;/strong&gt;: Suppose that for every individual $i = 1,...,N$ the utility function $U^i(c_i)$ is continuous, locally non-satiated, and quasi-concave. If $\left\{c_1^P,...,c_N^P\right\}$ represents a Pareto optimal allocation in which $c_i^P &amp;gt;&amp;gt; 0$ for every $i = 1,...,N$, then there exists a set of prices, $p^E \geq 0$ and $p^E \neq 0$ and a set of transfer payments, $\left\{\tau_1,...,\tau_N\right\}$ such that:&lt;/p&gt;&#xA;  &#xA;  &lt;ul&gt;&#xA;  &lt;li&gt;$\left\{c_1^P,...,c_N^P\right\}$ is feasible&lt;/li&gt;&#xA;  &lt;/ul&gt;&#xA;  &#xA;  &lt;p&gt;$$\sum^N_{i=1}c_i^P \leq \sum^N_{i=1}\omega_i^P$$&lt;/p&gt;&#xA;  &#xA;  &lt;ul&gt;&#xA;  &lt;li&gt;For every individual $i = 1,...,N$, the consumption bundle, $c_i^P$, solves:&lt;/li&gt;&#xA;  &lt;/ul&gt;&#xA;  &#xA;  &lt;p&gt;$$\max_{c_i} U^i(c_i) \ s.t. \ p^E \cdot c_i = p^E \cdot \omega^i - \tau_i$$&lt;/p&gt;&#xA;  &#xA;  &lt;ul&gt;&#xA;  &lt;li&gt;and $\sum^n_{i=1}\tau_i = 0$&lt;/li&gt;&#xA;  &lt;/ul&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Or in other words, for any efficient (Pareto) allocation, there exists a price vector such that the price vector and optimal bundle represent a quasi-equilibrium with transfers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also note that you need preferences to be convex and locally non-satiated and the production set must be convex. So now what happens when $U_i(c_i) = \min \left\{\frac{c_1^P}{\alpha_1},...,\frac{c_N^P}{\alpha_N}\right\}$? It is indeed continuous, locally non-satiated and quasi-concave.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastEditorUserId="4251" LastEditDate="2015-10-18T03:52:38.990" LastActivityDate="2015-10-18T03:52:38.990" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8758" PostTypeId="2" ParentId="8753" CreationDate="2015-10-18T01:28:05.697" Score="1" Body="&lt;p&gt;You could probably think about the policy trilemma. It's the idea that a country can only have up to two of the following: free capital flow, a fixed exchange rate, and independent monetary policy. Right now it seems that Venezuela wants a stable currency exchange (so they control it) and they want reserve currency available to stabilize the economy if need be and have independent monetary policy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So if you got rid of currency exchange controls so people could buy foreign currency more readily, in the short run, you'd lose control of the exchange rate without gaining anything. Long term, since the money market is clearing, and assuming Walras' Law holds, then capital will be able to flow more freely and contribute to economic growth. It might force Venezuela to be serious about not causing hyperinflation for that to happen that.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2015-10-18T01:28:05.697" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8759" PostTypeId="1" CreationDate="2015-10-18T05:32:22.003" Score="3" ViewCount="154" Body="&lt;p&gt;Usually the limiting factor in stimulating an economy is how much inflation can a currency handle before the money being spent has a negative effect overall. But now we seem to have the opposite problem of having a lot of leeway, but somehow we are not able to use it to stimulate growth.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems like in theory, we could print a bunch of money and do a helicopter drop at the expense of higher inflation, which would help since the US is almost in a deflationary state. Obviously central banks (mostly US but also the rest of the developed world) have better ideas as to what should be done to help the economy, and so I would like to understand what those ideas might be and why they cannot take advantage of the low inflation.&lt;/p&gt;&#xA;" OwnerUserId="5485" LastActivityDate="2015-10-18T08:03:08.683" Title="With inflation so low, why is it so hard to stimulate the economy?" Tags="&lt;inflation&gt;&lt;central-banking&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8760" PostTypeId="2" ParentId="8759" CreationDate="2015-10-18T06:23:14.993" Score="1" Body="&lt;p&gt;To answer this question, you have to understand why the central bank targets a positive inflation rate in the first place. There are &lt;strong&gt;tradeoffs between high and low inflation&lt;/strong&gt;. High inflation can reduce the real value of labor and is often more vloatile, but low values of inflation make cutting wages more difficult, particularly in recessions, reducing the demand for workers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A &lt;strong&gt;lower inflation rate generally leads to lower interest rates&lt;/strong&gt; because creditors demand inflation premiums when lending over longer periods of times. As those interest rates fall, the Federal Reserve has to lower their reserve rate (overnight lending to other banks). The idea is that the Federal Reserve has to try and give good rates so banks feel comfortable lending and being protected from liquidity crises. The nominal interest rate cannot fall below zero percent though, for obvious reasons (can't give away free money!)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So if the interest rate can't fall any further, we have a &lt;strong&gt;zero interest floor (ZIF) problem&lt;/strong&gt;. The central bank will find it hard to encourage banks to lend out and increase the flow of money (which will usually then pump up inflation). So we get perpetually low inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So why can't we just drop money from a helicopter to help alleviate the recession? After all, we learned from the Phillips curve that usually inflation and output are tradeoffs, right? And we want some inflation to encourage growth then, right? Well, outside of basic economics, it's a little different. One, it's illegal to just print money and create wanton seignorage (at least in America and most Western countries), and two, you run into the &lt;strong&gt;Lucas Critique&lt;/strong&gt; of monetary policy. In a nutshell, if people expect inflation, inflation won't actually increase output in the short run. So dropping money is a very obvious way of increasing inflation that people will surely notice, and all you will have done is inflated the prices of goods &lt;em&gt;and&lt;/em&gt; not done anything to help move out of recession, risking stagflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So what should the central bank do? The major tool the central bank uses in case of hitting a zero-interest rate floor and having low inflation is &lt;strong&gt;quantitative easing&lt;/strong&gt;. Basically the central bank buys huge amounts of financial assets from commercial banks and other financial institutions,as opposed to government short term bonds. So the price of those assets rise, their yield falls, and the money supply increases. If that doesn't work, there is always &lt;strong&gt;price level targeting&lt;/strong&gt;, although it hasn't been used a whole lot (yet). The idea is that the central bank, instead of committing to targeting inflation for every period, it promises to target a price level as if there was that &quot;optimal&quot; amount of inflation every period.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Targetting inflation is usually important because of &lt;strong&gt;Ramsey's time-inconsistency problem&lt;/strong&gt;. If Lucas's Critique is right, then the Fed should have an incentive to lie about what inflation they will target, in order to increase output, but then they will lose credibility and lose all power to conduct monetary policy. So the central bank commits themselves to targeting one level of inflation--or in times like these, perhaps price level.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2015-10-18T06:23:14.993" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="8761" PostTypeId="1" CreationDate="2015-10-18T06:28:32.763" Score="5" ViewCount="326" Body="&lt;p&gt;I am currently writing a news commentary on music streaming services. My commentary is focused on demand and supply, consumer and producer surplus, externalities, and public goods. And there are a few things that I am kind of confused in some parts:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Are music streaming services considered public goods?  My teacher said they are public goods as it is non-rivalry in consumption. But don't users need to pay for the service and therefore excludable in consumption? &lt;/li&gt;&#xA;&lt;li&gt;Does music streaming create a negative externality to the producers? The producers are supposed to earn money through creating music but with music streaming they earn less than they should. &lt;/li&gt;&#xA;&lt;li&gt;Finally, why do artists still decide to put their music on the music streaming services even they earn less than they should? &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Thank you all very much for helping me. I just started learning about externalities so the questions may seem dumb. Thanks a lot! &lt;/p&gt;&#xA;" OwnerUserId="5983" LastActivityDate="2015-10-18T16:25:54.090" Title="Music Streaming Impact on Producers" Tags="&lt;supply-and-demand&gt;&lt;externalities&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8762" PostTypeId="2" ParentId="8759" CreationDate="2015-10-18T08:03:08.683" Score="3" Body="&lt;p&gt;It's not theoretically hard to stimulate the economy. It's just the means to do so are terribly unfashionable. And that means it's politically hard.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We've had two similar depressions in the last couple of centuries: the Long Depression in the second half of the nineteenth century, and the Great Depression in the first half of the twentieth. Each saw significant monetary contraction as a policy response. Which was astonishingly daft.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But after the Great Depression, we also learnt that monetary expansion was insufficient when there's a large debt hangover and demand is suppressed: hence we got the famous analogy of monetary expansion being like pushing on a piece of string.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For many centuries, a once-in-a-human-lifetime jubilee - a cancellation of all &lt;em&gt;personal&lt;/em&gt; debts - was seen a way to cure these huge debt hangovers. And they do, broadly speaking, provide a means of cutting the closed circle of monetary expansion which takes place through savings and loans. These jubilees used to happen once every fifty years - and that was, roughly speaking, a human lifetime. A jubilee removes all of the demand-suppression effect that personal debt has: it removes wealth from those with the lowest propensity to spend (thus has a small negative effect on demand), and increases the wealth of those with the highest propensity to spend (which has a much larger positive effect on demand). The net result is a return to increasing demand. In some ways, the bailing out of the banks in 2008 was the very opposite of a jubilee: commercial borrowers (bank bond-holders) were bailed out, and private borrowers were left hanging. Expensive and ineffective. A jubilee cancelled all private debt, but did not touch commercial debt.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The other very unfashionable intervention is fiscal expansion. Keynesian expansions were a successful response to a demand-led depresssion, when the multiplier was higher (as it is now: even Lagarde of the IMF admitted this); but they also got used in subsequent decades in other circumstances too, when the multiplier was lower, and showed less success. And that's when they dropped out of favour, and remain so in many countries now, despite them being part of the right thing to do in the current particular circumstances.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2015-10-18T08:03:08.683" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8763" PostTypeId="1" CreationDate="2015-10-18T10:49:17.157" Score="1" ViewCount="672" Body="&lt;p&gt;Suppose that the expenditure function is multiplicatively separable in $\textbf{p}$ and u so that &#xA;$$e(p,u) =k(u)g(\textbf{p}),$$&#xA; where k(·) is some positive monotonic function of a single variable, and g: $\mathbb{R^n_{+}}$ $\rightarrow$ $\mathbb{R}_{+}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you in advance.&lt;/p&gt;&#xA;" OwnerUserId="5017" LastActivityDate="2015-10-18T16:09:05.233" Title="How to show that the income elasticity of Marshallian demand is equal to unity?" Tags="&lt;microeconomics&gt;&lt;elasticity&gt;" AnswerCount="1" CommentCount="3" FavoriteCount="1" ClosedDate="2015-10-19T09:49:14.607" ContentLicense="CC BY-SA 3.0" />
  <row Id="8764" PostTypeId="1" AcceptedAnswerId="8767" CreationDate="2015-10-18T15:46:30.080" Score="1" ViewCount="667" Body="&lt;p&gt;Let's say I spend $20$ on pizza with an income of $100$. If my income jumps to $110$, I then spend $25$ on pizza. While my income grew by 10%, my expenditures towards pizza grew by 25%. Hence, I would consider this good a luxury, where $\Delta Q_{D\%} / \Delta I_{\%} &amp;gt; 1$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How can pizza be considered a normal good in this context.&lt;/p&gt;&#xA;" OwnerUserId="5984" LastActivityDate="2015-10-18T17:06:58.877" Title="How can a good be considered both a luxury and a normal one?" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8765" PostTypeId="2" ParentId="8763" CreationDate="2015-10-18T16:09:05.233" Score="1" Body="&lt;p&gt;Here's my attempt at a hint, though I appreciate feedback, as I am not sure how rigorous this is. As per the comment I gave with the resource, your question seems to require a previous question in order to do this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So start by showing that the share of income spent on good $x_i$ can always be measured by the elasticity of expenditure function with respect to $p_i$ at $(p, u^*)$ where $u^* = v(p,w)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\mid \eta^ {e_{x_i, p_i}}\mid \ = \frac{\frac{\Delta x_i}{x_i}}{\frac{\Delta p_i}{p_i}} = \frac{\Delta x_i}{\Delta p_i} \cdot \frac{p_i}{x_i} = \frac{\partial x_i}{\partial p_i} \cdot \frac{p_i}{x_i}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We know that,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$e(p,u^*) = p \cdot \tilde x, \forall \ \tilde x ∈ x^h (p, u^*) = x(p, e(p, u^*))$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;by duality, where $x^h(p, u^*)$ denotes Hicksian demand. So,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\partial e(p_i,u^*)}{\partial p_i} = x_i$$&#xA;$$\frac{\partial x_i}{\partial e(p_i, u^*)} = \frac{x_i}{w}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies \frac{\partial x_i}{\partial p_i} \cdot \frac{p_i}{x_i} = \frac{\partial e}{\partial p_i} \cdot \frac{\partial x_i}{\partial e}\cdot \frac{p_i}{x_i} = \frac {x_i^2}{w} \cdot \frac{p_i}{x_i} = \frac{p_i x_i}{w}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which is the share of income spent on good $x_i$&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2015-10-18T16:09:05.233" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="8766" PostTypeId="2" ParentId="8761" CreationDate="2015-10-18T16:25:54.090" Score="1" Body="&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Remember that rivalrous goods mean that someone else consuming it takes some benefit from other people using it--obviously not true for music unless you are a very spiteful consumer. Excludability means you can prevent others from listening to it. Once one person buys it and they start blaring the music, they can't stop others from listening to it, unless they have headphones or something. So it could be considered excludable, but music streaming is often used for parties and such. There is also the issue of torrenting and sharing music online, which makes &lt;em&gt;you&lt;/em&gt; the music streamer. So the question to consider is whether music is turning into a public good, and what that means for music streaming.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;In any industry, there is always loss from resale transactions. Someone who buys a book from someone else isn't buying it from the publisher or the author. It's just that with music people really like to resale music for zero price (free), which seems odd in a way. Nevertheless, we still see people buy music from musicians because they can be assured of higher quality (so there is product differentiation between a ripped song and the original) and there is probably some weird intrinsic value we get from being a patron of the arts (think Kickstarter or GoFundMe). Is there a negative externality from music streaming services? Probably.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Artists put music on streaming because some see it as better than the traditional way nowadays, just putting your CDs in stores or whatnot. If you get even &quot;less than deserved&quot; from doing that, well...&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;That's just skimming the surface of this issue probably, so hopefully others will be elaborate better than me.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2015-10-18T16:25:54.090" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8767" PostTypeId="2" ParentId="8764" CreationDate="2015-10-18T17:06:58.877" Score="3" Body="&lt;p&gt;In case of normal goods, income elasticity of demand is greater than 0 and in case of luxury goods, it is greater than 1.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Supposing the price of pizza here remain constant at $1, thus when your income increased by 10%, the demand of pizza increased by 25%&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Income elasticity of demand = 25/10 = 2.5&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;2.5 &gt; 0&lt;/strong&gt;, hence &lt;strong&gt;normal good&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;2.5 &gt; 1&lt;/strong&gt;, hence &lt;strong&gt;luxury good&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This way, pizza is both normal and luxury good here. &lt;/p&gt;&#xA;" OwnerUserId="5985" LastActivityDate="2015-10-18T17:06:58.877" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8768" PostTypeId="2" ParentId="8751" CreationDate="2015-10-18T17:27:41.077" Score="1" Body="&lt;p&gt;Aggregate supply is the total supply of goods and services in an economy given the price level, over a period of time. So, according to this your first statement is correct.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The second statement emphasized on the potential output when &lt;strong&gt;all factors of production are fully utilized&lt;/strong&gt;. It is a long term statement because only in the long run does an economy fully utilizes all the resources.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here, second is a particular case of the general aggregate supply function definition.&lt;/p&gt;&#xA;" OwnerUserId="5985" LastActivityDate="2015-10-18T17:27:41.077" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8769" PostTypeId="1" AcceptedAnswerId="8770" CreationDate="2015-10-18T18:43:09.500" Score="7" ViewCount="1134" Body="&lt;p&gt;Take an $n$-commodity constant elasticity of substitution utility function,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U = \left[\sum^n_{i=1} \alpha_i x^\rho_i \right]^\frac{1}{\rho}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How do we show the following:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Show that as $\rho \rightarrow 0$ that this utility function represents preferences for Cobb-Douglass utility. $U(x) = \prod^n_{i=1} x_i^{\alpha_i}$&lt;/li&gt;&#xA;&lt;li&gt;Show that as $\rho \rightarrow - \infty$ that this utility function has the indifference curves as in Leontief utility. $U(x) = \min\left\{x_1,...,x_n\right\}$&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="4251" LastEditorUserId="2776" LastEditDate="2017-06-20T06:29:14.610" LastActivityDate="2017-06-20T06:29:14.610" Title="Constant Elasticity of Substitution: Special Cases" Tags="&lt;mathematical-economics&gt;&lt;utility&gt;&lt;elasticity&gt;&lt;cobb-douglas&gt;&lt;leontief&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8770" PostTypeId="2" ParentId="8769" CreationDate="2015-10-18T18:43:09.500" Score="6" Body="&lt;p&gt;We know that if $u$ represents $\succeq$ on $X$, then for any strictly increasing function $f: \mathbb{R} \rightarrow \mathbb{R}$, then $v(x) = f(u(x))$ represents $\succeq$ on $X$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;($X$ in this case is $\mathbb{R^n}$)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider $v(x, \rho) = \ln(u(x, \rho)) - \frac{\ln\left[\sum^n_{i=1}\alpha_i \right]}{\rho}$, which is strictly increasing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$v(x, \rho) = \frac{\ln\left[\sum^n_{i=1} \alpha_i x^\rho_i \right]}{\rho} - \frac{\ln\left[\sum^n_{i=1}\alpha_i \right]}{\rho} = &#xA;\frac{\ln\left[\sum^n_{i=1} \alpha_i x^\rho_i \right] - \left [\ln\sum^n_{i=1}\alpha_i \right]}{\rho}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The limit of this as $\rho \rightarrow 0$ is indeterminate, $\frac{0}{0}$. So we can use L'Hopital's Rule and take the derivative with respect to $\rho$ of the numerator and denominator.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\lim_{\rho \rightarrow 0} \frac{\ln\left[\sum^n_{i=1} \alpha_i x^\rho_i \right] - \left [\ln\sum^n_{i=1}\alpha_i \right]}{\rho} = &#xA;\lim_{\rho \rightarrow 0} \frac{1}{\sum^n_{i=1} \alpha_i x_i^\rho} \cdot \left(\sum^n_{i=1} \alpha_i x_i^\rho \ln x_i\right)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;by the Chain Rule.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$= \lim_{\rho \rightarrow 0} \frac{\sum^n_{i=1} \alpha_i x_i^\rho \ln x_i}{\sum^n_{i=1} \alpha_i x_i^\rho} = \frac{\sum^n_{i=1} \alpha_i \ln x_i}{\sum^n_{i=1} \alpha_i} = \frac{1}{\sum^n_{i=1} \alpha_i} \cdot \ln\left(\prod^n_{i=1} x_i^{\alpha_i}\right)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider $w(x, \rho) = \mathrm{e}^{(\sum^n_{i=1} \alpha_i) \cdot v(x, \rho)}$, which is another monotonic transformation, strictly increasing. So $w$ still represents the same preference as $u$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\lim_{\rho \rightarrow 0} w(x, \rho) = \mathrm{e}^{(\sum^n_{i=1} \alpha_i) \cdot \lim_{\rho \rightarrow 0} v(x, \rho)} = \prod^n_{i=1} x_i^{\alpha_i}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which is a Cobb-Douglas function. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\square$&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;To show the second point, it is sufficient to show that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\lim_{\rho \rightarrow -\infty} u(x) = \left\{x_k \ \forall j \neq k \mid x_j \geq x_k \right\}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$u(x) = \left[\sum^n_{i=1} \alpha_i x^\rho_i \right]^\frac{1}{\rho} = x_k \left[(\sum^n_{i=1, i \neq k} \alpha_i x^\rho_i) + \alpha_k \right]^\frac{1}{\rho}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$(\frac{x_j}{x_k})^\rho \rightarrow 0$ as $\rho \rightarrow -\infty$ if $x_j &amp;gt; x_k$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$(\frac{x_j}{x_k})^\rho \rightarrow 1$ as $\rho \rightarrow -\infty$ if $x_j = x_k$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\lim_{\rho \rightarrow -\infty} x_k \left[(\sum^n_{i=1, i \neq k} \alpha_i x^\rho_i) + \alpha_k \right]^\frac{1}{\rho} = x_k$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;since $1/\rho \rightarrow 0$ and a constant to the zeroth power is 1.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Construct a similar argument for any $k$. Thus $\lim_{\rho \rightarrow -\infty} u(x) = \min \left\{x_1,...,x_n \right\} $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\square$&lt;/p&gt;&#xA;" OwnerUserId="4251" LastEditorUserId="7660" LastEditDate="2017-06-15T19:23:16.693" LastActivityDate="2017-06-15T19:23:16.693" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="8771" PostTypeId="1" CreationDate="2015-10-18T23:09:13.697" Score="0" ViewCount="128" Body="&lt;p&gt;Suppose that the total population on the 1st of January 2001 was 40 million people, of which 30 million were above age 16. Suppose that among the latter, 12 million people were not working or actively looking for work, and 2 million were unemployed. 800,000 people are expected to turn 16 during 2001 and half of them are expected to keep studying and not to seek a job, while the other half is expected to seek a job and be ready to start working immediately. How many people have to find a job during 2001 for the unemployment rate to be 8 %.&lt;/p&gt;&#xA;" OwnerUserId="5756" LastActivityDate="2015-10-19T01:54:11.103" Title="Unemployment and Labor Force MacroEconomics" Tags="&lt;macroeconomics&gt;&lt;unemployment&gt;" AnswerCount="1" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8773" PostTypeId="2" ParentId="8769" CreationDate="2015-10-19T01:17:32.960" Score="4" Body="&lt;p&gt;These are standard mathematical results for generalized means. For example,for the $\rho \rightarrow 0$ result, write (setting without loss of generality $\sum_{i=1}^na_i =1$),&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U = \left[\sum^n_{i=1} \alpha_i x^\rho_i \right]^\frac{1}{\rho} = \exp\left\{\frac 1\rho\ln \left(\sum^n_{i=1} \alpha_i x^\rho_i\right)\right\}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Apply L'Hopital's rule on&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac 1\rho\ln \left(\sum^n_{i=1} \alpha_i x^\rho_i\right)$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;to get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\sum^n_{i=1} \alpha_ix_i^{\rho}\ln x_i}{\sum^n_{i=1} \alpha_i x^\rho_i} \rightarrow \sum^n_{i=1} \alpha_i\ln x_i,\;\;\; \rho\rightarrow 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So (by the uniform continuity of the exponential function)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\rho\rightarrow 0,\;\;\; U = \exp\left\{\frac 1\rho\ln \left(\sum^n_{i=1} \alpha_i x^\rho_i\right)\right\} \rightarrow \exp\left\{\sum^n_{i=1} \alpha_i\ln x_i\right\} = \prod_{i=1}^nx_i^{a_i}$$&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-10-19T01:17:32.960" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="8774" PostTypeId="2" ParentId="8771" CreationDate="2015-10-19T01:54:11.103" Score="1" Body="&lt;p&gt;A short note: please try to show your math work in the original post, and maybe learn some basic Math TeX commands. It makes people much more willing to help with homework questions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So first, we have our unemployment for the year 2000. Let $U_t, u_t, L_t$ denote the unemployment rate, number of unemployed, and number of laborers at time $t$, respectively.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U_t = \frac {u_t}{u_t + L_t}$$&#xA;$$U_{2000} = \frac {2,000,000}{2,000,000 + 16,000,000} = \frac{1}{9} \approx 0.111$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So in the year 2001, 800,000 people turn 16, but half do not enter the labor force. So the question is how many people have to find a job for unemployment to fall below 8%.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U_{2001} = \frac{2,000,000 + (400,000 - n)}{2,000,000 + (400,000 - n) + 16,000,000 + n} = 0.08$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $n$ is the number of those who found jobs, and $400,000 - n$ is the net change in unemployment numbers. Solve for $n$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{2,400,000 - n}{18,400,000} = 0.08$$&#xA;$$\implies 1,472,000 = 2,400,000 - n \implies 928,000 = n$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So what does this tell us? Even if all 400,000 new 16 year olds found jobs, that would not drive unemployment down to 8%. You need quite a few more people to find jobs.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2015-10-19T01:54:11.103" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8775" PostTypeId="2" ParentId="47" CreationDate="2015-10-19T07:11:19.007" Score="3" Body="&lt;p&gt;Not a serious answer, but these two incendiary quotes were by two Nobel laureates (Wall Street Journal, 25th April, 1996) and so perhaps worth listing here.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;James Buchanan: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The inverse relationship between quantity demanded and price is the core proposition in economic science, which embodies the presupposition that human choice behavior is sufficiently rational to allow predictions to be made. Just as no physicist would claim that &quot;water runs uphill,&quot; no self-respecting economist would claim that increases in the minimum wage increase employment. Such a claim, if seriously advanced, becomes equivalent to a denial that there is even minimal scientific content in economics, and that, in consequence, economists can do nothing but write as advocates for ideological interests. Fortunately, only a handful of economists are willing to throw over the teaching of two centuries; we have not yet become a bevy of camp-following whores.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Merton Miller:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Years ago, economists used to believe there was no such thing as a free lunch. Some now seem to have found one, however, in the proposed increase in the minimum wage. Raising the minimum wage by law above its market determined equilibrium, they argue, actually costs nobody anything. (Or at worst, costs nobody very much because it's only a small, marginal increment, after all.) Is all this too good to be true? Damn right. But it sure plays well in the opinion polls. I tremble for my profession. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2015-10-19T07:11:19.007" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8776" PostTypeId="1" CreationDate="2015-10-19T15:51:06.693" Score="1" ViewCount="122" Body="&lt;p&gt;Could u help me to solve this case? Here's the case.. The first, There are 3 aspects for calculate Rating of each merchant. The scale of rating is from 1 until n ( Based on sum of Merchants). The first aspect is product's price and proportion of this price is 50% from 100%. The second aspect is product's Quality and proportion of this quality is 25 % from 100%. The last aspect is sum of product which is already sold and proportion of this quality is 25% from 100%. The sum of proportion from those aspects are 100%.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;here is the simulation.. Merchant A is already join e-commerce for 3 years and the price of their product is 65 dollars.they are already fulfill those aspects that mentioned earlier. Merchant B is already join e-commerce for 4 years and the price of their product is 70 dollars. The position of product is affected from rating merchant. the cheap price and fulfill those aspects perfectly, it'd be get the first position in website e-commerce. so the simulation would be merchant A (1) is the first position and merchant B(2) is the second position.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If there are 2 new merchants which have the same price(both 50 Dollars) &amp;amp; same products but more cheaper that merchant A and B, and then those new merchant haven't fulfill the second and the third aspects, just fulfill the first aspect, how should we calculate the ratings? are there any aspect that needed to calculate this ratings?&lt;/p&gt;&#xA;" OwnerUserId="5996" LastEditorUserId="1601" LastEditDate="2015-10-19T18:06:07.197" LastActivityDate="2015-10-19T18:06:07.197" Title="How to calculate rating of merchant in e-commerce" Tags="&lt;microeconomics&gt;" AnswerCount="0" CommentCount="1" ClosedDate="2015-10-20T09:09:29.773" ContentLicense="CC BY-SA 3.0" />
  <row Id="8777" PostTypeId="1" CreationDate="2015-10-19T17:29:46.800" Score="1" ViewCount="38" Body="&lt;p&gt;If I have wage $w = 200$ and rental rate $r = 3050$ on short run, I can assume that $K=1$ and then get the total costs $TC = rK+wL = 3050 + 200L$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Isn't it correct?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But what if I also have a cost of $400$ on each sold unit. Then my costs will be function of both labor $L$ and quantity $Q$.&lt;/p&gt;&#xA;" OwnerUserId="4110" LastActivityDate="2015-10-19T17:29:46.800" Title="Total costs as function of labor and quantity" Tags="&lt;labor-economics&gt;&lt;cost&gt;&lt;capital-returns&gt;" AnswerCount="0" CommentCount="1" ClosedDate="2015-10-20T19:10:13.200" ContentLicense="CC BY-SA 3.0" />
  <row Id="8778" PostTypeId="1" CreationDate="2015-10-19T18:21:34.507" Score="1" ViewCount="78" Body="&lt;p&gt;When the Fed lower the interest rate, there will be a rise in GDP and thus a decline in unemployment, which in turn cause the inflation to go up according to the Phillips curve. But Fisher’s equation tells me that real interest rate = interest rate - inflation. So if real interest rate does not change, an increase in interest rate should also cause a increase in inflation, a contradiction.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help or comment is appreciated.&lt;/p&gt;&#xA;" OwnerUserId="4551" LastActivityDate="2015-10-19T18:38:14.920" Title="Will inflation rise or fall when the Fed increase their interest rate?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8779" PostTypeId="1" CreationDate="2015-10-19T18:34:09.960" Score="4" ViewCount="53" Body="&lt;p&gt;I'm interested in calculating a repeat sales index like that of &lt;a href=&quot;http://www.nber.org/papers/w2393&quot; rel=&quot;nofollow noreferrer&quot;&gt;Case and Shiller (1987)&lt;/a&gt; or  &lt;a href=&quot;http://amstat.tandfonline.com/doi/abs/10.1080/01621459.1963.10480679&quot; rel=&quot;nofollow noreferrer&quot;&gt;Bailey, Muth and Nourse (1963)&lt;/a&gt;. While I believe I have a handle on the econometrics, to test my implementation I need two things:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Data with repeat sales transactions (e.g. real estate or art)&lt;/li&gt;&#xA;&lt;li&gt;A price index based on repeat sales calculated off of the data in (1) &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Thus far, I've been able to find many examples of repeat sales indices (&lt;a href=&quot;http://www.fhfa.gov/DataTools/Downloads/Pages/House-Price-Index.aspx&quot; rel=&quot;nofollow noreferrer&quot;&gt;FHFA&lt;/a&gt;, &lt;a href=&quot;http://www.corelogic.com/products/corelogic-case-shiller.aspx&quot; rel=&quot;nofollow noreferrer&quot;&gt;CoreLogic Case–Shiller Indexes&lt;/a&gt;, &lt;a href=&quot;http://www.artasanasset.com/main/computation.php&quot; rel=&quot;nofollow noreferrer&quot;&gt;Mei Moses art indices&lt;/a&gt;, &lt;a href=&quot;http://onlinelibrary.wiley.com/doi/10.1111/1540-6229.00711/abstract&quot; rel=&quot;nofollow noreferrer&quot;&gt;Herengracht Index&lt;/a&gt;). Unfortunately, none with the underlying data used to construct the index.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't need to be able to fully recreate an existing index. I'm just looking for a set of data and index values to verify that my implementation is correct. In the event that the data (1) but not a calculated index (2) is available, that would be useful, but only if the data is clean and organized enough that I can focus primarily on the implementation rather than data issues. &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="4816" LastEditDate="2019-05-06T18:56:51.497" LastActivityDate="2019-05-06T18:56:51.497" Title="Test data for repeat sales indices" Tags="&lt;data-request&gt;&lt;housing&gt;" AnswerCount="0" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="8780" PostTypeId="2" ParentId="8778" CreationDate="2015-10-19T18:38:14.920" Score="3" Body="&lt;p&gt;Hint:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you're keeping real interest rates constant in the second scenario, you should keep real interest rates constant in the first scenario.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you do this, lowering the nominal interest rate will decrease inflation off the bat (by the Fischer's equation) by the same amount as the change in nominal interest rates.&lt;/p&gt;&#xA;" OwnerUserId="5825" LastActivityDate="2015-10-19T18:38:14.920" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8781" PostTypeId="1" CreationDate="2015-10-19T19:52:37.810" Score="2" ViewCount="124" Body="&lt;p&gt;I have a market with 1000 suppliers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The total demand can be described by&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;Q=-300000 P + 6000000&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;while the total supply can be described by&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;Q=200000 \sum(MC^2)-200000&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is the price and quantity in equilibrium?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have no idea what to do with $\sum(MC^2)$ in the supply.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I guess I should isolate $P$ in the first equation:&#xA;$$&#xA;P(Q) = 20-\frac{1}{300000} Q&#xA;$$&#xA;but I don't know what to do now.&lt;/p&gt;&#xA;" OwnerUserId="4110" LastEditorUserId="61" LastEditDate="2015-10-20T00:32:32.597" LastActivityDate="2015-11-19T01:35:59.740" Title="Price and quantity in equilibrium" Tags="&lt;supply-and-demand&gt;" AnswerCount="1" CommentCount="2" ClosedDate="2015-11-19T21:48:54.987" ContentLicense="CC BY-SA 3.0" />
  <row Id="8782" PostTypeId="1" CreationDate="2015-10-19T20:01:18.477" Score="2" ViewCount="1616" Body="&lt;p&gt;I see that &quot;heating oil&quot;, which I presume to mean No. 2 fuel oil, is more expensive than gasoline:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/6Aph3.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/6Aph3.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My understanding was that fuel oil is much easier to refine than gasoline and more of it is produced per barrel of crude than gasoline is produced. Why then is it more expensive?&lt;/p&gt;&#xA;" OwnerUserId="1448" LastActivityDate="2018-11-27T19:47:34.350" Title="Heating oil more expensive than gasoline?" Tags="&lt;commodities&gt;" AnswerCount="3" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="8783" PostTypeId="1" CreationDate="2015-10-19T20:15:53.257" Score="3" ViewCount="885" Body="&lt;p&gt;I am interested as to whether or not Educational spending does or does not affect GDP and GDP growth (and as an aside GDP per Capita).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As an overview, I've ranked the countries in each aspect (with 1 being the best and 163 the worst) and then plotted this rank data.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Have I made any obvious mistakes, is there any additional analysis I should do, and is there any conclusion I should come to from this?&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;I analysed data for 163 countries, including Developed and Developing countries, and compared the Literacy rates, % of GDP spent on Education, GDP and a couple of other data points. All data is from these Wikipedia pages (&lt;a href=&quot;https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)_per_capita&quot; rel=&quot;nofollow noreferrer&quot;&gt;1&lt;/a&gt; &lt;a href=&quot;https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)&quot; rel=&quot;nofollow noreferrer&quot;&gt;2&lt;/a&gt; &lt;a href=&quot;https://en.wikipedia.org/wiki/List_of_countries_by_literacy_rate&quot; rel=&quot;nofollow noreferrer&quot;&gt;3&lt;/a&gt; &lt;a href=&quot;https://en.wikipedia.org/wiki/List_of_countries_by_spending_on_education_(%25_of_GDP)&quot; rel=&quot;nofollow noreferrer&quot;&gt;4&lt;/a&gt; &lt;a href=&quot;https://en.wikipedia.org/wiki/List_of_countries_by_real_GDP_growth_rate&quot; rel=&quot;nofollow noreferrer&quot;&gt;5&lt;/a&gt;), which cite the following. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.imf.org/external/pubs/ft/weo/2015/02/weodata/weorept.aspx?sy=2014&amp;amp;ey=2014&amp;amp;ssd=1&amp;amp;sort=country&amp;amp;ds=.&amp;amp;br=1&amp;amp;pr1.x=16&amp;amp;pr1.y=7&amp;amp;c=512%2C668%2C914%2C672%2C612%2C946%2C614%2C137%2C311%2C962%2C213%2C674%2C911%2C676%2C193%2C548%2C122%2C556%2C912%2C678%2C313%2C181%2C419%2C867%2C513%2C682%2C316%2C684%2C913%2C273%2C124%2C868%2C339%2C921%2C638%2C948%2C514%2C943%2C218%2C686%2C963%2C688%2C616%2C518%2C223%2C728%2C516%2C558%2C918%2C138%2C748%2C196%2C618%2C278%2C522%2C692%2C622%2C694%2C156%2C142%2C624%2C449%2C626%2C564%2C628%2C565%2C228%2C283%2C924%2C853%2C233%2C288%2C632%2C293%2C636%2C566%2C634%2C964%2C238%2C182%2C662%2C453%2C960%2C968%2C423%2C922%2C935%2C714%2C128%2C862%2C611%2C135%2C321%2C716%2C243%2C456%2C248%2C722%2C469%2C942%2C253%2C718%2C642%2C724%2C643%2C576%2C939%2C936%2C644%2C961%2C819%2C813%2C172%2C199%2C132%2C733%2C646%2C184%2C648%2C524%2C915%2C361%2C134%2C362%2C652%2C364%2C174%2C732%2C328%2C366%2C258%2C734%2C656%2C144%2C654%2C146%2C336%2C463%2C263%2C528%2C268%2C923%2C532%2C738%2C944%2C578%2C176%2C537%2C534%2C742%2C536%2C866%2C429%2C369%2C433%2C744%2C178%2C186%2C436%2C925%2C136%2C869%2C343%2C746%2C158%2C926%2C439%2C466%2C916%2C112%2C664%2C111%2C826%2C298%2C542%2C927%2C967%2C846%2C443%2C299%2C917%2C582%2C544%2C474%2C941%2C754%2C446%2C698%2C666&amp;amp;s=PPPPC&amp;amp;grp=0&amp;amp;a=&quot; rel=&quot;nofollow noreferrer&quot;&gt;1&lt;/a&gt; &lt;a href=&quot;http://www.imf.org/external/pubs/ft/weo/2015/02/weodata/weorept.aspx?pr.x=47&amp;amp;pr.y=15&amp;amp;sy=2014&amp;amp;ey=2014&amp;amp;scsm=1&amp;amp;ssd=1&amp;amp;sort=country&amp;amp;ds=.&amp;amp;br=1&amp;amp;c=512%2C668%2C914%2C672%2C612%2C946%2C614%2C137%2C311%2C962%2C213%2C674%2C911%2C676%2C193%2C548%2C122%2C556%2C912%2C678%2C313%2C181%2C419%2C867%2C513%2C682%2C316%2C684%2C913%2C273%2C124%2C868%2C339%2C921%2C638%2C948%2C514%2C943%2C218%2C686%2C963%2C688%2C616%2C518%2C223%2C728%2C516%2C558%2C918%2C138%2C748%2C196%2C618%2C278%2C624%2C692%2C522%2C694%2C622%2C142%2C156%2C449%2C626%2C564%2C628%2C565%2C228%2C283%2C924%2C853%2C233%2C288%2C632%2C293%2C636%2C566%2C634%2C964%2C238%2C182%2C662%2C453%2C960%2C968%2C423%2C922%2C935%2C714%2C128%2C862%2C611%2C135%2C321%2C716%2C243%2C456%2C248%2C722%2C469%2C942%2C253%2C718%2C642%2C724%2C643%2C576%2C939%2C936%2C644%2C961%2C819%2C813%2C172%2C199%2C132%2C733%2C646%2C184%2C648%2C524%2C915%2C361%2C134%2C362%2C652%2C364%2C174%2C732%2C328%2C366%2C258%2C734%2C656%2C144%2C654%2C146%2C336%2C463%2C263%2C528%2C268%2C923%2C532%2C738%2C944%2C578%2C176%2C537%2C534%2C742%2C536%2C866%2C429%2C369%2C433%2C744%2C178%2C186%2C436%2C925%2C136%2C869%2C343%2C746%2C158%2C926%2C439%2C466%2C916%2C112%2C664%2C111%2C826%2C298%2C542%2C927%2C967%2C846%2C443%2C299%2C917%2C582%2C544%2C474%2C941%2C754%2C446%2C698%2C666&amp;amp;s=NGDPD&amp;amp;grp=0&amp;amp;a=&quot; rel=&quot;nofollow noreferrer&quot;&gt;2&lt;/a&gt; &lt;a href=&quot;https://www.cia.gov/library/publications/the-world-factbook/fields/2103.html#136&quot; rel=&quot;nofollow noreferrer&quot;&gt;3&lt;/a&gt; &lt;a href=&quot;http://allafrica.com/stories/201501121566.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;4&lt;/a&gt; &lt;a href=&quot;http://cri.org.bd/publication/2015/Bangladesh%20Education%20for%20All/#/6/&quot; rel=&quot;nofollow noreferrer&quot;&gt;5&lt;/a&gt; &lt;a href=&quot;http://bdnews24.com/bangladesh/2015/06/16/bangladeshs-literacy-rate-rises-to-70-percent-education-minister-says&quot; rel=&quot;nofollow noreferrer&quot;&gt;6&lt;/a&gt; &lt;a href=&quot;http://educacao.uol.com.br/noticias/2013/09/27/analfabetismo-volta-a-crescer-no-brasil-apos-mais-de-15-anos-de-queda.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;7&lt;/a&gt; &lt;a href=&quot;http://www.dzs.hr/Hrv/censuses/census2011/results/htm/h01_01_33/H01_01_33.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;8&lt;/a&gt; &lt;a href=&quot;https://books.google.co.uk/books?id=pLw-ReHIgvQC&amp;amp;redir_esc=y&quot; rel=&quot;nofollow noreferrer&quot;&gt;9&lt;/a&gt; &lt;a href=&quot;http://www.shabait.com/news/local-news/12263-adult-education-program-gaining-momentum-ministry&quot; rel=&quot;nofollow noreferrer&quot;&gt;10&lt;/a&gt; &lt;a href=&quot;http://www.ine.gob.gt/index.php/estadisticas/tema-indicadores#&quot; rel=&quot;nofollow noreferrer&quot;&gt;11&lt;/a&gt; &lt;a href=&quot;https://en.wikipedia.org/wiki/Registrar_General_and_Census_Commissioner_of_India&quot; rel=&quot;nofollow noreferrer&quot;&gt;12&lt;/a&gt; &lt;a href=&quot;http://www.unicef.org/infobycountry/kuwait_statistics.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;13&lt;/a&gt; &lt;a href=&quot;http://www.gov.mu/portal/goc/cso/ei977/pop2011.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;14&lt;/a&gt; &lt;a href=&quot;https://www.cia.gov/library/publications/the-world-factbook/geos/we.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;15&lt;/a&gt; &lt;a href=&quot;http://www.uis.unesco.org/DataCentre/Pages/country-profile.aspx?code=VEN&amp;amp;regioncode=40520&quot; rel=&quot;nofollow noreferrer&quot;&gt;16&lt;/a&gt; &lt;a href=&quot;http://hdr.undp.org/en/content/expenditure-education-public-gdp&quot; rel=&quot;nofollow noreferrer&quot;&gt;17&lt;/a&gt; &lt;a href=&quot;http://finance.gov.tt/wp-content/uploads/2014/09/Budget-Statement-2015.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;18&lt;/a&gt; &lt;a href=&quot;http://data.worldbank.org/indicator/SE.XPD.TOTL.GD.ZS&quot; rel=&quot;nofollow noreferrer&quot;&gt;19&lt;/a&gt; &lt;a href=&quot;http://www.moe.gov.cn/publicfiles/business/htmlfiles/moe/s3040/201312/161346.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;20&lt;/a&gt; &lt;a href=&quot;https://www.imf.org/external/pubs/ft/weo/2015/01/weodata/WEOApr2015all.xls&quot; rel=&quot;nofollow noreferrer&quot;&gt;21&lt;/a&gt; &lt;a href=&quot;http://www.nigerianstat.gov.ng/pages/download/43&quot; rel=&quot;nofollow noreferrer&quot;&gt;22&lt;/a&gt; &lt;a href=&quot;https://stats.moe.gov.tw/files/main_statistics/age15up.xls&quot; rel=&quot;nofollow noreferrer&quot;&gt;23&lt;/a&gt; &lt;a href=&quot;https://www.cia.gov/library/publications/the-world-factbook/rankorder/2003rank.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;24&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.one-tab.com/page/_eHdbwkNSFqD9XCZ4GCztw&quot; rel=&quot;nofollow noreferrer&quot;&gt;View them in a list here.&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When you look at the data for developing counties and developed counties, it gets confusing. For example, it suggests that low literacy rates increase growth:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is the key for all graphs. Bear in mind this is a ranking, so lower is better.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/nYuaz.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/nYuaz.png&quot; alt=&quot;&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Back to the section of graph - the top 10 counties for growth. Note the incredibly poor literacy rate of 50% of them - and only one is in top 50 for literacy. &lt;a href=&quot;http://pastebin.com/9w4Uq2SZ&quot; rel=&quot;nofollow noreferrer&quot;&gt;Raw Data&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/Xt5kl.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Xt5kl.png&quot; alt=&quot;&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;While this looks like it supports your theory, I'm unconvinced there is enough data to show a causal link between the two. I don't think a low literacy rate creates a fast growing economy - rather less developed countries will develop faster (possibly due to a Knowledge Gap) than more developed counties. It also happens that these counties haven't got around to investing much in education, with the notable exceptions of Uzbekistan, Tanzania, and Mongolia. Uzbekistan and Mongolia both seem to have good literacy rankings. Tanzania is an exception here - possibly supporting your theory.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Anyway, we're going to exclude developing countries from this analysis. What is a developing country? Not very well defined. For this, I'll say that &lt;a href=&quot;http://www.imf.org/external/pubs/ft/weo/2015/01/weodata/groups.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;any country in the IMF's developing country list&lt;/a&gt; is going to be removed from this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/pelu6.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/pelu6.png&quot; alt=&quot;&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, of these we want to see if spending on education increases GDP Growth.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Again, Growth is yellow and Education spending is red.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/OYUU2.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/OYUU2.png&quot; alt=&quot;&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In fact, the ranking of growth seems to be no more organised than when it was sorted alphabetically, and the almost horizontal trend line agrees:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/hWqSx.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/hWqSx.png&quot; alt=&quot;&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This would suggest that spending on education affects economic &lt;em&gt;growth&lt;/em&gt; very little. Instead, let's look at GDP, and GDP per Capita. It does look like as spending decreases, GDP decreases a little too, but in reality it seems to be either perfectly level, or decreasing slightly:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/UrzM9.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/UrzM9.png&quot; alt=&quot;&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There isn't enough of a slope to really draw conclusions here. Let's plot Education against GDP:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/8kJ9L.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/8kJ9L.png&quot; alt=&quot;&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;No correlation there, and the same for Education against GDP per Capita:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/5ispI.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/5ispI.png&quot; alt=&quot;&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What about when sorted by Literacy?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/57bi6.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/57bi6.png&quot; alt=&quot;&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Growth rate (Yellow) seems to improve as literacy get's worse. This ties in with what happens when you include developing countries - and when you look at GDP (Green) it is decreasing as decreases increases. So is there a correlation between Literacy and GDP?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/3AsKD.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/3AsKD.png&quot; alt=&quot;&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Yes - at least more of one than before. This is the same with GDP per Capita, to a much lesser extent - close enough to nothing that on it's own there is no correlation:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/jnacH.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/jnacH.png&quot; alt=&quot;&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there a correlation between Education spending and Literacy rates:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/pH1qC.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/pH1qC.png&quot; alt=&quot;&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/igDjg.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/igDjg.png&quot; alt=&quot;&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Yes, which makes it strange that &lt;a href=&quot;https://i.stack.imgur.com/5ispI.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;Literacy vs GDP per Capita&lt;/a&gt; has no correlation. I am unconvinced of any conclusion here.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We've shown that Education increases Literacy, and Literacy increases GDP - but that Education decreases GDP. I was expecting a clear Education = GDP correlation, but we didn't get that.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think that could be because this is an analysis of Developed countries. A reduce in educational spending now will not reduce GDP for 25 years or more, which makes it hard to determine how education affects GDP.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It would appear that this is confirmed to an extent. Education is needed to get the economy going, but after that additional educational spending really isn't worth it.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;All the data is avaliable &lt;a href=&quot;http://pastebin.com/WW5i1DV6&quot; rel=&quot;nofollow noreferrer&quot;&gt;here as a paste&lt;/a&gt;, and &lt;a href=&quot;http://www.filedropper.com/data_7&quot; rel=&quot;nofollow noreferrer&quot;&gt;here as a .csv&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;em&gt;Have I made any obvious mistakes, is there any additional analysis I should do, and is there any conclusion I should come to from this?&lt;/em&gt;&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="5999" LastEditorUserId="108" LastEditDate="2017-04-09T07:45:30.197" LastActivityDate="2017-04-09T07:45:30.197" Title="Correlation and Causality: Data comparison of educational spending and GDP growth" Tags="&lt;gdp&gt;&lt;economic-growth&gt;&lt;investment&gt;&lt;education-economics&gt;" AnswerCount="3" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="8784" PostTypeId="2" ParentId="8783" CreationDate="2015-10-19T23:24:33.953" Score="0" Body="&lt;p&gt;&lt;strong&gt;Chapter 12&lt;/strong&gt; of &lt;a href=&quot;http://down.cenet.org.cn/upfile/8/200751171644184.pdf&quot; rel=&quot;nofollow&quot;&gt;&lt;strong&gt;Barro &amp;amp; Sala-i-Martin (2004) &quot;Economic Growth&quot; (2n ed)&lt;/strong&gt;&lt;/a&gt; is an extended example of empirical research related to growth, with a cross-section of countries (in fact they have panel data, but they approach it in a &quot;cross-sectional&quot; way).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;They also examine how education affects (or not) growth, using many different variables. The connection appears rather weak.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since this is a book mostly directed to graduate students, they provide many details on their approach and methodology, so I think it would be useful reading to any one interested in such matters. One will also find many references to research papers.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-10-19T23:24:33.953" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8785" PostTypeId="2" ParentId="8329" CreationDate="2015-10-19T23:30:07.910" Score="1" Body="&lt;p&gt;A depreciation in the Yuan will result in an increase of Chinese exports as where countries compete on price for goods like steel and tires the demand is very elastic. A small change in price will lead to a large shift in the quantity demanded. India knows this and after a succession of poor last few months exports will stand to lose out even more now that the Yuan has devalued. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also now that China has changed its exchange rate, China could be leaning to a more flexible exchange rate (which the article suggests) opening up for an increase in capital mobility which investors look favourably upon. The devaluation of the yuan has also decreased the price of Chinese assets thus making it cheaper to invest. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is likely that the further reduction of the price of Chinese exports will cause the currency to appreciate once again as demand for Chinese goods increases. Some investors will take on Chinese assets and currency, predicting the currency will appreciate in the future, resulting in a nice profit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally as India's export reliant sectors struggle to compete with supplying major industries around the world,  the drop in market share will be swallowed up by China resulting in more attractive Chinese businesses (which may be open to FDI). India is also struggling to supply its domestic industries as it cannot compete on prices. This uncertainty around India and its lacklustre performance will likely see FDI being pulled out and reinvested into more lucrative opportunities.&lt;/p&gt;&#xA;" OwnerUserId="6000" LastActivityDate="2015-10-19T23:30:07.910" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="8786" PostTypeId="2" ParentId="8782" CreationDate="2015-10-19T23:35:52.020" Score="2" Body="&lt;p&gt;I would expect the gasoline market to be more competitive than heating. Transporting heating oil into homes requires large infrastructural investment and high fixed costs, so you'd expect there to be more market power concentrated in a fewer number of firms, driving the price of it up. Creating gasoline for sure requires a lot of investment too, but not for nearly a large area I would imagine.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So basically, consider heating oil an input for a &quot;utility&quot; sort of company, which acts as a natural oligopolist/monopolist. I'm not exactly sure what the market looks like here in the United States, but this is my best guess. Someone else can probably elaborate on this answer or provide an alternative suggestion.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2015-10-19T23:35:52.020" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8787" PostTypeId="2" ParentId="8781" CreationDate="2015-10-20T00:56:55.897" Score="0" Body="&lt;p&gt;&lt;strong&gt;Hint:&lt;/strong&gt; To find equilibrium price and quantity, you want to find when the system is in equilibrium. In equilibrium, quantity demanded should equal quantity supplied.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Q_d = Q_s \implies -300,000P + 6,000,000 = 200,000 \sum_{i=1}^n (c_i'(q_i))^2 - 200,000$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where $c_i(q_i)$ is the cost function for firm $i$ with respect to $q_i$, firm $i$'s production. I'm assuming when you wrote $MC$ you meant marginal cost.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies 6,200,000 - 200,000\sum_{i=1}^n (c_i'(q_i))^2 = 300,000P$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies P = \frac{62}{3} - \frac{2}{3} \sum_{i=1}^n (c_i'(q_i))^2$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now that we have an inverse demand function with respect to $q$, we have to solve the firms' maximization problem. Since there's no information you've given to us directly about that, let's assume technology is homogeneous and that firms compete via Cournot competition.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Pi_j = q_j(P(q)) - c(q_j)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Pi_j =  q_j(\frac{62}{3} - \frac{2}{3} \sum_{i=1}^n (c'(q_i))^2) - c(q_j)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now take the derivative w.r.t $q_j$ and set to zero to find the maximum.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Pi_j' =  (\frac{62}{3} - \frac{2}{3} \sum_{i=1, i \neq j}^n (c'(q_i))^2) + \frac{2}{3} \frac{d}{dq_j} (c'(q_j)^2 \cdot q_j) - c'(q_j) = 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where that derivative is evaluated with the product and chain rule.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From here, you solve for $q_j$ as an expression of all $q_{i, i \neq j}$. Since the cost functions are homogeneous, it shouldn't be that bad to do. Also remember that the number of suppliers is 1000, so the problem can be further simplified:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Pi_j' =  (\frac{62}{3} - \frac{2}{3} \cdot 999(c'(q_i))^2) + \frac{2}{3} \frac{d}{dq_j} (c'(q_j)^2 \cdot q_j) - c'(q_j) = 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies \Pi_j' =  (\frac{62}{3} - 666(c'(q_i))^2) + \frac{2}{3} (2c'(q_j) \cdot c''(q_j) \cdot q_j + c'(q_j)^2) - c'(q_j) = 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and then you solve for $q_j$ in terms of $q_{i, i \neq j}$ and do the rest of the Cournot derivation.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastEditorUserId="4251" LastEditDate="2015-10-20T01:17:31.477" LastActivityDate="2015-10-20T01:17:31.477" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8789" PostTypeId="2" ParentId="8783" CreationDate="2015-10-20T06:11:19.967" Score="-1" Body="&lt;p&gt;You're comparing rankings in different categories by testing for correlation. This approach says nothing about causality and has a number of other questionable properties. I'd try tackling the question with actual data and regression models.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, if I understood correctly, you're comparing current annual growth to a measure (education/literacy) which, at least in theory, forms over decades, even centuries. With your data and graphs you might argue that some of the current spending on education is ineffective in generating economic growth, but that's about as far as I'd go.&lt;/p&gt;&#xA;" OwnerUserId="5512" LastActivityDate="2015-10-20T06:11:19.967" CommentCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="8790" PostTypeId="1" AcceptedAnswerId="8791" CreationDate="2015-10-20T06:37:19.487" Score="8" ViewCount="1012" Body="&lt;p&gt;I have the following utility maximization problem:&#xA;$$\max (xy)$$&#xA;$$(x+y-2)^2 \leq 0$$&#xA;Conditions:&#xA;$$y-2\lambda (x+y-2) =0$$&#xA;$$x-2\lambda (x+y-2) =0$$&#xA;$$\lambda(x+y-2)^2=0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When I set $\lambda&amp;gt;0$, I get:&#xA;$$(x+y-2)^2=0 \Rightarrow (x+y-2) = 0$$&#xA;$$y-2\lambda (x+y-2) = y = 0$$&#xA;$$x-2\lambda (x+y-2) = x = 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But the obvious solution is $x=y=1$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When I set $$\lambda=0$$ that's not a case with a valid solution either. Is the constraint too low? What is the explanation to this?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would greatly appreciate your help.&lt;/p&gt;&#xA;" OwnerUserId="5017" LastEditorUserId="1601" LastEditDate="2015-10-20T07:04:11.693" LastActivityDate="2020-05-29T20:57:07.170" Title="Why couldn't the Karush-Kuhn-Tucker optimization find the solution?" Tags="&lt;utility&gt;&lt;optimization&gt;" AnswerCount="4" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8791" PostTypeId="2" ParentId="8790" CreationDate="2015-10-20T06:42:13.723" Score="7" Body="&lt;p&gt;As @user32416 pointed out the first order stationarity conditions are not enough. Specifically it seems that you violate &lt;a href=&quot;https://en.wikipedia.org/wiki/Slater%27s_condition&quot; rel=&quot;noreferrer&quot;&gt;Slater's condition&lt;/a&gt;, which states that &quot;the feasible region must have an interior point&quot;. There are no $x,y$ for which &#xA;$$(x+y-2)^2 &amp;lt; 0.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you rephrase the problem to&#xA;$$\max (xy)$$&#xA;$$x+y-2 = 0$$&#xA;$$x,y \geq 0$$&#xA;Slater's condition is met (for linear conditions no interior points are necessary) and you can apply Karush-Kuhn-Tucker.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2015-10-20T09:12:55.247" LastActivityDate="2015-10-20T09:12:55.247" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8792" PostTypeId="2" ParentId="8790" CreationDate="2015-10-20T06:51:39.980" Score="6" Body="&lt;p&gt;This is an ill-posed question. Even without going through KKT, your constraint $(x + y - 2)^2 \le 0$, since the left-hand side is a square, means that the only solution that is feasible is the one where the equality binds; i.e. $(x + y - 2)^2 = 0$, or that $|x + y - 2| = 0$ -- of which what you say that $x = y = 1$ is a solution. &lt;/p&gt;&#xA;" OwnerUserId="5537" LastActivityDate="2015-10-20T06:51:39.980" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="8794" PostTypeId="1" CreationDate="2015-10-20T16:22:35.540" Score="4" ViewCount="76" Body="&lt;p&gt;The code given below estimates a VEC model with 4 cointegrating vectors. It is a reproducible code, so just copy and paste into your R console (or script editor).&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;nobs = 200&#xA;e = rmvnorm(n=nobs,sigma=diag(c(.5,.5,.5,.5,.5)))&#xA;e1.ar1 = arima.sim(model=list(ar=.75),nobs,innov=e[,1])&#xA;e2.ar1 = arima.sim(model=list(ar=.75),nobs,innov=e[,2])&#xA;e3.ar1 = arima.sim(model=list(ar=.75),nobs,innov=e[,3])&#xA;e4.ar1 = arima.sim(model=list(ar=.75),nobs,innov=e[,4])&#xA;y5 = cumsum(e[,5])&#xA;y1 = y5 + e1.ar1&#xA;y2 = y5 + e2.ar1&#xA;y3 = y5 + e3.ar1&#xA;y4 = y5 + e4.ar1&#xA;data = cbind(y1,y2,y3,y4,y5)&#xA;&#xA;jcointt = ca.jo(data,ecdet=&quot;const&quot;,type=&quot;trace&quot;,K=2,spec=&quot;transitory&quot;)&#xA;summary(jcointt)&#xA;&#xA;vecm &amp;lt;- cajorls(jcointt,r=4)&#xA;summary(vecm$rlm)&#xA;print(vecm)&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;The cointegrating vectors you will get from this estimation will look like this:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;            ect1   ect2  ect3   ect4&#xA;y1.l1        1      0      0     0&#xA;y2.l1        0      1      0     0&#xA;y3.l1        0      0      1     0&#xA;y4.l1        0      0      0     1&#xA;y5.l1      b4.1    b4.2   b4.3   b4.4&#xA;constant    c1      c2     c3    c4&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;here, b4.1 through to b4.4 are the coefficients of the 4 cointegrating equations (&lt;code&gt;ecm's&lt;/code&gt;) ( which are $\beta's$). Similarly, $c's$ are the intercepts of the cointegrating equation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As you can see, there are &lt;code&gt;r-1&lt;/code&gt; restrictions, that's 3 restrictions, on each equation by default. I want to put restrictions on these equations matrix and &#xA;re-estimate the VECM so that I will have the following matrix of long run equations: &lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;            ect1   ect2  ect3   ect4&#xA;y1.l1        1      0      0     0&#xA;y2.l1      b1.1     1      0     0&#xA;y3.l1      b2.1     0      1     0&#xA;y4.l1      b3.1     0      0     1&#xA;y5.l1      b4.1    b4.2   b4.3   b4.4&#xA;constant    c1      c2     c3    c4&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;From this output, I want to extract the first equation &lt;code&gt;ect1&lt;/code&gt; for inference. It should look like this: &#xA;$y_1=\beta_0-\beta_1y_2-\beta_2y_3-\beta_3y_4-\beta_4y_5$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I do not know is how to get from the first long run equations matrix to the second one. Basically, I do not know how to construct the restrictions matrix on &lt;strong&gt;$\beta$&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any suggestions and hints are welcome and appreciated!&lt;/p&gt;&#xA;" OwnerUserId="6009" LastActivityDate="2015-10-20T16:22:35.540" Title="R reproducible example, restrictions on cointegrating equations" Tags="&lt;econometrics&gt;&lt;time-series&gt;&lt;applied-econometrics&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8795" PostTypeId="1" CreationDate="2015-10-20T17:50:36.747" Score="0" ViewCount="33" Body="&lt;p&gt;is there such a thing as the measure that amounts to roughly the aggregate of personal income for a country (say: all salaries combined) and an aggregate of corporate income. But as separate figures, in dollars.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Specifically, I am interested in Canada.) &lt;/p&gt;&#xA;" OwnerUserId="6011" LastActivityDate="2015-10-20T17:50:36.747" Title="Gross National Income for Personal Income?" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;&lt;statistics&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8796" PostTypeId="2" ParentId="8790" CreationDate="2015-10-20T17:50:50.357" Score="2" Body="&lt;p&gt;As already noted, the constraint is such that it turns itself into an &lt;em&gt;equality&lt;/em&gt; constraint. Your problem then is simplified to&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\max_{x,y} (xy) \;\;\; s.t.\;\; x+y-2=0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Rearrange the constraint and substitute for $y$ to obtain the single variable unconstrained problem&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\max_{x} (2x-x^2)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This provides immediately the solution $x=1$ and so also $y=1$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Using the Karush-Kuhn-Tucker conditions on the original problem, may be good practice in order to see for yourself that the &lt;strong&gt;complementary slackness&lt;/strong&gt; condition must also hold (and &quot;Slater's condition&quot; is one of the formulations of it), but Occam's razor would require that the problem should be actually solved as above.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-10-20T17:50:50.357" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8798" PostTypeId="1" CreationDate="2015-10-21T03:10:08.733" Score="1" ViewCount="789" Body="&lt;p&gt;Historically, growth rate is not always equal to long-term interest rate, but there does seem to be some relationship between the two. Is it that rates influence growth, growth influences rates, or something else entirely? In a nutshell, how are long-term rates and economic growth related, and why?&lt;/p&gt;&#xA;" OwnerUserId="5845" LastActivityDate="2015-11-23T08:18:14.617" Title="Why is economic growth correlated with long-term interest rates?" Tags="&lt;macroeconomics&gt;&lt;interest-rate&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8801" PostTypeId="1" CreationDate="2015-10-21T05:08:21.943" Score="0" ViewCount="1948" Body="&lt;p&gt;Suppose there is a number of identical firms producing diamonds. Let the total cost function for each firm be given by  $C(q, w)$, where q is the firm’s output level and w is the wage rate of diamond cutters.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm supposed to solve for a firm's (short-run) supply curve, given a wage rate $w$, and the industry's (total) supply curve).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm very confused with the relationship between the cost function and the supply curve. For part a this question, I get the marginal cost from taking the derivative of the cost function -- is the marginal cost also the supply curve? We know the cost function of the firm, but how can I arrive at the industry's supply curve?&lt;/p&gt;&#xA;" OwnerUserId="6015" LastEditorUserId="43" LastEditDate="2015-10-21T08:37:03.763" LastActivityDate="2016-09-15T17:04:52.143" Title="Cost function and short run supply" Tags="&lt;microeconomics&gt;&lt;supply-and-demand&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="8802" PostTypeId="1" AcceptedAnswerId="8814" CreationDate="2015-10-21T08:23:55.247" Score="1" ViewCount="124" Body="&lt;p&gt;I'm looking at differences in the cost-effectiveness of two alternative conservation strategies (treatments). The analysis will compare benefit-cost ratios between the two treatments. Projects vary in age (number of years since undertaken eg. trees planted) within and between treatments, from 20 to 7 years. I have several projects as replicates for each of the two treatments. I have field data (birds) for my measure of effectiveness, measured in one year. I have calculated a total cost using input costs from an established pricing structure, giving a total cost for each project in dollars equivalent to the same year as the bird data. I do not have access to the original (actual) cost for the year undertaken. Note the costs were one-off in the year of implementation, not ongoing.&lt;br&gt;&#xA;My question relates to the estimation of costs and the different ages of the projects. My concern is that similar projects will have the same cost, despite one being twice the age. Should the costs account for different ages of the projects, and if so how to approach it? The literature commonly focusses on calculating present value using discounting for projects to occur in the future; I can find less regarding past costs.&lt;/p&gt;&#xA;" OwnerUserId="6017" LastActivityDate="2015-10-21T12:32:26.747" Title="Ex post evaluation of conservation projects - accounting for time in cost calculations" Tags="&lt;econometrics&gt;" AnswerCount="1" CommentCount="4" ClosedDate="2015-10-21T18:41:12.513" ContentLicense="CC BY-SA 3.0" />
  <row Id="8803" PostTypeId="2" ParentId="8783" CreationDate="2015-10-21T08:57:30.267" Score="1" Body="&lt;p&gt;Well, the &lt;em&gt;obvious&lt;/em&gt; mistake, to summarize what other answers have hinted at, is that you mistake correlation with causation. All you have is evidence for the former, but you claim the latter. As you're too far to rethink what you're doing, the following won't help you much right now, but it's alternative ways to go &lt;em&gt;in the future&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Natural Experiments&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;The best way to go would be to have data on a (quasi-) natural experiment. The holy grail. Policy reforms (despite not really random either) are often taken as the second best. A diff-in-diff based on different education reforms in different local areas (with long-term data to evaluate the results) would be infinitely better than what you have (basically, because what you have is 0). &lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Structural Regression&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;Another way to go would be to build a theoretical (micro-) model about the connection between growth and education, based on (testable) assumptions. Test these assumptions, use the structure to run the regression. This is how these sort of things are often done in macroeconomics, where the lack of natural experiments has driven people to evaluate theories and connections differently (is this what @EnergyNumbers was hinting at in his comment?)&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-10-21T08:57:30.267" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8804" PostTypeId="2" ParentId="8798" CreationDate="2015-10-21T09:34:18.950" Score="2" Body="&lt;p&gt;Very simply, economic growth is correlated with long term interest rates in the sense that interest rates are set according to the growth of the overall economy and GDP. If economic growth is weak, interest rates are set very low as a means of economic stimulus. If economic growth is too strong due to demand and the economy is overheating, interest rates are slashed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Federal Reserve alone determines interest rates, as well as the federal funds rate and the discount rate, through the Federal Open Market Commitee. Visit &lt;a href=&quot;http://www.federalreserve.gov/monetarypolicy/fomc.htm&quot; rel=&quot;nofollow&quot;&gt;Federal Reserve System&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="5803" LastEditorUserId="108" LastEditDate="2015-11-23T08:18:14.617" LastActivityDate="2015-11-23T08:18:14.617" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8806" PostTypeId="2" ParentId="8801" CreationDate="2015-10-21T10:28:40.543" Score="1" Body="&lt;p&gt;Just like a Production function, in Economics, a Cost function is &lt;em&gt;not&lt;/em&gt; an &quot;engineering relation&quot;, but a &quot;best response&quot;, reflecting minimum cost to produce a given quantity $q$.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Cost-minimizing firms are at first assumed not to determine their scale of operations -what they decide upon is the demand for production inputs,given the inputs' prices.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Still, by duality, the profit-maximizing condition should also hold -these are for-profit private companies, not, say, some public utility without a profit motive. If the firms are price-takers in the diamonds market, this relation is well-known, and provides the answer to a) (remember that there are functions, and then there are inverse functions).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for b), I see in the question that the suppliers are assumed identical.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-10-21T10:28:40.543" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8807" PostTypeId="1" CreationDate="2015-10-21T10:38:44.610" Score="4" ViewCount="29" Body="&lt;p&gt;I am looking for any recent estimates of the global STEM workforce (STEM = Science Technology Engineering Mathematics, and ideally includes software engineers).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Time series data would be even better, but I understand how unlikely it is to find such data.&lt;/p&gt;&#xA;" OwnerUserId="6018" LastActivityDate="2015-10-21T10:38:44.610" Title="Estimates of the global STEM workforce?" Tags="&lt;reference-request&gt;&lt;data-request&gt;&lt;labor-economics&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8808" PostTypeId="1" AcceptedAnswerId="8811" CreationDate="2015-10-21T10:56:12.200" Score="1" ViewCount="1285" Body="&lt;p&gt;The firm tries to maximize profits $\Pi$&#xA;\begin{align}&#xA;\max_{K,L}\{\Pi(K,L) = F(K,L) - RK - wL\} &#xA;\end{align}&#xA;where $F$ is the linear homogeneous production function, $R$ the rental rate of capital $K$ and $w$ the rental rate (wage) of labor $L$. FOCs are given by&#xA;\begin{align}&#xA;\Pi_K &amp;amp;= 0 \Leftrightarrow R = F_k\\&#xA;\Pi_L &amp;amp;= 0 \Leftrightarrow w = F_L.&#xA;\end{align}&#xA;Footnote 1 of page 33 in &lt;a href=&quot;http://press.princeton.edu/chapters/s2_8764.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Acemoglu (2009)&lt;/a&gt; tells us that the FOCs can also derived by cost minimization. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/IdkiB.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/IdkiB.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;With (2.6) and (2.7) being $w=F_L$ and $R=F_K$ respectively.&#xA;The firm tries to minize costs &#xA;\begin{align}&#xA;&amp;amp;\min_{K,L}\{RK + wL\}\\&#xA;\text{s.t.}~~&amp;amp; F(k,L) = Y &#xA;\end{align}&#xA;where $Y$ is some output level. Set up Lagrangian&#xA;\begin{align}&#xA;\mathcal{L} = RK + wL + \lambda(F(K,L) - Y)&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;FOCs are given by&#xA;\begin{align}&#xA;\mathcal{L}_K = 0&amp;amp; \Leftrightarrow R + \lambda F_K = 0\\&#xA;\mathcal{L}_L = 0&amp;amp; \Leftrightarrow w + \lambda F_L = 0\\&#xA;\mathcal{L}_\lambda = 0&amp;amp; \Leftrightarrow F(K,L) - Y = 0&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;I don't see, how we can conjecture $R = F_K$ and $w = F_L$ from those conditions?&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="4266" LastEditorUserId="4266" LastEditDate="2015-10-21T13:20:35.750" LastActivityDate="2015-10-21T15:36:39.793" Title="Duality of cost minimization and profit maximization" Tags="&lt;optimization&gt;&lt;profit-maximization&gt;&lt;firm&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8809" PostTypeId="1" CreationDate="2015-10-21T11:12:40.240" Score="3" ViewCount="1054" Body="&lt;p&gt;Having one of the &quot;big currencies&quot; (US-Dollar, Euro, Japanese Yen) is of several advantages:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;strong&gt;Tourism&lt;/strong&gt;: There is a huge amount of people who can directly use it (317*10^6 US citizens, 337*10^6 people in the Eurozone, 128*10^6 Japanese).&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;Trade barriers&lt;/strong&gt;: I guess trade might also get easier, at least for small companies.&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;Reliability&lt;/strong&gt;: Citizens and companies can probably trust more in the value being stable of those 3 currencies than smaller ones.&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;Security&lt;/strong&gt;:  I'm not too sure about the Dollar / Yen, but Euro bank notes have quite a lot of security mechanisms which make the forgery of banknotes harder.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Especially for small countries, I would guess having one of those big currency would have the advantage of not having to pay for producing the bank notes / coins.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So &lt;strong&gt;why do contries like Seychelles&lt;/strong&gt; (Seychellois rupee), São Tomé and Príncipe (São Tomé and Príncipe dobra), Cape Verde (Cape Verdean escudo) ... &lt;strong&gt;have their own currencies?&lt;/strong&gt; Can you give one example which shows the effect if such a country took one of the big currencies?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are countries not allowed to use another countries currency officially?&lt;/p&gt;&#xA;" OwnerUserId="6019" LastActivityDate="2015-10-21T12:53:23.843" Title="Can small countries use a foreign currency as their official currency?" Tags="&lt;currency&gt;" AnswerCount="2" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="8810" PostTypeId="1" CreationDate="2015-10-21T11:13:11.460" Score="4" ViewCount="253" Body="&lt;p&gt;How does raising interest rates in Brazil (and Russia) help fight inflation and defend their currency?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand that the basic model is that raising the rates is meant to encourage banks to lend in brazil to earn on the interest rate differential and it should also reduce local demand for goods and services.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But, both Brazil and Russia are facing recessions and their economies are currently weak. If you raise the interest rates to 14.5 like Brazil has done wont that make the economy even weaker which will make investors flee the country and thus weaken the currency which in turn will increase the price of all imported goods (which for most open economies is a big percentage) and thus make goods more expensive, thereby increasing inflation rather than reducing it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would have thought a better way to fight inflation in a recession would be to lower rates to stimulate the economy and thereby stimulate the stock market and attract foreign investment which would strengthen their currency and reduce the price of imported goods. What have I misunderstood?&lt;/p&gt;&#xA;" OwnerUserId="6020" LastActivityDate="2015-11-20T12:44:21.627" Title="Why are they raising interest rates in Brazil?" Tags="&lt;currency&gt;&lt;inflation&gt;&lt;interest-rate&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8811" PostTypeId="2" ParentId="8808" CreationDate="2015-10-21T11:42:48.113" Score="3" Body="&lt;p&gt;If $F(K,L)$ is a homogeneous function of degree one then so is&#xA;$$&#xA;\Pi(K,L) = F(K,L) - R \cdot K - w \cdot L.&#xA;$$&#xA;This follows straight from the definition of homogeneity. (A definition of homogeneous function can be found &lt;a href=&quot;http://people.hss.caltech.edu/~kcb/Notes/EulerHomogeneity.pdf&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;.) This means that if a maximal profit exists it is zero. Otherwise you could increase all inputs by say 100%, thereby increasing both revenues and costs and thus profits by 100%. So $\Pi(K^*,L^*) = 0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By &lt;a href=&quot;http://people.hss.caltech.edu/~kcb/Notes/EulerHomogeneity.pdf&quot; rel=&quot;nofollow&quot;&gt;Euler's Homogeneous Function Theorem&lt;/a&gt; we have $\forall K,L$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{align}&#xA;\Pi(K,L) &amp;amp;= \Pi_K(K,L) \cdot K + \Pi_L(K,L) \cdot L  \\&#xA;\Pi(K,L) &amp;amp;= (F_K(K,L) - R) \cdot K + (F_L(K,L) - w) \cdot L.&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since $\Pi(K^*,L^*) = 0$, we have&#xA;$$&#xA;-(F_K(K^*,L^*) - R) \cdot K^* = (F_L(K^*,L^*) - w) \cdot L^*&#xA;$$&#xA;We know that $K^*,L^* \geq 0$, so if we can show that the signs of &#xA;$(F_K(K^*,L^*) - R)$ and $(F_L(K^*,L^*) - w)$ match we will have proven them to be equal to zero. Otherwise one side of the equation would be negative and the other positive. From cost minimization you have&#xA;\begin{align}&#xA;R + \lambda F_K &amp;amp; = 0\\&#xA;w + \lambda F_L &amp;amp; = 0.&#xA;\end{align}&#xA;If $\lambda &amp;gt;1$ then&#xA;\begin{align}&#xA;F_K(K^*,L^*) - R &amp;amp; &amp;lt; 0\\&#xA;F_L(K^*,L^*) - w &amp;amp; &amp;lt; 0,&#xA;\end{align}&#xA;if $\lambda =1$ then&#xA;\begin{align}&#xA;F_K(K^*,L^*) - R &amp;amp; = 0\\&#xA;F_L(K^*,L^*) - w &amp;amp; = 0.&#xA;\end{align}&#xA;and if $\lambda &amp;lt;1$ then&#xA;\begin{align}&#xA;F_K(K^*,L^*) - R &amp;amp; &amp;gt; 0\\&#xA;F_L(K^*,L^*) - w &amp;amp; &amp;gt; 0,&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;so the signs do indeed match, hence&#xA;\begin{align}&#xA;F_K(K^*,L^*) - R &amp;amp; = 0\\&#xA;F_L(K^*,L^*) - w &amp;amp; = 0.&#xA;\end{align}&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2015-10-21T15:36:39.793" LastActivityDate="2015-10-21T15:36:39.793" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8812" PostTypeId="2" ParentId="8810" CreationDate="2015-10-21T11:52:08.663" Score="2" Body="&lt;p&gt;Brazil raising interest rates probably refers to the central bank raising their interest rate which means that it is more costly for banks to loan money from the government and therefore the amount of money in circulation (as per quantity theory) should go down. It is a policy decision (possibly wrong depending on who you ask) in a difficult economic situation where a country faces both inflation and a downturn.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your logic about the economy becoming even weaker might very well be true (and I'd agree with lowering rates being a better option). The questions about effects to trade are slightly more complex and not necessarily as straightforward.&lt;/p&gt;&#xA;" OwnerUserId="5512" LastActivityDate="2015-10-21T11:52:08.663" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8813" PostTypeId="2" ParentId="8809" CreationDate="2015-10-21T12:04:00.880" Score="3" Body="&lt;p&gt;Having your own currency means that you can conduct your own monetary policy. Adopting another country's currency means that you trade your ability to make decisions about your country's quantity of money, inflation target, etc. to a tested and solid mean of payment (the advantages you listed are good reasons).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You might consider European countries adopting the euro as an example of countries adopting a single currency. Ecuador adopting the U.S. dollar in 2000 might be a good place to look if you want to see the effect in a specific country.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are quite a few countries in the world which use another country's currency as their official currency. This article lists them all (as of 2014):&#xA;&lt;a href=&quot;http://qz.com/260980/meet-the-countries-that-dont-use-their-own-currency/&quot; rel=&quot;nofollow&quot;&gt;http://qz.com/260980/meet-the-countries-that-dont-use-their-own-currency/&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="5512" LastEditorUserId="5512" LastEditDate="2015-10-21T12:10:06.587" LastActivityDate="2015-10-21T12:10:06.587" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8814" PostTypeId="2" ParentId="8802" CreationDate="2015-10-21T12:32:26.747" Score="0" Body="&lt;p&gt;If for project $P_i$ the cost calculated was based on prices that held during the year that the project was executed, then certainly you should bring all costs on the same temporal base, in order to compare them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This can be done in different ways, namely, the common base may be the year of the oldest project, or the year of the most current project, or something in between. Choose the one that will make more sense to the recipients of your study: this usually means bringing &quot;past costs to the present&quot;, because this facilitates comprehension (people can better understand current costs and to what they amount in term of resources), and also, makes the adjusted figures more relevant for &lt;em&gt;future&lt;/em&gt; projects.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In order to bring past costs to the present, you can use a price index like the Consumer Price Index, and the implied inflation. In general, costs in current dollars is just&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\tilde C_{i,t|t+k} = C_{i,t}\cdot \prod_{j=1}^k(1+\pi_{t+j})$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $t$ is the actual year the project was undertaken, and $t+k$ is Now. $\pi_{t+j}$ is the price inflation between year $t+j$ and year $t+j-1$. Data on yearly inflation are usually available and easily accessible.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another possible issue to consider is whether all these projects were undertaken in the same economy/country. If they are not, then you also face the task of incorporating in your calculations &quot;purchasing-power-parity&quot; considerations.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-10-21T12:32:26.747" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8815" PostTypeId="2" ParentId="8809" CreationDate="2015-10-21T12:53:23.843" Score="3" Body="&lt;p&gt;There needs to be a reason to choose to use foreign currency over your own, and as much I am aware of, most of the cases when countries adopt foreign currency is if they lose trust in their monetary authority. For example, Zimbabwe saw a large dollorization of their economy, once inflation was let loose. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, having your own currency gives you an additional tool - exchange rate (floating), which can help you absorb external and internal shocks. For example, if you begin running large trade deficits, currency depreciation can help in correcting the imbalances.  &lt;/p&gt;&#xA;" OwnerUserId="5366" LastActivityDate="2015-10-21T12:53:23.843" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8816" PostTypeId="1" CreationDate="2015-10-21T16:54:25.853" Score="4" ViewCount="289" Body="&lt;p&gt;In &quot;The incredible Volcker Disinflation&quot; by Goodfriend and King (2005) we are presented with the NK Pricing equation&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\pi_t = E_t\pi_{t+1} + h(y_t-y_t^*)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;the author then mentions that there is no &quot;long run trade-off&quot; in the equation since &quot;output is at capacity when current and expected future inflation are equal&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can anybody elucidate the meaning of &quot;long run trade-off&quot; and the following sentence?&lt;/p&gt;&#xA;" OwnerUserId="6023" LastActivityDate="2015-10-21T19:00:24.993" Title="Long run trade off between inflation and output" Tags="&lt;monetary-policy&gt;&lt;inflation&gt;&lt;new-keynesian-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8817" PostTypeId="1" CreationDate="2015-10-21T16:56:46.823" Score="2" ViewCount="519" Body="&lt;p&gt;U$(x_1,x_2)$ = $x_1 +x_2$ in the case of perfect substitutes&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If $p_1 &amp;lt; p_2$ then $(x_1^*,x_2^*)$ = $(m/p_1,0)$, if $p_1 &amp;gt; p_2$ then $(x_1^*,x_2^*)$ = $(0,m/p_2)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Trying to figure out how a change in the price of $p_2$ will affect the demand of of $x_1^*$ when $p_2$ increases but when $p_1 &amp;lt; p_2$, then $dx_1^*/dp_2$ = $d/dp_2(m/p_1) = 0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And when $p_1 &amp;gt; p_2$ then $dx_1^*/dp_2$ = $d/dp_2(0) = 0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Wondering how to show using calculus that this increase in $p_2$ so increase the demand of $x_1^*$ so $dx_1^*/dp_2$ should be greater then 0&lt;/p&gt;&#xA;" OwnerUserId="6024" LastEditorUserId="1601" LastEditDate="2015-10-21T19:43:30.070" LastActivityDate="2015-10-21T19:43:30.070" Title="What are cross price effects for the case of perfect substitutes?" Tags="&lt;consumer-theory&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8818" PostTypeId="1" AcceptedAnswerId="8966" CreationDate="2015-10-21T17:11:28.660" Score="5" ViewCount="852" Body="&lt;p&gt;Marxists have a very specific &quot;profit&quot; and &quot;economic growth&quot; theory. According to marxists, profit doesn't come from technology, whose cost will be reflected in the price of whatever commodity the technology owning businessman is selling. Instead, the businessman profits by paying workers low enough for their labor so that they can squeeze a profit (e.g. profit comes from living labor not dead labor (technology)). Some of this profit will in turn be used to invest in more technology which will cause capital growth (capital valorization in marxist speak).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What's the neoclassical parallel to this? It seems in neoclassical models, the market is in equilibrium so the prices reflect marginal costs and there's no &quot;economic profit&quot;. What seems to happen is that technological advancement &quot;happens&quot; and this in turn creates economic growth and a new steady state/equilibrium. However, is technological innovation here merely an accident, or does it have a logic in the same way marxian &quot;growth&quot; has (e.g. capitalists accrue profit through living labor and then invest it in technology)?&lt;/p&gt;&#xA;" OwnerUserId="6025" LastActivityDate="2015-10-31T01:39:27.257" Title="Neoclassical economic profit and growth theory versus marxian" Tags="&lt;economic-growth&gt;&lt;profit-maximization&gt;&lt;marxism&gt;&lt;technology&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8819" PostTypeId="1" CreationDate="2015-10-21T18:08:58.130" Score="3" ViewCount="2846" Body="&lt;p&gt;In my macroeconomics class, our professor showed an example of the introduction of the credit card. She says that this will decrease the money people are willing to hold, and thus increase the money velocity. But why is that true? I mean, although it seems like the credit card as a new mean of payment makes us feel we are not holding much money, but the credit card company are actually paying for us them using deposits. So the money people hold didn't actually change because while consumers hold less cash or deposit, banks that offer credit card will need to hold more cash or deposit to pay for it. So I think the claim that money velocity increases is false. Am I right?&lt;/p&gt;&#xA;" OwnerUserId="4551" LastActivityDate="2020-01-14T00:18:06.653" Title="Does the introduction of credit card affects Money Velocity?" Tags="&lt;macroeconomics&gt;&lt;quantity-theory-of-money&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8820" PostTypeId="1" CreationDate="2015-10-21T18:14:26.747" Score="1" ViewCount="2434" Body="&lt;p&gt;Quoting from &lt;a href=&quot;https://en.wikipedia.org/wiki/Taxation_in_Sweden&quot; rel=&quot;nofollow&quot;&gt;Wikipedia&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Sweden has a progressive income tax, the rates for 2014 are as follows:  &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;0% from 0 kr to 18,800 kr (~0 – 2,690 USD)&lt;br&gt;&#xA;  Circa 31% (ca. 7% county and 24% municipality tax): from 18,800 kr to 433,900 kr (~2,690 – 62,140 USD)&lt;br&gt;&#xA;  31% + 20%: from 433,900 kr to 615,700 kr (~62,140 – 88,180 USD)&lt;br&gt;&#xA;  31% + 25%: above 615,700 kr (88,180 USD and up)[4]  &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Why is it said that it is regressive?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;E.g.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.washingtonpost.com/news/wonkblog/wp/2012/09/19/other-countries-dont-have-a-47/&quot; rel=&quot;nofollow&quot;&gt;This post from Washington Post&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="4143" LastActivityDate="2015-10-22T02:51:47.310" Title="Why is it said that Sweden has a regressive income tax system?" Tags="&lt;taxation&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8821" PostTypeId="2" ParentId="8816" CreationDate="2015-10-21T19:00:24.993" Score="2" Body="&lt;p&gt;Note that if $\pi_t = E_t\pi_{t+1}$ (current and expected future inflation are equal) then&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\pi_t = E_t\pi_{t+1} + h(y_t-y_t^*) \implies 0 = h(y_t - y_t^*) \implies y_t = y_t^*$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So as the output gap tends to zero in the long run, inflation will perfectly determine next period's inflation, so monetary policy that affects inflation in the short run cannot affect output in the long run. Thus there is no tradeoff between inflation and output in the long run.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2015-10-21T19:00:24.993" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8822" PostTypeId="2" ParentId="8819" CreationDate="2015-10-21T19:12:40.257" Score="3" Body="&lt;p&gt;Credit cards are a way of deferring payment in the form of inter-temporal substitution; it helps reduce the household's liquidity constraint that may prevent it from consumption smoothing as much as they would like if their transitory income was much more spread over the household's lifetime.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You are right that the amount of money doesn't change. Loans require giving away money, but credit cards are a way of creating debt, so banks do not need to hold more cash to give a line of credit like you suggest.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2015-10-21T19:12:40.257" CommentCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="8823" PostTypeId="2" ParentId="8820" CreationDate="2015-10-21T19:39:37.317" Score="6" Body="&lt;p&gt;Excellent question. You can understand this by reading the &lt;a href=&quot;http://themonkeycage.org/2012/02/the-facts-about-tax-progressivity/&quot;&gt;original study&lt;/a&gt; referred in the article. I will try to provide a short explanation here.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Basically the study argues that if you take into account all sorts of taxes like taxes on properties, consumption, dividends, etc. the European countries tax their rich residents relatively less than the poor residents, while the US does the opposite. This is possible because there are other significant taxes besides the income tax. As the study states:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The main reason for this is the relatively low reliance of the&#xA;  American fiscal system on sales taxes, which constitute a much higher&#xA;  share of revenues in other countries (even when including state and&#xA;  local taxes in the US case, as the figures above do). General sales&#xA;  taxes place a disproportionate share of the tax burden on the lower&#xA;  end of the income distribution because expenditures are higher as a&#xA;  share of income as we move down the distribution.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;To gain an exact understanding of the key claim in the WP article we have to understand both the Lorenz Curve and the Kakwani index. The Lorenz Curve has a pretty good &lt;a href=&quot;https://en.wikipedia.org/wiki/Lorenz_curve&quot;&gt;Wikipedia page&lt;/a&gt;, I recommend browsing it. The Kakwani index is chiefly used to calculate payments for health services.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The Kakwani index is defined as twice the area&#xA;  between a payments’ concentration curve and the Lorenz curve and is&#xA;  calculated as, $\pi_K = C - G$ , where $C$ is the health payments’&#xA;  concentration index and $G$ is the Gini coefficient of the ATP variable.&#xA;  The value of $\pi_K$ ranges from –2 to 1. A negative number indicates&#xA;  regressivity; $L_H(p)$ lies inside $L(p)$. A positive number&#xA;  indicates progressivity; $L_H(p)$ lies outside $L(p)$. In the case of&#xA;  proportionality, the concentration lies on top of the Lorenz curve and&#xA;  the index is zero.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://siteresources.worldbank.org/INTPAH/Resources/Publications/Quantitative-Techniques/health_eq_tn16.pdf&quot;&gt;Source&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The difference in the Kakwani index is small though, the range of the graph in the article is in the hundredths.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2015-10-21T19:44:56.010" LastActivityDate="2015-10-21T19:44:56.010" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="8824" PostTypeId="2" ParentId="7075" CreationDate="2015-10-22T00:33:32.003" Score="1" Body="&lt;p&gt;This question is oddly phrased.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The main marxist thesis about profit is that firms can't profit from technology, but ultimately profit comes from exploitation of human labor, i.e. by extracting surplus value from workers. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In marxism, profit always comes from &quot;living labor&quot;, in the sense that the price of a commodity both reflects the technology used to create it and also the human labor congealed in it. However,  a firm can't &quot;pay less&quot; machines because machines have fixed values while a living human being can be paid less than their value of their labor if the value of their labor exceeds the value the worker needs for subsistence (e.g. sufficient for their bills, calories, leisure etc). &lt;/p&gt;&#xA;" OwnerUserId="6025" LastActivityDate="2015-10-22T00:33:32.003" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8825" PostTypeId="2" ParentId="6767" CreationDate="2015-10-22T01:56:40.433" Score="3" Body="&lt;p&gt;Very interesting question. Those at cafehayek.com seem to dislike it a lot but don't really back it up which is disappointing. At first glance, it is very easy to see how affirmative action could hurt the economy, and construction a model to show this would also be pretty straight forward. &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/S0047272701001219&quot; rel=&quot;nofollow&quot;&gt;See here(paywalll)&lt;/a&gt; (Moro &amp;amp; Norman, 2003). There is pretty strong intuition both ways so I'd think that any valuable study would be empirical.  This article looks pretty light empirically but does support the view you are looking for and provides a useful model.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;We consider a model of endogenous human capital formation with competitively determined wages. Discrimination is sustainable in equilibrium in the presence of two distinguishable, but ex ante identical groups of workers. An affirmative action policy consisting of a quota may ‘fail’ in the sense that there still may be equilibria where groups are treated differently. However, the incentives to invest for agents in the discriminated group are improved by affirmative action if the initial equilibrium is the most discriminatory equilibrium in the model without the policy. The welfare effects are ambiguous. It is possible that the policy makes the intended beneficiaries worse off: even if the starting point is the most discriminatory equilibrium the expected payoff may decrease for all agents in the target group.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Most work in this area suggests that the effects are welfare ambiguous/slightly positive.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://www.researchgate.net/profile/Jonathan_Leonard2/publication/4746293_The_Impact_of_Affirmative_Action_Regulation_and_Equal_Employment_Law_on_Black_Employment/links/0046352cd00464bbf4000000.pdf&quot; rel=&quot;nofollow&quot;&gt;This Paper&lt;/a&gt; (Leonard, 1990) discusses the idea that affirmative action does not work.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;To borrow from the conclusion:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Direct tests of the impact of affirmative action on productivity find no significant evidence of a productivity decline. However, since the productivty estimates are not measured with great precision, strong policy conclusions based on this particular result should be resisted.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/S0304407603002513&quot; rel=&quot;nofollow&quot;&gt;This paper&lt;/a&gt; (Long, 2004) looks at the impact of the removal of affirmative action on college applications.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;This paper evaluates the behavioral response of college-bound high school seniors to changes in college affirmative action admissions policies during the late 1990s. After the elimination of affirmative action in California and Texas, the gap between the numbers of SAT score reports sent by non-minority and minority students to in-state, public colleges significantly widened...  predicts a large decrease in the number of reports sent by minority students and a large increase in non-minority score reports sent to top-tier public colleges as a result of changes in the students’ probabilities of acceptance.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="40" LastActivityDate="2015-10-22T01:56:40.433" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8826" PostTypeId="2" ParentId="8820" CreationDate="2015-10-22T02:51:47.310" Score="1" Body="&lt;p&gt;There is a historical-sociological reason why, despite USA being considered the &quot;fortress of capitalism&quot; (which in principle allows for an arbitrary degree of wealth and income inequality),still, rich people are taxed less in Europe (which supposedly takes a more, ahem, &quot;socialist&quot; approach), even if we exclude indirect taxes:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In Europe with its historical burden, prior to the industrial revolution the aristocracy had its wealth in land, since we are talking about agricultural economies. The central authorities of the day (the King) taxed the aristocrats which in turn, in order to cover both the King's taxes and their own living, taxed the peasants with exorbitant &quot;tax rates&quot;, in the form of almost total appropriation of agricultural produce, given the socio-economic laws of the era. So for centuries land &lt;em&gt;per se&lt;/em&gt; was not essentially taxed (after all it was &quot;god-given&quot;): it was &lt;em&gt;labor&lt;/em&gt; that was taxed almost to death.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Add to this the fact that these social arrangements were embedded in a theocratic system that gave them religious credence, count again the length of time that it lasted, and we can perhaps understand why modern Property taxes in Europe tend to be lower than Property taxes in USA, were the apparently more individualistic culture cuts both ways -meaning that the State has &lt;em&gt;also&lt;/em&gt; and &quot;individualistic&quot; approach to things: if it is after a certain amount of revenues, it has fewer qualms to take them where it can find them. In Europe the same concern, constrained by tradition not to be wholly fulfilled through Property taxes, and ideologically and socially pressed to exhibit a redistributional character in income taxation, has led to larger indirect taxes, like VAT. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So either including or not indirect taxes, the tendency goes in the same direction: relative tax burden is heavier for &quot;Europe's poorer&quot;, than &quot;USA's poorer&quot;. Of course this does &lt;em&gt;not&lt;/em&gt; conclude on whether it is better to &quot;be poor in USA or in Europe&quot;, since one should also quantify the social benefits that the poorer receive in Europe compared to the USA, as regards, education, health, direct subsidies, etc.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-10-22T02:51:47.310" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="8827" PostTypeId="1" CreationDate="2015-10-22T03:19:43.580" Score="2" ViewCount="1875" Body="&lt;p&gt;Consider the quantity theory of money: $MV=PY$.&#xA;&quot;Consider an example of a demand shock: the introduction and expanded availability&#xA;of credit cards. Because credit cards are often a more convenient way to&#xA;make purchases than using cash, they reduce the quantity of money that people&#xA;choose to hold. This reduction in money demand is equivalent to an increase in&#xA;the velocity of money. When each person holds less money, the money demand&#xA;parameter k falls. This means that each dollar of money moves from hand to hand&#xA;more quickly, so velocity $V (= \frac{1}{k})$ rises.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is the argument given in Mankiw's intermediate macroeconomics text. I found this argument not correct in some sense. First of all, Mankiw's says people reduce the demand of money. This is not right. The total amount of money in the economy is a given. I think what Mankiw is trying to argue is people have less cash and less money in the demand deposit account. But then the money go to their saving account, or maybe they invest in some securities. But all these money they invested will become someone else's deposit account and an increase in saving account balance and the decrease in checking account balance does not change the total money supply. The money supply is inherently fixed then. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Mankiw also argues that each person hold less money so velocity goes up. The problem is although ordinary consumers are holding less money, banks are actually holding more cash to pay for people's purchases associated with the credit card. This is because merchants are not going to wait until people's statement balance get due in the next two months to collect their money. They want to settle the payment ASAP, which is why banks have to pay them earlier. And consumers will pay back the money to the bank later.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I believe another problem is what is the difference between real money supply and real money demand. In the problem Mankiw assumed Price Level does not change, and since the money supply is exogenous, $M/V$ does not change, i.e., real money supply does not change. So there is no way people is holding less money. They have to hold it somewhere, maybe in saving, maybe in checking. And like I said before, if they invest in securities, the balance they've invested show up on someone else's deposit account.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I really struggle with this seemingly easy problem. Any comments, corrections, and help is appreciated.&lt;/p&gt;&#xA;" OwnerUserId="4551" LastEditorUserId="69" LastEditDate="2015-10-22T12:32:19.643" LastActivityDate="2015-10-22T12:32:19.643" Title="What does the introduction and expanded availability of credit cards do to money velocity?" Tags="&lt;macroeconomics&gt;&lt;quantity-theory-of-money&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8830" PostTypeId="1" AcceptedAnswerId="8849" CreationDate="2015-10-22T14:50:21.920" Score="4" ViewCount="210" Body="&lt;p&gt;I'm a first year PhD student with mathematical finance background, and am not quite familiar with all the assumptions/setup for macroeconomics. During study I found the math relatively easy but I'm having hard time to grasp the often critical relation between variables. For example capital market clearing implies that the total capital that firms have equal to the total assets that households have. First of all, I didn't even know there's a market clearing until I ask my TA, secondly, there are too many such assumptions I don't know. My professor would probably think it's too dumb to tell students about these because most of my classmates have an Econ background, but I don't and it's really killing me. Is there any good reference I can read, open courses I can watch that could help me with this? Given limited amount of time, I hope it won't take as much time as a full course. Thanks in advance. &lt;/p&gt;&#xA;" OwnerUserId="5850" LastActivityDate="2015-12-09T09:59:21.227" Title="How to close the gap between non-Econ background and Macroeconomics" Tags="&lt;macroeconomics&gt;&lt;academic-graduate&gt;" AnswerCount="3" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8831" PostTypeId="1" CreationDate="2015-10-22T16:33:15.230" Score="4" ViewCount="50" Body="&lt;p&gt;Let $\theta_i$ be $i$'s private information about the state of the world, $\theta \in \Theta$, where $\theta = \times_i \theta_i$. Each agent reports $\hat{\theta_i}$ to a social planner, so that $\hat{\theta}$ is the reported state.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Typically, in mechanism design, we take a goal function, $f(\theta): \theta \rightarrow X$, where $X$ is the set of all possible outcomes, as given and look for mechanisms that implement it. By the revelation principle, we know to look for mechanisms under which incentives are such that, $\forall i$, $\hat{\theta_i}=\theta_i$. This usually manifests itself in incentive compatibility constraints.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, there's a different (but related) question that could be asked. Suppose the social planner will directly make the choices, a vector $\mathbf{c}$, to maximize the social planner's utility function, $U(\theta,\mathbf{c})$, which is common knowledge. Individual agents have utility functions $u_i(\theta,\mathbf{c})$. Suppose also the social planner assumes the agents are truthful, so that $\theta = \hat{\theta}$. Then the social planner will choose $\mathbf{c}$ to solve:&#xA;$$ \max_{\mathbf{c}}\:\: U(\hat{\theta},\mathbf{c})  $$&#xA;Under what conditions on $U$ and $u_i$ ($\forall i$) will the social planner's assumption that $\theta = \hat{\theta}$ be valid? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Is anybody aware of papers that consider mechanism design from this angle?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;A spiel on why this question is worth asking:&lt;/strong&gt; In some environments, seemingly reasonable goal functions (or correspondences) yield impossibility results (i.e. no mechanism can implement it) or otherwise deeply unsatisfying results (e.g. the only mechanisms that can implement it are dictatorial). The classical example is, of course, &lt;em&gt;Arrow's Impossibility Theorem&lt;/em&gt;. But if a client tells us her goal function, it's not all that helpful to simply respond to her: &quot;Sorry, it can't be implemented.&quot; Rather, you might want to suggest what goal functions could be implemented. In the particular question above, I'm essentially taking a simple mechanism as given (the mechanism is simply that agents make their reports and the client/planner maximizes her objective taking those reports as true), and then asking for what objective functions, $U(\theta,\mathbf{c})$, that truthful reporting assumption can be valid. Note also that the $U(\theta,\mathbf{c})$ implicitly defines a goal function:&#xA;$$ x \in f(\theta) \iff x \in \arg \max_\mathbf{c} \:U(\theta,\mathbf{c}).$$&lt;/p&gt;&#xA;" OwnerUserId="48" LastActivityDate="2015-10-22T16:33:15.230" Title="Taking a mechanism as given, what goal functions can we implement?" Tags="&lt;reference-request&gt;&lt;mechanism-design&gt;" AnswerCount="0" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8832" PostTypeId="1" AcceptedAnswerId="8952" CreationDate="2015-10-22T17:41:25.407" Score="4" ViewCount="120" Body="&lt;p&gt;I have an optimal control problem where I have two control and one state variable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$max\int_{0}^{\infty}\left(u\left(c\right)-P_{M}M\right)e^{-\rho t}dt\tag{1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $P_{M}$ is the unit price of carbon abatement activity ($CO_2$ abatement at atmosphere) and $M$ is the control variable, which is the level of abatement that we choose optimally.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The state variable is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\dot{S}=R\left(S\right)-c+\eta\left(M\right)\tag{2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $S$ is the environmental quality, $c$ is consumption, $R(S)$ is the regeneration of environment (like the production function in models with capital accumulation) and $\eta (M)$ is the carbon abatement function, which is supposed to be increasing and concave function. As it is logical, this function contributes to the increase of environmental quality.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I write the Hamiltonian ;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\mathcal{H}=u\left(c\right)-P_{M}M+\lambda\left[R\left(S\right)-c+\eta\left(M\right)\right]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The FOC are ;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$u_{c}=\lambda\tag{3}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$P_{M}=\lambda\eta_{M}\left(M\right)\tag{4}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\dot{\lambda}=\rho\lambda-\lambda\left(R_{S}\left(S\right)\right)\tag{5}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, in this model, I have 2 control variables, consumption $c$ and abatement $M$ and a state variable $S$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have a doubt about writing the Jacobian Matrix, If I did not have the second control variable $M$, I would write a 2 dimension differential system of $\dot{c}$ and $\dot{S}$ but as I have a second control variable $M$, I am not sure if I can always describe the whole dynamics of the economy by two differential equations. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;When I try to see the dynamics of the control variable $M$, with differentiating equation $(4)$ according to time, I have ;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\dot{\lambda}}{\lambda}+\frac{\eta_{MM}}{\eta_{M}}\dot{M}=0\tag{6}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;According to the equation $(6)$ the dynamics of carbon abatement $M$ is represented by the dynamics of costate variable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this case, can I represent all dynamics describing this economy by only two differential equations which are $\dot{c}$ and $\dot{S}$ ?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks in advance for suggestions and hints.&lt;/p&gt;&#xA;" OwnerUserId="2938" LastEditorUserId="5635" LastEditDate="2015-10-30T07:37:22.337" LastActivityDate="2015-10-30T07:37:22.337" Title="Stability analysis and dimension of a dynamic control system" Tags="&lt;mathematical-economics&gt;&lt;optimal-control&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8833" PostTypeId="1" CreationDate="2015-10-22T19:01:54.737" Score="8" ViewCount="1548" Body="&lt;p&gt;The profit maximization assumption implies &#xA;$$\text{if } x_i \succ x_i^* \text{ then } p_ix_i &amp;gt; p_i w_i$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Okay so this just says if the agent is utility maximizing / rational, then if he doesn't choose a bundle strictly preferable to his bundle then it must not be affordable. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why is the local non-satiation assumption needed to then say &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\text{if } x_i \succeq x_i^* \text{ then } p_ix_i \geq p_i w_i$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why isn't this just automatic from the profit maximization assumption? If we know $x_i \succ x_i^* \implies p_ix_i &amp;gt; p_i w_i$, isn't it obvious that $x_i = x_i^*  \implies p_ix_i =  p_i w_i$ and so $$\text{if } x_i \succeq x_i^* \text{ then } p_ix_i \geq p_i w_i$$&lt;/p&gt;&#xA;" OwnerUserId="2679" LastEditorUserId="1601" LastEditDate="2021-05-11T06:00:15.843" LastActivityDate="2021-05-11T06:00:15.843" Title="What is the purpose of the local non-satiation assumption in the first welfare theorem?" Tags="&lt;microeconomics&gt;&lt;preferences&gt;&lt;welfare-economics&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8834" PostTypeId="1" CreationDate="2015-10-22T19:13:58.533" Score="3" ViewCount="161" Body="&lt;p&gt;I've been reading some introductory macroeconomics and I'm struggling to understand one of the basic accounting identities. In a closed economy with a fixed money supply it's clear that every dollar saved is a dollar invested. I'm happy with the standard story.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I don't understand is how the identity works when money is created privately. I can go to a bank an ask for a million dollar business loan. The bank grants me the loan, and creates an asset (the loan) and a liability (the money in my account). I then invest the money. It seems from this example that I have created a million dollars of investment without creating any offsetting savings. Of course, I have to pay off the loan at some point, but then shouldn't the identity be something like investment = savings + debt?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What am I missing?&lt;/p&gt;&#xA;" OwnerUserId="6032" LastActivityDate="2015-10-23T03:20:27.243" Title="Savings = investment with private money creation?" Tags="&lt;macroeconomics&gt;&lt;investment&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8835" PostTypeId="2" ParentId="8196" CreationDate="2015-10-22T19:22:25.997" Score="0" Body="&lt;p&gt;I ended up putting together some code to compute the assignment under Boston and deferred acceptance. It can be found at &lt;a href=&quot;https://github.com/vanderlindenma/school_choice_python&quot; rel=&quot;nofollow&quot;&gt;https://github.com/vanderlindenma/school_choice_python&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The code there uses and modifies former code from Jeremy Kun, stable-marriage, (2014), GitHub repository, &lt;a href=&quot;https://github.com/j2kun/stable-marriages&quot; rel=&quot;nofollow&quot;&gt;https://github.com/j2kun/stable-marriages&lt;/a&gt;, described in one of Jeremy's blog posts at &lt;a href=&quot;http://jeremykun.com/2014/04/02/stable-marriages-and-designing-markets/&quot; rel=&quot;nofollow&quot;&gt;http://jeremykun.com/2014/04/02/stable-marriages-and-designing-markets/&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I hope to expend on the code that’s currently available and add more functionalities soon. Any participation is welcome.&lt;/p&gt;&#xA;" OwnerUserId="38" LastActivityDate="2015-10-22T19:22:25.997" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8836" PostTypeId="2" ParentId="8833" CreationDate="2015-10-22T20:18:03.583" Score="6" Body="&lt;p&gt;The assumptions are different. First one states that if a bundle is better than the optimal one the consumer cannot afford it. The second one states that if a bundle is as good (not necessarily better) than the optimal one it has to cost as least as much, not less.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider a space with just one type of good, $x$, and a utility function $U(x) = 0$. Let the endowment of the consumer be $w = 1$. While&#xA;$$&#xA;\text{if } x_i \succ x_i^* \text{ then } p_ix_i &amp;gt; p_i w_i&#xA;$$&#xA;is still true,&#xA;$$&#xA;\text{if } x_i \succeq x_i^* \text{ then } p_ix_i \geq p_i w_i&#xA;$$&#xA;isn't, because $x^* = 0$ is both optimal and feasible, thus&#xA;$$&#xA;x^* \succeq x^* \text{ AND } p x^* &amp;lt; p w.&#xA;$$&#xA;More complicated examples (multiple goods, global non-satiation fulfilled) may also be constructed.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2015-10-23T09:55:00.780" LastActivityDate="2015-10-23T09:55:00.780" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="8838" PostTypeId="2" ParentId="8726" CreationDate="2015-10-23T00:00:47.327" Score="0" Body="&lt;p&gt;So I figured I'd post the proof for the third condition now that I know it.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;We want to show that if $U$ and $V$ are linear representations of $\succeq$ on  $\mathscr{L}$, then $\exists \ \beta &amp;gt; 0, \gamma \in \mathbb{R}$ such that $V = \beta U + \gamma$&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Case 1:&lt;/strong&gt; All the lotteries are all equally preferred.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If $\forall \ L_1, L_2 \in \mathscr{L}$ we also have $L_1 \sim L_2$, then $U$ is constant.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$V = \beta U$ holds $\forall \beta &amp;gt; 0, \gamma  &amp;gt; 0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Case 2:&lt;/strong&gt; All the lotteries are not equally preferred.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\forall L \in \mathscr{L}$ where $L \neq L_b, L_w$&#xA;$$L_b \succeq L \succeq L_w$$&#xA;$$L_b \succ L_w$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a lottery $L \in \mathscr{L}$,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\lambda_L \equiv \frac{U(L) - U(L_w)}{U(L_b) - U(L_w)}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;for $\lambda \in [0,1]$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$1 - \lambda_L \equiv \frac{U(L_b) - U(L)}{U(L_b) - U(L_w)}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So now we can write $U(L), \ \forall L \in \mathscr{L}$ as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U(L) = \lambda_L U(L_b) + (1-\lambda_L)U(L_w)$$&#xA;$$\implies L \sim \lambda_L L_b + (1-\lambda_L)L_w$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For $V$ to also represent $\succeq$,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$V(L) = \lambda_L V(L_b) + (1-\lambda_L)V(L_w)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$V(L) = \bigg[\frac{U(L) - U(L_w)}{U(L_b) - U(L_w)}\bigg] V(L_b) + \bigg[\frac{U(L_b) - U(L)}{U(L_b) - U(L_w)}\bigg] V(L_w)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$V(L) = \frac{U(L)V(L_b) - U(L_w)V(L_b)}{U(L_b) - U(L_w)} + \frac{U(L_b)V(L_w) - U(L)V(L_w)}{U(L_b) - U(L_w)}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$V(L) = \frac{V(L_b) - V(L_w)}{U(L_b) - U(L_w)} \cdot U(L) + \frac{U(L_b)V(L_w) - U(L)V(L_b)}{U(L_b) - U(L_w)}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Define $\frac{V(L_b) - V(L_w)}{U(L_b) - U(L_w)} \equiv \beta$ and $\frac{U(L_b)V(L_w) - U(L)V(L_b)}{U(L_b) - U(L_w)} \equiv \gamma$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus $V(L) = \beta U(L) + \gamma$, $\forall L$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\square$&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2015-10-23T00:00:47.327" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8839" PostTypeId="1" AcceptedAnswerId="8845" CreationDate="2015-10-23T00:58:02.247" Score="4" ViewCount="471" Body="&lt;p&gt;How does the companies set up utility function for its own purposes?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In another word, what is the types statistics data that is usually consider and statistical method being used to set up these functions? Just name the types of methods and types of data out.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I heard that the function itselves is always to be a secret of a company but why are they always different between different companies?&lt;/p&gt;&#xA;" OwnerUserId="95" LastEditorUserId="95" LastEditDate="2015-10-23T01:51:39.657" LastActivityDate="2015-10-23T06:30:06.747" Title="How does the companies set up utility function for its own purposes?" Tags="&lt;microeconomics&gt;&lt;econometrics&gt;&lt;mathematical-economics&gt;&lt;statistics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8841" PostTypeId="2" ParentId="8834" CreationDate="2015-10-23T03:01:34.170" Score="1" Body="&lt;p&gt;Say you take out a \$1m loan from ABC Bank - they create two entries on your books:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Assets: \$1m cash available funds.&lt;/p&gt;&#xA;&lt;p&gt;Liablities: \$1m loan you owe the&#xA;bank.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Similarly on their books they create two entries:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Assets: \$1m owing from Simon Lyons&lt;/p&gt;&#xA;&lt;p&gt;Liabilities: \$1m payment we must honor.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Now you buy a factory with the \$1m. You write a cheque to Bob who you're buying the factory from. He banks with XYZ bank.&lt;/p&gt;&#xA;&lt;p&gt;Your books:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Assets: A factory worth \$1m.&lt;/p&gt;&#xA;&lt;p&gt;Liabilities: \$1m loan you owe the bank.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;The bank's books:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Assets: \$1m owing from Simon Lyons&lt;/p&gt;&#xA;&lt;p&gt;Liabilties: We owe \$1m to XYZ bank.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;In practise what happens is that the banks are exchanging money between each other all day (for example XYZ bank customers may have paid cheques to ABC bank customers), and at the end of the day they need to settle the difference by taking a loan from someone.&lt;/p&gt;&#xA;&lt;p&gt;In New Zealand's system for example, that difference can be borrowed from the Reserve Bank (New Zealand's central bank) - paying interest at the Official Cash Rate (OCR). This rate is set by the Reserve Bank - and is the primary means that the Reserve Bank controls inflation.&lt;/p&gt;&#xA;" OwnerUserId="96" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2015-10-23T03:20:27.243" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8842" PostTypeId="1" CreationDate="2015-10-23T04:00:00.537" Score="0" ViewCount="114" Body="&lt;p&gt;The table below shows the marginal cost of production for a firm that is in an industry that is perfect competition. The market price of the product is $300. Use this information to answer the questions below.&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$quantity \quad marginal \ cost$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$1 \quad 270$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$2 \quad 210$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$3 \quad 180$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$4 \quad 240$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$5 \quad 285$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$6 \quad 315$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$7 \quad 345$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$8 \quad 375$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Suppose the firm’s total fixed costs are $200.&lt;/p&gt;&#xA;&lt;p&gt;a. What quantity does the firm produce in the short run to maximize profits?&lt;/p&gt;&#xA;&lt;p&gt;b. What are the firm’s profits in the short run?&lt;/p&gt;&#xA;&lt;p&gt;c. Does the firm stay in business in the long run? Why?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="6037" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2015-10-23T10:13:04.710" Title="Perfect Competition and costs of production question" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" ClosedDate="2015-10-23T12:57:04.897" ContentLicense="CC BY-SA 3.0" />
  <row Id="8843" PostTypeId="2" ParentId="8842" CreationDate="2015-10-23T04:52:10.070" Score="2" Body="&lt;p&gt;Welcome to Economics SE. We ask that when asking about homework questions that you show your work so we can see what you need help with. The site is not meant to be a free homework solving machine.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Remember that a firm's profit is revenue minus costs, where costs can be fixed (200) or variable (manipulation of the marginal costs).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Pi(q) = pq - c_f - c(q)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $p$ is price, $c_f$ is fixed costs, and $c(q)$ is the cost with respect to $q$. We don't necessarily need to expression the variable costs as a function in this case.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So using the information we have, we know that for producing one unit of the good, our profits are:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Pi(1) = 300 \cdot 1 - 200 - 270 = -170$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For two goods, we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Pi(2) = 300 \cdot 2 - 200 - (270+210) = -80$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And so on...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So you do this calculation for all the quantities and you see which one maximizes profits. That will also allow you to answer part b. As for part c, you have to see if there is a way for profits to be above 0 for some quantity produced.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2015-10-23T04:52:10.070" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8844" PostTypeId="2" ParentId="8830" CreationDate="2015-10-23T06:16:23.817" Score="7" Body="&lt;p&gt;Sorry if this sounds harsh, but: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You need to start asking more. You're not stupid for asking questions - you're stupid for &lt;strong&gt;not&lt;/strong&gt; asking questions. Be upfront about your different background and ask away. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course you should try to research things by yourself, but a lot of assumptions are next to impossible to know or find out in a reasonable amount of time. I've got a 5 years of university economics - primarily in macro and I still struggle with assumptions. So, if you can't find it - ask! And ask your professor about some relevant books / articles.  &lt;/p&gt;&#xA;" OwnerUserId="107" LastEditorUserId="43" LastEditDate="2015-12-09T09:59:21.227" LastActivityDate="2015-12-09T09:59:21.227" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8845" PostTypeId="2" ParentId="8839" CreationDate="2015-10-23T06:24:36.253" Score="3" Body="&lt;p&gt;Most agents, including firms, do not actively set-up utility functions in their heads. A firm might however might have a worker create a profit function. A course related to labor economics will usually give you an idea of what sorts of things a firm considers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A generic macroeconomic profit maximization problem that you'll commonly see is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\max_{K, L} \ \Pi = A[\delta K^{-\rho} + (1- \delta)L^{-\rho}]^{-1/\rho} - (rK + wL)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where you have a constant elasticity of substitution ($\rho$ is the substitution parameter) with some level of technology ($A$) and weight of distribution ($\delta$) of inputs between capital and labor ($K, L$) which have costs per unit in the form of the rental rate of capital and wages ($r, w$). Maximize profit with respect to capital and labor.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;In labor, you might see a very basic profit maximization setup where the worker maximizes&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\max_{e} \  U = \mathbb{E}(\alpha + \beta (e + v) - C(e))$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $e$ is some level of effort, $\alpha + \beta q$ is pay given $q$ output and $q = e + v$, where $v$ is an i.i.d. random variable with an expected value of zero in this case.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first order condition is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\partial}{\partial e} : \beta - c'(e) = 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which will create the labor supply function.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The constraint is that the worker is individually rational, so $\alpha + \beta e \geq C(e)$, which can be simplified to just equality since the firm will maximize profit by giving just enough pay to elicit the effort they are looking for.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the firm maximizes &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\max_{\alpha, \beta} \ E(q) - (\alpha + \beta e) = e - C(e)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;FOC:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\partial}{\partial \beta} : [1 - c'(e)] \frac{\partial e}{\partial \beta} = 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies \beta = 1 \ (= c'(e))$$&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;In the above, we see that the firm makes sure that they get the full pay for their value of effort, but in real life, that may not mean the worker gets a piece rate part of their wage equal to 1; a worker like a car salesman may only make a commission of 8-20% of the value of the car because there are other labor and capital inputs that go into selling the car, so the salesperson may be contributing 8-20% of the effort needed to sell the car.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are other things the firm needs to consider like screening costs, heterogeneous labor markets (differentiated skill levels), signalling versus human capital or firm specific capital, etc. I'll provide one more economic setup a firm might look at when seeing how their workers invest in human capital.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;This setup comes from the Heckman and Killingsworth paper (1986 I want to say) on women in the labor force.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We have a dynamic labor supply with endogenous wages.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$E(t) = E[H(t), K(t)]$$ where $E(t)$ is earnings at time $t$. $H(t)$ is hours of work for some period of time at time period $t$, and $K(t)$ is the stock of human capital.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\partial K(t)}{\partial t} \equiv \dot{K} = i[I(t), G(t), K(t)] - qK(t)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $q$ is the depreciation of human capital, $I(t), G(t)$ are investment and goods meant to increase human capital (note that human capital is an input into its own production.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The worker then has some utility to maximize:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U = \int_0^D e^{-st} u[c(t), m(t)L(t), K(t)] \ dt$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $c(t)$ is consumption at time $t$, $L(t)$ is leisure, and $m$ is a multiplicative factor, an underlying preference for leisure over time that changes involvement in the labor force.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Constraints:&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$T = I(t) + H(t) + L(t)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$W(t) = E(t)/(I(t) + H(t))$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$A(D) = A(0) + \int_0^D e^{-rt} [E(t) - P(t)C(t)] \ dt \geq 0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(the last condition is just a transversality condition; cannot die in debt)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Heckman neutrality:&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$E(t) = k H(t)K(t)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\dot{K} = i[I(t)K(t)] - qK(t)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$U = \int_0^D e^{-st} u[c(t), m(t)L(t)K(t)] \ dt$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(the third condition is different from the above actually)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$u(t)$ will be the shadow value of cash, and $w(t)$ will be the shadow value of human capital.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Solving from the first order conditions will get you a time path for $w(t)$&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Other recommended reading: &quot;&lt;em&gt;Personnel Economics in Practice&lt;/em&gt;&quot;, 2009; Lazear, Edward P. and Gibbs, Michael&lt;/p&gt;&#xA;" OwnerUserId="4251" LastEditorUserId="4251" LastEditDate="2015-10-23T06:30:06.747" LastActivityDate="2015-10-23T06:30:06.747" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8846" PostTypeId="1" AcceptedAnswerId="8865" CreationDate="2015-10-23T06:54:20.080" Score="4" ViewCount="990" Body="&lt;p&gt;I am looking for a set of mathematics books to understand proofs in decision theory. Examples would be proofs of utility representations and social choice (im-)possibility results. I found many textbooks on both decision theory and social choice, some of which contain proofs which contain references to mathematical results.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, I could not find a collection of mathematical results commonly used in these fields. Usual &quot;Mathematics for Economists&quot; textbooks fall short. What is the standard reference/textbook researchers use to find the results they employ?&lt;/p&gt;&#xA;" OwnerUserId="5635" LastActivityDate="2020-03-06T20:04:42.710" Title="What are good mathematics books to learn decision theory?" Tags="&lt;reference-request&gt;&lt;decision-theory&gt;&lt;social-choice&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8849" PostTypeId="2" ParentId="8830" CreationDate="2015-10-23T11:31:04.503" Score="3" Body="&lt;p&gt;Surprisingly, I think the best way would be to read a Microeconomics textbook. You described difficulties with concepts like market clearing conditions. Macroeconomic models are usually based on general equilibrium models which students of Macroeconomics learn in their Microeconomics education. Consider reading the relevant parts of an intermediate Microeconomics textbook or Mas-Colell, Whinston + Green's classic Micro textbook for PhD students.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With this background knowledge, you can start reading Macroeconomics textbooks, e.g., Ljunquist/Sargent which teach you about the Macro-specific variations and applications.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You should also think about the quality of your program. A descent Economics PhD program will most certainly offer/require courses in Micro, Macro, and Econometrics.&lt;/p&gt;&#xA;" OwnerUserId="5635" LastActivityDate="2015-10-23T11:31:04.503" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="8850" PostTypeId="1" CreationDate="2015-10-23T15:24:45.763" Score="2" ViewCount="55" Body="&lt;p&gt;I was attempt to describe the ramifications of negative interest rates across benchmarks.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can foresee the business practice changes amongst holders of government bonds, savings accounts, certificates of deposit and mortgages. My conclusion was a possible stall of lending in those markets, but thats a red herring to my real question. When it comes to corporate debt I wasn't so sure what ramification even lower interest rates would have on the attractiveness of investment grade corporate debt.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there anywhere I can read prevailing or new theories about that?&lt;/p&gt;&#xA;" OwnerUserId="2798" LastActivityDate="2016-06-13T08:38:29.243" Title="negative interest rate lending ripple effects" Tags="&lt;interest-rate&gt;&lt;government-debt&gt;&lt;corporate-finance&gt;&lt;bonds&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8852" PostTypeId="2" ParentId="8830" CreationDate="2015-10-23T20:29:53.110" Score="1" Body="&lt;p&gt;Ahh, that's what I felt and was in the same situation for a year or so. What to do? I have accounting and finance degrees, BA and MSc, but continued education on a phd in econ. I started watching micro and macro lectures on Youtube, i.e. opencourseware channels, now, four year on, I record my own econ videos for my econ students. You just need to ask your fellows, many of my fellows, though they had econ degrees, were not able to answer simple econ questions. But I had to do my homework of watching videos and reading books. &#xA;The steepest learning curve plotted when I started teaching as TA undergrad econ modules. You should get a part time TA job if you can, helps a lot. &lt;/p&gt;&#xA;" OwnerUserId="6009" LastActivityDate="2015-10-23T20:29:53.110" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8853" PostTypeId="1" CreationDate="2015-10-23T21:24:40.630" Score="3" ViewCount="327" Body="&lt;p&gt;The social planner problem is &#xA;\begin{align}&#xA;\max_{\lbrace x_i,y_i,x_j,y_j \rbrace } &amp;amp;\theta_i U_i(x_i,y_i) +\theta_j U_i(x_j,y_j) \\&#xA;&amp;amp; \text{s.t.}\\&#xA;&amp;amp;x_i+x_j = \omega_i^x + \omega_j^x\\&#xA;&amp;amp;y_i+y_j = \omega_i^y + \omega_j^y\\&#xA;\end{align}&#xA;where &#xA;$\theta_i,\theta_j$ are weights.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As I understand it, with a proper choice of weights, one can turn the Social Planner's problem into &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;A Lagrangian optimization problem that solves for a Pareto optimal allocation. &lt;/li&gt;&#xA;&lt;li&gt;A Lagrangian optimization problem that solves for an allocation that is a Walrasian equilibrium. &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Is this accurate? If so, what constraints are there on the weights for each case? &lt;/p&gt;&#xA;" OwnerUserId="2679" LastActivityDate="2015-10-23T21:24:40.630" Title="Can the social planner problem be reduced to a Pareto problem or a Walrasian equilibrium problem?" Tags="&lt;general-equilibrium&gt;" AnswerCount="0" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="8854" PostTypeId="1" CreationDate="2015-10-24T03:16:28.957" Score="3" ViewCount="739" Body="&lt;p&gt;From what I have heard, the exchange of goods defined by the intersection of supply and demand generally maximize quantity traded, although this doesn't apply in cases of monopolies, imperfect information etc. I am trying to understand why this is true, and came across what appears to be a counter example:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are 4 people in a market for eggs, 2 buyers and 2 sellers. The buyers are each willing to pay up to \$10 and \$3 for 1 egg each. The sellers are willing to sell an egg each at \$9 and \$2. The most productively efficient trades are when one egg is bought for some price between \$9 and \$10 and another is bought for some price between \$2 and \$3. What happens according to supply and demand is that one egg is traded for a price between \$3 and \$9.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The fact that there is one price seems, in this case, to reduce the total traded quantity. What am I missing?&lt;/p&gt;&#xA;" OwnerUserId="5845" LastEditorUserId="5845" LastEditDate="2015-10-24T16:21:48.713" LastActivityDate="2015-10-24T16:59:02.510" Title="Why does having a single market price maximize quantity traded?" Tags="&lt;supply-and-demand&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8856" PostTypeId="1" CreationDate="2015-10-24T15:08:50.140" Score="5" ViewCount="359" Body="&lt;p&gt;Consider the following game between a monopolist firm and a consumer. Consumer's income is $1$, and he needs to allocate it between period 1 and period 2 consumption to maximize his utility $u(c_1,c_2)=c_1+c_2$, where $c_t$ is the consumer's period $t$ consumption. Period 2 prices are given exogenously by $P$. Assume that $P$ is random and takes value in $\{\bar{p},\underline{p}\}$ with equal probability where $\bar{p}&amp;gt;\underline{p}&amp;gt;0$. It is common knowledge that the firm knows $P$, and the consumer knows $P$ with probability $\alpha$. The timing of the game is as follow. The firm chooses the first period price $p$ to maximize its profits in period 1. After observing $p$, the consumer decides how to allocate his income between $c_1$ and $c_2$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) Define an equilibrium for this game &lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) Characterize the equilibria.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am having difficulties in formally setting up dynamic games and I would therefore appreciate if someone could check out the solution I provided below, and most importantly whether the definition of equilibrium I provide (strategy sets, strategies, optimality conditions, etc) is correct, and if not why?&#xA;Thank You &lt;/p&gt;&#xA;" OwnerUserId="46" LastEditorUserId="46" LastEditDate="2015-10-27T03:14:33.080" LastActivityDate="2016-07-24T15:40:02.787" Title="Define and characterize equilibria of the following game" Tags="&lt;game-theory&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8857" PostTypeId="1" CreationDate="2015-10-24T15:59:14.850" Score="1" ViewCount="135" Body="&lt;p&gt;I am pretty confused with this concept. Since deflation is a result of decreasing prices, it means that the demand for goods and services rise therefore stimulating more spending. But on the other hand it is also a matter of fact that it encourages people to save (see potential in the increasing value of money over time).&lt;/p&gt;&#xA;" OwnerUserId="6046" LastActivityDate="2015-10-24T19:44:00.843" Title="What's the actual relationship between deflation, spending and saving?" Tags="&lt;deflation&gt;&lt;saving&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8858" PostTypeId="2" ParentId="4883" CreationDate="2015-10-24T16:37:55.400" Score="0" Body="&lt;p&gt;A great (more technical but still easily accessible) intermediate Macro book is &quot;Macroeconomic Theory and Policy&quot; by David Andolfatto&lt;/p&gt;&#xA;" OwnerUserId="46" LastActivityDate="2015-10-24T16:37:55.400" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8859" PostTypeId="2" ParentId="8854" CreationDate="2015-10-24T16:59:02.510" Score="1" Body="&lt;p&gt;The competitive equilibrium price does not necessarily maximize the amount of goods produced. (The answer to your actual question ends here.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What the competitive equilibrium price does is reach an efficient level of production. Any situation where the production level differs from the equilibrium level is Pareto-inferior to the equilibrium. This means that starting from the competitive equilibrium, you can transfer money from some of the market actors to other market actors in such a way that everyone will be better off than in the situation with non-equilibrium production levels.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the example you gave buyer 1 (reservation price 10) and seller 1 (reservation price 9) have a collective surplus of \$1, and buyer 2 (reservation price 3) and seller 2 (reservation price 2) have a collective surplus of \$1, meaning both pairs 'feel' they gained \$1 by trading. But in the competitive equilibrium, buyer 1 and seller 2 have a collective surplus of \$ 8. If they give buyer 2 and seller 1 one dollars each, everyone would still be more happy than in the other situation. So the second sale is in some way inefficient.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A single price is not necessary to achieve &lt;a href=&quot;https://en.wikipedia.org/wiki/Pareto_efficiency&quot; rel=&quot;nofollow&quot;&gt;Pareto-efficiency&lt;/a&gt;, for example &lt;a href=&quot;http://www.economicsonline.co.uk/Business_economics/Price_discrimination.html&quot; rel=&quot;nofollow&quot;&gt;first degree price discrimination&lt;/a&gt; yields the same results.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2015-10-24T16:59:02.510" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8860" PostTypeId="2" ParentId="8857" CreationDate="2015-10-24T17:01:57.903" Score="2" Body="&lt;p&gt;Think about the permanent income hypothesis. People's spending is dependent not just on present income, but also the future stream of income. A deflation usually indicates a recession. The central bank is trying to optimize monetary policy subject to a short run Phillip's curve.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\min_{u, \pi} V(u, \pi) = -(u^2 + \pi^2)$$&#xA;such that&#xA;$$u = u^* + k(\pi^e - \pi)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $u$ is unemployment, $u^*$ is the natural rate of unemployment, $k$ is the sensitivity of the tradeoff, and $\pi^e$ is the market expectation of inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you find a Nash equilibrium for this game with credibility in the model, then the Federal Reserve will want to target a constant steady rate of inflation. If the economy falls into recession, they will in return try to raise inflation, because in the short run it serves as a tradeoff with unemployment, so though the Fed is causing more inflation, hopefully they will stop too many people from losing jobs (note the loss function for the Fed in this case is convex). If the Fed tries out monetary policy and still sees deflation, then you can tell the recession is pretty rough, if that makes sense.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So even though the price of goods falls, wages on average will fall, and production will fall. So demand in the economy will fall. Those who do still have a good job are doing better on average than those who become unemployed, and they might dissave in periods where expected income in this recessionary period might be lower than future periods where the economy is doing well, but in reality, most people will be liquidity constrained and will be saving what little they can while drastically cutting back on spending. Usually. There are exceptions (think of payday loans).&lt;/p&gt;&#xA;" OwnerUserId="4251" LastEditorUserId="4251" LastEditDate="2015-10-24T17:17:26.720" LastActivityDate="2015-10-24T17:17:26.720" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8861" PostTypeId="1" AcceptedAnswerId="8867" CreationDate="2015-10-24T17:21:20.540" Score="3" ViewCount="751" Body="&lt;p&gt;I know that homothetic production function implies that cost function is multiplicatively separable in input prices and output, and it can be written as &#xA;&lt;em&gt;C(w,y)=h(y)C(w,1)&lt;/em&gt;. Can some one help me derive the functional form of profit function in case of homothetic production functions?&lt;/p&gt;&#xA;" OwnerUserId="5863" LastActivityDate="2020-11-24T20:44:02.720" Title="Homothetic production function and Profit Function" Tags="&lt;production-function&gt;&lt;producer-theory&gt;&lt;profit-maximization&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="8862" PostTypeId="1" AcceptedAnswerId="8903" CreationDate="2015-10-24T17:27:45.887" Score="3" ViewCount="113" Body="&lt;p&gt;Can someone suggest a good resource on homothetic technologies and what properties they imply about cost function, profit function, input demands, output supply etc? Also is it possible to have inferior inputs with homothetic technology?&lt;/p&gt;&#xA;" OwnerUserId="5863" LastEditorUserId="5635" LastEditDate="2015-10-27T01:51:47.683" LastActivityDate="2015-10-27T02:37:16.650" Title="Homothetic Production Technologies" Tags="&lt;reference-request&gt;&lt;production-function&gt;&lt;producer-theory&gt;&lt;cost&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8863" PostTypeId="1" CreationDate="2015-10-24T17:33:42.820" Score="6" ViewCount="8108" Body="&lt;p&gt;I'm trying to figure out the commands necessary to replicate the following table in Stata. This table is taken from Chapter 11, p. 357 of &lt;em&gt;Econometric Analysis of Cross Section and Panel Data, Second Edition&lt;/em&gt; by Jeffrey M Wooldridge. Here I'm specifically trying to figure out how to obtain the robust standard errors (shown in square brackets) in column (2). I'm trying to do this in Stata. I was able to to get the conventional standard errors using the command&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;xtreg lpassen lfare ldist ldistsq y98 y99 y00, i(id) fe&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;. I was able to get column (1) with&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;xtreg lpassen lfare ldist ldistsq y98 y99 y00, i(id)&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;and the corresponding standard errors with&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;xtreg lpassen lfare ldist ldistsq y98 y99 y00, i(id) vce(robust)&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;. However, the command&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;xtreg lpassen lfare ldist ldistsq y98 y99 y00, i(id) fe vce(robust)&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;does not work for column (2). It gives results that are different from the book. Could someone explain how to obtain these standard&#xA;errors in Stata?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that the data to go along with this question can be found here: &lt;a href=&quot;https://mitpress.mit.edu/books/econometric-analysis-cross-section-and-panel-data&quot; rel=&quot;noreferrer&quot;&gt;https://mitpress.mit.edu/books/econometric-analysis-cross-section-and-panel-data&lt;/a&gt;&#xA;Alternatively, you can load it directly into Stata using &lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;use http://www.stata.com/data/jwooldridge/eacsap/airfare, clear&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/4iHh2.jpg&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/4iHh2.jpg&quot; alt=&quot;Wooldridge, Panel Book Table 11.1, 2nd Edition, p.357&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="59" LastEditorUserId="59" LastEditDate="2015-10-24T21:42:02.020" LastActivityDate="2017-11-17T16:10:29.720" Title="Robust Standard Errors in Fixed Effects Model (using Stata)" Tags="&lt;econometrics&gt;&lt;statistics&gt;&lt;regression&gt;&lt;stata&gt;&lt;paneldata&gt;" AnswerCount="3" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8865" PostTypeId="2" ParentId="8846" CreationDate="2015-10-24T18:55:39.390" Score="7" Body="&lt;p&gt;I do not know about social choice, but for utility representations I think the two most cited books are &quot;Convex analysis&quot; by Rockafellar and &quot;Infinite Dimensional Analysis: A Hitchhiker's Guide&quot; by Alliprantis and Border. They contain most (if not all) results on convex analysis and functional analysis used by economists.&lt;/p&gt;&#xA;" OwnerUserId="4667" LastActivityDate="2015-10-24T18:55:39.390" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8866" PostTypeId="2" ParentId="8856" CreationDate="2015-10-24T18:57:31.650" Score="1" Body="&lt;p&gt;&lt;strong&gt;Hint:&lt;/strong&gt; Notice that there is no discount factor between the two periods. Consumption between the two periods are perfect substitutes; if the consumer, they will spend all their income in the lower price period, if possible.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So there are two cases the firm considers. Either the consumer does not know the space that price is draw from, $\{\bar{p},\underline{p}\}$, with probability $1 -\alpha$, or the consumer does know this with probability $\alpha$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the consumer &lt;em&gt;&quot;doesn't know&quot;&lt;/em&gt; $P$, then the rest of this question depends on whether the consumer knows the distribution of $P$, but not the value of $P$ itself in the second period, which is unclear to me given the question. If the consumer does know the distribution of $P$ (which is what I'm assuming), but not the value, then they won't consume anything in period 1 if $\frac{w}{p_1} &amp;lt; \frac{1}{2}(\frac{w}{\bar{p}}+\frac{w}{\underline{p}})$, since the expected amount of goods you could buy with wealth $w$ next period will be lower, so spending all income in that period would maximize expected utility. Note it wouldn't simply be $p_1 &amp;gt; \frac{1}{2}(\bar{p}+\underline{p})$ being the condition.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then think about what happens if the consumer knows the value of $P$ next period and how they would act. Finally, the firm, knowing this and the weight of $\alpha$, will try to maximize expected profit (we don't have a cost function, so expected revenue) with respect to $p_1 \in \mathbb{R}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\max_{p_1} \ \Pi(p_1, P) = p_1E(c_1) + E(P)E(c_2)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Edit:&lt;/strong&gt; Oh, if you were instructed specifically to use a Bellman, good luck. It looks like you're on the right track in general.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastEditorUserId="4251" LastEditDate="2015-10-24T22:13:07.640" LastActivityDate="2015-10-24T22:13:07.640" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8867" PostTypeId="2" ParentId="8861" CreationDate="2015-10-24T18:58:59.147" Score="2" Body="&lt;p&gt;I have figured this as the answer to this question;&#xA;As we know profit maximization problem is given as,&#xA;$$&#xA;\pi(p,w) = \mathop{max}_{\textbf{y}}\quad p.y - C(\overrightarrow{w},y)&#xA;$$&#xA;When $f(\overrightarrow{x})$ is homothetic, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;C(\overrightarrow{w},y)=h(y).C(\overrightarrow{w},{1})&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Substituting in the profit function gives; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\pi(p,w) = \mathop{max}_{\textbf{y}}\quad p.y - h(y). C(\overrightarrow{w},1)&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First order condition gives us; &#xA;$$&#xA;p=h'(y)C(\overrightarrow{w},1) &#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which can be written as; &#xA;$$&#xA;h'(y)=\frac{p}{C(\overrightarrow{w},1)} &#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;or&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;y=(h')^{-1}\frac{p}{C(\overrightarrow{w},1)} &#xA;$$&#xA;$$&#xA;\Rightarrow y= \gamma(p).\beta(w)&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore $y(p,w)$ is separable.&#xA;Since &#xA;$$&#xA;\pi(p,w)=\int{y(p,w)}dp&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\pi(p,w)=\int{\gamma(p).\beta(w)}dp&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\pi(p,w)=\beta(w)\int{\gamma(p)}dp&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\pi(p,w)=\beta(w)\alpha(p)&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus $\pi(p,w)$ is also separable in factor prices and output prices. &lt;/p&gt;&#xA;" OwnerUserId="5863" LastActivityDate="2015-10-24T18:58:59.147" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="8868" PostTypeId="2" ParentId="8857" CreationDate="2015-10-24T19:44:00.843" Score="1" Body="&lt;p&gt;We need to get cause and effect clear.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is incorrect that &quot;deflation is a result of decreasing prices&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In fact, the price level at a given time is determined solely by the preferences of the people (to the extent the society is cooperative, i.e., not coercive.)  At a higher price level than the actual one at a given time, there would be more suppliers who prefer money to goods than there were buyers who preferred that amount of goods to that amount of money. The market sets the price to the level where supply equals demand.  For the moment we are assuming for simplicity that people don't want to save, only consume.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What causes deflation?  Since deflation is a decline in the price level, from the above we see that it must be caused by a change in human preferences.  The (aggregate) preference for goods and services relative to money must have decreased.  Last year I was willing to produce a pumpkin and trade it for 2.00, but not 1.90.  This year I will produce and sell it for 1.90.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, the correct cause-and-effect relationship is: deflation is caused by a change in human preferences for money relative to real wealth.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is also incorrect to say that deflation causes changes in spending ( quantity supplied, which equals the quantity purchased.)  Both the aggregate quantity level and the price level are determined by human preferences: the quantity and price both adjust to the level at which the market is cleared, where supply = demand at that price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Likewise, deflation (price level) does not cause the level of saving.  Saving level is the result of the aggregate of human preferences, in this case the preference for current goods over future goods.&lt;/p&gt;&#xA;" OwnerUserId="5906" LastActivityDate="2015-10-24T19:44:00.843" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8869" PostTypeId="2" ParentId="8863" CreationDate="2015-10-24T20:11:18.440" Score="4" Body="&lt;p&gt;I'm still not sure if I'm doing something wrong. However, it is useful to note that I get the same results in R.&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;library(foreign)&#xA;library(plm)&#xA;library(lmtest)&#xA;&#xA;df &amp;lt;- read.dta(&quot;airfare.dta&quot;)&#xA;fe.out &amp;lt;- plm(lpassen ~ lfare + ldist + ldistsq + y98 + y99 + y00,&#xA;         data=df, index = c(&quot;id&quot;, &quot;year&quot;), &#xA;         method = &quot;within&quot;, effect = &quot;individual&quot;)&#xA;summary(fe.out)&#xA;#robust standard errors&#xA;coeftest(fe.out, vcov. = vcovHC)&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;gives the same results. In fact, none of these seem to match the answer given in the book:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;coeftest(fe.out, vcov. = vcovBK)&#xA;coeftest(fe.out, vcov. = vcovHC)&#xA;coeftest(fe.out, vcov. = vcovSCC)&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;The robust standard errors on &lt;code&gt;lfare&lt;/code&gt;, for example, that I get in both Stata and R (using vcovHC) is 0.108. The book gives 0.083. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For reference, the output of &lt;code&gt;coeftest(fe.out, vcov. = vcovHC)&lt;/code&gt; is&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;t test of coefficients:&#xA;&#xA;        Estimate Std. Error  t value  Pr(&amp;gt;|t|)    &#xA;lfare -1.1550389  0.1085628 -10.6394 &amp;lt; 2.2e-16 ***&#xA;y98    0.0464889  0.0049076   9.4728 &amp;lt; 2.2e-16 ***&#xA;y99    0.1023612  0.0063086  16.2256 &amp;lt; 2.2e-16 ***&#xA;y00    0.1946548  0.0097015  20.0644 &amp;lt; 2.2e-16 ***&#xA;---&#xA;Signif. codes:  0 ‘***’ 0.001 ‘**’ 0.01 ‘*’ 0.05 ‘.’ 0.1 ‘ ’ 1&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;" OwnerUserId="59" LastEditorUserId="59" LastEditDate="2015-10-24T21:34:52.100" LastActivityDate="2015-10-24T21:34:52.100" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8870" PostTypeId="1" AcceptedAnswerId="8910" CreationDate="2015-10-24T20:59:27.637" Score="1" ViewCount="43" Body="&lt;p&gt;Johansen recommends that cointegrating vectors must be normalised for inference making purposes. All software packages use triangular normalisation of the cointegrating vectors i.e. the top $r$ by $r$ block of the estimated $\beta$ matrix is an identity matrix. Usually, this is achieved by deriving the row echelon form of the estimated long-run equations (cointegrating equations matrix).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does any one know of any other normalisation forms? or methods to formulate different normalisation?&#xA;Thanks &lt;/p&gt;&#xA;" OwnerUserId="6009" LastActivityDate="2015-10-27T16:37:52.243" Title="Alternative normalisation to triangular restriction on cointegrating vectors" Tags="&lt;macroeconomics&gt;&lt;econometrics&gt;&lt;regression&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8871" PostTypeId="1" CreationDate="2015-10-24T23:45:09.947" Score="1" ViewCount="690" Body="&lt;p&gt;How does positive monotonic transformation of production function effect the resulting profit function? &#xA;For example if we had production function $f(x) $ and that gave profit function $\pi(p,w)$. Now if we transform the production function as let's say $f(x)^{\mu}$ where $\mu&amp;gt;0$, how would that effect the profit function? &lt;/p&gt;&#xA;" OwnerUserId="5863" LastActivityDate="2015-10-24T23:45:09.947" Title="Monotonic Transformation" Tags="&lt;production-function&gt;&lt;producer-theory&gt;&lt;profit-maximization&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="8872" PostTypeId="2" ParentId="8856" CreationDate="2015-10-25T00:23:20.647" Score="2" Body="&lt;p&gt;SOLUTION: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) DEFINITION OF EQUILIBRIUM&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{equation} \begin{split}&#xA;&amp;amp;p \in \mathbb{R}_+\text{ is the price chosen by the firm in period 1}\\&#xA;&amp;amp;a_U \in [0,1] \text{ is the share of income the Uninformed consumer allocates in period 1}\\&#xA;&amp;amp;a_I \in [0,1] \text{ is the share of income the Informed consumer allocates in period 1}\\&#xA;&amp;amp;\Theta = \{I,U\} \text{ is the type of consumer: Informed, Uninformed}\\&#xA;&amp;amp; S_I = \{ a : \{\underline{p},\bar{p}\} \times \mathbb{R}_+ \to [0,1] \} \text{ is the strategy set of the I. consumer}\\&#xA;&amp;amp; S_U = \{ a : \mathbb{R}_+ \to [0,1] \} \text{ is the strategy set of the U. consumer}\\&#xA;&amp;amp; S_f = \{ p : \{\bar{p},\underline{p}\} \to \mathbb{R}_+ \} \text{ is the strategy set of the firm}\\&#xA;&amp;amp;\mu_U(p) = Pr(P =\bar{p}|p) \text{ : consumer of type U belief that the second period price is } \bar{p}, \text{ given } p\\&#xA;&amp;amp;\mu_I(P) = Pr(P =\bar{p}|p) \text{ : consumer of type I belief that the second period price is } \bar{p}, \text{ given } p\\&#xA;\end{split} \end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An equilibrium of the game is a triple of strategies, $s^*=(a^*_I, a^*_U,p^*)$ for each type of consumer and the monopolist, together with a system of belief $\mu$ such that: for each player $i$, $s_i^*$ is sequentially rational, and the beliefs are determined by the strategy profile and Bayes rule whenever it applies. \ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In particular for each price $p$, the consumer of type $i \in \{U.I\}$ solves:&lt;br&gt;&#xA;\begin{equation} \begin{split}&#xA;&amp;amp;a_i^*(p) = \text{ argmax } \sum_p \big[ ( \frac{a}{p} + \frac{1-a}{\bar{p}} )\mu_I(P) + ( \frac{a}{p} + \frac{1-a}{\underline{p}} )(1-\mu_I(P)) \big]&#xA;\end{split} \end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, in the case of the Informed consumer, we know that &#xA;\begin{equation} \begin{split}&#xA; &amp;amp;\mu_I(P) = Pr(P =\bar{p}|p) = &#xA;\begin{cases}&#xA;1 &amp;amp;\text{ if } P =\bar{p}\\&#xA;0  &amp;amp;\text{ if } P = \underline{p}\\&#xA;\end{cases} \\&#xA;\end{split} \end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;given the consumers optimal strategies and $P$, $p^*(P)$ maximizes the monopolist first period profits: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{equation} \begin{split}&#xA;&amp;amp;\pi(P)^* = \text{ argmax } \alpha [a^*_I(p) p] + (1-\alpha) [a^*_U(p) p]\\&#xA;\end{split} \end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) CHARACTERIZATION OF EQUILIBRIA&lt;/p&gt;&#xA;&#xA;&lt;p&gt;for any realization of $P$ in period 2, we have that &#xA;\begin{equation} \begin{split}&#xA;a_I(p)^* = &#xA;\begin{cases}&#xA;1 &amp;amp;\text{ if } p &amp;lt;  P\\&#xA;0  &amp;amp;\text{ if } p &amp;gt;P\\&#xA;\in [0,1] &amp;amp;\text{ if } p =  P \\&#xA;\end{cases} \\&#xA;\end{split} \end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{equation} \begin{split}&#xA;a_U(p)^* = &#xA;\begin{cases}&#xA;1 &amp;amp;\text{ if } p &amp;lt;  \mu_U(p) \bar{p} + (1-\mu_U(p))\underline{p}\\&#xA;0  &amp;amp;\text{ if } p &amp;gt; \mu_U(p) \bar{p} + (1-\mu_U(p))\underline{p}\\&#xA;\in [0,1] &amp;amp;\text{ if } p = \mu_U(p) \bar{p} + (1-\mu_U(p))\underline{p}&#xA;\end{cases} \\&#xA;\end{split} \end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To define the optimal strategy of the monopolist consider the following cases, where $\pi$ denotes the monopolist first period profits: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;a)Suppose $p=\bar{p}, \forall P$, then By Bayes rule $\mu_U(p) = 1/2$; also suppose that off the equilibrium path $\mu_U(p) = 1/2, \forall p \neq\bar{p}$ ; then the monopolist profits are given by: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{equation} \begin{split}&#xA;\pi(P) = &#xA;\begin{cases}&#xA;\alpha \bar{p} a_I^*(\bar{p}) &amp;amp;\text{ if } P=\bar{p} \\&#xA;0  &amp;amp;\text{ if } P =  \underline{p} \\&#xA;\end{cases} \\&#xA;\end{split} \end{equation}&#xA;This is not an equilibrium strategy because the monopolist can deviate and increase its profits when $P=\underline{p}$ by setting, for example, $\hat{p} = 1/2\bar{p} + 1/2\underline{p}$; this will give him a profit of $\alpha a_U^*(\hat{p})  &amp;gt;0$. &#xA;Similarly it is possible to prove that no-matter what the off the equilibrium path are, there is always a profitable deviation for the monopolist. \&lt;/p&gt;&#xA;&#xA;&lt;p&gt;b)Suppose $p=\underline{p}, \forall P$, then $\mu_U(p) = 1/2$ and also suppose that off the equilibrium path $\mu(p) = 1/2, \forall p \neq\underline{p}$ ; then the monopolist profits are given by: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{equation} \begin{split}&#xA;\pi(P) = &#xA;\begin{cases}&#xA;\underline{p} &amp;amp;\text{ if } P=\bar{p} \\&#xA;\underline{p} (\alpha a_I^*(\underline{p}) +(1-\alpha) ) &amp;amp;\text{ if } P =  \underline{p}\\&#xA;\end{cases} \\&#xA;\end{split} \end{equation}&#xA;this is not an equilibrium strategy because $\exists \epsilon &amp;gt; 0 $ such that monopolist will deviate and increase its profits when $P=\bar{p}$; for example by setting  $\hat{p} = 1/2\bar{p} + 1/2\underline{p} -\epsilon&amp;gt;\underline{p}$ which will give him a profit of $\hat{p}&amp;gt; \underline{p}$ . &lt;/p&gt;&#xA;&#xA;&lt;p&gt;c)Suppose $p=\underline{p}, \text{ if } P= \underline{p}$, $p=\bar{p}, \text{ if } P= \bar{p}$ and $\mu_U(p) = 1, \forall p &amp;gt; \underline{p}$ then&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{equation} \begin{split}&#xA;\pi_1^*(P) = &#xA;\begin{cases}&#xA;\bar{p}(\alpha a_I^*(\bar{p}) +(1-\alpha) a_U^*(\bar{p})) &amp;amp;\text{ if } P=\bar{p} \\&#xA;\underline{p} (\alpha a_I^*(\underline{p}) +(1-\alpha) a_U^*(\underline{p})) &amp;amp;\text{ if } P =  \underline{p}\\&#xA;\end{cases} \\&#xA;\end{split} \end{equation}&#xA;this represents an equilibrium as long as  $a_I^*(\bar{p}) = a_U^*(\bar{p}) = 1$; otherwise the monopolist can set a price $\hat{p}&amp;lt; \bar{p}$ and can achieve a profit of $\bar{p} - \epsilon &amp;gt;\alpha a_I^*(\bar{p}) +(1-\alpha) a_U^*(\bar{p})$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;d) Suppose $p = 1/2\bar{p} + 1/2\underline{p}, \forall P$ then $\mu_U(p)=1/2$ and and also suppose that off the equilibrium path $\mu(p) = 1/2, \forall  p \neq ( 1/2\bar{p} + 1/2\underline{p}) $ &#xA;\begin{equation} \begin{split}&#xA;\pi_2^*(P) = &#xA;\begin{cases}&#xA;(1/2\bar{p} + 1/2\underline{p})  (\alpha  +(1-\alpha) a_U^*(p)) &amp;amp;\text{ if } P=\bar{p} \\&#xA;( 1/2\bar{p} + 1/2\underline{p} ) ( 0 + (1-\alpha)a_U^*(p)) &amp;amp;\text{ if } P =  \underline{p}\\&#xA;\end{cases} \\&#xA;\end{split} \end{equation}&#xA;This is an equilibrium strategy as long as there are no profitable deviation; notice that the monopolist can set $p=\bar{p}$ when $P=\bar{p}$ and given $\mu_U = 1/2$ its profits would equal $\alpha \bar{P}a_I^*(\bar{p})$. Also, when $P=\underline{p}$ the monopolist could set $p=\underline{p}$ and get a profit of $\underline{p}$. So we need to insure that neither deviation is possible.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;e) ?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can therefore characterize the following (Perfect Bayesian) Equlibria: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;1ST EQUILIBRIUM) &#xA;\begin{equation} \begin{split}&#xA;&amp;amp;a_I(p)^*  = 1, a_U(p)^* = 1 \\  &#xA;&amp;amp;\pi_1^*(P) \text{ defined as above } \\&#xA;&amp;amp;\mu_U(p) = 1 \text{ both &quot;on and off&quot; the equilibrium path } \\&#xA;&amp;amp;\text{(that is, if the monopolist deviates } \\&#xA;&amp;amp;\text{from the equilibrium strategy } \mu_U(p)=1 \text{ still holds} \\&#xA;\end{split} \end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;SET OF EQUILIBRIA) &#xA;\begin{equation} \begin{split}&#xA;&amp;amp;a_I(p)^* =1, a_U(p)^* \in[0,1] \\  &#xA;&amp;amp;\pi_2^*(P) \text{ defined as above } \\&#xA;&amp;amp;\mu_U(p) = 1/2 \text{ both &quot;on and off&quot; the equilibrium path } \\&#xA;&amp;amp;\text{(that is, if the monopolist deviates } \\&#xA;&amp;amp;\text{from the equilibrium strategy } \mu_U(p)=1/2 \text{ still holds} \\&#xA;&amp;amp; \text{Also, The following two conditions below hold:}\\&#xA;&amp;amp;\alpha \bar{P}a_I^*(\bar{p}) &amp;lt; (1/2\bar{p} + 1/2\underline{p})  (\alpha a_U^*(\bar{p}) +(1-\alpha) ) \\&#xA;&amp;amp;\underline{p} &amp;lt; ( 1/2\bar{p} + 1/2\underline{p} ) (\alpha a_U^*(\bar{p}) +0)\\&#xA;\end{split} \end{equation}&lt;/p&gt;&#xA;" OwnerUserId="46" LastEditorUserId="46" LastEditDate="2015-10-27T03:16:07.407" LastActivityDate="2015-10-27T03:16:07.407" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8873" PostTypeId="1" AcceptedAnswerId="17712" CreationDate="2015-10-25T01:39:22.323" Score="10" ViewCount="1856" Body="&lt;p&gt;In using CES production functions of the form $f(x_1,x_2)=(x_1^\rho+x_2^\rho)^{1/\rho} $, we always assume that $\rho\leq1$. Why do we make that assumption? I understand that if $\rho&amp;gt;1$, the production function won't be concave anymore (and hence production set will not be convex), but what does that imply about profit and cost functions?&lt;/p&gt;&#xA;" OwnerUserId="5863" LastEditorUserId="2776" LastEditDate="2017-08-05T09:10:29.983" LastActivityDate="2018-05-15T15:54:03.870" Title="CES Production Function with $\rho&gt;1$" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;production-function&gt;&lt;producer-theory&gt;" AnswerCount="3" CommentCount="3" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="8875" PostTypeId="2" ParentId="8873" CreationDate="2015-10-25T03:53:31.063" Score="3" Body="&lt;p&gt;Here is my attempt at this question, it's incomplete and/or incorrect so please help make suggestions and I will edit this. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Cost Minimization&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since $f(x_1,x_2)$ is not quasi-concave, the corresponding isoquant curves are not going to be covex to the origin (i.e. their upper contour set will not be convex). In this case firm should employ corner solution and conditional factor demands will be given as; &#xA;$$&#xA;x_1(p,y)=q^2 \quad and \quad x_2(p,y)=0 \quad\quad if\quad w_1&amp;lt; w_2&#xA;$$&#xA;$$&#xA;x_1(p,y)=0 \quad and \quad x_2(p,y)=q^2 \quad\quad if\quad w_1&amp;gt;w_2&#xA;$$&#xA;$$&#xA;x_1(p,y)=0  , x_2(p,y)=q^2 \quad or \quad x_1(p,y)=q^2  , x_2(p,y)=0 \quad if\quad w_1=w_2&#xA;$$&#xA;These conditional factor demands give the cost function;&#xA;$$&#xA;C(w,y)=min[w_1q^2,w_2q^2]&#xA;$$&#xA;&lt;strong&gt;Profit Maximization&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am really confused here. Even though the production function is convex but it still exhibit non-increasing returns to scale. $f(tx_1,tx_2)&amp;lt;tf(x_1,x_2) \quad\forall \quad t&amp;gt;1$. That is the solution will still exist (right?). So how does non-concavity of production function effect profit maximizing solution? &lt;/p&gt;&#xA;" OwnerUserId="5863" LastActivityDate="2015-10-25T03:53:31.063" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="8876" PostTypeId="1" AcceptedAnswerId="8877" CreationDate="2015-10-25T04:06:11.500" Score="2" ViewCount="316" Body="&lt;p&gt;Let $X = (x_*,x^*)$ be an interval in the real line and denote by $\Delta(X)$ the set of simple probability distributions on $X$. Consider a preference relation $\succcurlyeq$ on $\Delta(X)$ that satisfies the axioms of expected utility theory. If $\succcurlyeq$ displays monotonicity with respect to first order stochastic dominance and risk aversion then for all $p \in \Delta(X)$ the certainty equivalent of $p$ exists and is unique. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sketch of the proof: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) We define the certainty equivalent of lottery $p$: $CE_p \sim \int_{X}u(x)p(x)dx$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) We know that if $p$ FOSD $q$ then $p\succcurlyeq q$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;3) Because of risk aversion: $\int_{X}u(x)p(x)dx \leq u(\int_{X}xp(x)dx) =u(p)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;4) We want to show that $\exists$ a lottery, call it $s$ such that $CE_p \sim s$; in this respect (from 3 above) we know that $p \succcurlyeq s$; We then pick a particular lottery $q$ such that $p \succcurlyeq q$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;5) Since by assumption $\succcurlyeq$ on $\Delta(X)$ satisfies the axioms of expected utility theorem (in particular continuity) there exists a unique $\alpha$ such that  $\alpha p + (1-\alpha) q \sim s$ ( see MWG p. 177). We therefore proved that $\exists$ a compound lottery $s$ that is the certainty equivalent of lottery $p$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;QUESTION: Am I missing any detail in the proof?&lt;/p&gt;&#xA;" OwnerUserId="46" LastActivityDate="2015-10-25T08:40:30.887" Title="Decision Theory Question: Existence and uniqueness of the certainty equivalent of p" Tags="&lt;decision-theory&gt;&lt;expected-utility&gt;&lt;uncertainty&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8877" PostTypeId="2" ParentId="8876" CreationDate="2015-10-25T08:40:30.887" Score="4" Body="&lt;p&gt;Your notation is a bit misleading: it would be better to write $\mathbb{E}u(p)$ or $U(p)$ for the expected-utility associated with $p$ instead of $u(p)$, and $u(\mathbb{E}p)$ for the utility of the expected value of $p$. Formally $u$ is defined on $X$ and not on $\Delta(X)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regarding your proof, it seems to me that: $(i)$ you don't explain how to find $s$; $(ii)$ you don't find a certainty equivalent, because $s$ is a lottery. What you want to find is a sure monetary prize, i.e. a &lt;em&gt;degenerate&lt;/em&gt; lottery, that the decision-maker values equally as the lottery $p$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For instance, you can notice that, by the monotonicity of $u$,&#xA;\begin{equation}&#xA;u(x_{*})\leq \int_{X}{u(x)p(x)dx} \leq u(x^{*})&#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In addition, the function $u:x \rightarrow u(x)$ is continuous. Therefore, by the intermediate value theorem, there exists $CE_p \in [x_{*},x^{*}]$ such that $u(CE_p) = \int_{X}{u(x)p(x)dx}$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the uniqueness, imagine that $CE'_p$ is another certainty equivalent of $p$, i.e. that $u(CE'_p)=u(CE_p)$. Since $u$ is strictly increasing (which can be seen as a consequence of the monotonicity with respect to first-order stochastic dominance), we obtain $CE'_p=CE_p$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Notice that you don't need risk aversion to prove the result, but further implies that $CE_p \leq \mathbb{E}p$.&lt;/p&gt;&#xA;" OwnerUserId="4667" LastActivityDate="2015-10-25T08:40:30.887" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8878" PostTypeId="1" AcceptedAnswerId="8888" CreationDate="2015-10-25T09:25:05.933" Score="0" ViewCount="67" Body="&lt;p&gt;I have the following matrix:&#xA;$$A=  \begin{bmatrix}&#xA;    1 &amp;amp; 2 &amp;amp; 3 \\&#xA;    2 &amp;amp; 3 &amp;amp; 4 &#xA;  \end{bmatrix}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;After pivoting, I got this matrix:&#xA;$$B=  \begin{bmatrix}&#xA;    1 &amp;amp; 2 &amp;amp; 3 \\&#xA;    0 &amp;amp; -1 &amp;amp; -2 &#xA;  \end{bmatrix}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's very embarrassing, but I know how to pivot, but I don't understand the interpretation of this matrix operation. What is pivoting and why is it important for linear optimization in economics? I only found resources on the mathematical intuition of pivot operation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the meantime, thank you so much for your attention and participation.&lt;/p&gt;&#xA;" OwnerUserId="5017" LastActivityDate="2015-10-26T01:03:55.403" Title="What is the interpretation of the output matrix of pivoting?" Tags="&lt;optimization&gt;&lt;linear-programming&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8879" PostTypeId="2" ParentId="8521" CreationDate="2015-10-25T15:54:09.510" Score="4" Body="&lt;p&gt;In the D&amp;amp;D model, We deal with a 2 periods economy where the agent can invest in a short term project that yields $0$ or a long term project that yields $R$; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is possible to prove that an optimal insurance scheme (such as the use of a mutual fund or a bank) flattens the yield curve.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is possible to show that the optimal portfolio problem solves: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$max_{\{c_1\}}\{\lambda u (c_1) + (1-\lambda) u(\frac{c_2 R}{1-\lambda})$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $\lambda$ is the share of impatient consumers who consume in period 1 (those who &quot;face a liquidity shock&quot;), and $R$ is the yield on long term projects. The solution to the problem above gives: $\frac{u'(c_1)}{u'(c_2)} = R$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Under the assumption of $u'&amp;gt;0, u''&amp;lt;0$, the condition $-\frac{cu''(c)}{u'(c)} &amp;gt; 1$ is technical; it ensures that $\forall c$, the first derivative of $ cu'(c)$ is negative, or that $cu'(c)$ is decreasing in c. Given $R&amp;gt;1$ this implies that $Ru'(R)&amp;gt;1u'(1)$ and so given that $c_1 = 1, c_2=R$ we have that $\frac{u'(c_1)}{u'(c_2)} = \frac{u'(1)}{u'(R)} &amp;gt; R$ . &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Going back to the FOC of the optimal porfolio problem, in order to reach the equality we therefore need to have $c_1^*&amp;gt;1$ and $c_2^*&amp;lt;R$ so that to insure that $\frac{u'(c_1)}{u'(c_2)}$ decreases enough. This means that an insurance scheme determines a flattening of the yield curve&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The bottom line is that there is not much intuition on why the condition holds but you can easily think of why it has to hold (given standard assumptions on the utility function) by looking at $lim_{c\to x} (-\frac{cu''(c)}{u'(c)})$ when $x= 0$ and $x=\infty$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For more details on the DD model look at: Tirole Jean, &quot;The Theory of Corporate Finance&quot;&lt;/p&gt;&#xA;" OwnerUserId="46" LastEditorUserId="46" LastEditDate="2015-10-25T20:06:14.953" LastActivityDate="2015-10-25T20:06:14.953" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8880" PostTypeId="1" CreationDate="2015-10-25T16:59:32.430" Score="4" ViewCount="1251" Body="&lt;p&gt;I am having trouble understanding  the separating and supporting hyperplane theorems. I've read what I can online but am just not able to develop any intuition. Can someone please give a basic outline of these theorems using economic context? And any graphical interpretations would be extremely helpful.  &lt;/p&gt;&#xA;" OwnerUserId="6051" LastActivityDate="2015-10-25T20:43:41.393" Title="Separating and supporting hyperplane theorems" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8881" PostTypeId="1" AcceptedAnswerId="8882" CreationDate="2015-10-25T17:21:46.077" Score="3" ViewCount="211" Body="&lt;p&gt;I have a confusion on how to define strategy sets; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand that in dynamic games strategy sets are defined as $\textbf{sets of functions}$ - see for example my previous post, link below: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://economics.stackexchange.com/questions/8856/define-and-characterize-equilibria-of-the-following-game&quot;&gt;Define and characterize equilibria of the following game&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However I cannot square this with what would be a strategy set in a simultaneous move game; as an illustration consider the following simple game: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are two players competing for a prize of $1$. Each player $i$ choses effort level $x_i \in \mathbb{R}$. When the efforts levels are $(x_1,x_2)$, the probability that player 1 wins the prize is given by $p(x_1,x_2)$ and the probability that player 2 wins the prize is given by $1-p(x_1,x_2)$. Player $i$'s cost of exerting effort $x_i$ is equal to $x_i$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Players choose their effort levels simultaneously. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now looking standard textbooks I suspect that the strategy sets of both players would be defined as: &#xA;$S_1 = \mathbb{R}$, $S_2 = \mathbb{R}$ &#xA;Since both players will choose an effort level $x\in \mathbb{R}$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However given that a $\textbf{strategy}$ for player $i$ is defined as a complete contingent plan, it would be natural for me to define a strategy as a function:&lt;br&gt;&#xA;$s_i: \mathbb{R} \to \mathbb{R}$, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;that is for each possible effort level $x_j \in \mathbb{R}$ that player $j$ chooses, player $i$ will choose an effort level $x_i \in \mathbb{R}$. &#xA;But then since $S_i$ is the $\textbf{set of}$ strategies it would appropriate to define the strategy set of this game for player i as: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$S_i = \{s_i : \mathbb{R} \to \mathbb{R}\}$ , that is the set of all possible functions $s_i$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But then this definition would conflict with the original one I gave at the beginning. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So which of the two (if any) would be the correct &quot;strategy set&quot; of this simultaneous move game? &#xA;Thank You!&lt;/p&gt;&#xA;" OwnerUserId="46" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-10-25T20:53:52.223" Title="Confusion on Strategy Sets in a simultaneous move game" Tags="&lt;game-theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8882" PostTypeId="2" ParentId="8881" CreationDate="2015-10-25T18:16:17.623" Score="4" Body="&lt;p&gt;There is no conflict. The strategy is a function which maps decision points to actions, that is it tells the player in each decision point (to be precise, in each &lt;a href=&quot;https://en.wikipedia.org/wiki/Information_set_(game_theory)&quot; rel=&quot;nofollow&quot;&gt;information set&lt;/a&gt;) what she should do. In a dynamic game there are usually more decisions points, so this function nature of the strategy is more obvious. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the simultaneous game you describe there is only one decision point (information set), players have to make a choice at the start of the game. A strategy maps an action to this one decision point (information set), so basically the strategy space is just the action space.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT: &lt;br&gt;&#xA; You write &quot; it would be natural for me to define a strategy as a function:&#xA;$$s_i: \mathbb{R} \to \mathbb{R}.&quot;$$&#xA;There is some murkiness here, because what is the first $\mathbb{R}$ supposed to be? The strategy set of the other player? But that is not observed by player $i$, so it cannot factor into her decision. As a function the strategy would look actually look like&#xA;$$s_i: \left\{I_i\right\} \to \mathbb{R},$$&#xA;where $I_i$ is the single information set of player $i$, so $\left\{I_i\right\}$ is a singleton set. There is a bijective mapping between the vector space of these strategies and the space $\mathbb{R}$ so it does no harm to define $S_i$ as equal to $\mathbb{R}$.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2015-10-25T20:53:52.223" LastActivityDate="2015-10-25T20:53:52.223" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="8883" PostTypeId="1" CreationDate="2015-10-25T18:59:00.160" Score="4" ViewCount="580" Body="&lt;p&gt;When calculating the incidence on producers and consumers using a demand and supply curve is dead weight loss a part of the incidence? I know that for example the producer's incidence is a rectangle with a height of the old supply curve price at the new equilibrium quantity minus the new equilibrium price. What I'm not sure about is the width of the rectangle. I know it should start at the y-axis, but I'm unsure of where to stop. The original equilibrium quantity? Or the new equilibrium quantity? If I were to extend the rectangle to the new equilibrium quantity then dead weight loss is included. Is this correct?&lt;/p&gt;&#xA;" OwnerUserId="5853" LastEditorUserId="1601" LastEditDate="2015-10-25T19:06:52.613" LastActivityDate="2016-01-21T04:33:47.040" Title="Subsidies Incidence on Producers and Consumers" Tags="&lt;microeconomics&gt;&lt;supply-and-demand&gt;&lt;consumer-surplus&gt;" AnswerCount="1" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8884" PostTypeId="1" CreationDate="2015-10-25T19:14:12.567" Score="1" ViewCount="2647" Body="&lt;p&gt;I have always thought that variation in regressors are a good thing. In fact, one can show that the precision of the estimated coefficients is increasing in the variance of the regessors. &#xA;I have also heard that simple randomized controlled trials (RCTs) are very good to gauge causal effects. Consider the following regression:$$&#xA;Y_{i}=\alpha+\beta X_{i}+\epsilon_{i}&#xA;$$ where $X_{i}$ is a dummy variable that takes on the value 1 if the individaul $i$ is treated and 0 otherwise. My question is as follows: in this setting, $var(X)=p(1-p)$, This value takes on a maximum at 0.25. I do not think this variance is that 'large.' Can someone please clarify if this is indeed then a shortcoming? Given that we do not observe that much variation at all, how are we able to gauge so much ? Is it because the variation is random? Thanks!&lt;/p&gt;&#xA;" OwnerUserId="5233" LastActivityDate="2015-10-25T19:14:12.567" Title="Variance of a dummy variable" Tags="&lt;econometrics&gt;&lt;applied-econometrics&gt;" AnswerCount="0" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="8885" PostTypeId="2" ParentId="8880" CreationDate="2015-10-25T20:43:41.393" Score="5" Body="&lt;p&gt;I will sketch a solution for your question on the separating hyperplane theorem together with one economic application to producer theory (for more details please look at MWG). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Theorem: Suppose $B \subset \mathbb{R}^N$ is a convex and closed and that $x \notin B$. Then there is a $p \in \mathbb{R}^N$ with $p \neq 0 $ and a value $c \in \mathbb{R}$ such that $px&amp;gt;c$ and $py &amp;lt; c$ for every $y \in B$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Application (Producer theory): Suppose the production set $Y$ is closed and convex. Then every efficient production $y \in Y$ is a profit maximizing production for some nonzero price vector $p \geq 0 $. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sketch of proof: &#xA;Start with an efficient $y$ and define $P_y$ as the &quot;better than&quot; set with respect to $y$. This set is clearly convex (pick $y', y'' \in P_y$ and their convex combination is clearly &quot;in it&quot;). Next realize that because $y$ is efficient $P_y \cup Y = \emptyset$. We know have all the ingredients to apply our theorem above, and in particular $\exists p \neq 0$ such that $p y' \geq py'''$ $\forall$ $y' \in P_y$ and $\forall$ $y''' \in Y$. Because $y'$ can be chosen arbitrarily close to $y$ (remember $y' \in P_y$) we can straightforwardly show that $y$ is profit maximizing for $p$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Other &quot;famous applications&quot; that you may want to look at are:  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) The &quot;Second Fundamental theorem of Welfare Economics&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) The saddle point approach to dynamic programming developed by Karlin and Uzawa.&lt;/p&gt;&#xA;" OwnerUserId="46" LastActivityDate="2015-10-25T20:43:41.393" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8886" PostTypeId="1" CreationDate="2015-10-25T21:50:36.253" Score="3" ViewCount="135" Body="&lt;p&gt;I am trying to understand the fractional reserve banking system (with say 10 % reserve ratio). If a bank becomes insolvent because 100 % of the loans of a bank go bust, then who really becomes liable for all that money lent out in excess of the bank's value ? Let us say, the depositors are all FDIC-insured and the stockholders of the bank lose all their money, but isn't the loaned amount still larger than the (stock value + deposit amount) ? So perhaps all that happens is that this money simply gets written off (and adds to inflation) ? &lt;/p&gt;&#xA;" OwnerUserId="6052" LastActivityDate="2015-11-24T03:20:24.063" Title="Fractional reserve banking and bank insolvency" Tags="&lt;banking&gt;&lt;central-banking&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8887" PostTypeId="2" ParentId="8886" CreationDate="2015-10-26T00:41:03.380" Score="2" Body="&lt;p&gt;Let's assume (as you do if I understand well) that the bank's only liabilities are deposits, so that the bank's equity valuation is simply the value of assets minus deposits. In order to provide loans the bank will have to hold 10% of those funds as reserves in its central bank account (the account it holds at the central bank, written in central bank money or base money), the the maximum amount the bank could lend out would be 90% of its liabilities + equity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then if 100% of the loans defaulted at 100% loss severity, 10% of assets would remain, to be shared between the depositors and the equityholders. By the traditional laws of bankruptcy and claims priority, the equityholders are the first to incur losses, so they would lose all their money (assuming the depositors represent at least 10% of the bank's balance sheet). Depositors would incur the remaining loss. At that point, if the FDIC had previously insured all depositors, it would have to repay them what they had lent to the bank, and the FDIC Deposit Insurance Fund would suffer from the loans' defaults. If you assume no external debt for the bank, then by accounting equality the total loan amount cannot be higher than the equity + deposits. (Assets = Liabilities + Owners' Equity)&lt;/p&gt;&#xA;" OwnerUserId="6053" LastEditorUserId="264" LastEditDate="2015-10-26T02:31:09.320" LastActivityDate="2015-10-26T02:31:09.320" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="8888" PostTypeId="2" ParentId="8878" CreationDate="2015-10-26T01:03:55.403" Score="-2" Body="&lt;p&gt;Pivoting helps solving linear system of equations. Imagine you want to solve for X that satisfies :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{equation}A\cdot X = Y\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where &#xA;\begin{equation}X = \begin{bmatrix}x_1\\x_2\end{bmatrix}\end{equation} and \begin{equation}Y = \begin{bmatrix}y_1\\y_2\end{bmatrix}=\begin{bmatrix}3\\4\end{bmatrix}\end{equation} and \begin{equation}A = \begin{bmatrix}1&amp;amp;2\\2&amp;amp;3\end{bmatrix}\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then if applying Gauss' Pivot to A' (concatenation of A and Y) with &#xA;\begin{equation}A' = \begin{bmatrix}1&amp;amp;2&amp;amp;3\\2&amp;amp;3&amp;amp;4\end{bmatrix}\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;yields &#xA;\begin{equation}B' = \begin{bmatrix}1&amp;amp;2&amp;amp;3\\0&amp;amp;1&amp;amp;2\end{bmatrix}\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;you instantly have that $x_2=2$ and $x_1=3-2x_2=-1$. On large linear system it is very fast to solve them that way.&lt;/p&gt;&#xA;" OwnerUserId="6053" LastActivityDate="2015-10-26T01:03:55.403" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="8889" PostTypeId="1" AcceptedAnswerId="8890" CreationDate="2015-10-26T04:26:55.773" Score="2" ViewCount="1841" Body="&lt;p&gt;Given a profit-maximizing firm with production function $f(x_1,x_2)$, I understand that we can formulate a firm's cost function $C(q)$ by using the contingent demand functions $x_1^c$ and $x_2^c$. We can then use this cost function to see whether a firm has decreasing costs, namely if $C(tq)&amp;lt;tC(q)$. If the second derivative of the cost function, C''(q), is less than zero, does that also imply that this firm faces decreasing costs and thus increasing returns to scale? &lt;/p&gt;&#xA;" OwnerUserId="5987" LastActivityDate="2015-10-26T05:31:10.417" Title="Decreasing Costs, Increasing Returns to Scale, &amp; C''(q)" Tags="&lt;microeconomics&gt;&lt;production-function&gt;&lt;economies-of-scale&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8890" PostTypeId="2" ParentId="8889" CreationDate="2015-10-26T05:31:10.417" Score="3" Body="&lt;p&gt;Second derivative of cost function is actually the first derivative of marginal cost function. i.e. &#xA;$$&#xA;\frac{\partial^2C(q)}{\partial q^2} =\frac{\partial}{\partial q}\frac{\partial C(q)}{\partial q}=\frac{\partial}{\partial q}MC(q)&#xA;$$&#xA;Now if $\frac{\partial^2C(q)}{\partial q^2}&amp;lt;0$, this means that marginal cost is decreasing in output. If marginal cost is decreasing then that implies that firm's average cost is decreasing and hence it exhibits increasing returns to scale. &lt;/p&gt;&#xA;" OwnerUserId="5863" LastActivityDate="2015-10-26T05:31:10.417" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8891" PostTypeId="1" AcceptedAnswerId="8897" CreationDate="2015-10-26T08:12:17.653" Score="7" ViewCount="216" Body="&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Cross_ownership&quot; rel=&quot;nofollow noreferrer&quot;&gt;Cross-ownership&lt;/a&gt; is a phenomenon where companies own parts of other companies they do business with. An example:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Two companies are now involved in the diamond operation, the mining group Anglo-American, and De Beers. The two are umbilically linked, making them impregnable to corporate raids. Some reshuffling has gone on of late but not much has changed: De Beers owns 42 per cent of Anglo- American and a similar share of its capital is owned by the mining group.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.independent.co.uk/life-style/the-gem-trail-diamonds-from-angolan-mine-to-third-finger-left-hand-1070530.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Source&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume that asset prices are the net present value of all future dividends, i.e. they contain no bubbles. (Incredible assumption, I know.)&#xA;Suppose Anglo-American changes a minor operating procedure and as a result will save a small amount of money each year, hence the net present value of its profits increase by \$1. This should increase the company value (and hence stock price) of Anglo-American, but since De Beers owns parts of the company it will share the increased cashflow and its company value (and hence stock price) should increase as well, increasing the company value of Anglo-American again, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I wanted to calculate the exact change in company value would I be correct in assuming I would have to create some sort of ownership matrix:&#xA;$$&#xA;M =&#xA;\begin{bmatrix}&#xA;58\% &amp;amp; 42\% \\ &#xA;42\% &amp;amp; 58\%&#xA;\end{bmatrix}&#xA;$$&#xA;and take the &lt;a href=&quot;https://math.stackexchange.com/questions/139801/understanding-the-leontief-inverse&quot;&gt;Leontief inverse&lt;/a&gt; of this?&#xA;$$&#xA;\begin{bmatrix}&#xA;\Delta p_{AA} \\ &#xA;\Delta p_{DB}&#xA;\end{bmatrix}&#xA;= (E-M)^{-1} \begin{bmatrix}&#xA;1 \\ &#xA;0&#xA;\end{bmatrix}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What if the Leontief inverse of the ownership matrix does not exist? E.g. both companies own half of the other. Is there any way to proceed in this case? (Note: I am not sure if it was possible to price companies with such an ownership structure to begin with.)&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2018-09-09T08:01:47.570" LastActivityDate="2018-09-09T08:01:47.570" Title="Stock pricing with cross ownership" Tags="&lt;asset-pricing&gt;&lt;stock-market&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="8892" PostTypeId="1" CreationDate="2015-10-26T10:33:30.630" Score="2" ViewCount="399" Body="&lt;p&gt;When a change in price results in an infinitely large response in quantity demanded, demand is perfectly elastic. The perfectly elastic demand curve is horizontal. At price P, consumers will buy a quantity Q. If there is an increase in price, quantity demanded drops to zero due to the existence of perfect substitutes. However, when price drops, how will the PED remain infinity? Wouldn't consumers demand as much, if not more, of the product?&lt;/p&gt;&#xA;" OwnerUserId="5969" LastEditorUserId="11590" LastEditDate="2019-05-23T17:46:45.487" LastActivityDate="2019-05-23T17:46:45.487" Title="Elasticity with perfectly inelastic / elastic demand" Tags="&lt;microeconomics&gt;&lt;elasticity&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="8893" PostTypeId="1" CreationDate="2015-10-26T11:12:14.780" Score="1" ViewCount="47" Body="&lt;p&gt;My intuition tells me that an increase in interest rates will make saving more attractive and should encourage saving.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But if that is the case, why the MPS( marginal propensity of saving )doesn't include interest rates?&lt;/p&gt;&#xA;" OwnerUserId="6057" LastActivityDate="2015-10-26T11:12:14.780" Title="High interest rates=High savings?" Tags="&lt;interest-rate&gt;&lt;saving&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8894" PostTypeId="1" CreationDate="2015-10-26T11:42:27.333" Score="1" ViewCount="175" Body="&lt;p&gt;According to the Law of Supply, if price increases, there is an incentive for producers to produce more, and therefore the quantity supplied increases. However, for an inelastic good, if there is a supply shock and supply significantly increases, why is there a drop in price? Can't the suppliers sell their product at the same or a higher price to increase total revenue?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Low price elasticity of demand, together with fluctuations in supply over short periods of time, creates serious problems for primary commodity producers, because they result in large fluctuations in primary commodity prices, and these also affect producers’ incomes. A good crop resulting in a supply increase leads to lower prices and lower farmers’ revenues. We come, therefore, to the ironic conclusion that a poor crop may be good for farmers because it increases their revenues while a good crop may be bad for them. Can't the farmers sell their product at the same or a higher price to increase total revenue?&lt;/p&gt;&#xA;" OwnerUserId="5969" LastActivityDate="2015-10-26T13:32:37.797" Title="Why does price drop as a result of increase in supply" Tags="&lt;elasticity&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8896" PostTypeId="2" ParentId="8894" CreationDate="2015-10-26T13:32:37.797" Score="2" Body="&lt;p&gt;You are describing a special (although very important) market where the &lt;em&gt;short-run&lt;/em&gt; market supply function is &lt;em&gt;vertical&lt;/em&gt; : farmers will attempt to sell whatever they have produced, irrespective of what that will do to the unit price. I am not saying this is not reasonable: many agricultural products are not really storable (or require special infrastructure in order to be stored), and there is certainly increased pressure to sell, compared to other products.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And indeed, in such a case, one can see a &quot;good crop&quot; bringing in lower total revenues, due to relatively inelastic demand. This is after all the core reason why government &lt;em&gt;price&lt;/em&gt; subsidies in the agricultural sector (i.e. supplementing the farmer's income to compensate for low market price) is the rule rather than the exception, in virtually all market economies around the world, where very few other final products enjoy &lt;em&gt;price subsidies&lt;/em&gt; (and only temporarily, while for the agricultural sector, it is essentially a permanent situation, of course not for all agricultural products). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, as another real-world remark,  it is not uncommon for farmers to withhold and even destroy part of their crop in order to safeguard prices (and thus end up with higher total revenues compared to what they would have get if they have sold all the crop at a lower price).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am not sure I understand the last sentence/question in your post. In what sense farmers &quot;can&quot; or &quot;cannot&quot;, &quot;sell at the same or higher price&quot;? And &quot;same&quot; compared to what?&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-10-26T13:32:37.797" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8897" PostTypeId="2" ParentId="8891" CreationDate="2015-10-26T13:51:52.783" Score="4" Body="&lt;p&gt;The way I would think of this is as follows. Let us write the value&#xA;of the first company as $V_{A}$and the second as $V_{B}.$ Given&#xA;your definition, let me know if you agree with the following argument:&#xA;$$&#xA;V_{A}=s_{AA}\sum_{t=0}^{\infty}\pi_{tA}+s_{AB}\sum_{t=0}^{\infty}\pi_{tB}&#xA;$$&#xA; Where $s_{AA}$ denotes the time invariant share of company A that&#xA;comapny A owns and $s_{BA}$ denotes the share of the company B that&#xA;A owns. Moreover, $\pi_{t}=A_{t}-L_{t}$ or the equity of each company.&#xA;By a symmetric argument, we have that :&#xA;$$&#xA;V_{B}=(1-s_{AA})\sum_{t=0}^{\infty}\pi_{tA}+(1-s_{AB})\sum_{t=0}^{\infty}\pi_{tB}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, consider company $A.$ Taking differentials:&#xA;$$&#xA;dV_{A}=s_{AA}\sum_{t=0}^{\infty}d\pi_{tA}+s_{AB}\sum_{t=0}^{\infty}d\pi_{tB}&#xA;$$&#xA;&lt;em&gt;Ceteris Paribus&lt;/em&gt;,you claim that $\sum_{t=0}^{\infty}d\pi_{tA}=1$&#xA;and the other term equals 0. So what you have then is:&#xA;$$&#xA;dV_{A}=s_{AA}\times1&#xA;$$&#xA;and &#xA;$$&#xA;dV_{B}=(1-s_{AA})\times1&#xA;$$&#xA;The answer is fairly intuitive- the change in value of each firm is&#xA;the change in profits that one of the firms has experienced times&#xA;the share of the profitable firm owned by either. &#xA;If each firm owned half, then the change in the value of each firm for an increase in $1 would be half, since each firm would have half the claim on the firm whose profit has increased by a half. &lt;/p&gt;&#xA;" OwnerUserId="5233" LastActivityDate="2015-10-26T13:51:52.783" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8899" PostTypeId="1" AcceptedAnswerId="8902" CreationDate="2015-10-26T21:43:36.930" Score="1" ViewCount="2281" Body="&lt;p&gt;So are there any circumstances where two countries trade with each other and they both do not gain anything? is it possible? and if you could also explain why that is the case? I have looked around and haven't really been able to find any answers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks in advance&lt;/p&gt;&#xA;" OwnerUserId="6063" LastEditorUserId="6063" LastEditDate="2015-10-26T23:55:23.017" LastActivityDate="2015-10-28T18:28:02.743" Title="When do trades between two countries not result in gains for either of them?" Tags="&lt;microeconomics&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8900" PostTypeId="2" ParentId="8899" CreationDate="2015-10-27T00:48:03.860" Score="1" Body="&lt;p&gt;The reason you probably find it hard to think of a case where this happens is because rarely do countries go around trying to make poor trades (read: never). If you trade real goods, there will almost always be a comparative advantage of trade to be had as long as countries have different production possibility frontiers in different ratios. Different opportunity costs of making more of one good means you might want another countries' labor to offer that service.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can't give any specific examples of trades that were bad for each party where each party also was trying to act in there own self interest. Maybe if two countries were trading public debt with each other before a recession, they might end up with riskier assets than they bargained for, so even though the expected value of the debt was worth enough before a negative growth shock, you might get something less favorable in practice. Even then I don't think a situation like that is very likely to happen.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2015-10-27T00:48:03.860" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8901" PostTypeId="2" ParentId="5305" CreationDate="2015-10-27T01:06:34.320" Score="13" Body="&lt;p&gt;&lt;a href=&quot;http://pricetheory.uchicago.edu/levitt/Papers/DonohueLevittTheImpactOfLegalized2001.pdf&quot;&gt;Donohue &amp;amp; Levitt, 2001&lt;/a&gt; showed a causal link between the abortion rate and the crime rate 20 years later. When abortion was legalized in the 1970s, a whole generation of unwanted births were averted, leading to a drop in crime nearly two decades later when this phantom generation would have come of age.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Legalised abortion accounts for as much as 50% of the drop in crime.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The problem with the paper was that the authors didn't do what they said they did. As part of their analysis, they subjected the data to a battery of tests. They claim to have controlled for a variety of effects which in fact, due to a coding error, they didnt. &lt;a href=&quot;http://www.economist.com/node/5246700&quot;&gt;The Economist&lt;/a&gt; explains it as does &lt;a href=&quot;http://www.wsj.com/articles/SB113314261192407815&quot;&gt;The Wall Street Journal&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Donohue and Levitt did not run the test they thought they had—an “inadvertent but serious computer programming error”, according to Messrs Foote and Goetz... Fixing that error reduces the effect of abortion on arrests by about half, using the original data, and two-thirds using updated numbers.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Another error identified in the paper was that they used arrest rate totals instead of a population controlled variable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These errors drastically cheapen the conclusion of a very prominent and controversial paper.&lt;/p&gt;&#xA;" OwnerUserId="40" LastActivityDate="2015-10-27T01:06:34.320" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8902" PostTypeId="2" ParentId="8899" CreationDate="2015-10-27T01:11:32.440" Score="1" Body="&lt;p&gt;If I understand well your point, you want to know whether 2 agents (say countries) can make transaction if they don't each gain from that trade.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In general, agents optimize some function, called the objective, with respect to some constraints, and 2 agents trading with each other will keep trading until both marginal utilities are equal (first-order conditions of the maximization problem). So to answer your question, an agent won't trade if that trade does not increase her utility. Having said that, in a world where there are some additional constraints (in addition of the budget constraints), or some externalities you can end-up in situations where agents trade while it is not strictly speaking beneficial for them. Specifically, there may be some rules that require some externalities to be strictly lower than some values, and that would yield to trade that indeed reduce the utility of the agent. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As an example, let's think about a country that is endowed with a technology which produce some output and some externalities, say pollution. Then without going through the specifics of such a model, if (once the equilibrium is reached) a new rule says that the amount of pollution that a country can produce needs to be lower than some value (which is assumed to be higher than what was originally produced), the country may need to trade with some other country (with higher cost, but lower pollution) to fulfill the requirement, then resulting in less utility than previously but the require amount of pollution.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To sum-up, in general (free market, with perfect competition, etc.) this won't be the case, but such situations could arise in the presence of additional rules (or externalities that need to be internalized or additional constraints to the maximization program).&lt;/p&gt;&#xA;" OwnerUserId="6053" LastActivityDate="2015-10-27T01:11:32.440" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8903" PostTypeId="2" ParentId="8862" CreationDate="2015-10-27T02:28:05.047" Score="2" Body="&lt;p&gt;The classic reference on this topic (as suggested by my professor) is the book; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Theory of Cost and Production Functions by Ronald Shepherd.&lt;/p&gt;&#xA;" OwnerUserId="5863" LastEditorUserId="5863" LastEditDate="2015-10-27T02:37:16.650" LastActivityDate="2015-10-27T02:37:16.650" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8904" PostTypeId="1" CreationDate="2015-10-27T04:39:48.440" Score="1" ViewCount="315" Body="&lt;p&gt;I have been trying to understand the duality theory between cost and production function. Please let me know if my following statement is correct; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;If the cost function $C(w,q)$ is convex in $q$, the dual production function $f(x)$ that we can derive will be quasi-concave and it will be unique. However if the cost function is not convex, then the dual production function that we can derive will be quasi-concave but there are more than one such production functions that could have given rise to the cost function.&lt;/em&gt;&lt;/p&gt;&#xA;" OwnerUserId="5863" LastEditorUserId="5635" LastEditDate="2015-10-30T18:17:45.523" LastActivityDate="2015-10-30T18:17:45.523" Title="Curvature of Cost and Production Function" Tags="&lt;microeconomics&gt;&lt;producer-theory&gt;&lt;cost&gt;&lt;duality&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8905" PostTypeId="1" AcceptedAnswerId="8907" CreationDate="2015-10-27T07:34:34.313" Score="3" ViewCount="114" Body="&lt;p&gt;In CFA level 1 reading 14, they have this term called Production Opportunity frontier and it is defined as &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Curve describing the maximum number of units of one good a company can produce, for any given number of the other good that it chooses to manufacture.&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The graph is a straight line&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/6hWN8.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/6hWN8.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is it the same thing as what is commonly known Production Possibility Frontier with the curved line?&lt;/p&gt;&#xA;" OwnerUserId="6065" LastActivityDate="2015-10-27T07:50:16.250" Title="Is product opportunity frontier the same as PPF?" Tags="&lt;microeconomics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8906" PostTypeId="2" ParentId="8905" CreationDate="2015-10-27T07:44:30.797" Score="-2" Body="&lt;p&gt;No they are not same. Production Possibility Frontier is the maximum amount of output that can be produced using different combination of inputs. However this opportunity frontier is the tradeoff between different outputs that a firm can produce. In order to increase production of one output it has to decrease production of another. &lt;/p&gt;&#xA;" OwnerUserId="5863" LastActivityDate="2015-10-27T07:44:30.797" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8907" PostTypeId="2" ParentId="8905" CreationDate="2015-10-27T07:50:16.250" Score="2" Body="&lt;p&gt;Yes. The &quot;curved line&quot; clearly fits your definition as well. The PPF is curved if (but not only if) there are diminishing returns to inputs such as labor and capital. See also&#xA;&lt;a href=&quot;https://en.wikipedia.org/wiki/Production%E2%80%93possibility_frontier&quot; rel=&quot;nofollow&quot;&gt;https://en.wikipedia.org/wiki/Production%E2%80%93possibility_frontier&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2015-10-27T07:50:16.250" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8908" PostTypeId="1" CreationDate="2015-10-27T10:03:17.913" Score="6" ViewCount="1113" Body="&lt;p&gt;I'm asked to write an essay supporting the statement which says the convexity axiom has little economic content and should be eliminated from the economic models of consumer theory.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm supposed to find literature which supports my point with theoretical and empirical evidence but I've been searching for weeks and all I have found so far are papers which stress the importance of the convexity axiom. Perhaps you all can assist me in locating the material I'm looking for.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regards &lt;/p&gt;&#xA;" OwnerUserId="6066" LastEditorUserId="5635" LastEditDate="2015-10-29T17:31:38.227" LastActivityDate="2017-02-07T10:45:45.673" Title="Usefulness of the Convexity Axiom" Tags="&lt;microeconomics&gt;&lt;reference-request&gt;&lt;consumer-theory&gt;" AnswerCount="1" CommentCount="5" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8909" PostTypeId="1" AcceptedAnswerId="8917" CreationDate="2015-10-27T16:18:20.573" Score="0" ViewCount="3943" Body="&lt;p&gt;This is the question. I cant seem to reach a concrete solution because of the scarce information.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Firm 1 spends 2 million, plus 33.33% on advertising what firm 2 spends on and firm 2 spends $7 million plus 12.5% of what firm 1 spends. Draw the reaction functions and label them from the provided information.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I want to know the exact procedure on such problems.&lt;/p&gt;&#xA;" OwnerUserId="6072" LastEditorUserId="6072" LastEditDate="2015-10-27T17:02:30.953" LastActivityDate="2015-10-28T11:52:05.790" Title="How to derive the reaction function from these provided variables?" Tags="&lt;microeconomics&gt;" AnswerCount="2" CommentCount="9" ContentLicense="CC BY-SA 3.0" />
  <row Id="8910" PostTypeId="2" ParentId="8870" CreationDate="2015-10-27T16:37:52.243" Score="2" Body="&lt;p&gt;The issue is not so much normalization as it is identification of the parameters of the co-integration vectors. The estimated co-integration vectors define the co-integration space, but many other sets of vectors span this same space. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the case where you have a single co-integration vector, normalization is sufficient for identification. This is not the case when you have more than one vector in which case you need to impose restrictions, the most common set of identifying restrictions being the triangular normalization you mention. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Johansen (1995, section 2 theorem 3) provides a set of algebraic conditions which are fairly easy to compute (but tedious to type) to verify that a set of restrictions imposed on the co-integration vectors is identifying.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is also possible to identify the co-integration vectors by imposing restrictions on the adjustment matrix ($\alpha$). This &lt;a href=&quot;http://www.math.ku.dk/~sjo/papers/Dhrymes.pdf&quot; rel=&quot;nofollow&quot;&gt;fairly recent overview&lt;/a&gt; by Johansen might be useful.    &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Reference: &lt;em&gt;Johansen, Søren. &quot;Identifying restrictions of linear equations with applications to simultaneous equations and cointegration.&quot; Journal of econometrics 69.1 (1995): 111-132.&lt;/em&gt;&lt;/p&gt;&#xA;" OwnerUserId="6071" LastActivityDate="2015-10-27T16:37:52.243" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8912" PostTypeId="1" CreationDate="2015-10-26T05:05:25.317" Score="2" ViewCount="61" Body="&lt;p&gt;I am looking for data regarding the annual household income distribution filtered by year and state (and finer geographical feature like cities). In other words, I am looking for data with the following features (label being the number of earners):&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;year&lt;/li&gt;&#xA;&lt;li&gt;state&lt;/li&gt;&#xA;&lt;li&gt;income range (e.g. 10K-20K, finer better)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Does anyone know if there is a publicly available dataset containing these?&lt;/p&gt;&#xA;" OwnerDisplayName="user93159" LastEditorUserId="4992" LastEditDate="2015-10-27T19:01:58.303" LastActivityDate="2016-04-28T02:55:13.617" Title="Data for the distribution of US household annual income by year and state" Tags="&lt;data-request&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8913" PostTypeId="2" ParentId="8912" CreationDate="2015-10-26T06:48:57.667" Score="3" Body="&lt;p&gt;Have you checked the US census bureau? Income related website &lt;a href=&quot;http://www.census.gov/hhes/www/income/&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Furthermore there is a kaggle training competition about the census data. Have a look &lt;a href=&quot;https://www.kaggle.com/c/2013-american-community-survey/data&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt; for the available data tables. Data straight from the census bureau.&lt;/p&gt;&#xA;" OwnerDisplayName="phiver" LastActivityDate="2015-10-26T06:48:57.667" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8914" PostTypeId="1" CreationDate="2015-10-28T02:20:41.030" Score="2" ViewCount="503" Body="&lt;p&gt;Let $z_a$ and $z_b$ are two vectors of inputs. $z_a$ is variable in both long run and short run however $z_b$ is only variable in long run. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now let's suppose that the price of one of the inputs in vector $z_a$ increases (let's say $z_a^i$), how would that effect the marginal cost in the long and short run? Can we compare the long run and short run marginal cost because of this price change?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand the relationship of long run and short run costs and marginal costs, however I am finding a hard time understanding these price change effects. Any help is appreciated. &lt;/p&gt;&#xA;" OwnerUserId="5863" LastActivityDate="2015-10-28T02:20:41.030" Title="Short Run vs Long Run Cost Functions" Tags="&lt;microeconomics&gt;&lt;cost&gt;&lt;long-run&gt;&lt;linear-algebra&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8915" PostTypeId="2" ParentId="8909" CreationDate="2015-10-28T03:21:12.283" Score="2" Body="&lt;p&gt;The reaction function tells you how a player in a game reacts to the strategy of another player.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As noted by denesp in the commentary, the statements provided in the question are verbal descriptions of reaction functions. The mathematical description (in millions) is given as follows:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Firm 1:&#xA;$x_1= 2 + (1/3) x_2$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Firm 2:&#xA;$x_2= 7 + (1/8) x_1$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is not really any procedure to it, besides rewriting the verbal description into a mathematical description.&lt;/p&gt;&#xA;" OwnerUserId="5635" LastActivityDate="2015-10-28T03:21:12.283" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8917" PostTypeId="2" ParentId="8909" CreationDate="2015-10-28T11:52:05.790" Score="1" Body="&lt;p&gt;Adding to HREcon's answer (can not comment yet)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Firm 1:&#xA;$x_1= 2 + (1/3) x_2$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Firm 2:&#xA;$x_2= 7 + (1/8) x_1$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In order to find the equilibria, you could substitute $x_2$ for firm one by $7 + (1/8) x_1$, and vice versa for firm 2, you would get:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$x_1= 2 + (1/3) (7 + (1/8) x_1)$&#xA;and&#xA;$x_2= 7 + (1/8)  (2 + (1/3) x_2)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These equations only depend on one variable and in this case you can solve them to get exact values for x1 and x2.&lt;/p&gt;&#xA;" OwnerUserId="6080" LastActivityDate="2015-10-28T11:52:05.790" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8918" PostTypeId="1" CreationDate="2015-10-28T12:54:25.550" Score="1" ViewCount="335" Body="&lt;p&gt;What is the relationship between indirect utility function and the expenditure function? Explain what accounts for this relationship.&lt;/p&gt;&#xA;" OwnerUserId="6083" LastActivityDate="2015-10-28T17:03:52.097" Title="What is the relationship between indirect utility function and the expenditure function?" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ClosedDate="2015-10-29T03:34:23.977" ContentLicense="CC BY-SA 3.0" />
  <row Id="8919" PostTypeId="2" ParentId="8918" CreationDate="2015-10-28T17:03:52.097" Score="0" Body="&lt;p&gt;This classic picture from Mas-Colell, Whinston &amp;amp; Green should help you:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/jvZYW.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/jvZYW.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="5512" LastActivityDate="2015-10-28T17:03:52.097" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8920" PostTypeId="2" ParentId="8899" CreationDate="2015-10-28T18:28:02.743" Score="1" Body="&lt;p&gt;There are two circumstances where there are no gains from trade that I am familiar with. However, there are always non-negative gains from trade in the standard model. If a trade was bad, the countries simply reject it, it is a consensual trade.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, if the opportunity costs are equal between the two countries, there is nothing to gain from specialization, the countries are identical and there is no benefit from producing the good abroad rather than at home.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Second, if both countries are entirely interested in only one of the goods, there can be no appreciable gains from trade. Suppose they produce nothing but gold or dung.  Then both countries only produce gold, and regardless of their comparative opportunity costs, they cannot be incentivized to trade that gold for any amount of dung.&lt;/p&gt;&#xA;" OwnerUserId="4185" LastActivityDate="2015-10-28T18:28:02.743" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8921" PostTypeId="1" CreationDate="2015-10-28T20:34:24.533" Score="1" ViewCount="111" Body="&lt;p&gt;I want to analyse the long run relation between, let's say 5 variables.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Scenario 1.&lt;/strong&gt; Below is the output from a Johansen test on the five variables: &lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;          test 10pct  5pct  1pct&#xA;r &amp;lt;= 4 |  3.23  6.50  8.18 11.65&#xA;r &amp;lt;= 3 |  8.88 15.66 17.95 23.52&#xA;r &amp;lt;= 2 | 18.03 28.71 31.52 37.22&#xA;r &amp;lt;= 1 | 35.73 45.23 48.28 55.43&#xA;r = 0  | 70.70 66.49 70.60 78.87&#xA;&#xA;Eigenvectors, normalised to first column:&#xA;(These are the cointegration relations)&#xA;&#xA;            y.l1      x1.l1      x2.l1      x3.l1      x4.l1&#xA;y.l1   1.0000000  1.0000000   1.000000  1.0000000  1.0000000&#xA;x1.l1  2.3748202  0.0301862  11.683827 -1.8732409 -0.9878609&#xA;x2.l1 -2.9807221  1.7189828  14.803906 -2.2577727  1.0170132&#xA;x3.l1  0.5113696 -0.5399476 -13.691106  4.6226096 -0.3082810&#xA;x4.l1 -1.0472717 -2.1741134   7.600424  0.5206757  0.2049654&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;The Johansen test shows that I may have at least one cointegrating vecto. So I picked the first cointegrating vector $(1,2.37, -2.98, 0.511, -1.04)$ for further analysis and this equation, in scalar form is $y_{t-1}=-2.37x_{1,t-1}+ 2.98x_{2,t-1}- 0.511x_{3,t-1} + 1.04x_{4,t-1}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Scenario 2.&lt;/strong&gt; Let's say, I apply Johansen method on a different set of 5 series, and got 3 cointegrating relations:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;           test 10pct  5pct  1pct&#xA;r &amp;lt;= 4 |   2.04  6.50  8.18 11.65&#xA;r &amp;lt;= 3 |  10.45 15.66 17.95 23.52&#xA;r &amp;lt;= 2 |  25.76 28.71 31.52 37.22&#xA;r &amp;lt;= 1 |  53.93 45.23 48.28 55.43&#xA;r = 0  | 102.66 66.49 70.60 78.87&#xA;&#xA;Eigenvectors, normalised to first column:&#xA;(These are the cointegration relations)&#xA;&#xA;              y.l1     x1.l1      x2.l1     x3.l1       x4.l1&#xA;y.l1   1.000000000  1.000000  1.0000000  1.000000  1.00000000&#xA;x1.l1  0.033617469  3.127830 -0.8996560 -1.463796 -0.67601225&#xA;x2.l1  0.006907967 -2.858281  1.1413846 -1.701980  0.87209175&#xA;x3.l1 -0.003253034 -1.315143 -0.6540034  1.439399 -0.77830137&#xA;x4.l1 -1.010257005 -1.818696 -2.2384992 -2.270676 -0.04830754&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;For further analysis, I must now impose identifying restrictions on the three of these vectors. However, I am only interested in one of the cointegrating vectors which can be formulated as $(1,\beta_1, \beta_2, \beta_3, \beta_4)$. Can I pick one of the above cointegrating vectors for further economic analysis of the coefficients without imposing further identifying restrictions? Let's say I picked the first one and in scalar form it is $y_{t-1}=-0.003x_{1,t-1}- 0.0069x_{2,t-1} + 0.003x_{3,t-1}+ 1.01x_{4,t-1}$. I must say, I am not after a VECM model, but the long run equation only. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This was easy to do in the first scenario above where I had only 1 cointegrating vector and the normalisation was on the first variable. In the second scenario, there are three vectors and I must impose identifying restrictions for VECM analysis. But I do not want the VECM and hence limit the estimation to determining the cointegration rank and extracting the long run equation of interest. &lt;/p&gt;&#xA;" OwnerUserId="6009" LastEditorUserId="6009" LastEditDate="2015-10-28T20:43:10.643" LastActivityDate="2015-10-28T20:43:10.643" Title="Johansen cointegration analysis, cointegrating vectors and identification" Tags="&lt;macroeconomics&gt;&lt;econometrics&gt;&lt;time-series&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8922" PostTypeId="1" CreationDate="2015-10-28T22:31:46.110" Score="10" ViewCount="854" Body="&lt;p&gt;Can anyone suggest examples of relatively simple applied micro papers (e.g. an RCT or straightforward regression model) of possible interest to a general audience, that have their data and code, written in R, as opposed to Stata or anything else, in a public Internet repository? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;That's a lot of conditions, but I'm hoping for examples that meet all of them. AER, AEJ: Applied, REStud and REStat all have nice public repositories. With the exception of REStat, which uses Dataverse, the repositories aren't searchable, so it's a pain to look through each set of files to see whether they use R or Stata. Most everyone, myself included, uses Stata, but I'd like to find some papers using R.&lt;/p&gt;&#xA;" OwnerUserId="6089" LastEditorUserId="108" LastEditDate="2015-10-29T13:56:48.377" LastActivityDate="2015-10-29T15:06:31.300" Title="Examples of Applied Micro Paper with R (!) Code and Data in Public Repository" Tags="&lt;microeconomics&gt;&lt;reference-request&gt;&lt;data-request&gt;&lt;r&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8923" PostTypeId="1" CreationDate="2015-10-29T00:54:03.330" Score="-1" ViewCount="3376" Body="&lt;p&gt;My textbook says GDP will increase because all of the tax money will go into G, whereas only part of income goes into C. However, since savings = investment, wouldn't an increase in taxes (and therefore a reduction in disposable income and savings) decrease I? And so wouldn't a simultaneous increase in both G and T do nothing?&lt;/p&gt;&#xA;" OwnerUserId="5681" LastActivityDate="2015-12-28T16:44:51.180" Title="We know that an equal and simultaneous increase in G and T will cause...?" Tags="&lt;macroeconomics&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8924" PostTypeId="1" CreationDate="2015-10-29T01:04:04.753" Score="8" ViewCount="14236" Body="&lt;p&gt;Scenario 1: There's an economy of two people (Joe and Amanda). Joe buys a 500 dollar car from Amanda (which she made herself from raw materials in her back yard). Amanda takes the 500 dollars and hides it under her bed. Savings = 500 dollars, Investment = 0 dollars. What am I missing?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Scenario 2: Same Amanda and Joe. Joe gets 500 dollars from the Federal Reserve (they just gave it to him). He puts it in a bank. The bank decides to only lend out 250 dollars of it. Amanda invests in inventory. S = 500, I = 250. Right?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These are two cases where investments do not seem to equal savings. How can these cases be explained?&lt;/p&gt;&#xA;" OwnerUserId="5681" LastEditorUserId="5635" LastEditDate="2015-10-29T16:21:15.137" LastActivityDate="2018-10-23T04:14:29.400" Title="Why does savings equal investment (scenario)?" Tags="&lt;macroeconomics&gt;&lt;monetary-policy&gt;&lt;saving&gt;" AnswerCount="4" CommentCount="2" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8925" PostTypeId="1" AcceptedAnswerId="8931" CreationDate="2015-10-29T02:12:18.750" Score="-3" ViewCount="68" Body="&lt;p&gt;During the bimetallic era, there was always a dilemma where the mint ratio differs from the market ratio of their metallic value. I state this is impossible. Suppose the mint&amp;amp;market  ratio of silver to gold is 15:1 and the market ratio rise to 16:1 because gold gets more desirable or more silver was discovered, or for whatever reason. Note in this case, the mint overvalue the silver. Now, scholars claim people will sell their gold in the market in exchange for silver. My question is why would people sell the gold in exchange for silver if they could get a better rate at the mint?  I argue that such difference would not occur in the first place. The reason is that if gold suddenly become more desirable than silver, and the market price is about to rise over the mint ratio, but since we can always exchange silver for gold at the mint at 15:1, the market rate will never exceed mint ratio. Similarly, if silver becomes more desirable, people will go to the mint to get silver once market ratio goes near 15:1.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course, if the mint was not accessible by everyone, this could surely happen if the difference between two rate was not too big.&lt;/p&gt;&#xA;" OwnerUserId="4551" LastActivityDate="2015-10-29T06:17:50.403" Title="The reasons I believe the bimetallic dilemma was never possible" Tags="&lt;money&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="8926" PostTypeId="1" CreationDate="2015-10-29T02:48:03.383" Score="2" ViewCount="173" Body="&lt;p&gt;I was thinking about a theoretical economy where there are 3 types of roles for the agents. They can be :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;workers : produce good A&#xA;criminals : steal good A&#xA;cops : protects good A&lt;/p&gt;&#xA;&#xA;&lt;p&gt;without going into details, are they any theories around this type of economy and the different types of equilibrium that can be achieved, using different characteristics for agents, different rules etc...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This idea came from the fact that raising productivity could have perverse effects (raise criminality in this case) given certain conditions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, do you have any tips on researching among existing economic theories for something that will describe an idea that you might have,&lt;/p&gt;&#xA;" OwnerUserId="5485" LastEditorUserId="108" LastEditDate="2015-10-30T14:40:16.133" LastActivityDate="2015-10-30T14:40:16.133" Title="Any information on a toy economy with 3 types of agents in it" Tags="&lt;microeconomics&gt;&lt;reference-request&gt;&lt;theory&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="8930" PostTypeId="1" AcceptedAnswerId="8933" CreationDate="2015-10-29T05:43:48.517" Score="0" ViewCount="123" Body="&lt;p&gt;So I have this system of reaction functions:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$s_1 = 2 + \frac{1}{3} s_2$$&lt;br&gt;&#xA;$$s_2 = 7 + \frac{1}{8} s_1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have to solve this through inverse matrix and confirm the result through Cramer's rule. The result is I'm getting awkward values:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \begin{bmatrix} s1 \\ s_2 \end{bmatrix} = \begin{bmatrix} 52.6 &amp;amp; 2.6 \\ 54.6 &amp;amp; 15.6 \end{bmatrix}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't think so this is the correct result since Cramer's rule cannot really be applied to this system. Any suggestions?&lt;/p&gt;&#xA;" OwnerUserId="6072" LastEditorUserId="47" LastEditDate="2015-10-29T17:31:35.093" LastActivityDate="2015-10-29T17:31:35.093" Title="Having trouble solving system of equations through matrix approach" Tags="&lt;microeconomics&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8931" PostTypeId="2" ParentId="8925" CreationDate="2015-10-29T06:17:50.403" Score="2" Body="&lt;p&gt;Edited grammar for clarity. Let's go through the hypothetical you gave.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Suppose the mint ratio and market ratio of &lt;em&gt;silver to gold&lt;/em&gt; is 15:1&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Okay.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;and the market ratio rises to 16:1&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;And the mint ratio is still 15:1. Fine.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Now, scholars claim people will sell their gold in the market in exchange for silver. My question is why would people sell the gold in exchange for silver if they could get a better rate at the mint?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;If you sold your gold in the market, then you could get 16 silver for 1 gold.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you sold your gold at the mint, then you would get 15 silver for 1 gold.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You get more silver per unit of gold for selling at the market than at the mint. I'm not sure how you came to the conclusion that the mint is offering a better rate for selling gold in this scenario, but this might be the error that is giving you confusion.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The reason is that if gold suddenly became more desirable than silver, and the market price is about to rise over the mint ratio, but since we can always exchange silver for gold at the mint at 15:1, the market rate will never exceed mint ratio.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;If the demand for gold increased relative to the demand for silver, then the mint and the market will want to adjust their relative prices, so they will both shift towards the equilibrium price. What assumption would you have that would cause the mint not to adjust? It's like saying if the demand for apples rose, because one firm couldn't unilaterally raise price by itself to remain competitive, the price for all firms must remain the same. If the mint and market didn't change price, there'd be a relative surplus/shortage of either metal, depending on which metal sees the demand shock.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Something tells me though that there is some deeper misunderstanding about the endogeneity problem between demand and price for metals here.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2015-10-29T06:17:50.403" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8932" PostTypeId="2" ParentId="8930" CreationDate="2015-10-29T06:26:56.897" Score="0" Body="&lt;p&gt;Your system may be rewrite as :&#xA;\begin{equation}&#xA;\begin{bmatrix}1&amp;amp;-\frac{1}{3}\\-\frac{1}{8}&amp;amp;1\end{bmatrix}\cdot\begin{bmatrix}s_1\\s_2\end{bmatrix}=\begin{bmatrix}2\\7\end{bmatrix}\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then all you need to do is to invert the coefficients matrix (which is invertible because its det$\neq$0), and confirm that by cramer's rule. In case you don't know, cramer's rule is explained in good details &lt;a href=&quot;https://en.wikipedia.org/wiki/Cramer&amp;#39;s_rule&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="6053" LastActivityDate="2015-10-29T06:26:56.897" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8933" PostTypeId="2" ParentId="8930" CreationDate="2015-10-29T06:44:44.313" Score="2" Body="&lt;p&gt;You may find better help in the Math SE, but let's see if we can help here.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So we can arrange your system as such:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{align}&#xA; s_1 - \frac{1}{3} s_2 &amp;amp; = 2 \\ &#xA; -\frac{1}{8} s_1 + s_2&amp;amp; = 7 \\&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So we form the matrix setup:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\begin{bmatrix}&#xA;        1 &amp;amp; -1/3  \\&#xA;        -1/8 &amp;amp; 1  \\&#xA;        \end{bmatrix}&#xA;\begin{bmatrix}&#xA;        s_1 \\&#xA;        s_2 \\&#xA;        \end{bmatrix}&#xA;=&#xA;\begin{bmatrix}&#xA;        2 \\&#xA;        7 \\&#xA;        \end{bmatrix}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can multiply the matrices out to see that you get the same system.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first step of solving any system, regardless of method, is to always check for linear dependence of the coefficient matrix.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\det&#xA;\begin{bmatrix}&#xA;        1 &amp;amp; -1/3  \\&#xA;        -1/8 &amp;amp; 1  \\&#xA;        \end{bmatrix}&#xA;=&#xA;(1 \cdot 1) - (-1/3 \cdot -1/8) = \frac{23}{24} \neq 0&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So Cramer's rule is indeed useable here. To solve for $s_1$. You replace the column for $s_1$ with the answer matrix and divide the determinant of that by the determinant of the original coefficient matrix. Use a similar process for $s_2$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;s_1^* =&#xA;\frac&#xA;{\det&#xA;\begin{bmatrix}&#xA;        2 &amp;amp; -1/3  \\&#xA;        7 &amp;amp; 1  \\&#xA;        \end{bmatrix}}&#xA;{\det&#xA;\begin{bmatrix}&#xA;        1 &amp;amp; -1/3  \\&#xA;        -1/8 &amp;amp; 1  \\&#xA;        \end{bmatrix}}&#xA;= \frac{\frac{13}{3}}{\frac{23}{24}} = \frac{104}{23}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;s_2^* =&#xA;\frac&#xA;{\det&#xA;\begin{bmatrix}&#xA;        1 &amp;amp; 2  \\&#xA;        -1/8 &amp;amp; 7  \\&#xA;        \end{bmatrix}}&#xA;{\det&#xA;\begin{bmatrix}&#xA;        1 &amp;amp; -1/3  \\&#xA;        -1/8 &amp;amp; 1  \\&#xA;        \end{bmatrix}}&#xA;= \frac{\frac{29}{4}}{\frac{23}{24}} = \frac{174}{23}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And then we're done. Plug in the answers and make sure they work.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2015-10-29T06:44:44.313" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8934" PostTypeId="2" ParentId="8923" CreationDate="2015-10-29T13:27:03.463" Score="0" Body="&lt;p&gt;I understand you are focusing on the basic IS model. Then, you are missing the point of the multiplier. When comparing the multiplier for G and the multiplier for T, the former has a bigger impact than the tax one, so the net effect on GDP will be positive.&lt;/p&gt;&#xA;" OwnerUserId="5487" LastActivityDate="2015-10-29T13:27:03.463" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8935" PostTypeId="1" AcceptedAnswerId="18440" CreationDate="2015-10-29T13:49:42.060" Score="7" ViewCount="15139" Body="&lt;p&gt;Consider the following game of Bertrand (price competition):&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;There are two players, $1$ and $2$. Each has a publicly known marginal cost, $c_i$.&lt;/li&gt;&#xA;&lt;li&gt;A strategy is a price, $p_i\in\mathbb{R}$.&lt;/li&gt;&#xA;&lt;li&gt;Player $i$'s payoff (profit) is $\pi(p_i,p_j)=p_i-c_i$ if $p_i&amp;lt;p_j$, $\pi(p_i,p_j)=\frac{p_i-c}{2}$ if $p_i=p_j$ and $\pi(p_i,p_j)=0$ if $p_i&amp;gt;p_j$.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;If $c_i=c_j=c$ the result is the straightforward Bertrand Nash equilibrium: both firms set $p_i=c$ and make zero profit. A higher price results in zero demand/profit; a lower price results in negative profits. There is therefore no profitable deviation.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Now suppose $c_1&amp;lt;c_2$. What is the Nash equilibrium?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I have previously contented myself with the intuition that the equilibrium is for firm 1 to take the whole market at a price 'slightly below' $c_2$? But looking at the technical details raises doubts in my mind:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;We can't have an equilibrium with $p_1=c_2$. The best response for $2$ would be $p_2=c_2$, but then $1$'s profit is $(p_1-c_2)/2$ and $1 $ can profitably deviate to $p_1=c_2-\epsilon$ for some small $\epsilon$.&lt;/li&gt;&#xA;&lt;li&gt;It seems like we can't have an equilibrium with $p_1=c_2-\epsilon&amp;lt; c_2\leq p_2$ because firm 1 could do better with $p_1=c_2-(\epsilon/2)$.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Do we conclude that the only equilibrium of this game is in mixed strategies?&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2019-03-15T23:56:15.230" Title="Nash equilibrium of a Bertrand game with different marginal costs" Tags="&lt;game-theory&gt;&lt;industrial-organisation&gt;&lt;oligopoly&gt;" AnswerCount="4" CommentCount="5" FavoriteCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="8936" PostTypeId="5" CreationDate="2015-10-29T13:50:49.947" Score="0" Body="" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2015-10-29T13:50:49.947" LastActivityDate="2015-10-29T13:50:49.947" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8937" PostTypeId="4" CreationDate="2015-10-29T13:50:49.947" Score="0" Body="Questions about markets where the number of sellers is finite and larger than one." OwnerUserId="108" LastEditorUserId="108" LastEditDate="2015-10-29T13:50:49.947" LastActivityDate="2015-10-29T13:50:49.947" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8938" PostTypeId="5" CreationDate="2015-10-29T13:52:25.680" Score="0" Body="" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2015-10-29T13:52:25.680" LastActivityDate="2015-10-29T13:52:25.680" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8939" PostTypeId="4" CreationDate="2015-10-29T13:52:25.680" Score="0" Body="Requests for (references/links to) data that address a specific question or need." OwnerUserId="108" LastEditorUserId="108" LastEditDate="2015-10-29T13:52:25.680" LastActivityDate="2015-10-29T13:52:25.680" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8940" PostTypeId="5" CreationDate="2015-10-29T13:54:33.973" Score="0" Body="" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2015-10-29T13:54:33.973" LastActivityDate="2015-10-29T13:54:33.973" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8941" PostTypeId="4" CreationDate="2015-10-29T13:54:33.973" Score="0" Body="Study of the behavior of firms in organizing their production and allocating productive resources." OwnerUserId="108" LastEditorUserId="108" LastEditDate="2015-10-29T13:54:33.973" LastActivityDate="2015-10-29T13:54:33.973" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8942" PostTypeId="5" CreationDate="2015-10-29T13:55:29.820" Score="0" Body="" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2015-10-29T13:55:29.820" LastActivityDate="2015-10-29T13:55:29.820" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8943" PostTypeId="4" CreationDate="2015-10-29T13:55:29.820" Score="0" Body="A market structure in which there is a single firm acting as supplier." OwnerUserId="108" LastEditorUserId="18167" LastEditDate="2018-09-17T02:21:09.763" LastActivityDate="2018-09-17T02:21:09.763" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="8944" PostTypeId="2" ParentId="8935" CreationDate="2015-10-29T14:03:58.990" Score="1" Body="&lt;p&gt;Interesting question. You will have to make the assumption that the second firm is indifferent between not producing  and earning 0 profit. Actually, the way you have set it up, the firm makes 0 profit anyway. If the case is that $c_{1}&amp;lt;c_{2}$ , then case 1) that you have mentioned is the Nash Equilibrium. This is similar to a second price sealed bid auction with known valuation- the player with the highest valuation bids the second highest player's valuation so that the second player is indifferent between bidding 0 and her own valuation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let me point out that if you &lt;em&gt;don't&lt;/em&gt; make the indifference assumption, then many games may not have a Nash equilibrium given the always possible epsilon deviations.&lt;/p&gt;&#xA;" OwnerUserId="5233" LastActivityDate="2015-10-29T14:03:58.990" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="8945" PostTypeId="2" ParentId="8922" CreationDate="2015-10-29T15:06:31.300" Score="5" Body="&lt;p&gt;You could try searching the Harvard Dataverse for &lt;code&gt;fileType:&quot;R Data&quot;&lt;/code&gt; like this: &lt;a href=&quot;https://dataverse.harvard.edu/dataverse/harvard?q=fileType%3A%22R+Data%22&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://dataverse.harvard.edu/dataverse/harvard?q=fileType%3A%22R+Data%22&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/A56Fw.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/A56Fw.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think your use case of wanting to search for data in specific formats such as RData is a common one so I just created an issue about improving Dataverse to support this use case better: &lt;a href=&quot;https://github.com/IQSS/dataverse/issues/2707&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://github.com/IQSS/dataverse/issues/2707&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="6097" LastActivityDate="2015-10-29T15:06:31.300" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8946" PostTypeId="2" ParentId="8926" CreationDate="2015-10-29T15:25:13.530" Score="2" Body="&lt;p&gt;Becker has a very widely cited paper about crime that generally defines the literature, &lt;a href=&quot;https://www.google.com/urlhttps://www.google.com/url?q=http://www.nber.org/chapters/c3625.pdf&amp;amp;sa=U&amp;amp;ved=0CBIQFjACahUKEwjK5I2x_efIAhVO92MKHZ9YA4A&amp;amp;sig2=UG5JXVF4orZo6Nyop3ZhHg&amp;amp;usg=AFQjCNFnvPCvKvsqstnrSt6ixeNXXBRGoA&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To examine your proposal, increases in productivity generally lead to higher wages in the legal sector, but could easily increase crime rates if they disproportionately increased the returns to crime. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;No agent modeling or network theory is needed for this to an accepted idea in the literature, but you're welcome to explore it if you think the consequences are somehow divergent from what I've outlined here! Furthermore, the actual task to -verify- his theory is very difficult. To search &quot;the literature&quot;, I would search within the body of papers citing this particular Becker paper.&lt;/p&gt;&#xA;" OwnerUserId="4185" LastEditorUserId="4185" LastEditDate="2015-10-30T14:22:53.100" LastActivityDate="2015-10-30T14:22:53.100" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8947" PostTypeId="2" ParentId="8924" CreationDate="2015-10-29T16:16:25.333" Score="1" Body="&lt;p&gt;In the basic, closed economy model, you are right that Savings=Investment. The reason for this is because, in this model, growing capital stock is not the only item taken into account in Investment. The other item is inventory accumulation. It's a bit difficult to apply it to your scenarios, but here's a rough attempt:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Scenario 1: In this scenario, Joe buys a car for 500 dollars from Amanda, and Amanda stuffs it into her mattress. Now suppose Joe produces something as well. When Amanda turns around and stuffs the money under her mattress instead of buying Joe's goods, Joe has an accumulation of inventory worth 500 dollars. This increases investment by 500 dollars.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Scenario 2: In this scenario, Joe receives 500 dollars from the Fed, and he puts it into a bank, and the bank turns around and loans 250 dollars of it to Amanda who invests in inventory. Again, in this situation, when Joe does not use the other 250 dollars to purchase Amanda's goods, she has an accumulation of inventory worth 250 dollars, which increases investment by an extra 250 dollars. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Like I said, it's a little difficult to apply to a two person economy. When applied to larger economies with many producers, it makes a little more sense.&lt;/p&gt;&#xA;" OwnerUserId="5825" LastActivityDate="2015-10-29T16:16:25.333" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="8948" PostTypeId="2" ParentId="8935" CreationDate="2015-10-29T16:51:40.203" Score="6" Body="&lt;p&gt;It is my impression that this has been formalized under the $\varepsilon$-&lt;strong&gt;equilibrium&lt;/strong&gt; concept (&quot;epsilon-equilibrium&quot;). It is even called &quot;approximate-Nash&quot; equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Shamelessly copying from the relevant &lt;a href=&quot;https://en.wikipedia.org/wiki/Epsilon-equilibrium&quot; rel=&quot;noreferrer&quot;&gt;wikipedia article&lt;/a&gt; (which includes some literature references)&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;=== The standard definition ===&lt;/strong&gt;&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Given a game and a real non-negative parameter $\varepsilon$, a&#xA;  strategy profile is said to be an $\varepsilon$-equilibrium if it is&#xA;  not possible for any player to gain more than $\varepsilon$ in payoff&#xA;  dominant equilibrium|expected payoff by unilaterally deviating from&#xA;  his Strategy. Every Nash Equilibrium is equivalent to an&#xA;  $\varepsilon$-equilibrium where $\varepsilon = 0$.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Formally, let $G = (N, A=A_1 \times \dotsb \times A_N, u\colon A \to&#xA;&amp;gt; R^N)$ be an $N$-player game with action sets $A_i&amp;lt;$ for each player&#xA;  i and utility function $u$. Let $u_i (s)$ denote the&#xA;  payoff to player $i$ when Strategy  s is played. Let&#xA;  $\Delta_i$ be the space of probability distributions over $A_i$. A&#xA;  vector of strategies $\sigma \in \Delta = \Delta_1 \times \dotsb&#xA;&amp;gt; \times \Delta_N$ is an $\varepsilon$-Nash Equilibrium for $G$ if  :&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;$$u_i(\sigma)\geq u_i(\sigma_i^{'},\sigma_{-i})-\varepsilon\;\;\;&#xA; \forall \sigma_i^{'} \in \Delta_i,\;\; i \in N$$&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This is tied to a probabilistic setting, but it appears that it can be used more generally.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The article even mentions that&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;In Economics, the concept of a Pure strategy epsilon-equilibrium is used when the mixed-strategy approach is seen as unrealistic. In a&#xA;  pure-strategy epsilon-equilibrium, each player chooses a pure-strategy&#xA;  that is within epsilon of its best pure-strategy.&lt;/em&gt;&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;To not kid ourselves, this is just a formalization that attempts to hide under the carpet the fact that &quot;infinitesimal deviations&quot; may bug mathematicians but they don't bug economists, which know that such infinitesimal deviations play no role in determining real world economic situations.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-10-29T17:02:44.677" LastActivityDate="2015-10-29T17:02:44.677" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8949" PostTypeId="1" AcceptedAnswerId="8961" CreationDate="2015-10-29T17:31:27.597" Score="2" ViewCount="5331" Body="&lt;p&gt;What textbook can I use to really understand microeconomics, macroeconomics and mathematical economics. It can be different textbooks. I'm in first year college taking introductory courses in microeconomics, macroeconomics and mathematical economics. I need a really good textbook or online site to understand what I'm studying well. I like the way people on this site answer and explain questions with application. I want to be like that too. I have Greg mankiw books by the way, I have schaum's introduction to mathematical economics. I need to read more quality books to understand.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks&lt;/p&gt;&#xA;" OwnerUserId="5864" LastActivityDate="2015-10-31T08:53:13.207" Title="What textbook can I use to really understand microeconomics, macroeconomics and mathematical economics" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;reference-request&gt;&lt;mathematical-economics&gt;" AnswerCount="2" CommentCount="10" ClosedDate="2015-10-30T15:00:19.007" ContentLicense="CC BY-SA 3.0" />
  <row Id="8951" PostTypeId="2" ParentId="8949" CreationDate="2015-10-29T18:18:59.877" Score="1" Body="&lt;p&gt;Your question is quite broad, but here are a couple of (open) book sites you might get started with:&#xA;&lt;a href=&quot;https://open.umn.edu/opentextbooks/SearchResults.aspx?subjectAreaId=4&quot; rel=&quot;nofollow&quot;&gt;https://open.umn.edu/opentextbooks/SearchResults.aspx?subjectAreaId=4&lt;/a&gt;&#xA;&lt;a href=&quot;http://www.freebookcentre.net/Business/Economics-Books.html&quot; rel=&quot;nofollow&quot;&gt;http://www.freebookcentre.net/Business/Economics-Books.html&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When you're familiar with the basics, you might ask the question again with a more specific topic you'd like to study.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Expertise on economics (or pretty much any academic subject) is gained through years of studying and thought. It's, at least to me, a fascinating way of thinking about the world.&lt;/p&gt;&#xA;" OwnerUserId="5512" LastActivityDate="2015-10-29T18:18:59.877" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8952" PostTypeId="2" ParentId="8832" CreationDate="2015-10-29T19:10:46.487" Score="3" Body="&lt;p&gt;Differentiating $(3)$ with respect to time we get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$u_{cc}\dot c = \dot \lambda \implies \frac {u_{cc}}{u_c} \dot c = \frac {\dot \lambda}{\lambda}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Inserting into $(6)$ we obtain&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\dot M = -\frac {\eta_M}{\eta_{MM}}\frac {u_{cc}}{u_c} \dot c$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the fixed point of $M$ will happen under the same conditions that the fixed point of $c$ will. Also, the optimal time-evolution of $M$ is a scaled linear value of the optimal evolution of $c$. So it appears all aspects are captured if you &quot;ignore&quot; the $M$ variable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A bit more formally, since your two decision variables are linearly dependent it means that the $3 \times 3$ Jacobian of the system will be singular at the fixed point. You will get a double eigenvalue and a single one, and you should be able to show what stability properties hold (or what is required for the desired stability notion to hold), in such a situation. Due to the existence of the double root, this requires a bit of a different mathematical approach.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-10-29T19:10:46.487" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8955" PostTypeId="1" AcceptedAnswerId="8965" CreationDate="2015-10-30T00:06:52.633" Score="2" ViewCount="120" Body="&lt;p&gt;I want to answer the broad question: In the absence of prices, how are decisions made?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have data on the determinants of market share in an environment without prices. So, imagine, person A chooses technology C at time X of a certain size, speed, and resolution (all measurable). And I have data for thousands of people and the technologies they choose over a time period of about 10 years. So again, imagine, changes in quality (a newer high-quality technology is developed) and this shocks the system, therefore demand changes as technology A is replaced by technology B, and then a few years later, technology C is available, etc., in an environment where everything is free and only 3 technologies are available, for example.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How do I model elasticity with respect to quality?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The data is stored in MySQL and I typically use Stata for statistical regression. Can you link me to a good example of an empirical test for this type of problem, or, at least, a step-by-step description of what info I need?&lt;/p&gt;&#xA;" OwnerUserId="6107" LastActivityDate="2015-10-30T20:00:10.230" Title="Empirical set-up for measuring elasticity with respect to quality in an environment without price" Tags="&lt;elasticity&gt;&lt;stata&gt;&lt;empirical-methods&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8956" PostTypeId="1" AcceptedAnswerId="8957" CreationDate="2015-10-30T04:10:47.863" Score="5" ViewCount="321" Body="&lt;p&gt;Consider the following optimization&#xA;$$x^*(s) = \max_{x\in X} \big(\,f(x)-sx\,\big)$$&#xA;where $f$ is assumed to be a strictly concave function and $X$ is an interval constraint, e.g $X = [0,b]$. We do not know the exact function $f$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume that we can provide a parameter $s$ and obtain the corresponding (unique) optimizer $x^*(s)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My goal is to estimate $f''(x)$ from a collection of parameters $(s_1,s_2,\ldots)$ and associated optimizers $(x^*(s_1),x^*(s_2),\ldots)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How would one go about doing this? I was thinking of applying the envelope theorem or using finite differences in some way but I'm not quite sure how to proceed.&lt;/p&gt;&#xA;" OwnerUserId="6108" LastActivityDate="2015-10-30T06:26:29.190" Title="Estimating the second derivative of function from optimizers" Tags="&lt;microeconomics&gt;&lt;optimization&gt;" AnswerCount="1" CommentCount="6" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8957" PostTypeId="2" ParentId="8956" CreationDate="2015-10-30T06:26:29.190" Score="5" Body="&lt;p&gt;The first order condition of the maximization problem is&#xA;\begin{equation}&#xA;f'(x)-s=0\iff f'(x)=s&#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can then replace $x$ by $x(s)$ because this is the optimal value given $s$. Since this is true for every $s$, we can differentiate with respect to $s$ which yields &#xA;\begin{equation}&#xA;f''(x(s))x'(s)=1&#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which can be rewrite as &#xA;\begin{equation}&#xA;f''(x(s))=\frac{1}{x'(s)}&#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then $x'(s)$ can be estimated by finite differences which would give $f''(x)$.&lt;/p&gt;&#xA;" OwnerUserId="6053" LastActivityDate="2015-10-30T06:26:29.190" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8958" PostTypeId="1" CreationDate="2015-10-30T10:52:00.303" Score="3" ViewCount="276" Body="&lt;p&gt;I am preparing for an exam and I have come across this question in my textbook but I am not quite sure how to solve it so would really appreciate some help! &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Suppose that company L produces left shoes and company R produces right shoes. If L charges $p_L$ for a left shoe, and R charges $p_R$ for the right shoe, then the price for a pair of shoes is $p=p_L + p_R$. The quantity of pairs of shoes purchased is determined by the demand function $q = 100 - p$. The cost of production is $c&amp;gt;0$ per shoe. Both firms choose prices simultaneously and independently of each other. Formulate this situation as a game (specify the players, strategies and payoff functions). &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So obviously there are two players in the game, company L and company R. In terms of strategies I am slightly confused but I assume they are the following three:&lt;br /&gt; &#xA;- $p_R &amp;lt; p_L$&lt;br /&gt; &#xA;- $p_R = p_L$&lt;br /&gt; &#xA;- $p_R &amp;gt; p_L$&lt;br /&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Please can you tell me is this is correct? &#xA;Secondly, I am extremely confused by the payoff. I understand it would be optimal for both firms to price their shoes at the same level. And I know that to calculate the payoff we need to calculate profit. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Profit = $(100-p)\cdot q - c\cdot q$ &#xA;Where I am stuck is whether it is necessary to sub in the expression that we have for q?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, I believe that the payoff when prices are equal is just half the total profit for each firm. However, I have absolutely no idea what the payoff would be when the prices don't align. Any hint would be really useful! Thank you! &lt;/p&gt;&#xA;" OwnerUserId="6113" LastEditorUserId="1601" LastEditDate="2015-10-30T13:14:23.400" LastActivityDate="2015-10-30T14:03:37.783" Title="How to solve a pricing competition for complementary goods" Tags="&lt;microeconomics&gt;&lt;game-theory&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8959" PostTypeId="1" CreationDate="2015-10-30T13:55:14.173" Score="1" ViewCount="254" Body="&lt;p&gt;The following theorem from Mas-Collel, Whinston and Green's Microeconomic Theory (3rd Edition) assumes &lt;span class=&quot;math-container&quot;&gt;$\frac {\partial {w}}{\partial {p}}$&lt;/span&gt; to be zero. I would to like to know the reason behind such assumption.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Notation:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$p$&lt;/span&gt; = price&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt; = wealth&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; = Walrasian demand function&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$D$&lt;/span&gt; = derivative matrix&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/o8otp.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/o8otp.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="6099" LastEditorUserId="6099" LastEditDate="2019-03-03T06:10:06.900" LastActivityDate="2019-03-03T06:10:06.900" Title="Independence of price and wealth in Walras' Law" Tags="&lt;microeconomics&gt;" AnswerCount="2" CommentCount="8" ClosedDate="2015-11-01T19:06:59.337" ContentLicense="CC BY-SA 4.0" />
  <row Id="8960" PostTypeId="2" ParentId="8958" CreationDate="2015-10-30T13:58:31.573" Score="2" Body="&lt;p&gt;Here are some hints in the spirit of helping you prepare for the exam by thinking about the solution yourself:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You are right about the two players.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Your formulation of strategies is incorrect. Think of a strategy as a complete set of instructions that a player writes down before the game begins. These instructions are handed to a lawyer and must contain the information that the lawyer needs to play the game on the player's behalf and in accordance with his wishes. In particular, the instructions can't ask the lawyer to use information he doesn't have access to and must tell the lawyer how to deal with any circumstances that might conceivably arise. Put yourself in the shoes of the lawyer: you are supposed to choose a price on $R$'s behalf. What is the set of instructions that you would understand and have enough information to implement? Note that &quot;$p_R&amp;lt;p_L$&quot; doesn't pass this test because&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;it would require that the lawyer knows the value of $p_L$ before the game starts.&lt;/li&gt;&#xA;&lt;li&gt;it doesn't pin down which $p_R$ the lawyer should choose. Even if he knew that $p_L=10$, there are many choices of $p_L$ that satisfy $p_L&amp;lt;p_R$. The poor lawyer would be very confused!&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;The payoffs from a game are a function that takes as an argument (i.e. as an input) a strategy for each player and spits out as the result the corresponding payoff. So $L$'s payoff function will look something like this $$\underbrace{(\text{L's strategy},\text{R's strategy})}_{\text{input}}\mapsto \underbrace{\text{payoff for $L$}}_{\text{output}}$$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, imagine that I have asked $L$ and $R$ what their strategies are and have them written down here in front of me: $p_L=\ldots,\ p_R=\ldots$. Your job is to give me a rule that I can use to take this (and only this) information and calculate what each player's payoff will be. That rule is the payoff function.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Once you found the right payoff function, the question of what happens when the two prices are not equal will answer itself because the function will output the payoffs for any valid input strategies.&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2015-10-30T14:03:37.783" LastActivityDate="2015-10-30T14:03:37.783" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8961" PostTypeId="2" ParentId="8949" CreationDate="2015-10-30T14:46:47.260" Score="1" Body="&lt;p&gt;For micro, I would recommend McCloskey's &lt;em&gt;Applied Theory of Price&lt;/em&gt;, available to download from the author's website here: &lt;a href=&quot;http://www.deirdremccloskey.com/docs/price.pdf&quot; rel=&quot;nofollow&quot;&gt;http://www.deirdremccloskey.com/docs/price.pdf&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Read the opening section titled &quot;how to use this book&quot; to see why I think it matches well with your needs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another intermediate–advanced undergraduate level micro book in a similar vein to McCloskey is &quot;Microeconomic Theory: Basic Principles and Extensions&quot; by Walter Nicholson and Christopher Snyder.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For an enthusiastic undergraduate looking to read more mathematical economics, I would recommend &quot;Fundamental Methods of Mathematical Economics&quot; by Alpha Chiang. Some commenters are correct that graduate-level economics can take you into some fairly serious topics in analysis and other areas of pure mathematics. But for now I think you would be better served trying to get a solid handle on the core tool set used be economists. In my view, Chiang is a great place to learn those tools—being a bit more advanced than typical undergraduate material, but not completely abstracted.&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2015-10-31T08:53:13.207" LastActivityDate="2015-10-31T08:53:13.207" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="8962" PostTypeId="1" CreationDate="2015-10-30T16:25:53.677" Score="3" ViewCount="85" Body="&lt;p&gt;I am not an economist, so highly technical answers may escape me. I know that since Jevons, Marshall, and the &quot;marginal revolution&quot; the classical labor theory of value has been largely abandoned. And clearly, some concept of utility must inform pricing at some level.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But is there any inherent reason why a labor-based system of value and pricing adequate to a modern market economy cannot work? Have any been proposed? What would be the consequences or shortcomings of such a system?  &lt;/p&gt;&#xA;" OwnerUserId="6117" LastActivityDate="2015-10-30T18:27:35.020" Title="Is it possible to reconstitute a labor theory of value?" Tags="&lt;utility&gt;&lt;labor-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8964" PostTypeId="2" ParentId="8962" CreationDate="2015-10-30T18:27:35.020" Score="5" Body="&lt;p&gt;It would be helpful if your question were a little more honed in. This is a very broad set of questions about an entire theory, but a few thoughts that come to mind.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The labor-theory of value naturally predicts that profits will be higher in labor-intensive industries, as opposed to capital-intensive industries, and that's simply not what we see in the data. A firm needs a good balance between both capital and labor. Also note that in developing countries, labor is plentiful compared to capital, so wages are lower and capital is expensive. As welfare and the capital stock increases, labor becomes more sparse since there is more to do with leisure, so wages rise and the price of capital falls (we are better at producing capital.) So in some vague way, the price of a good depends more and more on labor as the development of a country increases, but not because of the intrinsic value of labor, but because of the marginal cost of labor for firms that increases.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When you ask,&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;But is there any inherent reason why a labor-based system of value and pricing adequate to a modern market economy cannot work?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;you assume that there is a system like this that is &quot;adequate&quot;. It's not that labor has no place in production or determining the price of a good, but we have models that are better because they realize there's more than just labor that goes into production. Labor does not exist in a vacuum. Today we take into account both the value of labor as well as the value of capital, amongst other factors of production. Why would we want a model that ignores these things for the sake of saying the price of something should only depend on the amount of labor put into it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A final note: in industries where worker labor is overwhelmingly the major part of production, the wages paid out are essentially the value of effort put into the product. The worker maximizes&lt;/p&gt;&#xA;&#xA;&lt;p&gt;See the &lt;a href=&quot;https://economics.stackexchange.com/questions/8839/how-does-the-companies-set-up-utility-function-for-its-own-purposes?answertab=votes#tab-top&quot;&gt;second part of my answer to this question&lt;/a&gt; to see the mathematical set-up for that result.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-10-30T18:27:35.020" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8965" PostTypeId="2" ParentId="8955" CreationDate="2015-10-30T20:00:10.230" Score="0" Body="&lt;p&gt;You might have to create your own set-up for a question like this. Elasticity of quantity with respect to some variable is can generally be measured by &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\frac{\partial Q}{Q}}{\frac{\partial x}{x}}$$ where x is the variable you are measuring. In this case, you can do three separate elasticities w.r.t size, speed, resolution. Since you have data on thousands of people, just aggregate it all together and run a regression to measure the quantity of people who buy a tech with such and such size, speed, resolution across your whole time period. So you'll have something like&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$y = \beta_1 x_1 + \beta_2 x_2 + \beta_1 x_1 + \epsilon$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where $$x_1 = \frac{\frac{\partial Q}{Q}}{\frac{\partial \text{size}}{\text{size}}}, \quad x_2 = \frac{\frac{\partial Q}{Q}}{\frac{\partial \text{speed}}{\text{speed}}}, \quad x_3 = \frac{\frac{\partial Q}{Q}}{\frac{\partial \text{resolution}}{\text{resolution}}}, y = \text{total techs of all sorts sold}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Although you probably want to tweak that a bit, as I'm not sure why you'd want to specifically use elasticity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I am fundamentally misunderstanding the model you are trying to do, please let me know.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2015-10-30T20:00:10.230" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8966" PostTypeId="2" ParentId="8818" CreationDate="2015-10-30T20:39:04.370" Score="0" Body="&lt;p&gt;If there is perfect competition, then yes, you will get zero economic profit, but even then, technology does no poof out of nowhere. Otherwise, you might find very different results.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Let's think of the nature of competition through product differentiation. (We'll get into technology later.) Imagine two firms making their own widgets in Cournot competition, but instead of the normal price function $P = X - q_1 - q_2$, we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$P = X - q_i - d\cdot q_{-i}$$ where $-i$ denotes the other firm that is not firm $i$, and $d \in (0,1)$, $1$ being no product differentiation, and $0$ being completely different products sold by the two companies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If $d = 0$, then the firms aren't really competing since their products are completely different and are acting as monopolists, making economic profit. If $d = 1$, then the firms are competing through regular Cournot and still making profit (probably).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In Bertrand, we can consider product differentiation as part of determining how much of the market you will steal away by undercutting price. The way a normal Bertrand model works is that you set price and then produce (as opposed to Cournot, where you set production, which affects the price). If you have a lower price, and there is no product differentiation, you steal away the whole market, so each firm will push price down to the price under perfect competition, where both firms split the market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With product differentiation though, you don't lose the whole market when you are undercut, since your product is still a bit different. With full differentiation $(d=0)$ then you get the same result where each firm act as monopolists.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Under each of these models, technology doesn't &quot;just happen&quot;, but is reflected through lowering the marginal costs of the firm, which is essential for the firm to be competitive against its rivals. The less technologically advanced the firm is, the more of the market they will lose out on. Economic profit here can be used to invest into research and development or just straight up &quot;technology&quot; to reduce the cost of capital usage over time or other such things like that.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Even in perfect competition with no economic profit, the reason there is no economic profit will partly be because firms have to constantly update their technology to remain competitive, regardless of how differentiated the products are (as long as $d &amp;gt; 0$).&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2015-10-30T20:39:04.370" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8967" PostTypeId="1" AcceptedAnswerId="8970" CreationDate="2015-10-31T00:23:58.880" Score="8" ViewCount="1836" Body="&lt;p&gt;I have read that Apple Computer issues corporate bonds.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Considering that it has $200 billion in cash, and the company complains it has been unable to spend its enormous amount of cash, why would they be issuing corporate bonds?&lt;/p&gt;&#xA;" OwnerUserId="1448" LastActivityDate="2015-10-31T01:47:35.490" Title="Why would a cash-rich company borrow money?" Tags="&lt;corporate-finance&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8968" PostTypeId="1" CreationDate="2015-10-31T00:28:10.330" Score="7" ViewCount="1168" Body="&lt;p&gt;I keep seeing these following facts just asserted while reading: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let W = weak axiom of revealed preference &#xA;Let S = strong axiom of revealed preference &#xA;Let C = the commodity vector &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;$W \iff S$ when $C \in R^2$  &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;$W \not\to S$ when $C \in R^i, i&amp;gt;2$&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;I can't find the 1958 paper by Rose that most other papers cite but I am interested in the proof for 1. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My thoughts about it: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think that any agent whose demand struct satisfies W for a two-dimensional commodity space must have rational preferences. Since his preferences are rational, his demand structure must satisfy S. &#xA;Is this roughly correct? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My questions: &#xA;1. Anyone have a reliable link to Rose's paper? &#xA;2. Anyone have a reliable link to any alternative sources? &lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;3&quot;&gt;&#xA;&lt;li&gt;If we are in $R^2$ and we have that xRy, is it true that the euclidean distance from the origin to x must be greater than the euclidean distance from the origin to y? If so, is it possible to use this property to show that $W\iff S$ in $R^2$? &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="6051" LastEditorUserId="4251" LastEditDate="2015-11-02T14:37:29.390" LastActivityDate="2016-10-01T13:04:04.593" Title="Relationship between strong and weak axioms of revealed preference" Tags="&lt;microeconomics&gt;&lt;reference-request&gt;&lt;preferences&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8969" PostTypeId="2" ParentId="8818" CreationDate="2015-10-31T01:39:27.257" Score="-2" Body="&lt;p&gt;This is an interesting question that I believe involves, of all things, the second law of thermodynamics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Both marxist and neoliberal perspectives would accept that the so-called &quot;capitalist&quot; must innovate and adopt new technology due to the anarchic force of competition in a market system. The machine enables the firm to reduce labor costs relative to its competitors.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For marxists this is simply a temporary, relative advantage that allows a &quot;window of opportunity.&quot; The innovating firm can for a time underprice and capture a higher market share. Of course, competitors can adopt the same machines, no matter how long they are delayed by patents and other defensive tactics. So the unending adoption of new technology is a Sisyphean task or zero sum game, from the standpoint of any set of competitors. Though, of course, many competitors cannot keep up and must &quot;fold their hand&quot; as the investment stakes get higher.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The point of the marxist model is that machines in themselves do not produce value. They only shift the flow of labor so as to produce temporary advantage. Obviously, labor somewhere must make the &quot;machines&quot; and feed, educate, etc., those who make the machines. So in terms of profit the &quot;machine&quot; is only a way of displacing labor to other markets, where the relative costs of producing labor are lower. The idea that &quot;new technology produces value&quot; is not entirely wrong, but simplified and inaccurate. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reason I bring the second law of thermodynamics into it is this. Marxism retained certain essentialist-materialist values from the 19th century, but these do in fact reflect some more basic laws of physics. Machines are subject to the laws of entropy. They cannot interact, maintain, and reproduce themselves. There are no &quot;perpetual motion&quot; machines. All machines go dead within hours if all humans die. Life is the only &quot;perpetual motion&quot; machine. So what appears to be &quot;value&quot; produced by machines is actually a deferral, displacement, and mediation of hidden labor, living humans.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, for marxism, the simple-minded replacement of workers by machines is necessary under market competition. But is a kind of a &quot;death wish&quot; in which life is channeling itself into dumb matter.The neoliberal perspective has answers to this in the calculus, but simply does not involve itself in such &quot;meta-macroeconomic&quot; concerns. In keeping with the empiricist tradition, it distrusts such metaphysical or speculative analyses.     &lt;/p&gt;&#xA;" OwnerUserId="6118" LastActivityDate="2015-10-31T01:39:27.257" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8970" PostTypeId="2" ParentId="8967" CreationDate="2015-10-31T01:47:35.490" Score="11" Body="&lt;p&gt;You are right that it seems strange why a cash-rich company is borrowing. In the case of Apple, the money that they are borrowing is being used to pay dividends to shareholders. The reason why they aren't using their \$200 billion is because doing so would cost them tens of billions of dollars in taxes. The current US tax code taxes corporations at 35% when they bring money they made overseas back to the US (this is called &lt;strong&gt;repatriation&lt;/strong&gt;). So while, Apple has \$200 billion on the surface, \$180 billion of that is sitting overseas and can't be used to pay shareholders. It is cheaper for them to borrow money to pay dividends, than incur the huge tax costs associated with repatriation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In general, however, borrowing is also attractive to firms today since interest rates are so low. If you can borrow at 4%, and expect to earn a return of 8% on that capital, taking on debt seems like a good deal. Therefore firms flush with cash still may borrow if they feel the return they can earn on the borrowed money is greater than the cost of interest. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Check out this article from Bloomberg for more information on the Apple case: &lt;a href=&quot;http://www.bloomberg.com/news/articles/2015-07-22/tim-cook-s-181-billion-headache-apple-s-cash-held-overseas&quot;&gt;Bloomberg Article&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="5987" LastActivityDate="2015-10-31T01:47:35.490" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8971" PostTypeId="1" CreationDate="2015-10-31T02:44:06.217" Score="5" ViewCount="329" Body="&lt;p&gt;The producer surplus is objective because the it is the total revenue minus the total variable cost. For example, if the producer sold 100 goods at 5 each, and the total variable cost was 300, then his surplus is 200. The total revenue and variable cost is object because it is numerical, a seller can not change these numbers based on his own perceptions or feeling.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But the demand curve is different from consumer to consumer, the consumer surplus is defined as The difference between the value that a consumer places on units purchased and the amount of money that was required to pay for them. The consumer places on the good is entirely subjective, therefore is it correct to say how big your consumer surplus is entirely up to the individual consumer? And even for the same consumer, the consumer's value placed on a good can change from time to time, for example, the value I place on going to see a movie on a date with a possibility of getting laid later that night is much higher than the value I place on going to a movie by myself even thought the product is exactly the same. But my two consumer surplus would have a enormous difference.&lt;/p&gt;&#xA;" OwnerUserId="6065" LastEditorUserId="6065" LastEditDate="2015-10-31T02:55:57.400" LastActivityDate="2016-03-01T00:45:32.433" Title="Is consumer surplus subjective?" Tags="&lt;microeconomics&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="8972" PostTypeId="1" CreationDate="2015-10-31T03:24:43.783" Score="1" ViewCount="135" Body="&lt;p&gt;For example, in tacit collusion for a Bertrand situation, demand would be split between the two colluding firms. How would the reflect upon the demand function?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example D = 100 - 2Q, and for simplicity sake MC = 0.&#xA;I though to divide D by 2, D* = 50 - Q.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This does not make intuitive sense to me, as how does splitting the demand function change the slope?&lt;/p&gt;&#xA;" OwnerUserId="6123" LastEditorUserId="108" LastEditDate="2015-10-31T09:05:19.490" LastActivityDate="2015-10-31T09:11:02.133" Title="When a demand function is split, how do we algebraically change function" Tags="&lt;supply-and-demand&gt;&lt;industrial-organisation&gt;&lt;monopoly&gt;&lt;oligopoly&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="8973" PostTypeId="1" AcceptedAnswerId="8976" CreationDate="2015-10-31T04:32:39.167" Score="3" ViewCount="90" Body="&lt;p&gt;Apparently, the federal government has a greater ability than provincial government to increase tax revenues by raising tax rates because the supply of labour is more elastic in a single province than it is in Canada as a whole.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, why would supply of labour be more elastic in a single province than in the country as a whole?&lt;/p&gt;&#xA;" OwnerUserId="5785" LastEditorUserId="44" LastEditDate="2015-10-31T10:32:03.903" LastActivityDate="2015-10-31T21:29:25.377" Title="Why is the Supply of Labour More Elastic in a Single Province/State then it is in the Country as a Whole?" Tags="&lt;supply-and-demand&gt;&lt;labor-economics&gt;&lt;elasticity&gt;&lt;taxation&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8974" PostTypeId="2" ParentId="8972" CreationDate="2015-10-31T09:04:50.517" Score="3" Body="&lt;p&gt;The Bertrand case you mention is a little special because it induces a discontinuity in the demand function. Suppose that market demand is $D(P)=1-P$, zero marginal cost, and that all consumers buy from the low priced firm (and split equally in the event of a tie).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the two firms try to collude around a price $p=0.5$ (with quantity $0.25$ each) then each firm's demand curve will look like this:&#xA;&lt;a href=&quot;https://i.stack.imgur.com/eNnCq.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/eNnCq.png&quot; alt=&quot;Residual demand under Bertrand competition.&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Mathematically, a firm's demand will be: $Q_i(p_i,p_j)=0$ if $p_i&amp;gt;p_j$; $Q_i(p_i,p_j)=D(p_i)/2$ if $p_i=p_j$; and $Q_i(p_i,p_j)=D(p_i)$ if $p_i&amp;lt;p_j$.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;More generally, it &lt;em&gt;is&lt;/em&gt; possible for the slope of a firm's residual demand curve to differ from that of the market demand curve. It all depends on how consumers are allocated across the two firms. The relevant material on rationing rules can be found in &lt;a href=&quot;https://books.google.co.uk/books?id=HIjsF0XONF8C&amp;amp;pg=PA213&amp;amp;lpg=PA213&amp;amp;dq=demand%20rationing%20rules&amp;amp;source=bl&amp;amp;ots=wspdQKfa7g&amp;amp;sig=805ybvXIWBUzDbi_-_evPVpBscY&amp;amp;hl=en&amp;amp;sa=X&amp;amp;ved=0CDwQ6AEwBGoVChMI4qWSpqnsyAIVg0oUCh1LnAIp#v=onepage&amp;amp;q=demand%20rationing%20rules&amp;amp;f=false&quot; rel=&quot;nofollow noreferrer&quot;&gt;Section 5.3 of Tirole's &lt;em&gt;The Theory of Industrial Organization&lt;/em&gt;.&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2015-10-31T09:11:02.133" LastActivityDate="2015-10-31T09:11:02.133" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8975" PostTypeId="2" ParentId="8959" CreationDate="2015-10-31T09:44:14.047" Score="2" Body="&lt;p&gt;The demand function $x(p,w)$ is defined for all parameters $p,w$. For example by nonnegativity of demand and the budget constraint $x(p,0) = 0$. The price and wealth parameters can be changed independently of each other as well as together. The answer to your question ends here.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;You seem to be describing notion of Slutsky compensation where the consumer receives monetary compensation after the price change so that she can purchase the bundle she would have purchased without the price change. The existence of such a compensation however is not a necessity. If prices rose my salary would still not change (at least for a while), and I would still have a demand function with the new prices and my original salary as inputs.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2015-10-31T09:44:14.047" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8976" PostTypeId="2" ParentId="8973" CreationDate="2015-10-31T10:31:08.543" Score="4" Body="&lt;p&gt;Because there is freedom of movement between provinces; and the language barrier is low. When international borders are involved, there is much less freedom of movement, and much greater potential for language barriers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So it's easier for labour to move between provinces if incentivised to do so by a change in relative taxation rates; than it is to move between countries.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2015-10-31T10:31:08.543" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8977" PostTypeId="2" ParentId="8959" CreationDate="2015-10-31T10:32:22.647" Score="3" Body="&lt;p&gt;The answer is that $w$, like $p$, is treated as a parameter in this model. It can only be changed by exogenous external forces that are not part of the mechanism included in the model. In contrast, the demand $a$ is a variable that is entirely determined (endogenously) within the model given the prevailing values of the parameters.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose that $p\cdot a=w$. You are correct to think that if we increase the price, $p$, then we break the budget constraint ($p\cdot a&amp;gt; w$). Within the scope of this particular model, only $a$ is variable and therefore the budget constraint must be restored to equality by a decrease in (some elements of) $a$.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Now, the question &lt;em&gt;why&lt;/em&gt; is it so is somewhat philosophical because one could, indeed, build an alternative model that includes some mechanism for determining $w$. For example, we could allow consumers not only to buy goods, but also to supply labour and to negotiate wage rates with their employer. Such models exist within the domain of &lt;em&gt;general equilibrium&lt;/em&gt; (a basic treatment of which can also be found in your copy of Mas Collel et al.).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, there are at least a few reasons to think that the model in question is interesting and relevant despite providing no explanation for the determination of $w$:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Incomes might change in response to the overall price level (i.e. in an inflationary environment salaries are likely to increase). But they are much less likely to change in response to isolated or temporary changes in relative price. For example, the price of fruits changes on an regular cycle depending on when and where they are in season. It would be odd to think that people's income changes in response to this cyclic behaviour. But it would also be odd to think that people's consumption plans did not respond to these price changes. this model allows us to study how people vary demand in the face of such isolated price fluctuations.&lt;/li&gt;&#xA;&lt;li&gt;At least in the short-run, most consumers are much more able to change their consumption decisions (i.e. to vary $a$) than to change their income. Affecting the latter will often require negotiations, change of job, or even retraining—all of which take time. Thus, the model is likely to be informative about the immediate and short-run effects of a price change. In the data, consumption usually reacts relatively quickly to the economic cycle, whereas wages tend to be &quot;sticky&quot;.&lt;/li&gt;&#xA;&lt;li&gt;In modelling we face a constant trade-off between building a model that is realistic and building one that is tractable/parsimonious. The simple consumer demand model has the virtue of yielding a striking number of sensible predictions from a model that is comparatively straightforward. This has various payoffs (easier to communicate to policy makers, easier to use for empirical work, easier to teach to students, easier to use as the foundation for more applied modelling, etc.)&lt;/li&gt;&#xA;&lt;li&gt;There are many mechanisms by which $w$ could be determined. For example, it could be union-firm bargaining. Or perhaps firms have all the bargaining power and workers are paid only their marginal product. Or perhaps the consumers are entrepreneurs whose income comes from profits/investments rather than labour. Each alternative would require a different model, whereas this model is agnostic on these points and allows us to focus on another dimension of the problem.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="108" LastActivityDate="2015-10-31T10:32:22.647" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="8978" PostTypeId="2" ParentId="8973" CreationDate="2015-10-31T21:29:25.377" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;The supply of labour is more elastic in a single province than it is&#xA;  in the country as a whole.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This is simply not possible, if we clearly separate between the &lt;em&gt;static labor supply function&lt;/em&gt; and the &lt;em&gt;equilibrium responses&lt;/em&gt; of labor supply, that may involve all shorts of changes, supply &lt;em&gt;and&lt;/em&gt; demand shifts, income effects, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That it is not possible to hold for the static labor supply is easy to show: denote $L^s_i(w)$ the labor supply at the level of province $i=1,...,n$. Note that the $w$ is not indexed, exactly because we are looking at the static concept, which reflects &lt;em&gt;intended&lt;/em&gt; levels of labor supply at different values of theoretical $w$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then the supposed inequality can be written as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\partial L^s_i(w)/\partial w}{L^s_i(w)}\cdot w &amp;gt; \frac {\sum_{i=1}^n\partial L^s_i(w)/\partial w}{\sum_{i=1}^n L^s_i(w)} \cdot w,\;\;\; \forall i$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Simplify and rearrange&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\partial L^s_i(w)/\partial w}{\sum_{i=1}^n\partial L^s_i(w)/\partial w} &amp;gt; \frac {L^s_i(w)}{\sum_{i=1}^n L^s_i(w)} \;\;\;\forall i$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But this cannot hold, because the left side as well as the right side both sum up to unity over $n$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So for any given wage $w$, some of the provincial labor supply functions &lt;em&gt;have&lt;/em&gt; to have lower elasticity than the aggregate supply function. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This answer attempts to clarify that observing higher elasticities at provincial level compared to the national level, relates to equilibrium responses, and has to do with the existence of wage differentials, cross-effects that cause shifts in the supply functions, etc.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-10-31T21:29:25.377" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8979" PostTypeId="2" ParentId="8971" CreationDate="2015-10-31T23:07:55.490" Score="1" Body="&lt;p&gt;In the case with the movie tickets you give, the movie ticket is no longer the only good being considered; it's a bundle of both the movie ticket and the expected value of the date. There will be separate consumer surpluses for each of these aspects.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's also important to note that the producer surplus can be subjective. Part of the cost of building something could be time, the opportunity cost of doing something else which may have a subjective intrinsic value to that person.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Mathematically, we measure consumer surplus using utility minus price, which puts some sort of value on a good. It makes things a little more, &quot;objective&quot; per se. You should also note that, while the consumer surplus is in a way based on subjective preferences, it's still theoretically measurable by observing purchases.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2015-10-31T23:07:55.490" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8980" PostTypeId="1" AcceptedAnswerId="8982" CreationDate="2015-10-31T23:17:09.350" Score="2" ViewCount="4130" Body="&lt;p&gt;Can unit elasticity be anywhere else on the demand curve other than the midpoint?&lt;/p&gt;&#xA;" OwnerUserId="6065" LastEditorUserId="108" LastEditDate="2015-11-01T08:49:33.793" LastActivityDate="2015-11-01T08:49:33.793" Title="Does unit elasticity has to be at exactly the middle of the demand curve?" Tags="&lt;elasticity&gt;" AnswerCount="2" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="8981" PostTypeId="2" ParentId="8980" CreationDate="2015-10-31T23:45:29.450" Score="5" Body="&lt;p&gt;No, that is only true in the linear case. For a simple counterexample consider&#xA;$$&#xA;D(p) = 1 - \sqrt{p}.&#xA;$$&#xA;$$&#xA;\epsilon(p) = \frac{d D(p)}{dp} \cdot \frac{p}{D(p)} = -\frac{1}{2  \cdot \sqrt{p}} \cdot \frac{p}{1 - \sqrt{p}} = \frac{1}{2}  \cdot \frac{\sqrt{p}}{1 - \sqrt{p}}&#xA;$$&#xA;\begin{eqnarray*}&#xA;\epsilon(p) &amp;amp; = &amp;amp; 1 \\&#xA;\\&#xA;\frac{1}{2}  \cdot \frac{\sqrt{p}}{1 - \sqrt{p}} &amp;amp; = &amp;amp; 1 \\&#xA;\\&#xA;\sqrt{p} &amp;amp; = &amp;amp; 2 - 2 \cdot \sqrt{p}  \\&#xA;\\&#xA;\sqrt{p} &amp;amp; = &amp;amp; \frac{2}{3} \\&#xA;\\&#xA;p &amp;amp; = &amp;amp; \frac{4}{9}.&#xA;\end{eqnarray*}&#xA;This is not in the middle of the demand curve in any sense.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2015-10-31T23:50:40.320" LastActivityDate="2015-10-31T23:50:40.320" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8982" PostTypeId="2" ParentId="8980" CreationDate="2015-11-01T03:07:02.527" Score="5" Body="&lt;p&gt;When the demand function is linear, $q = a-bp$, the only point were elasticity is unity is located in the midpoint of the demand curve (straight line). This is geometrical.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The demand line will cross the vertical $p$-axis at $p=a/b$ and the horizontal $q$ axis at $q=a$. For unitary elasticity (in absolute terms) we want&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{|dq/dp|}{q}\cdot p = \frac{bp}{a-bp}=1 \implies p=\frac {a}{2b} \implies q=\frac a2$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So at unitary elasticity the corresponding price lies in the middle of the feasible price domain, and the corresponding quantity lies in the middle of the feasible quantity domain.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The related diagram is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/8t6BY.png&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/8t6BY.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The length $[AB]$ is equal to the length $[CD]$, and the length $[BC]$ is equal to the length $[DE]$. But this implies that the triangles $[ABC]$ and $[CDE]$ have two of their sides equal, so necessarily they will have also their third side equal. So $[AC] = [CE]$, which implies that the point of unitary elasticity $C$ is the midpoint of the demand line. Obviously, no other point can have unitary elasticity here.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-11-01T03:07:02.527" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8983" PostTypeId="1" CreationDate="2015-11-01T06:47:46.857" Score="2" ViewCount="98" Body="&lt;p&gt;I am given a following dynamic programming problem; &#xA;$$&#xA;\sup_{k_{t+1}}\sum_{t=0}^{t=\infty}\delta^t(ak_t-\frac{b}{2}k_t^2-\frac{c}{2}(k_{t+1}-k_t)^2)&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $f(k_t) = ak_t-\frac{b}{2}k_t^2$ is the production function of a firm and $\frac{c}{2}(k_{t+1}-k_t)^2$ is its cost function.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am supposed to show that $\lim_{t\to\infty}\sum_{t=0}^{t=\infty}\delta^t(ak_t-\frac{b}{2}k_t^2-\frac{c}{2}(k_{t+1}-k_t)^2)$, exists by showing that $\lim_{t\to\infty}\sum_{t=0}^{t=\infty}\delta^t(ak_t-\frac{b}{2}k_t^2-\frac{c}{2}(k_{t+1}-k_t)^2) &amp;lt; \frac{1}{1-\delta}\frac{a^2}{2b}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have spent hours in trying to think about this problem but i remain clueless. Any hints on how to go about this problem?&lt;/p&gt;&#xA;" OwnerUserId="5863" LastEditorUserId="5863" LastEditDate="2015-11-01T16:36:30.303" LastActivityDate="2015-11-01T16:36:30.303" Title="Taking limit of a sequence" Tags="&lt;dynamic-programming&gt;" AnswerCount="0" CommentCount="9" ContentLicense="CC BY-SA 3.0" />
  <row Id="8984" PostTypeId="1" CreationDate="2015-11-01T13:02:01.877" Score="0" ViewCount="187" Body="&lt;p&gt;I know that the term Economic Value Added is an internal measure that executives use to measure the financial performance of a company, say, executing a project. However, I'm doing some research in Complex Systems, and I'm interested in the term &quot;value&quot; as it relates to the economic system as a whole. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I came up with a definition of adding &quot;value&quot; as any activity that creates or increases the consumer or producer surplus. I'm now struggling to see how this definition related to the standard definition of Economic Value Added. What are the pros and cons of my definition as against the standard EVA term? Why isn't the definition that I'm using the standard definition, at least in economics?&lt;/p&gt;&#xA;" OwnerUserId="5591" LastActivityDate="2015-12-02T00:07:34.253" Title="Can value be defined as any increase in consumer or producer surplus?" Tags="&lt;value&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8986" PostTypeId="2" ParentId="8984" CreationDate="2015-11-01T14:47:16.977" Score="0" Body="&lt;p&gt;At the risk of merely adding confusion, I will mention that there is much discussion of theory of &quot;value&quot; in Marxist literature, which obviously will be outside standard economics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Marx separated &quot;use value,&quot; &quot;exchange value,&quot; and &quot;surplus value.&quot; All of which he attempted to connect to the classical assumption of &quot;labor value.&quot; He wanted to demonstrate across the entire macroeconomic system how &quot;surplus value&quot; (roughly, profit) is derived from &quot;labor time,&quot; not some magically &quot;added value.&quot; While every commodity will combine &quot;use value&quot; (roughly, utility) and &quot;exchange value&quot; (roughly, price) the two can rise or fall independently. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus he was attempting to burden economics with some concept of human &quot;value&quot; beyond price traceable through the entire production cycle, a burden the marginalists happily tossed off. Marx was trying to avoid the kind of purely quantitative paradoxes we now have, where forest fires, wars, and hurricanes, &quot;add to GDP growth&quot; and other measures of &quot;value.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I trust a &quot;real economist&quot; will address your question more adequately. It seems to me that &quot;added value&quot; is often tossed around loosely. And I'm not sure from your description how you determine some constant measure of &quot;surplus&quot; across the consumer and producer sides or how it is correlated consistently with some measure of &quot;value.&quot; Anyway, hope you get a better answer.    &lt;/p&gt;&#xA;" OwnerUserId="6118" LastActivityDate="2015-11-01T14:47:16.977" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="8987" PostTypeId="1" CreationDate="2015-11-01T15:41:29.480" Score="0" ViewCount="954" Body="&lt;p&gt;Show that there is no continuous utility function which represents the&#xA;lexicographic preferences $\mathscr{L}$ given by $(x_1, x_2) \succeq  (y_1, y_2)$ if and only if $x_1 &amp;gt; y_1$ or $x_1 = y_1$ and $x_2 &amp;gt; y_2$.&lt;/p&gt;&#xA;" OwnerUserId="6133" LastEditorUserId="4251" LastEditDate="2015-11-01T21:44:03.853" LastActivityDate="2015-11-01T21:44:03.853" Title="Show that there is no continuous utility function which represents the lexicographic preferences" Tags="&lt;mathematical-economics&gt;&lt;utility&gt;&lt;preferences&gt;" AnswerCount="1" CommentCount="2" ClosedDate="2015-11-01T22:12:49.983" ContentLicense="CC BY-SA 3.0" />
  <row Id="8990" PostTypeId="2" ParentId="8987" CreationDate="2015-11-01T16:29:08.643" Score="0" Body="&lt;p&gt;&lt;strong&gt;Hint:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To ensure the existence of utility function representation, we must have continuous preferences (and this is a sufficient condition). From the Mas-Colell book:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The preference relation $\succeq$ on $X$ is continuous if it is preserved under limits. That is, for any sequence of pairs ${(x^n, y^n)}^\infty_{n=1}$ with $x^n \succeq y^n$ for all $n$, $x = \lim_{n \to \infty} x^n$ and $y = \lim_{n \to \infty} y^n$, we have $x \succeq y$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We then look at the definition of utility function representation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The function $U$ represents $\succeq$ on $X$ if $\forall \ x,y \in X, x \succeq y \iff u(x) \geq u(y)$, where $u: X \to \mathbb{R}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Though it may be easier just to show that the preferences themselves are not continuous, and thus there is no utility function representation, continuous or not.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2015-11-01T16:29:08.643" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8992" PostTypeId="1" CreationDate="2015-11-01T23:28:26.223" Score="1" ViewCount="168" Body="&lt;p&gt;How do I find an intercept on a percentage data? My data has percentage of grades ( I have converted to numbers where $A^*=8, A=7,B=6...U=0$) by ethnicity and other indicators which I want to test for using dummy variables. For example 90.3% of Chinese students got $A^*-C$ grade, Mixed race students got 87.3% etc. How do I interpret this to get an intercept? I have chosen the median 32.5 as the grades are 5 $A^*$ to $C$ (between $A^*(8\cdot5=40)$ and $C( 5\cdot5=25)$. Is the use of median in this case sensible? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My equation is going to be &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$y =b_0 +b_1 +b_2+b_3+b_4+b_5+b_6+u$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $y$ is the grade, $b_0$ is the median ( constant), $b_1$ is the free school meal, $b_2$ is Chinese, $b_3$ is Black, $b_4$ is Asian, $b_5$ is male,    $b_6$ is female, and $u$ is the error term.&#xA;White is the default.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore if a Chinese male pupil does not get free school meals(proxy for poverty)it is $b_0 + b_2 + b_5$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is as above, does my use of median make any sense and secondly since I already know that Chinese pupils perform better than the rest of the group do I need to use the percentage difference or use the dummy binary variables.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I want to simply find out the effect of poverty and race on the pupils expected grades. I do not have access to individual grades or panel data for income etc hence why I want to use the free school meal.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks again for your answers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Please see image below.&lt;br&gt;&#xA;&lt;a href=&quot;https://i.stack.imgur.com/ctS1k.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/ctS1k.png&quot; alt=&quot;GCSE Result by Ethnicity&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="6139" LastEditorUserId="1601" LastEditDate="2015-11-04T08:04:30.777" LastActivityDate="2015-11-04T08:04:30.777" Title="Finding an intercept on percentage based data and using dummy variables" Tags="&lt;microeconomics&gt;&lt;econometrics&gt;&lt;mathematical-economics&gt;&lt;labor-economics&gt;&lt;statistics&gt;" AnswerCount="2" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="8993" PostTypeId="2" ParentId="8992" CreationDate="2015-11-02T04:24:34.507" Score="2" Body="&lt;p&gt;As Jamzy noted, run an OLS regression on grades against whatever variables you have.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\text{grades} = \beta_0 + \beta_1 x_1 + \cdots + \beta_i \ \text{race} + \cdots$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\text{race} =\begin{array}{cc}&#xA;  \Bigg\{ &amp;amp; &#xA;    \begin{array}{cc}&#xA;      0 &amp;amp; mixed \\&#xA;      1 &amp;amp; Chinese \\&#xA;    \end{array}&#xA;\end{array}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;or vice versa with the 0 and 1. $\beta_0$ will be your intercept that you are looking for. If it ends up negative, try taking the log of both sides and see if a linear regression still has a good fit for you there.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2015-11-02T04:24:34.507" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8994" PostTypeId="5" CreationDate="2015-11-02T06:00:50.573" Score="0" Body="&lt;p&gt;&amp;quot;Regression&amp;quot; is a general term for a wide variety of techniques to analyze the relationship between one (or more) numerical &lt;em&gt;dependent&lt;/em&gt; variables and &lt;em&gt;independent&lt;/em&gt; variables.  Typically the dependent variables are modeled with probability distributions whose parameters are assumed to vary (deterministically) with the independent variables.&lt;/p&gt;&#xA;&lt;p&gt;Ordinary least squares (OLS) regression affords a simple example in which the expectation of one dependent variable is assumed to depend linearly on the independent variables.  The unknown coefficients in the assumed linear function are estimated by choosing values for them that minimize the sum of squared differences between the values of the dependent variable and the corresponding fitted values.&lt;/p&gt;&#xA;" OwnerUserId="4230" LastEditorUserId="4230" LastEditDate="2020-12-30T15:12:33.470" LastActivityDate="2020-12-30T15:12:33.470" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="8995" PostTypeId="4" CreationDate="2015-11-02T06:00:50.573" Score="0" Body="In statistics, regression analysis is a statistical process for estimating the relationships among variables. It includes many techniques for modeling and analyzing several variables, when the focus is on the relationship between a dependent variable and one or more independent variables (or 'predictors')." OwnerUserId="40" LastEditorUserId="40" LastEditDate="2015-11-02T18:04:52.493" LastActivityDate="2015-11-02T18:04:52.493" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8996" PostTypeId="2" ParentId="8500" CreationDate="2015-11-02T06:47:47.410" Score="1" Body="&lt;p&gt;&lt;strong&gt;Financialization&lt;/strong&gt; describes the growth of financial services, instruments, and markets in the overall economy (compared industrial and agricultural parts). An important term that often accompanies financialization is &lt;strong&gt;financial innovation&lt;/strong&gt;, which is often used to describe the creation of new financial instruments such as the mortgage-backed security (MBS), credit default swap (CDS), or collateralized debt obligation (CDO). Now these examples of &quot;financial innovation&quot; carry with them many negative connotations because their roles in the 2008 Financial Crisis. Investment banks created these products to provide investors will different risk exposures. The mortgage-backed security, for example, took grouped mortgages together and sliced them into different pieces (called &quot;tranches&quot;). Payments would first be distributed to the Senior tranche (which was often rated AAA) and then would be distributed to the lower Mezzanine tranches (which carried riskier credit ratings). Investors could then buy different tranches depending on how much risk they wanted to expose themselves to. Ideally, this would lead to a more efficient allocation of capital in markets as investors find investments tailored (the term bespoke is often used to describe these products) to their risk profiles. Unfortunately, however, the proliferation of these products led to a terrible buildup of leverage and risk since many people did not understand how these complicated (often called &quot;exotic&quot;) instruments worked, culminating in the Financial Crisis.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Financialization is a general trend that is occurring in our economy due to the rise of technology, lax financial regulation, and innovation in financial services. Many argue, however, that too much financialization reaches the point where people are trading securities completely detached from the real world (I would recommend checking out CDO-Squared. Justifying the &quot;usefulness&quot; of such an instrument is difficult) and devolves into reckless risk taking that just moves paper around in circles. Thus financialization while theoretically better allocating capital between borrowers and investors, also endangers the economy to the boom and must cycles of market exuberance and reversal. A famous quote from Paul Volcker captures this disdain for financial innovation following the financial crisis: &quot;The only thing useful banks have invented in the past 20 years is the ATM.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In my view, all forms of finance abstract the real world to an extent. For example, a share of a company is an abstract division of a real world entity. Different financial instruments carry with them different levels of abstraction, but we must always remember the underlying real world entity that they represent. If not, finance risks becoming detached once again from the real economy and loses sight of its purpose of allocating capital between borrowers and investors. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For more the financial crisis, I highly recommend Michael Lewis's &lt;em&gt;The Big Short&lt;/em&gt;.&lt;/p&gt;&#xA;" OwnerUserId="5987" LastActivityDate="2015-11-02T06:47:47.410" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="8998" PostTypeId="1" CreationDate="2015-11-02T19:29:16.820" Score="3" ViewCount="908" Body="&lt;p&gt;My question is related to the following graph:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/S75BV.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/S75BV.png&quot; alt=&quot;Supply Restrictions&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The supporting example is given with regard to a policy of an &lt;em&gt;acreage limitation program&lt;/em&gt; to provide incentive for farmers to leave fields fallow.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why does the cost to the government include all of $D$, and not just the portion of $D$ to the left of  $Q_0$?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My textbook (p. 327, Pindyck &amp;amp; Rubenfeld, Microeconomics, 7th Ed.) says:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;Incentive Programs&lt;/strong&gt; In U.S. agricultural policy, output is reduced by incentives rather than by outright quotas.  Acreage limitation programs give farmers financial incentives to leave some of their acreage idle. [The figure above] also shows the welfare effects of reducing supply in this way.  Note that because farmers agree to limit planted acreage, the supply curve again becomes completely inelastic at the quantity $Q_1$, and the market price is increased from $P_0$ to $P_s$.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;As with direct production quotas, the change in consumer surplus is $$\Delta CS=-A-B$$ Farmers now receive a higher price for the production $Q_1$, which corresponds to a gain in surplus of rectangle $A$.  But because production is reduced from $Q_0$ to $Q_1$, there is a loss of producer surplus corresponding to triangle $C$.  Finally, farmers receive money from the government as an incentive to reduce production.  Thus the total change in producer surplus is now $$\Delta PS=A-C + \text{Payments for  not  producing}$$  &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The cost to the government is a payment sufficient to give farmers and incentive to reduce output to $Q_1$.  That incentive must be at least as large as $B+C+D$ because that area represents the additional profit that could be made by planting, given the higher price $P_s$. (Remember that the higher price $P_s$ gives farmers and incentive to produce more even though the government is trying to get them to produce less.)  Thus the cost to the government is at least $B+C+D$, and the total change in producer surplus is $$\Delta PS=A-C+B+D=A+B+D$$&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="5904" LastEditorUserId="5904" LastEditDate="2015-11-04T17:57:21.377" LastActivityDate="2015-11-04T17:57:21.377" Title="Change in Welfare from an Incentive based Supply Restriction" Tags="&lt;welfare&gt;&lt;producer-surplus&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="8999" PostTypeId="2" ParentId="8992" CreationDate="2015-11-02T20:24:49.447" Score="2" Body="&lt;p&gt;This ends up being a bit of a mess. One should run a &lt;a href=&quot;https://en.wikipedia.org/wiki/Generalized_linear_model&quot; rel=&quot;nofollow&quot;&gt;GLM with probit or logit link&lt;/a&gt;.  The reason for this is that the regression is bounded, and we would not want your estimates to ignore the bounds and suggest grades of 130% or -20%. Such estimates can and likely will occur with OLS. &lt;a href=&quot;http://www.ats.ucla.edu/stat/stata/faq/proportion.htm&quot; rel=&quot;nofollow&quot;&gt;See Stata Journal's post on this subject.&lt;/a&gt;, or &lt;a href=&quot;http://faculty.smu.edu/millimet/classes/eco6375/papers/papke%20wooldridge%201996.pdf&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Usually, these probit/logit regressions are used for binary data, consisting of 0 and 1. However, they will function well here, where the grade is the probability of getting any one question right.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The intercept has an analogue in these estimations, still. It is a constant term that will undergo a transformation depending on your choice of probit or logit.  I believe there are other link functions available, but they are not particularly common in economics literature.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given:&#xA;$Y=\beta_0+x'\beta_{1..n}+\epsilon$ is your investigative target where &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$0&amp;lt;Y&amp;lt;1$, $Y=grade,x=[gender,race,...]$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assuming $\epsilon$ is logistically distributed, Logit: $\frac {1}{1+e^{-\beta_0}}$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assuming $\epsilon$  is normally distributed, Probit: $\Phi(\beta_0)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course it is possible your distribution is none of these, but these are considered standard.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is also the case that OLS is unbiased in estimating an intercept for this type of data, but it may suggest impossible grades (for example, -0.2 or 1.3 as an intercept).  The reason this is impossible is because one cannot get a -0.2 or a -1.3 as a percentile grade.&lt;/p&gt;&#xA;" OwnerUserId="4185" LastEditorUserId="40" LastEditDate="2015-11-03T23:25:28.817" LastActivityDate="2015-11-03T23:25:28.817" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="9000" PostTypeId="1" CreationDate="2015-11-03T12:44:05.660" Score="1" ViewCount="1386" Body="&lt;p&gt;My doubt pertains to something that is mentioned in the book by Koutsoyiannis for microeconomics (in the chapter for general equilibrium).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.upload.ee/image/5306829/1.jpg&quot; rel=&quot;nofollow&quot;&gt;http://www.upload.ee/image/5306829/1.jpg&lt;/a&gt;&#xA;&lt;a href=&quot;http://www.upload.ee/image/5306839/2.jpg&quot; rel=&quot;nofollow&quot;&gt;http://www.upload.ee/image/5306839/2.jpg&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I do not understand why the partial equilibrium is unstable in the case of the upward sloping demand and downward sloping supply curve.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are we implicitly assuming that the natural reaction for price setters to positive excess demand is to increase the price and negative excess demand (excess supply) to decrease the price?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If that is not the case then I cannot understand why the equilibrium is unstable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm also confused because the book does mention in the case of upward demand and downward supply that prices will react in a stability forming manner (or is this the book trying to say that this is how prices SHOULD work to ensure stability, then saying that this is not the case due to the implicit assumption above).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you!&lt;/p&gt;&#xA;" OwnerUserId="6143" LastActivityDate="2015-11-03T12:44:05.660" Title="A stable equilibrium with demand and supply?" Tags="&lt;microeconomics&gt;&lt;general-equilibrium&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="9001" PostTypeId="1" CreationDate="2015-11-03T14:59:01.213" Score="1" ViewCount="30" Body="&lt;p&gt;Why is it the case that contractual liability is usually defined by basis of foreseeability rather than negligence (like in tort law)? I am looking a good explanation for this from economics. I understand that contract breach can be seen itself as negligent act. I also understand the economic reasoning behind foreseeability doctrine (or Hadley-Baxendale). &lt;/p&gt;&#xA;" OwnerUserId="6144" LastActivityDate="2015-11-03T14:59:01.213" Title="Foreseeability vs negligence" Tags="&lt;contract-theory&gt;&lt;law&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9002" PostTypeId="2" ParentId="8998" CreationDate="2015-11-03T15:44:28.213" Score="2" Body="&lt;p&gt;&lt;em&gt;(This ended up being a long post, but I find the approach of the textbook a bit outdated).&lt;/em&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is interesting to examine the issue from a (simplistic) &lt;strong&gt;game-theoretic point of view.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume a fixed (no entry) large number $N$ of small identical producers, meaning that the actions of each one individually does not affect the market. The market demand curve and the market supply curve are common knowledge. For next period, the government wants to restrict production below the current market clearing. The government announces that it will pay an amount $T$ to any producer that respects the deal and restrict his production, on top of the revenue he will earn in the market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We assume that each producer has to evaluate the following options: either he conforms with the government plan  or he doesn't. In combination with either &quot;all others conform&quot;, or &quot;all others do not&quot; (here lies one aspect of simplification).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So each individual producer faces four possible future states:&#xA;1) All conform&lt;br&gt;&#xA;2) He conforms while the rest don't&lt;br&gt;&#xA;3) He doesn't conform while all others do&lt;br&gt;&#xA;4) Nobody conforms.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The motive to not conform comes from the fact that if he alone does not conform, the market price won't be affected, because he is &quot;small&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, a diagram:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/vFvBG.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/vFvBG.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$P_c$ is the price that will prevail if all producers conform to the government plan and produce in total $Q_c$. Correspondingly, $P_d$ is the price that will prevail in the market if each producer attempts to exploit for his own benefit the price hike (each assuming that the others will conform to the government plan). Then the quantity supplied will end up being $Q_d$. Finally $P_L$ is the price which producers would normally want to produce $Q_c$, absent government interference. Note carefully that the long-term market clearing point &lt;em&gt;is out of the picture&lt;/em&gt;. Nobody &quot;cares&quot; about it, now that the government jumped in and essentially, &lt;em&gt;reshaped the market structure in terms of the market's prospects&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We now assume that the individual long-term supply curve is a zero-pure-profit, best-response function, &lt;strong&gt;so the payoffs for each possible state are expressed as deviation from this best-response function.&lt;/strong&gt; This is a &lt;em&gt;critical&lt;/em&gt; assumption.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, the game in normal form as experienced by each individual supplier is ($q$ is just $Q/N$)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{array}{| r | r |r |}&#xA;  \hline &#xA;\hline                       &#xA;   &amp;amp;  \text{All others conform} &amp;amp; \text{All others deviate} \\&#xA;  \hline                      &#xA;\text {I conform}   &amp;amp; (P_c-P_L)q_c+T &amp;amp; (P_d-P_L)q_c+T\\&#xA;  \hline &#xA;\text{I deviate}   &amp;amp; 0 &amp;amp; (P_d-P_c)q_d \\&#xA;  \hline  &#xA;\end{array}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note the reason why the lower left corner has a payoff of $0$: if the producers produces $q_d$ and receives a unit price $q_c$, he is on his zero-pure-profit, best-response function -nothing is gained &lt;em&gt;on top&lt;/em&gt; (so we do not ascribe any benefit to &quot;be larger&quot; in terms of revenues).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It should be clear from the above payoff matrix that &lt;em&gt;&quot;I conform&quot; is already a pure dominant strategy without the need for any strictly positive government incentive $T$&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I am (momentarily) saying, is that the Government needs only to &lt;em&gt;announce&lt;/em&gt; the program, with a &quot;token&quot; incentive $T$, and everyone will conform to it. &lt;strong&gt;Essentially the government functions here as a &quot;cartel creator&quot;, bringing all suppliers to cooperate in a decentralized manner in order to restrict quantity and increase price.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Well, it doesn't sound as a very convincing description of reality, does it?  &quot;Token incentive programs&quot; do not appear to work in the real world. So &lt;strong&gt;something must be critically mistaken in our assumptions.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And it most probably is: the assumption that a producer does not care about his scale of production. This neglects the fact that especially with small producers &quot;costs&quot; include their reward for their own labor and use of their own equipment. So a higher scale of operations &lt;em&gt;does&lt;/em&gt; increase the &lt;em&gt;income&lt;/em&gt; of the producer, even though it may not bring &quot;pure profits&quot; over and above the remuneration of the production factors. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So let's approach the construction of the payoff matrix in a different way. Assume that &quot;all other costs of production&quot; except the producer's own income (like materials, third-party services, additional laborers, etc) are constant per unit of output, denote it $b$. Then the producer &lt;em&gt;income&lt;/em&gt; is $I = (p-b)q$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The payoff matrix &lt;strong&gt;in terms of income&lt;/strong&gt; becomes now&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{array}{| r | r |r |}&#xA;  \hline &#xA;\hline                       &#xA;   &amp;amp;  \text{All others conform} &amp;amp; \text{All others deviate} \\&#xA;  \hline                      &#xA;\text {I conform}   &amp;amp; (P_c-b)q_c+T &amp;amp; (P_d-b)q_c+T\\&#xA;  \hline &#xA;\text{I deviate}   &amp;amp; (P_c-b)q_d &amp;amp; (P_d-b)q_d \\&#xA;  \hline  &#xA;\end{array}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can reasonably argue that $P_d&amp;lt;b$ and so without the government incentive, Income in the right column will be negative. Note that here &quot;I conform&quot; is already dominant if all others deviate, because losses are smaller.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here in order for &quot;I conform&quot; to become a dominant strategy we must have that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$T &amp;gt; (P_c-b)(q_d-q_c)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is essentially &quot;the cost of avoiding treason&quot;. In order to deal with loss-aversion we could also argue that the government will guarantee &quot;no-loss&quot;. Then the government incentive should be&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ T &amp;gt; \max \{ (P_c-b)(q_d-q_c),\; (b-P_d)q_c\}$$&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-11-03T15:44:28.213" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9003" PostTypeId="1" CreationDate="2015-11-03T18:57:04.500" Score="2" ViewCount="103" Body="&lt;p&gt;My question is about &lt;strong&gt;6.C.4.&lt;/strong&gt; of Mas-Colell et.al.'s Microeconomic Theory book.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We have N risky assets with returns $z_n, n = (1,...,N)$ per dollar invested which are distributed over $F(z_1,...,z_n).$ All returns are non-negative with probability one. For an individual with a continuous, increasing, and concave Bernoulli utility function $u(\cdot)$ over $\mathbb{R_+}$, we define the utility function $U(\cdot)$ over $\mathbb{R}_+^N$, the set of nonnegative portfolios as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U(\alpha_1,...,\alpha_N) = \int u(\alpha_1 z_1 + \cdots + \alpha_N z_N)dF(z_1,...,z_N)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We are asked to show for part c that $U(\cdot)$ is continuous.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;The book's solution is a little difficult (particularly since I haven't really worked with measure theory before), but my teacher has said there is a more straightforward way of doing the question. I have questions about both of these points.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;First, looking at the book's argument.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We create a sequence $(\alpha^m)_{m \in N} \to \alpha \in \mathbb{R}_+^N$. Then if $U$ is continuous, we should get $$(\alpha^m)_{m \in \mathbb{N}} \to \alpha \implies U(\alpha^m)_{m \in \mathbb{N}} \to U(\alpha)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\exists \ \delta &amp;gt; 0$ s.t. $\alpha^m \leq (\delta,...,\delta) \ \forall \ m$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since $U(\delta,...,\delta)$ is finite, $z \to u(\sum_n \delta z_n)$ is integrable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since $u(\cdot)$ monotone and returns are nonnegative with prob. zero:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$u(\sum_n \alpha_n^m z_n) \leq u(\sum_n \delta z_n) \ \forall \ m, (z_1,...,z_N)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since $u(\cdot)$ continuous,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$u(\sum_n \alpha_n^m z_n) \to u(\sum_n \alpha_n z_n)$$ for almost all $(z_1,...,z_N)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here the book decides to apply Lebesgue's dominated convergence theorem. We are in some measure space $(S, \Sigma, \mu)$ which states that  for some sequence of functions ${f_n}$, if it pointwise converges to some function $f$ and&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\mid f_n(x) \mid \leq g(x) \ \forall n \quad \text{in index}, \ \forall x \in S$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(recall we constructed $g(x)$ earlier)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then $F$ is integrable and&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\lim_{n \to \infty} \int_S \mid f_n - f \ \mid d \mu = 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies \int_S \mid f_n - f \ \mid d \mu \to f d \mu$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\int u(\sum_n \alpha_n^m x_n) dF(x_1,...,x_N) \to \int u(\sum_n \alpha_n x_n) dF(x_1,...,x_N)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies U(\alpha^m)_{m \in \mathbb{N}} \to U(\alpha)$$&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;I added in the direct definition of Lebesgue's dominated convergence for my own clarity, and I think I understand the proof, but my question for this part is what is the measure space? I know $S = \mathbb{R}_+^N$, and $\mu = F$, but what is $\Sigma$ supposed to be? I think it's supposed to be a $\sigma$ - algebra, but I have no idea how to construct/find it here. It is also very well possible that I am completely mistaken on what space I am working on, so there's that.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;So then I tried to setup a proof for this question on my own. I also set up a sequence.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$(\alpha^m)_{m \in N} \to \alpha \in \mathbb{R}_+^N$. Then I suppose that there is some sort of jump discontinuity in $U$ and show that it leads to a contradiction.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So $(\alpha^m)_{m \in \mathbb{N}} \to \alpha$ and $U(\alpha^m)_{n \in \mathbb{N}} \not \to U(\alpha)$&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;My attempts so far to find a satisfactory proof have been fruitless. Any help would be appreciated, whether it's the proof itself or just an outline or some hints on what information to use from the original question to use.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2020-04-01T23:15:08.560" Title="Risky Assets over Bernoulli Utility" Tags="&lt;mathematical-economics&gt;&lt;utility&gt;&lt;risk&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9004" PostTypeId="1" AcceptedAnswerId="9013" CreationDate="2015-11-03T20:23:01.440" Score="1" ViewCount="532" Body="&lt;p&gt;If thera are two firms and both of them have constant returns to scale production function. Will the aggregate/industry production function still be the sum of individual production functions. How does CRS effect the aggregate production function of industry? &lt;/p&gt;&#xA;" OwnerUserId="5863" LastEditorUserId="43" LastEditDate="2015-11-04T09:31:43.820" LastActivityDate="2015-11-04T09:31:43.820" Title="Aggregating CRS Production Functions" Tags="&lt;macroeconomics&gt;&lt;production-function&gt;&lt;aggregate-production&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="9005" PostTypeId="1" CreationDate="2015-11-03T20:36:56.443" Score="1" ViewCount="1806" Body="&lt;p&gt;Suppose there are two agents $\{A,B\}$ with the following utility functions: $U_A(x_A,y_A)=x_A+f(y_A)$ and $U_B(x_B,y_B)=x_B+g(y_B)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$f$ and $g$ are strictly increasing and strictly concave. How do I prove that in the set of pareto efficient allocations $y_A=y_B$ ?&lt;/p&gt;&#xA;" OwnerUserId="6148" LastEditorUserId="1601" LastEditDate="2021-05-11T06:03:47.890" LastActivityDate="2021-05-11T06:03:47.890" Title="Two quasilinear utility functions" Tags="&lt;microeconomics&gt;&lt;pareto-efficiency&gt;" AnswerCount="3" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="9006" PostTypeId="1" CreationDate="2015-11-03T21:08:08.457" Score="5" ViewCount="89" Body="&lt;p&gt;Has anyone calculated or theorized about how long it takes prices to come to some kind of equilibrium after a &lt;a href=&quot;https://en.wikipedia.org/wiki/Shock_(economics)&quot; rel=&quot;noreferrer&quot;&gt;market shock&lt;/a&gt; has happened? How has this changed over time?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An example might be a spike in the price of oil. If oil independently spikes from 50 dollars/barrel to 100 dollars/barrel in a day, how long will it take prices (food prices, car prices, wages, etc) to find equilibrium again?&lt;/p&gt;&#xA;" OwnerUserId="6149" LastActivityDate="2017-03-31T01:21:59.737" Title="How long does it take for shocks to propagate through the price system / market?" Tags="&lt;efficient-markets&gt;" AnswerCount="1" CommentCount="5" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9007" PostTypeId="1" AcceptedAnswerId="9011" CreationDate="2015-11-03T22:16:51.497" Score="2" ViewCount="135" Body="&lt;p&gt;Recently I learned that by 2016 that 1% of the population will have 50% of the worlds wealth. That means that more than 50% of individuals actually has less than he would in a totally fair economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course, money is a social construct. If someone does not acknowledge others wealth, that wealth might as well not exist (at least for the purposes of that relationship). So when enough people share this attitude, then all the wealth that exists might as well not exist, and a sort of &quot;reset&quot; happens?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, I don't imagine it's that simple, especially for individuals, who are unlikely to be self-sufficient without making purchases using money. However, on a country level, there seem to be a number of countries that would benefit simply by turning inwards and actively failing to recognize foreign wealth. Notably, I recently watched a documentary on Lake Victoria fishing which had communities unable to eat any of their own fish for it was &quot;better economically&quot; to export it. And so they lived in poverty and starvation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Well that just seems silly to me. So my question is, could a country like Tazania just turn inwards (don't recognize the concept of wealth with respect to other countries) and be self-sufficient (and thus, it seems, actually be able to use its food to feed its own people)? Even if just temporarily to build up important things like infrastructure education before joining the world economy again. If so, what are the caveats? If not, what are the factors stopping it?&lt;/p&gt;&#xA;" OwnerUserId="6150" LastActivityDate="2015-11-04T19:34:49.883" Title="Why do all countries recognize foreign wealth?" Tags="&lt;macroeconomics&gt;&lt;monetary-policy&gt;&lt;international-economics&gt;&lt;political-economy&gt;" AnswerCount="1" CommentCount="4" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9008" PostTypeId="2" ParentId="9005" CreationDate="2015-11-03T22:25:11.213" Score="0" Body="&lt;p&gt;&lt;strong&gt;EDIT:&lt;/strong&gt; See denesp's answer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is some work I have so far. Someone can hopefully suggest help or provide a separate full answer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$u_A(x_A, y_A) = x_A + f(y_A)$$&#xA;$$u_B(x_B, y_B) = x_B + f(y_B)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and we'll say that $x_A + x_B = X$ and $y_A + y_B = Y$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;A's MRS:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$-\frac{dx_A}{dy_A} = \frac{\frac{\partial U_A}{\partial y_A}}{\frac{\partial U_A}{\partial x_A}} = \frac{f'(y_A)}{1} = f'(y_A)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;B's MRS:&lt;/strong&gt; similarly, it is by $g'(y_B)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So we'll get a Pareto efficient allocation when $f'(y_A) = g'(y_B)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We know a function being strictly concave implies:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$f((1-\alpha)y_A + \alpha y_B) &amp;gt; (1-\alpha)f(y_A) + \alpha y_B$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We know a function being strictly increasing implies:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$y_A &amp;gt; y_B \implies f(y_A) &amp;gt; f(y_B)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So take the original MRS condition and substitute in $Y - y_A = y_B$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$f'(Y - y_B) = g'(y_B)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I &lt;em&gt;think&lt;/em&gt; you can say that $f$ increasing and concave implies f' strictly decreasing, so I &lt;em&gt;think&lt;/em&gt; you can say that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$f'(Y - y_B) &amp;lt; f'(Y) - f'(y_B)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now suppose that $y_A \neq y_B$ and create a contradiction. Note that $Y &amp;gt; y_B, y_A$ so when taking functions of that, you can take advantage of that somehow.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastEditorUserId="4251" LastEditDate="2015-11-04T01:03:36.287" LastActivityDate="2015-11-04T01:03:36.287" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9009" PostTypeId="2" ParentId="9005" CreationDate="2015-11-03T22:44:02.090" Score="4" Body="&lt;p&gt;The statement is not true. &lt;br&gt;&#xA;Let $x_A + x_B = 1$, $y_A + y_B = 1$. &lt;br&gt;&#xA;Let $U_A(x_A,y_A) = x_A + \ln(y_A)$, $U_B(x_B,y_B) = x_B + \ln(y_B + 1)$. &lt;br&gt;&#xA;$f \neq g$ are both strictly increasing &amp;amp; concave. For all $z \in [0,1]$ the distributions &#xA;$$&#xA;(x_A,y_A) = (z,1), \ (x_B,y_B) = (1-z,0).&#xA;$$&#xA;are Pareto-efficient. This follows from $MRS_A(x_A,y_A) \geq MRS_B(x_B,y_B)$. &lt;br&gt;&#xA; In these cases $y_A \neq y_B$.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2015-11-03T23:11:44.640" LastActivityDate="2015-11-03T23:11:44.640" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9010" PostTypeId="2" ParentId="9003" CreationDate="2015-11-03T23:07:16.537" Score="3" Body="&lt;p&gt;Regarding your first question, the space on which you can apply Lebesgue's theorem is $\mathbb{R}_{+}^{N}$. The relevant $\sigma$-algebra is the Borel $\sigma$-algebra and the integration corresponds to the Lebesgue measure. Formally, with your notation, the function $f_m$ is defined on vectors $x=(x_1,\cdots,x_N)$ by&#xA;\begin{equation*}&#xA;f_m(x_1,\cdots,x_N) = u(\sum_{n}{\alpha_n^m x_n})&#xA;\end{equation*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regarding your second question, it seems to me that constructing a counter-example would be difficult and tedious. Proofs of continuity are rarely done that way. You might ask your teacher what kind of argument he has in mind. A possibility that you might wish to explore is to go back to the definition of continuity. Basically, you want to show that:&#xA;\begin{equation*}&#xA;\forall \alpha, \forall \epsilon&amp;gt;0, \exists \delta&amp;gt;0 \text{ such that } \|\alpha-\beta\|&amp;lt;\delta \Rightarrow \|U(\alpha)-U(\beta)\|&amp;lt;\epsilon&#xA;\end{equation*}&#xA;You can try to replace $U(\alpha)$ and $U(\beta)$ by their expression and manipulate the resulting integral. But this essentially boils down to proving Lebesgue's convergence theorem again : this solution is therefore not going to be simpler, but it might help you to understand what is behind this result.&lt;/p&gt;&#xA;" OwnerUserId="4667" LastActivityDate="2015-11-03T23:07:16.537" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9011" PostTypeId="2" ParentId="9007" CreationDate="2015-11-04T02:19:58.637" Score="8" Body="&lt;p&gt;Countries do not just stop recognizing foreign wealth because there are two kinds of wealth: real assets, and claims on the production of others; the values of both of these types of wealth are not determined by consensus, but rather by the use or pleasure one can derive from them. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To the first type— real assets are stuff like machines and cars and homes and all sorts of things that you can touch and which we value for one reason or another. The answer to your question as pertains this category is easy: you can &quot;not recognize&quot; my car as wealth all day long, but that won't affect its value to me or anyone else one bit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To the second type— claims on the production of others come primarily in the form of money, but also in the form of non-money debt and equity. I will skip over non-money debt and equity, as they both provide a claim on a future stream of money, so their value hinges on the value of money. Now, rephrasing your question slightly, we arrive at: why is a foreign country's money valuable? Or, more specifically, why is a foreign country's money valuable in a way that is not subject to one's recognition of it?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The answer to this is simple (and a fundamental concept in international economics): a country's money is valuable to the extent that you want to buy that country's stuff (or buy claims to their production, i.e., debt and equity). This is why countries with economies based around commodity exports see their currencies fluctuate with the value of those commodities (so-called &quot;&lt;a href=&quot;https://economics.stackexchange.com/questions/5278/why-are-cad-aud-known-as-commodity-currencies&quot;&gt;commodity currencies&lt;/a&gt;&quot;)— because when demand for those countries' production increases, the values of their currencies increase. So— one can go all day not recognizing the value of another country's money, so long as one doesn't want to buy that country's stuff. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I will confess to not being terribly familiar with the situation you describe in Tanzania, but I would suggest simply that the locals who choose to sell their fish rather than eat them are likely to have a much better understanding of the implications of doing so than you or I. I would suppose that they're selling their fish because they receive something else in exchange (money), which they turn into something of greater value to them than the fish they sold. Let's say that what they receive in return is gasoline, for use in boat motors (which are essential to catching fish), generators that power lights and pumps to provide clean water, and inefficient and dirty cooking devices (that are nonetheless better than the alternative, which would be attempting to scavenge firewood). Are they better off with fewer fish and more gasoline? Yes, otherwise they wouldn't make that trade. Would they be better off if they didn't sell most of the fish and get gasoline in return, or would they be more likely to &quot;build up important things&quot;? No, almost certainly not— otherwise they would not sell their fish. Unless the Tanzanians you describe are being forced to trade, it's a safe bet that they're trading because it is beneficial to them. They're poor, yes— but that doesn't mean they're stupid.&lt;/p&gt;&#xA;" OwnerUserId="264" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-11-04T02:19:58.637" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9012" PostTypeId="1" CreationDate="2015-11-04T02:36:28.390" Score="3" ViewCount="342" Body="&lt;p&gt;Suppose preferences are represented by the following utility function&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{equation}&#xA;u(x_1,x_2,x_3,x_4)=\alpha \min \{a x_1, b x_2\} + \beta \min \{c x_3, d x_4 \}&#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Write the&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Walrasian demand functions&lt;/li&gt;&#xA;&lt;li&gt;Hicksian demand functions&lt;/li&gt;&#xA;&lt;li&gt;Indirect utility function&lt;/li&gt;&#xA;&lt;li&gt;Expenditure function&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Remark&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I come from a math background and my only experience with economics are (so far) the first three chapters of the book &lt;em&gt;Microeconomic Theory&lt;/em&gt; by Mas-Colell, Whinston, and Green. Following their approach, I want to solve the following &#xA;utility maximization problem&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{equation}&#xA;\max_{\vec{\mathbf{x}}\in \mathbb{R}^4} \{u(\vec{\mathbf{x}})\} = \max_{x_1,x_2,x_3,x_4} \{\alpha \min \{a x_1, b x_2\} + \beta \min \{c x_3, d x_4 \} \}&#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;s.t. $p_1 x_1 + p_2 x_2 = w$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;to get the Walrasian demand functions $x_i(\vec{\mathbf{p}},w)=x_i(p_1,p_2,p_3,p_4,w)$. Then I could get the indirect utility function by substituting these solutions into the utility function:&#xA;\begin{equation*}&#xA;v(\vec{\mathbf{p}},w)=u(x_1^*(\vec{\mathbf{p}},w),x_2^*(\vec{\mathbf{p}},w),x_3^*(\vec{\mathbf{p}},w),x_4^*(\vec{\mathbf{p}},w))&#xA;\end{equation*}&#xA;Similarly, to get the Hicksian demand functions $h_i(p_1,p_2,p_3,p_4,u)$, I would solve the expenditure minimization problem&#xA;\begin{equation*}&#xA;\min_{\vec{\mathbf{x}}} \{\vec{\mathbf{p}} \cdot \vec{\mathbf{x}}\}&#xA;=\min_{x_1,x_2,x_3,x_4} \{p_1x_1+p_2x_2+p_3x_3+p_4x_4\}&#xA;\end{equation*}&#xA;and then get the expenditure function by multiplying&#xA;\begin{align*}&#xA;e(\vec{\mathbf{p}},u)&#xA;&amp;amp;=\vec{\mathbf{p}} \cdot \vec{\mathbf{h}}^*(\vec{\mathbf{p}},u)&#xA; \\&#xA;&amp;amp;=p_1 h_1^*(\vec{\mathbf{p}},u) +p_2 h_2^*(\vec{\mathbf{p}},u)+p_3 h_3^*(\vec{\mathbf{p}},u) + p_4 h_4^*(\vec{\mathbf{p}},u)&#xA;\end{align*} &#xA;Although I can visualize the entire process, I'm stuck at the beginning - solving the constrained utility maximization and expenditure minimization problems. Starting with the utility maximization problem, I want to write the Lagrangian&#xA;\begin{equation*}&#xA;\mathcal{L}(x_1,x_2,x_3,\lambda)=\alpha \min\{a x_1, b x_2 \} + \beta \min \{c x_3, d x_4\}+\lambda(w-p_1x_1-p_2x_2)&#xA;\end{equation*}&#xA;and take the first order conditions&#xA;\begin{equation*}&#xA;\frac{\partial u(x_1,x_2,x_3,x_4)}{\partial x_i}=\lambda p_i&#xA;\end{equation*}&#xA;however I don't know how, mathematically, to take the above first order conditions with respect to $x_i$ since $\min$ isn't everywhere differentiable. (However, as &lt;a href=&quot;https://math.stackexchange.com/questions/150960/derivative-of-the-fx-y-minx-y&quot;&gt;this answer points out&lt;/a&gt;, the partial derivatives of our objective function exist &lt;em&gt;almost&lt;/em&gt; everywhere.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is my first experience with solving for demand functions, aside from the Cobb-Douglas example provided in the book Microeconomic Theory. Could anyone help me complete this example?&lt;/p&gt;&#xA;" OwnerUserId="6012" LastEditorUserId="-1" LastEditDate="2017-04-13T12:19:37.213" LastActivityDate="2015-11-05T00:57:24.067" Title="Constrained optimization for $u(x_1,x_2,x_3,x_4)=\alpha \min \{a x_1, b x_2\} + \beta \min \{c x_3, d x_4 \}$" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;consumer-theory&gt;&lt;optimization&gt;" AnswerCount="0" CommentCount="2" ClosedDate="2015-11-05T22:06:47.950" ContentLicense="CC BY-SA 3.0" />
  <row Id="9013" PostTypeId="2" ParentId="9004" CreationDate="2015-11-04T08:16:59.677" Score="2" Body="&lt;p&gt;Consider two firms with production functions $A_1 F(k,l)$ and $A_2 F(k,l)$. Both have the same curvature (and are CRS), but one is more productive. Here we can solve the social planner's problem (why?) instead of looking at a competitive equilibrium. He will want to equalize marginal returns across the firms. As one is more efficient, it will get more inputs. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And what is the maximum? Give &lt;strong&gt;all&lt;/strong&gt; of the inputs to the more productive firm. This is because of CRS (which indeed means that as you scale up one production function, it's marginal product will &lt;strong&gt;always&lt;/strong&gt; be larger than the other one's). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;That is, define $G(l, k)$ as the aggregate production function. It is given by&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ G(l,k) = \max_{(l_i, k_i)_{i=1,2}} A_1F(k_1,l_1) + A_2F(k_2,l_2) \text{ s.t. resource constraint}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The solution here is $G(l,k) = A_1F(k, l) $ if $A_1 &amp;gt; A_2$, and vice-versa.&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Adding Up Makes No Sense&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;If you think that adding them up makes sense, you're not thinking things through:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;If one cook can bake one cake with each egg, and the other cook can also bake one cake with each egg, then the two cooks together can bake two cakes with each egg?&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Decreasing returns to scale&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;Now, it won't be the case that one firm is more productive than the other one &lt;em&gt;always&lt;/em&gt;. Consider $F_1(k_1) = A_1 k_1^\alpha$ and $F_2(k_2) = A_2 k_2^\alpha$. You will want to split up capital between the two firms such that marginal returns equalize: $k_1, k_2 : F_1'(k_1) = F_2'(k_2)$. Due to DRS, this necessarily means that both $k_1, k_2 &amp;gt; 0$. I leave the actual derivation of the aggregate production function as an exercise.&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2015-11-04T09:30:55.960" LastActivityDate="2015-11-04T09:30:55.960" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9014" PostTypeId="1" CreationDate="2015-11-04T13:12:34.810" Score="1" ViewCount="272" Body="&lt;p&gt;Man has blue and red marbles. If he has more red marbles then blue one he wants to exchange one red for two blue($1R:2B$). If otherwise (more blue then red)he wants to exchange one blue for two red($1B:2R$). Are preferences of this man convex preferences?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My guess is that they are convex because linear combination of random bundles is worse than any chosen. Am i right?&lt;/p&gt;&#xA;" OwnerUserId="5486" LastEditorUserId="5486" LastEditDate="2015-11-04T13:37:30.840" LastActivityDate="2015-11-04T13:37:30.840" Title="Convex consumer preferences" Tags="&lt;microeconomics&gt;&lt;preferences&gt;" AnswerCount="0" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="9016" PostTypeId="1" AcceptedAnswerId="9017" CreationDate="2015-11-04T17:24:53.040" Score="1" ViewCount="355" Body="&lt;p&gt;A bivariate regression is fitted to 20 sample observations on y and X. I know the following:&#xA;$X'X=\begin{pmatrix}&#xA;                             20 &amp;amp; 10\\&#xA;                             10 &amp;amp; 30 \\&#xA;                             \end{pmatrix}$, &#xA;$X'y=\begin{pmatrix}&#xA;                             30\\&#xA;                             40 \\&#xA;                             \end{pmatrix}$,&#xA;$y'y=75$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I received that $\beta=\begin{pmatrix}&#xA;                             1.4\\&#xA;                             1.3\\&#xA;                             \end{pmatrix}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then a new observation was obtained: $X=2$, $Y=4$.&#xA;I should perform a Chow test of parameter constancy.&#xA;In fact I know the formula for the test: $F=\frac{(RSS_{pooled}-RSS_{1}-RSS_{2})/(k+1)}{(RSS_{1}-RSS_{2})/(n-2k-2)}$. Unfortunately, I have no idea how to calculate the RSS for any of these regressions. Help is needed. &lt;/p&gt;&#xA;" OwnerUserId="5735" LastActivityDate="2016-01-03T18:50:08.807" Title="Chow test of parameter constancy" Tags="&lt;econometrics&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9017" PostTypeId="2" ParentId="9016" CreationDate="2015-11-04T18:21:41.927" Score="1" Body="&lt;p&gt;This should help you figure out how to compute RSS for the different models.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's begin with what we have:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We know that&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;$y$ is an $n \times 1$ vector that has observations of the endogenous variable&lt;/li&gt;&#xA;&lt;li&gt;$x$ is an $n \times 2$ matrix of observations of the exogenous variables&lt;/li&gt;&#xA;&lt;li&gt;$\beta$ is a $2 \times 1$ matrix of coefficients&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Unfortunately (or fortunately depending on how you look at it), we don't know what $x$ and $y$ look like in this equation. Instead we are given $(x' x)$, $(x' y)$, and $(y' y)$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Using your comment about what RSS actually is -- Namely, that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\text{RSS} = (y_{\text{observed}} - y_{\text{estimated}})' (y_{\text{observed}} - y_{\text{estimated}})$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First notice that $y_{\text{estimated}}$ is simply $x \beta$. Then replacing this in the previous formula gives us&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{align*}&#xA;  \text{RSS} &amp;amp;= (y_{\text{observed}} - y_{\text{estimated}})' (y_{\text{observed}} - y_{\text{estimated}}) \\&#xA;  &amp;amp;= (y_{\text{observed}} - x \beta)' (y_{\text{observed}} - x \beta) \\&#xA;  &amp;amp;= y'y - 2y'x\beta + x \beta \beta' x'&#xA;\end{align*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now this is almost what we want. We want things to ultimately be in terms of $(y'y)$, $(x'x)$, $(x' y)$, and $\beta$. The first term is exactly $y'y$, but other terms look like they have pieces we want and we just have to find a way to get them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, notice that each of the elements in our equation above is simply a scalar (aka sizes are such that they are $1 \times 1$). The determinant of a scalar is itself, then by using properties of determinants we can say:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{align*}&#xA;  2y'x \beta &amp;amp;= \det(2y'x\beta) = \det(2 \beta' x' y) \\&#xA;  x \beta \beta' x' &amp;amp;= \det(x \beta \beta' x') = \det(\beta' x' x \beta)&#xA;\end{align*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I will leave the linear algebra itself as an exercise.&lt;/p&gt;&#xA;" OwnerUserId="47" LastActivityDate="2015-11-04T18:21:41.927" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9018" PostTypeId="1" CreationDate="2015-11-04T18:14:40.370" Score="0" ViewCount="8428" Body="&lt;p&gt;In many of my intermediate microeconomics quiz and test questions I encounter the term &quot;competitive firm&quot; and/or &quot;perfectly competitive firm&quot;, e.g.: In the short run, a perfectly competitive firm earning positive economic profit is...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My textbook has no explicit definition for either of the terms.  What assumptions should I make about:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;The firm&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The market the firm is operating in&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="5904" OwnerDisplayName="Owen Sechrist" LastEditorUserId="40" LastEditDate="2015-11-24T05:08:34.500" LastActivityDate="2015-11-24T05:08:34.500" Title="Definition of a 'Competitive Firm' and a 'Perfectly Competitive Firm'" Tags="&lt;microeconomics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9019" PostTypeId="2" ParentId="9018" CreationDate="2015-11-04T19:13:39.710" Score="3" Body="&lt;p&gt;Without seeing a particular context, it is hard to be 100% sure. But typically the term &quot;competitive&quot; is used as shorthand for &quot;perfectly competitive&quot;.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;A market is perfectly competitive if &lt;em&gt;everyone in that market takes the price as given&lt;/em&gt;. That means a seller in a perfectly competitive market can sell as much or as little as he likes (and a buyer can purchase as much or as little as he likes) at the prevailing market price. Nobody has any power to influence the market price.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Contrast this with something like a monopolist, which can set whatever price it likes and therefore obviously does not take the price as given.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A firm in a perfectly competitive market would be said to be a &quot;competitive firm&quot;.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2015-11-04T19:13:39.710" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9020" PostTypeId="1" CreationDate="2015-11-04T19:33:03.290" Score="1" ViewCount="163" Body="&lt;p&gt;Can you point me to any microeconomic models of knowledge and technology?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is intended to be used for simulation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem that arises is that you need to simulate the effects of technology on the economy without knowing anything concrete about the technology and knowledge. &#xA;But the technological breakthroughs are not random. They have a pattern that needs to be modeled.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I made &lt;a href=&quot;http://xekoukou.github.io/economic_simulation/simple_robinson.html&quot; rel=&quot;nofollow&quot;&gt;my own model&lt;/a&gt; but there are too many magic numbers and distributions that I will be using. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Please note that it is still in development, so it is internally inconsistent. So treat it as a series of thoughts at the moment.&lt;/p&gt;&#xA;" OwnerUserId="6157" LastEditorUserId="6160" LastEditDate="2015-11-04T20:06:20.773" LastActivityDate="2015-11-04T20:06:20.773" Title="Microeconomic Model of Knowledge and Technology" Tags="&lt;microeconomics&gt;&lt;simulations&gt;&lt;economic-growth&gt;&lt;technology&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9022" PostTypeId="1" CreationDate="2015-11-05T05:16:28.993" Score="1" ViewCount="308" Body="&lt;p&gt;If you are at a point $(x,y)$ where your $MRS(x,y)=3z$, and you later exchange goods to be at point $(x-a,y+b)$, where your $MRS(x-a,y+b)=z$, can you conclude that you are one the same indifference cure, different one, or is there no conclusion possible?&lt;/p&gt;&#xA;" OwnerUserId="6135" LastEditorUserId="1601" LastEditDate="2015-11-05T10:28:27.400" LastActivityDate="2015-11-22T23:26:36.930" Title="How does Marginal rate of substitution change?" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9023" PostTypeId="1" AcceptedAnswerId="9024" CreationDate="2015-11-05T05:58:28.033" Score="6" ViewCount="157" Body="&lt;p&gt;I've been trying to find sources that mention this, and have tried to find graphs of data so I can compare myself, but I haven't been able to. Do real-estate sale prices correlate positively, negatively, or not at all with apartment rental prices? A more nuanced answer than that is also appreciated.&lt;/p&gt;&#xA;" OwnerUserId="6149" LastActivityDate="2019-04-01T13:24:14.873" Title="How much do real-estate prices correlate with apartment rental prices?" Tags="&lt;housing&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="9024" PostTypeId="2" ParentId="9023" CreationDate="2015-11-05T07:08:55.713" Score="5" Body="&lt;p&gt;In theory there should be a direct positive correlation (especially in countries where house prices are a part of the index which is used to define rental rates), but in reality there is a lot of variation in the results for this question depending on the country, possible effects of different laws, the business cycle, whether new housing is being built or not, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For Italy, Manganelli, Morano and Tajan (2014) in &quot;House prices and rents. The Italian experience&quot; study response functions and conclude:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2)  Rents depend on real-estate prices, the short-term interest rate and the differences between actual and expected GDP with a one year delayed reaction. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand, Ambrose, Eichholtz and Lindenthal (2013) in House Prices and Fundamentals: 355 years of evidence, Journal of Money, Credit and Banking find that when housing prices stray from equilibrium growth, rental rates do not react the same way even if it takes decades for the prices to return to steady growth.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a recent study on U.S. data (model built to match trends from 1960-2013), I'd check Gelain and Lansing (2014): House prices, expectations, and time-varying fundamentals, Journal of Empirical Finance&lt;/p&gt;&#xA;" OwnerUserId="5512" LastActivityDate="2015-11-05T07:08:55.713" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9025" PostTypeId="2" ParentId="3141" CreationDate="2015-11-05T08:17:55.820" Score="-1" Body="&lt;p&gt;&quot;is it politically meaningful to drive up salaries by new investments if the result is unaffordable housing?&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is a very different thing from &quot;is there a correlation&quot;, and I think what you're asking is: what's the use of investing in an area if that will only drive up salaries and thus housing cost? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The answer is YES it is definitely meaningful (politically or otherwise) to make new investments in an area that will (through market forces) drive up salaries. Driving up salaries will &lt;em&gt;not&lt;/em&gt; drive up the cost of housing for a given level of quality unless housing development is artificially curtailed by government actions (which is very common). As salaries rise, over time higher-quality housing options will become available and will push up the average price of housing as a result, but the minimum price of housing on the market will not increase as long as housing development is allowed to keep up with population growth.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would conjecture that the correlation you see in BKay's answer is due to higher-salaried people demanding higher-quality housing, and that the &lt;em&gt;weakness&lt;/em&gt; of that correlation is due to differences in how difficult cities make it to build new housing.&lt;/p&gt;&#xA;" OwnerUserId="6149" LastEditorUserId="6149" LastEditDate="2015-11-05T09:14:02.740" LastActivityDate="2015-11-05T09:14:02.740" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9029" PostTypeId="1" CreationDate="2015-11-05T19:14:12.833" Score="1" ViewCount="20" Body="&lt;p&gt;There's been a lot of talk about the Fed hiking rates soon, and this should be inevitable within the next few months. In the longer term (let's talk about the next 2-5 years), the rates are probably going to keep climbing, and at some point, the economy begins to slow down, stocks will decline, and investing in bonds becomes attractive.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;All of the above is from the viewpoint of a person living in the USA. However, Europe is in a different situation economically, and it looks like there isn't going to be a rate hike any time soon by the ECB.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is, since financial markets are so integrated these days, what is going to happen to the European economy and the stock market in the next 2-5 years, if the base rate stays close to zero to stimulate growth, while at the same time in the U.S., the Fed raises the rate to somewhere near 5 percent?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words, how does the U.S. monetary policy affect European consumers and investors? Especially if the two are in different phases in their policy cycles (will the cycles eventually be synchronized?).&lt;/p&gt;&#xA;" OwnerUserId="6165" LastActivityDate="2015-11-05T19:14:12.833" Title="Fed hikes rates - what will happen in Europe?" Tags="&lt;monetary-policy&gt;&lt;financial-economics&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9030" PostTypeId="1" CreationDate="2015-11-05T22:18:29.570" Score="0" ViewCount="296" Body="&lt;p&gt;We already know that Eurodollar never leaves U.S. But then what do the media mean when they say bringing U.S. dollar offshore (eurodollar) onshore? Isn't it always onshore? (Let us omit the real physical cash)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, the Fed website says that both Eurodollar and Fed funds liability do not have reserve requirement. My question is how can banks in the U.S. hold eurodollar liability? I mean, eurodollar is defined to be U.S. dollar deposited off-shore or IBF. So doesn't that mean U.S. based banks cannot have Eurodollars by definitions? And since eurodollar does not leave the U.S., its borrowing in Eurodollar market in its off-shore branch is actually simply a transfer of Fed reserve from the lender's bank's U.S. bank to the borrower who is a U.S. based bank. Then the liability of the U.S. based borrower shows up as time deposit due to its off-shore branch. So I think this is how banks borrow from Eurodollars market. But the above question remain.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any comment is appreciated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://libertystreeteconomics.newyorkfed.org/2015/05/the-eurodollar-market-in-the-united-states.html#.VjvTKIQt82Z&quot; rel=&quot;nofollow&quot;&gt;http://libertystreeteconomics.newyorkfed.org/2015/05/the-eurodollar-market-in-the-united-states.html#.VjvTKIQt82Z&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="4551" LastActivityDate="2015-11-06T15:27:05.233" Title="If Eurodollar never leaves U.S., then what do we mean by bring eurodollar on shore" Tags="&lt;eurodollar&gt;" AnswerCount="1" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="9031" PostTypeId="2" ParentId="9018" CreationDate="2015-11-06T01:02:58.833" Score="1" Body="&lt;p&gt;A Perfectly Competitive market is characterized by:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) No exit or entry barriers&lt;br&gt;&#xA;2) Totally homogeneous product&lt;br&gt;&#xA;3) Eventually rising average cost of production&lt;br&gt;&#xA;4) Suppliers and Consumers that are &quot;price-takers&quot;, namely no individual action has any effect on the market price. This is rationalized by assuming that each producer and each consumer are &quot;small&quot; (as regards quantities) relative to the whole market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If barriers existed firms could end up making pure economic profits. If product differentiation existed, each differentiated producer would face a downward slopping demand curve, i.e he would have some degree of monopolistic power. If average cost is eventually falling (doesn't happen very often though), the market will tend to become a &quot;natural monopoly&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But the fourth property is the central one: in the real world there are always some barriers to entry/exit, and there is always some product differentiation, even if only in a broad sense. But as long as the market participants are small and with no visible monopoly/monopsony power (other than the little one offered through &quot;inherent&quot; product differentiation), the market will behave very much alike its theoretical ideal. &lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-11-06T01:02:58.833" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="9032" PostTypeId="1" AcceptedAnswerId="9070" CreationDate="2015-11-06T03:52:34.017" Score="4" ViewCount="1648" Body="&lt;p&gt;Consider an agent with utility function $u$, initial wealth $\omega$, and a random variable $x$. By definition of the risk premium $R$, we have &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ Eu(w+x) = u(w+E(x)-R). $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The classical derivation of the risk premium is as follows:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A Taylor series expansion of &lt;strong&gt;order 2&lt;/strong&gt; in the neighborhood of $(\omega + E(x))$ of the left-hand side (LHS) gives&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$u(\omega+x) \approx u[\omega+E(x)] + u'[x-E(x)] + \frac{1}{2} u''[x-E(x)]^2,$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A Taylor series expansion of &lt;strong&gt;order 1&lt;/strong&gt; in the neighborhood of  $(\omega + E(x) - R)$ of the right hand side (RHS) gives&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$u(\omega + E(x)-R)  \approx  u(\omega+E(x)) - u'R.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Taking expectation of the first series expansion and combining the results of the two series with the definition of the risk premium yields&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$u(\omega + E(x)) + u'E[x-E(x)] + \frac{1}{2} u''E[x-E(x)]^2  \approx   u(\omega+E(x)) - u'R.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This implies&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$R \approx - \frac{1}{2} \frac{u''}{u'} E[x-E(x)]^2.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My understanding of this derivation is that we can take a 2- or higher-order expansion of the LHS if we want the risk premium to be related not only to the variance of $R$ but also to higher moments of $R$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, is there any (economic) rational for the first-order expansion of the RHS? And for its different neighborhood evaluation?&lt;/p&gt;&#xA;" OwnerUserId="6168" LastActivityDate="2016-04-06T06:38:13.897" Title="Risk Premium in the Expected Utility Theory" Tags="&lt;microeconomics&gt;&lt;preferences&gt;&lt;expected-utility&gt;&lt;risk-aversion&gt;" AnswerCount="2" CommentCount="3" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9034" PostTypeId="2" ParentId="3112" CreationDate="2015-11-06T07:42:05.790" Score="4" Body="&lt;p&gt;There is a typo in the figure that introduces some confusion in the previous answer, which is basically &lt;strong&gt;wrong&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Based on the numbers and the figure, the utility is such that $$u=\sqrt{x},$$ so&#xA;$$E[u]=\frac{1}{2} u(100+125) + \frac{1}{2} u(100−100)= \frac{1}{2} u(225) =\frac{1}{2} \sqrt{225} = 7.5$$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By definition, the risk premium (R) must satisfy the following condition:&#xA;$$ E(u) = u(100 - R)$$ &#xA;$$ \Leftrightarrow 7.5  = \sqrt{100 - R}$$&#xA;$$ \Leftrightarrow (7.5)^2 = 100 - R$$&#xA;$$ \boxed{\Leftrightarrow R = 43.75}.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Notice that this bet is better than a &quot;fair game&quot; because the expected gain is not zero, but positive (0.5∗125+0.5∗(−100)=12.50.5∗125+0.5∗(−100)=12.5). So, despite this very good bet, the risk-averse agent characterized by her concave utility function ($u = \sqrt{x}$), is ready to pay almost half of her initial wealth to avoid risk and get the certainty equivalent amount.&lt;/p&gt;&#xA;" OwnerUserId="6168" LastEditorUserId="6168" LastEditDate="2016-05-15T23:14:26.120" LastActivityDate="2016-05-15T23:14:26.120" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9035" PostTypeId="2" ParentId="9030" CreationDate="2015-11-06T07:55:37.400" Score="1" Body="&lt;p&gt;Eurodollars can and do leave the US. They can be anywhere in the world: any bank outside the reach of the US Federal Reserve (henceforth &quot;the Fed&quot;). That's what makes them Eurodollars: they're US dollars in deposit accounts beyond the reach of the Fed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That money is said to be &quot;brought onshore&quot; when it is transferred from a deposit account outside the reach of the Fed, into an account that is within reach of the Fed and its regulation / protection. This changes it from being a eurodollar to a dollar.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A US-based bank can have offshore banking subsidiaries and activities, and that's how it can hold eurodollars.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The whole point of a eurodollar is that it takes it outside the reach of the Fed.&lt;/p&gt;&#xA;" OwnerUserId="44" LastEditorUserId="44" LastEditDate="2015-11-06T15:27:05.233" LastActivityDate="2015-11-06T15:27:05.233" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="9036" PostTypeId="1" CreationDate="2015-11-06T12:16:24.200" Score="1" ViewCount="189" Body="&lt;p&gt;I hold the opinion that the notion of opportunity cost &quot;muddies the intellectual waters&quot; so to speak, and I'd like to know if any professional economists have expressed this sentiment, or similar.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;Question.&lt;/strong&gt; Have any economists ever argued that the notion of opportunity cost is problematic, or that it should be done away with?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Let me illustrate with an example. Define a function $f : \mathbb{R} \rightarrow \mathbb{R}$ as follows: $$f(x) = 3-x^2$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Pretend we get to choose $x,$ and that the resulting payoff is $f(x)$. Then obviously, the optimal choice of $x$ is $x=0$, and this gives a payoff (or &quot;benefit&quot;, or &quot;utility&quot;) of $3$. Seems simple enough.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Okay, but now look what happens once we admit opportunity cost into the issue. It &lt;em&gt;could&lt;/em&gt; be argued that by choosing $x=0$ and getting a payoff of $3$, we forgo the benefit associated with choosing $x=1$ at getting a payoff of $2$. So the &lt;em&gt;true&lt;/em&gt; payoff of choosing $x=0$, once opportunity costs have been factored in, is at most $3-1$, which is $2$. Proceeding in this way, we can show that the true payoff, after subtracting all the relevant opportunity costs, is at most $3-(3-\varepsilon^2)$, for any choice of $\varepsilon$, no matter how small. Hence the &lt;em&gt;true&lt;/em&gt; payoff is at most $\varepsilon^2$ for each choice of $\varepsilon$. So under the viewpoint of opportunity cost, the true payoff of choosing $x=0$ is not $3$, its $0$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The is a general principle; if we take the concept of opportunity cost seriously, then every continuous decision problem (involving continuous functions) has a maximum payoff of at most $0$, and most choices actually yield a &lt;em&gt;negative&lt;/em&gt; payoff. Obviously, this is pretty artificial. With discrete problems, its even worse; the maximum payoff of any decision is vastly reduced, but its only $0$ at the second-best choice(s); the best choice(s) yield a positive payoff.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Anyway, I'd like to know whether any professional economists have ever argued against using this concept.&lt;/p&gt;&#xA;" OwnerUserId="6169" LastActivityDate="2015-11-06T20:02:21.950" Title="Have any economists ever argued that the notion of opportunity cost should be done away with?" Tags="&lt;reference-request&gt;&lt;theory&gt;&lt;opportunity-cost&gt;" AnswerCount="1" CommentCount="11" ContentLicense="CC BY-SA 3.0" />
  <row Id="9037" PostTypeId="2" ParentId="9036" CreationDate="2015-11-06T14:18:40.217" Score="8" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;The concept of Opportunity Cost is not used in order to &lt;em&gt;net&lt;/em&gt; the direct&#xA;  benefit of a choice, but in&#xA;  order to compare it to the direct benefit of alternative choices.&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;How do we go about using it in Economics?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) We gather all available alternative choices, say $A, B, C$&lt;br&gt;&#xA;2) We measure (in whatever way appropriate for the situation) the benefit from each choice, say $G_A, G_B, G_C$.&lt;br&gt;&#xA;3) The opportunity cost of choice $A$, say $OC_A$ is defined as the maximum benefit among the benefits of the alternative choices :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$OC_A \equiv \max \{G_B, G_C\}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If $G_A - OC_A &amp;lt;0$ obviously we will be better off by choosing something else, and not $A$. And that's that.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Standard example: you have some money and the only choices available are $A$ to put it in a bank account yielding $3\%$ interest and $B$ to put it in another bank account that yields $4\%$ interest.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The direct benefit of choice $A$ is $3\%$ and its opportunity cost is the direct benefit from the alternative choice $B$, i.e. $4\%$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;This does not mean&lt;/em&gt; that  $A$'s &quot;net benefit&quot; is $3\% - 4\% = -1\%$. This operation just tells us that we have better choices than $A$. Again, it does &lt;em&gt;not&lt;/em&gt;, in any meaningful way, say something like &quot;so the net benefit from choosing $A$ is $-1\%$. It only says &quot;if we choose $A$ we will actually get $3\%$ direct benefit, but we would have get $1$ percentage point more if we had chosen $B$&quot; (an even funnier fallacy here is to say, &quot;so I got $3\%$ and I foregone $1\%$, so my &quot;true benefit = gains (-) losses&quot; therefore true benefit is $3\%-1\%=2\%$&quot; -so sir, can you please hand me this $1\%$ the bank gave you on top of your true benefit? Thank you so much).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Turning to your example, the direct benefit of choosing $x^*=0$ is $3$. The highest opportunity cost of choosing $x^*$ will come from choosing $x'=\epsilon&amp;gt;0$. This will have direct benefit $3-\epsilon$, which is the highest opportunity cost of choosing $x^*$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Perform if you want the subtracting operation, $3-(3-\epsilon) = \epsilon &amp;gt;0$. The important result is that we get a positive number: so the benefit from choosing $x^*$ is greater than the benefit from choosing any available alternative. It is &lt;em&gt;not&lt;/em&gt; the case that the &quot;net benefit&quot; from choosing $x$ is $\epsilon$ (again, since you will get $3$, can you please give me the $3-\epsilon$ which is above your &quot;net benefit&quot;?)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My impression is that this confusion surrounding the correct use of opportunity costs has psychological roots together with the use of the word &quot;opportunity&quot; in a different context: the &quot;feelings of disappointment&quot;(disutility) from &quot;missed opportunities&quot;, that one may experience when he learns that he &lt;em&gt;could have gotten more&lt;/em&gt;, which appear to &quot;subtract&quot; from the utility gained from what he actually got. Indeed, but in such a case, &lt;em&gt;the missed opportunity was not known/available as an alternative choice during the time of decision&lt;/em&gt;. One could attempt to construct a utility function accommodating such behavior, but this is a totally different issue, it has nothing to do with how &quot;opportunity cost&quot; is defined and used in Economics.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-11-06T20:02:21.950" LastActivityDate="2015-11-06T20:02:21.950" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="9038" PostTypeId="1" CreationDate="2015-11-06T16:09:16.370" Score="5" ViewCount="698" Body="&lt;p&gt;I estimated growth regressions for several EU countries. In each of them, the sign of &quot;initial GDP&quot;'s coefficient is statistically significant but positive, which contradicts growth theory as well as most of other published papers on this topic. I tried to change the variables, the period, etc. but it remains positive.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can't find any explanation for this result in the literature, which would imply that there is no growth convergence among European countries.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Did anybody already face this problem? How did you solve this? I can't find the source of this problem. Personally, I replaced &quot;initial GDP&quot; by &quot;lagged (one period) GDP&quot; but it would be better if I could keep &quot;initial GDP&quot; among the explanatory variables.&lt;/p&gt;&#xA;" OwnerUserId="6171" LastEditorUserId="2776" LastEditDate="2017-05-30T11:50:15.653" LastActivityDate="2021-04-11T21:01:20.120" Title="Growth theory / Initial GDP: positive coefficient sign" Tags="&lt;gdp&gt;&lt;economic-growth&gt;" AnswerCount="2" CommentCount="6" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9039" PostTypeId="1" AcceptedAnswerId="9044" CreationDate="2015-11-06T18:26:58.233" Score="8" ViewCount="232" Body="&lt;p&gt;The Gale-Shapley Algorithm is a way of matchmaking between two different entities of people. It guarantees that every individual player is matched and that the matches are stable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What sort of literature has been done building off of this? How does social welfare change when the two entities do not have the same number of individuals in them, so that not everyone can be matched? Are there faster ways to match individuals with each other (lower runtime?). And most importantly, what sort of applications does the Gale-Shapley algorithm have in economics?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems like a very weird game theoretic model just because when I read the proof for the validity of the algorithm, it doesn't seem like the problem is &quot;discrete&quot;; that is, optimizing who gets matched with who and finding a Pareto efficient result can't be solved through maximizing a continuous function. (As a side question, is the Gale-Shapley allocation Pareto efficient?)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Edit&lt;/strong&gt; I meant to say, in the second paragraph, &quot;it seems like the problem IS &quot;discrete&quot;. So my apologies there.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastEditorUserId="4251" LastEditDate="2015-11-07T16:41:32.427" LastActivityDate="2015-11-07T21:12:58.453" Title="Gale-Shapley Follow-up Literature and General Questions" Tags="&lt;reference-request&gt;&lt;game-theory&gt;&lt;social-choice&gt;" AnswerCount="1" CommentCount="6" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9040" PostTypeId="1" CreationDate="2015-11-06T20:52:29.453" Score="0" ViewCount="169" Body="&lt;p&gt;Why is these steps happens one after another in IS-MP Model if MP curve is a horizontal line? Also, is this preventable?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;a) Policymakers believe the slow-down in growth is caused by a&#xA;negative aggregate demand shock...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(b) ...so they lower the Real interest rate R.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(c) In truth, the IS curve never shifted...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(d) ...so the great inflation happened.&lt;/p&gt;&#xA;" OwnerUserId="95" LastEditorUserId="2776" LastEditDate="2017-02-21T20:36:24.000" LastActivityDate="2017-12-19T00:55:29.507" Title="Question about misperception in IS-MP model" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9042" PostTypeId="1" CreationDate="2015-11-06T22:37:03.377" Score="2" ViewCount="73" Body="&lt;p&gt;Elyase İskender posted in his &lt;a href=&quot;http://sayiyon.com/?p=1463&quot; rel=&quot;nofollow noreferrer&quot;&gt;blog&lt;/a&gt; an interesting plot correlating Professors Salary and Alumni Earnings Relation in US Universities. Is there a good way to establish causality here? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Did the highest paid alumni receive a better education from the highest/best profs leading to higher wages? Or, is this a question of selection: the best/highest paid alumni self-selected into places offering the highest prof salaries and the best prospects?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/pucTF.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/pucTF.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="6168" LastEditorUserId="6168" LastEditDate="2015-11-12T01:57:07.210" LastActivityDate="2015-11-12T01:57:07.210" Title="Professors Salary vs Alumni Earning: is the relation causal?" Tags="&lt;regression&gt;&lt;wages&gt;&lt;causality&gt;" AnswerCount="0" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9043" PostTypeId="2" ParentId="8590" CreationDate="2015-11-07T07:20:49.173" Score="1" Body="&lt;p&gt;I'm not also quite sure about what you're asking here. When we sell some goods abroad, we credit Goods&amp;amp;Services part within Trade balance with the sum received for the exported goods. We credit the values of trade in dollars, not the quantities. There is not necessarily a counterpart in the Financial Account. For instance, a trade relationship within the eurozone is priced in euros and does not affect the partner's financial account.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As explained in the Chapter 13 of the &lt;a href=&quot;http://www.pearsonhighered.com/krugman/&quot; rel=&quot;nofollow&quot;&gt;Krugman, Obstfeld, Melitz, International Economics&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Transactions that arise from the export or import of goods or services&#xA;  and therefore enter directly into the current account. When a French&#xA;  consumer imports American blue jeans, for example, the transaction&#xA;  enters the U.S. balance of payments accounts as a credit on the&#xA;  current account.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Note that in this example, as pointed out by @denesp, a euro/dollar trade could be needed. This will affect the financial account as well. However, trade is operated by large (multinational) firms, which have bank accounts in the major currencies such as USD and euro.&lt;/p&gt;&#xA;" OwnerUserId="6168" LastEditorUserId="6168" LastEditDate="2016-03-19T21:36:28.563" LastActivityDate="2016-03-19T21:36:28.563" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9044" PostTypeId="2" ParentId="9039" CreationDate="2015-11-07T08:32:33.660" Score="7" Body="&lt;blockquote&gt;&#xA;  &lt;blockquote&gt;&#xA;    &lt;p&gt;How does social welfare change when the two entities do not have the same number of individuals in them, so that not everyone can be matched?&lt;/p&gt;&#xA;  &lt;/blockquote&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The algorithm works fine in this case. The important assumption is still that the underlying graph is bipartite (and that preferences are transitive). If we allow for members of a given type to propose to each other, then we lose convergence. Suppose we have three players: $A, B, C$. We have $A$'s preferences as $(B, C, A)$; $B$'s preferences as $(C, A, B)$; and $C$'s preferences as $(A, B, C)$. So $A$ proposes to $B$, which accepts. Then $B$ proposes to $C$, which accepts. This unmatches $A$. Next, $C$ proposes to $A$, which accepts. This unmatches $B$. We then repeat.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;blockquote&gt;&#xA;    &lt;p&gt;Are there faster ways to match individuals with each other (lower runtime?)&lt;/p&gt;&#xA;  &lt;/blockquote&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Gale-Shapley has a runtime complexity of $\Theta(n^{2})$. In graph theory, most bipartite matching algorithms take $\Omega(|E| \sqrt{|V|})$ time. In the worst case, $|E| = |V|^{2}/4$. So I wouldn't bank on much better.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Additionally, this isn't a problem that lends itself well to a divide and conquer approach. It's really a greedy problem. You might be able to get the expected runtime down by selecting a random ordering for proposing. The analysis would be involved though.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;blockquote&gt;&#xA;    &lt;p&gt;It seems like a very weird game theoretic model just because when I read the proof for the validity of the algorithm, it doesn't seem like the problem is &quot;discrete&quot;; that is, optimizing who gets matched with who and finding a Pareto efficient result can't be solved through maximizing a continuous function. &lt;/p&gt;&#xA;  &lt;/blockquote&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Actually, it's a discrete model. In more traditional fields of economics, we have continuous variables. So linear programming makes sense. We could actually formulate an integer-linear program for the stable-marriage problem if we look at it from a graph theoretic perspective. Matching problems can be formulated in the language of flows. And we can write flow problems as LPs. The flow constraints form a convex polytope. If the graph is bipartite, the vertices of the polytope are the matchings. The trick here is that we have to add additional constraints to ensure we end up with the correct matching (since the matching from the Gale-Shapley algorithm is unique, regardless of the order in which the men propose). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Even if we go to the trouble of formulating the linear program, solving an LP for this problem by hand or by a computer is less efficient than using the algorithm.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;blockquote&gt;&#xA;    &lt;p&gt;(As a side question, is the Gale-Shapley allocation Pareto efficient?)&lt;/p&gt;&#xA;  &lt;/blockquote&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The matching generated by the Gale-Shapely algorithm is in the core. An imputation belonging to the core satisfies the property that no coalition can collude their initial endowments and improve its members' outcomes. An imputation is Pareto optimal if no set of agents can improve their outcomes without another player's outcome being less favorable. So core allocations are Pareto optimal.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For more on Gale-Shapley, check out my blog: &lt;a href=&quot;https://michaellevet.wordpress.com/2015/05/22/algorithmic-game-theory-stable-marriage-problem/&quot; rel=&quot;nofollow&quot;&gt;https://michaellevet.wordpress.com/2015/05/22/algorithmic-game-theory-stable-marriage-problem/&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="5368" LastEditorUserId="5368" LastEditDate="2015-11-07T21:12:58.453" LastActivityDate="2015-11-07T21:12:58.453" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9045" PostTypeId="1" AcceptedAnswerId="9050" CreationDate="2015-11-07T13:03:55.623" Score="5" ViewCount="358" Body="&lt;p&gt;Philips curve says that inflation and unemployment were inversely correlated. In the 1970s, stagflation happened. If Philips curve hold true, stagflation is impossible. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What were the factors that caused the Philips curve to stop working during the 1970s when the economy was hit by stagflation?&lt;/p&gt;&#xA;" OwnerUserId="6172" LastEditorUserId="6172" LastEditDate="2015-11-07T23:41:00.993" LastActivityDate="2015-11-08T05:01:20.060" Title="What were the factors that caused the Philips curve to stop working during the 1970s?" Tags="&lt;inflation&gt;&lt;unemployment&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9047" PostTypeId="1" AcceptedAnswerId="9048" CreationDate="2015-11-07T14:35:46.020" Score="8" ViewCount="1367" Body="&lt;p&gt;I was studying definitions of Stochastic and Bayesian game and it appears that Stochastic game is a generalized form of Bayesian game. Could anybody please explain the fundamental differences between Stochastic game and Bayesian game and imperfect information and incomplete information games ? &lt;/p&gt;&#xA;" OwnerUserId="5582" LastActivityDate="2015-11-07T16:32:07.003" Title="What is the difference between Stochastic game and Bayesian game ?" Tags="&lt;game-theory&gt;&lt;bayesian-game&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9048" PostTypeId="2" ParentId="9047" CreationDate="2015-11-07T16:32:07.003" Score="10" Body="&lt;p&gt;In a Bayesian game, information is incomplete. To cope, players have beliefs about the state of the game. In a sense, each player strategizes as if the game was as he or she believes. So each player operates in his or her own world. And if every player plays a Nash equilibrium in one's own world, that's a Bayesian Nash equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a stochastic game, the information about the current state of the game may indeed be public. At a given time step, the next state is determined by the current state, the strategy profile played at that time step, and some stochastic process (like a Markov chain, for example). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can have a stochastic Bayesian game where information is incomplete and there is a stochastic switching device like a Markov chain.&lt;/p&gt;&#xA;" OwnerUserId="5368" LastActivityDate="2015-11-07T16:32:07.003" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9049" PostTypeId="1" CreationDate="2015-11-07T16:48:49.327" Score="7" ViewCount="442" Body="&lt;p&gt;I am reading about exchange economies and ran across something that is counter intuitive.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How is it that in an exchange economy with no production that a person can make himself/herself better off by destroying a portion of his or her endowment? If there is no production how, in the long run, is a person better off destroying some of the available resource if that resource can't be replaced etc.? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can anyone illustrate this in a simple manner to help with the intuition? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know that if there could be some way that destroying a bit of a resource can drive up prices such that the remaining quantity is now more valuable than the original quantity at original prices. Is that what is happening here? If so, why and how? &lt;/p&gt;&#xA;" OwnerUserId="6175" LastEditorUserId="4961" LastEditDate="2015-11-08T19:41:21.240" LastActivityDate="2017-04-16T23:34:28.660" Title="Destruction in Exchange Economies" Tags="&lt;microeconomics&gt;" AnswerCount="3" CommentCount="6" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="9050" PostTypeId="2" ParentId="9045" CreationDate="2015-11-07T17:37:50.157" Score="7" Body="&lt;p&gt;The general way people figured the Phillips curve worked was that a shock in aggregate demand or fiscal stimulus would cause labor demand to increase as government spending generated growth, which makes labor more scarce and causes firms to compete for workers by raising nominal wages. Wage costs then rise, and the firm passes on some of the cost to the consumer by raising the prices of their products.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So in this way, unemployment and inflation become tradeoffs. The problem is then this can be easily exploited, but also easily noticed. Lucas's critique states that people's expectations of inflation--and future inflations--will affect price levels as well. So if a policy maker tried to create inflation all the time to lower unemployment, what would happen is that the Phillips curve would actually shift around, so the tradeoff would hold, but you would be getting worse tradeoffs as people's expectations shifted.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By raising inflation constantly by the central bank and by politicians, you'd fall into a liquidity trap (when raising inflation fails to decrease interest rates and stimulate and economy). The reason why is because if everyone expected the rise in inflation, there'd be no reason to hire more workers, since real demand is staying the same. So instead of a short run rise in output, firms just went straight to raising prices instead of hiring more people.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That said, today, Lucas's critique has its limitations. Even transparent policies that are fully known to increase inflation by firms can still boost output in the short run. This is probably because after the 1970s in America, the new head of the Federal Reserve, Paul Volcker, decided that the central bank should commit more heavily to a set inflation rate in the long run, so that their policies would be more credible.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;We can set up a game-theoretic model for optimal monetary policy, as such:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\max_{u, \pi} V(u, \pi) = -(u^2 + \pi^2)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The central bank wants to minimize a combination of unemployment and inflation. Their constraint is a simple Phillips curve:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$u = u^* - k(\pi - \pi^e)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where $k &amp;gt; 0$ is some weight for the degree of the tradeoff ($-k$ is the slope of the Phillips curve). $u^*$ is the natural rate of unemployment and fixed, while $\pi^e$ is the expected inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Comparing the Ramsey and Nash equilibria of this game, where consumers and firms set expectations of inflation and the central bank tries to game that, we'll find that if firms trust the central bank to be honest about what inflation they are targeting, the central bank will always have the incentive to lie, if only acting for one period.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Substitute the Phillips curve into the central bank's maximization problem:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\begin{align}&#xA;&amp;amp; V = [u^* - k(\pi_t - \pi^e)]^2 + \pi^2 \\&#xA;&amp;amp; \frac{\partial V}{\partial\pi} = -2[u^* - k(\pi_t - \pi^e)]k + 2\pi = 0\\&#xA;&amp;amp; \implies \pi_{\text{opt}} = \frac{k}{1+k^2}(u^* + k\pi^e)\\&#xA;&amp;amp; u_{\text{opt}} = u^* - k(\pi - \pi^e) \\&#xA;&amp;amp; \implies u_{\text{opt}} = \frac{1}{1+k^2}u^* +  \frac{k}{1+k^2}\pi^e \\&#xA;\end{align}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now assume the private sector knows the Fed's optimal monetary policy problem, and set $\pi^e = \pi_{\text{opt}}$. Say the Fed is credible.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\pi_{\text{opt}} = \pi^e = \frac{k}{1+k^2}(u^* + k\pi^e)$$&#xA;$$\boxed{\pi^e = ku^*}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$u_{\text{opt}} = \frac{1}{1+k^2}u^* +  \frac{k}{1+k^2}\pi^e$$&#xA;$$= \frac{1}{1+k^2}u^* +  \frac{k}{1+k^2}ku^*$$&#xA;$$\boxed{u = u^*}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These are the best responses for the Fed...if they are worried about telling the truth. Investigating Ramsey's time inconsistency problem, the Fed can technically do better. Suppose it announces $\pi = 0$ as a target.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\pi_{\text{opt}} = \frac{k}{1+k^2}u^*$$&#xA;$$u_{\text{opt}} = \frac{1}{1+k^2}u^*$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can verify that the Fed has an incentive to deviate in a one-period game.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastEditorUserId="4251" LastEditDate="2015-11-08T05:01:20.060" LastActivityDate="2015-11-08T05:01:20.060" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9051" PostTypeId="2" ParentId="9049" CreationDate="2015-11-07T19:07:07.993" Score="6" Body="&lt;p&gt;Consider an exchange economy with two goods $x$ and $y$ and two agents $A$ and $B$. The utility functions are&#xA;$$&#xA;U_A(x_A,y_A) = x_A \cdot y_A, \hskip 20pt U_B(x_B,y_B) = \min(x_B,y_B).&#xA;$$&#xA;Let the initial endowments be&#xA;$$&#xA;\omega_A = (\omega_A^x,\omega_A^y) = (z,0), \hskip 20pt \omega_B = (\omega_B^x,\omega_B^y) =  (0,4),&#xA;$$&#xA;where $0 \leq z \leq 8$ is left as a parameter. In equilibrium&#xA;$$&#xA;x_A = \frac{z}{2}, \hskip 20pt y_A = \left(4 - \frac{z}{2}\right), \hskip 20pt x_B = \frac{z}{2}, \hskip 20pt  y_B = \frac{z}{2}.&#xA;$$&#xA;(A detailed calculation showing this is at the bottom of this answer.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The utility of agent $A$ is&#xA;$$&#xA;U_A\left(\frac{z}{2},4 - \frac{z}{2}\right) = \frac{z}{2} \cdot \left(4 - \frac{z}{2}\right).&#xA;$$&#xA;The maximum of this is at $z = 4$. If the initial endowment of agent $A$ is larger than 4 he has incentive to destroy part of it, because assuming a competitive equilibrium outcome this will improve his utility.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;As @Foobar pointed out in the comments further utility could be gained by not destroying but simply withholding part of the initial endowment. There are two arguments to be made for destruction:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Agent $B$ sees the supply and refuses the monopolistic outcome, insisting on the competitive price ratio.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;One could divide agent $A$ into several 'smaller' agents. Agents who would have the same utility functions and equal shares of the initial endowment. In this case withholding part of the endowment is a cartel move. It is not individually rational. One could argue that destroying the 'surplus' is a commitment necessary for coordination.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;In equilibrium total demand equals total supply in both markets.&#xA;\begin{eqnarray*}&#xA;x_A + x_B &amp;amp; = &amp;amp; \omega_A^x + \omega_B^x \\&#xA;\\&#xA;y_A + y_B &amp;amp; = &amp;amp; \omega_A^y + \omega_B^y.&#xA;\end{eqnarray*}&#xA;Our next step is determining demand. Here is the information we gather from the utility functions:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $y$ the numeraire good, i.e. let $p_y=1$. Let us denote the price of $x$ by simply $p$. The value of the initial endowment of agent $A$ is $z \cdot p$. Using the Cobb-Douglas property&#xA;$$&#xA;x_A = \frac{z\cdot p}{2\cdot p} = \frac{z}{2}, \hskip 20pt y_A = \frac{z\cdot p}{2}.&#xA;$$&#xA;Using this we have&#xA;\begin{eqnarray*}&#xA;x_A + x_B &amp;amp; = &amp;amp; \omega_A^x + \omega_B^x \\&#xA;\\&#xA;\frac{z}{2} + x_B &amp;amp; = &amp;amp; z + 0 \\&#xA;\\&#xA;x_B &amp;amp; = &amp;amp; \frac{z}{2}.&#xA;\end{eqnarray*}&#xA;It follows from agent $B$'s utility function that in equilibrium&#xA;$x_B = y_B$. Using this we have&#xA;\begin{eqnarray*}&#xA;y_A + y_B &amp;amp; = &amp;amp; \omega_A^y + \omega_B^y \\&#xA;\\&#xA;y_A + x_B &amp;amp; = &amp;amp; \omega_A^y + \omega_B^y \\&#xA;\\&#xA;y_A + \frac{z}{2} &amp;amp; = &amp;amp; 4 \\&#xA;\\&#xA;y_A &amp;amp; = &amp;amp; 4 - \frac{z}{2}.&#xA;\end{eqnarray*}&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2015-12-01T10:12:33.023" LastActivityDate="2015-12-01T10:12:33.023" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9052" PostTypeId="1" AcceptedAnswerId="9057" CreationDate="2015-11-07T23:50:35.620" Score="2" ViewCount="267" Body="&lt;p&gt;Shortly after 2008, there were prominent commentators such as Jim Rogers who called Ben Bernanke an idiot and condemn him for printing money. However, there were also articles that suggest quantitative easing is really an asset-swap and not money-printing. On the other hand, there are articles that say the opposite.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.pragcap.com/bloomberg-quantitative-easing-isnt-printing-money/&quot; rel=&quot;nofollow&quot;&gt;http://www.pragcap.com/bloomberg-quantitative-easing-isnt-printing-money/&lt;/a&gt;&#xA;&lt;a href=&quot;http://www.bankingmyway.com/save/savings/what-does-printing-money-mean&quot; rel=&quot;nofollow&quot;&gt;http://www.bankingmyway.com/save/savings/what-does-printing-money-mean&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What exactly is quantitative easing? Asset-swapping or money-printing? Does it raise the money supply? Inflationary or not? &lt;/p&gt;&#xA;" OwnerUserId="6172" LastActivityDate="2015-11-08T05:15:58.870" Title="Is Quantitative Easing an asset-swapping or money-printing exercise by the Federal Reserve?" Tags="&lt;inflation&gt;&lt;money-supply&gt;&lt;quantitative-easing&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9053" PostTypeId="1" CreationDate="2015-11-08T02:57:41.463" Score="1" ViewCount="1180" Body="&lt;p&gt;The question is as follows: &lt;em&gt;The Happyland Hospital is a monopsonist employer of nurses in the small city of Happyland. The market supply function of nurses is $S(W) = 0.1W - 100$, where $W$ is the nurses weekly wage. What is the hospital's marginal expenditure, ME? If the hospital's marginal benefit of a nurse is $2,000 per week, no matter how many nurses it hires, what is the profit-maximizing number of nurses for the hospital to hire? What will the nurse's wage be? What is the deadweight loss?&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And my work so far is as follows:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$Q_s = 0.01W - 100$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$0.01W = Q + 100$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Inverse Supply: $W = 100Q + 10,000$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$ME = W+(dW/dQ)Q = (10,000 + 100Q) + 100Q$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$ME = 10,000 + 200Q$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Profit Maximization - $MB = ME$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$10,000 + 200Q = 2000$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I first derive the Inverse supply curve then use that to derive marginal revenue. Now I'm setting $MB = ME$ as this is the profit maximizing point, but the Q it yields is negative. $(-40)$. Have a feeling this is a problem point. Am I going wrong here? &lt;/p&gt;&#xA;" OwnerUserId="5743" LastEditorUserId="2938" LastEditDate="2015-11-09T02:46:42.953" LastActivityDate="2015-11-09T02:46:42.953" Title="Profit maximizing in monopsonist market" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9057" PostTypeId="2" ParentId="9052" CreationDate="2015-11-08T05:08:02.743" Score="1" Body="&lt;p&gt;Seignorage is harmful if it is abused to cause hyperinflation. Without quantitative easing, we probably would've had mass deflation instead (which is arguably worse), and makes the Fed look not credible in striving for its target inflation rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are different ways of implementing quantitative easing in other areas I think, but more or less, it is buying massive amounts of financial assets from banks and other financial institutions in order to lower their yield, which raises the price and increases the money supply. It is supposed to be inflationary, but QE is usually in response to when the short term interest rate approaches zero, and it becomes hard to do that.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastEditorUserId="4251" LastEditDate="2015-11-08T05:15:58.870" LastActivityDate="2015-11-08T05:15:58.870" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="9058" PostTypeId="2" ParentId="9053" CreationDate="2015-11-08T06:42:41.480" Score="2" Body="&lt;p&gt;The question you are showing work out for where $S(w) = 0.01W - 100$ means that you will have no nurses who want to work unless you have a minimum wage of over 10,000 per week, and since the marginal benefit of every nurse is 2,000 per week, this hospital will not be in business. Your original question you typed at the very beginning is making you work with $S(w) = 0.1W - 100$. So let's try approaching that question instead. It also seems you need some help understanding how to get expenditure, so let's go through that too.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, we find inverse supply.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$W = 10S + 1000$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Expenditure is the price of labor times quantity of labor.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$E = WS = 10S^2 + 1000S$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The derivative of this is your marginal expenditure.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{dE}{dS} = 20S + 1000$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Set up the profit maximization problem and take the derivative (which we set to zero).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\begin{align}&#xA; \pi &amp;amp; = 2000S - (10S^2 + 1000S) \\&#xA; \frac{d\pi}{dS} &amp;amp; = 2000 - 20S - 1000 = 0\\&#xA; &amp;amp; = 1000 = 20S\\&#xA; \implies &amp;amp; \boxed{S^* = 50} \\&#xA;\end{align}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then to calculate wage, you just plug in the optimal supply to your inverse supply function. To find dead-weight loss, try drawing out a graph for labor supply and demand. Labor demand should be a straight line across from $W = 2000$. Labor supply was given to you. Notice where the labor supplied equals labor demand. What would $S$ equal there and what wage would be set there? It should be different from the $S^*$ we got. That should give you enough insight to the rest of the question.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2015-11-08T06:42:41.480" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9059" PostTypeId="1" CreationDate="2015-11-08T09:06:34.983" Score="8" ViewCount="399" Body="&lt;p&gt;Bloom in a recent JEP &lt;a href=&quot;https://www.aeaweb.org/articles.php?doi=10.1257/jep.28.2.153&quot;&gt;paper&lt;/a&gt; considers that &quot;the increase in computing power has made it possible to include uncertainty shocks directly in a wide range of models, allowing economists to abandon assumptions built on “certainty equivalence,” which refers to the amount of money that would be required as compensation for risk.&quot; (2nd paragraph of page 154, third point).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My understanding of Bloom's point is the idea that with computing power we can treat and exploit the heterogeneity of data. We can use high-frequency and/or large-scale data, in combination with computing power, to identify the role of uncertainty shock on economic outcomes. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My guess is that Bloom's point could be an implicit criticism of the expected utility theory given the importance of the certainty equivalent concept, and the related concept of risk premium, in this framework. Is this guess/interpretation right?&lt;/p&gt;&#xA;" OwnerUserId="6168" LastEditorUserId="6168" LastEditDate="2015-11-13T22:56:45.347" LastActivityDate="2017-12-30T23:13:37.090" Title="Will high computing power substitute the certainty-equivalence assumption?" Tags="&lt;risk&gt;&lt;expected-utility&gt;&lt;uncertainty&gt;" AnswerCount="2" CommentCount="6" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="9060" PostTypeId="1" CreationDate="2015-11-08T17:13:35.013" Score="1" ViewCount="171" Body="&lt;p&gt;My background is not in economy, but I know that the indebtedness of the western countries is slowing the growth of the economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So my line of thinking is the following. Would it be feasible if a country's central bank (which would be state owned) prints money and then the government by various tenders for small businesses and startups distributes this money?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This created money would be granted for productive purposes only, interest free and not returnable if the company performs well. Also I think that this increase in the money supply would not generate inflation because the money will be backed by future products and services. By this measure the production and consumption would increase in the country. Therefore the state would need not to take foreign loans because the required sum of money for it's purposes would be covered with taxes. Of course small and medium sized companies would be taxed much less than big, multinational companies. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What are your thoughts on this?&lt;/p&gt;&#xA;" OwnerUserId="6188" LastEditorUserId="6188" LastEditDate="2015-11-08T21:55:39.963" LastActivityDate="2015-11-09T18:43:53.610" Title="Generating economic growth" Tags="&lt;macroeconomics&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9061" PostTypeId="1" AcceptedAnswerId="9062" CreationDate="2015-11-08T18:05:48.513" Score="5" ViewCount="74" Body="&lt;p&gt;How do one know whether an appreciation in the price of an asset is a bubble or not? For example, during the 2007-2008 crisis, there was a housing bubble, which is only mainly agreed upon when the bubble actually starts to burst. Beforehand, however, the rise in housing price was not commonly accepted as a bubble, especially during the period when the housing price was still rising before the crisis.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So how do we know whether an appreciation is a bubble or not?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any suggestions of articles about the issue are appreciated.&lt;/p&gt;&#xA;" OwnerUserId="4551" LastEditorUserId="4551" LastEditDate="2015-11-08T18:27:44.650" LastActivityDate="2015-11-08T18:27:44.650" Title="What is an economic bubble?" Tags="&lt;economic-bubble&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9062" PostTypeId="2" ParentId="9061" CreationDate="2015-11-08T18:25:05.317" Score="3" Body="&lt;p&gt;This a highly disputed question! There is a new and interesting paper by Òscar Jordà, Moritz Schularick and Alan M. Taylor about &quot;&lt;a href=&quot;http://economics.ucdavis.edu/people/amtaylor/files/w21486.pdf&quot; rel=&quot;nofollow&quot;&gt;Leveraged bubbles&lt;/a&gt;&quot;. They study bubbles in housing and equity markets in 17 countries over the past 140 years. &lt;/p&gt;&#xA;" OwnerUserId="6168" LastActivityDate="2015-11-08T18:25:05.317" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9064" PostTypeId="1" CreationDate="2015-11-08T20:41:15.337" Score="1" ViewCount="153" Body="&lt;p&gt;Suppose that there is a market with a large number of consumers and producers. Assume that the government knows the reservation prices of  all people in the market. Suppose that the government uses this information to tax all the consumer and producer surplus created in the market (by making everyone pay or receive the reservation price). The government distributes the total welfare equally to everyone. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What effect would this have on the economy compared to the situation without government intervention?&lt;/p&gt;&#xA;" OwnerUserId="5845" LastEditorUserId="5635" LastEditDate="2015-11-12T02:58:39.370" LastActivityDate="2015-11-12T02:58:39.370" Title="What would happen if total welfare were evenly distributed?" Tags="&lt;microeconomics&gt;&lt;public-economics&gt;&lt;welfare-economics&gt;" AnswerCount="1" CommentCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="9065" PostTypeId="1" CreationDate="2015-11-08T20:55:17.850" Score="1" ViewCount="55" Body="&lt;p&gt;If demand for a product is elastic( consider the case when the price is low ), lowering the price further increases total revenue.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, as per the law of supply, low prices cause suppliers to supply less of this elastic demand product.  There will be a shortage and price must increase back to equilibrium price.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Doesn't the law of supply invalidate &quot;total revenue rises with price drops on goods with elastic demand&quot;?&lt;/p&gt;&#xA;" OwnerUserId="6189" LastEditorUserId="5635" LastEditDate="2015-11-09T02:46:49.160" LastActivityDate="2015-11-09T02:46:49.160" Title="Does the law of supply reject rise in total revenue for goods with elastic demand?" Tags="&lt;supply-and-demand&gt;&lt;elasticity&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9066" PostTypeId="1" AcceptedAnswerId="9105" CreationDate="2015-11-08T21:06:56.200" Score="0" ViewCount="104" Body="&lt;p&gt;I was wandering if the amount of imports and exports in an economy depended only on the exchange rates then what would the foreign trade multiplier of this economy look like ?&lt;/p&gt;&#xA;" OwnerUserId="5582" LastEditorUserId="1601" LastEditDate="2015-11-08T21:20:29.500" LastActivityDate="2015-11-10T21:09:39.427" Title="How would a foreign trade multiplier behave if imports depended only on exchange rates?" Tags="&lt;macroeconomics&gt;&lt;exchange-rates&gt;&lt;open-economy-macro&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9067" PostTypeId="2" ParentId="9065" CreationDate="2015-11-08T21:51:13.157" Score="1" Body="&lt;p&gt;There is no contradiction.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The law of supply simply indicates a supply curve is upward sloping.  There is no prohibition against the curve itself moving so that it intersects demand in another location, so long as the slope remains positive.&lt;/p&gt;&#xA;" OwnerUserId="4185" LastActivityDate="2015-11-08T21:51:13.157" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9068" PostTypeId="2" ParentId="9060" CreationDate="2015-11-08T22:49:10.503" Score="1" Body="&lt;p&gt;Remember that increases in a standard IS-LM model an increase in government expenditure generates an increase in the real interest rate. &#xA;As such, private investment decreases. Traditional economic theory would suggest that what you recommend will crowd out private investment. The question can then be modified as follows-  does a 1 Dollar increase in government expenditure decrease private investment by less than 1 Dollar? In other words, is the government multiplier greater than 1? A lot of empirical work has been done on this.&lt;/p&gt;&#xA;" OwnerUserId="5233" LastActivityDate="2015-11-08T22:49:10.503" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="9069" PostTypeId="1" CreationDate="2015-11-08T22:55:45.977" Score="1" ViewCount="26" Body="&lt;p&gt;I'm trying to find information about the current state of medical IP protection in countries willing to sign the TPP and the change they will go trough and maybe some impact analysis.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I was hoping maybe i would catch someone currently swimming in this stuff right now and willing to share knowledge or links to valid informaiton&lt;/p&gt;&#xA;" OwnerUserId="5485" LastEditorUserId="5635" LastEditDate="2015-11-09T02:35:29.757" LastActivityDate="2017-10-27T22:25:07.333" Title="Want to read more about medical intellectual property and the TPP" Tags="&lt;reference-request&gt;&lt;international-trade&gt;&lt;intellectual-property&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9070" PostTypeId="2" ParentId="9032" CreationDate="2015-11-08T23:37:11.743" Score="6" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;Is there any (economic) rational for the first-order expansion of the RHS? And for its different neighborhood evaluation?&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;As for your first question:&lt;br&gt;&#xA;This is a purely mathematical tactic in order to obtain an (approximate) equation for $R$. The expansion of first order on the RHS is motivated by this fact, i.e. to bring $R$ alone &quot;in the surface&quot;.  The reason why the LHS is subjected to a second-order expansion is in order for something to be left (the variance term). Higher-order expansions of the LHS can certainly be applied.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for your second question, you are making a mistake. The center of expansion for the RHS expansion is the same as that for the LHS expansion, namely $w-E(x)$ (or equivalently, around $R=0$). It is meaningless (and it fails) to expand a function around its exact argument. Specifically we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$u\left(w+E(x)-R\right) \approx u\left(w+E(x)\right) + u'\cdot [(w+E(x)-R)-(w+E(x))] = u\left(w+E(x)\right) - u'\cdot R$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, why not consider a second-order expansion on the RHS? We would then get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$u\left(w+E(x)-R\right) \approx u\left(w+E(x)\right) + u'\cdot [(w+E(x)-R)-(w+E(x))] \\+\frac 12 u''\cdot [(w+E(x)-R)-(w+E(x))]^2 $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$= u\left(w+E(x)\right) - u'\cdot R + \frac 12 u''\cdot R^2$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then we would obtain a quadratic polynomial in $R$,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac 12 u''\cdot R^2 - u'\cdot R - \frac 12 u''\sigma^2_x = 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\ R^2 - \frac {2u'}{u''}\cdot R - \sigma^2_x = 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This has roots&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$R_1,R_2 = \frac {(2u'/u'') \pm \sqrt{(2u'/u'')^2+4\sigma^2_x}}{2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies R = \frac{u'}{u''} + \sqrt{\left( \frac{u'}{u''}\right)^2+\sigma^2_x}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can totally validly use this expression for $R$, but I guess you understand why the simpler one is used instead.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-11-09T02:39:13.780" LastActivityDate="2015-11-09T02:39:13.780" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9073" PostTypeId="2" ParentId="9064" CreationDate="2015-11-09T02:22:29.430" Score="1" Body="&lt;p&gt;Firstly, let us fix the mode of taxation as &lt;strong&gt;lump-sum taxes&lt;/strong&gt;. This means that after the redistribution we will still have an efficient allocation assuming there are no externalities.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Next, think about what happens to each individuals' &lt;strong&gt;income&lt;/strong&gt;. Individuals with a high demand elasticity for the good will in general be taxed less than individuals with a low demand elasticity. If the demand elasticity is unrelated to the original income level, this means that this mode of taxation does not necessarily increase equality in income across individuals.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This may not be bad, because the redistribution may still be &lt;strong&gt;welfare&lt;/strong&gt; enhancing if the marginal utility of income of high elasticity individuals is higher than the marginal utility of income of low elasticity individuals. However, we know that marginal utilities are unrelated to demand, since one can always apply any monotone transformation to the utility function and obtain the same demand functions. Thus, both equality of income and welfare effects are unclear.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, we may consider what happens to &lt;strong&gt;demand&lt;/strong&gt; in that particular market. Again, the effects are unclear. This time, it is the presence of income effects which obfuscate the picture. An individual with a positive income transfer may consume more or less of the good, depending on whether it is an inferior good or not.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this answer, we have thus seen that without making stronger assumptions on preferences, we cannot say much about the effects of such a redistribution even if we assume lump-sum redistribution. If we go into second-best analysis, things may get even more complicated.&lt;/p&gt;&#xA;" OwnerUserId="5635" LastActivityDate="2015-11-09T02:22:29.430" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9076" PostTypeId="1" AcceptedAnswerId="9108" CreationDate="2015-11-09T08:13:30.530" Score="3" ViewCount="114" Body="&lt;p&gt;I am an undergraduate student who does some research on sovereign debt and its sustainability. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which papers are essential to understand how sovereign debt works and which implication it has for the economic policy of the country?&lt;/p&gt;&#xA;" OwnerUserId="5720" LastEditorUserId="5635" LastEditDate="2015-11-11T07:52:44.133" LastActivityDate="2015-11-12T19:44:51.753" Title="Economic theory / papers on sovereign debt?" Tags="&lt;macroeconomics&gt;&lt;reference-request&gt;&lt;debt&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9077" PostTypeId="1" AcceptedAnswerId="9079" CreationDate="2015-11-09T09:12:45.323" Score="2" ViewCount="6432" Body="&lt;p&gt;What are the acronyms for? SA, WDA, NSA. I was able to find WDA: written down allowance, but I am not sure is correct and how is applicable to GDP.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/xSrqd.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/xSrqd.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="6196" LastEditorUserId="43" LastEditDate="2015-11-09T10:34:18.017" LastActivityDate="2015-11-09T10:34:18.017" Title="GDP type: WDA, NSA, SA" Tags="&lt;gdp&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9078" PostTypeId="2" ParentId="8618" CreationDate="2015-11-09T09:41:09.613" Score="3" Body="&lt;p&gt;It seems that you misunderstood the concept of &lt;em&gt;marginal&lt;/em&gt; propensity to consume. The &lt;em&gt;marginal&lt;/em&gt; propensity is only valid for an infinitesimal increase in income. As soon as you move away from the original starting point where the marginal propensity was 1, there may be a different marginal propensity. The multiplier however assumes that the marginal propensity to consume remains the same at all income levels (since it is essentially an infinitely repeated application of the marginal propensity to consume). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The above problem with such analyses is why economists switched to models with so-called microfoundations in which the firm and consumer behavior is explicitly modeled via profit/utility maximization. In a model with fixed resources it would quickly become clear that a marginal propensity to consume of 1 for all income levels would violate market clearing conditions.&lt;/p&gt;&#xA;" OwnerUserId="5635" LastActivityDate="2015-11-09T09:41:09.613" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9079" PostTypeId="2" ParentId="9077" CreationDate="2015-11-09T10:22:52.143" Score="3" Body="&lt;p&gt;SA = seasonally adjusted&lt;/p&gt;&#xA;&#xA;&lt;p&gt;WDA = working day adjusted &lt;/p&gt;&#xA;&#xA;&lt;p&gt;NSA = not seasonally adjusted&lt;/p&gt;&#xA;" OwnerUserId="5512" LastActivityDate="2015-11-09T10:22:52.143" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9080" PostTypeId="2" ParentId="8618" CreationDate="2015-11-09T15:01:32.070" Score="2" Body="&lt;p&gt;It appears that there exists a fascination with considering extreme values of mathematical formulas that are used in Economics (see for example questions about infinite elasticity etc) and wonder what will happen if these extreme values where actually observed, tending to forget the economics of the situation along the way.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So let's see: if marginal propensity to consume is constant (undergraduate macro) and equals unity, we have &lt;em&gt;no saving whatsoever&lt;/em&gt;. So also, &lt;em&gt;no investment&lt;/em&gt;. If we have no investment, the maximum productive capacity of the economy will remain fixed, or worse it will decrease due to depreciation of capital.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the productive capacity remains fixed then, even if we assume that the increase in government spending happens at a time where there is no full employment of factors of production, the ultimate limit of the multiplier effect is the said maximum productive capacity plus the capital stock of the economy, assuming that we can sell it abroad and engage in a consumption orgy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Write the macroeconommic identity (closed economy) as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$F(K,L)+(1-\delta)K \equiv C_p + I_p +C_g$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $C_g$ is government &lt;em&gt;consumption&lt;/em&gt;, &lt;em&gt;not&lt;/em&gt; expenses. The left-hand side is &lt;em&gt;all we got&lt;/em&gt;, after production takes place. Then with $I_p=0$ (since marginal propensity to consume is constant and unity) we have that, at most,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\max C_p = F(K,L)+(1-\delta)K &amp;lt; \infty$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &quot;catch&quot; is that a full specification of the &quot;multiplier effect&quot; would require a function with branches to deal with any extreme values that push the economic system to hit the wall of finiteness.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-11-09T15:01:32.070" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9081" PostTypeId="1" AcceptedAnswerId="9085" CreationDate="2015-11-09T15:50:20.467" Score="4" ViewCount="117" Body="&lt;p&gt;I am trying to determine the exact theoretical mechanism for a positive capital shock to create an increase in land price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assuming output is a function of land ($L$), labour ($N$)  and capital ($K$) : &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ Y = A f (L, N, K) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am unsure if I am correct, but so far I have,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Positive capital shock -&gt; increase in the MPK -&gt; labour demand rises -&gt; wage rises -&gt; qty supplied of labour rises -&gt; MPN rises -&gt; with more workers available to work the land, each additional unit of land is able to produce more output -&gt; MPL rises -&gt; price of land rises. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you know any papers that deal with this particular mechanism please let me know also. &lt;/p&gt;&#xA;" OwnerUserId="5367" LastEditorUserId="47" LastEditDate="2015-11-09T23:30:38.470" LastActivityDate="2015-11-10T03:23:43.720" Title="How does a positive capital shock cause an increase in land price?" Tags="&lt;production-function&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9082" PostTypeId="1" AcceptedAnswerId="9104" CreationDate="2015-11-09T16:08:19.693" Score="5" ViewCount="79" Body="&lt;p&gt;Sorry this might be a little too rudimentary for you, but I'm not an Econ background. When I was doing exercises for MGW chapter 17 &quot;Positive Existence of Equilibrium&quot; I came across the following statement &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The consumers preferences are strictly convex, this implies that there is no equilibrium in the overall economy generated by replication.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;What doe &lt;strong&gt;equilibrium generated by replication&lt;/strong&gt; mean? I couldn't find it in the text. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks in advance.&lt;/p&gt;&#xA;" OwnerUserId="5850" LastActivityDate="2015-11-10T18:26:24.610" Title="What is an equilibrium generated by replication?" Tags="&lt;microeconomics&gt;&lt;general-equilibrium&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9083" PostTypeId="2" ParentId="9032" CreationDate="2015-11-09T16:18:37.660" Score="2" Body="&lt;p&gt;It is worth noting that the &quot;risk premium&quot; you are talking about is in fact more accurately referred to as the Arrow-Pratt approximation of the cost of a small additive risk. You can approximate it however you want (and a Taylor series approximation is an unbiased way of doing so), but ultimately you only need to do that to provide a simple explanation of other, more interesting concepts on the economics of risk.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My understanding for the different levels of approximation was the different levels of variance and movement in the functions you are approximating. Expected utility will vary in a concave way with the added riskiness of x, whereas the utility of the difference between the certainty equivalent and the risk premium will be much closer to a linear function.&lt;/p&gt;&#xA;" OwnerUserId="6060" LastEditorUserId="6168" LastEditDate="2016-04-06T06:38:13.897" LastActivityDate="2016-04-06T06:38:13.897" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9084" PostTypeId="2" ParentId="9081" CreationDate="2015-11-09T16:22:32.813" Score="3" Body="&lt;p&gt;You might want to assume a Cobb-Douglas production function for the sake of simplicity. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$Y=A L^{\alpha_1} N^{\alpha_2} K^{1-\alpha_1-\alpha_2}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hint: Look at to the cross derivatives.&lt;/p&gt;&#xA;" OwnerUserId="4185" LastEditorUserId="4185" LastEditDate="2015-11-10T03:23:43.720" LastActivityDate="2015-11-10T03:23:43.720" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9085" PostTypeId="2" ParentId="9081" CreationDate="2015-11-09T18:34:54.763" Score="2" Body="&lt;p&gt;I think you got the answer, to give more detail: assume a Cobb-Dougblas production function: $Y=AL^{\alpha_1}N^{\alpha_2}K^{1-\alpha_1-\alpha_2}$.&#xA;The marginal product of land i.e. price is then:$$MPL = \alpha_1 A L^{\alpha_1-1}N^{\alpha_2}K^{1-\alpha_1-\alpha_2}$$&#xA;Simulate this model with various factor values. You can build the story yourself using this basic textbook explanation, don't need a paper for empirical evidence.&lt;/p&gt;&#xA;" OwnerUserId="6009" LastActivityDate="2015-11-09T18:34:54.763" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9086" PostTypeId="2" ParentId="9060" CreationDate="2015-11-09T18:43:53.610" Score="1" Body="&lt;p&gt;This will eventually lead to increased money supply and then push up inflation rate, because, those companies who received the newly printed cash will have to pay back existing loans in their books. An illustrative answer can be found &lt;a href=&quot;https://www.youtube.com/watch?v=EobPnLZiOo8&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="6009" LastActivityDate="2015-11-09T18:43:53.610" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9087" PostTypeId="1" AcceptedAnswerId="9088" CreationDate="2015-11-09T19:59:10.380" Score="6" ViewCount="16604" Body="&lt;p&gt;Given this question:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;National income is increasing by 1.5% a year and population by 2.5% a year. What is the rate of growth of per capita income?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Attempt: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since per capita income is GDP/ population. I divided 1.5 by 2.5 and got 0.6. Is this right?&#xA;Thanks.&lt;/p&gt;&#xA;" OwnerUserId="5864" LastEditorUserId="264" LastEditDate="2015-11-09T20:20:30.777" LastActivityDate="2018-12-18T09:33:09.497" Title="Calculating rate of growth of per capita income" Tags="&lt;macroeconomics&gt;&lt;mathematical-economics&gt;&lt;gdp&gt;" AnswerCount="4" CommentCount="0" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="9088" PostTypeId="2" ParentId="9087" CreationDate="2015-11-09T20:15:14.680" Score="3" Body="&lt;p&gt;&lt;strong&gt;Consider:&lt;/strong&gt; If national income is increasing at a slower rate than population growth, then intuitively per capita income will be falling. Here is a set-up for the rate of decline in per capital income.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\text{per capita income}_t = \frac{\text{GDP}(1.015)^t}{\text{population}(1.025)^t} \text{per capita income}_{t-1}$$&lt;/p&gt;&#xA;" OwnerUserId="4251" LastEditorUserId="4251" LastEditDate="2015-11-09T23:29:34.747" LastActivityDate="2015-11-09T23:29:34.747" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="9089" PostTypeId="2" ParentId="9087" CreationDate="2015-11-09T20:18:23.720" Score="1" Body="&lt;p&gt;This is not correct. It will be a bit complicated to derive this formally,&#xA;so I will provide a rule of thumb. For a time dependent variable that&#xA;is a function of a ratio of two other time dependent variables:&#xA;$$&#xA;y(t)=\frac{A(t)}{B(t)}&#xA;$$&#xA;the growth rate of $y(t),$ call it $\tilde{y}=\tilde{A}-\tilde{B}$ where the RHS is the difference between the growth rates of $A(t)$ and $B(t)$.&#xA;You can apply this to your question.&lt;/p&gt;&#xA;" OwnerUserId="5233" LastActivityDate="2015-11-09T20:18:23.720" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="9090" PostTypeId="1" CreationDate="2015-11-09T21:12:20.833" Score="0" ViewCount="359" Body="&lt;p&gt;I am curious how I solve this question, I will include an image below. I am not looking to be spoon-fed just informed. If you could answer and provide an expiation for the answer that would be awesome!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The graphs below depict the perfectly competitive market for apples on the left and Farmer Johns perception of the market for apples as an individual farmer on the right. Assume farmer Johns costs are represented by SRATC-1. In the long run will farmer John choose a high, medium, or low level capital for his farm. Indicate the SRATC curve associated with Johns decision. Explain what is going on short term for Johns apple farm. (Drawing a typical MC curve might be helpful)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is the equilibrium price depicted here a long run equilibrium ? How do you know? If not what will happen to move the market towards the long run? Show the change the move the market towards the long run equilibrium and label the long run equilibrium price, market quantity and johns long run produced quantity? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/VLQlj.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/VLQlj.jpg&quot; alt=&quot;Question&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="6200" LastEditorUserId="6200" LastEditDate="2015-11-09T21:39:11.233" LastActivityDate="2015-11-10T13:31:50.487" Title="Macroeconomics Homework Question" Tags="&lt;macroeconomics&gt;&lt;competitive-equilibrium&gt;" AnswerCount="1" CommentCount="4" ClosedDate="2015-11-11T04:22:49.860" ContentLicense="CC BY-SA 3.0" />
  <row Id="9092" PostTypeId="1" CreationDate="2015-11-10T03:36:51.533" Score="6" ViewCount="59" Body="&lt;p&gt;I'm trying to prove a claim made in Stigler (1961), &quot;The Economics of Information.&quot; This claim has to do with showing that the marginal benefit&#xA;of making an additional search (e.g., searching an additional store for a lower price) is decreasing in the number of searches.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $F$ be the distribution of prices $p$. Then, the expected value of the minimum price after $n$ searches is &#xA;$$&#xA;E(n) \equiv n \int_0^\infty p (1-F)^{n-1} F' \mathrm d p.&#xA;$$&#xA;In the paper, the claim is that&#xA;$$&#xA;[E(n+2) - E(n+1)] - [E(n+1) - E(n)] &amp;gt; 0.&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have found a related question &lt;a href=&quot;https://stats.stackexchange.com/questions/109432/proving-some-properties-of-expected-first-order-statistics-with-respect-to-sampl&quot;&gt;here&lt;/a&gt;. However,&#xA;this linked question considers the max of arbitrary $n_1 &amp;lt; n_2 &amp;lt; n_3$. Here, I'm&#xA;considered only with the statement as it appears in Stigler's article.&#xA;Does anybody know how to prove this?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Notes:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;I'm note sure if &quot;convex&quot; is the right term here. The linked question and its answer raise some doubts that it is convex in the strict sense of the word. I suppose what I'm after is just the differences in the differences (a weaker condition that convexity?).&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="59" LastEditorUserId="-1" LastEditDate="2017-04-13T12:44:19.590" LastActivityDate="2015-11-10T17:57:53.380" Title="Proof that the diff-in-diff (wrt sample size) of the expectation of a first-order statistic is positive (Stigler 1961)" Tags="&lt;probability&gt;&lt;information&gt;&lt;search-and-matching&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9093" PostTypeId="2" ParentId="8215" CreationDate="2015-11-10T03:40:21.303" Score="0" Body="&lt;p&gt;when you say 'effect,' i'm not really sure whether you're looking for a rigorous econometric model or, as the guy ahead of me wrote, a more practical, investor-oriented approach.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;most of the sectors you'd would expect to take a beating given a rise in debt costs - construction, commodities, energy - have been trading on the cheap for a while now. (fwiw...inexpensive and highly-cyclical sectors are always intriguing)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;it will be interesting to see whether a rising rate environment a) spikes the housing market as buyers try and snap up loans while rates are still low or b) totally guts already tepid demand. but that presumes an environment where rates are rising consistently, as opposed to maybe just once this december, which may be presuming too much. &lt;/p&gt;&#xA;" OwnerUserId="6203" LastActivityDate="2015-11-10T03:40:21.303" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9094" PostTypeId="2" ParentId="9092" CreationDate="2015-11-10T03:45:32.277" Score="0" Body="&lt;p&gt;This is my attempt. As I noted in the question (see the linked question as well), I have my doubts.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We want to show that&#xA;\begin{align}&#xA;[E(n+2) - E(n+1)] - [E(n+1) - E(n)] &amp;amp;&amp;gt; 0 \tag{1}\\&#xA;E[n+2] + E[n] &amp;amp;&amp;gt; 2 E[n+1] \notag \\&#xA;\frac 1 2 E[n+2] + \frac 1 2 E[n] &amp;amp;&amp;gt; E[1/2 (n+2) + 1/2 n] =  E[n+1]. \notag&#xA;\end{align}&#xA;Since&#xA;$$&#xA;E(n) \equiv n \int_0^\infty p (1-F)^{n-1} F' \mathrm d p,&#xA;$$&#xA;we see that $E$ is a function from $\mathbb R$ to $\mathbb R$. However, in the context of search, we restrict its domain to positive integers. However, if we show that the unrestricted function $E[n]$ is convex in $n$, it's easy to see that equation (1) is true by Jensen's inequality.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can see that&#xA;\begin{align*}&#xA;\frac{\mathrm d^2}{\mathrm d n^2} E[n]&#xA;  &amp;amp;= 2 \int_0^\infty p F' (1-F)^{n-1} \ln(1-F) \mathrm d p&#xA;  + \int_0^\infty p F' (1-F)^{n-1} [\ln(1-F)]^2 \mathrm d p \\&#xA;  &amp;amp;= \int_0^\infty p F' (1-F)^{n-1} \ln(1-F)(2 + n \ln(1-F)) \mathrm d p.&#xA;\end{align*}&#xA;Now, for sufficiently large $n$, this is positive. Therefore, $E[n]$ is convex&#xA;in $n$ and we are done.&lt;/p&gt;&#xA;" OwnerUserId="59" LastEditorUserId="59" LastEditDate="2015-11-10T17:57:53.380" LastActivityDate="2015-11-10T17:57:53.380" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9095" PostTypeId="2" ParentId="8219" CreationDate="2015-11-10T07:40:08.397" Score="1" Body="&lt;p&gt;The &lt;a href=&quot;http://stats.oecd.org/&quot; rel=&quot;nofollow&quot;&gt;Stats.OECD&lt;/a&gt; web site answers all your questions and offers useful data!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is an &lt;a href=&quot;http://www.oecd.org/std/na/1909562.pdf&quot; rel=&quot;nofollow&quot;&gt;OECD document&lt;/a&gt; explaining the sources and methods used by OECD member countries to compute &lt;strong&gt;&lt;em&gt;quarterly&lt;/em&gt;&lt;/strong&gt; national accounts. As explained in the document, most of the OECD countries use 3 types of approach to construct GDP figures: the production approach, the expenditure approach, and the income approach. Among others, those approaches rely on surveys of households and firms.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the &lt;strong&gt;&lt;em&gt;annual&lt;/em&gt;&lt;/strong&gt; figures, the OECD maintains a useful &lt;a href=&quot;http://www.oecd.org/std/na/annualnationalaccountsfaqs.htm&quot; rel=&quot;nofollow&quot;&gt;FAQs page&lt;/a&gt;, with answers on What is a GDP? How is it calculated? When are the annual national accounts revised? Etc... The source and methods web page is &lt;a href=&quot;http://www.oecd.org/eco/outlook/sources-and-methods.htm&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Quarterly or annual data for OECD countries can be found &lt;a href=&quot;http://stats.oecd.org/Index.aspx?DataSetCode=qna&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="6168" LastActivityDate="2015-11-10T07:40:08.397" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9096" PostTypeId="1" CreationDate="2015-11-10T11:57:15.580" Score="2" ViewCount="28" Body="&lt;p&gt;I suppose as a buyer many have been on the receiving end of &quot;call for price&quot; &lt;a href=&quot;https://en.wikipedia.org/wiki/Price_discrimination&quot; rel=&quot;nofollow&quot;&gt;price discrimination&lt;/a&gt; or one of its less unpleasantly sounding synonyms. Now it's generally known that the &lt;a href=&quot;http://www.autoblog.com/2014/06/03/americans-hate-car-shopping-so-rather-give-up-sex-do-taxes/&quot; rel=&quot;nofollow&quot;&gt;average Joe hates negotiating&lt;/a&gt; at least for cars... So how do you decide as a seller whether to sell something the call-for-price-way or (still using cars as example) the &lt;a href=&quot;http://www.businessinsider.com/costco-is-a-huge-auto-dealer-2015-6&quot; rel=&quot;nofollow&quot;&gt;Costco way&lt;/a&gt; i.e. with fixed/list prices?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I suppose there's some kind of market research that takes into account the psychological aversion [for protracted negotiation] of the prospective buyers, but I don't know much about that. Is there any research on this topic, i.e. what are the things to consider in deciding on list price vs &quot;call for price&quot;? And is there empirical validation for such decision schemes if they exist?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Yeah, the traditional economic theory simply says &lt;a href=&quot;https://books.google.com/books?id=2gC7AzyJIbAC&amp;amp;pg=PA18&quot; rel=&quot;nofollow&quot;&gt;&quot;If you can discriminate, it is profitable to do so&quot;&lt;/a&gt;. But that seems to ignore any behavioral economics aspects.&lt;/p&gt;&#xA;" OwnerUserId="6210" LastEditorUserId="6210" LastEditDate="2015-11-10T12:21:25.973" LastActivityDate="2015-11-10T12:21:25.973" Title="Are there some guidelines/strategies for deciding between showing a list price vs &quot;call for price&quot;?" Tags="&lt;behavioral-economics&gt;&lt;pricing&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9097" PostTypeId="1" AcceptedAnswerId="9098" CreationDate="2015-11-10T12:30:21.673" Score="5" ViewCount="166" Body="&lt;p&gt;The textbook I am currently reading claims that, in an infinitely-repeated game with discount, there might be a payoff vector which is feasible and individually-rational, but it is not an equilibrium payoff vector in the repeated game. The example is the following basic game for three players:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;     L       R&#xA;T  0,2,5    0,0,0&#xA;M  0,1,0    2,0,5&#xA;B  1,1,0    1,1,0&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;The third player is a dummy player with only one possible action.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this game:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;The minimax values of the players are 1,1,0.&lt;/li&gt;&#xA;&lt;li&gt;The payoff vector 1,1,5 is both individually-rational and feasible (e.g. by mixing TL and MR with equal frequencies).&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The book claims that the only payoff vector in equilibrium is 1,1,0! Why?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $E$ be some equilibrium in the repeated game. The payoffs of the row and column players in $E$ must be 1, because:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;They must be at least 1 because these are the minimax values;&lt;/li&gt;&#xA;&lt;li&gt;They must be at most 1 because the sum of utilities of these players in every outcome is at most 2.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;In the TR and ML cells, the sum of utilities of the row and column players is less than 2; hence, these cells are not played in equilibrium at all.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So in equilibrium, the only cells that may be played with positive frequency are: TL, MR, BL, BR.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, the authors claim that TL and MR are also not played at all in equilibrium. From this they conclude that the payoff of the dummy player is 0. I didn't understand this part. Is it true that TL and MR are never played in equilibrium? Why?&lt;/p&gt;&#xA;" OwnerUserId="385" LastActivityDate="2015-11-10T13:17:12.583" Title="A feasible rational payoff that is not an equilibrium payoff in the repeated game" Tags="&lt;game-theory&gt;&lt;repeated-games&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9098" PostTypeId="2" ParentId="9097" CreationDate="2015-11-10T13:17:12.583" Score="5" Body="&lt;p&gt;It is true because of the discounting. If the discount parameter were $\delta = 1$ then players 1 and 2 could alternate playing TL and MR in equilibrium and then reach the average payoff vector $1,1,5$. But if $\delta &amp;lt; 1$ someone will not play along. Suppose the players are supposed to start with TL. Then MR would follow in the next round then, then TL again, and so on. In this case&#xA;$$&#xA;U_1 = 0 + 2 \cdot \delta + 0 \cdot \delta^2 + 2 \cdot \delta^3 + ...&#xA;$$&#xA;Yet by always playing B player 1 would achieve the payoff&#xA;$$&#xA;U_1' = 1 + 1 \cdot \delta + 1 \cdot \delta^2 + 1 \cdot \delta^3 + ...&#xA;$$&#xA;which is larger then $U_1$. Similarly player 2 would not want to start with MR. So these are not equilibrium playoffs. (Not even Aumann's correlated-equilibrium would do the trick.)&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2015-11-10T13:17:12.583" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9099" PostTypeId="2" ParentId="9090" CreationDate="2015-11-10T13:31:50.487" Score="1" Body="&lt;p&gt;It's been a while since I've look at perfect competition and cost curves.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First off, it's helpful if you draw the standard diagram for a perfectly competitive firm, one with supernormal profits and the other with normal profits (and compare it to the 3 types of situations in Johns diagram)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From what I do remember, Long run equilibrium under perfect competition consists of:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) P = MC = MR (profit maximisation)&#xA;2) P = Min ATC &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Remembering that the market is the price maker, and the individual firm (johns farm) is the price taker. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the long run, market price (indicated by demand and supply intersection) must be level with the lowest point on the LRATC curve (also lowest point on SRATC-2). This doesn't appear to be the case in these diagrams, thus it must be a short run equilibrium. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So in order to adjust to this long run equilibrium two things need to happen&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) Either demand for apples falls, or supply of apples rises in the market for apples. To bring about a price consistent with the long run equilibrium &lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) John needs his ATC to move from SRATC-1 to SRATC-2. (Because any perfectly competitive firm not at its minimum LRATC will, in the LR, change its input combination to take advantage of lower average costs). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;According to Johns apple farm, the firm is earning abnormal/supernormal profits because of the position of price on SRATC-1 i.e it is not the case that P=min ATC=AR. There is a distance between ATC (higher than minimum ATC on SRATC-1) and AR. This distance is abnormal profits. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If firms are able to make positive profits by moving outward on the LRATC curve, those profits will attract entrants into the industry in the usual fashion (shifting the supply cure outward). Profits will eventually dissipate to zero. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the long run, a perfectly competitive firm is allocatively and productively efficient: P=MC &amp;amp; ATC=MC i.e lowest point on SRATC-2 and LRATC.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In regards to the high medium or low level of capital, because there are 3 options and 3 SRATC curves, I believe it is medium (greater than the quantity associated with SRATC-1, and lower that then quantity associated with SRATC-3).&lt;/p&gt;&#xA;" OwnerUserId="5367" LastActivityDate="2015-11-10T13:31:50.487" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9100" PostTypeId="2" ParentId="9076" CreationDate="2015-11-10T13:42:56.550" Score="1" Body="&lt;p&gt;I don't know a great deal about this area. But in terms of the European Sovereign Debt Crisis, you might wish to review Philip Lanes research on the topic. I'm sure there are others too, maybe his co-authors on papers etc, you could look at their papers too. For example, there is one in the Journal of Economic Perspectives in 2012 called &quot;The European Sovereign Debt Crisis&quot;. It's a nice one to read, at least I thought so anyway!&lt;/p&gt;&#xA;" OwnerUserId="5367" LastActivityDate="2015-11-10T13:42:56.550" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9101" PostTypeId="1" CreationDate="2015-11-10T15:31:05.783" Score="1" ViewCount="63" Body="&lt;p&gt;(edit this bracket out: i'm sorry for being unclear in my question, it was too mild or undirected earlier, i hope the following is better; thanks)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You keep hearing politicians and sometimes the biz press harp on &quot;Currency Manipulation&quot; when it becomes fashionable, and then the story subsides. But what is considered &quot;manipulation&quot; by central banks, also has market effects, no? So that &quot;manipulation&quot; is not really dangerous.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Am i correct that manipulation can be done by outright money printing, which is inflationary, or completely sterilized, which increases borrowing costs. So it seems all &quot;manipulation&quot; is having a market effect anyway (not a free lunch). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are there other ways of doing manipulation? which of these two modes of manipulation is more popular? which one does the Unites States use, as the host of the Reserve Currency?&lt;/p&gt;&#xA;" OwnerUserId="4982" LastEditorUserId="4982" LastEditDate="2015-12-05T17:35:44.903" LastActivityDate="2015-12-05T17:35:44.903" Title="Isn't the concept of &quot;Currency Manipulation&quot; really much ado about nothing?" Tags="&lt;currency&gt;&lt;exchange-rates&gt;" AnswerCount="0" CommentCount="2" ClosedDate="2015-11-11T07:53:26.527" ContentLicense="CC BY-SA 3.0" />
  <row Id="9102" PostTypeId="1" CreationDate="2015-11-10T16:01:35.163" Score="3" ViewCount="58" Body="&lt;p&gt;I learn best my reading about a concept and then trying to implement it using math and a programming language. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Right now, I'm trying to implement an Exponential Moving Average indicator, but I'm sort of stuck on the smoothing factor. What I've come up with: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{1}{N}\sum\limits_{k=0}^N \alpha^{k} P_k$$&#xA;Where &lt;strong&gt;N&lt;/strong&gt; is the window of days in consideration, &lt;strong&gt;k&lt;/strong&gt; loops through the days, &lt;strong&gt;$ \alpha $&lt;/strong&gt; is a smoothing factor and &lt;strong&gt;P&lt;/strong&gt; is the price. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What should I use for a smoothing factor? Is there any general guidelines? And am I even near the final product?&lt;/p&gt;&#xA;" OwnerUserId="6212" LastActivityDate="2015-11-10T16:01:35.163" Title="Exponential Moving Average smoothing factor" Tags="&lt;stock-market&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9103" PostTypeId="2" ParentId="9092" CreationDate="2015-11-10T16:13:24.580" Score="3" Body="&lt;p&gt;Well, you cannot take the derivative of $E(n)$ with respect to $n$, because $n$ is an integer variable.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;More generally, you want to prove a property with respect to $n$. The problem you have is that the corresponding domain is not a convex set: say, for $n$ and $n+1$, $0&amp;lt;\lambda &amp;lt;1$, the value $\lambda n + (1-\lambda) (n+1) = n+1-\lambda$ does not belong to the domain since it is not an integer. But if the domain of the function, with respect to the variable you are interested in, is not a convex set, the concept of convexity/concavity is not even defined (perhaps in higher mathematics they have some more nuanced concept to accommodate that).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To determine whether the inequality you want holds, a brute-force algebraic approach is to examine its sign directly: we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$[E(n+2) - E(n+1)] - [E(n+1) - E(n)] =\\= (n+2) \int_0^\infty p (1-F)^{n+2-1} F' \mathrm d p \\- 2 (n+1) \int_0^\infty p (1-F)^{n+1-1} F' \mathrm d p\\ +n \int_0^\infty p (1-F)^{n-1} F' \mathrm d p$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$= \int_0^\infty p (1-F)^{n-1} F'\cdot\Big[(n+2)(1-F)^2 - 2(n+1)(1-F)+n\Big] \mathrm d p $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Doing the algebra&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$(n+2)(1-F)^2 - 2(n+1)(1-F)+n  \\= n(1-F)^2 + 2(1-F)^2 - 2n(1-F) - 2(1-F) +n \\&#xA;= n\Big[(1-F)^2 - 2(1-F) +1\Big]  - 2(1-F)F \\&#xA;= n [(1-F) -1]^2 - 2(1-F)F = nF^2 -  2(1-F)F = F\Big[nF-2+2F\Big]\\&#xA;=F\cdot \Big[(n+2)F-2\big]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So we have arrived at&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$[E(n+2) - E(n+1)] - [E(n+1) - E(n)] = \int_0^\infty p (1-F)^n F'\cdot\Big[(n+2)F-2\Big] \mathrm d p$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Breaking up and manipulating,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$[E(n+2) - E(n+1)] - [E(n+1) - E(n)] = \\=(n+2)\int_0^\infty p (1-F)^{n+1} F' \mathrm d p \\- \left(\frac{2}{n+1}\right)(n+1)\int_0^\infty p (1-F)^n F'\mathrm d p$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies [E(n+2) - E(n+1)] - [E(n+1) - E(n)] = E(n+2)-\frac{2}{n+1}E(n+1)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Simplifying $E(n+2)$ from both sides we get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$-2E(n+1) + E(n) = -\frac{2}{n+1}E(n+1)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies E(n) = \frac {2n}{n+1}E(n+1)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and by induction&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies E(n+1) = \frac {2(n+1)}{n+2}E(n+2) \implies E(n+2) = \frac {n+2}{2(n+1)}E(n+1)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$[E(n+2) - E(n+1)] - [E(n+1) - E(n)] = $$&#xA;$$= \left(\frac {n+2}{2(n+1)} -1\right)E(n+1) - \left( 1- \frac {2n}{n+1}\right)E(n+1) $$&#xA;$$= \left(\frac {n+2}{2(n+1)} -1 -  1+ \frac {2n}{n+1}\right)E(n+1)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$=\frac {n+2 - 4(n+1) + 4n}{2(n+1)}E(n+1) = \frac {n-2}{2(n+1)}E(n+1)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So $n=1$ is not a search, for $n=2$ we have equality, and for $n\geq 3$ the inequality holds.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-11-10T16:20:58.737" LastActivityDate="2015-11-10T16:20:58.737" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9104" PostTypeId="2" ParentId="9082" CreationDate="2015-11-10T18:21:46.910" Score="2" Body="&lt;p&gt;For each agent in the economy, create n agents with the same endowment and preferences. The result is the replication economy. Sometimes n is taken to infinity in proofs. &#xA;Chapter 17.I in Mas-Colell explains in detail. Related material is the regularizing effects of aggregation, appendix of Chapter 4.&lt;/p&gt;&#xA;" OwnerUserId="4445" LastEditorUserId="4445" LastEditDate="2015-11-10T18:26:24.610" LastActivityDate="2015-11-10T18:26:24.610" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="9105" PostTypeId="2" ParentId="9066" CreationDate="2015-11-10T21:09:39.427" Score="0" Body="&lt;p&gt;If the net exports depended only on the exchange rate then there would not be any induced effect of net exports on income (as exports would not depend on income) hence, no multiplier effect. The other multipliers in economy would not be affected either.&lt;/p&gt;&#xA;" OwnerUserId="5582" LastActivityDate="2015-11-10T21:09:39.427" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9108" PostTypeId="2" ParentId="9076" CreationDate="2015-11-11T01:45:07.203" Score="3" Body="&lt;p&gt;&lt;a href=&quot;http://www.hks.harvard.edu/about/faculty-staff-directory/carmen-reinhart&quot; rel=&quot;nofollow&quot;&gt;Carmen Reinhart&lt;/a&gt; from Harvard Kennedy School works extensively on these questions. She has a recent paper forthcoming  in the Journal of the European Economic Association, 2016, entitled &quot;&lt;a href=&quot;https://research.hks.harvard.edu/publications/getFile.aspx?Id=1215&quot; rel=&quot;nofollow&quot;&gt;Sovereign Debt Relief and its Aftermath&lt;/a&gt;&quot; with Christoph Trebesch. They study sovereign debt relief in a long-term perspective, using two distinct samples: 1920-1939, and 1978-2010. They published a short &lt;a href=&quot;http://www.voxeu.org/article/sovereign-debt-relief-and-its-aftermath-1930s-1990s-future&quot; rel=&quot;nofollow&quot;&gt;Vox-CEPR column&lt;/a&gt; on this research.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In their book, with Kenneth Rogoff, &quot;&lt;a href=&quot;http://www.carmenreinhart.com/this-time-is-different/&quot; rel=&quot;nofollow&quot;&gt;This time is different&lt;/a&gt;&quot; they address this question. They have also other interesting and good papers:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Reinhart, Carmen, and Kenneth Rogoff. &quot;Dealing with Debt.&quot; Journal of International Economics 96 (July 2015): S43-S55. &lt;/li&gt;&#xA;&lt;li&gt;Reinhart, Carmen, and Kenneth Rogoff. &quot;Financial and Sovereign Debt&#xA;Crises: Some Lessons Learned and Those Forgotten.&quot; Financial Crises:&#xA;Causes, Consequences, and Policy Responses. Ed. Stijn Claessens, M.&#xA;Ayhan Kose, Luc Laeven, and Fabian Valencia. International Monetary&#xA;Fund, 2014.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Check also:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Reinhart, Carmen M., and M. Belen Sbrancia. &quot;The Liquidation of&#xA;Government Debt.&quot; Economic Policy 30.82 (March 2015): 291-333.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="6168" LastEditorUserId="6168" LastEditDate="2015-11-11T02:05:43.293" LastActivityDate="2015-11-11T02:05:43.293" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9109" PostTypeId="1" AcceptedAnswerId="9110" CreationDate="2015-11-11T01:49:57.880" Score="5" ViewCount="162" Body="&lt;p&gt;Can we view the monopolistic competition equilibrium (a la Dixit-Stigliz) as the limit case of a Bertrand competition with an infinite number of firms providing differentiated products, where the resulting equilibrium is a Nash equilibrium in prices? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am looking for references on this topic. Thanks.&lt;/p&gt;&#xA;" OwnerUserId="6168" LastEditorUserId="5635" LastEditDate="2015-11-11T06:34:22.340" LastActivityDate="2015-11-11T14:11:36.843" Title="Monopolistic and Bertrand (Nash) Competition" Tags="&lt;reference-request&gt;&lt;industrial-organisation&gt;&lt;nash-equilibrium&gt;&lt;competition&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9110" PostTypeId="2" ParentId="9109" CreationDate="2015-11-11T03:49:49.530" Score="6" Body="&lt;p&gt;The following paper compares the efficiency of the Bertrand and Cournot game in the case of product differentiation. However, their utility function is more general than the Dixit/Stiglitz case. You also do not have an infinite number of firms competing in each differentiated product but just one firm per differentiated product (the number of differentiated products however may be infinite).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Vives, Xavier. &quot;&lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/0022053185900869&quot; rel=&quot;nofollow&quot;&gt;On the efficiency of Bertrand and Cournot equilibria with product differentation&lt;/a&gt;.&quot; Journal of Economic Theory 36.1 (1985): 166-175.&lt;/p&gt;&#xA;" OwnerUserId="5635" LastEditorUserId="108" LastEditDate="2015-11-11T14:11:36.843" LastActivityDate="2015-11-11T14:11:36.843" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9111" PostTypeId="1" AcceptedAnswerId="9194" CreationDate="2015-11-11T06:49:19.613" Score="6" ViewCount="263" Body="&lt;p&gt;Let us have a finite state space, $\Omega = {\omega_1,\cdots,\omega_s}$, where $2 \leq s &amp;lt; \infty$. Define a bet as a function $x:\Omega \rightarrow X$, where $X \subseteq \mathbb{R}^s$ is the set of monetary outcomes. Assume that the agent only cares about expected payoffs. Let $\succcurlyeq$ be a rational, continuous preference relation on $X$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Additivity:&lt;/strong&gt;&#xA;$$\forall x, y, z \in X, \text{then} \ x \succcurlyeq y \iff x+z \succcurlyeq y+z$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Monotonicity&lt;/strong&gt;&#xA;$$\forall x, y \in X, \text{then} \ x \geq y \iff x \succcurlyeq y$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Non-Triviality&lt;/strong&gt;&#xA;$$\exists x, y \in X, \text{s.t.} \ x \succcurlyeq y$$&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;em&gt;De Finetti Theorem&lt;/em&gt;&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\succcurlyeq$ on $X$ is rational, continuous, additive, monotonic, and nontrivial if and only if&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\exists p \in \mathbb{R}^s \setminus {0} = \{p \in \mathbb{R}^s \mid \sum^s_{i=1} p_i = 1, \ p_i \in [0,1] \ \forall \ i \}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;s.t. $\forall x,y \in X$, we have $x \succcurlyeq y \iff p \cdot x \geq p \cdot y$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Moreover, p is unique.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;So my professor has asked us to prove the De Finetti Theorem, in which she told us that:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, prove that $\succcurlyeq$ is rational, continuous, additive, monotone, and nontrivial.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$( \exists \ p \quad \text{s.t.} \ \forall x,y \ \text{and} \ x \succ y \Leftrightarrow px \geq py )$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Use the uniqueness of p with a proof of contradiction using:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume $\succcurlyeq$, then suppose $x \succcurlyeq y$ but $px &amp;lt; py \ \forall \ p$. Then suppose $px \geq py, \ y$  but $y \succ x \ \forall \ p$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Second, let $U(\lambda) = px$, then show the property holds.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then with the uniqueness of $p$, let $s = 2 \rightarrow ( p , 1- p)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider $x \sim y$, and then suppose $p$ is not unique $\rightarrow$ $( p + \epsilon , 1 - p - \epsilon )$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\epsilon \in \mathbb{R}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the question is: how do I construct $\epsilon$ for it to be consistent with the model? Any help would be appreciated in applying the outline of this proof.&lt;/p&gt;&#xA;" OwnerUserId="6003" LastEditorUserId="4251" LastEditDate="2015-11-11T20:31:22.673" LastActivityDate="2015-11-16T19:15:22.600" Title="Proving the De Finetti Theorem" Tags="&lt;preferences&gt;&lt;expected-utility&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9112" PostTypeId="1" CreationDate="2015-11-11T08:17:38.337" Score="5" ViewCount="191" Body="&lt;p&gt;The macro-literature insists on a consumption-leisure elasticity of 0 to match the balanced growth fact of constant labor supply. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there any paper that tries to evaluate this elasticity using micro-data, &lt;em&gt;for a representative subsample of the population&lt;/em&gt;? There are many papers that show that consumption-leisure elasticities are not 0 for most goods, but it can be argued that these studies only use a non-representative sample of the population, and that - with a larger sample - these elasticities are more likely to average out to zero.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What has been done in this respect?&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2016-01-07T14:20:18.307" LastActivityDate="2016-01-07T14:20:18.307" Title="Consumption-Leisure Elasticity" Tags="&lt;macroeconomics&gt;&lt;labor-economics&gt;&lt;preferences&gt;&lt;economic-growth&gt;&lt;empirical-evidence&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="9113" PostTypeId="2" ParentId="4705" CreationDate="2015-11-11T08:49:10.007" Score="1" Body="&lt;p&gt;$i_t$ should be the interest rate at time $t$. $\pi_t$ the inflation at time $t$. $Y_t$ the income at time $t$. The variables without indices are the targets of the central bank. The interpretation of this Taylor rule is therefore that the current interest rate is a function of the past deviation of the interest rate from the target, the current inflation deviation from target, the current output gap, the exchange rate deviation from target, and deviations from the current money growth target.&lt;/p&gt;&#xA;" OwnerUserId="5635" LastActivityDate="2015-11-11T08:49:10.007" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9114" PostTypeId="1" CreationDate="2015-11-11T15:21:50.243" Score="0" ViewCount="68" Body="&lt;p&gt;This is a homework question: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$y_t = \alpha y_{t-1} + \beta_0 x_t + \beta_1 x_{t-1} + \epsilon_t , 0&amp;lt;\alpha&amp;lt;1, (t=1,...,T)$&#xA;where $x_t$ is an I(1) process independent from $\epsilon_t$ for all $s$ and $t$, and $\epsilon_t , t=1,...,T $ are i.i.d with mean zero and variance $\sigma^2$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Question&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) Suppose that $\beta_0 \not= -\beta_1$. Is it possible that $y_t$ is stationary?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) Write down the error correction form of the model, showing the relationship between the new parameters and those in the original model. &#xA;Argue that $y_t$ and $x_t$ are co-integrated and write down the co-integrating vector&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help/pointers would be great.&lt;/p&gt;&#xA;" OwnerUserId="6216" LastEditorUserId="6216" LastEditDate="2015-11-11T17:18:00.433" LastActivityDate="2015-12-11T17:52:52.030" Title="Co-integration and Error correction" Tags="&lt;econometrics&gt;" AnswerCount="1" CommentCount="0" ClosedDate="2015-12-16T18:28:56.983" ContentLicense="CC BY-SA 3.0" />
  <row Id="9115" PostTypeId="1" AcceptedAnswerId="9119" CreationDate="2015-11-11T16:46:21.220" Score="0" ViewCount="48" Body="&lt;p&gt;Two countries A and B have identical production function $Y=AK^{1/3}N^{2/3}$, they are identical when it comes to all other factors with the exception that savings rate is $s_A&amp;gt;s_B$.&#xA;a) What is the GDP to number of people employed ratio in those countries?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Question is about Solow  - swan model. How to apply this model in this particular case, because i am completely lost.&lt;/p&gt;&#xA;" OwnerUserId="5486" LastEditorUserId="5367" LastEditDate="2015-11-11T17:24:58.387" LastActivityDate="2015-11-11T17:44:25.307" Title="GDP to employed people ration - solow swan model" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;&lt;economic-growth&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9116" PostTypeId="2" ParentId="9114" CreationDate="2015-11-11T16:46:49.233" Score="1" Body="&lt;p&gt;For question 1), take the expectation of both sides, assume that the expectation of Y is the same in both periods (the definition of stationarity) and see what conditions the coefficients on X must satisfy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For question 2), try rearranging the equation to be in terms of X and see what determines its variation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;P.S. I am still getting the hang of the mathematical notation on here, but I figure too much working out would be giving it away anyway&lt;/p&gt;&#xA;" OwnerUserId="6060" LastActivityDate="2015-11-11T16:46:49.233" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="9117" PostTypeId="1" AcceptedAnswerId="19029" CreationDate="2015-11-11T17:04:55.893" Score="10" ViewCount="991" Body="&lt;p&gt;I am trying to compile a list of winners of the Nobel memorial prize in economics whose thesis advisor also won the prize.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So far I have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;code&gt;Eric Maskin (advisor) / Jean Tirole (student)&lt;/code&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are there other pairs?&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2020-10-20T09:36:36.917" Title="Thesis-advisor/student pairs that won the nobel prize" Tags="&lt;reference-request&gt;" AnswerCount="4" CommentCount="0" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="9118" PostTypeId="2" ParentId="9117" CreationDate="2015-11-11T17:31:22.373" Score="8" Body="&lt;p&gt;In his &lt;a href=&quot;http://www-personal.umich.edu/%7Ealandear/tree/INDEX.HTM&quot; rel=&quot;nofollow noreferrer&quot;&gt;Family Tree of Trade Economists&lt;/a&gt; Alan Deardoff indicates some links between teachers, students and academic siblings. I guess that &amp;quot;teacher&amp;quot; includes &amp;quot;advisor&amp;quot;, but probably more.&lt;/p&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Leontief was &lt;a href=&quot;http://www-personal.umich.edu/%7Ealandear/tree/Z44.HTM&quot; rel=&quot;nofollow noreferrer&quot;&gt;Samuelson&lt;/a&gt;'s teacher.&lt;/li&gt;&#xA;&lt;li&gt;Samuelson and Meade were &lt;a href=&quot;http://www-personal.umich.edu/%7Ealandear/tree/Z123.HTM&quot; rel=&quot;nofollow noreferrer&quot;&gt;Mundell&lt;/a&gt;'s teachers.&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Richard_Stone&quot; rel=&quot;nofollow noreferrer&quot;&gt;Stone&lt;/a&gt; was &lt;a href=&quot;https://en.wikipedia.org/wiki/Angus_Deaton&quot; rel=&quot;nofollow noreferrer&quot;&gt;Deaton&lt;/a&gt; and &lt;a href=&quot;https://en.wikipedia.org/wiki/James_Mirrlees&quot; rel=&quot;nofollow noreferrer&quot;&gt;Mirrlees&lt;/a&gt;' advisor.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;p&gt;Update on &lt;em&gt;three&lt;/em&gt; new advisor-student pairs (October 2020)&lt;/p&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Robert_B._Wilson&quot; rel=&quot;nofollow noreferrer&quot;&gt;Wilson&lt;/a&gt; was &lt;a href=&quot;https://en.wikipedia.org/wiki/Paul_Milgrom&quot; rel=&quot;nofollow noreferrer&quot;&gt;Milgrom&lt;/a&gt;, &lt;a href=&quot;https://en.wikipedia.org/wiki/Bengt_Holmstr%C3%B6m&quot; rel=&quot;nofollow noreferrer&quot;&gt;Holmstrom&lt;/a&gt; &lt;em&gt;and&lt;/em&gt; &lt;a href=&quot;https://en.wikipedia.org/wiki/Alvin_E._Roth&quot; rel=&quot;nofollow noreferrer&quot;&gt;Roth&lt;/a&gt;'s advisor.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;p&gt;By the way, there is a &lt;strong&gt;triplet&lt;/strong&gt;:&lt;/p&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Arrow / &lt;a href=&quot;http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/2007/maskin-bio.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Maskin&lt;/a&gt; / Tirole&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;p&gt;Update on a new &lt;strong&gt;quadruplet&lt;/strong&gt; (October 2020):&lt;/p&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Arrow / &lt;a href=&quot;http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/2007/maskin-bio.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Maskin&lt;/a&gt; / &lt;a href=&quot;https://en.wikipedia.org/wiki/Abhijit_Banerjee&quot; rel=&quot;nofollow noreferrer&quot;&gt;Banerjee&lt;/a&gt; / &lt;a href=&quot;https://en.wikipedia.org/wiki/Esther_Duflo&quot; rel=&quot;nofollow noreferrer&quot;&gt;Duflo&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="6168" LastEditorUserId="6168" LastEditDate="2020-10-20T09:36:36.917" LastActivityDate="2020-10-20T09:36:36.917" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="9119" PostTypeId="2" ParentId="9115" CreationDate="2015-11-11T17:32:45.013" Score="1" Body="&lt;p&gt;GDP per worker is the ratio of GDP (Y) to the number of people employed (N), it is Y divided by N. Some books denote it as little Y (y). Divide both sides of the production function by N (remember to use the rules of dividing exponents for N on the left hand side i.e. subtract the exponents, for N it will be 2/3-1 = 1/3). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Simplify the equation, so on the left hand side you should have (K/N) raised to the power of 1/3. You can replace this fraction with little k (k), raised to the power of 1/3. The little k represents capital per worker then.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) $$ Y = A K^{1/3} N^{2/3} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) Divide by N&lt;/p&gt;&#xA;&#xA;&lt;p&gt;3) $$ Y/N = A K^{1/3} N^{2/3-1} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;4) $$ Y/N = A K^{1/3} N^{-1/3} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;5) $$ Y/N = A (K/N)^{1/3} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;6) $$ y = A (k)^{1/3} $$&lt;/p&gt;&#xA;" OwnerUserId="5367" LastEditorUserId="5367" LastEditDate="2015-11-11T17:44:25.307" LastActivityDate="2015-11-11T17:44:25.307" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9122" PostTypeId="2" ParentId="9117" CreationDate="2015-11-11T20:21:21.790" Score="5" Body="&lt;h1&gt;Nobel Prize Advisor/Student Pair&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;Another pair is&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Chris Sims (Nobel Memorial Prize in Economics in 2011)&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Shared with Thomas Sargent&lt;/li&gt;&#xA;&lt;li&gt;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;for their empirical research on cause and effect in the macroeconomy&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Lars Hansen (Nobel Memorial Prize in Economics 2013)&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Shared with Eugene Fama and Robert J. Shiller&lt;/li&gt;&#xA;&lt;li&gt;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;for their empirical analysis of asset prices&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;h1&gt;Additional Note&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;Both Thomas Sargent and Chris Sims were at Minnesota when Lars Hansen was working on his PhD there. They both worked closely with Lars and contributed to his development.&lt;/p&gt;&#xA;&#xA;&lt;h1&gt;Sources&lt;/h1&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/&quot; rel=&quot;noreferrer&quot;&gt;Nobel Prize Website&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://www.igmchicago.org/wp-content/uploads/2011/10/sargentsimsnobel.pdf&quot; rel=&quot;noreferrer&quot;&gt;Hansen Congratulatory Talk on Sargent/Sims Nobel&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="47" LastEditorUserId="47" LastEditDate="2015-11-11T20:27:46.063" LastActivityDate="2015-11-11T20:27:46.063" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9123" PostTypeId="1" CreationDate="2015-11-11T21:29:18.283" Score="2" ViewCount="414" Body="&lt;p&gt;&lt;em&gt;Question:&#xA;A consumer has wealth ß0 &gt; 0 and wants to find the best way of consuming&#xA;this wealth. Preferences over consumption c(t) are given by&#xA;$\int$&lt;sup&gt;$\infty$&lt;/sup&gt;&lt;sub&gt;0&lt;/sub&gt; e&lt;sup&gt;-pt&lt;/sup&gt;((c(t)&lt;sup&gt;1-$\sigma$&lt;/sup&gt;-1)/(1-$\sigma$))dt&#xA;where 0 &amp;lt; $\rho\ &amp;lt; 1$ is an intertemporal discounting and $\sigma$ &gt; 0, ß $\neq$ 1. Let ß(t) denote the amount of wealth at time t. ß does not spoil over time, that is, its value does&#xA;not decrease if it is not consumed. On the other hand, it does not receive interest. A&#xA;unit of consumption decreases wealth by the same unit. You can view ß0 as a cake&#xA;and the problem of the consumer as the problem of eating the cake over time in the&#xA;optimal way.&#xA;Formulate the problem and find the optimal path of consumption over time.&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;(My queries in bold)&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Solution:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem is max $\int$&lt;sup&gt;$\infty$&lt;/sup&gt;&lt;sub&gt;0&lt;/sub&gt; e&lt;sup&gt;-pt&lt;/sup&gt;((c(t)&lt;sup&gt;1-$\sigma$&lt;/sup&gt;-1)/(1-$\sigma$))dt subject to $\int$&lt;sup&gt;$\infty$&lt;/sup&gt;&lt;sub&gt;0&lt;/sub&gt; c(t).dt = ß0&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or $.{B}$ = -c with ß0 given. The Hamiltonian of this problem is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;H (c, ß, $\mu$) = ((c(t)&lt;sup&gt;1-$\sigma$&lt;/sup&gt;-1)/(1-$\sigma$))-$\mu$c&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;1) What do we mean by the Hamiltonian? Is it a constraint of some sort?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $\mu$ is the costate variable attached to the constraint .{B} = -c. The conditions for the optimum are $\partial$u/$\partial$c = 0 and .$\mu$ = $\rho$$\mu$ - $\partial$H/$\partial$B together with the constraint. The transversality condition is: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;lim&lt;sub&gt;t$\longrightarrow$$\infty$+&lt;/sub&gt;e&lt;sup&gt;-$\rho$t&lt;/sup&gt;$\mu$(t)ß(t)=0.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;2) When we use a transversality condition, does this define the boundaries of consumption in this case?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These conditions imply:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;c&lt;sup&gt;-$\sigma$&lt;/sup&gt; = $\mu$, .$\mu$ = $\rho$$\mu$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Notice that H does not depend on the state variable and so the second optimality condition is very simple.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;3) Why are we using a second optimality condition?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;c&lt;sup&gt;-$\sigma$&lt;/sup&gt; = $\mu$ implies -$\sigma$(.c/c) = $\rho$ $\Rightarrow$ .$\mu$/$\mu$. Together with the second equation:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;-$\sigma$(.c/c) = $\rho$ $\Rightarrow$ .c/c = -($\rho$/$\sigma$)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, the optimum path involves setting consumption to the path c(t) = c&lt;sub&gt;0&lt;/sub&gt;e&lt;sup&gt;($\rho$/$\sigma$)*t&lt;/sup&gt;. To find c0, we can use the transversality condition. Another way of finding c0, more&#xA;direct and more intuitive, is by the constraint $\int$&lt;sup&gt;$\infty$&lt;/sup&gt;&lt;sub&gt;0&lt;/sub&gt; c(t).dt = ß0. According to this constraint, given the optimal path of c: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\int$&lt;sup&gt;$\infty$&lt;/sup&gt;&lt;sub&gt;0&lt;/sub&gt; c&lt;sub&gt;0&lt;/sub&gt;e&lt;sup&gt;($\rho$/$\sigma$)*t&lt;/sup&gt;dt = ß0&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\Rightarrow$ -(c&lt;sub&gt;0&lt;/sub&gt;e&lt;sup&gt;(-$\rho$/$\sigma$)*t&lt;/sup&gt;)/($\rho$/$\sigma$)|&lt;sup&gt;$\infty$&lt;/sup&gt;&lt;sub&gt;$0$&lt;/sub&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a result, the path for consumption, now fully characterised, is given by:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;c(t) = ($\rho$/$\sigma$).ß0.e&lt;sup&gt;-($\rho$/$\sigma$).t&lt;/sup&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We see that consumption decreases gradually over time, that consumption is higher if ß0 is higher, and that $\rho$ and $\sigma$ affect the optimal path for consumption.&lt;/p&gt;&#xA;" OwnerUserId="5951" LastActivityDate="2015-11-11T21:29:18.283" Title="Deriving the optimal path of consumption" Tags="&lt;macroeconomics&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9125" PostTypeId="1" CreationDate="2015-11-12T07:21:26.433" Score="2" ViewCount="626" Body="&lt;p&gt;How is expected inflation measured for policy purposes? Is it based on some economic model or some survey?&lt;/p&gt;&#xA;" OwnerUserId="6219" LastActivityDate="2015-11-12T16:06:53.123" Title="Measure of expected inflation" Tags="&lt;macroeconomics&gt;&lt;monetary-policy&gt;&lt;inflation&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9127" PostTypeId="1" AcceptedAnswerId="9129" CreationDate="2015-11-12T10:33:53.330" Score="5" ViewCount="1383" Body="&lt;p&gt;&lt;a href=&quot;http://www.telegraph.co.uk/finance/comment/liamhalligan/8484530/Americas-reckless-money-printing-could-put-the-world-back-into-crisis.html&quot; rel=&quot;noreferrer&quot;&gt;http://www.telegraph.co.uk/finance/comment/liamhalligan/8484530/Americas-reckless-money-printing-could-put-the-world-back-into-crisis.html&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;America's reckless money-printing could put the world back into crisis&#xA;  Last week, Ben Bernanke suggested that the US base interest rate will&#xA;  stay close to zero for an &quot;extended period&quot;. It's been there since&#xA;  December 2008.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Today, the opposite has happened. Deflationary forces are strong in the U.S. Europe is even worse given the negative yield. Why has deflation prevailed despite money printing by central bankers?&lt;/p&gt;&#xA;" OwnerUserId="6172" LastEditorUserId="44" LastEditDate="2015-11-12T11:33:10.207" LastActivityDate="2015-11-24T03:43:56.880" Title="Why didn't the money printing by the US Federal Reserve since 2008 lead to inflation?" Tags="&lt;macroeconomics&gt;&lt;monetary-policy&gt;&lt;inflation&gt;&lt;central-banking&gt;&lt;deflation&gt;" AnswerCount="7" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9128" PostTypeId="1" CreationDate="2015-11-12T11:28:10.393" Score="2" ViewCount="58" Body="&lt;p&gt;I'm an undergraduate student I have an empirical question regarding Regression Discontinuity and Diff-in-Diff methods. I'm currently evaluating the impact on fertility of a Conditional Cash Transfer in Brazil.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is an oversimplified example of the problem we encountered.&#xA;A family will receive the benefit if their income per capita is, for example, $150, and will not receive it otherwise. We would use this fact to use a RD design to evaluate casual effects. The problem is, those above the threshold have incentives to get another child and reduce their per capita income to enter the &quot;control&quot; group. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Anyone has good references (articles, textbook), where I can find something that would help me? Helpful comments are greatly appreciated.&lt;/p&gt;&#xA;" OwnerUserId="6223" LastEditorUserId="6168" LastEditDate="2015-11-12T22:10:33.877" LastActivityDate="2015-11-12T22:10:33.877" Title="Group contamination in Regression Discontinuity" Tags="&lt;reference-request&gt;&lt;applied-econometrics&gt;&lt;development-economics&gt;&lt;empirical-methods&gt;&lt;causality&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9129" PostTypeId="2" ParentId="9127" CreationDate="2015-11-12T11:32:32.357" Score="2" Body="&lt;p&gt;Because you can't push on a piece of string.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As in the Great Depression of the 1930s, we've collectively got massive personal debt, depressing demand, moving us towards deflation, which pushes up debt, and so it goes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We've also known since the 1930s that monetary expansion in and of itself cannot stimulate demand under these conditions: it can only create space for demand to expand into.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Add in the international fashion for fiscal contraction, a demand-suppressant, and that's how we get QE without broad-money expansion and without inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We do have &lt;em&gt;potential&lt;/em&gt; inflation. And at some point that potential will be realised. But not while there's this huge overhang of personal debt. It might get worn down over a long period of deflation, through defaults. Some other inflationary shock might inflate some of the debt away. And enlightened policy-makers might engage in a large exercise in personal-debt cancellation.&lt;/p&gt;&#xA;" OwnerUserId="44" LastEditorUserId="44" LastEditDate="2015-11-13T07:48:26.163" LastActivityDate="2015-11-13T07:48:26.163" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9130" PostTypeId="2" ParentId="9125" CreationDate="2015-11-12T16:06:53.123" Score="3" Body="&lt;p&gt;There are three big sources for data on inflation expectations in the US:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Market implied expectations from the TIPS spread. TIPS securities provide inflation protection but are otherwise roughly comparable to normal treasuries, so the difference in yields between these two is a measure of expected inflation.&lt;/li&gt;&#xA;&lt;li&gt;Consumer expectations from the University of Michigan Survey of Consumers, which you can find &lt;a href=&quot;https://research.stlouisfed.org/fred2/series/MICH&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;.&lt;/li&gt;&#xA;&lt;li&gt;Surveys of professional forecasters, such as &lt;a href=&quot;https://www.phil.frb.org/research-and-data/real-time-center/survey-of-professional-forecasters&quot; rel=&quot;nofollow&quot;&gt;this survey&lt;/a&gt;.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Which of these measures is most useful is not clear, and I've seen all three used at different times and in different places. &lt;a href=&quot;http://www.federalreserve.gov/newsevents/speech/yellen20150924a.htm#f28&quot; rel=&quot;nofollow&quot;&gt;This speech by Janet Yellen&lt;/a&gt; has some discussion of the different measures, as does &lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/S0165176515003286&quot; rel=&quot;nofollow&quot;&gt;this paper by Carola Binder&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="54" LastActivityDate="2015-11-12T16:06:53.123" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9131" PostTypeId="1" CreationDate="2015-11-12T16:43:46.640" Score="2" ViewCount="755" Body="&lt;p&gt;I've recently read that the Bank of Japan is continuously buying government bonds. Apparently, at the rate they are going, the BoC will own all the bonds by 2026, which means the government will essentially owe all its debt to itself.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is the point of doing this? And once they buy all the bonds, does it mean that the debt of Japan will be nil?&lt;/p&gt;&#xA;" OwnerUserId="6225" LastActivityDate="2015-11-13T00:53:51.823" Title="Why is the Bank of Japan buying all the government bonds?" Tags="&lt;government-debt&gt;&lt;bonds&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9132" PostTypeId="2" ParentId="9128" CreationDate="2015-11-12T17:56:05.883" Score="2" Body="&lt;p&gt;Are you looking for general references on Diff-in-Diff (DiD) and Regression Discontinuity (RD)? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If yes, a good starting reference at the undergraduate level is probably &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;J.  Angrist  and  J.S.  Pischke, Mastering' Metrics: The Path from Cause to  Effect, Princeton University Press, 2014. Look at chapters 4 and 5 for RD and DiD.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;If who want to dig deeper: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;J. Angrist and J.S. Pischke, Mostly Harmless Econometrics, Princeton University Press, 2009, chapters 5 and 6.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;For recent references on RD&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;C. Carpenter and C. Dobkin, “The Effect of Alcohol Consumption on Mortality: Regression Discontinuity Evidence from the MLDA, American Economic Journal: Applied Economics 1 (2009), 164-182. &lt;/li&gt;&#xA;&lt;li&gt;A. Abdulkadiroglu, et al., “The Elite Illusion: Achievement Effects at Boston and New York Exam Schools,” Econometrica, 2014.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;On Did:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;D. Card and A. Krueger, “Minimum Wages and Employment: A Case Study of the Fast Food Industry in New Jersey and Pennsylvania,” American Economic Review 90 (1994), 1397- 420.&lt;/li&gt;&#xA;&lt;li&gt;D. Card, “Using Regional Variation to Measure the Effect of the Federal Wage,” Industrial and Labor Relations Review (1992) 46, 22-37.&lt;/li&gt;&#xA;&lt;li&gt;C. Carpenter and C. Dobkin, “The Minimum Legal Drinking Age and Public Health,” The Journal of Economic Perspectives 25 (2011), 133-156.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Considering &lt;strong&gt;your example&lt;/strong&gt;, I guess that it could be a contribution to show that a small increase in benefit per capita may increase fertility. Is the benefit permanent? If not, I doubt that people will have a strong incentive to get another child. Moreover, it takes time to get a new child! So, there is a time dimension issue. They cannot claim the benefit if they don't have the child! If your design allow for this, you can exploit the time dimension in case some families respond to the incentive.&lt;/p&gt;&#xA;" OwnerUserId="6168" LastActivityDate="2015-11-12T17:56:05.883" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9134" PostTypeId="2" ParentId="9076" CreationDate="2015-11-12T19:44:51.753" Score="1" Body="&lt;p&gt;A lot of the current work done about debt sustainability analysis uses fiscal policy reaction functions in different ways.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Interesting papers on this subject are:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;[Bohn2005] Bohn, H. (2005). The Sustainability of Fiscal Policy in the United States.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;[Medeiros2012] Medeiros, J. (2012). Stochastic debt simulation using VAR models and a a panel fiscal reaction function: results for a selected number of&#xA;countries. European Economy. Economic Papers, July 2012(459).&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;[Ghosh et al.2013] Ghosh, A. R., Kim, J. I., Mendoza, E. G., Ostry, J. D., and&#xA;Qureshi, M. S. (2013). Fiscal Fatigue, Fiscal Space and Debt Sustainability&#xA;in Advanced Economies. The Economic Journal, 123:4–30.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The first and the third one use fiscal reaction functions explicitely. The middle one used this reaction function to similate how debt could evolve over time.&lt;/p&gt;&#xA;" OwnerUserId="6227" LastActivityDate="2015-11-12T19:44:51.753" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9135" PostTypeId="1" CreationDate="2015-11-12T19:52:16.340" Score="2" ViewCount="246" Body="&lt;p&gt;I am working with a fixed effects model to estimate the effect of enterprise zones on unemployment claims. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;(1)&lt;/strong&gt;  $log(uclms_{it}) = \theta_t + \beta_1 ez_{it} + c_i + \epsilon_{it} $ where $\theta_t$ are time specific effects and $c_i$ are city specific effects. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another model is estimated that allows each city to have its own time trend: &#xA;$log(uclms_{it}) = \gamma_i t + \beta_1 ez_{it} + c_i + \epsilon_{it} $ and this model is then first-differenced to obtain&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;(3)&lt;/strong&gt;  $\Delta log(uclms_{it}) = \gamma_i + \beta_1 \Delta ez_{it} + \Delta \epsilon_{it} $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I was asked to estimate (1) and (3) by fixed effects and comment on possible reasons for differences in the estimate of $\beta_1$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The estimates I got were; &#xA;from model (1) $\beta_1 = -0.1044$ with a t-ratio of -1.43 and p-value of 0.166.&#xA;from model (3) $\beta_1 = -0.252$ with a t-ratio of -2.41 and a p-value of 0.025. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the estimate is relatively small in model (1) compared to model (3) and is insignificant in model (1), but significant in model (3) at the 5% level. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Am I right in thinking that, when (1) is estimated by FE, the city specific effects drop out, but the time specific effects remain. Whereas in (3) we only have city specific effects which drop out when estimated by FE. So the observed differences in $\beta_1$ arise because (1) includes time effects, but (3) does not. I'm also a bit confused about using first-differenced data in a fixed-effects model. Why would that be useful?&lt;/p&gt;&#xA;" OwnerUserId="6216" LastActivityDate="2016-10-27T04:38:47.023" Title="Fixed effects, first differences interpretation" Tags="&lt;econometrics&gt;&lt;fixed-effects&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9136" PostTypeId="2" ParentId="9117" CreationDate="2015-11-12T20:36:15.460" Score="4" Body="&lt;p&gt;Harry Markowitz was effectively the advisor of William F. Sharpe and they shared the Nobel over portfolio theory. &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2015-11-12T20:36:15.460" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9139" PostTypeId="5" CreationDate="2015-11-12T22:05:45.697" Score="0" Body="&lt;p&gt;Economic investigations of fairness provide precise definitions for fairness of allocations or decision rules. This definitions are usually derived from certain logical properties. Usually advantages and disadvanteges (such as efficiency and manipulability) of the proposed fair system are also investigated.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2015-11-17T02:11:45.987" LastActivityDate="2015-11-17T02:11:45.987" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9140" PostTypeId="4" CreationDate="2015-11-12T22:05:45.697" Score="0" Body="Economic investigations of fairness provide precise definitions for fairness of allocations or decision rules. This tag has very little to do with what you 'feel' to be fair, desirable, just, unless you can define these concepts in a precise, formal, generally applicable way." OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2015-11-17T02:11:35.547" LastActivityDate="2015-11-17T02:11:35.547" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9142" PostTypeId="2" ParentId="9131" CreationDate="2015-11-13T00:53:51.823" Score="3" Body="&lt;p&gt;Central banks usually buy back government bonds to combat deflation and facilitate economic growth. This policy is commonly called &quot;quantitative easing&quot; or QE. After the arguable success of QE during 2008-2009 recession in the United States, many other countries choose to adapt this monetary policy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is very unlikely that the Bank of Japan will keep this policy until 2026 because at some point inflation will pick up and they will have to stop buying bonds and perhaps even raise interest rates. In the US, UK, and EU the bond-buying quantitative easing programs haven't lasted longer than 5 years and they are usually closely monitored and can be stopped at any time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When the central bank buys government bonds, they stay on its balance sheet until maturity. Normally, central banks are happy to keep them as a convenient monetary tool. They can sell the bonds back to reduce inflation. Whether the government debt on the central bank's balance sheet can &quot;cancel out&quot; depends on the countries laws.&lt;/p&gt;&#xA;" OwnerUserId="6231" LastActivityDate="2015-11-13T00:53:51.823" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9143" PostTypeId="1" CreationDate="2015-11-13T01:03:59.460" Score="1" ViewCount="166" Body="&lt;p&gt;Lotteries can be detrimental to a subset of society since people who often play dont understand stats and that for most part lottery is negative expected value. However, taxes (and portion of ticket sales) are used for funding local projects which can be beneficial to community. Are there any alternative ways to raise this funding besides taxes or taking advantage of people who play the lottery?&lt;/p&gt;&#xA;" OwnerUserId="6233" LastActivityDate="2016-01-12T03:17:56.050" Title="What are alternatives to lottery that would create same economic impact?" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="9144" PostTypeId="1" CreationDate="2015-11-13T01:10:37.380" Score="3" ViewCount="365" Body="&lt;p&gt;Isn't it unfair for estates to be taxed after death? The person who bequeathed the estate probably purchased it with after tax money, so wouldn't it then be taxed twice? What is the purpose of the tax other than to generate funding for government spending?&lt;/p&gt;&#xA;" OwnerUserId="6234" LastEditorUserId="264" LastEditDate="2015-11-13T04:58:01.810" LastActivityDate="2015-11-13T04:58:01.810" Title="Why are there estate taxes after the owner passes away?" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;taxation&gt;&lt;optimal-taxation&gt;" AnswerCount="2" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="9145" PostTypeId="2" ParentId="9143" CreationDate="2015-11-13T02:00:52.413" Score="1" Body="&lt;p&gt;Municipal bonds are a method of local funding. The bonds could be funded through borrowing money or tolls. The bonds will probably yield better returns than the lottery for money givers. This means that municipal bonds could be an effective way of generating revenue in a short period of time. On the other hand, one key difference between bonds and the lottery is that at some point, additional funding is needed for bonds, whether through tolls or borrowing.&lt;/p&gt;&#xA;" OwnerUserId="5845" LastActivityDate="2015-11-13T02:00:52.413" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9146" PostTypeId="2" ParentId="9144" CreationDate="2015-11-13T02:18:12.680" Score="6" Body="&lt;p&gt;From an equality of opportunity perspective, it is desirable to have some taxes on inheritance. This levels the playing field for each generation to some extent. If real estates are exempt from such a tax, individuals would prefer real estate over other assets, creating a distortion in the asset price market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a recent contribution to optimal inheritance taxation, see:&#xA;Piketty, Thomas, and Emmanuel Saez. &quot;A theory of optimal inheritance taxation.&quot; Econometrica 81.5 (2013): 1851-1886.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For an overview over the equality of opportunity literature, see:&#xA;Corak, Miles. &quot;Income inequality, equality of opportunity, and intergenerational mobility.&quot; The Journal of Economic Perspectives (2013): 79-102.&lt;/p&gt;&#xA;" OwnerUserId="5635" LastActivityDate="2015-11-13T02:18:12.680" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9147" PostTypeId="2" ParentId="9144" CreationDate="2015-11-13T03:30:31.827" Score="5" Body="&lt;p&gt;It may seem unfair that someone who has already met their tax obligations gets hit with another one after they die. From an economic standpoint, it is very popular.&lt;/p&gt;&#xA;&lt;p&gt;I'll let &lt;a href=&quot;http://www.economist.com/node/10024733&quot; rel=&quot;noreferrer&quot;&gt;this economist article&lt;/a&gt; explain it...&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;The gut dislike of death duties seems to arise because the tax clashes with heartfelt dynastic instincts&lt;/p&gt;&#xA;&lt;p&gt;Any tax on capital will tend to dissuade people from accumulating the wealth in the first place, but a death duty is arguably one of the better options...&lt;/p&gt;&#xA;&lt;p&gt;[The tax burden] falls on unintended legacies—money put aside to pay for old age, for example—as well as intentional bequests. Since unintended bequests are, by definition, not planned they should be unaffected by the prospect of the tax.&lt;/p&gt;&#xA;&lt;p&gt;Death duties can also be justified in terms of fairness. A thriving economy will generate great fortunes, but there is good reason to check these becoming entrenched through inheritance. The estate tax offers a modest counterweight against the development of a new plutocracy to rival the industrial barons of America's Gilded Age. Furthermore it also taxes wealth built up through windfalls rather than thrift and effort.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Also, see &lt;a href=&quot;http://eml.berkeley.edu/%7Esaez/piketty-saezECMA13.pdf&quot; rel=&quot;noreferrer&quot;&gt;this article by the well known Thomas Piketty&lt;/a&gt; (&lt;em&gt;I just noticed another answerer included it as well&lt;/em&gt;) which provides a model of optimal inheritance taxation. In particular, read the introduction which covers a lot of useful background and an overview of the model. Piketty et al also provide the conditions in which a zero tax rate is optimal.&lt;/p&gt;&#xA;&lt;p&gt;&lt;strong&gt;Here is the abstract:&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;This paper derives optimal inheritance tax formulas that capture the key equity-efficiency trade-off, are expressed in terms of estimable sufficient statistics, and are robust to the underlying structure of preferences.&lt;/p&gt;&#xA;&lt;p&gt;We consider dynamic stochastic models with general and heterogeneous bequest tastes and labor productivities. We limit our- selves to simple but realistic linear or two-bracket tax structures to obtain tractable formulas. We show that long-run optimal inheritance tax rates can always be expressed in terms of aggregate earnings and bequest elasticities with respect to tax rates, distributional parameters, and social preferences for redistribution.&lt;/p&gt;&#xA;&lt;p&gt;Those results carry over with tractable modifications to (a) the case with social discounting (instead of steady-state welfare maximization), (b) the case with partly accidental bequests, (c) the standard Barro–Becker dynastic model. The optimal tax rate is positive and quantitatively large if the elasticity of bequests to the tax rate is low, bequest concentration is high, and society cares mostly about those receiving little inheritance. We propose a calibration using micro-data for France and the United States. We find that, for realistic parameters, the optimal inheritance tax rate might be as large as 50%–60%—or even higher for top bequests, in line with historical experience.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="40" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2015-11-13T03:30:31.827" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9148" PostTypeId="2" ParentId="9127" CreationDate="2015-11-13T04:05:15.897" Score="2" Body="&lt;p&gt;There are many reasons why money printing does not lead to inflation, but the main one, according to the Fed themselves, is high unemployment. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As long as a large portion of population is out of work, they are not receiving salary and therefore not spending. If buyers don't spend or spend too little, the sellers are hesitant to raise prices.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are several structural problems with employment in the US and the EU:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Aging baby boomer population and declining working age population.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Transition into globalized knowledge-based high-tech economy makes many professions redundant and their workers long-term unemployed. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Pressure from developing countries, such as China, South-East Asia, India, Africa, etc. causes many jobs to be outsources overseas.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="6231" LastActivityDate="2015-11-13T04:05:15.897" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="9149" PostTypeId="2" ParentId="9127" CreationDate="2015-11-13T14:28:50.567" Score="2" Body="&lt;p&gt;So I think a particularly useful thing to discuss here is exactly what the interest rate is and why it's set at any given level. The theory is that there is a &quot;natural&quot; rate of interest, at which inflation is neither increasing nor decreasing. The natural rate varies based on the levels of savings, global demography and changes in productivity and technology.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Many economists would say that the natural rate of interest has (for a variety of reasons) simply been below zero ever since the financial crisis, and was unusually low even before that. In that context, &quot;printing money&quot; (which actually took the form of purchasing government and corporate assets) would just flow straight into savings, and not change the level of prices, i.e. inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would attach a whole load of links and maybe even a diagram but my internet is playing up sadly. Basically, the lack of inflation in response to fed policy in the wake of the crisis is very much in line with a lot of mainstream economic thought, not some unexpected aberration.&lt;/p&gt;&#xA;" OwnerUserId="6060" LastActivityDate="2015-11-13T14:28:50.567" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9150" PostTypeId="2" ParentId="9127" CreationDate="2015-11-13T14:38:48.713" Score="-1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;Why has deflation prevailed despite money printing by central bankers?&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;1) CPI&lt;/strong&gt;&lt;br&gt;&#xA;According to some pools in US, the number 1 concern for most Americans is the rising cost of living. Unfortunately, for political reasons, the official price index (CPI) doesn't capture properly most of such costs. There's an excellent video explaining that: &lt;a href=&quot;https://www.youtube.com/watch?v=pwI3Nya5L9g&quot; rel=&quot;nofollow&quot;&gt;https://www.youtube.com/watch?v=pwI3Nya5L9g&lt;/a&gt;   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, if you go shopping in the supermarket, you will be seeing a rise in price. But, if you are a person that only deals with assets such as stocks and real estates, then you will be seeing a fall in prices.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;2) Reserve Currency&lt;/strong&gt;&lt;br&gt;&#xA;For historical reasons (gold standard) and also for political pressure, the US Dollar is still being used as a reserve currency. So, every time there is a worldwide crises, several investors flee their investments to US Dollar considering it as a safe haven. Which kick the can a little bit further down the road.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Unfortunately, since the beginning of FED in 1913, the US Dollar has devalued &gt;95% and there is no reason to believe that this tendency will change in the foreseeable future. When the rest of the world realize that, probably it's gonna be the day of reckoning.&lt;/p&gt;&#xA;" OwnerUserId="6239" LastEditorUserId="6239" LastEditDate="2015-11-13T17:57:32.500" LastActivityDate="2015-11-13T17:57:32.500" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9152" PostTypeId="2" ParentId="9127" CreationDate="2015-11-13T16:15:31.917" Score="0" Body="&lt;p&gt;Let me offer a &quot;class-based&quot; answer. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Living in Manhattan, I see directly a phenomenon too little reported. There &lt;em&gt;is inflation,&lt;/em&gt; enormous rapid inflation within the upper classes. Prices of luxury goods, multi-million dollar apartments, connoisseur items, first-class travel, artworks, ivy educations, rare wines, hedge-fund fees, high-tech medicine, philanthropic gestures, etc. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The annual percentage increases are staggering. It is truly as if the money being pumped into the &quot;shareholder&quot; classes is being burned up at a desperate rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Yet what is traditionally measured as &quot;inflation&quot; is sticky wage inflation. Only when wages begin to rise does the Fed slow the presses. High employment signaled by rising wages sounds the &quot;inflation alarm&quot; and a threat to the interests of the &quot;shareholder&quot; class. Credit flinches.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So I would suggest that in many institutional, political, and social ways, there has emerged a class-based solution to the 1970s problem of &quot;inflation.&quot; As long as wages are disaggregated the old type of &quot;inflation&quot; does not apply. You can print as much money as you want, as long as it goes directly to a concentrated, limited cartel. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This, coupled with destabilization of the Middle East and military control of oil supplies, returned the U.S.from the 1970s &quot;brink&quot; to the sort of stable, wage-depressed, class-dominated economy favored by Andrew Mellon, Prescott Bush, and their ilk. As long as labor is disaggregated, it cannot democratize and &quot;deteriorate&quot; the value of increasing money supplies.&lt;/p&gt;&#xA;" OwnerUserId="6118" LastActivityDate="2015-11-13T16:15:31.917" CommentCount="9" ContentLicense="CC BY-SA 3.0" />
  <row Id="9153" PostTypeId="1" AcceptedAnswerId="9363" CreationDate="2015-11-13T20:29:40.313" Score="1" ViewCount="301" Body="&lt;p&gt;What happens to Fed's balance sheet when its asset shrink in value? I noticed that Fed's balance sheet is special because I do not see any O.E. category (correct me if I am wrong). Suppsoe Fed's subprime MBS shrink in vlaue, its asset is decreased, but its liability doesn't (correct me if I am wrong), so it has an inbalance between A and L. If no O.E. is there, how can this be?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, Prof. Robert Shiller's &quot;The Subprime Solution&quot; says &quot;if losses on collateral [during the crisis] mean that there are not enough funds to cover the defaulted loans, this will be reflected by the Fed paying less to the federal government, hence ultimately higher taxes for individuals.&quot; What does Prof. Shiller mean when he says not enough funds to cover the the defaulted loans and what does he mean by funds? What funds exactly? I mean, Fed has the ability to create reserve so how can there be not enough funds? One last question is why is the Fed paying the federal governemnt? I have never heard of Fed needing to pay the governemnt, shouldn't it be the governemnt pay the Fed due to the marturing of the T-bills and etc?&lt;/p&gt;&#xA;" OwnerUserId="4551" LastEditorUserId="4551" LastEditDate="2015-11-13T21:41:31.793" LastActivityDate="2015-11-24T03:04:56.813" Title="What happens to Fed's balance sheet when its asset shrink in value?" Tags="&lt;central-banking&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9154" PostTypeId="1" CreationDate="2015-11-13T21:11:32.723" Score="8" ViewCount="247" Body="&lt;p&gt;A previous and oft-heard question asked why no inflation results from the Fed pumping money into the economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are we simply seeing a methodical wage suppression, thus no official &quot;inflation,&quot; while prices soar in certain sectors dominated by &quot;shareholders,&quot; non-wage income, and the &quot;one-percent&quot; or whomever? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The money moves first into the financial industry, where actual production investment is less attractive. It seems that as long as no money gets locked into &quot;sticky&quot; labor contracts, the Fed can pump away and the results are not deemed &quot;inflation.&quot; The money does not cycle up in wages or wage-earner goods.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other areas, however, &lt;em&gt;we do see soaring prices&lt;/em&gt;: art, luxury goods, high-end urban real estate, philanthropic gestures, political campaign funding, ivy educations, high-tech medicine, hedge fund fees, dividend payouts, tax-avoidance cash hoards, stock bubbles, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can the absence of official &quot;inflation&quot; be explained in large part by the &quot;disaggregation&quot; of labor, middle-class debt, and a new class configuration since the late 1970s? More like a &quot;redistribution&quot; or even a &quot;customizing&quot; of inflation.       &lt;/p&gt;&#xA;" OwnerUserId="6118" LastActivityDate="2015-11-18T07:11:12.260" Title="Can absence of inflation be accounted for by a reconfigured class structure?" Tags="&lt;finance&gt;&lt;labor-economics&gt;&lt;inflation&gt;&lt;federal-reserve&gt;" AnswerCount="4" CommentCount="1" FavoriteCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="9156" PostTypeId="1" AcceptedAnswerId="9352" CreationDate="2015-11-14T05:29:09.517" Score="3" ViewCount="1065" Body="&lt;p&gt;In deriving the supply curve how does one create the supply curve like the one we see in textbooks (upward sloping, possible curve), if we are only given a single quantity and price at a moment in time? For example, in the oil industry we are told that the US is supplying x barrels of oil, how can we derive the rest of the curve since we don't know what the price is at x-y barrels...&lt;/p&gt;&#xA;" OwnerUserId="6244" LastActivityDate="2015-11-23T22:47:25.833" Title="Deriving the supply curve" Tags="&lt;macroeconomics&gt;&lt;supply-and-demand&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9158" PostTypeId="1" AcceptedAnswerId="18327" CreationDate="2015-11-14T10:27:00.317" Score="5" ViewCount="1420" Body="&lt;p&gt;We know that if we start with a connected, separable product space $V_1\times,...,\times V_n$ and a complete, transitive, and continuous preference relation $\succsim$ on this product space, that there exists a continuous! utility representation $u:V_1\times,...,\times V_n\rightarrow \mathbb{R}$. However, continuity $\neq$ differentiability. Thus, I am curious under which conditions there even exists a differentiable utility function.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My first idea would be to at least restrict the product space to $\mathbb{R}^n$, but there may be counterexamples. For example, if $n=1$ and $u$ is the Weierstrass function, $u$ is continuous, but not differentiable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since in Economics we constantly work with differentiable utility, I am wondering which assumptions are necessary to ensure differentiability.&lt;/p&gt;&#xA;" OwnerUserId="5635" LastActivityDate="2017-09-18T13:34:12.480" Title="When is a utility representation differentiable?" Tags="&lt;utility&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9159" PostTypeId="2" ParentId="9158" CreationDate="2015-11-14T11:18:29.323" Score="1" Body="&lt;p&gt;If you want to impose sufficient conditions on the preferences, sadly it seems to me that this is nearly impossible. If a utility function describes a preference ordering then so does every monotonic transformation of the same utility function. If a utility function $U$ takes at least two values, say $a$ and $b$, you could use the following monotonic function&#xA;$$&#xA;f(u) = \left\{&#xA;\begin{array}{ll}&#xA;u &amp;amp; \mbox{ if } u \leq \frac{a+b}{2} \\&#xA;\\&#xA;u + 1 &amp;amp; \mbox{ if } u &amp;gt; \frac{a+b}{2}.&#xA;\end{array} \right.&#xA;$$&#xA;to get a new utility function $f(U)$ which would still describe the same preferences. However, this function will not be differentiable, even if $U$ was. The only way to guarantee that a utility function describing the preference ordering is always differentiable is if you do not allow any form of it to take two different values, that is if all the goods are neutral to the consumer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you want to impose conditions on the utility functions itself it seems to me you would have to require that the marginal utilities exist and are continuous which is kind of the same as saying that the utility function is differentiable. So this is not a very useful condition. A better condition may exist, but I don't think it does.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2015-11-14T13:23:37.967" LastActivityDate="2015-11-14T13:23:37.967" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="9161" PostTypeId="1" CreationDate="2015-11-14T21:45:52.513" Score="3" ViewCount="219" Body="&lt;p&gt;Consider a game with the following payoff matrix:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;3,5   0,0   0,0&#xA;0,0   5,3   0,0&#xA;0,0   0,0   0,0&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Suppose the game is played infinitely many times, and both players have discount factor $\delta$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The players want to create the outcome $4,4$ using only pure strategies. Intuitively, they should alternate between the (3,5) and the (5,3). This will give the row player:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$(1-\delta)\sum_{t=0}^\infty \delta^{2t}*3 + \delta^{2t+1}*5 = \frac{3+5\delta}{1+\delta} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and the column player:&#xA;$$(1-\delta)\sum_{t=0}^\infty \delta^{2t}*5 + \delta^{2t+1}*3 = \frac{5+3\delta}{1+\delta} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The payoff vector goes to $(4,4)$ when $\delta \to 1$, but otherwise it is not exactly $(4,4)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am looking for references about the following questions: in what conditions is it possible to attain exactly a desired payoff vector with only pure strategies (for an arbitrary game and arbitrary number of players)? And how this payoff vector can be constructed?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I looked at some papers about folk theorems for discounted infinitely-repeated games. The problem is that they usually assume that $\delta\to 1$, which is not always true in practice.&lt;/p&gt;&#xA;" OwnerUserId="385" LastEditorUserId="1601" LastEditDate="2015-11-15T07:59:30.303" LastActivityDate="2017-01-22T19:23:47.287" Title="Payoffs in an infinitely-repeated game with discounting" Tags="&lt;reference-request&gt;&lt;game-theory&gt;&lt;repeated-games&gt;" AnswerCount="2" CommentCount="4" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9162" PostTypeId="1" CreationDate="2015-11-14T22:54:07.287" Score="0" ViewCount="38" Body="&lt;p&gt;Since nearly all countries are in debt except for four (&lt;a href=&quot;http://www.therichest.com/rich-list/rich-countries/the-only-5-countries-in-the-world-living-debt-free/&quot; rel=&quot;nofollow&quot;&gt;http://www.therichest.com/rich-list/rich-countries/the-only-5-countries-in-the-world-living-debt-free/&lt;/a&gt;), where does all the money that the other countries no longer have go to? Surely these four countries can't be receiving it all.&lt;/p&gt;&#xA;" OwnerUserId="6249" LastActivityDate="2015-11-15T04:47:23.727" Title="What happens to the money that the government is in debt from?" Tags="&lt;money-supply&gt;&lt;government-debt&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9163" PostTypeId="1" AcceptedAnswerId="9237" CreationDate="2015-11-14T23:03:31.737" Score="9" ViewCount="429" Body="&lt;p&gt;The &lt;a href=&quot;https://en.wikipedia.org/w/index.php?title=Payday_loan&amp;amp;oldid=689253819#Pricing_structure_of_payday_loans&quot; rel=&quot;nofollow&quot;&gt;current Wiki page on &quot;Payday Loans&quot;&lt;/a&gt; claims loans are priced above marginal cost. The justification is that&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;If a lender chooses to innovate and reduce cost to borrowers in order to secure a larger share of the market, the competing lenders will instantly do the same, negating the effect. For this reason, among others, all lenders in the payday marketplace charge at or very near the maximum fees and rates allowed by local law. &lt;a href=&quot;https://litigation-essentials.lexisnexis.com/webcd/app?action=DocumentDisplay&amp;amp;crawlid=1&amp;amp;doctype=cite&amp;amp;docid=17+Tex.+J.+on+C.L.+%26+C.R.+211&amp;amp;srctype=smi&amp;amp;srcid=3B15&amp;amp;key=c13c18e98eb8940c9ca16a70c4f6a5b7&quot; rel=&quot;nofollow&quot;&gt;[23]&lt;/a&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Doesn't this logic contradict the fact that competitive markets price goods at their marginal cost?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there an implicit assumption that the payday loan market is not sufficiently competitive? If so, is this assumption true?&lt;/p&gt;&#xA;" OwnerUserId="6250" LastEditorUserId="264" LastEditDate="2015-11-19T00:16:58.293" LastActivityDate="2019-03-01T09:36:58.430" Title="Why wouldn't competition prevent &quot;usurious&quot; payday loan rates?" Tags="&lt;microeconomics&gt;&lt;competition&gt;&lt;competitive-equilibrium&gt;" AnswerCount="3" CommentCount="6" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9164" PostTypeId="1" CreationDate="2015-11-15T00:57:48.950" Score="1" ViewCount="21" Body="&lt;p&gt;I have 200 ROI investment examples (projects) in a specific industry, say manufacturing of microprocessors. How and what methods can I use to evaluate the impact (GDP, added value, job growth, etc.) on a whole economy, say USA's, if a prime task is to show how such the investments positively affect the economy?&lt;/p&gt;&#xA;" OwnerUserId="6251" LastActivityDate="2015-11-15T00:57:48.950" Title="Evaluate projects'/investments' impact on whole economy" Tags="&lt;macroeconomics&gt;&lt;simulations&gt;&lt;input-output&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9165" PostTypeId="1" AcceptedAnswerId="9184" CreationDate="2015-11-15T02:16:48.547" Score="7" ViewCount="23357" Body="&lt;p&gt;How much money is wire transferred every year worldwide? Estimates are fine.&lt;/p&gt;&#xA;" OwnerUserId="6149" LastActivityDate="2015-11-17T13:24:48.830" Title="How much money is wire transferred every year worldwide?" Tags="&lt;banking&gt;&lt;money&gt;" AnswerCount="1" CommentCount="3" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9166" PostTypeId="2" ParentId="9162" CreationDate="2015-11-15T04:47:23.727" Score="4" Body="&lt;p&gt;This does not work like that. If you want to add-up all the debt in the world you will not end-up with 0.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Think about a situation in which I owe you \$100, you owe someone else \$100, and this someone else owe me \$100. Total debt would be \$300, even if another guy is debt-free.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Moreover, country debt (called sovereign debt) is not only owned by other countries but most of the world-debt, is owned by people, mostly through pension funds (and other investments). So even in a single-country economy, the country may issue some debt that consumers or firms can invest in. And the global amount of sovereign debt will be strictly positive.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Again most of the world-debt is privately owned and it may even be the case that those five countries you're talking about don't hold a single debt contract.&lt;/p&gt;&#xA;" OwnerUserId="6053" LastActivityDate="2015-11-15T04:47:23.727" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9167" PostTypeId="1" AcceptedAnswerId="9174" CreationDate="2015-11-15T06:13:53.410" Score="0" ViewCount="356" Body="&lt;p&gt;I prefer to learn economic theories from economists who made lots of money from the financial markets and were aided by their economic ideas. Who were they? What are the notable economic theories did they formulate? &lt;/p&gt;&#xA;" OwnerUserId="6172" LastEditorUserId="6172" LastEditDate="2015-11-15T07:57:50.723" LastActivityDate="2017-08-18T15:47:08.320" Title="Who were the economists who made lots of money in the financial markets?" Tags="&lt;financial-markets&gt;" AnswerCount="3" CommentCount="4" ClosedDate="2015-11-17T02:17:13.703" ContentLicense="CC BY-SA 3.0" />
  <row Id="9168" PostTypeId="1" AcceptedAnswerId="9171" CreationDate="2015-11-15T06:16:12.317" Score="1" ViewCount="191" Body="&lt;p&gt;Complex mathematics make sense if the results can be calculated with precision. This applies for the physical sciences like physics and engineering. Economics is more of a social science subject. Does complex mathematics make sense in this context?&lt;/p&gt;&#xA;" OwnerUserId="6172" LastActivityDate="2015-11-15T23:17:48.723" Title="Does it make sense to apply complex mathematics in economics given that the result can be off by substantial percentage points?" Tags="&lt;mathematical-economics&gt;" AnswerCount="2" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="9170" PostTypeId="1" AcceptedAnswerId="9262" CreationDate="2015-11-15T08:22:02.260" Score="8" ViewCount="229" Body="&lt;p&gt;Something I've never seen in Economics but have in Maths and Chemistry and really enjoyed is that when I took it we got to the see the evolution of the science (and yes Economics is a [social] science ) showing us the very building blocks and the story of how it evolved into its modern counterparts. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Like with maths: Something like the basis 1) Indian numbers, $+$, $-$, $x$, $\rightarrow$; 2) fractions, radical numbers, square roots; 3) complex numbers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Something like that it doesn't come to mind well but I quite enjoyed that. It really set the tone. &lt;/p&gt;&#xA;" OwnerUserId="4941" LastEditorUserId="4941" LastEditDate="2015-11-21T11:13:09.503" LastActivityDate="2016-01-28T03:12:02.373" Title="A timeline on the the key achievements of Economics and its evolution" Tags="&lt;reference-request&gt;&lt;history-economic-thought&gt;" AnswerCount="1" CommentCount="4" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="9171" PostTypeId="2" ParentId="9168" CreationDate="2015-11-15T08:38:28.440" Score="4" Body="&lt;p&gt;In the field of economics complex math is often used for&lt;/p&gt;&#xA;&#xA;&lt;p&gt;a) Economic modelling&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are usually tons of factors that influence even the simplest economic event. It is often necessary to resort to complex math to include all the variables that represent those factors in the right way.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;b) Analysis of statistical data&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is often very difficult to support economic theories with good data, again because there are so many factors in play. On top of that, many simple mathematical instruments have drawbacks and should not be applied in certain situations. For example, to test relationship between two variables, you can use a simple correlation coefficient, but there are cases where outliers or certain patterns can make it unreasonably high or low. Then you can use simple linear regression, but if you spent months gathering data you may want to spend a few days trying to build a custom regression equation for a better fit. Finally, if you are preparing a paper for publication, you may want to use as many statistics as you can to try to convince reviewers and readers that your findings are actually true.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Drawbacks of using complex math in economics&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) There are not that many readers out there who are proficient in advanced mathematics. Unless you want to limit your target audience to a few math enthusiasts, keep it as simple as possible.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) If you are preparing a paper for review at a journal, keep in mind that reviewers in economic journals are not necessarily mathematicians. It usually takes longer for math-heavy papers to get reviewed and the quality of those reviews may not be great, unless its a top journal.&lt;/p&gt;&#xA;" OwnerUserId="6231" LastActivityDate="2015-11-15T08:38:28.440" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9172" PostTypeId="1" AcceptedAnswerId="9193" CreationDate="2015-11-15T15:33:04.413" Score="2" ViewCount="208" Body="&lt;p&gt;I have a question regarding GE modelling.&#xA;The firm's problem is to:&#xA;$$&#xA;\max\pi=pf(k,l)-wl-rk&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If this is true, we choose $l$ and $k$ to maximize the difference&#xA;between costs and revenues. This yields the familiar FONCs for $l$&#xA;and $k.$ However, in equilibrim, we set the profits equal to 0. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My intuition tells me that after we solve the above problem, the equilibrium&#xA;condition implies our selecting a price $p$ such that $\pi$ equal&#xA;$0$ in equilibrium. Is this correct? &lt;/p&gt;&#xA;" OwnerUserId="5233" LastActivityDate="2015-11-16T18:52:43.800" Title="General Equilibrium Modelling" Tags="&lt;microeconomics&gt;&lt;labor-economics&gt;&lt;general-equilibrium&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9174" PostTypeId="2" ParentId="9167" CreationDate="2015-11-15T18:35:38.417" Score="6" Body="&lt;p&gt;At university classes, I always learned that the only economist who ever became rich was Ricardo. However, Ricardo was already rich before becoming an economist. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://agenda.weforum.org/2015/10/why-economists-arent-wealthy/&quot; rel=&quot;nofollow noreferrer&quot;&gt;This&lt;/a&gt; article seems support this claim. It also gives an explanation for the lack of rich economist:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;If becoming wealthy is your goal in studying economics, you may be disappointed.  Although most economists make a good living, few have become rich from their knowledge of economics. In fact, if economists had some secret for making money in, for example, the stock market, they would likely be using those secrets to their own financial advantage [...] In short, economics won’t necessarily make you richer, but it may keep you from making some decisions that would make you poorer.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="6227" LastEditorUserId="2776" LastEditDate="2017-08-18T15:46:35.523" LastActivityDate="2017-08-18T15:46:35.523" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9175" PostTypeId="1" CreationDate="2015-11-15T19:50:08.103" Score="7" ViewCount="4629" Body="&lt;p&gt;I have written an explanation to one of the famous questions &amp;quot;why can't government print money to pay its debt&amp;quot;.&lt;/p&gt;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Is my explanation correct?&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Is this the similar situation which happens in real life?&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Is there really a foreign exchange bank?&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Do companies like Verizon really buy other countries' currencies?&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;In Country X, President thinks we have too much debt to be paid to USA. Let us print money and will pay the debt off. Country X uses currency Y.&lt;/p&gt;&#xA;&lt;p&gt;After printing money, since X has to pay to USA in dollars, X goes to foreign exchange bank and try to catch some &amp;quot;fool&amp;quot;. Suppose a telecom operator in USA say Verizon wants to expand business in  X, wanted to buy Y since X may need that money to construct office, hire people, bribe politicians etc. So Verizon buys it from X in return for USD. Now X pays its debt off to USA in USD and sleeps happily.&lt;/p&gt;&#xA;&lt;p&gt;Now Verizon expands business in X, effectively returns the money they got it from X to the people of X, by paying for construction, employees, etc.&lt;/p&gt;&#xA;&lt;p&gt;So people of X have more money but the production of X remained same. This is a classic case of inflation. So countries tend not to print money to pay off debt!&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="6257" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2020-10-31T15:45:33.237" Title="Why can't a government print money to pay its debt?" Tags="&lt;money&gt;&lt;government-debt&gt;" AnswerCount="4" CommentCount="0" FavoriteCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="9176" PostTypeId="1" CreationDate="2015-11-15T20:02:42.993" Score="112" ViewCount="19364" Body="&lt;p&gt;Decades ago a factory job could support a wife and kids until retirement and they offered insurance, benefits, etc. Now, no more unions, those jobs as well as tech and customer service jobs are outsourced, and anything left in the US is mostly being replaced by a machine or robot.&lt;/p&gt;&#xA;&lt;p&gt;Assembly lines had 50 guys in the factory, all gone due to 2 robots assembly something and only needs a few men to monitor them. Blockbuster and Borders were destroyed by online video streaming and Ebooks. Wages also aren't keeping up with the cost of living. The rich get all these tax cuts even if they outsource every job they make, but us &amp;quot;little people&amp;quot; keep getting the downside.&lt;/p&gt;&#xA;&lt;p&gt;I'm young and very scared of the future. Technology and new companies use to make jobs. Now one guy can make billions of dollars with a few friends only.&lt;/p&gt;&#xA;" OwnerUserId="6258" LastEditorUserId="1601" LastEditDate="2021-05-12T10:47:59.723" LastActivityDate="2021-05-12T10:47:59.723" Title="How will non-rich citizens make a living if jobs keep getting replaced by robots and are outsourced?" Tags="&lt;labor-economics&gt;&lt;unemployment&gt;&lt;nonexpert&gt;&lt;productivity&gt;&lt;living-cost&gt;" AnswerCount="16" CommentCount="27" FavoriteCount="68" ContentLicense="CC BY-SA 4.0" />
  <row Id="9177" PostTypeId="2" ParentId="9176" CreationDate="2015-11-15T20:41:30.920" Score="27" Body="&lt;p&gt;Your question relates to an important research topic on the link between automation and employment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://economics.mit.edu/faculty/dautor/papers/inequality&quot; rel=&quot;nofollow noreferrer&quot;&gt;David Autor&lt;/a&gt; works on this issue and the topic &quot;Inequality, Technological Change and Globalization&quot;. He published a very recent and interesting JPE paper on “&lt;a href=&quot;http://economics.mit.edu/files/10865&quot; rel=&quot;nofollow noreferrer&quot;&gt;Why Are There Still So Many Jobs?&lt;/a&gt;”&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;There have been periodic warnings in the last two centuries that&#xA;  automation and new technology were going to wipe out large numbers of&#xA;  middle class jobs. The best-known early example is the Luddite&#xA;  movement of the early 19th century, in which a group of English&#xA;  textile artisans protested the automation of textile production by&#xA;  seeking to destroy some of the machines.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Update: Author's paper is now in 3 minute &lt;a href=&quot;http://youtu.be/thFlKOqHJog&quot; rel=&quot;nofollow noreferrer&quot;&gt;video format&lt;/a&gt;  by Jonas Koblin, Sprouts School.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I also recommend reading two recent books on this topic:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;The &lt;a href=&quot;http://secondmachineage.com/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Second Machine Age&lt;/a&gt; (2014), by MIT scholars Erik Brynjolfsson and Andrew McAfee who offer an unsettling picture of the likely effects of automation on employment.&lt;/li&gt;&#xA;&lt;li&gt;Berkeley scholar Enrico Moretti, &lt;a href=&quot;http://eml.berkeley.edu//~moretti/book.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;The New Geography of Jobs&lt;/a&gt;,  Houghton Mifflin Harcourt, 2012.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;This question also reminds me a new term coined by Ed. Leamer, &lt;strong&gt;neuro-facturing&lt;/strong&gt;, in opposition to manu-facturing. So, the future is not about a stable manufacturing job but the kind of work that depends on how original your ideas can be, and how much you can master technology. However, I don't remember any reference. If someone does, please, let me know. &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;New update (March 2020)&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a recent paper titled &quot;&lt;a href=&quot;https://www.nber.org/papers/w26738&quot; rel=&quot;nofollow noreferrer&quot;&gt;Competing with Robots: Firm-Level Evidence from France&lt;/a&gt;,&quot; Daron Acemoglu (MIT), Claire LeLarge (U. of Paris Saclay), and Pascual Restrepo (Boston University) analyzed 55,390 French manufacturing firms to study the economic impact of robot adoption. 598 out of them (accounting for 20% of manufacturing employment and value added) have adopted robots between 2010 and 2015. &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;em&gt;Result&lt;/em&gt;: Consistent with theory, robot adopters experience significant &lt;strong&gt;declines in labor share&lt;/strong&gt; and the share of production workers in employment, and increases in value added and productivity. They &lt;strong&gt;expand their overall employment as well&lt;/strong&gt;. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;em&gt;General equilibrium effect&lt;/em&gt;: this expansion comes at the expense of their competitors (as automation reduces their relative costs). They   further document that the impact of robots on overall labor share is   greater than their firm-level effects because robot adopters are larger and grow faster than their competitors. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;em&gt;Main conclusion&lt;/em&gt;: The &lt;strong&gt;overall impact of robot adoption on industry employment is negative&lt;/strong&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="6168" LastEditorUserId="6168" LastEditDate="2020-03-10T10:31:42.773" LastActivityDate="2020-03-10T10:31:42.773" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="9178" PostTypeId="2" ParentId="9175" CreationDate="2015-11-15T22:25:51.073" Score="8" Body="&lt;p&gt;Your get the basic intuition, but real-life situation is a  bit different.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, I didn't really understand what you meant by &quot;try to catch some 'fool'&quot;, but what you are calling foreign exchange bank is actually called the Foreign Exchange (market), and consist of buyers and sellers that are basically ready to buy and sell any currencies (&lt;em&gt;almost&lt;/em&gt; all currencies in fact) provided that the price aligns with their expectations. Classic laws of market apply to this market, and if X's government (its central bank to be more precise) prints a lot of money, money supply increases. The result is a decrease in the price of money relative to other money, which is the &lt;em&gt;exchange rate&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Money may be hard to understand, but it is actually a right to future cash flow of a given country. It is a sort of perpetual debt with zero coupon issued by a given country. So, if the country issues more money, it means that it issues more debt, so as a dilution mechanism it yields less cash flow to each unit of money, and since the price of money (as the price of any debt) is the expectation of future cash flow, the price will decrease.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, this will indeed result in more inflation. I expose two ways of seeing that. First, you can think about the price of goods as the price of goods relative to the price of money. Indeed, you're going to pay &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; for a particular good because the seller knows that it will receive &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; and that &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; will give him the right to a certain amount of GDP (cash flow of country). But if the amount of GDP that the money represents is lower, he will ask for a higher price. Second, traditional monetary research has derived, a long time ago, the following formula which represents what I explained in my first point, but more formally. The following is &lt;em&gt;always&lt;/em&gt; true, it is an accounting relation :&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;M\cdot V = P\cdot Q&#xA;\end{equation}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$M$&lt;/span&gt; is the amount of money, &lt;span class=&quot;math-container&quot;&gt;$V$&lt;/span&gt; is the speed of money, &lt;span class=&quot;math-container&quot;&gt;$P$&lt;/span&gt; is the price level and &lt;span class=&quot;math-container&quot;&gt;$Q$&lt;/span&gt; is the output or quantity of goods exchanged. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Without entering into too much details on this equation (there are extended information on Internet), you can see that increasing &lt;span class=&quot;math-container&quot;&gt;$M$&lt;/span&gt;, holding &lt;span class=&quot;math-container&quot;&gt;$V$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$Q$&lt;/span&gt; constant, results in inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To come back to your question, countries don't (only) print money to repay their debt, because they are afraid of inflation. There is a big debate on inflation (You can read it on Internet), but loosely speaking inflation seems hard to contain. So to avoid hyper-inflation situation, they try to maintain inflation (in general below 2%).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your story does not need another company investing in  X because, as you said,  people will end-up with more money, but X's production  will effectively increase. But it is true that companies buy currencies for investment purposes in their own country. Even local company may end-up buying their own currency, if for instance they sell product in USA (exportations), and sell the USD they receive against buying their own currency. This is why import and export (worldwide) are good indicators of exchange rate fluctuations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Printing money to pay debt is a complicated question, and I only tried to sketch some insight here. For more information, read more on money creation and inflation (either in the academic literature or in economic textbook for instance).&lt;/p&gt;&#xA;" OwnerUserId="6053" LastEditorUserId="6168" LastEditDate="2020-05-08T09:59:05.610" LastActivityDate="2020-05-08T09:59:05.610" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="9179" PostTypeId="1" CreationDate="2015-11-15T22:35:16.383" Score="2" ViewCount="232" Body="&lt;p&gt;Please excuse me, I hardly know anything about economics yet.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When the quality of a product changes, the demand curve moves.  But what if there are different versions of a product, of varying qualities, on the market at the same time?  Is there standard way to model this?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, there are a lot of different restaurants of different qualities.  The quality is a subjective measure, but suppose it weren't.  I could draw one supply curve and one demand curve per restaurant.  Is there anything more interesting I could do?  For example something that takes account of the fact that a high-quality restaurant and a low-quality restaurant are to some extent substitutes for each other.  Does micro theory give any prediction about what the supply of different restaurants of different qualities will be?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If there's a better question like this that I could have asked, or a good keyword to search on, please tell me.&lt;/p&gt;&#xA;" OwnerUserId="6261" LastEditorUserId="61" LastEditDate="2015-11-16T01:28:29.737" LastActivityDate="2015-11-16T01:28:29.737" Title="What are some ways to add quality to the supply-demand model?" Tags="&lt;microeconomics&gt;&lt;product-differentiation&gt;&lt;monopolistic-competition&gt;" AnswerCount="0" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9180" PostTypeId="2" ParentId="9168" CreationDate="2015-11-15T23:17:48.723" Score="4" Body="&lt;p&gt;I asked in a comment&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;By &quot;complex mathematics&quot; do you mean &quot;advanced theoretical&#xA;  mathematical methods&quot;, or &quot;complicated numerical computations&quot;?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;and the OP replied&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Both. But &quot;advanced theoretical mathematical methods&quot; is worse.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Well, the use in Economics of &quot;advanced theoretical mathematical methods&quot; &lt;em&gt;has absolutely nothing to do with the accuracy or inaccuracy of numerical calculations/estimations/predictions&lt;/em&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;When the mathematization of Economics started back in the 30's and received a critical boost from Paul Samuelson's &quot;Foundations of Economic Analysis&quot; (1947), the scholars may have envisioned an &lt;em&gt;exact social science&lt;/em&gt; at the end of the road, &lt;em&gt;social engineering&lt;/em&gt; reigning supreme.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;We soon learned how implausible such a goal was, while also understanding what this mathematization really offered instead : &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A) Sanity-check of economic theorizing to a degree not permitted when this theorizing swims in the moving waters of human language&lt;/p&gt;&#xA;&#xA;&lt;p&gt;B) The ability to obtain new economic insights unattainable by human reasoning phrased in human language&lt;/p&gt;&#xA;&#xA;&lt;p&gt;c) Greater degree of re-usability of the work of others, thus accelerating research&lt;/p&gt;&#xA;&#xA;&lt;p&gt;...and I may think of a few more.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In another comment, the OP seems pre-occupied with the relation between  &lt;em&gt;forecasting performance&lt;/em&gt; and complex mathematics. Two remarks here:&#xA;No forecasting method, complex or naive, does well in the face of &lt;em&gt;structural breaks&lt;/em&gt;, we are not there yet. Second, the &lt;em&gt;combination&lt;/em&gt; &quot;sophisticated forecasting model + experienced forecaster&quot; most of the times performs better than &quot;simple model&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is not news: 30 years ago, in &lt;a href=&quot;http://www.sciencedirect.com/science/book/9780122951831&quot; rel=&quot;nofollow&quot;&gt;&lt;strong&gt;Granger &amp;amp; Newbold (1986) &quot;Forecasting Economic Time Series&quot;&lt;/strong&gt;&lt;/a&gt; book, in the relevant sub-chapter on evaluating macroeconomic forecasts, the authors reviewed the literature in a very balanced and detached way, and found just that: since this is &lt;em&gt;not&lt;/em&gt; social engineering, tools should be handled by humans (like complex models that are handled by their creators), not left alone (as simple models are, by their nature).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a more recent paper&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/S016920701000110X&quot; rel=&quot;nofollow&quot;&gt;Dovern, J., &amp;amp; Weisser, J. (2011). Accuracy, unbiasedness and efficiency of professional macroeconomic forecasts: An empirical comparison for the G7. International Journal of Forecasting, 27(2), 452-465.&lt;/a&gt;&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;the overall evaluation of professional forecasters (which certainly use complex models alongside their experience) appears to be improving.  &lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-11-15T23:17:48.723" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9181" PostTypeId="2" ParentId="9176" CreationDate="2015-11-16T00:32:21.997" Score="67" Body="&lt;p&gt;This is an interesting question a lot of good labour economists have been thinking about for a while. There are a few conflicting theories as to what will happen. You could base a whole career on this question.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://www.igmchicago.org/igm-economic-experts-panel/poll-results?SurveyID=SV_eKbRnXZWx3jSRBb&quot; rel=&quot;noreferrer&quot;&gt;This IGM survey&lt;/a&gt; will give you some idea as to what leading economists think.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The prevailing opinion seems to be &lt;strong&gt;that increased automation is not going to come at a cost to employment&lt;/strong&gt;. There are countless examples of advancement lowing the returns to labour occurring throughout history (the plough, the steam train, industrial revolution). None of them has shown a long-run reduction in employment. &lt;a href=&quot;https://en.wikipedia.org/wiki/Solow%E2%80%93Swan_model&quot; rel=&quot;noreferrer&quot;&gt;The Solow Swan model&lt;/a&gt; for example,  includes inputs to labour, capital and technology. They show technology and labour being complementary. I know of no empirical evidence suggesting that this has changed.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;https://hbr.org/2015/06/robots-seem-to-be-improving-productivity-not-costing-jobs&quot; rel=&quot;noreferrer&quot;&gt;This HBR article&lt;/a&gt; suggests that we aren't really seeing a cost in jobs, more a benefit in productivity. It also mentions Robert Solow's famous remark (which was correct at the time):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;you can see the computer age everywhere but in the productivity statistics&lt;/p&gt;&#xA;&lt;/blockquote&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;http://www.technologyreview.com/featuredstory/515926/how-technology-is-destroying-jobs/&quot; rel=&quot;noreferrer&quot;&gt;This MIT article&lt;/a&gt; presents a bleaker perspective with the concluding sentence:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In other words, in the race against the machine, some are likely to win while many others lose.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;http://equitablegrowth.org/technological-progress-anxiety-thinking-about-peak-horse-and-the-possibility-of-peak-human/&quot; rel=&quot;noreferrer&quot;&gt;Another article&lt;/a&gt; suggests that &quot;this time it's different&quot;. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The &lt;strong&gt;analogy used is that humans are horses&lt;/strong&gt; and we are reaching &lt;em&gt;peak human&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;demand for the labour of horses today is vastly less than it was a century ago, even though horses are extremely strong, fast, capable and intelligent animals. “Peak horse” in the U.S. came in the 1910s&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In my opinion, this analogy is intuitively satisfying but is not particularly useful. We will see fewer humans working the supermarket checkouts and more in entertainment in the same way horses are no longer our ploughs and our taxis but are more likely to be racing and performing. Past that I think the comparison is a pretty big logical leap.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://www.economist.com/news/briefing/21594264-previous-technological-innovation-has-always-delivered-more-long-run-employment-not-less&quot; rel=&quot;noreferrer&quot;&gt;The Economist has an opinion somewhere in between&lt;/a&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;[Keyne's] worry about technological unemployment was mainly a worry about a “temporary phase of maladjustment” as society and the economy adjusted to ever greater levels of productivity. So it could well prove. However, society may find itself sorely tested if, as seems possible, growth and innovation deliver handsome gains to the skilled, while the rest cling to dwindling employment opportunities at stagnant wages.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;More likely, we will see a (potentially painful) transition in the uses of labour. A factory that used to employ thousands will now employ hundreds, possibly eventually only a dozen. These people will seek employment elsewhere and probably find it, either in existing industries or ones that do not yet exist.&lt;/p&gt;&#xA;" OwnerUserId="40" LastEditorUserId="40" LastEditDate="2018-07-10T01:31:26.823" LastActivityDate="2018-07-10T01:31:26.823" CommentCount="12" ContentLicense="CC BY-SA 4.0" />
  <row Id="9182" PostTypeId="1" CreationDate="2015-11-16T01:59:05.850" Score="2" ViewCount="117" Body="&lt;p&gt;According to Adam Smith, humans are self-interested individuals. If this is true, why does he argue that people should reinvest their wealth? How does this benefit a self-interested individual? Does morality play a role here? What role does productive and unproductive labor play here precisely?&lt;/p&gt;&#xA;" OwnerUserId="6267" LastActivityDate="2015-11-16T04:15:09.200" Title="Adam Smith: If humans are self-interested individuals, why should we reinvest our wealth?" Tags="&lt;labor-economics&gt;&lt;supply-and-demand&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9183" PostTypeId="2" ParentId="9176" CreationDate="2015-11-16T02:27:20.323" Score="22" Body="&lt;p&gt;Horses were replaced by cars. Clerks were replaced by word-processors and spreadsheets. We have adapted to the technology and changed how we work. Therein lies the answer. Consider if you will a society where every person owns a robot and has that robot work on their behalf, freeing their time to pursue creative arts and learning like the nobles of old. Yes, robots could be a threat, but they also could usher in the most Golden Age mankind has ever known.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Futurist&quot;&gt;Futurists&lt;/a&gt; and writers of &lt;em&gt;speculative fiction&lt;/em&gt; have been asking (and answering) this question for more than half a century. As you are concerned about the future looking into the way this issue has been (and is being) looked at by these folks is not a bad place to start.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Most famous of these is Isaac Asimov who starting in 1938 wrote a whole &lt;a href=&quot;https://en.wikipedia.org/wiki/Robot_series_%28Asimov%29&quot;&gt;series of &lt;em&gt;Robot&lt;/em&gt; stories&lt;/a&gt; which relevant to your question include &quot;I, Robot&quot; (1950) and &quot;The Caves of Steel&quot; (1954) among others. These stories have a central plot point of humans being economically displaced by a robotic workforce, and the reactions of society to the problem.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A very unusual and creative view on the subject was written by Frederik Pohl in his novella &quot;The Midas Plague&quot; (1954) which can be read online &lt;a href=&quot;https://archive.org/stream/galaxymagazine-1954-04/Galaxy_1954_04#page/n7/mode/2up&quot;&gt;&lt;strong&gt;here&lt;/strong&gt;&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A more modern view on the subject can be found in a series of articles in the &lt;em&gt;MIT Technology Review&lt;/em&gt; as follows:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://www.technologyreview.com/featuredstory/515926/how-technology-is-destroying-jobs/&quot;&gt;&quot;How Technology Is Destroying Jobs&quot;&lt;/a&gt; (2013)&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://www.technologyreview.com/featuredstory/531726/technology-and-inequality/&quot;&gt;&quot;Technology and Inequality&quot;&lt;/a&gt; (2014)&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://www.technologyreview.com/featuredstory/538401/who-will-own-the-robots/&quot;&gt;&quot;Who Will Own the Robots?&quot;&lt;/a&gt; (2015)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Other futurists (the names escape me for the moment) have been similarly addressing the issue of non-robotic artificial intelligence displacing knowledge workers. Some have even gone so far as to say that the eventual development of a true AI will simultaneously be the greatest boon and potentially the greatest threat to our existence.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ultimately all of these machines and technology are just tools, and it is up to us individually and as a society to determine how we use these tools. Burying our heads in the sand or attempting to ban the technology are simply not the answer. This is no different than the issue of &lt;em&gt;genetics&lt;/em&gt; which can be of great benefit to mankind but can also be abused. These issues will not go away and technology will continue to advance but we can put safeguards in place to make the transition into the future smoother and less painful. In the end we must adapt.&lt;/p&gt;&#xA;" OwnerUserId="6265" LastEditorUserId="6265" LastEditDate="2015-11-16T04:34:26.003" LastActivityDate="2015-11-16T04:34:26.003" CommentCount="11" ContentLicense="CC BY-SA 3.0" />
  <row Id="9184" PostTypeId="2" ParentId="9165" CreationDate="2015-11-16T03:42:02.560" Score="10" Body="&lt;p&gt;If you're just trying to understand the volume of electronic transactions generally to an order of magnitude, it's in the quadrillions of dollars per year. According to &lt;a href=&quot;https://www.fincen.gov/news_room/rp/files/Appendix_D.pdf&quot; rel=&quot;nofollow&quot;&gt;this document&lt;/a&gt; from the US Treasury, SWIFT handles about \$5 trillion per day, or given about 250 business days per year, about \$1.25 quadrillion dollars a year. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Similarly, &lt;a href=&quot;https://www.theclearinghouse.org/payments/chips/helpful-info&quot; rel=&quot;nofollow&quot;&gt;CHIPS&lt;/a&gt; handles about \$400 trillion per year, and &lt;a href=&quot;https://www.frbservices.org/operations/fedwire/fedwire_funds_services_statistics.html&quot; rel=&quot;nofollow&quot;&gt;Fedwire&lt;/a&gt; handles around \$900 trillion per year (most of both of these arise out of SWIFT messages). These transactions make up a large fraction of electronic transactions in the world, so it's safe to assume that the global total isn't much more than a few quadrillion dollars a year.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;SWIFT payment message volumes are usually &lt;a href=&quot;http://www.swift.com/about_swift/company_information/fin_traffic_new&quot; rel=&quot;nofollow&quot;&gt;around 11.5 million per day&lt;/a&gt;, giving an average payment size of around \$45,000— though if one considers the structure of the payments system, it's evident that there's a very wide distribution of payments sizes, so this average isn't particularly representative.&lt;/p&gt;&#xA;" OwnerUserId="264" LastEditorUserId="264" LastEditDate="2015-11-17T13:24:48.830" LastActivityDate="2015-11-17T13:24:48.830" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="9185" PostTypeId="2" ParentId="9182" CreationDate="2015-11-16T04:15:09.200" Score="3" Body="&lt;p&gt;Economics have evolved considerably since Adam Smith and his ideas have been refined. I can think of two approaches to your question:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Why would a self-interested individual re-invest wealth?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;1) Financial perspective&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Whenever you invest money instead of spending it now, you get paid interest. If that interest is higher than the satisfaction from spending the money now instead of later, then re-investing is in your self-interest. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;2) Game-theoretical and behavioral perspective&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A self-interested person wants to maximize his or her &lt;em&gt;payoffs&lt;/em&gt;. &lt;em&gt;Payoffs&lt;/em&gt; can differ from &lt;em&gt;monetary outcomes&lt;/em&gt;. If I re-invest my 1000 dollars into bonds for a year I can get 1050 dollars at the end of the year. But if I give 1000 dollars to charity, I may get a lot more satisfaction from that, provided that I am an altruistic person. So if try to measure my payoff from the charitable donation, it may be worth the equivalent of 2000 dollars to me. It is in my self-interest to donate instead of re-investing then. The same reasoning can be applied to saving and spending. If it gives me pleasure to hoard money then I will choose to re-invest rather than spend. Using this approach you can justify any behavior as self-interested or &lt;em&gt;rational&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can take financial perspective to explore how productive and unproductive labor relates to your question, but if you take more general game-theoretical perspective, then it will be difficult for you to even define &quot;unproductive labor&quot; as even piling money and setting it on fire may be considered productive in some situation. But I would take the latter. After all we should study economics to better understand the world in all its complexity, not to take the easier path.&lt;/p&gt;&#xA;" OwnerUserId="6231" LastActivityDate="2015-11-16T04:15:09.200" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9186" PostTypeId="2" ParentId="9176" CreationDate="2015-11-16T08:19:17.380" Score="45" Body="&lt;p&gt;Automation has been happening for a couple of hundred years now and right now we're all still working pretty hard. Although a 40-hour working week is standard, many people exceed this, and many families have two working parents.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One reason for this is that we've used productivity gains for increased consumption, rather than decreased work. The industrial revolution started with textile manufacture. The end result of this is that people now have large wardrobes of clothes they rarely wear, and clothes are thrown away at the slightest hint of looking old.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another way this manifests is the rise of industries that exist purely for people's pleasure. Consider music, film, professional sport - all massive, multi-billion dollar industries. They're not essential for our survival; rather they reflect increased consumption because of increased productivity. So one possibility is that new jobs are created as old ones are automated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another answer mentioned that people might work less. Rather than having 40% unemployment, we might choose to work a 3-day week and have 100% employment. While this idea is utilitarian, there is a major problem. Modern jobs are highly skilled, and to maintain that level of skill you needs lots of education and training, as well as on-the-job experience. Having highly skilled people work a 3-day week is a massive waste. There's also a real risk that there are segments of the workforce that will never be able to adapt to an economy where all jobs are highly skilled.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The only solution I have any hope in is a &quot;basic income guarantee&quot;. The idea of this is instead of welfare payments, every citizen gets a certain basic income. There's no stigma with this - it's up to you whether you want to work or be supported by the BIG. The hope as well is that in time we may be able to afford a level of BIG that gives a reasonable standard of living, rather than the just-about-not-starving level that most welfare systems currently pay. I'm not sure we're ready for a BIG just now, but I would expect it in the next 30 years or so. Stephen Hawking has &lt;a href=&quot;http://www.counterpunch.org/2015/10/15/stephen-hawkings-on-the-tuture-of-capitalism-and-inequality/&quot;&gt;written about this&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sadly, the most likely course will be that we carry on exactly as we are. Productivity continues to increase, but all the gains are taken by a super-rich elite. It will take some serious political effort to change this.&lt;/p&gt;&#xA;" OwnerUserId="6281" LastActivityDate="2015-11-16T08:19:17.380" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="9187" PostTypeId="2" ParentId="9176" CreationDate="2015-11-16T12:38:39.957" Score="15" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;How will non-rich citizens make a living if jobs keep getting replaced by robots and are outsourced?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;EDIT / UPDATE 5th November 2016:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://mashable.com/2016/11/05/elon-musk-universal-basic-income/&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://mashable.com/2016/11/05/elon-musk-universal-basic-income/&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;There’s a pretty good chance we end up with a universal basic income,&#xA;  or something like that, due to automation&quot;&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&quot;I'm not sure what else one would do. That’s what I think would&#xA;  happen.&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;h1&gt;Basic Income&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;Starting point, very good read: &lt;a href=&quot;https://medium.com/basic-income/self-driving-trucks-are-going-to-hit-us-like-a-human-driven-truck-b8507d9c5961&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://medium.com/basic-income/self-driving-trucks-are-going-to-hit-us-like-a-human-driven-truck-b8507d9c5961&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;It should be clear at a glance just how dependent the American economy is on truck drivers. According to the American Trucker Association, there are 3.5 million professional truck drivers in the US, and an additional 5.2 million people employed within the truck-driving industry who don’t drive the trucks. That’s 8.7 million trucking-related jobs.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;I estimate that 70% of the jobs are &quot;BS&quot; jobs that don't generate any intristic value - middle management, admin, secretaries, assistants, security, maintenance, cleaning...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I believe that we need to shift: &lt;a href=&quot;https://twitter.com/genesisdotre/status/665151533647052800&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://twitter.com/genesisdotre/status/665151533647052800&lt;/a&gt;&#xA;&lt;a href=&quot;https://i.stack.imgur.com/OquHK.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/OquHK.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="6285" LastEditorUserId="6285" LastEditDate="2016-11-07T11:43:19.637" LastActivityDate="2016-11-07T11:43:19.637" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="9188" PostTypeId="1" CreationDate="2015-11-16T12:45:29.587" Score="0" ViewCount="291" Body="&lt;ol&gt;&#xA;&lt;li&gt;Consider the correspondence f: $\mathbb{R}$ -&gt; $\mathbb{R}$ defined by:&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;f(a) = {x $\in$ $\mathbb{R}$:x&lt;sup&gt;2&lt;/sup&gt; + x $\leq$ a&lt;sup&gt;2&lt;/sup&gt;} for all a $\in$ $\mathbb{R}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Find the points where the correspondence is uhc and the points where it is lhc. Justify your conclusions exhaustively.&lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;2&quot;&gt;&#xA;&lt;li&gt;For a correspondence f: $\mathbb{R}$ -&gt; $\mathbb{R}$, define its graph as:&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;$\Gamma$&lt;sub&gt;f&lt;/sub&gt; = {(x, y) $\in$ $\mathbb{R}$&lt;sup&gt;2&lt;/sup&gt;: y $\in$ f(x)}.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Prove that if $\Gamma$&lt;sub&gt;f&lt;/sub&gt; is an open subset of $\mathbb{R}$&lt;sup&gt;2&lt;/sup&gt;, then f is lhc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know that for a function to be upper hemicontinuous, there must be a convergent sequence in the domain mapping to a sequence of sets in range which contain convergent sequences, and an image of the convergent sequence limit must contain the limit of the sequence in the range. Additionally, for a lower hemicontinuous, if the function has open graph Gr(f) it is lower hemicontinuous. Do I have the right criteria?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would appreciate any tips as to how to get started on these two questions, as I am somewhat unsure as to how to start.&lt;/p&gt;&#xA;" OwnerUserId="5951" LastEditorUserId="2776" LastEditDate="2017-05-06T08:34:27.870" LastActivityDate="2017-05-06T08:34:27.870" Title="Advice on upper and lower hemicontinuity?" Tags="&lt;econometrics&gt;" AnswerCount="0" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9189" PostTypeId="1" AcceptedAnswerId="9625" CreationDate="2015-11-16T14:47:03.710" Score="6" ViewCount="400" Body="&lt;p&gt;I asked this question on math.stackexchange but deleted it from there and brought it here.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I had a question about Constant Elasticity of substitution type preferences of the form: $$U=\int_{0}^{1}(c(\omega)^{\rho}d\omega)^{\frac{1}{\rho}}$$&#xA; where the paramter $\rho$&#xA;  governs the degree of substitutability between goods. Here, $c(\omega)$&#xA;  represents consumption of good $\omega$&#xA;  which exists on the unit interval. As such, this type of preference specification aggregates over consumption of different goods.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is as follows. I have always thought of integrals of the form: $$I=\int f(x)dx$$&#xA;  as approximating sums of areas of infinitesimally small rectangles (in terms of their base) and heights being determined by $f(x)$&#xA; . In the case of the example above, what really is $c(\omega)$&#xA; ? Is it a function?&lt;/p&gt;&#xA;" OwnerUserId="5233" LastActivityDate="2015-12-05T20:12:47.250" Title="CES preferences intuition" Tags="&lt;mathematical-economics&gt;&lt;consumer-theory&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9190" PostTypeId="2" ParentId="9167" CreationDate="2015-11-16T15:47:46.850" Score="3" Body="&lt;p&gt;Myron Scholes and Robert C. Merton were 2 economists who co-founded &lt;a href=&quot;https://en.wikipedia.org/wiki/Long-Term_Capital_Management&quot; rel=&quot;nofollow noreferrer&quot;&gt;Long-Term Capital Management&lt;/a&gt; fund. They made a lot of money initially both for themselves and investors by using trading strategies they had devised from their academic work. However, the success was quite shortly lived and 2 unlikely (according to their models) events - 1997 Asian financial crisis and 1998 Russian financial crisis put a stop to their windfalls.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There's a captivating BBC documentary about it &lt;a href=&quot;https://www.youtube.com/watch?v=tsZRndV5lIc&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="6291" LastEditorUserId="2776" LastEditDate="2017-08-18T15:47:08.320" LastActivityDate="2017-08-18T15:47:08.320" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9191" PostTypeId="2" ParentId="9189" CreationDate="2015-11-16T15:50:04.077" Score="-1" Body="&lt;p&gt;Yes it is a function, just like you have $f(x)$, read as $f$ of $x$, $c(w)$ is $c$ of $w$ (in layman's words). Simply $c$ is the function of $w$ goods. Depending on the shape of the consumption function, the result is the area under the $c$ curve evaluated at each infinitesimally small intervals on $w$. &lt;/p&gt;&#xA;" OwnerUserId="6009" LastActivityDate="2015-11-16T15:50:04.077" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9192" PostTypeId="2" ParentId="9167" CreationDate="2015-11-16T17:19:14.457" Score="4" Body="&lt;p&gt;I will post the obligatory &lt;a href=&quot;https://en.wikipedia.org/wiki/Efficient-market_hypothesis&quot; rel=&quot;nofollow&quot;&gt;Efficient Market Hypothesis&lt;/a&gt; answer. This does not directly answer the question, but addresses the aparent misconception that there is some secret economist knowledge that can be used to earn money in financial markets.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose there were some method that would help you to earn more money on financial markets. Suppose that the method in question tells you that you should buy stocks in General Motors because the price of GM stocks will be higher next week. How will the people who trade on financial markets react to this? They will go out and buy GM shares before the price increases. But this increase in demand for GM stocks will cause the price of GM stocks to increase (via the usual laws of supply and demand) today—one week earlier than the method predicted! So the method is self-defeating.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;More generally, as soon as &lt;em&gt;any&lt;/em&gt; information about the value of a financial instrument becomes public, people will buy or sell causing the price to change to reflect that information. This happens very quickly because the sums of money at stake are huge. (How quickly? Some New York trading firms have laid dedicated fibre-optic cables under the Hudson river to shave a couple of microseconds off of the time it takes to make a transaction).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This simple example illustrate why it is almost impossible to use any publicly available information or method to earn above-normal returns in financial markets. In order to earn such returns, you would have to either&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;have information or a method that is not publicly observable (but acting on such information is known as insider dealing, and is illegal);&lt;/li&gt;&#xA;&lt;li&gt;be able to act faster than everyone else. But that is almost impossible for an individual because professional trading firms invest millions in shaving fractions of a second off of their transaction times.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;This, by the way, is why &lt;a href=&quot;http://www.managementtoday.co.uk/features/1177093/monkeys-better-trades-average-fund-manager/&quot; rel=&quot;nofollow&quot;&gt;monkeys can outperform professional traders in picking stocks&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2015-11-16T17:19:14.457" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9193" PostTypeId="2" ParentId="9172" CreationDate="2015-11-16T18:52:43.800" Score="2" Body="&lt;p&gt;In a typical GE model, price (including wage and rent) is determined by the market clearing condition, which requires that supply equals demand. Specifically, &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;labor supplied (determined by household solving utility maximization problem) equals labor demanded (determined by firm's profit maximization problem)&lt;/li&gt;&#xA;&lt;li&gt;goods supplied (determined by firm's optimal total production) equals goods demanded (determined by household's consumption and investment decisions)&lt;/li&gt;&#xA;&lt;li&gt;capital supplied (household's investment decision) equals capital demanded (firm's optimal choice of $k$)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The zero-profit condition is derived from the assumption of perfectly competitive behavior (or both firms and households are price takers). This condition may contribute to the determination of equilibrium prices. But to say that $p$ is selected to ensure zero-profit of the firm just sounds incorrect.&lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2015-11-16T18:52:43.800" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="9194" PostTypeId="2" ParentId="9111" CreationDate="2015-11-16T19:15:22.600" Score="2" Body="&lt;p&gt;Here was my attempt at a proof:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;First let us look at the &quot;if&quot; case.&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume $\succcurlyeq$ on $X$ is rational, continuous, additive, monotonic, and non-trivial.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;BUT&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Case 1:&lt;/strong&gt; $x \succcurlyeq y$ and $p \cdot x &amp;lt; p \cdot y \ \forall p$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose $p = \{\frac{1}{s} \cdots \frac{1}{s}\}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$p \cdot x &amp;lt; p \cdot y \implies \frac{1}{s} \sum^s_{i=1} x_i &amp;lt; \frac{1}{s} \sum^s_{i=1} y_i \implies \sum^s_{i=1} x_i &amp;lt; \sum^s_{i=1} y_i$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So $x \succcurlyeq y \iff x \geq y$ by monotonicity&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$x \geq y \iff x_i \geq y_i \ \forall i$ by definition&lt;/p&gt;&#xA;&#xA;&lt;p&gt;but then $\sum^s_{i=1} x_i \geq \sum^s_{i=1} y_i$ which is a contradiction.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Case 2:&lt;/strong&gt; $p \cdot x \geq p \cdot y$ and $y \succ x \ \forall p$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Similarly, pick the same $p$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$p \cdot x \geq p \cdot y \implies \sum^s_{i=1} x_i \geq \sum^s_{i=1} y_i$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$y \succ x \iff y &amp;gt; x$ by monotonicity&lt;/p&gt;&#xA;&#xA;&lt;p&gt;but then $\sum^s_{i=1} x_i &amp;lt; \sum^s_{i=1} y_i$ which is a contradiction.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Now, let us look at the &quot;only if&quot; case.&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $u(x) = p \cdot x$ and $\exists \ p$ s.t. $\forall x,y$ then $x \succcurlyeq y \iff p \cdot x \geq p \cdot y$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now we wish to show our five properties hold and the uniqueness of $p$.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;The above implies that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\exists \ p$ s.t. $\forall x,y$, then $x \succcurlyeq y \iff U(x) \geq U(y)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This we have utility function &lt;strong&gt;representation&lt;/strong&gt;, by definition. It is a basic proof from the beginning of your class probably that representation implies &lt;strong&gt;rationality&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can also say if $U(x)$ is continuous in $X$ and $U(x)$ represents $\succcurlyeq$ on $X$, this implies the preferences are &lt;strong&gt;continuous&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$x \succcurlyeq y \iff p \cdot x \geq p \cdot y \iff p \cdot (x + z) \geq p \cdot (y + z) \iff x + z \succcurlyeq y + z \quad \forall x,y,z \in X$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So that shows &lt;strong&gt;additivity&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now suppose &lt;strong&gt;monotonicity&lt;/strong&gt; does not hold. Suppose $x \succcurlyeq y \implies p \cdot x \geq p \cdot y$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;but additionally, $x &amp;lt; y$&#xA;$\implies p \cdot x &amp;lt; p \cdot y$ which is a contradiction.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose &lt;strong&gt;non-triviality&lt;/strong&gt; does not hold. Suppose $x \sim y \ \forall \ x, y$, where $x \neq y$, so $x$ and $y$ are unique. But we have monotonicity now.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;but $x &amp;gt; y \iff x \succ y$&#xA;and $y &amp;gt; x \iff y \succ x$&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;For the uniqueness of $p$, building off of the outline you gave pick $x, y \in X$ where $x \sim y$ for both $p$ and $p' = (p + \epsilon, 1-p- \epsilon)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This can only be true if $\epsilon = 0$ or if $x$ and $y$ are not unique, that is, $x_i = y_i \ \forall i$. We will rule out the trivial case where $x$ and $y$ are not unique and show $\epsilon = 0$ (and thus $p = p'$)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$px_1 + (1-p)x_2 = py_1 + (1-p)y_2$$&#xA;and&#xA;$$(p+\epsilon)x_1 + (1-p-\epsilon)x_2 = (p+\epsilon)y_1 + (1-p-\epsilon)y_2$$&#xA;The second equation implies&#xA;$$px_1 + \epsilon x_1 + (1-p)x_2 - \epsilon x_2 = py_1 + \epsilon y_1 + (1-p)y_2 - \epsilon y_2$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Subtract the first equation from this equation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\epsilon x_1 - \epsilon x_2 = \epsilon y_1 - \epsilon y_2$$&#xA;$$\epsilon (x_1 - x_2) = \epsilon (y_1 - y_2)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider if $x_1 + \delta = y_1$ and $x_2 + \delta = y_2$ for any $\delta &amp;gt; 0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then the differences $x_1 - x_2$ and $y_1 - y_2$ are equal, but bundle x will have higher monetary outcomes in whichever state occurs, so $x \succ y$. Contradiction.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Similarly, if $x_1 = y_1 + \delta$ and $x_2 = y_2 + \delta$, then $y \succ x$, which is again a contradiction with $x \sim y$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus $\epsilon = 0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\square$&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2015-11-16T19:15:22.600" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9198" PostTypeId="1" AcceptedAnswerId="9201" CreationDate="2015-11-16T21:15:05.700" Score="1" ViewCount="96" Body="&lt;p&gt;Suppose Asset $A$ has a variance of 7 and its returns are negatively correlated with consumption, while Asset $B$ has a variance of 3 and its returns are uncorrelated with consumption. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;According to the Consumption CAPM, which asset should yield the higher return?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I believe it is Asset $A$ because CAPM asserts that you should choose an asset that is negatively correlated with consumption.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What do you guys think about my answer?&lt;/p&gt;&#xA;" OwnerUserId="6003" LastActivityDate="2015-11-17T02:10:45.760" Title="Capital Asset Pricing Modeling for Consumption" Tags="&lt;asset-pricing&gt;&lt;consumption&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9199" PostTypeId="2" ParentId="9176" CreationDate="2015-11-17T01:30:26.033" Score="19" Body="&lt;p&gt;There are already excellent answers, but I would like to add in a different perspective: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;There will be fewer people.&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Not just jobs, but actual human beings - if there is less demand for human workers (i.e. laborers), due to machines taking over, the amount of &quot;land&quot; or other resource that a single human can manage will increase with technology, leading to a population decline, similar to that presently occurring in Japan. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;How it happens, i.e. gradually, or postponed indefinitely with welfare programs is a matter of politics and policy, but if the economy does not need more than X workers, then eventually there won't be more than X workers in any given field, weather it be plow-horses or truck drivers, barring any artificial intervention that creates inefficiencies (i.e. banning technological advances, forcing the use of humans where it is not needed, etc.) &lt;/p&gt;&#xA;" OwnerUserId="6312" LastActivityDate="2015-11-17T01:30:26.033" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="9200" PostTypeId="2" ParentId="3390" CreationDate="2015-11-17T01:33:29.557" Score="3" Body="&lt;p&gt;As far as I understand merchandise trade and trade in goods are the same.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The IMF Balance of Payments Manual breaks down international transactions according to standard categories. Trade is one of these categories. Trade is defined as international transactions involving products, i.e. exports and imports of goods (or merchandises) and services. &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Merchandise or good trade are transactions involving the transfer of ownership of a tangible and moveable object from a seller to a buyer.&lt;/li&gt;&#xA;&lt;li&gt;Services are transactions in which a consumer benefits from actions taken&#xA;by the service provider.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;There is a subtle sub-category, which is &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Goods for processing that are transactions in which raw goods (e.g. cotton thread) from country A are exported to country B, where&#xA;they undergo processing, and are then imported back into country A (e.g. t-shirts) without a transfer of ownership.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="6168" LastActivityDate="2015-11-17T01:33:29.557" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9201" PostTypeId="2" ParentId="9198" CreationDate="2015-11-17T02:10:45.760" Score="0" Body="&lt;p&gt;I guess the question is : which asset would yield the higher risk premium or expected return?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Risk premium depends indeed on the intrinsic characteristics of the asset, and on the pricing kernel, in particular the covariance between the pricing kernel (which is proportional to marginal utility) and the asset return. Therefor the risk premium will depend on the utility function you specify. But the general idea is that an asset that pays high when consumption is high will have a lower price and then a higher return to compensate for that risk. Under complete market, the general formula is :&#xA;\begin{equation}&#xA;E(R^{e}_{t+1}) = -R_f\cdot cov(m, R^e_{t+1})&#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $R^e_{t+1}$ is the excess return, $R_f$ the risk-free rate, and $m$ the stochastic discount factor. $m$ will depend on the utility you specify but will be proportional to the marginal utility. Because of the (generally assumed) concavity of utility function, $m$ will be low when consumption is high and high when consumption is low.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In your example, the expected excess return of asset B would be 0, otherwise stated the expected return of asset B would be the risk-free rate because its return is uncorrelated with consumption. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Asset A pays high when consumption is low, so when marginal utility is high, so the risk premium will be lower than the risk-free rate. The main idea is that since this asset can be use as insurance against variation in consumption, agents will want to hold it, so its price will be higher and then its return lower.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So you were almost right, asset A will have a higher price than B, but a &lt;em&gt;lower&lt;/em&gt; expected return.&lt;/p&gt;&#xA;" OwnerUserId="6053" LastActivityDate="2015-11-17T02:10:45.760" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9202" PostTypeId="2" ParentId="9163" CreationDate="2015-11-17T02:25:04.817" Score="0" Body="&lt;p&gt;Keep in mind that the Coase Theorem assumes there are low transaction costs to borrowing. Someone who has a very low credit score because of high variance in their ability to pay may not have access to typically better interest rates, so there may be a high cost to negotiating/earning a better rate, especially if you are pressed for cash.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Most people who borrow money are poor, and usually in poor communities, the poor form kinship ties with other poor people. In these circles, there is high pressure to share any additional money you may get, which may discourage getting extra income unless the individual in the group is very hard pressed. So having to share wealth could arguably be a transaction cost of borrowing any loan.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If a bank knows there are high search/transaction costs for these types of consumers for finding and getting a loan, they could conceivably charge above a perfect market equilibrium I think.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2015-11-17T02:25:04.817" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9204" PostTypeId="2" ParentId="9163" CreationDate="2015-11-17T03:53:18.050" Score="1" Body="&lt;p&gt;&lt;strong&gt;The Coase Theorem:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;As long as private property rights are well defined under zero transaction cost, exchange will eliminate divergence and lead to efficient use of resources or highest valued use of resources.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In this case, we have clear property rights and since payday loans &lt;strong&gt;do exist&lt;/strong&gt;, we can assume transaction costs are sufficiently low. So we can expect efficient use of resources. Only people who value having cash in the pocket right now higher than their promised income when they get their pay will take the loan. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reason for this is that people often have liquidity issues. People without access to credit cards or other form of collateral may be higher risk of default. Loaners can charge a high price to compensate them from this risk whilst loanees are willing to pay that price because they can't do any better. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A more detailed analysis would also consider the predatory nature, a debt trap and also how tricky understanding a short term loan can be for a desperate low income earner. That said, I don't think any of those factors would impact the Coase theorem.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;None of the Coase theorem conditions are violated here&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://filene.org/assets/pdf-reports/1752-81_Payday_Lending.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;This source&lt;/a&gt; provides a lot of worthwhile discussion. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;From page 2:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;people borrow from payday lenders because they believe that:&lt;/p&gt;&#xA;  &#xA;  &lt;ul&gt;&#xA;  &lt;li&gt;this is the best way to meet an immediate need for a cash advance of&#xA;  \$100 to \$500.&lt;/li&gt;&#xA;  &lt;li&gt;Many payday loan customers apparently do not have access to lower cost credit from banks or credit unions because they have already reached the limit of the credit available from these sources.&lt;/li&gt;&#xA;  &lt;li&gt;They have “maxed out” their credit cards and other lines of credit. &lt;/li&gt;&#xA;  &lt;li&gt;Others do not have access to lower cost credit&#xA;  because they have severely impaired credit histories.&lt;/li&gt;&#xA;  &lt;li&gt;They do not want to ask family members or friends for a cash advance because they might be judged harshly for doing so, or because they have exhausted their access to such informal alternatives.&lt;/li&gt;&#xA;  &lt;/ul&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Why doesn't this contradict the fact that competitive markets price goods at their marginal cost?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Two points here:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;A market does not need to be competitive to exist. Barriers to entry may include high regulation, ethical concerns, risk.&lt;/li&gt;&#xA;&lt;li&gt;If the market is in fact competitive, high profitability could be a result of a much higher exposure to risk than usual.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Note - I answered this question before some of the edits and as a result, my answer doesn't quite fit the question.&lt;/p&gt;&#xA;" OwnerUserId="40" LastEditorUserId="40" LastEditDate="2019-03-01T09:36:58.430" LastActivityDate="2019-03-01T09:36:58.430" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="9205" PostTypeId="2" ParentId="9176" CreationDate="2015-11-17T05:50:12.553" Score="15" Body="&lt;p&gt;I'm going to give a less economically rigorous answer, and address your concern about your own situation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Jobs change.  Your skillsets will always need to change.  If you are young, it's a certainty that you will not be in the same job, or even the same career, your entire life.  It's likely that many of the jobs you will do in life don't exist right now.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've spent most of the last 30 years doing things which it would be hard to get a degree to prepare for, and which would not have shown up on an aptitude test.  I expect this will be more true for more people going forward.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you aren't mentally prepared for this pace of change, then you should be scared, and you have some things you need to think through.  But if you are willing to be flexible in what you do, willing to engage in life-long learning, willing to accept that school, college, and other formal training are only the bare basics of your education, and the other 90% is up to you, and if you are willing to educate yourself above and beyond what most institutions feel is needed, then you'll be just fine.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;More about that last point -- it's the institutions, the large organizations, companies, and schools, which should be scared, not you.  They can't change tracks nearly as fast as an individual can.  What you don't want to do is be caught in one of them when they fail.  If these things concern you, then your interest in economics and life should be focused on recognizing the signs of ossification in an organization or in an economy.  You need to be able to decide when to lead, and when to leave.  If you do neither, then it's a near certainty that you will get caught in a layoff or corporate failure at some point in your life. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which brings us to the main takeaway; it's exactly those organizations who &lt;em&gt;don't&lt;/em&gt; use the technology available, who &lt;em&gt;don't&lt;/em&gt; adapt rapidly to change, and who &lt;em&gt;don't&lt;/em&gt; automate when it makes sense to do so, who you should most fear, and who you should steer clear of.  They are the ones who tend to ossify early relative to their competitors, and they are the ones whose members and investors suffer the most when the entire organization fails.  Union contracts will not save your job when the entire company fails, and it's never in the union's best interests to resist those things which the organization needs to do in order to survive.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, no, robots alone aren't going to take your job away.  If you really want insurance, learn to be one of the many people who design, assemble, install, service, or program them.  These things are hard but can be a heck of a lot of fun.  Believe it or not, the robotics industry itself is about to get turned on its head, as the big (ossified) players get routed out by thousands of agile startups, many of them based on open source.  If you want to be one of them, go to a maker faire near you (google it) and get started.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Outsourcing is an entirely different thing, is often a workaround for lack of automation, and in my own opinion has been overdone.  Again my own opinion, but based on my own experience running a US-based manufacturing company, I believe many of those who are currently outsourcing are going to see the error of their ways sooner or later, or fail and be replaced by others who don't follow the mantra of &quot;outsource when possible&quot;.  This problem will correct itself.&lt;/p&gt;&#xA;" OwnerUserId="4994" LastEditorUserId="4994" LastEditDate="2015-11-17T05:56:10.817" LastActivityDate="2015-11-17T05:56:10.817" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="9206" PostTypeId="1" AcceptedAnswerId="9208" CreationDate="2015-11-17T09:20:29.803" Score="8" ViewCount="1919" Body="&lt;p&gt;This question is not backed by serious economic research but mainly by a very simple attempt to look at how the world economy has changed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am asking whether and why the world has, over the past 50 or so years, become less productive (not used in the strict economic sense here) and therefore people have less money to do stuff/buy things.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Several reasons why I believe this to be the case (I am open to be corrected):&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Real wages in developed economies have not risen for a long time&lt;/li&gt;&#xA;&lt;li&gt;Financial crisis now been going on for many years (almost 10)&lt;/li&gt;&#xA;&lt;li&gt;Unemployment in the EU is very high&lt;/li&gt;&#xA;&lt;li&gt;Tax rates are ever-increasing (it seems) relative to median wages&lt;/li&gt;&#xA;&lt;li&gt;More and more people are reliant on welfare (from what I gather, unfortunately I don't have a source at this point&lt;/li&gt;&#xA;&lt;li&gt;Growth in developing countries (China) has decreased&lt;/li&gt;&#xA;&lt;li&gt;National debts are ever-increasing&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;This has left me with the feeling that in many situations, there is simply 'less' money to go around and be spent. I can observe this, for example, by the seemingly constant need of companies and countries (even where I live, in wealthy Switzerland) to save money and reduce expenses &lt;em&gt;(I don't know if it only seems this way because of some biases or it is actually the case)&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Again, not sure if this is actually happening or if it only seems so to me (Also apologies for not being able to express this in very 'economy' terms).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Several reasons that I could explain to myself why it would seem like we have less to spend and are less productive than we used to be:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Rising inequality (the rich keep getting more so the majority has less)&lt;/li&gt;&#xA;&lt;li&gt;Less incentive for technological progress (apart from in IT). In many industries, there is no reason to keep making everything better, only to make it cheaper and more profitable. We have most of what we need and don't see a point in improving it (cupboards, beds, kitchen utensils etc.) &lt;/li&gt;&#xA;&lt;li&gt;Lethargy of people. Many people are happy with what they have and do not want to work more/harder&lt;/li&gt;&#xA;&lt;li&gt;We have most of what we need, and the things that are left to buy are luxury items (which we maybe didn't think about before)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Again sorry for the very vague way of asking this question without any evidence, but if someone could help me make it more concrete I would be very open to that.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I guess what I want to say is do people have less money and less to spend than they used to, and if so, why?&lt;/p&gt;&#xA;" OwnerUserId="6320" LastActivityDate="2018-08-17T10:46:28.913" Title="Has the world become poorer?" Tags="&lt;macroeconomics&gt;&lt;debt&gt;&lt;productivity&gt;&lt;inequality&gt;" AnswerCount="4" CommentCount="6" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9207" PostTypeId="2" ParentId="9154" CreationDate="2015-11-17T09:47:16.110" Score="1" Body="&lt;p&gt;I can't answer if the &lt;em&gt;class structure reconfiguration&lt;/em&gt; could be the explanation...&#xA;Also it is unclear what do you mean with &lt;em&gt;absence of inflation&lt;/em&gt;? The inflation obviously is seldom 0 (and therefore not absent). Do you mean a low inflation, less than certain percentage? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, back to the point, there's a possible explanation closer to the method of gathering statistics: inflation is calculated on a &lt;a href=&quot;http://cpiinflationcalculator.com/what-is-a-basket-of-goods/&quot; rel=&quot;nofollow&quot;&gt;basket of goods&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;When it comes to Consumer Price Index, a “Basket of Goods” is a collection of hundreds of commonly purchased goods that represent the average American’s spending habits. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;None of the areas you point out to have &lt;em&gt;soaring prices&lt;/em&gt; are typically included into this basket and, thus, do not reflect onto official inflation figure.&lt;/p&gt;&#xA;" OwnerUserId="6291" LastActivityDate="2015-11-17T09:47:16.110" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9208" PostTypeId="2" ParentId="9206" CreationDate="2015-11-17T11:05:03.597" Score="16" Body="&lt;p&gt;The short answer is No. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Every single year, except 2009, for the past 55 years of continuously recorded economic history, the world has been getting richer. The -2.1% global recession in 2009 was made up in 2010 with 4.1% growth. I was just working with the World Bank's World Development Indicators, which track global GDP growth, and I double checked.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We measure prosperity and growth by the quantities of goods produced. Money is irrelevant. Every year we, humans, produce more and more goods and services and that makes us richer. Not every country grows steadily though. Some countries are stagnant, like Greece, and some grow remarkably rapidly over very long periods of time, like China. Moreover, there is increasing inequality withing many countries (measured by GINI coefficient). So it is very natural for many to feel like everything around them either stands still or degrades. But on average, the world keeps getting richer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you are in Switzerland, you may have felt the shock from recent currency appreciation. Sharp currency appreciations hammer exporters and industries reliant on tourism, which make up a large portion of Swiss economy.&lt;/p&gt;&#xA;" OwnerUserId="6231" LastActivityDate="2015-11-17T11:05:03.597" CommentCount="10" ContentLicense="CC BY-SA 3.0" />
  <row Id="9209" PostTypeId="2" ParentId="9176" CreationDate="2015-11-17T11:35:30.630" Score="8" Body="&lt;p&gt;The way I see it, there are two possible futures given the increasing state of automation in the world.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Future One: A Basic Income&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We decide as a nation, federal state, or world, that human beings are important in and of themselves. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Every human receives an income from the state which enables them to support themselves, without any necessity for work in return. Economic gains and wealth are created by automation, guided by those who choose to work in such areas. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Capitalism can still exist in such a world, with those who choose to work competing as usual for the best jobs and money.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Future Two: Two Classes of People&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We decide as a nation, federal state, or world that there is no such thing as something-for-nothing, and no support from the state will be forthcoming. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The world divides into those with well-paid jobs, and those without. The second class perform menial work that cannot be performed by robots. Expect a return to the service industry, where ill-paid and ill-used servants are used by all, because there is no alternative. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Those trapped in the second class will find it difficult to get out of it, as they will not have the time or money to better themselves.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Future Three: Other equally well-paid jobs are created to replace those destroyed by automation&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You could argue a third possibility: New jobs will be created at the same rate of pay as those destroyed by the automation, and (given a certain level of disruption) those whose jobs are destroyed by automation will eventually move into those new equally well-paid jobs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However the following paper shows that as automation is introduced into an industry, low-skill wages grow at a lower rate than high-skill wages, and this has been true since the 1960s. I therefore discount this third option, leaving only the first two as viable futures. &lt;a href=&quot;http://tinyurl.com/psnbbwn&quot; rel=&quot;noreferrer&quot;&gt;http://tinyurl.com/psnbbwn&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="6322" LastEditorUserId="6322" LastEditDate="2015-11-18T11:17:26.613" LastActivityDate="2015-11-18T11:17:26.613" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="9210" PostTypeId="1" AcceptedAnswerId="9211" CreationDate="2015-11-17T12:39:47.823" Score="2" ViewCount="383" Body="&lt;p&gt;I'm reading a book ( Macroeconomics - Institutions, Instability and the Financial System )  and on page 62, the authors define tax wedge as the &quot;difference between the real consumption wage and  the real product wage&quot;. Should I understand this as a subtraction?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The real consumption wage is measured as $\frac{W}{P_c}$, where $W$ is the after-tax wage that employees receive, and $P_c=P(1+t_v)$ with $t_v$ being the indirect tax rate (VAT, etc).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The real product wage is the wage paid by firms to workers, and is measured by $W^{gross}/P$ where $W^{gross}=W(1+t_d)$ with $t_d$ being the direct tax rate(social securities contributions, etc).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated&lt;/p&gt;&#xA;" OwnerUserId="118" LastActivityDate="2015-11-17T14:13:22.673" Title="Tax wedge in labour market" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;labor-economics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9211" PostTypeId="2" ParentId="9210" CreationDate="2015-11-17T14:13:22.673" Score="1" Body="&lt;p&gt;From &lt;a href=&quot;https://data.oecd.org/tax/tax-wedge.htm&quot; rel=&quot;nofollow&quot;&gt;OECD website&lt;/a&gt;, &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;Definition of Tax wedge&lt;/strong&gt;&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Tax wedge is defined as &lt;strong&gt;the ratio&lt;/strong&gt; between the amount of taxes paid by&#xA;  an average single worker (a single person at 100% of average earnings)&#xA;  without children and the corresponding total labour cost for the&#xA;  employer. The average tax wedge measures the extent to which tax on&#xA;  labour income discourages employment. This indicator is measured in&#xA;  percentage of labour cost.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So here, it is a ratio, but &lt;em&gt;not&lt;/em&gt; between wages, but rather of the &lt;em&gt;direct&lt;/em&gt; tax burden (including social security contributions), as a percentage of total labor cost (i.e of total reward of labor). But it does &lt;em&gt;not&lt;/em&gt; include indirect taxes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As you can see, there are different ways to define the concept (extending it to include indirect taxes makes sense -the problem would be to measure it at that level).But it appears that in general we are talking about a ratio rather than a difference. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To reconcile, it is the &quot;difference (in absolute terms maybe) between the real consumption wage and the real product wage&quot; &lt;em&gt;as a percentage of real product wage&lt;/em&gt;.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-11-17T14:13:22.673" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9212" PostTypeId="2" ParentId="9154" CreationDate="2015-11-17T14:17:55.987" Score="3" Body="&lt;p&gt;Quantitative easing without high inflation can be explained by low &lt;a href=&quot;https://en.wikipedia.org/wiki/Velocity_of_money&quot; rel=&quot;nofollow&quot;&gt;velocity of money&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Think about a property tycoon who sees times are hard and instead of investing all his money in a development project, he buys gold which he keeps in a vault. The property project would have provided employment, and the wages would be used by workers to buy other things in the economy (high velocity). The gold in his vault just sits there (low velocity).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Economic troubles result in low confidence and low velocity of money. Central banks pumping money into the economy somewhat offsets this. As long as the overall velocity of money matches the productive capacity of the economy, there won't be high inflation. One concern of course is that central banks cannot control the velocity of money, so if all this new money gets velocity we could get high inflation that central banks cannot control.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now think about where you mentioned soaring prices. Many of these are places where rich people can store wealth at low velocity: real estate, fine art, gold, etc. So yes, the effects very much are connected.&lt;/p&gt;&#xA;" OwnerUserId="6281" LastActivityDate="2015-11-17T14:17:55.987" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9215" PostTypeId="2" ParentId="1817" CreationDate="2015-11-17T15:14:45.687" Score="0" Body="&lt;p&gt;I wish to dissent from some of the suggestions in the answers above.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, inflation need not be uniform, and it has a political component. So the idea that rising hamburger prices will be offset by rising wages is by no means certain. At present, we see in many areas of the nation rising costs in housing, education, and other &quot;essentials&quot; that are not offset by rising wages. In some markets, like Manhattan where I live, growing income inequality can mean &quot;inflation&quot; inequality. Stagnant wages meet rising upper-tier incomes and rising property prices. So in certain possible worlds your hamburger might become unaffordable to wage-earners.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When you ask if inflated money can become technically &quot;worthless,&quot; the answer is yes. In the Weimar hyperinflation, there were cases of money being burned for fuel because its value as &quot;money&quot; was less than its value as &quot;paper.&quot; Since paper is about as intrinsically valueless as a monetary medium can get, one might say the state certification of &quot;money&quot; had become &quot;worth less&quot; than any practical medium and thus &quot;worthless.&quot;      &lt;/p&gt;&#xA;" OwnerUserId="6118" LastActivityDate="2015-11-17T15:14:45.687" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9216" PostTypeId="2" ParentId="9206" CreationDate="2015-11-17T15:18:40.097" Score="-2" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Rising inequality (the rich keep getting more so the majority has less)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This is false. What do rich people do with their money? They invest. Investments stimulate business. They start companies. They buy million dollar homes that provide jobs for construction workers. They own companies that employ thousands. They buy 4k TV's and similar expensive products which gives companies the capital to begin producing things on a large scale.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The richer the rich people are, the better for us. Take more rich people and richer people as a sign of an improving economy, not a poorer one.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I recommend &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0465002609&quot; rel=&quot;nofollow&quot;&gt;Basic Economics&lt;/a&gt;, by Thomas Sowell. It'll give you a great idea of how economies work. &lt;/p&gt;&#xA;" OwnerUserId="6332" LastActivityDate="2015-11-17T15:18:40.097" CommentCount="10" ContentLicense="CC BY-SA 3.0" />
  <row Id="9217" PostTypeId="2" ParentId="9206" CreationDate="2015-11-17T15:49:28.067" Score="2" Body="&lt;p&gt;To add to some of the answers above, there is another subtle point one must bear in mind. &#xA;Inequality is a &lt;em&gt;relative&lt;/em&gt; concept, not an absolute one. Growing inequality by itself does not bear &lt;em&gt;any&lt;/em&gt; consequences on absolute levels of wealth. For instance, think about the ratio of the 90-10 quantile of income for the past few years. If this ratio has been growing, &lt;em&gt;all&lt;/em&gt; this means is that the 90th quantile of income is growing faster than the 10th quantile of income. Both could be growing, and one could be growing faster than the other. &#xA;I suggest you check out the study by Dollar and Kraay (2002) &quot;Growth is good for the Poor.&quot;&lt;/p&gt;&#xA;" OwnerUserId="5233" LastActivityDate="2015-11-17T15:49:28.067" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9219" PostTypeId="2" ParentId="9154" CreationDate="2015-11-17T19:07:49.350" Score="2" Body="&lt;p&gt;Assume a money demand function of the form&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$M^d_t = P_tY_te^{-\theta i_t}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $P_t$ is the price level, $Y_t$ is output, $i_t$ is the nominal interest rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Equilibirum in the money market imposes&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$M^d_t = P_tY_te^{-\theta i_t} = M^s_t $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Forward once, take logs and then differences, to obtain&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\ln P_{t+1} - \ln P_{t} + \ln Y_{t+1} - \ln Y_{t}  = \ln M^s_{t+1} - \ln M^s_{t} +\theta(i_{t+1}-i_t)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The difference of logs approximates the growth rate. So the left-hand side is inflation, $\pi_{t+1}$ plus the output growth rate, $g_{t+1}$ and denote $m_{t+1}$ the growth rate of the money supply. Then we get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \pi_{t+1} + g_{t+1} = m_{t+1}+\theta(i_{t+1}-i_{t})$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The growth rate of the M2 measure for Money in the USA for the period (end-of) 2013-2014 was around $5\%$ (World Bank data). Meanwhile, inflation in the same period &lt;em&gt;fell&lt;/em&gt; from $1.5\%$ to $0\%$. GDP growth rate was at $2.2\%$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, according to the above relation, we must have had&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\theta(i_{2014}-i_{2013}) = -2.8\% = -0.028$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which, given also that the estimates for $\theta$ are below unity, did not happen (it would require a drop in nominal interest rates more than $3$ percentage points, while they were virtually unchanged).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the equation appears too crude... or, it does open the way to &lt;em&gt;break the money supply into two components, one of which does not affect the price level in an economy&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This won't be a mechanical decomposition: it will require economic arguments in order to single out which of the channels of money supply increase are to be considered &quot;neutral&quot; with respect to the goods price level, and then measure them separately and test empirically this break-up.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, the M2 measure that I used above is defined as (World Bank website quote)&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Average annual growth rate in money and quasi money. Money and quasi&#xA;  money comprise the sum of currency outside banks, demand deposits&#xA;  other than those of the central government, and the time, savings, and&#xA;  foreign currency deposits of resident sectors other than the central&#xA;  government. This definition is frequently called M2; it corresponds to&#xA;  lines 34 and 35 in the International Monetary Fund's (IMF)&#xA;  International Financial Statistics (IFS). The change in the money&#xA;  supply is measured as the difference in end-of-year totals relative to&#xA;  the level of M2 in the preceding year.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;By looking separately at the growth rates of demand, time and savings deposits for example, one could start having ideas.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-11-18T01:02:57.203" LastActivityDate="2015-11-18T01:02:57.203" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9220" PostTypeId="1" CreationDate="2015-11-17T19:34:01.623" Score="1" ViewCount="174" Body="&lt;p&gt;John Stuart Mill famously remarked that labor-saving machines have not saved one minute of labor. More seriously, Marx argued, roughly, that machines can gain temporary market advantage, but cannot produced &quot;surplus value,&quot; which come only from increasing attachment of labor. (Though Marx's value theory is complex and slightly ambiguous.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Nonetheless, observers, neoliberal and socialist alike, seem to agree that machines are &quot;productive&quot; and &quot;labor-saving&quot; overall. For neoliberals this is productive &quot;innovation&quot; and for leftists &quot;technological unemployment.&quot; The idea of a future where &quot;most work is done by robots&quot; seems remarkably widespread. This strikes me as a fallacy for three reasons.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, in a rough adaptation of Say's Law, someone must obviously make, fuel, and maintain the machines. Someone else must, for example, mine the additional metals, feed the miners who mine the metals, raise the farmers who feed the miners who....etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Second, the rise of &quot;labor-saving technology&quot; since the 19th century has come with a huge, five-fold increase in the  global laboring population. The &quot;local&quot; increases in per-laborer productivity appear more than offset by the attachment and utilization of increased, lower-cost labor worldwide.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Third, the idea of &quot;robots doing all the work&quot; would seem to violate the Second Law of Thermodynamics. Machines cannot run or reproduce themselves. The only &quot;perpetual motion machine&quot; is life itself. Without humans all machines succumb to entropy almost immediately. This would apply to any level of technology. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am not arguing that machines make no difference. But is this difference primarily local and conditional? Is the local &quot;productivity&quot; of machines primarily and irreducibly a way of displacing labor globally... and redirecting labor through &quot;machines&quot; from lower-cost to higher-cost zones? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Above all, is it logically possible for machines to produce more &quot;work&quot; in total than goes into them? Again, even apart from issues about &quot;quality of work,&quot; I am always surprised at how many people seem to assume this &quot;robot replacement scenario&quot; is plausible. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;P.S. Though I would like to respond to answers and comments, the &quot;comment&quot; function is not working for me at the moment, I have asked &quot;Help&quot; about it. My argument from thermodynamics appears to be misunderstood, I will address as soon as possible.  &lt;/p&gt;&#xA;" OwnerUserId="6118" LastEditorUserId="6118" LastEditDate="2015-11-18T14:40:56.317" LastActivityDate="2018-05-29T20:41:39.497" Title="Do machines reduce labor... or so they redistribute, alter, and globally increase labor?" Tags="&lt;reference-request&gt;&lt;labor-economics&gt;&lt;unemployment&gt;&lt;productivity&gt;&lt;technology&gt;" AnswerCount="3" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9221" PostTypeId="2" ParentId="9220" CreationDate="2015-11-17T20:23:02.080" Score="3" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;The only &quot;perpetual motion machine&quot; is life itself.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;No it is not. We also convert energy to heat as we go through life. We are certainly not immune to the second law of thermodynamics, we increase entropy all the time. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Machines cannot run or reproduce themselves.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Why not? There is already factory robots making other robots. But of course, they run on fuel. But again, humans also run on fuel, we just call it food. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;[...] someone must obviously make, fuel, and maintain the machines. Someone else must [...] mine the additional metals, feed the miners who mine the metals, [...]&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Yes, there is a kind of dependency graph, and for now there are many spots for humans, there are many things the machines just cant do. But there are no fundamental reason why a machine can't fix another machine, and there is no reason why there can't be a &quot;universal repair machine&quot; which also repairs copies of itself. &lt;/p&gt;&#xA;" OwnerUserId="6344" LastActivityDate="2015-11-17T20:23:02.080" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9223" PostTypeId="1" CreationDate="2015-11-17T21:00:09.270" Score="0" ViewCount="754" Body="&lt;p&gt;Is America headed to a point of too many people, not enough work?  Is life for an average American better than 50 years ago?  I have asked about automation in my first question.  Then I've asked a couple of others but I guess I am asking too general?  I read it should be more precise.  America was a strong nation for many for a long time; now it looks like it just going that way for a few.  think so?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;50 years ago would being us to 1965.  My Aunts and Uncles are very old, I'm 22, and they all say the same thing about people as young as me; &quot;What future will they have?&quot;  In some countries population is lowering so much they actually want people to have more kids because of not enough jobs being filled.  In America, over 300 million people and most already in poverty.  If this was 1965 people would be more optimistic.  Now, this decade, technology has come so far in what it can do, not as many humans to none are needed to do certain things anymore.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the last 50 years taxes are higher, jobs are outsourced to other nations instead of being done by Americans here, automation is increasing so rapidly it is expected that by 2025, even truck driver jobs will start to diminish.  Retailers are already shutting down due to online competition from Amazon and restaurants are getting there too with tablets being placed at tables to take orders.  Another bad factor facing the nation is the rise of income inequality.  Standard cost of living has raised high while wages have stagnated in some places or lowered in others.   The rich are richer than ever, but most of us apart from them have such a small portion of the wealth of America for the work we do or investments we've made.  &lt;/p&gt;&#xA;" OwnerUserId="6258" LastEditorUserId="40" LastEditDate="2015-11-17T22:40:37.110" LastActivityDate="2015-11-18T19:15:58.643" Title="Is America getting to a point where there are many more people than jobs or money to go around? Are times better or worse than 50 years ago?" Tags="&lt;labor-economics&gt;&lt;productivity&gt;&lt;welfare&gt;" AnswerCount="1" CommentCount="4" ClosedDate="2015-11-19T13:53:32.007" ContentLicense="CC BY-SA 3.0" />
  <row Id="9225" PostTypeId="2" ParentId="9154" CreationDate="2015-11-18T07:11:12.260" Score="2" Body="&lt;p&gt;I think this question cannot be answered with Yes or No. Below I take a look at some issues with inflation and changing class structure.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;1. Inflation is very difficult to measure accurately&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;All inflation measures we have (CPI, PPI, measures excluding gas, food, etc) are estimates of inflation. Maybe one day we will be able to log every purchase of every citizen made within a year, but even then it will not be totally accurate. Say I bought xPhone 4 last year for 500 dollars but this year I bought xPhone 6 for 550 dollars. Given that those are different models and xPhone 6 is twice as fast, can we say that inflation was 10%? When it comes to art and luxury items it is even harder to determine inflation there because every item is essentially unique. Indices of inflation are also problematic to update because if we add a bunch of new items to it every year, this index will be useless as time-series.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;2. Money supply measures do not measure all of the money&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Federal Reserve keeps track of several money aggregates (M0, M1, M2, etc.), but even the broadest measure (MZM) only tracks money circulated on the markets. Since 'Greenspan's Era' market deregulations, over-the-counter (derivatives) markets have grown significantly. There are a lot of money instruments traded on those markets. By BIS accounts close to a quadrillion US dollars (&lt;a href=&quot;http://www.bis.org/statistics/derstats.htm&quot; rel=&quot;nofollow&quot;&gt;http://www.bis.org/statistics/derstats.htm&lt;/a&gt;). Understandably, much of those derivatives are on balance sheets of the US banks, hedge funds, and other large institutional investors. When these derivatives stop performing, like they did in 2008, they can take huge banks, like Lehman Brothers, down with them in days, unless banks can find funds to compensate for toxic derivatives. In other words, banks use up real cash to pay for every cent of non-performing derivative. This is like an endless pit that needs to be filled with money. Ironically, the profits from derivative trading go to banks and hedge funds.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;3. Structural changes on labor markets increase inequality&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Other than retiring baby-boomers, the US (and the world) is experiencing a shift into high-tech knowledge-based economy where uneducated and low-skilled people are not as needed as before. Unemployment rate for high school graduates is twice as high as for college graduates in the US (&lt;a href=&quot;http://www.bls.gov/news.release/empsit.t04.htm&quot; rel=&quot;nofollow&quot;&gt;http://www.bls.gov/news.release/empsit.t04.htm&lt;/a&gt;). In Southern Europe its about 3-4 times as high. The education system cannot instantly adjust to a huge spike in demand. Everyone wants a degree and those who do not have enough money to squeeze into a &quot;bottleneck&quot; and get into a university, end up unemployed or underpaid. These structural changes undoubtedly slow down inflation, but their effect is hard to assess given the lack of good statistical data.&lt;/p&gt;&#xA;" OwnerUserId="6231" LastActivityDate="2015-11-18T07:11:12.260" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9226" PostTypeId="1" AcceptedAnswerId="9246" CreationDate="2015-11-18T08:43:11.547" Score="2" ViewCount="674" Body="&lt;p&gt;A frequently used measure of economic progress is GDP growth. (There are alternative economic indicators as well, such as the Human Development Index.) But there are problems with GDP growth. For example population growth also causes the GDP to grow, because more people produce and consume more goods. You could correct for this by usind GDP/capita growth instead. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But GDP/capita growth still does not take into account the distribution of wealth. Perhaps 90% of the population are doing worse than last year but 10% are doing so much better that on average there is still growth. You could argue that this is still 'better' overall, but I would argue that in a democratic setting most people would probably not vote for an economic policy that clearly and openly supports such an income shift. (If you are thinking of cases where this has happened and will happen: I am afraid I don't care about the political side of this argument. You are welcome to post about it over at politics SE.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are there indicators that capture both distribution and growth of income?&#xA;&lt;br&gt; A simple example with its own faults would be median GDP/capita growth. Something better (and slightly more complicated) could probably be constructed using the GINI index.&#xA;&lt;br&gt; Alternatively: Are there arguments against measuring something other than aggregate or average GDP?&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2015-11-19T04:18:16.267" Title="Measure combining growth and distribution of income" Tags="&lt;gdp&gt;&lt;inequality&gt;" AnswerCount="2" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="9227" PostTypeId="1" AcceptedAnswerId="9228" CreationDate="2015-11-18T10:22:50.077" Score="1" ViewCount="176" Body="&lt;p&gt;really basic one here, I am just in the process of re-covering old ground.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand that for any profit maximising firm &#xA;FOC: MC=MR &#xA;SOC: MR'&amp;lt; MC'&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But suppose MC has a minimum beyond the point at which MR=0. So MR still intersects MC from above but MC is still falling (does this still satisfy SOC?).  In that case would the max difference between TR and TC be greatest at some Q higher than where MC=MR?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also I am looking for sources/examples of where economic assumptions are really taken apart in an applied setting.  A lot of the Industrial Organisation I am looking at sticks to the same neat assumptions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks in advance.&lt;/p&gt;&#xA;" OwnerUserId="6359" LastEditorUserId="69" LastEditDate="2015-11-18T13:37:36.390" LastActivityDate="2015-11-18T20:33:24.983" Title="Profit Maximisation if MC is still falling after intersecting MR" Tags="&lt;optimization&gt;&lt;profit-maximization&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9228" PostTypeId="2" ParentId="9227" CreationDate="2015-11-18T12:22:45.630" Score="2" Body="&lt;p&gt;Since the OP &quot;recovers old-ground&quot;, let's turn the flashlight on some dark spots of this ground.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is almost &quot;automatic&quot; to think that &quot;marginal revenue&quot; is the price at which the additional unit of output will be sold 9so that it is &quot;the revenue that the additional unit brings in&quot;), and that &quot;marginal cost&quot; is what this additional unit will cost. We should remember that &lt;em&gt;this only holds when the firm is a price-taker&lt;/em&gt;, and its choices on output level does not affect the price of output, nor the prices to be paid for input factors. For if&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$TR(q) = pq \implies MR = p$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;but if&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$TR(q) = p(q)\cdot q \implies MR = p'(q)q + p &amp;lt; p$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;since $p'(q) &amp;lt;0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The same goes for Total Cost, where denoting by $\mathbb w$ the prices commanded by input factors&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$TC(q) = C(\mathbb w, q) \implies MC = \frac {\partial C}{\partial q}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;but if&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$TC(q) = C(\mathbb w(q), q) \implies MC = \frac {\partial C}{\partial \mathbb w}\cdot \frac {\partial \mathbb w}{\partial q}  + \frac {\partial C}{\partial q}$$&#xA;(I have avoided matrix-differentiation notation). Note that the effect of increased quantity on input prices is not clear-cut: in the usual monopsonistic setting, it will tend to decrease the unit cost of the inputs -but if the currently supplied quantity of input has reached a ceiling, it may push prices up (although that is considered more of a short-term effect).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The usual setting, and the one indicated by the OP, is to assume price-taking behavior in the markets for inputs (in which case the non-constancy of marginal cost stems purely from technological factors), while assuming some monopolistic power in the product market, i.e. a downward sloping demand curve.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So it is more general to think &quot;marginal revenue is the increase in total revenue if we increase quantity by one unit&quot;, and &quot;marginal cost is the increase in cost if we increase quantity by one unit&quot;, disassociating the concepts from the revenues and the costs of the &quot;additional unit&quot; itself.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Having cleared this, the OP asks&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;But suppose MC has a minimum beyond the point at which MR=0. So MR&#xA;  still intersects MC from above but MC is still falling (does this&#xA;  still satisfy SOC?)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This is something like&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/0IfQ9.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/0IfQ9.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which looks pretty standard. As to whether Second-order conditions hold, &lt;a href=&quot;https://economics.stackexchange.com/a/548/61&quot;&gt;in this post&lt;/a&gt; one can find a mnemonic about slopes, since the SOC is phrased in terms of derivatives of the curves shown in the above graph.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In that case would the max difference between TR and TC be greatest at&#xA;  some Q higher than where MC=MR?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Since at $MR=MC$ the marginal revenue curve is assumed to cross the marginal cost curve from above, it follows that for higher quantities, marginal cost will be higher than marginal revenue. Given the previous suggestion as to how it is best to think about Marginal Revenue and Marginal Cost, I believe the answer to the question is easy.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-11-18T12:22:45.630" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9229" PostTypeId="1" AcceptedAnswerId="10983" CreationDate="2015-11-18T15:17:11.283" Score="9" ViewCount="8743" Body="&lt;p&gt;I have a question regarding the Bartik Instrument.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand that this instrument is a particularly important tool that is used in labor economics. From my understanding, this instrument attempts to isolate demand shocks from supply shocks.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider the following thought experiment:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Say that we have an equilibrium quantity determined both the labor demand and labor supply. Call it total labor employed in period t&#xA;  in region i.&#xA;  We can express it as:$$L_{it}=\sum_{j}L_{ijt}$$&#xA;  where the RHS is the summation over all industries hiring labor in this region. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, the problem is as follows: the changes in total labor hired in each industry is a result of both supply and demand shocks. What the Bartik Instrument does is that it constructs local labor demand shocks in the following manner:$$\tilde{L_{it}}=\sum_{j}\omega_{jt}L_{ijt-1}$$&#xA; where the LHS is region $i's$&#xA;  predicted employment. The summation is basically a weighted average using weights which corresponding to growth rates in national level employment in industry $j$&#xA;  times the labor force employed in industry j&#xA;  by region $i$&#xA;  at time $t$.&#xA;  In a sense, these are changes that are unrelated to local labor supply shocks. The Bartik instrument is then calculated as $\frac{\tilde{L_{it}}-L_{it-1}}{L_{it-1}}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is where I am lost. Once I construct this 'instrument', what would be my first stage? Do I need a first stage anymore? My intuition tells me yes. What I mean is that is this already the predicted value that we obtain after a first stage? Let me phrase my question in a more intuitive manner:$$L=f(L^{d},L^{s})$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a result,$$dL=f_{L^d}dL^{d}+f_{L^S}dL^{s}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, in a stochastic environment:$$dL=f_{L^D}dL^{d}+f_{L^S}dL^{s}+v&#xA; =f_{L^D}dL^{d}+\epsilon$$&#xA; where I assume that $$cov(dL^{d},\epsilon)=0$$&#xA;  or that demand shocks and supply shocks are unrelated. In the first stage then, is the RHS the constructed Bartik instrument? In that case, I would regress the total observed change in labor on the Bartik instrument and obtain $\hat{dL}$&#xA; . Or is it the case that the constructed Bartik instrument by itself serves as $\hat{dL}$&#xA; ?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks a lot! &lt;/p&gt;&#xA;" OwnerUserId="5233" LastActivityDate="2016-03-07T10:42:16.553" Title="Bartik Instrument Intuition" Tags="&lt;econometrics&gt;&lt;labor-economics&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9230" PostTypeId="2" ParentId="9220" CreationDate="2015-11-18T16:41:19.167" Score="0" Body="&lt;p&gt;Only thing you need to realize I think is that humans are machines, very lousy and inefficient machines at that.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Once you accept that, then it becomes evident that at some point we will be able, at worst, to create a replacement to human at lower cost.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Realistically what will be produced isn't an exact replica, but rather, a machine with all the upsides and none of the downsides that will be able to out-perform human at anything.&lt;/p&gt;&#xA;" OwnerUserId="5485" LastActivityDate="2015-11-18T16:41:19.167" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9231" PostTypeId="1" AcceptedAnswerId="9232" CreationDate="2015-11-18T17:47:18.207" Score="0" ViewCount="26" Body="&lt;p&gt;Anyone know a source for the average effective personal income tax rate for the US. By state also would be great.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Definition: average effective income tax rate = (Total income tax collected)/(Total income earned)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Possibly a source for the data to do the calculation.&lt;/p&gt;&#xA;" OwnerUserId="6364" LastEditorUserId="264" LastEditDate="2015-11-18T18:23:48.477" LastActivityDate="2015-11-18T18:23:48.477" Title="Data source for average effective personal income tax rate?" Tags="&lt;data-request&gt;&lt;taxation&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9232" PostTypeId="2" ParentId="9231" CreationDate="2015-11-18T18:23:24.273" Score="0" Body="&lt;p&gt;For a lot of things, including &lt;a href=&quot;http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=456&quot; rel=&quot;nofollow&quot;&gt;average effective (Federal) tax rates&lt;/a&gt;, the Urban Institute/Brookings Institution Tax Policy Center is a great place to start. Look at the table that reads &quot;Average Individual Income Tax Rate,&quot; as the first one also includes payroll, excise, and corporate taxes.&lt;/p&gt;&#xA;" OwnerUserId="264" LastActivityDate="2015-11-18T18:23:24.273" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="9233" PostTypeId="2" ParentId="9223" CreationDate="2015-11-18T19:15:58.643" Score="1" Body="&lt;p&gt;A few points to note.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1.) &lt;strong&gt;With more labor comes more goods that need to be produced.&lt;/strong&gt; This can be in the form of goods, services, or capital needed to augment the production of labor. If we are talking about whether there are enough raw/natural resources needed to make these things as population increase, note that your worry is not new. As population increases, we create more efficient ways of using the resources we already have. Think of our usage of resources/labor as a transversality condition. As time approaches infinity, the population will not grow faster than the rate of our technological efficiency, simply because of the need to survive. In the meantime, we'll be utilizing additional labor.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2.) I noticed that you had said,&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In America, over 300 million people and most already in poverty.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;You could make the argument that more than 150 million Americans are in poverty, but that measure of &quot;poverty&quot; is going to include a lot of well-off Americans. &lt;strong&gt;I'm not exactly sure what idea of poverty you have to reach this conclusion&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The US Census Bureau's measure of poverty has been hovering around 15% for a while. That's not great, but that's not necessarily worsening rapidly by any means.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;automation is increasing so rapidly it is expected that by 2025, even truck driver jobs will start to diminish&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I'd like to see exactly who said this as well, if you have the citation. Otherwise it's just hearsay.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think your uncles and aunts have been influencing you with a little bit of their hindsight bias.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;3.) You noted that,&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Retailers are already shutting down due to online competition from Amazon and restaurants are getting there too with tablets being placed at tables to take orders.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Does this necessarily decrease labor or displace labor into other jobs that value human labor more?&lt;/strong&gt; A quick example: Line workers in the United States have been declining steadily over the last decade, and many of them are reaching retirement age. It pays well and is manual labor, but there simply aren't enough interested young workers. If we were to see too much labor in technology-heavy industries, we could say that eventually the labor market would clear and go into well-paying jobs like this one. There &lt;em&gt;are&lt;/em&gt; still opportunities out there for Americans.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2015-11-18T19:15:58.643" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="9234" PostTypeId="1" CreationDate="2015-11-18T19:38:50.290" Score="1" ViewCount="44" Body="&lt;p&gt;I think over the course of the past couple years the topic of wealth-inequality and living wages has become increasingly commonplace, and really one of the most debated topics (among us casuals at least). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Personally, I don't believe that &quot;unbiased&quot; studies exist, but is there some sort of mostly objective study (or really just a good one) done that correlates job growth/loss with the rising of minimum wage, or conversely, the abolishment of a minimum wage?&lt;/p&gt;&#xA;" OwnerUserId="6366" LastEditorUserId="40" LastEditDate="2015-11-18T22:31:00.763" LastActivityDate="2015-11-18T22:31:00.763" Title="Is there a (mostly) objective study regarding minimum wage and job growth?" Tags="&lt;reference-request&gt;&lt;wages&gt;&lt;minimum-wage&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="9235" PostTypeId="2" ParentId="9226" CreationDate="2015-11-18T20:28:52.290" Score="1" Body="&lt;p&gt;At first, you could consider simply putting weights on GDP per capita and the GINI coefficient for your measure of social welfare ($W$).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$W = Y^\alpha (1-G)^{1-\alpha}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So social welfare depends both on income inequality and GDP. A few problems arise with this naive model.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;What is the correct weight to put on $\alpha$?&lt;/li&gt;&#xA;&lt;li&gt;Perfect forced income inequality as well as perfect forced income equality hurts the economy, and this sort of measure would not take this into account.&lt;/li&gt;&#xA;&lt;li&gt;As GDP increase, one might intuitively think that income inequality increases, since usually GDP increases with large scale technological shocks, which have high variance over time, and it increases slowly with labor productivity, which has very low variance over time in comparison.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;So what are some ways of solving these issues?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1.) You could try to guess what politicans treat $\alpha$ as by looking at the GINI and GDP per capita over time and find the $\alpha$ that maximizes discounted welfare over that time period, though that makes the assumption that on average, competing/bargaining for constituent interests maximizes social welfare.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2.) The GINI coefficient is measured as $\frac{A}{A+B}$, relative to the Lorenz curve, so you could put weights on A and B as well to show that perfect equality/perfect inequality is not preferable, but then that is a whole other subjective animal. The idea is that even long term equality or inequality can affect long term GDP growth, even if current GDP looks okay.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;3.) For the last point, I don't have any particular recommendations of dealing with it, except maybe accounting for lag values.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That would be my general guess for approaching this kind of question anyhow. Take it for what you will.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastEditorUserId="4251" LastEditDate="2015-11-18T20:43:51.277" LastActivityDate="2015-11-18T20:43:51.277" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="9236" PostTypeId="2" ParentId="9227" CreationDate="2015-11-18T20:33:24.983" Score="0" Body="&lt;p&gt;Sorry I have been visualising the corresponding TR, TC curves wrong / mixed up with another topic.  Where the MC minimum is is of no consequence to the problem, I see that now.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't have an issue with the marginal conditions, as the above answer points out they hold irrespective. &lt;/p&gt;&#xA;" OwnerUserId="6359" LastActivityDate="2015-11-18T20:33:24.983" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9237" PostTypeId="2" ParentId="9163" CreationDate="2015-11-18T22:25:14.963" Score="9" Body="&lt;p&gt;&lt;b&gt;The posted quote is economic nonsense.&lt;/b&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;If a lender chooses to innovate and reduce cost to borrowers in order to secure a larger share of the market, the competing lenders will instantly do the same, negating the effect.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This applies to any industry without intellectual property protection -- it is hardly unique to the payday loan industry. By this logic, we'd expect to encounter massive price gouging across dozens of industries.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Besides, if payday loan innovation is in the form of software that better predicts default (the most likely path), it will be protected under copyright law and potentially software patents. And while business model innovations are not patentable, there's still a first mover advantage.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;b&gt;The payday loan business is not highly profitable.&lt;/b&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Profit margins of payday-loan corporations are publicly available, and &lt;a href=&quot;http://financialuproar.com/2013/08/27/financials-payday-loans-might-bad-think/&quot; rel=&quot;noreferrer&quot;&gt;lower than most other industries&lt;/a&gt;. One &lt;a href=&quot;http://ir.lawnet.fordham.edu/cgi/viewcontent.cgi?article=1227&amp;amp;context=jcfl&quot; rel=&quot;noreferrer&quot;&gt;study&lt;/a&gt; found that &quot;despite the common belief, payday lending firms do not always make extraordinary profits. In fact, when compared to many other well-known lending institutions, payday lenders may fall far short in terms of profitability.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is not surprsing, since the payday loan market is &lt;a href=&quot;http://www.google.com/maps/search/payday+loans+near+90059&quot; rel=&quot;noreferrer&quot;&gt;highly saturated&lt;/a&gt;, which suggests substantial competition.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;b&gt;&quot;Usurious&quot; APR rates are misleading.&lt;/b&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A typical payday loan charges \$17 for a two-week \$100 loan.&#xA;Expressed as an annualized rate, this is an &quot;outrageous&quot; 390% APR.&#xA;But the loan's short-term nature means transaction costs will likely prevent a large profit.&#xA;(The &lt;a href=&quot;http://www.qcholdings.com/mythsaboutlending.aspx&quot; rel=&quot;noreferrer&quot;&gt;source&lt;/a&gt; of this information is potentially biased. Be sure to read critically.)&lt;/p&gt;&#xA;" OwnerUserId="6370" LastEditorUserId="6250" LastEditDate="2015-11-22T22:05:59.213" LastActivityDate="2015-11-22T22:05:59.213" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9238" PostTypeId="1" CreationDate="2015-11-19T00:22:21.303" Score="1" ViewCount="29" Body="&lt;p&gt;There are many studies on the rate of &lt;em&gt;adoption&lt;/em&gt; and &lt;em&gt;diffusion&lt;/em&gt; of technologies. Are there any papers (preferably empirical ones) on the &lt;strong&gt;utilization&lt;/strong&gt; of technology? What I mean by &quot;utilization&quot; is whether a technology is employed to its fullest potential. For example, using a smart-phone to just make phone calls would be &lt;em&gt;under-utilization&lt;/em&gt;, because many other features offered by the smart-phone are not utilized.&lt;/p&gt;&#xA;" OwnerUserId="42" LastEditorUserId="42" LastEditDate="2015-11-19T00:41:00.293" LastActivityDate="2015-11-19T00:41:00.293" Title="Reference request on utilization of technology" Tags="&lt;reference-request&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9239" PostTypeId="1" CreationDate="2015-11-19T00:49:54.043" Score="5" ViewCount="122" Body="&lt;p&gt;I have a series of related questions. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My understanding is. &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Economic wealth (ie. GDP) per capita is increasing around the world. We can refer to this as 'the pie is getting bigger'. &lt;/li&gt;&#xA;&lt;li&gt;At the same time, inequality (the distribution of the pie) is also increasing. &lt;/li&gt;&#xA;&lt;li&gt;Economic inequality is correlated with social harm, such as crime. &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;The questions I have is:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Is it correct to say that inequality is correalated with social harm? What do we mean by this? &lt;/li&gt;&#xA;&lt;li&gt;Is inequality increasing consistantly around the world? Or is it decreasing in some places?&lt;/li&gt;&#xA;&lt;li&gt;If it is increasing, are we also seeing a corresponding increase in social harm?&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="96" LastActivityDate="2016-01-18T04:03:36.977" Title="Is inequality increasing? Does it correspond to increasing social harm?" Tags="&lt;economic-growth&gt;&lt;inequality&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9240" PostTypeId="1" CreationDate="2015-11-19T01:11:12.047" Score="0" ViewCount="52" Body="&lt;p&gt;Why do European Government Bonds 10Yr (or at least some of them) have such a high level of correlation?&lt;/p&gt;&#xA;" OwnerUserId="4691" LastActivityDate="2015-11-19T01:59:12.963" Title="European Government Bonds correlations" Tags="&lt;government-debt&gt;" AnswerCount="1" CommentCount="3" ClosedDate="2015-11-19T15:54:43.687" ContentLicense="CC BY-SA 3.0" />
  <row Id="9241" PostTypeId="2" ParentId="9240" CreationDate="2015-11-19T01:59:12.963" Score="3" Body="&lt;p&gt;My guess is because they are denominated is Euros and their yields respond to the European Central Bank monetary policy decisions.&lt;/p&gt;&#xA;" OwnerUserId="6231" LastActivityDate="2015-11-19T01:59:12.963" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9242" PostTypeId="2" ParentId="9239" CreationDate="2015-11-19T02:01:24.903" Score="0" Body="&lt;p&gt;Regarding your second question: Is inequality increasing consistently around the world? Or is it decreasing in some places?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The short answer: on average the income inequality is increasing around the world. Income inequality in OECD countries is at its highest level for the past half century. The average income of the richest 10% of the population is about nine times that of the poorest 10% across the OECD, up from seven times 25 years ago. Source &lt;a href=&quot;http://www.oecd.org/social/inequality.htm&quot; rel=&quot;nofollow&quot;&gt;OECD&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In emerging economies, such as China and India, a sustained period of strong economic growth has helped lift millions of people out of absolute poverty. But the benefits of growth have not been evenly distributed and high levels of income inequality have risen further. Source &lt;a href=&quot;http://www.oecd.org/social/inequality.htm&quot; rel=&quot;nofollow&quot;&gt;OECD&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The long answer: A good reference to answer this question is the &lt;a href=&quot;http://www.wid.world/#Home:&quot; rel=&quot;nofollow&quot;&gt;The World Top Incomes Database&lt;/a&gt; by Facundo Alvaredo, Tony Atkinson, Thomas Piketty and Emmanuel Saez. You can plot different variables on inequality for different countries and years. You can also select, retrieve and download the data.&lt;/p&gt;&#xA;" OwnerUserId="6168" LastActivityDate="2015-11-19T02:01:24.903" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9243" PostTypeId="1" CreationDate="2015-11-19T03:06:02.960" Score="1" ViewCount="245" Body="&lt;p&gt;Consider &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$r=r^*+\theta$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $r$ is the domestic interest rate, $r^*$ is world interest rate, and $\theta$ is a risk premium and/or expectation rate adjustment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The economy is small and open, which means there is perfect foreign capital inflow/outflow, and $r$ has no effect on $r^*$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Shock&lt;/strong&gt;: there is an expectation of appreciation of the domestic currency in the world markets; nominal exchange rate is expected to rise.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Question&lt;/strong&gt;: describe the short-run effects on this economy's Money Market and LM curves (short-run means $P$ level is constant and $\left(\dfrac{\bar M}{\bar P}\right)^s$ is constant)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My answer&lt;/strong&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\theta$ decreases, so $r$ decreases&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the Keyensian Cross, lower $r$ leads to increased $I(r)$, so $PE$ shifts upward.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the IS-LM, this corresponds to a rightward shift in IS curve&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is the part where I start getting very confused....&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Money Market&lt;/strong&gt;: a decrease in $r$ means that the $OC$ of holding money goes down, so it seems to me there should be an increased demand for money, or liquidity preference, at all levels of income.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does this mean that $L(r,\bar Y)$ shifts to the right?  This seems like the correct intuition, yet if $L$ shifts rightward with $\left(\dfrac{\bar M}{\bar P}\right)^s$ constant, the equilibrium interest rate is higher, not lower.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;How would the money market adjust in this scenario, and what would the corresponding change of the LM curve look like in the IS-LM?&lt;/p&gt;&#xA;" OwnerUserId="5904" LastEditorUserId="2776" LastEditDate="2016-09-04T00:49:10.883" LastActivityDate="2016-09-04T00:49:10.883" Title="Money Market, LM curve, starting with a change in Interest Rate" Tags="&lt;macroeconomics&gt;&lt;open-economy-macro&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9244" PostTypeId="2" ParentId="9239" CreationDate="2015-11-19T03:11:28.230" Score="3" Body="&lt;p&gt;Regarding your first question:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Usually public economists assume that utility is a concave function of income. Therefore, the utility gain from one additional dollar of income is lower for a rich person than for a poor person. This is consistent with risk averse behavior of individuals which we often observe when individuals face risky choices.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If utility is concave in income and the total income is fixed, then the optimal utilitarian distribution would be that all individuals receive the same amount of income. Any deviation from this optimal income generates some loss in social welfare, which you may call &quot;social harm&quot;. However, in many cases the optimal utilitarian distribution of income will still be unequal if a higher level of total income can be reached by allowing for inequality. Reasons for this may be asymmetric information or labor market incentives. Thus, higher inequality alone does not necessarily mean lower social welfare. But higher inequality with lower or equal income means lower social welfare in a utilitarian framework.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Disclaimer: notice that if your definition of social welfare is not utilitarian, none of this applies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Extended reading: in case you are interested in this subject, I recommend you to read an introductory textbook on public finance or public economics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a more detailed survey of how social welfare and inequality are related, see:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lambert, Peter J. &quot;Evaluating impact effects of tax reforms.&quot; Journal of Economic Surveys 7.3 (1993): 205-242.&lt;/p&gt;&#xA;" OwnerUserId="5635" LastActivityDate="2015-11-19T03:11:28.230" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9245" PostTypeId="1" CreationDate="2015-11-19T04:05:41.993" Score="1" ViewCount="271" Body="&lt;p&gt;My understanding is : If production increases, it would imply the amount of goods increases as well for the same amount of money available in the market. Because of this, we should see prices of goods decrease as the offer got bigger.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since we say &lt;em&gt;inflation increases with GDP growth&lt;/em&gt;, where am I wrong thinking it should be the other way around?&lt;/p&gt;&#xA;" OwnerUserId="5509" LastActivityDate="2015-11-19T05:32:44.947" Title="Why GDP positive growth does not decrease inflation?" Tags="&lt;inflation&gt;&lt;gdp&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9246" PostTypeId="2" ParentId="9226" CreationDate="2015-11-19T04:18:16.267" Score="2" Body="&lt;p&gt;One concept fairly established in economics is the idea of generalized Lorenz dominance.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Lorenz curve (&lt;a href=&quot;https://en.wikipedia.org/wiki/Lorenz_curve&quot; rel=&quot;nofollow&quot;&gt;https://en.wikipedia.org/wiki/Lorenz_curve&lt;/a&gt;) plots percentiles of the population on the x axis and the cumulative percentiles of income on the Y axis. If the point (30,10) is on the curve, then this means that the bottom 30% of the population have 10% of the income of the population.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This allows us to compare the inequality of two countries by comparing how low or high their Lorenz curve is. If curve A is everywhere above or equal to curve B, then A is weakly less unequal than B. However, even the poorest person in B may still earn more than A.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The generalized curve multiplies the Y axis with the average income of society. Now we can not only compare A and B in terms of inequality, but also by how well individuals are off in these societies. Curve A being everywhere above or equal to curve B means that every percentile of society A is weakly better off than every matching percentile in society B.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Shorrocks showed that under certain conditions a parameterized family of social welfare functions is higher in society A relative to society B for all parameters if and only if the generalized Lorenz curve of A is higher than B at all points.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Shorrocks, Anthony F. &quot;Ranking income distributions.&quot; Economica (1983): 3-17.&lt;/p&gt;&#xA;" OwnerUserId="5635" LastActivityDate="2015-11-19T04:18:16.267" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9247" PostTypeId="2" ParentId="9245" CreationDate="2015-11-19T04:19:38.723" Score="1" Body="&lt;p&gt;&lt;strong&gt;Inflation&lt;/strong&gt;&#xA;$$\frac{P_1-P_0}{P_0}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where $P_t$ is the price level at time $t$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This formula is just the percentage change in price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;GDP Growth&lt;/strong&gt;&#xA;From Investopedia:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;A measure of economic growth from one period to another expressed as a percentage and adjusted for inflation (i.e. expressed in real as opposed to nominal terms). The real economic growth rate is a measure of the rate of change that a nation's gross domestic product (GDP) experiences from one year to another.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So inflation concerns itself with the changes in prices over time. Price can be measured by something like the CPI (consumer price index). GDP on the other hand focusses on what can be produced. If you look at the definition, you can see that in calculation &lt;strong&gt;real GDP&lt;/strong&gt;, the inflation rate is essential. Real GDP is GDP controlled for inflation Useful when comparing different years.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An increase in inflation can be a driver for increased nominal GDP but not for increased real GDP.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.economicshelp.org/macroeconomics/inflation/causes-inflation/&quot; rel=&quot;nofollow&quot;&gt;This site&lt;/a&gt; provides a pretty solid background and isn't too hard to folow..&lt;/p&gt;&#xA;" OwnerUserId="40" LastActivityDate="2015-11-19T04:19:38.723" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9248" PostTypeId="1" CreationDate="2015-11-19T05:28:11.040" Score="2" ViewCount="45" Body="&lt;p&gt;I'm a Physicist but I'd like to know if there are some methods or models to predict the activity of the clients of a bank. I heard that banks are interested in this sort of analysis so I got curious about it. The thing is I don't know where to find information about this. Is there a name for such type of analysis? Can you recommend any good book to learn such methods?&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;EDIT (19/11/15)&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In particular I'm interested in methods to predict the activity of the clients, say we know their banking movements and we want to know &lt;em&gt;who of them&lt;/em&gt; will no longer be active the next month/year, for example.&lt;/p&gt;&#xA;" OwnerUserId="6378" LastEditorUserId="2776" LastEditDate="2017-09-19T07:54:55.550" LastActivityDate="2017-09-19T07:54:55.550" Title="Methods or models to predict activity of clients of a bank?" Tags="&lt;reference-request&gt;&lt;banking&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9249" PostTypeId="2" ParentId="9245" CreationDate="2015-11-19T05:32:44.947" Score="2" Body="&lt;p&gt;GDP growth would lead to deflation if the money supply remained unchanged. The government usually increases money supply as the economy grows to avoid deflation. Controlling money supply is not an easy task though because the economy responds with lag to every policy decision. But ideally, the government aims at keeping inflation low (1-4%) and avoiding deflation. Zero inflation is also undesirable because if you know your money will be worth just as much a year from now, you have less incentive to invest.&lt;/p&gt;&#xA;" OwnerUserId="6231" LastActivityDate="2015-11-19T05:32:44.947" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9250" PostTypeId="1" CreationDate="2015-11-19T05:47:07.933" Score="0" ViewCount="214" Body="&lt;p&gt;So to my knowledge, the competitve equilibrium would be Marginal cost= Marginal private benefit. My question is, how would you determine what the pareto efficiency is from the Marginal social benefit line when it is shifted outwards from MPB? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there also a deadweight loss at competitve equilibrium?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks in advance for any help!&lt;/p&gt;&#xA;" OwnerUserId="6038" LastEditorUserId="1601" LastEditDate="2015-11-19T20:52:23.407" LastActivityDate="2015-11-19T20:52:23.407" Title="Finding Pareto efficiency from competitive equilibrium" Tags="&lt;microeconomics&gt;&lt;externalities&gt;" AnswerCount="0" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="9251" PostTypeId="1" AcceptedAnswerId="9254" CreationDate="2015-11-19T06:08:45.793" Score="2" ViewCount="387" Body="&lt;p&gt;Different family members have different utility functions, but&#xA;All family members consume the same bundle. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, consider a family $F$ that has to select a bundle of  funiture ($x$) and electronic equipment ($y$). Each member $i\in F$ has a different utility function $u_i(x,y)$. The family has a budget $I$. How can the demand of the family be calculated?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I thought of several options:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Calculate an aggregate utility function, e.g:&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;$$ u_F(x,y) = \min_{i\in F} u_i(x,y) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, calculate the demand in the usual way: select a bundle $(x_F,y_F)$ that maximizes the aggregate utility $u_F$ in the budget-set.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A problem with this method is that it requires to normalize the members' utility functions to the same scale.&lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;2&quot;&gt;&#xA;&lt;li&gt;Calculate the optimal bundle of each family member separately: each member selects a bundle $(x_i,y_i)$ that maximizes his utility function $u_i$ given the family's income $I$. Then, calculate the family bundle as an average of the members' bundles:&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;$$(x_F,y_F) = \frac{1}{|F|}\sum_{i\in F} (x_i,y_i)$$&#xA;If the budget-set is convex, then this bundle is also in the budget set. &lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;3&quot;&gt;&#xA;&lt;li&gt;Divide the family income $I$ among the family members, such that each member $i\in F$ receives an income $I/|F|$. Then, let each member select a bundle $(x_i',y_i')$ that maximizes his utility function $u_i$ in given his fraction of the income. Then, calculate the family bundle as a sum of the members' bundles:&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;$$(x_F,y_F) = \sum_{i\in F} (x_i',y_i')$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Each definition probably has different implications on results such as competitive equilibrium, welfare theorem, etc. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is a good reference on this problem? &lt;/p&gt;&#xA;" OwnerUserId="385" LastActivityDate="2015-11-19T10:10:42.053" Title="Demand function of a family" Tags="&lt;microeconomics&gt;&lt;reference-request&gt;&lt;consumer-theory&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="9252" PostTypeId="2" ParentId="9176" CreationDate="2015-11-19T06:31:39.013" Score="7" Body="&lt;p&gt;In &lt;a href=&quot;https://en.wikipedia.org/wiki/Progress_and_Poverty&quot;&gt;Progress and Poverty&lt;/a&gt;, Henry George claims that the advancement of technology eventually leads to increasing the land value and the land rent. This means that people who own land will have a high income, whether or not they work, while people without land will have to pay most of their free income to the landlords as rent. &lt;/p&gt;&#xA;" OwnerUserId="385" LastActivityDate="2015-11-19T06:31:39.013" CommentCount="9" ContentLicense="CC BY-SA 3.0" />
  <row Id="9253" PostTypeId="1" CreationDate="2015-11-19T09:14:55.727" Score="1" ViewCount="644" Body="&lt;p&gt;So I have this economics question that I have been trying for a while now and I can't seem to get the answer correctly. Below is the question and after I will show what I have so far. An explanation would help so much.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Consider the following Hotelling-style model. There are 3 Arms, each offering a single type of milk (always in 1 quart containers) that is horizontally differentiated along a single dimension, the percent of fat.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Firm-1 offers non-fat milk. &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Firm-2 offers low fat milk, with 10% fat.   &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Firm-3 offers high fat milk, with 50% fat.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;There are 1,000 potential consumers. Some consumers hate fat and some love it. But the most fat any individual consumer would ideally have in their milk is 50%. In particular, assume that people's tastes for the ideal percent of fat is uniformly distributed from 0% to 50%. That is, the line starts at zero and goes to 50 (instead of 1 as we have done in the past).&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The utility that individual &lt;em&gt;i&lt;/em&gt; obtains from purchasing a quart of milk from seller &lt;em&gt;j&lt;/em&gt; is given by&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Uij = 5 - pj - 1/10*|Xi - Xj| &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Where Xi € [0,50] is individual &lt;em&gt;i's&lt;/em&gt; ideal fat content and Xj € [0,50] is the fat content offered by firm &lt;em&gt;j&lt;/em&gt;.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;For example, if a consumer is located at Xi = 2 were to purchase from firm 2, and firm 2 happened to set a price P2 = 3, they would obtain utility:&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Uij =5 - 3 - 1/10*|2 - 10| = 1.2&lt;/p&gt;&#xA;  &#xA;  &lt;ol&gt;&#xA;  &lt;li&gt;Derive the demand functions for each of the three firms.&lt;/li&gt;&#xA;  &lt;/ol&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So far I have been able to derive the demand function for firm 1 by first solving for Xi for the indifferent consumer between Firm 1 and Firm 2. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The line looks like this &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;|--x--|-------------|&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;with the first line representing 0% fat, second 10%, and third 50%. The x represents the indifferent consumer between firm 1 and firm 2.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The math for the first firm is done by taking the Utility of the Indifferent consumer for firm 1 and setting it equal to the utility of the indifferent consumer for firm 2. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;5-P1-1/10*|Xi-0|=5-P2-1/10*|Xi-10|&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;by doing this, you end up with&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Xi=5P2-5P1+5 with the Q1=(Xi-0)*1000/50&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Therefore the demand curve for firm 1 is&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Q1=100P2-100P1-100&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The next step would be to be to solve for the demand curve for firm 3. My problem is when I set U2=U3 the Xis cancel. The math is below.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;5-P2-1/10*|Xi-10|=5-P3-1/10*|Xi-50|&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This reduces to:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;-P2-1+Xi/10 =-P3-5+Xi/10&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Finally this reduces to:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;-P2+P3+4=0 &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The &quot;Xi/10&quot; on both sides cancel which does not make sense. Because of this result, I have no idea how to solve for the demand curve of Firm 3.  &lt;/p&gt;&#xA;" OwnerUserId="6056" LastEditorUserId="1601" LastEditDate="2015-11-19T10:12:26.347" LastActivityDate="2015-11-19T10:39:36.513" Title="Derive the demand functions: Hotelling-style Model" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9254" PostTypeId="2" ParentId="9251" CreationDate="2015-11-19T10:10:42.053" Score="2" Body="&lt;p&gt;I think any (and none) of your answers is correct. The market demand simply depends on how the family makes its purchasing decisions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, suppose the matriarch $i$ decides on every purchase of the family and acts selfishly. Then obviously the utility function of the family is simply $u_i$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Compare this with the case where the utility functions are cardinally comparable and the household is utilitarian. In this case, the family utility function is the sum of all utility functions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;More generally speaking, if purchase decisions are made via some game, then you have to solve the game first in order to obtain the demand functions. But whether a utility representation exists for the family utility and what it would look like crucially depends on the game structure.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One special case which has been discussed in the literature is the case where the household income is somehow distributed among family members and each family member spends separately. There then exists a class of utility functions for which the family expenditure will be independent of the distribution of income among the family members. For details, see &lt;a href=&quot;https://en.wikipedia.org/wiki/Gorman_polar_form&quot; rel=&quot;nofollow&quot;&gt;https://en.wikipedia.org/wiki/Gorman_polar_form&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="5635" LastActivityDate="2015-11-19T10:10:42.053" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9255" PostTypeId="1" CreationDate="2015-11-19T10:19:58.213" Score="4" ViewCount="42" Body="&lt;p&gt;Consider a &lt;a href=&quot;https://en.wikipedia.org/wiki/Prediction_market&quot; rel=&quot;nofollow&quot;&gt;prediction market&lt;/a&gt; with two outcomes (Yes and No) and a scoring rule based on &lt;a href=&quot;http://hanson.gmu.edu/mktscore.pdf&quot; rel=&quot;nofollow&quot;&gt;Hansons’s LMSR&lt;/a&gt;, i.e. &lt;em&gt;ln(e&lt;sup&gt;a&lt;/sup&gt;+e&lt;sup&gt;b&lt;/sup&gt;)&lt;/em&gt;, where &lt;em&gt;a&lt;/em&gt; and &lt;em&gt;b&lt;/em&gt; are the number of Yes resp. No shares sold.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume that I have previously bought 10 Yes shares, but now I changed my mind and want to bet on the other side. I have the option to either sell my 10 yes shares, or buy 10 no shares.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When should I choose one or the other option? Is it always the same, or does it depend on, say, the current market?&lt;/p&gt;&#xA;" OwnerUserId="6381" LastActivityDate="2015-11-19T18:45:50.413" Title="Prediction market based on LMSR: Sell, or buy other side?" Tags="&lt;markets&gt;&lt;theory&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9256" PostTypeId="2" ParentId="9253" CreationDate="2015-11-19T10:39:36.513" Score="1" Body="&lt;p&gt;You are treating the absolute value wrong. You seem to have done it right the first time around, do it like that again. (Make a little drawing, think about which side of 10 and 50 the indifferent $X_i$ will be on, etc.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another thing: The demand function you derived for $Q_1$ only holds for certain ranges of $P_1$, $P_2$ and $P_3$, because if the prices of firms 1 and 2 are very high but $P_3$ is low, a customer indiffirent between firms 1 and 2 would go to firm 3.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2015-11-19T10:39:36.513" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9257" PostTypeId="2" ParentId="9176" CreationDate="2015-11-19T13:33:15.347" Score="8" Body="&lt;p&gt;Intentionally unserious answer.  Let's just take the individual's possible reactions to &quot;having their job taken over by a machine&quot; and scale them up to the macro level.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;strong&gt;Find a job in another field.&lt;/strong&gt;  At the macro level that means a rapid societal reconfiguration.  (Like Japan after WWII.)  Imagine a Ruby On Rails web services test engineer going back in time 50 years and trying to explain what his job is to those people.  With new advances come new types of jobs.  This is perhaps the rosiest outcome, though people who can't handle it get left behind.&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;Move back in with the parents.&lt;/strong&gt;  Scaled up to the macro level, this translates to lots of people accepting a lower standard of living, perhaps working only part-time or only in low-wage jobs.  But even this might not be so bad.  Compare a working-class lifestyle in the United States today with an upper-middle-class one from 50 or 100 years ago.  In the absolute extreme, mass homelessness or even starvation become common as wages largely drop below the level required to sustain life, and civilization unravels.  (Though mass starvation would be temporary, as the price of food must always return to affordable levels.)&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;Fight the man (picket lines, union strike, etc).&lt;/strong&gt;  Scaled up, this would translate into mass unemployment leading to large-scale social unrest.  If this were to actually happen on a worldwide scale, all bets are off.  Maybe the technological advances would be lost and labor becomes more valuable (expensive).  (I guess that could be considered 'winning' then.)  But maybe not.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;If trends since the industrial revolution continue, and the pace of change relative to people's ability to learn new skills stays manageable, then I think there is little risk of massive social unrest in the future caused solely by increased automation.&lt;/p&gt;&#xA;" OwnerUserId="6385" LastActivityDate="2015-11-19T13:33:15.347" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9258" PostTypeId="1" AcceptedAnswerId="9261" CreationDate="2015-11-19T18:26:15.267" Score="3" ViewCount="72" Body="&lt;p&gt;Recently there have been reports of China devaluating its currency against the U.S Dollar. I'm a layman and I am unable to understand the need for a country  devaluating  it's own currency. How would it help that country? Moreover newspapers report that this move by China could result in a currency war. So what exactly is a currency war? Please try to keep it simple, as I'm a layman in the field of economics. &lt;/p&gt;&#xA;" OwnerUserId="6393" LastActivityDate="2019-03-07T03:48:18.553" Title="China causing Currency War" Tags="&lt;international-economics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9259" PostTypeId="2" ParentId="9255" CreationDate="2015-11-19T18:45:50.413" Score="2" Body="&lt;p&gt;For the market it does not matter, the prices/chances change exactly the same:&#xA;&lt;em&gt;e&lt;sup&gt;a-10&lt;/sup&gt;/(e&lt;sup&gt;a-10&lt;/sup&gt;+e&lt;sup&gt;b&lt;/sup&gt;)&lt;/em&gt; = &lt;em&gt;e&lt;sup&gt;a&lt;/sup&gt;/(e&lt;sup&gt;a&lt;/sup&gt;+e&lt;sup&gt;b+10&lt;/sup&gt;)&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For you as the trader, selling 10 yes shares is preferable. It means you get your money out and can invest it elsewhere.&lt;/p&gt;&#xA;" OwnerUserId="6387" LastActivityDate="2015-11-19T18:45:50.413" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9260" PostTypeId="1" AcceptedAnswerId="27636" CreationDate="2015-11-19T20:09:23.057" Score="3" ViewCount="4401" Body="&lt;p&gt;Is there a systematic way of identifying all (pure strategy) Nash equilibria (not just the subgame perfect ones) in an extensive form game? In the following Entrant v Resident example, there are three NEs, two of which ($(OF,F),(OA,F)$) are not subgame perfect. What I've been doing is to convert the extensive form to normal form, and then find NEs there. While reliable, this method is time consuming, and gets complicated as the number of actions/players increases. For example, I suspect that it'd be much easier to spot NEs in a four-player extensive game (each with two action, say) than its normal form equivalent. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'd be interested to know if there's any procedure that we can use to find pure NEs in a reasonably simple extensive form game.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/x8oxN.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/x8oxN.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2019-04-05T05:05:52.083" Title="Identifying Nash equilibria in extensive form game" Tags="&lt;game-theory&gt;&lt;nash-equilibrium&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9261" PostTypeId="2" ParentId="9258" CreationDate="2015-11-19T20:48:03.330" Score="1" Body="&lt;p&gt;Okay, in layman's words, devaluing yuan (against USD) means, Chinese made goods are cheaper in USD. On the other hand, American made goods are expensive in China as a result. China wants to keep its export competitiveness and may want to keep its 'world's factory' status. Well, South Korea may as well want to use a similar strategy to make domestically produced export goods competitive, similarly, other aisan governments considering devaluing their currencies. There would then be a currency war... hope this is as simple as you wanted to see.&lt;/p&gt;&#xA;" OwnerUserId="6009" LastActivityDate="2015-11-19T20:48:03.330" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9262" PostTypeId="2" ParentId="9170" CreationDate="2015-11-19T21:23:59.080" Score="8" Body="&lt;p&gt;I don't think I can really do this question justice. A lot of us probably have different things that come to mind when we think of the history of economics. I tend to take an academic interpretation of your question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A potpourri of random (mostly microecon, but maybe it'd be better to sort them) events that come to mind:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;1838 - Supply and Demand:&lt;/strong&gt;&#xA;Antoine Augustin Cournot publishes a book about the supply and demand model (Alfred Marshall makes it famous later).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;1870s - General Equilbirum Theory:&lt;/strong&gt;&#xA;William Stanley Jevons, Carl Menger, and French economist Leon Walras develop around the same time the idea of marginal utility, and Walras in particular creates his work in 1874, &quot;Elements of Pure Economics&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;1915(?) - Slutsky Decomposition:&lt;/strong&gt;&#xA;Eugen Slutsky relates Marshallian and Hicksian demand to separate income and substitution effects. In 1927, he did something with statistics and business cycles that I don't quite understand, but I think that was important too.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;1930 - Intertemporal Consumption:&lt;/strong&gt;&#xA;Irving Fisher lays out early work on discounted saving, though arguably,  Modigliani &amp;amp; Brumberg (1954), Albert Ando, and Milton Friedman (1957) and the work on the life cycle-model is more noteworthy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;1944 - Game Theory:&lt;/strong&gt;&#xA;John von Neumann and Oskar Morgenstern use Brouwer's fixed-point theorem to create the basis for game theory.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;1947 - Von-Neumann Morgenstern Utility&lt;/strong&gt;&#xA;John von Neumann and Oskar Morgenstern create their four axioms surrounding rationality with probabilistic utility outcomes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;1951 - Arrow's Impossibility Theorem:&lt;/strong&gt;&#xA;Joseph Kenneth Arrow publishes his book, &quot;Social Choice and Individual Values&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;1973 - Black-Scholes Pricing Model:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;1977(?) - Mechanism Design:&lt;/strong&gt;&#xA;Leonid Hurwicz, Eric Maskin, and Roger Myerson create the foundation for &quot;reverse game theory&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As you can see, there are lots of gaps. I still don't know a lot about economic history--just that it is very large.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Other topics to add:&lt;/strong&gt;  Behavioral economics, experimental economics, information economics&lt;/p&gt;&#xA;" OwnerUserId="4251" LastEditorUserId="4251" LastEditDate="2016-01-28T03:12:02.373" LastActivityDate="2016-01-28T03:12:02.373" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="9263" PostTypeId="2" ParentId="9248" CreationDate="2015-11-19T22:35:34.097" Score="1" Body="&lt;p&gt;I hope by active you meant a customer of the bank. In this case you should google &quot;statistical models for customer retention&quot; or just &quot;customer retention&quot;. There a lot of interesting articles, for example &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.ruthnbolton.com/Publications/RelationshipDurationandSatisfaction.pdf&quot; rel=&quot;nofollow&quot;&gt;http://www.ruthnbolton.com/Publications/RelationshipDurationandSatisfaction.pdf&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.55.7177&amp;amp;rep=rep1&amp;amp;type=pdf&quot; rel=&quot;nofollow&quot;&gt;http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.55.7177&amp;amp;rep=rep1&amp;amp;type=pdf&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Unfortunately it is my experience that banks do not usually use these models because they are deemed to complicated.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2015-11-19T22:35:34.097" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9265" PostTypeId="1" CreationDate="2015-11-19T23:50:55.467" Score="3" ViewCount="199" Body="&lt;p&gt;So it seems like my data has a structural break in it, using Box-Jenkins methodology and evaluation such as ADF test wont give appropriate forecasts/results if I do not correct for the structural break in the data.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't understand how to go about fixing the structural break and then doing the ARIMA procedure of identification, estimation, diagnostic checks ext.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know one way is to dummy out variables....however how do I include this in the proc arima step? I can create dummy variables in the data set but its not like including the dummy's in my data set will do anything to the ARIMA process because the arima process doesn't do anything about additional variables in the dataset except for the one variable I am trying to forecast.&lt;/p&gt;&#xA;" OwnerUserId="6402" LastEditorUserId="43" LastEditDate="2015-11-20T10:18:55.113" LastActivityDate="2015-11-20T10:18:55.113" Title="SAS: How to do ARIMA procedure with structural break?" Tags="&lt;econometrics&gt;&lt;statistics&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9266" PostTypeId="2" ParentId="9260" CreationDate="2015-11-20T00:59:32.087" Score="2" Body="&lt;p&gt;As far as I know, No. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;While I am not sure why you would want to find non-subgame perfect Nash equilibria in an extensive form game, I am sure you would need to convert it to normal form to do it. Extensive form of a sequential game carries more information than normal form, specifically which moves do not exist within the sequence. In a normal form representation of the sequential game you have to show every possible move available to every player, even the moves that do not exist. So basically when you convert a sequential game from extensive form to normal form, it becomes another game where you then look for Nash equilibria. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you are doing a two player game where each player gets one move, you can do it in your head just by looking at the game tree, but if the game is any more complex, you would need to do it step by step, first converting it into a normal form.&lt;/p&gt;&#xA;" OwnerUserId="6231" LastActivityDate="2015-11-20T00:59:32.087" CommentCount="10" ContentLicense="CC BY-SA 3.0" />
  <row Id="9270" PostTypeId="2" ParentId="8481" CreationDate="2015-11-20T09:14:53.693" Score="1" Body="&lt;p&gt;Let us first boil this question down to a simple story: Suppose bread prices are very flexible while luxury car prices are very sticky. If the central bank now changes its monetary policy to increase inflation, then bread will become relatively more expensive compared to luxury cars. If the central bank anticipates this, they may prefer a more restrictive monetary policy to avoid redistribution from the bottom to the top.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To analyze this, two literature strands may help you. First, &lt;strong&gt;heterogeneous price stickiness&lt;/strong&gt; has been studied in&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Carvalho, Carlos. &quot;Heterogeneity in price stickiness and the real effects of monetary shocks.&quot; Frontiers in Macroeconomics 6.3 (2006).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This paper essentially breaks with the standard assumption of identical price stickiness across sectors. Thus, at some point one sector (bread) may experience higher inflation than another sector (luxury cars), since luxury car prices are more sticky and there is an expansionary monetary policy. The framework for welfare analysis in sticky price models is given in:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Woodford, Michael. Optimal monetary policy inertia. No. w7261. National Bureau of Economic Research, 1999.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, you not only have heterogeneity in price stickiness, but also &lt;strong&gt;heterogeneity in consumers&lt;/strong&gt;. This is the second strand in the literature you should consider, the estimation of demand systems and welfare effects therein. The main reference (and recent Nobel memorial prizewinner) is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Deaton, Angus, and John Muellbauer. &quot;An almost ideal demand system.&quot; The American economic review (1980): 312-326.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you combine these two analyses, you will have an answer to your question. However, this would require you more or less to write a paper about this (which may very well be worth it).&lt;/p&gt;&#xA;" OwnerUserId="5635" LastActivityDate="2015-11-20T09:14:53.693" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9271" PostTypeId="5" CreationDate="2015-11-20T11:20:14.220" Score="0" Body="" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2015-11-20T11:20:14.220" LastActivityDate="2015-11-20T11:20:14.220" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9272" PostTypeId="4" CreationDate="2015-11-20T11:20:14.220" Score="0" Body="An increase over time in the quantity of goods and services produced within an economy." OwnerUserId="108" LastEditorUserId="108" LastEditDate="2015-11-20T11:20:14.220" LastActivityDate="2015-11-20T11:20:14.220" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9273" PostTypeId="5" CreationDate="2015-11-20T11:22:00.247" Score="0" Body="" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2015-11-20T11:22:00.247" LastActivityDate="2015-11-20T11:22:00.247" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9274" PostTypeId="4" CreationDate="2015-11-20T11:22:00.247" Score="0" Body="An obligation to pay another party at some point in the future. Examples include national debt, corporate bonds, and household credit." OwnerUserId="108" LastEditorUserId="108" LastEditDate="2015-11-20T11:22:00.247" LastActivityDate="2015-11-20T11:22:00.247" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9275" PostTypeId="5" CreationDate="2015-11-20T11:24:20.270" Score="0" Body="" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2015-11-20T11:24:20.270" LastActivityDate="2015-11-20T11:24:20.270" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9276" PostTypeId="4" CreationDate="2015-11-20T11:24:20.270" Score="0" Body="Mathematical techniques for the selection of a best element (with respect to some criteria) from the set of available alternatives." OwnerUserId="108" LastEditorUserId="108" LastEditDate="2015-11-20T11:24:20.270" LastActivityDate="2015-11-20T11:24:20.270" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9277" PostTypeId="5" CreationDate="2015-11-20T11:26:59.010" Score="0" Body="" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2015-11-20T11:26:59.010" LastActivityDate="2015-11-20T11:26:59.010" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9278" PostTypeId="4" CreationDate="2015-11-20T11:26:59.010" Score="0" Body="A function whose value is the produced quantity associated with a given vector of factor inputs. The production function represents the technology available to the firm." OwnerUserId="108" LastEditorUserId="108" LastEditDate="2015-11-20T11:26:59.010" LastActivityDate="2015-11-20T11:26:59.010" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9279" PostTypeId="5" CreationDate="2015-11-20T11:28:08.373" Score="0" Body="" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2015-11-20T11:28:08.373" LastActivityDate="2015-11-20T11:28:08.373" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9280" PostTypeId="4" CreationDate="2015-11-20T11:28:08.373" Score="0" Body="A branch of economics that incorporates insights from psychology by allowing for systematic deviations from idealised rational behaviour." OwnerUserId="108" LastEditorUserId="108" LastEditDate="2015-11-20T11:28:08.373" LastActivityDate="2015-11-20T11:28:08.373" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9281" PostTypeId="5" CreationDate="2015-11-20T11:29:28.107" Score="0" Body="" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2015-11-20T11:29:28.107" LastActivityDate="2015-11-20T11:29:28.107" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9282" PostTypeId="4" CreationDate="2015-11-20T11:29:28.107" Score="0" Body="The application of economics to issues in the natural environment; especially concerning climate change." OwnerUserId="108" LastEditorUserId="108" LastEditDate="2015-11-20T11:29:28.107" LastActivityDate="2015-11-20T11:29:28.107" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9283" PostTypeId="5" CreationDate="2015-11-20T11:32:03.190" Score="0" Body="" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2015-11-20T11:32:03.190" LastActivityDate="2015-11-20T11:32:03.190" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9284" PostTypeId="4" CreationDate="2015-11-20T11:32:03.190" Score="0" Body="Procedures in which participants submit bids, with resources being allocated among bidders in accordance with some pre-specified rule." OwnerUserId="108" LastEditorUserId="108" LastEditDate="2015-11-20T11:32:03.190" LastActivityDate="2015-11-20T11:32:03.190" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9285" PostTypeId="5" CreationDate="2015-11-20T11:33:30.307" Score="0" Body="" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2015-11-20T11:33:30.307" LastActivityDate="2015-11-20T11:33:30.307" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9286" PostTypeId="4" CreationDate="2015-11-20T11:33:30.307" Score="0" Body="A basic solution concept in game theory that requires each player to select their best response to the strategies chosen by others." OwnerUserId="108" LastEditorUserId="108" LastEditDate="2015-11-20T11:33:30.307" LastActivityDate="2015-11-20T11:33:30.307" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9287" PostTypeId="5" CreationDate="2015-11-20T11:36:01.250" Score="0" Body="" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2015-11-20T11:36:01.250" LastActivityDate="2015-11-20T11:36:01.250" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9288" PostTypeId="4" CreationDate="2015-11-20T11:36:01.250" Score="0" Body="Analysis in which the ability of agents act rationally is constrained in one or more respects. Commonly employed in behavioural economics." OwnerUserId="108" LastEditorUserId="108" LastEditDate="2015-11-20T11:36:01.250" LastActivityDate="2015-11-20T11:36:01.250" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9289" PostTypeId="1" CreationDate="2015-11-20T12:33:44.800" Score="0" ViewCount="103" Body="&lt;p&gt;&lt;strong&gt;When the &quot;richs&quot;* get richers, the &quot;poors&quot;* get poorer&lt;/strong&gt;... assuming:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;h1) a constant volume of money,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;h2) a constant volume of people,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;h3) a close separation between the two groups of people,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;h4) a constant influx of money from rich to poors (salaries) c1, and a constant influx of money from poors to rich (profits from stuff sold to poors) c2, such that c2 &gt; c1&lt;/p&gt;&#xA;&#xA;&lt;p&gt;this means that the volume of money the richs have access to gets bigger over time and the volume of money the poors have access two gets smaller, therefore, also assuming:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;h5) constant prices,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;this means each person in this poor group has individually access to a smaller amount of money. Therefore despite a constant salary, they can afford to buy less things.&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Could we therefore says that richs experiment a deflation and poors an inflation?&lt;/strong&gt; If not, is there a more befitting name to describe this phenomenon?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are the assumption realistics, or is the reasonment flawed?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Example&lt;/strong&gt;:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;100 persons, divided in R and P, with respectively 20 and 80 persons&lt;/li&gt;&#xA;&lt;li&gt;1000 euros total volume of money&lt;/li&gt;&#xA;&lt;li&gt;time t1: R has 500 euros, P has 500 euros&lt;/li&gt;&#xA;&lt;li&gt;time t2: R has 700 euros, P has 300 euros&lt;/li&gt;&#xA;&lt;li&gt;the prices remain constant at t1 and t2, e.g. 1 euros bread, 2 euros meat, 3 euros gas&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;at t1: people in P and R have on average respectively 25 and 6.25 euros&lt;/p&gt;&#xA;&#xA;&lt;p&gt;at t2: people in P and R have on average respectively 35 and 3.75 euros&lt;/p&gt;&#xA;&#xA;&lt;p&gt;therefore, despite constant salaries for people in P:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;at t1 they can afford both bread, meat and gas&lt;/p&gt;&#xA;&#xA;&lt;p&gt;at t2 they can afford only bread and meat&lt;/p&gt;&#xA;&#xA;&lt;p&gt;*: I put quotation marks, because being rich or poor is subjective, but within a closed social group we can assume that such a distinction can be agreed upon.&lt;/p&gt;&#xA;" OwnerUserId="6417" LastEditorUserId="6417" LastEditDate="2015-11-22T12:50:21.460" LastActivityDate="2015-11-23T11:08:10.053" Title="Do rising inequalities create inflation?" Tags="&lt;inflation&gt;&lt;inequality&gt;&lt;deflation&gt;" AnswerCount="2" CommentCount="13" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9290" PostTypeId="2" ParentId="8810" CreationDate="2015-11-20T12:44:21.627" Score="2" Body="&lt;p&gt;Brazil and Russia raised rates in response to their currencies' devaluations after oil had gone down.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Their central banks realize the negative impact of higher rates on GDP, but they have no other reasonable choice to contain inflation. If they keep rates low, their currencies will keep falling. Which means rising prices for import. Lower rates also encourage demand in general and put pressure on domestic prices as well.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The investment channel that you've mentioned doesn't work quite well. In Russia, investment opportunities are scarce and cheap money goes into speculations — basically on borrowing rubles and buying dollars. That doesn't increase GDP, but creates high inflation.&lt;/p&gt;&#xA;" OwnerUserId="240" LastActivityDate="2015-11-20T12:44:21.627" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9291" PostTypeId="1" CreationDate="2015-11-20T14:25:55.643" Score="3" ViewCount="279" Body="&lt;p&gt;How does one differentiate between &quot;objective&quot; and &quot;subjective&quot; probability distributions in asset pricing models?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In asset pricing, economists often make a distinction between the &quot;subjective&quot; and the &quot;objective&quot; probabilities of future states of the world. What do they mean by this?&lt;/p&gt;&#xA;" OwnerUserId="5352" LastEditorUserId="7593" LastEditDate="2016-05-05T18:54:14.113" LastActivityDate="2016-05-08T21:03:38.557" Title="Difference between objective and subjective distributions in asset pricing models?" Tags="&lt;econometrics&gt;&lt;statistics&gt;&lt;asset-pricing&gt;" AnswerCount="2" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="9292" PostTypeId="1" CreationDate="2015-11-20T14:36:55.723" Score="2" ViewCount="98" Body="&lt;p&gt;As a self-employed business owner, I am paying approximately 15% of my income to social security, yet I keep hearing that they're &quot;running out of money for it.&quot;  I'm a little confused about this: 15% is how much I currently save for retirement and over 25-30 years, it should fund my retirement comfortably and that's at a rate of around 8%.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I realize social security isn't invested in anything returning 8% or higher, but it's hard for me to imagine that they government is running low on money with my 15% of income (if I always made 60000 I would have paid 270000 into social security and at 3% interest, that's 8100 a year).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So where is my social security money going?&lt;/p&gt;&#xA;" OwnerUserId="6421" LastActivityDate="2015-11-20T15:18:55.420" Title="What Is Social Security Invested In?" Tags="&lt;welfare-economics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9293" PostTypeId="2" ParentId="9292" CreationDate="2015-11-20T15:11:06.583" Score="3" Body="&lt;p&gt;There are two ways to organise social security. One scheme is known as &lt;em&gt;fully-funded&lt;/em&gt; social security. The alternative is called &lt;em&gt;pay-as-you-go&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Fully funded schemes&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Under a fully-funded scheme, the government collects regular payment from each member. These payments are invested until the member needs to claim (e.g. their pension), at which point the member receives payments from the invested money and the returns that it has generated. This corresponds to the situation you describe where your social security payments are sat in an investment somewhere waiting to go back to you.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Pay as you go schemes&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;This may be disturbing reading, so brace yourself!&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Countries such as the UK and the USA do &lt;em&gt;not&lt;/em&gt; use a fully-funded scheme. Instead, a significant portion of their social security provision operates on the basis of a so-called &lt;a href=&quot;https://en.wikipedia.org/wiki/PAYGO&quot; rel=&quot;nofollow&quot;&gt;pay-as-you-go&lt;/a&gt; scheme in which the money paid by today's workers (e.g. you) is not invested at all. Instead, it is immediately spent on making social security payments to people who are currently retired. The hope is that today's workers, when they eventually retire, will likewise have their pensions paid from the social security contributions of their children (who will by then be working). And so the chain continues, each generation handing money directly to the last with little provision for self-sufficiency.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Assessment&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The obvious problem with this is that the generation of 'boomers' now retiring is unusually large and had unusually few children. Moreover, that generation enjoys unprecedented levels of longevity, meaning that they are likely to claim far more out of the system than they paid in. All this means that current workers face a large burden paying the social security claims of the much larger generation that preceded them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, we are kind of stuck. If we want to switch to a fully-funded system then somebody has to get a very bad deal. Option 1: current employees have to pay twice (for their own fully-funded retirement &lt;em&gt;and&lt;/em&gt; for the pay as you go claims of their parents). Option 2: current workers pay only for their fully-funded retirement and current retirees (who already paid for their parents' pensions) do not receive any pension at all. Neither alternative is very politically tractable.&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2015-11-20T15:18:55.420" LastActivityDate="2015-11-20T15:18:55.420" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="9294" PostTypeId="2" ParentId="9292" CreationDate="2015-11-20T15:14:40.470" Score="2" Body="&lt;p&gt;A common popular argument is that they are going toward paying current beneficiaries because earlier in time the government allowed the social security trust funds to flow into the general fund (of the US Federal government).  This is a flawed argument because it presumes that the Federal government would not have borrowed the same amount of money from elsewhere had the funds not been invested in US government securities.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In essence, the government borrowed the social security trust's funds, and owes them back.  Therefore, in essence, the trust fund is invested in US government securities.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The particular instruments are special issue securities that are not bought and sold other than between the US Treasury and the SS Trust.  This an ongoing daily transaction activity where newly collected revenue is used to purchase special securities, and special securities (principle and interest) are redeemed to just cover Social Security payments. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Social Security Trust funds earn much lower returns than your 8%, the rate of return is calculated by a particular formula.  Since 1960 the formula has been based on a monthly calculation of average market yields of open market US Treasury securities.  Effective rates have fluctuated between just under 4% to almost 12% historically.  Rates have been below your 8% benchmark since the mid 90's and are currently at historic lows due to a few decades of US Treasury average rates trending downward.&lt;/p&gt;&#xA;" OwnerUserId="5904" LastActivityDate="2015-11-20T15:14:40.470" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9296" PostTypeId="1" CreationDate="2015-11-20T17:22:49.877" Score="6" ViewCount="818" Body="&lt;p&gt;$$&#xA;\newcommand{\E}{\mathbb{E}}&#xA;$$&#xA;Let a consumption&#xA;sequence be given $C=(C_0, C_1,...)$ and let&#xA;$C_t^+ = (C_t, C_{t+1}, ...)$. &#xA;Now, suppose I have Epstein-Zin preferences,&#xA;\begin{align*}&#xA;U_t(C_t^+) &amp;amp;= f(C_t, q(U_{t+1}(C_{t+1}^+))) \\&#xA;U_t  &amp;amp;= \left \{(1-\beta) C_t^{1-\rho} &#xA;+ \beta \left(\E_t[U_{t+1}^{1-\gamma}]\right)^{\frac{1-\rho}{1-\gamma}}&#xA;\right\}^{\frac{1}{1-\rho}},&#xA;\end{align*}&#xA;where $f$ is the time aggregator and $q$ is the conditional certainty&#xA;equivalent operator. That is,&#xA;$$&#xA;f(c,q) = ((1-\beta) c^{1-\rho} + \beta q^{1-\rho})^{\frac{1}{1-\rho}}&#xA;$$&#xA;and&#xA;$$&#xA;q_t = q(U_{t+1}) = \left(\E_t[U_{t+1}^{1-\gamma}]\right)^{\frac{1}{1-\gamma}}.&#xA;$$&#xA;How do I show that the intertemporal elasticity of substitution is&#xA;$\rho^{-1}$?&lt;/p&gt;&#xA;" OwnerUserId="59" LastEditorUserId="47" LastEditDate="2015-11-20T21:22:38.247" LastActivityDate="2015-11-20T22:47:12.197" Title="Calculate the elasticity of substitution of Epstein-Zin preferences" Tags="&lt;utility&gt;&lt;elasticity&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="9297" PostTypeId="2" ParentId="9296" CreationDate="2015-11-20T17:22:49.877" Score="4" Body="&lt;p&gt;$&#xA;\newcommand{\dd}{\, \mathrm{d}}&#xA;\newcommand{\pd}[2]{\frac{\partial #1}{\partial #2}}&#xA;$&#xA;Here is my solution. Let me know if anybody has a cleaner/clearer approach.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider a fixed (non-random)&#xA; consumption sequence $C = (C_0, C_1,...)$.&#xA;Then, the elasticity of intertemporal substitution (EIS) is defined&#xA;as&#xA;$$&#xA;\text{EIS} = \left| \frac{\dd \ln(C_s/C_t)}{\dd \ln MRS_{s,t}}\right| &#xA; = \left|\frac{\dd \ln \left(\frac{C_s}{C_t}\right)}&#xA; {\dd \ln \left( \frac{\partial U/\partial C_s}{\partial U/\partial C_{t}}\right)}&#xA; \right |.&#xA;$$&#xA;To compute this figure, let's start by&#xA;computing&#xA;\begin{align*}&#xA;\pd{U_t}{C_t} &amp;amp;= f_c(C_t, q_t(U_{t+1}(C_{t+1}^+)))  \\&#xA;  &amp;amp;= \frac{1}{1-\rho} &#xA;  \left( (1-\beta) C_t^{1-\rho} + \beta q^{1-\rho} \right)^{\frac{\rho}{1-\rho}}&#xA;  (1-\beta) (1-\rho) C_t^{-\rho} \\&#xA;  &amp;amp;= (1-\beta) f_t^{\rho} C_t^{-\rho}.&#xA;\end{align*}&#xA;Also,&#xA;\begin{align*}&#xA;\pd{U_t}{C_{t+1}} &amp;amp;=  f_q \cdot \frac{\dd q_t}{\dd U_{t+1}}&#xA;  \cdot \pd{U_{t+1}}{C_{t+1}}.&#xA;\end{align*}&#xA;It will be easier to compute these pieces in parts. First,&#xA;$$&#xA;f_q = \beta f^{\rho} q_t^{-\rho}.&#xA;$$&#xA;Next, consider $\frac{\dd q_t}{\dd U_{t+1}}$. This is simplified&#xA;by the fact that $C$ is non-random,&#xA;$$&#xA;\frac{\dd q_t}{\dd U_{t+1}} = q_t^\gamma U_{t+1}^{-\gamma} = 1.&#xA;$$&#xA;Finally,&#xA;$$&#xA;\pd{U_{t+1}}{C_{t+1}} = (1-\beta) f_{t+1}^{\rho} C_{t+1}^{-\rho},&#xA;$$&#xA;which follows from our earlier calculation. Thus,&#xA;\begin{align*}&#xA;\pd{U_t}{C_{t+1}} &amp;amp;=  f_q \cdot \frac{\dd q_t}{\dd U_{t+1}}&#xA;  \cdot \pd{U_{t+1}}{C_{t+1}} \\&#xA;  &amp;amp;= \beta f_t^{\rho} q_t^{-\rho}&#xA;  (1-\beta) f_{t+1}^{\rho} C_{t+1}^{-\rho},&#xA;\end{align*}&#xA;where $f_t = f(C_t, q_t)$ and $q_t = q(U_{t+1}(C_{t+1}^+))$.&#xA;Now, we can calculate&#xA;\begin{align*}&#xA;\frac{\partial U_t/\partial C_{t+1}}{\partial U_t/\partial C_t}&#xA;  &amp;amp;= \frac&#xA;  { \beta f_t^{\rho} q_t^{-\rho}&#xA;  (1-\beta) f_{t+1}^{\rho} C_{t+1}^{-\rho}}&#xA;  {(1-\beta) f_t^{\rho} C_t^{-\rho}} \\&#xA;  &amp;amp;= \beta q_t^{-\rho}&#xA;   f_{t+1}^{\rho} &#xA;   \left(\frac{C_{t+1}}{C_t}\right)^{-\rho}\\&#xA;\end{align*}&#xA;Now, let&#xA;$$&#xA;\frac{p_{t+1}}{p_t} = \frac{\partial U_t/\partial C_{t+1}}{\partial U_t/\partial C_t}.&#xA;$$&#xA;Then, taking the differentials,&#xA;$$&#xA;\dd \left(\frac{p_t}{p_0}\right) = \frac{\partial U_t/\partial C_{t+1}}{\partial U_t/\partial C_t}&#xA;  \left(\frac{C_{t+1}}{C_t}\right)^{-1} (-\rho) \dd \frac{C_{t+1}}{C_t}.&#xA;$$&#xA;So,&#xA;\begin{align*}&#xA;\frac{\dd\left(\frac{ C_{t+1}}{C_t}\right)}{\dd \left(\frac{p_{t+1}}{p_t}\right)}&#xA;\cdot \frac{\frac{p_{t+1}}{p_t}}{\frac{C_{t+1}}{C_t}}&#xA;  &amp;amp;= \left(&#xA;\frac{\partial U_t/\partial C_{t+1}}{\partial U_t/\partial C_t}&#xA;  \left(\frac{C_{t+1}}{C_t}\right)^{-1} (-\rho)&#xA;  \right)^{-1} \cdot \frac{\frac{p_{t+1}}{p_t}}{\frac{C_{t+1}}{C_t}} \\&#xA;  &amp;amp;= -\frac{\frac{C_{t+1}}{C_t} \frac{p_{t+1}}{p_t}}&#xA;  {\frac{p_{t+1}}{p_t} \frac{C_{t+1}}{C_t}} \rho^{-1} = -\rho^{-1}.&#xA;\end{align*}&#xA;Now, plugging this into the definition of the EIS,&#xA;\begin{align*}&#xA;\text{EIS} &amp;amp;= \left|\frac{\dd \ln \left(\frac{C_s}{C_t}\right)}&#xA; {\dd \ln \left( \frac{\partial U/\partial C_s}{\partial U/\partial C_{t}}\right)}&#xA; \right | \\&#xA;  &amp;amp;= \left|&#xA;\frac{\dd\left(\frac{ C_{t+1}}{C_t}\right)}{\dd \left(\frac{p_{t+1}}{p_t}\right)}&#xA;\cdot \frac{\frac{p_{t+1}}{p_t}}{\frac{C_{t+1}}{C_t}}&#xA;  \right| \\&#xA;  &amp;amp;= \rho^{-1}.&#xA;\end{align*}&lt;/p&gt;&#xA;" OwnerUserId="59" LastEditorUserId="59" LastEditDate="2015-11-20T22:47:12.197" LastActivityDate="2015-11-20T22:47:12.197" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9298" PostTypeId="1" CreationDate="2015-11-20T17:34:35.263" Score="13" ViewCount="831" Body="&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\newcommand{\E}{\mathbb{E}}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;h1&gt;Preface&lt;/h1&gt;&#xA;&lt;p&gt;This question is related to &lt;a href=&quot;https://economics.stackexchange.com/questions/9296/calculate-the-elasticity-of-substitution-of-epstein-zin-preferences/9297#9297&quot;&gt;this one about the elasticity of intertemporal substitution&lt;/a&gt; and &lt;a href=&quot;https://economics.stackexchange.com/questions/1816/definition-of-absolute-risk-aversion&quot;&gt;this one about the definition of absolute risk aversion&lt;/a&gt;. (It's related to the second one insofar as the definition of relative risk aversion can be motivated by the quantity that solves&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;U(C(1-RRA/2)) = \E[U(C(1-\epsilon))\mid C].&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;h1&gt;Question&lt;/h1&gt;&#xA;&lt;p&gt;In this question, I want to know how to compute the &lt;em&gt;relative risk aversion&lt;/em&gt;&#xA;of Epstein-Zin preferences.&lt;/p&gt;&#xA;&lt;p&gt;Let a consumption&#xA;sequence be given &lt;span class=&quot;math-container&quot;&gt;$C=(C_0, C_1,...)$&lt;/span&gt; and let&#xA;&lt;span class=&quot;math-container&quot;&gt;$C_t^+ = (C_t, C_{t+1}, ...)$&lt;/span&gt;.&#xA;Now, suppose I have Epstein-Zin preferences,&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{align*}&#xA;U_t(C_t^+) &amp;amp;= f(C_t, q(U_{t+1}(C_{t+1}^+))) \\&#xA;U_t  &amp;amp;= \left \{(1-\beta) C_t^{1-\rho} &#xA;+ \beta \left(\E_t[U_{t+1}^{1-\gamma}]\right)^{\frac{1-\rho}{1-\gamma}}&#xA;\right\}^{\frac{1}{1-\rho}},&#xA;\end{align*}&lt;/span&gt;&#xA;where &lt;span class=&quot;math-container&quot;&gt;$f$&lt;/span&gt; is the time aggregator and &lt;span class=&quot;math-container&quot;&gt;$q$&lt;/span&gt; is the conditional certainty&#xA;equivalent operator. That is,&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;f(c,q) = ((1-\beta) c^{1-\rho} + \beta q^{1-\rho})^{\frac{1}{1-\rho}}&#xA;$$&lt;/span&gt;&#xA;and&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;q_t = q(U_{t+1}) = \left(\E_t[U_{t+1}^{1-\gamma}]\right)^{\frac{1}{1-\gamma}}.&#xA;$$&lt;/span&gt;&#xA;How do I show that the coefficient of relative risk aversion is&#xA;&lt;span class=&quot;math-container&quot;&gt;$\gamma$&lt;/span&gt;?&lt;/p&gt;&#xA;&lt;h1&gt;Notes&lt;/h1&gt;&#xA;&lt;p&gt;Applying the usual definition of relative risk aversion appears to require care. If we were to calculate &lt;span class=&quot;math-container&quot;&gt;$RRA = -c u''(c)/u'(c)$&lt;/span&gt;, we would need to be careful&#xA;about the time subscripts on &lt;span class=&quot;math-container&quot;&gt;$c$&lt;/span&gt;. Calculating these derivatives with respect to &lt;span class=&quot;math-container&quot;&gt;$C_t$&lt;/span&gt; would not give us the correct answer. It should probably be&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;RRA = - C_{t+1} \left . \frac{\partial^2 U_t}{\partial C_{t+1}^2} \middle / \frac{\partial U_t}{\partial C_{t+1}} \right. .&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="59" LastEditorUserId="59" LastEditDate="2020-08-20T15:41:12.653" LastActivityDate="2020-08-20T15:41:12.653" Title="How do I compute the relative risk aversion of Epstein-Zin preferences?" Tags="&lt;utility&gt;&lt;risk-aversion&gt;" AnswerCount="0" CommentCount="2" FavoriteCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="9300" PostTypeId="2" ParentId="9296" CreationDate="2015-11-20T21:59:31.857" Score="1" Body="&lt;p&gt;By using compact notation, and a bold treatment of the differential symbol $\text{d}$, I think you can shortcut this significantly.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Mathematically, this is a bivariate CES function so we know that the elasticity of substitution will be constant between the two arguments, whatever they are.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$f(c,q) = ((1-\beta) c^{1-\rho} + \beta q^{1-\rho})^{\frac{1}{1-\rho}} = \left[h(c,q\right]^{\frac{1}{1-\rho}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\partial f}{\partial c} = \frac{1}{1-\rho}\left[h(c,q\right]^{\frac{1}{1-\rho}-1}\cdot h_c$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\partial f}{\partial q} = \frac{1}{1-\rho}\left[h(c,q\right]^{\frac{1}{1-\rho}-1}\cdot h_q$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\partial f/\partial c}{\partial f/\partial q} = \frac{h_c}{h_q} = \frac {(1-\beta)}{\beta}\cdot (c/q)^{-\rho}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Further&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\ln \left(\frac{\partial f/\partial c}{\partial f/\partial q}\right) = \ln\frac {(1-\beta)}{\beta} -\rho\ln (c/q)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies \text{d}\left[\ln \left(\frac{\partial f/\partial c}{\partial f/\partial q}\right)\right] = -\rho\cdot \text{d}\,\ln (c/q)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;since the first term is a constant. So finally,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\text{EIS} = \left|\frac{\text{d}\, \ln \left(c/q\right)}&#xA; {\text{d}\, \ln \left( \frac{\partial f/\partial c}{\partial f/\partial q}\right)}&#xA; \right |$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$=\left|\frac{\text{d}\, \ln \left(c/q\right)}&#xA; {-\rho\cdot \text{d}\,\ln (c/q)}&#xA; \right |  = \rho^{-1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Don't tell your friend the mathematician, but tell Leibniz.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-11-20T22:04:41.660" LastActivityDate="2015-11-20T22:04:41.660" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9301" PostTypeId="1" AcceptedAnswerId="9888" CreationDate="2015-11-21T10:36:30.050" Score="4" ViewCount="286" Body="&lt;p&gt;I would posit that the minimum wage is determined more on a political than an economic basis.  The fact is that there are more wage earners than business owners and, generally speaking, the wage earners prefer an increase while the business owners prefer a minimum wage decrease (perhaps even to 0).  There are more wage earners to vote than business owners, and this makes it politically expedient, on the balance, to vote for a minimum wage increase.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;First&lt;/strong&gt;, is this true?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Second&lt;/strong&gt;, if you find it to be true, why doesn't the minimum wage increase substantially more than it has over the years (focusing on the US)?  What is the counter balancing force that causes minimum wages to seek equilibrium at some something between &quot;poverty&quot; and &quot;living wage&quot; level (again, in the US)?  Or is even that assumption false?&lt;/p&gt;&#xA;" OwnerUserId="6376" LastEditorUserId="43" LastEditDate="2015-12-21T18:39:35.507" LastActivityDate="2015-12-22T20:23:34.950" Title="What keeps minimum wage rates in balance?" Tags="&lt;macroeconomics&gt;&lt;labor-economics&gt;&lt;unemployment&gt;&lt;minimum-wage&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9302" PostTypeId="1" CreationDate="2015-11-21T10:56:39.570" Score="2" ViewCount="189" Body="&lt;p&gt;Sorry for asking a homework question, however, I'll try to generalize it as much as possible for a future use. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are &lt;strong&gt;two complementary goods (A and B)&lt;/strong&gt;. B is produced under perfect competition, &lt;strong&gt;while A is produced under monopoly&lt;/strong&gt; (yes, and A and B are produced by separate companies). The customers have a combined demand curve for both (as they don't need A without B or B without A) that can be expressed by a particular demand function. Of course, each product has its production cost functions c(A) and c(B).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;It looks like a classic textbook &quot;nuts and bolts&quot; case, where Q(a)=Q(b) and prices must be consistent (basically the equilibrium price there is the intersection of both demand curves),&lt;/em&gt; however, there's one big difference. The good A is purchased only one time while B can be purchased two, three or more times (the good A may be a CD player and good B a music CD). The example asks how should the monopolist who produces A behave if he wants to maximize his profits. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The standard approach of drawing the two demand curves for A and B does not work here as the only quantity of product A that can be purchased is 1. Alternatively, the straightforward way of monopoly pricing (solving MR=MC for Q and then determining the P(Q)) does neither, as we can't ignore the good B and the only Q(A) available is 1. The solution must be simple enough, but I really got stuck and will appreciate any help or guiding advice. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Paul&lt;/p&gt;&#xA;" OwnerUserId="6415" LastActivityDate="2015-11-21T10:56:39.570" Title="The pricing of complementary goods if one of them is purchased only once" Tags="&lt;monopoly&gt;&lt;pricing&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9303" PostTypeId="1" CreationDate="2015-11-21T11:02:59.303" Score="4" ViewCount="113" Body="&lt;p&gt;I really hope this is not opinion based.  I am just looking for numbers, links, straightforward proof if possible that the lifetime we are in now, this decade, most of us are living better than in the past since the cost of living has increased and so has income inequality.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are more people on welfare than any time in history for instance?&lt;/p&gt;&#xA;" OwnerUserId="6258" LastEditorUserId="61" LastEditDate="2015-11-22T01:29:38.360" LastActivityDate="2015-11-22T20:47:19.843" Title="Is the standard of living of poor &amp; middle class people higher than in the past?" Tags="&lt;macroeconomics&gt;&lt;inequality&gt;&lt;welfare-economics&gt;&lt;welfare&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9304" PostTypeId="2" ParentId="9301" CreationDate="2015-11-21T12:10:30.427" Score="3" Body="&lt;p&gt;While business owners are generally united in their stance against minimum wage increases, wage earners do not always prefer a wage increase. Minimum wage puts pressure on the least productive workers and puts them at a threat of being fired. For example, if a worker produces 10 dollars of revenue for the business owner, but costs him 7.50 dollars an hour, then everything works fine for both of them. If the minimum wage is increased to 11 dollars an hour, then the business owner will simply fire the worker. That is not something the worker would prefer. On the political front, businesses are usually outspoken about their intentions to lay off people in case of the minimum wage hikes. Political parties are also aware of a possible spike in unemployment resulting from minimum wage hikes. If the economy is heavily reliant on low-skilled cheap workforce, an excessive minimum wage hike would be disastrous for its growth. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, developed and highly competitive economies, like the US, have a good portion of voting age population working for a monthly salary, which is usually way above the minimum wage. These salary-earners are consumers of goods and services produced by wage-earners, so they are generally against increases to minimum wage.&lt;/p&gt;&#xA;" OwnerUserId="6231" LastActivityDate="2015-11-21T12:10:30.427" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="9305" PostTypeId="2" ParentId="9303" CreationDate="2015-11-21T12:37:31.073" Score="3" Body="&lt;p&gt;I think you are looking for data on real median incomes. If this concept is unknown to you, you can read about it on &lt;a href=&quot;https://en.wikipedia.org/wiki/Household_income_in_the_United_States&quot; rel=&quot;nofollow&quot;&gt;wikipedia&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;According to the &lt;a href=&quot;https://research.stlouisfed.org/fred2/series/MEHOINUSA672N&quot; rel=&quot;nofollow&quot;&gt;data&lt;/a&gt; the real income of most households decreased after the financial crisis but is still above the 1995 level. This means that most households do live better.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't know if the number of people on welfare would be a good indicator of economic prosperity as there have been some &lt;a href=&quot;https://en.wikipedia.org/wiki/Social_programs_in_the_United_States#Welfare_reform_.281990s.29&quot; rel=&quot;nofollow&quot;&gt;changes in the US welfare system&lt;/a&gt; recently, drastically reducing the number of recipients.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2015-11-21T12:37:31.073" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9306" PostTypeId="1" CreationDate="2015-11-21T13:39:18.880" Score="3" ViewCount="248" Body="&lt;p&gt;In a Monopoly with second degree discrimination - two part tariff will the consumer with higher demand always pay a higher entrance fee and lower unit price than the cunsumer with lower demand or is this assumption not correct?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That is if in optimum High demand chooses offer (T1,P1) and Low demand chooses (T2,P2), do (T1 &gt; T2) and (P1 &amp;lt; P2) always hold?&lt;/p&gt;&#xA;" OwnerUserId="6432" LastEditorUserId="1601" LastEditDate="2015-11-21T14:28:51.113" LastActivityDate="2015-12-21T20:31:25.163" Title="Monopoly second degree discrimination - two part tariff" Tags="&lt;microeconomics&gt;&lt;monopoly&gt;&lt;price-discrimination&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9308" PostTypeId="2" ParentId="9176" CreationDate="2015-11-21T15:50:22.283" Score="10" Body="&lt;p&gt;I am surprised none of the posts above discuss the following paper:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Autor, D., and M. Handel. &quot;Putting Tasks to the Test: Human Capital.&quot; Job Tasks and Wages&quot; &lt;em&gt;Journal of Labor Economics&lt;/em&gt; (2009).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This paper discusses your concerns and addresses why your concerns are quite well grounded in both theory and empirics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Tasks that are more routine &lt;em&gt;do&lt;/em&gt; offer lower wages. In a sense, traditional neoclassical models are wrong in their following prediction: $w=MP_{n}$. It is far fetched to believe that workers are paid their marginal product in the neoclassical sense. More than just contributions to total product, what matters is how &lt;em&gt;replaceable&lt;/em&gt; a worker is. Jobs that can be automated in a sense, will offer lower wages.&lt;/p&gt;&#xA;" OwnerUserId="5233" LastActivityDate="2015-11-21T15:50:22.283" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9309" PostTypeId="2" ParentId="9301" CreationDate="2015-11-21T16:57:02.680" Score="0" Body="&lt;p&gt;It's interesting comparing how limited minimum wage increases are compared to how often we see price ceilings for housing (rent control). For the minimum wage, there is arguably a shortage of labor demand, and for rent control, there is a shortage in housing supply that results.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thing is though, for the modest minimum wage increases we have seen, we haven't seen much of a fall in unemployment in the United States. I take the neoclassical argument for explaining this: Firms can push wages below the equilibrium because they know the worker is more averse to quitting that the typical large firm is averse to losing one worker. The search costs of finding a new job may very well prevent a worker from finding a better paying job. The minimum wage &lt;em&gt;could&lt;/em&gt; be a correctional tool for that (albeit a very awkward one). Generally, a minimum wage of around 40-50% of the median wage in a country will not have significant negative effects on employment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Politicians can shape popular opinion on many different fronts, not just minimum wage. So if they were to decide moving the minimum wage were harmful, they might be willing not to raise it and just gain their public mandate somehow else, especially if a political position is seen as someone who is entrusted with political decisions rather than being trusted to represent the aggregate of their constitutents (senate vs. house of representatives).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for housing control though, we do see clear housing shortages whenever rent control happens. It gets passed through a lot more because you can see homelessness when it happens. You can take pictures of that sort of thing. Not so much with minimum wage, at least that's what I figure.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2015-11-21T16:57:02.680" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="9312" PostTypeId="1" AcceptedAnswerId="9317" CreationDate="2015-11-21T17:23:50.267" Score="1" ViewCount="524" Body="&lt;p&gt;First of all, fed funds rate is the rate banks borrow reserves' from each other. Interest rate on loans is the rate the bank charges to public for its loan. From one line of logic, we think of the rate bank charges to public should clearly be greater than the interest rate itself bear to borrow since banks are making a margin. And empirical data clearly support it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, another line of logic does not quite support it. We know the banks borrow reserve money in fed funds market, which is clearly better than the money it lends to the public in the following sense: one unit of fed funds can support 10 units of additional deposit if the reserve-deposit ratio is 10%. So the banks with this addtional 1 unit of reserve, can theoretically make 10 more units of loans and therefore creating 10 more units of deposit. So reserve is better money. Hence, theoreticaly, the fed funds rate should at leastbe higher than the rate banks make loans to the public, if not 10 folds.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question being whether there is a logical fallacy in my understanding and if not, what kind of reality deviated it from theory.&lt;/p&gt;&#xA;" OwnerUserId="4551" LastActivityDate="2015-12-02T00:07:10.003" Title="Why isn't the Fed funds rate greater than interest rate on loans to the pubic" Tags="&lt;banking&gt;" AnswerCount="3" CommentCount="16" ContentLicense="CC BY-SA 3.0" />
  <row Id="9314" PostTypeId="2" ParentId="9176" CreationDate="2015-11-21T17:34:47.063" Score="4" Body="&lt;p&gt;Keep this in mind.  The richest 1% aren't cannibals.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I mean by this is that the richest 1% have become the richest by getting their product(s) to the populous.  If the populous can't afford a product, then there is no motivation to invest the capital required to create the product.  The product will exist as a wish until some young enterprising soul figures out how to get the product in the hands of the populous.  Simultaneously enriching the populous with the product and themselves.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I suggest reading &lt;a href=&quot;https://books.google.com/books/about/The_Box.html?id=ljHq6-HnW1QC&amp;amp;source=kp_cover&quot; rel=&quot;nofollow&quot;&gt;&quot;The Box&quot; by Marc Levinson&lt;/a&gt;.  It talks about how the shipping container changed the world with regards to logistics, production, and shipping.  Dock workers' unions tried desperately to prevent containers from being used.  However this was short-sighted and the end results was more work for more people.  The fear of technology delayed the inevitable for 20 years...how sad it was for them to essentially shoot themselves in the foot.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is no point in time when technology goes &quot;too far&quot;.  Technology has opened so many doors and so many niches and made it available to so many people.  The only ones who suffer the equilibrium of wealth transfer are those who refuse to mature with the rest of society.&lt;/p&gt;&#xA;" OwnerUserId="6438" LastActivityDate="2015-11-21T17:34:47.063" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="9315" PostTypeId="1" AcceptedAnswerId="9319" CreationDate="2015-11-21T17:40:23.927" Score="2" ViewCount="1745" Body="&lt;p&gt;What really is the difference between the &quot;ideal variety&quot; (Lancaster) of a differentiated product approach and the &quot;love of variety&quot; (Dixit and Stiglitz) approach?&lt;/p&gt;&#xA;" OwnerUserId="5233" LastEditorUserId="2776" LastEditDate="2016-09-04T18:00:21.887" LastActivityDate="2016-09-04T18:00:21.887" Title="Difference between 'ideal variety' and 'love of variety' - International trade" Tags="&lt;consumer-theory&gt;&lt;international-trade&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9316" PostTypeId="2" ParentId="9306" CreationDate="2015-11-21T19:49:36.490" Score="1" Body="&lt;p&gt;I'm inclined to say &quot;yes&quot; to $T_1&amp;gt;T_2$ and no to $P_1&amp;lt;P_2$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For simplicity, suppose the monopolist's marginal cost is constant. Then consumer surplus is the area under the (inverse) demand curve and above the marginal cost. In a two-part tariff scheme, the monopolist would charge entrance fee equal to consumer surplus and unit price equal to marginal cost. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If, in your language, consumers with &quot;high demand&quot; are understood as those who are willing to pay more for each unit of the good than those consumers with &quot;low demand&quot;, then high demand consumers generate higher consumer surplus than the low demand ones. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose monopolist can distinguish between the two types and offer different two-part tariff bundles to each (e.g. a theme park company operating in US and India charging different prices in the two countries). Then it will be the case that the monopolist charges a higher entrance fee to the high type (because they generate higher consumer surplus) but the same unit price for both types (because this is related to the marginal cost of production, which is the same regardless of the consumer types).&lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2015-11-21T19:49:36.490" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9317" PostTypeId="2" ParentId="9312" CreationDate="2015-11-21T20:01:48.057" Score="4" Body="&lt;p&gt;I think you are missing the credit risk attached to any loan. You, as an individual borrower, are far more likely not to reimburse your loan than a bank. Thus the loan is far less risky.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Central bank money could only be qualified as &quot;better&quot; (even that does not mean much) because it is issued by the Central bank, deposits are issued by commercial bank, so you bear the risk that your bank fail, but it happens that in most country individual deposits are insured by some state agency. So I cannot really see why central bank money would be better than deposits.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Nowadays, the amount of reserves that a bank must hold does not actually play a big role in the economy (as opposed to what most of economic textbooks and economic professors are teaching in undergrad schools). The most important part is the interest rate that is paid on those reserve, which is fixed by the central bank and which act as an opportunity cost for the bank when it decides to lend to an individual rather than holding reserves.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However I see your point, but the fact is that this way of thinking is misleading. Banks create (in theory) as many loans as they want, because there are no physical constraints, if you want, that prevent them to do so. The only constraint is a regulatory constraint that states that in order to remain solvent (in order to be able to repay the depositors) banks should invest x% of the assets in reserves. Those reserves would be held on a central bank account in central bank money, and the return on those reserves will be the fed fund rate decided by the central bank (the same way a commercial bank decide how much interest it will pay on your savings account). So it is true that one more unit of reserves gives the right to issue more than one unit of loans but this does not mean that one money is better or worse than another. It's is just a matter of regulation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It may be hard to get, but the point is really that central bank money is safer so cheaper than deposits, no matter what regulatory constraints apply to banks.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You may want to read this &lt;a href=&quot;http://web.stanford.edu/~kumhof/banks-lf-fmc.pdf&quot; rel=&quot;nofollow&quot;&gt;paper&lt;/a&gt; which may be a bit complicated but you should get the intuition. This two docs may be simpler (with nice pictures) : &lt;a href=&quot;http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneyintro.pdf&quot; rel=&quot;nofollow&quot;&gt;doc 1&lt;/a&gt;, &lt;a href=&quot;http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf&quot; rel=&quot;nofollow&quot;&gt;doc 2&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="6053" LastEditorUserId="6053" LastEditDate="2015-11-22T00:12:21.987" LastActivityDate="2015-11-22T00:12:21.987" CommentCount="15" ContentLicense="CC BY-SA 3.0" />
  <row Id="9318" PostTypeId="1" AcceptedAnswerId="9322" CreationDate="2015-11-21T21:58:38.370" Score="2" ViewCount="63" Body="&lt;p&gt;Consider the Correlated Random Effects model $y_{it} = \alpha + x_{it}\beta + \bar x \gamma + w_i + \epsilon_{it} $ where $x_{it}$ is a scalar explanatory variable. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The correlated random effects GLS estimator $ \hat \beta_{CRE} $ is the OLS estimator of $\beta$ in the quasi-demeaned regression &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\tilde y_{it} = \delta + \tilde x_{it} \beta + \bar x_i \rho + u_{it} $, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $\tilde y_{it} = y_{it} - \theta \bar y_i , \tilde x_{it} = x_{it} - \theta \bar x_i $ and $\theta = 1 - (\sigma^2_\epsilon/ (\sigma^2_\epsilon + T\sigma^2_w))^{1/2} $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Question: I need to show that the residuals from the regression of $x_{it} - \bar x_i $ on a constant and $\bar x_i $ is just $x_{it} - \bar x_i $ itself. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Attempt: Regress $x_{it} - \bar x_i = \alpha + \bar x_{i} + \tilde r_{it} $ rearrange to get the residuals, $\tilde r_{it} = (x_{it} - \bar x_i) - (\alpha + \bar x_{i})$ I'm not sure how to proceed. &lt;/p&gt;&#xA;" OwnerUserId="6216" LastActivityDate="2015-11-22T02:00:38.233" Title="Panel data, simple rearrangement?" Tags="&lt;econometrics&gt;&lt;paneldata&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9319" PostTypeId="2" ParentId="9315" CreationDate="2015-11-21T22:48:16.340" Score="4" Body="&lt;p&gt;Basically, the difference is that in the &lt;strong&gt;love of variety&lt;/strong&gt; approach the entry of new varieties in the market does not &quot;crowd&quot; variety space. So, differentiated varieties may exhibit a high or low degree of substitutability, but this is invariant to the number of products in the market. Hence, consumers &quot;love&quot; variety, in the sense that increased variety improves welfare.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the Lancaster &lt;strong&gt;ideal variety&lt;/strong&gt; approach, entry of new varieties causes &quot;crowding&quot;. Goods become more substitutable as more varieties enter the market. So, the marginal utility of new varieties falls as the market size grows.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These two approaches have different implications for welfare of small and large countries as discussed in &lt;a href=&quot;http://www.krannert.purdue.edu/faculty/hummelsd/research/iv_final.pdf&quot; rel=&quot;nofollow&quot;&gt;Hummels and Lugovskyy&lt;/a&gt;. &lt;/p&gt;&#xA;" OwnerUserId="6168" LastActivityDate="2015-11-21T22:48:16.340" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9321" PostTypeId="2" ParentId="8924" CreationDate="2015-11-22T01:22:15.427" Score="0" Body="&lt;p&gt;Okay, sorry that my previous answer might involve too much extraneous materials. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Anyway, one perspective you might want in thinking about the classical model is think of it as real things get produced rather than in monetary terms.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a closed economy in the long run, we assumed real output is fixed. Think of it as actual goods piling up. Now, consumption is how much people consume out of this pile, goods and services included. Government purchases is the amount of goods get and use from the pile. Now we are left with investment. Investment is simply the amount of the goods left in the pile. And since we have subtracted all the consummable goods from the pile, what must left must be investment such as machines, warehouses. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, consider saving. One way to avoid your confusion is think of saving not in monetary terms (I understand saying saving makes you think of the money not spent, but please reframe from doing so.) Because people's totoal real income equal total actual goods and products produced that year, since people and the government only consume the Consumption and Government Purchases, the rest, the investment, is therefore defined as saving.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I hope this can help a bit.&lt;/p&gt;&#xA;" OwnerUserId="4551" LastActivityDate="2015-11-22T01:22:15.427" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9322" PostTypeId="2" ParentId="9318" CreationDate="2015-11-22T02:00:38.233" Score="2" Body="&lt;p&gt;By stnadard OLS regression results, in the simple regression&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$y_t = \alpha + \beta z_t + v_t, \;\;\;t=1,...,T$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;we have that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\hat \beta = \frac {\sum_{i=1}^T (z_t - \bar z)(y_t-\bar y)}{\sum_{i=1}^T (z_t - \bar z)^2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\hat \alpha = \bar y - \hat \beta \bar z$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the residuals are&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\hat v_t = y_t -(\hat \alpha +\hat \beta z_t)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, substitute for your particular $y_t$ and $z_t$ in all the above.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-11-22T02:00:38.233" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="9323" PostTypeId="1" CreationDate="2015-11-22T02:53:28.427" Score="1" ViewCount="145" Body="&lt;p&gt;Suppose I have two agents with utility functions $U_i$ and $U_j$ and budgets $p_x x + p_g g = m_i$ and $p_y y + p_g g = m_j$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I solve a social planner UMP, I will get for my g FOC (after plugging in the other FOCs) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ p_x MRS_i + p_y MRS_j = p_g$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I assume $p_x = p_y$ then I have after rearrangement &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$MRS_i + MRS_j = MRTS =\frac{p_g}{p_x} $$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But suppose $p_x \neq p_y$. Does the Samuelson condition hold?  &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;As I wrote the question, I noticed the following: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can see one would write for $n$ agents &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\sum_{i} p_{x_i}\frac{MU^i_g}{MU^i_{x_j}} = p_g$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now we can write that as &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{MU^i_g}{MU^i_{x_i}} + \sum_{j\neq i} \frac{p_{x_j}}{p_{x_i}} \frac{MU^j_g}{MU^j_{x_j}} = \frac{p_g}{p_{x_i}} $$&lt;/p&gt;&#xA;" OwnerUserId="2679" LastEditorUserId="2679" LastEditDate="2015-11-22T03:01:12.557" LastActivityDate="2017-03-13T18:54:21.630" Title="Does the Samuelson condition assume all the prices for the private goods are the same?" Tags="&lt;microeconomics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9324" PostTypeId="2" ParentId="9312" CreationDate="2015-11-22T15:11:18.690" Score="2" Body="&lt;p&gt;Loans in the federal funds market are also nicknamed 'overnight loans.' This means they cannot use that money to make loans because the money gets returned as soon as the bank's reserves are cleared by the Fed. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the lending bank was willing to use the money for an asset such as a loan, they would simply loan it to a consumer at the higher rate. There is no way that a bank would loan to another bank for any long period of time because, as you pointed out, they can get a higher rate of return by loaning it elsewhere. Typically, the banks that are lending in the federal funds market are banks who have decided to hold excess reserves for one reason or another. If the bank was looking to loan the money for a period of time, they would have already done so outside of the federal funds market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, if the federal funds rate was higher than the nominal interest rate, banks would not go to the federal funds market to get a loan (because they can get one for cheaper in the public market), which would make the existence of a federal funds market pointless.&lt;/p&gt;&#xA;" OwnerUserId="5825" LastActivityDate="2015-11-22T15:11:18.690" CommentCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="9325" PostTypeId="1" AcceptedAnswerId="9327" CreationDate="2015-11-22T15:52:04.400" Score="3" ViewCount="227" Body="&lt;p&gt;I have a question about the gravity equation. In the Feenstra textbook, on page 144, it is stated that &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In the monopolistic competition model [...] the countries are completely specialized in different product varieties. Trade in these product varieties is referred to as intraindustry trade...&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;On page 145, it is stated that &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Then it follows that a good produced in any country is sent to all other countries in proportion to the purchasing country's GDP. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;To formalize this, consider a multicountry framework where $i,j=1...C$&#xA;  denotes countries and $k=1,...N$&#xA;  denotes products. Let $y_{k}^{i}$&#xA;  denote country $i's$&#xA;  production of good $k.$&#xA;  Since prices are the same across all countries, we normalize them to unity, so $y_{i}^{k}$&#xA; actually measures the value of production. The total GDP in each country is measured by $$Y^{i}=\sum_{k=1}^{N}y_{k}^{i}$$&#xA;  and world GDP is $$Y^{W}=\sum_{i=1}^{C}y^{i}.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is where I am confused. I was under the impression that each country produces a single variety of the differentiated good. In that case, the total GDP in each country should just be $$Y^{i}=y_{k}^{i}$$&#xA;  where $k$&#xA;  is specific to $i$.&#xA;  In other words, I understand the statement as each country producing just one variety of the same good. I believe this is an incorrect interpretation for two reasons: &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;If that were the case, the number of goods should actually be $C$,&#xA;not $N$.&#xA;(It could be that $C=N$&#xA;but the author does not specify this)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The GDP&#xA;by the product would be $y_{k}^{i}$&#xA;but by the expenditure approach would be $Y^{i}=\sum_{k=1}^{N}y_{k}^{i}$. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Confronted with the likely possibility that my interpretation is fallacious, I don't know what the alternative interpretation is. What else could the statement “countries are completely specialized in different product” varieties mean?&lt;/p&gt;&#xA;" OwnerUserId="5233" LastEditorUserId="2776" LastEditDate="2017-09-04T08:56:47.970" LastActivityDate="2017-09-04T08:56:47.970" Title="Gravity Equation Interpretation" Tags="&lt;international-trade&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9326" PostTypeId="1" AcceptedAnswerId="9332" CreationDate="2015-11-22T16:02:38.743" Score="5" ViewCount="111" Body="&lt;p&gt;I'm reading this &lt;a href=&quot;http://www.amazon.co.uk/Macroeconomics-Institutions-Instability-Financial-System/dp/0199655790/ref=sr_1_1?ie=UTF8&amp;amp;qid=1448206642&amp;amp;sr=8-1&amp;amp;keywords=carlin%20soskice&quot; rel=&quot;noreferrer&quot;&gt;book&lt;/a&gt; on macroeconomics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When determining the nominal interest rate, the Central Bank has in mind its real interest rate goal. By the Fisher Equation: $i_t=r_t+\pi^{E_{CB}}_{t+1}$, since at time $t$, I would need to know the price level at time $t+1$ to know inflation for next period, we use an expected value for inflation. I put the superscript $^{E_{CB}}$ to denote that the expectancy is formed by the central bank.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the usual Philips Curve, we have $\pi_{t+1}=\pi^{E_{SS}}_{t+1}+\alpha(y_{t+1}-y_e)$ I put the superscript $^{E_{SS}}$ to denote that the expectancy is formed by the Supply Side (wage and price setters, i.e., with all available public information).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Recently, from a talk with someone who worked at a central bank, I learned that there's some difference in amount/quality of information that it's publicly available to wage and price setters, and that which is available to the Central Bank.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the book I'm reading, the authors state one possible way of escaping a deflation trap, even if in practice it will not always work, is that to have higher expectations so that the minimum threshold for the &lt;em&gt;real&lt;/em&gt; interest rate is lower enough to increase output until equilibrium. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now I was wondering if it was not possible for, in some situation, the CB publicly divulged information lead to workers and firms have higher expected inflation, while the CB would know those expectations to be a bit too optimistic, such that in reality that period real interest rate would be much lower to be enough to get out of deflation trap?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think I must be making some errors in this reasoning. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated&lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="118" LastEditDate="2015-11-22T16:08:55.323" LastActivityDate="2016-03-22T16:48:58.803" Title="Is it possible for a Central Bank to escape from a deflation trap by 'hiding' information?" Tags="&lt;macroeconomics&gt;&lt;interest-rate&gt;&lt;deflation&gt;" AnswerCount="2" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="9327" PostTypeId="2" ParentId="9325" CreationDate="2015-11-22T19:11:26.193" Score="5" Body="&lt;p&gt;My understanding is that the gravity equation can be derived from different settings.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can assume that each country&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1/ produces only &lt;em&gt;one product&lt;/em&gt;. This is knwon as the &quot;Armington assumption&quot; as in Armington (1969) and allows a simple derivation of the gravity equation as in Anderson and Van Wincoop (2003).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2/ is specialized in different products (or varieties of a product, given that each variety of a good counts as a distinct product). This is the case worked out by Feenstra, where products are differentiated by their country of origin. So, each country produces many distinct products.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then the question is to know if the number of products is &lt;strong&gt;fixed&lt;/strong&gt;, as in Armington (1969), or &lt;strong&gt;endogeneous&lt;/strong&gt; and varies due to free entry, as in the monopolistic competition models.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;References &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;ANDERSON, J. E., AND E. VAN WINCOOP (2003): “Gravity with Gravitas: A Solution to the Border Puzzle,” The American Economic Review, 93(1), 170–192.&lt;/li&gt;&#xA;&lt;li&gt;ARMINGTON, P. S. (1969): “A Theory of Demand for Products Distinguished by Place of Production,” International Monetary Fund Staff Papers, 16, 159–178.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="6168" LastEditorUserId="6168" LastEditDate="2015-11-22T19:16:27.317" LastActivityDate="2015-11-22T19:16:27.317" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9328" PostTypeId="2" ParentId="9303" CreationDate="2015-11-22T20:47:19.843" Score="1" Body="&lt;p&gt;Something that is often overlooked when considering stagnation of income is the fact that even if (real) income did not increase at all, most people would still be better-off over time thanks to technological change, improvements in healthcare, etc. For example, even relatively poor households now have access to smartphones—things that the very wealthy did not enjoy a decade ago.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is one reason why &lt;a href=&quot;http://www.igmchicago.org/igm-economic-experts-panel/poll-results?SurveyID=SV_dbvXvc4ED41vtv7&quot; rel=&quot;nofollow&quot;&gt;a substantial portion of economists believe that media income figures understate growth in standard of living&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2015-11-22T20:47:19.843" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9329" PostTypeId="1" AcceptedAnswerId="9403" CreationDate="2015-11-22T22:34:54.577" Score="7" ViewCount="829" Body="&lt;p&gt;What is the economic value of a human life?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If there are multiple methods to use in calculating, what are they, which method is preferred, and why?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Considerations/sub-questions on methods&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A. Is the calculation purely based on output value (i.e. wages, goods produced, etc.), or are there intangibles that must be included (value of innovations that cause progress for society, NPV of progeny, etc.)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;B. As a result of #1, are there things which reduce economic value in one's life?  For example, when one has gone on unemployment, is one's net economic value negative for that period of time?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;C.  Is the economic value of life dependent on one's country/state/locale or the sector one performs in?  For example, is it correct to say the economic value of a life is different in the US than in South Africa (due to average output in real terms?&lt;/p&gt;&#xA;" OwnerUserId="6376" LastEditorDisplayName="user18" LastEditDate="2018-04-18T01:33:55.887" LastActivityDate="2019-03-29T06:34:19.077" Title="What is the average economic value of a human life?" Tags="&lt;macroeconomics&gt;&lt;statistics&gt;&lt;risk&gt;&lt;value&gt;&lt;vsl&gt;" AnswerCount="3" CommentCount="7" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9330" PostTypeId="2" ParentId="9022" CreationDate="2015-11-22T23:26:36.930" Score="1" Body="&lt;p&gt;I don't think any conclusion is possible without more detail, but if we make a few assumptions we can see where they lead us.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume $a,b &amp;gt; 0$ and $z &amp;lt; 0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume the consumer in question has well-behaved preferences and therefore their indifference curves must be monotonic and convex&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given these assumptions (which I think are fairly reasonable, although I'd want to see them explicitly stated if this was a formal question) then the answer should be that the post-exchange indifference curve is different from the earlier one.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given that $a$ and $b$ are greater than zero, we know that the consumer has lost some of the first good and gained some of the second. Examining all possibilities they could be in one of three positions relative to their original indifference curve:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Above the original curve&lt;/li&gt;&#xA;&lt;li&gt;On the original curve at a different point&lt;/li&gt;&#xA;&lt;li&gt;Below the original curve&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Neither Case 2 nor Case 3 are plausible. We know that the slope of the new curve at $(x-a, y+b)$ is three times shallower than the that of the original curve at $(x, y)$. The assumptions of convexity and monotonicity require that the original indifference curve become steeper as it approaches the y-axis. See below for a colourfully-amateurish representation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/VagdJ.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/VagdJ.png&quot; alt=&quot;&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that in the example pictured above the resulting indifference curve is impossible as it crosses the original indifference curve - a situation that can never arise. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;That leaves us with Case 1 as the sole possibility, which means that $(x-a, y+b)$ must be on a new indifference curve as per the illustration below. &#xA;&lt;a href=&quot;https://i.stack.imgur.com/bflJs.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/bflJs.png&quot; alt=&quot;&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="6436" LastActivityDate="2015-11-22T23:26:36.930" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9332" PostTypeId="2" ParentId="9326" CreationDate="2015-11-23T01:21:58.863" Score="3" Body="&lt;p&gt;It is certainly possible for a central bank to move the economy away from liquidity trap or deflation trap by proper signals. Signals and targets are undoubtedly effective, as this NBER paper discusses &lt;a href=&quot;http://www.nber.org/papers/w13932&quot; rel=&quot;nofollow&quot;&gt;http://www.nber.org/papers/w13932&lt;/a&gt;. I read an article, which I cannot find now, saying that signalling and targeting by central banks are sometimes more effective than actual policy changes. The problem is that the economy and financial markets have a huge amount of different players with different interests and goals so it is hard to predict with certainty the effect of the CB revealing certain information. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;One thing I have to disagree with is that signalling higher expectations would reduce real interest rates and move the economy away from deflation trap. The equation  i&lt;sub&gt;t&lt;/sub&gt;=r&lt;sub&gt;t&lt;/sub&gt;+π&lt;sub&gt;t+1&lt;/sub&gt; would be more accurate as i&lt;sub&gt;t+1&lt;/sub&gt;=r&lt;sub&gt;t+1&lt;/sub&gt;+π&lt;sub&gt;t+1&lt;/sub&gt;. If you write it like that, then you can see that signalling higher inflation expectations would also signal an incoming interest rate hike, given that any central bank has the policy to keep inflation low and stable. When markets expect a rate hike, they reduce their equity and commodity positions (sell stocks, oil, gold etc.) and move into bonds and other cash positions. This sucks the money out of economy and creates more deflation. So if the CB wants to reduce deflation, the ideal strategy would be the opposite: signal sluggish growth and prolonged low interest rates. This is just what Fed has been doing for several years now and, arguably, it has worked. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can also add, as @ChingG noted in comments, the CB has to maintain credibility and not lie. On top of hurting its reputation, the central bank board members are also liable to the government for saying the truth. For example, if the Fed Chairwoman lied to Congress, she would be breaking the law. It makes more sense for the CB disclose the true data and to interpret the information the way the CB sees fit and give the signals and targets it deems necessary, but not &quot;hide&quot; information.&lt;/p&gt;&#xA;" OwnerUserId="6231" LastActivityDate="2015-11-23T01:21:58.863" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9333" PostTypeId="1" CreationDate="2015-11-23T01:43:29.557" Score="0" ViewCount="324" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/VyK93.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/VyK93.jpg&quot; alt=&quot;&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When the central bank pays 100 shekels for a bond held by the public, it is assumed that the 100 shekels are deposited. In this case, shouldn't it cause a 100 shekels increase in the bank deposit rather than in the bank reserve? &lt;/p&gt;&#xA;" OwnerUserId="6461" LastEditorUserId="2776" LastEditDate="2017-08-10T06:35:21.997" LastActivityDate="2017-08-10T06:35:21.997" Title="Is an increase in the money supply (by buying government bonds) recorded in bank deposits or bank reserves?" Tags="&lt;central-banking&gt;" AnswerCount="3" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9334" PostTypeId="2" ParentId="9289" CreationDate="2015-11-23T03:38:04.160" Score="2" Body="&lt;p&gt;This is not an answer that will state exactly which assumptions are valid/invalid but rather a guide to find answers to your question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here are various scientific articles about the topic:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These first two papers take what is called a Political Economy perspective on the matter. They assume that the central bank controls inflation, but the central bank is to some extent controlled by the population. If the population has higher income inequality, it prefers higher inflation and thus countries with higher inequality will face higher inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Albanesi, Stefania. &quot;Inflation and inequality.&quot; Journal of Monetary Economics 54.4 (2007): 1088-1114.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Dolmas, Jim, Gregory W. Huffman, and Mark A. Wynne. &quot;Inequality, inflation, and central bank independence.&quot; Canadian Journal of Economics/Revue canadienne d'économique 33.1 (2000): 271-287.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This paper is also interesting, since it considers the different inflation faced by different income classes. It is somewhat orthogonal to your question, however.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hobijn, Bart, and David Lagakos. &quot;Inflation inequality in the United States.&quot; review of income and Wealth 51.4 (2005): 581-606.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, to my knowledge, there are no papers written on income inequality as a direct cause of inflation without the involvement of the Political Economy argument above. This is mainly because in Economics our models usually tell us that the central bank has almost perfect control over inflation (except for negative inflation rates).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;PS: If you find the readings above too difficult, consider reading a textbook on monetary economics:&#xA;Mishkin, Frederic S. The economics of money, banking, and financial markets. Pearson education, 2007.&lt;/p&gt;&#xA;" OwnerUserId="5635" LastActivityDate="2015-11-23T03:38:04.160" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9335" PostTypeId="2" ParentId="6329" CreationDate="2015-11-23T10:54:59.013" Score="0" Body="&lt;p&gt;This analysis also ignores non-dollar prices of piracy and the fact that pirated goods are not perfect substitutes for the legitimate good.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the real world, consumers do not have perfect information and have to spend valuable time searching for pirated media and filtering through versions that no longer work, have no seeders, or are otherwise inadequate (terrible cams, virus laden, mislabelled, etc).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In addition, legitimate media may come with other features such as album artwork and proper metadata. Some consumers may care about this, and replacing this data incurs a cost.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, legitimate goods can be more convenient and allow for immediate gratification. You need to discount the value of a pirated song a few hours from now versus a song right now. Legitimate media is backed by extensive distribution networks and can usually be accessed quickly and while away from a desk (e.g. downloading from Google Play/iTunes on your phone, or more recently streaming services like Spotify/Netflix)&lt;/p&gt;&#xA;" OwnerUserId="6463" LastActivityDate="2015-11-23T10:54:59.013" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="9336" PostTypeId="1" CreationDate="2015-11-23T11:01:03.480" Score="2" ViewCount="584" Body="&lt;p&gt;When obtaining the Marshallian demand from a utility maximization problem we have a classification of normal goods, inferior goods, Giffen-goods, etc.. These are related to the first derivative of the Marshallian demand function with respect to prices or income.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is whether a similar classification exists for compensated demand functions of the expenditure minimization problem or whether the (same) goods classification can be derived via the compensated demand.&lt;/p&gt;&#xA;" OwnerUserId="5635" LastEditorUserId="5635" LastEditDate="2015-11-23T12:00:40.280" LastActivityDate="2015-12-24T02:06:54.033" Title="Do the partial derivatives of the compensated demand have an interpretation?" Tags="&lt;consumer-theory&gt;&lt;supply-and-demand&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="9337" PostTypeId="2" ParentId="9289" CreationDate="2015-11-23T11:08:10.053" Score="0" Body="&lt;blockquote&gt;&#xA;&lt;p&gt;Could we therefore says that richs experiment a deflation and poors an inflation? If not, is there a more befitting name to describe this phenomenon?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;You are overthinking the definitions of inflation and deflation. There is much simpler terminology for this effect: &amp;quot;getting richer&amp;quot; and &amp;quot;getting poorer&amp;quot;.&lt;/p&gt;&#xA;&lt;p&gt;I won't repeat the definition of inflation; it appears you understand what it is. But it only refers to the changing nature of prices; it doesn't account for people's ability to afford things.&lt;/p&gt;&#xA;&lt;p&gt;Regarding your assumptions:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;h1) a constant volume of money,&lt;/p&gt;&#xA;&lt;p&gt;h2) a constant volume of people,&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;These seem reasonable. While they won't be constant in a real-world economy, making these kind of simplifications to build a model is completely reasonable.&lt;/p&gt;&#xA;&lt;p&gt;Bear in mind that you've not specified constant resources. So if someone finds a diamond, they get richer. There's still a constant amount of money, but they are better off.&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;h5) constant prices,&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;This is not a reasonable assumption. Constant prices would imply that there is government control of prices, in which case none of the usual economic models apply.&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;h3) a close separation between the two groups of people,&lt;/p&gt;&#xA;&lt;p&gt;h4) a constant influx of money from rich to poors (salaries) c1, and a constant influx of money from poors to rich (profits from stuff sold to poors) c2, such that c2 &amp;gt; c1&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;I don't really understand these.&lt;/p&gt;&#xA;" OwnerUserId="6281" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2015-11-23T11:08:10.053" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9338" PostTypeId="1" CreationDate="2015-11-23T11:12:52.637" Score="0" ViewCount="75" Body="&lt;p&gt;A major problem when testing hypothesis in economics is the lack of historical data. Is there research into the correlation between long term economic growth and government spending, that is based on a broad set of historical data?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question of government contribution to economic growth is central to economics, so the relationship should be tested with as much as reliable data as possible. For example western countries were already compiling population, GDP and inflation data in the early 19th century. At the end of the 19th century any modern nation had the needed statistics. Even for periods before that GDP could be estimated and taken with a grain of salt.&lt;/p&gt;&#xA;" OwnerUserId="5712" LastActivityDate="2015-11-23T11:12:52.637" Title="Government Spending, Econimic Growth Correlation" Tags="&lt;macroeconomics&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="9339" PostTypeId="1" AcceptedAnswerId="9341" CreationDate="2015-11-23T11:23:29.743" Score="7" ViewCount="965" Body="&lt;p&gt;Is there a good undergraduate level book specifically about economic monopolies and market failures?&lt;/p&gt;&#xA;" OwnerUserId="6464" LastEditorUserId="1601" LastEditDate="2015-11-23T11:46:15.590" LastActivityDate="2015-11-24T01:34:23.903" Title="What are good books about monopolies and market failures?" Tags="&lt;reference-request&gt;&lt;monopoly&gt;" AnswerCount="3" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9340" PostTypeId="1" AcceptedAnswerId="9346" CreationDate="2015-11-23T11:56:49.510" Score="2" ViewCount="134" Body="&lt;p&gt;In &lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/S0165188900000786&quot; rel=&quot;nofollow noreferrer&quot;&gt;Brunner and Strulik (2002)&lt;/a&gt; the authors claim, that the solution of&#xA;\begin{align}&#xA;\dot c &amp;amp;= \frac{c}{\sigma}(\alpha k^{\alpha-1} - \delta - \rho)\\&#xA;\dot k &amp;amp;= k^\alpha - \delta k - c&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;is given by (see eq. 27)&#xA;\begin{align}&#xA;c(t) &amp;amp;= \left(1 - \frac{1}{\sigma}\right) k(t)^\alpha\\&#xA;k(t) &amp;amp;= \left[\frac{1}{\delta\sigma} +\left(k(0)^{1-\alpha} - \frac{1}{\delta\sigma}\right)\exp(-\delta(1-\alpha)t) \right]^{\frac{1}{1-\alpha}}&#xA;\end{align}&#xA;if $\alpha\delta\sigma = \delta + \rho$.&#xA;I can verify the solution for $c(t)$ (see eg. this &lt;a href=&quot;https://economics.stackexchange.com/questions/8257/stochastic-growth-in-continuous-time&quot;&gt;thread&lt;/a&gt;). However I'm not sure how to solve for $k(t)$. We can plug in $c(t)$ into $\dot k$, which gives&#xA;\begin{align}&#xA;\dot k &amp;amp;=  \frac{1}{\sigma} k^\alpha - \delta k. &#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;How would one proceed?&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;h2&gt;Solution&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;With respect to Alecos answer we may solve the following ODE&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{align}&#xA;\dot z + (1-\alpha)\delta z = \frac{1-\alpha}{\sigma}.&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The genereal solution is given by&#xA;\begin{align}&#xA;z(t) &amp;amp;= \frac{1}{\exp(\int (1-\alpha)\delta dt)}\left[\int \exp\left(\int (1-\alpha)\delta dt\right) \frac{1-\alpha}{\sigma} dt + C \right]\\&#xA;&amp;amp;= \frac{1}{\delta\sigma} + C\exp((\alpha-1)\delta t).&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With $z(0)$ given we pin down $C$&#xA;\begin{align}&#xA;C = z(0) - \frac{1}{\delta\sigma}&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which yields the desired result&#xA;\begin{align}&#xA;z(t) &amp;amp;= \frac{1}{\delta\sigma} + \left(z(0) - \frac{1}{\delta\sigma}\right)\exp((\alpha-1)\delta t) \\&#xA;\Longleftrightarrow \quad k(t)^{1-\alpha} &amp;amp;= \frac{1}{\delta\sigma} + \left(k(0)^{1-\alpha} - \frac{1}{\delta\sigma}\right)\exp((\alpha-1)\delta t)\\&#xA;\Longleftrightarrow \quad k(t) &amp;amp;= \left[\frac{1}{\delta\sigma} + \left(k(0)^{1-\alpha} - \frac{1}{\delta\sigma}\right)\exp((\alpha-1)\delta t)\right]^{\frac{1}{1-\alpha}}.&#xA;\end{align}&lt;/p&gt;&#xA;" OwnerUserId="4266" LastEditorUserId="8481" LastEditDate="2020-05-07T10:50:36.210" LastActivityDate="2020-05-07T10:50:36.210" Title="Analytically tractable Ramsey model: how to solve ODE for optimal trajectories" Tags="&lt;economic-growth&gt;&lt;dynamic-optimization&gt;&lt;optimal-control&gt;&lt;ode&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9341" PostTypeId="2" ParentId="9339" CreationDate="2015-11-23T12:09:56.267" Score="4" Body="&lt;p&gt;Your question is quite broad in the sense that various forms of market failure cover a significant portion of all of microeconomics. I presume you have already looked in a general undergraduate micro book such as Varian's &lt;em&gt;&lt;a href=&quot;http://books.wwnorton.com/books/webad.aspx?id=4294979440&quot; rel=&quot;nofollow&quot;&gt;Intermediate Microeconmics&lt;/a&gt;&lt;/em&gt;, which provide coverage of many of these topics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;More detailed coverage of market power and monopoly can be found in Church and Ware's &lt;em&gt;&lt;a href=&quot;http://works.bepress.com/cgi/viewcontent.cgi?article=1022&amp;amp;context=jeffrey_church&quot; rel=&quot;nofollow&quot;&gt;Industrial Organization: A Strategic Approach&lt;/a&gt;&lt;/em&gt;. Discussion of market failures caused by public goods and externalities can be found in  Hindriks and Myles' &lt;em&gt;&lt;a href=&quot;https://mitpress.mit.edu/books/intermediate-public-economics&quot; rel=&quot;nofollow&quot;&gt;Intermediate Public Economics&lt;/a&gt;&lt;/em&gt;. For market failoures originating in information asymmetries, a good source might be Bolton and Dewatripont's &lt;em&gt;&lt;a href=&quot;https://mitpress.mit.edu/books/contract-theory&quot; rel=&quot;nofollow&quot;&gt;Contract Theory&lt;/a&gt;&lt;/em&gt;.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2015-11-23T12:09:56.267" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9342" PostTypeId="1" CreationDate="2015-11-23T12:24:23.510" Score="3" ViewCount="93" Body="&lt;p&gt;The common sense reasoning is downright simple: if X hours of works are needed per month, and Y people are available to work, give each person X/Y hours of work each month.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand that there are generic frictions that prevent this:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;people not being qualified to do some jobs&lt;/li&gt;&#xA;&lt;li&gt;people not wanting to do some jobs&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;And also specific frictions:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;people not wanting to get a lower salary because of lower working hours.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Without being as extreme as in the introductory example: In a given sector, where there is a surplus of qualified people willing to do a specific job, and whose average salary is higher than the minimal salary necessary to live above the poverty threshold: &lt;em&gt;It makes sense to reduce at the same time salaries and working hours, in order to allow more people to get a salary.&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, except from France which has reduced working time from 39 to 35 hours per months, such measures are not widespread, and seem scarcely considered. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore one wonders whether such measures can actually work. If they do, why are they not more widespread? If they don't, what is the issue preventing them from being effective?&lt;/p&gt;&#xA;" OwnerUserId="6417" LastActivityDate="2017-08-24T10:03:28.990" Title="Can lower working hours beat unemployment?" Tags="&lt;labor-economics&gt;&lt;unemployment&gt;" AnswerCount="3" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9343" PostTypeId="1" AcceptedAnswerId="9344" CreationDate="2015-11-23T13:01:20.870" Score="3" ViewCount="395" Body="&lt;p&gt;I have gone through this &lt;a href=&quot;https://economics.stackexchange.com/questions/5369/how-does-gnu-software-development-sustain-economically&quot;&gt;question&lt;/a&gt; regarding the economic sustenance of the GNU Software and I think it is the foundation of my question.&lt;br&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Below is a small excerpt from the &lt;a href=&quot;http://www.gnu.org/philosophy/free-sw.en.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;GNU Website&lt;/a&gt; which states the four principles&#xA;the Free Software Foundation lays its foundation on.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;The freedom to run the program as you wish, for any purpose (freedom 0).&lt;/li&gt;&#xA;&lt;li&gt;The freedom to study how the program works, and change it so it does your computing as you wish (freedom 1). Access to the source code is a precondition for this.&lt;/li&gt;&#xA;&lt;li&gt;The freedom to redistribute copies so you can help your neighbor (freedom 2).&lt;/li&gt;&#xA;&lt;li&gt;The freedom to distribute copies of your modified versions to others (freedom 3). By doing this you can give the whole community a chance to benefit from your changes. Access to the source code is a precondition for this.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;A program is free software if the program's users have the above four essential freedoms.&lt;br&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I believe the above principles will :&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;lead to better transparency regarding how the software works.&lt;/li&gt;&#xA;&lt;li&gt;fuel new ideas, which will lead to better customized software.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I couldn't ,however, think of the economic hindrances for :&lt;br&gt;&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Setting up a Free Software Society.&lt;/li&gt;&#xA;&lt;li&gt;If set up, the survival of such a society.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;A society where &lt;strong&gt;all&lt;/strong&gt; the players abide by the above FSF principles is&#xA;what I call a &lt;strong&gt;free software society&lt;/strong&gt;. Well, this is my terminology indeed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any suggestions are appreciated.&lt;/p&gt;&#xA;" OwnerUserId="6451" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-11-23T20:48:34.837" Title="Will a Free Software Society ever become a reality?" Tags="&lt;software&gt;" AnswerCount="2" CommentCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="9344" PostTypeId="2" ParentId="9343" CreationDate="2015-11-23T14:52:29.257" Score="5" Body="&lt;p&gt;Your questions asks:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;A society where &lt;strong&gt;all&lt;/strong&gt; the players abide by the above FSF principles&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It won't ever happen for all players. As a counter-example, consider an engineer who invents software that can predict when a jet engine needs maintenance. It's worth millions to the airlines, who will happily pay him for the software. He has no incentive at all to release this software as open-source. The same principle applies to all sorts of specialist software.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In contrast, open-source works well for common building blocks. For example, there are all sorts of companies who need an operating system for their product - cloud providers, home network kit, super computing, all sorts. While they could build their own, it is much more efficient to have a common pool, like the Linux kernel. This environment means that companies can put paid engineers on open-source projects, and still run a profitable business.&lt;/p&gt;&#xA;" OwnerUserId="6281" LastActivityDate="2015-11-23T14:52:29.257" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="9346" PostTypeId="2" ParentId="9340" CreationDate="2015-11-23T20:06:54.127" Score="2" Body="&lt;p&gt;The differential equation &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\dot k =  \frac{1}{\sigma} k^\alpha - \delta k$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;has the structure of a &lt;strong&gt;Bernoulli equation&lt;/strong&gt;. We solve it by the following transformation steps:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;1)&lt;/strong&gt; Mulitply throughout by $k^{-\alpha}$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$k^{-\alpha}\dot k =  \frac{1}{\sigma}  - \delta k^{1-\alpha} \tag{1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;2)&lt;/strong&gt; Define the variable &#xA;$$z \equiv k^{1-\alpha} \implies \dot z = (1-\alpha)k^{-a}\dot k \tag{2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;3)&lt;/strong&gt; Combine to get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$(1),(2) \implies \frac {1}{1-\alpha}\dot z = \frac{1}{\sigma} - \delta z $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies \dot z + (1-\alpha)\delta z = \frac {1-\alpha}{\sigma}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is a standard first-order differential equation with constant coefficients. Solve it and then reverse the change of variable to get the result.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;PS:&lt;/strong&gt; The above requires that $k \neq 0$ everywhere, which is the economically meaningful case.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-11-23T20:12:01.350" LastActivityDate="2015-11-23T20:12:01.350" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9347" PostTypeId="2" ParentId="9343" CreationDate="2015-11-23T20:48:34.837" Score="1" Body="&lt;p&gt;From a software engineer's view I have 2 issues that I think would hinder this Society. And not that I want it to be hindered, just that some realities are hard to over come.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This first is, who will pay me? Writing software is a good living for me. I am okay with my software being free to others, and to be freely modified. But then how do I make a living? Will all software writers also have to have a day job? Will I be a janitor who writes software as a hobby?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The second issue I can think of, and this is more serious, is that even in current large &quot;Open Source&quot; projects you almost always have a group of people that control the source. For example, Angular is currently controlled by Google. If you want to change your personal copy of Angular you can. If you want to change Angular for the world at large, you have to make a change, and request that it be incorporated. I feel like this is absolutely necessary. If you had 100's of people of varying skill levels changing a complex code base without direction or over site, that software would be unusable. It would be like making soup, and letting 100 people just add their favorite ingredient without someone tasting it after each addition, or knowing what kind of soup you want(cream soup or veggie soup, etc.) You would have an inedible mess at the end.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One thing that may not be common public knowledge, but is absolutely true, is that most software is really awful behind the scenes. The average programmer is at a skill level somewhere between bad and okay. And software is VERY complex. Any small change can break a whole system(and often does). Studies have shown that 60% of large software project fail because of being managed or planned poorly. From the outside it seems like it should be simple, but it is not. &lt;/p&gt;&#xA;" OwnerUserId="6471" LastActivityDate="2015-11-23T20:48:34.837" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9348" PostTypeId="1" CreationDate="2015-11-23T21:39:38.360" Score="2" ViewCount="101" Body="&lt;p&gt;I think my question seems to be quite simple, but I cannot figure out a solution. I have panel data with about 1000 different people over 10 years. Standard panel regression is not the problem, but I am searching for a method to measure the correlation or effect of the independent variable on itself over time for the whole dataset (not for every single year).&#xA;Is the answer a time-series method?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks!&#xA;Best&#xA;Tom&lt;/p&gt;&#xA;" OwnerUserId="6472" LastActivityDate="2015-12-23T23:46:17.990" Title="Correlation over time, panel data variable" Tags="&lt;econometrics&gt;&lt;statistics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9349" PostTypeId="1" AcceptedAnswerId="9361" CreationDate="2015-11-23T22:20:41.550" Score="11" ViewCount="981" Body="&lt;p&gt;Within the approach of New Institutional Economics associated with Oliver Williamson and others, emphasis is placed on &lt;em&gt;transaction costs&lt;/em&gt; as a key factor in explaining why different forms of economic organisation arise in different circumstances.  Transaction costs have been defined, eg &lt;a href=&quot;https://www.auburn.edu/~johnspm/gloss/transaction_costs&quot;&gt;here&lt;/a&gt;, as including search and information costs, bargaining and decision costs, and policing and enforcement costs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Question&lt;/em&gt;: Suppose I go to a supermarket that I know well, buy branded packaged goods of kinds that I have bought many times before, and transport the goods home.  Should the cost of my travel to the supermarket and transporting the goods home, in this situation in which any elements of search, information gathering, etc are minimal, be regarded as a transaction cost?&lt;/p&gt;&#xA;" OwnerUserId="1417" LastActivityDate="2015-11-24T02:36:00.930" Title="Should Costs of Travel to Buy Goods be Regarded as Transaction Costs?" Tags="&lt;microeconomics&gt;&lt;industrial-organisation&gt;&lt;cost&gt;" AnswerCount="4" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9350" PostTypeId="2" ParentId="9348" CreationDate="2015-11-23T22:30:34.903" Score="1" Body="&lt;p&gt;The answer (if I understand your question correctly) is a dynamic panel data model. In such models, one expresses the DGP as follows: $$y_{it}=\rho y_{it-1}+x_{it}'\beta+\alpha_{i}+u_{it}$$&#xA; This has been studied extensively for the past 20 years.&#xA;Some classic estimators are:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;a) Arellano-Bond estimator &#xA; b) Anderson-Hsiao estimator and&#xA;c) Arellano-Bover systems GMM estimator.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would suggest that you go with the 3rd option.  I think this one is the latest+most robust estimator. You can verify the statement. Each of these methods deals with an alternative way of consistently estimating $\rho$ by using instruments (or systems of instruments). &lt;/p&gt;&#xA;" OwnerUserId="5233" LastActivityDate="2015-11-23T22:30:34.903" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9351" PostTypeId="1" CreationDate="2015-11-23T22:34:46.360" Score="1" ViewCount="200" Body="&lt;p&gt;I have seen charts like this one &lt;a href=&quot;https://johnvashonblog.files.wordpress.com/2013/01/dj-lt-infl.gif&quot; rel=&quot;nofollow&quot;&gt;&lt;img src=&quot;https://johnvashonblog.files.wordpress.com/2013/01/dj-lt-infl.gif&quot; alt=&quot;DJIA returns&quot;&gt;&lt;/a&gt; showing the return for the past 100+ years cited as evidence why one should invest in stocks for their retirement. I don't disagree with that, but realistically, nobody invests for 110 years; my guess is that they actually invest for 20-30 years on average (for those who actually have a retirement account).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, it's not advised to try to play the market by investing in individual stocks, but rather mutual or index funds, so nobody can actually invest in &quot;the stock market&quot;, but rather some subset of stocks. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So if I were making a case for someone to invest their retirement money in the stock market on a long-term basis, I would want to show them historical returns for popular consumer-grade funds over 20-30 year periods. The Dow over 110 years doesn't really tell me what an average investor's returns might look like (I understand that past performance is not indicative of future performance, but this is the whole reasoning behind looking at a chart of historical returns).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Has anyone crunched the numbers on this and published the charts and figures?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Edit:&lt;/strong&gt; The wikipedia article notes that &quot;[t]he first retail index fund, First Index Investment Trust, was formed in 1976...&quot;, so it looks like mutual fund investing by the average Joe could only have been done since then. Which makes the 100-year charts even more irrelevant.&lt;/p&gt;&#xA;" OwnerUserId="6475" LastEditorUserId="6475" LastEditDate="2015-11-23T22:48:05.103" LastActivityDate="2015-11-24T00:48:49.433" Title="Historical returns for popular American funds over 20-30 years?" Tags="&lt;investment&gt;&lt;stock-market&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9352" PostTypeId="2" ParentId="9156" CreationDate="2015-11-23T22:47:25.833" Score="3" Body="&lt;p&gt;Cvarza, the supply curve is theoretically derived. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The supply curve of the industry is the horizontal sum of the curves of firms. The supply curve of a firm is the portion of the marginal cost curve with a positive slope. That is, firms act to equal marginal cost to marginal revenue. If the marginal cost is decreasing, that means the firm can increase (marginally) the production (and its profits) till the equilibrium point.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As reference, i recommend the chapter about firms supply in Varian's undergradute book.&#xA;As a graduate reference, MasCollel is strongly recomended.&lt;/p&gt;&#xA;" OwnerUserId="5281" LastActivityDate="2015-11-23T22:47:25.833" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9353" PostTypeId="1" CreationDate="2015-11-23T22:52:21.500" Score="3" ViewCount="51" Body="&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Relative_utilitarianism&quot; rel=&quot;nofollow&quot;&gt;Relative utilitarianism&lt;/a&gt; takes utilities as reported by agents, rescales them so that, for each agent, the alternatives have utility values between 0 and 1, and then chooses an alternative to maximize the (weighted) sum of the rescaled utilities. This forces an equality of sorts upon the agents as their utilities are all bounded on the same range. However, they can still express the degree to which they prefer A to B (relative to their preference of B over C) by making the gap between A and B larger (or smaller) than that between B and C.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Has anybody come across a mechanism like this except that, instead of rescaling reported utilities to a given range, we simply take the ordinal preferences expressed by the reported utilities and assign predetermined utility values (respecting the order).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That is, with relative utilitarianism:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ (10,4,2,0) \rightarrow (1,0.4,0.2,0) \text{ and } (100,9,1,0) \rightarrow &#xA;(1,0.09,0.01,0)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I want to do is the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ (10,4,2,0) \rightarrow (10,7,5,2) \text{ and } (100,9,1,0) \rightarrow &#xA;(10,7,5,2)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The numbers in $(10,7,5,2)$ are irrelevant (they could be between 0 and 1) -- the point is just that they're the same across the two cases. Basically, I'm just extracting a preference order from the reported cardinal utilities and then slapping predetermined utility values on to them, respecting the order but not magnitudes in differences. Then, subsequently, I would choose an alternative to maximize the sum of utilities.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Two related questions:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Have you seen this done anywhere, either explicitly or implicitly?&lt;/li&gt;&#xA;&lt;li&gt;Supposing you haven't, what would you call this?&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="48" LastActivityDate="2015-12-24T17:22:34.313" Title="Removing a degree of freedom from relative utilitarianism" Tags="&lt;utility&gt;&lt;social-welfare&gt;&lt;social-choice&gt;" AnswerCount="1" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="9354" PostTypeId="2" ParentId="9348" CreationDate="2015-11-23T22:57:46.030" Score="0" Body="&lt;p&gt;thanks for this fast answer. I already used the Arellano/Bond estimator, but I think my problem is, that I want the correlation of the variable with itself over all periods in one measure. The AB-method only has one lag, or is it possible to include more lagged variables?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks!&#xA;Tom&lt;/p&gt;&#xA;" OwnerUserId="6472" LastActivityDate="2015-11-23T22:57:46.030" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9355" PostTypeId="2" ParentId="9349" CreationDate="2015-11-24T00:29:27.700" Score="2" Body="&lt;p&gt;Short Answer: No.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Transaction costs are defined as costs related to overcoming a market imperfection. Most people do not consider distance from a store(market) to be a market imperfection, but in some cases some do consider this.&#xA;It was always my professors' opinion that transaction costs should not include transportation costs and in what follows I'll tell you why.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With transaction costs we typically never mean transportation costs. Transportation is considered another good (rather a service) that we pay for. Transportation is a welfare/utility increasing good, which you would like to have. Therefore transportation has a positive price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Transaction costs refer to costs that do not go towards obtaining more welfare enhancing (desired) goods and services.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In your supermarket example, the cost of searching for your desired good would be the transaction cost. Searching for it is costly, however does not provide you with any extra good/service/utility, so this cost is purely about obtaining another good and is a cost in addition to the price of the good and nothing more.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastEditorUserId="5557" LastEditDate="2015-11-24T00:44:16.750" LastActivityDate="2015-11-24T00:44:16.750" CommentCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="9356" PostTypeId="2" ParentId="9349" CreationDate="2015-11-24T00:30:57.853" Score="1" Body="&lt;p&gt;Yes&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A wikipedia definition:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;a transaction cost is a cost incurred in making an economic exchange (restated: the cost of participating in a market).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;transport to a shopping center can definitely be considered a cost of participating in a market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;More intuitively, the idea of a transaction cost involves costs incurred on the consumer other than the direct price of a good.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This fits both the definition, and the intention of the definition.&lt;/p&gt;&#xA;" OwnerUserId="40" LastActivityDate="2015-11-24T00:30:57.853" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9357" PostTypeId="2" ParentId="9336" CreationDate="2015-11-24T00:40:16.077" Score="1" Body="&lt;p&gt;To the question on whether the same classification can be achieved through the hicksian demand function: in general I believe the answer is no. To see this, relate the classifications to the Slutsky decomposition.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Changes in) Hicksian demand is related to the substitution effect from the Slutsky decomposition. Any standard textbook should provide a reference to this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are two broad classifications:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1.Ordinary and Giffen goods: These refer to marshallian demand changes when prices change. This is what we call the Total Effect in the Slutsky &#xA;decomposition.&lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;2&quot;&gt;&#xA;&lt;li&gt;Normal and inferior goods: These refer to marshallian demand changes when income changes. This is by definition the Income Effect in the Slutsky decomposition.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;As you see, the substitution effect, which is represented by changes in hicksian demand, is not a part of any of these classifications you mentioned.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastEditorUserId="5557" LastEditDate="2015-11-24T01:29:36.080" LastActivityDate="2015-11-24T01:29:36.080" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9358" PostTypeId="2" ParentId="9351" CreationDate="2015-11-24T00:48:49.433" Score="1" Body="&lt;p&gt;There are a few important things you need to consider when planning your retirement.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;1. Risk tolerance.&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You cannot invest only in stocks, whether indices or individual stocks. Even the most risk loving investors will get stressed out when their lifetime savings drop 10% over a week amidst some market volatility. It is usually best to put a portion of the money into bonds or other fixed income assets. They usually have much lower yields than stocks so it will bring down the yield of the entire portfolio. How much to put into bonds and how much into stocks depends on your risk preference and how old you are. The older you get the more you should allocate into fixed income assets.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;2. Inflation.&lt;/em&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Inflation will eat up a lot of your savings over the course of your life. Not much can be done about it. Stocks are usually more resistant to inflation so having a decent position in stocks helps.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;3. Hidden costs of index funds/ETFs&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;ETF and index providers sometimes try to hide some costs like annual fees, commissions for good performance, dividends etc. It is very important to look thoroughly into the costs of the fund you are going to invest in.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So if you build a balanced portfolio of stocks (index funds) and bonds, and the broker charges are either very low or free, then your annual returns on average should be around 3-5% depending on inflation. 4% is the rough estimate of returns you can get on a portfolio that is mostly composed of index funds. There are tons of literature out there, but most legitimate sources converge on the number 4%.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is an article from a good practical blog about retirement that I came across recently: &lt;a href=&quot;http://www.mrmoneymustache.com/2012/05/29/how-much-do-i-need-for-retirement/&quot; rel=&quot;nofollow&quot;&gt;http://www.mrmoneymustache.com/2012/05/29/how-much-do-i-need-for-retirement/&lt;/a&gt;. It has been featured on the Wall Street Journal so it seems quite credible.&lt;/p&gt;&#xA;" OwnerUserId="6231" LastActivityDate="2015-11-24T00:48:49.433" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9359" PostTypeId="2" ParentId="9339" CreationDate="2015-11-24T01:16:04.530" Score="2" Body="&lt;p&gt;&quot;&lt;strong&gt;The Economics of Imperfect Competition&lt;/strong&gt;&quot; by Joan Robinson is a very old book, but one of the first to look specifically at market power. (By old, I mean like 1930s old). For something a little newer, you could try taking a look at some price theory books, like &quot;&lt;strong&gt;Price Theory and Its Uses&lt;/strong&gt;&quot; by Watson and Getz.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2015-11-24T01:16:04.530" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9360" PostTypeId="2" ParentId="9339" CreationDate="2015-11-24T01:34:23.903" Score="3" Body="&lt;p&gt;For advanced undergraduate students there is a nice, instructive and short book on &lt;a href=&quot;https://mitpress.mit.edu/books/microeconomics-market-failures&quot; rel=&quot;nofollow&quot;&gt;The Microeconomics of Market Failures&lt;/a&gt; at MIT Press (2000) by &lt;a href=&quot;http://www.columbia.edu/~bs2237/&quot; rel=&quot;nofollow&quot;&gt;Bernard Salanié&lt;/a&gt; from Columbia.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The second revision of &lt;a href=&quot;http://luiscabral.net/economics/books/iio2/&quot; rel=&quot;nofollow&quot;&gt;Introduction to Industrial Organization&lt;/a&gt; by &lt;a href=&quot;http://luiscabral.net/economics/&quot; rel=&quot;nofollow&quot;&gt;Luis Cabral&lt;/a&gt; from NYU is a very good reference for undergraduates. The chapter 5 deals with Market Failure and Public Policy. Accompanying slides are available.&lt;/p&gt;&#xA;" OwnerUserId="6168" LastActivityDate="2015-11-24T01:34:23.903" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9361" PostTypeId="2" ParentId="9349" CreationDate="2015-11-24T01:51:40.590" Score="5" Body="&lt;p&gt;Since it was mentioned in an another answer let's clear this first: whether the transportation (and its time and monetary costs) should be associated with the intended consumption of the good you are going to purchase, or it can be considered as consumption on its own, depends on your subjective view of it: do you derive any form of pleasure by the trip itself? If yes, at least part of it should be considered consumption &lt;em&gt;per se&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The consensus among economists appears to be that most of such travel is not considered by the consumers as utility-enhancing per se (although trends like &quot;family-shopping on Saturday&quot; may say a different story), and so it should be interpreted in a different way. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the field of Industrial Organization, the good's distance from the consumer has been often treated as an aspect of &lt;em&gt;product differentiation&lt;/em&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You could certainly treat it as a &quot;transaction cost&quot;, by suitably define the scope of the concept. Personally I prefer to think of it as an &lt;em&gt;access&lt;/em&gt; cost. I hit upon this concept in a little side-research I did in hedonic-price analysis.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you start to think about it, all packaging and transportation costs &lt;em&gt;from the supplier to the shop&lt;/em&gt; are also &quot;access costs&quot; from the point of view of the consumer. They don't provide any &lt;em&gt;direct&lt;/em&gt; utility to him -they are obligatory costs that end up increasing the price, so that the consumer is able to acquire the good and enjoy the services/utility of the good itself.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Think computers: only the materials themselves and the technology embodied in them provide utility to you (plus maybe the brand). But the price includes all shorts of overheads, like the access costs I mentioned, or marketing costs (that can be seen as information costs or as the price to pay for competition and the innovation and product variety that brings along), etc. &lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-11-24T02:36:00.930" LastActivityDate="2015-11-24T02:36:00.930" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="9362" PostTypeId="2" ParentId="9349" CreationDate="2015-11-24T02:30:34.997" Score="2" Body="&lt;p&gt;I very much like this question and Alecos' answer. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;We understand the role of transaction costs in the generation of externalities. But the transaction costs concept itself is very difficult to define rigorously. &lt;a href=&quot;http://www.jstor.org/stable/725216?seq=1#page_scan_tab_contents&quot; rel=&quot;nofollow&quot;&gt;Dalhman&lt;/a&gt; (1979) examines what kinds of transaction costs are necessary to generate externalities. He defines a workable concept of transaction costs: search and information costs, bargaining and decision costs, policing and enforcement costs. But he adds (p. 148) that &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;this functional taxonomy of different transaction costs is&#xA;  unnecessarily elaborate: fundamentally, the three classes reduce to a&#xA;  single one-for they all have in common that they represent &lt;strong&gt;resource&#xA;  losses due to lack of information&lt;/strong&gt;.&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;As far as I understand, in the international economics field, &quot;costs of travel to buy goods&quot; are considered as &lt;strong&gt;trade costs&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;According to &lt;a href=&quot;https://www.aeaweb.org/articles.php?doi=10.1257/0022051042177649&quot; rel=&quot;nofollow&quot;&gt;Anderson and van Wincoop (2004)&lt;/a&gt;, p. 691-2&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Trade costs, broadly defined, include all costs incurred in getting  a&#xA;  good to a final user other than the marginal cost of producing the&#xA;  good itself: transportation costs (both freight costs and time costs),&#xA;  policy barriers (tariffs and nontariff barriers), information costs,&#xA;  contract enforcement costs, costs associated with the use of different&#xA;  currencies, legal and regulatory costs, and local distribution costs&#xA;  (wholesale and retail).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="6168" LastActivityDate="2015-11-24T02:30:34.997" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9363" PostTypeId="2" ParentId="9153" CreationDate="2015-11-24T03:04:56.813" Score="0" Body="&lt;p&gt;When the Fed issues say 100k in liabilities (paper dollars) to buy 100k in assets (t-bills), then they will at the end of the year take their revenue from their assets, subtract their expenses and remit the profits to congress.  This is an obscure process but it does exist.  If you see a congressional budget, you'll see an item marked as miscellaneous revenue...this is a portion of if that.  Now they do not remit as much as they should but that is another story.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the Fed had to write off say 50k in bad debt, then that would count against their income for their year (and mean they earned 50k less).  The 50k would actually be debited away from equity and not liabilities.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Fed (that I know of), does not issue money directly to itself nor the treasury.  It can create money to buy investments...and then spend the profits from investments on their own expenses.  It can also sell equities for a profit (rarely done) to boost their equity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A good question is what would happen if the Fed had to write off more in assets than they had in equity.  I doubt they would shrink the monetary base to balance the books, but instead would fabricate an asset to keep the illusion going (like say a 'good will from the treasury').&lt;/p&gt;&#xA;" OwnerUserId="6479" LastActivityDate="2015-11-24T03:04:56.813" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9364" PostTypeId="2" ParentId="9127" CreationDate="2015-11-24T03:13:52.000" Score="1" Body="&lt;p&gt;It should be first clarified that the Fed doesn't print money, but actually fabricates the monetary base.  MB consists of paper dollars and electronic dollars (and coins and us notes).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now MB did explode in 2008.  A most enlightening graph:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://research.stlouisfed.org/fred2/graph/?g=2hIe&quot; rel=&quot;nofollow&quot;&gt;https://research.stlouisfed.org/fred2/graph/?g=2hIe&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But it is also important to consider that MB is not the only source of money in the economy.  We also use bank deposits which are more than MB and more influential in determing inflation. Deposit money did not spike up like MB did which explains why we didn't have inflation.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;MB spiked, M1 and M2 rose a little, but M3 hardly did.  If goverment issues more MB (money) but the banks create less deposits (money) than they do counteract each other.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.shadowstats.com/charts/monetary-base-money-supply&quot; rel=&quot;nofollow&quot;&gt;http://www.shadowstats.com/charts/monetary-base-money-supply&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now granted their are non-monetary factors to inflation, but this is why the MB wasn't among them in 2008.&lt;/p&gt;&#xA;" OwnerUserId="6479" LastActivityDate="2015-11-24T03:13:52.000" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9365" PostTypeId="2" ParentId="8886" CreationDate="2015-11-24T03:20:24.063" Score="1" Body="&lt;p&gt;The above answer is correct, but I'll put my own spin on this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When a bank goes bankrupt, it actually contributes to deflation actually and not inflation.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In reality a genuine bankrupcy rarely happens...  The FDIC will take over the bank before it gets that far and merge their remaining assets in with a larger bank.&lt;/p&gt;&#xA;" OwnerUserId="6479" LastActivityDate="2015-11-24T03:20:24.063" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9366" PostTypeId="2" ParentId="8490" CreationDate="2015-11-24T03:29:32.620" Score="0" Body="&lt;p&gt;The question is not trivial.  If insiders can anticipate Fed actions, they can fleece a lot of money from the public.  For example, if the Fed plans on raising interest rates and tells XYZ, then XYZ can acquire a lot of say treasuries to make a big profit.  There are many cases in which the Fed's actions do effect the markets, so the Fed has to be careful about what they say and by extension it is logical that they use some degree of deception.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another example if is the Fed fears that a major bank will go down and cause a liquidity fire, they can and very well will use misinformation to underscore the risk that this bank faces.  They may also overly assure other banks who are considering lending to this troubled bank the solvency of the bank in question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, Fed meetings are openly recorded, but members rarely divulge their true feelings during these meetings and instead used close door sessions for this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Fed absolutely believes that the ends justify the means (especially when it comes to &quot;saving the economy&quot;, but they are very secretive so it is difficult to offer a comprehensive critique of their misinformation.&lt;/p&gt;&#xA;" OwnerUserId="6479" LastActivityDate="2015-11-24T03:29:32.620" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9367" PostTypeId="2" ParentId="8318" CreationDate="2015-11-24T03:39:49.017" Score="1" Body="&lt;p&gt;Perhaps the most compelling evidence that fractional banking must be supported by a constant expansion of the monetary base by the central bank, is that the Fed while maintaining a somewhat target Fed Funds Rate almost always experiences growth in MB.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://research.stlouisfed.org/fred2/graph/?g=2hIe&quot; rel=&quot;nofollow&quot;&gt;https://research.stlouisfed.org/fred2/graph/?g=2hIe&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The demand to pay interest spikes up the interbank lending rate which incites the Fed to put more money into the Fed Funds market.  If there were enough money to pay interest, then such pressure should not exist.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The ethical implications of this are quite alarming.  If the money supply increases and a disproportionate amount goes to support the banking system, then this is an indirect transfer from the poor to the rich.  As the system continues, the divide will increase unless alleviated by government actions (like welfare) or by bank failures.&lt;/p&gt;&#xA;" OwnerUserId="6479" LastActivityDate="2015-11-24T03:39:49.017" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9368" PostTypeId="2" ParentId="9127" CreationDate="2015-11-24T03:43:56.880" Score="1" Body="&lt;p&gt;Consider Cagan's Model. Future inflation is not just based on money supply changes now, but expected money supply changes in the future. One of the major reasons inflation hasn't skyrocketed out of control despite the large amounts of quantitative easing going on is because people know the Federal Reserve is targeting a low rate of inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for interest rates, the Fed keeps their interest rate low to encourage banks to lend out more money. They can't offer a negative nominal interest rate for obvious reasons though, so you run into the zero interest floor problem, where it is hard to encourage institutions to borrow money and stimulate the economy, thus getting perpetually low inflation. No matter how much you try to stimulate the economy, as EnergyNumber's answer states, you can't push on a string; there's only so much conventional monetary policy can do.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2015-11-24T03:43:56.880" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9369" PostTypeId="2" ParentId="4427" CreationDate="2015-11-24T03:56:04.523" Score="0" Body="&lt;p&gt;Reserve requirements are a constraint on deposit creation (inflation), but not for all banks.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Most banks do worry about reserve requirements too much, because if they see a good investment opportunity, they will go for it and borrow the base money they need from other banks.  If the base money is scarce, this will drive up inter-bank lending and the central bank will load more to the banking system to make sure that such a lending rate does not change.  So in a sense, the tail wags the dog.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So say in an economy of 1000 deposits constrained by 100 reserves (given the reserve requirement), then the banking system can get around such a constraint...by increasing reserves in the aggregate!  It simply borrows from other banks more and very indirectly, but very powerfully, the central bank will facilitate this.  So the banking system could go from 1000 deposits to 100 reserves...to 2000 deposits to 200 reserves.  Same reserve ratio.  Same target bank rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is why other matter are used to regulate bank lending (like capital requirements).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A proper strategy to limit bank lending would consist of a combination of reserve ratio changes, capital requirement changes and an increase in the central banks target of interbank lending.&lt;/p&gt;&#xA;" OwnerUserId="6479" LastActivityDate="2015-11-24T03:56:04.523" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9370" PostTypeId="2" ParentId="8515" CreationDate="2015-11-24T04:05:37.283" Score="0" Body="&lt;p&gt;The Fed doesn't control interest literally.  They attempt to influence the rate banks charge each other for short term loans using the &quot;open market&quot; to inject and take away reserves.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why does the Fed overshadow this particular segment of the economy (which granted correlates somewhat with other interest rates)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's all about propping up the banking system.  Inflation/growth...they will claim these goals are important, but in practicality the Fed's primary worry is making sure the banking system doesn't melt down.  It's a legit worry.  Banks operate by mismatching short term low yield debt with long term high yeild assets.  An inherently insolvent situation in the aggregate that requires constant indirect bailing out from the Fed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Fed has determined that targetting the Fed Funds Rate is the best way to do this.  It didn't use to be this way.  They used to target the discount window early in the 20th century.  Out of fear that primary dealers were churning the open market (they are), they tried targetting M1 (should have been M3) during the Volker years in the early 80's.  But ultimately the Fed has preferred Fed Funds targeting as it seems to reduce volatility in the banking system (but increases aggregate risks and inflation).&lt;/p&gt;&#xA;" OwnerUserId="6479" LastActivityDate="2015-11-24T04:05:37.283" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9371" PostTypeId="2" ParentId="8320" CreationDate="2015-11-24T04:25:06.870" Score="4" Body="&lt;p&gt;First it is helpful to provide some definitions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;M0 includes all paper dollars (plus coins and US notes).  Regardless of whether or not they they are held in the banking system.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;M0 is not a useful metric because it omits electronic dollars.  The two main liabilities to the Fed are electronic dollars (some refer to them as Fed Funds or deposits at the Fed which banks can hold) and paper dollars.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;M0 + electronic dollars = MB.  MB is by far a much better metric for measuring what the government has created for money.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &lt;a href=&quot;https://en.wikipedia.org/wiki/Federal_Reserve_System#Balance_sheet&quot; rel=&quot;nofollow noreferrer&quot;&gt;Fed's balance sheet&lt;/a&gt; may be illustrative in showing how this works. Much of the Fed liabilities are MB, but only a much smaller part are M0. The difference between paper and electronic dollars is not significant.  If a bank asks the Fed to trade their electronic dollars for paper (or vice versa, the Fed will oblige.  If the Fed runs short on paper, they will have the treasury print more, but this doesn't expand MB.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Think of paper dollars as ice, electronic dollars as flowing water and MB as all the water in the system (frozen or flowing).  Whatever the form, it is not important as the total amount of water remains the same.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's try to answer our question specifically using a timeline and ledger entries.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Say the Fed buys some assets from a bank.  They acquire these assets (+Fed assets) and grant the bank new deposits (+liabilites aka bank deposits).  Now this is always done with electronic dollars to start.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then say the bank has a lot of withdrawals and wishes to convert some of their federal despots assets into cash assets.  They ask the Fed to do this, which gladly obliges.  The Fed decreases their deposit liability and increases their paper note liability.  In this moment M0 was increased.  But it is not significant.  What was significant was when MB was increased after the Fed acquired the asset from the bank.&lt;/p&gt;&#xA;" OwnerUserId="6479" LastEditorUserId="2776" LastEditDate="2017-08-02T12:59:48.843" LastActivityDate="2017-08-02T12:59:48.843" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="9372" PostTypeId="1" AcceptedAnswerId="9380" CreationDate="2015-11-24T05:43:42.610" Score="2" ViewCount="73" Body="&lt;p&gt;Famous labor economist James Heckman made the argument that given money for investing into educating people, we should invest into young children, and pretty much only that age group, because they have the most periods of time to compound human capital over time, and arguably get the most benefit from it. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://jenni.uchicago.edu/papers/Heckman_Masterov_RAE_2007_v29_n3.pdf&quot; rel=&quot;nofollow&quot;&gt;http://jenni.uchicago.edu/papers/Heckman_Masterov_RAE_2007_v29_n3.pdf&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Obviously it's a pretty strong argument, and I was wondering what sort of research in the literature you might find important that takes the stance against this sort of idea. My intuition tells me that we'd want to smooth investment into all sorts of age groups of people for some sort of externality reason.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2015-11-24T19:21:23.567" Title="Human Capital and Investment into Children" Tags="&lt;reference-request&gt;&lt;human-capital&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9373" PostTypeId="1" CreationDate="2015-11-24T09:06:02.730" Score="1" ViewCount="101" Body="&lt;p&gt;If an agent can take action which impacts social welfare in a noisy way, the private net benefit of the action is $P(x,t)=x-s(\frac{x^2}{2} + t)$, $s$ is $(0,1)$&#xA;How can I determine the privately optimal t?&lt;/p&gt;&#xA;" OwnerUserId="6179" LastEditorUserId="2938" LastEditDate="2015-11-24T14:26:22.080" LastActivityDate="2016-05-22T22:35:40.070" Title="Principal Agent Question Private Benefit" Tags="&lt;microeconomics&gt;&lt;principal-agent&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9374" PostTypeId="1" AcceptedAnswerId="9382" CreationDate="2015-11-24T11:26:19.450" Score="3" ViewCount="1697" Body="&lt;p&gt;I can do simple calculations in micro-economics, such as: given the utility function of a consumer, calculate his demand curves; given utility functions of two consumers and initial endowment, calculate the competitive equilibrium; etc. However, the calculations become tedious and I am looking for a software that can do them automatically. For example, I am looking for a software where I can:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Define utility functions, e.g. $u_1(x,y) = x^2 y$, $u_2(x,y) = x y^2$;&lt;/li&gt;&#xA;&lt;li&gt;Define initial endowments $(x_1,y_1)$ and $(x_2,y_2)$;&lt;/li&gt;&#xA;&lt;li&gt;Find and plot all the Pareto-efficient allocations;&lt;/li&gt;&#xA;&lt;li&gt;Find and plot all the envy-free allocations;&lt;/li&gt;&#xA;&lt;li&gt;Find a competitive equilibrium.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Is there a software that can do this? Or maybe a package for a general symbolic math software?&lt;/p&gt;&#xA;" OwnerUserId="385" LastEditorUserId="385" LastEditDate="2015-11-24T12:47:45.333" LastActivityDate="2015-11-24T22:06:08.573" Title="A graphic calculator for simple microeconomics problems" Tags="&lt;microeconomics&gt;&lt;software&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9375" PostTypeId="2" ParentId="9372" CreationDate="2015-11-24T11:58:46.190" Score="1" Body="&lt;p&gt;You ask for studies which I don't have, but I can think of a few reasons:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;Diminishing returns&lt;/strong&gt; - if a child has a decent home and parental support you can give them a good education at reasonable cost. To get a child from a broken home to the same point requires much more intervention - and cost.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;Moral hazard&lt;/strong&gt; - there are many hard-working families just above the breadline. The parents go to great lengths to ensure their children have a decent home. It may be that they get no support for all this effort - but if they simply stop making an effort, the child then gets massive support from school.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;Need for high achievers&lt;/strong&gt; - for society to achieve (cure cancer, explore space, win wars, etc.) there is a need for high achievers. If the education system focuses entirely on getting under-achieving children up to average, this comes at the cost of high achievers.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I'm from the UK, where there is an extensive welfare system and extra investment in education in deprived areas, called the &lt;a href=&quot;https://www.gov.uk/guidance/pupil-premium-information-for-schools-and-alternative-provision-settings&quot; rel=&quot;nofollow&quot;&gt;Pupil premium&lt;/a&gt;. Although, not nearly as much as suggested by the paper you reference. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Many people do not support the pupil premium. There is a large &quot;squeezed middle&quot; in the UK, not poor enough for extra support, not rich enough for private schools, and this group sees extra support for deprived areas as unfair.&lt;/p&gt;&#xA;" OwnerUserId="6281" LastEditorUserId="6281" LastEditDate="2015-11-24T14:58:09.130" LastActivityDate="2015-11-24T14:58:09.130" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9376" PostTypeId="1" CreationDate="2015-11-24T12:00:13.287" Score="1" ViewCount="69" Body="&lt;p&gt;I need to show that the residuals from the regression of $x_{it} - \bar x_i $ on a constant and $\bar x_i $ is just $x_{it} - \bar x_i $ itself. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;By stnadard OLS regression results, in the simple regression&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$y_t = \alpha + \beta z_t + v_t, \;\;\;t=1,...,T$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;we have that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\hat \beta = \frac {\sum_{i=1}^T (z_t - \bar z)(y_t-\bar y)}{\sum_{i=1}^T (z_t - \bar z)^2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\hat \alpha = \bar y - \hat \beta \bar z$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the residuals are&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\hat v_t = y_t -(\hat \alpha +\hat \beta z_t)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, substitute for your particular $y_t$ and $z_t$ in all the above.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, since my $z_t$ is $\bar x_i$ ($x_{it}$ averaged over time), what is the value of the average of $\bar x_i$ i.e $\bar z$. Do I average over time again? (in which case the average would be itself). Or do i average over individuals i? (so that the average of $ \bar x_i$  is $\bar x$?) I need this for the numerator of $\hat \beta$&lt;/p&gt;&#xA;" OwnerUserId="6216" LastActivityDate="2015-11-24T12:00:13.287" Title="OLS estimator panel data" Tags="&lt;econometrics&gt;&lt;paneldata&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9378" PostTypeId="2" ParentId="7090" CreationDate="2015-11-24T15:26:30.630" Score="0" Body="&lt;p&gt;I think the answer to your question is at its very heart competition. Taking your example into mind, I would think that Microsoft as a whole knows that Bing is not yet as good as Google Search, but they want to be as good as or better. They try to create features Google Search may not have(like Cortana) and try to do their best to compete. If everyone had just said &quot;The model-T is obviously a superior car(which it was the day it was made), let's just drive that and not try to make anything better, we would all still be driving Model-T's.&lt;/p&gt;&#xA;" OwnerUserId="6471" LastActivityDate="2015-11-24T15:26:30.630" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="9379" PostTypeId="1" CreationDate="2015-11-24T16:02:50.553" Score="5" ViewCount="59" Body="&lt;p&gt;I am interested in a multiplayer game where one player gains utility, not just by winning, but by seeing one other player (chosen in advance) lose (or come in last place if the game has an ordered finish). Obviously, the best case scenario for this player would be to win and his 'prey' to come in last, and the worst case scenario is where he comes in last and his 'prey' wins. I wanted to look at two scenarios. The first scenario is where the 'prey' does not know that they are being targeted, and the second scenario is where they do know. I have looked for a paper with a similar style game, but have been unsuccessful. Does anyone know if a game like this has been analyzed? Your help would be greatly appreciated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that this is different from a Zero-Sum game in a Predation Model&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, if there has been no work done on this, do you think this would be an interesting game to analyze, and would it have any real world applications?&lt;/p&gt;&#xA;" OwnerUserId="5825" LastEditorUserId="5825" LastEditDate="2015-11-24T16:26:10.837" LastActivityDate="2015-11-24T16:26:10.837" Title="Game with predatory player (reference request)" Tags="&lt;reference-request&gt;&lt;game-theory&gt;" AnswerCount="0" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="9380" PostTypeId="2" ParentId="9372" CreationDate="2015-11-24T16:55:31.150" Score="1" Body="&lt;p&gt;Separate life in four intervals (ignoring senior age): young children $(1)$, teenagers-youngs$(2)$, young productive adults $(3)$, middle-age productive adults $(4)$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we follow the argument, as a young productive adult the individual will have &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$H_1\cdot(1+g_1)^2 \tag{1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;of human capital&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What we currently do results in &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$H_1\cdot(1+g_1)^2+H_2\cdot (1+g_{1,2}) \tag{2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where $H_i$ is the value of investment on young children $(1)$ and teenagers-young $(2)$ respectively, $g_1$ is the inherent growth of human capital invested in young children when mixed with life experience, and $g_{1,2}$ is the corresponging growth rate of that part of investment in human capital installed in teenagers-youngs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;if $F()$ is a production function, and ignoring discounting, the argument in terms of &quot;return per unit of investment&quot; would get a first-step validation if we had&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {F\left[H_1\cdot(1+g_1)^2\right]}{H_1} &amp;gt; \frac {F\left[H_1\cdot(1+g_1)^2+H_2\cdot (1+g_{1,2})\right]}{H_1+H_2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and manipulating,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {F_1}{H_1} &amp;gt; \frac {F_{1,2}-F_1}{H_2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;i.e. if, on average, output per unit of initial investment is larger than &lt;em&gt;additional&lt;/em&gt; output per &lt;em&gt;additional&lt;/em&gt; unit of investment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Drawing from my experience in participating in production activities, the marginal product of human capital &lt;em&gt;is not everywhere diminishing&lt;/em&gt;. There is a range where it is &lt;em&gt;increasing&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also I expect that $g_{1,2}&amp;gt;g_1$ at least for certain ranges : &quot;automatic compounding&quot; &lt;em&gt;accelerates&lt;/em&gt;, since a higher level of human capital tends to rip more benefits from the same life experience. Or so I have noticed casually for some decades now.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So to me, the issue is mute theoretically: we should go into &lt;em&gt;measuring&lt;/em&gt; these things (I have not read the link, maybe it does measure).&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-11-24T19:21:23.567" LastActivityDate="2015-11-24T19:21:23.567" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="9381" PostTypeId="2" ParentId="9353" CreationDate="2015-11-24T17:03:02.367" Score="1" Body="&lt;p&gt;One of the major criticisms you hear about classical economic frameworks is that ordinal utility is the only valid form of utility, because cardinal utility is just putting arbitrary numbers onto people's preferences. The thing is, cardinal utility is really not as fraught as heterodox schools (or even Austrian economists) might expect. Cardinal utility is only an expression of preference up to positive affine transformations, so as long as a utility function maintains the order of all the preferences, the utility functions represent the same preferences; cardinal utility just allows for us to express convexity/concavity along with it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So when I see a system of utility such as this, it just looks like a normal monotonic transformation into the range $[0,1]$. The only problem with it is that it will normalize all utility functions considered into that range, and you might lose some information about the strength of preferences relative to other agents to each other. I'm not exactly sure what it would be used for.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2015-11-24T17:03:02.367" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9382" PostTypeId="2" ParentId="9374" CreationDate="2015-11-24T18:54:01.697" Score="2" Body="&lt;p&gt;I wrote some silly program where you just fix endowment $e=(e_1,e_2)$ and utility functions $u=(u_1(x_1,y_1),u_2(x_2,y_2))$. The example provides an illustration for your utility functions and $x_1+x_2=1$ and $y_1+y_2=1$. I've drawn 100 indifference curves on an equally spaced grid of given utility levels $\bar u_1\in[u_1(0,0),u_1(1,1)]$ (blue) and $\bar u_2\in[u_2(0,0),u_2(1,1)]$ (red). The black line is the contract curve.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I added a second figure with some initial endowment $e_1 = (0.25, 0.75)$, $e_2 = (0.75, 0.25)$ and core.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/o2OAf.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/o2OAf.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&#xA;&lt;a href=&quot;https://i.stack.imgur.com/scZkI.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/scZkI.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;e1 = [0.25 0.75];&#xA;e2 = [0.75 0.25];&#xA;&#xA;X = 0.0:0.01:(e1(1)+e2(1));&#xA;Y = 0.0:0.01:(e1(2)+e2(2));&#xA;&#xA;syms x1 y1 x2 y2 u1_bar u2_bar&#xA;&#xA;u1 = x1.^2*y1;&#xA;u2 = x2*y2.^2;&#xA;&#xA;I1_fun = matlabFunction(solve(u1_bar == u1, y1, 'PrincipalValue', true));&#xA;I2_fun = matlabFunction(solve(u2_bar == u2, y2, 'PrincipalValue', true));&#xA;&#xA;u1_x = diff(u1, x1);&#xA;u1_y = diff(u1, y1);&#xA;&#xA;u2_x = diff(u2, x2);&#xA;u2_y = diff(u2, y2);&#xA;&#xA;u2_x = subs(u2_x, [x2,y2], [X(end) - x1, Y(end) - y1]);&#xA;u2_y = subs(u2_y, [x2,y2], [X(end) - x1, Y(end) - y1]);&#xA;&#xA;contract_curve = matlabFunction(solve(u1_y/u1_x == u2_y/u2_x, y1));&#xA;&#xA;u1_min = double(subs(u1, [x1,y1], [X(1), Y(1)]));&#xA;u1_max = double(subs(u1, [x1,y1], [X(end), Y(end)]));&#xA;u1_Array = linspace(u1_min, u1_max, 100);&#xA;I1_Array = zeros(length(X), length(u1_Array));&#xA;&#xA;for i = 1:length(u1_Array)&#xA;I1_Array(:,i) = I1_fun(u1_Array(i), X);&#xA;end&#xA;&#xA;u2_min = double(subs(u2, [x2,y2], [X(1), Y(1)]));&#xA;u2_max = double(subs(u2, [x2,y2], [X(end), Y(end)]));&#xA;u2_Array = linspace(u2_min, u2_max, 100);&#xA;I2_Array = zeros(length(X), length(u2_Array));&#xA;for i = 1:length(u2_Array)&#xA;I2_Array(:,i) = I2_fun(u2_Array(i), X);&#xA;end&#xA;&#xA;hold on&#xA;[AX, H1, H2] = plotyy(X, I1_Array, 1-X, I2_Array)&#xA;set(AX(:),'YLim',[0 1]);&#xA;set(AX(:),'YTick',[0:0.1:1])&#xA;set(H1(1:length(u1_Array)), 'Color', 'b'); &#xA;set(H2(1:length(u2_Array)), 'Color', 'r');&#xA;set(AX(2),'YDir','reverse')&#xA;axis(AX,'square') &#xA;%str1 = '\bullet e=(e_1,e_2)';&#xA;%text(e1(1),e1(2),str1)&#xA;plot(X, contract_curve(X), 'k', 'linewidth', 2)&#xA;hold off&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;" OwnerUserId="4266" LastEditorUserId="4266" LastEditDate="2015-11-24T22:06:08.573" LastActivityDate="2015-11-24T22:06:08.573" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9383" PostTypeId="1" CreationDate="2015-11-24T19:20:01.390" Score="3" ViewCount="220" Body="&lt;p&gt;In the classical errors-in-variables problem, we are looking at the effect of $x^*_i$ on $y$, but $x^*_i$ is misreported. We have observations $x_i = x^*_i +u_i$, where $u_i$ has zero mean mean, variance $\sigma^2_u$, and is independent from $y_i$ and $x^*_i$. In this case, OLS produce biased and inconsistent estimates of the coefficients. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A common solution is to obtain a second measurement $z_i = x^*_i +v_i$, where $v_i$ has zero mean, variance $\sigma^2_v$ and is independent from $y_i, x^*_i, $ and $u_i$ and then use $z_i$ as an instrumental variable for $x_i$ to obtain &lt;strong&gt;consistent&lt;/strong&gt; estimates of the coefficients. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is, what if there is a biased measurement error; for example what if $x_i = \gamma x^*_i +u_i$ where $\gamma&amp;gt;0$ and we still have $z_i = x^*_i +v_i$. Is there an estimation procedure that would give a consistent estimator of the coefficients? What about bias?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks.&lt;/p&gt;&#xA;" OwnerUserId="6216" LastEditorUserId="6216" LastEditDate="2015-11-25T10:16:51.060" LastActivityDate="2015-11-25T10:16:51.060" Title="Systematic measurement error in explanatory variable" Tags="&lt;econometrics&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9384" PostTypeId="2" ParentId="9373" CreationDate="2015-11-24T20:12:23.150" Score="2" Body="&lt;p&gt;If we try to directly optimize with respect to $t$, given this system (two unknwowns, one equation), we get a nonsensical result.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\partial P}{\partial t}: -s = 0$$&#xA;Which may not be true, and I'm assuming you are taking $s$ as given, not something to choose. You can only optimize with respect to $x$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\partial P}{\partial x} = 1 - sx = 0 \implies \boxed{x^* = \frac{1}{s}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What does this tell you about the optimal value of $t$ if anything?&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2015-11-24T20:12:23.150" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="9385" PostTypeId="1" AcceptedAnswerId="9387" CreationDate="2015-11-24T20:42:55.270" Score="3" ViewCount="108" Body="&lt;p&gt;Suppose I have alternatives $A$, $B$, and $C$. If I have strict preferences, that means that for any $x,y \in \{A,B,C\}$ such that $x \ne y$, either $x \succ y$ or $y \succ x$. Assume transitivity, non-reflexivity, completeness.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Things get a lot less clear to me when I'm trying to talk about it as an order. How would I say that an agent has an order over the alternatives that &lt;strong&gt;would&lt;/strong&gt; allow some ties? And how would I say an agent has an order over the alternatives that &lt;strong&gt;would not&lt;/strong&gt; allow ties? Is it just the intuitive &lt;strong&gt;weak total order&lt;/strong&gt; and &lt;strong&gt;strict total order&lt;/strong&gt;, over alternatives where the weak and strict carry the same meaning as for preference relations and total is a synonym for complete?&lt;/p&gt;&#xA;" OwnerUserId="48" LastActivityDate="2015-11-25T05:18:33.573" Title="Properties of orders and preference relations" Tags="&lt;mathematical-economics&gt;&lt;decision-theory&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9386" PostTypeId="1" CreationDate="2015-11-24T21:12:15.753" Score="2" ViewCount="154" Body="&lt;p&gt;I am very sorry if this is worded wrong.  I've looked at the numbers myself and it astounding how much college has gone up in price even for commuters in a few decades.  People didn't need these massive loans in the 60's or 70's.  I am graduating in a year with a degree in Online Journalism and Media and spend over a grand a semester out of pocket AFTER loans and aid.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Many people think people like me are lazy because we need help to afford college.  I have seen articles of people who work 70 hours in the summer and full time during school during full time classes; but that a lot.  Some may not be able to handle that kind of stress especially if the major was like software engineering or IT Business.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given this, are they right in what they AND by the numbers and how America has handled things, is college likely to be non-existent or for upper class people and rich in the future likely?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;OK!!  I am very sorry it got opinionated and personal in paragraph 2.  I'm a worry wart who is here to learn about economics in what concerns me.  Please just answer the big top question.&lt;/p&gt;&#xA;" OwnerUserId="6258" LastEditorUserId="108" LastEditDate="2017-04-09T07:45:06.590" LastActivityDate="2017-04-09T07:45:06.590" Title="Due to rising costs of college tuition, is it likely that the future will have less universities and the remaining only for those of much wealth?" Tags="&lt;labor-economics&gt;&lt;education-economics&gt;" AnswerCount="2" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="9387" PostTypeId="2" ParentId="9385" CreationDate="2015-11-24T21:17:31.240" Score="3" Body="&lt;p&gt;You are right, total is a synonym for complete, it simply means that two elements can always be compared.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regarding your other point, I don't think that your definitions of strict order and weak order are common but they make perfect sense. Notice, however, that they differ from some definitions used by mathematicians and therefore you have to specify what you are talking about to avoid possible confusions (you can check for instance &quot;strict weak ordering&quot;).&lt;/p&gt;&#xA;" OwnerUserId="4667" LastActivityDate="2015-11-24T21:17:31.240" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="9388" PostTypeId="1" AcceptedAnswerId="9400" CreationDate="2015-11-24T21:31:38.963" Score="14" ViewCount="2057" Body="&lt;p&gt;According to the Center for Disease Control and Prevention, approximately 35% of adults in the United States are obese. I have done much research on the topic of economic policies to reduce obesity (I did a fat tax simulation for my undergraduate capstone thesis). I have run into three proposals:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) Fat Tax: A fat tax is a tax on fatty foods or on fats themselves. Various papers I read on the topic simulated a tax on certain fatty foods. However, one paper proposed an ad valorem tax on saturated fats which seems like the most effective way to target fats. The biggest problem found with fat taxes is that fatty foods are very inelastic. This means that a tax won't change consumption much, so this doesn't seem like an effective option.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) Thin Subsidy: A thin subsidy is pretty much the opposite of a fat tax. It subsidizes foods that are considered healthy. In the literature, this option by itself doesn't change behavior much, but a thin subsidy can also be paired with a fat tax. Basically, the government would use all of the revenues from the fat tax to subsidize healthy foods. When paired together, they are more effective than they are separately, but they still are not very effective in reducing calorie intake.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;3) Gym Membership Tax Credit: This is a tax credit you can receive if you have a gym membership. I have not seen as much literature on this topic. Intuitively, if the tax credit is equal to or close to being equal to the cost of the membership, then people may have more incentive to get a gym membership. However, if the credit isn't very close to the cost of the membership, it may not cause people to go get memberships. Another problem with this method is that someone may get a membership and simply not go to the gym. I know most gyms have scanners now, so one remedy could be that the tax credit amount could depend on how many days you scan in.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Other than these three policies, are there any other policies being discussed to slow the trend of obesity? How effective can a policy be in reducing obesity rates?&lt;/p&gt;&#xA;" OwnerUserId="5825" LastEditorUserId="5825" LastEditDate="2015-11-25T00:18:21.760" LastActivityDate="2015-11-26T05:33:30.360" Title="Economic policies to decrease obesity (would they be effective?)" Tags="&lt;taxation&gt;&lt;public-economics&gt;" AnswerCount="7" CommentCount="10" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="9389" PostTypeId="1" AcceptedAnswerId="9396" CreationDate="2015-11-24T21:52:29.557" Score="3" ViewCount="328" Body="&lt;p&gt;I was studying about liquidity traps and understood it fairly well that according to widespread beliefs the monetary policy turns out to be ineffective as nominal interest rates are close to zero and the public has deflationary expectations. Since nominal rates are close to zero nobody wants to hold financial assets and prefer cash instead. &#xA;My question here is that in such a condition when nobody is investing in bonds, should not the central bank raise interest rates to give higher incentive to bond holders. I know I am missing some point but can someone please explain this relationship between interest rates, inflation and bonds in the context of liquidity trap. &lt;/p&gt;&#xA;" OwnerUserId="5582" LastActivityDate="2015-11-25T18:41:11.910" Title="Should central bank raise interest rates during a condition of liquidity trap?" Tags="&lt;macroeconomics&gt;&lt;monetary-policy&gt;&lt;liquidity&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9390" PostTypeId="1" CreationDate="2015-11-24T22:13:09.977" Score="3" ViewCount="871" Body="&lt;p&gt;I have a question regarding weighing observations by importance. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose I am running the following regression:$$log(y_{it}/y_{it-1})=\alpha+\sum_{i=1}^{N}\gamma_{i}Country_{i}+u_{i}$$ where basically my LHS is GDP growth of country $i$ at time $t$ that I regress on a full set of country dummies (-1).&lt;br&gt;&#xA;I want to weigh the observations by the GDP of the country. &#xA;If I am doing this on stata, what weights are appropriate? Frequency weights or probability weights? My intuition is that I have to basically run a weighted least squares regression of the form: $$ \hat{\beta}=(x'Wx)^{-1}(x'Wy)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $W$ is a diagonal matrix with the weights (GDP) on the diagonal. I am at a loss regarding how to implement this on Stata. Thanks!&lt;/p&gt;&#xA;" OwnerUserId="5233" LastEditorUserId="5233" LastEditDate="2015-11-24T22:19:46.917" LastActivityDate="2016-05-19T18:41:10.523" Title="Regression with weights" Tags="&lt;regression&gt;&lt;stata&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9392" PostTypeId="2" ParentId="8737" CreationDate="2015-11-24T22:58:59.807" Score="0" Body="&lt;p&gt;The answer is yes, if the Fed purchases an asset directly from the government.  But this rarely happens.  I could see it happening in perhaps a convoluted bailout scheme with the treasury department.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A good question would be why not, if so many of the Fed's assets are treasury securities.  Wouldn't it be smarter to just cut out the middle man and buy directly from the treasury?  I think so, but the Fed fears it would threaten its independence and would be less able to control liquidity in the banking system.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now the Fed does purchase US notes and US coins from the treasury department using &quot;electronic dollars&quot;.  When the treasury mints a coin that can actually be thought of something perhaps closer to what your question was asking.  The treasury is unique in that the money they create abides by different rules and processes. They don't have to buy securities. When the treasury makes 1 billion in coins, it roughly gave itself 1 billion dollars.  They then sell this to the Fed for say 1 billion in electronic dollars (or deposits at the Fed).  Largely speaking the treasury only prints US notes and coins as demanded by the Fed so this doesn't effect monetary policy, but this hasn't always been the case.&lt;/p&gt;&#xA;" OwnerUserId="6479" LastActivityDate="2015-11-24T22:58:59.807" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="9393" PostTypeId="2" ParentId="9389" CreationDate="2015-11-24T23:40:39.383" Score="2" Body="&lt;p&gt;In rough terms the central bank wants the nominal interest rates low so as a) to incentivize people to consume their income rather than save it and b) to make loans more attractive as they are linked with lower interest, thus bolstering consumption (again). During a crisis however, consumption remains low as expectations of economic growth deteriorate. Moreover, as interest rates are low, there is no point in saving money into the banks. Thus, people choose to hoard money, essentially removing it from the economy. With less money in the banking system and a generally pessimistic economic environment, banks become more skeptical towards providing loans as they doubt that they will get their investment back. All these processes empower the endurance of the vicious circle of the liquidity trap.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In theory, such prolonged periods of near zero interest rates would mean higher inflation. However, the recent crisis has proven that zero interest rates and stable inflation can co-exist. Therefore, the central bank has, up until now, been reluctant towards increasing the interest rates and in the past years it has made sure to inform the public that it is going to keep them quite low for some time (forward guidance). There is a whole debate of whether low interest rates are or should be linked with high inflation during financial crises and recently we see a drift, especially in the US, towards an interest rate increase even though it has not yet materialized.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Bonds are not considered a &quot;go to&quot; solution under a liquidity trap as their demand is really low. This stems from the fact that when a government faces a recession, its bonds are not considered a safe investment as they are paired with a high interest rate. Thus, the public awaits that they are unlikely to be honoured in the future. And if the recent financial crisis has taught us anything is that even bond holders are not safe.&lt;/p&gt;&#xA;" OwnerUserId="6485" LastEditorUserId="6485" LastEditDate="2015-11-25T18:41:11.910" LastActivityDate="2015-11-25T18:41:11.910" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9395" PostTypeId="2" ParentId="9388" CreationDate="2015-11-25T02:53:05.107" Score="6" Body="&lt;p&gt;&lt;a href=&quot;http://personalpages.manchester.ac.uk/staff/rachel.griffith/PublishedPapers/DGNAER.pdf&quot;&gt;Pierre Dubois, Rachel Griffith, and Aviv Nevo&lt;/a&gt; have a nice and well-executed AER paper where they argue that differences in obesity rates across countries can be due to differences in food consumption patterns. For instance, obesity rates are the highest in the United States at 30.0% (as you mentioned), compared to 14.5% in France and 23.6% in the United Kingdom. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.nber.org/papers/w9446&quot;&gt;Cutler, Glaeser, and Shapiro (2003)&lt;/a&gt; suggest that the decrease in the price of calories has increased caloric intake and contributed to the increase in obesity. So a policy that implies a change in price of calories may reduce obesity. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, &lt;a href=&quot;http://personalpages.manchester.ac.uk/staff/rachel.griffith/PublishedPapers/DGNAER.pdf&quot;&gt;Pierre Dubois, Rachel Griffith, and Aviv Nevo&lt;/a&gt; find that&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;differences in prices and characteristics are important and can explain some difference (e.g., United States–France difference in caloric intake) but generally cannot explain many of the compositional patterns by themselves. Instead, it seems an interaction between the economic environment and differences in preferences is needed to explain cross-country differences.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So, this result complicates the implementation of simple and one-dimensional policies. However, their model and methods can be used to evaluate various policies. For example, imposing a tax on sugar or on fat. It's worth a try.&lt;/p&gt;&#xA;" OwnerUserId="6168" LastActivityDate="2015-11-25T02:53:05.107" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9396" PostTypeId="2" ParentId="9389" CreationDate="2015-11-25T03:15:40.257" Score="2" Body="&lt;p&gt;A very good question, but first some clarifications.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The banking sector is unique from all other industries in that it creates its own liquidity.  Banks borrow short term low yield debt and invest in high yield long term assets.  The maturity mismatch that occurs in the aggregate is tremendous and not sustainable.  Banks are always reliant on individuals perpetually rolling over such short term debt as in the aggregate it can never be redeemed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Many argue that such maturity mismatching is reckless and not responsible.  That banks should suffer the consequences when they gamble by with such outrageous maturity differences.  Instead the Fed makes the problem worse, by constantly guaranteeing a source of short term debt to constantly proper up long term assets banks have no business owning.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So you can't equate interest/investment with the economy at large with what banks do.  Banks are unique!  They're problems should not necessarily be our problems.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for a liquidity trap...it is constantly happening and CB's like the Fed are constantly bailing them out by injecting short term debt into the fed funds market through the &quot;open market&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Banks mostly rely on other banks for their sources of reserves.  When banks stop trusting each other, the money multipliers collapses and the means by which short term debt can be redeemed starts to vanish.  I like to think of this as a liquidity fire instead of a liquidity trap as the banks have promised more reserves than they have in the aggregate...and when they scramble to claim their chairs when the music stops, it will just make the problem worse.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When a central bank talks about interest rates approaching zero, they're not talking about real investments (like securities and mortgages).  They're just talking about the rate they are trying to manipulate banks to lend each other. Bank to bank debt. Given that such a rate is determined by bank trust, such a rate does not necessarily have to correlate to the greater market rate at all.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Raising the fed funds rate will great increase a liquidity trap (not necessarily a bad thing).  More bonds won't make a difference...the banking system's ponzi scheme is being exposed and they need more reliable short term assets...not long term like bonds.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Kind of a long answer...but I hope you found this somewhat helpful.  The question is important.&lt;/p&gt;&#xA;" OwnerUserId="6479" LastActivityDate="2015-11-25T03:15:40.257" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="9397" PostTypeId="1" CreationDate="2015-11-25T03:35:03.353" Score="0" ViewCount="54" Body="&lt;p&gt;Two individuals are stranded on an island.  Bob and Jill.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By themselves they can produce:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Bob: 5 fish &amp;amp; 5 coconuts&lt;br&gt;&#xA;Jill: 5 fish &amp;amp; 5 coconuts&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If they specialize and trade, they can produce:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Bob: 20 fish&lt;br&gt;&#xA;Jill: 20 coconuts&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What would the supply and demand graph look like for this situation?  What would be the price?  Would Bob end up with say 13 fish and 11 coconuts.  Would Jill end up with 7 fish and 9 coconuts?  What determines this ratio or price?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If Sam then ends up on the island and can produce by himself 20 fish or 20 coconuts, does this matter?&lt;/p&gt;&#xA;" OwnerUserId="6479" LastActivityDate="2015-11-25T03:35:03.353" Title="How does supply and demand determine price for the following scenario?" Tags="&lt;utility&gt;&lt;supply-and-demand&gt;&lt;general-equilibrium&gt;&lt;expected-utility&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9398" PostTypeId="2" ParentId="9229" CreationDate="2015-11-25T03:46:19.243" Score="1" Body="&lt;p&gt;The Bartik instrument  (from &lt;a href=&quot;https://ideas.repec.org/b/upj/ubooks/wbsle.html&quot; rel=&quot;nofollow&quot;&gt;Bartik, 1991&lt;/a&gt;), also known as the shift-share instrument, is used as a typical instrument using 2-stage least squares regression. &lt;a href=&quot;http://ftp.iza.org/dp9436.pdf&quot; rel=&quot;nofollow&quot;&gt;Here&lt;/a&gt; is an interesting example, using an explicit Bartik instrument. Hope this helps.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that the required exogeneity condition of this instrument is not always satisfied.&lt;/p&gt;&#xA;" OwnerUserId="6168" LastActivityDate="2015-11-25T03:46:19.243" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9399" PostTypeId="2" ParentId="9389" CreationDate="2015-11-25T04:35:46.830" Score="1" Body="&lt;p&gt;Cash and bonds are almost identical from financial and economic perspective. Most institutional investors and banks keep much of their cash in bonds. Physical cash is becoming a bit obsolete so the notion of &quot;hoarding cash&quot; no longer means taking out bags with dollar bills and stuffing them under the mattress or into the safe box. Hoarding cash nowadays is pretty much moving money from equity to bonds or cash accounts, but not taking out physical bills, like it may have been before digitalization of financial markets. So in a liquidity trap you will have everyone practically &quot;hoarding bonds&quot;. Increasing interest rates in such situation will cause even more money to move out of the equities into bonds and exacerbate deflation. That is what has been happening to Japan and arguably happened in the US in 2009 when Fed responded with setting rates to ~0 and buying back about a trillion dollars worth of bonds (QE). However, liquidity traps are hard to define empirically. Any situation where you have rates near zero and inflation near zero or deflation, can be argued to be a liquidity trap.&lt;/p&gt;&#xA;" OwnerUserId="6231" LastActivityDate="2015-11-25T04:35:46.830" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="9400" PostTypeId="2" ParentId="9388" CreationDate="2015-11-25T04:49:16.460" Score="8" Body="&lt;p&gt;Yes, sugar tax!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is probably as controversial as tobacco tax was back in the days. If you walk through a supermarket, you will find that half of the food section is food full of sugar. Sugar is what makes you fat, not fat itself. It has been known for a while, at least since the professional sports were invented. Yet the lobby of the enormous sugar industry keeps regulators from labeling it as hazardous and taxing its use. If you are doing a research into obesity I highly recommend devoting two hours to watch &lt;em&gt;That Sugar Film (2014)&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would also recommend taking a multidisciplinary approach and bringing some arguments from biochemical and nutrition fields.&lt;/p&gt;&#xA;" OwnerUserId="6231" LastActivityDate="2015-11-25T04:49:16.460" CommentCount="14" ContentLicense="CC BY-SA 3.0" />
  <row Id="9401" PostTypeId="2" ParentId="9386" CreationDate="2015-11-25T05:09:03.323" Score="1" Body="&lt;p&gt;Short answers first.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;There will &lt;strong&gt;NOT&lt;/strong&gt; be less universities.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;If the high demand trend continues and the quantity of universities remains the same, &lt;strong&gt;the tuition will keep rising&lt;/strong&gt;.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;My advice is to take out loans instead of working overtime during your university years. You are likely to be working for a very low wage until you get your degree. If you instead spend your time trying to excel academically, after graduation your per hour earnings may be several times higher than your wage as a student. Take advantage of loan availability and low interest rates. Don't worry about what other people say. Let others graduate debt-free with chronic illnesses, psychological disorders, and on the bottom of their class. Of course they are going to be bitter because you are going to get more with less effort.&lt;/p&gt;&#xA;" OwnerUserId="6231" LastActivityDate="2015-11-25T05:09:03.323" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9402" PostTypeId="2" ParentId="9385" CreationDate="2015-11-25T05:18:33.573" Score="1" Body="&lt;p&gt;I don't think there's really a name for the type of ordering on preferences, and preferences are between vectors, which aren't necessarily ordered. It looks like because you have a finite number of alternatives though, you can easily have utility function representation, where&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$U$ represents $\succcurlyeq$ on the set of alternatives $X$ if $\ \forall x,y \in X, x \succcurlyeq y \implies U(x) \geq U(y)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Even though $U$ would be discontinuous in this case, you could probably call the domain of $U$ totally ordered (since $U \in \mathbb{R}$), and that should be sufficient in characterizing the preferences as well. We can't necessarily describe it as monotone, since we don't know the size of $\{A, B, C\}$, or what each element in the vectors are.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2015-11-25T05:18:33.573" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9403" PostTypeId="2" ParentId="9329" CreationDate="2015-11-25T05:40:08.797" Score="9" Body="&lt;p&gt;It depends on the context, of course, but most often in policy analysis &quot;the value of a life&quot; has nothing (directly) to do with output, etc, but instead means the maximum amount that people would want the government to spend in order to save a randomly chosen life.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So in a country of 300,000,000, the question is:  What, to you, is the monetary equivalent of a 1/300,000,000 chance of death?  Because 1/300,000,000 is a very small number, we don't have to worry terribly much about willingness-to-pay versus willingness-to-accept.  (Theory tells us that for small changes, the two willingnesses are effectively equal.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Returning to the question:  How much would you be willing to pay to avoid a 1/300,000,000 chance of death?  Now multiply that value by 300,000,000.  That's the value of one life, and arguably the amount we'd want our government to spend to preserve a randomly chosen life.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Obviously there are problems with heterogeneity (you and I might not answer the question identically).  But as a general rough rule, the estimates tend to come in somewhere under $10 million.  &lt;/p&gt;&#xA;" OwnerUserId="250" LastActivityDate="2015-11-25T05:40:08.797" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="9404" PostTypeId="2" ParentId="9386" CreationDate="2015-11-25T05:41:25.373" Score="4" Body="&lt;p&gt;&lt;a href=&quot;http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1305811&quot; rel=&quot;nofollow&quot;&gt;Hemelt and Marcotte&lt;/a&gt; wrote a paper studying the effect of rising costs on enrollment, and as it turns out, students who choose to pursue degrees have very inelastic demand; people are still going to university and they will keep doing so, despite these tuition hikes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think most students (myself included) have pretty imperfect information about the market, and they also forego a lot of searching because of the value of leisure. Most of their decision to go to school will be liquidity constraints and support from social/kinship ties. Liquidity isn't so much a concern nowadays, if parents really want their kids to go to school.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That said, there seems to be a shortage of manual/trade labor, such as in line work, which pays around 40$ an hour for starters (I think), but the population of laborers there are aging and due to retire. The job market could just be very sticky, and the demand shock for school caused by technology will slowly fall, causing tuition to fall with it. That's a bit more speculative though, and I'm not sure there's a lot of literature on rising tuition, on a very cursory glance.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2015-11-25T05:41:25.373" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9405" PostTypeId="2" ParentId="9388" CreationDate="2015-11-25T06:12:39.733" Score="4" Body="&lt;p&gt;In &quot;Uncommon Sense&quot;, by &lt;a href=&quot;http://press.uchicago.edu/ucp/books/book/chicago/U/bo7919487.html&quot; rel=&quot;nofollow&quot;&gt;Gary Becker and Richard Posner&lt;/a&gt;, Posner, going off of Becker's comment, suggests that while a fat tax would be regressive, poverty and obesity are correlated more because of a lack of salience about the causation between soft drinks and obesity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To remedy this, he actually suggests a complete ban on the sale of soft drinks with sugar to children. They have no nutritional value and sugar is very related to obesity. In his own words:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;They [sugar soft drinks] have good substitutes in the form of drinks sweetened artificially rather than by sugar. And while generally parents know better than government what is good for their children, many parents who permit their children to drink soft drinks do not. Banning the sale of soft drinks to children would not have a Giffen effect and would not be much more costly to enforce than the ban on  the sale of cigarettes to children, and might well be a justifiable policy measure.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I think it'd be a little harder to enforce the sale of sugar drinks to children as Posner suggests (unless parents providing sugar drinks to children was somehow also stringently punished as for providing alcohol for minors), but otherwise, I think it's a very interesting alternative policy measure he suggests.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2015-11-25T06:12:39.733" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9406" PostTypeId="1" CreationDate="2015-11-25T06:47:40.257" Score="4" ViewCount="1017" Body="&lt;p&gt;So, I've had this confusion for a long time. We all know how spending is absolutely vital for economic growth. However, at the same time, are savings necessary too?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My initial opinion was &quot;no&quot;. In a very particular argument, someone argued with me that &quot;since the money that goes into the companies as investment is nothing but the savings money,savings are important too&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I feel that if companies are getting all they want from direct profits (consumer spending), say with 100% consumer spending, they wouldn't need investments.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Would I be right in my argument? Or am I wrong?&lt;/p&gt;&#xA;" OwnerUserId="6486" LastActivityDate="2017-04-26T19:25:34.137" Title="Are savings necessary for economic growth?" Tags="&lt;macroeconomics&gt;&lt;investment&gt;" AnswerCount="5" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="9407" PostTypeId="2" ParentId="9406" CreationDate="2015-11-25T07:41:34.557" Score="1" Body="&lt;p&gt;I don't know if you're arguing a theoretical framework or whether saving is important for real economic growth. In theory a special case where all consumers would spend 100 % (MPC=1) of their income is possible to argue - the framework would be loaded with questions - it might, for example, make banks redundant.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In basic economic models savings is often considered equal to investment (you see a variation of S=I in many macroeconomic models) which means that all saved income is used for investment and therefore expected to expand the economy for future periods. In real life the relationship isn't quite this straightforward, but the basic idea still holds.&lt;/p&gt;&#xA;" OwnerUserId="5512" LastActivityDate="2015-11-25T07:41:34.557" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9410" PostTypeId="2" ParentId="9388" CreationDate="2015-11-25T11:20:34.127" Score="2" Body="&lt;p&gt;&lt;a href=&quot;https://www.ncbi.nlm.nih.gov/pubmed/?term=obesity+cause&quot; rel=&quot;nofollow noreferrer&quot;&gt;Obesity is not well understood.&lt;/a&gt; Causes likely include nutrition (sugar versus carbs in general versus different types of fat), as you write... but also non-nutrition lifestyle, like the amount (and type, and variety) of activity, along with metabolic, hormonal and other differences between people.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;All of which are heavily confounded with genetics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If your goal is to reduce obesity, it sounds a lot more useful to focus on the &lt;em&gt;outcome&lt;/em&gt;, not the unclear predisposing factors. Tax people based on their &lt;a href=&quot;https://en.wikipedia.org/wiki/Body_mass_index&quot; rel=&quot;nofollow noreferrer&quot;&gt;body mass index&lt;/a&gt;, or their &lt;a href=&quot;https://en.wikipedia.org/wiki/Waist%E2%80%93hip_ratio&quot; rel=&quot;nofollow noreferrer&quot;&gt;waist-to-hip ratio&lt;/a&gt;, or whatever. Let taxees figure out for themselves whether they need to change their diet or their lifestyle.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The best way of avoiding obesity could very well vary between people, depending on their genetics and their overall life. If I work long hours with a long commute, I might not have the time to do a lot of sports, so I should watch my diet. If I have a lot of free time, I might choose to indulge in &quot;bad&quot; food but do a lot of different sports.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;No, I am not aware of any work in this direction. And of course, such a tax would likely be controversial, so there would be political aspects in addition to the economic ones. &lt;a href=&quot;https://economics.stackexchange.com/questions/9388/economic-policies-to-decrease-obesity-would-they-be-effective?newreg=5769a61186bd49f889c1c1fa066d559a#comment12401_9388&quot;&gt;Vorac warns of corruption among GPs&lt;/a&gt;, but I'm honestly more wary of corruption among gym owners that a gym tax credit might engender - with the additional problem that a gym membership by itself does not magically reduce your BMI, so the connection to the outcome of interest is tenuous at best.&lt;/p&gt;&#xA;" OwnerUserId="6492" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-11-25T11:20:34.127" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="9411" PostTypeId="2" ParentId="9388" CreationDate="2015-11-25T12:52:30.950" Score="2" Body="&lt;p&gt;Is anyone aware of a study where health insurance rates would be dependent on body fat? It would, of course, be difficult to define when someone is overweight, but lets say being vastly overweight would increase the rates.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;After a short search I found this: &lt;a href=&quot;http://www.nber.org/chapters/c11825.pdf&quot; rel=&quot;nofollow&quot;&gt;http://www.nber.org/chapters/c11825.pdf&lt;/a&gt;, but it studies the effect of insurance on body weight and not the other way around.&lt;/p&gt;&#xA;" OwnerUserId="5512" LastActivityDate="2015-11-25T12:52:30.950" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9412" PostTypeId="1" CreationDate="2015-11-25T13:07:19.670" Score="1" ViewCount="84" Body="&lt;p&gt;In the Adaptive Philips Curve, $E(\pi_t|I_{t-1})=\pi_{t-1}$. &#xA;I'm reading a macro book, and the authors state that there is no long-term trade-off, i.e., when making the economy run at a level other than the equilibrium level of output, the policy makers must allow for inflation growth in the same direction, meaning $sign(\Delta \pi_t)=sign(y_t-y_e)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, the way they write in the book is as if some sort of trade-off could still be allowed by this adaptive Philips Curve, if not in the long-run, then at short/medium-run. How could this possible?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, in the Rational Expectations Phillips Curve, we have $E(\pi_t|I_{t-1})=\pi_{t}$. How can we deduce this equality just by using $\pi_{t}=E(\pi_t|I_{t-1})+\alpha(y_t-y_e)+\epsilon_t$, where $\epsilon_t$ is the error/shock term, and $E(\epsilon_t|I_{t-1})=0$?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="118" LastEditDate="2015-11-26T15:41:17.203" LastActivityDate="2015-11-26T15:41:17.203" Title="Inflation - Output Trade-off in the Adaptive and Rational Expectations Philips Curve" Tags="&lt;macroeconomics&gt;&lt;inflation&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="9414" PostTypeId="1" AcceptedAnswerId="11573" CreationDate="2015-11-25T13:30:42.150" Score="9" ViewCount="251" Body="&lt;p&gt;Would this not be more fair towards traders who don't trade at high frequency?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And would it not be possible to distribute this fixed frequency to other exchanges, modulo relativity?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reason I'm asking is because I recently learned that &lt;a href=&quot;http://tabbforum.com/opinions/why-hfts-have-an-advantage-part-3-intermarket-sweep-orders&quot;&gt;high-frequency traders are beating inter-market sweep orders&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="56" LastActivityDate="2016-10-26T17:28:54.143" Title="Why do stock exchanges not operate at a fixed frequency?" Tags="&lt;stock-market&gt;" AnswerCount="1" CommentCount="7" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9415" PostTypeId="1" CreationDate="2015-11-25T16:43:01.683" Score="2" ViewCount="71" Body="&lt;p&gt;Your utility from having $x$ dolars is $u(x)$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is a gamble in which the winnings in dollars are a random variable, $Y$. It is known that $E[u(Y)]&amp;gt;E[u(1)]$, so you prefer to bet than to get one dollar for sure.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But now you are offered the following options. You select a large number $T$ (which may depend on the distribution of $Y$), and then you can choose between two options:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A. Receive $T+1$ dollars.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;B. Bet $T$ times, where all bets are statistically independent and distributed like $Y$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For what utility functions $u$ would you prefer option B (for a sufficiently large $T$)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The expected utility of option B is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$E\left[u\left(\sum_{t=1}^T Y_t\right)\right]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $Y_t$ are i.i.d. variables distributed like $Y$. So the question is actually: for what functions is it true that, for a sufficiently large $T$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$E\left[u\left(\sum_{t=1}^T Y_t\right)\right] &amp;gt; u(1 + T)\; ?$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One obvious answer is when $u(x)=x$, since in that case: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$E\left[u\left(\sum_{t=1}^T Y_t\right)\right] = \sum_{t=1}^T E[Y_t] = T E[Y_t]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;since $E[Y_t]&amp;gt;E[u(1)]=1$, it is clear that for a sufficiently large $T$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$T \cdot E[Y_t] &amp;gt; T + 1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What other utility functions have this property?&lt;/p&gt;&#xA;" OwnerUserId="385" LastEditorUserId="385" LastEditDate="2015-11-27T06:14:27.753" LastActivityDate="2015-11-27T06:14:27.753" Title="To bet or not to bet" Tags="&lt;utility&gt;&lt;probability&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="9416" PostTypeId="2" ParentId="9388" CreationDate="2015-11-25T17:38:19.953" Score="2" Body="&lt;p&gt;Let's first examine what makes someone fat.  Barring some rare (and in most cases treatable) genetic factors, weight gain is dictated by a simple formula: Calories In - Calories Out. If the result is positive, your weight will go up. If it is negative, your weight will go down.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) Fat Tax - The silliest of all proposals. &lt;a href=&quot;http://authoritynutrition.com/6-graphs-the-war-on-fat-was-a-mistake/&quot; rel=&quot;nofollow&quot; title=&quot;This&quot;&gt;Fat doesn't really beget fat&lt;/a&gt;. Calories consumed does. So to cut down on calories consumed, you'd want to promote &lt;a href=&quot;http://www.ncbi.nlm.nih.gov/pubmed/7498104&quot; rel=&quot;nofollow&quot;&gt;high-satiety foods&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) Thin Subsidy: Pairing with my comments above, I feel like a &quot;Sliding Satiety Tax/Subsidy&quot; would be more effective. Subsidize foods that fill you up. Tax the ones that don't.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You mentioned that there is somewhat of an inverse correlation between income and obesity. I'd argue that the reason behind that is that it is &lt;a href=&quot;http://news.harvard.edu/gazette/story/2013/12/pinpointing-the-higher-cost-of-a-healthy-diet/&quot; rel=&quot;nofollow&quot;&gt;more expensive to eat healthy&lt;/a&gt;. Taxing unhealthy products (fast food, chips, some forms of microwave dinner, etc) to subsidize healthy products (fresh produce, etc) would help offset that. There also needs to be some form of subsidy on healthy fast food. Someone who works two minimum-wage jobs to take care of their family isn't going to want to make dinner; they need something that is quick, cheap, and healthy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Above is all about reducing the Calories In part of the formula.&lt;br&gt;&#xA;Below is about reducing the Calories Out part.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;3) Gym Membership Tax Credit: Anecdotal Evidence - University Gyms. Where I went, the gym was completely free. But people still wouldn't go if they weren't actively trying to get in better shape or actively dating.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To get people more active, I'd suggest a few more things&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Increased public transit. You need to walk to get to the bus/train, do transfers, etc. With a car, you can go straight from your garage to work/school and back. Include a corporate outreach that gives tax breaks to companies which sponsor employees' bus passes. Many people won't spend their own money on one, but will use one if the company offers it.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Better pedestrian support in cities. Safer bike lanes for commuters, bike paths and hiking trails for recreation.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="6496" LastActivityDate="2015-11-25T17:38:19.953" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9417" PostTypeId="2" ParentId="9388" CreationDate="2015-11-25T17:58:38.303" Score="6" Body="&lt;p&gt;In any discussion of obesity-related policy, it helps to call out a couple of assumptions:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Assumption: A healthy lifestyle will reduce a person's weight.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Everyone and their brother &quot;knows&quot; this to be true, but the science behind it is sketchy, at best. As several others have pointed out, obesity is not well-understood, medically, and it is entirely possible this assumption is wrong.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Assumption: Reducing weight is desirable as an end unto itself.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Again, people tend to consider health, happiness, and thinness to be the same thing. But the science behind this is even weaker than that of the first assumption; in fact, there are &lt;a href=&quot;http://jama.jamanetwork.com/article.aspx?articleid=1555137&quot; rel=&quot;nofollow&quot;&gt;actually studies that correlate mild obesity with lower overall mortality&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In light of these assumptions, the real question becomes: What are you actually trying to accomplish here?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you simply want to reduce obesity rates, the most straightforward approach would be to subsidize bariatric surgery, which &lt;a href=&quot;http://www.bmj.com/content/347/bmj.f5934&quot; rel=&quot;nofollow&quot;&gt;studies indicate reduces weight more than non-surgical alternatives&lt;/a&gt;. On the other hand, if your real goal is to reduce, say, heart disease, it is entirely possible that a tax on fat would be helpful, even if it doesn't lead to an appreciable reduction in average weight.&lt;/p&gt;&#xA;" OwnerUserId="6498" LastEditorUserId="40" LastEditDate="2015-11-26T05:33:30.360" LastActivityDate="2015-11-26T05:33:30.360" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9418" PostTypeId="2" ParentId="9415" CreationDate="2015-11-25T19:49:56.540" Score="1" Body="&lt;p&gt;I think the answer depends on the space $Y$ is coming from. Consider if $Y \in \{ 1, \frac{T+1}{T}+\epsilon \}$, where $\epsilon &amp;gt; 0$ and the probability $p$ of the better result is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$p &amp;gt; \frac{T^2}{\epsilon T + 1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Which just comes from solving:)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$1\cdot (1-p) + \left(\frac{T+1}{T} + \epsilon \right)\cdot p &amp;gt; T+1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then no matter what utility function you have, risk averse or risk loving, you will always take the gamble (option B).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Did you mean to have some sort of restriction on $Y$ for this question? Otherwise we'd have to consider both $Y$ and $u$ to determine whether the player will take option B.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastEditorUserId="5061" LastEditDate="2015-11-27T00:00:27.173" LastActivityDate="2015-11-27T00:00:27.173" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="9419" PostTypeId="2" ParentId="9406" CreationDate="2015-11-25T20:09:10.367" Score="0" Body="&lt;p&gt;&lt;em&gt;Investment&lt;/em&gt; is necessary for economic growth. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And in theory, most, if not all investment comes out of savings, at least in a closed economy. To that extent, savings are necessary for economic growth.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now I could make up a case where all the savings came from borrowed money, probably from abroad, with all investment earning enough to repay the loans and still support growth. But that would be an outlier case.&lt;/p&gt;&#xA;" OwnerUserId="15" LastActivityDate="2015-11-25T20:09:10.367" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9420" PostTypeId="1" AcceptedAnswerId="9424" CreationDate="2015-11-25T21:11:18.427" Score="4" ViewCount="11293" Body="&lt;p&gt;We know that the US dollar exchange rate increased during the global recession while usually when an economy performs weakly its currency should depreciate. How was there still a huge demand for USD in foreign markets even when subprime mortgage crisis was at its peak.&lt;/p&gt;&#xA;" OwnerUserId="5582" LastActivityDate="2015-11-26T04:23:24.400" Title="Why did US dollar appreciate during the Global Economic Crisis (2007-09)" Tags="&lt;currency&gt;&lt;exchange-rates&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9422" PostTypeId="1" AcceptedAnswerId="9423" CreationDate="2015-11-25T22:15:21.877" Score="3" ViewCount="137" Body="&lt;p&gt;There are a few papers that I have seen that publish insiginficant results, such as &lt;strong&gt;responses&lt;/strong&gt; (see Easterly's response published in the AER to Burnside and Dollars World Bank paper titled 'Aid, Policies and Growth). The aim of these papers, however, is to negate a positive claim which they do by producing insignificant results (in the hypothesis testing sense) using the same idea as the original authors, but using new data.&#xA;However, I have yet to come across a major paper &lt;strong&gt;in its own right&lt;/strong&gt; published in the top 5 journals that publishes results that are insignificant. This is a scary thought because when I do my own research, I always shudder before entering the regress y x command.   Are there well known papers that publish insignificant results? &#xA;Thanks!&lt;/p&gt;&#xA;" OwnerUserId="5233" LastActivityDate="2015-11-25T22:59:13.730" Title="Papers with insignificant results" Tags="&lt;econometrics&gt;&lt;applied-econometrics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9423" PostTypeId="2" ParentId="9422" CreationDate="2015-11-25T22:59:13.730" Score="4" Body="&lt;p&gt;This does not directly answer your question, but I will try to explain why I don't think that such well known papers exist.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If submitted I don't think that such a paper would be accepted by the top five journals. This is because the journals also compete to stay relevant, to give surprising information. The phenomenon is known as &lt;a href=&quot;https://en.wikipedia.org/wiki/Publication_bias&quot; rel=&quot;nofollow&quot;&gt;publication bias&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This was also a big problem for the medical community. The solution they arrived at is that they only accept trials if the trial and its hypothesis is reported to the authorities at the beginning of the trial. Because of this the result will be stored no matter what it is. Even though unsurprising results are unlikely to get much publicity, a researcher looking for them can find them. The same solution cannot work for economic regressions because running a regression on the same data always gives the same result. Hence false positives are not a result of lucky samples, but of tweeking the model to particular data.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2015-11-25T22:59:13.730" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="9424" PostTypeId="2" ParentId="9420" CreationDate="2015-11-25T23:56:40.283" Score="2" Body="&lt;p&gt;Because dollar is a major reserve currency. When a financial crisis occurs in other countries, like India, Brasil, Russia, etc, everyone sells stocks and liquiates assets to raise cash. But the cash they want to raise is usually dollars or euros. When a crisis hit the US, everyone started selling assets FOR dollars. I.e. they were buying dollas for stocks, trillions of dollars worth. This demand for cash appreciated dollar. There was a multitude of other factors involved, as discussed in this paper: &lt;em&gt;Dollar Appreciation in 2008: Safe Haven, Carry Trades, Dollar Shortage and Overhedging&lt;/em&gt; &lt;a href=&quot;http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1519814&quot; rel=&quot;nofollow&quot;&gt;http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1519814&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;After Fed's relatively successful monetary policy decisions, the US economy recovered faster than the economies of the EU and Japan, other reserve currency emitters. Then it was natural for dollar to continue strengthening. &lt;/p&gt;&#xA;" OwnerUserId="6231" LastEditorUserId="6231" LastEditDate="2015-11-26T04:23:24.400" LastActivityDate="2015-11-26T04:23:24.400" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="9425" PostTypeId="1" AcceptedAnswerId="9426" CreationDate="2015-11-26T03:38:53.940" Score="0" ViewCount="276" Body="&lt;p&gt;With the Federal Reserve set to review interest rates next month, the price of gold may very well drop if they increase it. But with the current prevalence of terrorism and insecurity, is the price of gold likely to be affected (increase/decrease)?&lt;/p&gt;&#xA;" OwnerUserId="6503" LastEditorUserId="1601" LastEditDate="2015-11-26T08:08:09.733" LastActivityDate="2015-12-03T19:36:36.273" Title="Gold Prices and Terrorism" Tags="&lt;interest-rate&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9426" PostTypeId="2" ParentId="9425" CreationDate="2015-11-26T04:48:30.967" Score="1" Body="&lt;p&gt;Very unlikely. Terrorism events are not economically significant enough to move a commodity like gold.  In fact, terrorist attacks only effect markets if they are likely to lead to a major economy entering a full-scale war like it was after 9/11, 2001. The cost of terrorism, while at historical height, is still very small to effect the markets significantly: &lt;a href=&quot;http://fortune.com/2015/11/17/terrorism-global-economic-cost/&quot; rel=&quot;nofollow&quot;&gt;http://fortune.com/2015/11/17/terrorism-global-economic-cost/&lt;/a&gt;. Even economy of a country like France that have been recently hit by a terrorist attack is not likely to be affected by it too much. Politicians may exploit the terrorist attack to push their agenda though, which may have negative effects on the economy, like this articles argues: &lt;a href=&quot;http://www.marketwatch.com/story/frances-real-challenge-is-growing-stagnant-economy-not-fighting-in-syria-2015-11-19&quot; rel=&quot;nofollow&quot;&gt;http://www.marketwatch.com/story/frances-real-challenge-is-growing-stagnant-economy-not-fighting-in-syria-2015-11-19&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Yet, gold is a very volatile market and the price of gold can move a lot in any direction for no obvious reason. Purchases and sales of gold by central banks and institutional investors often go unannounced.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another thing you should keep in mind if you want to speculate on the rate hike is that some big players may be waiting for that moment to BUY gold in large amounts, because that is when they can expect the most people placing sell orders. In that case the price of gold can jump contrary to expectations.&lt;/p&gt;&#xA;" OwnerUserId="6231" LastActivityDate="2015-11-26T04:48:30.967" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9427" PostTypeId="1" CreationDate="2015-11-26T11:28:19.143" Score="0" ViewCount="186" Body="&lt;p&gt;i'm applying a panel data analysis. I&#xA; have four variables; real GDP, trade openness, energy price and energy consumption. I took ln (log)of trade openness,real GDP and energy price. but i cannot decide whether ln(log) of energy consumption should be taken or not. please inform me on this. Thank you &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note: Kg of oil equivalent per capita is used to measure energy consumption.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EN= energy consumption&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Y=Economic growth&lt;/p&gt;&#xA;&#xA;&lt;p&gt;T= trade openness&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EP=energy price&lt;/p&gt;&#xA;&#xA;&lt;p&gt;W= country fixed effect&#xA;EN=f(Y,T,EP,W)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/xG6yU.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/xG6yU.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/auWnW.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/auWnW.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank  you. &lt;/p&gt;&#xA;" OwnerUserId="6134" LastEditorUserId="6134" LastEditDate="2018-07-11T00:31:00.613" LastActivityDate="2018-07-11T00:31:00.613" Title="ln(log) of energy consumption in a econometric analysis" Tags="&lt;macroeconomics&gt;&lt;econometrics&gt;&lt;time-series&gt;&lt;self-study&gt;&lt;paneldata&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="9428" PostTypeId="1" CreationDate="2015-11-26T11:34:35.110" Score="5" ViewCount="910" Body="&lt;p&gt;I was just reading about the Dutch Disease and it causes that the value of a country's currency increases when said country suddenly finds natural sources of oil. Why is that? &lt;/p&gt;&#xA;" OwnerUserId="6507" LastEditorUserId="1601" LastEditDate="2015-11-26T18:33:41.780" LastActivityDate="2015-11-26T18:33:41.780" Title="Why does the Dutch disease cause the value of the currency to increase?" Tags="&lt;currency&gt;&lt;dutch-disease&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9429" PostTypeId="2" ParentId="9428" CreationDate="2015-11-26T11:51:34.040" Score="9" Body="&lt;p&gt;How well do you know what you mean with &quot;currency increases&quot;?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The term Dutch disease describes an event where a single sector's boom (your example, finding oil) causes the said sector to grow and other sectors to decline as revenues increase in one sector. The booming sector causes the value of the currency (for example, the Dutch guilder) to appreciate (grow in value) compared to other currencies. This makes exports from non-booming sectors more expensive for other countries and therefore the booming of one sector causes a negative competitive effect on the other sectors.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the effect is:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Oil is found&lt;/li&gt;&#xA;&lt;li&gt;Oil (manufacturing) sector booms&lt;/li&gt;&#xA;&lt;li&gt;Currency value of the Dutch guilder increases as demand for Dutch guilder increases (to pay for Dutch oil. Can cause/be due to an inflow of foreign currencies)&lt;/li&gt;&#xA;&lt;li&gt;Exports from other sectors become more expensive (due to currency value increase)&lt;/li&gt;&#xA;&lt;li&gt;Other sectors become less competitive.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="5512" LastEditorUserId="5512" LastEditDate="2015-11-26T12:48:31.367" LastActivityDate="2015-11-26T12:48:31.367" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="9430" PostTypeId="1" CreationDate="2015-11-26T13:50:24.000" Score="2" ViewCount="48" Body="&lt;p&gt;First, I am not an economist so forgive me if the wording is not correct for the discipline. Second, I suspect this may end up being a &amp;quot;discussion&amp;quot; before it becomes an &amp;quot;answerable&amp;quot; question in which case comments may get moved to chat, and that is ok with me. In fact I would open a chat myself but I have no clue how that is done so I am starting with the Question...&lt;/p&gt;&#xA;&lt;p&gt;Some years ago (maybe around 2009?) I remember reading something someone wrote on a now forgotten blog or discussion website that has stuck with me. The writer proposed an idea that they called &amp;quot;&lt;em&gt;Cold Start Economics&lt;/em&gt;&amp;quot; (or something like that) and now that Economics.SE exists I want to ask &lt;strong&gt;if that idea is valid (feasible) or is flawed, and why?&lt;/strong&gt; I am doing this from memory so if anyone else has seen the original forgive me if I have mis-remembered any of it.&lt;/p&gt;&#xA;&lt;p&gt;There are a couple &amp;quot;sub-questions&amp;quot; that need to be addressed first...&lt;/p&gt;&#xA;&lt;h3&gt;Sub-question #1.&lt;/h3&gt;&#xA;&lt;p&gt;The proposal started with the idea that in an economic down-period people stop spending money and that causes the so-called &lt;em&gt;economic engine&lt;/em&gt; to stall for lack of fuel. Is this idea correct?&lt;/p&gt;&#xA;&lt;h3&gt;Sub-question #2.&lt;/h3&gt;&#xA;&lt;p&gt;The proposal also was based on a belief that most retail businesses get ~80% of their sales in the last couple months of the year. I've also heard this described as &amp;quot;most businesses run in the red-ink until after November 1st.&amp;quot; Is this idea really true / correct?&lt;/p&gt;&#xA;&lt;h3&gt;and now for the Main Question:&lt;/h3&gt;&#xA;&lt;p&gt;If the two points above are (mostly) valid then could the following proposal work?&lt;/p&gt;&#xA;&lt;p&gt;&lt;strong&gt;Oversimplified Version:&lt;/strong&gt; To restart the cold engine of the economy give everyone $1000 and make them spend it on tangible goods between Nov-1st and Jan-1st.&lt;/p&gt;&#xA;&lt;p&gt;&lt;strong&gt;Detailed version:&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;No later than July 1st issue a very special &amp;quot;pre-paid&amp;quot; type debit card to every person for which a tax return was filed in the past 2 years, or who did not file taxes but graduated high-school (~age 18), or who registered for selective service (~age 19).&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Just like any other plastic, the owner would call an 800 number to activate the card. They would be encouraged to do so BEFORE Nov-1st.&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The &lt;strong&gt;quantity&lt;/strong&gt; of activated cards in each zipcode would be available on a read-only website so that local merchants could anticipate potential sales and order products. Merchants could also offer special sales offers for users of the card.&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Initially the card will be empty but on Nov-1st a one-time deposit of $1000 would be made for all cards that had been activated&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The card will expire on Jan-2nd (no further purchases allowed even if there is a balance available).&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The card can only be used to purchase tangible goods (so not rent or investments), which will create an increased demand for products and a positive subsequent domino-effect on manufacturing. The typical &amp;quot;no booze or tobacco&amp;quot; type limits would also apply.&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The card can only be used in-person (physical signature required), which will boost the local merchant economy and feed the local tax-base. Not allowing remote (phone/online) purchases will also reduce fraud and allow more small businesses to benefit from the cashflow. Online companies will not be happy but then again these online businesses are (mostly) not collecting sales taxes so turnabout is fair play.&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;p&gt;That's about all I remember now, but if I think of anything else I will add it.&lt;/p&gt;&#xA;" OwnerUserId="6265" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2015-11-26T13:50:24.000" Title="Is this Economic Engine Cold Start theory valid? (ie: could it work?)" Tags="&lt;supply-and-demand&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9431" PostTypeId="1" AcceptedAnswerId="9434" CreationDate="2015-11-26T14:41:56.067" Score="1" ViewCount="229" Body="&lt;p&gt;I have economics knowledge of high school level (and basic economics from my engineering degree), and I always noticed that supply and demand functions are linear (in 4+ dimensions).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is -in practice, in real life- always the case? If not: What counterexamples (with theoretical models) do exist?&lt;/p&gt;&#xA;" OwnerUserId="4143" LastActivityDate="2015-11-26T15:53:05.120" Title="Are supply and demand always (with arbitrary dimensions but still) linear?" Tags="&lt;supply-and-demand&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9432" PostTypeId="1" CreationDate="2015-11-26T15:08:41.953" Score="1" ViewCount="225" Body="&lt;p&gt;We know that the price-setting mechanics and individual firm's behaviour in a competitive market are different with those of monopoly powers'.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, the demand curves of both competitive market(as a whole)and monopoly market slope down.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So here's the question: can we view the competitive market as a whole as some kind of monopoly power?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;PS: What I'm talking about is purely theoretical. Hence pure theory is ok for my question.&lt;/p&gt;&#xA;" OwnerUserId="6057" LastEditorUserId="6057" LastEditDate="2015-11-27T01:11:03.673" LastActivityDate="2015-11-28T20:44:23.363" Title="Is the economic behaviour of a competitive market as a whole the same as a monopoly market?" Tags="&lt;monopoly&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9433" PostTypeId="1" AcceptedAnswerId="41581" CreationDate="2015-11-26T15:28:16.863" Score="4" ViewCount="297" Body="&lt;p&gt;I have recently encountered (in a few applications), the Dixit-Stiglitz Pricing index. Consider a Constant elasticity of substitution form of utility $$U=\left(\sum_{i=1}^{N}c_{i}^{1-\frac{1}{\sigma}}\right)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This index basically aggregates prices to give a general term as a function of prices that yields a &lt;strong&gt;unit cost of utility&lt;/strong&gt;. How is the index derived?&lt;/p&gt;&#xA;" OwnerUserId="5233" LastActivityDate="2020-12-15T16:42:11.477" Title="Dixit-Stiglitz Pricing Index" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9434" PostTypeId="2" ParentId="9431" CreationDate="2015-11-26T15:43:17.003" Score="4" Body="&lt;p&gt;Absolutely not, linear curves are a simplification made for (many) basic economics courses. When considering the basic mechanisms of Supply and Demand (supply rises when the price rises, demand drops when the price rises, etc.) there is no need to use more complicated curves, but as soon as you introduce elements like optimization, it is in many cases necessary to use non-linear functions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In real life we don't generally observe curves as such, but rather different quantities sold with different prices. We can estimate curves based on this kind of data, but to me that's more of an econometric exercise.&lt;/p&gt;&#xA;" OwnerUserId="5512" LastEditorUserId="5512" LastEditDate="2015-11-26T15:53:05.120" LastActivityDate="2015-11-26T15:53:05.120" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9435" PostTypeId="2" ParentId="9406" CreationDate="2015-11-26T16:11:11.907" Score="0" Body="&lt;p&gt;I believe that you are somewhat right (in the short run). S=I is a national accounting identity in the closed classical model, but is it valid in real life? The general consensus is no. You are right in thinking that a firm could simply use profits to invest (for a real life example look at Starbucks). However, if there was no savings, long run growth will be slow (if there is any at all). There are a couple reasons for this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) Monetary Expansion: When money is put into a bank (saved) it creates loans for businesses, and the money expands (by the money multiplier). A dollar saved can create loans for multiple firms, which increases investment by more than a dollar, whereas a dollar consumed only funds investment (maybe) for one firm. For this reason, a dollar saved tends to have more of an impact on investment than a dollar consumed. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) No lending: If someone goes through their life consuming every dollar earned, then when they cannot work anymore, they will be in trouble. If they do not save, they must then borrow. This creates a huge problem, because from whom will they borrow? NOBODY SAVES. If there is some sort of government safety net like social security, then the government must pay these people. But since nobody saves (aka nobody buys government bonds), the government must always have a balanced budget, so government spending must decrease (since transfer payments are not included in government spending) in order to pay out social security. This leads to slowed (or even negative) growth. Therefore, if the government wants to maintain spending and growth, they cannot offer these social safety nets. Since the consumer cannot borrow from the government, and they cannot borrow in the private market, they can't consume.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These are two reasons why savings is pivotal for growth. I hope this answer clears things up for you.&lt;/p&gt;&#xA;" OwnerUserId="5825" LastActivityDate="2015-11-26T16:11:11.907" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9436" PostTypeId="2" ParentId="9432" CreationDate="2015-11-26T16:27:58.827" Score="1" Body="&lt;p&gt;Intuitively, I would say no. The main power that a monopoly has is that the firm can change prices at will, whereas a competitive firm has no power over price. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The competitive market demand curve slopes downward simply because of the law of demand. The typical procedure is to take the price determined by the aggregated demand curve as given and set the individual firm's demand curve equal to that. This seems peculiar (to assume to know the market demand before you know the firm's demand), but given the assumptions of perfect competition  (particularly perfect knowledge), this does make some sense. If every firm has perfect knowledge of demand for their good, then they inherently know the market demand curve. The reason why this is important is because that is how you derive the price taking behavior of competitive firms.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now that we have determined why price taking behavior exists, we can discuss whether competitive markets (as a whole) can behave like monopolies. The answer to this is that it would be nearly impossible for an aggregate competitive market to behave like a cartel (monopoly). The reason for this is because of the perfectly elastic nature of their demand. Suppose, somehow every firm agreed to increase their price to the exact same amount at the exact same time. Suppose further one firm had the ability to produce enough of the good to meet demand at a certain price. This firm (or any firms like it) would have a huge incentive to lower their price because by lowering their price (even by an infinitesimally small amount), they would instantly capture all of the demand for the good. If just one firm decides to cheat, then the whole market would end up right back at where they started at the original market price. For this reason, it is nearly impossible for an aggregated perfectly competitive market to act like a cartel.&lt;/p&gt;&#xA;" OwnerUserId="5825" LastActivityDate="2015-11-26T16:27:58.827" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9437" PostTypeId="2" ParentId="9432" CreationDate="2015-11-26T16:32:54.843" Score="1" Body="&lt;p&gt;Yes, to the extent that a component of the competitive market is unexpandable.  This could be scare minerals, patents, or even just the economies of scale.  Given that such scarcity exists in virtually all production, elements of a monopoly market will exist in any so-called &quot;competitive&quot; market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why is this so?  Because where production is limited by capacity and capacity is scarce, then price wars can not exist.  Acme sells widgets for 50 dollars.  As does XYZ.  Acme wants more business...so they lower their price to 30 dollars.  But then they have more business than they can service.  They then have a shortage...and people end up buying XYZ widgets even if they are more expensive, so Acme raises their price for rationing and we're back to where we started.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If Acme raises their price to 70 dollars, XYZ can't stay the same at 50 dollar, else they will sell out.  So in this strange way, many &quot;competitive&quot; markets (like say oil) behave as one monopolistic entity.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Say Acme and XYZ merge...their behavior will be the same.  They will not lower prices because of fixed capacity but can and will raise prices to monopolistic levels.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To the extent that factors of production can not be duplicated this will be a factor (we can't &quot;make more oil&quot;, we can't ignore patents, and economies of scale can not be duplicated).  On the last point, what I'm saying if production cost per unit have an inverse relationship with sales volume, than bigger companies will have an advantage that smaller do not.  Or put another way, we can't have 50 mass makers of computer processors with the same scale benefits AMD and Intel enjoy now.&lt;/p&gt;&#xA;" OwnerUserId="6479" LastActivityDate="2015-11-26T16:32:54.843" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9439" PostTypeId="1" AcceptedAnswerId="9445" CreationDate="2015-11-26T16:58:35.717" Score="1" ViewCount="242" Body="&lt;p&gt;I was just listening to some music and I found myself thinking about how I might measure the utility I experience from listening to it. I know there has been a lot of work done with measuring utility gained through altruism, but has there been any work done in economics (or any other fields) regarding measuring 'intangible utility'? Any references or methods would be greatly appreciated, thanks!&lt;/p&gt;&#xA;" OwnerUserId="5825" LastEditorUserId="40" LastEditDate="2016-05-10T03:34:41.663" LastActivityDate="2016-05-10T03:34:41.663" Title="Measuring &quot;Intangible Utility&quot; (reference request/methodological discussion)" Tags="&lt;reference-request&gt;&lt;measuring-utility&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="9440" PostTypeId="1" AcceptedAnswerId="9443" CreationDate="2015-11-26T17:05:11.583" Score="6" ViewCount="122" Body="&lt;p&gt;Is anyone able to recommend a textbook that covers the following topics at a level suitable for econ undergraduates?&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Differential calculus, including the various rules of differentiation and partial derivatives.&lt;/li&gt;&#xA;&lt;li&gt;At least some integral calculus.&lt;/li&gt;&#xA;&lt;li&gt;Probability theory, expected values, Bayes' rule.&lt;/li&gt;&#xA;&lt;li&gt;(optional) basic set theory.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I can find books with a nice treatment of calculus, but am struggling to find a book that also includes coverage of topics in probability.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Failing one book that covers all of these topics, I also welcome suggestions of books that might work well together to give such coverage.&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2015-11-26T19:33:59.163" LastActivityDate="2015-11-26T19:33:59.163" Title="Textbook covering calculus and probability theory" Tags="&lt;reference-request&gt;&lt;mathematical-economics&gt;" AnswerCount="1" CommentCount="5" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9441" PostTypeId="1" CreationDate="2015-11-26T17:20:40.113" Score="7" ViewCount="2878" Body="&lt;p&gt;Monopolies don't maximize welfare because they set prices above the equilibrium price, leading to dead-weight loss. It is possible for the government to provide a per unit subsidy to a monopoly until the producer's marginal cost equals the consumer's marginal benefit at the monopoly's chosen quantity, which would maximize welfare. This change would increase producer surplus and consumer surplus in this market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To a monopolist producer, a per unit subsidy is essentially equivalent to shifting the demand curve up by the value of the subsidy. It would be possible to shift the demand curve up until the optimal quantity produced is the higher equilibrium quantity. This requires that the subsidy provider knows the complete demand curve to set the optimal subsidy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The subsidy must come from somewhere, like a tax on a different market. It seems plausible that there would be situations where even if all tax incidence fell on consumers, consumer surplus would still be greater after the subsidization. If consumers and producers are overall better off after a subsidy, why don't consumers do this without government intervention?&lt;/p&gt;&#xA;" OwnerUserId="5845" LastEditorUserId="5845" LastEditDate="2015-11-26T19:13:56.300" LastActivityDate="2016-03-15T18:50:37.090" Title="Why don't consumers subsidize monopolies?" Tags="&lt;microeconomics&gt;&lt;monopoly&gt;&lt;welfare-economics&gt;" AnswerCount="2" CommentCount="10" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9443" PostTypeId="2" ParentId="9440" CreationDate="2015-11-26T19:22:30.910" Score="2" Body="&lt;p&gt;In a &lt;a href=&quot;http://www.studiegids.science.ru.nl/2015/en/course/36996/&quot; rel=&quot;nofollow&quot;&gt;course&lt;/a&gt; similiar to yours at the Radboud University Nijmegen, the Netherlands, they use two different lecture notes (in Dutch) and each set of notes recommends a book. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For probability theory, they recommend the following book:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Murray R. Spiegel, John J. Schiller, R. A. Srinivasan: (Schaum’s Outline of Theory and Problems of) Probability and Statistics. McGraw-Hill&#xA;Companies, 2000, 408 p., ISBN: 0071350047.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="5061" LastActivityDate="2015-11-26T19:22:30.910" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9444" PostTypeId="1" AcceptedAnswerId="18053" CreationDate="2015-11-26T19:39:24.437" Score="3" ViewCount="54" Body="&lt;p&gt;I am working on a paper for university about the car industry in Argentina.&#xA;I found a lot of data, but I cannot find any data about the turnover, profits and part of the GDP of this industry (Neither for each one one the companies) between 2014 and at least 2000 maybe more if possible.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The national office of statistics (INDEC) does not seems to have it, neither the ADEFA (Association of car constructors).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does anyone have a good data website about this industry in Argentina? &lt;/p&gt;&#xA;" OwnerUserId="6517" LastEditorUserId="2776" LastEditDate="2017-08-29T08:41:21.570" LastActivityDate="2017-08-29T08:43:05.120" Title="Data on Argentina car industry" Tags="&lt;data-request&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9445" PostTypeId="2" ParentId="9439" CreationDate="2015-11-26T19:48:10.883" Score="4" Body="&lt;p&gt;This is just a follow-up on denesp's comment. In economics, the utility is a tool used to represent choices, and therefore the right way of measuring the individual's utility from listening to the song is to elicit his willingness to pay for it. This can be done by a Becker-DeGroot-Marschak mechanism that eliminates moral hazard. Note that this refers to ex-ante anticipated utility.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The only way to look at actual &lt;em&gt;experienced&lt;/em&gt; utility is to rely on other means of investigation, like neuro-imaging or survey questions, in the spirit of happiness research. But this is quite controversial, since the concept of experienced utility is itself poorly defined. Most economists would not agree to base welfare analysis on such measurements. You can have a look at happiness research (e.g. Deaton, Kimball, Benjamin, ...) if you want to learn more on this. &lt;/p&gt;&#xA;" OwnerUserId="4667" LastActivityDate="2015-11-26T19:48:10.883" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9446" PostTypeId="1" AcceptedAnswerId="9447" CreationDate="2015-11-27T02:37:19.817" Score="2" ViewCount="60" Body="&lt;p&gt;I am interested in understanding the interaction between interpretation and explanation in social sciences in general and in economics particularly.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is argued that interpretation is pervasive in all methodologies, even in physical sciences. However, as I understand, interpretation cannot escape subjectivity: the interpretation must reflect knowledge and understanding of the interpreter. For example, some interpret recessions as crucial parts of the business cycle, but other interpret it in other ways.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Yet, we tend to be interested more in what causes the phenomenon, or finding the explanation of it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;How can we think of interpretation and explanation in economics?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;What is the relation between the two?  (I have senses that they can't go without the other, but are there any sources of reading in this topic?)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="4882" LastEditorUserId="43" LastEditDate="2015-11-27T10:01:35.140" LastActivityDate="2015-11-27T10:01:35.140" Title="Methodology of Economics: interpretation and explanation" Tags="&lt;scientific-method&gt;&lt;economic-methodology&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9447" PostTypeId="2" ParentId="9446" CreationDate="2015-11-27T02:54:28.980" Score="4" Body="&lt;p&gt;The standard reading on the methodology and the role of explanation in economics is Daniel Hausman's work.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hausman, Daniel M. The inexact and separate science of economics. Cambridge University Press, 1992.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Nancy Cartwright has some work on the interpretation of causation in the social sciences.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Cartwright, Nancy. Hunting causes and using them: approaches in philosophy and economics. Cambridge University Press, 2007.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another entry to this literature may be the Stanford Encyclopedia of Philosophy:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://plato.stanford.edu/entries/economics/&quot; rel=&quot;nofollow&quot;&gt;http://plato.stanford.edu/entries/economics/&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, I am not sure what you mean with a literature on interpretation in economics.&lt;/p&gt;&#xA;" OwnerUserId="5635" LastActivityDate="2015-11-27T02:54:28.980" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9448" PostTypeId="1" AcceptedAnswerId="9471" CreationDate="2015-11-27T08:42:26.510" Score="1" ViewCount="142" Body="&lt;p&gt;If the government removes an excise tax on producers, will their supply increase?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example,&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Price of gasoline is $2 a gallon &lt;/li&gt;&#xA;&lt;li&gt;Producers are taxed at 50 cents per gallon by the government&lt;/li&gt;&#xA;&lt;li&gt;Weekly demand is 400 million gallons per week at 2 dollars a gallon&lt;/li&gt;&#xA;&lt;li&gt;Weekly supply is 300 million gallons per week at 2 dollars a gallon&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;In essence if a excise is removed from the producers, to make gasoline more affordable. Would their supply increase as they are paying less to produce a gallon of gasonline?&lt;/p&gt;&#xA;" OwnerUserId="6521" LastActivityDate="2015-11-28T17:17:24.377" Title="Removal of tax excise on producers, will increase supply?" Tags="&lt;microeconomics&gt;&lt;supply-and-demand&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9450" PostTypeId="1" CreationDate="2015-11-27T15:19:00.550" Score="0" ViewCount="42" Body="&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Yield_curve&quot; rel=&quot;nofollow&quot;&gt;Yield curves&lt;/a&gt; are a valuable tool for economic analysis. It is particularly interesting to analyse the difference between Government Debt yields and Corporate Debt yields (credit spreads). This gives insight into confidence within the financial markets and economic health in general.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The government yield curve is easily accessible &lt;a href=&quot;https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt; but corporate yields are more difficult. I need a curve built from an index which gives an indication of the whole market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are some datasets available on &lt;a href=&quot;https://www.quandl.com/search?query=corporate%20bond%20yields&quot; rel=&quot;nofollow&quot;&gt;quandl&lt;/a&gt; which give yields for different types of bonds. The &lt;a href=&quot;http://us.spindices.com/indices/fixed-income/sp-500-bond-index&quot; rel=&quot;nofollow&quot;&gt;S&amp;amp;P 500 Bond Index&lt;/a&gt; provides some good perspective on S&amp;amp;P 500 bonds. I can't find anything though that gives an indication of either corporate bond prices or yields at different maturities. The maturity breakdown is needed to build a yield curve.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does anyone know where corporate bond yield curve data (corporate bond index yields/prices by maturity) is published for free? I'm particularly interested in XML/JSON resources.&lt;/p&gt;&#xA;" OwnerUserId="5891" LastActivityDate="2015-11-27T15:19:00.550" Title="Data source for a corporate bond yield curve?" Tags="&lt;interest-rate&gt;&lt;bonds&gt;" AnswerCount="0" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="9451" PostTypeId="1" CreationDate="2015-11-27T16:20:28.873" Score="3" ViewCount="279" Body="&lt;p&gt;Like many &lt;em&gt;noneconomists&lt;/em&gt; who read about economic history and finance, I always remain somewhat baffled by the opaque generation of currency under the federal reserve system. My understanding is that the banks &quot;loan&quot; money to the government, which prints a federal reserve note or IOU signed by Treasury. But then what?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How do the banks actually receive federal currency and/or credit... and determine the &lt;em&gt;amounts&lt;/em&gt; they receive? My understanding is that banks can effectively receive &lt;em&gt;as much money&lt;/em&gt; as they can &quot;justify&quot; by credit contracts, ratings, and a given ratio of leverage or fractional reserve. Apart from market forces and assumed prudence, are these the &lt;em&gt;only&lt;/em&gt; factors that legally limit the amounts of money banks can receive? Can banks essentially get &lt;em&gt;as much money&lt;/em&gt; as they say they can securely loan?       &lt;/p&gt;&#xA;" OwnerUserId="6118" LastActivityDate="2018-06-29T04:40:30.287" Title="By what steps and contracts does new money enter the economic system?" Tags="&lt;finance&gt;&lt;monetary-policy&gt;&lt;banking&gt;&lt;money-supply&gt;&lt;federal-reserve&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9452" PostTypeId="1" CreationDate="2015-11-27T17:10:58.900" Score="1" ViewCount="1832" Body="&lt;p&gt;I have the following question from my homework:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;When calculating the net present value of an investment project, the firm of Henry &amp;amp; Norman expects profit in the first year to be $60,000, and they expect real profits to remain at that level over the next five years.&lt;/p&gt;&#xA;&lt;p&gt;Since they are using nominal discount rate of 11 percent in their net present value calculation, they want to convert future real profits to nominal profits.  They expect inflation to be 4 percent per year over the next five years.&lt;/p&gt;&#xA;&lt;p&gt;The nominal profit for year 2 of the investment project is ___________(correct answer, 62,400)&lt;/p&gt;&#xA;&lt;p&gt;If the investment project has an initial cost of 200,000, the net present value in nominal dollars is _________  (my answer 64,474.50  book answer 38,264.90)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;The difference between the book answer and my answer is that I used 60,000 as year 1 profit with no discount.  I realized this was incorrect according to the given methodology in my textbook of &lt;span class=&quot;math-container&quot;&gt;$NPV=-C+\pi_1/(1+R)+\pi_2/(1+R)^2+...$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;What I don't understand is why we discount the profits in year one but don't consider inflation in year one.  This seems inconsistent to me.  Why do we discount the real profit in the first year and not the nominal profit, or if we assume nominal profits in year one are the same as real profit, why do we discount in year one?&lt;/p&gt;&#xA;" OwnerUserId="5904" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2019-11-20T05:22:53.907" Title="Net Present Value in Nominal Terms" Tags="&lt;microeconomics&gt;&lt;finance&gt;&lt;corporate-finance&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9453" PostTypeId="2" ParentId="9451" CreationDate="2015-11-27T17:27:44.370" Score="4" Body="&lt;p&gt;The phrasing of your question (the same is true for your description of your understanding) suggests to me that what you need to understand about money creation in banking is much more basic than &quot;steps and contracts&quot;. As a full treatment of money creation would not be appropriate on a Q&amp;amp;A site (it'd be really long!), I will instead recommend that you first read about the different types of money (specifically, the difference between &lt;a href=&quot;https://en.m.wikipedia.org/wiki/Monetary_base&quot; rel=&quot;nofollow&quot;&gt;base money&lt;/a&gt; and &lt;a href=&quot;https://en.m.wikipedia.org/wiki/Money_supply&quot; rel=&quot;nofollow&quot;&gt;broad money&lt;/a&gt;), and then that you read &quot;&lt;a href=&quot;http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf&quot; rel=&quot;nofollow&quot;&gt;Money Creation in the Modern Economy&lt;/a&gt;&quot;, which will answer your question about how banks create money. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The short answer to your question is that banks don't &quot;receive&quot; money to loan out as a part of any formal arrangement, rather, they are allowed to lend out a large fraction of the money that is deposited with them. Importantly, when they give someone a loan, the money that is loaned will tend to be deposited at a bank (because banking is a mostly closed system), which gives the bank that receives the deposit the option to loan out more money. That's how money creation happens— loans that, through the magic of double-entry accounting, result in the bank swapping one kind of asset (reserves) for another (an outstanding loan), while the borrower suddenly has a new liability (the loan they owe to the bank), and a new asset (cash). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;When we talk about money creation, we are not saying that banks &lt;em&gt;literally&lt;/em&gt; create money in the sense of asking that some be printed up for them, it's that the banking &lt;em&gt;system&lt;/em&gt; acts in a way that generates total liabilities (or claims on others) that are much greater than the monetary base. Because all money is really just claims on others, this is, in effect, money creation. &lt;/p&gt;&#xA;" OwnerUserId="264" LastActivityDate="2015-11-27T17:27:44.370" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="9454" PostTypeId="2" ParentId="9452" CreationDate="2015-11-27T17:38:13.763" Score="0" Body="&lt;p&gt;Because the cash flows are in real dollars, you should first calculate their nominal values using the rate of inflation 4%. Then, discount these cash flows using the nominal discount rate 11%. You should get NPV in nominal dollars. The answer will be the same if you use real discount rate to calculate the NPV in real dollars, but this time, use the original $60000 for each year as a cash flow as the company expect the real profits remain constant for the next 5 years. &lt;/p&gt;&#xA;" OwnerUserId="6009" LastActivityDate="2015-11-27T17:38:13.763" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="9455" PostTypeId="2" ParentId="9451" CreationDate="2015-11-27T23:41:28.540" Score="1" Body="&lt;p&gt;A lot of the confusion around this subject is created because of a problem of definition within economics, combined with a long term process that has changed the actual form of money being used in the economy over the last several centuries. That and some extremely badly written textbook descriptions that can ultimately be blamed on an a misquoted simplification provided by Keynes to the British Parliament in 1931(Macmillan Report).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Banks generally don't loan money to the Government. They can, the various parts of the Government can have bank accounts just like anybody else, but usually the closest they get is buying treasuries as an asset. In today's monetary economies - this changes with time and place - physical money is printed on demand, and while it's not quite an error term, it is a very small fraction of the total amount of actual money being used.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ever since the invention of cheques specifically, and in general the ability to make direct transfers between two deposit accounts, it is the money represented in a deposit account that has come to be the actual unit of monetary transfer used in modern economies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Money in deposit accounts gets created in two different ways - one is a deposit of actual cash money, and the other is any time a loan is made. (It should be noted here that deposit account money is also destroyed when a loan is repaid, or as part of loan write-off, so the actual growth (or contraction) in the money supply depends on the rate of new lending versus loan defaults.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For any non-economists with an engineering background - the actual relationship between physical cash and bank deposits managed by banks is better known as &lt;a href=&quot;https://en.wikipedia.org/wiki/Statistical_time-division_multiplexing&quot; rel=&quot;nofollow noreferrer&quot;&gt;'&lt;em&gt;statistical multiplexing&lt;/em&gt;'&lt;/a&gt;. Back in the day (around the 15th century), faced with the alternative of going to a known location to withdraw a heavy metal to use for monetary transfers, in cities that would remain innocent of organised police forces for a couple of hundred more years, goldsmith customers chose to transfer their deposit chits between each other, rather than the actual gold they represented. The early gold smith bankers on their side observed that they could get away with some quite significant amount of short term lending against the gold, since most of the time the gold wasn't being used. Quite rapidly - by the end of the 19th century the &lt;a href=&quot;https://en.wikipedia.org/wiki/Charles_Franklin_Dunbar&quot; rel=&quot;nofollow noreferrer&quot;&gt;American Economist Dunbar&lt;/a&gt; is reporting that over 90% of all transactions are being made through the banking system - the new form of money supplanted the old.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a system it has quite a few advantages - and next to the post office is one of the earliest forms of wide area network ever invented. It has some significant disadvantages too - the biggest being how to regulate it to not expand or contract too fast. Regulatory frameworks have changed a lot over time, and place, and are still a work in progress. For the USA at the moment, reserve ratios play little or no role (the reserve requirement only applies to Net Transaction Accounts (chequeing accounts essentially). There are separate controls introduced by the Basel Treaties that regulate lending as a multiple of bank capital, which are probably the most significant limit on bank lending in the US at the moment, alongside custom and practice limits on the amount of loans that people are allowed to take out. &lt;/p&gt;&#xA;" OwnerUserId="84" LastEditorUserId="14903" LastEditDate="2018-06-29T04:40:30.287" LastActivityDate="2018-06-29T04:40:30.287" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="9456" PostTypeId="1" AcceptedAnswerId="9474" CreationDate="2015-11-28T00:12:14.467" Score="1" ViewCount="419" Body="&lt;p&gt;It is said in the textbook &quot;Intermediate Microeconomics a Modern Approach&quot; by Hal Varian that monopoly affects the informational role of price. What's the mechanism?&lt;/p&gt;&#xA;" OwnerUserId="6057" LastEditorUserId="108" LastEditDate="2015-11-28T20:30:55.533" LastActivityDate="2015-11-28T20:30:55.533" Title="How does monopoly affect the informational role of price?" Tags="&lt;monopoly&gt;&lt;information&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9457" PostTypeId="1" AcceptedAnswerId="9460" CreationDate="2015-11-28T04:16:38.883" Score="2" ViewCount="1752" Body="&lt;p&gt;A common interpretation is &quot;Higher interest rates put less borrowing power in the hands of consumers and businesses. And when they spend less, firms are not selling everything and prices naturally falls.&quot; In the perspective of AS-AD model, this is caused by a downward shift of the demand curve. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, I suppose it will cause a supply curve shift as well. Today, most production is funded by short-term borrowing and relied on people paying them for the goods and then pay back the loans. So when the interest rate goes up, the production costs go up, and hence causing a negative supply shock as well. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But reality seems to confirm the fact that higher interest rate lower inflation. Why is that? Is that because the supply shock is not as significant as the demand shock? If so, why is that?&lt;/p&gt;&#xA;" OwnerUserId="4551" LastEditorUserId="4534" LastEditDate="2015-11-28T05:26:59.700" LastActivityDate="2015-12-02T11:52:28.870" Title="In the short run, why do higher interest rate lower inflation?" Tags="&lt;macroeconomics&gt;&lt;inflation&gt;&lt;interest-rate&gt;" AnswerCount="4" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9458" PostTypeId="2" ParentId="9452" CreationDate="2015-11-28T04:45:56.873" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;What I don't understand is why we discount the profits in year one but&#xA;  don't consider inflation in year one. This seems inconsistent to me.&#xA;  Why do we discount the real profit in the first year and not the&#xA;  nominal profit, or if we assume nominal profits in year one are the&#xA;  same as real profit, why do we discount in year one?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;As you said, the firm&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;expects profit in the first year to be $60,000, and they expect real profits to remain at that level over the next five years.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;They are expecting both &lt;strong&gt;real and nominal&lt;/strong&gt; profits (because they do not explicitly state only one or the other) to be \$60,000 &lt;strong&gt;for year one&lt;/strong&gt; but they need to calculate NPV for $T_0$, thus they need to discount the \$60,000 for a single year (and the others for an additional year).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We're realizing the profit as income starting in $T_1$, and realizing the initial capital expenditure at time $T_0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$T_0$----------$T_1$--------$T_2$--------$T_3$--------$T_4$--------$T_5$&lt;br&gt;&#xA;-200000 + 60000 + 60000 + 60000 + 60000 + 60000 Real&lt;br&gt;&#xA;-200000 + 60000 + 62400 + 64896 + 67492 + 70192 Nominal&lt;br&gt;&#xA;-200000 + 54054 + 50645 + 47451 + 47451 + 41655 Nominal Discounted  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Calculated in Python:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;&amp;gt;&amp;gt;&amp;gt; -200000 + sum(60000 * (1.04**i) / (1.11**(i+1)) for i in range(5))&#xA;38264.90224378838&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;As to the reason the authors of the question gave these conditions, I presume that they want to ensure that you can quickly arrive at the correct calculations based on seemingly trivial but important details. I recall a similar trick in a corporate finance final, where a careful reading of the question indicated that a speedy reading of the question (one that I initially made and expected most of my peers would make) would result in an off-by-one time period mistake.&lt;/p&gt;&#xA;" OwnerUserId="4534" LastEditorUserId="4534" LastEditDate="2015-11-29T21:35:32.343" LastActivityDate="2015-11-29T21:35:32.343" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9459" PostTypeId="2" ParentId="9441" CreationDate="2015-11-28T04:58:51.460" Score="5" Body="&lt;p&gt;As you pointed out, the problem of inefficient supply by a profit maximizing monopolist can be solved via subsidizing the monopolist to increase his marginal revenue. The subsidy can be paid by the consumers or by a central government.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consumers unfortunately perceive the problem as a collective action problem: The marginal utility gain from subsidizing the monopoly is much lower than the marginal welfare gain of society, making individuals reluctant to subsidize the monopoly.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Governments, however, can solve the collective action problem by raising a tax and thus financing the subsidy. However, governments usually do not only pursue efficiency but also interpersonal equity. If the government cannot transfer the monopolist's earnings lump sum to the consumers, then this may conflict with the goals of interpersonal equity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To give a simple example: Suppose rich individual A owns a monopoly on water. There are many consumers of water who are all poor. A sets the profit maximizing price/quantity. If the government maximizes total utility and all consumers have identical concave utility functions, the government would like to impose the efficient subsidy and tax the rich individual A lump sum to finance the subsidy and possibly transfers to the poor. However, if the lump sum tax on A is not available, we are in what is called a second-best solution. In this case, it may be optimal for the government to permit some inefficiency from the monopoly rather than taxing the poor to pay for the subsidy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As an aside: Most interestingly, if there is an omniscient government which maximizes social welfare and can make lump-sum transfers, then under some regularity conditions the collective action problem disappears without the government imposing the subsidy! Thus, I would have an interest to subsidize the monopoly on my own. This is because the utility possibility frontier is pushed outwards by the subsidy and the government will reimburse me lump sum for my cost.&lt;/p&gt;&#xA;" OwnerUserId="5635" LastActivityDate="2015-11-28T04:58:51.460" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9460" PostTypeId="2" ParentId="9457" CreationDate="2015-11-28T05:28:45.743" Score="3" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;In the short run, why do higher interest rate lower inflation?&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;As you say:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;Higher interest rates put less borrowing power in the hands of consumers and businesses. And when they spend less, firms are not selling everything and prices naturally falls.&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;There's also the effect on the velocity of money and the money supply that less borrowing brings to provide further downward pressure on prices.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I also think your concerns about supply falling in the short term are unfounded. Firms are slow to adjust their production/supply due to greater borrowing costs. Instead, they will attempt to keep up production and clear their inventories by lowering prices in the hopes that the next season will show them a success and bail them out. Any such effect from interest rates would be a much longer-run effect.&lt;/p&gt;&#xA;" OwnerUserId="4534" LastActivityDate="2015-11-28T05:28:45.743" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9461" PostTypeId="1" CreationDate="2015-11-28T08:25:39.173" Score="1" ViewCount="95" Body="&lt;p&gt;Does 'infinitely elastic' and 'inelastic' pertain to same meaning? What is the difference between them? Please explain in brief.&lt;/p&gt;&#xA;" OwnerUserId="6525" LastActivityDate="2015-11-29T11:25:02.037" Title="Elasticity and its types" Tags="&lt;economic-terms&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9462" PostTypeId="1" CreationDate="2015-11-28T10:18:35.090" Score="4" ViewCount="316" Body="&lt;p&gt;I'm referring to the Figure 13.B.1 titled 'A competitive equilibrium with adverse selection' from 'Microeconomics Theory' by Mas Colel et al. It basically graphs the expected value of the workers' productivity ($E[\theta|r(\theta)\leq w])$ against the wage offered $w$ in an attempt to explain the wage equilibrium when the opportunity cost $r(\theta)$ is lower than $\theta$ for all $\theta$.. For the life of it, I cannot understand why this function is a curve (as opposed to straight line) in the graph. What is the distributional assumption for worker's type $\theta$ that is made in order to obtain the curve? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks. &lt;/p&gt;&#xA;" OwnerUserId="6527" LastActivityDate="2015-11-28T21:15:23.710" Title="Adverse selection in competitive markets- labor market" Tags="&lt;wages&gt;&lt;adverse-selection&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9463" PostTypeId="2" ParentId="9461" CreationDate="2015-11-28T13:58:02.883" Score="2" Body="&lt;p&gt;No. In fact, they mean quite the opposite.&#xA;Infinitely elastic, means the elasticity is infinity.&#xA;Perfectly Inelastic means not elastic, i.e. the elasticity is 0.&#xA;Ineslastic means the elasticity is very low, so between 0 and 1. This means there is &quot;underreaction&quot; (less than proportional).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So if something is infinitely elastic there will be an extremely large reaction.&#xA;If something is perfectly inelastic there will be no reaction.&#xA;If something is inelastic,  there will be very little reaction.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's take the example of price elasticity for an ordinary good where price increases cause demand to fall.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A good with a very close substitute would have a large price elasticity. If it's infinite: At a given price there will be a given demand. As soon as we increase the price even marginally the demand will fall to 0.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A good with no substitute and especially addictive goods usually have a price elasticity of (close to) 0 typically. There is the same demand at all prices. Assume an individual who always must smoke a pack of cigarettes a day. If we increase the price of cigarettes and if his elasticity is 0, then he will continue to purchase one pack a day. Even if we double the price or more, there will be no reaction (in this case reduction).&lt;/p&gt;&#xA;" OwnerUserId="5557" LastEditorUserId="5557" LastEditDate="2015-11-29T11:25:02.037" LastActivityDate="2015-11-29T11:25:02.037" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9464" PostTypeId="1" AcceptedAnswerId="9473" CreationDate="2015-11-28T14:42:07.837" Score="0" ViewCount="1197" Body="&lt;p&gt;In microeconomics textbook, there is always this notion of zero economic profit in perfect competition. We know that when people gets negative economic profit, they often leave the market. What I wonder is if there exists some NPOs that competes in everyday markets (such as food markets because it sounds like doable), earning say zero accounting profit, meaning negative economic profit. If there do exist, why aren't they driving other for profit competitiors out? Is this because not much people are investing or what?&lt;/p&gt;&#xA;" OwnerUserId="4551" LastActivityDate="2020-03-11T06:31:17.070" Title="Zero Economic Profit and opportunity cost?" Tags="&lt;microeconomics&gt;" AnswerCount="2" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="9465" PostTypeId="2" ParentId="9461" CreationDate="2015-11-28T15:10:58.290" Score="1" Body="&lt;p&gt;Elasticity is a general concept which basically means how sensitive one quantity is with respect to some other quantity. In economics we use concepts like price elasticity of demand, elasticity of substitution etc. &#xA;A high value of elasticity say for example price elasticity of demand means that the quantity demanded is too much sensitive to the price. This will be represented by a horizontal curve between price and quantity demanded and the demand is said to be infinitely or perfectly elastic.&#xA;A very low value of price elasticity of demand means that the demand is not much influenced by the price. In such case the demand is said to be perfectly inelastic. Price elasticity is majorly governed by consumer needs and availability of substitutes.&#xA;Although it is difficult to find perfectly elastic or perfectly inelastic goods around us but still we can understand highly elastic goods with the example of, say, a book on economics in printed form. If its price increases even by a small amount people have many substitutes such as online free books or books by other authors. Its demand may fall drastically. &#xA;An inelastic good could be the air we breathe, water we drink etc. Even if you are charged heavily for it you may not reduce your consumption. &#xA;But one point to be noted here is that it depends on the consumer utility which goods can be regarded as elastic or inelastic and it may vary from consumer to consumer. For example, oil can be an inelastic good for a millionaire but not for someone poor who can barely afford a rise in oil price.&lt;/p&gt;&#xA;" OwnerUserId="5582" LastActivityDate="2015-11-28T15:10:58.290" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9466" PostTypeId="2" ParentId="8923" CreationDate="2015-11-28T15:33:43.933" Score="1" Body="&lt;p&gt;In my understanding you are studying about the balanced budget multiplier. When the government tries to boost GDP by increasing government expenditure (G) and by financing this expenditure by an equal increase in gross taxes collected (T). &#xA;Yes, theoretically such a simultaneous increase in G and T will increase the GDP by an amount equal to the increase in G.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The point to be understood is the functioning of multiplier in the economy. Economy works in a circular flow. Loosely speaking, the income of firms is equal to the consumption of the consumers. When G is increased it goes directly in the economy and gets added in GDP as in a closed economy GDP = C + I + G where C= Consumption by households and I = investment by firms. C depends on GDP and T itself which gives rise to the multiplier affect (taking I and G as independent of GDP) which implies an increase in GDP more than the increase in T.&#xA;However, when government increases T, the multiplier effect is not as much strong as T is not a direct component of the GDP. It works by affecting C. &#xA;You can easily understand the mathematics behind it once you look at any standard textbook. &lt;/p&gt;&#xA;" OwnerUserId="5582" LastEditorUserId="5582" LastEditDate="2015-11-28T16:25:13.383" LastActivityDate="2015-11-28T16:25:13.383" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9467" PostTypeId="2" ParentId="9457" CreationDate="2015-11-28T16:43:23.843" Score="0" Body="&lt;p&gt;We need to understand the state of economy. When prices are rising rapidly we might be in the classical range of economy that is when a positive output gap exists. In such a situation, prices will change according to the higher interest rates (the supply curve will be vertical) and there will be a strong impact of monetary contraction or expansion on the prices and not on quantity as such. And if we are somewhere in the middle where we can safely say that the supply is influenced by price positively. In short run some price adjustment will take place. Firms will not reduce their capacity so swiftly in short run but reduce price instead. But yes the supply can really shift under if this persists. &lt;/p&gt;&#xA;" OwnerUserId="5582" LastActivityDate="2015-11-28T16:43:23.843" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9468" PostTypeId="2" ParentId="9451" CreationDate="2015-11-28T16:52:37.443" Score="2" Body="&lt;p&gt;There are two types of money:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Government money or the monetary base (MB) which consists of paper dollars, electronic dollars, US notes and coins.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&quot;checking account money&quot; (aka demand deposits).  We have more in checking (in the aggregate) than MB and we accept checks as money so they are money.  The most narrow definition of the is M1, but a more accurate/broader definition is M2 or even M3.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The process by which both enters the economy is very different!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's start with how MB is created. First it is very useful to study the Fed &lt;a href=&quot;https://en.wikipedia.org/wiki/Federal_Reserve_System#Balance_sheet&quot; rel=&quot;nofollow noreferrer&quot;&gt;balance sheet&lt;/a&gt; to get a conceptual understanding how this works. For the Fed, when they create money it is a liability.  To the individual that holds the money it is an asset.  Let's monitor a transaction that introduce 100k into the economy.  The Fed sees the rate at which banks charge each other for short term loans change from 4% to 4.5%.  Say the target Fed Funds Rate is 4%.  The Fed tries to restore 4% by adding money to the banking system.  So they go to the &quot;Open Market&quot; and find a bank (only a special one called a &quot;Primary Dealer&quot;) that will sell them an asset for 100k (treasury REPOs are usually the asset of choice).  The Fed creates a 100k liability (Fed deposit) and uses it to acquire the security (now an asset to the Fed).  The Primary dealer now owns 100k in electronic dollars (or a 100k deposit at the Fed that doesn't exist before).  The 100k represents a 100k increase in the MB.  The Primary dealer of course will spend or relend this to the rest of the economy and that is how MB is created.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So how is bank money created?  When you deposit say 22k in cash at a bank, they keep 22k in reserves (cash or electronic dollars), and they give you a 22k claim on those reserves.  But money hasn't been created yet.  It is when a bank issues more claims on reserves than it has, that bank money is created.  So if a banker has 232k in reserve assets and 232k in deposit liabilities, but notices that on average all reserves are never completely redeemed.  So say they overbook their reserves by selling some to another bank.  Say 32k.  The bank now has 32k in say treasury assets, 200k in reserves, 232k in deposit liabilities.  Money has been created.  This is inherently unstable because the bank is issuing more promises than can be kept and central banks work very hard to subsidize this system so there is never a &quot;bank run&quot;.  Whether they should is another question (it can cause inflation and instability).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then some clarifications in regards to your specific points.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Banks do not mostly loan directly to the government, but they do so indirectly.  A lot of bank money is used to purchase securities from the secondary market, but not so much the primary market.  Certainly bank money is used to purchase many other things like home loans.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Federal reserve notes and coins (M0) are not significant to determining monetary policy because they ommit electronic dollars (or deposits at the Fed). The Fed will gladly switch electronic dollars to paper or vice versa, so the difference between the two is not significant.  M0 (physical money) + federal reserve deposits (electronic money) = MB all government money. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Practically speaking the banks do not dictate to the Fed how much MB they receive (which in turn determines how much bank money they can pyramid onto this new MB).  A modern explanation of how banks works figures in the influence they cause to the &quot;open market&quot; which means to an extent they can determine how much the Fed gives them.  This is very complex and unnecessarily obscures sound underlying concepts of how fractional banking works.  I wish many economic students are not told about this first as it really confusing things.  I'll try to explain.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Fed's favorite weapon of choice for introducing MB into a economy is through the &quot;open market&quot;.  They attempt to influence the Fed Funds rate to be an arbitrary interest rate.  If they banks charge each other more for short term loans, this rate goes up and they will induce the Fed to create more MB.  In a modern system, banks heavily borrow and lend from each other.  Your common bank then in turns borrows and lends from super banks (primary dealers), and super banks (primary dealers) borrow and lend to the Fed.  In a &quot;modern system&quot; the banks are not concerned about reserves...because they know indirectly they will be provided (the basic concepts of fractional banking are still valid though).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So say a bank sees a great opportunity to acquire a 100k interest bearing asset.  They just buy it (unless their credit rating is suspect).  And then borrow the reserves they need to buy it from another bank.  If reserves are scare, the rate at which reserves are charged goes up, which induces the Fed to add more reserves to the system.  This is complex and again obscures very sound technical concepts of how banking works.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the banks got together as a cartel and fixed the Fed Funds Rate, then yes, there is not limit to the extent to which the open market could be manipulated to provide reserves to bank (well more so than currently).  A logical concern is that the Fed is already buying overpriced assets and getting churned by excess/manipulated buy/sell volume which means your average taxpayer is hurt.&lt;/p&gt;&#xA;" OwnerUserId="6479" LastEditorUserId="2776" LastEditDate="2017-08-03T13:23:32.150" LastActivityDate="2017-08-03T13:23:32.150" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="9469" PostTypeId="2" ParentId="9456" CreationDate="2015-11-28T17:12:32.893" Score="0" Body="&lt;p&gt;Price acts as a signal in markets. In a perfectly competitive market all firms face a horizontal demand that is fixed by the market and hence they have no control over the price of their good. It is market determined and no single firm can influence it. However, in an monopolistic market where there are many brands they have some control over their prices. Each brand can have a differentiating feature and certain level of loyalty. Imagine a firm whose brand is very strong, it can certainly charge a higher price. In fact informed buyers in general will expect strong brands to charge a higher price than others. Others might be offering cheap goods so and they will have their own market share. Hence the price change here is like a signalling event which can give information to buyers whether the goods are of good quality or substandard etc. Now, imagine a monopoly. In a perfect monopoly price will give no information. There is a single firm which produces goods and it can decide any quantity and price suiting it cost structure. A monopoly charging very high price doesn't mean it will  offer high quality goods. &lt;/p&gt;&#xA;" OwnerUserId="5582" LastActivityDate="2015-11-28T17:12:32.893" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9471" PostTypeId="2" ParentId="9448" CreationDate="2015-11-28T17:17:24.377" Score="1" Body="&lt;p&gt;A producer will always maximize profit by setting marginal cost equal to marginal benefit. Removing an excise tax will reduce the cost of every gallon of gas, so it would indeed effectively lower the marginal cost of production. Assuming the production function isn't falling into a diseconomy of scale (where the more effort/resources you put it, the less efficiently you produce), then yes, production of gasoline should increase as a result.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope this helped.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2015-11-28T17:17:24.377" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9472" PostTypeId="1" AcceptedAnswerId="9480" CreationDate="2015-11-28T17:43:01.380" Score="2" ViewCount="272" Body="&lt;p&gt;I need help drawing the Pareto Set for an Edgeworth economy. I know how to find the contract curve given an allocation, and I &lt;em&gt;think&lt;/em&gt; that ends up being the competitive equilibria, but drawing the Pareto line is much harder than anticipated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We are given 2 goods and 2 agents, with log utility $(\alpha_i &amp;gt; 0)$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$u_i(x_i) = \alpha_i \ln x^1_i + \ln x^2_i$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We get the tangency condition:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\alpha_1 \frac{x_1^2}{x_1^1} = \alpha_2 \frac{x_2^2}{x_2^1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And combine with the resource constraints:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$x_1^1 + x_2^1 = r^1$$&#xA;$$x_1^2 + x_2^2 = r^2$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A lot of algebra:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\alpha_1 \frac{x_1^2}{x_1^1} = \alpha_2 \frac{r^2 - x^2_1}{r^1 - x^1_1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies \alpha_1 (x^2_1 r^1 - x^2_1 x^1_1) = \alpha_2 (x^1_1 r^2 - x^1_1 x^2_1)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies \alpha_1 x^2_1 r^1 - \alpha_2 x^1_1 r^2 = (\alpha_1 - \alpha_2) x^1_1 x^2_1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$(\alpha_1 \cdot \frac{1}{x^1_1} \cdot r^1) - (\alpha_2 \cdot \frac{1}{x^2_1} \cdot r^2) = \alpha_1 - \alpha_2$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which gets us:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\boxed{x_1^1 = \frac{\alpha_1 r^1 x_1^2}{\alpha_1 x_1^2 - \alpha_2 x_1^2 + \alpha_2 r^2}}$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For our Pareto Set. (You could also solve in terms of $x_1^1$.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As denesp notes, if $\alpha_1 = \alpha_2 - r^1 = r^2$, then $x_1^1 = x_1^2$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question is, how would I draw this for different values of $\alpha$? What is the intuition behind the slope of it?&lt;/p&gt;&#xA;" OwnerUserId="4251" LastEditorUserId="1601" LastEditDate="2017-02-28T07:49:48.597" LastActivityDate="2017-02-28T07:49:48.597" Title="Pure Exchange Economy" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;general-equilibrium&gt;" AnswerCount="1" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="9473" PostTypeId="2" ParentId="9464" CreationDate="2015-11-28T17:57:24.267" Score="1" Body="&lt;p&gt;Theoretically it is possible but only if the non profit organization operates at a cost which is lower than all other existing as well as expected new players as in a free market anybody with a much lower cost can enter and offer a price lower than the NPO and still earns a profit. And what about other NPOs in the same field. If they have a lower cost they will certainly offer a lower price. Secondly the NPO should accepted by the consumers. Practically speaking the market has many more complexities such as existence of brands and the information that price suggests. A lower price means lower quality which may not be accepted by the consumers. For example I may start manufacturing and selling mobile handsets at zero profit but still I might not drive Apple out of the market. Also, the world is not much perfect. To start I would have to install a capacity that can produce at a cost lower than the existing players and then offer a lower price to drive them out.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But still you can have examples of apparent monopolies in markets say for example 'online information'. What do you think Wikimedia is ? It is an NPO.&lt;/p&gt;&#xA;" OwnerUserId="5582" LastActivityDate="2015-11-28T17:57:24.267" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9474" PostTypeId="2" ParentId="9456" CreationDate="2015-11-28T20:30:07.157" Score="2" Body="&lt;p&gt;A foundational result from models of perfect competition is that the competitive market equilibrium (i.e. setting price and quantity such that supply = demand) is efficient. By efficiency we mean that the sum of consumer surplus and producer surplus are maximised.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is actually quite an amazing thing! It means that each individual consumer buys the good if and only if the welfare he receives from doing so is greater than the marginal cost of producing the good. To see that this must be true, suppose that there were a consumer who values a good at more than the cost of production but did &lt;em&gt;not&lt;/em&gt; buy it. Then it would be possible to increase welfare by having the consumer buy the good, contradicting the result that the equilibrium is optimal. Similarly, efficiency demands that sellers produce exactly as much as is necessary to sell to the consumers who will ultimately buy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How could we get to this efficient point? One way would be to have economists calculate what is efficient and then publish this information so that people could look-up whether they are supposed to buy/sell or not. But wait! We know that there aren't economists running round telling consumers whether it would be efficient for them to buy or not. So how do people figure this out for themselves?!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;The answer is that the equilibrium price contains all of the information that they need to figure out what is efficient.&lt;/strong&gt; Since the equilibrium price is equal to marginal cost, and since consumers will buy if their willingness to pay is above the price, a consumer wishes to purchase if amd only if his willngness to pay is bigger than the cost—i.e. exactly when it is efficient for him to do so. Thus, one way to think about the role of a price in a competitive market is that it transmits information to market participants about the efficiency of a trade they are contemplating. &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;For a monopoly things are different because the monopolist breaks the direct relationship between price and marginal cost by setting $p&amp;gt;MC$. This means that some consumers who have a willingness to pay that satisfied $p&amp;gt;WTP&amp;gt;MC$. The fact that $p&amp;gt;WTP$ means the price is signalling to these consumers that they should &lt;em&gt;not&lt;/em&gt; buy, even though it would be efficient for them to do so (because $WTP&amp;gt;MC$). In other words, the price is no longer directly informative about the efficiency of a trade, so one way to think about the effect of monopoly on prices is that it reduces their information content. &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;ADDENDUM:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's still possible to calculate cost—and hence the efficient allocation—from the monopoly price, but we need more information. In particular, the monopoly price satisfies $$\frac{p-c}{p}=-\frac{1}{\eta},$$ where $\eta$ is the price elasticity of demand and $c$ is marginal cost. Thus, to figure out marginal cost we need know the price &lt;em&gt;and&lt;/em&gt; the elasticity, whereas in a competitive market we only needed to observe the price.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2015-11-28T20:30:07.157" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="9475" PostTypeId="2" ParentId="9432" CreationDate="2015-11-28T20:44:23.363" Score="0" Body="&lt;p&gt;Simply no. A perfect monopoly's profit maximizing output will always be smaller than the competitive market as a whole would have provided. And the price would be higher. The marginal revenue curve of the monopoly is not the demand curve while in case of competitive market the marginal revenue curve is the demand curve itself. Summing up the optimum individual supplies horizontally we get the market supply. Also, all the firms in a competitive market are in a 'prisoner's dilemma'. There exists a price rigidity. Even if a firm's cost curves shift up (increase) it cannot increase the price readily as it will face a devastatingly elastic demand curve as soon as it does so and it will be thrown out of market. In case all of them collude to restrict output and increase price, there will be an unsatisfied demand in the market which will lure someone or the other to defect and satisfy that demand at a lower price and earn huge profits and the collusion will fail (there are real life examples of such incidents such as OPEC which enjoyed exorbitant oil prices-the oil shock in 1970s but its power now is highly reduced).  So in the long run all firms in a competitive market are bound to earn zero economic profit and hence they cannot behave as a monopoly together.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But there is a catch here. If the monopoly has access to some crucial technology which it could possess only because of economies of scale then the monopoly can actually provide a lower cost than the perfect competition. This is one of the argued benefits of a monopoly. For example it is said that INTEL enjoyed monopoly and hence supranormal profits in the initial years because of which it could invest heavily in research and development which it could not have been able to do otherwise. This actually helped the industry to grow and eventually cheaper technology was made available. However these arguments are open to debate. &lt;/p&gt;&#xA;" OwnerUserId="5582" LastActivityDate="2015-11-28T20:44:23.363" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9476" PostTypeId="1" CreationDate="2015-11-28T20:52:43.387" Score="0" ViewCount="502" Body="&lt;p&gt;Can anybody please explain me &quot;Inflation-Unemployment Trade-off under Adaptive Expectation and under Rational Expectation&quot;?&lt;/p&gt;&#xA;" OwnerUserId="6525" LastActivityDate="2016-09-04T00:48:55.267" Title="Unemployment and its relationship with Inflation" Tags="&lt;unemployment&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9477" PostTypeId="2" ParentId="8413" CreationDate="2015-11-28T20:57:36.497" Score="0" Body="&lt;p&gt;I would agree with the first answer. Fungibility will essentially give market power to the existing players. A new player in a relatively inelastic goods market will have to offer something differentiated to snatch some share from existing players because it cannot take advantage of a low cost. This gives rise to problem as with 'fungibility' you cannot differentiate. &#xA;One example is commodity products like soaps. It is difficult to differentiate and the inelastic demand leaves with you with lesser options. This gives way to attractive packaging, positioning etc to influence demand. That is why there is aggressive marketing in fast moving consumer goods market.&lt;/p&gt;&#xA;" OwnerUserId="5582" LastActivityDate="2015-11-28T20:57:36.497" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9478" PostTypeId="2" ParentId="9462" CreationDate="2015-11-28T21:00:40.710" Score="2" Body="&lt;p&gt;Suppose that $r'(\theta)&amp;gt;0$. The following figure should make clear that saying $r(\theta)\leq w$ is equivalent to saying that $\theta\leq r^{-1}(w)$ (where $r^{-1}(\cdot)$ is the inverse of $r$):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/RFcN8.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/RFcN8.png&quot; alt=&quot;r as a function of theta&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So we can rephrase your question as 'why should $E(\theta|\theta&amp;lt;r^{-1}(w))$ be non-linear?'&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Let's calculate this expectation (assuming that $\theta$ is distributed on support $[\underline{\theta},\overline{\theta}]$ according to CDF $F$):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$E(\theta|\theta&amp;lt;r^{-1}(w))=\frac{1}{F[r^{-1}(w)]}\int_\underline{\theta}^{r^{-1}(w)}\!\theta F'(\theta)d\theta.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For $E(\theta|\theta&amp;lt;r^{-1}(w))$ to be linear in $w$ we would need $\partial E(\theta|\theta&amp;lt;r^{-1}(w))/\partial w$ to be constant.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Differentiating with respect to $w$ we have&#xA;$$\frac{\partial E(\theta|\theta&amp;lt;r^{-1}(w))}{\partial w}=\frac{F'[r^{-1}(w)]\frac{\partial r^{-1}(w)}{\partial w}\left[F[r^{-1}(w)]r^{-1}(w)-\int_\underline{\theta}^{r^{-1}(w)}\!\theta F'(\theta)d\theta\right]}{F[r^{-1}(w)]^2}$$&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;The above expression isn't the prettiest thing to look at, but a quick glance should convince you that it will only be constant under very special circumstances. For example, even if we take a highly linear environment like $r(\theta)=\theta$, $F(\theta)=\theta$, we have&#xA;$$\frac{\partial E(\theta|\theta&amp;lt;r^{-1}(w))}{\partial w}=\frac{w^2+\underline{\theta}^2}{2w^2},$$&#xA;so $E(\theta|\theta&amp;lt;r^{-1}(w))$ is non-linear.&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2015-11-28T21:15:23.710" LastActivityDate="2015-11-28T21:15:23.710" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9479" PostTypeId="2" ParentId="6200" CreationDate="2015-11-28T21:11:36.090" Score="2" Body="&lt;p&gt;There is a sense of differentiation thus this is not competitive market clearly. Government regulations in an industry cannot be regarded as a monopoly as government mostly will decide on a price ceiling or floor and not the quantity of transport supplied. Since there are only 4 firms this is an oligopoly clearly. They can collude to restrict output and raise prices if it is within the limits set by government. Maybe the government has set the price to actually prevent collusion.  &lt;/p&gt;&#xA;" OwnerUserId="5582" LastActivityDate="2015-11-28T21:11:36.090" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9480" PostTypeId="2" ParentId="9472" CreationDate="2015-11-28T21:59:48.673" Score="3" Body="&lt;p&gt;As you note in your question the (inner points of the) Pareto set are defined by&#xA;$$&#xA;x_1^1 = \frac{\alpha_1 r^1 x_1^2}{\alpha_1 x_1^2 - \alpha_2 x_1^2 + \alpha_2 r^2}&#xA;$$&#xA;In order to better examine this curve, let us treat it as a function. Let&#xA;$$&#xA;f(x) = \frac{\alpha_1 r^1 x}{\alpha_1 x - \alpha_2 x + \alpha_2 r^2}.&#xA;$$&#xA;As I stated in my comment&#xA;$$&#xA;f(0) = 0 \mbox{ and } f(r^2) = r^1,&#xA;$$&#xA;so the set indeed goes from one corner to the other. In between you have&#xA;$$&#xA;\frac{d \ f(x)}{d x} = \frac{\alpha_1\alpha_2r^1r^2}{\left(\alpha_1 x - \alpha_2 x + \alpha_2 r^2\right)^2}&#xA;$$&#xA;and&#xA;$$&#xA;\frac{d^2 f(x)}{dx^2} = 2 \cdot \frac{(\alpha_1\alpha_2r^1r^2) \cdot (\alpha_2-\alpha_1)}{\left(\alpha_1 x - \alpha_2 x + \alpha_2 r^2\right)^3}.&#xA;$$&#xA;The first derivative is always positive because $r^2 &amp;gt; x$ and all other parameters are positive. For the same reason, the sign of the second derivative depends on the sign of $\alpha_2-\alpha_1$. &lt;br&gt; Thus the Pareto set will be a strictly increasing curve, which is convex if agent 2 values good 1 'relatively more', concave if agent 1 values good 1 'relatively more', and a straight line if they value it 'relatively equally'.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2015-11-30T20:21:49.767" LastActivityDate="2015-11-30T20:21:49.767" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9481" PostTypeId="2" ParentId="9476" CreationDate="2015-11-28T23:27:36.140" Score="1" Body="&lt;p&gt;When agents in economy have adaptive expectations they predict future in the basis of what happened in the past. If we consider an inflation adjustment scenario, the expected inflation by the agents is directly dependent on the inflation that prevailed in the immediately previous period and the output gap.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Y = Y^0 + b(P - P^e)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $P^e$ is expected price level.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When agents have adaptive expectations there is an inflation inertia.&lt;br&gt;&#xA;To reduce unemployment rate the government will try to stimulate the economy and if the economy was at its natural level of unemployment the will be inflationary pressure an inflation will increase. If the agents do not correctly predict the inflation they are likely to produce more. Say for example agents have an expectation that inflation will be 4% based on past experience. And with the government expansion output increases and inflation actually increases to say, 8%. Their nominal wages will adjust according to 4% but the real wage will actually decrease. As a rule of thumb you can remember that if the expected inflation is lower than the actual inflation then output increases and producers hire more workers thereby reducing unemployment. So, there is a trade off here between unemployment rate and inflation level as suggested by the Okun's law and Philips curve.&#xA;However this is not the end of story. As soon as the workers realize that their real wages have reduced, they bargain for higher wages and eventually the whole change is reverted as firms' costs increase and they reduce output and fire workers to match the cost. This is also the reason why the long run supply curve is vertical.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With rational expectations ,however, it is a different story altogether. Rational expectations mean that the agents in economy apply all levels of reasoning to the available information to figure out the future scenario. They know the policy of central bank and government, they can correctly predict their actions and hence they know that inflation will be higher and simply ask for more wages. So no effect on output or employment and hence no tradeoff but only an increase in inflation. The policy will not be effective here. This is a concept in neo classical economics and is sometimes called as policy ineffectiveness proposition.     &lt;/p&gt;&#xA;" OwnerUserId="5582" LastEditorUserId="2776" LastEditDate="2016-09-04T00:48:55.267" LastActivityDate="2016-09-04T00:48:55.267" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9482" PostTypeId="2" ParentId="5821" CreationDate="2015-11-29T00:36:48.100" Score="-1" Body="&lt;p&gt;Full employment is rather a deceiving term. It suuggest that 100% of the workforce is employed. However, there are so many reasons why this cannot be achieved and should not be achieved. Typical workforce would include people who are studying, people who have just got out of colleges, differently-abled etc who might not be supposed to be working in the way we assume they should. So at any point of time there will always exist some structural, frictional unemployment. Adjusting which we get the natural rate of employment or unemployment.&#xA;Economists do not confuse between these two terms. You will find terms like potential output, zero output gap etc which refer to the same state and are technically more sound. &#xA;Also, every level of output is an equilibrium point. The question is whether the economy is at its natural level of output or potential output or long term output level. At that level, natural employment level should prevail. &lt;/p&gt;&#xA;" OwnerUserId="5582" LastActivityDate="2015-11-29T00:36:48.100" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="9484" PostTypeId="2" ParentId="6973" CreationDate="2015-11-29T01:19:44.683" Score="0" Body="&lt;p&gt;You need to connect it to the injections, withdrawals and to the output gap in the Keynesian Cross model. &#xA;As savings increase, planned withdrawals increase in the economy. Consumption decreases, unexpected inventory pile up takes place. Hence firms reduce production and total output is reduced. As output falls unemployment will be more and hence the central bank is going to reduce the interest rate to improve the situation and boost consumption and production.  &lt;/p&gt;&#xA;" OwnerUserId="5582" LastActivityDate="2015-11-29T01:19:44.683" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9485" PostTypeId="1" AcceptedAnswerId="12039" CreationDate="2015-11-29T03:55:59.917" Score="1" ViewCount="693" Body="&lt;p&gt;I have seen lots of essays saying that trade deficit means the nation needs foreign funds to finance their imports. In other words, they need to borrow from the foreigners. However, it sounds very unintuitive to me. My concern is that why would do they have to borrow? I always thought financing trade deficit was all about transferring the ownership of financial assets. Of course, if you count the sale of financial assets as borrowing, we are good.&lt;/p&gt;&#xA;" OwnerUserId="4551" LastEditorUserId="4551" LastEditDate="2015-11-29T04:24:32.607" LastActivityDate="2016-05-17T02:34:39.797" Title="Relationship between trade deficit and borrowing" Tags="&lt;macroeconomics&gt;&lt;international-trade&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9487" PostTypeId="2" ParentId="9485" CreationDate="2015-11-29T08:06:13.817" Score="2" Body="&lt;p&gt;We count the sale of financial assets as borrowing. You simply sell a document indicating that you will pay the buyer in the future, which is simply a debt.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Actually, sales of financial assets cause capital account to increase, so that, current account balance is compensated by the sales of financial assets which is basically a capital account surplus. Hence&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;Current Account + Capital Account = 0&#xA;$$&lt;/p&gt;&#xA;" OwnerUserId="6540" LastEditorUserId="6540" LastEditDate="2016-05-16T08:00:40.303" LastActivityDate="2016-05-16T08:00:40.303" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9488" PostTypeId="2" ParentId="9485" CreationDate="2015-11-29T12:25:10.040" Score="1" Body="&lt;p&gt;Yes selling of financial assets is indeed a borrowing. They are sold to finance the deficits in our own accounts. When in an economy there are more investments than savings, the economy needs to borrow from foreigners which is through through these financial assets.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Investment + Capital Outflow = Savings + Capital Inflow &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is in contrast to the closed economy situation wherein the only demand of capital in domestic investment and only supply is domestic savings. Here, the demand comes from foreigners as well through purchase of their assets. Same way supply can also come from foreigners via the selling of domestic assets. Whenever I &gt; S, there must be a capital inflow. &lt;/p&gt;&#xA;" OwnerUserId="5582" LastActivityDate="2015-11-29T12:25:10.040" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9490" PostTypeId="1" AcceptedAnswerId="9508" CreationDate="2015-11-29T14:45:27.663" Score="1" ViewCount="46" Body="&lt;p&gt;I was wondering whether there exists a study which measures the impact of economic news coverage to gdp or something like that&lt;/p&gt;&#xA;" OwnerUserId="6542" LastEditorUserId="1601" LastEditDate="2015-11-29T15:00:27.600" LastActivityDate="2015-11-30T18:09:55.790" Title="Impact of news coverage on ecomomy" Tags="&lt;macroeconomics&gt;&lt;reference-request&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9492" PostTypeId="1" CreationDate="2015-11-29T17:33:15.183" Score="1" ViewCount="57" Body="&lt;p&gt;I am a bit confused about when to consider a separate optimization problem and when to combine different problems into a single optimization problem.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider an individual who derives utility from consumption:$$\sum_{t=1}^{T}\beta^{t}u(c_{t})$$&#xA;  and is given a stochastic endowment of money every period, that is $y_{t}$&#xA; . Now, if there are no savings, I understand given that $u'&amp;gt;0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;that optimality dictates that $c_{t}=y_{t}$&#xA; . If there were savings, however, we would write down a Lagrangean, and use FONCs to get Euler equations. My question is as follows: when can optimize for each period separately? Will it be when the periods are linked in some way? If the arguments we wish to maximize over are independent of each other (across periods), can we consider separate maximization problems? &lt;/p&gt;&#xA;" OwnerUserId="5233" LastActivityDate="2015-11-29T17:33:15.183" Title="Separate optimization problem versus one big Lagrangean" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;optimization&gt;" AnswerCount="0" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9494" PostTypeId="1" CreationDate="2015-11-29T19:00:28.827" Score="2" ViewCount="746" Body="&lt;p&gt;In a &lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/0022053174900751&quot; rel=&quot;nofollow&quot;&gt;famous paper from 1974&lt;/a&gt;, Hal Varian proved (in Theorem 2.3) that:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In an economy with homogeneous divisible googs, if all agents have monotonic and &lt;a href=&quot;https://en.wikipedia.org/wiki/Convex_preferences&quot; rel=&quot;nofollow&quot;&gt;convex preferences&lt;/a&gt;, then there exists an allocation which is both Pareto-efficient and &lt;a href=&quot;https://en.wikipedia.org/wiki/Envy-freeness&quot; rel=&quot;nofollow&quot;&gt;envy-free&lt;/a&gt;.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;He said (after Theorem 2.8) that, if preferences are not convex, then Pareto-efficient envy-free allocations might not exist. As an example, he brings the following economy: there are two agents with the same preferences:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$u_1(x,y) = u_2(x,y) = \min(x,y)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and the total bundle is $(2,1)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I do not see how this is a negative example. If we give each agent a bundle of $(1,0.5)$, then the division is envy-free, since the value of every agent is exactly 0.5. It is also Pareto-efficient, since to increase the utility of one agent, it is necessary to give him some y from the other agent, but this hurts the utility of the other agent.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Am I missing something?&lt;/p&gt;&#xA;" OwnerUserId="385" LastActivityDate="2015-11-29T21:08:23.043" Title="An economy with no Pareto-efficient envy-free allocations" Tags="&lt;pareto-efficiency&gt;&lt;fairness&gt;" AnswerCount="0" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="9495" PostTypeId="1" AcceptedAnswerId="27642" CreationDate="2015-11-29T19:17:59.700" Score="4" ViewCount="449" Body="&lt;p&gt;What is a standard term for utility functions of the type:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ u(x_1,\dots,x_m) = \max(\frac{x_1}{w_1},\dots,\frac{x_m}{w_m}) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $x_i$ is the amount of commodity type $i$, and $w_i$ is a constant weight?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is similar to &lt;a href=&quot;https://en.wikipedia.org/wiki/Leontief_utilities&quot; rel=&quot;nofollow&quot;&gt;Leontief utilities&lt;/a&gt;, only with max instead of min.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What term describes the type of goods with such a utility function? Initially I thought they were called &quot;perfect substitutes&quot;, but now I see that this term is used for linear utility functions.&lt;/p&gt;&#xA;" OwnerUserId="385" LastEditorUserId="385" LastEditDate="2015-12-01T07:51:20.033" LastActivityDate="2019-04-05T15:48:01.043" Title="A term for utility functions based on the max operator" Tags="&lt;utility&gt;&lt;definition&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="9496" PostTypeId="1" CreationDate="2015-11-29T19:25:22.063" Score="-1" ViewCount="68" Body="&lt;p&gt;A few economists say that the human population is too high and if it continues to grow, &lt;a href=&quot;http://economistsview.typepad.com/economistsview/2007/07/some-people-wor.html&quot; rel=&quot;nofollow&quot;&gt;may become too large for our planet to sustain it&lt;/a&gt;.  While others can debate whether this is true or not, let's assume that they're right for this question only.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the human population is too large, wouldn't HIV or cancer be considered an economic positive since they control the human population from expanding too much (ie: they limit the supply of humans, thus reducing overall human demand)?&lt;/p&gt;&#xA;" OwnerUserId="2958" LastActivityDate="2015-11-29T22:18:06.837" Title="Is HIV An Economic Positive In Light of Human Overpopulation?" Tags="&lt;supply-and-demand&gt;" AnswerCount="1" CommentCount="5" ClosedDate="2015-11-30T10:55:28.770" ContentLicense="CC BY-SA 3.0" />
  <row Id="9497" PostTypeId="2" ParentId="9496" CreationDate="2015-11-29T20:05:46.223" Score="3" Body="&lt;p&gt;This is something Alwyn Young of LSE said may be good for development. However, the question he asked is different from that of yours. Find out what he said reading &lt;strong&gt;The Gift of the Dying: The Tragedy of AIDS and the Welfare of Future African Generations.” Quarterly Journal of Economics 120 (May 2005): 423-466&lt;/strong&gt;.&lt;/p&gt;&#xA;" OwnerUserId="6009" LastActivityDate="2015-11-29T20:05:46.223" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9502" PostTypeId="2" ParentId="4686" CreationDate="2015-11-30T01:08:05.210" Score="-1" Body="&lt;p&gt;I've been trying to figure this one out as well, I'm almost certain that it's possible to use Energy as a catalyst to drive a new form of currency. Rather than buy/sell goods and services with energy its converted into a type of credit at source. &#xA;At its most basic level could we not take a Watt and convert it into a Jewel? Its a play on a words but I'm sure a joule is precisely measurable and therefore using a systems such as the IoT and the blockchain protocol we could assign this unit a digital form or hash systematically creating a crypto currency. &#xA;For example a house has a solar panel feeding into a SMART JAR a type of battery/converter/exchange unit, where a single unit Wxs = J produced is transformed into a jewel. If every household had JAR connected to the internet then we can keep an accurate ledger (blockchain) of currency being produced and exchanged for what goods and services. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I love the idea of Bitcoin and crypto currencies but its not an equal solution and it doesn't re-distribute wealth fairly as those who have invested in huge data servers are mining themselves into the new 1% elite. I believe this idea could give anyone and everyone an opportunity to mine for jewels by just harnessing the energy around them.&#xA;Its abundant yes but so are dollars its just that a select few horde it all but once jewels are recognized as a form of currency surely its no different from any other type of money a lubrication to ease transactions? &#xA;I can't think of everything, but I can share ideas. &#xA;Adz&lt;/p&gt;&#xA;" OwnerUserId="6546" LastActivityDate="2015-11-30T01:08:05.210" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9503" PostTypeId="2" ParentId="9490" CreationDate="2015-11-30T11:50:04.367" Score="1" Body="&lt;p&gt;I have not heard of such a study and I have a feeling studying how a daily news item would affect an annual measurement value would be a pretty futile experiment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, there are some studies on how announcements from central banks or other financial authorities might affect expectations in the short run. My collaegue actually did her licensiate thesis on how ECB board announcements affected the growth path of euro inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A pretty recent article would be Moessner, R.: &quot;Effects of ECB balance sheet policy announcements on inflation expectations.&quot; in Applied Economics Letters and that might be a good place to start looking.&lt;/p&gt;&#xA;" OwnerUserId="5512" LastActivityDate="2015-11-30T11:50:04.367" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9505" PostTypeId="1" CreationDate="2015-11-30T12:48:11.630" Score="1" ViewCount="44" Body="&lt;p&gt;I am not sure how well suited my question will be to the platform, but it's a question nonetheless, concerning economics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am, rather we are, group of people moderating a real world text-based RPG. Up until now we had pretty straightforward economy mechanics; we had set growths, and all players had to do was to compound it. The system soon ran its course as the game gained in popularity, and with people wanting a system which accounts for in-game decisions, policies, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We've been using GDP PPP rather than market exchange rates. Because our game extends in future, and developing a currency market is pretty much impossible for us.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That said, GDP PPP figures lead to inflated budgets and massive militarization all over Asia, which are hard to account for. We're focussed on the diplomacy side of things, thus military industrial-complexes and conventional industries greatly affect our play.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the end, my question boils down to: &lt;strong&gt;What do we use (GDP PPP v. GDP MER) for an RPG that aims to simulate real world diplomacy?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that we want to go way into future, possibly 2050s, and have pretty much no way to simulate a currency market. But, at the same time, we would want our game as realistic as possible. Accounting for real-life volatility in markets will be hard, but we'll up to it if there's a way.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you guys have anything to contribute, please do. And, thank you.&lt;/p&gt;&#xA;" OwnerUserId="6551" LastActivityDate="2015-11-30T12:48:11.630" Title="Designing economic system for an RPG" Tags="&lt;soft-question&gt;" AnswerCount="0" CommentCount="3" FavoriteCount="1" ClosedDate="2015-12-31T12:10:53.553" ContentLicense="CC BY-SA 3.0" />
  <row Id="9507" PostTypeId="1" CreationDate="2015-11-30T15:55:09.300" Score="1" ViewCount="50" Body="&lt;p&gt;If yuan becomes a reserve currency, can we expect the petrodollars to be swapped with petroyuans given china's ever increasing mammoth demand for energy resources?&lt;/p&gt;&#xA;" OwnerUserId="6009" LastActivityDate="2015-12-01T00:14:32.020" Title="Yuan to be a reserve currency, IMF is considering" Tags="&lt;macroeconomics&gt;&lt;monetary-policy&gt;&lt;international-trade&gt;" AnswerCount="1" CommentCount="2" ClosedDate="2015-12-02T01:14:13.580" ContentLicense="CC BY-SA 3.0" />
  <row Id="9508" PostTypeId="2" ParentId="9490" CreationDate="2015-11-30T18:09:55.790" Score="0" Body="&lt;p&gt;Nick Bloom, from Stanford, and some co-authors develop indices of economic policy uncertainty for the world's major economies. Their Economic Policy Uncertainty Index is based on &lt;strong&gt;newspaper coverage&lt;/strong&gt; frequency of policy-related economic uncertainty. In case this is useful, their &lt;a href=&quot;http://www.policyuncertainty.com/index.html&quot; rel=&quot;nofollow&quot;&gt;web page&lt;/a&gt; explains the methodlogy and the applications.&lt;/p&gt;&#xA;" OwnerUserId="6168" LastActivityDate="2015-11-30T18:09:55.790" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9510" PostTypeId="1" AcceptedAnswerId="9516" CreationDate="2015-11-30T20:30:57.373" Score="1" ViewCount="71" Body="&lt;p&gt;I am discussing about evolution theory with a philosophy student and she observes that wealthier families tend to have fewer children, which kind of goes against natural selection, i.e. the genes of smarter/healthier people do not necessarily pass along the generations. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now I am thinking:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Is there really such a pattern? If yes, &lt;/li&gt;&#xA;&lt;li&gt;Does it vary across different environments (e.g. developed vs developing countries)?&lt;/li&gt;&#xA;&lt;li&gt;What is the economics explanation?&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;References to papers are very welcome. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am not sure how to tag this question, feel free to edit. &lt;/p&gt;&#xA;" OwnerUserId="6557" LastEditorUserId="1601" LastEditDate="2015-11-30T21:02:17.930" LastActivityDate="2015-12-01T00:34:58.903" Title="Any research done on relationship between fertility rate and wealth?" Tags="&lt;reference-request&gt;&lt;population-economics&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="9511" PostTypeId="1" AcceptedAnswerId="9536" CreationDate="2015-11-30T20:54:26.660" Score="4" ViewCount="1521" Body="&lt;p&gt;During the Bretton Woods system, currencies were issued against gold. In contemporary times, what is the real thing against which currency is issued? What does the fiat currency actually guarantee?  &lt;/p&gt;&#xA;" OwnerUserId="5582" LastEditorUserId="264" LastEditDate="2015-11-30T21:40:53.143" LastActivityDate="2018-09-08T06:00:14.980" Title="What does a central bank guarantee against its currency?" Tags="&lt;currency&gt;&lt;central-banking&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9512" PostTypeId="2" ParentId="9511" CreationDate="2015-11-30T21:40:00.943" Score="3" Body="&lt;p&gt;Governments issuing fiat currencies guarantee only that you can pay your taxes in the currency (in fact, they tend to require that you do so). Money primarily derives its value from the willingness of others to accept it in exchange for goods and services, not from the ability to exchange it for a particular shiny metal. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There's an elaboration of the differences between the gold standard and fiat currencies &lt;a href=&quot;https://economics.stackexchange.com/q/6811/264&quot;&gt;at this question&lt;/a&gt;. &lt;/p&gt;&#xA;" OwnerUserId="264" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-11-30T21:40:00.943" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9513" PostTypeId="1" CreationDate="2015-11-30T23:41:44.523" Score="1" ViewCount="25" Body="&lt;p&gt;I am currently unsure about how such a question above should be answered. To clarify , I am confused as  of which topics relating to the question i should discussion in order to answer it. (For example) Fewer jobs in the region means fewer small business due to poor economic conditions which impacts the region's long term trade.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does any with experience in the economics have an idea of how such a question is to be answered?&lt;/p&gt;&#xA;" OwnerUserId="6558" LastActivityDate="2015-12-01T02:06:16.673" Title="What are the Impacts on an economy when a large mining venture begins to reduce production and lay off workers in a remote region?" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9514" PostTypeId="1" CreationDate="2015-11-30T23:56:06.787" Score="2" ViewCount="167" Body="&lt;p&gt;Is there a term for a game whose pareto optimal solutions and nash equilibria are disjoint?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(e.g. prisoner's dilemma)&lt;/p&gt;&#xA;" OwnerUserId="6559" LastActivityDate="2015-12-01T00:39:08.743" Title="Is there a term for a game whose pareto optimal solutions and nash equilibria are disjoint?" Tags="&lt;game-theory&gt;&lt;nash-equilibrium&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9515" PostTypeId="2" ParentId="9507" CreationDate="2015-12-01T00:14:32.020" Score="1" Body="&lt;p&gt;Yuan will certainly appear in the reserves of oil exporting countries. The question is how much of it?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;China still has many problems with its currency and a long way to go until it becomes as appealing as dollar or even Japanese yen. Whether countries include a currency in their reserve basket ultimately depends on how predictable and stable it is compare to other currencies. It is also preferred that the currency appreciates in the long term. Living in China myself and holding my savings in yuan, I try to keep an eye on factors and risks that may move it up or down in medium to long term. Here are the most important in my opinion:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Upside:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;China is still a huge and rapidly growing economy, expanding at least 4% a year (~7% being the official figure). As long as it produces so much goods and services that can be bought with its national currency, yuan will be appealing to investors.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;China's population is growing and with recent cancellation of a one-child policy, it will continue to grow even faster. Growing population generally leads to economic expansion.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;There are still market reforms to be made that, if implemented, will make the currency even more appealing. For example allowing banks to set lending and deposit rates freely would send yuan sky high.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;China's state owned enterprises (SOEs) have trillions of dollar-denominated debt on their balance sheets. If yuan were to depreciate considerably, they would go bust being unable to service debt. It limits the freedom of Chinese government to devalue yuan.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Downside:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;China still has a lot of work to do before yuan becomes a full-fledged reserve currency. It is still not freely convertible, there are capital controls in place for Chinese citizens, the People's Bank of China (China's central bank) is not independent of China's government, etc.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;China's economy is slowing and the reforms that are being done are not enough. To reach growth targets and maintain social stability, the Chinese government may continue the policy of devaluing yuan to boost exports. Chinese corporate sector is certainly betting on it: &lt;a href=&quot;http://www.marketwatch.com/story/chinese-companies-are-betting-on-further-yuan-weakness-2015-11-18&quot; rel=&quot;nofollow&quot;&gt;http://www.marketwatch.com/story/chinese-companies-are-betting-on-further-yuan-weakness-2015-11-18&lt;/a&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;China packs a lot of political risk. It is not a democratic state with thick censorship of every media outlet. If it starts the process of democratization, it may become politically unstable with disastrous consequences to the economy and its currency. If it continues the path of one-party rule with a tight grip on the economy, it may lead to prolonged stagnation and slow devaluation of yuan. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="6231" LastActivityDate="2015-12-01T00:14:32.020" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9516" PostTypeId="2" ParentId="9510" CreationDate="2015-12-01T00:34:58.903" Score="2" Body="&lt;p&gt;Population changes slowly over time but has large effects in the long-run.&#xA;Here are some well-studied &lt;strong&gt;facts about fertility&lt;/strong&gt;: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Before the industrial revolution, the rich had more surviving children than the poor.&lt;/li&gt;&#xA;&lt;li&gt;The transition from stagnation to economic growth is accompanied by a demographic transition from high to low fertility.&lt;/li&gt;&#xA;&lt;li&gt;Today, both within and across countries, rich and educated mothers have less children than poor and unskilled ones.&lt;/li&gt;&#xA;&lt;li&gt;Most of the literature finds that the income of the father positively affects fertility, while the income of the mother negatively affects fertility.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Economists would stress that &lt;strong&gt;one explanation&lt;/strong&gt; among others is Parents' income: Opportunity cost of child-rearing time is high for high income/education mothers. They are other reasons.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;David de la Croix works on this topic and offers interesting lectures on Fertility, Education, Growth and Sustainability &lt;a href=&quot;http://perso.uclouvain.be/david.delacroix/cicse.html&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;. You will find references for the above facts and other reasons for the decline in fertility.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An academic reference is: De la Croix D. and M. Doepke, Inequality and growth: why differential fertility matters, American Economic Review, 93, 1091-1113, 2003. &lt;/p&gt;&#xA;" OwnerUserId="6168" LastActivityDate="2015-12-01T00:34:58.903" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9517" PostTypeId="2" ParentId="9514" CreationDate="2015-12-01T00:39:08.743" Score="1" Body="&lt;p&gt;The term I often come across is 'inefficient Nash equilibrium' or 'Pareto-inefficient Nash equilibrium'. Here is an older well cited article discussing inefficient NEs: &lt;a href=&quot;http://www.jstor.org/stable/3690047?seq=1#page_scan_tab_contents&quot; rel=&quot;nofollow&quot;&gt;http://www.jstor.org/stable/3690047?seq=1#page_scan_tab_contents&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is the frequency of the term 'inefficient Nash equilibrium' used in scientific papers:&#xA;&lt;a href=&quot;https://scholar.google.com/scholar?q=%22Inefficient+Nash+Equilibrium%22&amp;amp;btnG=&amp;amp;hl=en&amp;amp;as_sdt=0%2C5&quot; rel=&quot;nofollow&quot;&gt;https://scholar.google.com/scholar?q=%22Inefficient+Nash+Equilibrium%22&amp;amp;btnG=&amp;amp;hl=en&amp;amp;as_sdt=0%2C5&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;'Inefficient outcome' is also frequently used to describe NEs that are not Pareto-optimal: &lt;a href=&quot;https://scholar.google.com/scholar?q=%22Inefficient+outcome%22&amp;amp;btnG=&amp;amp;hl=en&amp;amp;as_sdt=0%2C5&quot; rel=&quot;nofollow&quot;&gt;https://scholar.google.com/scholar?q=%22Inefficient+outcome%22&amp;amp;btnG=&amp;amp;hl=en&amp;amp;as_sdt=0%2C5&lt;/a&gt;&#xA;But it has to be put into game-theoretical context and specified that it is NE.&lt;/p&gt;&#xA;" OwnerUserId="6231" LastActivityDate="2015-12-01T00:39:08.743" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="9520" PostTypeId="1" CreationDate="2015-12-01T02:01:25.277" Score="1" ViewCount="247" Body="&lt;p&gt;Since the marginal cost of hiring workers will rise when the producers hire more and more workers, what is the advantage of having monopsony power (while in a competitive market, labour buyers can hire workers at a fixed wage rate)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Furthermore, what are the disadvantages to have monopsony power? &lt;/p&gt;&#xA;" OwnerUserId="6057" LastActivityDate="2020-10-01T17:54:52.767" Title="Monopsonistic &amp; competitive labour market, which one is better for the labour buyers?" Tags="&lt;microeconomics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9521" PostTypeId="2" ParentId="9513" CreationDate="2015-12-01T02:06:16.673" Score="1" Body="&lt;p&gt;It depends on what they mine there and how big are the layoffs. Boomtowns are usually formed when they set up mines in remote regions. After the mines are depleted or become economically non-viable, workers leave and the boomtown becomes a ghost town. Since the economy of such places heavily relies on income from mining, it cannot survive once the money stop flowing. You can read up on the history of boomtowns and ghost towns on wikipedia to see if that is what you are looking for.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Boomtowns:&#xA;&lt;a href=&quot;https://en.wikipedia.org/wiki/Boomtown&quot; rel=&quot;nofollow&quot;&gt;https://en.wikipedia.org/wiki/Boomtown&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ghost towns:&#xA;&lt;a href=&quot;https://en.wikipedia.org/wiki/Ghost_town&quot; rel=&quot;nofollow&quot;&gt;https://en.wikipedia.org/wiki/Ghost_town&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="6231" LastActivityDate="2015-12-01T02:06:16.673" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9523" PostTypeId="1" AcceptedAnswerId="9524" CreationDate="2015-12-01T08:49:22.887" Score="8" ViewCount="2262" Body="&lt;p&gt;I am working on a &lt;a href=&quot;https://en.wikipedia.org/wiki/User:Erel_Segal/Utility_functions_on_divisible_goods&quot; rel=&quot;nofollow noreferrer&quot;&gt;Wikipedia page&lt;/a&gt; that compares several common utility functions. Although I found some information about these topics on the web, I didn't find it all in one place, and often got confused by the different terms. I will be happy for any comments or reviews. Most importantly: are the facts in this page correct?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT: to make the question self-contained, I copy its current contents below. Because &lt;a href=&quot;https://meta.stackexchange.com/questions/73566/is-there-any-markdown-to-create-tables&quot;&gt;StackExchange markdown does not support tables&lt;/a&gt;, I used &lt;a href=&quot;http://www.sensefulsolutions.com/2010/10/format-text-as-table.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Senseful Solutions&lt;/a&gt; to create the text table.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;This page compares the properties of several typical utility functions of divisible goods. These functions are commonly used as examples in consumer theory.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The utility functions are exemplified for two commodity types, $x$ and $y$. $p_x$ and $p_y$ are their prices. $w_x$ and $w_y$ are constant parameters. &lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;+---------------+-------------------------------------+-----------------------+-----------------------------------------------------------------------------------+----------------+-------------+-----------------------------------------+----------------------------------+&#xA;|     Name      |              Function               |  Indifference curves  |                                   Demand curve                                    |  Monotonicity  |  Convexity  |                Good type                |              Example             |&#xA;+---------------+-------------------------------------+-----------------------+-----------------------------------------------------------------------------------+----------------+-------------+-----------------------------------------+----------------------------------+&#xA;| Linear        |  ${{x\over w_x}+{y\over w_y}}$      |  Straight lines       |  Step function: only goods with minimum ${w_i p_i}$ are demanded                  |  Strong        |  Weak       |  Substitute good|perfect substitutes    |  Potatoes of two different farms |&#xA;| Leontief      |  $\min({x\over w_x},{y\over w_y})$  |  L-shapes             |  hyperbolic: ${\text{Income} \over w_x p_x+w_y p_y}$                              |  Weak          |  Weak       |  Complementary good|perfect complements |  Left and right shoes            |&#xA;| Cobb–Douglas  |  $x^{w_x} y^{w_y}$                  |  hyperbolic           |  hyperbolic: $\frac{w_x}{w_x+w_y} {\text{Income} \over p_x}$                      |  Strong        |  Strong     |  Independent good|independent           |  Apples and socks                |&#xA;| Maximum       |  $\max({x\over w_x},{y\over w_y})$  |  ר-shapes             |  Discontinuous step function: only one good with minimum ${w_i p_i}$ is demanded  |  Weak          |  Concave    |  Substitute good|substitutes            |  ?                               |&#xA;+---------------+-------------------------------------+-----------------------+-----------------------------------------------------------------------------------+----------------+-------------+-----------------------------------------+----------------------------------+&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Are the details in the table correct?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT: Many thanks to all commenters and answerers. I revised the page accordingly.&lt;/p&gt;&#xA;" OwnerUserId="385" LastEditorUserId="-1" LastEditDate="2017-03-20T10:32:15.160" LastActivityDate="2016-03-23T04:22:19.940" Title="Utility function types - request for review" Tags="&lt;utility&gt;" AnswerCount="2" CommentCount="8" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9524" PostTypeId="2" ParentId="9523" CreationDate="2015-12-01T10:51:59.600" Score="5" Body="&lt;p&gt;Currently (Dec-1-2015) I see listed Linear, Leontief, Cobb-Douglas, and Maximum.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To incorporate here a comment by @denesp the C.E.S utility function (that nests the Leontief and Cobb-Douglas) should certainly be included&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$u(x,y) = B\big(ax^{-\rho}+(1-a)y^{-\rho}\big)^{-1/\rho}$$,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(which also is a functional form that has non-zero cross partial derivatives),&lt;/p&gt;&#xA;&#xA;&lt;p&gt;as should the quasi-linear form&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$u(x,m) = h(x) + m$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which is very often used, with $m$ standing for residual money income (what's left after purchasing $x$).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would also include the &lt;strong&gt;Translog&lt;/strong&gt; utility function.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, I think you should increase the scope of the page and also include in a separate section univariate utility functions that are used in environments with uncertainty and in macroeconomics (say, the HARA class of functions). We may keep in our minds these subfields of economics clearly distinct and also from basic consumer theory, but what you build is a wiki page that is likely to be visited by outsiders (e.g. mathematicians or engineers interested in the subject) or just-arrived students, so a broader scope appears useful.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-12-01T10:51:59.600" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9525" PostTypeId="2" ParentId="9523" CreationDate="2015-12-01T11:30:08.067" Score="4" Body="&lt;p&gt;Let me just add some observations which are too long for a comment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems that the description of demand with linear utility as a step function seems not quite correct. In fact, what we get instead is a demand correspondence. The step function &quot;jumps&quot; at the step $w_x=w_y$, while the correct demand correspondence includes all possible combinations of $x$ and $y$ at the step.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Moreover, the selection of demand (possibly better termed Marshallian demand) as an additional feature is good, but I think the table would be more useful if there are (possibly hidden until manually opened) the indirect utility function, the Hicksian demand and the expenditure function in the graph.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Aside from the mentioned CES, quasilinear and translog utility, I would add the isoelastic utility $u(x,y)=x^a+y^b$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that if we start including utility functions over lotteries, we may also expand the tables by preferences over time, i.e. rational/hyperbolic discounting, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, I think the generalization of the current functions to $n$ goods rather than two should not complicate the table but adds generality. (Also possible as additional entries).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit: I also just realized that the current demand for the Leontief utility is wrong. It should be $I w_x/(p_yw_y+p_xw_x)$ for good $x$. What is currently given as the demand is instead the indirect utility $I/(p_yw_y+p_xw_x)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The demand functions for the linear (and similarly the max function) can be written as $\begin{cases} I/p_x, &amp;amp; p_x w_x &#xA;\leq p_yw_y \\ 0, &amp;amp; p_x w_x&amp;gt;p_yw_y \end{cases}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The assumptions of the consumption problem should also be clearly stated (budget constraint, maximization problem)&lt;/p&gt;&#xA;" OwnerUserId="5635" LastEditorUserId="5635" LastEditDate="2016-03-23T04:22:19.940" LastActivityDate="2016-03-23T04:22:19.940" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9527" PostTypeId="1" CreationDate="2015-12-01T14:20:39.133" Score="1" ViewCount="58" Body="&lt;p&gt;If we consider a cement manufaturer in a given country, say India, then will the cement retailers of that companies' product compete with each other? And if so, then what kind of a competition will it be?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As far as I think, since the prices and the product will be the same the retailers competition will be close the Perfect competition, however consumers in the case of cement do not have perfect knowledge about the product(Considering non-trade consumers). So it might be monopolisitic competition. It will be really helpful if one could give a solid argument regarding the existence and the kind of competition that might occur between cement retailers...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank You.&lt;/p&gt;&#xA;" OwnerUserId="6565" LastActivityDate="2015-12-03T14:17:22.220" Title="Will there be any competition amongst cement retailers?" Tags="&lt;microeconomics&gt;&lt;monopoly&gt;&lt;monopolistic-competition&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9528" PostTypeId="1" CreationDate="2015-12-01T14:50:43.107" Score="1" ViewCount="49" Body="&lt;p&gt;Is there any theorem or a set of criteria that can prove whether in a given market there will be any sort of competition? &lt;/p&gt;&#xA;" OwnerUserId="6565" LastActivityDate="2015-12-01T14:50:43.107" Title="Existence of a competition" Tags="&lt;competition&gt;" AnswerCount="0" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9529" PostTypeId="2" ParentId="9520" CreationDate="2015-12-01T20:23:33.747" Score="2" Body="&lt;p&gt;Having monopsony power means that all suppliers of labour have to come to you to sell their labour. This gives the monopolist the possibility to extract more surplus from the market than in the case of was a competitive labour market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;More rigourously, in a competitive market, labour supply for the individual firm is perfectly wage elastic. The height of this wage (w*, the fixed wage you refer to) is determined at the labour market, where aggregated labour supply meets labour demand, and will equal the value of its marginal product (vmpl, represented by the demand curve). &#xA;When the firm has monopsony power in the labour market, it can pay wages lower than the vmpl. That's the benefit of the monopsonist. To the monopsonist, having monopsony power is never disadvantageous.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A graph or some algebra will certainly prove this point.&#xA;&lt;a href=&quot;http://econpage.com/301/handouts/labormkts/monopsony.GIF&quot; rel=&quot;nofollow&quot;&gt;http://econpage.com/301/handouts/labormkts/monopsony.GIF&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="6566" LastActivityDate="2015-12-01T20:23:33.747" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9530" PostTypeId="1" AcceptedAnswerId="9835" CreationDate="2015-12-01T20:38:46.650" Score="1" ViewCount="240" Body="&lt;p&gt;I was wondering how one could use a CES function in growth accounting exercise, does anyone have notes or resources that demonstrate this exercise? I've done growth accounting exercise using Cobb-D function, but never tried with CES. &lt;/p&gt;&#xA;" OwnerUserId="6009" LastActivityDate="2015-12-17T11:03:05.780" Title="Growth accounting using CES functions" Tags="&lt;macroeconomics&gt;&lt;economic-growth&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9531" PostTypeId="1" AcceptedAnswerId="9544" CreationDate="2015-12-01T20:44:15.897" Score="23" ViewCount="9918" Body="&lt;p&gt;On days like Black Friday, everyone rushes out expecting huge savings on everything they buy. The level of demand seems to reach ludicrous levels, and one would expect smart merchants to react by increasing all of their prices in response to demand.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Yet year after year we see videos of people beating each other up and trampling each other on Black Friday in a display of seemingly mindless consumerism. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is Black Friday really just a marketing ploy that creates the illusion of savings where really none exist? Has the market just not caught up with consumer behavior? Or is there another mechanism driving Black Friday?&lt;/p&gt;&#xA;" OwnerUserId="4382" LastEditorUserId="4382" LastEditDate="2015-12-02T00:14:54.083" LastActivityDate="2020-11-20T19:21:11.610" Title="How does Black Friday work?" Tags="&lt;supply-and-demand&gt;&lt;behavioral-economics&gt;" AnswerCount="7" CommentCount="4" FavoriteCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="9532" PostTypeId="2" ParentId="9531" CreationDate="2015-12-01T23:01:07.047" Score="18" Body="&lt;p&gt;&lt;a href=&quot;https://fbaum.unc.edu/teaching/PLSC541_Fall06/Becker%20JPE%201991.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Gary Becker's work on Social Demand&lt;/a&gt; probably has something to do with the phenonmena.&lt;/p&gt;&#xA;&lt;p&gt;Becker basically asked why some popular places consistently seemed to underprice their goods. For example, concerts often sell out very quickly and fancy restaurants in the middle of a busy suburb might be often crowded. These venues could raise their prices, but the basic idea is that the demand for a good may not be independent of other agents' demands.&lt;/p&gt;&#xA;&lt;p&gt;So demand may be dependent on how much other people also demand the good; you might enjoy going out to eat at somewhere that always seems popular than somewhere that gets less traffic, or you might beg your mom that you just have to go to that popular concert by [insert cool band here], specifically because all your other friends are going. Additionally, social places like restaurants and concerts often have customers who usually or only go in groups, so you could see how that would incentivize fiercer competition among these venues.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastEditorUserId="4251" LastEditDate="2020-11-20T19:21:11.610" LastActivityDate="2020-11-20T19:21:11.610" CommentCount="7" ContentLicense="CC BY-SA 4.0" />
  <row Id="9534" PostTypeId="2" ParentId="9312" CreationDate="2015-12-02T00:07:10.003" Score="-3" Body="&lt;p&gt;The core premise of your question is correct.  Banks receive a tremendous advantage from Fed actions and any discerning economist should be concerned over the amount of corporate welfare doled out banks....especially as they will take that money and engage in maturity mismatching which is an incredibly volatile, dangerous and inflationary practice that transfers wealth from the public to the private banking sector.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are many such ways banks receive corporate welfare.  This includes Fed dividends (for not loaning out 100% of our deposits!). It also includes interest on &quot;excess reserves&quot; (again our deposits).  Troubled banks are given below market interest rates with discount window loans.  But the bigger problem with the discount window is that it creates a certainty that the Fed will backstop bad behavior.  Then there is the open market.  The Fed overpays for REPO's from special banks (primary dealers).  There is also a good reason to suggest the REPO market is being churned as well to encourage excess trading volume.  But the big problem with the open market is it provides artificial liquidity guarantees to the banking system at large.  If banks know that the Fed will ensure that the money market will hum along at a very low rate, then they are more apt to engage in maturity mismatching which creates inflation and volatility.  The entire system is corrupt beyond belief and most economists are totally oblivious to this reality.&lt;/p&gt;&#xA;" OwnerUserId="6479" LastActivityDate="2015-12-02T00:07:10.003" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="9535" PostTypeId="2" ParentId="8984" CreationDate="2015-12-02T00:07:34.253" Score="1" Body="&lt;p&gt;The standard (finance) definition of EVA is only related to the producer's side of the market. Broadly speaking, it is defined as profits minus the cost of capital. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is closely related to the concept of producer's surplus in microeconomics which is defined as profits (P) minus fixed costs (FC). In micro-economics, fixed costs most of the time refers to the cost of capital, capital being the fixed factor of production (and labour the variable factor of production). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Producer's surplus (PS) is defined as total revenues (TR) minus variable cost (VC, cost of using labour, in an easy model VK=w*L, with w=wage; L=labourinput). Profits are, of course, total revenues minus total costs (TC), with total cost equalling fixed plus variable costs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, it is easy to show from these two definitions that PS really looks like the finance EVA, because, as I said, FC can be seen as the cost of capital, the fixed factor of production.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;PS=TO-VC&lt;/p&gt;&#xA;&#xA;&lt;p&gt;W=TO-VC-FC&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&amp;lt;=&gt; W = PS - FC &amp;lt;=&gt; PS = W + FC&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, the PS (or, for the finance guys: EVA) is only measuring value that is created (surplus) for the producer. Just add consumper surplus (CS) to the PS and you get the total surplus of an exchange. Two remarks:&#xA;1) to get the CS you need to measure utility, CS = Utility of the goods bought - price paid for the goods. Unfortunately, this is quite impossible to measure.&#xA;2) I use &quot;exchange&quot; since surplus is only created when a seller sells his stuff to a buyer. CS refers to the surplus of total utility derived from the consumption of the goods above the price paid for the goods, PS refers to the benefit of producing (and selling) goods above the situation of not producing. This interpretation is equivalent to PS = TO-VC. When the producer produces and sells his product, he has profits TR-VC-FC. When he doesn't produce, but disposes of the production capacity (the capital), his profits are -FC (no revenues and no variable cost, but having the production capacity at his disposal means he has to bear the cost of capital, the FC). The producer will be producing when is PS is positive, that is, when producing creates a surplus (more profits than if he would not produce).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Notice how I prefer to use surplus (instead of added value) to adress this kind of measure for the value of an activity. This is because, in economics there is the concept of added value, which may be closer to what you're looking for. It is defined as outputs - intermediate inputs (net outputs), and thus measures the value that the producer 'adds' to his inputs when producing. It can be easily measured and is, in fact, GDP.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To sum up, these all the measures discussed:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;EVA, the finance equivalent of PS;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;total surplus = PS + CS, but with CS being unmeasurable;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;GDP, or value added.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="6566" LastActivityDate="2015-12-02T00:07:34.253" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9536" PostTypeId="2" ParentId="9511" CreationDate="2015-12-02T01:54:12.967" Score="5" Body="&lt;p&gt;Most central banks do not provide guarantees on their currency to the public.  In fact it can be argued that historically they were never fully guaranteed as most central banks issued more receipts for gold (or other assets) than they had, so the receipts were never fully redeemable in the aggregate.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The American Fed was stressed during the great depression and had to go off the gold standard for the public in 1933.  The international gold standard was retained and dollars were redeemable for gold for a while.  This too was &quot;overbooked&quot; and when the rightly suspicious French started to mass redeem dollars for gold, the Americans had to get off the international gold standard as well in 1971.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Today the dollar is not redeemable for anything.  You can exchange paper dollars for coins or electronic dollars, but that is just changing the form of the same thing (the monetary base).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Because you can go to jail if you don't pay your taxes in dollars, it can be said Americans are forced to purchase dollars and thus provide extrinsic value to the dollars though public tender laws (granted still different from intrinsic value but still important).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Pegged currencies are a different matter and are the closest modern equivalent to perhaps what you are asking.  With a peg, a country must acquire a certain amount of an external currency to maintain a peg.  It could be thought of indirectly that the country maintaining the peg is guaranteeing a redemption of their local currency to an external one.  The idea is to somewhat stabilize the local banking systems which need a lot of artificial stability to survive.  Granted this doesn't work well as pegs often do run out of &quot;reserves&quot; and suffer &quot;runs&quot; just like a gold standard.&lt;/p&gt;&#xA;" OwnerUserId="6479" LastActivityDate="2015-12-02T01:54:12.967" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9537" PostTypeId="2" ParentId="9333" CreationDate="2015-12-02T02:06:51.080" Score="-1" Body="&lt;p&gt;The question is poorly worded as currency can form a component of reserves.   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But that aside...the example is essentially correct.  Not mentioned (and this is confusing) is that there are paper shekel's (currency) and electronic shekel's.  When that central bank created 100 shekels, it created 100 electronic shekels.  Put another way it granted the bond seller's bank a deposit at the central bank worth 100 shekels.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So what constitutes reserves?  It is all paper money deposited at a bank + all deposits the bank has with the central bank.  All central bank deposits (or electronic shekels) are automatically counted as reserves, which is why the instant the central bank fabricated their electronic shekel, aggregate reserves increased by 100.  Naturally banks don't keep all reserves on deposit and gamble away a certain percentage (the multiplier) which leads to the answer.&lt;/p&gt;&#xA;" OwnerUserId="6479" LastActivityDate="2015-12-02T02:06:51.080" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9538" PostTypeId="2" ParentId="9175" CreationDate="2015-12-02T02:31:12.407" Score="0" Body="&lt;p&gt;Actually a country can feasibly create money to buy off debts.  But first some clarifications.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is foreign denominated debt and locally denominated debt. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's start with local debt (say the Fed creating dollars to reduce our debt).  This happens all the time indirectly as the Fed is constantly created the monetary base to buy treasury securities.  They key to this avoiding inflation is to make sure bank deposits are not multiplied off of this new money.  If a central bank can control the multiplier, then inflation will not be a problem.  This is important because most monetary inflation comes from private banks and not central banks.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then there is foreign debt.  If not anticipated by the market a central bank can make a tidy profit by buying foreign currency with newly created domestic currency.  Say there is an exchange ratio of 1000 dollars to 100 pesos.  The market assumes this price based on the current quantity of pesos and other factors.  If a central banks say doubles the quantity of pesos and uses them to buy dollars before the market can react, they can make some good profit.  They key though is that the market will react and punish the Peso as it is now an unpredictable currency.  When the exchange rate for the Peso drops, this means foreigners can buy more domestic goods (like say farmland).  Say because of the drop in the Peso, a country has to sell off half of its farmland...which now just sends its produce to another country.  Less goods for consumption is another form of inflation.  This is why exchange rates are important.  On top of this, the banking system will multiply (if not controlled) the new base money many fold creating a fine mess.  If serious this can cause a banking crisis.  As scared foreigners use Peso denominated bank accounts to buy dollars, they will stop lending short term to Peso banks which will create a liquidity crisis.&lt;/p&gt;&#xA;" OwnerUserId="6479" LastActivityDate="2015-12-02T02:31:12.407" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9539" PostTypeId="2" ParentId="9457" CreationDate="2015-12-02T02:39:05.980" Score="-1" Body="&lt;p&gt;The primary source of monetary inflation is when banks create deposits.  Another way of putting this is that banks artificially create liquidity (money) when they mismatch short term low yield debt with long term high yielding assets (aka demand deposit reserves are lent out).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Maturity mismatching is the key source of inflation and is poorly regulated by the Fed.  In fact is it encouraged, which is strange as it is inherently unstable and inflationary.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So why do higher interest rates lower inflation?  Again, monetary inflation roughly equals the extent to which maturity mismatching takes place.  Yield is roughly proportional to maturity...so in a siltation with high interest rates if you have long term debt than short term debt (relatively speaking).  Put another way, it is tougher for a bank to engage in maturity mismatching when the price of short debt goes up.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This hinders a banks ability to create money and is why high interest rates reduce inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Many attribute inflation to non-banking factors like private production and what not...but this is mostly not true.  Most inflation or deflation comes from the private banking sector.&lt;/p&gt;&#xA;" OwnerUserId="6479" LastActivityDate="2015-12-02T02:39:05.980" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9540" PostTypeId="2" ParentId="4679" CreationDate="2015-12-02T02:47:19.047" Score="5" Body="&lt;p&gt;The &lt;a href=&quot;http://www.bea.gov/&quot; rel=&quot;noreferrer&quot;&gt;Bureau of Economic Analysis (BEA)&lt;/a&gt; is the primary source for US economic data.  Other US sources include the Dept of Labor, The Census Bureau, Dept of Commerce, and the US Energy Information Administration.  &lt;a href=&quot;https://vizala.com&quot; rel=&quot;noreferrer&quot;&gt;Vizala&lt;/a&gt; combines data from a number of international sources.  Other international sites/sources include The World Bank, UN Data Statistics Division,  The World Trade Organization.  The International Monetary Fund, The World Health Organization, Eurostat, International Energy Agency, and FAOSTAT.&lt;/p&gt;&#xA;" OwnerUserId="6568" LastActivityDate="2015-12-02T02:47:19.047" CommentCount="0" CommunityOwnedDate="2015-12-02T02:47:19.047" ContentLicense="CC BY-SA 3.0" />
  <row Id="9541" PostTypeId="2" ParentId="9531" CreationDate="2015-12-02T04:45:01.677" Score="10" Body="&lt;p&gt;Black Friday is a marketing event that benefits from &lt;a href=&quot;https://en.wikipedia.org/wiki/Network_effect&quot; rel=&quot;nofollow&quot;&gt;&lt;strong&gt;&lt;em&gt;network effect&lt;/em&gt;&lt;/strong&gt; &lt;/a&gt;. The more stores offer products for lower price and the more consumers know about them, the greater is the network effect.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Normally when you put your product on sale at reduced price, you have several problems to deal with. Your target consumers need to be informed of your offer and they are often hard and costly to reach with ads. If they get your ad, they may not believe that your price is actually reduced. Finally, they may not be in a shopping mood at the moment and by the time they are, your offer may expire. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;On Black Friday, there is a common knowledge among consumers that stores offer huge discounts so consumers themselves often go looking for offers. While they do, they compare prices at different stores and check whether the offers are real. Many also delay their purchases for Black Friday or buy presents for Christmas season early so there is a huge spike in demand.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is usually a very tight competition for shoppers between stores so generally most offers are legit. But of course plenty of stores resort to various tricks to make more profit on the day. I recently came across this &lt;a href=&quot;http://www.marketwatch.com/story/how-to-avoid-the-black-friday-price-traps-2015-11-25&quot; rel=&quot;nofollow&quot;&gt;article&lt;/a&gt; about tricks the stores use on BF.&lt;/p&gt;&#xA;" OwnerUserId="6231" LastEditorUserId="-1" LastEditDate="2015-12-03T12:59:44.253" LastActivityDate="2015-12-03T12:59:44.253" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9542" PostTypeId="1" AcceptedAnswerId="9543" CreationDate="2015-12-02T05:59:29.980" Score="1" ViewCount="102" Body="&lt;p&gt;A consumer's preferences are represented by the following utility function:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$u(x,y,m) = x+y+m$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $m$ is money. Are the goods $x,y$ substitute goods or independent goods?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Microeconomic textbooks say that they are perfect substitutes. Why? Because the consumer will always want to spend his entire budget on the cheapest product. So, if $p_x&amp;lt;p_y&amp;lt;1$, the consumer will demand only x, while if $p_x$ increases above $p_y$, the consumer will demand only y. So, the demand of y increases with the price of x.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But consider the following situation: x and y are two kinds of rare items that are sold in an auction. The consumer has enough money to buy all available units. Then, if $p_x&amp;lt;1$ the consumer will want to buy all available units of x regardless of $p_y$, and if $p_y&amp;lt;1$ the consumer will want to buy all available units of y regardless of $p_x$. By definition, this means that x and y are independent goods.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does this mean that the definition of substitutes vs. independent goods depends not only on the utility function but also on the exact situation?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are there any references that discuss this issue?&lt;/p&gt;&#xA;" OwnerUserId="385" LastActivityDate="2015-12-02T13:14:39.883" Title="Are these products substitutes or independent?" Tags="&lt;reference-request&gt;&lt;utility&gt;&lt;consumer-theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9543" PostTypeId="2" ParentId="9542" CreationDate="2015-12-02T06:25:29.273" Score="3" Body="&lt;p&gt;The goods are perfect substitutes because the marginal rate of substition between them is constant for all values of $x$, $y$ and $m$, i.e. there is $c \in \mathbb{R}$ such that&#xA;$$&#xA;\forall (x,y,m) \in \mathbb{R}_+^3: \ MRS_{x,y}(x,y,m) = - \frac{MU_x(x,y,m)}{MU_y(x,y,m)} = c.&#xA;$$&#xA;This essentially means that the goods $x$ and $y$ are so much alike that the rate of substitution does not diminish.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The total quantities may be limited, but (I think) perfect substitution has nothing to do with set of feasible allocations or the budget set, only with the preference ordering.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Varian defines perfect substitutes in subchapters 3.4 and 4.3. Neither subchapter considers feasibility.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2015-12-02T13:14:39.883" LastActivityDate="2015-12-02T13:14:39.883" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9544" PostTypeId="2" ParentId="9531" CreationDate="2015-12-02T06:41:24.260" Score="11" Body="&lt;p&gt;Though the Black Friday savings do exist, they are less significant than in some of the early years when the &quot;Black Friday&quot; sales were just starting to get really popular.  Raising prices is one way that merchants could try to respond, but then they might exclude the deal-seekers whom they are targeting.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Instead, merchants have been doing other things.  This includes selling lower quality merchandise, including a lot of Refurbished equipment.  (I'm mainly thinking of websites selling computer equipment.  A lot of deals this year was refurbished stuff.)  This year, I read (somewhere) that manufacturers have been making specific models of some stuff, which is designed to be cheaper, in anticipation that these models will become Black Friday sales and sell out.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Stores can benefit from increased traffic, including selling add-ons (like overpriced USB cables needed to make wired printers work), and having lots of staff members but still having a high customer-to-staff ratio just due to the sheer large number of customers.  They may be able to gain some efficiency because they can successfully predict a higher amount of foot traffic compared to normal days.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a nutshell: Raising prices is one way to respond to increased demand, but that would seem to go against the spirit of things, and places don't want the resulting bad rep.  So, instead, they are using every other trick in the book that they can come up with.  The major merchants are definitely aware of Black Friday, and they do manage to make it a very profitable day.&lt;/p&gt;&#xA;" OwnerUserId="6569" LastActivityDate="2015-12-02T06:41:24.260" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9545" PostTypeId="1" AcceptedAnswerId="9546" CreationDate="2015-12-02T08:23:06.127" Score="6" ViewCount="1610" Body="&lt;p&gt;$\newcommand{\dd}{\, \mathrm{d}}$&#xA;Consider the exponential martingale,&#xA;$$&#xA;\xi_t^\lambda = \exp \left\{ - \int_0^t \lambda_s \dd z_s - \frac 12 \int_0^T \lambda_s^2 \dd s \right\},&#xA;$$&#xA;that is used in the statement of Girsanov's theorem (this martingale represents the Radon-Nykodym derivative $\frac{\dd \mathbb Q^\lambda}{\dd \mathbb P}$.).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Exercise 2.4 in Munk's book &lt;em&gt;Financial Asset Pricing Theory&lt;/em&gt; deals with applying Ito's lemma to this process.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose&#xA;$$&#xA;X_t = \frac 12 \int_0^t \lambda _s^2 \dd s + \int_0^t \lambda_s \dd z_s.&#xA;$$&#xA;Part (a) asks us to argue that $\dd X_t = \frac 12 \lambda_t^2 \dd t + \lambda_t \dd z_t.$ Part (b) asks, &quot;Suppose that the continuous-time stochastic process&#xA;$\xi = (\xi_t)$ is defined as $\xi_t = \exp\{-X_t\}$. Show that $\dd \xi_t = -\lambda_t \xi_t \dd z_t$.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Informally, we can argue part (a) by applying Ito's lemma,&#xA;\begin{align*}&#xA;\dd X_t &amp;amp;= \left( \frac 12 \lambda_t^2 + \lambda_t \dd z_t\right) \dd t + \lambda_t \dd z_t \\&#xA;  &amp;amp;= \frac 12 \lambda_t^2 \dd t + \lambda_t \dd z_t,&#xA;\end{align*}&#xA;and arguing that $\dd z_t \cdot \dd t = 0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How do we solve part (b)?&lt;/p&gt;&#xA;" OwnerUserId="59" LastEditorUserId="59" LastEditDate="2015-12-03T04:46:15.777" LastActivityDate="2019-03-23T04:14:53.327" Title="Apply Ito's Lemma to exponential martingale" Tags="&lt;finance&gt;&lt;asset-pricing&gt;&lt;stochastic-calculus&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9546" PostTypeId="2" ParentId="9545" CreationDate="2015-12-02T08:23:06.127" Score="5" Body="&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\newcommand{\dd}{\, \mathrm{d}}$&lt;/span&gt;&#xA;If we apply Ito's lemma,&#xA;then&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{align*}&#xA;\dd \xi_t &amp;amp;= -\xi_t \dd X_t + \frac 12 \xi_t (\dd X_t)^2\\&#xA;  &amp;amp;= -\xi_t \left(\frac 12 \lambda_t^2 \dd t + \lambda_t \dd z_t\right) + \frac 12 \xi_t \lambda_t^2 \dd t \\&#xA;  &amp;amp;= -\xi_t \lambda \dd z_t.&#xA;\end{align*}&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="59" LastEditorUserId="59" LastEditDate="2019-03-23T04:14:53.327" LastActivityDate="2019-03-23T04:14:53.327" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="9547" PostTypeId="1" CreationDate="2015-12-02T09:13:22.210" Score="1" ViewCount="483" Body="&lt;p&gt;Consider an economy with $n$ consumers with an identical utility function, which is quasilinear in $x$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ u_i(x,y) = x+u(y) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we want to represent all consumers by a single representative consumer, what would his utility function look like?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is my current solution.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For every consumer, the demand for $y$ depends only on the price. It is determined by the equality:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ u'(y_i) = p_y $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;so:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ y_i(p, m_i) = (u')^{-1}(p) $$&#xA;(where $m_i$ is the income of consumer $i$). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence, the aggregate demand is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ Y(p, M) = n \cdot (u')^{-1}(p) $$&#xA;(where $M$ is the aggregate income of all consumers). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's assume that a representative consumer has utility function $U$, which is also quasilinear in $x$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ U(x,y) = x+U(y) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, his demand will be:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ Y(p, M) = (U')^{-1}(p) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Equating the above expressions for the aggregate demand gives:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ (U')^{-1}(p) = n \cdot (u')^{-1}(p) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ U'(y) = u'({y \over n}) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ U(y) = n\cdot u({y \over n}) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, the utility function of the rep. agent is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ U(x,y) = x + n\cdot u({y \over n}) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this calculation correct?&lt;/p&gt;&#xA;" OwnerUserId="385" LastActivityDate="2015-12-02T09:13:22.210" Title="Utility function of a representative agent with quasilinear utility" Tags="&lt;utility&gt;&lt;consumer-theory&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9548" PostTypeId="2" ParentId="9457" CreationDate="2015-12-02T11:52:28.870" Score="1" Body="&lt;p&gt;In the (very) short run, (VAR-)studies sometimes find a 'price puzzle': raising interest rates raises prices, instead of lowering them. This can be explained by the cost-channel of monetary transmission which is exactly what you described. It should be noted, however, that this puzzle does not always appear in all studies and that there may potentially be other explanations for the price puzzle. Caveat: falling prices when interest rates are raised, do not necesserily imply the absence of the cost channel, but can also indicate its subordination to other channels of monetary transmission. But there surely is a truth in your reasoning.&lt;/p&gt;&#xA;" OwnerUserId="6566" LastActivityDate="2015-12-02T11:52:28.870" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9550" PostTypeId="1" CreationDate="2015-12-02T16:08:42.590" Score="2" ViewCount="47" Body="&lt;p&gt;I want to progressively calculate a discount based on the amount of product sold. Are there any models which allow to take into account different type of products and can calculate the discounts based on the target profit? I am using logistic growth function at the moment, but maybe there is better solution lurking around? Where should I look.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know R and Python and some math, but don't know much about economics. So if anyone can point me to the right direction it would be great.&lt;/p&gt;&#xA;" OwnerUserId="6576" LastActivityDate="2015-12-02T16:08:42.590" Title="Are there any models which allow to calculate a discount?" Tags="&lt;mathematical-economics&gt;&lt;data-request&gt;&lt;price-theory&gt;" AnswerCount="0" CommentCount="6" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9551" PostTypeId="2" ParentId="9531" CreationDate="2015-12-02T16:24:25.053" Score="0" Body="&lt;p&gt;Another effect to consider is the existence of different target groups for different offers. These different offers may consist of the same product, but at a better or worse price. You can, for example, offer better services on top of the product, or better exchange policies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A very nice market to observe this, is given by the flight ticket market. When you finally sit in the plane, the ticket prices for, essentially, the same service may vary greatly among your fellow passengers. This is ok, since there are different market groups, which will pay different prices for the same service, if, in this case, the ticket can be bought on much longer or shorter notice. This is one of the reasons, why tickets are much cheaper when you buy them very early. Many business people can not predict their need of tickets a long time in advance and therefore will pay higher prices.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The same is true for supermarkets. In most countries there exist different supermarkets offering widely differing prices even for the same products. But since they offer a better shopping quality or a larger assortment people will still go there.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the case of the Black Friday Sales, the supermarkets can allude to a different market group, namely people with less money. These people would, in some cases, not buy specific products at their common price (this is also one of the reasons for many companies offering their products under different brands, often with the same quality but much lower price), and will only buy at a large discount. Without the discount there would be no sale. To distinguish these offers from the normal prices (in order to not alienate their standard customers) you have to go through some extra trouble to get these prices.&lt;/p&gt;&#xA;" OwnerUserId="6577" LastActivityDate="2015-12-02T16:24:25.053" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9552" PostTypeId="2" ParentId="9059" CreationDate="2015-12-02T17:00:25.033" Score="2" Body="&lt;p&gt;Expected utility theory is based on valuing expectations. There is more to that than just uncertainty.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, a risky investment is different from an uncertain investment. Risk is usually defined as future events occurring only with a &lt;strong&gt;measurable probability&lt;/strong&gt;, while uncertainty is called upon when the likelihood of future events is &lt;strong&gt;indefinite or incalculable&lt;/strong&gt;, but only estimated in itself (it's like a risk on risk). What I'm saying here is actually agreed upon by the author. Note that the first definition of expected utility models did not include any other considerations that risk. Part of the &quot;risk premium&quot; is... a risk premium, rather than an uncertainty premium, and shouldn't be modified by a better understanding of uncertainty.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another part of the risk premium is the fact that it is usually set outside the micro-economic model, usually at the moment of raising capital. No due diligence can give an investor an &quot;inside&quot; view of the model, and so there will always be a cost of borrowing money, which is to be taken into account in a risk premium for any project that requires money over time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What the article discusses seems more to me as a motivation to decrease the impact of uncertainty, and so the risk premium, rather than change the way we look at it. Being able to translate uncertainty into risk is great, but won't make risk itself disappear. For some projects so, it is likely to increase the risk premium as risks taken are better quantified, as uncertainty premium is meant to cover hidden/ unknown risk premium only on average.&lt;/p&gt;&#xA;" OwnerUserId="4578" LastEditorUserId="4578" LastEditDate="2015-12-02T20:37:41.133" LastActivityDate="2015-12-02T20:37:41.133" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="9553" PostTypeId="2" ParentId="9531" CreationDate="2015-12-02T17:18:16.990" Score="8" Body="&lt;p&gt;In a sense, I think the right question is not &quot;why do firms offer a discount&quot; (or, as you put it, why do smart firms not &quot;react by increasing all of their prices in response to demand?&quot;) Rather, the interesting question is why do firms ever &lt;em&gt;not&lt;/em&gt; discount their prices? After all, if consumers can shop around for a good deal then one would expect that all but the lowest priced firms will have a problem selling anything, so there should be a persistent incentive to try to cut prices and be the cheapest firm in the market—leading to consistently low prices.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An explanation for the coexistence of sales prices and full prices was provided by Hal Varian in his famous paper &quot;&lt;a href=&quot;http://people.ischool.berkeley.edu/~hal/Papers/model-of-sales.pdf&quot; rel=&quot;noreferrer&quot;&gt;A Model of Sales&lt;/a&gt;&quot;. In this paper there are two types of consumers: the first are &quot;naive&quot; or &quot;lazy&quot; or &quot;impatient&quot; or &quot;uninformed&quot; or for some other reason will not shop around for the best deal. The second type (known as &quot;shoppers&quot;) are smart and patient enough to wait until they can identify the best deal in the market. What Varian showed is that the existence of these two types of consumer implies that firms will sometimes offer high prices to exploit the uninformed or impatient, and sometimes run sales to capture the shoppers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This insight might seem quite intuitively obvious, but figuring out how to take this intuition and build it into an internally consistent, rigorous model was quite a significant contribution at the time. Varian's work has spawned an entire literature on 'clearinghouse models' of price dispersion, about which you can read more &lt;a href=&quot;http://faculty.haas.berkeley.edu/rjmorgan/Information%20Search%20and%20Price%20Dispersion.pdf&quot; rel=&quot;noreferrer&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2015-12-02T17:35:19.367" LastActivityDate="2015-12-02T17:35:19.367" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9554" PostTypeId="2" ParentId="9059" CreationDate="2015-12-02T18:36:57.757" Score="5" Body="&lt;p&gt;This is perhaps a good opportunity to point out that the &lt;strong&gt;&quot;certainty equivalence&quot;&lt;/strong&gt; concept means one thing in microeconomics/choice under uncertainty theory, while it means something different in macroeconomics.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Microeconomics/choice under uncertainty&lt;/strong&gt;&lt;br&gt;&#xA;The Certainty Equivalent of a lottery/gamble, is the amount of wealth which, if given with certainty, provides the same utility as the lottery/gamble. See for example Jehle &amp;amp; Reny's &quot;Advanced Microeconomic Theory&quot; (2011, 3d ed.), p.113.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Macroeconomics&lt;/strong&gt;&lt;br&gt;&#xA;&quot;Certainty Equivalence&quot; is the situation in a stochastic model, where optimal decision rules prove to be identical to those that would have been derived in a deterministic framework (see for example Lungqvist &amp;amp; Sargent's &quot;Recursive Macroeconomic Theory&quot; 2004, 2nd ed, p. 113-115). Informally, this is sometimes described as &quot;agents behave as if the stochastic processes are not stochastic&quot;, or &quot;the decision rule is not affected by stochastic variability&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is a funny coincidence that both references treat the subject in the same page number...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The concepts are evidently linked by the &quot;as if there was no uncertainty&quot; angle, but they are different in essential aspects: the micro-concept is a &quot;buy-out&quot; of uncertainty, providing a certain alternative towards which the agent that faces the gamble is indifferent in terms of utility, while the macro-concept emerges as a property of the solution (and only under restrictive model structures, or linear approximations thereof).&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2017-12-30T23:13:37.090" LastActivityDate="2017-12-30T23:13:37.090" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9555" PostTypeId="1" AcceptedAnswerId="9556" CreationDate="2015-12-02T19:13:06.413" Score="2" ViewCount="64" Body="&lt;p&gt;A house may be listed at a certain price (e.g. £200,000), but sells for a different price (e.g. £210,000).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In terms of economic theory, how does the transaction price tell us more information than the listed price?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Most papers use listed price because of data availability, and then state that it is more preferable to have transaction price. Why is this the case? &lt;/p&gt;&#xA;" OwnerUserId="5367" LastActivityDate="2015-12-02T19:43:43.667" Title="Listed property price v.s. transaction price" Tags="&lt;housing&gt;&lt;property&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9556" PostTypeId="2" ParentId="9555" CreationDate="2015-12-02T19:41:23.977" Score="4" Body="&lt;p&gt;The listed price tells you something about the expectations of the vendor and their estate agent. It's a leading indicator, hinting at where the market may be going next.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The transaction price tells you something about the actual market during the period of the sale, in the period between the property going on the market and the date of exchange. It represents a real meeting of supply and demand - it is a market price. It only becomes available in the weeks or months after completion of the transaction, so the market will already have changed by the time one can get all the data.&lt;/p&gt;&#xA;" OwnerUserId="44" LastEditorUserId="44" LastEditDate="2015-12-02T19:43:43.667" LastActivityDate="2015-12-02T19:43:43.667" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9557" PostTypeId="2" ParentId="9531" CreationDate="2015-12-02T23:33:22.070" Score="0" Body="&lt;p&gt;you have to understand the difference between wholesale and retail. when you buy a tv, about half the price covers the wholesale cost of the tv to the retailer, and the other half covers the retailer's overhead (e.g. employee wages, building lease, utilities, debt service, shareholder profit).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;the law of supply and demand applies to both sides of that equation, but you seem to only look at the wholesale demand.  yes, on black friday, customers demand a lot of products, but they demand very little retail service.  they tolerate crowded stores, long lines, distant travel and terrible hours (one day a year!).  you can see the same principle in retail where larger packages are cheaper per unit (e.g. the 2-pack is almost half the price of the 10-pack). from a wholesale perspective, the more you buy the higher demand.  but from a retail perspective, the more you buy per package or per visit the lower your demand for retail service.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;wholesale demand will drive up prices only slowly. you can't build, tool and staff a factory for one day and then tear it down the next (yet....).  so, higher demand only drives up wholesale prices if it lasts for months or years.  so, on black friday, wholesale prices are generally stable, but the retail margins drop precipitously.  if a retailer were to maintain normal margins on black friday, they would be lucky to get normal volume and just barely break even. however, if a retailer cuts their margins in half on black friday, they are likely to more than double their normal volume and more than make up for the margin in volume.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;it is worth noting that high-volume/low-price retailers have a hard time staying open all year.  if a retailer were black-friday-busy on some random tuesday in february, many customers would simply find somewhere else to shop.  for example, many consumers avoid walmart, despite the low prices, because of the long lines. that said, other people do frequent walmart. there are in fact retailers like &quot;weekends only&quot; that claim to offer lower prices specifically afforded by their reduced retail service (not open during the middle of the week).&lt;/p&gt;&#xA;" OwnerUserId="6587" LastEditorUserId="6587" LastEditDate="2015-12-02T23:43:58.653" LastActivityDate="2015-12-02T23:43:58.653" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9558" PostTypeId="2" ParentId="336" CreationDate="2015-12-02T23:34:47.940" Score="-1" Body="&lt;p&gt;There actually is and has been a very good correlation between the money supply and inflation.  The problem is that most people (including Friedman) who looked at this issue just considered narrow money (MB or M1).  Broad money is much more important.  Here is a graph with M3 and inflation:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.shadowstats.com/article/money-supply-revisited&quot; rel=&quot;nofollow&quot;&gt;http://www.shadowstats.com/article/money-supply-revisited&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The original poster asked: &quot;1) Can businesses be an important cause of inflation or is it a pure monetary effect?&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We have to separate private businesses into two.  Banks and non-banks.  No, non-banks don't cause much inflation.  Private banks on the otherhand cause the majority of our inflation (far outpacing other private companies and central banks).  This is because banks are allowed to create money which in turn creates inflation.  A more abstract way of looking at this is that banks engage in maturity mismatching by holding in their aggregate portfolios mismatched short term debt against long term assets.  The short term debt can never be redeemed (becuause it held against long term assets), so the banks have created that which has no redemption value and only trade value (they've created liquidity/money).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the original poster is interested in learning how the phenomenon works, I suggest reading the works of Murray Rothbard (much of which are free online).&lt;/p&gt;&#xA;" OwnerUserId="6479" LastActivityDate="2015-12-02T23:34:47.940" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9559" PostTypeId="1" CreationDate="2015-12-03T00:54:54.927" Score="2" ViewCount="119" Body="&lt;p&gt;Suppose that household resource constrain equation is as follows:&#xA;$$P_tC_t + Q_tB_t+ P_tI_t \leq W_tL_t+R_tK_t+B_{t-1}+D_t$$&#xA;where $P_t$ is price at time $t$, $Q_t$ is the price of one bond quantity, $B_t$ is bond quantity, $I_t$ is investment, $W_t$ is wage, $L_t$ is labor amount, $R_t$ is nominal capital rental rate, $K_t$ is capital at tie $t$, $D_t$ is dividends.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Taking it into Lagrangian at $t=0$:&#xA;$E_0 \sum_{t=0}^{\infty}\beta^t U(C_t,L_t) - \lambda_t[P_tC_t + Q_tB_t+ P_tI_t - (W_tL_t+R_tK_t+B_{t-1}+D_t)]$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Taking partial derivative of lagrangian respect to $K_{t+1}$ where $K_{t+1} = (1-\delta)K_t + I_t$ seems to produce:&#xA;$$\frac{\lambda_t}{\lambda_{t+1}} = \frac{R_{t+1}}{P_{t+1}}$$ (Dropped expectation sign, but should be there)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And taking partial derivative of the lagrangian respect to $B_t$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\lambda_t}{\lambda_{t+1}} = \frac{P_t}{P_{t+1}}\frac{1}{Q_t}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Equating these two, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$R_{t+1} = \frac{P_t}{Q_t}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Taking $-\log Q_t = i_t$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\hat{R_{t+1}} = \hat{P_t} - \hat{Q_t} = \hat{P_t}+i_t$$&#xA;where $\hat{X} = \log X$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This does not seem to be a right formula to me, and I must have made some mistake. What did I do wrong here? &lt;/p&gt;&#xA;" OwnerUserId="6588" LastActivityDate="2015-12-03T15:06:05.007" Title="How to relate real rate of return on capital to bond interest rate: Lagrangian" Tags="&lt;macroeconomics&gt;&lt;mathematical-economics&gt;&lt;interest-rate&gt;&lt;capital-returns&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9560" PostTypeId="1" AcceptedAnswerId="9563" CreationDate="2015-12-03T03:10:45.597" Score="9" ViewCount="27303" Body="&lt;p&gt;GDP is a measure of a country's &lt;strong&gt;production&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$GDP = C + I + G + X_n$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$C$ = Consumer Consumption&lt;br&gt;&#xA;$I$ = Gross Investment&lt;br&gt;&#xA;$G$ = Government Expenditures&lt;br&gt;&#xA;$X_n$ = Exports - Imports&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Exports are what we produce and make a profit from by selling to buyers outside our country.  Imports are not produced by our country, so it shouldn't be included in the GDP, so it makes sense to &lt;strong&gt;exclude&lt;/strong&gt; it from the calculation; ie. there should be no &quot;- imports&quot; in the calculation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, the calculation &lt;strong&gt;subtracts&lt;/strong&gt; imports from the GDP.  Imports somehow take away from what we produced?  That seems to say, calculate how much I have produced, X, and then don't count some of it because I imported Y.  Which doesn't make sense given that importing doesn't remove goods and services that have already been produced!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, let's say I can take apples and make pies... I produced value in the form of the &quot;pie&quot; quality.  Importing the &quot;pie&quot; quality and tacking it on an apple creates an apple pie.  However, I didn't make that &quot;pie&quot; so I can understand how it doesn't get included in the GDP: the value of the &quot;pie&quot; quality was not produced in this country, so it isn't included in the GDP.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's also say my GDP = &quot;made a cat meow&quot; + &quot;turned a tree into a fountain&quot;.  Somehow, by importing the &quot;pie&quot; quality, I am to ignore some of the value of making a cat meow?&lt;/p&gt;&#xA;" OwnerUserId="6189" LastEditorUserId="2776" LastEditDate="2017-08-28T08:41:00.750" LastActivityDate="2019-08-15T07:22:55.160" Title="Why are imports subtracted from GDP?" Tags="&lt;gdp&gt;&lt;international-trade&gt;" AnswerCount="5" CommentCount="0" FavoriteCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="9561" PostTypeId="1" AcceptedAnswerId="9562" CreationDate="2015-12-03T03:22:43.883" Score="0" ViewCount="3106" Body="&lt;p&gt;Marginal Cost is &#xA;$$MC(y) = \frac{\partial C(y)}{ \partial y}$$&lt;br&gt;&#xA;Average Cost is &#xA;$$AC(y) = \frac{ C(y)}{ y}$$&#xA;Average Variable Cost is &#xA;$$AVC(y) = \frac{VC(y)}{ y}$$&#xA;Note: &#xA;Cost is &#xA;$$ C(y) = FC + VC(y)$$ &#xA;I don’t understand what the differences are. Like I understand the definition of cost function, fixed costs, and variable costs, but I don’t get how marginal cost, average cost, and average variable costs are related. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can someone explain? &lt;/p&gt;&#xA;" OwnerUserId="2679" LastActivityDate="2015-12-03T19:16:42.363" Title="What is the difference between marginal cost and average cost?" Tags="&lt;cost&gt;" AnswerCount="2" CommentCount="1" ClosedDate="2015-12-04T13:00:34.457" ContentLicense="CC BY-SA 3.0" />
  <row Id="9562" PostTypeId="2" ParentId="9561" CreationDate="2015-12-03T04:03:06.067" Score="4" Body="&lt;p&gt;Suppose initially there are no fixed costs. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;What does it mean to take an average?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider a cost function $C(y)$. What does it mean to take the “average” of this function? Mathematically, it is just $$A(y) = \frac{c(y)}{y}$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let’s suppose we are considering $C(y) = y^3$. Suppose we now consider $y = 5$. Then $$A(5) = \frac{5^3}{5} = 25 $$&#xA;This is just saying that, for each unit I buy, I am buying them at $25$ each on average. So I could have paid &#xA;$$ \frac{15 + 39 + 46 + 14 + 11}{5}$$&#xA;or &#xA;$$ \frac{17 + 3 + 78 + 23 + 4}{5}$$&#xA;&lt;strong&gt;What information does the average cost give us?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The 'cost per unit' given by an average cost function isn't like taking an average by adding up the cost of each unit we bought. When we are given a cost function $C(y)$, this just tells me the total cost. I don't know how much my first TV cost me from this equation alone. And the average doesn't tell me that either. &lt;strong&gt;&lt;em&gt;Note how above we have two sets of 5 TVs that yielded the same average cost. Thus, the average cost function doesn't tell me how much I paid for each specific TV.&lt;/em&gt;&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;What does marginal cost tell me?&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is exactly what marginal cost provides. Marginal cost provides the specific cost of each successive infinitesimal amount of good. Consider again $C(y) = y^3$. &#xA;$$MC(y) = \frac{d C(y)}{d y}= 3y^2$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose I have purchased $3.5$ units of TV. Then the MC equation thus says, for $c(y) = y^3$, each additional infinitesimal amount of TV costs me $$3(3.5)^2 = 36.75$$ &lt;strong&gt;at that point&lt;/strong&gt;. If I purchase an additional $0.1$ amount of TV, then my MC changes and now I am at $$3(3.6)^2 = 38.88$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, this concept is a bit trickier because it involves a continuous amount of TV and the cost per infinitesimal unit changes as you buy more. So you really can't just consider how much $MC(1)$ is and $MC(2)$ is. You are considering it for some infinitesimal additional amount $dy$ at a given point (e.g. $y=2$). The trend is easier to think through if you don't restrict yourself to integers. Note, we are assuming you can have noninteger quantities of goods, otherwise we wouldn't be working in $\Bbb{R}^n$ and the integration later might be trickier.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Example to Clarify Marginal Cost&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So suppose I want to buy $5$ TVs. For the $k$th TV purchased, the $$MC(k)= 3k^2$$ Going back to our example above, let's now suppose $k \in [0,5]$. To find the average cost, we simply do the addition formula used above for the 5 TV example, except now summed over each infinitesimal amount (of which there are an infinite number). This gives us  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$A(5) = \frac{3(0)^2+\cdots + 3k^2+ \cdots + 3(5)^2}{5} = \frac{\int_{0}^{5} 3y^2 dy}{5}= \frac{(125-0)}{5}=\frac{c(5)}{5}=25$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$A(5) =25$$&#xA;the same as we calculated earlier. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Summary&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Marginal Cost is &#xA;$$MC(y) = \frac{d C(y)}{d y}$$&#xA;Average variable cost is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$A(y) = \frac{\int_{0}^{y} MC(y) dy}{y}$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note, since we assumed $FC = 0$, this formula also thus defines AC but would not be true for $FC \neq 0$. &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;AVERAGE COST VS AVERAGE VARIABLE COST&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have been sloppy about the distinction between AVC and AC up until now. I have avoided this distinction by assuming $FC = 0$. Now I will try to clarify this point by assuming $FC$ can be anything.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;em&gt;Fixed costs&lt;/em&gt;&lt;/strong&gt; ($FC$)are costs the firm pays that do not vary with the amount produced. For example, suppose I work for Uber and I buy a car. That money is spent and doesn't change with the amount I drive. But the amount of gasoline I consume does change as with the amount I drive. Costs that scale with production are known as &lt;strong&gt;&lt;em&gt;variable costs&lt;/em&gt;&lt;/strong&gt; ($VC(y)$). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$AC(y) = \frac{C(y)}{y}=\frac{VC(y) +FC}{y}= \frac{VC(y)}{y} + \frac{FC}{y}=AVC + AFC $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Hyperbolic Behavior of AFC with y &gt;0&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As production goes up ($y\rightarrow \infty$), AFC goes down ($AFC \rightarrow 0$) in an inversely proportional fashion. But note, as production goes down ($y\rightarrow 0$), AFC goes to infinity ($AFC \rightarrow \infty$). Thus, the plot of AFC will always be a hyperbola unless $FC = 0$ in which case AFC is just 0.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;How does AFC affect AC?&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Without specifying $VC(y)$, we cannot know the behavior of $AC(y)$ as $y$ moves away from $0$. There will be some $y_{0}$ such that, for $y &amp;gt; y_{0}$, $AC(y)$ can essentially be anything. Of course, as $y \rightarrow 0$, $AC(y) \rightarrow \infty$. This is because AVC cannot be negative and so we are guaranteed any variable costs will not lower the average cost below AFC. Therefore, $AVC \geq 0$, so since $AFC \rightarrow \infty$ as $y\rightarrow 0$ (remember it is a hyperbola), thus AC must go to infinity as well. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, since the behavior of fixed costs are always known, AVC is the missing ingredient needed to specify the behavior of AC. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;AC and AVC can't be &lt;em&gt;exactly&lt;/em&gt; equal for $FC&amp;gt;0$&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since $AFC \rightarrow 0$ but does not ever equal 0 (for $FC &amp;gt;0$), we know that $$AC \neq AVC$$ for any $y$ and $FC &amp;gt;0$. But since $AFC$ approaches 0 for large enough $y$, AC approaches AVC asymptotically. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;AC and AVC can't be &lt;em&gt;exactly&lt;/em&gt; parallel for $FC&amp;gt;0$&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If $AVC$ and $AC$ are parallel, then their derivatives should be equal. But notice that $$\frac{dAFC}{dy} = -\frac{FC}{y^2}$$&#xA;so $$\frac{dAC}{dy} = \frac{dAVC}{dy} + \frac{dAFC}{dy} = \frac{dAVC}{dy} - \frac{FC}{y^2} \neq \frac{dAVC}{dy}$$&#xA;So they aren't parallel because their derivatives aren't equal. That said, &lt;strong&gt;for large enough $y$, the derivatives will be very close to each other so they may appear nearly parallel over some portion of the curves.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;MC intersects AC at minimum point of AC curve&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;See Alecos's answer. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;MC intersects AVC at minimum point of AVC curve&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider the average variable cost curve. Find $y^*$ that solves &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\min_{y} AVC(y)$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So at this point, &#xA;$$\frac{dAVC(y^*)}{dy^*} = 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This means by quotient rule &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{VC'(y^*)y^*-VC(y^*)}{(y^*)^2} = 0$$&#xA;and since $y^*$ can't be 0, this implies $$VC'(y^*)y^*-VC(y^*)=0$$ which rearranged gives &#xA;$$VC'(y^*)=\frac{VC(y^*)}{y^*}$$&#xA;Recall, &#xA;$$C(y) = FC + VC(y)$$ &#xA;Note, since $FC$ is a constant, &#xA;$$C'(y) = VC'(y)$$ &#xA;Therefore, &lt;/p&gt;&#xA;&#xA;&lt;h2&gt;$$C'(y^*) = \frac{VC(y^*)}{y^*}$$&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;EXTRA STUFF&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Why do we define the firm's longrun shutdown point in terms of average cost not marginal cost?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Recall a firm's profit function is $$\pi = py - C(y)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am not defining the behavior of $p$ here or who controls $p$. I am just considering for what $p$ will the firm shut down, and ignoring everything else because it's irrelevant.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So we can easily see that since $$AC(y)= \frac{C(y)}{y}$$ for $p=AC(y)$, this yields $$\pi = \left(\frac{C(y)}{y}\right)y - C(y) = C(y)- C(y) = 0$$&#xA;So the firm will shut down if $p &amp;lt;AC(y)$ because then $\pi &amp;lt; 0$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So consider the function $C(y) = y^3$. Note, $$MC = 3y^2 &amp;gt; AC = y^2$$ We know the firm profit maximizes at $MR = MC$. So since, for $y &amp;gt; 0$, $MC(y) &amp;gt; AC(y)$, the firm would always produce if $p = MC$ since this would mean for $y&amp;gt;0$, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ MC(y)y-C(y) = \pi_{p=MC}  &amp;gt; \pi_{p=AC} = \left(\frac{C(y)}{y}\right)y - C(y) =0$$&lt;br&gt;&#xA;$$\pi_{p=MC} &amp;gt; \pi_{p=AC} = 0$$&#xA;So, for this $C(y)$, at $p=MC$, $\pi &amp;gt;0$ for all $y$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So this example clearly shows you would never shut down at $p=MC$ for $y&amp;gt;0$ for $C(y) = y^3$. Although this isn't the most thorough explanation, this example clearly invalidates that train of thought and makes clear firms shut down for $p&amp;lt; AC$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Does average cost necessarily equal marginal cost at some point?&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;See Alecos's answer. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Takeaway Rules&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;In long run, firms produce if $p \geq AC(y)$. They shut down for $p &amp;lt; AC(y)$&lt;/li&gt;&#xA;&lt;li&gt;Firms always produce at $MR = MC$ &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="2679" LastEditorUserId="2679" LastEditDate="2015-12-03T19:16:42.363" LastActivityDate="2015-12-03T19:16:42.363" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="9563" PostTypeId="2" ParentId="9560" CreationDate="2015-12-03T08:38:39.517" Score="16" Body="&lt;p&gt;When we import something, we consume it. So when calculating consumption we are bound to count import as a positive component of GDP. Since it is not (we did not produce imports domestically), we subtract it to make it neutral.&lt;/p&gt;&#xA;" OwnerUserId="6231" LastEditorUserId="108" LastEditDate="2017-08-27T19:09:55.817" LastActivityDate="2017-08-27T19:09:55.817" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9564" PostTypeId="1" CreationDate="2015-12-03T10:39:50.323" Score="1" ViewCount="36" Body="&lt;p&gt;Economic growth as a yardstick for a government's success is relatively new on a human historical scale. In my thinking it has arisen out of an expansion of the expected function of a state. States at a minimum are expected to uphold the rule of law and protect its people and its interests. Economic growth arose out of the need to implement not just criminal justice but also social justice. Now with globalisation and the breakneck speed with which developing countries are growing economically, economic growth is so deeply entrenched. However, it is possibly unsustainable and as things stand culturally and environmentally harmful.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are there ways to either &#xA;- eschew growth in favour of something better&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;constrain and direct growth in a way that is culturally and environmentally sensitive?&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="6595" LastActivityDate="2016-01-03T20:50:08.427" Title="In 21st century and a globalized world, is economic growth still the metric by which to measure a state's success?" Tags="&lt;economic-growth&gt;" AnswerCount="2" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9565" PostTypeId="2" ParentId="9561" CreationDate="2015-12-03T14:01:57.650" Score="2" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;Does average cost necessarily equal marginal cost at some point?&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Yes, if the Average Cost function has an interior stationary point&lt;/strong&gt;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Considering the derivative of the Average Cost function with respect to quantity, we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\partial AC}{\partial y} = \frac {\partial (C/y)}{\partial y} =\frac {MC\cdot y - C}{y^2} = \frac {MC - AC}{y}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\partial AC}{\partial y} = 0 \implies MC = AC$$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the Average Cost function has such a stationary point (i.e. where its first derivative equals zero), will it be a minimum?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Denoting $C''$ the 2nd derivative of the total cost function, we need&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\partial^2 AC}{\partial y^2} |_{AC=MC} &amp;gt;0 \implies \big[C''-\big(\partial AC/\partial y\big)\big]\cdot y - (MC-AC) &amp;gt;0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and since we aveluate at $y: AC = MC, \;\; \partial AC/\partial y =0$ we get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\partial^2 AC}{\partial y^2} |_{AC=MC} &amp;gt;0 \implies C''&amp;gt; 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;The Total Cost Function must be convex at the stationary point, for it to represent a minimum for the Average Cost function.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Total Cost function used in the OP's example is $TC = 50 + y^3$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Average Cost function is $AC = (50/y) + y^2$, and the Marginal Cost is $MC = 3y^2$. So&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$AC = MC \implies (50/y) + y^2 = 3y^2 \implies 25 = y^3 \implies y^* = 25^{1/3} \approx 2.92$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At that point, the second derivative of the Total Cost function is $C''(y^*) = 6y^* &amp;gt;0$. So for this Cost function there is a point where Average Cost is minimum, and where it equals Marginal Cost. The Diagram is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/XhXG9.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/XhXG9.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Indirectly, the thing to remember here is that the nice $J$-shaped curve for the Average Cost function is most easily produced if we allow for fixed costs and a convex Variable Cost.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-12-03T14:07:17.173" LastActivityDate="2015-12-03T14:07:17.173" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9566" PostTypeId="2" ParentId="9527" CreationDate="2015-12-03T14:17:22.220" Score="1" Body="&lt;p&gt;Since they are different retailers, their products are not perfectly homogeneous. The differences might be in delivery times, friendliness of representatives, packaging etc. So, their products are not strictly identical.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the monopolistic competition, it is mentioned that there are multiple retailers. If we assume they do not collude, there will be a form of competition. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Taking these two characteristics, I would say there is a form of competition, more specifically &quot;Differentiated Bertrand Competition&quot;. &lt;/p&gt;&#xA;" OwnerUserId="6080" LastActivityDate="2015-12-03T14:17:22.220" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9567" PostTypeId="2" ParentId="3067" CreationDate="2015-12-03T14:27:03.807" Score="0" Body="&lt;p&gt;It might have to do with the &lt;a href=&quot;http://www.investopedia.com/terms/r/realrateofreturn.asp&quot; rel=&quot;nofollow&quot;&gt;real rate of return&lt;/a&gt;. It comes down to the assumption that return on investment is the sum if inflation, say 3%, and the actual return of the project (say 5%). This would total to 8%. If inflation would go down to 1%, the total would drop to 6%. Any additions and/or corrections are welcome.&lt;/p&gt;&#xA;" OwnerUserId="6080" LastActivityDate="2015-12-03T14:27:03.807" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9568" PostTypeId="2" ParentId="9559" CreationDate="2015-12-03T15:06:05.007" Score="2" Body="&lt;p&gt;Ignoring the expectations operator, your lagrangean has two mistakes: first the constraint is per-period so it is also multiplied by the discount factor. Second,  the way you have wrote the time indexes is inconsistent, as regards their interpretation for capital and bonds. If $K_t$ denotes &quot;capital at the beginning of period $t$&quot; (as it does), you should also write $B_{t}$ instead of $B_{t-1}$, to denote bonds held at the beginning of period $t$. This takes with it also the time index on $Q$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also  I would advise to write your constraint in &quot;normal form&quot; (as they say in micro), namely with the constraint as &quot;higher than or equal to zero&quot;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's try this, up to a point. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Lambda = \sum_{t=0}^{\infty}\beta^t \Big[U(C_t,L_t) + \lambda_t\big(W_tL_t+R_tK_t+B_{t}+D_t - (P_tC_t + Q_{t+1}B_{t+1}+ P_tI_t)\big)\Big]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ = \sum_{t=0}^{\infty}\beta^t \Big[U(C_t,L_t)\\ + \lambda_t\big(W_tL_t+R_tK_t+B_{t}+D_t - P_tC_t - Q_{t+1}B_{t+1}- P_t\big[K_{t+1} - (1-\delta)K_t\big]\big)\Big]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\partial \Lambda}{\partial K_{t+1}} = 0 \implies -\beta^{t}\lambda_t P_t + \beta^{t+1}\lambda_{t+1}[(1-\delta)P_{t+1} +R_{t+1}] =0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\partial \Lambda}{\partial B_{t+1}} = 0 \implies -\beta^{t}\lambda_t Q_{t+1} + \beta^{t+1}\lambda_{t+1} =0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Equating we get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {[(1-\delta)P_{t+1} +R_{t+1}]}{P_t} = \frac 1{Q_{t+1}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, $R_{t+1}$ is the &lt;em&gt;nominal&lt;/em&gt; gross return to capital, so a $P_{t+1}$ is implicitly in there. If we set $r_{t+1}\equiv R_{t+1}/P_{t+1}$ the relation becomes&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {[(1+(r_{t+1} -\delta)]P_{t+1}}{P_t} = \frac 1{Q_{t+1}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Taking logs, we get the Fisher equation written for period $t+1$.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-12-03T15:06:05.007" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9569" PostTypeId="2" ParentId="3067" CreationDate="2015-12-03T15:28:32.667" Score="0" Body="&lt;p&gt;Let's accept the Fisher equation,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$r = i-\pi$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $r$ is the real interest rate, $i$ is the nominal interest rate, and $\pi$ is inflation.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's also accept that the the real interest rate earned on financial capital is the same or co-moves with the ROI, the rate of return on investments in non-financial capital (i.e. in physical and human capital, and or in technology, etc). This we accept at least as a tendency, due to the possibility of arbitrage considerations, if it was otherwise. So let's say&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$${\rm Corr}(\text{ROI}, r) = {\rm Corr}(\text{ROI}, i-\pi) \approx 1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But the above relation expresses association and co-movement, not causality.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, the statement in question, implies that causality may also run from nominal interest rates to the $\text {ROI}$.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;With stable inflation, lower nominal interest rates imply lower real interest rates. No effect on $\text {ROI}$ yet. Lower real interest rates will presumably push the holders of funds out of financial capital investment and relatively more into direct investments, &lt;em&gt;for which they will be ok if the $ROI$ is lower than previously&lt;/em&gt;, as long as it does not fall below the new lower real interest rate on financial assets.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is a way to rationalize the statement.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-12-03T15:28:32.667" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9570" PostTypeId="1" AcceptedAnswerId="9571" CreationDate="2015-12-03T15:48:00.230" Score="1" ViewCount="848" Body="&lt;p&gt;What is the intrinsic value of a company's non-voting stock shares which don't pay dividends?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My understanding is stock ownership has value in the form of controlling the company or receiving a portion of the profits.  Where does value derive from when neither of these is present?&lt;/p&gt;&#xA;" OwnerUserId="5283" LastActivityDate="2015-12-05T16:27:19.673" Title="Intrinsic value of non-voting shares which don't pay dividends" Tags="&lt;stock-market&gt;" AnswerCount="4" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="9571" PostTypeId="2" ParentId="9570" CreationDate="2015-12-03T16:31:30.647" Score="3" Body="&lt;p&gt;Just because a share doesn't &lt;em&gt;presently&lt;/em&gt; pay dividends, doesn't mean it &lt;em&gt;never&lt;/em&gt; will. The gamble is that eventually, it &lt;em&gt;will&lt;/em&gt; pay dividends. So the share's value is the market's estimate of the net present value of a future cashflow discounted by two factors: one, the discount rate to reflect that this is a &lt;em&gt;future&lt;/em&gt; cashflow not a &lt;em&gt;present&lt;/em&gt; one; and two, the probability the cashflow will start later, or never.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2015-12-03T16:31:30.647" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9572" PostTypeId="2" ParentId="9560" CreationDate="2015-12-03T16:41:43.460" Score="7" Body="&lt;p&gt;One way to navigate rather safely in National Accounting Identities, is to put on the one side &quot;what you have available&quot; and on the other side &quot;what you do with it&quot;. In the specific case ($M$ being imports) we would have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$GDP + M = C + I + G + X$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;What we have available&quot; is what we produce and what we import.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;What we do with it&quot; is a) consume it b) invest it c) let the government incur expenses and d) export it (note that we can export not only what we produce but also what we have imported).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I believe it is all reasonable. Then, rearranging,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$GDP = C + I + G + (X-M)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;the term in the parenthesis being &quot;net exports&quot;.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2016-02-07T16:41:04.613" LastActivityDate="2016-02-07T16:41:04.613" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9573" PostTypeId="1" AcceptedAnswerId="11823" CreationDate="2015-12-03T18:19:02.983" Score="0" ViewCount="70" Body="&lt;p&gt;If an ultra high networth individual, like Bill Gates, Mark Zuckerberg, Carlos Slim, Paul Allen, Elizabeth of Windsor, Amancio Ortega,  Liliane Bettencourt, Stefan Persson, Bernard Arnault etc. would leverage their &lt;code&gt;fortune&lt;/code&gt; in the way a bank does with savings, would that multiply their wealth?:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If an UHN individual owns their own 'bank' and puts their fortune in it as savings, they could create e.g. 10 x their fortune in loans.&lt;/p&gt;&#xA;" OwnerUserId="6598" LastEditorUserId="6598" LastEditDate="2015-12-03T21:36:06.670" LastActivityDate="2016-06-02T16:43:15.090" Title="Leveraging private capital" Tags="&lt;gdp&gt;&lt;inequality&gt;&lt;capital-returns&gt;" AnswerCount="3" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9574" PostTypeId="1" CreationDate="2015-12-03T19:05:28.517" Score="1" ViewCount="74" Body="&lt;p&gt;I know that if a consumer has strictly convex preferences it may not guarantee uniqueness of CE. &#xA;I believe that we need monotonicity of preferences as well but would like to hear any thoughts of this claim or whether any other conditions may be needed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks&lt;/p&gt;&#xA;" OwnerUserId="6098" LastActivityDate="2015-12-03T19:05:28.517" Title="Uniqueness of Competitive Equilibrium Conditions" Tags="&lt;preferences&gt;&lt;competitive-equilibrium&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9575" PostTypeId="2" ParentId="9425" CreationDate="2015-12-03T19:24:54.247" Score="0" Body="&lt;p&gt;Terrorism is noted to have an impact on the performance of several major economic and financial indicators, at least in &quot;small&quot; countries like &lt;a href=&quot;http://www.rafieldor.co.il/PDF/Financial%20markets%20and%20terrorism.pdf&quot; rel=&quot;nofollow&quot;&gt;Israel&lt;/a&gt; or &lt;a href=&quot;http://www.nyu.edu/gsas/dept/politics/faculty/beck/abadie_aer.pdf&quot; rel=&quot;nofollow&quot;&gt;Spain&lt;/a&gt;.  The idea that it could influence the price of gold is not unreasonable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I note that the physical consequences of terrorism are relatively small and localized in terms of physical and human capital- not to diminish the loss of those who suffered. I simply mean they are small in comparison to say, the broad and sweeping consequences of a simple 1% change in US interest rates.  However, consider that the reaction in financial markets could be composed of a combination of the following: &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Terrorist attacks function as a signal that safety and security&#xA;of capital is lower than previously believed. &lt;/li&gt;&#xA;&lt;li&gt;Humans may have behavioral tendencies to overreact to large, public events.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;It is not surprising, therefore, to see movement of human, physical, and financial capital in response to terrorist attacks being realized.&lt;/p&gt;&#xA;" OwnerUserId="4185" LastEditorUserId="4185" LastEditDate="2015-12-03T19:36:36.273" LastActivityDate="2015-12-03T19:36:36.273" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9577" PostTypeId="1" AcceptedAnswerId="9592" CreationDate="2015-12-03T20:15:40.253" Score="3" ViewCount="1393" Body="&lt;p&gt;I have started to learn economics from Adam Smith's &quot;Wealth of nations&quot; because I think that learning economics (or narrow fields of it) will allow me to become rich.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does knowing economics allow me to make money?&lt;/p&gt;&#xA;" OwnerUserId="6599" LastEditorUserId="47" LastEditDate="2015-12-04T00:40:11.563" LastActivityDate="2015-12-04T20:21:10.760" Title="Does learning economics lead to richness?" Tags="&lt;self-study&gt;" AnswerCount="3" CommentCount="5" FavoriteCount="0" ClosedDate="2015-12-05T01:31:54.920" ContentLicense="CC BY-SA 3.0" />
  <row Id="9578" PostTypeId="2" ParentId="336" CreationDate="2015-12-03T20:27:33.260" Score="0" Body="&lt;p&gt;Reading the answers above I think there is a confusion. FED does not really control the money supply in the economy. It only controls the monetary money. The majority of the stock that is available in the circulation is primarily determined by commercial banks. What we have seen recently is that the amount of credit issued by these banks is quite limited and not large enough to put inflationary pressures. More specifically, what QE does is it substituted commercial bank risky assets (e.g. mortgage backed securities) into hard cash, which is safer, hence the commercial banks are supposedly more willing to issue credit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regarding the question about other factors, one should consider inflation expectations. If for the past 10 years the inflation has been 2%, it is quite likely I will believe it to be the same, regardless whether it is recession or not. Hence such things as employee contracts and trade unions agreements agree upon that the next years wage increase will be 2% to mach the inflation. This translates to an increase in 2% in prices (just a crude example, but you can refer to P. Volker's fight with inflation in 1980s, when everyone was used to above 10% inflation). The point being is that people expectations about inflation are rather rigid, you can expand the money supply as much as you want, but it will not budge in the short-run.&lt;/p&gt;&#xA;" OwnerUserId="5366" LastEditorUserId="5366" LastEditDate="2015-12-05T11:16:33.567" LastActivityDate="2015-12-05T11:16:33.567" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9579" PostTypeId="2" ParentId="9573" CreationDate="2015-12-03T21:08:38.040" Score="0" Body="&lt;p&gt;Banks (and other firms), do not leverage their fortunes, they leverage their investment power. Individuals, often through family trusts, may use the same tool, of course.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This does not allow for more &lt;strong&gt;spending&lt;/strong&gt; but for more investment. Given expected benefit higher than the cost of leverage, this can be a good way to invest more, but remember that leveraged funds can only be spent on activity that generates revenues, because both interest and capital has to be payed back in the end. This does increase the impact of big players in the economy, but does not change their purchasing power, just their investing power.&lt;/p&gt;&#xA;" OwnerUserId="4578" LastActivityDate="2015-12-03T21:08:38.040" CommentCount="13" ContentLicense="CC BY-SA 3.0" />
  <row Id="9582" PostTypeId="1" CreationDate="2015-12-03T21:45:08.443" Score="2" ViewCount="49" Body="&lt;p&gt;How does an UHN individual leverage their wealth? Do they in fact do so, and should for example Bill Gates' 80 billion be understood as 800 - 900 billion dollar if he leverage his wealth 10 x? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Someone else said that this leveraging indeed occurs and magnifies the impact of these fortunes on an economy. But how should this be understood precisely? &lt;/p&gt;&#xA;" OwnerUserId="6598" LastActivityDate="2015-12-04T00:32:58.783" Title="How does an UHN individual leverage their wealth?" Tags="&lt;gdp&gt;&lt;capital-returns&gt;&lt;capital-structure&gt;" AnswerCount="1" CommentCount="3" ClosedDate="2015-12-12T07:52:24.247" ContentLicense="CC BY-SA 3.0" />
  <row Id="9584" PostTypeId="1" CreationDate="2015-12-04T00:05:54.117" Score="1" ViewCount="32" Body="&lt;p&gt;I have found state-level, monthly unemployment data for 2014/2015, and I have found &lt;em&gt;national&lt;/em&gt; monthly youth unemployment data for 2014/2015. However, I need all four together; &lt;em&gt;State-level&lt;/em&gt;, &lt;em&gt;monthly&lt;/em&gt; &lt;em&gt;youth&lt;/em&gt; unemployment data for &lt;em&gt;2014 and 2015&lt;/em&gt;. In addition to scouring their website, I have called the Bureau of Labor Statistics and they were not helpful, unfortunately. &#xA;Alternatively, state-level monthly unemployment data on low-wage earners for 2014/2015 would work as well. &#xA;Basically, I want to find the effects of the state-level minimum wage changes occurring on January 2015, and these affect primarily youth and other low-wage earners.&#xA;Actually, if I could find this data at the yearly level for 2014 and 2015 instead of the monthly level, that wouldn't be too bad. It wouldn't be quite as useful as monthly, but I could still run the regression and get some results. The other elements are pretty crucial though.&#xA;Thanks!!&lt;/p&gt;&#xA;" OwnerUserId="6602" LastEditorUserId="6602" LastEditDate="2015-12-04T00:12:35.673" LastActivityDate="2015-12-04T00:12:35.673" Title="How can I find state-level data on the unemployment rate of youth for 2014 and 2015?" Tags="&lt;data-request&gt;&lt;unemployment&gt;&lt;empirical-evidence&gt;&lt;minimum-wage&gt;&lt;paneldata&gt;" AnswerCount="0" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9585" PostTypeId="2" ParentId="9582" CreationDate="2015-12-04T00:32:58.783" Score="2" Body="&lt;p&gt;Leveraging is done with debt. Most high net worth individuals are debt free and even if they take out loans, it is to reduce taxes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, high net worth individuals normally have their wealth in a form of equities or stocks. For example Bill Gates' wealth is mostly in Microsoft stock, Warren Buffet's is in Berkshire Hathaway's, etc. The corporations that these rich people own can take on a lot of debt and therefore become leveraged. Debt to equity ratio of corporations like Microsoft and Berkshire Hathaway is not very high though, in fact it is below 50% for those two. You can say that Microsoft's use of debt, or leverage, amplifies its impact on the economy by 1.4x, which is not a bad thing. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A hedge fund or some investment institution, on the other hand, can easily have several times more debt on their balance sheet than equity. On top of that, hedge funds can buy/sell leveraged derivatives like futures, for examples, which have a 10x leverage of their own. As a result, owners of such investment institutions CAN have a considerably impact on the economy as a result of the use of leverage.&lt;/p&gt;&#xA;" OwnerUserId="6231" LastActivityDate="2015-12-04T00:32:58.783" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9586" PostTypeId="2" ParentId="6986" CreationDate="2015-12-04T03:44:30.123" Score="0" Body="&lt;p&gt;While individual actions can be an important variable in determining exchange rates, the role of private banks far outweighs what the public can and does do.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;While there are non-monetary factors in determining exchange rate, monetary components are still of primary importance.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Put simply, banks create money.  They create money (aka liquidity) by mismatching short term debt with long term assets (maturity mismatching).  When banks face higher interest rates, they can not create as much money (we are talking broad money like M3).  So less money from nation X relative to nation Y, means the money from nation X will go up.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you are curious about this works, I suggest reading the following graphs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is a value of the US dollar over time (weighted against multiple currencies):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.shadowstats.com/alternate_data/dollar-index-charts&quot; rel=&quot;nofollow&quot;&gt;http://www.shadowstats.com/alternate_data/dollar-index-charts&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is a graph of the M3 money supply:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.shadowstats.com/charts/monetary-base-money-supply&quot; rel=&quot;nofollow&quot;&gt;http://www.shadowstats.com/charts/monetary-base-money-supply&lt;/a&gt; (4th chart down...the long term one).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Notice how they share the peaks in 1985, a trough from 1990 to 1995, a peak in 2003 and then a downswing in 2005.  That to me is a pretty good correlation and proof that more money (M3) = weaker dollar.  &lt;/p&gt;&#xA;" OwnerUserId="6479" LastActivityDate="2015-12-04T03:44:30.123" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9587" PostTypeId="2" ParentId="8645" CreationDate="2015-12-04T04:08:32.720" Score="0" Body="&lt;p&gt;In analysing the correlations between money and inflation, it is important to differentiate between narrow money (like MB) and broad money (like M3).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In 2008, the US monetary base did a &quot;hockey-stick&quot; (it grew very rapidly).  But M3 (broad money) grew very gradually.  This was because a lot of broad money was being destroyed by the financial crisis.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In certain economic circles this has left many confused...they saw rapid growth in base money but not a correlating rate of inflation.  It did not make sense and the &quot;exporting inflation&quot; argument became popular to explain this by inflation hawks (it is not a bad theory but doesn't tell the whole story).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand, some economists and journalists argued that this was proof that monetary considerations were not important for inflation.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Both are incorrect, as monetary considerations are still very important in determining inflation...you just have to properly define money.  Much of the money that flows through the economy is not paper dollars...but bank deposits.  So it is apt to consider bank deposits (broad money) when trying to correlate inflation to the money supply.  This is why the US did not need to export dollars to see inflation rise minimally while base money spiked up sharply.&lt;/p&gt;&#xA;" OwnerUserId="6479" LastActivityDate="2015-12-04T04:08:32.720" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9588" PostTypeId="2" ParentId="6546" CreationDate="2015-12-04T04:18:34.983" Score="3" Body="&lt;p&gt;Bitcoin can not have a real inflation rate because its value is purely speculative.  Bitcoins themselves have no inherit value (intrinsic nor extrinsic).  You only acquire a bitcoin because you think another person will want it for the same or higher value that you did.  Thus any deviation in its value reflects pure speculation.  At least with dollars, they have extrinsic value in that you can pay your taxes with them (public tender laws).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Bitcoins will like all speculative commodities will experience a &quot;liquidity crisis&quot; in the future in which their value will drop precipitously to the point of collapse. &lt;/p&gt;&#xA;" OwnerUserId="6479" LastActivityDate="2015-12-04T04:18:34.983" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="9589" PostTypeId="2" ParentId="9248" CreationDate="2015-12-04T04:56:57.420" Score="3" Body="&lt;p&gt;Some keywords you might search for will be profiling, RFM, CRM and customer analysis.  clv (or customer lifetime value) might be your best keyword though.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An example CLV calculator: &lt;a href=&quot;http://www.clv-calculator.com/customer-lifetime-value-formulas/clv-formula/&quot; rel=&quot;nofollow&quot;&gt;http://www.clv-calculator.com/customer-lifetime-value-formulas/clv-formula/&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is an interesting clustering model: &lt;a href=&quot;http://www.iieom.org/ieom2011/pdfs/IEOM068.pdf&quot; rel=&quot;nofollow&quot;&gt;http://www.iieom.org/ieom2011/pdfs/IEOM068.pdf&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An article on how surveys are used to classify customers: &lt;a href=&quot;http://www.finreghq.com/articles/bank-customer-profiles-and-why-they-are-important-sample-profile-questions/&quot; rel=&quot;nofollow&quot;&gt;http://www.finreghq.com/articles/bank-customer-profiles-and-why-they-are-important-sample-profile-questions/&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Again, a lot of good stuff if you search for banking and clv:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.google.com/search?client=ubuntu&amp;amp;channel=fs&amp;amp;q=banking+clv&amp;amp;ie=utf-8&amp;amp;oe=utf-8&quot; rel=&quot;nofollow&quot;&gt;https://www.google.com/search?client=ubuntu&amp;amp;channel=fs&amp;amp;q=banking+clv&amp;amp;ie=utf-8&amp;amp;oe=utf-8&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="6479" LastActivityDate="2015-12-04T04:56:57.420" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9590" PostTypeId="2" ParentId="9577" CreationDate="2015-12-04T05:44:53.393" Score="1" Body="&lt;p&gt;Learning economics can make you richer than you would be without any knowledge of economics whatsoever. So it largely depends on your background. If you were brought up in a financially savvy family and learned all of the basics about personal finance, credit, saving for retirement etc., then reading &quot;Wealth of Nations&quot; won't make much difference. Just work hard and follow conventional wisdom.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you want to better manage your personal wealth throughout your lifetime, I would suggest reading books and blogs on personal finance. Googling 'Personal Finance' is a good start. Again, economic theory and economic history won't be too helpful.&lt;/p&gt;&#xA;" OwnerUserId="6231" LastActivityDate="2015-12-04T05:44:53.393" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9591" PostTypeId="1" CreationDate="2015-12-04T08:30:28.073" Score="3" ViewCount="15348" Body="&lt;p&gt;It seems to me that the non-reversible transactions included in the current account, and the reversible transactions included in the capital and financial account, are unrelated, and should therefore be able to fluctuate independent of one another.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Imagine an economy where each person bought a huge number of items online from overseas. The balance on current account would be negative... but the capital and financial account unaffected, meaning they no longer add to zero.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What am I missing?&lt;/p&gt;&#xA;" OwnerUserId="5973" LastEditorUserId="5973" LastEditDate="2015-12-04T08:36:30.210" LastActivityDate="2018-10-13T11:46:49.787" Title="Why does the Balance of Payments have to (more or less) equal zero" Tags="&lt;macroeconomics&gt;&lt;international-trade&gt;&lt;international-economics&gt;" AnswerCount="2" CommentCount="4" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="9592" PostTypeId="2" ParentId="9577" CreationDate="2015-12-04T08:45:09.210" Score="3" Body="&lt;p&gt;First things first, we must dispel the misconception that you will find in economics some magic formula to &quot;beating the stock market&quot; or some other way to make easy money. I explain why why &lt;a href=&quot;https://economics.stackexchange.com/a/9192/108&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Learning economics &lt;em&gt;can&lt;/em&gt; help you to become more wealthy in several prosaic ways:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;In the same way that learning to be a doctor or lawyer can make you rich. If you have useful skills then people will pay you to use your skills to help them. Professional economists are employed in the government, academia, and the private sector and are generally well-paid.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Learning economics will also teach you to be a more logical and systematic thinker, which is likely to make you better at all kinds of intellectual tasks—including those not directly connected to economics. Again, this is likely to improve your future earnings potential.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Many ordinary people do truly stupid things with their money. Economics will &lt;em&gt;not&lt;/em&gt; generally teach you about these things (better to read about personal finance, as Arthur Tarasov suggested), but it will teach you to be more savvy in matters of money and help you to avoid the pitfalls.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Note that none of these three things are specific to economics. You would do just as well to learn medicine and read a beginner's guide to investing. Some advice in my capacity as an 'old guy' rather than an economist: if you want to become rich then find a career that pays good money and &lt;em&gt;that you will enjoy&lt;/em&gt; and work hard at it.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Final remark: If you really want to learn economics then reading Adam Smith is probably a pretty bad way to start. That is like trying to learn English by reading Shakespeare. Much better to start with a modern introduction to the subject (I am fond of &quot;Intermediate Microeconomics: A Modern Approach&quot; by Hal Varian).&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-12-04T16:32:41.847" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="9593" PostTypeId="2" ParentId="9564" CreationDate="2015-12-04T09:44:07.803" Score="1" Body="&lt;p&gt;Depends on what you mean by &quot;success&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Economic growth is simply change in gross output expressed in market prices. Prices tell you what citizens want and how much of it they have. Equating marginal utility with price is a useful abstraction in this case.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Economic growth is trivially desirable: it's about people making things they need.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When &quot;success&quot; is defined in some progressive terms, it's no longer trivially desirable. Zero employment policies — like those in the Soviet Union — hurt productivity. Premature investments in clean tech worsen intertemporal tradeoffs. You actually get back to GDP to measure these successes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Still, measurements of economic growth can get better. Like Stiglitz et al's suggestion to use net disposable income instead of GDP per capita (see Commission on the Measurement of Economic Performance and Social Progress, Mismeasuring Our Lives). Adjusting per-capita metrics for inequality would also be a good idea.&lt;/p&gt;&#xA;" OwnerUserId="240" LastActivityDate="2015-12-04T09:44:07.803" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9594" PostTypeId="1" CreationDate="2015-12-04T12:26:14.410" Score="3" ViewCount="16324" Body="&lt;p&gt;I have a example of supply and demand. If there is a regulation that requires &lt;strong&gt;customers&lt;/strong&gt; to pay additional tax when they purchase cigarettes, would supply or demand curve shift? I know that tax/subsidies is one of supply's non-price determinants, however, it is only applicable to producers. I doubt that this example is concerned with demand curve. Nevertheless, tax is not one of demand non-price determinants. Thanks!&lt;/p&gt;&#xA;" OwnerUserId="6605" LastActivityDate="2016-01-08T07:21:40.450" Title="Tax imposed on customer affects demand or supply curve?" Tags="&lt;supply-and-demand&gt;" AnswerCount="3" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9595" PostTypeId="2" ParentId="9594" CreationDate="2015-12-04T12:58:13.400" Score="3" Body="&lt;p&gt;In partial equilibrium, demand shifts down, with the (vertical) distance between the pre-tax and post-tax curve being exactly the height of the tax. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;pre-tax curve: $q=f(p)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;post-tax curve: $q=f(p+t)$&lt;/p&gt;&#xA;" OwnerUserId="6566" LastEditorUserId="6566" LastEditDate="2016-01-08T07:21:40.450" LastActivityDate="2016-01-08T07:21:40.450" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9596" PostTypeId="1" AcceptedAnswerId="9600" CreationDate="2015-12-04T17:48:59.057" Score="0" ViewCount="49" Body="&lt;p&gt;After the Chinese central bank removed the peg against USD, yuan appreciated but Chinese exports didn't seem to be affected. They are steadily increasing. How can this be explained ?&lt;/p&gt;&#xA;" OwnerUserId="5582" LastActivityDate="2015-12-04T19:27:26.393" Title="Why Chinese exports increased even though Yuan appreciated after the Chinese removed the peg against USD?" Tags="&lt;exchange-rates&gt;&lt;currency-peg&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9597" PostTypeId="1" AcceptedAnswerId="9648" CreationDate="2015-12-04T18:25:27.833" Score="3" ViewCount="1743" Body="&lt;p&gt;What I mean by the title is often, if we have a value function like&#xA;$$V(K,I) = \max_{K',I'} F(K') +\beta V(K',I')$$&#xA;the First order conditions will give us something that depends on the derivative of the value function, say $V_1(K',I')$. We deal with this by using the B-S condition to find $V_1(K,I)$, then advance it one period?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What about when $V_1(K,I)$ still depends on $V_1(K',I')$, though? (see $(*)$ below for an example, if you wish to skip the setup)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is an example. Note that subscripts denote derivatives, the number in the subscript being the input with respect to which we are taking the derivative. &lt;strong&gt;The exception to this is&lt;/strong&gt; negative subscripts, such as $I_{-1}$, where the subscript denotes being one period in the past (in the case of $-1$). A prime denotes being one period in the future (t+1), and two primes denotes being two periods in the future.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Back to the problem: We have value function&#xA;$$V(K,I_{-1}) = \max_{I,K'',C}u(C) + \beta V(K',I) \\&#xA;\text{ s.t. } C+I \leq f(K) \\&#xA;\text{ and  } I =K'' - (1-\delta)K'&#xA;$$&#xA;So basically we have a simple model with investment that takes two periods to build. $f(K)$ is our production function.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The FOC's give&#xA;$$&#xA;u_1(c) = \lambda_1 \text{, $\lambda_1$ is the multiplier on the first constraint }\\ &#xA;\lambda_2 = 0 \text{ multiplier on second constraint is zero} \\&#xA;\beta V_2(K',I) = -\lambda_1&#xA;$$&#xA;Now to get $V_2$ we use the B-S condition, which gives&#xA;$$V_2(K,I_{-1}) = \beta V_1(K',I)$$&#xA;because $K' = I_{-1} + (1-\delta)K$ from the second constraint. Use the BS condition again and get&#xA;$$V_1(K,I_{-1}) =f_1(K) + (1-\delta)V_1(K',I) \tag{*}$$, again, because $K' = I_{-1} + (1-\delta)K$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;The previous equation is my question&lt;/strong&gt; To reiterate, we use B-S condition to find the derivative of the value function, but in $(*)$ the B-S condition depends on what we are trying to find. How do we handle this?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I feel like $V_1(K'I)$ may just be $1$, or $0$, but then that makes $V_2$ be $\beta$ or $0$, which seems wrong...&lt;/p&gt;&#xA;" OwnerUserId="6600" LastEditorUserId="6600" LastEditDate="2015-12-04T19:50:36.513" LastActivityDate="2016-01-05T22:49:10.433" Title="Benveniste-Scheinkman condition gives derivative that still depends on the value function" Tags="&lt;macroeconomics&gt;&lt;dynamic-programming&gt;&lt;bellman-equations&gt;" AnswerCount="1" CommentCount="5" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9598" PostTypeId="2" ParentId="9596" CreationDate="2015-12-04T19:20:42.763" Score="2" Body="&lt;p&gt;Simple answer: Drawing on Ricardian model I can say the Chinese have not lost their comparative advantage in producing many types of manufactured goods. Yuan, on its way to appreciation, has to walk a few more miles to affect the comparative advantage that the Chinese possess. &lt;/p&gt;&#xA;" OwnerUserId="6009" LastActivityDate="2015-12-04T19:20:42.763" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9599" PostTypeId="1" AcceptedAnswerId="9607" CreationDate="2015-12-04T19:23:59.703" Score="2" ViewCount="129" Body="&lt;p&gt;I want to model TFP series using an econometric model, be it AR(1) process, unit root with drift drift process etc. I was wondering if anyone knows of published papers discussing various methods of modelling technical progress. Alternatively, type in your model of TFP.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you&lt;/p&gt;&#xA;" OwnerUserId="6009" LastActivityDate="2016-02-12T13:26:11.930" Title="Econometric model for TFP" Tags="&lt;macroeconomics&gt;&lt;economic-growth&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9600" PostTypeId="2" ParentId="9596" CreationDate="2015-12-04T19:27:26.393" Score="1" Body="&lt;p&gt;Different elements can contribute to such an evolution, without trying to be exhaustive, these are a few general comments:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;What happened to the real effective exchange rate? The evolution of the real effective exchange rate may differ from the nominal bilateral exchange rate with the USD to the extent that price evolutions in China (international competitivity) significantly differ from price evolutions in its main trade partners or to the extent that bilateral exchange rates of its main trading partners evolved differently from its exchange rate with the USD.&lt;/li&gt;&#xA;&lt;li&gt;Depending on the height of the price-elasticity of foreign demand for domestic exports and the price-elasticity of domestic demand for imports (and the initial current account balance), an inverted J-curve effect may appear.&lt;/li&gt;&#xA;&lt;li&gt;Increases in the income of China's main trade partners will result in higher demand for Chinese exports.&lt;/li&gt;&#xA;&lt;li&gt;Decreased Chinese income may have resulted in lower imports.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="6566" LastActivityDate="2015-12-04T19:27:26.393" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9601" PostTypeId="1" AcceptedAnswerId="10045" CreationDate="2015-12-04T19:55:43.617" Score="2" ViewCount="111" Body="&lt;p&gt;In either the short or long term, does the H-1B visa program have the effect of reducing wages in the U.S. for U.S. citizens?&lt;/p&gt;&#xA;" OwnerUserId="6603" LastActivityDate="2016-01-03T22:26:35.060" Title="Does the H-1B visa program have the effect of reducing wages in the U.S" Tags="&lt;wages&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9602" PostTypeId="2" ParentId="9601" CreationDate="2015-12-04T20:11:21.947" Score="0" Body="&lt;p&gt;This is from Wikipedia. The US H1B visa is a non-immigrant visa that allows US companies to employ foreign workers in specialty occupations that require theoretical or technical expertise in specialized fields such as in &lt;strong&gt;architecture, engineering, mathematics, science, and medicine&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assuming the hiring process is competitive, the wages must as well be competitive. But data may say the opposite in a well rounded econometric model.&lt;/p&gt;&#xA;" OwnerUserId="6009" LastActivityDate="2015-12-04T20:11:21.947" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9603" PostTypeId="2" ParentId="9564" CreationDate="2015-12-04T20:14:48.113" Score="0" Body="&lt;p&gt;Have you heard about Bhutan's measure of success called Gross National Happiness (GNH)? Several other nations followed suit Bhutan and created their own measure of GNH, given the time I have, I would just recommend you to google &quot;GNH&quot; to find out about an alternative measure.&lt;/p&gt;&#xA;" OwnerUserId="6009" LastActivityDate="2015-12-04T20:14:48.113" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9604" PostTypeId="2" ParentId="9577" CreationDate="2015-12-04T20:21:10.760" Score="1" Body="&lt;p&gt;Think about the opportunity cost of &quot;learning economics&quot; - this may depend on your age, family situation, alternative actions, etc. You may appreciate the fact that many of the traders and analysts at investment banks are not economists or did not learn economics. But they are some of the richest &quot;economists&quot;. Similarly, many rich people, check Forbes for the list, have non-econ background. Learning economics may help improve your life in some way, but if its opportunity cost is high at this time, you better think about business ideas which could help you find an already rich business partner. You get rich along the way then. &lt;/p&gt;&#xA;" OwnerUserId="6009" LastActivityDate="2015-12-04T20:21:10.760" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9606" PostTypeId="1" AcceptedAnswerId="9608" CreationDate="2015-12-04T21:03:51.583" Score="1" ViewCount="7453" Body="&lt;p&gt;An import quota in an open economy might not have the desired affect of increasing the GDP as it increases the demand of domestic currency in the open market raising exchange rate. How does it happen that import quota causes demand to shift positively ?&lt;/p&gt;&#xA;" OwnerUserId="5582" LastActivityDate="2015-12-04T22:44:01.517" Title="How does an import quota affect the demand / supply of currency?" Tags="&lt;currency&gt;&lt;exchange-rates&gt;&lt;open-economy-macro&gt;&lt;pure-exchange-economy&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9607" PostTypeId="2" ParentId="9599" CreationDate="2015-12-04T21:59:57.613" Score="3" Body="&lt;p&gt;Check the article:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Olley, G. Steven, and Ariel Pakes. &lt;a href=&quot;http://dx.doi.org/10.2307/2171831&quot; rel=&quot;nofollow&quot;&gt;The dynamics of productivity in the telecommunications equipment industry&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is an Econometrica paper (1996). It is the standard method to estimate productivity nowadays.&lt;/p&gt;&#xA;" OwnerUserId="5233" LastEditorUserId="7215" LastEditDate="2016-02-12T13:26:11.930" LastActivityDate="2016-02-12T13:26:11.930" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9608" PostTypeId="2" ParentId="9606" CreationDate="2015-12-04T22:35:59.270" Score="1" Body="&lt;p&gt;The goal of import quotas is to get people to buy domestic goods, which can only be bought for local currency. Therefore import quotas increase demand for local currency. But...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Setting import quotas is a very undesirable economic policy. It is basically a state intrusion into a market economy. Quotas for imports are usually implemented as a desperate measure when there is a continuously negative trade balance, local currency rapidly loses value, and every other measure (increasing taxes, customs, subsidizing exporters, etc.) failed. Distribution of quotas usually involves plenty of corruption. On top of that, World Trade Organization does not normally allow import quotas. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The more common use of import quotas is in agriculture, to support local farmers or production of a certain crop. But such limited use of import quotas should have very limited effect on the currency, unless it is a 'banana republic' where agriculture is the main economic activity.&lt;/p&gt;&#xA;" OwnerUserId="6231" LastEditorUserId="6231" LastEditDate="2015-12-04T22:44:01.517" LastActivityDate="2015-12-04T22:44:01.517" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="9609" PostTypeId="2" ParentId="9570" CreationDate="2015-12-04T22:43:32.043" Score="2" Body="&lt;p&gt;Building off of @EneregyNumbers's answer, one of the major reasons you might buy a stock without dividends or voting power is because these days, firms do a lot more with reinvestment strategies, which aim to appreciate the value of the stock itself. You might prefer a firm to not pay out dividends to you and instead take profits and reinvest them into the firm to make the company worth more, and then eventually the firm can start paying off better dividends. So there might be that aspect of expected return. You could also then sell off your stock otherwise if the value kept appreciating and you still weren't seeing a dividend.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2015-12-04T22:43:32.043" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9610" PostTypeId="1" AcceptedAnswerId="9614" CreationDate="2015-12-04T23:17:21.547" Score="1" ViewCount="47" Body="&lt;p&gt;I am analysing a time series and all the variables are stationary using augmented Dickey–Fuller test (ADF). Does it make sense to test for co-integration in stationary series?&lt;/p&gt;&#xA;" OwnerUserId="6460" LastEditorUserId="6231" LastEditDate="2015-12-05T00:54:38.130" LastActivityDate="2015-12-05T09:45:11.013" Title="Co-integration in stationary series" Tags="&lt;econometrics&gt;&lt;time-series&gt;&lt;applied-econometrics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9611" PostTypeId="1" AcceptedAnswerId="11077" CreationDate="2015-12-04T23:34:30.340" Score="4" ViewCount="2573" Body="&lt;p&gt;Theoretically the capital account balance should fully offset the current account balance and the BoP should be zero for any economy. What causes the imbalance or discrepancy in the overall BoP ? What makes countries run BoP surplus or deficits ?&lt;/p&gt;&#xA;" OwnerUserId="5582" LastActivityDate="2016-03-13T09:32:47.930" Title="What makes the Balance of Payments (BoP) to imbalance?" Tags="&lt;open-economy-macro&gt;&lt;balance-of-trade&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9612" PostTypeId="2" ParentId="9570" CreationDate="2015-12-05T02:05:46.033" Score="3" Body="&lt;p&gt;Standard dividends are not the only cash outlet from company to sharesholder.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One option is stock buy backs.  A company could in theory say buy 1 million dollars of shares every year and this would be a form of a dividend.  The shareholder could benefit by selling their stock directly or waiting to sell their stock back to the company a later point time.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another option is waiting for a merger.  Often cash is involved in these deals and this is a form of stock buyback/dividends that can realize impressive gains for investors.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A third method that shareholders can access a companies loot is through a liquidating dividend.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So a stock does have intrinsic value even if it doesn't issue dividends.&lt;/p&gt;&#xA;" OwnerUserId="6479" LastActivityDate="2015-12-05T02:05:46.033" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9614" PostTypeId="2" ParentId="9610" CreationDate="2015-12-05T09:45:11.013" Score="2" Body="&lt;p&gt;No, cointegration occurs when two series have the same stochastic trend. In order to have a stochastic trend, they should be nonstationary. Stationary variables do not have a trend. You can perform standard inference. &lt;/p&gt;&#xA;" OwnerUserId="6566" LastActivityDate="2015-12-05T09:45:11.013" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9615" PostTypeId="1" CreationDate="2015-12-05T09:53:21.827" Score="0" ViewCount="62" Body="&lt;p&gt;Land is an indestructible capital asset that offers a perpetual revenue flow. You own a piece of land that returns $20,000 per year forever. The relevant real interest rate to consider is 4%. What is the present value of this land at time 0?I need to use integration here&lt;/p&gt;&#xA;" OwnerUserId="6613" LastEditorUserId="6613" LastEditDate="2015-12-06T06:53:47.193" LastActivityDate="2015-12-06T06:53:47.193" Title="Present Value at time 0" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="1" ClosedDate="2015-12-07T13:17:53.337" ContentLicense="CC BY-SA 3.0" />
  <row Id="9616" PostTypeId="2" ParentId="9611" CreationDate="2015-12-05T10:05:46.677" Score="2" Body="&lt;p&gt;This depends on the exchange rate regime. For a floating exchange rate, the balance of payments is always in equilibrium, that is, the financial account always offsets the current (and capital) account. A hypothetical deficit is avoided by a depreciating exchange rate, a hypothetical surplus is avoided by appreciation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a fixed exchange rate regime, the central bank will offset the exchange rate adjustments that guarantee the equilibrium under floating exchange rates. In order to offset these adjustments, the CB has to intervene in the exchange markets. To prevent a currency from depreciating, the CB has to use its foreign reserves to buy its own currency. To avoid an appreciation, the CB has to buy foreign currency and icrease its foreign reserves.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To sum up, as an answer to your question: BoP imbalances only occur in a fixed exchange rate regime and are caused by foreign exchange interventions of the CB. Therefore, the imbalance is equal to the settlements balance, or the change in the CB's reserve assets.&lt;/p&gt;&#xA;" OwnerUserId="6566" LastEditorUserId="6566" LastEditDate="2016-03-13T09:32:47.930" LastActivityDate="2016-03-13T09:32:47.930" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="9617" PostTypeId="2" ParentId="9615" CreationDate="2015-12-05T11:12:09.307" Score="1" Body="&lt;p&gt;If you can get 4% annual returns elsewhere (relevant interest rate), then the asset returning 20,000 per year is worth 20,000 / 0.04 or 500,000.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words, 20,000 is 4% of the asset's present value and 500,000 is 100% if its present value.&lt;/p&gt;&#xA;" OwnerUserId="6231" LastActivityDate="2015-12-05T11:12:09.307" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9618" PostTypeId="1" CreationDate="2015-12-05T11:32:06.303" Score="1" ViewCount="270" Body="&lt;p&gt;In &lt;a href=&quot;http://bookstore.siam.org/cl39/&quot; rel=&quot;nofollow&quot;&gt;Intriligator (2002, p. 143)&lt;/a&gt; we find the following statement:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;\begin{align} &#xA; C = \{(x_1,x_2,\ldots,x_n) : x_j \geq 0,~j=1,2,\ldots,n\} \subset [0,\infty)^n&#xA; \end{align}&#xA;  Thus  commodity  space is the  nonnegative  orthant  of  Euclidean&#xA;  $n$-space,  a closed,  convex set.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I'm rather confused why $C$ is supposed to be closed, because $x_j$ is not bounded from above. However, we may argue that $C$ is closed, because its complement&#xA;\begin{align} &#xA;C^c \subset (-\infty,0)^n&#xA;\end{align}&#xA;is open.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Still, isn't it appropriate to say that $C$ is &lt;em&gt;half&lt;/em&gt;-closed? Am I hairsplitting here?   &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="4266" LastActivityDate="2015-12-05T18:58:26.260" Title="On closedness: commodity space" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;&lt;theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9619" PostTypeId="2" ParentId="9618" CreationDate="2015-12-05T12:21:25.313" Score="4" Body="&lt;p&gt;A closed set does not need to be bounded. For instance, the set $[0,\infty)$ is closed but unbounded.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Formally, a set is closed if it contains all its limit points. You can easily verify that it is the case for your $C$. Take a sequence of elements $x^m=(x_1^m,\cdots,x_n^m) \in C$ that converges to a vector $x^{*}=(x_1^{*},\cdots,x_n^{*})$ under any appropriate topology. The $j$-th coordinate of $x^{*}$, $x_j^{*}$, is the limit of the sequence $x_j^{m}$. Since all $x_j^{m}$ are nonnegative real numbers, so is the case for the limit $x_j^{*}$. Since this is true for all $j$, $x^{*}$ also belongs to $C$.&lt;/p&gt;&#xA;" OwnerUserId="4667" LastEditorUserId="4667" LastEditDate="2015-12-05T18:58:26.260" LastActivityDate="2015-12-05T18:58:26.260" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="9620" PostTypeId="1" CreationDate="2015-12-05T12:33:44.627" Score="1" ViewCount="331" Body="&lt;p&gt;I am writing a paper on European poverty and I am using a treatment control setup&#xA;similar to Difference-in-Difference methods.&#xA;Now, since the data I am using is rather recent, I would like to condition on &quot;austerity levels&quot;, i.e. I would like to make sure that countries in the control group and those in the treatment group are equal in terms of austerity that has been employed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is what I have so far:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First of all I defined austerity as umbrella term for the following:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Public wage and employment cuts&lt;/li&gt;&#xA;&lt;li&gt;Cuts in welfare expenditure&lt;/li&gt;&#xA;&lt;li&gt;Rescaling labour protection institutions&lt;/li&gt;&#xA;&lt;li&gt;Changes in pension age&lt;/li&gt;&#xA;&lt;li&gt;Cutting the minimum wage&lt;/li&gt;&#xA;&lt;li&gt;Ad-hoc tax rises&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;First, I thought about using GDP change as a measure. Oviously, there might be a host of other reasons&#xA;why GDP changes, especially when there has just been (or there still is) a large economic downturn (defined by declining GDP).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, I thought of social welfare spending as an indicator. However, welfare spending might also (and indeed does)&#xA;increase in times of crisis, because more people might become unemployed and need support, even though the individual height of the&#xA;help has decreased. Moreover, different countries might have chosen completely different approaches to &#xA;austerity. E.g. Italy has chosen to increase the tax burden, to change the pensionary system and to fight inefficiencies in taxation and government,&#xA;while Latvia has primarily chosen to cut down public salaries (sometimes by 50%), while Greece seems to try both desperately.&#xA;That means that it is not so clear that austerity always reflects the same way and especially that social welfare spending is a bad proxy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thirdly, I thought of the height of government debt as a proxy, the logic being:&#xA;countries which are highly indebted might be forced to cut down on the welfare state.&#xA;Again, this is a rather weak predictor for austerity, simply looking at some examples:&#xA;Latvia, with a public debt of 40% of GDP in 2012 had to go through a multilateral bailout, while&#xA;Germany, with a public debt of about 80% was involved in many bailouts in the recent years.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I came up with in the end is the following:&#xA;the 10 year government bond interest rates show how much confidence financial markets have in the country in question, moreover high interest rates&#xA;simply force the country to save, in order to stand a realistic chance of being able to service the debt in future.&#xA;Therefore, conditioning on the 10-year government bond interest rate should be able to control for at least some of the austerity effects.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My problem is that I didn't find many recent year studies using a treatment control approach for aggregated data, and even less which would describe&#xA;the choice of the right austerity indicator and I am not really trusting my logic.&#xA;It seems like I am missing something or that I am making life somewhat too easy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would be really interested in hearing your thoughts and your critique, or in the best case someone knows a well-established austerity indicator.&#xA;Thank you in advance!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Best wishes&lt;/p&gt;&#xA;" OwnerUserId="6616" LastEditorUserId="6616" LastEditDate="2015-12-05T14:26:40.680" LastActivityDate="2015-12-05T14:26:40.680" Title="What is a good AUSTERITY indicator?" Tags="&lt;econometrics&gt;&lt;welfare-economics&gt;&lt;poverty&gt;&lt;treatment-effect&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="9621" PostTypeId="2" ParentId="9620" CreationDate="2015-12-05T12:51:35.643" Score="2" Body="&lt;p&gt;If it is about European Union, it would make sense to look at austerity as a response to the debt crisis. I would measure austerity not as the level of government debt, but as the change in levels of government debt from year to year. The slower the government debt (as a share of GDP) increases, the more austere are the budget policies of that country. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, if you have access to state budget deficits data, it would be a very convincing measure of austerity in my opinion. The less is the budget deficit, the more austere is the budget policy.&lt;/p&gt;&#xA;" OwnerUserId="6231" LastActivityDate="2015-12-05T12:51:35.643" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9623" PostTypeId="2" ParentId="9570" CreationDate="2015-12-05T16:27:19.673" Score="1" Body="&lt;p&gt;Ordinary shares that do not pay cash dividends offer more to the shareholders.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If listed firms do not pay dividend, they must have investment opportunities which offer high rates of returns. The shareholders may want to receive dividends and prefer reinvesting the proceeds elsewhere, but the boards might have different plan. The board compares the rates of return from reinvesting in new projects and paying dividends to the shareholders. If the return from projects is higher than the return investors are expected to earn by reinvesting the dividends, the board keeps retaining the profits until the opportunity cost of doing so is lower than not doing so. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Many newly listed companies do not pay dividends until much later when they exhaust most high return investment opportunities. Investors usually incorporate the future incremental cash flows from investment projects (of the company) in share prices. So share prices rise by the present value per share of the future cash flows from the investments. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence, non-dividend paying shares have as much value as those that pay dividend or have voting rights.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Other ways of earning through investing in non voting non divided shares are:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Capital Gains i.e. stemming from investment strategies etc. &lt;/li&gt;&#xA;&lt;li&gt;Stock&#xA;dividends  &lt;/li&gt;&#xA;&lt;li&gt;Stock splits&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="6009" LastActivityDate="2015-12-05T16:27:19.673" CommentCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="9624" PostTypeId="2" ParentId="8506" CreationDate="2015-12-05T19:56:04.260" Score="2" Body="&lt;p&gt;Some older references, from the first wave of fascination with the subject:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) &lt;a href=&quot;http://www.jstor.org/stable/1942966&quot; rel=&quot;nofollow&quot;&gt;Baumol, W. J., &amp;amp; Benhabib, J. (1989). Chaos: significance, mechanism, and economic applications. The journal of economic perspectives, 77-105.&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A general introductory overview.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) &lt;a href=&quot;http://link.springer.com/book/10.1007/978-3-662-22233-1&quot; rel=&quot;nofollow&quot;&gt;Lorenz, H. W. (1993). Nonlinear dynamical economics and chaotic motion (Vol. 334). Berlin: Springer.&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Theoretical treatment&lt;/p&gt;&#xA;&#xA;&lt;p&gt;3) &lt;a href=&quot;https://mitpress.mit.edu/books/nonlinear-dynamics-chaos-and-instability&quot; rel=&quot;nofollow&quot;&gt;Brock, W. A., Hsieh, D. A., &amp;amp; LeBaron, B. (1991). Nonlinear dynamics, chaos, and instability.&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Applied econometrics for the detection of chaotic behavior in economic time-series, from two of the most known researchers in the field (W. Brock and B. LeBaron)/&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-12-05T19:56:04.260" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9625" PostTypeId="2" ParentId="9189" CreationDate="2015-12-05T20:12:47.250" Score="5" Body="&lt;p&gt;It is my impression that the correct expression for &quot;Dixit-Stiglitz&quot; preferences is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U=\left(\int_{0}^{1}c(\omega)^{\rho}d\omega\right)^{\frac{1}{\rho}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which then can be seen as a continuous incarnation (in [0,1]) of, say&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\left (\sum_{i=1}^na_i\omega_i^{\rho}\right)^{\frac{1}{\rho}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;with $c(\omega_i) = a_i^{1/\rho}\omega_i$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words, a definite (Riemann) integral is indeed conceived as a sum of infinitesimally small rectangles, but it can also be seen as the continuous incarnation of a sum.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A formal link between an integral and a sum is provided by the &lt;strong&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Euler%E2%80%93Maclaurin_formula&quot;&gt;Euler-MacLaurin formula&lt;/a&gt;&lt;/strong&gt;.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-12-05T20:12:47.250" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9626" PostTypeId="2" ParentId="3279" CreationDate="2015-12-05T20:39:19.450" Score="1" Body="&lt;p&gt;Before gravity was conceived as a physical phenomenon and studied by Isaac Newton, gravity was not microfounded. So before Newton, modelling the real world should assume away gravity, because it was not microfounded. We should instead create models into which humans could walk on air.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When a phenomenon appears stable, while attempting to understand and decipher it (to micro-found it), we should be wise enough to accept its existence and include it in our models, of course in an &quot;ad hoc&quot; manner since we haven't decipher it yet.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Whether firms &quot;cannot&quot; or &quot;choose optimally not to&quot; change their prices everyday, makes little difference, as long as we haven't settled on the optimization framework into which such an optimal choice could come about. It makes little difference because in the absence of knowledge it can be seen as a semantic issue: I can re-interpret &quot;cannot&quot; as &quot;an optimizing agent &lt;em&gt;cannot&lt;/em&gt; do what is suboptimal -it goes against every inch of its existence&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Nevertheless, bashing for micro-foundations of an observed regularity (and it is a prevailing observed regularity across time, space, cultures and economic systems that firms don't changes their prices continually), is a good thing, in that it keeps up the pressure to finally find those microfoundations.&lt;br&gt;&#xA;I just hope the bashers don't argue in addition, that in the meantime, we should only be modelling people as walking also on air -sorry, be modelling firms only as being able to change their prices continually.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And to send the ball back, I have never seen in my life any convincing &quot;micro-foundation argument&quot; for the assumption that prices are perfectly elastic.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-12-05T20:39:19.450" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="9627" PostTypeId="2" ParentId="6811" CreationDate="2015-12-06T01:45:04.037" Score="4" Body="&lt;p&gt;The gold standard in the US was actually kind of complicated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You had the government issuing notes off of gold, and private banks issuing bank notes off of gold...but also banks issuing notes/deposits off governments notes as well.  A pyramid on a pyramid.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Neither was 100% backed and both were vulnerable to runs.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In 1933, FDR no longer let the public redeem gold for dollars.  A default of sorts...but we were never on a true gold standard!  We always had more promises than gold.  The same with the banks.  Given that gold used to be equivalent to dollars (as the Fed used to exchange the two), banks would use dollars as reserves for convenience...but soon they became the monetary base.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now the US still maintained an international gold standard.  But this too was fractional and had more promises than assets.  Countries (most notably) the French did not like how &quot;overbooked&quot; the dollar was to gold and started redeeming their gold in mass.  There was a run by international central banks on the dollar and Nixon had no choice but to take us off the international gold standard as well.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So it is confusing, but we went off the gold standard twice.  Once to the public (FDR) and once to international central banks (Nixon).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So how did this work before 1972?  Gold was the international reserve currency, but on top of this the dollar was the means by which gold would be commonly traded between countries.  It was much more difficult to clear transactions in gold than paper (or accounting) dollars, which led to its popularity as a reserve currency.  On occasion of course individuals would demand gold for dollars and you would have physical transfers take place (as in load the gold onto the ship and send it over the high seas).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you are interested in the history of the American gold standard, I highly recommend the book &lt;strong&gt;&lt;em&gt;A History of Money and Banking in the United States:&#xA;The Colonial Era to World War II&lt;/em&gt;&lt;/strong&gt; by Murray N. Rothbard:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://mises.org/sites/default/files/History%20of%20Money%20and%20Banking%20in%20the%20United%20States%20The%20Colonial%20Era%20to%20World%20War%20II_2.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;mises.org&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So what is the difference between the old system and the current system?  Not much as we were never on a true gold standard.  But in a nutshell, banks used to be able to redeem dollar bills or central bank deposits for gold.  Now dollars are not redeemdable for anything.  You can see on the Fed balance sheet a holdover for this as gold is still considered an asset and dollars (paper and electronic) as liabilities.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Federal_Reserve_System#Balance_sheet&quot; rel=&quot;nofollow noreferrer&quot;&gt;en.wikipedia.org&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So how would trade occur pre-Bretton Woods?  Mostly through banks.  The receiver bank would obtain credit for gold, or a national currency that was convertible to gold (dollars or say pounds).  If one party wanted to convert currencies they could but it mostly took place as a transfer from say &quot;pound deposits&quot; to &quot;dollar deposits&quot;.  If the new party demanded their payment in gold they could obtain this but it rarely happened.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;After Bretton Woods, international trade was mostly facilitated by dollar deposits with the promise of gold redemption of a foreign central bank demanded it (which Nixon ended).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now when gold reserves were physically demanded, did this cause problems?  Yes!  Remember, all countries and banks issued more notes/deposits for dollars than they had (somewhat dishonest but that is another matter).  Say the pound (during the standard) lost a bunch of reserves...so they go from a ratio of say 1000 central bank deposits to 200 gold to 900 central bank deposits and 100 gold.  A serious blow to credibility which could lead to a run on the currency. Do they have to print or destroy more notes/deposits...no because they do not 100% back gold.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So why do countries hold reserve currencies today?  They kind of don't need to, but there is a reason.  Basically private banks operate by maturity mismatching (balancing short term debt against long term assets).  When a currency is not stable (like from a small nation) short term interest rates are too volatile for banking and in fact bank runs can be initiated from clever predator foreign inverters (like George Soros).  Politicians like banks...and for some reason they think they are important to the economy, so go to great ends to prop them up.  For a small nation this means their currency must be somewhat stable for their banking system to survive...and the nation achieves this by maintaining a peg.  You can only maintain a peg if you can manipulate the market, so countries hoard foreign assets like dollars so they can buy and sell their home currency (like say the Peso) so it achieve its peg rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for clearing of international transactions this is mostly done with bank money, but dollars are a common facilitating base for these transactions (although certainly many other currencies are being used now).&lt;/p&gt;&#xA;" OwnerUserId="6479" LastEditorUserId="6479" LastEditDate="2017-09-14T15:33:43.563" LastActivityDate="2017-09-14T15:33:43.563" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9629" PostTypeId="1" AcceptedAnswerId="9630" CreationDate="2015-12-06T05:30:58.600" Score="3" ViewCount="1442" Body="&lt;p&gt;&lt;a href=&quot;http://www.economist.com/blogs/buttonwood/2015/12/central-bank-predictability&quot; rel=&quot;nofollow&quot;&gt;http://www.economist.com/blogs/buttonwood/2015/12/central-bank-predictability&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Ever since 1987, banks have been willing to cut rates when markets&#xA;  have wobbled. Driving down bond yields has been an explicit aim of QE&#xA;  (and pushing up stockmarkets an implicit one). Currencies move in&#xA;  anticipation of interest rate divergence (hence the strength of the&#xA;  dollar this year) and &lt;strong&gt;a stronger/weaker currency has a&#xA;  tightening/easing effect on economic conditions&lt;/strong&gt;.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;A related question is what exactly is meant by tightening effect on economic conditions. This term is meant loosely in financial media and I do not know exactly what it means.&lt;/p&gt;&#xA;" OwnerUserId="6172" LastActivityDate="2018-06-20T16:03:14.433" Title="Why does a stronger currency have a tightening effect on economic conditions?" Tags="&lt;macroeconomics&gt;&lt;currency&gt;&lt;monetary-policy&gt;&lt;central-banking&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9630" PostTypeId="2" ParentId="9629" CreationDate="2015-12-06T07:39:33.533" Score="1" Body="&lt;p&gt;Tight monetary policy reduces the amount of money available in the economy and strengthens the currency. It is usually implemented by raising interest rates, increasing capital requirements for banks, or sometimes selling government bonds.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When there is less money and credit to go around, business activity slows down, economic growth slows down. Businesses that could have expanded by taking out loans do not do so; consumers who could have purchased more with their credit cards can't do so; investors who could have invested more money into businesses (equities) put the money into government bonds.&lt;/p&gt;&#xA;" OwnerUserId="6231" LastActivityDate="2015-12-06T07:39:33.533" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9632" PostTypeId="1" CreationDate="2015-12-06T08:34:44.823" Score="2" ViewCount="764" Body="&lt;p&gt;Mixed-frequency methods typically involve using the higher frequency data (stock ticks, etc) to forecast the lower-frequency (GDP, in an example exaggerated to stress frequency disparity).  This may be a very simple/obvious answer, but because I haven't been able to find the &lt;em&gt;opposite&lt;/em&gt; goal addressed in any of the literature (a great guide to this literature is: &lt;a href=&quot;http://www.uclouvain.be/cps/ucl/doc/ssh-ilsm/images/MIDAS_Course_Syllabus_NBB.pdf&quot; rel=&quot;nofollow&quot;&gt;http://www.uclouvain.be/cps/ucl/doc/ssh-ilsm/images/MIDAS_Course_Syllabus_NBB.pdf&lt;/a&gt;), I'm just not sure what I can get away with when it comes to combining two datasets at different frequencies before any time series work.  It's possible that this is addressed in the literature listed in the above link, and I just haven't seen it.  But the goal always seems to be in one direction: forecast lower-frequency data with higher-frequency.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What if I want to allow for the possibility of some endogenous two-way effects, and try to forecast the higher-frequency based on the lower-frequency?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;See from &lt;a href=&quot;http://rady.ucsd.edu/faculty/directory/valkanov/pub/docs/midas-touch.pdf&quot; rel=&quot;nofollow&quot;&gt;http://rady.ucsd.edu/faculty/directory/valkanov/pub/docs/midas-touch.pdf&lt;/a&gt;: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;At a general level, the interest in MIDAS regressions addresses a situation often&#xA;encountered in practice where the relevant information is high frequency data, whereas the&#xA;variable of interest is sampled at a lower frequency. One example pertains to models of stock&#xA;market volatility. The low frequency variable is for instance the quadratic variation or other&#xA;volatility process over some long future horizon corresponding to the time to maturity of&#xA;an option, whereas the high frequency data set is past market information potentially at&#xA;the tick-by-tick level.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;See also from same paper: &quot;Take for instance the relationship between inflation and growth. Instead of&#xA;aggregating the inflation series to a quarterly sampling frequency to match GDP data, one&#xA;can run a MIDAS regression combining monthly and quarterly data.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What about the opposite?  IE, if I have a dataset of inflation:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;YearQ Inflation&#xA;2006Q1 3&#xA;2006Q2 3.5&#xA;2006Q3 3&#xA;2006Q4 3.5&#xA;2007Q1 3.5&#xA;2007Q2 3.4&#xA;2007Q3 3.4&#xA;2007Q4 3.4 &#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;And a dataset of GDP:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;Year GDP&#xA;2006 3&#xA;2007 3.1&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Can I simply combine the 2 like so? (really easy as it's just a simple join, so appealing to me for that reason when it comes to more complicated examples of same)&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;YearQ  Inflation GDP&#xA;2006Q1 3 3       3&#xA;2006Q2 3.5       3&#xA;2006Q3 3 3       3&#xA;2006Q4 3.5       3&#xA;2007Q1 3.5       3.1&#xA;2007Q2 3.4       3.1&#xA;2007Q3 3.4       3.1&#xA;2007Q4 3.4       3.1&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Can I now try to model inflation using RU-MIDAS/VAR/ETS/ARIMA/GARCH/VECM/whatever?  That still feels clumsy to me.  It would even be helpful if someone could just verify for me, &quot;yes, it's a) covered in the literature, and b) it's not a conceptually worthless pursuit to try to predict high-frequency with lower-frequency data.&quot;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, from the same basic intro paper I quoted before, after it introduces basic MIDAS equation: &quot;The&#xA;annual/quarterly example would imply that the above equation is a projection of yearly Yt&#xA;onto quarterly data X&#xA;(m)&#xA;t using up to j&#xA;max quarterly lags.4&quot;  That sounds like what I want - but the formulation is to have the independent variable (ignoring time for a moment) still be the higher-frequency.  Do I simply invert the equation at this point for what I want (&quot;solve for x,&quot; literally)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit: Found a very recent working paper from Norges Bank (I can't post more than 2 links, google &quot;Using low frequency information for&#xA;predicting high frequency variables&quot;), that is pretty good.  The lit review on benchmarked approaches like MF-VAR should be useful too.  It looks from this paper that my approach is theoretically acceptable in the abstract, although I should use more intelligent interpolation of the low-frequency data to the higher-frequency dataset, like cubic splines in SAS &quot;PROC EXPAND&quot; function.  There are some people, like Marc Wildi, who use this same exaggerated example of GDP as the low-frequency variable to make the argument that there is less usefulness from the use case I'm proposing than the traditional opposite.  He does have some cool MDFA signal extraction methods that I don't understand, so that's something else to read up about.&lt;/p&gt;&#xA;" OwnerUserId="6034" LastEditorUserId="6034" LastEditDate="2015-12-06T13:20:48.190" LastActivityDate="2015-12-06T13:20:48.190" Title="MIDAS (mixed frequency regression/sampling) - switching the typical use case?" Tags="&lt;econometrics&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9633" PostTypeId="2" ParentId="4534" CreationDate="2015-12-06T10:28:59.803" Score="2" Body="&lt;p&gt;&lt;a href=&quot;http://econsmalaysia.blogspot.my/2013/05/gdp-deflator-inflation-consumer.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://econsmalaysia.blogspot.my/2013/05/gdp-deflator-inflation-consumer.html&lt;/a&gt;. Here read this. Its almost a non-related type of measurement&lt;/p&gt;&#xA;&lt;p&gt;From the article:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;The differences in calculation are quite substantial and meaningful – they’re not looking at the same thing. In fact, calculating the GDP deflator is fairly convoluted as these things go – first tabulate all goods and services in current prices, then measure the same goods and services in prices prevailing in the base year, then calculate the ratio of current price production to constant price production. This ratio (multiplied by 100) is the GDP Deflator index, from which growth rates (inflation) can be calculated.&lt;/p&gt;&#xA;&lt;p&gt;The CPI on the other hand, is based on changes in prices only, as the volume of goods consumed by a “representative” (average) household is taken to be fixed. The index is just a weighted average of the changes in prices across the same basket of goods.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;As an example, below are the GDP deflator and CPI for Malaysia, which show weak correlation&lt;/p&gt;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/WKNse.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/WKNse.png&quot; alt=&quot;enter image description here&quot; /&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&lt;p&gt;The key thing to understand is that while both can be affected by broad macro policy (like loose money), they do not neccessarily always drive each other, as the GDP deflator could be driven by a surge in export commodity pricing that is largely captured by foreign firms with little corresponding increase in pay to local workers and consequently little increase in CPI.&lt;/p&gt;&#xA;&lt;p&gt;The relationship would have to be examined in terms of a single economy because the weight of outside factors confounds the relationship between the CPI and GDP&lt;/p&gt;&#xA;" OwnerUserId="6622" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2015-12-14T16:56:34.910" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9634" PostTypeId="1" AcceptedAnswerId="10093" CreationDate="2015-12-06T11:20:39.853" Score="0" ViewCount="219" Body="&lt;p&gt;Where can I find UK stock data over the last 70-80 years? Preferably adjusted to to the inflation.&lt;/p&gt;&#xA;" OwnerUserId="6611" LastActivityDate="2016-01-06T09:24:04.863" Title="UK stock historical data" Tags="&lt;data-request&gt;&lt;stock-market&gt;&lt;financial-markets&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9635" PostTypeId="1" CreationDate="2015-12-06T14:21:45.173" Score="2" ViewCount="59" Body="&lt;p&gt;I'm reading a paper and at some point the author writes : &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;We do this by decomposing monthly &lt;strong&gt;real crude oil prices&lt;/strong&gt; and analyzing the&#xA;effect of the &lt;strong&gt;smooth part&lt;/strong&gt; on the degree of the stock market instability.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What does he mean by &quot;smooth part&quot;? Is it the same meaning we have when dealing with integers?(factoring to prime numbers) Or is it something else? I don't understand what &quot;the smooth part&quot; means and how it is of any importance.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sorry in advance if the question is too beginner.&lt;/p&gt;&#xA;" OwnerUserId="6625" LastActivityDate="2015-12-07T11:38:46.373" Title="What does this phrase mean?" Tags="&lt;financial-economics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9636" PostTypeId="2" ParentId="9629" CreationDate="2015-12-06T15:52:41.993" Score="1" Body="&lt;p&gt;The primary goal of quantitative easing was not to affect the bond market nor the stock market.  But rather to save the banking system.  All other goals to the Fed are a distant second to this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The banking system is very dependent on a consistent and reliable source of short term debt (like deposits).  This is because they make money by borrowing short term and lending long term (maturity mismatching).  If in the aggregate, the public stops rolling over their short term debt the banking system is in grave trouble and could face a bank run. They can't convert long term assets into short term.  So to avoid insolvency they need to refinance withdrawn short debt with another source of short term debt.  The Fed usually provides a reliable source of short term debt through open market actions.  But when banks stopped lending to each other in 2008+, the Fed decided more needed to be done to replace short debt (financing) that had bled out of the banking system.  Hence QE, which allowed banks to unload long term assets to the Fed in exchange for reserves which they could lend to each other on the money market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What does tightening mean?  If you as a bank make money by maturity/yield mismatching and short term interest rates go up (and by extension maturity) then banks can not create as much broad money as they had.  Yet in the aggregate long term debt remains constant.  Less money + same amount of long term debt = a constricting effect on the economy.  But some of this is complicated.  When banks are allowed to create money, they create inflation which is also bad for the economy.  So it is a situation that has to be handled very carefully.&lt;/p&gt;&#xA;" OwnerUserId="6479" LastActivityDate="2015-12-06T15:52:41.993" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9637" PostTypeId="1" AcceptedAnswerId="9642" CreationDate="2015-12-06T16:49:24.530" Score="3" ViewCount="1517" Body="&lt;p&gt;Mueller (2015, &lt;a href=&quot;http://ftp.iza.org/dp6849.pdf&quot; rel=&quot;nofollow&quot;&gt;working paper&lt;/a&gt;) says that an HP filter with smoothing parameter 900,000 (for monthly data) corresponds to a smoothing parameter of 100,000 for quarterly data.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How does one do this exact calculation? If I were to calculate the corresponding annual parameter, how would I proceed?&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-12-09T17:15:02.920" Title="HP Filter Smoothing Parameter" Tags="&lt;time-series&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9638" PostTypeId="1" AcceptedAnswerId="9640" CreationDate="2015-12-06T19:01:52.083" Score="2" ViewCount="207" Body="&lt;p&gt;Why does bond market not change as much as the stock market during financial crisis? On the picture we see the development of the two markets &lt;a href=&quot;https://i.stack.imgur.com/xjN30.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/xjN30.png&quot; alt=&quot;Development of the markets&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="6611" LastActivityDate="2016-01-05T20:49:09.387" Title="Bond market vs stock market during crisis" Tags="&lt;stock-market&gt;&lt;financial-markets&gt;&lt;financial-crises&gt;&lt;bonds&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9640" PostTypeId="2" ParentId="9638" CreationDate="2015-12-06T20:02:25.270" Score="2" Body="&lt;p&gt;Short answer:&lt;br&gt;&#xA;A bond issued by a company is less risky than a share of the same company.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Longer answer:&lt;br&gt;&#xA;A company is in bankruptcy if its assets are worth less than its obligations. In case of bankruptcy the assets are sold off in the market or by individual agreements with the creditors. Direct creditors are payed first. If there is any money left, bond owners are payed. Since the assets were worth less than the obligations, no money is left, shareholders get nothing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So even if things turn bad, bond owners can expect reimbursement. (Unless the change in asset price was drastic they can expect a large fraction of their money to be reimbursed.) Stock owners can expect no money if the company goes bankrupt. Even worse, stock prices already go down if asset prices decrease, because the company will have less profits after meeting its debt obligations, and hence it can pay less dividends. Basically a stock owner is betting on high profits while a bond owner is betting on medium profits. During crisis most companies cannot expect high profits anymore and their prices fall accordingly. Most bond issuing companies still don't go bankrupt so bonds are less affected.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2015-12-06T20:02:25.270" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9641" PostTypeId="2" ParentId="8924" CreationDate="2015-12-06T20:03:06.660" Score="3" Body="&lt;p&gt;To clarify the first scenario: you assume Joe can buy this car. However, Joe has to either earn an income (and therefore, produce something himself) or he has to dissave. In the first case, Joe has produced 500 output and earned an income of 500. He spends his income on a car, but Amanda saves the money. As is clarified in other answers, Joe's output goes to inventories (because not purchased by Amanda), which are counted as (unplanned) investments. S = I = 500, C = 500, Y = S + C = 1000. You mention in a comment that most consumers do not produce something. In fact, they do. At work, when earning their income (with which they buy the car), they created added value (this is the production (500) that goes to the inventory when Amanda does not buy it). Think of the income they earn at work as their part in the created added value, their contribution to real production. Consider the second case when Joe does not work.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the case Joe dissaves to buy the car instead of working and using his income (he just drives around, without producing), 500 savings have to be deducted from your final result for the first scenario, so that S = I = 0, C = 500, Y = S + C = 500.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the second scenario, forget about Joe's 500 for a while. Assume Amanda invests 250 (one car) in inventory, which means she has produced 250 (one car) first (and sold nothing), so that I = Y - C = 250, C = 0. Consumption is zero because Amanda sold nothing and Joe bought nothing. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;An income can only be earned when value added was produced. Therefore, the  500 Joe has received cannot be seen as an income, and since only income can lead to consumption or saving, Joe had neither consumed nor saved. The 500 Joe received is an expansion of money supply (and has no real interpretation) and will increase prices proportionally (assume V and Y to be constant in the fisher equation (MV=PY)). The 250 that Amanda produced has now increased in value, but in real terms her investment in inventory will still refer to the 250 (one car). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This actually illustrates the importance of distinguishing nominal and real variables in the economy. The macro-economic identity you refer to is only about real variables.&lt;/p&gt;&#xA;" OwnerUserId="6566" LastActivityDate="2015-12-06T20:03:06.660" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9642" PostTypeId="2" ParentId="9637" CreationDate="2015-12-06T20:22:39.540" Score="5" Body="&lt;p&gt;&lt;a href=&quot;http://www.researchgate.net/profile/Morten_Ravn/publication/24095763_On_adjusting_the_Hodrick-Prescott_filter_for_the_frequency_of_observations/links/0deec524affb7f23af000000.pdf&quot; rel=&quot;nofollow&quot;&gt;Morten O. Ravn and Harald Uhlig (2002)&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;This paper complements these insights using two different analytical&#xA;  approaches. The first approach uses the time domain  and  focuses  on &#xA;  the  ratio  of  the  variance  of  the cyclical component to the&#xA;  variance of the second difference of the trend component: this ratio&#xA;  is often used for calculating the smoothing parameter. For a&#xA;  particular benchmark stochastic process, &lt;strong&gt;it is shown that time&#xA;  aggregation changes this ratio by the fourth power of the observation&#xA;  frequency&lt;/strong&gt;. The second approach uses the frequency domain and&#xA;  investigates the transfer function of the HP filter, thereby obtaining&#xA;  a general result. Again, a change-of-variable argument shows that one&#xA;  should adjust the HP parameter with approximately  the  fourth  power &#xA;  of  the  frequency  change.  Both approaches therefore yield a value&#xA;  of approximately $1600 / 4^4 = 6.25$ for annual data, which is close&#xA;  to the value of 10 given by Baxter and King (1999).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Source: Notes On Adjusting the HP-Filter for the Frequency of Observations&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Mueller's result is not obvious to me given this rule. By that rule of thumb, a monthly parameter  given an quarterly parameter of 900,000 is $900,000 / 3^4 \approx 11,111$ (because there 3 months in a quarter). It also gives a yearly parameter of $900,000 / 12^4 \approx 43$ (12 months in a year).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The following quote seems to support Mueller.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;On suboptimality of the Hodrick–Prescott filter at time series&#xA;  endpoints Hodrick and Prescott (1997) proposed, on somewhat subjective&#xA;  grounds, a value λ = 1600 for quarterly data. However, it is desirable&#xA;  to adjust this value when observations of different frequencies are&#xA;  subject to the filter. Backus and Kehoe (1992) suggested an adjustment&#xA;  of the value by &lt;strong&gt;multiplying the standard value of 1600 with the square&#xA;  of the frequency of observations relative to quarterly data&lt;/strong&gt;. For&#xA;  example, the relative frequency is 3 for monthly data and 1/4 for&#xA;  annual data. Hence, the corresponding values of the smoothing&#xA;  parameter is $\lambda$ = 100 and 14,400 for annual data and monthly data,&#xA;  respectively. This suggestion has been also used in commercial&#xA;  packages such as EVIEW. We shall use these values throughout the&#xA;  paper. With regard to the choice of the smoothing parameter, it is&#xA;  worth noting that, in research that has gone largely unnoticed in this&#xA;  field, Akaike (1980), while further allowing a seasonal component in&#xA;  the decomposition, proposed precisely the HP approach together with a&#xA;  data-dependent Bayesian procedure for the choice of $\lambda$.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So just as $1,600 (quarterly) \rightarrow 3^2 \cdot 1,600 =  14,400 (monthly)$ so to would $100,000 (quarterly) \rightarrow 3^2 \cdot 100,000 =  900,000 (monthly)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/S0164070404000710&quot; rel=&quot;nofollow&quot;&gt;Misea, Kimb, and Newboldc (2005)&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But the cited Backus and Kehoe (1992) result seems to be superseded by the Ravn and Uhlig (2002) result, so this may not reflect the state of the art thinking on this matter. &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-12-09T17:15:02.920" LastActivityDate="2015-12-09T17:15:02.920" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9643" PostTypeId="1" CreationDate="2015-12-06T21:07:46.460" Score="2" ViewCount="140" Body="&lt;p&gt;My journalism professor is not an expert in finance or economics but has studied history.  She is always giving us a negative lecture on the America's economy and how the rich  are taking al of the wealth for themselves and letting America fall to ruins so everyone else loses everything and just is on the streets.  She said this is basically what it like in Detroit and Michigan right now and that seeing how divided we are socially, she thinks we're going down just as worse as Rome.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;She really freaked me out.  Is this true&gt;  I know it sort of opinion based but if you can just give an answer on what would likely happen in a case of economic collapse for just America, just Europe, and if the whole global economy collapsed as well.  I know the rich have enough investments and saved resources to live for decades, but for people like me lower middle class, what will happen?&lt;/p&gt;&#xA;" OwnerUserId="6258" LastActivityDate="2015-12-07T02:40:18.413" Title="If America's economy collapsed what would happen to all of the citizens? What if the whole global economy collapsed?" Tags="&lt;labor-economics&gt;&lt;economic-growth&gt;&lt;inequality&gt;&lt;political-economy&gt;&lt;poverty&gt;" AnswerCount="2" CommentCount="5" ClosedDate="2015-12-07T02:50:52.093" ContentLicense="CC BY-SA 3.0" />
  <row Id="9644" PostTypeId="2" ParentId="9634" CreationDate="2015-12-06T21:09:17.990" Score="1" Body="&lt;p&gt;I think you can find info on this from 1970s at &lt;a href=&quot;http://finance.yahoo.co.uk&quot; rel=&quot;nofollow&quot;&gt;Yahoo Finance&lt;/a&gt;&#xA;You must, however, do the adjustment yourself by obtaining the CPI inflation from the web site of Office for national statistics.&lt;/p&gt;&#xA;" OwnerUserId="6009" LastActivityDate="2015-12-06T21:09:17.990" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9645" PostTypeId="2" ParentId="9643" CreationDate="2015-12-06T21:17:57.670" Score="0" Body="&lt;p&gt;There is no simple answer to this question. She is just giving her opinion on the topic. However, so long as USD is the main reserve currency for other governments and oil is mainly traded in USD, Americans can keep buying their guns at low cost. Gun laws are more detrimental to Americans' lives and hence the economy than anything else in the foreseeable future. This is my view, there is more...&lt;/p&gt;&#xA;" OwnerUserId="6009" LastActivityDate="2015-12-06T21:17:57.670" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="9646" PostTypeId="1" AcceptedAnswerId="9650" CreationDate="2015-12-06T21:25:35.037" Score="1" ViewCount="102" Body="&lt;p&gt;I am reading econometrics lecture notes of a Japanese professor. To explain MLE estimation he uses multivariate normal distribution. &lt;a href=&quot;https://i.stack.imgur.com/aZFU3.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/aZFU3.jpg&quot; alt=&quot;mle&quot;&gt;&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As you can see, the first line is the loglikelihood function and the second line is proportional to the first line equation. I cannot get my head around this. How and why the first equation can be written as the second one using trace of a matrix. I heard about &quot;trace trick&quot; and this must be the application of this trick, but I need help to understand it and possibly use it.&#xA;Thanks&lt;/p&gt;&#xA;" OwnerUserId="6009" LastActivityDate="2015-12-07T01:10:33.907" Title="MLE using multivariate normal distribution" Tags="&lt;econometrics&gt;&lt;mathematical-economics&gt;&lt;statistics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9647" PostTypeId="2" ParentId="6450" CreationDate="2015-12-06T22:09:41.213" Score="6" Body="&lt;p&gt;Using a simple textbook-approach, I will provide one possible answer here, showing that in this approach, the one thing that needs to be specified is &quot;velocity of money&quot; as regards sand dollars. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I will use also the numerical values provided in the question, after cutting out six zeros.&#xA;I assume that the &lt;strong&gt;Law of One Price&lt;/strong&gt; holds, so&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$P_s\cdot S_{USD/s} = P_{USD} \tag{1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$P_s$ is &quot;the price level&quot; related to sand dollars, $P_{USD}$ is the price level related to USD, and $S_{USD/s}$ is the exchange rate we wish to find (&quot;how many USD per one sand dollar&quot;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;While the price levels are usually price-indexes, here we are looking at a single good, oil, so we can take the $P's$ to mean &quot;price of oil&quot;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Sultan's oil is the only output that can be bought with sand dollars. And we do know the value of this output in USD&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$P_{USD} \cdot Q_s = P_{USD} \cdot 20 = 1,000 \;\text{USD} \tag{2} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Using the Law of One Price, we get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$P_{USD} \cdot Q_s = P_s\cdot S_{USD/s}\cdot Q_s \implies S_{USD/s} = \frac {P_{USD} \cdot Q_s}{P_s\cdot  Q_s} \tag{3}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(&lt;em&gt;don't&lt;/em&gt; simplify).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assuming the &lt;strong&gt;Quantity Theory of Money&lt;/strong&gt;, we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$P_s\cdot Q_s = V_s \cdot \bar M_s \tag{4}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $\bar M_s$ is the fixed amount of sand dollars available, and $V_s$ is the &quot;velocity of money&quot; in relation to sand-dollars (we will return to $V_s$). Inserting $(4)$ into $(3)$ and using also $(2)$ and the fixed value of $\bar M_s$ we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$(4),(3),(2) \implies S_{USD/s} = \frac {P_{USD} \cdot Q_s}{V_s\bar M_s} = \frac {1,000}{V_s\cdot 100} = \frac {10}{V_s}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, if we can find a value for $V_s$, we have found the exchange rate we are after. The velocity of money can be thought as &quot;how many times that same unit of currency, say the same paper bill, will be used in transactions during a production cycle&quot;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &lt;a href=&quot;https://research.stlouisfed.org/fred2/series/M1V&quot; rel=&quot;nofollow&quot;&gt;M1 velocity of money for USD is approximately &lt;/a&gt; $V_{USD} \approx 6$, using this value for the sand-dollars also, we get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$S_{USD/s} = \frac {10}{6} \approx 1.67$$&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-12-08T17:33:58.783" LastActivityDate="2015-12-08T17:33:58.783" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9648" PostTypeId="2" ParentId="9597" CreationDate="2015-12-06T22:24:33.647" Score="0" Body="&lt;p&gt;I guess I will provide a basic answer for now, since I somewhat figured this out, and hopefully either someone posts a more complete answer, or I add more to this later.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Basically, we can use forward or backward iteration. For example, for forward iteration (given that we know the value of $V_1$ at $t=0$, call it $V_{initial}$), then we can use this to find the value of $V$ at time $t$ simply by using the equation over and over again. Or we can work backwards, if for some reason forward iteration doesn't work (at this moment I'm not sure why/how this is different then forward). I don't think the solution is too neat, but it works.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or, if we are at a steady state, then $V_1(K,I_{-1}) = V_1(K'_I)$, so we can simply rearrange the equation and solve.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Again, this isn't a great answer, but it is correct.&lt;/p&gt;&#xA;" OwnerUserId="6600" LastActivityDate="2015-12-06T22:24:33.647" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9649" PostTypeId="2" ParentId="9643" CreationDate="2015-12-06T22:29:55.060" Score="0" Body="&lt;p&gt;Neither American nor World economy will collapse as long as there at least two citizens producing goods and willing to exchange them. Roman Empire's economy did not collapse either, for the record, the Empire did.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In any economy some jobs and sectors become obsolete, others take over and attract a lot of capital. At some point of the 20th century the car industry was booming and made Detroit the richest city in America. Then manufacturing jobs got outsourced and now the US economy strives creating IT products. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Rich people rely on ordinary people's income and spending to maintain their wealth. It is the average people who buy products made by the rich people's firms and make them rich in the first place. It is the average people who produce goods and services that the rich people buy with their dollars. Also, the democratic political system of a country is centered around the &lt;a href=&quot;https://en.wikipedia.org/wiki/Median_voter_theorem&quot; rel=&quot;nofollow&quot;&gt;median voter&lt;/a&gt;, the ordinary guy . If the tax and wealth redistribution policies favor rich too much, people will vote for more redistribution of wealth. This ensures resilience and sustainability of modern democracies, something the Roman Empire did not have.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is a balance, or equilibrium, between how much capital the rich get rewarded for their contributions to society and how much an average Joe earns on the average job. In this equilibrium there are very rich, there are poor, and there are unemployed. Sometimes, it may seem, rich become too rich and there are too many poor.&lt;/p&gt;&#xA;" OwnerUserId="6231" LastEditorUserId="6231" LastEditDate="2015-12-07T02:40:18.413" LastActivityDate="2015-12-07T02:40:18.413" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="9650" PostTypeId="2" ParentId="9646" CreationDate="2015-12-07T01:10:33.907" Score="3" Body="&lt;p&gt;The &quot;trick&quot; you are referring to is a property of the trace of a product of matrices, namely&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$${\rm tr}(ABC) = {\rm tr}(BCA)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;assuming the dimensions are conformable of course.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, note that the dimension of $(x_n-\mu)^T\Sigma^{-1} (x_n-\mu)$, for each observation, is $1 \times 1$. So trivially,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$${\rm tr}\Big[(x_n-\mu)^T\Sigma^{-1} (x_n-\mu)\Big] = (x_n-\mu)^T\Sigma^{-1} (x_n-\mu) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But since also, from the mentioned property of the trace,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$${\rm tr}\Big[(x_n-\mu)^T\Sigma^{-1} (x_n-\mu)\Big] = {\rm tr}\Big[\Sigma^{-1} (x_n-\mu)(x_n-\mu)^T\Big]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;combining one gets the alternative expression for the mutlivariate normal log-likelihood.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-12-07T01:10:33.907" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9651" PostTypeId="1" CreationDate="2015-12-07T01:53:45.830" Score="1" ViewCount="90" Body="&lt;p&gt;IMF adopted Chinese yuan as international currency the other day. Will Chinese yuan be a key international currency someday?&lt;/p&gt;&#xA;" OwnerUserId="4418" LastActivityDate="2016-01-06T09:11:55.623" Title="Will Chinese yuan be a key international currency someday?" Tags="&lt;currency&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9655" PostTypeId="2" ParentId="9651" CreationDate="2015-12-07T08:25:09.447" Score="4" Body="&lt;p&gt;&quot;SDR inclusion does not mean... that the renminbi will rival the dollar as an international currency, at least not any time soon. The dollar is widely used globally in trade, in international borrowing and lending, and as the principal currency for official reserve holdings (about sixty percent of global reserves are held in dollars). Importantly, the dollar’s global status is a market outcome, not the result of a decision by any international body or of an international agreement. Private investors and governments freely choose to hold dollars because the markets for dollar-denominated assets are, by far, the deepest and most liquid of any currency; because the United States imposes no restrictions on capital flows in or out of the country; because of the quality of U.S. financial regulation; because the Federal Reserve has kept inflation low and stable for the past thirty years; and because the United States is large, prosperous, and politically stable.&quot; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is the quote from &lt;a href=&quot;http://www.brookings.edu/blogs/ben-bernanke/posts/2015/12/01-chinas-gold-star#.Vl3SI-6p4IU.twitter&quot; rel=&quot;nofollow&quot;&gt;Ben Bernanke's blog&lt;/a&gt;. Ben Bernanke is the former chairman of the Federal Reserve.&lt;/p&gt;&#xA;" OwnerUserId="6231" LastEditorUserId="6231" LastEditDate="2015-12-07T09:05:10.277" LastActivityDate="2015-12-07T09:05:10.277" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9657" PostTypeId="2" ParentId="9635" CreationDate="2015-12-07T11:38:46.373" Score="1" Body="&lt;p&gt;I'm guessing the author has split the series between a trend component and noise component, for example with the HP-filter, and studies the smooth trend component.&lt;/p&gt;&#xA;" OwnerUserId="5512" LastActivityDate="2015-12-07T11:38:46.373" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9658" PostTypeId="2" ParentId="8590" CreationDate="2015-12-07T15:34:59.567" Score="2" Body="&lt;p&gt;The physical part of trade in goods and services is recorded in the Current Account and the payment (with financial assets) part of the transaction is recorded in the Financial Account. The Balance of Payments should be 0 after you sum up the Current Account balance, the Capital Account and the Financial Account balances. The trade in goods and services is recorded in Current Accounts. For instance, exports are credited and imports are debited.&lt;/p&gt;&#xA;" OwnerUserId="6009" LastEditorUserId="7593" LastEditDate="2016-03-11T02:09:32.977" LastActivityDate="2016-03-11T02:09:32.977" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9659" PostTypeId="1" AcceptedAnswerId="9660" CreationDate="2015-12-07T15:50:44.007" Score="3" ViewCount="1314" Body="&lt;p&gt;I would like to ask what kind of math is used in Development Economics?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have one more semester in my Master of Math programme before hopefully entering a PhD in Economics and am considering specializing in this; so I would like to know what I should take or review next semester.  Are the topics listed on the wiki-page for Mathematical Economics applicable?  Being differential equations, linear algebra, optimization, and analysis.  Or would statistics or data science be more applicable?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you&lt;/p&gt;&#xA;" OwnerUserId="5780" LastActivityDate="2019-03-13T19:05:15.593" Title="What Math is used in Development Economics?" Tags="&lt;mathematical-economics&gt;&lt;development-economics&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9660" PostTypeId="2" ParentId="9659" CreationDate="2015-12-07T16:49:31.510" Score="4" Body="&lt;p&gt;This does depend on whether you're looking to do applied econometric work, in which case statistics is definitely the way to go or something theoretical, in which case a good understanding in the maths you listed will go a long way. Of course it's always better if you understand both - since you're doing a master's in math, you should already be quite fluent with the math required, so I'd go with econometrics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There's a growing amount of literature available, but if you have time to spare, I'd give the topics in Nafziger's &quot;Economic Development&quot; a glance: &lt;a href=&quot;http://tabesh.edu.af/Books/economic/Economic%20Development.pdf&quot; rel=&quot;nofollow&quot;&gt;http://tabesh.edu.af/Books/economic/Economic%20Development.pdf&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="5512" LastActivityDate="2015-12-07T16:49:31.510" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9661" PostTypeId="2" ParentId="8590" CreationDate="2015-12-07T18:42:02.357" Score="1" Body="&lt;p&gt;The question refers to the double-entry bookkeeping principle used in balance of payments accounting. Each transaction must appear twice in the balance of payments, once as debit and once as a credit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An imported good can be paid for by (1) transferring money from a bankaccount in the importing country to a bank account in the exporting country, (2) cash can be transferred or (3) the importing country may be incurring a liability (the obligation to pay for the goods), while the exporting country acquires an asset (the receiving of a future payment). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;These transactions are, without any doubt, registered somewhere in the financial account. I am not entirely sure, but I believe all three situations would be registered as portfolio investments. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The sixth IMF BoP manual says the following:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;For example, the corresponding entry for an export of goods is&#xA;  usually an increase in financial assets, such as currency&#xA;  and deposits or trade credit.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="6566" LastEditorUserId="6566" LastEditDate="2016-02-09T14:03:13.240" LastActivityDate="2016-02-09T14:03:13.240" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="9662" PostTypeId="1" CreationDate="2015-12-07T18:46:18.177" Score="0" ViewCount="1537" Body="&lt;p&gt;So in long run if fixed cost is lowered, more firms enter the industry and increase the supply, bringing up industrial output. According to the firm diagram, Average Cost lowered so that the firm output is lower. But why is that? Shouldn't the firm produce more when the fixed cost lowers? &lt;/p&gt;&#xA;" OwnerUserId="6132" LastEditorUserId="1601" LastEditDate="2015-12-08T10:50:39.510" LastActivityDate="2016-01-07T13:53:07.677" Title="Why do firm output decreases when fixed cost decreases in Long Run?" Tags="&lt;microeconomics&gt;&lt;supply-and-demand&gt;&lt;long-run&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9663" PostTypeId="2" ParentId="9662" CreationDate="2015-12-07T19:07:01.977" Score="4" Body="&lt;p&gt;The quantity produced does not depend on the fixed costs. Fixed costs only influence the decision of whether or not to produce, not how much to produce. The individual firm's level of production is determined by MR=MC, independent of fixed costs. Firms will produce less when fixed cost decrease, because, as you point out, more firms will produce (entry in the market). On the aggregate market supply shifts out, so that price declines. For each individual pricetaking firm, the exogenously determined price has declined. Put differently, MR has shift down, resulting in an optimum (MR=MC) at a lower level of production.&lt;/p&gt;&#xA;" OwnerUserId="6566" LastEditorUserId="6566" LastEditDate="2016-01-07T13:53:07.677" LastActivityDate="2016-01-07T13:53:07.677" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9664" PostTypeId="1" AcceptedAnswerId="9666" CreationDate="2015-12-07T20:21:26.383" Score="1" ViewCount="457" Body="&lt;p&gt;I was studying for my macroeconomics test by solving test banks and I came upon this question which has been really bugging me.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To decrease the price level&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A.the Fed could buy bonds and the government could increase the&#xA;corporate profit tax.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;B.A decrease in income tax and an increase in corporate profit&#xA;tax&lt;/p&gt;&#xA;&#xA;&lt;p&gt;C.the Fed could sell bonds and the government could lower the&#xA;corporate profit tax.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;D.An increase in government spending and a decrease in the price&#xA;of raw material&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Answer : C&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't understand why the answer is C. If I take it answer by answer:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A) Expansionary monetary policy + contractionary fiscal policy = unknown result (Aggregate demand curve could shift to the left or to the right depending on which policy was more effective).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;B) Either contractionary or expansionary fiscal policy depending on the values of increases/decreases. Employee income surpasses corporate profits income in most cases so I would consider this expansionary fiscal policy which raises the price level.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;C) Contractionary monetary policy + expansionary fiscal policy. Why would they choose this as the right answer? It's as ambiguous as the others, the shift in the AD curve is unknown.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;D) Expansionary fiscal policy (shift of the AD curve to the right) + shift of the AS curve to the right (which lowers the price level), again leads to an unknown result for the price level)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Am I approaching these questions badly or are they as ambiguous as I think they are? Also, when monetary policy and fiscal policy oppose each other, which one takes the lead on the shift of the AD curve? I feel like that it would solve a lot of problems to know that.&lt;/p&gt;&#xA;" OwnerUserId="5936" LastActivityDate="2015-12-07T23:02:34.633" Title="Macroeconomics - Fiscal/Monetary Policy and the Price level" Tags="&lt;macroeconomics&gt;&lt;monetary-policy&gt;&lt;inflation&gt;&lt;fiscal-policy&gt;&lt;price-level&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9666" PostTypeId="2" ParentId="9664" CreationDate="2015-12-07T22:55:25.383" Score="1" Body="&lt;p&gt;I believe that tax policies refer to the supply side (AS). Since no information is given about government expenses in a, b and c, I would only shift AD in response to the monetary policy actions in a and c, and the explicit increase in goverment spending in option D.&lt;/p&gt;&#xA;" OwnerUserId="6566" LastActivityDate="2015-12-07T22:55:25.383" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9667" PostTypeId="2" ParentId="9664" CreationDate="2015-12-07T23:02:34.633" Score="0" Body="&lt;p&gt;It looks like a question with an error to me. I think the author of the question intended two contractionary policies for C: 'Sell bonds and increase taxes'.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Whenever I do tests from test banks, I often come across errors, especially if those test banks are free.&lt;/p&gt;&#xA;" OwnerUserId="6231" LastActivityDate="2015-12-07T23:02:34.633" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9668" PostTypeId="1" CreationDate="2015-12-08T01:20:55.613" Score="1" ViewCount="778" Body="&lt;p&gt;This example is in a oligopoly market with two firms. The demand curve is given and also two firms' MC is given. How would one calculate price function in this scenario?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I found the slope using the demand curve and then found the y intercept to the get the price function. However, I also know that MC is the derivative of the price function. If I take the derivative of the price function I got, it's not the same as the MC.. Any thoughts on this?&lt;/p&gt;&#xA;" OwnerUserId="6636" LastEditorUserId="159" LastEditDate="2015-12-09T22:26:55.547" LastActivityDate="2016-05-08T01:21:37.747" Title="How to calculate price function from demand curve when marginal cost is given?" Tags="&lt;price-theory&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9670" PostTypeId="2" ParentId="9668" CreationDate="2015-12-08T07:31:55.690" Score="1" Body="&lt;p&gt;Let $y_1$ and $y_2$ denote the output of firms $1$ and $2$. I suspect by price function you mean the inverse demand function. So if&#xA;$$&#xA;y_1 + y_2 = Y = D(p)&#xA;$$&#xA;then&#xA;$$&#xA;D^{-1}(Y) = p(Y) = p(y_1 + y_2).&#xA;$$&#xA;Let us introduce the notation&#xA;$$&#xA;MR_i(y_1,y_2) = \frac{\partial p(y_1 + y_2)}{\partial y_i}.&#xA;$$&#xA;Generally&#xA;$$&#xA;MR_i(y_1,y_2) \neq MC_i(y_i),&#xA;$$&#xA;that is the functions are not the same. But if the outputs $y_1^*,y_2^*$ constitute an equilibrium, the functions take the same value.&#xA;$$&#xA;\forall i: \ MR_i(y_1^*,y_2^*) = MC_i(y_i^*)&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another example:&#xA;&lt;br&gt; The function $x^2$ is not the same as the constant function 4. But if $x=2$ they take the same value.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2015-12-08T07:31:55.690" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9672" PostTypeId="1" CreationDate="2015-12-08T10:42:09.760" Score="1" ViewCount="94" Body="&lt;p&gt;Suppose an agent wants to maximize:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$Max \sum_{t=0}^\infty \beta^t \ln(C_t) $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;s.t.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$C_t + I_t = Y_t$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$Y_t = K_t$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$K_{t+1} = K_t^\alpha I_t^\gamma$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $\alpha, \gamma &amp;gt;0$ and $\alpha + \gamma &amp;lt; 1$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One can combine the three constraints in: $C_t = K_t - K_{t+1}^{\frac{1}{\gamma}}K_{t}^{\frac{-\alpha}{\gamma}}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Write the lagrangean as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;${\cal L} = \sum_{t=0}^\infty \beta^t \ln(C_t) - \lambda_t(C_t - K_t +K_{t+1}^{\frac{1}{\gamma}}K_{t}^{\frac{-\alpha}{\gamma}})$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think the FOC yields:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac{1}{\gamma C_t} K_{t+1}^{\frac{1}{\gamma}-1} K_t^{-\frac{\alpha}{\gamma}} = \frac{1}{\beta C_{t+1}}\left(1 + \frac{\alpha}{\gamma} K_{t+2}^{\frac{1}{\gamma}}K_{t+1}^{-\frac{\alpha+\gamma}{\gamma}}\right)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the FOC is correct, how to compute the steady state from here?&lt;/p&gt;&#xA;" OwnerUserId="6641" LastEditorUserId="1601" LastEditDate="2015-12-08T13:34:37.630" LastActivityDate="2015-12-08T13:34:37.630" Title="Simple Macroeconomics problem" Tags="&lt;macroeconomics&gt;&lt;general-equilibrium&gt;" AnswerCount="0" CommentCount="7" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9674" PostTypeId="1" CreationDate="2015-12-08T14:00:44.900" Score="1" ViewCount="124" Body="&lt;p&gt;I am trying to analyze the effects on the unemployment rate $u$ as the labor force $L$ increases, by use of the AS-AD model.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have however some issues I can't wrap my head around:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;If we increase the labor force L, how does it affect the natural rate of output? I am looking at the equation:&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;$$ P = (1+m)P_eF(1 - \frac{Y}{L},z)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $P$ is the price level, $P_e$ is the expected price level, $m$ is the markup, and $F$ is a function of unemployment $u = 1 - \dfrac{Y}{L}$ and a catch-all variable $z$. &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;If we are initially at equilibrium with $ P = P_e$, that is equilibrium $Y$ &lt;em&gt;is&lt;/em&gt; $Y_n$, the natural level, then what happens in the medium-run once we increase the labor force? Here I use the AS-AD model, and figure that an increase in $L$ causes a downwards shift in the $AS$-curve so equilibrium output initially increases, but then reverts back to $Y_n$ due to people changing their expectations of the price level.... but what happens to the unemployment rate in the medium run?&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="6644" LastEditorUserId="2776" LastEditDate="2016-09-04T00:48:58.010" LastActivityDate="2016-09-04T00:48:58.010" Title="AS-AD model and labor force increase and natural rate of unemployment" Tags="&lt;macroeconomics&gt;&lt;natural-rate-unemployment&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9677" PostTypeId="1" CreationDate="2015-12-08T14:30:38.440" Score="9" ViewCount="273" Body="&lt;p&gt;I have undergraduate level experience in macroeconomics...but I want to do some further learning to try and acquaint myself with where mainstream macroeconomics is at the moment in the hopes that I can understand the economy better. I understand that most macroeconomics is highly mathematical at this stage and I have no problem with this, but a more intuitive/wordy/theoretical approach would be preferred.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are there any good online lecture notes, textbooks etc. for this sort of thing?&lt;/p&gt;&#xA;" OwnerUserId="6646" LastEditorUserId="6168" LastEditDate="2015-12-09T10:27:10.577" LastActivityDate="2015-12-11T17:11:49.813" Title="Getting up to Date on Macro" Tags="&lt;macroeconomics&gt;&lt;reference-request&gt;" AnswerCount="6" CommentCount="0" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="9678" PostTypeId="1" CreationDate="2015-12-08T14:44:53.317" Score="4" ViewCount="14995" Body="&lt;p&gt;Many times I hear that VAT (value added tax) is a &quot;good&quot; tax, while corporate tax is a &quot;bad&quot; tax/ However, both taxes take a cut from the difference between the income of a company and its expenses, and seem therefore to be economically equivalent. Can anybody explain the difference to me?&lt;/p&gt;&#xA;" OwnerUserId="6647" LastActivityDate="2018-12-30T17:50:49.027" Title="What is the difference between VAT and corporate tax" Tags="&lt;taxation&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9679" PostTypeId="2" ParentId="9677" CreationDate="2015-12-08T14:45:01.560" Score="5" Body="&lt;p&gt;A good book at the high undergrad/low graduate level is the classic Romer text:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0073511374&quot;&gt;http://www.amazon.com/Advanced-Macroeconomics-Mcgraw-Hill-Series-Economics/dp/0073511374&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="5233" LastEditorUserId="5233" LastEditDate="2015-12-08T16:14:21.870" LastActivityDate="2015-12-08T16:14:21.870" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9681" PostTypeId="2" ParentId="9677" CreationDate="2015-12-08T16:14:36.820" Score="3" Body="&lt;p&gt;A lot of macro nowadays (at least for the past couple of decades) is based on DSGE models. These models recognize the dynamic nature of agents' decisions. A standard approach to solving such problems relies on dynamic programming. My personal favorite to understand dynamic programming and its applications can be found in the Sargent and Ljungqvist booK:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/026212274X&quot; rel=&quot;nofollow&quot;&gt;http://www.amazon.com/Recursive-Macroeconomic-Theory-Lars-Ljungqvist/dp/026212274X&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="5233" LastActivityDate="2015-12-08T16:14:36.820" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9682" PostTypeId="2" ParentId="9678" CreationDate="2015-12-08T17:39:25.763" Score="3" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Both taxes take a cut from the difference between the income of a&#xA;  company and its expenses.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Wrong. Companies &lt;em&gt;collect&lt;/em&gt; VAT as though they were tax-collectors on behalf of the state. This is why the amount of VAT that a company &lt;em&gt;pays&lt;/em&gt; to its suppliers' is subtracted from the VAT that the company has collected from its customers, and only the difference is paid to the State. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As to whether they are &quot;good&quot; or &quot;bad&quot; taxes, and which is which, as usual it is a complicated matter (and when you read/hear such assertions, make your eyes or ears walk away), a matter that has to do not only with businesses but with the macroeconomy as a whole, while it also depends on the current state of the business cycle, whether there is a depression, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;ADDENDUM&lt;/strong&gt;&lt;br&gt;&#xA;Responding to the comment by the OP to this answer, here is a schematic view of the matter&#xA;&lt;a href=&quot;https://i.stack.imgur.com/ccHkZ.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/ccHkZ.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;V.A.T is not part of the Revenues/Sales of a company. It is a tax imposed on consumers, and collected by the company on behalf of the state.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Imagine a situation without V.A.T., i.e. assume that currently only the first column of the above exists. Then V.A.T. is enacted into tax law. The Profit and Loss statement of the company will not include it, neither in the Revenues side, nor on the Expenses side, it remains unchanged. The amount collected from customers goes up, but the Revenues of a company don't. And if among the company's customers are other companies, they will not see VAT as an increase in cost, because they will get to offset what they pay with what they collect from &lt;em&gt;their&lt;/em&gt; customers. In other words, &lt;strong&gt;V.A.T is a tax imposed on final private consumers&lt;/strong&gt;, and everybody else is involved as a tax-collecting entity only. Note that V.A.T is charged and collected irrespective of whether a company has profits or losses.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a very general sense, all taxes are &quot;equivalent&quot; in the sense that they have the same goal: bring part of output under the ownership and control of the state. But it matters greatly &lt;em&gt;how&lt;/em&gt; do they affect the &quot;before-the-State&quot; economy. In this particular case, V.A.T makes products more expensive for final consumers, and it is about how they will react to these increased prices. On the other hand, Income tax cuts directly from a company's profits, if profits exist, and so it affects the incentives of businesses to go into business. &lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-12-10T00:22:37.337" LastActivityDate="2015-12-10T00:22:37.337" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9683" PostTypeId="1" AcceptedAnswerId="9688" CreationDate="2015-12-08T17:43:43.117" Score="5" ViewCount="222" Body="&lt;p&gt;Many politicians argue that the minimum wage is essential for providing an sufficient standard of living to all. However, there are many issues binding price floors predicted by standard supply and demand theory. Why couldn't wage subsidies be used instead? I know that they are used. However, why do politicians always argue for increasing the minimum wage as opposed to increasing wage subsidies?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;what advantages does the minimum wage have versus wage subsidies?&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="6648" LastEditorUserId="6648" LastEditDate="2015-12-08T20:03:40.497" LastActivityDate="2015-12-14T19:48:44.910" Title="Minimum wage vs wage subsdies" Tags="&lt;public-economics&gt;&lt;wages&gt;&lt;minimum-wage&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9684" PostTypeId="2" ParentId="9677" CreationDate="2015-12-08T21:28:57.903" Score="2" Body="&lt;p&gt;There are quite a few books out there, but I found the following books explain the concepts and tools more intutitively:&#xA;&lt;a href=&quot;http://www.amazon.co.uk/ABCs-RBCs-Introduction-Dynamic-Macroeconomic/dp/0674028147&quot; rel=&quot;nofollow&quot;&gt;ABCs of RBCs&lt;/a&gt; and &lt;a href=&quot;http://www.amazon.co.uk/Economic-Growth-Numerical-Solution-Methods/dp/3540686657/ref=sr_1_1?s=books&amp;amp;ie=UTF8&amp;amp;qid=1449610103&amp;amp;sr=1-1&amp;amp;keywords=Economic%20growth%20novales&quot; rel=&quot;nofollow&quot;&gt;Economic Growth&lt;/a&gt;, maybe then go on to read others.&lt;/p&gt;&#xA;" OwnerUserId="6009" LastActivityDate="2015-12-08T21:28:57.903" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9686" PostTypeId="2" ParentId="9677" CreationDate="2015-12-09T01:26:56.903" Score="2" Body="&lt;p&gt;The Khan Academy video series on macro is excellent.  They focus on the most important concepts and the diagrams in the videos will really help with comprehension.&#xA;&lt;a href=&quot;https://www.khanacademy.org/economics-finance-domain/macroeconomics&quot; rel=&quot;nofollow&quot;&gt;https://www.khanacademy.org/economics-finance-domain/macroeconomics&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, Investopedia's articles and definitions are always very well written.  They are much more plain spoken and to the point then what you would find on Wikipedia.&lt;/p&gt;&#xA;" OwnerUserId="6568" LastEditorUserId="6568" LastEditDate="2015-12-09T01:34:14.773" LastActivityDate="2015-12-09T01:34:14.773" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9687" PostTypeId="2" ParentId="9677" CreationDate="2015-12-09T01:53:19.943" Score="8" Body="&lt;p&gt;A good site, with high quality online lectures, is the &lt;strong&gt;MIT Open Course Ware&lt;/strong&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You will find courses going from &lt;a href=&quot;http://ocw.mit.edu/courses/economics/14-02-principles-of-macroeconomics-spring-2014/&quot;&gt;Principles of Macroeconomics&lt;/a&gt;, &lt;a href=&quot;http://ocw.mit.edu/courses/economics/14-452-economic-growth-fall-2009/&quot;&gt;Economic Growth&lt;/a&gt;, &lt;a href=&quot;http://ocw.mit.edu/courses/economics/14-451-macroeconomic-theory-i-spring-2007/&quot;&gt;Macroeconomic Theory I&lt;/a&gt;, &lt;a href=&quot;http://ocw.mit.edu/courses/economics/14-452-macroeconomic-theory-ii-spring-2007/&quot;&gt;II&lt;/a&gt;, &lt;a href=&quot;http://ocw.mit.edu/courses/economics/14-453-macroeconomic-theory-iii-fall-2006/&quot;&gt;III&lt;/a&gt; to &lt;a href=&quot;http://ocw.mit.edu/courses/economics/14-461-advanced-macroeconomics-i-fall-2012/&quot;&gt;Advanced Macroeconomics I&lt;/a&gt; or &lt;a href=&quot;http://ocw.mit.edu/courses/economics/14-462-advanced-macroeconomics-ii-spring-2004/&quot;&gt;II&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="6168" LastActivityDate="2015-12-09T01:53:19.943" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9688" PostTypeId="2" ParentId="9683" CreationDate="2015-12-09T04:10:57.627" Score="6" Body="&lt;p&gt;We could distinguish between two kinds of &quot;wage subsidies&quot;: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A) The government pays to the firm part of the wage &lt;em&gt;cost&lt;/em&gt;, usually social security fees.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;B) The government pays to the employee a markup on his wage. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In scenario &lt;strong&gt;A&lt;/strong&gt;, labor supply is not affected but labor demand shifts outwards: the tendency &lt;em&gt;should&lt;/em&gt; be higher employment &lt;em&gt;and&lt;/em&gt; higher equilibrium wage (so eventually more disposable income for the workers). Usually, what is observed is that employment rises (after all, usually such programs are on  condition of &lt;em&gt;net new&lt;/em&gt; jobs creation in a company), but wages do not increase (i.e. firms don't share the subsidy with the employees). So no betterment of standard of living &lt;em&gt;of those employed&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In scenario &lt;strong&gt;B&lt;/strong&gt;, take-home income will increase at no cost to the firms. So now, workers know that if the current wage is $w$, if they work they will receive $w+s$. This will shift the labor supply curve outwards (because now it responds to $w+s$), while the labor demand curve will remain unchanged (which still responds to $w$ only). This will tend to result in higher employment and &lt;em&gt;lower&lt;/em&gt; equilibrium wage. But this contradicts (and partly or wholly offsets) the very purpose of the measure, which is &lt;em&gt;not&lt;/em&gt; to increase employment, but to increase disposable worker income.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So in both cases, wage subsidies are more about employment rather than income, while minimum wage is clearly about income and standard of living &lt;em&gt;of those employed&lt;/em&gt;, even though it may hurt employment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;...and one cannot avoid in these matters a dash of political economy and political science (as well as social psychology): subsidies bear always a risk of fraud, and are always suspect of being an instance of pork-barrel politics. Moreover, they are mostly seen as measures in time of macroeconomic (or regional) recession/depression, where the main concern is to boost employment.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand, minimum wage is not about a faltering economy as regards activity and &lt;em&gt;level&lt;/em&gt; of production/income, but about market failure as regards &lt;em&gt;distribution&lt;/em&gt; of income. Issues of distribution are inextricably linked to issues of fairness, and this creates a more passionate political agenda, occasionally  satisfying also the expectations of the public for a &quot;strong government&quot; which, &quot;when markets create unjust misery&quot;, intervenes &quot;decisively&quot;, imposing by decree &quot;what's fair&quot; (or fairer).&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-12-14T19:48:44.910" LastActivityDate="2015-12-14T19:48:44.910" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9689" PostTypeId="1" CreationDate="2015-12-09T04:47:16.840" Score="1" ViewCount="83" Body="&lt;p&gt;Finland plans to give every citizen 800 euros a month and scrap benefits. Will it become successful?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.independent.co.uk/news/world/europe/finland-plans-to-give-every-citizen-800-euros-a-month-and-scrap-benefits-a6762226.html&quot; rel=&quot;nofollow&quot;&gt;http://www.independent.co.uk/news/world/europe/finland-plans-to-give-every-citizen-800-euros-a-month-and-scrap-benefits-a6762226.html&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="4418" LastActivityDate="2015-12-09T07:49:34.583" Title="Finland plans to give every citizen 800 euros a month and scrap benefits. Will it become successful?" Tags="&lt;basic-income&gt;" AnswerCount="1" CommentCount="5" ClosedDate="2015-12-10T20:50:12.460" ContentLicense="CC BY-SA 3.0" />
  <row Id="9690" PostTypeId="1" CreationDate="2015-12-09T05:44:04.557" Score="4" ViewCount="501" Body="&lt;p&gt;For my research, I need a measure of the quality of education that I could apply to multiple countries. It must include quality of tertiary education. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Standard measures like HDI Education Index are not precise enough. For example in &lt;a href=&quot;http://hdr.undp.org/en/content/education-index&quot; rel=&quot;nofollow&quot;&gt;HDI Education Index&lt;/a&gt;, Kazakhstan is ranked along Hong Kong, Belarus above Singapore, etc. Such absurd discrepancies destroy any hope for good results for my model. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Please, if you have an idea (no matter how wild it is) what I can use as a proxy for quality of education, please share it. &lt;/p&gt;&#xA;" OwnerUserId="6231" LastEditorUserId="108" LastEditDate="2017-04-09T07:44:33.390" LastActivityDate="2017-04-09T07:44:33.390" Title="How to measure quality of education across countries?" Tags="&lt;reference-request&gt;&lt;development-economics&gt;&lt;education-economics&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9691" PostTypeId="2" ParentId="9690" CreationDate="2015-12-09T05:57:22.740" Score="3" Body="&lt;p&gt;A good reference is the &lt;a href=&quot;http://www.barrolee.com/&quot; rel=&quot;nofollow&quot;&gt;Barro-Lee&lt;/a&gt; Dataset wich gives educational attainment&#xA;for 146 countries from 1960 to 2010. The data are disaggregated by sex and by 5-year age intervals. Their estimates of educational attainment provide a reasonable proxy for the stock of human capital.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An older reference is hosted by the &lt;a href=&quot;http://econ.worldbank.org/WBSITE/EXTERNAL/EXTDEC/EXTRESEARCH/0,,contentMDK:20699067~pagePK:64214825~piPK:64214943~theSitePK:469382,00.html&quot; rel=&quot;nofollow&quot;&gt;World Bank&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In case you need more recent data, you may apply their &lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/S0304387812000855&quot; rel=&quot;nofollow&quot;&gt;methodology&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="6168" LastActivityDate="2015-12-09T05:57:22.740" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9692" PostTypeId="1" CreationDate="2015-12-09T07:32:05.747" Score="9" ViewCount="1295" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Terrorism in general, and suicidal terrorism in particular, is&#xA;  popularly seen as “irrational,” but many economists and political&#xA;  scientists argue otherwise.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This quote is from &lt;a href=&quot;http://econfaculty.gmu.edu/bcaplan/pdfs/terrorism.pdf&quot; rel=&quot;nofollow&quot;&gt;Terrorism: The relevance of the rational choice model&lt;/a&gt; by Bryan Caplan. This paper has been published in 2006 in Public Choice. In relation with the recent terrorist attacks in Paris (Nov. 15), is there any new (economic) development on the question of the rationality of terrorism?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit: the title is intentionally short but by saying “is X rational?&quot; I definitely mean &quot;Can X be rationalized?&quot;&lt;/p&gt;&#xA;" OwnerUserId="6168" LastEditorUserId="6168" LastEditDate="2016-05-19T06:06:19.197" LastActivityDate="2016-05-21T03:51:34.970" Title="Are terrorists rational?" Tags="&lt;microeconomics&gt;&lt;reference-request&gt;&lt;choice-theory&gt;" AnswerCount="5" CommentCount="7" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9693" PostTypeId="2" ParentId="9689" CreationDate="2015-12-09T07:49:34.583" Score="0" Body="&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;It will be successful in increasing economic growth. Removing benefits and giving everyone a fixed sum of money per month will disincentivize voluntary unemployment, remove moral hazard from benefit schemes, and encourage poor people to seek ways out of poverty. Also there should be less pressure on public infrastructure, including healthcare.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;It will be successful in reducing the number of migrants seeking refuge in Finland.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;It will NOT be successful in making life easier for the most poor and unfortunate.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;From economic perspective, it should certainly be successful. It is hard to judge it from ethical point of view though.&lt;/p&gt;&#xA;" OwnerUserId="6231" LastActivityDate="2015-12-09T07:49:34.583" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="9694" PostTypeId="1" CreationDate="2015-12-09T08:19:40.033" Score="4" ViewCount="451" Body="&lt;p&gt;The book &quot;Modern Political Economics&quot; is quite critical about &quot;neoclassical economics&quot;, the basic claim being, if I understand correctly, that the models which &quot;neoclassical economics&quot; (armed with mathematical insights starting from John F. Nash Jr, Gerard Debreu and Kenneth Arrow) investigate, are not simplifications of some realistic models, but that they (the models) are just wrong (because of what the authors call &quot;Inherent Error&quot;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there a serious criticism of the views such as the ones exposed in this book?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;added after a comment asking for citations:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;maybe not a successful choice, but nevertheless (the following two citations are short descriptions of chapter 3 and chapter 8 of the book):&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&quot;Chapter 3 The odd couple: The struggle to square a theory of value with&#xA;a theory of growth &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;The odd couple of the title are value and growth. From the very start, political economics found it difficult to square the two; to create models or accounts of how the exchange value of things was determined in a growing economy. The chapter begins at the beginning, with the French Physiocrats, before moving to Adam Smith and David Ricardo’s attempts to tackle this conundrum. The Inherent Error makes its first fonnal appearance in these works, before it returns again and again in the following chapters. The essence of the Inherent Error is the impossibility of telling a credible story about how values and prices are formed in complex (multi-sector) economies that grow through time.&quot;&lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;2&quot;&gt;&#xA;&lt;li&gt;&quot;Chapter 8 A fatal triumph: 2008’s ancestry in the stirrings of the Cold War&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;During the Second World War, economic policy was in the hands of the New Dealers, who ran the economy on a trial and error basis and in the light of the accumulated experience of trying, not with great success, to kick-start the ailing US economy during the traumatic 1930s. Meanwhile, a group of scientists (mostly of Central European origin) were manning the agencies, laboratories and divisions of the civilian and military authorities whose job it was to solve practical problems (e.g. logistics, planning of transportation systems, price setting) by means of advanced mathematical methods. However, after the war ended, and the Cold War began to take hold, both the New Dealers and the Scientists lost out in the struggle for the hearts and minds of academic economics. The winners of that ‘game’ were a small group of Formalists, with John F. Nash, Jr, Gerard Debreu and Kenneth Arrow at the helm. The chapter tells the story of that triumph, which gave neoclassical economics a whole new&#xA;push, by focusing on the person that the book portrays as the era’s most tragic figure: John von Neumann. His ‘fate’, the chapter argues, was an omen for the type of economics that would prove instrumental in the run up to the Crash o f2008.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and yet another citation:&lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;3&quot;&gt;&#xA;&lt;li&gt;&quot;The rest, as they say, is history. Debreu and Arrow emerged from Nash’s seminar and in a few short months applied what they had heard to hammer out their own existence proof in the context of a multiple-sector model economy: one that effectively brought back from the dead Walras’ (fully neoclassical) idea of a General Equilibrium complete with determinate prices for everything, including labour input and capital goods (recall Chapter 6). This they accomplished by procuring General Equilibrium’s ultimate mathematical proof; an existence proof that showed under which conditions a set of relative prices exists such that all&#xA;markets (including that for labour) are in equilibrium.&#xA;This existence proof was to mark a new neoclassical turn in political economics; a turn that altered the discipline’s course and returned neoclassical obscurantism to the throne from which it had been removed by the combined forces of the fall of 1929, the analysis of John Maynard Keynes, the engineering brilliance of von Neumann and, last but not least, the experiences of economic policy during the New Deal and the Second World War.&quot;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="4025" LastEditorUserId="4025" LastEditDate="2016-01-10T14:34:08.643" LastActivityDate="2019-12-01T14:54:04.940" Title="Criticism of &quot;Modern Political Economics&quot; by Varoufakis, Halevi, Theocarakis" Tags="&lt;macroeconomics&gt;&lt;mathematical-economics&gt;&lt;political-economy&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="9695" PostTypeId="2" ParentId="9692" CreationDate="2015-12-09T08:41:25.600" Score="-1" Body="&lt;p&gt;Terrorists are definitely rational. Each one of them maximizes their utility by blowing themselves up. Their preferences and utilities are defined by their beliefs, of course, not the reality of the situation. Their &lt;a href=&quot;https://en.wikipedia.org/wiki/Bounded_rationality&quot; rel=&quot;nofollow&quot;&gt;rationality is bounded&lt;/a&gt;, because they may not know that their beliefs are false or misguided.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The open question is how bounded is the terrorists' rationality. There are plenty of works out there, which I admit I haven't read, but &lt;a href=&quot;http://www.rand.org/pubs/commercial_books/CB386.html&quot; rel=&quot;nofollow&quot;&gt;&lt;em&gt;Inside Terrorism&lt;/em&gt; by Bruce Hoffman&lt;/a&gt; looks to be a very popular one.&lt;/p&gt;&#xA;" OwnerUserId="6231" LastActivityDate="2015-12-09T08:41:25.600" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9696" PostTypeId="2" ParentId="9694" CreationDate="2015-12-09T09:00:57.303" Score="-1" Body="&lt;p&gt;Neoclassical economics or rational analysis should always be a starting point for an analysis of how a given system or model works.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, that is all it is - a starting point. You cannot use a model that is solely rational to predict or infer much about how the real world works, because humans are not rational. That is why rational economics are critized, but do not match up with observed behavior. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, any real critique has to show how rational economics do match up with observed behavior.&lt;/p&gt;&#xA;" OwnerUserId="107" LastActivityDate="2015-12-09T09:00:57.303" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="9697" PostTypeId="2" ParentId="9692" CreationDate="2015-12-09T09:58:37.150" Score="4" Body="&lt;p&gt;I don't think we have enough data on that matter. They would be irrational, for example, if transitivity of their preferences does not hold. How do we get their preferences? Through the axiom of revealed preferences (WARP). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can never say whether someone is rational, we can only say whether someone is irrational (read: his actions are not rationalizable). That is, if we observe 10 decisions from a person, and they are not conflicting, this is not sufficient to say that he is rational. However, if they &lt;em&gt;do&lt;/em&gt; conflict, it is sufficient information to say that he is irrational.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You phrased the question about individual terrorists, and not about the collective. Hence, to judge any single one, we would need to observe enough actions to judge his preferences, and see whether we fail to rationalize his actions under a preference ordering. And then, to repeat myself, I don't think we have enough data on that matter.&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2015-12-09T09:58:37.150" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="9699" PostTypeId="1" CreationDate="2015-12-09T10:58:15.060" Score="3" ViewCount="189" Body="&lt;p&gt;Under this condition, the price of goods are definitely meaningless.&lt;/p&gt;&#xA;" OwnerUserId="5699" LastEditorUserId="5780" LastEditDate="2015-12-09T14:23:26.333" LastActivityDate="2015-12-12T07:28:48.413" Title="Is it necessary to have currency in an ideal centrally-planned economy?" Tags="&lt;currency&gt;" AnswerCount="3" CommentCount="1" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="9700" PostTypeId="2" ParentId="9692" CreationDate="2015-12-09T14:18:53.633" Score="3" Body="&lt;p&gt;We can not prove terrorists are not rational.  We can only have a failure to find a tractable utility function that adequately models their behavior.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the practical side, one cannot see enough decisions from a person &lt;em&gt;ceteris paribus&lt;/em&gt; to confirm much about their rationality. Too much happens over time, without observation, and in a noncontinuous manner. Perhaps we can acquire evidence that their actions have a degree of stochastic noise about them. Or that they do they do not fit model X, or we are omitting a variable Y.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the theoretical side, for any set of behaviors, Z, one can name an array of utility functions f(Z) which would explain such behavior.  I say nothing optimistic about the &lt;em&gt;simplicity&lt;/em&gt;, &lt;em&gt;verification&lt;/em&gt;, or &lt;em&gt;stability&lt;/em&gt;  of these utility functions, but they can be modeled nonetheless.  We can only eliminate a fraction of those f(Z)'s empirically. We are left with some f(Z)'s that could defend their rationality, it remains possible they are rational.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Absence of evidence is not evidence of absence.&lt;/p&gt;&#xA;" OwnerUserId="4185" LastEditorUserId="4185" LastEditDate="2015-12-09T18:13:07.780" LastActivityDate="2015-12-09T18:13:07.780" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9701" PostTypeId="2" ParentId="9692" CreationDate="2015-12-09T16:10:41.120" Score="11" Body="&lt;p&gt;I guess you might already know this, but I wanted to add a little detail to the other answers for the sake of any layman who comes here and gets the wrong end of the stick.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;What is meant by rationality?&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;It is important to begin by saying that when economics use the term rational they have in mind a fairly precise definition that does not perfectly coincide with the way the word is sometimes used colloquially:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;We say that a decision maker is rational if&lt;/p&gt;&#xA;  &#xA;  &lt;ul&gt;&#xA;  &lt;li&gt;s/he has preferences that are transitive and complete&lt;/li&gt;&#xA;  &lt;li&gt;s/he acts in a manner consistent with optimization with respect to those preferences. &lt;/li&gt;&#xA;  &lt;/ul&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;On the first bullet: suppose some one has to make a decision. We say that they have transitive and complete preferences if (i) they are able to rank the alternatives among which they choose from &quot;most preferred&quot; to &quot;least preferred&quot;, and (ii) that ranking is internally consistent.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the second bullet: A person acts in an optimal manner given their preferences if they choose the alternative that is 'most preferred' among the set of all feasible alternatives.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;So are terrorists rational?&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;As others have noted, the literal answer to the question is that we can't really (empirically) verify that terrorists are rational. This is because observing one rational decision does not rule-out the possibility that the individual concerned made an &lt;em&gt;irrational&lt;/em&gt; decision at some point in the past (or that they will make an irrational decision in the future). The best we can manage is to look for behavior that violates the two conditions above and take observations of such violations to be evidence of irrationality.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But, to address the spirit of the question: just because voluntarilly committing suicide and murder in the name of your beliefs may &lt;em&gt;seem&lt;/em&gt; irrational in the colloquial sense does not mean that it is necessarily so. Indeed, &lt;strong&gt;if a person has carefully considered the alternatives available to them and decided that the option they find most attractive is to conduct a suicide attack then this behaviour is entirely consistent with rationality.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Rational terrorism in context&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;It is important to stress that there is no value judgement implicit in an eocnomist describing behaviour as rational. Just because something is rational behaviour does not mean that it is good or desirable or can be condoned. Rather, it just means that we think we have a systematic way of understanding why people might choose to behave in a certain way. Building a systematic understanding of a phenomenon is an important first step in deciding upon the best way to respond to it.&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2015-12-09T17:29:34.583" LastActivityDate="2015-12-09T17:29:34.583" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9703" PostTypeId="1" CreationDate="2015-12-09T17:16:01.360" Score="1" ViewCount="18" Body="&lt;p&gt;I wasn't 100% sure if this was the right community to ask this in, this seemed the most appropriate.&#xA;Is there a database or source where I can find how much businesses spend on their Telecommunications budget. I work for a Telecom company and am trying to do data analysis for network planning. I apologize if this isn't the right location.&lt;/p&gt;&#xA;" OwnerUserId="6660" LastActivityDate="2015-12-09T17:16:01.360" Title="Telecommunications Spending Data" Tags="&lt;data-request&gt;&lt;statistics&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9704" PostTypeId="2" ParentId="9699" CreationDate="2015-12-09T17:48:44.963" Score="3" Body="&lt;p&gt;How does the planner know that his central plan is the ideal one? The conventional story is that he's got an objective function that maximizes the sum of all the society's members' utility. He maximizes that sum by :&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Setting the members' marginal utilities equal. &lt;/li&gt;&#xA;&lt;li&gt;Allocating inputs efficiently so the output lies on the production possibility frontier (Production Efficiency)&lt;/li&gt;&#xA;&lt;li&gt;Choosing the mix out outputs to put to their most valuable purpose (Product-Mix Efficiency)&lt;/li&gt;&#xA;&lt;li&gt;Allocating outputs efficiently such that no resources can be redeployed to make someone better off without making anyone worse off. &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;How does he do this? He does this with prices. These may be shadow prices, relative prices without currency (barter), or they might be conventional prices quoted in the numeraire good. Explaining this is probably beyond the scope of a stackexchange article. &lt;a href=&quot;http://ingrimayne.com/econ/Efficiency/Overview11mi.html&quot; rel=&quot;nofollow&quot;&gt;This review may be of some use&lt;/a&gt; but the content in a microeconomics textbook would be similar. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the price of goods are not only not &quot;definitely meaningless&quot; but essential to the planner's activities. However, you do not need currency in an ideal centrally-planned economy. It is possible to write down models with prices but without currency (credit models) or even money (barter models) which nevertheless have central planners that can easily maximize welfare.  &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2015-12-09T17:48:44.963" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9705" PostTypeId="2" ParentId="8354" CreationDate="2015-12-09T17:50:36.657" Score="1" Body="&lt;p&gt;Two suppositions (that are probably wrong) are implied by your introduction:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Linearity of the production functions in the two countries&lt;/li&gt;&#xA;&lt;li&gt;Free trade (as in, trade at no cost)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Using those, and with two assumptions (that are induced by a Cobb-Douglas, but far less restrictive): &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Good $x$ and $y$ enjoy some degree of substitution in both countries' aggregate demand&lt;/li&gt;&#xA;&lt;li&gt;Good $x$ and $y$ cannot be substituted completely one for another in any of the two countries (&lt;em&gt;ie&lt;/em&gt; no matter what quantity of $x$ the consumers are offered, they will not give up there last unit of $y$),&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;then we can conclude:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;England will always produce good $x$ or not produce anything. If England did produce good $y$ but not good $x$, then that good $y$ could be bought in Portugal for a quantity of $x$ easier to produce than $y$, except if Portugal produced only good $y$. This is impossible because of the limited substitution across both economies. &lt;strong&gt;TRUE&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;2&quot;&gt;&#xA;&lt;li&gt;&lt;p&gt;No, in case all production in Portugal is dedicated to $y$, then there may or may not be an additional production of $y$ in England because the global equilibrium requires &quot;more&quot; $y$ than Portugal can produce. Not that in real life, the residual production of $y$ or $x$ in each country should be linked to local advantages for a residual part of that demand, rather than to the above argument. &lt;strong&gt;FALSE&lt;/strong&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;They could not. For this you would need Portugal not to be able to substitute that $y$ locally, that is, Portugal only producing only $y$. In this situation Portugal couldn't export $x$, because they wouldn't be producing it, and so, would not import $y$. &lt;strong&gt;TRUE&lt;/strong&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="4578" LastEditorUserId="4578" LastEditDate="2015-12-09T18:01:00.390" LastActivityDate="2015-12-09T18:01:00.390" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="9706" PostTypeId="1" CreationDate="2015-12-09T18:22:57.620" Score="4" ViewCount="79" Body="&lt;p&gt;Currently competition authorities usually decide whether to approve a merger or not based on the total revenues or capacities of the merging firms and some rule of thumbs. A reason for this is that they do not always have a stronger mandate because of the legal background.&#xA;Merger simulation models promise a more analytical policy approach. For a good survey see &lt;a href=&quot;http://www.vwl.uni-mannheim.de/gk/_ruhmer/Budzinski_Ruhmer_2010.pdf&quot; rel=&quot;nofollow&quot;&gt;Budsinki &amp;amp; Ruhmer (2010)&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is my understanding that the kind of data needed to estimate the demand function of a market, or usually demand functions in the case of differentiated products, is not publicly available. Yet rival companies frequently have similar data which they use to estimate their market share. &lt;br&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How would one go about legally acquiring such data? &lt;br&gt;&#xA;Are there any ways with which to estimate cross elasticities without said data?&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2018-09-10T03:52:38.547" Title="Demand functions in merger simulation models" Tags="&lt;data-request&gt;&lt;merger-simulation&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9707" PostTypeId="1" CreationDate="2015-12-09T18:36:51.610" Score="2" ViewCount="26" Body="&lt;p&gt;In an effort to empirically back up merger simulation models (which are rarely used in practice) I am trying to find 'old' papers, working papers, memos, etc. that have data on simulations people ran on mergers at that time. Using this information and the post merger information only available in the present I hope to see how effective merger simulation models were in estimating the post-merger economic effects.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If my request is still unclear &lt;a href=&quot;http://econpapers.repec.org/article/ucpjlawec/y_3a2006_3av_3a49_3ai_3a2_3ap_3a627-49.htm&quot; rel=&quot;nofollow&quot;&gt;here is a paper by Craig Peters&lt;/a&gt; with the same goal.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are you aware of any such references or collection of references that could prove useful?&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2015-12-09T18:36:51.610" Title="Merger simulation literature request" Tags="&lt;reference-request&gt;&lt;merger-simulation&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9708" PostTypeId="1" CreationDate="2015-12-09T21:20:43.040" Score="1" ViewCount="61" Body="&lt;p&gt;The demand function for theater tickets is $D_t(p_t,p_c)$, where $p_t$ stands for the price of theater tickets and $p_c$ stands for the price of cinema tickets. Supply of theater tickets is described by $S_t(p_t)$. I want to determine how the equilibrium price and quantity of theater tickets changes if the price of movie tickets changes from $p_c$ to $p'_c$. I just have to solve the equations&#xA;$$&#xA;D_t(p_t,p_c) = S_t(p_t)&#xA;$$&#xA;and&#xA;$$&#xA;D_t(p'_t,p'_c) = S_t(p'_t)&#xA;$$&#xA;right?&lt;/p&gt;&#xA;" OwnerUserId="6662" LastEditorUserId="43" LastEditDate="2015-12-10T15:36:03.643" LastActivityDate="2015-12-10T15:36:03.643" Title="Market with substitutes: Response of prices and quantities" Tags="&lt;microeconomics&gt;&lt;supply-and-demand&gt;" AnswerCount="0" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="9710" PostTypeId="1" AcceptedAnswerId="9722" CreationDate="2015-12-09T22:54:00.273" Score="1" ViewCount="166" Body="&lt;p&gt;I've found this &lt;a href=&quot;http://www.frbsf.org/education/publications/doctor-econ/2013/march/federal-reserve-interest-balances-reserves&quot; rel=&quot;nofollow&quot;&gt;link of San Francisco Fed&lt;/a&gt;. In it, it's stated that the Federal bank began «paying interest on reserves held against certain types of deposit liabilities.(...) This was important for monetary policy because the &lt;strong&gt;Federal Reserve’s various liquidity facilities initiated during the financial crisis caused upward pressure on excess reserves and placed downward pressure on the Federal funds rate.&lt;/strong&gt; To counteract these pressures, on October 6, 2008, the Federal Reserve Board announced that it would begin paying interest on depository institutions’ reserve balances.»&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I need help on clarifying the sentence in bold. Which facilities were those? What's the problem on an upward pressure on excess reserves, and downward pressure on the Federal funds rate? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="118" LastEditDate="2015-12-09T23:35:51.977" LastActivityDate="2015-12-12T05:27:40.997" Title="Meaning of &quot;Federal Reserve’s various liquidity facilities&quot; and something more" Tags="&lt;macroeconomics&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9711" PostTypeId="2" ParentId="9692" CreationDate="2015-12-10T05:13:41.283" Score="3" Body="&lt;p&gt;&lt;a href=&quot;http://economics.uwo.ca/people/faculty/wintrobe.html&quot; rel=&quot;nofollow&quot;&gt;Ron Wintrobe&lt;/a&gt; has a book on &lt;a href=&quot;http://www.cambridge.org/us/academic/subjects/economics/public-economics-and-public-policy/rational-extremism-political-economy-radicalism&quot; rel=&quot;nofollow&quot;&gt;&lt;em&gt;Rational Extremism&lt;/em&gt;&lt;/a&gt;, which explains how behavior of terrorists, in particular suicide bombers may be &quot;rationalized&quot;. He theorizes that the act of blowing up oneself is a form of corner solution to an optimization problem faced by terrorists. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here's a preview of one of the chapters of the book: &lt;a href=&quot;http://economics.ca/2005/papers/0708.pdf&quot; rel=&quot;nofollow&quot;&gt;http://economics.ca/2005/papers/0708.pdf&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2015-12-10T05:13:41.283" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9712" PostTypeId="1" AcceptedAnswerId="9720" CreationDate="2015-12-10T06:48:14.847" Score="2" ViewCount="74" Body="&lt;p&gt;I was reading about the concept of &lt;a href=&quot;https://en.wikipedia.org/wiki/Real_options_valuation&quot; rel=&quot;nofollow&quot;&gt;real options valuation&lt;/a&gt;. It says that ROV has shown that &lt;em&gt;uncertainty in market pay-off enhances the project value&lt;/em&gt; (V). How is that? Will it be possible to explain that with an example?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here by 'uncertainty' we mean &lt;em&gt;stochastic variability&lt;/em&gt; of parameter distributions. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;{&lt;code&gt;V = f(performance,cost,time,market requirement,market payoff)&lt;/code&gt; }&lt;/p&gt;&#xA;" OwnerUserId="6664" LastEditorUserId="6664" LastEditDate="2015-12-10T08:47:49.067" LastActivityDate="2015-12-10T15:01:44.647" Title="How is project value enhanced by uncertainty in market payoff?" Tags="&lt;risk&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="9713" PostTypeId="2" ParentId="9710" CreationDate="2015-12-10T08:17:54.703" Score="1" Body="&lt;p&gt;Downward pressure on the Federal funds rate means bringing interest rates down even further (to ~0%). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Upward pressure on excess reserves likely means increased incentive for banks to build up excess reserves. The part about reserves is bit ambiguous. After reading the article a couple of times, this is what I make out of the paragraph (my comments are in bold):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;This was important for monetary policy because the Federal Reserve’s&#xA;  various liquidity facilities initiated during the financial crisis&#xA;  caused upward pressure on excess reserves &lt;strong&gt;(provided banks with cash to increase reserves)&lt;/strong&gt; and placed downward pressure&#xA;  on the Federal funds rate &lt;strong&gt;(lowered the interest rate to the target level ~0)&lt;/strong&gt;. &lt;strong&gt;To give  Fed a tool&lt;/strong&gt; to counteract these pressures &lt;strong&gt;in the future when they decide to exit QE and tighten the monetary policy&lt;/strong&gt;, on October&#xA;  6, 2008, the Federal Reserve Board announced that it would begin&#xA;  paying interest on depository institutions’ reserve balances. &lt;strong&gt;Paying interest on reserves gave the banks incentive to increase the reserves at the time. In the future, lowering interest rate paid on reserves would create &lt;em&gt;downward pressure on excess reserves.&lt;/em&gt;&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I found a footnote next to &quot;&lt;a href=&quot;http://www.frbsf.org/education/publications/doctor-econ/2013/march/federal-reserve-interest-balances-reserves&quot; rel=&quot;nofollow&quot;&gt;Federal Reserve’s various liquidity facilities&lt;/a&gt;&quot; part of the sentence leading to a page describing these facilities: &#xA;&lt;a href=&quot;http://www.federalreserve.gov/monetarypolicy/bst.htm&quot; rel=&quot;nofollow&quot;&gt;Credit and Liquidity Programs and the Balance Sheet&lt;/a&gt;. It looks like a detailed technical description of QE programs Fed implemented after the 2008 crisis.&lt;/p&gt;&#xA;" OwnerUserId="6231" LastEditorUserId="6231" LastEditDate="2015-12-10T12:56:34.700" LastActivityDate="2015-12-10T12:56:34.700" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="9714" PostTypeId="1" CreationDate="2015-12-10T08:53:07.183" Score="1" ViewCount="19" Body="&lt;p&gt;I am looking at two-dimensional gridded data from a kinked function, but need to make it smooth. Is there a two-dimensional version of the Schumaker-routine? I would also greatly appreciate pointers to MatLab code!&lt;/p&gt;&#xA;" OwnerUserId="6666" LastActivityDate="2015-12-10T08:53:07.183" Title="Multi-dimensional interpolation routine that preserves shape AND differentiability" Tags="&lt;computation&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9715" PostTypeId="1" AcceptedAnswerId="9716" CreationDate="2015-12-10T10:26:18.927" Score="2" ViewCount="356" Body="&lt;p&gt;Even though there is a massive literature on behavioral economics, i couldn't find anywhere a list of economist that focus on that discipline. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since i am interested in environmental economics, i would be grateful if you could mention those in academia that apply &quot;behavioral theories&quot; into environmental economics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks in advance!&lt;/p&gt;&#xA;" OwnerUserId="6520" LastActivityDate="2015-12-10T10:51:49.657" Title="List of behavioral economists" Tags="&lt;microeconomics&gt;&lt;decision-theory&gt;&lt;behavioral-economics&gt;&lt;environmental-economics&gt;" AnswerCount="2" CommentCount="0" ClosedDate="2015-12-13T05:09:09.533" ContentLicense="CC BY-SA 3.0" />
  <row Id="9716" PostTypeId="2" ParentId="9715" CreationDate="2015-12-10T10:50:54.077" Score="4" Body="&lt;h1&gt;Top 10% authors in the field of Cognitive &amp;amp; Behavioural Economics&lt;/h1&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;https://ideas.repec.org/top/top.cbe.html&quot; rel=&quot;nofollow&quot;&gt;https://ideas.repec.org/top/top.cbe.html&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Ernst Fehr, Institut für Volkswirtschaftslehre, Wirtschaftswissenschaftliche Fakutät, Universität Zürich, Zürich, Switzerland&lt;/li&gt;&#xA;&lt;li&gt;Urs Fischbacher, Fachbereich Wirtschaftswissenschaften, Universität Konstanz, Konstanz, Germany&lt;/li&gt;&#xA;&lt;li&gt;Robert Sugden, School of Economics, University of East Anglia, Norwich, United Kingdom&lt;/li&gt;&#xA;&lt;li&gt;Andrew Schotter, Department of Economics, New York University (NYU), New York City, New York (USA)&lt;/li&gt;&#xA;&lt;li&gt;Peter P. Wakker, Econometrisch Instituut, Faculteit der Economische Wetenschappen, Erasmus Universiteit Rotterdam, Rotterdam, Netherlands&lt;/li&gt;&#xA;&lt;li&gt;...&lt;/li&gt;&#xA;&lt;/ol&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;And the other 140 economists.&lt;/p&gt;&#xA;" OwnerUserId="240" LastActivityDate="2015-12-10T10:50:54.077" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9717" PostTypeId="2" ParentId="9715" CreationDate="2015-12-10T10:51:49.657" Score="1" Body="&lt;p&gt;It is difficult to provide a list of behavioral economists, because many researchers use behavioral insights in their own field (development, labor, ...). And restricting attention to scholars who focus exclusively on behavioral economics does not help much: it would be akin to trying to provide a list of macroeconomists, or of game theorists, there are simply too many of them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regarding behavioral environmental economics, I suggest you have a look at the paper &quot;Behavioral environmental economics: promises and challenges&quot; by Rachel Croson and Nicolas Treich, which reviews and discusses this field.&lt;/p&gt;&#xA;" OwnerUserId="4667" LastActivityDate="2015-12-10T10:51:49.657" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9720" PostTypeId="2" ParentId="9712" CreationDate="2015-12-10T15:01:44.647" Score="1" Body="&lt;p&gt;In general, if you own an option, holding fixed the expected value of the underlying asset and the strike price of the option, the greater the variance in the distribution of the prices of the option the (weakly) more valuable the option is. Here is a graphical example of a call option at maturity. They grey line indicates the value of the option for each value of the underlying asset where the strike price is \$5. The blue diamonds indicate the payoffs for values of the underlying at 4 and 6. If each are equally likely (p=0.5) then the underlying has an expected value of 5 and the option of \$0.5 (the lower green square). This distribution as a standard deviation of 0.5. Increase the standard deviation to 1.0 but hold the expected value constant at 5 by  changing the two underlying outcomes to \$3 and \$7 (orange squares). The expected value of this option is 1 (higher green square), so the increase in variance of the distribution of the underlying asset has increased the value of the option even though the expected value of the underlying is unchanged.&#xA;&lt;a href=&quot;https://i.stack.imgur.com/6Ou9z.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/6Ou9z.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reason for this is essentially &lt;a href=&quot;https://en.wikipedia.org/wiki/Jensen&amp;#39;s_inequality&quot; rel=&quot;nofollow noreferrer&quot;&gt;Jensen's inequality&lt;/a&gt;. We can model the value of an option as a convex function $f(x)$ where $x$ is the underlying. The value of the option is $g(x) = E[f(x)]$ This implies $g(x)$ is increasing in the variance of $x$. We can see this because when we do the Taylor expansion of the function f : $$g(x) \approx E[f(x_0) +  (x - x_0)\cdot f'(x_0) +  (x - x_0)^2 \cdot f''(x_0)]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Because of the convexity, the second order term $f''(x_0)$ will be positive. The additive part $E[(x - x_0)^2 \cdot f''(x_0)] = E[(x - x_0)^2] \cdot f''(x_0)$ is increasing in the variance $E[(x - \bar{x})^2]$ so the value of the option is increasing in the variance. &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2015-12-10T15:01:44.647" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9721" PostTypeId="1" CreationDate="2015-12-10T15:47:25.777" Score="2" ViewCount="1691" Body="&lt;p&gt;Are the two models compatible?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider the situation: consumers lost their confidence in the economy so that they consume less and save more, hence the IS curve shift down. Since the consumers save more, there should be more loanable money in the bank.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, why doesn't the LM curve as well as the interest rate shift down when there is more lonable money？&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(I can tell the two models apart.But I think it is natural for the interest rates to go down when people save more/consume less)&lt;/p&gt;&#xA;" OwnerUserId="6057" LastActivityDate="2016-07-24T17:44:41.113" Title="What's the relationship between IS-LM model and loanable funds model and what's the differences?" Tags="&lt;macroeconomics&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9722" PostTypeId="2" ParentId="9710" CreationDate="2015-12-10T16:55:27.460" Score="1" Body="&lt;p&gt;The Federal Reserve set up a number of emergency liquidity facilities during the financial crisis, including:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;The Primary Dealer Credit Facility, which provided liquidity to nonbank primary dealers (nonbanks do not have access to the discount window, which is the traditional mechanism of liquidity provision to banks)&lt;/li&gt;&#xA;&lt;li&gt;The Term Auction Facility, which provided term funds to banks through an auction mechanism&lt;/li&gt;&#xA;&lt;li&gt;The Term Securities Lending Facility, which loaned securities to alleviate shortages of Treasury collateral&lt;/li&gt;&#xA;&lt;li&gt;Currency swap lines with foreign central banks, which addressed shortages in overseas dollar funding markets&lt;/li&gt;&#xA;&lt;li&gt;and others.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Many of these programs resulted in banks having large piles of cash (not literally, of course— these were electronic &quot;piles&quot; of cash). When banks have large piles of cash (i.e., excess reserves), they're willing to loan that cash at really low rates, because they have nothing else to do with it— hence the &quot;downward pressure on the Federal funds rate.&quot; This is just a result of supply and demand in the market for cash— when the supply of cash increases, the price of cash (i.e., the interest rate on a Federal Funds loan) decreases. The problem, however, is that you don't want rates to do negative, because negative rates are believed to have seriously negative implications for the standard model of banking. As a result, the Fed began paying interest on excess reserves, to set a floor under Fed Funds rates.&lt;/p&gt;&#xA;" OwnerUserId="264" LastEditorUserId="264" LastEditDate="2015-12-10T17:04:42.187" LastActivityDate="2015-12-10T17:04:42.187" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9724" PostTypeId="2" ParentId="9721" CreationDate="2015-12-10T18:01:12.947" Score="0" Body="&lt;p&gt;To my understanding, in the IS-LM model you have nominal interest rates, whereas in loanable funds model you have real interest rates. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The LM in the IS-LM model is the money supply, rather than money available to be loaned out. It is determined by the monetary authority and not by the economic conditions, hence it doesn't shift when there is an increase in savings.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, intuitively, the monetary authority should not be able to affect the real interest rates (the fact that there is more money in the economy, doesn't mean that there is more value created by capital).&lt;/p&gt;&#xA;" OwnerUserId="5366" LastActivityDate="2015-12-10T18:01:12.947" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9727" PostTypeId="1" CreationDate="2015-12-10T18:59:32.897" Score="1" ViewCount="53" Body="&lt;p&gt;What does it mean for a bond not to be capital-safe? I'm having some difficulty in finding in the web any explanation for this expression.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="118" LastActivityDate="2015-12-22T11:32:21.703" Title="Capital-safe Bonds?" Tags="&lt;macroeconomics&gt;&lt;finance&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="9729" PostTypeId="1" AcceptedAnswerId="9799" CreationDate="2015-12-10T22:22:56.393" Score="5" ViewCount="431" Body="&lt;p&gt;Define a Bayesian game as follows: $$G = \left\langle I, \left(A_i,T_i,(p_{t_i})_{t_i \in T_i}, u_i \right)_{i \in I} \right\rangle$$&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;$I$ is the set of players &lt;/li&gt;&#xA;&lt;li&gt;$A_i$ is the action set for player $i$, &lt;/li&gt;&#xA;&lt;li&gt;$T_i$ is the set of possible types for player $i$, &lt;/li&gt;&#xA;&lt;li&gt;$p_{t_i} \in \Delta(T_{-i})$ is player $i$'s beliefs regarding the types of the other players. $(T_{-i}=\times_{j \ne i}T_j)$&lt;/li&gt;&#xA;&lt;li&gt;$u_i : A \times T \rightarrow \mathbb{R}$ is player $i$'s utility function&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Then a Bayes-Nash equilibrium is defined as follows:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;A (pure) Bayes-Nash equilibrium is a profile of choice functions (or&#xA;  strategies) $(\sigma_i:T_i \rightarrow A_i)_{i \in I}$ such that,&#xA;  $\forall i \in I, \forall t_i \in T_i, \forall a_i \in A_i$,&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;$$\sum_{t_-{i}}p_{t_i}(t_{-i}) \cdot u_i(\sigma_i(t_i),&#xA;  \sigma_{-i}(t_{-i}); t_i, t_{-i}) \geq \sum_{t_-{i}}p_{t_i}(t_{-i})&#xA;  \cdot u_i(a_i, \sigma_{-i}(t_{-i}); t_i, t_{-i})  $$&#xA;  where, for every $t_{-i}, \sigma_{-i}(t_{-i}) = (\sigma_j(t_j))_{j\ne i}$.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;And now my question:&lt;/strong&gt; Am I correct that this implies that, in a BNE, every player (or rather, every type of every player) best responds given their beliefs about the types of other players, but that there is nothing in a BNE that pins down the beliefs a player (or type of player) has on the types of other players? That is to say, in a BNE, a player (or type of player) could have a degenerate belief (putting full probability on some $t_j^*$ for player $j$) in an equilibrium in which $t_j \ne t_j^*$? Put more simply, can a type of player's beliefs about the type of another player be wrong in a BNE?&lt;/p&gt;&#xA;" OwnerUserId="48" LastActivityDate="2019-04-14T23:23:27.850" Title="Bayes-Nash equilibrium and correctness of beliefs" Tags="&lt;game-theory&gt;&lt;bayesian-game&gt;" AnswerCount="2" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="9733" PostTypeId="1" CreationDate="2015-12-11T02:07:26.043" Score="1" ViewCount="1060" Body="&lt;p&gt;Is it true that for two player zero sum game, Perfect Bayesian Nash equilibrium is simply Nash Equilibrium?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am learning game theory and our lecturer does not explicitly cover it.&lt;/p&gt;&#xA;" OwnerUserId="6679" LastActivityDate="2015-12-11T06:33:39.710" Title="perfect bayesian nash equilibrium is simply nash equilibrium" Tags="&lt;nash-equilibrium&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9734" PostTypeId="2" ParentId="9733" CreationDate="2015-12-11T06:27:16.447" Score="1" Body="&lt;p&gt;The quick answer is Yes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A Bayesian Nash equilibrium (BNE) is Nash equilibrium (NE) generalized to situations where there is uncertainty over players' payoffs; that is, games with &lt;strong&gt;incomplete information&lt;/strong&gt;. For example, in the following zero-sum game, $t$ is a &quot;state variable&quot; that may take values $\epsilon&amp;gt;0$ or $-\epsilon$, each with probability $1/2$, say. Then the equilibrium you solve for would be a BNE.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand, if $t$ is not a random variable (or a &lt;em&gt;degenerate random variable&lt;/em&gt;, as the jargons would have it), e.g. $t=0$ with probability $1$, then the equilibrium would simply be a NE.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words, a NE (of a complete information game) is a special case of a BNE (of a game of incomplete information, where there is only one payoff-relevant state, so to speak).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\begin{array}{|c|c|c|}\hline&#xA;  &amp;amp; H &amp;amp; T \\\hline&#xA;H &amp;amp; 1+t,-1+t &amp;amp; -1+t, 1+t \\\hline&#xA;T &amp;amp; -1,1 &amp;amp; 1,-1\\\hline&#xA;\end{array}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Adding &lt;em&gt;perfection&lt;/em&gt; to BNE puts more restrictions on the players' off equilibrium beliefs about their opponents' strategies. In the case of matching pennies (the game above with $t=0$), which I assume you have in mind when saying &quot;zero-sum games&quot;, this consideration wouldn't matter. &lt;/p&gt;&#xA;" OwnerUserId="42" LastEditorUserId="42" LastEditDate="2015-12-11T06:33:39.710" LastActivityDate="2015-12-11T06:33:39.710" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9735" PostTypeId="2" ParentId="9727" CreationDate="2015-12-11T12:08:40.550" Score="-1" Body="&lt;p&gt;You may want to try looking into junk bonds as this could be another term for them. Those are bonds below investment grade, they are risky but very high yield debt. You can read more on &lt;a href=&quot;https://en.wikipedia.org/wiki/High-yield_debt&quot; rel=&quot;nofollow&quot;&gt;Wikipedia&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="6009" LastEditorUserId="6009" LastEditDate="2015-12-22T11:32:21.703" LastActivityDate="2015-12-22T11:32:21.703" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9736" PostTypeId="1" AcceptedAnswerId="32750" CreationDate="2015-12-11T13:07:49.757" Score="2" ViewCount="635" Body="&lt;p&gt;I have a data set of annual prices of various energy carriers over several decades. I want to estimate a model of output using these price series - I guess, I will do a co-integration analysis. There appears to be a high positive correlation among the price series. &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Would it be appropriate to do a PCA and use the first component as an&#xA;explanatory variable assuming it captures most of the variation among&#xA;the price series?  &lt;/li&gt;&#xA;&lt;li&gt;How well is the application of PCA accepted in&#xA;empirical research in economics?&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="6009" LastActivityDate="2019-11-14T05:40:41.223" Title="Principal Components Analysis in Economic analysis" Tags="&lt;econometrics&gt;&lt;regression&gt;&lt;energy-economics&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9737" PostTypeId="1" AcceptedAnswerId="9739" CreationDate="2015-12-11T16:17:46.110" Score="1" ViewCount="39" Body="&lt;p&gt;Natural gas prices are down like crazy this year as you can see from the chart below:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/sXAi7.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/sXAi7.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't understand how these prices are maintainable. I know these this price trend is largely because of the abnormally warm weather this winter. I also noticed crude oil down a ton, and that the coal industry is almost dead.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If prices are down so much why are suppliers even continuing to supply gas when their margins are low and no one is buying it? What would save the industry?&lt;/p&gt;&#xA;" OwnerUserId="6682" LastActivityDate="2015-12-11T17:28:27.180" Title="Dec 2015: What would cause natural gas and crude oil to go up?" Tags="&lt;energy-economics&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="9738" PostTypeId="2" ParentId="9677" CreationDate="2015-12-11T17:11:49.813" Score="2" Body="&lt;p&gt;If you want a thorough, broad and incredibly well done videos series on the internet, there is no way around MR University (from the editors of the mostread economics blog: Marginal Revolution)&#xA;&lt;a href=&quot;http://www.mruniversity.com/&quot; rel=&quot;nofollow&quot;&gt;http://www.mruniversity.com/&lt;/a&gt;     &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The level is very basic, but it gives a very, very good intuiton on every topic.&lt;/p&gt;&#xA;" OwnerUserId="4087" LastActivityDate="2015-12-11T17:11:49.813" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9739" PostTypeId="2" ParentId="9737" CreationDate="2015-12-11T17:28:27.180" Score="1" Body="&lt;p&gt;Two things would cause the price to go up.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The supply curve could move to the left: some suppliers could leave the market, some wells might switch off.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The demand curve could move to the right: new sources of demand; e.g. a burst of extremely cold weather.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This price drop is a step towards economic efficiency. You'll know when it's more efficient, because almost the whole oil &amp;amp; gas industry will have closed apart from a few niche applications.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2015-12-11T17:28:27.180" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9740" PostTypeId="1" CreationDate="2015-12-11T23:45:00.630" Score="1" ViewCount="58" Body="&lt;p&gt;One of the usual functions of a Central Bank is to be the last resort of commercial banks, and governments. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does the ECB behave in this usual way toward European Governments? What about toward banks? Is the banking union related to this?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="118" LastActivityDate="2015-12-11T23:45:00.630" Title="Is the ECB a lender of last resort for european governments?" Tags="&lt;macroeconomics&gt;&lt;banking&gt;&lt;central-banking&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="9741" PostTypeId="1" CreationDate="2015-12-12T00:32:51.253" Score="4" ViewCount="201" Body="&lt;p&gt;I've noticed how government jobs in the US are known to have generous pensions, healthcare plans, vacation time, etc. as compared to the corresponding job in the private sector. (I haven't actually done any comparisons specifically, but it's something that many people say, so I am assuming that this belief is true.) Why is this the case?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Someone may answer with, &quot;This is because government workers have unions, which push for better benefits.&quot; But why can't the industry employees form unions as well, and thus receive equivalent benefits?&lt;/p&gt;&#xA;" OwnerUserId="5661" LastActivityDate="2016-01-12T18:22:07.167" Title="Why do government jobs provide better benefits than industry jobs?" Tags="&lt;macroeconomics&gt;&lt;public-economics&gt;" AnswerCount="4" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9742" PostTypeId="2" ParentId="9741" CreationDate="2015-12-12T01:14:47.223" Score="2" Body="&lt;p&gt;Some industry employees have benefits on par with those provided in the civil service. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The civil service has an incentive to have &quot;better&quot; benefits because civil servants deal with a lot of sensitive information and high employee turnover is not a desirable thing in that environment. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is no similar incentive for private sector firms.&lt;/p&gt;&#xA;" OwnerUserId="1511" LastActivityDate="2015-12-12T01:14:47.223" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="9743" PostTypeId="1" CreationDate="2015-12-12T02:21:52.603" Score="2" ViewCount="40" Body="&lt;p&gt;I had an interesting discussion today while volunteering at a food bank program. The individual I spoke with was a retired math professor who stated his research makes him believe that significant money could be saved in regards to the foodstamp program. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Apparently the situation is that after the &lt;em&gt;initial&lt;/em&gt; application for foodstamps, recipients on the program are required to file monthly or quarterly reports that document the minutia of their income (even things like a \$5 gift card from grandma) and if anything is deemed improperly documented the recipient is forced to file more paperwork or lose their food. The program is administered in county offices &lt;em&gt;with waiting lines lasting 4-6 HOURS&lt;/em&gt; on average. All for approximately \$6 per day (\$185/month) through a special debit card that can only be used at authorized merchants.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The professor's contention was that money is being wasted &lt;em&gt;and people are being dehumanized&lt;/em&gt; by the constant demand for proof-of-need documentation. He proposes that if we eliminated the monthly paperwork bureaucracy and just &quot;gave&quot; everybody who validly applied \$200 per month we would actually save money, even if the roster of recipients tripled. The only ways to get kicked off the program would be (A) dying - just like social security benefits, (B) requesting exit from the program, or (C) being convicted in a courtroom of committing fraud against the program (such as submitting fake applications for non-existent dependents) which would ban you for life.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the surface is sounds practical: eliminate (actually repurpose - other agencies will find uses for these folks you can be sure) tens of thousands of high-pay civil service jobs) in exchange for just making an unquestioned monthly deposit. Note that the professor did support keeping the initial application screening process and also once a year requiring a simple &quot;I still need help&quot; affidavit. Mountains of paperwork monthly vs 1 sheet per year.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;So my economic question is&lt;/strong&gt; how can this &quot;proposal&quot; be validated? Where does one get the numbers for what is currently being spent on the program, broken down by both recipient costs and paperwork costs? Does such a source of data exist and is it available to average Joes like me for review?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;PS: The professor also suggested putting a cap on the food card accounts of 90 days worth of benefits. If you don't use your benefits (say you are in the hospital for a few months) the card would not accept new deposits until there was &quot;room&quot; for more. &lt;/p&gt;&#xA;" OwnerUserId="6265" LastEditorUserId="264" LastEditDate="2015-12-12T16:07:34.033" LastActivityDate="2016-01-11T16:09:10.303" Title="How to find (document) the actual costs of a specific US government social program?" Tags="&lt;government&gt;&lt;social-welfare&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9744" PostTypeId="1" CreationDate="2015-12-12T02:23:16.730" Score="1" ViewCount="135" Body="&lt;p&gt;I am wondering if any one has attempted to describe household expenses as a function of income. I have an idea that the curve should look something like a natural log over a root function. It creates a curve with a hump at the left side and a dip in the middle on to an ever growing tail. Does anyone know of a model that describes such behavior?&lt;/p&gt;&#xA;" OwnerUserId="6685" LastActivityDate="2015-12-12T17:53:55.860" Title="Expenses as a function of Income" Tags="&lt;mathematical-economics&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="9745" PostTypeId="1" AcceptedAnswerId="9750" CreationDate="2015-12-12T05:09:21.113" Score="2" ViewCount="103" Body="&lt;p&gt;If I have demand functions&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For $P&amp;lt;15$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;Q(P) = 700-40P&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For $P&amp;gt;15$:&#xA;$$&#xA;Q(P) = 400-20P&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I invert them, I get the price functions&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For $Q&amp;lt;100$:&#xA;$$&#xA;P(Q)=20 - (1/20)Q&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For $Q&amp;gt;100$:&#xA;$$&#xA;P(Q)=17,5 – (1/40)Q&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know how I get the expressions, for instance, $Q = 700 - 40P \Leftrightarrow 40P = 700 - Q \Leftrightarrow P = \frac{700}{40} - \frac{1}{40} Q$, but I don't how the conditions $P &amp;lt; 15$ can change to $Q &amp;lt; 100$.&lt;/p&gt;&#xA;" OwnerUserId="4110" LastActivityDate="2015-12-12T05:53:25.080" Title="Inverting price functions and their conditions/intervals" Tags="&lt;supply-and-demand&gt;&lt;production-function&gt;&lt;price-level&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9747" PostTypeId="2" ParentId="9710" CreationDate="2015-12-12T05:27:40.997" Score="1" Body="&lt;p&gt;It's important to put this into historical context.  During the crises, we were in essence suffering a bank run.  Liquidity crisis is code for bank run.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But modern bank runs look different from old time bank runs. Modern banks are divided into (roughly) two camps.  Local depositor banks and larger investment banks.  There is a complex inter-bank lending market that connects the different types and assures banks have enough reserves to avoid insolvency.  In a modern run, banks actually fear losing the support of other banks more so than depositors.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is important as all banks are inherently insolvent and need to be propped up by other banks in turn by a central monetary source (like the Fed).  This is because they mismatch short term liabilities with long term assets.  If I take out a one year loan to buy a ten year bond, I am very dependent on that one year being perpetually rolled over.  Same with bankers.  The Fed subsidizes the short term debt market to them, so they can make more money mismatching short term debt with long term assets.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;During the crises, the money market shut down.  To academia...this wasn't supposed to happen because of the open market.  But it did.  The reason it did was because banks stopped trusting each other and we had a very modern bank crisis on our hands.  Banks tried to reverse maturity mismatching by holder more short term assets (like reserves), but this is impossible in the aggregate and actually causes more of a crisis.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The idea behind the Fed paying banks for reserves, is that it provides them with a source of short term assets to help deal with pressing short term liabilities.  QE on the other hand helped deal with banks change long term assets for shot term from the Fed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Normally, the Fed bails out (and does so constantly each year) bank crises through the open market.  If a bank is seeing their short term debt called in, they borrow from the money market which in turn borrows from the Fed.  So indirectly banks are guaranteed their source of short term debt to perpetuate their maturity mismatching.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Whether the government should be using public resources to prop up such behaviour is a very good question.  Some central banks actually have considered measures to CHARGE interest on excess reserves, to encourage lending on the Fed Funds market and to help other banks overcome their liquidity concerns.&lt;/p&gt;&#xA;" OwnerUserId="6479" LastActivityDate="2015-12-12T05:27:40.997" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="9749" PostTypeId="2" ParentId="9743" CreationDate="2015-12-12T05:38:38.333" Score="1" Body="&lt;p&gt;&lt;a href=&quot;http://www.fns.usda.gov/pd/supplemental-nutrition-assistance-program-snap&quot; rel=&quot;nofollow&quot;&gt;http://www.fns.usda.gov/pd/supplemental-nutrition-assistance-program-snap&lt;/a&gt; - Participation and Costs is the first file in the list&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Under the current rules, one problem with stopping activity reports is that all of the statistics you see there would be gone. Another more serious problem is that SNAP recipients are restricted from purchasing certain goods; it's not just that the SNAP card is only accepted at certain merchants.&lt;/p&gt;&#xA;" OwnerUserId="1511" LastActivityDate="2015-12-12T05:38:38.333" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="9750" PostTypeId="2" ParentId="9745" CreationDate="2015-12-12T05:53:25.080" Score="2" Body="&lt;p&gt;Notice that if you plug in $P=15$ into &lt;em&gt;either&lt;/em&gt; of the $Q(P)$, you get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Q(P) = 700-40P = 700 - 40 \cdot 15 = 100$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Q(P) = 400-20P = 400 - 20 \cdot 15 = 100$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So you can take the exercise further and see that when $P &amp;lt; 15$, then $Q &amp;gt; 100$ (notice the direction of the inequality is changing; the more expensive a good, the less consumers buy of it)&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2015-12-12T05:53:25.080" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9751" PostTypeId="1" CreationDate="2015-12-12T06:32:52.580" Score="1" ViewCount="2404" Body="&lt;p&gt;We know that in short run supply curve is horizontal which means that prices remain rigid while quantity of supply adjusts according to demand. However, in long run this reverses. I know about some explanations to these different supply curves and they sound contradictory. Like in short run there are wage contracts, labor laws etc so prices cannot adjust but still I am not clear what are the exact reason of such different supply curves. &lt;/p&gt;&#xA;" OwnerUserId="5582" LastEditorUserId="5582" LastEditDate="2015-12-12T13:22:15.367" LastActivityDate="2015-12-12T13:22:15.367" Title="Difference between short run and long run supply curves?" Tags="&lt;supply-and-demand&gt;&lt;economic-growth&gt;&lt;long-run&gt;&lt;aggregate-production&gt;" AnswerCount="0" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="9752" PostTypeId="2" ParentId="9699" CreationDate="2015-12-12T06:49:09.887" Score="0" Body="&lt;p&gt;BKay's answer is very thorough, but I want to address one particular assumption of having an &quot;ideal&quot; centrally-planned economy that may impact the need for money. While externalities can be internalized if the social planner is equally omnipotent on that front, and we assume no incomplete markets or market power, there is still the threat of uncertainty.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A social planner can set relative prices so that they get a Pareto result on average, but cannot guarantee ex-post efficiency. The easiest way I would imagine the social planner would deal with this is creating an insurance market or by guaranteeing some set of balanced-budget wealth taxes to end up at the average result regardless of what state the economy is in.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose that there are transaction costs to the tax/insurance though. Then a consumer might prefer to have (costless) liquidity and clear the market themselves, and iy may be optimal to have a currency in that situation.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2015-12-12T06:49:09.887" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9753" PostTypeId="2" ParentId="9699" CreationDate="2015-12-12T07:28:48.413" Score="0" Body="&lt;p&gt;This reminds me of a debate about economic calculation: &lt;a href=&quot;https://en.wikipedia.org/wiki/Socialist_calculation_debate&quot; rel=&quot;nofollow&quot;&gt;the Socialist calculation debate&lt;/a&gt; on how a socialist economy would perform economic calculation given the &lt;strong&gt;absence of the law of value, money, prices&lt;/strong&gt;, and private ownership of the means of production.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It was essentially a debate in the 1920-30s between Ludwig von Mises and Oskar Lange:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;Lange took up the challenge of Mises' claim of the impossibility of&#xA;  constructing a socialist economy. He readily acceded to the need for&#xA;  efficiency calculations to be made in value terms rather than using&#xA;  purely natural or engineering criteria, but claimed that these values&#xA;  could emerge along lines consistent with neoclassical value theory,&#xA;  without the need for a market in capital goods and without private&#xA;  ownership over the means of production. Lange drew heavily upon the&#xA;  dominant neoclassical tradition to defend socialism&quot; (Auerbach and Sotiropoulos, 2012, pp. 1-2)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Auerbach, Paul and Sotiropoulos, Dimitris (2012). Revisiting the Socialist Calculation Debate: The role of markets and finance in Hayek's response to Lange's challenge, Kingston University London, Economics Discussion Paper 2012-6.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Socialist_calculation_debate#Lange_model&quot; rel=&quot;nofollow&quot;&gt;Lange model&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Oskar Lange responded to Mises' assertion that socialism and social&#xA;  ownership of the means of production implied that rational calculation&#xA;  was impossible by outlining a model of socialism based on neoclassical&#xA;  economics. Lange conceded that calculations would have to be done in&#xA;  value terms rather than using purely natural or engineering criteria,&#xA;  but asserted that these values could be attained without capital&#xA;  markets and private ownership of the means of production. In Lange's&#xA;  view, this model qualified as socialist because the means of&#xA;  production would be publicly owned with returns to the public&#xA;  enterprises accruing to society as a whole in a social dividend, while&#xA;  worker's self-management could be introduced in the public&#xA;  enterprises.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The &lt;a href=&quot;https://en.wikipedia.org/wiki/Lange_model&quot; rel=&quot;nofollow&quot;&gt;Lange economic model&lt;/a&gt; assumes a &lt;strong&gt;Trial-and-error price adjustments&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Because prices are set by the central planning board &quot;artificially&quot;&#xA;  aiming to achieve planned growth objectives, it is unlikely that&#xA;  supply and demand will be in equilibrium at first. To produce the&#xA;  correct amount of goods and services, the Lange model suggests a&#xA;  trial-and-error method. If there is a surplus of a particular good,&#xA;  the central planning board lowers the price of that good. Conversely,&#xA;  if there is a shortage of a good, the board raises the price. This&#xA;  process of price adjustments takes place until equilibrium between&#xA;  supply and demand is achieved.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="6168" LastActivityDate="2015-12-12T07:28:48.413" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9754" PostTypeId="1" AcceptedAnswerId="9757" CreationDate="2015-12-12T11:28:14.093" Score="1" ViewCount="121" Body="&lt;p&gt;I want to write a term paper on institutional quality and economic development. What will be its possible theoretical framework?&lt;/p&gt;&#xA;" OwnerUserId="6607" LastEditorUserId="4816" LastEditDate="2019-06-24T13:30:36.047" LastActivityDate="2019-06-24T13:30:40.763" Title="Theories relevant to institutional quality and economic development" Tags="&lt;reference-request&gt;&lt;theory&gt;&lt;development&gt;&lt;development-economics&gt;" AnswerCount="1" CommentCount="1" ClosedDate="2015-12-13T22:43:16.737" ContentLicense="CC BY-SA 4.0" />
  <row Id="9755" PostTypeId="1" CreationDate="2015-12-12T13:06:37.047" Score="2" ViewCount="370" Body="&lt;p&gt;Quantity bought is given by&#xA;$$&#xA;q(m,p) = 0.02 m - 2 p&#xA;$$&#xA;where $q$ is number of bottles bought, $m$ is income and $p$ is price per bottle.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If income is $m = 7500$ and price is $p = 30$, the number of bottles is&#xA;$$&#xA;q(7500,30) = 0.02 \cdot 7500 - 2 \cdot 30 = 75 \cdot 2 - 60 = 90&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now if price rose to $p = 40$, how much income would I need in order to buy the same amount as before the price change?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would just solve $q(m,40) = 90$ with respect to $m$, i.e.&#xA;$$&#xA;q(m,40) = 0.02 \cdot m - 2 \cdot 40 = 90 \Leftrightarrow m = \frac{90 + 2 \cdot 40}{0.02} = 8500&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But apparently, I should have used the Slutsky equation, so the answer is something like&#xA;$$&#xA;\Delta m = q \Delta p = 90 \cdot (40-30) = 900&#xA;$$&#xA;so the new income is $7500 + 900 = 8400$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But with an income of $m = 8400$ and price $p = 40$, I cannot afford 90 bottles since $q(8400,40) = 0.02 \times 8400 - 2 \times 40 = 88$, So why is this solution correct?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why is my solution incorrect and how is $\Delta m = q \Delta p$ related to the Slutsky equation?&lt;/p&gt;&#xA;" OwnerUserId="4110" LastEditorUserId="4110" LastEditDate="2015-12-12T13:33:48.933" LastActivityDate="2016-04-12T20:49:25.703" Title="Change in price and income using the Slutsky equation" Tags="&lt;elasticity&gt;&lt;price-level&gt;&lt;price-theory&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="9756" PostTypeId="1" AcceptedAnswerId="9758" CreationDate="2015-12-12T15:01:25.043" Score="3" ViewCount="334" Body="&lt;h1&gt;Background&lt;/h1&gt;&#xA;&lt;p&gt;I've done some research to get an understanding into the issue I want to ask about. Regrettably, I found out general descriptions of the mechanism and/or evidently biased explanations, which I've got no means to question. Please excuse me if I refer to a concept in a less than optimal terminology. I'm a bright guy but definitely not a scholar of economics.&lt;/p&gt;&#xA;&lt;p&gt;Please note that I'm not asking for how fractional banking works in mathematical terms. I'm questioning the sanity of it. Well, not questioning - rather not grasping how it differs from hiding the lack of funds.&lt;/p&gt;&#xA;&lt;h1&gt;The traditional approach&lt;/h1&gt;&#xA;&lt;p&gt;Alice owns X units of currency but doesn't use them. Bob comes by and asks to borrow it for a period of one unit of time. As a reward, he promises to return 5% higher amount. Carol comes by and makes the same request with the difference that he promises 10% return on the investment.&lt;/p&gt;&#xA;&lt;p&gt;Alice considers the chances of the money being paid back in full including the interest as corresponding to the pay-off (e.g. Bob pays up 1.05 X with the probability of 95% and in any other case he's good for nada, zero, ziltch). Alice regards the offers and realizes that there are three options (partial investment of X units isn't of interests).&lt;/p&gt;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Keep the money in the mattress (0 risk, 0% gain).&lt;/li&gt;&#xA;&lt;li&gt;Present the money to Bob (5% risk, 5% gain).&lt;/li&gt;&#xA;&lt;li&gt;Present the money to Carol (10% risk, 10% gain).&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&lt;p&gt;Here, Alice might ask himself if the inflation forces him to invest into anything, if there's any slightest difference in correlation (5% gain but 5.01% risk) etc. But that's not the aim of the question.&lt;/p&gt;&#xA;&lt;p&gt;The mechanics of the above is obvious to me. The bigger the risk (time the money invested), the bigger the gain. If at loss, only the amount being risked is lost. I.e. &lt;strong&gt;only the money risked to get the gain is being risked to getting lost&lt;/strong&gt;. This part I view as sane and self-controlled.&lt;/p&gt;&#xA;&lt;h1&gt;The banking approach&lt;/h1&gt;&#xA;&lt;p&gt;Suppose there's this typical bank, Bank of Scandinavia. As far I've understood the regulations, it's allowed to lend &lt;strong&gt;more&lt;/strong&gt; money than it actually possesses, as long as it doesn't go bananas. The government of Scandinavia decided that the bananas level starts at 50%, meaning that if BS owns 10 X units, they can lend out 20 X without being considered unstable.&lt;/p&gt;&#xA;&lt;p&gt;This part puzzles me, because the gain of the bank is being generated based on equal parts of &lt;strong&gt;the money risked to getting lost&lt;/strong&gt; and &lt;strong&gt;some money that doesn't even exists&lt;/strong&gt;.&lt;/p&gt;&#xA;&lt;p&gt;It's my understanding that the stimulation of the economy is far greater using this approach. I also hear that the wealth created this way is sustainable, at least if we keep the bananas level fairly modest.&lt;/p&gt;&#xA;&lt;p&gt;As far my research went to its conclusion (and by that I mean that I got tired of googling and watching suspected cartoons on YouTube claiming to reveal the ugly truth), I've learned that some governments set the bananas level to 10% (meaning that BS could lend out 100 X). In fact, during a period, there was the level of 3% in US and it was frown upon as &lt;strong&gt;too restrictive&lt;/strong&gt;.&lt;/p&gt;&#xA;&lt;h1&gt;Main question&lt;/h1&gt;&#xA;&lt;p&gt;Is it correct to regard the lending set-up as &lt;em&gt;unhealthy&lt;/em&gt;, bound to implode and cause mayhem (at an &lt;strong&gt;extremely low&lt;/strong&gt; risk, which in practice guarantees that such won't take place)?&lt;/p&gt;&#xA;&lt;p&gt;Or is there a regulatory system covering either the tiny-whiney risky part or, alternatively, a means to recreate and pay back the part of the lost money that wasn't really there? Are there other gains to this set-up except boosting the economy (at incrementally larger risk)?&lt;/p&gt;&#xA;" OwnerUserId="6688" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2020-04-01T07:08:15.323" Title="Sanity of lending out made-up money" Tags="&lt;macroeconomics&gt;&lt;interest-rate&gt;&lt;banking&gt;&lt;risk&gt;" AnswerCount="3" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9757" PostTypeId="2" ParentId="9754" CreationDate="2015-12-12T16:27:11.607" Score="1" Body="&lt;p&gt;The following researchers have written a number of papers and books on this topic:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://economics.mit.edu/faculty/acemoglu/publication&quot; rel=&quot;nofollow noreferrer&quot;&gt;Doran Acemoglu&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://scholar.harvard.edu/jrobinson/category/categories/published-paper&quot; rel=&quot;nofollow noreferrer&quot;&gt;James Robinson&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;You may want to read their papers for a good start.&lt;/p&gt;&#xA;" OwnerUserId="6009" LastEditorUserId="4816" LastEditDate="2019-06-24T13:30:40.763" LastActivityDate="2019-06-24T13:30:40.763" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="9758" PostTypeId="2" ParentId="9756" CreationDate="2015-12-12T17:11:11.103" Score="4" Body="&lt;p&gt;There are two ways I can think of interpreting this question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My first thought is that a single bank doesn't lend out more money than it has, but the &lt;strong&gt;banking system&lt;/strong&gt; does. So let's say someone deposits 100 dollars in Bank A and the reserve requirement is 10%. Then Bank A can lend out 90 dollars. Let's say that money is deposited in Bank B eventually. That bank can then lend out 81 dollars. This money then gets deposited in Bank C eventually, and it can lend out 72.9 dollars. This process continues, and if you take the sum of all this lending, you get that the money supply is now:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\sum_{n=0}^\infty 0.9^n(100) = \frac{100}{0.1} = 1000$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the banking system can lend out 1000 dollars without being considered unstable under this 10% reserve requirement. Notice how it kind of looks like we are double counting the money that is in the economy, and that's the point of fractional reserve banking. There isn't actually 1000 dollars, but there is credit worth that much floating around in the system.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;The second way you could argue though is that &lt;strong&gt;individual banks&lt;/strong&gt; in fact can lend more money than they have in their account. It creates an electronic record crediting the borrower's deposit with the sum of credit. So here, the limitation is still the reserve requirement. Say Bank A gets a deposit of 100 dollars. It can then lend out 1000 dollars at a 10% reserve requirement. Since it doesn't have 1000 in cash, it gives out credit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think that the real economy will use a combination of these two methods to get its lending out, but regardless, the result is the same. A simple money multiplier.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Edit:&lt;/strong&gt; To reiterate (read: copy-pasted) from the comments below, how can a bank lend out credit that isn't backed up by paper/physical money?&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;FDIC insurance from the central bank, but more to the point,&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The bank isn't going to back up all the credit at the same time. Say in our above scenario (100 dollars, 10% req.) the bank lends out &quot;air money&quot; of 5 dollars to someone, who then spends the credit purchasing from a business. The business then claims on that credit, and the bank still had some reserve (10 dollars in cash) to pay the business. Meanwhile, the bank, because it lent out so much credit, is also collecting a lotttt of interest, and borrowers pay back that interest...in cash. That replenishes the reserve. So in an equilibrium money market, hopefully the rate at which the bank gets cash in interest is the same as the rate which they pay back the &quot;air money&quot; with that actual cash.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Take the car example from in the comments. That is, say you &quot;promise both your friends a car, but you only have one car and both friends know this&quot;. Well, the analogy is a little stilted, not quite parallel to what a bank is like. If you were a bank, you would only &lt;em&gt;lend&lt;/em&gt; (not give away forever) out the car if you were promised to get it back with some interest, (maybe more gas or something). Problems only happen if both friends want the car the same time. &lt;/p&gt;&#xA;" OwnerUserId="4251" LastEditorUserId="4251" LastEditDate="2017-08-10T15:45:41.903" LastActivityDate="2017-08-10T15:45:41.903" CommentCount="21" ContentLicense="CC BY-SA 3.0" />
  <row Id="9759" PostTypeId="2" ParentId="9744" CreationDate="2015-12-12T17:53:55.860" Score="1" Body="&lt;p&gt;Take an individual's maximization problem:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\max_{x_i} = U(x_1,...,x_n) \quad \text{s.t.} \ \vec{p} \cdot \vec{x} = w$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where one of the goods $j$ is a riskless savings good (savings account, government bond, mattress, whatever).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can then use the Slutsky decomposition to measure how a change in income will change the consumption of good $j$, which you can then adjust to be relative to income, $w$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;More relevant (though harder) would to set up the problem as a dynamic programming problem, where the consumer wishes to consumption smooth over their lifetime.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2015-12-12T17:53:55.860" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9760" PostTypeId="1" CreationDate="2015-12-12T18:28:55.627" Score="4" ViewCount="383" Body="&lt;p&gt;I'm doing economic modelling where $x_t$ is the intertemporal cash-flow variable. I need to solve the following recurrence relation&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$x_{t+1}=\frac{x_{t+8}}{x_{t+1}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My problem is that I don't exactly know how to linearize this function. Maybe I should introduce a new variable $y_{t} = x_{t+1}$ and get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$y_{t}^2={x_{t+8}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Could you help me out with the correct linearization technique, please? I'm looking forward to your answer.&lt;/p&gt;&#xA;" OwnerUserId="5017" LastEditorUserId="8481" LastEditDate="2017-03-25T14:43:10.700" LastActivityDate="2017-03-25T14:43:10.700" Title="How to linearize the following difference equation?" Tags="&lt;time-series&gt;&lt;difference-equations&gt;" AnswerCount="1" CommentCount="8" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9761" PostTypeId="1" CreationDate="2015-12-12T19:28:24.800" Score="4" ViewCount="147" Body="&lt;p&gt;I am extremely stuck on trying to think of an instrument for the location of FDI within a country. The instrument must be correlated with foreign firms, but not correlated with domestically-owned firms.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note: there is no Government policy I can exploit. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any suggestions, papers, anything at all would be greatly appreciated. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My dependent variable is the log of house price, and my regressors of interest are &#xA;1) the log of distance to FDI 2) the log of job creation at the particular firm.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Isolating the impact of FDI on house prices will be difficult, given the presence of domestically-owned investments in close proximity. &lt;/p&gt;&#xA;" OwnerUserId="5367" LastEditorUserId="5367" LastEditDate="2015-12-19T21:02:04.653" LastActivityDate="2015-12-19T21:02:04.653" Title="Instrument suggestions for FDI" Tags="&lt;investment&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9762" PostTypeId="1" AcceptedAnswerId="9771" CreationDate="2015-12-12T20:20:41.760" Score="0" ViewCount="61" Body="&lt;p&gt;Have a question:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the town of Johnson, there are 100 identical citizens and one bus company. The bus company is owned by the citizens, each of whom receives 1% of the bus company’s profits. Nobody from outside of Johnson ever uses these buses. True or False: The citizens of Johnson won’t mind if the bus company charges monopoly prices, because the profits all come right back to them anyway.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;No clue where to start. Anyone can tell me the answer?&lt;/p&gt;&#xA;" OwnerUserId="6692" LastActivityDate="2015-12-13T06:32:13.757" Title="Monopoly Profits" Tags="&lt;microeconomics&gt;&lt;monopoly&gt;&lt;profits&gt;" AnswerCount="1" CommentCount="2" ClosedDate="2015-12-14T00:36:54.960" ContentLicense="CC BY-SA 3.0" />
  <row Id="9764" PostTypeId="1" AcceptedAnswerId="9779" CreationDate="2015-12-12T21:53:46.643" Score="2" ViewCount="406" Body="&lt;p&gt;In this &lt;a href=&quot;http://www.amazon.co.uk/Macroeconomics-Institutions-Instability-Financial-System/dp/0199655790/ref=sr_1_1?ie=UTF8&amp;amp;qid=1449954726&amp;amp;sr=8-1&amp;amp;keywords=soskice%20carlin&quot; rel=&quot;nofollow noreferrer&quot;&gt;book&lt;/a&gt;, page 202, the authors develop the idea that when the central bank increases the interest rates to get the CPI inflation back to target inflation, it will not necessarily cut off an eventual house price bubble, or the financial accelerator. And to justify this assertion, in a footnote they state: «The elements of housing costs included do not influence the overall price indices that enter the inflation target to a high degree. To see this plot the US Consumer Price Index against the US Consumer Price Index less Shelter(Data available from US Bureau of Labor Statistics)». (What I understand from this is that since the housing related costs that enter into CPI computation are negligible, the central banker will perceive an inflation different from what if it included housing prices directly. Did I understand correctly?)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, I plotted the graph.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/UlkH9.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/UlkH9.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I included an extra series, &quot;All items less Food&quot;. It behaves exactly like the CPI.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How can I deduce from the graph what the authors of the book are saying?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="118" LastEditDate="2015-12-12T22:12:17.913" LastActivityDate="2015-12-14T08:09:18.490" Title="Do house prices increases affect inflation?" Tags="&lt;macroeconomics&gt;&lt;inflation&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9766" PostTypeId="1" CreationDate="2015-12-13T02:10:41.927" Score="2" ViewCount="51" Body="&lt;p&gt;For example since the August job report came out, which showed hundreds of thousands ob jobs created. This will inevitable lead to the Fed to increase interest rates, but what is the motive behind doing this? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Would this not simply lead to a decreased shift in consumption and be an attempt at stagnating the economy?&lt;/p&gt;&#xA;" OwnerUserId="6696" LastEditorUserId="43" LastEditDate="2015-12-13T15:27:54.730" LastActivityDate="2015-12-13T15:27:54.730" Title="Increase in the number of jobs in an economy: Central Bank raises interest rates?" Tags="&lt;macroeconomics&gt;&lt;monetary-policy&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9767" PostTypeId="1" AcceptedAnswerId="9768" CreationDate="2015-12-13T02:39:36.900" Score="7" ViewCount="4216" Body="&lt;p&gt;Is it possible to have inflation without increase in the supply of money? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, if workers demanded higher wages, and goods went up in price, but the money supply in circulation did not increase. Or is this an impossible paradox?&lt;/p&gt;&#xA;" OwnerUserId="6697" LastEditorUserId="43" LastEditDate="2015-12-13T15:26:45.070" LastActivityDate="2017-03-08T15:23:38.793" Title="Inflation without Increase in Money Supply?" Tags="&lt;inflation&gt;" AnswerCount="3" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9768" PostTypeId="2" ParentId="9767" CreationDate="2015-12-13T06:08:01.723" Score="10" Body="&lt;p&gt;It all depends on what you mean by inflation and by money supply. Technical questions and answers need specific definitions, otherwise everyone ends up talking at cross-purposes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is it possible to have an increase in general price levels without any changes to the amount of money in circulation? &lt;strong&gt;Yes&lt;/strong&gt;: if the velocity of circulation of money increases, and the amount of goods and services available to buy does not increase by as much.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is it possible to have an increase in general price levels without any changes to the amount of money in circulation or the velocity of circulation? &lt;strong&gt;Yes&lt;/strong&gt;: if the amount of goods and services available to buy, decreases, so that there's more money chasing fewer goods.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is it possible to have an increase in general price levels without any changes to the amount of money in circulation or the velocity of circulation, and with no decrease in the amount of goods and services available to buy? &lt;strong&gt;Yes&lt;/strong&gt;, if the demand curve changes so that the same amount of money is now used to buy a smaller quantity of stuff at higher prices.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is it possible to have an increase in general price levels without any changes to the amount of money in circulation or the velocity of circulation, and with no change in the amount of goods and services bought? &lt;strong&gt;No&lt;/strong&gt;, because the velocity of circulation is by definition total transaction value divided by the amount of money in circulation, so if velocity, quantity and money supply are constant, then prices must be too, because total transaction value equals prices times quantity.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2015-12-13T06:08:01.723" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9769" PostTypeId="1" CreationDate="2015-12-13T06:16:43.077" Score="3" ViewCount="45" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;If the Fed follows through on its forecasts, though, and raises rates faster than markets expect in 2016, the dollar may well rise further, dampening inflation quickly&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;From : &lt;a href=&quot;http://www.economist.com/news/finance-and-economics/21679806-first-three-pieces-federal-reserves-imminent-interest-rate-decision&quot; rel=&quot;nofollow&quot;&gt;http://www.economist.com/news/finance-and-economics/21679806-first-three-pieces-federal-reserves-imminent-interest-rate-decision&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is the logic behind this? Thanks :)&lt;/p&gt;&#xA;" OwnerUserId="6699" LastActivityDate="2015-12-13T06:54:23.637" Title="How rate rise by the Fed, higher than market expectation will lead to strengthening of Dollar?" Tags="&lt;macroeconomics&gt;&lt;inflation&gt;&lt;interest-rate&gt;&lt;exchange-rates&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9770" PostTypeId="2" ParentId="9764" CreationDate="2015-12-13T06:20:25.147" Score="0" Body="&lt;p&gt;To me, it sounds like the book is making a it known that home prices can affect the way CPI is calculated in a way that it does not accurately represent what the CPI is out to track and show. For example, the cost of tooth paste is pretty much the same from Maine to Las Vegas. But home prices vary from region to region and depending on the time of year and tons of other factors. Because of that, home prices behave in a way that they cannot be trusted when calculating CPI.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.investopedia.com/terms/c/consumerpriceindex.asp?header_alt=a&quot; rel=&quot;nofollow&quot;&gt;http://www.investopedia.com/terms/c/consumerpriceindex.asp?header_alt=a&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="6698" LastActivityDate="2015-12-13T06:20:25.147" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9771" PostTypeId="2" ParentId="9762" CreationDate="2015-12-13T06:32:13.757" Score="0" Body="&lt;p&gt;One key factor that the question doesn't acknowledge is whether or not all of the 100 citizens of Johnson ride the bus. If the bus fair goes from $1 to $1.50 per ride, then those Johnsonites who drive their own car will be happy to see the price increase since they don't have to pay that extra money all while still sharing in the company's profits. We also don't know how the profits are distributed. All of these questions tend to make me think that the answer is FALSE.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The good news for the people of Johnson is that having a competing bus service come in is far more likely than having a competitor for their energy company given the low barriers of entry.&lt;/p&gt;&#xA;" OwnerUserId="6698" LastActivityDate="2015-12-13T06:32:13.757" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9772" PostTypeId="2" ParentId="9769" CreationDate="2015-12-13T06:54:23.637" Score="3" Body="&lt;p&gt;A higher than expected interest rate in the US would result in a higher than expected interest rate differential with other currencies. This will drag more money to the US as investors will try to benefit from this higher interest rate. Moreover, a faster tightening may create the perception that the Fed is more confident about the economic environment. This good news for the US can translate in dollar appreciation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An appreciated currency makes imports cheaper, which negatively affects inflation.&lt;/p&gt;&#xA;" OwnerUserId="6566" LastActivityDate="2015-12-13T06:54:23.637" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9773" PostTypeId="2" ParentId="9766" CreationDate="2015-12-13T11:51:24.060" Score="1" Body="&lt;p&gt;When people find jobs, they start receiving salaries and their consumption increases. Increased demand for goods and services leads to increase in prices, or inflation. Fed is expected to respond with a rate hike to keep inflation in check. &lt;/p&gt;&#xA;" OwnerUserId="6231" LastActivityDate="2015-12-13T11:51:24.060" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="9774" PostTypeId="1" AcceptedAnswerId="9828" CreationDate="2015-12-13T12:45:11.290" Score="8" ViewCount="201" Body="&lt;p&gt;Assume that we have a general one-period market model consisting of d+1 assets and N states.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Using a replicating portfolio $\phi$, determine $\Pi(0;X)$, the price of a European call option, with payoff $X$,  on the asset $S_1^2$ with strike price $K = 1$ given that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$S_0 =\begin{bmatrix}&#xA;2 \\ &#xA;3\\ &#xA;1&#xA;\end{bmatrix}, S_1 = \begin{bmatrix}&#xA;S_1^0\\ &#xA;S_1^1\\ &#xA;S_1^2&#xA;\end{bmatrix}, D = \begin{bmatrix}&#xA;1 &amp;amp; 2 &amp;amp; 3\\ &#xA;2 &amp;amp; 2 &amp;amp; 4\\ &#xA;0.8 &amp;amp; 1.2 &amp;amp; 1.6&#xA;\end{bmatrix}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where the columns of D represent the states for each asset and the rows of D represent the assets for each state&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;What I tried:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We compute that:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$X = \begin{bmatrix}&#xA;0\\ &#xA;0.2\\ &#xA;0.6&#xA;\end{bmatrix}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we solve $D'\phi = X$, we get:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\phi = \begin{bmatrix}&#xA;0.6\\ &#xA;0.1\\ &#xA;-1&#xA;\end{bmatrix}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It would seem that the price of the European call option $\Pi(0;X)$ is given by the value of the replicating portfolio&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$S_0'\phi = 0.5$$&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;On one hand, if we were to try to see if there is arbitrage in this market by seeing if a state price vector $\psi$ exists by solving $S_0 = D \psi$, we get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\psi = \begin{bmatrix}&#xA;0\\ &#xA;-0.5\\ &#xA;1&#xA;\end{bmatrix}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence there is no strictly positive state price vector $\psi$ s.t. $S_0 = D \psi$. By &lt;a href=&quot;http://dybfin.wustl.edu/research/papers/arbetc7.pdf&quot; rel=&quot;nofollow&quot;&gt;'the fundamental theorem of asset pricing'&lt;/a&gt; (or &lt;a href=&quot;http://www.nuff.ox.ac.uk/users/murphya/Teaching/Arbitrage.pdf&quot; rel=&quot;nofollow&quot;&gt;'the fundamental theorem of finance'&lt;/a&gt; or &lt;a href=&quot;http://www.jhqian.org/apt/apbook.pdf&quot; rel=&quot;nofollow&quot;&gt;'1.3.1' here&lt;/a&gt;), there exists arbitrage in this market.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;On the other hand the price of 0.5 seems to be confirmed by:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Pi(0;X) = \beta E^{\mathbb Q}[X]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $\beta = \sum_{i=1}^{3} \psi_i = 0.5$ (sum of elements of $\psi$) and $\mathbb Q$ is supposed to be the equivalent martingale measure given by $q_i = \frac{\psi_i}{\beta}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$E^{\mathbb Q}[X] = q_1X(\omega_1) + q_2X(\omega_2) + q_3X(\omega_3)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ = 0 + \color{red}{-1} \times 0.2 + 2 \times 0.6 = 1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\to \Pi(0;X) = 0.5$$&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;I guess $\therefore$ that we cannot determine the price of the European call using $\Pi(0;X) = \beta E^{Q}[X]$ because there is no equivalent martingale measure $\mathbb Q$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So what's the verdict? Can we say the price is 0.5? How can we price even if there is arbitrage?&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Edit: I noticed that one of the probabilities, in what was attempted to be the equivalent martingale measure, is negative. I remember reading about &lt;a href=&quot;https://en.wikipedia.org/wiki/Negative_probability#Finance&quot; rel=&quot;nofollow&quot;&gt;&lt;strong&gt;negative probabilities&lt;/strong&gt;&lt;/a&gt;, but these links &lt;a href=&quot;http://poseidon01.ssrn.com/delivery.php?ID=649017121009107028094121105090018069032034022058026059113005070074031084099122001112103042027101022023115111118120122066015017046051062093060076111091084020114102061047044088127066112028029002069089095091082087104064117087123080025112103020025082122&amp;amp;EXT=pdf&quot; rel=&quot;nofollow&quot;&gt;1&lt;/a&gt; &lt;a href=&quot;http://www.espenhaug.com/NegativeProbabilitiesHaug.pdf&quot; rel=&quot;nofollow&quot;&gt;2&lt;/a&gt; mentioned by Wiki seem to assume absence of arbitrage so I think they are not applicable. Or are they?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is it perhaps that this market can be considered to be arbitrage-free under some &lt;a href=&quot;https://en.wikipedia.org/wiki/Quasiprobability_distribution&quot; rel=&quot;nofollow&quot;&gt;quasiprobability measure&lt;/a&gt; that allows negative probabilities?&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Edit (to address a deleted answer):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks BKay.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1 So you mean there is no unique price for $X$ but we can find upper bounds? Like in your example the least upper bound so far is 0.3 then we can continue to find lower upper bounds $u_1, u_2, ...$ (or even higher lower bounds $l_1, l_2, ...$) to say the price of $X$ is in $[0,\inf_n u_n]$ (or $[\sup_n l_n,\inf_n u_n]$)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2 Re stochastic domination, I haven't heard that term in classes, but I think I read about that before. Might that depend on the (quasi)probability measure? Under this probability measure $0.5 S_1^2$ dominates $X$ but what about under some quasiprobability measure?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;3 the $q_i$'s, not the $\psi_i$'s are the probabilities&lt;/p&gt;&#xA;" OwnerUserId="4483" LastEditorUserId="4483" LastEditDate="2015-12-17T03:06:00.700" LastActivityDate="2015-12-18T13:20:52.320" Title="Pricing a European call option while absence of arbitrage is violated" Tags="&lt;finance&gt;&lt;probability&gt;&lt;asset-pricing&gt;&lt;arbitrage&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9775" PostTypeId="1" CreationDate="2015-12-13T13:22:36.877" Score="4" ViewCount="2120" Body="&lt;p&gt;I know that I should optimize production by solving $MR = MC$ with respect to $Q$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But if $TR &amp;gt; TC$, I am making a profit. Why is not enough to just solve $TR = TC$ with respect to $Q$?&lt;/p&gt;&#xA;" OwnerUserId="4110" LastActivityDate="2015-12-13T22:08:13.040" Title="Optimize by MR = MC vs TR = TC" Tags="&lt;optimization&gt;&lt;cost&gt;&lt;profit-maximization&gt;&lt;profits&gt;" AnswerCount="2" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="9776" PostTypeId="2" ParentId="9756" CreationDate="2015-12-13T16:30:18.817" Score="-1" Body="&lt;p&gt;Yesterday I promised my wife that if she would do the dishes, I would sweep the floor.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Five minutes earlier, my promise didn't exist.  I created it myself.  Does that strike you as unhealthy or bound to implode and cause mayhem?&lt;/p&gt;&#xA;" OwnerUserId="250" LastActivityDate="2015-12-13T16:30:18.817" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="9777" PostTypeId="2" ParentId="9775" CreationDate="2015-12-13T17:25:21.113" Score="0" Body="&lt;p&gt;MR and MC are first derivatives of the Revenue and Cost functions respectively. If for every point greater than 0, we have Revenue greater than Cost, then no global maximum exists. This usually isn't the case though. And if we have multiple points where the tangency condition holds, we have to check each one to find the best. &lt;/p&gt;&#xA;" OwnerUserId="5368" LastActivityDate="2015-12-13T17:25:21.113" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9778" PostTypeId="2" ParentId="9775" CreationDate="2015-12-13T22:08:13.040" Score="1" Body="&lt;p&gt;Let $TR(Q), TC(Q): [0, \infty) \to [0, \infty)$ be continuous and twice differentiable functions w/ resp derivatives $MR(Q), MC(Q)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is not always the case that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$TR(Q) &amp;gt; TC(Q) \ \forall Q$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If it were, we would have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\{Q | TR(Q) = TC(Q)\} = \emptyset$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Even if we had&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$TR(Q) &amp;gt; (or \ge) \ TC(Q) \ \forall Q$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;meaning our profit is positive for any quantity Q:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\pi(Q) := TR(Q) - TC(Q) &amp;gt; 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;we still want to find $Q^{*}$ s.t. $\pi(Q^{*}) = TR(Q^{*}) - TC(Q^{*})$ is maximised.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Analogy: $e^x &amp;gt; x \ \forall x \in \mathbb R$, but $f(x) := |e^x - x|$ is not constant. Some values of $x$ give greater distances between $e^x$ and $x$ than others&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;This is not done by solving&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$TR(Q) = TC(Q)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which merely gives the quantities that give us zero profit ie&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\pi(Q) := TR(Q) - TC(Q) = 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We want to maximise $\pi(Q)$ so we get the first derivative and set it to zero:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$0 = \frac{d}{dQ} \pi(Q) = MR(Q) - MC(Q)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Btw, solving&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$0 = MR(Q) - MC(Q)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;gives us some value $Q_0$, but this is not necessarily give $Q^{*}$. We must check the value of $\pi''(Q_0)$&lt;/p&gt;&#xA;" OwnerUserId="4483" LastActivityDate="2015-12-13T22:08:13.040" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9779" PostTypeId="2" ParentId="9764" CreationDate="2015-12-14T07:58:12.943" Score="6" Body="&lt;p&gt;Here's what the &lt;a href=&quot;http://www.bls.gov/cpi/cpiqa.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;Bureau of Labor Statistics' FAQ&lt;/a&gt; has to say on CPI and housing costs:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;&lt;strong&gt;Q: The CPI used to include the value of a house in calculating inflation and now they use an estimate of what each house would rent for -- doesn't this switch simply lower the official inflation rate?&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;p&gt;A: No. Until 1983, the CPI measure of homeowner cost was based largely on house prices. The long-recognized flaw of that approach was that owner-occupied housing combines both consumption and investment elements, and the CPI is designed to exclude investment items. The approach now used in the CPI, called rental equivalence, measures the value of shelter to owner-occupants as the amount they forgo by not renting out their homes.&lt;/p&gt;&#xA;&lt;p&gt;The rental equivalence approach is grounded in economic theory, receives broad support from academic economists and each of the prominent panels, and agencies that have reviewed the CPI, and is the most commonly used method by countries in the Organization for Economic Cooperation and Development (OECD). Critics often assume that the BLS adopted rental equivalence in order to lower the measured rate of inflation. It is certainly true that an index based on home prices would be more volatile, and might move differently from other CPI indexes over any given time period. However, when it was first introduced, rental equivalence actually increased the rate of change of the CPI shelter index, and in the long run there is no evidence that the CPI method yields lower inflation rates than some other alternatives. For example, according to the National Association of Realtors, between 1983 and 2007 the monthly principal and interest payment required to purchase a median-priced existing home in the United States rose by 79 percent, much less than the rental equivalence increase of 140 percent over that same period.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Ordinarily, because people can substitute between renting or owning a house, the price of a house should broadly reflect its rental value (e.g. if it were much cheaper to rent than to buy then people would stop buying and start renting until prices 'equalised'). However, if a bubble is being driven by speculation on future house price increases then it is likely that house prices will become decoupled from the long-run rental value of a house. You can see what this looked like during the last housing bubble in the below figure. It can clearly be seen that house prices (the blue line) were not well-reflected by the owner-equivalent rent included in CPI.&lt;/p&gt;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/MVRJc.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/MVRJc.png&quot; alt=&quot;House prices versus owner-equivalent rents.&quot; /&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2015-12-14T08:09:18.490" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9781" PostTypeId="1" CreationDate="2015-12-14T10:07:09.703" Score="2" ViewCount="674" Body="&lt;p&gt;I would like to know a few movies / documentaries that are based on macroeconomics&lt;/p&gt;&#xA;" OwnerUserId="6486" LastActivityDate="2015-12-15T03:17:54.327" Title="What are some exceptional movies / documentaries on macroeconomics?" Tags="&lt;macroeconomics&gt;" AnswerCount="3" CommentCount="5" ClosedDate="2015-12-15T05:05:45.887" ContentLicense="CC BY-SA 3.0" />
  <row Id="9782" PostTypeId="2" ParentId="9781" CreationDate="2015-12-14T12:14:24.530" Score="2" Body="&lt;p&gt;Princes of the Yen is a documentary that springs to mind.&lt;/p&gt;&#xA;" OwnerUserId="6227" LastActivityDate="2015-12-14T12:14:24.530" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9783" PostTypeId="2" ParentId="9781" CreationDate="2015-12-14T12:40:52.193" Score="1" Body="&lt;p&gt;&lt;a href=&quot;http://www.pbs.org/wgbh/nova/stockmarket/&quot; rel=&quot;nofollow&quot;&gt;Nova's Trillion Dollar Bet&lt;/a&gt; episode (documentary) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.imdb.com/title/tt1596363/&quot; rel=&quot;nofollow&quot;&gt;The Big Short&lt;/a&gt; (fictionalized movie about true events)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.imdb.com/title/tt0032551/&quot; rel=&quot;nofollow&quot;&gt;Grapes of Wrath&lt;/a&gt; might be considered a fictional story about the macroeconomics of the great depression. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.imdb.com/title/tt0094291/&quot; rel=&quot;nofollow&quot;&gt;Wall Street&lt;/a&gt; might be considered a fictional story about the economic dislocations of the reforms of the US economy in the 1970s and 1980s and how these reforms raised productivity while increasing inequality and supporting a popular perception of amoral finance. &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2015-12-14T12:40:52.193" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9784" PostTypeId="1" CreationDate="2015-12-14T14:08:21.017" Score="1" ViewCount="80" Body="&lt;p&gt;I have done this very frequently in this year, deflating variables, specially for the purpose of demand estimation. I also asked a relevant question on the subject previously (here: &lt;a href=&quot;https://economics.stackexchange.com/questions/8360/heuristics-with-time-series-measured-in-dollars&quot;&gt;Heuristics with time series measured in dollars&lt;/a&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since by my experience results can often change, depending on the index used, and you might have indexes that invalidate IV estimations (e.g. when in demand estimation one uses a instrument, a sectoral cost index, which might be related to the variable used for deflating the observations [by the way, here it is another question related to this particular subject that I've asked: &lt;a href=&quot;https://economics.stackexchange.com/questions/5619/does-it-make-sense-to-deflate-a-sectoral-price-index-in-a-regression-analysis&quot;&gt;Does it make sense to &amp;#39;deflate&amp;#39; a sectoral price index in a regression analysis?&lt;/a&gt; ]), I was wondering if there is specialized guide to detail the various tips and/or problems you might run into when deflating variables. Does it exist?     &lt;/p&gt;&#xA;" OwnerUserId="4640" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-12-15T11:58:25.263" Title="A Specialized Guide for Deflating Variables: does it exist?" Tags="&lt;econometrics&gt;&lt;statistics&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9785" PostTypeId="1" CreationDate="2015-12-14T14:50:21.460" Score="1" ViewCount="80" Body="&lt;p&gt;To provide some context, this question occurred to me while I was considering the cement retail market. If one considers retailers selling cement of only one brand, then the concept of brand loyalty is useless as there is only one brand. In order to understand the behaviour of consumers, one must consider store-loyalty (An idea first introduced by Ross Cunnigham in 1969). If the retailers are trying their best to maintain store loyalty then what can be said about the kind of competition they are engaging in, given that there is a large number of retailers?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think that the competition should be monopolistic in nature, as retailers, like shopkeepers, are trying their best to attract consumers. But the only difference lies in the fact that consumers make repetitive purchases at shops whereas a majority of the consumers going to a cement retailer make a one-time purchase(Mainly for the construction of houses). Also, the target of the shopkeeper is to not only increase his sales but also to maintain consumer loyalty, whereas the cement retailer cannot aim for the second option due to the aforementioned reason but yes he would too, want to increase his sales by expanding his consumer base.&lt;/p&gt;&#xA;" OwnerUserId="6711" LastActivityDate="2015-12-14T14:50:21.460" Title="A high store loyalty indicates what kind of competition among cement retailers selling products of the same brand?" Tags="&lt;microeconomics&gt;&lt;monopoly&gt;&lt;competition&gt;&lt;monopolistic-competition&gt;" AnswerCount="0" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="9787" PostTypeId="2" ParentId="9767" CreationDate="2015-12-14T17:31:13.730" Score="2" Body="&lt;p&gt;Conceptually it helped me in the past to tackle this Question by a simple classification (I was overly confused by all those inflation related terms that swirl around (galopping-, mild-, stagflation etc.).    &lt;/p&gt;&#xA;&#xA;&lt;p&gt;By now it is almost consensus amongst all economic theories, that in the long-run inflation &lt;strong&gt;always has a monetary cause&lt;/strong&gt; (i.e. through an expansion of the monetary base).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the short run we can disentangle two cases where the CPI rises:    &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Cost-push inflation&lt;/strong&gt;: Through an exogenous increase of an important consumer good (e.g. an oil-price shock that makes driving by car a lot more expensive)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Demand-pull inflation&lt;/strong&gt;: When the demand for a product that is important for the CPI exceeds supply. In the medium-run this will of course smooth out, since new suppliers/producers will pop up because of the potentially high profits. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;From a theoretical point of view, this was basically a combination of keynesian and monetarist insights.&lt;/em&gt;&lt;/p&gt;&#xA;" OwnerUserId="4087" LastEditorUserId="4087" LastEditDate="2015-12-14T19:04:39.860" LastActivityDate="2015-12-14T19:04:39.860" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="9788" PostTypeId="2" ParentId="9755" CreationDate="2015-12-14T18:13:44.437" Score="2" Body="&lt;p&gt;The question is not asking what you solved. You literally gave how much income would be needed by buy $90$ bottles at the new price. What the question is asking is basically &quot;calculate the income effect, and add it to the original income, in order to cancel it out&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That is, you solved for what he would have bought if there was no income &lt;strong&gt;or&lt;/strong&gt; substitution effect, but the answer wants to know what he would have bought if there was no income but still a substitution effect.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How the slutsky equation comes into play? That formula you gave is the income effect. The difference of two bottles is the substitution effect.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From here on is an attempt at providing intuition that may be wrong in some aspect. &lt;strong&gt;I would not read it unless the above paragraphs did not make sense.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At original prices and income you want to buy $90$ bottles. At the new price and income you want to buy &#xA;$$&#xA;.02 \cdot 7500 - 2\cdot 40 = 70\text{ bottles}&#xA;$$&#xA;you the quantity demanded has changed by $20$. That is,&#xA;$$\frac{d x}{dp} = 20&#xA;$$&#xA;(counting a ten dollar price change as small, which is probably not the best assumption).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The slutsky equation says that we can decompose this change in quantity demanded into an income and substitution effect. That is,&#xA;\begin{align}&#xA;\Delta x \text{ price change } = \Delta x \text{ substitution effect} + \Delta x \text{ income effect}&#xA;\end{align}&#xA;Our income has decreased by the number of bottles we were buying times the change in price (&lt;strong&gt;This is important to understand&lt;/strong&gt;, IMO). Think about it, if you were buying $90$ bottles, and the price went up by $\$10$, now you are paying $90\cdot 10 = 900$ dollars more. Therefore, &lt;strong&gt;after the price change it is like we are facing prices of $\$30$ and income of $7500-900=\$6600$&lt;/strong&gt;, if we are discussing the income effect. That is, if we are discussing the idea/thought/alternate reality where, instead of prices changing, we had prices be the same but instead our income decreased by $900$ dollars, we would demand&#xA;$$&#xA;6600\cdot .02 - 2\cdot 30 = 72&#xA;$$&#xA;Which means that we have a substitution effect of $2$ and an income effect of $18$. So to cancel the income effect, we would need enough original income to buy $70 +18$ bottles, which is $8400$ dollars.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now how/why these decompositions work I am still trying to better understand myself, so my reasoning may be off or wrong somewhere. There are also different ways to consider/define the income/substitution effects, which is something to take into consideration. &lt;/p&gt;&#xA;" OwnerUserId="6600" LastActivityDate="2015-12-14T18:13:44.437" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9789" PostTypeId="1" CreationDate="2015-12-14T18:35:20.337" Score="1" ViewCount="135" Body="&lt;p&gt;Consider goods that are almost identical (e.g. cement) and require technical knowledge to understand their merit, which an ordinary consumer might not possess. What then is the feature characteristic of its market structure?&lt;/p&gt;&#xA;" OwnerUserId="6711" LastEditorUserId="4251" LastEditDate="2015-12-14T20:06:39.817" LastActivityDate="2015-12-15T13:53:05.143" Title="In which market structure does the consumer has almost zero knowledge about the good?" Tags="&lt;microeconomics&gt;&lt;monopoly&gt;&lt;oligopoly&gt;&lt;monopolistic-competition&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9790" PostTypeId="2" ParentId="9789" CreationDate="2015-12-14T20:41:05.917" Score="0" Body="&lt;p&gt;For any given quality of cement, you can charge a higher price per unit because of information asymmetry. There will be a deadweight loss because of this social cost. The consumers in the market can either pay a screening cost to determine the quality of the cement they need, or the firms can signal the quality of their cement if giving that information freely makes them more competitive and take a larger share of the market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If capacity and output of cement can be easily changed, we'd probably describe this market with Bertrand competition with differentiation (quality). If every firm prices the same, they split the market, otherwise they can undercut the market and take a large share.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\text{market share} = \frac{1}{n} + \frac{\theta^\alpha (n-1)}{n}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $\theta \in (0,1)$ is the degree of quality differentiation, $0$ being complete homogeneity, $1$ being monopoly competition, and anything in between being some sort of monopolistic competition. $\alpha$ is just a scaling factor greater than 0. (As well, $n$ is the number of firms competing.)&lt;/p&gt;&#xA;" OwnerUserId="4251" LastEditorUserId="4251" LastEditDate="2015-12-14T20:47:32.203" LastActivityDate="2015-12-14T20:47:32.203" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="9791" PostTypeId="1" CreationDate="2015-12-14T21:27:58.227" Score="1" ViewCount="2969" Body="&lt;p&gt;The investments (I) have a negative relationship with interest rate (r)&#xA;$$&#xA;I = e-f \cdot r.&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So $e$ can be interpreted as a minimum level of investments while $f$ can be interpreted as how much the interest rate (r) affects the investments (I) negatively.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't understand why an increment in interest rate (r) implies a negative effect on the investments (I).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I thought that my investments would become more valuable if the interest rate increases, so from my point of view, people would be more interested in investing if the interest rate increases.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I guess I have misunderstood something.&lt;/p&gt;&#xA;" OwnerUserId="4110" LastActivityDate="2017-07-22T17:35:34.047" Title="Inverse/negative relationship between investments and interest rate" Tags="&lt;macroeconomics&gt;&lt;interest-rate&gt;&lt;investment&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9792" PostTypeId="1" CreationDate="2015-12-14T22:42:37.297" Score="2" ViewCount="43" Body="&lt;p&gt;I'm supposed to learn to derive the monocentric city model from these assumptions: everyone has the same preferences, same income, same work location (Central Business District, single point with infinitely small area) and same transportation per mile costs. They get utility from two goods, c (a composite good of everything but housing) and q (housing as measured by size or quality). The price of housing is a function of its distance from the CBD, x, like this p(x). In the end I'm supposed to see that p'(x) &amp;lt; 0, and population density and structural density both decrease as x increases.&lt;/p&gt;&#xA;" OwnerDisplayName="user4207" LastActivityDate="2015-12-14T22:42:37.297" Title="Why do people not all live right on top of each other in monocentric city model?" Tags="&lt;housing&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9793" PostTypeId="2" ParentId="9781" CreationDate="2015-12-15T03:17:54.327" Score="1" Body="&lt;p&gt;&lt;a href=&quot;http://www.imdb.com/title/tt2215151/&quot; rel=&quot;nofollow&quot;&gt;Inequality for All (2013)&lt;/a&gt; is a good movie, although it is focused more on labor economics.&lt;/p&gt;&#xA;" OwnerUserId="6231" LastActivityDate="2015-12-15T03:17:54.327" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9794" PostTypeId="1" CreationDate="2015-12-15T04:13:13.460" Score="1" ViewCount="42" Body="&lt;p&gt;It is often stated that eurodollar borrowing is clost substitute for Fed funds borrowing. In other words, when US banks cannot fund themselves domestically, they might go to the eurodollar market and borrow some money to satisfy thier reserve requirment. Although it seems intuitive that in eurodollar borrowing you are borrowing from banks in other countries, I believe it implicitly involve a loss of reserve in a US bank. This is because since foreign banks cannot hold reserve at Fed and the borrower wish to borrow reserve, the only way this can happen is for the foreign bank to demand its US correspondant (the US bank where it deposits its dollar) to transfer the amount of reserve to the borrower. So implicitly, it is also the US bank that is lending its reserve. Am I correct?&lt;/p&gt;&#xA;" OwnerUserId="4551" LastEditorUserId="4551" LastEditDate="2015-12-15T04:19:23.320" LastActivityDate="2015-12-15T04:19:23.320" Title="Is Eurodollar borrowing close substitute for Fed funds borrowing?" Tags="&lt;banking&gt;&lt;federal-reserve&gt;&lt;eurodollar&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9795" PostTypeId="1" CreationDate="2015-12-15T06:19:02.290" Score="7" ViewCount="304" Body="&lt;p&gt;It's a common refrain that economists still don't have a solid grasp of the causes of business cycles (in particular, the Great Depression), despite decades of serious study. What would it take to say that this (or another event/phenomenon -- economic growth, the collapse of the Soviet Union, the causes of inequality) is &quot;understood&quot;? Are any key questions in economics &quot;solved&quot;?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some additional questions for discussion- Can economists say that they &quot;understand&quot; something when they can craft policy to manipulate it as desired? Does the ability to predict phenomena constitute &quot;understanding&quot;? Is something &quot;understood&quot; when there is a broad consensus in the profession?&lt;/p&gt;&#xA;" OwnerUserId="89" LastEditorUserId="89" LastEditDate="2015-12-16T05:31:40.733" LastActivityDate="2015-12-16T05:31:40.733" Title="When can economists claim to &quot;understand&quot; an event or phenomenon?" Tags="&lt;causality&gt;" AnswerCount="2" CommentCount="4" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9796" PostTypeId="2" ParentId="9795" CreationDate="2015-12-15T09:06:34.900" Score="11" Body="&lt;p&gt;I'm not sure there is a correct answer to this question (or if there is, we don't understand it yet!), but here's a first shot at an answer:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Even if you look at the natural sciences, there is a process whereby ideas are refined over time. In the 17th century people 'understood' mechanics thanks primarily to Newton. But that didn't mean Einstein couldn't improve on the theory with relativity. One approach would then be to say that we never really understood mechanics in the first place, we were just confused until Einstein came along. But that binary view of understanding sets a very high threshold that economics may never meet; indeed, by that standard it might very well be that humanity never truly understands anything. I think most good scientists would be very cagey about ever describing a problem as solved—theories cannot be proven correct, only 'not disproven' and subsequently improved.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An alternative view would therefore be that understanding is measured on a continuous scale so that partial understanding is recognised and new discoveries refine that existing understanding. One might then define something as (at least partially) understood when&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;ol&gt;&#xA;  &lt;li&gt;Economists share a broad professional consensus on the matter.&lt;/li&gt;&#xA;  &lt;li&gt;The consensus view is consistent with available empirical data.&lt;/li&gt;&#xA;  &lt;li&gt;The consensus view represents a meaningful contribution over and above the knowledge that might be expected of a lay-person.&lt;/li&gt;&#xA;  &lt;/ol&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;An issue for which economics performs better on all three dimensions might be said to be better understood.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Something like the effect of a rent ceiling, the role of adverse selection in a market, the potential benefits of free trade, or the static welfare effects of monopoly appear to be fairly well understood (at least by social science standards) because economists are in broad agreement, these things are not well-understood in society at large, and economists' views on these issues are generally bourne out empirically. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Things like the effects of a fiscal stimulus, the dis-employment effects of a minimum wage, or the dynamic relationship between competition and innovation seem to be less well-understood because economists frequently disagree on these issues—both with each other and with the data.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;The rationale for the three components of the definition is as follows:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Consensus is not a direct measure of understanding. But I include it as a proxy to get at the fact that there are some areas of economics in which seemingly convincing theories that match some aspects of the data quite well are in direct conflict with alternative theories that also do well in some respect. It seems like having two conflicting views on an issue that you are not able to reconcile ought to be penalised in any measure of understanding.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Obviously, economics is an empirical undertaking—it aims to describe and explain empirical phenomena. A description of or explanation for a phenomenon that is not consistent with data is clearly not part of a good understanding of that phenomenon.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;This criterion is aimed at getting at the idea that economists have been especially successful in improving upon a common sense understanding of the world in some areas. In these areas, economists might be viewed as having a particularly good understanding relative to society at large. Consider two examples: (i) a monopolist will charge more when demand is less elastic; (ii) two countries can benefit from trade even when one of them has an absolute advantage in every good. Both are issues that economists agree on, but (i) is common sense whereas (ii) is utterly counter-intuitive. The definition is designed to capture the idea that understanding (ii) is more meaningful because society depends upon economists to figure such things out. Society could probably figure out (i) without economists' help.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2015-12-15T16:16:38.520" LastActivityDate="2015-12-15T16:16:38.520" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9797" PostTypeId="1" AcceptedAnswerId="9811" CreationDate="2015-12-15T11:16:43.073" Score="7" ViewCount="452" Body="&lt;p&gt;Most government bonds and corporate bonds have a maturity date when the principal must be repaid. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;While the few percents of interest every year is generally not a big problem to pay out, when a bond matures the issuer must pay back all the principal at once which can be a huge expense and the issuer can go default if they don't have all the cash at hand by that time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the bond issuer issues a bond without maturity, then they only need to deal with the interest payments, which is a fixed amount of money and as the inflation gradually devalues the money it's become gradually less problem to pay it out. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the price of the bond decreases or after a good year, the bond issuer may repurchase some of his own bonds from the market on his own discretion to further reduce the interest burden.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From the investor side this is kind of security can be bought from the market and sold when they need the cash just like any other security regardless of the lack of maturity. This way this security can be like a stock with a predetermined dividend.&#xA;Since the issuer only need to pay interest, the credit risk is lower, but interest risk is high. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So far it looks like a perpetual bond is just another kind of security with interesting properties and risks.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But most bonds do have maturity, so what are the caveats? What's the reason that most bonds do have maturity and perpetual ones are uncommon? &lt;/p&gt;&#xA;" OwnerUserId="4150" LastEditorUserId="4150" LastEditDate="2015-12-15T11:27:58.037" LastActivityDate="2016-12-04T11:27:09.450" Title="Why aren't perpetual bonds more common?" Tags="&lt;debt&gt;&lt;bonds&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9798" PostTypeId="2" ParentId="9789" CreationDate="2015-12-15T13:53:05.143" Score="3" Body="&lt;p&gt;The market for &lt;em&gt;lemons&lt;/em&gt;. Paper is &lt;a href=&quot;https://www.google.com/urlhttps://www.google.com/url?q=http://socsci2.ucsd.edu/~aronatas/project/academic/Akerlof%2520on%2520Lemons.pdf&amp;amp;sa=U&amp;amp;ved=0ahUKEwj60pjugd7JAhWG7yYKHbWYAn0QFggLMAA&amp;amp;sig2=UImCZtn56NGXuAbIxUaXuw&amp;amp;usg=AFQjCNGAbeTu9vgIZt-thfmvsBC4gpEA3A&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The example most commonly given is used cars. The result is market failure. &lt;/p&gt;&#xA;" OwnerUserId="4185" LastActivityDate="2015-12-15T13:53:05.143" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9799" PostTypeId="2" ParentId="9729" CreationDate="2015-12-15T15:14:16.410" Score="4" Body="&lt;p&gt;I think your definition is incorrect, or at least incomplete.** Usually, in a Bayesian game, there is assumed to be a prior distribution on $T$ (where $T = \times_i T_i$). This distribution is called the &quot;common prior&quot; and it is assumed to be common knowledge that types are drawn according to this distribution. In this case, each player $i$'s belief $p_i$ is given by Bayesian updating on $T_i$ and this prior; and in BNE player $i$ must be best-responding to this belief.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The assumption of a common prior and Bayesian update rule (which is what gives this solution concept its name, after all) mean that players &lt;em&gt;cannot be wrong, merely underinformed&lt;/em&gt;. In other words, a player with posterior belief $p_i$ is correct about the distribution of types of other players conditioned on her own, even though she does not know which realizations they have.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;** &lt;strong&gt;Edit&lt;/strong&gt;. Osborne and Rubenstein's text mentions that it is possible to define a more general game in which each player has a different prior distribution (there is no common prior). So your definition does match their most general definition. I suppose that in such a case two players may hold incompatible views, hence you could say that someone must be incorrect. That all being said, the vast majority of Bayesian games assume a common prior.&lt;/p&gt;&#xA;" OwnerUserId="2856" LastEditorUserId="2856" LastEditDate="2015-12-15T21:45:44.427" LastActivityDate="2015-12-15T21:45:44.427" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="9800" PostTypeId="1" CreationDate="2015-12-15T15:19:52.057" Score="1" ViewCount="52" Body="&lt;p&gt;It is a known fact that default rates seem to exhibit cyclic behavior. Most probability of default models use one-year averages of default rates to calibrate the models. The one-year averages should be observed long enough to take into account the effects of a full business cycle. But what if historic data does not do back far enough to explain the effects of a full business cycle?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I guess one could link macro economic factors to default rates and extrapolate. Then the value should be somewhat cycle neutral. But from what data could there be extrapolated? Also S&amp;amp;P and Moody's default rates go back to the 1980's but are they representative in all case to extrapolate from? And I do wonder, how do financial institutions make 'artificial' data to represent full business cycles? Thanks for any suggestion or help.&lt;/p&gt;&#xA;" OwnerDisplayName="user6717" LastActivityDate="2015-12-15T15:19:52.057" Title="Lack of historical data for calibration of probability of default" Tags="&lt;probability&gt;&lt;business-cycles&gt;&lt;default&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9801" PostTypeId="1" AcceptedAnswerId="9802" CreationDate="2015-12-15T15:35:51.723" Score="5" ViewCount="269" Body="&lt;p&gt;I'm studying the pizza market, especially in Utah, and I would like to know if there are any pizza data sources. Can some kind of sales tax data be used to study pizza? Is there a straight up pizza study that collected data? How creative do I have to get to find data? Or how much might I need to pay to have someone collect it?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any data related to these things will be awesome: pizza input markets, pizza production, pizza demand, pizza labor, pizza firms, anything pizza and economics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm not sure exactly what variables I'm after, I was just going to see which are out there first. I put in a request to Yelp.com to get access to their data sets, but it's only allowed for a few universities right now, not mine. We're on a wait list. Other than that, I'm kind of stumped.&lt;/p&gt;&#xA;" OwnerDisplayName="user4207" LastActivityDate="2015-12-15T19:55:36.417" Title="Where can I get pizza data" Tags="&lt;data-request&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9802" PostTypeId="2" ParentId="9801" CreationDate="2015-12-15T16:35:57.017" Score="4" Body="&lt;p&gt;It might not get you very far, but a start would be &lt;a href=&quot;https://www.google.co.uk/trends/explore#q=pizza+delivery,pizza+hut&amp;amp;geo=US&quot; rel=&quot;nofollow noreferrer&quot;&gt;Google Trends&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/34d6F.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/34d6F.png&quot; alt=&quot;Google trends pizza data&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2015-12-15T16:35:57.017" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9803" PostTypeId="1" AcceptedAnswerId="9814" CreationDate="2015-12-15T18:09:49.063" Score="5" ViewCount="208" Body="&lt;p&gt;It seems like the vast majority of all goods and services don't change price so often.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I guess I should be careful the way I say this, because as far as I understand, they're actually very &lt;em&gt;information&lt;/em&gt; sensitive.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So what I really mean is, why do they have 2 second ticks where the price might change, rather than changing daily to adjust for information? It seems like a 2 second tick is a little over the top.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If it is really necessary to have such a frequent possible update of prices, why do other goods and services not need that? Or which ones also do?&lt;/p&gt;&#xA;" OwnerDisplayName="user4207" LastActivityDate="2015-12-16T18:16:01.057" Title="Why are stock prices so time sensitive?" Tags="&lt;financial-economics&gt;" AnswerCount="4" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9804" PostTypeId="1" AcceptedAnswerId="9805" CreationDate="2015-12-15T18:25:17.357" Score="2" ViewCount="41" Body="&lt;p&gt;In Genesis chapter 41 Joseph interpreted the dreams of Pharaoh about 7 years of plenty and 7 years of famine which resulted in saving Egypt from famine, among other things.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think this is a great economic feat to say the least. But it brings up so many economic questions about the scenario and how it might play out under different economic models and policy decisions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First off, nowadays can a big enough food storage keep a city or a nation from going into an economic depression? Which economic models might I use to analyze the situation? The Great Depression included the Dust Bowl, and a lot of hunger, and it makes me wonder what difference a gigantic food storage could have done. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Egypt in that Bible story was experiencing a famine though, and economic depressions don't seem to be caused by famines necessarily. So is food storage only applicable during a famine?&lt;/p&gt;&#xA;" OwnerDisplayName="user4207" LastActivityDate="2015-12-15T19:08:51.713" Title="Could food storage prevent a depression?" Tags="&lt;supply-and-demand&gt;&lt;fiscal-policy&gt;&lt;history&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9805" PostTypeId="2" ParentId="9804" CreationDate="2015-12-15T19:08:51.713" Score="0" Body="&lt;p&gt;Keep in mind that during the 7 years of famine in the Bible, there was still a negative production shock that more than likely produced a heavy recession for some of those seven years as workers tried to reallocate their labor to something more useful than agriculture. A recession merely represents a fall in final goods production. The grain that was saved up doesn't represent production for that period (rather it would be for the previous seven years of economic boom). The grain stored up represents savings rather than production.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It doesn't look like Joseph or Pharaoh told the people that the famine was coming (imagine the panic), so workers wouldn't have predicted the change in permanent income, and their intertemporal substitution would be much smaller because of the error in their adaptive/rational expectations. Joseph merely used taxes (one-fifth of each year's harvest) to engage in consumption smoothing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So to answer most of your questions, food storage doesn't prevent negative output shocks. It merely is a hedge against them. Arguably most people &lt;em&gt;should&lt;/em&gt; try to have emergency savings of their own to hedge against recessions of their own, but especially in America, we are not very good at saving money. We also have a lot of population who live paycheck to paycheck, and are liquidity constrained, unable to consumption smooth according to their predictions in permanent income, even if they want to.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2015-12-15T19:08:51.713" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9806" PostTypeId="2" ParentId="9801" CreationDate="2015-12-15T19:55:36.417" Score="2" Body="&lt;p&gt;This isn't specific to Utah, but the pizza industry censuses on this page are detailed, if somewhat small in the number of survey responses:&#xA;&lt;a href=&quot;http://www.pmq.com/Industry-News/&quot; rel=&quot;nofollow&quot;&gt;http://www.pmq.com/Industry-News/&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="6705" LastActivityDate="2015-12-15T19:55:36.417" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="9807" PostTypeId="2" ParentId="9803" CreationDate="2015-12-15T22:26:01.850" Score="3" Body="&lt;p&gt;Prices changing so frequently is simply the result of an adjustment between demand and supply in the market. Demand and supply change all the time, because market venues allow them to change very frequently, and so does the prices. This does not mean that the fundamentals of the underlying assets are also changing, this is just the way market process (what it perceives as) new information.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Say the price of a stock is $x_0$ and I'm about to buy 1,000 units of that stock. Effectively, I will buy those 1,000 units at a price $x_1&amp;gt;x_0$ because at a given point in time demand increases so the price adjusts. However, if there is no new information, it's likely that somebody else would want to sell 1,000 units after that, and then the price would adjust downward at $x_2&amp;lt;x_1$. Note that we do not necessarily have $x_1=x_0$ though. It depends on much more factors that in my simple example, but the idea is there.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The price changing a lot, also means that you, as an investor, are able to buy/sell at any point in time. If, as you said, prices were updated once a day, that means that you would be able to make a transaction only once a day. Actually this exists on some market, and in general the price is set through an auction process. But obviously, if possible you want to be able to buy/sell at the moment you take the decision, and in general you would dislike to wait until the daily batch processed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regarding, the high frequency that the most liquid markets have reached now, this is the result of the competition between market venues. Indeed, in current days, there are often several places where you can buy/sell a particular stock for instance. Since market venues are seeking to attract the largest possible amount of transaction on their market, for liquidity reasons, this results in market competing on the frequency they offer to market participants. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Actually, this is a bit more complicated, let me just sketch up some words. Algorithmic traders are the type of market participants that provide a lot of liquidity because their are able to buy/sell extremely fast, there are the new market makers in a sense. The people who set up those algorithms (large banks mostly) are also seeking for profit. They know that high-frequency will make them more efficient than classic human investor, so they are looking for the fastest possible way to make transaction on a market. And market platforms, wanted to attract those liquidity traders (the algorithmic traders), have increased (a lot) the frequency of their market. This is not necessarily bad, actually if you buy/sell something on a exchange-market, it's likely that your counterparty will be an algorithm. The question of whether it's efficient or not, especially in time of crisis, is more opinion-based and there are some research on that issue.&lt;/p&gt;&#xA;" OwnerUserId="6053" LastActivityDate="2015-12-15T22:26:01.850" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9808" PostTypeId="2" ParentId="9795" CreationDate="2015-12-15T22:32:28.457" Score="4" Body="&lt;p&gt;Ubiquitous has provided a very good explanation for what constitutes understanding an economic problem. I'd like to address the second part of your question about what sort of &amp;quot;key questions&amp;quot; are solved in economics (if any).&lt;/p&gt;&#xA;&lt;p&gt;First, the obvious. We have to talk about what meaningful economic problems are, that economists are best suited to address. This is my attempt at structuring the major issues (and there will probably be disagreements with the importance I place on some aspects).&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;&lt;strong&gt;Fundamental Problem:&lt;/strong&gt; Scarce resources and unlimited human desire requires us to determine:&lt;/p&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;What to produce and to do it efficiently, that producing more of a good does not reduce the production of another.&lt;/li&gt;&#xA;&lt;li&gt;How to allocate the goods efficiently, so that no one can be made better off without making someone else worse off.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;p&gt;&lt;strong&gt;Public Problem:&lt;/strong&gt; Externalities absolutely reduce welfare. Public goods and services will not be allocated efficiently under normal market conditions, which absolutely reduces welfare, and require us to determine:&lt;/p&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;How to find the least costly/burdensome way of internalizing externalities (including deadweight loss).&lt;/li&gt;&#xA;&lt;li&gt;How to end up at efficient allocations after subsidies and taxes, so that no one can be made better off without making someone else worse off.&lt;/li&gt;&#xA;&lt;li&gt;How to balance the social planner's public budget among infinite periods. (The state is not corrupt and increasing its welfare at the expense of others.)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;p&gt;&lt;strong&gt;Welfare Problem:&lt;/strong&gt; Macroeconomic volatility absolutely reduces welfare. Poverty and persistent, large income inequality have negative externalities that reduce total social welfare. (You could also argue that poverty should be treated as a public good and so falls under the previous category.) These require us to determine:&lt;/p&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;How to set macroeconomic stability policy efficiently, where the tradeoff between inflation and growth cannot be improved upon. We may be willing to improve one aspect at the expense of the other though.&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;How to provide insurance against risk efficiently &lt;em&gt;and&lt;/em&gt; broadly, where everyone is able to consumption smooth by accessing insurance that guarantees a basic level of welfare for themselves.&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;How to guarantee a basic level of welfare for every user through a balanced budget tax or subsidy with the lowest deadweight loss.&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;The last section is probably the hardest for me to be precise about. Is poverty about absolute standards, relative standards, or being most at risk to suffer greatly from unemployment? What is everyone's marginal cost for eliminating poverty (especially problematic since it is probably a function of actual income)? Nevertheless, I think it's some of the most compelling material we have to deal with in economics; the reason we care about all this is because of human interest, and this is where we'll find the most competing interests.&lt;/p&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;So what are some key questions in economics?&lt;/p&gt;&#xA;&lt;p&gt;Here are some common, relevant ones, that are for the most part solved:&lt;/p&gt;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Are price controls welfare reducing? (Yes)&lt;/li&gt;&#xA;&lt;li&gt;Are tariffs on trade welfare reducing? (Yes)&lt;/li&gt;&#xA;&lt;li&gt;Do large federal deficits hurt a nation's economy? (Yes)&lt;/li&gt;&#xA;&lt;li&gt;In an ideal economy, should we have floating or fixed exchange rates? (Floating)&lt;/li&gt;&#xA;&lt;li&gt;Are metal backed currency standards garbage? (&lt;a href=&quot;http://www.igmchicago.org/igm-economic-experts-panel/poll-results?SurveyID=SV_cw1nNUYOXSAKwrq&quot; rel=&quot;nofollow noreferrer&quot;&gt;Yeeeeessssss&lt;/a&gt;)&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&lt;p&gt;Those are a few that I first think of when writing this. But there are plenty more that are unsolved:&lt;/p&gt;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;How do we resolve the equity-premium puzzle?&lt;/li&gt;&#xA;&lt;li&gt;When should a government subsidize trade to resolve the &lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/0022053183900480&quot; rel=&quot;nofollow noreferrer&quot;&gt;Myerson-Satterthwaite bilateral trade problem&lt;/a&gt;?&lt;/li&gt;&#xA;&lt;li&gt;Is there really a feasible Walrasian auctioneer for [insert market here]?&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&lt;p&gt;Maybe these questions seem very small scale compared to other questions you posed above, but they serve as important foundations for understanding further ideas, or for the unsolved ones, they serve as long standing problems that probably require a whole new innovation to grapple with.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2015-12-15T22:32:28.457" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9809" PostTypeId="1" AcceptedAnswerId="9810" CreationDate="2015-12-15T22:55:59.580" Score="1" ViewCount="78" Body="&lt;p&gt;Someone told me I should put a variable in my regression to see the state effects. (States in the United States) So he wrote this code and said to put in my variables where the ... is.&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;xi: reg ... i.STATE, robust&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;(The robust is because the data is heteroskedastic)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So here's what it is with the variables:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;sust_all form_type_dum EDUCPAY HAZARDPAY SHIFTPAY SKILLPAY MILPAY COLLBARG RESPAY CHIEFMAX  OPBUDGET OPBUDGEST POPULATION i.STATE, robust&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;But I'm getting an error in Stata:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;invalid syntax&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;What am I writing wrong? Or is there a better way to see state effects? Can I just leave that out of the regression?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Background&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm doing a regression on data from 2007 where the dependent variable is number of sustained complaints per 10 officers in a police department. I want to see if any variables about pay or department budget will explain it. The data comes from Law Enforcement Management and Administrative Statistics (LEMAS), 2007. The survey is administered by the US Department of Justice. The STATE variable is the state where the agency is based out of.&lt;/p&gt;&#xA;" OwnerDisplayName="user4207" LastActivityDate="2015-12-17T00:12:01.983" Title="Stata code for linear regression that controls for state effects" Tags="&lt;regression&gt;&lt;stata&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9810" PostTypeId="2" ParentId="9809" CreationDate="2015-12-16T00:24:27.997" Score="0" Body="&lt;p&gt;Here's a guess about what has gone wrong, since what you wrote down will get you a different error message.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would bet dollars to donuts that you left out the the &lt;code&gt;reg&lt;/code&gt; (short for regress) from:  &lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;xi: reg sust_all form_type_dum EDUCPAY HAZARDPAY SHIFTPAY SKILLPAY MILPAY COLLBARG RESPAY CHIEFMAX  OPBUDGET OPBUDGEST POPULATION i.STATE, robust&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Also, unless your version of Stata is ancient, you don't need &lt;code&gt;xi:&lt;/code&gt;, so just type:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;reg sust_all form_type_dum EDUCPAY HAZARDPAY SHIFTPAY SKILLPAY MILPAY COLLBARG RESPAY CHIEFMAX  OPBUDGET OPBUDGEST POPULATION i.STATE, robust&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Stata will handle the state FEs for you. &lt;/p&gt;&#xA;" OwnerUserId="159" LastEditorUserId="159" LastEditDate="2015-12-17T00:12:01.983" LastActivityDate="2015-12-17T00:12:01.983" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9811" PostTypeId="2" ParentId="9797" CreationDate="2015-12-16T01:41:21.863" Score="6" Body="&lt;ol&gt;&#xA;&lt;li&gt;The most famous perpetual bonds are UK Government Bonds known as &lt;a href=&quot;https://en.wikipedia.org/wiki/Consol_%28bond%29&quot; rel=&quot;nofollow noreferrer&quot;&gt;consols&lt;/a&gt;. They weren't issued to avoid the rollover risk you highlight. Rather, their key benefit was liquidity. They could sell new consuls on the same terms as the old consuls and they have enhanced liquidity because it made the new and old issue more liquid. &lt;/li&gt;&#xA;&lt;li&gt;They turned out to be a pretty horrible investment in real terms for early investors. Inflation ate away most of their value. &lt;/li&gt;&#xA;&lt;li&gt;Despite their seemingly infinite life, because they pay out coupons and we discount the future geometrically their interest rate sensitivity behavior is similar to existing long dated bonds. &lt;/li&gt;&#xA;&lt;li&gt;Unless the bond is callable, you generally can't make money by repurchasing your own bond at market prices. If interest rates drop, making you want to replace old bonds, the price of the old bonds goes up until the yield of old and new bonds are equated. Things are a bit different with changes in credit risk but even in that case it can be tricky. &lt;/li&gt;&#xA;&lt;li&gt;The product you describe also sounds a lot like &lt;a href=&quot;https://en.wikipedia.org/wiki/Preferred_stock&quot; rel=&quot;nofollow noreferrer&quot;&gt;preferred stock&lt;/a&gt;. The Wikipedia article on &lt;a href=&quot;https://en.wikipedia.org/wiki/Perpetuity&quot; rel=&quot;nofollow noreferrer&quot;&gt;perpetuities&lt;/a&gt; gives consuls and preferred stock as two examples. &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="69" LastEditorDisplayName="user18" LastEditDate="2016-12-04T11:27:09.450" LastActivityDate="2016-12-04T11:27:09.450" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="9812" PostTypeId="2" ParentId="9803" CreationDate="2015-12-16T08:18:59.137" Score="1" Body="&lt;p&gt;Stock prices are not adjusted by some authority according to the latest information about the companies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Stock prices simply show the last price at which a share of the company was sold on the stock market. If a new deal is reached every second then there will be a new price every second. Because of largely automated trading this is indeed probable for the shares of some large companies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As Louis B. points out in his highly detailed &lt;a href=&quot;https://economics.stackexchange.com/a/9807/1601&quot;&gt;answer&lt;/a&gt; ideally these price changes do reflect newly available information about the companies.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2015-12-16T08:18:59.137" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9813" PostTypeId="1" CreationDate="2015-12-16T12:05:37.673" Score="1" ViewCount="71" Body="&lt;p&gt;The following is the demand schedule for cement over a period of one week:-&lt;/p&gt;&#xA;&#xA;&lt;p&gt;NOTE: I have written the Price and Quantity demanded in tuples of the following form (Price, Quantity). So in the first case, the price is Rs 275 and the quantity demanded is 80 bags of cement.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Monday-(275,80)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Tuesday-(275,30)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Wednesday-(275,60)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thursday-(275,70)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Friday-(275,50)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Saturday-(275,80)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sunday-(275,100)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From the above data, you can see that the price is invariant over one week and that all consumers pay this price. However, after further investigation, I found that the price changes after a period of 15 days. Using this limited sample can one conclude that the demand for cement is perfectly elastic in the short run?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT1: After @Ubiquitos' advice I came up with the following idea, which is partly described in a comment. Nevertheless here is the full argument: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose that the equation of the Demand curve is given by the following equation$$q=\beta_0+\beta_1P+\epsilon_1$$ and the equation for the supply curve is given by$$q=\gamma_0+\gamma_1P+\epsilon_2$$. Notice that there is no other exogenous variable in any of the equations except $P$. I know that this quite a crude assumption as we know that there are non-price determinants such as taste and preferences that affect the quantity demeanded.Thus, it is possible that the error term,  $\epsilon_1$ and $\epsilon_2$ are related to $P$ and thereby create a Selection Bias. Therefore, the parameters in both the equations cannot be determined. But I am still not sure how does this reasoning directly answer my initial question. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;PS: If there are loops in my arguments, then please do suggest some rectifications as I am a beginner in econometrics...&lt;/p&gt;&#xA;" OwnerUserId="6711" LastEditorUserId="6711" LastEditDate="2016-01-22T18:13:42.290" LastActivityDate="2016-01-22T18:13:42.290" Title="Is it sufficient to conclude by looking the following weekly demand schedule that the good is Perfectly Elastic?" Tags="&lt;microeconomics&gt;&lt;elasticity&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9814" PostTypeId="2" ParentId="9803" CreationDate="2015-12-16T13:54:24.273" Score="3" Body="&lt;p&gt;While the prices of equities do fluctuate in response to information about the underlying enterprises, this is not the first order or likely even second order reason why they do so. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Discount-rate variation is the central organizing question of current&#xA;  asset-pricing research. I survey facts, theories, and applications.&#xA;  Previously, we thought returns were unpredictable, with variation in&#xA;  price-dividend ratios due to variation in expected cashflows. Now it&#xA;  seems all price-dividend variation corresponds to discount-rate&#xA;  variation&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://onlinelibrary.wiley.com/store/10.1111/j.1540-6261.2011.01671.x/asset/jofi1671.pdf?v=1&amp;amp;t=ii8v4o76&amp;amp;s=04bd2dc0e9bd3a6eef4083877654f852802da234&quot; rel=&quot;nofollow&quot;&gt;Presidential Address: Discount Rates&lt;/a&gt; JOHN H. COCHRANE (2011)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is much more, as suggested by @Denesp, that changes in the discount factor of future earning and the supply and demand fluctuations for the individual security explain the small time scale fluctuations. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Two other things worth noting. &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;The stock market is a market where the norms and technology have been arranged to make it much easier to rapidly change prices. In contrast, &lt;a href=&quot;https://en.wikipedia.org/wiki/Fixed_price_of_Coca-Cola_from_1886_to_1959&quot; rel=&quot;nofollow&quot;&gt;the fixed price of the 6.5 ounce bottle of Coca-Cola from vending machines held for 73 years&lt;/a&gt; when vending machine technology, the limited variety of coinage, and long running contracts made it difficult for the company to adjust prices. &lt;/li&gt;&#xA;&lt;li&gt;We should be careful to distinguish markets where prices can't change frequently from those markets where there is no reason to change them frequently. The ways in which prices are posted in the supermarket makes it difficult to change them too frequently or all the staff would do would be change prices. In contrast, an employer learns very little about worker productivity from minute to minute and so has little reason to change salaries at high frequency. But when it is economical to do so, prices of conventional goods can be repriced quite frequently. Gas prices usually change at night but sometimes change midday when there is a refinery breakdown. In countries experiencing hyperinflation prices of even simple staple goods can change multiple times per day. &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-12-16T14:30:52.420" LastActivityDate="2015-12-16T14:30:52.420" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="9815" PostTypeId="1" CreationDate="2015-12-16T14:04:59.997" Score="2" ViewCount="85" Body="&lt;p&gt;In the figure below, I have a coordinate system where $r$ depends on $I$ or $S$, but I do not completely understand why I can have multiple functions inside this coordinate system.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why can I write $S(r)$ and $I(r)$? Normally, in an x-y-diagram, I interpret it as $y(x)$, since $x$ varies and $y$ depends on $x$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The diagram below is a quite normal diagram in economics, so I know it is correct, but why isn't the figure 'transposed', i.e. with $r$ on the $x$-axis and $S,I$ on the $y$-axis?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It doesn't make sense that $r = S(r)$ or $r = I(r)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://ctaar.rutgers.edu/gag/notes/is.gif&quot; rel=&quot;nofollow&quot;&gt;&lt;img src=&quot;https://ctaar.rutgers.edu/gag/notes/is.gif&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="4110" LastActivityDate="2015-12-17T22:06:58.980" Title="Diagram with axes $r$ and $S,I$" Tags="&lt;interest-rate&gt;&lt;investment&gt;&lt;saving&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9816" PostTypeId="2" ParentId="9813" CreationDate="2015-12-16T14:05:25.460" Score="2" Body="&lt;p&gt;No, you do not have sufficient information to conclude that the demand is perfectly elastic.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The following figures show two ways that demand curves that are not perfectly elastics could have generated the first two data points in your series:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/nQDkt.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/nQDkt.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/Z1q5c.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Z1q5c.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It should be easy to see how to add other demand curves to generate the rest of the data points.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is actually a common and more general problem: price and quantity are jointly determined by the interaction of supply and demand. Given two data points, it is impossible to determine whether they were caused by a shift in supply or demand or both. There are two solutions to this dilemma:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;estimate a &lt;em&gt;simulatenous equation model&lt;/em&gt; that accounts for both supply and demand. You can read about simultaneous equation models in a good econometrics textbook or, for example, in &lt;a href=&quot;https://eml.berkeley.edu/~mcfadden/e240b_f01/ch6.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Dan McFadden's lecture notes&lt;/a&gt;.&lt;/li&gt;&#xA;&lt;li&gt;work in a context where you know either the supply or the demand curve are fixed. If you know the supply curve didn't move then any change in price or quantity must have come from a shift in demand and you know that all of your data points lie on (and characterise) the supply curve. The converse is true if you that the demand curve did not move.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="108" LastActivityDate="2015-12-16T14:05:25.460" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="9817" PostTypeId="1" CreationDate="2015-12-16T15:53:16.430" Score="1" ViewCount="38" Body="&lt;p&gt;When I was browsing the internet last night, I read a couple articles on the Global Saving Glut. And many has ascribed it to be a cause of US financial crsis. My question is how so? The articles argue that huge saving from abroad flooded the US with cash and drives down the interest rate and in turn encourage riskier investment. However, we know that the US dollars abroad are payments from the US. In other words, the dollars foreigners lend to the US comes from the US. So even if there is not a saving glut, US will still have the same amount of cash availiable because then US does not have to pay for the current account deficit. So it feels to me that the availiable cash did not change. Any suggestions please?&lt;/p&gt;&#xA;" OwnerUserId="4551" LastActivityDate="2015-12-16T15:53:16.430" Title="How does Global Saving Glut flood the market with cash?" Tags="&lt;international-trade&gt;&lt;saving&gt;&lt;balance-of-trade&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="9818" PostTypeId="2" ParentId="9815" CreationDate="2015-12-16T16:58:22.177" Score="1" Body="&lt;p&gt;Sometimes economists are bad at drawing graphs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, think of a supply and demand graph. Price is on the y axis and quantity is on the x axis, but generally when we derive the curves for competitive markets, we usually say that firms and consumers respond to price to determine what quantity they buy/sell, rather than the other way around. So why aren't the axes switched there so the dependent and independent variables are where they should be? Tradition I guess.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I imagine it's a similar case here. The axes are just wonky.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2015-12-16T16:58:22.177" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9819" PostTypeId="2" ParentId="9815" CreationDate="2015-12-16T18:03:59.460" Score="2" Body="&lt;p&gt;Yes, this is very counter-intuitive and confusing. However, there is an interesting explanation involving graphical analysis of demand and supply i.e. &lt;a href=&quot;http://blog.jparsons.net/2011/02/why-do-economists-put-price-on-vertical.html&quot; rel=&quot;nofollow&quot;&gt;why swap axes?&lt;/a&gt; . I think, the explanation in that link may offer you some elements of answer.&lt;/p&gt;&#xA;" OwnerUserId="6009" LastActivityDate="2015-12-16T18:03:59.460" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9820" PostTypeId="1" AcceptedAnswerId="10715" CreationDate="2015-12-16T18:09:30.663" Score="3" ViewCount="3917" Body="&lt;p&gt;I have studied that accumulation of foreign reserve has the potential to raise inflation levels in economy as the money base increases (= domestic currency + foreign reserve increases) and if it overshoots the money demand in the economy then it will raise price levels. &#xA;My question here is that how the foreign reserves which are under the custody of the central bank go into the system and cause inflation. Say, China has huge reserves of USD but it rests with the central bank mostly. So, how does it get into the economy and raise prices ?&lt;/p&gt;&#xA;" OwnerUserId="5582" LastActivityDate="2018-05-14T13:39:32.070" Title="How do excessive foreign reserves cause inflation?" Tags="&lt;currency&gt;&lt;inflation&gt;&lt;money-supply&gt;&lt;open-economy-macro&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9821" PostTypeId="2" ParentId="9803" CreationDate="2015-12-16T18:16:01.057" Score="0" Body="&lt;p&gt;Some goods and service prices change every second too. Commodity prices is just one example and forex rates is another. I think, share prices change every second because of speculation in the market. Generally, given the semi-efficiency of financial markets, we would expect slower movements. Also, much of algo trading, which is about trading on trend rather than fundamental factors, is based on &quot;trader&quot;'s ability to ride i.e. understand the &quot;price trends&quot;. These &quot;traders&quot; analyse the past behaviour in little less than a second, the past behaviour could be fluctuations from the past 10 seconds, this tells a lot to the &quot;trader&quot;. &lt;/p&gt;&#xA;" OwnerUserId="6009" LastActivityDate="2015-12-16T18:16:01.057" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9823" PostTypeId="1" CreationDate="2015-12-16T22:28:07.433" Score="1" ViewCount="343" Body="&lt;p&gt;What is a good reading list for Global Macro investing? What does Bridgewater, Bervan Howard, Soros, AQR etc. use to teach their staff about macroeconomic investing?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let us assume a top-class education at the undergraduate level in economics, maths, and economic history so as to avoid the common recommendations of not very useful introductory texts. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note: Global Macro Investing involves expressing views on commodities, rates, FX, Real Estate, Equities and other asset classes using ownership, futures, or options to find relative value and generate alpha on a global basis.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example: Short USDTRY on asset outflows from turkey due to geo-political risk and US tightening cycle compared to TRY printing/easing.&lt;/p&gt;&#xA;" OwnerUserId="4598" LastEditorUserId="4598" LastEditDate="2015-12-16T23:05:10.337" LastActivityDate="2016-03-22T12:44:18.703" Title="Global Macro Investing textbooks and reading list" Tags="&lt;macroeconomics&gt;&lt;reference-request&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="9824" PostTypeId="2" ParentId="9815" CreationDate="2015-12-16T23:04:40.890" Score="3" Body="&lt;p&gt;It was &lt;strong&gt;Alfred Marshall's doing&lt;/strong&gt;, but based on a premise that still prevails in many parts of Economics: if prices are assumed totally elastic, then, although it may be the case that they are taken as given by the individual buyers or sellers, at &lt;strong&gt;&lt;em&gt;market&lt;/em&gt;&lt;/strong&gt; level &lt;em&gt;&lt;strong&gt;it is quantity that determines price&lt;/strong&gt;&lt;/em&gt;. So price is indeed the dependent variable, if you care about the market and not about the individual.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And here is page 96 from Marshall's &lt;a href=&quot;http://oll.libertyfund.org/titles/1676&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;strong&gt;Principles of Economics (8th ed.1920),&lt;/strong&gt;&lt;/a&gt; (the 1st edition was in 1890), the funny thing being that here Marshall talks about... individual demand! (but it would be totally confusing to swap axes between graphing individual demand and graphing market demand). Read the annotated footnote.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/Gzugl.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Gzugl.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-12-17T22:06:58.980" LastActivityDate="2015-12-17T22:06:58.980" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9825" PostTypeId="1" CreationDate="2015-12-16T23:11:32.033" Score="0" ViewCount="69" Body="&lt;p&gt;For years I've seen non-stop commercials of countries in the continent of Africa showing kids who live in sewage huts, parents are dead, war gangs and criminals rule their lives.  Like in Captain Philips how those Somalia pirates were forced to do what they did because of where they lived. They were forced by criminals threatening their lives.  Didn't the USA make their countries dry out and collapsed like many Middle Eastern ones?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My professor showed a video made in Africa showing how 1 in 3 Africans are actually middle class.  They have cells, cities, even women Presidents at times.  So are things than better than in the past and if so why? &lt;/p&gt;&#xA;" OwnerUserId="6258" LastActivityDate="2015-12-16T23:11:32.033" Title="Are things any better in what society considers &quot;third world countries&quot; as they were years ago? If things are better, how did they improve and why?" Tags="&lt;macroeconomics&gt;&lt;monetary-policy&gt;&lt;money&gt;&lt;political-economy&gt;&lt;poverty&gt;" AnswerCount="0" CommentCount="10" ContentLicense="CC BY-SA 3.0" />
  <row Id="9826" PostTypeId="1" AcceptedAnswerId="9918" CreationDate="2015-12-16T23:13:58.793" Score="1" ViewCount="58" Body="&lt;p&gt;I'm doing a research paper about how different cities have different quality of police service. I want to do a regression where the dependent variable is number of sustained complaints per 10 officers that year received by that agency. But maybe there is a better measure. I want to avoid using crime as a measure of police quality though, because I think crime is only partly affected by police service in the area.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Anyway, the thing I need to do first of all is get an idea of other work people have done in this area. And this area to me would be analyzing markets for public police, analyzing police service quality, analyzing demand for police service and whether it relates to quality of police service- same with supply, analyzing changes in police force for different cities, identifying factors that improve/diminish city-wide quality of police service.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Could someone suggest articles about measuring the quality of police service in a city? Or equilibrium quantity of police service in a city? Or things related to what I want to research? Especially if they do not focus on crime?&lt;/p&gt;&#xA;" OwnerDisplayName="user4207" LastEditorDisplayName="user4207" LastEditDate="2015-12-16T23:31:42.340" LastActivityDate="2015-12-23T20:18:15.493" Title="Articles about police complaints for a lit review?" Tags="&lt;microeconomics&gt;&lt;reference-request&gt;&lt;monopoly&gt;&lt;public-economics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9827" PostTypeId="1" CreationDate="2015-12-17T00:22:14.413" Score="4" ViewCount="1221" Body="&lt;p&gt;I'm using Stata 14.1 to do a regression, and I got a &lt;code&gt;matsize too small&lt;/code&gt; error. It gave some more output to tell me possible reasons for this problem, and I think this was the reason that applied to me&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;If you are using factor variables and included an interaction that has&#xA;lots of missing cells, either increase matsize or set emptycells drop to&#xA;reduce the required matrix size; see help set emptycells.&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Yes, I am using factor variables (one for each state in the US and Washington DC), and yes there are a lot of empty cells.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm trying to figure out which option is better, drop empty cells or increase the matrix size so it can include all the factor variables.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It has help articles on how to do both of those things: drop empty cells or increase matsize. It's not the &quot;how&quot; but the &quot;why&quot; that I'm trying to figure out. What happens mathematically when I drop empty cells? (I probably won't understand the math, so if there's a dumbed down answer just about whether it's good or bad to leave off empty cells, that would probably be better.)&lt;/p&gt;&#xA;" OwnerDisplayName="user4207" LastActivityDate="2020-07-17T19:06:55.647" Title="What happens when I leave out empty cells in regression?" Tags="&lt;regression&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9828" PostTypeId="2" ParentId="9774" CreationDate="2015-12-17T00:58:16.763" Score="3" Body="&lt;p&gt;I believe there is not a unique price. Say, instead of buying the option  you spent 0.5 on a half a unit of the asset $S^2_1$ This asset pays out $[0.4, 0.6, 0.8]$ which first order stochastically dominates the option. So, no matter your probability beliefs about the states,  in that setting you'd never pay $0.5$ for the option which pays less in every state. This suggests the right price is less than $0.5$. Similarly, buying $0.25$ units of the $S^0_1$ asset or $0.167$ units of the $S^1_1$ asset would likewise stochastically dominate the option. In fact, because for $0.375$ units of asset $S^1_2$, which costs on $0.375$, you can still have an asset that pays out $[0.3, 0.45, 0.6]$, it seems unlikely that the price could even be as high as $0.375$. Asset 0 implies a price below $0.4$ and asset 1 below $0.45$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some python code to solve:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;import numpy as np&#xA;S0 = np.array([[2],[3],[1]])&#xA;D = np.array([[1,2,3], [2,2,4], [0.8, 1.2, 1.6]])&#xA;X = np.array([[0.0],[0.2],[0.6]])&#xA;phi = np.dot(np.linalg.inv(D.transpose()), X)&#xA;print('The weights of the portfolio that replicates payoff X are: \n', phi)&#xA;P_X = np.dot(S0.transpose(), phi)&#xA;print('With a price: ', P_X)&#xA;print('Normalizing to pay a fixed price P_X for each of the three assets, what payoffs can you get?')&#xA;D_norm = D/(2*S0)&#xA;print(D_norm)&#xA;print('Notice that all three first order stochastically dominate the option for a price of: ', P_X)&#xA;print(D_norm - X.transpose())&#xA;print('Using each of the base assets, what\'s the minimum quantity that dominates?')&#xA;D_relative = X.transpose() / D&#xA;print(D_relative)&#xA;Min_dominating_fraction = np.max(D_relative,axis=1)&#xA;print('Minimum fraction of each of the assets that dominates X\n', Min_dominating_fraction)&#xA;P_Min_dominating_fraction = S0.transpose() * Min_dominating_fraction &#xA;print('At prices of: ', P_Min_dominating_fraction)&#xA;print('Therefore the option price should be less than: ', np.min(P_Min_dominating_fraction))&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;This code doesn't spell out the price of the option, it just show my calculations for the paragraph above. I believe the real price of this option would actually be zero if shorting is permitted. If you buy three units of asset $S^2_0$  and short one unit of $S^1_0$ you get an asset with payouts $[ 0.4,  1.6,  0.8]$. This position costs nothing to take, has positive payouts for all states, and first order stochastically dominates the option itself. Since it is possible to make a better than replicating portfolio at zero cost the price should be zero. Oh the insanity at work when arbitrages are present!&lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-12-18T13:20:52.320" LastActivityDate="2015-12-18T13:20:52.320" CommentCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="9829" PostTypeId="1" AcceptedAnswerId="9832" CreationDate="2015-12-17T04:29:47.703" Score="-2" ViewCount="54" Body="&lt;p&gt;Why does econometric models usually have higher accuracy than using other method, show one example with references that shows this? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why this is happening while all these economics method is using economics models?&lt;/p&gt;&#xA;" OwnerUserId="95" LastActivityDate="2015-12-17T16:17:51.587" Title="Why does econometric models usually have higher accuracy than using other method, show one example with references that shows this" Tags="&lt;econometrics&gt;" AnswerCount="1" CommentCount="3" ClosedDate="2015-12-17T14:51:51.317" ContentLicense="CC BY-SA 3.0" />
  <row Id="9830" PostTypeId="1" AcceptedAnswerId="19284" CreationDate="2015-12-17T05:59:23.073" Score="9" ViewCount="793" Body="&lt;p&gt;Consider an economy in which all consumers have, possibly different, &lt;a href=&quot;https://en.wikipedia.org/wiki/Leontief_utilities&quot; rel=&quot;nofollow noreferrer&quot;&gt;Leontief utilities&lt;/a&gt;. Since preferences are not strictly convex, it is not guaranteed that a competitive equilibrium exists. I found some papers that discuss the computational problem of deciding whether a Leontief economy has a competitive equilibrium, but I am interested in general existence results:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A. What conditions on Leontief economies guarantee that a competitive equilibrium exists?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;B. In particular, if the initial endowments are equal (each of $m$ agents receives a fraction $1/m$ of each good), is a competitive equilibrium guaranteed to exist?&lt;/p&gt;&#xA;" OwnerUserId="385" LastEditorUserId="2776" LastEditDate="2017-06-16T15:56:30.743" LastActivityDate="2017-11-14T10:07:38.710" Title="Competitive equilibrium in Leontief economies" Tags="&lt;consumer-theory&gt;&lt;competitive-equilibrium&gt;" AnswerCount="1" CommentCount="6" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9831" PostTypeId="2" ParentId="9791" CreationDate="2015-12-17T06:47:42.907" Score="3" Body="&lt;p&gt;The investment &lt;em&gt;I&lt;/em&gt; earns income in the future. This income can be compared to the risk free rate of interest in the market to determine whether the income earned on &lt;em&gt;I&lt;/em&gt; exceeds the opportunity cost of investing in &lt;em&gt;I&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When interest rates rise, it is more worthwhile for an investor to purchase risk free bonds rather than invest in &lt;em&gt;I&lt;/em&gt;. This decreases the demand for &lt;em&gt;I&lt;/em&gt;, hence its price decreases.&lt;/p&gt;&#xA;" OwnerUserId="6729" LastActivityDate="2015-12-17T06:47:42.907" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9832" PostTypeId="2" ParentId="9829" CreationDate="2015-12-17T08:00:04.333" Score="3" Body="&lt;p&gt;Which &quot;other method&quot; have you in mind? Case studies? Surveys? Graphical evidence?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since most economic questions are &lt;em&gt;ceteris paribus&lt;/em&gt; by nature, econometric models help holding other factors fixed. A key question in most empirical studies is: Have enough other factors been held fixed to make a case for causality?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The number of factors that can affect a variable of interest—such as individual wages—is immense, and the isolation of any particular variable may seem like a hopeless effort. However, when carefully applied, econometric methods can simulate a ceteris paribus experiment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For instance, you may run individual wages on education controlling for gender, experience, tenure, age, ... etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A good starting reference for studying econometrics is &lt;a href=&quot;http://www.cengage.com/search/productOverview.do;jsessionid=A16DB49A72AA2AB6257F575F25AF1798?N=16%204294904682%204294951582&amp;amp;Ntk=P_EPI&amp;amp;Ntt=77005585710918177566411951981665017657&amp;amp;Ntx=mode%2Bmatchallpartial&quot; rel=&quot;nofollow&quot;&gt;Introductory Econometrics&lt;/a&gt; by Jeffrey Wooldridge&lt;/p&gt;&#xA;" OwnerUserId="6168" LastEditorUserId="6168" LastEditDate="2015-12-17T16:17:51.587" LastActivityDate="2015-12-17T16:17:51.587" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9833" PostTypeId="1" CreationDate="2015-12-17T08:23:57.773" Score="6" ViewCount="476" Body="&lt;p&gt;I recently had a discussion with a friend regarding log returns and any economic meaning that could have as a measure in the sense of &quot;assessing the benefit received for compensating work done in a previous time period.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;He rather suggested that this was a mathematical construct beneficial in constructing stories such as historical var for the assessment of risk (owing to their additive nature.. $\log(a/b)+\log(b/a)$ causing no information loss).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there any economic meaning that could be ascribed to log or arithmetic returns?&lt;/p&gt;&#xA;" OwnerUserId="6731" LastEditorDisplayName="user4169" LastEditDate="2016-10-09T19:35:11.763" LastActivityDate="2016-10-10T01:23:53.837" Title="Is there any economic meaning to log returns?" Tags="&lt;mathematical-economics&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9834" PostTypeId="1" CreationDate="2015-12-17T09:12:20.473" Score="5" ViewCount="9796" Body="&lt;p&gt;This is in reference to the Game theoretic concepts as Nash equilibrium refinements. Sequential equilibrium are often defined as satisfying two conditions: consistency and sequential rationality. Whereas Weak Sequential Equilibria (sometimes referred to as Weak Perfect Bayesian) also necessitates sequential rationality, but has a weaker consistency requirement,which is my main source of confusion. Moreover, SE and WSE(WPBE) are often coincide as sets of solutions which really only adds to the frustration of trying to differentiate these almost identical concepts. My main question is, how would I go about checking the consistency requirement for a given extensive form game?&lt;/p&gt;&#xA;" OwnerUserId="6733" LastActivityDate="2015-12-17T19:21:59.253" Title="Difference between Sequential and Weak Sequential (Weak Perfect Bayesian) Equilibria?" Tags="&lt;game-theory&gt;&lt;nash-equilibrium&gt;&lt;extensive-games&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9835" PostTypeId="2" ParentId="9530" CreationDate="2015-12-17T11:03:05.780" Score="2" Body="&lt;p&gt;First, remember that a Cobb-Douglas production function is a special case of a CES production function (see e.g. &lt;a href=&quot;https://en.wikipedia.org/wiki/Cobb%E2%80%93Douglas_production_function&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;).   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Secondly, there are critical assumptions that have to be met when one tries to determine TFP (or the &quot;Solow residual&quot; as it is often called). The most important one is perfect competition.&lt;br&gt;&#xA;Furthermore &lt;strong&gt;constant returns to scale&lt;/strong&gt;. Without those the factor shares (capital, labor over total output) and output elasticities are not identical.&lt;br&gt;&#xA;Thus the standard &quot;growth account exercise&quot; within the Solow-Swan framework is not possible with a general CES function.&lt;/p&gt;&#xA;" OwnerUserId="4087" LastActivityDate="2015-12-17T11:03:05.780" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9837" PostTypeId="1" CreationDate="2015-12-17T13:42:48.440" Score="0" ViewCount="169" Body="&lt;p&gt;I am not an economist by default. In other words, I am a newbie here. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume there is an extremely rich man who withdraws an extremely huge amount of cash money. He then burns all of it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How does this action affect the monetary supply?&lt;/p&gt;&#xA;" OwnerUserId="6736" LastEditorUserId="6085" LastEditDate="2015-12-17T14:59:15.077" LastActivityDate="2015-12-17T14:59:15.077" Title="How does burning a huge amount of cash money affect the monetary supply?" Tags="&lt;monetary-policy&gt;&lt;money-supply&gt;&lt;money&gt;&lt;quantity-theory-of-money&gt;" AnswerCount="1" CommentCount="3" ClosedDate="2015-12-18T15:06:04.480" ContentLicense="CC BY-SA 3.0" />
  <row Id="9838" PostTypeId="2" ParentId="9837" CreationDate="2015-12-17T14:00:49.123" Score="5" Body="&lt;p&gt;It would seem logical that this would result in reverse-inflation or lower prices, but this is actually not the case (at least over time).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The banking system has a &quot;supply and demand&quot; market for reserves.  When say 1 million dollar is withdrawn and not redeposited, the banking system in the aggregate will bid more for current reserves to replace the ones that were lost.  The Fed does not like to see changes in the rates the bankers lend each other reserves and if it thinks this exchange rate is higher than the targeted Fed Funds rate, it will sell REPOs to primary dealers in an attempt to move this rate down.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So in the end, the amount of money will roughly be the same (as near as I can tell).  What will change is that the Fed will have new assets it didn't have before.  These assets in turn will accrue interest, and profits from the Fed get turned over to congress.  So in a round about way, burning money is a transfer of wealth from the individual to the public.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the same way, counterfeiting does not actually increase the money supply in the US over time.  New fake dollars are deposited, drive down reserve rates which results in the Fed selling assets to absorb the new money.  Less Fed assets = less taxpayer money.  So counterfeiting hurts, but just not in the way most suspect. &lt;/p&gt;&#xA;" OwnerUserId="6479" LastActivityDate="2015-12-17T14:00:49.123" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9839" PostTypeId="1" CreationDate="2015-12-17T14:08:39.627" Score="2" ViewCount="628" Body="&lt;p&gt;I am struggling a little with the derivation of the goods demand and price index when preferences are CES and not homothetic. I am optimising the allocation of a Dixit-Stiglitz aggregator, so the program writes&#xA;\begin{equation}&#xA;\max \underbrace{[\gamma_x^{1/\epsilon}(x-\bar{x})^{\frac{\epsilon - 1}{\epsilon}} + \gamma_y^{1/\epsilon}(y-\bar{y})^{\frac{\epsilon - 1}{\epsilon}}]^{\frac{\epsilon}{\epsilon - 1}}}_{\text{= C, total consumption}} + \mu[W-x -yp]&#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where $x$ and $y$ are the quantities of the two goods, $\bar{x}$ and $\bar{y}$ are some levels that make the preferences non-homothetic, $\mu$ is the lagrangian multiplier, $p$ the relative price of $y$, and $W$ the expenditure level.&#xA;Is it possible in this case to derive a demand system involving the total consumption level $C$ and the price index that usually pops-up when using CES? The case with homothetic CES would be&#xA;$$&#xA;y=\gamma_y(p/P)^{-\theta}C&#xA;$$&#xA;with $P$ being the price index obtained by the usual tricks with the Dixit-Stiglitz setting.&lt;/p&gt;&#xA;" OwnerUserId="5879" LastEditorUserId="5879" LastEditDate="2016-01-16T20:08:32.657" LastActivityDate="2016-01-16T20:08:32.657" Title="Non-homothetic CES preferences: demand derivation" Tags="&lt;macroeconomics&gt;&lt;preferences&gt;" AnswerCount="0" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="9840" PostTypeId="1" CreationDate="2015-12-17T15:55:38.627" Score="4" ViewCount="1052" Body="&lt;p&gt;I have been reviewing calculations to find walrasian equilibrium and pareto efficient allocations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume we are in an environment with two consumers, $A$ and $B$, and two goods, $x$ and $y$. From &lt;a href=&quot;https://en.wikipedia.org/wiki/Pareto_efficiency&quot; rel=&quot;nofollow&quot;&gt;this article&lt;/a&gt; in wikipedia, we have that a sufficient condition for pareto efficiency is that the marginal rates of substitution are equal for both consumers. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However for practical purposes this seems only useful when utility functions are differentiable. Assuming preferences are continuous and locally non-satiated, is there any &quot;fast and loose&quot; rule for pareto efficiency when utility functions are not differentiable? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example with leontieff preferences $u(x,y) = \min\{ x,2y \}$ in which case there might be a corner solution.&lt;/p&gt;&#xA;" OwnerUserId="5731" LastEditorUserId="5731" LastEditDate="2015-12-17T16:52:32.350" LastActivityDate="2015-12-17T16:52:32.350" Title="Corner Solutions for Pareto Efficiency" Tags="&lt;pareto-efficiency&gt;" AnswerCount="0" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9841" PostTypeId="2" ParentId="9827" CreationDate="2015-12-17T16:04:04.837" Score="1" Body="&lt;p&gt;When you have empty cells (and by empty cells, I assume that you are referring to a missing value of an observation specific variable), then STATA by default drops the entire row. So in a sense, even when you have a single missing value on a variable and you have say 100 variables, you lose the whole row (the entire observation). This is by default. If you want to avoid this, perhaps think about imputing the missing data points. &lt;/p&gt;&#xA;" OwnerUserId="5233" LastActivityDate="2015-12-17T16:04:04.837" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9842" PostTypeId="2" ParentId="9833" CreationDate="2015-12-17T16:54:15.940" Score="13" Body="&lt;p&gt;Take the 1st order Taylor series the function $log(x)$. around one:&#xA;$$ log(x) \approx log(1) + \frac{x-1}{1} = x-1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, for a random variable r that is close to zero:&#xA;$$ log(1+r) \approx r$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Log returns are typically something like $log(P_{new}/P_{old})$:&#xA;$$\Delta log(P_t) = log(P_{new}/P_{old}) = log((P_{old} + \Delta P)/P_{old}) = log(1 + \Delta P/P_{old}) \approx \Delta P/P_{old}$$&#xA;But $\Delta P/P_{old}$ is just the percent change in $P_{old}$. We've therefore shown that we can approximate the percent change in a variable $X$ with $\Delta log(X)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why bother? Mostly because log differences can be summed but percent changes cannot be:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Using logs, or summarizing changes in terms of continuous compounding,&#xA;  has a number of advantages over looking at simple percent changes. For&#xA;  example, if your portfolio goes up by 50% (say from \$100 to \$150) and&#xA;  then declines by 50% (say from \$150 to \$75), you’re not back where you&#xA;  started. If you calculate your average percentage return (in this&#xA;  case, 0%), that’s not a particularly useful summary of the fact that&#xA;  you actually ended up 25% below where you started. By contrast, if&#xA;  your portfolio goes up in logarithmic terms by 0.5, and then falls in&#xA;  logarithmic terms by 0.5, you are exactly back where you started. The&#xA;  average log return on your portfolio is exactly the same number as the&#xA;  change in log price between the time you bought it and the time you&#xA;  sold it, divided by the number of years that you held it.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://econbrowser.com/archives/2014/02/use-of-logarithms-in-economics&quot; rel=&quot;nofollow&quot;&gt;Jame Hamilton: Use of logarithms in economics&lt;/a&gt; &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2016-10-10T01:23:53.837" LastActivityDate="2016-10-10T01:23:53.837" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9843" PostTypeId="2" ParentId="9834" CreationDate="2015-12-17T19:21:59.253" Score="8" Body="&lt;p&gt;Let's review the definitions of the two concepts. Let $\sigma$ be a profile of strategies and $\mu$ a system of beliefs.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;A pair $(\sigma,\mu)$ is a &lt;strong&gt;&lt;em&gt;weak perfect Bayesian equilibrium (WPBE)&lt;/em&gt;&lt;/strong&gt;&#xA;  if &lt;/p&gt;&#xA;  &#xA;  &lt;ul&gt;&#xA;  &lt;li&gt;$\sigma$ is sequentially rational given $\mu$, and &lt;/li&gt;&#xA;  &lt;li&gt;$\mu$ is derived from $\sigma$ using Bayes rule &lt;strong&gt;whenever applicable&lt;/strong&gt;.&lt;/li&gt;&#xA;  &lt;/ul&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;and &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;A pair $(\sigma,\mu)$ is a &lt;strong&gt;&lt;em&gt;sequential equilibrium (SE)&lt;/em&gt;&lt;/strong&gt; if &lt;/p&gt;&#xA;  &#xA;  &lt;ul&gt;&#xA;  &lt;li&gt;$\sigma$ is sequentially rational given $\mu$, and &lt;/li&gt;&#xA;  &lt;li&gt;$\mu$ and $\sigma$ are consistent in the following sense:   There exists a sequence of completely mixed strategies $\sigma^k\to\sigma$&#xA;  as $k\to\infty$ such that, for each $k$, $\mu^k$ is derived from&#xA;  $\sigma^k$ using Bayes rule (&lt;strong&gt;which is always applicable&lt;/strong&gt;), and that&#xA;  $\mu$ is the limit of $\{\mu^k\}_k$.&lt;/li&gt;&#xA;  &lt;/ul&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;From the definitions, we can see that the two concepts differ in their restrictions of beliefs: WPBE requires beliefs to be consistent with Bayes rule &lt;strong&gt;whenever it is applicable&lt;/strong&gt;, and places no restriction on cases where Bayes rule does not apply (as when an information set is reached with probability zero). In contrast, the consistency requirement imposed by SE &lt;strong&gt;forces Bayes rule to apply everywhere&lt;/strong&gt; in the tree by demanding that the SE-belief is the limit of a sequence of beliefs derived from a profile of completely mixed strategies. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To illustrate, consider the following example of market entry game. The entrant first decides to enter ($I$) or stay out ($O$), and if entered, the entrant (E) and the resident (R) simultaneously choose whether to fight ($F$) or abstain ($A$). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The equilibrium where entrant chooses $(O,\text{$A$ if $I$})$ and the resident chooses $F$, together with the resident believing that the entrant will choose $F$ when entered constitute a WPBE. Clearly the resident's belief is wrong, but that is allowed in WPBE because the information set at which the resident makes his decision is reached with probability zero. Thus Bayes rule does not apply, and he is free to have any belief. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;SE will not allow this to happen, because as soon as $I$ is played with a positive (albeit tiny) probability, Bayes rule applies at the resident's information set, and given the entrant's strategy, the only consistent belief is to assign probability $1$ to the node after $A$. Thus the strategy profile $((O,\text{$A$ if $I$}),F)$ is not a SE.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/swdFJ.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/swdFJ.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore we have the following theorem relating SE and SPE (subgame perfect equilibrium):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;If $(\sigma,\mu)$ is a SE, then $\sigma$ is a SPE.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="42" LastActivityDate="2015-12-17T19:21:59.253" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9844" PostTypeId="1" CreationDate="2015-12-18T01:43:04.233" Score="2" ViewCount="870" Body="&lt;p&gt;I'm trying to find the correct formula to calculate de expected revenue of a &lt;strong&gt;reverse auction&lt;/strong&gt;, properly, a second-price sealed-bid procurement auction to identify the lowest cost supplier.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Prices are private, independent, and uniformly distributed between 50 to 100. no bidder will go below 50. And the number of bidders are 10&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We know that it does not matter whether we use a first-price or a second price auction - the expected final price is the same. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The formula E(p)=(n-1)/(n+1) stems from the fact that it is the valuation of the (n-1)th bidder that determines the expected price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, this is a reverse auction, so the expected price stems from the ordering of bids.  In a reverse auction, the price is not dependent on the value of the (n-1)th bidder, but on the second bidder. So we get that instead, &#xA;E(p)=2/(n+1). &lt;/p&gt;&#xA;" OwnerUserId="6707" LastActivityDate="2015-12-18T23:03:51.880" Title="How to calculate expected revenue in reverse auctions (procurement)" Tags="&lt;game-theory&gt;&lt;expected-utility&gt;&lt;auctions&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9845" PostTypeId="2" ParentId="9844" CreationDate="2015-12-18T03:10:00.917" Score="2" Body="&lt;p&gt;&lt;strong&gt;Hint&lt;/strong&gt;: In second price sealed bid, it is optimal to bid your own valuation for the good. So in a reverse auction, it is optimal for each person to bid their lowest possible price they are willing to supply at. Intuitively, if one individual deviates from that strategy, it doesn't increase their chance of winning the auction or increase their chance at getting a higher priced contract, since the price they supply is based on other contractors' bids.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the expected revenue is going to be the average value of the second lowest bidder amongst ten bidders. Try to set up an integral to describe the distribution and go from there.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a normal second price auction (not reverse):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$F(x)$ is the probability that the price will be &lt;em&gt;less than or equal to&lt;/em&gt; some given $x$, and $f(x)$ is the corresponding density function.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$F(x) = \frac{x-50}{50}; \quad f(x) = F'(x) = \frac{1}{50}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Probability that second highest bid is $x$, with $n$ bidders:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$h(x,n) = n(n−1)f(x)(1−F(x))F(x)^{n−2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Expected value of $x$ (the price):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\int^{100}_{50} x h(x, n) dx$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So you can easily apply a similar logic to your reverse auction. Set up $F(x)$ so that it represents the probability that the price will be &lt;em&gt;greater than or equal to&lt;/em&gt; some given $x$.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastEditorUserId="4251" LastEditDate="2015-12-18T23:03:51.880" LastActivityDate="2015-12-18T23:03:51.880" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="9846" PostTypeId="1" CreationDate="2015-12-18T07:42:36.377" Score="1" ViewCount="746" Body="&lt;p&gt;Suppose the AD curve is relatively flat because the Fed wants a stable price level.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which policy (monetary or fiscal) is ineffective?&lt;/p&gt;&#xA;" OwnerUserId="5936" LastActivityDate="2016-01-21T11:44:45.833" Title="Flat AD curve - policy effects" Tags="&lt;macroeconomics&gt;&lt;monetary-policy&gt;&lt;fiscal-policy&gt;&lt;price-level&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9847" PostTypeId="1" AcceptedAnswerId="9848" CreationDate="2015-12-18T17:57:12.983" Score="3" ViewCount="574" Body="&lt;p&gt;I have been reviewing general equilibrium models and was trying to find an efficient method for computing the core of a cooperative game. I was taught this topic in a very poor way so I believe I still have some conceptual errors. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is a thought I had:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose we are in an economy with three consumers, $A$, $B$, and $C$, with utility $u_{i}(x)$ defined over bundles $x \in \mathbb{R}^{2}$ and endowments $\omega_{i}$ for $i = A, B ,C$. I want to compute the core for this economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know the core must satisfy:&#xA;\begin{align}&#xA;u_{A}(x_{A}) &amp;amp;\geq u_{A}(\omega_{A})\\&#xA;u_{B}(x_{B}) &amp;amp;\geq u_{B}(\omega_{B})\\&#xA;u_{C}(x_{C}) &amp;amp;\geq u_{C}(\omega_{C})\\&#xA;\end{align}&#xA;i.e. the core must be individually rational. So let $$D =\{ x \in \mathbb{R}^{2} : x \text{ is individually rational for $A$, $B$ and $C$} \}$$ I also know that the core is a subset of the pareto efficient outcomes, so let $$E =\{ x \in \mathbb{R}^{2} : x \text{ is pareto efficient} \}$$ Now here is the part I am not sure about: I know that the core is also not blocked by any two-person coalition. I think this means that any core allocation is pareto efficient for any two-person game. Thus I define: &#xA;\begin{align}&#xA;F_{1} =\{ x \in \mathbb{R}^{2} : x \text{ is pareto efficient in the cooperative game with only $A$ and $B$ } \}\\&#xA;F_{2} =\{ x \in \mathbb{R}^{2} : x \text{ is pareto efficient in the cooperative game with only $A$ and $C$ } \}\\&#xA;F_{3} =\{ x \in \mathbb{R}^{2} : x \text{ is pareto efficient in the cooperative game with only $B$ and $C$ } \}&#xA;\end{align} &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here are my questions:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Is the above analysis correct?&lt;/li&gt;&#xA;&lt;li&gt;Can I write the set of core allocations $\mathcal{C}$ as $$\mathcal{C} = D \cap E \cap F_{1} \cap F_{2} \cap F_{3}\text{?}$$&lt;/li&gt;&#xA;&lt;li&gt;Can this method of solving be generalized to a game with $n$ players and $m$ goods?&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Let me know if anything is not clear!&lt;/p&gt;&#xA;" OwnerUserId="5731" LastEditorUserId="5731" LastEditDate="2015-12-18T18:21:34.353" LastActivityDate="2015-12-18T19:21:29.217" Title="Writing the core as the intersection of pareto efficient outcomes of all coalitions" Tags="&lt;general-equilibrium&gt;&lt;pareto-efficiency&gt;&lt;cooperative-game-theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9848" PostTypeId="2" ParentId="9847" CreationDate="2015-12-18T18:35:25.540" Score="2" Body="&lt;ol&gt;&#xA;&lt;li&gt;Most of what you write is correct, but the definitions of the $F_i$ sets is imprecise. The problem is that in the core $A$ and $B$ may get goods that do not match their initial endowments. In this case it is not true that the core allocation $x$ is Pareto-efficient in the restricted 2-person economy of $A$ and $B$, because $x$ is not even an allocation in that game.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Edit: (An example)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider the initial endowments&#xA;$$&#xA;\omega_{A} = (1,1),  \omega_{B} = (1,1), \omega_{C} = (2,2)&#xA;$$&#xA;and an allocation $x$&#xA;$$&#xA;x_A = (2,2), x_B = (2,2), x_C = (0,0).&#xA;$$&#xA;$A$ and $B$ cannot Pareto-improve on $x$. But $x$ is not a Pareto-efficient allocation in their 2-person economy, because it is not a feasible allocation of their economy:&#xA;$$&#xA;x_A + x_B \neq \omega_{A} + \omega_{B}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;A better definition for the sets $F_i$  would be something like:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let us denote the set of feasible allocations of the 2-person economy of $A$ and $B$ by $Y_{A,B} \subset \mathbb{R}^{2}$. Then&#xA;$$&#xA;F_{1} =\{ x \in \mathbb{R}^{2} : \nexists y \in Y_{A,B} \text{ such that } u_{A}(y_{A}) \geq u_{A}(x_{A}), u_{B}(y_{B}) &amp;gt; u_{B}(x_{B}) \}&#xA;$$&#xA;There are still some issues with cases when $A$ is better off and $B$ is not worse off, but if the utility functions are continuous then this should not cause a problem.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can define $F_{2}$ and $F_{3}$ in a similar manner.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A remark: $E$ is not 'special', it is the set of allocations that cannot be improved upon by the three player coalition. This is equivalent to Pareto-efficiency.&lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;2&quot;&gt;&#xA;&lt;li&gt;&lt;p&gt;Yes. Why not? This is exactly what the core is.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;I would not call it solving, because usually you do not get a unique solution, and in extreme cases you may get no solution. But yes, every economy ($n$ players, $m$ goods) has a core, and it is defined in this way. (As indicated, unless some conditions are met the core may be empty. A competitive equilibrium is always an element of the core, so if that exists, the core is non-empty.)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2015-12-18T19:21:29.217" LastActivityDate="2015-12-18T19:21:29.217" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="9849" PostTypeId="2" ParentId="9846" CreationDate="2015-12-18T19:06:52.490" Score="1" Body="&lt;p&gt;A flat AD-curve is not the result of the desire of a central bank to stabilize the price level, it is determined by the behaviour of the aggreggate economy (such as  elasticities and taxes). Stabilizing the price level by using monetary or fiscal policy can be done by shifting the AD-curve (or influencing the slope of the curve, but that is a less standard option). In this context the effectiveness of monetary and fiscal policy depends on how easily policymakers can shift the AD-curve. If you have an equation for AD, this can be easily calculated as $\frac{\partial Y}{\partial X }$, $X$ being the variable in the AD-equation used to implement the policy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The effectiveness of monetary or fiscal policy also depends on the slope of the AS-curve, possible shifts in the (short run) AS-curve in response to the policy (such as inflation expectations), and the objective of the policy: price stabilization or outputstabilization.&lt;/p&gt;&#xA;" OwnerUserId="6566" LastEditorUserId="6566" LastEditDate="2015-12-22T10:46:43.553" LastActivityDate="2015-12-22T10:46:43.553" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9850" PostTypeId="1" CreationDate="2015-12-18T20:50:53.883" Score="1" ViewCount="39" Body="&lt;p&gt;Obviously the data can't be changed to fit a regression, it should be (kind of) the other way around.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But, sometimes the data has stuff going on that needs correction. For example, I got raw data from the Law Enforcement Management And Administrative Statistics 2007 survey. I did a linear multiple regression on it using Stata, and then analyzed the residuals and found heteroskedasticity. So I corrected for it by using the &lt;code&gt;, robust&lt;/code&gt; option in my regression code.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sometimes the data have other problems like data points that are very influential. And sometimes the data doesn't have a very linear relation, more of a curvy one. And I don't know a lot about regression, but I think there are other possible problems with data. Maybe partially filled surveys or falsified information.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Anyway, how do I know that the data itself was good, and that instead (if there were a problem) the problem was in the regression?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I was using this page to try to guide myself through the process &lt;a href=&quot;http://www.ats.ucla.edu/stat/stata/webbooks/reg/chapter2/statareg2.htm&quot; rel=&quot;nofollow&quot;&gt;http://www.ats.ucla.edu/stat/stata/webbooks/reg/chapter2/statareg2.htm&lt;/a&gt;&#xA;but I don't know if that's everything I have to check for.&lt;/p&gt;&#xA;" OwnerDisplayName="user4207" LastActivityDate="2015-12-18T20:50:53.883" Title="How to know if I've done the necessary corrections to my data so that the regression is valid?" Tags="&lt;econometrics&gt;&lt;stata&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9851" PostTypeId="2" ParentId="9820" CreationDate="2015-12-19T00:02:10.967" Score="1" Body="&lt;p&gt;It's important to distinguish between reserves, foreign debt and foreign investments.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's start with pure reserves (of which dollar bills are in essence a component of).  Say South American country X no longer trusts their local Peso and decides to use dollars instead.  They can sell real wealth to the US (like farm produce) and in return receive dollar bills.  Country X then bounces these dollars back and forth internally to facilitate commerce.  This was a good deal for the US!  It exported worthless pieces of paper and in turn imported real wealth.  When this happens, it very much reverses inflation domestically in America.  The US then remains very hopeful that the day will never come when country X sells the dollars back to the US and demands real wealth back (like say trucks).  That would be very inflationary.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a typical economy today, actual reserves won't exchanges hands for trade, but instead promises of reserves (aka bank deposits).  But the concept is very similar.  Bank deposits are pyramid'ed onto reserves, reserves that are exported mean less reserves locally for banks to create deposits (which is the main source of monetary inflation).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then there are foreign investors.  China will not say hoard pure dollars, but rather dollar denominate assets like treasuries.  But this too generates demand for dollars.  If China sends say 1 billion dollars worth of toys and we send China 1 billion dollars in paper promises for dollars...then we (Americans) are better off.  We have more real wealth, while China has less.  However if China were to sell their debt back to the US (or let it mature), the US could face significant inflation as we would then have to send real wealth to China to redeem all the treasure bills we gave them earlier.&lt;/p&gt;&#xA;" OwnerUserId="6479" LastActivityDate="2015-12-19T00:02:10.967" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9852" PostTypeId="2" ParentId="6140" CreationDate="2015-12-19T01:21:57.167" Score="2" Body="&lt;p&gt;It seems like a clever trick a foreign bank could pull but I'm not sure it would work.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So say 'B' acquires 1 billion dollars in base money from the USA ('A').  To import these dollars it had to send real wealth to the US (equipment, clothes, toys, services etc...) to buy these dollars initially.  A heavy economic hit as they would be exporting real wealth and importing worthless pieces of paper intrinsically (dollars).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So does 'B' get its revenge when it turns one billion dollars in base money into say 20 billion dollars?  I'm not sure...  If somebody from country 'B' uses their account to purchase say 100k worth of farmland from an American, the transaction will clear reserves between the 'B' bank and the American farmer's bank in the states.  So 'B' will be down more than 100k because it was multiplied and it would have to unleverage.  If this was the case then the cost of adopting a foreign currency never outweighs the benefits.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But...if an American depositor trusts the the 'B' bank, then that changes everything and reserves don't have to leave B's banking system.  In that case, yes country B did benefit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So kind of a muddled answer, but it is hard to know if the cost or purchasing a foreign base money will be outweigh by foreigners interest in holding domestic bank accounts.  You will always have conflicting pressures and it is tough to predict which will come out on top.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The scary situation for 'B' would be a confidence crisis.  They don't have a central bank to bail them out. If investors get spooked and money gets pulled out of 'B' banking system there is nothing to stop a chain reaction and spectacular failure...which would happen absolutely...just a matter of when.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The moral of the story is the winner is whoever convinces everybody else that their &quot;paper&quot; or &quot;1s and 0s&quot; are worth something for real wealth.  It could be base money in dollars, private money from American bank X, deposit money from say a French bank but denominated in American dollars or a central bank pegged currency.  It all boils down to trust and faith in the end.&lt;/p&gt;&#xA;" OwnerUserId="6479" LastActivityDate="2015-12-19T01:21:57.167" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9854" PostTypeId="1" AcceptedAnswerId="9865" CreationDate="2015-12-19T05:12:57.347" Score="3" ViewCount="92" Body="&lt;p&gt;Suppose we have a hungry fox. He has a gigantic bunch of spoiled carrots that he cannot eat (and wouldn't eat if they were fresh anyway), but he knows the local bunnies in the neighboring area love carrots.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;He seals up all the spoiled carrots in an air-tight basket and heads over to put a mischievous plan into effect. He announces to all the $n$ number of bunnies in the region that he is raffling off a huge trove of carrots worth some $x$ amount of money that he could get at a neighboring market, but which he is deciding to raffle off to his good neighbors. He says he will deliver the heavy load himself to the winner's house privately.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The fox insists on keeping the carrots fresh and keeps the basket closed, so the bunnies cannot smell or see the carrots before the raffle, at the moment. He plans to sell tickets for $p$ money each, and then randomly pick one of the tickets as the winner. A bunny can buy more than one ticket. This process is public and verifiable. When he delivers the spoiled carrots, he will act surprised and then refund any tickets that the winner had bought, and tell the winner he will give refunds to the rest of the bunnies too...before fleeing with the rest of the proceeds before anyone can stop him.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The bunnies are somewhat suspicious of this whole raffle, to varying degrees, but if they were the winner, they would not ask for a replacement prize of equal value to the carrots and would accept the refundwhile the fox was at their house (it's a cultural thing). We say each bunnies' expected utility for tickets is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\mathbb{E}[u_i(t_i, g_i)] = \frac{t_i}{\sum_i^n t_i}(g_i\cdot[C - x^2 + x] - pt_i) + (1 - \frac{t_i}{\sum_i^n t_i})(-pt_i)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $C&amp;gt;0$ is some constant, and $g_i \in (0, 1]$ is a uniform gullibility distribution (higher is more gullible, each bunny has a different $g_i$ somewhere in the distirbution). Notice how if the fox announces $x$ as too high, the bunnies will think the raffle is too good to be true and start valuing the raffle less than they would have, for all else equal. $\mathbb{E}(u_i)$ is public information, and the distribution of $g_i$ is public info as well.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;My question is whether or not it is possible for the fox to&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;determine the demand for tickets given the information&lt;/li&gt;&#xA;&lt;li&gt;if so, what $x$ and $p$ he should announce to maximize expected profit&lt;/li&gt;&#xA;&lt;li&gt;if not, what additional information the question needs to be a compelling, solvable problem&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="4251" LastEditorUserId="61" LastEditDate="2015-12-20T00:51:55.400" LastActivityDate="2015-12-20T14:39:19.080" Title="A Deceptive Raffle" Tags="&lt;microeconomics&gt;&lt;supply-and-demand&gt;&lt;expected-utility&gt;&lt;adverse-selection&gt;" AnswerCount="1" CommentCount="5" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9856" PostTypeId="1" AcceptedAnswerId="9857" CreationDate="2015-12-19T12:25:47.043" Score="3" ViewCount="92" Body="&lt;p&gt;Take, for instance, that you have a game similar to the one proposed by Levitt and Duggan (2000) in sumo wrestling (link: &lt;a href=&quot;http://www.nber.org/papers/w7798.pdf&quot; rel=&quot;nofollow&quot;&gt;http://www.nber.org/papers/w7798.pdf&lt;/a&gt;, section II (pages 9-10) in which the paper describes the model). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Summarizing, a fighter maximizes a expected return in a non-rigged match. For a given fighter consider taking the bribe, the other minimizes a side payment (bribe) to the point of indifference between taking and not taking the bribe -- so, why would the fighter setting the side payment would not set the bribe so it would be &lt;em&gt;marginally&lt;/em&gt; better to accept the bribe than not taking it? Why do the authors include the point of indifference among the possible solutions? &lt;/p&gt;&#xA;" OwnerUserId="4640" LastEditorUserId="1601" LastEditDate="2015-12-19T13:43:51.667" LastActivityDate="2015-12-21T09:17:21.597" Title="Indifferent choice assumption in economics" Tags="&lt;microeconomics&gt;&lt;game-theory&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9857" PostTypeId="2" ParentId="9856" CreationDate="2015-12-19T13:42:58.710" Score="6" Body="&lt;p&gt;Because otherwise you would not have subgame perfect equilibria. Suppose I have an item you need and the item is worthless to me. I would be happy to give you the item for any positive amount of money. If you give me no money for it, I am indifferent, both giving you the item and not giving you the item is an optimal choice for me. Just to be clear: we are not bargaining. You set I price and I will take it or leave it. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you offer price 0 and I give you the item that is an equilibrium. No one could have made a better choice given the other person's choice.&#xA;&lt;br&gt; If you offer price 0 and I do not give you the item that is not an equilibrium, because I would give you the item for any small positive payment and you would be willing to pay that, so you could have made a better move.&#xA;&lt;br&gt; If you offer price $2a&amp;gt;0$ I will give you the item. But this is not an equilibrium. You could also have offered me $a$, which is also positive, and I would also have given you the item then. So you could have saved some money, your original move was not optimal.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Because there is no smallest positive number, the only equilibrium in such cases is when one side is indifferent.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2015-12-21T09:17:21.597" LastActivityDate="2015-12-21T09:17:21.597" CommentCount="17" ContentLicense="CC BY-SA 3.0" />
  <row Id="9858" PostTypeId="2" ParentId="9856" CreationDate="2015-12-19T13:45:49.180" Score="1" Body="&lt;p&gt;One thing that goes towards indifference happening in economics is &lt;a href=&quot;https://en.wikipedia.org/wiki/Granularity&quot; rel=&quot;nofollow&quot;&gt;granularity&lt;/a&gt;. In simple terms, making a &lt;em&gt;marginally better&lt;/em&gt; offer to someone is not enough to offset preferences away from indifference as indifference is a zone of payment (say, $[a-\epsilon, a+\epsilon]$, with $\epsilon$ the granularity of the agent) rather than a single payment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;See for example &lt;a href=&quot;https://www.sss.ias.edu/files/papers/econpaper76.pdf&quot; rel=&quot;nofollow&quot;&gt;bottom of page 8&lt;/a&gt; here in &lt;em&gt;Consistency, Heterogeneity, and Granularity of Individual Behavior under Uncertainty&lt;/em&gt;, Choi &lt;em&gt;et al.&lt;/em&gt;, 2007&lt;/p&gt;&#xA;" OwnerUserId="4578" LastActivityDate="2015-12-19T13:45:49.180" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="9860" PostTypeId="2" ParentId="4452" CreationDate="2015-12-19T15:24:46.787" Score="3" Body="&lt;p&gt;Yes it is possible, I worked for a big bank subsidiary in a different country. We had a nostro account with the parent bank, and with its other subsidiaries. I cannot comment on the benefits/limitations of this though.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT:&#xA;I remember we did not pay fee for the nostro accounts held with the parent and subsidiary banks. Moreover, these accounts were necessary as we had to deal with transactions involving various currencies. If let's say a client wanted to deposit in EUR, the bank should have a EUR nostro otherwise, the bank would not accept euro deposits. &lt;/p&gt;&#xA;" OwnerUserId="6009" LastEditorUserId="6009" LastEditDate="2015-12-19T20:18:51.120" LastActivityDate="2015-12-19T20:18:51.120" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9861" PostTypeId="1" AcceptedAnswerId="9870" CreationDate="2015-12-19T16:48:38.743" Score="1" ViewCount="84" Body="&lt;p&gt;An allocation $x^{*}$ is said to have the core property in a game of $N$ players if there is no coalition $S \subseteq N$ that can improve upon $x^{*}$. The core of a game is the set of allocations with the core property. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, a coalition $S$ will block an allocation $x$ if there exists a feasible $\widetilde{x}$ such that $\widetilde{x} \succ_{s} x$ for all $s \in S$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a practical matter, to determine the core of a cooperative game we usually must compute the allocations that any coalition $S$ will not block (i.e. the allocations that cannot be improved upon). If we denote this allocation as $A_{S}$ then we can write the core allocation $\mathcal{C}$ as $$\mathcal{C} = \bigcap_{S \in 2^{N}} A_{S}  $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now in any game with more than two players it can be tedious to compute the core. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am wondering, if I knew the game was a &lt;em&gt;transferable utility game&lt;/em&gt;, is there any way to compute the core more efficiently? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is mostly a question about the consequences of a game being a transferable utility game, and whether this provides any information that is useful to computing the core. Although I am familiar with the definition of transferrable utility, I was never really comfortable with what it's practical implications were for the game. &lt;/p&gt;&#xA;" OwnerUserId="5731" LastActivityDate="2015-12-20T21:48:58.363" Title="Computing the core in a transferrable utility game" Tags="&lt;general-equilibrium&gt;&lt;cooperative-game-theory&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9863" PostTypeId="1" AcceptedAnswerId="9871" CreationDate="2015-12-19T19:14:40.123" Score="3" ViewCount="135" Body="&lt;p&gt;Given a hamiltonian of the form:&#xA;\begin{equation}&#xA;H_{t} = ln(c_{t}) \dot{} e ^{-\rho t} + \lambda_{t}(w+ra_{t}-c_{t}),&#xA;\end{equation}&#xA;with $c_{t}$ consumption at time t (the control variable), $\rho &amp;gt; 0$ time preference, $w$ a constant (for example wage), $a$ assets held in period t (this is the state variable for which the dynamics are described by: $\frac{da_{t}}{dt}=\dot{a_{t}}= w+ra_{t}-c_{t})$ and $r$ the return on assets. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first order conditions are:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac{\partial H_{t}}{\partial c_{t}}=0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac{\partial H_{t}}{\partial a_{t}}=-\dot{\lambda_{t}}$, or equivalently, $\frac{\partial H_{t}}{\partial a_{t}}+\dot{\lambda_{t}}=0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We were taught that $\frac{\partial H_{t}}{\partial a_{t}}$ can be interpreted as the marginal return on assets in t, and $\dot{\lambda}$ as a capital gain. Together they are the overal return. An accompanying sketch with $a_{t}$ on the horizontal and $H_{t}$ on the vertical axis shows $H_{t}$ is a concave function with a maximum. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The growthpath for consumption is given by $\frac{\dot{c_{t}}}{c_{t}}=-\frac{\dot{\lambda_{t}}}{\lambda_{t}}-\rho$, so that consumption grows over time if $\rho+\frac{\dot{\lambda_{t}}}{\lambda_{t}}&amp;lt;0$, that is: consumption grows if the relative capital losses exceed time preference. As such, the optimizing agent should let his consumption grow when there are sufficiently big capital losses.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My questions are the following:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Why can $\dot{\lambda_{t}}$ be interpreted as a capital gain?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;If there are capital gains or losses ($\dot{\lambda_{t}} \neq 0$), how does this intuitively and/or graphically (in the $(a_{t},H_{t})$-diagram) effect optimization?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Why would consumption grow only in the case of capital losses? Is there an intuitive explanation?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="6566" LastEditorUserId="6566" LastEditDate="2015-12-20T09:14:15.427" LastActivityDate="2015-12-20T12:06:05.640" Title="Dynamic optimization with assets as state variable: interpreting capital gains and losses" Tags="&lt;macroeconomics&gt;&lt;optimization&gt;&lt;dynamic-optimization&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9864" PostTypeId="2" ParentId="9761" CreationDate="2015-12-19T20:28:34.427" Score="2" Body="&lt;p&gt;Without much information on your regression model it's hard to make a good suggestion. But you may have a look at the &lt;a href=&quot;http://eml.berkeley.edu/~dromer/papers/AER_June99.pdf&quot; rel=&quot;nofollow&quot;&gt;Frankel and Romer&lt;/a&gt; AER's paper. They construct an instrument for trade, but it could be used for FDI, based on geographic characteristics. I assume that geographic distance between two countries is a good predictor of FDI flows and that ceteris paribus a Canadian firm based in Vancouver has a higher probability to set up an affiliate in Seattle than in Dallas.&lt;/p&gt;&#xA;" OwnerUserId="6168" LastActivityDate="2015-12-19T20:28:34.427" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9865" PostTypeId="2" ParentId="9854" CreationDate="2015-12-19T20:32:21.003" Score="2" Body="&lt;p&gt;A critical point here is to note that &lt;em&gt;the total number of tickets is not set a priori&lt;/em&gt;. This is good, because it makes the expected utility function non-linear in $t_i$, and so permits us to proceed (half-way). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Writing $S$ for the total number of tickets and $S_{-i}$ for the total number minus the purchases of bunny $i$, and simplifying, the expected utility is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\mathbb{E}[u_i(t_i, g_i)] = \frac{t_i}{S}\cdot g_i\cdot [C-x^2+x]  -pt_i \tag{1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first order condition for utility maximization of one bunny with respect to number of tickets bought  is, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\partial \mathbb{E}[u_i(t_i, g_i)]}{\partial t_i} = \frac{S_{-i}}{S^2}g_i\cdot [C-x^2+x] - p=0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies t_i = \left(\frac {S_{-i} g_i\cdot [C-x^2+x]}{p}\right)^{1/2} - S_{-i} \tag{2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The second-order condition is satisfied so this will be a maximum. Rearranging $(2)$ we obtain&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$S = \left(\frac {S_{-i} g_i\cdot [C-x^2+x]}{p}\right)^{1/2} \tag{3}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The choice of $i$ was arbitrary so we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$S_{-i} g_i = S_{-j} g_j,\;\;\; \forall i\neq j  \implies (S-t_i)g_i = (S-t_j)g_j$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies t_j = S - \frac {g_i}{g_j}(S-t_i), \;\;\; \forall j\neq i \tag{4}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Summing over $j\neq i$ we obtain&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$S-t_i =S_{-i} = (n-1)S - (S-t_i)g_i\sum_{j\neq i}g_j^{-1} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies (S-t_i) = \frac {n-1}{1+g_i\sum_{j\neq i}g_j^{-1}}S \tag{5}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Inserting $(5)$ into $(3)$ we get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$S = \left(\frac {\frac {n-1}{1+g_i\sum_{j\neq i}g_j^{-1}}S g_i\cdot [C-x^2+x]}{p}\right)^{1/2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies S = \frac {(n-1)g_i\cdot [C-x^2+x]}{\left(1+g_i\sum_{j\neq i}g_j^{-1}\right)p}  \tag{6}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We were able to express total demand as a function of the decision variables of the fox, and the parameters/random variables of the model. Nevertheless it also hints at the problem here (multiply by $p$ to get the revenue function), but let's derive it explicitly.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For later use, from $(5)$ we also get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$t_i = S\left(1-\frac {n-1}{1+g_i\sum_{j\neq i}g_j^{-1}}\right)  \tag{7}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Turning to the profit function of the fox, it has certain gross revenues equal to $pS$ and then she will have to payback the amount paid by the bunny that gets to win the lottery. So with probability $t_i/S$ the fox gets $pS - pt_i$. So the expected profit function, &lt;em&gt;after&lt;/em&gt; ticket sales have been finalized and &lt;em&gt;before&lt;/em&gt; the lottery draw, is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$E(\pi) = \sum_{i=1}^n \frac {t_i}{S}\left(pS - pt_i\right) = p\sum_{i=1}^n \frac {t_i(S-t_i)}{S} \tag{8}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Inserting $(5),(7)$ into $(8)$, we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$E(\pi) =  p\sum_{i=1}^n \frac {S\left(1-\frac {n-1}{1+g_i\sum_{j\neq i}g_j^{-1}}\right)\left(\frac {n-1}{1+g_i\sum_{j\neq i}g_j^{-1}}S\right)}{S} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$=  pS\sum_{i=1}^n \left(1-\frac {n-1}{1+g_i\sum_{j\neq i}g_j^{-1}}\right)\left(\frac {n-1}{1+g_i\sum_{j\neq i}g_j^{-1}}\right)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Using also $(6)$ we get, after simplification&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$E(\pi) =  \frac {(n-1)^2g_i\cdot [C-x^2+x]}{1+g_i\sum_{j\neq i}g_j^{-1}}\cdot \sum_{i=1}^n \left[\frac {\left(g_i\sum_{j\neq i}g_j^{-1}-n+2\right)}{\left(1+g_i\sum_{j\neq i}g_j^{-1}\right)^2}\right] \tag{9}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Equation $(9)$ reveals the issues here: While from $(3)$ the fox can infer all actually realized $g_i$'s, ex ante, the expected profit function looks like a very complicated function of $n$ Uniform $(0,1)$ random variables.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But most importantly,  profit does not depend on price (since to begin with Total Revenue does not depend on price). While this is standard in a perfectly competitive environment (where market equilibrium determines price), here we have a monopoly. To fix this, one should go back to the expected utility function and change its quasi-linear form, and assume instead concave utility in $pt_i$, $v(pt_i), v'&amp;gt;0, v''&amp;lt;0$. This will maintain price as an argument of the profit function together with $x$, and maximization of profit with respect to $(p,x)$ jointly could be attempted.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-12-20T14:39:19.080" LastActivityDate="2015-12-20T14:39:19.080" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9866" PostTypeId="1" AcceptedAnswerId="9869" CreationDate="2015-12-19T21:08:15.783" Score="2" ViewCount="6110" Body="&lt;p&gt;Until otherwise $e=\frac{\text{Domestic currency}}{\text{Foreign currency}}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The UIP condition can be written in the following form: Investing now in a domestic bond, must give the same return as investing in a foreign bond, which means, $1+i_t=e^{-1}_t\left(1+i^*_t\right)e^E_{t+1}$, implying&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{1+i_t}{1+i^*_t}=\frac{e^E_{t+1}}{e_{t}}=\frac{1}{1+\frac{e_{t}-e^E_{t+1}}{e^E_{t+1}}}$$ where $i_t$ is the domestic nominal interest rate at time t, $i^*_t$ is the foreign nominal interest rate at time t, $e^E_{t+1}$ is the expected exchange rate at time $t+1$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Using the derivations presented &lt;a href=&quot;https://en.wikipedia.org/wiki/Fisher_equation#Derivation&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt; I get:&#xA;$$i_t-i^*_t=-\frac{e_{t}-e^E_{t+1}}{e^E_{t+1}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, if we define the $e=\frac{\text{Foreign currency}}{\text{Domestic currency}}$, we get $1+i_t=e_t\left(1+i^*_t\right)\left(e^E_{t+1}\right)^{-1}$, and using an analogous reasoning to the above:&#xA;$$i_t-i^*_t=-\frac{e^E_{t+1}-e_{t}}{e_{t}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, this &lt;a href=&quot;https://en.wikipedia.org/wiki/Interest_rate_parity#Approximation&quot; rel=&quot;nofollow&quot;&gt;wiki link&lt;/a&gt; gives(notice the missing minus sign):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$i_t-i^*_t=\frac{e^E_{t+1}-e_{t}}{e_{t}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's not the first time I see this last(wiki) approximation being used.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What's the reasoning for this last approximation? are my approximations wrong? I would really like to know the reason for the minus signs to be missing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated. &lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="118" LastEditDate="2015-12-22T09:09:46.070" LastActivityDate="2015-12-22T09:54:39.300" Title="Uncovered Interest Parity (UIP) condition approximation" Tags="&lt;macroeconomics&gt;&lt;interest-rate&gt;&lt;exchange-rates&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9867" PostTypeId="1" AcceptedAnswerId="9868" CreationDate="2015-12-19T22:52:25.287" Score="2" ViewCount="118" Body="&lt;p&gt;One of those things that makes intuitive sense to me, but not economic sense is the &quot;pay what you want&quot; (PWYW) scheme of pricing. When thinking of traditional micro theory, the effective price of a good under classical PWYW is zero, which creates infinite demand for the good and no equilibria. Yet in real life, consumers willingly pay a positive amount of money for these goods. I understand PYWY can eliminate some of the problems with adverse selection and it is used for market penetration, but I don't have any foundational idea for why this is the case or how you would model consumers in this pay scheme.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(I am aware of &lt;a href=&quot;https://economics.stackexchange.com/questions/5165/modelling-pay-what-you-want&quot;&gt;the existence of this question&lt;/a&gt;, but I feel like mine is different enough to warrant a separate one.)&lt;/p&gt;&#xA;" OwnerUserId="4251" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2018-01-20T02:25:51.793" Title="Pay What You Want Pricing; Micro Foundations" Tags="&lt;microeconomics&gt;&lt;price-theory&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9868" PostTypeId="2" ParentId="9867" CreationDate="2015-12-20T03:31:43.417" Score="2" Body="&lt;p&gt;It seems that some consumers get utility from paying for the good.  This isn't always true, and it does seem counter-intuitive at times.  In fact, it often seems that consumers get utility from getting a &quot;great deal,&quot; and we often hear them brag about their amazing feats of 80% off. &#xA;In this case, however, for a few different reasons, some consumers get utility for paying.  It is the responsibility of the seller to try to maximize or enhance the utility for paying in order to increase revenue.  They have a few tools to do this, including making a big deal about how some of their proceeds may go to charity and by thanking &quot;viewers like you&quot; who choose to pay more than $0 for the good in question, and whose contributions allow the producer to continue operating.  They may also provide Internet Points in much the same way that that Stack Exchange and other sites do in order to help incentivize suppliers to provide quality content in exchange for zero dollars.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;They can also be thought of as providing disutility, using some of the same tools, to those who don't pay.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And, as you mentioned, sellers often go with a PWYW scheme to improve market penetration, and this is often stressed.  Sellers who need market penetration can typically pass as &quot;indie,&quot; and flaunting their indieness may again improve the utility the consumers get by choosing to &quot;support&quot; them, the &quot;little guy&quot; or underdog.  This brings to mind a couple of economic papers (which I can't seem to find at the moment) relating to horseracing and how it seems that people get utility from betting on the underdog to the point where it was once possible to have a positive expected value for betting on the favorite whenever the odds were above somewhere around 1:1 or 1:2.&#xA;Anyway, marketplaces for these goods tend to strongly emphasize this, doing whatever they can to promote their sellers as home-grown upstart startups, even putting it in their respective names, encouraging consumers who pay to think of themselves as supporters or patrons rather than consumers or even foolish rubes who paid for something that they could have gotten for the sum or $0.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To summarize, I think that those who choose to pay are actually purchasing the good in a bundle: the item being sold, along with some quantity of warm fuzzies.  At a certain point, consumers either get no additional fuzzies or start getting anti-fuzzies (cold stabbies?  Ice bricks?) for paying any more.  Some consumers get no fuzzies for paying, or their willingness to pay for fuzzies is low, so they pay zero dollars. Sellers know this, so they are responsible for maximizing the quantity of fuzzies (perhaps by influencing consumers) and gaging how many consumers they can expect to get fuzzies before deciding to use PWYW.  It's possible that the quality of the good being sold is related to the quantity of fuzzies that the buyer receives.  That is to say, consumers may enjoy paying parties who make &quot;good&quot; goods, and they will likely feel ripped off if they voluntarily pay for a &quot;lemon.&quot;&lt;/p&gt;&#xA;" OwnerUserId="6085" LastActivityDate="2015-12-20T03:31:43.417" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9869" PostTypeId="2" ParentId="9866" CreationDate="2015-12-20T07:53:34.423" Score="1" Body="&lt;p&gt;From the basic equation you get&#xA;\begin{eqnarray*}&#xA;\frac{e^E_{t+1}}{e_{t}} &amp;amp; = &amp;amp; \frac{1+i_t}{1+i^*_t} \\&#xA;\\&#xA;(1+i^*_t) \cdot e^E_{t+1} &amp;amp; = &amp;amp; (1+i_t) \cdot e_t \\&#xA;\\&#xA;e^E_{t+1} - e_t &amp;amp; = &amp;amp; i_t \cdot e_t - i^*_t \cdot e^E_{t+1}.&#xA;\end{eqnarray*}&#xA;Now comes the approximation. You divide either by $e_t$ or by $e_{t+1}^E$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First method&#xA;$$&#xA;\frac{e^E_{t+1} - e_t}{e_t} = i_t - i^*_t \cdot \frac{e^E_{t+1}}{e_t} \approx&#xA;i_t - i^*_t.&#xA;$$&#xA;Second method&#xA;$$&#xA;\frac{e^E_{t+1} - e_t}{e^E_{t+1}} = i_t \cdot \frac{e_t}{e^E_{t+1}} - i^*_t  \approx&#xA;i_t - i^*_t.&#xA;$$&#xA;I would say there is no crucial difference, both of these just assume that the proportional change in the exchange rate multiplied by the interest rate is an order of magnitude lower than either the interest rate or the change in the exchange rate alone.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2015-12-22T09:54:39.300" LastActivityDate="2015-12-22T09:54:39.300" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9870" PostTypeId="2" ParentId="9861" CreationDate="2015-12-20T10:53:55.737" Score="3" Body="&lt;p&gt;It depends on the set of feasible allocations for the coalitions $S$. Suppose for all $S$ a best allocation exists (the sum of the individual utilities of the members of $S$ is maximal). Then as in usual cooperative games each coalition can be assigned this best utility sum as its value $v(S)$. Let us denote the utility vector each player gets from an allocation by $x$, and the sum of utilites players get from this by $x(S)$. An allocation is in the core iff&#xA;$$&#xA;\forall S\subseteq N: x(S) \geq v(S).&#xA;$$ &#xA;This is a slight simplification of what you wrote, because instead of comparing all allocations to $x$ we first find the 'best' allocations for each coalition and only compare these to $x$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you make further assumptions about the coalition values $v$, e.g. if you assume the game is &lt;a href=&quot;https://en.wikipedia.org/wiki/Cooperative_game#Convex_cooperative_games&quot; rel=&quot;nofollow&quot;&gt;convex&lt;/a&gt; (this is true for exchange economies) then the calculation may be simplified a bit, as the core of a convex game is the Weber set.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2015-12-20T10:53:55.737" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9871" PostTypeId="2" ParentId="9863" CreationDate="2015-12-20T12:06:05.640" Score="0" Body="&lt;p&gt;Firstly, the $\lambda$ is by definition the shadow price of the wealth/capital. It is the price when you increase one unit of additional capital. $\lambda$ measures the rate of increase of the maximum value of the utility function as the constraint is relaxed. So, the dynamic equation of $\lambda$ is the change on this variable, which intuitively is the capital gain.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What do you mean by $(a_{t},H_{t})$ diagram ? Do you mean a phase diagram on $(a_{t},c_{t})$ ? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For your last question, you can realize on your constraint that the consumption increases at the expense of capital gain (c.f $\dot{a}$.) So, this means that every unit of consumption instead of accumulation is a somewhat loss in capital accumulation. &lt;/p&gt;&#xA;" OwnerUserId="2938" LastActivityDate="2015-12-20T12:06:05.640" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="9872" PostTypeId="1" AcceptedAnswerId="9889" CreationDate="2015-12-20T12:28:57.513" Score="5" ViewCount="193" Body="&lt;p&gt;I am looking for a good book to explain to me why the gold standard existed and why in the Bretton Woods conferences, some countries choose to abandon it. An explanation of the general scenario in a historical setting would also be greatly appreciated.&lt;/p&gt;&#xA;" OwnerUserId="5515" LastEditorUserId="5515" LastEditDate="2015-12-20T14:48:27.367" LastActivityDate="2015-12-21T19:40:52.253" Title="Book for Bretton Woods conferences and gold standard" Tags="&lt;reference-request&gt;&lt;currency&gt;&lt;currency-peg&gt;&lt;history&gt;&lt;history-economic-thought&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9873" PostTypeId="2" ParentId="8557" CreationDate="2015-12-20T14:43:25.893" Score="-1" Body="&lt;p&gt;There is no quantifiable answer as the concept is illusory.  Banks operate by mismatching short term debt with long term assets.  This has no benefit to the economy as a whole and in fact creates inflation, risk and volitionality.  Banks operate maturity mismatching because they can and it serves their own interest.  There is no natural demand for banks which is why they are in need of constant artificial support from central banks (much of which happens on a daily basis).  Without central bank support, banks would be accountable for mismatching short term debt with long term assets and they would quickly and rightly so burn up in a liquidity fire.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Perhaps a better premise to start before mathematically quantifying the demand for banks is to ask conceptually the role banks play in an economy first.  Without conceptual and contextual understanding, math is meaningless number juggling designed to impress and confuse those that don't know better.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now...it can be said it said there is a demand for money of which banks create.  Imagine if we were to switch to the gold standard all of sudden.  Only gold could be exchanged for services.  Because gold is limited, the price for it (to acquire as a means of exchange) would shoot up astronomically.  This profiting (from gold sellers to gold buyers) represents economic loss for the buyers.  If they could acquire another means of exchange (say gold deposits that were not tied 100% to gold) they would not have to pay as much for the gold.  So in a way banks can create competition for money.  But in doing so they create either their own inflation or profiteering.  Then there is of course the matter of fiat currencies competing which never ends well...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Personally, that is why I'm in favor of a national depository that would negate the need for deposit banking.&lt;/p&gt;&#xA;" OwnerUserId="6479" LastActivityDate="2015-12-20T14:43:25.893" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9874" PostTypeId="2" ParentId="8518" CreationDate="2015-12-20T15:12:53.967" Score="-2" Body="&lt;p&gt;Finding interest rates with fractional banking is very difficult because it is governed by quantifiable and unquantifiable factors.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regulatory requirements (like reserve ratios and capital requirements) are objective and quantifiable and play a role (but it varies from bank to bank).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The supply of base money is only limited and is another objective quantifiable component.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But...a major component of banking is trust.  If I create a new money &quot;exchangepesos&quot; and nobody wants it, then any quantifiable math equation would be useless.  Banks create money.  They create &quot;deposit dollars&quot; that of course exceed government dollars (base money).  For this to work, there must be trust.  If I as a depositor or as another bank don't trust say &quot;Bank A&quot;, we won't trust in turn their deposit money which will ruin their credit rating and result in the destruction of their deposit money.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another way of putting this is that banks operate by maturity mismatching.  Matching short term debt to long term assets.  This is naturally exceedingly risk and depends on those lending short term to the bank to consistently roll over such debt.  Because long term assets are long term they will not get the principal in time to satisfy a redemption run by short term debt holders (many of which could be called depositors).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The extent to which a bank can create money and buy interest bearing assets (which affects interest rates) is a function largely of the trust the individuals (but mostly other banks) have in the bank that does the money creation.  This is of course non-quantifiable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The best solution IMO is to at least quantify the extent to which a bank mismatches debt to asset maturities.  This is an obscure but growing measurement sometimes referred to as the liquidity mismatch index.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A most practical manifestation of this equation would be to have a graph with the horizontal access being maturity times (say 1 second 'aka demand deposits), 1 month, 1 year, 5 years, 10 years, 25 years, etc...).  Then the vertical axis quantify be amounts in dollars.  Two lines would be drawn...one for bank debt stratified by maturity time and another for bank assets stratified by maturity time.  Measuring the area of the difference of the two lines would give you a relatively interesting idea of where the banking system is at and where it could go (especially when compared to historic norms).  But ultimately an exact equation to find interest rates is not possible because trust is so important to banking yet is not quantifiable.&lt;/p&gt;&#xA;" OwnerUserId="6479" LastActivityDate="2015-12-20T15:12:53.967" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9875" PostTypeId="2" ParentId="5867" CreationDate="2015-12-20T15:31:20.150" Score="1" Body="&lt;p&gt;Economics is inherently political, so political questions and thus political answers are very appropriate.  To pretend that economics is not political is to make it an end to itself and not a means.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The realistic answer to your question is that fractional banking is allowed because of a combination of factors.  &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Public ignorance&lt;/li&gt;&#xA;&lt;li&gt;Political power of the banking sector&lt;/li&gt;&#xA;&lt;li&gt;Ignorance of banking concepts by academia&lt;/li&gt;&#xA;&lt;li&gt;And the lack of imagination in coming up with alternatives&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;A derivative question of yours that was implied and is appropriate to answer is if banking is good for the common welfare of a nation.  It is not.  You will see many complicated equations and examples that obfuscate this, but the concepts are simple.  Banks issue more promises for money then they have.  These promises are errantly accepted the same as real base money and this create inflation and volitionality.  It is a system in perpetual need of assistance from central banks and would quickly collapse in a liquidity fire without their assistance.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another way of looking at banks is that they engage in maturity mismatching.  They buy long term assets and borrow short term to finance this.  This is very risky.  If my short term debt is no longer rolled over (and I lost trust from investors/depositors), the game is up.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So what are the alternatives?  Allow the public to hold debt-free deposits directly at the central bank.  In the USA only private banks can hold Fed deposits.  But if we allowed the public to hold deposits (and checking accounts/debit cards) with the Fed, we wouldn't need fractional deposit banking, we wouldn't need to bail it out and we wouldn't have its inflation.  Here is a proposal of how such an idea could work: &lt;a href=&quot;http://wfhummel.cnchost.com/nationaldepositorysystem.html&quot; rel=&quot;nofollow&quot;&gt;http://wfhummel.cnchost.com/nationaldepositorysystem.html&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="6479" LastActivityDate="2015-12-20T15:31:20.150" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="9876" PostTypeId="2" ParentId="444" CreationDate="2015-12-20T16:03:42.047" Score="1" Body="&lt;p&gt;Some clarifications...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;M0 is different than MB. M0 is just cash and I assume you meant MB.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If a bank can only lend what it has, what definitions of money and lending do you include?  A bank operates by mismatching short term debt (much of which is deposits) with long term assets.  An untenable situation regardless of the type of assets (deposits vs non-deposits).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we stop say banks from mismatching say 0 second maturity deposits to long term assets, do we then stop 1 second debt?  1 day? 10 days? 100 days?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The other clarification to ask if if the open market would still function?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So say yes the open market would function, but banks must now back M1 demand deposits 100% with MB.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What would banks do?  They would no longer offer free checking.  Instead they would relabel their service to avoid the new requirements.  They could call them &quot;power deposits&quot;.  They might yield .000000001% and maybe withdrawels might be limited to say one day after deposits.  Little would change under such a system.  The core concept of maturity mismatching is still creating problems for the economy and the Fed is still bailing the system out through the open market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What would be a more practical solution?  Offer the public an alternative to private bank deposits.  Allow for public bank deposits (aka deposits directly at the Fed).  The Fed allows private banks to hold debt-free deposits with them...why not the public?  It would be a simple matter to let the Fed issue debit cards and checks for these accounts.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What about broad money?  Banks could be released from constant Fed bailouts because public deposits are no longer at risk...only investors are now.  Individuals who wanted to foolishly lend to banks without the backing of the Fed could do so if they REALLY wanted to, but few would as the banking system would burn up in a liquidity fire without Fed support to prop up maturity mismatching by constantly providing artificial levels of short term debt to the banking system.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What about outstanding debt?  The Fed could in the meantime introduce more MB into the economy to compensate for the collapse of higher monetary aggregates (by buying assets).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What are the long term implications? Imagine if the government let people counterfeit money...but ONLY if they bought couches.  What would be the result?  Couch prices would be higher than normal.  Well banks pretty much are only allowed to buy fixed income securities so interest rates are artificially low now, but without FRB interest rates would go up.  Not a bad thing though.  It would reward honest, non-bubble creating investment/savings.  There would be less inflation.  And there would be less need of borrowing to pay back all the FRB loans.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The national depository solution is IMO the only practical solution to fractional banking.  It would also allow for more gradual transition from FRB to non-debt backed deposits.  Here is an article on how it may work: &lt;a href=&quot;http://wfhummel.cnchost.com/nationaldepositorysystem.html&quot; rel=&quot;nofollow&quot;&gt;http://wfhummel.cnchost.com/nationaldepositorysystem.html&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="6479" LastActivityDate="2015-12-20T16:03:42.047" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9877" PostTypeId="2" ParentId="6954" CreationDate="2015-12-20T16:51:54.673" Score="1" Body="&lt;p&gt;The following paper apparently deals with a very similar question:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Regulating a Monopolist with Unknown Costs   In Ecnometrica (1982),&#xA;  pp. 911-930, doi:10.2307/1912769 by P. Baron, Roger B. Myerson&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This and other similar papers can be found &lt;a href=&quot;https://scholar.google.co.il/scholar?hl=iw&amp;amp;q=%22regulating%20a%20monopolist%22&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="385" LastActivityDate="2015-12-20T16:51:54.673" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="9879" PostTypeId="1" AcceptedAnswerId="9880" CreationDate="2015-12-20T17:57:21.583" Score="1" ViewCount="72" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;The reduction seen in US government debt in the late 1990s has led to a redution in the supply of intermediate and long-term government bonds, and some concern has arisen over this fact. In the United States, some efforts have been made to promote the long-term debt of Fannie Mae and Freddie Mac as substitute benchmark bonds.&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This comes from a passage connected to US treasury bond futures.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I cannot understand why Freddie Mac and Fannie Mae have been chosen as closest to government debt? Didnt one of them go bust in the recession making them not quite default free (as one usually assumes in US debt)?&lt;/p&gt;&#xA;" OwnerUserId="5515" LastActivityDate="2015-12-20T19:17:47.327" Title="Fannie Mae and Freddie Mac as substitute benchmark bonds" Tags="&lt;finance&gt;&lt;government-debt&gt;&lt;financial-markets&gt;&lt;bonds&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9880" PostTypeId="2" ParentId="9879" CreationDate="2015-12-20T19:17:47.327" Score="3" Body="&lt;p&gt;Fannie Mae and Freddie Mac bonds have long been viewed as having an implicit government guarantee, and though they received government support during the crisis, they never missed a payment to bondholders. This implicit guarantee was strengthened in July 2008 when Congress passed the &lt;a href=&quot;https://en.wikipedia.org/wiki/Housing_and_Economic_Recovery_Act_of_2008&quot; rel=&quot;nofollow&quot;&gt;Housing and Economic Recovery Act of 2008&lt;/a&gt;, which created a channel through which the Director of the Federal Housing Finance Agency could place them in conservatorship, which was done in September 2008. The GSEs remain in conservatorship today, and have access to lines of credit with the US Treasury. So while it's true that they still do not have an explicit guarantee today, it's easy to see why they're viewed as having a guarantee, at least implicitly.&lt;/p&gt;&#xA;" OwnerUserId="264" LastActivityDate="2015-12-20T19:17:47.327" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9881" PostTypeId="2" ParentId="9861" CreationDate="2015-12-20T21:48:58.363" Score="2" Body="&lt;p&gt;Computing equilibria is an active area of research. Big name complexity theorists like Lance Fortnow are working in this area. When you have continuity, computing core allocations becomes much easier as we can usually describe the core as a linear program.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When the feasible allocations are discrete, we run into issues of complexity. Deciding if the core is non-empty is NP-Hard. However, if you are given the grand coalition's value and all coalition-value pairs, then the problem is in P. It isn't realistic to expect this much information though.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some relevant lecture notes: &lt;a href=&quot;http://www.cs.cmu.edu/~arielpro/mfai_papers/lecture11.pdf&quot; rel=&quot;nofollow&quot;&gt;http://www.cs.cmu.edu/~arielpro/mfai_papers/lecture11.pdf&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="5368" LastActivityDate="2015-12-20T21:48:58.363" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9882" PostTypeId="1" CreationDate="2015-12-21T00:44:25.600" Score="0" ViewCount="43" Body="&lt;p&gt;I had a question : Does Bangladesh and India's economy face similar economic obstacles (Poverty, education, unemployment etc) or are they different in their own terms ? I'd be extremely grateful if anyone could answer this question as I really need it for my EPQ. Many thanks. &lt;/p&gt;&#xA;" OwnerUserId="6757" LastActivityDate="2015-12-21T07:41:02.073" Title="Does Bangladesh and India's economy face similar economic obstacles?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="1" ClosedDate="2015-12-21T21:58:52.847" ContentLicense="CC BY-SA 3.0" />
  <row Id="9883" PostTypeId="2" ParentId="444" CreationDate="2015-12-21T02:36:35.583" Score="1" Body="&lt;p&gt;Here's a hypothetical society. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The currency is gold coins. These can't be created virtually or counterfeited. There's a limited number of them in our society. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I happen to have 1000 myself, and because I own them, I create a bank and I can lend them out. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If people deposit their coins into my bank, I can't lend those coins out. Therefore I have no reason to look after them for them, unless I start charging 'safe keeping' fees. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Because I only have 1000 coins to lend, but lots of people to lend to, I lend my coins to who's paying the highest &lt;code&gt;(interest rate * chance of paying the loan back)&lt;/code&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can't make a new loan until the old one is paid back. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This means that it's &lt;em&gt;much much much&lt;/em&gt; harder for anybody to borrow money. They can either borrow money now and pay exorbitant interest, or they must save money before they spend it. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Somebody that has a great business idea, but needs the capital to fund it, needs to wait five years while saving money for it, or else he sells shares in his business. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I guess he's allowed to borrow the supplies he needs directly from the suppliers. But this means that the suppliers assume all the risk in the case that business fails. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppliers would subscribe to 'risk assessment' services who match ideal borrowers to the suppliers, since it's now the supplier holding the risk. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;When someone purchases something with gold coins, the gold coins then sit the seller's vault doing nothing, as the seller doesn't need to spend the coins &lt;em&gt;right now&lt;/em&gt; but may need to use them tomorrow, so he can't lend them out, unless he's doing some 'day to day' lending scheme, which would be hard for the borrower in this case to payback unless they had some surefire way to pay the loan back each day.&lt;/p&gt;&#xA;" OwnerUserId="96" LastActivityDate="2015-12-21T02:36:35.583" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9884" PostTypeId="2" ParentId="6140" CreationDate="2015-12-21T02:53:57.203" Score="4" Body="&lt;p&gt;When the retail bank in country B multiplies the money supply, it does so by creating an asset (money owed by the borrowers) and a liability (the obligation to honor the loan it gave to the borrowers) on its books, and an asset (money to spend) and a liability (the loan to pay back) on the books of each of the borrowers. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, if these borrowers are all spending their money amongst each other, this probably isn't going to be a problem. It by no means affects inflation in country A, because there's no additional demand on country A's resources. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But lets say instead all of the borrowers then go to use this money to import some goods from country A. This will be, on the face of it, inflationary. Suddenly you have all this extra demand, for no additional supply. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;One of two things happens:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;The borrowers say to country A's exporter, 'I would like to buy some widgets, get the cash from my bank' and exporter (or rather, the exporter's bank, who is based in country A) says to the bank 'Cash please!'. Country B's bank doesn't have the cash to honor every loan they've made, so they're unable to honor the payments and the loan they gave the borrowers is essentially worthless. The exporter doesn't send the goods. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The exporter in country A's bank is ok with the promise of payment from the bank in country B. Afterall - there are also exporters in country B selling goods to people in country A, and this will balance out the loan. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;In this second scenario - the there is also &lt;em&gt;an increase in supply&lt;/em&gt; because country B is also exporting to country A, so it's not necessarily inflationary. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Bottom line:&lt;/strong&gt; The inflationary effect of multiplying the money supply will be tempered by the bank's ability to honor the loans. A bank can make all the on paper loans it wants, but unless it's able to actually honor them, they are meaningless. In our modern banking system, there's a high degree of &lt;em&gt;trust&lt;/em&gt; which means when a bank lends us money, and we see that money in our bank account,  we assume that that money is actually going to be able to buy us goods. &lt;/p&gt;&#xA;" OwnerUserId="96" LastActivityDate="2015-12-21T02:53:57.203" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9885" PostTypeId="2" ParentId="9882" CreationDate="2015-12-21T07:41:02.073" Score="1" Body="&lt;p&gt;A good starting point is to look at the World Development Indicators (WDI) of the World Bank. You may compare &lt;a href=&quot;http://data.worldbank.org/country/bangladesh&quot; rel=&quot;nofollow&quot;&gt;Bangladesh&lt;/a&gt; and &lt;a href=&quot;http://data.worldbank.org/country/india&quot; rel=&quot;nofollow&quot;&gt;India&lt;/a&gt;'s economy over hundred indicators. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For instance, you will find that the percentage of the population living below the national poverty lines was around 31.5% in Bangladesh (in 2010) versus 21.9% in India (in 2011). The &lt;a href=&quot;http://data.worldbank.org/sites/default/files/wdi-2014-book.pdf&quot; rel=&quot;nofollow&quot;&gt;2014 annual report&lt;/a&gt; documents that the unemployment rate was quite low in both countries between 2008 and 2012, around 4-5%.&lt;/p&gt;&#xA;" OwnerUserId="6168" LastActivityDate="2015-12-21T07:41:02.073" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9886" PostTypeId="1" CreationDate="2015-12-21T08:15:41.430" Score="1" ViewCount="3030" Body="&lt;p&gt;First, I am a French student, so forgive me for my English which can be not clear at all. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/tX2d0.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/tX2d0.png&quot; alt=&quot;difflog values ACF&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/479pN.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/479pN.png&quot; alt=&quot;difflog values PACF&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have to analyze a financial series. I have some difficulties to make the second part of the work which focuses on ARMA model. I can't read (interpret?) my Autocorrelation Function (ACF) and Partial Autocorrelation Function (PACF) correlogramm. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To my mind, here we have a MA(0) but I don't know if it's possible. In this case, what does it mean ? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And I don't know also with the PACF graph, if we are in a AR(3) or AR(6). And why the first stick is not over the &quot;confidence level&quot; ? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is possible that my interpretations are false, please tell me.&lt;/p&gt;&#xA;" OwnerUserId="6762" LastEditorUserId="69" LastEditDate="2016-01-20T18:58:58.583" LastActivityDate="2016-01-20T18:58:58.583" Title="Interpretation of ACF and PACF" Tags="&lt;econometrics&gt;&lt;financial-economics&gt;&lt;applied-econometrics&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9887" PostTypeId="2" ParentId="9886" CreationDate="2015-12-21T16:23:26.073" Score="2" Body="&lt;p&gt;In some statistical software (not all), in a correlogram the &quot;zero lag&quot; is also depicted - but the zero lag is just the correlation of a random variable with its own self, so it is by construction equal to unity. This appears to be happening in your first graph where the autocorrelation function is calculated. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The second graph is the partial autocorrelation function which calculates the correlation coefficients after the effect of all &quot;previous&quot; lags (i.e. of lower order) has been removed (by linear projection estimation).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First impression? The process is white noise. What lags appear to exceed the  &quot;statistical significance threshold&quot;, they nevertheless indicate &lt;em&gt;very&lt;/em&gt; small values, never greater  than $0.05$. This is truly &lt;em&gt;economically negligible&lt;/em&gt; correlation even if it exists (irrespective of whether it is &quot;statistically significant&quot;), and most likely is due to &quot;finite-sample variation&quot;, rather than indication of any actual relation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And apart from that, do the lags appearing &quot;significant&quot; &lt;em&gt;make sense&lt;/em&gt;? &#xA;It always matters what the process you are examining is, and what is its &quot;typical properties&quot; based on past scientific work (but don't take this to mean that &quot;past typical properties&quot; always carry over to all the realizations of the process).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In any case, it would be instructive to &quot;follow blindly&quot; the Correlograms and see what you get, by trying various combinations based on the lags that appear statistically significant.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-12-21T16:23:26.073" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9888" PostTypeId="2" ParentId="9301" CreationDate="2015-12-21T18:37:35.637" Score="7" Body="&lt;h2&gt;How is the minimum wage determined?&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Yes and no. It is a political choice, but with economic reasoning. In the end, that's the case for every economic rule, maybe with the exception of monetary rules, as we try to preserve independence for central bankers (but it isn't &lt;em&gt;completely&lt;/em&gt; true for the US FEDs).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When setting the new minimum wage, you compare minimum wages with other states, and with your own (earlier) state, to get a feeling what's possible and what is not. In the end, the minimum wage is a trade-off between raising earnings for some parts of the population, and decreasing employment chance for others. &lt;/p&gt;&#xA;&#xA;&lt;h2&gt;How does the minimum wage affect employment?&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;The degree of trade-off (if you will, the transition rate between the two) is unclear. In the data, we tend to see no employment effect of minimum wages, but an increase in earnings (Dube et al (2010): (&lt;a href=&quot;http://www.irle.berkeley.edu/workingpapers/157-07.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Ungated version&lt;/a&gt;). In fact, we see a large number of estimates around 0:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/HXmG7.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/HXmG7.png&quot; alt=&quot;Estimated Minimum-Wage Effects Onto Unemployment&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Many economists suspect (based on a strong prior that there &lt;em&gt;should&lt;/em&gt; be an employment effect) that this is due to poor data (Matt Rognlie's &lt;a href=&quot;http://econlog.econlib.org/archives/2015/08/divine_coincide.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;comment&lt;/a&gt;), or long-term effects of minimum-wages (adjustment costs in technology) that we are not capable of measuring/estimating precisely (Sorkin (2015) (&lt;a href=&quot;https://ideas.repec.org/a/red/issued/13-225.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;IDEAS&lt;/a&gt;)).&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Why doesn't the minimum wage affect employment?&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;The counter-effect to some part is the political process. People are not stupid, they will accept raises in the minimum wage to some degree, but not if you go bananas. Also, there are natural counter-forces in the economy: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;minimum wages are nominal&lt;/li&gt;&#xA;&lt;li&gt;minimum wages are lower bounds&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;To that end, if you increase the minimum wage, eventually inflation will wash off the real impact. Also, raises in the minimum wage tend to become substitutes for (non-forced) increases in the wage level.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Have a look at the following graph, which depicts the relative impact of minimum wages. The author plots the maximum of minimum wages at a time period, deflated by average hourly wage in the private sector among production and non-supervisory employees (no managers). It really looks as if any spike (raise in the minimum wages) gets deflated quite quickly, doesn't it?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/NAuXB.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/NAuXB.png&quot; alt=&quot;Relative Minimum Wages&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2015-12-21T19:53:44.493" LastActivityDate="2015-12-21T19:53:44.493" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9889" PostTypeId="2" ParentId="9872" CreationDate="2015-12-21T19:40:52.253" Score="6" Body="&lt;p&gt;Covering the historical part, you may want to look at:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;1) &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/1491531002&quot;&gt;The Battle of Bretton Woods: John Maynard Keynes, Harry Dexter White, and the Making of a New World Order&lt;/a&gt;&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which appears to be written in a &quot;non-fiction thriller&quot; style, revolving around the argument that&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;(Bretton Woods) was in reality part of a much more ambitious geopolitical agenda hatched within President Franklin D. Roosevelt's&#xA;  Treasury and aimed at eliminating Britain as an economic and political&#xA;  rival. At the heart of the drama were the antipodal characters of John&#xA;  Maynard Keynes, the renowned and revolutionary British economist, and&#xA;  Harry Dexter White, the dogged, self-made American technocrat.&lt;/em&gt;&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;while the raw-data option would be &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;2) &lt;a href=&quot;http://www.centerforfinancialstability.org/brettonwoods.php&quot;&gt;The Bretton Woods Transcripts&lt;/strong&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;that&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;...offer the reader a front row seat at the conference that has shaped the international monetary system for nearly 70 years. The&#xA;  Bretton Woods Transcripts were never intended for publication, and&#xA;  give an inside perspective of what participants at this major&#xA;  international gathering said behind closed doors.&lt;/em&gt;&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-12-21T19:40:52.253" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9891" PostTypeId="2" ParentId="8883" CreationDate="2015-12-22T04:01:37.120" Score="1" Body="&lt;p&gt;According to standard textbooks on public finance (e.g., Tresch, Public Finance, 3rd ed., p. 272) the tax incidence includes the deadweight loss. This is because we are interested in the burden of the tax on consumers and producers and the deadweight loss can be a large part of this. (However, see &lt;a href=&quot;https://en.wikipedia.org/wiki/Tax_incidence&quot; rel=&quot;nofollow&quot;&gt;https://en.wikipedia.org/wiki/Tax_incidence&lt;/a&gt; which does not include the deadweight loss.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are some difficulties, however. First, the deadweight loss is only a meaningful concept in partial equilibrium settings. The incidence as you described it cannot be used in general equilibrium settings as supply and demand curves shift with the introduction of the tax. Thus, the more common approach in general equilibrium is to determine the welfare loss of different individuals.&lt;/p&gt;&#xA;" OwnerUserId="5635" LastActivityDate="2015-12-22T04:01:37.120" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9893" PostTypeId="1" AcceptedAnswerId="9896" CreationDate="2015-12-22T12:47:01.677" Score="1" ViewCount="332" Body="&lt;p&gt;I am trying to define a 'model' for the perceived performance of a product based on this definition:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Presumably, customers take both price and quality&#xA;  into account as they form an overall evaluation about&#xA;  a product's performance. To avoid a confounding of&#xA;  the two, each was measured in light of the other—&#xA;  perceived performance is thus measured by price (given&#xA;  quality) and quality (given price). (Fornell, 1992)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I thought that a utility function might be a good way to describe the quality of a product, so ended up with:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$P(x) = \frac{u(x)}{c}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where the perceived performance P of a product x is equal to its utility function u(x) divided by its total price c.&#xA;Is this more or less ok? Or should I include the price variable in a different way, such as e.g.:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ P(x) = u(x,c)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;...or even simpler&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ P(x) = u(x)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As cost might be assumed to be part of the trade-offs of the function? Any ideas or help with the notation or function would be really appreciated. &lt;/p&gt;&#xA;" OwnerUserId="6770" LastEditorUserId="2776" LastEditDate="2016-09-04T17:57:38.227" LastActivityDate="2016-09-04T17:57:38.227" Title="performance as utility function / price?" Tags="&lt;utility&gt;&lt;consumer-theory&gt;&lt;choice-theory&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9896" PostTypeId="2" ParentId="9893" CreationDate="2015-12-22T16:06:11.660" Score="2" Body="&lt;p&gt;There is a long tradition in economics (some 50 years worth of research) called &lt;a href=&quot;https://en.wikipedia.org/wiki/Hedonic_index&quot; rel=&quot;nofollow&quot;&gt;&quot;Hedonic Price Analysis&quot;.&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It consists of &quot;allocating&quot; (through regression estimation) the price of a product to its various qualitative features (&quot;characteristics&quot;) quantified, that presumably are valued by the consumers, i.e. those that are utility-enhancing. These characteristics are either quantified (e.g. Computer RAM measured in GB), or &quot;1/0&quot; dummy variables (the characteristic exists/it doesn't). Note that in the related empirical studies &lt;em&gt;actual transacted prices&lt;/em&gt; are used, i.e. prices that the consumers have accepted to pay.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The estimated coefficients from the regression provide the monetized &quot;willingness to pay&quot; per unit of characteristic (or per existence of it). Once you have them, you can extrapolate outside the sample to find the total &quot;willingness to pay&quot; for a product $i$, say $W_i$, by multiplying &lt;em&gt;its&lt;/em&gt; characteristics by the marginal willingness to pay for each characteristic.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In essence, in this way you transformed something that is considered ordinal and un-measurable (utility) into a monetized equivalent (using the &quot;revealed preference&quot; approach, since you used prices that the consumers actually paid).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you then compare this magnitude to some &lt;em&gt;advertised&lt;/em&gt; price of this product, $P_{ai}$, then a ratio like&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\text{Prf}_i = \frac {W_i}{P_{ai}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;could be your &quot;Performance&quot; index. If for example it is higher than unity, it means that the product &quot;is a good bargain&quot; for the consumers, because the monetary value of the utility they will get out of it, is higher than the money they will have to pay to acquire it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;NOTE: Hedonic Price Analysis is not just something that academic economists do. In many nations, official Price Indexes are for several years now adjusted for quality, using the methods developed by economists throughout the years.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-12-22T16:06:11.660" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="9897" PostTypeId="1" AcceptedAnswerId="9901" CreationDate="2015-12-22T19:06:06.427" Score="3" ViewCount="1282" Body="&lt;p&gt;Venezuela is ranked #2 in the 2014 Big Mac Index at \$7.15 per Big Mac. You can see the graph &lt;a href=&quot;http://knoema.com/EBMI2015Jan/the-economist-big-mac-index-july-2015&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;.  However, Venezuela is not a very rich country, having a gross domestic product of \$11,789 per capita. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are at least 20 McDonalds in Caracas, so there is a fairly large supply. With a small gross domestic product the quantity demanded should be smaller by high prices. Even if the market for Big Mac-like products is a monopoly in Venezuela, I still think the price shouldn't be that high.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another thing that is remarkable is that after 2014, the price had a rapid decrease. Maybe the transformation from a monopoly market to a monopolistic competition market caused it rapid decrease in price in June 2015?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In short the questions:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;How could the price of a Big Mac be so high? &lt;/li&gt;&#xA;&lt;li&gt;What caused it rapid decrease in price?&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="5061" LastEditorUserId="43" LastEditDate="2016-04-27T15:14:37.197" LastActivityDate="2016-04-27T16:40:50.167" Title="Why does Venezuela have such a high Big Mac Index?" Tags="&lt;supply-and-demand&gt;&lt;markets&gt;" AnswerCount="3" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9901" PostTypeId="2" ParentId="9897" CreationDate="2015-12-22T21:19:15.377" Score="3" Body="&lt;p&gt;It is worth noting that Venezuela has had &lt;a href=&quot;http://www.xe.com/currency/vef-venezuelan-bolivar#additionalinfo&quot; rel=&quot;nofollow&quot;&gt;currency controls&lt;/a&gt; in place for quite some time now, so the locals cannot get dollars at the world exchange rate.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;On January 2010, the government of Venezuela created a two-tiered official exchange rate system. Imports designated as &quot;non-essential&quot; receive a rate of 4.3 bolivares per dollar, and &quot;essential&quot; goods are exchanged at a rate of 2.6. There is also a third and unofficial exchange rate in the black market valued at around 6.8 bolivares per dollar (March 2010).&#xA;  The Venezuelan government decides what &quot;essential&quot; goods qualify for the 2.6 rate. They include imports for sectors related to food, health, education, equipment, and technology; remittances to relatives settled abroad; students' academic expenses abroad; expenses related to health, sport, culture, and scientific investigations; payments to retired and resident pensioners abroad; and currency conversions related to diplomatic activities.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The dollar value of a Big Mac at the official Venezuelan exchange rate is less than \$7.15.&#xA;&lt;br&gt;(If my deeming it non-essential is correct it would be around \$2.50.)&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Truth be told I am surprised they still have McDonald's restaurants in Venezuela, because long time president Chavez chastized US companies strongly and frequently and I think everyone associates McDonald's with the US. &lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2016-04-27T16:40:50.167" LastActivityDate="2016-04-27T16:40:50.167" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9902" PostTypeId="2" ParentId="9897" CreationDate="2015-12-22T21:19:46.223" Score="0" Body="&lt;p&gt;What I see in the table is this:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Price: $0.67 (Bolivar 132.00), Raw index: undervalued by 86.0%, Actual&#xA;  exchange rate: 197.00, Implied exchange rate*: 27.56&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;where did you get the $7.15 price tag for Venezuela?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Big Max index is based on the idea of PPP. The way you look at the index is this, as you said Big Mac is $7.15 in Venezuela, it is more expensive than in the USA, around 1.5 times higher, in fact.This implies Bolivar is appreciating against the USD.  But, according to the index Bolivar appears to be hugely undervalued, by 86%! Also, Big Mac is more expensive in developed countries, just look at the prices from Norway and Switzerland, their currencies are overvalued.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT:&#xA;Okay, now I see why. I think these fluctuations are likely due to misalignment, tariffs also play role along with tastes. Also, this link gives you a slightly different &lt;a href=&quot;http://www.economist.com/blogs/americasview/2014/04/venezuelas-byzantine-exchange-rate-system&quot; rel=&quot;nofollow&quot;&gt;perspective&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="6009" LastEditorUserId="6009" LastEditDate="2015-12-22T21:46:40.287" LastActivityDate="2015-12-22T21:46:40.287" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9905" PostTypeId="1" CreationDate="2015-12-22T22:16:04.563" Score="1" ViewCount="56" Body="&lt;p&gt;I'm not any kind of expert in this area, so please be gentle. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems that we speak of oil (and other natural resources) as though control of output and revenue from extraction adheres to the national government (as in &quot;Saudi&quot; oil), but is this true of countries like the US as well? Is it accurate to speak of &quot;US&quot; oil in the same way we speak of &quot;Saudi&quot; oil, given that from what I gather the US does not directly control production and does not directly sell product, while the Saudi government controls oil extraction as a state-owned monopoly?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What if any are the implications of the apparent differences here?&lt;/p&gt;&#xA;" OwnerUserId="6775" LastEditorUserId="264" LastEditDate="2015-12-23T17:34:39.937" LastActivityDate="2015-12-24T09:45:24.200" Title="What are the implication of state-run oil production vs. private production from leases?" Tags="&lt;markets&gt;&lt;energy-economics&gt;" AnswerCount="1" CommentCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="9908" PostTypeId="2" ParentId="9823" CreationDate="2015-12-23T11:01:58.083" Score="1" Body="&lt;p&gt;There are quite a few books in the market on global macro strategies, the following could be useful:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Bernad Baumohl (2012) The Secrets of Economic Indicators: Hidden&#xA;Clues to Future Economic Trends and Investment Opportunities &lt;/li&gt;&#xA;&lt;li&gt;Greg Gliner (2014) Global Macro Trading: Profiting in a New World Economy&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Also try reading &lt;a href=&quot;http://www.globalmacroarbitrage.com/&quot; rel=&quot;nofollow&quot;&gt;Burstein's book&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="6009" LastActivityDate="2015-12-23T11:01:58.083" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9910" PostTypeId="2" ParentId="6875" CreationDate="2015-12-23T12:28:11.983" Score="1" Body="&lt;p&gt;Complementary to the answer of Ubiquitous with respect to the effect of a devaluation on foreign trade (and only of marginal importance), is the possibility that the positive effect of a devaluation on the current account occurs only after an initial worsening of the current account. This sequence of a worsening and subsequently improving current account in response to a devaluation is called the J-curve effect, introduced by, if I rembember well, Abba and Lerner. Its presence can be explained by disentangling two opposite effects that result from a devaluation: a volume-effect that positively affects the current account and a price-effect that negatively affects the current account.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The volume effect with a positive impact on the current account is exactly what is described by Ubiquitous. The negative impact of the price-effect on the current account follows from the fact that any given imported quantity becomes more expensive after the devaluation. This price-effect will dominate in the case that the price-elasticity of domestic demand for imports and the price-elasticity of foreign demand for domestic exports are low, because in that case the exported quantities will increase only modestly and imports will decrease only modestly. Or, put differently, in this case of low price-elasticities, de volume effect is small. This is typically the case in the short run. In the long run the volume-effect can be expected to dominate.&lt;/p&gt;&#xA;" OwnerUserId="6566" LastEditorUserId="6566" LastEditDate="2015-12-26T18:07:09.087" LastActivityDate="2015-12-26T18:07:09.087" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9911" PostTypeId="1" CreationDate="2015-12-23T13:17:02.883" Score="5" ViewCount="505" Body="&lt;p&gt;Would I be &quot;mining the data&quot; in a time series analysis if I add more lags than theory suggests? For instance, for &lt;strong&gt;annual data&lt;/strong&gt; analysis, it is recommended that two lags would be sufficient to capture the dynamic interactions among the variables and account for potential serial correlations. Similarly, in models that use &lt;strong&gt;quarterly data&lt;/strong&gt;, using four lags is a norm. However, in many instances, there is a conflict between what theory says and what one could observe in actual data.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Just wondering if it amounts to &quot;data mining&quot; when I augment the model with more than 2 lags of annual data. Assume the lag order is selected using an information criterion.&lt;/p&gt;&#xA;" OwnerUserId="6009" LastEditorUserId="6085" LastEditDate="2015-12-23T16:47:58.940" LastActivityDate="2015-12-30T01:20:46.550" Title="Data mining in econometric modelling" Tags="&lt;macroeconomics&gt;&lt;econometrics&gt;&lt;time-series&gt;&lt;statistics&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9912" PostTypeId="1" CreationDate="2015-12-23T14:01:17.303" Score="5" ViewCount="280" Body="&lt;p&gt;I can think of two possible explanations:&lt;/p&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;People there inherited the wealth of their ancestors (and of the companies of their generation).&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Advances in technology allows you to earn money more easily.&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;p&gt;Despite other factors at play: Approximately how big percent of the rich countries' wealth is caused by the first one and how big by the second one?&lt;/p&gt;&#xA;" OwnerUserId="6439" LastEditorUserId="6439" LastEditDate="2020-12-03T10:38:33.370" LastActivityDate="2020-12-03T15:55:01.453" Title="Why do rich countries remain rich?" Tags="&lt;macroeconomics&gt;&lt;economic-growth&gt;&lt;wages&gt;" AnswerCount="4" CommentCount="8" ContentLicense="CC BY-SA 4.0" />
  <row Id="9913" PostTypeId="2" ParentId="9912" CreationDate="2015-12-23T14:43:16.923" Score="1" Body="&lt;p&gt;GE models usually assume a representative household inherits wealth and this could further be passed along the generations to come. However, this representative household is not really a representative in real world. Majority of people do not inherit more than on average $300,000 i.e. house, business, cash, other property.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From growth theory perspective, the second factor is important to drive growth in advanced economies. Advanced countries, once reach steady state growth level, need technological shock to increase growth on a new steady state level. For the people to innovate (come up with new ideas) there needs to be proper institutions conducive to growth in the economy. Protection of private property, (property rights/patents) is an example - inventors have better protection in the West than in Africa/East, and hence they tend to invent better technologies which would ultimately stimulate growth. High wages are another factor, better paid employees are expected to be highly skilled. Firms pay skill-premium to attract talent in the West, this drives up average wage rate.&lt;/p&gt;&#xA;" OwnerUserId="6009" LastActivityDate="2015-12-23T14:43:16.923" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="9914" PostTypeId="2" ParentId="9911" CreationDate="2015-12-23T14:56:33.537" Score="3" Body="&lt;p&gt;The critical points here are the phrases &quot;it is recommended that...&quot;, and &quot;using four lags is a norm&quot;. &quot;Recommended&quot; and &quot;norm&quot; based on what? On a specific prevailing theoretical model, or on past experience with the specific kind of data? If it is the latter, you do not conflict with any economic theory, if you try something different.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is also a good example of the need to arrive at a synthesis where the model is both theoretically supported and also statistically adequate (consult the works, especially the books, of prof. Aris Spanos on this important methodological matter).&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-12-23T15:08:12.270" LastActivityDate="2015-12-23T15:08:12.270" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9916" PostTypeId="1" CreationDate="2015-12-23T15:44:49.233" Score="8" ViewCount="479" Body="&lt;p&gt;Consider an exchange economy with two goods, e.g. home furniture (x) and electrical equipment (y). The interesting thing about these goods is that, when a family owns a bundle, all members of the family enjoy the same bundle (it is like a &quot;club good&quot; but only for the family).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are two families. In each family, there are different members with different preferences over bundles. Assume that all preferences are monotonically-increasing and strictly convex.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An &lt;em&gt;allocation&lt;/em&gt; is a pair of bundles, $(x_1,y_1)$ for family 1 and $(x_2,y_2)$ for family 2.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An allocation is called &lt;em&gt;envy-free&lt;/em&gt; if:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;All members of family 1 believe that $(x_1,y_1)$ is at least as good as $(x_2,y_2)$;&lt;/li&gt;&#xA;&lt;li&gt;All members of family 2 believe that $(x_2,y_2)$ is at least as good as $(x_1,y_1)$.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;An allocation is called &lt;em&gt;Pareto-efficient&lt;/em&gt; if there is no other allocation of bundles to families such that all members of all families weakly prefer and at least one member of one family strictly prefers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Under what conditions does a Pareto-efficient envy-free allocation exist?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If each family has a single member, then a Pareto-efficient envy-free allocation exists; this is a famous &lt;a href=&quot;https://en.wikipedia.org/wiki/Varian%27s_theorems&quot; rel=&quot;nofollow&quot;&gt;theorem of Varian&lt;/a&gt;. Has this theorem been generalized from individuals to families?&lt;/p&gt;&#xA;" OwnerUserId="385" LastEditorUserId="385" LastEditDate="2016-01-04T13:17:23.437" LastActivityDate="2018-11-19T10:11:04.160" Title="Fair and efficient allocation of &quot;family goods&quot;" Tags="&lt;reference-request&gt;&lt;pareto-efficiency&gt;&lt;pure-exchange-economy&gt;&lt;fairness&gt;" AnswerCount="4" CommentCount="11" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9918" PostTypeId="2" ParentId="9826" CreationDate="2015-12-23T19:53:06.857" Score="1" Body="&lt;p&gt;I found these articles about measuring the quality of service of a police department:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Chen, Chien Min et al. 2013. The police service quality in rural&#xA;  Taiwan. Policing: An International Journal of Police Strategies &amp;amp;&#xA;  Management 37 no. 3:521-542.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Editorial Desk. 1983. A Better Report Card for the Police. The New&#xA;  York Times (Late City Final Edition), February 11.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Slothower, Mary, Peter Neyroud, Lawrence W. Sherman. 2015. Tracking&#xA;  Quality of Police Actions in a Victim Contact Program: A Case Study of&#xA;  Training, Tracking, and Feedback (TTF) in Evidence-Based Policing.&#xA;  International Criminal Justice Review 25 no. 1:98-116.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Then I found this about productivity and trust.Sort of has to do with supply side, and a little about the quality of service.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Brown, Sarah et al. 2015. Employee trust and workplace performance.&#xA;  Journal of Economic Behavior &amp;amp; Organization 116 (August): 361-378.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerDisplayName="user4207" LastActivityDate="2015-12-23T19:53:06.857" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9919" PostTypeId="2" ParentId="9826" CreationDate="2015-12-23T20:18:15.493" Score="0" Body="&lt;p&gt;One of the classic papers on the supply of (and demand for) policing is Steven Levitt's &quot;&lt;a href=&quot;http://pricetheory.uchicago.edu/levitt/Papers/LevittUsingElectoralCycles1997.pdf&quot; rel=&quot;nofollow&quot;&gt;Using Electoral Cycles in Police Hiring to Estimate the Effects of Police on Crime&lt;/a&gt;&quot;, which finds that hiring more police does in fact reduce crime, and which does so in a way that avoids the endogeneity (more crime often leads to more police being hired) that makes this a difficult problem. This original paper was found by Justin McCrary to &lt;a href=&quot;http://eml.berkeley.edu/~jmccrary/mccrary2002.pdf&quot; rel=&quot;nofollow&quot;&gt;have issues in coding and specification&lt;/a&gt;, but Levitt argued in a response that &lt;a href=&quot;http://pricetheory.uchicago.edu/levitt/Papers/LevittUsingElectoralCycles2002.pdf&quot; rel=&quot;nofollow&quot;&gt;many of the original findings stand&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="264" LastActivityDate="2015-12-23T20:18:15.493" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9920" PostTypeId="1" CreationDate="2015-12-23T20:50:42.733" Score="5" ViewCount="116" Body="&lt;p&gt;I notice that US exports doubled between 2000 and 2011, imports also increasing greatly, but GDP only grew by 20%. Thus, trade in the United States seems to have grown substantially faster than production. Why is this?&lt;/p&gt;&#xA;" OwnerUserId="1448" LastActivityDate="2015-12-24T08:52:46.827" Title="US trade outpaces GDP" Tags="&lt;gdp&gt;&lt;international-trade&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="9921" PostTypeId="2" ParentId="9920" CreationDate="2015-12-24T07:36:48.837" Score="4" Body="&lt;p&gt;The fact that &quot;trade in the United States seems to have grown substantially faster than production&quot; could be explained by reduction in trade costs. For instance, a decrease in importing partners' tariffs tends to favor US exports. So, for the same level of production or GDP, US sales will be more export oriented. It works similarly for US imports following a reduction of US tariffs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A &lt;strong&gt;first explanation&lt;/strong&gt; to the reduction in trade costs is the reduction of tariffs and non-tariff barriers (such as administrative fees or quotas), that is changes in &lt;strong&gt;trade policy&lt;/strong&gt;. Trade liberalization policies could be unilateral, multilateral, regional or bilateral. Regional trade agreements for instance have become increasingly prevalent since the early 1990s, according to the &lt;a href=&quot;https://www.wto.org/english/tratop_e/region_e/region_e.htm&quot; rel=&quot;nofollow&quot;&gt;WTO&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A &lt;strong&gt;second explanation&lt;/strong&gt; to the reduction in trade costs is related to &lt;strong&gt;technological progress&lt;/strong&gt; such as faster communications.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that it is common to compute a country's &lt;strong&gt;trade openness&lt;/strong&gt; index as the ratio of a country's trade (exports plus imports) to its GDP. Controlling for GDP allows economists to evaluate the outward or inward orientation of a given country's economy. Moreover, this ratio could be computed over time to measure the extent of globalization. For instance, according to the &lt;a href=&quot;http://data.worldbank.org/indicator/NE.EXP.GNFS.ZS&quot; rel=&quot;nofollow&quot;&gt;World Bank data&lt;/a&gt; Chinese trade openness ratio raised from 2.6% in 1970 to 39% in 2006. The US ratio increased from 9.7% in 2001 to 13.5% in 2011, which is consistent with the facts you mentioned.&lt;/p&gt;&#xA;" OwnerUserId="6168" LastEditorUserId="6168" LastEditDate="2015-12-24T08:52:46.827" LastActivityDate="2015-12-24T08:52:46.827" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9922" PostTypeId="2" ParentId="9905" CreationDate="2015-12-24T09:45:24.200" Score="2" Body="&lt;p&gt;Like many international markets, the crude oil market is a mix of private and public participants.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From most perspectives, it really doesn't matter whether oil production is state-run or run by private leases. Both, ultimately, are combinations of public and private forces - just different blends. Both are trying to optimise the outcomes for their owners. They're all suppliers that respond to demand.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;They're all largely price takers; the larger they are, the more they contribute to being a price maker - same as any other market. Nominally, Saudi Arabia as the main force in OPEC carries the market force of the entire cartel: but as Saudi is by far the largest producer in OPEC, the supply levels of the other cartel members don't carry anywhere near as much weight, and there is some evidence that they haven't always implemented fully proportional cuts when Saudi has called for cartel-wide production cuts.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So Saudi Aramco is just another market player, albeit the single largest one, and has some additional leverage via other OPEC members.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Many myths surround Saudi's oil policy; many widely-held assumptions are wrong. The most accurate thing I've heard said of it, credited to various folks is: the people who talk about Saudi intentions, know nothing; and the people who do know the intentions, say nothing.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;sub&gt;Footnoe: the products are not completely fungible: different crudes have different chemical compositions (sweet crude has low sulphur content, sour crude has high)&lt;/sub&gt;&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2015-12-24T09:45:24.200" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9923" PostTypeId="1" AcceptedAnswerId="9925" CreationDate="2015-12-24T14:24:02.210" Score="1" ViewCount="123" Body="&lt;p&gt;I have the typical answer:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;A cheaper currency means exports will go up because it's cheaper to buy from us!&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Yeah, sure, but that's obviously full of holes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's have a simple situation:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;We have China (yuan) and America (\$).&lt;/li&gt;&#xA;&lt;li&gt;America needs 100 &quot;item&quot; from China every year.&lt;/li&gt;&#xA;&lt;li&gt;One &quot;item&quot; costs 1 yuan.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Now, let's say currently (situation A):&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;The rate is 1\$:1yuan&lt;/li&gt;&#xA;&lt;li&gt;That means America pays \$100 every year.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;In situation B, we devalue the Yuan:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;The rate is 1\$:2yuan&lt;/li&gt;&#xA;&lt;li&gt;That means America now does one of the following:&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Only pays 50\$ and still gets the same 100 items.&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;China basically just lost 50\$ a year. China loses.&lt;/li&gt;&#xA;&lt;/ul&gt;&lt;/li&gt;&#xA;&lt;li&gt;Still pays 100$ but now gets 200 items instead:&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;China gets the same 100\$ but is now giving out 200 items instead. China loses.&lt;/li&gt;&#xA;&lt;/ul&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;So, how exactly would China ever benefit from devaluing its currency? It doesn't make any sense to me, you're literally just giving more exports, you are not getting anything more in return.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The only reason I could think of, is that they actually do think that, in order to stay competitive, they need to sell 2 items for 1$ instead of only 1 i.e. they do think it should be that cheap and they don't want the floating currency price to interfere with what they think should be the correct price for their products.&lt;/p&gt;&#xA;" OwnerUserId="6787" LastActivityDate="2015-12-24T15:40:22.780" Title="Why is devaluing your currency good for exports?" Tags="&lt;currency&gt;&lt;exchange-rates&gt;" AnswerCount="2" CommentCount="9" ContentLicense="CC BY-SA 3.0" />
  <row Id="9924" PostTypeId="2" ParentId="9923" CreationDate="2015-12-24T14:32:20.120" Score="1" Body="&lt;p&gt;The problem lies with your assumptions. Practical world trade doesn't usually work that way. No one ever devalues their currency by half. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This would be a practical assumption:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;US buys toys from China - say x units. It also buy toys from Japan - say y units. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Chinese toys cost xx, and Japanese toys cost yy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, the US would start buying more from China (say x + a), by substituting Japanese toys ( now the US buys y - b) with Chinese toys. (The US would never import more without substituting because it won't import more than what it needs, as pointed out by someone else here)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If production is China had slowed down before devaluation, this would result in more production. More jobs, more income for employees. A devaluation is done to boost exports, resulting in more production, resulting in more employment, resulting in an overall increase in &lt;strong&gt;economic activity&lt;/strong&gt;, whether or not it results in a direct increase in the income received through exports (although it usually does)&lt;/p&gt;&#xA;" OwnerUserId="6486" LastActivityDate="2015-12-24T14:32:20.120" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="9925" PostTypeId="2" ParentId="9923" CreationDate="2015-12-24T15:23:47.617" Score="1" Body="&lt;p&gt;So going off of my comments, there's no reason to believe that just price or just quantity sold have to remain the same; when you change price, you end up moving along the demand curve.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A country may indeed only import what it &quot;needs,&quot; but if the item in question is a unit of production, and the price of it effectively falls, then that lowers the marginal cost of production for any firms who want to import that good, so that will allow them to demand more of the good. If the item in question is a final good and preferences are monotonic and locally non-satiated, then a lower price would mean more people would want to import the good if the price fell. Selling more product could lead to a higher profit if $q'p' - c(q') &amp;gt; qp - c(q)$, where the primes indicate new quantity and new price, and cost is a function of quantity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the case where the benefit of a good does cap out completely, and firms/consumers in a country really don't want more of the good, then a country doesn't benefit in respect to that good when they devalue the currency, but you'll be hard pressed to find examples of that.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastEditorUserId="4251" LastEditDate="2015-12-24T15:40:22.780" LastActivityDate="2015-12-24T15:40:22.780" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9926" PostTypeId="1" CreationDate="2015-12-24T18:11:39.547" Score="2" ViewCount="145" Body="&lt;p&gt;I was raised by fairly conservative parents and throughout my childhood have had the impression that Reagan was the standard candle to which all policy should be held to and in particular Reaganomics was as true as the sky was blue. As an adult I've come to realize that it is not so cut and dry and would like some insight on this and would like to know if there are books that defend the for/against on the issue of &quot;trickle down&quot; economics. I would prefer to hear both sides in two separate books, or in a single book as long as both sides are fairly represented. Also please note I am not a student of economics although I have a strong math background. &lt;/p&gt;&#xA;" OwnerUserId="6790" LastActivityDate="2016-01-01T20:49:51.587" Title="Two good sources (books preferably) that show the leading and most reasonable arguments for/against &quot;trickle down economics&quot;?" Tags="&lt;reference-request&gt;&lt;taxation&gt;&lt;inequality&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="9927" PostTypeId="2" ParentId="6875" CreationDate="2015-12-24T18:57:57.147" Score="3" Body="&lt;p&gt;I don't think that it is legal in all countries, but the central bank can also print more money and give it to the government, which in turn can use it to pay the state debt.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This will cause inflation, since there is more money representing the same goods and services. Inflation will cause the money to devalue.&lt;/p&gt;&#xA;" OwnerUserId="5061" LastActivityDate="2015-12-24T18:57:57.147" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9928" PostTypeId="2" ParentId="6875" CreationDate="2015-12-24T19:45:10.167" Score="0" Body="&lt;p&gt;Devaluation is the reduction of the value of a currency, done by the country's Central Bank&lt;sup&gt;1&lt;/sup&gt; and it involves a change or adjustment of the value of the currency in respect to a &lt;strong&gt;standard&lt;/strong&gt;&lt;sup&gt;2&lt;/sup&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This standard could be gold or another currency, the US dollar for example. The main feature of the exchange standard is that the government guarantees a &lt;strong&gt;fixed exchange rate&lt;/strong&gt; to the currency of another country that uses the standard, regardless of what type of notes or coins are used as a means of exchange.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The process of devaluation itself is related with the increase of the amount of money circulating by just printing more&lt;sup&gt;3&lt;/sup&gt; if your currency is fully convertible&lt;sup&gt;4&lt;/sup&gt; or by selling the reserve of the object your country uses as a standard and setting a new fixed rate with respect to a foreign reference currency.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The direct result of a devaluation is making the products of the economy cheaper, thereby more competitive. Additional use of the devaluation is protection of local economies from regional or global crisis, as the devaluation could be used as a buffer.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;sup&gt;1. Or Currency Board supplanting the function of a Central Bank.&lt;/sup&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;sup&gt;2. Units with which that currency can be exchanged.&lt;/sup&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;sup&gt;3. This is done by issuing bonds or monetizing goods and services from the private sector in exchange for bonds.&lt;/sup&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;sup&gt;4. Fully convertible currencies for example are : USD, GBP, EUR. &lt;/sup&gt;&lt;/p&gt;&#xA;" OwnerUserId="4374" LastActivityDate="2015-12-24T19:45:10.167" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9929" PostTypeId="2" ParentId="5111" CreationDate="2015-12-24T19:53:56.317" Score="2" Body="&lt;p&gt;What you're asking seems to me just a matter of interpretation. Note that $\mathbb Z$ and $\mathbb Z_+$ have the same cardinality. So it makes no substantive difference which index set you use. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Moreover, in a continuation game with finite history, any strategy can be interpreted as a (possibly non-stationary) &lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/S0022053100927856&quot; rel=&quot;nofollow&quot;&gt;&lt;strong&gt;Markov strategy&lt;/strong&gt;&lt;/a&gt; in a continuation game with infinitely long history. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If a history of infinite length is what you really care about, then may be looking into the literature of &lt;a href=&quot;http://www.jstor.org/stable/2526948?seq=1#page_scan_tab_contents&quot; rel=&quot;nofollow&quot;&gt;&lt;strong&gt;continuous-time repeated game&lt;/strong&gt;&lt;/a&gt; will provide some insight.&lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2015-12-24T19:53:56.317" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9930" PostTypeId="1" AcceptedAnswerId="9932" CreationDate="2015-12-25T03:31:29.460" Score="3" ViewCount="200" Body="&lt;p&gt;I'm looking to learn more in detail about the situations and actions that setup the sub-prime mortgage crisis. In particular I'm looking for an authoritative book or books that provides a multifaceted approach such as&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;overview of the tools that were used (such as mortgage backed securities (MBS), collateralized debt obligations (CDO)).&lt;/li&gt;&#xA;&lt;li&gt;Role of investment banks and predatory lending techniques.&lt;/li&gt;&#xA;&lt;li&gt;Role of derivatives of the securities.&lt;/li&gt;&#xA;&lt;li&gt;Role of  government regulations and government entities (Fannie mae freedie mac).&lt;/li&gt;&#xA;&lt;li&gt;Role of crediting agencies such as Moodys S&amp;amp;P&lt;/li&gt;&#xA;&lt;li&gt;Role of regulators (SEC) and how they failed to see the bubble.&lt;/li&gt;&#xA;&lt;li&gt;Role of federal reserve.&lt;/li&gt;&#xA;&lt;li&gt;What were the economic indicators that were picked up by people who saw the bubble early on?&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;I would appreciate if someone could tell me about books that provide a generic overview and books that go into great depth&lt;/p&gt;&#xA;" OwnerUserId="5125" LastEditorUserId="264" LastEditDate="2015-12-25T06:26:30.863" LastActivityDate="2015-12-25T06:26:30.863" Title="Authoritative Books on Subprime Mortgage Crisis" Tags="&lt;reference-request&gt;&lt;financial-crises&gt;&lt;housing&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9931" PostTypeId="2" ParentId="9930" CreationDate="2015-12-25T04:21:31.100" Score="0" Body="&lt;p&gt;&quot;House of Debt&quot; by Atif Mian is an interesting read on these issues.&lt;/p&gt;&#xA;" OwnerUserId="5863" LastActivityDate="2015-12-25T04:21:31.100" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9932" PostTypeId="2" ParentId="9930" CreationDate="2015-12-25T05:03:41.247" Score="5" Body="&lt;p&gt;Trying to think of what's on my bookshelf... this is an incomplete list, but it should get you started.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &lt;a href=&quot;http://fcic.law.stanford.edu/report&quot;&gt;Financial Crisis Inquiry Commission Report&lt;/a&gt; is the authoritative overview of the housing crisis and its role in the financial crisis. It's unique in that the staff of the FCIC was able to interview essentially all the major players and had access to documents that were (and many of which still are) unavailable to the public. It's also free.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/081224351X&quot;&gt;The American Mortgage System: Crisis and Reform&lt;/a&gt; by Susan Wachter (editor) is a collection of essays that provide a good overview of many of the main issues. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a lighter read, &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/159184438X&quot;&gt;All the Devils Are Here: The Hidden History of the Financial Crisis&lt;/a&gt; by Bethany McLean and Joe Nocera is good, but flawed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On Fannie Mae and Freddie Mac, I'd recommend &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0691150788&quot;&gt;Guaranteed to Fail: Fannie Mae, Freddie Mac, and the Debacle of Mortgage Finance&lt;/a&gt; by Acharya, et. al.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/022627165X&quot;&gt;House of Debt&lt;/a&gt; (Mian and Sufi) isn't bad on some of the causality, but I find that it goes a bit off the rails when it comes to policy prescriptions.&lt;/p&gt;&#xA;" OwnerUserId="264" LastActivityDate="2015-12-25T05:03:41.247" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9934" PostTypeId="1" AcceptedAnswerId="9935" CreationDate="2015-12-25T09:58:03.863" Score="4" ViewCount="146" Body="&lt;p&gt;Suppose there are three kinds of commodities, X Y and Z. We ask an agent about his preferences and receive the following answers:&lt;/p&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;&amp;quot;I prefer Z to Y and Y to X&amp;quot;.&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&amp;quot;For every &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt;, I prefer one unit of Z and &lt;span class=&quot;math-container&quot;&gt;$n-1$&lt;/span&gt; units of X to &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt; units of Y&amp;quot;.&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;p&gt;Are these preferences consistent with rational preferences, according to the &amp;quot;rationality&amp;quot; axioms of &lt;a href=&quot;https://en.wikipedia.org/wiki/Von_Neumann%E2%80%93Morgenstern_utility_theorem&quot; rel=&quot;noreferrer&quot;&gt;von-Neumann and Morgenstern&lt;/a&gt;?&lt;/p&gt;&#xA;&lt;p&gt;Initially, I thought that &amp;quot;obviously yes&amp;quot;. von-Neumann and Morgenstern only talk about preferences on lotteries, but here, the agent's preferences are only given on sure sequences, so obviously there should be some rational preference relation on lotteries that is consistent with them.&lt;/p&gt;&#xA;&lt;p&gt;However, one of the rationality axioms is &amp;quot;continuity&amp;quot;. It says that there exists a probability &lt;span class=&quot;math-container&quot;&gt;$p\in(0,1)$&lt;/span&gt; such that:&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ p Z + (1-p) X \sim Y $$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;The preference relation can be represented by a function &lt;span class=&quot;math-container&quot;&gt;$u$&lt;/span&gt; such that: &lt;span class=&quot;math-container&quot;&gt;$u(X)=0, u(Y)=p, u(Z)=1$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;p&gt;But then, if we take &lt;span class=&quot;math-container&quot;&gt;$n&amp;gt;1/p$&lt;/span&gt;, if the agent receives &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt; units of Y, his utility is more than 1, so the agent should prefer this over receiving one unit of Z and &lt;span class=&quot;math-container&quot;&gt;$n-1$&lt;/span&gt; units of X...&lt;/p&gt;&#xA;&lt;p&gt;What is wrong with these preferences?&lt;/p&gt;&#xA;" OwnerUserId="385" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2017-06-17T07:46:02.307" Title="Are these preferences consistent with rationality?" Tags="&lt;utility&gt;&lt;preferences&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9935" PostTypeId="2" ParentId="9934" CreationDate="2015-12-25T13:52:32.427" Score="6" Body="&lt;p&gt;You implicitly assume that the utility of $n$ units of $Y$ equals $n$ times the utility of 1 unit of $Y$, and there is no reason for that. For instance, if $Y$ is a fridge, the gain in utility from having 1 fridge compared to 0 is certainly larger than the gain in utility from having 2 fridges compared to 1. The formula $U(&quot;nY&quot;)=n*U(&quot;Y&quot;)$ that you use does not make sense: there are utility functions other than $U$ that represent the same preferences over $\{X,Y,Z\}$, and you will reach different conclusions if you make the same computation with these utilities.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Von Neumann-Morgenstern theory does not make any assumption on how to value $n$ units of a good. A Von Neumann-Morgenstern representation attributes a utility level to all the consumption goods in the choice set. In your case, the representation would include objects such as $U(&quot;Y&quot;)$ (the utility of one unit of $Y$), $U(&quot;nY&quot;)$ (the utility of $n$ units of Y), $U(&quot;Z \text{ and  }(n-1)X&quot;)$ (the utility of $1$ unit of $Z$ and $n-1$ units of $X$), etc. There is nothing that allows you to relate these values with each other. The only behavioral restrictions of the Von Neumann-Morgenstern theory concern preferences over lotteries induced by these goods.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You need other tools to understand whether preferences over a finite set of commodities are rational. These tools are the Weak Axiom of Revealed Preferences and the Generalized Axiom of Revealed Preferences.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On a historical note, the reason why Von Neumann and Morgenstern developed a theory of preferences over lotteries is precisely because they wanted to identify a notion of &quot;how much the good $Y$ is preferred to the good $X$&quot;. An obvious possibility was to observe preferences over pairs of goods such as: $n$ units of $Y$ versus $m$ units of $X$. But this is problematic for the reason stated above: nothing relates the utility of one unit of $Y$ to the utility of $n$ units of $Y$. Their trick was to consider preferences over lotteries that deliver $Y$ with a certain probability and $X$ with the complementary probability: the answer to the question &quot;how much are you willing to pay to increase your chance of receiving $Y$ by 1%?&quot; gives a good measure of &quot;how much you prefer $Y$ to $X$&quot;. In contrast, the answer to the question &quot;how many units of $X$ are you willing to sacrifice to receive one additional unit of $Y$?&quot; does not make any meaningful sense.&lt;/p&gt;&#xA;" OwnerUserId="4667" LastEditorUserId="4667" LastEditDate="2015-12-25T18:09:16.947" LastActivityDate="2015-12-25T18:09:16.947" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9936" PostTypeId="1" AcceptedAnswerId="9941" CreationDate="2015-12-26T00:15:14.780" Score="7" ViewCount="245" Body="&lt;p&gt;In the course of my research I have been examining these days macroeconomic time series for per capital household consumption, using the &lt;a href=&quot;http://data.worldbank.org/indicator/NE.CON.PRVT.KD&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;strong&gt;databank of the WorldBank&lt;/strong&gt;&lt;/a&gt;. The unit of measure was constant 2005 USD.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I got all shorts: smooth upward trends indicating a steadily increasing material well being on average; series with wild swings indicating socioeconomic turmoil, civil wars, coup d'eta's etc; series with an obvious structural shock in the level which then continued to grow at the same rate (for example Finland experienced such a shock when the Soviet Union collapsed); series suspiciously smoothly increasing, too smoothly to be believable and so suspect of being fake...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;em&gt;Unique&lt;/em&gt;&lt;/strong&gt; among them, was &lt;strong&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Madagascar&quot; rel=&quot;nofollow noreferrer&quot;&gt;Madagascar&lt;/a&gt;&lt;/strong&gt;: its per capita consumption exhibited a steady &lt;strong&gt;&lt;em&gt;downward&lt;/em&gt;&lt;/strong&gt; trend for the period 1971-1996, although after that period the trend seems to (gradually) flatten out. Here is the plot:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/WwvdM.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/WwvdM.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Again the unique feature here is the almost constant downward trend. There were other countries that saw their consumption level collapsing in this period, but not in such a steady gradual manner, &lt;em&gt;over a quarter of a century&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does anybody have a clue as to what was happening in the period in this country? Madagascar was colonized by France in 1896 and obtained full independence in 1960. But of course there are many countries that were colonies and de-colonized around that period; none exhibited such behavior.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-12-27T17:20:58.943" LastActivityDate="2015-12-27T17:20:58.943" Title="What was happening in Madagascar during 1971-1996?" Tags="&lt;macroeconomics&gt;&lt;consumption&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9937" PostTypeId="1" AcceptedAnswerId="9939" CreationDate="2015-12-26T19:18:38.180" Score="2" ViewCount="587" Body="&lt;p&gt;What are (or are there) alternatives to currency devaluation? Phrased differently, what are the mechanisms that a country could use to make its products more competitive and to boost exports, when:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;it is under a currency board? &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;it has an &lt;em&gt;external&lt;/em&gt;&lt;sup&gt;1&lt;/sup&gt; central bank ?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;sup&gt;1. When the local central bank is not allowed to print its own money. For example in the Eurozone , the capital stock of the European Central Bank is owned by the local central banks of all 28 EU member states, however the ECB alone administers monetary policy.&lt;/sup&gt;&lt;/p&gt;&#xA;" OwnerUserId="4374" LastEditorUserId="264" LastEditDate="2015-12-26T23:21:10.690" LastActivityDate="2015-12-26T23:48:48.093" Title="What are the alternatives to currency devaluation?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9938" PostTypeId="2" ParentId="3253" CreationDate="2015-12-26T19:46:33.903" Score="2" Body="&lt;p&gt;The most widely used mechanisms for crisis recovery in the developed world are:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Quantitative easing, &lt;a href=&quot;https://en.wikipedia.org/wiki/Quantitative_easing&quot; rel=&quot;nofollow&quot;&gt;QE&lt;/a&gt;, which is basically the monetization of goods and services from the private sector in exchange for bonds. Successfully implemented in the US.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Austerity&quot; rel=&quot;nofollow&quot;&gt;Austerity&lt;/a&gt;, or local devaluation in terms of reducing the wages and prices, which is done by the reducing of public spending and proceeding towards a direction of &lt;em&gt;minimal state&lt;/em&gt;, that will mean minimal spending. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;It should be noted that crisis recovery is strongly related with the present state and structure of the local, regional and global economy and thereby depends on different parameters, as it works by different rules&lt;sup&gt;1&lt;/sup&gt;. Consequently, I wouldn't consider &lt;em&gt;thinking by analogy&lt;/em&gt;, i.e. in terms of historical precedence a valid strategy for problem solution. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem should be (could be) tackled only in terms of first principles of the economy, in your case in terms of first principles of the EU economy, which will inevitably result in a solution lying outside Greece itself and more specifically in the rebooting of the EU zone and recompilation of the regulations governing it in the direction of a economically (and politically) equal / homogeneous monetary union with surplus recycling mechanisms that assure the financial distribution in the deficit countries in the form of productive investments (that will in turn produce the needed growth), instead of distributions in the form of loans (as in the current situation). &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;sup&gt;1. The currently established economic and political regulations.&lt;/sup&gt;&lt;/p&gt;&#xA;" OwnerUserId="4374" LastEditorUserId="4374" LastEditDate="2016-10-12T15:18:51.197" LastActivityDate="2016-10-12T15:18:51.197" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9939" PostTypeId="2" ParentId="9937" CreationDate="2015-12-26T22:39:25.143" Score="4" Body="&lt;p&gt;The only alternative is what is often called &lt;em&gt;&quot;internal devaluation&quot;&lt;/em&gt;. This basically means reducing the actual (domestic) prices of goods in a country.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is what is often called as increased &lt;em&gt;&quot;competitiveness&quot;&lt;/em&gt;. It is most often achieved through cutting wages or slowing down wage growth. This is because wages are most often a huge cost factor and the price of capital (which is often bought internationally) is harder to reduce just like that. However there is also the phenomenon known as &lt;em&gt;&quot;downward nominal rigidity&quot;&lt;/em&gt;, which means people don't accept lower nominal wages, so it's very difficult to lower wages. Much harder than increasing them. In fact, in practice, it's easier to increase inflation to reduce real wages than actually reducing the number printed on your check at the end of the month. However in this case, we want deflation (reduction in prices) to boost exports, so the whole matter gets more complicated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Technically a devaluation only makes all your domestic goods cheaper abroad. This can also be achieved by just reducing your prices of course. However, as we saw, this is difficult. Also there is a coordination problem, as each industry would have to adjust (thousands of prices must adjust) for the same effect as the exchange rate adjusting (one price adjusts).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Milton Friedman used to compare this to daylight savings. We could all just agree to push all our appointments and activities by an hour for some time, which is hard (this would be &lt;em&gt;internal devaluation&lt;/em&gt;). Or just change the time for the same effect (exchange rate devaluation).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A surge in quality is technically also an alternative, but not possible always and especially not short-term.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastEditorUserId="4374" LastEditDate="2015-12-26T23:48:48.093" LastActivityDate="2015-12-26T23:48:48.093" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="9940" PostTypeId="1" AcceptedAnswerId="9962" CreationDate="2015-12-27T01:57:09.160" Score="2" ViewCount="1807" Body="&lt;p&gt;I'm having trouble reconciling these two biases. They seem to be the exact opposite of each other. Yet humans are allegedly pre-disposed to both. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;How can they be reconciled?&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Omission_bias&quot; rel=&quot;nofollow&quot;&gt;Omission Bias&lt;/a&gt;: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The omission bias is an alleged type of cognitive bias. It is the tendency to judge harmful actions as worse, or less moral than equally harmful omissions (inactions) because actions are more obvious than inactions.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://ambiguityadvantage.blogspot.com/2008/02/action-bias-in-decision-making-problem.html&quot; rel=&quot;nofollow&quot;&gt;Action Bias&lt;/a&gt; (academic source: &lt;a href=&quot;http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.335.9458&amp;amp;rep=rep1&amp;amp;type=pdf&quot; rel=&quot;nofollow&quot;&gt;Bar-Eli et al., 2007&lt;/a&gt;) &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Simply put this means that just about everyone, when faced with ambiguous situations, especially those circumstances associated with risk, gets the feeling that they need to take some action regardless of whether this is a good idea or not.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="4296" LastEditorUserId="4296" LastEditDate="2015-12-27T21:07:01.823" LastActivityDate="2017-10-16T09:58:24.157" Title="&quot;omission bias&quot; vs &quot;action bias&quot; -- how can they be reconciled?" Tags="&lt;behavioral-economics&gt;" AnswerCount="3" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="9941" PostTypeId="2" ParentId="9936" CreationDate="2015-12-27T10:21:12.380" Score="5" Body="&lt;p&gt;I think I have found the explenation for this. If you look at the wikipdedia page of the economy of Madagascar, it states the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The standard of living of the Malagasy population has been declining dramatically over the past 25 years. The country has gone from being a net exporter of agricultural products in the 1960s to a net importer since 1971. Inappropriate traditional agricultural methods cause soil to erode and soil quality to decline, and the basis of survival for Madagascar’s people is under serious threat.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The source of this claim is Deutsche Gesellschaft für Internationale Zusammenarbeit. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, if you look at the world bank figures on agriculture in Madagascar, you can see this declining trend. For example the Agriculture value added per worker (constant 2005 US$) declines between 1980 and 2014 from 250.1 to 175.8. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since Madagascar is a country which relies heavily on agriculture (about a quarter of its GDP stems from agriculture), this declining trend influences the whole of this economy.&lt;/p&gt;&#xA;" OwnerUserId="6227" LastEditorUserId="6227" LastEditDate="2015-12-27T15:23:50.553" LastActivityDate="2015-12-27T15:23:50.553" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9944" PostTypeId="1" AcceptedAnswerId="9950" CreationDate="2015-12-27T17:22:46.930" Score="2" ViewCount="870" Body="&lt;p&gt;The supply of an individual firm indicates the various quantities of a good (or service) a firm is willing and able to produce and supply to the market for sale at different possible prices, during a particular time period, ceteris paribus. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;According to the law of supply, there is a positive causal relationship between the quantity of a good supplied over a particular time period and its price, ceteris paribus: as the price of the good increases, the quantity of the good supplied also increases; as the price falls, the quantity supplied also falls, ceteris paribus. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reasoning offered for the law of supply makes sense to some extent, too: Higher prices generally mean that the firm’s profits increase, and so the firm faces an incentive to produce more output. Lower prices mean lower profitability, and the incentive facing the firm is to produce less. Therefore, there results a positive relationship between price and quantity supplied: the higher the price, the greater the quantity supplied. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, to me, possibly due to the way the definition is phrased with “willing and able to produce to the market at different possible prices,” I feel that the negative relationship of demand would be the relationship for price and supply as well:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here’s my reasoning: If I am a farmer, and some authoritative figure, such as the government, that is determined to plot graphs of the economy from real world data goes up to the only supplier of corn, me, and asks me for a set of prices, &quot;how much would you be willing and able to produce and supply to the market&quot;, I would first determine how much income I would be at least satisfied with, almost determining a minimum wage for myself, and accordingly, I would divide this minimum wage by the set of prices the government wants to collect data on, to in effect end up on how much I’d be willing to produce and supply for each given price:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I say that I’d be happy with 500 a week, and the government asks for data on the prices (10, 20, 30, 40, 50), because I would have to sell lesser units of corn for each higher price to achieve the 500 I have set as the minimum wage I’d have to receive to be willing and able to produce corn to the market, my units of corn at each price would be 50, 25, 17, 13, 10 respectively. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This way, supply would have a negative relationship with price…&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To me, both reasonings make sense, however, I can’t say that the first one that explains the law of supply outweighs the reasoning I presented. What’s flawed in this reasoning?&lt;/p&gt;&#xA;" OwnerUserId="5751" LastActivityDate="2015-12-30T14:46:23.833" Title="The Law of Supply" Tags="&lt;supply-and-demand&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9945" PostTypeId="2" ParentId="9944" CreationDate="2015-12-27T17:33:20.613" Score="3" Body="&lt;p&gt;The &quot;flaw&quot; in your reasoning is that you assume a firm wants to have a fixed amount of revenue, and then it will adjust its quantity produced as price changes, in order to always have this fixed amount of revenue (however the firm determines its magnitude). Then of course, as price goes up, the firm will produce less in order not to exceed the targeted level of revenues.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So what if you could earn &quot;600 a week&quot;? Would you say &quot;no, I want to earn no more than 500&quot;? Well, maybe you would say that, you and perhaps many other people -but the experience from actual markets is that most firms don't think that way. And in Economics, we do not model anything that can happen (and everything can happen when humans are involved); we try instead to model what usually, predominantly, happens.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2015-12-27T17:33:20.613" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9946" PostTypeId="1" CreationDate="2015-12-27T17:49:40.907" Score="3" ViewCount="191" Body="&lt;p&gt;Suppose two players play the following game:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{array}{cc}&#xA;  &amp;amp; L &amp;amp; R  \\&#xA;U &amp;amp; 1,1 &amp;amp; 0,0 \\&#xA;D &amp;amp; 0,0 &amp;amp; 4,4 &#xA;\end{array}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there any way to compare the top-left Nash equilibrium with the bottom-right one? Is there any way to distinguish between two equilibria and to define which one is &quot;better&quot;?&lt;/p&gt;&#xA;" OwnerUserId="6806" LastEditorUserId="264" LastEditDate="2015-12-28T17:25:55.267" LastActivityDate="2015-12-29T00:44:30.780" Title="Comparing Nash equilibria" Tags="&lt;microeconomics&gt;&lt;game-theory&gt;&lt;nash-equilibrium&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9947" PostTypeId="2" ParentId="9946" CreationDate="2015-12-27T18:32:40.377" Score="3" Body="&lt;p&gt;The answer is most certainly yes. You could compare NE on any criterion that you find relevant. A few examples: You could say that $u_1(U,L) &amp;lt; u_1(D,R)$, or $u_2(U,L) &amp;lt; u_2(D,R)$. You could define $V = \alpha u_1 + (1-\alpha) u_2$ ($\alpha \in [0,1]$) and call it a weighted utilitarian social welfare function. Then obviously $V(U,L)&amp;lt;V(D,R)$ for any $\alpha \in [0,1]$. Obviously in other games, one player might prefer one NE and another might prefer another, but not so here.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If your question is whether there is a standard way of comparing two NE, I would say that it really all depends on the context.&lt;/p&gt;&#xA;" OwnerUserId="48" LastActivityDate="2015-12-27T18:32:40.377" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9948" PostTypeId="2" ParentId="9946" CreationDate="2015-12-27T19:17:09.577" Score="6" Body="&lt;p&gt;Yes there absolutely is. It is generally agreed upon that utility is (at least) &lt;em&gt;ordinal&lt;/em&gt;. That means I can compare utility levels for a single person (not necessarily across people) and the numbers have meaning in this sense. So for a single person:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$U(down, right) = 4 &amp;gt; 1 = U(Up, Left)$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This means (Down,Right) is strictly better for each agent than (Up, Left). You will notice this satisfies the definition of a &lt;em&gt;pareto improvement&lt;/em&gt;. So (Down,Right) pareto dominates (Up, Left).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is also generally agreed that a good way to compare outcomes in economics is pareto efficiency (no person can be made better off without someone being made worse off). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence we can safely say that the equilibrium with (Down,Right) each is comparable and better than (Up, Left). This is generally accepted, not controversial and doesn't require any assumptions we dislike.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that it is not necessary to assume here that utility is cardinal. That would mean we can compare utility levels across agents. E.g. for the statement: if U(agent 1)=4, U(agent 2)= 1, then U(agent 1)&gt;(agent 2). Another example: saying the sum of utilities for everyone is larger under policy A than under policy B and hence A is better than B requires cardinal utility. This is a wrong assumption, but sometimes used (for example in public and welfare economics) to make comparisons. It is however controversial to use, since it is actually wrong. Public economists see it as a necessary evil. What everyone accepts is that utility is ordinal and that is all we need to compare the two equilibria.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastEditorUserId="5557" LastEditDate="2015-12-29T00:44:30.780" LastActivityDate="2015-12-29T00:44:30.780" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9949" PostTypeId="1" AcceptedAnswerId="9951" CreationDate="2015-12-27T19:35:10.080" Score="0" ViewCount="255" Body="&lt;p&gt;I am citing an article here: &#xA;In a speech at the G-20 in Istanbul, TİM’s Mehmet Büyükekşi said, “Protectionism is increasing in every market around the world and it is affecting not only Turkish exports, but also Foreign Direct Investment [FDI] in Turkey. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I really can't see a link between protectionism in another country and FDI in Turkey. What is the link here? Also, he later says that devaluation of euro against the dollar affected total FDI value. That makes a little more sense to me, because it can be that amount in euros prepared for some investment in Turkey suddenly became less valuable. I hope that is correct, but I don't get the protectionism part?&lt;/p&gt;&#xA;" OwnerUserId="6807" LastActivityDate="2015-12-27T20:14:09.477" Title="How can foreign protectionism affect local FDI" Tags="&lt;international-trade&gt;&lt;investment&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9950" PostTypeId="2" ParentId="9944" CreationDate="2015-12-27T19:44:10.270" Score="2" Body="&lt;p&gt;One flaw in your reasoning where you get a negative relationship between price and supply is to assume a monopolist. With a monopolist the &quot;market supply curve&quot; as such does not exist! The monopolist looks at the demand curve and &lt;strong&gt;chooses&lt;/strong&gt;(!) his optimal point, he doesn't draw up a supply curve, since he has all the power. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Furthermore, since a monopolist chooses &lt;strong&gt;his&lt;/strong&gt; optimal point on the &lt;strong&gt;demand curve&lt;/strong&gt;, the monopolist's reasoning (as you describe) incorporates the demand curve, which is decreasing in prices. Hence you get that relation. Furthermore, since he &lt;em&gt;incorporates&lt;/em&gt;  the demand curve we can't speak of a supply curve (which must be independent of the demand curve to have sense) as such.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastEditorUserId="5557" LastEditDate="2015-12-30T14:46:23.833" LastActivityDate="2015-12-30T14:46:23.833" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9951" PostTypeId="2" ParentId="9949" CreationDate="2015-12-27T20:14:09.477" Score="0" Body="&lt;p&gt;A protectionist policy in other countries could take the form of providing more incentives for companies to invest domestically instead of abroad. For example, U.S. companies face penalties if they invest abroad compared to investing in the U.S. or they have more benefits from investing in the U.S. now compared to before. Anyhow, companies outside of Turkey could have more inventives to invest in their own countries, which in turn means they have less incentives to invest abroad, which in turn means they have less incentives to invest in Turkey, which in turn means they invest less in Turkey.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastActivityDate="2015-12-27T20:14:09.477" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9952" PostTypeId="1" CreationDate="2015-12-27T22:27:29.500" Score="0" ViewCount="1373" Body="&lt;p&gt;The Marginal Cost (MC) of an additional unit of output is the cost of the additional inputs needed to produce that output.&#xA;Here is one of the formulas for calculating marginal cost:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\ MC=\Delta CF\div\Delta output$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, suppose it costs  €1600 to produce 100 units and €2300 to produce 200 units. MC = €7 &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What does it mean to have the marginal cost equal to 7? &lt;/p&gt;&#xA;" OwnerUserId="6545" LastActivityDate="2015-12-28T21:02:40.233" Title="How to interpret Marginal Cost values?" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="1" ClosedDate="2015-12-28T23:58:33.907" ContentLicense="CC BY-SA 3.0" />
  <row Id="9953" PostTypeId="1" CreationDate="2015-12-28T00:40:26.147" Score="1" ViewCount="797" Body="&lt;p&gt;The table bellow shows the relationship between total cost and output for a firm in a perfectly competitive market. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/YOZlA.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/YOZlA.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The firm sells its product for €7 per unit. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I was told to answer the following question: &lt;em&gt;if the firm seeks to maximize profit at which level of output should it operate?&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I’m aware that profit reaches its maximum where marginal cost equals marginal revenue. I also know that, for a perfectly competitive firm, marginal revenue is equal to price. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, MC=MR=7&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So I came up with this: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/9yHsv.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/9yHsv.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The optimal solution lies between 100 and 200, but can I actually find out the exact level of output where profit is maximized? &lt;/p&gt;&#xA;" OwnerUserId="6545" LastActivityDate="2015-12-29T10:53:45.393" Title="Profit maximization" Tags="&lt;microeconomics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9955" PostTypeId="1" AcceptedAnswerId="34462" CreationDate="2015-12-28T04:37:50.380" Score="8" ViewCount="368" Body="&lt;p&gt;&lt;strong&gt;Definitions and stuff:&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;p&gt;Consider a filtered probability space &lt;span class=&quot;math-container&quot;&gt;$(\Omega, \mathscr F, \{\mathscr F_t\}_{t \in [0,T]}, \mathbb P)$&lt;/span&gt; where&lt;/p&gt;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$T &amp;gt; 0$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\mathbb P = \tilde{\mathbb P}$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&lt;p&gt;This is &lt;a href=&quot;https://en.wikipedia.org/wiki/Risk-neutral_measure&quot; rel=&quot;nofollow noreferrer&quot;&gt;risk-neutral measure&lt;/a&gt;.&lt;/p&gt;&#xA;&lt;ol start=&quot;3&quot;&gt;&#xA;&lt;li&gt;&lt;span class=&quot;math-container&quot;&gt;$$\mathscr F_t = \mathscr F_t^{{W}} = \mathscr F_t^{\tilde{W}}$$&lt;/span&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&lt;p&gt;where &lt;span class=&quot;math-container&quot;&gt;$W = \tilde{W} = \{\tilde{W_t}\}_{t \in [0,T]} = \{{W_t}\}_{t \in [0,T]}$&lt;/span&gt; is standard &lt;span class=&quot;math-container&quot;&gt;$\mathbb P=\tilde{\mathbb P}$&lt;/span&gt;-Brownian motion.&lt;/p&gt;&#xA;&lt;p&gt;Consider &lt;span class=&quot;math-container&quot;&gt;$M = \{M_t\}_{t \in [0,T]}$&lt;/span&gt; where&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$M_t := \frac{\exp(-\int_0^t r_s ds)}{P(0,t)}$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;Define &lt;a href=&quot;https://en.wikipedia.org/wiki/Forward_measure&quot; rel=&quot;nofollow noreferrer&quot;&gt;forward measure&lt;/a&gt; &lt;span class=&quot;math-container&quot;&gt;$\mathbb Q$&lt;/span&gt;:&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\frac{d \mathbb Q}{d \mathbb P} := M_T = \frac{\exp(-\int_0^T r_s ds)}{P(0,T)}$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;where &lt;span class=&quot;math-container&quot;&gt;$\{r_t\}_{t \in [0,T]}$&lt;/span&gt; is short rate process and &lt;span class=&quot;math-container&quot;&gt;$\{P(t,T)\}_{t \in [0,T]}$&lt;/span&gt; is bond price at time t.&lt;/p&gt;&#xA;&lt;p&gt;It can be shown that &lt;span class=&quot;math-container&quot;&gt;$\{\exp(-\int_0^t r_s ds)P(t,T)\}_{t \in [0,T]}$&lt;/span&gt; is a &lt;span class=&quot;math-container&quot;&gt;$(\mathscr F_t, \mathbb P)-$&lt;/span&gt;martingale where bond price dynamics are given as:&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\frac{dP(t,T)}{P(t,T)} = r_t dt + \xi_t dW_t$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;where&lt;/p&gt;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$r_t$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\xi_t$&lt;/span&gt; are &lt;span class=&quot;math-container&quot;&gt;$\mathscr F_t$&lt;/span&gt;-adapted&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\xi_t$&lt;/span&gt; satisfies Novikov's condition (I don't think &lt;span class=&quot;math-container&quot;&gt;$\xi_t$&lt;/span&gt; is supposed to represent anything in particular)&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;&lt;strong&gt;Problem:&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Define the stochastic process &lt;span class=&quot;math-container&quot;&gt;$W^{\mathbb Q} = (W_t^{\mathbb Q})_{t\in[0,T]}$&lt;/span&gt; s.t.&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$W_t^{\mathbb Q} := W_t - \int_0^t \xi_s ds$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;Use &lt;strong&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Girsanov_theorem&quot; rel=&quot;nofollow noreferrer&quot;&gt;Girsanov Theorem&lt;/a&gt;&lt;/strong&gt; to prove:&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$W_t^{\mathbb Q} \ \text{is standard} \ \mathbb Q \ \text{-Brownian motion.}$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;&lt;strong&gt;What I tried:&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;p&gt;Since &lt;span class=&quot;math-container&quot;&gt;$\xi_t$&lt;/span&gt; satisfies Novikov's condition,&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\int_0^T \xi_t dt &amp;lt; \infty \ \text{a.s.} \ \to \ \int_0^T -\xi_t dt &amp;lt; \infty \ \text{a.s.}$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\to L_t := \exp(-\int_0^t (-\xi_s dW_s) - \frac{1}{2} \int_0^t \xi_s^2 ds)$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;is a &lt;span class=&quot;math-container&quot;&gt;$(\mathscr F_t, \mathbb P)-$&lt;/span&gt;martingale.&lt;/p&gt;&#xA;&lt;p&gt;By Girsanov Theorem,&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$W_t^{\mathbb Q} \ \text{is standard} \ \mathbb P^{*} \ \text{-Brownian motion, where}$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\frac{d \mathbb P^{*}}{d \mathbb P} := L_T$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;I guess we have that &lt;span class=&quot;math-container&quot;&gt;$W_t^{\mathbb Q}$&lt;/span&gt; is standard &lt;span class=&quot;math-container&quot;&gt;$\mathbb Q$&lt;/span&gt;-Brownian Motion if we can show that&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$L_T = \frac{d \mathbb Q}{d \mathbb P}$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;I lost my notes, but I think I was able to show using Ito's lemma that&lt;/p&gt;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$dL_t = L_t \xi_t dW_t$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$dM_t = M_t \xi_t dW_t$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&lt;p&gt;From those I infer that&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$d(\ln L_t) = d(\ln M_t)$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\to L_t = M_t$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\to L_T = M_T$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;QED&lt;/p&gt;&#xA;&lt;p&gt;Is that right?&lt;/p&gt;&#xA;" OwnerUserId="4483" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2020-03-18T01:32:08.930" Title="Show that $W_t - \int_0^t \xi_s ds$ is forward-measure-Brownian" Tags="&lt;mathematical-economics&gt;&lt;finance&gt;&lt;financial-economics&gt;&lt;probability&gt;&lt;bonds&gt;" AnswerCount="1" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9956" PostTypeId="2" ParentId="9940" CreationDate="2015-12-28T15:24:44.917" Score="1" Body="&lt;p&gt;Here are two examples that illustrate the potential difference to me:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;Example 1:&lt;/strong&gt; You are a general and 200 of your troops are being held captive by an enemy. All friendly soldiers are equally valued by the general and all deaths below are friendly deaths. The general is indifferent about enemy deaths. He must pick one of the two options:&lt;/p&gt;&#xA;  &#xA;  &lt;ol&gt;&#xA;  &lt;li&gt;Attack the enemy, resulting in 200 deaths with certainty.&lt;/li&gt;&#xA;  &lt;li&gt;Do nothing, in which case the enemy will kill the 200 captured soldiers.&lt;/li&gt;&#xA;  &lt;/ol&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Omission bias&lt;/em&gt; might lead the general to prefer option 2. The fuzzy human &lt;em&gt;reasoning&lt;/em&gt; might be that in choosing the first option, the general somehow causes 200 deaths, while in choosing the second option, it is the enemy that causes the deaths, so the general may prefer the second option even though he should be indifferent between them. This example can not be applied for &lt;em&gt;Action Bias&lt;/em&gt; because there is no ambiguity, uncertainty or risk in the example.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;Example 2:&lt;/strong&gt; There is an urn with 1 red ball and 1 blue ball inside. A ball is drawn randomly from the urn, and, if it matches your color, you win $100. Your options are as follows:&lt;/p&gt;&#xA;  &#xA;  &lt;ol&gt;&#xA;  &lt;li&gt;Choose red as your color&lt;/li&gt;&#xA;  &lt;li&gt;Choose blue as your color&lt;/li&gt;&#xA;  &lt;li&gt;Do nothing and be randomly assigned a color&lt;/li&gt;&#xA;  &lt;/ol&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Note that &lt;em&gt;Omission bias&lt;/em&gt; is inapplicable here as there are no &lt;em&gt;harmful&lt;/em&gt; actions, and there are really no morality issues at play. On the other hand, &lt;em&gt;Action bias&lt;/em&gt; might imply that agents are more likely to pick the first or second options here than they are to choose the third option, even though &lt;em&gt;homo economicus&lt;/em&gt; would be indifferent across the three.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To conclude, the key difference, as I see it, is that &lt;em&gt;Action bias&lt;/em&gt; is really only relevant in situations with risk or ambiguity. I think technically speaking there is no ambiguity here, since the rules of the game and the balls in the urn are known to the player, but you could easily transform it into a game with ambiguity by saying the player doesn't know the contents of the urn and instead has some belief. &lt;em&gt;Omission bias&lt;/em&gt;, on the other hand, is more related to morality.  If a bad thing is going to happen, we'd rather it happen because of something that we didn't do than something that we did.&lt;/p&gt;&#xA;" OwnerUserId="48" LastActivityDate="2015-12-28T15:24:44.917" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9957" PostTypeId="2" ParentId="9953" CreationDate="2015-12-28T16:25:44.573" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;How can I actually find out the exact level of output where profit is maximized? &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;You could find it by using your table to build a graph and interpolating the quantity that matches the maximum profit. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Note:&lt;/strong&gt; At this price of &lt;em&gt;7 Euro&lt;/em&gt; your firm should exit the market, as it is under in every point in this table, the minimal loss is -900 either for 100 or 200 units of its product, thus the answer to your question is &lt;strong&gt;units = 150&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It will profit if it continues to grow, as its &lt;em&gt;Average Total Cost&lt;/em&gt; is decreasing and the firm still benefits from &lt;em&gt;economies of scale&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/5KVil.gif&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/5KVil.gif&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You could calculate the profitable point by extrapolation.&lt;/p&gt;&#xA;" OwnerUserId="4374" LastEditorUserId="4374" LastEditDate="2015-12-28T16:39:57.823" LastActivityDate="2015-12-28T16:39:57.823" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9958" PostTypeId="2" ParentId="9952" CreationDate="2015-12-28T16:46:11.653" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;What does it mean to have the marginal cost equal to 7?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It means that, at the current size of your production capabilities, if you want to produce one more unit of your product, you will have to spend 7 Euro.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This, MC value is a quantitative description of the cost you pay if you want to adjust your initial production plan to a larger output and it is determined by your production capacities.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is an example: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You have a bus company and your service is to offer a one way trip from point A to point B, every day at a given hour. Now, your buses have 50 seats and your total cost for the trip is 100 Euro (fuel, road taxes, etc). &lt;br&gt;In addition to that your licence says that  you have to provide additional bus if the passengers are more than 50. &lt;br&gt;In this case, if you have 49 passengers and in the last minute there is a reservation for one more seat, your marginal cost is effectively zero, however, if there are two reservations in the last minute and the total number of passengers is now 51, the 51th passenger's marginal cost is 100 Euro, because you need a second bus only for him.&lt;/p&gt;&#xA;" OwnerUserId="4374" LastEditorUserId="4374" LastEditDate="2015-12-28T21:02:40.233" LastActivityDate="2015-12-28T21:02:40.233" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9959" PostTypeId="1" CreationDate="2015-12-28T18:59:47.480" Score="0" ViewCount="203" Body="&lt;p&gt;I'm a college student; for my thesis I need some statistics about international classical music tourism.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I need some data about how big international classical music tourism is in terms of spending and how much tourists' passion for music economically affects their behaviour when they travel.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where/how can I find some useful data (hopefully free)?&lt;/p&gt;&#xA;" OwnerUserId="6812" LastEditorUserId="264" LastEditDate="2015-12-28T21:33:45.147" LastActivityDate="2016-01-02T15:00:35.307" Title="Statistics about music tourism" Tags="&lt;data-request&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="9960" PostTypeId="2" ParentId="9916" CreationDate="2015-12-28T21:15:18.193" Score="2" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;Right now I'm not sure about the equivalence of the relabeling, and therefore the usefulness of this anwer -- see comments below.&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This is the beginning of an answer and an attempt to demonstrate how strong the necessary assumptions would have to be to guarantee existence.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's transform the problem into one that's equivalent but a bit easier to work with. Instead of indexing over families, let's instead index over the agents (members of families). The key to this relabeling is understanding that families can be written as constraints: If agents $i$ and $j$ belong to the same family, then $x_i=x_j$ and $y_i = y_j$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now we're back in the standard environment with individual agents (not families) but with these familial constraints. Recall the proof of Varian's theorem, which you link in the question. It uses the existence of a competitive equilibrium from equal incomes. In this context, we would need the existence of a competitive equilibrium from equal incomes in which the familial constraints were also met. This is going to be very difficult to do. For instance, consider $i$ and $j$ are in a family, and &#xA;$$&#xA;u_i=x_i + \varepsilon y_i \:\: \text{ and } \:\: u_j = \varepsilon x_j + y_j&#xA;$$&#xA;where $\varepsilon&amp;gt;0$ is tiny. These preferences are monotonic and convex. Basically, one family member cares about $x$ and the other cares about $y$. If each of the two agents is purchasing $x$ and $y$ to maximize his or her utility, you would not expect $x_i^* = x_j^*$ or $y_i^* = y_j^*$ in the competitive equilibrium (see &lt;strong&gt;addendum&lt;/strong&gt; at end).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is why you certainly need some assumption on preference similarities within families (at least to use a version of Varian's proof). My sense is that if you give me any arbitrarily small difference in preferences between family members, I can construct an example around it where there exists no CEEI in which they choose the same allocation. And then, at the very least, you can't use Varian's proof.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Two questions:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Do you agree that my reformulation of the problem is formally equivalent to yous?&lt;/li&gt;&#xA;&lt;li&gt;Can you think of any assumption weaker than assuming preference homogeneity within the family that I can try to invalidate with a counter-example?&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Addendum:&lt;/strong&gt; Remember that in a competitive equilibrium, each agent's marginal rate of substitution (MRS) equals the price ratio. Here, my agents have constant and different MRS's, so there can exist no competitive equilibrium with a price ratio that equals both of their MRS's. If each agent has an MRS that varies, then perhaps they could happen to be equal at the equilibrium price ratio. So maybe you could get away with some notion of local homogeneity of familial preferences. But you need to have them be locally homogenous at the competitive equilibrium, which is exactly what you're trying to prove exists, so it would be a bit circular.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Important note:&lt;/strong&gt; As mentioned previously, I'm assuming that the only way to prove existence is how Varian did it, via CEEI. There may be other proof techniques that skirt these issues, but I suspect not.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Beyond CEEI:&lt;/strong&gt; As the OP points out in the comments, proving existence of PEEFs through CEEI as Varian does is somewhat restrictive. I do not have a lot to say about proving existence of PEEFs directly, but the following is readily apparent: For any allocation satisfying your Pareto efficiency condition (ignore envy-freeness for the moment), for any $i,j$ such that $x_i, x_j, y_i, y_j &amp;gt; 0$,&#xA;$$MRS_i = MRS_j$$&#xA;If this weren't true, there would be a Pareto improvement. Competitive equilibrium essentially equates the MRS's through the price ratio, but you still need to equate these MRS's just to find a Pareto efficient allocation. I think the familial constraints will make this very difficult -- it's not hard to come up with an environment and familial constraints such that there exists no Pareto efficient equilibrium satisfying those constraints. In any case, this could be another partial step towards an answer: Forget about envy-freeness. First try to come up with an assumption on preferences (and maybe on familial constraints) that guarantees the existence of a Pareto efficient allocation that satisfies familial constraints. Then worry about envy.&lt;/p&gt;&#xA;" OwnerUserId="48" LastEditorUserId="48" LastEditDate="2015-12-31T17:55:34.847" LastActivityDate="2015-12-31T17:55:34.847" CommentCount="9" ContentLicense="CC BY-SA 3.0" />
  <row Id="9962" PostTypeId="2" ParentId="9940" CreationDate="2015-12-28T22:35:01.193" Score="1" Body="&lt;p&gt;According to the reference cited, &lt;strong&gt;omission bias&lt;/strong&gt; arises when the &lt;strong&gt;norm&lt;/strong&gt; for a particular situation is &lt;em&gt;inaction&lt;/em&gt; whereas &lt;strong&gt;action bias&lt;/strong&gt; arises when the norm is &lt;em&gt;action&lt;/em&gt;. Make sense?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An example of &lt;strong&gt;Action Bias&lt;/strong&gt; in Finance would be the observation that managers often make unprofitable investments instead of the alternative (i.e. return money to investors either as dividends or share buybacks) [1] because for these managers the norm is to find and invest in new projects. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As far as &lt;strong&gt;Omission Bias&lt;/strong&gt; goes, one of the most famous examples arises in this &lt;a href=&quot;https://en.wikipedia.org/wiki/Trolley_problem&quot; rel=&quot;nofollow&quot;&gt;thought experiment&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;[1] An example of this is described by Michael C. Jensen in 'The Agency Costs of Free Cash Flow: Corporate Finance and Takeovers' [American Economic Review, Vol. 76, No. 2 (May, 1986)].&lt;/p&gt;&#xA;" OwnerUserId="29" LastActivityDate="2015-12-28T22:35:01.193" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9963" PostTypeId="1" AcceptedAnswerId="9965" CreationDate="2015-12-29T02:14:18.140" Score="3" ViewCount="1852" Body="&lt;p&gt;Marginal cost is the cost associated with producing one more unit of output.         Mathematically speaking, marginal cost is equal to the change in total cost divided by the change in quantity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\ MC(q_{1},q_{2})=\frac{TC(q_{2})-TC(q_{1})}{q_{2}-q_{1}}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Marginal cost can either be thought of as the cost of producing the last unit of output or the cost of producing the next unit of output. Because of this, it's sometimes helpful to think of marginal cost as the cost associated with going from one quantity of output to another, as shown by q1 and q2 in the equation below.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To get a true reading on marginal cost, q2 should be just one unit larger than q1.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That said, as we consider smaller and smaller changes in quantity, marginal cost converges to the derivative of total cost with respect to quantity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\ MC(q_{1},q_{2})=\frac{dTC}{dQ}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What if we need to calculate marginal cost as we go from one output point to a much bigger one? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, if the TC of producing 3 units of output is \$15 and the TC of producing 9 units of output is \$21, the marginal cost, simply put, is \$1.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Once we are considering a change in TC values due to a variation of quantity produced higher than 1 unity, are we applying the concept of average rate of change to measure the MC value?  &lt;/p&gt;&#xA;" OwnerUserId="6545" LastEditorUserId="264" LastEditDate="2015-12-29T06:04:27.300" LastActivityDate="2015-12-29T06:52:46.850" Title="Mathematical analysis of Marginal Cost" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9964" PostTypeId="1" AcceptedAnswerId="10469" CreationDate="2015-12-29T06:37:34.397" Score="8" ViewCount="1855" Body="&lt;p&gt;Singapore has a relatively low personal income tax rate. Somebody who earns $80,000 after deductions only pay 3,350 in taxes, or about 4% effective rate (&lt;a href=&quot;https://www.iras.gov.sg/irashome/Individuals/Locals/Working-Out-Your-Taxes/Income-Tax-Rates/&quot;&gt;see 2012-2016 tax table&lt;/a&gt;). 80,000 is already well above the gross median income in Singapore, which is 3,770 per month in 2014 (&lt;a href=&quot;http://stats.mom.gov.sg/Pages/Income-Summary-Table.aspx&quot;&gt;source&lt;/a&gt;). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Despite, this Singapore is well known for its first-world public services, including public transportation, education, security, public housing and utilities. Personally I've lived there and I enjoyed the level of public services that otherwise can only be observed in countries with much higher taxation than 4% (e.g. United States, Canada or Western European countries) or countries that rely on oil revenues thus eliminating the need for taxation (e.g. Gulf countries). I don't know how to prove this with hard data, but taking a cursory look at &lt;a href=&quot;https://en.wikipedia.org/wiki/International_rankings_of_Singapore&quot;&gt;International rankings of Singapore&lt;/a&gt; can probably convince you that this is the case.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How is this possible? Absent 'free revenue' such as oil, isn't high level of taxation necessary to fund such high level of public service?&lt;/p&gt;&#xA;" OwnerUserId="4297" LastActivityDate="2016-02-01T09:27:23.857" Title="How is Singapore able to provide first-world public services, given its low income tax rate?" Tags="&lt;taxation&gt;&lt;public-economics&gt;" AnswerCount="4" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9965" PostTypeId="2" ParentId="9963" CreationDate="2015-12-29T06:52:46.850" Score="7" Body="&lt;p&gt;I think you're getting things backwards. Marginal cost (at a certain quantity $q_0$) really only makes sense as the derivative of the total cost function with respect to quantity at point $q_0$:&#xA;$$&#xA;MC(q_0)=\frac{dTC(q_0)}{dq}.&#xA;$$&#xA;The &lt;strong&gt;interpretation&lt;/strong&gt; of marginal cost as &quot;the cost of producing the last unit of output or the cost of producing the next unit of output&quot; is based on the (linear) approximation &#xA;$$&#xA;\widehat{MC}^+(q_0)\approx\frac{TC(q_0+1)-TC(q_0)}{(q_0+1)-q_0}\quad\text{or}\quad&#xA;\widehat{MC}^-(q_0)\approx\frac{TC(q_0)-TC(q_0-1)}{q_0-(q_0-1)}&#xA;$$&#xA;This interpretation is usually introduced in undergraduate textbooks because of its &lt;em&gt;intuitive&lt;/em&gt; appeal, not for its mathematical rigor. Imagine trying to explain the concept of marginal cost as &lt;em&gt;the cost associated with an infinitesimal amount of change in quantity&lt;/em&gt; to a freshman who probably has no idea what &quot;infinitesimal&quot; means, let alone the concept of derivative. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A first problem related to interpreting marginal cost as the cost associated with the previous or the next unit of output is that producing the two units (the previous and the next) may imply different costs. This is illustrated by the formulas $\widehat{MC}^+$ and $\widehat{MC}^-$. Suppose total cost is quadratic, i.e. $TC(q)=q^2$. Then it can be easily verified that $\widehat{MC}^+(q_0)\ne \widehat{MC}^-(q_0)$, for any admissible $q_0$. This is problematic because we want the marginal cost (at a particular $q_0$) to be unique. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Second, and this relates to your question at the end, the concept of &quot;unit&quot; is somewhat arbitrary. And this arbitrariness makes measures such as $\widehat{MC}^+$ and $\widehat{MC}^-$ unstable as well. To illustrate, continue with the quadratic total cost example. When the unit of quantity is kg, the &quot;marginal cost&quot; at $1$kg--as you would refer to the cost associated with producing one extra unit--is $$\widehat{MC}^+(1)=2^2-1^2=3.$$&#xA;But what if we suddenly want to change the unit of quantity to gram (g)? Then the &quot;marginal cost&quot; at $1$kg, or $1000$g, would change as well:&#xA;$$&#xA;\widehat{MC}^+(1)=(1.001)^2-1^2=0.002001.&#xA;$$&#xA;To avoid such instability caused by changes in units of measurement, marginal cost is defined as a derivative, not as a difference. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you want to measure the change in total cost due to change in some arbitrary quantity, simply apply the first formula in your question. But keep in mind that this cost is &lt;strong&gt;not&lt;/strong&gt; marginal cost as an economist would understand it.&lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2015-12-29T06:52:46.850" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="9967" PostTypeId="2" ParentId="9953" CreationDate="2015-12-29T10:53:45.393" Score="1" Body="&lt;p&gt;If you are supposed to give an answer solely based on the data provided, then I suggest that you do not extrapolate a new quantity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your reasoning to solve the problem is correct, and I believe that the answer should be 100. Indeed, if the profit is already maximized (or in this case the loss minimized), then the rational firm has no interest in increasing its output any further. Thus it should stop at 100.&lt;/p&gt;&#xA;" OwnerUserId="6820" LastActivityDate="2015-12-29T10:53:45.393" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9968" PostTypeId="2" ParentId="9897" CreationDate="2015-12-29T11:06:48.353" Score="2" Body="&lt;p&gt;Note that the index is computed with data provided by local administrations... And Venezuela's Central Bank is certainly not a reliable source - when it reports any data at all.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, you should take Big Mac index for Venezuela with a lot of precaution: first, the inflation rate in Venezuela is not really known, we only have access to estimates, and secondly there are two markets for the currency: an official and a black market, which display significantly different exchange rates.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A good read on the topic is provided by &lt;em&gt;The Economist&lt;/em&gt;: &lt;a href=&quot;http://www.economist.com/news/americas/21659764-government-prints-money-hyperinflation-looms-crackers-caracas&quot; rel=&quot;nofollow&quot;&gt;Crackers in Caracas&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="6820" LastActivityDate="2015-12-29T11:06:48.353" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9969" PostTypeId="1" AcceptedAnswerId="9983" CreationDate="2015-12-29T11:07:00.490" Score="1" ViewCount="1738" Body="&lt;p&gt;Is it possible to modify the EOQ model to work in a purchasing environment when ordering costs are effectively $0$?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The classic EOQ model is:&#xA;$$&#xA;Q=\sqrt{2aK/h}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;with $a$ being demand, $K$ ordering costs, and $h$ the holding costs. If $K$ is $0$ it yields an order quantity of $0$. Is there any optimal way of determining the order quantity when there are no order costs?&lt;/p&gt;&#xA;" OwnerUserId="6821" LastEditorUserId="42" LastEditDate="2015-12-29T18:41:23.800" LastActivityDate="2015-12-30T21:29:52.357" Title="Economic Order Quantity w/ no set up costs" Tags="&lt;producer-theory&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9970" PostTypeId="1" CreationDate="2015-12-29T14:53:34.767" Score="2" ViewCount="581" Body="&lt;p&gt;What is the need to create a special purpose entity/vehicle (SPV) for mortgage backed securities? What potential risks are avoided due to the creation of SPV? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is my naive idea that the holder of the security always has the first priority right for receiving repayment and interest on the loans. How is this affected in the scenario where the bank transfers the assets to an investment bank vs the SPV transfers the assets to an investment bank, which in turn is securitized?&lt;/p&gt;&#xA;" OwnerUserId="5125" LastEditorUserId="69" LastEditDate="2015-12-29T17:44:06.383" LastActivityDate="2015-12-30T22:56:08.417" Title="What is the need for a special purpose entity/vehicle in mortgage backed securities" Tags="&lt;debt&gt;&lt;risk&gt;&lt;financial-markets&gt;&lt;securities&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9971" PostTypeId="2" ParentId="9970" CreationDate="2015-12-29T15:20:57.793" Score="4" Body="&lt;p&gt;SPVs are typically used in MBS issuance to get the loans off the issuing bank's balance sheet, freeing up that balance sheet space to make more loans and providing bankruptcy-remoteness (i.e., the SPV would continue to function even if the issuer went bankrupt) to investors. This is why a securitizing bank would transfer loans to an SPV. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, given that you're describing an SPV sitting between an originator and an issuer, what you're describing might be a warehouse facility, which is a way of cheaply funding loans (in an incredibly unstable way) while the issuer puts together loan pools for issuance. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In general, the main motivators of SPV use are legal reasons (ensuring clear treatment of assets under all circumstances) and cost-minimization (bank balance sheet funding is relatively expensive as compared to off-balance sheet funding).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a full treatment of SPVs in securitization, see &lt;a href=&quot;http://www.nber.org/chapters/c9619.pdf&quot; rel=&quot;nofollow&quot;&gt;Gorton and Souleles.&lt;/a&gt; While the text focuses on credit card securitization, the principles described apply equally to MBS. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit: I also endorse BKay's answer, which gets at some of the economic concepts motivating SPV creation. &lt;/p&gt;&#xA;" OwnerUserId="264" LastEditorUserId="264" LastEditDate="2015-12-30T22:56:08.417" LastActivityDate="2015-12-30T22:56:08.417" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="9972" PostTypeId="2" ParentId="9969" CreationDate="2015-12-29T15:51:55.323" Score="0" Body="&lt;p&gt;The total ordering cost are &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$TC(Q)=P\cdot a+\frac{a\cdot K}{Q}+\frac{h\cdot Q}{2}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If K=0 TC becomes&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$TC(Q)=P\cdot a+\frac{h\cdot Q}{2}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;P\cdot a is a constant. Let denote it as c.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$TC(Q)=c+\frac{h}{2}Q$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can see that TC is a straight line with a slope of $\frac{h}{2}$ and a domain of $Q \in \mathbb R^+$. The marginal cost is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac{dTC}{dQ}=\frac{h}{2}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is a constant. Therefore there is no single optimum order quantity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The store has a capacity. This is the upper limit of the order. If you have still some goods in the store the maximum order is the capacity (c) minus the goods in the store (x).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therfore you can order bewtween $0$ (exclusive) and $c-x$ (inclusive) goods. The total cost of inventory will be always the same for a given demand in a period.&lt;/p&gt;&#xA;" OwnerUserId="371" LastActivityDate="2015-12-29T15:51:55.323" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="9973" PostTypeId="2" ParentId="9970" CreationDate="2015-12-29T17:41:51.050" Score="5" Body="&lt;p&gt;Here are a few reasons that build on @Dismalscience's answer. &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Capital requirements: Banks don't typically need to hold capital&#xA;against loans they originated but subsequently moved into an SPV. This might be regulatory arbitrage but it might be a socially efficient outcome meant to move assets and liabilities out of the banking system.&lt;/li&gt;&#xA;&lt;li&gt;Market segmentation: Because SPVs can tranche (slice) their loans they can offer products with different assumed default correlations, prepayment risk, and aggregate credit risk. These products can appeal to customers with different beliefs and preferences over risk. &lt;/li&gt;&#xA;&lt;li&gt;Bank business model: Banks may be better at finding customers, screening them, and handling the paperwork of making loans (broadly originating) then they are at proving inexpensive and patient capital to fund those loans. Securitization allows the bank to specialize in origination without also being the ultimate capital provider.&lt;/li&gt;&#xA;&lt;li&gt;Information destruction: Because SPVs contain loans that are diversified over geography and borrower characteristics they can reduce market adverse selection, improving pricing and liquidity.  &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="69" LastActivityDate="2015-12-29T17:41:51.050" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9974" PostTypeId="1" CreationDate="2015-12-29T18:17:32.193" Score="2" ViewCount="111" Body="&lt;p&gt;I'm attempting to replicate &lt;a href=&quot;http://dx.doi.org/10.1257/pol.1.1.25810.1257/aer.96.4.1293&quot; rel=&quot;nofollow&quot;&gt;Beaudry &amp;amp; Portier (2006)&lt;/a&gt;, and I'm having trouble coding up the long-run restrictions in the VECM model. Specifically I'm having a hard time finding a clear explanation of dealing with the error-correction term when getting MA($\infty$) representation. Any references would help! Most papers just assumes you know how to do it.&lt;/p&gt;&#xA;" OwnerUserId="4938" LastEditorUserId="7215" LastEditDate="2016-02-09T16:38:44.833" LastActivityDate="2019-04-23T22:35:33.763" Title="Obtaining Wold Representation of VECM Model" Tags="&lt;econometrics&gt;&lt;time-series&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9975" PostTypeId="1" CreationDate="2015-12-29T22:47:49.463" Score="2" ViewCount="110" Body="&lt;p&gt;This is more a question of putting the theory into practice, or at least clarifying the theory in practice. The question has to do with the application of preference relation axioms and aggregation. Take the transitivity relation for example; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\forall (x,y,z) \in X,$ if  $  x \succ y \wedge y \succ z \iff x \succ z $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose I have a set of data on the preferences of $n$ consumers $C_1,C_2,...,C_n$ over products $a, b,$ and $c$ such that; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$C_1$ prefers $a \succ b \succ c$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$C_2$ prefers $a \succ c \succ b$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$C_3$ prefers $c \succ b \succ a$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and so on until consumer $n$, each with a respective WTP for each product. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the question is, if the data were aggregated over $n$ consumers we would achieve an aggregate WTP for whichever preference dominates. Lets say that the aggregate data reveals $a \succsim b \succsim c $. Does this result violate transitivity and completeness since the individual consumer $C_3$ prefers $c \succ b \succ a$. Do individual and aggregate preferences have to be consistent.&lt;/p&gt;&#xA;" OwnerUserId="6824" LastEditorUserId="2776" LastEditDate="2017-02-22T15:02:46.100" LastActivityDate="2017-02-22T15:02:46.100" Title="Are Preference Relations Robust to Aggregation" Tags="&lt;consumer-theory&gt;&lt;preferences&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9976" PostTypeId="2" ParentId="9911" CreationDate="2015-12-30T01:20:46.550" Score="2" Body="&lt;p&gt;If you adopt a general-to-specific (Gets) modelling strategy, your specification search begins with a general unrestricted model (GUM), which should contain as many lags that you think could be relevant. In choosing the initial lag length(s), you can be generous enough since you want to be able to learn from the data (i.e. the dynamics contained in it). Of course, economic theory also guides the specification of the GUM, but if you want to allow for discovery (as opposed to merely imposing theory), theory should not determine the GUM. Having specified the GUM, it ought to be reduced into a parsimonious and interpretable form with any superfluous lags being removed. Once the dynamics have been settled, you can transform the model into its long-run form (which most economists will be interested in). From this perspective, putting additional lags into a model is not unwise - it's actually desirable! Basically, it all depends on how the lags enter your model in the first place. The efficient and systematic approach offered by the Gets approach is therefore advised.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand, you could adopt a specific-to-general modelling strategy. By employing this strategy, models grow in size as the econometric modelling process advances, which is contrary to the reduction (models become smaller) that takes place when using Gets. An expanding search is probably more susceptible to data mining than a contracting one.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In choosing lag lengths, it's also important to consider the purpose of the model and the general characteristics of the data (the number of observations and frequency).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lastly, it's difficult to answer this question given that the phrases &quot;mining the data&quot; and &quot;data mining&quot; are undefined. For example, are these supposed to be interpreted as derogatory terms? &lt;/p&gt;&#xA;" OwnerUserId="1588" LastActivityDate="2015-12-30T01:20:46.550" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9977" PostTypeId="2" ParentId="9975" CreationDate="2015-12-30T03:46:10.020" Score="1" Body="&lt;p&gt;I presume you mean to take the total (or average) willingness to pay for each alternative to be the social willingness to pay. $WTP_{soc}(a)=WTP_{1}(a)+WTP_{2}(a)+WTP_{3}(a)$ Then $WTP_{soc}$ is a representation of a social preference relation $a\succsim b \Leftrightarrow WTP_{soc}(a)\geq WTP_{soc}(b)$. This preference is transitive and complete. Individual and aggregate preferences are consistent in the sense that they satisfy the Pareto criterion and the independence axiom of &lt;a href=&quot;https://en.wikipedia.org/wiki/Arrow&amp;#39;s_impossibility_theorem&quot; rel=&quot;nofollow&quot;&gt;Arrow's impossibility theorem&lt;/a&gt;. The way we have tricked the impossibility theorem is that we have taken an ordinal preference relation and turned it into a cardinal concept (WTP).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question is whether the mean willingness to pay is a meaningful concept in any way. For example, a poor person's willingness to pay for a good may be relatively low, but the marginal utility very high. For a discussion of interpersonal comparisons of utility, see the following article:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Harsanyi, John C. Cardinal welfare, individualistic ethics, and interpersonal comparisons of utility. Springer Netherlands, 1976.&lt;/p&gt;&#xA;" OwnerUserId="5635" LastActivityDate="2015-12-30T03:46:10.020" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9978" PostTypeId="1" AcceptedAnswerId="9980" CreationDate="2015-12-30T04:49:15.450" Score="1" ViewCount="79" Body="&lt;p&gt;Companies intangible assets are something which is not physical e.g. Patents, copyrights etc.&#xA;How can we depreciate companies intangible assets and why it is done?&lt;/p&gt;&#xA;" OwnerUserId="6810" LastActivityDate="2015-12-30T12:08:06.103" Title="Depreciating companies intangible assets" Tags="&lt;corporate-finance&gt;&lt;accounting&gt;" AnswerCount="1" CommentCount="6" ClosedDate="2016-01-01T20:05:55.647" ContentLicense="CC BY-SA 3.0" />
  <row Id="9979" PostTypeId="2" ParentId="9964" CreationDate="2015-12-30T07:06:41.967" Score="1" Body="&lt;p&gt;Income tax is not the only taxation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And taxation is not the only source of revenue that pays for those services.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You have to look far beyond income tax rates.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So don't forget to take into account all the other taxes, public transport fares, supplementary health care costs, other payments (at point of use or elsewhere), as well as any other revenues from trading by state enterprises, including profits from the Sovereign Wealth Funds (GIC/Temasek/...).&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2015-12-30T07:06:41.967" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="9980" PostTypeId="2" ParentId="9978" CreationDate="2015-12-30T12:08:06.103" Score="4" Body="&lt;p&gt;All assets which have a finite useful life are depreciated. For example, your patents or copyright might hold for 5 or 10 years but no more. Thus, it is quite coherent to reflect the loss of value through depreciation and amortization. Same goes for a software for example: in 5 years time, a software might be obsolete, so we need to reflect this in the financial statements.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, the intangible assets which do not have a finite useful life (e.g. goodwill) will not be depreciated, though its value can be impaired. A great example was provided &lt;a href=&quot;http://www.bloomberg.com/news/articles/2015-07-22/microsoft-drops-as-nokia-charge-leads-to-largest-quarterly-loss&quot;&gt;last summer by Microsoft&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The way it is done is the very same as for tangible assets.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Under IFRS, the relevant IAS is the &lt;a href=&quot;http://www.ifrs.org/IFRSs/IFRS-technical-summaries/Documents/IAS38-English.pdf&quot;&gt;IAS 38&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="6820" LastActivityDate="2015-12-30T12:08:06.103" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9981" PostTypeId="2" ParentId="9964" CreationDate="2015-12-30T14:35:47.217" Score="1" Body="&lt;p&gt;Government's sources of income does not comprise solely of income tax, but includes:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;-indirect tax&lt;/p&gt;&#xA;&#xA;&lt;p&gt;-other direct taxes&lt;/p&gt;&#xA;&#xA;&lt;p&gt;-government bond selling&lt;/p&gt;&#xA;&#xA;&lt;p&gt;-foreign aid&lt;/p&gt;&#xA;&#xA;&lt;p&gt;-tax from tariffs&lt;/p&gt;&#xA;&#xA;&lt;p&gt;-profits from public corporations&lt;/p&gt;&#xA;&#xA;&lt;p&gt;-corporal fines&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and a whole list of others&lt;/p&gt;&#xA;" OwnerUserId="6782" LastActivityDate="2015-12-30T14:35:47.217" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9982" PostTypeId="1" AcceptedAnswerId="9988" CreationDate="2015-12-30T14:36:57.010" Score="3" ViewCount="9057" Body="&lt;p&gt;I'm pretty sound with the concept behind comparative advantage, but still don't get how to calculate the exchange rate in terms of quantities of each products being exchanged, e.g. 1 apple for 2 cars etc.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Specifically: when two counties, each having two separate comparative advantages in producing two separate goods, wish to exchange these goods, how will the exchange quantity/rate be calculated? &lt;/p&gt;&#xA;" OwnerUserId="6782" LastEditorDisplayName="user4169" LastEditDate="2016-03-18T20:32:07.930" LastActivityDate="2018-12-20T15:35:57.083" Title="Determining the Relative Price of Trade" Tags="&lt;macroeconomics&gt;&lt;international-trade&gt;" AnswerCount="2" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="9983" PostTypeId="2" ParentId="9969" CreationDate="2015-12-30T21:10:28.287" Score="0" Body="&lt;p&gt;With ordering costs equal to zero, one has only to optimize holding costs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since total holding costs are&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$TC_h=\frac {hQ}{2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;it is monotonically decreasing in $Q$. $Q$ may be constrained, say,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Q \geq Q_m &amp;gt;0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $Q_m$ express any constraints that may be imposed by the suppliers as regards &quot;minimum order quantity&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the optimal Economic Order Quantity is &quot;as little quantity as possible per order&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Formally the Lagrangean of the problem can be written as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Lambda = \frac {hQ}{2}  +  \lambda (Q_m-Q) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;the first order conditions are&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\partial \Lambda}{\partial Q} \leq 0 \implies \frac {h}{2} \leq \lambda$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\partial \Lambda}{\partial \lambda} \leq 0 \implies  Q_m-Q^* \leq 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since $h&amp;gt;0 \implies \lambda &amp;gt;0$. If the multiplier at the optimum is not zero, then the constraint is binding and we get &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Q^* = Q_m$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This would again become a more complex and interesting problem, if the unit price of the product became dependent (and decreasing) on quantity per order (because, say, fewer deliveries by the suppliers reduce &lt;em&gt;their&lt;/em&gt; transportation costs and so they give you a discount if you order more per order).&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2015-12-30T21:29:52.357" LastActivityDate="2015-12-30T21:29:52.357" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9985" PostTypeId="2" ParentId="8971" CreationDate="2015-12-31T03:45:21.673" Score="1" Body="&lt;p&gt;In some more complex approaches, authors and economists explore a bit of the consumer utilities to consider other variables to the problem, and, thus, they regularly add more expressions than just utility minus price. The same goes for producer surplus, as Kitsune Cavalry suggested.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I recently completed my master's thesis, entitled &quot;Pharmaceutical Regulation and Pseudo-generics&quot;. There is preference in that industry, so I wanted to consider that as well. I read a lot of papers and concluded that many authors used the Hotelling line to characterize the consumer's preference space. That line reflects all those inexplicit variables, including taste, brand love, and so on. Of course, those things are still subjective as you suggest, but they are considered by a negative transportation cost.&#xA;On the other hand, explore personal preferences can be very painful, but not impossible. It may require some sort of empirical research before proceeding with any theoretical thoughts. The same goes for the supply side of the market. To explore specific problems, we can definitely add more variables to contemplate specific scenarios. Look at &lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/S0167268102000483&quot; rel=&quot;nofollow&quot;&gt;this paper&lt;/a&gt;, for example, although I am not sure if you have free access to it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These are just examples of how can we explore these functions in more complex models, to answer specific questions. My thesis was aimed to a specific problem, so I prepared the entire model according to that problem - meaning that I considered relevant variables and relevant problems. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Perhaps teaching how these things work in general require that they keep things simpler and may be misleading. &lt;/p&gt;&#xA;" OwnerUserId="6832" LastActivityDate="2015-12-31T03:45:21.673" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9986" PostTypeId="1" AcceptedAnswerId="9997" CreationDate="2015-12-31T04:22:40.710" Score="4" ViewCount="268" Body="&lt;p&gt;In &lt;a href=&quot;http://nymag.com/daily/intelligencer/2015/12/big-short-genius-says-another-crisis-is-coming.html&quot; rel=&quot;nofollow&quot;&gt;New York Magazine's interview&lt;/a&gt; with investor Mike Burry (made famous by The Big Short), he claims Quantitative Easing has left the Federal Reserve with an extraordinarily high leverage ratio:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;What makes you most nervous about the future?&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Debt. The idea that growth will remedy our debts is so addictive for politicians, but the citizens end up paying the price. The public sector has really stepped up as a consumer of debt. &lt;strong&gt;The Federal Reserve’s balance sheet is leveraged 77:1&lt;/strong&gt;. Like I said, the absurdity, it just befuddles me.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;What are numerator and denominator in that leverage ratio? What are the Fed's options for what to do with all of the assets it has purchased? Is it even clear what it intends to do?&lt;/p&gt;&#xA;" OwnerUserId="6833" LastActivityDate="2016-01-02T00:22:22.743" Title="What does the Federal Reserve intend to do with bonds it has purchased under QE?" Tags="&lt;federal-reserve&gt;&lt;quantitative-easing&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="9987" PostTypeId="1" AcceptedAnswerId="9990" CreationDate="2015-12-31T08:22:27.110" Score="7" ViewCount="2751" Body="&lt;p&gt;My textbook defines market failure as when &quot;the production or consumption of a good or service causes additional positive or negative externalities on a third party not involved in the economic activity&quot;. That being said, I'd like to ask, Don't all activities produce externalities? For example, the production of oil will always have negative externalities, no matter how the government intervenes. Thus the market will always fail.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now perhaps I misunderstood. Perhaps it means whenever there are any &lt;strong&gt;net&lt;/strong&gt; externalities (positive - negative), the market fails. Please tell me if this is right. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Furthermore, from what I've read, I've gathered that the market fails whenever &lt;strong&gt;social cost $\neq$ social benefit&lt;/strong&gt;. But this is a different definition from the one I previously mentioned (the one only dealing with externalities). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Please tell me what market failure actually represents. Does it take into account social costs and benefits? Or only external costs and benefits? And if it only takes into account externalities, will some markets fail continuously (like consumption of oil)?&lt;/p&gt;&#xA;" OwnerUserId="6327" LastActivityDate="2016-07-05T08:55:44.497" Title="Is market failure constant? What properly defines it?" Tags="&lt;markets&gt;&lt;externalities&gt;&lt;efficient-markets&gt;" AnswerCount="4" CommentCount="6" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="9988" PostTypeId="2" ParentId="9982" CreationDate="2015-12-31T08:23:46.823" Score="1" Body="&lt;p&gt;If I understand correctly the question, the trick to calculate the equilibrium (relative) price of trade in the Ricardian model of comparative advantage is to specify demand once the opportunity costs have been determined. Prices of internationally traded goods, like other prices, are determined by supply and demand.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider two countries, two goods (computers and textiles), and given unit labor requirements such that in equilibrium the world price of computers will be between 0.5 and 2 textiles per computers. The opportunity costs define the bounds of equilibrium relative prices of trade (0.5 and 2), while the structure of demand determines &lt;strong&gt;the&lt;/strong&gt; equilibrium relative price (p). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For instance, &lt;code&gt;p=1&lt;/code&gt; can be an equilibrium price such as one country will specialize in computers and the other in textiles. This price will be determined by the interaction of the relative supply and the relative demand of computers and textiles. This interaction is discussed in the Chapter 3 of &lt;a href=&quot;http://www.pearsonhighered.com/educator/product/International-Economics-Theory-and-Policy-10E/9780133423648.page&quot; rel=&quot;nofollow&quot;&gt;International Economics: Theory and Policy of Krugman, Obstfeld and Melitz&lt;/a&gt;. An interesting video with a concrete example can be found &lt;a href=&quot;https://www.youtube.com/watch?v=xeJIamln9ak&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="6168" LastActivityDate="2015-12-31T08:23:46.823" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9989" PostTypeId="2" ParentId="9987" CreationDate="2015-12-31T10:24:55.017" Score="1" Body="&lt;ol&gt;&#xA;&lt;li&gt;There are positive externalities as well as negative ones. A good could have both and they could, in principle, sum to zero.&lt;/li&gt;&#xA;&lt;li&gt;In Foobar's bread example, &quot;...the consumption of bread adds carbohydrates to the diet which ensures healthy functioning of workers, athletes, etc. &quot; is not an externality, it is a benefit which is priced.&lt;/li&gt;&#xA;&lt;li&gt;Many goods are taxed or subsidized and if these are equal and opposite to their level of net externality then there is no remaining externality by construction&lt;/li&gt;&#xA;&lt;li&gt;Market failures can be de minimis in the dead weight loss they cause. When it comes to a consumer good, externalities are like taxes, their dead weight losses are (roughly, depends on the functional forms) increasing in the product size of the externality and the elasticity of demand. Therefore, if demand is highly inelastic (like for milk or bread) and the externalities are likely small (again for milk or bread) the total distortion of those externalities is likely quite small. &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;I therefore understand an externality market failure not merely as a circumstance where private marginal benefit $\neq$ social marginal benefit but where the inequality causes economically meaningful distortions. &lt;a href=&quot;https://en.wikiquote.org/wiki/George_E._P._Box&quot; rel=&quot;nofollow&quot;&gt;Remember that all models are wrong; the practical question is how wrong do they have to be to not be useful&lt;/a&gt;. The externality model is useful only when it describes a distortion that large enough to seriously distort demand.   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can you elaborate on what distinction you are making between social costs and benefits when you say &quot;Does it take into account social costs and benefits? Or only external costs and benefits?&quot;? &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2015-12-31T10:41:17.080" LastActivityDate="2015-12-31T10:41:17.080" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="9990" PostTypeId="2" ParentId="9987" CreationDate="2015-12-31T13:05:32.063" Score="10" Body="&lt;p&gt;I have to intervene to say that market failure and externality are not the same thing. So I do not think it is at all correct to define market failure as&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;when &quot;the production or consumption of a good or service causes additional positive or negative externalities on a third party not involved in the economic activity&quot;.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Externalities are but one example of market failure. &lt;strong&gt;Market failure is more properly defined as any situation in which a market, left to operate without any intervention, fails to produce the efficient (welfare-maximising) allocation.&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sources of market failure include&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Externalities: if there is a negative externality then there will tend to be too much of an activity from a social perspective—resulting in inefficiency.&lt;/li&gt;&#xA;&lt;li&gt;Market power: if the market is not perfectly competitive then firms will tend to increase price above marginal cost to increase their profit. This results in consumers not buying the good even though they are willing to pay more than its cost of production—which is inefficient.&lt;/li&gt;&#xA;&lt;li&gt;Information asymmetries: If one party in a transaction has an informational advantage over the other then s/he will try to exploit it to the counterparty's detriment. This, in turn will lead to transactions taking place where it would be efficient for them not to (or to mistrust and the failure to realise efficient transactions).&lt;/li&gt;&#xA;&lt;li&gt;Missing markets: sometimes efficient trades don't occur because the market simply doesn't exist. For example, there is no market to insure against the risk that an unborn child will be born disabled and requiring a lifetime of care even though many parents and their children would like such insurance (an argument often used to for the existence of state-provided social security schemes). &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;To address your actual questions:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;Don't all activities produce externalities&quot;? Yes, but many of these externalities are priced. For example, if I buy an apple then you can no longer consume that apple, which is an externality. However, this does not result in a market failure because the price mechanism in a competitive market ensures that I get an apple and you don't only if I am willing to pay more for that apple than you are. So the apples go to the people who value them the most, which is the efficient thing to do. Since we are doing the efficient thing, there is no market failure. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, when should we worry about externalities? We should check whether the net effects can cancel each other out. For example, suppose that the private benefit of some action was lower than the social benefit, but that the private cost was also lower than the social cost by exactly the same amount. Then the net effect would be that MPB=MPC at exactly the same quantity where MSB=MSC. The private individual would then take the socially optimal action and there would be no market failure. &lt;strong&gt;A market failure only occurs if the externality is such that MPB=MPC at a quantity different to that where MSB=MSC.&lt;/strong&gt; Only then will the behaviour of the private individual (whose optimal action is to equalise private marginal benefit and private marginal cost) differ from that which is socially optimal.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;A note on &lt;em&gt;marginal&lt;/em&gt; benefit and cost:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When performing this kind of analysis, We typically assume that the objective is to maximise to total social welfare (green line), which is defined as the difference between the total accumulated benefit of the activity (blue line) and the total accumulated cost (red line):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/vYiai.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/vYiai.png&quot; alt=&quot;total social benefit and cost&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &lt;em&gt;marginal&lt;/em&gt; social benefit is &lt;em&gt;the benefit society gains if we increase consumption by one unit&lt;/em&gt;. In other words, the MSB is given by the slope of the TSB curve. Similarly, the MSC (defined as the extra cost bourne by society if consumption increases by one unit) is equal to the slope of the TSC curve.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, we observe something interesting: the total welfare curve obtains its maximum at exactly the point where the slopes of the TSB and TSC curves are equal:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/Fo840.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Fo840.png&quot; alt=&quot;marginal social benefit and cost&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words, welfare is maximised when MSB=MSC. This is not a coincidence for this particular graph, but rather is a far more general property.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is actually quite intuitive. Suppose that MSB &gt; MSC. If we increased consumption by one unit then society would get MSB units of extra benefit and MSC units of extra cost. Since MSB &gt; MSC, this results in an increase in total social welfare. Similarly, if MSB &amp;lt; MSC then we could reduce consumption by one unit and society would save more in costs than it would loose in benefits. So neither $MSB&amp;gt;MSC$ nor $MSB&amp;lt;MSC$ can be consistent with maximised social welfare. Only when MSB=MSC do we find that there is no way to increase welfare by increasing or reducing consumption.&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2016-01-02T09:31:04.230" LastActivityDate="2016-01-02T09:31:04.230" CommentCount="10" ContentLicense="CC BY-SA 3.0" />
  <row Id="9991" PostTypeId="2" ParentId="9987" CreationDate="2015-12-31T13:35:03.430" Score="4" Body="&lt;p&gt;To answer your other question of what properly defines market failure:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The market fails when the socially desirable outcome is not achieved through the market. Since the market decisions are made based on cost-benefit analysis, when social (net) cost/benefit = private (net) cost/benefit then private actors in a market will make the socially optimal decision. If this deviates, they won't and hence we have a market failure.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What does this market failure mean concretely? There is either not the right amount of production or not the right amount of consumption of a good, without the government intervening.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;For example:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;A negative externality: Smoking. If everyone in the cafe would decide how much the smoker should smoke it would be very little as everyone has a cost (health har,), but no benefit. The smoker doesn't take into account other people's costs when he makes his decision. He smokes until: &lt;strong&gt;His own private marginal cost = his own private marginal benefit.&lt;/strong&gt; However socially optimal would be &lt;strong&gt;marginal social cost = marginal social benefit&lt;/strong&gt;. Since social cost is larger than private cost and social marginal costs are increasing in smoking, the socially optimal amount of smoking is less than the private optimal amount. So private decisions (as in a free market) do not lead to a socially optimal outcome.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;A positive externality: The producer of a good with positive externalities could be the builders of nice buildings which eveyone enjoys, because they're nice to look at. The builders gain a certain amount from the buildings. However everyone else also gains, but does not pay the builders for this benefit. Therefore that desire of the people is not priced in the builder's benefit and therefore the builder does not take it into account. So if society would decide they'd want more buildings than if the builder decides.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;In general there are two broad categories of market failures:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;strong&gt;Allocation failures.&lt;/strong&gt; This is the one we mostly talkk about in economics and refers to the correct allocation, production and consumption of goods.&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;Distributive failures.&lt;/strong&gt; This is when the market leads to an undesirable distribution of income, i.e. too much economic inequality. This is why most countries have progressive income taxes.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Allocative failures are not just externalities although they mostly are. Here are (most of) the kinds of allocative failures so that you can better understand how market failure is defined.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Externalities (positive or negative)&lt;/li&gt;&#xA;&lt;li&gt;Public goods (will be underprovided privately, which is why governments provide them. They are basically postiive externalities)&lt;/li&gt;&#xA;&lt;li&gt;Market power such as monopoly or cartels. Most importantly &lt;em&gt;natural monopolies&lt;/em&gt; as this problem can't be solved through more competition.&lt;/li&gt;&#xA;&lt;li&gt;Assymetric Information (Moral Hazard, Adverse Selection, etc)&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Basically, look at all the assumptions required for the result that the market is efficient. See where those assumptions fail and voila you have found a form of market failure.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that not all goods produce externalities as you might think. Further note that yes, very often the market fails. Hence a great amount of markets are actually regulated. For whatever business you open you'll need to register it get a permit, etc. However very often we don't need a lot of regulation. Often the debates are not about whether to have any regulation or not, but rather the necessary extent of regulation. This is because regulation is costly and we don't want to use it if the benefits to it are too small compared to its cost.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastEditorUserId="5557" LastEditDate="2015-12-31T13:41:28.210" LastActivityDate="2015-12-31T13:41:28.210" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="9992" PostTypeId="1" CreationDate="2015-12-31T15:02:32.333" Score="3" ViewCount="78" Body="&lt;p&gt;When solving economic models, wec get expressions of endogenous variables (say, production $P$, or consumption $C$) in terms of parameters or exogenous variales, and we can then ask what the change in, say, production is given a change in, say, public spending. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But can we also ask what the change in production is given a change in another endogenous variable, like for example $C$? That is, what is $$\frac{\Delta P}{\Delta C},$$ for example in the simple goods market model where the equations are $$\text{Demand} = C + \text{investments} + \text{public spending}, \\ C = c_0 + c_1(P - \text{taxes}), \\ P = \text{Demand},$$ where $P, \text{Demand}$ and $C$ are endogenous?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have searched online and found that the answer is infinity, but no explanation is given. Why is it infinity?&lt;/p&gt;&#xA;" OwnerUserId="6837" LastActivityDate="2016-04-30T19:18:38.890" Title="Is $\frac{ \Delta \ \text{endogenous variable}_1 }{\Delta \ \text{endogenous variable}_2}$ well-defined ... and what is it?" Tags="&lt;macroeconomics&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="9994" PostTypeId="1" CreationDate="2016-01-01T12:15:31.550" Score="4" ViewCount="502" Body="&lt;p&gt;My friends and I, 2 of which are computer science majors think it is worse because is humans can't work and thus afford necessities, how will they survive?  The definition of automation: the use of largely automatic equipment in a system of manufacturing or other production process.&#xA;&quot;unemployment due to the spread of automation&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is to reduce human intervention mainly in order for tasks to more economically efficient and save on paying unions, benefits to employees, as well as human workers.  A business starts with one person let's say, an assembler.  He hires a few other people to assembly more work he's getting, and eventually has a whole factory. He is able to buy 2 robotic arms and use them to cut his human workforce in half, not needing let's say 20 guys out of 40 he had.  A few years later he buys two more robotic arms and the rest are laid off.  He now only needs a few men (3-4) for monitoring and repairs.  BUT once the CEO can buy technology to fix the robots, pretty much all left is observers, but then the CEO eventually just wakes up, hits a switch, and begins building.  He's rich, made his own job, made his living, he'll probably be fine.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;HOWEVER, not everyone has the mindset or means to be an entrepreneur or innovator.  ALSO because the CEOs and owners invested and made their own business, how can they be hated in a fair way? They should have this right since the whole thing is their ownership and job, it just needed other people for a while.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;ALSO, during this time, new jobs were made like the observers and robot repair people.  They were eventually automated out too.  This is being done for drivers, surgeons, pilots, military, security, construction, even cashiers are replaced by self check outs now.  They have tested a truck that drives itself, size of a delivery one for products. Drones are already delivering things. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, I can't see (and neither can others) how advancing technology to be more self-sufficient in itself is good when people will eventually no longer be able to find work and thus afford medical care, food, housing, clothing...from that, it would for the majority (not those who are stocked on riches and resources and were innovated enough to prepare themselves) cause economic collapse. Due to lack of taxpayers now and there be less flow of the economy anyways, a communist type system would unlikely happen so nobody starves or freezes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thoughts...does it have a better impact as many I've heard say, or all in all realistically, have a worse one (in the long run at the very least)? &lt;/p&gt;&#xA;" OwnerUserId="6258" LastEditorUserId="7593" LastEditDate="2016-05-14T19:35:16.877" LastActivityDate="2019-12-20T08:32:45.343" Title="Have automation and technological advance been shown to have a positive impact on society and the economy or a negative one?" Tags="&lt;supply-and-demand&gt;&lt;labor-economics&gt;&lt;inequality&gt;&lt;technology&gt;&lt;communism&gt;" AnswerCount="6" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="9995" PostTypeId="2" ParentId="9333" CreationDate="2016-01-01T14:58:41.803" Score="0" Body="&lt;p&gt;In the example, the reserve-deposit ratio is assumed to stay fixed, which is rather unrealistic assumption. It's much more realistic to assume that the supply changes by 100, and the reserve-deposit ratio changes to accommodate that. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's correct, although the wording should make it more clear that the ratio does not change as a result of the operation.&lt;/p&gt;&#xA;" OwnerUserId="4125" LastActivityDate="2016-01-01T14:58:41.803" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9996" PostTypeId="2" ParentId="9994" CreationDate="2016-01-01T15:12:17.660" Score="2" Body="&lt;p&gt;Would you rather work with a tractor or shovel?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Would you rather use one hand to work or two?...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Mathemathically the formula is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$EL  = \mathrm{GDP}_r$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That is, efficiency ($/h) times hours worked per year equals the real GDP. Same is true for your personal life and personal income. Now, if efficiency decreases, you must either work more or live with less, which is not what anyone wants. Note that even as you increase your efficiency, there is little evidence that such thing decrease someone else's efficiency. So thus the result is income inequality and not &quot;lack of necessities&quot;. That means, those with lower IQs generally earn less (since IQ is the primary driver of differences in efficiency between people)...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the example in question, it seems that efficiency has increased, and at least temporarily the L term has decreased (even though the robot arm builders obviously still need to be employed). However, the cheaper robot arms make it easier for other sectors to accommodate people. So more likely result is a sectoral shift in the labor force, which is what historically has always happened. That is, the factory workers take pay cut, but demand for labor increases in a other sector providing a pay increase and more jobs to that sector. Historically L remains the same but E increases for the whole economy.&lt;/p&gt;&#xA;" OwnerUserId="4125" LastEditorUserId="332" LastEditDate="2017-06-06T23:13:14.020" LastActivityDate="2017-06-06T23:13:14.020" CommentCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="9997" PostTypeId="2" ParentId="9986" CreationDate="2016-01-01T16:12:03.290" Score="1" Body="&lt;p&gt;The leverage ratio, as always, is a ratio between liabilities and equity. It has really no significance, as the liabilities of the Fed, which are mostly dollars, need not to ever be paid back.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Only in the case of inflation would the Fed need to reduce its balance sheet (i.e., sell the public debt or MBS). Do note that the profit of the Fed goes back to the government, thus the debt that is sitting there is an asset and liability of the government at the same time, canceling out. That is, the net debt decreases as the Fed buys bonds from the market. You may also view it as inflation or a money tax that pays back the debt.&lt;/p&gt;&#xA;" OwnerUserId="4125" LastEditorUserId="264" LastEditDate="2016-01-01T16:51:33.273" LastActivityDate="2016-01-01T16:51:33.273" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="9998" PostTypeId="2" ParentId="9964" CreationDate="2016-01-01T16:19:37.683" Score="1" Body="&lt;p&gt;According to global economy.com government spending in Singapore is about 10% of GDP. So absent of taking debt the overall tax rate would have to be the same. This means that the services aren't likely public but private, or perhaps are very selective. Also, their public sector might be a lot more efficient giving more bang for the buck, or at least focusing in services instead of welfare schemes, which are generally speaking very expensive. Indeed it seems that most social insurance is done privately in Signapore. Finally, the country is 3rd richest nation in the world, which means 10% can go farther than someplace else.&lt;/p&gt;&#xA;" OwnerUserId="4125" LastEditorUserId="4125" LastEditDate="2016-01-01T16:30:14.373" LastActivityDate="2016-01-01T16:30:14.373" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10000" PostTypeId="2" ParentId="9994" CreationDate="2016-01-01T17:28:57.383" Score="1" Body="&lt;p&gt;@Dole answer is correct.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, be aware that we often fail to foresee future evolutions. The Luddites failed to see that machines would not harm the people and the workers. Today's problem are quite similar, and it is not suprising that we have trouble to imagine how the future will be. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;CGP Grey's video &lt;a href=&quot;https://www.youtube.com/watch?v=7Pq-S557XQU&quot; rel=&quot;nofollow&quot;&gt;Human need not apply&lt;/a&gt; represents very well this tendency that we have not to be able to see what is coming next. It might be frightening, we should definitely think about it, but even though we cannot represent ourselves what is coming next, their is no need for fear.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks to technological progress, our civilization has considerably improved. Our lives are more comfortable today than dozens of year before, and more and more people around the world manage to climb out of poverty thanks to technological change. Everybody might not directly benefit from these changes, but the overall effect is clear. I do not see any reason why the same technological progress which has helped us during hundreds of years should become harmful in the future.&lt;/p&gt;&#xA;" OwnerUserId="6820" LastEditorUserId="6820" LastEditDate="2016-01-02T13:25:03.190" LastActivityDate="2016-01-02T13:25:03.190" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="10001" PostTypeId="1" AcceptedAnswerId="10005" CreationDate="2016-01-01T19:21:31.927" Score="0" ViewCount="48" Body="&lt;p&gt;I have the following demand equation system (expenditure ratio model): &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$w_{clothes}= \beta _ {clothes} + \alpha_{clothes} * \ kids + (\gamma _{0.clothes} + \gamma _{1.clothes} * \ kids)* \ income + u_{clothes}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$w_{food}= \beta _ {food} + \alpha_{food} * \ kids + (\gamma _{0.food} + \gamma _{1.food} * \ kids)* \ income + u_{food}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$w_{other}= \beta _ {other} + \alpha_{other} * \ kids + (\gamma _{0.other} + \gamma _{1.other} * \ kids)* \ income + u_{other}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $\beta_i$ and $u_i$ denotes the constants and the residuals, kids is a dummy variable (1, if the consumer has got kids), and $w_{&quot;product&quot;}$ is the proportion of &quot;product&quot; consumption of the total expenditure.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is, how can I &lt;strong&gt;interpret&lt;/strong&gt; the term, for example, &lt;strong&gt;$(\gamma _{0.clothes} + \gamma _{1.clothes} * \ kids)$&lt;/strong&gt;? Is this a dummy variable, or interaction or other? It looks like an other regression's coefficients in this equation. I have no idea, please help.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you for your time and help.&lt;/p&gt;&#xA;" OwnerUserId="5017" LastActivityDate="2016-01-01T21:09:50.003" Title="What does this $(\gamma _{0.clothes} + \gamma _{1.clothes} * \ kids)$ term mean in my linear demand equation?" Tags="&lt;microeconomics&gt;&lt;econometrics&gt;&lt;consumer-theory&gt;&lt;supply-and-demand&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10002" PostTypeId="2" ParentId="9926" CreationDate="2016-01-01T19:21:51.710" Score="1" Body="&lt;p&gt;This is a very large subject, where the terms have not even be well defined. I find it very unlikely that you will find an answer. Before even attempting to do so, you should define concisely what is meant by the terms. And particularly, are you talking about stabilization(short run) or structural(long run) economics? Because those two things are entirely different. One strategy is to study the classical and Keynesian schools of economics, since generally it at least to me appears that classical economics is called supply side economics, while keynsians are called demand siders.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since the question was partly related to a person and not schools of economics, you could define &quot;Reaganomics&quot; as what actions he actually took, and what happened as a result. Upon doing this you will probably find that he wasn't really a strident supply sider in the first place. His strategy seemed to be to reduce taxes and pay for it by taking debt. Since it was not even a recession, this can be hardly classified as an economic policy, but a political strategy. Promise something for nothing and get votes is what seemed to be his plan in light of the data, and it worked as far as politics was concerned (he won twice).&lt;/p&gt;&#xA;" OwnerUserId="4125" LastEditorUserId="4125" LastEditDate="2016-01-01T20:49:51.587" LastActivityDate="2016-01-01T20:49:51.587" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10003" PostTypeId="1" AcceptedAnswerId="10013" CreationDate="2016-01-01T19:23:50.007" Score="3" ViewCount="2999" Body="&lt;p&gt;Is the real wage counter or pro- cyclical? I've read in some textbooks that the real wage is mildly pro-cyclical, but I've also found some papers stating that it's acyclical.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, which is it? Also, if the real wage is pro-cyclical, does that mean that there's some sort of price rigidity, i.e., the economy is not always on the Price-Setting curve? &lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="43" LastEditDate="2016-01-02T11:44:29.077" LastActivityDate="2016-01-04T12:08:35.080" Title="Cyclicality of Real Wages? Counter, pro or acyclical?" Tags="&lt;macroeconomics&gt;&lt;labor-economics&gt;&lt;empirical-evidence&gt;" AnswerCount="2" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="10004" PostTypeId="2" ParentId="10003" CreationDate="2016-01-01T20:23:55.697" Score="1" Body="&lt;p&gt;It really depends on what model you use.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Classical and Keynesian economists believe that real wage is counter-cyclical. In Lucas' New Classical model, he believes real wage is acylical. In the Real Business Cycle model, economists say that real wage is procyclical after WW2, in America.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The general consensus now is that&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The most recent evidence shows that the cyclical behaviour of real wages has changed, from being countercyclical during the interwar period, to procyclical in the postwar era.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.hindawi.com/journals/ecri/2010/250729/&quot; rel=&quot;nofollow&quot;&gt;This article&lt;/a&gt; gives a good rundown of a bunch of the literature.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Intuitively, what do you think? If the economy is doing well, and companies see positive real demand increases, the demand for labor is higher, and you'd expect real wage to increase. Then again, during recessions, labor hoarding may prevent an immediate fall in wages or layoffs (companies do not like to give wage cuts, because of morale, and they do not like to layoff right away in case the recession ends quickly).&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2016-01-01T20:23:55.697" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="10005" PostTypeId="2" ParentId="10001" CreationDate="2016-01-01T21:09:50.003" Score="2" Body="&lt;p&gt;If you multiply out any one of the equations,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$w_{clothes}= \beta _ {clothes} + \alpha_{clothes} \cdot \ kids + (\gamma _{0.clothes} + \gamma _{1.clothes} \cdot \ kids)\cdot\ income + u_{clothes}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$=\beta _ {clothes} + \alpha_{clothes} \cdot \ kids + \gamma _{0.clothes}\cdot  income + \gamma _{1.clothes} \cdot \ kids\cdot\ income + u_{clothes}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;it is evident that you have &quot;kids&quot; and &quot;income&quot; as regressors, plus an interaction term&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2016-01-01T21:09:50.003" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10006" PostTypeId="2" ParentId="9986" CreationDate="2016-01-02T00:22:22.743" Score="1" Body="&lt;p&gt;In regards to the question about the 77:1 ratio, I can't be certain, but some balance sheet information is publicized from the Fed online:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The main balance sheet is down by section six of this form:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.federalreserve.gov/releases/h41/current/h41.htm&quot; rel=&quot;nofollow&quot;&gt;http://www.federalreserve.gov/releases/h41/current/h41.htm&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Fed also provides historical reports of why the balance sheet changed:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.federalreserve.gov/monetarypolicy/quarterly-balance-sheet-developments-report.htm&quot; rel=&quot;nofollow&quot;&gt;http://www.federalreserve.gov/monetarypolicy/quarterly-balance-sheet-developments-report.htm&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And on the interactive links from: &lt;a href=&quot;http://www.federalreserve.gov/monetarypolicy/bst_fedsbalancesheet.htm&quot; rel=&quot;nofollow&quot;&gt;http://www.federalreserve.gov/monetarypolicy/bst_fedsbalancesheet.htm&lt;/a&gt; , they identify some of the key terms.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm not seeing the specific 77:1 ratio referenced.  The Fed does have equity/capital but historically this has always been small, so for the most part Fed assets are backed by fed liabilities.  Equity currently is only 29 billion compared to 4.8 trillion in assets which is typical. Perhaps the 77:1 ratio referred discounted certain types of liabilities or assets?  &lt;/p&gt;&#xA;" OwnerUserId="6479" LastActivityDate="2016-01-02T00:22:22.743" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10007" PostTypeId="1" CreationDate="2016-01-02T02:34:28.173" Score="4" ViewCount="281" Body="&lt;p&gt;According to &lt;a href=&quot;http://www.economist.com/content/global_debt_clock&quot;&gt;The Economist&lt;/a&gt;, lots of major economies are in debt to the extent of it consuming most of the countries' GDP. And the whole system almost seems to resemble a Ponzi scheme at a &lt;a href=&quot;http://money.visualcapitalist.com/all-of-the-worlds-money-and-markets-in-one-visualization/&quot;&gt;macro level&lt;/a&gt;. I'm sure this is a gross simplification of how things work and I'm no economist by any measure. But at some point, wouldn't the debt of these countries grow beyond the expectation that it will ever be paid off? How is it there is so much worldwide debt without the whole system ready to implode?&lt;/p&gt;&#xA;" OwnerUserId="6744" LastEditorUserId="1601" LastEditDate="2016-01-02T09:03:31.880" LastActivityDate="2016-01-05T13:13:39.770" Title="Will major economies be able to repay their debt?" Tags="&lt;macroeconomics&gt;&lt;debt&gt;&lt;government-debt&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10008" PostTypeId="2" ParentId="10007" CreationDate="2016-01-02T09:56:52.220" Score="7" Body="&lt;p&gt;Whether a country's debt is sustainable is a difficult question to answer. Bohn developped a framework for answering this question and the cited paper is a summary of much of its findings.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Henning Bohn, 2005.&#xA;&quot;&lt;B&gt;&lt;A HREF=&quot;https://ideas.repec.org/p/ces/ceswps/_1446.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;The Sustainability of Fiscal Policy in the United States&lt;/A&gt;&lt;/B&gt;,&quot;&#xA;&lt;A HREF=&quot;https://ideas.repec.org/s/ces/ceswps.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;CESifo Working Paper Series&lt;/A&gt; &#xA;1446, CESifo Group Munich.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Bohn proposes to estimate a fiscal reaction function to model a country's fiscal policy. He concludes that for a country's fiscal policy to be sustainable, it is sufficient that its primary balance is a (linear) increasing function of its lagged debt-GDP .&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$pb_{it}= \alpha_i + \beta_i d_{it-1} + \delta_i X_{it} \ \ \ \ \  \beta_i&amp;gt;0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;($X_{it}$ is a vector of control variables)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are however some problems with this framework. If for example does not exclude an ever increasing debt limit, which seems counter-intuitive. Some of these problems are resolved in Ghosh et. al. 2011 and non-linearities in a fiscal reaction function are added and they introduce the concept of fiscal space.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Atish R. Ghosh &amp;amp; Jun I. Kim &amp;amp; Enrique G. Mendoza &amp;amp; Jonathan D. Ostry &amp;amp; Mahvash S. Qureshi, 2011.&#xA;&quot;&lt;B&gt;&lt;A HREF=&quot;https://ideas.repec.org/p/nbr/nberwo/16782.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Fiscal Fatigue, Fiscal Space and Debt Sustainability in Advanced Economies&lt;/A&gt;&lt;/B&gt;,&quot;&#xA;&lt;A HREF=&quot;https://ideas.repec.org/s/nbr/nberwo.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;NBER Working Papers&lt;/A&gt; &#xA;16782, National Bureau of Economic Research, Inc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Yet, there are still some drawbacks to this approach. Japan is a country that has almost reached its debt limit but financial markets doe no seem to response to this fact. Therefore this framework as evolved from estimating these fiscal reaction functions to stochastic debt simulation. Celasun, Debrun and Ostry wrote a seminal paper on this procedure.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Oya Celasun &amp;amp; Xavier Debrun &amp;amp; Jonathan David Ostry, 2006.&#xA;&quot;&lt;B&gt;&lt;A HREF=&quot;https://ideas.repec.org/p/imf/imfwpa/06-67.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Primary Surplus Behavior and Risks to Fiscal Sustainability in Emerging Market Countries: A &amp;quot;Fan-Chart&amp;quot; Approach&lt;/A&gt;&lt;/B&gt;,&quot;&#xA;&lt;A HREF=&quot;https://ideas.repec.org/s/imf/imfwpa.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;IMF Working Papers&lt;/A&gt; &#xA;06/67, International Monetary Fund.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;They for example calculate the probability that a country's debt-GDP ratio increases more than 10% in comparison to a baseline-year. But again, this does not answer some fundamental questions. If for example the indebtedness of a country does increase with 10% in 5 years, does this mean that fiscal policy was insustainable?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It should be clear now that determining the sustainability of a country's debt is difficult. In the end, it really all comes down to the fact that a country's fiscal policy is sustainable as long as institutions and individuals are willing to buy their debt instruments.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;edit:&lt;/strong&gt;&#xA;To answer your comment, I think the easiest concept to understand, it the one of fiscal space so I will try to explain that:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume a country's fiscal policy looks the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$pb_{t}= \alpha + \beta_1 d_{t-1}+ \beta_2 d_{t-1}^2 + \delta X_{it} $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In which $\beta_1&amp;gt;0&amp;gt;\beta_2$. This thus implies that a country's primary balance initially increases as debt increases to offset the debt accumulation but will decrease after a certain point, called fiscal fatigue. This fiscal fatigue implies a limit to the debt ratio a country could pay back. To see this, you have to look at the debt dynamics, (r-g) equals the interest rate-growth differential:&#xA;$\Delta d_t= (r-g) d_{t-1} -pb_t$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This equation explains how an increase in primary balance could counter debt accumulation. The debt limit, lets call it $d^m$ is the highest debt ratio for which the primary balance sufficies to hold the debt ratio constant. ($X_t$ is ignored):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$(r-g) d^m = pb= \alpha + \beta_1 d^m + \beta_2 d^{m2}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/ETt0y.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/ETt0y.png&quot; alt=&quot;&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;After $d^m$, the primary balance will never be high enough to hold debt constant due to fiscal fatigue. Lenders to the government know this and thus will never buy debt securities after this point, causing a country to default.&#xA; Fiscal space is now simply the difference between a country's current debt ratio and the debt limit and thus is a measure of the amount of fiscal maneouvrability a country has left before it will default.&lt;/p&gt;&#xA;" OwnerUserId="6227" LastEditorUserId="6227" LastEditDate="2016-01-04T07:44:07.330" LastActivityDate="2016-01-04T07:44:07.330" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10009" PostTypeId="2" ParentId="10007" CreationDate="2016-01-02T10:10:26.220" Score="5" Body="&lt;p&gt;For any country that issues its own currency, having a sovereign debt in its own currency is a choice. It can always be monetised. This will cause a one-off inflation episode, but it does lessen, or entirely remove, the national debt.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So for all countries with sovereign debt in currencies they themselves issue, then no amount of national debt is theoretically unsustainable, in that it can always be monetised. The wider economic, political and social implications of that inflation episode will rather depend on the amount of debt being monetised, as well as the scope and scale of any other complementary measures introduced at the same time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Furthermore, any country can pass a law cancelling its outstanding debt. Or it can negotiate a partial cancellation with its creditors. Either of these things will make it more expensive for that country to borrow in the future.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2016-01-02T10:10:26.220" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10010" PostTypeId="1" AcceptedAnswerId="10012" CreationDate="2016-01-02T10:11:19.213" Score="3" ViewCount="148" Body="&lt;p&gt;We're considering a nation for which the basic necessities are met by another nation, for free.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, the nation has lots of currency notes. But it produces nothing. Would I be right in saying that the value of these currency notes is an absolute &lt;strong&gt;zero?&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="6486" LastActivityDate="2016-01-05T00:34:51.167" Title="Hypothetical: If a nation produces absolutely no good or service, would the currency notes it has have any value?" Tags="&lt;macroeconomics&gt;" AnswerCount="4" CommentCount="5" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10012" PostTypeId="2" ParentId="10010" CreationDate="2016-01-02T11:39:57.190" Score="1" Body="&lt;p&gt;No, because people could still find value in the notes. For example, let's say the nation had the most transparent and hard-lined central bank in existence. Then, people of other countries might find the notes worthy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course, there is some intrinsic value to the paper notes as well. But it would have to be assumed that such value is zero, as producing something would raise the GDP.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In practice, the whole case is absurd, but the answer would almost certainly be no, no one would exchange the notes for anything.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for the mechanics of the question in the comment section, let's consider the case through the equation:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$Y = C+I+G+NX$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And also the central bank's profit/balance sheet:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$Assets-Liabilities=Equity$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\Delta equity = profit$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the central bank bought some valuables to back it's money supply (gold for example), the investment would raise and NX term would decline, cancelling out and also creating a trade deficit. All of the money would flow outside the country, so no citizen could use the currency to buy anything.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the central bank itself tried to fund the increase in consumption (or give the money to it's citizens to do so), the trade deficit and consumption would increase. However, the assets of the central bank would not increase (since consumption items depreciate). In the process the central bank would become insolvent as it would suffer a loss. Then, people would not be expected to use the service to an even higher degree. Although, the central bank could try to leverage it's balance sheet, buying investment products from foreign nations to cover for this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the case that there was an income stream, such as donations or foreign investments, the government could easily have a solvent central bank and thus I don't see why the money would not have value. (of course, 0 GDP would require that the central bank is operated for free). The question becomes a lot different if we assume fiat currency, but I won't go into that.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In any case, this is a major hypothetical with unrealistic assumptions.&lt;/p&gt;&#xA;" OwnerUserId="4125" LastEditorUserId="4125" LastEditDate="2016-01-02T18:06:53.867" LastActivityDate="2016-01-02T18:06:53.867" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10013" PostTypeId="2" ParentId="10003" CreationDate="2016-01-02T11:43:18.477" Score="3" Body="&lt;h3&gt;Are Wages Procyclical?&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;Here's the entry from Table 1 in King and Rebelo (2000; Resuscitating Real Business Cycles). The variable of analysis is log-wages, detrended with HP filter. It has a std, relative std, first-order autocorrelation and correlation with output of &lt;code&gt;0.68&lt;/code&gt;, &lt;code&gt;0.38&lt;/code&gt;, &lt;code&gt;0.66&lt;/code&gt;, &lt;code&gt;0.12&lt;/code&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This leads the authors to conclude that &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The real wage is much less volatile than output.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;You can see that for their long US period, &lt;code&gt;0.12&lt;/code&gt; is a positive number, but pretty close to zero. This is why different authors take this number as either acyclical or weakly procyclical. &lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Price rigidity required for procyclical wages?&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;Assume that some sort of fluctuation in TFP &quot;drives&quot; the business cycle. Furthermore, if markets are competitive, the wage rate should be set by the marginal product:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ w = AF_L(K, L)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;If&lt;/em&gt; $L$ stays constant over the business cycle (e.g. with inelastic labor supply), this setup will generate wages $w$ that vary with $A$, and hence any change in $A$ will result in a one-for-one change in $w$ and in $Y$: $Y$ and $w$ are perfectly correlated, while $L$ is fixed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is pretty much the prediction of the RBC model, and it is the opposite of what we observe in the data: $L$ is volatile, while $w$ is fixed. If you'd assume that $L$ responds strongly to changes in $A$, $w$ might be pretty constant over the business cycle. This is what we observe in reality. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And most of the labor-side of RBC research is to come up with ways that force $L$ to respond so much.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;King and Rebelo (2000) should be a key paper of any introductory reading list for macroeconomics and I strongly recommend reading it.&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;The case of less competition&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;If there is literally &lt;strong&gt;zero competition&lt;/strong&gt;, then firms will at all times only pay the household his outside-option value, making him indifferent between working and not working. If that outside option is constant over the business cycle (for which we have to some extent theoretical and empirical arguments), wages will be acyclical.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, to the extend that there is no perfect monopsony, firms have to compete for workers and offer higher wages whenever workers are worth more. Hence, wages will be procyclical even if, to some extent, firms are not perfectly competitive on the labor side. The more competitive they are, the more pro-cyclical wages should be.&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Alternatives and extensions to the neoclassical model&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;The above model was just a simple one to generate a case in which pro-cyclicality of wages can be generated without price stickiness. There is much more to the subject than an answer here can provide. Here's some more references:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Barro (1977): Long-term contracting, sticky prices, and monetary policy. *Wages are long-term contracts, hence if firms are less risk-averse than workers, firms will insure workers against wage changes over the business cycle and we can observe (optimally) constant wages &lt;/li&gt;&#xA;&lt;li&gt;Beadry and DiNardo (1991) is a follow-up on that discussion&lt;/li&gt;&#xA;&lt;li&gt;Haefke et al (2013, JME) is also a very recent follow-up&lt;/li&gt;&#xA;&lt;li&gt;Bewley (1999): Why wages don't fall in a recession&lt;/li&gt;&#xA;&lt;li&gt;Shimer and Hall (two separate papers, both in the same 2005, AER) are the standard references on whether the more modern and reasonable frictional DMP model can match labor (and wage) volatility over the business cycle.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2016-01-04T12:08:35.080" LastActivityDate="2016-01-04T12:08:35.080" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="10014" PostTypeId="2" ParentId="8305" CreationDate="2016-01-02T12:19:19.777" Score="2" Body="&lt;p&gt;If I'm reading it correctly, Table X (page 2633) of &lt;a href=&quot;http://schwert.ssb.rochester.edu/hostile.pdf&quot; rel=&quot;nofollow&quot;&gt;Schwert (2000)&lt;/a&gt; (Journal of Finance, Hostility in Takeovers: In the Eyes of the Beholder?) says that &lt;strong&gt;about 78 percent of deals in 1975-1996 were successful&lt;/strong&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, this measure is constructed based on the acquisition of the firm, not the bid of the acquirer, so that if there are multiple bidders this is coded as a 1 if any succeed and a 0 only if all of them fail. So it isn't what percentage of bids succeed but rather what percentage of targets are ultimately acquired. I couldn't find any measure of the probability of a bid succeeding but it must be significantly lower. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;One tricky issue is that while successful bids must be revealed unsuccessful one need not be, so there is selection bias in the sample of bids. Therefore, a narrower way of characterizing this result is to say that of the potential deals where at least one bid was made public 78 percent were ultimately acquired by some firm. &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2016-02-01T13:07:53.930" LastActivityDate="2016-02-01T13:07:53.930" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10015" PostTypeId="2" ParentId="10010" CreationDate="2016-01-02T12:42:50.357" Score="1" Body="&lt;p&gt;When inhabitants of that country have to pay taxes in their country's currency as can be expected , the notes would also have a value. &lt;/p&gt;&#xA;" OwnerUserId="6227" LastActivityDate="2016-01-02T12:42:50.357" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="10016" PostTypeId="1" CreationDate="2016-01-02T12:53:25.453" Score="4" ViewCount="99" Body="&lt;p&gt;In the usual textbook model, in which there's imperfect competition, the economy is always on the Price-Setting(PS) curve, and to have a target unemployment level, above equilibrium unemployment, will cause an inflation bias. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, is it possible for the economy to be on the wage-setting curve every time, but only in the PS curve in the medium-run? In this setting, would there be some leeway for a central bank to target also an unemployment level different from the equilibrium one, instead of just inflation, without causing inflation bias?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="118" LastEditDate="2016-01-04T12:09:18.490" LastActivityDate="2016-01-13T00:53:54.347" Title="If the economy is not always on the Price setting curve, can the Central Bank target unemployment?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10018" PostTypeId="1" CreationDate="2016-01-02T14:39:46.903" Score="1" ViewCount="90" Body="&lt;p&gt;Is the following graph possible?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/aJLQX.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/aJLQX.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've attempted to sketch the TC/TR curves for it but they don't seem to be able to satisfy the following two properties at the same time:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) Slope of Total Cost (TC) being less than the slope of Total Revenue (TR) until q=b, that is until quantity is at the zero marginal profit level.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) TC being lesser than TR at first but going on to be greater than it after q=a, that is after quantity is at the zero economic profit level.&lt;/p&gt;&#xA;" OwnerUserId="6847" LastEditorUserId="6168" LastEditDate="2016-01-05T02:32:20.710" LastActivityDate="2016-01-07T13:18:05.663" Title="Is the following graph possible?" Tags="&lt;microeconomics&gt;&lt;cost&gt;" AnswerCount="1" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10019" PostTypeId="2" ParentId="9959" CreationDate="2016-01-02T15:00:35.307" Score="1" Body="&lt;p&gt;The European Commission produces reports on tourism as part of its Eurobarometer surveys, which you can find here: &lt;a href=&quot;http://ec.europa.eu/public_opinion/index_en.htm&quot; rel=&quot;nofollow&quot;&gt;http://ec.europa.eu/public_opinion/index_en.htm&lt;/a&gt;. If you do a bit of searching you might find some useful data in these reports. For example, a report of European's attitudes towards tourism can be found here: &lt;a href=&quot;http://ec.europa.eu/public_opinion/flash/fl_370_en.pdf&quot; rel=&quot;nofollow&quot;&gt;http://ec.europa.eu/public_opinion/flash/fl_370_en.pdf&lt;/a&gt;. I know this is not exactly what you asked for, but there is usually reference to cultural tourism in these kinds of reports and from there you may get further breakdown in terms of music tourism. This, I cannot guaranteed, however.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A second place to look would be on the websites of national tourism offices (they usually have a publications section with reports and statistics) and also on websites of lobbying groups; for example, UK Music has a research section and there they cite numbers on economic impact of music tourism. See here: &lt;a href=&quot;http://www.ukmusic.org/research/measuring-music-2015/&quot; rel=&quot;nofollow&quot;&gt;http://www.ukmusic.org/research/measuring-music-2015/&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Generally speaking, it's quite hard to come by good data for arts and tourism - except maybe in France. Hope my suggestions are helpful and best of luck.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(I made this an answer because it was too long for a comment).&lt;/p&gt;&#xA;" OwnerUserId="1588" LastActivityDate="2016-01-02T15:00:35.307" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10020" PostTypeId="1" AcceptedAnswerId="10193" CreationDate="2016-01-02T15:52:23.610" Score="2" ViewCount="139" Body="&lt;p&gt;We assume that the logarithmic function of $p_i$ equals the coefficients of the demand equation $w_i$. I have the following demand system:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ w_{a}=-0.03-0.01 \ \ nk +0.02 \ lcons $$&#xA;$$ w_{b}=-0.26-0.004 \ nk +0.08 \ lcons $$&#xA;$$ w_{c}= \ \ \ 0.96+0.03 \ \ nk -0.14 \ lcons $$&#xA;$$ w_{d}= \ \ \ 0.30+0.001 \ nk -0.05 \ lcons $$&#xA;$$ w_{e}= \ \ \ 0.07-0.005 \ nk +0.04 \ lcons $$&#xA;$$ w_{f}=-0.05-0.01 \ \ nk +0.04 \ lcons $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Variable $w_i$ denotes the proportion of good $i$ of the total consumption (cons) of a family, and $nk$ (number of kids) is a dummy variable. $lcons$ is the logarithm of the total consumption. Plus, I know the income of the families.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I will appreciate your help with this situation.&lt;/p&gt;&#xA;" OwnerUserId="5017" LastEditorUserId="5017" LastEditDate="2016-01-06T11:11:34.193" LastActivityDate="2016-01-13T09:09:26.877" Title="How to find price elasticity in the following demand system?" Tags="&lt;microeconomics&gt;&lt;econometrics&gt;&lt;consumer-theory&gt;&lt;applied-econometrics&gt;" AnswerCount="2" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="10024" PostTypeId="2" ParentId="10010" CreationDate="2016-01-02T18:30:06.673" Score="4" Body="&lt;p&gt;I'd say no. No production is required for a money to have value. Money can be valuable  because it facilitates trade. That is, whatever good is used as money can be more valuable than its intrinsic value because it is an liquid instrument that can be used in trade with others to solve the double coincidence of wants problem. Even pure endowment economies can utilize money for this purpose as long as people are not endowed with bundles that are also their equilibrium bundles and the economy is one in which money has a use (see &lt;a href=&quot;http://link.springer.com/article/10.1007/s00199-002-0326-3&quot; rel=&quot;nofollow&quot;&gt;Starr (2003)&lt;/a&gt; for several examples of how this can happen). Essentially, money is needed in circumstances where barter and good specific debt is costly or impossible. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a famous example of an economy without production that did use money consider Radford (1945), &#xA;&lt;a href=&quot;http://www.jstor.org/stable/2550133?seq=1#page_scan_tab_contents&quot; rel=&quot;nofollow&quot;&gt;The Economic Organisation of a P.O.W. Camp&lt;/a&gt;. In this paper Radford documents how the POW inmates, despite having no production to speak of, with all goods provided by either the captors or the Red Cross, use loose cigarettes as money to price goods and solve the double coincidence of wants problem.&lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2016-01-02T18:30:06.673" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10025" PostTypeId="2" ParentId="9573" CreationDate="2016-01-02T22:36:02.007" Score="-1" Body="&lt;p&gt;$$\text{Assets - Liabilities = Equity}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Delta \text Equity =\text Profit$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\text {Leverage ratio} = \frac{\text {Liabilities}}{\text{ Equity}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Using these identites, it would become apparent that as the billionaires increases the leverage ratio, liabilities grow, equity stays constant, and there is no change in profit. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is described could multiply their assets, but also liabilities. They would not gain anything in profit. In the long run they might gain something in profit because more efficient capital structure. But they already should have capital structure that reflects their risk appetite and profitability desires.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also only banks legally have the ability to lend currency which they don't actually own. Other businesses don't have such legal rights (although they can leverage through other means, ie. corporate bonds).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(The 2nd equation is not an identity, as there are other means of raising equity than profits, but it rather characterizes the situation. In addition, to be clear I am talking about their businesses, leverage ratio has little meaning when it comes to non-business life).&lt;/p&gt;&#xA;" OwnerUserId="4125" LastEditorUserId="4125" LastEditDate="2016-01-02T23:33:31.070" LastActivityDate="2016-01-02T23:33:31.070" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10027" PostTypeId="1" AcceptedAnswerId="10038" CreationDate="2016-01-03T01:25:08.627" Score="7" ViewCount="188" Body="&lt;p&gt;I've often heard the claim that many Persian Gulf states are successfully diversifying their economies away from oil (e.g. &lt;a href=&quot;http://gulfnews.com/business/economy/diversification-raises-non-oil-share-of-uae-s-gdp-to-71-1.795268&quot; rel=&quot;nofollow&quot;&gt;non-oil share of UAE's GDP is 71%&lt;/a&gt; and &lt;a href=&quot;https://www.cia.gov/library/publications/the-world-factbook/geos/sa.html&quot; rel=&quot;nofollow&quot;&gt;in Saudi Arabia, non-petroleum sectors account for 55% of GDP&lt;/a&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The IMF has the 2015 GDPs per capita of the UAE and Saudi Arabia at \$35392 and \$20139, respectively. If we naively multiply by 0.71 and 0.55, we get that their non-oil GDPs per capita are \$25128 and \$11076. \$25128 is greater than the GDPs per capita of countries such as Portugal and Poland, and \$11076 is greater than those of Mexico and Turkey.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm rather surprised by this, as I've always assumed that countries such as Portugal and Mexico would be well ahead of the UAE/Saudi Arabia in terms of development/education/technology etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are the 71% and 55% figures (and similar claims for other Gulf states) misleading in some way? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;i.e. Are most of the non-oil sectors in these countries still somehow mostly based on oil (and would they substantially shrink/collapse if the oil &quot;ran out&quot;)?&lt;/p&gt;&#xA;" OwnerUserId="6857" OwnerDisplayName="Cliff" LastEditorUserId="6857" LastEditDate="2016-01-03T13:52:24.740" LastActivityDate="2016-01-04T07:45:21.983" Title="Are many of the traditionally oil dependent Gulf states really successfully diversifying their economies?" Tags="&lt;gdp&gt;&lt;dutch-disease&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10028" PostTypeId="1" CreationDate="2016-01-03T04:18:26.007" Score="0" ViewCount="29" Body="&lt;p&gt;Hey economics stack exchange! Congrats on getting to beta! I wanted to ask a question that was running through my head on a road trip earlier today.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's say a magic fairy grants a person his wish, and gas prices would instantly be solidified (locked) to their current state for the next five years. (I understand logistically how complicated this would be). It's currently about $1.63/gallon where I live. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So now gas prices is more like milk, and we can go into the future planning road trips, and commutes with more accurate budgeting for how much we spend on fuel. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But what would life really look like for consumers with fuel prices locked down? in 6 months? In a year? And the same for fuel producers - how would locked fuel prices affect their future operations and business?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Would it be possible for gas to exist as a fixed-price commodity? &lt;/p&gt;&#xA;" OwnerUserId="6854" LastActivityDate="2016-01-03T21:42:37.443" Title="If petrol/gas prices were locked down, how would normal consumers and the producers be affected?" Tags="&lt;asset-pricing&gt;&lt;commodities&gt;&lt;price-theory&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10030" PostTypeId="1" CreationDate="2016-01-03T04:41:17.330" Score="0" ViewCount="58" Body="&lt;p&gt;I would like to know if in the Great Depression (1930s) the government of US and other Western governments increased the taxes for the poor or if they reduced the incomes and the rights of the poor.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I recently realized that, at least since the Irish Great Famine (1845-1852) until today, the governments' response to economic troubles was to reduce the taxes for the rich and/or to increase their privileges and to increase the taxes for the poor (or to reduce their incomes, which is basically the same thing) and/or to reduce the rights of the poor.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for the rich, I have already found that the government's reaction was to increase their privileges:&#xA;&lt;em&gt;&quot;The government did little to address the growing maldistribution of wealth. In fact, government action worsened the problem. Andrew Mellon (1855–1937), secretary of the treasury under Presidents Harding, Coolidge, and Hoover, was one of America's richest men. He saw to it that tax cuts for the wealthy passed through Congress in the 1920s, helping the rich retain even more of their wealth. When workers tried to organize and use unions and strikes to improve their wage and health benefits, the government was hostile to such activities.&quot;&lt;/em&gt;&#xA;&lt;a href=&quot;http://ic.galegroup.com/ic/uhic/ReferenceDetailsPage/ReferenceDetailsWindow?displayGroupName=Reference&amp;amp;zid=6d3bef0712b41d824dc3a746da70ef24&amp;amp;action=2&amp;amp;documentId=GALE%7CCX3425600011&amp;amp;userGroupName=mlin_c_montytech&amp;amp;jsid=c9674adb2ee4f7742f7c0575588b0c0d&quot; rel=&quot;nofollow&quot;&gt;Link&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So I would like to know more about this tactic of addressing poverty by increasing poverty and inequality and to what extent it was applied in the Great Depression&lt;/p&gt;&#xA;" OwnerUserId="5161" LastEditorUserId="5161" LastEditDate="2016-01-04T03:27:14.353" LastActivityDate="2016-01-04T03:27:14.353" Title="More privileges to the rich and less rights for the poor in the Great Depression?" Tags="&lt;taxation&gt;&lt;poverty&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10031" PostTypeId="1" CreationDate="2016-01-03T07:02:00.397" Score="1" ViewCount="102" Body="&lt;p&gt;&lt;a href=&quot;http://www.theguardian.com/commentisfree/2014/jan/22/greece-growth-austerity-eases-europe-imf&quot; rel=&quot;nofollow&quot;&gt;Greece: signs of growth come as austerity eases&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Last month the Greek parliament approved a stimulus programme&#xA;  involving highway construction that is quite large. According to the&#xA;  ministry of infrastructure, transport, and networks, total spending on&#xA;  this project will be €7.5bn over the next year and a half. This&#xA;  amounts to about 2.7% of GDP during this period.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.wsj.com/articles/SB10001424127887324235304578441051599031988&quot; rel=&quot;nofollow&quot;&gt;Portugal Sets New Stimulus After Setback&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://Euobserver.com/economic/28384&quot; rel=&quot;nofollow&quot;&gt;Italy approves fresh multi-billion-euro stimulus plan&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://%20Bbc.co.uk/news/world-europe-18878041&quot; rel=&quot;nofollow&quot;&gt;Ireland stimulus package aims to create up to 13,000 jobs&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://wsj.com/articles/spain-prepares-8-6-billion-economic-stimulus-package-1401550042&quot; rel=&quot;nofollow&quot;&gt;Spain Prepares $8.6 Billion Economic Stimulus Package&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Did this all happen? What effect did it have?&lt;/p&gt;&#xA;" OwnerUserId="8360" LastEditorUserId="69" LastEditDate="2016-01-04T18:56:50.583" LastActivityDate="2016-01-04T18:56:50.583" Title="Have all the PIIGS tried stimulus?" Tags="&lt;fiscal-policy&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10032" PostTypeId="2" ParentId="10016" CreationDate="2016-01-03T07:18:02.167" Score="-1" Body="&lt;p&gt;The role of the central bank is solely to enact monetary policy, not government (fiscal) policy. Monetary policy of the central bank is independent (in the legal and political sense) from government.&lt;/p&gt;&#xA;" OwnerUserId="1511" LastActivityDate="2016-01-03T07:18:02.167" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10033" PostTypeId="1" AcceptedAnswerId="10035" CreationDate="2016-01-03T07:36:42.183" Score="1" ViewCount="1117" Body="&lt;p&gt;&lt;a href=&quot;http://nymag.com/daily/intelligencer/2015/12/big-short-genius-says-another-crisis-is-coming.html?mid=twitter-share-di&quot; rel=&quot;nofollow&quot;&gt;http://nymag.com/daily/intelligencer/2015/12/big-short-genius-says-another-crisis-is-coming.html?mid=twitter-share-di&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;What makes you most nervous about the future? Debt. The idea that&#xA;  growth will remedy our debts is so addictive for politicians, but the&#xA;  citizens end up paying the price. The public sector has really stepped&#xA;  up as a consumer of debt. &lt;strong&gt;The Federal Reserve’s balance sheet is&#xA;  leveraged 77:1&lt;/strong&gt;. Like I said, the absurdity, it just befuddles me.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;How did Michael Burry arrive at the 77:1 figure? Is this close to reality? How could the Fed be leveraged when they can simply print money to pay down debt in the first place?&lt;/p&gt;&#xA;" OwnerUserId="6172" LastActivityDate="2016-01-03T12:03:10.100" Title="How much leverage has the Federal Reserve taken on today (Jan 2016)?" Tags="&lt;debt&gt;&lt;central-banking&gt;&lt;government-debt&gt;&lt;federal-reserve&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10035" PostTypeId="2" ParentId="10033" CreationDate="2016-01-03T11:07:40.963" Score="2" Body="&lt;p&gt;Page 4 of this document has the balance sheet as of November 2015: &lt;a href=&quot;http://www.federalreserve.gov/monetarypolicy/files/quarterly_balance_sheet_developments_report_201511.pdf&quot; rel=&quot;nofollow&quot;&gt;http://www.federalreserve.gov/monetarypolicy/files/quarterly_balance_sheet_developments_report_201511.pdf&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Their assets are 4489 liabilities are 4431. Thus Equity is 58, L/E = 76 (approx).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It would not matter even if Fed had infinite leverage ratio. However, as far as I know congress has agreed to keep Fed solvent (so the ratio can't go negative). Although, the institution is not even solvent, as some of it's assets are marked mark to model, thus having much lower fair value than presented in the balance sheet.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The balance sheet reflects created money (growth in base money) and not debt. Created money generates inflation, but significant amount of bank credit was destroyed which also constituted money people transacted with. Thus the newly created Fed money has just replaced the bank credit and there has been no significant inflation, as the M2 money supply has only raised slightly. Some of the currency has also been exported overseas as USA continues to have a balance of payment / trade deficits.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Based on the quote, it seems the author has confused two issues. If you want to investigate the debt and liabilities of the government, you need to look at the government debt and it's other liabilities (not merely the Fed). He is correct that the debt is at a quite high historical level (only during world war 2 was it higher), while other liabilities (such as social security and medicare liabilities) I believe are at an unprecedented historical level.&lt;/p&gt;&#xA;" OwnerUserId="4125" LastEditorUserId="4125" LastEditDate="2016-01-03T12:03:10.100" LastActivityDate="2016-01-03T12:03:10.100" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10036" PostTypeId="1" CreationDate="2016-01-03T15:33:46.120" Score="1" ViewCount="129" Body="&lt;p&gt;I read several papers talking about the so called dust settling period for a impulse response function (IRF) derived from VAR.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;e.g., Nijs, Vincent R., et al. &quot;The category-demand effects of price promotions.&quot; Marketing science 20.1 (2001): 1-22.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Basically, the dust settling period refers to the time interval before convergence of IRF is obtained. The key is to find the point at which IRF becomes stable or reaches convergence level. But the papers do not provide detailed description about how to find such point. Can any one help or refer to some useful reading material? I googled but was unable to find useful stuff.&lt;/p&gt;&#xA;" OwnerUserId="6858" LastActivityDate="2016-01-03T15:33:46.120" Title="steady point for impulse response function" Tags="&lt;econometrics&gt;&lt;time-series&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="10037" PostTypeId="2" ParentId="10027" CreationDate="2016-01-03T17:30:55.513" Score="3" Body="&lt;p&gt;Several points need to be considered.&lt;/p&gt;&#xA;&lt;h1&gt;1) Oil dependance&lt;/h1&gt;&#xA;&lt;p&gt;First of all, it is not correct to assert that 30%-50% of the GDP being concentrated within a single industry is &amp;quot;diversified&amp;quot;. This is actually a high focus. And I can only guess that a lot of other activities are strongly linked to the oil and gas sector: for example, banks might have a lot of lending and trading activity in the sector, even if they aren't directly counted as being part of it.&lt;/p&gt;&#xA;&lt;p&gt;Moreover, an interesting thing to look at is how much the government relies on this sector. For Saudi Arabia, which budget was &lt;a href=&quot;http://www.wsj.com/articles/saudi-arabia-announces-2016-budget-1451312691&quot; rel=&quot;nofollow noreferrer&quot;&gt;discussed recently&lt;/a&gt;, it is obvious that oil plays a major role, as it makes up 90% of the revenue. FOr the UAE the answer is more tricky, as the different emirates have significantly different profiles: Abu Dhabi &lt;a href=&quot;http://knoema.fr/AEAZSYAB2015/statistical-yearbook-of-abu-dhabi-government-finance-financial-statistics-2014&quot; rel=&quot;nofollow noreferrer&quot;&gt;relies strongly on the Oil industry&lt;/a&gt;, whereas the other provinces such as Dubai rely only slightely on oil - though they receive high subsidies from Abu Dhabi.&lt;/p&gt;&#xA;&lt;p&gt;As for the progress made, there are indeed some. These countries are aware that they will not always be able to pump up oil, and that they will need, in the long run, to have other strong industries. That is why, pretty much the same as in Norway, &lt;a href=&quot;http://www.swfinstitute.org/fund-rankings/&quot; rel=&quot;nofollow noreferrer&quot;&gt;huge sovereign funds&lt;/a&gt; (check nb 4 &amp;amp; 6) are setted up in these countries.&lt;/p&gt;&#xA;&lt;h1&gt;2) Development&lt;/h1&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;I'm rather surprised by this, as I've always assumed that countries&#xA;such as Portugal and Mexico would be well ahead of the UAE/Saudi&#xA;Arabia in terms of development/education/technology etc.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;GDP per capita is not a index of development. If you are looking for this, the HDI (Human development indicator) is a much more appropriate index. This index is composed by several measures of education, wealth (GDP), life expectancy and other indicators which relate to development and not only to economics.&lt;/p&gt;&#xA;&lt;p&gt;The UN compiles this indicator on an annual basis, here is for &lt;a href=&quot;http://hdr.undp.org/sites/default/files/2015_human_development_report.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;2015&lt;/a&gt;. It shows the following for the countries you mentioned. The HDI ranges from 0 (worse) to 1 (perfect score):&lt;/p&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;#6 Ireland: 0.916&lt;/li&gt;&#xA;&lt;li&gt;#36 Poland: 0.843&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;#39 Saudi Arabia: 0.837&lt;/strong&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;#41 United Arab Emirates: 0.835&lt;/strong&gt;&lt;/li&gt;&#xA;&lt;li&gt;#43 Portugal: 0.830&lt;/li&gt;&#xA;&lt;li&gt;#72 Turkey: 0.751&lt;/li&gt;&#xA;&lt;li&gt;#74 Mexico: 0.756&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;p&gt;You can see from this numbers that the gap is thin between Portugal and the two Oil countries. You can also guess that the contribution of their GDP to the index is much higher than for any other countries mentionned above. Thus, the pure non-economic indicators are probably better for the other countries than Saudi Arabia and the UAE.&lt;/p&gt;&#xA;&lt;p&gt;Furthermore, the Gini index can also be used to have some idea of the level of development of a country. It shows how big inequality are (regarding income or net wealth for example). Sadly this index is not computed for Saudi Arabia nor for the UAE. This is probably intentional, as these countries are well known to have very high inequality, in particular between immigrants (the huge majority of UAE's inhabitants) and natives.&lt;/p&gt;&#xA;&lt;p&gt;Finaly, your intuition is correct: it is indeed quite 'naive' to multiply the GDP per capita by the proportion of GDP of a sector. Indeed, different sectors display significantly different productivity and efficiency of the labor factor. Therefore, it can be that the productivity of the Oil industry in those countries largely outweigh the productivity of the other sectors. Therefore it is hard to compare this clumsy calculation with 'full' GDPs of other countries.&lt;/p&gt;&#xA;" OwnerUserId="6820" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2016-01-03T17:30:55.513" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10038" PostTypeId="2" ParentId="10027" CreationDate="2016-01-03T17:31:07.297" Score="1" Body="&lt;p&gt;Is the Saudi economy still almost entirely driven by fossil fuels?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Yes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does that mean that the 55% figure (% of GDP representing by oil &amp;amp; gas) is misleading?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;No.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;They sell lots of fossil fuels. All that money then gets spent on housing, food, education, luxury goods, and so on. So, roughly speaking, all other things being equal, all that money goes round the economy about twice - once as oil transactions, and once for all the things that are paid for by selling oil.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Remember that GDP is just an aggregate total value of transactions. Not productivity, not wealth generation, just transaction value.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2016-01-03T17:31:07.297" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10039" PostTypeId="1" CreationDate="2016-01-03T18:22:45.073" Score="1" ViewCount="118" Body="&lt;p&gt;As the title hints, why would the stock price matter for a firm? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which are -in rough terms- the channels that a firm's stock price influence it?&lt;/p&gt;&#xA;" OwnerUserId="246" LastActivityDate="2016-01-03T20:55:00.483" Title="Why does the stock price of listed firm matter for that firm?" Tags="&lt;stock-market&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10040" PostTypeId="2" ParentId="9594" CreationDate="2016-01-03T18:28:06.453" Score="0" Body="&lt;p&gt;It depends on how competitive the taxed product is and its cost of production.  In some cases, the seller can not pass the entire tax onto the consumer and the seller have to swallow some of the tax by lowering prices.  This would be common in monopolistic industries with low variable costs as their prices tend to be already maxed and can not go higher (such that the volume lost would not offset the higher markups).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Take oil for example.  Say gas sells for 10 dollars a gallon in state A and state B which are next to each other.  State B adds a gas tax of 1 dollar per gallon.  If stations in state B charge 11 dollars a gallon than customers will go to State A to fill up.  This forces state B stations to lower the price and eat the cost of the tax.  In such a scenario this has not really affected the demand curve.&lt;/p&gt;&#xA;" OwnerUserId="6479" LastActivityDate="2016-01-03T18:28:06.453" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10041" PostTypeId="2" ParentId="10039" CreationDate="2016-01-03T18:28:11.940" Score="1" Body="&lt;p&gt;The purpose of a firm is to generate income for it's share holder. Two sources of profit are appreciation and dividends. Besides that the price fluctuations can mean that the firm is doing something right/wrong and stock holders are reacting accordingly... So the price reflects on the expectations of the future profitability of a firm.&lt;/p&gt;&#xA;" OwnerUserId="4125" LastActivityDate="2016-01-03T18:28:11.940" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10042" PostTypeId="2" ParentId="10039" CreationDate="2016-01-03T18:36:13.207" Score="-1" Body="&lt;p&gt;It does not matter to the internal operations of the company.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The exceptions would be financial channels.  For example, if the the company is actively buying, selling stock, or planning on buying/selling stock it is a big deal.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is a very big deal for mergers and acquisitions of course...even if the buyers as stocks are frequently used to buy other companies.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is also a very political statement.  If a company is wanting to borrow or refinance debt, a strong stock price can influence their credit rating favorably.  But rally the biggest reason is board politics.  A stock price tends to correctly with shareholders feelings for a company.  If low enough, there is a possibility that the board of directors and/or executives will be fired.&lt;/p&gt;&#xA;" OwnerUserId="6479" LastActivityDate="2016-01-03T18:36:13.207" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10043" PostTypeId="2" ParentId="10039" CreationDate="2016-01-03T20:55:00.483" Score="3" Body="&lt;p&gt;There are multiple channels :&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Debt: the cost of debt may raise significantly if the value of equity drops. Indeed, the lower the equity, the higher the risk of the debt, as the firm will have a higher gearing ratio (also called leverage). Thus, the firm might have difficulties to gain access to additional debt or face a higher cost. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Financing: A firm with a poor performance on stock markets might face difficulties to raise additional capital. Investors might indeed not be willing to buy the firm's stock if its performance is poor. Therefore the firm might not be able to raise additional capital.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Reputation: a decrease in stock price can negatively affect the reputation of a firm. Not necessarily with the customers but also with other stakeholders, such as the suppliers which could fear that the financial stability of the firm is not assured.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;So overall I would say that the stock price is mainly important to the firm as it is a strong determinant of the costs it will face when raising capital or debt.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, note that stockholders are owners of the firm. As such, they can compel the firm to adopt a more profitable strategy, if they so wish. Of course, it might be hard, but activist investors for example show that it is possible.&lt;/p&gt;&#xA;" OwnerUserId="6820" LastActivityDate="2016-01-03T20:55:00.483" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10044" PostTypeId="2" ParentId="10028" CreationDate="2016-01-03T21:42:37.443" Score="1" Body="&lt;p&gt;If the price is higher than the market price it will lead to less people buying gasoline. If the price is lower, more people will buy gasoline. The inverse is true of sellers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the first case, there will be over supply of gasoline, leading to a growing inventory.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the second case, there will be more buyers than sellers, leading to a shortage.&lt;/p&gt;&#xA;" OwnerUserId="4125" LastActivityDate="2016-01-03T21:42:37.443" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10045" PostTypeId="2" ParentId="9601" CreationDate="2016-01-03T22:26:35.060" Score="1" Body="&lt;p&gt;The program would increase the supply of labor to those specific sectors. As a result more foreign people would get into the sectors bidding the price down (lowering the wage). In addition, some Americans would not be able to get hired, that otherwise would have.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In addition, companies would become more profitable so more companies would be started and the reduced labor costs would be visible in other sectors, increasing labor demand elsewhere.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the very long run free movement of labor is at least in theory more efficient than restricted movement, as people will more efficiently be able to navigate to the most efficient job locations available.&lt;/p&gt;&#xA;" OwnerUserId="4125" LastActivityDate="2016-01-03T22:26:35.060" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10046" PostTypeId="2" ParentId="10007" CreationDate="2016-01-03T22:29:51.573" Score="1" Body="&lt;p&gt;The orthodox answer is that public debt spirals are never a problem, because a government can always issue new money to buy the debt off the market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But this does not take into consideration how the private banking system works.  Say country X is suffocating from 1 trillion dollars in public debt.  1 trillion dollars is issued and used to buy the debt from secondary markets.  Is that the end of the story?  No, because when the government adds 1 trillion in base money to the economy the banking system will use that new base money to create bank money (say M2) and the M2 will be traded for even more debt.  The economy will have just traded public debt for private debt.&lt;/p&gt;&#xA;" OwnerUserId="6479" LastActivityDate="2016-01-03T22:29:51.573" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10047" PostTypeId="1" CreationDate="2016-01-03T22:38:36.693" Score="0" ViewCount="73" Body="&lt;p&gt;For my IB Econ internal assessment I want to comment on the falling oil prices across the globe. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Would this be covered under Micro because it's 1 specific market? or is it international because it comes after OPEC lost it's influence on the market?&lt;/p&gt;&#xA;" OwnerUserId="6862" LastActivityDate="2016-01-03T23:07:06.377" Title="Are Microeconomics limited to one country?" Tags="&lt;microeconomics&gt;&lt;international-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10048" PostTypeId="2" ParentId="10047" CreationDate="2016-01-03T23:07:06.377" Score="2" Body="&lt;p&gt;It is my impression that this would  fall in Intrernational Microeconomics, which is one of the two main subfields of Interrnational Economics. Essentially it is the modern &quot;International Trade&quot;, where the prevailing features of the modern era (less trade barriers so less room for state policy, larger trade flows so increased degree of activity at firm-level, large private global players) make it acquire more &quot;micro&quot; aspects compared to the older International Trade field with its preoccupation with customs and tariffs (although these still exist of course).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It cannot be categorized as a &quot;macroeconomic&quot; subject, because macroeconomics always looks things from a general equilibrium (and sometimes disequilibrium) perspective -but a &lt;em&gt;general&lt;/em&gt; one, not partial. And a cross-section of markets of the same good is a fragmented but &lt;em&gt;single&lt;/em&gt; market of the world economy. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You may be talking about whole countries, like OPEC countries, but you will essentially consider them as producers of a specific product, not as national economies.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2016-01-03T23:07:06.377" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10049" PostTypeId="2" ParentId="6142" CreationDate="2016-01-04T00:42:26.440" Score="-1" Body="&lt;p&gt;The same way you'd be stopped if you decided to purchase a bunch of stocks from the stock market, or at least the market would be close for appreciations, I imagine the same would happen if you decided to acquire a significant amount of money as that has many implications in exchange rates, debt, and so on.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is regular procedure in Portugal, a &quot;small, economically and geopolitically unimportant country&quot;.&lt;/p&gt;&#xA;" OwnerUserId="6832" LastActivityDate="2016-01-04T00:42:26.440" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10050" PostTypeId="1" CreationDate="2016-01-04T03:11:13.197" Score="5" ViewCount="158" Body="&lt;p&gt;I often get frustrated when I read calls to action on climate change.   It goes something like this: &quot;Solutions are within reach - but we must act now!&quot;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If one assumes that the international economic system is chaotic and reactive,  and that no one is in charge, where is the theory to back up what seems to be a wild claim that &quot;we can act&quot;.  Who are &quot;we&quot;, and are markets even able to deal with information about the common good or the future.   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suggestions for further reading on relevant theory would be appreciated. &lt;/p&gt;&#xA;" OwnerUserId="5531" LastEditorUserId="44" LastEditDate="2016-01-05T07:15:58.353" LastActivityDate="2016-01-06T00:38:26.047" Title="Is the international economic system too chaotic to &quot;work towards&quot; carbon emission reduction" Tags="&lt;environmental-economics&gt;" AnswerCount="4" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10051" PostTypeId="1" CreationDate="2016-01-04T03:15:23.570" Score="1" ViewCount="77" Body="&lt;p&gt;There is a ton of open data available on how much of a particular good is imported/exported.  So, let's say I have 20 years of data on how many tomatoes are imported to each country in Scandinavia? Who might care, and what theoretical insights on international trade are supported by such data?&lt;/p&gt;&#xA;" OwnerUserId="5531" LastActivityDate="2016-02-06T00:59:29.747" Title="What interesting insights can be gleaned from specific data on imports and exports." Tags="&lt;international-trade&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10052" PostTypeId="1" CreationDate="2016-01-04T03:46:12.377" Score="3" ViewCount="235" Body="&lt;p&gt;If markets are types of &quot;information systems&quot;, how do they assist in the attainment of a future common objective that is beneficial or even necessary to a society?  Since markets are driven by individual needs and wants, are such future planning objectives beyond the scope of markets?  So, if markets are inherently short sighted, does that mean we are at the mercy of fate when it comes to large scale global problems that evolve over decades?  &lt;/p&gt;&#xA;" OwnerUserId="5531" LastActivityDate="2019-03-28T01:59:57.473" Title="Are markets inherently short sighted?" Tags="&lt;international-economics&gt;" AnswerCount="3" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="10053" PostTypeId="1" CreationDate="2016-01-04T05:35:56.903" Score="2" ViewCount="190" Body="&lt;p&gt;I've noticed that most educational websites do not charge for their services, even if they are maintained by only one or very few people.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some of these websites are so comprehensive that they require almost a full time job to maintain.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why do these websites not charge for their services? (I doubt they make enough money from youtube to make it profitable).&lt;/p&gt;&#xA;" OwnerUserId="6864" LastEditorUserId="108" LastEditDate="2016-02-03T09:51:56.950" LastActivityDate="2016-02-03T09:51:56.950" Title="How come websites such as Khan Academy and Anatomy Zone do not charge for their services?" Tags="&lt;microeconomics&gt;&lt;corporate-finance&gt;&lt;profit-maximization&gt;" AnswerCount="2" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="10054" PostTypeId="2" ParentId="10053" CreationDate="2016-01-04T05:54:12.623" Score="1" Body="&lt;p&gt;Khan Academy is a 501c non-profit. They do some fundraising, they have some regular backers, and some &lt;a href=&quot;https://www.khanacademy.org/about/our-supporters&quot; rel=&quot;nofollow&quot;&gt;big time contributors like these&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I imagine it's a similar case for Anatomy Zone. They are affiliated with a bunch of other non-profits that you can see on the bottom of their front page.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2016-01-04T05:54:12.623" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10056" PostTypeId="2" ParentId="9531" CreationDate="2016-01-04T07:26:51.793" Score="0" Body="&lt;p&gt;A lot of great answers have been posted already, but I just came across this video that sums it up fairly well, and is in agreement with the accepted answer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.youtube.com/watch?v=Z9dp9I_V3Hg&quot; rel=&quot;nofollow&quot;&gt;https://www.youtube.com/watch?v=Z9dp9I_V3Hg&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To summarize, Black Friday is fueled by warranties, mail-in rebates (that often never get redeemed), and the latest research in purchasing psychology and behavioral economics that often create the illusion of savings.&lt;/p&gt;&#xA;" OwnerUserId="4382" LastActivityDate="2016-01-04T07:26:51.793" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10057" PostTypeId="2" ParentId="10052" CreationDate="2016-01-04T07:39:21.237" Score="1" Body="&lt;p&gt;Of course markets can be shortsighted. The same problem can apply to any institution though. In order to correct a market failure using government it's necessary to appeal to the self interest of various interest groups, which may end up putting you back in square one.&lt;/p&gt;&#xA;" OwnerUserId="8360" LastActivityDate="2016-01-04T07:39:21.237" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10058" PostTypeId="2" ParentId="10050" CreationDate="2016-01-04T07:43:12.067" Score="-3" Body="&lt;p&gt;The chaos of the international economic system is certainly no obstacle to carbon emission control. In its crudest form, environmentalism can achieve its goals simply by destroying capital or hindering capital accumulation, which is basically the point of most environmental regulation.&lt;/p&gt;&#xA;" OwnerUserId="8360" LastActivityDate="2016-01-04T07:43:12.067" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10060" PostTypeId="1" AcceptedAnswerId="10064" CreationDate="2016-01-04T07:47:26.427" Score="0" ViewCount="18" Body="&lt;p&gt;Here's a question which I don't quite know how to answer. Originally, my answer was (D), though when I checked it the correct answer was (A). As far as my knowledge goes, buffer stocks are buying/selling of stocks by the government to help manipulate supply. Please help provide some elucidations, many thanks.&#xA;&lt;a href=&quot;https://i.stack.imgur.com/6veb3.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/6veb3.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="6782" LastActivityDate="2016-01-04T09:17:07.837" Title="Calculations regarding Buffer stocks?" Tags="&lt;government&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10061" PostTypeId="2" ParentId="10052" CreationDate="2016-01-04T08:44:25.387" Score="1" Body="&lt;p&gt;Market are fundamentally not short sighted.  One of the most basic concept in finance is the &lt;strong&gt;NPV&lt;/strong&gt;,  or net present value which is obtained by discounting future cash flow. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So yes,  investors prefer to see the returns of their investments today rather than tomorrow, just like any rational individual, but they inherently account for future events, both costs and profits &lt;/p&gt;&#xA;" OwnerUserId="6820" LastActivityDate="2016-01-04T08:44:25.387" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="10062" PostTypeId="2" ParentId="10051" CreationDate="2016-01-04T08:47:37.673" Score="0" Body="&lt;p&gt;If data are computed, it usually means that they are of some use to someone. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In your case, it might be interesting if you are involved in agricultural products trading, if you want to open a new brand of restaurants in Scandinavia, etc. &lt;/p&gt;&#xA;" OwnerUserId="6820" LastActivityDate="2016-01-04T08:47:37.673" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="10063" PostTypeId="2" ParentId="10050" CreationDate="2016-01-04T08:58:54.957" Score="0" Body="&lt;p&gt;The problem is not that the global economy is too chaotic. It is that people have different interests. And that is no wonder because for many countries the utility of using carbon most likely exceeds the utility of fighting climate change. And in fact, a case could be made that for some countries the atmospheric carbon and a warmer environment may be beneficial.&lt;/p&gt;&#xA;" OwnerUserId="4125" LastActivityDate="2016-01-04T08:58:54.957" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="10064" PostTypeId="2" ParentId="10060" CreationDate="2016-01-04T09:17:07.837" Score="1" Body="&lt;p&gt;The answer is indeed A:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Initial farm income is $\$5 \times 2,000 = \$10,000$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the supply is $S_2$, then current income is below that figure. &#xA;However,  if the government takes away from the market 1,000 tonnes,  then the supply curve will shift left by that amount, resulting in a new equilibrium with 4,000tonnes @ \$2. &#xA;Therefore farm income is now:  $\$2 \times 4,000 = \$8,000$. The government buys the buffer at market price,  thus $\$2 \times 1,000 = \$2,000$. We end up with the same farm income as in the initial situation: $\$8,000 + \$2,000 = \$10,000$.&lt;/p&gt;&#xA;" OwnerUserId="6820" LastActivityDate="2016-01-04T09:17:07.837" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10065" PostTypeId="2" ParentId="10050" CreationDate="2016-01-04T09:20:18.057" Score="3" Body="&lt;p&gt;There are already precedents that show the international capacity is there, technically, and economically to deliver the carbon reduction necessary, in time. And there are indications that the political will to do so is growing to sufficient levels, too.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Firstly, with the number of participating nations being 195 (the &lt;a href=&quot;http://unfccc.int/&quot; rel=&quot;nofollow&quot;&gt;UNFCCC&lt;/a&gt; nation parties), that's about the right size to create a management group that prevents the destruction of the commons, despite the short-run market incentives being ones that would otherwise lead to such destruction: see &lt;a href=&quot;http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/2009/ostrom-facts.html&quot; rel=&quot;nofollow&quot;&gt;the Nobel-winning work&lt;/a&gt; by &lt;a href=&quot;http://elinorostrom.indiana.edu/&quot; rel=&quot;nofollow&quot;&gt;Elinor Ostrom&lt;/a&gt; for lots of information on this - I highly recommend it, it's a very good read. This addresses the aspect of your question about whether the market can accommodate information about the common good and the future.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Secondly, there are already examples of individual nations putting primary legislation in place, and acting on it: the &lt;a href=&quot;https://www.theccc.org.uk/tackling-climate-change/the-legal-landscape/global-action-on-climate-change/&quot; rel=&quot;nofollow&quot;&gt;UK's Climate Change Act&lt;/a&gt; was the first such law in a major industrialised nation; other countries have done similar.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thirdly, there are already examples of nations collaborating on global environmental problems successfully: the international action to reduce emissions of ozone-destroying chemicals, the &lt;a href=&quot;http://ozone.unep.org/en/treaties-and-decisions/montreal-protocol-substances-deplete-ozone-layer&quot; rel=&quot;nofollow&quot;&gt;Montreal Protocol&lt;/a&gt;, is working.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And fourthly, &lt;a href=&quot;http://newsroom.unfccc.int/unfccc-newsroom/finale-cop21/&quot; rel=&quot;nofollow&quot;&gt;the COP21 Paris Agreement&lt;/a&gt; showed &lt;strong&gt;unanimity&lt;/strong&gt; among the 195 nations plus the institution of the EU in the need to address this problem. Pause for a moment to consider the enormity of that. The Paris Agreement wasn't just approved by majority consensus, but unanimously by all 195 countries.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;All of these things happened within the context of the international economic system. So it's certainly not a barrier.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And we know that the economic incentives to prevent catastrophic climate change far outweigh the costs of doing so, at any sane discount rate. However, there is a &lt;a href=&quot;http://lexicon.ft.com/Term?term=principal%2Fagent-problem&quot; rel=&quot;nofollow&quot;&gt;principal-agent problem&lt;/a&gt;, and decades of lag between cause and full outcome; therefore market mechanisms alone cannot be sufficient. But there are no pure market economies - it's all a blend of private and public agents - so that's only a hindrance, but not a barrier.&lt;/p&gt;&#xA;" OwnerUserId="44" LastEditorUserId="44" LastEditDate="2016-01-04T13:37:53.877" LastActivityDate="2016-01-04T13:37:53.877" CommentCount="11" ContentLicense="CC BY-SA 3.0" />
  <row Id="10066" PostTypeId="1" AcceptedAnswerId="10068" CreationDate="2016-01-04T12:44:46.193" Score="3" ViewCount="57" Body="&lt;p&gt;When reading the answers to &lt;a href=&quot;https://economics.stackexchange.com/questions/10003/cyclicality-of-real-wages-counter-pro-or-acyclical&quot;&gt;this question&lt;/a&gt; of mine, I'm left wondering if cyclicality of real wages can be seen as an indicator for the nature and degree of competition in the labour market. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In perfect competition, we would have high procyclical wages, under monopsony acyclicality.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What would be the cyclicality, if the labour market could resemble a oligopoly(a highly unionized market could resemble an oligopoly, right?), or if the labour market worked as if in monopolistic competition? &lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2016-01-05T19:23:45.630" Title="Can the cyclicality of the real wage be used as a measure for the degree of competiveness in the labour market?" Tags="&lt;macroeconomics&gt;&lt;labor-economics&gt;&lt;industrial-organisation&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10067" PostTypeId="2" ParentId="10066" CreationDate="2016-01-04T13:20:38.830" Score="1" Body="&lt;p&gt;In general, no. The procyclicality of wages can also It could also be a measure of labor market frictions instead of the level of competition. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For an example that highlights the difference, consider an economy where only union electricians can do electrical work and where the union controls the members and their hours. If the union can frequently and costlessly adjust their total labor supply, then they don't have a lot of friction in their supply but they (by construction) have limited competition through their monopoly labor supply.  On the other hand, laws mandated costly separation processes for employees such as 2 years severance or, more extremely, lifetime employment make it very difficult to adjust the quantity of labor supplied but this isn't exactly a competition issue. There could be many employees, many employers, and no licensing restrictions and yet this could still significantly dampen the cyclicality of the real wage by making employment not adjust to cyclical productivity shocks. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This might be somewhat splitting hairs because both restrict the adjustment of labor demanded but conceptually they are quite different. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Additionally, there may be reasons related to other features of the economy or the way that the data is gathered for wages to be less procyclical in one place than another. For example, measurement error attenuates statistical relationships towards zero so in two otherwise identical countries, if one has wage measured with more error then the correlation between wage and your favorite business cycle measure will be shrunk towards zero in that country relative to the truth. &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2016-01-05T19:23:45.630" LastActivityDate="2016-01-05T19:23:45.630" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10068" PostTypeId="2" ParentId="10066" CreationDate="2016-01-04T14:45:49.037" Score="0" Body="&lt;h3&gt;Formal model: Wage determination under bargaining&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;Let's be a bit formal. We are interested in modeling wage determination. For sake of brevity, I will skip some parts, also I will say nothing about how applicants and firms actually match. We want to see how their wages get formed, &lt;em&gt;conditional on having matched&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $p$ denote productivity of workers, and hence also the state of the business cycle. Hence, we will index everything by $p$. $w(p)$ is the wage level of hires negotiated given current productivity of $p$. If we normalize labor supply to 1, $p$ will also be TFP. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Workers have some outside option to working for a specific firm. That might be informal work, unemployment benefits or similar - denote that $b$. Also, the worker has some chance at meeting some other firm. Denote this aggregate outside-option as $U(w(p), p)$. The firm's outside option is to wait for another applicant and hire him instead. Denote that by $V(w(p), p)$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;When the workers and the firm meet, we assume them to negotiate the wage. Bayesian bargaining will need one additional parameter, the bargaining power $\beta$, which is not to be confused with the outside option. Think of it as &quot;how good someone is at bargaining&quot;. Here, $\beta$ will denote how good workers are at bargaining, compared to the firms.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since employment is not an instantaneous contract, but will hold for some time, we need two variables that contain the present-discounted value (PDV) of the relationship for both workers and the firm. Let $E(w(p), p)$ denote the value of employment to the worker. It will be related to the wage rate ($w(p)$), and on how long we expect the worker to be employed. Let $J(w(p), p)$ denote the value of the employed to the firm. It will be related to the per-period profit ($p - w(p)$) that it gets from the worker in every period, and the number of periods that the worker will be working for that firm.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, the Nash bargaining solution is given by &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ w(p) = \max_w [E(w, p) - U(w, p)]^\beta [J(w, p) - V(w, p)]^{1-\beta} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;subject to the constraint that neither firms nor the worker &quot;can make losses&quot; from the wage. That is $w(p) \geq b$, and $w(p) \leq p$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\beta = 0$ means that workers have no bargaining power. In that case, Wages are given by the workers fundamental outside option $b$. $\beta = 1 $ means that the firms have no bargaining power. They will make zero profits always, and workers getting the total surplus, $w(p) = p$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can already intuitively see that as we changed $\beta$ from 0 to 1, the cyclicality of the wages increased (from a variable that is more or less constant, to a very cyclical variable). Trust me that it is also the case for the whole unit interval domain of $\beta$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Or even better, do it yourself. This is a part of the Diamond-Mortsensen-Pissarides model. A great reference is Pissarides' book &lt;code&gt;Equilibrium Unemployment Theory&lt;/code&gt;.&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Conclusion&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;The model ignores many things and says ceteris paribus, yes. There are many pitfalls to this, so the &lt;em&gt;c.p.&lt;/em&gt; is a very strong one. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In particular, what are some mechanisms that would interfere?&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;In some sectors, &lt;strong&gt;matches&lt;/strong&gt; between workers and firms &lt;strong&gt;hold longer&lt;/strong&gt;. This is irrelevant in the standard model with risk-neutral workers, but will affect the cyclicality of the wage rate under risk aversion (i.e. under the same $\beta$, and fundamentals $p, b$ you will get a different rate of procyclicality ).&lt;/li&gt;&#xA;&lt;li&gt;Workers with different levels of &lt;strong&gt;risk aversion&lt;/strong&gt; might sort themselves into different sectors. To the extent that firms insure the workers partially against wage changes over the business cycle, varying wage cyclicality might stem from risk-aversion rather competition&lt;/li&gt;&#xA;&lt;li&gt;Some sectors might be under stronger government control. As a simple case, wages might be &quot;stuck&quot; at the &lt;strong&gt;minimum wage&lt;/strong&gt; for low wage employees. This wouldn't &lt;em&gt;necessarily&lt;/em&gt; lead to the conclusion that restaurants are monopsonists.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;So, in order to use wage cyclicality as a metric for competition on the labor side, you need to be able to control for all these mechanisms, which is somewhat difficult. &lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2016-01-04T14:45:49.037" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10069" PostTypeId="1" AcceptedAnswerId="10070" CreationDate="2016-01-04T20:38:19.973" Score="2" ViewCount="528" Body="&lt;p&gt;The so-called &quot;dismal theorem&quot; asserts that we do not appropriately account for catastrophic scenarios which have very small probability of occurrence. It has been studied in details by Martin's Weitzman, notably in his article &lt;em&gt;&quot;&lt;a href=&quot;http://scholar.harvard.edu/files/weitzman/files/additivedamages.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Additive Damages, Fat-Tailed Climate Dynamics, and Uncertain Discounting&lt;/a&gt;&quot;&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The articles of Martin Weitzman rely on a large dose of mathematics, and my skills do not allow me to get everything, nor of course to question the reasoning and deductions of Weitzman. His conclusion is broadly that &quot;The take-away message here is that reasonable attempts to constrict bad-tail fatness can leave us with uncomfortably big numbers&quot; (p19)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would like to know if there are actually any practical implications from this dismal theorem. In particular concerning climate change. I thought so until @Dole &lt;a href=&quot;https://economics.stackexchange.com/questions/10050/is-the-international-economic-system-too-chaotic-to-work-towards-carbon-emissi&quot;&gt;pointed out&lt;/a&gt; that the dismal theorem could also be used to justify trillions of dollars in investment in a anti-asteroid defense system. I would appreciate any insight on the conditions to apply this theorem, if it can ever be used. Any relevant literature would also help me.&lt;/p&gt;&#xA;" OwnerUserId="6820" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2016-01-04T22:30:41.953" Title="Has the &quot;dismal theorem&quot; practical implications?" Tags="&lt;environmental-economics&gt;&lt;externalities&gt;&lt;climate-change&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10070" PostTypeId="2" ParentId="10069" CreationDate="2016-01-04T22:30:41.953" Score="3" Body="&lt;p&gt;My conclusion based on reading his paper is that the utility function of an individual or society can't be of the CRRA form presented in the paper. That would indeed lead to scenarios where you could not get out of the bed in the morning, as minimizing the tiniest probability of an enormous risk would warrant infinite sum of money.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I will attempt to explain the mathematics of the paper. First the utility as a function of consumption is of the form:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ U(c) = -c^{1-a}, \space a&amp;gt;1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is also called a constant relative risk aversion utility function. Constant relative risk aversion with regards to consumption means that a person prefers a bundle of 1 utils over uncertain bundles with expected value of 1 utils. The same applies to 2 utils to the same degree proportionally. Note that the utility is $-\infty$ when consumption reaches 0. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, if you want to calculate the exact utility that a person receives you simply multiply the probability of each bundle with the utility it grants:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$P_1*U(C_1)+P_2*U(C_2)... = \sum_{n=1}^{\ b}P_n U(C_n)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where P denotes a probability of a given bundle and U(c) is the utility.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, consider a case where there is a possibility of a bundle that has consumption value of 0, with probability greater than zero:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ P_x U(c_x) = -\infty $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It does not matter what the probabilities and utilities of other bundles are as you can't recover from minus infinite utility.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The same principle applies to continuous probability distributions, so just replace the sum sign with an integral and consider case where it doesn't reach 0 probability when c=0.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You may be interested in readin Nordhaus's response:&#xA;&lt;a href=&quot;http://aida.wss.yale.edu/~nordhaus/homepage/documents/weitz_011609.pdf&quot; rel=&quot;nofollow&quot;&gt;http://aida.wss.yale.edu/~nordhaus/homepage/documents/weitz_011609.pdf&lt;/a&gt; (By the way, he uses the exact same case scenario as I did).&lt;/p&gt;&#xA;" OwnerUserId="4125" LastActivityDate="2016-01-04T22:30:41.953" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="10071" PostTypeId="1" CreationDate="2016-01-04T22:47:33.637" Score="1" ViewCount="66" Body="&lt;p&gt;I am interested in manufacturing economics - suppose I have to built an engine, I would like to learn a systematic approach to break down what the costs of building an engine would be and how I could eventually optimize the process. I am a complete beginner to this, and I would like to learn from a resource that is not math-heavy (but not totally void of it!) which prioritizes intuition and is generic enough to be applicable to many different scenarios (not just engines!).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reason is I often hear people talk of fixed costs, variable costs, production costs, amortization, etc. I would just like to learn more about it to be able to &quot;follow the discussion&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What good books could you recommend on this? I could not find any myself.&lt;/p&gt;&#xA;" OwnerUserId="6867" LastActivityDate="2016-03-06T04:17:35.463" Title="Manufacturing economics book?" Tags="&lt;microeconomics&gt;&lt;industrial-organisation&gt;&lt;cost&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10072" PostTypeId="1" AcceptedAnswerId="10098" CreationDate="2016-01-05T00:20:50.557" Score="2" ViewCount="286" Body="&lt;p&gt;I've been trying to figure out how the author came up with the constraints for this liquidity model in a textbook I'm reading.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;details: &lt;a href=&quot;https://imgur.com/TpVjg4w&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://imgur.com/TpVjg4w&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$U = \pi_1u(C_1) + \pi_2u(C_2)$ where $\pi_i$ denotes the probability of an agent being of type $i$ and $C_t$ denotes consumption at time $t$.  Agents of type $1$ consume at time $1$ and agents of type $2$ consume at time $2$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In autarky, $C_1=1-I+lI$ and $C_2 = 1-I+RI$ where $0\leq I \leq 1$, $l &amp;lt; 1$, $R &amp;gt; 1$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The setup for the unique ex ante symmetric Pareto-optimal allocation (not autarky) is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\max \pi_1u(C_1) + \pi_2u(C_2)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;subject to the following constraints, which is what I don't understand:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\pi_1C_1=1 - I$ and $\pi_2C_2 = RI$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There's a footnote on the word symmetric which says:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Since agents are ex ante identical, we only consider symmetric allocations $(C_1, C_2)$, where an agent's consumption profile does not depend on the agent's identity.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I think the symmetry definition might be part of what's tripping me up.  It seems to me that since an agent of type $1$ can only consume at time $1$ his bundle should be $(C_1, 0)$, and the bundle for a type $2$ agent should be $(0, C_2)$, which would mean that the only symmetric bundle is $(0,0)$, but clearly this is not the author's intention.&lt;/p&gt;&#xA;" OwnerUserId="6167" LastEditorUserId="6167" LastEditDate="2016-01-05T06:54:22.567" LastActivityDate="2016-01-06T17:01:09.110" Title="Constraints on a symmetric pareto allocation under uncertainty" Tags="&lt;optimization&gt;&lt;pareto-efficiency&gt;&lt;uncertainty&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10073" PostTypeId="2" ParentId="10010" CreationDate="2016-01-05T00:34:51.167" Score="0" Body="&lt;p&gt;I don't think a &quot;nation that does not produce goods or services&quot; is possible even as a thought experiment. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A &quot;nation&quot; is a sovereign state, which means it has people and land. These people are a community of some sort and have established some sort of government.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We know that these people have to live, so therefore they will produce some good and service in order to sustain themselves. Then inevitably they will develop a social and then economic system and trade goods and services with each other. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now let's assume that you're asking about a nation that produces no &lt;em&gt;surplus&lt;/em&gt; good or service. That too is impossible because surplus has been inevitable since humans evolved beyond a hunter/gatherer society (and since the proposal of the Original Affluent Society theory we can theorize that there was reasonable surplus even in hunter-gatherer societies). Not to mention if they're creating currency notes and even attempting to trade with other states, that they're probably going to advanced their societies and find ways to build such surpluses. They will find ways to supply the needs to other country. Consider the Philippines which regulates labor exportation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another consideration is that labor exploitation will also be inevitable in this &quot;non-producing&quot; nation. So it would inevitably produce something at least for someone else. Especially considering that in this hypothetical other developed nations exist. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Miracle exception incurred and trying to theorize with this unrealistic hypothetical, I believe the currency would have a small amount of value due to some form of methodological individualism incurring a value on the currency in some microeconomic systems of said nation.&lt;/p&gt;&#xA;" OwnerUserId="6869" LastActivityDate="2016-01-05T00:34:51.167" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10074" PostTypeId="1" CreationDate="2016-01-05T00:51:04.203" Score="6" ViewCount="116" Body="&lt;p&gt;Banks and stock exchanges all around the world seem to adhere to quite a strict regime of 9-5, Monday - Friday, in the countries local time. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This can have the effect of where an event that happens overnight, causes the market to open at an immediate dip &lt;a href=&quot;http://www.reuters.com/article/us-usa-stocks-idUSKBN0UI14E20160104&quot;&gt;as happened recently on Wall Street in response to economic data from China&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question is - in today's always-on, all connected world, why does this system still remain? I would have thought that for industry that is all about making money, they'd be the first to be always on. &lt;/p&gt;&#xA;" OwnerUserId="96" LastActivityDate="2016-01-05T12:02:00.583" Title="Why do banks and stock exchanges close/have fixed hours?" Tags="&lt;banking&gt;&lt;stock-market&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10075" PostTypeId="1" CreationDate="2016-01-05T04:46:33.473" Score="0" ViewCount="70" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/JkS3m.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/JkS3m.jpg&quot; alt=&quot;Cash&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems cash reserve is procyclical. Also anyone have the financial cash reserve data?&lt;/p&gt;&#xA;" OwnerUserId="8360" LastActivityDate="2016-02-15T19:09:08.633" Title="Doesnt the fact that cash reserves go down in recessions contradict Keynesianism?" Tags="&lt;new-keynesian-economics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10076" PostTypeId="2" ParentId="10074" CreationDate="2016-01-05T05:42:11.760" Score="1" Body="&lt;p&gt;One of the key reason is to limit volatility. Indeed, it is sometimes better to have some pauses to calm down any aggressive movements. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;That is why most firms hold their earning calls post or pre-market and not during opening hours. It allows analysts to fully integrate the information published by the firm before reacting. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, an exchange opened 24/7 would mainly benefit large institutions such as big banks, and probably hurt smaller stockholders, who cannot stay awake at any time to react appropriately to market movement. One could thus argue that the system is fairer as is. Chinese stock markets, which heavily rely on small holders (for the best and the worst)  even have a pause at mid day. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, a lot of firms use ADR and GDR (depositary receipts) in order to be quoted on several stock exchange. Therefore, they might de facto be quoted all around the clock. FX markets and derivatives (in particular OTC) also have larger opening hours than regular stocks. And to add a final element, some stock exchange such as NASDAQ organise a pre-market quotation, which helps determine the opening quote by surveying market participants, though no transactions are involved. &lt;/p&gt;&#xA;" OwnerUserId="6820" LastEditorUserId="6820" LastEditDate="2016-01-05T06:05:39.553" LastActivityDate="2016-01-05T06:05:39.553" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="10077" PostTypeId="2" ParentId="9916" CreationDate="2016-01-05T05:43:43.867" Score="-2" Body="&lt;p&gt;The problem statement seems to imply that X and Y cannot be substitutes (an electrical device cannot be used as home furniture).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A Pareto-efficient envy-free allocation exists when:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For at least one agent, at least some goods have negative utility or are complements, and agents can chose to not consume. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Example:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Agents A and B are in family F1. &lt;/li&gt;&#xA;&lt;li&gt;The utility function of agent A is:&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Ua = -X1-X2-Y1-Y2&lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;3&quot;&gt;&#xA;&lt;li&gt;The utility function of agent B is:&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Ub = X1-X2+Y1-Y2 &lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;4&quot;&gt;&#xA;&lt;li&gt;Agents C and D are in family 2.&lt;/li&gt;&#xA;&lt;li&gt;Agent C has a utility function:&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Uc = -X1-X2-Y1-Y2&lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;6&quot;&gt;&#xA;&lt;li&gt;Agent D has utility function:&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Ud = -X1+X2-Y1+Y2&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Solution:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;F1 prefers (X1, Y1) and agent A will chose to not consume any good.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;F2 prefers (X2, Y2) and agent C chosen to not consume any good.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These are really semantic arguments and there is no meaningful equilibrium without assuming shared preferences.&lt;/p&gt;&#xA;" OwnerUserId="8360" LastEditorUserId="8360" LastEditDate="2016-01-06T04:02:40.297" LastActivityDate="2016-01-06T04:02:40.297" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="10078" PostTypeId="2" ParentId="10074" CreationDate="2016-01-05T12:02:00.583" Score="5" Body="&lt;p&gt;The answer is simple and it is due to the conduct of business and conditions relating to the early days of exchanges and banks. Then, there was no interest in trading  or providing liquidity to companies 24 hours a day and there was no coordination with the other parts of the world. Today, it is more like preserving the tradition, and just look at how NYSE opens at every morning, the good old bell is there to kick start the business. Today, it may make sense to have 24/7 financial services provision as we are living in the age of internet. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;OTC FOREX trading is thriving 24/7. As long as there are willing traders/market makers to remain on the floor on different shifts during working hours.&lt;/p&gt;&#xA;" OwnerUserId="6009" LastActivityDate="2016-01-05T12:02:00.583" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10084" PostTypeId="2" ParentId="9038" CreationDate="2016-01-05T17:46:03.007" Score="0" Body="&lt;p&gt;It's really difficult to give a satisfactory answer without having the data at hand. I would do two things:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Check carefully the data and computation of growth rates. By experience, it happens that some &quot;particular&quot; result is the consequence of data or computation issues. You may for example observe any issue by plotting your growth rates and initial GPDs with the name of the countries.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Use your data but exactly the same period, same countries and same methodology than the literature and check if you still find a contradictory result. Then, you can mix: use the same source of data, same countries, same period but your methodology, etc...&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="6168" LastEditorUserId="2776" LastEditDate="2017-08-29T07:20:08.910" LastActivityDate="2017-08-29T07:20:08.910" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10085" PostTypeId="1" CreationDate="2016-01-05T19:03:15.623" Score="0" ViewCount="1244" Body="&lt;p&gt;Consider a consumer with a Cobb-Douglas utility function over three goods of the form $u=(x_1+z_1)^\alpha \cdot (x_2+z_2)^\beta \cdot (x_3+z_3)^\gamma$ with $\alpha, \ \beta, \ \gamma, \ z_1, \ z_2, \ z_3&amp;gt;0$, and $\alpha+\beta+\gamma=1$. The consumer has income $m$, and pays prices $p_1, p_2, p_3$ for the three goods.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Find the Marshallian demands for goods 1, 2 and 3 for this consumer, using the&#xA;Lagrangian method.&lt;/p&gt;&#xA;" OwnerUserId="6878" LastEditorUserId="4251" LastEditDate="2016-01-06T02:56:57.957" LastActivityDate="2016-01-08T02:33:05.790" Title="Marshallian demand help" Tags="&lt;microeconomics&gt;" AnswerCount="3" CommentCount="2" ClosedDate="2016-01-07T11:21:25.547" ContentLicense="CC BY-SA 3.0" />
  <row Id="10086" PostTypeId="2" ParentId="10085" CreationDate="2016-01-05T21:41:52.230" Score="-2" Body="&lt;p&gt;The Marshallian demand functions are basically partial derivatives of the Cobb-Douglas utility function. You should consider that you want to maximize spending first, then derive the functions to get the optimal prices, demand and a equilibrium with both - not sure if I used the correct words.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Nevertheless, here's an example with 2 products, &lt;a href=&quot;https://economics.stackexchange.com/a/5030/6832&quot;&gt;here&lt;/a&gt;, from SE.&lt;/p&gt;&#xA;" OwnerUserId="6832" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2016-01-05T21:41:52.230" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10088" PostTypeId="2" ParentId="10085" CreationDate="2016-01-05T23:01:25.343" Score="0" Body="&lt;p&gt;The marshallian demand functions are solutions to the utility maximization problem. That is, the solution to&#xA;$$&#xA;\max u(\textbf{x})\\&#xA;s.t. \textbf{p}\cdot \textbf{x} = m&#xA;$$&#xA;Where boldface is used to represent vectors.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In your problem, you would use your utility function, and $\textbf{p}\cdot \textbf{x} = p_1x_1 + p_2x_2 + p_3x_3$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The other answer provides a link that I believe shows how to derive the formulas. I just wanted to explicitly state that marshallian demands are solutions to the utility maximization problem. If you know how to solve a maximization problem (using FOC and/or lagrangians), you can derive the marshallian demands.&lt;/p&gt;&#xA;" OwnerUserId="6600" LastActivityDate="2016-01-05T23:01:25.343" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10089" PostTypeId="2" ParentId="10050" CreationDate="2016-01-06T00:38:26.047" Score="1" Body="&lt;p&gt;I'll partially answer this question, by pointing out &#xA;that this is a classic &lt;a href=&quot;https://en.wikipedia.org/wiki/Prisoner%27s_dilemma&quot; rel=&quot;nofollow&quot;&gt;prisoner's dilemma&lt;/a&gt; issue. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Two members of a criminal gang are arrested and imprisoned. Each&#xA;  prisoner is in solitary confinement with no means of communicating&#xA;  with the other. The prosecutors lack sufficient evidence to convict&#xA;  the pair on the principal charge. They hope to get both sentenced to a&#xA;  year in prison on a lesser charge. Simultaneously, the prosecutors&#xA;  offer each prisoner a bargain. Each prisoner is given the opportunity&#xA;  either to: betray the other by testifying that the other committed the&#xA;  crime, or to cooperate with the other by remaining silent. The offer&#xA;  is:&lt;/p&gt;&#xA;  &#xA;  &lt;ul&gt;&#xA;  &lt;li&gt;If A and B each betray the other, each of them serves 2 years in prison&lt;/li&gt;&#xA;  &lt;li&gt;If A betrays B but B remains silent, A will be set free and B will serve 3 years in prison (and vice versa)&lt;/li&gt;&#xA;  &lt;li&gt;If A and B both remain silent, both of them will only serve 1 year in prison (on the lesser charge)&lt;/li&gt;&#xA;  &lt;/ul&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In the prisoner's dilemma - &lt;em&gt;in a single instance of the game&lt;/em&gt; and &lt;em&gt;assuming no collaboration between the prisoners&lt;/em&gt; and &lt;em&gt;assuming no other costs&lt;/em&gt; (ie. you're not going to be shamed for being a snitch), the best move is to betray the other. &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;If the other has chosen to betray you, you get two years instead of three &lt;/li&gt;&#xA;&lt;li&gt;If the other has chosen not to betray you, you get zero years, instead of one. &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;However, in the long run (ie a series of repeated games), it makes sense that prisoners should cooperate, each opting for a series of one year sentences, rather than a series of two and three year sentences. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The scenario for climate change is the same. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Choosing to cooperate in solving the climate change has a cost for a given country (restrictions on their economic growth, unhappy business constituents), and there is also a reward (avoiding catastrophic climate change). The decision matrix for a single country looks like this: &lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;                | Rest of world coooperates | Rest of world doesn't cooperate|&#xA;-----------------------------------------------------------------------------&#xA;Cooperate       | Pay economic cost         | Pay economic cost              |&#xA;                | No catastrophe            | Catastrophe                    |&#xA;-----------------------------------------------------------------------------&#xA;Don't cooperate | Don't pay economic cost   | Don't pay economic cost        |&#xA;                | No catastrophe            | Catastrophe                    |&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;The important thing to note here, is that the best outcome &lt;em&gt;from the perspective of an individual country&lt;/em&gt; is that they &lt;em&gt;don't&lt;/em&gt; cooperate on climate change, but the rest of the world does. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And it's worth mentioning, that it is the position of many countries in the world that they shouldn't have to pay the full economic cost. Typically the argument is that poorer countries like African nations and India have not yet developed their economies to the same extent that rich western nations have, and that a completely equal reduction emissions would stifle that development. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But the scenario where the whole world doesn't cooperate is much worse the scenario of paying the cooperate cost, and avoiding the catastrophe. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Individual countries can use this knowledge to leverage themselves a lesser obligation to climate change targets. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;That is - an individual country knows that every other country values avoiding catastrophe more than the cost to pick up the slack of this individual country. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So you can have a situation where some countries are going to free ride on the cooperation of the other countries, in order to get this most beneficial position of avoiding catastrophe, as well as not paying the economic cost. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are few things the other countries can do in response: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Not cooperate themselves, in a technique called &lt;a href=&quot;https://en.wikipedia.org/wiki/Brinkmanship&quot; rel=&quot;nofollow&quot;&gt;brinksmanship&lt;/a&gt;. Because this opens the possiblity of catastrophe, the original country may agree to start cooperating in order to avoid the the much worse alternative of catastrophe.   &lt;/li&gt;&#xA;&lt;li&gt;Find other ways to punish the country for not cooperating. eg. exclude them from trade agreements. &lt;/li&gt;&#xA;&lt;li&gt;Suck the cost up. &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="96" LastActivityDate="2016-01-06T00:38:26.047" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10090" PostTypeId="1" CreationDate="2016-01-06T02:11:25.857" Score="1" ViewCount="87" Body="&lt;p&gt;In Australia, ~10% of our salary goes into a compulsory retirement savings scheme. I have chosen the default option for young people, which involves a relatively balanced split between stocks, investment in property and a bit of cash.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have been working for 2-3 years, so have a small balance in my super account.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am not sure whether I should cheer on the stock market going up (increases the value of my existing 2 years worth of investments), or when it goes down (allows my fortnightly contribution to buy more units of stock, which will/may then go back up later.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I suppose ultimately, this boils down to &quot;If a stock index deviates from its long term average, would a rational economist forecast that:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;a) The rate of change of the index will eventually return to the long term average, meaning I should cheer the bull.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;b) The value of the index will eventually return to where it would have been if the deviation did not take place and the rate of change stayed at the long term average the entire time (cheer on the bull)&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;P.S. I am aware of the common theory in economics that crossing one's fingers does not impact the future direction of the stock market either up or down. I simply refuse to accept this as truth ;) But feel free to pretend this is a question for interest's sake only without any actual implications.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, apologies if this belongs in personal finance. I don't believe it does, because it is more intended as a theoretical question around general trends in stock markets and economies than as actual advice for someone's stock choices.&lt;/p&gt;&#xA;" OwnerUserId="6459" LastActivityDate="2016-01-06T15:51:28.027" Title="Should I cheer for the bear or bull?" Tags="&lt;stock-market&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10091" PostTypeId="2" ParentId="10085" CreationDate="2016-01-06T03:23:07.967" Score="2" Body="&lt;p&gt;&lt;strong&gt;Hint:&lt;/strong&gt; I won't give a full answer since this is a very specific question, but I can give you a long outline here. A Lagrangian is set-up with an objective function (in this case utility) plus or minus (depending on Kuhn Tucker constraints, which we won't worry about) a constraint function (in this case, income) which is set to zero and then multiplied by the Lagrange multiplier, which we will denote $\lambda$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So we set up the Lagrangian function. (Plug in the utility function yourself.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\mathcal{L} = u(x_1, x_2, x_3) - \lambda (p_1x_1 + p_2x_2 + p_3x_3 - m)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Solve for the partial derivatives $\frac{\partial \mathcal{L}}{\partial x_1}$, $\frac{\partial \mathcal{L}}{\partial x_2}$, and $\frac{\partial \mathcal{L}}{\partial x_3}$ and set them equal to zero (You can also solve for the partial of $\lambda$, but it just gives you back the budget constraint, which I skip to). For example, you get for your first derivative:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\partial \mathcal{L}}{\partial x_1} = \alpha (x_1 + z_1)^{\alpha - 1} - \lambda p_1 = 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Once you solve the three partials, the easiest thing for you to do is solve for $\lambda$ with respect to the other variables for all three partials, and then figure out how to substitute them into the budget constraint. You should solve for each $x$ in terms of the prices, maybe some $z$'s, the greek letters $(\alpha, \beta, \gamma)$ and income $m$. (I tried working some of it out; enjoy your algebra.)&lt;/p&gt;&#xA;" OwnerUserId="4251" LastEditorUserId="4251" LastEditDate="2016-01-08T02:33:05.790" LastActivityDate="2016-01-08T02:33:05.790" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10092" PostTypeId="2" ParentId="10071" CreationDate="2016-01-06T03:29:49.970" Score="1" Body="&lt;p&gt;I think you are referring to Optimization, which is taught in both engineering, math, computer science, biology, and economics.   In engineering, it's taught in a general course on Linear programming, and in economics it would be taught in a class like Operations Research.   For both courses, I believe the standard introductory text these days is Winston, Wayne L. (2004), Operations Research: Applications and Algorithms (4th Edition).  You'll need to have a  background in linear algebra to digest this book. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But there is a ton of stuff on Youtube that will probably suffice.   Google &quot;Linear Programming&quot;. Once you understand the basic principles of the Simplex Method, you can simply download some free software like LINDO or use Excel, and you'll cover 99% of the needs of most mere mortals.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can also find good courses on Coursera. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;That being said, Optimization can get very  complicated and require courses in advanced linear algebra and calculus. For example, convex optimization is taught in many universities, but at the graduate level or in pure Mathematics. See &lt;a href=&quot;http://stanford.edu/~boyd/teaching.html&quot; rel=&quot;nofollow&quot;&gt;http://stanford.edu/~boyd/teaching.html&lt;/a&gt; for a taste of what some engineers work on when they build very complex &quot;machines&quot;.  &lt;/p&gt;&#xA;" OwnerUserId="5531" LastEditorUserId="5531" LastEditDate="2016-01-06T03:36:09.753" LastActivityDate="2016-01-06T03:36:09.753" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10093" PostTypeId="2" ParentId="9634" CreationDate="2016-01-06T09:24:04.863" Score="2" Body="&lt;p&gt;There are more and more free database available. Here are a few that I like:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;https://www.quandl.com/&quot; rel=&quot;nofollow&quot;&gt;Quandl&lt;/a&gt;: this platform gathers data from many providers. Not all database are free, but there are enough data to play around with. One of the best things about Quandl is the APIs and the Excel macro, which allow you to easly send requests and download data.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;http://finance.yahoo.com/&quot; rel=&quot;nofollow&quot;&gt;Yahoo Finance&lt;/a&gt;: one of the most popular I guess. It is also possible to use some excel macros to download the data, see for example &lt;a href=&quot;http://investexcel.net/multiple-stock-quote-downloader-for-excel/&quot; rel=&quot;nofollow&quot;&gt;this macro&lt;/a&gt; from InvestExcel&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;https://support.google.com/docs/answer/3093281?hl=en&quot; rel=&quot;nofollow&quot;&gt;GOOGLEFINANCE&lt;/a&gt;: If you like Google Sheets, then the function GOOGLEFINANCE is very handy and works quite well. It allows you to get real time data as well as historical data.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="6820" LastActivityDate="2016-01-06T09:24:04.863" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10094" PostTypeId="1" CreationDate="2016-01-06T13:24:00.260" Score="3" ViewCount="76" Body="&lt;p&gt;To me the structural rate of unemployment was defined by $$\frac{1}{1+m} = F(u_n,z)$$ where $m$ is the markup and $z$ a catch-all variable. We could equivalenty get this in terms of $Y_n$ by letting $u_n = 1 - \frac{Y_n}{L}$, $L$ being the labor force.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $L$ now rise. What happens to $u_n$ and $Y_n$? From the equation, if $L$ rises but everything else must remain constant, then $Y_n$ must rise in order to still satisfy the equation, by the same amount. But then $u_n = 1 - Y_n/L$ is unchanged? Does this make sense? Why is the natural rate of unemployment unchanged when we just increased the amount of people willing to supply labor?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT: The markup is the one that firms use to set prices, with respect to wages, $\text{prices} = \text{wages} \cdot (1+m)$, F is a function which is negative in $u_n$ (more $u_n$ means smaller $F$-value given constant $z$) and positive in $z$, and $Y_n$ is the structural rate of output.&lt;/p&gt;&#xA;" OwnerUserId="6882" LastEditorUserId="6882" LastEditDate="2016-01-06T19:30:11.083" LastActivityDate="2017-04-03T05:20:24.173" Title="What changes the structural rate of output/unemployment?" Tags="&lt;labor-economics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10095" PostTypeId="2" ParentId="10090" CreationDate="2016-01-06T13:39:30.700" Score="1" Body="&lt;p&gt;First off, I think it would be deeply against the rules here to give investment advice. Don't take this answer as investment advice.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the answer to a) and b)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is no reason why an index must return to the long term average, income or price wise. Whether it does or does not depends on the economic situation as a whole and as such relying only on historical statistics may not be productive. The western economy is going through difficult times right now, where growth and interest rates are low, and there are many structural problems to be concerned about. I would not be so sure that the market is undervalued to begin with (it might have been overvalued before - but possibly less so than some other western exchanges).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In general, you should not decide upon retirement savings based on bets on short term market fluctuation. Especially not, if you are not a professional investor.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for the general retirement savings advice. Younger people should invest in stocks, since the investment has a long tail. As such the higher standard deviation of the investment is not as relevant as the higher expected return. When getting older, less deviation is preferred, as more certainty regarding the retirement savings is preferred. As such some nations with funded schemes have decided to invest overwhelmingly into stocks for young individuals, and progressively more to bonds for older individuals. This is a sound strategy.&lt;/p&gt;&#xA;" OwnerUserId="4125" LastEditorUserId="4125" LastEditDate="2016-01-06T13:45:19.230" LastActivityDate="2016-01-06T13:45:19.230" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10096" PostTypeId="2" ParentId="10090" CreationDate="2016-01-06T15:51:28.027" Score="0" Body="&lt;p&gt;One mechanism that holds fixed the prospects of the firm and your own preferences, but changes stock prices is to change the market's discount factor. If discount rates are everywhere higher than before than stock prices must be lower. Is this good for you? Do you want the market to discount the future at a high rate or a low rate? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Subject to several caveats, I'd say you'd want to the market to discount at a high rate. A high discount rate will mean that stock prices will be low relative to the price you would place on their discounted profits and therefore you would be getting something you value at high price for a low one. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some critical caveats are as follows:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Firms look to their market cost of capital for determining if projects are profitable. If the discount rate goes up the cost of capital will go up too and this will mean many previously good projects will not happen. This means a poorer society and less capital to combine with your labor&lt;/li&gt;&#xA;&lt;li&gt;Why is it exactly that the discount rate when up? If discount rates go up because everyone wakes up tomorrow with different preferences then how to these preferences change the world more broadly when people discount the future more heavily and risk is more feared. Perhaps this world is dull and shallow and worse to live in. If discount rates change because the distribution of expected future shocks has changed then we haven't held much fixed and you are likely worse off from the larger shocks. &lt;/li&gt;&#xA;&lt;li&gt;What do firms do to their capital structure in response these changes besides hold less capital? Do they pay out more dividends (great, who cares what others think when you get the cash) or less (terrible, now you are more dependent on the reselling your shares to recoup your investment). &lt;/li&gt;&#xA;&lt;li&gt;Why are you exempt? What's special about you and are there any other consequences of these differences? &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Perhaps another way to put this is to ask, is there a stock price at which you would buy shares even if you could never sell them or borrow against them? I say generally speaking yes. &lt;a href=&quot;http://www.multpl.com/s-p-500-dividend-yield/&quot; rel=&quot;nofollow&quot;&gt;Dividend yields are about 2.1 percent&lt;/a&gt;.  If equity prices fell 80% you could make so much money off they dividends that you'd make more than the historical return on equities from the dividends alone. But in practice, you can borrow against your shares and you can sell them, so you don't need prices to fall nearly as far to be a good value. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Unfortunately, and I think you understand this, equities prices generally go down when economic prospects are poor, and so low prices are a negative wealth shock more than a buying opportunity. &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2016-01-06T15:51:28.027" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10097" PostTypeId="1" AcceptedAnswerId="10100" CreationDate="2016-01-06T16:13:16.983" Score="1" ViewCount="195" Body="&lt;p&gt;I understand the process on excel:&#xA;calculate betas, calculate covariance with $Cov(R_{i,t},R_{j,t}) = \beta_{i,m} \cdot \beta_{j,m} \cdot \sigma^2_m$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where m is the market return and i and j are assets.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm confused as to what the assumptions are in order to be able to do this?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can I do this since I have market data 4 US stocks and the S&amp;amp;P500 meaning that I'm only considering systematic risk? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Please could someone give me the assumptions in order to use the CAPM relation to find a variance covariance matrix?&lt;/p&gt;&#xA;" OwnerUserId="6883" LastEditorUserId="69" LastEditDate="2016-01-06T16:57:03.537" LastActivityDate="2016-01-06T18:07:17.033" Title="How to find the variance co-variance matrix for 4 assets and market returns using the CAPM?" Tags="&lt;mathematical-economics&gt;&lt;finance&gt;&lt;financial-economics&gt;&lt;capital-returns&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10098" PostTypeId="2" ParentId="10072" CreationDate="2016-01-06T17:01:09.110" Score="0" Body="&lt;p&gt;The idea is that since agents are ex-ante identical, they should have the same (ex-ante) expected utility. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ex-ante identical means that even the agent does not know what's his type until resolution of type at date-1. Because they have the same preferences each agent's consumption profile must be identical. And the analysis can then focus on symmetric equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What symmetric means, as explained in the footnote, is that the consumption profile must be identical. The consumption profile $(C_1, C_2)$ represents the consumption for the agent at date 1 (if he is type-1) $C_1$ and the consumption for the agent at date 2 (if he is type-2) $C_2$. Otherwise stated $(C_1, C_2)$ does not depend on the type and each agent has the same $C_1$ and $C_2$. Since the types coincide with the date it's a little bit trivial but it really says nothing more than that.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the constraint, there is a mass-1 continuum of agents, each endowed with one unit of wealth, so the total wealth is 1. Then from that total wealth an amount $I$ will be invested in the productive technology whose return is $R$ per unit invested. Then it follows that :&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;at date 1, an amount $1-I$ is available, and the demand will be $\pi_1C_1$, so this yields : $\pi_1C_1 = 1-I$&lt;/li&gt;&#xA;&lt;li&gt;at date 2, an amount $RI$ is available, and the demand will be $\pi_2C_2$, so this yields : $\pi_2C_2 = RI$&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="6053" LastActivityDate="2016-01-06T17:01:09.110" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10099" PostTypeId="1" AcceptedAnswerId="10103" CreationDate="2016-01-06T17:19:49.987" Score="5" ViewCount="4955" Body="&lt;p&gt;I was recently reading about the &lt;a href=&quot;https://en.wikipedia.org/wiki/Herfindahl_index&quot; rel=&quot;nofollow&quot;&gt;Herfindahl Index&lt;/a&gt; and from what I've learned so far, is that HHI is preferred over the &lt;a href=&quot;https://en.wikipedia.org/wiki/Concentration_ratio&quot; rel=&quot;nofollow&quot;&gt;Concentration Ratio&lt;/a&gt;. However, I didn't quite understand the reasoning that lead to this conclusion. What impact does squaring have on the final result? Any hints or suggestions for further reading will be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="6711" LastEditorUserId="69" LastEditDate="2016-01-06T18:09:58.427" LastActivityDate="2016-01-07T00:13:57.297" Title="What is the difference between Herfindahl Index and the Concentration Ratio" Tags="&lt;microeconomics&gt;&lt;industrial-organisation&gt;&lt;competition&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10100" PostTypeId="2" ParentId="10097" CreationDate="2016-01-06T18:07:17.033" Score="0" Body="&lt;p&gt;Sharpe says you can always do &lt;a href=&quot;https://web.stanford.edu/~wfsharpe/mia/fac/mia_fac2.htm&quot; rel=&quot;nofollow&quot;&gt;a linear approximation to the returns of a family of assets and use that approximation to calculate a covariance matrix&lt;/a&gt;. For such an approximation to have economic content, one typically assumes that 1) residuals are uncorrelated with factors and 2) each asset's residuals are uncorrelated with that of any other. The second one has more bite and in particular, is likely not to hold in a one factor model.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is worth mentioning that in your equation above, the diagonal entries are not exactly what you write. Instead it is:&#xA;$Var(R_{i,t}) = \beta_{i,m}^2 \cdot \sigma^2_m +\sigma^2_\epsilon $&#xA;where $\sigma^2_\epsilon $ is the variance of the residual of the linear approximation equation. &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2016-01-06T18:07:17.033" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10101" PostTypeId="1" AcceptedAnswerId="10109" CreationDate="2016-01-06T18:23:54.410" Score="2" ViewCount="1040" Body="&lt;p&gt;I have a dataset containing Venezuela's nominal GDP, real GDP, GDP deflator and population from 1997 to 2013. I am interested in calculating real GDP per capita, but the base year of the GDP deflator is 1997=100, which is the current base year used by Venezuela's Central Bank in all the national accounts.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Would it be correct to change the deflator's base year to 2010=100 in order to recalculate real GDP?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or should I just use real GDP reported by the Central Bank even though the base year is outdated?&lt;/p&gt;&#xA;" OwnerUserId="6886" LastEditorUserId="2776" LastEditDate="2017-06-06T09:48:03.457" LastActivityDate="2017-06-06T09:48:03.457" Title="Is it appropriate to change the base year of the real GDP to a more recent one?" Tags="&lt;gdp&gt;&lt;base-year&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10103" PostTypeId="2" ParentId="10099" CreationDate="2016-01-06T19:53:08.610" Score="6" Body="&lt;p&gt;From the &lt;a href=&quot;http://www.cambridge.org/us/academic/subjects/economics/industrial-economics/industrial-organization-markets-and-strategies&quot;&gt;Industrial Organization by Belleflame and Petiz&lt;/a&gt; (Page 34/35, Chapter 2):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;While the m-firm concentration ratio adds market shares of a small number of firms in the market, the so-called Herfindahl index (also known as Herfindahl–Hirschman index) considers the full distribution of market shares.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;We can conclude that the mathematical approach in HHI is more adequate for a full market setup, rather than observing a particular concentration ratio in one firm.&#xA;Also from the same book&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;the Herfindahl index provides a better measure of concentration as it captures both the number of firms and the dispersion of the market shares.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Hence the squared market shares. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For your information, there is another concentration measure called the Lerner Index, although the Lerner index is a snapshot of the intensity of competition. You can calculate L by finding the difference between price and marginal costs as a percentage of the price. More formally:&#xA;$L=\frac{p-C'}{p}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But it is easily observed that L ignores some dynamics of the markets. Lower prices do not necessarily mean high levels of competition.&lt;/p&gt;&#xA;" OwnerUserId="6832" LastEditorUserId="6832" LastEditDate="2016-01-07T00:13:57.297" LastActivityDate="2016-01-07T00:13:57.297" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10105" PostTypeId="1" CreationDate="2016-01-06T23:23:30.103" Score="3" ViewCount="49" Body="&lt;p&gt;I have an intuitive notion of what an &quot;anonymous&quot; (extensive) game form $\Gamma$ is. In my mind an &quot;anonymous&quot; game is a game in which the players' identity does not matter. This includes the (again intuitive) ideas that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) The players' strategy spaces are &quot;identical&quot; (e.g. a normal form game in which players have the same action spaces, or a centipede game in which the starting player is determined randomly).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) There is no discrepancy in the &lt;em&gt;order&lt;/em&gt; in which players play (at least stochastically). For instance, the probability that any player play first (or be one of the players who play first simultaneously) should be the same, and similarly for the second, third, ... play.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;3)  For every (strategy) profile $s = \{s_1,\dots,s_n\}$ in the space of profiles and every permutation $\pi : \{1,\dots,n\} \leftrightarrow \{1,\dots,n\}$, the outcome of $\pi(s) =  \{s_{\pi(1)},\dots,s_{\pi(n)}\}$ is the same as the outcome of $s$, up to permutation (something like $\Gamma_i(\pi(s)) = \pi(\Gamma_i(s))$, e.g. an ultimatum game in which the identity of the player who makes the offer is determined randomly).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With the help of @ml0105, I realized that 1) and 3) identify the class of symmetric games (in fact, I think 3) is more restrictive than needed for a game to be symmetric, but let's leave it there). Hence I guess &lt;strong&gt;my question&lt;/strong&gt; boils down to : &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;is there a common name for symmetric sequential games that also satisfy 2)?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Note :&lt;/em&gt; I am aware that the term &quot;anonymous game&quot; is already in use in the literature (e.g. Daskalakis and Papadimitriou (2007), Computing Equilibria in Anonymous Games, or &lt;a href=&quot;https://en.wikipedia.org/wiki/Succinct_game#Anonymous_games&quot; rel=&quot;nofollow&quot;&gt;https://en.wikipedia.org/wiki/Succinct_game#Anonymous_games&lt;/a&gt;) and defines a different class of game than the one I tried to intuitively describe about.&lt;/p&gt;&#xA;" OwnerUserId="38" LastEditorUserId="38" LastEditDate="2016-01-07T05:00:26.850" LastActivityDate="2016-01-07T05:00:26.850" Title="Terminology and formalization for &quot;anonymous&quot; game forms" Tags="&lt;game-theory&gt;&lt;definition&gt;" AnswerCount="0" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="10106" PostTypeId="1" AcceptedAnswerId="10107" CreationDate="2016-01-06T23:31:53.483" Score="3" ViewCount="121" Body="&lt;p&gt;Specifically, I am looking at this paragraph&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;    The fractions of the aggregate endowment assigned to each individual are&#xA;    independent of the realization of s^t . Thus, there is extensive cross&#xA;    history and cross-time consumption sharing. The constant-fractions-of&#xA;    consumption char- acterization comes from two aspects of the theory: (1) &#xA;    complete markets and (2) a homothetic one-period utility function.&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;The paragraph is taken from paragraph from section 8.6 in Sargent and Ljungqvist.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand that the fractions are independent of $s^t$, the state/complete history of realizations. However, I don't see how this leads to the second sentence -- there is extensive cross-history and cross-time consumption sharing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So my question is: why does the fractions of aggregate endowment assigned to each individual being independent of $s^t$ lead to cross-time and cross-history consumption sharing?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks&lt;/p&gt;&#xA;" OwnerUserId="6600" LastEditorUserId="6600" LastEditDate="2016-01-07T00:02:40.093" LastActivityDate="2016-10-03T05:21:06.617" Title="Why is there consumption sharing in Arrow-debreu time-zero complete markets trading model?" Tags="&lt;macroeconomics&gt;&lt;risk&gt;&lt;consumption&gt;&lt;complete-markets&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10107" PostTypeId="2" ParentId="10106" CreationDate="2016-01-07T00:02:06.893" Score="1" Body="&lt;p&gt;I guess it just follows by definition.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume that in the high state (for household $i$, aggregate endowment is 10, and household $i$ consumes $1/5 = 2$ of this, while having an endowment of $5$. Now consider what happens if we were in the low state (for household $i$), where household $i$ only gets $1$ of whatever endowment. However, if this is a high state for some other household(s), such that the aggregate endowment is still $10$, since the fraction is constant household $i$ still consumes $2$, even though they have a smaller endowment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Similarly for across time consumption sharing (although a bit weird since the model has no storage...). I guess it works that, if aggregate endowments are the same across two time periods, a household will consume the same amount regardless of whether their endowment was large or small (basically, they contribute to others when they have a lot (they lend), and they take contributions when they have little (they borrow). Thus, consumption smoothing.&lt;/p&gt;&#xA;" OwnerUserId="6600" LastActivityDate="2016-01-07T00:02:06.893" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10108" PostTypeId="2" ParentId="10051" CreationDate="2016-01-07T00:58:49.737" Score="1" Body="&lt;p&gt;Studies in international trade are already using trade data at a particularly disaggregated level, at the transaction level. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For instance, this very new paper on &lt;a href=&quot;http://www.princeton.edu/~reddings/papers/JEL-19Dec15.pdf&quot; rel=&quot;nofollow&quot;&gt;Global Firms&lt;/a&gt; points out that research in international trade has changed dramatically over the last twenty years, as attention has shifted from countries and industries towards the firms actually engaged in international trade. They outline a framework that allows firms to be of positive measure and to decide simultaneously on the set of production locations, export markets, input sources, products to export, and inputs to import. They use this framework to interpret features of U.S. firm and &lt;strong&gt;trade transactions data&lt;/strong&gt; and highlight interdependencies across these margins of firm international participation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, their data is from the U.S. Customs Bureau data and quite confidential. Can you give the source of &quot;ton of open data available on on how much of a particular good is imported/exported&quot;?&lt;/p&gt;&#xA;" OwnerUserId="6168" LastActivityDate="2016-01-07T00:58:49.737" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10109" PostTypeId="2" ParentId="10101" CreationDate="2016-01-07T08:33:54.680" Score="1" Body="&lt;p&gt;Changing the base year of a time series is fine if you know what you're doing, check, for example the question: &lt;a href=&quot;https://economics.stackexchange.com/questions/5025/how-do-i-change-the-base-year-of-real-gdp-using-the-gdp-deflator-and-nominal-gdp?rq=1&quot;&gt;How do I change the base year of real GDP using the GDP deflator and nominal GDP?&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'd, personally, use the real GDP series - you won't gain anything substantial with the mathematical conversion. It might be an useful exercise if you, for example, were to compare GDP growth in two different countries and would like the base year to be the same.&lt;/p&gt;&#xA;" OwnerUserId="5512" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2016-01-07T08:33:54.680" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10110" PostTypeId="1" CreationDate="2016-01-07T11:20:22.050" Score="1" ViewCount="101" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Consider the Gale cake problem with $u(c) = log(c)$, so that the problem becomes:$$\max_{x}\sum_{t=0}^{\infty} \beta^{t}log(x_t-x_{t+1})\: sub\: 0&amp;lt;x_{t+1}\leq x_t,\: x_0&amp;gt;0\ given$$ &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It is pretty easy to show that the function $v:(0,x_0]\rightarrow\mathbb{R}$ given by $v(x)=A+B\:log(x)$, where $A=\frac{\beta}{(1-\beta)^2}log\beta+\frac{1}{1-\beta}log(1-\beta)$ and $B=\frac{1}{1-\beta}$ is a solution of the Bellman equation. I also know that it is the value function of the cake problem but the classic verification principle, i.e. $\lim_{t \to +\infty} \beta^tv(x_t) = 0$ is not met. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;How should i proceed to actually show that $v(x)$ is the value function of the problem?&lt;/p&gt;&#xA;" OwnerUserId="6773" LastEditorUserId="6773" LastEditDate="2016-01-10T09:19:35.083" LastActivityDate="2016-01-10T09:19:35.083" Title="Dynamic programming: verification principle" Tags="&lt;optimization&gt;&lt;dynamic-programming&gt;" AnswerCount="0" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="10111" PostTypeId="2" ParentId="10018" CreationDate="2016-01-07T11:23:09.993" Score="1" Body="&lt;p&gt;Your basic assumptions seem to be&#xA;$$&#xA;p(q_a) = AVC(q_a)&#xA;$$ &#xA;and as the difference between price and average variable cost is decreasing before $q_a$ and increasing after it you also assume&#xA;$$&#xA;\frac{d \ \left(p(q) - AVC(q)\right)}{d \ q} &amp;lt; 0.&#xA;$$&#xA;(More on the necessity of this assumption later.)&lt;br&gt;&#xA; We can rewrite this second assumption to&#xA;$$&#xA;\frac{d \ p(q)}{d \ q} - \frac{d \ \frac{VC(q)}{q}}{d \ q} = \frac{d \ p(q)}{d \ q} - \frac{MC(q) \cdot q - VC(q)}{q^2} &amp;lt; 0.&#xA;$$&#xA;Multiplying by $q&amp;gt;0$ yields&#xA;$$&#xA;\frac{d \ p(q)}{d \ q} \cdot q - MC(q) - AVC(q) &amp;lt; 0.&#xA;$$&#xA;Adding $p(q) + AVC(q)$ we get&#xA;$$&#xA;\frac{d \ p(q)}{d \ q} \cdot q + p(q) - MC(q) &amp;lt; p(q) - AVC(q).&#xA;$$&#xA;The left hand side is now $MR(q) - MC(q)$. It follows from our two initial assumptions that&#xA;$$&#xA;\forall q &amp;gt; q_a: \ p(q) &amp;lt; AVC(q).&#xA;$$ &#xA;Then for such values of $q$&#xA;$$&#xA;MR(q) - MC(q) &amp;lt; p(q) - AVC(q) &amp;lt; 0.&#xA;$$&#xA;Because of this there can be no $q_b &amp;gt; q_a$ such that $MR(q_b) = MC(q_b)$.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;On the necessity of the second assumption: &lt;br&gt;&#xA;Seems to me that without this assumption the goal function $p(q) \cdot q - C(y)$ would not be concave and hence $MR(q) = MC(q)$ would not be a sufficient condition for optimum.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2016-01-07T13:18:05.663" LastActivityDate="2016-01-07T13:18:05.663" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10112" PostTypeId="2" ParentId="6254" CreationDate="2016-01-07T14:06:59.903" Score="2" Body="&lt;p&gt;There are some papers of Stefan Behringer from University of Bonn. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.stefanbehringer.com/1219997.pdf&quot; rel=&quot;nofollow&quot;&gt;Optimal Harvesting of a Spatial Renewable Resource&lt;/a&gt; published in Journal of Economic Dynamics and Control&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As the title indicates, there is a geometrical application, at least there is the notion of space. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another paper that I remember is &quot;Spatial dynamics and convergence: the spatial AK model&quot; by Boucekkine et al. published in Journal of Economic Theory.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think you can reach another strand of literature on space and mainly on geometric technics used in economics.&lt;/p&gt;&#xA;" OwnerUserId="2938" LastActivityDate="2016-01-07T14:06:59.903" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10115" PostTypeId="1" AcceptedAnswerId="10116" CreationDate="2016-01-07T15:59:45.933" Score="12" ViewCount="13372" Body="&lt;p&gt;Okay, so I'm having real problems distinguishing between the Steady State concept and the balanced growth path in this model:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ Y = K^\beta (AL)^{1-\beta} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have been asked to derive the steady state values for capital per effective worker:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ k^*=\left(\frac{s}{n+g+ \delta }\right)^{\frac{1}{1-\beta }} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As well as the steady state ratio of capital to output (K/Y):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{K^{SS}}{Y^{SS}} = \frac{s}{n+g+\delta } $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I found both of these fine, but I have been also asked to find the &quot;steady-state value of the marginal product of capital, dY/dK&quot;. Here is what I did:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ Y = K^\beta (AL)^{1-\beta} $$&#xA;$$ MPK = \frac{dY}{dK} = \beta K^{\beta -1}(AL)^{1-\beta } $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Substituting in for K in the steady state (calculated when working out steady state for K/Y ratio above):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ K^{SS} = AL\left(\frac{s}{n+g+\delta }\right)^{\frac{1}{1-\beta }} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ MPK^{SS} = \beta (AL)^{1-\beta }\left[AL\left(\frac{s}{n+g+\delta }\right)^{\frac{1}{1-\beta }}\right]^{\beta -1} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ MPK^{SS} = \beta \left(\frac{s}{n+g+\delta }\right)^{\frac{\beta -1}{1-\beta }} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Firstly I need to know whether this calculation for the steady state value of MPK is correct?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Secondly, I have been asked to Sketch the time paths of the capital-output ratio and the marginal product of capital, for an economy that converges to its balanced growth path &quot;from below&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am having problems understanding exactly what the balanced growth path is, as opposed to the steady state, and how to use my calculations to figure out what these graphs should look like.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sorry for the mammoth post, any help is greatly appreciated! Thanks in advance.&lt;/p&gt;&#xA;" OwnerUserId="5585" LastEditorUserId="61" LastEditDate="2016-01-07T17:01:45.767" LastActivityDate="2016-01-13T14:24:33.007" Title="Solow Model: Steady State v Balanced Growth Path" Tags="&lt;economic-growth&gt;&lt;production-function&gt;&lt;capital-returns&gt;&lt;steady-state&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="10116" PostTypeId="2" ParentId="10115" CreationDate="2016-01-07T16:52:41.200" Score="15" Body="&lt;p&gt;This is when the attempt at accuracy creates confusion and misunderstanding.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Back in the day, growth models were not incorporating technological progress, and led to a long-run equilibrium characterized by &lt;em&gt;constant&lt;/em&gt; per capita magnitudes. Verbally, the term &quot;steady-state&quot; seemed appropriate to describe such a situation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then Romer and endogenous growth models came along, which also pushed the older models to start including as a routine feature exogenous growth factors (apart from population). And &quot;suddenly&quot;, per capita terms were not constant in the long-run equilibrium, but &lt;em&gt;growing at a constant rate&lt;/em&gt;. Initially the literature described such a situation as &quot;steady state in growth rates&quot;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then it appears the profession thought something like &quot;it is inaccurate to use the word &quot;steady&quot; here because per capita magnitudes are growing. What happens is that all magnitudes &lt;em&gt;grow&lt;/em&gt; at a &lt;em&gt;balanced&lt;/em&gt; rate (i.e at the same rate, and so their ratios remain constant). And since they grow, they follow a &lt;em&gt;path&lt;/em&gt;...&quot; Eureka!: the term &quot;balanced growth path&quot; was born.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;...To the frustration of students (at least), which have now to remember that for example, the &quot;saddle path&quot; is indeed a &lt;em&gt;path&lt;/em&gt; in the Phase diagram, but the &quot;balanced growth path&quot; is only a point! (because in order to actually draw a Phase diagram and obtain a good old long-run equilibrium, we express magnitudes per effective worker, and these magnitudes do have a traditional steady-state. But we continue to call it &quot;balanced growth path&quot;, because per capita magnitudes, which is what we are interested in, in our individualistic approach), continue to grow).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So &quot;balanced growth path&quot; = &quot;steady state of magnitudes per efficiency unit of labor&quot;, and I guess you can figure out the rest for your phase diagram.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2016-01-07T16:52:41.200" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10117" PostTypeId="2" ParentId="9594" CreationDate="2016-01-07T20:42:45.427" Score="3" Body="&lt;p&gt;As stated by @Wecon, the demand curve will shift down.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is two different things to determine which curve will shift and who will actually &lt;strong&gt;bear the burden&lt;/strong&gt; of the tax. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To answer the later problem, we need to look at price-elasticity of supply and of demand. The most inelastic (that is, the curve the most vertical) will bear the higher weight of the tax.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is an example with a fairly elastic supply curve, and a rather inelastic demand curve (forgive my drawing skills).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/gmDji.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/gmDji.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The demand curve, because of the tax $t$; shifts from $D$ to $D'$. The consumers will now pay price $P$, while producers will receive $P' = P - t$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The variation of the surplus of each agents is quite telling : in ugly-rose, we can see that the consumers, who have an inelastic demand, loose a lot, actually most of the total loss of surplus. In the opposite, the purple area represents the producer's loss of surplus, which is smaller than the consumer's.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the supply is inelastic and the demand elastic, than the roles are reverse, the producers ending up bearing a heavier part of the tax.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the tax is imposed on the suppliers, then the prices will be the same: the consumers will still pay $P$ and the suppliers will pay the tax, thus receiving $P'$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;In short&lt;/strong&gt;: no matter to whom you impose the tax, the elasticity allocate its burden to the agents. The economic incidence of the tax and its legal incidence are distinct concepts.&lt;/p&gt;&#xA;" OwnerUserId="6820" LastEditorUserId="6820" LastEditDate="2016-01-07T21:19:56.237" LastActivityDate="2016-01-07T21:19:56.237" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="10118" PostTypeId="2" ParentId="5861" CreationDate="2016-01-07T21:19:59.333" Score="8" Body="&lt;p&gt;In the ECB's press conference of October 22, Draghi and his vice-president responded to the question of why the ECB is fighting low inflation so fiercely. Their answer provides a nice overview of why a low level of inflation is desired, and therefore should answer your question. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The following were their main arguments:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;low deflation is to be avoided because it increases the real value of debt and leads to costly debt servicing;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;measurement of inflation tends to be exaggerated by most price indices, therefore, targetting zero-inflation would imply deflation. This justifies why the inflation target should be above zero;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;with low or negative inflation, real interest rates may be too high to reach full employment;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;generally, central banks want to avoid deflation. The vice-president refers at this point to &quot;real deflation&quot; in contrast to &quot;having negative inflation for a few months&quot;. This situation of &quot;real deflation&quot; should certainly be avoided, first, because of nominal rigidity in wages, and second, because it will lead to postponing consumption.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The transcript of the press conference can be found here: &lt;a href=&quot;https://www.ecb.europa.eu/press/pressconf/2015/html/is151022.en.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.ecb.europa.eu/press/pressconf/2015/html/is151022.en.html&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="6566" LastEditorUserId="10298" LastEditDate="2018-12-30T05:26:08.587" LastActivityDate="2018-12-30T05:26:08.587" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="10120" PostTypeId="1" CreationDate="2016-01-08T04:09:07.057" Score="0" ViewCount="125" Body="&lt;p&gt;Take China National Petroleum Corporation(CNPC) as an example, almost 86% of its stock is stated-owned. Its senior managers' promotion are related to the company's profit. And since there are investors who own 14% percent of its stock, maybe the company will face revenue pressure from them. But I think this is not sufficient to explain why they are so &lt;strong&gt;aggressive&lt;/strong&gt;, I must overlook  something more important. Any ideas are going to be  appreciated.&lt;/p&gt;&#xA;" OwnerUserId="6895" LastActivityDate="2016-01-08T17:30:25.433" Title="Why does state-owned company so aggressive in making profit?" Tags="&lt;government&gt;&lt;political-economy&gt;&lt;profits&gt;" AnswerCount="1" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="10122" PostTypeId="1" AcceptedAnswerId="10133" CreationDate="2016-01-08T06:15:10.243" Score="10" ViewCount="611" Body="&lt;p&gt;There are two envelopes. One contains &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; money and the other contains &lt;span class=&quot;math-container&quot;&gt;$2x$&lt;/span&gt; amount of money. The exact amount &amp;quot;&lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;&amp;quot; is unknown to me, but I know the above. I pick one envelope and I open it. I see &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; money in it, obviously where &lt;span class=&quot;math-container&quot;&gt;$y \in \{x, 2x\}$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;p&gt;Now I am offered to keep or switch envelopes.&lt;/p&gt;&#xA;&lt;p&gt;The expected value of switching is &lt;span class=&quot;math-container&quot;&gt;$(\frac{1}{2} \cdot 2y + \frac{1}{2} \cdot \frac{1}{2}y) = \frac{5}{4}y$&lt;/span&gt;.&#xA;The expected value of keeping my envelope is &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;p&gt;It seems that I should always switch envelopes. My two questions:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Is this reasoning correct?&lt;/p&gt;&#xA;&lt;p&gt;Is it any different if I am not allowed to open the envelope and see the &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; amount of money, and then I am given the option to switch indefinitely?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="4251" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2021-04-05T23:23:08.890" Title="Envelope Paradox" Tags="&lt;microeconomics&gt;&lt;expected-utility&gt;" AnswerCount="4" CommentCount="6" FavoriteCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="10125" PostTypeId="1" CreationDate="2016-01-08T17:19:17.363" Score="1" ViewCount="119" Body="&lt;p&gt;I've studied a number of cointegration methods in the past few months. It seems, Johansen's multivariate VAR approach to cointegration is the most commonly used multivariate cointegration technique. Most packages appear to have in-built functions to run &quot;Johansen cointegration analysis&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I was wondering if there are other multivariate cointegration methods in the literature though less known and are not available in let's say Eviews, Stata, RATs etc. but can be programmed. &lt;/p&gt;&#xA;" OwnerUserId="6009" LastActivityDate="2016-06-16T03:03:17.030" Title="Multivariate cointegration methods in Econometrics" Tags="&lt;macroeconomics&gt;&lt;econometrics&gt;&lt;time-series&gt;&lt;statistics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10126" PostTypeId="2" ParentId="10120" CreationDate="2016-01-08T17:30:25.433" Score="1" Body="&lt;p&gt;You have to distinguish between state owned public service companies and state owned for-profit companies, the for-profit companies are really commercial companies with governments being major shareholders. I would not use the term &quot;state owned&quot; in case of the latter form. Governments can form joint-ventures with private and multinational companies. Governments in this instance would have a special investment management agency or just a fund that are formed to attract investments from abroad. And, in every new joint venture, the government is the main shareholder. So, in CNPC's case, government is a proper shareholder just like institutional shareholders. Since Chinese government is the main shareholder it has the majority of voting rights and would certainly want a good return on investment and they are &quot;aggressive in making profit&quot; as you suggest.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the former case where the companies, if it can be called a company, are formed to provide public services (think of nationalised train companies), they are not there to make profit, but provide low cost high quality services. &lt;/p&gt;&#xA;" OwnerUserId="6009" LastActivityDate="2016-01-08T17:30:25.433" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10127" PostTypeId="1" AcceptedAnswerId="10130" CreationDate="2016-01-08T18:34:36.080" Score="1" ViewCount="3849" Body="&lt;p&gt;In the book &quot;Microeconomics&quot; by Pyndyck and others, the author(s) define a 'market' as a collection of buyers and sellers, who by the actual or potential interaction with each other determine the price of a product or a set of products.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is the difference between these two terms that the author(s) have taken effort to differentiate?&lt;/p&gt;&#xA;" OwnerUserId="6486" LastActivityDate="2016-01-08T21:28:42.363" Title="What is the difference between 'actual' and 'potential' interaction between buyers and sellers?" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;markets&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10128" PostTypeId="2" ParentId="10127" CreationDate="2016-01-08T19:04:25.463" Score="0" Body="&lt;p&gt;This is not taken from any book in particular but, in simple terms, actual interaction is when a buyer is going to buy a product (or set of products, from your words) and potential is the one who will suffer &lt;a href=&quot;https://en.wikibooks.org/wiki/Transportation_Economics/Costs#Characterizing_Transportation_Costs&quot; rel=&quot;nofollow&quot;&gt;transportation costs&lt;/a&gt; to acquire that same product or set of products and thus they still their acquisition is not yet defined as certain. &lt;/p&gt;&#xA;" OwnerUserId="6832" LastActivityDate="2016-01-08T19:04:25.463" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10129" PostTypeId="2" ParentId="10094" CreationDate="2016-01-08T19:19:59.203" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Let $L$ now rise. What happens to $u_n$ and $Y_n$?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;From the equation, if $L$ rises, everything else equals, then $u_n$ will rise (that is, the fraction will be smaller).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$Y_n$ will also rise and that is a fairly reasonable conclusion - Extra work force will lead to more outputs. &#xA;Now, the misleading conclusion is in regard to the markup. Consider now the labour market. When demand (work force) increases and all else remains equal (supply side - firms offering job opportunities), wages will lower and thus that setup will have a new equilibrium - with lower wages and more work force.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is my interpretation of your question, although the answer may not be 100% accurate, or an answer that actually answers your question.&lt;/p&gt;&#xA;" OwnerUserId="6832" LastActivityDate="2016-01-08T19:19:59.203" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10130" PostTypeId="2" ParentId="10127" CreationDate="2016-01-08T20:05:18.693" Score="3" Body="&lt;p&gt;The traditional representation of a market, with the curves of supply and demand reflects potential transactions: for each price, we can derive the quantity that would be offered or asked. The actual transactions only occur at the market price, but ignoring all other intentions is too restrictive to define a market. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, stock exchanges often give the possibility to agents to express their intentions (that is,  the quantity they would offer or buy for a certain price) about a particular security, which will form the bid (supply)  and the ask (demand). Even if the ask and the bid never meet, there is still a market as people are willing to exchange goods, though they cannot find an acceptable compromise. &lt;/p&gt;&#xA;" OwnerUserId="6820" LastEditorUserId="6820" LastEditDate="2016-01-08T21:28:42.363" LastActivityDate="2016-01-08T21:28:42.363" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10131" PostTypeId="2" ParentId="6486" CreationDate="2016-01-08T21:47:39.793" Score="2" Body="&lt;p&gt;The first reason for which volatility is higher is the liquidity of currencies. It has no storage or transportation costs. It can be used to purchase goods or traded again without additional costs. It doesn't age as fast as some commodities (agricultural products don't last forever). Therefore, the volume of trade is very high, and market participants can very easily enter or exit the market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Forex is extremely suitable for speculation: money relates to a lot of political decisions, macroeconomic trends and many other driver that are easily and publicly available. Therefore it might be easier to small private traders to trade currencies than firms, which require deeper knowledge. It is indeed easier to read a standard newspaper than to read an earning call transcript.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Moreover, Forex market's design also favor volatility: currencies trade 24/24, not 9 to 5. That means more people have access to it at any point in time. Another critical point is that there is a gigantic quantity of derivatives based on currencies. They can be used both for speculative purposes (thus generating leverage and increase the potential upside of the bet), or to generate protection against currency movements.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;All these elements contribute to make foreign exchange markets more volatile than commodities'.&lt;/p&gt;&#xA;" OwnerUserId="6820" LastActivityDate="2016-01-08T21:47:39.793" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10132" PostTypeId="2" ParentId="8354" CreationDate="2016-01-08T22:10:31.203" Score="4" Body="&lt;p&gt;The solution concept used in Ricardo's modell is the competitive equilibrium. Let the set of countries $N$ be defined as $N = \left\{E,P\right\}.$ (England, Portugal) Then the competitive equilibrium is a vector&#xA;$$&#xA;\left(p,\left(q_{x,i},q_{y,i}\right)_{i\in N},\left(c_{x,i},c_{y,i}\right)_{i\in N}\right),&#xA;$$&#xA;where $p$ is the equilibrium price ratio of the goods $x$ and $y$, so $p = \frac{p_x}{p_y}$, and $\left(q_{x,i},q_{y,i}\right)$ and $\left(c_{x,i},c_{y,i}\right)$ are the production and consumption vectors of country $i$. The equilibrium vector has the following properties:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Profit maximization: &lt;br&gt;&#xA;Each country choose a production that maximizes her profit given her production capabilites and the equilibrium price ratio. The set of possible production vectors $T_i$ is defined by the size of the countries labor pool $L_i$ and the labor requirements $a_{x,i},a_{y,i}$ as defined in the question&#xA;$$&#xA;q_{x,i} \cdot a_{x,i} + q_{y,i} \cdot a_{y,i} \leq L_i.&#xA;$$&#xA;A production vector $\left(q_x^i,q_y^i\right)$ is profit maximizing if&#xA;$$&#xA;\max\limits_{(x,y)\in T_i} p \cdot x + y = p \cdot q_{x,i} + q_{y,i}.&#xA;$$&lt;/li&gt;&#xA;&lt;li&gt;Utility (welfare) maximization: &lt;br&gt;&#xA;The vector $(c_{x,i},c_{y,i})$ maximizes country $i$'s utility if&#xA;$$&#xA;\max\limits_{p \cdot x + y \leq p \cdot q_{x,i} + q_{y,i}} U_i(x,y) = U_i(c_{x,i},c_{y,i}).&#xA;$$&lt;/li&gt;&#xA;&lt;li&gt;The good markets are in equilibrium, i.e. in the market of each good demand equals supply (technically only the values are equal, but here, i.e. with Cobb-Douglas preferences, prices are always positive in equilibrium, so there is no difference). The equations for these are&#xA;$$&#xA;\sum\limits_{i\in N} q_x^i = \sum\limits_{i\in N} c_x^i \hskip 20pt \sum\limits_{i\in N} q_y^i = \sum\limits_{i\in N} c_y^i.&#xA;$$&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Let us examine what these properties imply. The set $T_i$ is a triangle. As goods have positive value in equilibrium so all the labor is used up and the production vector is chosen from the production possibility frontier. Which industry ($x$ or $y$) can employ labor more lucratively? In industry $x$ a unit of labor produces value $\frac{p_x}{a_{x,i}}$. Similarly the value produced in industry $y$ is $\frac{p_y}{a_{y,i}}$. If $\frac{p_x}{a_{x,i}} &amp;gt; \frac{p_y}{a_{y,i}}$ only good $x$ is produced, if $\frac{p_x}{a_{x,i}} &amp;lt; \frac{p_y}{a_{y,i}}$ only good $y$ is produced, if $\frac{p_x}{a_{x,i}} = \frac{p_y}{a_{y,i}}$ it does not matter how labor is allocated among the industries as long as all labor is used. So the profit maximizating quantities are&#xA;$$&#xA;\left(q_{x,i},q_{y,i}\right) = \left\{&#xA;\begin{array}{cc}&#xA;\left(\frac{L_i}{a_{x,i}},0\right) &amp;amp; \frac{a_{x,i}}{a_{y,i}} &amp;lt; p \\&#xA;\alpha \cdot \left(\frac{L_i}{a_{x,i}},0\right) + (1 - \alpha)  \cdot \left(0,\frac{L_i}{a_{y,i}}\right)&#xA; &amp;amp; \frac{a_{x,i}}{a_{y,i}} = p \\&#xA;\left(0,\frac{L_i}{a_{y,i}}\right) &amp;amp; \frac{a_{x,i}}{a_{y,i}} &amp;gt; p. &#xA;\end{array}&#xA;\right.&#xA;$$&#xA;The optimum condition for the utility maximization problem is&#xA;$$&#xA;MRS_i(c_{x,i},c_{y,i}) = \frac{c_{y,i}}{c_{x,i}} = p.&#xA;$$&#xA;Because the utility functions in England and Portugal have the same form we can take this further. From&#xA;$$&#xA;\frac{c_y^A}{c_x^A} = p = \frac{c_y^P}{c_x^P}.&#xA;$$&#xA;we get&#xA;$$&#xA;\frac{c_{y,A}}{c_{x,A}} = p = \frac{c_{y,P}}{c_{x,P}}.&#xA;$$&#xA;we get&#xA;$$&#xA;c_{y,P}  = \frac{c_{y,A}}{c_{x,A}} \cdot c_{x,P}.&#xA;$$&#xA;Using this&#xA;$$&#xA;\frac{c_{y,A}+c_{y,P}}{c_{x,A}+c_{x,P}} = \frac{c_{y,A}+\frac{c_{y,A}}{c_{x,A}} \cdot c_{x,P}}{c_{x,A}+c_{x,P}} =  \frac{c_{x,A}}{c_{x,A}} \cdot \frac{c_{y,A}+\frac{c_{y,A}}{c_{x,A}} \cdot c_{x,P}}{c_{x,A}+c_{x,P}} =&#xA;\frac{c_{y,A} \cdot c_{x,A} + c_{y,A} \cdot c_{x,P}}{c_{x,A} \cdot \left(c_{x,A}+c_{x,P}\right)}.&#xA;$$&#xA;so&#xA;$$&#xA;\frac{c_{y,A}+c_{y,P}}{c_{x,A}+c_{x,P}} = \frac{c_{y,A} \cdot c_{x,A} + c_{y,A} \cdot c_{x,P}}{c_{x,A} \cdot \left(c_{x,A}+c_{x,P}\right)} = \frac{c_{y,A}}{c_{x,A}} = p.&#xA;$$&#xA;What this says is that the relative demand ($\frac{c_{y,i}}{c_{x,i}}$) is not only equal to the price ratio for individual countries but also the relative aggregate world demand is equal to the price ratio. (Again, this is only true if the individual countries have Cobb-Douglas utility functions with identical parameters.) We now have a relatively easy way to find the equilibrium price ratio: we calculate relative aggregate supply. As aggregate supply equals aggregate demand in equilibrium, relative aggregate supply will equal relative aggregate demand, and as we have just shown it will also equal $p$. We get relative supply from the profit maximizing productions of the individual countries. Let us first discuss the aggregate of the profit maximizing productions, which I will denote by $(q_x,q_y)$. So $(q_x,q_y) = (q_{x,E} + q_{x,P},q_{y,E} + q_{y,P})$ which means&#xA;$$&#xA;(q_x,q_y) = \left\{&#xA;\begin{array}{cc}&#xA;\left(\frac{L_E}{a_{x,E}} + \frac{L_P}{a_{x,P}},0\right) &amp;amp; \frac{a_{x,E}}{a_{y,E}} &amp;lt; \frac{a_{x,P}}{a_{y,P}} &amp;lt; p \\&#xA;\left(\frac{L_E}{a_{x,E}} + \alpha \cdot \frac{L_P}{a_{x,P}} , (1 - \alpha) \cdot \frac{L_P}{a_{y,P}} \right) &amp;amp; \frac{a_{x,E}}{a_{y,E}} &amp;lt; p = \frac{a_{x,P}}{a_{y,P}} \\&#xA;\left(\frac{L_E}{a_{x,E}} , \frac{L_P}{a_{y,P}} \right) &amp;amp; \frac{a_{x,E}}{a_{y,E}} &amp;lt; p &amp;lt; \frac{a_{x,P}}{a_{y,P}} \\&#xA;\left(\alpha \cdot \frac{L_E}{a_{x,E}}, (1 - \alpha) \cdot \frac{L_E}{a_{y,E}} + \frac{L_P}{a_{y,P}} \right) &amp;amp; \frac{a_{x,E}}{a_{y,E}} = p &amp;lt; \frac{a_{x,P}}{a_{y,P}}  \\&#xA;\left(0, \frac{L_E}{a_{y,E}} + \frac{L_P}{a_{y,P}} \right) &amp;amp; p &amp;lt; \frac{a_{x,E}}{a_{y,E}} &amp;lt; \frac{a_{x,P}}{a_{y,P}}  .&#xA;\end{array}&#xA;\right.&#xA;$$&#xA;The relative aggregate supply is the ratio $\frac{q_x}{q_y}$. It is perhaps best described by this image:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/NAgbr.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/NAgbr.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The relative aggregate demand is the ratio $\frac{c_x}{c_y}$. As we have discussed $\frac{c_y}{c_x} = p$ so &#xA;$$&#xA;\frac{c_x}{c_y} = \frac{1}{p}.&#xA;$$&#xA;As a result one can draw the relative aggregate demand in the previous graph as  hyperbole. The intersection with the relative aggregate supply curve will give yield the equilibrium price ratio and will also yield information about the production of individual countries. Where this intersection occurs depends on the parameters $L_E,L_P,a_{x,E},a_{y,E},a_{x,P},a_{y,P}$. I will distinguish between three types of equilibria, each represented in the following figure:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/lqiOs.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/lqiOs.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the 1. equilibrium the price ratio is $p = \frac{a_{x,E}}{a_{y,E}} &amp;lt; \frac{a_{x,P}}{a_{y,P}}$. Thus Portugal specializes and only produces good $y$, but England does not specialize but produces both good $x$ and $y$. Producing either good gives her the same value. The exact equilibrium quantities England produces are determined by the value the aggregate demand curve takes at price $p$, because&#xA;$$&#xA;\frac{q_x}{q_y} = \frac{c_x}{c_y} = \frac{1}{p}&#xA;$$&#xA;and&#xA;$$&#xA;q_x = q_{x,E} + q_{x,P} = q_{x,E} + 0 \hskip 20pt q_y = q_{y,E} + q_{y,P} = q_{y,E} + \frac{L_P}{a_{y,P}}.&#xA;$$&#xA;In this case England will still not achieve a net export of good $y$. The preferences tell us that Portugal will consume both goods $x$ and $y$. But the only way it can pay for the goods $x$ consumed is by trading some of its goods $y$, so Portugal, not England, will be a net exporter of good $y$ while England is a net exporter of good $x$. &lt;br&gt;&#xA;In the 2. equilibrium both countries specialize: England produces only good $x$, Portugal produces only good $y$. This is usually presented as the textbook case. &lt;br&gt;&#xA;The 3. equilibrium is like the 1. equilibrium, but here England specializes and produces only good $x$ while Portugal does not specialize and produces both.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So to answer my original questions: &lt;br&gt;&#xA;Given that England has a comparative advantage in producing good $x$,&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;England will always produce good $x$.&lt;/li&gt;&#xA;&lt;li&gt;England may also produce good $y$.&lt;/li&gt;&#xA;&lt;li&gt;England will never export good $y$.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2016-01-09T06:48:32.753" LastActivityDate="2016-01-09T06:48:32.753" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10133" PostTypeId="2" ParentId="10122" CreationDate="2016-01-08T22:35:10.097" Score="7" Body="&lt;p&gt;Here is an &quot;expected utility maximization/ game theoretic&quot; approach to the matter (with a dash of set-theoretic probability). In such a framework, the answers appear clear.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;PREMISES&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We are told in absolute honesty that, for $x$ a strictly positive monetary amount, the following two tickets were placed in a box :  $\{A=x, B= 2x\}$ with assigned identification number $1$ and $\{A=2x, B= x\}$ with assigned identification number $0$. Then a draw from a Bernoulli  $(p=0.5)$ random variable was executed, and based on the result and the event that has occurred, the amounts $x$ and $2x$ were placed in envelopes $A$ and $B$. We are not told what the value of $x$ is, or what amount went to which envelope. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;First CASE: Choose an envelope with the option to switch without opening it&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first issue is &lt;em&gt;how do we choose an envelope&lt;/em&gt;? This has to do with preferences. So &lt;em&gt;assume&lt;/em&gt; that we are expected utility maximizers, with utility function $u()$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can model the probabilistic structure here by considering two dichotomous random variables, $A$ and $B$ representing the envelopes, and the amount in them. The support of each is $\{x, 2x\}$. But they are not independent. So we have to start with the joint distribution. In table form, the joint distribution, and the corresponding marginal distributions are&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{array}{| r | r |  }&#xA;  \hline                       &#xA;\text{A} \;/ \;\;\text{B} \rightarrow  &amp;amp; x &amp;amp; 2x &amp;amp; \text {Marg A} \\&#xA;  \hline &#xA;  \hline                       &#xA;  x &amp;amp; 0 &amp;amp; 0.5 &amp;amp; 0.5\\&#xA;  \hline                     &#xA;2x &amp;amp; 0.5 &amp;amp; 0 &amp;amp; 0.5 \\&#xA;\hline&#xA;\text{Marg B} &amp;amp; 0.5 &amp;amp; 0.5 &amp;amp; 1.00 \\&#xA;  \hline  &#xA;\end{array}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This tells us that $A$ and $B$ have identical marginal distributions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But this means that it doesn't matter how we choose envelopes, &lt;em&gt;because we will always get the same expected utility&lt;/em&gt;, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$0.5 \cdot u(x) + 0.5\cdot u(2x)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What we are facing here is a compound gamble (how to choose an envelope) over two identical gambles (each envelope). We can choose $A$ with probability $1$, $0$, or anything in-between (and complementarily for $B$). It doesn't matter. We will always get the same expected utility. Note that our attitude towards risk doesn't play a role here.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So we do choose an envelope, say $A$, and we are looking at it. What is now our expected utility? &lt;em&gt;Exactly the same as prior to choosing&lt;/em&gt;. Picking an envelope in whatever way, does not affect the probabilities of what's inside.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We are allowed to switch. Say we do, and now we are holding envelope $B$. What is now are expected utility? &lt;em&gt;Exactly the same as before&lt;/em&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;These are the two possible states of the world for us: choose $A$ or choose $B$. Under any choice, both states of the world imply the same value to our chosen/assumed driving force (i.e. maximize expected utility). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;So here, we are indifferent to switching.&lt;/strong&gt;, and in fact we could also randomize.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;2nd CASE: OPENING THE ENVELOPE with the option to switch after&lt;/strong&gt;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume now that we have picked $A$, opened it, and found inside the amount $y \in \{x, 2x\}$. Does this change things?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's see. I wonder, what is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$P(A = x \mid A \in \{x, 2x\}) = ?$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Well, $\{x, 2x\}$ is the sample space on which random variable $A$ is defined. Conditioning on the whole sample space, i.e. on the trivial sigma-algebra, does not affect neither the probabilities, nor the expected values. It is as though we wonder &quot;what is the value of $A$ if we know that all possible values may have been realized?&quot; No effective knowledge has been gained, so we are still at the original probabilistic structure.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But I also wonder, what is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$P(B = x \mid A \in \{x, 2x\}) = ?$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The conditioning statement, properly viewed as a sigma-algebra generated by the event $\big \{A \in \{x, 2x\}\big\}$, is the whole product sample space on which the random vector $(A,B)$ has been defined. From the table of the joint distribution above, we can see that the probability allocation of the joint is equivalent a.s to the probability allocation of the marginals (the &quot;almost surely&quot; qualification due to the presence of two events of measure zero). So here too we essentially condition the probabilities for $B$ on its whole sample space. It follows that our action to open the envelope did not affect the probabilistic structure for $B$ also.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Enter game theory, alongside decision making. We have opened the envelope, and we have to decide whether we will switch or not. If we don't switch we get utility $u(y)$. If we switch, then we are in the following two possible states of the world &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$y = x, u(A) = u(x) \implies u(B) = u(2x)$$&#xA;$$y = 2x, u(A) = u(2x)\implies u(B) = u(x)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We do not know which state actually holds, but per the above discussion, we do know that each has probability $p=0.5$ of existing.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can model this as a game where our opponent is &quot;nature&quot; &lt;em&gt;and where we know that nature plays with certainty a randomized strategy&lt;/em&gt;: with $p=0.5$ $y=x$ and with $p=0.5$, $y=2x$. But we also now that if we do not switch, our payoff is certain. So here is our game in normal form, with our payoffs:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{array}{| r | r |  }&#xA;  \hline                       &#xA;\text{We} \;/ \;\;\text{nature} \rightarrow  &amp;amp;y= x &amp;amp; y=2x  \\&#xA;  \hline                       &#xA;  \text{Switch} &amp;amp; u(2x) &amp;amp; u(x) \\&#xA;  \hline                     &#xA;\text{Don't Switch} &amp;amp; u(y) &amp;amp; u(y)  \\&#xA;  \hline&#xA;\end{array}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We should resist the temptation to substitute $u(x)$ and $u(2x)$ for $u(y)$. $u(y)$ is a &lt;em&gt;known&lt;/em&gt; and certain payoff. The payoffs for the &quot;Switch&quot; strategy are not actually known (since we do not know the value of $x$). So we &lt;em&gt;should reverse the substitution&lt;/em&gt;. If $y=x$ then $u(2x) = u(2y)$, and if $y=2x$ then $u(x) = u(y/2)$. So here is our game again:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{array}{| r | r |  }&#xA;  \hline                       &#xA;\text{We} \;/ \;\;\text{nature} \rightarrow  &amp;amp;y= x &amp;amp; y=2x  \\&#xA;  \hline                       &#xA;  \text{Switch} &amp;amp; u(2y) &amp;amp; u(y/2) \\&#xA;  \hline                     &#xA;\text{Don't Switch} &amp;amp; u(y) &amp;amp; u(y)  \\&#xA;  \hline&#xA;\end{array}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now all the payoffs in the matrix are known. Is there a pure dominant strategy?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The expected payoff of strategy &quot;Switch&quot; is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$E(V_S) = 0.5\cdot u(2y) + 0.5 \cdot u(y/2)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The expected payoff of strategy &quot;Don't Switch&quot; is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$E(V_{DS}) = u(y)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We should switch if&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$E(V_S) &amp;gt; E(V_{DS}) \implies 0.5\cdot u(2y) + 0.5 \cdot u(y/2) &amp;gt; u(y)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And &lt;em&gt;now&lt;/em&gt;, attitude towards risk becomes critical. It is not difficult to deduce that &lt;strong&gt;under risk-taking and risk neutral behavior, we should Switch.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As regards &lt;strong&gt;risk-averse behavior&lt;/strong&gt;, I find an elegant result:   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For &quot;less concave&quot; (strictly above) utility functions than logarithmic (say, square root), then we should still Switch.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;For logarithmic utility $u(y) = \ln y$, we are indifferent between switching or not.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For &quot;more concave&quot; than (strictly below)  logarithmic utility functions, we should &lt;em&gt;not&lt;/em&gt; Switch.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I close with the diagram of the logarithmic case&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/CUfRW.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/CUfRW.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume $y=4$. Then $y/2 =2, 2y = 8$. The line $Γ-Δ-Ε$ is the line on which the expected utility from &quot;Switch&quot; will lie. Since nature plays a $50-50$ strategy, it will actually be at point $\Delta$, which is the middle point of $Γ-Δ-Ε$. At that point with logarithmic utility, we get exactly the same utility from &quot;Don't Switch&quot;, i.e. $\ln(4)$ for this numerical example.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2016-01-09T03:41:05.063" LastActivityDate="2016-01-09T03:41:05.063" CommentCount="14" ContentLicense="CC BY-SA 3.0" />
  <row Id="10134" PostTypeId="2" ParentId="6479" CreationDate="2016-01-09T09:18:01.420" Score="1" Body="&lt;p&gt;Bonds and stocks, and in general all securities related to a firm, are regulated by the SEC in the US. Some other financial instruments are regulated by the CFTC (mainly commodities and derivatives, though some of the latter are regulated by the SEC)&lt;/p&gt;&#xA;&lt;h1&gt;Stocks&lt;/h1&gt;&#xA;&lt;p&gt;Stocks are a share in the firm. Meaning they are actually ownership securities. Hoilding a stock entitle their holder to earn a part of the earnings of the firm - the dividends, and to have a say in the strategy of the firm, through a vote at the Annual General Meeting.&lt;/p&gt;&#xA;&lt;p&gt;Different kinds of stocks can be found: The difference usually lies in the number of votes that each share carries, or in their seniority in case of bankruptcy (&lt;em&gt;preferred&lt;/em&gt; shares get paid before &lt;em&gt;common&lt;/em&gt; shares)&lt;/p&gt;&#xA;&lt;p&gt;A good example is Alphabet's (Google's) &lt;a href=&quot;https://investor.google.com/financial/class-c.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;shares&lt;/a&gt;:&lt;/p&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;A shares, which have one vote each (&lt;a href=&quot;https://www.google.com/finance?q=GOOGL&amp;amp;ei=MMiQVsC4AoPdsAGynabYCg&quot; rel=&quot;nofollow noreferrer&quot;&gt;NASDAQ:GOOGL&lt;/a&gt;)&lt;/li&gt;&#xA;&lt;li&gt;B shares, which have 1 vote each (not publicly traded)&lt;/li&gt;&#xA;&lt;li&gt;C shares, which are capital-only (no votes attached) (&lt;a href=&quot;https://www.google.com/finance?q=GOOG&amp;amp;hl=en&amp;amp;ei=U8iQVtmzAYPdsAGynabYCg&quot; rel=&quot;nofollow noreferrer&quot;&gt;NASDAQ:GOOG&lt;/a&gt;)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;p&gt;This allows the founders to maintain ownership of the company while raising additional funds. As you can guess, Sergei Brin, Larry Page and then Eric Schmidt own a minority of the total stock, but secure more than 70% of the voting right through their holding of B shares.&lt;/p&gt;&#xA;&lt;h1&gt;Bonds&lt;/h1&gt;&#xA;&lt;p&gt;Bonds are debt securities: they do not represent ownership but they represent a claim. In opposite to stocks, there are plenty of different types of bonds. There is a huge diversity, and the main characteristics that can change are the following:&lt;/p&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;strong&gt;Maturity&lt;/strong&gt; (When do you get paid back the nominal amount): it can go to a few months to 30 years or more (the UK still has outstanding debt with no maturity)&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;Interest rate&lt;/strong&gt; (How much do you get, and at which frequency?): It can go from zero to any other amount. It can be fixed, or variable, for example indexed on inflation.&lt;/li&gt;&#xA;&lt;li&gt;The &lt;strong&gt;seniority&lt;/strong&gt; (who gets paid first in case of bankruptcy)&lt;/li&gt;&#xA;&lt;li&gt;The &lt;strong&gt;collateral&lt;/strong&gt; (Are you entitled to receive a particular asset in case of default?)&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;Other options&lt;/strong&gt;, such as convertibility (some bonds can be converted to shares, for example if the firm defaults on these bonds, or if the bondholders asks for the conversion.)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;p&gt;To put everything together, what happens in case of a bankruptcy is that direct creditors are paid first: the government (taxes), the employees, the suppliers, etc. Then, the other creditors are paid, if there is anything less, in order of seniority: either because some debt are embedded with particular seniority level, such as First Lien Debt, or in order of maturity (short term debt first). Some debt have a collateral, which the holders of the debt have a claim on in case of default. For example, ABS and MBS are 'guaranteed' by assets which the lender will get if they aren't paid. The governments can also extend guarantees on private firms lending.&lt;/p&gt;&#xA;&lt;p&gt;This explains why the two types of security have different risk profile.&lt;/p&gt;&#xA;&lt;p&gt;For a firm, the rules/regulations on each type of security have a very deep impact. Namely, it is less costly to raise debt: first, debt costs less (interest rates are typically lower than equity yield), and also because the interest rates are tax-deductible. This can cause problems as it incite firms to take on more debt than they otherwise would, as underlined by &lt;a href=&quot;http://www.economist.com/news/leaders/21651213-subsidies-make-borrowing-irresistible-need-be-phased-out-great-distortion&quot; rel=&quot;nofollow noreferrer&quot;&gt;this article&lt;/a&gt; from The Economist.&lt;/p&gt;&#xA;" OwnerUserId="6820" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2016-01-09T09:18:01.420" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10135" PostTypeId="1" CreationDate="2016-01-09T10:03:17.377" Score="1" ViewCount="54" Body="&lt;p&gt;Is there any country with dual domestic payment system? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For instance, in the USA there are CHIPS or Fedwire both help wire transfer of USD within the USA. They give services to international organizations but these organizations have an account with an American Financial Institution. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In my case, I ask if country A using currency A as legal tender issued by its own central bank IS ALSO using other countries currencies in domestic wire transfer system? That means that country A will not need to use SWIFT for the other countries currencies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your input whether such a case is applicable or not is also appreciated. &lt;/p&gt;&#xA;" OwnerUserId="4022" LastActivityDate="2016-01-09T10:03:17.377" Title="A country with dual payment system" Tags="&lt;currency&gt;&lt;banking&gt;&lt;money&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10136" PostTypeId="1" AcceptedAnswerId="10198" CreationDate="2016-01-09T10:06:39.020" Score="8" ViewCount="828" Body="&lt;p&gt;We have a principal-agent model with hidden actions in which the principal is risk averse and the agent is risk neutral; Assume also there are two levels of output, $x$ and $x'$ (with $x'&amp;gt;x$) and two actions $a,a'$. Define $p(a),p(a')$ the probabilities of $x'$ under actions $a,a'$ respectively. Also, the agent disutility from action $a'$ is $-1$. The wages associated to $x,x'$ are $w,w'$ respectively.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My problem is that I am not sure how to show that the optimal contract requires $x'-w' =x-w$, i.e. that the agent, being risk neutral, takes on all the variability associated with the project. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I formalize the problem (assume the principal wants to induce $a'$, otherwise my question is trivial)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\max\limits_{\{w,w'\}} u(x'-w')p(a') + u(x-w)(1-p(a'))$  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;st &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$w'p(a') + w(1-p(a')) - 1 \geq 0 $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$w'p(a') + w(1-p(a')) - 1 \geq w'p(a) + w(1-p(a))$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In particular, when I try to solve the problem by maximizing the principal expected payoff subject to the &quot;standard&quot; Individual rationality (with $\lambda$ multiplier) and incentive compatibility (with $\mu$ multiplier) constraints (I assume the principal is interested in the more costly action $a'$) I end up with two equations which are not consistent with the aforementioned result. In particular: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$ u'(x-w) = \lambda + \mu [1- \frac{(1-p(a))}{(1-p(a'))}]$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$ u'(x'-w') = \lambda + \mu [1- \frac{p(a)}{p(a')}]$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is evident that $x-w = x'-w'$ holds iff $p(a) =p(a')$ which is not the case in this problem (here we have that $p(a') &amp;gt;p(a)$). Another possibility would be to assume that the Incentive compatibility constraint is slack (hence $\mu = 0$); however I cannot understand why that should hold, when the principal wants to induce the most costly action $a'$ (help here)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have read online that another approach would be to assume that the principal &quot;sells&quot; the project to the agent and the agent, after having chosen which level of effort maximizes its expected utility, pays back a fixed amount to the principal (call it $\beta_{a}, \beta_{a'}$)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So we would have something like: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$w'p(a') + w(1-p(a')) - 1 -\beta_{a'} \geq 0 $&#xA;if the agent chose to undertake high effort and &#xA;$w'p(a) + w(1-p(a)) -\beta_a \geq 0 $ otherwise.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But then how to go from there? How to insure that the agent is going to choose the action $a'$? How are the fixed amounts determined? Why are they optimal?&lt;/p&gt;&#xA;" OwnerUserId="46" LastEditorUserId="1601" LastEditDate="2016-01-09T12:44:16.490" LastActivityDate="2016-01-13T11:04:20.573" Title="Moral Hazard with risk neutral agent" Tags="&lt;decision-theory&gt;&lt;principal-agent&gt;" AnswerCount="2" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="10137" PostTypeId="1" CreationDate="2016-01-09T10:31:58.400" Score="1" ViewCount="48" Body="&lt;p&gt;I am looking for some thorough papers on relation between money supply and inflation in short and long run i.e. how and why money supply affect prices in short and long run?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I was trying to find some interesting papers on that topic, however i was unsuccessful thus i would be glad if you would help me with the task of find informations regarding this particular topic. &lt;/p&gt;&#xA;" OwnerUserId="5486" LastActivityDate="2016-01-09T10:31:58.400" Title="Corelation between money growth and inflation" Tags="&lt;macroeconomics&gt;&lt;reference-request&gt;&lt;data-request&gt;" AnswerCount="0" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="10138" PostTypeId="1" CreationDate="2016-01-09T11:59:36.617" Score="4" ViewCount="620" Body="&lt;p&gt;i am currently working on a paper on demand curves for stocks and have some questions.&#xA;I've read that many models (CAPM, APT, Modigliani-Miller theorem) assume demand curves for stocks to be flat. Can you tell me why?&#xA;Now research suggests that they actually slope down. Why is this relevant and what implications does this have?&lt;/p&gt;&#xA;" OwnerUserId="6904" LastActivityDate="2016-01-10T14:26:19.580" Title="Demand Curves for Stocks" Tags="&lt;finance&gt;&lt;supply-and-demand&gt;&lt;elasticity&gt;&lt;stock-market&gt;" AnswerCount="1" CommentCount="3" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10141" PostTypeId="1" AcceptedAnswerId="10144" CreationDate="2016-01-09T21:34:55.947" Score="0" ViewCount="407" Body="&lt;p&gt;Given that demand for a good X is equal to $q_D=393-2p$ and market supply is $q_S=p/4-12$. Find equilibrium price and quantity, consumer and producer surplus and draw a diagram illustrating the situation. Given that:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;a) $T=2q$, every single item sold is taxed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;b) $T=20\% TR$ total revenue is taxed&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Obviously i have calculated the equilibrium price and quantity before taxation that is $p=180,q=33$.But i have no idea how to caculate those two values after taxation.&lt;/p&gt;&#xA;" OwnerUserId="5486" LastActivityDate="2016-01-10T04:38:06.107" Title="Government's intervention question" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;government&gt;" AnswerCount="1" CommentCount="2" ClosedDate="2016-01-13T13:41:39.357" ContentLicense="CC BY-SA 3.0" />
  <row Id="10142" PostTypeId="1" CreationDate="2016-01-09T23:03:34.847" Score="1" ViewCount="44" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/40GG4.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/40GG4.png&quot; alt=&quot;&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From the graph, inflation has a negative relation with output gap when interest rates are higher than zero but turn to a positive relation when reach zero.&#xA;I cannot understand why the relationship changes when rates reach zero.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Furthermore, why central banks commit to keeping  interest rates low for an extended period is a solution to avoid deflation trap?&lt;/p&gt;&#xA;" OwnerUserId="6913" LastEditorUserId="6913" LastEditDate="2016-01-10T10:36:23.823" LastActivityDate="2016-01-10T10:36:23.823" Title="When nominal interest rates reach zero bound,why inflation will turn to have a positive relation with output gap?" Tags="&lt;macroeconomics&gt;&lt;monetary-policy&gt;&lt;inflation&gt;&lt;interest-rate&gt;" AnswerCount="0" CommentCount="0" ClosedDate="2017-03-13T20:31:17.717" ContentLicense="CC BY-SA 3.0" />
  <row Id="10143" PostTypeId="2" ParentId="5752" CreationDate="2016-01-10T01:42:34.207" Score="-1" Body="&lt;p&gt;Read Arellano (1987, Oxford Bulletin of Economics and Statistics)&lt;/p&gt;&#xA;" OwnerUserId="6917" LastActivityDate="2016-01-10T01:42:34.207" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10144" PostTypeId="2" ParentId="10141" CreationDate="2016-01-10T04:38:06.107" Score="1" Body="&lt;p&gt;I apologise for the poor formatting and such, this is one of my first posts so please let me know if anything needs improvement (including, possibly, the correctness of my answer!).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For part a.), I'm assuming that a per unit tax of $2q$ is levied on the consumer in this market. The inverse demand function and inverse supply function are given by $p = \frac{393}{2} - \frac{q}{2}$ and $p = 4q + 48$ respectively. Thus, a per unit tax of $T = 2q$ will result in the inverse demand function being $p + 2q = \frac{393}{2} - \frac{q}{2} \iff p = \frac{393}{2} - \frac{5q}{2}$. Equating supply and demand, we find that the new equilibrium quantity is $q = 22.846$, the price that consumers pay is $185.077$ and the price producers receive is $139.385$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For part b.), I'm assuming that a tax of $20$% of revenue is levied on the producer in this market. The inverse demand function and inverse supply function are given by $p = \frac{393}{2} - \frac{q}{2}$ and $p = 4q + 48$ respectively. Thus, a tax of $20$% of revenue will result in the inverse supply function being $p - 0.2p = 4q + 48 \iff p = 5q + 60$. Equating supply and demand, we find that the new equilibrium quantity is $q = 18.2$, the price that consumers pay is $187.4$ and the price producers receive is $120.8$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I hope this makes sense (and is correct)! Feedback would be great!&lt;/p&gt;&#xA;" OwnerUserId="6918" LastActivityDate="2016-01-10T04:38:06.107" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10145" PostTypeId="1" CreationDate="2016-01-10T10:19:11.087" Score="4" ViewCount="237" Body="&lt;p&gt;I have been asked to determine the optimal ticket prices for live-events. Strictly speaking, I'm working as a data scientist for this company, so this question is a outside my field of expertise. I have a PhD in physics, and I've been trying to learn Micro-econ by watching MIT/Coursera videos.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Separately, from reading articles online, I know that given the inventory (which is similar to airline tickets or hotel rooms) I don't want to find the optimal prices by solving a revenue maximization type problem but rather through yield management. Is this correct?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are already questions on SE (&lt;a href=&quot;https://economics.stackexchange.com/questions/4634/where-to-start-learning-economics-as-a-mathematician&quot;&gt;Where to start learning economics as a mathematician?&lt;/a&gt;, &lt;a href=&quot;https://economics.stackexchange.com/questions/4813/introductory-or-primer-text-on-economics&quot;&gt;Introductory or Primer text on Economics?&lt;/a&gt;), about resources for learning intro economics. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But what &lt;strong&gt;I would like is a set of books, or online tools that would take someone like me with NO formal training in economics from zero to a firm grasp with the concepts of yield management and revenue maximization.&lt;/strong&gt; &lt;/p&gt;&#xA;" OwnerUserId="6919" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.103" LastActivityDate="2017-08-26T22:33:46.397" Title="Quickest way to learn about yield management and revenue maximization?" Tags="&lt;microeconomics&gt;&lt;reference-request&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10146" PostTypeId="1" CreationDate="2016-01-10T11:25:16.897" Score="2" ViewCount="83" Body="&lt;p&gt;A few years ago I was reading The Economist and I remember it stated a particular academic paper that underpinned the rationale for the existence of private equity firms. I have tried to find this article but have had no success. I believe this paper justified why companies are run better privately. Does anyone know what this paper is/might of been?&lt;/p&gt;&#xA;" OwnerUserId="5515" LastEditorUserId="5515" LastEditDate="2018-08-11T12:59:47.940" LastActivityDate="2018-08-12T19:53:20.437" Title="Academic paper which justifies why companies are run better privately" Tags="&lt;microeconomics&gt;&lt;reference-request&gt;&lt;finance&gt;&lt;corporate-finance&gt;&lt;firm&gt;" AnswerCount="1" CommentCount="5" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10147" PostTypeId="2" ParentId="10138" CreationDate="2016-01-10T14:26:19.580" Score="3" Body="&lt;p&gt;In a framework such as CAPM, agents are assumed to be rational, and usually to have identical preferences. All agents have access to the same information, and agree on the level of riskiness of every particular stock. As returns are a reward for taking risk, the price of every asset do not depend on the supply but on its riskiness. Thus, the demand curve is flat: no matter how much of asset A their is on the market, nobody wants to pay a premium which would lead to have a lower reward for a same level of risk.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This models have very strong and restrictive assumptions, which is why we end up with this weird infinitely price-elastic demand curve. More complex models, with less restrictive assumptions, might produce downward sloping demand curves.&lt;/p&gt;&#xA;" OwnerUserId="6820" LastActivityDate="2016-01-10T14:26:19.580" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10148" PostTypeId="1" CreationDate="2016-01-10T15:51:27.230" Score="1" ViewCount="49" Body="&lt;p&gt;I'd like to introduce math-students to the concept of average and instantaneous rate of change, in order to get them interested in the topic.&#xA;I found the following example:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Based on data from 1990 to 2000, the average price for a half gallon of prepackaged ice cream may be modeled by&#xA;  $$&#xA;C(t) = 0.0142*t^2 - 0.0272*t + 2.53&#xA;$$&#xA;  where t is the number of years since 1990. (Source: Modeled from Statistical Abstract of the United States, 2001, Table 706, p. 468.)&#xA;  To help project future revenue, a creamery wants to know what the average annual increase in the price of ice cream was from 1990 to 2000 and at what rate the price will be increasing at the end of 2000.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So, in other words, we are looking for the average and instantaneous rate of change.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My question is the following:&lt;/strong&gt;&lt;br&gt;&#xA;Why is the rate of change important for economics? I know this sounds silly, but if my goal was to project the price of ice cream for let's say 2015, all I had to do was insert the value 25 for t and I'd be done, right?&#xA;So why do we care about the rate of change in economics? What is to be gained by this information and what would be decided differently after finding out the rate of change?&lt;/p&gt;&#xA;" OwnerUserId="6920" LastActivityDate="2016-01-11T07:04:00.823" Title="Why do businesses care about rate(s) of change?" Tags="&lt;corporate-finance&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10149" PostTypeId="2" ParentId="10148" CreationDate="2016-01-10T20:26:25.633" Score="0" Body="&lt;p&gt;The words may not be as profound as some other economist would say, but predicting revenues is part of econometrics and that is important for a wide range of reasons.&#xA;Also, in your example, keep in mind that inflation takes a very special role in Economics. It is not explicit what $r^2$ is but it seems that example, for instance, does not consider inflation rates.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But rates of change can be considered in strategic decision making (microeconomics), to know the inflation rate (macroeconomics) and many other dimensions that I cannot even think of.&lt;/p&gt;&#xA;" OwnerUserId="6832" LastActivityDate="2016-01-10T20:26:25.633" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10151" PostTypeId="2" ParentId="10145" CreationDate="2016-01-10T20:34:33.103" Score="1" Body="&lt;p&gt;You should seek for topics under Industrial Economics then. I have these books has reference (see below list). Keep in mind that Industrial Economics is highly focus on competition and market power.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://www.amazon.co.uk/Industrial-Organization-Strategies-Paul-Belleflamme/dp/0521681596&quot; rel=&quot;nofollow&quot;&gt;Industrial Organization: Markets and Strategies.&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://www.amazon.co.uk/Microeconomic-Theory-Basic-Principles-Extensions/dp/111152551X&quot; rel=&quot;nofollow&quot;&gt;Microeconomic Theory: Basic Principles and Extensions&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I find them both easy to read and understand concepts, mainly the first one. When I first had to work with it, my common problem was with the math, but if your background is in Physics, I'm sure you'll have no problems understanding the functions transformations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Coursera also has some courses that slightly approach Industrial Economics, &lt;a href=&quot;https://www.coursera.org/specializations/managerial-economics-business-analysis&quot; rel=&quot;nofollow&quot;&gt;like this one&lt;/a&gt;, but I guess this will not suffice to you.&lt;/p&gt;&#xA;" OwnerUserId="6832" LastActivityDate="2016-01-10T20:34:33.103" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="10153" PostTypeId="1" AcceptedAnswerId="13764" CreationDate="2016-01-11T02:26:55.587" Score="2" ViewCount="65" Body="&lt;p&gt;&lt;a href=&quot;http://www.tradingeconomics.com/country-list/gold-reserves&quot; rel=&quot;nofollow&quot;&gt;http://www.tradingeconomics.com/country-list/gold-reserves&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, some of German's gold reserves are stored in US central bank as explained in &lt;a href=&quot;https://en.wikipedia.org/wiki/Gold_repatriation&quot; rel=&quot;nofollow&quot;&gt;https://en.wikipedia.org/wiki/Gold_repatriation&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The gold in the U.S. was earned by West Germany through trade surpluses in the 1950s and 1960s and never moved it out of the United States due to fear of invasion by the Soviet Union.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In the case, does the 8133 tonnes gold reserves in US include the gold liability to other countries?&lt;/p&gt;&#xA;" OwnerUserId="6478" LastActivityDate="2016-10-14T22:29:55.367" Title="Does US gold reserves includes other counties' gold reserves?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10154" PostTypeId="1" AcceptedAnswerId="10163" CreationDate="2016-01-11T05:25:24.823" Score="2" ViewCount="270" Body="&lt;p&gt;I understand what 'utility' mean in economics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;While reading &quot;Choices, Values, and Frames&quot; by Daniel Kahneman I encountered above usage. I guess it means 'what utility is attributed to'. Google showed that this usage is common in economics literature, but I couldn't find a definition or an explanation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is the definition, if there is one? And if not, how best to interpret this phrase?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Edit) Examples:&#xA;From above book (p-xii):&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;The proposition that the carriers of utility are states of wealth is accepted as a matter of course in economic analyses and in the prescriptions of decision analysis.&lt;/li&gt;&#xA;&lt;li&gt;The idea that the effective carriers of utility are gains and losses was not now.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;In &quot;Decision, Probability and Utility: Selected Readings&quot; by Peter Gärdenfors and Nils-Eric Sahlin:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;As regards the conceptualization of utility, a fundamental question is what kids of entities can be assigned utilities. Or in other words, what are the carriers of utility? ...&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="6924" LastEditorUserId="6924" LastEditDate="2016-01-12T04:16:01.770" LastActivityDate="2016-01-12T04:16:01.770" Title="What exactly does &quot;carriers of utility&quot; mean?" Tags="&lt;utility&gt;&lt;behavioral-economics&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10155" PostTypeId="1" CreationDate="2016-01-11T06:09:23.003" Score="1" ViewCount="103" Body="&lt;p&gt;The usual GDP formula is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$GDP = C + I + G + (X-M)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But suppose I am a company and I produce some goods $q$ which I sell at a price $p$. Suppose also I don't know how much of the units actually get sold. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;How do I include this information into the GDP equation? &lt;/p&gt;&#xA;" OwnerUserId="2679" LastActivityDate="2016-01-11T11:29:06.600" Title="How does what companies produce and sell factor in GDP?" Tags="&lt;macroeconomics&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10156" PostTypeId="2" ParentId="10148" CreationDate="2016-01-11T07:04:00.823" Score="1" Body="&lt;p&gt;In economics, a firm wants to maximize profit. Your ice cream shop has some costs that vary depending on how many half-gallon ice cream packages are made, and some benefits, the revenue from selling ice cream. The additional cost of making one more package of ice cream is called the marginal cost, and it can change based on how much ice cream you are already making. The marginal benefit of course the price that you sell each package for.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In order to maximize profit, you have to choose some quantity of ice cream packages to produce. You do this by setting marginal cost equal to marginal benefit, and then solving for production. So if you have a formula for what the price of ice cream will be over time, then you can predict your marginal benefit  of production over time, and can anticipate what your production will look like in the future.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2016-01-11T07:04:00.823" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10157" PostTypeId="2" ParentId="10155" CreationDate="2016-01-11T07:18:19.047" Score="2" Body="&lt;p&gt;This formula of GDP is an &lt;em&gt;expenditure approach&lt;/em&gt;, which classify the country's output by category of final consumers. Therefore, you should determine who demands your product (ie who spends money to purchase your production): If $q_C$ is consumed by households, $q_I$ by firms, $q_G$ by the Government and $q_X$ is exported, then your new GDP is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ GDP' = C \times p\cdot q_C + I\times p\cdot q_I + G\times p\cdot q_G + ( X\times p\cdot q_X - M) $$&lt;/p&gt;&#xA;" OwnerUserId="6820" LastEditorUserId="6820" LastEditDate="2016-01-11T07:41:52.567" LastActivityDate="2016-01-11T07:41:52.567" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="10158" PostTypeId="2" ParentId="10155" CreationDate="2016-01-11T11:29:06.600" Score="1" Body="&lt;p&gt;Figures for GDP are obtained from final accounts of companies. It is not simple as Hector suggested to obtain the final figure. You will have aggregate values of production and sales. See the &lt;a href=&quot;http://www.ons.gov.uk/ons/datasets-and-tables/index.html&quot; rel=&quot;nofollow&quot;&gt;this link&lt;/a&gt; and browse through for more info. &lt;a href=&quot;http://Output%20Measures:%20UK%20National%20Accounts&quot; rel=&quot;nofollow&quot;&gt;This link&lt;/a&gt; gives you output measures.&lt;/p&gt;&#xA;" OwnerUserId="6009" LastActivityDate="2016-01-11T11:29:06.600" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10159" PostTypeId="2" ParentId="9741" CreationDate="2016-01-11T12:26:21.537" Score="1" Body="&lt;p&gt;Public sector has different features than private sector. In particular, private sector is very much focused on limiting costs, because it is supposed to generate profits and is held accountable for this by the shareholders who have means to exercise direct pressure.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A government isn't really accountable to anybody. Politically speaking, it is accountable to the citizen of course, but national accounting and public budgets are such complex things that citizen do not exercise a high pressure on the government. Moreover, the government doesn't seek profit maximization but utility maximization, sometimes with moderate focus on the costs. Running a deficit can even be seen as a positive argument by the electorate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, one of the most prominent factor is historical: public sector employees have long had high benefits, sometimes to limit bribery, by cronyism or just because they were in a position to grant themselves such benefits (refer to the wages of the Greek MPs). And it is a very difficult task to take back this benefits without strong reticence, strikes and other forms of protests.&lt;/p&gt;&#xA;" OwnerUserId="6820" LastActivityDate="2016-01-11T12:26:21.537" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10160" PostTypeId="2" ParentId="9741" CreationDate="2016-01-11T13:55:05.250" Score="3" Body="&lt;p&gt;I'll describe in turn five potential explainations:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Risk aversion interacting with the tax code&lt;/li&gt;&#xA;&lt;li&gt;Is this true when we control for worker attributes?&lt;/li&gt;&#xA;&lt;li&gt;Lack of incentives for cost control&lt;/li&gt;&#xA;&lt;li&gt;Solving turnover, training and other HR problems&lt;/li&gt;&#xA;&lt;li&gt;Political economy: unions and politicians&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;h1&gt;Risk aversion interacting with the tax code&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;I've heard it argued (but not empirically substantiated) that because government positions generally offer very low risk of job loss they attract risk adverse people. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;All other things equal, relatively risk adverse people like relatively generous insurance and have a greater precautionary savings motive against negative shocks. Because retirement savings, health insurance, and to a lesser extent, life insurance have tax advantages when purchased through the employer, this risk aversion would interact with the tax advantage to induce a high level of retirement savings, health, and life insurance. Disability insurance is not tax advantaged, but employer-run plans do help solve some of the adverse selection problems associated with stand alone disability plans and so they too have an incentive to be employer provided and more generous in government positions for similar reasons. &lt;/p&gt;&#xA;&#xA;&lt;h1&gt;Is this true when we control for worker attributes?&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;That all said, I'll echo @rocinante's point that among some sub-populations of workers, it isn't clear that government benefits are particularly extensive. My reading of the &lt;em&gt;Are government employees overpaid?&lt;/em&gt; literature is that highly educated or skilled government workers do not typically appear overpaid (in a Mincer regression residual sense) relative to their private sector counterparts, and this includes measures of income and benefits. And elite financial and IT firms are often famous for their lavish benefits of meals, profit sharing, and low cost health care. However, part of the story there is that wages are higher in those fields and benefits are generally increasing in wages (if only because so are the tax advantages). It may be surprising to hear this but &lt;a href=&quot;https://www.fas.org/sgp/crs/misc/R41897.pdf&quot; rel=&quot;nofollow&quot;&gt;the average education and age of a public sector worker is substantially higher than in the private sector&lt;/a&gt;, explaining some of the higher wages and higher benefits. &lt;/p&gt;&#xA;&#xA;&lt;h1&gt;Lack of incentives for cost control&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;So while it may well be true that, as @kbelder says, public sector employers have less of an incentive to hold down benefits, they have less of an incentive to hold down wages too, at least in conventional wisdom government employee benefits are more different from private sector benefits than the wages are, so that leaves us with a remaining puzzle beyond poor cost containment incentives. &lt;/p&gt;&#xA;&#xA;&lt;h1&gt;Solving turnover, training and other HR problems&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;@rocinante's point about turnover is also a good one. We can think of the employee-employer relation as a sort of investment that pays returns while employment persists. Any situation where the initial employer investment (e.g., in training, background checks, customized equipment) is large relative to the immediate payout is one in which the employer is going to want to incentivise the employee to stick around until that investment is repaid. Pensions, which back-load compensation have a powerful incentivizing effect towards retaining staff under these circumstances. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Similarly, when positions require idiosyncratic human capital (extensive expertise and training not useful for other employers), this makes the employee strongly value continuing the employee relationship, and if government employers particularly require this sort of expertise (say maintaining ICBMs) then employment protection benefits may be another efficient way to attract staff without paying higher wages. &lt;/p&gt;&#xA;&#xA;&lt;h1&gt;Political economy: unions and politicians&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;Finally, two more reasons from a political economy angle. First, unions may not just get better benefits because they have more power and influence but also because the people who run unions wish greater power and influence. To those ends, higher wages give them less than retirement and benefits programs which require wealth and staffing to be run by the union. Second, benefits, particularly defined benefit pensions, can be opaque in their true costs. Since politicians have to answer in elections to the public, HR strategies that please government employees (like high defined benefit pensions) but appear to be low cost to the public (again like high defined benefit pensions) therefore are relatively attractive to the politicians that administer the government. &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2016-01-12T16:05:57.500" LastActivityDate="2016-01-12T16:05:57.500" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="10162" PostTypeId="1" CreationDate="2016-01-11T19:08:35.443" Score="-3" ViewCount="148" Body="&lt;p&gt;This image has been doing the rounds on facebook:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/CqtjW.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/CqtjW.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Funny arithmetic error aside, what would be some of the effects of giving everyone in the United States \$4.33 million dollars each?&lt;/p&gt;&#xA;" OwnerUserId="6929" LastEditorUserId="96" LastEditDate="2016-01-12T19:44:10.690" LastActivityDate="2016-01-12T22:48:57.597" Title="Effects of giving everyone in the US \$4.33 million dollars each?" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;" AnswerCount="2" CommentCount="6" ClosedDate="2016-01-13T00:39:24.257" ContentLicense="CC BY-SA 3.0" />
  <row Id="10163" PostTypeId="2" ParentId="10154" CreationDate="2016-01-11T20:02:22.293" Score="1" Body="&lt;p&gt;This expression is used for the arguments of the utility function, that is, for the objects the agent &quot;cares about&quot;. In the canonical model, the only carrier of utility is wealth, but in behavioral economics a lot of things can be considered (beliefs, wealth compared to a reference point, ...).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For instance, saying that the carrier of utility for John is the difference between John's wealth and Lisa's wealth means that the utility function of John is of the form $u(x-y)$ where $x$ is John's wealth and $y$ is Lisa's wealth. It is another way of saying that the only thing that matters to John is his relative wealth compared to Lisa, and not his absolute wealth.&lt;/p&gt;&#xA;" OwnerUserId="4667" LastActivityDate="2016-01-11T20:02:22.293" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10164" PostTypeId="1" AcceptedAnswerId="10711" CreationDate="2016-01-11T20:05:36.343" Score="1" ViewCount="2192" Body="&lt;p&gt;Now, this seems a super easy and straightforward question, right? From wikipedia: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The demand curve is the graph depicting the relationship between the price of a certain commodity and the amount of it that consumers are willing and able to purchase at that given price. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;To me, this reads as follows: for an individual, the demand function answers, for all values of $p$, the question: &quot;if the price is $p$ per unit, how many units $q(p)$ would the individual buy?&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As an example, let's consider my personal demand curve $q = 10-p$ for a certain good. I would interpret that, also with the above definition, as follows: if the price is 10/unit or more, I purchase nothing. If it is 7/unit, I'll purchase 3 units. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The big point here is that this seems to imply, that I'd pay 7/unit for &lt;em&gt;each&lt;/em&gt; of the 3 units. &lt;strong&gt;Is that correct?&lt;/strong&gt; Things would be different if I were faced with a situation in which I had to pay more for the first 2 units. In that case, I might decide to buy less than 3 units. And I wouldn't be contradicting my demand function. At least, not, if it were as I interpreted the definition.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Alternative: it seems less close to the text, yet much more convenient to the mathematics, to interpret the demand function in the following way. The demand function answers, for all values of $q$, the question: &quot;if an individual already has $q-1$ units, how much would he be willing to pay for unit $q(p)$?&quot; (or, as an integral, &quot;if an individual already has an amount $q$, how much would $p(q)$ be, with $p(q)dq$ the amount he's willing to pay for an additional amount $dq$?&quot;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks! &lt;/p&gt;&#xA;" OwnerUserId="6928" LastActivityDate="2016-02-16T21:28:13.677" Title="What does an individual's demand function describe?" Tags="&lt;supply-and-demand&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10165" PostTypeId="1" AcceptedAnswerId="10310" CreationDate="2016-01-11T20:16:19.087" Score="4" ViewCount="117" Body="&lt;p&gt;The full paper can be found here: &lt;a href=&quot;http://www.dklevine.com/archive/refs4397.pdf&quot; rel=&quot;noreferrer&quot;&gt;http://www.dklevine.com/archive/refs4397.pdf&lt;/a&gt;. I refer here to the Lemma 2 in page 557.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My doubt is regarding the first statement of the proof: &quot;Because reaction functions are nonincreasing and $0$ is a realization of $R^1(q)$, firm 1 must react to any quantity above $q$ by setting $0$ with probability $1$&quot;. Why is that so? If $0$ is a &lt;em&gt;possible&lt;/em&gt; realization of $R^1(q)$ (if I understood correctly what the authors mean by &lt;em&gt;realization&lt;/em&gt; -- since the reaction functions can be understood as random variables --, and maybe that is where I am troubled), what guarantees the fact that &lt;em&gt;any&lt;/em&gt; small quantity above $q$ will make firm 1 set its reaction function equal $0$?   &lt;/p&gt;&#xA;" OwnerUserId="4640" LastActivityDate="2016-01-20T20:15:15.580" Title="Lemma 2 in Tirole and Maskin's Dynamic Oligpoly I (1988)" Tags="&lt;game-theory&gt;&lt;industrial-organisation&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="10166" PostTypeId="2" ParentId="10164" CreationDate="2016-01-11T20:23:08.327" Score="0" Body="&lt;p&gt;Your analysis of what demand curve represents is correct. Your confusion comes from the overly simplistic demand function that you chose. A &quot;true&quot; demand function would rather look like this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/6R1bj.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/6R1bj.png&quot; alt=&quot;Demand Curve&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your equation is sufficient to study what happens in the middle of the curve, but not on the tails.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The upper tails has such form that you would actually purchase some units even if price goes up a lot. But the more it goes up, the less your demanded quantity changes. That is because the product has some utility to you, so you are willing to pay a relatively high price for one unit of it. But then, the lower the price, the more you could buy. But the more units you buy, the fewer utility it brings to you. While you might really enjoy eating an apple, I bet that the 100th will not taste as great as the first one, and you might be disgusted. That's why the curve does not go to infinity when the price is zero. Reaching a certain point, your demand for apple doesn't grow anymore.&lt;/p&gt;&#xA;" OwnerUserId="6820" LastActivityDate="2016-01-11T20:23:08.327" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="10167" PostTypeId="1" CreationDate="2016-01-11T22:23:47.233" Score="1" ViewCount="1028" Body="&lt;p&gt;More of a two part question. In the current system (Fiat only currency), why is a Federal Reserve Note booked as a liability (on the Fed balance sheet), but a Coin is not booked as a liability by the Treasury? What is the difference? What liability does the Fed have since it doesn't actually have to redeem the notes for anything (other than another note?)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, what does it mean to say that the notes are 'obligations' of the US Government?&lt;/p&gt;&#xA;" OwnerUserId="6936" LastActivityDate="2016-02-12T00:01:28.910" Title="Federal Reserve Notes vs Coins" Tags="&lt;currency&gt;&lt;federal-reserve&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10168" PostTypeId="1" AcceptedAnswerId="11060" CreationDate="2016-01-11T23:50:59.187" Score="6" ViewCount="217" Body="&lt;p&gt;What is &quot;Islamic banking,&quot; and how is it similar to and different from banking as it occurs in the U.S.?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have heard Shariah Law prohibits usury, the taking of interest on loans. How do Muslim bankers justify the prohibition of interest? Are there any prominent Muslim economists, contemporary or older, who justify their prohibition of interest not only from a religious perspective?&lt;/p&gt;&#xA;" OwnerUserId="4101" LastActivityDate="2016-03-11T18:42:49.660" Title="What is Islamic Banking?" Tags="&lt;interest-rate&gt;&lt;banking&gt;&lt;history&gt;&lt;history-economic-thought&gt;" AnswerCount="3" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10170" PostTypeId="1" CreationDate="2016-01-12T04:35:44.980" Score="1" ViewCount="61" Body="&lt;p&gt;In this paper, Stiglitz gives a verbal argument as follows:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Let  us  consider  verbally  what  actions  of the  individuals  are required  to  offset  various  actions  by  the  firm.  Assume  the  firm decreases  its  dividend  payout  ratio.  This means  that  it  has  more  retained  earnings, &#xA;  so,  if  the  two  basic  financial  accounting identities  are to  be  satisfied,  either  it  must borrow  less  (perhaps  it  even  lends)  or &#xA;  issue fewer new shares. To  make  up for the loss  in  dividends,  i.e.,  to  keep  the  same consumption  path,  individuals  buy  fewer new  shares  in  the  firm  or  buy  fewer  new bonds.  Assume  the  firm  simply  issued fewer  shares.  In  one  case,  the  value  of  the equity  grew because  of issuing  new  shares, in  the  other  case,  the  value  of  the  equity &#xA;  grew  because  of  retained  earnings.  From the  point  of  view  of  the  stockholders,  the two  are perfectly  equivalent.  This  change in  dividend  pay-out  ratio  thus  leaves  the debt-equity  ratio  unchanged. On the  other &#xA;  hand,  if  the  firm  decreases  the  number  of bonds  issued,  it  will  lead  to  a lower  debt-equity  ratio.  &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I could understand the logic up to this point. But I don't seem to get what follows:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Then  individuals  borrow  on their  own  account.  One  can  think  of  it  as if  the  individual  takes  the  proceeds  of  the loan  to  purchase  the  increased  equity  in the  firm  (since  the  two  are  exactly  equal, this  is only  a convenient  way  of looking  at it;  since  all  funds  are fungible,  there  is  no real  connection  between  the  two).  The increased  borrowing  by  individuals  exactly  offsets  the  decreased  borrowing  by firms  so  markets  continue  to  clear.  Similarly,  if  the  firm  decides  to  issue  more three-year  bonds  and  fewer  five-year bonds,  the  individual  can  undertake  exactly  offsetting  actions  in  his  own  portfolio. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Dividend get reduced, the planned consumption is reduced at that period. The investor wants consumption, what the investor does is to borrow from from the market for the consumption. But why can this be viewed as the individual takes the proceeds of the loan to purchase the increased equity in the firm?&lt;/p&gt;&#xA;" OwnerUserId="4065" LastActivityDate="2016-01-12T04:35:44.980" Title="Stiglitz 1976 on irrelevance of corporate financial policy" Tags="&lt;microeconomics&gt;&lt;finance&gt;&lt;corporate-finance&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10171" PostTypeId="1" CreationDate="2016-01-12T05:03:23.873" Score="2" ViewCount="332" Body="&lt;p&gt;I have never used FRED before. &lt;strong&gt;I need to locate the annual growth rate in Real GDP&lt;/strong&gt; to do some data analysis for my intro macro class. The TA and the Prof were utterly unhelpful and I'm frankly lost. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Specifically, I think I am supposed to use this site: &#xA;&lt;a href=&quot;https://research.stlouisfed.org/fred2/series/A191RL1Q225SBEA&quot; rel=&quot;nofollow&quot;&gt;https://research.stlouisfed.org/fred2/series/A191RL1Q225SBEA&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you click on Graph tab, I can adjust the data present. However, there are a bunch of options and I can't tell which one I need. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;MY QUESTION&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(1) Am I looking in the right spot on FRED for the aforementioned information I'm interested in?&#xA;(2) If I am in the right spot, which version of the data do I want? Do I want &quot;Percent change from preceding period&quot; or &quot;Percent change from year ago&quot; for example. Also, what aggregation method. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I googled this terms to no avail. &lt;/p&gt;&#xA;" OwnerUserId="2679" LastEditorUserId="2679" LastEditDate="2016-01-12T05:11:56.697" LastActivityDate="2016-05-06T00:55:45.053" Title="Where do I find the US GDP growth on FRED?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="2" ClosedDate="2016-05-08T08:20:00.577" ContentLicense="CC BY-SA 3.0" />
  <row Id="10172" PostTypeId="1" AcceptedAnswerId="10173" CreationDate="2016-01-12T05:23:57.797" Score="0" ViewCount="287" Body="&lt;p&gt;I need a text book for mathematical economics with real world examples. Currently I'm using A.C Chiang (very good) and Henderson and Quandt ( not the best book for matheco). Can someone recommend any others ?&lt;/p&gt;&#xA;" OwnerUserId="6892" LastActivityDate="2016-01-12T09:06:30.700" Title="Text book for mathematical economics?" Tags="&lt;mathematical-economics&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10173" PostTypeId="2" ParentId="10172" CreationDate="2016-01-12T09:06:30.700" Score="3" Body="&lt;p&gt;Chiang is probably the best you can find, but you might try Takayama - Mathematical Economics or Simon and Blume - Mathematics for Economists.&lt;/p&gt;&#xA;" OwnerUserId="5512" LastActivityDate="2016-01-12T09:06:30.700" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10175" PostTypeId="2" ParentId="10162" CreationDate="2016-01-12T18:20:02.467" Score="-2" Body="&lt;p&gt;Severe inflation for a while. Then, back to normal.&lt;/p&gt;&#xA;" OwnerUserId="8360" LastActivityDate="2016-01-12T18:20:02.467" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10176" PostTypeId="2" ParentId="9741" CreationDate="2016-01-12T18:22:07.167" Score="-1" Body="&lt;p&gt;Private companies are usually too small to promise the kind of long term pension systems that the government offwrs. &lt;/p&gt;&#xA;" OwnerUserId="8360" LastActivityDate="2016-01-12T18:22:07.167" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10177" PostTypeId="2" ParentId="10168" CreationDate="2016-01-12T18:24:15.933" Score="1" Body="&lt;p&gt;Usually it involves interest fee loans covered by a fee. Some islamic banks ignore the prohibition on interest entirely and call themselves islamic for other reasons.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.m.wikipedia.org/wiki/Islamic_banking_and_finance&quot; rel=&quot;nofollow&quot;&gt;https://en.m.wikipedia.org/wiki/Islamic_banking_and_finance&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="8360" LastActivityDate="2016-01-12T18:24:15.933" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10179" PostTypeId="2" ParentId="10020" CreationDate="2016-01-12T18:35:30.327" Score="0" Body="&lt;p&gt;The price elasticity is the derivative of the demand for each good over price. Demand is lcons * (wi) for each wi.&lt;/p&gt;&#xA;" OwnerUserId="8360" LastActivityDate="2016-01-12T18:35:30.327" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10180" PostTypeId="1" AcceptedAnswerId="10183" CreationDate="2016-01-12T20:06:58.067" Score="3" ViewCount="1709" Body="&lt;p&gt;I have been given the following setup:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ Y=K^\theta (AL)^{1-\theta }$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where Y = Output, K = Capital, L = Labour and A = Productivity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{\dot{L}}{L} = n $$&#xA;$$ \frac{\dot{A}}{A} = g $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Capital Accumulation Equation has also been given as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \dot{K} = sY - \delta K $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Using this, I have calculated expressions for capital per worker and output per worker in the steady state as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{K}{L} = A(\frac{s}{n+g+\delta })^{\frac{1}{1-\theta }} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{Y}{L} = A(\frac{s}{n+g+\delta })^{\frac{\theta }{1-\theta }} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The next questions asks: &lt;strong&gt;Calculate the growth rates of capital per worker and output per worker that will hold as the economy moves along a steady state growth path.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is confusing because I was under the impression that growth of capital and labour is the steady state is 0, and then therefore growth of K/L and Y/L should also be 0. However this seems wrong and I believe the answer should be g. Can anyone help please?&lt;/p&gt;&#xA;" OwnerUserId="5585" LastActivityDate="2016-01-12T22:46:14.377" Title="Solow Model, Growth rate of K/L and Y/L in steady state" Tags="&lt;economic-growth&gt;&lt;production-function&gt;&lt;capital-returns&gt;&lt;steady-state&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10182" PostTypeId="2" ParentId="10136" CreationDate="2016-01-12T20:42:04.980" Score="4" Body="&lt;p&gt;A thing that bothers me here is the following: the Incentive Compatibility constraint is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$IC: w'p(a') + w(1-p(a')) - 1 \geq w'p(a) + w(1-p(a))$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies w'-w \geq \frac {1}{p(a')-p(a)}  \tag{1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;...since by assumption $p(a')-p(a) &amp;gt;0$. We are told that we should find that at the optimum, &#xA;$$x'-w' = x-w \implies x'-x = w'-w \tag{2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Combining $(1)$ and $(2)$, if indeed this is the optimum under the given constraints, we must also have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$x'-x \geq \frac {1}{p(a')-p(a)} \tag{3}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But this is an additional, &lt;em&gt;necessary&lt;/em&gt; constraint on a priori magnitudes, that must hold if the postulated optimal solution is to be admissible. Even if indeed such a constraint is assumed, in any case, it visibly reduces the generality of the problem (which purports to show something general, i.e. how the risk-neutrality of the agent affects the solution). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Nevertheless, let's work this a bit more formally. I will assume that $w, w'$ can be zero, but not negative. This is a maximization problem in normal form with inequality constraints, non-negative decision variables and non-negative multipliers. The full Lagrangean of the problem therefore is (I will compact notation in an obvious way),&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Lambda =  u(x'-w')p' + u(x-w)(1-p') + \lambda\cdot [w'p' + w(1-p') - 1 ]\\ + \mu \cdot [ w'p' + w(1-p') - 1 - w'p - w(1-p)] + \xi w + \xi' w'$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The essential first order conditions are&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\partial \Lambda}{\partial w} \leq 0, \;\;\frac {\partial \Lambda}{\partial w} \cdot w = 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and analogously for $w'$. These result in&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\partial \Lambda}{\partial w} = -u'(x-w)(1-p') +\lambda (1-p') - \mu (p'-p) + \xi \leq 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies u'(x-w)(1-p') \geq \lambda (1-p') - \mu (p'-p) + \xi $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies u'(x-w) \geq \lambda - \mu \frac {p'-p}{1-p'} + \frac {\xi}{1-p'} \tag{4}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\partial \Lambda}{\partial w'} = -u'(x'-w')p' +\lambda p' + \mu (p'-p) + \xi' \leq 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies u'(x'-w') \geq \lambda + \mu\frac {p'-p}{1-p'} + \frac {\xi'}{p'} \tag{5}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First note that not both wages can be zero, because the constraints would be violated. Given this, consider the possibility that the $IR$ is binding (so $\lambda &amp;gt;0$). If it is binding, then with not both wages zero, the $IC$ constraint will necessarily be violated. So we conclude that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\lambda_* = 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and the first-order conditions now become&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$u'(x-w) \geq  - \mu \frac {p'-p}{1-p'} + \frac {\xi}{1-p'} \tag {4a}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ u'(x'-w') \geq  \mu \frac{p'-p}{1-p'} + \frac {\xi'}{p'} \tag{5a}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now note that if $\xi =0$ (i.e. $w &amp;gt;0$) then $(4a)$ should hold as an equality and with the last term on the right equal to zero. But this would require negative marginal utility which is inadmissible. We also know that not both wages can be zero. So we conclude that we must have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\xi_* &amp;gt; 0 , w_*=0,\;\;\; \xi'_* = 0,\; w'_* &amp;gt;0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and the conditions now become&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$u'(x) \geq  - \mu \frac {p'-p}{1-p'} + \frac {\xi_*}{1-p'} \tag {4b}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ u'(x'-w') =  \mu \frac{p'-p}{1-p'}  \tag{5b}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Eq. $(5b)$ implies that $\mu_*&amp;gt;0$ , under a usual utility function specification, which does not give zero marginal utility except at infinity. This in turn means that the $IC$ constraint should hold as an equality. Given that $w_*=0$ this gives&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$IC:  w'p'  - 1 - w'p =0 \implies = w'_* = \frac 1{p'-p} \tag{6}$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This should ring a bell, because the right-hand-side of $(6)$ is the same as the right-hand-sides of $(1)$ and $(3)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Namely, &lt;em&gt;if&lt;/em&gt; we are assuming a priori that $x'-x = \frac 1{p'-p}$, &lt;em&gt;then&lt;/em&gt; the solution we have arrived at validates the claim $x'-w'_* = x-w_*$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Under this additional assumption, we also obtain&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$u'(x) \geq  - \mu_* \frac {p'-p}{1-p'} + \frac {\xi_*}{1-p'} \tag {4c}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ u'(x) =  \mu_* \frac{p'-p}{1-p'}  \tag{5c}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Combining, we obtain&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \mu \frac{p'-p}{1-p'} \geq - \mu \frac {p'-p}{1-p'} + \frac {\xi_*}{1-p'}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies \mu_* \geq \frac {\xi_*}{2(p'-p)} \tag{7}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is &lt;em&gt;admissible&lt;/em&gt;. So under $x'-x = \frac 1{p'-p}$, we obtain the solution &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\left \{w'_* = x'-x = 1/(p'-p), w_* =0, \lambda_*=0, \mu_* \geq \frac {\xi_*}{2(p'-p)}, \xi_* &amp;gt;0, \xi'_* =0\right\}$$&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2016-01-12T20:42:04.980" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10183" PostTypeId="2" ParentId="10180" CreationDate="2016-01-12T22:46:14.377" Score="3" Body="&lt;p&gt;If $Y = C \cdot X$ where $C$ is constant and $\frac{\dot{X}}{X} = g$ then we can solve for $\frac{\dot{Y}}{Y}$ as follows:&#xA;$$ \frac{d}{dt} Y = \frac{d}{dt} C \cdot X = C \cdot \frac{dX}{dt} = C \cdot \dot{X} \Rightarrow$$&#xA;$$ \frac{\dot{Y}}{Y} = \frac{C \cdot \dot{X}}{ C \cdot X} = \frac{\dot{X}}{X} = g$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, as you concluded, they both grow at rate $g$.&lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2016-01-12T22:46:14.377" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10184" PostTypeId="2" ParentId="10162" CreationDate="2016-01-12T22:48:57.597" Score="1" Body="&lt;p&gt;It is actually an interesting question.  There would be momentary inflation but not in the long run as open market operations from the Federal Reserve would vacuum up most of the new money.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Aside from that, this would be a form of wealth redistribution. Adding 4.3 million to each person's bank account does not effect all equally, because those that already have big bank accounts would be hurt more.  It would transfer wealth from the rich to the poor.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lastly, it would have an effect outside of the US.  Many foreigners hold dollars and dollar denominated securities and if they didn't get this distribution then they would be hurt as well (but Americans would be helped).&lt;/p&gt;&#xA;" OwnerUserId="6479" LastActivityDate="2016-01-12T22:48:57.597" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10185" PostTypeId="1" CreationDate="2016-01-12T23:02:46.930" Score="0" ViewCount="3175" Body="&lt;p&gt;In the classic form of the Solow Model:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ Y=K^\alpha (AL)^{1-\alpha } $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Describe circumstances in which the marginal product of capital could rise over time, at least for a temporary period.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've calculated:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ MPK = \frac{dY}{dK} = \alpha K^{\alpha -1}(AL)^{1-\alpha } $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The thing is, I thought one basic assumptions of the Solow Model was diminishing marginal returns, so how could there ever be a case when MPK is increasing?&lt;/p&gt;&#xA;" OwnerUserId="5585" LastActivityDate="2016-01-13T09:52:45.040" Title="Marginal Product of Capital in the Solow Model" Tags="&lt;production-function&gt;&lt;capital-returns&gt;&lt;cobb-douglas&gt;&lt;steady-state&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10186" PostTypeId="2" ParentId="10167" CreationDate="2016-01-12T23:10:11.617" Score="1" Body="&lt;p&gt;The referenced link from money.stackexchange.com with the top accepted answer is incorrect.  It states: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;Coins are assets because its the actual money. Notes are liabilities because the Federal Reserve is obligated to pay money on these notes.&quot;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Federal reserve is not obligated to pay money on the monetary base it creates and there is no objective financial difference between coins being real money and federal reserve notes being real money.  They are both real money for all practical purposes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let me take a stab at the initial question.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Yes, Federal Reserve Notes are a liability to the Federal Reserve (as are electronic federal reserve dollars).  It doesn't really need to be done like this.  It's actually a holdover from when the US was on a partial gold standard.  The central bank would hold gold deposits and in turn issue notes (dollar bills) which were redemption slips for those gold deposits.  Because the central bank had to redeem dollar bills with gold, this is why it was classified as a liability.  The US went off the gold standard twice (once under FDR to the public and later under Nixon for foriegners).  When this happened, dollars were no longer true liabilities.  But this history is why you see federal reserve notes (and federal reserve deposits which are electronic dollars) still classified as liabilities.  And coinage is considered an asset to the Fed which they purchase from the treasury.  You will still see some gold as an asset on the Fed balancesheet as a holdover from these times.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Federal Reserve does not have a monopoly on creating the monetary base.  The treasury can also create base money by creating coins and US Notes (which are not Federal Reserve notes). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The treasury does not consider the coin as a liability because it truly is not one (just as the dollar bill in a modern sense is not one to the Fed). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Looking at a balance sheet, you could almost argue that base money is a liability because it appears to be balanced by assets on the balance sheet.  But this is not the case.  It is an accounting illusion. If the Fed were to withdraw all their &quot;liabilities&quot; there wouldn't be any money in the system (outside of coins and notes of course).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reference to the obligation on Federal Reserve Notes is an antiquated holdover from the gold standard era.  It is quite meaningless now.  The Fed will exchange if demanded electronic dollars for paper dollars, vice versa or will buy/sell coinage as required by the banks.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Coinage is not an obligation to the treasury, neither are US notes.  The treasury will certainly repair damaged coins, but that is not to say that the coins themselves are true liabilities or obligations.&lt;/p&gt;&#xA;" OwnerUserId="6479" LastActivityDate="2016-01-12T23:10:11.617" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="10188" PostTypeId="1" AcceptedAnswerId="10206" CreationDate="2016-01-13T03:49:47.037" Score="1" ViewCount="129" Body="&lt;p&gt;If I have two products $x$ and $y$ and two users $A$ and $B$ whose utility functions for those products $u$ and $w$ are inversely proportional, would it be ok to express this relationship as: $u(x,y) = w^{-1}(x,y)$? Thanks.&lt;/p&gt;&#xA;" OwnerUserId="6770" LastActivityDate="2016-01-13T23:05:55.090" Title="inversely proportional utility functions" Tags="&lt;microeconomics&gt;&lt;utility&gt;" AnswerCount="1" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="10190" PostTypeId="2" ParentId="10185" CreationDate="2016-01-13T06:40:39.067" Score="3" Body="&lt;p&gt;According to your calculations MPK is not increasing in $K$. The Solow model assumes $0&amp;lt; \alpha &amp;lt; 1$, thus $\alpha - 1 &amp;lt; 0$ and $K^{\alpha - 1}$ is decreasing in $K$.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2016-01-13T06:40:39.067" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10191" PostTypeId="1" CreationDate="2016-01-13T07:53:51.470" Score="2" ViewCount="38" Body="&lt;p&gt;I generally see the wealth of Rockefeller and Carnegie variously estimated between \$150 billion and $400 billion when translated into modern terms.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, when only taking inflation into account, as does a biography of Rockefeller I've been reading lately, their wealth comes out at just a few billion in modern terms, nowhere near the scale the fortunes of today's richest. This seems like some sort of miscalculation, since the scale of their philanthropy and expenditures suggests a far greater heap of funds.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The estimates placing their wealth in the hundreds of billions seem to have reached their conclusion by looking at the moguls' net worth as a percentage of GDP at the time, and calculating how much they'd have to have nowadays to achieve the same percentage.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this an accurate way of thinking of it? Does the growth of the country's economy in the past 100+ years necessitate doing more than just accounting for inflation when looking at such fortunes?&lt;/p&gt;&#xA;" OwnerUserId="6951" LastEditorUserId="6951" LastEditDate="2016-01-13T15:28:46.173" LastActivityDate="2016-01-13T15:28:46.173" Title="When considering the wealth of the 19th century American moguls, is it more correct to think in terms of inflation or percentage of GDP?" Tags="&lt;inflation&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10192" PostTypeId="1" CreationDate="2016-01-13T08:01:33.267" Score="3" ViewCount="676" Body="&lt;p&gt;There are several possible scenarios involving changes in supply and demand that people are supposed to memorize in AS Economics. For example, &lt;em&gt;when Either Demand OR Supply Move on Their Own&lt;/em&gt;:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;strong&gt;Rising Demand&lt;/strong&gt; - Increase in Qty - Increase in Price&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;Falling Demand&lt;/strong&gt; - Decrease in Qty - Decrease in Price&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;While price is pretty self explanatory in every situation, I have yet to fully understand what &quot;Quantity&quot; represents. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;What does &lt;em&gt;Quantity&lt;/em&gt; mean in these examples?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does it mean &quot;Equilibrium Quantity&quot;? If so, can somebody please explain how the &quot;Quantity Demanded&quot; and &quot;Quantity Supplied&quot; are related to each other, and how the theory behind quantity as a whole relates to/ties in with each of the examples above?&lt;/p&gt;&#xA;" OwnerUserId="6950" LastEditorUserId="43" LastEditDate="2016-01-13T16:11:14.767" LastActivityDate="2016-01-16T23:43:33.787" Title="What Does &quot;Quantity&quot; Represent When Looking at Supply and Demand?" Tags="&lt;supply-and-demand&gt;&lt;competitive-equilibrium&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10193" PostTypeId="2" ParentId="10020" CreationDate="2016-01-13T09:09:26.877" Score="0" Body="&lt;p&gt;In the name of the Stack Exchange's philosophy, I post the answer to my question.&#xA;I found the solution to my problem in the following paper:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Richard Blundell &amp;amp; Alan Duncan &amp;amp; Krishna Pendakur, 1998.&#xA;&quot;Semiparametric estimation and consumer demand,&quot; Journal of Applied Econometrics, John Wiley &amp;amp; Sons, Ltd., vol. 13(5), pages 435-461.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;After doing some algebra, here are the equations:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Income elasticity:&#xA;$$\eta_i=1 + coeff(lcons)$$&#xA;Price elasticity:&#xA;$$ \varepsilon_{ij}=-\eta_i w_j (1+\frac{\eta_i}{\phi})$$&#xA;$$ \varepsilon_{ii}= \eta_i (\phi^-1-w_i(1+\frac{\eta_i}{\phi})$$&#xA;where $\phi=-1.6$ is an exogenous Frisch-parameter.&lt;/p&gt;&#xA;" OwnerUserId="5017" LastActivityDate="2016-01-13T09:09:26.877" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10195" PostTypeId="2" ParentId="10185" CreationDate="2016-01-13T09:52:45.040" Score="1" Body="&lt;p&gt;Normally, in the Solow model, there are not increasing marginal returns because by construction, Solow model assumes that marginal return of capital is decreasing. In fact this feature ensures the catch up between countries? which is the main insight of this model. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is another branch of literature on endogeneous growth models which has taken into account the constant and increasing marginal returns of capital due to different externalities coming from education, infrastructure, accumulation of knowledge etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To reply to your question, technically the marginal return of capital is increasing if you assume $\alpha-1&amp;gt;0$. Because in this case, for each additional unit of capital that you have, the marginal productivity will increase.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the case with decrasing MPK (case with $\alpha-1&amp;lt;0$ ), you will see that when $lim_{k\rightarrow\infty}MPK=0$&lt;/p&gt;&#xA;" OwnerUserId="2938" LastActivityDate="2016-01-13T09:52:45.040" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10198" PostTypeId="2" ParentId="10136" CreationDate="2016-01-13T10:54:16.883" Score="3" Body="&lt;p&gt;This answer shows three things:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;We do not need the Lagrangian approach to solve your maximization problem.&lt;/li&gt;&#xA;&lt;li&gt;We do not need the assumption that $x'-x=\frac{1}{p(a')-p(a)}$ either.&lt;/li&gt;&#xA;&lt;li&gt;The condition $x'-w'=x-w$ is not necessarily satisfied for the optimal contract.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Fix indeed the payment $w$. The problem can be written&#xA;\begin{equation*}&#xA;\max_{w'}{u(x'-w')p(a')}&#xA;\end{equation*}&#xA;given the constraints&#xA;\begin{align*}&#xA;&amp;amp; w'p(a') \geq 1 - w[1-p(a')] \\&#xA;&amp;amp; w'[p(a')-p(a)] \geq 1+w[p(a')-p(a)]&#xA;\end{align*}&#xA;It is clear that the principal has interest to set the lowest possible value for $w'$ given this set of constraint, since the objective function is decreasing in $w'$. Therefore he will set&#xA;\begin{equation}&#xA;w' = \max\{\frac{1-w[1-p(a')]}{p(a')},\frac{1+w[p(a')-p(a)]}{p(a')-p(a)}\}&#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As @Alecos_Papadopoulos did, it makes sense to assume that the agent is protected by limited liability, i.e. that his payments are nonnegative. Otherwise the problem does not necessarily have a solution: the principal could always benefit from decreasing $w$ and increasing $w'$ so as to keep the individual rationality constraint satisfied. But the contract $(w=-\infty,w'=+\infty)$ is obviously not a satisfactory solution. Therefore I restrict attention to the case where $w \geq 0$ and $w' \geq 0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The condition $w \geq 0$ implies&#xA;\begin{equation*}&#xA;\dfrac{1+w[p(a')-p(a)]}{p(a')-p(a)} \geq \dfrac{1-w[1-p(a')]}{p(a')}&#xA;\end{equation*}&#xA;and therefore&#xA;\begin{equation*}&#xA;w' = \dfrac{1+w[p(a')-p(a)]}{p(a')-p(a)}&#xA;\end{equation*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Plugging this equation into the objective function, the principal's problem becomes&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{equation*}&#xA;\max_{w \geq 0}{u(x'-\frac{1}{p(a')-p(a)}-w)p(a')+u(x-w)(1-p(a'))}&#xA;\end{equation*}&#xA;This objective function is decreasing in $w$. Therefore he simply sets $w=0$ and $w'=\dfrac{1}{p(a')-p(a)}$. As a conclusion, the equality $x'-w'=x-w$ has no reason to be satisfied unless one assumes that $x'-x=\dfrac{1}{p(a')-p(a)}$, i.e. that&#xA;\begin{equation*}&#xA;p(a') x' + (1-p(a'))x -1= p(a)x' + (1-p(a))x&#xA;\end{equation*}&#xA;This latter equation means that the social surplus resulting from $a'$ equals the surplus resulting from $a$: it is a very particular case where the cost of effort for the agent is exactly compensated by the increase in expected output for the principal. In all other cases, we have $x'-w' \ne x-w$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think the reason why the agent does not take on all the risk is because his actions are not observable, and therefore not contractible upon. This property would be true in a risk-sharing economy with unconstrained allocations. But the allocation is here distorted by the need to incentivize the agent to exert a high effort.&lt;/p&gt;&#xA;" OwnerUserId="4667" LastEditorUserId="4667" LastEditDate="2016-01-13T11:04:20.573" LastActivityDate="2016-01-13T11:04:20.573" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="10199" PostTypeId="2" ParentId="10115" CreationDate="2016-01-13T14:11:47.877" Score="5" Body="&lt;p&gt;Following the conversation with user @denesp at the comments of my previous answer, I have to clarify the following: the usual graphical device we use related to the basic Solow growth model (see for example &lt;a href=&quot;http://cruel.org/econthought/essays/growth/neoclass/solowgr.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;, figure 2) is not a phase diagram, since reasonably we call &quot;phase diagrams&quot; those that contain zero-change loci, identify the crossing points of them as fixed points of a dynamical system, and examine their stability properties. And this is not what we do for the Solow model. So it was careless use of terminology from my part.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Nevertheless we can draw a &quot;semi-Phase diagram&quot; for the Solow growth model, in $(y,k)$ space. Understanding the symbols as &quot;per efficiency unit of labor&quot; we have the system of differential equations (while $y=f(k)$)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\dot k = sy - (n+\delta+g)k$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\dot y = f'_k(k)\cdot \dot k$$&#xA;Writing the zero-change equation as a weak inequality to show also the dynamical tendencies, we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\dot k \geq 0 \implies y \geq \frac {n+\delta+g}{s} k$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\dot y \geq 0 \implies \dot k \geq 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So this system gives a &lt;em&gt;single&lt;/em&gt; zero change locus, a straight line. No crossing points to identify a fixed point What can we do? Draw also the production function in the diagram, since, in reality, the $(y,k)$ space is unidimensional, not an area, but a line. Then we get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/i88fC.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/i88fC.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The vertical/horizontal arrows indicating the dynamical tendencies come properly from the weak inequalities above (both $y$ and $k$ tend to grow when above the zero-change locus). Then, since $y$ and $k$ are constrained to move on the dotted line (which is the production function), it follows that they move towards their fixed point, no matter where we start. Here the production function graph represents essentially the path towards long-run equilibrium, since convergence is monotonic.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2016-01-13T14:24:33.007" LastActivityDate="2016-01-13T14:24:33.007" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10201" PostTypeId="1" CreationDate="2016-01-13T18:24:46.600" Score="3" ViewCount="119" Body="&lt;p&gt;In city centres, land is more expensive than in suburban or rural areas, as land is scarce.  Consequentially, housing and parking in cities cost more.  However, the same is not true for using the road (such as driving).  Indeed, if two people are driving into a city (in one car) to run an errand, it will usually be cheaper for one person to drive around in circles while the other runs the errand, than it is to park the car and run the errand together, even in cities with a congestion charge.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is the origin of this discrepancy in pricing?  Is it merely because we haven't implemented road pricing for technical and political reasons, or are there economic reasons that there is no pricing on roads?&lt;/p&gt;&#xA;" OwnerUserId="332" LastEditorUserId="332" LastEditDate="2019-06-12T07:35:24.463" LastActivityDate="2019-06-12T07:35:24.463" Title="Why do housing and parking cost more in urban than in rural areas, but road access doesn't?" Tags="&lt;microeconomics&gt;&lt;game-theory&gt;&lt;utility&gt;&lt;consumer-theory&gt;&lt;asset-pricing&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="10202" PostTypeId="1" CreationDate="2016-01-13T18:33:22.230" Score="7" ViewCount="1032" Body="&lt;p&gt;As an answer to question “&lt;a href=&quot;https://economics.stackexchange.com/questions/5305/seminal-papers-that-later-were-proven-to-contain-errors/5315#5315&quot;&gt;Seminal papers that later were proven to contain errors&lt;/a&gt;”, @&lt;a href=&quot;https://economics.stackexchange.com/users/4193/snoram&quot;&gt;snoram&lt;/a&gt; mentioned Angrist and Krueger (1991), and there use of quarter of birth as an (exogenous) instrument for education.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;@snoram illustrates using (Buckles and Hungerman, 2013) how quarter of birth is in fact correlated with important characteristics of the mother. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a comment, @snoram write:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;“For the record I think Angrist and Krueger's work is amazing, but&#xA;  today we know better than to use quarter of birth (in the us at least&#xA;  and for this purpose) as an instrument. Science advances.”&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My question&lt;/strong&gt; : which variables are know to be better than quarter of birth as instruments for, say, “years of schooling” (or more generally “education”)?&lt;/p&gt;&#xA;" OwnerUserId="38" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2017-05-12T12:29:19.333" Title="Best instruments for &quot;years of schooling&quot;/&quot;education&quot;" Tags="&lt;econometrics&gt;&lt;instrumental-variable&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10205" PostTypeId="2" ParentId="10192" CreationDate="2016-01-13T21:08:34.690" Score="3" Body="&lt;p&gt;Each curve simply shows the amount of goods that producers would supply at given prices and how many units of goods consumers would demand at all the different prices. Let's say the price of wooden chairs would be 5 million Euros. Producers would want to supply a large quantity of wooden chairs, since they're so profitable. Consumers would likely demand very little though. However since no one suppliers want to sell more than people want to buy the price will have to change and will not stay there in equilibrium. We only have an equilibrium when all parties agree, otherwise transactions don't take place. That's one intuitive way of thinking about it if it helps you.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The quantity at which suppliers want to supply exactly as much as consumers demand and consumers want to demand exactly as much as suppliers want to supply is given by the intersection of the two graphs. In this case neither party is unhappy with the outcome (both agree on the quantity to buy and sell). This means we are in equilibrium (i.e. no one wnats to change behavior). That one point is the &lt;strong&gt;equilibrium quantity.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that consumers cannot buy more than producers are willing to sell and vice-versa. If that would be the case, then they would have to change somthing, which means we wouldn't be in equilibrium. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So in short: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;The Demand curve shows the quantity demanded. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The Supply curve shows the quantity supplied.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;For the two curves we have several not easily observed hypothetical quantites. One quantity for each possible price.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The intersection is the observed equilibrium quantity.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="5557" LastEditorUserId="5557" LastEditDate="2016-01-16T23:43:33.787" LastActivityDate="2016-01-16T23:43:33.787" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="10206" PostTypeId="2" ParentId="10188" CreationDate="2016-01-13T23:05:55.090" Score="3" Body="&lt;p&gt;Converting my comment to an answer...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I suppose the expression you wrote is &lt;em&gt;almost&lt;/em&gt; correct, except perhaps for a notational issue. I would write $u(x,y)=[w(x,y)]^{-1}$, because $w^{-1}(x,y)$ is usually used to denote the &lt;strong&gt;pre-image&lt;/strong&gt; of $w(x,y)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;More generally, inverse proportionality between $u$ and $w$ is defined up to a multiplicative constant $K$; that is, $u(x,y)\cdot w(x,y)=K$ for some $K\in\mathbb R$. In the above case, you implicitly assumed $K=1$. So generally, you'd have &#xA;$$&#xA;u(x,y)=K[w(x,y)]^{-1}=\frac{K}{w(x,y)}.&#xA;$$&lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2016-01-13T23:05:55.090" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10207" PostTypeId="1" CreationDate="2016-01-13T23:58:46.843" Score="6" ViewCount="4897" Body="&lt;p&gt;Is there a difference between the meanings of the terms &quot;economies of scale&quot; and &quot;learning curve&quot;? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The term &quot;learning curve&quot; is being used by cost estimators and refers (more or less) to the idea that businesses will have a higher cost per item if they make relatively few products but will have a lower cost per item if they make more products. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I thought this concept sounded similar to decreasing marginal cost within the economies of scale.  Unfortunately, I haven't been able to find information to prove that they mean the same thing. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can anyone confirm?&lt;/p&gt;&#xA;" OwnerUserId="27" LastActivityDate="2019-12-29T06:16:32.737" Title="Economies of Scale vs Learning Curve" Tags="&lt;economies-of-scale&gt;&lt;definition&gt;&lt;learning-curve&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10208" PostTypeId="2" ParentId="10202" CreationDate="2016-01-14T01:10:16.557" Score="3" Body="&lt;p&gt;Check out&#xA;&lt;em&gt;Estimating the Return to Schooling: Progress on Some Persistent Econometric&#xA;Problems&lt;/em&gt; by David Card (2001) &lt;strong&gt;ECA&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know distance from school has been used in the past as an IV..although it has been criticized.&lt;/p&gt;&#xA;" OwnerUserId="5233" LastActivityDate="2016-01-14T01:10:16.557" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10209" PostTypeId="2" ParentId="10207" CreationDate="2016-01-14T03:00:45.620" Score="6" Body="&lt;p&gt;Consider a production function&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$y = F(A,K,L)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $A$ represent &quot;technology&quot; (in the broad sense including for example also organizational technology), $K$ is capital and $L$ is labor (again both broadly defined)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;Economies of scale&quot; (a looser synonym of increasing returns to scale), is, in economics, always defined with respect to all arguments in the production function &lt;em&gt;except technology&lt;/em&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;We say that the production function exhibits increasing returns to scale if it is homogeneous of degree higher than one... &lt;em&gt;but with respect to capital and labor only&lt;/em&gt;: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$F(A, sK, sL) = s^{\delta}F(A, K, L), \;\; \delta &amp;gt; 1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that we have not multiplied $A$ by $s$. Note also that economies of scale is a &lt;em&gt;static&lt;/em&gt; concept.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's turn to the &quot;learning curve&quot; concept: it uses the word &quot;learning&quot;, presumably not by accident: but &quot;learning&quot; has to do with &lt;em&gt;efficiency&lt;/em&gt; and not with &lt;em&gt;scale&lt;/em&gt;.  And efficiency has to do with technology, which is the one aspect left aside when discussing economies of scale.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a final note, I won't dispute the meaning for the &quot;learning curve&quot; that you report, but I have to say that it sounds strange to me: whenever I have encountered the concept, it was always in a &lt;em&gt;dynamic&lt;/em&gt; setting, as a synonym of &quot;learning by doing&quot;: as we spend more time with a production process, we become more efficient at implementing it (and even if scale of operations remains the same). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand that a falling average cost can of course come as a result of the above process, but the dynamic aspect is crucial, contrasted to a static one.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In fact, in my experience, in a static sense a greater scale of operations always eventually leads to &lt;em&gt;increasing&lt;/em&gt; average cost, if we do &lt;em&gt;not&lt;/em&gt; allow for time to pass, and so experience and efficiency to be gained, that can more than offset the inefficiencies that accumulate due to the complexity of operations at a larger scale.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The above do not refer to the &quot;easy phase&quot; of decreasing average cost at low initial levels of production due to the inescapable existence of fixed costs.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2016-01-14T11:07:01.180" LastActivityDate="2016-01-14T11:07:01.180" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10210" PostTypeId="1" CreationDate="2016-01-14T03:34:54.290" Score="4" ViewCount="61" Body="&lt;p&gt;I am reading a JPE paper &quot;Let's agree all dictatorship are equally bad&quot; from &lt;a href=&quot;http://www.jstor.org/stable/10.1086/262129&quot; rel=&quot;nofollow&quot;&gt;Uzi Segal （2000）&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have a small problem with this paper. We have the following Utility Opportunity Set (UOS): &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ S(w)=\{(u_{1}(L_{1}),\dots,u_{n}(L_{n}))\} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $L_{1},\dots,L_{n}$ are the individual lotteries induced from $L \in £(w)$, and $£(w)$ is the set of lotteries over possible resources allocations $w$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If $g={w^*}$ is a singleton, the assumption &quot;Indifference by pure and mixed lotteries&quot; in the paper implies linear parallel indifference curves in the UOS by standard techniques. However, I do not understand why when $w^*$ has a range (different possible values), the induced order on each $S(w^*)$ may be flat (if the policy everywhere else is fixed).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another one have read the paper before? Any help would be appreciated!&lt;/p&gt;&#xA;" OwnerUserId="5351" LastEditorUserId="2776" LastEditDate="2016-08-23T10:13:48.180" LastActivityDate="2016-08-23T10:13:48.180" Title="Segal (2000) question about utility opportunity set" Tags="&lt;utility&gt;&lt;social-welfare&gt;&lt;social-choice&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10213" PostTypeId="1" CreationDate="2016-01-14T13:08:27.550" Score="1" ViewCount="11" Body="&lt;p&gt;Suppose the government wants to determine the efficient price of a certain commodity for which there is no competitive market. One way to do this is to take a sample of the potential buyers and ask them how much they are willing to pay, take a sample of the potential producers and ask them what their costs are, calculate an optimal price on the sample and use it as an approximation to the real price. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am interested in references about this and similar problems. Particularly, my goal is to calculate bounds on the error of approximation. This seems like a fairly standard question in statistical economics, but I could not find references.&lt;/p&gt;&#xA;" OwnerUserId="385" LastActivityDate="2016-01-14T13:08:27.550" Title="References about market sampling" Tags="&lt;reference-request&gt;&lt;statistics&gt;&lt;price-level&gt;&lt;probability&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10214" PostTypeId="1" CreationDate="2016-01-14T14:19:42.253" Score="2" ViewCount="58" Body="&lt;p&gt;Please answer all three if you can.  I live in Connecticut, America, and of course global trade and economies matter as we are becoming more global from technology.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;December 2007 the markets crashed hard and 2008-09 was the actual defined recession.  Worst we ever had (not depression, recession).  By GDP growth definition we did recover.  BUT living in Connecticut I've seen things differently so sorry if it sounds opinionated but I'm trying to put facts together from research and forum answers.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;GE Headquarters is leaving CT and moving to Boston, meaning hundreds of high paid jobs leaving and the taxes are switched to everyone else yes?  Our governor has been called the worst, and we only have 3 million people which is down a lot in past years.  That means less business and money which is not good.  Taxes are already higher than almost every other state...BUT my question is are we recovering because form what I've read the answer is yes.  But if a huge job supplier is leaving and tax burdens increase, how can CT ever recover?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The same for America.  Unemployment is like 5% but most of these jobs at least where I am on the East Coast are part time fast food/retail jobs.  Good for kids maybe, but full time employment and good pay even start at $11 or $12 an hour is better than a father supporting his family on a 20 hour a week mcdonalds fry cook.  So is this really a recovery (maybe definition) but has it really gotten better?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Not just here...but the rest of the world as well?  All I hear is bad stuff about Europe, debt crisis, Greece.  What's going on?  No blame game what is going on for sure that we know?&lt;/p&gt;&#xA;" OwnerUserId="6258" LastActivityDate="2016-01-14T14:19:42.253" Title="Is America economy, Connecitcut's economy, and the global in general recovering and better than the year 2008?" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;labor-economics&gt;&lt;unemployment&gt;&lt;political-economy&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10216" PostTypeId="1" AcceptedAnswerId="10217" CreationDate="2016-01-14T16:23:49.300" Score="10" ViewCount="2796" Body="&lt;p&gt;In most occurrences, lower production costs translate into lower sales costs. Obviously there are other factors that influence price, including perceived value (affected by advertising), monopolies, and so on.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However there are many companies that produce films that vary greatly in budget. For instance, the Blair Witch Project came out in 1999 with a budget of \$60,000. The same year, Star Wars Episode 1 came out with a budget of \$115 million. That's almost 2000 times more expensive. Yet the two films sat side by side in the box office charging the same amount of money per viewing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why don't the makers of super-low-budget films undercut the big budget films?&lt;/p&gt;&#xA;" OwnerUserId="4382" LastEditorUserId="69" LastEditDate="2016-01-14T16:38:14.823" LastActivityDate="2016-03-29T00:50:33.513" Title="Why do low-budget films charge the same amount at the box office as super-high budget films?" Tags="&lt;microeconomics&gt;&lt;industrial-organisation&gt;&lt;price&gt;" AnswerCount="3" CommentCount="9" FavoriteCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="10217" PostTypeId="2" ParentId="10216" CreationDate="2016-01-14T16:36:10.403" Score="17" Body="&lt;p&gt;&lt;strong&gt;Opportunity Cost of the Seats&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Once the movie is made the cost of production is sunk and irrelevant to the proper pricing of tickets. Only the marginal costs of serving an additional customer and the opportunity cost of showing a different film would enter into ticket pricing. Since cinemas should be setting the number of screens for each movie so that the opportunity costs of the seats are equated across films, this makes them want to charge the same for all films. In support of this idea, I offer that movies do vary in price by time of day. This is a rational response to the perishability of seats (once the movie starts an empty seat for that show is worthless) and time (of day) varying demand for film-going which varies the opportunity cost of the seats by time of day. The theater can't easily equate the opportunity cost across time the way it can across films. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.cgu.edu/include/at_the_movies.pdf&quot;&gt;At the Movies: The Economics of Exhibition Contracts&lt;/a&gt; (Filson, Switzer, and Besocke (2004)) provides the following explanation:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Practitioners provide several explanations for inflexible ticket&#xA;  prices. Exhibitors want to avoid menu costs and eliminate consumer&#xA;  uncertainty about what the movie will cost. Exhibitors do not increase&#xA;  prices of hits because they are engaged in repeat business with local&#xA;  consumers, and the potential loss of goodwill from increased prices&#xA;  outweighs the potential gain. Charging different prices for different&#xA;  movies at multiplexes necessitates employing monitors to ensure that&#xA;  consumers see the movies they pay for. Even offering mid-week&#xA;  discounts may lead to more time shifting than new demand. Not all&#xA;  analysts or practitioners agree that inflexible prices are optimal&#xA;  (see Orbach and Einav 2001), although it seems unlikely that such an&#xA;  easy-to-exploit profit opportunity would persist. Some practioners&#xA;  have experimented with non-uniform prices in  the U.S. in the recent&#xA;  past but inflexible prices remain the norm.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2016-01-14T18:04:41.330" LastActivityDate="2016-01-14T18:04:41.330" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="10218" PostTypeId="1" CreationDate="2016-01-14T17:31:54.450" Score="6" ViewCount="131" Body="&lt;p&gt;It seems to me that the variation of prices for similar or identical products has grown over the last decade. A few examples:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;On major air routes, price differences between low-cost and traditional carriers are extreme.&lt;/li&gt;&#xA;&lt;li&gt;Retail sales appear more frequent and significant than ever.&lt;/li&gt;&#xA;&lt;li&gt;At a grocery store, on any given day, it seems like some 30% of products are discounted. And I have received up to seven non-negligible coupons (for future use) even when making negligible purchases (under $5).&lt;/li&gt;&#xA;&lt;li&gt;&quot;Deal sites&quot; like Groupon (and a thousand others) have become prevalent.&lt;/li&gt;&#xA;&lt;li&gt;Single consumer electronics items are released as many different versions (with many different prices) with only slightly differing specifications.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;All in all, it just seems like companies are getting more sophisticated (and more aggressive) about extracting as much of each consumer's willingness-to-pay as possible. This begs the question:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Can you think of any data that could be used to quantify the increase&#xA;  of price discrimination across time?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Note on edit: I originally asked about welfare considerations also, but found a fantastic answer to that question &lt;a href=&quot;https://economics.stackexchange.com/questions/276/price-discrimination-how-much-is-optimal?rq=1&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="48" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2019-11-16T23:02:50.383" Title="Increasing prevalence of price discrimination" Tags="&lt;reference-request&gt;&lt;data-request&gt;&lt;price-discrimination&gt;" AnswerCount="2" CommentCount="4" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="10219" PostTypeId="1" AcceptedAnswerId="17186" CreationDate="2016-01-14T17:35:43.263" Score="0" ViewCount="532" Body="&lt;p&gt;I was recently reading up on the Price Elasticity of Demand and the section of Inelastic demand mentions that if a firm has inelastic demand for its product and wishes to increase its total revenue then it should raise the price of the product. The author has done one calculation to somehow convince the reader, but I think that anyone can conjure numbers just for the sake of argument. I am looking for a mathematical argument that will be rigorous enough to convince me. Please note that I get the intuition behind why this might happen but my textbook does not provide any mathematical reasoning as to why this must happen. Any insights will be much appreciated.&lt;/p&gt;&#xA;" OwnerUserId="6565" LastEditorUserId="2776" LastEditDate="2017-06-13T22:26:36.440" LastActivityDate="2017-06-15T20:12:44.267" Title="Mathematical Proof as to why does the total revenue increase when the prices are increased for an inelastic product?" Tags="&lt;microeconomics&gt;&lt;elasticity&gt;" AnswerCount="1" CommentCount="4" ClosedDate="2017-06-22T08:28:58.237" ContentLicense="CC BY-SA 3.0" />
  <row Id="10220" PostTypeId="1" CreationDate="2016-01-14T18:22:36.540" Score="2" ViewCount="68" Body="&lt;p&gt;I'm interested in zero-sum symmetric games which have the following form. Each player has a counter which starts at 0. Each turn, a player may choose from a fixed set of actions. A player's counter is raised or lowered according to the cost of the chosen action. (If this drops the player's counter below 0, they lose.) Otherwise, look up the respective actions on a payoff matrix to determine if one or the other wins. If so, the game ends with the selected winner. If neither wins, the game is played again, but retaining the counter.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is like a repeated game, except that the counter is not reset between rounds and the number of games is not fixed but depends on the players' actions. In that way it's more like a Markov chain with a countably-infinite state space.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Here's a toy example with three actions:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;A: Add 1 to your counter.&lt;/li&gt;&#xA;&lt;li&gt;B: Subtract 1 from your counter. You win unless your opponent chooses B or C.&lt;/li&gt;&#xA;&lt;li&gt;C: Subtract 2 from your counter. You win unless your opponent chooses C.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;I'm interested in the existence of mixed strategies for this type of game, and how to find them if they do exist. Also, if there's a name for this type of game I'd like to know (which should make finding information much easier).&lt;/p&gt;&#xA;" OwnerUserId="4834" LastActivityDate="2016-01-14T18:22:36.540" Title="Equilibria for multi-round 'Markov' games?" Tags="&lt;reference-request&gt;&lt;game-theory&gt;&lt;nash-equilibrium&gt;&lt;markov-chain&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10223" PostTypeId="1" CreationDate="2016-01-14T21:36:07.970" Score="1" ViewCount="108" Body="&lt;p&gt;By entertainment I mean book publishing, music uploads like on iTunes or even movies whether DVD, Blue Ray, Netflix, Hulu whatever.  So much is moving online, that's the future.  Piracy cannot be stopped, Sean Parker of Napster a site that was hit hard and sued for piracy lawsuits of releasing music for free, he even said, &quot;The war on piracy is a failure.&quot;  If a war is something to be won, piracy will win, but how much is what I and others are worried about.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Along with the big suits and artists/writer/actors/singers whatever, there are movie theater employees, Apple store employees, programmers for online entertainment companies, etc...the economy for this industry is huge and can be hurt a lot since as online media is growing so is online theft, hacking, and piracy.  While it is good to go into a field of medicine, engineering, business (which this is), entertainment is a cultural classic and the people in it mostly work hard and moved up to get where they were in turn making jobs for everyone.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Star Wars made like a billion last month, but that's now and that a big movie.  Kick@ss 2 stars said another sequel can't be made because the last two were pirated too much.  Scary.  Is the industry's outlook more collapse than still being profitable in the future?&lt;/p&gt;&#xA;" OwnerUserId="6258" LastEditorUserId="1601" LastEditDate="2017-03-18T18:01:31.523" LastActivityDate="2017-03-18T18:01:31.523" Title="How bad is piracy hurting the entertainment industrie's economy? Are they going bankrupt or have a good outlook?" Tags="&lt;law&gt;&lt;labor-cost&gt;" AnswerCount="3" CommentCount="2" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10224" PostTypeId="2" ParentId="10216" CreationDate="2016-01-15T00:35:15.517" Score="3" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;lower production costs translate into lower sales costs&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Not as such, because you're looking at the total budget for making a movie &lt;em&gt;and all the copies of it needed to distribute and show it many, many times&lt;/em&gt;. &quot;The latest iPhone&quot; cost a lot more in total to research, design and manufacture all the units, than my house did. But my house is a lot more expensive than an iPhone, because the iPhone has lots of buyers sharing the costs, and my house had only one. So there is no such direct relation between the total budget of bringing a new product to market, and the per-unit retail price of the product. All else being equal there would be, but all else is not equal.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The price you have to charge to cover costs depends on development costs &lt;em&gt;per unit sold&lt;/em&gt;, not just the total budget, plus marginal costs of production. The marginal cost of providing a cinema seat is basically the same regardless of what film is showing (assuming the same kind of projection and sound). So that's a large chunk of the ticket price that not only has nothing to do with the budget on which the movie was made (which in any case as BKay says is a sunk cost), but doesn't even feed into the calculation in advance of whether it's worthwhile making a movie with a particular budget and particular expected audience size.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To plan for your movie to cover its development costs you have two options: charge more per viewer or find more viewers. Big-budget movies aggressively pursue the latter option and therefore (they hope) don't need to do the former. Meanwhile, movies with a smaller expected audience are constrained, by the fact that there's only so much they can charge per ticket, to lower budgets.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In fact, since prices don't vary much by by movie, we can very roughly (and with caution due to some of the &quot;clever&quot; accounting that goes on around movies) compare how much movies cost to make &lt;em&gt;per seat&lt;/em&gt; by looking at the ratio between its budget and its box office. We see plenty of big-budget movies with decently high ratios (which therefore, to cover costs, could actually have charged &lt;em&gt;less&lt;/em&gt; per seat than they actually did), and we see plenty of mid- and low-budget movies that make a loss and therefore achieved a ratio of less than one (and therefore, to cover costs, would have had to charge &lt;em&gt;more&lt;/em&gt; than they actually did). I don't know what direction the correlation ends up being, if any, but it's clearly not the case that by all charging the same prices big-budget movies are uniformly under-charging and/or low-budget movies are uniformly over-charging. If that was the case then low-budget movies would be consistently more profitable (by this rough metric) than big-budget movies, and they aren't.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the demand side, a viewer chooses what movie they want to watch partly on price and partly on the value to them of seeing the movie. BKay's answer goes into some detail of why it's undesirable for the movie-makers or the cinemas to do too much by way of varying prices. I hope I've explained why it is that they can actually achieve that without the difference in movie budgets getting in the way.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You ask in a comment:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;in a saturated, competitive market suppliers can compete by lowering&#xA;  their prices. A reduction in production cost means they can do so&#xA;  without reducing margins. Are you saying this intuition is incorrect more&#xA;  times than not?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Not &quot;more times than not&quot;, just &quot;not in the case of movies&quot;. Taking two arbitrary examples of science-fiction movies, there is no price point, not even 0, at which &quot;Under the Skin&quot; (budget 13 million USD, and which made a loss at the box office) could have achieved the same number of bums on seats as &quot;The Force Awakens&quot; (budget 200 million, box office north of 1.5 billion and still counting). The former is either a niche product, or an inferior product, or both, and if you could draw up the demand curves of the two movies they'd be drawing on completely different demand: these aren't &quot;the same goods&quot;. Further, you would not find a strategy by which either of them gets anything much out of competing with each other on price. Not that they were even in the cinema at the same time, but even if they had been they are too distinct to use a simple model of a customer looking at both and picking the cheaper, despite the fact that individual customers do frequently find themselves in a cinema picking a movie. If there was a means by which &quot;Under the Skin&quot; could satisfy all that &quot;Force Awakens&quot; demand, then sure, it would seriously look into it, but they aren't fungible commodities.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On a loosely-related topic, note that cinemas in any case try to cater to a &lt;em&gt;lot&lt;/em&gt; of price sensitivity among customers, by giving them the opportunity to drop a heap of cash on food and drink. Therefore (within a certain range) customers who might be tempted to see a cheaper movie than the average are in fact already in the door. They just aren't having popcorn.               &lt;/p&gt;&#xA;" OwnerUserId="338" LastEditorUserId="4020" LastEditDate="2016-03-29T00:50:33.513" LastActivityDate="2016-03-29T00:50:33.513" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10226" PostTypeId="1" AcceptedAnswerId="10275" CreationDate="2016-01-15T05:28:06.777" Score="2" ViewCount="120" Body="&lt;p&gt;I'm trying to get the cdf from a pdf, which, according to &lt;a href=&quot;https://www.youtube.com/watch?v=wQ6Q9W3Y1ZE&quot; rel=&quot;nofollow&quot;&gt;this MIT open courseware video&lt;/a&gt;, is as simple as getting integral from -$\infty$ to $\infty$. Like this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;F_z(z) = \int_{-\infty}^\infty f_z(z)dz\, = 1&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And that works for functions like this: $f_x(X)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But what about a function like this $f(X;\beta)$?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Yeah, this is a homework problem, so I don't expect an exact answer, but hopefully some general principles. I have a hard time googling to learn how to do this because I don't know what to call this kind of function $f(X;\beta)$, and I don't know how to type a $\beta$ into google.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The pdf I have is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;f(X;\beta)=&#xA;    \begin{cases}&#xA;      \frac {e^{-X/\beta}}{\beta}, &amp;amp; \ X\geq0 \\&#xA;      0, &amp;amp; \text{otherwise}&#xA;    \end{cases}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and the cdf it comes out to is:&#xA;$$&#xA;f(X;\theta)=1-e^{-X/\beta}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Part of my question is also, why did the $f(X;\beta)$ become $f(X;\theta)$?&lt;/p&gt;&#xA;" OwnerDisplayName="user4207" LastEditorDisplayName="user4207" LastEditDate="2016-02-12T19:30:12.767" LastActivityDate="2016-02-12T19:30:12.767" Title="How to integrate a piece-wise function and what are semicolons in function notation?" Tags="&lt;econometrics&gt;" AnswerCount="2" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="10227" PostTypeId="2" ParentId="10216" CreationDate="2016-01-15T05:59:27.067" Score="0" Body="&lt;p&gt;The price of the tickets doesn't make much difference to the movie theater, because generally many contracts with the distributors are based on split of profits.&#xA;High budget movies generally takes home almost all profit on launch weeks and decrease week by week.&#xA;Low budget movies the split is more balanced and gives the theater more profit since the launch, but they don't fill all the seats.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In general, the theater will make money with big box movies only after a few weeks, and gives more profit than LB movies because the amount of tickets sold are much higher.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some theaters earn more money from snacks sales than the movies.&lt;/p&gt;&#xA;" OwnerUserId="6975" LastActivityDate="2016-01-15T05:59:27.067" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10228" PostTypeId="1" CreationDate="2016-01-15T09:56:32.207" Score="0" ViewCount="83" Body="&lt;p&gt;Suppose that we have bankruptcy data representative for Small and Medium-sized enterprises in a country. We can therefore calculate default rates. Furthermore suppose that we found that GDP, unemployment rates and interest rates seem to be significant macro economic factors that could explain there default rates. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now we use regression to fit the macro economic variables to the observed default rates. My question now follows: If I suppose to have a portfolio of SME companies with only default rates from the last year. How could I using the above backward extrapolate these default rates, using the macro economic factors?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks for any help!&lt;/p&gt;&#xA;" OwnerDisplayName="user6717" LastActivityDate="2016-01-15T13:48:42.457" Title="Regression on default rates and backward extrapolation" Tags="&lt;macroeconomics&gt;&lt;regression&gt;&lt;default&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10229" PostTypeId="1" CreationDate="2016-01-15T10:13:05.170" Score="2" ViewCount="775" Body="&lt;p&gt;I have read in several places that inflation should be positive, at about 2%-3%. The most recent example was in &lt;a href=&quot;https://money.stackexchange.com/a/58073&quot;&gt;this answer&lt;/a&gt; from another stack exchange site.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How is this value obtained and under what assumptions?&lt;/p&gt;&#xA;" OwnerUserId="5109" LastEditorUserId="-1" LastEditDate="2017-04-13T12:25:31.177" LastActivityDate="2016-09-04T18:00:43.367" Title="Why is it that the &quot;right&quot; inflation is positive?" Tags="&lt;inflation&gt;" AnswerCount="3" CommentCount="0" ClosedDate="2017-02-22T17:31:44.577" ContentLicense="CC BY-SA 3.0" />
  <row Id="10230" PostTypeId="2" ParentId="10229" CreationDate="2016-01-15T12:29:21.173" Score="0" Body="&lt;p&gt;We're creatures of asymmetry. We're loss-averse. And we're not particularly rational, a lot of the time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, to be able to do things like real-terms wage reductions, it's much easier to implement a freeze in nominal wages within an environment of positive inflation, than nominal reductions within an environment of zero inflation. So some inflation allows for relative and absolute adjustments in remuneration of different jobs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But too much inflation creates too much uncertainty and instability.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, 2-3% is currently considered to be &quot;goldilocks&quot; inflation within developed economies: neither too much, nor too little, but just right. Other places, and other times, have had different ideas.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2016-01-15T12:29:21.173" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10234" PostTypeId="1" CreationDate="2016-01-15T14:56:17.903" Score="0" ViewCount="67" Body="&lt;p&gt;I am stuck and confused by a section of what I read in my textbook, could you please help me understand the paragraph?&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;If you only vary one means of production and the market for it is competitive you should employ as many units of that means of production as you need to make its Marginal product equal its per-unit cost&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;1) The Wage (in terms of good we produce) is  ω = w/px which is the nominal wage (W) divided by the price of the good and it must be the same as the marginal product of Labour for any given level of capital, which means that Money Value of the Marginal Product equals the nominal wage&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;My confusion stems from how can wage equal wage/price? That seems illogical to me!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Moreover, what does it mean by equals nominal wage? My understanding of Market for Factors was, you hire labour as long as the last labour output is higher than your costs, but I get confused by the term nominal.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks &lt;/p&gt;&#xA;" OwnerUserId="6986" LastEditorUserId="6773" LastEditDate="2016-01-15T15:43:45.433" LastActivityDate="2016-04-14T16:32:06.087" Title="Microeconomics: Question on Market for Factors" Tags="&lt;microeconomics&gt;&lt;labor-economics&gt;&lt;financial-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10235" PostTypeId="2" ParentId="10234" CreationDate="2016-01-15T15:40:28.837" Score="1" Body="&lt;p&gt;Nominal means measured in present day money. E.g. someone in South Africa may have a monthly salary of 100,000 South African Rands. You have no idea how much this is unless you are told what real goods can be purchased from this. If a TV costs 10,000 Rands then the real wage of this person would be 10 TVs. Now you see the difference between nominal wages and real wages. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you reread your question focusing on this part: &quot;The Wage(in terms of good we produce)&quot; I hope all your confusion will go away.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2016-01-15T15:40:28.837" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10236" PostTypeId="2" ParentId="10226" CreationDate="2016-01-15T16:28:22.430" Score="3" Body="&lt;p&gt;CDF = integral of PDF from $-\infty$ to $x$, or:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$F\left(x\right) = \int_{-\infty}^{x} f\left(u\right) du$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Functions like $f\left(x;\beta\right)$ take $\beta$ as the parameters, the $\beta$ index &lt;em&gt;different&lt;/em&gt; probability density functions.  You don't need to integrate over them to get the CDF.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$F\left(x;\beta\right) = \int_{-\infty}^{x} f\left(u;\beta\right)du$.&lt;/p&gt;&#xA;" OwnerUserId="6987" LastActivityDate="2016-01-15T16:28:22.430" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10239" PostTypeId="1" CreationDate="2016-01-15T22:13:00.483" Score="9" ViewCount="491" Body="&lt;p&gt;The price of oil fell again today and is now below $30/barrel for the first time in 12 years. Along with the fall came most of the US stock markets. If I didn't know any other information except for &quot;the price of oil fell today&quot;, my gut reaction would be that the oil companies stock would fall, but the rest of the markets would rise (on average) due to the lower operations cost (and/or increased consumer spending) leading to an increase in profits. This should be especially true for the transportation industry, such as airlines, which consume a lot of gasoline. Yet, in the sharpest decline of the oil price in the past month, airline stock prices have dropped as well. Is my gut feeling incorrect, or is it being overpowered by a stronger force than the price of oil?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Update:&lt;/strong&gt; Not long after I asked this question I did some more research on it and came to the conclusion that the premises for this question were wrong. I had been basing my question on what I had regularly been hearing/reading in the news, which was something similar to &quot;stocks fell again today due to oil taking another dive&quot;. I added an answer which shows my conclusions. (I don't like to accept my own answer to my questions, so as of yet I've left it open.)&lt;/p&gt;&#xA;" OwnerUserId="6988" LastEditorUserId="2776" LastEditDate="2017-09-04T08:48:24.643" LastActivityDate="2017-09-04T08:48:24.643" Title="Why do falling oil prices take stocks with it?" Tags="&lt;stock-market&gt;&lt;oil&gt;" AnswerCount="6" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="10240" PostTypeId="2" ParentId="10239" CreationDate="2016-01-15T23:38:45.280" Score="2" Body="&lt;p&gt;It might be that the market views the falling price of oil as a sign, not of simply excess supply, but of falling demand. Consumers, in this scenario, are running out/have run out of purchasing power(cash/credit). They are forced to conserve what they do have for necessities like rent and other bills, which renders them unable to buy gasoline, driving down prices at the pump, but nor are they able to buy, either at all or in their preferred quantity, other things like food, clothing, electronics, etc. People simply cannot buy things if they do not have the means available to do so.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given that, for most of us, gasoline is fairly high on the list of &quot;must purchase&quot;, an economy that is too broke to buy gas is an economy too broke to buy almost anything else. So the further the price of oil falls, the worse off the economy must be, creating downward pressure on stocks.&lt;/p&gt;&#xA;" OwnerUserId="5459" LastActivityDate="2016-01-15T23:38:45.280" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="10241" PostTypeId="1" CreationDate="2016-01-16T02:20:15.740" Score="2" ViewCount="59" Body="&lt;p&gt;What happens if one applies a real GDP growth rate to a nominal GDP value? The result can't be a GDP figure in constant prices, since that would imply applying a real GDP growth rate to constant GDP figure. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any thoughts?&lt;/p&gt;&#xA;" OwnerUserId="2759" LastActivityDate="2016-03-16T18:29:18.900" Title="Applying real growth rate to nominal value" Tags="&lt;macroeconomics&gt;&lt;mathematical-economics&gt;&lt;gdp&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10243" PostTypeId="2" ParentId="10239" CreationDate="2016-01-16T14:19:19.743" Score="0" Body="&lt;p&gt;A lower cost of production (low oil price) increases profitability, but a much lower demand of goods decreases revenues and net income. So this is the problem.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Oil - intensive company such as airlines now have a greater % of profitability, but Less revenues&lt;/p&gt;&#xA;" OwnerUserId="5075" LastActivityDate="2016-01-16T14:19:19.743" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10244" PostTypeId="2" ParentId="10239" CreationDate="2016-01-16T17:52:17.293" Score="6" Body="&lt;p&gt;First of all, the fall in prices does not only concerns oil but most commodities, in particular raw materials such as iron ore, copper, nickel and many other, though it is indeed most noticeable for gas and oil. If you want to see the full extend of this drop in price, you can check out the &lt;a href=&quot;http://www.imf.org/external/np/res/commod/index.aspx&quot; rel=&quot;noreferrer&quot;&gt;IMF Primary Commodity Prices&lt;/a&gt; and their monthly reports, from which the following chart is extracted:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/x9uLU.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/x9uLU.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;What are the causes of lower commodity prices?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is no secret: the demand is falling and the supply increase. The demand is falling mainly because of the slowing growth in China. As China imports less commodities to fuel its industry, a large chunk of the demand on these markets has disapeared, leading to lower prices. But simultaneously, the supply keeps steady or increasing on most of the commodity markets. On the oil market for example, 2015 has been a great year of surge or expected surge: OPEC countries are committed to keep flooding the market, mainly because the Gulf countries &lt;a href=&quot;http://www.economist.com/blogs/graphicdetail/2016/01/daily-chart-6&quot; rel=&quot;noreferrer&quot;&gt;can afford lower prices&lt;/a&gt; thanks to low production costs, while their competitor might not sustain low prices very long. Furthermore, the ban on Iranian exports is going to be lifted, as well as the ban on US exports. The market anticipate already this formidable future new supply, which drives prices down. The US are quasi independent as far as Oil is concerned, as the Shale gas industry has been rising in this country.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;What are the consequences of lower commodity prices?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first consequence is not really caused by lower commodity prices, but rather by the root of this price drop: China's growth is slowing. Therefore their is more uncertainty than before about this market. As a consequence of this, exporters to China begin to worry as well as firms who have factories in China, as a slowing growth and reduced imports might be the sign of a stabilization and potential lower inner demand. China being one of the world's biggest market, and one with a still relatively low penetration for technologies, it is indeed worrying. Thus, the stock of a lot of companies have been going down all over the world because of the situation in China, reflected in Oil prices.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another very important factor comes into action: most firms in the commodity sector have huge debt. Indeed, this sector requires big investments to begin the exploitation. Among others, Glencore's $30bn debt &lt;a href=&quot;http://www.bloomberg.com/news/articles/2015-08-14/glencore-s-31-billion-debt-weighs-on-trader-amid-commodity-rout&quot; rel=&quot;noreferrer&quot;&gt;has been discussed&lt;/a&gt; a lot, but it is only an example among many others. In particular, their are two areas that are under threat: shale gas and renewable. This two sectors require higher investment than others. For shale gas, because the exploitation is costly and technically complex. For the renewable, because the R&amp;amp;D is costly and the production as a whole is costly as it uses high technologies. Lately, the partial default of &lt;a href=&quot;http://www.bloomberg.com/news/articles/2015-11-25/abengoa-seeks-creditor-protection-after-gonvarri-pulls-accord&quot; rel=&quot;noreferrer&quot;&gt;Abengoa&lt;/a&gt; gave us a taste of what might follow. The debt accumulated by this industry is by no mean sustainable with such low commodity prices.&lt;/p&gt;&#xA;" OwnerUserId="6820" LastActivityDate="2016-01-16T17:52:17.293" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="10245" PostTypeId="1" CreationDate="2016-01-16T17:54:47.560" Score="4" ViewCount="4289" Body="&lt;p&gt;Does it fall under fiscal, monetary, or supply-side, or perhaps some other group? Also (seeing as minimum wage is a form of price control policy), where does the broader &quot;price control policy&quot; fall?  &lt;/p&gt;&#xA;" OwnerUserId="6327" LastEditorUserId="6327" LastEditDate="2016-01-16T18:00:36.040" LastActivityDate="2016-01-20T14:50:23.773" Title="What kind of policy is minimum wage?" Tags="&lt;monetary-policy&gt;&lt;price-level&gt;&lt;fiscal-policy&gt;&lt;minimum-wage&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10246" PostTypeId="2" ParentId="10241" CreationDate="2016-01-16T17:59:19.587" Score="1" Body="&lt;p&gt;This will provide you with a GDP in constant prices of the previous year. &quot;Real GDP&quot; only make sense if you mention which is you basis year. It is not an absolute figure. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Indeed, it would not make sense (beside research purposes) to display a real GDP in terms of the first year in which GDP was recorded. Accumulating 50 years on inflation in your figure would produce a tremendous discrepancy between your real GDP and your nominal GDP, resulting in confusion.&lt;/p&gt;&#xA;" OwnerUserId="6820" LastActivityDate="2016-01-16T17:59:19.587" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10247" PostTypeId="2" ParentId="10245" CreationDate="2016-01-16T18:42:53.117" Score="1" Body="&lt;p&gt;Looking up each of those terms you ask about would have given you your answer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Fiscal policy&lt;/em&gt; is economic policy enacted through government. The minimum wage is a type of fiscal policy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Monetary policy&lt;/em&gt; is economic policy enacted through central banking. The minimum wage is NOT a type of monetary policy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Supply-side&lt;/em&gt; is a macroeconomic theory that growth is best achieved through capital investment and lowering barriers to production. Usually the policy suggestions to come out of this are to remove government regulation and lower marginal tax rates. The minimum wage is a type of regulation, so minimum wage would not fall under the doctrine of classical supply side economics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't understand what you mean when you ask where &quot;price control policy&quot; falls under. There's no real categorization for it besides also being a type of fiscal policy.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2016-01-16T18:42:53.117" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10248" PostTypeId="1" AcceptedAnswerId="10262" CreationDate="2016-01-16T19:46:22.710" Score="0" ViewCount="882" Body="&lt;p&gt;&lt;strong&gt;Question still unanswered&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ads in the boring business magazine are read by 300 lawyers and 1,000 M.B.A.s. Ads in the consumer publication are read by 250 lawyers and 300 M.B.A.s. If Harry had \$4,200 to spend on advertising, if the price of ads in the boring business magazine were \$700, and if the price of ads in the consumer magazine were \$350, then the combinations of recent M.B.A.s and lawyers with hot tubs whom he could reach with his advertising budget would be represented by the integer values along a line segment that runs between the two points&lt;/p&gt;&#xA;&#xA;&lt;p&gt;a.&#xA;(3, 600, 0) and (0, 7, 200).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;b.&#xA;(3, 000, 3, 600) and (1, 800, 6, 000).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;c.&#xA;(0, 3, 600) and (1, 800, 0).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;d.&#xA;(3, 600, 4, 200) and (1, 800, 7, 200).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;e.&#xA;(2, 400, 0) and (0, 6, 000).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My attempt was to find a budget line which is $700b+350c=4200$, where b stand for business magazines and c for consumer ones. But i do not know how this would translate into the answers that are given.&lt;/p&gt;&#xA;" OwnerUserId="5486" LastEditorUserId="5486" LastEditDate="2016-01-17T14:23:02.863" LastActivityDate="2016-01-18T02:20:32.113" Title="Mix of two ads types" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;" AnswerCount="2" CommentCount="2" ClosedDate="2016-01-19T20:26:14.907" ContentLicense="CC BY-SA 3.0" />
  <row Id="10251" PostTypeId="1" AcceptedAnswerId="10253" CreationDate="2016-01-17T13:12:44.797" Score="0" ViewCount="1741" Body="&lt;p&gt;Tommy Twit’s mother measures the departure of any bundle from her favorite bundle for Tommy by the sum of the absolute values of the differences. Her favorite bundle for Tommy is (2, 7), that is, 2 cookies and 7 glasses of milk. Tommy’s mother’s indifference curve that passes through the point (c, m) = (4, 5) also passes through&lt;/p&gt;&#xA;&#xA;&lt;p&gt;a.&#xA;the points (4, 7), (2, 5), and (2, 9).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;b.&#xA;the point (2, 7).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;c.&#xA;the points (2, 3), (6, 7), and (4, 9).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;d.&#xA;the point (6, 3).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;e.&#xA;None of the above.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How to solve this question? I thought that it is enough to find a line passing through two points given however then the equation would be $y=9-x$ however the points given does not fit to the equation. Correct answer given in a questionbank is &lt;strong&gt;C&lt;/strong&gt;. I have no additional info regarding this question and i have to admit yes it is badly stated.&lt;/p&gt;&#xA;" OwnerUserId="5486" LastActivityDate="2016-01-17T14:40:13.763" Title="Indifference curves passing thru few points" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;" AnswerCount="1" CommentCount="0" ClosedDate="2016-01-18T19:11:12.783" ContentLicense="CC BY-SA 3.0" />
  <row Id="10252" PostTypeId="2" ParentId="10248" CreationDate="2016-01-17T14:38:44.853" Score="1" Body="&lt;p&gt;A few remarks and hints:&#xA;We have to assume that each ad in each magazine is viewed by totally different people (totally unreasonable). Given this, then &lt;/p&gt;&#xA;&#xA;&lt;p&gt;From your budget constraint, you obtain $c =12-2b$, so you can work with a single decision variable. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since you are asked about the feasible combinations of $(M,L)$ represented by a straight line, this happens in a diagram with $(M,L)$ measured in the axes. So you have to arrive at an expression of say $M$ as a function of $L$. How do you do this?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Write $L$ (and then also $M$) as a function of $c$ and $b$ (from the information in the question). Use the relation obtained from the budget constraint to eliminate $c$ from both relations. Then solve for $L$ (and for $M$) each as a function of $b$. Equate the two to obtain the function expressing $M$ as a function of $L$.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then you can check which of the choices given conforms with this function.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2016-01-17T14:48:26.883" LastActivityDate="2016-01-17T14:48:26.883" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10253" PostTypeId="2" ParentId="10251" CreationDate="2016-01-17T14:40:13.763" Score="2" Body="&lt;p&gt;The first sentence means that Tommy's mother's utility function over a bundle $(x,y)$ equals&#xA;\begin{equation*}&#xA;u(2,7)-u(x,y)=|x-2|+|y-7|&#xA;\end{equation*}&#xA;since she measures the disutility of this bundle with respect to the most preferred one by the &quot;sum of the absolute values of the differences&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore the utility that she associates with the point $(4,5)$ equals&#xA;\begin{equation*}&#xA;u(4,5)=u(2,7)-(2+2)=u(2,7)-4&#xA;\end{equation*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You are asked to find the indifference curve that passes through the point $(4,5)$, i.e. the set of bundles $(x,y)$ that satisfy&#xA;\begin{equation*}&#xA;u(x,y)=u(4,5)&#xA;\end{equation*}&#xA;which you can write&#xA;\begin{equation*}&#xA;u(2,7)-u(x,y)=u(2,7)-u(4,5)=4&#xA;\end{equation*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question is therefore: which of the options a), b), c), d) (if any) contain only bundles $(x,y)$ such that $u(2,7)-u(x,y)=4$? You simply have to compute $u(2,7)-u(x,y)$ for all the proposed bundles, given the formula above, and check whether the value equals 4 or not.&lt;/p&gt;&#xA;" OwnerUserId="4667" LastActivityDate="2016-01-17T14:40:13.763" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10254" PostTypeId="1" AcceptedAnswerId="17339" CreationDate="2016-01-17T15:02:33.657" Score="2" ViewCount="1736" Body="&lt;p&gt;Suppose I have a small business that sell ice creams.&#xA;An Icecream cost 2$, and every day I have different values of sales.&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;Day 1: 50 sales&#xA;Day 2: 70 sales&#xA;Day 3: 30 sales&#xA;Day 4: 50 sales&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;How to I estimate the demand curve?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Should I change every day the price of the icecream and see how many sales I get? (the variation could be caused by many other factors)&lt;/li&gt;&#xA;&lt;li&gt;Should I do a linear regression on the sales data?&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="5075" LastEditorUserId="5075" LastEditDate="2016-01-17T15:18:56.697" LastActivityDate="2017-06-29T12:59:44.327" Title="How to estimate empirically a demand curve" Tags="&lt;supply-and-demand&gt;&lt;elasticity&gt;&lt;pricing&gt;&lt;price-discrimination&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10255" PostTypeId="1" CreationDate="2016-01-17T15:07:59.943" Score="3" ViewCount="606" Body="&lt;p&gt;Let the real exchange rate $Q=\frac{P^*e}{P}$, where $P^*$ is the 'world' price level (everything with '*' is of the 'world'), $P$ is the domestic price level, and $e =\frac{\text{Home Currency}}{\text{Foreign Currency}}$ the nominal exchange rate. The domestic country doesn't influence economic world fundamentals.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By depreciation, I mean an increase in $Q$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In real terms, I'm going to define:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Exports: $X=\sigma(Q)y^*$, with $\sigma(Q)$ being a function of $Q$ that gives the share of the domestic country in world trade. With an increase in Q, foreign goods are more expensive relative to home goods, so home share of world trade increases.&lt;/li&gt;&#xA;&lt;li&gt;Imports: $Y=Q m(Q)y$, with $m(Q)$ being the marginal propensity to import (increase in Q $\rightarrow$ decrease in $m(Q)$), and $y$ domestic output.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;From the above definitions for exports and imports, we're able to define the trade balance equilibrium output $y_{BT}=\frac{\sigma(Q)}{Qm(Q)}y^*$. &#xA;So, assuming the Marshall-Lerner condition, we know that a depreciation in $Q$ will make the $y_{BT}$ to increase.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm reading a textbook that states: assuming the world real interest rate $r^*$(=domestic real interest rate $r$) is constant, when the $Q$ increases, $y_{BT}$ will increase by more than the domestic output $y$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Well,I'm trying to check this assertion. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For that I define IS (with keynesian consumption function) as $y=\frac{1}{1-c_1(1-t)+Qm(Q)}(c_0+I(r)+G+\sigma(Q)y^*)$. In this definition I'm trying to keep everything simple, i.e. no lags for the interest and exchange rate.&#xA;So, when there's a depreciation in $Q$ from $Q_1 \rightarrow Q_2$, we have&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;$\Delta y_{BT}=\left(\frac{\sigma(Q_1)}{Q_1m(Q_1)}-\frac{\sigma(Q_2)}{Q_2m(Q_2)}\right) y^*$&lt;/li&gt;&#xA;&lt;li&gt;$\Delta y=D(\frac{1}{1-c_1(1-t)+Q_2m(Q_2)}-\frac{1}{1-c_1(1-t)+Q_1m(Q_1)})+(\frac{\sigma(Q_2)}{1-c_1(1-t)+Q_2m(Q_2)}-\frac{\sigma(Q_1)}{1-c_1(1-t)+Q_1m(Q_1)})y^*$&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;where $D$ is the spending independent of $Q$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;From this, how we can conclude $\Delta y &amp;lt; \Delta y_{BT}$?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help help would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="118" LastEditDate="2016-01-18T10:13:33.453" LastActivityDate="2016-01-18T10:13:33.453" Title="With a depreciation of real exchange rate, what happens to the trade balance equilibrium output?" Tags="&lt;macroeconomics&gt;&lt;open-economy-macro&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10256" PostTypeId="2" ParentId="10254" CreationDate="2016-01-17T18:41:30.067" Score="2" Body="&lt;p&gt;I think You will have to account for various factors other than price. What is your purpose in estimating the demand curve? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This &lt;a href=&quot;http://www.econ.jku.at/members/WinterEbmer/files/Teaching/managerial/ws14-15/estimating.pdf&quot; rel=&quot;nofollow&quot;&gt;link&lt;/a&gt; will give you a good explanation on how to estimate demand curves if you are looking for simple exposition - assuming that sales and other factors have linear relationship. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you are good at econometrics, you may want to consider simultaneous equations models. It is likely that your single equation model will suffer from simultaneity and omitted variable bias along with identification problems. &lt;/p&gt;&#xA;" OwnerUserId="6009" LastActivityDate="2016-01-17T18:41:30.067" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10257" PostTypeId="1" AcceptedAnswerId="10258" CreationDate="2016-01-17T19:40:46.650" Score="4" ViewCount="178" Body="&lt;p&gt;Assuming no income was lost, only assets were destroyed (e.g. homes), how does disaster event impact GDP numbers?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or otherwise, is losing and rebuilding wealth neutral to GDP (e.g. spending on construction instead of entertainment)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is GDP calculated so well that all subtle effects are reflected in the numbers (e.g. lost home might affect work opportunities in mid-term)?&lt;/p&gt;&#xA;" OwnerUserId="6999" LastActivityDate="2016-01-17T19:52:21.063" Title="How are disaster effects calculated into GDP?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10258" PostTypeId="2" ParentId="10257" CreationDate="2016-01-17T19:52:21.063" Score="6" Body="&lt;p&gt;GDP is just a partial measure of flow. There are lots of changes to the stock of a nation, its capital, that are not captured by GDP.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Destruction of assets in natural disasters isn't recognised as a loss in GDP. It gets worse: the rebuilding would actually be a positive on GDP. NB any loss in economic output from, say, destruction of factories, &lt;em&gt;would&lt;/em&gt; appear as a negative on GDP - the loss of the factory's output.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Changes in natural capital aren't captured either.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;GDP is just a measure of volume of transactions. It gets misused as a proxy for economic wellbeing. That's not the indicator's fault, it's the fault of those who misuse it.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2016-01-17T19:52:21.063" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10259" PostTypeId="1" AcceptedAnswerId="10260" CreationDate="2016-01-17T21:17:59.147" Score="0" ViewCount="1616" Body="&lt;p&gt;If the only information we had about Goldie were that she chooses the bundle (6, 6) when prices are (6, 7) and she chooses the bundle (10, 0) when prices are (5, 5), then we could conclude that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;a.&#xA;the bundle (6, 6) is revealed preferred to (10, 0) but there is no evidence that she violates WARP.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;b.&#xA;Goldie violates WARP.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;c.&#xA;the bundle (10, 0) is revealed preferred to (6, 6) and she violates WARP.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;d.&#xA;neither bundle is revealed preferred to the other.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;e.&#xA;the bundle (10, 0) is revealed preferred to (6, 6) but there is no evidence that she violates WARP.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My attempt:&lt;/strong&gt;&#xA;Obvious conclusion to this question is that (6,6) bundle is preferred to (10,0) bundle when prices are (6,7) but when the prices are (5,5) everything is the other way round thus it violates the WARP whereas the correct answer as stated in the questionbank is A why is that?&lt;/p&gt;&#xA;" OwnerUserId="5486" LastActivityDate="2016-01-17T22:11:32.167" Title="Violating WARP or not?" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="5" FavoriteCount="1" ClosedDate="2016-01-18T19:10:59.480" ContentLicense="CC BY-SA 3.0" />
  <row Id="10260" PostTypeId="2" ParentId="10259" CreationDate="2016-01-17T22:11:32.167" Score="3" Body="&lt;p&gt;When she chooses the bundle (6,6) when the prices are (6,7), she spends &#xA;\begin{equation*}&#xA;6*6+6*7=78&#xA;\end{equation*}&#xA;The total price of the bundle (10,0) given this price system is &#xA;\begin{equation*}&#xA;10*6+0*7=60&amp;lt;78&#xA;\end{equation*}&#xA;Therefore she could afford the bundle (10,0) if she wanted to. The fact that she chooses (6,6) reveals that she prefers (6,6) to (10,0).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given the price system (5,5), when she chooses the bundle (10,0) she spends&#xA;\begin{equation*}&#xA;10*5+0*5=50&#xA;\end{equation*}&#xA;And the price of the bundle (6,6) would be&#xA;\begin{equation*}&#xA;6*5+6*5=60&#xA;\end{equation*}&#xA;Therefore (6,6) is not necessarily affordable if her budget is comprised between 50 and 59. This is why (10,0) is not revealed preferred to (6,6) in that case, and thus there is no evidence that she violates WARP.&lt;/p&gt;&#xA;" OwnerUserId="4667" LastActivityDate="2016-01-17T22:11:32.167" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10261" PostTypeId="2" ParentId="10245" CreationDate="2016-01-17T23:51:45.620" Score="0" Body="&lt;p&gt;Firstly a general observation.  There can be more than one way correctly to classify an economic policy. One reason is that classifications can be broader or finer (more detailed).  Another is that classifications may relate either to the nature of the policy instrument or to the economic objectives of its use.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A minimum wage policy typically has the objective of relieving poverty for those in work, so in terms of its objective could be classified as an example of a policy to raise economic welfare (how successful it may be in achieving that objective is a further question).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In terms of the nature of the policy instrument, a minimum wage policy could as you say be regarded as a form of price control policy. Price control policy in turn could be regarded as an example of economic regulation, implying direct controls on the operation of particular markets (other examples being import or export quotas and rationing - by the government rather than the market - of scarce goods). However, the objectives of price controls, which include price ceilings as well as price floors, and more generally of economic regulation are often very different to those of a minimum wage policy.  For example, price ceilings applying to a wide range of goods have sometimes been adopted as an instrument of counter-inflation policy.&lt;/p&gt;&#xA;" OwnerUserId="1417" LastActivityDate="2016-01-17T23:51:45.620" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10262" PostTypeId="2" ParentId="10248" CreationDate="2016-01-18T02:20:32.113" Score="2" Body="&lt;p&gt;Here is my method, which is less rigorous but perhaps quicker, and I believe allows you to see the answer more easily, at least in this case. It may not be true in every case.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since the line segment will represent &lt;strong&gt;all&lt;/strong&gt; combination of lawyers and M.B.A's that we can reach, it must include the extremes. That is, it must include the cases where we maximize the number of lawyers that we reach, and when we maximize the number of M.B.A's that we reach. In fact, these will be the endpoints (since if we are not maximizing one of these we have to be somewhere in-between). Because of this we can do the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) Figure out how many lawyers we can reach, if we focus on only reaching lawyers. Well, the business magazine lets me reach $300$ lawyers for every $\$700$ I spend. The consumer magazine lets me reach $250$ lawyers for every $\$350$ I spend &lt;strong&gt;or equivalently&lt;/strong&gt; $500$ lawyers for every $\$700$ I spend. &lt;strong&gt;This is important&lt;/strong&gt; because we are comparing $\$700$ worth of one magazine to $\$700$ worth of another: we are making a $1:1$ comparison, which is necessary.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What the above paragraph tells us is that, if I want to reach as many lawyers as possible, I should spend all my money on the consumer magazine ($500&amp;gt;300$). With a budget of $\$4200$ I can buy $4200/350 = 12$ ads. $12$ ads lets me reach $12*250 = 3000$ layers. So the most lawyers I can reach is $3000$. Additionally, $12$ consumer ads lets me reach $12*300=3600$ M.B.A's, hence one point (one extreme) is &#xA;$$&#xA;(3000,3600)&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To get the other point, find out how you can reach the most M.B.A's.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One thing to note: The fact that things like $(0,3,600)$ are options should perhaps prompt you to consider maximizing the lawyers reached and maximizing the number of M.B.A's reached (since a $0$ indicates reaching none of one group). Not that doing so will be correct, but if you are stuck such a hint might lead you to the correct answer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Cheers.&lt;/p&gt;&#xA;" OwnerUserId="6600" LastActivityDate="2016-01-18T02:20:32.113" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10263" PostTypeId="1" CreationDate="2016-01-18T03:45:10.040" Score="0" ViewCount="123" Body="&lt;p&gt;Let $K=$capital, $L=$ labour, $A=$ knowledge or effectiveness of labour.  And put $\mathcal{K} = K/AL$ the capital stock per unit of effective labour.  If the following is negative&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \displaystyle \frac{\partial \dot{\mathcal{K}}(\mathcal{K})}{\partial \mathcal{K}} \bigg|_{k=k^*} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;is this then concave down, and if so what does this mean?  More simply I am asking when we have two different partial derivatives of a variable, does it still have the same properties of the usual second derivative?&lt;/p&gt;&#xA;" OwnerUserId="5780" LastActivityDate="2016-01-18T03:45:10.040" Title="Second derivative of Capital stock per unit of effective labour" Tags="&lt;macroeconomics&gt;&lt;mathematical-economics&gt;" AnswerCount="0" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="10264" PostTypeId="1" AcceptedAnswerId="10293" CreationDate="2016-01-18T09:49:16.743" Score="1" ViewCount="113" Body="&lt;p&gt;USD is accepted all over the world. U.S can easily print USD to buy up the most valuable assets from all over the world. Ethics aside. What is preventing the U.S from doing so? What did I miss out?&lt;/p&gt;&#xA;" OwnerUserId="6172" LastActivityDate="2016-01-20T13:46:26.130" Title="What is preventing the United States from printing USD to buy up prized assets from foreign countries given that USD is the world's reserve currency?" Tags="&lt;currency&gt;&lt;money&gt;&lt;usa&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10265" PostTypeId="1" AcceptedAnswerId="10344" CreationDate="2016-01-18T10:36:21.350" Score="1" ViewCount="102" Body="&lt;p&gt;&lt;strong&gt;What I am doing:&lt;/strong&gt; I use the regression discontinuity design (henceforth RDD) to study differences in wages received by people born at the end of the year and by those people born at the beginning of the year. I have a panel dataset with observations on 5 years in a row and use Stata. My running variable is the amount of days between the date of birth and the end of the calendar year. The cut-off date is January 1st.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;The problem:&lt;/strong&gt; I pool observations across years, but in doing so now the running variable presents no value on its left.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My proposed solution to this problem:&lt;/strong&gt; I move the time window of interest from Jan-Dec to July-June. This implies the creation of a new running variable where 0 is assigned to people born on July 1st,..., 30 is assigned to people born on July 31st,...,and 364 is assigned to people born on June 30th. Now the cut-off value is 183, which still corresponds to January 1st. Finally, I also center this new variable as recommended by the literature on RDD, so that July 1st is now -183, January 1st is now 0, and December 31st is +183. Now I have observations both on the left and the right of the cut-off value of the running variable; this new variable also allows me to run the RDD with different bandwidths.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My questions:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;What do you think about this new re-scaled variables? Could this&#xA;solution be considered data manipulation in bad sense? (like, am I&#xA;inventing data and get results that do not reflect reality?)&lt;/li&gt;&#xA;&lt;li&gt;I am using the sharp RDD, is this appropriate?&lt;/li&gt;&#xA;&lt;li&gt;If sharp RDD is appropriate, should I use also the fuzzy RDD as&#xA;robustness check? (As robustness checks I already use different&#xA;tools, as proposed &lt;a href=&quot;http://econ.tulane.edu/RePEc/pdf/tul1518.pdf&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;)&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;This question is present also in &quot;Cross Validated.&quot;&lt;/p&gt;&#xA;" OwnerUserId="4997" LastActivityDate="2016-01-23T02:06:44.083" Title="RDD, wages, and day of birth" Tags="&lt;labor-economics&gt;&lt;regression&gt;&lt;wages&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10266" PostTypeId="1" AcceptedAnswerId="10267" CreationDate="2016-01-18T12:10:45.957" Score="4" ViewCount="101" Body="&lt;p&gt;Let's assume a standard regression model:&#xA;$$y=\beta x+u$$&#xA;We'd like to test if an variable $x_j$ is relevant in the respect of the model.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;t-statistics: $$t=\frac{\hat{\beta_j}-b}{SE(\hat{\beta_j})}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Most of the time, we assume the following two-tailed hypothesis:&#xA;$$H_0: \beta_j=b, \ H_1: \beta_j \neq b$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is, why don't we use more often the one-tailed hypothesis to test the significance of a variable $x_j$? When I read papers and write assignments I hardly ever come across one-tailed t-tests in the respect to regression models. Why?&lt;/p&gt;&#xA;" OwnerUserId="5017" LastActivityDate="2016-01-18T13:22:27.883" Title="Why do we use mostly two-tailed Student's t-statistics to find if an explanatory variable is significant in a regression?" Tags="&lt;econometrics&gt;&lt;statistics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10267" PostTypeId="2" ParentId="10266" CreationDate="2016-01-18T12:38:09.430" Score="4" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;We'd like to test if an variable $x_j$ is relevant in the respect of the model&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;means that we want to test its &quot;statistical significance&quot;, so the null hypothesis is  $$\text{H}_0 : \beta = 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(by the way, historically, that's why it is called the &quot;null&quot; hypothesis: a hypothesis of &quot;null&quot;-zero- effect).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The $t$-statistic for this test is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$t=\frac{\hat{\beta_j}}{SE(\hat{\beta_j})}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Using a two-tailed test does not constrain us as regards the sign of the coefficient (the direction of the effect, if it exists). It may be positive or negative. If it is positive, the null if it is rejected, will be because the $t$-statistic takes a large positive value. But if the effect is negative, then the $t$-statistic will take a high negative value. So we want to test against either case, and this is why we use a &quot;two-tailed&quot; test.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2016-01-18T13:22:27.883" LastActivityDate="2016-01-18T13:22:27.883" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10268" PostTypeId="1" AcceptedAnswerId="10269" CreationDate="2016-01-18T17:33:28.520" Score="6" ViewCount="123" Body="&lt;p&gt;If the Fed managed to save the US economy with their liberal expansionary policy, why doesn't the ECB follow suit if it is much more efficient in reducing unemployment etc?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, why did Quantitative Easing work to better effect in the US compared to so far in Europe?     &lt;/p&gt;&#xA;" OwnerUserId="6992" LastActivityDate="2020-05-11T05:50:33.493" Title="Why doesn't the ECB implement the same fiscal and monetary policy that the FED used to save the US economy?" Tags="&lt;macroeconomics&gt;&lt;monetary-policy&gt;&lt;fiscal-policy&gt;&lt;usa&gt;&lt;quantitative-easing&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10269" PostTypeId="2" ParentId="10268" CreationDate="2016-01-18T17:57:15.240" Score="4" Body="&lt;p&gt;The ECB faces a unique challenge in that the Eurozone is a monetary union without a fiscal union. Because each country has autonomy over their own fiscal policy and there is no separate Eurobond, it is unclear which countries' bonds the ECB would buy to perform Quantitative Easing. In the US this is easy because of the presence of US Treasury Bonds that  the Federal Reserve can readily purchase. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, since the Eurozone is composed of so many different economies, the main goal of the ECB is inflation control. It is extremely hard to set a blanket policy to cover the whole Eurozone when there are so many different economies in different states right now. Setting an interest rate very low or performing quantitative easing over the whole Eurozone, which is very hard because of the lack of fiscal union, would undoubtably be good policy for countries like Greece and Portugal, but would be the wrong policy for a country like Germany that currently has a strong economy.&lt;/p&gt;&#xA;" OwnerUserId="7005" LastEditorUserId="4020" LastEditDate="2020-05-11T05:50:33.493" LastActivityDate="2020-05-11T05:50:33.493" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="10270" PostTypeId="1" AcceptedAnswerId="11607" CreationDate="2016-01-18T17:58:26.997" Score="2" ViewCount="10677" Body="&lt;p&gt;I have been doing some reading and I have found that shareholder's equity is equal to the company's total assets minus its total liabilities. Equity is apparently defined in much the same way. Book value is equal to the total assets minus intangible assets minus liabilities. So what is the actual difference between all of them?&#xA;&lt;br&gt;&#xA;Intangible assets seem rather hard to quantify, if I bought a house in a good neighborhood, its location could be called an intangible asset, right? But how do I measure this asset with a monetary value so that I can subtract it from its actual value?&#xA;&lt;br&gt;&#xA;What is the difference between all three of these concepts?&lt;/p&gt;&#xA;" OwnerUserId="7006" LastActivityDate="2016-04-18T05:54:34.027" Title="What is the difference between shareholder's equity, equity, and book value?" Tags="&lt;stock-market&gt;&lt;value&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10271" PostTypeId="2" ParentId="10270" CreationDate="2016-01-18T19:01:16.157" Score="0" Body="&lt;p&gt;Book value of an asset is the carrying value of an asset in the books i.e. balance sheet of the company. I think you are confusing the definitions of net asset value and book value. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Equity and shareholders' equity are referring to the same thing. Shares are recorded in balance sheet at book value, any additional payments are recorded as paid in capital to account for the difference between market and book value. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So you have a book value for shares and a market value. &lt;/p&gt;&#xA;" OwnerUserId="6009" LastActivityDate="2016-01-18T19:01:16.157" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10273" PostTypeId="1" AcceptedAnswerId="18890" CreationDate="2016-01-18T21:10:04.947" Score="14" ViewCount="403" Body="&lt;p&gt;In Barro (2009) &lt;em&gt;&lt;a href=&quot;http://piketty.pse.ens.fr/files/Barro2009.pdf&quot; rel=&quot;noreferrer&quot;&gt;Rare disasters, asset prices and welfare costs&lt;/a&gt;&lt;/em&gt; Barro develops a Lucas tree model with Epstein-Zin preferences. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question concerns the paper's equation (10). In this equation Barro states that under the optimal solution utility $U_t$ is proportional to consumption $C_t$ rased to the power of $1-\gamma$, where $\gamma$ is the coefficient of relative risk aversion, i.e. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$U_t=\Phi C_t^{1-\gamma}$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;While I understand the logic of this result, I do not understand how he derives the constant $\Phi$, which is shown in footnote 7 of the mentioned paper:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Alberto Giovannini and Philippe Weil (1989, appendix) show that, with&#xA;  the utility function in equation (9), attained utility, $U_t$ , is&#xA;  proportional to wealth raised to the power $1-\gamma$. The form in&#xA;  equation (10) follows because $C_t$ is optimally chosen as a constant&#xA;  ratio to wealth in the i.i.d. case. The formula for $\Phi$ is, if&#xA;  $\gamma \neq 1$ $\theta \neq 1$, $$\Phi  =&#xA; (\frac{1}{1-\gamma})\{\rho+(\theta-1)g^* - (1/2)\gamma(\theta&#xA; -1)\sigma^2 - (\frac{\theta-1}{\gamma-1})p[E(1-b)^{1-\gamma} - 1 - (\gamma  - 1)Eb] \}^{(\gamma-1)/(1-\theta)}$$&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Barro quotes the 1989 NBER paper by Giovannini and Weil. In this paper I can derive the constant. However, it looks completely different than Barro's version, because I end up with an expression that includes $E[R_t^{1-\gamma}]$, where $R_t$ is the return on equity. I believe Barro has replaced $E[R_t^{1-\gamma}]$ with the equilibrium solution of  $R_t$. However, his expression does not include any logs or exp expressions. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would be grateful for a solution or any hints to the solution.  &lt;/p&gt;&#xA;" OwnerUserId="7008" LastEditorUserId="7008" LastEditDate="2016-02-14T20:26:11.963" LastActivityDate="2017-10-23T17:35:23.860" Title="Barro's (2009) rare disaster model in the AER: How to derive equation (10)?" Tags="&lt;macroeconomics&gt;&lt;finance&gt;&lt;academic-graduate&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="10275" PostTypeId="2" ParentId="10226" CreationDate="2016-01-18T21:15:57.113" Score="0" Body="&lt;p&gt;In addition to what John said (I would have commented on his answer, but don't have enough reputation).  And this is not conditional, conditional would be $f(X|\beta)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ F_X(x;\beta) = P(X \leq x; \beta=\theta) = \int_{-\infty}^{x} f_X(x;\beta) dx $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We fix $x=u$ and $\beta=\theta$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ P(X \leq u; \theta)=\int_{-\infty}^u f_X(u;\theta) du $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ = \int_{- \infty}^0 f(u;\theta) du + \int_0^x f(u; \theta) du $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ = 0 + \int_0^x \frac{e^{-u/\theta}}{\theta} du $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ = 1 - e^{-x/\theta}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then over the set $X$ and and at particular values $\beta=\theta$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ F_X(X;\theta) = 1 - e^{-X/\beta}$$&lt;/p&gt;&#xA;" OwnerUserId="5780" LastEditorUserId="5780" LastEditDate="2016-02-02T15:24:52.807" LastActivityDate="2016-02-02T15:24:52.807" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10276" PostTypeId="1" AcceptedAnswerId="10283" CreationDate="2016-01-18T21:18:04.933" Score="3" ViewCount="129" Body="&lt;p&gt;I'm reading a macro text book, the authors stated that in the 2000's we witnessed the greatest increase in oil prices ever, even when compared to the 70's oil shocks. To most of us, this fact went a bit unnoticed, at least when compared to the 70's. Usually in this shocks, we have a trade and supply shock. If the CB only considers the trade shock component, then the economy will face the usual stagflation. Some of the reasons the authors give for the lack of stagflation are increased lending from financial institutions, which prevented a marked decrease in consumption and eventually in output, and that workers were 'less inclined or able to get compensation through their wages' making the Equilibrium rate of Unemployment(ERU) curves to shift less than expected.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would like to assess the truth of such claim. I've been trying to get some data, but I'm really bad at it. So, my question is: Are the authors right? From, the two pictures below (the last is US GDP growth rate if I'm not mistaken), I would say that it might have gone unnoticed, but I wasn't able to check if real wages decreased, and by how much... &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;P.S.: In your answers, could you please name your data sources, and give some indication as to how we could replicate the graphs? I'm interested in learning how to do it. Many thanks. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/sVq11.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/sVq11.png&quot; alt=&quot;MacroTrends&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/aC1kw.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/aC1kw.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="118" LastEditDate="2016-01-18T22:11:10.613" LastActivityDate="2016-02-20T14:00:17.643" Title="The Oil hike of the 2000's: Did it go unnoticed, and why?" Tags="&lt;macroeconomics&gt;&lt;open-economy-macro&gt;&lt;balance-of-trade&gt;" AnswerCount="2" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="10277" PostTypeId="1" AcceptedAnswerId="10281" CreationDate="2016-01-18T23:27:04.283" Score="2" ViewCount="207" Body="&lt;p&gt;I practice with some excercises about the Markowitz theory.&#xA;If we have a portfolio with two stocks A and B, with given return $r_A$ and $r_B$, the expected return can be computed as: $r_P= w_A \cdot r_A + (1-w_A) \cdot r_B$, where $w_A$ is the weight invested in stock A.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a given risk free rate ($r_f$), I now have to compute the return of the one fund of the one fund theorem. What I am exactly supposed to do here? I know about the one fund theorem, but I don't know what to do. Any hints?&lt;/p&gt;&#xA;" OwnerUserId="4401" LastEditorUserId="69" LastEditDate="2016-01-19T15:07:45.837" LastActivityDate="2016-01-19T15:07:45.837" Title="Two asset Markowitz Portfolio Optimization and Capital-Market Line construction for a Given Risk Free Rate" Tags="&lt;microeconomics&gt;&lt;portfolio-theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10278" PostTypeId="1" AcceptedAnswerId="10279" CreationDate="2016-01-19T00:56:18.273" Score="4" ViewCount="83" Body="&lt;p&gt;Coverage of the recent fall in oil prices frequently mentions OPEC's decision to defend their market share, sacrificing price in the process. I understand how market share is important from a marketing perspective: strong brand loyalty gives a firm power to charge a premium over similar products. However, since oil is fungible, what is the benefit of maintaining market share? When I buy oil today, I don't care who I bought it from yesterday, right? What is the benefit OPEC receives by maintaining market share?&lt;/p&gt;&#xA;" OwnerUserId="7010" LastEditorUserId="8481" LastEditDate="2020-05-04T10:08:46.587" LastActivityDate="2020-05-04T10:08:46.587" Title="OPEC's market share strategy: What is the benefit of market share in a fungible market?" Tags="&lt;commodities&gt;&lt;oil&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10279" PostTypeId="2" ParentId="10278" CreationDate="2016-01-19T07:48:04.353" Score="3" Body="&lt;p&gt;The benefits of market share in the somewhat-fungible oil market:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;pricing power (because OPEC is big enough to retain pricing power in the long term because they're a big % of the market. They're just choosing to not use that pricing power right now, &lt;em&gt;perhaps&lt;/em&gt; because they're choosing to bankrupt competitors)&lt;/li&gt;&#xA;&lt;li&gt;geopolitical strength&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Note that there are additional explanations:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Saudi is one of the lowest short-run-marginal-cost producers, so you'd expect them to be one of the last to cut production, just through normal business, regardless of the other stuff&lt;/li&gt;&#xA;&lt;li&gt;we know that &lt;a href=&quot;http://www.nature.com/nature/journal/v517/n7533/full/nature14016.html&quot; rel=&quot;nofollow&quot;&gt;most known fossil-fuel reserves are going to stay in the ground,&lt;/a&gt; so reserve-owners are now under pressure to try to ensure that theirs aren't, and someone else's are.&lt;/li&gt;&#xA;&lt;li&gt;You could view the last few years as a sucker-trap: high oil prices lured in lots of investment into new production outside OPEC. An oil price below $30 bankrupts many of those new entrants, who have high debt-servicing costs and high production costs. And because of that, future investors will be much more wary, and require much higher returns&lt;/li&gt;&#xA;&lt;li&gt;Saudi knew that the international sanctions on Iran were on the way to being lifted. If Saudi had cut oil production, it would have weakened its market strength (and thus also its political strength) relative to Iran upon its return to the international oil market.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="44" LastEditorUserId="44" LastEditDate="2016-01-20T08:05:38.610" LastActivityDate="2016-01-20T08:05:38.610" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10280" PostTypeId="1" CreationDate="2016-01-19T12:19:12.740" Score="4" ViewCount="281" Body="&lt;p&gt;Someone gave me a proof of this, but I am not sure if it is correct. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $B(p,w) = \{x: p\cdot x \leq w\}$ (the budget set). Then:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{align}&#xA;x(p,w) &amp;amp;= \arg \max_{x\in B(p,w)} u(x)\\&#xA;&amp;amp;=\arg \max_{\alpha x\in \alpha B(p,w)}  u(\alpha x) \\&#xA;&amp;amp;=\arg \max_{y\in B(p,\alpha w)} u(y) \\&#xA;&amp;amp;=\frac{1}{\alpha} \arg \max_{y\in B(p,\alpha w)} u(y) \\&#xA;&amp;amp;=\frac{1}{\alpha} x(p, \alpha w)&#xA;\end{align}&#xA;Where the result follows from taking $\alpha=\frac{1}{w}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this proof correct (I am not sure of the middle three equalities)? Where is homotheticity used? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT: A monotone preference relation $\succsim$ on $X= \mathbb{R}^{L}_{+}$ is homothetic if all indifference sets are related by proportional expansion along rays; that is, if $x \sim y$, then $\alpha x \sim \alpha y$ for any $\alpha \geq 0$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, recall a continuous $\succsim$ on $X = \mathbb{R}_{+}^{L}$ is homothetic iff it admits a utility function that is homogenous of degree one; $u(\alpha x) = \alpha u(x)$.&lt;/p&gt;&#xA;" OwnerUserId="5731" LastEditorUserId="5731" LastEditDate="2016-01-19T16:23:30.017" LastActivityDate="2016-02-09T19:09:25.593" Title="Show that $x(p,w)=w\cdot x(p,1)$ with homothetic preferences" Tags="&lt;utility&gt;&lt;consumer-theory&gt;&lt;walrasian&gt;" AnswerCount="1" CommentCount="4" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10281" PostTypeId="2" ParentId="10277" CreationDate="2016-01-19T14:01:14.223" Score="1" Body="&lt;p&gt;The Sharpe ratio tells us the amount of excess return we get for taking on each additional unit of portfolio standard deviation. &#xA;$$\frac{\mu_p - r_f}{\sigma_p }$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We are looking for the combination of the two risky assets with the highest Sharpe ratio ($P^*$). Once we do that, we can take linear combinations of that portfolio and the risk-less asset and form the Capital-Market Line. This is usually solved for numerically rather than analytically but it is possible to do so analytically, particularly in the two asset case. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A portfolio $p$ has an expected return of:&#xA;$$\mu_p(W_A) = w_A \cdot \mu_A + (1 - w_A) \cdot \mu_B  $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and a standard deviation of:&#xA;$$\sigma_p(W_A) = \sqrt(w^2_A \cdot \sigma^2_A + (1 - w_A)^2 \cdot \sigma^2_B + 2(1-W_A)W_A \sigma_{AB}) $$&#xA;where $\sigma^2_A$ is the variance of asset $A$, $\sigma^2_B$ is the variance of asset $B$, and $\sigma_{AB}$ is their covariance. It therefore has a Sharpe Ratio of:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\mu_p(W_A) - r_f}{\sigma_p(W_A) } = \frac{w_A \cdot \mu_A + (1 - w_A) \cdot \mu_B}{+\sqrt(w^2_A \cdot \sigma^2_A + (1 - w_A)^2 \cdot \sigma^2_B + 2(1-W_A)W_A \sigma_{AB})}$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To maximize this you'll want to solve:&#xA;$$ \frac{d}{dW_A} \frac{\mu_p(W_A) - r_f}{\sigma_p(W_A) } = 0 $$&#xA;$\Rightarrow W^{*}_A$ s.t. $P(W^{*}_A)=P^*$&#xA;and check that the second order condition is met:&#xA;$$ \frac{d^2}{dW^2_A} \frac{\mu_p(W_A) - r_f}{\sigma_p(W_A) } &amp;lt; 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The algebra is a bit hairy but there is nothing tricky from here on out. &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2016-01-19T14:09:06.517" LastActivityDate="2016-01-19T14:09:06.517" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10282" PostTypeId="1" CreationDate="2016-01-19T15:48:23.727" Score="3" ViewCount="171" Body="&lt;p&gt;I'm currently writing a paper on China in Africa and I'd like to compare Africas Exports to China with its exports to Europe and the USA. More specifically I'd like to find out if the Exports to China consist of more natural resources than those to Africas other trading partners. However I find it hard to distinguish between &quot;extractive goods&quot; and non-extractive ones. So far I used Comtrades HS-categorization and the categories: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;5 mineral products&lt;/li&gt;&#xA;&lt;li&gt;9 wood and articles of wood; wood charcoal; cork and articles of cork; manufactures of straw, of esparto or of other plaiting materials; basketware and wickerwork&lt;/li&gt;&#xA;&lt;li&gt;14 natural or cultured pearls, precious or semi-precious stones, precious metals, metals clad with precious metal and articles thereof; imitation jewellery; coin&lt;/li&gt;&#xA;&lt;li&gt;15 base metals and articles of base metal&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Do you think this wouldd be ok, or do you have any sources that state which categories to define as &quot;extractive&quot;?&lt;/p&gt;&#xA;" OwnerUserId="7016" LastEditorUserId="69" LastEditDate="2016-01-19T20:27:44.627" LastActivityDate="2021-05-18T21:02:40.247" Title="Definition: Extractive Goods (Comtrades HS-Categorization)" Tags="&lt;resource-economics&gt;&lt;definition&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10283" PostTypeId="2" ParentId="10276" CreationDate="2016-01-19T15:53:00.523" Score="2" Body="&lt;p&gt;I consider the very rapid growth of infrastructure in the BRIC countries to be a strong driver of the high oil prices (as well as other building commodities) in the mid-2000s.  It takes a lot of energy to build roads, mine copper and iron, make cement, etc...  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would disagree with two of the implications in the statement: &quot;in the 2000's we witnessed the greatest increase in oil prices ever, even when compared to the 70's oil shocks. To most of us, this fact went a bit unnoticed...&quot;  I disagree with the comparison of the early '73 OPEC oil embargo and the oil spike in 2008, and I disagree that it went unnoticed.  This is not an apples to apples comparison.  In 1973 there were times that you &lt;em&gt;could not&lt;/em&gt; buy gasoline.  In 2008, gasoline was always available, it was just more expensive.  And I, and all of my acquaintances, &lt;em&gt;noticed&lt;/em&gt; it, and we complained about it, but we always had it available.  That's a very big difference to not being able to buy something crucial to your livelihood.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That being said, I would agree that increased lending in the mid 2000s and a very strong world economy may be a reason that the spike of oil prices in 2008 wasn't considered a crisis.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would also agree that oil prices did not cause the late 2000s recession.  The recession was caused by an abrupt evaporation of interbank lending and a hasty tightening of credit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since you are a student of Economics (and I assume of markets), let me say something that wasn't clear to me until I spent 30 years working in investment management: the economy and markets are very different.  The economy is 7 billion people a day waking up and having to be productive to survive.  It is real, and it is very hard for any government to derail it, as hard as they might try.  I have huge faith in the economy. The securities markets, rather, are places built on fear and greed, two very intense emotions that are self-reinforcing, meaning that the more the emotion is fed, the stronger it becomes, thus feeding that emotion even more.  That is why we get bull market bubbles and bear market cliff dives that do not correlate in their magnitude with the underlying economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The stock market is a leading indicator of economic direction, but not of magnitude.  Keep this in mind.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Alright, sorry for the preachiness.  Good luck.&lt;/p&gt;&#xA;" OwnerUserId="7014" LastActivityDate="2016-01-19T15:53:00.523" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10284" PostTypeId="2" ParentId="10239" CreationDate="2016-01-19T16:30:14.853" Score="4" Body="&lt;p&gt;&lt;strong&gt;Why do falling oil prices take stocks with it?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;They don't. And your gut feeling is mostly incorrect.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.investopedia.com/ask/answers/030415/how-does-price-oil-affect-stock-market.asp&quot; rel=&quot;nofollow&quot;&gt;This article&lt;/a&gt; suggests that the price of oil and the overall stock market are generally not correlated. The main reason is that there are too many other factors in play that even a large cost reduction in one area doesn't carry enough weight to affect the rest of the market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At the end of the article, it does agree with you regarding the second part of your gut feeling, that airlines do see a direct benefit to falling gas prices:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;One sector of the stock market is strongly correlated with the spot price of oil: transportation. This makes sense because the dominant input cost for transportation firms is fuel. Investors might want to consider shorting the stocks of corporate transportation companies when oil prices are high. Conversely, it makes sense to buy when oil prices are low.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;However, &lt;a href=&quot;http://aviationweek.com/commercial-aviation/drop-oil-prices-means-airline-profitability-boost-now&quot; rel=&quot;nofollow&quot;&gt;here's an explanation&lt;/a&gt; of why lower gas prices don't automatically translate into long term benefits for airlines.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And &lt;a href=&quot;http://www.forbes.com/sites/steveschaefer/2015/04/06/airline-stocks-oil-prices-american-united-delta/#2715e4857a0b6673a665137b&quot; rel=&quot;nofollow&quot;&gt;this article&lt;/a&gt; suggests that even though airlines save a lot of money when gas prices fall, investors just don't care anymore! Specifically:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Those figures seem to illustrate the significant benefits from cheaper oil prices, but shareholders don’t seem too inclined to give the carriers much more credit for those benefits or the possibility that savings will be passed on to investors...&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;tldr;&lt;/strong&gt; Your premises are mostly incorrect, and your idea of at least airline stocks increasing as gas prices decrease, although theoretically correct, does not necessarily translate to reality.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Note: I don't like answering my own questions, but as I was unsatisfied with the answers thus far I did some research on this, and came to the conclusion that my original premises were wrong.)&lt;/p&gt;&#xA;" OwnerUserId="6988" LastActivityDate="2016-01-19T16:30:14.853" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10285" PostTypeId="1" AcceptedAnswerId="10791" CreationDate="2016-01-19T16:56:13.490" Score="7" ViewCount="17016" Body="&lt;p&gt;I am looking for a simple explanation of the implication of having homothetic/nonhomethetic preferences in relation to consumers' preferences when consuming goods. &lt;/p&gt;&#xA;" OwnerUserId="2759" LastActivityDate="2017-04-12T15:30:03.927" Title="In simple terms: what are the implications of homothetic and nonhomothetic consumer preferences?" Tags="&lt;microeconomics&gt;&lt;micro-data&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="10288" PostTypeId="1" AcceptedAnswerId="10289" CreationDate="2016-01-19T19:51:50.550" Score="1" ViewCount="60" Body="&lt;p&gt;The conditional mean of $Y$&#xA;  given $X$&#xA;  is:$$E[Y|X]=\int yf(y|x)dy$$&#xA;  What is the relation to the linear model? I have read somewhere that when X&#xA;  and $Y$&#xA;  are normal (their marginal distributions), then the conditional mean of $Y$&#xA;  becomes a linear function of $X$.&#xA;  How can I see this?&lt;/p&gt;&#xA;" OwnerUserId="5233" LastEditorUserId="5233" LastEditDate="2016-01-19T22:23:21.667" LastActivityDate="2016-01-19T22:44:43.587" Title="Conditional Mean and Linearity" Tags="&lt;regression&gt;" AnswerCount="2" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10289" PostTypeId="2" ParentId="10288" CreationDate="2016-01-19T20:04:45.347" Score="2" Body="&lt;p&gt;If X and Y are normal, then the distribution of X conditional on Y is:&#xA;$$ X | (Y = y) = N(\mu_x + \rho \frac{\sigma_x}{\sigma_y}(y - \mu_y), (1-\rho)^2 \sigma^2_x )$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, $E[X|Y = y] = \mu_x + \rho \frac{\sigma_x}{\sigma_y}(y - \mu_y) = (\mu_x - \mu_y (\rho \frac{\sigma_x}{\sigma_y})) + (\rho \frac{\sigma_x}{\sigma_y})y $ which is linear in $y$.&#xA;Symmetrically:&#xA;$$E[Y|X = x] = (\mu_y - \mu_x (\rho \frac{\sigma_y}{\sigma_x})) + (\rho \frac{\sigma_y}{\sigma_x})x   $$&#xA;which is also linear in $x$&lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2016-01-19T20:04:45.347" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="10290" PostTypeId="1" AcceptedAnswerId="10295" CreationDate="2016-01-19T22:21:53.853" Score="0" ViewCount="1825" Body="&lt;p&gt;I am doing an assignment where I calculate the consumption function of a certain country from empirical data and I am getting a negative intercept. How can this be interpreted because usually, isn't the intercept always positive?&lt;/p&gt;&#xA;" OwnerUserId="7021" LastActivityDate="2016-01-20T15:37:19.020" Title="Consumption function with negative intercept?" Tags="&lt;macroeconomics&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10291" PostTypeId="2" ParentId="10288" CreationDate="2016-01-19T22:44:43.587" Score="1" Body="&lt;p&gt;A pair of random variables $(Y,X)$ that has a joint bivariate distribution that belongs to the Elliptical Symmetric Family and to the Pearson Family (they overlap), have the property that the associated conditional expectation functions (of $Y$ given $X$ but also of $X$ given $Y$)  are linear (more generally, affine) functions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Examples include the Normal distribution and Student's $t$-distribution. Other bivariate distributions that have affine conditional expectation functions are the Pareto, Beta, Gamma, F-, Binomial, Poisson, and Negative Binomial.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2016-01-19T22:44:43.587" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10293" PostTypeId="2" ParentId="10264" CreationDate="2016-01-20T03:28:52.347" Score="2" Body="&lt;p&gt;To a certain extent it can.  But not too much, else it will create a run on the dollar.  If speculators no longer trusted the dollar, they would sell it for other stores of value (like Euros, gold, etc...).  Foreign dollars would have to come home and be redeemed by real wealth which means less real wealth for the US domestic economy and inflation.  This can feed on itself and cause a self-reinforcing inflationary fire that would be difficult to put out.&lt;/p&gt;&#xA;" OwnerUserId="6479" LastActivityDate="2016-01-20T03:28:52.347" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10294" PostTypeId="2" ParentId="10239" CreationDate="2016-01-20T03:35:53.557" Score="1" Body="&lt;p&gt;The dollar is the international reserve currency.  So when we have a strong dollar, and things (like oil and stocks) are priced in dollars, they become less attractive to foreigners.  Foreigners of course buy a lot of American stocks and oil.  It's kind of a similar logic of why Europeans will vacation less in New York when the dollar is strong and Americans are more likely to vacation in Europe.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Put another way, if a foreigner wants to buy oil, they usually have to buy dollars in a conceptual sense to in turn buy that oil.  The more expensive the dollar is, the less likely they are to buy that oil (or stocks).  This is why commodities and stocks seems to have a somewhat inverse relationship with the strength of the dollar.&lt;/p&gt;&#xA;" OwnerUserId="6479" LastActivityDate="2016-01-20T03:35:53.557" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10295" PostTypeId="2" ParentId="10290" CreationDate="2016-01-20T08:25:20.090" Score="3" Body="&lt;p&gt;I assume that you ran a linear regression to find the $C(Y)$ function and by negative intercept you mean $C(0)&amp;lt;0$. This does not contradict anything because what you have is an estimate of the $C(Y)$ function based on empirical data that was probably centered around some non-zero value of $Y$. So it is quite possible that the function's estimate is incorrect far from the observed range of $Y$, especially if you were using a linear regression which is a very basic functional form.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the actual $C(Y)$ consumption function, not the estimate, were such that $C(0) &amp;lt; 0$ then indeed we would have a contradiction. But as long as you are clear that what you have is an estimate for $C(Y)$ this problem does not arise.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2016-01-20T08:25:20.090" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10296" PostTypeId="2" ParentId="10264" CreationDate="2016-01-20T13:46:26.130" Score="1" Body="&lt;p&gt;Any increase in the money supply causes an increase in prices (inflation), which is exactly the same as saying a reduction in the purchasing power of the currency. If foreigners believe the USD to have lower purchasing power, then they'll want more USDs in exchange for a unit of their currency (or in exchange for their stocks, bonds, physical assets, goods, services, prized assets etc). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the federal reserve printed a LOT of new USD, then the effect would be very noticeable. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In case you're wondering why the USD hasn't depreciated a lot since 2008 (when the fed began very loose monetary policy including huge amounts of quantitative easing, i.e. printing more money), that's because other countries (especially US trade partners) were affected by the global recession too; so their central banks engaged in similar policies causing the USD to appreciate back up to pre-2008 levels. &lt;/p&gt;&#xA;" OwnerUserId="7027" LastActivityDate="2016-01-20T13:46:26.130" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10297" PostTypeId="2" ParentId="10239" CreationDate="2016-01-20T13:55:33.000" Score="1" Body="&lt;p&gt;It's the other way around - when stock prices fall it's because company profit outlooks are not good. Since a very large proportion of companies use oil or some derivative of it (see below), and there's still a lot being pumped out of the ground, then lower demand, same supply, means the market price falls. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The oil price falls when companies want less of it. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Companies that need oil and its derivatives include: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;All food and drinks, consumer staples (they need to be transported, which usually uses oil based energy)&lt;/li&gt;&#xA;&lt;li&gt;Anything that uses plastics (which are petroleum derivatives)&lt;/li&gt;&#xA;&lt;li&gt;The transport sector&lt;/li&gt;&#xA;&lt;li&gt;Tourism &lt;/li&gt;&#xA;&lt;li&gt;Construction &lt;/li&gt;&#xA;&lt;li&gt;Government spending (often on infrastructure projects which typically requires fuel for the operation of machinery)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;So to be clear, the sequence of causation goes: shock to profit outlooks (visible to people outside company boardrooms as a fall in stock prices) -&gt; demand for oil falls -&gt; oil market equilibrates at a lower price&lt;/p&gt;&#xA;" OwnerUserId="7027" LastActivityDate="2016-01-20T13:55:33.000" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10298" PostTypeId="2" ParentId="10245" CreationDate="2016-01-20T14:31:29.367" Score="-1" Body="&lt;p&gt;It's definitely not commonly considered a fiscal or monetary policy. You can correctly state that it's a supply side policy, although if I had to give it a label I'd call it an example of a 'microeconomic reform'.&lt;/p&gt;&#xA;" OwnerUserId="7027" LastEditorUserId="7027" LastEditDate="2016-01-20T14:50:23.773" LastActivityDate="2016-01-20T14:50:23.773" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10301" PostTypeId="1" AcceptedAnswerId="10324" CreationDate="2016-01-20T14:39:02.810" Score="1" ViewCount="6875" Body="&lt;p&gt;I have read that in a deflationary spiral, lower prices cause banks to increase their interest rates. Is this true and what is the logic behind it? &lt;/p&gt;&#xA;" OwnerUserId="6992" LastActivityDate="2016-01-23T00:56:22.967" Title="Why does deflation cause banks to increase their interest rates?" Tags="&lt;macroeconomics&gt;&lt;interest-rate&gt;&lt;banking&gt;&lt;deflation&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10302" PostTypeId="1" AcceptedAnswerId="10306" CreationDate="2016-01-20T14:55:03.573" Score="3" ViewCount="1979" Body="&lt;p&gt;Could be electricity considered as an inelastic good?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am interested in the electricity delivered to final consumers in member countries of Nordpool Spot (Norway, Sweden, Finland, Denmark, Estonia, Latvia and Lithuania). I found that market prices in Nordpool Spot is not correlated with electricity consumption, therefore I explain this by considering, in this case, electricity as an inelastic good.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this reasoning correct?&lt;/p&gt;&#xA;" OwnerUserId="7032" LastEditorUserId="44" LastEditDate="2016-01-20T16:02:10.787" LastActivityDate="2016-01-20T16:21:40.097" Title="Electricity as inelastic good" Tags="&lt;microeconomics&gt;&lt;elasticity&gt;&lt;energy-economics&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10305" PostTypeId="2" ParentId="10290" CreationDate="2016-01-20T15:37:19.020" Score="0" Body="&lt;p&gt;To supplement the above answer, you can force your regression to not have a constant. In this case, economic theory will indicate that $C(0)$ is at least non zero. &lt;/p&gt;&#xA;" OwnerUserId="5233" LastActivityDate="2016-01-20T15:37:19.020" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="10306" PostTypeId="2" ParentId="10302" CreationDate="2016-01-20T16:01:41.587" Score="3" Body="&lt;p&gt;It is. And it is not.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Electricity markets are generally not set up for the demand-side to do much active participation at all. So the short-run demand curve as seen in, for example, Nordpool Spot, is almost perfectly inelastic. Not quite, because there are some large industrial demands that exhibit some elasticity, and are exposed to the spot market. But a very large chunk of demand isn't exposed to the spot market at all; and a lot of the demand that is exposed, is highly inelastic - particularly to half-hour-by-half-hour changes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That tells us a lot about the structure of the markets, and only a little about the actual underlying demand curve.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Until there's a lot of demand-side response (DSR), we've only got stated-preference studies and DSR pilots to go on, to estimate what the demand curve would look like in a well-functioning market: the evidence we have (e.g. from the Olympic Peninsula study), suggests there's quite a lot of potential demand elasticity out there, just waiting to be harnessed. Note that when short-run demand elasticity has been observed, it manifests in two ways: some demand will move &lt;em&gt;between&lt;/em&gt; half-hours that aren't too far apart, when the price differentials incentivise it. Some other demand will just vanish altogether when prices rise.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you want to try to distinguish the elasticity signal from all the noise in the existing market, then you need to take demand and prices for a particular half-hour slot on Tuesdays-Thursdays in one particular season across several years; and look at how weather-adjusted demand varies with price, while adjusting for any long-term trends.&lt;/p&gt;&#xA;" OwnerUserId="44" LastEditorUserId="44" LastEditDate="2016-01-20T16:21:40.097" LastActivityDate="2016-01-20T16:21:40.097" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="10308" PostTypeId="1" CreationDate="2016-01-20T18:37:04.443" Score="3" ViewCount="405" Body="&lt;p&gt;Is there information and literature regarding comparative consumer price index methods? Specifically, the web scraping method of index construction?&lt;/p&gt;&#xA;" OwnerUserId="7034" LastEditorUserId="69" LastEditDate="2016-01-20T18:45:15.617" LastActivityDate="2018-07-04T21:02:15.333" Title="Using web scraped data for consumer price indices" Tags="&lt;macroeconomics&gt;&lt;inflation&gt;&lt;academic-graduate&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10309" PostTypeId="2" ParentId="10308" CreationDate="2016-01-20T18:50:37.233" Score="2" Body="&lt;p&gt;&lt;a href=&quot;http://bpp.mit.edu/&quot; rel=&quot;nofollow&quot;&gt;Take a look at Billion Prices Project&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The Billion Prices Project is an academic initiative that uses prices&#xA;  collected from hundreds of online retailers around the world on a&#xA;  daily basis to conduct economic research.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Also take a look at &lt;a href=&quot;http://www.pricestats.com/&quot; rel=&quot;nofollow&quot;&gt;PriceStats&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;PriceStats collects online prices to provide daily inflation updates&#xA;  for 22 economies.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.pricestats.com/approach/overview&quot; rel=&quot;nofollow&quot;&gt;Overview of the PiceStats approach&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;More broadly, price index construction is a huge literature full of pitfalls so it is difficult to point you to a generic but also advanced presentation of the issues. But you might start with &lt;a href=&quot;http://www.jstor.org/stable/2646934?seq=1#page_scan_tab_contents&quot; rel=&quot;nofollow&quot;&gt;Consumer Prices, the Consumer Price Index, and the Cost of Living&lt;/a&gt; (Boskin, Dulberger, Gordon, Griliches and Jorgenson (1998)), a Journal of Economic Perspectives piece on the subject. &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2016-01-20T18:50:37.233" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10310" PostTypeId="2" ParentId="10165" CreationDate="2016-01-20T20:15:15.580" Score="5" Body="&lt;p&gt;The monotonicity result that they prove in their lemma 1 (p. 556) is stronger than you think: it states that whenever $q&amp;gt;q'$, the support of $R_1(q)$ is &quot;uniformly below&quot; the support of $R_1(q')$. In other words, it is impossible to find &lt;em&gt;any&lt;/em&gt; realizations $(r,r')$ of $R_1(q)$ and $R_1(q')$, respectively such that $r&amp;gt;r'$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The proof of this result relies on the idea that firms decisions are strategic substitutes in the Cournot duopoly model: the more firm 2 produces, the less firm 1 wants to produce. Thus, if firm 1 finds it optimal to produce an amount $r'$ with positive probability when firm 2 produces $q'$, it cannot find it optimal to produce a larger amount ($r&amp;gt;r'$) when firm 2 itself produces more ($q&amp;gt;q')$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider therefore a production level $q$ by firm 2 such that $0$ is a realization of $R_1(q)$. Take $\epsilon&amp;gt;0$ and suppose that there exists $r&amp;gt;0$ that is a realization of $R_1(q+\epsilon)$. The condition&#xA;\begin{equation*}&#xA;r &amp;gt; 0 \text{ and } q&amp;lt;q+\epsilon&#xA;\end{equation*}&#xA;violates their lemma 1, since $r$ is a realization of $R_1(q+\epsilon)$ and $q$ is a realization of $R_1(q)$. This proves that $R_1(q+\epsilon)$ has all its weight on 0.&lt;/p&gt;&#xA;" OwnerUserId="4667" LastActivityDate="2016-01-20T20:15:15.580" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10311" PostTypeId="1" CreationDate="2016-01-20T21:05:28.167" Score="3" ViewCount="2402" Body="&lt;p&gt;In a &lt;a href=&quot;http://www.telegraph.co.uk/finance/financetopics/davos/12108569/World-faces-wave-of-epic-debt-defaults-fears-central-bank-veteran.html&quot; rel=&quot;nofollow&quot;&gt;recent article about the OECD latest report&lt;/a&gt; it reads as follows:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Mr White said QE and easy money policies by the US Federal Reserve and&#xA;  its peers have had the effect of bringing spending forward from the&#xA;  future in what is known as &quot;inter-temporal smoothing&quot;. It becomes a&#xA;  toxic addiction over time and ultimately loses traction. In the end,&#xA;  the future catches up with you. &quot;By definition, this means you cannot&#xA;  spend the money tomorrow,&quot; he said.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;What does he mean by &quot;inter-temporal smoothing&quot; and &quot;bringing spending forward&quot;. How do you &quot;bring spending forward&quot;?&lt;/p&gt;&#xA;" OwnerUserId="1448" LastActivityDate="2016-01-21T11:03:00.657" Title="What is &quot;inter-temporal smoothing&quot;?" Tags="&lt;monetary-policy&gt;&lt;money-supply&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10313" PostTypeId="2" ParentId="10311" CreationDate="2016-01-20T22:10:45.233" Score="2" Body="&lt;p&gt;Inter-temporal smoothing refers to the smoothing of consumption over your lifetime. Usually a persons income increases over their lifespan as they gain more experience, learn new skills, get promoted up the corporate ladder, etc. But most people also anticipate this and as they are somewhat impatient (and need stuff) they take loans when they are younger as they can pay these back later when their income is larger (or so they think). So instead of level of consumption directly following the level of income, consumption is somewhat more even. When income is lower the consumer takes a loan to increase consumption and when income is higher the consumer repays the loan and thereby decreases consumption.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By taking a loan you brought consumption spending forward from the future.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2016-01-20T22:10:45.233" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10314" PostTypeId="2" ParentId="10311" CreationDate="2016-01-20T22:13:41.373" Score="4" Body="&lt;p&gt;Intertemporal consumption smoothing is using savings or borrowing to make consumption less volatile than income (or sometimes wealth). The intertemporal consumption smoothing  motive can arise in many settings, but an early and famous example is the Milton Friedman’s permanent income hypothesis. The idea is that if income contains permanent and temporary shocks then maximizing the NPV of lifetime utility will make you ignore temporary shocks and consume a fixed fraction of your permanent income. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Essentially, you know temporary shocks are temporary. If you cut back on consumption in the face of these temporary shocks you'd end up with consumption that is higher than average in better times. Because of declining marginal utility of consumption this is a worse consumption plan than keeping your consumption fixed in good times and bad. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In contrast, if you experience a permanent negative shock to consumption there won't (in expectation) be a good time to make up for the lost income. Leaving your consumption unchanged in the present would therefore require even larger cutbacks in the future. This is a worse consumption plan than cutting your consumption immediately and using that new and lower plan going forward.&lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2016-01-21T11:03:00.657" LastActivityDate="2016-01-21T11:03:00.657" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10315" PostTypeId="1" CreationDate="2016-01-21T08:46:12.313" Score="2" ViewCount="2798" Body="&lt;p&gt;I was recently reading up on the Price Discrimination, first second and third degree. Although the author has laid out the concept neatly, there are no connections established between this concept and the market structures. Therefore, I came up with the above-mentioned question. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In my opinion, the key criteria to exercise price discrimination is that the firms must have some price setting abilities. So Perfect Competition is definitely out. In Monopolistic Competition prices tend to be sticky so I think that this might be one market form where Price Discrimination is not heavily practiced. In a Monopoly, though the situation is quite different as the sole producer can charge as much as he likes and could therefore engage in Price Discrimination. I am not sure as to what would happen in Oligopolisitc Market Forms.  &lt;/p&gt;&#xA;" OwnerUserId="6565" LastEditorUserId="43" LastEditDate="2016-01-21T10:35:19.020" LastActivityDate="2016-03-03T15:43:14.923" Title="In which market structures does the producer employ price discrimination?" Tags="&lt;industrial-organisation&gt;&lt;price-discrimination&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10316" PostTypeId="2" ParentId="10315" CreationDate="2016-01-21T10:35:03.340" Score="1" Body="&lt;h3&gt;Market power required for price-discrimination?&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;In my understanding, no. I'm pretty sure that one can show this mathematically, but I'll just give you the intuition. Price-discrimination (PD) increases profits, because it incorporates different price-elasticities by having different prices. Therefore, a firm that incorporates PD should make, c.p. &lt;em&gt;more&lt;/em&gt; profits than a firm that does not.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Perfect competition means that less profitable firms are forced out of the market. In this case, perfect competition will lead to firms that act with price-discrimination whenever they can.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Think about restaurants, where there is a lot of price-discrimination going on, either via lunch offers or menu pricing. Restaurants really shouldn't have market power, should they?&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2016-01-21T10:35:03.340" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10317" PostTypeId="1" CreationDate="2016-01-21T11:04:39.947" Score="0" ViewCount="53" Body="&lt;p&gt;It is said in Wikipedia, that devaluation can be done as monetary policy act.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But HOW this can be done if there is no fixed rate?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What are actual tools Central Bank can use?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One thing I can imagine -- currency intervention.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What are others?&lt;/p&gt;&#xA;" OwnerUserId="7041" LastActivityDate="2016-01-21T11:34:56.063" Title="How to make deliberate devaluation or depreciation of a currency?" Tags="&lt;currency&gt;&lt;central-banking&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10318" PostTypeId="2" ParentId="10317" CreationDate="2016-01-21T11:34:56.063" Score="1" Body="&lt;p&gt;A country can increase the supply of its currency, through some combination of increasing the amount of base money, or loosening the capital / reserve requirements of banks.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It can decrease interest rates.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It can decrease the supply of the currency it wants to depreciate against (for example by buying and holding lots of that currency, or equivalent instruments).&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2016-01-21T11:34:56.063" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10319" PostTypeId="1" CreationDate="2016-01-21T11:41:27.320" Score="0" ViewCount="47" Body="&lt;p&gt;I'm looking for some bibliography for International Macroeconomics/Finance. Any suggestions?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="118" LastActivityDate="2016-01-21T11:41:27.320" Title="Bibliography International Macroeconomics/Finance" Tags="&lt;macroeconomics&gt;&lt;financial-economics&gt;&lt;open-economy-macro&gt;" AnswerCount="0" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="10321" PostTypeId="1" CreationDate="2016-01-21T16:44:43.543" Score="3" ViewCount="152" Body="&lt;p&gt;I asked a similar question on Cross Validated, but got no answer. The following question is sufficiently different.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider the following deterministic relationship:$$Y_{t}=C_{t}+I_{t}+G_{t}+(X_{t}-M_{t})$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we run an OLS regression of Y&#xA;  on the covariates, of course, we get an $R^{2}$&#xA; of 1, and the vector of coefficients equal to their population counterparts, i.e. $$\hat{\beta}=&#xA; \beta=1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, this means the marginal effect of each regressor is constant. However, the contribution of each regressor depends on its relative variance to y.&#xA;  In fact, in the univariate case, it can be shown that:$$R^{2}=\beta^{2}\frac{var(x)}{var(y)}$$&#xA; which shows that even when the marginal effect of $x$&#xA;  on $y$&#xA;  is large, its contribution in the partial $R^{2}$&#xA; sense is high only when it varies a lot, causing y&#xA;  to vary with it as well. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, consider the same above expression:$$Y_{t}=C_{t}+I_{t}+G_{t}+(X_{t}-M_{t})$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let us divide both sides by $Y_{t}$&#xA;  for the entire vector of coefficients and the design matrix.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We get:$$1=\frac{C_{t}}{Y_{t}}+\frac{I_{t}}{Y_{t}}+\frac{G_{t}}{Y_{t}}+\frac{(X_{t}-M_{t})}{Y_{t}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This holds for each realization of $Y_{t}$&#xA; and the design matrix by construction. Now, each regressor here is the relative contribution (which we can multiply by 100 to get percentage contribution) to the dependent variable. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now that we have the relative contribution for each regressor for each observation, we can get the mean contribution of the regressor across observations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I ran some simulations, and found that the mean contribution of each regressor is close, but not exactly equal to the partial $R^{2}$&#xA;  of each regressor. Is there any relationship between them? Intuitively, they should be the same, right? Thanks a lot!&lt;/p&gt;&#xA;" OwnerUserId="5233" LastActivityDate="2016-01-28T08:27:25.547" Title="Partial R2 and contribution of Regressors" Tags="&lt;statistics&gt;&lt;regression&gt;" AnswerCount="0" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10322" PostTypeId="1" AcceptedAnswerId="10416" CreationDate="2016-01-21T16:55:43.407" Score="9" ViewCount="1115" Body="&lt;p&gt;In &lt;a href=&quot;http://consultingbyrpm.com/blog/2016/01/pareto-big-macs.html&quot;&gt;this blog post&lt;/a&gt;, economist Bob Murphy raises a puzzle involving the principle that in a competitive market, the price equals the marginal cost:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;There’s a general principle from intro to microeconomics that says in&#xA;  a competitive industry, in equilibrium P=MC. So how would we actually&#xA;  apply that in practice to the fast food industry? At the point at&#xA;  which the burgers are already made and sitting on the back warmer,&#xA;  what’s the marginal cost to the firm of the worker picking up the&#xA;  burger and handing it to a customer? 5 cents? So, in an efficient fast&#xA;  food industry, burgers should be priced at 5 cents. Don’t you dare say&#xA;  that the firm needs to charge at least enough to cover average costs,&#xA;  because (as David points out) that involves a sunk cost fallacy…&#xA;  Something is obviously not right in the above. But I’m curious to see&#xA;  how you guys would unpack it. If you want to say, “I don’t trust them&#xA;  there textbooks with their funny graphs!” OK fine, but ideally I’d&#xA;  like you to solve it within the world of standard textbook micro,&#xA;  since presumably that can be done.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;What he's saying is that once the burger is already made, the cost of making the burger is a sunk cost, and thus the marginal cost of the burger is just the cost of the tiny labor involved in picking it up and selling it to the customer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So why is it that in the fast food industry, the price of a burger takes into account the cost of making the burger and not just the cost of handing it over to the customer?  Is it because the fast food industry is far away from the conditions of perfect competition, or can this be explained using a perfect competition model?&lt;/p&gt;&#xA;" OwnerUserId="4447" LastEditorUserId="43" LastEditDate="2016-01-23T17:34:31.613" LastActivityDate="2016-03-29T00:50:22.620" Title="Why don't Burgers cost 5 cents?" Tags="&lt;microeconomics&gt;&lt;game-theory&gt;&lt;cost&gt;&lt;competition&gt;" AnswerCount="5" CommentCount="8" FavoriteCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="10324" PostTypeId="2" ParentId="10301" CreationDate="2016-01-21T17:24:43.680" Score="2" Body="&lt;p&gt;I suspect there is a small mistake in your notes. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Deflation does not cause &lt;em&gt;banks&lt;/em&gt; to increase their interest rates. However it is true that a deflationary spiral (or plain deflation for that matter) causes &lt;em&gt;real&lt;/em&gt; interest rates to increase. These are the interest rates that matter for the economy anyway, which is why in macroeconomics we often refer to the real interest rate even if it's not explicitly stated so.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The nominal interest rate, set by banks in part, is the interest rate in terms of money. It determines how much money we have to pay back for credit.&#xA;The real interest rate  is the rate in terms of goods and services. It determines how many goods and services we have to pay back for credit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The real interest rate is defined as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$ (1+r) = (1 + i) / (1 + \pi) $, which can be approximated by:&#xA;$r = i - \pi$, where r is the real interest rate, i is the nominal interest rate set by banks and $\pi$ is the inflation rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When we have deflation we get a negative $\pi$, which, as can be seen from the equations above, increases the real interest rate r. The smaller $\pi$ is, the bigger r gets. When $\pi$ is negative, even if we set $i$ to its lowest possible value, which is 0, the real interest paid on it will be positive. This means the amount paid back in goods and services is larger than the amount borrowed and increasingly so the bigger the deflation (smaller $\pi$) is.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastActivityDate="2016-01-21T17:24:43.680" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10326" PostTypeId="1" AcceptedAnswerId="10331" CreationDate="2016-01-22T04:59:19.017" Score="3" ViewCount="283" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;I have a difference equation &#xA;  $$ &#xA;p_t^{1-\alpha}=\alpha\sigma \left(y-p_t-\frac{(\sigma p_{t-1}^\alpha+b)p_t^{1-\alpha}}{\alpha\sigma} \right) &#xA;$$&#xA;  where $\alpha \in [0,1]$ and everything else is $&amp;gt;0$. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I need to prove that this equation has a unique steady state.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is what I have done so far; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Simplified the expression to write it in the closed form as follows;&#xA;$$&#xA;p_{t-1}=\left[\frac{\alpha y}{p_{t}^{1-\alpha}}-\alpha p_{t}^{\alpha}-\frac{a+1}{\sigma}\right]^{1/\alpha}&#xA;$$&#xA;Substituted $p_{t-1}=p_t=\overline{p}$ in the closed form, this gave. &#xA;$$&#xA;\overline{p}^{\alpha}=\alpha y\overline{p}^{\alpha-1}-&#xA;\alpha\overline{p}^{\alpha}-\frac{a+1}{\sigma}&#xA;$$&#xA;I'm stuck here. How can I prove that $\overline{p}$ has a unique solution? &lt;/p&gt;&#xA;" OwnerUserId="5863" LastEditorUserId="5780" LastEditDate="2016-01-22T06:55:16.183" LastActivityDate="2016-01-22T07:30:53.880" Title="Prove the uniqueness of steady state" Tags="&lt;macroeconomics&gt;&lt;dynamic-programming&gt;&lt;steady-state&gt;&lt;difference-equations&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10328" PostTypeId="2" ParentId="10322" CreationDate="2016-01-22T06:22:32.370" Score="9" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;What he's saying is that once the burger is already made, the cost of making the burger is a sunk cost, and thus the marginal cost of the burger is just the cost of the tiny labor involved in picking it up and selling it to the customer.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;That's sort of an odd position to take. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Obviously once the burger is cooked you can't recuperate the costs, but in the aggregate, the decision to cook some number of burgers in such and such a time period is made &lt;em&gt;before&lt;/em&gt; actually cooking them. So the cost of making a burger (including labor) isn't a sunk cost; it's a &lt;strong&gt;prospective cost&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Additionally, just because the monetary cost of making the burger is the same for each burger doesn't make it a sunk cost, just fixed (perhaps). But more to the point, there's a time cost which varies the more burgers you cook. We pay for convenience. Part of the marginal cost of cooking the burger is the opportunity cost of that time that could be spent not running a nice little fast food restaurant.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2016-01-22T06:22:32.370" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="10329" PostTypeId="1" CreationDate="2016-01-22T07:00:52.093" Score="1" ViewCount="78" Body="&lt;p&gt;Inflation rate for Eurozone in December 2015 &lt;a href=&quot;http://ec.europa.eu/eurostat/statistics-explained/index.php/Inflation_in_the_euro_area&quot; rel=&quot;nofollow&quot;&gt;was&lt;/a&gt; 0.2%. In November 2015 it was 0.1%. Meanwhile ECBs target is annual 2% and it seems that ECB does everything it can to push the inflation to the target. For example:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The ECB in December decided to lower the deposit rate by 10 basis&#xA;  points to -0.30% and extended the asset purchase programme until March&#xA;  2017 or &quot;beyond if necessary&quot;. &lt;a href=&quot;https://uk.finance.yahoo.com/news/eurozone-cpi-improves-line-expectations-103700849.html&quot; rel=&quot;nofollow&quot;&gt;Yahoo! Finance&lt;/a&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;ECB probably wants to stimulate economic growth by causing inflation (?), but the question is what makes it fail? Greece is printing billions of euros, interest rates are lower than low, euro itself has devaluated dramatically. Why is that inflation still doesn't happen?&lt;/p&gt;&#xA;" OwnerUserId="7052" LastActivityDate="2016-01-22T07:00:52.093" Title="Why is inflation rate so low in euro zone?" Tags="&lt;inflation&gt;&lt;eurodollar&gt;" AnswerCount="0" CommentCount="9" ContentLicense="CC BY-SA 3.0" />
  <row Id="10330" PostTypeId="2" ParentId="3207" CreationDate="2016-01-22T07:22:06.847" Score="1" Body="&lt;p&gt;I think you essentially say: without the teacher's announcement, isn't it still common knowledge that everyone sees at least 1 red hat? (You said, &quot;Everyone knows there is at least one red hat. And, if we start with common knowledge, they should figure out that everyone else knows that.&quot;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't think it is. Person 1 sees Person 2 and 3 have red hats. Yes, 1 thinks: &quot;2 sees a red hat on 3.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Yet, 1 further thinks: &quot;If 2 sees my hat is white, then 2 thinks that 3 might see both white hats: mine and 2's, which might be white too. So I think that 2 might think that 3 might not see a red hat. In other words, I do not know that 2 knows that 3 knows there is at least 1 red hat. It is not common knowledge there is at least 1 red hat, because I think it's possible that 2 thinks that 3 does not see a red hat.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This breaks down the old solution in this way. Suppose 3 and 2 say sequentially that they don't know what color hat they wear. Then it's 1's turn. 1 thinks: &quot;If 2 knows 3 sees a red hat, then my hat is red. Because otherwise my hat is white, so 2 concludes that his hat is the red hat that 3 sees. That's fine, but do I know that 2 knows that 3 sees a red hat? By the above, no, I don't know! I do not know that 2 knows that 3 knows there is a red hat. And in particular, it's not common knowledge!&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Conclusion: without the teacher's announcement, we lose (1) common knowledge and (2) the old solution in which the last person to guess can guess their hat color.&lt;/p&gt;&#xA;" OwnerUserId="7053" LastActivityDate="2016-01-22T07:22:06.847" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10331" PostTypeId="2" ParentId="10326" CreationDate="2016-01-22T07:30:53.880" Score="5" Body="&lt;p&gt;Rearranging the steady state equation&#xA;$$&#xA;\overline{p}^{\alpha}=\alpha y\overline{p}^{\alpha-1}-&#xA;\alpha\overline{p}^{\alpha}-\frac{a+1}{\sigma}&#xA;$$&#xA;we get&#xA;$$&#xA;(1 + \alpha)\overline{p}^{\alpha}=\alpha y\overline{p}^{\alpha-1}-&#xA;\frac{a+1}{\sigma}.&#xA;$$&#xA;As $\alpha \in [0,1]$, the left hand side of the equation is increasing in $\overline{p}$ and the right hand side is decreasing. At least one of these is strictly monotonic because $\alpha$ cannot be $0$ and $1$ at the same time. Hence at most one solution is possible.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2016-01-22T07:30:53.880" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10332" PostTypeId="1" AcceptedAnswerId="10347" CreationDate="2016-01-22T07:52:20.423" Score="1" ViewCount="403" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Find how quickly $y$ converges to $y^*$ in the vicinity of the balanced growth path&#xA;  $$ y=Y/AL=f(k); \; y^*=f(k^*) $$&#xA;  They suggest the hint, write $k=g(y)$, where $g(\bullet)=f^{-1}(\bullet)$.)&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;$Y$ is product output; $AL$ is effective labour; $K$ is capital; lowercase letters are divided by $AL$ (e.g. $y=Y/AL$); $k^*$ is the balanced growth path of capital.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This is problem $1.11$ in Advanced Macro by Romer.  I have tried looking at &lt;a href=&quot;https://en.wikipedia.org/wiki/Lagrange_inversion_theorem&quot; rel=&quot;nofollow&quot;&gt;Lagrange Inversion Theorem&lt;/a&gt;, and applying the above get to the first order Taylor series centered around $k^*$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \displaystyle g(y) = k^* + \lim_{k \to k^*} \left( \frac{y-f(k^*)}{1!} \right) \frac{d^0}{dw^0} \left( \frac{k-k^*}{f(k)-f(k^*)} \right) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;but since $y=f(k)$ and the zeroth derivative is the function itself, we get the following cancelation:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ = k^* + \lim_{k \to k^*} \frac{f(k)-f(k^*)}{f(k)-f(k^*)}(k-k^*) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ = k^* + \lim_{k \to k^*}(k - k^*) = k^* $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which doesn't tell us anything ... Do we need to look at the second order derivative?&lt;/p&gt;&#xA;" OwnerUserId="5780" LastActivityDate="2016-01-23T04:17:06.227" Title="Speed of convergence of output on the balanced growth path" Tags="&lt;macroeconomics&gt;" AnswerCount="2" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="10333" PostTypeId="1" AcceptedAnswerId="10335" CreationDate="2016-01-22T13:05:38.293" Score="2" ViewCount="347" Body="&lt;p&gt;Not sure if this is the right place for this question but it's more of a theoretical finance question than a personal finance question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So a loan has a principal amount that is given to the borrower in a lump sum, and the borrow then pays back that amount plus some interest. For example, let's say that George loans \$100 to Fred at 10% interest over 10 months. Fred then pays back at \$11 a month and is debt free at the end 10 months.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is it ever the case that George lends the money in increments instead of a single lump sum? That is, George pays Fred \$20 a month for five months, while at the same time Fred pays back at \$11 a month for 10 months. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I ask because this would be less useful to Fred but less risky to George.&lt;/p&gt;&#xA;" OwnerUserId="7055" LastEditorUserId="61" LastEditDate="2016-01-22T15:10:33.563" LastActivityDate="2016-01-22T15:30:00.230" Title="Is the loan principal ever delivered in pieces over time?" Tags="&lt;interest-rate&gt;&lt;investment&gt;&lt;debt&gt;&lt;risk&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10334" PostTypeId="1" CreationDate="2016-01-22T14:35:40.693" Score="1" ViewCount="42" Body="&lt;p&gt;I have a few time-series, say ${X, Y, Z}$ at a given frequency, say, yearly.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now I compute the yearly growth rates (ie log-differences): &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$dx = log(X_{t}/X_{t-1}), dy = ..., dz = ...$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and I compute the variances $vx = var(dx), vy = var(dy), vz = var(dz)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume I re-do the same at various frequencies $n = 2, 3, 4, 5,...$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$(d_n)x =log(X_{t}/X_{t-n})$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and I compute the variances of those $n$-years growth rates.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then I compute the variance-ratios: $vr(n) = var((d_n)x) / (n var(dx) )$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume that I have a model that provides these variance ratios: $vr(n, theta)$ for some parameter vector $\theta$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;How do I perform a GMM estimation of $\theta$?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I ask this because $dx$ and $(d_n)x$ are different time-series even if the latter is a transformation of the former. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Any advice?&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="7056" LastEditorUserId="69" LastEditDate="2016-01-23T16:07:34.060" LastActivityDate="2016-01-23T16:07:34.060" Title="Using variance-ratios as moment conditions in a GMM estimation" Tags="&lt;econometrics&gt;&lt;time-series&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10335" PostTypeId="2" ParentId="10333" CreationDate="2016-01-22T15:10:09.533" Score="6" Body="&lt;p&gt;Handing out the principal amount of debt gradually, in increments, is standard practice in investment loans extended by a bank to a corporation.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The rationale is clear : the corporation wants to make an investment, say a new factory. The whole plan is laid out and the cash flows of the pre-operational, construction period are also detailed, based on forecasts or specific agreements with the suppliers (contractors etc) that will be involved. The bank checks and accepts all these, but it also wants to see the corporation deliver (both the corporation's part in the financing but also as regards the actual build up of the investment).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So specific milestones are agreed between the two parties, and to each milestone a round of financing is agreed (these milestones become contracutal obligations, legally binding). Milestones usually include specific technical phases of the build up to be accomplished (say, the building's foundations are complete, or the power infrastructure has been installed, etc). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this way risk is reduced without hurting the necessary cash flow for the project. It also reduces the interest burden for the firm.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2016-01-22T15:10:09.533" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10336" PostTypeId="2" ParentId="10333" CreationDate="2016-01-22T15:30:00.230" Score="2" Body="&lt;p&gt;In the United States construction loans often work this way:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Once approved, the borrower will be put on a bank-draft, or draw,&#xA;  schedule that follows the project's construction stages and will&#xA;  typically be expected to make only interest payments during&#xA;  construction. As funds are requested, the lender will usually send&#xA;  someone to check on the job's progress.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.bankrate.com/finance/real-estate/how-do-home-construction-loans-work.aspx#ixzz3xzHrOkUf&quot; rel=&quot;nofollow&quot;&gt;How do home construction loans work? By Steve McLinden • Bankrate.com&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2016-01-22T15:30:00.230" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10337" PostTypeId="1" CreationDate="2016-01-22T17:04:27.953" Score="9" ViewCount="191" Body="&lt;p&gt;I recently read an excellent paper on the causes of high urban real estate prices in the United States, &lt;em&gt;Why is Manhattan so expensive? Regulation and the rise in house prices&lt;/em&gt; (&lt;a href=&quot;http://international.ucla.edu/media/files/glaeser.pdf&quot; rel=&quot;noreferrer&quot;&gt;GLAESER, GYOURKO, and SAKS (2005)&lt;/a&gt;). In trying to understand if Manhattan’s regulatory tax can be justified they lay out three potential justifications for such a regulatory tax. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In this section, we ask whether there is likely to be any negative externality large enough to warrant a regulatory tax of the magnitude we found in Manhattan. ...&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;In a big city such as Manhattan, an optimal zoning tax should&#xA;  incorporate at least three elements in order to reflect the marginal&#xA;  social cost of a new resident to the community. &lt;strong&gt;First, the zoning&#xA;  tax should reflect the fact that a new apartment may eliminate views&#xA;  from existing apartments.&lt;/strong&gt; Indeed, most current height restrictions&#xA;  exist for exactly that reason. Second, the new development should be&#xA;  taxed to the extent there are negative externalities created by extra&#xA;  crowding. Pure wage effects (that is, the fact that more workers can&#xA;  depress wages) are pecuniary, not real, externalities, so the usual&#xA;  economic logic suggests that these effects should not be part of the&#xA;  development tax. Third, the tax should reflect the fiscal burden of&#xA;  the new resident. This fiscal burden should be defined as the&#xA;  difference between government expenditures on the new resident and the&#xA;  taxes that the resident will pay.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;My question concerns the part in bold, that new construction obstructs the view of old construction and therefor is an externality that should be regulated. &lt;strong&gt;Is this an externality?&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If this cannot be answered generally, imagine specific case. A simple world where all &lt;a href=&quot;http://permitspace.blogspot.com/2007/11/what-is-as-of-right-development.html&quot; rel=&quot;noreferrer&quot;&gt;building is as of by right&lt;/a&gt;. I have an empty lot. I am entitled to build and do build a ten story building which obscures your view out of your 9 story apartment building. This right to build is not in dispute by and common knowledge to both parties. Your building happens to be on the market at the time. You got an early offer for \$10 million but when I announced my construction they withdraw the bid and submit a new one for \$9 million which you accept.  Was that million dollar difference an negative externality on you? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Maybe this seems obvious, I did something, you suffered, you had no say in it, ergo, an externality.  But I'm not so sure. By construction, in the example, I had a property right to block your view. That made my property more valuable and the expectation that your property might one day have obstructed views should have held down the value of yours. Since the right to develop was priced the basic condition of an externality is not satisfied. Like in Coase's setup, if I own the right to pollute there is no externality to polluting. If I own the right to obstruct what's the externality to obstructing?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;How should we think about more complex and general urban settings?&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;______________________ Update __________________________________&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0195073401&quot; rel=&quot;noreferrer&quot;&gt;Mas Collel Winston Green&lt;/a&gt; (1995) defines an externality as follows:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Definition 11.B.1: An externality is present whenever the well-being of a consumer or the production possibilities of a firm are directly affected by the actions or another agent in the economy&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;They then continue:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Simple as Definition 11.B.1 sounds, it contains a subtle point that&#xA;  has been a  source or some confusion. When we say &quot;directly,&quot; we mean&#xA;  to exclude any effects  that are mediated by prices. That is, an&#xA;  externality is present if, say, a fishery's productivity is affected&#xA;  by the emissions from a nearby oil refinery, but not simply the&#xA;  fishery's profitability is affected by the price of Oil (Which, in&#xA;  turn, is to some degree affected by the Oil refinery's output Of oil).&#xA;  The latter type of effect (referred to as a pecuniary externality by&#xA;  Viner (1931)) is present in any competitive market but. as we saw in&#xA;  Chapter 10, creates no inefficiency. Indeed, With price-taking&#xA;  behavior, the market is precisely the mechanism that guarantees a&#xA;  Pareto optimal outcome. This suggests that the presence of an&#xA;  externality is not merely a technological phenomenon but also a&#xA;  function of the set of markets in existence.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So there is a two-part test for an externality:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Is A harmed by the actions of B?&lt;/li&gt;&#xA;&lt;li&gt;Does B's action happen through the price mechanism or not?&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;In the example in the question above, as in the problem of the price change of the oranges in the comment on @EnergyNumbers's answer, test 1 is satisfied. The question remaining is is test 2 also satisfied. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The price of the land under the new building is priced to include development rights. The price of the existing building is lower because of those development rights. But, you say, &lt;em&gt;the price dropped when you actually built it!&lt;/em&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is that enough? That's also exactly what you would expect to happen if the purchase price included a bet on &lt;strong&gt;when&lt;/strong&gt; the other building would be built. If construction is increasing in rents, then should we view the construction as simply a pecuniary externality no different than if lower rents had decreased the value of the existing structure? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What's also tricky about views is that they aren't destroyed so much as transferred by the new construction. So it isn't as though , in MWG's example like the pollution kills the fish, it is more like one group of fishermen decide to fish upstream from another group of fishermen. That certainly isn't good for the latter group but makes it seem much more like a pecuniary externality where another worker takes your job by being willing to work for less or another buyer takes your orange by being willing to pay more for it.  &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2016-01-23T13:55:03.323" LastActivityDate="2016-01-23T13:55:03.323" Title="Are obstructed views a negative externality?" Tags="&lt;welfare-economics&gt;&lt;externalities&gt;&lt;regulation&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10338" PostTypeId="2" ParentId="10332" CreationDate="2016-01-22T17:05:52.130" Score="3" Body="&lt;p&gt;Okay so, in the book they looked at the first order taylor series of $\dot{k}$, so as @denesp said, we need the time here too!  So rather here we should look at the taylor series around $\dot{y}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \displaystyle \dot{y}(y) \simeq \left[ \frac{\partial \dot{y}(y)}{\partial y(k)} \bigg|_{y=y^*} \right] (y(k) - y(k^*)) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{\partial \dot{y}(y)}{\partial y(k)} \bigg|_{y=y^*} = \left( \frac{\partial \dot{y}(y)}{\partial k(t)} \bigg|_{y=y^*} \right) \left( \frac{\partial k(t)}{\partial y(k)} \bigg|_{k=k^*} \right) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First we look at:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ y=f(k) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Rightarrow \dot{y} = \frac{d}{dt} f(k) = \frac{d f}{d k} \frac{dk}{dt} = f'(k) \dot{k} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We know the key equation of the Solow model is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \dot{k}(t) = s f(k(t)) - (n+g+\delta)k(t) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \Rightarrow \dot{y} = f'(k) \left[ s f(k(t)) - (n+g+\delta)k(t) \right] $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We take the derivative of this with respect to capital:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{\partial \dot{y}}{\partial k} = f''(k)\left[ s f(k(t)) - (n+g+\delta)k(t) \right] + f'(k) \left[ s f'(k) - (n+g+\delta) \right]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The value $k^*$ is the &lt;em&gt;golden-rule&lt;/em&gt; level of the capital stock so:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ s f(k^*) = (n+g+\delta)k^* $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And hence &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \left( \frac{\partial \dot{y}}{\partial k} \bigg|_{y=y^*} \right) = f''(k^*)*(0) + f'(k^*)\left[ s f'(k^*) - (n+g+\delta) \right] $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Next we use the hint (not much of a hint, and rather misleading to begin with in my opinion)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \left( \frac{\partial k(y)}{\partial y(t)} \bigg|_{k=k^*} \right) = \left( \frac{\partial y(k)}{\partial k(t)} \bigg|_{y=y^*} \right)^{-1} = f'(k^*)^{-1} = g'(y^*) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Plugging both of these in to our first order partial derivative:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{\partial \dot{y}(y)}{\partial y(k)} \bigg|_{y=y^*} = \left( f'(k^*)\left[ s f'(k^*) - (n+g+\delta) \right] \right) * \left( f'(k^*)^{-1} \right) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ = s f'(k^*) - (n+g+\delta) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;since around the balanced growth path $s = (n+g+\delta)k^*/f(k^*)$ and putting&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ - \frac{\partial \dot{y}(y)}{\partial y(k)} \bigg|_{y=y^*} = \lambda $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \lambda = (n+g+\delta) - \frac{(n+g+\delta)(k^*)*f'(k^*)}{f(k^*)} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With $\alpha_k = \frac{k*f'(k)}{f(k)} $ being the elasticity of output with respect to capital we obtain:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \lambda = (n+g+\delta)(1-\alpha_k(k^*)) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So $y$ converges to its balanced growth-path value rate $\lambda$ the same as $k$ converges to $k^*$&lt;/p&gt;&#xA;" OwnerUserId="5780" LastActivityDate="2016-01-22T17:05:52.130" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10339" PostTypeId="2" ParentId="10337" CreationDate="2016-01-22T17:10:13.940" Score="3" Body="&lt;p&gt;In general, yes it's an externality: it's a cost borne by others. How do we know it's a cost with real economic value? Because in general, properties with good light and better views tend to attract higher purchase prices and higher market rents.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And there's a difference between &quot;view/light might be obscured some time in the future&quot; versus &quot;they are obscured now&quot; - in sufficiently sophisticated and liquid markets, that would be captured by the price of an option.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2016-01-22T17:10:13.940" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="10340" PostTypeId="1" AcceptedAnswerId="10452" CreationDate="2016-01-22T20:12:26.280" Score="0" ViewCount="51" Body="&lt;p&gt;Consider CPI and PPI, Consumer Price Index and Producer Price Index respectively. Note that many book correct inflation using the above measures. However, I doubt inflation corrected by these values tells the true or whole story. Consider the following case. According to a microecon textbook I am reading, the real price of copper has been stable over the past decades despite the fact that demand soared over these decades. Let us assume that the real price is computed using PPI. If the PPI has increased siginificantly more than CPI in terms of percentage increase comparing to their common base year, then although PPI-corrected real price is stable for copper, it's relative price to basic commodities has soared. In this case, we note that PPI is not useful in assesing whether the real price of copper had risen. Rather, GDP deflator seems to be a better option. Am I correct? Any suggestion is helpful.&lt;/p&gt;&#xA;" OwnerUserId="4551" LastActivityDate="2016-01-30T19:54:21.783" Title="Is there a problem with Inflation-corrected real price?" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10341" PostTypeId="1" CreationDate="2016-01-23T00:29:29.947" Score="5" ViewCount="153" Body="&lt;p&gt;I am reading a (macro)economics book which introduces a model of a small, closed economy. Two relations are presented. The IS relation (savings equals investments, or demand equals production) and the LM relation (money supply equals money demand).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The book then goes on about what happens in an economy given by this model .... but is the model's equilibrium one that occurs naturally? Is real-life money supply equal to money demand? Is real-life investment equal to savings? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question in short: &lt;strong&gt;why&lt;/strong&gt; does the economy converge to these equilibriums?&lt;/p&gt;&#xA;" OwnerUserId="7062" LastActivityDate="2017-07-21T17:42:35.733" Title="Road to equilibrium in a basic economic model" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10342" PostTypeId="2" ParentId="9912" CreationDate="2016-01-23T00:35:39.160" Score="3" Body="&lt;p&gt;Another reason could be based on the discount factor of people, when people accumulates more capital, they have tendancy to be more patient, which let them to save more and invest more. So, countries with higher initial stock of capital tend to be more patient in this case. This explains in some part why these rich countries remain rich.&lt;/p&gt;&#xA;" OwnerUserId="2938" LastActivityDate="2016-01-23T00:35:39.160" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="10343" PostTypeId="2" ParentId="10301" CreationDate="2016-01-23T00:56:22.967" Score="2" Body="&lt;p&gt;To understand the situation you have to realize that there are two types of money in the economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Government base money &amp;amp; bank money (mostly deposits).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Bank deposits great outnumber government base money (MB).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When deflation happens, is conceptually very similar to a bank run.  Depositors demand short term assets or base money instead of long term assets.  Because banks operate by mismatching long term assets with short term liabilities, this result in an inevitable liquidity crunch.  Put another way during deflation, bank money is being destroyed.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The banking system is very interconnected.  Most banks constantly rely on short term lending from other banks to sustain their maturity mismatching.  Imaging in an economy there is 20,000 in bank deposits and 10,000 in base money.  If 5,000 is withdrawn that leaves 15,000 deposits to cover 5000 in base money.  The ratio changed from 2 to 1 and is now 3 to 1.  Banks are even more desperate for reserves to hold off insolvency so will pay more for base money than before.  This is why interest rates rise during a deflationary spiral.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now....the Fed attempts to control the fed funds rate so in theory you don't see this happen (well you do see it in that you see massive acquisitions from the Fed in an effort to keep the banking system solvent). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Conventional interest rate equations do not apply to banks because banks are unique.  They create their own liquidity and even their own money.  &lt;/p&gt;&#xA;" OwnerUserId="6479" LastActivityDate="2016-01-23T00:56:22.967" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10344" PostTypeId="2" ParentId="10265" CreationDate="2016-01-23T02:06:44.083" Score="2" Body="&lt;p&gt;(1) Since the RD design identifies an effect only at the cutoff (in your case, at precisely 12am on the last day of the year), I don't think it's an issue of data manipulation for you to be removing the tails. Your estimates really shouldn't be sensitive to observations far away from the cutoff, but this depends somewhat on how granular your data is and how many observations you have (a lot of birth data is quarterly, which may make this strategy difficult).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(2) Sharp vs. fuzzy design refers to the assignment of the treatment. If your treatment of interest is being born December 31st vs. being born January 1st, then this is a sharp design because the running variable deterministically assigns treatment. If there is noncompliance with treatment, (i.e you were born December 30 but you somehow end up getting &quot;treated&quot; as though you were born in January the following year) this is when you would use the fuzzy design.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(3) Sharp RD is just a special case of fuzzy RD. Say $Y$ is your outcome of interest (in this case, wages), $X$ is your running variable (day of the year), $D$ is a dummy variable for treatment assignment where $D=1$ if $X&amp;gt;c$ and $D=0$ if $X\leq c$, and $c$ is the cutoff (December 31). Then the treatment effect for the fuzzy design is (from &lt;a href=&quot;https://www.aeaweb.org/articles.php?doi=10.1257/jel.48.2.281&quot; rel=&quot;nofollow&quot;&gt;Lee and Lemieux 2010&lt;/a&gt;):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\tau_{fuzzy} = \dfrac{\lim_{\varepsilon\downarrow0} \mathbb{E} \left[ Y | X = c + \varepsilon \right] - \lim_{\varepsilon\uparrow0} \mathbb{E} \left[ Y | X = c + \varepsilon  \right]}{\lim_{\varepsilon\downarrow0} \mathbb{E} \left[ D | X = c + \varepsilon  \right] - \lim_{\varepsilon\uparrow0} \mathbb{E} \left[ D | X = c + \varepsilon  \right]}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Because $X&amp;gt;c$ means by definition $D=1$, the denominator reduces to $1$, leaving us with the sharp treatment effect.&lt;/p&gt;&#xA;" OwnerUserId="7048" LastActivityDate="2016-01-23T02:06:44.083" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10345" PostTypeId="2" ParentId="10337" CreationDate="2016-01-23T02:19:51.213" Score="1" Body="&lt;p&gt;An externality is a cost on a third party resulting from an economic transaction, that isn't captured by the buyer(s) and/or seller(s) of the initial transaction.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So if the price of oranges goes up, as in BKay's comment, it may or may not be an externality on orange buyers. If I decided to buy the right to burn a bunch of oranges from the government (I'm a real rebel), and that caused a supply shortage, then that does end up being an externality on orange buyers, since they had no input on my transaction, but they are bearing the cost.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this simple housing example in BKay's example, if I simply have the right to build (I &quot;buy&quot; the right to do so from a non-existent &quot;seller&quot; and/or government), then imposing on your view is a negative externality for you, since you bear the cost of the lost view, and not me or the &quot;seller&quot;. Whether or not you expected me to build there does not particularly matter. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In short, think of my building as a sort of pollution, the archetypal negative externality. This requires market correction.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2016-01-23T02:19:51.213" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10346" PostTypeId="1" AcceptedAnswerId="13286" CreationDate="2016-01-23T02:51:50.100" Score="4" ViewCount="296" Body="&lt;p&gt;Letting $f_i(\mathbf{x})=\partial f(\mathbf{x})/\partial x_i$, ($\mathbf{x}$ is a vector, a commodity bundle, and $x_i$ is a scalar, commodity $i$ in the bundle) show that,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\sigma_{ij}(\mathbf{x})\equiv -\frac{x_if_i(\mathbf{x})+x_jf_j(\mathbf{x})}{f^2_j(\mathbf{x})f_{ii}(\mathbf{x})+2f_i(\mathbf{x})f_j(\mathbf{x})f_{ij}(\mathbf{x})+f_i^2(\mathbf{x})f_{jj}(\mathbf{x})}\frac{f_i(\mathbf{x})f_j(\mathbf{x})}{x_ix_j}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then using the above formula, show that $\sigma_{ij}(\mathbf{x})\geq0$ whenever $f$ is increasing and concave.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;PS: I know $\sigma_{ij}$ can be written as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\sigma_{ij}=-\frac{d (x_i/x_j)}{x_i/x_j} \frac{f_i(\mathbf{x})/f_j(\mathbf{x})}{d (f_i(\mathbf{x})/f_j(\mathbf{x}))}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How can we derive the result from this known fact? Thank you.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/zM19k.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/zM19k.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="7064" LastEditorUserId="7064" LastEditDate="2016-01-23T02:57:33.143" LastActivityDate="2016-09-05T01:58:36.803" Title="Elasticity of substitution in Jehle and Reny Advanced Micro (3rd ed) exercise 3.8" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;elasticity&gt;&lt;production-function&gt;&lt;producer-theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10347" PostTypeId="2" ParentId="10332" CreationDate="2016-01-23T04:17:06.227" Score="1" Body="&lt;p&gt;I believe there is a quicker way here. By the inverse function theorem, we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$y = f(k) \implies k = f^{-1}(y) = f^{-1}[f(k)] \implies \frac {\partial f^{-1}(y)}{\partial y} = \frac {1}{f'(k)}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Keeping all these relations in mind, we also have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\dot y = f'(k)\cdot \big[sf(k) - (n+g+\delta)\cdot f^{-1}(y)\big]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies  \frac{\partial \dot y}{\partial y} \bigg|_{y=y^*}  = \frac {\partial f'(k^*)}{\partial y}\cdot \big[sf(k^*) - (n+g+\delta)\cdot k^*\big]\\ + f'(k^*)\cdot \left[s - (n+g+\delta)\cdot \frac {1}{f'(k^*)} \right]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies \frac{\partial \dot y}{\partial y} \bigg|_{y=y^*} = 0 + sf'(k^*) - (n+g+\delta)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;etc&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2016-01-23T04:17:06.227" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10348" PostTypeId="2" ParentId="9912" CreationDate="2016-01-23T04:26:22.783" Score="4" Body="&lt;p&gt;The first answer of presented in the list is wrong. GDP is measure of current production not of past inherited wealth. Even though the existing capital plays a part, the lowest of deprecation rate is around 25 years IIRC, so by and large the wealth is not inherited, but created by the generation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Advances in technology are usually assumed to spread all around the globe quickly (certainly within one generation). So that's not the answer either.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would argue that the important values and institutions that allow for wealth creation are the primary reason. It would not be too far of stretch to say that the values that made the wealth creation possible in the first place are what allows the continuation in wealth generation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Of course the GDP growth in developed countries does not seem to be too persistent, and has been falling. The alternate answer is that rich nations don't remain rich.)&lt;/p&gt;&#xA;" OwnerUserId="4125" LastEditorUserId="4125" LastEditDate="2016-01-23T18:40:53.237" LastActivityDate="2016-01-23T18:40:53.237" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10350" PostTypeId="1" AcceptedAnswerId="10354" CreationDate="2016-01-23T09:16:47.923" Score="1" ViewCount="453" Body="&lt;p&gt;According to &lt;a href=&quot;https://en.wikipedia.org/wiki/Law_of_supply&quot; rel=&quot;nofollow&quot;&gt;Wikipedia&lt;/a&gt;, the Law of Supply states that:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;an increase in price results in an increase in quantity supplied.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;However, if the market was overflowing with a particular good (meaning higher supply), wouldn't the prices be lower? In the same vein, if the price was higher, wouldn't it be because the supply was less (all other factors, including Demand, constant). Also, wouldn't this create a run-away effect where increasing prices and supply drive more increase in each other, effectively launching prices to near infinity?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Economic_equilibrium#Interpretations&quot; rel=&quot;nofollow&quot;&gt;Wikipedia&lt;/a&gt; also states, if I understand correctly, that this view belongs to a &quot;modern mainstream economics&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can someone explain this seeming paradox? When we talk about supply, are we talking about future supply which will be guided based on speculations on current prices? If so, what laws will govern the present supply?&lt;/p&gt;&#xA;" OwnerUserId="7065" LastEditorUserId="2776" LastEditDate="2016-09-04T00:48:47.633" LastActivityDate="2016-09-04T00:48:47.633" Title="Why Law of Supply indicate direct relation between price and supply?" Tags="&lt;supply-and-demand&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10351" PostTypeId="2" ParentId="10350" CreationDate="2016-01-23T09:32:20.493" Score="2" Body="&lt;p&gt;You are confusing producer behavior and equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If producers can sell at a price $p$ some of them will do so. Other producers cannot do so profitably at this price so the do not. At a price $p'&amp;gt;p$ more producers can produce profitably including everyone who was already selling at $p$ so total supply increases. In this story the price was given exogenously. It was simply stated that the price is $p$ or $p'$ and we did not look at the reasons behind this. We simply stated what producers would do when facing certain price levels.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If given a price $p$ supply is larger than demand $p$ is not an equilibrium price. (An exception: it can be, if $p=0$. Would you like to buy some air from me?) You can say that this price does not occur, or at least not for a long time. As you state prices will probably decrease. In this story we looked at whether a price was actually likely given the market conditions (demand and supply). We did not simply assess what each side would do facing a given price but we tried to see if the actions of the two sides constituted an equilibrium.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2016-01-23T09:32:20.493" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10352" PostTypeId="1" CreationDate="2016-01-23T13:51:33.103" Score="0" ViewCount="38" Body="&lt;p&gt;I have a problem regarding causation and effect. I have a linear model &#xA;$ wage=\beta_0+\beta_1educ+\beta_2female+\beta_3hourseworked+errorterm$&#xA;When I need to estimate the causal effect for educated people on wages, I have chosen a subpopulation educ==1 (educated people) and made a regression in stata.&#xA;The used commands are &#xA;reg wages educ female hourseworked&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From this regression I obtain 0 for the educated people, and it says that it is omitted. How can I find the causal effect of educated people on wages, when I have this problem? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have tried to remove the intercept, from which I get an estimate causal effect of education, but is it correct just to remove the intercept? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Do I have to think about endogeneity - omitted variables - instruments?&lt;/p&gt;&#xA;" OwnerUserId="7067" LastEditorUserId="43" LastEditDate="2016-01-23T14:09:13.927" LastActivityDate="2016-01-23T14:09:13.927" Title="Estimating causal effect for educated people on wages" Tags="&lt;causality&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10353" PostTypeId="2" ParentId="10352" CreationDate="2016-01-23T14:09:04.127" Score="2" Body="&lt;p&gt;Yes, you have to worry about the difference between correlation and causality. In these situations, it helps to try to force a case of ommited variable  bias.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this case &quot;talent&quot; or &quot;effort&quot; is unobserved. Both this might make people more likely to pick up additional education, and also be more successful at their jobs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or family background: If your parents are high achievers, they might induce you to take more education, and they also are well-linked to ensure you get a well-paid job. &lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2016-01-23T14:09:04.127" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="10354" PostTypeId="2" ParentId="10350" CreationDate="2016-01-23T15:49:41.097" Score="1" Body="&lt;p&gt;Immediately after the quote from the wilipedia article, it also states&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;This means that producers are &lt;strong&gt;willing&lt;/strong&gt; to offer more products for sale&#xA;  on the market at higher prices by increasing production as a way of&#xA;  increasing profits.&lt;/em&gt;&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The emphasis on the word &quot;willing&quot; is mine. It reveals that the increasing relation is between price and &lt;em&gt;intended&lt;/em&gt; quantity supplied, it has to do with the suppliers' &quot;wishes&quot;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As the answer by @denesp points out, what will actually happen in the market is a more complex story, since apart from the suppliers, we have to take also into account the reaction of the consumers (at least) to (actually or prospectively) increased prices.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2016-01-23T15:49:41.097" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10355" PostTypeId="2" ParentId="10322" CreationDate="2016-01-23T17:33:53.533" Score="5" Body="&lt;p&gt;You might want to read up on &lt;a href=&quot;https://en.wikipedia.org/wiki/Repeated_game&quot;&gt;repeated games&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You are right, in a one-period model, once produced, the seller has little marginal cost, so could potentially sell at any price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, his price at $t$ will affect behavior at $t+1$. He needs to credibly commit (or signal) that he will not do this again at $t+1$, otherwise he will be stuck in the same situation again. &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;An even better example is airplanes travelling around with emty business / first class seats. They could always move someone from economy for a small fee, but prefer &quot;losing out&quot;. Why? Because if people anticipate that they might get lucky and get a low-price first class offer, they would not pay around 7-10k for an intercontinental flight. In order to control these expectations, you better not do this at all when you can help yourself.&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2016-01-23T17:33:53.533" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="10356" PostTypeId="1" AcceptedAnswerId="10366" CreationDate="2016-01-23T17:57:33.583" Score="1" ViewCount="434" Body="&lt;p&gt;An increase in output can be achieved in two basic ways. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;The first scenario:&lt;/strong&gt;&#xA;Aggregate demand increases, so supply extends. In this way the economy is making more use of its resources, but there is still spare capacity, and productive potential hasn't increased.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;The second scenario:&lt;/strong&gt; Aggregate supply increases. National output increases without demand increasing and productive potential of the country has increased. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now I know that the second scenario is economic growth for sure, as economic growth is generally characterised by an increase in the productive potential of country. But is the first scenario also economic growth? That is, is it called economic growth if a country just makes use of more resources already available to satisfy increased demand?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Furthermore, can the first scenario be shown on a PPC? Perhaps a shift from a point within the curve to a point on the curve?&lt;/p&gt;&#xA;" OwnerUserId="6327" LastEditorUserId="6327" LastEditDate="2016-01-24T11:25:24.720" LastActivityDate="2016-01-24T13:02:31.740" Title="Under what circumstances is an increase in national output called economic growth?" Tags="&lt;macroeconomics&gt;&lt;supply-and-demand&gt;&lt;economic-growth&gt;&lt;productivity&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10358" PostTypeId="1" AcceptedAnswerId="10374" CreationDate="2016-01-23T20:13:03.373" Score="5" ViewCount="1063" Body="&lt;p&gt;I have a background in Finance and have become pretty interested in Macroeconomics as a graduate student. However the time is limited and I want to focus on econometrics part of Macroeconomics. In that case, could someone please give me tell me what are the main econometrics methods I should learn in Macroeconomics？In Finance we focus on models like ARMA and GARCH, how about Macroeconomics? I've learned VAR before. I also heard about the simultaneous equations, are those for Macro? What are methods that econometricians came up to handle Lucas's Critique? What might be a good book to learn Macro econometrics?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks in advance!&lt;/p&gt;&#xA;" OwnerUserId="5850" LastEditorUserId="7215" LastEditDate="2016-02-06T01:18:09.993" LastActivityDate="2016-02-12T16:22:02.883" Title="What are main methods for econometrics of Macroeconomics?" Tags="&lt;macroeconomics&gt;&lt;econometrics&gt;&lt;empirical-methods&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10359" PostTypeId="1" CreationDate="2016-01-23T20:21:40.340" Score="3" ViewCount="113" Body="&lt;p&gt;Schumpeter is widely remembered for his belief in the power of innovation and entrepreneurship within a capitalist framework. In fact he argues that capitalism owes much of its success to this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Yet, his argument about capitalism's ultimate downfall in &lt;em&gt;Capitalism, Socialism and Democracy&lt;/em&gt; seems to show an strangely negligent view of the nature of innovation and technological change. He argues that a capitalist system will 'creatively destruct' so frequently that it will gradually systematise innovation itself. Entrepreneurship will become a job like any other.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;While I agree with and respect much of Schumpeter's contribution to economics, this presumption sticks out like a sore thumb, to me it seems plain wrong. Innovation is disruptive/destructive exactly because it is new, because markets did not predict it, so how can it ever be made in to a predictable bureaucratic process? How can this otherwise exceptionally insightful gentleman, one who was among the first to identify innovation's disruptive power, argue his point in such a seemingly oxymoronic way?&lt;/p&gt;&#xA;" OwnerUserId="7069" LastActivityDate="2016-01-23T20:21:40.340" Title="How does Schumpeter's view of capitalism's demise fit in with the importance he placed on innovation?" Tags="&lt;innovation&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10361" PostTypeId="1" CreationDate="2016-01-24T02:35:36.950" Score="5" ViewCount="279" Body="&lt;p&gt;For the other sciences it´s easy to point to the most important equations, inequalities, propositions or concepts that ground the discipline. If I want to explain Finance to a physicist say, &lt;strong&gt;what are considered to be the most fundamental, foundational or important equations, inequalities, principles, propositions (theorems, lemmas, etc) or concepts that underly the subject which I should introduce and attempt to explain&lt;/strong&gt;?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Above paraphrased from: &lt;a href=&quot;https://economics.stackexchange.com/questions/35/what-are-the-foundational-equations-of-economics&quot;&gt;Fundamental equations in economics&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My guess would be the &lt;a href=&quot;https://en.wikipedia.org/wiki/Fundamental_theorem_of_asset_pricing&quot; rel=&quot;nofollow noreferrer&quot;&gt;fundamental theorem of asset pricing&lt;/a&gt; or some &lt;a href=&quot;https://quant.stackexchange.com/questions/14064/pricing-principle-1&quot;&gt;Pricing Principle&lt;/a&gt;, but that's coming from a mathematical finance background. Would people coming from a corporate or personal finance (or &lt;a href=&quot;https://en.wikipedia.org/wiki/Finance#Areas_of_finance&quot; rel=&quot;nofollow noreferrer&quot;&gt;whatever else finance&lt;/a&gt; is out there) background say something similar?&lt;/p&gt;&#xA;" OwnerUserId="4483" LastEditorUserId="4483" LastEditDate="2018-03-27T07:51:11.280" LastActivityDate="2018-03-27T07:51:11.280" Title="Foundational equations or concepts of Finance" Tags="&lt;mathematical-economics&gt;&lt;finance&gt;&lt;corporate-finance&gt;&lt;soft-question&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="10362" PostTypeId="1" CreationDate="2016-01-24T06:45:42.637" Score="5" ViewCount="217" Body="&lt;p&gt;One of the arguments against inheritance tax is that it lowers the incentive to work for those close to retirement who have earnt enough money to be comfortable in old age. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;How much is this offset by the lower incentive to work (e.g. towards a mortgage or for greater financial security) for those who expect to receive the inheritance? Is there any empirical evidence for such an effect, if it exists? &lt;/p&gt;&#xA;" OwnerUserId="4549" LastEditorUserId="1601" LastEditDate="2016-01-24T07:48:54.443" LastActivityDate="2016-01-24T07:48:54.443" Title="Arguments against inheritance tax" Tags="&lt;taxation&gt;&lt;empirical-evidence&gt;" AnswerCount="0" CommentCount="4" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10363" PostTypeId="1" AcceptedAnswerId="10372" CreationDate="2016-01-24T10:04:28.387" Score="1" ViewCount="70" Body="&lt;p&gt;There's a presidential candidate in USA that promises to change IRS laws in order that everybody pays the same % in taxes, i.e., the rich will pay the same percentage as the poor. This would seem to generate more income inequality in the long run.  Another effect would seem to bleed the Government treasury . I do not how much it accounts for, but I don't think it's at all negligible... &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What type of impacts can we expect if this measure is implemented. I'm not interested in politics, just economics. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="118" LastActivityDate="2016-01-25T02:45:57.057" Title="Economic Effects of Presidential Candidate Proposal: Pay the same % in taxes no matter what you gain" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="10364" PostTypeId="1" CreationDate="2016-01-24T10:37:50.690" Score="1" ViewCount="1176" Body="&lt;p&gt;I read somewhere that this was the case. I get what profit margins and cost-push inflation are, but don't see how increase in marginal profit causes cost-push inflation? Also, how does increase in money supply cause cost-push inflation?&lt;/p&gt;&#xA;" OwnerUserId="6782" LastEditorUserId="2776" LastEditDate="2017-08-03T11:45:45.123" LastActivityDate="2017-08-03T11:46:56.827" Title="Why do increase in firms profit margins cause cost push inflation?" Tags="&lt;inflation&gt;&lt;money-supply&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10366" PostTypeId="2" ParentId="10356" CreationDate="2016-01-24T13:02:31.740" Score="0" Body="&lt;p&gt;There are actually 2 types of economic growth. Actual growth is when output increases. Potential growth is when productive potential of the economy increases.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If long run aggregate supply increases without any change to short run AS, then you have potential growth but not actual growth. This might happen with if a new discovery is made, but has not yet been applied in industry. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If SRAS increase without any change to LRAS, then you have actual growth, but no potential growth. This might happen to an oil-dependent economy if there is a temporary fall in oil prices. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As long as there is short-term capacity in the economy, increases in aggregate demand will lead to actual growth. Aggregate demand, however, cannot lead to potential growth except by affecting LRAS (e.g. through changes in producer expectation etc). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, you are correct in that actual growth is shown by moving a point closer to the PPC/ in the North East direction.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;See any lecture material:&#xA;&lt;a href=&quot;http://www.tutor2u.net/business/strategy/economy-economic-growth.html&quot; rel=&quot;nofollow&quot;&gt;http://www.tutor2u.net/business/strategy/economy-economic-growth.html&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="4971" LastActivityDate="2016-01-24T13:02:31.740" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10367" PostTypeId="1" AcceptedAnswerId="10369" CreationDate="2016-01-24T14:57:58.287" Score="4" ViewCount="165" Body="&lt;p&gt;There is a recurring narrative (especially but not exclusively in left-leaning circles) that today's &quot;developed nations&quot;, particularly Western former colonial powers, owe much of their wealth and progress to the exploitation of their former colonies. This is frequently used to counter the idea that the &quot;First World's&quot; headway is due to any inherent superiority, either in culture or social organization (such as capitalism, market liberalism or democracy). The implication, apart from the call for reparations that often follows, is that today's &quot;developing nations&quot; are unlikely to ever catch up, replacing the idea of global progress with one of eternal injustice (barring a revolution, which of course is what many proponents of this narrative are aiming for).&#xA;However, to my untrained eye, the current development of many &quot;developing countries&quot; seems to falsify this idea. Is that so? I assume some work has been done on this -- can anyone here point me in the right direction? That would be greatly appreciated.&lt;/p&gt;&#xA;" OwnerUserId="7077" LastActivityDate="2016-08-15T20:36:25.160" Title="Is the development of &quot;developing countries&quot; evidence against the idea that former colonial powers owe their headway to exploitation?" Tags="&lt;international-economics&gt;&lt;empirical-evidence&gt;&lt;inequality&gt;&lt;development-economics&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10368" PostTypeId="2" ParentId="10367" CreationDate="2016-01-24T16:37:18.350" Score="5" Body="&lt;p&gt;The &lt;em&gt;recent&lt;/em&gt; development of many &quot;developing countries&quot; and &quot;emerging markets&quot; does not mean that Western colonial powers did not exploit them in the &lt;em&gt;past.&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Emerging economies owe their modern GDP growth to cheap labor, as (former) Western colonial powers switched their (expensive) manufacturing bases to countries like China, India, etc. In the past, they were exploited mainly for their natural resources moreso than labor.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The continued GDP growth of Western colonial powers is due to a shift from manufacturing (labor-intensive, low-education professions) to &quot;high tech&quot; industries which require significantly more education (medical research, computer programming, etc.).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The book &quot;Capital&quot; by Thomas Piketty has a far more detailed history of how capital flows shifted from the 18th century to modern times, and the economic interplay between Western colonial powers and the developing nations. &lt;a href=&quot;https://en.wikipedia.org/wiki/Capital_in_the_Twenty-First_Century&quot;&gt;https://en.wikipedia.org/wiki/Capital_in_the_Twenty-First_Century&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="1511" LastActivityDate="2016-01-24T16:37:18.350" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10369" PostTypeId="2" ParentId="10367" CreationDate="2016-01-24T21:49:24.140" Score="4" Body="&lt;p&gt;To complement @rocinante answer the argument described in the question silently assumes that growth can happen only if you steal from somebody. So if the past colonies cannot steal from anybody, they are bound not to ameliorate their material welfare. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume two persons, $A$ and $B$, that currently have the same unexploited resources. It so happens that in period $t$ (which may last for decades or centuries- &quot;colonialism&quot;), $A$ manages to ruthlessly exploit $B$, and appropriates a large portion of $B$ resources, which, together with $A$'s resources (and the industrial revolution), create a growth drive for $A$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now move to period $t+1$, &quot;post-colonialism&quot;. $A$ is currently rich due to past exploitation of $B$, and $B$ is poor, perhaps in a worse situation than he was in the beginning of period $t$. Still, &lt;em&gt;this is a different state of affairs than the one holding at the beginnings of period $t$&lt;/em&gt;, when both $A$ and $B$ where poor with unexploited resources, and the industrial revolution had not happened.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$B$ may now benefit from the current status of $A$, thus creating a &quot;growth drive&quot; for himself. For example, $B$ can become the main outsourcer for $A$'s business.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is up to a point what is happening, and so this specific fact cannot be used in support of any ethical approach to the matter. The situation may still be described by some as &quot;eternal injustice&quot;, but &quot;eternal injustice&quot; is a totally different thing than &quot;eternal economic inequality&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example,assume that $B$ eventually catches up with $A$. Still, one could argue that because $A$ made his riches by stealing from $B$, while $B$ made his riches by working for $A$, the situation is still unjust, even though economically they currently are at the same level of material well-being.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2016-01-25T12:05:33.380" LastActivityDate="2016-01-25T12:05:33.380" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10371" PostTypeId="2" ParentId="6591" CreationDate="2016-01-25T02:22:43.947" Score="1" Body="&lt;p&gt;Consider two standard relations that tend to hold:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$i_t = r_t + \pi^e_{t+1} \tag{1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $i_t$ is domestic nominal interest rate, $r_t$ is domestic real interest rate, and $\pi^e_{t+1}$ is expected domestic inflation. The expression is known as the Fisher equation.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, we have the uncovered interest rate parity&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ i_t  = i^*_t - [s^e_{t+1} - s_t] \tag{2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $i^*_t$ is &quot;foreign&quot; nominal interest rate, and $[s^e_{t+1} - s_t]$ is expected &lt;em&gt;appreciation&lt;/em&gt; of domestic currency in percentage terms ($s$ is the natural logarithm of &quot;foreign currency per unit of domestic currency&quot; exchange rate). &#xA;Combining the two and re-arranging we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$[s^e_{t+1} - s_t] = i^*_t - r_t - \pi^e_{t+1} \tag{3}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume that inflation is monetary, and keep  $i^*_t,r_t$ constant. Then expectations for domestic inflation will tend to reduce expected appreciation of domestic currency, and may even turn it into an expected depreciation, especially if expected domestic inflation is high. Shortening the length of the time periods, this tendency becomes more of &quot;actual&quot; inflation and &quot;actual&quot; exchange rate.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The fundamental reason is of course what the OP was thinking: if we think of USD as another good (which it is since it is a store of value and can be exchanged for goods), then, if English pound loses value due to inflation and can buy less goods, why should it be still able to buy the same amount of the good &quot;USD&quot;?&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2016-01-25T02:22:43.947" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10372" PostTypeId="2" ParentId="10363" CreationDate="2016-01-25T02:45:57.057" Score="1" Body="&lt;p&gt;Looking at the matter from a strictly positive and not normative or political view, then &lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) Ignoring &quot;Laffer-curve&quot; effects, bleeding the Government treasury may not happen, if the flat tax rate is set to a suitable level (the specific politician has exactly in mind to bleed the &lt;em&gt;federal&lt;/em&gt; government treasury, but that's discussing politics) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) As regards income inequality, if indeed the current taxation system is &lt;em&gt;effectively&lt;/em&gt; progressive and not just nominally, then it will indeed increase inequality, since this flat tax rate should be expected to lie above the current minimum tax rate implemented, and below the current maximum tax rate implemented.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A plausible anticipated effect is that lower incomes will reduce their saving (i.e. we should expect that the loss in disposable income will hurt savings more rather than consumption), while higher incomes, which will now have more disposable income, will increase savings. While the overall effect on the &quot;consumption/savings&quot; mix may be ambiguous, this will affect also the distribution of wealth, increasing also wealth inequality.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is inequality bad for economic performance? Check some recent work by &lt;a href=&quot;https://econ.washington.edu/people/stephen-turnovsky&quot; rel=&quot;nofollow&quot;&gt;S. Turnovsky&lt;/a&gt;, that models links between inequality and growth.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2016-01-25T02:45:57.057" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10373" PostTypeId="1" CreationDate="2016-01-25T07:31:22.443" Score="0" ViewCount="197" Body="&lt;p&gt;I have seen the capital transition equation take two forms&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$K_{t+1} = sY_t +(1-\delta) K_t $$&#xA;$$\dot{K}_t = sY_t - \delta K_t$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Obviously I can rewrite the top one to get &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$K_{t+1} - K_t = sY_t - \delta K_t $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So that suggests somehow &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\dot{K}_t \equiv K_{t+1}-K_t$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But as far as I know, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\dot{K}_t \equiv \frac{\partial K_t}{\partial t} = \lim_{h\rightarrow 0} \frac{K_{t+h} - K_t}{h}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which is, as far as I know, not the same as $K_{t+1}-K_t$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;my question&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is&#xA;$$\dot{K}_t \equiv K_{t+1}-K_t$$&#xA;right? If so, what does this mean and why isn't it the usual derivative? &lt;/p&gt;&#xA;" OwnerUserId="2679" LastActivityDate="2016-01-26T04:16:21.667" Title="Why are there two formats for the Solow capital evolution equations?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="10374" PostTypeId="2" ParentId="10358" CreationDate="2016-01-25T07:59:22.973" Score="5" Body="&lt;p&gt;There are many different econometric methods used in macroeconometrics, but the basic ones are advanced versions of least squares methods and Generalized Method of Moments (GMM). Structural VARs, ARCH/GARCH models and several others are widely used as well.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since you're already familiar with econometric methods, you might try glancing through Fair's &quot;Macroeconometric Modeling&quot; (&lt;a href=&quot;http://fairmodel.econ.yale.edu/mmm2/mm.pdf&quot; rel=&quot;nofollow&quot;&gt;http://fairmodel.econ.yale.edu/mmm2/mm.pdf&lt;/a&gt;). You don't necessarily have to read it completely, but I found it a really useful document in understanding how to build and use macroeconometric models.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Based on your background and interest, I'd recommend Favero's &quot;Applied Macroeconometrics&quot; and De Jong's and Chetan's &quot;Structural Macroeconometrics&quot; as general books on the subject.&lt;/p&gt;&#xA;" OwnerUserId="5512" LastEditorUserId="7215" LastEditDate="2016-02-12T16:22:02.883" LastActivityDate="2016-02-12T16:22:02.883" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10375" PostTypeId="1" CreationDate="2016-01-25T15:19:15.383" Score="0" ViewCount="152" Body="&lt;p&gt;I wanted to know facts, thoughts and such since this article (which was big news that trended this week) popped up: &lt;a href=&quot;http://www.nbcnews.com/tech/tech-news/robot-may-take-your-job-next-few-years-n499556&quot; rel=&quot;nofollow&quot;&gt;http://www.nbcnews.com/tech/tech-news/robot-may-take-your-job-next-few-years-n499556&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know &quot;History always made NEW jobs when technology advanced...I feel like it's getting so advanced the new jobs, even repairing robots, will be done by robots and that is what is different this time.  When the tractor came along there were no robots just humans to fix it.. I am a writer/journalist. However, these days a pencil and paper aren't enough. To survive we must adapt so I am learning online video and podcasts as well. No need for humans to work=no jobs for humans=no way for most humans to earn money= no way for the humans to feed themselves or their families or even provide warmth. Essentials for just living and not dying in poverty.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have started learning programming again through Codeacademy and research on Google, plus old books I had from a few years ago. Working on HTML, CSS, JavaScript (taught together) and some Java too. I know having a good understanding and practice of these languages will help me and others adapting to the future, but needless to say some people have it harder than others because of health issues or where they were born into.  Been reading Investopedia.com as well to learn more. The job at a factory assembling or even as a truck driver is all some people have and use to make very good livings from it. With technology advancing in things like robots, computer software and even 3D printers, how exactly will the economy NOT collapse if we keep losing jobs...while still growing in population? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Will it be likely we see increases of starvation, homelessness or communism?&lt;/p&gt;&#xA;" OwnerUserId="6258" LastActivityDate="2016-01-25T15:19:15.383" Title="Is it likely as automation continues to make more jobs obselete, starvation and poverty levels will rise very badly?" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;inequality&gt;&lt;political-economy&gt;&lt;poverty&gt;" AnswerCount="0" CommentCount="2" ClosedDate="2016-01-26T09:41:09.470" ContentLicense="CC BY-SA 3.0" />
  <row Id="10376" PostTypeId="1" CreationDate="2016-01-25T17:11:13.757" Score="1" ViewCount="334" Body="&lt;p&gt;I have data that I have collected suggests that the prices are more or less constant throughout the month whereas the quantity demanded changes on a day to day basis. Recalling the formula for PED, we can write:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$PED= {P*\Delta Q \over Q*\Delta P}$$ we can observe that $\Delta P=0$ as I mentioned earlier, giving us $PED=infinity$. However in reality the demand is inelastic. Is there a way to handle this error?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assumption while measuring the prices: The supply was constant. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;These are tuples of the form (Price and Demand)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(275,30)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(275,80)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(275,20)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(275,70)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(282,0)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(282,50)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(282,100)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(282,80)&lt;/p&gt;&#xA;" OwnerUserId="6565" LastEditorUserId="6565" LastEditDate="2016-01-25T17:43:30.077" LastActivityDate="2016-02-25T04:07:32.803" Title="How would you calculate the Price Elasticity of Demand if the Prices are constant, given that there is change in quantity demanded?" Tags="&lt;elasticity&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10377" PostTypeId="2" ParentId="10376" CreationDate="2016-01-25T17:34:37.367" Score="0" Body="&lt;p&gt;If you don't have any information about how demand behaves when prices vary (because prices haven't varied), then you can't say anything from that data about price elasticity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given that you have the current price, you can say something about price elasticity based on information from other sources.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In Bayesian terms, as you have no new information, your posterior is the same as your prior.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2016-01-25T17:34:37.367" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10379" PostTypeId="1" CreationDate="2016-01-26T00:07:04.650" Score="2" ViewCount="186" Body="&lt;p&gt;The Solow growth model defines &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$k_t \equiv \frac{K_t}{A_t L_t}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let our production function be Cobb Douglas &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Y_t = K_t^\alpha (A_t L_t)^{1-\alpha}$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;We have &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$A_t = A_0 e^{gt}$$&#xA;$$L_t = L_0 e^{nt}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We find the steady state is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$k^* = \left(\frac{s}{n+ g + \delta}\right)^{\frac{1}{1-\alpha}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At the steady state, we notice &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{K_t}{L_t} = A_t k_t = A_0 e^{gt}  \left(\frac{s}{n+ g + \delta}\right)^{\frac{1}{1-\alpha}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My Question&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does $$\frac{K_t}{A_t} = L_t k_t = L_0 e^{nt}  \left(\frac{s}{n+ g + \delta}\right)^{\frac{1}{1-\alpha}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;also grow at the steady state? In several lecture notes I found online, no one discusses this so I wanted to clarify.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Follow Up&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But if $\frac{K_t}{L_t}$ and $\frac{K_t}{A_t}$ both grow this way, then &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$K_t = A_0 e^{gt} L_0 e^{nt}  \left(\frac{s}{n+ g + \delta}\right)^{\frac{1}{1-\alpha}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So does this mean $K_t$ is a function of these parameters (e.g. $A_0$) or is this not a valid economic expression? &lt;/p&gt;&#xA;" OwnerUserId="2679" LastEditorUserId="2679" LastEditDate="2016-01-26T00:21:26.173" LastActivityDate="2017-08-01T19:09:37.407" Title="In the Solow growth model, does labor grow like technology at the steady state?" Tags="&lt;macroeconomics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10380" PostTypeId="2" ParentId="10379" CreationDate="2016-01-26T03:07:54.273" Score="1" Body="&lt;p&gt;The last two equations are valid expressions. This version of the model supposes that all the productivity comes from labor (because A is attached to L in the first equation). So L is the number of workers, but AL is the effective work done by them. Dividing K by L just give you the capital divided by labour productivity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Last equation is also correct if the economy is growing at the steady-state But they are both unnecessary tautologies. What matter in the Solow-Swan model is the output per worker and the capital per effective labor. That is just another way to look to the aggregate capital trajectory.&lt;/p&gt;&#xA;" OwnerUserId="6721" LastActivityDate="2016-01-26T03:07:54.273" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10381" PostTypeId="2" ParentId="6393" CreationDate="2016-01-26T03:35:31.957" Score="1" Body="&lt;p&gt;First, you don't estimate the &quot;model&quot;, but its parameters. You can then try tests that check if the specification is correct and if you do want to test the &quot;model&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are different approaches to estimation. In this nice article the author uses a VAR model to estimate the parameters of the Mundell-Flemming model for the Australian economy. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://cms-content.bates.edu/prebuilt/huh.pdf?origin=publication_detail&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://cms-content.bates.edu/prebuilt/huh.pdf?origin=publication_detail&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="6721" LastEditorUserId="1601" LastEditDate="2019-06-13T19:46:44.110" LastActivityDate="2019-06-13T19:46:44.110" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="10382" PostTypeId="2" ParentId="10376" CreationDate="2016-01-26T03:50:37.730" Score="1" Body="&lt;p&gt;it does not make sense to use the formula for the elasticity like this.The PED is used for theoretical purposes in static equilibrium analisys. If you want to measure the elasticity empirically, then you must use the correct econometric technique, given your dataset.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One simple way is to run a linear regression (OLS) after a log-transform in your data. The parameter estimated captures de per cent sensibility of you endougeneos variable (demand) to your explicative varible (price). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Don´t forget to check if the parameter statistical significance, you may need more data.&lt;/p&gt;&#xA;" OwnerUserId="6721" LastActivityDate="2016-01-26T03:50:37.730" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10383" PostTypeId="2" ParentId="10373" CreationDate="2016-01-26T04:00:55.070" Score="2" Body="&lt;p&gt;The Solow-Swan has the two versions, one is in discrete time (first equation) and other in continuous time. Both give the same results, but you cannot mix them - as you did. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the first equation (discrete time) you can take the first diference but never a derivative, since the variable is not continuous. The point above the variable means that it has been diferenciated with relation to time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the last equation does not make any sense because tried to mix both models.&lt;/p&gt;&#xA;" OwnerUserId="6721" LastEditorUserId="6721" LastEditDate="2016-01-26T04:16:21.667" LastActivityDate="2016-01-26T04:16:21.667" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10384" PostTypeId="2" ParentId="10364" CreationDate="2016-01-26T04:34:10.850" Score="1" Body="&lt;p&gt;You can think on prices like $p = (1+m)w$, which means that prices are the value of inputs ($w$) multiplied by the margin ($1+m$) of the firms. So it is clear that raising firms margin would increase prices. This is cost-push inflation because the margin are part of the firm´s costs, it is a payment to a factor, like capital or entrepreneurship. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A raise in money supply don´t cause cost-push inflation directly, but causes demand-push inflation, which can increase also increase the prices of productive factors and inputs to production (w) as well, if firms can pass this increases in their cost to produce to their price, then you have a channel of cost-push inflation.&lt;/p&gt;&#xA;" OwnerUserId="6721" LastEditorUserId="2776" LastEditDate="2017-08-03T11:46:56.827" LastActivityDate="2017-08-03T11:46:56.827" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10385" PostTypeId="1" AcceptedAnswerId="10672" CreationDate="2016-01-26T05:28:37.957" Score="4" ViewCount="67" Body="&lt;p&gt;According to the &lt;a href=&quot;http://data.worldbank.org/indicator/PA.NUS.PPP&quot; rel=&quot;nofollow&quot;&gt;World Bank PPP conversion factors&lt;/a&gt;, in 2014, 0.86 SGD could buy as much stuff in Singapore as could 1 USD in the USA (presumably Averagetown, USA). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The market exchange rates in 2014 varied from 1.24-1.32 SGD per USD. This means that according to the World Bank, 0.65-0.69 USD could buy as much stuff in Singapore as could 1 USD in the USA. In other words, price levels were 31-35% lower in Singapore than in Averagetown, USA.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Anyone who has lived in both countries recently will find that impossible to believe, at least based purely on personal anecdotes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So I was trying to find the data on which these numbers are based. In particular, detailed data like prices of specific goods that were used to form these PPP comparisons.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems like they come from the International Comparison Program (ICP) 2011. But the most detailed data I could find about the ICP 2011 was this &lt;a href=&quot;http://siteresources.worldbank.org/ICPINT/Resources/270056-1183395201801/2011-International-Comparison-Program-results.xlsx&quot; rel=&quot;nofollow&quot;&gt;Excel spreadsheet&lt;/a&gt;, which has no such information.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Anyone knows where I can find the detailed data (prices of specific goods, how they were weighted, etc.) on which these &lt;a href=&quot;http://data.worldbank.org/indicator/PA.NUS.PPP&quot; rel=&quot;nofollow&quot;&gt;World Bank PPP conversion factors&lt;/a&gt; are based?&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastEditorUserId="43" LastEditDate="2016-09-11T16:43:37.890" LastActivityDate="2017-07-05T01:43:24.507" Title="Where to find more detailed data for International Comparison Program 2011?" Tags="&lt;data-request&gt;&lt;purchasing-power-partity&gt;" AnswerCount="2" CommentCount="8" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10386" PostTypeId="1" AcceptedAnswerId="10402" CreationDate="2016-01-26T05:33:22.457" Score="3" ViewCount="176" Body="&lt;p&gt;My professor gave us the following problem, but it uses a notation/syntax I haven't seen before $(q_{luke} = max \{ \dots \})$. She hasn't explained it or introduced it to us prior to this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.imgur.com/228OIKP.png&quot; alt=&quot;&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What does this mean? I assume it must be somehow translatable into $y=mx+b$ form given the context of the problem, but I'm not sure how. Thanks!&lt;/p&gt;&#xA;" OwnerUserId="7094" LastEditorUserId="5780" LastEditDate="2016-01-27T12:24:37.033" LastActivityDate="2016-01-27T13:10:47.657" Title="Bizarre max {} notation" Tags="&lt;supply-and-demand&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="10387" PostTypeId="1" AcceptedAnswerId="10388" CreationDate="2016-01-26T05:45:17.387" Score="10" ViewCount="319" Body="&lt;p&gt;That is, if we implement a guaranteed minimum income, would inflation not eventually rise to a point where it is essentially useless? I would expect prices to be adjusted knowing people have a certain amount of money available. Any explanation would be helpful!&lt;/p&gt;&#xA;" OwnerUserId="7095" LastEditorUserId="1601" LastEditDate="2021-05-12T11:08:06.517" LastActivityDate="2021-05-12T11:08:06.517" Title="Will a Guaranteed minimum income not eventually just be crowded out by inflation?" Tags="&lt;macroeconomics&gt;&lt;inflation&gt;&lt;nonexpert&gt;&lt;social-welfare&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10388" PostTypeId="2" ParentId="10387" CreationDate="2016-01-26T08:11:00.067" Score="8" Body="&lt;p&gt;I will not discuss fairness (for example employers gains versus employees gains and bargaining power) principles as you did not ask about those.&lt;/p&gt;&#xA;&lt;p&gt;Is &amp;quot;crowding out&amp;quot; the right phrase here?&lt;/p&gt;&#xA;&lt;p&gt;Even if inflation lessens the effect of a minimal income there may still be an effect. Imagine that there are two people, &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt; with an income of 0 &lt;span class=&quot;math-container&quot;&gt;$B$&lt;/span&gt; with an income of 60, so total income is 60. The government issues a minimal income of 30 so &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt;'s income is changed to 30, total income is changed to 90. If this has no real effect on the economy then all prices rise accordingly, that is they rise by 50% because that is by how much nominal incomes haved changed. However if you adjust for this 150% price level, &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt; still can buy goods in value of &lt;span class=&quot;math-container&quot;&gt;$\frac{30}{1.5} = 20$&lt;/span&gt; while &lt;span class=&quot;math-container&quot;&gt;$B$&lt;/span&gt; can buy goods in value of &lt;span class=&quot;math-container&quot;&gt;$\frac{60}{1.5} = 40$&lt;/span&gt;. So there could at least be a redistribution effect as previously &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt; could not buy anything and &lt;span class=&quot;math-container&quot;&gt;$B$&lt;/span&gt; could buy more things.&lt;/p&gt;&#xA;&lt;p&gt;One concern is that inflation may not be even. Only the income of poor people will be raised hence demands for goods poor people buy will rise but demand for goods consumed by rich folks will not change. As a result the poor may experience larger inflation than the well to do, making the redistribution of incomes one between only poor people. The lines between poor and well to do here are murky. If (due to inflation) a pop-tart costs \$10 then people will buy quality food unless it is even more expensive. If a pop-tart's price rises to \$1,000 people will buy caviar unless its price is also raised.&lt;/p&gt;&#xA;&lt;p&gt;A hope of governments implementing such policies is that (aside from fairness and solidarity principles) a minimal wage will also help minimum wage earners be more financially secure. Some studies have shown that in extreme poverty you make worse decisions and are less productive simply as a result of stress. If this is indeed a main effect then a minimum wage (or a higher minimum wage) can increase overall productivity. Thus inflation will not be the only effect of the policy but also an increased number of goods will be produced.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2021-03-11T14:02:09.313" LastActivityDate="2021-03-11T14:02:09.313" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="10389" PostTypeId="2" ParentId="10322" CreationDate="2016-01-26T08:44:01.407" Score="-6" Body="&lt;p&gt;Because it`s like Coca-cola, when MC is super low or almost nothing, but you are paying a lot for the brand, which gives you emotional satisfaction. Even if you were only aware of the choice of Cola rather than say Pepsi only an unconscious level. They make you want it, and you should pay for it. &lt;/p&gt;&#xA;" OwnerUserId="6761" LastActivityDate="2016-01-26T08:44:01.407" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="10391" PostTypeId="1" CreationDate="2016-01-26T13:28:58.047" Score="0" ViewCount="120" Body="&lt;p&gt;In last years I have read a lot about &quot;&lt;a href=&quot;http://www.fastcolabs.com/3035723/app-economy/smart-contracts-could-be-cryptocurrencys-killer-app&quot; rel=&quot;nofollow&quot;&gt;Smart contracts&lt;/a&gt;&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But I cannot understand why we need bitcoin for this?&#xA;The old-fashioned US Dollar are not used in Smart Contracts? &lt;/p&gt;&#xA;" OwnerUserId="5075" LastEditorUserId="5075" LastEditDate="2016-01-27T11:34:03.900" LastActivityDate="2016-01-27T15:09:58.633" Title="Smart contracts in Dollars" Tags="&lt;currency&gt;&lt;cryptocurrency&gt;&lt;contract-theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10392" PostTypeId="2" ParentId="10379" CreationDate="2016-01-26T14:14:16.563" Score="3" Body="&lt;p&gt;In deterministic growth models of closed economies with exogenous constant growth drivers (here, population and labor efficiency), the steady-state of the economy is in &quot;growth rates&quot;, or under the newer terminology, it is a &quot;balanced growth path&quot;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The growth rate of the economy can only be the sum of the growth rates of these exogenous growth drivers. So in the balanced growth path, aggregate magnitudes grow at $n+g$, per capita magnitudes grow at $g$ and magnitudes per efficiency unit of labor are constant.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;One can see this directly through the production function by considering&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Y_t = K_t^\alpha (A_t L_t)^{1-\alpha} \implies \ln Y = \alpha \ln K_t + (1-\alpha)\cdot [\ln A_t + \ln L_t]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies \frac {\text{d}\ln Y}{\text{d}t} = \frac {\dot Y}{Y} = \alpha \frac {\dot K}{K} + (1-\alpha)\cdot \left[\frac {\dot A}{A} + \frac {\dot L}{L}\right]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies \frac {\text{d}\ln Y}{\text{d}t} = \frac {\dot Y}{Y} = \alpha \frac {\dot K}{K} + (1-\alpha)\cdot (g+n)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To have a balanced growth path, we must have equal and constant growth rates (so ratios like $Y/K$ etc remain constant), therefore&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\dot Y}{Y} = \frac {\dot K}{K} = \gamma$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies \gamma = \alpha \gamma + (1-\alpha)\cdot (g+n)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies \gamma = g+n$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note the importance of constant returns to scale, in order to obtain this result.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2016-01-26T14:14:16.563" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10393" PostTypeId="2" ParentId="9721" CreationDate="2016-01-26T14:27:28.807" Score="1" Body="&lt;p&gt;The LM-curve is completely independent from the loanable funds market. This is because the loanable funds market is entirely determined by the real side of the economy. Therefore, it is linked to the IS curve, not the LM curve. Even more, equilibrium in the loanable funds market for given $Y$ allows you to derive the IS curve, just as the keynesian cross allows you to do.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To see this, consider both relationships in the loanable funds market. The demand side of loanable funds is given by the demand for investment (negatively related to the real interest rate $r$) and the supply side is given by all savings available (positiveley related to $r$). For equilibrium it is required that $S=I$ holds. Which is exactly the equilibrium condition represented by the IS curve: what are the combinations of $r$ and $Y$ for which savings equals investment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To derive the negative IS-relationship from the loanable funds market, just go through the following reasoning. Suppose that the loanable funds market is in equilibrium. This equilibrium holds for a given $Y$. If $Y$ increases, and the marginal propensity to consume is smaller than unity, the level of savings will increase for each $r$, so that the savings curve shifts to the right. More income does not affect investment, so that a new equilibrium requires a lower $r$. Conclusion: if $Y$ increases, a lower $r$ is needed for $S=I$ to hold. This is the IS-curve.&lt;/p&gt;&#xA;" OwnerUserId="6566" LastActivityDate="2016-01-26T14:27:28.807" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10395" PostTypeId="2" ParentId="339" CreationDate="2016-01-26T15:23:44.247" Score="1" Body="&lt;p&gt;to give you a straight answer: &lt;strong&gt;In the short run she is not contradicting the economic theory.&lt;/strong&gt; Look to the basic identity in quantitative money theory: &#xA;  $PQ = VM$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;The identity does not give you the specific direction on the effect&lt;/strong&gt;. It may be that the monetary authorities of Argentina does not want to face a drop in Q, and then just decide to supply more money (M). But of course, this can give you a new round of price increase - specially if the economy is indexed - like Argentina is. &lt;em&gt;It can only buy you some time to develop a real plan to contain inflation&lt;/em&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ignácio Rangel was a brazilian economist that helped to understand this kind of fenomena. There are also structuralist economists who wrote about this, mostly related to the UN´s Economic Commission for Latin America and the Caribbean (CEPAL).&lt;/p&gt;&#xA;" OwnerUserId="6721" LastActivityDate="2016-01-26T15:23:44.247" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10398" PostTypeId="1" CreationDate="2016-01-26T19:36:05.153" Score="1" ViewCount="114" Body="&lt;p&gt;There are several definitions of Leverage Ratio in context of Banking Sector but it seems like it is no different from CRAR (Capital Adequacy Ratio), could someone explain what's the real difference between both concepts.&lt;/p&gt;&#xA;" OwnerUserId="6453" LastEditorUserId="69" LastEditDate="2016-01-27T15:04:30.183" LastActivityDate="2016-01-27T15:09:17.387" Title="What does Leverage ratio mean in context of Banking sector and how is it different from CRAR?" Tags="&lt;banking&gt;&lt;financial-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10399" PostTypeId="1" CreationDate="2016-01-26T20:28:32.223" Score="2" ViewCount="34" Body="&lt;p&gt;I'm not sure if I'm using the term correctly but there's something that's referred to as &lt;em&gt;compliance in banking&lt;/em&gt;. Am I correct to understand that it's the process of obeying the laws and regulatory guidelines for financial institutions in general? Or is there a more specific meaning to the term?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What would be two or three common examples of such compliances?&lt;/p&gt;&#xA;" OwnerUserId="6688" LastActivityDate="2016-01-26T21:55:53.530" Title="What is banking compliance" Tags="&lt;economic-terms&gt;&lt;law&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10400" PostTypeId="1" AcceptedAnswerId="10424" CreationDate="2016-01-26T21:28:25.260" Score="1" ViewCount="117" Body="&lt;p&gt;As I understand it the Fed has 3 tools for moving interest rates to combat inflation/unemployment: the discount rate, Fed Funds rate and open market operations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm trying to understand how the yield curve is affected:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Fed Fund rate is the overnight rate at which reserve balances, held by banks at the fed can be lent to each other. The shortest maturity that the &lt;a href=&quot;https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield&quot; rel=&quot;nofollow noreferrer&quot;&gt;treasury yield curve&lt;/a&gt; has is 1 month (no overnight). Are expectations regarding overnight fed funds rates reflected in the 1 month yields? I would suppose so, because if the government raises fed funds, their intentions are to influence and increase interest rates in general. Thoughts?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The discount rate is the interest the Fed charges other banks to borrow money. Does the 'discount rate' relate to the commercial paper listed &lt;a href=&quot;http://www.federalreserve.gov/releases/h15/current/&quot; rel=&quot;nofollow noreferrer&quot;&gt;here?&lt;/a&gt;. Am I correct in thinking that the discount rate refers to short term borrowing &amp;lt; 1year and that changes in the yield curve at maturities greater than 1 year may not be directly correlated to changes in fed funds or discount rates? (because these are not tools for influencing long term rates)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally I understand that changes in the curve at longer maturities may reflect the governments 'open market operations' and their buying and selling of US securities.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help solidifying this understanding would be much appreciated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;PART 2 TO THIS QUESTION &lt;a href=&quot;https://quant.stackexchange.com/questions/22993/monetary-policy-and-the-yield-curve&quot;&gt;HERE&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="5891" LastEditorUserId="-1" LastEditDate="2017-04-13T12:46:23.963" LastActivityDate="2016-01-28T18:22:55.103" Title="Monetary Policy and the Yield Curve PART ONE" Tags="&lt;interest-rate&gt;&lt;federal-reserve&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10401" PostTypeId="2" ParentId="10399" CreationDate="2016-01-26T21:55:53.530" Score="2" Body="&lt;p&gt;&lt;strong&gt;You are using it correctly&lt;/strong&gt;. It means the processes and protocols created by banks or those imposed to them by authorities. If the bank also has some quality certificate, like iSOs, them this imposes new compliance costs and processes.&lt;/p&gt;&#xA;" OwnerUserId="6721" LastActivityDate="2016-01-26T21:55:53.530" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10402" PostTypeId="2" ParentId="10386" CreationDate="2016-01-26T22:20:24.260" Score="4" Body="&lt;p&gt;&lt;strong&gt;max {a, b, c} means the highest of these elements.&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, if &quot;b&quot; is higher than a and c, then max {a, b, c} = b&lt;/p&gt;&#xA;" OwnerUserId="6721" LastEditorUserId="1601" LastEditDate="2016-01-27T13:10:47.657" LastActivityDate="2016-01-27T13:10:47.657" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10404" PostTypeId="2" ParentId="10391" CreationDate="2016-01-27T01:02:26.687" Score="2" Body="&lt;p&gt;I guess it depends on what precisely counts as &quot;self-executing&quot; but escrow transactions are very similar and quite common, particularly in real estate and certain kinds of online transactions.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;An escrow is a deposit of funds, a deed or other instrument by one&#xA;  party for the delivery to another party upon completion of a specific&#xA;  condition or event. It is an independent neutral account by which the&#xA;  interests of all parties to the transaction are protected.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.titleonecorp.com/buyerseller/whatisescrow.aspx&quot; rel=&quot;nofollow&quot;&gt;What is Escrow? - Title One&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2016-01-27T15:09:58.633" LastActivityDate="2016-01-27T15:09:58.633" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10405" PostTypeId="1" AcceptedAnswerId="10406" CreationDate="2016-01-27T01:41:48.843" Score="12" ViewCount="279" Body="&lt;p&gt;I remember reading a study/paper saying that the AVERAGE bottle of french wine drunk in the US is better than the average bottle of french wine drunk in France, due to the fact that nobody bothers to ship the crappy stuff. Anyone got a link?&lt;/p&gt;&#xA;" OwnerUserId="7100" LastEditorUserId="69" LastEditDate="2016-01-27T12:53:58.217" LastActivityDate="2016-05-05T11:58:01.260" Title="Quality of French wine in the US vs French wine in France" Tags="&lt;microeconomics&gt;&lt;reference-request&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="10406" PostTypeId="2" ParentId="10405" CreationDate="2016-01-27T12:41:04.470" Score="14" Body="&lt;p&gt;This is called the Alchian–Allen effect. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The Alchian–Allen effect was described in 1964 by Armen Alchian and&#xA;  William R Allen in the book University Economics (now called Exchange&#xA;  and Production). &lt;strong&gt;It states that when the prices of two substitute&#xA;   goods, such as high and low grades of the same product, are both&#xA;   increased by a fixed per-unit amount such as a transportation cost or&#xA;   a lump-sum tax, consumption will shift toward the higher-grade&#xA;   product.&lt;/strong&gt; This is true because the added per-unit amount decreases the&#xA;  relative price of the higher-grade product.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Suppose, for example, that high-grade coffee beans are \$3/pound and&#xA;  low-grade beans \$1.50/pound; in this example, high-grade beans cost&#xA;  twice as much as low-grade beans. Now add a per-pound international&#xA;  shipping cost of \$1. The effective prices are now \$4 and \$2.50;&#xA;  high-grade beans now cost only 1.6 times as much as low-grade beans.&#xA;  This reduced ratio of difference will induce distant coffee-buyers to&#xA;  now choose a higher ratio of high-to-low grade beans than local&#xA;  coffee-buyers. (Prices are illustrative only).&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The effect has been studied as it applies to illegal drugs and it has&#xA;  been shown that the potency of marijuana increased in response to&#xA;  higher enforcement budgets, and there was a similar effect for alcohol&#xA;  in the U.S. during Prohibition.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&lt;strong&gt;Another example is that Australians drink higher-quality Californian wine than Californians, and vice versa, because it is only worth the  transportation costs for the most expensive wine.&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;From the &lt;a href=&quot;https://en.wikipedia.org/wiki/Alchian%E2%80%93Allen_effect&quot; rel=&quot;noreferrer&quot;&gt;Alchian–Allen Wikipedia page&lt;/a&gt;, emphasis mine. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I learned about this paradox in the context of &lt;em&gt;Why the Best Washington Apples are Shipped out of State&lt;/em&gt;, discussed in a chapter of a fun popular economics book &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/1840640499&quot; rel=&quot;noreferrer&quot;&gt;Puzzles and Paradoxes in Economics&lt;/a&gt; which also happens to be a great source of undergraduate economics exam questions.&lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2016-05-05T11:58:01.260" LastActivityDate="2016-05-05T11:58:01.260" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10407" PostTypeId="1" CreationDate="2016-01-27T12:43:11.847" Score="1" ViewCount="79" Body="&lt;p&gt;If a country had economic growth last year (2015) does that mean that the average citizen had a better buying power in that year (2015) than in the previous year (2014)? &lt;br&gt;&#xA;For example with their monthly wage they could buy 800 kilos of rice in 2015 up from 700 kilos in 2014.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or to put it in other words: can an country have economic growth while in the same time the average citizen face a reduced buying power (for example by increased prices of commodities) in the same period of time?&lt;/p&gt;&#xA;" OwnerUserId="5161" LastEditorUserId="5161" LastEditDate="2016-02-06T17:27:52.497" LastActivityDate="2016-02-06T17:27:52.497" Title="What's the relation between economic growth and buying power?" Tags="&lt;economic-growth&gt;&lt;commodities&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10408" PostTypeId="2" ParentId="10398" CreationDate="2016-01-27T15:09:17.387" Score="1" Body="&lt;p&gt;Leverage ratios are typical simple ratios of debt to equity while capital adequacy ratios are usually risk weighted. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The capital adequacy ratio, or CAR, is a metric applied specifically&#xA;  to banks, while a common leverage ratio is used by investors to&#xA;  evaluate virtually any type of firm they choose to examine. The CAR is&#xA;  used to assess the financial risk a bank is exposed to through its&#xA;  existing loans. The ratio is risk-weighted and expressed as a&#xA;  percentage of the total exposure. ...&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Not simply a single leverage ratio, but rather several financial&#xA;  leverage metrics may be utilized to gauge a business's financial&#xA;  health. Two of the most commonly considered leverage ratios are the&#xA;  debt-to-equity ratio and the long-term debt-to-capitalization ratio.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;What is the difference between the capital adequacy ratio and the leverage ratio?&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.investopedia.com/ask/answers/040915/what-difference-between-capital-adequacy-ratio-and-leverage-ratio.asp&quot; rel=&quot;nofollow&quot;&gt;Source: Investopedia&lt;/a&gt; &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2016-01-27T15:09:17.387" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10409" PostTypeId="1" AcceptedAnswerId="10411" CreationDate="2016-01-27T15:57:21.100" Score="8" ViewCount="919" Body="&lt;p&gt;I am reading this article about the strengthening of the US Dollar when I came across this paragraph: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;But there are reasons to be cautious. A strong dollar will squeeze American manufacturers, which have otherwise benefited from falling energy prices and rising wages in China. That will weigh on growth in the United States and further suppress inflation, which is already well below the Fed’s target.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Am I understanding it correctly that because the Dollar is getting stronger that it will hurt American Manufacturers?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Source article: &lt;a href=&quot;http://www.msn.com/en-us/money/markets/the-dollar-keeps-rising-for-good-or-evil/ar-BBoJUq2?li=BBnb7Kz&amp;amp;ocid=iehp&quot;&gt;http://www.msn.com/en-us/money/markets/the-dollar-keeps-rising-for-good-or-evil/ar-BBoJUq2?li=BBnb7Kz&amp;amp;ocid=iehp&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="7102" LastActivityDate="2016-01-28T07:33:52.017" Title="Does a strong US Dollar hurt American Manufacturing?" Tags="&lt;inflation&gt;&lt;usa&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10410" PostTypeId="1" AcceptedAnswerId="10413" CreationDate="2016-01-27T16:16:41.293" Score="2" ViewCount="271" Body="&lt;p&gt;&lt;strong&gt;Would a company ever choose a nondominant strategy in a duopoly?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's take this specific example (2007 AP MicroEcon B #2). Two airlines, Airtouch and Windward, are scheduling flights for either morning or evening. There is no collusion, but both airlines know the same profit matrix, as below. (edit: This is also a one-shot game)&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;                           Windward&#xA;           Profit      Morning | Evening&#xA;                   ----------------------&#xA;           Morning | 1000, 700 | 700, 600&#xA;Airtouch           ----------------------&#xA;           Evening | 750, 950  | 900, 800&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Windward has a dominant strategy of choosing the morning; Airtouch has no dominant strategy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Airtouch, of course, is dependent on Windward for its decision. If Windward's best decision is morning, Airtouch will choose morning. Same for evening.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we go with the given solution, Windward would choose the dominant strategy of morning, and Airtouch would then have to go with the morning as well.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But then Windward (and Airtouch, since they have all the same information) realizes that Airtouch is entirely dependent, so if Windward chooses the non-dominant strategy of the evening, it will have a greater profit (800) than it would in the morning (700), &lt;em&gt;even though it is not the dominant strategy&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So then both would go for the evening.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there something wrong with this reasoning? Particularly, is Airtouch necessarily dependent if Windward has a sketchy dominant strategy like this? I would think that since Windward begins with the dominant strategy, it holds the initiative, but I'm not certain.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(This, of course, assumes perfect reasoning on both sides, which in real life is definitely not a justifiable thing to presume.)&lt;/p&gt;&#xA;" OwnerUserId="6612" LastEditorUserId="1601" LastEditDate="2016-01-27T16:37:18.407" LastActivityDate="2016-01-27T22:30:40.983" Title="Choosing the nondominant strategy in a duopoly" Tags="&lt;game-theory&gt;&lt;nash-equilibrium&gt;&lt;oligopoly&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10411" PostTypeId="2" ParentId="10409" CreationDate="2016-01-27T16:24:27.113" Score="11" Body="&lt;p&gt;Most manufactured products are sold domestically, but even so a strong dollar will (usually) cause a decline in sales and profitability of US manufacturers. The reason for this is that a strong dollar makes foreign products relatively cheaper, not just manufactured products, but all products. Therefore it becomes cheaper for person to buy, say a foreign-made washing machine compared to an American-made washing machine.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What news articles like this don't mention is that a weak dollar hurts Americans because it makes everything they buy, like gasoline, more expensive, not just manufactured goods.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The exception to the rule is during wartime. For example, as a result of World War II the United States dollar became stronger AND manufacturing profitability increased at the same time. But this was because competitors in Europe had all their factories in ruins, which is not the case today obviously.&lt;/p&gt;&#xA;" OwnerUserId="1448" LastEditorUserId="1448" LastEditDate="2016-01-27T16:39:38.073" LastActivityDate="2016-01-27T16:39:38.073" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10412" PostTypeId="1" CreationDate="2016-01-27T16:36:41.643" Score="1" ViewCount="57" Body="&lt;p&gt;I am interested in understanding how to mathematically model market interaction to optimize pricing strategy. In my model I have two kinds of knowledge: the market's order book and the price/volume curve. So, I know for any given price how many widgets will change hands at that price on a given day. Note that the price/volume curve changes over time and I cannot predict it into the future, I only know what it is historically.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, my problem is, given I have a certain number of widgets I would like to sell I have different possibilities: I could sell them immediately at the buy price, or I could put them up for sale at a higher sell price and hope someone buys them. If I put them up for sale, then I need to decide what I should price them at. If I make my sell order the lowest order, then that can have consequences. For example, lets say widgets are buying at 850 each and selling for 900. So, I list my widgets for sale at 885. Other sellers could try to undercut me, modifying their orders to be lower than 885. Another effect is that buyers could lower their buy price. When the guy buying at 850 sees my 885, he could decide the price is coming down, so he might change his buy order to 840. Now, if I change my mind and sell my widgets immediately I will only get 840 for them each, but if I had sold at first I would have made 850. So, I will have lost both time and money.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given the information I have (order book and price/volume curve), how can I model the situation mathematically to optimize my total profit? Are there well-known theories or models that attempt to solve this problem?&lt;/p&gt;&#xA;" OwnerUserId="1448" LastActivityDate="2016-01-27T16:36:41.643" Title="How to model optimal market pricing?" Tags="&lt;markets&gt;&lt;pricing&gt;" AnswerCount="0" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10413" PostTypeId="2" ParentId="10410" CreationDate="2016-01-27T16:43:56.443" Score="2" Body="&lt;p&gt;It seems you interpret the game as a sequential game. If Windward would know that its move was observed by Airtouch it would act as you say. But this is not the case, they move simultaneously, and it is a one-shot game (as defined it is only played once).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given your reasoning, Windward understands the situation and hence it would choose the evening. Anticipating this Airtouch would do the same. But Windward does not really want to choose the evening. If Airtouch anticipates that Windward will choose the evening that's jolly good for Windward. It is even better if Windward goes on to choose the morning. So what you describe is not an equilibrium outcome and is unlikely to occur in a one-shot situation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Don't believe me? Let's play. As Windward I understand your reasoning and I make the empty promise of choosing 'Evening'. What will you choose? (And me?)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The situation would be different if the game was repeated, so if reputation was important or if, as I mentioned before, the game was sequential and moves could be observed.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2016-01-27T22:30:40.983" LastActivityDate="2016-01-27T22:30:40.983" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10414" PostTypeId="1" CreationDate="2016-01-27T18:20:56.573" Score="5" ViewCount="336" Body="&lt;p&gt;In the article “&lt;a href=&quot;http://www.japantimes.co.jp/opinion/2015/11/19/commentary/japan-commentary/japans-population-problem/&quot; rel=&quot;noreferrer&quot;&gt;Japan’s population problem&lt;/a&gt;” in The Japan Time, Hugh Cortazzi write: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Japanese leaders and Japanese people generally are well aware of their&#xA;  nation’s demographic challenges. The population has begun to decline&#xA;  […] The implications for the Japanese economy and for Japan’s position&#xA;  in the world should be obvious.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I can see some “intuitive” reason why a decline in population would be an issue for a country, mostly if it comes with a decline in the workforce (roughly decreased labor supply, decreased international competitveness and problems with funding pension system?). But I am interested in more careful and more general analysis.   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My questions are:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;What are (if any) the economic challenges of a declining population, in the case of Japan (or in general,if not too broad)?&lt;/li&gt;&#xA;&lt;li&gt;Does there exist modern macroeconomic models (say open economy DSGE) including demographics and studying declining populations ?&lt;/li&gt;&#xA;&lt;li&gt;Have some paper tried to compare the welfare costs of a declining population with the potential welfare benefits of a declining population (e.g. for a dense country like Japan, decreasing housing prices)?&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="38" LastEditorUserId="38" LastEditDate="2016-01-27T20:26:13.313" LastActivityDate="2016-01-28T09:26:10.757" Title="Economic impacts of a declining population" Tags="&lt;macroeconomics&gt;&lt;demographics&gt;&lt;japan&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10416" PostTypeId="2" ParentId="10322" CreationDate="2016-01-28T02:57:28.913" Score="8" Body="&lt;p&gt;This question really forces one to think about the role that &lt;em&gt;quantity&lt;/em&gt; plays in the competitive equilibrium. The two main points that, I think, explain the way this works are:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;The market quantity is &lt;em&gt;endogenous&lt;/em&gt;&lt;/li&gt;&#xA;&lt;li&gt;In competitive equilibrium, the &lt;em&gt;market clears&lt;/em&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I think the thing that is perhaps causing confusion here is that, recalling that it is a true statement that &quot;P = MC&quot; in competitive equilibrium is not sufficient enough to understand the way in which markets function. It is imperative to recall &lt;em&gt;why&lt;/em&gt; this is true: because so long as burger sellers maximize profit and burger eaters maximize utility, then &lt;em&gt;quantity will adjust to make it true&lt;/em&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words, &quot;P = MC&quot; is not a transcendental tautology that simply must be true under all conceivable circumstances; it is the end result of the rational actions of buyers and sellers interacting within the framework of a market mechanism.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The original question only appears to be a puzzle if you attempt to abstract away from quantity, and allow yourself to imagine that it's not important how those burgers came to be sitting under the heat lamp in the first place.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A fully proper answer to this question would require being explicit about the objective functions of both the suppliers and consumers in this market, but I think that the following shorthand might suffice to illustrate the point:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the original question, there are really two distinct notions of &quot;marginal cost.&quot; The first is that of the marginal cost to produce the burgers. The second is the somewhat different concept of the marginal cost of delivering the completed burgers to the customer (ie, taking them out from under the heat lamp and handing them to the customer). Being sloppy in our use of language, and unintentionally blurring the line between these two distinct costs is, I think, another way to describe the ultimate source of confusion in this example. Let's just be clear, using clear notation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Call &quot;MC1&quot; the marginal cost of &lt;em&gt;producing&lt;/em&gt; each burger. Let's say for the purposes of illustration that each burger costs $2 to make.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Call &quot;MC2&quot; the marginal cost of handing a completed burger to the customer. As in the example, let's assume that this is equal to 5 cents per burger.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hopefully it does not require too much convincing to establish that, in competitive equilibrium, burger sellers will end up collectively supplying exactly the amount of burgers, Q, for which it is true that the prevailing price of a hamburger is exactly equal to MC1. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's &lt;em&gt;also true&lt;/em&gt; that, in this equilibrium, each burger seller can sell all the burgers that they have chosen to produce at a price of P = MC! = $2/burger, since the market clears.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, at this point, each burger seller has &lt;em&gt;already&lt;/em&gt; chosen a quantity of burgers to produce. So even though it's true that, once the burgers have been made, their production cost is a sunk cost, and &lt;em&gt;from that point&lt;/em&gt;, the marginal cost of delivering the completed burgers to a customer is only equal to MC2 = $0.05, it will still be the case that &lt;strong&gt;no seller has any incentive to charge any less than P = MC1.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Again, this is true because, in the competitive equilibrium characterized by P = MC1 and quantity Q, the market clears. This means that each and every seller of burgers can sell 100% of their stock of completed burgers at a price of MC1 ($2/burger). No seller has anything to gain by offering an even slightly lower price to the market, let alone offering a price as low as MC2.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;EDIT: To expound on the above a little...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Perhaps it's helpful to reinforce the role of the (endogenous) equilibrium quantity Q by looking at a graph.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is certainly true that, &lt;em&gt;for the quantity of burgers that the restaurant has chosen to produce&lt;/em&gt; (aka, for the number of burgers that are already sitting under the heat lamp), the marginal cost of delivering those already-made burgers to the customer is MC2 = 5 cents/burger. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But the paragraph above does not fully characterize the full marginal cost function, whose domain extends beyond the equilibrium quantity (&quot; Q* &quot; below). For any burgers &lt;em&gt;beyond&lt;/em&gt; Q*, in order to deliver an additional burger to a customer, an additional burger must be &lt;em&gt;produced&lt;/em&gt; first. So the marginal cost of any burgers beyond Q* is NOT 5 cents per burger, its $2/burger (strictly speaking, you would have to allow that it costs USD 1.95 to cook the burger and then 5 cents to hand it to the customer).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Recognizing this discontinuity in marginal cost, we can see that the actual marginal cost function looks something like this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/37ZJI.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/37ZJI.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And furthermore, the location of that discontinuity is endogenous as well, since it will always coincide with the quantity chosen by a rational seller (ie, the quantity where the marginal cost of &lt;em&gt;production&lt;/em&gt; crosses the demand curve). So even if you wish to take the position that the cost of producing the first Q* burgers is sunk, and should be ignored, it is still impossible to separate the marginal cost of production from the strategic analysis of the problem.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And, of course, to finalize the characterization of the competitive equilibrium, we need to include the demand curve. As you can see, this situation reflects the strategic incentives of the burger seller, where the quantity chosen by the seller is exactly the (only possible) quantity for which P = MC &lt;em&gt;and&lt;/em&gt; quantity demanded equals quantity supplied (ie, the market clears).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/7cr6e.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/7cr6e.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As described above, the competitive equilibrium is characterized by the intersection of the demand and MC curves, at a quantity Q*, and a price of MC1 = $2.00/burger.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As above, the seller sells all Q* of their burgers at this price, and so has absolutely zero incentive to charge a lower price of MC2 = 5 cents/burger.&lt;/p&gt;&#xA;" OwnerUserId="7106" LastEditorUserId="4020" LastEditDate="2016-03-29T00:50:22.620" LastActivityDate="2016-03-29T00:50:22.620" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="10418" PostTypeId="1" AcceptedAnswerId="10421" CreationDate="2016-01-28T09:25:53.600" Score="1" ViewCount="27" Body="&lt;p&gt;I'm not entirely sure if I've asked the right question, but does anyone know why certain symbols (I assume they are the symbols) change on NASDAQ?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In particular I'm wanting to keep a track of the Natural Gas price. It's current code is NGH16.NYM and I've been following it here &lt;a href=&quot;http://finance.yahoo.com/q?s=NGH16.NYM&amp;amp;ql=0&quot; rel=&quot;nofollow&quot;&gt;http://finance.yahoo.com/q?s=NGH16.NYM&amp;amp;ql=0&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However last month the code was NGG16.NYM and had this URL &lt;a href=&quot;http://finance.yahoo.com/q?s=NGG16.NYM&amp;amp;ql=0&quot; rel=&quot;nofollow&quot;&gt;http://finance.yahoo.com/q?s=NGG16.NYM&amp;amp;ql=0&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've been struggling with this for a while now, and at first thought it was an incremental code. That pattern didn't seem to stick.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any ideas? And any idea if I can predict the next ones?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks :)&lt;/p&gt;&#xA;" OwnerUserId="7113" LastActivityDate="2016-01-28T15:42:27.603" Title="Changes to lookup code/symbols on the NASDAQ?" Tags="&lt;stock-market&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10419" PostTypeId="2" ParentId="10414" CreationDate="2016-01-28T09:26:10.757" Score="1" Body="&lt;p&gt;&lt;strong&gt;ad 2.&lt;/strong&gt; &#xA;This phenomenon has been studied a lot. Broadly it is referred to as the demographic transition. A good overview is given by the respective &lt;a href=&quot;https://en.wikipedia.org/wiki/Demographic_transition&quot; rel=&quot;nofollow&quot;&gt;Wikipedia article&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the field of Long-term macro there are several publications. One of the latest top-journal publications is:&#xA;&lt;em&gt;Cervellati M.; Sunde U., Life Expectancy and Economic Growth: The Role of The Demographic Transition, «JOURNAL OF ECONOMIC GROWTH», 2011, 16(2), pp. 99 - 133&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Demographic elements can for sure be endogenised into every macro model. But I doubt that it would be very useful for short run DSGE things, since all demographic changes take place with huge time lags. If you want to study those interesting phenomena, you probably have to go more into Long-run Macro / Economic Growth (Unified Growth Theories put emphasis on demographic elements for instance)&lt;/p&gt;&#xA;" OwnerUserId="4087" LastActivityDate="2016-01-28T09:26:10.757" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10420" PostTypeId="1" AcceptedAnswerId="10422" CreationDate="2016-01-28T09:56:22.023" Score="7" ViewCount="359" Body="&lt;p&gt;The European Central Bank (ECB) has been lowering the interest rate on its deposit facility, first to -0.1% in June 2014, then to -0.2% in September and eventually to -0.3% in December 2015.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But what difference does it make whether it is -0.1% or -0.3%, as long as it is negative? I would expect anyone to withdraw all their money immediately as soon as the interest rate gets negative, for you would always be better off just keeping it for yourself, even if the interest rate is just -0.0001%.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I do understand the intention of the ECB, but I do not understand why lowering the already negative interest rate further should make it more effective.&lt;/p&gt;&#xA;" OwnerUserId="7115" LastEditorUserId="69" LastEditDate="2016-01-28T20:01:48.790" LastActivityDate="2020-10-13T12:35:17.520" Title="Why lower the deposit rate if it is already negative?" Tags="&lt;macroeconomics&gt;&lt;monetary-policy&gt;&lt;interest-rate&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10421" PostTypeId="2" ParentId="10418" CreationDate="2016-01-28T12:12:17.740" Score="4" Body="&lt;p&gt;You are tracking futures on natural gas. Therefore, the name changes because you look at contracts with different maturities: the &lt;a href=&quot;http://finance.yahoo.com/q?s=NGH16.NYM&amp;amp;ql=0&quot; rel=&quot;nofollow&quot;&gt;first&lt;/a&gt; has a maturity in March 2016, whereas the &lt;a href=&quot;http://finance.yahoo.com/q?s=NGG16.NYM&amp;amp;ql=0&quot; rel=&quot;nofollow&quot;&gt;second&lt;/a&gt; that you mention is due to expire next month (February 2016).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Future contracts are derivative which reflect accurately the expectations of market participants at a defined maturity. You should try to track &lt;strong&gt;indexes&lt;/strong&gt; instead of &lt;strong&gt;futures&lt;/strong&gt; if you want to track commodity prices without changing the tickers and without looking too much at expectations.&lt;/p&gt;&#xA;" OwnerUserId="6820" LastEditorUserId="69" LastEditDate="2016-01-28T15:42:27.603" LastActivityDate="2016-01-28T15:42:27.603" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10422" PostTypeId="2" ParentId="10420" CreationDate="2016-01-28T13:30:46.787" Score="14" Body="&lt;p&gt;You are assuming that the supply of deposits is zero when the price (the rate) is zero but it definitely is not. There are several reasons for this.&lt;/p&gt;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;While you can withdraw cash from the bank it is unwieldy, costly, and unsafe to have large amounts of cash lying around. Therefore, if there were no other alternatives, heavy spenders would still want some wealth in deposit system even if rates were quite negative. Consider, for example, that it is common for depositors to pay account fees that greatly exceed interest earnings.&lt;/li&gt;&#xA;&lt;li&gt;These costs are actually very low as it goes. A rate of -0.1 percent a year is ten cents per \$100 of average balance, and since these costs are proportional to average balances, which themselves are small relative to total spending, the value of transaction services provided by these accounts is probably large relative to total negative interest rate costs.&lt;/li&gt;&#xA;&lt;li&gt;Assuming non-bank storage costs are high relative to negative rates, it isn't the nominal negative rates (the advertised rate) that matters but rather the real rates (relative to inflation). Under these circumstances, you should be indifferent between 2 percent deposit rates under 4 percent inflation and -1 percent deposit rates under 1 percent inflation. So a rate can drop and the supply of funds can be unchanged if it is accompanied by a drop in inflation.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&lt;p&gt;And, in the case of the EMU / ECB / Euro, that may well be what happened. Inflation fell for the five months after June 2014, which may explain why nominal rates had to fall: to keep the tightness of monetary policy unchanged or at least to keep real rates unchanged.&lt;/p&gt;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/Q8AHq.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Q8AHq.png&quot; alt=&quot;Harmonized Index of Consumer Prices: All Items for Euro area (17 countries) 2014-2015&quot; /&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2020-10-13T12:35:17.520" LastActivityDate="2020-10-13T12:35:17.520" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="10423" PostTypeId="1" AcceptedAnswerId="10540" CreationDate="2016-01-28T14:28:23.430" Score="3" ViewCount="158" Body="&lt;p&gt;Are there any known DSGE models with a demography component, i.e., that model the effects of aging population in output growth?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit: I've been thinking, this question might not make much sense since I think DSGE are usually used for fluctuations/medium-run, whereas demography seems to be more like a long-run issue... not sure though.&lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="118" LastEditDate="2016-01-28T14:42:32.077" LastActivityDate="2016-02-09T13:14:17.187" Title="DSGE and Demography" Tags="&lt;macroeconomics&gt;&lt;demographics&gt;" AnswerCount="1" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="10424" PostTypeId="2" ParentId="10400" CreationDate="2016-01-28T16:29:18.703" Score="3" Body="&lt;p&gt;You've asked a lot of questions, so I will have to keep my answers rather brief.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;As I understand it the Fed has 3 tools for moving interest rates to combat inflation/unemployment: the discount rate, Fed Funds rate and open market operations.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This is incorrect in a few ways:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;The discount rate is a tool, but it's not a tool that is used to conduct monetary policy in normal times. It is, instead, a &quot;penalty rate&quot; in the sense used by &lt;a href=&quot;https://en.wikipedia.org/wiki/Walter_Bagehot&quot; rel=&quot;nofollow&quot;&gt;Walter Bagehot&lt;/a&gt;.&lt;/li&gt;&#xA;&lt;li&gt;The Fed Funds rate is not a tool, it is a target. The Fed Funds rate is calculated from market transactions, and the Federal Open Market Committee will often instruct the Federal Reserve Bank of New York to engage in open market operations to move the Fed Funds rate toward a particular level.&lt;/li&gt;&#xA;&lt;li&gt;These are not the only tools at the Fed's disposal. It also has, for example, the &lt;a href=&quot;https://www.newyorkfed.org/markets/rrp_faq.html&quot; rel=&quot;nofollow&quot;&gt;reverse repurchase program&lt;/a&gt;, which enables it to set a floor under short-term secured borrowing rates.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Are expectations regarding overnight fed funds rates reflected in the 1 month yields?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Yes, they are related, though the yield on a  1-month Treasury bill will in practice differ from the compounded &lt;a href=&quot;https://research.stlouisfed.org/fred2/series/DFF&quot; rel=&quot;nofollow&quot;&gt;Fed Funds rate&lt;/a&gt; for a number of reasons. One notable reason is that the Fed Funds rate, being a market rate, does vary, while the yield on a 1-month Treasury is effectively fixed at the time of purchase. The relationship between the expected values of a fixed rate and a floating rate is expressed through &lt;a href=&quot;https://en.wikipedia.org/wiki/Overnight_indexed_swap&quot; rel=&quot;nofollow&quot;&gt;Overnight Indexed Swap&lt;/a&gt; values, and 1-month OIS on the Fed Funds rate is the best direct indication of the expected value of compounded overnight borrowing in the Fed Funds market.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;...stuff about the discount rate...&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;No, as I said above. On an average day, bank borrowing from the &lt;a href=&quot;https://en.wikipedia.org/wiki/Discount_window&quot; rel=&quot;nofollow&quot;&gt;discount window&lt;/a&gt; should be zero. Commercial paper represents medium-term borrowing by private companies.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Finally I understand that changes in the curve at longer maturities may reflect the governments 'open market operations' and their buying and selling of US securities.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Yes, but that's also true of the short end of the curve. In fact, sometimes the Fed has sought to change the relationship of the short and long ends of the curve, as in &quot;&lt;a href=&quot;http://www.investopedia.com/terms/o/operation-twist.asp&quot; rel=&quot;nofollow&quot;&gt;Operation Twist&lt;/a&gt;&quot;.&lt;/p&gt;&#xA;" OwnerUserId="264" LastActivityDate="2016-01-28T16:29:18.703" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="10426" PostTypeId="1" CreationDate="2016-01-28T17:13:07.270" Score="3" ViewCount="125" Body="&lt;p&gt;Different people become rich for different reasons, such as:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Developing/selling a great product &lt;/li&gt;&#xA;&lt;li&gt;Investing&lt;/li&gt;&#xA;&lt;li&gt;Winning the lottery&lt;/li&gt;&#xA;&lt;li&gt;Inheriting family money&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Some of these seem more fair than others, which leads me to wonder: Are there any studies that attempt to measure what percentage of people get rich in different ways?&lt;/p&gt;&#xA;" OwnerUserId="7117" LastEditorUserId="1601" LastEditDate="2016-01-28T17:40:30.607" LastActivityDate="2016-01-28T18:14:50.817" Title="Why are people rich?" Tags="&lt;reference-request&gt;&lt;finance&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10427" PostTypeId="2" ParentId="10426" CreationDate="2016-01-28T18:03:04.120" Score="-4" Body="&lt;p&gt;You have some incorrect ideas about wealth. First of all, inheriting money does not concentrate wealth, it disperses it. Usually the recipients of inheritances, both organizations and wayward children spend the money the receive so the inheritance is dispersed completely.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Most people who are wealthy got that way not by earning a lot of money, but by saving the money they did earn. How much a person saves and invests is a much bigger indicator of wealth than income. A plumber that saves and invests will eventually become much richer than a doctor who spends all his money. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, most people who wealthy are not manufacturers who &quot;make a great product,&quot; they are ordinary professionals and businessmen: doctors, lawyers, business executives, electricians, plumbers, and builders. You can even find many blue collar workers who have become rich by saving and investing: policeman, firemen, teachers. Where I live there are two teachers, a husband and wife couple, who started out as ordinary high school teachers and now they are quite wealthy and own their own private school. There are probably more millionaire garbage men, than there are millionaire manufacturers. Owning a bunch of garbage trucks is enough to make you a millionaire. Now think how many garbage trucks there are.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is an article about typical characteristics of wealthy people:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.nytimes.com/books/first/s/stanley-millionaire.html&quot; rel=&quot;nofollow&quot;&gt;https://www.nytimes.com/books/first/s/stanley-millionaire.html&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="1448" LastEditorUserId="1448" LastEditDate="2016-01-28T18:14:50.817" LastActivityDate="2016-01-28T18:14:50.817" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="10428" PostTypeId="1" AcceptedAnswerId="10429" CreationDate="2016-01-28T18:57:28.477" Score="5" ViewCount="69" Body="&lt;p&gt;I believe the following is the multiplicative property of bilinearity:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ Y=F(K,AL) $$&#xA;$$ c_1 F(K,AL) = F(c_1 K, AL) $$&#xA;$$ c_2 F(K,AL) = F(K, c_2 AL) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But when we have multiplied through the production function with a constant we have done so through each term as below&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ c_3 F(K,AL) = F(c_3 K, c_3 AL) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;e.g.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{1}{AL} F(K,AL) = F\left( \frac{K}{AL} , \frac{AL}{AL} \right) = F(k,1) = f(k) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is the name of this property?&lt;/p&gt;&#xA;" OwnerUserId="5780" LastActivityDate="2016-01-31T13:59:56.497" Title="Is a production function bilinear?" Tags="&lt;production-function&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10429" PostTypeId="2" ParentId="10428" CreationDate="2016-01-28T19:12:15.793" Score="7" Body="&lt;p&gt;Such a function is called &lt;a href=&quot;https://en.wikipedia.org/wiki/Homogeneous_function&quot; rel=&quot;nofollow&quot;&gt;homogeneous&lt;/a&gt; of degree 1.&lt;/p&gt;&#xA;" OwnerUserId="4667" LastEditorUserId="108" LastEditDate="2016-01-31T13:59:56.497" LastActivityDate="2016-01-31T13:59:56.497" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10430" PostTypeId="1" CreationDate="2016-01-29T01:30:21.083" Score="2" ViewCount="22" Body="&lt;p&gt;I did a bit of googling and I see there are companies that sell market research data, and wanted to know if anyone knows more about it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am specifically looking for consumer interest in the allergic to foods category; for people who are allergic to certain foods, what is their interest in foods manufactured with their needs in mind.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Do you know of a company that has good data on the subject? I've come across a company, Epsilon, that says they can sell me data from surveys relating to what I'm interested in. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In passing the representative mentioned that although they are not the biggest company with the most amount of data regarding what I requested, they still have a large amount of data.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So I'm wondering which other companies are there out there that might have the date on this.&lt;/p&gt;&#xA;" OwnerUserId="7024" LastEditorUserId="7024" LastEditDate="2016-02-01T05:58:42.043" LastActivityDate="2016-02-01T05:58:42.043" Title="What type of data packages am I looking for?" Tags="&lt;consumer-theory&gt;&lt;data-request&gt;&lt;research&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10431" PostTypeId="2" ParentId="10428" CreationDate="2016-01-29T05:05:23.773" Score="4" Body="&lt;p&gt;&lt;strong&gt;Constant returns of scale&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As observed above, in mathematical terms the function is homogeneous of degree 1. But in terms of economic theory, this is called a production function with constant returns of scale.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It means that if you change the inputs in a determinate proportion, the output varies in the same proportion. &lt;/p&gt;&#xA;" OwnerUserId="6721" LastActivityDate="2016-01-29T05:05:23.773" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10432" PostTypeId="1" CreationDate="2016-01-29T08:07:11.103" Score="4" ViewCount="220" Body="&lt;p&gt;Advanced economies (e.g., Japan, USA, Europe) tend to slide down to zero interest rates and stay there. Why? Are there any theories which explain this tendency?&lt;/p&gt;&#xA;" OwnerUserId="7127" LastActivityDate="2016-02-03T11:00:44.363" Title="Advanced economies tend to slide down to zero interest rates and stay there. Why?" Tags="&lt;interest-rate&gt;" AnswerCount="5" CommentCount="1" FavoriteCount="4" ClosedDate="2016-02-01T11:15:21.400" ContentLicense="CC BY-SA 3.0" />
  <row Id="10433" PostTypeId="1" AcceptedAnswerId="10434" CreationDate="2016-01-29T09:18:10.320" Score="0" ViewCount="49" Body="&lt;p&gt;On reading a textbook, the author state that after the 80's, and the serious consequences of thinking that inflation could be controlled by just targeting a monetary aggregate, modern central banks(CB) have shifted their paradigm to a targeting inflation by setting the interest rate. &#xA;My question is if the CB sets the interest rate, does he need to target M0? Or does the CB just print money according to money demand?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="118" LastActivityDate="2016-01-29T11:01:42.680" Title="Do current Central Banks need to target a monetary aggregate as they set interest rates for a target inflation?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="1" ClosedDate="2016-02-01T12:32:46.057" ContentLicense="CC BY-SA 3.0" />
  <row Id="10434" PostTypeId="2" ParentId="10433" CreationDate="2016-01-29T11:01:42.680" Score="-1" Body="&lt;p&gt;The demand for liquidity is usually defined as&#xA;$$&#xA;L(Y,i)&#xA;$$&#xA;where $Y$ is income and $i$ is the nominal interest rate. In equilibrium this equals the aggregate money supply $M$ which is function of several things, like $M_0$ the reserve rate, etc. Let us assume that everything except $i$, $M_0$ and $M = f(M_0)$ is constant. Then&#xA;$$&#xA;L(Y,i) = M = f(M_0).&#xA;$$&#xA;Demand for liquidity decreases in $i$ and $M$ increases in $M_0$. Thus for any given value of $i$ there is at most one equilibrium value of $M_0$, hence the central bank cannot simoultaneously set both $i$ and $M_0$ and always expect an equilibrium outcome. Lacking equilibrium either $i$ or $M$ will shift.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2016-01-29T11:01:42.680" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10435" PostTypeId="2" ParentId="10432" CreationDate="2016-01-29T12:04:53.193" Score="2" Body="&lt;p&gt;The classic example is Japan. Their interest rates dropped to zero in the mid 1990s, and have been there ever since. It seems to be a chronic condition. &lt;a href=&quot;https://i.stack.imgur.com/73BXC.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/73BXC.jpg&quot; alt=&quot;Japanese interest rates&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Granted, the US and EU &lt;em&gt;may&lt;/em&gt; emerge from their current regime of zero interest, but there seems to be a clear trend toward zero, even in the US, over a period of decades. And the US doesn't seem to be having an easy time of raising interest rates again (shades of Japan). Some say that the US will return to business-as-usual, but skepticism is warranted because that's what they've been saying about Japan for the last 20 years. &#xA;&lt;a href=&quot;https://i.stack.imgur.com/xXuQb.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/xXuQb.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="7129" LastActivityDate="2016-01-29T12:04:53.193" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10437" PostTypeId="2" ParentId="10432" CreationDate="2016-01-29T16:09:00.130" Score="6" Body="&lt;p&gt;Recently I read an interesting paper on this subject from the Bank for International Settlements:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Juselius, Mikael and Takats, Elod, Can Demography Affect Inflation and Monetary Policy? (February 2015). BIS Working Paper No. 485. Available at SSRN: &lt;a href=&quot;http://ssrn.com/abstract=2562443&quot;&gt;http://ssrn.com/abstract=2562443&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The abstract:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Several countries are concurrently experiencing historically low inflation rates and&#xA;  ageing populations. Is there a connection, as recently suggested by some senior&#xA;  central bankers? We undertake a comprehensive test of this hypothesis in a panel of&#xA;  22 countries over the 1955–2010 period. We find a stable and significant correlation&#xA;  between demography and low-frequency inflation. In particular, a larger share of&#xA;  dependents (ie young and old) is correlated with higher inflation, while a larger&#xA;  share of working age cohorts is correlated with lower inflation. The results are&#xA;  robust to different country samples, time periods, control variables and estimation&#xA;  techniques. We also find a significant, albeit unstable, relationship between&#xA;  demography and monetary policy.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;As I'm not an expert on the subject, it is probably not the main explanation in literature but it's in my opinion an interesting research path.&lt;/p&gt;&#xA;" OwnerUserId="6227" LastActivityDate="2016-01-29T16:09:00.130" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10438" PostTypeId="1" AcceptedAnswerId="10439" CreationDate="2016-01-29T16:39:49.693" Score="6" ViewCount="258" Body="&lt;p&gt;In an auction setting with interdependent values, let $\theta_i$ denote the type of player $i$ and $m_i$ that player's message (a bid, essentially). I have calculated the best response function as:&#xA;$$m_i^* = \theta_i + \gamma \sum_{j \ne i} (\theta_j-m_j)$$&#xA;Obviously, then, truth-telling by all parties ($m_k = \theta_k$ for all $k$) is a symmetric BNE, regardless of $\gamma$. I want to also argue that it is the unique BNE. If $\gamma = 1$, it seems like there would be assymetric BNE if there are only two players in which one player's positive misreport ($m_i - \theta_i$) would equal the other player's negative misreport ($\theta_j - m_j$). If $\gamma&amp;lt;1$, it looks like the truth-telling BNE is unique, but how would I prove that?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, so far I have not used a common prior assumption. Do I need it here to argue the existence of the truth-telling BNE, or to argue it's uniqueness? If so, we can suppose $\theta_i$ is drawn i.i.d. uniformly from $[0,1]$.&lt;/p&gt;&#xA;" OwnerUserId="48" LastEditorUserId="48" LastEditDate="2016-01-29T17:05:04.503" LastActivityDate="2016-01-30T16:21:21.827" Title="Arguing uniqueness of Bayes-Nash equilibrium in an auction setting" Tags="&lt;game-theory&gt;&lt;nash-equilibrium&gt;&lt;auctions&gt;&lt;bayesian-game&gt;" AnswerCount="1" CommentCount="3" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10439" PostTypeId="2" ParentId="10438" CreationDate="2016-01-29T17:54:39.017" Score="3" Body="&lt;p&gt;Let $BR=(BR_1,BR_2,BR_3,...)$ denote the best response mapping. This gives a mapping given message vector $m$. (For any $BR_i$ only the messages of non $i$ players are used to derive the best response mapping.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $m^* = (m_1^*,m_2^*,m_3^*,...)$ denote the symmetric equilibrium. As it is an equilibrium, for any $i$ you have $BR_i(m^*) = m_i^*$, so&#xA;$$&#xA;BR(m^*) = m^*.&#xA;$$&#xA;Suppose we have a non truth-telling equilibrium $m'$. As this is an equilibrium&#xA;$$&#xA;BR(m') = m'&#xA;$$&#xA;so&#xA;$$&#xA;\forall i\in N: m_i' = \theta_i + \gamma \sum_{j \ne i} (\theta_j-m_j').&#xA;$$&#xA;Rearranging this&#xA;$$&#xA;\forall i\in N: 0 = \theta_i - m_i' + \gamma \sum_{j \ne i} (\theta_j-m_j').&#xA;$$&#xA;Adding up all the equations yields&#xA;\begin{eqnarray*}&#xA;0 &amp;amp; = &amp;amp; \sum_i (\theta_i - m_i') + \gamma \sum_i \sum_{j \ne i} (\theta_j-m_j')&#xA;\\&#xA;0 &amp;amp; = &amp;amp; \sum_i (\theta_i - m_i') + \gamma \cdot (n-1) \cdot  \sum_i (\theta_i - m_i') \\&#xA;0 &amp;amp; = &amp;amp; (1 + \gamma \cdot (n-1)) \cdot \sum_i (\theta_i - m_i')  .&#xA;\end{eqnarray*}&#xA;There are two ways this can hold. Either $\sum_i (\theta_i - m_i') = 0$ or $\gamma = -\frac{1}{n-1}$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Case 1. Suppose $\sum_i (\theta_i - m_i') = 0$. Then from&#xA;\begin{eqnarray*}&#xA;m_i' &amp;amp; = &amp;amp; \theta_i + \gamma \sum_{j \ne i} (\theta_j-m_j') \\&#xA;m_i' - \theta_i &amp;amp; = &amp;amp; \gamma \sum_{j \ne i} (\theta_j-m_j') \\&#xA;(m_i' - \theta_i) - \gamma \cdot (m_i' - \theta_i)  &amp;amp; = &amp;amp;  \gamma \cdot (\theta_i - m_i') + \gamma \sum_{j \ne i} (\theta_j-m_j') \\&#xA;(1 - \gamma) \cdot (m_i' - \theta_i) &amp;amp; = &amp;amp; \gamma \sum_{j} (\theta_j-m_j') = 0.&#xA;\end{eqnarray*}&#xA;In the truth-telling equilibrium this is true for all $i \in N$. If $\gamma = 1$ non truth-telling equilibria are also possible for any number of players, e.g. $n-1$ players reporting their type $+1$ and one player reporting her type $-n+1$. If $\gamma &amp;lt; 1$ and the equilibrium is non truth-telling then this is not possible.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Case 2.&#xA;Suppose $\gamma = -\frac{1}{n-1}$.  &lt;br&gt; Let $x_i$ denote $\theta_i - m_i'$, so the equation system&#xA;$$&#xA;\forall i\in N: 0 = \theta_i - m_i' + \gamma \sum_{j \ne i} (\theta_j-m_j')&#xA;$$&#xA;becomes&#xA;$$&#xA;\forall i\in N: 0 = x_i + \gamma \sum_{j \ne i} x_j.&#xA;$$&#xA;For $\gamma = -\frac{1}{n-1}$ the matrix representation of this equation system is invertible so there is only a single solution, and $\forall i: x_i = 0$ is clearly a solution. This means that the only equilibrium is the truth-telling equilibrium.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2016-01-30T16:21:21.827" LastActivityDate="2016-01-30T16:21:21.827" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10441" PostTypeId="2" ParentId="10432" CreationDate="2016-01-29T22:33:18.573" Score="0" Body="&lt;p&gt;There are perhaps a variety of theories that can explain this, but I'll have a go at what seems intuitive to me.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, to answer your question, one will have to ask the question: &quot;What determines interest rates?&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In an economically perfect (frictionless, decentralized) world, the supply and demand of loanable funds would determine the interest rate. However, we know that it is the central bank, in most advanced countries, that sets the interest rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, what does an interest rate mean? One way of looking at it is the cost of borrowing funds. The central bank sets an interest rate, so that bonds are priced according to this rate. For instance, Treasury Bills (30 -day, 90 day) etc. Now,, these are instruments for the government to raise money to finance expenditure. If we are agreed on the point that countries that are &quot;richer&quot; or more &quot;advanced&quot; have banking systems that people have more faith in, then they need to offer &lt;em&gt;less&lt;/em&gt; on any amount borrowed. In other words, people will buy these bonds, and will need a not very high interest rate because it is basically a riskless asset. Countries where the banking system is not developed enough will have to offer higher rates to compensate for risk.&lt;/p&gt;&#xA;" OwnerUserId="5233" LastActivityDate="2016-01-29T22:33:18.573" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10443" PostTypeId="1" CreationDate="2016-01-29T23:30:00.450" Score="1" ViewCount="38" Body="&lt;p&gt;I am reading &lt;em&gt;Dasgupta's&lt;/em&gt; Very Short Introduction to Economics. He talks about culture. Specifically the work of Max Weber trying to explain the influence of protestant ethic on the rise of capitalism. After that he says:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Using culture to explain economic performance hasn't been popular among social scientists in recent decades; but there has been a revival.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Why has there been a decline of interest on this type of research? What kind of research replaced it? And finally, what modern work follows Weber's line of research?&lt;/p&gt;&#xA;" OwnerUserId="4673" LastEditorUserId="1601" LastEditDate="2016-01-30T00:18:16.387" LastActivityDate="2016-01-30T00:18:16.387" Title="Why has this type of research fallen out of grace?" Tags="&lt;reference-request&gt;&lt;history-economic-thought&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10444" PostTypeId="1" AcceptedAnswerId="10474" CreationDate="2016-01-30T00:35:41.757" Score="1" ViewCount="177" Body="&lt;p&gt;BoJ just announced its negative interest rate policy in an effort to drag Japanese out of a deflationary mindset and hoping to shift the demand curve to boost the economy. However, my question is, if people don't want to spend, why bother?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider the following simple model of an ideal economy. Suppose this economy has a maxium output is 100 units of bread. Further suppose it is a one-factor economy, i.e. all output is produced by labor. Suppose everyone in the country is considered a labor and there is a total of 100 units of labor in the economy. Suppose the most comfortable level of consumption of bread by people is a total of 10 units. Then my question is why would the cnetral banks impose policies to force people to demand more of it when they do not want to? It only made sense under the following circumstance: since only 10 units of bread is needed, maybe only 10 units of labor is employed to do all the production and the rest of the people is not employed, which means they do not have any money to buy the bread. In this case, it made sense for government to raise demand so the rest of the people can have a job and earn money, and therefore spend money, which further helps the economy. However, in Japan's case, unemployment rate looks fine, around $3.5\%$ as I checked yesterday, partly because Japanese companies are reluctant in cutting employees. Connecting to the simple model I had beforehand, Japan's case is like having all the 100 units of labor employed to produce 10 units of bread, althought they really only needed 10 units of labor. This implies that all the people are getting what they want. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So why is there anything to worry about that the central bank of Japan even start to adopt these agressive monetary policies?&lt;/p&gt;&#xA;" OwnerUserId="4551" LastActivityDate="2016-02-01T09:07:02.617" Title="Why is GDP growth so important that central banks are trying to impose negative interest rate?" Tags="&lt;macroeconomics&gt;&lt;supply-and-demand&gt;&lt;interest-rate&gt;&lt;japan&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10445" PostTypeId="2" ParentId="10432" CreationDate="2016-01-30T03:45:27.863" Score="0" Body="&lt;p&gt;Not disregarding the previous answers (although some seem like logical coincidents), the main reason is risk. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Both laws applicable to certain sectors (banking, insurance, etc.), and the theories on investment portfolio management state that to reduce risk on the total portfolio it is necessary to invest a reasonable share of the portfolio in risk-free (low-risk at most) products. &#xA;What are financial products that are risk-free these days? Almost none. In fact, mostly government bonds of advanced countries are considered risk-free due to their stronger and more stable economic position. So the demand rises significantly. Driving the interest rate close to zero.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This should answer your question, but if you're wowing why it fell even more? To negative levels? &#xA;This phenomenon was followed the currency, such as the EURO, POUND and DOLLAR,  becoming stronger than the rest of the world; overall disthrust of the banking sector (preferring the government over a bank).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So it's a mix of different events that occurred around the last 20 years or so. &#xA;But in short it be good begun with risk management and ends at risk management. &lt;/p&gt;&#xA;" OwnerUserId="235" LastEditorUserId="235" LastEditDate="2016-01-30T09:06:53.940" LastActivityDate="2016-01-30T09:06:53.940" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10446" PostTypeId="1" CreationDate="2016-01-30T07:43:28.627" Score="3" ViewCount="529" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/JNI9T.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/JNI9T.png&quot; alt=&quot;enter image description here&quot; /&gt;&lt;/a&gt;&#xA;link: &lt;a href=&quot;https://research.stlouisfed.org/fred2/graph/?g=3big&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://research.stlouisfed.org/fred2/graph/?g=3big&lt;/a&gt;&lt;/p&gt;&#xA;&lt;p&gt;I have watched &lt;a href=&quot;https://www.youtube.com/watch?v=QT1suJ9cYI8&quot; rel=&quot;nofollow noreferrer&quot;&gt;this&lt;/a&gt; video where he explain this chart.&#xA;Basically he shows high correlation between Monetary Base and the Stock Market. But I cannot understand why he multiply the Wilshire for 47 and the &amp;quot;Federal Funds Rate&amp;quot; for 250 ?&lt;/p&gt;&#xA;&lt;p&gt;UPDATE 2021:That correlation was true only for that time.&#xA;&lt;a href=&quot;https://i.stack.imgur.com/gk2T7.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/gk2T7.png&quot; alt=&quot;enter image description here&quot; /&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="5075" LastEditorUserId="5075" LastEditDate="2021-01-30T19:08:18.907" LastActivityDate="2021-01-30T19:08:18.907" Title="Monetary Base vs. Stock price" Tags="&lt;monetary-policy&gt;&lt;stock-market&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="10448" PostTypeId="1" CreationDate="2016-01-30T10:57:23.050" Score="1" ViewCount="39" Body="&lt;p&gt;Consider a factor model like &lt;a href=&quot;https://en.wikipedia.org/wiki/Fama%E2%80%93French_three-factor_model&quot; rel=&quot;nofollow&quot;&gt;Fama and French (1993)&lt;/a&gt;. Total risk has two components, systematic risk and idiosyncratic risk. Idiosyncratic risk can be &lt;a href=&quot;https://en.wikipedia.org/wiki/Diversification_(finance)&quot; rel=&quot;nofollow&quot;&gt;diversified&lt;/a&gt; while systematic risk cannot. Systematic risk is the risk that amounts to the priced risk factors of the model. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is: &lt;strong&gt;when can the risk of a factor be diversified?&lt;/strong&gt;&#xA;Can there be a priced and a diversifiable risk factor? Does this implies that investors hold not diversified portfolios?&lt;/p&gt;&#xA;" OwnerUserId="7138" LastActivityDate="2016-01-30T10:57:23.050" Title="Risk factors and diversification in asset pricing models" Tags="&lt;finance&gt;&lt;asset-pricing&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10449" PostTypeId="2" ParentId="10446" CreationDate="2016-01-30T13:27:37.223" Score="1" Body="&lt;p&gt;The multiplication factors are there so that they can be charted and be seen on the same axis as the St. Louis Adjusted Monetary Base.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The factor of 47 means that the closeness of the match between that and the Wilshire 5000 in 2000-2015 is easiest to see, by overlaying the curves in that period.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2016-01-30T13:27:37.223" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10451" PostTypeId="1" AcceptedAnswerId="10453" CreationDate="2016-01-30T18:23:37.930" Score="1" ViewCount="63" Body="&lt;p&gt;I am looking for a paper (or textbook, or even lecture notes example) where there is a problem such as&#xA;$$&#xA;\max f(x) \\&#xA;\text{ s.t. } \int g(x) \leq \int c&#xA;$$&#xA;and there is at least some exposition/explanation about solving it. I believe that these are sometimes (often? always?) treated as infinite sum, but I may be wrong.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In words, I am looking for an example and solution (or at least a discussion of solution) of a problem where the constraint contains an integral. It is okay (and probably will be the case) that $f(x)$ contains an integral too.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I believe such optimization problems occur in macroeconomics. I'm specifically thinking of integrals over possible states, but the integral doesn't necessarily have to be over states.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or, if someone could explain solving such problems to me, that would be okay as well.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks.&lt;/p&gt;&#xA;" OwnerUserId="6600" LastActivityDate="2016-01-31T00:12:32.577" Title="Paper where an integral in the constraint of an optimization problem is treated as infinite sum" Tags="&lt;macroeconomics&gt;&lt;mathematical-economics&gt;&lt;dynamic-optimization&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10452" PostTypeId="2" ParentId="10340" CreationDate="2016-01-30T19:54:21.783" Score="0" Body="&lt;p&gt;You are right that if the inflation rate is calcualted using PPI, then PPI-adjusted price for copper didn't not change, i.e. the real prie for copper did not change. However, we would also consider the real income and real prices of the necessities in determinging wether copper has increased in value reative to income and daily necessities. Since this time when we compute the real income, we would be using the PPI calculated inflation rate as well. If nomial income rose by $5\%$ by the end of the fifth year while the price of copper along with other PPI goods rose by $15\%$ at that time, we would get a real income that is lower than the real income five years ago, which then would be apparent that the value of copper, or the relative value of copper, has increased.&lt;/p&gt;&#xA;" OwnerUserId="4551" LastActivityDate="2016-01-30T19:54:21.783" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10453" PostTypeId="2" ParentId="10451" CreationDate="2016-01-31T00:12:32.577" Score="2" Body="&lt;p&gt;Some papers that come to my mind are ;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;-Calvo and Obstfeld (1988, Econometrica)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;-Endres et al (2014, Resource and Energy Economics)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;-Traeger et al. (2012, European Economic Review)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In these papers, the objective function has two integrals but as these models are treating an overlapping generations model, there is a such aggregation that one of the integrals disappears because it is not possible to have an integral on an Hamiltonian. Otherwise, it is not possible to solve it by standard methods. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am not sure about but this so take it with precaution, this kind of problem with two integrals on the objective function could not be solved by optimal control techniques but by calculus of variation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is a very good section about constraints with integrals on textbooks of &lt;/p&gt;&#xA;&#xA;&lt;p&gt;-Kamien and Schwarz (Dynamic Optimization : The Calculus of Variations and Optimal Control in Economics and Management)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;-A. Seierstad and  K. Sydsæter (Optimal Control Theory with Economic Applications)&lt;/p&gt;&#xA;" OwnerUserId="2938" LastActivityDate="2016-01-31T00:12:32.577" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10455" PostTypeId="1" AcceptedAnswerId="10486" CreationDate="2016-01-31T02:49:01.770" Score="1" ViewCount="777" Body="&lt;p&gt;I just came across the concepts of merit and demerit goods for the first time, in the &lt;a href=&quot;http://www.cie.org.uk/Images/164510-2016-2018-syllabus.pdf&quot; rel=&quot;nofollow&quot;&gt;Cambridge A-level economics syllabus&lt;/a&gt;. I wasn't sure what they were.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is a merit good simply a good that has positive 'internalities' (benefits that the consumer is unaware of)?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And similarly, is a demerit good simply one with negative 'internalities' (costs that the consumer is unaware of)?&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2016-02-05T09:59:38.490" Title="What is a merit good?" Tags="&lt;definition&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10458" PostTypeId="2" ParentId="10455" CreationDate="2016-01-31T07:33:22.697" Score="-1" Body="&lt;p&gt;No, a merit good is not simply a good with benefits that the customer is unaware of. That imperfect information can be part of it, but it's only one part of the story.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The benefits may be externalities. Or they may be priced in, but the benefit time is so long that customers' hyperbolic discounting means they would never be realised without external intervention.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A merit good does have some characteristics of normal private goods: there is some scarcity; and a non-zero marginal cost. And it has some characteristics of public goods: the market on its own fails to deliver anything close to economically efficient quantities; and intervention is required to mitigate this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Merit goods are not a superset of goods with positive externalities; some goods with positive externalities are public goods, not merit goods.&lt;/p&gt;&#xA;" OwnerUserId="44" LastEditorUserId="44" LastEditDate="2016-01-31T10:43:15.530" LastActivityDate="2016-01-31T10:43:15.530" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10460" PostTypeId="2" ParentId="10432" CreationDate="2016-01-31T11:03:45.540" Score="0" Body="&lt;p&gt;This question is closely related to the debate on secular stagnation. Recently Larry Summers reintroduced this term after it had been used for the first time in the 1930s by Alvin Hansen. A period of secular stagnation is characterised by low aggregate demand. In the market for loanable funds, this is reflected by high supply of savings and low demand for investment. Consequently, this results in low, and possible negative, (natural) real equilibrium interest rates. As low demand suppresses inflation it may be possible that the equilibrium real interest rate is out of reach due to the zero lower bond on nominal interest rates. At the prevailing real interest rate, savings exceed investments so that the economy operates below potential. This is a first interpretation secular stagnation. A second interpretation of secular stagnation is about low growth of potential, rather than growth below potential. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Low or declining $observed$ real interest rates are a good argument in favour of secular stagnation since they may reflect low or declining (and eventually too low) $natural$ real interest rates. In this context, answering the question of why secular stagnation may occur, automatically answers your question of why countries tend to have low nominal and real interest rates.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Vox published a freely available e-book (see link below) entirely dedicated to the subject of (the first interpretation of) secular stagnation. Several prominent economists briefly give their opinion or elaborate on one specific element in the discussion. The main arguments in favor of secular stagnation draw on (more or less permanent) shifts in the loanable funds market to explain the low observed real interest rates. On the one hand savings (supply of loanable funds) may have increased (shift to the right) due to:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;increased savings in emerging markets, which Bernanke dubbed &quot;the global savings glut&quot;;&lt;/li&gt;&#xA;&lt;li&gt;demographics;&lt;/li&gt;&#xA;&lt;li&gt;income inequality;&lt;/li&gt;&#xA;&lt;li&gt;deleveraging and its long term effects.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;It should be noted that in the e-book the effects of demographics and income inequality are considered as arguments in favor of shifts to the right in the supply of loanable funds whereas some papers in the literature (unrelated to the discussion on secular stagnation) do not share that view. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand, investment demand (demand for loanable funds) may have decreased (shift to the left). The main arguments are the following:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;lower relative price of capital goods;&lt;/li&gt;&#xA;&lt;li&gt;higher cost of capital;&lt;/li&gt;&#xA;&lt;li&gt;long term effects of deleveraging;&lt;/li&gt;&#xA;&lt;li&gt;demographics.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Again, the existing literature does not always provide support for all these arguments.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Next to the arguments in favor of secular stagnation (the first interpretation: growth below potential) that draw on shifts in the market for loanable funds, shifts in portfolios from risky to riskless assets and a shortage of safe assets may explain the observed decrease in real interest rates as well. All these arguments are discussed (most of them in depth) in the e-book.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In addition to the Vox e-book, the blogs of Ben Bernanke and Larry Summers give valuable and opposing insights in the discussion. Furthermore, also in broader academia interest in the subject is booming. So, clearly, when searching for an answer to the question why advanced economies seem to be stuck in a period of low interest rates, you will not find a unique answer or a single theory but instead, you will find a vivid discussion with quite different views and arguments.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As I mentioned, these links are a good starting point to indulge oneself in the discussion:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;the Vox e-book: &lt;a href=&quot;http://www.voxeu.org/sites/default/files/Vox_secular_stagnation.pdf&quot; rel=&quot;nofollow&quot;&gt;http://www.voxeu.org/sites/default/files/Vox_secular_stagnation.pdf&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;Bernanke's blog: &lt;a href=&quot;http://www.brookings.edu/blogs/ben-bernanke/posts/2015/03/30-why-interest-rates-so-low&quot; rel=&quot;nofollow&quot;&gt;http://www.brookings.edu/blogs/ben-bernanke/posts/2015/03/30-why-interest-rates-so-low&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Many arguments I presented here also return in the paper that can be found following this link: &lt;a href=&quot;http://www.brookings.edu/research/papers/2016/01/14-us-economic-policy-in-a-low-interest-rate-world-bosworth&quot; rel=&quot;nofollow&quot;&gt;http://www.brookings.edu/research/papers/2016/01/14-us-economic-policy-in-a-low-interest-rate-world-bosworth&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="6566" LastEditorUserId="6566" LastEditDate="2016-02-03T11:00:44.363" LastActivityDate="2016-02-03T11:00:44.363" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10461" PostTypeId="1" AcceptedAnswerId="10467" CreationDate="2016-01-31T17:25:09.470" Score="0" ViewCount="1066" Body="&lt;p&gt;Given some unspecified demand and supply functions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I need to calculate quantity and price after taxation, but what is the difference between having a tax of 20% of total revenue and 20% of profits ($\pi$)? I mean how to calculate this tax in those two cases? And what precisely should be changed when calculating Q and P after tax of those two types is imposed on.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Whether tax of 20% of total revenue creates simply consumer price on a level of $1.2(\text{producerprice})$ or is it something different? In case of profits is it $0.8(\text{supplyfunction})$?&#xA;**hope this question now satisfies required format **&lt;/p&gt;&#xA;" OwnerUserId="5486" LastEditorUserId="5486" LastEditDate="2016-02-02T10:43:18.783" LastActivityDate="2016-02-02T10:43:18.783" Title="Given the supply and demand function what is the difference?" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="6" ClosedDate="2016-02-01T12:33:10.970" ContentLicense="CC BY-SA 3.0" />
  <row Id="10463" PostTypeId="1" AcceptedAnswerId="10468" CreationDate="2016-01-31T21:35:48.037" Score="0" ViewCount="33" Body="&lt;p&gt;i have to do a business plan as an assignment in my computer science engineering school. I'm looking for help .. can anyone provides me with a complete template ? or an example to follow &lt;/p&gt;&#xA;&#xA;&lt;p&gt;thanks,&lt;/p&gt;&#xA;" OwnerUserId="7155" LastEditorUserId="6566" LastEditDate="2016-02-01T12:28:40.107" LastActivityDate="2016-02-01T12:28:40.107" Title="Business plan template" Tags="&lt;finance&gt;" AnswerCount="1" CommentCount="0" ClosedDate="2016-02-01T12:33:19.557" ContentLicense="CC BY-SA 3.0" />
  <row Id="10464" PostTypeId="1" CreationDate="2016-01-31T22:11:25.010" Score="2" ViewCount="28" Body="&lt;p&gt;In &lt;em&gt;A Contribution To The Empirics of Economic Growth&lt;/em&gt; found &lt;a href=&quot;http://eml.berkeley.edu/~dromer/papers/MRW_QJE1992.pdf&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;.  The authors perform an econometric regression on the Solow-Swan model, they also do a restricted regression to find if the null hypothesis that the coefficient on the log of savings $\hat{\gamma}_1$ is equal and opposite to the coefficient of the log of depreciation $\hat{\gamma}_2$, that is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \hat{\gamma}_1 = - \hat{\gamma}_2 $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where in the Solow model this is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \hat{\gamma}_1 = \frac{\alpha}{1-\alpha} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I see how they calculated the implied $\alpha$, $1.43 = \alpha/(1-\alpha) \Rightarrow \alpha = 0.59 $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But why did they use $ln(s) - ln(n+g+\delta)$?  Trying to solve this myself ...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$  1.43 = ln(s) - ln(n+g+\delta) \simeq \hat{\gamma}_1 - \hat{\gamma}_2 = 0 $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ = \frac{\alpha}{1-\alpha} + \frac{\alpha}{1-\alpha} = 2 \frac{\alpha}{1-\alpha} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which is too large by factor of 2.  Also, and I don't know if I should post this as a separate question is that I have &lt;em&gt;no idea&lt;/em&gt; how they calculated the implied $\alpha$ and $\beta$ in the next model which includes schooling as a proxy for measuring human capital.&lt;/p&gt;&#xA;" OwnerUserId="5780" LastActivityDate="2016-01-31T22:11:25.010" Title="Calculating implied constants from econometric data" Tags="&lt;macroeconomics&gt;&lt;econometrics&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10465" PostTypeId="1" CreationDate="2016-01-31T22:33:17.310" Score="1" ViewCount="80" Body="&lt;p&gt;The cost function depends on the number of produced items.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let the value of the cost function C be in hundreds of thousands $ and the quantity is in 1,000,000 items, thus q = 1 indicates 1,000,000 items and q = 0.000001 indicates 1 item.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The marginal cost at a certain number of items (say 1560 items corresponding to q = 0.00156) is in one hand interpreted as the cost of an additional produced item (so it is the cost of the 1561th item), and from another hand it is the derivative of the cost function &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac{\partial \text{C(q)}}{\partial q}$ and then applying q to be 0.00156.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I see a good approximation for $\frac{\partial \text{C(q)}}{\partial q}$ to be $\frac{\partial \text{C(q)}}{1additionalitem}$ since 1 additional item is (0.001561 - 0.001560) which is an infinitly small quantity suitable to be considered as ${\partial q}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But what if in some other case, q actually represented just item units and not normalized item numbers e.g.: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;q = 1 indicates 1 item, q = 1560 indicates 1560 produced items, and so on, so in this case $\frac{\partial \text{C(q)}}{\partial q}$ can't be $\frac{\partial \text{C(q)}}{1additionalitem}$ since 1 additional item is (1561 - 1560) which is 1 and not an infinitly small quantity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;would it be possible then to use the derivative of the cost function?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I'm saying is that considering the marginal cost to be the derivative of the cost function is conditioned by having q a normalized value of a very big number of produced items. Do you agree?&lt;/p&gt;&#xA;" OwnerUserId="7092" LastEditorUserId="7092" LastEditDate="2016-02-01T05:31:24.297" LastActivityDate="2016-03-04T05:55:39.797" Title="The marginal cost function is meaningful only when the produced quantity is normalized" Tags="&lt;cost&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10466" PostTypeId="2" ParentId="10465" CreationDate="2016-01-31T23:56:59.863" Score="1" Body="&lt;p&gt;I am not sure I understand your question but if I do, then I do not agree. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Marginal cost is defined as the derivative of the cost function. If the producible units are too large then marginal cost is less likely be a good approximation of non-marginal cost changes. The importance of this is that the derivative of an estimated cost function will probably not correspond to the real cost increase when non-marginally increasing the output.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2016-02-01T11:42:42.240" LastActivityDate="2016-02-01T11:42:42.240" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10467" PostTypeId="2" ParentId="10461" CreationDate="2016-02-01T00:30:51.197" Score="1" Body="&lt;p&gt;Deriving those functions, you can find $p^*$ and $Q^*$, which, multiplying both, should give you equilibrium profits. Now, if you take that tax rate (20%, I reckon?), you can calculate taxes over profits and the tax-free price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To find the equilibrium price $p^*$, you need to have those two functions in a system and solve for $p$. Then, just replace it on both functions and you should have equilibrium quantities.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, I'm assuming demand absorves all quantities produced by companies, no production restrictions and that this market is one in perfect competition. If this last paragraph changes, then my solution will not be correct.&#xA;To answer your question - what is the difference -, well, in this case, it is none because we are not considering production costs. If we did, you can see that both values would change.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Nevertheless, to calculate taxes, you need to work around with the system. That will give you total revenues, cost and tax free. Applying 20% leads to net earnings, because you do not have any production costs associated with the problem - something commonly done in Economics. That or consider a variable $c$ of costs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This kind of exercises are also good to understand what are the effects of  costs on revenues/profits. There's actually a financial term for that but I cannot recall :) &lt;/p&gt;&#xA;" OwnerUserId="6832" LastActivityDate="2016-02-01T00:30:51.197" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10468" PostTypeId="2" ParentId="10463" CreationDate="2016-02-01T00:43:23.440" Score="0" Body="&lt;p&gt;There are many online. I don't recommend any of them, unless you're looking for a structure to guide you through. Business plans must suit the idea, and not otherwise.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can find generic templates out there, but I believe they should work as a guidelines - i.e., things you should include. But the point of a business plan is to explain everything about an idea/project and explore the outcomes from there. If you are able to explain every single detail of your idea, you'll find some weaknesses - which you must include, of course - and your exercise is now to think about how can you over come those weaknesses. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some questions for you to consider:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Who are you? Why are you proceeding with this idea?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;What is the idea? What is the product? Why is it so different?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Where are you/your firm located? Why? Any particular reason? Where should it be located if you could?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;What is your market? Age, type, profession, gender, etc etc&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;How do you expect to reach out to those people about the idea? After that, how do you want them to buy your product/service?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;(At this point, you can perform the so-well-known SWOT analysis and other similar matrices (BCG matrix, for instance).&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;How are you going to finance yourself? Why? Why or why not loans, business angels, credit, etc etc ? What is your financial strategy? How are you going to manage the (few) cash you will have?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Are you going to invest on marketing? If so, how, why, why not?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Okay, you go some sales. What are you going to do with the cash you just earned? Why? For how long are you keeping that strategy&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;How are things going to unfold once you get it running? Why? Why not in a totally different way?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;There are no identical business plans. You have to adequate yours to your idea. A quick example: When there is a physical product, you &lt;em&gt;must&lt;/em&gt; include the design, explain it, whys and why not. When there is a service, for instance, perhaps it is better to explain why is it different than other solutions (you know, reinventing the wheel, not inventing it).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I hope these will help you work something around.&lt;/p&gt;&#xA;" OwnerUserId="6832" LastActivityDate="2016-02-01T00:43:23.440" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10469" PostTypeId="2" ParentId="9964" CreationDate="2016-02-01T03:44:09.010" Score="9" Body="&lt;p&gt;I'm not an expert on this, but as a Singaporean, here are some factors off the top of my head (plus some Googling), explaining why Singapore is different from other first-world countries (in terms of revenue and expenditures).&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;In 2014, the personal income tax contributed only about 14.6% of government revenues (&lt;a href=&quot;http://www.singaporebudget.gov.sg/data/budget_2015/download/FY2015_Analysis_of_Revenue_and_Expenditure.pdf&quot; rel=&quot;noreferrer&quot;&gt;Source&lt;/a&gt;). In contrast, in Canada for example, it was nearly 48% of government revenues (&lt;a href=&quot;http://www.fin.gc.ca/afr-rfa/2015/report-rapport-eng.asp&quot; rel=&quot;noreferrer&quot;&gt;C\$135.7b out of C\$282.3b in 2015&lt;/a&gt;).&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/UlKyo.jpg&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/UlKyo.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;One unusual revenue source deserves commentary: car taxes, including the so-called Certificate of Entitlement (COE). The COE is simply a piece of paper that entitles you to own a car. &lt;a href=&quot;http://www.channelnewsasia.com/news/singapore/coe-for-small-cars-drops/2402306.html&quot; rel=&quot;noreferrer&quot;&gt;This recent news story&lt;/a&gt; mentions how the COE price hit a 5-year low, at &quot;only&quot; S\$45,002 (≈ US\$31,600) for small cars.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;These COEs (&quot;Vehicle Quota Premiums&quot;) make up 6.0% of government revenue. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Besides this very expensive piece of paper, a car-owner still has to pay all the other usual taxes (GST, road taxes) and insurance, plus a lot of unusual fees (e.g. Electronic Road Pricing - an idea which London borrowed). A lot of these flow to government coffers. Together, these make Singapore easily the most expensive place in the world to own cars.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&quot;Public&quot; housing is not cheap, heavily-subsidized housing.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;It is true that over 80% of Singapore residents live in government housing (HDB flats). But these are not the sort of heavily-subsidized public housing you have in some Western countries. Indeed, it is a frequent gripe amongst Singaporeans that these are incredibly expensive and there are often conspiracy theories that the government sometimes actively works to push up prices. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given the lack of transparency and also the fact that Singaporeans are actively encouraged to use their CPF (retirement) savings to pay for these homes, these conspiracy theories are not without merit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Government housing is generally priced at market rates. For example, recently a 1,001 square foot flat went for S\$900,000 (≈ US\$632,000) - this was &lt;a href=&quot;http://business.asiaone.com/property/news/4-room-flat-clementi-fetches-900000-the-first-time&quot; rel=&quot;noreferrer&quot;&gt;in the news&lt;/a&gt; because it broke a local (Clementi) record, but it doesn't get much cheaper than that.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are some subsidies for first-time Singaporean home-buyers: If &lt;em&gt;both&lt;/em&gt; you and your spouse are first-time buyers, then you get a total subsidy of &lt;a href=&quot;http://www.hdb.gov.sg/cs/infoweb/residential/buying-a-flat/resale/first-timers-applicants-scheme?resolvetemplatefordevice=true&quot; rel=&quot;noreferrer&quot;&gt;S\$30,000&lt;/a&gt;. But this is not a large subsidy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some exceptional hardship cases (which involves an elaborate application process and onerous requirements) get to rent a small one-room flat for extremely cheap (&lt;a href=&quot;http://hdbspeaks.sg/fi10/fi10336p.nsf/cc/PublicRentalFlats?OpenDocument&quot; rel=&quot;noreferrer&quot;&gt;as little as S\$26 a month&lt;/a&gt;), but these cases are so few in number as to be negligible.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Public transport is not a perennial loss-maker, but rather a profit-maker!&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Unlike in say some US cities, where public transport is always losing money, public transport in Singapore ALWAYS makes very healthy profits. So these are not drains on but rather contributors to the government coffers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you've only been in US cities where there's often only a few people on a bus, you may find it hard to imagine. But come to any Asian city where public transport is always jam-packed and you can see why public transport is so profitable.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;The CPF&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;This is a forced retirement savings scheme. In Sep 2015, the CPF had S\$293.9b in total members' balances (&lt;a href=&quot;https://www.cpf.gov.sg/Members/AboutUs/about-us-info/cpf-statistics/section-a-members-accounts&quot; rel=&quot;noreferrer&quot;&gt;source&lt;/a&gt;). That's about 75% of GDP. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is another frequent gripe of Singaporeans because these savings are all locked up (with very draconian rules on how you can gradually withdraw small amounts after you're 55). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Moreover, these funds are &quot;managed&quot; by the various Singapore sovereign wealth funds (GIC, Temasek). GIC in particular is not well-ranked in terms of transparency (&lt;a href=&quot;http://www.swfinstitute.org/statistics-research/linaburg-maduell-transparency-index/&quot; rel=&quot;noreferrer&quot;&gt;source&lt;/a&gt;). So it is unclear as to how and how much exactly these help to contribute to Singapore government coffers. &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Health care is very efficient (at least if compared to say the USA)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Healthcare spending is 4.6% of GDP (&lt;a href=&quot;http://data.worldbank.org/indicator/SH.XPD.TOTL.ZS&quot; rel=&quot;noreferrer&quot;&gt;World Bank&lt;/a&gt;). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have heard some of my friends who work at the Ministry of Health (Singapore) complaining about how inefficient the Singapore health care system is. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But as someone who has lived in both Singapore and the US for a good number of years, I would say (based purely on my own anecdotal experience) that the Singapore healthcare system is extremely efficient, especially if compared to the US. But the US is perhaps the worst-case scenario. I'm not sure how Singapore would compare to other first-world countries.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastEditorDisplayName="user18" LastEditDate="2016-02-01T09:27:23.857" LastActivityDate="2016-02-01T09:27:23.857" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10470" PostTypeId="1" CreationDate="2016-02-01T04:14:24.607" Score="1" ViewCount="127" Body="&lt;p&gt;I recently came across &lt;a href=&quot;http://www.nber.org/papers/w15369&quot; rel=&quot;nofollow&quot;&gt;Barro and Redlick QJE (2011) paper, &quot;Macroeconomic Effects from Government Purchases and Taxes&quot;&lt;/a&gt;, in which the authors instrument for defense spending with an interaction term between defense spending and war year. The outcome of interest is total GDP. They use an instrument to avoid simultaneity bias between GDP and defense spending.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm familiar with the main idea of instrumental variable, i.e. the instrument should be correlated with the endogenous variable but uncorrelated with the error term. However, I've never seen someone use an interaction of the endogenous variable as the instrument before.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why is this valid?&lt;/p&gt;&#xA;" OwnerUserId="2819" LastActivityDate="2016-02-01T04:14:24.607" Title="Using an interaction term as the instrument (as in Barro QJE (2011))" Tags="&lt;econometrics&gt;&lt;instrumental-variable&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10471" PostTypeId="1" AcceptedAnswerId="10481" CreationDate="2016-02-01T06:17:32.357" Score="2" ViewCount="5330" Body="&lt;p&gt;Do quasi-linear indifference curves have MRS's that depend only on the nonlinear variable?  For example, for a U(x) = √(x) + y, I calculated that the y would not be in the MRS.  Does that mean that a consumer does not factor the consumption of a &quot;linear&quot; good y into their utility maximization? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If this is the case, can someone explain to me, practically, what it means for a good to be &quot;linear&quot; and for an MRS to exclude one variable?&lt;/p&gt;&#xA;" OwnerUserId="7158" LastActivityDate="2016-10-01T21:39:02.150" Title="Quasilinear Preference and MRS" Tags="&lt;utility&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10472" PostTypeId="1" CreationDate="2016-02-01T06:25:43.123" Score="1" ViewCount="3736" Body="&lt;p&gt;For example, say the MRS has simplified to the form $MRS(x,y) = -y$, given a utility function &#xA;\begin{equation*}&#xA;U(x, y) = e^{(x + ln(y))^{1/3}}&#xA;\end{equation*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With a budget line of, say, $2x + y = 10$ which would yield a budget line slope of -2, equating the MRS to the BLS would simply yield $y = 2$, but there is no x to solve for in the equating of the two slopes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is the last step, in cases like this, to plug back into the budget constraint?  In which case, one would get $x = 4$, yielding an optimal consumption bundle of $(4, 2)$?&lt;/p&gt;&#xA;" OwnerUserId="7158" LastEditorUserId="4667" LastEditDate="2016-02-01T07:02:33.717" LastActivityDate="2018-08-10T10:31:37.313" Title="How does one calculate an optimal consumption bundle if the MRS only contains one variable?" Tags="&lt;utility&gt;&lt;consumption&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10473" PostTypeId="1" CreationDate="2016-02-01T08:03:50.917" Score="3" ViewCount="28" Body="&lt;p&gt;If you look at this graph of the SnP500: &lt;a href=&quot;https://i.stack.imgur.com/Y8UQm.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Y8UQm.png&quot; alt=&quot;SNP 500 All time&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You will see that it is trading at levels higher than pre 08 or 99. What systemic structural changes in the market have led it to be trading so high? I think the rise from 80-99 can be explained by the deregulation of the financial sector and the rise of China. What is causing it to trade so highly now?&lt;/p&gt;&#xA;" OwnerUserId="4056" LastActivityDate="2016-02-01T08:03:50.917" Title="Have there been any structural changes in the market that would lead the indexes to be trading so high?" Tags="&lt;macroeconomics&gt;&lt;finance&gt;&lt;stock-market&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10474" PostTypeId="2" ParentId="10444" CreationDate="2016-02-01T09:07:02.617" Score="1" Body="&lt;p&gt;Central banks do not try to increase growth. Instead, they commonly have two targets: 1) to maintain price stability and 2) to minimize the output gap. Let us ignore the first goal for a moment. The minimization of the output gap implies that if output falls short of what the central bank believes to be the natural level of output, then it will try to use economic policies which promote growth.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In your example, 10 units of bread being produced seems to be the natural level of output. If the central bank sees that the economy produces only 9 units of bread, it will try to stimulate the economy with low interest rates. If it observes 11 units being produced, it will raise interest rates to reduce the output. (Note that this is still possible even if firms produce 9 units of bread using 10 (or even 100) units of labor, i.e. if firms are not cutting employees efficiently.). Thus, if the central bank of Japan currently has low interest rates, it believes that current output falls short of the natural level of output, despite low unemployment rates.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You may still ask why the central bank tries to minimize the output gap in the first place. Why should it not just focus on price stability or why not even do something random. It turns out that up to second order approximations, an interest rate policy which minimizes a combination of price volatility and output gap volatility maximizes people's welfare in so-called new-Keynesian models. This was first shown by Woodford and Rotemberg in several articles:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Woodford, Michael. &quot;Inflation stabilization and welfare.&quot; B.E. Journal of Macroeconomics, 2, (2002).&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Woodford, M. (1999). Optimal Monetary Policy Inertia. Retrieved from &lt;a href=&quot;http://www.nber.org/papers/w7261&quot; rel=&quot;nofollow&quot;&gt;http://www.nber.org/papers/w7261&lt;/a&gt;&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Rotemberg, J., &amp;amp; Woodford, M. (1999). Interest rate rules in an estimated sticky price model. Monetary Policy Rules. Retrieved from &lt;a href=&quot;http://www.nber.org/chapters/c7414.pdf&quot; rel=&quot;nofollow&quot;&gt;http://www.nber.org/chapters/c7414.pdf&lt;/a&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="5635" LastActivityDate="2016-02-01T09:07:02.617" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="10476" PostTypeId="2" ParentId="10322" CreationDate="2016-02-01T10:38:14.003" Score="1" Body="&lt;p&gt;Murphy's paradox can be resolved as follows:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;imagine an alternative market structure: there are many burger-makers&#xA;and many burger sellers all of them - just to make the point more vivid - &#xA;serving customers out of the same burger shop&lt;/li&gt;&#xA;&lt;li&gt;the burger sellers buy cooked burgers from the makers and sell them on to consumers. Their marginal cost is 5c&lt;/li&gt;&#xA;&lt;li&gt;if the burger makers are in competition, the input cost to the burger sellers will be the marginal cost of burger making&lt;/li&gt;&#xA;&lt;li&gt;the sellers will then compete the margin they charge on top of marginal input costs (what they pay in the competitive burger-making market) down to marginal cost, i.e. 5c&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The Murphy burger paradox is therefore a form of the Coase question of what are the limits of the firm. All firms are to some extent vertically integrated - here it is burger  makers and sellers who are usually and to some extent vertically integrated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can think of vertical integration as the firm acting as a monopolist and monopsonist over a certain set of transactions - there is only one &quot;seller&quot; of made burgers to the burger selling counter in McDonalds, and only one &quot;buyer&quot;. The usual story is that transactions costs make the vertically integrated chain more efficient. But the Murphy paradox points to another sort of answer: sunk costs lead to weaknesses in negotiating games such that the sort of vertically separate structure that would produce 5c burgers cannot survive. This is the hold-up problem explored in detail by Williamson as an important part of the explanation of industrial structure.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Imagine a vertically separated chain. If the sellers always exploited their &quot;take-it-or-leave-it&quot; power over the makers, the makers would go out of business. So in order to sustain a separated supply chain, repeated game equilibria in the bargaining need to be found. One such equilibrium is tantamount to vertical integration, which is what we usually observe.&lt;/p&gt;&#xA;" OwnerUserId="7160" LastEditorUserId="7160" LastEditDate="2016-02-01T14:28:25.057" LastActivityDate="2016-02-01T14:28:25.057" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10477" PostTypeId="1" AcceptedAnswerId="10478" CreationDate="2016-02-01T13:12:49.800" Score="11" ViewCount="1342" Body="&lt;p&gt;Some countries (e.g. Sweden and &lt;a href=&quot;http://www.telegraph.co.uk/finance/personalfinance/comment/11602399/Ban-cash-end-boom-and-bust.html&quot; rel=&quot;noreferrer&quot;&gt;Denmark&lt;/a&gt;) plan to abolish physical cash in the future and restrict the use of cash to electronical deposits. One of the reasons for this is to prevent hoarding / boost spending of money, which could be achieved by introducing negative interest rates on deposits far below zero.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, as far as I know, &lt;a href=&quot;https://mises.org/library/multiple-currencies-and-gresham%E2%80%99s-law-zimbabwe&quot; rel=&quot;noreferrer&quot;&gt;in times of hyperinflation, people resorted to substitute currencies&lt;/a&gt; (either foreign currencies or commodities like cigarettes). Wouldn't the same happen if cash was abolished?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, suppose the bank charges 20% or more on deposits and you can't withdraw your money in cash (since there is no cash), and you don't want to buy stocks or property for some reason (it's risky or hard to liquidate) and suppose other people have the same problems. Wouldn't it be reasonable then to create and use some alternative currency, like cigarettes or maybe a local currency, which you can store physically?&lt;/p&gt;&#xA;" OwnerUserId="7115" LastEditorUserId="6566" LastEditDate="2016-02-03T12:49:53.320" LastActivityDate="2019-07-18T13:38:17.453" Title="Wouldn't abolition of cash give rise to a substitute currency?" Tags="&lt;currency&gt;&lt;monetary-policy&gt;&lt;money&gt;&lt;regulation&gt;" AnswerCount="1" CommentCount="16" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10478" PostTypeId="2" ParentId="10477" CreationDate="2016-02-01T15:09:22.097" Score="13" Body="&lt;p&gt;&quot;Cash&quot; is an emergent phenomenon of human economic organization. It exists for lots of reasons, as a provider of economic anonymity, a low transaction cost solution to the double-coincidence of wants, a portable medium of exchange, and a tool of economic accessibility for all including those in the informal economy, foreigners, the unbanked, and those with poor credit, among others. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A country can make it difficult to use cash in the interest of thwarting anonymity and convenience, usually to prevent money laundering and tax evasion. They can do so by taxing the use of cash, failing to enforce contracts calling for cash, refusing to make more, even criminalizing the possession of cash. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But cash is unlikely to die easily. We know from the experience with drug and alcohol prohibition as well as the international ivory and rhino horn trades that while the regulation can can certainly influence prices and thereby quantities demanded, it is awfully difficult to destroy a market for a valuable product. For a more specific example, possession of money is forbidden to US convicts. Nevertheless, they have developed internal monetary economies based around &lt;a href=&quot;http://www.wsj.com/articles/SB122290720439096481&quot; rel=&quot;nofollow noreferrer&quot;&gt;canned fish&lt;/a&gt;, &lt;a href=&quot;http://www.tampabay.com/features/humaninterest/honey-buns-sweeten-life-for-florida-prisoners/1142687&quot; rel=&quot;nofollow noreferrer&quot;&gt;shelf-stable pastries&lt;/a&gt;, as well as &lt;a href=&quot;http://www.thedailybeast.com/articles/2013/06/02/with-cigarettes-banned-in-most-prisons-gangs-shift-from-drugs-to-smokes.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;cigarettes and stamps&lt;/a&gt;. Cigarettes also emerged as money in &lt;a href=&quot;http://www.jstor.org/stable/2550133?seq=1#page_scan_tab_contents&quot; rel=&quot;nofollow noreferrer&quot;&gt;WWII P.O.W. camps&lt;/a&gt;, showing that even the Nazis couldn't keep a monetary economy from forming.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sweden in particular has a significant additional obstacle to keeping currency out of their economy. They share boarders with Norway and Finland, each with their own currency. Go to practically any boarder region or tourist spot around the world and you'll see tellers happy to take dollars, euros, or yen in addition to the local currency. It is especially difficult to ditch cash when other sources of cash are available. &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2019-07-18T13:38:17.453" LastActivityDate="2019-07-18T13:38:17.453" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="10479" PostTypeId="1" CreationDate="2016-02-01T16:48:29.173" Score="6" ViewCount="891" Body="&lt;p&gt;The cyclical rate of unemployment can be negative, which implies that the business cycle sometimes produces too little unemployment. How can there be “too little” unemployment for the health of the economy?&lt;/p&gt;&#xA;" OwnerUserId="7163" LastActivityDate="2016-05-17T23:46:13.120" Title="Can there be too little unemployment for the health of the economy?" Tags="&lt;macroeconomics&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10481" PostTypeId="2" ParentId="10471" CreationDate="2016-02-01T18:21:12.777" Score="7" Body="&lt;p&gt;The MRS is a function of $x$ and $y$. The fact that $y$ doesn't appear in the formula simply means that this function is constant in $y$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The linearity does not imply indifference. It means that an additional value of $y$ is valued equally by the agent irrespective of his baseline consumption. In your example, this contrasts with the marginal utility of consuming $x$ which is decreasing with the baseline consumption since the function $u$ is concave in $x$.&lt;/p&gt;&#xA;" OwnerUserId="4667" LastActivityDate="2016-02-01T18:21:12.777" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10482" PostTypeId="2" ParentId="10479" CreationDate="2016-02-01T20:41:13.360" Score="2" Body="&lt;p&gt;Think of unemployed workers as a pooled/shared resource. Over the progression of the business cycle (economic expansion/contraction), business add to and draw from this pool as needed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When cyclical unemployment is positive and high, unemployed workers linger in this pool for a long time, as job opportunities are hard to come by. Businesses have their choice as to whom they hire, for the worker pool is quite large, and workers have little leverage in the terms of their employment, as labor is plentiful. This situation would arise during the bottom of a business cycle, when the economy is contracting and/or just beginning to recover/expand.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When cyclical unemployment is positive and low, workers move out of one job into another with relative ease, staying unemployed for a relatively short amount of time. Business can add employees at will, though workers can now demand a small premium for their labor, as their particular skill set is harder to find among  the available workers. At this point, the economy is firmly on the upswing and growing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When cyclical unemployment is negative, workers move directly from one job to another without being unemployed. Additionally, businesses experience underemployment, that is they have fewer workers than they want. Labor commands a large premium, as businesses must steal workers from one another in order to satisfy their employment requirements. The business cycle is peaking, and the deficit of available labor will soon work to slow growth/expansion.&lt;/p&gt;&#xA;" OwnerUserId="5459" LastActivityDate="2016-02-01T20:41:13.360" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10483" PostTypeId="1" CreationDate="2016-02-01T23:03:36.863" Score="6" ViewCount="1086" Body="&lt;p&gt;Most of the literature I can find about deflation in Japan takes for granted that deflation is bad for the country. I can also find a lot of literature on why deflation is bad in theory. Is there any analysis of the 20 years of deflation in Japan and its specific consequences?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I guess it is a wonderful recent study case of deflation, to be compared with the established view on the subject, so someone must certainly have done it. Can you point to such literature?&lt;/p&gt;&#xA;" OwnerUserId="7058" LastEditorUserId="1601" LastEditDate="2020-05-07T17:04:33.080" LastActivityDate="2020-05-07T17:04:33.080" Title="What are the consequences of deflation in Japan?" Tags="&lt;macroeconomics&gt;&lt;deflation&gt;&lt;japan&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="10484" PostTypeId="2" ParentId="6391" CreationDate="2016-02-02T03:00:58.870" Score="1" Body="&lt;p&gt;Not for 2014 but here is a useful 2012 report using 2007 data: &lt;em&gt;&lt;a href=&quot;https://www.cbo.gov/publication/43750&quot; rel=&quot;nofollow noreferrer&quot;&gt;Taxing Businesses Through the Individual Income Tax&lt;/a&gt;&lt;/em&gt; (CBO (2012))&#xA;&lt;a href=&quot;https://i.stack.imgur.com/v1SW9.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/v1SW9.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It shows how taxed corporations like S corps have been in long run decline (in share terms) relative to pass through entities. Which makes it tricky because, increasingly, corporate income isn't taxable at the corporate entity and so  taxes paid on total corporate income might be a poor measure of the taxes on corporate profits because so much is taxed on individual tax returns. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The BEA, as part of the NIPA publishes a number of corporate profit measures. &lt;a href=&quot;https://research.stlouisfed.org/fred2/categories/33033&quot; rel=&quot;nofollow noreferrer&quot;&gt;You can see many of them on FRED&lt;/a&gt;. You may be particularly interested in &lt;em&gt;Gross domestic income: Corporate profits with inventory valuation and capital consumption adjustments, domestic industries: Profits after tax with inventory valuation and capital consumption adjustments&lt;/em&gt;:&#xA;&lt;a href=&quot;https://i.stack.imgur.com/Thm4I.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Thm4I.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2016-02-02T03:00:58.870" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10486" PostTypeId="2" ParentId="10455" CreationDate="2016-02-02T11:11:41.043" Score="2" Body="&lt;p&gt;Richard Musgrave (&lt;a href=&quot;http://www.jstor.org/stable/40909134&quot; rel=&quot;nofollow&quot;&gt;1957&lt;/a&gt;, &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/B0006AVID2&quot; rel=&quot;nofollow&quot;&gt;1959&lt;/a&gt;) invented the term. My interpretation of what he says (below) is that &lt;strong&gt;merit goods are simply goods that the &quot;community&quot; deems desirable, while demerit goods are those the &quot;community&quot; deems undesirable&lt;/strong&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;He (&lt;a href=&quot;http://www.dictionaryofeconomics.com/article?id=pde2008_M000152&amp;amp;edition=current&amp;amp;q=merit%20goods&amp;amp;topicid=&amp;amp;result_number=1&quot; rel=&quot;nofollow&quot;&gt;1987&lt;/a&gt;) writes that the concept (of merit goods) is &quot;best applied where individual choice is restrained by community values&quot; ... &quot;Community values ... give rise to merit or demerit goods&quot; ... &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Such goods are where &quot;community values&quot; act &quot;as a restraint on individual choice&quot;. The &quot;evaluation of a good (its merit or demerit) derives not simply from the norm of consumer sovereignty but involves an alternative norm.&quot;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Examples of merit goods are &quot;Concern for maintenance of historical sites,  respect for national holidays, regard for environment or for learning and the arts.&quot; &lt;/li&gt;&#xA;&lt;li&gt;Examples of demerit goods are drug use and prostitution because they are &quot;offences to human dignity (quite apart from potentially costly externalities).&quot;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;P.S. There is of course the difficult question of who or what exactly the &quot;community&quot; is. If I may add my humble opinion, all of this sounds very illiberal and even mildly fascist. Which is perhaps why this concept hasn't been much taken up by mainstream economics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;P.P.S. The above is merely Musgrave's interpretation. As Musgrave himself says:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The concept of merit goods ... has been widely discussed and given divergent interpretations ... it is thus difficult to provide a unique definition.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerDisplayName="user18" LastEditorDisplayName="user18" LastEditDate="2016-02-05T09:59:38.490" LastActivityDate="2016-02-05T09:59:38.490" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="10487" PostTypeId="2" ParentId="10407" CreationDate="2016-02-02T12:09:13.073" Score="1" Body="&lt;p&gt;Probably no, not in the same year. But maybe in the year after. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you're talking about the average citizen, the intensity of this expansion of buying power depends on wealth distribution, the importance of those industries which had grown and whether those industries are more labor intensive or capital intensive. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, this expansion doesn't happen instantly; don't expect that the whole nation will realize this growth in the same year that it happened. It takes time for the money to flow from the main industries to industries of the same network and than to other firms not related. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;That process is even slower through the employee chain. One of the reasons is that frequently employee and employer negotiate salary for long periods (there's some &quot;stickiness&quot;). When a type of workforce is unionized, it takes even more time for them to negotiate wages as a group. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The pathway you're asking about is like this: More production means the industries needs to increase their capital, inputs and workforce. They buy more capital, more inputs and hire more workers. This increase in demand means those other industries and workers are able to negotiate better salaries than in the year before. To be able to satisfy this new demand, the industries that produce capital and input need to increase their production as well, by hiring more workers, buying capital and inputs. And this goes on and on till it,theoretically, affects the lower paying jobs. Of course it all depends on how much the links in the chain pass the wage increase to the next link.&lt;/p&gt;&#xA;" OwnerUserId="7174" LastActivityDate="2016-02-02T12:09:13.073" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10488" PostTypeId="2" ParentId="10471" CreationDate="2016-02-02T12:56:52.017" Score="3" Body="&lt;p&gt;Assume that your utility function is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U(x,y) = \sqrt x + y$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and your budget constraint is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$p_xx+ p_yy = M$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Lagrangean is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Lambda = \sqrt x + y + \lambda[M-p_xx+ p_yy]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and the first-order condition with respect to $y$ is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$1 =\lambda p_y$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We Know that $\lambda$ is the marginal effect of an increase in Income on the maximized utility function. So (considering discrete changes) if your income increases by $1$ kudo, maximized utility will increase by $1/p_y$.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It makes sense then to treat $y$ as the numeraire good, in which case its price is undetermined, our budget constraint is $p_xx+ y = M$, and the effect on the utility function by an increase in $M$ by one unit is $1$... as is the effect of increasing $y$ by one unit! But that makes $y$ equivalent to &lt;em&gt;income&lt;/em&gt;, it is not &quot;quantity&quot; anymore, but &lt;em&gt;value&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words, a good entering linearly the utility function is a natural modelling choice for a composite good that represents &quot;all other goods&quot;, i.e. residual income after trading for the good $x$ we want to focus on.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2016-10-01T21:39:02.150" LastActivityDate="2016-10-01T21:39:02.150" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10489" PostTypeId="2" ParentId="10479" CreationDate="2016-02-02T13:46:10.100" Score="5" Body="&lt;p&gt;Let me answer a simpler question first. &lt;em&gt;Is it possible for there to be too little orange juice in the grocery store?&lt;/em&gt; Definitely. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's say that the price of OJ is set too low (\$1 per liter) and customers who arrive early in the morning buy all the OJ. Assume that those customers think buying all the OJ is a good deal and they figure they'll enjoy drinking it, but that at regular price (\$4 per liter) they'd buy much less, they wouldn't want any more at those prices, and there would be lots left on the shelves. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;People who arrive later in the day want some OJ at \$4 per liter. If they could find them, the early OJ buyers would happily sell them the OJ at that price and pocket the profit (that follows by the demand schedule I sketched out in the second sentence of the last paragraph). That means that there are deals to be done that would improve the allocation of OJ (there are welfare increasing, Pareto-improving, trades to be made). But the early customers and the late customers have trouble finding each other and so the OJ stays in the early shoppers' refrigerators. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Just about everything I just said about OJ holds for worker labor. Surprise! If the price of labor is set below the equilibrium price then early buyers purchase an inefficient quantity. Later buyers can't find the workers they need even though the marginal value of those workers is higher than the price at which the early employers bought them. Because (or perhaps I should say &lt;strong&gt;if&lt;/strong&gt;) it is less efficient to look for a job while you have a job, when unemployment is too low workers ended up employed by firms that do not employ them at their highest marginal product. If only alternative employers could be found output and welfare could be improved. In fact, using a &lt;a href=&quot;https://en.wikipedia.org/wiki/Kaldor%E2%80%93Hicks_efficiency&quot; rel=&quot;nofollow&quot;&gt;Kaldor-Hicks mechanism&lt;/a&gt; it is possible to make the new employer, the old employer, and the employee all better off under such circumstances. Thus it is not efficient under production efficiency or welfare efficiency criteria.  &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2016-05-17T23:46:13.120" LastActivityDate="2016-05-17T23:46:13.120" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10490" PostTypeId="2" ParentId="10479" CreationDate="2016-02-02T15:27:40.180" Score="-5" Body="&lt;p&gt;As usual in economics, the question is perplexing when considered from a purely quantitative point of view. However, once we admit qualitative variation, the answer becomes self-evident.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is possible for there to be too little unemployment when there are too many &quot;bullshit&quot; jobs that do not create value and merely keep people busy for the sake of employment. Arguably, it would be better - and in aggregate cheaper - for those people to be unemployed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We might venture to call this the &quot;European model&quot;.&lt;/p&gt;&#xA;" OwnerUserId="7176" LastActivityDate="2016-02-02T15:27:40.180" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10491" PostTypeId="1" CreationDate="2016-02-02T15:49:49.520" Score="7" ViewCount="266" Body="&lt;p&gt;As I understand it, capital is created through the surplus value, that is the difference between the value of a worker's work (i.e. the wage that he is paid) and the new value that is created through his work. A simplified example would be this:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;Worker A makes 100 ice cream cones per hour and is paid 10$ per hour&#xA;Raw material for making a single ice cream cone costs 0.2$&#xA;Worker B makes 100 scoops of vanilla ice cream per hour and is paid 20$ per hour&#xA;Raw material for making a single scoop of vanilla ice cream costs 0.5$&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;That would make the cost for a single cone with a scoop of vanilla ice cream exactly 1.00\$. &lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;Cone with ice cream is sold for 2$&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;That would leave a profit of 1\$ per sold cone with ice cream for the owner of the ice cream shop (assuming that the building itself does not require any regular payment).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Worker A and B are paid 0.3\$ for creating a value of 1.3\$. According to Marx they are paid 1\$ too little for their work.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is the capitalist attributed any part in the creation of this value? I don't want to talk about the fact that he owns the means of production, but rather about this: Does the capitalist create a bigger value by aggregating the work of the two workers? This is obviously trivial for ice cream cones, but I could imagine something meaningful for example in the production of cars, where the organization itself requires work. Is this work done by the capitalist considered at all in Marxism? Or is any creation of value attributed to the individual workers who in turn are therefore exploited?&lt;/p&gt;&#xA;" OwnerUserId="7175" LastActivityDate="2018-10-21T03:37:24.793" Title="Do capitalists in the Marxism world view create value?" Tags="&lt;marxism&gt;" AnswerCount="4" CommentCount="1" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10492" PostTypeId="1" AcceptedAnswerId="10499" CreationDate="2016-02-02T18:13:43.033" Score="1" ViewCount="1281" Body="&lt;p&gt;As far as I could see in the examples I found, they led to the same result through relatively similar processes.  I have only looked at 2 variable utility functions, so is does the use of Lagrange become evident beyond that?  I.e. U(x,y,z) and if so is that the only real use for Lagrange Multipliers?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit:  For clarity, I was wondering about why Lagrange Multipliers are used instead of simply calculating partial derivatives individually to find the MRS.  What MRS-related situations are Lagrange Multipliers used in?  Why are they used in those situations?&lt;/p&gt;&#xA;" OwnerUserId="7158" LastEditorUserId="7158" LastEditDate="2016-02-03T01:46:27.647" LastActivityDate="2016-02-03T06:54:08.203" Title="When should one use Lagrange Multipliers as opposed to calculating the ratio of Marginal Utilities for MRS?" Tags="&lt;microeconomics&gt;&lt;utility&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10493" PostTypeId="1" CreationDate="2016-02-03T00:34:56.250" Score="4" ViewCount="80" Body="&lt;p&gt;What would be a recommended source of historical data for commodity production amounts which is current up to the previous year or better?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, if I wanted to know the annual global production of steel (metric tonnes), timber, cotton, soybeans, aluminum, salt, sulfuric acid, asphalt, paperboard, wheat, kaolin, copper, silica, etc etc, where could I find that information. Note I want physical amounts (tonnes, bushels or whatever), not prices or dollar volume.&lt;/p&gt;&#xA;" OwnerUserId="1448" LastActivityDate="2016-04-28T02:36:20.270" Title="Source of commodity production statistics?" Tags="&lt;data-request&gt;&lt;commodities&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10497" PostTypeId="1" AcceptedAnswerId="10500" CreationDate="2016-02-03T05:48:03.490" Score="1" ViewCount="567" Body="&lt;p&gt;\begin{equation*}&#xA;U(x, y) = (ax^{-c} + by^{-c})^{-\frac{1}{c}} &#xA;\end{equation*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I ask this mainly because after logging both sides of the Utility equation (the first step to proving the assertion, I assume), I am left with:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{equation*}&#xA;\lim_{c \rightarrow 0} \dfrac{-\ln(ax^{-c} + by^{-c})}{c}&#xA;\end{equation*}&#xA;I know that the bottom will go to 0, and I have a feeling that the top will go to 0 to.  However, all I am left with on the top is essentially $a + b$, and for it to go to 0, $a + b = 1$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How can $a + b = 1$?  Is this the right direction?  What does $a + b = 1$ mean?  Why does $a + b = 1$?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit:  And once proven, what does this whole &quot;limit&quot; thing say about the original function?  What is so special about this particular equation such that its limit as $c \rightarrow 0$ is the Cobb Douglas function?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit 2:  Upon further research, I have discovered a suspiciously similar function known as the CES.  $a$ and $b$, however, are instead $a$ and $(1-a)$ !!  Now I'm even more confused.  How am I supposed to derive that complementary relationship from this equation?  This is supposed to be consumer theory!&lt;/p&gt;&#xA;" OwnerUserId="7158" LastEditorUserId="61" LastEditDate="2016-02-03T18:42:06.407" LastActivityDate="2016-02-03T18:42:06.407" Title="How does the limit of $U(x, y) = (ax^{-c} + by^{-c})^{-\frac{1}{c}}$ as c approaches 0 yield the Cobb-Douglas utlity function?" Tags="&lt;microeconomics&gt;&lt;cobb-douglas&gt;" AnswerCount="1" CommentCount="4" FavoriteCount="1" ClosedDate="2016-02-03T17:44:34.930" ContentLicense="CC BY-SA 3.0" />
  <row Id="10498" PostTypeId="2" ParentId="10465" CreationDate="2016-02-03T05:50:52.427" Score="1" Body="&lt;p&gt;If you use derivative to calculate marginal cost, then marginal cost is how much cost increases given an infinitesimal increase in quantity. This implies that quantity of good is continuous. Indeed, if you have a cost function $C:\mathbb{R}\to\mathbb{R}$, then that implies that the quantity of good is continuous already.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the quantity is discrete, then you should stick with just $C(q+1) - C(q)$.&lt;/p&gt;&#xA;" OwnerUserId="5145" LastActivityDate="2016-02-03T05:50:52.427" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10499" PostTypeId="2" ParentId="10492" CreationDate="2016-02-03T06:54:08.203" Score="1" Body="&lt;p&gt;Lagrange multipliers not only incorporate constraints on a maximization/minimization problem, but the multiplier itself can have a meaningful interpretation. For example, say we have the problem:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\max_{x, m}: U(x, m) = m + \phi(x) \quad s.t. m + px = y$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where $m$ is a numeiare good, $p$ is the price of good $x$, and $y$ is income.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now you could just rewrite the constraint as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$m = y - px$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and substitute that into the original maximization problem. But you can't always do this easily. So you can also solve with a Lagrangian.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\mathcal{L} = m + \phi{x} - \lambda(m + px - y)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Solving for $\lambda$ will give you the shadow price of income, or the marginal price of income. That is, it represents the rate of increase in maximized utility as income is increased. You also need to find $\lambda$ to get a nice full Marshallian demand, or to relate indirect utility to Marshallian demand in &lt;a href=&quot;https://en.wikipedia.org/wiki/Roy%27s_identity&quot; rel=&quot;nofollow&quot;&gt;Roy's identity&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Even for problems that aren't utility maximization, $\lambda$ is still representing the rate of change of the quantity being optimized as a function of the constraint variable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here's a &lt;a href=&quot;http://mjo.osborne.economics.utoronto.ca/index.php/tutorial/index/1/ilm/t&quot; rel=&quot;nofollow&quot;&gt;useful example&lt;/a&gt; with the firm maximization problem and bribing problem.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2016-02-03T06:54:08.203" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10500" PostTypeId="2" ParentId="10497" CreationDate="2016-02-03T09:50:30.330" Score="9" Body="&lt;p&gt;It is not true that this function is equivalent to the Cobb-Douglas utility function when $c \sim 0$ for any values of $(a,b)$; you have to assume $a+b=1$ for that, i.e. $b=1-a$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To see why it is true, fix $(x,y)$ and consider the following Taylor expansion of $U(x,y)$ when $c$ gets close to $0$. We have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{align*}&#xA;(ax^{-c}+by^{-c})^{-\frac{1}{c}} &amp;amp; = e^{-\frac{1}{c} \ln{[ax^{-c}+by^{-c}]}} \\&#xA;&amp;amp; = e^{-\frac{1}{c} \ln{[ae^{-c\ln(x)}+be^{-c \ln(y)}]}} \\&#xA;&amp;amp; = e^{-\frac{1}{c} \ln{[a(1-c \ln(x) + o(c)) + b(1-c \ln(y) + o(c))}]} \\&#xA;&amp;amp; = e^{-\frac{1}{c} \ln{[a+b - c (a \ln(x)+b \ln(y)) + o(c))]}} \\&#xA;\end{align*}&#xA;If $a+b&amp;gt;1$, the term in the exponential converges to $-\infty$ when $c \rightarrow 0$ and therefore $U(x,y) \rightarrow 0$. If $a+b&amp;lt;1$, the term converges to $+\infty$ and therefore $U(x,y) \rightarrow +\infty$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To obtain the convergence towards the Cobb-Douglas function, we must therefore assume $a+b=1$. In that case we have&#xA;\begin{align*}&#xA;U(x,y) &amp;amp; = e^{-\frac{1}{c} \ln{[1-c(a \ln(x) + (1-a) \ln(y))+o(c)]}} \\&#xA;&amp;amp; = e^{-\frac{1}{c} [-c(a \ln(x) + (1-a) \ln(y))+o(c)]} \\&#xA;&amp;amp; = e^{a \ln(x) + (1-a) \ln(y) + \frac{o(c)}{c}} \\&#xA;&amp;amp; \rightarrow_{c \rightarrow 0} e^{a \ln(x) + (1-a) \ln(y)} \\&#xA;&amp;amp; = x^{a} y^{1-a}&#xA;\end{align*}&#xA;which is the Cobb-Douglas utility function with parameters $(a,1-a)$.&lt;/p&gt;&#xA;" OwnerUserId="4667" LastActivityDate="2016-02-03T09:50:30.330" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10501" PostTypeId="2" ParentId="10053" CreationDate="2016-02-03T09:51:02.897" Score="1" Body="&lt;p&gt;As Kitsune Cavalry noted, organisations like Khan Academy are non-profits that are supported by donations and run for the public good.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To address your second question (why would you start a project that requires so much time and not charge anything for it?): the fact that the organisation is a non-profit doesn't mean that the people working there don't make any money. Part of Khan Academy's costs are paying \$12,000,000 in salaries to its employees. This includes \$548,116 per year (2014 figure) to founder Salman Khan. You can read more about Khan Academy's finances &lt;a href=&quot;http://pdfs.citizenaudit.org/2015_09_EO/26-1544963_990_201412.pdf&quot; rel=&quot;nofollow&quot;&gt;on their 2014 IRS 990 filing here&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2016-02-03T09:51:02.897" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10502" PostTypeId="1" CreationDate="2016-02-03T15:49:23.847" Score="1" ViewCount="148" Body="&lt;p&gt;There are many example online of how to use Lagrange multipliers to solve Markowitz's minimum variance problem (namely  find the weightings for the portfolio which minimises variance for a given return with constraints on the calculated return of said portfolio and the sum of weighting of all assets within the portfolio to 1). However I can't find an example of how to go the other way, find the weighting of the portfolio which maximises return for a given variance. I know they'd both fall on the efficient frontier..&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can anyone help? &lt;/p&gt;&#xA;" OwnerUserId="7185" LastActivityDate="2016-02-03T15:49:23.847" Title="Markowitz Minimum Variance Line - maximise return with a given variance?" Tags="&lt;mathematical-economics&gt;&lt;portfolio-theory&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10503" PostTypeId="1" CreationDate="2016-02-03T15:55:00.517" Score="1" ViewCount="45" Body="&lt;p&gt;I want to estimate the parameters of $a_t = a_{t-1}+\theta+\epsilon_t$ using MLE. Assume errors $\epsilon_t$ are serially correlated, then how would I choose the likelihood function?&lt;/p&gt;&#xA;" OwnerUserId="6009" LastActivityDate="2017-04-25T21:54:43.243" Title="MLE estimation with serially correlated errors" Tags="&lt;macroeconomics&gt;&lt;econometrics&gt;&lt;statistics&gt;&lt;applied-econometrics&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="10505" PostTypeId="1" CreationDate="2016-02-03T17:53:53.703" Score="4" ViewCount="760" Body="&lt;p&gt;Consider the C.E.S. utility function&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U(x, y) = (ax^{-c} + by^{-c})^{-\frac{1}{c}} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is it true that we must have $a+b=1$ in order to obtain a Cobb-Douglas utility function as $c\rightarrow 0$?&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2016-02-03T18:19:54.147" LastActivityDate="2016-02-03T18:19:54.147" Title="In the C.E.S. utility function do the parameters need to add up to unity to obtain the Cobb-Douglas utility function?" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;cobb-douglas&gt;" AnswerCount="1" CommentCount="3" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="10506" PostTypeId="2" ParentId="10505" CreationDate="2016-02-03T18:19:35.787" Score="4" Body="&lt;p&gt;&lt;strong&gt;Yes.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Write&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U(x,y) = (ax^{-c} + by^{-c})^{-\frac{1}{c}} = \exp\left\{\frac {-1}{c}\ln \left(ax^{-c} + by^{-c}\right)\right\} \tag{1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now &lt;em&gt;if&lt;/em&gt; $a+b=1$ then as $c\rightarrow 0$, expression &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\ln \left(ax^{-c} + by^{-c}\right)}{-c} \tag{2}$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;will be an indeterminate form $0/0$ and so we can apply L'Hopital's rule on it to get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {1}{-c}\cdot \frac {-ax^{-c}\ln x + by^{-c}\ln y}{ax^{-c} - by^{-c}} \rightarrow \frac {a}{a+b}\ln x + \frac {b}{a+b}\ln y,\;\;\; c\rightarrow 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where we have assumed $a+b=1$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So (by the uniform continuity of the exponential function)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$c\rightarrow 0,\;\;\; U(x,y) = \exp\left\{\frac {-1}{c}\ln \left(ax^{-c} + by^{-c} \right) \right\} \rightarrow \exp\left\{a\ln x + b\ln y \right \} = x^ay^b$$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But if  $a+b\neq 1$, then as $c\rightarrow 0$, the argument of the logarithm in the numerator in eq. $(2)$ would not have been equal to unity, and so the logarithm would not equal zero (which would give us the indeterminate form, and would allow us to use L' Hopital's rule). Instead, eq. $(2)$ would have gone to infinity. So $a+b=1$ is needed in order to arrive at the Cobb-Douglas function.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2016-02-03T18:19:35.787" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10507" PostTypeId="1" CreationDate="2016-02-03T18:35:25.983" Score="3" ViewCount="146" Body="&lt;p&gt;My understanding of structural estimation follows the lines beautifully &lt;a href=&quot;http://www.ssc.wisc.edu/~ctaber/718/struct.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;lectured&lt;/a&gt; by Christophe Taber (U. of Wisconsin):&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Identify the policy question to be answered&lt;/li&gt;&#xA;&lt;li&gt;Write down a model that can simulate policy&lt;/li&gt;&#xA;&lt;li&gt;Think about identification/data&lt;/li&gt;&#xA;&lt;li&gt;Estimate the model &lt;/li&gt;&#xA;&lt;li&gt;Simulate the policy counterfactual&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://economics.stackexchange.com/questions/180/what-is-structural-estimation-compared-to-reduced-form-estimation&quot;&gt;Here&lt;/a&gt; is also a nice discussion about the difference between structural and reduced form estimations. What I am looking for are simple and practical examples of structural estimations. Code examples that I can work out using R, Stata and/or Matlab.&lt;/p&gt;&#xA;" OwnerUserId="6168" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2016-02-05T08:07:47.470" Title="Structural estimation" Tags="&lt;reference-request&gt;&lt;applied-econometrics&gt;&lt;structural-estimation&gt;" AnswerCount="0" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10511" PostTypeId="1" AcceptedAnswerId="10512" CreationDate="2016-02-04T11:17:19.097" Score="19" ViewCount="2611" Body="&lt;p&gt;This image shows US real median household income.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/hyB8A.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/hyB8A.png&quot; alt=&quot;US Real Media Household Income&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems remarkable for its lack of growth over the last 20 years. This has been the subject of much political debate (around the &quot;1%&quot; and &quot;occupy Wall Street&quot; movements, etc.) but I am interested in more objective economic analysis of this phenomenon.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given that people are better educated and are working with better technology (which should make them more productive), and that the real economy has grown more generally, what economic theories can explain the lack of growth in real median household income?&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="1601" LastEditDate="2021-05-11T05:52:48.250" LastActivityDate="2021-05-11T05:52:48.250" Title="Why are real median household incomes stagnant?" Tags="&lt;labor-economics&gt;&lt;economic-growth&gt;&lt;inequality&gt;&lt;wages&gt;&lt;united-states&gt;" AnswerCount="5" CommentCount="3" FavoriteCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="10512" PostTypeId="2" ParentId="10511" CreationDate="2016-02-04T13:45:07.443" Score="22" Body="&lt;p&gt;The metric of median household income is also used by others to argue the presence of income inequality:&#xA;&lt;a href=&quot;https://en.wikipedia.org/wiki/Income_inequality_in_the_United_States#Causes&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://en.wikipedia.org/wiki/Income_inequality_in_the_United_States#Causes&lt;/a&gt;&lt;/p&gt;&#xA;&lt;p&gt;However, it seems that it is &lt;a href=&quot;https://research.stlouisfed.org/fred2/graph/?chart_type=line&amp;amp;recession_bars=on&amp;amp;log_scales=&amp;amp;bgcolor=%23e1e9f0&amp;amp;graph_bgcolor=%23ffffff&amp;amp;fo=Open%20Sans&amp;amp;ts=12&amp;amp;tts=12&amp;amp;txtcolor=%23444444&amp;amp;show_legend=yes&amp;amp;show_axis_titles=yes&amp;amp;drp=0&amp;amp;cosd=1953-01-01%2C1953-01-01&amp;amp;coed=2014-01-01%2C2014-01-01&amp;amp;height=445&amp;amp;stacking=&amp;amp;range=&amp;amp;mode=fred&amp;amp;id=MAFAINUSA672N%2CMEFAINUSA672N&amp;amp;transformation=lin%2C&amp;amp;nd=%2C&amp;amp;ost=-99999%2C&amp;amp;oet=99999%2C&amp;amp;lsv=%2C&amp;amp;lev=%2C&amp;amp;scale=left%2C&amp;amp;line_color=%234572a7%2C&amp;amp;line_style=solid%2C&amp;amp;lw=2%2C&amp;amp;mark_type=none&amp;amp;mw=2&amp;amp;mma=0%2C&amp;amp;fml=a%2C&amp;amp;fgst=lin%2C&amp;amp;fgsnd=2007-12-01%2C&amp;amp;fq=Annual%2C&amp;amp;fam=avg%2C&amp;amp;vintage_date=%2C&amp;amp;revision_date=%2C&amp;amp;width=670&quot; rel=&quot;nofollow noreferrer&quot;&gt;not only the median but also the mean that stagnates&lt;/a&gt;:&lt;/p&gt;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/awxar.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/awxar.png&quot; alt=&quot;Mean vs. median&quot; /&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&lt;p&gt;(I used family instead of household income because I could not find a time series for mean household income.)&lt;/p&gt;&#xA;&lt;p&gt;If the problem was &lt;em&gt;only&lt;/em&gt; one of inequality then the mean income should still increase.&lt;/p&gt;&#xA;&lt;p&gt;I think there are several reasons why median household income seems to stagnate.&lt;/p&gt;&#xA;&lt;p&gt;First of all I think there is a visible upward trend that is only somewhat masked by the 2008 financial crisis. Granted this trend is still smaller than the increase of productivity. Why median household income grows at a slower pace than before is still a question.&lt;/p&gt;&#xA;&lt;p&gt;I think the problem arises because neither the number of households nor their distribution is constant.&lt;/p&gt;&#xA;&lt;h2&gt;Changing size of households&lt;/h2&gt;&#xA;One thing that I believe has an effect is that [average household size has decreased over the period you are looking at][3].&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/gZ88b.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/gZ88b.png&quot; alt=&quot;enter image description here&quot; /&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&lt;p&gt;(I had some trouble opening the &lt;a href=&quot;https://www.census.gov/hhes/families/data/households.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Census Bureau's xls files&lt;/a&gt;.)&lt;/p&gt;&#xA;&lt;p&gt;So while total household income has in fact increased it is now divided between more numerous, smaller households making both the mean and the median smaller.&lt;/p&gt;&#xA;&lt;h2&gt;Changing composition of the US labor force&lt;/h2&gt;&#xA;Another reason might be immigration. According to [this site][6] (I don't know if the statistics are reliable, there are a lot of links on the site I consider to be politically biased) the mean immigrant income is lower than the mean 'native' income. This is not surprising, immigrants need time to adjust and build the social networks necessary to get good jobs. Depending on the measure of productivity you use this can mean that while productivity in any given industry increases the weight of low-productivity industries increases as well. Thereby immigration may decrease mean and median income.&#xA;Note that this does not imply anything about the effect of immigration on the welfare of 'natives'. I am not claiming that the median household income of 'natives' is increased or decreased, I am pointing out that the weights used in the calculation are shifting.&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2020-07-26T18:09:30.207" LastActivityDate="2020-07-26T18:09:30.207" CommentCount="12" ContentLicense="CC BY-SA 4.0" />
  <row Id="10513" PostTypeId="1" AcceptedAnswerId="12635" CreationDate="2016-02-04T15:14:08.807" Score="5" ViewCount="1200" Body="&lt;p&gt;If two preferences are complete, at least one must have a relationship to the other.  If neither has a relationship, doesn't that mean that the consumer doesn't care which one he/she purchases?&lt;/p&gt;&#xA;" OwnerUserId="7158" LastActivityDate="2016-07-05T16:37:52.967" Title="What is the difference between preferences lacking &quot;completeness&quot; and being indifferent?" Tags="&lt;microeconomics&gt;&lt;preferences&gt;" AnswerCount="1" CommentCount="5" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10515" PostTypeId="2" ParentId="10511" CreationDate="2016-02-04T17:31:36.067" Score="-1" Body="&lt;p&gt;because official government published inflation statistics are just as artificial as the fiat currency value they intend to measure. according to those statistics, &quot;a loaf of bread&quot; has gone up in price dramatically in the last 100 years.  but realistically, i think it would have cost hundreds of dollars to get a loaf of bread of the same quality and consistency as &lt;a href=&quot;http://cobblestonebreadco.com/products/right-sized-million-dollar-white-bread/&quot; rel=&quot;nofollow&quot;&gt;cobblestone bakery's &quot;million dollar white bread&quot;&lt;/a&gt; way back in 1916. that simple everyday example doesn't even begin to account for the price of important stuff like pharmaceutical grade penicillin.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;it is unfortunate that people use the word &quot;real&quot; to refer to inflation-adjusted numbers, as if they are somehow more realistic. life is getting better due almost exclusively to technological advancement. that advancement makes everyone richer. arguably, it has been more useful to centralized systems (e.g. governments and large corporations) in the past few thousand years. however, i for one am hopeful that the next few hundred years will be characterized by more decentralizing technology (e.g. the internet, bitcoin, etc.) that will be more beneficial to the &quot;common man&quot;.&lt;/p&gt;&#xA;" OwnerUserId="6587" LastEditorUserId="6587" LastEditDate="2016-07-21T16:20:58.227" LastActivityDate="2016-07-21T16:20:58.227" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10516" PostTypeId="1" AcceptedAnswerId="10518" CreationDate="2016-02-04T17:39:48.473" Score="2" ViewCount="1829" Body="&lt;p&gt;Given the progress in the literature on economics of discrimination. What is the reason for still believing in the dichotomy taste-based VS statistical discrimination. I think the first theory is just a specific case of statistical discrimination, where information on discriminated workers' productivity is weighted by the discrimination coefficient (which basically is just a scaling factor). Any attempt to disentangle the two types of discrimination is pointless. Or?&lt;/p&gt;&#xA;" OwnerUserId="4997" LastActivityDate="2016-02-04T22:14:31.000" Title="statistical discrimination VS taste based discrimination" Tags="&lt;preferences&gt;&lt;statistics&gt;&lt;discrimination&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10517" PostTypeId="2" ParentId="10511" CreationDate="2016-02-04T20:07:07.777" Score="1" Body="&lt;p&gt;It's good that you included &quot;labor-economics&quot; and &quot;wages&quot; in your tags.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The basic answer to your question is that activities like &quot;having a job&quot; - which is how most households earn most of their income - are simply less and less effective a means of &quot;acquiring wealth&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Piketty explains it brilliantly in his book &lt;a href=&quot;http://www.amazon.com/gp/product/B00I2W&quot; rel=&quot;nofollow&quot;&gt;&quot;Capital In the 21st Century&quot;&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is a very good summary by Robert Solow, in the New Republic:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://newrepublic.com/article/117429/capital-twenty-first-century-thomas-piketty-reviewed&quot; rel=&quot;nofollow&quot;&gt;https://newrepublic.com/article/117429/capital-twenty-first-century-thomas-piketty-reviewed&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="7197" LastEditorUserId="7197" LastEditDate="2016-02-04T21:21:55.063" LastActivityDate="2016-02-04T21:21:55.063" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10518" PostTypeId="2" ParentId="10516" CreationDate="2016-02-04T22:14:31.000" Score="1" Body="&lt;p&gt;You will find below two good and recent surveys on the literature on economics of discrimination and they all point out a clear difference between taste-based and statistical discrimination. We can imagine a situation where the employer's information about workers' productivity is perfect, such that there is no statistical discrimination, and still observe a racial wage discrimination for example because the employer has a taste for discrimination. Knowing the source of discrimination seems crucial to fight against discrimination and its consequences.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Charles, K. K., and J. Guryan (2011): “Studying Discrimination: Fundamental&#xA;Challenges and Recent Progress,” Annual Review of Economics,&#xA;3(1), 479–511.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lang, K., and J.-Y. K. Lehmann (2012): “Racial Discrimination in the&#xA;Labor Market: Theory and Empirics,” Journal of Economic Literature,&#xA;50(4), 959–1006.&lt;/p&gt;&#xA;" OwnerUserId="6168" LastActivityDate="2016-02-04T22:14:31.000" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10519" PostTypeId="2" ParentId="10491" CreationDate="2016-02-04T22:54:29.663" Score="3" Body="&lt;p&gt;I'm not a Marx expert, but I've read The Capital some years ago and as far as I can remember Marx said that only the workers produce value. All others' wages (and the workers' wages too!) and other costs are covered by the produced values of the workers, so the others decrease the &quot;profit&quot;, which could remain at the workers otherwise. Therefore Marx suggested the workers to make collectives without any capitalists.&lt;/p&gt;&#xA;" OwnerUserId="7193" LastActivityDate="2016-02-04T22:54:29.663" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="10521" PostTypeId="1" AcceptedAnswerId="10749" CreationDate="2016-02-05T01:24:43.697" Score="0" ViewCount="1440" Body="&lt;p&gt;I'm an Engineering Physics student and this semester I took the course &quot;Engineering Economics&quot; as a requirement to complete the management sciences credits in my program, I need a good textbook to understand engineering economics, thanks. &lt;/p&gt;&#xA;" OwnerUserId="7205" LastActivityDate="2016-02-19T13:47:28.110" Title="What textbook can I use to understand engineering economics?" Tags="&lt;reference-request&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10522" PostTypeId="2" ParentId="10491" CreationDate="2016-02-05T02:03:19.113" Score="1" Body="&lt;p&gt;@Marcus: &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;If a capitalist does the same work as any other worker, then he/she&#xA;is in a worker state. No matter he/she is the owner meanwhile. &lt;/li&gt;&#xA;&lt;li&gt;All others' wages and costs (owner, who doesn't work or &quot;just&quot; organize the process, the management, etc) are covered by the value&#xA;produced by the workers, who produced the products, which were sold.&#xA;Of course there are useful activities, which leads to higher&#xA;productivity (for example invent new technologies), but until they&#xA;are not in use they are only take money...but from where? From the&#xA;profit. And to reach a profit an extra value has to be produced by&#xA;the workers.&lt;/li&gt;&#xA;&lt;li&gt;If these new technologies are started to be used, who guarantee that the extra profit from it will be shared with the workers if not&#xA;the workers own their tools, equipments and manage their own&#xA;collectives? There is a difference between these two cases: a; when&#xA;the workers are the owners, but also have to do activities which&#xA;don't produce real value or b; they only &quot;working powers in human&#xA;bodies&quot; for someone else.&lt;/li&gt;&#xA;&lt;li&gt;Of course, Marx didn't take today's technologies into consideration, because he lived in the XIX. century. That was a&#xA;different world, where the human working power was the main source&#xA;of the production, because it was the cheapest (even against the&#xA;machines at that time). I think he mainly raised his voice against&#xA;the exploitation of the workers, who lived in deplorable&#xA;circumstances, while the factory owners became richer and richer.&lt;/li&gt;&#xA;&lt;li&gt;Finally, his opinion maybe wasn't perfect, that's why &quot;critics of Marx&quot; exists. :-)&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="7193" LastActivityDate="2016-02-05T02:03:19.113" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10523" PostTypeId="1" CreationDate="2016-02-05T10:28:30.500" Score="4" ViewCount="200" Body="&lt;p&gt;(This is 1st part of series of questions under &quot;Negative interest rates&quot;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've happen to stumble on two articles, with some weeks, that the central bank(CB) of switzerland, due to Russia ruble crisis, and being a stability haven, has decided to use a negative &lt;strong&gt;&lt;em&gt;nominal&lt;/em&gt;&lt;/strong&gt; interest rate for reserve deposits of banks at the CB, to facilitate the exchange rate peg. Bank of Japan(BoJ) also seems have implemented a nominal negative interest rate, even if for different reasons(not sure about the reasons). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In all textbooks, the topic of negative interest rates is easily dismissed, or simply taught of as impossible, and so the authors work with non-negative lower bound(ex:deflation trap). Almost every part of the economic theory is going to be influenced by this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence I'm dividing my question into several.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This part is for monetary policy. With negative interest rates, what changes for monetary policy(scope, effects, etc.) can we expect?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit: Here is an &lt;a href=&quot;https://www.project-syndicate.org/commentary/negative-nominal-interest-rates-by-nouriel-roubini-2015-02&quot; rel=&quot;nofollow&quot;&gt;article by Nouriel Rubini&lt;/a&gt; on negative nominal interest rates. He writes on why these negative rates exist, their rationale, and one possible way(fiscal policy) to bring the economy out of this situation.&lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="118" LastEditDate="2016-02-06T14:41:46.957" LastActivityDate="2017-09-10T12:13:46.097" Title="Negative interest rates - Monetary Policy" Tags="&lt;macroeconomics&gt;&lt;monetary-policy&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10524" PostTypeId="1" CreationDate="2016-02-05T10:31:47.747" Score="1" ViewCount="52" Body="&lt;p&gt;(This is part two of a series of questions I've posted here under &quot;Negative interest rates&quot;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Motivation:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've happen to stumble on two articles, with some weeks, that the central bank(CB) of switzerland, due to Russia ruble crisis, and , has decided to use a negative interest rate for reserve deposits of banks at the CB, to facilitate the exchange rate peg. Bank of Japan(BoJ) also seems have implemented a negative interest rate, even if for different reasons(not sure...). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In all textbooks, the topic of negative interest rates is easily dismissed, or simply tought of as impossible, and so the authors work with non-negative lower bound(ex:deflation trap). Now, how is this negative rate going to affect the theory? Almost every part of the economic theory is going to be influenced by this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence I'm dividing my question into several.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This part is for Fiscal Policy. With negative interest rates, what changes for demand-side policy(scope, effects,debt repayment capabilities etc.) can we expect?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="118" LastActivityDate="2016-02-05T10:31:47.747" Title="Negative interest rates - Fiscal Policy (Demand-side)" Tags="&lt;macroeconomics&gt;&lt;fiscal-policy&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10525" PostTypeId="1" CreationDate="2016-02-05T10:36:47.920" Score="2" ViewCount="43" Body="&lt;p&gt;(This is 3rd Part of a series questions under &quot;Negative Interest Rates&quot;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Motivation:&#xA;I've happen to stumble on two articles, with some weeks, that the central bank(CB) of switzerland, due to Russia ruble crisis, and , has decided to use a negative interest rate for reserve deposits of banks at the CB, to facilitate the exchange rate peg. Bank of Japan(BoJ) also seems have implemented a negative interest rate, even if for different reasons(not sure...). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In all textbooks, the topic of negative interest rates is easily dismissed, or simply tought of as impossible, and so the authors work with non-negative lower bound(ex:deflation trap). Now, how is this negative rate going to affect the theory? Almost every part of the economic theory is going to be influenced by this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence I'm dividing my question into several.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This part is for supply-side policy. With negative interest rates, what changes for supply-side policy(scope, effects, etc.) can we expect?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="118" LastActivityDate="2016-02-05T10:36:47.920" Title="Negative Interest Rates - Supply-Side Policy" Tags="&lt;macroeconomics&gt;&lt;labor-economics&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10526" PostTypeId="1" AcceptedAnswerId="10609" CreationDate="2016-02-05T10:51:09.153" Score="1" ViewCount="103" Body="&lt;p&gt;I am aware of how the interest rates affect the demand for a currency, but am baffled by how it affects the supply for a currency. I've read conflicting theories. Is it true that an increase in the interest rate increases the supply of a currency?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Many thanks&lt;/p&gt;&#xA;" OwnerUserId="6782" LastActivityDate="2016-02-10T01:13:50.383" Title="Relationship between Interest Rates and Supply of a currency?" Tags="&lt;macroeconomics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10527" PostTypeId="2" ParentId="10526" CreationDate="2016-02-05T11:47:20.767" Score="0" Body="&lt;p&gt;&lt;br&gt; Maybe it will be useful for you to start: &lt;br&gt; [&lt;a href=&quot;http://www.wisegeek.com/what-is-the-relationship-between-money-supply-and-interest-rate.htm][1]&quot; rel=&quot;nofollow&quot;&gt;http://www.wisegeek.com/what-is-the-relationship-between-money-supply-and-interest-rate.htm][1]&lt;/a&gt;&quot;&#xA;&lt;br&gt; As asked I summarize the core ideas, written in the link. &lt;br&gt; So, higher interest rate decreases the supply of the money: &lt;br&gt; &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;The central bank can set the reserve percentage, which tells how much percentage of the total money of each commercial bank must be hold back. The higher this rate, the less money the banks can give to the consumers as loans. &lt;br&gt;&lt;/li&gt;&#xA;&lt;li&gt;Central bank also can set the target percentage, which is the interest rate between commercial banks or between commercial banks and the central bank. The higher this rate, the more the banks must pay when making loans among them, so the less money remains to loan to the consumers. &lt;br&gt;&lt;/li&gt;&#xA;&lt;li&gt;Central bank can set the consumer interest rate, too. The higher rate the consumers have to pay after their loans, the less money remains at themselves. So the supply of the money decreased. (And as I think, but not in the link: if the interest rate after deposits are high, more people will think that it is better for them to save their money in the bank and not spend it for something else. If it is combined with point 1., it will also decrease the supply of money.)&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="7193" LastEditorUserId="7193" LastEditDate="2016-02-08T16:48:40.793" LastActivityDate="2016-02-08T16:48:40.793" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10528" PostTypeId="2" ParentId="10493" CreationDate="2016-02-05T12:40:00.163" Score="0" Body="&lt;p&gt;&lt;br&gt; I think you can find these data in the web pages of the central statistic offices of each country, or the web page of a common statistic office like it is in the EU. They also collect data from outside the region. &lt;br&gt; I don't know whether exists a &quot;global world office&quot; which collect and examine data from the whole world...I guess there is no this kind of office. But I am not a totally expert in statistic offices. &lt;br&gt; Maybe it is also useful to see the websites of the worlds largest stock markets. They store quantity data, too, not only prices, I think.&lt;/p&gt;&#xA;" OwnerUserId="7193" LastActivityDate="2016-02-05T12:40:00.163" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10529" PostTypeId="2" ParentId="10491" CreationDate="2016-02-05T13:28:44.897" Score="0" Body="&lt;p&gt;The tricky point about considering the &quot;added value&quot; of a better work organization or, more generalized, more productivity, is that it indeed lessens the creation of value!&#xA;[Always from Marx's point of view] you have to keep in mind that value (money) is nothing but human work productively put in the creation of (marketable) commodities. Then, as labor force becomes more productive or -what is the same- as it takes less social work to produce the commodity, the value added is lessened: commodity becomes &quot;less valuable&quot;.&#xA;Of course, all that applies from a macro perspective ['capital in general' in Marx's terms], but from a micro view, capitalist is focused in &quot;appropriating&quot; value, and not in &quot;creating&quot; value. [This is a common point of subtle misunderstanding of Marx, which results in very common misinterpretation of reality]. Then, when a certain capitalist engaged in productive production succeeds in saving work, this is to say, in saving costs, she achieves an advantage to &quot;appropriate&quot; more value (money, profit), even when she has contribute to lessen the value created on aggregate, social, level!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the other hand, the certain hours devoted by the person of capitalist in organizing tens of thousands of workers manufacturing millions of cars are not relevant. More if we consider that organizing is (like designing) a work needed &quot;once and for ever&quot;, so society does not need to keep on doing that work to &quot;reproduce&quot; the commodity-car, which is the relevant aspect to consider that work time as productive and, thus, as value-creating.&lt;/p&gt;&#xA;" OwnerUserId="7209" LastActivityDate="2016-02-05T13:28:44.897" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="10530" PostTypeId="1" CreationDate="2016-02-05T14:21:19.830" Score="2" ViewCount="170" Body="&lt;p&gt;I was reading about the Iran's economy and &lt;a href=&quot;http://www.currencyliquidator.com/buy-iranian-rial&quot; rel=&quot;nofollow&quot;&gt;Iranian rial&lt;/a&gt;. I have read the news regarding the lift of sanctions from Ira, which had allowed the purchase of Iranian rial in America.&lt;br&gt;&#xA;I was having query whether the current political scenario going to help the in boosting Iranian economy?&lt;br&gt;&#xA;Will the current politics will provide an economy growth to the Iran?&lt;br&gt;&#xA;If any answer I would appreciate your response.&lt;/p&gt;&#xA;" OwnerUserId="7212" LastActivityDate="2016-02-15T00:43:18.013" Title="Is Iranian rial going to get boosted?" Tags="&lt;monetary-policy&gt;&lt;money-supply&gt;&lt;money&gt;&lt;political-economy&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="10531" PostTypeId="2" ParentId="10511" CreationDate="2016-02-05T14:21:48.903" Score="6" Body="&lt;p&gt;Three points - one which has already been raised much better by denesp:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Are household sizes the same (we see the answer as no)?  How about amount of earners per household?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;What about the amount of goods and services that these household incomes can buy?  Should wages be increasing if a dollar can get more goods and services, thanks to technology?  Many people like to discuss the rising costs of goods and services, but if you compare a house from 1960 to today (for an example), the amount of amenities a house has today is insane compared to 1960 and we'd expect the cost to rise.  It's important to highlight that we're not comparing apples to apples from the past to today thanks to technology.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;If you look further at statistics you'll see the people move in an out of income categories, so &lt;em&gt;maybe&lt;/em&gt; the median has remained the same, but the other levels are increasing (FT had a graph showing other income brackets below and above median are rising).  Given that any particular person will be in the top 30% of incomes at some point in his/her life (usually in the late 40s to early 60s at career peak), we should be looking if the income stagnation has occurred at these levels as well - that would be a possible cause for concern.  Median household income being about the same might be a normal statistical event (though the household size decreasing indicates that these incomes are not stagnant and thus it's a little abnormal).&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="7211" LastActivityDate="2016-02-05T14:21:48.903" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10532" PostTypeId="2" ParentId="10523" CreationDate="2016-02-05T15:51:38.000" Score="2" Body="&lt;p&gt;Real interest rates can be negative without a negative benchmark rate set by the central bank (inflation is higher than nominal interest rates) so in that sense we won't see any new effects.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regarding the interest rate set by the Central Bank, it does decrease the real interest rate as the banks won't deposit money and have more incentive to give out loans but effectively it is not different from a zero rate (you can't force the bank not to sit on the cash) though I guess the bank has to pay the interest on the mandatory deposits.&lt;/p&gt;&#xA;" OwnerUserId="7214" LastEditorUserId="2776" LastEditDate="2017-09-10T12:13:46.097" LastActivityDate="2017-09-10T12:13:46.097" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10533" PostTypeId="2" ParentId="6662" CreationDate="2016-02-05T16:08:31.843" Score="7" Body="&lt;ul&gt;&#xA;&lt;li&gt;Experimental Economics states: &quot;&lt;a href=&quot;http://www.springer.com/economics/economic+theory/journal/10683?detailsPage=pltci_1060871&quot; rel=&quot;nofollow&quot;&gt;The journal will also consider&#xA;articles with a primary focus on methodology or replication of&#xA;controversial findings.&lt;/a&gt;&quot;&lt;/li&gt;&#xA;&lt;li&gt;The &lt;a href=&quot;http://www.economics-ejournal.org/special-areas/replications-1&quot; rel=&quot;nofollow&quot;&gt;Economics e-Journal takes replications from any field&lt;/a&gt;.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The &lt;a href=&quot;http://experimentaleconreplications.com/&quot; rel=&quot;nofollow&quot;&gt;Behavioral Economics Replication Project&lt;/a&gt; could be interesting for you. They &lt;a href=&quot;https://www.aeaweb.org/aea/2016conference/program/preliminary.php?search_string=reproducibility&amp;amp;search_type=session&amp;amp;association=&amp;amp;jel_class=&amp;amp;search=Search#search_box&quot; rel=&quot;nofollow&quot;&gt;presented their research at the 2016 American Economic Association Annual Meeting&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="7215" LastEditorUserId="7215" LastEditDate="2016-02-05T17:19:06.937" LastActivityDate="2016-02-05T17:19:06.937" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10534" PostTypeId="2" ParentId="5853" CreationDate="2016-02-05T16:26:07.680" Score="16" Body="&lt;p&gt;In the ReplicationWiki (that I work on) we have a &lt;a href=&quot;http://replication.uni-goettingen.de/wiki/index.php/Category:Article_software_used&quot; rel=&quot;nofollow noreferrer&quot;&gt;list of software packages&lt;/a&gt; that were used in more than 2000 empirical studies, mainly in the American Economic Review, American Economic Journals and Journal of Political Economy in the years 2000-2013. Stata was used by far most often (&gt;900 times), followed by MATLAB (280), SAS (60), GAUSS (60), Excel (50), R (30), FORTRAN (30), Mathematica (19), EViews (18), z-Tree (16), dynare (15), RATS (12), C (8), C++ (6), python (5, more recent studies), SPSS (5). There are also examples with ArcGIS, ArcMap, java, LIMDEP, Maple, Microfit, Ox, ORSEE, PcGive, perl, TSP, and gretl. Often times more than one package is used. Some economists also use &lt;a href=&quot;http://juliaeconomics.com/&quot; rel=&quot;nofollow noreferrer&quot;&gt;julia&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="7215" LastEditorUserId="7215" LastEditDate="2019-07-30T12:55:13.250" LastActivityDate="2019-07-30T12:55:13.250" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="10535" PostTypeId="1" CreationDate="2016-02-05T16:49:15.763" Score="1" ViewCount="50" Body="&lt;p&gt;While studying tariffs in International Trade, we often come across a Demand Supply diagram along with a world supply curve that is perfectly elastic. Here we assume that the international or the world price of that good is constant and based on this assumption we carry on with our analysis. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Considering commodities or goods such as wheat, it is safe to assume that the world price will remain the same as it is produced in huge quantities all over the world and no one country/producer can cause a shift in the supply curve. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, consumer durable such as LCD or Plasma televisions are not produced in such abundance and are often produced by certain countries, say for instance Japan or China.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This reasoning has led me to question the assumption made while drawing the world supply curve in the tariff diagram. I would like to know whether this reasoning is valid or not and if not, then why?&lt;/p&gt;&#xA;" OwnerUserId="6565" LastEditorUserId="96" LastEditDate="2016-02-09T09:16:37.717" LastActivityDate="2016-05-23T07:52:51.730" Title="Is it valid to assume that the international price of consumer durables is constant?" Tags="&lt;international-trade&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10536" PostTypeId="2" ParentId="6662" CreationDate="2016-02-05T18:37:22.850" Score="3" Body="&lt;p&gt;The &lt;a href=&quot;http://www.springer.com/economics/economic+theory/journal/40881&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;&lt;strong&gt;Journal of Economic Science Association&lt;/strong&gt;&lt;/em&gt;&lt;/a&gt;, a companion journal to &lt;em&gt;Experimental Economics&lt;/em&gt; is one outlet devoted to publishing, among other article types, replication of experiments.&lt;/p&gt;&#xA;&lt;p&gt;As said on the website of the &lt;a href=&quot;https://www.economicscience.org/journal.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Economic Science Association&lt;/a&gt;:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;The &lt;em&gt;Journal of the Economic Science Association&lt;/em&gt; is dedicated to&#xA;advancing theoretical, empirical, methodological and policy-relevant&#xA;knowledge using experimental economic methods. JESA promotes research&#xA;pioneering and advancing laboratory and field methods to address&#xA;important economic questions that are difficult to examine using&#xA;naturally occurring data. JESA is open to all areas of inquiry in&#xA;economics and at the intersection of economics and other disciplines&#xA;including but not limited to psychology, political science,&#xA;statistics, finance, marketing, and organizational behavior.&lt;/p&gt;&#xA;&lt;p&gt;JESA will&#xA;focus on publishing shorter papers (original articles, methodological&#xA;pieces, surveys, comments on recently published experimental papers),&#xA;and article types that are important yet under-represented in the&#xA;experimental literature (i.e., replications, minor extensions,&#xA;robustness checks, meta-analyses, and good experimental designs even&#xA;if obtaining null results). JESA will periodically publish special&#xA;issues with themes of particular interest for economics experiments,&#xA;including articles solicited from leading scholars both within and&#xA;outside of experimental economics.&lt;/p&gt;&#xA;&lt;p&gt;JESA advances experimental&#xA;economics by bringing together innovative research that meets&#xA;professional standards of experimental method, but without editorial&#xA;bias towards specific orientations. All papers will be reviewed&#xA;through the standard, anonymous-referee procedure and all accepted&#xA;manuscripts will be subject to the approval of both editors. Authors&#xA;are expected to submit separate data and instruction appendices which&#xA;will be attached to the journal's web page upon publication.&lt;/p&gt;&#xA;&lt;p&gt;The&#xA;journal is published under the auspices of the Economic Science&#xA;Association, a professional organization devoted to using controlled&#xA;experiments to learn about economic behavior. JESA is a companion&#xA;journal to Experimental Economics which will publish longer original&#xA;articles (excluding meta-analyses), together with longer surveys and&#xA;methodologies.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="42" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2016-02-05T18:37:22.850" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10538" PostTypeId="1" AcceptedAnswerId="10547" CreationDate="2016-02-05T20:49:45.223" Score="2" ViewCount="85" Body="&lt;p&gt;This might be related to : &lt;a href=&quot;https://economics.stackexchange.com/questions/5485/symmetric-and-asymmetric-preferences&quot;&gt;Symmetric and asymmetric preferences&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In your experience, what is the best terminology to denote a pair of preference relations $(R,R')$ over some set of alternatives $A$ such that, for all $a,b \in A$, $a~R~b$ implies $b~R'~a$?&lt;/p&gt;&#xA;" OwnerUserId="38" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2016-02-05T23:50:08.027" Title="Best terminology for &quot;inverse&quot; preferences" Tags="&lt;microeconomics&gt;&lt;preferences&gt;&lt;decision-theory&gt;&lt;definition&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10539" PostTypeId="1" AcceptedAnswerId="10582" CreationDate="2016-02-05T21:02:07.787" Score="4" ViewCount="3206" Body="&lt;p&gt;Where, in economics, are &lt;strong&gt;partial differential equations&lt;/strong&gt; used?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm particularly interested in micro theory applications, but would also be keen to know of other applications.&lt;/p&gt;&#xA;" OwnerUserId="48" LastEditorUserId="48" LastEditDate="2016-02-06T03:46:13.283" LastActivityDate="2016-02-11T14:27:27.727" Title="Partial differential equations in economics" Tags="&lt;microeconomics&gt;&lt;reference-request&gt;&lt;mathematical-economics&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10540" PostTypeId="2" ParentId="10423" CreationDate="2016-02-05T22:01:16.387" Score="1" Body="&lt;p&gt;It's not my field at all but with a quick search I found an &lt;a href=&quot;https://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1273.pdf?69ebca156c9ef673d45cdcb4e32a1f95&quot; rel=&quot;nofollow&quot;&gt;ECB working paper from 2010 &quot;INTEREST RATE EFFECTS OF DEMOGRAPHIC CHANGES IN A NEW-KEYNESIAN LIFE-CYCLE FRAMEWORK&quot;, by Engin Kara and Leopold von Thadden&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &lt;a href=&quot;http://www.dynare.org/phpBB3/&quot; rel=&quot;nofollow&quot;&gt;dynare forum&lt;/a&gt; is more specialized on DSGE models, you will probably get better advice there. With a &lt;a href=&quot;http://www.dynare.org/phpBB3/search.php?keywords=%2Bdemographic%20%20&quot; rel=&quot;nofollow&quot;&gt;quick search there&lt;/a&gt; you find several posts that already included something with demography.&lt;/p&gt;&#xA;" OwnerUserId="7215" LastEditorUserId="7215" LastEditDate="2016-02-09T13:14:17.187" LastActivityDate="2016-02-09T13:14:17.187" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10541" PostTypeId="2" ParentId="10171" CreationDate="2016-02-05T22:15:29.500" Score="1" Body="&lt;p&gt;With the link you posted you get quarterly data, so to get the yearly growth rate you need to change the frequency to annual. There are different aggregation methods but if it's not specified in the question you were asked I don't see how one should be more right than another.&lt;/p&gt;&#xA;" OwnerUserId="7215" LastActivityDate="2016-02-05T22:15:29.500" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10542" PostTypeId="2" ParentId="4713" CreationDate="2016-02-05T22:30:13.050" Score="1" Body="&lt;p&gt;For the US there is a firm that calculates something from monthly data that the quarterly Bureau of Economic Analysis (BEA) GDP data is also based on: &lt;a href=&quot;http://www.macroadvisers.com/monthly-gdp/&quot; rel=&quot;nofollow&quot;&gt;http://www.macroadvisers.com/monthly-gdp/&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="7215" LastEditorUserId="7215" LastEditDate="2016-02-05T22:36:08.943" LastActivityDate="2016-02-05T22:36:08.943" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10543" PostTypeId="1" AcceptedAnswerId="14536" CreationDate="2016-02-05T22:38:12.823" Score="6" ViewCount="126" Body="&lt;p&gt;Suppose for every $y$, $f(x,y)$ is strictly convex in $x$. $f(x,y)$ is continuous in $y$ and let $\mathcal X$ be compact (in my problem, $\mathcal X$ is an interval). Can anyone suggest any theorems or references for the problem of whether $x^*(y) = \text{argmin}_{x \in \mathcal X} f(x,y)$ is continuous in $y$?&lt;/p&gt;&#xA;" OwnerUserId="7219" LastEditorUserId="7219" LastEditDate="2016-02-05T23:13:10.580" LastActivityDate="2017-02-11T10:17:15.630" Title="Sensitivity/continuity of optimal solution" Tags="&lt;macroeconomics&gt;&lt;mathematical-economics&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10545" PostTypeId="1" CreationDate="2016-02-05T23:39:32.567" Score="3" ViewCount="203" Body="&lt;p&gt;I saw this question in a textbook that I was recently reading and don't really know how to aprpoach this problem. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $H$ be a finite dimensional vector space with inner product ($\cdotp$, $\cdotp$). Suppose $C\subset H$ is a closed convex cone such that $C\cap(-C) = \{0\}.$ Then there exists a nonzero vector p such that ($p \cdot x$) $&amp;gt;0$ for all nonzero $x \in C$. The book suggests to use the proof of the fundamental theorem of asset pricing and make a substitution. Could anyone let me know how to answer this problem?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Edit: This is the theorem in the textbook with the definition of present day value. &lt;a href=&quot;https://i.stack.imgur.com/yd8TO.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/yd8TO.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;a href=&quot;https://i.stack.imgur.com/JYj11.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/JYj11.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="7221" LastEditorUserId="7221" LastEditDate="2016-02-06T19:35:49.003" LastActivityDate="2016-02-06T19:35:49.003" Title="Fundamental Theorem of Asset Pricing (Linear Algebra)" Tags="&lt;asset-pricing&gt;&lt;markets&gt;&lt;portfolio-theory&gt;&lt;arbitrage&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10546" PostTypeId="2" ParentId="258" CreationDate="2016-02-05T23:46:10.250" Score="1" Body="&lt;p&gt;Beside the work of Chichilnisky mentioned by Michael, another interesting use of topology in social choice theory appears in the work of Redekop on Arrow's theorem on economic domains.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Redekop, J. (1991). Social welfare functions on restricted economic domains. Journal of Economic Theory,&#xA;53, 396–427.&lt;/li&gt;&#xA;&lt;li&gt;Redekop, J. (1993a). Arrow-inconsistent economic domains. Social Choice andWelfare,10, 107–126.&lt;/li&gt;&#xA;&lt;li&gt;Redekop, J. (1993b). The questionnaire topology on some spaces of economic preferences. Journal of&#xA;Mathematical Economics, 22, 479–494.&lt;/li&gt;&#xA;&lt;li&gt;Redekop, J. (1993c). Social welfare functions on parametric domains. Social Choice andWelfare,10, 127–148.&lt;/li&gt;&#xA;&lt;li&gt;Redekop, J. (1995). Arrow theorems in economic environments. In W. A. Barnett, H. Moulin, M. Salles,&#xA;&amp;amp; N. J. Schofield (Eds.), Social choice,welfare,and ethics (pp. 163–185). Cambridge: Cambridge University&#xA;Press.&lt;/li&gt;&#xA;&lt;li&gt;Redekop, J. (1996). Arrow theorems in mixed goods, stochastic, and dynamic economic environments.&#xA;Social Choice and Welfare,13, 95–112.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Arrow's impossibility theorem was originally proven for an abstract set of alternative, allowing every possible preference profile over this set of alternatives. The question that Redekop (and others) asked was : is there an equivalent of Arrow's theorem when the alternatives are bundles of goods, and agent have &quot;classical&quot; preferences over those goods (monotonic, convex, continuous, selfish,...). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;More precisely, the question was whether there would exists a social welfare function satisfying the three Arrovian axioms (Independence of Irrelevant Alternative, Weak Pareto and Non-Dictatorship) on these Economic domains (see &#xA; Le Breton, Michel, and John A. Weymark. &quot;Chapter Seventeen-Arrovian Social Choice Theory on Economic Domains.&quot; Handbook of social choice and welfare 2 (2011): 191-299 for a great review, which this answer is based upon).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Roughly, Redekop's work shows that, for some of those economic problems, if a domain of preferences admits an Arrovian social welfare function, the domain must be &quot;small&quot; in some topological sense.&#xA;For instance, in Redekop (1991), he introduces an ingenious topology on sets of preferences he dubbed the &lt;em&gt;questionnaire topology&lt;/em&gt;, and shows that, in a public goods economy, if a domain of preferences admits an Arrovian social welfare function, then the domain must be &lt;em&gt;nowhere dense&lt;/em&gt; according to this topology (i.e. the closure of the domain contains no open set). &lt;/p&gt;&#xA;" OwnerUserId="38" LastEditorUserId="38" LastEditDate="2016-02-06T14:00:37.007" LastActivityDate="2016-02-06T14:00:37.007" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10547" PostTypeId="2" ParentId="10538" CreationDate="2016-02-05T23:50:08.027" Score="2" Body="&lt;p&gt;@Oliv's comment lead me to the following wikipedia article &lt;a href=&quot;https://en.wikipedia.org/wiki/Inverse_relation&quot; rel=&quot;nofollow&quot;&gt;https://en.wikipedia.org/wiki/Inverse_relation&lt;/a&gt;&#xA;which indicates that the term &quot;inverse&quot; is used to define the kind of relation between $R$ and $R'$ that I described in the question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The wikipedia article recommends to use $R^{-1}$ to denote the inverse relation of $R$.&lt;/p&gt;&#xA;" OwnerUserId="38" LastActivityDate="2016-02-05T23:50:08.027" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10548" PostTypeId="1" AcceptedAnswerId="10551" CreationDate="2016-02-06T03:06:37.077" Score="3" ViewCount="1371" Body="&lt;p&gt;If $x$, is a commodity and it is s.t. $x \geq 0$ (it is always nonnegative) how will multiplying it times a utility function $U(x,y)$ NOT yield a simple monotonic transformation?&lt;/p&gt;&#xA;" OwnerUserId="7158" LastEditorUserId="4667" LastEditDate="2016-02-06T06:47:00.223" LastActivityDate="2016-02-07T12:35:53.637" Title="Given a Utility function, U(x,y), why is multiplying U(x,y) * x not a monotonic transformation?" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;preferences&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10550" PostTypeId="1" CreationDate="2016-02-06T06:07:56.347" Score="1" ViewCount="213" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Assume that the instantaneous utility function $u(C)$ in equation $(2.1)$ is $\ln(C(t))$.  Consider the problem of a household maximizing $(2.1)$ subject to $(2.6)$. Find an expression for $C$ at each time as a function of initial wealth plus the present value of labor income, the path of $r(t)$, and the parameters of the utility function&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;\begin{equation}&#xA;U = \int_{t=0}^{\infty} e^{-\rho t} u(C(t)) \frac{L(t)}{H} dt&#xA;\tag{2.1}&#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{equation}&#xA;\int_{t=0}^{\infty} e^{- R(t)} C(t) \frac{L(t)}{H} dt \leq \frac{K(0)}{H} + \int_{t=0}^{\infty} e^{- R(t)} W(t) \frac{L(t)}{H} dt&#xA;\tag{2.6}&#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Firstly I want to check solving for the right right values: initial wealth is $K(0)$, labor income is $W(t)$, $r(t)$ is the real interest rate defined as $R(t) = \int_{\tau=0}^{t} r(\tau) d \tau$, and parameters of the utility function are: $\rho, L(t), H$.  I have tried to solve this using the Lagrangian and using an informal approach of calculus of variations so we can ignore the integrals in these terms so that:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \mathcal{L} = e^{-\rho t} ln(C(t)) \frac{L(t)}{H} + \lambda \left[ \frac{K(0)}{H} +  e^{- r(t)} W(t) \frac{L(t)}{H} - e^{- r(t)} C(t) \frac{L(t)}{H} \right] $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{\partial \mathcal{L}}{\partial C} = \frac{e^{- \rho t} L(t)}{C(t) H}  - \frac{\lambda e^{- r(t)} L(t)}{H}  $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Rightarrow C(t) = e^{-\rho t}e^{r(t)} \lambda^{-1} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{\partial \mathcal{L}}{\partial \lambda} =  \frac{K(0)}{H} +  e^{- r(t)} W(t) \frac{L(t)}{H} - e^{- r(t)} C(t) \frac{L(t)}{H} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Plug the $C(t)$ obtained in the first partial to get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{K(0)}{H} + e^{-r(t)}W(t)\frac{L(t)}{H} = e^{-r(t)} \left( e^{-\rho t}e^{r(t)} \lambda^{-1} \right) \frac{L(t)}{H} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \Rightarrow K(0) + e^{-r(t)}W(t) L(t) = e^{-\rho t} \lambda^{-1} L(t) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \Rightarrow \lambda = \frac{e^{-\rho t} L(t)}{K(0) + e^{-r(t)} W(t) L(t)} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now plugging this into the $C(t)$ equation to this obtain&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ C(t) = e^{-\rho t}e^{r(t)}* \frac{K(0) + e^{-r(t)} W(t) L(t)}{e^{-\rho t} L(t)} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ = \frac{K(0)e^{r(t)}}{L(t)} + W(t) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However the solution manual has the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ C(t) = e^{R(t) - \rho t} \left[ \frac{W(t)}{L(0)/H} (\rho - n) \right]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It would be great if these were equivalent! .. but it does not look so to me.  And my solution does not include the $\rho$, nor $H$, so somewhere I must have messed up.&lt;/p&gt;&#xA;" OwnerUserId="5780" LastEditorUserId="1601" LastEditDate="2016-02-06T06:47:04.617" LastActivityDate="2016-02-06T06:47:04.617" Title="Problem 2.4 in Romer" Tags="&lt;macroeconomics&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10551" PostTypeId="2" ParentId="10548" CreationDate="2016-02-06T06:44:26.000" Score="6" Body="&lt;p&gt;Because $x$ is not a constant, and therefore multiplying $U(x,y)$ by $x$ does not necessarily preserve the ordering between bundles.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For instance, consider the function $U(x,y)=x+y$, and the bundles $(x_0,y_0)=(2,0)$ and $(x_1,y_1)=(1,2)$. We have&#xA;\begin{equation*}&#xA;U(x_0,y_0)=2 &amp;lt; U(x_1,y_1)=3&#xA;\end{equation*}&#xA;but&#xA;\begin{equation*}&#xA;x_0 U(x_0,y_0) = 4 &amp;gt; x_1 U(x_1,y_1) = 3&#xA;\end{equation*}&#xA;Hence multiplying $U$ by $x$ changes the preferences, therefore is not a monotonic transformation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a side note, multiplying the utility function by a constant provides a monotonic transformation if the constant is positive, and not only nonnegative as you assumed (if the constant is zero the orderings are obviously not preserved).&lt;/p&gt;&#xA;" OwnerUserId="4667" LastActivityDate="2016-02-06T06:44:26.000" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10552" PostTypeId="2" ParentId="10548" CreationDate="2016-02-06T06:45:15.980" Score="4" Body="&lt;p&gt;The utility function $U'$ is a monotonic transformation  of $U$ if there is a strictly monotonically increasing function $f$ for which&#xA;$$&#xA;\forall x,y: \ f(U(x,y)) = U'(x,y) &#xA;$$&#xA;Larger values of $U(x,y)$ should always get larger values assigned. But with the function you outlined this is not the case if $U(x_1,y_1) \leq U(x_2,y_2)$ and&#xA;$$&#xA;\frac{U(x_2,y_2)}{U(x_1,y_1)} \leq \frac{x_1}{x_2}.&#xA;$$&#xA;Basically the order between bundles $(x_1,y_1)$ and $(x_2,y_2)$ may change depending on the ratio of their original utilities and the ratio of $x_1$ and $x_2$. An example has been provided by @Oliv. &lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2016-02-06T06:45:15.980" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10554" PostTypeId="1" CreationDate="2016-02-06T07:30:42.337" Score="2" ViewCount="24" Body="&lt;p&gt;Is there theory or study how fast or moment of the price that move away or back to equilibrium states?&lt;/p&gt;&#xA;" OwnerUserId="7223" LastActivityDate="2016-02-06T07:30:42.337" Title="In addition to demand and supply equilibrium" Tags="&lt;macroeconomics&gt;" AnswerCount="0" CommentCount="1" ClosedDate="2016-09-13T09:04:56.550" ContentLicense="CC BY-SA 3.0" />
  <row Id="10555" PostTypeId="2" ParentId="10548" CreationDate="2016-02-06T12:25:24.477" Score="3" Body="&lt;p&gt;Take any utility function $f(x)$. Just because $x\geq0$ doesn't mean $f(x)&amp;gt;0$. There are plenty (infinitely many) of utility functions that are sometime negative and sometimes positive. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider one $U = x-5$ This is person has exactly the same preference ordering as someone with preferences $U = x-10$, $U = x$, and $U = x+5$. Now imagine multiplying these utility functions by x. This makes the negative utility values positive at different values of x. We can tell that because the utility functions have the same ordering of the utility values of x.&#xA;&lt;a href=&quot;https://i.stack.imgur.com/kckNK.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/kckNK.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now consider the those same functions transformed by multiplying by x. &#xA;&lt;a href=&quot;https://i.stack.imgur.com/hDszm.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/hDszm.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&#xA;We can see that these transformed functions now actually prefer very low values of x to very high ones. &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2016-02-07T12:35:53.637" LastActivityDate="2016-02-07T12:35:53.637" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10556" PostTypeId="1" CreationDate="2016-02-06T14:07:02.660" Score="-1" ViewCount="97" Body="&lt;p&gt;Can anybody explain me easily what is housing bubble and how it cause financial crisis?&lt;/p&gt;&#xA;" OwnerUserId="7224" LastEditorUserId="2776" LastEditDate="2016-09-04T21:20:18.010" LastActivityDate="2016-09-04T21:20:18.010" Title="Housing bubble and financial crisis" Tags="&lt;financial-economics&gt;&lt;economic-bubble&gt;" AnswerCount="1" CommentCount="1" ClosedDate="2016-02-08T10:17:26.393" ContentLicense="CC BY-SA 3.0" />
  <row Id="10557" PostTypeId="2" ParentId="10556" CreationDate="2016-02-06T15:57:08.257" Score="1" Body="&lt;p&gt;A bubble is when the price of a speculative asset becomes unreasonably high. If we are talking about the housing market this means the price of real estate. When the bubble bursts the price comes crashing down and people are left with assets that are now worth much less than what they paid for them. A major reason the housing bubble was so bad was because of the widespread practice of giving subprime mortgages, meaning giving mortgages to people who did not have the credentials to be qualified for a good mortgage, so they were given mortgages at very high interest rates. The big investment banks then invested in subprime mortgages through various complicated investment products. When the bubble burst and subprime mortgages started to be defaulted on these big investment banks were left with worthless assets and took huge losses.&lt;/p&gt;&#xA;" OwnerUserId="7005" LastActivityDate="2016-02-06T15:57:08.257" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10559" PostTypeId="1" AcceptedAnswerId="10560" CreationDate="2016-02-06T22:52:54.333" Score="0" ViewCount="861" Body="&lt;p&gt;Quick question here: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am evaluating an extensive-form game with five subgames. Four of the five subgames are easily handled. However, the fifth subgame is making me second guess myself. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can there be a pure strategy subgame perfect N.E. in an extensive form game if there is a subgame where a player is indifferent between actions? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, this fifth subgame is a node followed only by payoffs. The player deciding between playing L and R will generate an equivalent payoff whether he plays L or R. So, he is indifferent. Since this player is indifferent at this node, it makes me think I cannot define a SPNE in pure strategies. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, I know that a SPNE in pure strategies must be a backward induction solution. Well, since this node is considered first during backward induction, it seems to nix a backward induction solution to the game. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this correct? Can anyone clarify? &lt;/p&gt;&#xA;" OwnerUserId="1655" LastActivityDate="2016-02-07T17:51:23.183" Title="Pure Strategy SPNE" Tags="&lt;game-theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10560" PostTypeId="2" ParentId="10559" CreationDate="2016-02-06T23:02:35.117" Score="3" Body="&lt;p&gt;Every finite full information game has a subgame perfect equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A strategy profile is not an equilibrium if at least one of the players has a 'better move'. If they only have one that is exactly as good as their current move they have no incentive to change.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;About backward induction: &lt;br&gt;&#xA;It is not nixed in such cases. If a player is indifferent between two choices you mark both branches as both choices are subgame perfect. You can also see from this that by following subgame perfect strategies you will reach from the root to the end so a SPNE exists.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Indifference between some actions on the part of a player is a necessary but not sufficient condition of having multiple SPNE in a finite full information game.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="108" LastEditDate="2016-02-07T17:51:23.183" LastActivityDate="2016-02-07T17:51:23.183" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="10561" PostTypeId="1" AcceptedAnswerId="10575" CreationDate="2016-02-06T23:28:35.277" Score="2" ViewCount="1053" Body="&lt;p&gt;What are &lt;em&gt;penny auctions&lt;/em&gt;? Given the great discounts they claim (up to 95%), how do they make money?&lt;/p&gt;&#xA;" OwnerUserId="6249" LastEditorUserId="48" LastEditDate="2016-02-08T07:15:59.550" LastActivityDate="2016-02-08T07:15:59.550" Title="How do penny auctions make money?" Tags="&lt;game-theory&gt;&lt;auctions&gt;" AnswerCount="1" CommentCount="4" ClosedDate="2016-02-09T22:57:42.760" ContentLicense="CC BY-SA 3.0" />
  <row Id="10562" PostTypeId="1" CreationDate="2016-02-07T01:45:14.683" Score="6" ViewCount="578" Body="&lt;p&gt;&lt;strong&gt;Question&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What are the great &quot;constants&quot; of economics?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Background&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In his &lt;a href=&quot;http://www.hup.harvard.edu/catalog.php?isbn=9780674843745&quot;&gt;Structural Slumps&lt;/a&gt; (Chapter 3, p.20), Phelps refers to the great &quot;constants&quot; of economics. He explains that the natural unemployment rate has been treated as one of these great constants. So, what else is a great constant in economics? The natural interest rate? The natural level of output? And, so on? References would be greatly appreciated!&lt;/p&gt;&#xA;" OwnerUserId="1588" LastActivityDate="2016-05-05T15:50:41.993" Title="Great &quot;constants&quot; of economics" Tags="&lt;macroeconomics&gt;&lt;economic-terms&gt;&lt;definition&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10563" PostTypeId="1" CreationDate="2016-02-07T05:05:10.600" Score="0" ViewCount="161" Body="&lt;p&gt;I'm struggling with what should be a simple concept: scarcity. For some reason, I just can't wrap my head around the fact that in this highly advanced technological society of ours, we can't fix scarcity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sure, we might not be able to produce an &quot;infinite&quot; amount of things. But then again, nobody wants an infinite amount of things. That's an absurd notion, and an even more absurd foundation to build a principle on. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Say, everybody wanted 4 cars on average. Some people might want less, some more. Can we really not ramp up production to facilitate this wish? Couldn't we ramp up production to dig out even more gold? To mine for even more diamonds? To grow even more food? To collect even more water?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We live in an age of advanced technology. Of algorithms, artificial intelligence and of highly automated large-scale production. How am I to believe that, given all these abilities, we couldn't achieve a solution to a &lt;em&gt;reasonable&lt;/em&gt; form of scarcity? By reasonable I mean scarcity that makes sense within a human context: nobody wants an &quot;infinite amount of cars&quot;, at least the vast, vast majority of people don't, and the few outliers that do shouldn't be relevant in an economic principle of this significance. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This seems like an idea that would have made sense a century ago, but not anymore. How and why does is still hold up, considering our unprecedented potential to produce goods?&lt;/p&gt;&#xA;" OwnerUserId="7230" LastActivityDate="2016-02-07T08:45:08.020" Title="Help me understand scarcity" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10567" PostTypeId="2" ParentId="10563" CreationDate="2016-02-07T08:45:08.020" Score="4" Body="&lt;p&gt;What you are saying is that the marginal utility of one additional good (car, or coconut) decreases and tends to zero. I believe everyone agrees with that.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reason why scarcity matters is not that people can't be satisfied with a finite consumption, but that most individuals currently consume below their satiation level and would be happier with one additional unit. Most people would prefer a bigger house, a more luxurious car, more clothes, etc., even if they would finally be satisfied with some finite level.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regarding your observation &quot;Can we really not ramp up production to facilitate this wish?&quot;, the answer is no: it is still too costly to produce cars, houses, clothes etc. to accommodate everyone's wishes. If we were able to produce costlessly the amount of goods required to satisfy everyone's satiation level, the problem of scarcity would be solved (and economics would disappear as a science), but we are clearly far from this situation.&lt;/p&gt;&#xA;" OwnerUserId="4667" LastActivityDate="2016-02-07T08:45:08.020" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10570" PostTypeId="2" ParentId="4679" CreationDate="2016-02-07T19:41:13.820" Score="3" Body="&lt;p&gt;The &lt;a href=&quot;http://rfe.org/showCat.php?cat_id=2&quot; rel=&quot;nofollow&quot;&gt;American Economic Association has a list of resources for Economists, including a page for data&lt;/a&gt;, there you find links to many institutions that offer all kinds of data, as well as further journals with data archives for the studies they publish.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the &lt;a href=&quot;http://replication.uni-goettingen.de&quot; rel=&quot;nofollow&quot;&gt;ReplicationWiki&lt;/a&gt; (that I work on) we have information on more than 2000 empirical studies and you can search for which one what kind of &lt;a href=&quot;http://preview.tinyurl.com/Replication-Wiki-Data&quot; rel=&quot;nofollow&quot;&gt;data&lt;/a&gt;, &lt;a href=&quot;http://replication.uni-goettingen.de/wiki/index.php/Category:Article_software_used&quot; rel=&quot;nofollow&quot;&gt;software&lt;/a&gt;, and &lt;a href=&quot;http://replication.uni-goettingen.de/wiki/index.php/Category:Article_methods_and_estimation&quot; rel=&quot;nofollow&quot;&gt;methods&lt;/a&gt; were used, if the material is available, and if replications are known. Many studies can be browsed by &lt;a href=&quot;http://replication.uni-goettingen.de/wiki/index.php/Category:Article_JEL_codes&quot; rel=&quot;nofollow&quot;&gt;JEL codes&lt;/a&gt; or &lt;a href=&quot;http://replication.uni-goettingen.de/wiki/index.php/Category:Article_keywords&quot; rel=&quot;nofollow&quot;&gt;keywords&lt;/a&gt;. The categorization of &lt;a href=&quot;http://replication.uni-goettingen.de/wiki/index.php/Category:Geographical_origin_of_data&quot; rel=&quot;nofollow&quot;&gt;data sources&lt;/a&gt; and &lt;a href=&quot;http://replication.uni-goettingen.de/wiki/index.php/Category:Article_data_source&quot; rel=&quot;nofollow&quot;&gt;geographical origin of data&lt;/a&gt; remains very incomplete but it is a wiki, so everyone can contribute and make suggestions.&lt;/p&gt;&#xA;" OwnerUserId="7215" LastEditorUserId="7215" LastEditDate="2016-02-12T16:49:31.187" LastActivityDate="2016-02-12T16:49:31.187" CommentCount="0" CommunityOwnedDate="2016-02-07T19:41:13.820" ContentLicense="CC BY-SA 3.0" />
  <row Id="10571" PostTypeId="1" AcceptedAnswerId="10577" CreationDate="2016-02-07T20:08:13.013" Score="4" ViewCount="126" Body="&lt;p&gt;A country's public debt is often presented as ratio to GDP. For example, in Wikipedia, &lt;a href=&quot;https://en.wikipedia.org/wiki/List_of_countries_by_public_debt&quot;&gt;List of countries by public debt&lt;/a&gt; or &lt;a href=&quot;https://en.wikipedia.org/wiki/National_debt_of_the_United_States&quot;&gt;National debt of the United States&lt;/a&gt; both use ratio or percentages of GDP.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since government borrows the money in term of balancing budget and will have to repay using budget, shouldn't it make more sense to define the ratio against something related to the size of the budget, instead of the size of the whole economy? Someone pointed out to me that when seen this way, the debt ratio sounds more serious. For example, US public debt is ~18 trillion, which is slightly more than the annual GDP (this doesn't sound too bad), but actually roughly 6x government revenue in 2014 (&lt;a href=&quot;https://www.cia.gov/library/publications/the-world-factbook/fields/2056.html&quot;&gt;~3 billion according to CIA World Factbook&lt;/a&gt;)&lt;/p&gt;&#xA;" OwnerUserId="4297" LastActivityDate="2016-02-08T11:57:23.567" Title="Why is government debt level presented as ratio to GDP, not against government budget or revenue size?" Tags="&lt;government-debt&gt;&lt;public-economics&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10572" PostTypeId="1" CreationDate="2016-02-07T20:48:37.173" Score="5" ViewCount="735" Body="&lt;p&gt;Consider a Robinson Crusoe economy. Let $c$ be consumption and let $l$ be leisure. Our utility function is defined as &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U(c,l)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Geometrically, I think we can say his indifference curve should be concave up, so therefore $\frac{dc}{dl} &amp;gt;0$ and $\frac{d^2c}{dl^2} &amp;gt;0$.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Typically we have a production function $$y = f(\ell)$$&#xA;where $\ell$ is labor, $f'&amp;gt;0$,$f''&amp;lt;0$ and $c \leq y$.  Also, I think $l = 1 - \ell$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, note &lt;/p&gt;&#xA;&#xA;&lt;h2&gt;$$MRS = MPL$$&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;WHY INCREASING PRODUCTIVITY MIGHT INCREASE LABOR&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose $f(\ell)=A \sqrt{\ell}$. Then &#xA;$$MPL = f'(\ell) = \frac{A}{2\sqrt{\ell}}$$&#xA;So then if $A \rightarrow \lambda A$, then for fixed $MPL$ we must have &#xA;$$MPL = \frac{\lambda A}{2\sqrt{\lambda^2 \ell}}$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words, if $A$ increases, Crusoe works harder if we assume $MPL$ is fixed. &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;WHY INCREASING PRODUCTIVITY MIGHT DECREASE LABOR&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But increasing $A$ would also mean essentially that Crusoe gets more production per unit of labor consumed. This gives him more $c$ available. This will mean his $MU_c$ goes down. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Recall $$MRS = \frac {U_l} {U_c}$$ If we assume $MRS$ remains constant, then $MU_l$ must go down to offset this change. This implies $l$ goes up and therefore, $\ell$ goes down.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So one could also argue changing $A$ results in $\ell$ going down. &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;MY QUESTION&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is the income effect and substitution effect in the case of changing $A$? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;According to what my instructors have said (and I don't think they explain it well at all), the income effect is the latter change I described due to $A$ (i.e. decrease in $\ell$) whereas the substitution effect is due to the former change (increase in $\ell$). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But these don't match the income and substitution effects I learned about in my class on Marshallian and Hicksian demand functions. It seems very confused. Can someone define these explicitly or explain why my instructor has misused these two terms? &lt;/p&gt;&#xA;" OwnerUserId="2679" LastEditorUserId="4087" LastEditDate="2016-12-04T19:33:57.280" LastActivityDate="2017-02-03T09:01:56.173" Title="Does a Robinson Crusoe economy have a substitution effect and an income effect?" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="10573" PostTypeId="2" ParentId="10571" CreationDate="2016-02-07T22:21:32.373" Score="0" Body="&lt;p&gt;I believe your understanding of budget and GDP is a bit off. Comparing debt with GDP is more adequate, as GDP measures the country's production level, while budget is just an estimate. At least where I live, what is budgeted for the upcoming year is not always accomplished in the end, as there are gaps and things that missed the planning phase.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In that case, it makes a bit more sense to compare what the country owes (debt) with what it is &lt;strong&gt;actually&lt;/strong&gt; producing, rather than with what it estimates to produce, don't you think?&#xA;I'm not exactly sure, but I believe GDP aggregates indirect revenues, while revenue size does not - hence &lt;em&gt;looking more serious&lt;/em&gt;.&lt;/p&gt;&#xA;" OwnerUserId="6832" LastActivityDate="2016-02-07T22:21:32.373" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="10574" PostTypeId="2" ParentId="10572" CreationDate="2016-02-07T22:55:12.890" Score="1" Body="&lt;p&gt;I don't see why equilibrium $MPL(\ell)$  would be fixed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think Robinson's income is measured by what he can get using his total time $t = l + \ell$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume that given the original $A$ and total time $t$ his optimal choice was $(c_1,l_1)$. If the technology improves to $A'&amp;gt;A$ he can reach $(c_1,l_1)$&#xA;&lt;br&gt; (or $U(c_1,l_1)$ if you take the Hicksian approach) &lt;br&gt;&#xA; by only using total time $t' &amp;lt; t$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let us denote the optimal consumption bundle given technology $A'$ and time $t'$ by $(c_2,l_2)$. This is the intermediate step separating the income and substitution effects. The difference between $l_2$ and $l_1$ would be the substition effect. The 'income' in the two situations is considered equal as $(c_1,l_1)$ &lt;br&gt; (or $U(c_1,l_1)$ if you take the Hicksian approach) &lt;br&gt; is barely feasible in both cases. Any difference in leisure consumption is due to the different transformation rate between leisure and consumption.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let us denote the optimal consumption bundle given technology $A'$ and time $t$ by $(c_3,l_3)$. The difference between $l_3$ and $l_2$ is the income effect. The technology is identical in both cases, so any difference in consumption is due to the difference in 'income'.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Perhaps your instructors are trying to say something about the backward bending labor supply curve. It is difficult to tell from the available information.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2016-02-07T22:55:12.890" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10575" PostTypeId="2" ParentId="10561" CreationDate="2016-02-07T23:29:28.850" Score="6" Body="&lt;p&gt;In a penny auction, each bid raises the going price of an object by just one penny. However, placing such a bid is costly &lt;em&gt;whether or not you win&lt;/em&gt;. Usually it costs one dollar to place a bid -- sometimes this is obfuscated by making you purchase bids (or bidding credits) before you participate. In any case, if the opening bid of an auction for something is 0.01, and the auction ends with the price at just 10, then one thousand bids have been placed and therefore the site has made 1,000 on top of what the item actually sells for (10). So if the item has a value of 500, then they would represent that as 98% discount even though they actually made a profit of 510, simply because they ignore the bidding costs (their primary source of profit).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, if you happen to be the person who makes the winning bid, and you have not bid previously, then obviously you would be getting a very good deal -- in the example above, you would be paying 11 for an item that might be worth 100 or more. However, it is difficult (and out of your control) to be the winning bidder. After every bid, time is allowed for other bidders to outbid you, in which case you lose the money you spent on the bid.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With all of this in mind, participating in penny auctions is essentially gambling. Sites that market these discounts and obfuscate the cost of bidding are highly misleading. I personally believe they should be banned. Note that these &lt;em&gt;penny auction&lt;/em&gt; sites should not be confused with standard auction sites like Ebay. In standard auction sites, you pay only if you win -- you do not pay simply to make a bid.&lt;/p&gt;&#xA;" OwnerUserId="48" LastEditorUserId="48" LastEditDate="2016-02-07T23:35:19.087" LastActivityDate="2016-02-07T23:35:19.087" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10577" PostTypeId="2" ParentId="10571" CreationDate="2016-02-08T11:57:23.567" Score="4" Body="&lt;p&gt;The ratio of government debt to GDP is a useful indicator because, broadly, the larger a country's GDP, the larger is the tax revenue the government could &lt;em&gt;potentially&lt;/em&gt; raise to service the debt while maintaining other government expenditure at an acceptable level.  Thus a very high debt / GDP ratio would raise doubts about the government's ability to service the debt.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One reason why a larger GDP implies a larger potential tax revenue is that most of the transactions making up &lt;a href=&quot;https://en.wikipedia.org/wiki/Gross_domestic_product#Income_approach&quot; rel=&quot;nofollow&quot;&gt;GDP from an income perspective&lt;/a&gt;, eg wages and salaries, company profits, could be taxed.  However, taxes could also be levied on items that are not part of GDP, eg capital values of property.  The more fundamental point, therefore, is that a larger GDP, again from an income perspective, tends to imply a larger aggregate ability to pay, out of that income, such taxes as may be levied by the government.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The government's ability to tax is also influenced by political factors and by the effectiveness of its tax collection, so the debt / GDP ratio can only be a crude indicator of ability to service debt.&lt;/p&gt;&#xA;" OwnerUserId="1417" LastActivityDate="2016-02-08T11:57:23.567" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10578" PostTypeId="1" CreationDate="2016-02-08T13:42:58.953" Score="2" ViewCount="65" Body="&lt;p&gt;If I know that one USD buys 0.90 euros or 1.42 Australian dollars, can I reliably conclude that one Australian dollar buys 0.63 euros? (0.90 / 1.42)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That seems to make sense. But would this be true for every case? For example, if you were to collect historic currency data for all currencies with respect to a single base currency, could you then accurately calculate all relative exchange rates, or are there are other factors to consider?&lt;/p&gt;&#xA;" OwnerUserId="7243" LastActivityDate="2016-02-09T15:43:38.933" Title="Comparing currency prices" Tags="&lt;currency&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10579" PostTypeId="1" AcceptedAnswerId="10580" CreationDate="2016-02-08T15:42:20.857" Score="18" ViewCount="3841" Body="&lt;p&gt;Occupy Wall Street has a famous slogan &quot;we are the 99%&quot;, refering to the &quot;fact&quot; that 1% of the people in the US take nearly the quarter of the national income.  However, this does not seem to consider that many people with extreme incomes have very variables revenues and have to borrow a lot from the private sector to finance their source of revenue, and that this revenue is unstable.  Are there any studies/data confirming that the 1% that has nearly 25% of the national income is in fact nearly composed of the same people year after year?  Any data that considers &quot;permanent income&quot; instead of &quot;annual income&quot;?&lt;/p&gt;&#xA;" OwnerUserId="7245" OwnerDisplayName="Cass" LastEditorUserId="332" LastEditDate="2016-02-09T18:14:21.643" LastActivityDate="2016-02-10T13:38:10.807" Title="Is the Occupy Wall Street famous 1% stable?" Tags="&lt;inequality&gt;&lt;usa&gt;" AnswerCount="2" CommentCount="6" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="10580" PostTypeId="2" ParentId="10579" CreationDate="2016-02-08T16:45:54.110" Score="18" Body="&lt;p&gt;I've not see a strict analysis of the top one percent but I have seen an analysis of the top 400 tax payers, the very highest income taxpayers:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Who are the rich? It depends who you ask and when. Since 1992, the IRS&#xA;  has tracked the top 400 earners in terms of adjusted gross income—the&#xA;  so called fortunate 400. ... Most importantly, this IRS report&#xA;  demonstrates there is a lot of income mobility at the top. Of all the&#xA;  filers who have made the list since 1992, &lt;strong&gt;73 percent were on the list&#xA;  just once. Virtually no one remains on the list for all 18 years&lt;/strong&gt;, but&#xA;  for privacy concerns the IRS did not report exactly how many did, if&#xA;  any. In last year’s report, just 4 people remained on the list for all&#xA;  17 years. This suggests that most top earners do not have a portfolio&#xA;  of big investments that can be cashed in year after year, but rather&#xA;  one big asset, such as a family farm or business or stock, the sale of&#xA;  which triggers a capital gain.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://taxfoundation.org/article/fortunate-400&quot;&gt;The Fortunate 400 By William McBride&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A slightly more targeted answer:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Considering those whose information was found in both years,&#xA;  approximately half  of taxpayers in the lowest and highest income&#xA;  quintiles remained in the same quintiles 20 years later. Nearly&#xA;  one-fourth of those in the bottom quintile moved up one quintile,&#xA;  while 4.7 percent moved to the top quintile. &lt;strong&gt;About one-fourth of those&#xA;  in the top 1 percent were also in the top 1 percent 20 years later,&#xA;  but nearly 70 percent remained in the top income decile.&lt;/strong&gt; The overall&#xA;  results suggest that, while there is considerable persistence among&#xA;  observed taxpayers, there is also meaningful movement even within this&#xA;  narrow age cohort. Some taxpayers start from the bottom and move to&#xA;  the top and vice versa.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.law.upenn.edu/live/files/2934-autengeeturner-perspectives-on-mobility-inequality&quot;&gt;NEW PERSPECTIVES ON INCOME MOBILITY AND INEQUALITY&lt;/a&gt;&#xA;Gerald Auten, Geoffrey Gee, and Nicholas Turner (2013)&lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2016-02-08T20:15:57.483" LastActivityDate="2016-02-08T20:15:57.483" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="10582" PostTypeId="2" ParentId="10539" CreationDate="2016-02-08T18:45:34.807" Score="3" Body="&lt;p&gt;Here are a couple of suggestions. There are some PDEs in some recent continuous-time models, for instance in:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;A Continuous-Time Version of the Principal-Agent Problem, by Sannikov, Review of Economic Studies (2008)&lt;/li&gt;&#xA;&lt;li&gt;Persistent private information, by Williams, Econometrica (2011)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I would not be surprised if Yuliy Sannikov used PDEs in some of his other papers (although I have nothing precise in mind).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can refer to the review by Achdou et al. (Partial differential equation models in macroeconomics, Philosophical Transactions of the Royal Society, 2014) for other references.&lt;/p&gt;&#xA;" OwnerUserId="4667" LastActivityDate="2016-02-08T18:45:34.807" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10583" PostTypeId="1" AcceptedAnswerId="10588" CreationDate="2016-02-08T19:42:45.903" Score="1" ViewCount="172" Body="&lt;p&gt;It seems to me, that utility function usually is just a set of facts. Is there a framework or model for utility function that can explain or predict utility function. I. e. if user has value for item A and B and there is item C (which is conceptually linked to items A and B, i.e. it has the color or A and usability features of B) then this framework can predict the user's value for item C?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Maybe there ir some kind of framework that can explain utility function? I.e. there are ontologies which have ABox component which is set of concepts and TBox component which set of instances of those concepts. Maybe there is framework that can list concepts that are linked to some products and each consumer have some value on those concepts and from this it is possible to derive the utility function for the actual products?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How utility function is used for modeling single customer profiles? Maybe utility function can be extracted from the Big Data that are associated with cash register data, contact calls and so on?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there some trend of research and practice along these lines? Maybe these are fairly common things and I don't know relevant keywords only? &lt;/p&gt;&#xA;" OwnerUserId="5373" LastActivityDate="2016-02-08T21:56:19.593" Title="Conceptual explanation/prediction of utility function. Extraction of utility function from Big Data" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;consumer-theory&gt;&lt;expected-utility&gt;&lt;behavioral-economics&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10584" PostTypeId="2" ParentId="10579" CreationDate="2016-02-08T20:25:44.520" Score="17" Body="&lt;p&gt;To answer the question: &lt;strong&gt;Yes, the 1% is relatively stable.&lt;/strong&gt;  From The Economist:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Membership in America's 1% is relatively stable; three-quarters of the households in the percentile one year will still be there the next.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Also your &quot;belief&quot; that the vast majority of the income that the 1% receive is variable, from borrowing, etc, isn't actually true.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The richest 1% earn roughly half their income from wages and salaries, a quarter from self-employment and business income, and the remainder from interest, dividends, capital gains and rent.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So half isn't variable at all, a quarter is slightly variable and, a quarter isn't all that variable, but is subject to market shocks.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.economist.com/node/21543178&quot;&gt;Source&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And that isn't even getting into whether or not this question has any relevance. There's two big problems with your question:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Is income even the stat we should be looking at?&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;The wealth gap, as measured by net worth, is much more extreme than the chasm as measured by income.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Times had estimated the threshold for being in the top 1 percent in household income at about \$380,000 dollars. That is &lt;strong&gt;7.5 times median household income&lt;/strong&gt;. But for net worth, the 1 percent threshold for net worth in the Fed data was nearly \$8.4 million dollars, or &lt;strong&gt;69 times the median household&lt;/strong&gt;’s net holdings of \$121,000. &lt;a href=&quot;http://economix.blogs.nytimes.com/2012/01/17/measuring-the-top-1-by-wealth-not-income/?_r=0&quot;&gt;source&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The government goes after income more than it goes after wealth. For example, you can live in a \$8 million mansion and get Universal Healthcare subsidies if you make less than ~$94,000 a year with a family of four.&lt;a href=&quot;http://www.financialsamurai.com/top-one-percent-net-worth-amounts-by-age/&quot;&gt;source&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At the end of the day, when Bill Gates retired from Microsoft, he wasn't suddenly poor. If you think there is a problem with wealth inequality, looking at income isn't a great way to find out if you are right or not.&lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;2&quot;&gt;&#xA;&lt;li&gt;If there are socio-economic problems cause be income inequality, how does the fact* that the faces of the ultra rich change factor into those problems? Does it factor into it at all?&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;If there's 5 people, with enough food for 5 people and person 1 eats it all today. Tomorrow person 1 leaves and a new guy comes in. He eats all of today's food. When the 4 people sitting there starving start complaining that the share of the food is unequal and that they are starving, what does it matter that it wasn't the same guy who ate it all twice in a row? The problem here is the inequality &lt;em&gt;itself&lt;/em&gt; not who is getting the unequal treatment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;*Not actually a fact. Data shows this is the opposite of a fact.&lt;/p&gt;&#xA;" OwnerUserId="7252" LastActivityDate="2016-02-08T20:25:44.520" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="10585" PostTypeId="1" CreationDate="2016-02-08T21:26:09.770" Score="7" ViewCount="1710" Body="&lt;p&gt;Are there any (specific) math open problems that mathematical (micro)economics / finance / econometrics researchers wish mathematicians could solve for their discoveries to flourish? If positive, which math open problems are related to which applied topics and how they are related?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When I ask that, it really comes to my mind the case of stochastic analysis and option asset pricing problems in mathematical finance.&lt;/p&gt;&#xA;" OwnerUserId="7253" LastEditorUserId="69" LastEditDate="2016-02-09T01:57:19.090" LastActivityDate="2017-04-08T20:20:41.473" Title="Mathematical open problems that (when answered) might unlock MAJOR mathematical (micro)economics/finance/econometrics discoveries" Tags="&lt;econometrics&gt;&lt;mathematical-economics&gt;&lt;finance&gt;&lt;soft-question&gt;" AnswerCount="4" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10586" PostTypeId="1" CreationDate="2016-02-08T21:40:16.960" Score="6" ViewCount="1240" Body="&lt;p&gt;&lt;strong&gt;Introduction&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are different ways of estimating the parameters of a production function. For example, single-equation and system equation techniques are both possible. Another difference among methods is that estimable forms may either involve direct or indirect estimation of the parameters. For instance, rather than estimate the production function &lt;em&gt;as is&lt;/em&gt;, one may instead estimate the derived demand functions or, say, use other relations such as factor shares. Also to be considered are the underlying economic assumptions; such possibilities being perfect competition, constant returns to scale, profit maximization, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Question&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Bearing the above in mind, my question is what is the standard (accepted?) method of estimating normalized CES (constant elasticity of substitution) production functions? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For information, a normalized CES  production function can be written as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;Y = Y_{0} \lbrace \pi_{0} K_{0}^{\frac{1-\sigma}{\sigma}}(K_{t}\cdot e^{\gamma_{K}(t-t_{0})})^{\frac{\sigma-1}{\sigma}} + (1-\pi_{0})N_{0}^{\frac{1-\sigma}{\sigma}}(N_{t}\cdot e^{\gamma_{N}(t-t_{0})})^{\frac{\sigma-1}{\sigma}}\rbrace&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;following the notation found in &lt;a href=&quot;https://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1294.pdf?9fcd5fddf87498417164716f2bbee9fd&quot; rel=&quot;noreferrer&quot;&gt;Klump, McAdam, and Willman (2011, p.22)&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Importantly, what data is required to estimate the parameters of this particular production function? And, what is the exact procedure involved? Demonstrations and references are most welcome!  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Reference:&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Rainer Klump, Peter McAdam, and Alpo Willman, The normalized nested&#xA;CES production function, theory and empirics, ECB Working Paper Series,&#xA;No. 1294. (Feb., 2011), 2011.&lt;/p&gt;&#xA;" OwnerUserId="1588" LastActivityDate="2016-05-05T09:52:49.977" Title="CES production function estimation" Tags="&lt;macroeconomics&gt;&lt;econometrics&gt;&lt;production-function&gt;" AnswerCount="2" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10587" PostTypeId="2" ParentId="10585" CreationDate="2016-02-08T21:51:30.607" Score="6" Body="&lt;p&gt;People have argued that if $P \neq NP$ then &lt;a href=&quot;http://arxiv.org/pdf/1002.2284.pdf&quot; rel=&quot;noreferrer&quot;&gt;efficient markets are impossible&lt;/a&gt; and &lt;a href=&quot;http://research.microsoft.com/en-us/um/redmond/groups/theory/feige/homepagefiles/pversusnp.ppt&quot; rel=&quot;noreferrer&quot;&gt;certain equalibria may not exist&lt;/a&gt;. However, they may hold approximately, so I'm not sure if this qualifies. Additionally, if it turns out that $P=NP$ then certain economic optimization problems (e.g. in logistics) become easily solvable. On the other hand, if $P \neq NP$ then it might imply that encryption is very safe and therefore certain forms of economic arrangements will still be possible in the face of technological advance.  &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2016-02-08T22:03:15.383" LastActivityDate="2016-02-08T22:03:15.383" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10588" PostTypeId="2" ParentId="10583" CreationDate="2016-02-08T21:56:19.593" Score="3" Body="&lt;p&gt;I believe what you are looking for are hedonic regressions:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In economics, hedonic regression or hedonic demand theory is a&#xA;  revealed preference method of estimating demand or value. It&#xA;  decomposes the item being researched into its constituent&#xA;  characteristics, and obtains estimates of the contributory value of&#xA;  each characteristic. This requires that the composite good being&#xA;  valued can be reduced to its constituent parts and that the market&#xA;  values those constituent parts. Hedonic models are most commonly&#xA;  estimated using regression analysis, although more generalized models,&#xA;  such as sales adjustment grids, are special cases of hedonic models.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;An attribute vector, which may be a dummy or panel variable, is&#xA;  assigned to each characteristic or group of characteristics. Hedonic&#xA;  models can accommodate non-linearity, variable interaction, or other&#xA;  complex valuation situations.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Hedonic models are commonly used in real estate appraisal, real estate&#xA;  economics, and Consumer Price Index (CPI) calculations. In CPI&#xA;  calculations hedonic regression is used to control the effect of&#xA;  changes in product quality. Price changes that are due to substitution&#xA;  effects are subject to hedonic quality adjustments.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Hedonic_regression&quot; rel=&quot;nofollow&quot;&gt;Hedonic regression on Wikipedia&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://Developing%20a%20Hedonic%20Regression%20Model%20For%20Camcorders%20In%20the%20U.S.%20CPI&quot; rel=&quot;nofollow&quot;&gt;The BLS has a nice fully worked example about using this method to price changes in the quality of camcorders&lt;/a&gt;. They explore how brand, storage format, image stabilization, weight, and other features influence the price in order to capture how changes in the value of camcorders influences substitution in consumption decisions.   &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2016-02-08T21:56:19.593" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10590" PostTypeId="2" ParentId="10585" CreationDate="2016-02-09T03:52:54.210" Score="1" Body="&lt;p&gt;A lot of mathematicians and, here, computer scientists study open problems in game theory. Here is an article that talks about the potential solution of an open problem in mechanism design: &lt;a href=&quot;http://news.mit.edu/2016/faculty-profile-constantinos-daskalakis-0204&quot; rel=&quot;nofollow&quot;&gt;http://news.mit.edu/2016/faculty-profile-constantinos-daskalakis-0204&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Other problems in game theory, however, have proven more susceptible to analysis from a computational perspective. In 2012, after coming to MIT, Daskalakis and his students solved a 30-year-old problem in economics, a generalization of work that helped earn the University of Chicago’s Roger Myerson the Nobel Prize in economics. That problem was how to structure auctions for multiple items so that, even if all the bidders adopt strategies that maximize their own returns, the auctioneer can still extract the greatest profit.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="59" LastActivityDate="2016-02-09T03:52:54.210" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10592" PostTypeId="1" AcceptedAnswerId="10593" CreationDate="2016-02-09T08:02:40.333" Score="0" ViewCount="777" Body="&lt;p&gt;Equation of exchange states:&lt;br&gt;&#xA;$ MV=PY $&lt;br&gt;&#xA;where,&lt;br&gt;&#xA;       $ M $ is Quantity of Money&lt;br&gt;&#xA;       $ V $ is Velocity of Money&lt;br&gt;&#xA;       $ P $ is Price Level&lt;br&gt;&#xA;       $ Y $ is Real GDP&lt;br&gt;&#xA;Could someone please share how the above common form of equation is converted to the growth rate form:&lt;br&gt;&#xA;$ \%\Delta M + \%\Delta V = \%\Delta P + \%\Delta Y $  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit: Sorry the latex doesn't seem to be working. Unable to figure that out.&lt;/p&gt;&#xA;" OwnerUserId="7258" LastEditorUserId="7258" LastEditDate="2016-02-09T08:14:48.077" LastActivityDate="2016-02-09T08:54:48.347" Title="How is the growth rate form of the exchange equation derived?" Tags="&lt;macroeconomics&gt;&lt;economic-growth&gt;&lt;quantity-theory-of-money&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10593" PostTypeId="2" ParentId="10592" CreationDate="2016-02-09T08:54:48.347" Score="2" Body="&lt;p&gt;Taking logs of the equation $MV=PY$ gives: $ln(M) + ln(V) = ln(P) + ln(Y)$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Next, differentiating with respect to time yields $\frac{dln(M)}{dt} + \frac{dln(V)}{dt} = \frac{dln(P)}{dt} + \frac{dln(Y)}{dt}$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or, using $\frac{dln(X)}{dt} = \frac{\dot{X}}{X}$, with $\dot{X} = \frac{dX}{dt}$, the derivative of a variable $X$ with respect to time, you can immediately derive $\frac{\dot{M}}{M} + \frac{\dot{V}}{V} = \frac{\dot{P}}{P} + \frac{\dot{Y}}{Y}$, which equals $\%\Delta M + \%\Delta V = \%\Delta P + \%\Delta Y$.&lt;/p&gt;&#xA;" OwnerUserId="6566" LastActivityDate="2016-02-09T08:54:48.347" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10594" PostTypeId="2" ParentId="10535" CreationDate="2016-02-09T09:58:52.113" Score="-1" Body="&lt;p&gt;The assumption almost never holds. Not for televisions, nor pretty much any other consumer durable (nor wheat, but that's not a consumer durable anyway).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's a simplifying assumption that's used to make a particular problem easier to solve.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But in reality, the market changes continuously; furthermore there are often oligopolistic forces at play.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The least that should be done, when making the assumption, is to include a discussion about the possible implications on ones results, when the assumption does not hold. One could also do a sensitivity test with and without the assumption; and/or cite other studies that have gone deeper into the implications of using the assumption.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Classical economics has a long, disreputable history of making big claims on the basis of invalid assumptions. It's down to us to change these bad habits.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2016-02-09T09:58:52.113" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10595" PostTypeId="2" ParentId="6270" CreationDate="2016-02-09T13:17:13.673" Score="1" Body="&lt;p&gt;In the &lt;a href=&quot;http://replication.uni-goettingen.de&quot; rel=&quot;nofollow&quot;&gt;ReplicationWiki&lt;/a&gt; (that I founded) you can find replication material for many methods. An overview of empirical studies that used instrumental variables (IV) can be found &lt;a href=&quot;http://replication.uni-goettingen.de/wiki/index.php/Instrumental_variable_%28IV%29&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;. It shows more than a hundred open access datasets for teaching IV regression. You can also see if replications are already known. If you only want cases with data and want to see what software was used you can &lt;a href=&quot;http://tinyurl.com/ReplicationWiki-instr-variable&quot; rel=&quot;nofollow&quot;&gt;use the search form like here&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is also information on replications of two studies mentioned above:&#xA;&lt;a href=&quot;http://replication.uni-goettingen.de/wiki/index.php/The_Colonial_Origins_of_Comparative_Development:_An_Empirical_Investigation:_Comment_%28AER_2012%29&quot; rel=&quot;nofollow&quot;&gt;A 2012 comment on &quot;The Colonial Origins of Comparative Development: An Empirical Investigation&quot; and a reply to it&lt;/a&gt;, and &lt;a href=&quot;http://replication.uni-goettingen.de/wiki/index.php/Does_Compulsory_School_Attendance_Affect_Schooling_and_Earnings%3F_%28QJE_1991%29&quot; rel=&quot;nofollow&quot;&gt;a replication of a part of the above mentioned study &quot;Does Compulsory School Attendance Affect Schooling and Earnings? (Angrist and Krueger (1991)&lt;/a&gt;. It uses a different methodology.&lt;/p&gt;&#xA;" OwnerUserId="7215" LastEditorUserId="7215" LastEditDate="2016-02-12T14:33:37.900" LastActivityDate="2016-02-12T14:33:37.900" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="10596" PostTypeId="1" CreationDate="2016-02-09T13:48:54.750" Score="1" ViewCount="23" Body="&lt;p&gt;Assume I have two integrated times-series A and B. I take log differences, that are stationary, and I compute the variance ratios for both time-series for several horizons k=2,...,n.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now I want to test whether the variance ratio with horizon, say k, for the time-series A is equal to the corresponding variance ratio for the time-series B.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know that $\sqrt(N)(VR(k)-1)$ is asymptotically normal with asymptotic variance that can be computed under either homoscedasticity or heteroscedasticity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My goal is the asymptotic distribution of $\sqrt(N)(VR_A(k) - VR_B(k))$. How do I derive it? Any reference or code?&lt;/p&gt;&#xA;" OwnerUserId="7056" LastEditorUserId="69" LastEditDate="2016-02-09T16:08:13.297" LastActivityDate="2016-02-09T16:08:13.297" Title="Test of two variance ratios being equal" Tags="&lt;time-series&gt;&lt;statistics&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10597" PostTypeId="1" CreationDate="2016-02-09T14:20:15.450" Score="3" ViewCount="233" Body="&lt;p&gt;I have a question on  the proof of &lt;em&gt;lemma 3.3&lt;/em&gt;: Let $g\in L_0$ satisfy $u \circ g = b$, $z\in Y$ satisfy $J(z)=0$ where $J$ satisfy &lt;em&gt;lemma 3.2&lt;/em&gt;, and let $f=\alpha g + (1-\alpha)z$. Then $u\circ f = \alpha u\circ g + (1-\alpha) u \circ z$. It is then stated that $\alpha u\circ g + (1-\alpha) u \circ z = \alpha b$. This implies that $u \circ z = 0$. Why is this the case?&lt;/p&gt;&#xA;" OwnerUserId="4688" LastActivityDate="2016-03-14T19:49:36.177" Title="Question about Gilboa and Schmeidler &quot;A Maxmin Expected Utility With Non-unique Prior&quot; 1989" Tags="&lt;mathematical-economics&gt;&lt;decision-theory&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10599" PostTypeId="2" ParentId="10578" CreationDate="2016-02-09T15:43:38.933" Score="1" Body="&lt;p&gt;There can be market imperfections if information is not passed on immediately - historically that definitely happened all the time before telecommunication was well established.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Furthermore, if they have sufficient control of the in- and outflows countries can fix exchange rates for their currency at rates different from those of the free market. That happened in many socialist countries. The free market exchange rate for the Eastern and Western German currencies was substantially different from what the official exchange rate that was used by Eastern German banks. After unification of the countries again an exchange rate that was different from the market rate was used for the monetary union.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In Cuba a convertible peso was introduced in 1994 with a fixed exchange rate with the US dollar internally. It cannot be traded outside of Cuba.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The currency crises in Mexico and Asia in the 90s, and in Argentina in 2001-02 are associated with attempts to fix exchange rates that were in conflict with the market rates.&lt;/p&gt;&#xA;" OwnerUserId="7215" LastActivityDate="2016-02-09T15:43:38.933" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10600" PostTypeId="1" CreationDate="2016-02-09T17:24:45.000" Score="3" ViewCount="358" Body="&lt;p&gt;The problem is simple, I'm not really sure of my answer though. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider an economy where there are two consumers and two goods:&#xA;$$U_1(x_{11}, x_{21}) = x_{11}$$ &#xA;$$U_2(x_{12}, x_{22}) = x_{22}$$ $X_1 = X_2 = R_2^+$&#xA;; $e_i ≥ 0, i = 1, 2.$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For what values of endowments does an equilibrium exist? What are the prices in the cases where an equilibrium does exist?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now we cant really use the tangency condition here to calculate the competitive allocation. Intuitively, it seems like there'd be an exchange of commodities. To me, it seems like there'd be different cases.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Case 1: Individual 1 has both $x_1$ and $x_2$, whereas individual 2 has only $x_2$. Since individual 1 only values $x_1$, the price of $x_1$ in this case would be 0, since he doesn't really need to trade. I'm not really sure how to calculate the price of $x_2$ though.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Case 2: Similarly, Individual 1 has some $x_1$ and no $x_2$. Individual 2 has some of both. In this case, price of $x_2$ should be zero, but again, not sure about the price for $x_1$. (I'm not really sure it matters though, since we usually always calculate relative prices)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Case 3: Both individuals have some quantity of both $x_1$ and $x_2$. In this case, the income from the excess of the commodity not required by the individual must be equal to the price of the commodity he needs to buy. The relative price in this case comes out to be $\frac{X-x_{11}}{x_{21}}$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does the answer make sense?&lt;/p&gt;&#xA;" OwnerUserId="4253" LastEditorUserId="4253" LastEditDate="2016-02-09T17:45:20.343" LastActivityDate="2016-02-09T17:45:20.343" Title="Calculating price in a pure exchange economy" Tags="&lt;utility&gt;&lt;general-equilibrium&gt;&lt;pareto-efficiency&gt;&lt;competitive-equilibrium&gt;" AnswerCount="0" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="10601" PostTypeId="2" ParentId="8285" CreationDate="2016-02-09T17:55:14.560" Score="4" Body="&lt;p&gt;For a &lt;a href=&quot;http://replication.uni-goettingen.de/wiki/index.php/Category:Article_methods_and_estimation&quot; rel=&quot;nofollow&quot;&gt;list of methods used in applied econometrics&lt;/a&gt; you can take a look at the &lt;a href=&quot;http://replication.uni-goettingen.de&quot; rel=&quot;nofollow&quot;&gt;ReplicationWiki&lt;/a&gt; (that I work on). Many of them have &lt;a href=&quot;http://tinyurl.com/ReplicationWiki-IV-data-code&quot; rel=&quot;nofollow&quot;&gt;data and code&lt;/a&gt; so you can easily try them out. (The example is with instrumental variables, replace this method in the search form with any other from the list to search for examples for them.)&lt;/p&gt;&#xA;" OwnerUserId="7215" LastEditorUserId="7215" LastEditDate="2016-02-12T16:51:06.350" LastActivityDate="2016-02-12T16:51:06.350" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10603" PostTypeId="1" CreationDate="2016-02-09T19:01:39.570" Score="4" ViewCount="292" Body="&lt;p&gt;&lt;a href=&quot;http://www.bloomberg.com/news/articles/2016-02-08/deutsche-bank-says-it-has-at1-payment-capacity-of-1-1-billion&quot;&gt;A recent article from Bloomberg&lt;/a&gt; states that Deutsche Bank's share price is less than half its theoretical liquidation value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;According to &lt;a href=&quot;http://www.investopedia.com/terms/l/liquidation-value.asp&quot;&gt;Investopedia&lt;/a&gt;, liquidation value is defined as:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The total worth of a company's physical assets when it goes out of business or if it were to go out of business.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This means, that the liquidation value does not include intellectual property, goodwill and brand recognition. Which would be reasonable factors why a share price can exceed the total worth of a company's physical assets.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, a company's total value, which includes intangible assets, is represented by the company's stock price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Wouldn't this imply that:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;If one bought all shares of Deutsche Bank and sold all its physical assets could make a fortune? (assuming that such action would not affect the share price)&lt;/li&gt;&#xA;&lt;li&gt;If a company's total value is less than that of its physical assets, the company's intangible assets are negative?&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;So the question that I would have asked is: &lt;em&gt;How is it possible, that the stock price of Deutsche Bank is less than half of the worth of its physical assets?&lt;/em&gt;&lt;/p&gt;&#xA;" OwnerUserId="7268" LastActivityDate="2016-07-18T16:36:20.253" Title="How can the share price of a company be less than its (theoretical) liquidation value?" Tags="&lt;banking&gt;&lt;stock-market&gt;" AnswerCount="3" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10604" PostTypeId="2" ParentId="10280" CreationDate="2016-02-09T19:09:25.593" Score="2" Body="&lt;p&gt;An indirect proof. Suppose&#xA;$$&#xA;x(p,w) = w\cdot x(p,1)&#xA;$$&#xA;does not hold. This is equivalent with stating&#xA;$$&#xA;U(x(p,w)) \neq U(w\cdot x(p,1)).&#xA;$$&#xA;(To be precise: $x(p,w)$ and $x(p,1)$ may be set valued. In this case we are talking about two elements at least one of which is not included in both sets.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Case 1. &lt;br&gt;&#xA;$$&#xA;U(x(p,w)) &amp;gt; U(w\cdot x(p,1))&#xA;$$&#xA;As $U$ is homothetic&#xA;$$&#xA;U(x(p,w)) =  U(w \cdot \frac{1}{w}\cdot x(p,w)) = w \cdot U(\frac{1}{w}\cdot x(p,w)).&#xA;$$&#xA;Using this we have&#xA;$$&#xA;w \cdot U(\frac{1}{w}\cdot x(p,w)) = U(x(p,w)) &amp;gt; U(w\cdot x(p,1)) = w\cdot U(x(p,1))&#xA;$$&#xA;and thus&#xA;$$&#xA;U(\frac{1}{w}\cdot x(p,w)) &amp;gt; U(x(p,1))&#xA;$$&#xA;However as $\frac{1}{w} \cdot x(p,w)$ is clearly an element of $B(p,1)$ this is impossible as $x(p,1)$ gives maximal utility in that budget set.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Case 2. &lt;br&gt;&#xA;$$&#xA;U(x(p,w)) &amp;lt; U(w\cdot x(p,1))&#xA;$$&#xA;As $w \cdot x(p,1)$ is clearly an element of $B(p,w)$ this is impossible as $x(p,w)$ gives maximal utility in that budget set.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus we have proven that&#xA;$$&#xA;U(x(p,w)) = U(w\cdot x(p,1))&#xA;$$&#xA;which is equivalent with&#xA;$$&#xA;x(p,w) = w\cdot x(p,1).&#xA;$$&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2016-02-09T19:09:25.593" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10606" PostTypeId="1" AcceptedAnswerId="10607" CreationDate="2016-02-09T22:43:44.787" Score="11" ViewCount="504" Body="&lt;p&gt;Quantitative Easing (QE) is the buying of bonds and other financial assets by the Central Bank with high-powered money, or money created by the CB for this purpose. &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Isn't this ad-hoc creation of money  the main ingredient for hyperinflation? &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Why hasn't there been a surge in inflation?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="118" LastEditorUserId="27" LastEditDate="2020-05-08T15:10:25.693" LastActivityDate="2020-05-08T15:10:25.693" Title="Why hasn't Quantitative Easing surged inflation, or caused hyperinflation?" Tags="&lt;central-banking&gt;&lt;quantitative-easing&gt;" AnswerCount="1" CommentCount="3" FavoriteCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="10607" PostTypeId="2" ParentId="10606" CreationDate="2016-02-10T00:48:40.780" Score="11" Body="&lt;p&gt;High-powered money is another term for the monetary base or MB.  MB represents all money created by the government.  However, that is not all the only source of money.  Banks are allowed to create money too.  Which is why higher aggregates like M2 and M3 are greater than MB.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Because bank money is greater than government money, it (and not MB) is more of a primary determinant to monetary inflation.  Pretend there is an economy of blue dollars and yellow dollars.  The blue are created by the government and the yellow by banks.  There are many more yellow dollars than blue dollars.  So when the supply of blue dollars goes up it doesn't matter as much because of the number of yellow dollars.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Bank money was being destroyed in the crisis which was actually creating deflationary pressures.  The collapse in higher monetary aggregates was offset somewhat by the surge in the monetary base.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now typically base money is used to create and leverage higher aggregates, but this was not the case during the crisis.  Because of liquidity concerns, banks curtailed monetary creation so this is why inflation did not happen.&lt;/p&gt;&#xA;" OwnerUserId="6479" LastActivityDate="2016-02-10T00:48:40.780" CommentCount="10" ContentLicense="CC BY-SA 3.0" />
  <row Id="10608" PostTypeId="2" ParentId="10603" CreationDate="2016-02-10T00:56:27.097" Score="3" Body="&lt;p&gt;A company can have a positive book value and still be in trouble because of insolvency.  This is very common with banks.  Banks operate by borrowing short term to buy long term assets.  This is inherently risky and vulnerable to a liquidity crisis.  A bank can show a profit and positive book value and still be in a world of trouble.  If investors feel that a bank will not be able to rollover their short term debt, then the bank will be in trouble.  Selling their long term assets will not be the answer because long term assets are by their very natural not very liquidable.  You can never trust a bank's balance sheet nor their income statement.  A more accurate assessment of a bank would be of their cashflow, maturity mismatching and credit rating.&lt;/p&gt;&#xA;" OwnerUserId="6479" LastActivityDate="2016-02-10T00:56:27.097" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10609" PostTypeId="2" ParentId="10526" CreationDate="2016-02-10T01:13:50.383" Score="0" Body="&lt;p&gt;Not all interest rates are equal.  The interest rate by which banks lend each other reserves for short periods of time does in no way have to correlate to other interest rates.  Banks are special!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To understand banking, you have to understand maturity mismatching.  Banks create liquidity/money by borrowing short term and lending long term.  So if there is one billion dollars in the banking system, this allows say the banks to create 10 billion in bank deposits and loans.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To finance this, banks require base money.  This they acquire from each other, deposits and from special banks called primary dealers.  When the rate at which banks lend each deviates from the target Fed Funds rate, the Fed buys or sells repos to primary dealers in the hope they will buy or sell with the rest of the banking system and the target Fed Funds rate will be achieved.  So say the Fed has a target Fed Funds rate of 100%.  This means they will not create more money (the base money supply) while banks are lending each other loans that are under this rate.  On the flip side, if the target Fed Funds rate is 0%, the Fed will be constantly creating MB and using it to buy bank assets.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Base money can be thought of as a loan with an infinitely small maturation.  In reality banks operate by dealing with longer term loans that still are mismatched with even longer term assets.  So if a bank creates a 3 month debt, balanced by a five year credit they are creating liquidity or money as well.  The extent to which this happens is difficult to quantify but is best conceptualized by time difference between loans and assets in the aggregate.  Higher interest rates, will hinder a banks ability to create liquidity (or higher monetary aggregates) which will relatively reduce the money supply.&lt;/p&gt;&#xA;" OwnerUserId="6479" LastActivityDate="2016-02-10T01:13:50.383" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10610" PostTypeId="2" ParentId="10603" CreationDate="2016-02-10T02:29:59.617" Score="2" Body="&lt;p&gt;One way this can happen is if the firm's leadership is in a position to prevent liquidation. This happens a lot in closed end mutual funds. The mutual funds are worth less than liquidation value because the managers of the fund are in a position to block the liquidation and have an incentive to do so in order to protect their fees. See &lt;a href=&quot;http://www.jstor.org/stable/2978326?seq=2#page_scan_tab_contents&quot; rel=&quot;nofollow&quot;&gt;Discounts and Premiums on Closed-End Mutual Funds: A Study in Valuation by Kenneth J. Boudreaux for a detail exploration of this topic&lt;/a&gt;, though he finds that the fees are too small for this to be a plausible explanation for observed discounts below liquidation. &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2016-02-10T10:22:00.667" LastActivityDate="2016-02-10T10:22:00.667" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10611" PostTypeId="1" CreationDate="2016-02-10T08:05:17.993" Score="5" ViewCount="332" Body="&lt;p&gt;Some friends and I have been discussing, speculatively, what might happen in the future after technology/increased automation greatly reduces the need for human labor.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Marxists / leftists among us think that there will be a coming class conflict as more and more of the productivity gains from automation are captured by an elite, and that there will be a widespread political push from the left for something approaching a basic income.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Other, less left-leaning folks among us worry that there will be a collapse in aggregate demand as the purchasing power of a sizable, jobless part of the labor market essentially exits the economy. How government might respond to that is unclear.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have the equivalent of an undergrad degree in economics and figured that there had to be some good discussion out there. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can anybody point me to any papers or extended discussions of this topic?&lt;/p&gt;&#xA;" OwnerUserId="7276" LastEditorUserId="2776" LastEditDate="2017-02-08T09:48:21.680" LastActivityDate="2017-02-08T22:12:01.173" Title="Reference request on &quot;post-scarcity&quot; economics?" Tags="&lt;macroeconomics&gt;&lt;reference-request&gt;&lt;labor-economics&gt;" AnswerCount="4" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="10612" PostTypeId="2" ParentId="10539" CreationDate="2016-02-10T08:52:00.967" Score="2" Body="&lt;p&gt;In optimal control theory there is the &lt;strong&gt;Hamilton–Jacobi–Bellman (HJB)&lt;/strong&gt; equation which per se is a PDE.&#xA;(As usual when it comes to advanced Math in conjecutre with Econ) It's more like a cooking recipy to solve PDE's. The HJB equation is both necessary and sufficient for an optimum.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Optimal control is virtually used in all fields of micro (and thus HJB as well). In macro it's usually applied when it comes to micro-foundations. The ramsey(-cass-koopmans) model for instance (I've seen that adressed with HJB equations as well).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another sub-field where PDEs are typically solved is &lt;strong&gt;Differential Game Theory&lt;/strong&gt; (which goes somewhat in a pure math direction but for instance has applications in Industrial Organization). See &lt;a href=&quot;https://www.math.psu.edu/cim/lecturenotes/game-lnew.pdf&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt; for instance for an intro. That's absolutely not my field but one famous guy of whom I know that uses that in IO is Luca Lambertini.&lt;/p&gt;&#xA;" OwnerUserId="4087" LastEditorUserId="4087" LastEditDate="2016-02-10T18:34:14.227" LastActivityDate="2016-02-10T18:34:14.227" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="10614" PostTypeId="2" ParentId="10611" CreationDate="2016-02-10T11:14:41.590" Score="1" Body="&lt;p&gt;&lt;br&gt; I think now everybody is only guessing what will happen, because we are talking about things in the far future (at least 10-15 years or more). &lt;br&gt; I think the same will happen as when other new technologies / machines came [at least in long term]: one part of the jobs will disappear for many humans, but new jobs will be created by the new technologies (for example there will be more programmers and less book-keepers, etc). I can suggest you two links arbitrary, but there are much more articles and researches...&lt;br&gt; &lt;a href=&quot;http://www.pewinternet.org/2014/08/06/future-of-jobs/&quot; rel=&quot;nofollow&quot;&gt;http://www.pewinternet.org/2014/08/06/future-of-jobs/&lt;/a&gt; &lt;br&gt; &lt;a href=&quot;https://www.technologyreview.com/s/515926/how-technology-is-destroying-jobs/&quot; rel=&quot;nofollow&quot;&gt;https://www.technologyreview.com/s/515926/how-technology-is-destroying-jobs/&lt;/a&gt; &lt;br&gt;Otherwise, I think, if the changes were too dramatic, politics would try to slow it down. Else there would be too many angry people. :-)&lt;/p&gt;&#xA;" OwnerUserId="7193" LastEditorUserId="7193" LastEditDate="2016-02-10T15:01:04.947" LastActivityDate="2016-02-10T15:01:04.947" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="10615" PostTypeId="1" CreationDate="2016-02-10T13:13:07.423" Score="1" ViewCount="524" Body="&lt;p&gt;My understanding is that the price of a stock at the stock exchange is determined by supply demand mechanics during trading hours, and the price of futures is determined by the price of the underlying stock. In effect its the price of the underlying stock that controls the price of the future(Black–Scholes model) The price of the stock-future is strongly coupled to the price of the underlying stock price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider the commodity exchange where the  futures price of a commodity is determined by supply demand during trading hours and is not directly determined by the real price(current price of commodity available to the public).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Contrast the scenario at the stock exchange with that of the commodity exchange. As an example, if the current real price of copper is Rs 340 per kg in the shops. The price of the copper futures is in no way directly determined by real price of the commodity the way the price of a stock-future is determined by the underlying stock. Hence the futures price of commodity is weakly coupled to the real price of that particular commodity. Hence it may be said that the price of commodity futures is much more volatile/speculative in nature than price of a stock future. Correct me if my understanding is wrong. &lt;/p&gt;&#xA;" OwnerUserId="7279" LastEditorUserId="7279" LastEditDate="2016-02-10T15:49:31.017" LastActivityDate="2017-09-28T10:35:20.280" Title="Is trading in the commodity futures much more riskier than trading in stock market futures?" Tags="&lt;stock-market&gt;&lt;financial-markets&gt;&lt;commodities&gt;&lt;efficient-markets&gt;&lt;securities&gt;" AnswerCount="2" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="10617" PostTypeId="2" ParentId="10615" CreationDate="2016-02-10T16:26:33.010" Score="1" Body="&lt;p&gt;It does not make sense to compare a generic commodities future with a generic stock future, because neither of these things exist.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Different derivatives have different volatilities, that much is true. The Black-Scholes model enables one to quantify how much volatility is priced into a derivative, as long as you know the price of the derivative, the timescale involved, the risk-free interest rate, and the price of the underlying instrument.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2016-02-10T16:26:33.010" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10618" PostTypeId="1" CreationDate="2016-02-10T17:49:57.350" Score="7" ViewCount="3335" Body="&lt;p&gt;could you please help me to understand when I should use either white or newey-west standard erros?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I do work with time-series data. I look at both contemporaneous and intertemporal realtionships. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My understanding is that NW s.e. are appropriate when I look at an intertemporal realtionship and one variable is constracted using overalapping observations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;example I have y(t) and x(t) for t=1,...,T.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I construct y3(t) as y(t) + y(t+1) + y(t+2) for t=2:T-2, and then I regress y3(t+1) on x(t).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For this kind of regressions, it is common to use NW s.e., in particular if x is highly persistent.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can you please help me to understand more in general how to choose between White and NW s.e. (or other s.e. appropriate for time-series analysis)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks a lot!&lt;/p&gt;&#xA;" OwnerUserId="7056" LastActivityDate="2016-03-11T23:25:10.140" Title="White versus Newey-West standard errors" Tags="&lt;econometrics&gt;&lt;time-series&gt;&lt;statistics&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10619" PostTypeId="5" CreationDate="2016-02-10T18:19:30.303" Score="0" Body="&lt;p&gt;Questions concerning the replication of specific studies, methodology of replication, publication of replication studies, standards for data and code documentation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;External sources:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://replication.uni-goettingen.de&quot; rel=&quot;nofollow&quot;&gt;ReplicationWiki&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://biblio.repec.org/entry/ada.html&quot; rel=&quot;nofollow&quot;&gt;RePEc bibliography on replication in economics&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="7215" LastEditorUserId="7215" LastEditDate="2016-02-16T15:28:51.710" LastActivityDate="2016-02-16T15:28:51.710" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10620" PostTypeId="4" CreationDate="2016-02-10T18:19:30.303" Score="0" Body="For questions concerning the replication of studies, whether in the narrow sense of just trying to obtain the original results from the same sources, or in a wide sense, reviewing the same question with new data and/or methodology" OwnerUserId="7215" LastEditorUserId="7215" LastEditDate="2016-02-10T22:16:05.973" LastActivityDate="2016-02-10T22:16:05.973" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10622" PostTypeId="2" ParentId="10618" CreationDate="2016-02-10T20:14:17.477" Score="2" Body="&lt;p&gt;White standard errors correct for heteroscedasticity only, whereas Newey West standard errors are robust to both Heteorscedasticity and Autocorrelation (HAC) .&lt;/p&gt;&#xA;" OwnerUserId="5233" LastEditorUserId="5233" LastEditDate="2016-02-10T22:28:06.400" LastActivityDate="2016-02-10T22:28:06.400" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10623" PostTypeId="2" ParentId="10164" CreationDate="2016-02-10T22:01:41.197" Score="1" Body="&lt;p&gt;The demand function does not say how much he's willing to pay for an additional amount dq. The demand function says: given the price of good is $p$, you will purchase $Q(p)$ of them. I think your confusion lies in the fact that it is possible to charge different prices for each unit of good. Notice that our theory is assuming one price, not multiple.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Moreover, the notion that consumer surplus measure the difference between what you paid and what you are willing to pay is completely false. Suppose the demand function is $Q(p)=-5p+100$. Suppose further that the price is $5$, so you would be purchasing at a quantity $75$. The consumer surplus is: $$CS=\int_0^5Q(p)dp=\int_0^5 -5p+100dp=562.5.$$ If interpreting it as the difference between what you paid and what you are willing to pay, we know that you are willing to pay $562.5+5\times75=937.5$ for $75$ units of them. In other words, you are willing to accept a price $937.5/75=12.5$. However, plugging this number into our demand function, we find that $Q(12.5)=37.5$, i.e. you are only willing to buy 37.5 units of the good, which clearly contradicts to our interpretation of consumer surplus.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a better treatment of consumer surplus, I would recommend you to consult advanced texts on microeconomics theory such as Mas-Colell's or Varian's more advanced book.&lt;/p&gt;&#xA;" OwnerUserId="4551" LastEditorUserId="4551" LastEditDate="2016-02-10T23:11:05.897" LastActivityDate="2016-02-10T23:11:05.897" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="10624" PostTypeId="1" AcceptedAnswerId="10630" CreationDate="2016-02-10T23:54:10.760" Score="1" ViewCount="668" Body="&lt;p&gt;I have the following preferences and I am wondering whether I could represent them by a utility function:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$R_1 \succ R_2$ &amp;lt;-&gt; $R_1\leq Q$ and $R_2 &amp;gt; Q$,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$R_1 \succ R_2$ &amp;lt;-&gt; $R_1 \leq Q$ and $R_2 \leq Q$ and $R_1&amp;gt;R_2$,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$R_1 \sim R_2$ &amp;lt;-&gt;  $R_1 &amp;gt; Q$ and $R_2 &amp;gt; Q$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;R is positive and real-valued, Q is kind of the &quot;threshold&quot; of R for the first criterion (below Q everything prefered to above Q). These are lexicographic preferences, right?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can't I represent these preferences by the utility function:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$U(R)=a+bR$ for $R\leq Q$ and positive a,b &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$U(R)=0$ otherwise ?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Because now &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$U(R_1)&amp;gt;U(R_2)$ &amp;lt;-&gt; $R_1 \succ R_2$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$U(R_1)=U(R_2)$ &amp;lt;-&gt; $R_1 \sim R_2$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, is it finally possible to represent lexicographic preferences by anon-continuous utility function?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks a lot for help!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Felix&lt;/p&gt;&#xA;" OwnerUserId="7288" LastActivityDate="2016-02-11T05:58:49.000" Title="Representing these lexicographic preferences by non-continuous utility function?" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;preferences&gt;&lt;decision-theory&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10625" PostTypeId="1" CreationDate="2016-02-11T00:59:18.750" Score="6" ViewCount="581" Body="&lt;p&gt;To me, it seems like gold is the ultimate example of something where the value should go down when the economy, stock market etc go down.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Just like Ferraris, and other frivolous consumer luxury goods, gold has almost no inherent value, beyond what we choose to assign to it. If the economy plummets, people will buy considerably fewer products that are made of gold, much like they will buy considerably fewer Ferraris.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why does gold's value increase when times are tough? Why do we not see trouble on the stock market lead to increased prices for consumer essentials such as grains, textiles etc - things that have almost no change in demand when there is a change in income because they have real value (stopping people dying).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Note&lt;/strong&gt;: Answers should be appropriate for countries that have left the gold standard. If there are any countries still on it, answers for those countries aren't what I am looking for.&lt;/p&gt;&#xA;" OwnerUserId="6459" LastEditorUserId="2776" LastEditDate="2017-09-18T12:33:04.270" LastActivityDate="2020-07-28T09:29:11.947" Title="Why is gold a safe haven investment?" Tags="&lt;financial-markets&gt;" AnswerCount="6" CommentCount="5" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10628" PostTypeId="1" CreationDate="2016-02-11T03:03:52.790" Score="2" ViewCount="493" Body="&lt;p&gt;I'm trying to construct a $4 \times4$ Normal-Form Game with two players, where each player has four strategies and it satisfies: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) The game has exactly 4 Nash Equilibria&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) All equilibria involve only pure strategies (meaning there's no mixed strategy Nash Equilibrium)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Could someone give an example of this kind of game, and explain briefly how you construct it? I'm not sure when a game has no MSNE but only the PSNE. Thanks a lot.&lt;/p&gt;&#xA;" OwnerUserId="7291" LastActivityDate="2016-02-11T20:33:27.007" Title="Construct a game with only pure strategy nash equilibrium" Tags="&lt;game-theory&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ClosedDate="2016-02-15T16:32:57.800" ContentLicense="CC BY-SA 3.0" />
  <row Id="10629" PostTypeId="1" CreationDate="2016-02-11T04:37:06.460" Score="5" ViewCount="1121" Body="&lt;p&gt;...when Engels Law, backed by a good amount empirical evidence, demonstrates that overall consumer preferences are not homothetic.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;See for example, &lt;a href=&quot;https://books.google.com/books?id=dQNMdIsFjrkC&amp;amp;pg=PR13&amp;amp;lpg=PR13&amp;amp;dq=engel+law+homothetic+preferences&amp;amp;source=bl&amp;amp;ots=q8eqx4w0WM&amp;amp;sig=lLvwgddZUHFqil7b2PammJdSgM8&amp;amp;hl=en&amp;amp;sa=X&amp;amp;ved=0ahUKEwjn2viYhvDKAhWEbT4KHW_rBU8Q6AEITTAH#v=onepage&amp;amp;q=engel%20law%20homothetic%20preferences&amp;amp;f=false&quot; rel=&quot;noreferrer&quot;&gt;Jorgenson (1997)&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="2759" LastEditorUserId="2759" LastEditDate="2016-02-11T15:44:11.023" LastActivityDate="2016-02-13T17:50:08.923" Title="Why do so many models assume homothetic preferences?" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;consumer-theory&gt;&lt;micro-data&gt;" AnswerCount="2" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="10630" PostTypeId="2" ParentId="10624" CreationDate="2016-02-11T05:58:49.000" Score="2" Body="&lt;p&gt;As @HRSE pointed out, your terminology is a bit misleading, and these preferences are not exactly what we refer to when we use the word 'lexicographic'. You might be tempted to consider every $R&amp;gt;0$ as a two-dimensional vector $R=(\mathbb{1}_{R \leq Q},R)$ and to apply the lexicographic order on these vectors, but I would say it is a bit unnatural since the two dimensions of the vector are not independent (you cannot vary the second freely without affecting the first).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That said, the usual observation that lexicographic preferences can be represented by a utility function (but not by a continuous utility function) applies to your case as well. The common feature of both situations is that preferences satisfy standard rationality requirements (weak order) but are discontinuous. You can refer to this question for a formal discussion of these issues:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://economics.stackexchange.com/questions/6889/lexicographic-preference-relation-cannot-be-represented-by-a-utility-function&quot;&gt;Lexicographic preference relation cannot be represented by a utility function&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="4667" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2016-02-11T05:58:49.000" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10635" PostTypeId="1" AcceptedAnswerId="10636" CreationDate="2016-02-11T15:05:02.557" Score="1" ViewCount="98" Body="&lt;p&gt;I need to interpret some empirical results telling me that firms (intended as profit-maximising entities) prefer to be controlled (e.g. through interlocking directorships) by smaller and less profitable companies. I couldn't find any piece of literature helping me in this sense. Do you have some advice on that? Any hint would be really appreciated. &lt;/p&gt;&#xA;" OwnerUserId="1505" LastEditorUserId="69" LastEditDate="2016-02-11T15:42:02.300" LastActivityDate="2016-03-12T16:34:47.290" Title="Causes of interlocking directorship connections between firms" Tags="&lt;microeconomics&gt;&lt;empirical-evidence&gt;&lt;firm&gt;&lt;micro-data&gt;&lt;corporate-governance&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="10636" PostTypeId="2" ParentId="10635" CreationDate="2016-02-11T15:29:05.370" Score="1" Body="&lt;p&gt;I've heard of this phenomenon but not for the reasons you suggest:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The largest corporations tend to have the most interlocks (Table 4).&#xA;  This may occur because the directors of the largest corporations are&#xA;  the most knowledgeable, the most capable, and the most accomplished&#xA;  men available. Other corporations would naturally seek their advice&#xA;  and would rather have them on their board than men of less ability.&#xA;  This may also occur, however, because of factors unrelated to&#xA;  managerial ability. The director of a giant corporation undoubtedly&#xA;  has more personal influence with other companies,  with potential&#xA;  investors, and with the government than the common man. Having the&#xA;  director from a large corporation on your board may also lead to&#xA;  profitable business with that corporation.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Dooley, P. C. (1969). &lt;a href=&quot;http://www.jstor.org/stable/1808960?seq=1#page_scan_tab_contents&quot; rel=&quot;nofollow&quot;&gt;The interlocking directorate&lt;/a&gt;. American Economic Review 59(3), 314–323&lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2016-02-11T15:29:05.370" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10637" PostTypeId="1" CreationDate="2016-02-11T20:33:11.990" Score="7" ViewCount="224" Body="&lt;p&gt;I don't get why central banks apply negative interest rates. They say that buy our bond and at the maturity, it will worth less than today. What is the policy outcome of such decision?&#xA;Why an investor still accepts this or is it just a mechanism to indirectly discourage bond sellings?&lt;/p&gt;&#xA;" OwnerUserId="4022" LastActivityDate="2016-09-21T19:53:33.780" Title="Why should I get a bond with negative interest instead of having a bank deposit account either zero interest or positive interest" Tags="&lt;monetary-policy&gt;&lt;interest-rate&gt;&lt;central-banking&gt;" AnswerCount="3" CommentCount="2" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10638" PostTypeId="2" ParentId="10628" CreationDate="2016-02-11T20:33:27.007" Score="4" Body="&lt;p&gt;This was cross-posted. See my answer to this question here:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://math.stackexchange.com/questions/1650075/construct-a-game-with-only-pure-strategy-nash-equilibrium&quot;&gt;https://math.stackexchange.com/questions/1650075/construct-a-game-with-only-pure-strategy-nash-equilibrium&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="2926" LastEditorUserId="-1" LastEditDate="2017-04-13T12:19:37.213" LastActivityDate="2016-02-11T20:33:27.007" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10639" PostTypeId="1" CreationDate="2016-02-11T20:50:50.240" Score="0" ViewCount="29" Body="&lt;p&gt;I am wondering if there is any work in search models that discusses firm behaviors. Most common search models that I am familiar with talk about the job seeker's threshold rule. Is there any model that discusses similar firm threshold rule, in investment in capital, effort etc. &lt;/p&gt;&#xA;" OwnerUserId="151" LastActivityDate="2016-09-04T21:20:11.867" Title="Search model with firm decision" Tags="&lt;search-and-matching&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10640" PostTypeId="1" CreationDate="2016-02-11T22:21:49.417" Score="0" ViewCount="18" Body="&lt;p&gt;As I understand it, some portion of the Greek sovereign debt has been converted into &quot;Euro swaps&quot;. Can someone explain in simple terms what that means? What debt was given to whom?&lt;/p&gt;&#xA;" OwnerUserId="1448" LastActivityDate="2016-02-11T22:21:49.417" Title="How does the euro swap for Greek debt work?" Tags="&lt;currency&gt;&lt;government-debt&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="10641" PostTypeId="2" ParentId="10639" CreationDate="2016-02-12T02:18:39.413" Score="2" Body="&lt;p&gt;&lt;strong&gt;The Neo-Schumpeterian literature&lt;/strong&gt; models firm behavior with &quot;an search and select&quot; approach. Nelson and Winter (2009) where the pioneers in the subject, it is a pleasant and interesting reading.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.hup.harvard.edu/catalog.php?isbn=9780674272286&quot; rel=&quot;nofollow&quot;&gt;Nelson, Richard R.; Winter, Sidney G. An evolutionary theory of economic change. Harvard University Press, 2009&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="6721" LastEditorUserId="2776" LastEditDate="2016-09-04T21:20:11.867" LastActivityDate="2016-09-04T21:20:11.867" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10642" PostTypeId="1" CreationDate="2016-02-12T03:17:08.027" Score="1" ViewCount="97" Body="&lt;p&gt;Why is the market for health care services is substantially different than the market for typical goods and services&lt;/p&gt;&#xA;" OwnerUserId="7300" LastActivityDate="2016-02-12T03:17:08.027" Title="difference between health care services and typical goods and services" Tags="&lt;financial-economics&gt;" AnswerCount="0" CommentCount="2" ClosedDate="2016-02-21T18:53:06.383" ContentLicense="CC BY-SA 3.0" />
  <row Id="10646" PostTypeId="2" ParentId="10629" CreationDate="2016-02-12T09:35:52.773" Score="7" Body="&lt;p&gt;Here a short answer: Homothetic, identical preferences have the modelling advantage that the distribution of income across individuals does not matter for aggregate demand. That is, if you want to study, let's say, monetary policy where you do not expect changes in the distribution of income to affect your policy recommendations, then this is a reasonable assumption to make. If you want to study questions where changes in the distribution of income have large impact on policy recommendation (e.g., optimal taxation) this may be a bad assumption.&lt;/p&gt;&#xA;" OwnerUserId="5635" LastActivityDate="2016-02-12T09:35:52.773" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="10647" PostTypeId="1" CreationDate="2016-02-12T10:52:59.937" Score="3" ViewCount="155" Body="&lt;p&gt;&lt;strong&gt;Setup&lt;/strong&gt; Say you have two types of workers, high and low. The share of low-types among the unemployed population is $P$. I want to find the job-finding rate for these types. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Matching&lt;/strong&gt; Matching is through an urn-ball model: Each unemployed has one single ball (application) that he tosses at random into an urn (vacancy). Each vacancy will then have $ x \in [0, \infty)$ many applications, mixed from both types. The vacancy will pick a high type (at random) whenever there is one, otherwise it will pick randomly among the whole (low-type) pool of its applicants. Denote by $g(x)$ the probability mass function of a vacancy having $x$ many  applications.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Job-finding rates&lt;/strong&gt; The average pool job-finding rate of each pool is equal to the likelihood of a specific unemployed of that pool of finding a job. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider the matching-rate of the low-types: Denote $P(M)$ probability of a specific low-type matching, $P(x_h = 0)$ the probability of a vacancy unconditionally having zero high-types. Then, the low-type's job-finding rate is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ P(M) P(x_h == 0| M) \frac{1}{E[x | x_h == 0 \wedge M]}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A specific low-type will only find a job if &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;he matches&lt;/li&gt;&#xA;&lt;li&gt;everyone where he matched was of the low-type (no high-type matched)&lt;/li&gt;&#xA;&lt;li&gt;and then, with the inverse rate of people that on average matched wherever he matched (if there's 10, he has a 1/10 chance of getting the job)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;That's at least what I thought. Denote $P(M) = 1$, people toss a ball that always lands in one urn. Say $g(x) = 1/4$ for $x\in [0, 3]$: The tossing is in a way that applications are equally distributed over vacancies with boundaries 0, 3.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ E[x | x_h == 0 \wedge M] = \sum_x P(x | x_h == 0 \wedge M) x \\&#xA;= \frac{1}{P(x_h == 0 \wedge M)}\sum_x P(x \wedge x_h == 0 \wedge M) x$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where we can rewrite &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ P(x_h == 0 \wedge M) = \sum_x P(x_h == 0 \wedge M \wedge x)\\&#xA;= \sum_x P(x_h == 0 | \wedge M \wedge x)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As I said, $P(M) = 1$, and $P(x_h == 0 | \wedge M \wedge x)$ is the binomial chance of drawing $0$ high-types out of $x-1$ applications with probability $1-P$. All sums start at $x=1$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With the numerical example I gave, and $P=0.5$, I have&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;E[x | x_h == 0 \wedge M] = 1.57&lt;/li&gt;&#xA;&lt;li&gt;P(x_h == 0| M) = 0.583&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;and the total job-finding rate of the low-type is roughly 0.371&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this the best way to proceed? I'm somewhat worried that my number is not clean (and I can't really represent it as a rational number), while the problem as I've set it up is pretty symmetrical. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Check using corner-case&lt;/strong&gt; When I set $P = 1$, the job-finding rate of the low-type becomes $0.5$. I think that's wrong, because 1/3 of applicants get a vacancy with 1 applicant, 1/3 with 2, and 1/3 with 3. That means, they have a 1/3(1+1/2 + 1/3) chance of matching, which is 11/18, roughly 0.6 - and not $0.5$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there a different test I could do, or a different (simpler?) way to calculate the job-finding rate of the low type? Is my expression just blatantly false?&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2016-02-12T17:53:51.917" LastActivityDate="2016-02-12T17:53:51.917" Title="Job-finding rate in an urn-ball model with types" Tags="&lt;labor-economics&gt;&lt;probability&gt;&lt;search-and-matching&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10648" PostTypeId="2" ParentId="10585" CreationDate="2016-02-12T11:43:23.067" Score="-1" Body="&lt;p&gt;Maybe it would be needed first of all to get ride of this:&lt;br&gt;&#xA;&lt;a href=&quot;http://www.paecon.net/PAEReview/issue63/Barzilai63.pdf&quot; rel=&quot;nofollow&quot;&gt;http://www.paecon.net/PAEReview/issue63/Barzilai63.pdf&lt;/a&gt;&lt;br&gt;&#xA;He claims to have demonstrated that &lt;em&gt;any&lt;/em&gt; calculus on a utility space, wether they cardinal, ordinal or expected, is logically inconsistent, mathematically &lt;em&gt;impossible&lt;/em&gt;:  &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;Abstract&lt;/strong&gt;&lt;br&gt;&#xA;  By formally defining the relevant mathematical spaces and models we show that the operations of addition and multiplication, and the concepts that depend on these operations, are not applicable on ordinal, cardinal, and expected utility. Furthermore, expected utility’s scale construction rule is self-contradictory.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="7209" LastEditorUserId="7209" LastEditDate="2016-02-12T11:52:56.600" LastActivityDate="2016-02-12T11:52:56.600" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10649" PostTypeId="1" AcceptedAnswerId="10650" CreationDate="2016-02-12T14:42:01.663" Score="8" ViewCount="13713" Body="&lt;p&gt;I recently heard that Deutsche Bank had &#xA;$72trillion of &quot;derivatives exposure&quot;, which &#xA;is many times greater then the entire German GDP.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now as I understand it, derivatives are essentially &#xA;just bets on the movement of assorted prices... &#xA;so I am assuming that &quot;derivatives exposure&quot; means&#xA;the total amount you would have to pay out if&#xA;you lost every single one of your bets. The &#xA;likelyhood of this scenario may of course be &#xA;vanishingly small, but presumably with &#xA;$72trillion of exposure, you wouldn't need &#xA;much of a losing streak in order to leave &#xA;you bankrupt.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So some people are saying - &quot;ooh this looks &#xA;scary, it could lead to disaster&quot;... but my &#xA;reaction is &quot;ooh this is scary... but why on &#xA;earth hasn't it led to disaster already?&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now I know there were multiple &#xA;disasters around 2007/8 already and derivatives &#xA;may have played a significant role in that... but&#xA;I'm referring to, lets say, the past five years. &#xA;How could Deutsche Bank have gotten to &#xA;$72trillion of exposure without blowing up &#xA;again? What kind of bets have they been doing&#xA;such that they &lt;em&gt;haven't&lt;/em&gt; had enormous losses?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;EDIT:&lt;/strong&gt; FYI this question has a followup &lt;a href=&quot;https://economics.stackexchange.com/questions/13094/could-massive-derivatives-exposures-at-banks-lead-to-disaster&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="5081" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2016-08-24T10:05:38.317" Title="Why hasn't massive derivatives exposures at banks already led to disaster?" Tags="&lt;banking&gt;&lt;regulation&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10650" PostTypeId="2" ParentId="10649" CreationDate="2016-02-12T15:41:00.303" Score="14" Body="&lt;p&gt;While gross notional exposures are huge, &lt;a href=&quot;https://www.linkedin.com/pulse/derivatives-banks-must-report-gross-notional-net-pascal&quot;&gt;net exposures at the banks are much smaller, on the order of 0.1 percent of gross exposures&lt;/a&gt;. Since most financial risk (but perhaps not operational risk) is proportional to net exposures this is a more sensible measure of total derivative risk at the banks. Since net exposures at the 6 banks with the largest derivative exposures circa 2014 were on the order of \$300 billion while their total assets were more than \$10 trillion, we may not have seen a disaster because the actual risk is appropriate to the scale of their broader operations. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is an example of how this works. At time 0 a bank does derivative trade with notional of 100 with A and collects the offer (or ask) price. That is, the bank sells the derivative to someone who wants to buy it. At time 1 a bank does derivative trade with B with notional of 100 and collects the bid price. That is, they buy the derivative from someone who wants to sell it. Total (gross) derivative exposure is 200, two derivative contracts each with an exposure of 100. However, net exposure is zero, and the bank keeps the spread as profit for its trouble. There is likely some remaining risk in the form of operations and credit risk, but this is what the spread and initial and variation margin are for. &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2016-02-14T13:37:20.423" LastActivityDate="2016-02-14T13:37:20.423" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10651" PostTypeId="2" ParentId="10649" CreationDate="2016-02-12T18:19:43.827" Score="3" Body="&lt;p&gt;As well as most of the positions being hedged, Big banks have large desks of mathematicians modelling these things. The sensitivity to first, second and cross derivatives of possible market moves are monitored, and the Value at Risk (a measure of Risk) is reported to markets and to regulators. Banks must hold capital (ie. allocated equity) against this risk. Value at Risk is measured according to historical simulation (both recent periods and last 'stressed' period) and/or fat-tailed correlated Monte Carlo simulation. If risk is increasing, banks will act to close out or hedge their positions. The major risk remains 'herd behaviour' - banks run to other banks to insure positions. However, this is somewhat limited with derivatives as much of the exposure is to other banks - if one financial institution is long another will be short. That's not to say there is no problem, just to say that the problem is different than that which one might expect from gross figures.&lt;/p&gt;&#xA;" OwnerUserId="7310" LastActivityDate="2016-02-12T18:19:43.827" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10653" PostTypeId="2" ParentId="6910" CreationDate="2016-02-12T19:34:47.873" Score="1" Body="&lt;p&gt;McDonald's is actually a real estate broker, not a fast food company.&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;For some time after his hire, Ray Kroc was struggling to make the business profitable. He wasn't bringing in enough revenue from his franchised restaurants. Part of his trouble was in getting the funds to pay for the land and the building for the restaurant. In order to maintain control over operations, Kroc needed to franchise one store at a time, rather than a whole slew of stores over a particular geographic zone, which is what other food chains did. Although other chains could attract big investors, the franchisees Kroc attracted didn't have the funds to pay for the land and the building.&lt;/p&gt;&#xA;&lt;p&gt;That all changed in 1956 when he hired Harry Sonneborn, who convinced him that the real money was in real estate. Sonneborn's idea was to have the McDonald's company lease a plot of land and the building for each restaurant. The company would then sublease to the franchisee who would run the restaurant. Sonneborn further developed the plan to eventually take out mortgages to own both the building and the land. Kroc soon established the Franchise Realty Corp. to find willing landowners.&lt;/p&gt;&#xA;&lt;p&gt;At first, McDonald's charged franchisees markups of 20 percent of lease costs, but it eventually increased this to 40 percent. Franchisees were responsible for insurance and taxes, ensuring a steady profit for the company as long as the restaurant stayed in business.&lt;/p&gt;&#xA;&lt;p&gt;But that's not all: The rent due to McDonald's could be even more if the restaurant was doing well. The franchisee had to pay either the stipulated lease markup or 5 percent of the sales -- whichever was higher. Kroc and Sonneborn also requested up-front security deposits from the franchisees. Unbeknownst to the franchisee, this capital would fund the opening of more restaurants. Overall, this created a symbiotic relationship between the franchisee and the company -- McDonald's Corp. had a vested interest in the ongoing success of its individual restaurants.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;&lt;a href=&quot;http://money.howstuffworks.com/mcdonalds2.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://money.howstuffworks.com/mcdonalds2.htm&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="7252" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2016-02-12T19:34:47.873" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10654" PostTypeId="1" CreationDate="2016-02-12T22:07:06.567" Score="0" ViewCount="31" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Romer equation 2.55 on the Diamond model, says:&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Let $s(r)$ being the fraction of income saved, $r$ the interest rate,$\rho$ the discount rate, and $\theta$ the household's willingness to shift consumption between periods, with&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;$$ s(r) = \frac{(1+r)^{(1-\theta)/\theta}}{ (1+\rho)^{1/\theta} + (1+r)^{(1-\theta)/\theta} } $$&#xA;  implies that saving is increasing in $r \iff (1+r)^{(1 - \theta)/\theta)}$ is increasing in r; equivalently $ds / dr &amp;gt; 0$ if $\theta &amp;lt; 1$&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Is the first statement related to monoticity?  Also, how to show this graphically, that is to show, $s(r)$ a function of $\theta$?  Considering this, plotting $(\theta, s(\theta, r=.1))$ I do not see a change at $\theta=1$, but when I graphed $(r, s(r))$ with values $\theta=0.5,$ and $\theta=1.5$ I saw the desired change in orientation.  Which way is right?&lt;/p&gt;&#xA;" OwnerUserId="5780" LastEditorUserId="5780" LastEditDate="2016-02-12T22:50:18.437" LastActivityDate="2016-02-13T01:28:57.723" Title="Saving increasing in interest rate" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10655" PostTypeId="1" CreationDate="2016-02-13T00:18:25.597" Score="1" ViewCount="39" Body="&lt;p&gt;The &lt;a href=&quot;https://en.wikipedia.org/wiki/Partial_least_squares_path_modeling&quot; rel=&quot;nofollow&quot;&gt;Partial least square structural equation modeling&lt;/a&gt; (PLS-PM, PLS-SEM) method to structural equation modeling allows estimating complex cause-effect relationship models with latent variables. This method seems quite popular in accounting, marketing, and management.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Do you know any good application in economics? Is this method reliable to get causal estimates?&lt;/p&gt;&#xA;" OwnerUserId="6168" LastActivityDate="2016-02-13T00:18:25.597" Title="Partial least square structural equation modeling" Tags="&lt;reference-request&gt;&lt;econometrics&gt;&lt;causality&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10656" PostTypeId="2" ParentId="10654" CreationDate="2016-02-13T01:28:57.723" Score="1" Body="&lt;p&gt;$$y = \frac {a(x)}{b+a(x)} \implies \frac{\partial y}{\partial x} = \frac{\partial y}{\partial a}\cdot \frac{\partial a}{\partial x}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\partial y}{\partial a} = \frac {b+a -a}{(b+a)^2} = \frac {b}{(b+a)^2} &amp;gt;0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;because in your case &quot;$b$&quot;$&amp;gt;0$,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;the sign of $\frac{\partial y}{\partial x}$ will be the same as the sign of $\frac{\partial a}{\partial x}$, which is what Romer is asserting.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\theta &amp;gt;1$ would make $\frac{\partial a}{\partial x} &amp;lt;0$, so &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\theta &amp;lt;1 \implies \frac{\partial a}{\partial x}&amp;gt;0\implies \frac{\partial y}{\partial x}&amp;gt;0$$&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2016-02-13T01:28:57.723" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10657" PostTypeId="1" AcceptedAnswerId="10658" CreationDate="2016-01-19T01:13:13.940" Score="4" ViewCount="36" Body="&lt;p&gt;As I understand it, a Nash Equilibrium is a fixed point in strategy profile space, in the sense that it is not to any individual player's advantage to deviate from said strategy profile.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there a name for the (slightly stronger) equilibrium condition whereby it is to every individual player's disadvantage to deviate from said strategy profile? If so, what is it?&lt;/p&gt;&#xA;" OwnerDisplayName="TLW" LastActivityDate="2016-02-13T10:22:38.990" Title="Name for a slightly-stronger than Nash Equilibrium?" Tags="&lt;game-theory&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="10658" PostTypeId="2" ParentId="10657" CreationDate="2016-01-19T02:09:29.857" Score="9" Body="&lt;p&gt;This is a strict Nash Equilibrium.&lt;/p&gt;&#xA;" OwnerDisplayName="frelk" LastActivityDate="2016-01-19T02:09:29.857" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10659" PostTypeId="1" CreationDate="2016-02-13T15:05:56.820" Score="1" ViewCount="115" Body="&lt;p&gt;&lt;a href=&quot;https://www.google.ru/search?biw=1366&amp;amp;bih=667&amp;amp;q=greece%20gross%20domestic%20product&amp;amp;stick=H4sIAAAAAAAAAOPgUeLQz9U3MDYtrNTSzk620s_JT04syczP0y8uAdLFJZnJiTnxRanpQCGr9JSC-Lz83My8xBwA24xOojkAAAA&amp;amp;sa=X&amp;amp;ved=0ahUKEwjYi_aVgfXKAhVmYZoKHaioCSgQtx8IkgEwEw&quot; rel=&quot;nofollow&quot;&gt;Here&lt;/a&gt; is the history of the Greek GDP. In 2004 year it was 239.7\$ billion, but in 2002 it was 157.7\$ billion. It grew by approximately 50%. How did it grow so fast?&lt;/p&gt;&#xA;" OwnerUserId="7320" LastEditorUserId="1601" LastEditDate="2016-02-13T16:29:17.663" LastActivityDate="2016-02-18T14:00:26.400" Title="Why did the Greek GDP grow so fast between 2002 and 2004?" Tags="&lt;gdp&gt;&lt;economic-growth&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10660" PostTypeId="1" AcceptedAnswerId="10661" CreationDate="2016-02-13T15:25:24.343" Score="0" ViewCount="363" Body="&lt;p&gt;I am having a problem determining &quot;which utility function is not like the rest.&quot; The following utility functions are: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U_1(x,y)=x^{2/3}y^{1/3}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U2(x,y)=3x^2*y+2$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U_3(x,y)=\frac{1}{3}\ln (x)+\frac{2}{3}\ln( y)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U_4(x,y)= 4\ln(x)+2\ln(y)-12$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So my general thought in approaching this question was to obtain the MRS for each of the functions. After doing this, however, I found U1 and U2 to have an MRS of -2y/x. However, I am having a much bigger problem differentiating U3 and U4. My intuition is that U4 would be equal to U1 and U2 because we value x twice as much as we value y. however, can anyone help out with the math?&lt;/p&gt;&#xA;" OwnerUserId="7227" LastEditorUserId="108" LastEditDate="2016-02-13T16:08:25.883" LastActivityDate="2016-02-14T09:00:58.787" Title="Microeconomics: Calculating and Comparing MRS for Various Utility Functions" Tags="&lt;microeconomics&gt;&lt;utility&gt;" AnswerCount="1" CommentCount="0" ClosedDate="2016-02-16T15:28:01.407" ContentLicense="CC BY-SA 3.0" />
  <row Id="10661" PostTypeId="2" ParentId="10660" CreationDate="2016-02-13T16:05:49.173" Score="2" Body="&lt;p&gt;The rule for differentiating a natural logarithm is&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;$$\frac{d}{dx}a\ln(x)=\frac{a}{x}$$&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;so&#xA;$$\begin{align}\frac{\partial{}}{\partial{}x}U_3(x,y)&amp;amp;=\frac{\partial{}}{\partial{}x}\left(\frac{1}{3}\ln(x)+\frac{2}{3}\ln(y)\right)\\&amp;amp;=\frac{1}{3}\frac{1}{x}\\&amp;amp;=\frac{1}{3x}.\end{align}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\begin{align}\frac{\partial{}}{\partial{}y}U_3(x,y)&amp;amp;=\frac{\partial{}}{\partial{}y}\left(\frac{1}{3}\ln(x)+\frac{2}{3}\ln(y)\right)\\&amp;amp;=\frac{2}{3}\frac{1}{y}\\&amp;amp;=\frac{2}{3y}.\end{align}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\text{MRS}=-\frac{\frac{\partial{}}{\partial{}x}U_3(x,y)}{\frac{\partial{}}{\partial{}y}U_3(x,y)}=-\frac{\frac{1}{3x}}{\frac{2}{3y}}=-\frac{y}{2x},$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I guess that by following this template you should be able to work out the other derivatives and the MRSs that you are looking for.&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2016-02-14T09:00:58.787" LastActivityDate="2016-02-14T09:00:58.787" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10662" PostTypeId="2" ParentId="10629" CreationDate="2016-02-13T17:01:52.567" Score="6" Body="&lt;p&gt;Let me answer the question by following @HRSE's explanation and recommending a good reading. &lt;a href=&quot;http://www.eco.uc3m.es/~desmet/trade/EKEconometrica2002.pdf&quot; rel=&quot;noreferrer&quot;&gt;Eaton and Kortum (Ecta, 2002)&lt;/a&gt; use homothetic preferences, a convenient assumption to get a tractable general equilibrium Ricardian model of trade. However, there is exhaustive evidence that the income elasticity of demand varies across goods and that this variation is economically significant. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.sas.upenn.edu/~afieler/Fieler_jmp.pdf&quot; rel=&quot;noreferrer&quot;&gt;Fieler (Ecta, 2011)&lt;/a&gt; follows Eaton and Kortum (2002) and makes substantial theoretical progress by introducing non-homothetic preferences. High income elasticity goods have a higher dispersion and are produced in high income countries. This higher dispersion leads to more trade among the high-income countries relative to low-income countries. The production side still assumes perfect competition.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Eaton, Jonathan, Kortum, Samuel, 2002. Technology, geography, and trade. Econometrica 70, 1741–1779.&lt;/li&gt;&#xA;&lt;li&gt;Fieler, Ana Cecília, 2011. Non-homotheticity and bilateral trade:   evidence and a quantitative explanation. Econometrica 79, 1069–1101.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="6168" LastEditorUserId="1601" LastEditDate="2016-02-13T17:50:08.923" LastActivityDate="2016-02-13T17:50:08.923" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10663" PostTypeId="1" AcceptedAnswerId="10666" CreationDate="2016-02-13T17:03:37.567" Score="1" ViewCount="215" Body="&lt;p&gt;We are given that $C$ is a function of $Y_D$ and $Y_D=Y-Y\tau$. What would be the total differential of $Y=C(Y_D)$?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So far I have the following:&#xA;$$ dY=C_{Y_D}(1-\tau)dY+C_{Y_D}(-Y)d\tau$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However I am not sure how to write this expression in terms of $C_Y$ and $C_{\tau}$. Where do I go from here? Is leaving the expression in terms of $C_{Y_D}$ appropriate?&lt;/p&gt;&#xA;" OwnerUserId="5987" LastActivityDate="2016-02-13T21:12:19.430" Title="Total Derivative and Composition" Tags="&lt;macroeconomics&gt;&lt;mathematical-economics&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="10664" PostTypeId="1" AcceptedAnswerId="10781" CreationDate="2016-02-13T18:10:50.477" Score="7" ViewCount="3085" Body="&lt;p&gt;The market demand function can be either concave or convex. I am looking for conditions under which a general market demand function can be considered convex.&#xA;For example would convex preferences or a concave utility function imply a convex market demand curve? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am not asking about the demand set, but rather the function.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have a hard time imagining a concave market demand function, but the literature often takes this possibility into account, leading me to believe that it cannot be ruled out without imposing further conditions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reason I'm having a hard time imagining concave functions is that when we maximize with a standard utility function, what will come out with typical functions is somthing like:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Cobb-Douglas: &lt;span class=&quot;math-container&quot;&gt;$X=(\alpha/(α+β)) M/2p$&lt;/span&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Perfect compliments (min): &lt;span class=&quot;math-container&quot;&gt;$X=αm/(βp1 + αp2)$&lt;/span&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Perfect Substitutes: &lt;span class=&quot;math-container&quot;&gt;$X=M/p$&lt;/span&gt;; where X is demand for some good, M is the budget, p the price (of good 1 or 2) and α and β are just utility parameters.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;which are all convex. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Further, since market demand is most often defined as the sum of individual demands (which above appear to be convex mostly) and the sum of convex functions is itself a convex function, then market demand should most often be a convex function it seems.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can a more general statement be made here about when the market demand curve is convex?&lt;/p&gt;&#xA;" OwnerUserId="5557" LastEditorUserId="5557" LastEditDate="2019-09-06T14:24:47.100" LastActivityDate="2019-09-08T22:16:03.403" Title="Convexity of the Market Demand Function" Tags="&lt;microeconomics&gt;&lt;utility&gt;" AnswerCount="3" CommentCount="2" FavoriteCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="10665" PostTypeId="2" ParentId="6886" CreationDate="2016-02-13T20:41:45.800" Score="1" Body="&lt;p&gt;$&#xA;\newcommand{\Cov}{\text{Cov}}&#xA;$&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;ul&gt;&#xA;  &lt;li&gt;Why can the $\beta_{asset}$ be seen as if the firm had been financed only with equity?&lt;/li&gt;&#xA;  &lt;/ul&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The general idea with regard to this question stems from a discussion about how equity is a residual claim. To go through this step-by-step, recall that the value of a firm is given by the discounted present value of its cash flows. Equity is a claim to whatever is left over after other financial claim-holders have been paid (e.g., debt).  In this way, equity can be viewed as a call option and debt can be viewed as a put option. (See &lt;a href=&quot;http://pages.stern.nyu.edu/~adamodar/New_Home_Page/lectures/opt.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; and &lt;a href=&quot;http://nitinranahome.blogspot.com/2013/02/debt-and-equity-valuation-using-option.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, if the firm was financed only by equity, then equity would be the claim to 100% of the cash flow. Thus, $\beta_{\text{asset}}$ in that case can be seen as the if the firm was only financed with equity.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;ul&gt;&#xA;  &lt;li&gt;We can measure the $\beta_{equity}$ by CAPM, but how can we measure $\beta_{debt}$?&lt;/li&gt;&#xA;  &lt;/ul&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;You say that you can measure $\beta_{\text{equity}}$ by CAPM. However, you can measure any cash-flow by CAPM---even debt. Since $V = D + E$, keep in mind that&#xA;$$&#xA;\Cov(X + Y, Z) = \Cov(X,Z) + \Cov(Y,Z).&#xA;$$&#xA;The problem, I guess, is that you need to know the distribution of debts cash flows. This depends on the face value of total debt and the distribution of the underlying cash flows. This can get especially complicated if you're thinking about considering a dynamic setting. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This question, I'm guessing, came from a discussion of the Modigliani-Miller theorem. Remember the idea behind Proposition 2. It's illustrated in the following graph:&#xA;&lt;a href=&quot;https://i.stack.imgur.com/owphI.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/owphI.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="59" LastActivityDate="2016-02-13T20:41:45.800" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10666" PostTypeId="2" ParentId="10663" CreationDate="2016-02-13T21:12:19.430" Score="1" Body="&lt;p&gt;$\newcommand{\pd}[2]{\frac{\partial #1}{\partial #2}}&#xA;\newcommand{\dd}{\, \mathrm{d}}$&#xA;How many arguments does $C$ have? If the only argument to $C$ is $Y_D$, then $C_Y$ and $C_\tau$ might not make sense.&#xA;I think it's easy to get yourself in trouble here. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose that $C$'s only argument is $Y_D$. Yet, we want to impose the restriction that $Y_D = Y(1-\tau)$. Well, as you wrote&#xA;\begin{align*}&#xA;\dd C = C_{Y_D} \dd Y = C_{Y_d} (1-\tau) \dd Y - C_{Y_D} Y \dd \tau&#xA;\end{align*}&#xA;is correct. But what is $C_Y$ and $C_\tau$? Well, technically, &#xA;$$&#xA;\pd C Y = \pd C \tau = 0.&#xA;$$&#xA;This is because $Y$ and $\tau$ do not directly affect $C$.&#xA;I guess what you have in mind is something similar to the following.&#xA;Suppose you define a function $f$ such that&#xA;$$&#xA;f(Y, \tau) = C(Y(1-\tau)).&#xA;$$&#xA;Then&#xA;\begin{align*}&#xA;f_Y &amp;amp;= \pd f Y = \pd C {Y_D} (1-\tau) \\&#xA;f_\tau &amp;amp;= \pd f \tau = -\pd C {Y_D} Y.&#xA;\end{align*}&#xA;So, really, $C_Y \neq f_Y$ and $C_\tau \neq f_\tau$, because $C_Y$ and $C_\tau$ are both equal to zero.&lt;/p&gt;&#xA;" OwnerUserId="59" LastActivityDate="2016-02-13T21:12:19.430" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10667" PostTypeId="1" CreationDate="2016-02-14T00:52:34.017" Score="2" ViewCount="232" Body="&lt;p&gt;Although the tax incidence is generally dependent on the nature of the elasticity of the demand or supply, in special scenarios can the producer take up the complete burden of the tax so that the price paid by the consumers does not change?&#xA;If this is possible does this mean that the supply curve is shifted in order to change the tax incidence?&lt;/p&gt;&#xA;" OwnerUserId="7323" LastActivityDate="2016-05-14T12:32:57.953" Title="Tax Incidence and distribution" Tags="&lt;supply-and-demand&gt;&lt;taxation&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10668" PostTypeId="1" AcceptedAnswerId="10680" CreationDate="2016-02-14T01:23:52.993" Score="1" ViewCount="1144" Body="&lt;p&gt;I mean, an Ordinary Demand Equation measures changes in quantity of X due to changes in price Px.  Engel Curve measures changes in quantity of X due to changes in income M.  But ODE has M in it's equation, and is simply just an algebraic variant of the Engel curve!&lt;/p&gt;&#xA;" OwnerUserId="7158" LastActivityDate="2016-02-14T21:54:38.327" Title="What is the difference between an Ordinary Demand equation and an Engel curve equation?" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;&lt;supply-and-demand&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10669" PostTypeId="1" AcceptedAnswerId="12200" CreationDate="2016-02-14T01:39:56.643" Score="6" ViewCount="1494" Body="&lt;p&gt;Since the concavity of the Engel Curve determines whether it is a necessity or luxury (i.e. how fast quantity demand changes in relation to changes in income), and since the second derivative of a Cobb-Douglas Engel Curve is 0, does that mean it is neither category?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit:  In simple terms, if an Engel Curve is a straight positively-sloped line, it is obviously a normal good.  But if the curve is represented by a function like so:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$I = 10 * P_x * x.$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then the curve is ambiguously sloped.  If the price of $x$ ($P_x$) happens to be greater than 1/10 then the good is a luxury, and vice versa for a good with $P_x &amp;lt; 1/10$.  But if it's ambiguous like this, then the second derivative (which indicates concavity and therefore what direction the curve is increasing/decreasing in) then is it impossible to tell?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For reference, this Engel Curve was derived from the Cobb-Douglas utility function:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$U(x,y) = x^{(1/10)}y^{(9/10)}.$&lt;/p&gt;&#xA;" OwnerUserId="7158" LastEditorUserId="6168" LastEditDate="2016-11-20T10:22:45.013" LastActivityDate="2016-11-20T10:22:45.013" Title="If the Engel Curve of a Cobb-Douglas utility function is positive and linear, than does that mean it is neither a necessity nor a luxury good?" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;&lt;supply-and-demand&gt;&lt;elasticity&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10671" PostTypeId="1" AcceptedAnswerId="10690" CreationDate="2016-02-14T05:37:31.563" Score="2" ViewCount="363" Body="&lt;p&gt;I know the average saving rate in the US is ~5%, but I'm curious about the distribution. An ideal answer would be a histogram with the data broken down by what proportion of population are saving at what percentage.&lt;/p&gt;&#xA;" OwnerUserId="176" LastEditorUserId="176" LastEditDate="2016-02-14T06:19:04.727" LastActivityDate="2016-02-15T11:33:46.500" Title="What does the distribution of the savings rate in America look like?" Tags="&lt;macroeconomics&gt;&lt;data-request&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10672" PostTypeId="2" ParentId="10385" CreationDate="2016-02-14T06:53:24.677" Score="1" Body="&lt;p&gt;These data are not publicly available. According to Section VI of &lt;a href=&quot;http://siteresources.worldbank.org/ICPINT/Resources/270056-1255977254560/121120_ICPDataAccessPrinciples&amp;amp;Procedures.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;this PDF&lt;/a&gt;, the more detailed the data, the more restricted they are. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the less restricted data, there is ostensibly some painful application process that researchers can go through in order to get access. But in practice, unless you're a big shot or someone who has connections with the World Bank, they will be reluctant to share the data with you. (That was my personal experience — I went through the whole long application process, there was some back and forth for about a month, and eventually they decided not to share the data with me.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And for the most heavily restricted data:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Access to Sub-National Data and Individual Price Observations with supporting metadata is restricted in general. However, users may address applications of access to these data directly to the countries in question.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerDisplayName="user18" LastEditorDisplayName="user18" LastEditDate="2017-07-05T01:43:24.507" LastActivityDate="2017-07-05T01:43:24.507" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10673" PostTypeId="2" ParentId="10667" CreationDate="2016-02-14T11:54:31.900" Score="1" Body="&lt;p&gt;There are two possible answers here, depending on whether you want to take a partial or general equilibrium setting. Note that the partial equilibrium analysis of tax incidence is only taught in undergraduate micro textbooks but is not considered a sensible approach in current research.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Partial Equilibrium: Suppose your supply is perfectly inelastic (for example a non-rival but excludable good which you produced last period) and demand is perfectly elastic (let's say another firm produces a perfect substitute with perfectly elastic supply sold at some price p). Then the producer will bear the full burden of the tax.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;General Equilibrium: In a general equilibrium setting, anything can happen. In response to a tax, both supply and demand curves may shift. However, in this case the standard definition of tax incidence is no longer meaningful. In such cases, researchers either calculate some loss function for each consumer or simply look at price changes to analyze tax incidence.&lt;/p&gt;&#xA;" OwnerUserId="5635" LastActivityDate="2016-02-14T11:54:31.900" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10674" PostTypeId="1" CreationDate="2016-02-14T12:10:41.113" Score="3" ViewCount="81" Body="&lt;p&gt;&lt;strong&gt;Setup&lt;/strong&gt; &lt;a href=&quot;http://www.jstor.org/stable/2297897&quot; rel=&quot;nofollow&quot;&gt;Blanchard-Diamond (1994)&lt;/a&gt; have a model where each unemployed has a single ball (application) that she tosses into urns (vacancies). With probability $a$ the application lands in the urn - the unemployed manages to fill out the form, and his application is &quot;valid&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Vacancies are open for a fixed period and then evaluate their application pool, leading to multiple applications per vacancy. Under some conditions, the distribution of applications per vacancy (denoted as $g(x)$) will be Poisson with expected value $au/v$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Firm-based job-finding rate&lt;/strong&gt; The number of matches is hence given by the measure of vacancies that have at least one application, times the number of vacancies&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$M = (1-g(0))v$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and the job-finding rate is given by&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ M/u = (1-g(0))v/u$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Unemployed-based job-finding rate&lt;/strong&gt; Instead of looking at the firms, one can look at the unemployed. As firms randomly draw from the pool of applicants, the average chance of an unemployed matching is the probability of matching times the inverse of the number of contestants that he will face:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ f = a\frac{1}{E[x | x &amp;gt; 0]} \\&#xA;= a\frac{1}{\frac{E[x]}{1-g(0)}}\\&#xA;= a\frac{1-g(0)}{au/v}\\&#xA;= (1-g(0))v/u$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which is turns out to be the same job-finding rate as calculated from the firm's perspective. This makes sense, as it needs to be an identity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Firm-state-based job-finding rate&lt;/strong&gt; Finally, to the part where I am struggling: An alternative way of computing this job-finding rate should be&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \tilde f = a \sum_{x=1}^\infty Prob(\text{applicant matches with firm with $x$ many applications} | \text{ she matched}) \frac{1}{x}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which basically has the same logic, but is more detailed. This is interesting when one wants to analyze the $x$-component to the job-finding rate (i.e.: How relevant are firms with 5 applicants to the job-finding rate). However, the probability appears to be complicated. How do I compute this job-finding rate?&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2016-02-16T12:26:44.853" LastActivityDate="2016-02-16T12:26:44.853" Title="Matching in Blanchard-Diamond (1994)" Tags="&lt;macroeconomics&gt;&lt;labor-economics&gt;&lt;search-and-matching&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10676" PostTypeId="1" CreationDate="2016-02-14T16:03:43.240" Score="2" ViewCount="157" Body="&lt;p&gt;One thing I've seen many on here whether life style is increasing or poor's wealth is, income inequality in terms of things like food, water, healthcare keep going up, but wages aren't keeping up.  This includes education sadly since if someone can't afford schooling, they can't escape poverty likely?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Have countries in the past ever faced these issues and solved them?  Is it possible for places like America these days?&lt;/p&gt;&#xA;" OwnerUserId="6258" LastActivityDate="2016-03-16T06:23:02.593" Title="Has income inequality ever been solved in societies in the past in terms of what people make to cost of living?" Tags="&lt;inequality&gt;&lt;wages&gt;&lt;minimum-wage&gt;&lt;basic-income&gt;&lt;living-cost&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="1" ClosedDate="2016-03-18T17:33:26.573" ContentLicense="CC BY-SA 3.0" />
  <row Id="10680" PostTypeId="2" ParentId="10668" CreationDate="2016-02-14T21:54:38.327" Score="2" Body="&lt;p&gt;Engel curve assumes the price is constant, and demand curve assumes income constant. There is only demand function, no engel curve equation or demand equation.&lt;/p&gt;&#xA;" OwnerUserId="4551" LastActivityDate="2016-02-14T21:54:38.327" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10681" PostTypeId="2" ParentId="10649" CreationDate="2016-02-15T00:11:25.883" Score="1" Body="&lt;p&gt;It comes down to net exposure (and hedging as much as you can). Simple example: hold 1 bond maturing in 3 years. Sell 1 future that delivers that 1 bond in 3 years. If you can't perfectly hedge (which does happen), you either have risk (the unhedged amount or security) or you over-hedge (because you have to hold something to offset your risk). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assuming not all things blow up together or blow together in harmony - your net exposure remains very small.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the above example, you make money on the bond coupon, and make money on selling the future. You are also guaranteed to dispose of the bond. You'll lose money if the bond defaults (early) as you still need to deliver it (or an equivalent) at the end of the period. &lt;/p&gt;&#xA;" OwnerUserId="7328" LastActivityDate="2016-02-15T00:11:25.883" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10682" PostTypeId="2" ParentId="10075" CreationDate="2016-02-15T00:39:08.140" Score="-1" Body="&lt;p&gt;You very often see Krugman an other economists imply that corporations holding cash is a bad thing or affects demand. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://krugman.blogs.nytimes.com/2011/07/02/cash-is-not-the-problem/?_r=0&quot; rel=&quot;nofollow&quot;&gt;http://krugman.blogs.nytimes.com/2011/07/02/cash-is-not-the-problem/?_r=0&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, you have to remember that Krugman is just stating his personal opinion. He does sometimes say things that contradict academic Keynesianism. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The fact that corporations hoard less cash during recessions doesn't necessarily contradict Keynesianism or New Keynesianism, but it does require these theories to explain why corporations behave this way (which the theorists have not attempted).&lt;/p&gt;&#xA;" OwnerUserId="8360" LastEditorUserId="8360" LastEditDate="2016-02-15T19:09:08.633" LastActivityDate="2016-02-15T19:09:08.633" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10683" PostTypeId="2" ParentId="10530" CreationDate="2016-02-15T00:43:18.013" Score="1" Body="&lt;p&gt;Getting rid of sanctions will boost the currency because it will allow Iran to export more oil, thus encouraging other countries to buy more rials. It also is a sign of stability, which further appreciates the currency.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, there is no way for you as an individual investor to know when this will take effect or whether it has been already priced in. So I wouldn't buy rials.&lt;/p&gt;&#xA;" OwnerUserId="8360" LastActivityDate="2016-02-15T00:43:18.013" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10685" PostTypeId="2" ParentId="10676" CreationDate="2016-02-15T00:53:25.387" Score="-3" Body="&lt;p&gt;Inequality is a vague and meaningless concept. Although it's possible to measure reported income and construct gini indices and so forth, these are mathematical abstractions orthogonal to reality.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, it's impossible to answer your question. I'm sure that there have been times in the past were some measure of wages increased slower than inflation and this was resolved through various means. However, ultimately its impossible to say what constitutes inequality and good solutions to address it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit: In case you're curious here is the top 1% income share in the great depression. As you can see income inequality went up after the new deal. It also began increasing after welfare in 1965.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.minnpost.com/sites/default/files/asset/1/1005sk/1005sk.gif&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.minnpost.com/sites/default/files/asset/1/1005sk/1005sk.gif&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/TyCKU.gif&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/TyCKU.gif&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="8360" LastEditorUserId="8360" LastEditDate="2016-02-15T06:01:38.847" LastActivityDate="2016-02-15T06:01:38.847" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10686" PostTypeId="2" ParentId="10671" CreationDate="2016-02-15T00:58:08.517" Score="0" Body="&lt;p&gt;About 90% of the population has very little or negative savings. The savings is driven by the upper middle class which typically saves 10% or so of pretax income. You can look at the net worth percentiles here to get a rough idea:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.shnugi.com/networth-percentile-calculator/&quot; rel=&quot;nofollow&quot;&gt;http://www.shnugi.com/networth-percentile-calculator/&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="8360" LastActivityDate="2016-02-15T00:58:08.517" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10687" PostTypeId="2" ParentId="10676" CreationDate="2016-02-15T01:53:03.270" Score="0" Body="&lt;p&gt;America has faced staggering income inequality during the Great Depression.&#xA;&lt;a href=&quot;https://i.stack.imgur.com/gjaXB.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/gjaXB.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://thinkprogress.org/economy/2014/03/31/3420998/wealth-inequality/&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://thinkprogress.org/economy/2014/03/31/3420998/wealth-inequality/&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In 1933 unemployment was 25%. President FDR's &quot;New Deal&quot; policies of fiscal stimulus, massive government spending on infrastructure, increased financial regulation and the creation of a social safety net (welfare, unemployment, pension) helped millions of people out of poverty and minimized the wealth gap. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Whether such a &quot;New Deal&quot; is politically feasible in today's America is debatable. We have to wait until November 3 to see who wins the election.&lt;/p&gt;&#xA;" OwnerUserId="1511" LastActivityDate="2016-02-15T01:53:03.270" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10688" PostTypeId="1" CreationDate="2016-02-15T09:25:47.043" Score="1" ViewCount="34" Body="&lt;p&gt;I was reading a document released by our Central Bank and I came across this line:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Finally, inflation in the items of daily use was much lower as&#xA;  compared to other items. The contribution of essential items of daily&#xA;  use was only 1.1 percentage points in the overall inflation of 4.5 %&#xA;  in FY15.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;What does this mean in very simple terms? How do I explain this to school going children, for example?&lt;/p&gt;&#xA;" OwnerUserId="7332" LastEditorUserId="2776" LastEditDate="2017-09-04T06:32:32.930" LastActivityDate="2017-09-04T06:48:14.317" Title="Inflation in items of daily use" Tags="&lt;inflation&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10689" PostTypeId="2" ParentId="10688" CreationDate="2016-02-15T09:52:02.810" Score="2" Body="&lt;p&gt;This means items of daily use did not experience price increases as much as items that are not of daily use.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's say half expenditures are on items of daily use. Then an increase of 2.2 percentage points will make these contribute 1.1 percentage points in total inflation. To make numbers match, the remaining 3.4 percentage points of total inflation must then have been contributed by a 6.8 percentage point price increase in items not of daily use.&lt;/p&gt;&#xA;" OwnerUserId="5635" LastActivityDate="2016-02-15T09:52:02.810" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10690" PostTypeId="2" ParentId="10671" CreationDate="2016-02-15T11:33:46.500" Score="3" Body="&lt;h2&gt;How much do people save?&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/hDLAJ.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/hDLAJ.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&#xA;&lt;a href=&quot;http://www.federalreserve.gov/econresdata/2014-report-economic-well-being-us-households-201505.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Report on the Economic Well-Being of U.S. Households in 2014, Board of Governors of the Federal Reserve System, p. 22&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2016-02-15T11:33:46.500" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10691" PostTypeId="1" AcceptedAnswerId="10692" CreationDate="2016-02-15T11:56:25.653" Score="7" ViewCount="1318" Body="&lt;p&gt;In my textbook, it's stated that:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;When $\epsilon &amp;lt; -1$, demand is elastic and raising price will result in smaller income, while lowering price will result in bigger income.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;When $\epsilon = -1$, demand is neither elastic nor inelastic and change in price won't      result in change in income.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;When $\epsilon &amp;gt; -1$, demand is inelastic and raising price will result in bigger income,                 while lowering price will result in smaller income.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;$\epsilon = \%\Delta Q / \%\Delta P$.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This is the exercise I found confusing:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Old price: 5&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;New price: 6&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Old quantity: 25&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;New quantity: 20&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Calculate elasticity&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This is my solution:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\% \Delta P = \frac{\text{new price } - \text{ old price}} {\text{old price}} = \frac{6 - 5} 5 = 0.2$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\%\Delta Q = \frac{\text{new quantity } - \text{ old quantity}} { \text{old quantity}} = \frac{20 - 25} {25} = -0.2$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\epsilon = \%\Delta Q / \%\Delta P = -0.2 / 0.2 = -1$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$$$&#xA;This is why I am confused:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\text{Old income} = \text{old price} \times \text{old quantity} = 5 \times 25 = 125$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\text{New income} = \text{new price} \times \text{new quantity} = 6 \times 20 = 120$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Old income does not equal new income even though elasticity is -1!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What am I doing wrong? Am I misunderstanding the textbook?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$$$&#xA;&lt;strong&gt;Edit:&lt;/strong&gt; the answer provided is $\epsilon = 1.22$ but I have no idea where it comes from.&lt;/p&gt;&#xA;" OwnerUserId="7333" LastEditorUserId="175" LastEditDate="2018-05-20T10:18:06.173" LastActivityDate="2018-05-20T10:18:06.173" Title="Elasticity of demand equals -1 but income decreases!" Tags="&lt;microeconomics&gt;&lt;elasticity&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="10692" PostTypeId="2" ParentId="10691" CreationDate="2016-02-15T12:32:25.467" Score="9" Body="&lt;p&gt;We discourage numeric questions as they are unlikely to be useful for future visitors but this is a very good example of why using non-marginal quantities can be misleading.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The exact definition of the price elasticity of demand is&#xA;$$&#xA;\epsilon(p) = \frac{d D(p)}{d p} \cdot \frac{p}{D(p)}.&#xA;$$&#xA;(In your notation $D(p) = Q$.) &lt;br&gt;&#xA;By straightforward calculation you can show&#xA;\begin{eqnarray*}&#xA;\max_p &amp;amp; &amp;amp; p \cdot D(p) \\&#xA;\\&#xA;p \cdot \frac{d D(p)}{d p} + D(p) &amp;amp; = &amp;amp; 0 \\&#xA;\\&#xA;p \cdot \frac{d D(p)}{d p} &amp;amp; = &amp;amp; - D(p) \\&#xA;\\&#xA;\frac{p}{D(p)} \cdot \frac{d D(p)}{d p} &amp;amp; = &amp;amp; - 1 \\&#xA;\\&#xA;\epsilon(p)  &amp;amp; = &amp;amp; - 1.&#xA;\end{eqnarray*}&#xA;Whether a &lt;em&gt;marginal&lt;/em&gt; price change increases or decreases revenue when $\epsilon(p)  \neq - 1$ can be seen from a similar calculation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that the reasoning used above only stated that $D(p)$ reached its local maximum. It is possible that several local maxima exist and the global maxima is elsewhere.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So $\epsilon(p)  = - 1$ implies that the revenue cannot be increased by small (marginal) changes in $p$. So far I have used the concept of point elasticity. But your textbook uses arc elasticity, which measures non-marginal changes:&#xA;$$&#xA;\frac{\Delta Q}{Q} / \frac{\Delta p}{p}&#xA;$$&#xA;Some reasons to do this:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Arc elasticity can be measured empirically, point elasticity can only be approximated.&lt;/li&gt;&#xA;&lt;li&gt;In case of small changes the two should be reasonably close.&lt;/li&gt;&#xA;&lt;li&gt;Point elasticity requires some knowledge of calculus.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;There are however also some problems with this: &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;No guarantuees are made by the $\epsilon(p)  = - 1$ condition for non-marginal price changes.&lt;/li&gt;&#xA;&lt;li&gt;What base you should use for arc elasticity is not clear at all. You used&#xA;$$&#xA;\frac{Q_{new} - Q_{old}}{Q_{old}} \cdot \frac{p_{old}}{p_{new} - p_{old}}.&#xA;$$&#xA;Why is the old quantity and price the reference for the rate of change? Why is it not the new quantity and price&#xA;$$&#xA;\frac{Q_{new} - Q_{old}}{Q_{new}} \cdot \frac{p_{new}}{p_{new} - p_{old}}&#xA;$$&#xA;or the average of the two&#xA;$$&#xA;\frac{Q_{new} - Q_{old}}{\frac{Q_{new} + Q_{old}}{2}} \cdot \frac{\frac{p_{new} + p_{old}}{2}}{p_{new} - p_{old}}?&#xA;$$&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;These bases give you different values for arc elasticity. The second base gives you $1.2\dot{2}$ so it seems to be the one your textbook expects. I guess it is best if you see the difference between point elasticity that is used by the rule and arc elasticity. Other than this you have to ask your professor what definiton of elasticity she/he expects you to use.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2017-09-25T07:38:21.773" LastActivityDate="2017-09-25T07:38:21.773" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10693" PostTypeId="1" CreationDate="2016-02-15T15:04:54.807" Score="6" ViewCount="324" Body="&lt;p&gt;I want to know about Negative Interest Rate. What it is? Is it good or bad? How it affects economy and thus general people?&lt;br&gt;&#xA;I have been reading these words a lot lately in business news...&lt;/p&gt;&#xA;" OwnerUserId="7334" LastActivityDate="2016-05-26T14:31:00.207" Title="What is Negative Interest Rate?" Tags="&lt;interest-rate&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="10694" PostTypeId="2" ParentId="10691" CreationDate="2016-02-15T17:10:29.547" Score="3" Body="&lt;p&gt;The point elasticity of a function with respect to its argument, is useful mainly to characterize some specific point of interest, for example the profit maximizing point of a monopolist (where we learn that the point elasticity has to be greater than unity in absolute terms, see &lt;a href=&quot;https://economics.stackexchange.com/a/1728/61&quot;&gt;this post&lt;/a&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But when discrete changes are considered, the point elasticity is at best an approximation, and we are into trouble anyway, since the &quot;intuitive&quot; approach to consider the elasticity as being &quot;percentage change over percentage change&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\varepsilon_{q,p} = \frac {\%\Delta q(p)}{\%\Delta p} = \frac {(q_1-q_0)/q_0}{(p_1-p_0)/p_0} \tag{1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(and which is what the OP attempted), has the problem of &lt;em&gt;not being symmetric&lt;/em&gt; : if we consider moving from $q_1$ to $q_0$ (instead of moving from $q_0$ to $q_1$), we will obtain a different value using $(1)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is why the &lt;em&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Arc_elasticity&quot; rel=&quot;nofollow noreferrer&quot;&gt;arc elasticity&lt;/a&gt;&lt;/em&gt; was devised which divides each interval of change by its mid-point, rather than its boundary:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\text {Arc} \;\varepsilon_{q,p}=\frac {\frac{(q_1-q_0)}{(q_1+q_0)/2}}{\frac{(p_1-p_0)}{(p_1+p_0/2}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;See &lt;a href=&quot;https://economics.stackexchange.com/a/4602/61&quot;&gt;this post&lt;/a&gt; also, on Arc elasticity and its properties.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Applying the Arc elasticity on the specific numerical problem, gives indeed $1.22$ (in absolute terms), which is the answer provided.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that this measure also calculates correctly the change in Total Revenue. Using the Difference operator $\Delta$ we have that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Delta (pq) = \Delta p \cdot q + \Delta q \cdot p$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies \frac {\Delta (pq)}{pq} = \frac {\Delta p}{p} + \frac {\Delta q}{q}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies \frac {\Delta (pq)}{pq} = \frac {\Delta p}{p} \cdot \Big [1+\frac {\Delta q/q}{\Delta p/p}\Big]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Using the mid-point calculations associated with the arc-elasticity we obtain for the specific numerical example,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\Delta (pq)}{pq} = \frac {1}{5.5}\cdot  [1-1.22] = -0.04$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And indeed, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {120-125}{125} = \frac {5}{125} = -0.04$$&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2016-02-16T03:54:45.193" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10696" PostTypeId="1" CreationDate="2016-02-15T21:21:37.327" Score="1" ViewCount="451" Body="&lt;p&gt;I am given a utility function $U(x,y)$, income $I$ and prices $p_x,p_y$. Then the price of $y$ rises to $p_y' = 3 \cdot p_y$. How are we supposed to calculate the substitution effect and income effect on the demand for x?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I performed a standard Slutsky decomposition, but I mistakenly began with the precondition $x_0 = x_1$.  Of course, this meant that the $∆x^s$ and $∆x^i$ were all screwed up (there would be no intermediary step if the beginning and end were the same).  I know that substitution/income effects are calculated from &lt;strong&gt;relative&lt;/strong&gt; price changes, so would an alternate approach be to treat the tripling of $p_y$ as equivalent to multiplying $p_x$ by $1/3$?  And then simply proceeding from there?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit: Due to popular demand, here is a rephrasing of the essence of my question:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How is a Slutsky/Hicksian decomposition calculated under a cross price change ($p_y$ changes, affecting $x$, for example.)?  An algebraic walkthrough given a Utility function: $x^{a}y^{1-a}$ and a budget line $P_xX+P_YY = I$, and a given $I_0$ would be helpful.&lt;/p&gt;&#xA;" OwnerUserId="7158" LastEditorUserId="7158" LastEditDate="2016-02-16T01:08:56.537" LastActivityDate="2016-02-16T01:08:56.537" Title="Calculating a cross price substitution/income effect" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;&lt;supply-and-demand&gt;&lt;consumer-surplus&gt;" AnswerCount="0" CommentCount="13" ContentLicense="CC BY-SA 3.0" />
  <row Id="10697" PostTypeId="2" ParentId="10693" CreationDate="2016-02-15T22:25:25.107" Score="7" Body="&lt;p&gt;An interest rate is the percentage that is paid for borrowing money, and that one gets for lending. If it is negative that means you have to pay so that someone takes your money for a while. So how could that even work, why should anyone lend money under such conditions? Normal savers would just keep their money with them, even if that bears the risk that it might get stolen more easily than from a bank. What can however happen is that the real interest rate is lower than zero and people still keep their money at the bank. The real interest rate is the (nominal) interest rate minus inflation. In times of high inflation this can easily happen, and as you see here in the world bank data it frequently happens in many countries: &lt;a href=&quot;http://data.worldbank.org/indicator/FR.INR.RINR&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://data.worldbank.org/indicator/FR.INR.RINR&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In times of crisis and low inflation &lt;a href=&quot;https://en.m.wikipedia.org/wiki/Central_bank&quot; rel=&quot;nofollow noreferrer&quot;&gt;central banks&lt;/a&gt; can even lower the short term nominal deposit interest rate below 0 in order to give incentives to commercial banks to lend out money that because of mistrust they would otherwise rather just store at the central bank and wait for better times. There is no consensus if this is good or bad and if it works and how it affects the economy and the people. The European Central Bank adopted this strategy since mid 2014 because of the severe crisis, and the Japanese central bank followed in January 2016.&lt;a href=&quot;http://blogs.wsj.com/moneybeat/2016/02/10/how-low-can-rates-go-try-negative-4-5/&quot; rel=&quot;nofollow noreferrer&quot;&gt;(WSJ)&lt;/a&gt; The idea is to stimulate the economy, which should lower unemployment. It should also make the currency unattractive, so its value should decrease compared to others and that makes exports easier as long as other central banks do not do the same. Some say this goal can be achieved better with the negative interest rate than the goal to stimulate the economy via increased lending of commercial banks, and especially in smaller economies like Denmark, and Switzerland, the mechanism seems to have helped to protect companies from getting too much harmed by currencies getting too strong too quickly.&lt;a href=&quot;http://www.straitstimes.com/business/economy/danes-show-negative-rates-good-to-weaken-currency-but-bad-to-stimulate-economy&quot; rel=&quot;nofollow noreferrer&quot;&gt;(ST)&lt;/a&gt;&#xA;In March 2016, the European Central Bank even started to offer commercial banks a negative interest rate for loans, rewarding lenders.&lt;a href=&quot;http://www.nytimes.com/2016/03/11/business/international/ecb-draghi-europe.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;(NYT)&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are also bonds that have negative interest rates.&lt;a href=&quot;http://www.bbc.com/news/business-35755100&quot; rel=&quot;nofollow noreferrer&quot;&gt;(BBC)&lt;/a&gt; This phenomenon needs some additional explanation and has &lt;a href=&quot;https://economics.stackexchange.com/questions/10637/why-should-i-get-a-bond-with-negative-interest-instead-of-having-a-bank-deposit&quot;&gt;its own question here&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="7215" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2016-05-08T20:18:10.293" CommentCount="0" CommunityOwnedDate="2016-03-10T14:00:32.110" ContentLicense="CC BY-SA 3.0" />
  <row Id="10699" PostTypeId="1" CreationDate="2016-02-16T02:51:57.043" Score="1" ViewCount="824" Body="&lt;p&gt;I am currently taking an econometrics course, and the final assignment in that course is to write a research paper using econometric ideas. I have read Fama and French paper on the three-factor model and was impressed by the model. I would like to write my research paper using the same methodology for the Hong Kong stocks and see if I get the same results.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am wondering if it's possible for me to run regression using the same data sets that Fama and French used in the model on the U.S. stocks. It will help me to see if I am on the right track. If I get the same numerical values and results as theirs, it shows that I am doing it correctly. Then I can use the methodology to the Hong Kong stocks.&lt;/p&gt;&#xA;" OwnerUserId="7148" LastEditorUserId="2776" LastEditDate="2017-08-31T12:47:02.803" LastActivityDate="2017-08-31T22:46:31.737" Title="Question on Fama-French Three Factor model" Tags="&lt;econometrics&gt;&lt;data-request&gt;&lt;financial-economics&gt;" AnswerCount="2" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="10700" PostTypeId="1" CreationDate="2016-02-16T04:39:21.473" Score="2" ViewCount="85" Body="&lt;p&gt;What are some best practices for including the hidden costs of ecological disruption into economic decision making?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For instance, how can the cost-benefit of pollution be shifted toward conservation or remediation?  How can costs to the environment in terms of air emissions, coastal erosion, or forest destruction be quantified (absolutely or relatively) and be factored in to the costs of goods and services?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regulations/enforcement/fines?  Taxes?  Lawsuits?&lt;/p&gt;&#xA;" OwnerUserId="7342" LastEditorUserId="7342" LastEditDate="2016-02-16T04:51:29.263" LastActivityDate="2016-02-16T04:51:29.263" Title="What are the best ideas for ecological accountability / justice within capitalism?" Tags="&lt;microeconomics&gt;" AnswerCount="0" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="10701" PostTypeId="1" AcceptedAnswerId="10702" CreationDate="2016-02-16T08:30:09.927" Score="0" ViewCount="350" Body="&lt;p&gt;It's been awhile since I've taken introductory microeconomics. I read &lt;a href=&quot;https://books.google.com.ph/books?id=xeg8AAAAIAAJ&amp;amp;pg=PA46&amp;amp;lpg=PA46&amp;amp;dq=should+budget+lines+be+continuous&amp;amp;source=bl&amp;amp;ots=vhO9gmehqA&amp;amp;sig=kIXEcrjw99zsCW5CddRnEi5LzFM&amp;amp;hl=en&amp;amp;sa=X&amp;amp;ved=0ahUKEwjbmLWy7fvKAhWC3KYKHQpAAEoQ6AEIGTAA#v=onepage&amp;amp;q=should%20budget%20lines%20be%20continuous&amp;amp;f=false&quot; rel=&quot;nofollow&quot;&gt;budget lines can be discontinuous&lt;/a&gt; awhile ago but am suspicious as to such a concept being discussed in intro micro classes particularly calling them budget 'lines'.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;The problem:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Say Jill likes food and clothing. Jill has 200 to spend on food and clothing. One unit of food costs \$1 while one unit of clothing costs $2.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Budget line is 200=F+2C&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Say Jill receives an 80% discount on food but it applies up to 100 units.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;New budget line is 200=0.2F+2C for 0-100 then same as old for 100 onward?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So it's discontinuous? So it's not really a budget 'line' right (though piecewise, it's a line, I guess).&lt;/p&gt;&#xA;" OwnerUserId="4483" LastEditorUserId="4483" LastEditDate="2016-02-16T12:45:53.503" LastActivityDate="2016-02-16T12:45:53.503" Title="Can budget lines be discontinuous?" Tags="&lt;microeconomics&gt;&lt;optimization&gt;&lt;basic-income&gt;&lt;financial-constraints&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10702" PostTypeId="2" ParentId="10701" CreationDate="2016-02-16T09:03:24.210" Score="1" Body="&lt;p&gt;I guess the discount holds for the 100 first units of food even if she buys more than 100. Therefore the new budget line is&#xA;\begin{equation*}&#xA;\left\{&#xA;   \begin{array}{ll}&#xA;   &amp;amp; 200 = 0.2 F + 2C \text{ if } F &amp;lt; 100 \\&#xA;   &amp;amp; 200 = 0.2 \times 100 + F-100+2C \text{ otherwise }&#xA;   \end{array}&#xA;\right.&#xA;\end{equation*}&#xA;which is continuous.&lt;/p&gt;&#xA;" OwnerUserId="4667" LastActivityDate="2016-02-16T09:03:24.210" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10703" PostTypeId="2" ParentId="10674" CreationDate="2016-02-16T09:53:36.627" Score="2" Body="&lt;p&gt;The total number of matched applications is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\sum_{x=1}^\infty g(x)xv = E[x]v$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The number of applications matched with vacancies with $x$-many applications is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$g(x)xv$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Prob(\text{matching with x} | \text{matched} = \frac{g(x)x}{E[x]}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Using this in the equation in the question gives&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \tilde f = a \sum_{x=1}^\infty \frac{g(x)x}{E[x]}\frac{1}{x}\\&#xA;= E[x]a \sum_{x=1}^\infty g(x) \\&#xA;= \frac{v}{u} (1-g(0)) = f $$&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2016-02-16T09:53:36.627" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10704" PostTypeId="1" CreationDate="2016-02-16T11:07:14.500" Score="2" ViewCount="64" Body="&lt;p&gt;It's been awhile since I've taken introductory microeconomics. I remember increases in income move budget line outward. What if the increases have some condition?&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;The problem:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Jill has $I$ to spend on food and clothing. One unit of food costs $p_F$ while one unit of clothing costs $p_C$.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Budget line is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$I=p_FF+p_CC$$&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Say Jill receives a $V voucher for food. What is the new budget line?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;If the voucher was instead cash, we obviously have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$I+V=p_FF+p_CC \tag{*}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the voucher was really for food, we might not have $(*)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, I think we still have $(*)$ if:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$I &amp;gt; C' := (I+V)/p_C$ (the max that can be spent on clothing in $(*)$) because:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the voucher is for food, then no more than $I$ is allowed to be spent on clothing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, such constraint is redundant if $I&amp;gt;C'$ because we know we won't exceed $C'$ and thus we won't exceed $I$.&lt;/p&gt;&#xA;" OwnerUserId="4483" LastEditorUserId="4483" LastEditDate="2016-02-16T16:08:31.217" LastActivityDate="2016-02-16T16:08:31.217" Title="Does this conditional increase in income affect a budget line in the same way as an unconditional increase in income would?" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;&lt;optimization&gt;&lt;basic-income&gt;&lt;financial-constraints&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10705" PostTypeId="2" ParentId="1871" CreationDate="2016-02-16T11:10:53.530" Score="1" Body="&lt;p&gt;Econ Journal Watch actually had a symposium for this very question back in &lt;a href=&quot;http://econjwatch.org/issues/volume-2-issue-1-april-2005&quot; rel=&quot;nofollow&quot;&gt;2005&lt;/a&gt;. It looks like there are no universally agreed upon definitions of &quot;information&quot; and &quot;knowledge&quot;. Nonetheless here's a selection from the three articles in that symposium that I found the most helpful.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Thomas Mayer&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Information [is an] isolated nugget. Knowledge [is] such nuggets of information integrated into coherent constellations, such as generalizations. Understanding is the integration of knowledge into the larger web of our other beliefs. Wisdom goes beyond understanding by adding epistemological and perhaps value and metaphysical judgments, which may, or may not, be articulated.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Mayer gives an example of his distinction between information, knowledge, and wisdom: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The observation that unemployment is at 6% provides information. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The comprehension that this figure has to be interpreted in the light of changes in the number of discouraged workers, the labor force participation rate, the NAIRU, etc., provides knowledge. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Whether this unemployment rate justifies an expansionary fiscal policy requires consideration of vaguer issues (e.g. measurement errors, policy lag). It also requires value judgments. That is, it requires wisdom.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Israel Kirzner&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;For Kirzner, the distinction is between &quot;knowledge-as-information and action-knowledge--the latter referring to the knowledge which actually spurs and shapes action.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Alertness is necessary and sufficient for turning information-knowledge into action-knowledge.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Example: Suppose apples are selling for \$0.40 at the west end of town and for \$1 at the east end of town. John and Mary are both given this piece of knowledge-information. However, Mary is not alert and so she does not act on this piece of information. In contrast, John is alert: he realizes he can profit from this arbitrage opportunity and so acts to transform this knowledge-information into action-knowledge.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Leland Yeager&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Yeager gives the example of voters who&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;are constantly exposed, even without effort on their part, to all sorts of facts and figures and arguments pertaining to policies, proposals, and candidates. Yes; but miscellaneous bits of information, casually acquired and misacquired, do not add up to knowledge, or, better expressed, surely do not add up to understanding.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Another example:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Interested in how the vote count is going in California, I might ask for the latest information or, more probably, for the latest numbers, but hardly for the latest knowledge.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerDisplayName="user18" LastEditorDisplayName="user18" LastEditDate="2016-02-19T07:18:04.183" LastActivityDate="2016-02-19T07:18:04.183" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10706" PostTypeId="1" CreationDate="2016-02-16T13:32:28.470" Score="0" ViewCount="54" Body="&lt;p&gt;I am discovering the mechanism of a warrant but there is still something that i can't understand.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's take a simple example a call warrant with a strike of \$10. I buy it when the underlying product is at \$5 and now the underlying is at \$20. If we keep it simple who will give me the \$20-\$10 = \$10 difference.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The bank I suppose. Does the bank hope that on all its warrants it will earn money? Can the warrant put a bank on bankruptcy in extreme case?&lt;/p&gt;&#xA;" OwnerUserId="7345" LastEditorUserId="69" LastEditDate="2016-02-16T14:22:04.080" LastActivityDate="2016-02-23T00:08:48.390" Title="Who paid the difference on a warrant if i am winnnig" Tags="&lt;stock-market&gt;&lt;financial-markets&gt;&lt;asset-pricing&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10707" PostTypeId="1" CreationDate="2016-02-16T14:36:45.857" Score="1" ViewCount="200" Body="&lt;blockquote&gt;&#xA;&lt;p&gt;Arka likes fries. She wants to consume as much as possible. She consumes either regular (1 oz) or large sizes (5 oz).&lt;/p&gt;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Draw her indifference curve through &lt;span class=&quot;math-container&quot;&gt;$(x_R, x_L) = (10,0)$&lt;/span&gt; and her indifference curve through the bundle &lt;span class=&quot;math-container&quot;&gt;$(x_R, x_L) = (10,2)$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Determine her &lt;span class=&quot;math-container&quot;&gt;$MRS_{R,L}$&lt;/span&gt; at &lt;span class=&quot;math-container&quot;&gt;$(x_R, x_L) = (10,2)$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Give an example of a utility function that captures her preferences.&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;What I tried:&lt;/p&gt;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;span class=&quot;math-container&quot;&gt;$(10,0)$&lt;/span&gt;: &lt;a href=&quot;https://en.wikipedia.org/wiki/Corner_solution&quot; rel=&quot;nofollow noreferrer&quot;&gt;Corner solution&lt;/a&gt;?&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$(10,2)$&lt;/span&gt;: I'm thinking some indifference curve that does not intersect the indifference curve passing through &lt;span class=&quot;math-container&quot;&gt;$(10,0)$&lt;/span&gt;. Is that unique?&lt;/p&gt;&#xA;&lt;hr /&gt;&#xA;&lt;ol start=&quot;2&quot;&gt;&#xA;&lt;li&gt;How can I do this without prices, utility or marginal utility? The formula from &lt;a href=&quot;https://en.wikipedia.org/wiki/Marginal_rate_of_substitution#Marginal_rate_of_substitution_as_the_slope_of_indifference_curve&quot; rel=&quot;nofollow noreferrer&quot;&gt;Wiki&lt;/a&gt;:&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$MRS_{R,L}(10,2) = \frac{MU_R(10,2)}{MU_L(10,2)} = -\frac{p_R(10,2)}{p_L(10,2)}$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;or in some strange books&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$MRS_{R,L}(10,2) = \color{red}{-}\frac{MU_R(10,2)}{MU_L(10,2)} = \color{red}{+}\frac{p_R(10,2)}{p_L(10,2)}$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;Well if we are at a point of tangency then (following Wiki)&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$MRS_{R,L}(10,2) = \frac{MU_R(10,2)}{MU_L(10,2)} = -\frac{p_R(10,2)}{p_L(10,2)} = -\frac{dR(10,2)}{dL}$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;I got nothing.&lt;/p&gt;&#xA;&lt;hr /&gt;&#xA;&lt;ol start=&quot;3&quot;&gt;&#xA;&lt;li&gt;Some &lt;span class=&quot;math-container&quot;&gt;$U(x_R, x_L)$&lt;/span&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&lt;p&gt;s.t.&lt;/p&gt;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Domain includes &lt;span class=&quot;math-container&quot;&gt;$(10,0)$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$(10,2)$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$U(10,0) &amp;lt; U(10,2)$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$x_R' + 5x_L' &amp;lt; x_R' + 5x_L'' \to U(x_R',x_L') &amp;lt; U(x_R',x_L'') \ \text{(thus making #2 redundant?)}$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$x_R' + 5x_L' &amp;lt; x_R'' + 5x_L' \to U(x_R',x_L') &amp;lt; U(x_R'',x_L')$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Domain is all pairs of nonnegative numbers (thus making #1 redundant?)&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&lt;p&gt;Is that right?&lt;/p&gt;&#xA;" OwnerUserId="4483" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2016-02-17T22:58:42.227" Title="Find Indifference curve/s and Marginal Rate/s of Substitution given only one point" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;consumer-theory&gt;&lt;optimization&gt;&lt;marginal&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10708" PostTypeId="1" AcceptedAnswerId="10840" CreationDate="2016-02-16T15:29:54.327" Score="2" ViewCount="72" Body="&lt;p&gt;Suppose we have a (presumably time independent?) utility function $U(x_1,x_2)$ for consumer Rita.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;What is Rita's MRS of $x_2$ for $x_1$?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;$$MRS_{x_1, x_2} = \frac{MU_{x_1}}{MU_{x_2}} = \frac{\frac{\partial U}{\partial x_1}}{\frac{\partial U}{\partial x_2}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(or in some strange books $-\frac{MU_{x_1}}{MU_{x_2}}$)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is that right?&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;2.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;If Rita consumed $a$ of $x_1$ and $b$ of $x_2$, what was her MRS?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;$$MRS_{x_1, x_2}(a,b) = \frac{MU_{x_1}(a,b)}{MU_{x_2}(a,b)}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is that right?&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;3.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;3.1 If Rita is currently consuming $c$ units of $x_1$, how many units of $x_2$ must she consume in order to leave her just as well off as she was in #2?&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;3.2 What is the MRS at $(c,x_2)$?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;What's the equation to solve here?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U(a,b) = U(c,x_2')$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{MU_{x_1}(a,b)}{MU_{x_2}(a,b)} = \frac{MU_{x_1}(c,x_2')}{MU_{x_2}(c,x_2')}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm thinking the former because 'well off' seems to call for 'utility' and not 'MRS', and the latter answers 3.2 easily...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Anyway, if the former then for 3.2 I just compute&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{MU_{x_1}(c,x_2')}{MU_{x_2}(c,x_2')}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;?&lt;/p&gt;&#xA;" OwnerUserId="4483" LastEditorUserId="4483" LastEditDate="2016-02-23T22:58:51.467" LastActivityDate="2016-02-24T17:35:36.353" Title="Solve for the bundle component that makes one as 'well off' as earlier" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;consumer-theory&gt;&lt;preferences&gt;&lt;marginal&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="10709" PostTypeId="1" CreationDate="2016-02-16T15:51:26.933" Score="5" ViewCount="9146" Body="&lt;p&gt;If we have a utility function $U(x_1, x_2) = x_1(x_2+1)^2$ of some consumer, then&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$MRS_{x_1, x_2} = \frac{\color{red}{-}(x_2+1)}{2x_1}$$&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Some books have a $\color{red}{-}$. Others and Wiki don't have a minus. What exactly does this mean?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Bundle/basket/portfolio(is that only for finance?)/whatever $(3,5)$ and has a utility of $108$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Bundle/basket/portfolio(is that only for finance?)/whatever $(27,d)$ has the same utility of $108$ for $d=1$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The MRS's are as follows:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$MRS_{x_1, x_2}(3,5) = -1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$MRS_{x_1, x_2}(27,1) = -1/27$$&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Question: What can you say about the convexity of the preferences of said consumer?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I don't quite know what to say here. The two bundles lie on the same indifference curve ($U = 108$). As we move to the right of the curve, the slope becomes less steep, as expected...I think?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.investopedia.com/terms/m/marginal_rate_substitution.asp&quot;&gt;This&lt;/a&gt; says MRS supposed to decrease if we move down a standard convex-shaped curve. So this curve is not convex? Or not standard?&lt;/p&gt;&#xA;" OwnerUserId="4483" LastActivityDate="2018-07-28T17:31:10.720" Title="Is MRS supposed to have a minus sign or not? What's there to say about convexity of preferences?" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;consumer-theory&gt;&lt;preferences&gt;&lt;marginal&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10710" PostTypeId="1" CreationDate="2016-02-16T16:56:28.093" Score="2" ViewCount="63" Body="&lt;p&gt;How should I call a &quot;part&quot; of an extensive form game which is neither (i) a subgame, nor (ii) a stage in a repeated game?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For instance, consider the class of games constructed by &quot;stacking&quot; 2 Stackelberg games, but where the identity of the player who choses first in the second part may depend on the actions in the first part.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I believe these kinds of games are not strictly speaking repeated games (right?).&#xA;If that's correct, I cannot really speak of the first &quot;part&quot; of the game as the first &quot;stage&quot; (or can I?).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Do you know of any standard terminology to talk about such &quot;parts&quot; of games which are not strictly speaking stages of repeated games?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Edit&lt;/strong&gt;: if you can substantiate your answer with examples of papers where the terminology you propose is used, that would be even better.&lt;/p&gt;&#xA;" OwnerUserId="38" LastEditorUserId="38" LastEditDate="2016-02-16T19:57:12.940" LastActivityDate="2017-02-08T17:05:39.357" Title="Terminology for &quot;part&quot; of extensive form game" Tags="&lt;game-theory&gt;&lt;definition&gt;&lt;dynamic-games&gt;&lt;extensive-games&gt;" AnswerCount="1" CommentCount="3" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10711" PostTypeId="2" ParentId="10164" CreationDate="2016-02-16T21:28:13.677" Score="1" Body="&lt;p&gt;In the discussions with Kun it seems we've found a satisfying answer. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;TL;DR&lt;/strong&gt;: it is as I suggested in the last paragraph of my question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Long answer&lt;/strong&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is becoming a bit of an overkill for a question that could be looked up in a couple of minutes, but it's an interesting exercise to see if we can up with the correct answer ourselves.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What are we trying to accomplish again?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We have&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;An infinitely divisible good&lt;/li&gt;&#xA;&lt;li&gt;A consumer with demand function $q = Q(p)$ for this good, with corresponding inverse demand function $p=P(q)$. These are described by a curve (the demand curve) in the $q,p$-plane.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;We are trying to establish if a point $(q,p)$ on the demand curve describes&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;A.  the price per unit $p$ that the consumer is willing to pay, for each unit, for a the total quantity $q$, or&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;B.  the price per unit $p$ that the consumer is willing to pay for an additional amount $\text{d}q$, given a possession of $q$ units.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Let our thesis be that it is the latter, and let's see if we run into a contradiction.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Consumer surplus&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Let's take the simple straight line $p+q=25$, where a constant unit-price of 5 prescribes a demand of 20:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/X0ynR.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/X0ynR.png&quot; alt=&quot;a simple demand curve&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The area between the demand curve, $p=5$ and $q=0$, is called the Consumer Surplus CS, and we can calculate it by integration:&#xA;$$\int_5^\infty Q(p)~\text{d}p=\int_5^{25} (25-p)~\text{d}p$$&#xA;This is the same as&#xA;$$\int_0^{20} (P(q)-5)~\text{d}q=\int_0^{20} \big((25-q)-5\big)~\text{d}q$$&#xA;The latter shows the area might be interpreted as the difference between what the consumer is willing to pay and what he is paying -- at least, if our thesis is valid and interpretation (b) holds.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We find that the CS in this case is 200.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Our thesis can help to interpret this. If the price is 5, the consumer keeps on buying until the additional quantity he could buy does not bring that additional utility of 5. That happens to be at a quantity of 20. Because he was able to buy &lt;em&gt;all&lt;/em&gt; units at a price of 5, this represents an advantage: he would have paid more for an additional unit when he still had fewer units. E.g. when he still only had 15 units, he would have paid 10 per unit for additional quantity.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Total Willingness To Pay&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;The total willingness to pay TWTP for a quantity $q$ (i.e., the maximum accepted price for that quantity) can be calculated as the sum of the willingness to pay for each subsequent unit until $q$ (i.e., the maximum accepted price per unit for additional units):&#xA;$$TWTP(q) = \int_0^{q} WTP(q')~\text{d}q'$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, in order to calculate how much our buyer would maximally have paid (in total) for those 20 units, we must add the maximum prices for each individual unit. If our thesis is correct and interpretation (b) holds, this is exactly the inverse demand function $P$, so that&#xA;$$TWTP = \int_0^{20} P(q')~\text{d}q'$$&#xA;This Total Willingness To Pay for 20 units happens to be 300 in our case.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, under normal circumstances the buyer does not &lt;em&gt;need&lt;/em&gt; to pay that amount for 20 units, but rather $5\cdot20=100$. The difference between the two is the CS of 200. This is the area above the $p=5$ line, which is what we would expect.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Should we have perfect price discrimination, the seller of the good would know the buyer's demand curve, and sell him each unit of the good at exactly the maximum price he'd be willing to pay for it; gradually dropping the price with the buyer's marginal utility: $p=25-q$. That way, the seller is able to capture all of the CS, and the buyer would thus pay 300 for the 20 units.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;If our thesis is wrong&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;This interpretation only works if our thesis is correct and the inverse demand function $P$ describes the willingness to pay for each additional unit. If it describes the willingness to pay per unit for that &lt;em&gt;and all previous&lt;/em&gt; units, i.e. interpretation (a), things are different. In that case, the TWTP for $q$ units is simply the multiplication of $q$ and $P(q)$:&#xA;$$TWTP(q) = q\cdot P(q)$$&#xA;In order to figure out how much would be bought at non-uniform pricing, we need to find the willingness to pay for each unit. That WTP is, as can be seen from the first equation, the derivative of the TWTP, so, in this case:&#xA;$$WTP(q)=\frac{\text{d}}{\text{d}q}qP(q)=\frac{\text{d}}{\text{d}q}(25q-q^2)=25-2q$$&#xA;So, the first quantity is sold at a unit price of 25, just like before. This makes sense, as the buyer does not have any units yet, so the marginal price equals the average price. Then, however, under perfect price discrimination, the price of the good should drop twice as fast as we have previously calculated. That is due to the fact that the additional unit $\text{d}q$, that the seller is trying to sell, does not have a marginal utility given by its price (as is the case in interpretation (b)) but by the increase in total price.&lt;sup&gt;1&lt;/sup&gt;&#xA;Moreover, in this situation, the seller sells his last unit for a price of 5, which is when he has sold only 10 units (compared to 20 if interpretation (b) is correct). The buyer has then spent $\int_0^{10} (25-2q)~\text{d}q=150$, which is his TWTP, but for 10 units. This too makes sense: the demand curve prescribes a maximally accepted (average) unit price of 15 - which is exactly what is being paid.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What we cannot see anywhere, is the figure of 200 which is the area above the $p=5$ line. In fact, the Consumer Surplus that was 200 in the case of interpretation (b), is actually 0 in the case of interpretation (a) -- simply because of the way the inverse demand function is defined to be the maximum average unit price: if we have a uniform price, the price is the average price, and the buyer will have an incentive to buy more as long as his willingness to pay is higher than the price. Exactly when he buys the quantity $q$ that, on his demand curve, corresponds to the offered price $p$, is the average price he's willing to pay equal to the offered price. Because the average price he's willing to pay, times the quantity, is the total price he's willing to pay for that quantity, and because that also equals the price he &lt;em&gt;is&lt;/em&gt; paying at that point in the curve, his CS is 0.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Conclusion&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;In order to have a sensible interpretation of the area between the demand curve, $p=5$ and $q=0$, called the Consumer Surplus CS, we need to interpret the inverse demand function to mean: &quot;&lt;em&gt;the price per unit $p$ that the consumer is willing to pay for an additional amount $\text{d}q$, given a possession of $q$ units&lt;/em&gt;&quot; (b).&#xA;The common interpretation (a) as &quot;&lt;em&gt;the price per unit $p$ that the consumer is willing to pay, for each unit, for a the total quantity $q$&lt;/em&gt;&quot; is incorrect. It's easy to see, however, why it is often interpreted that way. Firstly, it is a simpler interpretation that's easier to visualise, and secondly, in everyday situations -- which all have uniform pricing -- it still predicts the correct quantity to be traded.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Footnotes:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1:  This gives us another way to come to the formula. Consider the buyer, which buys a quantity $q$ when the average price per unit is $P(q)$. As he buys a quantity $q+\text{d}q$ when the price per unit is $P(q+\text{d}q)$, the total cost increases by $P(q+\text{d}q) - P(q)$, which means that is the utility of the additional unit $\text{d}q$. So, the marginal utility per unit is $\frac{(q+\text{d}q)\cdot P(q+\text{d}q)-q\cdot P(q)}{\text{d}q}$. Using the inverse demand function $P(q)=25-q$, this is turns out to be $25-2q$.&lt;/p&gt;&#xA;" OwnerUserId="6928" LastActivityDate="2016-02-16T21:28:13.677" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10712" PostTypeId="2" ParentId="10707" CreationDate="2016-02-16T22:55:24.673" Score="3" Body="&lt;p&gt;In general, you are right to be mystified: specifying a point (consumption bundle) isn't enough to compute MRS and indifference curves.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, in this problem, I would suggest you take the first sentence seriously as a description of her preferences.  She likes fries.  (She doesn't care about what box they come in!)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $v(f)$ represent her utility as function of $f$, the quantity of fries she consumes (in oz).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Mechanically, $f = 1R + \frac{1}{5} L$, where $R$ and $L$ are the quantities of regular and large orders of fries she consumes.  So, her utility as a function of these is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$u(R,L) = v(1R + \frac{1}{5} L).$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now you can compute marginal utilities $u_R \equiv \frac{du}{dR}$ and $u_L \equiv \frac{du}{dL}$ and the marginal rate of substitution $MRS_{L,R} \equiv \frac{u_L}{u_R}$.    You will see that in MRS, the $v'(\cdot)$ terms cancel out, and you are left with an MRS of $5$, at &lt;em&gt;every&lt;/em&gt; bundle $(R,L)$.  These are linear preferences over bundles, and &lt;strong&gt;the indifference curves are straight lines&lt;/strong&gt; with slope $-1/5$ (if you put $R$ on the horizontal axis).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This makes intuitive sense in two ways.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, the canceling tells us that preferences are independent of the specific functional form of $v(\cdot)$, so long as it is an increasing function.  This is because utility functions only encode ordinal preferences.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Second, the MRS gives the rate at which she would be indifferent to  trading those two goods.  If you offered her five 1 oz boxes for one 5 oz  box, she wouldn't mind, since it's all the same to her.  (If you offered her a penny more, she would gladly make the trade, and if you offered a penny less, she would refuse.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As an aside, we could say that the relationship $f = 1R + \frac{1}{5}L$ encodes the &lt;em&gt;household production function&lt;/em&gt;: how she transforms things she can buy (boxes of various sizes) into the thing she really likes (fries).  This approach is associated with the work of Gary Becker and is commonly used in family and health economics.&lt;/p&gt;&#xA;" OwnerUserId="7349" LastEditorUserId="7349" LastEditDate="2016-02-17T22:58:42.227" LastActivityDate="2016-02-17T22:58:42.227" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10713" PostTypeId="1" CreationDate="2016-02-17T00:35:33.657" Score="5" ViewCount="47953" Body="&lt;p&gt;I am reading the following &lt;a href=&quot;http://www.investopedia.com/ask/answers/040315/how-do-changes-national-interest-rates-affect-currencys-value-and-exchange-rate.asp&quot; rel=&quot;noreferrer&quot;&gt;Article at Investopedia&lt;/a&gt; which states&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Generally, higher interest rates increase the value of a given&#xA;  country's currency. The higher interest rates that can be earned tend&#xA;  to attract foreign investment, increasing the demand for and value of&#xA;  the home country's currency. Conversely, lower interest rates tend to&#xA;  be unattractive for foreign investment and decrease the currency's&#xA;  relative value.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I do not understand why Higher Rates would attract &lt;em&gt;Foreign Investors&lt;/em&gt;, therefore unable to see how they can profit from it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How does this work, and what are some of the common ways &lt;em&gt;Foreign Investors&lt;/em&gt; use this to their advantage?&lt;/p&gt;&#xA;" OwnerUserId="7351" LastActivityDate="2017-08-18T13:20:01.580" Title="Why do Higher Interest Rates attract Foreign Investors?" Tags="&lt;currency&gt;&lt;interest-rate&gt;" AnswerCount="5" CommentCount="1" FavoriteCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="10715" PostTypeId="2" ParentId="9820" CreationDate="2016-02-17T04:09:25.093" Score="2" Body="&lt;p&gt;Because you are taking other currencies off the market and/or selling your own currency, and increasing the supply of your own currency relative to others.&lt;/p&gt;&#xA;" OwnerUserId="8360" LastActivityDate="2016-02-17T04:09:25.093" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10716" PostTypeId="2" ParentId="10659" CreationDate="2016-02-17T04:22:04.073" Score="5" Body="&lt;p&gt;You are using USD exchange rate GDPs, which are very volatile. The main effect is probably the fact that the Euro began to circulate in 2002, replacing the cheap domestic currency.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here are some more general reasons why the peripheral countries did well before the recession:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;There was abundant oil supply and the developed countries were splurging on FDI and debt in the periphery&lt;/li&gt;&#xA;&lt;li&gt;Greece had just joined the Euro and was getting tons of transfer payments&lt;/li&gt;&#xA;&lt;li&gt;The Euro was still fairly high and hadn't fallen yet.&lt;/li&gt;&#xA;&lt;li&gt;Greece may have fudged its numbers a bit to get into the Euro.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Eur/usd since 2000:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/KuY7D.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/KuY7D.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="8360" LastEditorUserId="8360" LastEditDate="2016-02-17T04:27:30.757" LastActivityDate="2016-02-17T04:27:30.757" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10717" PostTypeId="2" ParentId="10713" CreationDate="2016-02-17T05:48:43.983" Score="5" Body="&lt;p&gt;The answer lies in this part of your posted quote: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;The higher interest rates that can be earned tend to attract foreign investment, increasing the demand for and value of the home country's currency.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Foreign &lt;em&gt;investors&lt;/em&gt; would be attracted to the higher interest rate if they are able to receive a better return on their investment than they would get from their local market. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It sounds like your confusion might arise from the fact that a higher interest rate would mean the borrower has to pay out more in interest. Your quote refers to investors, the party receiving the higher interest payments.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A common way in which foreign investors would use higher interest rates to their advantage is by borrowing money locally at a lower rate and investing it in foreign markets at a higher rate. Profits would be calculated based on the difference in interest on the money (in a simplified situation). A more realistic scenario would also  include exchange rate fluctuations and other variables.&lt;/p&gt;&#xA;" OwnerUserId="7353" LastEditorUserId="7353" LastEditDate="2016-02-17T05:55:36.263" LastActivityDate="2016-02-17T05:55:36.263" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10718" PostTypeId="1" CreationDate="2016-02-17T06:47:28.487" Score="1" ViewCount="31" Body="&lt;p&gt;&lt;a href=&quot;https://www.researchgate.net/publication/228376470_The_Distributional_Consequences_of_Government_Spending&quot; rel=&quot;nofollow&quot;&gt;https://www.researchgate.net/publication/228376470_The_Distributional_Consequences_of_Government_Spending&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Very interesting little model. Government infrastructure spending increases wages in the short run by increasing the capital supply, but lowest wages and raises capital income in the long run by boosting the return on private capital. Is this result valid?&lt;/p&gt;&#xA;" OwnerUserId="8360" LastEditorUserId="8360" LastEditDate="2016-02-17T19:38:43.067" LastActivityDate="2016-02-17T19:38:43.067" Title="Is public infrastructure a subsidy to capital?" Tags="&lt;public-economics&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10719" PostTypeId="1" CreationDate="2016-02-17T06:51:05.453" Score="4" ViewCount="168" Body="&lt;p&gt;Harsanyi's Utilitarian theorems' has been criticized by Diamond &lt;a href=&quot;http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.557.7197&amp;amp;rep=rep1&amp;amp;type=pdf&quot; rel=&quot;nofollow&quot;&gt;Cardinal Welfare, Individualistic Ethics, and Interpersonal Comparison of Utilities&lt;/a&gt; and others that, it is the morally unacceptable for social preference to satisfy the Independence axiom because it would imply that ex ante fairness are of no importance. Epstein and Segal &lt;a href=&quot;http://www.jstor.org/stable/2138684&quot; rel=&quot;nofollow&quot;&gt;QSWF&lt;/a&gt; suggest a Quadratic Social Welfare Function to replace Harsanyi's linear one (weighted sum of individual utilities), equivalently, a &quot;Mixture Symmetry axiom&quot; to replace the Independence axiom. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am trying to use this QSWF &amp;amp; MS axiom to replace the first order social welfare function and Independence axiom in Professor Uzi's another paper &lt;a href=&quot;http://www.jstor.org/stable/10.1086/262129?seq=1#page_scan_tab_contents&quot; rel=&quot;nofollow&quot;&gt;Let's agree all dictatorships are equally bad&lt;/a&gt;. Professor Uzi's aim of this paper is not about the social welfare's functional form but I would like to see the difference if I made a change as mentioned above. The maximizer(optimal resources allocation)of the weighted sum of individual utilities is invariant to linear transformation $v_i=au_i+b$ in the original paper. From what I can see now, the optimal allocation is not invariant to linear transformation of utilities, but this is yet to be proved. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It turns out the main job is about how to replicate the Lemma 4 (in Appendix B) of Pro Uzi's original paper (dictatorships) using Mixture Symmetry  instead of Independence axiom. One difficulty is that the MS axiom is given in the case of two lotteries:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Mixture symmetry(MS): if lotteries $f \sim g$ socially, then $\alpha f+ (1-\alpha)g \sim \alpha g +(1-\alpha)f$ socially, $\alpha \in [0,1]$.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;And there is another axiom called Randomization preference(RP)：&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;$f \sim g$ socially, but $f \ne g$, this is to say, at least individual strictly prefers $f$ to $g$ and another who strictly prefers $g$ to $f$.&#xA;  Then $\frac{1}{2} f+ \frac{1}{2}g$ $\succ$ $g$. Equiprobable randomization is the best.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;MS and RP together implies:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;$\frac{1}{2} f+ \frac{1}{2}g$ $\succ$ $\alpha g +(1-\alpha)f$ for any&#xA;  other $\alpha \in [0,1]，\alpha \ne \frac{1}{2}$. The closer the&#xA;  randomization to the equiprobable one the better.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;However, the two axioms together do not imply the 3-lottery version of MS: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;If $f \sim g \sim r$, $\alpha f+ \beta g + (1-\beta - \alpha)r \sim&#xA;\alpha g + \beta f + (1-\alpha-\beta)r$.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Because let $g=r$ we would have $\alpha f+ (1-\alpha)g \sim \beta f+ (1-\beta)g$, when $\alpha =\frac{1}{2}$ and $\beta =1$ we would have $\frac{1}{2} f+ \frac{1}{2}g \sim f$ which contradicts with the RP. Similar arguments apply to two mixtures whose probability weights are cyclic permutations of one another. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence, it seems to me the current MS combined with RP can only give us the equivalence between 2-lottery mixtures, what if I need to randomize more than 2 lotteries, and compare different mixtures? The above 3-lottery version axiom is not right, but it does not say there is no 3 ore more lottery version, it may take other form. So the question is, how should I generalize the MS to higher dimension if possible? &lt;strong&gt;Can I decompose a n-lottery mixture into a sequence of 2-lottery mixture?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;BTW, I use MS to replace the Independence axiom, which states:  if $f \sim g$, then $\alpha f+ (1-\alpha) r \sim \alpha g+ (1-\alpha) r$.&#xA;Without this Independence axiom, if we have $a \sim b$, $c \sim d$, I am not sure whether we can have $\alpha a+ (1-\alpha) c \sim \alpha b+ (1-\alpha) d$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;While Uzi's original construction uses all extreme/dictatorial allocation to construct all possible general allocations via the Independence axiom, how can I instead use MS and RP to do so?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Anyone studied this paper before? I am not sure how many technique and model details I should post, I can add more if you want to discuss. The main construction and proof is on page 586 of the paper(dictatorships).&lt;/p&gt;&#xA;" OwnerUserId="5351" LastEditorUserId="5351" LastEditDate="2016-03-01T13:21:22.933" LastActivityDate="2016-03-01T13:21:22.933" Title="Social Choice: from Independence axiom to Mixture symmetry axiom" Tags="&lt;microeconomics&gt;&lt;decision-theory&gt;&lt;social-choice&gt;" AnswerCount="0" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="10721" PostTypeId="1" CreationDate="2016-02-17T15:09:37.783" Score="1" ViewCount="30" Body="&lt;p&gt;My problem involves measuring the impact of four activities undertaken by a population of 1,000 individuals that is attempting to lose weight. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The four activities are: (a) Eating healthy food; (b) Walking for an hour daily; (c) Meditation daily for 20-minutes; and (d) In-house physical exercise for 30-minutes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the sake of simplicity, let us assume that there are 1,000 participants who signed up on January 1, 2015, and their weights were measured then. Furthermore, let us assume that they will diligently commit to doing the same activity for the entirety of a quarter (i.e., if they commit to eating healthy food in Q1 they don't undertake any other activity; however they may change the activity at the start of Q2 or choose to continue what they did in Q1).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, on December 31, 2015, I catch them before they head to Times Square to celebrate the onset of new year, and weigh them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So my table looks something like :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Individual | Initial Weight | Q1 | Q2 | Q3 | Q4 | Final Weight&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A-1 | 183 | A | B | A | C | 176&lt;br&gt;&#xA;A-2 | 265 | D | C | B | B | 223&lt;br&gt;&#xA;A-3 | 331 | A | A | A | D | 322&lt;br&gt;&#xA;.&lt;br&gt;&#xA;.&lt;br&gt;&#xA;A-1000 | 257 | D | B | C | A | 228  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My goal is to measure the impact of each activity's contribution to the weight loss across the population, keeping in mind that there is a distinct possibility that the order of activities undertaken could have an impact.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;( In my real problem one of complexities that I haven't spelt out is that instead of doing the same activity throughout the quarter, individuals would have actually done any of those activity on a daily basis.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any thoughts would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="7356" LastEditorUserId="1601" LastEditDate="2016-02-17T15:27:06.767" LastActivityDate="2016-02-17T15:27:06.767" Title="Attribution Modeling" Tags="&lt;econometrics&gt;&lt;applied-econometrics&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10722" PostTypeId="1" AcceptedAnswerId="10726" CreationDate="2016-02-17T16:52:51.627" Score="5" ViewCount="337" Body="&lt;p&gt;We are writing a paper about the 'economic man.' By this, we mean that the choices he makes epitomize a rational economic thinker. However, we also acknowledge the fact that there are other, non-economic reasons that people make decisions such as religion. What (if any) literature addresses the idea that even with other considerations, a person will still act rationally in the economic sense. Preferably we would like to have a theoretical model that encases these other choice considerations. Also, we would love to hear whether there are any case studies on this idea.&lt;/p&gt;&#xA;" OwnerUserId="5825" LastActivityDate="2016-02-18T03:19:12.970" Title="The 'Economic Man' (Reference Request)" Tags="&lt;microeconomics&gt;&lt;reference-request&gt;&lt;choice-theory&gt;" AnswerCount="3" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10724" PostTypeId="2" ParentId="10722" CreationDate="2016-02-17T17:18:05.770" Score="7" Body="&lt;p&gt;I would point you firstly to work pioneered by the late Gary Becker on applying the principles of economic optimisation to non-market behaviour.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Becker's insight was that the kinds of trade-offs people face when trading goods and services also affect many other kinds of decisions, including things such as &lt;a href=&quot;http://www.nber.org/chapters/c3625.pdf&quot;&gt;criminal behaviour&lt;/a&gt; or &lt;a href=&quot;https://www.amherst.edu/system/files/media/1808/becker%2520marriage.pdf&quot;&gt;marriage&lt;/a&gt; and family life. For example, Becker modelled criminals as deciding what crimes to commit based on an evaluation of the costs (if caught) against the benefits flowing from the crime's proceeds (whether material or psychological). A list of Becker's papers &lt;a href=&quot;https://ideas.repec.org/e/pbe29.html&quot;&gt;can be found on Repec&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Becker's style of applying economics to such topics has been influential and there are now huge literatures applying economics to social behaviour of every variety—to the extent that it is hard to even know where to begin summarising such literatures.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At the time of Becker's death, many leading economists wrote articles summarising his impact on the field of economics.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Becker's contribution was recognised with the award of the 1992 Nobel Prize. The citation read&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;for having extended the domain of microeconomic analysis to a wide range of human behavior and interaction, including nonmarket behavior.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The Nobel press release is &lt;a href=&quot;http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/1992/press.html&quot;&gt;here&lt;/a&gt; and his Nobel lecture &quot;The Economic Way of Looking at Behavior&quot; was &lt;a href=&quot;http://www.jstor.org/stable/2138769?seq=1#page_scan_tab_contents&quot;&gt;published in the Journal of Political Economy&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2016-02-17T17:18:05.770" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10725" PostTypeId="2" ParentId="10699" CreationDate="2016-02-17T18:53:39.590" Score="1" Body="&lt;p&gt;Here is the &lt;a href=&quot;http://mba.tuck.dartmouth.edu/pages/faculty/ken.french/Data_Library/f-f_factors.html&quot; rel=&quot;nofollow&quot;&gt;link&lt;/a&gt; that helps you replicate Fama-French 1993 paper.&lt;/p&gt;&#xA;" OwnerUserId="6009" LastActivityDate="2016-02-17T18:53:39.590" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10726" PostTypeId="2" ParentId="10722" CreationDate="2016-02-17T19:38:22.943" Score="5" Body="&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Amartya_Sen&quot;&gt;Amartya Sen&lt;/a&gt;, a 1998 Nobel Laureate, has a well cited article on the subject: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://www.jstor.org/stable/2264946&quot;&gt;&quot;Rational Fools: A Critique of the Behavioral Foundations of Economic Theory&quot;&lt;/a&gt;, &lt;em&gt;Philosophy &amp;amp; Public Affairs&lt;/em&gt;, 1977.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Some other related references: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Persky, Joseph. 1995. “Retrospectives: The Ethology of Homo Economicus”. &lt;em&gt;The Journal of Economic Perspectives&lt;/em&gt; 9: 221-231. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Hargreaves-Heap, Shaun and Martin Hollis. 1987. “Economic Man”. In &lt;em&gt;The New Palgrave: A Dictionary of Economics&lt;/em&gt;, vol. 2, ed. John Eatwell, Murray Milgate, and Peter Newman. New York: The Stockton Press.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Sen, Amartya K. 1987. “Rational Behavior”. In &lt;em&gt;The New Palgrave: A Dictionary of Economics&lt;/em&gt;, vol. 4, ed. John Eatwell, Murray Milgate, and Peter Newman. New York: The Stockton Press.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Sen, Amartya K. 2002. &lt;em&gt;Rationality and Freedom&lt;/em&gt;. Cambridge, Massachusetts: Belknap Press of Harvard University Press. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Simon, Herbert A. 1979. &lt;em&gt;Models of Thought&lt;/em&gt;. New Haven: Yale University Press.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I should add that Sen is particularly good with giving people credits. So the bibliography section of his books/articles will surely have many more useful sources on this topic.&lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2016-02-17T19:38:22.943" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10727" PostTypeId="2" ParentId="10615" CreationDate="2016-02-17T19:50:57.757" Score="2" Body="&lt;p&gt;Let's start with the statement - &lt;/p&gt;&#xA;&#xA;&lt;p&gt;'Consider the commodity exchange where the futures price of a commodity is determined by supply demand during trading hours and is not directly determined by the real price'&lt;/p&gt;&#xA;&#xA;&lt;p&gt;first, this statement is not accurate. Not everyone that buy a commodity future ever intend to take delivery. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Second, you need to look at financial future vs. Physical future. Most of the time they move in tandem (correlation nearing 1). However, near delivery, they become less correlated. In fact, physical commodity carries delivery risk. If you have not disposed of the future in time, you'll have to take the delivery. In that case, you have to deal with storage cost. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This leads to the third point - convenience yield. Hard to quantify, hard to hedge (unlike stocks or other financial instruments) - where would you store 1MM barrels of oil today? At what cost?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Last point is - what is 'real price'? The cost of producing a barrel of oil? 1 ounce of gold? If so, how would companies (and in turn their stock) profit? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, to the question itself - to truly assess whether commodities are more volatile then other financial instruments you have to define several parameters including observation period, asset classes etc. If you don't you cannot make a proper comparison.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, Commodities post 2009 - part of the drop in commodity prices could be attributed to the fact that due to costs and regulation banks are not such big participants in the assets as they used to be. Here, you could say that 'lack' of interference is simply bringing prices to where supply and demand dictates.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, compare all of the above to recent price drops in Twitter and Linked in stocks. With that in mind, Commodities look 'stable'...&lt;/p&gt;&#xA;" OwnerUserId="7328" LastActivityDate="2016-02-17T19:50:57.757" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10728" PostTypeId="1" CreationDate="2016-02-17T21:19:32.130" Score="0" ViewCount="52" Body="&lt;p&gt;So there was the following proposition: Create a currency with the following contraints: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Each person may only own x amount of this currency. Gaining more of this currency is not allowed. Using a cryptocurrency, such a system could probably be crafted.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So one could probably achieve a similar system by creating an &lt;em&gt;appropriate&lt;/em&gt; tax-system. However, what would be the outcome of such a currency. Could such a currency boost the economy? The main target of such a currency would be to drastically reduce the gini-Coefficient.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some implications I can think of:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A &lt;em&gt;rich&lt;/em&gt; person would have to&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Reduce work and hence let someone else work for him (increase employement)&lt;/li&gt;&#xA;&lt;li&gt;Spend more money so he/she can keep up his/hers income (boost economy)&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;A &lt;em&gt;poor/unemployed&lt;/em&gt; person would (could)&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Profit from social security, since increasing cash flow leads to (possibly) higher tax-income.&lt;/li&gt;&#xA;&lt;li&gt;probably get faster a new job, since profitable companies can only spend more cash on either assets or empolyees&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="7359" LastActivityDate="2016-02-18T08:24:56.407" Title="Can a currency with constraints on the amount a person can posses boost the economy?" Tags="&lt;currency&gt;&lt;cryptocurrency&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10729" PostTypeId="1" AcceptedAnswerId="10734" CreationDate="2016-02-17T22:35:59.743" Score="2" ViewCount="47" Body="&lt;p&gt;When looking at &lt;a href=&quot;http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html&quot; rel=&quot;nofollow&quot;&gt;historical return patterns&lt;/a&gt; for investments, one can clearly see the stellar performance of equities over the long haul. That being said, we know that we can center in on certain 20-25 year time spans throughout that century where the return characteristics look drastically different.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If this is the case, then couldn't the entire 100 year period demonstrating the attractive returns for stocks be an aberration over hundreds or thousands of years, especially considering how &lt;a href=&quot;https://en.wikipedia.org/wiki/Gross_world_product#Historical_and_prehistorical_estimates&quot; rel=&quot;nofollow&quot;&gt;global growth has changed&lt;/a&gt; since pre-history? And how could we hope to know? Is there a statistical/probabilistic way to be understand whether our &quot;long-run&quot; returns are in fact indicative of some sort of deep principle regarding average returns in a market economy?&lt;/p&gt;&#xA;" OwnerUserId="6822" LastActivityDate="2016-02-18T15:58:27.307" Title="We see stocks outperforming things like bonds in the long run (past 100 years), but could this be an artifact of that particular 100 year timeline?" Tags="&lt;financial-economics&gt;&lt;stock-market&gt;&lt;markets&gt;&lt;financial-markets&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10730" PostTypeId="2" ParentId="10722" CreationDate="2016-02-18T03:19:12.970" Score="1" Body="&lt;p&gt;One definition of rationality: Preferences are complete and transitive. This definition suggests that there is no such thing as right or wrong preferences - simply consistent and inconsistent. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So choice theory and utility maximization would explain the scenario you described (MAs Colell's Microeconomic Theory discusses)&lt;/p&gt;&#xA;" OwnerUserId="7303" LastActivityDate="2016-02-18T03:19:12.970" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10732" PostTypeId="2" ParentId="10728" CreationDate="2016-02-18T05:41:48.843" Score="4" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Reduce work and hence let someone else work for him (increase employement)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;But that won't necessarily work.  Say the person is Bruce Springsteen.  He's making enough from royalties to hit the max.  So he doesn't need to tour at all.  But if he doesn't tour, there isn't necessarily someone else that can tour instead of him.  It's just as likely that his fans will just stay at home and play recordings.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Even worse, remember that a Springsteen concert involves many other people that either don't make money from his recordings or not as much:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;His band mates.  He's the face of the band and may well make the largest share of the proceeds.  &lt;/li&gt;&#xA;&lt;li&gt;Roadies.  They make no money from recordings and are only paid for their duties on the live show.  &lt;/li&gt;&#xA;&lt;li&gt;The venue crew.  Ticket sellers, concessions, security, cleaning, etc.  None of these get any money if he doesn't play live shows.  &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Beyond that, there are ways to get around such a limit.  Instead of buying things with the currency, barter your services directly for what you want to obtain.  Or have your employer pay you in benefits rather than salary.  So you and another person may have the same salary, but she or he gets driven to work by a limo paid for by the company while you drive your own car.  &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Spend more money so he/she can keep up his/hers income (boost economy)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It seems unlikely that most rich people actually keep large cash balances.  They either invest or spend their money already.  So any boost from this is going to be minimal.  Another problem is that this boosts the effective money supply, which is going to cause inflation.  So the government will print less money in response, which of course removes the boost.  &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Profit from social security, since increasing cash flow leads to (possibly) higher tax-income.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This seems unproven.  As I said earlier, it could just as well reduce employment.  &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;probably get faster a new job, since profitable companies can only spend more cash on either assets or empolyees&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This doesn't follow from what you wrote, but let's assume that you do something else to make this so (e.g. limiting currency accrual of companies as well as people).  Then how do companies get investment capital?  If they can't pay dividends, then who buys stock in the company?  How does a company start and grow?  Realize that many companies have a minimum size.  FedEx is one of the most egregious.  They need to be nationwide.  They don't work as a local concern.  But other companies have a similar problem.  You can't build your own car and sell it to compete with Ford.  It would take one person years to manufacture a car and how would you pay for parts and materials?  Design?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So instead of getting a new job faster, this would mean that new jobs would be quite rare.  You can only get a new job if an existing company expands.  And it could only expand in fits and starts.  They'd have to buy land on the layaway plan.  Then put up the building in fits and starts.  Buy one machine here and another there.  Then, after months or years of preparation, they can finally start hiring employees.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Under this rule, a company can't save for a rainy day.  So if business is slow, it might go out of business entirely.  All of its employees are laid off.  The best find jobs quickly, possibly displacing other workers.  The lower quality workers stay on the job market.  &lt;/p&gt;&#xA;" OwnerUserId="68" LastActivityDate="2016-02-18T05:41:48.843" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10733" PostTypeId="2" ParentId="10728" CreationDate="2016-02-18T08:15:57.397" Score="0" Body="&lt;p&gt;&lt;strong&gt;Reduce work and hence let someone else work for him (increase employement)&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This will only help if the rich person is working in a relatively unskilled labor intensive field.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Spend more money so he/she can keep up his/hers income (boost economy) - same as your fourth point&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Keynesianism- what youre apparently basing this on- leads to illogical predictions during recessions, such as personal saving rates falling faster than investor savings until consumer goods shortages occur, and doesn't apply to real life.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Profit from social security, since increasing cash flow leads to (possibly) higher tax-income.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Cryptocurrencies are hard to tax. Indeed the whole point is to deny the kind of control that you're talking about to a government.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In conclusion, such a system would only be beneficial if you're trying to lower tax revenue. &lt;/p&gt;&#xA;" OwnerUserId="8360" LastEditorUserId="8360" LastEditDate="2016-02-18T08:24:56.407" LastActivityDate="2016-02-18T08:24:56.407" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10734" PostTypeId="2" ParentId="10729" CreationDate="2016-02-18T08:22:10.673" Score="1" Body="&lt;p&gt;Yes. The relative performance of stocks and bonds depends on monetary policy. Stocks benefit from low interest rates and inflation while bonds benefit from high interest rates. Over the 19th century for example, stocks deflated along with the overall economy while bonds yielded a small positive return.&lt;/p&gt;&#xA;" OwnerUserId="8360" LastActivityDate="2016-02-18T08:22:10.673" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10735" PostTypeId="1" AcceptedAnswerId="10751" CreationDate="2016-02-18T09:08:34.330" Score="1" ViewCount="33" Body="&lt;p&gt;Suppose a monopsonistic firm has the following simple profit function:&#xA;$$\pi (w) = PL(w) - wL(w) $$&#xA;where $L(w)$ is the labor supply, $P$ is the constant output price, and it has a linear production technology.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is a labor supply schedule $L(w)$ that would make the profit function insensitive to the wage? &lt;/p&gt;&#xA;" OwnerUserId="7361" LastEditorUserId="6566" LastEditDate="2016-02-18T12:47:23.227" LastActivityDate="2016-02-19T02:03:42.737" Title="Static wage posting model and indifference to wage levels" Tags="&lt;microeconomics&gt;&lt;labor-economics&gt;&lt;theory&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="10737" PostTypeId="1" CreationDate="2016-02-18T11:14:09.907" Score="5" ViewCount="1103" Body="&lt;p&gt;The utility function for goods can be modeled using something like the &lt;a href=&quot;https://en.wikipedia.org/wiki/Exponential_utility&quot; rel=&quot;nofollow noreferrer&quot;&gt;exponential utility&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$B(x)=\frac{1-\exp(-ax)}{a}$$&#xA;with $a&amp;gt;0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So that marginal benefits are modeled as being within $[0,1]$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$B'(x) = \exp(-ax)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This would look something like this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/zBEDA.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/zBEDA.png&quot; alt=&quot;plot marginal benefits&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So far, so good. Now, in the production of this good, there are costs, because there are &lt;em&gt;bads&lt;/em&gt; which are produced as byproducts (think pollution) that we would like to model.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am not from economics. I just think a project I am working on would benefit by us studying and using whatever is used in micro.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;What are some good utility function for bads (no pun intended) or for costs?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or if you could recommend some good textbook that covers this with enough mathematical rigor that would be fine as well. From Google Books, I have seen this could be a good bet, but it doesn't let me look at it without buying it:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;Microeconomic Theory And Applications - Page 84&#xA;Agarwala S K - 2008&#xA;If we want more industrialisation we have no option but to&#xA;accept more pollution as well. Industrialisation leads to rise&#xA;in utility level while pollution leads to fall in utility level&#xA;It makes the ICs upward sloping to the right. GoodY (Bad) GoodY&#xA;...&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;It seems like it has a nice discussion on how to model bads/costs. Would you recommend it?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;ps: I just realized maybe I could use $C(x)$ as being $B(x)$ but with $a&amp;lt;0$ for what I want...&lt;/p&gt;&#xA;" OwnerUserId="7366" LastEditorUserId="7366" LastEditDate="2016-02-18T11:19:59.653" LastActivityDate="2016-02-18T12:52:58.163" Title="Bads utility function" Tags="&lt;microeconomics&gt;&lt;utility&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10738" PostTypeId="1" CreationDate="2016-02-18T11:48:08.950" Score="1" ViewCount="64" Body="&lt;p&gt;If a country is ready to default on internal debt and ready to confiscate their citizen's money to pay external liabilities, does that affect the yields of the external debt?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If yes, does that make it higher or lower?&lt;/p&gt;&#xA;" OwnerUserId="4150" LastEditorUserId="4150" LastEditDate="2016-02-18T12:17:37.243" LastActivityDate="2016-02-20T21:48:24.473" Title="Can a country's default on internal debt affect the rates of the external debt?" Tags="&lt;government-debt&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10739" PostTypeId="2" ParentId="10737" CreationDate="2016-02-18T12:52:58.163" Score="3" Body="&lt;p&gt;The branch of microeconomics that you seem to be looking for is the study of &lt;em&gt;externalities&lt;/em&gt;—activities that have side-effects that (positively or negatively) effect the welfare of others. The Wikipedia article on the topic is &lt;a href=&quot;https://en.wikipedia.org/wiki/Externality&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any good introductory/undergraduate level textbook will have a treatment of this topic. For example, Hal Varian's &quot;&lt;a href=&quot;http://books.wwnorton.com/books/webad.aspx?id=4294979440&quot; rel=&quot;nofollow&quot;&gt;Intermediate Microeconomics: A Modern Approach&lt;/a&gt;&quot; (which would be my recommended first port of call) has a chapter on externalities. A slightly more specialised treatment can be found in a textbook on so-called public economics such as &quot;&lt;a href=&quot;https://mitpress.mit.edu/books/intermediate-public-economics&quot; rel=&quot;nofollow&quot;&gt;Intermediate Public Economics&lt;/a&gt;&quot; by Myles and Hindriks.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These books also contain examples of how goods with externalities can be formally modeled.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Alternatively, because externalities are a standard element of the economics curriculum, a Google search for &quot;Externalities lecture notes&quot; will turn up lots of freely-accessable PDFs that give a good overview.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2016-02-18T12:52:58.163" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10740" PostTypeId="2" ParentId="10659" CreationDate="2016-02-18T13:42:25.723" Score="2" Body="&lt;p&gt;Another thing to consider is that the Athens Olympic Games were held in 2004. The cost of the games alone, not including infrastructure projects, is estimated around \$10 billion. A lot of construction work was done during the previous two years. The increased government spending may also have benefited other sectors indirectly (multiplicator effects). This could explain another part of the 50% increase.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is only one problem with the argument above. According to the &lt;a href=&quot;http://www.tradingeconomics.com/greece/government-spending&quot; rel=&quot;nofollow&quot;&gt;suspiciously smooth data&lt;/a&gt; I have found, there was no sudden increase in Greek government expenditures during these two years. (Click on max to see the long term.)&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2016-02-18T14:00:26.400" LastActivityDate="2016-02-18T14:00:26.400" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10741" PostTypeId="2" ParentId="10729" CreationDate="2016-02-18T15:58:27.307" Score="0" Body="&lt;p&gt;The fashion for different investment instruments changes over generations; and with them, so do the returns.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In England, it was illegal to form a joint-stock company, for about a century (1720-1825), after the South Sea Bubble.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So yes, looking at the performance of joint-stock companies is very much dependent on the time interval involved.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2016-02-18T15:58:27.307" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10742" PostTypeId="1" AcceptedAnswerId="10745" CreationDate="2016-02-18T16:53:13.903" Score="30" ViewCount="11369" Body="&lt;p&gt;In the youtube video &lt;a href=&quot;https://www.youtube.com/watch?v=3cfDGX7gB5M&quot;&gt;Why We Look down on Low Wage Earners&lt;/a&gt; the author argued: &quot;economics states that wages are determined [...] by the number of people willing and being able to do a given job that others won't do.&quot; (&lt;a href=&quot;https://www.youtube.com/watch?v=3cfDGX7gB5M&amp;amp;feature=youtu.be&amp;amp;t=1m1s&quot;&gt;video at 1:00&lt;/a&gt;). While this explains much of the variance in the wages of different jobs, it does not give in my opinion a good explanation, why celebrities earn high wages.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Take for example actors. There are a lot of people working in this field and there are many more wanting to become an actor or actress. Due to the quoted theory the wages in this field should be low which is not the case &lt;a href=&quot;http://www.mywage.org/zimbabwe/main/salary/vip-celebrities-pay/celebrity-actors-pay&quot;&gt;for celebrities&lt;/a&gt;. The theory does also not explain the variance of the wages inside this field (compare the &lt;a href=&quot;http://www.payscale.com/research/US/All_Actors_%2f_Actresses/Hourly_Rate&quot;&gt;median hourly earning of actors / actresses&lt;/a&gt; with those of celebrities).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question: How do economics explains the outliers in the wages in form of the high earnings of celebrities? How does popularity exert an influence here? (Do celebrities get much money because they are popular or are they popular because they are rich?) How does economics explains the different wages for a certain kind of job?&lt;/p&gt;&#xA;" OwnerUserId="7368" LastEditorUserId="1601" LastEditDate="2021-05-12T10:52:34.283" LastActivityDate="2021-05-12T10:52:34.283" Title="Why do celebrities get high wages?" Tags="&lt;microeconomics&gt;&lt;finance&gt;&lt;nonexpert&gt;&lt;wages&gt;" AnswerCount="6" CommentCount="9" FavoriteCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="10743" PostTypeId="2" ParentId="10742" CreationDate="2016-02-18T17:24:53.200" Score="18" Body="&lt;p&gt;I suggest to learn more about the Economics of Superstars. Within the economics field, the &quot;superstar&quot; term is &quot;...used to refer to extreme wage outliers (&lt;a href=&quot;http://www.jstor.org/stable/1812714?seq=1#page_scan_tab_contents&quot;&gt;Adler, 1985&lt;/a&gt;; &lt;a href=&quot;http://www.jstor.org/stable/1803469?seq=1#page_scan_tab_contents&quot;&gt;Rosen, 1981&lt;/a&gt;). These outliers are such that in a labor market there appears to be a convex relationship between wages and skills (&lt;a href=&quot;http://jse.sagepub.com/content/4/1/35.abstract&quot;&gt;Lucifora &amp;amp; Simmons, 2003&lt;/a&gt;). There are two main competing, yet not mutually exclusive, superstar theories: Rosen (1981) suggests that superstars enjoy huge salaries because of a scarcity of talent, so that a little additional talent translates into large additional earnings, whereas Adler (1985) suggests that huge salaries are caused by positive network externalities that create additional popularity, even in the absence of talent. (&lt;a href=&quot;http://www.bbk.ac.uk/management/docs/workingpapers/WP9.pdf&quot;&gt;Fumarco &amp;amp; Rossi, 2015, p.17&lt;/a&gt;)&quot; &lt;/p&gt;&#xA;" OwnerUserId="4997" LastEditorUserId="4997" LastEditDate="2016-02-18T17:32:26.360" LastActivityDate="2016-02-18T17:32:26.360" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10744" PostTypeId="1" CreationDate="2016-02-18T17:41:28.590" Score="4" ViewCount="64" Body="&lt;p&gt;If you give somebody with a high consummate some extra money, most likely it will be spent. Having this spent for e.g. groceries this will make sales man, farmer, ... employed so they pay taxes are buy groceries for their own. How huge is the multiplicator on this for modern services oriented societies? &lt;/p&gt;&#xA;" OwnerUserId="6876" LastActivityDate="2016-02-19T19:42:52.777" Title="How huge is the multiplicator of social welfare in current societies?" Tags="&lt;welfare-economics&gt;&lt;social-welfare&gt;" AnswerCount="1" CommentCount="1" ClosedDate="2016-02-20T12:05:50.570" ContentLicense="CC BY-SA 3.0" />
  <row Id="10745" PostTypeId="2" ParentId="10742" CreationDate="2016-02-18T17:46:02.527" Score="37" Body="&lt;p&gt;If you ask yourself how much a potential employer would have to pay you to convince you to work for him, the answer is probably something like &quot;at least as much as I could earn by doing the same job for another employer&quot;. So, provided there are several employers competing to hire workers, you can think of employers as bidding against each other for the best employees. But how much will firms bid? Each employer would be willing to pay up to the difference between its profit if it hired this particular worker and its profit if it took the next best alternative. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is why the supply of alternative employees matters. If there are many people capable of doing the same job then a firm's profit if it hires you will be almost the same as the profit if it hire someone else. So why should it 'bid' a lot to hire you? An unskilled factory worker who asks his employer for a significant pay rise will likely be refused because virtually any worker doing the same job would have equivalent productivity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Celebrities are a different story. Just as factory workers are hired to produce goods for the factory owner, actors are hired to produce movie ticket sales for the studio. But viewed in this light, Tom Hanks or Angelina Jolie are not close substitutes for as yet unknown actors at all. Indeed well-known actors &lt;a href=&quot;http://hbswk.hbs.edu/item/the-box-office-power-of-stars&quot;&gt;are considerably better at producing ticket sales than unknown talent&lt;/a&gt;. Studios are willing to bid a lot to attract top actors because having a star in your cast is worth millions of dollars in extra ticket sales.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2016-02-18T17:46:02.527" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10746" PostTypeId="1" CreationDate="2016-02-18T18:05:36.840" Score="0" ViewCount="262" Body="&lt;p&gt;I have a basic question about comparative statics. In Wikipedia, it is mentioned that:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;blockquote&gt;&#xA;    &lt;p&gt;As a study of statics it compares two different equilibrium states...&lt;/p&gt;&#xA;  &lt;/blockquote&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;What exactly is an equilibrium? I have a fixed point in my model. This does not arise from a strategic utility maximisation. I start from an initial point, iterate repeatedly in a bounded space, and I can prove I converge to a given point. Now I would like to see how sensitive my final fixed point is to my initial starting point, which was exogenous.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does this classify under comparative statics? Or is it just a sensitivity analysis? I am confused because the usual machinery of comparative statics, that is, the implicit function theorem, does not hold in my setting.&lt;/p&gt;&#xA;" OwnerUserId="41" LastActivityDate="2016-02-19T14:57:51.017" Title="Do there exist 'comparative statics' for fixed points?" Tags="&lt;comparative-statics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10747" PostTypeId="1" CreationDate="2016-02-18T20:17:44.363" Score="7" ViewCount="514" Body="&lt;p&gt;Varoufakis' book contains some arguments and explanations. I don't have the book in English with me, so this is a 'free translation' of a couple of points (bold is mine):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;Contrary to the entrepeneur, the banker does not organize production. (...) We're wrong to think that he is an intermediary between those with excess money and those who wish to lend that money (...). Before, it was like that. Centuries ago. Now, only in very rare occasions does the banker have that role. (...) In developed market societies, the banker does not obtain existing value (money) from some to then give it to others. &lt;strong&gt;He obtains it from the future, so that it's possible to use it in the present.&lt;/strong&gt; (...)&quot; &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;['Talking to my daughter about the economy', Chapter 4, section 'The &quot;hand&quot; of the banker']&lt;/p&gt;&#xA;&#xA;&lt;p&gt;He later, on the same chapter, goes on to say:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;Every society has its legends. Market society is no exception. &lt;strong&gt;The&#xA;  fundamental legends of our time&lt;/strong&gt; are these four:&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;(...)&lt;/p&gt;&#xA;  &#xA;  &lt;ol start=&quot;2&quot;&gt;&#xA;  &lt;li&gt;&lt;strong&gt;Bankers lend money from savings accounts deposits.&lt;/strong&gt; &lt;/li&gt;&#xA;  &lt;/ol&gt;&#xA;  &#xA;  &lt;p&gt;(...)&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Finally, later on (Chapter 5), when listing reasons for why people can't get loans after a crisis, he lists some reasons:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;First, because banks won't lend them money, since they are themselves&#xA;  based on money that they don't own, that is, the debts of private&#xA;  parties and the State to them, which will never be payed.&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;What does he mean by 'banks lend money from accounts' being a legend? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am admitedly very naive about economy in general (hence what may seem a very ignorant question) but I was always under the assumption that banks make money by charging higher interest from the money they lend then they pay people for their savings accounts. What is this 'borrowing from the future' mechanism that he describes?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, doesn't the last bit contradict that? If banks can 'make up' money 'from the future', why do they &lt;em&gt;depend&lt;/em&gt; on the money from the debts of people, companies and the State?&lt;/p&gt;&#xA;" OwnerUserId="7371" LastEditorUserId="5501" LastEditDate="2016-04-25T18:53:39.520" LastActivityDate="2018-01-22T16:28:00.537" Title="What does Varoufakis mean by 'banks can make up money' in 'Talking to my daughter about the economy'?" Tags="&lt;banking&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="10748" PostTypeId="2" ParentId="10746" CreationDate="2016-02-18T20:34:14.097" Score="3" Body="&lt;p&gt;&quot;Comparative statics&quot; may refer to two closely related but not identical exercises:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;a)&lt;/strong&gt; Regarding a specific equilibrium point, we examine how the properties, associated values etc of it change as we vary the value of an exogenous parameter. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;b)&lt;/strong&gt; But also, we can put under &quot;comparative statics&quot; the case where the model has multiple equilibria. Inherently, when more than one equilibria exist, it means that they are dependent on the value of (or inter-relation between) some of the model parameters. Assessing this situation, i.e. contrasting the two solutions, the sets of parameter values for which we obtain the one equilibrium or the other (&quot;values&quot; do not necessarily mean numerical ones -they may be bounds expressed in terms of other parameters etc), understanding the economic essence behind the differences, is a &lt;em&gt;comparison&lt;/em&gt; of two &lt;em&gt;static&lt;/em&gt; situations. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So @Oliv comment below the question is valid, indeed, the initial condition structurally is just one more exogenous parameter of the model.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That said, in most cases, dependence (or not) on initial conditions (or &quot;history-dependence&quot; more generally) usually falls under &lt;em&gt;stability analysis&lt;/em&gt;:  &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;if a fixed point is &lt;em&gt;globally&lt;/em&gt; asymptotically stable, it means that there is no dependence on the initial value, whatever it is (in the feasible space).&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;if a fixed point is asymptotically stable, it means that it has a basin of attraction, but which may be only a subset of the feasible space.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Proving global asymptotic stability is usually difficult (in most cases, one has to find an associated &lt;strong&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Lyapunov_function&quot; rel=&quot;nofollow&quot;&gt;Liapunov function&lt;/a&gt;&lt;/strong&gt;), and it becomes harder the more non-linear is the differential/difference equation/system under study. So computationally showing that it is indeed globally asymptotically stable, is useful.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2016-02-19T14:57:51.017" LastActivityDate="2016-02-19T14:57:51.017" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="10749" PostTypeId="2" ParentId="10521" CreationDate="2016-02-18T23:23:59.200" Score="1" Body="&lt;p&gt;These are the recommended books for our Engineering Economics university course:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Main Textbook&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;N. M. Fraser and E. M. Jewkes, Engineering Economics: Financial Decision Making for Engineers, 5th edition, Pearson, Toronto, Ontario, 2013&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Supplementary Resources&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;D. G. Newnan, J. Whittaker, T. G. Eschenbach and J. P. Lavelle, Engineering Economic Analysis, 3rd&#xA;edition, Don Mills, Toronto, Ontario, 2014.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;J. A. White, K. E. Case and D. B. Pratt, Principles of Engineering Economic Analysis, 5th edition, Hoboken,&#xA;NJ, USA, 2010.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I found the main textbook easy to follow. Hope this helps!&lt;/p&gt;&#xA;" OwnerUserId="7373" LastEditorUserId="7373" LastEditDate="2016-02-19T13:47:28.110" LastActivityDate="2016-02-19T13:47:28.110" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10751" PostTypeId="2" ParentId="10735" CreationDate="2016-02-19T01:43:14.360" Score="1" Body="&lt;p&gt;The profit function is an &lt;em&gt;optimal&lt;/em&gt; relation. So it must satisfy the first-order conditions for a maximum:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \text{f.o.c} : w^*: PL' - L - w^*L' =0 \implies L\left[ (P-w^*) \frac {L'}{L}-1\right] = 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In order for this condition to be satisfied no matter what the wage is, it must be the case that, for all wage-levels we have &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$(P-w) \frac {L'}{L}-1 = 0 \;\;\forall w \implies L' = \frac{1}{P-w}L \;\;\forall w$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course this looks exactly like the first-order condition - &lt;strong&gt;the critical difference is that it now must hold for all $w$&lt;/strong&gt;, and so it is not any more a condition that can hold for a specific $w$, but a differential equation in $w$, that falls in the general category $y'_x = f(x)\cdot y$. It can be solved (it is &quot;separable&quot;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I guess you can finish this.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2016-02-19T02:03:42.737" LastActivityDate="2016-02-19T02:03:42.737" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10753" PostTypeId="2" ParentId="10744" CreationDate="2016-02-19T04:09:22.777" Score="-3" Body="&lt;p&gt;Keynesianism (what you're apparently basing this on) is incoherent and relies on arbitrary eigenvalues such as &quot;autonomous consumption&quot;. In real life the multiplier is small and inconsequential. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, the multiplier may appear close to one or slightly above simply because GDP increases the instant the government approves spending in public-subsidised enterprises, due to the way GDP is defined. For example, let's say the government spends $1 to subsidize Fannie Mae and this is counted as a consumption item (for whatever reason). GDP immediately increases by a dollar. Now Fannie Mae spends this on some irrelevant bureaucratic expense (buying mortgage derivatives, legal fees, financial services etc). GDP increases by a dollar again. So we just achieved a multiplier of two while having absolutely no effect on the real world.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As you can see, measured GDP is subject to all sorts of random problems that make any attempt to calculate the multiplier pointless.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Furthermore, strictly speaking, the &quot;multiplier&quot; is only technically supposed to apply to government consumption, and not transfers as you are asking about. &lt;/p&gt;&#xA;" OwnerUserId="8360" LastEditorUserId="8360" LastEditDate="2016-02-19T19:42:52.777" LastActivityDate="2016-02-19T19:42:52.777" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="10755" PostTypeId="1" CreationDate="2016-02-19T07:47:25.023" Score="3" ViewCount="319" Body="&lt;p&gt;I have this homework question:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Q: Suppose that a marketing company is seeking to identify customers interested in their product. &#xA;  They regress the number of sales in an area on the average education level in that area. Does the coefficient likely represent a causal effect? Why? Is this a problem? Explain.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;A: The coefficient is not likely to represent a causal effect, it&#xA;  merely shows how the number of sales and average education move&#xA;  together. That relationship could be causality, reserve causality, an&#xA;  omitted variable could be determining both, or the two could be&#xA;  simultaneously determined. This isn’t a problem because the company&#xA;  isn’t trying to cause people to have more interest, they just want to&#xA;  predict if they’re interested or not.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So now I want to know, how is a regression used differently in a forecast vs a causal analysis?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I'm looking for predictive power vs causality, how might the regression models be different, if at all?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or how might the results be interpreted differently?&lt;/p&gt;&#xA;" OwnerDisplayName="user4207" LastEditorDisplayName="user4207" LastEditDate="2016-03-21T07:30:10.133" LastActivityDate="2016-03-21T07:30:10.133" Title="Forecasting vs econometrics, how is regression used differently?" Tags="&lt;econometrics&gt;&lt;applied-econometrics&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10756" PostTypeId="1" AcceptedAnswerId="10759" CreationDate="2016-02-19T08:17:12.737" Score="6" ViewCount="15143" Body="&lt;p&gt;Trying to understand this problem:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Suppose you had access to a dataset that follows individuals from&#xA;  adolescence throughout adulthood. Each year, you observe earnings,&#xA;  educational attainment, health, and marital status.  Suppose you were&#xA;  interested in seeing how marriage causally affects the earnings of&#xA;  men. Using the described data, how would you examine this question?  What&#xA;  would be your identifying assumption?  How could you assess the&#xA;  plausibility of this assumption?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;First I'm trying to understand, what is an identifying assumption? I think it's the assumption you test that tells you whether there was a causal relationship or not. Is that right?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And my first thoughts on answering the homework problem are these:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would have to determine that income and marriage aren't simultaneously determined, reverse causal, or both influenced by the same variable. So creating a counterfactual group (unmarried men) and matching with married men could set up a good difference in differences.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But how to assess the plausibility of this assumption? I usually just plug numbers into the computer and don't care about plausibility. What makes an assumption more plausible in econometrics?&lt;/p&gt;&#xA;" OwnerDisplayName="user4207" LastActivityDate="2019-06-28T13:48:37.460" Title="What does it mean to make an identification assumption?" Tags="&lt;applied-econometrics&gt;" AnswerCount="3" CommentCount="1" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="10758" PostTypeId="1" AcceptedAnswerId="10762" CreationDate="2016-02-19T10:02:12.877" Score="1" ViewCount="734" Body="&lt;p&gt;For commercial deployment, price elasticity is calculated through linear regression which assumes that there is a linear relationship between price and sales. I have a)price and b)social media ratings for my product. I know that social media ratings influence consumer decision to purchase or not purchase something. As per assumption of linear regression if social media rating is low we need to reduce price to improve sales. However, beyond a point price cuts will not help in increasing sales. This is a violation of linearity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So my question is what if &lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) Relationship is not linear even after log transformation of the data?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) How can i know about the point at which i need to stop from cutting price further.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To give a background, i have already read this &lt;a href=&quot;https://economics.stackexchange.com/questions/17/econometrics-is-elasticity-meaningful-in-my-or-any-regression?rq=1&quot;&gt;Econometrics: Is elasticity meaningful in my, or any, regression?&lt;/a&gt; However, it didn't seem to answer my second question, which is will my sales continue to increase if i keep dropping price although i have a low social media rating?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My background: I am a statistician and my economics knowledge is all i read in college. I am working a revenue optimization problem&lt;/p&gt;&#xA;" OwnerUserId="7206" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2016-02-20T05:05:19.897" Title="Price elasticity when relationship between sales, price and other factors is not linear" Tags="&lt;econometrics&gt;&lt;elasticity&gt;&lt;applied-econometrics&gt;&lt;regression&gt;&lt;price-theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10759" PostTypeId="2" ParentId="10756" CreationDate="2016-02-19T11:03:00.790" Score="9" Body="&lt;p&gt;Identifying assumption: assumptions made about the DGP that allows you to draw causal inference. E.g. exogeneity assumption for IV, parallel trends assumption in diff-in-diff.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Identifying assumptions (lack of endogeneity in general) can never be&#xA;statistically confirmed (a non-reject is good, but it's not confirmation). So assessment of plausibility consists of empirical arguments based on what you know about the DGP.&lt;/p&gt;&#xA;" OwnerUserId="126" LastActivityDate="2016-02-19T11:03:00.790" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10760" PostTypeId="2" ParentId="10742" CreationDate="2016-02-19T12:42:18.533" Score="4" Body="&lt;p&gt;They are both irreplacable and cause the people to work for to earn lots of money.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Celebrities, by definition, are personalities with mass appeal and are therefore known by a large number of people. A certain portion of the people who know them will pay to see / hear them specifically (e.g. in a movie).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore they, through their agent, are well able to justify their high wage to their employer, who would make considerably less money from the product without them. (Unlike, say, a factory worker of a well-known brand who could easily be replaced without anyone noticing)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So Leonardo diCaprio doesn't have to be particularly loved by anyone, just liked by enough millions of people enough to make them buy a ticket to the film. If this results in his appearance boosting the film's income by €50 million, he could probably easily ask for a wage of, say, €25 million.&lt;/p&gt;&#xA;" OwnerUserId="7378" LastActivityDate="2016-02-19T12:42:18.533" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10761" PostTypeId="2" ParentId="10742" CreationDate="2016-02-19T14:50:17.320" Score="5" Body="&lt;p&gt;The other answers already give a good explanation about how actors are not easily replaced. But I'd like to highlight a flaw in the premise of your question: namely that you are cherry-picking data. You cannot consider the median wage of actors/actresses without considering the &lt;em&gt;entire cohort&lt;/em&gt;. You are only looking at the winners, if it were possible (and maybe it is) to calculate the median hourly wage of everyone &lt;em&gt;trying&lt;/em&gt; to work in the industry versus only the lucky/talented successful few it would be much lower and reflective of the number of people in the entire &quot;field&quot;.&lt;/p&gt;&#xA;" OwnerUserId="6303" LastEditorUserId="6303" LastEditDate="2017-02-15T18:26:57.753" LastActivityDate="2017-02-15T18:26:57.753" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="10762" PostTypeId="2" ParentId="10758" CreationDate="2016-02-19T15:31:19.350" Score="1" Body="&lt;p&gt;There is a confusion between a &quot;linear relationship between two variables&quot; and an &quot;econometric equation that is linear in the unknown parameters to be estimated&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first has to do with what happens in reality, and it implies that the marginal relation is constant. The second may be obtained even if the actual relation is not linear, but non-linear &lt;em&gt;in specific ways&lt;/em&gt; that permit to obtain it by a suitable transformation of the data. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To illustrate this, for the OP's case, the actual (deterministic part of the) relation may be&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$X_d = AR^aP^{-b} \tag{1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Demand $X_d$ for the product is a positive non-linear function of social ratings $R$ and a negative non-linear function of its own price $P$. The marginal effect of price for this relation is not-constant&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac {\partial X_d}{\partial P} = -\frac{b}{P}X_d &amp;lt;0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By assuming $(1)$ we have already made a series of assumptions about the interplay of the variables involved. This specification permits us to obtain &quot;an econometric equation that is linear in the unknown parameters to be estimated&quot; since by taking logs we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\ln X_d =\ln A +a\ln R +(-b)\ln P \tag{2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So while the marginal effect of price on demand is not linear and not constant, the &lt;em&gt;elasticity&lt;/em&gt; of demand with respect to price is constant, and equal to $-b$ (the sign indicating direction of influence).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But is $(1)$ an adequate way to represent the actual relation? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the proper way to proceed here is to  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;1)&lt;/strong&gt; To the best of our knowledge, using evidence and logical arguments, we determine the qualitative interrelations between the variables involved: is the effect positive/negative? Is the relation of their levels linear/non-linear? Is it monotonic or, say &quot;inverted-U&quot;, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;2)&lt;/strong&gt; We construct a mathematical form that reflects qualitatively the conclusions/assumptions arrived at in step 1. For example, if we believe that an &quot;inverted-U&quot; relationship exists between levels of $Y$ and $Z$, this could be modeled by $Y = a + bZ + cZ^2$ with $c&amp;lt;0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;3)&lt;/strong&gt; If the mathematical expression we obtain in step 2 is not linear in the unknown parameters of interest, we check whether it can be transformed into one that it is. Of course, there are estimation methods for non-linear relationships, non-linear least-squares being the easy example. But experience has taught us that our estimation techniques are better when they estimate equations linear in the unknown parameters, this is why we always try to arrive at such a specification, even if we may accept in the process certain approximating steps to what we have obtained in step 2 (and not just exact transformations).&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2016-02-19T15:31:19.350" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10763" PostTypeId="1" AcceptedAnswerId="10766" CreationDate="2016-02-19T15:41:47.253" Score="2" ViewCount="86" Body="&lt;p&gt;I have seen the basic equation that rules this system:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ Assets = Liabilities + Equity $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;@Alecos Papadopoulos has a really great answer that totally makes sense for &lt;a href=&quot;https://economics.stackexchange.com/a/3046/5780&quot;&gt;this question&lt;/a&gt;.  But, I would like to ask, why does the bank &lt;em&gt;need&lt;/em&gt; to write-off the debt against Shareholders capital invested?  Why cannot they act like the Pope and say, &lt;em&gt;&quot;I forgive your debt&quot;&lt;/em&gt; then move on and &lt;em&gt;not&lt;/em&gt; write off the shareholder's capital?  Would this not be better for everyone?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Further, I have read Jeffrey Sachs has argued for debt forgiveness for developing countries that have trouble paying back their debt, is this a similar situation replacing Person $A$ with country $A$?&lt;/p&gt;&#xA;" OwnerUserId="5780" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2016-02-19T16:42:44.270" Title="Why do banks need to write-off the debt against Shareholders capital invested" Tags="&lt;banking&gt;&lt;accounting&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10764" PostTypeId="2" ParentId="10755" CreationDate="2016-02-19T15:47:37.450" Score="2" Body="&lt;p&gt;In forecasting, we just want to predict what will happen. So &lt;em&gt;assuming that there is a certain degree of stability in the relation&lt;/em&gt;, so that the relation is valid outside the sample, we estimate how past sales co-vary with education level (or whatever), and we say &quot;so if we move into New Area &quot;X&quot;, and apply the same sales strategy, since in &quot;X&quot; the educational level is &quot;Y&quot; we predict that our sales will be &quot;Z&quot;, given the estimated co-movement relation&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In an econometric analysis, we certainly are interested in estimating the same relation, but if we want to perform also causality analysis, identifying assumptions become necessary and specific models arise, (like the &quot;Differences-in-Differences&quot; approach for example), designed to detect and assess causality.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By the way the first sentence in the &quot;A&quot; part of the question is &quot;wrong in the other direction&quot;: the phrase &quot;is not likely to represent a causal effect&quot; is inaccurate: it is &quot;as likely&quot; to represent one, as it is not, since basic regression is &quot;agnostic&quot; about causal effects, it is just about detecting and estimating correlation.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2016-02-19T15:47:37.450" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10765" PostTypeId="1" CreationDate="2016-02-19T15:58:33.967" Score="1" ViewCount="25" Body="&lt;p&gt;In this &lt;a href=&quot;https://economics.stackexchange.com/q/6460/5780&quot;&gt;question&lt;/a&gt;, with answer here &lt;a href=&quot;https://economics.stackexchange.com/q/6460/5780&quot;&gt;Destroying the Dollar&lt;/a&gt;hypothetically a hack is used to trick whatever programme is used to make sure accounts balance, so say a transfer is made from Bank manager A to Hacker's B account, the value of said transfer is deposited into B's account but when it is to be subtracted from A's account the hack tricks the bank programme to think the transaction bounced and so the amount is deposited back into A's account but is &lt;em&gt;not&lt;/em&gt; reduced by B's account.  Would this be possible.  And if so, would this create wealth out of nothing, and assuming the hacker will go on to spend this money in the economy raise GDP?&lt;/p&gt;&#xA;" OwnerUserId="5780" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2016-02-19T16:04:29.573" Title="Why is Double-entry Bookkeeping always equal? (Part 2)" Tags="&lt;banking&gt;&lt;money-supply&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10766" PostTypeId="2" ParentId="10763" CreationDate="2016-02-19T16:07:03.693" Score="1" Body="&lt;p&gt;&quot;Double-entry&quot; bookkeeping is the &lt;em&gt;resulting methodology&lt;/em&gt; of the fundamental approach of Accounting science to what a productive mechanism does (be it a company or whatever): Accounting perceives productive entities as mechanisms to transform capital from one form to another, &lt;em&gt;irrespective&lt;/em&gt; of what their economic goal is for doing this (profits, charity, whatever).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Liabilities+Equity side shows &quot;how much capital and from whom&quot; has  the firm sourced and put it under its control, and the Assets side shows to what forms the firm has transformed &lt;em&gt;this same capital&lt;/em&gt; . But if it is the &lt;em&gt;same&lt;/em&gt; capital, it &lt;em&gt;necessarily has the same value&lt;/em&gt; : this is why accountants write the same number twice: they write it once and link it to a code that shows from whom did the firm get this amount of capital, and they write it a second time and link &lt;em&gt;this&lt;/em&gt; to a code that represents &lt;em&gt;to what&lt;/em&gt; has the firm transformed the capital.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So I took a capital of 1,000 from a source called, say, Shareholders, (or Deposits, or a combination) and transformed it in another form of capital called &quot;Loans to customers&quot;. I write the number down two times, one linking it to the code that Shareholders have, and a second time to link it to the code that &quot;Loans to customer has&quot;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;At the same time &quot;Liabilities + Equity&quot; shows &lt;em&gt;how much capital must the firm return back&lt;/em&gt; -because in the theoretic Accounting model, the company itself &quot;owns nothing&quot;, it is just a capital transformation mechanism. It may has capital under its control, but it has eventually to return it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now the customer appears and says, &quot;no payback&quot;. It is the same thing as a fire destroying a building - an amount of capital has been lost. So the company can no longer return it. Given the general legal/social arrangements, in such cases, irrespective of the actual source of capital (say, Deposits), those who will now must expect to get lower capital back, are the shareholders. So the double-entry write-off of the bad loan reflects exactly that fact: &quot;I, the transformation mechanism, inform the world that a) I just lost an amount of capital and consequently that b) given the rules, my shareholders have now a lower claim from me, as regards the return of capital to them&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Not doing this, won't &quot;be better for everyone&quot;, because it would be misleading - by looking at the bank's book, the shareholders would still expect to receive back their 1,000 investment, but they would eventually find out that only 100 are there in reality.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I hope that helps.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2016-02-19T16:42:44.270" LastActivityDate="2016-02-19T16:42:44.270" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10767" PostTypeId="2" ParentId="10742" CreationDate="2016-02-19T16:13:52.613" Score="-2" Body="&lt;p&gt;It's still supply and demand.  There are thousands of actors, but there is only one Tom Cruise.  Thus he can command a high wage.  It's not like they are a commodity, where each one is exactly alike, or very similar as would be the case for crane operators.  &lt;/p&gt;&#xA;" OwnerUserId="7383" LastActivityDate="2016-02-19T16:13:52.613" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10768" PostTypeId="1" AcceptedAnswerId="10770" CreationDate="2016-02-19T16:19:37.017" Score="2" ViewCount="85" Body="&lt;p&gt;In an economy with finite actors, if every account is perfectly balanced against another account, how can the economy grow when new money enters?  I am thinking of the following chain of events:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;The Fed prints money&lt;br&gt;&#xA;   + Fed: $+$ debit (imbalanced book)&lt;/li&gt;&#xA;&lt;li&gt;A Bank recieves cash from one of the 12 regional Fed banks&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Fed: $-$ credit (balanced book)&lt;/li&gt;&#xA;&lt;li&gt;Bank: $+$ debit (imbalanced book)&lt;/li&gt;&#xA;&lt;/ul&gt;&lt;/li&gt;&#xA;&lt;li&gt;Lady takes loan out from the Bank&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Bank: $-$ credit (balanced book)&lt;/li&gt;&#xA;&lt;li&gt;Lady: $+$ debit (imbalanced book)&lt;/li&gt;&#xA;&lt;/ul&gt;&lt;/li&gt;&#xA;&lt;li&gt;Lady is payed by her company&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Lady: $-$ credit (balanced book)&lt;/li&gt;&#xA;&lt;li&gt;Company: $+$ debit (imbalanced book)&lt;/li&gt;&#xA;&lt;/ul&gt;&lt;/li&gt;&#xA;&lt;li&gt;People buy good or service from company&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Company: $-$ credit (balanced book)&lt;/li&gt;&#xA;&lt;li&gt;People: $-$ debit (imbalanced book)&lt;/li&gt;&#xA;&lt;/ul&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;And from here I am too confused to continue $\dots$ I am not sure we can say credit and debit in this sense, I just mean to show there is someplace that is always unbalanced.  The conclusion I always end up with is that this chain is complete (all parties are balanced) when a new loan is taken out, .. but this makes another chain, which I feel just cannot be the answer!&lt;/p&gt;&#xA;" OwnerUserId="5780" LastEditorUserId="61" LastEditDate="2016-02-19T17:25:16.430" LastActivityDate="2016-02-19T19:37:05.073" Title="How can economies grow if every account is perfectly balanced against others?" Tags="&lt;banking&gt;&lt;economic-growth&gt;&lt;money-supply&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10769" PostTypeId="2" ParentId="10755" CreationDate="2016-02-19T16:45:21.917" Score="1" Body="&lt;p&gt;If you're doing a predictive analysis, you could use something like Logistic Regression, which usually you can use to give you a binary answer such as 1,0. For example you could estimate a person's likelihood they will apply for a credit card at your bank based on their education, income, and age, and the answer would be something like (1=yes) or (0=no). In my experience this could be considered an econometric analysis as well as a predictive analysis and &quot;predictive analytics&quot; could be considered a subset of &quot;econometric analysis&quot;, but others may differ.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You could also say that econometric analysis is looking at correlations between past data, and how these variables relate to each other, &quot;move&quot; in relation to each other, and draw conclusions from how variable y responds to changes in variable x, based on past data.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Predictive analytics also involves methods such as ARIMA modeling which doesn't use statistics at all, but rather past trends, errors, and &quot;differences&quot;. ARIMA is a pretty fair method, but in my experience I enjoy have a statistical method based on assumptions for analytics. &lt;/p&gt;&#xA;" OwnerUserId="7385" LastActivityDate="2016-02-19T16:45:21.917" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10770" PostTypeId="2" ParentId="10768" CreationDate="2016-02-19T17:15:45.153" Score="1" Body="&lt;p&gt;The Accounting mistake is in step 1, obviously, since you performed a single-entry and not a double-entry:&#xA;The Central Bank books are not imbalanced: schematically speaking the CB credits the account &quot;money creation&quot; (or &quot;Our future&quot;) and &lt;em&gt;debits&lt;/em&gt; its own &quot;Cash Available&quot;: this is the essence of &quot;the printing privilege&quot;: the CB has the right to create money out of thin air.&#xA;Then, it credits its Cash Available account and debits the customer/borrower &quot;Commercial Bank&quot; -because Commercial Bank don't just get money from the Central Bank, they borrow it (or the Central Bank instead of lending money, it buys shareholder stock of the commercial bank or any other so-called &quot;open market operations&quot;). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So all books balance. As regards growth in such a balanced-book situation, the key is in step 5, &quot;People buy good or service from company&quot;: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What tells you that the firm has the capacity to serve the demand it faces? If demand is now increased because new money have flown into the economy (and initially people treat money as a store of value/purchasing power, not just as a medium of exchange in a static situation), the firm may have to increase its productive capacity to satisfy total demand.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If it cannot do that, the firm will see an opportunity to raise prices, hence new money will just cause inflation. But if the firm &lt;em&gt;can&lt;/em&gt; increase its productive capacity, namely, if there is people unemployed and capital laying idle, then the firm will &quot;call to arms&quot; these currently unemployed factors of production, and it will put them to work and produce, thus &lt;em&gt;increasing&lt;/em&gt; output and so creating growth.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This effect can certainly be written using the balanced-book Accounting Language, but I will leave that as an exercise.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2016-02-19T17:24:55.587" LastActivityDate="2016-02-19T17:24:55.587" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="10772" PostTypeId="2" ParentId="10276" CreationDate="2016-02-19T19:34:12.073" Score="-1" Body="&lt;p&gt;It destabilized the third world via food prices and killed economic growth. Yes it was noticed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Energy prices increase before every major recession. The financial and demand-based theories of recessions, although widely believed, are completely baseless and unfalsifiable.&lt;/p&gt;&#xA;" OwnerUserId="8360" LastEditorUserId="8360" LastEditDate="2016-02-19T21:11:21.933" LastActivityDate="2016-02-19T21:11:21.933" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="10773" PostTypeId="2" ParentId="10768" CreationDate="2016-02-19T19:37:05.073" Score="-1" Body="&lt;p&gt;Debt to the Federal Reserve is not considered debt by accountants. Thus, the economy is able to maintain the appearance of positive net worth. In reality all money originates from debt and nobody besides the Fed owns anything. &lt;/p&gt;&#xA;" OwnerUserId="8360" LastActivityDate="2016-02-19T19:37:05.073" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10774" PostTypeId="1" CreationDate="2016-02-19T22:32:47.657" Score="1" ViewCount="694" Body="&lt;p&gt;I am stuck on a textbook question for a long time now.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;What is the amount of quarterly deposits A, such that you will be able to withdraw the amounts in cash flow diagram if the interest rate is 8% compounded monthly ?&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/cmtk1.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/cmtk1.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My attempt : &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I found out the effective interest rate as $2\%$. Now I formed the equation : &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$(A(F/P,2\%,4) + A(F/A,2\%,4) - 1500 )*(F/P,2\%,4) + A(F/A,2\%,4) = 2500$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Solving which I get $A = \$422.75$ . But the answer at the back of the book says $\$755.89.$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't understand where I am going wrong. Any suggestions as to where I might be going wrong?&lt;/p&gt;&#xA;" OwnerUserId="6664" LastActivityDate="2016-02-19T22:32:47.657" Title="Equal payment series compound interest problem" Tags="&lt;mathematical-economics&gt;&lt;inflation&gt;&lt;interest-rate&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10775" PostTypeId="2" ParentId="10742" CreationDate="2016-02-20T04:36:10.327" Score="2" Body="&lt;p&gt;I would argue that a large amount of what they're being paid isn't compensation for the work being done but a fee to have access to their &quot;brand&quot;.  The company producing the film is purchasing certainty in box-office takings, not employing them to act a role.  The payment therefore has multiple components and can't be analysed simply as wages.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's possible that there is no need for the actor to appear in the movie at all but could sell the rights for the production company to associate their name and image with the film when publicising it.  That would, however, probably have a negative impact on their public image, reducing it's value accordingly.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However I'm not an economist so feel free to downvote this answer as just ignorant opinion.&lt;/p&gt;&#xA;" OwnerUserId="7392" LastActivityDate="2016-02-20T04:36:10.327" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10776" PostTypeId="2" ParentId="10738" CreationDate="2016-02-20T05:59:41.587" Score="1" Body="&lt;p&gt;&lt;strong&gt;Probably, but it's not visible because a country is usually already in shambles before a default, and data collection for domestic debt crises is poor.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is a list of defaults:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.nber.org/papers/w13946&quot; rel=&quot;nofollow&quot;&gt;http://www.nber.org/papers/w13946&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here's some rate data:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.statistikbanken.dk/statbank5a/SelectVarVal/saveselections.asp&quot; rel=&quot;nofollow&quot;&gt;http://www.statistikbanken.dk/statbank5a/SelectVarVal/saveselections.asp&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.tradingeconomics.com/argentina/inflation-cpi&quot; rel=&quot;nofollow&quot;&gt;http://www.tradingeconomics.com/argentina/inflation-cpi&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.m.wikipedia.org/wiki/Historical_exchange_rates_of_Argentine_currency&quot; rel=&quot;nofollow&quot;&gt;https://en.m.wikipedia.org/wiki/Historical_exchange_rates_of_Argentine_currency&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There have been many cases where countries default on only internal debt. Argentina did this. I can't find bond data anywhere. But when it defaulted on domestic debt (1989), inflation went up and the currency fell. Which is pretty much the same as an increase in external interest rates.&lt;/p&gt;&#xA;" OwnerUserId="8360" LastEditorUserId="8360" LastEditDate="2016-02-20T21:48:24.473" LastActivityDate="2016-02-20T21:48:24.473" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10777" PostTypeId="1" CreationDate="2016-02-20T09:54:39.967" Score="1" ViewCount="139" Body="&lt;p&gt;My professor gives us these conditions for the existence of a Competitive Equilibrium (CE) in a pure exchange economy:&#xA;$U^i$ is continuous, strictly increasing and strictly concave for all $i$ and $\omega_n &amp;gt; 0$ for all $n$ (where $\omega_n$ is the total endowment of good $n$).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am trying to demonstrate these conditions but I am a bit stuck. I started using the Maximum theorem but now I cannot go ahead. Any hint?&lt;/p&gt;&#xA;" OwnerUserId="6773" LastActivityDate="2016-02-20T09:54:39.967" Title="Existence of a Competitive Equilibrium" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;" AnswerCount="0" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="10778" PostTypeId="1" AcceptedAnswerId="10779" CreationDate="2016-02-20T10:42:09.170" Score="3" ViewCount="4643" Body="&lt;p&gt;I understand that allocative efficiency is where the demand curve and supply curve intersect, i.e. where MB=MC as demand and supply can be interpreted as marginal benefit and cost respectively; however, where do we get P=MC from?&lt;/p&gt;&#xA;" OwnerUserId="7396" LastActivityDate="2016-02-20T10:58:24.833" Title="Why does allocative efficiency occur when P=MC rather than MB=MC" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10779" PostTypeId="2" ParentId="10778" CreationDate="2016-02-20T10:58:24.833" Score="3" Body="&lt;p&gt;Question: If I set a price of $p$, which consumers will buy the good?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Answer: a consumer will buy the good if and only if his benefit from consuming it is bigger than his cost, $p$, of buying it. This means that the last (i.e. marginal) consumer who buys will be the one for whom the benefit is just equal to the cost. In other words, for any price, $\text{MB}=p$ must hold.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;For efficiency, we know that we need $\text{MB}=\text{MC}$.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Putting these two equations together yields $\text{MB}=\text{MC}=p$.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;What is going on here? We know (as you pointed out) that  we need $\text{MB}=\text{MC}$ for allocative efficiency. But we can't just go out and tell consumers whether to buy or not. We have to give them the incentive to make the efficient choice on their own. The way this is achieved is by setting the price such that only consumers for whom purchasing is efficient will be willing to buy.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2016-02-20T10:58:24.833" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10781" PostTypeId="2" ParentId="10664" CreationDate="2016-02-20T19:33:43.857" Score="5" Body="&lt;p&gt;From a mathematical point of view, a function of the form&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$Q_d = \left( \frac {A-p}{B}\right)^{1/\gamma},\;\; \gamma &amp;gt; 1$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;will have a negative second derivative and so it will be strictly concave (for &lt;span class=&quot;math-container&quot;&gt;$\gamma =1$&lt;/span&gt; we get a linear demand function). The function hits the (vertical) &lt;span class=&quot;math-container&quot;&gt;$p$&lt;/span&gt;-axis for &lt;span class=&quot;math-container&quot;&gt;$(Q_d=0,p=A)$&lt;/span&gt;, and the horizontal &lt;span class=&quot;math-container&quot;&gt;$Q$&lt;/span&gt;-axis for &lt;span class=&quot;math-container&quot;&gt;$(Q_d = (A/B)^{1/\gamma}, p=0$&lt;/span&gt;). Namely this is &quot;concave all the way&quot;, not just concave in the middle which eventually becomes convex. Typically, we expect  &lt;span class=&quot;math-container&quot;&gt;$A&amp;gt;B$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Inverting, we obtain&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$p=A-BQ_d^{\gamma}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's now go down to the individual level, and assume quasi-linear preferences in income, an appropriate formulation when we look at one good &quot;against all others&quot;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$v(q,y) = u(q) + y,\;\;\; s.t. \;\;pq+y = M$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first-order conditions will give  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$u'(q) = \lambda p,\;\;\;\ \lambda =1$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Combining with the inverse demand function we get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$u'(q) = A-BQ_d^{\gamma}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where &lt;span class=&quot;math-container&quot;&gt;$Q_d = \sum q$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Integrating we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\int u'(q) dq = A\int dq - B\int \left (\sum q\right)^{\gamma}dq$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;from which we arrive at (setting the arbitrary constants of integration to zero)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$u(q) = Aq-\frac{B}{1+\gamma}Q_d^{1+\gamma}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We obtained this result by assuming that the  individual believes that its own demand does not affect any other individual demand. So we have a &lt;em&gt;negative externality&lt;/em&gt;: the more &quot;massive&quot; is a good (the more massively demanded), the less utility we obtain from it (so any individual demand does not affect any other individual demand, but their sum, does affect the individual elements). So such a specification would be appropriate for goods that are not characterized by the &quot;safety of the flock&quot; aspect, but appeal to our quest for individualism and personal uniqueness.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume now that we do not want to have this negative externality in the individual utility. Then, we assume that all consumers are identical, and we &lt;em&gt;start&lt;/em&gt; with the utility specification,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$u(q) =  aq-\frac{b}{1+\gamma}q^{1+\gamma}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This utility specification does imply that there exists a maximum utility level from the good and then utility declines, so it belongs to the general family of &quot;quadratic&quot; preferences.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Indicatively, for &lt;span class=&quot;math-container&quot;&gt;$a=100, b=10, \gamma=1.3$&lt;/span&gt; we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/HCmIA.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/HCmIA.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The indifference map is constructed by calculating&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$y = \bar v - \left[aq-\frac{b}{1+\gamma}q^{1+\gamma}\right]$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;for arbitrary values for &lt;span class=&quot;math-container&quot;&gt;$\bar v$&lt;/span&gt; (which, in quasi-linear preferences, correspond to the income constraint).For &lt;span class=&quot;math-container&quot;&gt;$\bar v = M=400,450,500,550,600$&lt;/span&gt; the map looks like&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/QIBGF.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/QIBGF.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Such an individual utility specification will give the optimal relation&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$a - bq^{\gamma} = p$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and the individual demand&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$q = \left( \frac {a-p}{b}\right)^{1/\gamma}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Summing over all &lt;span class=&quot;math-container&quot;&gt;$N$&lt;/span&gt; consumers we get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$Q_d = N\left( \frac {a-p}{b}\right)^{1/\gamma}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and we want to arrive at the market demand function&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$Q_d = \left( \frac {A-p}{B}\right)^{1/\gamma}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This can happen if we identify &lt;span class=&quot;math-container&quot;&gt;$A=a$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$B = b/N^{\gamma}$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2019-09-08T22:16:03.403" LastActivityDate="2019-09-08T22:16:03.403" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="10782" PostTypeId="1" CreationDate="2016-02-20T19:57:21.237" Score="1" ViewCount="293" Body="&lt;p&gt;This is a fun little task I need help completing. Im creating a game-theoretical model for the utility a government get from labour rights (R) and FDI (F), and I need a utility function to have certain properties to be a good model of the theory Im using. An important factor is the average level of labour rights (C) in other countries. The point of the theory is that states cuts competitively in labour rights to attract more FDI. So, Im hoping someone on this forum could pick up the challenge of making a Utility function for me that I can use.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here are the Rules. P is a function of R and F (Higher R and F gives higher P), F is a function of R and C, higher R relative to C gives lower F. There has to be a parameter alfa(a) that gives the &quot;sensitivity&quot; of a state to P and beta (b) that gives the sensitivty to F. a+b=1 Higher a means that the government gets more utility per increase in R. Higher b means that the government gets more utility per increase in F.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;P&amp;lt;0&lt;/p&gt;&#xA;&#xA;&lt;p&gt;F&amp;lt;0&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The optimal choice of R for a government should be a function of a,b and C in which the entire idea of this is that the more a government prefers FDI instead of labour rights, the lower R should be set relative to C.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I need the function itself, its first derivative, and the value of R at which the first derivative is zero.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I hope this makes sense and that someone will find this challenge to be fun.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Best regards Magnus&lt;/p&gt;&#xA;" OwnerUserId="7401" LastActivityDate="2016-02-20T19:57:21.237" Title="Creating utility function with certain properties" Tags="&lt;game-theory&gt;&lt;utility&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10783" PostTypeId="1" CreationDate="2016-02-20T21:57:30.777" Score="7" ViewCount="320" Body="&lt;p&gt;I am interested in the problems that may arise when one models economical phenomena using mathematics and indeed also the nature of these models. Are there some good and easily accessible textbooks, articles, papers or other literature out there treat this topic? Perhaps a few classics that are well-regarded in the field?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My background is mostly mathematical, but I understand intermediate economics, both macro and micro.&lt;/p&gt;&#xA;" OwnerUserId="7402" LastEditorUserId="6168" LastEditDate="2016-02-21T03:24:25.507" LastActivityDate="2016-02-23T08:55:53.847" Title="Problems with economic modelling: good textbooks/articles/papers?" Tags="&lt;reference-request&gt;&lt;mathematical-economics&gt;" AnswerCount="5" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10784" PostTypeId="1" CreationDate="2016-02-20T22:36:04.683" Score="-1" ViewCount="248" Body="&lt;p&gt;How can I find the optimal price that maximizes profits, given past sales data?  I thought I could do this, but I've been running into problems.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Data:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;Price, Quantity Sold, Unit Cost&#xA;$90, 1100, $10&#xA;$100, 1000, $10&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;I can find elasticity (-0.82) and I've been reading some things that say that you can find the optimal price, but I've only been able to tell the direction the price should be moved.  &lt;a href=&quot;https://economics.stackexchange.com/questions/50/how-is-price-elasticity-determined-in-practice/67&quot;&gt;This answer&lt;/a&gt; says use the Lerner condition, but that just shows if elasticity &amp;lt; -1 decrease and if elasticity &gt; -1 increase price.  And &lt;a href=&quot;http://www.digitopoly.org/2014/07/30/amazon-makes-its-case-against-hachette/&quot; rel=&quot;nofollow noreferrer&quot;&gt;this article&lt;/a&gt; says &lt;code&gt;what is much harder to do (although there are structural techniques to do so) is to work out what the optimal price should be&lt;/code&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;edit to add:&#xA;I can find the linear equation for demand based on these 2 data points and find the point that maximizes revenue.  I also found a demand function equation Qd=Qh*((P/Ph)^Ed), where Qd is the predicted Quantity Demand, Qh is observed Quantity, Ph is observed Price, Ed is Elasticity of Demand, and P is the independent variable price.  But are any of these the best method to use?&lt;/p&gt;&#xA;" OwnerUserId="7403" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2016-02-22T11:58:06.203" Title="Price Optimization from Data" Tags="&lt;econometrics&gt;&lt;elasticity&gt;&lt;optimization&gt;&lt;applied-econometrics&gt;&lt;price&gt;" AnswerCount="1" CommentCount="10" ContentLicense="CC BY-SA 3.0" />
  <row Id="10786" PostTypeId="2" ParentId="10664" CreationDate="2016-02-21T02:27:48.590" Score="1" Body="&lt;p&gt;Note that a function is convex if and only if multiplying that function by -1 yields a concave function.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An example would be a vindictive mother in law, who derives pleasure from her son in law's misery. Let x be outcomes in the poor guy's life, and $u(x)$ be the happiness he gets from x, which is concave. Let $-u(x)$ be the mother in law's utility function. It is convex.&lt;/p&gt;&#xA;" OwnerUserId="7303" LastActivityDate="2016-02-21T02:27:48.590" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10787" PostTypeId="2" ParentId="10783" CreationDate="2016-02-21T03:03:09.873" Score="0" Body="&lt;p&gt;Nassim Taleb has some books that discuss issues with using math to model real life, which I really enjoyed. He holds no punches so isn't for everyone. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Relevant topics that stoos out to me include Fitting the world to the tools instead of finding tools that accurately capture the phenomena we're trying to describe (embodied by Procrustean bed story); Being too confident in models leading to overly risky decisions (&quot;having no map is better than having a wrong one&quot;); Plausibility of a story fitting the data as a poor proxy for its truth.&lt;/p&gt;&#xA;" OwnerUserId="7303" LastActivityDate="2016-02-21T03:03:09.873" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10788" PostTypeId="2" ParentId="10783" CreationDate="2016-02-21T03:19:39.147" Score="8" Body="&lt;p&gt;I recommend reading Dani Rodrik's new book, &lt;a href=&quot;http://books.wwnorton.com/books/Economics-Rules/&quot;&gt;Economics Rules: The Rights and Wrongs of the Dismal Science&lt;/a&gt;. Rodrik supports the use of mathematics as bringing clarity of meaning, and argues that the subject is far more applied and empirical than its detractors realize.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The final couple of pages have Rodrik's Ten Commandments for Economists. Numbers one and two are: Economics is a collection of models; It's a model, not the model. And also Ten Commandments for Non-Economists, which include: maths is useful; economists are not all alike; economists typically do understand how markets work.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/H5RCU.jpg&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/H5RCU.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;All the Commandements with Dani Rodrik's comments can be found &lt;a href=&quot;http://www.centreformacroeconomics.ac.uk/pdf/Events/Slides/1510-RodrikD.pdf&quot;&gt;here&lt;/a&gt;. This &lt;a href=&quot;http://www.neaydinonat.com/blog/?p=1046&quot;&gt;review&lt;/a&gt; can also be useful for clarifying some of the commandments.&lt;/p&gt;&#xA;" OwnerUserId="6168" LastActivityDate="2016-02-21T03:19:39.147" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10789" PostTypeId="2" ParentId="10783" CreationDate="2016-02-21T03:23:53.507" Score="2" Body="&lt;p&gt;Another recommandation is Hal Varian's brilliant essay on &lt;a href=&quot;http://people.ischool.berkeley.edu/~hal/Papers/how.pdf&quot; rel=&quot;nofollow&quot;&gt;How to Build an Economic Model in Your Spare Time&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Most of my work in economics involves constructing theoretical models. Over the years, I have developed some ways of doing this that may be worth describing to those who aspire to practice this art&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="6168" LastActivityDate="2016-02-21T03:23:53.507" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10791" PostTypeId="2" ParentId="10285" CreationDate="2016-02-21T05:06:06.360" Score="11" Body="&lt;p&gt;From a mathematical point of view, if the function $f(x,y)$ is homogeneous (of &lt;em&gt;any&lt;/em&gt; degree), and $g()$ is a function whose first derivative is everywhere non-zero, then the function&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$H(x, y) = g[f(x,y)]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;is homothetic. In economics, we usually impose something more restrictive, namely that $g' &amp;gt;0$. But this makes a homothetic function a monotonic transformation of a homogeneous function. Now, homogeneous functions are a strict subset of homothetic functions: not all homothetic functions are homogeneous. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, &lt;em&gt;not all monotonic transformations preserve the homogeneity property of a utility function&lt;/em&gt;. The simplest example is Cobb-Douglas utility. It is homogeneous of degree one. In an ordinal utility framework, we are ok with monotonic transformations, so we can consider the natural logarithm of it. Fine, but the natural logarithm will not preserve homogeneity. Nevertheless it will be homothetic. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The fundamental property of a homothetic function is that its expansion path is linear (this is a property also of homogeneous functions, and thankfully it proves to be a property of the more general class of homothetic functions).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In consumption theory, this means that, keeping the prices or the price ratio constant, if we vary the income of the consumer, in the $(x,y)$ plane the  tangency point of the income constraint with the highest feasible indifference curve will always reflect a fixed ratio $x/y$. This in turn implies that expenditures for each good grow all at the same rate as income, and so &lt;strong&gt;expenditure shares remain constant for the whole income range (always for a given price ratio).&lt;/strong&gt;&#xA;While this may sound restrictive, in fact, &lt;strong&gt;it has been shown that homothetic preferences do not impose any special restrictions on &lt;em&gt;aggregate&lt;/em&gt; demand&lt;/strong&gt; (essentially due to the endowment vector being arbitrary and independent of preferences, which messes, or frees, things up).&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2017-04-12T15:30:03.927" LastActivityDate="2017-04-12T15:30:03.927" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10793" PostTypeId="1" CreationDate="2016-02-21T06:22:29.693" Score="2" ViewCount="56" Body="&lt;p&gt;I'll start with some examples.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://docs.lib.purdue.edu/dissertations/AAI1573760/&quot; rel=&quot;nofollow&quot;&gt;State-level analysis of variation in infant mortality rate: A socio-ecological approach&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;73% of infant mortality explained in the US by just a few variables.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.google.com/url?sa=t&amp;amp;source=web&amp;amp;rct=j&amp;amp;url=http://www.gwern.net/docs/iq/2006-dickerson.pdf&amp;amp;ved=0ahUKEwj9gO_KmYjLAhUU5WMKHeEsAksQFgglMAI&amp;amp;usg=AFQjCNGqXWhzJNdBO-UV0d4MCpFMIGc7rg&amp;amp;sig2=t_fWwesSjpEt_iqNISipnw&quot; rel=&quot;nofollow&quot; title=&quot;IQ and the Wealth of Nations&quot;&gt;Exponential correlation of IQ and the wealth of nations&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;69% of GDP per capita explained by IQ.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.kon.org/urc/v8/zambrano.html&quot; rel=&quot;nofollow&quot;&gt;Estimating Suicide Rates in Nations that Do Not Report Suicide Statistics&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;78% of variance in suicide rates explained in Model 2, table 3.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What are some more examples of models with a lot of explanatory power for large scale social phenomena? &lt;/p&gt;&#xA;" OwnerUserId="8360" LastEditorUserId="8360" LastEditDate="2016-02-21T07:12:44.670" LastActivityDate="2016-02-21T07:12:44.670" Title="What are some impressive economics models with very high explained variance?" Tags="&lt;econometrics&gt;" AnswerCount="0" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10795" PostTypeId="2" ParentId="1701" CreationDate="2016-02-21T09:03:13.873" Score="2" Body="&lt;p&gt;&lt;a href=&quot;http://eml.berkeley.edu//~moretti/&quot; rel=&quot;nofollow&quot;&gt;Enrico Moretti&lt;/a&gt; (U.C. Berkeley) works on a related question: The multiplier effect. He finds that high tech industries have the largest multiplier. For each new high-tech job in a city, five additional jobs are created outside high-tech in that city over the next 10 years.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Moretti E. Local multipliers. American Economic Review 2010;100:1-7.&lt;/li&gt;&#xA;&lt;li&gt;Moretti E. Local labor markets. In: Ashenfelter O, Card D E, editors. Handbook of Labor Economics. Amsterdam, The Netherlands: Elsevier; 2011.&lt;/li&gt;&#xA;&lt;li&gt;Moretti, E. and P. Thulin, Local multipliers and human capital in the United States and Sweden, Ind Corp Change (2013) 22 (1): 339-362.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;A quote from his book, &lt;a href=&quot;http://eml.berkeley.edu//~moretti/book.htm&quot; rel=&quot;nofollow&quot;&gt;The New Geography of Jobs&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;With only a fraction of the jobs, the innovation sector generates a&#xA;  disproportionate number of additional local jobs and therefore&#xA;  profoundly shapes the local economy. A healthy traded sector benefits&#xA;  the local economy directly, as it generates well-paid jobs, and&#xA;  indirectly as it creates additional jobs in the non-traded sector.&#xA;  What is truly remarkable is that this indirect effect o the local&#xA;  economy is much larger than the direct effect. My research, based on&#xA;  an analysis of 11 million American workers in 320 metropolitan areas,&#xA;  shows that for each new high-tech job in a metropolitan area, five&#xA;  additional local jobs are created outside of high tech in the long&#xA;  run.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;[And] it gets even more interesting. These five jobs benefit a diverse&#xA;  set of workers. Two of the jobs created by the multiplier effect are&#xA;  professional jobs—doctors and lawyers—while the other three benefit&#xA;  workers in nonprofessional occupations—waiters and store clerks. Take&#xA;  Apple, for example. It employs 12,000 workers in Cupertino. Through&#xA;  the multiplier effect, however, the company generates more than 60,000&#xA;  additional service jobs in the entire metropolitan area, of which&#xA;  36,000 are unskilled and 24,000 are skilled. Incredibly, this means&#xA;  that the main effect of Apple on the region’s employment is on jobs&#xA;  outside of high tech.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;There is also a Wikipedia page on the &lt;a href=&quot;https://en.wikipedia.org/wiki/Local_multiplier_effect&quot; rel=&quot;nofollow&quot;&gt;Local multiplier effect&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="6168" LastEditorUserId="6168" LastEditDate="2016-02-21T19:58:30.227" LastActivityDate="2016-02-21T19:58:30.227" CommentCount="9" ContentLicense="CC BY-SA 3.0" />
  <row Id="10796" PostTypeId="2" ParentId="8782" CreationDate="2016-02-21T10:29:26.860" Score="0" Body="&lt;p&gt;&lt;a href=&quot;http://www.energymiser101.com/2008/12/why-is-heating-oil-more-expensive-than-gasoline.html&quot; rel=&quot;nofollow&quot;&gt;http://www.energymiser101.com/2008/12/why-is-heating-oil-more-expensive-than-gasoline.html&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here's the best answer I found. It's some sort of lack of capacity or economies of scale problem. Or perhaps its just a more monoplized sector. Nobody seems to know why.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is known that diesel is more expensive than gas because of unanticipated demand.&lt;/p&gt;&#xA;" OwnerUserId="8360" LastActivityDate="2016-02-21T10:29:26.860" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10797" PostTypeId="2" ParentId="419" CreationDate="2016-02-21T14:16:10.673" Score="1" Body="&lt;p&gt;There's a difference between &lt;em&gt;&quot;free software&quot;&lt;/em&gt; and &lt;em&gt;&quot;free software for students studying economics&quot;&lt;/em&gt;. For example, when I was studying economics at University, the University provided (free) access to software such as Maple, MATLAB, Datastream, and Stata, to mention just a few. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;These software packages are not &lt;em&gt;free&lt;/em&gt;, but to economics students at many Universities, there is &lt;em&gt;free access&lt;/em&gt; to all of this software making it free, effectively (to the economics student).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a result, I'd recommend that economics students consult with their instructors to find out what software is being made available to them. The University doesn't pay the licence fees just for kicks.&lt;/p&gt;&#xA;" OwnerUserId="1588" LastActivityDate="2016-02-21T14:16:10.673" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10799" PostTypeId="2" ParentId="10747" CreationDate="2016-02-21T19:41:45.243" Score="1" Body="&lt;p&gt;Banks and the finance industry have an essential function of allocating capital to productive uses, intermediating between savers and investors, and managing risk. However, banking deregulation, beginning in the 1970s (and not &quot;centuries ago&quot; as claimed by Varoufakis), has moved this industry toward rent-seeking activities. So, since then, bankers do not lend money from savings accounts deposits. This is &quot;the legend&quot;. They offer financial services. They are engaged in lending by trading bonds and securities. They are engaged in &lt;strong&gt;futures markets&lt;/strong&gt; (central financial exchanges where standardized futures contracts are traded - see &lt;a href=&quot;https://en.wikipedia.org/wiki/Futures_exchange&quot; rel=&quot;nofollow&quot;&gt;wikipedia&lt;/a&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By the way, deregulation has been a very lucrative change because finance has become more profitable relative the rest of the economy. Philippon and Reshef show convincingly in a &lt;a href=&quot;http://www.parisschoolofeconomics.com/reshef-ariell/papers/PR_2012_QJE_published.pdf&quot; rel=&quot;nofollow&quot;&gt;QJE paper&lt;/a&gt; that salaries in the financial sector have skyrocketed.&lt;/p&gt;&#xA;" OwnerUserId="6168" LastEditorUserId="6168" LastEditDate="2016-02-23T16:24:00.707" LastActivityDate="2016-02-23T16:24:00.707" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10800" PostTypeId="1" CreationDate="2016-02-21T21:15:09.923" Score="4" ViewCount="4878" Body="&lt;p&gt;I am working through exercises in Gali but some of them are rather difficult. I am trying to find a solutions manual to use as an aide for exercises that completely stump me and to confirm solutions for the exercises I have completed. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does anyone here know if Gali or some other economists published solutions for his exercises?  I have searched extensively with no luck but it seems like there must be some sort of solutions manual available for this text. It is widely used. &#xA;Thanks&lt;/p&gt;&#xA;" OwnerUserId="7415" LastActivityDate="2019-01-02T12:52:02.453" Title="Gali - Monetary Policy - Solutions?" Tags="&lt;monetary-policy&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10802" PostTypeId="1" AcceptedAnswerId="10807" CreationDate="2016-02-21T23:08:15.123" Score="2" ViewCount="890" Body="&lt;p&gt;I am new to game theory and I came across this line, &quot; A strategy profile (s1, . . . , sn) in which every si is dominant for agent i (strictly, weakly, or very weakly) is a Nash equilibrium.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But why is that? And how would an equilibrium form in strictly dominant strategies? Do they both just yield the same best payoff?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated!&lt;/p&gt;&#xA;" OwnerUserId="7418" LastActivityDate="2017-10-21T00:35:36.410" Title="Show that an equilibrium in strictly dominant strategies is a unique Nash equilibrium" Tags="&lt;game-theory&gt;&lt;nash-equilibrium&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10803" PostTypeId="1" CreationDate="2016-02-21T23:23:40.970" Score="1" ViewCount="80" Body="&lt;p&gt;I have a hypothetical situation and couple of such questions.&#xA;Imagine a situation like this:&#xA;You need 1000€ a month in order to survive.&#xA;There are three loan providers you can borrow the amount of 1000€ for a month with a fee of 1€ a month (you're always repaying money on time).&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;I borrow money from the first loan provider.&lt;/li&gt;&#xA;&lt;li&gt;I spend the money.&lt;/li&gt;&#xA;&lt;li&gt;I borrow money from second to repay the first.&lt;/li&gt;&#xA;&lt;li&gt;I now owe money only to the second provider.&lt;/li&gt;&#xA;&lt;li&gt;I borrow money from the third.&lt;/li&gt;&#xA;&lt;li&gt;I spend the money.&lt;/li&gt;&#xA;&lt;li&gt;I borrow money from first to repay the second.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;And so on and so on, you can see the pattern. It's maybe a stupid question but could loan circulation work as a way of earning monthly money.&lt;/p&gt;&#xA;" OwnerUserId="7420" LastActivityDate="2016-02-26T18:26:42.323" Title="Loan money circulation?" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;financial-economics&gt;&lt;adjustment-costs&gt;&lt;payment-system&gt;" AnswerCount="2" CommentCount="2" ClosedDate="2016-02-26T19:40:45.703" ContentLicense="CC BY-SA 3.0" />
  <row Id="10807" PostTypeId="2" ParentId="10802" CreationDate="2016-02-22T03:09:55.687" Score="4" Body="&lt;p&gt;It will be useful to spell out the relevant definitions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $A_i$ be the set of possible actions for player $i$, $A_{-i}$ be the set of possible joint actions of all players except for player $i$, $A$ be the set of possible joint actions of all the players. For $a=(a_i,a_{-i})\in A$, let $u_i(a)$ denote the payoff to player $i$ from action $a_i$, given that the other players play $a_{-i}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Definition 1: An action $a_i\in A_i$ is weakly dominant for player $i$ if for every $a_{-i}\in A_{-i}$, $u_i(a_i,a_{-i})\ge u_i(\overline{a_i},a_{-i})$ for every $\overline{a_i}\in A_i$, i.e. no matter what the other players do, action $a_i$ yields a payoff at least as high as any other action available to player $i$. [Strict dominance given by $&amp;gt;$ instead of $\ge$.]&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Definition 2: An action $a_i\in A_i$ is a best response to action $a_{-i}\in A_{-i}$ if $u_i(a_i,a_{-i})\ge u_i(\overline{a_i},a_{-i})$ for every $\overline{a_i}\in A_i$, i.e. If I fix other players' actions to some particular joint action, then $a_i$ yields a payoff to player $i$ at least as high as any other action available to player $i$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Claim 1: If an action $a_i\in A_i$ is strictly or weakly dominant, then it is a best response for any joint action $a_{-i}\in A_{-i}$. [This follows from Definitions 1 and 2 immediately.]&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Definition 3: A joint action $a\in A$ is a Nash equilibrium if for each player $i$, action $a_i$ is a best response to $a_{-i}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Claim 2 (your question): A strategy profile (i.e. joint action) $s=(s_1,...,s_n)\in A$ in which each $s_i$ is a (strictly or weakly) dominant strategy is a Nash equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that Claim 2 is a consequence of Claim 1.&lt;/p&gt;&#xA;" OwnerUserId="7303" LastActivityDate="2016-02-22T03:09:55.687" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10808" PostTypeId="1" AcceptedAnswerId="10854" CreationDate="2016-02-22T03:18:27.807" Score="1" ViewCount="413" Body="&lt;p&gt;Since we need to consider 'Endogeneity' between price and quantity while calculating price elasticity and since linear regression cannot handle the phenomenon of endogeneity if objective of the model is to find causality, instrumental variable regression is used. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since theory backs the idea of using IV regression, does this happens in real world? I mean corporations and governments use IV regression for price elasticity or do they use linear regression despite it's shortcomings in it's inablity to handle endogeneity?&lt;/p&gt;&#xA;" OwnerUserId="7206" LastEditorUserId="1601" LastEditDate="2016-02-22T13:39:06.123" LastActivityDate="2016-02-28T03:53:37.387" Title="Which regression technique is used for calculating price elasticity in practice" Tags="&lt;elasticity&gt;&lt;applied-econometrics&gt;&lt;regression&gt;&lt;instrumental-variable&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10809" PostTypeId="1" CreationDate="2016-02-22T03:44:37.967" Score="2" ViewCount="85" Body="&lt;p&gt;From my reading of the &lt;a href=&quot;http://unstats.un.org/unsd/nationalaccount/sna2008.asp&quot; rel=&quot;nofollow&quot;&gt;UN System of National Accounts (2008 update)&lt;/a&gt;, &quot;fixed assets&quot; and &quot;fixed capital&quot; seem to be completely synonymous. Yet strangely there seem to be these two different terms. So what, if any, is the difference between them? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can find a definition for &quot;fixed assets&quot; but not for &quot;fixed capital&quot;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Fixed assets are produced assets that are used repeatedly or continuously in production processes for more than one year (p. 196).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I can also find a definition for &quot;consumption of fixed capital&quot;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Consumption of fixed capital is the decline, during the course of the accounting period, in the current value of the stock of fixed assets owned and used by a producer as a result of physical deterioration, normal obsolescence or normal accidental damage (p. 198).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Elsewhere, I find a statement which, together with the above, would seem to identify &quot;fixed assets&quot; with &quot;fixed capital&quot;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;consumption of fixed capital, a figure representing the decline in value&#xA;  during the period of the fixed capital used in a production process. (p. 3)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerDisplayName="user18" LastEditorDisplayName="user18" LastEditDate="2016-02-22T03:49:46.587" LastActivityDate="2021-02-24T16:55:17.473" Title="What's the difference (if any) between &quot;fixed assets&quot; and &quot;fixed capital&quot; in the UN SNA?" Tags="&lt;national-accounts&gt;&lt;definition&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10810" PostTypeId="2" ParentId="10803" CreationDate="2016-02-22T04:12:53.460" Score="0" Body="&lt;p&gt;This reminds me of the &lt;strong&gt;Ponzi Scheme&lt;/strong&gt;: A Ponzi scheme is a fraudulent investment operation where the operator, an individual or organization, pays returns to its investors from new capital paid to the operators by new investors, rather than from profit earned by the operator. Operators of Ponzi schemes usually entice new investors by offering higher returns than other investments, in the form of short-term returns that are either abnormally high or unusually consistent (source &lt;a href=&quot;https://en.wikipedia.org/wiki/Ponzi_scheme&quot; rel=&quot;nofollow&quot;&gt;wikipedia&lt;/a&gt; with numerous examples).&lt;/p&gt;&#xA;" OwnerUserId="6168" LastEditorUserId="6168" LastEditDate="2016-02-22T18:08:58.583" LastActivityDate="2016-02-22T18:08:58.583" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10811" PostTypeId="2" ParentId="10783" CreationDate="2016-02-22T10:06:14.673" Score="6" Body="&lt;p&gt;One reference is &quot;Knowledge and Persuasion in Economics&quot; by Donald McCloskey. A sample chapter &lt;a href=&quot;http://www.deirdremccloskey.com/docs/RhetMathEc1995.pdf&quot; rel=&quot;noreferrer&quot;&gt;is available here&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The sentiment of the chapter is summarized by its final sentence:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Economists are in love with the wrong mathematics, the pure rather than the applied.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Last year, Paul Romer caused a bit of a storm over what he called &quot;mathiness&quot; in economics. What Romer has in mind is not a problem with mathematical models per se, but rather a concern that abuse of those models can allow economists to sneak a political agenda into their work under the fascade of rigorous theory. In romer's words:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The style that I am calling mathiness lets academic politics masquerade as science. Like mathematical theory, mathiness uses a mixture of words and symbols, but instead of making tight links, it leaves ample room for slippage between statements in natural versus formal language and between statements with theoretical as opposed to empirical content.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In other words, Romer is bemoaning the use of math to confuse and distract the reader, rather than to clarify and enlighten (as should be the case). I am not sure if this meets your needs, because it's more a problem with economists than with their method. Here is the paper: &quot;&lt;a href=&quot;http://paulromer.net/wp-content/uploads/2015/05/Mathiness.pdf&quot; rel=&quot;noreferrer&quot;&gt;Mathiness in the Theory of Economic Growth&lt;/a&gt;&quot;. The infamous accompanying blog post is &lt;a href=&quot;http://paulromer.net/mathiness/&quot; rel=&quot;noreferrer&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2016-02-22T11:05:34.247" LastActivityDate="2016-02-22T11:05:34.247" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10812" PostTypeId="2" ParentId="10784" CreationDate="2016-02-22T11:58:06.203" Score="0" Body="&lt;p&gt;One way can be to start from the extreme. For example, when price set $1000, zero sales; $500 two sales on the higher price side equation. To the other, price $10, 10,000 sales; price $50, 300 sales. In this way, come out with a figure that maximizes revenue.&lt;/p&gt;&#xA;" OwnerUserId="7425" LastActivityDate="2016-02-22T11:58:06.203" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10813" PostTypeId="1" AcceptedAnswerId="10820" CreationDate="2016-02-22T12:21:32.270" Score="5" ViewCount="513" Body="&lt;p&gt;Some banks promote savings plans by stating that investing a fixed amount of money in regular time intervals minimizes the average buying price or the downside risk (dollar cost averaging). Since the regular saving amount is fixed, they claim that, when the stock price is low more shares will be bought, and when the price is high fewer shares will be bought, so in total, you will buy more shares when they are cheap and fewer when they are expensive, hence investing more efficiently.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Although this seems to be a valid argument, intuitively (at least for me) it still feels rather like some sort of fallacy than a sound investment strategy, however I cannot show exactly why. So my question is whether there is an actual &lt;em&gt;mathematical proof&lt;/em&gt; that dollar cost averaging has a definite advantage over one time investment (or the opposite)? To be precise, is it really possible to somehow reduce risk and keep the same expected return (or raise expected return and keep the same risk) using this stragegy?&lt;/p&gt;&#xA;" OwnerUserId="7115" LastActivityDate="2016-02-22T20:47:22.913" Title="Does dollar cost averaging actually have any advantage over one time investment?" Tags="&lt;investment&gt;&lt;risk&gt;&lt;saving&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10817" PostTypeId="1" CreationDate="2016-02-22T18:00:00.007" Score="2" ViewCount="39" Body="&lt;p&gt;I am working with hard drives.  For simplicity,  let's say all drives have the same capacity, 1TB and all cost $100.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;They typically last about 4 years,  when they need to be replaced.    They drop in price about 50% over that period of time.  They cost 100 dollars for the first for years,  $50 for the next 4 years, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What's the usual way of estimating the cost of something like this?&lt;/p&gt;&#xA;" OwnerUserId="7430" LastActivityDate="2016-02-25T13:01:13.620" Title="Estimating the cost of an assett that needs to be replenished" Tags="&lt;asset-pricing&gt;&lt;cost&gt;&lt;deflation&gt;&lt;accounting&gt;" AnswerCount="1" CommentCount="8" ClosedDate="2016-02-25T17:16:23.683" ContentLicense="CC BY-SA 3.0" />
  <row Id="10818" PostTypeId="1" CreationDate="2016-02-22T19:08:46.880" Score="1" ViewCount="105" Body="&lt;p&gt;Of all experimental public good games that have been conducted in laboratory &amp;amp; field settings, what is the average percentage of subjects that can be classified as free-riders (as opposed to (strong) cooperators &amp;amp; conditional cooperators)?&lt;/p&gt;&#xA;" OwnerUserId="7431" LastEditorUserId="1601" LastEditDate="2016-02-22T19:12:53.043" LastActivityDate="2016-02-22T19:22:27.980" Title="What is the percentage of free riders in public goods games?" Tags="&lt;behavioral-economics&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10819" PostTypeId="2" ParentId="10818" CreationDate="2016-02-22T19:22:27.980" Score="1" Body="&lt;p&gt;So you are looking for a meta paper that aggregates results from other papers. What you mean by &quot;all experimental public good games&quot; is unclear because the setup of most public good games is different. The multiplicator of the public good, the number of rounds, the level of allowed commucination, whether there is punishment, etc., these frequently vary and have a very big impact on the course of play.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another reason why such a meta paper is unlikely to exist is because the ratio of cooperators is &lt;a href=&quot;http://www.bioecon-network.org/pages/17th_2015/Gsottbauer.pdf&quot; rel=&quot;nofollow&quot;&gt;context dependent&lt;/a&gt;. How the possible actions are labeled: 'Cooperation' and 'Defection' or 'Give money' and 'Save money' has a strong effect on behavior. So even seemingly similar, 'basic' games could be very different.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your best shot may be trying to find a famous experiment and seeing if there have been any replications. You could then aggregate the data and calculate the desired ratio.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2016-02-22T19:22:27.980" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="10820" PostTypeId="2" ParentId="10813" CreationDate="2016-02-22T20:47:22.913" Score="5" Body="&lt;p&gt;The seminal academic criticism of dollar cost averaging on many specifications of economic conditions is &lt;a href=&quot;http://journals.cambridge.org/action/displayAbstract?fromPage=online&amp;amp;aid=4470800&amp;amp;fileId=S0022109000005408&quot;&gt;A Note on the Suboptimality of Dollar-Cost Averaging as an Investment Policy (Constantinides (1979))&lt;/a&gt;. You might also be interested in these papers:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Dollar Cost Averaging is an investment system that is widely advocated&#xA;  by brokerage firms and mutual funds. In its best known form, an&#xA;  investor seeking to put a lump sum into risky assets is counseled to&#xA;  invest the money over a period of time in equal installments in order&#xA;  to avoid the devastating effect of a market fall immediately after a&#xA;  single, lump-sum investment. Using graphical analysis, historical&#xA;  stock market returns, and Monte Carlo simulations, this article&#xA;  demonstrates that no such benefit accrues to a Dollar Cost Averaging&#xA;  Strategy. Two alternative strategies, optimal rebalancing and buy and&#xA;  hold achieve better performance in all three analyses.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://%20www.sciencedirect.com/science/article/pii/1057081092900155&quot;&gt;Nobody gains from dollar cost averaging analytical, numerical and empirical results (Knight and Mandell (1993))&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Some studies find the dollar-cost averaging investment strategy to be&#xA;  sub-optimal using a traditional Sharpe ratio performance ranking&#xA;  metric. Using both the Sortino ratio and the Upside Potential ratio,&#xA;  we empirically test four investment strategies for alternative asset&#xA;  investments. We find the relative ranking of dollar-cost averaging&#xA;  remains inferior to alternative investment strategies. (JEL G1, G11,&#xA;  N2)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://link.springer.com/article/10.1007/BF02827219&quot;&gt;An empirical examination of the effectiveness of dollar-cost averaging using downside risk performance measures (Leggio and Lien (2003))&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The widespread practice of dollar-cost averaging (DCA) amongst the&#xA;  investing public, has puzzled most financial economists, ever since&#xA;  Constantinides demonstrated the dynamic inefficiency of this&#xA;  strategy under very general conditions. This enduring phenomena has&#xA;  forced researchers, such as Statman , to suggest behavioral&#xA;  explanations for DCA's popularity, predicated on the prospect theory&#xA;  of Kahneman and Tversky .&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;In this paper we reexamine the payoff structure of DCA via&#xA;  continuous-time financial mathematics and then ask the question: Is it&#xA;  possible to reconcile the theory and practice of dollar-cost&#xA;  averaging?&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;To answer this question, we take a slightly different approach to the&#xA;  issue by using the tools of stochastic calculus and Brownian bridges.&#xA;  We demonstrate that engaging in a dollar-cost averaging strategy is&#xA;  akin to purchasing a zero strike arithmetic Asian option on the&#xA;  underlying security. In other words, people who engage in dollar-cost&#xA;  averaging are implicitly purchasing a path-dependent contingent claim.&#xA;  We then prove that the expected return from this exotic option — i.e.&#xA;  the DCA strategy — conditional on knowing the final value of the&#xA;  security will uniformly exceed the return from the underlying security&#xA;  for all sufficiently large volatilities.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;This leads us to argue that investors may be dollar-cost averaging&#xA;  because they have &quot;target prices&quot; for the underlying asset price. The&#xA;  strategy of dollar-cost averaging would then exceed the returns from&#xA;  lump-sum investing, based on their subjective conditional expectation.&#xA;  In fact, the more volatile the underlying security, the greater is the&#xA;  benefit to dollar-cost averaging — conditional on knowing the final&#xA;  value — which is consistent with common practice.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.worldscientific.com/doi/abs/10.1142/S0219024903001888&quot;&gt;A CONTINUOUS-TIME REEXAMINATION OF DOLLAR-COST AVERAGING (MILEVSKY and POSNER (2003))&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Dollar Cost Averaging is a strategy for purchasing equity securities&#xA;  that is widely recommended by professional investment advisors and&#xA;  commentators, but which has been virtually ignored by academic&#xA;  theorists and textbook writers. In this paper we explore whether the&#xA;  strategy is but another instance of irrational behavior by individual&#xA;  investors, or whether it is an investment heuristic that has survival&#xA;  value in an environment in which security prices exhibit mean&#xA;  reversion behavior that has only belatedly been recognized by academic&#xA;  theorists. Our evidence supports the view that the uninformed&#xA;  individual investors who follow this strategy in purchasing individual&#xA;  stocks to add to an existing portfolio are better off than if they&#xA;  followed the ‘rational’ strategies traditionally recommended by&#xA;  academics.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://rof.oxfordjournals.org/content/9/4/509.short&quot;&gt;Dollar Cost Averaging (Brennan, Li and Torous  (2005))&lt;/a&gt; &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2016-02-22T20:47:22.913" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10821" PostTypeId="1" CreationDate="2016-02-22T23:56:17.113" Score="8" ViewCount="351" Body="&lt;p&gt;The price of oil has declined by roughly 66% in the past couple of years, and a lot of people want to know why:&#xA;&lt;a href=&quot;https://i.stack.imgur.com/9ZZxT.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/9ZZxT.png&quot; alt=&quot;oil price last 5 years&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some people are saying that the recent trend of oil prices dropping means the global economy is consuming less oil and therefore economic leading indicators suggest financial collapse in the future. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;They are wrong (today) because oil consumption has been increasing continuously over the last 20 years. &#xA;&lt;a href=&quot;https://i.stack.imgur.com/BE7zM.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/BE7zM.png&quot; alt=&quot;historical oil consumption data&quot;&gt;&lt;/a&gt;&#xA;&lt;a href=&quot;https://i.stack.imgur.com/Yj4QJ.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Yj4QJ.png&quot; alt=&quot;recent history oil consumption&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Other, more sensible ideas are that (today) oil prices have been decreasing because oil supply outpaces oil demand. But it hasn't been enough to compensate for the price drops. Its not like oil production has increased by 66%. At most, it has increased by 15%, more likely something like 10%. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/OPknE.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/OPknE.png&quot; alt=&quot;production v consumption graph&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, prices have fallen faster than the production surplus have increased.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Could it be alternative energy technologies like solar (or fear of them on the part of oil producers) that are causing this additional decline in oil prices?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/8EYDo.jpg&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/8EYDo.jpg&quot; alt=&quot;solar price per kwh&quot;&gt;&lt;/a&gt;&#xA;&lt;a href=&quot;https://i.stack.imgur.com/myept.jpg&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/myept.jpg&quot; alt=&quot;solar price per kwh projections&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;TED talk that provoked this question: &lt;a href=&quot;http://www.ted.com/talks/al_gore_the_case_for_optimism_on_climate_change&quot; rel=&quot;noreferrer&quot;&gt;http://www.ted.com/talks/al_gore_the_case_for_optimism_on_climate_change&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;could someone please add the category &quot;substitution&quot; to this question&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="6064" LastEditorUserId="6064" LastEditDate="2016-02-23T00:15:04.800" LastActivityDate="2018-10-20T09:00:23.497" Title="To what extent are renewables like solar driving down the cost of oil?" Tags="&lt;macroeconomics&gt;&lt;producer-surplus&gt;" AnswerCount="3" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10822" PostTypeId="2" ParentId="10706" CreationDate="2016-02-23T00:08:48.390" Score="1" Body="&lt;p&gt;A warrant is very similar to a call option (see &quot;Comparison with call options&quot; section here: &lt;a href=&quot;https://en.wikipedia.org/wiki/Warrant_(finance)#Comparison_with_call_options&quot; rel=&quot;nofollow&quot;&gt;https://en.wikipedia.org/wiki/Warrant_(finance)#Comparison_with_call_options&lt;/a&gt;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So we can suppose we're dealing with a call option: If $P_t$ is the price of the underlying asset at time t and $K$ is the strike price, then the value of the call option is $V_t=\max(P_t-K,0)$ (if the option has not been exercised by time $t$). This value function indicates that if I own the call option, I will not exercise my right to buy the underlying asset at price $K$ unless the asset is worth more than $K$ at time $t$. By exercising my right at time $t$, I gain $P_t-K$, and &lt;strong&gt;the issuer of the option&lt;/strong&gt;, by selling me an asset worth $P_t$ at a lower price $K$, &lt;strong&gt;loses exactly the amount I gain&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your question seems to be getting at the issuer's intent: Why would you issue a warrant where you would have to pay money on average? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A warrant can be used to:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Make bets, or&lt;/li&gt;&#xA;&lt;li&gt;Provide monetary compensation without giving up cash flow immediately.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;1) As you've suggested, the bank may be hoping to never pay out a warrant. But if everyone else also believes that the value of the warrant is 0, then why would the warrant exist in the first place? Maybe the bank has information that others don't, so some people will buy the warrants from the bank, believing that the warrants have positive value less than the price they paid for them. This would be a use of warrants for betting, both for the bank and the people who purchase the warrants.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) Companies that have promising future cash flow prospects but have poor short-term cash flow would often like to compensate their workers highly to attract talent, but cannot afford to do so immediately with money (e.g. tech startups). Stock warrants will go up in value with the company's value, so such non-cash compensation is often acceptable as a (partial) substitute for cash salary.&lt;/p&gt;&#xA;" OwnerUserId="7303" LastActivityDate="2016-02-23T00:08:48.390" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10823" PostTypeId="2" ParentId="10821" CreationDate="2016-02-23T00:48:43.373" Score="5" Body="&lt;p&gt;There are several reasons from supply and demand side. From production side, for example, contrary to anouncement of cutting production (from Saudi Arabia, Venezuela and Qatar), Saudi Arabia continued to increase its production. &#xA;(There are some political reasons behind like Saudi Arabia would like to make some pressure on Russia and USA but I don't enter into this discussion as it does not concern an economic mechanism.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, there are some other countries like Canada, Iraq and Iran where the oil production rises, which pushes prices to fall. (I think you can easily find some data about that, I have seen somewhere in web.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From demand side, there is a risk of deflation in Europe and contraction of demand in most of developping countries, which also affects production side and could make a downward pressure on energy prices.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another reason could be use of energy efficient technologies (like some cars or machines in some industries.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What theory says about this issue ?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In fact, the existing literature on environmental economics says that price of exhaustible resources tends to increase as they become scarce. (it is the famous Hotelling rule)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is a relationship between the use of renewable energies and exhaustible resources. Normally, an economy starts with use of exhaustible resources. Theory says that when economy grows in time, the exhaustible resource becomes scarce and its price increases. In this case, economy will use exhaustible resources until the marginal benefit from its use is equal to price of backstop (solar, wind etc...) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(A very interesting paper to see about subject is Withagen and Van der Ploeg (JEEM-2012))&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this current situation, it is sure that there are less incentives for economies to switch to clean technologies as price of exhaustible resources decreased to much. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To respond to your question, the use of renewable energy is increasing in world but I don't think at all that the huge fall in oil prices is due to &quot;increasing&quot; use of renewables. &#xA;This trend for renewables is always present since some decades but until now, oil prices have always increased.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As I have tried to explain, I don't really think there are robust correlations between the drop of oil prices and renewable energy use. &lt;/p&gt;&#xA;" OwnerUserId="2938" LastActivityDate="2016-02-23T00:48:43.373" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="10825" PostTypeId="2" ParentId="10783" CreationDate="2016-02-23T02:11:51.833" Score="1" Body="&lt;p&gt;The question about using mathematics to model economic phenomena is a rather old one dating back to at least the marginal revolution (19th Century). A couple of the key figures of this era were William Stanley Jevons and Leon Walras. I don't aim to provide a complete, or terribly accurate, history, but let's just focus on Walras.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the preface to his Elements of Pure Economics, Walras paints a picture that suggests mathematics is a &lt;em&gt;necessary input&lt;/em&gt; (basic ingredient) of economic modelling. He says:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;As for those economists who do not know any mathematics, who do not&#xA;  even know what is meant by mathematics and yet have taken the stand&#xA;  that mathematics cannot possibly serve to elucidate economic&#xA;  principles, let them go their way repeating that &quot;human liberty will&#xA;  never allow itself to be cast into equations&quot; or that &quot;mathematics&#xA;  ignores frictions which are everything in social science&quot; and other&#xA;  equally forceful and flowery phrases. They can never prevent the&#xA;  theory of determination of prices under free competition from becoming&#xA;  a mathematical theory. Hence, they will always have to face the&#xA;  alternative either of steering clear of this discipline and&#xA;  consequently elaborating a theory of applied economics without&#xA;  recourse to a theory of pure economics or of tackling the problems of&#xA;  pure economics without the necessary equipment, thus producing not&#xA;  only very bad pure economics but also very bad mathematics. &lt;em&gt;(Extract from preface to fourth edition).&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The above quote marks the problems that arise when mathematics is &lt;em&gt;not&lt;/em&gt; used in economic modelling. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Walras makes a further statement with regard to mathematical language, offering a critique to his predecessors. He says:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;As to mathematical language, why should we persist in using everyday&#xA;  language to explain things in the most cumbrous and incorrect way, as&#xA;  Ricardo has often done and as John Stuart Mill does repeatedly in his&#xA;  Principles of Political Economy, when these same things can be stated&#xA;  far more succinctly, precisely and clearly in the language of&#xA;  mathematics. &lt;em&gt;(Extract from Lesson 3).&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Alfred Marshall expresses a similar view with regard to mathematical language being a more efficient tool than words. He says:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The chief use of pure mathematics in economic questions seems to be in&#xA;  helping a person to write down quickly, shortly and exactly, some of&#xA;  his thoughts for his own use : and to make sure that he has enough,&#xA;  and only enough premises for his conclusions. &lt;em&gt;(Extract from preface to first edition).&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;However, Marshall provides a more muted opinion about mathematics being a &lt;em&gt;necessary output&lt;/em&gt; of economic modelling:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;But when a great many symbols have to be used, they become very&#xA;  laborious to any one but the writer himself. And though Cournot's&#xA;  genius must give a new mental activity to everyone who passes through&#xA;  his hands, and mathematicians of calibre similar to his may use their&#xA;  favourite weapons in clearing the way for themselves to the centre of&#xA;  some of those difficult problems of economic theory, of which only the&#xA;  outer fringes has yet been touched; yet it seems doubtful whether any&#xA;  one spends his time well in reading lengthy translations of economic&#xA;  doctrines into mathematics, that have not been made by himself. &lt;em&gt;(Extract from preface to first edition).&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;If we now fast-forward to the present day, we see that mathematics is everywhere in economics. Thinking of doing a PhD in Economics? Well, mathematics (and statistics) is going to be served up first - no question about that.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, what can go wrong when using mathematics in economic modelling? The main problem, I believe, is not being able to see the woods for the trees. This point is illustrated in Klemperer (2003) &lt;a href=&quot;http://www.nuff.ox.ac.uk/users/klemperer/usingandabusing.pdf&quot; rel=&quot;nofollow&quot;&gt;Using and Abusing Economic Theory&lt;/a&gt;. In this paper, Klemperer gives the following example:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;So graduate students are taught the elegant mathematics of affiliation&#xA;  and whenever, and wherever, I give a seminar about auctions in&#xA;  practice, I am asked a question along the lines of 'Haven't Milgrom&#xA;  and Weber shown that ascending auctions raise most revenue, so why&#xA;  consider other alternatives?' This is true of seminars to academics.&#xA;  It is even more true of seminars to policy-makers. Thus, although a&#xA;  little knowledge of economic theory is a good thing, too much&#xA;  knowledge can sometimes be a dangerous thing.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The point is concluded pointing out that too much detail (i.e. advanced mathematics) can distract from what's really important in the wider context:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In short, a little graduate education in auction theory can often&#xA;  distract attention from the straightforward 'undergraduate' issues&#xA;  that really matter.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Lastly, the OPs question could also be addressed from the viewpoint of econometric methodology, but I'll omit that aspect because there are numerous controversies in econometric modelling. Names to look up would be: Clive Granger, David Hendry, Edward Leamer, Lawrence Klein, Christopher Sims, to just scratch the surface!&lt;/p&gt;&#xA;" OwnerUserId="1588" LastActivityDate="2016-02-23T02:11:51.833" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10827" PostTypeId="1" CreationDate="2016-02-23T12:09:20.380" Score="1" ViewCount="57" Body="&lt;p&gt;I need to find the list of companies with their respective market caps and their sectors of activities.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For now I have found these two links:&#xA;• &lt;a href=&quot;https://goo.gl/E8WJzu&quot; rel=&quot;nofollow&quot;&gt;https://goo.gl/E8WJzu&lt;/a&gt;&#xA;• &lt;a href=&quot;http://goo.gl/vuHDuF&quot; rel=&quot;nofollow&quot;&gt;http://goo.gl/vuHDuF&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But I need to find more.&lt;/p&gt;&#xA;" OwnerUserId="7438" LastEditorUserId="43" LastEditDate="2016-02-23T14:26:55.853" LastActivityDate="2016-02-23T14:26:55.853" Title="World company database?" Tags="&lt;stock-market&gt;&lt;markets&gt;&lt;financial-markets&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10828" PostTypeId="1" AcceptedAnswerId="10829" CreationDate="2016-02-23T12:39:34.603" Score="1" ViewCount="713" Body="&lt;p&gt;Can anyone please help with taking the derivative of the following equation with respect to time?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$ln(\frac{\gamma_t+(n+\delta)}{sA}) = (\beta - 1)ln{k_t}+(\alpha+\beta-1)ln{N_t}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is not a homework question, just reading a text on economic growth and not sure how the author arrived at the final expression.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks&lt;/p&gt;&#xA;" OwnerUserId="6009" LastActivityDate="2016-02-23T15:24:45.220" Title="Taking time derivative, growth equations" Tags="&lt;mathematical-economics&gt;&lt;economic-growth&gt;" AnswerCount="1" CommentCount="2" ClosedDate="2016-02-26T18:31:04.820" ContentLicense="CC BY-SA 3.0" />
  <row Id="10829" PostTypeId="2" ParentId="10828" CreationDate="2016-02-23T15:24:45.220" Score="3" Body="&lt;p&gt;I'll give a try, perhaps it is just this first derivative giving you trouble:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{d}{dt} ln \left( \frac{ \gamma_t + (n+\delta)}{sA} \right) = \frac{sA}{\gamma_t + (n+\delta)} \frac{d}{dt} \left( \frac{ \gamma_t + (n+\delta)}{sA} \right) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ = \frac{sA}{\gamma_t + (n+\delta)} \frac{\dot{\gamma}_t + 0}{sA} = \frac{\dot{\gamma}_t}{\gamma_t + (n+g)} $$&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;And the rest are simply the time derivative of a log equals its growth rate $ \left( \frac{d}{dt} ln X = \frac{\dot{X}}{X} \right) $:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{d}{dt} \bigg[ (\beta-1) ln k_t + (\alpha + \beta - 1) ln N_t \bigg] = (\beta-1) \frac{\dot{k}_t}{k_t} + (\alpha + \beta - 1) \frac{\dot{N}_t}{N_t} $$&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Hence concluding the time derivative is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{\dot{\gamma}_t}{\gamma_t + (n+g)} = (\beta-1) \frac{\dot{k}_t}{k_t} + (\alpha + \beta - 1) \frac{\dot{N}_t}{N_t} $$&lt;/p&gt;&#xA;" OwnerUserId="5780" LastActivityDate="2016-02-23T15:24:45.220" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10831" PostTypeId="1" AcceptedAnswerId="10838" CreationDate="2016-02-23T18:44:18.377" Score="2" ViewCount="92" Body="&lt;p&gt;I have a question regarding making predictions from distributed lag models. Suppose, I have a simple linear distributed lag model of the form:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$y\left(t\right)= \sum^{k}_{i=0}\beta_{i}x\left(t-i\right) + \epsilon\left(t\right)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assuming co-linearity is not an issue. Suppose, I have many data points along the temporal and spatial domain for the explanatory variable $x$. However, I only have data for one time instance for the response variable but I have many data points in a spatial domain. Assume that there is homogeneity in the spatial domain.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The variables have a spatial domain; however, I am ignoring this and assuming homogeneity int the spatial domain for both $x$ and $y$. Also, many values of $y$ can correspond to a single value of $x$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is it possible to use the model for prediction? In the sense that one could take the lag coefficients and say at the initial time the only effect of the explanatory variable on the response variable is $\beta_{o}$ and at some time in the future, $t=n$, the only effect of the explanatory variable on the response variable is $\beta_{n}$.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks in advance for you time and consideration.&lt;/p&gt;&#xA;" OwnerUserId="7440" LastEditorUserId="7440" LastEditDate="2016-02-23T23:46:24.250" LastActivityDate="2016-02-24T17:07:38.350" Title="Making predictions with a distributed lag model" Tags="&lt;econometrics&gt;&lt;time-series&gt;" AnswerCount="1" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="10833" PostTypeId="2" ParentId="10800" CreationDate="2016-02-24T01:36:37.867" Score="5" Body="&lt;p&gt;I don't believe that a solution manual to Gali's book has been written. In 2015 the book &lt;a href=&quot;http://press.princeton.edu/titles/10495.html&quot; rel=&quot;noreferrer&quot;&gt;saw a second edition&lt;/a&gt;, so maybe this time around something will appear.&#xA;These &lt;a href=&quot;http://bergholt.weebly.com/uploads/1/1/8/4/11843961/the_basic_new_keynesian_model_-_drago_bergholt.pdf&quot; rel=&quot;noreferrer&quot;&gt;course notes&lt;/a&gt; may be indirectly helpful to you. &lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2016-02-24T01:36:37.867" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10835" PostTypeId="2" ParentId="10756" CreationDate="2016-02-24T09:04:16.613" Score="5" Body="&lt;p&gt;Maybe another example will help here: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Imagine you would like to know the effect of smoking on the probability of getting cancer. By simply comparing cancer rates of smokers and non-smokers you might get a biased estimate of this effect, because perhaps smokers also engage in a range of other unhealthy behaviors that increase cancer risk (e.g. heavy drinking, little excercise, high stress exposure etc). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words, the 'identification assumption' you make for estimate the causal effect of smoking on cancer rates, i.e. that smokers &amp;amp; non-smokers only differ in terms of their smoking behavior, is likely not to hold here.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For this reason, you might want to use an identification strategy with less dubious assumptions. For example, rather than looking at the direct of cigarette consumption on cancer, you could look at the effect of changes in the price cigarettes on cancer. For example, it might be that some districts have increased the cigarette tax with 20% whereas other districts haven't done so. In such a case, it's likely that cigarette consumption decreases in the first group of districts relative to the second group. This relative change in cigarette consumption can subsequently be used to estimate the causal effect of smoking on cancer rates, because the price increase is unlikely to be correlated with characteristics of smokers/non-smokers (drinking, excercise etc) --&gt; in other words, the &lt;em&gt;identification assumption&lt;/em&gt; in this estimation model is more plausible than in the &lt;em&gt;naive&lt;/em&gt; comparison of smokers &amp;amp; non-smokers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope this helps! Also you may wanna look at academic papers that illustrate how to use cool &amp;amp; rigorous identification strategies, e.g:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Donohue III, John J., and Steven D. Levitt. &quot;The impact of legalized abortion on crime.&quot; Quarterly Journal of Economics (2001): 379-420.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Miguel, Edward, and Michael Kremer. &quot;Worms: identifying impacts on education and health in the presence of treatment externalities.&quot; Econometrica 72.1 (2004): 159-217.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Abadie, Alberto, Joshua Angrist, and Guido Imbens. &quot;Instrumental variables estimates of the effect of subsidized training on the quantiles of trainee earnings.&quot; Econometrica 70.1 (2002): 91-117.&lt;/p&gt;&#xA;" OwnerUserId="7431" LastActivityDate="2016-02-24T09:04:16.613" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10837" PostTypeId="1" CreationDate="2016-02-24T16:45:53.143" Score="1" ViewCount="136" Body="&lt;p&gt;So, I have the following 9 by 9 probability matrix. I want to solve it for a nash equilibrium.&#xA;&lt;a href=&quot;https://docs.google.com/spreadsheets/d/16Y1FqxRIAHsHpgEz1ckxDt2sEOInOG3zz_wU8kBHvB4/edit?usp=sharing&quot; rel=&quot;nofollow&quot;&gt;https://docs.google.com/spreadsheets/d/16Y1FqxRIAHsHpgEz1ckxDt2sEOInOG3zz_wU8kBHvB4/edit?usp=sharing&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For anyone who might recognize it, the probabilities are from Hearthstone tournament data.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can eliminate 4 strategies by dominance, leaving us with a 5 by 5 matrix, but when we try to solve in mathematica:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;data1 = {&#xA;{50, 56, 33, 44, 39},&#xA;{44, 50, 75, 69, 44},&#xA;{67, 25, 50, 25, 69},&#xA;{56, 31, 75, 50, 39},&#xA;{61, 56, 31, 61, 50}}&#xA;prob = List[m, pr, r, s, wr]&#xA;&#xA;NSolve[{&#xA;data1[[All, 1]].prob == data1[[All, 2]].prob, &#xA;data1[[All, 2]].prob == data1[[All, 3]].prob, &#xA;data1[[All, 3]].prob == data1[[All, 4]].prob, &#xA;data1[[All, 4]].prob == data1[[All, 5]].prob, &#xA;Total[prob] == 1}, prob]&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;So I'm using the standard MSNE strategy, taking the dot product of the probability vector and player 2'd payoffs, then setting them equal. The output is:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;{m -&amp;gt; 0.447102, pr -&amp;gt; 0.5299, r -&amp;gt; 0.286108, s -&amp;gt; -0.241951, wr -&amp;gt; -0.0211592}&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;But we can't have negative probabilities. This would mean an MSNE cannot occur, which would imply a PSNE, but that can't happen either with the way the matrix is set up.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So what's the deal? What's the NE in this matrix?&lt;/p&gt;&#xA;" OwnerUserId="7448" LastActivityDate="2016-02-24T16:45:53.143" Title="Can't solve this matrix for Nash Equilibrium?" Tags="&lt;game-theory&gt;&lt;nash-equilibrium&gt;&lt;probability&gt;" AnswerCount="0" CommentCount="8" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10838" PostTypeId="2" ParentId="10831" CreationDate="2016-02-24T17:07:38.350" Score="1" Body="&lt;p&gt;So the short answer is yes, you can generate some predictions based on your model. Whether it will generate good predictions is another question. Basically you are only using the spatial variation to estimate your model and no time variation. So your predictions would most likely be very poor unless the relationship is very stable over time. There's also no way of knowing which lagged values of the explanatory variable would be useful in prediction, unless there is some spatial structure that you can use (i.e. some regions are leading indicators for other regions)&lt;/p&gt;&#xA;" OwnerUserId="6844" LastActivityDate="2016-02-24T17:07:38.350" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10840" PostTypeId="2" ParentId="10708" CreationDate="2016-02-24T17:35:36.353" Score="2" Body="&lt;p&gt;&lt;em&gt;Converting my comments to an answer:&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think your answers to 1 and 2 are correct. For 3.1, your intuition that &quot;as well off as&quot; should be interpreted &quot;indifferent&quot; is correct, and indifferent is about comparing utility levels, not MRS. You answer to 3.2 looks correct.&lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2016-02-24T17:35:36.353" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10843" PostTypeId="1" CreationDate="2016-02-25T01:01:20.987" Score="7" ViewCount="652" Body="&lt;p&gt;In the United States, the velocity of both the M1 and M2 money supplies has been declining for over a decade.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The decline in the velocity of M1 could be explained by the shift away from cash to cards and online payments.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What are the causes and implications of &lt;a href=&quot;https://research.stlouisfed.org/fred2/series/M2V&quot;&gt;the decline in the velocity of M2&lt;/a&gt;?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does it signify that the money supply is growing faster than GDP? If so, is real GDP declining? Does it indicate some sort of lack of liquidity? How does this relate to interest rates?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks!&lt;/p&gt;&#xA;" OwnerUserId="7450" LastActivityDate="2019-09-22T05:01:55.283" Title="Implications of declining money velocity" Tags="&lt;money-supply&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10844" PostTypeId="2" ParentId="10843" CreationDate="2016-02-25T02:25:47.400" Score="2" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/61x4v.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/61x4v.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/QbLXz.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/QbLXz.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.forbes.com/sites/traceygreenstein/2011/09/20/the-feds-16-trillion-bailouts-under-reported/#5a1dec1d6877&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.forbes.com/sites/traceygreenstein/2011/09/20/the-feds-16-trillion-bailouts-under-reported/#5a1dec1d6877&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The decline in money velocity is due to enormous monetary injections, which mostly sat in recipient bank accounts and had no effect on the real economy. Under the Keynesian and monetarist theories that central banks operate upon, an increase in money supply should ease liquidity constraints and allow the economy to resume growth. In reality not much further growth was possible, likely because of the stagnation in conventional oil production.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/NChhR.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/NChhR.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To answer your questions:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Yes&lt;/li&gt;&#xA;&lt;li&gt;Not yet&lt;/li&gt;&#xA;&lt;li&gt;No, it indicates a lack of viable uses for the cash&lt;/li&gt;&#xA;&lt;li&gt;Interest rates fell because of the relatively small decrease in banks balance sheets coinciding with a sharply declining return on capital, and thus diminishing incentive for investors to leverage, causing increasing supply relative to demand for credit &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="8360" LastEditorUserId="8360" LastEditDate="2016-02-25T02:45:49.060" LastActivityDate="2016-02-25T02:45:49.060" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="10845" PostTypeId="1" CreationDate="2016-02-25T03:59:28.333" Score="6" ViewCount="212" Body="&lt;p&gt;The inter temporal elasticity of substitution between two periods of time is $$\sigma=-\frac{d[\ln(c(s)/c(t))]}{d[\ln(U'(c(s))/U'(c(t)))]}$$ I need to prove that $$\lim_{s \to t}\sigma = -\frac{U'(c(t))}{U''(c(t))c(t)}$$&#xA;So, I have the following by the definition of total differential:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\sigma=-\frac{ \frac{dc(s)}{c(s)}-\frac{dc(t)}{c(t)}}{ \frac{U''(c(s))}{U'(c(s)}dc(s)- \frac{U''(c(t))}{U'(c(t)}dc(t)  }$$  Then if $s$ tends to $t$ we have an indetermination $0/0$ so, we use L'Hôpital Rule. That is my problem, I don't know how to derivate with respect to $c(s)$.&lt;/p&gt;&#xA;" OwnerUserId="5812" LastEditorUserId="5061" LastEditDate="2016-04-27T13:32:59.110" LastActivityDate="2016-09-30T20:35:12.717" Title="About intertemporal elasticity of substitution" Tags="&lt;microeconomics&gt;&lt;elasticity&gt;&lt;economic-growth&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10846" PostTypeId="1" AcceptedAnswerId="10863" CreationDate="2016-02-25T06:59:55.367" Score="1" ViewCount="347" Body="&lt;p&gt;Just wondered if anyone considered this. Do simple geographic factors explain differences in economic development?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/heeja.gif&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/heeja.gif&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="8360" LastEditorUserId="8360" LastEditDate="2016-02-25T08:56:58.517" LastActivityDate="2016-02-26T06:41:27.423" Title="Can geography explain differences in economic development between present day economies?" Tags="&lt;macroeconomics&gt;" AnswerCount="3" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="10847" PostTypeId="2" ParentId="10846" CreationDate="2016-02-25T08:18:32.453" Score="2" Body="&lt;p&gt;If this was the case, you would expect countries geographically close to each other to have similar economic conditions. However, we can see large variation within, for example, continents.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;See, for example, this country map of nominal GDP per capita from Wikipedia: &lt;a href=&quot;https://en.wikipedia.org/wiki/List_of_countries_by_GDP_%28nominal%29_per_capita#/media/File:GDP_per_capita_%28nominal%29_2014.png&quot; rel=&quot;nofollow&quot;&gt;https://en.wikipedia.org/wiki/List_of_countries_by_GDP_%28nominal%29_per_capita#/media/File:GDP_per_capita_%28nominal%29_2014.png&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What we currently observe as economic development is a result of past monetary/fiscal policy decisions, the reserve of natural resources a country has and a multitude of other factors which are (mostly) independent of geographical location. You might argue that neighbouring countries often have similar growth paths due to similar natural and political conditions, but this isn't always the case.&lt;/p&gt;&#xA;" OwnerUserId="5512" LastEditorUserId="5512" LastEditDate="2016-02-25T08:23:35.103" LastActivityDate="2016-02-25T08:23:35.103" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="10850" PostTypeId="2" ParentId="10846" CreationDate="2016-02-25T11:16:49.017" Score="2" Body="&lt;p&gt;If explanation consists in identifying causal factors and assessing their importance, much depends on how far back - in time, and in links in a causal chain - one is trying to go. If one looks for the proximate causes of differences in levels of economic development, considering only current or recent factors, then explanations in terms of inherited physical and human capital are likely to play a central role, with governance and cultural factors also important.  Geography also plays a role, especially in enriching countries with large oil reserves, and acting as a constraint on development in regions of water scarcity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If one seeks to trace the causal chain much further back, then a case can be made that the role of geography becomes much more important.  In his book &lt;a href=&quot;https://en.wikipedia.org/wiki/Guns,_Germs,_and_Steel&quot; rel=&quot;nofollow&quot;&gt;Guns, Germs and Steel&lt;/a&gt;, Jared Diamond argues that the more advanced development of Eurasia relative to other parts of the world can be largely explained in terms of what can broadly be described as geographical factors. However, the factors he describes are not simple.  He refers for example to the distributions of plant and animal species suitable for domestication, to the distributions of diseases, and - in respect of Europe's development in the mediaeval and early modern period - to the effects of  geography favouring a division into relatively small nation-states, with the resulting competition providing a spur to development.  Even if not every detail of his argument is persuasive, he makes a strong case overall that geographical factors should play a major role in very long-term explanations of differences in development.&lt;/p&gt;&#xA;" OwnerUserId="1417" LastActivityDate="2016-02-25T11:16:49.017" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10854" PostTypeId="2" ParentId="10808" CreationDate="2016-02-25T12:27:45.387" Score="1" Body="&lt;p&gt;They use all types of methods. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Often, papers will use a very basic linear regression model and submit to a low prestige journal so one can justify ones grant and boost the H index as much as possible when meta analyses cite your article to clean up the mess.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's up to the meta analysis to take into account that not all models have correct methodology and create a meta-analytical model to correct for all these inaccuracies. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Fortunately, there are sometimes dynamic lag models and the like to compare to and guess at an appropriate correction term for the others. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is an example for gas prices.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.google.com/url?sa=t&amp;amp;source=web&amp;amp;rct=j&amp;amp;url=http://papers.tinbergen.nl/06106.pdf&amp;amp;ved=0ahUKEwia2Me-85LLAhUUzmMKHWvjAd0QFgghMAE&amp;amp;usg=AFQjCNHi6RH_xX7h9NLPcVRCFAMP0OtERQ&amp;amp;sig2=3ChFSPGwukN_WC4IlhitGA&quot; rel=&quot;nofollow&quot;&gt;https://www.google.com/url?sa=t&amp;amp;source=web&amp;amp;rct=j&amp;amp;url=http://papers.tinbergen.nl/06106.pdf&amp;amp;ved=0ahUKEwia2Me-85LLAhUUzmMKHWvjAd0QFgghMAE&amp;amp;usg=AFQjCNHi6RH_xX7h9NLPcVRCFAMP0OtERQ&amp;amp;sig2=3ChFSPGwukN_WC4IlhitGA&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit: A meta analytic model is a model to explain why studies obtained the results that they did. Different samples, methodologies, and so forth will produce different results, and a metamodel expresses this formally.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A dynamic lag model (also called a distributed lag model) is a model to predict the current value of a dependent variable based on past values of independent variables. For example, if a change in price causes a change in demand, you can model this by correlating price at time t-1 to demand at time t.&lt;/p&gt;&#xA;" OwnerUserId="8360" LastEditorUserId="8360" LastEditDate="2016-02-28T03:53:37.387" LastActivityDate="2016-02-28T03:53:37.387" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10855" PostTypeId="2" ParentId="10817" CreationDate="2016-02-25T12:54:21.980" Score="1" Body="&lt;p&gt;The retail price should include the total net present value of use of the item. At any given point in time, the value of the item is the purchase cost minus accumulated depreciation. Depreciation should include both physical wear and any non-physical types of depreciation such as obsolescence. &lt;/p&gt;&#xA;" OwnerUserId="8360" LastEditorUserId="8360" LastEditDate="2016-02-25T13:01:13.620" LastActivityDate="2016-02-25T13:01:13.620" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10856" PostTypeId="1" CreationDate="2016-02-25T16:34:24.163" Score="3" ViewCount="1809" Body="&lt;p&gt;In the calculation of the &lt;a href=&quot;http://hdr.undp.org/en/content/human-development-index-hdi&quot; rel=&quot;nofollow&quot;&gt;Human Development Index&lt;/a&gt;, Gross National Income (GNI) is used rather than GNP.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've searched around on the internet, but I haven't found a clear explanation of what the precise difference between GNI and GNP is. Wikipedia defines GNI as &quot;total domestic and foreign output claimed by residents of a country&quot; and the GNP as &quot;market value of all the products and services produced in one year by labour and property supplied by the citizens of a country.&quot; Just like the income and expenditure approaches to calculating GDP yielding the same result, it seems to me that GNI and GNP should be at least theoretically equal.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is the difference between GNP and GNI, and why use one over the other for measuring development?&lt;/p&gt;&#xA;" OwnerUserId="4697" LastEditorUserId="1417" LastEditDate="2016-02-26T15:21:52.567" LastActivityDate="2016-06-25T18:10:36.603" Title="GNI versus GNP for Measuring Development" Tags="&lt;gdp&gt;&lt;development-economics&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10857" PostTypeId="1" CreationDate="2016-02-25T17:12:44.003" Score="4" ViewCount="224" Body="&lt;p&gt;If house prices are a function of location, physical characteristics and an error term i.e.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;house_price = f (location, physical, e)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And I estimate a regression with the log of house price as my dependent variable, and a range of location characteristics (e.g. distance to CBD/coast/roads etc) and physical characteristics (e.g. no. bedrooms/bathrooms/garage etc) as regressors.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can I call this my house price model? or is it a reduced-form estimation?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think I can call it my model, because I am modelling how house prices are explained, but I am unsure.  &lt;/p&gt;&#xA;" OwnerUserId="5367" LastEditorUserId="61" LastEditDate="2016-02-25T17:56:35.787" LastActivityDate="2016-02-25T17:56:35.787" Title="Is a hedonic regression a reduced-form?" Tags="&lt;econometrics&gt;&lt;applied-econometrics&gt;&lt;regression&gt;&lt;reduced-form-estimation&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="10858" PostTypeId="2" ParentId="10857" CreationDate="2016-02-25T17:55:53.037" Score="5" Body="&lt;p&gt;In the benchmark hedonic price analysis, we assume a utility function of the general form&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U = U(x, z_1,...,z_n)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where &quot;$x$&quot; stands for the composite good, and $(z_1,...,z_n)$ are the characteristics of good $y$ that are valued by the consumer. Assume for simplicity (as is usually done in the literature, and as is the OP case), that the consumer will only purchase just one unit of good $y$ (one house). The budget constraint in this case is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$x+p(z_1,...,z_n) = M$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $M$ is the available income and $p(z_1,...,z_n)$ is the price of the good, expressed as a function of those same characteristics. This is an important departure from the standard consumer theory, because here, $p$ is &lt;em&gt;not&lt;/em&gt; market price, but it is the &quot;willingness to pay&quot; of the consumer, decomposed into a function of many characteristics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The lagrangean here is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Lambda = U(x, z_1,...,z_n) + \lambda[M-x-p(z_1,...,z_n)]$$ and the f.o.c's are&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\partial U / \partial x = \lambda$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\partial U / \partial z_i = \lambda \partial p / \partial z_i, \;\;\; \forall i$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\partial p / \partial z_i = \frac {\partial U / \partial z_i}{\partial U / \partial x}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that we have differentiated the price also, since again, this is not &quot;the market price faced by the consumer&quot; but his/her willingness-to-pay.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The hedonic-price econometric estimation is based on &lt;em&gt;actual&lt;/em&gt; transactions, and so on data related to prices that consumers have actually agreed to pay. &#xA;So the specification&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$p = f(z_1,...,z_n, e)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;estimates $$\partial p / \partial z_i$$ (and/or their binary-characteristic analogues), which is seen to be the ratio of the marginal utility of the characteristic scaled by the marginal utility of income.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If one assumes quasi-linear preferences of the form&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U = v( z_1,...,z_n) +x$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;then $\lambda =1$ and so the marginal utility of the characteristic is the same as the marginal monetary willingness-to-pay for that characteristic.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the basis of these remarks, I think you can conclude whether the econometric specification is a &quot;reduced form&quot; or not.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2016-02-25T17:55:53.037" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10861" PostTypeId="2" ParentId="10856" CreationDate="2016-02-25T23:05:56.110" Score="-1" Body="&lt;p&gt;GNP measures production, so is a better measure of how the country is doing in the long term at accumulating fixed capital and developing. Fixed capital has a much higher return than the financial capital that GNI is typically derived from. However, both measures are usually very similar, except for some tax havens such as Ireland that have significantly more GNI than GNP.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose a country consisted of one individual making trillions of dollars on the stock market and boosting GNI without any national product. If they don't own any fixed capital, this would be a very bizarre economy and not really &quot;developed&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand if a country has lots of production but has a negative GNI because, say, a domestic company issued a massive dividend to overseas investors that year, then the country could still be called &quot;developed&quot; because it has real people and factories and so forth.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Neither of these cases have anything to do with reality of course, they're just examples.&lt;/p&gt;&#xA;" OwnerUserId="8360" LastEditorUserId="8360" LastEditDate="2016-02-26T09:43:46.277" LastActivityDate="2016-02-26T09:43:46.277" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10863" PostTypeId="2" ParentId="10846" CreationDate="2016-02-26T06:41:27.423" Score="5" Body="&lt;p&gt;Dani Rodrik, Arvind Subramanian, Francesco Trebbi have a paper on &quot;&lt;a href=&quot;http://faculty.arts.ubc.ca/ftrebbi/research/institutionsruleJEG.pdf&quot;&gt;Institutions Rule: The Primacy of Institutions over Geography and Integration in Economic Development&lt;/a&gt;&quot;, Journal of Economic Growth, June 2004, 9(2): pp.131-165.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;They estimate the respective contributions of institutions, geography, and trade in determining income levels around the world, using recently developed instruments for institutions and trade. They results indicate that the quality of institutions trumps' everything else. They add that once institutions are controlled for, &lt;strong&gt;measures of geography have at best weak direct effects on incomes, although they have a strong indirect effect by influencing the quality of institutions&lt;/strong&gt;.&lt;/p&gt;&#xA;" OwnerUserId="6168" LastActivityDate="2016-02-26T06:41:27.423" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10864" PostTypeId="1" AcceptedAnswerId="10873" CreationDate="2016-02-26T07:42:53.403" Score="3" ViewCount="2505" Body="&lt;p&gt;The Wikipedia page on &lt;a href=&quot;https://en.wikipedia.org/wiki/Risk_aversion&quot; rel=&quot;nofollow&quot;&gt;risk aversion&lt;/a&gt; states that a &quot;Constant Relative Risk Aversion implies a Decreasing Absolute Risk Aversion, but the reverse is&#xA;not always true&quot;. Let me decompose this statement in two parts:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1/ &quot;Constant Relative Risk Aversion implies a Decreasing Absolute Risk Aversion.&quot; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A simple example is the log utility function, $u(c) = \ln(c)$, with $c&amp;gt;0$ satisfies the DARA because the utility function is positively skewed $\left(u'''=\frac{2}{c^3} &amp;gt;0\right)$ and implies a Relative Risk Aversion equals to $1 \left(=-c\frac {u''(c)}{u'(c)}\right)$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;2/ &quot;but the reverse is not always true&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am wondering if this is the most frequent case? Or if most of the time DARA utility functions also exhibit CRRA?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would be grateful if you can illustrate your answer with some utility functions.&lt;/p&gt;&#xA;" OwnerUserId="6168" LastEditorUserId="6168" LastEditDate="2016-02-26T15:47:18.443" LastActivityDate="2016-02-26T21:08:41.907" Title="Is DARA utility implying CRRA most of the time?" Tags="&lt;microeconomics&gt;&lt;risk&gt;&lt;risk-aversion&gt;" AnswerCount="2" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10865" PostTypeId="2" ParentId="10864" CreationDate="2016-02-26T09:03:57.333" Score="3" Body="&lt;p&gt;Let me turn my comment into a quick answer:&#xA;Using the notation of the article you quoted $A(c)$ is the absolute risk aversion and $c A(c)$ the relative risk aversion. If $A(c)$ is decreasing, the preferences fulfill DARA. If $c A(c)$ is constant, the preferences fulfill CRRA. If CRRA holds, then $A(c)$ must be decreasing in $c$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we take any $A(c)$ such that $c A(c)$ is decreasing and $A(c)$ is positive, then $A(c)$ will also be decreasing. In this case, the preferences are both DARA and DRRA. You asked whether DARA implies CRRA in almost all cases. From this analysis, it seems to be rather the case that CRRA is the exceptional case.&lt;/p&gt;&#xA;" OwnerUserId="5635" LastActivityDate="2016-02-26T09:03:57.333" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10866" PostTypeId="1" AcceptedAnswerId="10874" CreationDate="2016-02-26T11:04:04.953" Score="2" ViewCount="596" Body="&lt;p&gt;Edit: Is it possible to broadly categorize the ways in which market failures occur into relatively few categories? If so, what are they?&lt;/p&gt;&#xA;" OwnerUserId="7461" LastEditorUserId="6149" LastEditDate="2016-08-25T02:16:20.703" LastActivityDate="2016-08-25T02:16:20.703" Title="Under what conditions does market failure occur?" Tags="&lt;markets&gt;&lt;pareto-efficiency&gt;&lt;efficient-markets&gt;" AnswerCount="1" CommentCount="5" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10867" PostTypeId="1" AcceptedAnswerId="10880" CreationDate="2016-02-26T14:31:31.127" Score="6" ViewCount="4173" Body="&lt;p&gt;I have an equation of the form(all vectors): $y=X_1\beta_1+X_2\beta_2+u$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm interested in knowing if the beta OLS estimators and respective residual for this equation are the same as for when we apply OLS to the following equations:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;$P_{X_1}y=P_{X_1}X_2\beta_2+v$&lt;/li&gt;&#xA;&lt;li&gt;$P_Xy=X_1\beta_1+X_2\beta_2+v$, &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;where the $P_Z$ are the usual definition of projection matrices, using $Z$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, I've tried using the FWL theorem, and I've got respectively:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;$\hat\beta_2 = (X_2' P_{X_1}X_2)^{-1}X_2'P_{X_1}y$, and $\hat v = (I- P_{X_1}X_2(X_2'P_{X_1}X_2)^{-1}X_2'P_{X_1})P_{X_1}y$. I was wondering if I miscalculated $\hat u$ since looking at equation 1, since both $y$ and $X_2\beta_2$ are projected in to the space spanned by columns of $X_1$, the residuals would be zero. &lt;/li&gt;&#xA;&lt;li&gt;$\hat\beta_2 = (X_2' M_{X_1}X_2)^{-1}X_2'M_{X_1}P_X y$, and $\hat v = (I- M_{X_1}X_2(X_2'M_{X_1}X_2)^{-1}X_2'M_{X_1})P_{X}y$.  However, I do not see how the estimate for $\beta_2$ is equal in both cases, since if you notice that applying OLS to equation 2, we get $\hat \beta=(X'X)^{-1}X'P_X y=(X'X)^{-1}X'y$.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit1: well, I found out how to do the 2nd point. We have to notice that $M_{X_1}P_X=(I-P_{X_1})P_X=P_X-P_{X_1}=P_X'-P_{X_1}'=(M_{X_1}P_X)'=P_X'M_{X_1}'=P_X M_{X_1}$ and that $ X_2'P_X=(P_X X_2)=X_2'$.&#xA;As to the 1st point I have no idea...&lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="118" LastEditDate="2016-02-27T10:10:21.767" LastActivityDate="2016-02-28T16:18:04.943" Title="The Frisch-Waugh-Lovell Theorem: an exercise" Tags="&lt;econometrics&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10868" PostTypeId="2" ParentId="10803" CreationDate="2016-02-26T18:26:42.323" Score="0" Body="&lt;p&gt;There is no &quot;and so on&quot; in your series. By the end of step 7, you owe 1000 Euro to the both the first and third lenders, and would therefore have to borrow at least 2000 Euro from the second— which according to the way you framed the question, you can't— to repay them. You can view this as a strong hint that no amount or pattern of borrowing will ever result in income, only debt. &lt;/p&gt;&#xA;" OwnerUserId="264" LastActivityDate="2016-02-26T18:26:42.323" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10869" PostTypeId="1" CreationDate="2016-02-26T18:27:03.560" Score="4" ViewCount="188" Body="&lt;p&gt;I was searching online for some notes on how to draw a Pareto curve on income distribution. That's when I came across Pareto chart which is a bar diagram and is used in quality control. &#xA;Are these the same and are both curves drawn using the same method? &#xA;Kindly help.&lt;/p&gt;&#xA;" OwnerUserId="7463" LastActivityDate="2016-02-28T08:39:05.267" Title="Pareto curve vs Pareto chart" Tags="&lt;statistics&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10870" PostTypeId="2" ParentId="10869" CreationDate="2016-02-26T18:50:13.367" Score="3" Body="&lt;p&gt;The only relation I see is that they are both named after &lt;a href=&quot;https://en.wikipedia.org/wiki/Vilfredo_Pareto&quot; rel=&quot;nofollow&quot;&gt;Vilfredo Pareto&lt;/a&gt;. The Pareto curve is related to efficiency, and I see no way of connecting the Pareto chart to the same concept. Since Pareto was an engineer before becoming an economist, it seems most likely to me that its just that two distinct techniques from two different fields were named after him. I suppose you could use a Pareto chart as a tool to make efficient engineering decisions, so they are minimally related.&lt;/p&gt;&#xA;" OwnerUserId="48" LastActivityDate="2016-02-26T18:50:13.367" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10871" PostTypeId="1" CreationDate="2016-02-26T19:15:08.003" Score="0" ViewCount="75" Body="&lt;p&gt;I am reading a paper, the author takes the derivative of the following equation with respect to $t$:&#xA;$$ q(t) = \int_t^\infty e^{-r(s-t)}c(s)e^{-\delta(s-t)}ds $$&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;$q$ price of capital goods&lt;/li&gt;&#xA;&lt;li&gt;$r$ discount rate&lt;/li&gt;&#xA;&lt;li&gt;$c$ cost of goods&lt;/li&gt;&#xA;&lt;li&gt;$\delta$ rate of replacement&lt;/li&gt;&#xA;&lt;li&gt;$t$ time of acquisition of goods&lt;/li&gt;&#xA;&lt;li&gt;$s$ time of supply of goods&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I have the answer, but I was hoping someone would explain the intermediate points. Here, is the process similar to differentiating the functions with summation operators in discrete cases? &lt;/p&gt;&#xA;" OwnerUserId="6009" LastActivityDate="2016-02-26T19:15:08.003" Title="Differentiating under integral sign, capital accumulation" Tags="&lt;macroeconomics&gt;&lt;mathematical-economics&gt;" AnswerCount="0" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="10872" PostTypeId="1" AcceptedAnswerId="11122" CreationDate="2016-02-26T19:39:33.247" Score="5" ViewCount="538" Body="&lt;p&gt;I intend to use Pesaran's (2006) common correlated effects pooled (CCEP) estimator. However, I'm not yet very familiar with advanced econometrics and advanced use of eviews. More specifically I want to estimate this model:&#xA;\begin{equation} &#xA;y_{it} = \alpha_{i} + \beta_{1}x_{1,it} + \beta_{2}x_{2,it}+\gamma_{i}F_{t}+\epsilon_{it}&#xA;\end{equation} &#xA;in which $F_{t}$ is an unobserved common factor and $\gamma_{i}$ is a country-specific factor loading. We were taught that $F_{t}$ can be proxied by:&#xA;\begin{equation}&#xA;F_{t}=\frac{(\bar{y_{t}}-\bar{\alpha}-\beta_{1} \bar{x}_{{1,t}} -\beta_{2} \bar{x}_{{2,t}}-\bar{\epsilon}_{{t}})}{\bar{\gamma}},&#xA;\end{equation}&#xA;in which $\bar{y_{t}} = \frac{1}{N}\sum_{i=1}^{N} y_{it}$, and $\bar{\gamma_{}}=\frac{1}{N}\sum_{i=1}^{N} \gamma_{i}$, with $N$ the number of cross-sections.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Substituting the second equation into the first yields: &#xA;\begin{equation}&#xA;y_{it} = \alpha_{i}-\frac{\gamma_{i}}{\bar{\gamma}}+\beta_{1} x_{1,it} +\beta_{2} x_{2,it} +\frac{\gamma_{i}}{\bar{\gamma}}\bar{y_{t}} - \beta_{1} \frac{\gamma_{i}}{\bar{\gamma}} \bar{x}_{1,t} -\beta_{2}\frac{\gamma_{i}}{\bar{\gamma}}\bar{x}_{2,t}+\epsilon_{it}-\frac{\gamma_{i}}{\bar{\gamma}}\bar{\epsilon_{t}}&#xA;\end{equation}&#xA;or with $\alpha_{i}-\frac{\gamma_{i}}{\bar{\gamma}}=\alpha'_{i}$ and $\frac{\gamma_{i}}{\bar{\gamma}}=\gamma'_{i}$:&#xA;\begin{equation}&#xA;y_{it} = \alpha'_{i}&#xA;+\beta_{1} x_{1,it} &#xA;+\beta_{2} x_{2,it} &#xA;+\gamma'_{i}\bar{y_{t}} &#xA;- \beta_{1} \gamma'_{i} \bar{x}_{1,t}&#xA;-\beta_{2}\gamma'_{i}\bar{x}_{2,t}&#xA;+\epsilon_{it}-\gamma'_{i}\bar{\epsilon_{t}}.&#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To estimate this in eviews, I had the following idea&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The cross-sectional averages $\bar{y_{t}}$, $\bar{x}_{{1,t}}$, and $\bar{x}_{{2,t}}$ can be easily calculated from the dataset. I would use cross-sectional fixed effects to estimate all $\alpha'_{i}$. Next, I would need $N$ terms to estimate all $N$ $\gamma'_{i}$. To do this, I would include these $N$ terms: $\gamma'_{A}\bar{y}_{t}dum_{A} + \gamma'_{B}\bar{y}_{t}dum_{B} + ... + \gamma'_{N}\bar{y}_{t}dum_{N}$, in which each capital letter denotes one of the $N$ cross-sections and the dummy variable takes the value of $1$ once for each cross-section. Then, for each averaged explanatory  variable, $\bar{x}_{1t}$ and $\bar{x}_{2t}$, I would include these $2 \times N$ terms: $\beta_{1}\gamma'_{A}\bar{x}_{1,t} + \beta_{1}\gamma'_{B}\bar{x}_{1,t}+ ... + \beta_{1}\gamma'_{N}\bar{x}_{1,t}$ and $\beta_{2}\gamma'_{A}\bar{x}_{2,t} + \beta_{2}\gamma'_{B}\bar{x}_{2,t}+ ... + \beta_{2}\gamma'_{N}\bar{x}_{2,t}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, to sum up, my suggested input for eviews (to estimate with cross-sectional fixed effects) is the following:&#xA;&lt;code&gt;y = c(1)*x1 + c(2)*x2 + c(3)*y_avg*dumA + c(4)*y_avg*dumB + c(5)*y_avg*dumC + ... + c(1)*c(3)*x1_avg + c(1)*c(4)*x1_avg + c(1)*c(5)*x1_avg + ... + c(2)*c(3)*x2_avg + c(2)*c(4)*x2_avg + c(2)*c(5)*x2_avg + ....&lt;/code&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this equation:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;code&gt;c(1)&lt;/code&gt; = $\beta_{1}$;&lt;/li&gt;&#xA;&lt;li&gt;&lt;code&gt;c(2)&lt;/code&gt; = $\beta_{2}$;&lt;/li&gt;&#xA;&lt;li&gt;&lt;code&gt;c(3)&lt;/code&gt; = $\gamma'_{A}$;&lt;/li&gt;&#xA;&lt;li&gt;&lt;code&gt;c(4)&lt;/code&gt; = $\gamma'_{B}$;&lt;/li&gt;&#xA;&lt;li&gt;&lt;code&gt;c(5)&lt;/code&gt; = $\gamma'_{C}$.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;These are my questions regarding this estimation:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;First of all, confirmation of the correctness of my derivation would be welcome;&lt;/li&gt;&#xA;&lt;li&gt;Would the estimation in eviews I suggest do the trick?&lt;/li&gt;&#xA;&lt;li&gt;If so, should I include an intercept in the fixed-effects estimation?&lt;/li&gt;&#xA;&lt;li&gt;If not, is there an alternative procedure to implement the CCEP estimator in eviews?&lt;/li&gt;&#xA;&lt;li&gt;The estimated error terms should be $\epsilon-\gamma'_{i}\bar{\epsilon}$, is this structure automatically obtained? Or should this be imposed one way or another?&lt;/li&gt;&#xA;&lt;li&gt;The same question for $\alpha'_{i}$: it should equal $\alpha_{i}-\frac{\gamma_{i}}{\bar{\gamma}}$. Should this condition be imposed, or is it automatically fulfilled when inputting my suggested input in eviews;&lt;/li&gt;&#xA;&lt;li&gt;Other suggestions regarding the use of CCEP estimator in eviews are certainly welcome.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Any help, also partial answers, is appreciated!&lt;/p&gt;&#xA;" OwnerUserId="6566" LastEditorUserId="6566" LastEditDate="2016-02-28T15:26:32.060" LastActivityDate="2016-03-16T12:56:58.193" Title="Pesaran's CCEP estimator in eviews" Tags="&lt;econometrics&gt;&lt;paneldata&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10873" PostTypeId="2" ParentId="10864" CreationDate="2016-02-26T21:08:41.907" Score="3" Body="&lt;p&gt;Using the results derived &lt;a href=&quot;https://economics.stackexchange.com/a/468/61&quot;&gt;&lt;strong&gt;in this answer&lt;/strong&gt;&lt;/a&gt; we have the following relations for any utility function: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Absolute Risk Aversion = $A(c)$, Relative Risk Aversion = $R(c)$) : &#xA;$$A(c) = -\frac {u''(c)}{u'(c)},\;\;\; R(c) = cA(c), \;\; A(c) = \frac 1c R(c)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and so &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\partial A(c)}{\partial c} = \frac {\partial [(1/c)R(c)]}{\partial c}= -\frac 1{c^2} R(c) + \frac 1{c}\frac {\partial R(c)}{\partial c}  \tag{1} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\partial R(c)}{\partial c} = \frac {\partial [cA(c)]}{\partial c}=A(c) + c\frac {\partial A(c)}{\partial c} \tag{2} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Remembering that these measures are mainly discussed for utility functions where $u''&amp;lt;0$, and so they are seen as algebraically positive, we can deduce which relations hold with certainty and which do not.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now $ARA$ satisfies as an identity&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$u''+ A(c)u' \equiv 0 \implies u''' + A'u' + A u'' = 0 \implies u''' = -A'u' + A (-u'')$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The $DARA$ family is characterized by $A' &amp;lt;0$ so we obtain that (sufficient)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$DARA \implies u'''&amp;gt;0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So assuming $DARA$ what we gain in knowledge is that $u'''&amp;gt;0$.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In turn $RRA$ satisfies as an identity&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$cu''+ R(c)u' \equiv 0 \implies u''+ cu''' + R'u' + R u'' = 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \implies c u''' = -R'u' + (-u'')(1+R)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assuming $DARA$, we have $u'''&amp;gt;0$ and so what we know is that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ -R'u' + (-u'')(1+R) &amp;gt; 0 \implies (-u'')(1+R) &amp;gt; R'u'$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies R(1+R) &amp;gt; c\cdot R'$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is the constraint that $DARA$ imposes on $RRA$. We see that the inequality can be satisfied with $R'$ negative or zero, and even positive, up to a degree.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2016-02-26T21:08:41.907" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10874" PostTypeId="2" ParentId="10866" CreationDate="2016-02-26T21:55:50.177" Score="1" Body="&lt;p&gt;Any situation where markets fail to clear leads to market failure. Some common reasons for this are:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Externalities, or agents not being responsible for costs or benefits of their actions&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Information assymetry, or agents operating with different information&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;Irrationality, or agents doing random things for no reason&lt;/li&gt;&#xA;&lt;li&gt;Principal agent problems, where someone entrusted with others funds uses them wastefully&lt;/li&gt;&#xA;&lt;li&gt;Productive inefficiency, or firms failing to produce goods effectively given the allocated capital (think using Gatorade to water plants)&lt;/li&gt;&#xA;&lt;li&gt;Allocative inefficiency, where firms are not provided the appropriate capital&lt;/li&gt;&#xA;&lt;li&gt;Economies of scale, or the problem of capitalist firms failing to grow large enough to establish a service&lt;/li&gt;&#xA;&lt;li&gt;Destructive competition- eg, private militaries blowing each other up&lt;/li&gt;&#xA;&lt;li&gt;Shortsighted management of natural resources &lt;/li&gt;&#xA;&lt;li&gt;Monopoly&lt;/li&gt;&#xA;&lt;li&gt;Moral hazard, adverse selection, and other problems in contract theory &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="8360" LastActivityDate="2016-02-26T21:55:50.177" CommentCount="9" ContentLicense="CC BY-SA 3.0" />
  <row Id="10880" PostTypeId="2" ParentId="10867" CreationDate="2016-02-27T14:37:42.823" Score="4" Body="&lt;p&gt;What we know from FWL theorem, is that the regression&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$M_1y = M_1X_2\beta_2 + M_1u \tag{1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;will give the same estimates for $\beta_2$ as the full regression&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$y = X_1\beta_1 +X_2\beta_2 + u \tag{2}$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;where &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$M_1 = I - P_1 = I - X_1(X_1'X_1)^{-1}X_1'$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;is the so-called annihilator or residual-maker matrix.  The estimator from $(1)$ is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\hat \beta_2 = (X_2'M_1X_2)^{-1}X_2'M_1y \tag{3}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So it boils down to examine whether the estimator from the specification &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$P_1y = P_1X_2\beta_2 + w \tag{4}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\tilde \beta_2 = (X_2'P_1X_2)^{-1}X_2'P_1y \tag{5} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;will be the same as $\hat \beta_2$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Well,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$(2),(3) \implies \hat \beta_2 - \beta_2 = (X_2'M_1X_2)^{-1}M_1u \tag{6}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;while &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ (2), (5) \implies \tilde \beta_2 -\beta_2 = (X_2'P_1X_2)^{-1}X_2'X_1\beta_1+ (X_2'P_1X_2)^{-1}X_2'P_1u \tag{7}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given that $(6)$ and $(7)$ involve arbitrary exogenous quantities ($u, \beta_1$) I don't see how they could be equal, except by zero-probability chance.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Even if in our &lt;em&gt;sample&lt;/em&gt; $X_1$ and $X_2$ are orthogonal (which would eliminate the first term in $(7)$ but which, with observational data, is a joke to even mention), then the two would be unbiased under strict exogeneity -but this is as far as similarities appear to go here.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2016-02-28T16:18:04.943" LastActivityDate="2016-02-28T16:18:04.943" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10883" PostTypeId="2" ParentId="10869" CreationDate="2016-02-28T00:05:00.450" Score="2" Body="&lt;p&gt;You can use R to to draw a Pareto curve. Here is a useful &lt;a href=&quot;http://statmath.wu.ac.at/~hornik/QFS1/pareto-vignette.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;vignette&lt;/a&gt; using the package &lt;code&gt;VGAM&lt;/code&gt;.&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;require(&quot;VGAM&quot;)&#xA;x &amp;lt;- seq(0.1, 10, length = 1000)&#xA;plot(x, dpareto(x, scale = 1, shape=1), type = &quot;l&quot;&#xA;      , xlab = &quot;x&quot;, ylab = &quot;dpareto(x)&quot;&#xA;      , main = &quot;Pareto Probability Density&quot;) &#xA;lines(x, dpareto(x, scale = 1, shape=.5), col = &quot;red&quot;) &#xA;lines(x, dpareto(x, scale = 1, shape= .2), col = &quot;blue&quot;)&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Gives the following plot&#xA;&lt;a href=&quot;https://i.stack.imgur.com/nV4xK.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/nV4xK.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another way using the package &lt;code&gt;Runuran&lt;/code&gt;&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;require(Runuran)&#xA;# Create distribution object for Pareto distribution:&#xA;distr &amp;lt;- udpareto(k=1,a=4)&#xA;# Generate generator object; use method PINV (inversion)&#xA;gen &amp;lt;- pinvd.new(distr)&#xA;# Draw a sample of size 100000&#xA;x &amp;lt;- ur(gen,100000)&#xA;# returns the density data&#xA;plot(density(x), xlim=c(0,5)&#xA;               , xlab = &quot;x&quot;, ylab = &quot;dpareto(x)&quot;&#xA;               , main = &quot;Pareto Probability Density&quot;)&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;" OwnerUserId="6168" LastEditorUserId="6168" LastEditDate="2016-02-28T08:39:05.267" LastActivityDate="2016-02-28T08:39:05.267" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10885" PostTypeId="1" AcceptedAnswerId="10888" CreationDate="2016-02-28T04:58:03.463" Score="3" ViewCount="132" Body="&lt;p&gt;China has fabricated its GDP in the past. Which are the real-world repercussions of doing so?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let me pose an scenario: If China were in a recession (say, -1% for two quarters), but posts 1% for both, which would be the &lt;strong&gt;consequences&lt;/strong&gt;, if the world acted in accord with those figures? Would it impact variables like currency value? Inflation? Interest rates? SHCOMP? Trade surpluses that don't match the published GDP?&lt;/p&gt;&#xA;" OwnerUserId="7472" LastEditorUserId="7472" LastEditDate="2016-03-01T00:18:57.357" LastActivityDate="2016-03-01T00:18:57.357" Title="Repercusions of fabricated GDP (China)" Tags="&lt;gdp&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10886" PostTypeId="2" ParentId="10885" CreationDate="2016-02-28T05:38:46.253" Score="3" Body="&lt;p&gt;Let me try to answer to the &quot;debate whether China has fabricated its GDP in the past&quot;. The rest of the question is too broad to be answered properly and should be rephrased. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Jia, Kudamatsu, and Seim (2015) use the methodology of &lt;a href=&quot;http://www.econ.brown.edu/Faculty/David_Weil/Henderson%20Storeygard%20Weil%20AER%20April%202012.pdf&quot; rel=&quot;nofollow&quot;&gt;Henderson, Storeygard, and Weil (2012)&lt;/a&gt; to corroborate the quality of the provincial growth data by checking if it reflects the growth in nighttime lights observed by satellites. Nighttime lights can be seen as an &lt;strong&gt;objective measure of living standards&lt;/strong&gt;, and therefore its correlation with GDP is indicative of the quality of GDP data. They find such a correlation suggesting that real GDP growth, at least to some extent, reflects improvements in some dimensions of living standards captured by nighttime lights.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Jia, R., Kudamatsu, M., Seim, D., 2015. Political selection in china:&#xA;The complementary roles of connections and performance. Journal of&#xA;the European Economic Association 13 (4), 631–668.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="6168" LastActivityDate="2016-02-28T05:38:46.253" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10888" PostTypeId="2" ParentId="10885" CreationDate="2016-02-28T13:24:00.900" Score="0" Body="&lt;p&gt;&lt;a href=&quot;http://fortune.com/2015/12/14/china-fake-economic-data/&quot; rel=&quot;nofollow&quot;&gt;http://fortune.com/2015/12/14/china-fake-economic-data/&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's not a matter of debate. The Chinese government has always known that their GDP figures are made up. That is why they switched to electricity production quotas, which had more undesirable effects like spurring massive production of aluminum smelters.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Chinese GDP statistics are well known to be fake, as are EU debt figures, government accounts in the US and elsewhere, and many other official stats.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.pbs.org/newshour/rundown/accounting-fraud-is-business-as-usual-at-the-pentagon/&quot; rel=&quot;nofollow&quot;&gt;http://www.pbs.org/newshour/rundown/accounting-fraud-is-business-as-usual-at-the-pentagon/&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Theres also arbitrary tweaks to the data such as the Fed recently counting patents as GDP to justify more inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are no particular ramifications because everyone does this.&lt;/p&gt;&#xA;" OwnerUserId="8360" LastActivityDate="2016-02-28T13:24:00.900" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10889" PostTypeId="1" AcceptedAnswerId="10890" CreationDate="2016-02-28T18:31:05.583" Score="4" ViewCount="130" Body="&lt;p&gt;Let $L=E+U$ where $L$ is labour force, $E$ is number of employed, and $U$ is unemployed people. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $u = \frac{U}{L}$ and $v = \frac{V}{L}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given $m(u,v)$ as a matching function that determines the flow of matches between workers and firms, and assume $m$ has constant return to scale (CRS) in the two arguments $u$ and $v$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The elasticity of the arrival rate for workers is given by $$\theta q(\theta),$$ where $\theta = \frac{v}{u}$ represents &quot;tightness&quot; in the labour market. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Elasticity ($\epsilon$) = $$\frac{\mathrm{d} f(x)}{\mathrm{d} x} \frac{x}{f(x)} = \frac{\partial m}{\partial \theta} \frac{\theta}{m(1,\theta)},$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $\theta q(\theta) = m(\theta^{-1},1) = m(1,\theta)$ (by using CRS property of $m$ in the two arguments $u$,$v$).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The rate at which unemployed workers find job: $$\theta q(\theta) = m(\theta^{-1},1)=m(1,\theta),$$ since the matching function, $m$, is constant returns to scale in the each argument. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since $\theta q(\theta) = m(1,\theta)$, $$\frac{\partial m(1,\theta)}{\partial \theta} = q(\theta) + \theta q'(\theta).$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the elasticity of the arrival rate for workers, $$\epsilon = \frac{\partial m}{\partial \theta} \frac{\theta}{m} = \left [q(\theta) + \theta q'(\theta)  \right ] \frac{\theta}{\theta q(\theta)} = 1 + \frac{\theta q'(\theta)}{q(\theta)}$$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since $q'(\theta)&amp;lt;0$, $\epsilon&amp;lt;1$, but how can I formally show that it is between $0$ and $1$? &lt;/p&gt;&#xA;" OwnerUserId="6592" LastEditorUserId="6168" LastEditDate="2016-02-28T20:13:09.657" LastActivityDate="2016-02-28T20:13:09.657" Title="Showing that the elasticity of arrival rate for workers wrt $\theta$ is between $0$ and $1$" Tags="&lt;macroeconomics&gt;&lt;labor-economics&gt;&lt;search-and-matching&gt;" AnswerCount="1" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="10890" PostTypeId="2" ParentId="10889" CreationDate="2016-02-28T19:44:37.920" Score="3" Body="&lt;p&gt;Let $m$ cobb-douglas. This means $m(u,v) = A u^\alpha v^{1-\alpha}$ for $\alpha &amp;lt; 1$ and $q(\theta) = A \theta^{-\alpha}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\theta q'(\theta)}{q(\theta)} = -\alpha &amp;gt; -1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To what extent this holds for other functional forms I'm not sure, but I haven't seen anything but Cobb-Douglas being used as the matching function.&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2016-02-28T19:44:37.920" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10891" PostTypeId="1" AcceptedAnswerId="10894" CreationDate="2016-02-28T23:36:32.777" Score="1" ViewCount="97" Body="&lt;p&gt;Consider the following one-shot version of a labour market matching model. Let the labour force be normalized at 1, who, because there is only one period, all start out as unemployed. There is a very large number of firms who can enter the market and search for a worker. Firms who engage in search first have to pay a fixed cost, $k$. If a measure $v$ of firms enters the labour market, a constant returns to scale matching function $m(1,v)$ gives us the total measure of matches in the economy. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Within each match, the firm and the worker bargain for the wage, $w$, so that the workers get a constant proportion of $y$. Denote this proportion by $\beta$, which is interpreted as the bargaining power of the worker. Assume $\frac{k}{y} &amp;lt; 1 - \beta$ for the firm. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Define market tightness as $ b \equiv \frac{1}{v}$ and assume that the arrival rate for a firm is given by: $a_{F} = 1 - e^{-b}$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider the firms can enter the labour market freely if they pay the entry cost, then what is the equilibrium value of $b$? Describe it graphically? Does it always exist? Is it unique?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My solution:&lt;/strong&gt; The value of a vacancy: $$V = -k + a_{F}(b)(J-V),$$&#xA;and the value of a filled job: $$J = y-w.$$ &#xA;If the firms enter the labour market freely then $V=0$. Then from these two equations I am left with this equation $$ 1 - e^{-b} = a_{F}(b) = \frac{k}{y (1-\beta)}.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Graphically, the function looks something like this: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/9rJeh.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/9rJeh.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From the graph, it looks like that $b^*$ is unique, but how do I know if it always exists or not?&lt;/p&gt;&#xA;" OwnerUserId="6592" LastEditorUserId="6592" LastEditDate="2016-02-28T23:54:31.530" LastActivityDate="2016-02-29T01:28:53.543" Title="Equilibrium value of $b$ (market tightness) in a search model" Tags="&lt;macroeconomics&gt;&lt;labor-economics&gt;&lt;search-and-matching&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10892" PostTypeId="1" CreationDate="2016-02-29T00:32:48.623" Score="3" ViewCount="99" Body="&lt;p&gt;For most goods, we can compare the value of them by how people trade them. If in a free market, 10 apples can be traded for 20 oranges, then apples are twice as valuable as oranges. Likewise, if 10 apples can be traded for \$1, and 20 oranges can be traded for \$1, the same thing holds.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When I lend or borrow money, I am essentially buying or selling future money. If Alice lends Bob \$10 for 10 years with \$1 interest, then Bob is essentially selling Alice \$11 future dollars for a price of \$10 today. Additionally, if Bob buys \$10 of future corn today, and then corn is \$11 in the future, that means \$10 of todays money is worth \$10 of future money (on average since future corn today may be evaluated differently then future corn in the future, just due to unknown information. The free market is pretty smart in the long run though.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can this be used to track the changing value of money then, such as inflation and deflation?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(I guess its hard to use this, since both interest rates and the money supply are simultaneously manipulated by government backed institutions.)&lt;/p&gt;&#xA;" OwnerUserId="5716" LastEditorUserId="5716" LastEditDate="2016-02-29T01:12:24.763" LastActivityDate="2016-06-28T17:02:16.423" Title="Can changes in the value of money be measured via interest rates and future contracts?" Tags="&lt;inflation&gt;&lt;interest-rate&gt;&lt;economic-measurement&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10893" PostTypeId="1" CreationDate="2016-02-29T00:55:42.193" Score="2" ViewCount="115" Body="&lt;p&gt;For example, we could imagine an arrangement like this:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;There are currently \$0 in the economy.&lt;/li&gt;&#xA;&lt;li&gt;A business takes out a \$50 loan. The bank sets there bank account to \$50 - \$50 debt = \$0 net.&lt;/li&gt;&#xA;&lt;li&gt;The business now pays it workers \$40 to make stuff (through the bank).&lt;/li&gt;&#xA;&lt;li&gt;The workers in turn pay back \$45 to the business to buy stuff (through the bank).&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;(We can imagine there being a lot more steps)&lt;/li&gt;&#xA;&lt;/ul&gt;&lt;/li&gt;&#xA;&lt;li&gt;Etc...&lt;/li&gt;&#xA;&lt;li&gt;We can use bank notes instead of currency&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;What is the purpose of &lt;a href=&quot;https://en.wikipedia.org/wiki/Monetary_base&quot; rel=&quot;nofollow&quot;&gt;base money&lt;/a&gt; then?&lt;/p&gt;&#xA;" OwnerUserId="5716" LastEditorUserId="5716" LastEditDate="2016-02-29T01:18:25.780" LastActivityDate="2016-02-29T13:56:20.880" Title="Why do we need base money at all?" Tags="&lt;banking&gt;&lt;money-supply&gt;" AnswerCount="1" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10894" PostTypeId="2" ParentId="10891" CreationDate="2016-02-29T01:28:53.543" Score="1" Body="&lt;p&gt;From&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ 1 - e^{-b} = a_{F}(b) = \frac{k}{y (1-\beta)}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;we get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$b = -\ln\left(1-\frac{k}{y (1-\beta)}\right) \tag{1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For this to exist (be a real number) it must be the case that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$1-\frac{k}{y (1-\beta)} &amp;gt; 0 \implies \frac k y &amp;lt; (1-\beta) \tag{2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which is already assumed.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, uniqueness of the solution of $(1)$ is guaranteed because all arguments/parameters in the right-hand side enter only once. So for any vector $(y,k,\beta)$ satisfying what it needs to satisfy, we get a unique $b$.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2016-02-29T01:28:53.543" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10897" PostTypeId="1" CreationDate="2016-02-29T12:21:09.717" Score="2" ViewCount="69" Body="&lt;p&gt;Are there some known examples where the use of mathematics in Economics (as opposed to economic intuition or experience) has led to flawed models or some other kind of issues?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I often hear people say that they don't like the use of mathematics in economics .... but &lt;strong&gt;why?&lt;/strong&gt; So I was wondering maybe it lead to flawed models, perhaps because human behavior isn't as nice as some mathematical equation?&lt;/p&gt;&#xA;" OwnerUserId="7482" LastActivityDate="2016-02-29T16:04:14.747" Title="Mathematics in modelling: Issues?" Tags="&lt;mathematical-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10898" PostTypeId="2" ParentId="10893" CreationDate="2016-02-29T13:56:20.880" Score="3" Body="&lt;p&gt;&lt;strong&gt;TL;DR You have defined a de facto currency with that bank as a central bank.  It is generally considered better to have everyone using the same currency.&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In theory, what you suggest can indeed work, and has been used for period of time in various places.  Legally speaking the Bank of England doesn't mandate a minimum reserve, and so in theory a bank could operate with zero reserve (The EU mandates 2%, the US 10%).  In practice each bank must agree their own reserve ratio with the BoE, and the bank would likely laugh if someone said &quot;zero&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You system in essence works, and all you have done is created a currency tied to that bank (lets call it Bank Z).  The problem is that no-one can actually pay anyone who isn't a customer of Bank Z (for more on electronic transfers see: &lt;a href=&quot;https://economics.stackexchange.com/a/6170/119&quot;&gt;https://economics.stackexchange.com/a/6170/119&lt;/a&gt;).  Paying someone who banks with Bank Z is easy, just move the money from your account to theirs, but if they don't have an account we can't give them any money - because we don't have any.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What we &lt;em&gt;could&lt;/em&gt; do is give them an IOU - &quot;if you open an account with us, we will credit it with Z\$X&quot;.  This would be a bank note for Bank Z.  Of course the value in that note is tied to our faith in that bank.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose now we imagine Banks X, Y and Z operating in our economy.  What happens when Xavier (who banks at Bank X) want to pay Yvette (who banks at bank Y)?  Well neither bank can change the customer account of the other, so both customers are given IOUs (bank notes) and take them to the other bank.  Should the other bank accept these notes and increase they account accordingly?   Well that depends...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If both banks are both well used then sure, why not.  But suppose instead that 98% of people bank with Bank X, and 1% with bank Y - whose IOU would you rather have?  It is much easier to spend Bank X money, than Bank Y money, so that in itself could cause bank X money to command a premium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If X\$100 = Y\$101 then clearly I will charge you more Y\$ for fixing your roof that X\$.  This can quickly spiral and before you know if Y\$ are worthless - they have suffered hyper inflation and been inflated away.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You have effectively created a state with multiple currencies, and in such situations, one currency would be expected to fall into disuse and become worthless.  Historically countries have often actively defended their currency from the use of external currencies by imposing limits on how much currency can be brought in.  It can be a real problem if your people are trading using dollars instead of your national currency, for the same reason.  If dollars are more useful, then why use local currency, and so it decreases in value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your set up is particularly fragile, because the banks are merely lightly regulated corporation, not the government.  The government can mandate that all government workers are paid in local currency - in effect it can force itself to have a large number of customers.  It is not a coincidence that the central banks are the bankers to the treasury of their respective countries.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a government this is also a pain - you have multiple currencies, and you don't control any of them.  Your economy is not in your control, which has cause problems in the past.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Gold backed?  Assets?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I deliberately haven't talked about this part, as you don't really address it, but I suspect many will think first about it.  The backing and assets of the bank are really secondary to this discussion.  Their is nothing to stop all our banks saying that their dollars are pegged to the value of gold.  This simply means that you can, on demand, exchange your IOU for gold.  So long as nobody does this then you are fine.  Equally, even if a few do, you can buy they gold with your own IOUs and so that is still fine.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any assets your bank has, can be used to &quot;back&quot; your currency and add strength to it, even though you have no &quot;reserve&quot; with any central bank.  This will help you.  Bank Y could respond by advertising that it has tons of gold in the vault and owns lots of houses and farmland, so it will be more likely to be able to honour it's IOUs that Bank X can.  This could turn the tide back in your favour, as people lose faith in X\$ and switch to Y\$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Remember, even if your Bank Z starts with zero assets, it will make a profit in Z\$ over time, which can be used to buy things and so it will accumulate assets with time.  None of these need become liquid reserves.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Examples?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your case is a bit too extreme, but near examples are worth a look&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The biggest example that springs to mind is the &lt;a href=&quot;https://en.wikipedia.org/wiki/Wildcat_banking&quot; rel=&quot;nofollow noreferrer&quot;&gt;Free Banking Era&lt;/a&gt; (aka &quot;Wildcat Banking&quot;) in the US from about 1837-1862.  Andrew Jackson had &quot;defeated&quot; the Second US central bank and believed that banks could just be allowed to run things on their own.  The average life of a bank in that era was 5 years, and each bank's currency was worth a different amount, depending on the regard with which that bank was held.  These banks did not run without reserve, for the reasons given about, but they were free to choose how much and how to do it.  The only reserve requirement was having enough to convince your customers to use you...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A more modern example is &quot;points&quot;.  Plenty of businesses award &quot;points&quot; for various activities, which can be redeemed for goods and services.  If you think about it, these points are like a constrained version of exactly your situations.  Usually points can only be exchanged with the issuer, but if you added the possibility to transfer points from one person to another, then you have a basic currency operating as you described.  The key feature here, is that these points are not backed by anything, and cannot be converted to gold or &quot;hard currency&quot;, only airline flight, or groceries or whatnot.&lt;/p&gt;&#xA;" OwnerUserId="119" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2016-02-29T13:56:20.880" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10899" PostTypeId="2" ParentId="10892" CreationDate="2016-02-29T14:15:52.927" Score="1" Body="&lt;p&gt;Yes, but...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In theory what you suggest is pretty standard text book, and in fact Keynes makes exactly this point in his book &lt;em&gt;The General Theory of Employment, Interest and Money&lt;/em&gt; as a way of getting a grip on the idea of interest and &quot;Time-Value of Money&quot; (don't have copy to hand, will update reference when I get a moment).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problems come, as always, in the details - in fact in details that you have glossed over in your original set up.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If &lt;em&gt;these&lt;/em&gt; 10 apples can be traded for &lt;em&gt;those&lt;/em&gt; 20 oranges, then how can you be sure that &lt;em&gt;another&lt;/em&gt; 10 apples can also be traded for a &lt;em&gt;different&lt;/em&gt; 20 oranges.  Or even, are we sure 100 apples can be traded for 200 oranges?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Adding the dimension of time to this, creates even more problems, but putting those aside the relationship you are looking for is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$F=S_0e^{rT}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That is the future price ($F$) is equal to the price now ($S_0$), inflated by the time value of money.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now back to apples and oranges.  Are we certain that 10 apples now is the same as 10 apples in the future?  Or more pertinently does the 10:20 apple:orange exchange rate persist into the future?  Probably not.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Apples and oranges are both seasonal, and also suffer seasonal demand.  We could image that apples are easy to come by now, but hard to get in 6 months time, vs oranges.  Since you can't store them, this has to be reflected in the futures price.  &lt;strong&gt;This means you will get a different $e^{rT}$ value for apples and oranges&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These main causes of these difference are usually broken down thus&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Storage costs: can the thing be stored and delivered at the future date?  If so how much does it cost to store?&lt;/li&gt;&#xA;&lt;li&gt;Carry: How much do you earn holding the thing for longer&lt;/li&gt;&#xA;&lt;li&gt;Convenience yield:  How much premium are you willing to pay for the convenience of having it to hand?&lt;/li&gt;&#xA;&lt;li&gt;Credit risk:  How much do you trust that the person will deliver (to the best of my knowledge there are no apple or orange futures, so we would be talking about a forward contract)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Take all these into account, and you have a commodity implied measure of future inflation.  Of course, inflation as usually considered also includes services and retail products, on which there are very few (no?) futures/forwards.  If you could find iPad futures and child care futures, then you would in theory be there.&lt;/p&gt;&#xA;" OwnerUserId="119" LastActivityDate="2016-02-29T14:15:52.927" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10900" PostTypeId="1" CreationDate="2016-02-29T14:18:20.007" Score="1" ViewCount="8799" Body="&lt;p&gt;I have no background in Economics and I am just starting with it. I was reading about the basic terminologies like domestic output, income, and etc. Then, I encountered a term &quot;depreciation&quot; -- It was described with a &quot;machinery&quot; example of a car, like this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;You purchase a car worth \$5000 with a shelf life of 10 years. It means the consumption rate of the car is $500 per year. This consumption rate is actually the &quot;depreciation&quot; rate. Thus if an output of an economy ignores consumption of its machine stocks, it is referred to as 'gross' concept&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Please answer with respect to this example, and explain what the example is saying.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you.&lt;/p&gt;&#xA;" OwnerUserId="7484" LastEditorUserId="10107" LastEditDate="2016-08-14T11:56:11.703" LastActivityDate="2016-08-14T17:24:46.920" Title="What is &quot;depreciation&quot; in economics?" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;" AnswerCount="2" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="10901" PostTypeId="2" ParentId="8971" CreationDate="2016-02-29T14:40:39.357" Score="3" Body="&lt;p&gt;Yes it is subjective. But subjective valuations are where demand curves come from (at least for final goods and services). Consumer surplus is simply a measurement of aggregate willingness to pay so it is subjective (like utility) and measured in currency units (unlike utility).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, if a movie ticket is for sale for ten dollars and you'd pay up to 15 dollars to see it then your consumer surplus is five dollars. This valuation is purely subjective. Another consumer could have a different maximum willingness to pay for the ticket. If you thought the movie was going to be less entertaining or had something else fun to do the maximum you'd pay would be lower and so would the consumer surplus. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;One area of this that once confused me is the units. Utility functions typically are discussed as though they were in units of &lt;em&gt;utils&lt;/em&gt; but utils cannot be compared across people. However, willingness to pay, which is an implication of the budget constraint and preferences implied  by household utility functions, is measured in currency and can be compared across people. That is, it is sensible to say &quot;you would pay more to see Iron Man IV than I would&quot; but not &quot;you would get more utility from seeing Iron Man IV than I would&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So it isn't exactly as @Kitsune says, that consumer surplus is utility minus price. Rather, consumer surplus is willingness to pay minus price, which are both in currency units and can be aggregated over and compared across consumers. &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2016-03-01T00:45:32.433" LastActivityDate="2016-03-01T00:45:32.433" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10902" PostTypeId="2" ParentId="10900" CreationDate="2016-02-29T14:57:51.220" Score="1" Body="&lt;p&gt;Depreciation is the loss in value of something. Take the car example. When you buy the car, it is worth 5000 dollars. Your net worth equals the value of the car: 5000 dollars. If you needed to use the money, you could just re-sell the car and you'd get \$5,000 (in theory).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But what about the second year? You are technically still worth \$5,000. But if you try to sell the car, nobody would buy it after you used it for one full year at the same price: the car lost part of its value. &lt;strong&gt;In a perfect world&lt;/strong&gt;, the car would lose \$500 because since you can use it for ten years max, and you used a tenth of that. Thus, the car would sell at \$4,500.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From then on, the same keeps happening: the car losses 10% of its value each year, until the tenth year when it becomes valueless (at least in this &lt;strong&gt;perfect world&lt;/strong&gt;). This periodic fall in value is called depreciation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When calculating the GDP, the government sums all the goods and services consumed in a given year regardless of its depreciation. If you purchased the car on January 1st, then the GDP increses by \$5,000. The government will most certainly publish the country's gdp by the end of the year. Although the car lost some of its value during that period, this is &lt;strong&gt;not&lt;/strong&gt; taken into account in the GDP. If you took away the depreciation, then it would be the NDP (Net Domestic Product). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The depreciation is also known as &quot;capital consumption&quot; for a simple reason. Imagine that you want to have the same value (in cars) all your life. To achieve this, you would have to save \$500 each year to replace your car every 10 years.  So, you could say that each year, you consume \$500 worth in cars. This is obviously not true, but it is a way of simplifying it.&lt;/p&gt;&#xA;" OwnerUserId="4409" LastActivityDate="2016-02-29T14:57:51.220" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10903" PostTypeId="2" ParentId="10897" CreationDate="2016-02-29T16:04:14.747" Score="2" Body="&lt;p&gt;Math is a tool. You can hardly blame a saw when you fail to sharpen your knife with it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So is math necessarily a poor tool? In my view, it's a wonderful language through which concepts can be expressed concisely and unambiguously. It's quite powerful to express an economic problem as a math problem because oftwn this means the problem is already solved in full generality (e.g. Recognizing an incapacitated lot problem as an integer programming problem which has easy algorithms for solution).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've heard some complaints that the temptation to pretend a problem is accurately modeled by a solved math problem is quite strong - this is probably one of the issues you're getting at. Again, nothing wrong with using a tool its proper place. The fault is unambiguously with the user.&lt;/p&gt;&#xA;" OwnerUserId="7303" LastActivityDate="2016-02-29T16:04:14.747" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10904" PostTypeId="1" AcceptedAnswerId="10932" CreationDate="2016-02-29T16:28:17.103" Score="3" ViewCount="783" Body="&lt;p&gt;I am hoping for some tips on what I could do for a term paper in applied econometrics. We are running a 2sls where I want to use a firm's location as an IV. How can I go about justifying it is a valid instrument? More specifically, how would you suggest I can argue the exclusion restriction holds for my instrument. I am thinking of a verbal argument of about a page tops, since I have limited space left. Any suggestions would be greatly appreciated. Thank you. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;PS: My endogenous variable is a dummy for whether the business owner is a member of a political party, and my outcome variable is a leverage ra&lt;/p&gt;&#xA;" OwnerUserId="7486" LastEditorUserId="40" LastEditDate="2016-03-01T00:07:53.503" LastActivityDate="2016-03-02T13:07:43.500" Title="How to justify an instrumental variable?" Tags="&lt;econometrics&gt;&lt;instrumental-variable&gt;" AnswerCount="2" CommentCount="5" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10905" PostTypeId="1" CreationDate="2016-02-29T18:16:11.450" Score="2" ViewCount="90" Body="&lt;p&gt;How do professional economists 'judge' how valid or accurate a economic model is? What criteria do they use, and are these criteria &lt;strong&gt;objective?&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Clearly, we don't know what the &lt;strong&gt;truth&lt;/strong&gt; is. So a model can't be judged based on whether it predicts true things. So how is it judged? &lt;/p&gt;&#xA;" OwnerUserId="7489" LastActivityDate="2016-02-29T18:42:30.117" Title="Objective criteria and judgement of models" Tags="&lt;macroeconomics&gt;&lt;econometrics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10907" PostTypeId="2" ParentId="10905" CreationDate="2016-02-29T18:42:30.117" Score="1" Body="&lt;p&gt;This is a good question with a complex answer. Different models are created with different purposes in mind. As an example, there are qualitative and quantitative models. Qualitative models sacrifice some realism to demonstrate a particular phenomenon in the clearest way possible. Quantitative models sacrifice this clarity to create something more empirically relevant. &#xA;I once came across this sentence in a paper and I like the way they phrased it:&#xA;It's from &quot;Optimal Environmental Taxation in the presence of other taxes: General-equilibrium analyses&quot; by Bovenberg and Goulder:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The use of a numerical model enables us to employ a realistic&#xA;  specification of taxes and adopt a fairly detailed representation of&#xA;  production and demand. Our paper thus combines the strength of&#xA;  analytical and numerical approaches: a stylized analytical model&#xA;  uncovers the major mechanisms at play, while a numerical model&#xA;  explores the empirical significance of these mechanisms in a more&#xA;  realistic setting. Despite considerable differences in the complexity&#xA;  of the analytical an numerical models, we find a strong coherence&#xA;  between the two model's results.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Also, &#xA;there are some models that are purely statistical. &#xA;There are also some models that are built solely for prediction. In short, there are many more types of models with different purposes. A model should be judged on its purpose.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, as for uncovering &quot;the truth.&quot; You might consider reading more about &lt;em&gt;causal inference.&lt;/em&gt; This is one of the most important parts of econometrics. For starters, read about the method of Instrumental Variables. There are several other questions and answers on this website that deal with this.&lt;/p&gt;&#xA;" OwnerUserId="59" LastActivityDate="2016-02-29T18:42:30.117" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10908" PostTypeId="1" AcceptedAnswerId="10910" CreationDate="2016-03-01T03:23:35.000" Score="4" ViewCount="263" Body="&lt;p&gt;Is there a model for how much a philosopher produce in his lifespan?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If not, state the economical reason for why we pay the philosopher.&lt;/p&gt;&#xA;" OwnerUserId="95" LastActivityDate="2016-04-03T02:45:28.800" Title="Is there a model for how much a philosopher produce in his lifespan?" Tags="&lt;academic-graduate&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10910" PostTypeId="2" ParentId="10908" CreationDate="2016-03-01T04:28:57.823" Score="5" Body="&lt;p&gt;Here is a somewhat creative (and very imprecise) answer:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's assume that Philosophy creates no direct value for society (which seems implicit in your question). However, Mathematics and various other scientific disciplines to some extent originated from Philosophy. Most recently, Linguistics originated as a field of Philosophy. Based on this we can estimate the marginal product of a philosopher. You will need two numbers:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A: Take the marginal value of each invention generated by these fields. For example, speech recognition on your cell phone would not have been possible without Linguistics and thus Philosophy. You can estimate the marginal value of speech recognition by your willingness to pay for a phone with or without speech recognition. Do this for all products and services of an economy. (You can also take market prices and make some strong assumptions about the economy, such as competitive markets, etc.). Using time discounting, you can estimate the value of having a product one year earlier.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;B: You must now assign the marginal contribution of a philosopher to the invention of linguistics to the speech recognition software. The marginal contribution seems to be infinite, since without linguistics there would be no speech recognition. However, you may simply assume that each additional Philosopher speeds up the process of the invention of linguistics by an equal amount. Thus, if you would have hired one more philosopher, the time needed to invent Linguistics would have been N/(N+1) the time N philosophers needed to actually invent linguistics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Combining the information from A and B for all products gives you the marginal product of each philosopher. Note that this is only a rough answer and one would still need to carefully formulate the assumptions. However, it gives you a rough idea of how you could go about finding the marginal product of an otherwise unproductive philosopher.&lt;/p&gt;&#xA;" OwnerUserId="5635" LastEditorUserId="5635" LastEditDate="2016-03-01T08:15:33.703" LastActivityDate="2016-03-01T08:15:33.703" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10911" PostTypeId="2" ParentId="10904" CreationDate="2016-03-01T05:35:35.303" Score="1" Body="&lt;p&gt;To motivate a good IV in a paper, you need a good story. For example: schools build in Indonesia as an instrument for education outcomes, quarter of birth as an instrument for income as a result of compulsory education, in their respective papers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The IV has to be correlated to the characteristic you're trying to fix and uncorrelated to any of the other observable characteristics. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;That way, the IV is only affecting the Y variable through the characteristic you're instrumenting. As far as statistically strong, you can look at examples from a few papers and see what kind of statistical scrutiny they used.&lt;/p&gt;&#xA;" OwnerDisplayName="user4207" LastActivityDate="2016-03-01T05:35:35.303" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10912" PostTypeId="1" CreationDate="2016-03-01T06:03:48.893" Score="0" ViewCount="500" Body="&lt;p&gt;$$U_1 = 1 - \frac{1}{x_1} - \frac{3}{y_1}$$&#xA;$$U_2 = 1 - \frac{3}{x_2} - \frac{1}{y_2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How would one go about deriving the MRS for such utility functions and what would their indifference curves look like?&lt;/p&gt;&#xA;" OwnerUserId="7493" LastEditorUserId="108" LastEditDate="2016-03-03T14:19:41.927" LastActivityDate="2016-03-03T14:19:41.927" Title="Utility functions" Tags="&lt;microeconomics&gt;&lt;utility&gt;" AnswerCount="1" CommentCount="0" ClosedDate="2016-03-01T18:03:40.550" ContentLicense="CC BY-SA 3.0" />
  <row Id="10913" PostTypeId="2" ParentId="10912" CreationDate="2016-03-01T06:51:35.807" Score="2" Body="&lt;p&gt;Although you are new here, it is much appreciated if you looked at our guidelines for asking questions, particularly ones that look like homework questions. Generally, we ask that people show some reasonable semblance of effort into trying the question, and to talk about which part of the question they are struggling with. We're not homework doing machines.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As such, I can only give a rough guideline for how to approach the question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any cursory Google search will show you that the marginal rate of substitution is marginal utilities of each good $(x, y)$ divided by each other.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\text{MRS}_{xy, i} = \frac{\frac{\partial U_i}{\partial x_i}}{\frac{\partial U_i}{\partial y_i}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where $i$ is person 1 or 2.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To find the indifference curves, simply solve for $y$ in terms of $x$ and $U$, where $U$ is treated as a constant level of utility.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now try the question for yourself.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2016-03-01T06:51:35.807" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10914" PostTypeId="1" CreationDate="2016-03-01T07:24:06.613" Score="2" ViewCount="45" Body="&lt;p&gt;I am looking for papers on Dutch disease. Especially interested in Venezuela, UK, Colombia, Norway. &#xA;Thank you in advance.&lt;/p&gt;&#xA;" OwnerUserId="4547" LastEditorUserId="1601" LastEditDate="2016-03-01T14:59:18.017" LastActivityDate="2016-03-01T14:59:18.017" Title="Papers on Dutch Disease" Tags="&lt;reference-request&gt;&lt;dutch-disease&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10915" PostTypeId="1" CreationDate="2016-03-01T07:28:57.137" Score="0" ViewCount="45" Body="&lt;p&gt;If the probable reason is because it must reflect the government's ability to pay back the deficit, wouldn't government income be a better indicator, rather than GDP?&lt;/p&gt;&#xA;" OwnerUserId="6486" LastActivityDate="2016-03-01T09:54:33.977" Title="Why is fiscal deficit always shown as a percentage of GDP?" Tags="&lt;macroeconomics&gt;&lt;fiscal-policy&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10916" PostTypeId="2" ParentId="10915" CreationDate="2016-03-01T08:17:22.577" Score="2" Body="&lt;p&gt;In short: yes, it very well might be and this has been argued by some (see, for example: &lt;a href=&quot;http://www.forbes.com/sites/jeffreydorfman/2014/07/12/forget-debt-as-a-percent-of-gdp-its-really-much-worse/#29b8530f6e0c&quot; rel=&quot;nofollow&quot;&gt;http://www.forbes.com/sites/jeffreydorfman/2014/07/12/forget-debt-as-a-percent-of-gdp-its-really-much-worse/#29b8530f6e0c&lt;/a&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The use of Debt/GDP is the current international norm, but Debt/Tax revenue might very well be a better, more concise option. Using Debt/GDP might be because it has been common to compare countries to each other with GDP or GDP/capita and having GDP as a factor relates the debt to these measures.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It can also be argued that in the end the whole population of a country is responsible for paying their country's debts, so in an extreme situation it's not just the government's income which might be used to pay off debts.&lt;/p&gt;&#xA;" OwnerUserId="5512" LastEditorUserId="5512" LastEditDate="2016-03-01T09:54:33.977" LastActivityDate="2016-03-01T09:54:33.977" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10917" PostTypeId="2" ParentId="10914" CreationDate="2016-03-01T08:52:48.830" Score="3" Body="&lt;p&gt;A couple of suggestions:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Acosta, P.A., Lartey, E.K.K. &amp;amp; Mandelman, F.S. (2009): Remittances and the Dutch Disease&lt;/li&gt;&#xA;&lt;li&gt;Bresser-Pereita, L.C. (2008): The Dutch Disease and its neutralization: a Ricardian approach&lt;/li&gt;&#xA;&lt;li&gt;Ismail, K. (2010): The Structural Manifestation of the 'Dutch Disease’: The Case of Oil Exporting Countries&lt;/li&gt;&#xA;&lt;li&gt;Larsen, E.R. (2006): Escaping the Resource Curse and the Dutch Disease?&#xA;When and Why Norway Caught Up with and Forged Ahead of Its Neighbors&lt;/li&gt;&#xA;&lt;li&gt;Matsen, E. &amp;amp; Torvik, R. (2005): Optimal Dutch disease&lt;/li&gt;&#xA;&lt;li&gt;Roemer, M. (2015): Dutch Disease in developing countries: swallowing bitter medicine in The Primary Sector in Economic Development (Routledge Revivals): Proceedings of the Seventh Arne Ryde Symposium&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="5512" LastActivityDate="2016-03-01T08:52:48.830" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10918" PostTypeId="1" AcceptedAnswerId="29786" CreationDate="2016-03-01T12:19:41.237" Score="4" ViewCount="2572" Body="&lt;p&gt;In Mas-Colell microeconomics textbook I have found that profit maximization problem (as well as many further optimization tasks) could be represented with application of some transformation function (p.135):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\begin{cases}Max\text{ }p*y\\s.t.\text{ }F(y)\leq0\end{cases}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where y is production vector and &lt;strong&gt;F(.)&lt;/strong&gt; is a &lt;strong&gt;transformation function&lt;/strong&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The only information I have found about this function states that $F:R^L\to R$ and that production set of a firm could be represented as $Y=\{y\in R^L:F(y)\leq0\}$. Also if $F(y)=0$ it is named &lt;strong&gt;transformation frontier&lt;/strong&gt; (p.562)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So I am interested in what concrete are these transformation function and transformation frontier. Intuitively it must be related to some feasibility restrictions but I whant to have some full and strickt explanation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Will be very greatfull for help!&lt;/p&gt;&#xA;" OwnerUserId="7119" LastActivityDate="2019-06-14T17:06:07.553" Title="Transformation Function" Tags="&lt;microeconomics&gt;&lt;production-function&gt;&lt;optimization&gt;&lt;welfare-economics&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10919" PostTypeId="1" AcceptedAnswerId="10922" CreationDate="2016-03-01T14:29:07.437" Score="0" ViewCount="422" Body="&lt;p&gt;How does a positive inflation shock affect the exchange rate? Does the exchange rate appreciate or depreciate? I am looking for an intuitive explanation. &lt;/p&gt;&#xA;" OwnerUserId="6592" LastActivityDate="2016-03-02T04:11:49.120" Title="Effect of positive inflation shock on the exchange rate" Tags="&lt;inflation&gt;&lt;exchange-rates&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10920" PostTypeId="1" AcceptedAnswerId="10921" CreationDate="2016-03-01T18:38:02.010" Score="6" ViewCount="306" Body="&lt;p&gt;A while back, someone decided to auction off something unique and valuable, as a silent auction: everyone would submit one bid only, and whoever bid the highest would win.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I submitted a bid that I thought would be higher than most people would pay, but I didn't win.  He posted the final result, though, and the winning bid wasn't much higher than mine.  If I had known it would go that high, I would have bid higher, and other people probably would have as well, which means he ended up leaving money on the table.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That makes me wonder: what is the point of running a silent auction if it can so easily be shown that it brings in less money than an auction in which people can openly bid against each other?&lt;/p&gt;&#xA;" OwnerUserId="4958" LastEditorUserId="11627" LastEditDate="2016-12-31T10:57:36.643" LastActivityDate="2016-12-31T10:57:36.643" Title="What is the point of silent auctions?" Tags="&lt;behavioral-economics&gt;&lt;auctions&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10921" PostTypeId="2" ParentId="10920" CreationDate="2016-03-01T18:55:21.190" Score="9" Body="&lt;p&gt;But perhaps this is not always the case. The price might have been so high that you would not have been willing to bid above it. In fact it might have been so high that the no one but the highest bidder would have given that bid. Knowing this the highest bidder could decrease his bid. In fact in English auctions (non-silent rising bid auctions) the final price is the second highest valuation of the unique good. In the auction you describe (a sealed bid first price auction) the final price is usually somewhat random based on what people believe about each others valuations and each others bidding strategies. It can happen that the final price is higher than it would have been in an English auction because one of the bidders overvalued what his competition would be willing to pay. So the English auction is not clearly advantegous.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It has been shown that given some rather strict conditions the English auction and the sealed bid first price auction have the same expected yield for the auctioner. This is known as the &quot;Revenue Equivalence Theorem&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In practice it is somewhat agreed upon that in rising price auctions bidders experience something called 'auction fever'. Basically being outbid encourages them to raise their own bid. This is true even if the auction was designed in such a way that revealing the true highest valuation by all bidders would be an equilibrium move. (Auction by proxy, the auction system eBay and several other sites use is such an auction type.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So it seems that in practice you might be right and rising price auctions might be better in expected value for the seller. This is just speculation but in your case you I think you might merely be experiencing remorse because you have undervalued your competitor's bid. I have been there :)&#xA;&lt;br&gt; (By the way this could encourage you to overbid on your next silent auction, to the benefit of the seller. Such overbidding might give him higher than English auction payoffs. Again, which system is better is not always clear.) &lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2016-03-01T18:55:21.190" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10922" PostTypeId="2" ParentId="10919" CreationDate="2016-03-01T19:14:11.787" Score="1" Body="&lt;p&gt;Before intuition. let's determine the outcome. By the Uncovered Interest Rate Parity &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ i_t  = i^*_t - [s^e_{t+1 | t} - s_t] \tag{1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $i_t$ is domestic nominal interest rate, $i^*_t$ is &quot;foreign&quot; nominal interest rate, and $[s^e_{t+1} - s_t]$ is expected &lt;em&gt;appreciation&lt;/em&gt; of domestic currency in percentage terms ($s$ is the natural logarithm of &quot;foreign currency per unit of domestic currency&quot; exchange rate). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &quot;Fisher equation&quot; for the relation between real and nominal interest rate in expected inflation is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$i_t = r_t + \pi^e_{t+1|t} \tag{2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where  $r_t$ is domestic real interest rate, and $\pi^e_{t+1}$ is expected domestic inflation. Putting $(1)$ and $(2)$ side-by side we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$r_t + \pi^e_{t+1|t} = i^*_t - [s^e_{t+1|t} - s_t]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assuming that there are no real effects by an inflation shock, and that the international economy couldn't care less (so also $i^*_t$ remains unaffected), using the &lt;em&gt;change&lt;/em&gt; operator we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Delta \pi^e_{t+1|t} = \Delta (s_t-s^e_{t+1|t}) \tag{3}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where now the right-hand side represents &quot;change in expected &lt;em&gt;depreciation&lt;/em&gt;&quot; of the domestic currency (note that the right hand side may be algebraically negative in which case it is &quot;negative depreciation&quot; = appreciation). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, it is reasonable to argue that expectations for tomorrow will take into account what happens today. Moreover, usually current inflation shocks either affect in the same direction expectations about future inflation, or not at all.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So an inflation shock happens in period $t$ which increases the left-hand side of $(3)$. Then so must also increase its right-hand: a domestic positive inflation shock increases expected depreciation of the domestic currency. In other words it creates expectation of currency devaluation. The currency may still be expected to appreciate, but less than before the inflation shock.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Mathematically this can come about in different ways but realistically one should expect that what will happen is that $s^e_{t+1|t}$ will go down, i.e. that the domestic currency will be expected to devalue. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The main intuition behind this comes if one realizes that, for the people abroad, domestic currency is just another product, that has a price. If due to inflation this &quot;product&quot; is &lt;em&gt;worth&lt;/em&gt; less (because now it can buy less of utility-enhancing or productive goods), this should be reflected in its price, which is the domestic exchange rate $s$ (price of domestic currency measured in units of foreign currency), which should get lower.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is the rationale also behind the closely linked &quot;purchasing power parity&quot;. Of course, this is a highly stylized analysis and all sorts of real-world imperfections and rigidities will affect what will actually happen. But the tendency is the one described above.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2016-03-02T04:11:49.120" LastActivityDate="2016-03-02T04:11:49.120" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10923" PostTypeId="1" CreationDate="2016-03-01T19:26:34.063" Score="5" ViewCount="460" Body="&lt;p&gt;&lt;strong&gt;Question 1:&lt;/strong&gt; Are economic theories and models developed using induction or deduction? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My view: If we gather historical evidence and figure &quot;&lt;em&gt;so, people tend to be like this and that so let's call this the Law of somethingsomething&lt;/em&gt;&quot;, then the answer is clearly induction.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Question 2:&lt;/strong&gt; Are economic theories judged using verificationism or falsificationism? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My view: It seems to be verificationism: if the theories and models seem to be at least somewhat in accordance with reality, then it is considered a verification of the theory.  &lt;/p&gt;&#xA;" OwnerUserId="7498" LastActivityDate="2016-03-02T04:30:51.230" Title="Economics: inductive or deductive? Verificationism or falsificationism?" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;soft-question&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10924" PostTypeId="2" ParentId="10918" CreationDate="2016-03-01T19:34:07.163" Score="2" Body="&lt;p&gt;I'm sort of confused what you are asking, but the basic idea behind the transformation is that $y$ is a vector of inputs AND outputs for a firm. Things that are inputs are expressed in negative quantities. So when you are maximizing $\vec{p} \cdot \vec{y}$ for maximal profit, you are paying $p_1 y_1 + \cdots$ for the input(s), and gaining $p_n y_n + \cdots$ for the output(s).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The transformation function simply describes how the input(s) are transformed to make the output(s). The transformation frontier is analogous to the production possibilities frontier, if you are familiar with that, just shifted over to reflect that inputs expressed as negative quantities.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2016-03-01T19:34:07.163" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10925" PostTypeId="2" ParentId="10923" CreationDate="2016-03-01T20:38:48.460" Score="4" Body="&lt;p&gt;As regards the induction/deduction division, economics uses both, and they usually start by some induction followed by mathematizing it and then using deduction. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the older days, economists were based more on their own personal experience and observation as to how people behave economically. Just browse any classic economics book from the 18th, 19th and even pre-war 20th century and this becomes obvious. They then embarked on lengthy verbal arguments to connect these instances of experience (in the modern era this approach has partly survived, but formalized into the &quot;representative agent&quot; analytical framework).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In modern days, both stages have changed:&#xA;At least for fundamental advances, what can be detected as long-term trend is that solid empirical evidence (being statistical or other), that can claim some generality, has become a required springboard for induction and a new theoretical economic model. Just one example of a seminal such paper, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://Uninsured%20idiosyncratic%20risk%20and%20aggregate%20saving&quot; rel=&quot;nofollow&quot;&gt;Aiyagari, S.R. (1994). Uninsured idiosyncratic risk and aggregate saving. The Quarterly Journal of Economics, 109(3): pp.659-684.&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;is a paper where the author packs considerable statistical evidence and theoretical and empirical references in two pages before presenting his model of (what the paper title says), as a way of validating his approach.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The second stage has become mainly mathematical rather than verbal: one lets its model roll and see what results it will produce (this is the deduction step). This synthetic approach is necessitated because social phenomena do not have the repeatability observed in the natural world (although I would dare to say that there are many aspects of economic behavior that have remained virtually unchanged for at least all written history, and around the globe).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course since nowadays science is produced in an industrialized way, a million economics papers out there are purely works on existing theoretical frameworks, so this strand is pure deduction.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As regards the verificationism/falsificationism contrast, it appears that the OP uses the words in a rather relaxed manner, away from their stern meaning and the philosophical schools behind them. In that sense then, yes, economics looks for &quot;adequate representations of reality&quot;, i.e. it sides with &quot;verificationism&quot;: an inside joke is that &quot;no economic theory was ever abandoned because it did not conform with the data&quot;...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For such matters, &lt;a href=&quot;https://en.wikipedia.org/wiki/Mark_Blaug&quot; rel=&quot;nofollow&quot;&gt;Mark Blaug's&lt;/a&gt; inside polemic &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0521436788&quot; rel=&quot;nofollow&quot;&gt;The methodology of economics: Or, how economists explain&lt;/a&gt; has not lost its bite.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The helpful comment below suggested also looking at &lt;a href=&quot;https://en.wikipedia.org/wiki/Abductive_reasoning&quot; rel=&quot;nofollow&quot;&gt;abductive inference&lt;/a&gt; for how economists go methodologically about understanding the world.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2016-03-02T04:30:51.230" LastActivityDate="2016-03-02T04:30:51.230" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10926" PostTypeId="1" CreationDate="2016-03-01T21:51:19.800" Score="-1" ViewCount="105" Body="&lt;p&gt;I was reading my economics book and encountered with a paragraph which read:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;But GDP/NNP are now not considered as the best measures for the growth because countries having high extended debts are serviced through internal resources which tends to increase outflows and reduce GNP ' leaving GDP unaffected ' thus GNP/NNP are not seen as a correct way to judge the output of an economy&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Please answer the same by explaining the paragraph quoted.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;PS : I know the answer is itself in the paragraph but I'm unable to understand  so I seek a good explanation of this paragraph with a good answer. Thanx in advance.&lt;/p&gt;&#xA;" OwnerUserId="7484" LastActivityDate="2016-03-04T03:01:42.687" Title="How is a GDP of an economy unaffected with reduction in GNP?" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10932" PostTypeId="2" ParentId="10904" CreationDate="2016-03-02T13:07:43.500" Score="0" Body="&lt;p&gt;The general approach &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;there are many things that are in the error term which may correlate&#xA;  with the covariate of interest but don't even come to mind&quot;,&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;is a total dead-end, &lt;em&gt;because exactly the same thing could be argued for any instrument you might choose&lt;/em&gt;.  It would be my suggestion to not use such vague and general arguments in your paper.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand, the endogeneity issue is &lt;em&gt;not&lt;/em&gt; about whether the suspect regressor is correlated with some other variable. Each and everyone variable in the world can be said to be corrleated with at least one other variable. &lt;em&gt;The issue is whether this other variable is also correlated with the dependent variable&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To consider the example offered in a comment by the OP, &quot;past work for the government&quot; may be correlated with &quot;party membership&quot; indeed. But is &quot;past work for the government&quot; correlated with the OP's dependent variable? Namely, does it really live inside the error term of the regression?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Selection of instruments is one of the few instances in econometric work where the verbal argument dominates. As the answer by @ColeTrumbo excellently put it, &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;To motivate a good IV, you need a good story.&lt;/em&gt;&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="61" LastActivityDate="2016-03-02T13:07:43.500" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10933" PostTypeId="1" CreationDate="2016-03-02T14:12:27.970" Score="5" ViewCount="173" Body="&lt;p&gt;I'm a pre college student, self studying economics, I have a question regarding the different forms of measurement of Price Elasticity of Demand.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The basic equation for PED with respect to a point $(x_1,y_1)$ on a demand curve (qty x axis, price y axis), given another point $(x_2,y_2)$ is:&#xA;$\frac{(x_1-x_2)/x_1}{(y_1-y_2)/y_1}$&#xA;This gives us the responsiveness of qty demanded relative to price at an initial point $(x_1,y_1)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, my text mentions that depending on the choice of initial point, either $(x_1,y_1)$ or $(x_2,y_2)$, the PED is different. Hence, in order to overcome such a problem, we utilize arc elasticity of demand, which uses the midpoint as a initial value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is this:&#xA;Isn't PED supposed to vary along a demand curve? If we rearrange it as (Change in qty/Change in price)(Price/Quantity), we can see that it does depend on which point on the curve it is. Hence, why is it regarded as a &quot;problem&quot; that depending on which initial value we use, we get different PED?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And by extension, I read that the definition of arc elasticity is the elasticity of one variable to another between two given points. I don't fully understand what is the significance of using the midpoint as an initial value, other than it netting the same PED for two distinct points. What does it actually mean when we take the difference of two points and divide it by the midpoint?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And on a final note, is point price elasticity of demand recommended when we have the functional relation of price to quantity?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've been looking on the internet, and I haven't really been able to find/just don't understand anything about this. Sorry if this is elementary, but I haven't got anyone I know to ask.&lt;/p&gt;&#xA;" OwnerUserId="7508" LastEditorUserId="1601" LastEditDate="2016-03-02T15:20:40.283" LastActivityDate="2016-03-07T12:31:20.370" Title="Question on significance of different ways of measuring Price Elasticity of Demand" Tags="&lt;supply-and-demand&gt;&lt;elasticity&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10934" PostTypeId="2" ParentId="10933" CreationDate="2016-03-02T15:32:34.637" Score="4" Body="&lt;p&gt;Ideally the points $(x_1,y_1)$ and $(x_2,y_2)$ are very close. The assumption is that that they are so close that the elasticity of the demand function on the curve between them is nearly constant. This is what elasticity is trying to measure, local changes, because on the far side of the range of the demand function consumer behavior may be unobserved and totally different. E.g. to my knowledge no one has tried to sell a bottle of Coke for \$40,000 so we don't know what value the demand function would take. If you would choose a very distant point $(x_3,y_3)$ instead of the local $(x_2,y_2)$ you would get a very different value of elasticity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So what does the book mean by initial value? Ideally the elasticity measured in points $(x_1,y_1)$ and $(x_2,y_2)$ would be constant because they are very close. Of course in practice this will not always be the case, meaning&#xA;$$&#xA;\frac{(x_1-x_2)/x_1}{(y_1-y_2)/y_1} \neq \frac{(x_1-x_2)/x_2}{(y_1-y_2)/y_2}.&#xA;$$&#xA;Instead of taking one of these values as the elasticy of the curve we can improve our estamite by taking the arc elasticity which usually yields a value between these two.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2016-03-02T15:32:34.637" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10935" PostTypeId="1" AcceptedAnswerId="10939" CreationDate="2016-03-02T15:41:38.260" Score="0" ViewCount="35" Body="&lt;p&gt;In a bi-weekly payroll cycle, there are only ever 26 pay dates, correct?  It never jumps to 27 or falls to 25?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm asking this question in a leap year, and I know that calculating the first pay date has to do with selecting a day of the week to run payroll on, and then selecting the first occurrence of that day in the year.&lt;/p&gt;&#xA;" OwnerUserId="7269" LastActivityDate="2016-03-02T18:55:38.297" Title="In a bi-weekly payroll cycle, there are only ever 26 pay dates, correct?" Tags="&lt;accounting&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10938" PostTypeId="1" CreationDate="2016-03-02T18:16:32.040" Score="2" ViewCount="25" Body="&lt;p&gt;I had asked this question on cross validated before, and have deleted it. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose we have a standard wage equation:&#xA;$$w_{i}=β+β_{1}educ_{i}+x_{i}'\gamma+ϵ_{i}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where educ corresponds to education levels, $x_{i}$ is a vector of covariates. If we treat educ as a continuous variables, we obtain a single estimate of $\beta_{1}$ . However, if we create dummy variables for different education levels, and therefore allow for different marginal effects (assuming we have a large enough sample size), we obtain k−1 different estimates of education levels if we include a constant. Can we think of think of the single estimate obtained from treating education as continuous as a weighted average of the k-1 coefficients, weighted by the number of individuals in each education block?&lt;/p&gt;&#xA;" OwnerUserId="5233" LastActivityDate="2016-03-02T18:16:32.040" Title="Relationship between parameters estimates of continuous variables and dummy variables" Tags="&lt;regression&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10939" PostTypeId="2" ParentId="10935" CreationDate="2016-03-02T18:55:38.297" Score="2" Body="&lt;p&gt;You mean 26 pay dates per year, right?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then no, because a year is 365 days long and a 26 biweeks are $26 \cdot 14 = 364$ days long. Therefore any year that starts with a Friday (which is usually a pay date) should have 27 pay dates. However if Jan 1 is a holiday (depends on where you live), the paydate is probably moved to Dec 31 so the preceding year would have 27 pay dates.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2016-03-02T18:55:38.297" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="10940" PostTypeId="1" AcceptedAnswerId="10941" CreationDate="2016-03-02T19:34:39.853" Score="6" ViewCount="435" Body="&lt;p&gt;If we are generally richer and more productive due to better technology and other factors, why do we still work so much? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand that there are various incentives to work (e.g. implicit status awards) that aren't linked with productivity in the abstract. But in a very simple model, if we can do more with less input, why are we still doing as much as we can?&lt;/p&gt;&#xA;" OwnerUserId="7511" LastActivityDate="2016-03-03T19:46:35.687" Title="Why has increased productivity over the last 100 years not affected how much people work?" Tags="&lt;macroeconomics&gt;&lt;labor-economics&gt;&lt;behavioral-economics&gt;&lt;productivity&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10941" PostTypeId="2" ParentId="10940" CreationDate="2016-03-03T00:07:59.240" Score="9" Body="&lt;p&gt;Let's work such a very simple model. We have a Robinson Crusoe island economy, an isolated individual that lives totally alone. In order to consume something Crusoe must work. Assume for even more simplicity that capital is not needed (say, fruit-gathering by hand). Crusoe does not like to work but he would rather sit relaxed and enjoy the good weather in his island. Apart from the biological necessity to eat something, Crusoe also likes the taste of fruits he gathers. Fruits cannot be stored.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So we have a, daily utility function of the form&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U = U(c, \ell),  \;\; \ell + L = T$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U_c &amp;gt;0,\;\; U_{\ell}&amp;gt;0,\;\; U_{cc} &amp;lt;0, \;\; U_{\ell \ell} &amp;lt;0,\;\; U_{c\ell} =U_{\ell c} \geq 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The last assumption on the cross-partial seems like the more reasonable one.&#xA;$\ell$ is leisure and $L$ is amount of work, and $T$ the maximum amount of time that Crusoe can work (say, $16$ hours). We also have a  &quot;fruit-gathering&quot; function&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Q = f(L) = AL^a$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can reasonably assume that we have decreasing marginal product of labor (due to the body getting tired going up and down all these trees), so $0&amp;lt;a&amp;lt;1$.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since fruit cannot be stored and capital is absent, the only optimization problem that makes sense here is a static one, meaning $c=f(L)$.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then we want to max over $L$ the function $U[f(L), T-L]$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The f.o.c. is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\partial U[f(L), T-L]}{\partial L}\equiv G = U_c[f(L), T-L]\cdot f'(L) - U_{\ell}[f(L), T-L] = 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and the s.o.c is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \partial G/\partial L = U_{cc}\cdot f'(L) - U_{c\ell}\cdot f'(L) + U_c\cdot f''(L) - U_{\ell c}f'(L) +U_{\ell \ell} &amp;lt;0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given our assumptions, this expression is everywhere negative, so we have our maximum.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;We want to examine what happens as $A$ in the fruit-gathering function increases. Using the implicit function theorem we have, around the solution,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {dL}{dA} = -\frac {\partial G/\partial A}{\partial G/\partial L}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We know that the denominator is negative, so together with the minus sign in front becomes positive. Therefore&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\text{sign}\left\{\frac {dL}{dA}\right\} = \text{sign}\big\{\partial G/\partial A\big\}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$= U_{cc}\cdot[ \partial f/\partial A ]\cdot f' +[\partial f'/\partial A]\cdot U_c  - U_{\ell c}\cdot [\partial f/\partial A] $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This expression is of ambiguous sign, which is a first indication that things may not be that straightforward after all.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To validate the conjecture of the OP we would need to obtain,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\text{sign}\left\{\frac {dL}{dA}\right\} &amp;lt; 0 \implies U_{cc}\cdot[ \partial f/\partial A ]\cdot f' +[\partial f'/\partial A]\cdot U_c  - U_{\ell c}\cdot [\partial f/\partial A] &amp;lt; 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies U_{\ell c}\cdot [\partial f/\partial A] &amp;gt;  U_{cc}\cdot[ \partial f/\partial A ]\cdot f' +[\partial f'/\partial A]\cdot U_c$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies U_{\ell c} &amp;gt;  U_{cc}\cdot f' +\frac {\partial f'/\partial A}{\partial f/\partial A}\cdot U_c$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Using the first order condition, we can substitute for $U_c = U_{\ell}/f'$, so&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\text{sign}\left\{\frac {dL}{dA}\right\} &amp;lt; 0 \implies  U_{\ell c} &amp;gt;  U_{cc}\cdot f' +\frac {\partial f'/\partial A}{\partial f/\partial A}\cdot [U_{\ell}/f']$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\partial f'/\partial A}{\partial f/\partial A} \cdot \frac {1}{f'} = \frac {(a/L)L^a} { L^a} \cdot \frac {1}{(a/L)AL^a}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$= \frac {1}{f} = \frac {1}{c}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\text{sign}\left\{\frac {dL}{dA}\right\} &amp;lt; 0 \implies  U_{\ell c} &amp;gt;  U_{cc} \cdot f'+ U_{\ell}/c$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and re-arranging while multiplying throughout by $c/U_c$ and using the f.o.c. again, we get &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\text{sign}\left\{\frac {dL}{dA}\right\} &amp;lt; 0 \implies  f'\cdot (RRA_c-1) &amp;gt; - U_{\ell c}\cdot c/ U_c$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $RRA_c$ is the coefficient of relative risk aversion related to consumption. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So we see that if $RRA_c\geq 1$, which is the usual assumption, this inequality is certain to hold and so indeed higher productivity will lead to less time spent working... so why reality does not conform with our theoretical results?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But it does. Historically, the amount of time spent working has been declining . The problem with the OP's question is that the phrase &quot;we do as much as we &lt;em&gt;can&lt;/em&gt;&quot; is contaminated by framework effects: if what happens around me is people working, say, $10$ hours a day, $5$ days a week, and I work $11$ hours a day, $6$ days a week, I tend to think that, since I exceed the standard around me, &quot;I do what I &lt;em&gt;can&lt;/em&gt;&quot;, being oblivious to the fact that people used to work $16$ hours a day, $7$ days a week, with perhaps a few days per year off at best. So no, we do not really &quot;do as much as we can&quot;.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2016-03-03T19:46:35.687" LastActivityDate="2016-03-03T19:46:35.687" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="10942" PostTypeId="1" AcceptedAnswerId="10943" CreationDate="2016-03-03T01:39:00.773" Score="1" ViewCount="1261" Body="&lt;p&gt;I am assuming that the production function for the economy has constant returns to scale, and all other inputs stay the same.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These are the steps I have made to try to answer this question:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) Y/L = Productivity&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) Therefore, if Y=3 and L=2 (There were 2 workers in the economy), so Productivity = 3/2&lt;/p&gt;&#xA;&#xA;&lt;p&gt;3) L doubled, so now L=4&lt;/p&gt;&#xA;&#xA;&lt;p&gt;4) Now Productivity is equal to 3/4. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;5) Productivity has therefore fallen by half of its former value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Am I right in stating this? If not, can you please explain to me where I am going wrong?&lt;/p&gt;&#xA;" OwnerUserId="5785" LastActivityDate="2016-03-03T02:56:02.043" Title="If the Number of Workers in an Economy Doubled, Would Productivity Fall to Half its Former Value?" Tags="&lt;macroeconomics&gt;&lt;productivity&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10943" PostTypeId="2" ParentId="10942" CreationDate="2016-03-03T02:48:11.523" Score="3" Body="&lt;p&gt;Since you say holding other variables as they were and double $L(t)$ I assume you have a production function that may include capital $(K(t))$, including this and assuming a Cobb-Douglas production function:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ Y(K(t), L(t)) = K(t)^{\alpha} L(t)^{1-\alpha} \; \; 0&amp;lt; \alpha &amp;lt; 1 $$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Doubling $L(t)$ gives, (and omitting $t$ from the writing for clarity):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ Y(K, 2L) = K^{\alpha} (2 L)^{1-\alpha} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ = 2^{1-\alpha} Y(K,L) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \Rightarrow \frac{Y(K, 2L)}{2L} = \frac{2^{1-\alpha} Y(K,L)}{2L} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{Y(K,L)}{2^{\alpha} L} &amp;lt; Y/L $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So yes in this sense as you described doubling labour decreased productivity.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You mention $Y$ having constant returns to scale, this implies if you double &lt;em&gt;both&lt;/em&gt; $K$ and $L$ then $Y$ will double as well, then productivity will stay the same&lt;/p&gt;&#xA;" OwnerUserId="5780" LastEditorUserId="5780" LastEditDate="2016-03-03T02:56:02.043" LastActivityDate="2016-03-03T02:56:02.043" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="10944" PostTypeId="2" ParentId="10926" CreationDate="2016-03-03T06:41:13.187" Score="2" Body="&lt;p&gt;GNP = GDP + Primary Income (PI).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So it is possible that PI falls, GDP stays constant, and GNP falls. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;PI is often called &quot;net income from abroad&quot; (especially in older textbooks). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Examples of PI:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;A Canadian individual works for a US firm in the US for a month and is paid \$3,000. This \$3,000 is counted as credit (+) under Canada's PI and a debit (-) under US's PI.&lt;/li&gt;&#xA;&lt;li&gt;A French firm pays a German property-owner €1m to rent a piece of land in France (but which is owned by the German property-owner). This €1m is counted as credit (+) under Germany's PI and debit (-) under France's PI.&lt;/li&gt;&#xA;&lt;li&gt;A Japanese firm lends a Korean firm ¥1m. Each year, the Korean firm pays the Japanese firm ¥50,000 as an annual interest payment. This ¥50,000 is counted as credit (+) under Japan's PI and debit (-) under Korea's PI.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;This last example is probably what your quoted text is referring to.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastEditorDisplayName="user18" LastEditDate="2016-03-04T03:01:42.687" LastActivityDate="2016-03-04T03:01:42.687" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10945" PostTypeId="1" CreationDate="2016-03-03T07:54:23.693" Score="2" ViewCount="336" Body="&lt;p&gt;For example, gross savings of India in the financial year 2014 - 2015 was $30.2%$ of GDP, while the Gross Investments during this same period was $31.6%$ of GDP.  Can we then conclude investments are being made with borrowed money?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, if &quot;Gross Savings&quot; is $30.2%$, can it be said that an average person in India saves about $30.2%$ of his income?&lt;/p&gt;&#xA;" OwnerUserId="6486" LastEditorUserId="2938" LastEditDate="2016-03-03T22:52:40.017" LastActivityDate="2016-03-04T02:52:44.517" Title="If Gross Savings is less than Gross Investment, could we say that investment is being made with borrowed money?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10946" PostTypeId="1" CreationDate="2016-03-03T13:35:51.273" Score="1" ViewCount="264" Body="&lt;p&gt;I am working with a Robinson Crusoe economy, i.e. an economy in which there is no production and only consumption is possible: there are only two goods, $x_1$ and $x_2$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is just one individual that lives two periods. He has endowments $\omega_1$ in period 1 and $\omega_2$ in period 2. He can borrow one unit of food in period 1 in exchange for $1 + r$ units of food in the next period. And he can save part of $\omega_1$, without getting any return, to consume it in period 2.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I tried to work out something but I have some problems since I obtained a budget constraint that has different slopes for different allocations. Do you have any hint?&lt;/p&gt;&#xA;" OwnerUserId="6773" LastEditorUserId="6773" LastEditDate="2016-03-03T18:01:23.410" LastActivityDate="2016-03-03T18:01:23.410" Title="Robinson Crusoe economy with saving and borrowing" Tags="&lt;microeconomics&gt;&lt;self-study&gt;" AnswerCount="0" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="10947" PostTypeId="2" ParentId="10315" CreationDate="2016-03-03T15:43:14.923" Score="1" Body="&lt;p&gt;&lt;strong&gt;Who can price discriminate ?&lt;/strong&gt;&#xA;First, the firm must have market power or else it cannot charge any customer more than the competitive price. A monopoly , an oligopoly firm , a monopolistically competitive firm or a cartel may be able to price discriminate. However, a perfect competitive firm cannot price discriminate.                               &lt;/p&gt;&#xA;&#xA;&lt;p&gt;An oligopoly can PD for a simple reason because it has market power.&#xA;Reason why firm price discriminates rather than price uniformly , is&lt;br&gt;&#xA;1. PD firm charges prices higher to the customers who are willing to pay more than the uniform price.&lt;br&gt;&#xA;A simple intuition behind this can be related to the elasticity of demand. As for an oligopoly (or any other form of market other than the perfect competition) , the price elasticity of demand is not that elastic (reason being there are either few firms in the market or only one) - so even if the firm charges price a bit higher to few customer , and a bit lower to others ; the quantity demanded by the people reduces(but to a very small extent, and this too depends upon the price elasticity of demand).&lt;br&gt;&#xA;2. PD helps the firm capture the dead weight loss. It is often that CS and PS become a part of DWL. Price discrimination reduces DWL , as well as increases the Producer Surplus (given certain conditions hold though).&lt;/p&gt;&#xA;" OwnerUserId="7521" LastActivityDate="2016-03-03T15:43:14.923" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10948" PostTypeId="1" CreationDate="2016-03-03T16:16:10.037" Score="1" ViewCount="23" Body="&lt;p&gt;I'm supposed to report the evolution of the use of collateral on financial markets. I found some substantial data concerning the amount of collateral available (i.e. the amount of safe assets in the economy), but I can't get hold of numbers about the effective amount of collateral used and exchanged on the markets. Ideally, I'm looking for quarterly statistics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I read a lot of research articles, but this is most of the time pages and pages of text and formulas, with no concrete numbers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any of you has an idea of where I could search what I need?&lt;/p&gt;&#xA;" OwnerUserId="7522" LastEditorUserId="2776" LastEditDate="2017-09-07T06:18:09.750" LastActivityDate="2017-09-07T06:18:09.750" Title="Looking for data about collateral and safe asset" Tags="&lt;data-request&gt;&lt;financial-markets&gt;" AnswerCount="0" CommentCount="1" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10950" PostTypeId="2" ParentId="10945" CreationDate="2016-03-04T02:52:44.517" Score="3" Body="&lt;p&gt;Yes, in particular, the Home country is borrowing from abroad.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;In a closed economy, &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;$\text{GDP} = C + G + I$. And savings is defined as $S = \text{GDP} - C - G$. And thus, it is necessarily the case that $S = I$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Example.&lt;/strong&gt; In 2015, India produces 10 bananas, each valued at ₹10, for a total value of ₹100. Private consumers consume 4 bananas ($C = ₹40$), government consumes 5 bananas ($G = ₹50$), and 1 banana is stored for consumption in future years ($I = ₹10$). (Bear in mind that additions to inventories, as with this last banana, count as investment.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$GDP = C + G + I = ₹40 + ₹50 + ₹10 = ₹100$. Total final consumption ($C + G$) was ₹40 + ₹50 = ₹90. Hence, $S = ₹10$. This is a closed economy, so savings must necessarily equal investment. And sure enough, $I = ₹10$. &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;In an open economy, it need no longer be the case that $S = I$.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Example.&lt;/strong&gt; In 2016, India produces 10 bananas, each valued at ₹10, for a total value of ₹100. India also imports 5 bananas ($M = ₹50$). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Private consumers consume 4 bananas ($C = ₹40$), government consumes 5 bananas ($G = ₹50$), and 6 bananas are stored for consumption in future years ($I = ₹60$). There are no exports ($X = ₹0$).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$GDP = C + G + I + (X - M) = ₹40 + ₹50 + ₹60 + (0 - ₹60)= ₹100$. Total final consumption ($C + G$) was ₹40 + ₹50 = ₹90. Hence, $S = ₹10$. But $I = ₹60$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So $S &amp;lt; I$. How is this possible? The reason is that the gap between investment and savings of $I - S = ₹60 - ₹10 = ₹50$ is made up for precisely by imports. So our shortfall in savings (relative to investment) is made up for by &lt;em&gt;borrowing&lt;/em&gt; from abroad, in this case through imports.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;As for your second question,&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Yes, we can say that on average, each Indian saves 30.2% of income. But this average is not necessarily very meaningful. For example it may be that the vast majority of Indians spend all of their income on consumption and it is only a tiny minority of the wealthiest Indians who do the saving.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2016-03-04T02:52:44.517" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10951" PostTypeId="1" AcceptedAnswerId="10961" CreationDate="2016-03-04T02:58:44.327" Score="3" ViewCount="373" Body="&lt;p&gt;I understand that the fixed effects estimator in a panel model (say, individuals, $i$ across years, $t$) can be understood either as a including a dummy for each $i$ or running OLS on the time demean-ed data. My question is whether the estimate from the FE model (that is, the within estimator) is equivalent to the average of the estimates from running OLS on each individual separately. Consider the following two approaches:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$y_{it} = constant + \beta x_{it} + v_i + u_{it}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$y_t = constant + \alpha x_t + e_t$ for all $i \in (1, 2, ... N) $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The second equation gives us an $\alpha^i$ for each individual and my question is whether $\beta =  \frac{1}{N} \sum_i^N \alpha^i$&lt;/p&gt;&#xA;" OwnerUserId="5924" LastEditorUserId="5924" LastEditDate="2016-06-01T00:17:05.930" LastActivityDate="2016-10-27T06:35:52.473" Title="Intuition behind fixed effects estimator" Tags="&lt;econometrics&gt;&lt;regression&gt;&lt;fixed-effects&gt;" AnswerCount="3" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10953" PostTypeId="2" ParentId="10951" CreationDate="2016-03-04T08:15:29.873" Score="1" Body="&lt;p&gt;I believe the second approach you suggest is equivalent to using an OLS on the whole sample and with dummy variables for each person, country or whatever. Therefore, the answer to your question should be yes.&lt;/p&gt;&#xA;" OwnerUserId="4997" LastActivityDate="2016-03-04T08:15:29.873" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10954" PostTypeId="1" CreationDate="2016-03-04T09:24:15.597" Score="0" ViewCount="23" Body="&lt;p&gt;What is the best formula of price of the product depending on amount. I mean &quot;best&quot; in psychological, marketing, stock rotation, profit maximizing, etc sense (any of them or all together, if possible).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Say, I often see that prices on Coca Cola bottles growing not as fast as volume of them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I sure there is the best formula, invented by psychologists or derived empirically then proved in use.&lt;/p&gt;&#xA;" OwnerUserId="4315" LastActivityDate="2016-03-04T09:42:51.923" Title="Best formula for price depending on amount" Tags="&lt;elasticity&gt;&lt;price-theory&gt;" AnswerCount="1" CommentCount="1" ClosedDate="2016-03-08T18:36:33.287" ContentLicense="CC BY-SA 3.0" />
  <row Id="10956" PostTypeId="2" ParentId="10954" CreationDate="2016-03-04T09:42:51.923" Score="2" Body="&lt;p&gt;I think your expectation that a &quot;best&quot; formula exists is very unreasonable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is no &quot;best&quot; car design, there isn't a formula to design the fastest airplane with total weight $x$ and there is no easy formula that will give you the best price in general situations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sciences have a lot of unsolved optimization problems. Economics, psychology and most sciences involving humans have a lot of seemingly unknown variables, further complicating things. So while there are some principles which you can base your pricing strategy on I have never heard any reasonable person claim that a general best price mechanism exists and I don't think it does.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2016-03-04T09:42:51.923" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10959" PostTypeId="2" ParentId="8312" CreationDate="2016-03-04T16:25:48.563" Score="-2" Body="&lt;p&gt;No amount of money can save the poor people from having to pay for overpriced  commodities. Give 100 billions of $US to each poor person today and the next day their corrupt politicians will increase the prices of the food a billion times (with the help of their family-business monopolies), driving the majority poor again.&#xA;The poor countries lack real free markets and then only &lt;a href=&quot;https://en.wikipedia.org/wiki/Competition_regulator&quot; rel=&quot;nofollow&quot;&gt;competition regulators&lt;/a&gt; and anti-corruption policies and practices can solve that problem. Speculation of prices drives the people poor and even into starvation. &lt;a href=&quot;http://www.theguardian.com/global-development/2011/jan/23/food-speculation-banks-hunger-poverty&quot; rel=&quot;nofollow&quot;&gt;link1&lt;/a&gt; - &lt;a href=&quot;http://www.theguardian.com/world/poverty-matters/2012/oct/05/jean-ziegler-africa-starve&quot; rel=&quot;nofollow&quot;&gt;link2&lt;/a&gt; - &lt;a href=&quot;http://www.bloomberg.com/news/articles/2011-07-19/booming-cotton-no-boon-to-farmers-in-africa-milked-by-regional-monopolies&quot; rel=&quot;nofollow&quot;&gt;link3&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;No amount of money can save the poor workers from being paid miserable wages. But government regulations can (by implementing decent minimum wages).&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The unemployed can be lifted out of poverty once the governments start to collect taxes properly and give a proper unemployment help to the unemployed. If the charities will give a large but limited amount of money to those unemployed they can only lift them out of poverty for a finite amount of time - until they (the unemployed) spend all that money - and after that they are back into poverty.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;If a poor country has unsustainable level of unemployment, then the government can make a land reform (like for example in &lt;a href=&quot;https://en.wikipedia.org/wiki/Land_Reform_in_Taiwan&quot; rel=&quot;nofollow&quot;&gt;Taiwan, 1950's&lt;/a&gt;), and then rent land (for very cheap) to those unemployed who desire to become farmers. The land gives them a job, so there you have them - jobs. No amount of money can do that. Give a lot of money to the poor today and tomorrow the price of land will explode, staying out of the reach for the many. So the money can't solve the poverty problem, but the government's actions can.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Also keep in mind that the way poverty is measured can be quite deceiving.&lt;/em&gt; A farmer with a full stomach who sells products for less than one dollar a day is considered to live in extreme poverty. But if the same person leaves the farm and works in the city for a corporation for five dollars a day and starves (no money left after paying rent, water and electricity) then he is considered to be lifted from poverty and on moving steadily on their way to a prosperous life - by the the economists certified by the top-level universities and working for top-level corporations. Heard about &quot;Africa raising?&quot; - e.g. &lt;a href=&quot;http://www.theguardian.com/world/2016/jan/12/ethiopian-refugee-who-took-on-the-british-government&quot; rel=&quot;nofollow&quot;&gt;Ethiopia&lt;/a&gt;.&#xA;As a result, while &lt;a href=&quot;http://www.worldbank.org/en/news/press-release/2013/04/17/remarkable-declines-in-global-poverty-but-major-challenges-remain&quot; rel=&quot;nofollow&quot;&gt;the UN bodies provide triumphant news that extreme poverty is decreasing&lt;/a&gt;, the &lt;a href=&quot;http://www.undp.org/content/undp/en/home/librarypage/poverty-reduction/humanity-divided--confronting-inequality-in-developing-countries.html&quot; rel=&quot;nofollow&quot;&gt;inequality is actually increasing&lt;/a&gt; - &lt;a href=&quot;http://reports.weforum.org/outlook-global-agenda-2015/top-10-trends-of-2015/1-deepening-income-inequality/&quot; rel=&quot;nofollow&quot;&gt;link2&lt;/a&gt; - &lt;a href=&quot;http://www.oecd.org/els/soc/dividedwestandwhyinequalitykeepsrising.htm&quot; rel=&quot;nofollow&quot;&gt;link3&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The bottom line is: instead of throwing with money to the poor and watching them being sucked up quickly by their corrupt politicians, we should better pressure those corrupt governments in order to implement real competition, free markets and to reduce corruption. Freezing the assets of those corrupt politicians (e.g. real estate properties in London and Monaco and bank accounts in Switzerland) might be a very good start for pressuring them - this is my own opinion but it is supported by the reality of the recent EU and US freeze of Russian elite assets. &lt;a href=&quot;http://www.bbc.com/news/world-europe-28400218&quot; rel=&quot;nofollow&quot;&gt;link1&lt;/a&gt; - &lt;a href=&quot;http://www.bbc.com/news/world-europe-26672800&quot; rel=&quot;nofollow&quot;&gt;link2&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://blogs.worldbank.org/africacan/rich-countries-poor-people-will-africa-s-commodity-boom-benefit-poor&quot; rel=&quot;nofollow&quot;&gt;Economists and political scientists appear to be converging to the view that the quality of institutions is the critical factor for countries to develop successfully, and to make effective use of natural resources.&lt;/a&gt; (Anand Rajaram, World Bank, 2013)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the key for lifting the poor from misery stands in increasing the quality of institutions, not in throwing money at corrupt governments. And the &lt;em&gt;quality of institutions&lt;/em&gt; is inversely proportional with &lt;em&gt;corruption&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.transparency.org/whatwedo/answer/the_impact_of_corruption_on_growth_and_inequality&quot; rel=&quot;nofollow&quot;&gt;Not only does corruption affect economic development in terms of economic efficiency and growth, it also affects equitable distribution of resources across the population, increasing income inequalities, undermining the effectiveness of social welfare programmes and ultimately resulting in lower levels of human development. This, in turn, may undermine long-term sustainable development, economic growth and equality.&lt;/a&gt; (Marie Chêne, Transparency International, 2014)&lt;/p&gt;&#xA;" OwnerUserId="5161" LastEditorUserId="5161" LastEditDate="2016-03-10T03:17:29.810" LastActivityDate="2016-03-10T03:17:29.810" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="10960" PostTypeId="1" CreationDate="2016-03-04T16:50:39.273" Score="0" ViewCount="59" Body="&lt;p&gt;If the working hours would be reduced from 40 hours / week to 32 hours / week (4 days x 8 hours instead of 5 days x 8 hours), but maintaining the wages at the same levels, then I guess that the price of the commodities would increase.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've seen various claims that working hours can be reduced (&lt;a href=&quot;http://www.theguardian.com/business/2014/jul/21/carlos-slim-calls-for-three-day-working-week-to-improve-quality-of-life&quot; rel=&quot;nofollow&quot;&gt;Carlos Slim Helu 2014&lt;/a&gt;, &lt;a href=&quot;http://www.tgdaily.com/enterprise/116281-google-founders-question-the-40-hour-work-week&quot; rel=&quot;nofollow&quot;&gt;Google&lt;/a&gt; &lt;a href=&quot;http://www.tgdaily.com/talent/116426-revisiting-google-founders-take-on-40-hour-work-week&quot; rel=&quot;nofollow&quot;&gt;2014&lt;/a&gt;) and I wonder about the negative effects of such a change.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If, for example, I am producing clothes with 10 workers, each producing 100 shirts per week (20 per day) and I sell the shirts for \$1 each, then I make \$1,000 per week, covering the production costs. Reducing the working hours from 40 to 32 / week means I can produce only 800 shirts per week (200 shirts per day x 4 days) but since I need \$1,000 per week in order to cover the costs, that means I have to sell the shirts for \$1.25 (that comes from dividing $1,000 to 800 shirts)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, at a first sight, it looks like reducing the working week to four days implies a 25% increase for the prices of the commodities.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Am I right?&lt;/p&gt;&#xA;" OwnerUserId="5161" LastEditorUserId="5161" LastEditDate="2016-03-04T16:58:10.473" LastActivityDate="2016-03-04T16:58:10.473" Title="Reducing the working hours to 32 hours / week - how much it would affect the prices of commodities?" Tags="&lt;labor-economics&gt;&lt;productivity&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10961" PostTypeId="2" ParentId="10951" CreationDate="2016-03-04T16:55:04.707" Score="3" Body="&lt;p&gt;I asked exactly the same question on math.stackexchange:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://math.stackexchange.com/questions/1470490/fixed-effects-estimation&quot;&gt;https://math.stackexchange.com/questions/1470490/fixed-effects-estimation&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In short, the answer is yes, it can be viewed as running separate OLS regressions- the weights, however, are not arbitrary. It is a weighted average of the separate OLS regressions.&lt;/p&gt;&#xA;" OwnerUserId="5233" LastEditorUserId="-1" LastEditDate="2017-04-13T12:19:37.213" LastActivityDate="2016-03-04T16:55:04.707" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10963" PostTypeId="1" CreationDate="2016-03-04T19:51:38.627" Score="3" ViewCount="139" Body="&lt;p&gt;I am solving practice problems in Walsh. This is from 3rd edition page 87. Question 1. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have max:  $$U=\sum\beta^iU(c_{t+i},\frac{M_{t+i}}{P_{t+i}})$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;s.t.  $$\omega_t=f(k_{t-1})+(1-\delta)k_{t-1}+(1+r_{t-1})b_{t-1}+m_t$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I use a value function: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$V(\omega_t,m_t)= max [U(c_{t},m_t)+\beta V(\omega_{t+1},m_{t+1})]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I then take F.O.C. w.r.t:$\space\space\space c_t,k_t,b_t,m_{t+1}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My issue is when taking F.O.C. wrt $k_t$ I am getting $V_{\omega}(V_{\omega_{t+1}},m_{t+1})=\lambda_t$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;but I should be getting my time subscript as t here instead of t+1. This is throwing off the next part of the question: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Show that $$\ \frac{U_m(c_{t+1},m_{t+1})}{U_c(c_{t+1},m_{t+1})}=i_t$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Proving this ^^^ is easily done by rearranging and substituting my FOC. However, I need to correct my FOC for $k_t$ before the solution actually works since I am equating: $$U_c(c_t,m_t)=V_{\omega}(\omega_t,m_t)$$ and $$U_m(c_t,m_t)=V_{m}(\omega_t,m_t)$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;to achieve my solution. For now, my time subscript issue with k is creating a time subscript issue with my solution.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can anyone help me with the time subscript issue?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;*****I can add more of my solution if necessary but it is just FOC. Also - I have solved the problem and checked against a solutions manual. I have done every other part correctly - just need to fix the time subscripts for k*****&lt;/p&gt;&#xA;" OwnerUserId="1655" LastActivityDate="2016-03-04T19:51:38.627" Title="Question about M.I.U. model - Walsh" Tags="&lt;macroeconomics&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10964" PostTypeId="1" AcceptedAnswerId="11209" CreationDate="2016-03-04T21:40:44.620" Score="0" ViewCount="217" Body="&lt;p&gt;These days we can see a bunch of troubling trends.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Consumer goods are less quality.&lt;/li&gt;&#xA;&lt;li&gt;Big companies merge.&lt;/li&gt;&#xA;&lt;li&gt;Patent laws and strict requirements on appearance remove small entrepreneurs from the manufacturing business.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;These problems had been subjects of dystopian sci-fi scenarios for many times. Even though it is profitable for a starting bussinessman to buy and sell as the supply and demand dictates, for a few big companies, ruling over the market it is profitable to keep the prices up. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What can lawmakers do about concluding conspiratorial agreements or merging big companies to keep the supply and demand principle?&lt;/p&gt;&#xA;" OwnerUserId="6439" LastActivityDate="2016-05-05T23:13:50.360" Title="How do we prevent big companies conspiracy?" Tags="&lt;macroeconomics&gt;&lt;supply-and-demand&gt;" AnswerCount="2" CommentCount="6" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10965" PostTypeId="1" AcceptedAnswerId="10970" CreationDate="2016-03-04T22:27:35.950" Score="2" ViewCount="224" Body="&lt;p&gt;The usual LLN I've seen, the theorem states that $1/n \sum u_t \rightarrow^p E(u_t)=\mu$,where the expected value is independent of t. However, I cannot apply it to the exercise below. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the picture, the author seems to be using $ \displaystyle \frac{1}{n} \sum u_t \rightarrow^p \lim_{n \rightarrow \infty}\frac{1}{n} \sum E(u_t)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/fFg2o.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/fFg2o.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Result (3.44) is $Var(\hat u_t^2)=E(\hat u_t^2)=(1-h_t)\sigma^2$, and it's also the result they refer to as 'in the previous exercise', and (3.46) is just the first equation, without the plims.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, what LLN can I apply?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="118" LastEditDate="2016-03-04T23:03:59.030" LastActivityDate="2016-03-05T19:17:35.530" Title="Is this use of a Law of Large Numbers correct?" Tags="&lt;econometrics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10966" PostTypeId="1" CreationDate="2016-03-05T07:32:16.977" Score="2" ViewCount="217" Body="&lt;p&gt;I am considering the Ricardian model. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is an economy with two countries $S,T$. Two goods $a,b$. Each country has linear production technology with labor ($\ell$) as only factor of production. &#xA;$$y_i^j=\alpha_i^j\ell$$&#xA;where $i \in \lbrace a,b\rbrace$ and $j \in \lbrace S,T \rbrace$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\ell_S + \ell_T = 1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The firm's maximization problem is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\max_{\lbrace \ell \rbrace} \pi^j_i = \alpha_i^j\ell p_i-w^j \ell$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are 3 cases to this problem&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Case 1:&lt;/strong&gt; $p_i^j \alpha_i^j &amp;lt;w^j$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\ell = 0$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$y_i^j = 0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Case 2:&lt;/strong&gt; $p_i^j \alpha_i^j &amp;gt; w^j$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\ell = 1$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$y_i^j = \alpha_i^j$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Case 3:&lt;/strong&gt; $p_i^j \alpha_i^j = w^j$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\ell \in [0,1]$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$y_i^j = [0,\alpha^j_i]$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My Question&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Apparently, cases 1 and 2 aren't valid. I'm not sure why. &lt;strong&gt;Can someone explain?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The logic is supposed to be &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;if there is complete specialization then $\ell_S = 1, \ell_T = 0, y_T = 0$ or $L_S = 0, L_T = 1, y_S = 0$, so therefore cases 1 and cases 2 fail&quot; &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I just don't understand this explanation at all and would like a better explanation. What does it mean to &quot;specialize completely&quot;? &lt;/p&gt;&#xA;" OwnerUserId="2679" LastActivityDate="2017-09-01T23:43:42.283" Title="In the Ricardian model, why are two out of 3 cases invalid?" Tags="&lt;international-trade&gt;&lt;international-economics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10967" PostTypeId="2" ParentId="10966" CreationDate="2016-03-05T08:12:08.913" Score="1" Body="&lt;p&gt;To &quot;specialize completely&quot; means a country only produces one of the two goods.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given your firms' (there seem to be four, one for each good in each country) profit maximization problems their optimality conditions are&#xA;$$&#xA;p_i \cdot \alpha_i^j \leq w^j&#xA;$$&#xA;with equality if $l_i^j &amp;gt; 0$. From this, you can easily derive what parameter combinations of $p_i$ and $\alpha_i^j$ will result in conditions when a country specializes completely. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am not sure what you mean by 'fail', and the indices in your workforce notation seem a little off. Perhaps &lt;a href=&quot;https://economics.stackexchange.com/questions/8354/ricardos-theory-of-comparative-advantage&quot;&gt;my detailed discussion of the Ricardian model&lt;/a&gt; can be of benefit. Beware it is not the exact same model as yours. For example, prices are not given exogenously, but they result from a supply and demand equilibrium.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.103" LastActivityDate="2017-02-03T20:27:21.373" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10970" PostTypeId="2" ParentId="10965" CreationDate="2016-03-05T09:28:15.723" Score="2" Body="&lt;p&gt;Are the $\hat{u}_t^2$ independent? If yes, the result is indeed a version of the law of large numbers due to Kolmogorov, and that deals with independent (but not necessarily identically distributed) processes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is the formal statement. Suppose that $\{u_t\}_{t=1}^{\infty}$ is a sequence of independent real-valued random variables that satisfies &#xA;\begin{equation*}&#xA;\sum_{t=1}^{\infty}{\dfrac{Var(u_t)}{t^2}}&amp;lt;\infty&#xA;\end{equation*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then the random variable&#xA;\begin{equation*}&#xA;\dfrac{1}{n} \sum_{t=1}^{n}{[u_t-\mathbb{E}(u_t)]}&#xA;\end{equation*}&#xA;converges to 0 almost surely.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit: the assumption of independence seems stronger than needed, and the following result (an adapted version of the law of large numbers for non-independent processes) might be useful. If $\sigma_{n,m}=Cov(u_n,u_m)$ exists, and if there is $0&amp;lt; \alpha &amp;lt;1$ and $M \in \mathbb{R}$ such that $\sigma_{n,m} &amp;lt; M \alpha^{|n-m|}$ for all $(n,m)$, then&#xA;\begin{equation*}&#xA;\mathbb{P}(|\dfrac{1}{n}\sum_{t=1}^{n}u_t- \dfrac{1}{n}\sum_{t=1}^{n}\mathbb{E}(u_t)|&amp;gt;\epsilon] &amp;lt; \dfrac{M}{n \epsilon^2}&#xA;\end{equation*}&#xA;for any $\epsilon$.&lt;/p&gt;&#xA;" OwnerUserId="4667" LastEditorUserId="4667" LastEditDate="2016-03-05T11:26:22.203" LastActivityDate="2016-03-05T11:26:22.203" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="10972" PostTypeId="1" CreationDate="2016-03-05T10:29:31.647" Score="1" ViewCount="1582" Body="&lt;p&gt;From Perloff, Microecomics, 6th edition (Pg. 75): &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A consumer chooses between bundles of goods by ranking them as to the pleasure&#xA;the consumer gets from consuming each. We summarize a consumer’s ranking using&#xA;a preference relation, such as the consumer weakly prefers Bundle a to Bundle b, if the consumer likes Bundle a at least as much as Bundle b.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given this weak preference relation, we can derive two other relations. If the consumer weakly prefers Bundle a to b, but the consumer does not weakly prefer&#xA;b to a, then we say that the consumer strictly prefers a to b—would definitely&#xA;choose a rather than b if given a choice—which we write as a b.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the consumer weakly prefers a to b and weakly prefers b to a —— then we say that the consumer is indifferent between the bundles, or likes the&#xA;two bundles equally.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;My question is: When you have declared that a consumer weakly prefers A to B, how could you then argue that a consumer could also prefer (weakly) B to A? Aren't they mutually exclusive?&lt;/p&gt;&#xA;" OwnerUserId="6486" LastActivityDate="2016-03-05T10:40:41.700" Title="Consumer choice: How could a consumer weakly prefer A to B *and* B to A?" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10973" PostTypeId="2" ParentId="10972" CreationDate="2016-03-05T10:40:41.700" Score="2" Body="&lt;p&gt;No, weak orderings are not mutually exclusive, but strict orderings are, exactly as for the usual comparison of real numbers: you can have $x \geq y$ and $y \geq x$ (if $x=y$), but $x&amp;gt;y$ and $y&amp;gt;x$ are incompatible with each other.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The weak orderings $A \succeq B$ and $B \succeq A$ mean that the decision-maker is indifferent between $A$ and $B$: he might therefore choose any of these options indifferently.&lt;/p&gt;&#xA;" OwnerUserId="4667" LastActivityDate="2016-03-05T10:40:41.700" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10974" PostTypeId="1" AcceptedAnswerId="10975" CreationDate="2016-03-05T12:13:42.777" Score="0" ViewCount="485" Body="&lt;p&gt;&lt;em&gt;For solving this question, which assumptions/axioms should be used and should Lagrange multipliers be equal or different?&lt;/em&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Think of an agent with utility function u() and wealth w. Assume that u() is continuus and represents a locally non-satiated preference relation. The utility maximization problem of this agent can be stated as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;max  u(x)&#xA; s.t. p.x ≤ w&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand, when the agent’s constraint is to attain a utility level h, her expenditure minimization problem can be stated as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;min  p.x &#xA;s.t. u(x) ≥ h&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Show that if x* is optimal in the utility maximization problem when w &gt; 0, then x* is optimal in the expenditure minimization problem when the constraint is to attain a utility level u(x∗).&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="7455" LastActivityDate="2016-03-05T14:28:16.350" Title="Duality Proof - Consumer Theory" Tags="&lt;duality&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10975" PostTypeId="2" ParentId="10974" CreationDate="2016-03-05T13:12:04.360" Score="1" Body="&lt;p&gt;Let us prove it by contradiction. Suppose that $x^{*}$ is optimal for the first problem but not for the second. Since $x^{*}$ is not optimal for the expenditure minimization problem, there exists a bundle $x$ such that &#xA;\begin{equation*}&#xA;u(x) \geq u(x^{*}) \text{ and } p \cdot x &amp;lt; p \cdot x^{*}&#xA;\end{equation*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since the function $y \rightarrow p.y$ is continuous, and $p \cdot x &amp;lt; p \cdot x^{*}$, there exists $\epsilon&amp;gt;0$ such that $\|y-x\|&amp;lt;\epsilon \Rightarrow p \cdot y &amp;lt; p \cdot x^{*}$. In addition, since preferences are locally nonsatiated, there exists $y$ such that $\|y-x\|&amp;lt;\epsilon$ and $u(y)&amp;gt;u(x)$. Take such a $y$. We have \begin{equation*}&#xA;u(y) &amp;gt; u(x) \geq u(x^{*}) \text{ and } p \cdot y &amp;lt; p \cdot x^{*} \leq w&#xA;\end{equation*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or, in other words,&#xA;\begin{equation*}&#xA;u(y)&amp;gt;u(x^{*}) \text{ and } p.y &amp;lt; w&#xA;\end{equation*}&#xA;which contradicts the assumption that $x^{*}$ is a solution of the utility maximization problem.&lt;/p&gt;&#xA;" OwnerUserId="4667" LastEditorUserId="4667" LastEditDate="2016-03-05T14:28:16.350" LastActivityDate="2016-03-05T14:28:16.350" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10977" PostTypeId="1" AcceptedAnswerId="10980" CreationDate="2016-03-05T18:14:53.457" Score="7" ViewCount="439" Body="&lt;p&gt;&lt;a href=&quot;http://fivethirtyeight.com/features/can-you-win-this-hot-new-game-show/&quot;&gt;This question comes from this website that I peruse often.&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Two players go on a hot new game show called “Higher Number Wins.” The two go into separate booths, and each presses a button, and a random number between zero and one appears on a screen. (At this point, neither knows the other’s number, but they do know the numbers are chosen from a standard uniform distribution.) They can choose to keep that first number, or to press the button again to discard the first number and get a second random number, which they must keep. Then, they come out of their booths and see the final number for each player on the wall. The lavish grand prize — a case full of gold bullion — is awarded to the player who kept the higher number. Which number is the optimal cutoff for players to discard their first number and choose another? Put another way, within which range should they choose to keep the first number, and within which range should they reject it and try their luck with a second number?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This is either a very weird auction problem with symmetric players (I also assume the players are risk-neutral) or a very odd lotteries/game-theory game.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How would you approach this question mathematically speaking and what answer do you get for it? There's no prize for &lt;em&gt;me&lt;/em&gt; getting the right answer to the site's riddle, I'm just curious. My intuition tells me that the optimal cutoff is 0.5, since you have a 50-50 chance of being higher or lower than your opponent's number, regardless of whether he/she repicks their random number or not, but I am not sure.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2019-01-04T03:09:55.300" Title="Optimal Random Bids" Tags="&lt;microeconomics&gt;&lt;game-theory&gt;&lt;auctions&gt;" AnswerCount="2" CommentCount="4" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="10979" PostTypeId="2" ParentId="10965" CreationDate="2016-03-05T19:17:35.530" Score="0" Body="&lt;p&gt;A bit more intuitive formulation of a sufficient condition for the  (weak) law of large numbers to hold(which is the one associated with the consistency property), for the average of a collection of non-independent, non-identically distributed random variables with finite variances and covariances, is the following (the &quot;Markov condition&quot;):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\text {Var}\left (\frac 1{n}\sum_{t=1}^n x_t\right) \rightarrow 0 $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This simply says that it is &lt;em&gt;sufficient&lt;/em&gt; that the variance of the average goes to zero, which has intuition. Decomposing,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\text {Var}\left (\frac 1{n}\sum_{t=1}^n x_t\right) = \frac 1{n^2}\sum_{t=1}^n \text {Var}(x_t) +\frac 1{n^2}\sum_{t\neq s} \text {Cov}(x_t,x_s) \rightarrow 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since all variances are finite, the first sum goes to zero. As regards the second sum, if each element is correlated with all others irrespective of how many there are, then this (double) sum has $n^2-n$ strictly non-zero elements, i.e of order $O(n^2)$. If this is the case, then &lt;em&gt;it doesn't&lt;/em&gt; go to zero, and the sufficient condition does not hold. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The easiest way to see this is to assume that all rv's are equicorrelated: if &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\text {Cov}(x_t,x_s) = c\;\forall t,s \implies \text {Var}\left (\frac 1{n}\sum_{t=1}^n x_t\right) = \frac 1{n^2}\sum_{t=1}^n \text {Var}(x_t) +\left(1-\frac 1n\right) c\rightarrow c$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By the way this is how one can glimpse why, with &quot;everybody with everybody&quot; correlation, the sample mean remains a random variable irrespective of the sample size.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So what it takes to obtain the weak $\text{LLN}$?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;We may assume $m-$dependence, namely that each rv is correlated only with $m$ others, with $m$ being a fixed number. This will send the variance of the sample mean to zero.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We may assume that as the sample size increases, the number of non-zero covariances increases with it, but not at the same rate: $m(n)/n \rightarrow 0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we want to maintain that each rv is correlated with every other (which is the case of the OP since it deals with estimation residuals), then we arrive at the condition stated in @Oliv's answer: it has intuitive meaning (and justification) as &quot;covariance diminishes as distance increases&quot; only when there is a natural ordering of the sample (temporal or spatial). When the sample is bona-fide cross-sectional and one can re-order the rv's at will, the condition is just mathematical.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2016-03-05T19:17:35.530" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10980" PostTypeId="2" ParentId="10977" CreationDate="2016-03-05T19:51:08.867" Score="6" Body="&lt;p&gt;First I will just show that the 0.5 (or &lt;span class=&quot;math-container&quot;&gt;$\frac{1}{2}$&lt;/span&gt;) cut-off point does not work as a symmetric equilibrium, then you can decide for yourself if you want to think about the problem or read the complete answer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let us denote the cut-off points by &lt;span class=&quot;math-container&quot;&gt;$c_x,c_y$&lt;/span&gt;. Suppose both players use the strategy &lt;span class=&quot;math-container&quot;&gt;$c = \frac{1}{2}$&lt;/span&gt;. Let us denote the numbers of player &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; respectively by &lt;span class=&quot;math-container&quot;&gt;$x_1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$y_1$&lt;/span&gt; and their potential second number by &lt;span class=&quot;math-container&quot;&gt;$x_2$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$y_2$&lt;/span&gt;. Suppose &lt;span class=&quot;math-container&quot;&gt;$x_1 = \frac{2}{3}$&lt;/span&gt;. By keeping this the probability that player &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; wins is&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;P\left(\frac{1}{2} \leq y_1 &amp;lt; \frac{2}{3} \right) + &#xA;P\left(y_1 &amp;lt; \frac{1}{2}\right) \cdot P\left(y_2 &amp;lt; \frac{2}{3}\right) =&#xA;\frac{1}{6} + \frac{1}{2} \cdot \frac{2}{3} = \frac{1}{2}.&#xA;$$&lt;/span&gt;&#xA;This also means that &lt;span class=&quot;math-container&quot;&gt;$\frac{2}{3}$&lt;/span&gt; is &lt;strong&gt;the median of this distribution&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now suppose &lt;span class=&quot;math-container&quot;&gt;$x_1 = \frac{1}{2}$&lt;/span&gt;. By keeping this the probability that player &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; wins is&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;P\left(y_1 &amp;lt; \frac{1}{2}\right) \cdot P\left(y_2 &amp;lt; \frac{1}{2}\right) =&#xA;\frac{1}{2} \cdot \frac{1}{2} = \frac{1}{4}&#xA;$$&lt;/span&gt;&#xA;But if he would discard &lt;span class=&quot;math-container&quot;&gt;$x_1 = \frac{1}{2}$&lt;/span&gt; he has probability&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;P\left(y_1 &amp;lt; \frac{1}{2}\right) \cdot P\bigg(x_2 &amp;gt; y_2\bigg) + P\left(y_1 \geq \frac{1}{2}\right) \cdot P\bigg(x_2 &amp;gt; y_1\bigg) = \frac{3}{8}&#xA;$$&lt;/span&gt;&#xA;of winning. &lt;span class=&quot;math-container&quot;&gt;$\frac{3}{8} &amp;gt; \frac{1}{4}$&lt;/span&gt; so keeping &lt;span class=&quot;math-container&quot;&gt;$x_1 = \frac{1}{2}$&lt;/span&gt; (and its environs) is not optimal therefore it cannot be an equilibrium move. &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;SPOILER ALERT&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If player &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; has a cut-off &lt;span class=&quot;math-container&quot;&gt;$c_y$&lt;/span&gt; and player &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; draws &lt;span class=&quot;math-container&quot;&gt;$x_1 = c_y$&lt;/span&gt; and keeps it the probability that player &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; wins is&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;P(y_1 &amp;lt; c_y) \cdot P(y_2 &amp;lt; c_y ) = c_y \cdot c_y = c_y^2.&#xA;$$&lt;/span&gt;&#xA;If player &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; where to discard &lt;span class=&quot;math-container&quot;&gt;$x_1$&lt;/span&gt; the probability that he wins is&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{eqnarray*}&#xA;P(y_1 \geq c_y) \cdot P(x_2 &amp;gt; y_1) + P(y_1 &amp;lt; c_y) \cdot P(x_2 &amp;gt; y_2) &amp;amp; = &amp;amp; &#xA;(1 - c_y) \cdot \left(1- \frac{1 + c_y}{2} \right) + c_y \cdot \frac{1}{2}&#xA;\end{eqnarray*}&lt;/span&gt;&#xA;Suppose there is a symmetric equilibrium, that is &lt;span class=&quot;math-container&quot;&gt;$c_x = c_y = c$&lt;/span&gt;. &lt;br&gt;&#xA; (I don't think other equilibria exist but I didn't prove it.) &lt;br&gt; Since probability of winning is continuous in the value of &lt;span class=&quot;math-container&quot;&gt;$x_1$&lt;/span&gt;, the cut-off value &lt;span class=&quot;math-container&quot;&gt;$c$&lt;/span&gt; is such that if &lt;span class=&quot;math-container&quot;&gt;$x_1 = c$&lt;/span&gt; then the probability of winning is equal when &lt;span class=&quot;math-container&quot;&gt;$x_1$&lt;/span&gt; is kept and when it is discarded. This means that&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{eqnarray*}&#xA;P(y_1 &amp;lt; c) \cdot P(y_2 &amp;lt; c) &amp;amp; = &amp;amp; P(y_1 \geq c) \cdot P(x_2 &amp;gt; y_1)&#xA;+ P(y_1 &amp;lt; c) \cdot P(x_2 &amp;gt; y_2) \\&#xA;\\&#xA;c \cdot c &amp;amp; = &amp;amp; (1 - c) \cdot \left(1 - \frac{1+c}{2}\right) + c \cdot \frac{1}{2} \\&#xA;\\&#xA;c^2 &amp;amp; = &amp;amp; \frac{1}{2} - c  + \frac{c^2}{2} + \frac{c}{2} \\&#xA;\\&#xA;\frac{1}{2} \cdot c^2 + \frac{c}{2} - \frac{1}{2} &amp;amp; = &amp;amp; 0 \\&#xA;\\&#xA;c &amp;amp; = &amp;amp; \frac{\sqrt{5} - 1}{2}.&#xA;\end{eqnarray*}&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="4251" LastEditDate="2019-01-04T03:09:55.300" LastActivityDate="2019-01-04T03:09:55.300" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="10981" PostTypeId="1" CreationDate="2016-03-05T19:55:40.503" Score="1" ViewCount="298" Body="&lt;p&gt;I'm wondering if anyone can give me some intuition about technical progress. I can buy the idea that factors improve in quality over time. So 5 workers and/or 5 machines in 1990 can produce more than the equivalent amount in 1970. But the idea of &lt;em&gt;factor specific&lt;/em&gt; technical progress is more problematic. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the production function&#xA;$Y = [\pi❨A^N N❩^\rho+❨1-\pi❩❨A^K K❩^\rho ]^{\rho^{-1}}$&#xA;what would be a technical improvement that &lt;em&gt;just&lt;/em&gt; improves labor $A^N$ or &lt;em&gt;just&lt;/em&gt; improved capital $A^K$? can anyone give a specific example of such a technology?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;thanks&lt;/p&gt;&#xA;" OwnerUserId="7524" LastActivityDate="2016-03-05T19:55:40.503" Title="Examples of technical progress" Tags="&lt;production-function&gt;&lt;technology&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10982" PostTypeId="1" AcceptedAnswerId="10988" CreationDate="2016-03-05T21:58:01.413" Score="2" ViewCount="1212" Body="&lt;p&gt;Suppose I have two markets, Home and Foreign. Suppose that &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{p_1}{p_2} = \frac{c_2^F}{c_1^F}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{p_1}{p_2} = \frac{c_2^H}{c_1^H}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Supposedly I am supposed to be able to show &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{p_1}{p_2} = \frac{c_2^F + c_2^H}{c_1^F+ c_1^H}$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But by rules of simple algebra, it would seem &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{p_1}{p_2} = \frac{c_2^Fc_1^H+c_1^Fc_2^H}{2c_1^Fc_1^H}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;MY QUESTION:&lt;/strong&gt;&#xA;What step am I missing to get&#xA;$$\frac{p_1}{p_2} = \frac{c_2^F + c_2^H}{c_1^F+ c_1^H}$$ ?&lt;/p&gt;&#xA;" OwnerUserId="2679" LastActivityDate="2016-05-16T04:25:53.823" Title="How does one derive relative demand?" Tags="&lt;macroeconomics&gt;&lt;international-trade&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10983" PostTypeId="2" ParentId="9229" CreationDate="2016-03-05T22:57:50.413" Score="3" Body="&lt;p&gt;I think the &quot;first stage&quot; would be $L_{it}$ on $\tilde{L_{it}}$. In the Peri paper above, the Bartik instrument is actually just included directly as $\tilde{L_{it}}$ as a control variable because it is an exogenous regressor in that form. If you are running labor supply elasticity regressions (and thus want to see the effect of $L_{it}$ itself on labor supply), if you can argue that the Bartik instrument is in fact exogenous, you can use it as an instrument for $L_{it}$. But, putting it directly in, as you suggested, would amount to something very similar (i.e., the Reduced Form rather than the Structural Eq.). &lt;/p&gt;&#xA;" OwnerUserId="7544" LastEditorUserId="2938" LastEditDate="2016-03-07T10:42:16.553" LastActivityDate="2016-03-07T10:42:16.553" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10984" PostTypeId="1" CreationDate="2016-03-06T00:38:54.770" Score="5" ViewCount="88" Body="&lt;p&gt;Part of how high frequency trading works, is by taking advantage of millisecond advantages over other traders in communicating with the stock exchange. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To gain these advantages, high frequency traders have moved their servers closer to the stock exchange's server, or &lt;a href=&quot;http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/10736960/High-frequency-trading-when-milliseconds-mean-millions.html&quot; rel=&quot;nofollow&quot;&gt;have rebuilt a a Chicago - New York IP cable to be straighter&lt;/a&gt; and thus reduce latency by milliseconds. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To create a 'fair playing field', &lt;a href=&quot;http://www.wired.com/2012/08/ff_wallstreet_trading/&quot; rel=&quot;nofollow&quot;&gt;traders can put all their servers in the same building, and each be given the same length of cabling.&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;HFT has been criticised essential for giving the high frequency traders an unfair advantage. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is - why not just make the stock exchange work on a one second 'tick'. ie. during that second trades are queued up, and on the tick, they are all executed simultaniously. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This would prevent any - 'see other people's trades and buy them before they do' type trades.&lt;/p&gt;&#xA;" OwnerUserId="96" LastEditorUserId="44" LastEditDate="2016-10-14T12:15:06.810" LastActivityDate="2016-11-13T14:51:46.567" Title="What's wrong with have a 'one second tick' on stock market trades, to prevent high frequency trading?" Tags="&lt;stock-market&gt;&lt;arbitrage&gt;" AnswerCount="1" CommentCount="2" ClosedDate="2016-11-14T20:49:15.867" ContentLicense="CC BY-SA 3.0" />
  <row Id="10986" PostTypeId="2" ParentId="10977" CreationDate="2016-03-06T01:28:42.120" Score="2" Body="&lt;p&gt;Suppose person 1 chooses a cutoff of $c_1$ and person 2 chooses a cutoff of $c_2$, with $c_2\ge c_1$. Let $p_1(x)$ be the probability that person 1's final number is no greater than $x$. $p_1(x)$ equals $c_1x$ if $x&amp;lt;c_1$ and $c_1x+x-c_1$ otherwise. Define $p_2(x)$ similarly. Now plot $p_2(x)$ against $p_1(x)$ on a parametric plot for $0\le x\le1$. The result is three line segments:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;One from $(0,0)$ to $(c_1^2,c_1c_2)$, corresponding to $0\le x\le c_1$;&lt;/li&gt;&#xA;&lt;li&gt;One from $(c_1^2,c_1c_2)$ to $(c_1c_2+c_2-c_1,c_2^2)$, corresponding to $c_1\le x\le c_2$;&lt;/li&gt;&#xA;&lt;li&gt;One from $(c_1c_2+c_2-c_1,c_2^2)$ to $(1,1)$, corresponding to $c_2\le x\le1$.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;These three line segments divide the unit square into two parts. The area of the part under the graph is the probability that person 1 has the higher number. Some geometry shows that this area is $\frac{1}{2}+\frac{1}{2}(c_2-c_1)(c_1c_2+c_2-1)$. For there to be a stable equilibrium, both partial derivatives of this must be zero, i.e. $$1-c_2-2c_1c_2+c_2^2=0\\-1-c_1+2c_2-c_1^2+2c_1c_2=0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Adding the equations shows that $(c_2-c_1)(1+c_1+c_2)=0$, which is only possible if $c_1=c_2$. Substituting back into one of the equations, $1-c_1-c_1^2=0$, so the only stable equilibrium is at $c_1=c_2=\frac{\sqrt{5}-1}{2}$.&lt;/p&gt;&#xA;" OwnerUserId="7545" LastActivityDate="2016-03-06T01:28:42.120" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10987" PostTypeId="1" AcceptedAnswerId="10996" CreationDate="2016-03-06T01:58:50.073" Score="5" ViewCount="123" Body="&lt;p&gt;A studio in Ho Chi Minh city center : roughly 500 USD/month&#xA;Average salary in Vietnam : 300 USD/month&#xA;I have noticed the same thing in other &quot;poor&quot; countries : a studio rent is so expensive compared to the average salary. Is there an explanation ? And how do vietnamese people pay their rent ??&lt;/p&gt;&#xA;" OwnerUserId="7546" LastActivityDate="2016-03-06T22:45:46.777" Title="How come the average studio rent in Vietnam is bigger than the average salary?" Tags="&lt;wages&gt;&lt;micro-data&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="10988" PostTypeId="2" ParentId="10982" CreationDate="2016-03-06T04:53:34.573" Score="2" Body="&lt;p&gt;Take your two beginning expressions and cross multiply them:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$p_1 c_1^F = p_2 c_2^F$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$p_1 c_1^H = p_2 c_2^H$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then subtract each right hand side for both equations. Multiply one of the expressions by $-1$ on each side:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$p_1 c_1^F - p_2 c_2^F = 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$-p_1 c_1^H + p_2 c_2^H = 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And set each expression equal to each other:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$p_1 c_1^F - p_2 c_2^F = -p_1 c_1^H + p_2 c_2^H$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Put the $p_1$ and $p_2$ terms together:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$p_1 c_1^F + p_1 c_1^H = p_2 c_2^F + p_2 c_2^H$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Factor the $p_1$ and $p_2$ terms and rearrange:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$p_1 (c_1^F + c_1^H) = p_2 (c_2^F + c_2^H) \implies \frac{p_1}{p_2} = \frac{c_2^F + c_2^H}{c_1^F+ c_1^H}$$&lt;/p&gt;&#xA;" OwnerUserId="4251" LastEditorUserId="4251" LastEditDate="2016-05-16T04:25:53.823" LastActivityDate="2016-05-16T04:25:53.823" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10990" PostTypeId="1" CreationDate="2016-03-06T15:14:21.217" Score="2" ViewCount="240" Body="&lt;p&gt;I'm planning to teach an undergraduate course in industrial organization. Calculus is not a prerequisite. I also want to avoid doing too much game theory in it so as to not be duplicative of a similar course offering in game theory. Any recommendations on textbooks?&lt;/p&gt;&#xA;" OwnerUserId="48" LastEditorUserId="48" LastEditDate="2016-03-06T19:01:05.467" LastActivityDate="2016-03-06T19:01:05.467" Title="Textbook for industrial organization without calculus" Tags="&lt;industrial-organisation&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10991" PostTypeId="2" ParentId="10990" CreationDate="2016-03-06T15:52:35.453" Score="3" Body="&lt;p&gt;Luis M Cabral : Introduction to Industrial Organization :- This book has a combo of game-theory and Cost curves. It explains strategic concepts using no calculus.&#xA;However, if you want more theoretical perspective , I would suggest reading the research papers (I have a course named Strategy , most of my readings are the journal papers on JSTOR or elsewhere). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you could just expand on what your course comprises of , etc ;  or give a link to the university website , may be I can tell you more books I know of. &lt;/p&gt;&#xA;" OwnerUserId="7521" LastActivityDate="2016-03-06T15:52:35.453" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="10993" PostTypeId="1" CreationDate="2016-03-06T19:16:43.903" Score="5" ViewCount="729" Body="&lt;p&gt;I understood the general idea of divinity: that it helps to rule out &quot;unreasonable&quot; equilibria.  However, can someone explain it in more details with simple examples so that a senior undergrad student understands it?&lt;/p&gt;&#xA;" OwnerUserId="7550" LastEditorUserId="11590" LastEditDate="2019-05-19T16:59:17.670" LastActivityDate="2019-05-19T16:59:17.670" Title="Divinity for Dummies" Tags="&lt;game-theory&gt;&lt;bayesian-game&gt;&lt;signaling&gt;&lt;equilibrium-selection&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10994" PostTypeId="2" ParentId="10987" CreationDate="2016-03-06T19:20:44.207" Score="1" Body="&lt;p&gt;One reason could be price discrimination. For instance, the same apartment is not rented the same price for locals vs (rich) foreigners. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Other potential reasons: &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;the apartment could also be furnished or designed specifically for rich people (product differentiation); &lt;/li&gt;&#xA;&lt;li&gt;the given price could be a base price subject to harsh negotiation;&lt;/li&gt;&#xA;&lt;li&gt;locals may have access to better information on the rental market and may find better opportunities. &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="6168" LastActivityDate="2016-03-06T19:20:44.207" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10995" PostTypeId="1" AcceptedAnswerId="10997" CreationDate="2016-03-06T22:24:02.737" Score="3" ViewCount="68" Body="&lt;p&gt;Here we have two agents who can spend their time doing some group activity ($h$) or staying at home ($l$). Each agent $i$ is trying to maximize their respective dynamic programming problem:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{align}&#xA;&amp;amp; \max \sum^\infty_{t=0} \beta^t h^{\alpha_i}l_i^{1-\alpha_i} \\&#xA;&amp;amp; \text{s.t.} \quad h_i + l_i = \bar{T} \\&#xA;&amp;amp; h = \min\left\{h_i, h_{-i}\right\} &#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Is this problem well defined? That is, is there a solution/does the question make sense economically?&lt;/li&gt;&#xA;&lt;li&gt;Is there an equilibrium where $h_i = h_{-i}$, and if so, when? Only when $\alpha_i = \alpha_{-i}$?&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;(Note that typical Inada conditions and non-negativity constraints apply.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Edit:&lt;/strong&gt; Okay, to make this an actual dynamic programming question (derp), I offer a modified version of this question as well for your perusal:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{align}&#xA;&amp;amp; \max \sum^\infty_{t=0} \beta^t h_t^{\alpha_i}l_i^{1-\alpha_i}k_t\\&#xA;&amp;amp; \text{s.t.} \quad h_{i,t} + l_i = \bar{T} \\&#xA;&amp;amp; h_t = \min\left\{h_{i,t}, h_{-i, t}\right\} \\&#xA;&amp;amp; k_t = (1-\lambda + \frac{h_t}{\bar{T}})k_{t-1} \cdot&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where $k$ is some &quot;capital&quot; stock in the group activity that makes people enjoy the activity more, the more it is done. Obviously $\lambda \in (0,1)$&lt;/p&gt;&#xA;" OwnerUserId="4251" LastEditorUserId="4251" LastEditDate="2016-03-07T00:05:22.263" LastActivityDate="2016-03-07T00:05:22.263" Title="Joint Dynamic Programming: Group Activity" Tags="&lt;utility&gt;&lt;public-economics&gt;&lt;dynamic-programming&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="10996" PostTypeId="2" ParentId="10987" CreationDate="2016-03-06T22:25:30.260" Score="2" Body="&lt;p&gt;The rent figure in the question relates to the &lt;em&gt;centre&lt;/em&gt; of Ho Chi Minh City and it is a fallacy to infer that it is typical of the whole of Vietnam.  There is a body of theory going back to &lt;a href=&quot;https://en.wikipedia.org/wiki/Johann_Heinrich_von_Th%C3%BCnen&quot; rel=&quot;nofollow&quot;&gt;von Thunen&lt;/a&gt; suggesting that land rents will generally fall with distance from a city centre, forming a &lt;a href=&quot;http://www.econport.org/content/handbook/Urbanecon/land.html&quot; rel=&quot;nofollow&quot;&gt;rent gradient&lt;/a&gt;. Given a free market in land and property, residents and entrepreneurs will choose where to live or site their businesses with regard &lt;em&gt;both&lt;/em&gt; to price and to costs of travel and transport, and this tends to result in such a gradient in land rents.  Property rents will depend on the size and type of property as well as land rents per unit of area, but otherwise similar properties will tend to be cheaper with greater distance from a city centre.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the case of Ho Chi Minh City, this &lt;a href=&quot;https://openknowledge.worldbank.org/bitstream/handle/10986/2826/669160ESW0P1130Review000Full0report.pdf?sequence=1&quot; rel=&quot;nofollow&quot;&gt;World Bank Report&lt;/a&gt; indicates (p 153 Section 3.4.1. Prices) that the market for land is subject to considerable government intervention, but that land prices are nevertheless much lower in peripheral districts than in the city centre.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;While the factors listed by emeryville may also play a part, a large part of the answer to the question &quot;How do Vietnamese people pay their rent?&quot; is probably therefore that most poorer people do not live in the parts of large cities where the rents are highest.&lt;/p&gt;&#xA;" OwnerUserId="1417" LastEditorUserId="1417" LastEditDate="2016-03-06T22:45:46.777" LastActivityDate="2016-03-06T22:45:46.777" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10997" PostTypeId="2" ParentId="10995" CreationDate="2016-03-06T23:18:51.227" Score="1" Body="&lt;p&gt;If I understand correctly the temporal dimension is merely a distraction as agents face a separate optimization problem every round with no intertemporal budget constraint. Hence&#xA;\begin{align}&#xA;&amp;amp; \max_{h_i} h^{\alpha_i}l_i^{1-\alpha_i} \\&#xA;&amp;amp; \text{s.t.} \quad h_i + l_i = \bar{T} \\&#xA;&amp;amp; h = \min\left\{h_i, h_{-i}\right\} &#xA;\end{align}&#xA;A continuous best response function exists for each agent:&#xA;$$&#xA;BR_i(h_{-i}) = \min\left(\alpha_i \cdot \bar{T}; h_{-i} \right)&#xA;$$&#xA;The equilibrium is&#xA;$$&#xA;h_1 = h_2 = \min_i \alpha_i \cdot \overline{T}.&#xA;$$&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2016-03-06T23:49:24.357" LastActivityDate="2016-03-06T23:49:24.357" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="10998" PostTypeId="1" CreationDate="2016-03-07T08:46:01.510" Score="0" ViewCount="1621" Body="&lt;p&gt;What is the difference between government spending on physical capital and investment spending by government on physical capital?&lt;/p&gt;&#xA;" OwnerUserId="7555" LastActivityDate="2016-03-07T17:39:56.190" Title="Government Spending vs. Investment Spending" Tags="&lt;gdp&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11000" PostTypeId="1" CreationDate="2016-03-07T13:07:12.130" Score="0" ViewCount="621" Body="&lt;p&gt;This question is considering an AD-AS model, with Price on the Y-axis and Real GDP on the X axis. The AS is composed of the Keynesian (horizontal), intermediate (upward sloping) and classical (vertical range.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I read that one explanation for the upward slope of the intermediate range is that as price level increases, output prices may increase beyond input price (due to rigidity). Hence, real value of inputs/costs falls, and it becomes more profitable to produce the good, and hence output increases.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regarding this uneven increase in the nominal value of outputs and inputs, are they both reflected in the y-axis? Meaning, does the y-axis's aggregation of price contain both intermediate as well as final goods, or is it merely an estimation of final goods. I would think that in the former case, the rise in GPL on the graph (inducing increase in real GDP) contains both increases in output and input. In the latter case, the rise in GPL contains only output price increases, but the increase in input prices which lags behind is reflected off the graph.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would think that in both cases, whether the increase in input prices is reflected on the y axis or not, the shape of the intermediate range still holds. Hence, is may not be significant. Is it simply a choice of what metric (CPI, etc.) I use to estimate price on my y axis?&lt;/p&gt;&#xA;" OwnerUserId="7559" LastEditorUserId="2776" LastEditDate="2016-09-04T18:00:51.393" LastActivityDate="2016-09-04T18:00:51.393" Title="Significance of Y-axis in Aggregate Supply curve (AD-AS model)" Tags="&lt;macroeconomics&gt;&lt;price-level&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11003" PostTypeId="1" CreationDate="2016-03-07T15:41:53.280" Score="13" ViewCount="1244" Body="&lt;p&gt;Can someone explain the difference between contract theory and mechanism design?&lt;/p&gt;&#xA;" OwnerUserId="7562" LastEditorUserId="20993" LastEditDate="2019-02-06T01:26:18.173" LastActivityDate="2019-04-05T03:02:12.300" Title="What is the difference between contract theory and mechanism design?" Tags="&lt;game-theory&gt;&lt;labor-economics&gt;&lt;mechanism-design&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="11004" PostTypeId="2" ParentId="11003" CreationDate="2016-03-07T15:51:53.153" Score="11" Body="&lt;p&gt;Contracts are a subset of all mechanisms where agreements are enforcable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An example of a mechanism that is not a contract: &lt;br&gt;&#xA;A second price auction (or Vickrey auction) is a truth-telling mechanism where the enforcability of contracts is not required. In the truth-telling equilibrium no one has any incentive to change their bid, no matter the outcome. This is not because changing the bid would be a violation of contract and result in penalties.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2019-02-06T07:22:57.337" LastActivityDate="2019-02-06T07:22:57.337" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="11006" PostTypeId="1" AcceptedAnswerId="11007" CreationDate="2016-03-07T17:30:33.963" Score="2" ViewCount="43" Body="&lt;p&gt;I don't have anything even close to what would be considered formal education in terms of economics, so the term &quot;personal inflation,&quot; is just something I completely made up. What I mean by personal inflation is that, in terms of living condition, 1000$$ given to someone who is already a millionaire isn't going to be worth very much because, compared to the amount of money that person already had before, 1000$ isn't very much money. However, if that same 1000$ were to be given to someone who had little to no money, the money would be valued at much more and raise the living condition, for at least a little while, of that person much more than it would the millionaire. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What my questions is regarding is what the better term for this &quot;definition&quot; that is explained above is, and/or whether there are terms the fit this description above fairly well, but are slightly different.&lt;/p&gt;&#xA;" OwnerUserId="6249" LastActivityDate="2016-03-07T17:34:53.363" Title="Is there an economic term that means the same thing as &quot;personal inflation&quot;" Tags="&lt;microeconomics&gt;&lt;inflation&gt;&lt;economic-terms&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11007" PostTypeId="2" ParentId="11006" CreationDate="2016-03-07T17:34:53.363" Score="2" Body="&lt;p&gt;What you describe is called &quot;&lt;em&gt;decreasing marginal utility of income&lt;/em&gt;&quot;. Marginal utility is just an economist's way of saying the benefit you got out of the last unit of something, and decreasing because we think this might be lower at higher levels of income. &lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2016-03-07T17:34:53.363" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11008" PostTypeId="2" ParentId="10998" CreationDate="2016-03-07T17:39:56.190" Score="1" Body="&lt;p&gt;Government spending is the spending by the government on goods and services (non-capital goods). This means that the government buying physical capital would not be included in government spending, and would be included in investment spending.&lt;/p&gt;&#xA;" OwnerUserId="5825" LastActivityDate="2016-03-07T17:39:56.190" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11011" PostTypeId="2" ParentId="11000" CreationDate="2016-03-07T19:25:32.480" Score="1" Body="&lt;p&gt;I didn't quite well understood your question, but from what I could make of it I have answered the relation behind the formation of the Short run aggregate supply &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the short run, nominal rigidities , and/or imperfect information, make the AS&#xA;curve positively sloped (SRAS - Short run aggregate supply)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/CzDEE.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/CzDEE.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The position of the SRAS curve is determined by the factors &#xA;contributing to equilibrium in the labour market. In particular, an increase&#xA;in the expected price level makes workers bargain for higher wages (for&#xA;any given unemployment rate). The increase in the wage raises the actual&#xA;price that firms set. As a result, an increase in the expected price level&#xA;causes the AS curve to shift upwards&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Diagrammatically , the SRAS curve should shift upwards ; &#xA;&lt;a href=&quot;https://i.stack.imgur.com/ocNcQ.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/ocNcQ.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/hVLZE.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/hVLZE.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This equation states that the deviation of the actual price level from the&#xA;expected price level, P – Pe, is proportional to the deviation of output&#xA;from its natural level, Y – Yn&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you are confused between Workers negotiation and AS fall or rise - you should read about the WS-PS model. The WS stands for wage setting, PS for price setting.&lt;/p&gt;&#xA;" OwnerUserId="7521" LastEditorUserId="7521" LastEditDate="2016-03-09T18:24:45.990" LastActivityDate="2016-03-09T18:24:45.990" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11012" PostTypeId="1" AcceptedAnswerId="11017" CreationDate="2016-03-07T19:44:40.307" Score="3" ViewCount="1449" Body="&lt;p&gt;I'm studying International Trade and came across this question: Suppose a specific factor model where the global production of something is given by $Q_{w}=Q_{1}(.) + Q_{2}(.)$, with $Q_{1}, Q_{2}$ strictly increasing on all arguments and also strictly concave. So $Q_{w}$ will also be concave. As so, the superior sets of the level curves should be convex. But what I see is that the &lt;em&gt;inferior&lt;/em&gt; set in this case is convex.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What am I not understanding here?&lt;/p&gt;&#xA;" OwnerUserId="7033" LastEditorUserId="2776" LastEditDate="2017-09-20T14:37:28.903" LastActivityDate="2017-09-20T14:37:28.903" Title="Why is the production possibility set convex?" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;general-equilibrium&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11014" PostTypeId="1" CreationDate="2016-03-07T20:44:57.503" Score="6" ViewCount="86" Body="&lt;p&gt;There seems to be research showing that world poverty rates have declined since 1800, see eg &lt;a href=&quot;http://ourworldindata.org/data/growth-and-distribution-of-prosperity/world-poverty/#200-years-of-lifting-the-world-out-of-poverty&quot;&gt;this&lt;/a&gt;. Is there any research on world poverty rates before this period? I am guessing that during this period poverty in much of the world would have gone up as a result of European colonisation.&lt;/p&gt;&#xA;" OwnerUserId="7568" LastEditorUserId="1601" LastEditDate="2016-03-07T23:11:48.177" LastActivityDate="2016-04-15T17:26:04.933" Title="Is there a study of world poverty rates over time pre 1800?" Tags="&lt;reference-request&gt;&lt;poverty&gt;&lt;history&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="11015" PostTypeId="1" CreationDate="2016-03-07T22:13:07.873" Score="1" ViewCount="67" Body="&lt;p&gt;In macro we learn that credibility is very important for a Central Bank (CB), since it allows for less onerous adjustments for the economy. In the recent(?) past, the newspapers have becoming increasingly concerned with ECB missing its target inflation of 2%. However, not every cause for a smaller inflation is a bad one, at current moment. The oil prices have been very low, and this shock to the price-setting curve is not bad, instead it can be seen as an increase in the productivity, increasing the level of the equilibrium output. This may decrease inflation, but does it necessarily bring about the problems of deflation?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, when reading &lt;a href=&quot;http://bruegel.org/2016/01/has-ecb-qe-lifted-inflation/&quot; rel=&quot;nofollow&quot;&gt;this article&lt;/a&gt; on the impact of the QE of the ECB, it seems that they use not Inflation, but Core inflation and Core inflation-adjuted to energy prices to 'filter' the true impact of QE on the price level of the economy. Should we not also look at core inflation and its adjustment for energy prices when assessing the ECB policy efficacy?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="118" LastEditDate="2016-03-07T23:09:26.663" LastActivityDate="2016-09-13T09:13:41.243" Title="Core inflation, QE and credibility of ECB" Tags="&lt;macroeconomics&gt;&lt;inflation&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="11016" PostTypeId="1" CreationDate="2016-03-07T22:13:43.557" Score="2" ViewCount="52" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;(Romer 3.6.b) Consider an Endogenous Growth rate model including capital and knowledge with the following equations of motion and $\beta + \theta &amp;gt; 1$ and $n &amp;gt; 0$&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;\begin{cases}&#xA;Y(t) = [(1-a_k) K(t)]^{\alpha} [A(t)(1-a_L) L(t)]^{1-\alpha}, &amp;amp; 0 &amp;lt; \alpha &amp;lt; 1 \\&#xA;\dot{K}(t) = s Y(t) &amp;amp; 0 &amp;lt; \alpha &amp;lt; 1 \\&#xA;\dot{A}(t) = B[a_k K(t)]^{\beta} [a_L L(t)]^{\gamma} A(t)^{\theta}, &amp;amp; B &amp;gt; 0, \; \beta \geq 0, \; \gamma \geq 0&#xA;\end{cases}&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Show that regardless of the economy's initial conditions, eventually the growth rate of $A(t)$ and $K(t)$ (and hence the growth rate of $Y(t)$) are continuously increasing&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;We have computed&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{\dot{g}_A}{g_A} = \beta g_K + \gamma n - (1 - \theta)g_A $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{\dot{g}_K}{g_K} = (1-\alpha)[g_A + n - g_K] $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and drawn in $(g_A, g_K)$ space the paths of each when $\dot{g}_A = 0$ and $\dot{g}_K = 0$.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is the question asking to show either: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;$\exists t_0, s.t. \; \frac{d}{dt} g_A (t) = \dot{g}_A (t) &amp;gt; 0 $ and $\frac{d}{dt} g_K (t) = \dot{g}_K (t) &amp;gt; 0$ $\;  \forall t \geq t_0$ &lt;/li&gt;&#xA;&lt;li&gt;$\dot{g}_A (t) &amp;gt; 0$ and $\dot{g}_K (t) &amp;gt; 0$ occur infinately often &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;That is, I am not sure if we need $\dot{g}_X (t) &amp;gt; 0$ to hold for all $t \geq t_0$ or if it may fluctuate between positive and negative and hits positive infinite times, I feel the latter is more reasonable to see in the real world so it would suffice to show (but most certainly not the method they intend to solve this problem) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \displaystyle P( \dot{g}_X &amp;gt; 0 \; i.o.) = 1 $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where $i.o = infinately \; often$.  But here have the problem of defining a probability measure on $\dot{g}_X (t)$&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Can we give this the following probability?&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;| growth rate | positive | negative | zero&#xA;| probability |   1/3    |    1/3   |  1/3&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Then summing over all possible initial values (countably infinite)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \sum_{n=0}^{\infty} P(\dot{g}_X &amp;gt; 0) = \sum_{n=0}^{\infty} \frac{1}{3} = \infty $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And by Borel-Cantelli Lemma 2, since the events $A_n := \dot{g}_X &amp;gt; 0$ are independent and the sum of the probabilities is infinity then:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ P( \dot{g}_X &amp;gt; 0 \; i.o.) = 1 $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which tells us that the event the growth rate is positive occurs infinately often.  Would this answer the question?&lt;/p&gt;&#xA;" OwnerUserId="5780" LastEditorUserId="5780" LastEditDate="2016-03-09T02:22:22.667" LastActivityDate="2016-03-09T02:22:22.667" Title="Show the growth rate of technology and capital are eventually continuously increasing" Tags="&lt;macroeconomics&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11017" PostTypeId="2" ParentId="11012" CreationDate="2016-03-07T23:10:56.047" Score="5" Body="&lt;p&gt;Perhaps you are confusing two things.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If $Q_1$ and $Q_2$ denote the production of goods 1 and 2 in a single country and you are in the space defined by them given $L_1 + L_2 = L$ then it is indeed the inferior set (the production possiblity set defined by the feasible $(Q_1,Q_2)$ pairs) that is convex. Formally this means that for all feasible $L_1,L_2,L_1',L_2'$ labor allocations you have&#xA;\begin{eqnarray*}&#xA;\mu \cdot Q_1(L_1) + (1-\mu) \cdot Q_1(L_1') &amp;amp; \leq &amp;amp; &#xA;Q_1(\mu \cdot L_1 + (1- \mu) \cdot L_1') \\&#xA;\\&#xA;\mu \cdot Q_2(L_2) + (1-\mu) \cdot Q_2(L_2') &amp;amp; \leq &amp;amp; &#xA;Q_2(\mu \cdot L_2 + (1- \mu) \cdot L_2').&#xA;\end{eqnarray*}&#xA;As this is equivalent to saying $Q_1$ and $Q_2$ are concave this is true given the condition that you describe. In this situation the function $Q_1 + Q_2$ has no meaning at all. What are we adding up? Ducks and cars? What will be the unit of measurement here?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But if $Q_1$ and $Q_2$ represent the production of a single good in countries 1 and 2 given the  amount of labor allocated and the space is $L_1, L_2$, the curves being levels of $Q_w$, then it is the upper level curves that are convex. You can see this straight away because the marginal products of $L_1$ and $L_2$ are decreasing hence their rate of teachnical substitution is 'decreasing' as well. Formally:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By definition the function $Q_w(L_1,L_2)$ is concave if for all $L_1,L_2,L_1',L_2'$ and for all $\mu \in [0,1]:$&#xA;\begin{eqnarray*}&#xA;\mu \cdot Q_w(L_1,L_2) + (1-\mu) \cdot Q_w(L_1',L_2') &amp;amp; \leq &amp;amp; &#xA;Q_w(\mu \cdot L_1 + (1- \mu) \cdot L_1',\mu \cdot L_2 + (1- \mu) \cdot L_2').&#xA;\end{eqnarray*}&#xA;We know that the functions $Q_1$ and $Q_2$ are concave, meaning&#xA;\begin{eqnarray*}&#xA;\mu \cdot Q_1(L_1) + (1-\mu) \cdot Q_1(L_1') &amp;amp; \leq &amp;amp; &#xA;Q_1(\mu \cdot L_1 + (1- \mu) \cdot L_1') \\&#xA;\\&#xA;\mu \cdot Q_2(L_2) + (1-\mu) \cdot Q_2(L_2') &amp;amp; \leq &amp;amp; &#xA;Q_2(\mu \cdot L_2 + (1- \mu) \cdot L_2').&#xA;\end{eqnarray*}&#xA;Adding these up we get&#xA;\begin{eqnarray*}&#xA;\mu \cdot \left(Q_1(L_1) + Q_2(L_2)\right) + (1-\mu) \cdot \left(Q_1(L_1') + Q_2(L_2')\right) \leq \\&#xA;\leq &#xA;Q_1(\mu \cdot L_1 + (1- \mu) \cdot L_1') + Q_2(\mu \cdot L_2 + (1- \mu) \cdot L_2').&#xA;\end{eqnarray*}&#xA;And since &#xA;$$&#xA;Q_w(L_1,L_2) = Q_1(L_1) + Q_2(L_2)&#xA;$$&#xA;we have&#xA;\begin{eqnarray*}&#xA;\mu \cdot \left(Q_1(L_1) + Q_2(L_2)\right) + (1-\mu) \cdot \left(Q_1(L_1') + Q_2(L_2')\right) \leq \\&#xA;\leq  &#xA;Q_1(\mu \cdot L_1 + (1- \mu) \cdot L_1') + Q_2(\mu \cdot L_2 + (1- \mu) \cdot L_2') \\&#xA;\\&#xA;\mu \cdot \left(Q_w(L_1,L_2)\right) + (1-\mu) \cdot \left(Q_w(L_1',L_2')\right) \leq \\&#xA;\leq &#xA;Q_w(\mu \cdot L_1 + (1- \mu) \cdot L_1',\mu \cdot L_2 + (1- \mu) \cdot L_2').&#xA;\end{eqnarray*}&#xA;which is what we set out to prove. &lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2016-03-08T15:42:31.863" LastActivityDate="2016-03-08T15:42:31.863" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11018" PostTypeId="1" CreationDate="2016-03-08T09:47:49.370" Score="1" ViewCount="21" Body="&lt;p&gt;I try to find the limit of the following expression of a weighted mean of a series of discount rate $\rho_{i}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is the expression ;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\rho_{\eta}\left(t\right)=\frac{\sum_{i}^{N}\rho_{i}\left(\omega_{i}e^{-\rho_{i}t}\right)^{\frac{1}{\eta}}}{\sum_{i}^{N}\left(\omega_{i}e^{-\rho_{i}t}\right)^{\frac{1}{\eta}}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $\omega$ is the weight for each $\rho$ and $t$ stands for time and $\eta$ is intertemporal elasticity of substitiution&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and let's say for $\omega_{i}\rightarrow\rho^{k-1}e^{-\frac{\rho}{\theta}}$ which is so-called Gamma distribution, where $k$ and $\omega$ are shape and scale parameters.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Conceptually, I have understood that continuum limit is the case where $N\rightarrow\infty$ and we should approximate the term by a continuum, which is probably an integral but I can not figure out how to find the continuum limit of this expression. Any suggestion or hint ? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;PS. The question comes from the following paper (page 14, equation 37)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;: &lt;a href=&quot;http://www.nber.org/papers/w18999.pdf&quot; rel=&quot;nofollow&quot;&gt;http://www.nber.org/papers/w18999.pdf&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="2938" LastEditorUserId="2938" LastEditDate="2016-03-08T11:00:59.317" LastActivityDate="2016-03-08T11:00:59.317" Title="Continuum limit of a weighted mean of heterogeneous discount factors" Tags="&lt;discount&gt;&lt;heterogeneity&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11021" PostTypeId="1" CreationDate="2016-03-08T17:05:03.367" Score="0" ViewCount="525" Body="&lt;p&gt;Suppose I have two teachers: Adam and Bob. Suppose Adam takes 20 hours to lecture and 30 hours to grade, while Bob takes 100 hours to lecture and 60 hours to grade. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In absolute terms, Adam is clearly a better teacher because he does the same work in less time. But supposedly they could still benefit from trade and specialization of labor. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why does only relative price and not absolute price matter in international trade models? &lt;/p&gt;&#xA;" OwnerUserId="2679" LastActivityDate="2016-03-08T17:05:03.367" Title="Why does only relative price and not absolute price matter in international trade models?" Tags="&lt;international-trade&gt;&lt;international-economics&gt;" AnswerCount="0" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11022" PostTypeId="1" AcceptedAnswerId="11023" CreationDate="2016-03-08T18:26:43.537" Score="1" ViewCount="108" Body="&lt;p&gt;Can this one-off cases be extended? For instance, if I employ someone to destroy 50 buildings and rebuild them, does that contribute an increase in GDP?&lt;/p&gt;&#xA;" OwnerUserId="6486" LastActivityDate="2016-03-08T18:56:46.933" Title="If I employ someone to destroy a building, what is the net GDP impact?" Tags="&lt;gdp&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11023" PostTypeId="2" ParentId="11022" CreationDate="2016-03-08T18:56:46.933" Score="1" Body="&lt;p&gt;It certainly does affect &lt;strong&gt;DGP&lt;/strong&gt;, because what you destroy is part of the capital base $K_t$, while the building activity is part of gross investment. The capital base is not part of the &lt;strong&gt;DGP&lt;/strong&gt;, while investment $I_t$ is.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A related question is, what is the net effect on the capital base? That will depend on the current value of the buildings being destroyed, compared to the value of the new buildings.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The more interesting question is : how are we to classify the value of demolishing services alone? Labor and capital will be expended to bring down the old structures, so certainly production factors will get rewarded.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From an accounting point of view, these constitutes also part of the cost of the new buildings, and this has a wise economic rationale: the returns from the commercial exploitation of the new buildings, must be evaluated against the total cost incurred so as to be able to exploit them, and this includes the cost of demolishing pre-existing structures.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Do the economics discipline treats such demolishing services the same way? yes, they are also part of gross investment.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume now that we are only demolishing an old building, without building a new one. It seems a little weird to count the cost of demolition as &quot;gross investment&quot; that will increase GDP &lt;em&gt;and&lt;/em&gt; tend to positively offset the reduction of the capital base due to the elimination of the old buildings. Investment to &lt;em&gt;what&lt;/em&gt;? - we have not erected new structures.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Well, what increases here by the demolition &lt;em&gt;is the value of the land&lt;/em&gt;. Why? Because prior to demolition, the land was committed to a specific building, and so the land's uses were restricted. Now that the land is land only, it can be used for many more purposes than before. This has economic value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Usually, when a piece of land has buildings, we see it as a whole, and we don't make the above distinction. But the distinction is there and justifies treating the cost of the demolition alone as investment.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2016-03-08T18:56:46.933" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11025" PostTypeId="1" CreationDate="2016-03-08T20:49:47.560" Score="1" ViewCount="27" Body="&lt;p&gt;I find the current monetary context unprecedented and baffling. On one hand there is no significant inflation, or even deflation. This is occurring against a backdrop of continued dollarization; many countries that do not even do significant business with the US, like Malaysia, are basically converting their wholesale distribution and economy into dollars. At the same time growth seems stagnant with global commodity consumption remaining at similar levels year after year. State-incurred debt seems to be constantly growing, balanced by reduced commercial debt and tightening, which, I guess, is caused by low interest rates giving banks no incentive to lend.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is hard to find any parallels to these conditions in history, sort of the black swan theory of macro economics: every age is different.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there any way to relate the current context to classical economics? Did the classical economists (Adam Smith, David Ricardo and John Stuart Mill) describe or analyze conditions like we have today and explain them?&lt;/p&gt;&#xA;" OwnerUserId="1448" LastActivityDate="2016-03-08T20:49:47.560" Title="Understanding the current monetary context in terms of the classics?" Tags="&lt;macroeconomics&gt;&lt;monetary-policy&gt;&lt;classical-economics&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="11026" PostTypeId="1" CreationDate="2016-03-08T22:21:53.687" Score="1" ViewCount="40" Body="&lt;p&gt;I don't quite get James Stuart Mill's example of cloth, corn and gold in &quot;Elements of Political Economy&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;He supposes that 20 yards of cloth takes the same amount of effort to make as 4 quarters of corn in England, but in Poland the effort to make 4 quarters of corn is the same as that to make 10 yards of cloth.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, supposing that in the beginning corn costs 1 pound per quarter in both places, then the resulting cloth price will be 0.2 pounds in England and 0.4 pounds in Poland. Therefore, the Poles will buy cloth and gold will flow from Poland to England while cloth goes the other direction. This will continue until the price is the same in both places (0.27 pounds for a yard of cloth in both places).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, in that case the corn price will drift out of balance.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where is the equilibrium?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(This example is in Chapter III, Section XV)&lt;/p&gt;&#xA;" OwnerUserId="1448" LastActivityDate="2016-03-08T22:21:53.687" Title="Cloth, Corn and Gold: James Stuart Mill example" Tags="&lt;international-trade&gt;&lt;balance-of-trade&gt;&lt;classical-economics&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11029" PostTypeId="1" AcceptedAnswerId="11071" CreationDate="2016-03-09T11:53:38.167" Score="2" ViewCount="527" Body="&lt;p&gt;From the New Statesman, &lt;a href=&quot;http://www.newstatesman.com/politics/economy/2016/02/coming-storm&quot; rel=&quot;nofollow&quot;&gt;http://www.newstatesman.com/politics/economy/2016/02/coming-storm&lt;/a&gt;,&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;Ever since the collapse of the Bretton Woods system of pegged exchange rates in 1971, the sole guarantee that currencies will maintain their purchasing power, both domestically and abroad, has been confidence in central banks’ discretionary policies. A loss of faith in the consensus model of monetary policy would pitch us into the anchorless world that the architects of the Bretton Woods system always feared.&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I cannot understand the reasoning behind why confidence in central banks' discretionary policies would help currencies maintain their purchasing power.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Moreover, what would be the possible consequences of markets losing their faith in modern central banking?&lt;/p&gt;&#xA;" OwnerUserId="5515" LastActivityDate="2019-09-12T02:35:35.127" Title="Why currency purchasing power is linked to confidence in central banks" Tags="&lt;currency&gt;&lt;monetary-policy&gt;&lt;exchange-rates&gt;&lt;markets&gt;&lt;central-banking&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11032" PostTypeId="1" CreationDate="2016-03-09T14:23:14.267" Score="-2" ViewCount="202" Body="&lt;p&gt;QUESTION: Consider the problem of a monopolist that sells its product in two different markets $m$, with $m=1,2$. Each market has an aggregate demand function given by $1200−α_m\cdot p_m$, where $p_m$ denotes the price in market $m$, and $α_m=m$ measures the responsivity of demand to prices in market $m$. The monopolist's cost function is given by $c(q)=12q^2$, where $q$ denotes the total amount produced for all markets.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The monopolist is owned by a foreign company, so none of the monopolist's profits are received by the consumers in these markets.&#xA;The law allows the monopolist to charge different pricees in different markets, but does not allow any other forms of price discrimination.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;What is the equilibrium level of production in market $2$?&lt;/li&gt;&#xA;&lt;li&gt;What is total consumer surplus in the economy (i.e., taking both markets into account)? &lt;/li&gt;&#xA;&lt;li&gt;Suppose that the government behind market $1$ introduces a tax of $\$100$ per unit on the monopolist's sales in its market (paid by the firm), and that the tax revenue is given back to consumers in market $1$ using lump-sum transfers. Suppose also that no such tax is introduced by the government behind market $2$. Then what is the new equilibrium level of production in market $2$?&lt;/li&gt;&#xA;&lt;li&gt;What is the the new total level of consumer surplus in the economy (including the tax revenues)?&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;WHAT I TRIED:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For each market, (dropping $\_m$):&#xA;          $p^{*} = \text{argmax}_{p}\ (1200-ap)p - 12(1200-ap)^2$&#xA;          or&#xA;          $q^{*} = \text{argmax}_{p}\ q(1200-q)/a - 12q^2.$&#xA;          Took the FOC and tried to solve it.&#xA;          But could not get anywhere (did not get the result - my answer came out wrong)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you don't understand anything or want me to add anything else, please add it as a comment. (There can be a problem with how I entered the symbol or my solution). Also, I am a little new to Stackexchange so any kind of input would help me. Thanks in advance.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;EDIT:My setup was wrong.&#xA;This is the right one:&lt;/strong&gt;&#xA;$$\max_{q_1,q_2}\ {p_1q_1 + p_2q_2 - 12(q_1+q_2)^2}$$&#xA;where&#xA;$$p_1 = (1200-q_1)/a_1$$&#xA;$$p_2 = (1200-q_2)/a_2$$&#xA;Then take FCOs w.r.t $q_1$ and $q_2$ and solve.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;But it's actually a pretty nasty expression since it expands into a polynomial with I think 7 terms.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I figured out the first two, but I need help with the last 2 now.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT: &lt;strong&gt;The first answer came out to be 120.&#xA;The second answer 68400.&#xA;Please give a similar hint on the 3rd and 4th.&lt;/strong&gt; I can't comment.&lt;/p&gt;&#xA;" OwnerUserId="7576" LastEditorUserId="4551" LastEditDate="2016-03-16T22:30:55.073" LastActivityDate="2016-03-16T23:27:41.680" Title="Question on monopolist (involves simple calculus)" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="11033" PostTypeId="1" AcceptedAnswerId="12342" CreationDate="2016-03-09T14:28:38.750" Score="8" ViewCount="2056" Body="&lt;p&gt;I read that if we have quasilinear utility for all consumers, then any pareto optimal allocation maximizes the sum of utility levels of all consumers. That is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\textbf{What we know:}$&#xA;$$1)\quad u^i(m^i,x^i)=m^i+\phi^i(x^i)\; \quad \forall i=1,...,I$$&#xA;$$2)\quad\phi^i(\;)\;\text{is continous and strictly increasing (but not necessarily differentiable)}$$&#xA;$$3)\quad \text{An allocation,}\,x\, \text{satisfies}\;\neg\,\exists\,\hat{x}\; s.t. \;\hat{m}^i+\phi^i(\hat{x}^i)\geq m^i+\phi(x^i)\;\forall i$$&#xA;$$\text{and} \quad \hat{m}^i+\phi^i(\hat{x}^i)&amp;gt; m^i+\phi(x^i)\,\text{for some}\,i$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\textbf{What to show:}$&#xA;$$x\;\text{solves}\;max\sum_{i=1}^Im^i+\phi^i(x^i)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can anyone provide a proof of this? Any help would be greatly appreciated!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\textbf{Edit:}\,$I don't know if this is the right path, but by the strict increasing property of $\phi(\,)$, preferences satisfy local non-satiation, which implies they satisfy the first welfare theorem. Now, If I could figure out whether all pareto optimal allocations are competitive equilibria with quasilinear utility, I may be on to something!  &lt;/p&gt;&#xA;" OwnerUserId="5825" LastEditorUserId="5825" LastEditDate="2016-03-10T14:37:20.127" LastActivityDate="2017-01-24T23:58:28.990" Title="Quasilinear Utility: Pareto Optimality Implies Total Utility Maximization?" Tags="&lt;microeconomics&gt;&lt;pareto-efficiency&gt;&lt;proof&gt;" AnswerCount="3" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11035" PostTypeId="1" CreationDate="2016-03-09T16:00:24.557" Score="2" ViewCount="30" Body="&lt;p&gt;I am trying to wrap my head around Woodford's &quot;Interest and Prices&quot; so I have a question regarding the source of the endogeneity of the money supply in his models. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Post Keynesian view is that loans create deposits which (through full accommodation of the central bank) create reserves, that is both the monetary base and bank created credit are endogenous variables. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, in New Keynesian models, in particular those using the Neo-Wicksellian framework (referencing Wicksell's cumulative process), the supply of money is also endogenous. As far as I understand it the stock of money plays no particular role but changes in it are captured on its effect on prices (an implicit quantity equation so to say). &#xA;My question relates to the source of the endogeneity. Woodford acknowledges the ability of banks to create book money by making loans but does he also subscribe to the view that this then determines the stock of reserves? &#xA;Simply stated, are Post Keynesian and New Keynesian views on the endogeneity of money, ignoring monetary neutrality, the same?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks in advance&lt;/p&gt;&#xA;" OwnerUserId="7586" LastActivityDate="2016-03-09T16:00:24.557" Title="Sources of the endogeneity of money in New Keynesian economics (Woodford)" Tags="&lt;money&gt;&lt;new-keynesian-economics&gt;&lt;endogeneity&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11037" PostTypeId="1" AcceptedAnswerId="11063" CreationDate="2016-03-09T20:08:02.223" Score="1" ViewCount="367" Body="&lt;p&gt;I am unsure of how to think about this negative externality question when there is both tax and free trade. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A country is producing plastic, but it has a negative externality cost of 4 dollars/bottle. The demand is $Q_D=12-P$ and the supply is $Q_S=P$. If a 4 dollars/bottle tax is enacted and the country is opened up to free trade with a world price of 4 dollars, what would the total social surplus be? Based on my calculations, it would be 24 dollars, just the same as when the country has no tax and is open to free trade. Is this correct thinking? Or am I not thinking about the tax and free trade correctly? Thanks.&lt;/p&gt;&#xA;" OwnerDisplayName="user6709" LastActivityDate="2016-03-13T18:26:28.603" Title="Negative Externality with Tax and Free TRade" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="0" ClosedDate="2016-03-12T01:55:20.437" ContentLicense="CC BY-SA 3.0" />
  <row Id="11038" PostTypeId="1" AcceptedAnswerId="11050" CreationDate="2016-03-09T21:48:09.100" Score="4" ViewCount="102" Body="&lt;p&gt;I am looking to observe and possibly quantify private investment during election periods.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am interested in any studies, particularly empirical, which discuss the impacts elections can have on the economy in the lead up to them. From what I can tell, there is typically a suppressing impact on investment but I'd like to see some work on it.&lt;/p&gt;&#xA;" OwnerUserId="40" LastEditorUserId="7593" LastEditDate="2016-05-05T18:55:14.207" LastActivityDate="2016-06-08T21:31:51.810" Title="What sort of impact would one expect on investment as a result of an approaching election?" Tags="&lt;reference-request&gt;&lt;investment&gt;&lt;uncertainty&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11040" PostTypeId="1" CreationDate="2016-03-09T23:08:15.517" Score="1" ViewCount="35" Body="&lt;p&gt;In deposits, banks pay an interest to the lender. Similarly, do the CBs pay an interest on bank reserves?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="118" LastActivityDate="2016-03-09T23:08:15.517" Title="Do Central Banks pay interest on reserves?" Tags="&lt;macroeconomics&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11044" PostTypeId="1" CreationDate="2016-03-10T08:52:45.933" Score="3" ViewCount="145" Body="&lt;p&gt;I studied at BA level, that ARIMA(0,1,0) on $y_t$ and ARIMA(0,0,0) on diff($y_t$) are the same models. I am doing the Box–Jenkins model estimation on the historic data of US unemployment rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My results (in R):&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;&amp;gt; arima010a&#xA;&#xA;Call:&#xA;arima(x = munrate, order = c(0, 1, 0))&#xA;&#xA;&#xA;sigma^2 estimated as 19.23:  log likelihood = -2126.56,  aic = 4255.11&#xA;&amp;gt; arima010b&#xA;&#xA;Call:&#xA;arima(x = diff(munrate), order = c(0, 0, 0))&#xA;&#xA;Coefficients:&#xA;      intercept&#xA;         0.0708&#xA;s.e.     0.1618&#xA;&#xA;sigma^2 estimated as 19.23:  log likelihood = -2126.46,  aic = 4256.92&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;As you can see, the information criterion (AIC) differs and the $log(L)$, too. My question is, why do they differ in the two model?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm looking forward to any answer.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;I tried the same later in gretl, and there wasn't any difference between the two models.&lt;/p&gt;&#xA;" OwnerUserId="5017" LastEditorUserId="5017" LastEditDate="2016-03-13T09:43:33.260" LastActivityDate="2016-04-14T15:17:56.807" Title="What is the reason why ARIMA(0,1,0) on $y_t$ and ARIMA(0,0,0) on diff($y_t$) are not identical time-series models?" Tags="&lt;econometrics&gt;&lt;time-series&gt;&lt;statistics&gt;&lt;applied-econometrics&gt;&lt;autoregressive&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11045" PostTypeId="1" CreationDate="2016-03-10T13:07:15.843" Score="3" ViewCount="185" Body="&lt;p&gt;London is surrounded by a &quot;green belt&quot;, a large area which government policy has protected from housing development. The current high cost of housing in London has led some to advocate a selective relaxation of the policy so that housing supply can be increased (there have been reports by &lt;a href=&quot;http://londonfirst.co.uk/time-to-re-evaluate-green-belt-to-help-solve-londons-housing-crisis/&quot; rel=&quot;nofollow&quot;&gt;London First&lt;/a&gt;, the &lt;a href=&quot;http://www.adamsmith.org/research/reports/the-green-noose/&quot; rel=&quot;nofollow&quot;&gt;Adam Smith Institute&lt;/a&gt;, and &lt;a href=&quot;https://england.shelter.org.uk/professional_resources/policy_and_research/policy_library/policy_library_folder/report_when_brownfield_isnt_enough&quot; rel=&quot;nofollow&quot;&gt;Shelter&lt;/a&gt;, although their economic analysis is in some respects not very deep).   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Question&lt;/em&gt;   Can anyone give a reference to an academic paper or official report which provides, for a site anywhere in the world, a full cost-benefit analysis of the conversion of undeveloped land for housing development? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Within &quot;undeveloped land&quot; I include agricultural land, woodland, grassland or parkland, whether accessible to the public or not.  By &quot;full&quot; I mean a cost-benefit analysis which includes at least a serious attempt using environmental valuation techniques to quantify the value of the range of ecosystem services that undeveloped land may provide and may be lost on development, eg drainage, water purification, support for biodiversity, carbon sequestration, and opportunity for recreation.  &lt;/p&gt;&#xA;" OwnerUserId="1417" LastActivityDate="2016-03-10T13:07:15.843" Title="Reference Request: Cost Benefit Analysis of Conversion of Undeveloped Land for Housing" Tags="&lt;reference-request&gt;&lt;environmental-economics&gt;&lt;housing&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11048" PostTypeId="2" ParentId="10693" CreationDate="2016-03-10T17:01:44.457" Score="5" Body="&lt;p&gt;Great set of questions! Here are some ideas:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;What it is?:&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;An investment that pays the investor a negative interest rate is one where he or she pays X money upfront, and receives $X\cdot(1+r)$ later on, where $X\cdot(1+r)&amp;lt;X$, because $r&amp;lt;0$, that is, he or she receives less money than she put in. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A Negative Interest Rate policy is a decision by a Central Bank (&quot;CB&quot;) to set their 'policy rate' at a negative level. This policy rate is usually the rate at which retail banks are allowed to borrow from the central bank or the interest rate the central bank pays retail banks on the deposits it holds for them. If banks have positive balances in their deposits accounts at the CB, they receive less than what they put in. If instead they borrow from the CB, they have to pay it less than what they borrowed. Therefore, you'd expect them to borrow a lot, and lend it out!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Is it good or bad?:&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;At an individual scale, it is good for the borrower and bad for the investor/saver. In the recent experiences of Japan and Europe, it has been correlated with subsequent currency depreciations. These depreciations again have two effects: they hurt the purchasing power of consumers, but increase the ability of local firms to compete with foreign firms.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At the aggregate scale, it is thought to be a way to encourage borrowing and facilitate economic activity in general by making money very abundant. Although it is believed to be a sign that the economy is not doing well, it is not obviously good or bad per se. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;How it affects economy and thus general people?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some economists think this policy is likely to have positive results in the current situation: it will result in an increase in economic growth through its effects on consumer borrowing and firm investment. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This policy potentially can also help bring inflation back up to central bank's target levels of around 2% or so. Central banks think this will bring about inflation because it means its very cheap to borrow from the central bank, so banks should borrow from it and lend, lend, lend....&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These 2% or so levels are thought to allow the central bank to create negative real interest rates easily in case a recession comes around. These are good things for citizens since they imply more income, less unemployment, more wealth, higher budgets for government services, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Others think its not a good idea: it potentially leads to a breakdown of the risk management systems of financial firms and of the oversight mechanisms of financial regulators. Therefore it could lead to an increased risk of financial crisis in the future. Others yet worry that the increased abundance of money should eventually lead to incontrollable increases in inflation rather than measured, useful increases. These are bad things for citizens, since they imply the opposite: lower (real) income, more unemployment, lower wealth, government austerity, etc.&lt;/p&gt;&#xA;" OwnerUserId="7593" LastEditorUserId="7593" LastEditDate="2016-05-26T14:31:00.207" LastActivityDate="2016-05-26T14:31:00.207" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11049" PostTypeId="2" ParentId="11044" CreationDate="2016-03-10T17:16:35.970" Score="2" Body="&lt;p&gt;I don't know R code but are you estimating an intercept in the ARIMA(0,1,0) model? Because if not, this could be why there is a difference, since you are estimating an intercept in the ARIMA(0,0,0) model.&lt;/p&gt;&#xA;" OwnerUserId="6844" LastActivityDate="2016-03-10T17:16:35.970" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11050" PostTypeId="2" ParentId="11038" CreationDate="2016-03-10T19:07:16.657" Score="3" Body="&lt;p&gt;There are many ideas to look into and some research:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;IDEAS&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Elections are presumably a time where the future becomes uncertain in the sense that there is a likelihood the new leader will change the course of a nation. From that point of view its about increased uncertainty.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Elections are often about corruption. The current political party will use corruption to remain in power. Often this means an increase in public expenditure or a loosening of monetary reins.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Potentially, some elections change the mood of a country because they absorb lots of people's energy, make them fight each other, as the candidates sometimes expose the least likable instincts in order to try and win. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;EMPIRICS&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Some of the work of &lt;a href=&quot;https://people.stanford.edu/nbloom/&quot; rel=&quot;nofollow&quot;&gt;Nick Bloom&lt;/a&gt; consists of structural estimation of a model of a firm that adjusts to changes in the amount of uncertainty in the environment. This kind of work suggests that for a fixed productivity level, investment (and disinvestment) rates fall in response to increases in uncertainty. The intuition is that of the threshold for exercising stock options: you are more likely to wait to exercise a call option if volatility is greater. Under the assumption that there is more uncertainty about future policy during elections, these models will tell you that investment will be lower during these periods.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;http://journals.cambridge.org/action/displayAbstract?fromPage=online&amp;amp;aid=9090373&amp;amp;fileId=S000712341200049X&quot; rel=&quot;nofollow&quot;&gt;Canes-Wrone and Park&lt;/a&gt; describe survey results in terms of people delaying purchases during election times.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;http://www.federalreserve.gov/pubs/feds/2013/201364/201364pap.pdf&quot; rel=&quot;nofollow&quot;&gt;Julio and Yook&lt;/a&gt; stuy cross- border capital flows in response to policy uncertainty, which is often the result of election periods.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;SUGGESTIONS&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Maybe, a way to go about this empirically is simply to look at the responsiveness of investment to q, as a function of how far elections are. If the coefficient of q in investment regressions is lower in the quarters right before presidential elections, you would have a reasonable and yet interesting result.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="7593" LastEditorUserId="7593" LastEditDate="2016-06-08T21:31:51.810" LastActivityDate="2016-06-08T21:31:51.810" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11052" PostTypeId="1" CreationDate="2016-03-10T23:05:01.140" Score="1" ViewCount="13367" Body="&lt;p&gt;The supply side of the labour market is given by the following set of&#xA;equations:&#xA;Utility of worker is given by $$U = L^{\frac{1}{2}}C^{\frac{1}{2}}.$$&#xA;Real wage $w = 5$,&#xA;T-Max = 40 hours,&#xA;Investment Income (Fixed) = 100&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now assume that the real wage increase from 5 to 8; assuming labour&#xA;supply to liner line, find the equation of the labour supply function using&#xA;two discrete points?&lt;/p&gt;&#xA;" OwnerUserId="7595" LastEditorUserId="7599" LastEditDate="2016-03-11T10:15:58.417" LastActivityDate="2016-03-11T10:15:58.417" Title="Finding labor supply function from equation of labor market" Tags="&lt;supply-and-demand&gt;&lt;labor-economics&gt;" AnswerCount="2" CommentCount="3" FavoriteCount="1" ClosedDate="2016-03-13T03:06:58.780" ContentLicense="CC BY-SA 3.0" />
  <row Id="11053" PostTypeId="2" ParentId="11052" CreationDate="2016-03-10T23:29:18.290" Score="0" Body="&lt;p&gt;Okay, so the way you do it by first taking w to be 5 and solving for L using the constraints: C = W*N (where C= Consumption, W= wage rate, N = number of hours worked), T = N + L (where l = leisure hours).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For w = 5, N comes out to be 10.&#xA;Repeating the same procedure above for w = 8, we get N = 13.75.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, we need to come up with a relationship between w = wage rate and N for our basic labor supply function. All in all, it's going to be a straight line for which we need two variables that is: slope and intercept.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Basically,&#xA;N = x + y*w -&gt; a general supply equation relating Supply to wage rate in case of labor.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Putting the values we previously found, we get:&#xA;10 = x + y*5 and 13.75 = x +y*8 -&gt; a system of simultaneous linear equations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Solving these two equations we get: x = 13.75 and y = 1.25.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, our labor supply function becomes: N (Supply of Labor) = 13.75 + 1.25*w&lt;/p&gt;&#xA;&#xA;&lt;p&gt;P.S Pardon me for the typos. I was really in a rush.&lt;/p&gt;&#xA;" OwnerUserId="7595" LastActivityDate="2016-03-10T23:29:18.290" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11054" PostTypeId="2" ParentId="11052" CreationDate="2016-03-11T01:19:36.140" Score="2" Body="&lt;p&gt;Here is another way we could solve this problem with some simple calculus. We first start by maximizing the utility function subject to the budget constraint and the time constraint. &#xA;$$\underset{L,C}{max}\;\underset{s.t.\;C=100+w(40-L)}{L^{1/2}C^{1/2}}\qquad (1)$$&#xA;$$\underset{L}{max}\;L^{1/2}[100+w(40-L)]^{1/2}\qquad (2)$$&#xA;$\textbf{FOC:}$&#xA;$$\bigg(\frac{100+w(40-L)}{L}\bigg) ^{1/2}=w\bigg(\frac{L}{100+w(40-L)}\bigg) ^{1/2}\qquad (3) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With some math&#xA;$$L=\frac{50+20w}{w}\qquad (4)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $N$ be the number of hours worked. If you plug 5 and 8 in for $w$, you get 10 and 13.75 for $N$ respectively. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now we have two points $(5,10),(8,13.75)$. Solving for slope we get $\frac{13.75-10}{8-5}=1.25$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now we must consider the intercept. Because $w=0$ is not defined, we must use the other intercept (where labor hours equal zero).&#xA;$$40-L=0\implies 40-\bigg(\frac{50+20w}{w}\bigg)=0\qquad (4)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With some math, we get $w=2.5$&#xA;$$\implies\qquad N=1.25(w-2.5)\qquad (5)$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we did not want to impose the restriction of linearity on the relationship between labor hours and real wage, we would simply use equation (4): &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$N=40-\bigg(\frac{50+20w}{w}\bigg)\qquad (6)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know your question specified a linear relationship between labor hours and real wages, however this method of solving this question does not impose this restriction, which is nice because, as we can see, the relationship between labor hours and real wage is not actually linear.&lt;/p&gt;&#xA;" OwnerUserId="5825" LastEditorUserId="5825" LastEditDate="2016-03-11T05:48:17.163" LastActivityDate="2016-03-11T05:48:17.163" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11055" PostTypeId="1" CreationDate="2016-03-11T04:39:52.533" Score="2" ViewCount="37" Body="&lt;p&gt;According to &lt;a href=&quot;http://www.rwi-essen.de/media/content/pages/publikationen/ruhr-economic-papers/REP_10_181.pdf&quot; rel=&quot;nofollow&quot;&gt;a study&lt;/a&gt; in the Journal of Defense and Peace Economics on the economic impact of base closures &quot;base adjustments have only a marginal impact on the local community in which the bases are located.&quot; However, that same study goes on to state that:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;[E]vidence obtained from this line of research [case studies] can hardly be generalizable by design. An indication of this is the varied conclusions that these studies have reached. While a few found substantial negative impacts of the base closures, others have indicated that the local communities have been quick to adapt to the change in economic landscape.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I am interested in possible economic impacts on &lt;a href=&quot;https://en.wikipedia.org/wiki/Okinawa&quot; rel=&quot;nofollow&quot;&gt;Okinawa&lt;/a&gt; from US base closures. From the economy section of the Wikipedia article on Okinawa:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The 34 US military installations on Okinawa are financially supported by the U.S. and Japan. The bases provide jobs for Okinawans, both directly and indirectly; In 2011, the U.S. military employed over 9,800 Japanese workers in Okinawa. As of 2012 the bases accounted for 4 or 5% of the economy. However, Koji Taira argued in 1997 that because the U.S. bases occupy around 20% of Okinawa's land, they impose a deadweight loss of 15% on the Okinawan economy. The Tokyo government also pays the prefectural government around ¥10 billion per year in compensation for the American presence, including, for instance, rent paid by the Japanese government to the Okinawans on whose land American bases are situated. A 2005 report by the U.S. Forces Japan Okinawa Area Field Office estimated that in 2003 the combined U.S. and Japanese base-related spending contributed $1.9 billion to the local economy. On January 13, 2015, In response to the citizens electing governor Takeshi Onaga, the national government announced that Okinawa's funding will be cut, due to the governor's stance on removing the US military bases from Okinawa, which the national government doesn't want happening.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Are there any studies of the potential impact of base closures on Okinawa, or at least other islands which would be more similar to Okinawa than non-island Germany? If there aren't, are there newspaper articles?&lt;/p&gt;&#xA;" OwnerUserId="7597" LastEditorUserId="7597" LastEditDate="2016-03-11T08:14:14.440" LastActivityDate="2016-03-11T08:14:14.440" Title="Are there studies on the impact of the closing of military bases on islands, especially Okinawa" Tags="&lt;japan&gt;" AnswerCount="0" CommentCount="3" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11058" PostTypeId="1" AcceptedAnswerId="11508" CreationDate="2016-03-11T09:17:45.447" Score="4" ViewCount="348" Body="&lt;p&gt;In his famous description of the division of labour:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;One man draws out the wire, another straights it, a third cuts it, a fourth points it, a fifth grinds it at the top for receiving the head; to make the head requires two or three distinct operations; to put it on, is a peculiar business, to whiten the pins is another; &lt;strong&gt;it is even a trade by itself to put them into the paper&lt;/strong&gt; ... &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;What did he mean by &quot;put them into the paper&quot;? Was this just some sort of paper packaging for the pins?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(By the way, my understanding is that &lt;em&gt;pins&lt;/em&gt; are what we'd today call &lt;em&gt;nails&lt;/em&gt;. Please correct me if I am mistaken.)&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2019-11-17T15:13:28.847" Title="What did Adam Smith mean by &quot;putting [the pins] into the paper&quot;?" Tags="&lt;history-economic-thought&gt;" AnswerCount="4" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11059" PostTypeId="2" ParentId="11058" CreationDate="2016-03-11T12:42:36.873" Score="1" Body="&lt;p&gt;&quot;Putting them into the paper&quot; is indeed &quot;packaging&quot;. This could refer to bulk packaging -say, put many pins into a (paper) large bag, and the final customer takes out the desired number, in which case you also have a on-the-spot retail packaging (which is how it is still done today in many terittories), or create small packages of pins to be sold as a unit (usually round numbers of them).&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2016-03-11T12:42:36.873" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11060" PostTypeId="2" ParentId="10168" CreationDate="2016-03-11T12:55:00.937" Score="4" Body="&lt;p&gt;Both another answer and the OP have linked to the wikipedia article on the matter. I think the following passage from the article sums adequately the situation (bold mine):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;The term “Islamic banking” refers to a system of banking or banking activity that is consistent with Islamic law (Shariah) principles and&#xA;  guided by Islamic economics. The contemporary movement of Islamic&#xA;  finance is based on the belief that &quot;&lt;strong&gt;all forms of interest are riba&#xA;  and hence prohibited&lt;/strong&gt;&quot;.[48] In addition, &lt;strong&gt;Islamic law prohibits&#xA;  investing in businesses that are considered unlawful&lt;/strong&gt;, or haraam&#xA;  (such as businesses that sell alcohol or pork, or businesses that&#xA;  produce media such as gossip columns or pornography, which are&#xA;  contrary to Islamic values). Furthermore, &lt;strong&gt;the Shariah prohibits&lt;/strong&gt;&#xA;  what is called &quot;Maysir&quot; and &quot;Gharar&quot;. Maysir is involved in&#xA;  &lt;strong&gt;contracts where the ownership of a good depends on the occurrence of a predetermined, uncertain event in the future&lt;/strong&gt; whereas Gharar&#xA;  describes &lt;strong&gt;speculative transactions&lt;/strong&gt;. Both concepts involve&#xA;  excessive risk and are supposed to foster uncertainty and fraudulent&#xA;  behaviour. Therefore, &lt;strong&gt;the use of all conventional derivative&#xA;  instruments is impossible in Islamic banking&lt;/strong&gt;. In the late 20th&#xA;  century, a number of Islamic banks were created to cater to this&#xA;  particular banking market.&quot;&lt;/em&gt;&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&lt;em&gt;&quot;&lt;strong&gt;Islamic banking has the same purpose as conventional banking: to make money for the banking institute by lending out capital while&#xA;  adhering to Islamic law&lt;/strong&gt;. Because Islam forbids simply lending out&#xA;  money at interest, Islamic rules on transactions (known as Fiqh&#xA;  al-Muamalat) have been created to prevent it. &lt;strong&gt;The basic principle of&#xA;  Islamic banking is based on risk-sharing which is a component of trade&#xA;  rather than risk-transfer which is seen in conventional banking&lt;/strong&gt;.&#xA;  &lt;strong&gt;Islamic banking introduces concepts such as profit sharing&lt;/strong&gt; (Mudharabah), &lt;strong&gt;safekeeping&lt;/strong&gt; (Wadiah), &lt;strong&gt;joint venture&lt;/strong&gt;&#xA;  (Musharakah), &lt;strong&gt;cost plus&lt;/strong&gt; (Murabahah), and &lt;strong&gt;leasing&lt;/strong&gt; (Ijar).&quot;&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I can also offer my professional experience on the matter, which says that some times these are used as merely veils for what is essentially a conventional loan earning interest.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a side remark, Christian institutions like the Catholic Church never officially lifted their condemnation of &quot;usury&quot;/charging interest -they just don't actively enforce the doctrine. (As far as I could find, the most recent papal discussion of usury occurred in Pope Benedict XIV’s encyclical of 1745, &lt;em&gt;Vix pervenit&lt;/em&gt;.)&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2016-03-11T13:08:40.927" LastActivityDate="2016-03-11T13:08:40.927" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11061" PostTypeId="2" ParentId="8590" CreationDate="2016-03-11T14:13:47.760" Score="2" Body="&lt;p&gt;It is recorded under the &quot;Other investment&quot; of the Financial Account.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &lt;a href=&quot;https://www.imf.org/external/pubs/ft/bop/2007/bopman6.htm&quot; rel=&quot;nofollow&quot;&gt;BPM6&lt;/a&gt;, Chapter 6 divides the Financial Account into five portions:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Direct investments.&lt;/li&gt;&#xA;&lt;li&gt;Portfolio investments.&lt;/li&gt;&#xA;&lt;li&gt;Financial derivatives (other than reserves) and employee stock options.&lt;/li&gt;&#xA;&lt;li&gt;Other investment.&lt;/li&gt;&#xA;&lt;li&gt;Reserves.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;&quot;Other investment&quot; (p. 111, BPM6) sounds unimportant , but is actually where payments for exports and imports are (usually) recorded, because this category includes: currency and deposits; loans; and trade credit and advances.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Example.&lt;/strong&gt; A US farm exports \$100 worth of beef to a Japanese supermarket. The Japanese supermarket pays \$100 and this is deposited into the US farm's bank account.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From the American perspective, the export is recorded as a credit (+) under Current Account: Exports. And the payment is recorded as a debit (-) under Financial Account: Other investments.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Conversely, from the Japanese perspective, the import is recorded as a debit (-) under Current Account: Exports. And the payment is recorded as a credit (+) under Financial Account: Other investments.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastEditorDisplayName="user18" LastEditDate="2016-03-13T00:39:17.203" LastActivityDate="2016-03-13T00:39:17.203" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11062" PostTypeId="1" CreationDate="2016-03-11T15:06:41.860" Score="2" ViewCount="180" Body="&lt;p&gt;Below we have a diagram for a bail-in. According to it, as the big company/bank takes a loss in the asset side, the first to absorb those losses, in the liabilities side, is equity. How is this possible? Do the Resolution Authority take the equity from shareholders and sells it on the market? When a company divulges its results, and the market sees the loss, the equity immediately dives (dis)proportionally... Or is this what's called absorbing the loss? Your equity being valued at zero?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/giWyM.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/giWyM.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="118" LastActivityDate="2016-03-11T15:06:41.860" Title="Bail-in and equity absorbing losses" Tags="&lt;macroeconomics&gt;&lt;banking&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11063" PostTypeId="2" ParentId="11037" CreationDate="2016-03-11T16:46:14.303" Score="2" Body="&lt;p&gt;Rearranging your demand and supply equations gives us:&#xA;$$P=Q_s\quad and\quad P=12-Q_D$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Adding the tax on the supply side gives us:&#xA;$$P=Q_s+4$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Solving for equilibrium, we get $P=8$ and $Q=4$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, we did not necessarily need to solve for this equilibrium because the Supply curve shifted left, and the new intercept is at $P=4$. This implies that no plastic will be produced domestically because the world price will be lower at any positive level of production. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To solve for total surplus, we need only solve for consumer surplus because no production will occur domestically. We need to solve for $Q_D$ when $P=4$.&#xA;$$4=12-Q_D\implies Q_D=8$$&#xA;$$\implies TS=CS=\bigg(\frac{1}{2}\bigg)*8*8=32$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this the same as when there is no trade and no tax?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$P=Q_s\qquad P=12-Q_D$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Equilibrium yields $P=Q=6$&#xA;$$TS=CS+PS-DWL$$&#xA;$$TS=CS=\bigg(\frac{1}{2}\bigg)*6*6$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To calculate $DWL$, we split the cost into private cost and social cost. When we do this&#xA;$$PC=Q\qquad SC=Q+4$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The values we need to calculate the $DWL$ triangle end up being $Q=4$, $P_{PC}=4$ and $P_{SC}=8$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$DWL=\bigg(\frac{1}{2}\bigg)*4*4=8$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies TS=18+18-8=32$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your intuition was correct that the total surplus is the same in both cases.&lt;/p&gt;&#xA;" OwnerUserId="5825" LastEditorUserId="5825" LastEditDate="2016-03-13T18:26:28.603" LastActivityDate="2016-03-13T18:26:28.603" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11064" PostTypeId="2" ParentId="11058" CreationDate="2016-03-11T17:54:02.340" Score="1" Body="&lt;p&gt;Regarding the nature of the pins, the fact that one step is &quot;to whiten&quot; may suggest that they were indeed pins and not nails. It's hard to see what purpose would be served by whitening nails for use in carpentry etc. However, an entry on &quot;pin&quot; in &lt;a href=&quot;https://books.google.co.uk/books?id=jYAPAAAAQAAJ&amp;amp;pg=PT415&amp;amp;lpg=PT415&amp;amp;dq=use%20of%20tin%20in%20whitening%20pins&amp;amp;source=bl&amp;amp;ots=H8XaKNODdG&amp;amp;sig=xuwfxGo-U8yDb2nj3vdQgScz32E&amp;amp;hl=en&amp;amp;sa=X&amp;amp;ved=0ahUKEwiL_si5l7nLAhVEPxoKHRLqDscQ6AEIHDAA#v=onepage&amp;amp;q=use%20of%20tin%20in%20whitening%20pins&amp;amp;f=false&quot; rel=&quot;nofollow&quot;&gt;The British Encyclopeadia, or Dictionary of Arts and Sciences&lt;/a&gt; published in 1809 (some 30 years after Smith's Wealth of Nations) refers to the use of tin to whiten pins &quot;used chiefly by women in adjusting their dress&quot;.  &lt;/p&gt;&#xA;" OwnerUserId="1417" LastActivityDate="2016-03-11T17:54:02.340" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11066" PostTypeId="2" ParentId="10168" CreationDate="2016-03-11T18:42:49.660" Score="0" Body="&lt;p&gt;In general, Islamic banking, when fully complaint with sharia law, is the sharing of the risk arising from any financial transaction. It is the sharing of the risk that matters. Both the borrower and the lender should equally benefit from the transaction, and no one party should benefit at the expense of the other.&lt;/p&gt;&#xA;" OwnerUserId="6009" LastActivityDate="2016-03-11T18:42:49.660" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11067" PostTypeId="1" CreationDate="2016-03-11T19:35:19.513" Score="1" ViewCount="22" Body="&lt;p&gt;I would like to write down a model where there are firms with different demand elasticities: For some firm's total profits increase and decrease a lot with increases and decreases in demand for their product. Others can change supply or costs in a way that changes in demand don't change profits as much. Is there a simple way to write a model with those features?&lt;/p&gt;&#xA;" OwnerUserId="7593" LastActivityDate="2016-03-11T19:35:19.513" Title="Is there a simple way to write a model with firms/sectors with different demand elasticities?" Tags="&lt;microeconomics&gt;&lt;supply-and-demand&gt;&lt;industrial-organisation&gt;&lt;profits&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11068" PostTypeId="2" ParentId="6777" CreationDate="2016-03-11T20:45:00.797" Score="3" Body="&lt;p&gt;Two economic models and one returns calculation that can help provide some intuition for this issue and maybe even get to a quantitative evaluation of the problem if anybody finds the right data:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Option exercising:&lt;/em&gt; The theory of options suggests that you don't exercise a call option whenever the underlying is above the strike price because.... you are foregoing the chance that the underlying goes even further above the strike price! So a vacant property is a property whose owner is waiting for an even better occupant than the ones it has found. Once you rent it to somebody you are locked in (many times by law) for potentially many years: you can't show it, you can't sell it, you can't remodel it, you can't raise the price as you wish, etc. So in a volatile environment, or a situation of a changing neighborhood, a landlord will be willing to wait a long time for the right tenant. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Search models:&lt;/em&gt; In many economic scenarios there's a market where every buyer and seller are slightly different, and it is costly for them to search for the best match. It takes them time and the likely success rate depends in part on the ratio of buyers to sellers. In a scenario with many sellers, it might take a long time for an individual seller (owner in this case) to find the right tenant. He might even be discouraged from searching for a tenant and prefer to wait it out.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Returns calculation:&lt;/em&gt; Lastly, you have to realize that real estate investors are getting returns from two sources: R= (P(t+1)+Rent)/P(t). In other words, there are two sources of return to investors, the change in price and the rents. The fact that a site is vacant does not mean the owner is loosing money, he might be getting a fast-enough appreciation rate. Moreover, its possible to think of circumstances when P(t+1) rises faster if the property is empty. For example, when the owner foresees a big redevelopment firm coming in and wanting to buy his property. It better be free at that point or he would have to delay the sale for months of years.&lt;/p&gt;&#xA;" OwnerUserId="7593" LastEditorUserId="7593" LastEditDate="2016-05-05T00:25:40.850" LastActivityDate="2016-05-05T00:25:40.850" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11070" PostTypeId="1" AcceptedAnswerId="11530" CreationDate="2016-03-12T15:37:27.493" Score="7" ViewCount="11096" Body="&lt;p&gt;I often hear the term shadow banking tossed around when discussing the United States and Chinese economies. What exactly is shadow banking and could you give examples of some specific companies that act as &quot;shadow banks&quot;? I have been told that in China, shadow banking refers to informal loans that are not written up in any documentation. Is this correct?&lt;/p&gt;&#xA;" OwnerUserId="5987" LastEditorUserId="6210" LastEditDate="2020-04-12T19:04:08.850" LastActivityDate="2020-04-12T22:03:20.783" Title="What institutions are examples of &quot;shadow banking&quot;?" Tags="&lt;macroeconomics&gt;&lt;finance&gt;&lt;banking&gt;&lt;shadow-banking&gt;" AnswerCount="4" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11071" PostTypeId="2" ParentId="11029" CreationDate="2016-03-12T19:58:49.693" Score="4" Body="&lt;p&gt;&lt;strong&gt;TL;DR Version:&lt;/strong&gt; &#xA;The trust that money has value gives it its value. If money can be exchanged for gold, then this makes people trust that it will have value. If this is not the case (and it is not, although it used to be the case almost everywhere) then the only thing that can make people trust that money will not lose its value through extreme printing of money is having &lt;em&gt;trustworthy&lt;/em&gt; people endowed with the power to print money. These people are called central bankers, hence their credibility matters here. The consequences of losing faith would be (hyper-)inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Long Version:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First a few definitions. The purchasing power of money is basically its value. That is how many goods/services (e.g. bread) you can get for a dollar. Inflation is a price increase, which means that a dollar can now buy less things (as they cost more). Hence money loses its purchasing power when inflation occurs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Further, the value of money is basically determined just like the value of anything else - supply and demand. So if you print a lot of money (supply increases) its value will go down. That's the reason the government doesn't just print a bunch of dollars and give them to everyone, because that money would lose value, i.e. it would lead to inflation (rising prices).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reason that money has any value at all in the first place (today) is because people believe it has value. Also, people believe it has value, because it does. They observe that they can use it to obtain goods and services. That's pretty much the only thing distinguishing the dollar from monopoly money today. As is apparent from the reason money has value it is easy to get into vicious cycles. If people stop believing it has value then it won't, which will lead to more people believing it doesn't and so on. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is why hyperinflation is so hard to stop. Once money loses a lot of its value the trust people have in this money is undermined. They panic and think it won't be worth anything soon. So they try to get rid of it by exchanging it for other things. As everyone tries to exchange money for other things, effectively the supply of money (really the velocity of money) increases, which undermines its value even more. Since everyone wants to get rid of money in this scenario, there is no one to give it to in order to trade with so it becomes worthless (as no one wants it). A german central banker once said that inflation is like toothpaste: once you get it out of the tube it's very hard to get back in again. The problem is, that governments have an incentive to print more money, to pay off debts and have more spending power, etc., which creates inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So there are multiple equilibria possible, where all people (or a critical mass) believe in money and since all do there is no reason not to believe in it. Or nobody does and in this case there is no reason to in fact believe in money. It's also possible for many to believe in it and many not to (e.g. 50-50 or 60-40), but this is not a very stable equilibrium. For more on how money comes into existence at all, see the paper by Kiyotaki and Wright (&quot;Money as a medium of exchange&quot; and &quot;A Search-Theoretic Approach to Monetary Economics&quot; american economic review 1993) , who discuss these equilibria possibilites. There, basically money emerges, because barter (trading goods for other goods) is so inefficient as it requires a rarely occuring double-coincidence of wants. So if money is undermined, probably something else will emerge. E.g. in Germany after a crash people used cigarettes as currency.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now it wasn't always the case that money &lt;strong&gt;only&lt;/strong&gt; had value, because others believed it. On top of that, governments had what was called the &quot;gold-standard&quot;. This meant that at any time, money could be exchanged for a certain amount of gold. Because of this, governments were restricted in how much money they could print, by how much gold they had in reserve. So this was meant to stopp excessive printing of money and to stop inflation panicks. This however came at a cost, because monetary policy could barely be used and it required governments around the world to frantically search for gold. Nowadays, we don't have the gold standard, so governments are free to do what they want. However, they don't abuse their power, which is evidenced by low inflation rates in the last 30 years and without the drawbacks of the gold standard.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the central bank is not credible and the government does not guarantee to exchange money for gold, basically there is nothing to &quot;anchor&quot; the value of money. So if people expect the central bank to print too much money, then money will lose its value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One last possibility through which the mistrust of the central bank is important here is because of wage-setting. When negotiating wages, unions take into account rising prices (inflation) so that they don't become poorer through price increases, which is why they demand higher wages. If they expect a lot of inflation to occur in the course of the year, they will demand high wages right now (as these contracts cannot be renegotiated every month). However the rising wages will lead to higher prices, which in fact &lt;em&gt;is&lt;/em&gt; inflation and this spiral could get out of control. With a credible central bank, this won't happen of course, as the expectations aren't so wild.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastEditorUserId="5557" LastEditDate="2016-03-12T22:29:49.987" LastActivityDate="2016-03-12T22:29:49.987" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11072" PostTypeId="1" AcceptedAnswerId="11074" CreationDate="2016-03-13T00:34:23.657" Score="0" ViewCount="57" Body="&lt;p&gt;Which of the following statements are not consistent with the assumption of completeness and transitivity? Explain why.&#xA;a) I just can't decide whether I would rather take a holiday in Spain or purchase a pair of skis.&#xA;b) After I've played two games of tennis, I don't want to play anymore.&#xA;c) If you give me a ticket to the football match, I'll five you my new pair of socks.&lt;/p&gt;&#xA;" OwnerUserId="7610" LastActivityDate="2016-03-13T01:45:29.107" Title="Consumer Choice" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="1" ClosedDate="2016-03-14T02:28:58.257" ContentLicense="CC BY-SA 3.0" />
  <row Id="11073" PostTypeId="2" ParentId="9591" CreationDate="2016-03-13T00:55:57.307" Score="2" Body="&lt;p&gt;The Balance of Payments (BOP) records, in summary form, every single international transaction.* &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, the BOP uses a double-entry accounting system, where every entry &lt;strong&gt;MUST&lt;/strong&gt; be balanced (hence the name) by an entry (or entries) that is (or are together) equal and opposite.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In your example, say an American consumer buys \$1,000 of sashimi from a Japanese fisherman. The American consumer pays with cash (could be in USD or JPY, doesn't matter too much here).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then under the American BOP, the sashimi import is recorded as a debit (-\$1,000) under the Current Account (CA). And the cash is recorded as a credit (+\$1,000) under the Financial Account (in particular the &quot;Other Investments&quot; sub-portion of the FA).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To repeat, the BOP &lt;strong&gt;MUST&lt;/strong&gt; add up to 0. Whenever you enter one entry in the BOP (say in the CA), there must be an equal and opposite entry somewhere else (often this will be in the FA, but it can be anywhere, including even in the CA again).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sometimes just to make sure that the BOP adds up to 0, the balancing entry can be a bit contrived. But the above is not at all a contrived example; it is a very standard and clear-cut one.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Footnote *: Of course, in practice, these are errors and omissions. Which explains why there is an &quot;Errors and Omissions&quot; component added in the BOP.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2016-03-13T00:55:57.307" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11074" PostTypeId="2" ParentId="11072" CreationDate="2016-03-13T01:45:29.107" Score="2" Body="&lt;p&gt;&lt;strong&gt;Hint:&lt;/strong&gt; &lt;em&gt;Completeness&lt;/em&gt; states that for every item under consideration, you have some sort of preference over them, which can include indifference. You must be decided on how you feel between the items though. &lt;em&gt;Transitivity&lt;/em&gt; means if you prefer item A to B and you prefer B to C, then you must prefer A to C.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That should be enough information to answer the question.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2016-03-13T01:45:29.107" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11075" PostTypeId="2" ParentId="11070" CreationDate="2016-03-13T01:55:17.143" Score="5" Body="&lt;p&gt;From the &lt;a href=&quot;https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr458.pdf&quot;&gt;New York Fed&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Shadow banks intermediate credit through a wide range of securitization and secured funding&#xA;  techniques such as asset-backed commercial paper (ABCP), asset-backed securities (ABS),&#xA;  collateralized debt obligations (CDOs) and repurchase agreements (repos).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;These sorts of things are issued through SIVs, structured investment vehicles. So for examples of firms that used them, Citigroup had some SIVs like Centauri. Europe had a few of these too, like Barclays's (UK) own Sheffield Receivables.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2016-03-13T01:55:17.143" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11076" PostTypeId="2" ParentId="11032" CreationDate="2016-03-13T04:09:25.283" Score="1" Body="&lt;p&gt;You really need to format the question above. I'll give a little sympathy to your cause and explain step by step what is happening. We have:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$q=1200−\alpha_mp_m$ for markets $m=1,2$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which can get us $p_m = \frac{1200 - q}{\alpha_m} = \frac{1200 - q_1 - q_2}{\alpha_m}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Already there is something very fishy about this setup. As we go on, see if you can figure out what's happening.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$c(q)=12q^2$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$(q = q_1 + q_2)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As per your question, the monopolist can charge different prices in different markets. Since the only thing possibly different about the two markets is the sensitivity index $\alpha$, keep an eye out on those terms.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How do we find the equilibrium production in market 2? Let's set up the profit equation, revenue minus costs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{align}&#xA;\max_{q_1, q_2} \ \Pi &amp;amp; = \vec{p}\vec{q} - 12q^2 \\&#xA;&amp;amp; = p_1q_1 + p_2q_2 - 12(q_1 + q_2)^2 \\&#xA;&amp;amp; =p_1q_1 + p_2q_2 - 12(q_1^2 + 2q_1q_2 + q_2^2) \\&#xA;\text{We get first order conditions.}\\&#xA;\text{Just take the derivative with }\\&#xA;\text{respect to $q_1$ and $q_2$ and set to zero.}\\&#xA;\\&#xA;\frac{\partial{\Pi}}{\partial{q_1}} &amp;amp; = p_1 - 24q_1 - 24q_2 = 0 \\&#xA;\frac{\partial{\Pi}}{\partial{q_2}} &amp;amp; = p_2 - 24q_1 - 24q_2 = 0 \\&#xA;\text{Substitute each respective $p_m$ above:} \\&#xA;0 &amp;amp; = \frac{1200 - q_1 - q_2}{\alpha_1} - 24q_1 - 24q_2 \\&#xA;0 &amp;amp; = \frac{1200 - q_1 - q_2}{\alpha_2} - 24q_1 - 24q_2 \\&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is just a little system of equations. Two equations, two unknowns. Treat the $\alpha$'s as constants.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To make it a little more palatable to deal with, let's multiply both sides by their $\alpha$'s.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$0 = 1200 - q_1 - q_2 - (24\alpha_1)q_1 - (24\alpha_1)q_2$$&#xA;$$0 = 1200 - q_1 - q_2 - (24\alpha_2)q_1 - (24\alpha_2)q_2$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Combine terms and put the constants on one side.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$-1200 = -(1 + 24\alpha_1)q_1 - (1 + 24\alpha_1)q_2$$&#xA;$$-1200 = -(1 + 24\alpha_2)q_1 - (1 + 24\alpha_2)q_2$$&#xA;$$\implies$$&#xA;$$\frac{1200}{1 + 24\alpha_1} = q_1 + q_2$$&#xA;$$\frac{1200}{1 + 24\alpha_2} = q_1 + q_2$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now wait a minute! There's no solution to this unless $\alpha_1 = \alpha_2$! And if that's true, there are infinite solutions. What gives?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Well, think about the original setup. The cost function doesn't penalize you for producing more in one market than another, and the demand for both markets are perfectly interdependent. So what's to stop a monopolist from just selling in the market with the higher price, that is, the market where $\alpha$ is the smallest? The producer should just produce all in one market unless $\alpha_1 = \alpha_2$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So we can redo the maximization problem, with only one market in consideration, whichever has the smallest $\alpha$. (You might be able to get away with using the above intuition, and not having to show the above result.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\max_{q} \ \Pi = pq - 12q^2$$&#xA;$$\Pi = \frac{1200 - q}{\alpha}q - 12q^2$$&#xA;$$\frac{\partial{\Pi}}{\partial{q}} = \frac{1200 - 2q}{\alpha} - 24q = 0$$&#xA;$$(2 + 24\alpha)q = 1200$$&#xA;$$\boxed{q^* = \frac{1200}{2 + 24\alpha}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That's how to get the first part. If you know about consumer theory and all that like you say in the comments, the next parts should not be too bad. Try those for yourself. I think this is enough help.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastEditorUserId="4251" LastEditDate="2016-03-16T23:27:41.680" LastActivityDate="2016-03-16T23:27:41.680" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="11077" PostTypeId="2" ParentId="9611" CreationDate="2016-03-13T05:10:34.357" Score="2" Body="&lt;ul&gt;&#xA;&lt;li&gt;According to the IMF's &lt;a href=&quot;https://www.google.com.sg/url?sa=t&amp;amp;rct=j&amp;amp;q=&amp;amp;esrc=s&amp;amp;source=web&amp;amp;cd=2&amp;amp;cad=rja&amp;amp;uact=8&amp;amp;ved=0ahUKEwiU-8rH77zLAhWUCI4KHdoPAp4QFgggMAE&amp;amp;url=https%3A%2F%2Fwww.imf.org%2Fexternal%2Fpubs%2Fft%2Fbop%2F2007%2Fbopman6.htm&amp;amp;usg=AFQjCNEhf7GCYEHLcXZvW59zx5EjmGhfDg&amp;amp;sig2=0EZIgynIhAKXPeJtIGTsZw&quot; rel=&quot;nofollow&quot;&gt;BPM6&lt;/a&gt;, which should be taken as the &quot;most&quot; standard, it is impossible for the BOP to be out of balance.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;In the IMF BPM6, BOP simply refers to a statistical statement (think of it as a piece of paper or an Excel spreadsheet) that records, in summary form, all of the country's international transactions. The BOP never refers to a number. Hence, there is no such thing as a BOP surplus or a BOP deficit. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The three accounts in the BOP are the Current Account (CA), the Capital Account (KA), and the Financial Account (FA). In theory, it is always necessarily the case that: CA + KA + FA = 0. (In practice, we have to add an &quot;errors &amp;amp; omissions&quot; term.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence the name &lt;em&gt;balance&lt;/em&gt; of payments. The above balance of payments identity must always hold.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Unfortunately, not everyone follows the IMF's recommendation. This causes a lot of confusion. &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Some countries break up the BOP in a different way and DO refer to the BOP as a number.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;For example, Singapore takes out &quot;changes in official reserves&quot; (ΔR) from the Financial Account and combines what is left of the FA with the CA into a single account called the Capital &amp;amp; Financial Account (KFA). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And so for Singapore, the BOP identity can be written as: CA + KFA + ΔR = 0. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And &lt;strong&gt;very confusingly&lt;/strong&gt;, Singapore then defines BOP = CA + KFA = -ΔR. Hence, in Singapore, a BOP surplus refers to when there is an increase in official reserves (yes, strangely enough, ΔR &amp;lt; 0 ⇔ official reserves increase). And a BOP deficit is when there is a decrease in official reserves. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Singapore's presentation of the BOP is actually not so unusual. The IMF BPM6 for example does suggest it as a possible alternative presentation of the BOP (see end of p. 224 and start of p. 225). However, I think it's pretty unusual to define the BOP as a number equal to -ΔR, as Singapore does.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Journalists frequently speak, mistakenly, of a BOP deficit, when they really mean a trade deficit (or, what is slightly different, a CA deficit). &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;This obviously adds a lot of confusion to an already confused situation.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastEditorDisplayName="user18" LastEditDate="2016-03-13T05:22:22.710" LastActivityDate="2016-03-13T05:22:22.710" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11078" PostTypeId="1" AcceptedAnswerId="11097" CreationDate="2016-03-13T10:55:28.863" Score="1" ViewCount="1545" Body="&lt;p&gt;I know that linear regression is used for calculating price elasticity. If my objective is to estimate the parameters of a causal relationship, can i use machine learning techniques like Random Forest or lets say ARIMA with regressors? Has anyone done this before? I tried searching in jstor.org but didn't find any.&lt;/p&gt;&#xA;" OwnerUserId="7206" LastEditorUserId="7593" LastEditDate="2016-03-14T18:21:10.547" LastActivityDate="2016-03-14T18:21:10.547" Title="What statistical techniques can be used for measuring price elasticity" Tags="&lt;elasticity&gt;&lt;applied-econometrics&gt;&lt;pricing&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11080" PostTypeId="1" AcceptedAnswerId="11081" CreationDate="2016-03-13T21:53:33.100" Score="2" ViewCount="257" Body="&lt;p&gt;I'm reading these &lt;a href=&quot;http://www3.nd.edu/~esims1/rbc_notes_2016.pdf&quot; rel=&quot;nofollow&quot;&gt;notes&lt;/a&gt; in the RBC model. In page 14, the author, tries to explain the direction of the arrows, in the space $(\tilde C_t,\tilde K_t)$ (tilde refers to proportional deviations from steady state) , to explain the dynamics. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I look at equations (47) and (49), the ones that are used to derive the isoclines (equations (50) and (51)), I do not understand how to see the directions  Up/Down, Left/Right... &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="118" LastEditDate="2016-03-13T22:00:14.430" LastActivityDate="2016-03-14T15:46:44.407" Title="The phase diagram for the simple RBC model" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11081" PostTypeId="2" ParentId="11080" CreationDate="2016-03-13T23:17:12.613" Score="4" Body="&lt;p&gt;There are two tricks to safely construct a phase diagram, as regards the dynamics off it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, solve for the &quot;isoclines&quot; as &lt;em&gt;weak inequalities&lt;/em&gt; rather than as equalities. This method makes also clear the dynamics &lt;em&gt;off&lt;/em&gt; the isocline.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider a standard capital accumulation equation&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$K_{t+1} = (1-\delta)K_t + F(K_t) - C_t \tag{1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We want to obtain the isocline, but also the dynamics off it. Re-write as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$K_{t+1} - K_t  = -\delta K_t + F(K_t) - C_t$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now require that &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$K_{t+1} - K_t \geq 0 \implies -\delta K_t + F(K_t) - C_t \geq 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies C_t \leq F(K_t) - \delta K_t \tag{2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With equality, $(2)$ is the expression for the isocline. The inequality tells you that for capital to tend to increase ($K_{t+1} - K_t &amp;gt; 0$), consumption must be &lt;em&gt;lower&lt;/em&gt; than the level indicated by the isocline. Etc&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The second trick is already used in $(2)$: although this is the capital difference equation, I wrote it as though it is an expression determining consumption. In this way, one can look at the phase diagram and for both difference equations, treat the variable in the vertical axis as the &quot;dependent&quot; variable of the two isocline functions. This is the most natural to the eye, and helps avoid the up/down, right/left confusion that can result if one tries to rotate in its mind the phase diagram, for one of the two equations. It also makes easier to determine the slope/shape of the two isoclines.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2016-03-14T15:46:44.407" LastActivityDate="2016-03-14T15:46:44.407" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11082" PostTypeId="1" CreationDate="2016-03-13T23:17:18.357" Score="2" ViewCount="490" Body="&lt;p&gt;This question bothers me for a long time: why government keeps up with the taxes instead of with printing money? This would decrease its operating costs, simplify law and generally raise comfort of existence of all people. Why I don't hear nobody speaking about such idea?&lt;/p&gt;&#xA;" OwnerUserId="7525" LastEditorUserId="7525" LastEditDate="2016-03-13T23:23:26.403" LastActivityDate="2018-02-11T17:09:43.690" Title="What are taxes for since law forbids printing of money?" Tags="&lt;monetary-policy&gt;&lt;money-supply&gt;&lt;taxation&gt;&lt;government&gt;&lt;law&gt;" AnswerCount="4" CommentCount="5" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11083" PostTypeId="2" ParentId="11082" CreationDate="2016-03-14T00:12:08.720" Score="2" Body="&lt;p&gt;You can't create something from nothing. When the government prints money, that's really just colored paper. Printed money, in case production has not increased, will make money lose value. When the government raises taxes, it is taxing goods and services, i.e. getting real ressources from people (in the form of money, yes, but real ressources nonetheless). If money were printed without real ressources behind it, it would lose value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The value of money is basically determined just like the value of anything else - supply and demand. So if you print a lot of money (supply increases) its value will go down. That's the reason the government doesn't just print a lot of money and give it to everyone, because that money would lose value, i.e. it would lead to inflation (rising prices).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &quot;Quantity Theory of Money&quot; tells us that the purchasing power of money is related to production, i.e. the real ressources in the economy. That's because all money must be able to buy all goods in an economy by definition. So if you have 2 pieces of bread and a dollar in the world, that dollar is worth 2 pieces of bread. Say now, you printed another dollar, but bread has stayed the same. Now each dollar is worth only 1 piece of bread. So in total, nothing has been achieved, besides making money less valuable (which translates to rising prices. Before a pies of bread cost half a dollar, now it costs 1 dollar).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Furthermore, once you create inflation this way through priniting money, besides achieving nothing, it has cotst on the real economy, through for example menu-costs or shoe-leather costs. That means people need to adjust not, menus need to be printed anew for restaurants and that's costly etc. Also savers and people on fixed income lose money through inflation. Also you might send the economy into an inflationary spiral. Often high inflation leads to even more inflation, which eventually can collapse the whole economy and currency. See episodes of &lt;strong&gt;hyperinflation&lt;/strong&gt; for this.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastActivityDate="2016-03-14T00:12:08.720" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="11084" PostTypeId="2" ParentId="11082" CreationDate="2016-03-14T03:12:20.227" Score="7" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;Why I don't hear nobody speaking about such idea?&lt;/em&gt;&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Because historical experience says it won't work.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;By printing money instead of collecting taxes, what increases is the &lt;em&gt;nominal disposable income&lt;/em&gt;. The &quot;value of work&quot; is certainly not increased. And the important question is, does this increased nominal income lead to higher consumption?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider a static society that produces food using labor $L_p$. This society wants also the government to offer some services, say law and order. So the government will also employ some of the available labor in the society, $L_g$ to offer these services. Now, policemen and judges must also eat to survive, so the food produced by the private sector must be enough also for them.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Say it is and part of it must be transferred to $L_g$ somehow. Initially, the government collects taxes for this purpose. &#xA;The private sector faces&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$P_c\cdot Q = P_c\cdot w_p\cdot L_p =P_c\cdot C_p + P_c\cdot T$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $P_c$ is the price level, $C_p$ is private-sector consumption in food units, $w_p$ is the wage per unit of labor in food units, and $T$ is taxes in food units The left-hand side is production the middle term is pre-tax nominal income of the private sector, the right-hand side is how this income is split between own consumption and taxes. The government looks at&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$P_c\cdot T=P_c\cdot w_g\cdot L_g $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The government collects that tax, gives it to public servants as pay for their services and they in turn go to the private sector and purchase the food they need. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The economy uses money, and the current quantity of money printed is $M$, which is fully used to facilitate the transactions in a production-consumption cycle. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then somebody comes up with the OP's idea: why collect taxes which nobody likes, and not print the money needed to pay the government employees? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the government prints new money $M_n = P_c \cdot T$, stops collecting taxes and pays its employees with $M_n$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since taxes are not collected anymore, once production is finished and before consumption, the private sector has in its hands&lt;br&gt;&#xA;a) Real quantity of food $C=C_p+T$&lt;br&gt;&#xA;b) Money holdings $M = P_c \cdot C$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Government employees appear and show the new money quantity $M_n$ asking to buy the same quantity of food as before. The private sector complies. After the transaction, government employees have no money but they have food. On the other hand, the private sector has&lt;/p&gt;&#xA;&#xA;&lt;p&gt;a) Real food quantity $C - T=C_p$ as before&lt;br&gt;&#xA;b) &lt;em&gt;Increased&lt;/em&gt; money holdings equal to $M + M_n$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And the question is : &lt;em&gt;how does the private sector experience its new situation&lt;/em&gt;? What does it mean for the private sector to have more money holdings than before? Well, the private sector accepted the new money brought by the government employees, so it must be the case that this new money is considered to bear the same value, the same credibility as the pre-existing money. This in turn means that all money bills are thought to have &lt;em&gt;purchasing power&lt;/em&gt;. It follows that the private sector has in its hands &lt;em&gt;more purchasing power than previously&lt;/em&gt;, $M+M_n$, but the same amount of output, $C - T$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;From here on, the standard story is that people will try to use $M+M_n$ to buy more food and consume more, but since available output is the same, $C-T$, this will increase prices (imagining a &quot;bid war&quot; to buy the output). This story is &quot;standard&quot;, because it has been observed too many times around the world. Although governments have not eliminated taxes, they have on occasion printed additional money in an attempt to reduce the tax burden or increase government expenses without increasing taxes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I will describe now two conceivable scenarios (alternatives or in sequel) that do not lead to increased prices:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Α)&lt;/strong&gt; People do not attempt to increase their consumption with their newly increased purchasing power. They just stash away $M_n$. &#xA;Next year, the same cycle happens, the government prints an additional $M_n$ quantity of money to pay its employees, the private sector save this new money on top of its previous savings etc,: the price level stays the same, while the private sector has stashed $2M_n$ away. After $k$ years, the private sector will have saved $k\cdot M_n$ in paper money... &lt;em&gt;To do what with it&lt;/em&gt;? Look at it and &quot;feel rich&quot; but never actually use it?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Well, historical experience tells us that people will tend to use this additional money, exactly because they accept that it carries purchasing power. It appears that people are not content to just look at stacks of money bills and rejoice. I mean, initially they do, but then they want to go out there and translate these stacks of money bills into increased consumption (the Scrooge McDuck type of person is, alas, a negligible minority).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;B)&lt;/strong&gt; People are not Scrooge McDucks and try to buy more than before with their increased money holdings. But sellers do not increase their prices, they even resist any attempts by the buyers to offer a higher amount of money,  and sell at the old prices until they run out of stock. Result: at the end of the day, people realize that their increased money holdings were not good enough to bring them higher consumption. But this will make them question and re-assess how valuable, after all, is this money. Which leads us to the exact same consequences with a price increase: &lt;em&gt;all&lt;/em&gt; money will lose part of its carrying value in both cases.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;People will enjoy the same consumption level as before, but they will feel happier now that they don't pay taxes. But since the government keeps printing new money year after year, prices will go to heaven. Again, historical experience says that people appear to dislike high inflation, probably because in the real world with millions of products the price system plays an important signalling role, which appears to be understood and be valued by the people. High inflation impairs this function, increasing the transactional costs of the people. So one should offset the gain in happiness from the feeling of not paying taxes, to the problems that will be created by high inflation... since recorded episodes of hyperinflation as well as high inflation were time and again ended by government action, it seems that people support such measures, which implies that even though they don't like paying taxes, they dislike more living in high inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;ADDENDUM&lt;/strong&gt;&lt;br&gt;&#xA;The OP seems particularly concerned about the tax collection costs, as he indicated in a comment to this answer, putting the matter &quot;at the core&quot; of its question. Here are estimates of the tax collection costs for many countries for three recent years, from OECD. OECD-30 mean value is at $1\%$ of revenue collected.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/OR1lE.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/OR1lE.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An excel file with the data series and the diagram can be downloaded &lt;a href=&quot;http://dx.doi.org/10.1787/888932391754&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;strong&gt;here.&lt;/strong&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;More info from OECD on the matter of tax collection efficiency, &lt;a href=&quot;http://www.oecd-ilibrary.org/sites/gov_glance-2011-en/12/08/index.html?itemId=%2Fcontent%2Fchapter%2Fgov_glance-2011-64-en&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;strong&gt;here.&lt;/strong&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2018-02-11T17:09:43.690" LastActivityDate="2018-02-11T17:09:43.690" CommentCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="11085" PostTypeId="1" AcceptedAnswerId="11112" CreationDate="2016-03-14T06:58:15.870" Score="2" ViewCount="142" Body="&lt;p&gt;There are two coins, Coin A and Coin B. You can transfer Coin A for Coin B or Coin B for Coin A only in the two following ways:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Give 100 Coin A for 10 Coin B&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Give 10 Coin B for 50 Coin A&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this situation, which of the coins is worth a higher value? A friend of mine presented this problem and we were unable to find a solution. Any thought?&lt;/p&gt;&#xA;" OwnerUserId="7620" LastActivityDate="2016-03-15T11:21:52.730" Title="In this scenario, which coin is more valuable?" Tags="&lt;currency&gt;&lt;value&gt;" AnswerCount="4" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="11086" PostTypeId="2" ParentId="11085" CreationDate="2016-03-14T07:30:04.980" Score="5" Body="&lt;p&gt;The word 'valuable' is not well defined in this question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I am willing to buy an apple from you for \$1 and but I am only willing to sell an apple to you for \$4 which is more valuable: An apple or \$2? You cannot tell because neither option is sufficient to get the other option by trade.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You are faced with the same dilemma in your problem. There are different prices at which to sell and buy so neither one of the options is clearly more valuable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT: &lt;br&gt;&#xA;As @Adam Bailey points out in his excellent answer in this situation even though the exact value ratio is ill defined, it is clear that coin B is more valuable than coin A, because you can exchange one coin B for five coin A, thus you can get more by chosing coin B.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2016-03-14T19:08:41.527" LastActivityDate="2016-03-14T19:08:41.527" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11087" PostTypeId="2" ParentId="11082" CreationDate="2016-03-14T07:55:59.963" Score="5" Body="&lt;p&gt;The current answers correctly point out that financing the government via the printing press would generate inflation. Since inflation is bad, this would be a bad policy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, these answers miss out on several advantages of an inflation tax. Firstly, there would be substantial productivity gains since the entire government revenue system, tax advisors, firm employees dealing with tax reports, etc. would not be necessary. The bureaucratic burden from current taxation systems are substantial. Secondly, the disadvantages of higher inflation no longer seem as severe as in the past. Under proper regulatory control (we will come to that), inflation rates could be increased by several percentage points without the risk of hyperinflation or inflation volatility. A higher average inflation rate may even make it less likely that we would hit zero interest bounds which central banks currently struggle with. A moderate increase in inflation may therefore not be bad.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Unfortunately, even in the most favorable scenario where inflation comes at no costs it would be a bad idea to switch the government revenue to inflation:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;The inflation tax is a one-dimensional instrument. Your income tax may depend for example on household size, since the government believes that if your income is shared by a large family, you should pay less taxes. Or the amount of VAT you pay will in many countries depend whether you spend it on luxury cars or food. An inflation tax cannot make such distinctions. This is probably the prime answer to almost all questions of the kind &quot;why don't we simplify taxation by doing X&quot;. It would be not very hard to remove a lot of bureaucratic costs by simplifying taxation systems. But the result will often conflict with what the population/government perceives as &quot;fair&quot;.&lt;/li&gt;&#xA;&lt;li&gt;Inflation taxes are (more or less) equivalent to taxes on cash holdings. However, cash holdings for example in the U.S. are less than 1/20 of annual GDP. Thus, you would need massive inflation taxes of about 200% to get anywhere near the current federal government revenue (&gt;10% of GDP). At this point it is no longer clear (read: very unlikely) whether the reduction in bureaucracy outweighs the costs of inflation. &lt;/li&gt;&#xA;&lt;li&gt;It is hard to create reliable institutions which would guarantee a fixed stream of income to the current government and resist pressure from the government to increase this income. Even in countries with independent central banks, it is not uncommon for political parties to argue for reducing central bank independence.&lt;/li&gt;&#xA;&lt;li&gt;The costs of tax reforms: this is maybe the most interesting answer to the question why switching from inefficient system A to efficient system B may be...inefficient! Suppose you just sold your house and gave a credit to the person who bought the house. You plan to live from mortgage payments of the new house owner. The next day the government announces that it will switch to an inflation based system of government revenue. Suddenly, the mortgage payments are almost worthless. The loss is of course equivalent to the gain of the new house owner. However, this redistribution may conflict with the government's redistribution goal. The government then must expend costly effort to reverse the distributional effects of the tax reform. If these costs are too high, it is inefficient to switch from A to B, even though in the long run B may be more efficient.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="5635" LastActivityDate="2016-03-14T07:55:59.963" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11088" PostTypeId="1" CreationDate="2016-03-14T09:10:08.203" Score="5" ViewCount="6059" Body="&lt;p&gt;The Japanese and Korean car and steel industries are often touted as examples of successful infant industries. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm trying to find some famous examples of failed infant industries. (They don't seem to show up easily on a quick Google search, so it would perhaps seem like there are not many such examples?) &lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2019-01-25T06:21:31.533" Title="What are some famous examples of infant industries that failed?" Tags="&lt;international-trade&gt;&lt;free-trade&gt;" AnswerCount="4" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11090" PostTypeId="2" ParentId="11088" CreationDate="2016-03-14T11:15:36.287" Score="1" Body="&lt;p&gt;I think Argentina has several failed infant industries, a good starting point is at the section Relative Lag on the &lt;a href=&quot;https://en.wikipedia.org/wiki/Economic_history_of_Argentina#Relative_lag&quot; rel=&quot;nofollow&quot;&gt;Wikipedia page&lt;/a&gt;.  A more specific example is when they tried nationalizing the railways from the British, as seen &lt;a href=&quot;http://cupola.gettysburg.edu/cgi/viewcontent.cgi?article=1053&amp;amp;context=ghj&quot; rel=&quot;nofollow&quot;&gt;in this article&lt;/a&gt;.  &lt;/p&gt;&#xA;" OwnerUserId="5780" LastEditorUserId="1601" LastEditDate="2016-04-13T12:29:37.853" LastActivityDate="2016-04-13T12:29:37.853" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11092" PostTypeId="2" ParentId="10821" CreationDate="2016-03-14T12:47:41.330" Score="5" Body="&lt;p&gt;The oil price has fallen because production is very high, demand has not risen in line with production, and so the world's existing oil stores have filled.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Neither hydro, nor wind nor PV are substitutes for oil, so they can't directly drive down oil prices. To explain: hydro, wind and PV generate electricity; but very little oil is used to generate electricity. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Machines that do consume oil products - and these machines are predominantly vehicles - cannot just choose to use electricity instead of oil products. They require different engines.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the long term (let's say the next 30 years), as vehicles get electrified and / or switch to cleaner fuels, renewables will make oil consumption obsolete. The first million electric vehicles took 30 years to sell. The next million vehicles will sell in 18 months. (source: Bloomberg New Energy Finance). But those long-term effects aren't priced into today's price of oil, because the oil that is stored, and being extracted today, will all have been burnt by then. If you want to see signs of the long-term effects, then you might find them in the share prices of oil, gas and coal producers, which are supposed to embody long-term information.&lt;/p&gt;&#xA;" OwnerUserId="44" LastEditorUserId="44" LastEditDate="2016-03-14T13:11:12.940" LastActivityDate="2016-03-14T13:11:12.940" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11093" PostTypeId="1" AcceptedAnswerId="11095" CreationDate="2016-03-14T14:21:18.913" Score="3" ViewCount="3483" Body="&lt;p&gt;Suppose consumption set $X=R_{+}^N$. According to the definition preferences are continuous if for any $x\in X$ sets $(y\in X:x\succeq y)$ and $(y\in X:y\succeq x)$ are closed. It is clear that preferences represented by utility function $u(k_{1},k_{2})=k_{1}+k_{2}$ are continuous. But now lets take some bundle x=(1,1). Then set $(y\in X:y\succeq (1,1))$ is not closed as it approaches infinity. My question is how to handle with this contradiction?&lt;/p&gt;&#xA;" OwnerUserId="7119" LastEditorUserId="118" LastEditDate="2016-03-14T14:56:15.413" LastActivityDate="2016-03-14T22:18:07.727" Title="Continuous preferences definition" Tags="&lt;mathematical-economics&gt;&lt;preferences&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11094" PostTypeId="1" CreationDate="2016-03-14T15:01:45.610" Score="1" ViewCount="99" Body="&lt;p&gt;Maybe it's just my english...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In reading some notes on the estimations of parameters for stationary models like AR, MA, and ARMA, the author states that when we apply OLS to a simple AR(1) $\{Y_t\}$ with mean $\mu$, «we sometimes say, except for end effects, $\hat \mu = \bar Y$, where $\bar Y$ is the sample average.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What does the expression «end effects» mean?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated. &lt;/p&gt;&#xA;" OwnerUserId="118" LastActivityDate="2016-03-14T15:01:45.610" Title="What's an end effect?" Tags="&lt;econometrics&gt;&lt;time-series&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11095" PostTypeId="2" ParentId="11093" CreationDate="2016-03-14T15:45:04.297" Score="3" Body="&lt;p&gt;It appears that you are conflating a &quot;closed interval&quot; with a &quot;closed set&quot;. Certainly, (multidimensional) closed intervals are closed sets, but the concept of a closed set is wider. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A closed set is, well, only closed, and not necessarily bounded. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand that the everyday-meanings of the terms &quot;closed&quot; and &quot;bounded&quot; can indicate that &quot;being closed is a stronger property than being bounded&quot; (i.e. that being closed implies being bounded), but this is not true in mathematics. Neither property implies the other.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Yes, a set can be bounded and yet it may not be closed. Standard example: Consider the set of &lt;em&gt;rational&lt;/em&gt; numbers  in $[1,3]$ . This is a bounded set. Now consider the sequence of rational numbers&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$x_{n+1} = \frac {x_n}{2} +\frac {1}{x_n},\;\; x_0 = 3$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The sequence remains in the $[1,3]$ interval, but its &lt;em&gt;limit&lt;/em&gt; is $\sqrt 2$, which is not rational. So this set of rationals in $[1,3]$ is bounded but it is not closed, because it does not contain a limit point of a sequence that can be constructed in it, stay in it, except its limit point.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, what &quot;closed set&quot; means then in mathematics? There are various ways to look at it:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A closed set is a set whose complement is open.&lt;br&gt;&#xA;A closed set is a set that coincides with its &quot;closure&quot;.&lt;br&gt;&#xA;A closed set is a set that contains all its limit points.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Try them out mentally and stick with what is more intuitive to you.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2016-03-14T22:18:07.727" LastActivityDate="2016-03-14T22:18:07.727" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11096" PostTypeId="1" CreationDate="2016-03-14T16:21:02.237" Score="1" ViewCount="38" Body="&lt;p&gt;In all of economics that I know, people maximize their Utility $U_i=f(x_1,...,x_n)$, and therefore make some kind of cost-benefit analysis.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One obvious criticism to this model is that we often do not have the right information on the $x_k$ (it is hard to have a parameter for altruism for instance).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But except from that, is this formalism  irrefragable ? Or are they theoretical limitations, situations that it cannot account for ? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would gladly accept any thought or reference on the subject&lt;/p&gt;&#xA;" OwnerUserId="2709" LastActivityDate="2016-03-14T16:21:02.237" Title="Limits of utilitarianism?" Tags="&lt;utility&gt;&lt;theory&gt;" AnswerCount="0" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="11097" PostTypeId="2" ParentId="11078" CreationDate="2016-03-14T16:43:49.450" Score="1" Body="&lt;p&gt;There are typically two ways to go about estimating causal relationships in the data: by using exogenous variation in the &quot;right-hand-side&quot; variable, or by using structural estimation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Unless there's an experiment or a quasi-experiment of some sort, the technique economist's apply is instrumental variable (IV) estimation. The idea is that to find the causal impact of x on y in a situation in which x is partly determined by y itself or by a third variable that also affects y, is to find a source of variation that only has a direct effect on x. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Machine learning techniques are not typically used to estimate causal relationships. Instead, they are often used for forecasting. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Mixing the two: machine learning and causal inference is a focus of current research, but apparently there are no solid, off-the-shelf methods to use. Intuitively, the issue is that in the example above, you will need all of x to produce the best forecast of y, but you want only the exogenous par of x to get a sense of the causal relationship between x and y. &lt;/p&gt;&#xA;" OwnerUserId="7593" LastActivityDate="2016-03-14T16:43:49.450" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="11099" PostTypeId="2" ParentId="6835" CreationDate="2016-03-14T17:51:54.423" Score="1" Body="&lt;p&gt;I'll take the pro-consumer side of the equation. Started payment for my condo with a 148K loan @ 30 years. 2 years and 50K paid down later I was in far better financial shape. After 2 years I refinanced $100K remaining on the loan to a 15 year mortgage. It has not been 6 years yet and I'm already down to owing just $55K. If my projections are right I will pay this loan off at the end of 2017.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ok how is the lender hurt. I paid interest for 7 of 15 years so the bank still made money. Did they make as much money as they would have had I stayed with a 30 year mortgage product NO! Did they make as much as they would have had I not paid down my 15 year mortgage in 5 years NO!  But did the Mortgage company still make a tidy sum even with my 7 year payoof in my eyes yes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is a win win if the customer pays early and the bank gets its money back. Ask any of those banks that died due to the sub prime mortgage crisis if they would have rather those true dead beat lenders had prepaid principal rather than defaulting on their loans. The difference between one who prepares and one who defaults is with one you are made whole. Yes you could lose on interest rate mis-match.&lt;/p&gt;&#xA;" OwnerUserId="7625" LastActivityDate="2016-03-14T17:51:54.423" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11100" PostTypeId="2" ParentId="11085" CreationDate="2016-03-14T18:52:35.133" Score="3" Body="&lt;p&gt;Since the exchange ratio of A to B is 10 to 1 in the first transfer and 5 to 1 in the second, it is clear that B is more valuable, although as @denesp says the exact value ratio is undefined.  It's a very odd question because it focuses only on transfers between the coins and says nothing about the rates at which the coins might exchange for real goods, in other words, the prices of goods in terms of the coins.  &lt;/p&gt;&#xA;" OwnerUserId="1417" LastActivityDate="2016-03-14T18:52:35.133" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11101" PostTypeId="1" CreationDate="2016-03-14T19:09:23.637" Score="0" ViewCount="52" Body="&lt;p&gt;Does it have to do with cultural factors? Ex: they were colonies of Spain and Portugal who themselves are not that great at managing their economies relative to other western European countries.&lt;/p&gt;&#xA;" OwnerUserId="7627" LastActivityDate="2016-03-14T22:30:01.530" Title="Why do Latin American countries fare among the worst at managing inflation" Tags="&lt;macroeconomics&gt;&lt;monetary-policy&gt;&lt;inflation&gt;&lt;government-debt&gt;&lt;default&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11102" PostTypeId="1" CreationDate="2016-03-14T19:23:57.423" Score="1" ViewCount="52" Body="&lt;p&gt;I have a problem that at the first sight seems not as coalitional game, but rather could be described as logistic regression with all dichotomous variables: 1 response variable &lt;strong&gt;Y&lt;/strong&gt; (I would call it later as a feature/violet star) and 5 explanatory variables &lt;strong&gt;A, B, C, D&lt;/strong&gt; and &lt;strong&gt;E&lt;/strong&gt; (also binary).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;I'm trying to infer which explanatory variables contribute the most to Y and preferably somehow assess quantitatively their severity&#xA;(something like ranking predictors, variable selection, etc.) and I find strong similarities with Shapley value.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;It's very similar to coalitional games, because of it's strong cooperative nature, but I'm not sure whether I can use it in this particular case.&#xA;The main problem with this approach is stated at the very bottom in bold.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Could you have a look on the situation below and recommend some methods how using Shapley value to infer which explanatory and to what extent contribute the most to response Y (feature/violet star).&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's say, we have five different objects denoted as labelled balls: A, B, C, D, E creating some subsets and the single special feature of interest&#xA;marked as violet star. If the star is filled, the feature is present in a specific set, whereas hollow star denotes its absence.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/fxryw.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/fxryw.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any subset of these five objects (there're $2^5 - 1$ possible types of such nonempty subsets) can appear many times, sometimes with the feature being present and sometimes&#xA;without it, as depicted below, where there're six instances of the full set and $\frac{2}{3}$ of them have the feature.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can assume (if it's needed) there's always at least one instance of the full set with the&#xA;feature present (for example the one marked with thicker red envelope).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For every of the $2^5 - 1$ possible nonempty subsets we have three values, e.g. for (A, C, E):&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;$F_{ACE}$ - number of all occurrences of subset (A, C, E) \textbf{with} the feature.&lt;/li&gt;&#xA;&lt;li&gt;$N_{ACE}$ - number of all occurrences of subset (A, C, E) \textbf{without} the feature.&lt;/li&gt;&#xA;&lt;li&gt;$T_{ACE} = F_{ACE} + N_{ACE}$ - simply total number of all appearances of subset (A, C, E).&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The cardinalities of instances $T_X$ of every subset type $X$ can be different, but there's a very obvious and rather trivial rule that&#xA;      if $X \subset Y$ then $T_X \geq T_Y$. For example, $(A, C, E) \subset (A, B, C, D, E)$ thus $T_{ACE} \geq T_{ABCDE}$.&#xA;      That's because any instance of subset (A, B, C, D, E) is at the same time an instance of (A, C, E), but for narrower (A, C, E)&#xA;      we can have more instances.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;In this description I use six instances for each subset type just bacause of limited space for pictures and those six&#xA;              instances are intended to reflect the overall proportion between instances having and lacking the feature.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Among all these $2^5 - 1$ types, some of them are more likeli to have&#xA;the feature (for this particular subset/type, there're more instances with the feature than without it), whereas other types are more prone to lack it. Please look at two figures below and the following numbers:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/dNL94.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/dNL94.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&#xA;&lt;a href=&quot;https://i.stack.imgur.com/cefwh.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/cefwh.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&#xA;$$&#xA;\frac{F_{ACE}}{T_{ACE}} = \frac{5}{6}, ~~&#xA;\frac{F_{BD}}{T_{BD}} = \frac{1}{6}, ~~&#xA;\frac{F_{ABCDE}}{T_{ABCDE}} = \frac{4}{6} ~\text{(the situation of the very first picture)}&#xA;$$&#xA;A blatantly obvious property is that in my model the ratio $\frac{F}{T}$ is not monotonic (in neither direction) with respect to&#xA;inclusion relationship.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And finally the most crucial property I would like to make my model had, is some kind of cooperative interaction between objects in subset,&#xA;which is the last thing I'm going to describe beneath.&#xA;A moment before, we've spotted that the subset (A, C, D) is exceptionally favorable for the feature appearance, so we would pay a special attention to its constituent singletons and their corresponding ratios:&#xA;$$&#xA;\frac{F_A}{T_A} = \frac{2}{6} ~~ \text{(2nd &amp;amp; 4th)}, ~~ \frac{F_C}{T_C} = \frac{2}{6} ~~ \text{(2nd &amp;amp; 3rd)},&#xA;~~ \frac{F_E}{T_E} = \frac{1}{6} ~~ \text{(2nd only)}&#xA;$$&#xA;&lt;a href=&quot;https://i.stack.imgur.com/ZO4u0.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/ZO4u0.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&#xA;&lt;a href=&quot;https://i.stack.imgur.com/4Ujpn.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/4Ujpn.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&#xA;&lt;a href=&quot;https://i.stack.imgur.com/lqLNJ.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/lqLNJ.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Even now, we can clearly see a sort of cooperative, since those three singletons (A), (C) and (E) all together cover only three subsets&#xA;{2nd, 3rd, 4th} = {2nd, 4th} $\cup$ {2nd, 3rd} $\cup$ {2nd},&#xA;whereas subset (A, C, E) triggers off the feature in most subsets except the 1st one.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Moreover, merging A with E or C with E gives none additional coalitional effect, so E itself contributes poorly to overall effect.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/s5Aep.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/s5Aep.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&#xA;&lt;a href=&quot;https://i.stack.imgur.com/Rdb2t.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Rdb2t.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, merging A with C gives a significant interaction resulting with the feature apperance in more instances than it follows from simply&#xA;summing instances: $\{2nd, 3rd, 4th, 6th\}$ vs. $\{2nd, 3rd, 4th\}$. The occurrence in the 6th instance is this coalitional effect.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/OB4Vc.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/OB4Vc.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Nonetheless, the E is necessary to trigger off the full potential and reveal the feature also in the 5th instance, as depicted in the second figure.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To sum up, I would like to infer from the data which single object are favourable for the feature appearance. In our example we can&#xA;clearly see that A and C are very conducive (in cooperation with other), E is not so useful, but required to reach the full potential,&#xA;whereas B and D seem to have no cooperative effect on the feature.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;The main problem with incorporating the Shapley value: I would like to use ratio $\frac{F_X}{T_X}$ as characteristic function $v(X)$ for the particular subset $X$ ($v:2^{5} \mapsto \mathbb{R}$), but this ratio isn't monotonic with the respect to inclusion relation and the total coalition $(A, B, C, D, E)$ would get smaller worth than narrower $(A,C,E)$ (compare 1st and 2nd figure). I don't think that B or C should bring negative contribution, rather neutral.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Do you see how can I infere such contribution?&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="7626" LastActivityDate="2016-03-14T19:23:57.423" Title="Coalitional games and Shapley value used for assessing explanatory variable contribution" Tags="&lt;game-theory&gt;&lt;regression&gt;&lt;cooperative-game-theory&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11103" PostTypeId="2" ParentId="10597" CreationDate="2016-03-14T19:49:36.177" Score="1" Body="&lt;p&gt;Notice, $z$ is in $Y$, and so it is a lottery. Lemma 3.1 uses the standard vNM techniques to identify $u: Y \to \mathbb{R}$. Now, $J$ is defined as a function from $L_0$ to $\mathbb{R}$, so the statement $J(z) = 0$ is via the natural identification between $Y$ and constant acts, $L_c$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Condition (ii) of Lemma 3.2 says that $J(y) = u(y)$ for all $y \in L_c \cong Y$. So, $u(z) = J(z) = 0$, or, in the other notation, $u \circ z = 0$.&lt;/p&gt;&#xA;" OwnerUserId="398" LastActivityDate="2016-03-14T19:49:36.177" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11104" PostTypeId="1" CreationDate="2016-03-14T21:22:11.927" Score="3" ViewCount="808" Body="&lt;p&gt;On wikipedia, I read that the currently-used formal definition of a natural monopoly is where “[a]n industry in which multi-firm production is more costly than production by a monopoly”.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I tried looking up things related to monopolies and subadditivity, but couldn't find anything that made it easy to understand.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To further quote wikipedia, &quot;Baumol also noted that for a firm producing a single product, scale economies were a sufficient but not a necessary condition to prove subadditivity.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that in the above quote, I'm almost certain the &quot;scale economies&quot; they're talking about are cases where the optimum scale is large enough to serve the entire market. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So my question is, what is another set of conditions that don't involve &quot;scale economies&quot; that is a sufficient condition to prove subadditivity, and thus show that a situation is a natural monopoly?&lt;/p&gt;&#xA;" OwnerUserId="6149" LastEditorUserId="6149" LastEditDate="2016-03-14T22:58:51.917" LastActivityDate="2016-04-14T19:32:31.370" Title="What are examples of natural monopolies that don't have overwhelming economies of scale?" Tags="&lt;monopoly&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11105" PostTypeId="2" ParentId="11101" CreationDate="2016-03-14T22:30:01.530" Score="2" Body="&lt;p&gt;Perhaps you should look up the following collection of studies, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.nber.org/books/dorn91-1&quot; rel=&quot;nofollow&quot;&gt;&lt;strong&gt;Dornbusch and Edwards (ed.), The Macroeconomics of Populism in Latin America(1991)&lt;/strong&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is freely downloadable from its official site. Here is the opening paragraph of the Editors' piece&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;Latin America’s economic history seems to repeat itself endlessly, following irregular and dramatic cycles. This sense of circularity is&#xA;  particularly striking with respect to the use of populist&#xA;  macroeconomic policies for distributive purposes. Again and again, and&#xA;  in country after country, policymakers have embraced economic programs&#xA;  that rely heavily on the use of expansive fiscal and credit policies&#xA;  and overvalued currency to accelerate growth and redistribute income.&#xA;  In implementing these policies, there has usually been no concern for&#xA;  the existence of fiscal and foreign exchange constraints. After a&#xA;  short period of economic growth and recovery, bottlenecks develop&#xA;  provoking unsustainable macroeconomic pressures that, at the end,&#xA;  result in the plummeting of real wages and severe balance of payment&#xA;  difficulties. The final outcome of these experiments has generally&#xA;  been galloping inflation, crisis, and the collapse of the economic&#xA;  system. In the aftermath of these experiments there is no other&#xA;  alternative left but to implement, typically with the help of the&#xA;  International Monetary Fund (IMF), a drastically restrictive and&#xA;  costly stabilization program. The self-destructive feature of populism&#xA;  is particularly apparent from the stark decline in per capita income&#xA;  and real wages in the final days of these experiences.&lt;/em&gt;&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="61" LastActivityDate="2016-03-14T22:30:01.530" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11107" PostTypeId="1" CreationDate="2016-03-15T02:20:47.057" Score="3" ViewCount="56" Body="&lt;p&gt;When I assume an one-factor Gaussian term structure model such as the Vasicek model&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$dr_t = \kappa(\mu - r_t)dt + \sigma dW_t$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and specify a constant market price of risk of $dW$ to be $\lambda_t = \lambda_y$ a constant, use the usual change of measure &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$d\widetilde{W}_t = dW_t + \lambda_y dt$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and solve for the drift term of the return of the zero coupon bond &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac{dP(t, \tau}{P(t, \tau)} = \mu_P(r_t, \tau) dt + \sigma_P(r_t, \tau) dW_t$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I get the bond risk premia to be &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\mu_P - r_t = -b(\tau)\sigma\lambda_y$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which is a CAPM-type equation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, if I apply CAPM to the zero-coupon bond, e.g. calculate the returns on the zero coupon bond and calculate its correlation $\rho_{r_B, r_M}$ with some global investible market $M$, I get the expected excess return on $\tau$-year zero coupon bond to be $\rho_{r_B, r_M} \sigma_{r_B} \lambda$ where $\lambda$ is the &quot;global price of risk&quot; calculated from the returns of the global investible market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These two bond risk premia are both CAPM-type but I have trouble internalize them together. For example, in the Gaussian affine model case, there is not a term that looks like correlation, which appears in the CAPM solution. What is the connection between the bond risk premier from the Gaussian affine term structure model and the one from the good old CAPM?&lt;/p&gt;&#xA;" OwnerUserId="7629" LastActivityDate="2016-03-15T02:20:47.057" Title="Gaussian Affine Model and CAPM" Tags="&lt;asset-pricing&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11108" PostTypeId="1" CreationDate="2016-03-15T07:55:14.130" Score="1" ViewCount="2075" Body="&lt;p&gt;I want to convert a GDP series (I have it in current euros) of a country to constant 2005 international dollars. My idea is to divide the series by year 2005's $PPP$ conversion factor (the exchange rate) and adjust for inflation by dividing the whole series by the country's GDP deflator $(base \; year=2005)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this the right way to go? Do I need to adjust for inflation?&lt;/p&gt;&#xA;" OwnerUserId="7631" LastEditorUserId="2776" LastEditDate="2017-08-04T09:15:41.920" LastActivityDate="2018-07-20T14:47:31.397" Title="Converting a GDP series to constant international dollars" Tags="&lt;gdp&gt;&lt;exchange-rates&gt;&lt;purchasing-power-partity&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11109" PostTypeId="2" ParentId="11085" CreationDate="2016-03-15T09:08:12.677" Score="0" Body="&lt;p&gt;Give 100 Coin A for 10 Coin B&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Give 10 Coin B for 50 Coin A&lt;/p&gt;&#xA;&#xA;&lt;p&gt;100a &gt;&gt;&gt; 10b   (Think: 100 &quot;pennies&quot; buys 10 &quot;dimes&quot;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;100b &gt;&gt;&gt; 500a  (Think: 100 &quot;dimes&quot; buys 500 &quot;pennies&quot;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Coin &quot;B&quot; is of higher value.&lt;/p&gt;&#xA;" OwnerUserId="7632" LastActivityDate="2016-03-15T09:08:12.677" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11110" PostTypeId="2" ParentId="11104" CreationDate="2016-03-15T09:57:22.267" Score="0" Body="&lt;p&gt;You seem to be looking for a monopoly with barriers to entry other than capital. A patent grants the holder a monopoly that prevents other businesses from entering the market for a certain number of years, even if the product may be produced very cheaply.&#xA;Crystal methamphetamine is illegal to produce but can be made very cheaply. The barriers to entry are not the scale or infrastructure, but rather the law enforcement agents and the likelihood that new entrants to the market will be murdered by current holders of the local monopoly.&lt;/p&gt;&#xA;" OwnerUserId="7632" LastActivityDate="2016-03-15T09:57:22.267" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11111" PostTypeId="2" ParentId="4758" CreationDate="2016-03-15T10:06:56.720" Score="2" Body="&lt;p&gt;Say it's Japan with whom the US has a trade deficit of \$400,000 this year.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This means that this year, the US gave Japan \$400,000 more green pieces of paper than Japan gave the US. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the Japanese are silly, then they might just sit on this huge pile of green paper and never make use of it. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But more likely, the Japanese will in the future use this money to buy goods and services from the US. At which point the US must repay its debt of \$400,000 in the form of goods and services.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is a form of &lt;strong&gt;intertemporal trade&lt;/strong&gt;. This year, the US is borrowing from Japan a net total of \$400,000 worth of goods and services. In the future, the US must repay this debt.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastEditorDisplayName="user18" LastEditDate="2016-03-15T14:23:35.753" LastActivityDate="2016-03-15T14:23:35.753" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11112" PostTypeId="2" ParentId="11085" CreationDate="2016-03-15T11:13:49.620" Score="0" Body="&lt;p&gt;From the first equation,&#xA;$$100A_{1}=10B_{1}$$&#xA;so $A_{1}=0.1B_{1}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From the second equation,&#xA;$$10B_{2}=50A_{2}$$&#xA;so $A_{2}=0.2B_{2}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So it follows,&#xA;$$0.2B_{2}\ge A_{2} &amp;gt; A_{1} \ge 0.1B_{1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, as $A_{2}&amp;gt;A_{1}$ then the only possible conclusion from the inequality is that for sure $0.2B_{2}&amp;gt;A_{1}$ and thus we deduce that $B$ has the higher value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence if you are forced to choose strictly within the constraints set out in the problem then one would be best served by choosing only the B coin.  &lt;/p&gt;&#xA;" OwnerDisplayName="user7601" LastEditorDisplayName="user7601" LastEditDate="2016-03-15T11:21:52.730" LastActivityDate="2016-03-15T11:21:52.730" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11113" PostTypeId="2" ParentId="10229" CreationDate="2016-03-15T17:24:46.180" Score="1" Body="&lt;p&gt;In addition to the reasons provided by EnergyNumbers, there are possibly a few more, such as:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Deflation (even if small) is broadly considered worse that moderate inflation. This is because deflation is very difficult to fight. If consumers expect prices to fall (because of deflation) they will wait before consuming and push consumption into the future. This fall in current demand reduces prices again, which increases deflation. The cycle then keeps going on, which is a phenomenon known as the &lt;strong&gt;deflationary spiral.&lt;/strong&gt; One reason deflation is bad is for the same reasons inflation is bad (e.g. menu costs). On top of that, deflation is an issue because it increases real wages, which increases costs of firms, which can have negative effects on employment. Japan has tried to fight deflation unsuccessfully for some time for example, leading to what is called &lt;em&gt;&quot;Japan's lost decade&quot;&lt;/em&gt;. So once you get a little deflation it may persist for a long time. Policymakers are potentially scared, that if they are always at 0 inflation that a small shock could push them into deflation, which is very bad. So having small, positive inflation is a buffer against deflation. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Many countries have estimated or continue to estimate inflation using a Laspeyres index. It is well known, that such an index has an upward bias, i.e. overestimates inflation. Let's say we want to have 0 inflation. If the Laspeyres index says we have 0 inflation, we probably have negative inflation, which is also not optimal. So &lt;strong&gt;measurement error&lt;/strong&gt; provides a case for positive inflation numbers.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Inflation provides &lt;strong&gt;government revenue&lt;/strong&gt; through what is called &quot;inflation tax&quot;. Further, most governments are in debt and holders of debt profit from inflation.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="5557" LastEditorUserId="5557" LastEditDate="2016-03-15T17:46:45.593" LastActivityDate="2016-03-15T17:46:45.593" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11115" PostTypeId="2" ParentId="11104" CreationDate="2016-03-15T18:40:51.263" Score="1" Body="&lt;p&gt;One answer I found are natural monopolies that form on the basis of significant network effects. While economies of scale decrease the cost per unit as you can produce more units, network effects increase the value per unit as you sell more units. These two things together seem like they cover everything, but I haven't read any sources that mention whether there are other situations than economies of scale and network effects. Btw, I'm including &quot;economies of scope&quot; in my mention of economies of scale, since they're so similar.&lt;/p&gt;&#xA;" OwnerUserId="6149" LastActivityDate="2016-03-15T18:40:51.263" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11116" PostTypeId="2" ParentId="9441" CreationDate="2016-03-15T18:50:37.090" Score="0" Body="&lt;p&gt;The people at large view monopolies as unfair market actors, and the idea of subsidizing such unfairness is the reason that real people in the current world don't want to subsidize monopolies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you're asking why economists don't advocate subsidizing monopolies, I'm actually not sure. The standard treatment of monopolies seems to lend itself to that advocation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But the real reason monopoly subsidies aren't appropriate is because they're simply not necessary (and if used would almost definitely lead to more inefficiency). Price discrimination eliminates most if not all problems of inefficient allocation, since if the monopoly can price discriminate, it can set different prices such that most if not all potentially mutually-profitable trades will be made. And the monopoly has an incentive to do this because it increases their profits above setting a single price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For more on this, economics PhD Stephen Shmanske wrote a paper entitled &lt;a href=&quot;https://www.independent.org/pdf/tir/tir_10_3_02_shmanske.pdf&quot; rel=&quot;nofollow&quot;&gt;The Monopoly Nonproblem&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="6149" LastActivityDate="2016-03-15T18:50:37.090" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11117" PostTypeId="2" ParentId="5812" CreationDate="2016-03-15T19:13:02.133" Score="0" Body="&lt;p&gt;What that source is saying is that there are two attributes of the single-price monopoly: the higher price payed by consumers that make trades with the monopoly, and the dead-weight loss resulting from consumers that do &lt;em&gt;not&lt;/em&gt; make trades with the monopoly who would if the price were at-cost.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It makes more sense if you consider a non-single-price monopoly - ie a monopoly using price discrimination. Such a monopoly can often still use a higher price for most of its customers, but price discrimination allows it to theoretically capture all mutually beneficial trades, thus maximizing pareto efficiency and eliminating the dead-weight loss entirely.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this case, because the monopoly is still using a higher price for most of its customers, the surplus (difference between the price and the cost) is mostly going to the monopoly, whereas in classic perfect competition, the surplus goes entirely to the buyers. What the exposition around #1 means is that economists are neutral on whether the buyer or seller should get all, some, or none of the surplus. In other words, the matter of who gets the surplus doesn't effect allocative efficiency, and so is treated as a non-factor in policy making.&lt;/p&gt;&#xA;" OwnerUserId="6149" LastActivityDate="2016-03-15T19:13:02.133" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11118" PostTypeId="1" CreationDate="2016-03-15T19:25:23.360" Score="2" ViewCount="197" Body="&lt;p&gt;In perfect price discrimination, all mutually beneficial trades take place, the natural monopoly captures 100% of the surplus, and pareto efficiency is achieved. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, I've read various sources that mention that, despite this, economists still advocate various taxes, regulations, or nationalization to &quot;fix&quot; the monopoly problem even in theoretical cases of perfect discrimination. Why would these things be advocated if pareto efficiency is achieved? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The only thing I can think of is that, while the lack of competition doesn't remove the incentive for a monopoly to innovate, it hugely slows down the rate of innovation, which would essentially rob society of potential improvements. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there anything to this logic? What inefficiency would exist if not pareto inefficiency?&lt;/p&gt;&#xA;" OwnerUserId="6149" LastEditorUserId="6149" LastEditDate="2016-03-15T20:32:23.300" LastActivityDate="2016-03-15T22:23:11.783" Title="Does a perfectly price discriminating natural monopoly cause externalities or any type of market failure?" Tags="&lt;monopoly&gt;&lt;efficient-markets&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="11119" PostTypeId="2" ParentId="11118" CreationDate="2016-03-15T19:53:17.443" Score="1" Body="&lt;p&gt;The question seems to be in between theoretical model and reality. In one type of theoretical model one may argue for the monopolist, in another against him. In reality it is worthwhile to mention that no monopoly can achieve first degree price discrimination. It is barely theoretically possible and not technically feasible. Other forms of price discrimination do not necessarily yield Pareto-optimal outcomes. Real world economists usually argue against monopolies in general, not against theoretical first degree price discriminating monopolies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Even if there were such a monopoly there is an answer to &quot;Why would these things be advocated if pareto efficiency is achieved?&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There may exist a multitude of Pareto-efficient allocations. A rather usual consideration for any social planner is some sort of fairness (or &lt;a href=&quot;https://en.wikipedia.org/wiki/Envy-freeness&quot; rel=&quot;nofollow&quot;&gt;envy-freeness&lt;/a&gt;, or &lt;a href=&quot;https://en.wikipedia.org/wiki/Inequity_aversion&quot; rel=&quot;nofollow&quot;&gt;inequity-aversion&lt;/a&gt;, etc.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a setting corresponding to a monopoly with first price discrimination as you say all the surplus is captured by the monopolist. This is such a distribution of surplus/goods/utility that it will probably not meet any of the usual fairness criteria.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So while the monopolist might create an efficient allocation of goods, the allocation might not, and usually will not, meet secondary criteria deemed desirable by society.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="118" LastEditDate="2016-03-15T22:23:11.783" LastActivityDate="2016-03-15T22:23:11.783" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="11121" PostTypeId="1" CreationDate="2016-03-16T04:33:10.353" Score="7" ViewCount="188" Body="&lt;p&gt;Consider Solow growth model. Let $s$ denote savings rate. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose we estimate China invests 40% of it GDP rather than consuming. Assuming China is dynamically inefficient because they are a developing nation, how can I estimate what it's $s_{gold}$ is? Furthermore, how do I decide whether China is at this $s_{gold}$ versus some other $s$?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Furthermore, how does one determine this in general? Like are there distinct characteristic patterns that allow me to understand these rates? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let our production function be $Y_t = (A_tL_t)^{1-\alpha} K_t^{\alpha}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;I am asking how one calculates $s$ and $s_{gold}$ in &lt;em&gt;practice&lt;/em&gt;, as in, if I had to find realistic numbers for these how would I do it?&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="2679" LastEditorUserId="2679" LastEditDate="2016-03-16T16:58:29.977" LastActivityDate="2016-03-16T16:58:29.977" Title="Is China at the golden savings rate s? If so, what is it?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11122" PostTypeId="2" ParentId="10872" CreationDate="2016-03-16T12:56:58.193" Score="3" Body="&lt;p&gt;The technique described in the question is almost correct. Consider a panel data set consisting of three cross-sections ($a$, $b$, and $c$) and three time-periods ($1$, $2$, and $3$). Let &lt;strong&gt;y&lt;/strong&gt; denote the column vector with the observations of the dependent variable, &lt;strong&gt;x&lt;/strong&gt; the column vector with observations of the first explanatory variable, and &lt;strong&gt;z&lt;/strong&gt; the column vector with observations of the second explanatory variable. They take these forms respectively:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\textbf{y} = &#xA;\begin{bmatrix} y_{a1} \\ y_{a2} \\ y_{a3} \\  y_{b1} \\ y_{b2} \\ y_{b3} \\ y_{c1} \\ y_{c2} \\ y_{c3} \end{bmatrix}$&#xA;; $\textbf{x} = \begin{bmatrix} x_{a1} \\ x_{a2} \\ x_{a3} \\  x_{b1} \\ x_{b2} \\ x_{b3} \\ x_{c1} \\ x_{c2} \\ x_{c3} \end{bmatrix}$;  $\textbf{z} = \begin{bmatrix} z_{a1} \\ z_{a2} \\ z_{a3} \\  z_{b1} \\ z_{b2} \\ z_{b3} \\ z_{c1} \\ z_{c2} \\ z_{c3} \end{bmatrix}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $\bar{y}_{i} = \frac{1}{3}(y_{ai} + y_{bi}+y_{ci})$, with $i = 1, 2, 3$, and equivalently for $x$ and $z$: $\bar{x}_{i} = \frac{1}{3}(x_{ai} + x_{bi}+x_{ci})$ and  $\bar{z}_{i} = \frac{1}{3}(z_{ai} + z_{bi}+z_{ci})$, both for  $i = 1, 2, 3$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is the correct way to get the CCEP estimator allowing for one common factor, as in the model described in the question:&#xA;\begin{equation*}&#xA;\begin{split}&#xA;\begin{bmatrix} y_{a1} \\ y_{a2} \\ y_{a3} \\  y_{b1} \\ y_{b2} \\ y_{b3} \\ y_{c1} \\ y_{c2} \\ y_{c3} \end{bmatrix} = \beta_{1} \begin{bmatrix} x_{a1} \\ x_{a2} \\ x_{a3} \\  x_{b1} \\ x_{b2} \\ x_{b3} \\ x_{c1} \\ x_{c2} \\ x_{c3} \end{bmatrix}+\beta_{2}\begin{bmatrix} z_{a1} \\ z_{a2} \\ z_{a3} \\  z_{b1} \\ z_{b2} \\ z_{b3} \\ z_{c1} \\ z_{c2} \\ z_{c3} \end{bmatrix}+&#xA;\gamma_{a} \begin{bmatrix} \bar{y}_{1} \\ \bar{y}_{2} \\ \bar{y}_{3} \\  0 \\ 0 \\ 0 \\ 0 \\ 0 \\ 0 \end{bmatrix}&#xA;+\gamma_{b} \begin{bmatrix}  0 \\ 0 \\ 0 \\ \bar{y}_{1} \\ \bar{y}_{2} \\ \bar{y}_{3} \\  0 \\ 0 \\ 0 \end{bmatrix} + &#xA;\gamma_{c}  \begin{bmatrix}  0 \\ 0 \\ 0 \\  0 \\ 0 \\ 0 \\ \bar{y}_{1} \\ \bar{y}_{2} \\ \bar{y}_{3}  \end{bmatrix} \\&#xA;- \beta_{1}\gamma_{a} \begin{bmatrix} \bar{x}_{1} \\ \bar{x}_{2} \\ \bar{x}_{3} \\  0 \\ 0 \\ 0 \\ 0 \\ 0 \\ 0 \end{bmatrix}&#xA;- \beta_{1}\gamma_{b}  \begin{bmatrix}  0 \\ 0 \\ 0 \\ \bar{x}_{1} \\ \bar{x}_{2} \\ \bar{x}_{3} \\  0 \\ 0 \\ 0 \end{bmatrix}&#xA;-\beta_{1} \gamma_{c} \begin{bmatrix}  0 \\ 0 \\ 0 \\  0 \\ 0 \\ 0 \\ \bar{x}_{1} \\ \bar{x}_{2} \\ \bar{x}_{3}  \end{bmatrix}&#xA;-\beta_{2} \gamma_{a}  \begin{bmatrix} \bar{z}_{1} \\ \bar{z}_{2} \\ \bar{z}_{3} \\  0 \\ 0 \\ 0 \\ 0 \\ 0 \\ 0 \end{bmatrix}&#xA;-\beta_{2} \gamma_{b} \begin{bmatrix}  0 \\ 0 \\ 0 \\ \bar{z}_{1} \\ \bar{z}_{2} \\ \bar{z}_{3} \\  0 \\ 0 \\ 0 \end{bmatrix}&#xA;-\beta_{2} \gamma_{c} \begin{bmatrix}  0 \\ 0 \\ 0 \\  0 \\ 0 \\ 0 \\ \bar{z}_{1} \\ \bar{z}_{2} \\ \bar{z}_{3}  \end{bmatrix} \\&#xA;+ \phi_{a} + \phi_{b} + \phi_{c} + \mu_{it}&#xA;\end{split}&#xA;\end{equation*}&#xA;Here, $\phi_{a},\ \phi_{b},$ and  $\phi_{c}$ are cross-sectional fixed effects and $\mu_{it}$ a well-behaved error-term that does not require any restrictions. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;An interesting remark is that if the six $\beta$s that appear together with the $\gamma$s are not restricted to be equal to each other &lt;em&gt;and&lt;/em&gt; equal to the first two $\beta$s,   more than one common factor is allowed.&lt;/p&gt;&#xA;" OwnerUserId="6566" LastActivityDate="2016-03-16T12:56:58.193" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11123" PostTypeId="1" AcceptedAnswerId="11125" CreationDate="2016-03-16T14:50:26.123" Score="4" ViewCount="235" Body="&lt;p&gt;In the context of preferences among items or choices under certainty, we can consider ordinal value function (viz., utility functions) to be equivalent under monotonously increasing transformations $u(x)\equiv F(u(x))$ for strictly increasing function $F$, but cardinal value functions only under linear transformations, i.e., $u(x)\equiv a u(x)+b$ for positive $a$ and constant $b$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For adding a reference to an article in the philosophy of economics, I'd like to know who showed this the first time and where? Von Neumann and Morgenstern (1947)? Debreu (1960)? Or is this just &quot;folklore&quot;?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm aware of the history of utility in economics, the cardinal approaches of 19th century and the switch to ordinal representations by Pareto, Samuelson, etc. But I can't find a good &quot;first&quot; reference for the above distinction.&lt;/p&gt;&#xA;" OwnerUserId="7648" LastActivityDate="2020-12-25T16:20:37.133" Title="Equality of ordinal vs. cardinal utility under transformations - who made the distinction first?" Tags="&lt;utility&gt;&lt;measuring-utility&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11124" PostTypeId="2" ParentId="11121" CreationDate="2016-03-16T15:06:09.433" Score="6" Body="&lt;p&gt;To partially answer this question, in Advanced Macroeconomics by Romer, question 1.5(c) asks &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;What saving rate is needed to yield the golden-rule capital stock?&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Answering this tells us what $s_{gold}$ is.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But before we can find this we must find the golden rule level of capital stock $(k_{gold})$.  Which we shall derive with the following equations: The intensive form of the production function, the dynamics of capital in the Solow Model, and consumption per unit of effective labour&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{cases}&#xA;Y_t = (A_t L_t)^{1-\alpha} K_t^{\alpha} = A_t L_t \left( \frac{K_t}{A_t L_t} \right)^{\alpha} = A L k^{\alpha} \\&#xA;\Rightarrow Y/AL = y = k^{\alpha} \\&#xA;\dot{k} = s y - (n+g+\delta) k \\&#xA;c = (1-s)y \\&#xA;\end{cases}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Under the balanced growth path, $\dot{k}=0$ so &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \displaystyle s k^{* \alpha} = (n+g+\delta)k^* \Rightarrow k^* = \left( \frac{n+g+\delta}{s} \right)^{\frac{1}{\alpha-1}} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We maximize $c^*$ with respect to $k^*$ to implicitly define the golden-rule level of capital per unit of effective labour&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \displaystyle \frac{\partial }{\partial k^*} c^* = \frac{\partial }{\partial k^*} (1-s)k^{* \alpha} = (1-s)(\alpha k^{* \alpha - 1}) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \displaystyle = \alpha (1 - s) \left( \frac{n+g+\delta}{s} \right)^{\frac{\alpha-1}{\alpha-1}} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Next replace $s$ with $(n+g+\delta)k^{* 1-\alpha}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \displaystyle = \alpha (1 - (n+g+\delta)k^{* 1-\alpha}) \left( \frac{n+g+\delta}{(n+g+\delta)k^{* 1-\alpha}} \right) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \displaystyle  0 = \alpha (k^{* (\alpha-1)} - (n+g-\delta)) \Rightarrow k^*_{gold} = \left( \frac{\alpha}{n+g+\delta} \right)^{1/(1-\alpha)} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can finally compute, $s_{gold}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \displaystyle s_{gold} = (n+g+\delta) k_{gold}^{*1-\alpha} = (n+g+\delta) \left( \frac{\alpha}{n+g+\delta}\right)^{(1-\alpha)/(1-\alpha)} = \alpha $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So for a Cobb-Douglas production function the golden-rule saving rate should be whatever $\alpha$ is.&lt;/p&gt;&#xA;" OwnerUserId="5780" LastActivityDate="2016-03-16T15:06:09.433" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11125" PostTypeId="2" ParentId="11123" CreationDate="2016-03-16T16:08:45.793" Score="3" Body="&lt;p&gt;It appears to be the &lt;strong&gt;Theory of Games and Economic Behavior (1944) by John von Neumann &amp;amp; Oskar Morgenstern&lt;/strong&gt;. I have the 1953 edition which is counted as &quot;3d&quot;, but by reading the included introductions to the 2nd and to the 3d editions, it appears that nothing of substance has been changed in &lt;strong&gt;chapter 3&lt;/strong&gt;, where I locate the issue of equivalence up to linear transformations.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In &lt;strong&gt;sub-chapter 3.4&lt;/strong&gt; the authors discuss in general the issue of equivalence under transformations for any system of quantities, mainly from physics. They end this sub-chapter by writing (bold my emphasis)&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;One may take the attitude that the only &quot;natural&quot; datum in this domain (utility) is the relation &quot;greater,&quot; i.e. the concept of&#xA;  preference. In this case utilities are numerical up to a monotone&#xA;  transformation. This is, indeed, the generally accepted standpoint in&#xA;  economic literature, best expressed in the technique of indifference&#xA;  curves. &lt;strong&gt;To narrow the system of transformations&lt;/strong&gt; it would be&#xA;  necessary to discover further &quot;natural&quot; operations or relations in the&#xA;  domain of utility. Thus it was pointed out by Pareto (in V. Pareto, Manuel d'Economie Politique, Paris, 1907, p. 264) that an equality&#xA;  relation for utility differences would suffice; in our terminology it&#xA;  would reduce the transformation system to the linear&#xA;  transformations. However, since it does not seem that this relation is&#xA;  really a &quot;natural&quot; one—i.e. one which can be interpreted by&#xA;  reproducible observations—the suggestion does not achieve the&#xA;  purpose.&quot;&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;In sub-chapter 3.5&lt;/strong&gt; they start by writing &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;The failure of one particular device need not exclude the possibility  of achieving the same end by another device. &lt;strong&gt;Our&#xA;  contention is that the  domain of utility contains a &quot;natural&quot;&#xA;  operation which narrows the system  of transformations to precisely&#xA;  the same extent as the other device would  have done(*)&lt;/strong&gt;. This is the&#xA;  combination of two utilities with two given  alternative probabilities&#xA;  $a, 1 — a, (0 &amp;lt; a &amp;lt; 1)$ as described in 3.3.2. The  process is so&#xA;  similar to the formation of centers of gravity mentioned in &#xA;  3.4.3. that it may be advantageous to use the same terminology.&lt;/em&gt;&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;(*) &lt;strong&gt;Note&lt;/strong&gt;: The &quot;failure of one particular device&quot; refers to the suggestion of Pareto mentioned in the previous passage. So what they are saying here, is that, apart from ordinal preference, there is another &quot;natural operation&quot; related to utility (but not the one suggested by Pareto), that will nevertheless achieve the same purpose as Pareto's suggestion, i.e. to narrow the admissible transformations to linear ones only.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And which is this &quot;natural operation&quot;?&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;...The combination of two utilities with two given  alternative probabilities $a, 1 — a, (0 &amp;lt; a &amp;lt; 1)$&lt;/em&gt;&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;which ushers us into the world of expected utility.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The details come next, together with Appendix &quot;The Axiomatic Treatment of Utility&quot; at the end of the book.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;PS:&lt;/strong&gt; By rejecting Pareto's suggestion, the authors make clear that expected utility is &lt;em&gt;not&lt;/em&gt; cardinal utility, since what they reject is the existence of &quot;an equality relation between utility differences&quot;. This rejection preserves fundamentally the ordinal nature of expected utility.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2016-03-16T16:33:53.310" LastActivityDate="2016-03-16T16:33:53.310" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11128" PostTypeId="1" AcceptedAnswerId="11129" CreationDate="2016-03-16T22:34:27.447" Score="4" ViewCount="376" Body="&lt;p&gt;So I read about an interesting proposal about completely replacing income tax with a heavy national sales tax of about 30% (23% inclusive to compare to income tax).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I was thinking about what the impact of this would be. On one end, income goes up both because people would want to work more and they get to keep everything they earn.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other end, prices go up because of the sales tax. I was also learning that spending is crucial for short term economic growth, so that may hurt. But does the laffer curve apply to sales tax as well? People may buy more frequently if it went down, increasing tax revenue. I know the laffer curve is unreliable, but it was just a thought.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this thinking process correct, or would the fair tax be a complete disaster? I apologize I just got interested in economics so I don't know much.&lt;/p&gt;&#xA;" OwnerUserId="7651" LastActivityDate="2016-08-30T13:54:48.563" Title="What would be the economic impact of the &quot;fair tax&quot; plan?" Tags="&lt;taxation&gt;&lt;optimal-taxation&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11129" PostTypeId="2" ParentId="11128" CreationDate="2016-03-17T01:21:39.960" Score="3" Body="&lt;p&gt;Well, one advantage to a sales tax is that it affects everyone (even those who don't pay income taxes). However, some people may see that same fact as a problem. This problem lies in analysis of the equity of the tax. When we consider every single person being taxed 30% on everything they buy, we need to think about how that affects different income groups. Lower income groups spend a much larger portion of their income on consumption, which means that they will be taxed relatively much more heavily than high income groups. This fact alone is enough to discourage this sort of action because the government tries to encourage saving in the lower income groups (so they can move up to higher income levels). This is one large reason why a tax like this may not be as fair as the name makes it seem.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another piece of information that must be considered is the incidence of the tax. As we know, the incidence of a sales tax depends upon the relative own-price elasticities of supply and demand. This means that in a market with very inelastic demand (such as cigarettes or oil), the buyer is paying most of the tax whereas in a market with elastic demand the sellers would pay most of the tax. This fact would make it so that different industries would end up paying a different amount of the sales tax compared to one-another. For example, an oil company would end up paying much less of the percentage of the tax than a company making a selfie stick. This, again, seems to be unfair. &lt;/p&gt;&#xA;" OwnerUserId="5825" LastActivityDate="2016-03-17T01:21:39.960" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11130" PostTypeId="1" CreationDate="2016-03-17T04:16:07.987" Score="3" ViewCount="43" Body="&lt;p&gt;I'm looking for papers about this, or if there's a pretty standard model across many papers, then maybe just a rundown of the model. I'd like to use the model in an econometric analysis.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, is there a model that explains whether a more educated person is likely to look for a job abroad versus a less educated person? Or instead of education, a person in a country at war versus a person in a country at peace?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I made an assumption there that the immigrant was seeking a job. Maybe they're looking for other things. I don't care if the model uses that assumption.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm doing some research on immigration about the skills immigrants to the US tend to bring and the industries they tend to work in. It would be nice to know if there were a model that showed how factors at home push certain people to certain countries depending on their skills or something.&lt;/p&gt;&#xA;" OwnerDisplayName="user4207" LastActivityDate="2016-03-17T04:16:07.987" Title="What models exist that explain which people emigrate to another country?" Tags="&lt;reference-request&gt;&lt;labor-economics&gt;&lt;decision-theory&gt;" AnswerCount="0" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11131" PostTypeId="2" ParentId="11128" CreationDate="2016-03-17T04:29:11.503" Score="3" Body="&lt;p&gt;Some issues to consider when thinking about this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A) The idea is to think about the &lt;em&gt;equilibrium&lt;/em&gt; of an economy with a particular tax system. For example, in equilibrium a change from income taxes to consumption taxes doesn't necessarily change prices or consumption one way or the other. Intuitively, firms would lower the price because they no longer have to pay income taxes, but the prices would increase because of the direct consumption tax. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;B) All practical taxing systems generate inefficiencies and have unequal incidence across consumers and industries. Therefore, a first order issue is which system generates less inefficiency or which one is the least unfair. In some scenarios, ´lump sum´ taxes, that don´t distort marginal incentives are optimal: for example a per-person flat tax for anybody living in the US would not be distortionary because it does not change the cost or benefit of any activity. (Good luck with implementing that politically!) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;C) Unfairness in taxation can, in principle, be undone for example with tax credits, need based transfers, etc. We do a lot of this already in the US code and most others. The cost of this is that it increases the complexity in the tax code and increases the costs of compliance and fiscalization.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;D) A crucial consideration is which tax is more collectable. Income tax is very collectable because its easy to observe wages paid and profits obtained by corporations. However, much of consumption is retail-level and therefore high consumption taxes often lead to high tax-avoidance, specially in places where the rule of law is less than perfect. Another collectable tax is one where agents have an incentive to collect from each other: the VAT tax systems aim to crate this by making it possible for agents to expense VAT taxes paid a with VAT taxes charged...&lt;/p&gt;&#xA;" OwnerUserId="7593" LastEditorUserId="7593" LastEditDate="2016-05-11T02:56:25.903" LastActivityDate="2016-05-11T02:56:25.903" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11133" PostTypeId="1" CreationDate="2016-03-17T07:45:13.623" Score="3" ViewCount="1292" Body="&lt;p&gt;Especially in consumer electronics, a large number of goods are offered only in some countries. Usually this holds only for products which have some close substitutes available (e.g., screens, where a particularly cheap models are often only sold in the U.S. but not in Europe). Such cases are not too hard to explain via price discrimination.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, I recently found out that there exist products which do not have close substitutes such as &lt;a href=&quot;http://www.sony.com/electronics/digital-paper-notepad&quot; rel=&quot;nofollow&quot;&gt;Sony's E-Ink readers&lt;/a&gt; but are nonetheless only available in some countries. (Production limitations were my first thought, but the example product is already several years old.) Given that the online retailer market is very efficient and that consumer electronics have large development costs I could not come up with a reason why consumer electronics producers would willingly restrict their own market size.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since I do not believe that producers make such decisions without good reasons, I would like to know what these reasons are. Note that the example product is not the only case, similar cases can be found earlier in the cell phone and PC markets.&lt;/p&gt;&#xA;" OwnerUserId="5635" LastActivityDate="2016-05-11T03:06:22.010" Title="Why are some goods without close substitutes not sold in some countries?" Tags="&lt;international-economics&gt;&lt;producer-theory&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11134" PostTypeId="1" AcceptedAnswerId="11138" CreationDate="2016-03-17T14:11:11.070" Score="5" ViewCount="369" Body="&lt;p&gt;In &lt;em&gt;Financial Market, Public Policy, and the East Asian Miracle&lt;/em&gt; by Stiglitz and Uy (&lt;em&gt;World Bank Research Observer, vol. 11, no.2, 1996&lt;/em&gt;), the authors state that:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Lowering interest rates transfers incomes from households to corporations, and because the corporate sector has a higher propensity to save, aggregate saving increases.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Why does lowering interest rates benefit corporations over households? Is this presupposing that households are net savers, not net borrowers, and that corporations are the opposite?&lt;/p&gt;&#xA;" OwnerUserId="7660" LastActivityDate="2016-03-22T13:48:36.287" Title="Why does lowering interest rates transfer incomes from households to corporations?" Tags="&lt;macroeconomics&gt;&lt;interest-rate&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11135" PostTypeId="1" AcceptedAnswerId="11136" CreationDate="2016-03-17T14:26:43.023" Score="0" ViewCount="27" Body="&lt;blockquote&gt;&#xA;&lt;p&gt;Assume the world consists of two regions, the North and South with the following production functions and technology lags in the south by &lt;span class=&quot;math-container&quot;&gt;$\tau$&lt;/span&gt; years:&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ Y_N = A_N (t) (1-a_L) L_N; \; \; \dot{A}_N = a_L L_N A_N (t)$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ Y_S = A_S (t) L_S  ; \; \; A_S = A_N (t - \tau) $$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;The growth rate of output per worker in the North is &lt;span class=&quot;math-container&quot;&gt;$3 \% \; year^{-1}$&lt;/span&gt; and if &lt;span class=&quot;math-container&quot;&gt;$a_L \simeq 0$&lt;/span&gt;, what &lt;span class=&quot;math-container&quot;&gt;$\tau$&lt;/span&gt; must be for output per worker in the North to exceed that in the South by a factor of 10?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;For output per worker in the north to exceed that in the south by a factor of ten:&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ 10 = \frac{Y_N/L_N}{Y_S/L_S} = \frac{A_N(t)(1-a_L)}{A_S(t)} $$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;with &lt;span class=&quot;math-container&quot;&gt;$a_L \simeq 0$&lt;/span&gt; this goes to&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ \to \frac{A_N (t)}{A_N (t-\tau)}$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;My book says this is equal to &lt;span class=&quot;math-container&quot;&gt;$e^{0.03 \tau}$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;Could someone explain where this last result comes from please?&lt;/p&gt;&#xA;" OwnerUserId="5780" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2016-03-17T15:13:03.280" Title="Delay in the transmission of knowledge to poorer countries" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11136" PostTypeId="2" ParentId="11135" CreationDate="2016-03-17T15:13:03.280" Score="1" Body="&lt;p&gt;By the notation used, labor quantity appears to be constant. Then the only source of growth of output is the growth in $A_N(t)$, and they will have the same growth &lt;em&gt;rate&lt;/em&gt;. Take logarithms and then time derivatives on the output per capita equation to see this.&#xA;Then remember introductory differential equations on how to express $x(t)$ as a function of $x(0)$ and a constant growth rate. And don't forget to explicitly solve for the &lt;strong&gt;10&lt;/strong&gt;-factor difference required, at the end. &lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2016-03-17T15:13:03.280" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11137" PostTypeId="1" AcceptedAnswerId="11142" CreationDate="2016-03-17T16:50:31.557" Score="6" ViewCount="148" Body="&lt;p&gt;In &lt;a href=&quot;http://www.jstor.org.erl.lib.byu.edu/stable/pdfplus/2117766.pdf?acceptTC=true&quot; rel=&quot;nofollow&quot;&gt;&lt;em&gt;Estimates of the Economic Return to Schooling from a New Sample of Twins&lt;/em&gt;&lt;/a&gt; by Orley Ashenfelter and Alan Krueger, they correct sampling error with an IV. They claim that their results imply a larger effect of education on earnings than what was found before.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Each respondent has a twin. Each respondent is asked how much money they make, which has inherent sampling error. Then, the respondent's twin is asked how much money the first respondent makes. That estimate is used as an IV, and together they reveal the true income of the first respondent.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can this work for revealing how many pennies are in a jar? Or how much a person likes a political candidate?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or how does this work? I see this as magic. If I want to get the truth about something, I just have to get a second opinion?&lt;/p&gt;&#xA;" OwnerDisplayName="user4207" LastEditorUserId="108" LastEditDate="2017-04-09T07:44:22.123" LastActivityDate="2017-04-09T07:44:22.123" Title="Using another person's guess as an IV" Tags="&lt;applied-econometrics&gt;&lt;instrumental-variable&gt;&lt;education-economics&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11138" PostTypeId="2" ParentId="11134" CreationDate="2016-03-17T18:37:51.523" Score="3" Body="&lt;p&gt;A student of mine came up with a very plausible explanation for this statement. I think he's almost certainly on the right lines.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Low interest rates encourage consumption spending and discourage saving. (They might also encourage people to take out loans to fund consumption spending.) &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Consumption spending transfers money from households (who are buying goods/services) to corporations (from whom they're buying).&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;These corporations are assumed to save at a higher rate than households (see the quote in the question), so increased corporate savings more than offset the decrease in household savings.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;It's obvious once you think about it!&lt;/p&gt;&#xA;" OwnerUserId="7660" LastEditorUserId="7660" LastEditDate="2016-03-22T13:48:36.287" LastActivityDate="2016-03-22T13:48:36.287" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="11140" PostTypeId="2" ParentId="11133" CreationDate="2016-03-18T01:28:31.750" Score="1" Body="&lt;p&gt;I would guess large barriers to entry for doing business in different countries: Differing laws, need new suppliers, more uncertain demand (less knowledge of customers and consumption habits). In less developed countries, possibility of seizure of assets.&lt;/p&gt;&#xA;" OwnerUserId="7303" LastActivityDate="2016-03-18T01:28:31.750" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11141" PostTypeId="2" ParentId="11137" CreationDate="2016-03-18T04:45:26.860" Score="3" Body="&lt;p&gt;There's no magic. What you have to realize is that the result is conditional on the validity of the assumptions:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A) Under the assumption that there is measurement error, then yes, the average of two measurements will be on average closer to the truth than a single opinion. This is very believable. We all do this kind of thing all the time. For example, when we actually get 'a second opinion' from a doctor, we think that adding another opinion gets us closer to the truth. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;B) Under the assumption that there is a smaller incentive to lie to the interviewer about your twin's education than about yours, then one way to get closer to the truth is to use the twin's information about his sibling's education rather than the self-reported one. The authors show that the variances and covariances among the different variables are consistent with this hypothesis. The intuition is that you are less likely to try to hide your sibling's lack of education than you are to hide your own lack of education.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course that doesn't make the preferred interpretation by the authors necessarily true. It could still be the case that there is a particular bias in the reporting of your twin's education which they did not consider.  Say for example that you exaggerate the difference between your education and his or hers exactly when there is a large wage difference. That could break their result I think.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lastly, the precise idea of using it as an instrument is not that it is a second opinion.  Instead, the assumption is that the 'error'  in this second measurement is uncorrelated with income in contrast to the error of the self reported income which is assumed to be correlated with income.  This means that the income effects of education estimated using the sibling report is unbiased, while the one using self-reported income is biased. The authors claim the self-reported one leads to a coefficient that is downward biased, resulting in an estimate of a smaller return to education than the real one.&lt;/p&gt;&#xA;" OwnerUserId="7593" LastEditorUserId="7593" LastEditDate="2016-07-21T03:26:20.287" LastActivityDate="2016-07-21T03:26:20.287" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11142" PostTypeId="2" ParentId="11137" CreationDate="2016-03-18T07:19:41.343" Score="2" Body="&lt;p&gt;Instruments are used as a replacement for an independent variable if we think that independent variable is endogenous. That means, we think it may be correlated with our error term. So in the case of estimating money made by a twin, we have a model:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\text{salary} = \beta_0 + \beta_1 \cdot \text{guess} + u$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where $u$ has standard properties mean zero and normal standard deviation. Here the problem is that the person's &quot;guess&quot; might be correlated with other things that affect a person's salary that isn't measured here, such as truthfulness. We also violate a normal Gauss-Markov assumption of random sampling. So we can use an instrument in place of the guess.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We wish for our instruments to be &lt;em&gt;relevant&lt;/em&gt; and &lt;em&gt;valid&lt;/em&gt;. Which means we want the instrument to be correlated with the guess, and also uncorrelated with the error term. The other twin's guess would be a good fit because it is probably correlated with the twin's guess, but also their guess probably does not correlate as much with external factors that might affect their sibling's salary.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In your hypothetical for measuring pennies in a jar, taking the other twin's guess itself won't be more accurate, and there might not even be an endogeneity problem. But if you were sampling groups of people instead of individuals, then you could probably expect that result to be more accurate, if groups are clustered together randomly.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In your case with liking a political candidate, you might struggle to argue that a twin's guess of their siblings affinity to a politician could be a relevant instrument. People change their political opinion noticeably when under observation by others, even close family members. So at least you might get some bias there.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastEditorUserId="4251" LastEditDate="2016-05-11T04:07:15.000" LastActivityDate="2016-05-11T04:07:15.000" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11143" PostTypeId="1" CreationDate="2016-03-18T11:32:30.750" Score="3" ViewCount="78" Body="&lt;p&gt;I get that NK model basically consists of the three equations: Taylor rule, Dynamic IS curve and the NK Phillips curve. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I want to know the effect of nominal interest rate reduction on the transmission channels.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My lecturer says ''nominal rate goes down, real rate therefore rises, raising actual output relative to potential through the euler equation.  this then feeds into the philips curve and raises actual inflation.''&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Q: How does the real rate rise when nominal rate goes down? And what is the Euler Equation here?&lt;/p&gt;&#xA;" OwnerUserId="7663" LastActivityDate="2020-06-05T23:22:02.877" Title="Monetary Transmission in New Keynesian - Euler Equation" Tags="&lt;macroeconomics&gt;&lt;monetary-policy&gt;&lt;new-keynesian-economics&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11144" PostTypeId="1" CreationDate="2016-03-18T11:12:06.287" Score="5" ViewCount="615" Body="&lt;p&gt;Part of my personality is Engineering, so I look for root causes. I suppose that the cause of any bubble is &quot;speculation&quot;, which just means pretending that ghosts are real, or that the word &quot;LION&quot; is an actual Lion. (So ironic when it eats you.) But because this has happened before, would someone please explain the chain of causality from people buying houses to the world economy nearly failing, through the sideroads of drinking and strip clubs? Was it just that people were selling the &quot;actual value&quot; of a long term asset like a house or land, and using it to buy immediate disposable things with no value, like drinks and entertainment? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is the basic human failing that allows people to seem to do this repeatedly and not learn from it? I don't want to hear &quot;greed&quot;. Greed is one person acting one time. I mean: how can people believe in ghosts? How can many many people pile on thinking that something holds up the entire scheme, and that it will not eventually come crashing down and crush them inside? How can people make this particular mistake? &quot;Stupidity&quot;?&lt;/p&gt;&#xA;" OwnerDisplayName="user12110" LastEditorUserId="59" LastEditDate="2016-03-27T00:16:12.797" LastActivityDate="2016-03-27T06:19:20.630" Title="What actually went wrong in the economy as described by &quot;The Big Short&quot;?" Tags="&lt;financial-crises&gt;" AnswerCount="2" CommentCount="7" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11145" PostTypeId="2" ParentId="11144" CreationDate="2016-03-18T12:10:28.767" Score="6" Body="&lt;p&gt;The problem at the bottom of the 2008 crash is that the values of multiple instruments were dramatically over estimated because the risk of default in the various underlyings was dramatically underestimated since it was assumed that they were fully backed by the US government.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Although many commentaries focus on the securitization of debt that was not where the real problem lay, in fact the securitization of sub-prime mortgages into CDOs (collateralized debt obligations) covered by CDSs (credit default swaps - a type of default insurance) was as a result of firms wanting to divest themselves of risks surrounding unknown quantities.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the (first?) Clinton and Bush administrations there was a political will (rightly or wrongly; it isn't important) to help people buy their own homes. This applied particularly to low income families who previously had not been able to buy, in many cases for generations. To do this bills were passed to offer subprime loans with the implicit backing of the US government. Since these people had never been mortgage borrowers before their ability to repay was not well understood or modelled and came with an assumption that they would continue to have jobs and that their homes would be worth at least what they paid for them. These extra buyers put upward pressure on the housing market (i.e. buyers exceeded sellers so prices rose) meaning that it looked like that latter assumption would prove true at least.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The mortgage companies then had a large tranches of debt on their books that, although apparently backed by Sam, were riskier than their previously core business. To mitigate this risk they rolled them up into CDOs which, given that the probability of any one loan defaulting was taken to be independent of any and all others defaulting, supposedly held lower risk than the individual loans. To further reduce default risk these were further rolled up with high credit rating corporate, municipal, and national bonds. In case there was a default in these wrappered securities insurance companies, such as AIG, wrote CDSs that would pay out a sum to cover losses in return for premia (as is usual with insurance).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then the economy slowed down a little, house prices started to stall, and unemployment rose. As people who were the borrowers in these subprime mortgages had wages cut and lost jobs they began to default on loans and the value of the collateral (the house) fell, sometimes to less than the original value at purchase, as the bubble burst. The assumption that defaults were uncorrelated turned out to be unfounded and, as you can probably guess, that triggered CDS payouts and huge losses for many of the companies holding the CDOs and writing the CDSs. Drinking and strip clubs were basically what the borrowers preferred to spend their money on instead of their mortgages. Slightly less glibly the value of their house counted as an asset to them against which they could take out further debts (credit cards, personal loans etc.) so that they could afford to live outside their means under the assumption that they would pay it back using future months' salaries. When they lost their jobs they could no longer do so. Remember from earlier that these were people who had never been offered credit before and even professionals make mistakes in their finances when it comes to credit and loans so they were doubly cursed by a lack of understanding of credit and a lack of experience.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A major issue in all of this was hubris and people's belief that current trends would never end; the economy had been growing for the longest time in recorded history therefore it would continue to and everyone would always be employed and able to pay their bills. Add to this that the managers of the funds etc. that held these debt based derivatives believed that their models of the risks of holding them, underpinned by the fallacious assumption of the lack correlation of defaults, were accurate and would model potential profits and losses, and that, in any case, they had insurance if anything bad happened and you have the problem.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These were massively leveraged positions in little understood instruments that wrapped around very risky debts for which there were no good models of repayment and default rates, and those models that did exist did so under the fatefully incorrect assumption that defaults would be totally independent. &lt;/p&gt;&#xA;" OwnerUserId="7669" OwnerDisplayName="MD-Tech" LastActivityDate="2016-03-18T12:10:28.767" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="11146" PostTypeId="2" ParentId="11133" CreationDate="2016-03-18T20:21:04.320" Score="2" Body="&lt;p&gt;One way to look at this is through the idea of &quot;fixed costs&quot;. It only makes sense to pay the fixed cost if the market is big enough.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is very likely a large a fixed cost of entering a market. You have to establish a network of retailers or at least distribution channels, a way for the customers to return the defective units, partners that will also supply the covers, the software, the adapters, etc. Often you have to register the devices with the local regulators, they have to approve them for sale in that country, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From the marketing perspective there are also fixed costs. You make a single advertisement campaign per country, and you use it everywhere in that country. I suppose there is a minimum word of mouth effect that needs to take place for any marketing to be available, so I suppose a small marketing campaign is unlikely to be efficient. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, sometimes products are sold or presented basically as flagship products, or loss-leaders, to call attention to the technological prowess of a firm, but not because they are all profitable. So, if a brand does not face a lot of competition in a country, it might not introduce these products as selling them, might actually represent a marketing expenditure.&lt;/p&gt;&#xA;" OwnerUserId="7593" LastEditorUserId="7593" LastEditDate="2016-05-11T03:06:22.010" LastActivityDate="2016-05-11T03:06:22.010" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11147" PostTypeId="1" CreationDate="2016-03-18T21:53:33.633" Score="3" ViewCount="1405" Body="&lt;p&gt;I'm planning to apply to phd programs in economics and I'm hoping to eventually work in academic research on economic theory, social choice theory, welfare economics or related areas. I'm wondering if doing a masters in math before applying to an economics phd would be worthwhile? Seems like it might be nice to have the math stuff down really solid, so I can focus on economics in grad school.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By the time I finish undergrad (in U.S.), I will have taken the following math courses (one semester each): Multivariable calc, linear algebra, abstract algebra, real analysis, topology, optimization, probability-statistics, basic numerical analysis with matlab, differential equations. &#xA;Econ courses that I'll have taken: year of micro, year of macro, year of econometrics, year of graduate micro.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit: My undergrad major is philosophy and also a joint major math-economics.&lt;/p&gt;&#xA;" OwnerUserId="6532" LastEditorUserId="108" LastEditDate="2017-04-09T07:44:02.537" LastActivityDate="2017-04-09T07:44:02.537" Title="Is it worth while to get a master's in math (or applied math) before pursuing phd in economic theory?" Tags="&lt;mathematical-economics&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="11148" PostTypeId="1" AcceptedAnswerId="11171" CreationDate="2016-03-18T23:52:56.960" Score="2" ViewCount="85" Body="&lt;p&gt;I was reading that the Spanish received so much gold from their occupation of the Americas, that they had a steep rise in inflation. This caused a rapid increase in investment, as the rich felt that they could no longer just sit on their money and had the effect of rising the demand for labor which created one of the strongest middle classes that had ever been seen.&#xA;I always hear that inflation is bad, but is it really? It seems like we need inflation to spur investment and growth.&lt;/p&gt;&#xA;" OwnerUserId="7673" LastActivityDate="2016-03-22T02:33:48.790" Title="Is inflation good?" Tags="&lt;inflation&gt;" AnswerCount="1" CommentCount="1" ClosedDate="2016-03-22T14:41:35.917" ContentLicense="CC BY-SA 3.0" />
  <row Id="11149" PostTypeId="1" AcceptedAnswerId="11154" CreationDate="2016-03-19T00:17:49.740" Score="0" ViewCount="46" Body="&lt;p&gt;I'm trying to estimate an unknown ARMA(p,q) series via a Kalman Filter &amp;amp; QMLE.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The issue is most of my optimized likelihood values end up around -350, except one or two which are hugely positive! It doesn't seem likely that adding a single AR or MA lag would cause such a drastic jump in my likelihood function.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've tried messing around with optimization parameters in Matlab such as MaxFunEval, and MaxIter but I am still finding this issue.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If this is the wrong place for a question like this I apologize in advanced. &lt;/p&gt;&#xA;" OwnerUserId="4938" LastActivityDate="2016-04-18T19:46:41.877" Title="Need Advice Debugging MLE Code to Estimate an ARMA(p,q)" Tags="&lt;econometrics&gt;&lt;time-series&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11150" PostTypeId="1" CreationDate="2016-03-19T09:13:18.183" Score="1" ViewCount="23" Body="&lt;p&gt;The &lt;a href=&quot;https://www.google.ee/search?q=800K+Barrels+of+Oil+Disappeared&quot; rel=&quot;nofollow&quot;&gt;top news today&lt;/a&gt; is a discovery that oil production was overreported by 800 thouthand barrel a day. Could it cause 5x price fall during the year? Such allegations challenge the market theory, IMO, which says that if your price depends on some agency report rather than supply and demand then market theory costs nothing, right?&lt;/p&gt;&#xA;" OwnerUserId="7675" LastEditorUserId="7675" LastEditDate="2016-03-19T11:03:45.360" LastActivityDate="2016-03-19T11:03:45.360" Title="Can overreporting the oil production cause a fall of the oil prices" Tags="&lt;supply-and-demand&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="11152" PostTypeId="1" CreationDate="2016-03-19T16:24:31.570" Score="3" ViewCount="327" Body="&lt;p&gt;The Ramsey-Cass-Koopmans neoclassical model of growth is saddle path stable. In other words, it is stable upon perturbation from the steady state on a one-dimensional line, but is unstable towards a generic perturbation in the two-dimensional space of capital/labor ratio and consumption.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is whether there are (realistic, standard) neoclassical growth models that are stable upon perturbation (beyond the simplest Solow type models) ?&lt;/p&gt;&#xA;" OwnerUserId="7677" LastActivityDate="2017-04-01T12:05:30.080" Title="Are there stable improvements of the Ramsey-Cass-Koopmans model?" Tags="&lt;macroeconomics&gt;&lt;economic-growth&gt;&lt;dynamic-optimization&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11153" PostTypeId="1" CreationDate="2016-03-19T17:45:39.630" Score="1" ViewCount="2495" Body="&lt;p&gt;For a homework , I struggled to solve the following question but couldn't go further:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;endowment of person 1 = (30,0)&#xA;&#xA;endowment of person 2 = (0,20)&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;utility functions are such that:&#xA;\begin{eqnarray*}&#xA;    U (a_1,b_1) &amp;amp; = &amp;amp; \min(a_1,b_1) \\&#xA;\\&#xA;    U (a_2,b_2) &amp;amp; = &amp;amp; \min(4a_2,b_2).&#xA;\end{eqnarray*}&lt;br&gt;&#xA;What I am doing is setting a1 equal to b1 and 4a2 equal to b2. After that I'm writing these;&#xA;$$&#xA;p_1 a_1 + p_2 b_1 = 30p_1 \mbox{ and } p_1a_2 + p_24a_2 = 20p_2&#xA;$$&#xA;Finally, by looking at feasibility condition, I'm writing down:&#xA;\begin{eqnarray*}&#xA;    \frac{30p_1}{p_1+p_2} + \frac{20p_2}{p_1+4p_2} &amp;amp; = &amp;amp; 30 \\&#xA;\\&#xA;    \frac{30p_1}{p_1+p_2} + \frac{4 \cdot 20p_2}{p_1+4p_2} &amp;amp; = &amp;amp; 20.&#xA;\end{eqnarray*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here, if I do some calculations, they result in $p_1 = p_2$ and accordingly $a_1=b_1=15, a_2=4$ and $b_2=16.$ But then the problem is that there is excess demand for good2 and there isn't a WE.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Alternatively, I am considering to have $p_2 = 0$ so that there exist a Walrasian Equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;BUT, I'm stuck at this point and lack the correct intuition for solving next steps. Or, I might be in a completely incorrect way. Please, explain me what will be done with this excess demand?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you in advance.&lt;/p&gt;&#xA;" OwnerUserId="7455" LastEditorUserId="1601" LastEditDate="2016-03-19T18:14:18.267" LastActivityDate="2016-03-19T19:35:01.237" Title="Perfect Complements - Walrasian Equilibrium" Tags="&lt;perfect-complements&gt;&lt;walrasian&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="11154" PostTypeId="2" ParentId="11149" CreationDate="2016-03-19T18:54:38.823" Score="3" Body="&lt;p&gt;If anyone per chance runs into the same issue,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reason the MLE is exploding is that a system with explosive roots (eigenvalues outside the unit circle), might make the Kalman-filter predictions explode at a point, and thus creating a few very large MLE values. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The solution is to rig the MLE function s.t. if any of the eigenvalues lie outside the unit circle, return an MLE &gt;=0. Thus the optimization algorithm will be forced to find a stationary local minimum. &lt;/p&gt;&#xA;" OwnerUserId="4938" LastActivityDate="2016-03-19T18:54:38.823" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11155" PostTypeId="2" ParentId="11153" CreationDate="2016-03-19T19:35:01.237" Score="1" Body="&lt;p&gt;If the prices $p_1$ and $p_2$ are positive than as you pointed out the equations&#xA;\begin{eqnarray*}&#xA;    \frac{30p_1}{p_1+p_2} + \frac{20p_2}{p_1+4p_2} &amp;amp; = &amp;amp; 30 \\&#xA;\\&#xA;    \frac{30p_1}{p_1+p_2} + \frac{4 \cdot 20p_2}{p_1+4p_2} &amp;amp; = &amp;amp; 20.&#xA;\end{eqnarray*}&#xA;hold. This is troublesome, because subtracting the first equation from the second yields&#xA;\begin{eqnarray*}&#xA;\frac{3 \cdot 20p_2}{p_1+4p_2} &amp;amp; = &amp;amp; -10&#xA;\end{eqnarray*}&#xA;which has no solution for positive prices. However if a good has zero price, than the demand equations are different as no one minds buying superflous goods as long as they are free. For $p_2 = 0$ you would have&#xA;\begin{eqnarray*}&#xA;    \frac{30p_1}{p_1+p_2} + \frac{20p_2}{p_1+4p_2} &amp;amp; = &amp;amp; 30 \\&#xA;\\&#xA;    \frac{30p_1}{p_1+p_2} + \frac{4 \cdot 20p_2}{p_1+4p_2} &amp;amp; \leq &amp;amp; 20.&#xA;\end{eqnarray*}&#xA;This is because $\frac{30p_1}{p_1+p_2} + \frac{4 \cdot 20p_2}{p_1+4p_2}$ is a minimum that the buyers need but they do not mind having more as good 2 is free. There is also a formulation of equilibrium, the 'value-equilibrium' which is that for good $i$&#xA;\begin{eqnarray*}&#xA;p_i \cdot D_i(p) = p_i \cdot S_i(p) \mbox{ and } D_i(p) \leq S_i(p)&#xA;\end{eqnarray*}&#xA;meaning that there can be oversupply of zero price goods. &lt;br&gt;&#xA;(Think about air. Would you buy air from someone?)&#xA;&lt;br&gt;&#xA;Unfortunately this equation system would still imply&#xA;\begin{eqnarray*}&#xA;\frac{3 \cdot 20p_2}{p_1+4p_2} &amp;amp; \leq &amp;amp; -10&#xA;\end{eqnarray*}&#xA;which has no solution in non-negative prices. On the other hand, for $p_1 = 0$ you would have&#xA;\begin{eqnarray*}&#xA;    \frac{30p_1}{p_1+p_2} + \frac{20p_2}{p_1+4p_2} &amp;amp; \leq &amp;amp; 30 \\&#xA;\\&#xA;    \frac{30p_1}{p_1+p_2} + \frac{4 \cdot 20p_2}{p_1+4p_2} &amp;amp; = &amp;amp; 20.&#xA;\end{eqnarray*}&#xA;which implies&#xA;\begin{eqnarray*}&#xA;\frac{3 \cdot 20p_2}{p_1+4p_2} &amp;amp; \geq &amp;amp; -10.&#xA;\end{eqnarray*}&#xA;As $p_1 = 0$ any positive $p_2$ is a solution for this.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2016-03-19T19:35:01.237" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11156" PostTypeId="1" AcceptedAnswerId="11183" CreationDate="2016-03-19T21:19:32.213" Score="1" ViewCount="35" Body="&lt;p&gt;«Popular market measures of US inflation expectations are climbing sharply higher in the wake of this week’s Federal Reserve meeting, which analysts say hinted at officials being willing to tolerate higher inflation before tightening monetary policy more aggressively.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So-called “breakeven rates”, which are a rough estimate of expected inflation derived from comparing the yields of conventional and inflation-proof Treasuries, have jumped markedly this month, and have gone even higher since Wednesday’s Fed meeting»&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Could you please explain how are these breakeven rates estimated? And why they can be a 'rough estimate' of expected inflation? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="118" LastActivityDate="2016-03-22T19:40:42.873" Title="Estimates for 'inflation expectations': the 'breakeven' rates. What are they?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="11157" PostTypeId="1" CreationDate="2016-03-19T21:45:24.863" Score="1" ViewCount="27" Body="&lt;p&gt;I'm given to understand that the supply of any product at one moment is fixed regardless of the price but on the long run the firm could produce more of the product and so the supply become more price elastic. Ehat I'm asking is how come when we draw a supply curve and an increase in price has occured wich means and extension in the supply curve and the quantity is increased , how come the curve didn't flatten (because it became more more price elastic) how come it extended ?!&lt;/p&gt;&#xA;" OwnerUserId="7678" LastActivityDate="2016-03-19T21:45:24.863" Title="Time affecting price elasticity of supply" Tags="&lt;elasticity&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11158" PostTypeId="2" ParentId="11147" CreationDate="2016-03-20T04:41:34.853" Score="5" Body="&lt;p&gt;The following answer is based mostly on gut-feeling and I urge you to read some of the papers found in the last section to base your decision on something quantifiable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Coursework (-)&lt;/strong&gt;&#xA;Having an additional degree in math will be completely irrelevant in the coursework, where your current courses will be sufficient preparation. Indeed, a game theory/advanced econometrics summer course may be more useful as preparation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Thesis Advisor (+)&lt;/strong&gt;&#xA;The degree will make it easier for you to find an advisor who is willing to invest time in working with you. If you move from a philosophy/math/economics undergrad degree into a top-school economics Ph.D. you will most likely compete for the attention of supervisors with students from Europe and Asia who already have Master's degrees in some field. Some research from the last section of my answer suggests that in most departments a lot of resources are spent on the very best students.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Research (+++)&lt;/strong&gt;&#xA;The math degree will be helpful in your research. From the fields you listed as your interests a Master's degree in math does not seem like a bad idea. All fields mentioned are very math-heavy and often use math that is not taught at undergraduate level. However, if you later decide to work in other fields such as macroeconomics, your math Master's will not help you much.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Job Market (+)&lt;/strong&gt;&#xA;Your decision will also affect your job market prospects. The fields you have outlined have a fairly small job market compared to let's say applied econometrics or macroeconomics. If you do not stand out from the crowd it may be difficult to find a position as assistant professor. Thus, having a math master's may help you write an outstanding job market paper. However, you will be older when you enter the market. For very few employers, this may be a secondary criterion.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Tenure (+)&lt;/strong&gt;&#xA;When you obtain an assistant professor position after your Ph.D., you will need to write a number of strong papers within several years. If you at that point need to acquire additional math skills this will slow down your research in this crucial time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Lifetime income (--)&lt;/strong&gt;&#xA;You will most likely lose at least one year of income from doing the degree. If your degree is two years or 1.5 years, you may at most be able to make up for one year via a shorter Ph.D. by being more productive. It is not unlikely that you will lose 2 years of income. However, doing the Master's may allow you to enter better Ph.D. programs, write better papers, and achieve a better job placement, earning you more money. But this effect is hard to estimate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Readings&lt;/strong&gt;&#xA;Be sure to &lt;a href=&quot;https://www.aeaweb.org/gradstudents/Education_Issues.php&quot;&gt;check this website&lt;/a&gt; to make the right strategic decisions. There is a lot of research on what makes Ph.D. students in economics successful.&lt;/p&gt;&#xA;" OwnerUserId="5635" LastEditorUserId="5635" LastEditDate="2016-03-20T06:39:46.120" LastActivityDate="2016-03-20T06:39:46.120" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11159" PostTypeId="1" CreationDate="2016-03-20T19:22:57.277" Score="8" ViewCount="87" Body="&lt;p&gt;I've been reading the book 'The Size of Nations' by Alberto Alesina and Enrico Spolaore (can be found on the net if you know where to look) and I'm having trouble following their &amp;quot;proof&amp;quot; of the first lemma for the overlapping jurisdictions model. First, I'll explain the model and the lemma, second I'll provide their proof and finally my (incomplete) attempt at the proof of the lemma with the questions I have. A similar model can be found in a paper of &lt;a href=&quot;https://isites.harvard.edu/fs/docs/icb.topic107502.files/Alesina_and_Spolaore.On_the_Number_and_Size_of_Nations.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Spolaore&lt;/a&gt; (not necessary).&lt;/p&gt;&#xA;&lt;h2&gt;The Model&lt;/h2&gt;&#xA;&lt;p&gt;In the model, the 'world' is a linear segment of length normalized to 1. There is also a mass of &amp;quot;identical&amp;quot; (except in location, so we can add up their utilities) individuals 1 uniformly distributed along the segment (one individual in each point of the segment). There are &lt;span class=&quot;math-container&quot;&gt;$M$&lt;/span&gt; public goods, indexed by &lt;span class=&quot;math-container&quot;&gt;$j = 1,2,...,M_{j}$&lt;/span&gt;. Each good is available on a continuum of types. If a good &lt;span class=&quot;math-container&quot;&gt;$j$&lt;/span&gt; is located at point &lt;span class=&quot;math-container&quot;&gt;$w ∈ (0,1)$&lt;/span&gt; along the segment we call the type of good &lt;span class=&quot;math-container&quot;&gt;$j$&lt;/span&gt; a type &lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt; good (note: this is not a different good, it is a different type of the same good). Jurisdictions provide public goods. A jurisdiction for the &lt;span class=&quot;math-container&quot;&gt;$jth$&lt;/span&gt; public good is defined by three points on the segment: for example, &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$B$&lt;/span&gt;, and &lt;span class=&quot;math-container&quot;&gt;$C$&lt;/span&gt;, with &lt;span class=&quot;math-container&quot;&gt;$A &amp;lt; B &amp;lt; C$&lt;/span&gt;. The middle point &lt;span class=&quot;math-container&quot;&gt;$B$&lt;/span&gt;&#xA;indicates where the public good is located; the other two are the borders&#xA;of the jurisdiction. A jurisdiction that provides public good &lt;span class=&quot;math-container&quot;&gt;$j$&lt;/span&gt; is defined as a &lt;span class=&quot;math-container&quot;&gt;$j$&lt;/span&gt;-level jurisdiction. Also, there are no externalities.&lt;/p&gt;&#xA;&lt;p&gt;The utility of the &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;th individual is denoted by:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;u_{i} = y - t_{i} + g - \sum_{j=1}^{M} a_{j} l_{ij}&#xA;$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; in the individual's gross income, &lt;span class=&quot;math-container&quot;&gt;$g$&lt;/span&gt; the maximum value derived from the public goods for an individual who enjoys all of his most favored types. Let &lt;span class=&quot;math-container&quot;&gt;$t_{i}$&lt;/span&gt; denote taxes payed by the &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;th individual. Alessina and Spolaore set &lt;span class=&quot;math-container&quot;&gt;$g$&lt;/span&gt; = 0 for simplicity, without loss of generality (we can do the same for &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; since it's an exogenous parameter). &lt;span class=&quot;math-container&quot;&gt;$l_{ij}$&lt;/span&gt; denotes the distance from the &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;th individual to the &lt;span class=&quot;math-container&quot;&gt;$j$&lt;/span&gt;th public good. &lt;span class=&quot;math-container&quot;&gt;$a_{j}$&lt;/span&gt; is a positive parameter that measures the marginal cost of distance. Each &lt;span class=&quot;math-container&quot;&gt;$j$&lt;/span&gt;th public good’s total cost &lt;span class=&quot;math-container&quot;&gt;$c_{j}$&lt;/span&gt; in a certain jurisdiction is given by:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;c_{j} = k_{j} + γ_{j} s,&#xA;$$&lt;/span&gt;&#xA;where &lt;span class=&quot;math-container&quot;&gt;$s$&lt;/span&gt; is the size of the jurisdiction, &lt;span class=&quot;math-container&quot;&gt;$k_{j}$&lt;/span&gt; is a fixed cost that is independent of the jurisdiction’s size, and &lt;span class=&quot;math-container&quot;&gt;$γ_{j}$&lt;/span&gt; is a positive parameter (marginal cost of size). Total taxes in a &lt;span class=&quot;math-container&quot;&gt;$j$&lt;/span&gt;-level jurisdiction with borders at &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$C$&lt;/span&gt; must equal &lt;span class=&quot;math-container&quot;&gt;$c_{j}$&lt;/span&gt; (balanced budget):&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\int_{A}^{C} t_{i} di = c_{j}.&#xA;$$&lt;/span&gt;&#xA;Therefore, the sum of everyone's utility is given by:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\int_{0}^{1} u_{i} di = y - \sum_{j=1}^{M} \left ( k_{j} N_{j} + \sum_{x=1}^{N_{j}} \gamma_{j} s_{jx} + a_{j} \int_{0}^{1} l_{ij} di \right ) &#xA;$$&lt;/span&gt;&#xA;where &lt;span class=&quot;math-container&quot;&gt;$N_{j}$&lt;/span&gt; is the number of &lt;span class=&quot;math-container&quot;&gt;$j$&lt;/span&gt;-level jurisdictions and &lt;span class=&quot;math-container&quot;&gt;$s_{jx}$&lt;/span&gt; is the size of a &lt;span class=&quot;math-container&quot;&gt;$j$&lt;/span&gt;-level jurisdiction &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; for &lt;span class=&quot;math-container&quot;&gt;$x = 1,2,...,N_{j}$&lt;/span&gt;. Consider the problem of a utilitarian social planner that intends to maximize the sum of individual&#xA;utilities defined as above.&lt;/p&gt;&#xA;&lt;h2&gt;Lemma&lt;/h2&gt;&#xA;&lt;p&gt;For every public good &lt;span class=&quot;math-container&quot;&gt;$j$&lt;/span&gt;, the social planner divides the world into &lt;span class=&quot;math-container&quot;&gt;$N_{j}$&lt;/span&gt; jurisdictions of equal size &lt;span class=&quot;math-container&quot;&gt;$s_{j} = 1/N_{j}$&lt;/span&gt; ,and locates at the middle of each jurisdiction a public good &lt;span class=&quot;math-container&quot;&gt;$j$&lt;/span&gt;. Nj is the &lt;em&gt;integer&lt;/em&gt; close to:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\sqrt{a_{j}/4k_{j}}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;h3&gt;Alesina and Spolaroe's &amp;quot;proof&amp;quot; of the Lemma (2.1 in the book)&lt;/h3&gt;&#xA;&lt;p&gt;The sum of utilities to be maximized is given by (the authors have dropped some notation):&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\int_{0}^{1} u_{i} di = y − γ −\sum_{j=1}^{M} \left [k_{j} N_{j} + a_{j} \int_{0}^{1} l_{ji}  \right ]&#xA;$$&lt;/span&gt;&#xA;For public good &lt;span class=&quot;math-container&quot;&gt;$j$&lt;/span&gt; and for a given number of jurisdictions &lt;span class=&quot;math-container&quot;&gt;$N_{j}$&lt;/span&gt;, the sum&#xA;of distances &lt;span class=&quot;math-container&quot;&gt;$\int_{0}^{1}l_{ji}$&lt;/span&gt; is minimized if the public good is located at the midpoint of each jurisdiction. Hence the sum of distances is given as &lt;span class=&quot;math-container&quot;&gt;$\int_{0}^{1}l_{ji} = \sum_{x=1}^{N_{j}}s_{xj}^{2}/4$&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$\sum_{x=1}^{N_{j}}s_{xj} = 1$&lt;/span&gt;.The sum of squares is minimized by&#xA;choosing jurisdictions of equal size, &lt;span class=&quot;math-container&quot;&gt;$s_{j} = 1/N_{j}j$&lt;/span&gt;. Therefore the solution&#xA;for each &lt;span class=&quot;math-container&quot;&gt;$N_{j}$&lt;/span&gt; is the positive integer that solves:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\min_{N_{j}} k_{j} N_{j} + \frac{a_{j}}{4N_{j}}&#xA;$$&lt;/span&gt;&#xA;The first-order condition for &lt;span class=&quot;math-container&quot;&gt;$N_{j}$&lt;/span&gt; (ignoring the constraint that &lt;span class=&quot;math-container&quot;&gt;$N_{j}$&lt;/span&gt; must&#xA;be an integer) implies that:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;N_{j}^{*} = \sqrt{\frac{a_{j}}{4k_{j}}}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;h3&gt;My attempt and questions&lt;/h3&gt;&#xA;&lt;p&gt;I start from:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\int_{0}^{1} u_{i} di = y - \sum_{j=1}^{M} \left ( k_{j} N_{j} + \sum_{x=1}^{N_{j}} \gamma_{j} s_{jx} + a_{j} \int_{0}^{1} l_{ij} di \right ) &#xA;$$&lt;/span&gt;&#xA;Let's now forget that there are &lt;span class=&quot;math-container&quot;&gt;$M$&lt;/span&gt; public goods (since they do not interact with each other, they are independent, so a general solution for a &lt;span class=&quot;math-container&quot;&gt;$j$&lt;/span&gt;th public good well be able to apply it to &lt;span class=&quot;math-container&quot;&gt;$M$&lt;/span&gt; public goods). We can also set &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; to 0 without loss of generality. Due to this, the utilitarian social planner problem becomes:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\min k_{j} N_{j} + \sum_{x=1}^{N_{j}} \gamma_{j} s_{jx} + a_{j} \int_{0}^{1} l_{ij} di&#xA;$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$j$&lt;/span&gt;-level jurisdictions do not overlap with each other (only with other levels), since an individual will always want to be to the &lt;span class=&quot;math-container&quot;&gt;$j$&lt;/span&gt;-level closes jurisdiction available, there are no benefits of being in more than one jurisdiction of the same level (&lt;span class=&quot;math-container&quot;&gt;$g$&lt;/span&gt; fixed and set to 0) but there are costs of bigger jurisdictions, so the utilitarian social planner will never design &lt;span class=&quot;math-container&quot;&gt;$j$&lt;/span&gt;-level jurisdictions that overlap each other. &lt;span class=&quot;math-container&quot;&gt;$j$&lt;/span&gt;-level jurisdictions also occupy all of the segment since all individuals need to have access to each public good out there (so yeah, don't be a troll saying that the size and number of optimal jurisdictions is 0 since the authors, previously, set &lt;span class=&quot;math-container&quot;&gt;$g$&lt;/span&gt; to 0). All of this imples that: &lt;span class=&quot;math-container&quot;&gt;$\sum_{x=1}^{N_{j}}s_{xj} = 1$&lt;/span&gt;, so the utilitarian social planner problem colapses to (I keep the &lt;span class=&quot;math-container&quot;&gt;$j$&lt;/span&gt; subscripts for generality and set &lt;span class=&quot;math-container&quot;&gt;$\gamma_{j}$&lt;/span&gt; to 0 since it's a given parameter that is not affected by any choice variables):&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\min k_{j} N_{j} +  a_{j} \int_{0}^{1} l_{ij} di&#xA;$$&lt;/span&gt;&#xA;I'm stuck here, so I have 3 questions:&lt;/p&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Is there a way to proof that, the sum of distances &lt;span class=&quot;math-container&quot;&gt;$\int_{0}^{1} l_{ji}$&lt;/span&gt; is minimized if the public good is located at the midpoint of each jurisdiction? I understand the logic, but I don't know how to get the proof.&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Why &lt;span class=&quot;math-container&quot;&gt;$\int_{0}^{1} l_{ji} = \sum_{x=1}^{N_{j}} s_{xj}^{2}/4$&lt;/span&gt;?&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Why the sum of squares is minimized by choosing jurisdictions of equal size, &lt;span class=&quot;math-container&quot;&gt;$s_{j} = 1/N_{j}$&lt;/span&gt;? (proof would be helpful since I, somewhat, get the intuition of why it should be like this, but I'm not sure).&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="7685" LastEditorUserId="24728" LastEditDate="2020-12-11T11:44:07.810" LastActivityDate="2020-12-11T11:44:07.810" Title="Overlaping jurisdictions model, Alesina Spolaore: Proof of Lemma 1; The Size of Nations" Tags="&lt;microeconomics&gt;&lt;optimization&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="11161" PostTypeId="1" CreationDate="2016-03-20T20:33:29.407" Score="4" ViewCount="910" Body="&lt;p&gt;How do I find a list of all operating commercial banks by country?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am only interested in commercial banks. Not building societies nor community banks.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I expected that that list should be made available on &lt;a href=&quot;http://ec.europa.eu/eurostat&quot; rel=&quot;nofollow noreferrer&quot;&gt;EuroStat&lt;/a&gt;&#xA;or from &lt;a href=&quot;https://www.ecb.europa.eu/stats/money/consolidated/html/index.en.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;consolidated banking data by ECB&lt;/a&gt;&#xA;but it's not as they don't differentiate between commercial banks and other credit institutions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, for UK at some point in that past, that list would look like &lt;a href=&quot;https://pastebin.com/y5Y9xh2f&quot; rel=&quot;nofollow noreferrer&quot;&gt;this&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="324" LastEditorUserId="2776" LastEditDate="2017-04-21T09:16:54.420" LastActivityDate="2017-11-01T11:59:45.293" Title="List of commercial banks by country in Europe" Tags="&lt;data-request&gt;&lt;banking&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11162" PostTypeId="1" CreationDate="2016-03-20T21:36:36.430" Score="1" ViewCount="482" Body="&lt;p&gt;I am reading some book about strategic management.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, I must tell you that my native language is not English.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the book, they divided &lt;strong&gt;Key Performance Indicators&lt;/strong&gt; into three groups:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) indicators of competence (or indicators of competency)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) indicators of profitability&lt;/p&gt;&#xA;&#xA;&lt;p&gt;3) indicators of effectiveness (or indicators of efficiency)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Did someone heard about this distribution (division) of &lt;strong&gt;KPI&lt;/strong&gt;s and what is the exactly translation of indicators?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I gave my best to translate correctly on English. If somebody heard of this division could you write the name of the books or articles on English where can I further read about it.&lt;/p&gt;&#xA;" OwnerUserId="7687" LastActivityDate="2016-04-23T00:00:34.880" Title="Key Performance Indicators" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11164" PostTypeId="1" CreationDate="2016-03-21T01:50:43.553" Score="6" ViewCount="5444" Body="&lt;p&gt;I work for a company that produces retail items and I am tasked with calculating the price elasticity of demand for a subcategory that shall remain unnamed. I have 5 years of monthly market data that shows market price as well as ounces sold. My independent variables include IV estimated prices, monthly income spent on non-durables (national Fred data), ounces sold of a related subcategory, and 11 dummy variables for the 12 months of seasonality. The model is Log-Log.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My idea was to control for everything that would be a supply side factor and then use the coefficient of price as my demand curve slope. Of course, the demand curve is always changing, but in aggregate I would assume a relatively steady demand curve. It would at least be better than simply calculating dQ/dP. The problem is my coefficient for price is positive. Also, even though the R-Square is around 70% and the F-Stat is significant at the 99%+ level, my individual parameters are mostly not statistically significant.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem is, I am looking at monthly data for an entire subcategory. The volume sold and weighted average prices continue to rise and I am not sure how to isolate demand. Any ideas would be greatly appreciated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regarding the IV price estimator to remove endogeneity, I ran the stage 1 regression with the cost of raw materials as my X and price as Y. This price estimator has an R-Square of .91. The cost of raw materials has a correlation of .11 versus .32 when run against quantity.  &lt;/p&gt;&#xA;" OwnerDisplayName="Granntttt" LastActivityDate="2018-12-05T08:16:09.620" Title="How do I calculate price elasticity of demand using historical price and quantity data?" Tags="&lt;regression&gt;&lt;econometrics&gt;&lt;elasticity&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11166" PostTypeId="1" AcceptedAnswerId="11200" CreationDate="2016-03-21T18:27:53.913" Score="2" ViewCount="58" Body="&lt;p&gt;I have been looking at quantile regression (since it is a much better method when trying to quantify welfare effects), and I am struggling with the following, standard model:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\textbf{Model:}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$y=x'\beta(u)$ where $u|x\text{~}Uniform\,[0,1]$ and for any $x,\, x'\beta(\tau)$ is a strictly increasing function in $\tau$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For simplicity, assume $x=(1,x_1)$ meaning that we have one regressor and an intercept &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\textbf{Question:}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is $Var(y|x)$?&lt;/p&gt;&#xA;" OwnerUserId="5825" LastActivityDate="2016-03-23T15:24:13.817" Title="Variance of Quantile Regression" Tags="&lt;econometrics&gt;&lt;variance&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11168" PostTypeId="1" CreationDate="2016-03-21T21:04:57.013" Score="2" ViewCount="44" Body="&lt;p&gt;So Bernie Sanders' plan considers healthcare as: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Bernie’s plan will cover the entire continuum of health care, from&#xA;  inpatient to outpatient care; preventive to emergency care; primary&#xA;  care to specialty care, including long-term and palliative care;&#xA;  vision, hearing and oral health care; mental health and substance&#xA;  abuse services; as well as prescription medications, medical&#xA;  equipment, supplies, diagnostics and treatments.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;And the main way to raise revenue to pay for it will be: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;A 6.2 percent income-based health care premium paid by employers. A&#xA;  2.2 percent income-based premium paid by households. Increasing Progressive income tax rates on certain brackets. Changing&#xA;  qualifications for capital gains, dividends, and deductions.&#xA;  Increasing the estate tax on certain brackets.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Now I am assuming the cost the healthcare products and services will fluctuate just like all other products and services do in one way or another. My question is, under such a plan, in a given year, what happens when the costs of the products and services is less than revenue (do taxpayers get the difference back) and what happens when the costs of the products and services is more than revenue (will taxpayers see an increase to percentages taxed of their income).&lt;/p&gt;&#xA;" OwnerUserId="7695" LastEditorUserId="1601" LastEditDate="2016-03-21T22:30:33.077" LastActivityDate="2016-03-21T22:30:33.077" Title="Sanders' Plan to tie health care spending as a percentage of income" Tags="&lt;taxation&gt;&lt;government&gt;" AnswerCount="0" CommentCount="4" ClosedDate="2016-03-26T02:20:56.317" ContentLicense="CC BY-SA 3.0" />
  <row Id="11169" PostTypeId="1" CreationDate="2016-03-21T21:29:11.650" Score="0" ViewCount="84" Body="&lt;p&gt;Utility function is great theoretical concept but is it used in customer data analysis or in building customer profile (e.g. from Big data or cash register/checkout data, ecommerce history) or in predicting future sales and future proposals that customers can be eager to accept? If utility function is not used in these areas what other tools (conceptually similar to utility function) is used in customer data analysis? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are there attempts to discover customer goals, intentions and personality, build utility function from these conceptually high level data and use such framework in sales prediction or modelling the desirable features of new product? I have read about behavioral economics but it have strong focus on stock market modelling and little is said about consumer goods and services.&lt;/p&gt;&#xA;" OwnerUserId="5373" LastActivityDate="2016-03-21T21:29:11.650" Title="Is utility function used in customer data/profile analysis? What alternatives in practice?" Tags="&lt;utility&gt;&lt;behavioral-economics&gt;&lt;consumption&gt;&lt;measuring-utility&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11171" PostTypeId="2" ParentId="11148" CreationDate="2016-03-22T02:33:48.790" Score="2" Body="&lt;p&gt;From an individual view, depends on if you're a net lender or borrower. If there is an unexpected increase in inflation and I'm a net borrower, then I pay the same nominal amount but effectively less than initially agreed upon (i.e. Less real dollars). The opposite if I'm a net lender.&lt;/p&gt;&#xA;" OwnerUserId="7303" LastActivityDate="2016-03-22T02:33:48.790" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11172" PostTypeId="1" CreationDate="2016-03-22T03:16:14.447" Score="2" ViewCount="868" Body="&lt;p&gt;We've delved into questions about the history of economics. We've pondered what the most important equations in economics are. But in every science, academic culture inevitably forms a special set of ideas that further our understanding of the most fundamental ideas we use in our work: jokes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Jokes are only funny if they set you up to have a false assumption about the material at hand, and then subvert it. In this way, jokes can be used to reveal underlying assumptions we economists might take about the world that are very well absurd, but important nonetheless to moving towards more sophisticated models. Even within mainstream economic schools, ideas like using cardinal vs. ordinal utility, or utilitarianism itself can be contentious. John Rawls's veil of ignorance or Nozick's more libertarian epistemology? Are sticky wages &lt;em&gt;really&lt;/em&gt; realistic?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What are some jokes you have encountered that would be useful for addressing an underlying assumption of an economic theory, or economics itself?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Any further recommendations for improving this question are appreciated. It can even be a community question if that would be best.)&lt;/p&gt;&#xA;" OwnerUserId="4251" LastEditorUserId="4251" LastEditDate="2016-03-23T22:14:00.073" LastActivityDate="2016-03-23T22:14:00.073" Title="Jokes in Economics; Challenging Assumptions in the Dismal Science" Tags="&lt;theory&gt;" AnswerCount="3" CommentCount="11" FavoriteCount="1" ClosedDate="2016-03-22T10:36:22.287" ContentLicense="CC BY-SA 3.0" />
  <row Id="11173" PostTypeId="2" ParentId="11172" CreationDate="2016-03-22T03:31:17.177" Score="4" Body="&lt;p&gt;Not to suggest that this should become a list of the best econ related &lt;a href=&quot;https://xkcd.com/552/&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://xkcd.com/552/&lt;/a&gt; and &lt;a href=&quot;http://phdcomics.com/comics.php&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://phdcomics.com/comics.php&lt;/a&gt; but I always really liked that one:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/r5TNb.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/r5TNb.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="38" LastActivityDate="2016-03-22T03:31:17.177" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11174" PostTypeId="2" ParentId="11144" CreationDate="2016-03-22T04:10:12.210" Score="4" Body="&lt;p&gt;The answer offered by @MD-Tech is unfortunately profoundly wrong on a number of its core assertions. I will first correct these assertions (and offer references while doing so) and then very briefly offer a few points that should put the 2008 crisis in the proper perspective.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;TL;DR:&lt;/strong&gt; Government guarantees on mortgages didn't play any role in the crisis; CDOs and CDS played a role in keeping the mortgage pipeline running as long as it did but private-label MBS were the security that played the central role in the crisis; and the actual reason that mortgage losses almost destroyed the global economy is that private-label MBS had been heavily funded using repo, which transformed mortgage debt essentially into a form of money, and when the market went south, it led to a run on wholesale bank funding that amounted to a massive contraction of the broader money supply.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, the errors:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Error One: Implicit Government Guarantees&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;In the (first?) Clinton and Bush administrations there was a political will (rightly or wrongly; it isn't important) to help people buy their own homes. This applied particularly to low income families who previously had not been able to buy, in many cases for generations. To do this bills were passed to offer subprime loans with the implicit backing of the US government.&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This assertion is untrue. No bills were passed in the 1990s to offer subprime loans with the implicit backing of the US government, and government-backed loan channels (including implicit backing) actually lost significant market share prior to the crisis. You might be thinking about the Community Reinvestment Act, which was blamed by some conservatives for the crisis, but this view is not held in high regard by economists. The &lt;a href=&quot;http://fcic-static.law.stanford.edu/cdn_media/fcic-reports/fcic_final_report_full.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Financial Crisis Inquiry Commission Final Report&lt;/a&gt; has this to say on the matter (p. xxvii):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The Commission concludes the CRA was not a significant factor in subprime lending or the crisis. Many subprime lenders were not subject to the CRA. Research indicates only 6% of high-cost loans—a proxy for subprime loans—had any connection to the law. Loans made by CRA-regulated lenders in the neighborhoods in which they were required to lend were half as likely to default as similar loans made in the same neighborhoods by independent mortgage originators not subject to the law.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;There are two main channels (I am ignoring the VA, Farmer Mac, and other small entities) that offer credit protection on mortgages: the Federal Housing Administration, which insures loans that are then issued as securities through Ginnie Mae (and are explicitly backed by the full faith and credit of the US government); and the GSEs, Fannie Mae and Freddie Mac, whose securities received implicit government backing. Both the FHA and the GSEs do engage in some amount of lending to borrowers who would be considered under some definitions to be &quot;subprime,&quot; and have for decades.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, let's look at the pre-crisis boom period from 2002-2006, during which house prices nationally increased by an average rate of about 14% annually:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/JFD6F.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/JFD6F.png&quot; alt=&quot;FSOC 2013 Annual Report, Chart 5.1.30&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And let's see what happened to the government share of mortgage originations:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/KHK9N.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/KHK9N.png&quot; alt=&quot;FSOC 2013 Annual Report, Chart 5.1.33&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This should make it very clear that during the boom period, GSE originations fell significantly, while private (that is, no government backing, implicit or explicit) originations expanded from about 50% of the overall market to about 70% of the market. Both of the above graphics are pulled from the Financial Stability Oversight Council's &lt;a href=&quot;https://www.treasury.gov/initiatives/fsoc/Documents/FSOC%202013%20Annual%20Report.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;2013 Annual Report&lt;/a&gt;, which notes (page 57): &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In 2012, the Federal Housing Administration (FHA) and the Department of Veterans Affairs (VA) guaranteed 20 percent of originated mortgages. FHA- and VA-guaranteed loans make up a majority of Ginnie Mae MBS issuances. Between 2001 and 2007, FHA lending accounted for less than 5 percent of annual originations. &lt;strong&gt;The market share for FHA lending was small at the time because eligible borrowers were primarily receiving non-agency loans funded through securitization.&lt;/strong&gt; After secondary-market investors retreated from private-label&#xA;  securities after the crisis, FHA lending became the dominant avenue for low- to middle-income mortgage market credit. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Emphasis mine. This graphic also illustrates how after the housing crash that began in 2006 and became acute in 2007, federal lending programs expanded significantly, acting as a safety net for the housing market. Regardless, it should be clear that private lending, not government lending, drove the housing bubble.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Further, while both the FHA and the GSEs saw significant losses during the crisis years, with the GSEs receiving a government bailout under the &lt;a href=&quot;https://en.wikipedia.org/wiki/Housing_and_Economic_Recovery_Act_of_2008&quot; rel=&quot;nofollow noreferrer&quot;&gt;Housing and Economic Recovery Act of 2008&lt;/a&gt;, no investor saw a single dollar loss on debt or mortgage-backed securities issued by Ginnie Mae, Fannie Mae, or Freddie Mac. The fact that no investor lost principal on these securities should be a strong hint that they were not behind the financial crisis. Here's the Financial Crisis Inquiry Commission report on the matter (p. xxvi):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;We conclude that these two entities [the GSEs] contributed to the crisis, but were not a primary cause. Importantly, GSE mortgage securities essentially maintained their value throughout the crisis and did not contribute to the significant financial firm losses that were central to the financial crisis.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So on this point, we've learned two major lessons:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Implicit government guarantees did not drive the housing bubble.&lt;/li&gt;&#xA;&lt;li&gt;No investors lost principal on GSE or Ginnie Mae debt or mortgage-backed securities. Put differently, nothing that was viewed as having a government guarantee lost a dime.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Error Two: Confusing Mortgage-Backed Securities with CDOs&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;The mortgage companies then had a large tranches of debt on their books that, although apparently backed by Sam, were riskier than their previously core business. To mitigate this risk they rolled them up into CDOs which, given that the probability of any one loan defaulting was taken to be independent of any and all others defaulting, supposedly held lower risk than the individual loans.&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This description of the crisis completely glosses over the main financial instrument at the heart of the crisis, which is the private-label mortgage-backed security (herefter referred to as PLMBS). These securities, consisting of pools of mortgages that back securities of different risk profiles (often referred to as &quot;&lt;a href=&quot;https://en.wikipedia.org/wiki/Tranche&quot; rel=&quot;nofollow noreferrer&quot;&gt;tranches&lt;/a&gt;&quot;), have no government backing, implicit or explicit. Tranching can render senior tranches of PLMBS safe (and some senior tranches of PLMBS in fact saw no losses in the crisis). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regarding the use of the word &quot;supposedly,&quot; basic statistics can show that PLMBS pools are safer than individual loans so long as default correlations are less than one (one does not need to assume that correlations are zero, as the answer implies); and basic math can show that even under the extreme scenario where default correlations approach one, senior tranches are still safer than individual loans. Correlations mattered significantly in CDOs, but CDOs weren't composed of loans: they were composed of junior tranches of securities backed by pools of loans (often PLMBS), like so:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/Z2Q70.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Z2Q70.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Additionally, it is inaccurate to suggest that MBS issuance was in response to &quot;large tranches of debt&quot; on the books of &quot;mortgage companies&quot; when in fact subprime mortgages were originated for the express purpose of being securitized. The mortgage loans weren't generally held on the books of financial institutions, they were held primarily in off-balance-sheet ABS warehouse facilities until they were delivered into PLMBS pools.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/77VY2.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/77VY2.png&quot; alt=&quot;FCIC Figure 5.2&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Demand for PLMBS (the source of which is an interesting story itself but this answer is long enough already) actually drove subprime mortgage originations, as noted by the Financial Crisis Inquiry Commission (p. 87):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;When it came to subprime lending, now it was Wall Street investment banks that&#xA;  worried about competition posed by the largest commercial banks and thrifts. Former Lehman president Bart McDade told the FCIC that the banks had gained their own securitization skills and didn’t need the investment banks to structure and distribute. &lt;strong&gt;So the investment banks moved into mortgage origination to guarantee a supply of loans they could securitize and sell to the growing legions of investors.&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Error Three: CDOs and CDS Did Not Cause the Financial Crisis&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is a subtle, but important point. Derivatives, including CDOs and CDS, certainly played a role in the financial crisis— they played a major role in the failure of AIG, and they kept the mortgage securitization chain running for longer than it would have otherwise, but beyond AIG, no major firm failed as a result of its derivatives exposure.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here's a list of the major (US) firm failures, in order (I am counting firms that would have failed had they not sold themselves as failures, and excluding a bunch of pretty plain-vanilla banks that all failed primarily due to portfolio mortgage exposures):&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Bear Stearns (wholesale funding run)&lt;/li&gt;&#xA;&lt;li&gt;Countrywide (mortgage portfolio/warehouse losses)&lt;/li&gt;&#xA;&lt;li&gt;Fannie Mae and Freddie Mac (mortgage portfolio and PLMBS losses)&lt;/li&gt;&#xA;&lt;li&gt;Merrill Lynch (wholesale funding run)&lt;/li&gt;&#xA;&lt;li&gt;AIG (derivatives exposures)&lt;/li&gt;&#xA;&lt;li&gt;Washington Mutual (mortgage portfolio losses; bank run)&lt;/li&gt;&#xA;&lt;li&gt;Lehman Brothers (wholesale funding run)&lt;/li&gt;&#xA;&lt;li&gt;Wachovia (mortgage portfolio losses; bank run)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Okay, What DID Cause The Financial Crisis?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Well, I kind of gave it away above, but let me slay a couple more bad ideas first.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Mortgage losses alone were probably not sufficient to cause the financial crisis.&lt;/em&gt; They were certainly a core part of it, but they, by themselves, were not sufficient to cause, as the original poster asked, the near-failure of the world economy. This might sound crazy, but let's look at the numbers briefly.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here's the total amount of mortgage debt outstanding in the United States, from the Federal Reserve, via &lt;a href=&quot;https://research.stlouisfed.org/fred2/series/MDOAH&quot; rel=&quot;nofollow noreferrer&quot;&gt;FRED&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/zloW3.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/zloW3.png&quot; alt=&quot;Mortgage Debt&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It peaks around \$14.8T, and hits bottom around \$13.2T. Being really lazy about it and assuming both that all that decline is due to mortgage defaults and just rounding up a bit, we come to about \$2 trillion in losses on mortgage debt over the entire history of the financial crisis.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But here's the market capitalization of a few of the larger US financial firms prior to the crisis:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;C: \$260B&#xA;BAC: \$231B&#xA;JPM: \$168B&#xA;MS: \$179B&#xA;WFC: \$118B&#xA;GS: \$86B&#xA;ML: \$64B&#xA;BS: \$19B&lt;/p&gt;&#xA;&#xA;&lt;p&gt;~$1.1T.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which doesn't look good, until you realize that a) many of our mortgage assets were held by foreigners, pension funds, and other entities; b) the GSEs (and ultimately taxpayers) absorbed hundreds of billions in losses, and c) the $2T figure I started with includes all losses up through the end of the mortgage crisis, and the actual financial crisis occurred only two year in to the mortgage crisis. Then you realize that the mortgage losses alone probably weren't enough to bring down the financial system.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Derivatives also did not cause the financial crisis.&lt;/em&gt; To a first approximation, one could say that the financial system as a whole lost no money at all on derivatives, as any one party's loss was another's gain, and the only major firm to fail primarily as a result of derivatives exposures was AIG (and this failure did not cause the failure of any other major firm).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So what was it, really? &lt;strong&gt;A bank run, just like every other financial crisis.&lt;/strong&gt; Not a traditional bank run, but a &lt;a href=&quot;http://www.nber.org/papers/w15223&quot; rel=&quot;nofollow noreferrer&quot;&gt;run on repo&lt;/a&gt;, which is the core bit of the story that is omitted above. (To be fair, he does mention leverage in passing, but repo is more than leverage— it's leverage and &lt;em&gt;liquidity transformation&lt;/em&gt;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Repo is essentially a form of collateralized borrowing used by financial firms— you lend me money, and I give you a pile of stuff that you're pretty sure is worth a little more than the money you're lending me as collateral, then later on, we trade back. Unfortunately, one of the &quot;piles of stuff&quot; that was being used heavily in repo was mostly high-quality, AAA tranches of the aforementioned PLMBS, which at first everyone assumed was as good as (actually, sometimes better than) gold, but then once people started seeing losses on PLMBS, because nobody sitting at a repo desk could figure out how to price the stuff, they started lending less and less against it, until they wouldn't accept it as collateral at all. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;One problem with this is that it had the same effect as a bank run, but there was no equivalent of government deposit insurance to help stop the run— people ran, and for a number of major financial firms, it was over. A bigger problem with this is that it meant that the entire &lt;a href=&quot;https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr458.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;shadow banking system&lt;/a&gt; seized up, causing a significant contraction in the broader money supply— which is what actually almost killed the global economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's this critical link— the fact that people not paying mortgages was amplified through wholesale finance in a way that transformed the mortgage debt into highly-liquid, money-like liabilities, so that the lost wealth actually translated into a contraction of the money supply— that is often lost. Stock market losses in the 2000 &quot;Dot-Com&quot; crash were actually greater than losses on residential mortgages. But it didn't destroy the global economy, because people weren't funding stock market positions with short term debt— if they were, it would look like— wait, now I'm actually just describing the Great Depression. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Almost all the other stuff that @MD-Tech says is true— there were, for example, people who took out no-documentation mortgages with no intention of ever paying them back, borrowing sometimes more than the cost of their homes and blowing the money on stuff (I don't know what, exactly, but Las Vegas saw a lot of the housing boom and bust so gambling and strip clubs were probably in the mix). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And yes, CDOs did play a role in getting to that point, but the role they played was mostly at the end— they were sufficiently complicated that errors in modeling correlations led some to believe that the more senior tranches were safe, while the more junior tranches were actually often purchased by people who were betting against the housing market (these individuals would take out large CDS positions but also buy junior CDOs, which gave them cash flow to fund CDS premiums until everything blew up, at which point the CDS paid out and they were rich(er) and people wrote books about them).&lt;/p&gt;&#xA;" OwnerUserId="264" LastEditorUserId="264" LastEditDate="2016-03-22T14:09:53.507" LastActivityDate="2016-03-22T14:09:53.507" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="11175" PostTypeId="2" ParentId="11172" CreationDate="2016-03-22T07:27:23.910" Score="1" Body="&lt;p&gt;An economics professor and her student are walking on the street. The student points to the ground before them. &lt;br&gt;&#xA;&quot;Professor look! A twenty dollar bill!&quot; &lt;br&gt;&#xA;The professor waves dismissingly. &lt;br&gt;&#xA;&quot;Do not bother picking it up. If it were a real twenty dollar bill someone would already have picked it up.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I also like these two SMBC comics featuring Superman, but the images are big so I will only link to them. &lt;br&gt;&#xA;&lt;a href=&quot;http://www.smbc-comics.com/?id=2012&quot; rel=&quot;nofollow&quot;&gt;It's more complex than you realize.&lt;/a&gt; &lt;br&gt;&#xA;&lt;a href=&quot;http://www.smbc-comics.com/?id=2305&quot; rel=&quot;nofollow&quot;&gt;Finally, we found maximum efficiency.&lt;/a&gt; &lt;br&gt;&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2016-03-22T07:27:23.910" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11177" PostTypeId="2" ParentId="11172" CreationDate="2016-03-22T09:46:55.967" Score="4" Body="&lt;p&gt;A physicist a chemist and an economist are stranded in a deserted island after a wreckage. They have managed to salvage a case of canned food, but they have nothing to open the cans, and the island is a true paradise -meaning, all sand and beaches and soft bushes -but no stones, nothing hard.&lt;br&gt;&#xA;The physicist and the chemist try to put their scientific knowledge to work by conjuring forces of nature, gravity, pressure, materials science, inorganic chemistry etc, but they can't make them to work in their favor, they lack the necessary infrastructure to do it. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Meanhwile, the economist is laying on the side, enjoying the sun and smiling, a bit cockily.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;-Why do you smile? - Ask the scientists, angry and frustrated&lt;/p&gt;&#xA;&#xA;&lt;p&gt;-Because I have the solution - replies the economist&lt;/p&gt;&#xA;&#xA;&lt;p&gt;-Which is? - challenge the scientists&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The economist looks up, with a trace of pity in his eyes, gets up and says very confidently:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;&quot;Assume that we have a can opener&quot;.&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Comment: Assuming what one wants to prove is an ever-present trap in Economics especially after its mathematization, something that Paul Samuelson was wise enough to warn us about even as he pushed this very mathematization forward.&lt;/em&gt;&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2016-03-22T09:46:55.967" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11179" PostTypeId="1" AcceptedAnswerId="11198" CreationDate="2016-03-22T12:46:20.400" Score="2" ViewCount="592" Body="&lt;p&gt;I'm searching for bibliography on the critiques to the &lt;a href=&quot;http://eml.berkeley.edu/~dromer/papers/MRW_QJE1992.pdf&quot; rel=&quot;nofollow&quot;&gt;Mankiw, Romer, Weil (1992)&lt;/a&gt; paper.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If possible, could you give references to each critique?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="118" LastActivityDate="2016-03-23T14:12:27.667" Title="Critiques to Mankiw, Romer, Weil (1992) paper on Economic Growth" Tags="&lt;macroeconomics&gt;&lt;economic-growth&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="11181" PostTypeId="2" ParentId="4658" CreationDate="2016-03-22T16:46:39.050" Score="2" Body="&lt;p&gt;A central bank sets the interest rates for &lt;em&gt;banks&lt;/em&gt; (i.e. not us mere mortals) to borrow from it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Low interest rates are a central bank's tool to try and encourage banks to lend, thereby encouraging all sorts of helpful behaviours like investment and home-buying. &lt;em&gt;(If rates are low, that should mean borrowing for mortals is cheap, because you'd hope the banks pass on those low central bank rates to their customers!)&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But if there's something fundamentally &quot;wrong&quot; with the economy, banks won't lend and/or people won't want to invest/borrow &lt;em&gt;however&lt;/em&gt; low the interest rates get. After all, the idea of being in debt might be worrying to people &lt;em&gt;per se&lt;/em&gt;, not just because of the interest repayments.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the central banks have been lowering and lowering rates, desperate to kickstart the economy, but it's not been working, because there's something just &quot;wrong&quot; with the economy, and it's got nothing to do with interest rates.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That could be to do with banks being scared to lend (not enough money in their safety cushions perhaps?) or people/firms being too scared to borrow/invest (worries that things will get worse in the near future maybe?)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So rates get ever lower, and &lt;em&gt;still&lt;/em&gt; the economy doesn't get moving.&lt;/p&gt;&#xA;" OwnerUserId="7660" LastActivityDate="2016-03-22T16:46:39.050" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11182" PostTypeId="2" ParentId="9326" CreationDate="2016-03-22T16:48:58.803" Score="0" Body="&lt;p&gt;Regarding specifically whether a CB may divulge information that leads to workers and firms have higher expected inflation, (despite the fact that the CB knows those expectations would be a bit too optimistic), there is evidence of something related (CBs have incentives to misrepresent information in order to manipulate inflation expectations) in this article: &lt;a href=&quot;https://ideas.repec.org/a/bla/coecpo/v32y2014i4p802-810.html&quot; rel=&quot;nofollow&quot;&gt;https://ideas.repec.org/a/bla/coecpo/v32y2014i4p802-810.html&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="7703" LastActivityDate="2016-03-22T16:48:58.803" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11183" PostTypeId="2" ParentId="11156" CreationDate="2016-03-22T19:40:42.873" Score="1" Body="&lt;p&gt;Intuitively, this is the story: The interest rate on inflation-linked bonds (which means that the coupon payments are adjusted for inflation) can be seen as a real interest rate, because one is always exactly compensated for the realized inflation. Subtracting this real interest rate ($r$) from a nominal interest rate ($i$) gives the average inflation expectaction ($\pi^e$) over the period remaining before maturity. Just use the fisher-equation to see this: $r=i−π^e$.&lt;/p&gt;&#xA;" OwnerUserId="6566" LastActivityDate="2016-03-22T19:40:42.873" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11187" PostTypeId="2" ParentId="10709" CreationDate="2016-03-23T00:10:34.113" Score="2" Body="&lt;p&gt;The Marginal Rate of Substitution is not just the &quot;ratio of the partial derivatives&quot;: it represents the slope of an indifference curve. In order to obtain it, you must guarantee that you remain on the same indifference curve. How do we do that? One way is by taking the total differential of the utility function and requiring this total differential to be equal to zero:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$dU(x_1,x_2) = 0 \implies \frac {\partial U(x_1, x_2)}{\partial x_1} \cdot dx_1 + \frac {\partial U(x_1, x_2)}{\partial x_2} \cdot dx_2 =0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and rearranging (and putting in this case $x_2$ on the vertical axis)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies \frac {dx_2}{dx_1} = -\frac {\partial U(x_1, x_2)/\partial x_1}{\partial U(x_1, x_2)/\partial x_2} = MRS_{x_1,x_2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we look at two goods and (not say, one good and one bad), and we have non-satiation, then the partial derivatives are strictly positive. So the minus sign is the one that tells you that the slope of the indifference curve should be algebraically negative, so a &quot;downward slopping&quot; curve. And this is  an argument in favor of keeping it. But indeed sometimes, people omit the minus considering the negativeness of the slope to be &quot;understood&quot;. But this can create confusion.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But hey, the symbol $dx_2/dx_1$ can also be read as &quot;the derivative of $x_2$ w.r.t. $x_1$&quot;, which is the first derivative of the indifference curve equation. Imagine now a convex to the origin indifference curve. As you increase the value of the variable measured on the horizontal axis ($x_1$ in our case), a convex indifference curve becomes &lt;em&gt;flatter&lt;/em&gt;. This means that &lt;em&gt;in absolute terms&lt;/em&gt; the slope becomes smaller. &lt;em&gt;But in algebraic terms it becomes larger, because its value moves from a negative number, closer to zero&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I prefer to keep signs visible at all times (many short-lived scientific discoveries have sent their discoverer into depression five minutes later, when (s)he realized that it was just a sign mistake).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, if I want to determine whether the indifference curve is convex, I want to see the MRS (sign included) &lt;em&gt;increase&lt;/em&gt; in value, i.e. become less negative, and so also &lt;em&gt;decrease in absolute value&lt;/em&gt;. So we see that &quot;MRS decreases as we move down and to the right in a convex indifference curve&quot; uses &quot;decrease&quot; in the &lt;em&gt;absolute value sense&lt;/em&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And the confusion may get worse.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In any case, one should calculate&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {d^2x_2}{dx_1^2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But with, or without the minus sign?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume that, like me (and unlike many others) you want to keep the minus sign in front of the $MRS$. In that case, you want to see the MRS increase. For this to happen, the derivative of the MRS must be positive. This in my eyes is the 2nd argument in favor of including the minus sign, because we know that &lt;em&gt;positive 2nd derivative means convex function&lt;/em&gt; (referring here to the indifference curve equation). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So with the minus sign in front when calculating the derivative, positive $MRS$ derivative $\implies$ $MRS$ increase in algebraic value $\implies$ the slope of the $MRS$ gets larger in algebraic value, $\implies$ it gets smaller in absolute value, $\implies$ the curve gets flatter, and so it is convex indeed.&#xA;I leave the chain for the case of ignoring the minus sign as a for anyone interested. You will certainly get &quot;negative 2nd derivative $\implies$ convex indifference curve&quot;, which will tend to mess with pre-existing knowledge in your brain.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And &lt;a href=&quot;https://economics.stackexchange.com/a/548/61&quot;&gt;&lt;strong&gt;check this post&lt;/strong&gt;&lt;/a&gt;. &lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2018-07-28T17:31:10.720" LastActivityDate="2018-07-28T17:31:10.720" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="11189" PostTypeId="1" CreationDate="2016-03-23T01:36:34.483" Score="1" ViewCount="15" Body="&lt;p&gt;I'm updating a document that cites this:  &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;As of December 2011, 67 percent of home mortgage debt was either&#xA;  securitized through agency or non-agency MBS or held on the balance sheets&#xA;  of Fannie Mae and Freddie Mac (source: Federal Reserve Statistical Release &gt;Z.1, “Flow of Funds Accounts of the United States,” Table L.218).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So I've looked at most recent Table L.218 and I'm trying to extract the relevant data to get the percentage as of Mar. 2016.  But I want to be sure I understand what the table represents.  Does it show who holds all the mortgage debt in the US?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And does the data cited in the quote above come from rows 18, 19, and 20?&#xA;Here's the data:  &lt;a href=&quot;https://www.federalreserve.gov/RELEASES/z1/current/z1r-4.pdf&quot; rel=&quot;nofollow&quot;&gt;https://www.federalreserve.gov/RELEASES/z1/current/z1r-4.pdf&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="7708" LastActivityDate="2016-03-23T01:36:34.483" Title="What is the FRB's Z.1 table L.218" Tags="&lt;debt&gt;&lt;federal-reserve&gt;&lt;securities&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11190" PostTypeId="1" CreationDate="2016-03-23T02:26:13.097" Score="11" ViewCount="799" Body="&lt;p&gt;In my economics classes we have studied some really rudimentary concepts about insurance. I'm not really sure what qualifies as insurance to be honest. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I was wondering if options are considered a form of insurance? Is that the right way to think about options? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Perhaps a better way of phrasing the question is, &quot;Is the primary purpose of options to provide insurance against changes in the stock's underlying value?&quot;&lt;/p&gt;&#xA;" OwnerUserId="2679" LastActivityDate="2020-08-21T13:03:04.290" Title="Are options a form of insurance?" Tags="&lt;asset-pricing&gt;" AnswerCount="5" CommentCount="0" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11192" PostTypeId="1" CreationDate="2016-03-23T03:55:38.423" Score="1" ViewCount="4089" Body="&lt;p&gt;How do I maximize the utility function:&#xA;$ U(x,y)= max(ax,ay)+min(x,y) $ , where $ 0&amp;lt;a&amp;lt;1 $ with respect to prices $ p_{x}, p_{y} $ respectively and income $ m $.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know leontief-type utility functions are solved by graphing and not by using Lagrangians, buy how do I graph this function?. ( I know there would be kinks on the graph, but how do I find those kinks)&lt;/p&gt;&#xA;" OwnerUserId="7710" LastEditorUserId="7710" LastEditDate="2016-03-23T04:10:39.777" LastActivityDate="2017-01-23T09:32:02.007" Title="maximizing leontief-type utility function" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;utility&gt;&lt;leontief&gt;" AnswerCount="1" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="11193" PostTypeId="2" ParentId="11190" CreationDate="2016-03-23T07:40:10.097" Score="2" Body="&lt;p&gt;It could be an insurance if the price of the option trade is less than the cost of shifting the position you aim to insure if you take &quot;Time Value&quot; &amp;amp; &quot;Intrinsic Value&quot; into account.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you simply want to hedge an open position because the premium for closing it is higher than the cost of the hedge, we also have to look on leveraged CFDs - the advantage would be more precise tracking of the underlying value as options may or may not track the underlying value accurately in shorter timeframes, for example earnings releases. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My take is options can only be an insurance to an open position if the above mentioned obstacles are taken into account.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Additionally to note is that derivatives (options and CFD's) also bear an issuer risk. Take a 2007 event for example, if the issuer goes bankrupt your position / account equity value might be at a loss. &lt;/p&gt;&#xA;" OwnerUserId="2884" LastActivityDate="2016-03-23T07:40:10.097" CommentCount="0" CommunityOwnedDate="2016-03-23T07:40:10.097" ContentLicense="CC BY-SA 3.0" />
  <row Id="11194" PostTypeId="1" CreationDate="2016-03-23T10:51:35.353" Score="3" ViewCount="52" Body="&lt;p&gt;Roubens, Vincke &amp;amp; Pirlot have summarized and extended representation theorems for partial semiorders in the 80s and 90s. See e.g. Roubens, M. &amp;amp; Vincke, P.: &lt;em&gt;Preference Modelling&lt;/em&gt;. Springer, 1985. Vincke, P. &amp;amp; Pirlot, M.: &lt;em&gt;Semiorders: Properties, Representations, Applications&lt;/em&gt;. Springer, 1997.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Basically, for finite domains, if $P$ is a strict preference and $I$ is a nontransitive indifference relation such that $R=P\cup I$ is an incomplete semiorder, then a utility function $u(.)$ and a constant $\delta$ partially represent the ordering in the following way:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$aPb \Rightarrow u(a)&amp;gt;u(b)+\delta$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$aIb \Rightarrow |u(a)-u(b)|\leq \delta$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm not an economist but currently work on metaethical problems in philosophy, and was wondering whether any economists or decision theorists have used this type of representation, e.g. for consumer preferences or for some utility-maximizing decision making? In other words, is this type of thing an &quot;old hat&quot; in economics or rather uncommon? Do economists use it?&lt;/p&gt;&#xA;" OwnerUserId="7648" LastActivityDate="2016-03-23T10:51:35.353" Title="Utility theory or decision theory based on partial semiorders?" Tags="&lt;utility&gt;&lt;expected-utility&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11198" PostTypeId="2" ParentId="11179" CreationDate="2016-03-23T14:12:27.667" Score="1" Body="&lt;p&gt;Here are three:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.nber.org/chapters/c11037.pdf&quot; rel=&quot;nofollow&quot;&gt;Klenow, P., &amp;amp; Rodriguez-Clare, A. (1997). The neoclassical revival in growth economics: Has it gone too far?. In NBER Macroeconomics Annual 1997, Volume 12 (pp. 73-114). MIT Press.&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.ecostat.unical.it/aiello/Didattica/economia_Crescita/CRESCITA/CrescitaKlenow-rodriguez-Clare-JME-1997.pdf&quot; rel=&quot;nofollow&quot;&gt;Klenow, P. J., &amp;amp; Rodriguez-Clare,A. (1997). Economic growth: A review essay. Journal of monetary economics, 40(3), 597-617.&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;They pose certain conceptual issues as regards entangled causalities (in the economics' sense, not in the econometrics' sense).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;All are freely downloadable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.nber.org/chapters/c11063.pdf&quot; rel=&quot;nofollow&quot;&gt;Bernanke, B. S., &amp;amp; Gürkaynak, R. S. (2002). Is growth exogenous? taking Mankiw, Romer, and Weil seriously. In NBER Macroeconomics Annual 2001, Volume 16 (pp. 11-72). MIT Press.&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This paper argues that one of the most important implications of any Solow framework is that long-run growth depends only on exogenous technological progress, and that MRW do not test in the right way this implication (the authors do it their way and reject this implication).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But I don't think you will find papers with deep &lt;em&gt;statistical-econometric&lt;/em&gt; testing/validation of the model.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2016-03-23T14:12:27.667" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11199" PostTypeId="2" ParentId="11190" CreationDate="2016-03-23T14:45:31.573" Score="5" Body="&lt;p&gt;No, the primary purpose of options is not to provide insurance against changes in the price of the underlying instrument: options don't have a primary purpose, they don't have an agenda, and they don't have a plan. They're just another tradeable instrument.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some people buy them as means of insuring a position. Some people write them as a means of insuring a position.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And as Aurigae notes, in a crisis all correlations tend to one; so even if, in theory, your options insure the rest of your position, in reality, in a crisis, the counterparty risk can become very high, so the insurance is least available when it's most needed.&lt;/p&gt;&#xA;" OwnerUserId="44" LastEditorUserId="44" LastEditDate="2016-03-24T16:28:14.663" LastActivityDate="2016-03-24T16:28:14.663" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11200" PostTypeId="2" ParentId="11166" CreationDate="2016-03-23T15:24:13.817" Score="2" Body="&lt;p&gt;I cannot say how helpful this is for you but if your model is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$y_i = a(u_i) + b(u_i)x_i, \;\; u_i|x_i \sim U[0,1] \;\;\forall i$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\text{Var}(y_i\mid x_i) = \text{Var}[a(u_i)\mid x_i] + x_i^2\text{Var}[b(u_i)\mid x_i] +2x_i\text{Cov}[a(u_i),b(u_i)\mid x_i]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which tells you that $y_i$ is conditionally heteroskedastic.&#xA;This can acquire a complicated integral expression if you use the &quot;Law of unconscious statistician&quot; and the fact the the denisty function of a $U[0,1]$ random variable is just unity:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\text{Var}(y_i\mid x_i) = \int_0^1[a(u)]^2du - \left(\int_0^1a(u)du \right)^2 \\ + x_i^2\cdot \left[\int_0^1[b(u)]^2du - \left(\int_0^1b(u)du\right)^2\right] \\&#xA;+2x_i\cdot \left[\int_0^1a(u)b(u)du - \int_0^1a(u)du\int_0^1b(u)du \right]$$&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2016-03-23T15:24:13.817" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11203" PostTypeId="2" ParentId="11162" CreationDate="2016-03-23T23:24:55.323" Score="1" Body="&lt;p&gt;Key Performance Indicators are important elements of a company that can be used to asess a firm's current core competencies and business model. They are based on of key result areas. Here is my interpretation of the three indicators and some examples (There are many more):&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Competency: A firm's business strategy and it's competitive advantage&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Example: Retention, Value (Quality/Price), R&amp;amp;D Investment&lt;/li&gt;&#xA;&lt;/ul&gt;&lt;/li&gt;&#xA;&lt;li&gt;Profitability: A overall indicator of market performance &#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Example: ROI, Gross Margin, EBITDA&lt;/li&gt;&#xA;&lt;/ul&gt;&lt;/li&gt;&#xA;&lt;li&gt;Effectiveness: The implementation of a firm's strategy&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Example: Market Share, Sales, New Market Segments&lt;/li&gt;&#xA;&lt;/ul&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;You may notice that the examples can be related to other indicators, because the indicators are a broad overview of the firm.&lt;/p&gt;&#xA;" OwnerUserId="6036" LastActivityDate="2016-03-23T23:24:55.323" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11205" PostTypeId="1" AcceptedAnswerId="11208" CreationDate="2016-03-24T00:35:01.337" Score="6" ViewCount="1855" Body="&lt;p&gt;I have an interest in financial economics, and I plan to take the graduate sequence, however I did not take an undergraduate course in that field. I would really appreciate it if someone could recommend a textbook for financial economics. I would prefer the book involved calculus, so I can get the fundamentals of problems (such as asset pricing) I may see in the future.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Two books which have been recommended to me are: &quot;The Economics of Financial Markets&quot; by Roy E. Bailey and &quot;Principles of Financial Economics&quot; by LeRoy and Werner. Are either of these worth reading?&lt;/p&gt;&#xA;" OwnerUserId="5825" LastEditorUserId="5825" LastEditDate="2016-03-24T00:46:49.353" LastActivityDate="2016-05-05T03:12:59.977" Title="Financial Economics Textbooks" Tags="&lt;reference-request&gt;&lt;financial-economics&gt;&lt;asset-pricing&gt;&lt;financial-markets&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="11206" PostTypeId="1" CreationDate="2016-03-24T03:57:52.357" Score="2" ViewCount="47" Body="&lt;p&gt;kindly forgive me if this doesn't belong here. I just thought probably it's suited here.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why do politicians choose mega projects in developing countries instead of spending more on health and education?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, are there any noted academics who work in this area.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Kindly enlighten.&lt;/p&gt;&#xA;" OwnerUserId="7332" LastActivityDate="2016-03-24T05:19:38.717" Title="Why politicians choose Mega Projects in developing countries?" Tags="&lt;political-economy&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11207" PostTypeId="2" ParentId="11206" CreationDate="2016-03-24T05:19:38.717" Score="2" Body="&lt;p&gt;You are looking for the political economy literature on government expenditures. That is a massive literature. A starting point &lt;a href=&quot;http://dev.wcfia.harvard.edu/sites/default/files/902__jr_WhiteElephants.pdf&quot; rel=&quot;nofollow&quot;&gt;may be given here&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A summary of all possible reasons for so-called white elephants is difficult without a more specific question. Are you interested in corruption, asymmetric information, institutional explanations, political preferences...?&lt;/p&gt;&#xA;" OwnerUserId="5635" LastActivityDate="2016-03-24T05:19:38.717" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11208" PostTypeId="2" ParentId="11205" CreationDate="2016-03-24T06:06:27.583" Score="5" Body="&lt;p&gt;The recommended books are decent. From these two I'd go with Bailey first and if you're comfortable with that, then LeRoy &amp;amp; Werner. The latter requires some background in linear algebra and optimization theory.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you want to study some econometric applications for financial economics, you might try:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Cuthbertson &amp;amp; Nitzsche: Quantitative Financial Economics: Stocks, Bonds and Foreign Exchange &lt;/li&gt;&#xA;&lt;li&gt;Campbell, Lo &amp;amp; MacKinlay: The Econometrics of Financial Markets&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="5512" LastActivityDate="2016-03-24T06:06:27.583" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11209" PostTypeId="2" ParentId="10964" CreationDate="2016-03-24T11:32:38.577" Score="8" Body="&lt;p&gt;The kinds of practices you describe are frequently controlled through competition/antitrust policy. For example:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;In the US conspiratorial agreements (such as price-fixing cartels, bidding cartels, or other agreements that restrict competition) or conspiring to abuse a position of dominance in a manner that harms competition is illegal under the terms of the Sherman Act 1890. Likewise, these kinds of practices are prohibited within the EU by Article 101 of the Treaty on the Functioning of the European Union.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;In the US, the Clayton Act 1914 provides for the prevention of mergers that are deemed anti-competitive. A merger between &quot;big&quot; companies is likely to be anticompetitive because it will result in a significant increase in market concentration. More formally, &lt;a href=&quot;https://www.justice.gov/atr/herfindahl-hirschman-index&quot;&gt;the DOJ writes&lt;/a&gt;, &quot;Transactions that increase the &lt;a href=&quot;https://en.wikipedia.org/wiki/Herfindahl_index&quot;&gt;HHI&lt;/a&gt; by more than 200 points in highly concentrated markets are presumed likely to enhance market power under the Horizontal Merger Guidelines issued by the Department of Justice and the Federal Trade Commission.&quot; Article 102 of the Treaty on the Functioning of the European Union serves the purpose of preventing anti-competitive mergers in the EU.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The laws mentioned above are regularly used to prevent conspiracies or mergers that harm competition, and firms are often subjected to significant penalties for violations of these laws. For example, &lt;a href=&quot;http://ec.europa.eu/competition/cartels/cases/cases.html&quot;&gt;here is a list&lt;/a&gt; of cases in which the European Commission has intervened to prevent cartels. &lt;a href=&quot;http://ec.europa.eu/competition/elojade/isef/index.cfm?fuseaction=dsp_merger_by_date&quot;&gt;Here is a similar list&lt;/a&gt; for merger cases.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The relevant EU laws are mirrored in national law within EU member states so that member state competition authorities can also intervene to prevent conspiratorial behaviour.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;The issue of patents is a slightly more tricky issue. A patent is a state-granted right to behave anti-competitively. When a patent is awarded, the state is basically saying &quot;we are going to let you behave like a monopoly over this technology for the next 20 years&quot;. This is harmful for all the usual reasons that monopoly is bad. &lt;em&gt;But&lt;/em&gt;, there is an important trade-off. Firms invest a lot of resources into research and development. For example, developing a new drug is estimated to &lt;a href=&quot;http://www.forbes.com/sites/matthewherper/2013/08/11/how-the-staggering-cost-of-inventing-new-drugs-is-shaping-the-future-of-medicine/#5bce8fed6bfc&quot;&gt;cost as much as $5,000,000,000&lt;/a&gt;. Companies would not be willing to make this investment if they thought that, as soon as the drug were invented, others would enter the market, copy the idea, and sell a cheaper competing generic alternative. If we want firms to innovate then there has to be some reward to innovation. Thus, the compromise we have is that firms are allowed to be a monopoly for a limited period of time in return for making their inventions public by writing them into a patent filing.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2016-03-24T11:40:59.603" LastActivityDate="2016-03-24T11:40:59.603" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11210" PostTypeId="1" CreationDate="2016-03-24T11:45:26.933" Score="1" ViewCount="202" Body="&lt;p&gt;I'm looking at an economy with two sectors. The intermediate good is produced under perfect competition and Cobb-Douglas production. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is a fixed-cost for producers to enter the final market. Hence, there is a measure of firms that produce here. There is a search friction between consumers and producers, &lt;em&gt;such that ultimately, each consumer will by from one producer only&lt;/em&gt;. Final-goods producers produce &quot;on demand&quot; using the intermediate good only, hence, some of them will need more of the intermediate good and some will need less.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is the first time I'm looking at a market like this. There is a measure of firms in both sectors. This means, there are countably infinitely many firms in both sectors, right? How does this make sense, given that there is perfect competition in one and imperfect competition in the other?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would like to final sector firms to all pay the same price, despite having different ex-post demands. I guess some sort of insurance prior to period start would take care of that. However, how would then prices be set here?&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2016-03-24T15:38:35.803" LastActivityDate="2016-03-24T15:38:35.803" Title="Market structure and price setting: Imperfect competition in the final good sector" Tags="&lt;industrial-organisation&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11211" PostTypeId="2" ParentId="11210" CreationDate="2016-03-24T12:35:29.163" Score="1" Body="&lt;p&gt;One solution to this problem is to use &lt;a href=&quot;https://en.wikipedia.org/wiki/Monopolistic_competition&quot; rel=&quot;nofollow&quot;&gt;monopolistic competition&lt;/a&gt; (sometimes called the differentiated goods monopoly) in the final good sector.  For example, households might consume a continuum of final goods, each different, and aggregated with a constant elasticity of substitution utility function. This is the setting in the hugely influential &lt;a href=&quot;http://www.jstor.org/stable/1831401?seq=1#fndtn-page_scan_tab_contents&quot; rel=&quot;nofollow&quot;&gt;Dixit and Stiglitz  (1977)&lt;/a&gt; paper. The approach of Dixit and Stiglitz is heavily used directly or as motivation in new Keynesian modeling because monopoly pricing power allows for sticky prices.&lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2016-03-24T12:35:29.163" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11213" PostTypeId="1" CreationDate="2016-03-24T16:23:51.557" Score="8" ViewCount="373" Body="&lt;p&gt;At $68 billion, &lt;a href=&quot;http://www.forbes.com/sites/liyanchen/2015/12/04/at-68-billion-valuation-uber-will-be-bigger-than-gm-ford-and-honda/#1b41239f5858&quot; rel=&quot;nofollow noreferrer&quot;&gt;Uber has a higher valuation than GM, Ford, and Honda&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;According to &lt;a href=&quot;https://www.macroaxis.com/invest/ratio/BA--Current-Valuation&quot; rel=&quot;nofollow noreferrer&quot;&gt;Microaxis&lt;/a&gt;, Boeing is currently valued at around $87 billion. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why is Uber worth so much? I would think that judging the value of companies would be similar to judging the value of employees. People often make the case that your wage/salary should reflect how easily someone else could do your job. (See &lt;a href=&quot;https://economics.stackexchange.com/questions/10742/why-do-celebrities-get-high-wages/10761#10761&quot;&gt;this question&lt;/a&gt; for example on why celebrities are worth so much). Along those lines, it is hard for me to imagine how anyone could replicate the engineering and infrastructure of a behemoth like Boeing, in order to provide equivalent transportation or defense capabilities without taking many years, many talented employees, and billions of dollars to get up and running.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, I could imagine 1 engineer fresh out of college making an app identical to Uber in only a year. Additionally, there would be no cost for the consumer to download that app, and try using it (there may not be many drivers, but there's also not a large opportunity cost to opening the app, checking for drivers, and closing the app if there are none).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So how could Uber be valued so highly? If it disappeared tomorrow, it could be easily replaced quickly without much start up time, and it could be adopted just as easily by drivers and users (the very same ones working for Uber). If Boeing disappeared tomorrow, everyone would be in trouble.&lt;/p&gt;&#xA;" OwnerUserId="5220" LastEditorUserId="10643" LastEditDate="2017-05-12T16:47:42.207" LastActivityDate="2019-07-04T10:21:11.373" Title="Why is Uber worth almost as much as Boeing?" Tags="&lt;commodities&gt;&lt;competition&gt;&lt;value&gt;" AnswerCount="4" CommentCount="1" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="11216" PostTypeId="1" AcceptedAnswerId="13253" CreationDate="2016-03-24T19:45:10.280" Score="7" ViewCount="2275" Body="&lt;p&gt;Do you know of any publicly available code in python or R (or any other free high level language) that returns &lt;strong&gt;all&lt;/strong&gt; the stable matchings for any one-to-one matching problem?&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Note&lt;/strong&gt;: This is related but different from &lt;a href=&quot;https://economics.stackexchange.com/questions/1638/available-code-for-computing-solutions-to-matching-algorithms&quot;&gt;Available code for computing solutions to matching algorithms?&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this other question, I asked for code implementing famous mechanisms such as the deferred acceptance mechanism. Some of these mechanisms find &lt;strong&gt;one&lt;/strong&gt; stable matching among others. Here I am looking for code that finds &lt;strong&gt;all&lt;/strong&gt; stable matchings.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have inspected the packages recommended in the answers I got to &lt;a href=&quot;https://economics.stackexchange.com/questions/1638/available-code-for-computing-solutions-to-matching-algorithms&quot;&gt;Available code for computing solutions to matching algorithms?&lt;/a&gt; and did not find anything that would do the job.&lt;/p&gt;&#xA;" OwnerUserId="38" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2016-10-07T14:17:16.533" Title="Code finding all stable matchings in one-to-one problem" Tags="&lt;mechanism-design&gt;&lt;r&gt;&lt;algorithms&gt;&lt;python&gt;&lt;matching&gt;" AnswerCount="2" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11217" PostTypeId="1" AcceptedAnswerId="43180" CreationDate="2016-03-24T23:54:22.040" Score="13" ViewCount="1318" Body="&lt;p&gt;Consider a game with $n$ players, with strategy space $S \subset \mathbb{R}$, where $S$ is bounded set, and player's $i$ payoff function  $\pi_i:S^n \rightarrow \mathbb{R}$. &#xA;Rosen's condition (&lt;a href=&quot;http://www-inst.eecs.berkeley.edu/~ee228a/fa03/228A03/papers/rosen.pdf&quot; rel=&quot;noreferrer&quot;&gt;J. B. Rosen. Existence and uniqueness of equilibrium points for concave n-person games. Econometrica, 33(3):520–534, 1965&lt;/a&gt;) for uniqueness of the Nash Equilibrium in n players game states that the  equlibrium will be unique when&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;payoff function $\pi_i(\textbf{s}) \; i \in N$  is concave in own strategy&lt;/li&gt;&#xA;&lt;li&gt;There exists vector $\textbf{z}$ ($(\forall i \in N)(z_i \geq 0)\ \wedge (\exists i \in N) (z_i &amp;gt;0)$ such that function $\sigma(\mathbf{s}, \mathbf{z})=\sum_{i=1}^{n}z_i\pi_i({\textbf{s}})$ is diagonally strictly concave&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;$N$ denotes the set of players. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To define the concept of diagonal strict concavity, fist introduce 'pseudogradient' of function $\sigma$, defined with:&#xA;\begin{align}&#xA;g(\mathbf{s},\mathbf{z}) = \begin{pmatrix}&#xA;z_1\frac{\partial \pi_1(\mathbf{s})}{\partial s_1} \\ &#xA;z_2\frac{\partial \pi_2(\mathbf{s})}{\partial s_2} \\ &#xA;... \\ &#xA;z_n\frac{\partial \pi_n(\mathbf{s})}{\partial s_n}%&#xA;\end{pmatrix}&#xA;\end{align}&#xA;Then, function $\sigma$ is said to be &lt;strong&gt;diagonally strictly dominant&lt;/strong&gt; in $\mathbf{s} \in S$ for fixed $\mathbf{z} \geq 0$ if for every $\mathbf{s}^0, \mathbf{s}^1 \in S$ the following holds:&#xA;\begin{align}&#xA;(\mathbf{s}^1 - \mathbf{s}^0)'g(\mathbf{s}^{0}, \mathbf{z}) + (\mathbf{s}^0 - \mathbf{s}^1)'g(\mathbf{s}^{1}, \mathbf{z})&amp;gt;0&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is shown, in the paper I cite in the beginning, that a sufficient condition for $\sigma$ to be diagonally striclty concave is that matrix $\left[G(\mathbf{x}, \mathbf{z}) +G(\mathbf{x}, \mathbf{z})' \right]$ is negative defite for $\mathbf{s} \in S$, where $G(\mathbf{x}, \mathbf{z})$ is Jacobian of pseudogradient $g$ with respect to $\mathbf{s}$. I use ' to denote transpose of a matrix. &#xA;What is the intuition behind diagonal strict concavity condition?&lt;/p&gt;&#xA;" OwnerUserId="7737" LastEditorUserId="7737" LastEditDate="2016-04-15T21:13:31.820" LastActivityDate="2021-05-12T12:55:28.650" Title="Rosen's Diagonal Strict Concavity condition" Tags="&lt;game-theory&gt;&lt;nash-equilibrium&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11219" PostTypeId="1" AcceptedAnswerId="11220" CreationDate="2016-03-25T01:23:40.670" Score="0" ViewCount="562" Body="&lt;p&gt;my lecturer is doing a rather poor job explaining what he's written down, so I'm wondering if someone would be able to explain the following graph for me?&#xA;&lt;a href=&quot;https://i.stack.imgur.com/O4i0J.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/O4i0J.png&quot; alt=&quot;Solow Model Steady State Diagram&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is a part of the Solow-Swann Growth Model lecture for Macroeconomics, and he's talking about the equilibrium that this model predicts, k stands for capital per worker, s is savings rate, z is technology, d is depreciation rate, n is population growth rate. My confusion is with the Y axis. How does an axis represent two equations..?&lt;/p&gt;&#xA;" OwnerUserId="7738" LastActivityDate="2016-03-25T03:26:28.957" Title="Solow Growth Model. Steady State. Can someone explain please?" Tags="&lt;macroeconomics&gt;&lt;steady-state&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11220" PostTypeId="2" ParentId="11219" CreationDate="2016-03-25T03:26:28.957" Score="4" Body="&lt;p&gt;An axis is characterized not by the variable it measures, but by the unit of measurement. So an axis can measure any number of variables, as long as they are measured in the same measurement unit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In your case, the unit of measurement is &quot;units of output&quot;, and both $(n+\delta)k$ and $sf(k)$ are measured in it (capital is measured in units of output, in case you wonder).&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2016-03-25T03:26:28.957" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11221" PostTypeId="1" CreationDate="2016-03-25T05:26:27.113" Score="1" ViewCount="7878" Body="&lt;p&gt;I watched &lt;a href=&quot;https://youtu.be/ZXxiv8MYQIY&quot; rel=&quot;nofollow&quot;&gt;this video&lt;/a&gt; on how to check for heteroskedasticity using Stata, and it helped me a lot. But the data example in the video was time series data.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;He used the Bruesh-Pagan test. &lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;hettest dependntvar1 dependvar2 dependvar3 ... dv6&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;And the output was like&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;Breusch-Pagan / Cook-Weisberg test for heteroskedasticity &#xA;     Ho: Constant variance&#xA;     Variables: dependntvar1 dependvar2 dependvar3 ... dv6&#xA;&#xA;     chi2(6)     =  86.56&#xA;     Prob &amp;gt; chi2  =   0.0000&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;The Ho had a p-value of 0.0000 so it had heteroskedasticity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does it work the same for panel data? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If not, how do I test for heteroskedasticity on panel data?&lt;/p&gt;&#xA;" OwnerDisplayName="user4207" LastActivityDate="2016-10-20T10:08:48.220" Title="Testing for heteroskedasticity in panel data vs time series?" Tags="&lt;stata&gt;&lt;paneldata&gt;&lt;heteroskedasticity&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11227" PostTypeId="1" AcceptedAnswerId="11254" CreationDate="2016-03-25T16:20:55.457" Score="1" ViewCount="273" Body="&lt;p&gt;GDP is the sum of market value of all final goods in the current year, so why is is machine built this year but not sold this year included? In addition why is machine not built this year but sold this year not included in GDP?&lt;/p&gt;&#xA;" OwnerUserId="6132" LastActivityDate="2016-03-27T13:30:27.137" Title="Why is machine built this year but not sold this year included in GDP?" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11228" PostTypeId="1" AcceptedAnswerId="11706" CreationDate="2016-03-25T18:46:58.260" Score="2" ViewCount="1807" Body="&lt;p&gt;I am struggling to understand why M is not null since:&#xA;$$\mathbf M=I−X(X′X){^-}^1X′=I−XX{^-}^1X'{^-}^1X′=I-I=[0] $$&#xA;What's wrong with that reasonning?&lt;/p&gt;&#xA;" OwnerUserId="7745" LastActivityDate="2016-04-25T03:58:25.590" Title="Why isn't the &quot;annihilator&quot; matrix a zero matrix?" Tags="&lt;econometrics&gt;&lt;regression&gt;" AnswerCount="2" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="11229" PostTypeId="2" ParentId="11228" CreationDate="2016-03-25T19:37:28.533" Score="4" Body="&lt;p&gt;This is more a related thought than anything else, but I thought it might be useful for people looking at this question in the future. Herr K. should write a short answer and have it marked as accepted.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $X$ be an $n \times k$ matrix with linearly independent columns. Let $S \equiv \text{span}(X)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regression can be thought of as the following problem: Given an n-dimensional vector $y \in \mathcal{R}^n$, find the vector in $\hat{y} \in S$ that is closest to $y$ -- i.e.&#xA;$$\hat{y} = \arg\min_{z \in \mathcal{R}^n} ||y - z||$$&#xA;It can be shown that the solution to this problem is given by&#xA;$$\hat{y} = Py = X (X' X)^{-1} X' y$$&#xA;where we refer to the matrix $P = X (X' X)^{-1} X'$ as the &quot;projector matrix.&quot; Then the matrix $M = (I - P)$ allows you to get the residuals of your regression by $\hat{u} = (I - P)y = y - \hat{y}$. As you said, if $X$ is square then $P$ reduces to the identity and the residuals are 0. This is insightful for several reasons.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Geometrically, if $X$ is square and has $n$ linearly independent columns then $\text{span}(X)$ is all of $\mathcal{R}^n$. Then the projection problem reduces to picking the vector in $\hat{y} \in \mathcal{R}^n$ that is closest to some vector in $y \in \mathcal{R}^n$. Obviously, if your vector is coming from the span of the set, the minimum distance choice would be the vector itself. We see this because as you showed $P = I$ in this case. Then $M = (I - P) = 0$ which means you have 0 residuals and you have a perfect fit of your data.&lt;/li&gt;&#xA;&lt;li&gt;Additionally, this is why empirical economists are careful about &quot;throwing in the kitchen sink&quot; in terms of how many variables are included. If you have as many linearly independent variables as observations then you can get a perfect match whether your exogenous variables are related to your endogenous variables or not.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="47" LastActivityDate="2016-03-25T19:37:28.533" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11230" PostTypeId="2" ParentId="11213" CreationDate="2016-03-25T19:53:00.483" Score="4" Body="&lt;p&gt;A big part of the answer to this question must surely be network effects.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Yes, Ford has a lot of engineering talent. But so has GM. This means that Ford has to compete with GM to sell cars, and this competition limits that amount of profit that Ford can make. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ride sharing is a different story altogether. Suppose you write software that completely replicates the functionality of the technology used by Uber. How many drivers will want to use your software? Probably few or none because all of the people looking for a ride are using the Uber app and drivers want to be where the customers are. How many end customers will use your technology? Probably few or none because all of the drivers are using Uber and consumers want to use the platform where they can easily get a ride. As you say, people can easily open the new competing app to check it out, but if they find nobody else using it then they will just switch back to Uber. The only way to a competitor to overcome this challenge would be if many users simultaneously decided to switch at once, but such coordination is fairly rare in practice, and usually only happens if the new technology is vastly superior to the old one.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This property—that a product's value depends upon how many other people are using it—is known as a &lt;a href=&quot;https://en.wikipedia.org/wiki/Network_effect&quot; rel=&quot;nofollow&quot;&gt;network effect, or network externality&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you think about it, you will see that &lt;em&gt;many products that have this network effect property are monopolised&lt;/em&gt; (or at least have relatively little competition). For example, &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;a social network website is more useful if more of your friends are on there (a network effect)—and Facebook is a pseudo monopolist in this market. &lt;/li&gt;&#xA;&lt;li&gt;Developers write software for computer operating systems that have many users and users want to use the system with a lot of software available. These netwrok effects helped Microsoft to a position of dominance. &lt;/li&gt;&#xA;&lt;li&gt;Blu-Ray players are more useful if lots of shops sell blu-ray discs and shops will sell blu-ray discs if many people own a blu-ray player. The network effects here explain why the competing HD-DVD format died out and we were left with a single dominant high-definition media format.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;There are many other such examples.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since people understand that markets with network effects tend to &quot;tip&quot; to monopoly, and since monopolies tend to be extremely profitable, investors think that Uber is a good bet for future profitability.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2016-03-25T19:53:00.483" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="11232" PostTypeId="1" AcceptedAnswerId="11239" CreationDate="2016-03-25T20:42:26.110" Score="0" ViewCount="159" Body="&lt;p&gt;In researching this question, I've come across plenty of sources that regurgitate intro econ textbooks that say markets equilibrate to Pareto efficiency in conditions of perfect competition (where specific and minimal definitions are also hard to find). I'm sure they're correct that this happens in perfect competition, but I've also read that various economists have simplified and minimized the conditions necessary for a market to theoretically reach pareto efficiency, but I can't find any details on those.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So what are the least restrictive conditions necessary for all markets that fit those conditions to theoretically progress toward a Pareto efficient equilibrium?&lt;/p&gt;&#xA;" OwnerUserId="6149" LastEditorUserId="6149" LastEditDate="2016-03-26T07:29:41.647" LastActivityDate="2016-03-27T16:37:51.687" Title="In modern economics, what are the least restrictive conditions shown to theoretically achieve Pareto Efficiency?" Tags="&lt;pareto-efficiency&gt;" AnswerCount="2" CommentCount="10" ContentLicense="CC BY-SA 3.0" />
  <row Id="11233" PostTypeId="1" CreationDate="2016-03-25T20:49:36.070" Score="0" ViewCount="316" Body="&lt;p&gt;How does Joseph Stiglitz and Greenwald explain why markets with imperfect information fail to have a pareto efficient equilibrium? What premises do they use to come to that conclusion?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, they write:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;This suggests ... that if the government has no more information available to it than private firms ... it cannot make a Pareto improvement. This conclusion, however, is wrong. Taxes on goods or wages ... may change the extent of signaling&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;But I don't see a logical (non-mathematical) explanation for their conclusion here. How can taxes change signaling to increase economic welfare?&lt;/p&gt;&#xA;" OwnerUserId="6149" LastEditorUserId="6149" LastEditDate="2016-03-26T22:35:59.390" LastActivityDate="2016-03-26T22:35:59.390" Title="How does Joseph Stiglitz and Greenwald explain why markets with imperfect information fail to have a pareto efficient equilibrium?" Tags="&lt;pareto-efficiency&gt;&lt;asymmetric-information&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11234" PostTypeId="2" ParentId="10964" CreationDate="2016-03-25T21:21:35.227" Score="1" Body="&lt;p&gt;In principle, there are two effects of merging companies that have opposite effects on welfare/efficiency:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A) A merger could result in more efficient production. This could be because the merged firm will adopt the practices of the most productive of the two original firms. Alternatively, it could be because of economies of scale. We think that many processes are more efficient if they are done on a bigger scale. The investment in designing a product and designing and installing a very efficient production process only pays off if you have a large enough scale. finally, it could even happen because it's efficient for a single entity to own the upstream and downstream processes in order to avoid negotiation costs and invest heavily in relationship-specific technology.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;B) On the other hand, a merger could result in less competition. This could happen because the two companies were competing against each other and they are no longer doing so after the merger. It could also happen because the new larger firm is going to be a dominant player in input and output markets. It will be able to dictate terms to its suppliers, and also to its consumers, and even to its specialized employees.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The presence of these effects means that the work of anti-trust regulators is complex. They have to evaluate the likelihood on one of the effects being bigger than the other before the merger takes place in order to allow it or block it. Often what they do is to impose conditions on the merged entity in a way that guarantees that it will not be a dominant player.&lt;/p&gt;&#xA;" OwnerUserId="7593" LastEditorUserId="7593" LastEditDate="2016-05-05T23:13:50.360" LastActivityDate="2016-05-05T23:13:50.360" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11235" PostTypeId="1" AcceptedAnswerId="11236" CreationDate="2016-03-25T22:04:54.700" Score="1" ViewCount="72" Body="&lt;p&gt;I personally don't agree because change in GDP caused by decreased in fixed taxes should be &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\triangle$ fixed taxes $ \times \frac{-b}{1-MPE}$(fix tax multiplier), which turns out to be a positive number while change caused by decrease of Government Spending is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\triangle$ Government Spending $ \times \frac{1}{1-MPE}$(autonomous multiplier) which is a negative number. Therefore I don't think we can make conclusion. Does anyone know what did I do wrong?&lt;/p&gt;&#xA;" OwnerUserId="6132" LastActivityDate="2016-03-27T06:56:02.320" Title="Why does decrease in fixed taxes accompanied by a decrease in Government Spending of the same amount will decrease GDP?" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;&lt;taxation&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11236" PostTypeId="2" ParentId="11235" CreationDate="2016-03-25T22:50:05.860" Score="2" Body="&lt;p&gt;The question basically boils down to whether the inequality below is true or not.&#xA;$$\bigg|\Delta G\bigg(\frac{1}{1-MPC}\bigg)\bigg|&amp;gt;\bigg|\Delta T\bigg(-\frac{MPC}{1-MPC}\bigg)\bigg|$$&#xA;If $\Delta G=\Delta T$, we can divide by either and get&#xA;$$\bigg|\bigg(\frac{1}{1-MPC}\bigg)\bigg|&amp;gt;\bigg|\bigg(-\frac{MPC}{1-MPC}\bigg)\bigg|$$&#xA;If we multiply each side by $1-MPC$ and we evaluate the absolute value, we get&#xA;$$1&amp;gt;MPC$$ &#xA;This statement is true, so that implies that the first inequality is true. By this inequality, we know that $\Delta GDP_G&amp;gt;\Delta GDP_T$. Since $\Delta GDP_G&amp;lt;0$ and $\Delta GDP_T&amp;gt;0\implies \Delta GDP&amp;lt;0$&lt;/p&gt;&#xA;" OwnerUserId="5825" LastActivityDate="2016-03-25T22:50:05.860" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11237" PostTypeId="1" CreationDate="2016-03-25T23:04:31.000" Score="1" ViewCount="643" Body="&lt;p&gt;(First off, bonus points if you can write my question title more clearly)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My project right now is to research citizenship status and income.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At first my regression was like this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ INCOME = \beta0 + \beta1STATUS $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, I am going to do one with control variables like this:&#xA;$$ INCOME = \beta0 + \beta1STATUS + \beta2EDUCATION + \beta3ZIPCODE$$&#xA;When I'm looking at the coefficient and standard error for immigration status, what does the regression of earnings on immigration status and all my control variables tell me compared to a regression of just earnings on immigration status? Generally in regressions, how does adding more variables change standard errors and coefficients?&lt;/p&gt;&#xA;" OwnerDisplayName="user4207" LastEditorUserId="5825" LastEditDate="2016-03-26T02:06:32.850" LastActivityDate="2016-03-26T02:06:32.850" Title="How Does Adding Regressors Affect Standard Errors and Existing Coefficients?" Tags="&lt;regression&gt;" AnswerCount="0" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="11239" PostTypeId="2" ParentId="11232" CreationDate="2016-03-26T02:05:49.730" Score="4" Body="&lt;p&gt;Well, when considering the minimal conditions necessary for an allocation to be Pareto optimal we must go to the primitives. First, we need the fact that all agents have rational preferences. What this means is that preferences are complete and transitive. Another thing we need is for preferences to be strictly convex.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $\succcurlyeq$ be the preference relation &quot;weakly preferred to&quot;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\textbf{(A) Transitivity:}$ Given allocations $x,y,z \in X$, if $x\succcurlyeq y$ and $y\succcurlyeq z$ then $x\succcurlyeq z$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\textbf{(B) Completeness:}$ Given allocations $x,y\in X$, either $x\succcurlyeq y$ or $y\succcurlyeq x$ or both $(x\sim y)$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\textbf{(C) Strict Convexity}:\forall\, x,y \in X$ and $\forall \lambda\in[0,1]$ we have:&#xA;$$\lambda f(x)+(1-\lambda) f(y)&amp;gt;f(\lambda x+(1-\lambda)y)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, let $X$ be the set of goods. We need $X$ to be finite.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These four axioms are sufficient for the existence of a competitive equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, we must build a bare-bones theoretical market. What we need is the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\textbf{(1) Complete Market:}$ Everyone has complete information and there are no transaction costs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\textbf{(2) Price Taking:}$ There is one price which everyone pays (and by the above statement, everyone knows this price).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\textbf{(3) Locally Non-Satiated Preferences:}$ Basically, giving an agent more of any good will always increase their utility.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we have $(A)-(C)$ and we have a finite number of goods, we will have a competitive equilibrium, and if we have $(1)-(2)$, we have a competitive market. Using these two and $(3)$, we can use the First Fundamental Theorem of Welfare Economics to say that our equilibrium is Pareto optimal. &lt;/p&gt;&#xA;" OwnerUserId="5825" LastEditorUserId="5825" LastEditDate="2016-03-26T15:21:58.867" LastActivityDate="2016-03-26T15:21:58.867" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="11240" PostTypeId="2" ParentId="11232" CreationDate="2016-03-26T02:08:22.350" Score="3" Body="&lt;p&gt;It doesn't really make sense to ask what the &quot;minimum&quot; conditions are for a market equilibrium to be Pareto efficient. By minimum do you mean least restrictive? Do you mean simplest conditions? You have to specify &lt;em&gt;what market we're looking to put conditions on&lt;/em&gt;, because otherwise I can make up a really trivial market, give it some conditions, and say that it has a Pareto efficient equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, I could specify a market with two goods. Person A only likes good 1 and Person B only likes good 2. They start off with 1 unit of their preferred good. Then I say the market does not allow trading. This market is now in equilibrium and is Pareto. But it has no practical interpretation really.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm going to interpret your question as what sort of conditions are absolutely necessary for a market equilibrium to be Pareto. In that case, just use the First Welfare Theorem:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;ul&gt;&#xA;  &lt;li&gt;&lt;strong&gt;Complete markets&lt;/strong&gt;: Everyone knows everything about the goods and the market, and there are no transaction costs to trade. Notice how the type of market is specified here.&lt;/li&gt;&#xA;  &lt;li&gt;&lt;strong&gt;Price taking&lt;/strong&gt;: No monopolies, no barriers to market entry/exit.&lt;/li&gt;&#xA;  &lt;li&gt;&lt;strong&gt;Local non-satiated preferences&lt;/strong&gt;: For any bundle of goods, there is an arbitrarily similar bundle that is better liked.&lt;/li&gt;&#xA;  &lt;/ul&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In this market, every competitive market is Pareto efficient.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Edit: (If you want to ensure an eqbm in the first place, you do want rational, strictly convex, strict monotone, and continuous prefs like Dorner also mentioned above, so if you want the really basic primitives, there's that. Continuity allows for continuous utility fn rep, which is nice for unique solutions to utility max, among other things)&lt;/em&gt;&lt;/p&gt;&#xA;" OwnerUserId="4251" LastEditorUserId="4251" LastEditDate="2016-03-27T16:37:51.687" LastActivityDate="2016-03-27T16:37:51.687" CommentCount="18" ContentLicense="CC BY-SA 3.0" />
  <row Id="11242" PostTypeId="1" CreationDate="2016-03-26T18:44:53.097" Score="2" ViewCount="4467" Body="&lt;p&gt;I've heard that stock prices are random. But I know if the price is 15 at one tick, the next price has a range that hovers around 15 because it won't randomly hit 15,000,000 in the next tick.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Fist, how could I go about finding the answer to that question myself? I was thinking of downloading historical tick data on Apple Inc. and running this regression in Stata&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;reg price time&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;then doing a newey test. Would I need to include volume? And what lag is normally used for this?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Second, to find an answer about stocks in general, would I have to look at  every stock? Or is a random sample good enough?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I looked at some research from the top google results of &quot;is there autocorrelation in stock prices&quot;. But it was a little over my head. What I managed to gather is that at least for stock &lt;em&gt;returns&lt;/em&gt; yes, there is, in large diversified portfolios. Any further light and knowledge is appreciated.&lt;/p&gt;&#xA;" OwnerDisplayName="user4207" LastActivityDate="2016-03-27T15:36:52.910" Title="Is there autocorrelation in stock prices?" Tags="&lt;financial-economics&gt;&lt;stata&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11244" PostTypeId="1" CreationDate="2016-03-27T01:07:36.153" Score="1" ViewCount="365" Body="&lt;p&gt;Some authors makes the difference between these two terms.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Could somebody explain what is the difference between division of labor and division of work?&lt;/p&gt;&#xA;" OwnerUserId="7687" LastEditorUserId="61" LastEditDate="2016-03-27T01:48:49.187" LastActivityDate="2016-03-27T19:28:21.680" Title="Division of labor vs division of work" Tags="&lt;macroeconomics&gt;&lt;labor-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11245" PostTypeId="2" ParentId="11244" CreationDate="2016-03-27T01:48:18.213" Score="2" Body="&lt;p&gt;One possible useful distinction between the two expressions could be as follows:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;1) Division of work&lt;/strong&gt;&lt;br&gt;&#xA;Assume you have to mail 1.000 letters identical in content to different recipients. For each letter, in order to do that you need to a) fold the letter b) put the letter into the envelope c) write the address d) put a stamp e) go out and put it into the mailbox. Then repeat the sequence 1.000 times. &quot;Division of work&quot; would be to, instead of going through the complete sequence for each letter sequentially, a) fold all letters b) put all letters into the envelope, etc. By performing the same task, you gain efficiency in each task (&quot;learning by doing&quot;) and also, you minimize the time needed in between each kind of task/work.&#xA;Here the focus is on gaining efficiency by grouping tasks.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;2) Division of labor&lt;/strong&gt;&lt;br&gt;&#xA;In the same example, division of labor would be not only to perform each task for all letters instead of all task for each letter, but have &lt;em&gt;different&lt;/em&gt; people doing each task. This situation focuses on the phenomenon of different people specializing in different professions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;...And I am certain that some authors that use the distinction, use the terms switched -namely, they call &quot;division of labor&quot; 1) above, and &quot;division of work&quot; 2).&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2016-03-27T19:28:21.680" LastActivityDate="2016-03-27T19:28:21.680" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11246" PostTypeId="1" CreationDate="2016-03-27T05:46:09.950" Score="3" ViewCount="131" Body="&lt;p&gt;The author of my book writes:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;&lt;strong&gt;ADVANTAGES OF EXCHANGE RATE&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;p&gt;If exchange rates are fixed, then inflation may have a very harmful effect on the demand for exports and imports. Because of this, the government is forced to take measures to ensure that inflation is as low as possible, in order to keep businesses competitive on foreign markets. Thus, fixed exchange rate ensure sensible government policies on inflation.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;I don't understand this point and would be grateful if someone could explain it, perhaps with a real world example.&lt;/p&gt;&#xA;" OwnerUserId="6565" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2016-11-11T08:59:58.817" Title="Doubt in understanding the advantages of Fixed Exchange Rate" Tags="&lt;exchange-rates&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11249" PostTypeId="2" ParentId="8833" CreationDate="2016-03-27T06:20:48.453" Score="0" Body="&lt;p&gt;Ok I think I might understand now why local nonsatiation is important for tending toward a pareto optimal market allocation. Consider the following picture, where all the circles represent possible allocations, and their position on the graph represents the utility received by each person in a simple two-person market:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/QdBWL.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/QdBWL.png&quot; alt=&quot;Satiated pareto efficiency graph&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this case, X, Y, Z, and D all give person 1 the same utility. In such a situation, X, Y, and Z are all possible equilibria given complete markets and price taking behavior even though they're not pareto-optimal. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a situation with local nonsatiation, this situation couldn't exist, and thus a pareto optimal equilibrium is ensured.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Weak pareto optimality doesn't require local non-satiation.&lt;/p&gt;&#xA;" OwnerUserId="6149" LastEditorUserId="6149" LastEditDate="2016-03-27T07:00:16.603" LastActivityDate="2016-03-27T07:00:16.603" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11252" PostTypeId="1" AcceptedAnswerId="17728" CreationDate="2016-03-27T07:24:13.030" Score="1" ViewCount="55" Body="&lt;p&gt;My friend is doing research on cyber security in stock exchanges, and she noticed that the stock exchanges in developing countries aren't as popular or well put together as stock exchanges in developed countries. Not necessarily in terms of cyber security, but just in general.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why is that? Could the stock exchange's management be to blame for the lesser quality? Or what supply/demand forces are at work that might put exogenous barriers on the management?&lt;/p&gt;&#xA;" OwnerDisplayName="user4207" LastActivityDate="2017-08-07T07:29:06.567" Title="What obstacles/economic barriers do stock exchanges face in developing countries?" Tags="&lt;development-economics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11253" PostTypeId="1" CreationDate="2016-03-27T08:19:06.183" Score="2" ViewCount="73" Body="&lt;p&gt;I understand that a competitive market is necessary for a market to equilibriate to a pareto optimal state, and that things like economies of scale, network effects, government restrictions, and government imposed costs can prevent reaching pareto optimality. But do other barriers like startup capital also prevent reaching pareto optimality? I would think the answer is no, since something like sunk costs can be amortized over all products sold by a market actor. Is this correct, or am I missing something?&lt;/p&gt;&#xA;" OwnerUserId="6149" LastEditorUserId="6149" LastEditDate="2016-03-30T21:12:53.040" LastActivityDate="2016-03-30T23:43:47.600" Title="Is a lack of any barriers to entry a necessary condition for ensuring pareto optimality is reached?" Tags="&lt;pareto-efficiency&gt;&lt;barriers-to-entry&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="11254" PostTypeId="2" ParentId="11227" CreationDate="2016-03-27T13:30:27.137" Score="5" Body="&lt;p&gt;The comment provided by @Kitsune Cavalry:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;It counts as investment. Inventory, capital, and structures are part of investment. Unsold stuff counts as inventory.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;is correct as to the accounting; let me provide a little more intuition to it. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;GDP measures production (output), not sales— it is in the name: Gross Domestic &lt;em&gt;Product&lt;/em&gt;. And for many firms, production into inventory, making a thing with the explicit intent of building inventories so that the thing is available for purchase when people want that thing, is a core part of the business. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Imagine a firm that makes snow throwers— they build these machines year round, then basically sell all of them during a period from late fall through mid-winter (the exact seasonal pattern doesn't matter, only the fact that there is one). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the purpose of counting that firm's output in GDP, it should be clear why we want to recognize that they &lt;em&gt;produced&lt;/em&gt; snow throwers all year, rather than having all that production only show up during the few months when the machines are actually sold. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This approach isn't without its downsides— in the event that large volumes of production into inventory occurs because demand for the product in question has fallen off permanently, then the market price of the units sold will have been applied to a bunch of units that would never have sold at that price, and the value of output will be biased. This bias is of smaller magnitude than the mis-measurement that would be introduced by normal inventory fluctuations if we were only to count output when products are finally sold, though, so we live with it. &lt;/p&gt;&#xA;" OwnerUserId="264" LastActivityDate="2016-03-27T13:30:27.137" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11256" PostTypeId="2" ParentId="11242" CreationDate="2016-03-27T15:36:52.910" Score="1" Body="&lt;p&gt;Stock prices follow a random walk process, usually we include a drift term to account for the somewhat prolonged upward/downward drifts. This is basically an AR(p) process, p being the lag order. For instance AR(1) with drift is $X_t=\delta+\beta X_{t-1}+u_t$ where $\beta = 1$. Try testing this model for unit root using ADF test in stata. One lag is enough. You should fail to reject the unit root for an evidence of autocorrelation in the prices. Stock returns are not autocorrelated, they usually follow a stationary process if you take sufficiently long sample.&lt;/p&gt;&#xA;" OwnerUserId="6009" LastActivityDate="2016-03-27T15:36:52.910" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11257" PostTypeId="1" AcceptedAnswerId="11258" CreationDate="2016-03-27T15:44:17.947" Score="3" ViewCount="4581" Body="&lt;p&gt;I am trying to work out the depreciation rate using the following information, it is an extract from a longer data set on capital stock: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/vXDjw.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/vXDjw.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Just wanted to find out what the rate of depreciation is for 2000. I used $K_t=K_{t-1}+I-\delta K_{t-1}$ to calculate the rate of depreciation $\delta$ but I am not satisfied with the result. Any help is appreciated! Note, this is not a homework.&lt;/p&gt;&#xA;" OwnerUserId="6009" LastActivityDate="2016-10-23T19:36:41.257" Title="Capital stock depreciation rate, how to calculate?" Tags="&lt;macroeconomics&gt;&lt;solow&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11258" PostTypeId="2" ParentId="11257" CreationDate="2016-03-27T15:53:32.430" Score="1" Body="&lt;p&gt;Rate of depreciation  = depreciation/gross stock in the current year. So 1.7%. Strictly speaking there is no way to calculate depreciation because the timing of capital formation is unknown, but capital begins depreciating as soon as it is formed.&lt;/p&gt;&#xA;" OwnerUserId="8360" LastEditorUserId="8360" LastEditDate="2016-03-27T15:59:51.430" LastActivityDate="2016-03-27T15:59:51.430" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="11260" PostTypeId="1" CreationDate="2016-03-27T18:52:54.627" Score="1" ViewCount="936" Body="&lt;p&gt;For example, if i have elasticity of substitution equal to 5 and 0.6 what does it imply about the capital to labor ratio? When it is 5 does it imply that it is easier to replace labor with capital. As a result, the capital labor ratio goes up? For 0.6 it is vice-versa?&lt;/p&gt;&#xA;" OwnerUserId="7761" LastActivityDate="2016-03-27T18:52:54.627" Title="What does the elasticity of substitution between capital and labour mean?" Tags="&lt;labor-economics&gt;&lt;human-capital&gt;" AnswerCount="0" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="11261" PostTypeId="1" AcceptedAnswerId="11269" CreationDate="2016-03-27T19:15:41.430" Score="2" ViewCount="301" Body="&lt;p&gt;There are a plethora of examples of weaknesses in my textbook, such as:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;The Walrasian assumption&lt;/li&gt;&#xA;&lt;li&gt;Not including nominal shocks&lt;/li&gt;&#xA;&lt;li&gt;Not including indivisible labour&lt;/li&gt;&#xA;&lt;li&gt;Not including distortionary taxes&lt;/li&gt;&#xA;&lt;li&gt;Not including multiple sectors and sector specific shocks&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;In my opinion the greatest weakness is the Walrasian assumption, as I think this is not too realistic in the real world.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think we want to measure degree of weakness by how closely we see the results posited by the model exhibited in the real world. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So if you have read some articles that improve on the basic RBC model, what are the common extensions (1-5, or other) that you see that address these weaknesses?&lt;/p&gt;&#xA;" OwnerUserId="5780" LastEditorUserId="5780" LastEditDate="2016-03-28T16:52:51.633" LastActivityDate="2016-03-29T13:34:52.140" Title="Is the basic RBC model a weak model?" Tags="&lt;macroeconomics&gt;&lt;business-cycles&gt;&lt;real-business-cycles&gt;" AnswerCount="1" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="11262" PostTypeId="1" CreationDate="2016-03-27T19:53:49.683" Score="1" ViewCount="75" Body="&lt;p&gt;I am looking to calculate and explain abnormal returns (AR) on dividend announcement events:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regression:&#xA;R = a + B(MarktReturn) + e&#xA;E(R) = a + BMktReturn&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore AR = R-ER&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To explain the AR, I want to test few hypothesis so I do another regression with CAR (CAR=cumulative AR):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;CAR =  a + B1(Size) + B2(0-10%Increase) + B3(10-25% increase)+B4(25+ Increase)&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;0-10% increase is a dummy variable that takes 1 if the dividend increase amount was between 0-10%, 0 otherwise. &lt;/li&gt;&#xA;&lt;li&gt;10-20%% increase is a dummy variable that takes 1 if the dividend increase amount was between 10-20%, 0 otherwise. &lt;/li&gt;&#xA;&lt;li&gt;Same logic for 25+ Increase.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Is my method coherent/valid with what I am looking to achieve?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you&lt;/p&gt;&#xA;" OwnerUserId="7763" LastActivityDate="2016-03-27T19:53:49.683" Title="Abnormal Return - Event Study" Tags="&lt;econometrics&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11263" PostTypeId="1" CreationDate="2016-03-27T20:58:19.967" Score="-1" ViewCount="49" Body="&lt;p&gt;I am using panel data from the &lt;a href=&quot;https://www.lissdata.nl/lissdata/&quot; rel=&quot;nofollow&quot;&gt;LISS&lt;/a&gt; to estimate the effect of whether a person practices sport or not on appreciation of leisure time (scale 0-10).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My partner insists on using a variable that indicates overall happiness (scale 0-5). I think this is a mistake because there is a causation problem between overall happiness and leisure time appreciation (do people who make the most out of their leisure time are happier or are happy people making the most out of their leisure time).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Am I crazy to think this is terrible variable to include in our analysis and we should simply overlook this variable all together. &lt;/p&gt;&#xA;" OwnerUserId="5485" LastEditorUserId="-1" LastEditDate="2016-03-30T04:05:39.537" LastActivityDate="2016-03-30T04:05:39.537" Title="Including variable with causation problem for estimating from LISS" Tags="&lt;econometrics&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="11265" PostTypeId="1" CreationDate="2016-03-27T21:57:49.113" Score="1" ViewCount="20" Body="&lt;p&gt;There is trend to arrive at &quot;single customer view&quot; - combine all the available quantitative and qualitative data about single customer. How to organize those data for using in prediction and anylsis? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My guess is that all the data should be used for calibration of parameters of some model. But what models are available for representing single customer preferences and behavior? Does agent models from computer science (e.g. BDI - Beliefs-Desires-Intentions) can be used? Maybe neuroecnomics can be of help for building up such models (using choice, cost un intemporal discount functions)?&lt;/p&gt;&#xA;" OwnerUserId="5373" LastActivityDate="2016-03-27T21:57:49.113" Title="How to consolidate data for &quot;single customer view&quot;, what models to use for representing customer?" Tags="&lt;microeconomics&gt;&lt;behavioral-economics&gt;&lt;marketing&gt;" AnswerCount="0" CommentCount="0" ClosedDate="2016-03-31T12:10:39.750" ContentLicense="CC BY-SA 3.0" />
  <row Id="11269" PostTypeId="2" ParentId="11261" CreationDate="2016-03-28T12:15:27.607" Score="7" Body="&lt;h3&gt;When is a model really weak?&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;A model is an abstraction of reality, to explain a part of it. A model is weak when it cannot explain what it's supposed to be explaining. Just adding features to a model has no intrinsic good. It's much different from a fruit salad, where usually, an increased variety in fruits will lead to a better taste. Here, adding more features makes it hard to understand which feature of the model was necessary to generate the result observed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;For example&lt;/em&gt;, When your focus is on variation of labor-supply within different income and skill groups, yes, lack of distortionary taxes could be a problem. If the model is not aimed at doing that, and it does fulfill its purpose without requiring those taxes, the lack therein is not a problem.&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;The most basic RBC model&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;There is no single RBC model. It's most simple (but not representative!) version is the seminal Kydland and Prescott (&lt;a href=&quot;http://www.jstor.org/stable/1913386&quot; rel=&quot;nofollow noreferrer&quot;&gt;1982&lt;/a&gt;) paper. It lacks all those features that you mention, but it is aimed at explaining variations and correlations in output, investment, capital and labor. If it does that job well (&lt;a href=&quot;https://economics.stackexchange.com/a/5306/43&quot;&gt;I'm not going into that discussion here&lt;/a&gt;), it is a good model, and the lack of those characteristics is not a weakness.&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;The class of RBC models&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;The general RBC class of models are those, where variation along the balanced growth path is caused by (random) shocks to productivity. Of course, no economist really believes that a random number generator is attached to each firm and causes fluctuations in output. It's a simplification.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence, if you are after a weakness behind the RBC model in general, it ought to be that you believe that this simplification is false. That, whatever the reason for business cycle fluctuations we observe is not caused at the productivity wedge. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, some neokeynesian economists believe that it could be mood shocks. People sometimes are more or less lazy, and that recessions go really bad when you people really don't want to work (again, this is a simplification, but the point is that the relevant wedge is not at the output margin, but at the labor-supply and consumption wedge). A critique of these shocks to the household's objective function can be found in Chari, Kehoe, McGratten (&lt;a href=&quot;http://pubs.aeaweb.org/doi/abs/10.1257/mac.1.1.242&quot; rel=&quot;nofollow noreferrer&quot;&gt;2009&lt;/a&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These productivity shocks are, in the simple one-sector model that is mostly used isomorphic to shocks to technology. However, this doesn't mean that they necessarily are caused by them (&lt;em&gt;hint at @Mustang&lt;/em&gt;). For example, Acemoglu and coauthors (&lt;a href=&quot;http://economics.mit.edu/files/8135&quot; rel=&quot;nofollow noreferrer&quot;&gt;2012&lt;/a&gt;) show how mathematically small shocks within firms and sectors (such as variations in the cost function, e.g. unexpected oil price changes), usually cancel each other out, but sometimes aggregate up to great shocks over the whole economy.&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2016-03-29T13:34:52.140" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11270" PostTypeId="1" AcceptedAnswerId="11274" CreationDate="2016-03-28T14:02:51.693" Score="0" ViewCount="1297" Body="&lt;p&gt;Robinson Crusoe’s preferences over coconut consumption, C, and leisure, R, are represented by the utility function U(C, R) = CR. There are 48 hours available for Robinson to allocate between labor and leisure. If he works L hours, he will produce the square root of L of coconuts. He will choose to work. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The answer is 16 and I known this but confused to its working out. Can some give me a step by step?&lt;/p&gt;&#xA;" OwnerUserId="7769" LastEditorUserId="1601" LastEditDate="2017-02-28T07:49:00.570" LastActivityDate="2017-02-28T07:49:00.570" Title="Robinson Crusoe Production Economy" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;production-function&gt;" AnswerCount="1" CommentCount="0" ClosedDate="2016-03-29T00:46:39.050" ContentLicense="CC BY-SA 3.0" />
  <row Id="11274" PostTypeId="2" ParentId="11270" CreationDate="2016-03-28T18:38:39.740" Score="1" Body="&lt;p&gt;The utility function is $U(C,R)=CR$ and the time is restricted: $48=R+L$. Now we know that $C=\sqrt L$. $C$ can be replaced by $\sqrt L$. Therefore the langrarian is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\mathcal L=\sqrt L\cdot R+\lambda (48-L-R)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The (partial) derivatives are the following. They have to be set equal to zero.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac{\partial \mathcal L}{\partial L}=\frac12 L^{-0.5} R-\lambda=0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac{\partial \mathcal L}{\partial R}= L^{0.5} -\lambda=0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Putting $\lambda$ on the RHS&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac12 L^{-0.5} R=\lambda \quad (1)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$L^{0.5} =\lambda \quad (2)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Dividing (1) by (2):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac12\cdot \frac{R}{L} =1 \Rightarrow R=2L$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The expression for R can be insert in the time restriction&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$48=2L+L$&lt;/p&gt;&#xA;" OwnerUserId="371" LastActivityDate="2016-03-28T18:38:39.740" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11276" PostTypeId="1" AcceptedAnswerId="11295" CreationDate="2016-03-28T22:03:10.903" Score="1" ViewCount="87" Body="&lt;p&gt;&lt;sub&gt;Source: p 286, &lt;em&gt;Principles of Economics&lt;/em&gt; (7 ed, 2014) by N Gregory Mankiw&lt;/sub&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;[1.]&lt;/strong&gt; Economists say that a cost is a &lt;strong&gt;sunk cost&lt;/strong&gt; when it has already been committed&#xA;  and cannot be recovered. Because nothing can be done about sunk costs,&#xA;  you should ignore them when making decisions about various aspects of life,&#xA;  including&#xA;  business strategy.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;sub&gt;&lt;a href=&quot;http://insight.kellogg.northwestern.edu/article/is_the_sunk_cost_fallacy_actually_smart_business&quot; rel=&quot;nofollow&quot;&gt;Source:&lt;/a&gt; &lt;em&gt;Is the Sunk Cost Fallacy Actually Smart Business?&lt;/em&gt; (2013 May 5), based on the research of &lt;a href=&quot;http://insight.kellogg.northwestern.edu/browse/author/352/&quot; rel=&quot;nofollow&quot;&gt;Sandeep Baliga&lt;/a&gt; and &lt;a href=&quot;http://insight.kellogg.northwestern.edu/browse/author/2558/&quot; rel=&quot;nofollow&quot;&gt;Jeffrey Ely&lt;/a&gt;. I have not read &lt;a href=&quot;http://faculty.wcas.northwestern.edu/~jel292/sunkcost-final.pdf&quot; rel=&quot;nofollow&quot;&gt;the paper&lt;/a&gt; itself as it appears to need graduate-level Microeconomics and Real Analysis.&lt;/sub&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;[...] &lt;strong&gt;[2.]&lt;/strong&gt; “We call it the ‘theory of the second best,’” he says. “The more you can remember, the better it is, and you don't have to commit this fallacy at all. But if it's a common feature of human beings that they &lt;em&gt;do&lt;/em&gt; forget stuff, then the sunk cost fallacy is an optimal response to that forgetfulness. Sunk costs can encode information about decisions you made in the past, and if that's the case you should take them into account, because if you didn't, you'd make even worse decisions.” [...]&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I know that Mankiw's book is for first-timers to microeconomics, but 1 appears to oversimplify the subject of Sunk Costs. Is 2 correct? And does 2 refute 1?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I do understand 2's subtlety: 2 means that Sunk Costs should motivate you to try to determine  the reasons for the past decision, which may or may NOT justify resuming a past action; 2 does not mean that high Sunk Costs oblige you to resume a past action thoughtlessly and always. &lt;/p&gt;&#xA;" OwnerUserId="4020" LastActivityDate="2016-03-29T15:52:17.390" Title="Because Sunk Costs can encode information, should Sunk Costs really be ignored?" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11278" PostTypeId="1" AcceptedAnswerId="11300" CreationDate="2016-03-28T22:14:44.157" Score="4" ViewCount="100" Body="&lt;p&gt;Argentina defaulted on its sovereign debt in 2002. It has reached an agreement with most but not all of its creditors. &lt;a href=&quot;https://en.wikipedia.org/wiki/Argentine_debt_restructuring#Holdout_problem&quot;&gt;Wikipedia has a pretty good summary&lt;/a&gt;. The agreements included a 70% hair cut but also a RUFO or &quot;Rights upon future offers&quot; clause stating that if in the future agreement is reached with the holdouts with better terms (lower loss percentage) those better terms automatically apply to the creditors signing the current agreements. (This is similar to a most preferred customer clause.) Perhaps the Argentine government used this as a negotiation tactic as it makes it impossible to offer better terms to the holdout creditors.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Unfortunately the holdouts bought a lot of CDS insurance and now stand to win more from a default then they do from a 100% repayment. Lawsuits lasted for years. Argentina made payments to the creditors it agreed with but made no payments to the holdouts. In 2014 (maybe 2015) a court blocked payments to the non-holdout creditors because you cannot differentiate between identical bonds in case of default. This is plunging Argentina into default again which is bad for the country and the creditors with whom it already came to an agreement. (There is another court hearing scheduled for April 2016 and the US government is advocating in favor of Argentina.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why haven't the non-holdout creditors and Argentina signed a new agreement in 2014 without the RUFO clause but identical in all other ways? Seems like both of them would have benefited from it, just as they have by coming to an agreement in the first place. (I am not necessarily looking for the 'exact' or 'real' reasons. Any plausible reasons that make economic sense are fine.)&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2016-05-16T18:36:07.627" Title="Argentine default: &quot;Rights upon future offers&quot;" Tags="&lt;government-debt&gt;&lt;default&gt;&lt;law&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11279" PostTypeId="1" CreationDate="2016-03-28T22:41:48.403" Score="1" ViewCount="115" Body="&lt;p&gt;I'm having trouble with the Rybczynski theorem. Let's say there's a migration to the domestic economy, increasing the Labor endowment. It states that the production of the good that uses labor more intensely will increase and the other one will decrease (which makes a lot of sense). However, it also states that the relative prices (both for goods and factor remuneration) will keep constant.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This doesn't make sense for me because when I solve for the equilibrium, the relative prices &lt;em&gt;do&lt;/em&gt; depends on the relative scarceness of production factor. If I change this, it should go to a whole new equilibrium, shouldn't it?&lt;/p&gt;&#xA;" OwnerUserId="7033" LastActivityDate="2016-03-28T22:41:48.403" Title="Why shouldn't the relative prices change in the Heckscher-Ohlin model?" Tags="&lt;microeconomics&gt;&lt;international-trade&gt;&lt;international-economics&gt;" AnswerCount="0" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="11281" PostTypeId="2" ParentId="4805" CreationDate="2016-03-29T02:36:04.473" Score="0" Body="&lt;p&gt;Currency crises of this sort have happened many times. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A) Typically a country (its government or central bank) decides that, in order to have stability and attract foreign capital, it will &lt;em&gt;tie the value of its currency to another currency&lt;/em&gt;, typically the US dollar. It fixes the price between local and foreign currency. This is great for anybody that is thinking of holding on to local currency assets because it reassures you that its value won't change suddenly. (Mexico decided to fix the peso price to about 3 pesos per dollar or so.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;B) In many of these crises, what happens is that, because of inflation, or because of foreign demand for local assets, the price chosen by the government for the local currency in terms of the local one becomes unrealistic. &lt;em&gt;Goods at home get to be very expensive compared to foreign goods, so the country starts buying more and more foreign goods&lt;/em&gt;, or the firms start borrowing more and more foreign capital. This 'borrowing' is tracked the the current account. The current account deficit of Mexico was large and growing before the crisis, on the order of 10-20 billion dollars a year. Moreover, as was the standard at the time, it had borrowed from foreigners in dollar-denominated terms through the Tesobonos. foreigners would not buy peso-denominated debt...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;C) This imbalance between the local demand for foreign goods (or capital) and foreign demand for local goods or capital, would lead toa currency depreciation, through basic demand and supply equilibrium. Instead, when the country has a fixed exchange rate, the imbalance implies that the central bank has to sell its reserves of foreign currency to keep the price of the local currency fixed. The central bank of Mexico sold about 30 billion dollars of assets into the peso-dollar market to try to keep the price fixed in late 1994.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;D) At some point, investors, speculators, citizens, etc. realize that there is an imbalance and things might end up badly. Therefore, they see that the local currency could change in price soon!! This makes them all try to buy foreign currency with local currency at the same time, to be protected! But the central bank does not have enough foreign reserves to keep the price fixed in the face of such demand, so it has to accept a change in the price of the local currency. Kaboom! After the large fall in reserves in the Mexican central bank, the government accepted that it would be impossible to keep the currency fixed and let it float - let the market determine its price. The peso changed in price from 3.5 per dollar to 7.5 in a few months, settling around 6. &lt;/p&gt;&#xA;" OwnerUserId="7593" LastEditorUserId="7593" LastEditDate="2016-05-12T03:34:24.000" LastActivityDate="2016-05-12T03:34:24.000" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11282" PostTypeId="1" AcceptedAnswerId="11283" CreationDate="2016-03-29T03:07:20.647" Score="1" ViewCount="144" Body="&lt;p&gt;What years and by who were the first and second welfare theorems first proven?&lt;/p&gt;&#xA;" OwnerUserId="6149" LastEditorUserId="1601" LastEditDate="2016-03-29T14:37:50.433" LastActivityDate="2016-03-29T18:41:19.587" Title="When were the First and Second Welfare Theorems proven?" Tags="&lt;welfare-economics&gt;" AnswerCount="1" CommentCount="3" ClosedDate="2016-04-03T12:25:44.343" ContentLicense="CC BY-SA 3.0" />
  <row Id="11283" PostTypeId="2" ParentId="11282" CreationDate="2016-03-29T03:42:58.827" Score="4" Body="&lt;p&gt;Perhaps you have heard the competitive equilibrium referred to as the Arrow-Debreu equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The idea of the theorems existed earlier but Arrow introduced the theorems formally in a way that is equivalent to what we today call the first and second welfare theorem in 1951 in his paper&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://projecteuclid.org/download/pdf_1/euclid.bsmsp/1200500251&quot; rel=&quot;nofollow&quot;&gt;AN EXTENSION OF THE BASIC&#xA;THEOREMS OF CLASSICAL&#xA;WELFARE ECONOMICS&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Debreu is more associated with proving that the equilibrium exists under certain conditions. If you think about it this makes the first welfare theorem much stronger. His seminal paper on the subject is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.jstor.org/stable/pdf/1906814.pdf&quot; rel=&quot;nofollow&quot;&gt;The Coefficient of Resource Utilization&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2016-03-29T18:41:19.587" LastActivityDate="2016-03-29T18:41:19.587" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="11284" PostTypeId="2" ParentId="11263" CreationDate="2016-03-29T04:25:07.607" Score="0" Body="&lt;p&gt;It depends on what you are trying to capture. Assuming the use of linear OLS regression, explaining the dummy using appreciation of leisure time as a regressor will yield a &quot;gross&quot; effect (actually, you'll obtain the correlation between the two in the sample), in the sense that the indirect effects of the explanatory variable on the explained one will not be &quot;netted out&quot;. Controlling for &quot;overall happiness&quot; will certainly rise endogeneity issues that you'll have to also address. On the other hand, it hopefully will bring you closer to estimating a causal effect. &#xA;As a side note, I'd suggest considering the use of more traditional demographic/economic variables instead of a computation such as the happiness index at stake. &lt;/p&gt;&#xA;" OwnerUserId="7725" LastActivityDate="2016-03-29T04:25:07.607" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11285" PostTypeId="1" AcceptedAnswerId="11293" CreationDate="2016-03-29T04:41:13.640" Score="1" ViewCount="603" Body="&lt;p&gt;I was wondering why the IAS prohibits companies from discounting their deferred tax items?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are there any particular economic reasons for implementing such prohibition?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you!&lt;/p&gt;&#xA;" OwnerUserId="7780" LastActivityDate="2016-03-29T13:16:06.940" Title="What are the economic consequences of discounting deferred tax liability?" Tags="&lt;accounting&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11286" PostTypeId="1" CreationDate="2016-03-29T05:38:57.937" Score="1" ViewCount="55" Body="&lt;p&gt;It seems that fundamentally they are both driven by revolt risk. Is there some inherent difference in how the two systems are treated in political economics or are they more or less the same type of model?&lt;/p&gt;&#xA;" OwnerUserId="8360" LastActivityDate="2016-03-29T05:38:57.937" Title="What distinguishes political economic models of dictatorship and democracy?" Tags="&lt;political-economy&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11287" PostTypeId="2" ParentId="11285" CreationDate="2016-03-29T05:43:06.900" Score="0" Body="&lt;p&gt;The lack of discounting will make tax discounting more valuable. Assuming that the market accepts this valuation it will mean increased effort toward tax deferral and possibly increased investment rates. Corporations will hold appreciating assets for longer periods to defer taxes, and will forgo some short term gains in favor of increasing the expected future tax defferal items on the balance sheet.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In practice agents are supposed to be aware of accounting changes though and derive their own valuation independently of arbitrary rules set by some accounting standard.&lt;/p&gt;&#xA;" OwnerUserId="8360" LastActivityDate="2016-03-29T05:43:06.900" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11289" PostTypeId="1" AcceptedAnswerId="11290" CreationDate="2016-03-29T07:45:38.357" Score="0" ViewCount="398" Body="&lt;p&gt;Consider a world where an intermediate good is produced using a linear production function in a competitive market:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ Y = qAL$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $q$ is the price of the intermediate good, $A$ is productivity. Due to perfect competition, profits are given by&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ 0 = \pi = (qA-w)L$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $w$ are wages. Due to perfect competition, we have that $w = qA$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now consider a final production sector where some market power exists. Why is - I believe - irrelevant to the exposition here. Due to some cost of entry to the final sector, we can determine the measure of firms in the final sector, $S$. Each of these final good firms $i$ then will sell the final good at price $p_i$. That is, we have some non-degenerate price distribution in the final sector.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, we have a measure $S$ of final sector firms that require the intermediate good. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Assumption 1&lt;/strong&gt; Let's assume for simplicity, that they all will purchase the same quantity (although the quantity is irrelevant due to the linearity of the intermediate good's production function).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How would the price $q$ be determined in this setup, with and without &lt;em&gt;assumption 1&lt;/em&gt;?&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Can there be market power for the final sector, given that there is a continuum of firms in both sectors? &lt;/li&gt;&#xA;&lt;li&gt;If so, how does the price-setting work?&lt;/li&gt;&#xA;&lt;li&gt;In particular, if there is market power on one side, the price should be equal to marginal cost.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;However, so far, I was using the FOC $w = qA$: taking the price as given and use that as the wage. Due to linearity of the production function, I feel that I cannot determine both $w$ and $q$ at the same time here. Is that correct? What's the way to go? &lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2016-03-29T08:00:56.260" LastActivityDate="2016-03-29T09:49:58.540" Title="Determine price and cost of intermediate good" Tags="&lt;macroeconomics&gt;&lt;industrial-organisation&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="11290" PostTypeId="2" ParentId="11289" CreationDate="2016-03-29T09:49:58.540" Score="1" Body="&lt;p&gt;One way to close the model is through the labor market equilibrium. The OP clarified that the final-goods sector does not use labor.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $D_y = D_y(q)$ be the total demand for the intermediate good, in quantities. Since the market for the intermediate good is competitive it will clear, so we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$D(q) = AL \implies L^d = D(q)/A$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $L^s(w)$ be labor supply coming from the utility maximization problem of the households and depending also on the wage. Assume a competitive labor market. Then the wage will adjust to clear it. Here we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$L^s(w) = L^d = D(q)/A$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which gives us a second relation between $w$ and $q$, alongside $w=qA$, and it permits to determine both simultaneously. &lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2016-03-29T09:49:58.540" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11291" PostTypeId="1" AcceptedAnswerId="11297" CreationDate="2016-03-29T11:01:59.007" Score="3" ViewCount="427" Body="&lt;p&gt;Consider the following problem&#xA;\begin{align}&#xA;&amp;amp;\max_u F(x,u)\\&#xA;\text{s.t. }&amp;amp; u \in [0,\bar u].&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any idea how to merge the two constraints $u \geq 0$ and $\bar u - u \geq 0$ into one constraint $f(u,\bar u) \geq 0$?&lt;/p&gt;&#xA;" OwnerUserId="4266" LastEditorUserId="61" LastEditDate="2016-03-29T19:49:52.403" LastActivityDate="2016-03-30T09:41:40.023" Title="Constrainted optimization: merge two constraints into one" Tags="&lt;optimization&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11292" PostTypeId="2" ParentId="4991" CreationDate="2016-03-29T11:31:37.743" Score="-1" Body="&lt;p&gt;I hope this helps. It helped me.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://mises.org/library/what-does-debt-based-money-imply-interest-payments&quot; rel=&quot;nofollow&quot;&gt;https://mises.org/library/what-does-debt-based-money-imply-interest-payments&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit: As pointed out by others, I'll include a short explanation of what the page says:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What happens is that the banks spend money to function (they pay their workers, their bills, ...) and so part of the money that is supposed to be at the bank is given back to the public. This way, people can pay back their interest. Basically it is the same money used all over again.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But this &quot;problem&quot; you point out is not unique to the our banking system. If you used gold and had a limited amount of it (no gold mined), you would have the same situation. Interest is paid by the circulation of the money. Otherwise, you would have to find new gold to pay for the one you borrowed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;TL;DR&lt;/strong&gt;: The interest can only be paid by the banking system spending their money. So, as long as the banks don't keep their money to themselves, it should work out. But it does seem weird.&lt;/p&gt;&#xA;" OwnerUserId="7766" LastEditorUserId="7766" LastEditDate="2016-03-29T14:06:21.577" LastActivityDate="2016-03-29T14:06:21.577" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="11293" PostTypeId="2" ParentId="11285" CreationDate="2016-03-29T13:16:06.940" Score="1" Body="&lt;p&gt;The answer is in the text of &lt;a href=&quot;http://ec.europa.eu/internal_market/accounting/docs/consolidated/ias12_en.pdf&quot; rel=&quot;nofollow&quot;&gt;IAS 12&lt;/a&gt;, and basically amounts to &quot;it's unreasonable to require it, and if we allow firms discretion in doing it, they will only do it when it's in their favor&quot;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The reliable determination of deferred tax assets and liabilities on a discounted basis requires detailed scheduling of the timing of the reversal of each temporary difference. In many cases such scheduling is impracticable or highly complex. Therefore, it is inappropriate to require discounting of deferred tax assets and liabilities. To permit, but not to require, discounting would result in deferred tax assets and liabilities which would not be comparable between entities. Therefore, this Standard does not require or permit the discounting of deferred tax assets and liabilities.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="264" LastActivityDate="2016-03-29T13:16:06.940" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11294" PostTypeId="2" ParentId="4471" CreationDate="2016-03-29T15:32:17.373" Score="0" Body="&lt;p&gt;Two additional issues that are not clear in the other answers:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A) In theory, it is those that have given credit to a bad borrower that will pay the cost of that mistake. A bank always has a list of loans that it cannot recover, and are losses. In this case, that would be the private banks that originally lent money to Greece. However, the way we have organized our banking systems, a big hit to a bank leads to a financial crisis unless the bank is rescued. In this case, that means that although it seems that a lot of the burden would fall on private investors/ banks, in the end its is often the public sector and therefore the regular citizens of a country that end up paying for the default.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;B) In these cases, the issue of 'debt seniority' is important. Often the IMF will only lend if its debt is senior to all the others. This means that in many cases not all the debt is equally risky and a default would hit private lenders before it hits sovereign lenders and then finally 'IFI' lenders (IMF, WB,etc).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;C) A potential part of the solution is the bail-in as in Cyprus, in which large bank deposit accounts were reduced with a 'levy' of around 40% on any money above a 100,000 level...&lt;/p&gt;&#xA;" OwnerUserId="7593" LastEditorUserId="7593" LastEditDate="2016-05-12T03:39:40.177" LastActivityDate="2016-05-12T03:39:40.177" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11295" PostTypeId="2" ParentId="11276" CreationDate="2016-03-29T15:52:17.390" Score="2" Body="&lt;p&gt;It's all about the precise idea these authors are trying to communicate:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A) Mankiew is explaining that we are sometimes too stuborn: we sometimes make a bad investment and then feel some vindication in making another bad investment that might rescue the first one, even though we know it's a bad investment on its own. In abstract terms that can be stated by saying that sunk costs should not be taken into account when evaluating whether to increase an investment in a project. Say you put in 100 dollars in a project (A) and got nothing back but you think if you only put in another 100 you will at least get you original 100 back. However, there is another project (B) that pays you 101 if you put in 100. We have the tendency to try to rescue our bad investment and put our money in project A again, but project B pays us a higher return, and we should go for project B.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;B) Baliga and Eli are explaining that although, as Mankiew says, you should not use sunk costs in your calculation of whether a new investment is good or bad, it makes sense to keep track of sunk costs from an informational perspective. If you tend to forget what you did or how well it turned out, then recording your sunk costs in a notebook might help you figure out which were good investments previously and might be good in the future too, or not.&lt;/p&gt;&#xA;" OwnerUserId="7593" LastActivityDate="2016-03-29T15:52:17.390" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11297" PostTypeId="2" ParentId="11291" CreationDate="2016-03-29T16:23:32.390" Score="3" Body="&lt;p&gt;$$0\leq u \leq \bar u  \implies -\frac {\bar u}{2} \leq u - \frac {\bar u}{2} \leq \frac {\bar u}{2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies \left | u - \frac {\bar u}{2}\right| \leq \frac {\bar u}{2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies \frac {\bar u}{2} - \left | u - \frac {\bar u}{2}\right| \geq 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;ADDENDUM&lt;/strong&gt;&#xA;In a comment it was proposed that we could instead use the squared expression to achieve differentiability everywhere,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\bar{u}^2}{4} - \left ( u - \frac {\bar u}{2}\right)^2 \geq 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's see: we then are allowed to decompose the square and write&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\bar{u}^2}{4} - u^2 + u\bar u - \frac {\bar{u}^2}{4} \geq 0$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies -u^2 + \bar u u \geq 0 \implies u(\bar u -u) \geq 0$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;which is nothing more than &lt;em&gt;the multiplication&lt;/em&gt; of the two separate constraints.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;ADDENDUM II&lt;/strong&gt;&lt;br&gt;&#xA;If we have $u \in [a,b]$ for $a&amp;lt;b$ arbitrary reals, then the general expression is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$-u^2+(a+b)u-ab\geq 0$$&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2016-03-30T09:41:40.023" LastActivityDate="2016-03-30T09:41:40.023" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="11298" PostTypeId="1" AcceptedAnswerId="11371" CreationDate="2016-03-29T17:19:17.333" Score="2" ViewCount="122" Body="&lt;p&gt;I have given&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;2 firms in a market with constant marginal costs and no fixed costs&lt;/li&gt;&#xA;&lt;li&gt;market demand has $D(p)$ &lt;/li&gt;&#xA;&lt;li&gt;The ﬁrms play a &lt;strong&gt;Cournot&lt;/strong&gt; game&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I'm supposed to Calculate the equilibrium quantity for each ﬁrm and the market equilibrium quantity and price. Also I have to find the implied proﬁt for each ﬁrm.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My approach:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Isolate the profit functions as $\pi_i = F(q_A, q_B)$ for $i \in \{A, B\}$&lt;/li&gt;&#xA;&lt;li&gt;Then I compute marginal costs using that MC = the derivative of total costs w.r.t. Q&lt;/li&gt;&#xA;&lt;li&gt;Then use that MR = MC for each firm, and solve for $q_A, q_B$&lt;/li&gt;&#xA;&lt;li&gt;Then using this I was able to find the equilibrium quantity for each firm by substituting one into the other&lt;/li&gt;&#xA;&lt;li&gt;Finally I subbed these quantities into $D(p)$ to get the equilibrium price &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Among my results, I get that $q_A = q_B$. I'm not sure if I've solved this correctly but it seems to make sense to me that the firms have the same equilibrium quantities due to it being a Cournot game. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Was the approach correct?&lt;/p&gt;&#xA;" OwnerUserId="7788" LastEditorUserId="43" LastEditDate="2016-03-29T17:38:43.133" LastActivityDate="2016-04-02T18:32:10.793" Title="Cournot game with 2 firms" Tags="&lt;industrial-organisation&gt;&lt;oligopoly&gt;" AnswerCount="1" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="11299" PostTypeId="2" ParentId="11246" CreationDate="2016-03-29T18:42:44.707" Score="1" Body="&lt;p&gt;Basically, if you are the government, its a way that you are telling everybody that they should believe your commitment to low inflation. They should believe you, because you'll hurt yourself a lot if you allow inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;More generally, economists sometimes talk about agent's ability to commit to a policy: say, governments might promise something, but its hard for investors to believe that they'll follow through. SO one way to solve this problem is that the government builds creates an institution, where breaking the promises hurts a lot.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The classical reference is Odysseus getting his crew to tie him to a mast so he would not throw himself at the sirens in the sea.  He is in effect choosing to bind his future self, curtailing his own freedom. The value of this is that it gives him freedom to do other things (travel along the siren infested waters and listen to their song). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A fixed exchange rate can serve such a purpose: The idea is that a country fixes the exchange rate. This fixed rate makes it very obvious and very costly to behave badly, say by printing money or increasing government borrowing. The fixed rate constrains the government from bad behaviour. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course, this decision is not free. In the case that you set a fixed rate and then you end up behaving badly, then the result is worse than if you had never fixed the exchange rate in the first place. (Imagine Odysseus drowning if he is tied and the boat sinks and he is unable to swim away.)&lt;/p&gt;&#xA;" OwnerUserId="7593" LastEditorUserId="7593" LastEditDate="2016-05-14T19:12:15.817" LastActivityDate="2016-05-14T19:12:15.817" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11300" PostTypeId="2" ParentId="11278" CreationDate="2016-03-29T19:54:12.940" Score="2" Body="&lt;p&gt;This is a good question! It turns out that exactly as you predict, if you get the transcripts or recordings from the meetings with judge Griesa in NY, some of the representatives of the non-holdouts said they were willing to sign off on the RUFO clause, voiding it. The logic, as you describe is that this would free Argentina to pay the holdouts, letting Argentina continue its payments to the non-holdouts too, without a risk of the debt ballooning suddenly. This would have saved everybody lots of headaches!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Argentina's government at the time did not pursue this option, perhaps because they saw more political gain in being the victims of 'the US empire's courts' than in solving the problem. The lack of professionalism and interest in solving the problem that their executives displayed during this episode suggests this is the main reason.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Alternatively, it's plausible that they did not pursue this option because they thought that default was so terrible to non-holdout investors, that these would be of help in pressuring the holdouts to accept a lower payment from Argentina in negotiations to avoid default.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In any case, neither strategy worked. The government lost popularity and was kicked out of office, and the new government eventually reached an agreement beneficial to the holdouts.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One, more thing: the Rufo clause actually wasn't such a big deal because it was set to expire soon! So, the non-payment appears to have been a big circus for the Argentinian president then to try to score some points with the more manipulable fraction of that country's population.&lt;/p&gt;&#xA;" OwnerUserId="7593" LastEditorUserId="7593" LastEditDate="2016-05-16T18:36:07.627" LastActivityDate="2016-05-16T18:36:07.627" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11301" PostTypeId="1" AcceptedAnswerId="11303" CreationDate="2016-03-29T21:00:43.200" Score="2" ViewCount="330" Body="&lt;p&gt;I'm trying to replicate the regression of the &lt;a href=&quot;http://dx.doi.org/10.2307/2118477&quot; rel=&quot;nofollow&quot;&gt;MRW 1992&lt;/a&gt; paper.&#xA;(&lt;a href=&quot;https://www.nuffield.ox.ac.uk/teaching/economics/bond/mrw.dta&quot; rel=&quot;nofollow&quot;&gt;Here's&lt;/a&gt; the data, if you're interested)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the same page where the data set is available, there's this &lt;a href=&quot;https://www.nuffield.ox.ac.uk/teaching/economics/bond/OLS%20Regression%20Using%20Stata.pdf&quot; rel=&quot;nofollow&quot;&gt;handout&lt;/a&gt; explaining how to replicate the results. In page 2 of this handout, we can see two simple stata commands: &lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;li_y=ln(i_y/100) &#xA; g lpop=ln(0.05+popgrowth/100)&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;My question is why the variables &lt;code&gt;i_y&lt;/code&gt; (this is Investment over GDP), and &lt;code&gt;popgrowth&lt;/code&gt;(this is an averaged population growth rate between 1960-1985) are divided by 100?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Nowhere in the MRW 1992 paper, do I read something telling me that it's necessary to divide it by 100, or do I?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated&lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="7215" LastEditDate="2016-05-08T18:12:27.297" LastActivityDate="2016-05-08T18:12:27.297" Title="A doubt on the Regression of Mankiw, Romer, Weil 1992 paper" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="11303" PostTypeId="2" ParentId="11301" CreationDate="2016-03-29T23:46:41.710" Score="2" Body="&lt;p&gt;I had a look at the data, and it is like @denesp says in his comment: e.g. a $2.60\%=0.0261$ population growth rate is written as $2.60$, a $24\%=0.24$ investment-to-output ratio is written like $24.0$, etc. &#xA;So they must be divided by $100$.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2016-03-29T23:46:41.710" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11304" PostTypeId="1" AcceptedAnswerId="11309" CreationDate="2016-03-30T04:34:51.043" Score="6" ViewCount="1454" Body="&lt;p&gt;What effect do they have on renters?  Landlords? Are there examples of rent control working, improving living conditions for renters?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I.e. What are the main arguments for/against rent control (purely economic, not emotional or moral).&lt;/p&gt;&#xA;" OwnerUserId="7158" LastActivityDate="2019-06-04T01:08:04.603" Title="What are the economic ramifications of rent control?" Tags="&lt;macroeconomics&gt;&lt;housing&gt;" AnswerCount="4" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11305" PostTypeId="1" CreationDate="2016-03-30T05:54:28.837" Score="2" ViewCount="40" Body="&lt;p&gt;I'm trying to define which hotel offers the best value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's say we have two hotels - A and B.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For A, you pay $10 a night and the rating for the hotel is 9.8.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For B, you pay $8 a night and the rating for the hotel is 9.6.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So for A, you pay $2 more and get one with a higher rating of 0.2. But is it the better value?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How would you solve this?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks!&lt;/p&gt;&#xA;" OwnerUserId="7793" LastActivityDate="2016-03-30T12:19:42.813" Title="How to define best value?" Tags="&lt;cost&gt;&lt;value&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11306" PostTypeId="1" CreationDate="2016-03-30T09:07:22.210" Score="2" ViewCount="135" Body="&lt;p&gt;What is the best way to model fossil fuel prices? I am trying to build an energy-economic model and changes in fuel prices are an important part of the model. I need to know how to model them. Any ideas? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would like to forecast the changes in fossil fuel price (oil and gas basically). As this is part of an energy model which takes into account those economical trends&lt;/p&gt;&#xA;" OwnerUserId="7096" LastEditorUserId="44" LastEditDate="2016-03-31T12:55:32.047" LastActivityDate="2016-03-31T12:59:10.297" Title="How to model the change in fossil fuel price?" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11307" PostTypeId="2" ParentId="11305" CreationDate="2016-03-30T12:19:42.813" Score="1" Body="&lt;p&gt;This depends on the person you are asking.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose an individual's utility function only depends on hotel rating scores and money (which is used to purchase other things). Then it is completely consistent for two individuals to prefer A=(9.8,m-10) to B=(9.6,m-8) (and vice versa). Thus, there is no value metric for all individuals. However, if you focus on one individual, you could ask how much cheaper/costlier you would need to make each hotel such that the individual would be exactly indifferent to A. This idea is captured by the concepts of equivalent and compensating variation. However, for this you would need to know a lot about each consumer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A simpler measure of value (but less meaningful to each individual) would be to measure the proportion $p(A \succsim B)$ of individuals which would prefer A over B. To each individual, this number would of course be meaningless. Notice also that the numbers obtained need not be consistent across hotels. Indeed, $p(A\succsim B)&amp;gt; .5$ and $p(B \succsim C)&amp;gt;.5$ does not imply $p(A \succsim C)&amp;gt;.5$. This follows from the cyclicality of pairwise majority voting. Arrow's impossibility theorem tells us that under some reasonable assumptions, there exists no aggregation procedure of ordinal preferences. Thus, unless you are willing to make stronger assumptions on preferences (than most economists are willing to make), it will be impossible to measure the value of hotels.&lt;/p&gt;&#xA;" OwnerUserId="5635" LastActivityDate="2016-03-30T12:19:42.813" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11308" PostTypeId="2" ParentId="10892" CreationDate="2016-03-30T15:34:48.857" Score="1" Body="&lt;p&gt;For interest rates, the theory(spelled out as the &lt;em&gt;Fisher equation&lt;/em&gt;) is that there are two components to the nominal interest rate. These are the real interest rate and the expected inflation. The real interest rate codifies the economy's 'urgency' or time preference: the idea that you prefer consuming now than tomorrow and so you need to be compensated for postponing your consumption. The expected inflation part is the one that compensates you for the change in prices between now and the future. In the data, these can be calculated from the differences in the yields of inflation-adjusted government bonds (TIPS) and traditional government bonds (Treasuries).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For futures, the basic idea is that the price (F) in a commodity future contract is indeed &lt;em&gt;sort of&lt;/em&gt; the market's guess of the price of the commodity in the future. It would seem like the current spot price (S) is lower (higher) than F, then markets expect an increase (decrease) in the  price of that commodity. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But this is not the only thing going on. For example, in times when producers would like to insure against changes in the price of their output, they will be willing to contract at a lower price than what they expect in the future. Similarly, when consumers would like to insure against changes in the price of their inputs, they will be willing to contract at a higher price than the one they expect in the future.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Typically you'd expect speculators that see a futures price that looks like it's below the expected spot price to enter into the futures contracts, hold on to them and then deliver the commodity to the spot market when the contract expires. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The difference between the current spot price and the futures price then is limited by the ability of producers to store their product, the ability of speculators, consumers and producers to absorb the risks, and so on. (The factors mentioned by @Corone)&lt;/p&gt;&#xA;" OwnerUserId="7593" LastActivityDate="2016-03-30T15:34:48.857" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11309" PostTypeId="2" ParentId="11304" CreationDate="2016-03-30T15:40:43.413" Score="11" Body="&lt;p&gt;Well, rent control is the classic example used in many economics textbooks when talking about price ceilings. A price ceiling is a maximum price one can pay for a good, and is set by a governing body. There are many cons to price ceilings and not many pros.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\textbf{Pros:}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) Because tenants of the property know that apartments are in short supply, they will have an incentive to take good care of the place in order to stay on the renter's good side because they may not be able to get another apartment if they get kicked out of this one.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) Tenants who get apartments will have lower rent costs and will therefore be able to spend/save more of their money. If they choose to spend it, that can boost the local economy because more money will be spent in local businesses.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\textbf{Cons:}$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/ezAjq.gif&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/ezAjq.gif&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The graph above depicts a binding rent control. By this, I mean that the rent controlled price is below the equilibrium price. In this example, the rent controlled price is $1,000$ and the equilibrium price is $1,500$. What this causes is a shortage of apartments. Looking at this graph, we can see that at the price of $1,000$, $Q_D=2,100,000$ and $Q_S=1,900,000$. Using this, we can see that the shortage will be: &#xA;$$Q_D-Q_S=2,100,000-1,900,000=200,000\;apartments$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What this means in words is that there are more people who want apartments than there are people who are willing to supply apartments. What might be the side effects of this?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) Rationing: There are a couple of ways rationing may occur, but in the market for apartments the only way which makes sense is rationing through discrimination by sellers biases. What this means is that the renter may give the apartment to someone who doesn't value it as much as another person based on their biases.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) Illegal activities: One thing which may occur due to rent control is under-the-table deals. Basically, people may pay the seller some money under the table to ensure that they get an apartment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;3) Homelessness or relocation: We need to look at what we mean by the quantity of apartments demanded is greater than the quantity of apartments supplied. What this means is that people who want/need to buy apartments will not be able to (in our example 200,000 people at least). What are the two outcomes of this? The first outcome would be homelessness because people cannot get apartments, and they may have nowhere else to go. The reason why this is not desirable is pretty obvious (we don't want people to have to live on the streets). The second outcome would be relocation of current residents. What this means is that people will need to move out of the area. This will hurt the local economy because less people will be spending their money in local businesses.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;One last thing to keep in mind is that over time this shortage will get worse. In the short run, the sellers may not be able to take the apartment off the market. However, in the long run, sellers may decide to sell the apartment complex, which will cause the supply of apartments to decrease even more. This will exacerbate the problems I listed above.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\textbf{Edit:}$ Another problem caused by rent controls was mentioned (quite astutely) by $\textbf{AdamBailey}$. He pointed out that landlords may not make enough money to maintain his or her rental properties, and over time the quality of such rental properties may depreciate drastically. This shows that, not only will the quantity of apartments decrease, but the quality may decrease as well. This is another perfect example of how rent controls can hurt those that it is trying to help. &lt;/p&gt;&#xA;" OwnerUserId="5825" LastEditorUserId="5825" LastEditDate="2016-04-01T15:12:40.163" LastActivityDate="2016-04-01T15:12:40.163" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="11310" PostTypeId="2" ParentId="3086" CreationDate="2016-03-30T15:55:36.787" Score="0" Body="&lt;p&gt;This is an interesting question. In particular it relates to other questions such as who should collect the tax (local or national). But I don't think it invalidates the theoretical or practical advantages of land value tax or makes it distortive.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It depends how the assessment is done. Imagine a large area owned by one person which can be split into a number of smaller plots, each with a building on it. What's the total land value. The total land value will include the benefits of one building within the large area on another plot. So the land value of each plot is the value of the land if you burnt down just the building standing on it but &lt;em&gt;kept the other buildings&lt;/em&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So actually there are more than one definition of 'unimproved' depending on the scale on what we are speaking. The total value of the unimproved land on which London stands (after a very large bomb destroyed all of London) is less than the sum of the values of the individual unimproved plots (after small reversible bombs destroying each building individually).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Defining the land value as the property value minus the rebuild cost of the buildings seems to get round most of these problems.&lt;/p&gt;&#xA;" OwnerUserId="7310" LastActivityDate="2016-03-30T15:55:36.787" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11311" PostTypeId="2" ParentId="11253" CreationDate="2016-03-30T16:47:27.410" Score="1" Body="&lt;p&gt;Let us quickly define a competitive market. A competitive market satisfies the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) All firms sell an identical product&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) All firms and buyers are price takers (have no control over price)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;3) Buyers and firms have complete information about the market&lt;/p&gt;&#xA;&#xA;&lt;p&gt;4) The market is characterized by free entry (no barriers to entry)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If this is the market structure, we can have the existence of pareto optimality, so I am assuming this is the competitive market to which you are referring in your question. What happens when we try to relax assumption 4?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can show this using your example of startup capital: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose we have a competitive market and the amount of startup capital needed to enter this market is $A$. When deciding to enter this market the firm would subtract $A$ from the long term profit possibility $\Pi$ (because it would be another cost). By definition $A\geq 0$. Because the situation where $A=0$ is trivial (because that means there is no startup capital needed), we know that $A&amp;gt;0$. Suppose at a point in time there is opportunity for profit in this market. As long as $\Pi\geq 0$ firms will decide to enter the market, but if $\Pi &amp;lt;0$, a firm would decide not to enter the market. However, note that firms who are already in the market are earning positive profit. This is a contradiction because if positive profits persist, we do not have a competitive market. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As you noted in your question, a competitive market is a necessary condition for the existence of pareto optimality. If the nonexistence of barriers to entry is a necessary condition for a competitive market, nonexistence of barriers to entry is also a necessary condition for pareto optimality.&lt;/p&gt;&#xA;" OwnerUserId="5825" LastEditorUserId="5825" LastEditDate="2016-03-30T23:43:47.600" LastActivityDate="2016-03-30T23:43:47.600" CommentCount="11" ContentLicense="CC BY-SA 3.0" />
  <row Id="11312" PostTypeId="2" ParentId="11304" CreationDate="2016-03-30T21:34:18.760" Score="1" Body="&lt;p&gt;From a market perspective, rather than socio-economic, rent control puts at risk debt vs. Interest rates. When rates don't move, rent control is fine. When rates move up, debt becomes expensive and it puts at risk funding capabilities of landlords and with that creates a negative impact on lenders' balance sheet.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If rates go down, landlords will be raking it...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Rent control makes sense in a (relatively) static environment not fuelled by borrowing. It would also make sense in an environment where properties are not an asset class. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you find such an environment, let me know (Germany is close). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;BTW, the above is also a good example why governments should not lend money to home owners as this artificially hikes prices and the money goes to the shareholders not the Joe public...public ends up with an unaffordable debt...sounds familiar?&lt;/p&gt;&#xA;" OwnerUserId="7328" LastActivityDate="2016-03-30T21:34:18.760" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11313" PostTypeId="2" ParentId="11306" CreationDate="2016-03-30T22:39:14.550" Score="1" Body="&lt;p&gt;Principles to take into account:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A) Price elasticity: Demand for fuel is very inelastic because its relatively hard to store and the machinery installed to use it is very much fixed. Therefore, the price is likely to vary a lot with supply and demand changes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;B) Exogenous shocks: To a large extent, the price of fuel is determined by shocks that are mostly exogenous to most world economies. These are political shocks in countries that are big oil suppliers, like Venezuela or Nigeria o Iran. These might decide to produce more or less depending on their own political issues, regardless of profitability or the state of the world economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;C) Large macro impact: The &quot;stagflation&quot; episodes of the 70's and 80's in the Us can be attributed to shocks to the price of oil. Apparently, in those times the Us economy could be measurably impacted by changes in the international price of oil.&lt;/p&gt;&#xA;" OwnerUserId="7593" LastActivityDate="2016-03-30T22:39:14.550" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11315" PostTypeId="1" AcceptedAnswerId="11906" CreationDate="2016-03-31T03:26:58.070" Score="6" ViewCount="858" Body="&lt;p&gt;Does anybody know what kind of work or where computational economists end up working? It seems most end up in research...&lt;/p&gt;&#xA;" OwnerUserId="6244" LastActivityDate="2016-06-13T19:50:37.350" Title="Where do computational economists work" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;econometrics&gt;&lt;statistics&gt;&lt;computation&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="11316" PostTypeId="2" ParentId="3086" CreationDate="2016-03-31T03:27:03.073" Score="0" Body="&lt;p&gt;@BKay has good points. Other ideas:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A) No, the fact that somebody else's actions change the value of your land does not have to do with taxes. This would be true in a taxless environment too. If your neighbor builds a beautiful park, your land becomes more valuable, if he builds a sulfur emitting factory, presumably then your land becomes less valuable. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;B) You are right, that yes, if your building changes the value of your own land, then yes, even LTV taxes are going to decrease your incentives to build. The only alternative would be to have a value of land for taxes that is independent of the market value of land. You could do it, I suppose, with a formula based say on the type of soil, the water availability, the view, the average temperature, etc, i.e. qualities intrinsic to the land itself.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;C) When people talk about LTV not affecting incentives they mean that the taxes are not calculated based on what you build, but solely on the value society places on that piece of land.  Typically taxes are based on land plus meters of construction, which pushes people to avoid construction to avoid taxes... which some people believe pushes us to have urban sprawl. Of course if you own &lt;/p&gt;&#xA;&#xA;&lt;p&gt;D) The example you mention assumes that the value of land would be different if you own it that if your neighbor owned it. It's possible that under some particular tax regime the city does not update the value of land until a property is sold, in which case, yes, single ownership before construction minimizes taxes. However, many tax assessments are continually adjusted with estimates of the value of land, regardless of ownership or change of ownership. &lt;/p&gt;&#xA;" OwnerUserId="7593" LastEditorUserId="7593" LastEditDate="2016-05-16T17:46:32.520" LastActivityDate="2016-05-16T17:46:32.520" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11317" PostTypeId="1" AcceptedAnswerId="11318" CreationDate="2016-03-31T03:53:23.690" Score="0" ViewCount="48" Body="&lt;p&gt;Which of the following is true for the Canadian labour force data for June, 2015, for unemployment, Full-time (FT) employment, and Part-time (PT) employment?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A)  Unemployment fell because FT employment rose more than PT employment fell&lt;/p&gt;&#xA;&#xA;&lt;p&gt;B)  Unemployment fell because PT employment rose more than FT employment fell&lt;/p&gt;&#xA;&#xA;&lt;p&gt;C)  Unemployment rose because FT employment rose less than PT employment fell&lt;/p&gt;&#xA;&#xA;&lt;p&gt;D)  Unemployment rose because PT employment rose less than FT employment fell&lt;/p&gt;&#xA;&#xA;&lt;p&gt;E)  Unemployment rose because FT employment and PT employment fell&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The answer is A). This question indicates that PT and FT has mutual relationship. But I think we don't normally count PT when calculating unemployment rate. So how does the choice A) work?&lt;/p&gt;&#xA;" OwnerUserId="6132" LastActivityDate="2016-03-31T03:58:17.340" Title="How to distinguish Full-time (FT) employment and Part-time (PT) employment when calculating employment rate?" Tags="&lt;macroeconomics&gt;&lt;unemployment&gt;&lt;natural-rate-unemployment&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11318" PostTypeId="2" ParentId="11317" CreationDate="2016-03-31T03:58:17.340" Score="1" Body="&lt;p&gt;They must be counting full time/part time equivalents rather than individuals. They are basically comparing the hours worked versus the hours people report desiring to work. Thats the only explanation. &lt;/p&gt;&#xA;" OwnerUserId="8360" LastActivityDate="2016-03-31T03:58:17.340" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11319" PostTypeId="1" AcceptedAnswerId="11330" CreationDate="2016-03-31T03:59:08.003" Score="0" ViewCount="113" Body="&lt;p&gt;Suppose that Roots buys 5 million dollars in leather produced this year in Alberta and 1 million dollars in zippers produced last year in Toronto to make 9 million dollars worth of leather jackets in Montreal this year. They sell 7 million dollars worth of jackets this year.  What is the total contribution to Canadian GDP this year contained in these jackets? (million means million dollars)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A) 5 million   B) 6 million C) 7 million    D) 8 million    E) 9 million&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here the answer is D), which I don't quite understand. We calculate contribution to GDP through value added. In my opinion, the final sale, which is 7 million dollars, should be the sum. Could someone explain?&lt;/p&gt;&#xA;" OwnerUserId="6136" LastActivityDate="2016-03-31T13:04:51.730" Title="How to calculate change in GDP using valued added?" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;&lt;value&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11322" PostTypeId="2" ParentId="10446" CreationDate="2016-03-31T04:27:48.350" Score="1" Body="&lt;p&gt;I think you have to look at the concept of spurious regression.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A key idea useful to interpreting correlations like this is the idea of &quot;spurious regression&quot;. Any two time series X and Y each of which has a trend (even if it's a &quot;random trend&quot; !) will appear to have a high negative or positive correlation. (This is because, if there's a trend, all the values above the mean and all the values below the mean will tend to be on opposite sides of the time series, for both series. A high correlation then tells you that the above the mean values of one series coincide with the above(or below) the mean values of the other series...which is not very surprising.) A high correlation in this setup is an interesting finding if it's a correlation of the 'de-trended' series, or of the 'differenced' series.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, plot the series since then. The stock market has gone through upturns and downturns that do not seem to be related to the monetary base in any way.&lt;/p&gt;&#xA;" OwnerUserId="7593" LastEditorUserId="7593" LastEditDate="2016-07-23T23:35:00.573" LastActivityDate="2016-07-23T23:35:00.573" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11323" PostTypeId="1" CreationDate="2016-03-31T05:18:21.083" Score="5" ViewCount="579" Body="&lt;p&gt;Currently, central banks around the world are setting very low interest rates.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;According to Taylor rules, which most central banks can be shown to roughly follow, this implies that they believe that the natural level of output is greater than the current level of output and/or current inflation is below its target. Looking at real GDP per capita charts (e.g., US, Eurozone, World), I could not see that we are far below the medium-run trend in real GDP. Therefore, I am wondering what current factors drive central banks to implement low interest rates?&lt;/p&gt;&#xA;" OwnerUserId="5635" LastActivityDate="2016-05-04T18:03:57.230" Title="Why do central banks currently favor cheap money policies?" Tags="&lt;monetary-policy&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11324" PostTypeId="2" ParentId="11323" CreationDate="2016-03-31T05:45:08.543" Score="5" Body="&lt;p&gt;@winterflags above has some of the main ideas. Also:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A) Although compared with a year or two ago, the GDP per capita doesn't look low, if you compare it with the value if it had continued the trend it had before 2008, then it looks low, particularly in southern Europe. Also, they don't look so much at GDP per capita, but at the 'slack' in the economy which they measure with some measure of unemployment. Unemployment is positively enormous in Spain, Greece, Portugal, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;B) Inflation is very low in Japan and Europe, and economic growth is very low in both.  Moreover, inflation has stayed low in Japan despite its ever-looser monetary policy, so they want to do something extreme to see if that brings about some inflation!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;C) Inflation at or below 2% looked like a reasonable target before the crisis. However, now that we know that big recessions are still possible, it seems necessary to keep inflation at 2% or a bit higher. This seems a good idea because when inflation is higher, then it's easier to create large negative real rates by setting nominal rates to zero.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;D) It seems also that they want to make sure that banks don't have a liquidity problem. During the financial crisis, there seemed to be times when liquidity was in high demand. Treasury bonds paid negative interest rates for a period. One way to interpret this is that the market has a high demand for safe assets and so the central banks, by buying bonds with reserves, increase the supply of very safe assets, ie. reserves. Potentially they also create a 'search for yield' phenomenon, which can create bubbles, but that's another matter.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;E) The last reason is that probably because of particularly dogmatic, nearsighted politics both in the US and European Union, both economies failed to engage in strong expansionary fiscal policies. They did increase fiscal deficits, but not too much. The crisis was thus not resolved and their debt burdens increased anyway, they increased a lot through the accumulation of many not-so-large deficits! A few years later, we still have sort of a crisis, but we have very little fiscal 'margin': most large countries have a lot of debt relative to historical norms. Therefore the &lt;em&gt;only&lt;/em&gt; policy available seems to be monetary policy, so central bankers keep pushing and pushing rates down. People call it &quot;pushing on a string&quot; at this point, but its still seems politically impossible, in Europe at least, to increase spending.&lt;/p&gt;&#xA;" OwnerUserId="7593" LastEditorUserId="7593" LastEditDate="2016-05-04T18:03:57.230" LastActivityDate="2016-05-04T18:03:57.230" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11326" PostTypeId="2" ParentId="11323" CreationDate="2016-03-31T06:57:22.847" Score="8" Body="&lt;p&gt;Most central banks' primary goal is maintaining a moderate inflation (around 2 %). In some cases, they also have a secondary and lesser mandate to care for employment numbers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since inflation is not taking off but persists at a low level, the central banking system has flooded the markets with money. The thought is that the money will &quot;trickle down&quot; from banks and institutions with easy access to money. However, the effects on the real economy have been somewhat limited.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The central banks' idea is that when capital is cheap to come by, companies will invest and thus hire more people to the workforce, who will in turn consume more. This isn't really happening, which is likely due to demographic and technological factors. After employees were released during the 2008 financial crisis, companies haven't really started to employ people again in the same magnitude. To a higher degree, production processes are now outsourced or automated. Companies who are hiring, typically are looking for people with higher education or specialised skills. Most unemployed people available to the labor market do not meet these requirements. So we have deflationary pressures in the world economy that are keeping inflation down.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If central banks really wanted to get inflation going, it would probably be more effective to just hand out money directly to the consumers' bank accounts, than having money pass through intermediaries. The exception to this is that we have seen pocket bubbles in real estate and some other asset classes. Despite interest rates being record-low, people who already have some wealth aren't really consuming much more, neither are they saving funds in their bank accounts, but have instead tried to find asset investment opportunities to increase wealth. This is creating lending and speculation bubbles in real estate and an upswing in stock and bond prices.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some economists are also starting to question the objective of pursuing inflation and if it &lt;em&gt;really&lt;/em&gt; should be the paramount objective of central banks, when the problems created by massive asset bubbles could become so much worse.&lt;/p&gt;&#xA;" OwnerUserId="5501" LastEditorUserId="5501" LastEditDate="2016-04-01T16:33:02.380" LastActivityDate="2016-04-01T16:33:02.380" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="11327" PostTypeId="1" CreationDate="2016-03-31T10:47:44.760" Score="0" ViewCount="53" Body="&lt;p&gt;I don't have an economics background, I come from CS. I am sorry if this question seems weird.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We want to model the combination of a set of resources to either answer the cost of the model, minimize the cost of the model, or find the cheapest combination of resources.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Precisely, we have a network of computers, with some producing data, and some consuming data, organised in stages of Producers and Consumers: P -&gt; C -&gt; P -&gt; C ... but the network is more like a graph with cycles on the data. We already have the model of this communication paradigm from a CS point of view, we are interested on the Economics side since we have to scale, redesign, and build the system in the future.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What are the existing approaches to model such questions? &lt;/p&gt;&#xA;" OwnerUserId="7802" LastActivityDate="2016-04-30T14:07:24.583" Title="How to model best combination of resources" Tags="&lt;measuring-utility&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11328" PostTypeId="2" ParentId="11327" CreationDate="2016-03-31T12:36:48.473" Score="1" Body="&lt;p&gt;It sounds like you could simply use the Cost Minimization Problem:&#xA;$$\underset{z_1,...z_N}{min}\sum_{i=1}^N q_iz_i$$&#xA;$$s.t.\quad f(z_1,...,z_N)\geq \bar{y}$$&#xA;$$z_1,...z_n\geq0$$&#xA;Where $z_i$ and $q_i$ are the quantity and price of input $i$, respectively, $\bar{y}$ is some predetermined level of output, and $f(\frac{}{})$ is the production function. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A production function relates physical output of a production process to factors of production. Of course, it seems to me that it may be a challenge to characterize a production function for your case. However, the production function can be any function which satisfies the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) Strict Monotonicity: If $ z'&amp;gt;z$ then $f(z')&amp;gt;f(z)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) Quasi-concavity: $V(y)=\{ z:f(x)\geq y\}$ is a convex set&lt;/p&gt;&#xA;&#xA;&lt;p&gt;3) $V(y)$ is closed and non-empty&lt;/p&gt;&#xA;&#xA;&lt;p&gt;4) $f(z)$ is finite, nonnegative, real valued, and single valued $\forall z\geq 0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;5) $f(z)$ is a $C^2$ function  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To be more specific to your case (data is the input and output) the problem reduces to:&#xA;$$\underset{d_i}{min}\; d_iq+wl+rk$$ &#xA;$$s.t.\quad f(d_i)\geq \bar{d_o}$$&#xA;$$d_i,l,k\geq 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where $d_i$ is the data used as input, $d_o$ is the data output, $q$ is the price of input data, $w$ is wage, $l$ is labor hours, $r$ is the rental price of capital and $k$ is quantity of capital.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Again, this type of production process is foreign to me, so I cannot make an informed suggestion regarding specification of the production function, but maybe someone who is more apt on this site may offer a suggestion. I hope this helps!&lt;/p&gt;&#xA;" OwnerUserId="5825" LastEditorUserId="5825" LastEditDate="2016-03-31T13:46:10.307" LastActivityDate="2016-03-31T13:46:10.307" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11329" PostTypeId="2" ParentId="11306" CreationDate="2016-03-31T12:51:42.573" Score="2" Body="&lt;p&gt;You are not going to be able to forecast oil and gas prices with any useful accuracy at all. Lots of people try, and as far as we know, every one of them has failed. If anyone has ever succeeded, then they've become extremely rich through it, and they're not telling anyone the secret. If you did succeed, then your energy economics model would be completely irrelevant to you, as you'd be too busy trading the oil market, and eyeing up which tropical island you should buy next.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The best you can hope for is &lt;em&gt;consistency&lt;/em&gt; in your model. And then sensitivity-test your model based on a broad range of assumptions.&lt;br&gt;&#xA;For example, my usual 95% credible range for the price of a barrel of oil in 2030 is USD&lt;sub&gt;&lt;sub&gt;(2016)&lt;/sub&gt;&lt;/sub&gt;&amp;nbsp;5-500.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, what do you look for, for consistency? Demand and supply. Have short-run and long-run curves for both. If you're forecasting more than five years ahead, you must have some kind of uptake model for substitutes too, as well as short-run and long-run supply curves for them. Depending on how complex your model is, you might want to model storage too, particularly if modelling in less than 5-year time steps.&lt;/p&gt;&#xA;" OwnerUserId="44" LastEditorUserId="44" LastEditDate="2016-03-31T12:59:10.297" LastActivityDate="2016-03-31T12:59:10.297" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11330" PostTypeId="2" ParentId="11319" CreationDate="2016-03-31T12:53:47.007" Score="1" Body="&lt;p&gt;You're dismissing the value added by the companies producing the leather and the zippers. The value added method calculates the total value added to goods and services at each step of production.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The value added by Roots is 9-5-1=3 (total value of final products - value of resources) and then you add the value of produced leather in Alberta (5) and zippers in Toronto (1).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;3 + 5 + 1 = 9.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;All produced goods and services are accounted for with this method, not just the ones sold to consumers (the jackets were produced even if they weren't sold), so the 7 million figure is irrelevant in this.&lt;/p&gt;&#xA;" OwnerUserId="5512" LastEditorUserId="5512" LastEditDate="2016-03-31T13:04:51.730" LastActivityDate="2016-03-31T13:04:51.730" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11332" PostTypeId="1" CreationDate="2016-03-31T14:46:10.880" Score="3" ViewCount="123" Body="&lt;p&gt;I'm intent to bring some insights of a DSGE paper to a structural econometric model. The paper is &lt;a href=&quot;http://dx.doi.org/10.3982/ECTA8994&quot; rel=&quot;nofollow&quot;&gt;Liu, Wang and Zha's 2013 Econometrica paper on land collateral channel&lt;/a&gt;. Now I have some good datasets containing firm's land holding information, so I want to &quot;estimate&quot; than &quot;assume and simulate&quot;. However, my coauthors and I are largely macro guy and know only a little about structural estimation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(1). We are focusing on firm's investment decision (purchasing land or real estate asset) and borrow behavior. In Liu et al, they also modeled the household sector. So for our purpose , we can safely ignore the household sector, and treat (land) price exogenous ,right?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(2). The macro paper normally contains dozen of shocks, some of which we are interested (like the &quot;collateral shocks&quot;), some we are not (habit persistence). Then we just treat those we are interested in as parameters to be estimated , and others as unobservable impact?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Personally, I don't quite believe the DSGE model which specifies dozens of shocks .  I want to &quot;bring some insights&quot; and replicate from the LWZ paper. Most DSGE studies struggle to meet the general equilibrium condition, which , in my opinion, is one of their weakness. The price are too complicated and hard to fully capture, so if you are concerning something else, why just keep it exogenous and put other more realistic stuff.&lt;/p&gt;&#xA;" OwnerUserId="7807" LastEditorUserId="7215" LastEditDate="2016-05-08T19:07:21.673" LastActivityDate="2016-05-11T03:02:58.770" Title="Convert DSGE paper to structural econometrics, anything to be noted？" Tags="&lt;dsge&gt;&lt;structural-estimation&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11333" PostTypeId="2" ParentId="9333" CreationDate="2016-03-31T18:00:59.840" Score="1" Body="&lt;p&gt;No. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Think of it as the central bank is buying the bond &lt;em&gt;from the commercial bank itself,&lt;/em&gt; so that the bank was holding one type of asset (a bond) and now it's holding another type of asset(cash or its equivalent, reserves at the central bank). At that point deposits have not increased, it's just, that the bank now is holding more cash and less bonds than before. Because cash holdings or reserves at the central bank are called 'reserves', the commercial bank's reserves have increased. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The next step is that this bank sees no benefit in holding so much cash, more than the regulation forces it to, so ti goes and lends this cash out. At that point deposits start increasing, but still, the whole of the banking system is going to have more reserves than before because somebody is going to be holding that cash.&lt;/p&gt;&#xA;" OwnerUserId="7593" LastActivityDate="2016-03-31T18:00:59.840" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11334" PostTypeId="2" ParentId="11332" CreationDate="2016-03-31T20:40:53.063" Score="3" Body="&lt;p&gt;There's no correct method to do this.  DSGE guys will estimate the model by doing something like this: plugging in priors for their parameters and then running an optimization that minimizes the distance between model and data moments while maximizing the log likelihood from the priors.  The data moments for them will be well known values of variances and covariance of the deviations of c, y, i, p from trend.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Structural estimation guys will do any number of things: a)  take a model predicted relationship,  like a investment to q relationship,  $i=b\cdot f(q)$ where b is a parameter,  estimated the relationship and infer the value of b; b)  general method of moments or simulated method of moments or indirect inference: use a characterization of the data into moments or auxiliary statistics,  and then find parameter values such that the model (analytically or with simulations)  replicates the values of these moments or auxiliary statistics.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which moments / statistics to use?  Who knows!  Follow tradition! &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which macro variances or covariances?  Who knows!  Follow tradition! (plus the values of these maybe change dramatically depending on how and when you calculate them....) &lt;/p&gt;&#xA;" OwnerUserId="7593" LastEditorUserId="7593" LastEditDate="2016-05-11T03:02:58.770" LastActivityDate="2016-05-11T03:02:58.770" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11335" PostTypeId="1" CreationDate="2016-03-31T20:44:53.550" Score="2" ViewCount="29" Body="&lt;p&gt;I'm using the Current Population Survey and studying immigration. There's a variable: Year of Entry into the United States for the Foreign Born.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The survey is administered to a representative sample of the United States population, regardless of whether the people are citizens or not. It doesn't ask about whether the person is an illegal immigrant, but still, people probably don't want to share that info or hint at it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I figure there has to be inherent measurement error in this variable because people might not tell the truth if it hints at anything that reveals that their visas have expired or something.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What can I do to confirm that there is measurement error? Or to account for the error?&lt;/p&gt;&#xA;" OwnerDisplayName="user4207" LastActivityDate="2016-03-31T20:44:53.550" Title="How to overcome measurement error in variable for immigration year?" Tags="&lt;labor-economics&gt;&lt;applied-econometrics&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11336" PostTypeId="1" CreationDate="2016-03-31T21:59:12.210" Score="5" ViewCount="357" Body="&lt;p&gt;Most major exchanges seem to have secret order books.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, on the NYSE only the specialists know the order books.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the NASDAQ only the market maker can see the order book.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On Globex, the full order book (Level 6) is kept secret.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are there any major exchanges with a public order book?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Example of a public order book:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.bitstamp.net/market/order_book/&quot; rel=&quot;nofollow&quot;&gt;https://www.bitstamp.net/market/order_book/&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="1448" LastEditorUserId="1448" LastEditDate="2016-04-01T14:33:07.827" LastActivityDate="2016-04-01T15:23:21.040" Title="Are there any major commodity markets with a public order book?" Tags="&lt;data-request&gt;&lt;stock-market&gt;&lt;commodities&gt;" AnswerCount="2" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="11347" PostTypeId="1" AcceptedAnswerId="11355" CreationDate="2016-04-01T11:31:17.127" Score="1" ViewCount="92" Body="&lt;p&gt;What are policy function, objective function, constraint function, choice variables and parameters within the context of a utility maximization problem? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't understand which each of these are and I was not able to find out from resources online. Your help will be much appreciated. &lt;/p&gt;&#xA;" OwnerUserId="7714" LastEditorUserId="5825" LastEditDate="2016-04-01T17:32:13.803" LastActivityDate="2016-04-01T17:32:13.803" Title="Understanding the Components of Optimization" Tags="&lt;microeconomics&gt;&lt;utility&gt;" AnswerCount="1" CommentCount="3" ClosedDate="2016-04-03T12:23:11.670" ContentLicense="CC BY-SA 3.0" />
  <row Id="11348" PostTypeId="2" ParentId="1808" CreationDate="2016-04-01T12:40:48.397" Score="2" Body="&lt;p&gt;Thats a good question that I will answer perfectly.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1º When the socialists leader Felipe Gonzalez arrived to the power our industry represented the 39% of the GDP. So the industrial crisis hit a lot. However, the answer of the socialist party was reduced the industry in 2/3 and estimulated for the first time, the building companies for infraestructures and transports. These measures looked good for that moment, however, provocked a great unstability in employment rates. Those times were: &quot; the best industrial policy is the non-industrial policy&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2º Aznar came to the power and instead of supporting, improving and driving the industry, he drived more the building companies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;3º Zapatero received the construction economy in enourmous uncontrolled growth unstoppable (a total madness). Even he tried to drive the industry and technology investment, however, he couldnt stopped the uncontrolled spending in construction that was hogging the bank credit. So in the crisis the bank stopped giving credit because they were asking a lot of money from German´s banks. That produced the collapse of the economy. His measure was get in to debt and drive a building plan to drive the employment but he failed in the diagnostic of the problem and added another problem the increasement of the debt. The construction also provocked a 30% of the young spaniards to leave the education.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;4º Rajoy arrived to the power with a good plan, however, also appeared the corruption related to the massive construction operations in the regions. Furthermore, germany and ECP pressured rajoy to priorize the clean accounts first. Not drive the industry, nor technology investment,  he has drived cheap underlevel jobs and cheap job contracts in order to provide jobs for the spanish companies that were financely exhausted. And rescue the banks in order to help the companies with credit, however, the construction boom, has been very painful for the banks.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Only, we have to see the difference between regions:&#xA;Basque Country, industrial region, unemployment 13%.&#xA;Andalusia, tourism region, unemployment 30%. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The mistakes of the past, will affect to the future.&lt;/p&gt;&#xA;" OwnerUserId="7819" LastActivityDate="2016-04-01T12:40:48.397" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11350" PostTypeId="2" ParentId="10122" CreationDate="2016-04-01T14:38:26.170" Score="0" Body="&lt;p&gt;If you open envelope &lt;strong&gt;E1&lt;/strong&gt;, and see that its value is &lt;strong&gt;E1=Y&lt;/strong&gt;, then it is true that the other envelope &lt;strong&gt;E2&lt;/strong&gt;'s value is in &lt;strong&gt;{E2=Y/2, E2=2Y}&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is also true that the expected value of that envelope is &lt;strong&gt;(Y/2)*Pr(E2=Y/2)+(2Y)*Pr(E2=2Y)&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The error is assuming that &lt;strong&gt;Pr(E2=Y/2) = Pr(E2=2Y) = 1/2&lt;/strong&gt; regardless of what &lt;strong&gt;Y&lt;/strong&gt; is. A simplistic way to show this, is to assume that each envelope contains US paper money of various denominations. If &lt;strong&gt;Y=$1&lt;/strong&gt;, then it is impossible for &lt;strong&gt;E2&lt;/strong&gt; to be &lt;strong&gt;Y/2&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A more rigorous proof is too detailed to provide here, but a summary of it is to first assume that, for any value &lt;strong&gt;Z&lt;/strong&gt;, that &lt;strong&gt;Pr(Z/2&amp;lt;=E2&amp;lt; Z)=Pr(Z&amp;lt;=E2&amp;lt;2Z)&lt;/strong&gt;. This is essentially the same assumption as in the last paragraph, expanded to a range of values. But if this is true for any value of &lt;strong&gt;Z&lt;/strong&gt;, it means &lt;strong&gt;Pr(Z*2^(N-1)&amp;lt;=E2&amp;lt; Z*2^(N-1))&lt;/strong&gt; is constant for every value of &lt;strong&gt;N&lt;/strong&gt;, from -inf to inf. Since that is impossible, the assumption can't be correct.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;+++++&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That may have been a little confusing, so let me try an example. You are given two sets of two envelopes. In one set, they contain 10 and 20 dollars. In the other, they contain 20 and 40. You pick a set, and then open one envelope in that set to find 20. You are then offered the chance to switch to the other envelope in that set. Should you?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Yes, should switch. The expected gain by switching to the other envelope is [(20-10)+(20-40)]/2 = +5.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that this &lt;em&gt;instance&lt;/em&gt; - that is, knowing that you found 20, and not 10 or 40, fits the conditions you describe in your question. So your solution works. But the experiment itself does not fit that description. If you had found 10, or if you had found 40, the probability other envelope has 20 is 100%. The expected gains are +10, and -20, respectively. And if you average the three possible gains over the probabilities you would get the three values, you get 10/4 + 5/2 - 20/4 = 0.&lt;/p&gt;&#xA;" OwnerUserId="7821" LastEditorUserId="7821" LastEditDate="2016-05-27T13:56:56.387" LastActivityDate="2016-05-27T13:56:56.387" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11351" PostTypeId="2" ParentId="11336" CreationDate="2016-04-01T15:06:53.343" Score="3" Body="&lt;p&gt;Major trading exchanges have order books that anyone can see, if they're willing to pay for the service. So in that sense, they are available to the public. For example, anyone can subscribe via a broker to the London Stock Exchange Level 2 data, which shows them the live order books for listed instruments.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Very few have &quot;secret&quot; order books. I think you mean dark pools; they do exist too, and &lt;a href=&quot;https://en.wikipedia.org/wiki/Dark_liquidity#List_of_dark_pools&quot; rel=&quot;nofollow&quot;&gt;wikipedia has a list&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2016-04-01T15:06:53.343" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11352" PostTypeId="2" ParentId="11336" CreationDate="2016-04-01T15:23:21.040" Score="1" Body="&lt;p&gt;The &lt;a href=&quot;http://steamcommunity.com/market/listings/440/Mann%20Co.%20Supply%20Crate%20Key&quot; rel=&quot;nofollow noreferrer&quot;&gt;Steam Community Market&lt;/a&gt; has an order book that is at least partially open:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/P2mc6.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/P2mc6.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2016-04-01T15:23:21.040" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11353" PostTypeId="2" ParentId="9994" CreationDate="2016-04-01T16:13:50.180" Score="1" Body="&lt;p&gt;While change causes anxiety, and there's definitely some jobs that are going to go away, its easy to imagine, water carriers getting anxious with the invention of pipes, scribes with the invention of the print, farmers with the invention of the tractor, weavers with the invention of automatic weavers, etc. we're not at the cusp of one momentous revolution, its just one incremental step of slow technical advance that has been happening for centuries.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some people think of these things like this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A) In principle, technology and automation are beneficial to an economy and its citizens. The idea is basically that technology lets you produce more goods with less effort. For example, instead of planting an acre in a day  by hand, you plant 10 acres in a day with a tractor. You get lots of free time after using the tractor! We have had about three or four hundred years of fantastically rapid technological change in the planet, and we are doing much better than we were before this happened: people live longer, easier lives, have more fun, face less pain and sickness and hunger, feel less cold, spend more time with family and friends, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;B) Another useful paradigm is the &quot;ciclical flow&quot;: somebody's consumption is somebody else's income and vice-versa: The workers get fired, the CEOs produce without workers and then the CEOs have to ... sell the output to somebody. The CEOs don't get rich unless there is somebody to buy the goods, so automation only enriches the CEOs if on average the workers have income to buy with. Similarly the CEOs are only rich in the sense that he can purchase services from the workers. The CEO's consumption is the workers income...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;C) However, it is clear that if you are currently employed in a job that disappears because of technical change, that individual technical change will not be good for you. It will be good for the owner and designer of the machine. It will be good for everybody else that benefits from the lower costs of production. But it won't be good for you. It will require that you find a another job, that you learn a new technology, that you become the machinist of the machine that substituted your work, or something like that. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;D) This feature of the labor market, that some jobs disappear for no fault of the worker, but because of technical change, is mostly an accepted situation in most modern societies. In principle, we accept this cost because it lets us all have a dynamic economy that adapts to change and embraces progress. Unemployment insurance partly helps in reducing the risks to individuals of this continuous &quot;churning&quot; of jobs. States and nations often have retraining programs that help people displaced by technology (or by trade). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;E) However, it is still a very risky job market out there and everybody that wishes to stay constantly employed needs to invest time in acquiring new skills and anticipating the effects of technical change.&lt;/p&gt;&#xA;" OwnerUserId="7593" LastEditorUserId="7593" LastEditDate="2016-05-14T19:33:11.923" LastActivityDate="2016-05-14T19:33:11.923" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11354" PostTypeId="1" CreationDate="2016-04-01T16:56:42.523" Score="4" ViewCount="6183" Body="&lt;p&gt;I am trying to prove that AC is mininimized when AC=MC&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is how far I am:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;FOC:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/POTlv.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/POTlv.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Showing what I want to prove&lt;/p&gt;&#xA;&#xA;&lt;p&gt;SOC:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/wZrvO.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/wZrvO.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This has to be positive in order to ensure that AC is minimized, but how can i conclude that?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope someone can help :)&lt;/p&gt;&#xA;" OwnerUserId="7822" LastActivityDate="2016-04-02T08:09:41.690" Title="Proving AC is minimized when MC=AC" Tags="&lt;cost&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11355" PostTypeId="2" ParentId="11347" CreationDate="2016-04-01T16:59:29.097" Score="4" Body="&lt;p&gt;I will give a general answer (for the specification of utility maximization), and I will give a more specific example of Cobb-Douglas utility:&#xA;$$U(x_i,y_i)=x_i^{\alpha_i}y_i^{1-\alpha_i}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\textbf{Objective function:}$ In the utility maximization problem, the objective function is going to be the utility function. This is the function which you are trying to maximize. Therefore the objective function for agent $i$ in our example is:&#xA;$$U(x_i,y_i)=x_i^{\alpha_i}y_i^{1-\alpha_i}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\textbf{Constraint function:}$ The constraint function is the function that limits the agent's ability to consume. If these functions were not in place, any agent with a strictly increasing utility function would choose to consume infinite goods. The two most common types of constraints are resource constraints and budget constraints. Resource constraints are just a maximum amount of a resource available (which makes sense because we know that resources are finite). A budget constraint is basically a constraint that says that you cannot consume more goods than you can buy. Examples of the two are below:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Resource constraint:&#xA;$$\sum_{i=1}^nx_i=A,\quad \sum_{i=1}^ny_i=B$$&#xA;where $A,B&amp;lt;\infty$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Budget constraint:&#xA;$$P_xx_i+P_yy_i= Z_i$$&#xA;where $Z_i$ is income of agent $i$ and $Z_i&amp;lt;\infty$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\textbf{Choice variables:}$ These are the variables that each agent chooses to maximize utility. In our example the choice variables for agent $i$ are $x_i$ and $y_i$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\textbf{Parameters:}$ Parameters are also called state variables. These are the variables which the agent has no control over. In our example the parameters are $\alpha_i,B,A,Z_i, P_y,P_x$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\textbf{Policy function:}$ The policy function is also called the decision rule. This is what you get from solving the maximization problem. In the context of utility maximization problem, the policy function is the Marshallian demand (how much you want of each good). The policy function gives you your choice variables as functions of your state variables/parameters.&lt;/p&gt;&#xA;" OwnerUserId="5825" LastActivityDate="2016-04-01T16:59:29.097" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11356" PostTypeId="2" ParentId="11354" CreationDate="2016-04-01T17:43:48.943" Score="5" Body="&lt;p&gt;You're making this way more complicated than it needs to be.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Edit:&lt;/strong&gt; Okay it's a little more complicated that I thought but hey! What a cool result!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$AC = \frac{C(q)}{q} \\&#xA;MC = C'(q)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When you minimize $AC$ with respect to $q$,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\partial AC}{\partial q} = \frac{C'(q) \cdot q - C(q)}{q^2} = 0$$&#xA;$$\implies C'(q) \cdot q - C(q) = 0$$&#xA;$$\implies C'(q) \cdot q = C(q)$$&#xA;$$\implies C'(q) = \frac{C(q)}{q}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then marginal cost equals average cost. Which seems to be what you've gotten so far.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So now we check the second order conditions:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\partial AC}{\partial q} = \frac{C'(q)}{q} - \frac{C(q)}{q^2}$$&#xA;$$\frac{\partial^2 AC}{\partial q^2} = \frac{C''(q) \cdot q - C'(q)}{q^2} - \frac{C'(q) \cdot q^2 - C(q) \cdot 2q}{q^4}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What makes this expression greater than zero?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\partial^2 AC}{\partial q^2} = \frac{C''(q) \cdot q - C'(q)}{q^2} - \frac{C'(q) \cdot q^2 - C(q) \cdot 2q}{q^4} &amp;gt; 0$$&#xA;$$\implies \frac{C''(q) \cdot q - C'(q)}{q^2} &amp;gt; \frac{C'(q) \cdot q^2 - C(q) \cdot 2q}{q^4}$$&#xA;$$\implies C''(q) \cdot q - C'(q) &amp;gt; \frac{C'(q) \cdot q^2 - C(q) \cdot 2q}{q^2}$$&#xA;$$\implies C''(q) \cdot q - C'(q) &amp;gt; C'(q) - \frac{2C(q)}{q}$$&#xA;$$\implies C''(q) \cdot q &amp;gt; 2\left(C'(q) - \frac{C(q)}{q}\right)$$&#xA;$$\implies C''(q) &amp;gt; 2\left(C'(q) \cdot q - C(q)\right)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But recall that given the first derivative,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$C'(q) = \frac{C(q)}{q}$$&#xA;$$\implies C'(q) \cdot q = C(q)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So substitute that into the above:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies C''(q) &amp;gt; 2\left(C(q) - C(q)\right)$$&#xA;$$\implies C''(q) &amp;gt; 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And this is true as long as the total cost curve is convex, which is a pretty standard assumption. (I guess also positive production has to be a thing, so basically the firm has to be not shut down.) So we're done.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastEditorUserId="4251" LastEditDate="2016-04-01T19:55:33.987" LastActivityDate="2016-04-01T19:55:33.987" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11357" PostTypeId="2" ParentId="11216" CreationDate="2016-04-01T17:55:44.803" Score="2" Body="&lt;p&gt;Patrick Prosser has some great java code at &lt;a href=&quot;http://www.dcs.gla.ac.uk/~pat/roommates/distribution/&quot; rel=&quot;nofollow&quot;&gt;http://www.dcs.gla.ac.uk/~pat/roommates/distribution/&lt;/a&gt; which, among other things, can compute &lt;em&gt;all&lt;/em&gt; the stable matchings in roommate problems.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The code is for roommates problems, but Patrick's code allows preferences over roommates to include unacceptable roommates. To implement a two-sided market, just make sure any roommates on one side of the market views any other roommate on the same side of the market as unacceptable, and you're good to go.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If (like myself) you are not used to java, you might struggle a little to get the code working. &lt;a href=&quot;https://martinvdlinden.wordpress.com/2016/04/01/finding-all-stable-matchings-in-roommate-and-marriage-problems/&quot; rel=&quot;nofollow&quot;&gt;Here&lt;/a&gt; is a little tutorial for Mac OS, which worked for me as of today.&lt;/p&gt;&#xA;" OwnerUserId="38" LastActivityDate="2016-04-01T17:55:44.803" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11358" PostTypeId="1" AcceptedAnswerId="11402" CreationDate="2016-04-01T19:07:05.830" Score="5" ViewCount="902" Body="&lt;p&gt;The &lt;a href=&quot;http://www.oed.com/view/Entry/27450?rskey=oHaS0u&amp;amp;result=2&amp;amp;isAdvanced=false#eid10137661&quot; rel=&quot;noreferrer&quot;&gt;&lt;em&gt;Oxford English Dictionary&lt;/em&gt;&lt;/a&gt; defines &quot;capital&quot; as&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;n. economic goods (e.g. railways, ships, machinery, buildings) destined for use in production (as opposed to &lt;em&gt;consumers' goods&lt;/em&gt;).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Historically, the first use of money has been to facilitate trade. According to &lt;a href=&quot;https://archive.org/stream/MN5034ucmf_1#page/n343/mode/2up&quot; rel=&quot;noreferrer&quot;&gt;this&lt;/a&gt;, it was only in the past few centuries that money has also been considered capital, and thus capitalists buy and sell money as though it were a productive economic good. Why is this?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How can money be capital? How does money have productive value when money simply facilitates trade? Certainly trade is useful, but is trade productive? Are there contemporary or historical economists who argue money can or cannot be capital?&lt;/p&gt;&#xA;" OwnerUserId="4101" LastEditorUserId="4101" LastEditDate="2016-04-01T19:22:11.293" LastActivityDate="2020-01-13T17:08:56.093" Title="Is money capital?" Tags="&lt;money&gt;&lt;history-economic-thought&gt;&lt;history&gt;" AnswerCount="2" CommentCount="4" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="11359" PostTypeId="1" AcceptedAnswerId="11365" CreationDate="2016-04-01T19:19:20.273" Score="3" ViewCount="370" Body="&lt;p&gt;With the referendum over whether or not the UK should leave the EU or not I am interested to know what percentage of UK trade is made up of trade within the EU (Imports &amp;amp; exports).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am aware that the UK Government currently runs a &lt;a href=&quot;http://www.telegraph.co.uk/finance/economics/12043677/UKs-trade-deficit-in-goods-with-EU-hits-record-high.html&quot; rel=&quot;nofollow&quot;&gt;trade deficit with the EU&lt;/a&gt;, and a ultimately a &lt;a href=&quot;https://www.uktradeinfo.com/Statistics/OverseasTradeStatistics/Pages/OTS.aspx&quot; rel=&quot;nofollow&quot;&gt;trade deficit&lt;/a&gt; in general.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My question is, how much of UK trade is within the EU, and how much of this is imports/exports in the economic year 2015-2016?&lt;/strong&gt; &#xA;An objective link proving this would be excellent.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Apologies for the 'trade deficit with EU' link being far from ideal, but as you can imagine, it is hard to find solid fact among the propaganda.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&amp;amp; To clarify, I do not want people's opinion on whether the UK should remain or not. I am in the process of forming my own opinion based on the objective information I come across.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And as always, thank you to those that take the time to answer!&lt;/p&gt;&#xA;" OwnerUserId="7823" LastActivityDate="2019-02-20T21:14:16.633" Title="What percentage of UK imports/exports were with the EU in the economic year 2015-2016?" Tags="&lt;data-request&gt;&lt;international-trade&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11362" PostTypeId="2" ParentId="11358" CreationDate="2016-04-02T00:19:21.520" Score="10" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;...capitalists buy and sell money as though it were a productive&#xA;  economic good.&quot;&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;No they don't. They buy and sell &lt;em&gt;currency&lt;/em&gt;, because the price of currency fluctuates (due to imagination and/or economic fundamentals) and so there are profit opportunities there. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, they are after &lt;em&gt;liquidity&lt;/em&gt;, (i.e. holding money instead of physical capital), because liquidity enlarges the set of feasible economic choices that they can make (but since they have to eventually make some choice, we get to see some physical capital laying around after all).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Money per se is not productive (is just paper, or electronic bits) - but money is not just a medium of exchange, it is first and foremost a &lt;em&gt;socially agreed upon store of value&lt;/em&gt; (socially, not intrinsically). This makes it (not just endows it with) &lt;em&gt;purchasing power&lt;/em&gt;. People are willing to give up something that has, say, nutritional value, in exchange for an intrinsically worthless piece of paper (or for an even more useless electronic credit in their bank account) -and one can guess why.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, all the financial world of &quot;financial instruments&quot;, &quot;derivatives&quot;, &quot;futures&quot; etc, is a bit about risk-management but predominantly, is a highly sophisticated betting market, beyond anything that casinos, horse races, soccer, etc have ever imagined or devised as regards betting. Here income and profits come from winning the bet, not because money is productive.  &lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2020-01-13T17:08:56.093" LastActivityDate="2020-01-13T17:08:56.093" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="11364" PostTypeId="2" ParentId="11359" CreationDate="2016-04-02T06:31:34.933" Score="0" Body="&lt;p&gt;&lt;a href=&quot;http://webarchive.nationalarchives.gov.uk/20160105160709/http://www.ons.gov.uk/ons/rel/itis/international-trade-in-services/2011/sty-international-trade-in-services.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://webarchive.nationalarchives.gov.uk/20160105160709/http://www.ons.gov.uk/ons/rel/itis/international-trade-in-services/2011/sty-international-trade-in-services.html&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/MoUcx.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/MoUcx.png&quot; alt=&quot;image&quot;&gt;&lt;/a&gt;&lt;br&gt;&#xA;&lt;sub&gt;(source: &lt;a href=&quot;http://webarchive.nationalarchives.gov.uk/20160105160709/http://www.ons.gov.uk/ons/resources/exportsimportsbycountry1_tcm77-305126.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;gov.uk&lt;/a&gt;)&lt;/sub&gt;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A few percent of that is with Russia which is not in the EU, the rest of the &quot;Europe&quot; part is overwhelmingly EU.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://atlas.media.mit.edu/en/profile/country/rus/&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://atlas.media.mit.edu/en/profile/country/rus/&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="8360" LastEditorUserId="7538" LastEditDate="2019-02-20T21:14:16.633" LastActivityDate="2019-02-20T21:14:16.633" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="11365" PostTypeId="2" ParentId="11359" CreationDate="2016-04-02T07:25:21.810" Score="2" Body="&lt;p&gt;&lt;a href=&quot;http://www.worldstopexports.com/united-kingdoms-top-import-partners/&quot; rel=&quot;nofollow noreferrer&quot;&gt;UK Exports 2015:&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The United Kingdom shipped US$460.1 billion worth of products around the globe in 2015. [...] From a continental perspective, 53.6% of UK exports by value are delivered to European trade partners while 22.5% are sold to Asian importers. United Kingdom ships another 16.1% to North America but just 2.6% to Africa.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;While the total value of exports is a useful piece of information, here Europe means the continent, not the EU. Thus Norway, Switzerland and several Balkan countries are also included. It is not clear where Russia would fall under such a categorization so it is better to look at Eurostat's statistics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In 2015 the UK's &lt;a href=&quot;http://ec.europa.eu/eurostat/statistics-explained/index.php/International_trade_in_goods#Intra-EU_trade&quot; rel=&quot;nofollow noreferrer&quot;&gt;intra-EU trade&lt;/a&gt; share was lowest among the member states  but it was still 50%. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/xChN5.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/xChN5.jpg&quot; alt=&quot;Intra EU share&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2016-04-02T07:25:21.810" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11371" PostTypeId="2" ParentId="11298" CreationDate="2016-04-02T18:32:10.793" Score="1" Body="&lt;p&gt;The approach is correct, but it is not true that firms have the same equilibrium production quantities because we are dealing with Cournot competition - it is because the firms have the same profit functions. You can see for yourself with an example that if the two firms had different cost functions, they would not necessarily produce the same outputs as each other.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The step of &quot;substituting one into the other&quot; implicitly uses the concept of Nash equilibrium, i.e. each firm's production quantity is a best response to the other's. Given that $A$ produces some amount $q_A$ and $B$ knows it, $B$ would make the amount $q_B^*$ is profit-maximizing for $B$. Then we fix $q_B^*$ and find what $A$ would make as a profit-maximizing response - call it $q_A^*$. If I then fix $q_A^*$ and find $B$'s profit-maximizing response is the same $q_B^*$, $(q_A^*,q_B^*)$ is a Nash equilibrium: each firm's action is optimal, given the other's. This line of reasoning can be implemented by a solving a system of two equations, given by the profit-maximizing condition $MR=MC$ for each firm that you mentioned.&lt;/p&gt;&#xA;" OwnerUserId="7303" LastActivityDate="2016-04-02T18:32:10.793" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11372" PostTypeId="1" AcceptedAnswerId="11374" CreationDate="2016-04-02T19:24:24.903" Score="2" ViewCount="5355" Body="&lt;p&gt;What is the purpose of interest? Why do most economies permit the charging of interest? Could an economy function without interest at all, or is interest necessary for an economy to function?&lt;/p&gt;&#xA;" OwnerUserId="4101" LastActivityDate="2021-05-04T15:32:49.170" Title="What is the purpose of interest?" Tags="&lt;interest-rate&gt;" AnswerCount="4" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11373" PostTypeId="2" ParentId="11372" CreationDate="2016-04-02T20:48:26.670" Score="3" Body="&lt;p&gt;Often, you can hear that &quot;interests&quot; represent the value of money over time. To understand that you could see interest as a form of &quot;reward&quot; for the actor who is lending the money. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, I can lend you 100 USD today, however this would prevent me from buying 100 USD today. Because I am willing to consume in, let's say, 1 year, I lend you 100 USD for 1 year. But preventing me from buying today comes to a price, which will be 3 USD (or 3%). Those 3% represent the interest that I am charging over time for my patience, so that you can buy something today !&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To get a little bit deeper, one could also say that those 3 USD are split as follow: 2 USD as a reward for me to wait to consume ... And 1 USD of risk (often referred to as the &lt;em&gt;risk premium&lt;/em&gt;) that you won't repay me in a year...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Economies have historically permit this because of the logic which is behind: you can buy something today but you have to be aware that this comes to a price and that the bank bears a risk for that. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Having an economy without interests is maybe an interesting theoretical exercise (which you could possibly imagine in taking inflation into account), but would hardly be feasible.&lt;/p&gt;&#xA;" OwnerUserId="7833" LastEditorUserId="44" LastEditDate="2016-04-03T08:29:07.747" LastActivityDate="2016-04-03T08:29:07.747" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="11374" PostTypeId="2" ParentId="11372" CreationDate="2016-04-02T21:00:45.973" Score="5" Body="&lt;p&gt;Interest is a key mechanism to ensure that resources are properly allocated within an economy. There are lots of uses to which money can be put: consuming goods, building highways, constructing a new factory, investing to develop a new drug, etc. Just like goods, the allocation of money is governed by the price system—where &lt;em&gt;the interest rate is the price&lt;/em&gt; (because the interest rate is how much you have to pay to get access to money). If the price is too low (i.e. if there is no interest) then few people will be willing to lend money and valuable investments (in, for example, infrastructure or new business ventures) will not take place because the funds aren't available to pay for them. A positive interest rate ensures that people with money they don't need right now have an incentive to lend it to people with valuable projects to fund.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We know that it is possible for economies to function without interest, though, because the charging/payment of interest is prohibited by Sharia law, giving rise to so-called &lt;a href=&quot;https://en.wikipedia.org/wiki/Islamic_banking_and_finance&quot; rel=&quot;noreferrer&quot;&gt;Islamic banking&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2016-04-02T21:00:45.973" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11375" PostTypeId="1" AcceptedAnswerId="32242" CreationDate="2016-04-02T21:20:11.130" Score="8" ViewCount="438" Body="&lt;p&gt;Starting position is a principal-agent-model with incomplete information (moral hazard) and the following properties:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Agent utility: $u(z)=-e^{(-r_az)}$&lt;/li&gt;&#xA;&lt;li&gt;Principal utility: $B(z)=-e^{(-r_pz)}$&lt;/li&gt;&#xA;&lt;li&gt;Effort levels $e\in \Bbb R  $&lt;/li&gt;&#xA;&lt;li&gt;Outcomes $x\in \Bbb R, x\sim N(\mu(e), \sigma), \mu'(e)&amp;gt;0, \mu''(e)\le0$&lt;/li&gt;&#xA;&lt;li&gt;Contract: $w(x)=a+bx$,&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;where $r_A$ and $r_P$ is the Arrow–Pratt measure of absolute risk-aversion for the agent and the principal respectively.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am looking for the optimal contract for the principal to offer to the agent when the agent's effort is not visible. The principal's utility can be written as follows: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U^P(e,a,b)=\int_{-\infty}^\infty-e^{(-r_P((1-b)x-a))}f(x\mid e) \, dx$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I want to show that the following equivalence holds, meaning that the maximization of the principal's utility can be written as the RHS of the following equivalence:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\max_{\rm e,a,b}\int_{-\infty}^\infty-e^{(-r_P((1-b)x-a))}f(x\mid e) \, dx \Leftrightarrow \max_{\rm e,a,b}(1-b)\mu(e)-a-\frac{r_P}2(1-b)^2\sigma^2$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $f(x|e)=\frac{1}{\sigma\sqrt{2\pi}}e^{(-\frac{1}2(\frac{x-\mu(e)}\sigma)^2)}$ is the density function of a normal random variable $x\sim N(\mu(e),\sigma)$, with expected value $\mu(e)$ and variance $\sigma&amp;gt;0$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I tried to use the explicit form of $f(x|e)$ in the LHS, manipulate it a bit and then itegrate but could not get the equivalence.&lt;/p&gt;&#xA;" OwnerUserId="7834" LastActivityDate="2020-03-13T18:02:35.323" Title="LEN-Model equivalency" Tags="&lt;expected-utility&gt;&lt;asymmetric-information&gt;&lt;principal-agent&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11376" PostTypeId="2" ParentId="11372" CreationDate="2016-04-02T23:54:52.257" Score="-4" Body="&lt;p&gt;I disagree with these answers.&#xA;Interest must exist in the enconomy as long as there is inflation, because inflation creates a relationship between value and time.&#xA;For example, assume there is inflation. Joe asks you for &lt;code&gt;$20&lt;/code&gt; to return to you in a year. You can buy a lunch with that or lend him the money. but you'll not be able to buy the same lunch with &lt;code&gt;$20&lt;/code&gt; next year because of inflation so you'd ask him for an interest.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now why cannot we kill inflation?&#xA;We can! These crazy economists claim that we need some inflation to allow the economy to be more dynamic to facilitate trades. (canada aims at 2.5% inflation)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I speculate that governments, politicians and millionars put that in as a source of income. How do you think they pay for campaign adds?&#xA;Now the other answer says that they use it to build highways, drugs...No way! Those come from our taxes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some things are best not to know.&lt;/p&gt;&#xA;" OwnerUserId="7836" LastActivityDate="2016-04-02T23:54:52.257" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="11377" PostTypeId="2" ParentId="10908" CreationDate="2016-04-03T02:45:28.800" Score="0" Body="&lt;p&gt;By these arguments, everything human invents, creatives, produces has to pay a loyalty to philosopher. But I might want to look at it from the BUY side economy: How much would you pay a philosopher for whatever 'works' he does (for you).  Another way is for a philosopher to stage a performance and collecting attendance (fees) the way consultants do.&lt;/p&gt;&#xA;" OwnerUserId="7838" LastActivityDate="2016-04-03T02:45:28.800" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11379" PostTypeId="1" AcceptedAnswerId="11438" CreationDate="2016-04-03T09:05:53.520" Score="1" ViewCount="117" Body="&lt;p&gt;I'm a web developer (not an economist) and i'm working on a program that deals with value-added tax (VAT), maybe it is a stupid question but, is the value added tax obligatory? I just want to know if this tax exists in every country all over the world?&lt;/p&gt;&#xA;" OwnerUserId="7844" LastEditorUserId="69" LastEditDate="2016-04-06T16:15:43.693" LastActivityDate="2016-04-06T16:15:43.693" Title="What are all the countries that have a value added tax?" Tags="&lt;reference-request&gt;&lt;taxation&gt;&lt;international-economics&gt;" AnswerCount="1" CommentCount="1" ClosedDate="2016-04-07T08:52:18.947" ContentLicense="CC BY-SA 3.0" />
  <row Id="11380" PostTypeId="2" ParentId="11372" CreationDate="2016-04-03T10:20:09.063" Score="2" Body="&lt;p&gt;From a finance perspective, it is possible to break down interest rates as follow:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;strong&gt;Real interest rate&lt;/strong&gt;, which represents the opportunity cost of lending money (ie. you won't be qble to use that money for other purposes)&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;Inflation premium&lt;/strong&gt;: the purchasing power of a fix amount of money typically decreases over time, which is caused by inflations. Lenders usually want to be protected against this.&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;Default risk premium&lt;/strong&gt;: the borrower might not pay back part or whole of the amount borrowed.&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;Liquidity premium&lt;/strong&gt;: lenders might need urgently to retreive their invested money to face other obligations, or simply they might want to exit the market in a timely manner. This will result in a loss of value of their investment, which might not easily be converted to cash.&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;Maturity premium&lt;/strong&gt;: it is usually considered more risky to lend for 30 years than for 1 month, as the future is blur and hard (if not impossible) to predict. thus all the above risks increase when the maturity is further away. &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;So overall, the function of interest rates are to &lt;strong&gt;reward investors&lt;/strong&gt; for the risks that they take, being either opportunity costs, or risks of loss on their investment. From that point of vue, interest rates are a necessity because they help allocating the resources in an effective manner throughout the economy. Without interest rates, every projects would be equaly un-attractive, and investors might simply decide to hold their cash in a stash rather than spread it around.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As some already pointed out earlier, some economies claim to refuse interest rates, and seem to still work well. But Shariah-compliant finance seems to be mainly using tricks rather than giving up interests. In particular, some &lt;a href=&quot;http://www.aminvest.com/OurFunds/UnitTrustFundsPDF/MonthlyFundFactsheet/AmIslamicFixedIncomeConservative.pdf&quot; rel=&quot;nofollow&quot;&gt;Shariah-compliant funds&lt;/a&gt; generate hefty returns investing on fixed income instruments (ie. interest-bearing securities). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that negative interest rates exist, but they are mainly caused by regulatory measures which force institutional investor to hold particular assets. It drives up the demand for a limited supply, resulting in negative prices. For example, EU banks must purchase EU A-rated bonds / european government bonds to fill capital / reserve ratio requirements. &lt;/p&gt;&#xA;" OwnerUserId="6820" LastActivityDate="2016-04-03T10:20:09.063" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11381" PostTypeId="1" CreationDate="2016-04-03T11:44:20.813" Score="1" ViewCount="2261" Body="&lt;p&gt;In dynamic macroeconomic model(without production sector), Euler equation is $$U'(C_t)=b(1+r)U'(C_{t+1})$$    &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I found another equation related with Euler which is called Euler condition.&#xA;In New Keynesian model, &#xA;$$Y_t-E(Y_{t+1})=-\left(\frac{1}{\sigma}\right)(i_t-E(\pi_{t+1})-\rho)$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;which means Euler condition. In this equation, what is the Economic meaning for Euler condition?&lt;/p&gt;&#xA;" OwnerUserId="7845" LastEditorUserId="2776" LastEditDate="2017-03-08T09:43:48.647" LastActivityDate="2017-03-08T21:52:13.470" Title="Question about Euler condition" Tags="&lt;macroeconomics&gt;&lt;dynamic-optimization&gt;" AnswerCount="1" CommentCount="1" ClosedDate="2017-03-10T08:00:41.973" ContentLicense="CC BY-SA 3.0" />
  <row Id="11382" PostTypeId="1" CreationDate="2016-04-03T12:59:13.417" Score="6" ViewCount="1524" Body="&lt;p&gt;Where does this have application? I understand how the demand function may be arrived at using the utility maximization problem but I don't understand where the indirect utility function is used and I think the two are somewhat related... Please excuse me if this is a very fundamental question. I have only started Intermediate Microeconomics.&lt;/p&gt;&#xA;" OwnerUserId="7714" LastActivityDate="2017-09-22T19:51:56.050" Title="What is the point of the indirect utility function?" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;consumer-theory&gt;&lt;choice-theory&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11384" PostTypeId="1" CreationDate="2016-04-03T14:16:05.257" Score="2" ViewCount="29" Body="&lt;p&gt;I'm wondering if labor unions cause a steeper salary over experience(or tenure) graph. I.e. low salaries in entry positions and very high salaries in tenure positions for union workers vs. similar workers non-unionized.&lt;/p&gt;&#xA;" OwnerUserId="7847" LastEditorUserId="108" LastEditDate="2016-04-03T19:57:54.773" LastActivityDate="2016-04-03T19:57:54.773" Title="Unions and their effect on salary with tenure" Tags="&lt;barriers-to-entry&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11385" PostTypeId="2" ParentId="11382" CreationDate="2016-04-03T14:32:14.640" Score="1" Body="&lt;p&gt;This is my opinion.&#xA;If indirect utility function is important, that is because of Duality theorem, envelope theorem.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Indirect utility function is one of a measure for consumer welfare. This is an optimized value from UMP. UMP is based on ordinal utility function, so indirect utility function can't be used for comparing consumer welfare.&#xA;So if you want to compare consumer welfare, you should use expenditure function(which is based on CMP).&lt;/p&gt;&#xA;" OwnerUserId="7845" LastActivityDate="2016-04-03T14:32:14.640" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11387" PostTypeId="1" CreationDate="2016-04-03T16:31:12.527" Score="1" ViewCount="64" Body="&lt;p&gt;I am reading Demarzo, Fishman(RFS,2007). Any suggestion will be appreciated. My questions are the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(a)&#xA;\begin{equation*}&#xA;    b_T^e(a) = \left\{\begin{array}{lll}&#xA;             -e^{(\gamma-r)(T^{+}-T)}a &amp;amp; for &amp;amp; a \ge 0\\&#xA;             -\infty &amp;amp; for &amp;amp; a &amp;lt; 0&#xA;            \end{array}\right.&#xA;\end{equation*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Paying the agent amount $a$ at time $T$ is the same as paying $e^{\gamma (T^{+}-T)}a$ at time $T^{+}$. We discount $e^{\gamma (T^{+}-T)}a$ back to time $T$ and get $e^{(\gamma-r)(T^{+}-T)}a$. Since $e^{(\gamma-r)(T^{+}-T)}a&amp;gt;a$, why don't we just pay the agent amount $a$ at time $T$?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(b) &#xA;    On page 2090, the paper says&quot;the most efficient way ... is to pay the agent $e^{\gamma(T^{+}-T)}a$ in the following period $T^{+}$&quot;. In the same paragraph, it says&quot;... while it is feasible to pay the agent after period T,..., such payments are (weakly) inefficient.&quot; Whether we should pay the agent before T, or at $T^{+}$?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(c)&#xA;    How does $b_t^{e}$ is plotted in figure 2? What is the intuition of $b_t^{e}$ when $a&amp;lt;a_t^L$ and $a&amp;gt;a_t^l$?&lt;/p&gt;&#xA;" OwnerUserId="7753" LastActivityDate="2016-04-03T16:31:12.527" Title="Dynamic contract theory: Demarzo, Fishman(2007) optimal long term financial contracting" Tags="&lt;dynamic-games&gt;&lt;contract-theory&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11388" PostTypeId="1" CreationDate="2016-04-03T16:33:25.747" Score="1" ViewCount="21" Body="&lt;p&gt;I have the following unrestricted model $y_i=\beta_1+\beta_2x_{2i}+\beta_3x_{3i}+u$ and the restriction $\beta_2+\beta_3=1$ I need to give an equivalent unrestricted model such that if one of its parameters is equal to zero, then the restriction applies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I had in mind $y_i=(1-\beta_3-\beta_2)+\beta_2x_{2i}+\beta_3x_{3i}+u$ but of course it is incorrect.&lt;/p&gt;&#xA;" OwnerUserId="5812" LastActivityDate="2016-04-03T16:33:25.747" Title="equivalence in hypothesis testing" Tags="&lt;econometrics&gt;&lt;regression&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11390" PostTypeId="1" CreationDate="2016-04-03T18:15:30.597" Score="4" ViewCount="10650" Body="&lt;p&gt;So I know that the abuses of monopoly power can cause market failure, but I don't know why that is. I am guessing that because monopoly's face a lack of competition, they have no incentive to improve their product or service, therefore they are not allocating resources efficiently (market failure), however, in my book, a lack of competition is a seperate cause, so I was wondering if there was anything else to it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;P.S. If you could include a logic chain of reasoning and an example in your answer, that would really help me to understand it. I am also revising for GCSEs so the answer need to be extremely advanced. Thanks&lt;/p&gt;&#xA;" OwnerUserId="7848" LastActivityDate="2016-07-05T09:35:53.863" Title="How can the abuses of monopoly power lead to market failure?" Tags="&lt;markets&gt;&lt;monopoly&gt;&lt;economic-failure&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11391" PostTypeId="2" ParentId="11382" CreationDate="2016-04-03T18:28:07.473" Score="5" Body="&lt;p&gt;Recall that if $x$ and $y$ are consumption bundles, $u(x)$ is the consumer's utility function, and $u(x)&amp;gt;u(y)$ means the consumer strictly prefers bundle $x$ to bundle $y$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The indirect utility function $v(p,w)$ is the highest value of the utility function when $u$ is evaluated over all affordable bundles given $(p,w)$. In other words, $v(p,w)=max u(x)$ subject to $p\cdot x \le w$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the indirect utility function tells you the consumers preferences over price-wealth pairs: $v(p,w)&amp;gt;v(p',w')$ means the consumer gets to consume a strictly better bundle when prices are $p$ and wealth is $w$ than any other affordable bundle when prices and wealth are $p'$ and $w'$.&lt;/p&gt;&#xA;" OwnerUserId="7303" LastActivityDate="2016-04-03T18:28:07.473" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11392" PostTypeId="2" ParentId="11390" CreationDate="2016-04-03T18:34:55.750" Score="5" Body="&lt;p&gt;First, let's be clear what we mean by abuse of dominance: this is when a firm is a monopoly or near-monopoly, and attempts to use that position in order to perpetuate or enhance its dominance of the market at the expense of competition.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So we need to know: why would a market with a monopoly perform worse than one with competition. Here are the main typical answers:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;A monopoly will increase the price above marginal cost by artificially constraining supply. This means that some units that consumers' value above the cost of production don't get traded, resulting in the usual &lt;a href=&quot;https://en.wikipedia.org/wiki/Deadweight_loss&quot;&gt;dead weight loss triangle&lt;/a&gt;.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Some people speculate that a monopolist has less incentive to innovate (create new products or means of production) than a competitive firm because there is no competitive pressure to be more efficient or to have a better product than other firms. Others, though, have argued that monopolists have a &lt;em&gt;larger&lt;/em&gt; incentive to innovate because they can capture more of the gains from invention. This is the subject of a classic debate between Arrow and Schumpeter. The empirical evidence on whether competition is good or bad for innovation is extremely mixed.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Rent-seeking&quot;&gt;Rent-seeking&lt;/a&gt; is a concern. If a monopoly makes profit $\pi_m$ and a competitive firm makes profit $\pi_c&amp;lt;\pi_m$ then a firm would be willing to spend $\pi_m-\pi_c$ to become (or remain a monopoly). This is fine if the resources are spend on something socially constructive. But not if it is spent on wasteful advertising, lobbying, engineering products with poor compatibility, creating needless switching costs, etc.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Another concern is &lt;a href=&quot;http://en.termwiki.com/EN/managerial_slack&quot;&gt;managerial slack&lt;/a&gt; / &lt;a href=&quot;https://en.wikipedia.org/wiki/X-inefficiency&quot;&gt;x-inefficiency&lt;/a&gt;. If a firm has no competitors then there is very little incentive to exert effort to become more efficient, meaning that the firm may end up spending more resources on production than necessary.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;If you want to read more about these things, I would recommend the first couple of chapters of &lt;a href=&quot;http://www.cambridge.org/gb/academic/subjects/economics/industrial-economics/competition-policy-theory-and-practice&quot;&gt;Motta's book on competition policy&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2016-04-03T18:34:55.750" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="11394" PostTypeId="1" AcceptedAnswerId="11396" CreationDate="2016-04-04T00:07:22.493" Score="3" ViewCount="579" Body="&lt;p&gt;1) Is Return on Investment same as Return on Assets? &#xA;There are so many different definition in books so I am now confused...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) Is ROA = Profit &lt;strong&gt;before&lt;/strong&gt; taxes/Total Assets or Profit &lt;strong&gt;after&lt;/strong&gt; taxes/Total Assets&lt;/p&gt;&#xA;&#xA;&lt;p&gt;3) I know to find ROI for some investment or project, but is it possible to find ROI for company from income statement and balance sheet?&lt;/p&gt;&#xA;" OwnerUserId="7687" LastEditorUserId="7687" LastEditDate="2016-04-04T02:19:18.163" LastActivityDate="2016-04-04T02:21:54.217" Title="Return on Assets vs Return on Investment" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;accounting&gt;" AnswerCount="1" CommentCount="2" ClosedDate="2016-04-07T08:50:13.187" ContentLicense="CC BY-SA 3.0" />
  <row Id="11396" PostTypeId="2" ParentId="11394" CreationDate="2016-04-04T02:07:22.703" Score="0" Body="&lt;ol&gt;&#xA;&lt;li&gt;No. &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Return on assets = net income/assets.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;ROI = an informal term roughly corresponding to return on starting capital, or net income/starting capital. Starting capital is any money invested in the business.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's say you take out a 500k mortgage on a home with a 50k downpayment. That means 550k of assets. Net of everything you make a $10000 profit from rental income or whatever.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your ROA is 10k/550k because even though you don't own the home free and clear, the house is still an asset. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;ROI is a more informal term comparing how much you invested versus the return. In this example ROI is 10k/50k because you only paid 50k for the home.&lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;2&quot;&gt;&#xA;&lt;li&gt;ROA uses net income, which means after tax.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="8360" LastEditorUserId="8360" LastEditDate="2016-04-04T02:21:54.217" LastActivityDate="2016-04-04T02:21:54.217" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11398" PostTypeId="1" AcceptedAnswerId="11410" CreationDate="2016-04-04T16:59:30.550" Score="5" ViewCount="3072" Body="&lt;p&gt;The &lt;a href=&quot;https://en.wikipedia.org/wiki/Panama_Papers&quot; rel=&quot;noreferrer&quot;&gt;recent release of leaked documents&lt;/a&gt; on &lt;a href=&quot;https://en.wikipedia.org/wiki/Mossack_Fonseca&quot; rel=&quot;noreferrer&quot;&gt;Mossack Fonseca&lt;/a&gt; has information on corporations and individuals using the firm's services for, among other things, tax evasion:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;The massive security breach shows how a global industry of law firms and big banks sells financial secrecy to politicians, fraudsters and drug traffickers as well as billionaires, celebrities and sports stars. [...]&lt;/p&gt;&#xA;&lt;p&gt;Using complex shell company structures and trust accounts Mossack Fonseca services allow its clients to operate behind an often impenetrable wall of secrecy. Mossack Fonseca's success relies on a global network of accountants and prestigious banks that hire the law firm to manage the finances of their wealthy clients.&lt;/p&gt;&#xA;&lt;p&gt;&lt;sup&gt;&lt;a href=&quot;http://www.abc.net.au/news/2016-04-04/explained-what-are-the-leaked-mossack-fonseca-panama-papers/7270690&quot; rel=&quot;noreferrer&quot;&gt;Panama Papers and Mossack Fonseca explained&lt;/a&gt;, Australian Broadcasting Corporation&lt;/sup&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;What are &amp;quot;shell companies&amp;quot; and how can they be used to hide money or avoid paying taxes?&lt;/p&gt;&#xA;" OwnerUserId="7369" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2016-04-06T05:58:13.620" Title="How are shell companies used for tax evasion?" Tags="&lt;taxation&gt;&lt;corporate-finance&gt;&lt;law&gt;" AnswerCount="3" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11399" PostTypeId="1" AcceptedAnswerId="11401" CreationDate="2016-04-04T20:28:49.830" Score="1" ViewCount="33" Body="&lt;p&gt;Is there open source software that simulates the effects of interest rates on an economy?&lt;/p&gt;&#xA;" OwnerUserId="4101" LastActivityDate="2016-04-04T21:44:29.173" Title="Software to simulate the effects of interest rates on an economy?" Tags="&lt;reference-request&gt;&lt;mathematical-economics&gt;&lt;interest-rate&gt;&lt;software&gt;&lt;simulations&gt;" AnswerCount="1" CommentCount="1" ClosedDate="2016-04-12T15:44:51.117" ContentLicense="CC BY-SA 3.0" />
  <row Id="11400" PostTypeId="1" AcceptedAnswerId="11404" CreationDate="2016-04-04T21:05:03.777" Score="1" ViewCount="716" Body="&lt;p&gt;How do interest rates, on local and global scales of an economy, affect the distribution of wealth?&lt;/p&gt;&#xA;" OwnerUserId="4101" LastEditorUserId="4101" LastEditDate="2016-04-05T16:05:37.167" LastActivityDate="2016-04-28T05:20:07.220" Title="How do interest rates affect the distribution of wealth?" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;interest-rate&gt;" AnswerCount="1" CommentCount="1" ClosedDate="2016-04-07T08:51:50.820" ContentLicense="CC BY-SA 3.0" />
  <row Id="11401" PostTypeId="2" ParentId="11399" CreationDate="2016-04-04T21:44:29.173" Score="3" Body="&lt;p&gt;Unfortunately, the answer is so broad I'm not sure how useful it may be.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First things first, you'd need a model for the economy. There are various around, in the last few years DSGE models like RBCM and NKM are popular. Pick the one that you think is the most appropriate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;After that, procure data from the past for calibrating the parameters of your model. The interest rate, of course, will be set by you.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, you can use R, Matlab or Octave to simulate, given your model and parameters, a set of outcomes and provide a result for each interest rate.&lt;/p&gt;&#xA;" OwnerUserId="7857" LastActivityDate="2016-04-04T21:44:29.173" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11402" PostTypeId="2" ParentId="11358" CreationDate="2016-04-04T23:08:56.813" Score="3" Body="&lt;p&gt;Knut Wicksell, author of &lt;em&gt;&lt;a href=&quot;https://isidore.co/calibre/#panel=book_details&amp;amp;book_id=5609&quot; rel=&quot;nofollow noreferrer&quot;&gt;Interest &amp;amp; Prices&lt;/a&gt;&lt;/em&gt;, argues that money ≠ capital:&lt;br&gt;&lt;sup&gt;(quoted on p. 8 of Bernard W. Dempsey's &lt;em&gt;&lt;a href=&quot;https://isidore.co/calibre/#panel=book_details&amp;amp;book_id=5277&quot; rel=&quot;nofollow noreferrer&quot;&gt;Interest &amp;amp; Usury&lt;/a&gt;&lt;/em&gt;)&lt;/sup&gt;&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;It is usually said that in modern communities, capital (of the mobile kind) is lent &lt;em&gt;in the form of money&lt;/em&gt;. But this is a metaphorical and inexact manner of speaking which can easily lead to error. Liquid capital, which is what we are considering, or, in other words, goods, are never lent,—they are never given and taken by way of borrowing; they are simply bought and sold.⁵&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;and&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;It is not true that &amp;quot;money is only one form of capital,&amp;quot; that the lending of money constitutes a lending of real capital in the form of money, etc.…&lt;/p&gt;&#xA;&lt;p&gt;Liquid real capital (&lt;em&gt;i.e.&lt;/em&gt;, goods) are never lent (not even in a system of simple merchandise credit); it is money which is lent and the commodity capital is then &lt;em&gt;sold in exchange for this money&lt;/em&gt;.⁶&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;and 7 Lectures, II, p. 190.:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Money does not enter into the processes of production; it is in itself, as Aristotle showed [in &lt;a href=&quot;https://www.gutenberg.org/files/6762/6762-h/6762-h.htm#link2HCH0010&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;Politics&lt;/em&gt; bk. 1&lt;/a&gt; § 10, 1258a-b], quite sterile.⁷&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="4101" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2020-01-12T21:28:32.817" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="11403" PostTypeId="1" AcceptedAnswerId="11413" CreationDate="2016-04-05T01:10:44.950" Score="2" ViewCount="142" Body="&lt;p&gt;What I mean by that putting a regulation on businesses that says they can't spend more on advertising than expanding their business. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know something like this would be very hard to regulate, but I'm just asking what would happen hypothetically. &lt;/p&gt;&#xA;" OwnerUserId="7651" LastEditorUserId="1601" LastEditDate="2016-04-05T07:03:06.840" LastActivityDate="2016-04-05T12:24:55.920" Title="What would be the economic impact of regulating advertising?" Tags="&lt;regulation&gt;&lt;advertising&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11404" PostTypeId="2" ParentId="11400" CreationDate="2016-04-05T01:11:57.300" Score="4" Body="&lt;p&gt;Good question! But difficult to answer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A) Typically, economists think of most interest rates as being set by markets. Under that assumption, you can't change rates by themselves because the market would bring them back to a value that equilibrates demand and supply of savings. Economists try to model how everything is in equilibrium with &quot;general equilibrium&quot; models. Of course, in reality, the fed does set an interest rate...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;B) In the &quot;life cycle model&quot; of an individual's life, people borrow when they are young and need to study and create businesses, save when they are middle aged and draw down their savings when they are old. In that context, young people suffer from a high rate and old people gain from a high rate. However, its often the case that people invest in long-term bonds and so it's not really clear that they benefit from &lt;em&gt;an increase&lt;/em&gt; in interest rates, because it pushes down the price of their bonds (and their houses too).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;C) If instead the idea is to figure out what happens when the equilibrium interest rate is low, then it's good to try to imagine the scenarios when it is indeed low. Economists think that the real interest rate is low when economic growth is low and when there is little demand for capital from firms or a lot of supply of capital by savers. These two things have happened together many times, but they don't have to. For example, a disaster that wipes out a very productive asset, like port infrastructure, will lead to a lot of investment but not a lot of net growth. Similarly, an extra supply of savings should lead firms to invest more and should lead the economy to grow. But now in 2016, we are in a low growth, relatively low investment scenario.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;D) It doesn't seem like the interest rate is the biggest determinant to the wealth distribution out there. Some evidence to think this way is that capital  markets have become very open, making interest rates very similar everywhere, but inequality remains very different across countries: Commonwealth + Europe+ Japan (low) vs. Russia,+ US +China + Latin America +Africa(high). The distribution of income seems to depend more on the link between political power and economic power that is the norm in many countries, some because of corruption, others by design. It also seems to be more dependent on the quality public education and other public services.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some similar ideas are discussed in a sort of reasonable Forbes article here: &lt;a href=&quot;http://www.forbes.com/sites/jeffreydorfman/2015/05/12/the-feds-low-interest-rates-are-increasing-inequality/2/#65fdfe4679cc&quot; rel=&quot;nofollow&quot;&gt;http://www.forbes.com/sites/jeffreydorfman/2015/05/12/the-feds-low-interest-rates-are-increasing-inequality/2/#65fdfe4679cc&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="7593" LastEditorUserId="7593" LastEditDate="2016-04-28T05:20:07.220" LastActivityDate="2016-04-28T05:20:07.220" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11405" PostTypeId="2" ParentId="11398" CreationDate="2016-04-05T02:24:35.883" Score="2" Body="&lt;p&gt;A shell is simply an inactive company - there is a market for shell companies because it allows ordinary persons to buy a ready to go business - for example public traded shells with a stockmarket ticker allow you to skip all the paperwork.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Back to topic. A Limited company is a legal person, thus it can buy / sell and hold other companies and assets - sue and get sued, lend and take loans by other legal persons and of course conduct trade.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then there are &lt;strong&gt;trustee directors and shareholder&lt;/strong&gt; offered by various offshore formation companies - the whole thing is very simple, when you register a offshore company, you also eventually pay a trustee shareholder and director - &lt;strong&gt;both sign their letters of resignation before they start the job&lt;/strong&gt;. This construction allows you to hold a company and a bank account which belongs to you, but technically the name on the paper is somebody else - your trustee service partner.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The last part of the construction is the jurisdiction - there are jurisdiction where it can be very fortunate to store wealth tax wise.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Concerning the case you refer too, as im aware the cashout was handled with loans - ie the offshore company loans amount X to a private person (which can be a trustee too).&lt;/p&gt;&#xA;" OwnerUserId="2884" LastEditorUserId="2884" LastEditDate="2016-04-06T05:58:13.620" LastActivityDate="2016-04-06T05:58:13.620" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11407" PostTypeId="2" ParentId="11398" CreationDate="2016-04-05T06:41:39.887" Score="0" Body="&lt;p&gt;Your shell performs all your business transactions and records the profit. Thus all your profit seems to take place in the Cayman Islands and not the US, reducing taxes. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are other ways to use shells. For example, other people can pay you by making an equity investment in your company, which is untaxed. Look up Corp to corp/S corp tax evasion.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In general, a shell company is a company with no assets besides that required for some very narrow purpose such as evading taxes. A somewhat circular definiton, but that's what people call it.&lt;/p&gt;&#xA;" OwnerUserId="8360" LastActivityDate="2016-04-05T06:41:39.887" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11408" PostTypeId="2" ParentId="9994" CreationDate="2016-04-05T07:17:02.147" Score="0" Body="&lt;p&gt;We are witnessing the biggest industrial and tech revolution that has ever happened in written history and only a fraction of the population is or was prepared thus far.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What i find very interesting is, hard labor hand work is dying out or shifted to wage dumping countries, this is a clear trend. As already outlined by another poster, &quot;humans need not apply&quot; is well worth to watch.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Fortunately for me, i ended up in a job at the core of this revolution. To be more specific i manage to build a company with just me as workforce - plus a taxman and some 3rd party software providers and a freelancer time to time. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;From this viewpoint, i don't see any other solution but the introduction of a automation tax and a revolution in the education sector. &#xA;Lets take the ecommerce gaint for example, yes they created a lot of jobs in the first place but those jobs will be replaced one by one with automation.&lt;/p&gt;&#xA;" OwnerUserId="2884" LastActivityDate="2016-04-05T07:17:02.147" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11410" PostTypeId="2" ParentId="11398" CreationDate="2016-04-05T08:39:57.223" Score="3" Body="&lt;p&gt;Another key feature of those shell companies is that they hide the ultimate beneficiary of the transactions. Banks, insurance companies and most financial services firm must make enquiries as part of the &quot;Know Your Customer&quot; (KYC) regulations: they should be able to find out who will benefit ultimately from the transactions, or in the name of whom they are carried out. THeoretically (ate least in the EU), if they fail to identify an ultimate beneficiary, they should refuse to carry out the transaction AND warn the responsible authority (typically the local equivalent or representative of the FATF - Financial Action Task Force)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But a succession of shell companies in different countries, in particular in countries which apply a strict confidentiality of the investors of a company, make it very hard to be sure that the beneficiary identified is indeed the ultimate beneficiary. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, those shell companies also serve the purpose to hide their owner to their counterparts. This feature is most appreciated for tax evasion and money laundering (obvisouly).&lt;/p&gt;&#xA;" OwnerUserId="6820" LastActivityDate="2016-04-05T08:39:57.223" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11412" PostTypeId="1" CreationDate="2016-04-05T12:20:04.537" Score="10" ViewCount="12991" Body="&lt;p&gt;I have to prove that $\sigma = 1/(1 + \rho)$ for the CES production function:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{align}&#xA;q = (l^\rho + k^\rho)^\frac{1}{\rho}&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I found out that I need to solve the following equation:&#xA;\begin{align}&#xA;\sigma = \frac{\frac{d(k/l)}{k/l}}{\frac{dRTS}{RTS}} = \frac{d(k/l)}{dRTS}\frac{RTS}{k/l} = \frac{d(k/l)}{d((k/l)^{1-\rho})}\frac{(k/l)^{1-\rho}}{k/l}&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But i just don't know how to rewrite this expression to $\sigma = 1/(1 + \rho)$&lt;/p&gt;&#xA;" OwnerUserId="7865" LastEditorUserId="2776" LastEditDate="2017-05-08T12:20:37.133" LastActivityDate="2020-05-20T14:48:51.517" Title="CES: Production function: Elasticity of substitution $\sigma = 1/(1 + \rho)$" Tags="&lt;production-function&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="11413" PostTypeId="2" ParentId="11403" CreationDate="2016-04-05T12:24:55.920" Score="1" Body="&lt;p&gt;The first thing we must ask is about which part of advertising are we speaking? Are we talking about advertising on television and other entertainment mediums or are we talking about advertisement via the packaging of the good itself?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One impact either way would be an increase in competition amongst monopolistically competitive firms. These firms are often selling products which accomplish the same ends, however they differentiate their goods in order to give them a competitive edge. The main way which they convey this differentiation to consumers is through advertising. Therefore, if they cannot advertise this differentiation, consumer information may be limited and they may not see a difference between the firm's product and other products in the market. This will lead to parity among products and will move the market closer to a purely competitive market. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, sometimes the only differentiation may be the advertising itself (in the form of packaging). For goods such as water bottles (barring whether the water is enhanced somehow) this is the case. There has been much research done to ascertain the best way to package your products in order to draw the consumer to the product. If this was limited, then markets such as these would move towards a purely competitive market.  &lt;/p&gt;&#xA;" OwnerUserId="5825" LastActivityDate="2016-04-05T12:24:55.920" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11415" PostTypeId="1" CreationDate="2016-04-05T12:29:33.603" Score="1" ViewCount="37" Body="&lt;p&gt;I read in a textbook that if we plot a PPF with automobile manufacturing and clean air as the axes and the company pollutes the state making clean air (a public good) scarce, automobile manufacturing becomes inefficient and the economy works inside the PPF instead of on it. Can you explain why. Shouldn't the automobile manufacturing increase? &lt;/p&gt;&#xA;" OwnerUserId="7867" LastActivityDate="2016-04-05T12:29:33.603" Title="How do environmental deregulations push an economy inside its Production Possibility Frontier and make it inefficient?" Tags="&lt;microeconomics&gt;&lt;aggregate-production&gt;" AnswerCount="0" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="11416" PostTypeId="1" CreationDate="2016-04-05T12:34:58.320" Score="0" ViewCount="135" Body="&lt;p&gt;A) Oil is inferior good while natural gas is normal good.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;B) Both of them are normal good.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;C)They are substitute goods and the higher price for oil increased the demand for natural gas.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;D)They are substitute goods and the higher price for oil decreased the supply for natural gas.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In my personal opinion, the answer should be C. We can eliminate A and B first as there's no indication of income change. For D think since substitute good refers to the customer side so I think we should also remove D. Is there a better explanation ? &lt;/p&gt;&#xA;" OwnerUserId="6132" LastActivityDate="2016-04-05T14:47:40.990" Title="Which of the following explains that the price increase of oil cause the price of natural gas to increase?" Tags="&lt;microeconomics&gt;&lt;supply-and-demand&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11417" PostTypeId="1" CreationDate="2016-04-05T14:01:33.067" Score="1" ViewCount="11" Body="&lt;p&gt;What is the name for the phenomenon/principle that a government subsidy or other benefit, tends to fail to reach the people that need it the most or for whom it was intended?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reason being that the knowledge that the subsidy exists is found more in those who are well off to begin with, while the most poor or marginalized are not in the position to learn about it.&lt;/p&gt;&#xA;" OwnerUserId="7868" LastActivityDate="2016-04-05T14:01:33.067" Title="Principle of least benefit" Tags="&lt;macroeconomics&gt;&lt;government&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11418" PostTypeId="2" ParentId="11416" CreationDate="2016-04-05T14:47:40.990" Score="2" Body="&lt;p&gt;I think your answer is OK.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;A doesn't connect prices in any way. In a two-goods economy and given that wealth doesn't change... you may give it some more thought but you need to add extra assumptions.&lt;/li&gt;&#xA;&lt;li&gt;B tells us nothing on why such change would take effect. It may just as well be that oil is more valued.&lt;/li&gt;&#xA;&lt;li&gt;C is the right answer&lt;/li&gt;&#xA;&lt;li&gt;You need more assumptions for D, e.g. why the oil price increased. At least in the really short term, though, supply isn't a factor.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="7857" LastActivityDate="2016-04-05T14:47:40.990" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11420" PostTypeId="1" CreationDate="2016-04-05T15:48:58.573" Score="1" ViewCount="103" Body="&lt;p&gt;Was wondering how the effect of VAT (indirect taxes) differs from the effect of income tax (direct taxes), in terms of their impact on the 4 marco objectives (unemployment, inflation, balance of payments and economic growth)?&lt;/p&gt;&#xA;" OwnerUserId="7849" LastActivityDate="2016-04-05T15:48:58.573" Title="VAT vs. Income tax - How their effect varies" Tags="&lt;macroeconomics&gt;&lt;taxation&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11421" PostTypeId="1" CreationDate="2016-04-05T16:21:23.510" Score="1" ViewCount="60" Body="&lt;p&gt;What exactly is the distinction that Knut Wicksell made in his &lt;em&gt;&lt;a href=&quot;https://mises.org/library/interest-and-prices&quot; rel=&quot;nofollow&quot;&gt;Interest &amp;amp; Prices&lt;/a&gt;&lt;/em&gt; between&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&quot;natural rate of interest&quot; or &quot;natural interest&quot; (&quot;&lt;em&gt;der natürliche&#xA;Kapital zins&lt;/em&gt;&quot;)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;and the&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&quot;money rate of interest&quot;?&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="4101" LastActivityDate="2016-04-05T16:21:23.510" Title="What is the &quot;natural rate of interest&quot; vs. &quot;money interest rate&quot;?" Tags="&lt;interest-rate&gt;&lt;money&gt;&lt;history-economic-thought&gt;&lt;history&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11422" PostTypeId="1" CreationDate="2016-04-05T17:13:28.970" Score="1" ViewCount="204" Body="&lt;p&gt;My understanding of the interest rates part of monetary policy is the follows:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Borrower's point of view:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An increase in interest rates, increases the cost of borrowing, which may reduce disposable income, causing a reductiong in aggregate demand. The equillibrium between supply and demand will therefore need to be adjusted resulting in a lower average prices (less inflation).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Saver's point of view:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As interest rates rise, the reward for saving increases, therefore people are incentivised to save their money, which may cause a decrease in disposable income and less inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, I have a question in my textbook which says how can a rise in interest rates cause higher inflation in the short term, and I'm not sure.&lt;/p&gt;&#xA;" OwnerUserId="7849" LastActivityDate="2016-04-07T03:23:44.750" Title="Monetary Policy - How can increasing interest rates cause higher inflation in the short term?" Tags="&lt;macroeconomics&gt;&lt;monetary-policy&gt;&lt;inflation&gt;&lt;interest-rate&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11423" PostTypeId="2" ParentId="11422" CreationDate="2016-04-05T18:22:10.483" Score="2" Body="&lt;p&gt;If mortgage payments are included in the basket of goods that are used to calculate inflation, then rising interest rates will increase mortgage payments, causing an increase in inflation in the short term. This happens before any of the disinflationary effects show up in the data.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2016-04-05T18:22:10.483" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11426" PostTypeId="1" CreationDate="2016-04-05T21:54:45.197" Score="5" ViewCount="521" Body="&lt;p&gt;Our model: $y_t=X_t\beta+u_t$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Our error terms: $u_t=\rho u_{t-1}+\epsilon_t$ with $\epsilon_t\sim IID(0,\sigma^2)$, and $|\rho|&amp;lt;1$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This results in $y_t=\rho y_{t-1}+X_t\beta-\rho X_{t-1}\beta+\epsilon_t$.&#xA;Why is this last model not linear in $\beta$ and $\rho$?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is it because the parameters are multiplied with each other in the 3rd term? or is there something else?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="118" LastActivityDate="2020-11-21T13:34:00.083" Title="Why is a 'linear' regression model, with AR(1) error terms, a non-linear model?" Tags="&lt;econometrics&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11427" PostTypeId="1" AcceptedAnswerId="11447" CreationDate="2016-04-05T23:42:35.043" Score="3" ViewCount="78" Body="&lt;p&gt;In &lt;a href=&quot;http://www.econlib.org/library/Ricardo/ricP2.html&quot; rel=&quot;nofollow&quot;&gt;Ch 5, Of Wages&lt;/a&gt;, Ricardo tosses this gem:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;if the labour of ten men will, on land of a certain quality, obtain 180 quarters of wheat, and its value be £4 per quarter, or £720; and if the labour of ten additional men, will on the same or any other land produce only 170 quarters in addition, wheat would rise from £4 to £4 4s. 8d.; for 170:180::£4:£4 4s. 8d.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;That seems like a bold proposition to me, and I'm not sure where to look for the justification of that math.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is it earlier in Ricardo and I just missed it?  Is it intuitively obvious given some fact I just don't know yet?&lt;/p&gt;&#xA;" OwnerUserId="7874" LastEditorUserId="7874" LastEditDate="2016-04-06T04:42:27.627" LastActivityDate="2016-04-07T02:43:40.177" Title="How does Ricardo justify this math?" Tags="&lt;wages&gt;&lt;history-economic-thought&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11433" PostTypeId="1" CreationDate="2016-04-06T06:11:29.557" Score="5" ViewCount="739" Body="&lt;p&gt;Does it make sense to normalize change in real GDP by the contemporaneous change in population? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm interested in this calculation for the following reason. Suppose real GDP increases. I'd like to know what was the population increase that corresponded to this increase. I could then compare two distinct geographic regions, specifically two states in USA during a given time period. If one state increased real GDP by A dollars per person (as calculated above) while another increased it by B dollars per person, then I could declare that the first state was, in a sense, more productive or more efficient.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If g was the growth rate in real GDP and r was the population growth rate, I could alternatively calculate (1+g)/(1+r) and compare states according to this measure. A comparison based on this ratio is essentially the same as a comparison based on g-r: Just perform the algebraic division and subtract a 1 to get g-r. However, I feel that g-r doesn't have the same intuitive appeal as the method described in the previous paragraph. A numerical calculation on actual data shows that the two measures have a low correlation (of 0.2) ....&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The method in the first paragraph produces numbers that are on the same footing as GDP per capita and moreover, these calculations can be compared to GDP per capita for an intuitive understanding. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, during 2010-2014, the change in real GDP divided by the change in population was 108,000 dollars in USA whereas 2014 GDP per capita was 49,000 dollars. For Pennsyvlania, the calculation resulted in 320,000 dollars versus GDP per capita of 47,000 dollars. For California it produced 114,000 dollars vs GDP per capita of 54,000 dollars. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here's how I think about it. In 2010, USA real GDP per capita was 45,000 dollars or thereabouts. From 2010-2014, each person that was added to the population corresponded to a real GDP increase of 108,000 dollars.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To get fancy, if there hadn't been any population increase, real GDP might have grown by a certain amount. If we could estimate that amount, we could subtract it from the aforementioned 108,000 dollars and then say with more confidence that each person that was added to the population &quot;caused&quot; real GDP to increase by that much.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By analogy, imagine a 100 men were laying bricks (GDP) on top of one another. Each man could lay 10 bricks per hour. Now, 3 younger, stronger men are added to the workforce who can lay bricks at the rate of 50 per hour. The calculation that I am proposing would produce a number analogous to 50 which could then be compared to the number 10 so as to distinguish between the previous stock of labor and the new stock.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you'd like to replace population with employed population, that would be fine ... It's has a secondary role in my question.&lt;/p&gt;&#xA;" OwnerUserId="7876" LastEditorUserId="7876" LastEditDate="2016-04-19T17:20:13.177" LastActivityDate="2016-04-19T17:20:13.177" Title="Ok to normalize GDP change by population change?" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;&lt;economic-growth&gt;&lt;population-economics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11434" PostTypeId="2" ParentId="11433" CreationDate="2016-04-06T09:40:36.993" Score="4" Body="&lt;p&gt;I guess there might be some purpose to this but generally this is very different than $g-r$ and probably a bad idea. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It isn't the same people growing the population and growing GDP.  $\Delta GDP$  is the $\Delta$ (output of the existing population) + $\Delta$ (output of the new population). When you normalize by new population, you get &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\Delta$ (output per capita of the new population) &#xA;plus a nuisance term of &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\Delta$ (output of the existing population) / $\Delta$ population). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Unless incomes drive positive population changes this term is not going to behave much at all like $g-r$. &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2016-04-06T09:40:36.993" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="11436" PostTypeId="1" CreationDate="2016-04-06T12:47:34.790" Score="0" ViewCount="100" Body="&lt;p&gt;Well, the name pretty much says it all. I have searched high and low, but I cannot find a concrete answer to the following question(s):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How would one interpret the incidence rate ratio for a poisson regression with a non-binomial dependent variable? Also, can this be generalized? i.e. will the interpretation be the same for any count model or does it differ by model?&lt;/p&gt;&#xA;" OwnerUserId="5825" LastActivityDate="2016-04-06T12:47:34.790" Title="Interpretation of Incidence Rate Ratio for a Poisson Regression With a Non-Binomial Dependent Variable" Tags="&lt;econometrics&gt;&lt;applied-econometrics&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="11437" PostTypeId="1" AcceptedAnswerId="11441" CreationDate="2016-04-06T14:01:24.507" Score="4" ViewCount="491" Body="&lt;p&gt;As advances in robotics and artificial intelligence continue, one possible outcome is a laborless economy, in which capital (means of production) is the dominant factor in production, by multiple orders of magnitude.  Looking at the current system, it would seem to me that a steady progression toward full automation within the bounds of the current market structure would lead toward an ever increasing concentration of wealth amongst those that possess capital.  (coincidentally, this seems to be occurring)  The end result of this, in my mind, seems to be a collapse of capitalism, in which supply curves are vertical, demand curves are horizontal, and they intersect near 0.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now there are proposed solutions, which seem to move toward socialism, in general.  In this question, I am not seeking one of these solutions, but rather, theory.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is, it seems that traditional economic theory relies on { capital, labor }.  How does economic theory handle a zero-labor scenario, in which the capital is essentially a black box that outputs products?&lt;/p&gt;&#xA;" OwnerUserId="7879" LastActivityDate="2016-06-06T18:19:56.150" Title="How does economic theory handle full automation of production resulting in full unemployment?" Tags="&lt;labor-economics&gt;" AnswerCount="1" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11438" PostTypeId="2" ParentId="11379" CreationDate="2016-04-06T15:24:15.577" Score="1" Body="&lt;p&gt;No, many countries do not. For example. the United States does not have a VAT. According to the paper &lt;a href=&quot;http://www.ieb.ub.edu/files/PapersWSFF2015/WSTAX2015Alavuotunki.pdf&quot; rel=&quot;nofollow&quot;&gt;The Consequences of the Value-Added Tax on Inequality in Developing Countries&lt;/a&gt; (Alavuotunki and Pirttilä (2015)) here is an extensive list:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;A4 – Countries and introduction year of VAT. (Source: IMF)  &#xA;Asia-Pacific    &#xA;1977    Korea, Republic of&#xA;1985    Indonesia&#xA;1986    New Zealand&#xA;1986    Taiwan Prov.of China&#xA;1988    Philippines&#xA;1989    Japan&#xA;1990    Pakistan&#xA;1991    Bangladesh&#xA;1992    Thailand&#xA;1994    China,P.R.: Mainland&#xA;1994    Singapore&#xA;1997    Nepal&#xA;1998    Mongolia&#xA;1998    Sri Lanka&#xA;1999    Cambodia&#xA;1999    Papua New Guinea&#xA;1999    Vietnam&#xA;2000    Australia&#xA;2005    India&#xA;no VAT  Brunei Darussalam&#xA;no VAT  China,P.R.:Hong Kong&#xA;no VAT  Lao People's Dem.Rep&#xA;no VAT  Malaysia&#xA;no VAT  Myanmar&#xA;&#xA;Small Islands   &#xA;1973    San Marino&#xA;1990    Iceland&#xA;1992    Cyprus&#xA;1992    Fiji&#xA;1994    Samoa&#xA;1995    Malta&#xA;1997    Barbados&#xA;1998    Vanuatu&#xA;2004    Cape Verde&#xA;2007    Antigua and Barbuda&#xA;2007    St. Vincent &amp;amp; Grens.&#xA;2010    St. Kitts and Nevis&#xA;2012    St. Lucia&#xA;2013    Seychelles&#xA;no VAT  Bahamas, The&#xA;no VAT  Comoros&#xA;no VAT  Grenada&#xA;no VAT  Maldives&#xA;no VAT  Solomon Islands&#xA;no VAT  São Tomé &amp;amp; Príncipe&#xA;no VAT  Timor-Leste&#xA;no VAT  Tonga&#xA;no VAT  Tuvalu&#xA;&#xA;Americas    &#xA;1967    Brazil&#xA;1968    Uruguay&#xA;1970    Ecuador&#xA;1973    Bolivia&#xA;1973    Peru&#xA;1975    Argentina&#xA;1975    Chile&#xA;1975    Colombia&#xA;1975    Costa Rica&#xA;1975    Nicaragua&#xA;1976    Honduras&#xA;1977    Panama&#xA;1980    Mexico&#xA;1982    Haiti&#xA;1983    Dominican Republic&#xA;1983    Guatemala&#xA;1990    Trinidad and Tobago&#xA;1991    Canada&#xA;1991    Jamaica&#xA;1992    El Salvador&#xA;1993    Paraguay&#xA;1993    Venezuela, Rep. Bol.&#xA;2006    Belize&#xA;2007    Guyana&#xA;no VAT  United States&#xA;&#xA;North Africa and Middle East    &#xA;1976    Israel&#xA;1985    Turkey&#xA;1986    Morocco&#xA;1988    Tunisia&#xA;1991    Egypt&#xA;1992    Algeria&#xA;2001    Jordan&#xA;2002    Lebanon&#xA;2008    Iran, I.R. of&#xA;2009    Djibouti&#xA;no VAT  Afghanistan, I.R. of&#xA;no VAT  Bahrain, Kingdom of&#xA;no VAT  Iraq&#xA;no VAT  Kuwait&#xA;no VAT  Libya&#xA;no VAT  Oman&#xA;no VAT  Saudi Arabia&#xA;no VAT  Syrian Arab Republic&#xA;no VAT  United Arab Emirates&#xA;no VAT  Yemen, Republic of&#xA;&#xA;Sub-Saharan Africa  &#xA;1960    Côte d'Ivoire&#xA;1980    Senegal&#xA;1986    Niger&#xA;1989    Malawi&#xA;1990    Kenya&#xA;1991    Benin&#xA;1991    Mali&#xA;1991    South Africa&#xA;1993    Burkina Faso&#xA;1994    Madagascar&#xA;1994    Nigeria&#xA;1995    Gabon&#xA;1995    Mauritania&#xA;1995    Togo&#xA;1995    Zambia&#xA;1996    Guinea&#xA;1996    Uganda&#xA;1997    Congo, Republic of&#xA;1998    Ghana&#xA;1998    Mauritius&#xA;1998    Tanzania&#xA;1999    Cameroon&#xA;1999    Mozambique&#xA;2000    Chad&#xA;2000    Namibia&#xA;2001    Central African Rep.&#xA;2001    Rwanda&#xA;2002    Botswana&#xA;2003    Ethiopia&#xA;2003    Lesotho&#xA;2004    Zimbabwe&#xA;2009    Burundi&#xA;2010    Eritrea&#xA;2013    Swaziland&#xA;no VAT  Angola&#xA;no VAT  Gambia, The&#xA;no VAT  Guinea-Bissau&#xA;no VAT  Liberia&#xA;no VAT  Sierra Leone&#xA;no VAT  South Sudan&#xA;&#xA;Europe  &#xA;1967    Denmark&#xA;1968    France&#xA;1968    Germany&#xA;1969    Netherlands&#xA;1969    Sweden&#xA;1970    Luxembourg&#xA;1970    Norway&#xA;1971    Belgium&#xA;1972    Ireland&#xA;1973    Austria&#xA;1973    Italy&#xA;1973    United Kingdom&#xA;1986    Portugal&#xA;1986    Spain&#xA;1987    Greece&#xA;1994    Finland&#xA;1995    Switzerland&#xA;&#xA;Central Europe and the ex-Soviet    &#xA;1988    Hungary&#xA;1992    Armenia&#xA;1992    Belarus&#xA;1992    Estonia&#xA;1992    Georgia&#xA;1992    Kazakhstan&#xA;1992    Kyrgyz Republic&#xA;1992    Latvia&#xA;1992    Lithuania&#xA;1992    Moldova&#xA;1992    Russian Federation&#xA;1992    Tajikistan&#xA;1992    Turkmenistan&#xA;1992    Ukraine&#xA;1992    Uzbekistan&#xA;1993    Czech Republic&#xA;1993    Poland&#xA;1993    Romania&#xA;1993    Slovak Republic&#xA;1994    Bulgaria&#xA;1996    Albania&#xA;1998    Croatia&#xA;1999    Slovenia&#xA;2000    Macedonia, FYR&#xA;2003    Montenegro&#xA;2003    Serbia, Republic of&#xA;2006    Bosnia &amp;amp; Herzegovina&#xA;no VAT  Kosovo, Republic of&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;" OwnerUserId="69" LastActivityDate="2016-04-06T15:24:15.577" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11441" PostTypeId="2" ParentId="11437" CreationDate="2016-04-06T16:37:16.033" Score="5" Body="&lt;p&gt;If this were to occur, there are three things we need to look at.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) Will production occur?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) Without wages, how will households make money?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;3) What will be the welfare effects?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\textbf{1)}$ To answer the first question, if we assume that capital replaced all labor, we are assuming that capital and labor are substitutes which means that the production function will have the following form:&#xA;$$F(k,l)=\alpha k+\beta l$$&#xA;What this means is that if $l=0$, $F(k,l)$ will still be greater than zero, so production will still occur.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\textbf{2)}$ To answer the second question, we can look at how households make money. Households make money from wages, and they make money from owning a fraction of firms (so they get that fraction of the profits the firm makes). All firms are owned by households (either through stocks or private ownership). The typical income of a household looks like the following:&#xA;$$Y(\frac{}{})=wl+\theta\Pi$$&#xA;Where $w$ is wages, $l$ is labor hours, $\theta$ is the fraction of firms which the household owns, and $Pi$ is those firms' profits. If $l=0$, our income reduces to $Y(\frac{}{})=\theta\Pi$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One thing that immediately comes to mind is &quot;without wages, won't all households' income decrease?&quot; Well, we don't know for sure. According to economic theory, the reason the automation will have occurred is because it will cost less. What this means is that profit will increase, so $\theta\Pi$ will also increase. It really depends on whether $\Delta\theta\Pi$ is larger than, smaller than, or equal to $wl$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\textbf{3)}$ The welfare effects are where we run into problems. When we look at the equation for income of a household, we can conduct a thought experiment: How does the fraction of income attributed to each term change when in different income groups? In the highest income groups, most of their income will come from $\theta\Pi$. An example of this would be the show SharkTank. In this show, companies come to the very wealthy &quot;sharks&quot; looking for capital, and in turn, they often offer a share of their company. Now, when we think about lower income groups, where does most of their income come from? Well, most of their income comes from wages because they cannot afford to save money (and therefore invest in stocks or entrepreneurship). What would happen as a result from full automation, we would theoretically see the income inequality grow to be even larger than it currently is. This is a very undesirable result. &lt;/p&gt;&#xA;" OwnerUserId="5825" LastEditorUserId="5825" LastEditDate="2016-06-06T18:19:56.150" LastActivityDate="2016-06-06T18:19:56.150" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11442" PostTypeId="1" AcceptedAnswerId="11443" CreationDate="2016-04-06T18:13:16.473" Score="2" ViewCount="333" Body="&lt;p&gt;Suppose $n$ players are in joint production to produce a common output $v(a_1,a_2,...,a_n)$ with their individual actions $a_i$. Does the convexity or concavity of $v(a_1,...,a_n)$ in the actions say something about the substitutability or complementarity of their actions? &lt;/p&gt;&#xA;" OwnerUserId="7881" LastActivityDate="2016-04-06T19:33:42.677" Title="Substitutability vs complementarity of efforts" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11443" PostTypeId="2" ParentId="11442" CreationDate="2016-04-06T19:33:42.677" Score="4" Body="&lt;p&gt;In problems like this, complementarity and substitutability are often defined with respect to the cross-derivatives.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Write $v_i(\cdot)$ for the derivative of $v$ with respect to its $i$th argument. Thus, $v_i(a_1,\ldots,a_n)$ measures how much output increases if $i$ increases his effort slightly.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now let's think about the derivative of $v_i$ with respect to $a_j$: $v_{ij}(a_1,\ldots,a_n)$. If $v_{ij}&amp;gt;0$ then an extra unit of effort from $i$ yields more output when $a_j$ is high (and vice-versa). We say that $i$'s and $j$'s efforts are complements because extra effort from $j$ makes $i$'s effort more effective (and vice versa).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Conversely, if $v_{ij}&amp;lt;0$ then extra effort from $j$ makes $i$'s effort less &lt;em&gt;effective&lt;/em&gt;, and this is often taken as a definition of substitutability.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2016-04-06T19:33:42.677" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11444" PostTypeId="2" ParentId="8534" CreationDate="2016-04-06T21:10:12.617" Score="2" Body="&lt;p&gt;Perhaps I misunderstand something, maybe you do not allow mixed equilibria. That may be strange in games of imperfect information.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider an asymmetric matching pennies game. Both players show either Heads or Tails. I forgot how to type game matrices in mathjax, but the payoffs look something like this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\begin{bmatrix} -1,1 &amp;amp; 3,-3 \\ 1,-1 &amp;amp; -3,3 \end{bmatrix}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider two versions of this game.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Version 1, $\Gamma'$&#xA;&lt;br&gt;  The moves are simultaneous so player 2 does not observe the move of player 1 and hence has two decision nodes in her information set. In the unique equilibrium player 1 mixes Heads and Tails with 50%-50% probability. Player 2 mixes Heads and Tails with 75%-25% probability respectively. Expected payoff is 0 for both.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Version 2, $\Gamma$&#xA;&lt;br&gt;  Sequential matching pennies. Player 1 moves first and his move is observed by player 2. In the unique equilibrium player 1 shows Heads, as does player 2. Payoff is -1 for player 1 and 1 for player 2.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Information-wise $\Gamma$ is a refinement of $\Gamma'$ but the equilibrium outcomes do not match.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2016-04-06T21:17:45.993" LastActivityDate="2016-04-06T21:17:45.993" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="11447" PostTypeId="2" ParentId="11427" CreationDate="2016-04-07T02:43:40.177" Score="1" Body="&lt;p&gt;Because in Ricardo's view, the money is neutral. The price reflects only the quantity of labor which is incorporated in the product. If it takes you 2 hours to hunt a deer and only 1 hour to hunt a rabbit then the deer will be two times more expensive. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;That being reminded, one can go back to Ricardo's example. First, we have 180 quarters of wheat that needed 10 men (which gave an output of 720£, at 4£ per quarter). But afterwards you have 20 men producing 350 quarters of wheat, which obviously takes into account the less productive land. Let's say we wanted to double up our first production with the new land: then we would in fact need about 21 men to meet our target of 360 quarters (2 x 180 quarters). But as you see this can't be worth 1 440£ , because there is mork work incorporated ! So there must be a new price for the quarter of wheat ...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore the following question is: what shall be the new price ? One can turn that around into asking: how much more work is incorporated in the new production ? Well there is about 5% more work (1 man = 5% of the 20 that should be normally if there weren't any diminishing returns), which you can also find out by putting: 180/170 = 1,05 or 1+5%. If it is still not clear: this fraction represents the production advantage of the first land in comparaison with the second one. It is 5% more productive. Which means that you have to incoporate 5% more work to get the same production, which in returns, means the quarter of wheat has to be about 5% more expensive... &lt;/p&gt;&#xA;" OwnerUserId="7833" LastActivityDate="2016-04-07T02:43:40.177" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11448" PostTypeId="2" ParentId="11422" CreationDate="2016-04-07T03:23:44.750" Score="-1" Body="&lt;p&gt;Raising interest rate from a low level will increase borrowing and spending in light that the economy will raise and thus cause the inflation in short term within a range of seven years. And then when the rates are raised to a level that exceed the tolerance of economic bubble, and demand-supply relation rules in which cause final deflation.  Different factors comes into play at different stages in a cycle: expectation, bubble, tolerance, demand-supply. &lt;/p&gt;&#xA;" OwnerUserId="7223" LastActivityDate="2016-04-07T03:23:44.750" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11449" PostTypeId="1" CreationDate="2016-04-07T03:49:39.470" Score="-1" ViewCount="581" Body="&lt;p&gt;Suppose that a firm has a Fixed cost of 10,000 dollars and Total Cost of 10,500 dollars for one unit and 11,100 dollars for two units of output.  Which of the following is true for the Marginal Cost (MC) and Marginal Product (MP) of the second unit of output?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;a) Marginal Cost is $500 and Marginal Product is decreasing&lt;/p&gt;&#xA;&#xA;&lt;p&gt;b) Marginal Cost is $500 and Marginal Product is increasing&lt;/p&gt;&#xA;&#xA;&lt;p&gt;c) Marginal Cost is $600 and Marginal Product is decreasing&lt;/p&gt;&#xA;&#xA;&lt;p&gt;d) Marginal Cost is $600 and Marginal Product is increasing&lt;/p&gt;&#xA;&#xA;&lt;p&gt;e) Marginal Cost is $1100 and Marginal Product is decreasing&lt;/p&gt;&#xA;&#xA;&lt;p&gt;f) Marginal Cost is $1100 and Marginal Product is increasing&lt;/p&gt;&#xA;&#xA;&lt;p&gt;g) none of the above&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The answer is c which I don't quite get. It's true that Marginal cost is $600, but since average cost is decreasing, we know the average product is increasing and thus marginal product may or may not decrease. Could someone help?  &lt;/p&gt;&#xA;" OwnerUserId="6132" LastActivityDate="2016-04-07T11:48:35.963" Title="How to determine the marginal product for the following question?" Tags="&lt;microeconomics&gt;&lt;cost&gt;&lt;firm&gt;" AnswerCount="1" CommentCount="0" ClosedDate="2016-04-08T14:54:08.483" ContentLicense="CC BY-SA 3.0" />
  <row Id="11450" PostTypeId="1" AcceptedAnswerId="11451" CreationDate="2016-04-07T08:39:23.253" Score="1" ViewCount="1530" Body="&lt;p&gt;I am having some troubles in distinguishing, from a theoretical point of view, between contract curve and Pareto set. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have looked around books and internet, and I have found that contract curve should be a subset of Pareto set, i.e. the locus of Pareto efficient allocations that can occur as a result of mutually beneficial trading between agents.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Am I right or there is something I did not understand properly? Someone can give me a formal definition of the two objects (if there is some differences)? &lt;/p&gt;&#xA;" OwnerUserId="6773" LastActivityDate="2016-04-07T09:46:04.497" Title="Pareto set and contract curve" Tags="&lt;microeconomics&gt;&lt;general-equilibrium&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11451" PostTypeId="2" ParentId="11450" CreationDate="2016-04-07T09:46:04.497" Score="2" Body="&lt;p&gt;Let $N$ denote the set of consumers. Given a set of possible allocations $A$, an allocation $a$ is Pareto-optimal if no allocation $a'$ exists for which&#xA;$$&#xA;\forall i \in N: a \preceq_i a'&#xA;$$&#xA;and&#xA;$$&#xA;\exists j \in N: a \prec_j a'.&#xA;$$&#xA;So Pareto-optimality exists without any notion of property rights, you don't need to know the initial endowment is, who has what in the beginning. Given an initial endowment $\omega$ an allocation $a$ is individually rational for consumer $i$ if&#xA;$$&#xA; \omega \preceq_i a.&#xA;$$&#xA;An allocation is in the contract curve if and only if it is individually rational for all consumers and is also Pareto-optimal. If the allocation $a$ is not individually rational for a given consumer $i$, he would not sign the contract which would take him there from $\omega$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus the contract curve is indeed a subset of all Pareto-optimal allocations. Unless the initial endowments are given, it is not possible to determine the contract curve.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2016-04-07T09:46:04.497" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11453" PostTypeId="2" ParentId="11449" CreationDate="2016-04-07T11:48:35.963" Score="2" Body="&lt;p&gt;MP = Change in output / Change in input&#xA;For the first product MP1 = 1 / 500&#xA;For the second MP2 = 1 / 600&#xA;Hence, the MP is decreasing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope this helps.&lt;/p&gt;&#xA;" OwnerUserId="7889" LastActivityDate="2016-04-07T11:48:35.963" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11454" PostTypeId="1" AcceptedAnswerId="11460" CreationDate="2016-04-07T19:43:08.573" Score="4" ViewCount="133" Body="&lt;p&gt;I'm looking for information about relationships between commodities. Essentially, what things do you need to use to produce other things. The info doesn't need to reflect the current state of technology, but the newer (and bigger) the dataset, the better.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I started to look for datasets used by the Gosplan to calculate material balances for economic plans, but so far, I have found only higher level summaries and analyses, not the data itself. However, it seems that Soviet planners did have quite substantial datasets:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Even then, industrial supply and distribution plans compiled by Gosplan have been known to (...) deal with well over 30000 commodities&#xA;  (from: Soviet Economic Structure and Perfomance)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Does any of you know where I could find these datasets? Or maybe I should be looking for something else? They don't need to be quantitative, I'm interested in qualitative relationships.&lt;/p&gt;&#xA;" OwnerUserId="7900" LastEditorUserId="7900" LastEditDate="2016-04-08T15:58:49.140" LastActivityDate="2016-04-08T21:41:57.687" Title="Where can I find information on relationships between different commodities?" Tags="&lt;data-request&gt;&lt;input-output&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11455" PostTypeId="2" ParentId="173" CreationDate="2016-04-07T20:32:47.647" Score="9" Body="&lt;p&gt;&lt;a href=&quot;http://www.biu.ac.il/soc/ec/jlwecon/wp/2.%20AumannGame%20-%20bulletin.pdf&quot; rel=&quot;noreferrer&quot;&gt;Game Theory in the Talmud&lt;/a&gt; by Robert J. Aumann discusses a bankruptcy problem and a variety of fair division problems of a contested sum from the Talmud, a document written roughly between 200 and 500 CE.&#xA;For example:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;A fascinating discussion of bankruptcy occurs in the Babylonian Talmud&#xA;2 (Ketubot 93a). There are three creditors; the debts are 100, 200 and&#xA;300. Three cases are considered, corresponding to estates of 100, 200 and 300. The Mishna stipulates the divisions shown in Table 1. When&#xA;the estate is 100, it is divided equally; since 100 is the smallest&#xA;debt, this makes good sense, as pointed out above. The case in which&#xA;the estate is 300 appears based on the different – and inconsistent –&#xA;principle of proportional division. The figures for an estate of 200&#xA;look mysterious; but whatever they may mean, they do not fit any&#xA;obvious extension of either equal or proportional division. A common&#xA;rationale for all three cases is not apparent.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;&lt;a href=&quot;http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2738350&quot; rel=&quot;noreferrer&quot;&gt;Behavioral Despair in the Talmud&lt;/a&gt; uses similar techniques on a related class of problems.&lt;/p&gt;&#xA;&lt;p&gt;The story of &lt;a href=&quot;https://en.wikipedia.org/wiki/Solomon&quot; rel=&quot;noreferrer&quot;&gt;King Solomon&lt;/a&gt; and splitting the baby (&lt;a href=&quot;https://en.wikipedia.org/wiki/Judgment_of_Solomon&quot; rel=&quot;noreferrer&quot;&gt;Judgment of Solomon&lt;/a&gt;) could be interpreted as an early example of a truthful revelation mechanism from approximately 1,000 BCE.&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;16 One day two women[a] came to King Solomon,&lt;/p&gt;&#xA;&lt;p&gt;17 and one of them said: Your Majesty, this woman and I live in the same house. Not long ago my baby was born at home,&lt;/p&gt;&#xA;&lt;p&gt;18 and three days later her baby was born. Nobody else was there with us.&lt;/p&gt;&#xA;&lt;p&gt;19 One night while we were all asleep, she rolled over on her baby, and he died.&lt;/p&gt;&#xA;&lt;p&gt;20 Then while I was still asleep, she got up and took my son out of my bed. She put him in her bed, then she put her dead baby next to me.&lt;/p&gt;&#xA;&lt;p&gt;21 In the morning when I got up to feed my son, I saw that he was dead. But when I looked at him in the light, I knew he wasn’t my son.&lt;/p&gt;&#xA;&lt;p&gt;22 “No!” the other woman shouted. “He was your son. My baby is alive!” “The dead baby is yours,” the first woman yelled. “Mine is alive!” They argued back and forth in front of Solomon,&lt;/p&gt;&#xA;&lt;p&gt;23 until finally he said, “Both of you say this live baby is yours.&lt;/p&gt;&#xA;&lt;p&gt;24 Someone bring me a sword.” A sword was brought, and Solomon ordered,&lt;/p&gt;&#xA;&lt;p&gt;25 “Cut the baby in half! That way each of you can have part of him.”&lt;/p&gt;&#xA;&lt;p&gt;26 “Please don’t kill my son,” the baby’s mother screamed. “Your Majesty, I love him very much, but give him to her. Just don’t kill him.” The other woman shouted, “Go ahead and cut him in half. Then neither of us will have the baby.”&lt;/p&gt;&#xA;&lt;p&gt;27 Solomon said, “Don’t kill the baby.” Then he pointed to the first&#xA;woman, “She is his real mother. Give the baby to her.”\&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.biblegateway.com/passage/?search=1%20Kings%203%3A16-28&amp;amp;version=CEV&quot; rel=&quot;noreferrer&quot;&gt;1 Kings 3:16-28 Contemporary English Version (CEV)&lt;/a&gt;&lt;/p&gt;&#xA;&lt;p&gt;The book &lt;a href=&quot;https://rads.stackoverflow.com/amzn/click/com/0262523329&quot; rel=&quot;noreferrer&quot; rel=&quot;nofollow noreferrer&quot;&gt;Biblical Games: Game Theory and the Hebrew Bible&lt;/a&gt; argues that many of the stories in the Hebrew bible can be understood as reputation games between the creator of the universe and the Jewish people. Further, in many cases the equilibrium outcomes of these games are consistent with traditional understanding of the meaning of these stories. According to the Documentary hypothesis many of the earliest such stories of the bible were written about 1,000 BCE but the earliest stories are set about 2,000 BCE or even earlier.&lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2016-04-08T16:57:00.320" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11457" PostTypeId="1" CreationDate="2016-04-08T06:02:23.453" Score="3" ViewCount="76" Body="&lt;p&gt;I want to know how much research is conducted in an industry in order to be able to say Industry X is more research intense than Industry Y.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For industry categorization I use the &lt;a href=&quot;https://en.wikipedia.org/wiki/Statistical_Classification_of_Economic_Activities_in_the_European_Community&quot; rel=&quot;nofollow noreferrer&quot;&gt;NACE classificiation&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know that &lt;a href=&quot;https://en.wikipedia.org/wiki/R%26D_intensity&quot; rel=&quot;nofollow noreferrer&quot;&gt;research intensity&lt;/a&gt; per se is an indicator which can be calculated as: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://latex.codecogs.com/gif.latex?R%5C%26D%7Eintensity%20%3D%20%5Cfrac%7BR%5C%26D%7Eexpenditure%7D%7Bgross%7Evalue%7Eadded%7D&quot; alt=&quot;e=mc^2&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ultimately, I want to be able to say, that some industries are more welcome to conduct R&amp;amp;D projects.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Please let me know, if there are any more suitable indicators than R&amp;amp;D intensity. Someone (informally) told me, that R&amp;amp;D intensity is out of fashion, and that IPP (intellectual property products) would be more suitable. However, I am not sure about that.&lt;/p&gt;&#xA;" OwnerUserId="7898" LastEditorUserId="-1" LastEditDate="2017-03-10T09:42:49.860" LastActivityDate="2016-04-08T10:30:56.417" Title="get statistics about the research intensity of an industry" Tags="&lt;data-request&gt;&lt;intellectual-property&gt;&lt;research&gt;&lt;innovation&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11458" PostTypeId="2" ParentId="173" CreationDate="2016-04-08T09:47:16.903" Score="5" Body="&lt;p&gt;&lt;a href=&quot;https://rads.stackoverflow.com/amzn/click/com/0521556449&quot; rel=&quot;nofollow noreferrer&quot; rel=&quot;nofollow noreferrer&quot;&gt;Fair division: from cake cutting to dispute resolution&lt;/a&gt; (Brams (1996)) claims that the following text from &lt;a href=&quot;https://msu.edu/%7Etyrrell/theogon.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Hesiod’s Theogony&lt;/a&gt; (sometime in 750 and 650 BCE) is the earliest recorded example of an &lt;a href=&quot;https://en.wikipedia.org/wiki/Envy-freeness&quot; rel=&quot;nofollow noreferrer&quot;&gt;envy-free&lt;/a&gt; (but not regret free!) &lt;a href=&quot;https://en.wikipedia.org/wiki/Fair_division&quot; rel=&quot;nofollow noreferrer&quot;&gt;fair division problem&lt;/a&gt;:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;For when the gods and mortal men had a dispute at Mecone, even then&#xA;Prometheus was forward to cut up a great ox and set portions before&#xA;them, trying to deceive the mind of Zeus. Before the rest he set flesh&#xA;and inner parts thick with fat upon the hide, covering them with an ox&#xA;paunch; [540] but for Zeus he put the white bones dressed up with&#xA;cunning art and covered with shining fat. Then the father of men and&#xA;of gods said to him: “Son of Iapetus, most glorious of all lords, good&#xA;sir, how unfairly you have divided the portions!” [545] So said Zeus&#xA;whose wisdom is everlasting, rebuking him. But wily Prometheus&#xA;answered him, smiling softly and not forgetting his cunning trick:&#xA;“Zeus, most glorious and greatest of the eternal gods, take which ever&#xA;of these portions your heart within you bids.” [550] So he said,&#xA;thinking trickery. But Zeus, whose wisdom is everlasting, saw and&#xA;failed not to perceive the trick, and in his heart he thought mischief&#xA;against mortal men which also was to be fulfilled. With both hands he&#xA;took up the white fat and was angry at heart, and wrath came to his&#xA;spirit [555] when he saw the white ox-bones craftily tricked out: and&#xA;because of this the tribes of men upon earth burn white bones to the&#xA;deathless gods upon fragrant altars. But Zeus who drives the clouds&#xA;was greatly vexed and said to him: “Son of Iapetus, clever above all!&#xA;[560] So, sir, you have not yet forgotten your cunning arts!” So spake&#xA;Zeus in anger, whose wisdom is everlasting; and from that time he was&#xA;always mindful of the trick, and would not give the power of&#xA;unwearying fire to the Melian1race of mortal men who live on the&#xA;earth. [565]&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;The text is dense, but what is happening is  the classic solution to the fair division among two players where one (Prometheus) of the payers divides the cake (here an ox) and the other (Zeus) chooses which half he prefers.&lt;/p&gt;&#xA;&lt;p&gt;Another Greek example from Mechanism design comes from &lt;a href=&quot;https://rads.stackoverflow.com/amzn/click/com/0230610609&quot; rel=&quot;nofollow noreferrer&quot; rel=&quot;nofollow noreferrer&quot;&gt;A Toolbox for Economic Design&lt;/a&gt;&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;During the Classical Period in Athens (479—322 BCE) direct government&#xA;taxation was not feasible, and the city-state of Athens resorted to&#xA;the private provision of some important public goods, such as the&#xA;fleet necessary for the defense of the city. The Athenians devised the&#xA;liturgical system to deal with this, a system that deserves to be much&#xA;better known especially in the world of economics. The New Oxford&#xA;American Dictionary offers this as its second entry for the word&#xA;liturgy. “(in ancient Athens) a public office or duty performed&#xA;voluntarily by a rich Athenian.”&lt;/p&gt;&#xA;&lt;p&gt;At the center of the liturgical system was the trierarchy, which meant&#xA;the “command, outfitting, and maintenance of a war ship for one year’&#xA;‘ (Kaiser, 2007, page 445) . The war ship this refers to is the&#xA;trireme, a fast galley with three banks of oars that proved very&#xA;effective in the Battle of Salamis against the Persian Navy, which&#xA;Persian king Xerxes had to watch being destroyed from a nearby hill in&#xA;479 BC. This battle was decisive in repelling the Persian threat to&#xA;what is now mainland Greece, and it is no accident that the Classical&#xA;Period is taken to start in the year of the Battle of Salamis. The&#xA;intrigue that the trierarchy holds for us is not the same as for&#xA;history buffs. It was a remarkable institution that maintained a high&#xA;level of support for the Athenian fleet by wealthy Athenians for a&#xA;long time by giving them the right incentives.&lt;/p&gt;&#xA;&lt;p&gt;The burden and honor of the trierarchy fell on the members of the&#xA;landowning classes. These individuals had visible wealth,&#xA;self-proclaimed wealth, and actual wealth, to use categories relevant&#xA;for the trierarchy. There was a strong incentive to hide part of one’s&#xA;wealth. This could easily allow wealthy citizens to shirk their&#xA;liturgical duties. The institution of trierarchy was an early example&#xA;of a mechanism, a concept we discuss in this chapter and formally&#xA;define in section 2 . Its purpose was to make the true wealth of&#xA;citizens become apparent so they would not be able to shirk their&#xA;duties. Athens was governed then by the boule, a council chosen&#xA;randomly from the population of citizens. The council did not observe&#xA;the true wealth of citizens, it only observed visible wealth, such as&#xA;land holdings, slaves, and mines. Once it identified the wealthiest&#xA;citizens, it imposed trierarchy duties on them. If an individual was&#xA;assigned such a duty, he could either perform the duty or attempt the&#xA;antidosis challenge. This challenge meant that the citizen charged&#xA;with the trierarchy duty could point his finger to another citizen and&#xA;say that the latter is wealthier and hence more fit to carry out the&#xA;duty than himself. The challenged citizen had three options: (a) agree&#xA;that he is wealthier than the challenger and take on the trierarchy&#xA;duty; (b) disagree that he is wealthier than the challenger and offer&#xA;to swap his visible wealth for the challenger’s visible wealth so that&#xA;the challenger would perform the duty but with the challenged&#xA;individual’s wealth at his disposal; or (c) disagree that he is&#xA;wealthier than the challenger and let the court decide, based on the&#xA;court’s subsequent investigation of the wealth of the challenger and&#xA;the challenged.&lt;/p&gt;&#xA;&lt;p&gt;This system had a purpose: in modern economic terms,&#xA;it was aimed at securing the efficient provision of the public good of&#xA;national defense. It was also sophisticated in that it took account of&#xA;the incentives of individuals to free-ride, and actively counteracted&#xA;them.   The study of social goals and institutionalized incentive&#xA;systems to achieve the goals is at the heart of this book. We turn now&#xA;to a more general discussion of social goals and incentives embodied&#xA;in institutions as an introduction to our methodical investigation of&#xA;the topic in the rest of the book. Rest assured that we will return to&#xA;the fascinating antidosis challenge system for the trierarchy when we&#xA;have developed enough of the necessary theoretical tools to see how it&#xA;provided incentives for people to perform their duties.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="69" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2016-04-08T13:00:12.583" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11459" PostTypeId="2" ParentId="11457" CreationDate="2016-04-08T10:29:26.167" Score="2" Body="&lt;p&gt;Perhaps someone with more expertise on the matter can answer your question more directly, but in the mean time:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the literature on innovation, it is fairly common to use patent data to measure the intensity of innovation activity. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here are &lt;a href=&quot;http://www.ucl.ac.uk/~uctp39a/ABBGH_QJE_2005.pdf&quot; rel=&quot;nofollow&quot;&gt;Aghion et al (2005)&lt;/a&gt; on their approach:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;There is a large literature on measuring innovation intensity, with the most commonly used measures being R&amp;amp;D expenditure and patenting activity. We use the average number of patents taken out by firms in an industry, and to reflect the&#xA;  heterogeneous value of patents, we weight each patent by the number of times it has been cited by another patent. These data are generated by matching the NBER patents database to accounting data on firms listed on the London Stock Exchange&#xA;  (from Datastream). Our sample includes all firms with names beginning &quot;A&quot; to &quot;L&quot; plus all large R&amp;amp;D firms. After removing firms involved in large mergers or acquisitions and those with missing data, we have an unbalanced panel of 311 firms spanning seventeen two-digit SIC codes over the period 1973-1994. We also have information on citations to and from each patent, which enables us to construct a count of citation-weighted patents. We take the average value of citation-weighted patents of firms within each industry (SIC code) in each year. We do not observe a sufficient number of firms in all industries in all years, so our resulting industry level panel is also unbalanced with 354 industry-year observations.&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The latest version of the patent database to which they refer can be viewed &lt;a href=&quot;https://sites.google.com/site/patentdataproject/Home&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;. Aghion et al.'s data is available &lt;a href=&quot;http://www.ifs.org.uk/publications/3557&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2016-04-08T10:29:26.167" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11460" PostTypeId="2" ParentId="11454" CreationDate="2016-04-08T11:18:54.983" Score="5" Body="&lt;p&gt;Quick answer, as I'm on my phone, but product by product input output tables can be obtained from Eurostat for EU countries, and are probably your best bet.  Individual countries may have more detail from their own National Statistical Institutes' websites.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The production functions in these are derived under some fairly strong assumptions, though, and you're certainly not going to get 30000 products worth of detail!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;OECD also have some as well, and there are a number of multi-country input output tables available. I hear SE Asia do this well, but I don't know what data are publicly available. Countries which use hybrid transformations to produce IO tables may be able to provide you with their technology assumptions matrix, which might help you distinguish joint production from by-production.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is all quantitative data, though, and you need to be careful about imports. If you can get an imports matrix as well, that would help, although if you're only looking for qualitative info, if you stick to tables for larger economies the problems should be mitigated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You might be able to find more detail on a qualitative basis elsewhere, but I'm afraid I don't know from where.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Editing to add links and further detail:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Eurostat collect datasets from EU members and make them available &lt;a href=&quot;http://ec.europa.eu/eurostat/web/esa-supply-use-input-tables/data&quot; rel=&quot;nofollow&quot;&gt;here.&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that some of the tables will be industry-by-industry (IxI) rather than product-by-product (PxP).  The former will do in a pinch, but it's not strictly what you're after.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://stats.oecd.org/&quot; rel=&quot;nofollow&quot;&gt;OECD&lt;/a&gt; provide data for a wider range of countries as part of their STAN database but again these are IxI.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The UK do produce PxP tables under a hybrid technology assumption, available &lt;a href=&quot;https://www.ons.gov.uk/economy/nationalaccounts/supplyandusetables/datasets/ukinputoutputanalyticaltablesdetailed&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt; but I would add the caveat that the UK have not carried out a full purchases inquiry since before a change in classification from SIC 2003/NACE Rev. 1 to SIC 2007/NACE Rev. 2, so you could see the odd spurious cell as a result of the correlation matrix method used for their conversion.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your best bet (at least as far as IO tables go) is probably &lt;a href=&quot;http://www.bea.gov/industry/io_annual.htm&quot; rel=&quot;nofollow&quot;&gt;the tables produced by the US BEA.&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Their Total Requirements: Commodity by Commodity table (also known as the Type I Leontief inverse) has a 389 commodity breakdown.  This isn't a PxP table as such; each cell shows (in monetary terms) how much of each input (labelled on the row) is needed to make one unit of output of the product labelled on the column in &lt;em&gt;the whole domestic supply chain&lt;/em&gt;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It sounds like you want something more like a direct requirements matrix, which gives only the things directly used to make that product, not including the things used to make the things used to make the product, and the things used to make those etc. etc.  For this you want the direct requirements matrix, which is unfortunately only provided on an IxI basis.  You might want to go ahead and use this, or you could try to back out the direct requirements matrix (also known as the A-matrix) mathematically.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ordinarily I'd say just invert your total requirements matrix and subtract EDIT(it from) the identity matrix, but looking at the spreadsheet I'm seeing some negatives, which shouldn't happen with a Type I Leontief inverse by construction so I'm not sure what's going on there; I'm guessing some of final demand has been endogenised.  It may be worth digging into their methodology or getting in touch with BEA to discuss this.  They may even be able to directly provide you with something suitable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You'll likely find that there are a lot of cells with (relatively) very small values in either approach; for a qualitative analysis I'd suggest setting a threshold value and setting anything below it to 0 and above to 1, or just picking the largest n cells in each column to look at.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One final caveat: Product-by-Product tables are basically never compiled from directly collected data, and are in a sense an inherently synthetic beast.  Instead they are constructed from Supply and Use tables, which are much closer to directly collected data.  These both have product-by-industry dimension, with the supply table showing what each industry produces, and the use table showing what each industry consumes.  If you can make use of those instead, then that's preferable to using IxI or PxP tables.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you want to learn more about input-output, I can recommend some books.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first is &quot;Input-Output Analysis: Foundations and Extensions&quot; by Miller and Blair, which seems to be the bible among academics on the subject (I would add a warning that I find their presentation of the Type II Leontief model suboptimal for applied work, but this shouldn't be an issue here).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thijs ten Raa has a book, &quot;The Economics of Input-Output Analysis&quot; which is a bit more high level (not to mention shorter!).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you don't want to fork out the cash, &lt;a href=&quot;http://ec.europa.eu/eurostat/documents/3859598/5902113/KS-RA-07-013-EN.PDF/b0b3d71e-3930-4442-94be-70b36cea9b39?version=1.0&quot; rel=&quot;nofollow&quot;&gt;the Eurostat manual on Supply, Use and Input-Output Tables&lt;/a&gt; is available online but is heavily geared towards construction of the tables themselves.  If you're looking for detail on how Supply and Use tables are converted to Input-Output tables, my favourite mathematical presentation online is actually that from the 1968(!) version of the UN System of National Accounts which you can get from the UN &lt;a href=&quot;http://unstats.un.org/unsd/nationalaccount/docs/1968sna.pdf&quot; rel=&quot;nofollow&quot;&gt;here.&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There's also a UN Handbook on Supply, Use and Input-Output Tables due to be published sometime this year, which I'd recommend looking at when it's finally published. &lt;/p&gt;&#xA;" OwnerUserId="5550" LastEditorUserId="5550" LastEditDate="2016-04-08T21:41:57.687" LastActivityDate="2016-04-08T21:41:57.687" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="11461" PostTypeId="1" AcceptedAnswerId="11470" CreationDate="2016-04-08T17:13:07.510" Score="6" ViewCount="157" Body="&lt;p&gt;I was reading this &lt;a href=&quot;https://www.weforum.org/agenda/2016/04/death-of-a-real-estate-broker-10-ways-the-industry-is-changing?ET_CID=774174&amp;amp;ET_RID=001b000000BBTmfAAH&quot; rel=&quot;nofollow&quot;&gt;article&lt;/a&gt; from the World Economic Forum, when I came across this passage:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;When the global equity and real estate markets hit their lowest points in March 2009, &lt;strong&gt;\$34.4 trillion of global wealth was destroyed&lt;/strong&gt;. US households lost almost \$8 trillion in the stock market, on top of the \$6 trillion loss in the market value of their homes.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Is it fair to truth to say that the wealth was &quot;destroyed&quot;? I ask this because that type of phrasing gives the impression that the wealth was really there at one point, and that it wasn't merely an illusion.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can think of a few reasons why this may be true:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;The wealth really did exist elsewhere at first, but when resources were diverted from other assets/resources and invested into real estate – which turned out to be a bubble – those resources had been spent on assets that weren't productive (i.e. didn't give a positive return). The wealth was moved over from valuable assets to less valuable/worthless assets. Capital and labor was spent for nothing.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Wealth is never really expressed in intrinsic &quot;real&quot; terms, but is always a subject of valuation. Wealth is only worth what people value it to be, i.e. what resources they would give up for a transaction of that wealth.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;So, is it correct to say that wealth can be destroyed if there was nothing substantial to back it up?&lt;/p&gt;&#xA;" OwnerUserId="5501" LastEditorUserId="5501" LastEditDate="2016-04-21T14:15:44.113" LastActivityDate="2016-04-21T14:15:44.113" Title="Is it correct to say that wealth is &quot;destroyed&quot; when an asset bubble bursts?" Tags="&lt;financial-crises&gt;&lt;value&gt;&lt;asset-prices&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11462" PostTypeId="1" CreationDate="2016-04-08T17:17:52.007" Score="1" ViewCount="32" Body="&lt;p&gt;In a growth accounting exercise I backed out the time path of technical progress augmenting a factor. Annual growth rate of this factor saving innovation is very close to zero in the last few years. So, its contribution to growth per head diminished. Can we also say, in these later years the augmentation was more like neutral than factor specific?&lt;/p&gt;&#xA;" OwnerUserId="6009" LastActivityDate="2016-04-08T17:17:52.007" Title="Growth accounting: technological progress grows at near zero rate" Tags="&lt;macroeconomics&gt;&lt;economic-growth&gt;&lt;solow&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11463" PostTypeId="1" CreationDate="2016-04-08T21:19:44.810" Score="4" ViewCount="27990" Body="&lt;p&gt;I'm a sophomore at a community college that is set to transfer to the University of California as an economics major. It's required that I took Calculus 1 and Calculus 2, &lt;strong&gt;but not&lt;/strong&gt; Probability and Statistics – which I think is strange. In Principles of Microeconomics and Principles of Macroeconomics, I never really used any calculus, but then again, those are introductory classes.&lt;/p&gt;&#xA;&lt;p&gt;&lt;strong&gt;Tldr&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;p&gt;I am terrible at calculus, but I love economics. When I get into the more advanced classes, is calculus going to be more present? If so, then I think I might have to rethink my major.&lt;/p&gt;&#xA;" OwnerUserId="7906" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2017-04-14T21:20:19.960" Title="Just how much calculus is involved in the study of economics?" Tags="&lt;mathematical-economics&gt;" AnswerCount="5" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="11467" PostTypeId="2" ParentId="11463" CreationDate="2016-04-09T07:43:14.220" Score="5" Body="&lt;p&gt;Calculus is one of the most widely-used branches of mathematics in economics. Here are two (non-exhaustive) examples of important ways in which economists use calculus:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;strong&gt;to optimize functions.&lt;/strong&gt; As a simple example, suppose we are thinking about a firm that must choose its price in order to maximize profit. Provided the profit function satisfies a few regularity properties (i.e. is continuous, concave, and smooth), locating the profit maximizing price amounts to identifying the price for which the profit function has zero slope (see figure below). Since we can calculate the slope by differentiating, calculus gives us the means to identify the optimal price.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/eiL6y.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/eiL6y.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;strong&gt;to perform 'comparative statics' analysis.&lt;/strong&gt; In the simple problem above, the firm must choose its price to maximize profit. But often the result of this exercise will depend on a number of other factors. For example, the optimal price will probably depend upon competitive the market is, or how closely substitutable rival products are. A relevant question for economics is therefore &quot;if I make the market more competitive, what will happen to the price?&quot; The typical way of answering this question would be to calculate the optimal price, $p$, as a function of market competitiveness, $h$, and then compute the derivative: $p'(h)$.* Indeed, $p'(h)$ is the answer to the question &quot;how much would $p$ change if I change $h$ a little bit?&quot; Most types of policy involve going into a market and changing something, so the ability to predict what the effects of such a change are likely to be is very useful.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;In your principles courses, you have probably seen problems that could be solved in this way, but were instead solved through some other method. almost certainly, the courses were organized like this in order to avoid making calculus a requirement. But, as the problems you tackle become more sophisticated, there comes a point at which the effort needed to learn calculus is much less than the difficulty of trying to figure out a way to do economics without calculus.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To answer your explicit question, there is lots of calculus in economics. But, to answer the implicit question in the background, I don't think you should be too worried by this because:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Economics involves a lot of fairly easy calculus rather than a little very hard calculus. Primarily, this means calculation of simple derivatives and the occasional bit of integration.&lt;/li&gt;&#xA;&lt;li&gt;Doing economics is a great way to become good at calculus! You will get lots of exposure to simple calculus problems. That will give you lots of practice. Moreover, the problems will usually have a fairly concrete application and hopefully make calculus more interesting than trying to learn it from an abstract math book.&lt;/li&gt;&#xA;&lt;li&gt;From long personal experience as a student and teacher: it is easier to become good at things you love than it is to learn to love things you are good at.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;* If you are wondering why I use $h$ for competitiveness, take a look at the &lt;a href=&quot;https://en.wikipedia.org/wiki/Herfindahl_index&quot; rel=&quot;noreferrer&quot;&gt;Herfindahl index&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2016-04-09T07:43:14.220" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11469" PostTypeId="2" ParentId="11463" CreationDate="2016-04-09T09:02:20.590" Score="1" Body="&lt;p&gt;Depends how far you intend to study. Graduate economics get rather deeply into real and functional analysis and game theory.&lt;/p&gt;&#xA;" OwnerUserId="7725" LastActivityDate="2016-04-09T09:02:20.590" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11470" PostTypeId="2" ParentId="11461" CreationDate="2016-04-09T11:07:28.337" Score="5" Body="&lt;p&gt;We need to distinguish two things here: the &lt;strong&gt;intrinsic value&lt;/strong&gt; of the assets, and their &lt;strong&gt;fair value&lt;/strong&gt;, or market value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;No matter how much the price of an asset changes on financial markets (say, stock exchanges), its &lt;strong&gt;intrincic value&lt;/strong&gt; stays the same, all other things equals. Typically, you could use the cost of the asset to assess its intrinsic value: for a house, the price of its construction. For a share, the book value per share of the underlying firm. For bonds, the nominal (or face value) amount.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But assessing cost is sometimes tricky. The book value might incorporate things that are valued at fair value. For real estate, the price of the land is a large part of the total cost, and it changes all the time. For bonds, you could incorporate interests and discount them, but you need to choose a discount rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus we typically assess wealth using &lt;strong&gt;fair value&lt;/strong&gt;. It's a concept precisely defined by IFRS (IFRS 13 - Fair value measurement). Basically, the fair value of an asset is the price at which you could sell it under normal market conditions ('at arm's length'). It is true 'value', as you could trade the asset against that amount of cash.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To come back to your question: wealth is measured at fair value, or market value. Therefore, the $34.4bn &lt;strong&gt;were indeed destroyed&lt;/strong&gt;, or disappeared, even though the intrinsic value may have been constant. Your second suggestion is correct.&lt;/p&gt;&#xA;" OwnerUserId="6820" LastActivityDate="2016-04-09T11:07:28.337" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11471" PostTypeId="1" CreationDate="2016-04-09T11:09:40.587" Score="1" ViewCount="34" Body="&lt;p&gt;In page 311 of Gujarati Basic Econometrics, there's the following example for use of dummy variables, when we're interested in the interaction between two qualitative terms.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/7Tu5L.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/7Tu5L.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Shouldn't we have different estimates due to the presence of the extra interaction term?&lt;/p&gt;&#xA;" OwnerUserId="118" LastActivityDate="2016-04-09T11:09:40.587" Title="Interaction dummies estimates influence other estimates?" Tags="&lt;econometrics&gt;&lt;regression&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11472" PostTypeId="2" ParentId="11463" CreationDate="2016-04-09T11:34:51.397" Score="0" Body="&lt;p&gt;While calculus is useful for economics,  the relevant issue is that it's important knowledge whether you want to do economics or not.  Any reasonable undergraduate degree should include calculus anyway.  It's a fun and useful tool to think about many problems. &lt;/p&gt;&#xA;" OwnerUserId="7593" LastActivityDate="2016-04-09T11:34:51.397" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11474" PostTypeId="2" ParentId="11463" CreationDate="2016-04-09T13:49:15.467" Score="3" Body="&lt;p&gt;If you intend to work on economic history, it could be not very useful but let's say, if you will work on macroeconomics, growth theory, you should have a good enough knowledge for optimal control theory, which could be considered as a branch of calculus of variation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, probability and statistics are very useful courses if you intend to work on uncertainty, finance or macroeconomics or stochastic calculus. As a nutshell, all these are tools that economists use for doing formal economics. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are some advices of Thomas Sargent on this topic that could be relevant for you. Here is the link ;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.tomsargent.com/math_courses.html&quot; rel=&quot;nofollow&quot;&gt;http://www.tomsargent.com/math_courses.html&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="2938" LastActivityDate="2016-04-09T13:49:15.467" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11475" PostTypeId="1" AcceptedAnswerId="11477" CreationDate="2016-04-09T15:57:44.487" Score="4" ViewCount="230" Body="&lt;p&gt;There are probably a lot of ways to measure that, but I want to measure it like this: Foreign national workers grouped by country of origin, which group sends the most money per capita in remittances?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That way it's kind of like saying they have the most income per capita after living expenses.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Maybe that means the skills they brought to USA are getting the best return compared to other groups.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It doesn't say anything about how far that remitted money goes in the origin country. So bang for buck is referring to getting paid in the US, not spending it abroad.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm not sure where to start searching for this information. I googled around but just found ads for remittance companies.&lt;/p&gt;&#xA;" OwnerDisplayName="user4207" LastActivityDate="2016-04-11T22:02:47.323" Title="Which foreign workers in USA who send remittances to family are getting the best bang for their buck?" Tags="&lt;labor-economics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11476" PostTypeId="1" CreationDate="2016-04-09T17:22:30.763" Score="3" ViewCount="17" Body="&lt;p&gt;I need to prove some facts about the asymptotic OLS estimator, $\hat{\delta}$ in model:&#xA;   $ y_t = \alpha_t + \delta \cdot t^b + \epsilon_t $&#xA;where $\epsilon_t \sim iid(0,\sigma^2)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've looked at the example where $b=1$ in Hamilton, and have tried to generalize the $Y_t$ matrix he uses:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;[$T^{-1/2}$,0;0,$T^{-3/2}$] &lt;/p&gt;&#xA;&#xA;&lt;p&gt;to &lt;/p&gt;&#xA;&#xA;&lt;p&gt;[$T^{-1/2}$,0;0,$T^{-(b+2)/2}$]&lt;/p&gt;&#xA;&#xA;&lt;p&gt;but am not getting convergence.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finding anything online or a paper where people talk about this type of trend would be helpful. Thanks!&lt;/p&gt;&#xA;" OwnerUserId="4938" LastActivityDate="2016-04-09T17:22:30.763" Title="Help Finding Information on &quot;Power Trends&quot; or &quot;Polynomial Trends&quot;" Tags="&lt;econometrics&gt;&lt;time-series&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11477" PostTypeId="2" ParentId="11475" CreationDate="2016-04-09T17:26:54.827" Score="6" Body="&lt;p&gt;A good start would be &lt;a href=&quot;http://ftp.iza.org/dp1531.pdf&quot;&gt;The Economics of Migrants' Remittances&lt;/a&gt; by Hillel Rapoport and Frédéric Docquier. They both work extensively on this topic. In this paper, they review the  theoretical  and  empirical  economic  literature  on  migrants' remittances.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;They review six theories decomposed into two broad categories individualistic motives (altruism, exchange, inheritance, and the strategic motive) and two types of familial agreements (on insurance and investment).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In all of these six theories, except one, migrant's income is indeed a very good predictor of remittances. However, other motives matter and may differ across &quot;foreign national workers grouped by country of origin&quot;. For instance, some societies are more altruistic than others, and assuming  that  altruism  decreases  with  time  of arrival, the size of remittances should be negatively related to this variable in the altruistic case. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;They also predict contrasting effects concerning the distance from family. For instance, in the inheritance theory, the amounts remitted are expected to be closely related to the probability of receiving inheritance in the origin country. If, as they assume there is a negative correlation between the distance from family and the probability of receiving inheritance, a Mexican worker will remit more than an Ethiopian worker, other things being equal. This could even be true if the Ethiopian worker has &quot;the most income per capita after living expenses&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To sum up, migrant's income is a crucial variable but other variables, which may differ by country of origin, may also be of first-order importance to understand remittances.&lt;/p&gt;&#xA;" OwnerUserId="6168" LastEditorUserId="6168" LastEditDate="2016-04-11T22:02:47.323" LastActivityDate="2016-04-11T22:02:47.323" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11478" PostTypeId="2" ParentId="11382" CreationDate="2016-04-09T17:40:51.170" Score="-1" Body="&lt;p&gt;It is very useful in industrial organization, whereby extensive use of discrete choice econometric models is made. See for instance McFadden 1973. &lt;/p&gt;&#xA;" OwnerUserId="7725" LastActivityDate="2016-04-09T17:40:51.170" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11480" PostTypeId="1" AcceptedAnswerId="11504" CreationDate="2016-04-09T18:54:13.997" Score="1" ViewCount="255" Body="&lt;p&gt;First I am not sure what classical economists say but doesn't increase in Money supply decreases interest rate and cause investment to expand and thus GDP rises.&#xA;Therefore the aggregate demand increase, causing price level to rise. But what does proportional mean in this case?&lt;/p&gt;&#xA;" OwnerUserId="6132" LastActivityDate="2020-11-11T09:46:02.430" Title="Why does an increase in money cause a proportionate increase in price level according to classical/neoclassical economists?" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;&lt;price-level&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11481" PostTypeId="1" CreationDate="2016-04-09T19:17:39.763" Score="1" ViewCount="79" Body="&lt;p&gt;Is '&lt;a href=&quot;https://en.m.wikipedia.org/wiki/Market_socialism&quot; rel=&quot;nofollow&quot;&gt;Market Socialism&lt;/a&gt;' &amp;amp; '&lt;a href=&quot;https://en.m.wikipedia.org/wiki/Libertarian_socialism&quot; rel=&quot;nofollow&quot;&gt;Libertarian Socialism&lt;/a&gt;' functionally identical? What are the basic differences?&lt;/p&gt;&#xA;" OwnerUserId="5352" LastEditorUserId="1601" LastEditDate="2016-04-10T19:31:54.020" LastActivityDate="2016-04-10T19:31:54.020" Title="Differences in Economic models" Tags="&lt;political-economy&gt;" AnswerCount="0" CommentCount="7" ClosedDate="2016-04-10T18:35:24.053" ContentLicense="CC BY-SA 3.0" />
  <row Id="11482" PostTypeId="1" CreationDate="2016-04-09T19:31:21.170" Score="3" ViewCount="126" Body="&lt;p&gt;I found a &lt;a href=&quot;http://www.infoplease.com/ipa/A0005061.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;chart here&lt;/a&gt; of median age at first marriage by year from 1890 to 2010. It looks like it dips to a low during the 60s then has an upward trend until 2010.&lt;a href=&quot;https://i.stack.imgur.com/iMLAT.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/iMLAT.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As an answer, I'm looking for any previous economic research about the causes of this trend. I'm also looking for data and theories that might shed light to this trend.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And if anyone can give a summary of proposed causes of this trend, I'd also appreciate that.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Background/side note&lt;/strong&gt;&#xA;There are other demographic trends coming from that pivotal time too, like more women in the work force, more women in college. I would have thought this kind of integration would make the marriage market more efficient and lower/hold constant that age. I guess there are changing preferences and less demand for marriage until later ages nowadays? People fall in love later? Or school and work are bad places to find a partner? Those are just some of my thoughts I'd like to get more info on.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;extra note&lt;/strong&gt; I disagree with people who don't include marriage as an acceptable topic for economics. But they might be kind of right. Marriage is a topic for sociology. To clear this up though, I'm just looking for the information that the discipline of economics can provide. So no, this isn't a sociology question, even though the two overlap. See comments below. Feel free to edit this question if it needs further clarification or narrowing, etc.&lt;/p&gt;&#xA;" OwnerDisplayName="user4207" LastEditorDisplayName="user4207" LastEditDate="2016-04-10T19:30:41.893" LastActivityDate="2016-04-10T19:30:41.893" Title="Causes of upward trend in median first marriage age in USA?" Tags="&lt;reference-request&gt;&lt;labor-economics&gt;&lt;data-request&gt;&lt;behavioral-economics&gt;" AnswerCount="0" CommentCount="15" ContentLicense="CC BY-SA 3.0" />
  <row Id="11487" PostTypeId="2" ParentId="11475" CreationDate="2016-04-10T00:05:24.153" Score="-1" Body="&lt;p&gt;It would undoubtedly be India, as enormous segments India's tertiary educated class come to the US to work as programmers for 120k. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.m.wikipedia.org/wiki/List_of_ethnic_groups_in_the_United_States_by_household_income&quot; rel=&quot;nofollow&quot;&gt;https://en.m.wikipedia.org/wiki/List_of_ethnic_groups_in_the_United_States_by_household_income&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="8360" LastActivityDate="2016-04-10T00:05:24.153" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11492" PostTypeId="5" CreationDate="2016-04-10T07:24:01.330" Score="0" Body="" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2016-04-10T07:24:01.330" LastActivityDate="2016-04-10T07:24:01.330" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11493" PostTypeId="4" CreationDate="2016-04-10T07:24:01.330" Score="0" Body="The proportion of an amount loaned which a lender charges as interest to the borrower, normally expressed as an annual percentage. The interest rate is typically determined by a combination of market forces and monetary policy." OwnerUserId="108" LastEditorUserId="108" LastEditDate="2016-04-10T07:24:01.330" LastActivityDate="2016-04-10T07:24:01.330" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11494" PostTypeId="1" AcceptedAnswerId="11495" CreationDate="2016-04-10T08:31:14.787" Score="0" ViewCount="22" Body="&lt;p&gt;I'm currently revising for my AS economics exam and I am going over Monetary Policy. In a handout, I've read the following phrases which I am a little confused about...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;A cut in the base rate, assuming it reduces market interest rates across the economy...&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This quote implies that the Bank Rate only changes the Central Bank's Interest Rate not the IR for commercial banks; so therefore, how are IRs determined in commercial banks? Do they have to be within a certain range of the Bank Rate? (Otherwise what is the point of influencing the Bank Rate if commercial banks are not forced to comply?).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;An increase in the base rate will not only reduce post-debt repayment income...&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This implies that mortgages etc. vary depending on the IR rate rather than being a fixed amount independent of changes in the IR (which is what I thought it was).&lt;/p&gt;&#xA;" OwnerUserId="7396" LastActivityDate="2016-04-10T09:39:45.443" Title="Clarification on the impact of a change in the Bank Rate (UK)" Tags="&lt;macroeconomics&gt;&lt;monetary-policy&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11495" PostTypeId="2" ParentId="11494" CreationDate="2016-04-10T09:39:45.443" Score="1" Body="&lt;p&gt;Interest rates in commercial banks are determined by market forces - supply and demand.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Their demand will be influenced by their customers' expectations - which will be influenced by the Central Bank interest rate. Their supply will be influenced by the Central Bank (the Bank of England) interest rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some UK mortgages have fixed interest rates for a particular term - for example, the first three or five years of the mortgage. After that, they revert to the standard variable rate, which loosely tracks the Central Bank interest rate plus a few percentage points.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some UK mortgages are trackers - that is to say, they are designed so that they track the Central Bank interest rate plus a fixed offset, and they change very quickly when Central Bank rates change: if the Central Bank rate changes by x%, then within one day to one month, the tracker interest rates also change by x%.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2016-04-10T09:39:45.443" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11497" PostTypeId="1" AcceptedAnswerId="11704" CreationDate="2016-04-10T10:07:16.310" Score="5" ViewCount="521" Body="&lt;p&gt;Consider a version of Akerlof's &lt;a href=&quot;http://www.iei.liu.se/nek/730g83/artiklar/1.328833/AkerlofMarketforLemons.pdf&quot; rel=&quot;nofollow&quot;&gt;Lemon market&lt;/a&gt; with two types of sellers. One type sells Quality cars the other type sells Lemons. Buyers' reservation prices are $r_{B,Q}$ for a Quality car and $r_{B,L}$ for a Lemon. Sellers' reservation prices are $r_{S,Q}$ for a Quality car and $r_{S,L}$ for a Lemon. The buyers cannot differentiate between the types of the sellers but the sellers know their type. Given a market price $p$ sellers decide whether to sell or not by maximizing their surplus $p - r_{S,t}$. (Not selling yields a surplus of zero.) Buyers decide whether to buy or not by maximizing their expected surplus $E(r_{B,t}) - p$. (Not buying yields a surplus of zero.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given a number of buyers $n_B$ a number of sellers for both types $n_Q, n_L$ we can reason about the type of equilibrium. Depending on the parameters you can have total market collapse (if no purchase occurs), adverse selection (if only Lemons are bought and sold) and also markets where both types of cars are sold. For some parameter sets you have multiple market equilibria. That is you have a price $p_1$ at which adverse selection occurs and the corresponding demand at $p_1$ is equal to the supply at $p_1$. You also have a price $p_2$ at which adverse selection does not occur and the corresponding demand at $p_2$ is equal to the supply at $p_2$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the surplus of a single buyer is larger at $p_2$ and the surplus of sellers is not smaller at $p_2$, can I claim that $p_1$ is an equilibrium? Seems like any buyer would benefit by deviating from $p_1$ and unilateraly setting $p_2$ or $p_2 + \epsilon$. In competitive equilibrium it is assumed that market actors are price takers but if they are sufficiently small (have no bargaining power like a monopoly) then this coincides with their strategic interests. Here even if the buyer is insignificant, this does not hold (probably due to asymmetric information). So is the market in equilibrium with price $p_1$ or not?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Such parameter combinations exist, an example:&#xA;$$&#xA;n_B = 4, n_Q = 2, n_L = 4&#xA;$$&#xA;$$&#xA;r_{B,Q} = 18, r_{B,L} = 6, r_{S,Q} = 8, r_{S,L} = 5&#xA;$$&#xA;$$&#xA;p_1 = 8, p_2 = 5&#xA;$$&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2016-04-11T13:04:43.357" LastActivityDate="2016-04-24T22:01:03.033" Title="Does the concept of Nash-equilibrium conflict with the concept of market equilibrium in the lemon market" Tags="&lt;nash-equilibrium&gt;&lt;competitive-equilibrium&gt;&lt;adverse-selection&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11498" PostTypeId="1" AcceptedAnswerId="11524" CreationDate="2016-04-10T10:09:50.560" Score="1" ViewCount="4935" Body="&lt;p&gt;I've seen a derivation of MRS, but it's not immediately obvious to me why letting MRS equal to the price ratio of two goods will give you the solution to an optimization problem. Can anyone link me to a paper that explains this (or explain it themselves)? It would be great to get both the intuition and mathematical derivation! Thanks in advance!&lt;/p&gt;&#xA;" OwnerUserId="6204" LastActivityDate="2016-04-11T18:47:18.787" Title="Why is MRS equal to Price ratio?" Tags="&lt;consumer-theory&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11503" PostTypeId="2" ParentId="11497" CreationDate="2016-04-10T13:22:59.717" Score="1" Body="&lt;p&gt;In order to talk about whether the competitive equilibrium is also a Nash equilibrium, you first have to properly define a game. For instance, is the buyers setting the prices or the sellers or is there bargaining. How do they meet, are there search costs etc. And importantly, what is the order of events! Your reasoning implicitly assumed that buyers would first announce a price at which they are willing to buy, and then sellers could choose from all the offered prices if they want to sell to any buyer. Assume there are no search costs etc and that if multiple sellers are willing to accept, then the buyer selects a random one. In this case, with a configuration of parameters that permits multiple equilibria, the same set of equilibria is also a Nash equilibria here, but not necessarily a subgame perfect Nash equilibrium. That is, in the equilibrium where only bad quality cars are sold but where buyers are better off with the average quality at $p2$, it is indeed optimal for buyers to offer $p1$ if they believe that high quality sellers will not accept $p2$. If you want to rule that out, you need to restrict attention to equilibria that are sequentially rational/subgame perfect.&lt;/p&gt;&#xA;" OwnerUserId="7741" LastActivityDate="2016-04-10T13:22:59.717" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="11504" PostTypeId="2" ParentId="11480" CreationDate="2016-04-10T13:47:09.770" Score="2" Body="&lt;p&gt;It's a bit hard to answer without a precise model structure, but normally an increase in money will propagate into an increase in &lt;em&gt;nominal&lt;/em&gt; demand. For the sake of simplicity, suppose money is equivalent to nominal gdp $M$, whereas real gdp by definition is given by $Y=M/P$. In classical economics, &lt;em&gt;real&lt;/em&gt; gdp is pinned down completely by fundamentals of the economy, so that accordingly $P\propto M$ (namely by a factor $1/Y$).&lt;/p&gt;&#xA;" OwnerUserId="7741" LastActivityDate="2016-04-10T13:47:09.770" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11505" PostTypeId="1" CreationDate="2016-04-10T16:42:34.033" Score="2" ViewCount="22" Body="&lt;p&gt;I am doing research related to remittances, where can i find a good source of data?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks&lt;/p&gt;&#xA;" OwnerUserId="7918" LastActivityDate="2016-04-12T06:43:58.353" Title="Where can I find data related to foreign remittances?" Tags="&lt;micro-data&gt;" AnswerCount="1" CommentCount="2" ClosedDate="2016-04-12T07:14:31.553" ContentLicense="CC BY-SA 3.0" />
  <row Id="11506" PostTypeId="1" CreationDate="2016-04-10T16:48:45.400" Score="4" ViewCount="139" Body="&lt;p&gt;Does anyone know of journals related to welfare economics?&#xA;If not, what is the next best alternative to find articles (preferably open access) related to current research in welfare economics?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks&lt;/p&gt;&#xA;" OwnerUserId="7918" LastActivityDate="2016-12-13T03:23:13.983" Title="welfare economics journals" Tags="&lt;microeconomics&gt;&lt;welfare-economics&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11508" PostTypeId="2" ParentId="11058" CreationDate="2016-04-10T20:10:07.147" Score="6" Body="&lt;p&gt;Alecos is correct that Smith is talking about packaging, but I don't believe that &quot;paper&quot; refers to a paper bag.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Straight pins used to be sold on sheets of paper (usually as sets of a dozen), through which they passed twice, like so:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/YEuo2.jpg&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/YEuo2.jpg&quot; alt=&quot;sheets of straight pins&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So by &quot;put them into the paper&quot; Smith means exactly what he said: the pins are put into paper before being sold.&lt;/p&gt;&#xA;" OwnerUserId="264" LastActivityDate="2016-04-10T20:10:07.147" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11509" PostTypeId="1" CreationDate="2016-04-10T21:37:29.267" Score="4" ViewCount="3042" Body="&lt;p&gt;My friends and I are taking some introductory macroeconomics courses and these terms keep getting thrown around without being clear how they are related. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can someone provide brief definitions for each of these and how they are different? &lt;/p&gt;&#xA;" OwnerUserId="2679" LastActivityDate="2016-04-11T15:38:59.473" Title="What is the difference between Solow growth, classical growth, and neoclassical growth?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11512" PostTypeId="1" CreationDate="2016-04-11T13:41:34.727" Score="8" ViewCount="734" Body="&lt;p&gt;According to a simulation from 1972, the results of which were published in '&lt;a href=&quot;https://en.wikipedia.org/wiki/The_Limits_to_Growth&quot; rel=&quot;nofollow noreferrer&quot;&gt;The Limits to Growth&lt;/a&gt;' environmental collapse is due mid 21st century. The &lt;a href=&quot;http://www.theguardian.com/commentisfree/2014/sep/02/limits-to-growth-was-right-new-research-shows-were-nearing-collapse&quot; rel=&quot;nofollow noreferrer&quot;&gt;Guardian&lt;/a&gt; reports that Dr. Graham Turner reran the simulations using recent data and the collapse is actually due sooner. Here is the referred &lt;a href=&quot;http://sustainable.unimelb.edu.au/sites/default/files/docs/MSSI-ResearchPaper-4_Turner_2014.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;paper&lt;/a&gt; by Dr. Graham Turner:&lt;/p&gt;&#xA;&lt;p&gt;Quoting from his profile by the Guardian:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Dr. Graham Turner is principal research fellow at the University of Melbourne's Melbourne Sustainable Society Institute. He has a background in applied physics and his current work involves whole-of-system analysis on the long-term physical sustainability of the environment and economy.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;As economists do you think Dr. Turner is right?&lt;/p&gt;&#xA;" OwnerUserId="7866" LastEditorUserId="1601" LastEditDate="2021-02-28T15:56:13.467" LastActivityDate="2021-02-28T15:56:13.467" Title="Limits to Growth: Is environmental collapse by 2030 a likely scenerio?" Tags="&lt;environmental-economics&gt;" AnswerCount="4" CommentCount="2" FavoriteCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="11513" PostTypeId="1" CreationDate="2016-04-11T13:47:23.547" Score="2" ViewCount="143" Body="&lt;p&gt;In Walrasian equilibrium there is a market clearing price, that is&#xA;$$&#xA;D(p) = S(p)&#xA;$$&#xA;or the supply is worthless, so you can have&#xA;$$&#xA;D(p) &amp;lt; S(p) \mbox{ if } p = 0.&#xA;$$&#xA;This can be summarized as&#xA;$$&#xA;p \cdot D(p) = p \cdot S(p)&#xA;$$&#xA;If the demand function is not always downward sloping (e.g. Giffen goods, &lt;a href=&quot;https://economics.stackexchange.com/questions/11497/does-the-concept-of-nash-equilibrium-conflict-with-the-concept-of-market-equilib&quot;&gt;markets with asymmetric information&lt;/a&gt;) or the supply function is not always upward sloping (e.g. economies of scope) multiple Walrasian equilibria may exist. If this is the case, are these all considered equally 'valid' equilibria or are there some established refinements to the equilibrium concept?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An illustrative example:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/m0Qhy.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/m0Qhy.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are $A$, $B$, and $C$ all equilibria?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Personally I dislike $B$. You may well have no problems with the bugger.)&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2016-05-16T06:36:01.650" Title="Refinements of Walrasian equilibrium" Tags="&lt;competitive-equilibrium&gt;&lt;equilibrium-selection&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="11514" PostTypeId="5" CreationDate="2016-04-11T13:51:15.623" Score="0" Body="&lt;p&gt;In dynamic systems one such criterion may be the stability of equilibria. In game theory the concepts of strong equilibrium, subgame perfect equilibrium, divine equilibrium, intuitive criterion, evolutionarily stable strategy are all equilibrium refinements.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2016-04-11T13:51:15.623" LastActivityDate="2016-04-11T13:51:15.623" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11515" PostTypeId="4" CreationDate="2016-04-11T13:51:15.623" Score="0" Body="The equilibrium selection tag applies to question which deal with the issue of selecting one or more out of multiple equilibria based on some criterion. " OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2016-04-11T13:51:15.623" LastActivityDate="2016-04-11T13:51:15.623" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11516" PostTypeId="1" AcceptedAnswerId="11525" CreationDate="2016-04-11T14:02:15.330" Score="1" ViewCount="99" Body="&lt;p&gt;Our model is $Y=X(\beta_0)+u$, where $u\sim IID(0,\sigma_0^2I)$, and $X(\beta)$ is a non-linear function of the beta.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When trying to minimize the $SSR(\beta)$ we get the following FOC:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\nabla X(\beta)^T(Y-X(\beta))=0$, where $\nabla X(\beta)$ is the gradient.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Well, the FOC is equivalent to $n^{(-1/2)}(\nabla X(\beta)^T(X(\beta_0)+u-X(\beta))=0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we apply a taylor expansion of the first order to each component $X_t(\beta)$ of $X(\beta)$, we obtain $X_t(\beta)=X_t(\beta_0)+\nabla X(\bar\beta_{(t)})^T(\beta-\beta_0)$, where $\bar\beta_{(t)}$ is a point in the line segment that joins $\beta$ and $\beta_0$. This point may be different for each taylor expansion we do, and that's why it's indexed by $t$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Inserting the taylor expansion in the FOC:&#xA;$n^{(-1/2)}(\nabla X(\beta)^T(u-\nabla \bar X^T(\beta-\beta_0))=0$, where $\nabla \bar X$ is the matrix with $\nabla X(\bar\beta_{(i)})$ as each i-th column.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are all of the above calculations correct? I ask this because in this &lt;a href=&quot;http://www.amazon.co.uk/Econometric-Theory-Methods-International-Edition/dp/0195391055?ie=UTF8&amp;amp;ref_=asap_bc&quot; rel=&quot;nofollow&quot;&gt;book&lt;/a&gt;, the authors state in page 225 that we should obtain a term with second derivatives of $X(\beta)$... I do not understand why this is.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated&lt;/p&gt;&#xA;" OwnerUserId="118" LastActivityDate="2016-04-12T15:05:41.820" Title="Proving the asymptotic normality of th Non-linear Least Squares estimator" Tags="&lt;econometrics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11517" PostTypeId="2" ParentId="11512" CreationDate="2016-04-11T14:38:57.367" Score="8" Body="&lt;p&gt;We know one core element of the Guardian article is nonsense - the discussion of Peak Oil.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Peak Oil lament, fashionable a decade ago, was that we didn't have enough oil, and that was going to become a major problem very soon.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, we know from climate science that the reverse is true - &lt;a href=&quot;http://www.nature.com/nature/journal/v517/n7533/full/nature14016.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;we have far too much fossil fuel reserves&lt;/a&gt; (disclosure - that's a paper by my colleagues). Our challenge isn't that we won't extract enough to continue economic growth - it's that we'll extract too much and cause a major environmental collapse. Turner's report makes a significant show about the age of cheap and easy oil being over (pp 11,12) - and that's a prediction that was made to look very silly, quickly, as the report's publication in August 2014 happened just as the 18-month oil-price crash caused by huge global over-supply was beginning.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is environmental collapse possible? Yes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are we causing huge ongoing damage to the environment? Yes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Were all of the significant predictions of the Club of Rome correct? No. Not only has geometric population growth stopped, but even arithmetic growth is in decline - and the growth wasn't capped by disaster, but by better healthcare, better access to contraception, and more education and emancipation of women. &lt;a href=&quot;https://economics.stackexchange.com/a/8636/44&quot;&gt;Food production per capita has way exceeded predictions&lt;/a&gt;. And the renewable alternatives to fossil-fuel energy are already economic and scalable for static applications, and becoming so for transport too.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are we still on a trajectory of yesterday's brown economy, that will require a trajectory change if we are to avoid environmental collapse?&lt;br&gt;&#xA;Yes.&lt;br&gt;&#xA;Do we have enough evidence to say that the date for that collapse is 2030?&lt;br&gt;&#xA;No.&lt;br&gt;&#xA;Do we have the technical means to transition to a modern, clean economy and avoid that collapse?&lt;br&gt;&#xA;Yes.&lt;/p&gt;&#xA;" OwnerUserId="44" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2016-04-12T10:52:34.337" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="11518" PostTypeId="2" ParentId="11512" CreationDate="2016-04-11T15:08:30.853" Score="3" Body="&lt;p&gt;As economists, we should be well advised to restrain from making such forecasts. Future is hard, if not impossible, to predict. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, take the job reports in the US which are published on a monthly basis. Forecasters, most of which financial analysts and economists, &lt;strong&gt;consistently fail&lt;/strong&gt; to produce accurate expectations, sometimes by a large amount. Latest example with the previous report (&lt;a href=&quot;http://www.cnbc.com/2016/03/04/us-nonfarm-payrolls-totaled-242k-in-feb-vs-190k-estimate.html&quot; rel=&quot;nofollow&quot;&gt;20% error&lt;/a&gt;). Basically all forecasters of economic growth year-on-year constantly &lt;strong&gt;fail&lt;/strong&gt; and have to adjust their forecast as the year passes by. See &lt;a href=&quot;http://www.worldbank.org/en/news/press-release/2016/01/26/world-bank-lowers-2016-forecasts-for-37-of-46-commodity-prices-including-oil&quot; rel=&quot;nofollow&quot;&gt;WTO&lt;/a&gt; and &lt;a href=&quot;http://www.imf.org/external/pubs/ft/weo/2016/update/01/&quot; rel=&quot;nofollow&quot;&gt;IMF&lt;/a&gt;, but also private institutions, such as &lt;a href=&quot;https://www.fitchratings.com/site/fitch-home/pressrelease?id=1000543&quot; rel=&quot;nofollow&quot;&gt;Fitch&lt;/a&gt; or &lt;a href=&quot;http://www.euronews.com/2016/03/30/sp-downgrades-eurozone-economic-growth-and-inflation-forecasts/&quot; rel=&quot;nofollow&quot;&gt;Standard and Poor's&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If economists fail to predict what's going on month on month, or year on year, I don't see how they could produce any accurate and reliable forecasts @15 years.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Furthermore, most models rely on observations of the past and of the present. Such data are a &lt;strong&gt;terrible basis&lt;/strong&gt; to predict the future. Some learned this the hard way, such as &lt;a href=&quot;https://en.wikipedia.org/wiki/Long-Term_Capital_Management&quot; rel=&quot;nofollow&quot;&gt;LTCM&lt;/a&gt; whose risk management and investment policy relied on past observations to predict volatility, leading them to burst in 1998 when unseen volatility did spread. Future is &lt;strong&gt;unpredictable&lt;/strong&gt; and is unlike the past. Notice that a lot of major innovations occurred by pure chance (lasers, internet to some extend, Carambar candies, and so on). Thus, it would be foolish to make guesses on what's going to happen 15 years from now, especially relying on today's data and known facts.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also note that it is always much easier to predict doom than prosperity. It attracts public attention, and you can always say after the fact a nice &quot;I told you&quot;. French economist Jean-Marc Daniel regurlarly underlines this fact in his books (for example &lt;em&gt;Ricardo reviens ! ils sont restés keynesiens&lt;/em&gt;, though I doubt it was translated in English.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you want some interesting readings (and more) on the topic, I suggest you take a look at the work of &lt;a href=&quot;http://www.fooledbyrandomness.com/&quot; rel=&quot;nofollow&quot;&gt;Nassim Nicholas Taleb&lt;/a&gt; , in particular his book &lt;em&gt;The Black Swan&lt;/em&gt;. I also recommand the podcasts hosted by Russ Roberts, with &lt;a href=&quot;http://www.econtalk.org/archives/2015/03/campbell_harvey.html&quot; rel=&quot;nofollow&quot;&gt;Harvey Campbell&lt;/a&gt;, Nobel laureate &lt;a href=&quot;http://www.econtalk.org/archives/_featuring/lars_peter_hans/&quot; rel=&quot;nofollow&quot;&gt;Peter Hansen&lt;/a&gt;, or &lt;a href=&quot;http://www.econtalk.org/archives/2016/01/james_heckman_o.html&quot; rel=&quot;nofollow&quot;&gt;James Heckman&lt;/a&gt;, which deal with the limitations of economics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;TL;DR&lt;/strong&gt;: nobody has any idea about what's going to happen 15 years from now.&lt;/p&gt;&#xA;" OwnerUserId="6820" LastActivityDate="2016-04-11T15:08:30.853" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11519" PostTypeId="2" ParentId="11509" CreationDate="2016-04-11T15:38:59.473" Score="5" Body="&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;Classical growth theory&lt;/strong&gt;: we can put many authors in it but I'd say Ricardo (if we put Malthus aside) is the first one to have describe a real growth theory. For their defenders, growth should somehow end at a certain point in time and is also very unstable for various reasons: Ricardo thinks growth would end because of diminishing returns (cf. Ricardo's &lt;em&gt;On the Principles of Political Economy and Taxation&lt;/em&gt; (1817)). In the classical growth theory, you can also include the theory of Harrod-Domar which basically explains that growth is unstable: there is either too much investment in comparaison to savings, or there is not enough investment (cf. Harrod's &quot;An Essay in Dynamic Theory&quot;, &lt;em&gt;The Economic Journal&lt;/em&gt; (1939)). &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;Neoclassical growth&lt;/strong&gt;: Solow's model &lt;em&gt;is&lt;/em&gt; a neoclassical model of growth. It comes in response to the Harrod-Domar model and tries to explain that in the long run, growth is stable (no growth of capital per head).. The only extra growth per head can only come through technological progress (cf. Solosw' &quot;A contribution to the theory of economic growth&quot;, &lt;em&gt;Quarterly Journal of Economics&lt;/em&gt; (1956)), which is exogeneous.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I encourage you also to look at two other models such as: the AK (accumulated knowledge), which is based on the theory of Solow but tries to make technological changes a endogenous variable in the model (in the Solow model technological change is not the consequence of specific policies); Schumpeterian model created by Aghion and Howitt (1998) which also describes the policies that would be best to stimulate innovation and therefore growth... &lt;/p&gt;&#xA;" OwnerUserId="7833" LastActivityDate="2016-04-11T15:38:59.473" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11520" PostTypeId="1" AcceptedAnswerId="11645" CreationDate="2016-04-11T17:19:06.540" Score="4" ViewCount="2105" Body="&lt;p&gt;What is the definition of &quot;demand for money&quot;. The definition given by Wikipedia appears gibberish to me. And just to double check - what are the units of demand for money? Is it measured in &quot;dollars&quot;? or perhaps &quot;dollars per unit time&quot;? Or a ratio between two things?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I understand it correctly, the level of demand for any produce (other than money) is the rate of flow of money that is currently being used to purchase that produce. So for example, if there is 1 million dollars per day being spent on VW cars, then you can say, &quot;the demand for VW cars is $1m per day&quot;. Clearly the meaning of the word &quot;demand&quot; in the expression &quot;demand for money&quot; can't be the same thing - can it?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;EDIT:&lt;/strong&gt; Some definitions sound an awful lot as though a person's demand for money is exactly equal to the amount of money they currently have (and its units would therefore simply be &quot;dollars&quot;). Please include in your answer, an indication of whether or not your definition is identical to a person's current holding of money.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;EDIT:&lt;/strong&gt; Looking at the suggested answers and doing some more reading, I get the feeling that the word &quot;demand&quot; in economics is actually not a single number, but a set of numbers, or a curve. In the case of normal goods (call them Widgets), then the x axis will be price and on the y axis will be &quot;Widgets sold per unit time&quot; (the unit of time could be days, years etc). Please advise if you think I have this bit wrong.&lt;/p&gt;&#xA;" OwnerUserId="5081" LastEditorUserId="5081" LastEditDate="2016-04-15T08:12:38.030" LastActivityDate="2016-04-20T03:46:32.870" Title="&quot;Demand for money&quot; - definition" Tags="&lt;money&gt;" AnswerCount="4" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="11522" PostTypeId="2" ParentId="8318" CreationDate="2016-04-11T17:35:56.047" Score="5" Body="&lt;p&gt;The key thing to note is that the interest paid does not simply accumulate at the bank. Nobody runs a business in order to just make a big pile of money to keep in a safe. The banks spend the money back into the economy through staff wages, running costs and dividend payments to shareholders. All these outflows of money will ultimately be spent on real goods and services produced by the rest of the economy. This flow of money is a source of money for the interest payments.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can get an idea of what is going on by imagining an economy with a fixed money supply. The figure below shows a hypothetical flow of the money in the economy. The flow marked &quot;trade&quot; and is simply the money circulating back an forth between households and industry as people earn money and spend it on what has been produced in the factories.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a steady state, the rate of flow of money being created as new loans (shown as &quot;loans&quot; in the diagram) will be equal to the rate of flow of money being paid back in principal repayments (i.e. before interest payments).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At the same time the loan interest payments are equal to the spending by banks (those staff wages, running costs and dividend payments to shareholders).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As you can see, the flows can balance. Nothing is broken, no new money needs to be added to pay the interest. The system can continue indefinitely.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/gcVt6.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/gcVt6.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="5081" LastEditorUserId="5081" LastEditDate="2016-11-11T10:13:12.063" LastActivityDate="2016-11-11T10:13:12.063" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11523" PostTypeId="2" ParentId="11520" CreationDate="2016-04-11T17:37:08.853" Score="0" Body="&lt;p&gt;It is simply the &lt;em&gt;quantity of money&lt;/em&gt; that an agent (usually households or corporates) desires to hold. It is therefore an &lt;em&gt;ex ante&lt;/em&gt; measure, which is not necessarily met.&lt;/p&gt;&#xA;" OwnerUserId="7833" LastActivityDate="2016-04-11T17:37:08.853" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="11524" PostTypeId="2" ParentId="11498" CreationDate="2016-04-11T18:47:18.787" Score="2" Body="&lt;p&gt;The mathematical derivation is straightforward: set up a Lagrangian for the utility maximization the consumer solves subject to a monetary constraint, then divide its partial derivatives with respects to the quantities one with another, and there you have it: MRS equals the price ratio. &#xA;The intuition behind it is that, given fixed prices (that is, a price taking situation), the ratio of the marginal utilities must also remain constant: suppose by contradiction this isn't the case, and that some good provides relatively high marginal utility. Then the consumer would profit from deviating to consuming a basket in which the quantity of said good is higher, since the increase in utility would be higher than the costs incurred. &lt;/p&gt;&#xA;" OwnerUserId="7725" LastActivityDate="2016-04-11T18:47:18.787" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11525" PostTypeId="2" ParentId="11516" CreationDate="2016-04-11T20:03:05.337" Score="2" Body="&lt;p&gt;It appears that what you do is not a Taylor expansion, but an application of the mean-value theorem (as one should). If it was a Taylor expansion, apart from the remainder, the gradient would have to be evaluated at $\beta_0$. With the mean-value theorem, there is no remainder, and you evaluate the gradient at some $\bar \beta$ that always lies between $\beta$ and $\hat \beta$.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As regards the issue of second derivatives/Hessian, officially speaking they/it only &quot;temporarily&quot; appear in the derivation of asymptotic normality of the non-linear least -squares estimator, but they vanish asymptotically (while in the Maximum likelihood estimator the Hessian stays there).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Apart from that, we want to minimize the &lt;em&gt;sum&lt;/em&gt; of squared residuals so, indexing the observations by $i$, and using much simpler notation (you will have to adjust it to vector-matrix notation), you set out to minimize $\sum_i[u_i(\beta)]^2 = \sum_i[y_i-h(\mathbf x_i,\beta)]^2$ w.r. to the vector $\beta$, in order to obtain a $\hat \beta$. So your FOC is (suppressing the regressors and passing the $i$ index to the function $h$)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\hat \beta : \sum_i\frac {\partial }{\partial \beta}[y_i-h_i(\beta)]^2 = 0 \implies \sum_i2[y_i-h_i(\hat \beta)] \frac {\partial h_i (\hat \beta)}{\partial \beta} =0, $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ignore &quot;$2$&quot; and apply the mean value theorem &lt;em&gt;to the whole expression&lt;/em&gt;  to get &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\sum_i[y_i-h_i(\beta)] \frac {\partial h_i (\hat \beta)}{\partial \beta} =  \sum_i[y_i-h_i(\beta_0)] \frac {\partial h_i (\beta_0)}{\partial \beta} \\ &#xA;+ (\hat \beta -\beta) \sum_i\left [-\frac {\partial h_i (\bar \beta)}{\partial \beta}\frac {\partial h_i (\bar \beta)}{\partial \beta}+ [y_i-h_i(\bar \beta)]\frac {\partial^2 h_i (\bar \beta)}{\partial \beta^2}\right] =0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that $y_i-h_i(\beta_0) = u_i$, the true error, divide by $1/n$ and then multiply by $\sqrt n$ as you are allowed to and re-arrange to get &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\sqrt n (\hat \beta -\beta) = -\left (\frac 1n\sum_i\left [-\frac {\partial h_i (\bar \beta)}{\partial \beta}\frac {\partial h_i (\bar \beta)}{\partial \beta}\right] + \frac 1n\sum_i\left [[y_i-h_i(\bar \beta)]\frac {\partial^2 h_i (\bar \beta)}{\partial \beta^2}\right]\right)^{-1} \cdot \left(\frac 1{\sqrt n} \sum_iu_i \frac {\partial h_i (\beta_0)}{\partial \beta} \right) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, we consider asymptotic normality, &lt;em&gt;given&lt;/em&gt; that consistency holds,  $\hat \beta \xrightarrow{p} \beta_0$. Since $\bar \beta$ is sandwiched between $\hat \beta$ and $\beta_0$, it follows that $\bar \beta \xrightarrow{p} \beta_0$ also. This means that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac 1n\sum_i\left [[y_i-h_i(\bar \beta)]\frac {\partial^2 h_i (\bar \beta)}{\partial \beta^2}\right] \xrightarrow{p} \frac 1n\sum_i\left [[y_i-h_i(\beta_0)]\frac {\partial^2 h_i (\beta_0)}{\partial \beta^2}\right] \\= \frac 1n\sum_i\left [E(u_i) E\frac {\partial^2 h_i (\beta_0)}{\partial \beta^2}\right] =0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;because $E(u_i) =0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So this term vanishes asymptotically and we are left with (cancelling also the negative sings)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\sqrt n (\hat \beta -\beta) \xrightarrow{d} \left (\text {plim}\frac 1n\sum_i\left [\frac {\partial h_i (\beta_0)}{\partial \beta}\frac {\partial h_i (\beta_0)}{\partial \beta}\right] \right)^{-1} \cdot \left(\frac 1{\sqrt n} \sum_iu_i \frac {\partial h_i (\beta_0)}{\partial \beta} \right) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You have to assume that the first sum converges to something positive definite, and the second converges in distribution to a normal random variable, and you do indeed make these assumptions (or deeper ones that lead to them). I don't have the specific book you mention, but you can compare the above to Davidson &amp;amp; McKinnon &quot;Econometric Theory and Methods&quot;(2004) ch. 6, around eq. $(6.30)$.  &lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2016-04-11T20:03:05.337" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11526" PostTypeId="1" AcceptedAnswerId="11527" CreationDate="2016-04-11T20:48:27.640" Score="3" ViewCount="438" Body="&lt;p&gt;Checking this &lt;a href=&quot;http://www.xe.com/currencycharts/?from=JPY&amp;amp;to=USD&amp;amp;view=1W&quot; rel=&quot;nofollow&quot;&gt;graph&lt;/a&gt; we can see that 1 Yen is worth increasingly more dollars this past week. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I wonder why is this, specially when the BoJ has imposed negative nominal interest rates.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems a bit strange...&lt;/p&gt;&#xA;" OwnerUserId="118" LastActivityDate="2016-04-12T06:57:33.627" Title="Why is the yen getting stronger even with negative interest rates?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11527" PostTypeId="2" ParentId="11526" CreationDate="2016-04-11T21:24:04.683" Score="7" Body="&lt;p&gt;Negative interest rates are not incompatible with appreciation of the local currency. As pointed out by the economist (&lt;em&gt;&lt;a href=&quot;http://www.economist.com/blogs/economist-explains/2016/02/economist-explains-6&quot; rel=&quot;nofollow&quot;&gt;Why investors buy bonds with negative yields&lt;/a&gt;&lt;/em&gt;), some investors buy bonds to place bets on currencies. Thus, it does not matter so much that the interest rate is negative.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, the variation of the yen reflects other trends. It is very tricky to point out at one event or idea in particular, but here are a few possible drivers of the appreciation of the Yen:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;The dollar is weakening, following the &lt;a href=&quot;http://www.economist.com/blogs/economist-explains/2016/02/economist-explains-6&quot; rel=&quot;nofollow&quot;&gt;release of the minutes&lt;/a&gt; of the Fed meeting which showed that the central bank does not intend to raise interest rates in April.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Japan is &lt;a href=&quot;http://www.bloomberg.com/news/articles/2016-04-06/japan-is-fast-approaching-the-quantitative-limits-of-quantitative-easing&quot; rel=&quot;nofollow&quot;&gt;running out of options&lt;/a&gt; to put downward pressure on the yen. The central bank already buys everything in sight, and thus would have difficulties to increase the money supply. The feeling that central banks are loosing grip is very tangible since a few months (if not years)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;G20 countries &lt;a href=&quot;http://www.bloomberg.com/news/articles/2016-02-27/brexit-and-refugees-join-g-20-worry-list-in-draft-communique&quot; rel=&quot;nofollow&quot;&gt;recently agreed&lt;/a&gt; to not proceed to competitive devaluations of their currency. Therefore, investors might expect that Yen won't go down easily, and that the most logical path is unpward.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Japan's Prime Minister Shinzo Abe seems to hesitate to proceed to &lt;a href=&quot;http://www.bloomberg.com/news/articles/2016-01-27/japan-s-wreckage-from-past-tax-rises-spurs-debate-on-2017-plan&quot; rel=&quot;nofollow&quot;&gt;planned increase in sale tax&lt;/a&gt;. The first increase had a desastrous short-term effect on the economy, and most firms have a pessimistic outlook (&lt;a href=&quot;http://www.reuters.com/article/us-japan-economy-pmi-idUSKCN0WO064&quot; rel=&quot;nofollow&quot;&gt;latest PMI 49.1&lt;/a&gt;). Therefore, it becomes more and more likely that the government will delay the increase in sale tax, and potentially also try to stimulate the economy further.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;These are all guesses. It might be that one or more of the above guesses actually moved the Yen. Or maybe it didn't and something else is happening. Maybe investors aren't as rational as we think they are and they just bet on the Yen because of their gut without logical reasons.&lt;/p&gt;&#xA;" OwnerUserId="6820" LastEditorUserId="6820" LastEditDate="2016-04-12T06:57:33.627" LastActivityDate="2016-04-12T06:57:33.627" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11530" PostTypeId="2" ParentId="11070" CreationDate="2016-04-12T03:46:12.063" Score="6" Body="&lt;p&gt;While whomever told you about &amp;quot;shadow banking&amp;quot; in China is correct that in an international context, the term can often refer to informal banking arrangements (the earliest use of the term); however, these days, it is usually used in the sense first coined by Paul McCulley in a speech he delivered (&amp;quot;&lt;a href=&quot;https://www.pimco.com/insights/economic-and-market-commentary/global-central-bank-focus/teton-reflections&quot; rel=&quot;noreferrer&quot;&gt;Teton Reflections&lt;/a&gt;&amp;quot;) at the 2007 Jackson Hole conference. He described them as:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;[T]he whole alphabet soup of levered up non-bank investment conduits, vehicles, and structures...&lt;/p&gt;&#xA;&lt;p&gt;Unlike regulated real banks, who fund themselves with insured deposits, backstopped by access to the Fed’s discount window, unregulated shadow banks fund themselves with un-insured commercial paper, which may or may not be backstopped by liquidity lines from real banks.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Structured investment vehicles, as noted by Kitsune, are certainly one type of shadow bank, but nonbank broker-dealers, certain real estate investment trusts, and particular hedge funds can be viewed as types of shadow bank. The question to ask in determining whether an entity is a &amp;quot;shadow bank&amp;quot; is twofold— do they:&lt;/p&gt;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;perform credit, liquidity, or maturity transformation; and&lt;/li&gt;&#xA;&lt;li&gt;fund themselves through uninsured wholesale deposits (without recourse to liquidity facilities)?&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&lt;p&gt;As a direct answer to your question, &lt;a href=&quot;https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr458.pdf&quot; rel=&quot;noreferrer&quot;&gt;Pozsar, Adrian, Ashcraft, and Boesky (2010)&lt;/a&gt; say:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Examples of shadow banks include finance companies, asset-backed commercial paper (ABCP) conduits, structured investment&#xA;vehicles (SIVs), credit hedge funds, money market mutual funds, securities lenders, limited-purpose finance companies (LPFCs), and the government-sponsored enterprises (GSEs).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;I &lt;em&gt;strongly&lt;/em&gt; recommend clicking on that link and taking your time to browse the map on page 2.&lt;/p&gt;&#xA;&lt;p&gt;It's worth noting both that many of these entities have existed for long periods of time without incident, and that due to choices in how banking is regulated, shadow banks are often the result of a desire to both limit the scope of regulation and to limit the risk of failure within the scope of regulation— which has the effect of pushing intermediation activities outside the regulated sphere.&lt;/p&gt;&#xA;" OwnerUserId="264" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2016-04-12T04:05:59.360" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11531" PostTypeId="1" AcceptedAnswerId="11541" CreationDate="2016-04-12T03:56:20.567" Score="4" ViewCount="544" Body="&lt;p&gt;I've got a model of endogenous growth due to spillovers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\textbf{Model:}$&#xA;$$K_t=\frac{1}{n}\sum_{t=1}^nk_t$$&#xA;In this model, $k_t$ is chosen by agents, and $K_t=\bar{k}_t$ (the average of all $k_t$).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, agents want to dynamically maximize utility (under certain constraints) and they have CRRA (constant relative risk aversion) utility, so the maximization looks like:&#xA;$$\sum_{t=0}^\infty\beta^t\bigg(\frac{c_t^{1-\gamma}}{1-\gamma}\bigg)$$&#xA;$$s.t.\;Y_t=k_t^\alpha(E_tL)^{1-\alpha}$$&#xA;$$c_t+i_t=Y_t$$&#xA;$$k_{t+1}=(1-\delta)k_t+i_t$$&#xA;$$c_t,i_t\geq0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$E_tL$ is effective labor and the rest of the variables are typical  (I can give their definitions if requested).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One last addition to the model is that there are two equilibrium constraints:&#xA;$$E_t=\frac{K_t}{L}$$&#xA;$$k_t=K_t$$&#xA;$\textbf{Solution:}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Using an Euler equation approach, two terms in the objective:&#xA;$$...\frac{\beta^t[k_t^\alpha K_t^{1-\alpha}+(1-\delta)k_t-k_{t+1}]^{1-\gamma}}{1-\gamma}+\frac{\beta^{t+1}[k_{t+1}^\alpha K_{t+1}^{1-\alpha}+(1-\delta)k_{t+1}-k_{t+2}]^{1-\gamma}}{1-\gamma}...$$&#xA;FOC:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;w.r.t  $k_{t+1}$ and substituting in consumption:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\beta^tc_t^{-\gamma}=\beta^{t+1}c_{t+1}^{-\gamma}[\alpha k_{t+1}^{\alpha-1}K_{t+1}^{1-\alpha}+1-\delta]$$ &#xA;Substituting in the equilibrium constraints:&#xA;$$c_t^{-\gamma}=\beta c_{t+1}^{-\gamma}[\alpha+1-\delta]$$&#xA;$$\implies \frac{c_{t+1}}{c_t}=[\beta(\alpha+1-\delta)]^{\frac{1}{\gamma}}$$&#xA;This implies that consumption grows at a constant rate which depends on preference parameters.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The next thing I want to prove that we have a balanced growth path. By this I mean that all variables grow at the same constant rate. $$\frac{k_{t+1}}{k_t}=\frac{c_{t+1}}{c_t}?$$&#xA;I have started to answer the question, but I have gotten stuck. Here is what I have so far:&#xA;$$k_{t+1}=k_t^\alpha K_t^{1-\alpha}+(1-\delta)k_t-c_t$$&#xA;In equilibrium $K_t=k_t$:&#xA;$$k_{t+1}=k_t+(1-\delta)k_t-c_t$$&#xA;$$\implies \frac{k_{t+1}}{k_t}=1+(1-\delta)-\frac{c_t}{k_t}$$&#xA;If we have a constant rate of capital growth, suppose:&#xA;$$\frac{k_{t+1}}{k_t}&amp;lt;\frac{c_{t+1}}{c_t}$$&#xA;If this is true:&#xA;$$\underset{t\rightarrow \infty}{lim}\;\frac{k_{t+1}}{k_t}=\underset{t\rightarrow \infty}{lim}\;1+(1-\delta)-\frac{c_t}{k_t}=-\infty$$&#xA;This means that the growth rate will continue decreasing. Now there are two ways this can happen. The first way is if $\underset{t\rightarrow \infty}{lim}\;k_t=-\infty$, which would clearly show that it couldn't be the case because capital cannot be negative. The second way which this could happen is if $\underset{t\rightarrow \infty}{lim}\;k_t=D$ where $D$ is some positive horizontal asymptote. If it did approach some asymptote, there is no reason why it could not be the case that consumption grows at a faster rate than capital. This is where I am stuck. How can I show that it cannot converge to some asymptote, and that $\underset{t\rightarrow \infty}{lim}\;k_t=-\infty$? Also, if there is an easier way to show that this model exhibits balanced growth paths, what is it? Any help would be greatly appreciated!&lt;/p&gt;&#xA;" OwnerUserId="5825" LastEditorUserId="5825" LastEditDate="2016-04-12T14:33:57.257" LastActivityDate="2016-04-13T01:04:06.610" Title="Endogenous Growth: Balanced Growth Path with CRRA Utility" Tags="&lt;macroeconomics&gt;&lt;economic-growth&gt;&lt;endogenous-growth&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11532" PostTypeId="2" ParentId="11070" CreationDate="2016-04-12T05:11:37.187" Score="-2" Body="&lt;p&gt;Shadow banks are banks that authorities do not like, so they give them an ominous name. They are institutions that do not adhere to the rules and regulations the Federal Reserve and other governments have set up to keep track of their citizens. Here is an example:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.chinalawblog.com/2012/10/getting-money-out-of-china-thats-illegal.html&quot; rel=&quot;nofollow&quot;&gt;http://www.chinalawblog.com/2012/10/getting-money-out-of-china-thats-illegal.html&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Ms. Chu ran an underground bank, according to defense evidence cited by the Hong Kong judges, an operation that they said would match people who wanted to bring money into China illegally with those who wanted to get it out illegally. These strangers would deposit money in each other’s accounts — one inside China, the other in Hong Kong. Money doesn’t actually cross the border, making it difficult for regulators to track.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;In one of Ms. Yan’s transactions, Ms. Chu directed her to deposit 3 million yuan (roughly $480,000) into a mainland bank account in the name of a stranger, also a client of Ms. Chu’s, the court said.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The same day, another stranger deposited checks worth the same amount that Ms. Yan had deposited on the mainland, converted into Hong Kong dollars, into an account Ms. Yan owned at an HSBC branch in Hong Kong. HSBC, which hasn’t been accused of wrongdoing, declined to comment.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Funds don’t actually cross the border, but the clients essentially moved money from one jurisdiction to the other, evading the $50,000 limit.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="7930" LastActivityDate="2016-04-12T05:11:37.187" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11533" PostTypeId="2" ParentId="11505" CreationDate="2016-04-12T06:43:58.353" Score="1" Body="&lt;p&gt;In the &lt;a href=&quot;http://www.worldbank.org/en/topic/migrationremittancesdiasporaissues/brief/migration-remittances-data&quot; rel=&quot;nofollow&quot;&gt;World Bank&lt;/a&gt; website you can find data on remittances such as &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Annual and Monthly Remittance Flows to Selected Countries,&lt;/li&gt;&#xA;&lt;li&gt;Bilateral Remittances Matrices,&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;and&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Household survey data on migration and remittances.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="6168" LastActivityDate="2016-04-12T06:43:58.353" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11535" PostTypeId="2" ParentId="11516" CreationDate="2016-04-12T14:18:32.890" Score="2" Body="&lt;p&gt;Based on Alecos Papadopoulos answer, I'm posting an answer with matrix notation.&#xA;I'll change the notation a bit, to make it easier to understand.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The FOC is $D_\mathbf{x}( \beta )^T(\mathbf{y}-\mathbf{x}(\beta))=0$. This gives a function in $\beta$, where $D_\mathbf{x}( \beta )$ is a matrix of dim $N\times K$, with element $\frac{\partial x_n}{\partial\beta_k}(\beta)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, applying the Taylor expansion(1st order)/mean-value theorem to each component of the LHS of the equality, we obtain&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{equation}&#xA;D_\mathbf{x}(\beta_0)^T \mathbf{u} +\big[H_\mathbf{x}(\bar\beta)-D_\mathbf{x}(\bar\beta)^T D_\mathbf{x}(\bar\beta)\big](\hat\beta-\beta_0)=0 &#xA;\ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \text{(a)}&#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $H_\mathbf{x}(\bar\beta)$ represents a matrix $K\times K$, with each element being $H_{ij}(\bar\beta_i)[\mathbf{y}-\mathbf{x}(\bar\beta_i)]$, where $H_{ij}(\bar\beta_i)=\begin{bmatrix}&#xA;    \frac{\partial^2 x_1}{\partial\beta_j\partial\beta_i}(\bar\beta_i) &amp;amp; \dots  &amp;amp; \frac{\partial^2 x_n}{\partial\beta_j\partial\beta_i}(\bar\beta_i) &#xA;\end{bmatrix}$. &#xA;Similarly, $D_\mathbf{x}(\bar\beta)^T D_\mathbf{x}(\bar\beta)$ is the Gramian of $D_\mathbf{x}(\bar\beta)$, with $ij$-th element $\sum_l^n\frac{\partial x_l}{\partial\beta_j}(\bar\beta_i)\frac{\partial x_l}{\partial\beta_i}(\bar\beta_i)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From (a), $n^{\frac{1}{2}}(\hat\beta-\beta_0)=-\left(\frac{1}{n}H_\mathbf{x}(\bar\beta)-\frac{1}{n}D_\mathbf{x}(\bar\beta)^T D_\mathbf{x}(\bar\beta)\right)^{-1}n^{-\frac{1}{2}}D_\mathbf{x}(\beta_0)^T \mathbf{u}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We know from the non-linear model that $n^{-\frac{1}{2}}D_\mathbf{x}(\beta_0)^T \mathbf{u}=n^{-\frac{1}{2}}\sum_i^n u_i D_{\mathbf{x}i}(\beta_0)^T\rightarrow^d N\left(\underbrace{E(u_i D_{\mathbf{x}i}(\beta_0)^T)}_{=\mathbf{0}},\underbrace{\lim 1/n \sum E(u_i^2 D_{\mathbf{x}i}(\beta_0)D_{\mathbf{x}i}(\beta_0)^T)}_{\sigma_0^2 S_{D_0^TD_0}}\right)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;by a CLT.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since we know that $\bar \beta\rightarrow^p \beta_0$, we have $\frac{1}{n}H_\mathbf{x}(\bar\beta)\rightarrow^p \left[\frac{1}{n}\sum \underbrace{E\left( \underbrace{(y_i-x_i\beta_0)}_{=u_i}\frac{\partial^2 x_1}{\partial\beta_j\partial\beta_i}(\beta_0)\right)}_{=0}\right]_{K\times K}=\mathbf{0}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Similarly, we have that $\frac{1}{n}D_\mathbf{x}(\bar\beta)^T D_\mathbf{x}(\bar\beta)\rightarrow^p S_{D_0^TD_0}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, we can conclude that $n^{\frac{1}{2}}(\hat\beta-\beta_0)\rightarrow^p N(\mathbf{0},\sigma_0^2 S_{D_0^TD_0}^{-1})$.&lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="61" LastEditDate="2016-04-12T15:05:41.820" LastActivityDate="2016-04-12T15:05:41.820" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="11537" PostTypeId="1" CreationDate="2016-04-12T16:26:16.567" Score="7" ViewCount="114" Body="&lt;p&gt;I notice that Portugal had a very high interest rate on its national bond issues back in 2012 but since then it has drawn down significantly:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/9sj62.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/9sj62.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How were they able to decrease the interest rate?&lt;/p&gt;&#xA;" OwnerUserId="1448" LastEditorUserId="8481" LastEditDate="2020-05-03T16:00:16.287" LastActivityDate="2020-05-03T16:00:16.287" Title="How did Portugal draw down their interest rates on pubic debt?" Tags="&lt;government-debt&gt;&lt;bonds&gt;&lt;portugal&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11538" PostTypeId="1" CreationDate="2016-04-12T17:33:41.830" Score="1" ViewCount="194" Body="&lt;p&gt;Consider the Ramsey-Cass-Koopmans model in discrete time. Specifically, consider the following phase diagram.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/Y86my.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Y86my.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For simplicity, let's consider the trajectory marked A which is in the northwest corner of this diagram. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this location, supposedly $K_{t+1}&amp;lt;K_t$ and $C_{t+1}&amp;gt;C_t$. But how does one show this? Up to this point, all I have seen is that &quot;supposedly&quot; this trajectory veers off, but I don't see how it necessarily does so. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $$C_t = K_t^\alpha + (1-\delta)K_t - K_{t+1}$$&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;My Quesiton&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Can someone explain why A veers off towards the NW direction? Specifically, why must $K_{t+1}&amp;lt;K_t$ and $C_{t+1}&amp;gt;C_t$? &lt;/p&gt;&#xA;" OwnerUserId="2679" LastActivityDate="2016-04-12T20:36:23.323" Title="How does one prove the convergence of a trajectory in the Ramsey model?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="11539" PostTypeId="2" ParentId="11520" CreationDate="2016-04-12T18:47:45.947" Score="1" Body="&lt;p&gt;Demand is not the same as desire. The precise sense of demand in economics is usually a function that arises as a result of a constrained optimization problem.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If there are $N$ goods, one of which is money (I.e. Leaving some of your budget unspent on the other goods), and your preferences over various bundles of the $N$ goods is given by a function $u:\mathbb{N}\to\mathbb{R}$, and you have a total budget of $w$ dollars to spend, then the optimal bundle is $x(p,w)$, a function (of prices $p$ and your wealth) solving the constrained maximization problem is called your demand function. (Assuming unique solution for simplicity.) If money is good 1, then $x_1(p,w)$ is your demand for money.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In short, you're conflating unconstrained demand and constrained demand - people usually refer to the latter.&lt;/p&gt;&#xA;" OwnerUserId="7303" LastEditorUserId="1601" LastEditDate="2016-04-13T06:32:30.257" LastActivityDate="2016-04-13T06:32:30.257" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="11540" PostTypeId="2" ParentId="11538" CreationDate="2016-04-12T20:36:23.323" Score="2" Body="&lt;p&gt;See Romer (2006, Sec 2.3) for details of notation.&#xA;Dynamics are given by&#xA;\begin{align}&#xA;\dot k &amp;amp;= f(k) - (n+g)k - c\\&#xA;\dot c &amp;amp;= \frac{c}{\theta}(f'(k) - \rho - \theta g)&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Presume you are located somewhere on the $\dot k = 0$ locus. Now if we increase $c$ one gets&#xA;\begin{align}&#xA;\frac{\partial \dot k}{\partial c} = -1 &amp;lt; 0&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That is, if we are above $\dot k = 0$ capital decreaes over time. Hence at point $A$ we move to the left.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now presume you are located somewhere on the $\dot c = 0$ locus. Now if we increase $k$ one gets&#xA;\begin{align}&#xA;\frac{\partial \dot c}{\partial k} = \frac{c}{\theta} f''(k) &amp;lt; 0&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That is, if we are right of $\dot c = 0$ consumption decreaes over time. Hence at point $A$ we move up in addition (left of $\dot c = 0$).&lt;/p&gt;&#xA;" OwnerUserId="4266" LastActivityDate="2016-04-12T20:36:23.323" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11541" PostTypeId="2" ParentId="11531" CreationDate="2016-04-13T01:04:06.610" Score="3" Body="&lt;p&gt;You have obtained&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{c_{t+1}}{c_t}=[\beta(\alpha+1-\delta)]^{\frac{1}{\gamma}} \equiv 1+g$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{k_{t+1}}{k_t}=1+(1-\delta)-\frac{c_t}{k_t}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By equating you can show that there is a unique rule that maintains a balanced growth path&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{k_{t+1}}{k_t}=\frac{c_{t+1}}{c_t} \implies c_t =( 1-\delta-g)k_t$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(too much consumption, by the way). This shows that the model has a unique balanced growth path. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you want further to argue that the economy will indeed choose this path, you have to invoke the Transversality condition (which constraints the consequences that a chosen path should have  on capital accumulation), and maybe the Inada condition that your chosen utility function satisfies. &lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2016-04-13T01:04:06.610" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11542" PostTypeId="1" CreationDate="2016-04-13T03:21:12.723" Score="5" ViewCount="318" Body="&lt;p&gt;We constantly assume convexity in economics. Convexity of production sets, convexity of preferences etc. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there literature that addresses when convexities fail? For example, is there any literature that addresses the existence of equilibria when agents have non-convex preferences? What are the problems associated with non-convex production sets? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It just seems like GE theorem relies heavily on convexity assumptions and I have yet to hear anyone reasonably addresses how to approach situations in which these assumptions fail. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would appreciate any good references or any general discussion of non-convexity from both a consumer and a producer perspective.&lt;/p&gt;&#xA;" OwnerUserId="7941" LastActivityDate="2016-04-15T15:00:04.660" Title="When the convexity assumptions fail" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="11544" PostTypeId="1" CreationDate="2016-04-13T08:43:51.627" Score="2" ViewCount="75" Body="&lt;p&gt;I just don't understand how the theory, particularly pertaining to parameter identification is relevant when conducting applied work. Why must we present a sound identification strategy when carrying out an applied project.I hope this is clear. Thank you.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit: I guess I wasn't very clear in my question. I understand how identification strategies work in applied papers. I was more interested in how, say, somebody introduces a new estimation method in an academic paper. Then they propose the conditions on which the estimated parameters are identifies using this method. There is usually some talk of the dimensions of some parameters, and technical things like that. I just wanted to know why these kinds of concerns are relevant when one wants to apply said estimator empirically. &lt;/p&gt;&#xA;" OwnerUserId="7486" LastEditorUserId="7486" LastEditDate="2016-04-14T08:19:12.623" LastActivityDate="2016-04-14T08:19:12.623" Title="What is the link between econometric theory and applied work?" Tags="&lt;econometrics&gt;&lt;identification&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11546" PostTypeId="1" CreationDate="2016-04-13T12:01:07.470" Score="6" ViewCount="638" Body="&lt;p&gt;When governments talk about about lowering corporate tax rates they claim there is benefit in one form or another. The problem is the mechanism of how the benefit can work is never explained. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The closest I've seen is that it will result in more investment but often the corporate tax is only after an organisation has made a profit. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some sort of worked example of how this may affect decision processes or some analysis of changes that have occurred when companies have lowered corporate tax rates will also be nice.&lt;/p&gt;&#xA;" OwnerUserId="7946" LastEditorUserId="6085" LastEditDate="2016-04-14T16:44:11.893" LastActivityDate="2016-04-14T16:44:11.893" Title="How does lowering a corporate tax rate benefit a nation?" Tags="&lt;taxation&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11547" PostTypeId="1" CreationDate="2016-04-13T16:20:03.630" Score="0" ViewCount="2616" Body="&lt;p&gt;An agent lives for 2 periods, consumes $c$ and saves $s$ at interest rate $r$ in the first period of life from income $y$. In the second period the agent consumes for any savings. We introduce a percentage tax $T^c$ on consumption in both periods where $0 &amp;lt; T^c &amp;lt; 1$. Assuming initially that $T^c_1 = T^c_2$. What is the consumer's lifetime budget constraint?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Answer: $$c_t (1+T^c_1)+ c_{t+1} \frac{1+T^c_2}{1+r} =y_t$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't understand how we can calculate the budget constraint, can anyone help?&lt;/p&gt;&#xA;" OwnerUserId="7948" LastEditorUserId="4266" LastEditDate="2016-04-13T17:24:36.303" LastActivityDate="2016-04-13T20:21:30.893" Title="Lifetime Budget Constraint" Tags="&lt;macroeconomics&gt;&lt;mathematical-economics&gt;&lt;financial-constraints&gt;" AnswerCount="1" CommentCount="3" ClosedDate="2016-04-15T15:36:24.747" ContentLicense="CC BY-SA 3.0" />
  <row Id="11548" PostTypeId="2" ParentId="11546" CreationDate="2016-04-13T16:37:41.600" Score="2" Body="&lt;p&gt;The easiest way to frame the issue is by thinking of corporate taxes as a significant cost faced by firms operating in a market. Lowering corporate taxes will attract more corporations to a market. These corporations enter the market because doing so reduces costs, thereby increasing profits (all other things equal). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The outcome is that by collecting a little bit less tax revenue from each corporation, a market can retain enough existing participants and attract enough new participants so that the slightly lower tax rate generates more tax revenue than the higher tax rate. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;That is, governments lower corporate taxes because they believe doing so can actually net them a larger amount of corporate tax revenue. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is a very simplistic answer and there are obviously other ways to frame the question. For example, a government might lower corporate taxes for a specific sector, knowing they will lose out on tax revenues, in an effort to attract more market participants and increase the rate of innovation in that market. &lt;/p&gt;&#xA;" OwnerUserId="1655" LastActivityDate="2016-04-13T16:37:41.600" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11549" PostTypeId="2" ParentId="11544" CreationDate="2016-04-13T16:54:01.807" Score="1" Body="&lt;p&gt;I am not exactly sure what you're asking. So...I hope we both understand identification strategy to mean the same thing. If so: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The identification strategy serves as the bedrock upon which you build your argument. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, consider some policy implemented by a school district that focuses on improving academic outcomes for low performing students. Say this school district sets a cutoff of a 1.5 GPA. Any student at or below this GPA is placed on academic probation. This assignment to AP triggers a set of responses designed to increase a student's academic success. However, these responses are time consuming. Now, suppose at the same time that a neighboring school district with a similar GPA distribution does not implement this policy.Suppose students can move freely between the two districts. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are several ways to analyze the efficacy of such a policy. I will consider two.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume researcher A decides to investigate the efficacy of the policy by simply conducting some simple trend analysis. Let's suppose he decides that it is reasonable to determine the efficacy of the policy by evaluating the amount of students with a &quot;low&quot; GPA both before and after the policy implementation. This seems like it could serve as an intuitively sound approach. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's assume now that when the school implements this academic probation policy that half the students placed on academic probation leave and begin attending the neighboring school to avoid the time demands associated with the academic probation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The trend analysis by researcher A likely now overestimate the efficacy of the academic probation program. This is because there will be a large decrease in the number of students with a low GPA. However, this will be largely due to those students leaving the school and not because the policy helped raise their GPAs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose researcher B uses a difference-in-difference approach using the neighboring school district that does not implement the academic probation policy as a counterfactual (where the similar trends assumption holds). His identifying assumption and research strategy will allow him to identify and control for the change in composition brought about by the policy implementation. &lt;/p&gt;&#xA;" OwnerUserId="1655" LastActivityDate="2016-04-13T16:54:01.807" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11552" PostTypeId="2" ParentId="11547" CreationDate="2016-04-13T20:21:30.893" Score="3" Body="&lt;p&gt;This is more easily seen by writing out the budget constraints for periods 1 and 2 separately, and then eliminate the saving $s$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In period 1, the agent spends $\left(1+T_1^c \right)\cdot c_1$ on consumption, and saves the rest, so &#xA;$$(1) \qquad \qquad s=y - \left(1+T_1^c \right)\cdot c_1.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In period 2, the agents lives on savings (together with interest income), i.e., consumes all the savings, so &#xA;$$(2) \qquad \qquad \left(1+T_2^c \right)\cdot c_2 = (1+r)s,$$ where we multiplied $s$ with $1+r$ because of the interest from period 1 to period 2. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now putting the two equations together, we have &#xA;$$&#xA;\left(1+T_2^c \right)\cdot c_2 = (1+r)s= (1+r)( y - \left(1+T_1^c \right)\cdot c_1). &#xA;$$&#xA;Divide both sides by $(1+r)$ and rearranging the terms, you get the desired result. &lt;/p&gt;&#xA;" OwnerUserId="7951" LastActivityDate="2016-04-13T20:21:30.893" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11553" PostTypeId="1" AcceptedAnswerId="11577" CreationDate="2016-04-13T20:23:59.793" Score="2" ViewCount="83" Body="&lt;p&gt;In this article here, &lt;a href=&quot;http://www.telegraph.co.uk/investing/gold/gold-resurgence-whos-buying-gold-and-why/&quot; rel=&quot;nofollow&quot;&gt;http://www.telegraph.co.uk/investing/gold/gold-resurgence-whos-buying-gold-and-why/&lt;/a&gt; , it states that &quot;gold tends to do....best when markets lose faith in central banking&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand that gold does well when other assets do badly as it acts as a store of wealth, but I cannot understand why it does well when markets lose faith in central banking. I can see that if central banking isnt working markets are probably doing badly, but the quote seems to imply a deeper and more direct connection.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also can someone think of a historical example when this happened.&lt;/p&gt;&#xA;" OwnerUserId="5515" LastEditorUserId="5515" LastEditDate="2016-04-14T21:20:29.310" LastActivityDate="2016-04-15T07:40:28.830" Title="Gold and loss of faith in central banking" Tags="&lt;reference-request&gt;&lt;monetary-policy&gt;&lt;central-banking&gt;&lt;financial-markets&gt;&lt;value&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11556" PostTypeId="1" CreationDate="2016-04-14T00:37:23.403" Score="1" ViewCount="428" Body="&lt;p&gt;When firms make a profit in a perfectly competitive market, new firms enter the market and drive the price down. My textbook says that the existing firms will then adjust inputs that are fixed in the short term, such as capital, in order to operate with a lower average cost:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/87Irs.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/87Irs.jpg&quot; alt=&quot;textbook&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is in order to maximize profit, but I don't understand why the short-run average cost curve would change at all. In my opinion, the minimum point of the long-run average cost curve, where there are constant returns to scale, is the profit-maximizing point in the long run. In order to substantiate this claim, I came up with a short-run total cost function &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$TC=0.001Q^3-0.09Q^2+2.95Q+20$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and derived the average total cost &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ATC=0.001Q^2-0.09Q+2.95+20/Q$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;and marginal cost &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$MC=0.003Q^2-0.18Q+2.95$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume that the price is variable. Then profit &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Pi=Q(MC-ATC)=0.002Q^3-0.09Q^2-20$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;can be thought of as a function that relies only on marginal cost and average cost, because at the profit-maximizing point, $MC=MR=P$. But as $Q\to \infty$, $\Pi \to \infty$ because $\Pi$ is a cubic equation with a positive coefficient on the $Q^3$ term. This means that the higher the price is above the minimum point of the short-run average total cost curve, the higher profit will be. Thus, profit is maximized when the lowest possible short-run average total cost curve is selected, in any perfectly competitive market condition, at least for cubic total cost curves (and I assume that the cubic function is the most applicable for a total cost curve). The lowest ATC curve is obviously the one where there are constant returns to scale.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/DfX4R.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/DfX4R.png&quot; alt=&quot;Cost curves&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can see the difference between marginal cost and average total cost getting larger and larger here:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/oxDCf.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/oxDCf.png&quot; alt=&quot;zoomed out&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="175" LastEditorUserId="4817" LastEditDate="2016-04-15T07:52:17.307" LastActivityDate="2016-04-16T08:00:15.530" Title="Why do firms adjust their fixed costs in response to a change in price in a perfectly competitive market?" Tags="&lt;competition&gt;&lt;profit-maximization&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11557" PostTypeId="1" CreationDate="2016-04-14T01:08:32.477" Score="1" ViewCount="122" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/VrCgr.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/VrCgr.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Based on the graph, would you say that there is some sort of heteroscedasticity in the data? Y-axis is residual squared and X-axis is predicted values of Y&lt;/p&gt;&#xA;" OwnerUserId="7148" LastEditorUserId="118" LastEditDate="2016-04-17T15:11:14.413" LastActivityDate="2016-04-17T15:11:14.413" Title="possible Heteroskedasticity?" Tags="&lt;econometrics&gt;&lt;heteroskedasticity&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="11561" PostTypeId="2" ParentId="8850" CreationDate="2016-04-14T07:34:36.880" Score="-1" Body="&lt;p&gt;Decreasing the nominal interest rate to a negative value will cause businesses to have to raise their prices in order to maintain 0 economic profit. This is because wages are &quot;sticky,&quot; and cannot change in a general quarterly or annual period.  People who live in the country have not been given any higher incentive to spend, but since prices are increased - aggregate demand will decrease.  Additionally, in order to survive the cut in demand and rise in prices, firms will look to lay off workers - raising unemployment.  Consumption should decrease as a result of a negative interest rate charged by the Central Bank.  In what was an attempt to increase GDP - output will decrease.  --&gt; Stagflation is likely to occur&lt;/p&gt;&#xA;" OwnerUserId="7956" LastActivityDate="2016-04-14T07:34:36.880" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11562" PostTypeId="2" ParentId="10385" CreationDate="2016-04-14T09:02:29.940" Score="0" Body="&lt;p&gt;These PPP conversion factors from the World Bank don't provide a date at which they actually applied. It might be that they rely on average data for the given year. Thus, the variation of FX rates throughout the year might not be relevant data.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In addition, we cannot compare FX rate variations with this conversion factor, as it is PPP, and not nominal. Thus, the implied PPP rate might remain completely unaffected by the variations of the nominal exchange rate. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A good indicator of PPP rates is the &lt;a href=&quot;http://www.economist.com/content/big-mac-index&quot; rel=&quot;nofollow&quot;&gt;Big Mac Index&lt;/a&gt;, computed by the Economist on a regular basis. It has the advantage of stating the precise date (or rather, the month) at which the observation occurred. As you can see on the chart below the map, if you select Singapore, the actual exchange rate indeed varied a lot. But the implied exchange rate remained basically constant (0.99-0.98). Thus, the relative purchasing power of americans and singaporean didn't encounter such great variation as your reading of the World Bank's data implied.&lt;/p&gt;&#xA;" OwnerUserId="6820" LastActivityDate="2016-04-14T09:02:29.940" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11563" PostTypeId="2" ParentId="11546" CreationDate="2016-04-14T09:20:13.607" Score="4" Body="&lt;p&gt;&lt;strong&gt;I. The case for government revenue&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The rationale behind this argument is that it it possible to increase the tax revenue by lowering the tax rate. A. Laffer draw a curve which represent this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/iLMwe.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/iLMwe.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The idea is that if your tax rate is above $t^*$, then taxpayers try to evade taxes, develop the shadow economy, avoid taxes, or simply reduce the amount of work that they do because their is a lesser incentive to do more when the state takes a bigger share of the reward.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the debate is therefore to know whether we are already beyond this optimal tax rate $t^*$ or below. Emmanuel Saez and Thomas Piketty argue that this optimal tax rate is &lt;a href=&quot;http://www.nber.org/papers/w17616.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;about 70%&lt;/a&gt;. Others, such as Arthur Laffer, believe that it is much lower, and that the government revenue would actually increase if the tax rates were lower.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;II. The case for growth&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lower tax rates can also be adopted in order to increase the attractiveness of the country to foreign investors, and hopefully develop the economic activity. Many countries have been known recently to struck tax deals in order to attract business: &lt;a href=&quot;http://www.bbc.com/news/business-35381130&quot; rel=&quot;nofollow noreferrer&quot;&gt;The UK with Google&lt;/a&gt;, &lt;a href=&quot;http://www.nytimes.com/2015/10/14/business/international/ireland-tax-rate-breaks.html?_r=0&quot; rel=&quot;nofollow noreferrer&quot;&gt;Ireland with everybody&lt;/a&gt;, Luxembourg with Amazon and others, etc. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Similarly, developing countries tend to create &lt;a href=&quot;https://en.wikipedia.org/wiki/Special_Economic_Zones_of_China&quot; rel=&quot;nofollow noreferrer&quot;&gt;special economic zones&lt;/a&gt; where foreign firms can develop their activities and build factories in return for lower taxation.&lt;/p&gt;&#xA;" OwnerUserId="6820" LastEditorUserId="6820" LastEditDate="2016-04-14T10:05:36.687" LastActivityDate="2016-04-14T10:05:36.687" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11564" PostTypeId="2" ParentId="11044" CreationDate="2016-04-14T11:04:21.867" Score="1" Body="&lt;p&gt;I believe that @Andrew_M is right, this is caused by differences in default options in the implementations of ARIMA across statistical applications.&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;library(forecast)&#xA;births &amp;lt;- scan(&quot;http://robjhyndman.com/tsdldata/data/nybirths.dat&quot;)&#xA;birthstimeseries &amp;lt;- ts(births, frequency=12, start=c(1946,1))&#xA;level010 &amp;lt;- arima(births, order = c(0,1,0), include.mean=TRUE)&#xA;diff000 &amp;lt;- arima(diff(births), order = c(0,0,0), include.mean=FALSE)&#xA;print(level010)&#xA;print(diff000)&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Results:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;&amp;gt; print(level010)&#xA;Call:&#xA;    arima(x = births, order = c(0, 1, 0), include.mean = TRUE)&#xA;&#xA;&#xA;sigma^2 estimated as 2.266:  log likelihood = -305.25,  aic = 612.51&#xA;&amp;gt; print(diff000)&#xA;&#xA;Call:&#xA;    arima(x = diff(births), order = c(0, 0, 0), include.mean = FALSE)&#xA;&#xA;&#xA;sigma^2 estimated as 2.266:  log likelihood = -305.25,  aic = 612.51&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2016-04-14T15:17:56.807" LastActivityDate="2016-04-14T15:17:56.807" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11566" PostTypeId="2" ParentId="11546" CreationDate="2016-04-14T11:45:21.007" Score="1" Body="&lt;p&gt;You know that tax breaks don't go to new investments, companies and people always say &quot;Thank you very much&quot; then don't invest. It has not helped new Zealand, there was a study on this. Also it didn't help when Reagan used his reagonomics and gave tax breaks for the rich. They simply didn't re-invested it.    &lt;a href=&quot;http://www.businessinsider.com.au/study-tax-cuts-dont-lead-to-growth-2012-9?r=US&amp;amp;IR=T&quot; rel=&quot;nofollow&quot;&gt;http://www.businessinsider.com.au/study-tax-cuts-dont-lead-to-growth-2012-9?r=US&amp;amp;IR=T&lt;/a&gt; Check this link!&lt;/p&gt;&#xA;" OwnerUserId="7957" LastActivityDate="2016-04-14T11:45:21.007" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11568" PostTypeId="1" AcceptedAnswerId="11589" CreationDate="2016-04-14T12:33:58.223" Score="4" ViewCount="7305" Body="&lt;p&gt;I have some troubles in understanding how to find Pareto efficient allocation that are on the frontier of the Edgeworth box. I mean, the interior ones, can be found using the equality $MRS_A = MRS_B$, where $A$ and $B$ are the two agents of our pure exchange economy, whereas I cannot find anything about frontier allocations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there any mathematical procedure I can use or it is only something I have to deal with using intuition (using the definition of Pareto efficiency I mean). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To be clearer, I cite an exercise from my workbook where there are two agents with preferences $u^A(x_1,x_2) =\sqrt{x_1x_2}$ and $u^B(x_1,x_2)=x_1+3x_2$, and endowments $\omega^A=(1,0)$ and $\omega^B=(0,1)$. The question is to identify the Pareto set.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is the solution, where the blue lines are the Pareto set.&#xA;&lt;a href=&quot;https://i.stack.imgur.com/LveEM.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/LveEM.png&quot; alt=&quot;Solution&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="6773" LastEditorUserId="1601" LastEditDate="2017-02-28T07:48:40.943" LastActivityDate="2017-02-28T07:48:40.943" Title="How to find corner Pareto efficient allocations" Tags="&lt;microeconomics&gt;&lt;pareto-efficiency&gt;&lt;self-study&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11569" PostTypeId="2" ParentId="11557" CreationDate="2016-04-14T14:12:26.573" Score="4" Body="&lt;p&gt;The question should be: Does there appear to be &lt;em&gt;enough heteroskedasticity&lt;/em&gt; so that not taking it into account would lower the quality of inference? And this is because &quot;taking heteroskedasticity into account&quot; (even if only for robust standard errors) is not without costs -with small sample sizes it may worsen the reliability of results. And it becomes even riskier if you want to implement the more traditional approach where you will specify a functional relationship between the error variances and the regressors.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From the graph, my initial conjecture would be &quot;no, not enough&quot;. But peform an &quot;influential observations&quot; analysis, since you obvioulsy have a few large residuals.&#xA;Also, with today's software, it is cheap to estimate a heteroskedasiticity robust variance covariance matrix, and see whether standard errors differ visibly or not, whether they reverse statistical sigificance tests or not, etc.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2016-04-14T14:12:26.573" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11570" PostTypeId="2" ParentId="11520" CreationDate="2016-04-14T14:51:08.760" Score="2" Body="&lt;p&gt;In Economics, to define/describe &quot;demand for $X$&quot;, &lt;em&gt;whatever&lt;/em&gt; $X$ represents, we need&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;a definition for $X$ &lt;/li&gt;&#xA;&lt;li&gt;a measurement unit for the quantity of $X$&lt;/li&gt;&#xA;&lt;li&gt;a measurement unit for the price of $X$&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Given these, the &quot;demand schedule&quot; for $X$ (terminology dating back to A. Marshall), is the geometric locus of pairs (quantity, price) that reflect the quantity demanded for the corresponding price in the pair.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And that's that: &lt;em&gt;why&lt;/em&gt; is the quantity demanded what it is for a given price, is (at least) one level deeper in the economic structure and analysis.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As regards &quot;money&quot;, I just record here the usual approach taken:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;We have in mind something that is perfectly liquid (and in practice we may include in the definition &quot;essentially liquid&quot; assets), where &quot;liquid&quot; means &quot;immediately acceptable by anyone in any exchange&quot;&lt;/li&gt;&#xA;&lt;li&gt;The quantity of money is measured in some currency unit (like USD, Euros etc),  &lt;/li&gt;&#xA;&lt;li&gt;We use the interest rate as &quot;the price of money&quot;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;To go this one step deeper, the reason why &quot;demand for money&quot; is not fixed at infinity, &lt;em&gt;has to do with the question that we pose&lt;/em&gt; so as to avoid a useless answer. And the question is essentially a question of allocating a &lt;em&gt;given&lt;/em&gt; level of assets between different forms/different degrees of liquidity, money included: Given that my wealth is $W$ (measured in a currency unit), and given that the interest rate I will enjoy if I save it all in an interest-bearing form is $i$ (unitless), how much of this wealth do I want to keep in &quot;money form&quot;?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Enter arguments as to why we want to keep money, functional forms that formalize these arguments, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In dynamic models, it is understood that this question is posed and answered by the demand schedule for money for each time-period of the model. In static models, there is a single time period.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another usual aspect is that we examine &quot;real  money balances&quot;, i.e. the deflated value of the nominal money balances.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;Current holdings of money&quot; is not the demand schedule but &lt;em&gt;equilibrium quantity demanded&lt;/em&gt;, given &lt;em&gt;whatever&lt;/em&gt; constraints we postulate that they exist.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This gives rise to the concept of a possibly &quot;liquidity constrained&quot; economic agent: given his wealth, the interest rate and his preferences, the agent &lt;em&gt;would want&lt;/em&gt; to allocate $W_m^*$ of his wealth to money holdings. But we may observe that it allocates something less, for example because the existing markets where the agent can transform non-liquid assets to liquid ones are &quot;incomplete&quot; (as they say), and so the agent finds himself with non-liquid wealth that he would want to transform into money but he cannot (perhaps due to asymmetric information, risks that cannot be priced, etc). While this is a constrained equilibrium also, it is important for economic analysis and economic outcomes to realize that here we may have an additional &quot;binding constraint&quot; on the agent's behavior, and as this constraint changes, the behavior of the agent will also change.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Detecting the existence of such exogenous liquidity constraints is difficult, because it is difficult to separate their effects on money holdings from the effects of other constraints (like the level of existing wealth of the agent).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So &quot;current money holdings&quot; is tautologically equal to &quot;current equilibrium money demanded&quot;, but the challenge of economic analysis is to determine &lt;em&gt;which constraints are binding and so characterize the observed equilibrium&lt;/em&gt;.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2016-04-14T18:45:56.943" LastActivityDate="2016-04-14T18:45:56.943" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="11571" PostTypeId="1" CreationDate="2016-04-14T15:54:35.243" Score="1" ViewCount="48" Body="&lt;p&gt;I am currently working on a problem set in a book that asks me to compute the annualized average return for a portfolio, benchmark, and then the relative return from the annual returns reported. I have been using the equation&#xA;    $$Return = (\prod_{t=1}^{T} (1+r_t))^\frac{12}{T}-1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The numbers are as follows in %:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;Year 1 &#xA;Port Return: 26.97 &#xA;Benchmark Return: 24.94  &#xA;Relative Return: 2.02&#xA;&#xA;Year 2&#xA;Port: 16.04%&#xA;Bench: 14.03&#xA;Relat: 2.01&#xA;&#xA;Year 3&#xA;Port: -41.98&#xA;Bench: -39.98&#xA;Relat: -2&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;However my book, Trading and Money Management, states if a strategy has a monthly return of $r_t$ in month $t$ within a period of $T$ months, where $T&amp;gt;12$, the annualized average return is the equation above.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My issue arises because it wants monthly returns, not annual returns. Secondly, it states, &quot;Note that the annualized average 3-year relative return is negative even though portfolio beat the benchmark by more than 2% in first two years and only lagged in last year. Explain&quot; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have tried assuming the returns as monthly and let $T=36$ and got $-5.09, -5.08, and 0.66%$ respectively. I am pretty sure something is wrong, but I cannot figure out what it is.&lt;/p&gt;&#xA;" OwnerUserId="4388" LastEditorUserId="47" LastEditDate="2016-04-14T17:52:56.997" LastActivityDate="2016-04-14T17:52:56.997" Title="Calculating Annualized Average Return" Tags="&lt;financial-economics&gt;&lt;stock-market&gt;&lt;investment&gt;&lt;financial-markets&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11573" PostTypeId="2" ParentId="9414" CreationDate="2016-04-15T01:34:16.297" Score="7" Body="&lt;p&gt;As long as trading faster is not explicitly forbidden, there will be people who want to trade faster &lt;em&gt;if&lt;/em&gt; they can take advantage of it. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you are able to trade fast enough, you can take advantage of arbitrage situations.&#xA;For instance, if you can detect a fall in the price of soy on the New-York exchange, buy soy on the New-York Exchange, and sell it on the Chicago exchange before the price in Chicago adapts, you will profit from it. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, on the positive side, the answer to your question in the title &quot;Why do stock exchanges not operate at a fixed frequency?&quot; seems to be &quot;because it's not impossible/forbidden to operate faster and people benefit from it&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, on the normative side, there are certainly a fair amount of people who believe that stock exchanges would perform ``better&quot; if they operated at a fixed frequency.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Roughly, increasing the frequency of trades is good if it allows prices to adapt faster to new &lt;em&gt;economic&lt;/em&gt; &lt;em&gt;information&lt;/em&gt;. Some people argue, however, that past a certain threshold, increasing the speed of trade cannot foster more effective price adjustments. The argument is that relevant economic information only arrives every so often, and there is no point in trading faster than the fastest stream of relevant information.&#xA;Past this threshold -- so the argument goes, increasing the speed of trade only allows for increased high-frequency speculation in which traders benefits from arbitrage situations that are unrelated with ``actual&quot; economic fundamentals. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't think they are the first to propose it, but Budish, Crampton and John have a recent pair of papers in which they advocate for a cap on the speed of transactions for similar reasons : &lt;a href=&quot;http://papers.ssrn.com/sol3/Papers.cfm?abstract_id=2388265&quot; rel=&quot;nofollow&quot;&gt;The High-Frequency Trading Arms Race: Frequent Batch Auctions as a Market Design Response&lt;/a&gt;, and &lt;a href=&quot;http://www.ingentaconnect.com/content/aea/aer/2014/00000104/00000005/art00071&quot; rel=&quot;nofollow&quot;&gt;Implementation Details for Frequent Batch Auctions: Slowing Down Markets to the Blink of an Eye&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="38" LastEditorUserId="38" LastEditDate="2016-10-26T17:28:54.143" LastActivityDate="2016-10-26T17:28:54.143" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="11574" PostTypeId="2" ParentId="11014" CreationDate="2016-04-15T01:43:25.210" Score="3" Body="&lt;p&gt;This is only for Europe unfortunately, but Bob Allen has a famous paper in which he presents reconstructed data for real wages in different European cities from 1350 all the way to 1799:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Allen, Robert C. &quot;The great divergence in European wages and prices from the Middle Ages to the First World War.&quot; Explorations in economic history 38.4 (2001): 411-447.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;From real wages and price data, he then infers a measure of (extreme) poverty.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Look at Figure 5 in the paper. The scale of the y-axis is a measure of poverty in which 1 is the poverty threshold. Values above 1 on the y-axis correspond to real wages lower than survival rate (i.e. that do not allow a survival caloric intake), and values above 1 indicate a real wage above survival rate.&lt;/p&gt;&#xA;" OwnerUserId="38" LastEditorUserId="38" LastEditDate="2016-04-15T17:26:04.933" LastActivityDate="2016-04-15T17:26:04.933" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11577" PostTypeId="2" ParentId="11553" CreationDate="2016-04-15T07:35:19.130" Score="2" Body="&lt;p&gt;I think @DornerA gave a good answer for reasoning behind the mechanism.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a historical example, look no further than the fiscal crisis and the rapid increase in gold price from 2008-2011. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/DYfia.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/DYfia.png&quot; alt=&quot;Gold price, 10 year sample&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course a lot happened during those years with house prices collapsing in the U.S. Faith in central banking is closely associated with the value of money and the belief of whether a central bank can keep the economy steady or not and in a situation where this belief is low, people gravitate towards widely accepted stores of wealth.&lt;/p&gt;&#xA;" OwnerUserId="5512" LastEditorUserId="5512" LastEditDate="2016-04-15T07:40:28.830" LastActivityDate="2016-04-15T07:40:28.830" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="11581" PostTypeId="2" ParentId="11542" CreationDate="2016-04-15T13:44:33.540" Score="4" Body="&lt;p&gt;If you are only looking for references, try google scholar: &lt;a href=&quot;https://scholar.google.be/scholar?start=0&amp;amp;q=economics%20%22without%20convexity%22&amp;amp;hl=nl&amp;amp;as_sdt=0,43&quot; rel=&quot;nofollow&quot;&gt;https://scholar.google.be/scholar?start=0&amp;amp;q=economics+%22without+convexity%22&amp;amp;hl=nl&amp;amp;as_sdt=0,43&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Among the papers on the first pages of results :&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Conley, John P., and Simon Wilkie. &quot;The bargaining problem without convexity: extending the egalitarian and Kalai-Smorodinsky solutions.&quot; Economics Letters 36.4 (1991): 365-369.&lt;/li&gt;&#xA;&lt;li&gt;Yamazaki, Akira. &quot;An equilibrium existence theorem without convexity assumptions.&quot; Econometrica: Journal of the Econometric Society (1978): 541-555.&lt;/li&gt;&#xA;&lt;li&gt;Hurwicz, Leonid, and Stanley Reiter. &quot;On the boundedness of the feasible set without convexity assumptions.&quot; International Economic Review (1973): 580-586.&lt;/li&gt;&#xA;&lt;li&gt;Hamano, Tadashi. &quot;On the existence of equilibria without convexity or free disposal on production technologies.&quot; Journal of Mathematical Economics 23.6 (1994): 565-583.&lt;/li&gt;&#xA;&lt;li&gt;Shapley, Lloyd S., and Martin Shubik. The core of an economy with nonconvex preferences. No. RM-3518-PR. RAND CORP SANTA MONICA CA, 1963.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Then look at the papers who cite the above papers. That usually allows you to uncover other relevant references.&lt;/p&gt;&#xA;" OwnerUserId="38" LastEditorUserId="38" LastEditDate="2016-04-15T15:00:04.660" LastActivityDate="2016-04-15T15:00:04.660" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11582" PostTypeId="1" CreationDate="2016-04-15T22:20:28.417" Score="0" ViewCount="1048" Body="&lt;p&gt;I would like to better understand what is the wealth of a company and what is made of.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is the wealth of a company similar to GDP of country, like a &quot;gross company product&quot; ?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As example: can we say GDP as total market value of good a services produced by a country in a certain amount of time, and wealth of a company is the market value of assets and services produced in a certain amount of time?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Could the two measures be compared ?&#xA;Or is the market value of a company conceptually a different thing than a &quot;gross company product&quot; ?&lt;/p&gt;&#xA;" OwnerUserId="7974" LastActivityDate="2016-04-16T06:56:19.563" Title="What is the wealth of a company?" Tags="&lt;gdp&gt;&lt;markets&gt;&lt;value&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11583" PostTypeId="2" ParentId="11582" CreationDate="2016-04-15T23:18:32.867" Score="4" Body="&lt;p&gt;The &quot;wealth&quot; of a company is not a well-defined term. The &lt;em&gt;worth&lt;/em&gt; of a company, its market value, is whatever someone is willing to pay for it. The market's best guess of that value, for listed companies, is equal to the share price multiplied by the number of shares in circulation. In theory, for both listed and unlisted companies, the worth of a company is equal to the sum of of all discounted future cashflows arising from the company.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As such, it is a stock variable, not a flow variable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Conversely, the GDP of the country is a flow variable, not a stock variable. It's the total value of transactions in the economy in a year; as such, it's somewhat analagous to a company's turnover.&lt;/p&gt;&#xA;" OwnerUserId="44" LastEditorUserId="1601" LastEditDate="2016-04-16T06:56:19.563" LastActivityDate="2016-04-16T06:56:19.563" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11584" PostTypeId="1" AcceptedAnswerId="11588" CreationDate="2016-04-15T23:26:41.010" Score="2" ViewCount="493" Body="&lt;p&gt;What is the link between these concepts?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example let's take a process $Z_n$ which follows a random walk, I would say that:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;This is a martingale, because my expectations of tomorrow, i.e. n+1 depends only on today&lt;/li&gt;&#xA;&lt;li&gt;If we assume an individual with rational expectation, he will assume that the forecast of tomorrow is today&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;So in other words, the forecast of a rational individual follows a martingale?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am not sure of the difference since one concept is used in finance while the other in economics, but they seem basically the same to me.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Last, I have seen in the example that a random walk implies a martingale, is this always true? Does a martingale implies a random walk?&lt;/p&gt;&#xA;" OwnerUserId="9" LastEditorUserId="61" LastEditDate="2016-04-16T18:50:55.170" LastActivityDate="2016-04-16T18:50:55.170" Title="Martingale, random walk and rational expectations" Tags="&lt;statistics&gt;&lt;martingales&gt;" AnswerCount="2" CommentCount="4" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11585" PostTypeId="2" ParentId="11556" CreationDate="2016-04-16T08:00:15.530" Score="1" Body="&lt;p&gt;I think you're right - entry should not shift the SRAC in a normal model of a market. The textbook pages that you include read very oddly to me. (It is possible that this is because the context being described is somehow very specific, so I may be unfair in the criticism that follows).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A potential entrant compares price to min of ATC and sees that there is a profit to be made. It enters and produces the quantity such that it achieves min ATC. What does this do at the level of the market? At the clearing price before entry, there is now excess supply equal to the output of the new firm. Somehow ... and introductory models of perfect competition and price formation are usually silent on exactly how this happens ... the price must fall for there not to be unsold goods in the market. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are lots of unsaid things in the above story. What do other firms do in response to the entry? How exactly are prices formed. One natural answer is  Bertrand price competition: the new firm undercuts the clearing price; all customers switch to it; it supplies the whole market ... upon which other firms react by undercutting it ... until undercutting no longer makes sense because each firm is at the min of the ATC. Again, there is lots here that is unsaid (are fixed costs sunk or not? what determines capacity constraints ...)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But in a way, the root of the problem with the story told in your textbook is the upward sloping aggregate supply curve. How is this compatible with a micro foundation of perfect competition? If each firm can produce according to the ATC function given, then the aggregate supply curve is actually flat. Under the assumptions of perfect competition, you can enter without constraint. So it is always possible and profitable to produce at the min ATC. So the aggregate supply curve is not upward sloping. I think the text book is trying to bring together two models that don't really fit coherently, and you have picked up the inconsistency involved.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So here's what I think about your question and the answer you have posed:&#xA;1. you're right &amp;amp; the book's wrong&#xA;2. don't take economic models too literally as representations of reality. &lt;/p&gt;&#xA;" OwnerUserId="7160" LastActivityDate="2016-04-16T08:00:15.530" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11586" PostTypeId="2" ParentId="11584" CreationDate="2016-04-16T15:12:30.273" Score="1" Body="&lt;p&gt;Martingale is a very broad term, sometimes just basically meaning &quot;the future is independent conditioned on today&quot;. Of course, any random walk has this property. So do Markov chains.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;Martingale&quot; also usually refers to a real-valued random variable that changes over time, but whose expectation is always equal to its current value. An unbiased random walk also satisfies this because, given that the current location of the random walk is $x$, the expected location after $50$ steps is still $x$. It is hard to see how a Markov chain relates to this property in general because its state space might not be the real numbers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The idea of the Doob martingale is that these two cases are almost the same: any time you have a Markov-chain type structure where the future is independent conditioned on the present, and you have a real-valued random variable $X_t$ that is changing over time, you can construct a new random variable $Y_t = \mathbb{E}[X_T | X_t]$, where $T$ is the time that the process stops. Now by conditional independence, $Y_t$ is a martingale.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, a Bayesian agent's expectation of a random variable is a martingale, as they receive new information over time. To see this, consider a two-stage process: The agent begins with just a prior distribution on $Z$, then receives a signal $A$ and updates to a posterior on $Z$. Naturally, the posterior will be $\mathbb{E}[ Z \mid A]$. But the prior will just be $\mathbb{E} Z$, and the law of iterated expectation says that&#xA; $$ \mathbb{E}_A\left[ \mathbb{E}_Z [Z \mid A] \right] = \mathbb{E} Z. $$&#xA;You can see this by working it out for yourself using the definition of expectation.&lt;/p&gt;&#xA;" OwnerUserId="2856" LastActivityDate="2016-04-16T15:12:30.273" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="11587" PostTypeId="1" CreationDate="2016-04-16T16:20:33.793" Score="1" ViewCount="24" Body="&lt;p&gt;It seems that economic threats have become a mainstay in geopolitical saber rattling. For example: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.nytimes.com/2016/04/16/world/middleeast/saudi-arabia-warns-ofeconomic-fallout-if-congress-passes-9-11-bill.html&quot; rel=&quot;nofollow&quot;&gt;http://www.nytimes.com/2016/04/16/world/middleeast/saudi-arabia-warns-ofeconomic-fallout-if-congress-passes-9-11-bill.html&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Summary: Saudi Arabia has threatened to sell approximately $750 billion in U.S. treasuries if Congress passes a measure meant to facilitate the accountability of any Saudi Official found to have been complicit in/actively involved in the terror attack of 2001. In response to this economic threat, the Obama administration has taken a position against the Congressional action. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Such threats and subsequent responses make me curious:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let us suppose the Saudi's are able to sell the $750 billion of treasuries. What is the likely outcome for each of the two economies. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Further, if such threats are feasible and serious, why are there no restrictions about who can hold (and in what amounts) US debt? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems reasonable for some Americans to argue that the benefits of allowing foreign nations (especially those who are not historically allies of America) are not worth the costs. &lt;/p&gt;&#xA;" OwnerUserId="1655" LastEditorUserId="1655" LastEditDate="2016-04-16T19:05:32.520" LastActivityDate="2016-04-16T19:05:32.520" Title="The intersection of geopolitical wrangling and economics" Tags="&lt;government-debt&gt;&lt;political-economy&gt;" AnswerCount="0" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="11588" PostTypeId="2" ParentId="11584" CreationDate="2016-04-16T18:50:00.180" Score="6" Body="&lt;p&gt;All concepts are used in Economics. Definitions (not stated in a fully rigorous manner):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Martingale :&lt;/strong&gt; A stochastic process $\{X_t\}$ is called &quot;martingale&quot; if and only if it holds that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$E(X_{t+1} \mid X_t,X_{t-1},...) = X_t \tag{1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are extensions like &quot;sub-martingale&quot;, &quot;super-martingale&quot; but the basic definition is the above&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Random walk :&lt;/strong&gt; A stochastic process $\{X_t\}$ is called &quot;random walk&quot; if and only if&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$X_{t+1} = X_t + u_{t+1}, \;\;\;u_t \sim \text{White Noise} \tag{2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and you can look up the definition of &quot;White Noise&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here too there are spin-offs (&quot;random walk with drift&quot; etc).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Comment: it follows that a random walk is (one example of) a martingale, but a martingale does not imply a random walk, the former being a much broader concept.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Rational Expectations&lt;/strong&gt; : Originally, the Rational Expectations Hypothesis stated that &lt;em&gt;the aggregate expectation&lt;/em&gt; on some unknown (usually future) value of an &lt;em&gt;aggregate&lt;/em&gt; random variable (&lt;a href=&quot;https://economics.stackexchange.com/a/141/61&quot;&gt;see also this post on the matter&lt;/a&gt;), equals the conditional expectation (in the rigorous mathematical sense) of this variable &quot;given all relevant information at the time of forming the expectation&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$X^e_{t+k|t} = E(X_{t+k}\mid I_t) \tag{3}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Comment: note that the conditioning set in the case of a martingale contains only past values of the process. The conditioning set in the case of the REH contains &quot;whatever is available and is deemed relevant&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a representative agent model, we are forced, for internal methodological consistency, to apply the Rational Expectations Hypothesis at the individual level (something that has raised all sorts of valid objections as regards the availability of information and the information processing constraints of an individual).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;So do the forecasts of an individual follow a martingale?&lt;/strong&gt; Let's examine it for one-step-ahead forecasts only: our stochastic process is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\{X^e_{t+1|t},\,X^e_{t+2|t+1},...\} = \{E(X_{t+1}\mid I_t),\,E(X_{t+2}\mid I_{t+1}),...\} \tag{4}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To obtain the martingale property it must hold that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$E[X^e_{t+1|t} \mid X^e_{t|t-1}, X^e_{t-1|t-2},...] = ?\; X^e_{t|t-1} \tag{5}$$&#xA;(I will name in the end what expectations does eq. $(5)$ describes)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$E[X^e_{t+1|t} \mid X^e_{t|t-1}, X^e_{t-1|t-2},...] = E[E(X_{t+1}\mid I_t) \mid \{E(X_{t}\mid I_{t-1}), E(X_{t-1}\mid I_{t-2}),...\}]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As already commented, the outer conditioning set is smaller than the inner conditioning set. By the Law of Iterated Expectations (the Tower property) of Conditional Expectation, we then obtain&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$E[E(X_{t+1}\mid I_t) \mid \{E(X_{t}\mid I_{t-1}), E(X_{t-1}\mid I_{t-2}),...\}] = E[X_{t+1} \mid \{E(X_{t}\mid I_{t-1}), E(X_{t-1}\mid I_{t-2}),...\}] \tag{6}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The right-hand-side of $(6)$ is not necessarily equal to the right-hand-side of $(5)$, so we &lt;em&gt;cannot&lt;/em&gt; say that the stochastic process of one-step-ahead forecasts under the Rational Expectations Hypothesis is a martingale. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Equation $(5)$ describes the following situation: standing at period $t-1$ we form the expectation $X^e_{t|t-1}$, and &quot;the best we can say&quot; (best in the mean-squared-error sense) about our subsequent expectation $X^e_{t+1|t}$ is that it will be equal to $X^e_{t|t-1}$. This is (sometimes) called &quot;static expectations&quot; but beware because the term has two totally different meanings in the literature: for some authors, eq. $(5)$ represents &quot;static&quot; expectations in the sense that the expectation itself remains (or is expected to remain) unchanged in value. But you will often find authors who write the term &quot;static expectations&quot; &lt;em&gt;and mean something totally different&lt;/em&gt;, namely $E(X_{t+1}\mid I_t) = X_t$ (&quot;what is, will be&quot;). This in turn &lt;em&gt;looks&lt;/em&gt; like the martingale property but it is at best an extended concept of it (because the conditioning set is bigger), and in any case, it is a martingale-like property &lt;em&gt;as regards the actual process $\{X_t\}$&lt;/em&gt;, and &lt;em&gt;not&lt;/em&gt; the forecasts-process $\{X^e_{t+1|t}\}$.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2016-04-16T18:50:00.180" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11589" PostTypeId="2" ParentId="11568" CreationDate="2016-04-16T18:52:13.420" Score="2" Body="&lt;p&gt;Let us take your example: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;First, we note that both utility functions are differentiable and quasi-concave.  &lt;/li&gt;&#xA;&lt;li&gt;Noting this, we also know that the necessary and sufficient condition for internal Pareto optimality is that $MRS_{x_1,y_1}$=$MRS_{x_2,y_2}$ (as you have already correctly stated).&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;This condition will clearly coincide with the portion of the solution identifying the locus on internal P.O. allocations. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, for the P.O. points along the right edge: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;We can find the bound of internal solutions by identifying the range over which the MRS condition noted above fails. &lt;/li&gt;&#xA;&lt;li&gt;Because the equality fails, we know a strict inequality must prevail. &lt;/li&gt;&#xA;&lt;li&gt;The directionality of the prevailing strict inequality identifies the edge along which we find our P.O. allocations.  &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;So, there are two ways to answer your question, I think. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;1.) For this type of graph, where one agent has linear preferences and the other has curvilinear and convex preferences, it is easy to see that the locus of P.O. allocations shifts toward the right edge of the Edgeworth box. Thus, corner solutions run along that edge across the range where points of tangency are no longer interior. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;2.) If you encounter a situation where, for example, both agents have linear preferences, you can use the directionality of the strict inequality to identify along which edges of the Edgeworth box you have P.O. allocations. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;An example for 2.) : &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$U_1(x_1,y_1)=X_1+2Y_1$ and $U_2 = 2X_1+Y_1$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, you should do the following: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;ensure you understand why $MRS_1 \neq MRS_2$&lt;/li&gt;&#xA;&lt;li&gt;determine the direction of the strict inequality between the two &lt;/li&gt;&#xA;&lt;li&gt;use this to identify along which edge of the box you will have P.O. allocations. &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Hints: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;$MRS_A&amp;lt;MRS_B$ &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;the P.O. allocations are along the left and upper edges of the Edgeworth box&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Edit: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I also think this is a good reference:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://nicolalimodio.com/wp-content/uploads/2015/11/ec202d.pdf&quot; rel=&quot;nofollow&quot;&gt;http://nicolalimodio.com/wp-content/uploads/2015/11/ec202d.pdf&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope something in there helps. This was an issue for me as well when I began learning such things and it took me a bit of reading and practice to finally become comfortable with it all. &lt;/p&gt;&#xA;" OwnerUserId="1655" LastEditorUserId="1655" LastEditDate="2016-04-16T19:12:08.997" LastActivityDate="2016-04-16T19:12:08.997" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11590" PostTypeId="1" CreationDate="2016-04-16T20:21:20.067" Score="2" ViewCount="154" Body="&lt;p&gt;Is there a term for the fraction of economic value earned by a person in their labor that is due to their creation?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, a car factory laborer who's work creates:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Economic value created = $500,000&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Income Paid = $50,000&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Would have a value of 0.1&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At the other end of the spectrum, the CEO might be&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Economic value created = $2,000,000&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Income paid = $1,500,000&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Fraction = 0.75&lt;/p&gt;&#xA;" OwnerUserId="7979" LastActivityDate="2016-04-16T23:14:13.467" Title="Term for fraction of economic value earned?" Tags="&lt;labor-economics&gt;&lt;marxism&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11591" PostTypeId="2" ParentId="11590" CreationDate="2016-04-16T21:42:04.283" Score="8" Body="&lt;p&gt;You seem to be looking for the phrase '&lt;a href=&quot;https://en.wikipedia.org/wiki/Wage_share&quot;&gt;wage share&lt;/a&gt;' or 'share of labour compensation'.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Wage share:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The wage share (or labor share) is the ratio between compensation of employees (according to the system of National accounts) and one of the following variables:&lt;/p&gt;&#xA;  &#xA;  &lt;ol&gt;&#xA;  &lt;li&gt;gross domestic product at market prices&lt;/li&gt;&#xA;  &lt;li&gt;gross domestic product at factor cost&lt;/li&gt;&#xA;  &lt;li&gt;net domestic product at factor cost (domestic income at factor cost)&lt;/li&gt;&#xA;  &lt;/ol&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Here is some &lt;a href=&quot;https://research.stlouisfed.org/fred2/series/LABSHPUSA156NRUG&quot;&gt;US data on share of labour compensation&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2016-04-16T21:42:04.283" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="11595" PostTypeId="1" AcceptedAnswerId="17556" CreationDate="2016-04-17T04:15:27.627" Score="2" ViewCount="1349" Body="&lt;p&gt;Can someone explain to me how the estimation of the spatial Durbin model is made in Stata ? The documentation of XSMLE command (for spatial panels) says that for dynamic cases the estimator are based upon the article of &lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/S0304407608000808&quot; rel=&quot;nofollow noreferrer&quot;&gt;Yu et. al. (2008)&lt;/a&gt;. But I have not found references in the article to the estimation process of the Spatial Durbin model.&lt;/p&gt;&#xA;" OwnerUserId="6721" LastEditorUserId="2776" LastEditDate="2017-07-23T07:41:55.923" LastActivityDate="2017-07-23T07:41:55.923" Title="Spatial Durbin model in Stata - How it is estimated?" Tags="&lt;econometrics&gt;&lt;paneldata&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11596" PostTypeId="1" AcceptedAnswerId="11598" CreationDate="2016-04-17T09:45:58.773" Score="6" ViewCount="686" Body="&lt;p&gt;I was reading this article, &lt;a href=&quot;http://www.theguardian.com/business/2016/apr/15/george-osborne-says-brexit-will-drive-up-interest-rates&quot; rel=&quot;nofollow&quot;&gt;George Osborne says Brexit would drive up mortgage rates&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;George Osborne has issued a stark warning that mortgage rates will&#xA;  rise if Britain leaves the European Union.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The chancellor said he thought it was likely interest rates, and&#xA;  therefore the cost of home loans, would rise if Britons vote to leave&#xA;  the EU in the referendum on 23 June. But Brexit campaigners accused&#xA;  Osborne of panicking and resorting to intimidating voters. &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Asked if he thought the cost of mortgages would increase on a British&#xA;  exit from the 28-nation bloc, Osborne said: “The short answer is yes.&#xA;  I think that is likely, but I’m not in charge of interest rates.”&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I was wondering what is the transmission mechanism for explaining why interest rates would have to go up if Brexit happens? Moreover, is there any historical example and precedent for this happening?&lt;/p&gt;&#xA;" OwnerUserId="5515" LastEditorUserId="69" LastEditDate="2016-04-21T13:13:52.330" LastActivityDate="2016-06-11T16:32:06.353" Title="Why could interest rates go up if Brexit happens?" Tags="&lt;macroeconomics&gt;&lt;reference-request&gt;&lt;currency&gt;&lt;interest-rate&gt;&lt;history&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11597" PostTypeId="1" CreationDate="2016-04-17T10:53:56.973" Score="3" ViewCount="79" Body="&lt;p&gt;Let's suppose I have $\sqrt{N}$-consistent estimate, $\beta^{*}$(vector, but couldn't put it in bold), then doing the Gauss-Newton Regression, i.e. $\mathbf{y}-\mathbf{x}(\beta^{*})=D_\mathbf{x}(\beta^{*})\mathbf{b}+\mathbf{v}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then we obtain the estimate $\mathbf{\hat b}=\left(D_\mathbf{x}(\beta^{*})^T D_\mathbf{x}(\beta^{*})\right)^{-1}D_\mathbf{x}(\beta^{*})^T(\mathbf{y}-\mathbf{x}(\beta^{*}))$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By adding this last estimate to $\beta^{*}$, we get the one-step estimator $\bar\beta=\beta^{*}+\mathbf{\hat b}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My first question is how the initial estimate is obtained? Do we use the usual method for estimations in this setting (Quasi-Newton methods, etc.)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Second, how do we prove that this one-step estimator is asymptotically efficient?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm following Davidson and Mackinnon (2008) book, but the way they 'derive' it is not really a proof.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, by trying to mimic their line of reasoning I've done the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From a Taylor Expansion/Mean-Value theorem,&#xA;$$n^{-1/2}D_\mathbf{x}(\beta^{*})^T(\mathbf{y}-\mathbf{x}(\beta^{*}))=n^{-1/2}D_\mathbf{x}(\beta_0)^T(\mathbf{y}-\mathbf{x}(\beta_0))+\underbrace{\left(o_p(1)-n^{-1}D_\mathbf{x}(\beta)^TD_\mathbf{x}(\beta)\right)}_{\Delta(\beta)}n^{-1/2}(\beta^{*}-\beta_0)$$, where $\beta_0$ is the DGP value of beta, and we've done an abuse of notation by not specifying a different beta for each component of $\Delta(\beta)$. See the answers to &lt;a href=&quot;https://economics.stackexchange.com/questions/11516/proving-the-asymptotic-normality-of-th-non-linear-least-squares-estimator&quot;&gt;this question&lt;/a&gt;, if you're interested in more details on this expansion.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, we know from the previous link, that for the Non-linear Least Squares estimator $\hat\beta$, we have $n^{-1/2}(\hat\beta-\beta_0)=-\Delta(\beta)^{-1}n^{-1/2}D_\mathbf{x}(\beta_0)^T\mathbf{u}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence we can conclude &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$n^{-1/2}(\beta^{*}-\beta_0)=\Delta(\beta)^{-1}n^{-1/2}D_\mathbf{x}(\beta^{*})^T(\mathbf{y}-\mathbf{x}(\beta^{*}))+n^{-1/2}(\hat\beta-\beta_0)$, implying that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$n^{-1/2}(\beta^{*}-\hat\beta)=\Delta(\beta)^{-1}n^{-1/2}D_\mathbf{x}(\beta^{*})^T(\mathbf{y}-\mathbf{x}(\beta^{*}))$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By definition, and some usual assumptions, we know that $plim \Delta(\beta)=S_{D_\mathbf{x}^TD_\mathbf{x}}$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And I'm stuck here, because what the book does is not translatable when I try be formal in the derivation. So, what should I do to prove that the one-step estimator is efficient?&lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2016-04-19T12:38:16.197" Title="One-Step estimators for non-linear regression" Tags="&lt;econometrics&gt;" AnswerCount="0" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="11598" PostTypeId="2" ParentId="11596" CreationDate="2016-04-17T11:12:14.367" Score="7" Body="&lt;p&gt;What would happen in the event of a &quot;Leave&quot; vote in the referendum? Well, the pound would quickly fall in value against its major trading partners - and some falls have already happened as the &quot;Leave&quot; vote appears to increase in probability. That makes imports more expensive, which is directly inflationary. Which pushes the Bank of England (the UK's Central Bank) to raise interest rates in response.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On top of that there are second-order effects which would pull in the other direction, but over a longer time period: there's the directly deflationary effect of the significant increase in unemployment. And the increased risk of further disintegration of the EU, with all the consequential risks to peace and prosperity that that would bring.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And as Alexis L. points out, the UK leaving the EU adds significant risk to the UK's currency; and that corresponds to a need for a higher return on the currency: that return is the interest rate. That's because if interest rates are too low, then people would keep selling the pound sterling, and it would keep dropping in value, pushing up inflation (requiring higher interest rates), and harming UK companies that rely on exports (creating political pressure to do something about the exchange rate - and that &quot;something&quot; is higher interest rates).&lt;/p&gt;&#xA;" OwnerUserId="44" LastEditorUserId="44" LastEditDate="2016-04-20T07:21:19.863" LastActivityDate="2016-04-20T07:21:19.863" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11599" PostTypeId="1" AcceptedAnswerId="11609" CreationDate="2016-04-17T13:06:00.880" Score="3" ViewCount="148" Body="&lt;p&gt;There are some clear conflict of interest with when a person simultaneously holds a director position and is also part of the management, as CEO for example. We would clearly have a conflict of interest as the board should make decisions for the benefit of the shareholders, and the CEO has to rule the company. On top of this an incompetent CEO, who is also on the board of directors, is hard to fire.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I wanted to know if there is any governance problems or conflict of interest, in the case where a shareholder or a trustee, also occupies the role of chairman of the board of directors.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you for your help.&lt;/p&gt;&#xA;" OwnerUserId="7985" LastActivityDate="2016-04-18T09:25:01.860" Title="Problem if Shareholder is a Director" Tags="&lt;corporate-governance&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11600" PostTypeId="1" CreationDate="2016-04-17T14:15:47.773" Score="7" ViewCount="1254" Body="&lt;p&gt;$$\mathbf Y=\mathbf X\beta + \mathbf U$$&#xA;$$\mathbf E[\mathbf U\mathbf U']=\Omega $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\hat \beta - \beta=(\mathbf X'\Omega^{-1}\mathbf X)^{-1}\mathbf X'\Omega^{-1}\mathbf U$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;let $\mathbf X^{*}=\Omega^{-0.5}\mathbf X$, and $\mathbf U^{*}=\Omega^{-0.5}\mathbf U$. it is obviously that $\mathbf u^{*}_i$,which is the i-th element of $\mathbf U^{*}$, is iid follows the standard normal distribution, if we assume that $\mathbf U$ follows normal distribution. But $x_i^{*'}$, the i-th row of $\mathbf X^{*}$ is not necessarily independent, for it is the linear combination of all rows in $\mathbf X$ (which is assumed iid for they stand for observations from the same distribution).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus the followings are not necessarily true under independent Law of Large number and Central limit theorem:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;$plim\frac{\mathbf X'\Omega^{-1}\mathbf U}{n}=plim\frac{\mathbf X^{*'}\mathbf U^{*}}{n}= plim\frac{1}{n}\Sigma x_i^{*}u_i^{*} =0$&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;$\frac{\mathbf X'\Omega^{-1}\mathbf U}{\sqrt n}=\frac{\mathbf X^{*'}\mathbf U^{*}}{\sqrt n}= \frac{1}{\sqrt n}\Sigma x_i^{*}u_i^{*} $, converges to normal distribution&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;I understand that when $\mathbf \Omega $ is a diagonal matrix then $x_i^{*}$ is independent and it is not a problem, what if when $\mathbf \Omega $ is not a diagonal matrix? What kind of dependent LLN and CLT can be applied here? should we make other assumptions?&lt;/p&gt;&#xA;" OwnerUserId="7933" LastActivityDate="2017-08-14T17:34:54.653" Title="How to show that GLS estimator is consistent in regression model?" Tags="&lt;econometrics&gt;" AnswerCount="1" CommentCount="4" FavoriteCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="11601" PostTypeId="1" AcceptedAnswerId="11649" CreationDate="2016-04-17T14:54:22.377" Score="0" ViewCount="770" Body="&lt;p&gt;As we can see the factors impacting the housing market, particularly house price, are always analysed from the long run and short run, even some researchers analysis those factors from cyclical and structural approach. How can we understand the long run and short run? And what are cyclical and structural influences on house price? Thank you.&lt;/p&gt;&#xA;" OwnerUserId="7987" LastActivityDate="2016-04-20T10:06:20.507" Title="why do we analysis the housing market from 'short run' and 'long run'?" Tags="&lt;macroeconomics&gt;&lt;housing&gt;" AnswerCount="1" CommentCount="2" ClosedDate="2016-04-20T10:57:18.150" ContentLicense="CC BY-SA 3.0" />
  <row Id="11602" PostTypeId="2" ParentId="11596" CreationDate="2016-04-17T14:57:39.870" Score="4" Body="&lt;p&gt;Just to come back on your two questions: (i) whenever the market is getting &quot;tense&quot;, interest rates go up. Because people usually sell their bonds, and so interests rates go up as these two are negatively correlated (if you don't understand this point please tell me I can explain it to you quickly in the comment). It is called a &quot;sell-off&quot;. (ii) We have some historical example of such a movement on market for example with the Bund sell-off in the summer 2015, but also in a broader perspective when the UK left the European monetary system...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Make also sure to check this little document, which the UK has talked a lot about:&#xA;&lt;a href=&quot;http://news.cbi.org.uk/news/leaving-eu-would-cause-a-serious-shock-to-uk-economy-new-pwc-analysis/leaving-the-eu-implications-for-the-uk-economy/&quot;&gt;http://news.cbi.org.uk/news/leaving-eu-would-cause-a-serious-shock-to-uk-economy-new-pwc-analysis/leaving-the-eu-implications-for-the-uk-economy/&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="7833" LastActivityDate="2016-04-17T14:57:39.870" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11603" PostTypeId="1" CreationDate="2016-04-17T15:20:04.223" Score="0" ViewCount="61" Body="&lt;p&gt;I would like to know if you can tell me, what are economical theories that are in support of this kind of social system if any? Can this system be efficient? &lt;/p&gt;&#xA;" OwnerDisplayName="ssimon" LastEditorUserId="44" LastEditDate="2016-10-17T12:33:16.113" LastActivityDate="2016-10-17T12:33:16.113" Title="Is an unconditional basic income pleasurable idea or it cannot be achieved?" Tags="&lt;macroeconomics&gt;&lt;reference-request&gt;&lt;welfare-economics&gt;&lt;basic-income&gt;" AnswerCount="0" CommentCount="3" ClosedDate="2016-04-18T13:14:10.047" ContentLicense="CC BY-SA 3.0" />
  <row Id="11604" PostTypeId="1" AcceptedAnswerId="11615" CreationDate="2016-04-18T00:27:37.337" Score="7" ViewCount="3727" Body="&lt;p&gt;As part of a Macro class on social welfare, I am about to teach a very brief introduction to Arrow's impossibility theorem.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The classic demonstration of this involves three voters choosing between three alternatives, whose preferences are as follows:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;  A B C&#xA;1 x y z&#xA;2 y z x&#xA;3 z x y&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;We are then shown the supposedly interesting result that, given these obviously incompatible preferences, no possible voting system can pick a favoured option in a non-arbitrary way.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;More generally, any voting system risks ending up in this kind of three-way tie situation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But this seems impossibly theoretical a concern. Clearly if voters' preferences split &lt;em&gt;n&lt;/em&gt; alternatives precisely &lt;em&gt;n&lt;/em&gt; ways, as in this example, there's no outcome that satisfies a majority. But in an electorate, the probability of this is vanishingly small. Also, if each alternative is joint first in preference, we surely don't care which one is selected.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why do we teach this mysterious theorem at all? Is it just because it's got a cool name? Has it ever been usefully applied to a real-world problem?&lt;/p&gt;&#xA;" OwnerUserId="7660" LastActivityDate="2016-04-18T22:59:04.813" Title="Why teach Arrow's impossibility theorem?" Tags="&lt;welfare-economics&gt;&lt;social-welfare&gt;" AnswerCount="3" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11605" PostTypeId="1" CreationDate="2016-04-18T03:23:03.853" Score="2" ViewCount="278" Body="&lt;p&gt;I am but a humble lay person, but I have a question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've been thinking about wealth inequality and the structure of capitalism. It seems to me that the pay rate for workers accumulates in a linear way. That is, during year 1 you make X, at the end of year 2 you've made 2X, at year 3 you've accumulated 3X and so on. You may get raises (although probably not so much in our current economic conditions of a labor oversupply) or switch jobs, but if you stayed at the same firm, and conditions didn't change much, then your savings accumulate in a linear way.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But for the business who hires you, they start out with some money, then they use that money to buy raw materials and pay you to convert them into a product, then they take your finished product and sell it for more money than they started with. Let's say they start off with Y, then at the end of a year they have 2Y. But this is an exponential growth: they then start over the process using their 2Y, and can hire twice as many people and buy twice as much raw materials and sell twice as much, to end up with 4Y at the end. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So while worker worth goes up in a linear way, 1X, 2X, 3X, 4X...the employer's worth goes up in an exponential way, 1Y, 2Y, 4Y, 8Y...So in that case, isn't wealth inequality fundamentally built right into capitalism, and therefore we should expect it to pretty much always get worse as time goes on, unless measures are taken to combat or reverse it after the fact? Am I wrong in my analysis here?&lt;/p&gt;&#xA;" OwnerUserId="7995" LastEditorUserId="2776" LastEditDate="2017-07-21T08:07:01.950" LastActivityDate="2017-07-21T08:11:52.863" Title="Is worsening wealth inequality intrinsic to Capitalism?" Tags="&lt;inequality&gt;&lt;wealth&gt;&lt;capitalism&gt;" AnswerCount="2" CommentCount="4" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11606" PostTypeId="2" ParentId="11604" CreationDate="2016-04-18T05:49:16.440" Score="17" Body="&lt;p&gt;What you describe has not much to do with Arrow's impossibility theorem. This is called the Condorcet paradox. The preference profile you gave is used to demonstrate that even if all individual preferences are transitive group judgement may not be. Using majority voting y beats z, z beats x and x beats y.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Arrow%27s_impossibility_theorem&quot;&gt;Arrow's impossibility theorem&lt;/a&gt; is a more nuanced theorem. If you have not studied it do read up on it, it is fascinating! (You probably have to get a book on Social Choice to get familiar with the concepts the theorem uses.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Judgement aggregation is covered in basic micro courses to show that it is not clear which of the efficient allocations a social planer should use, because society may not agree.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2016-04-18T05:49:16.440" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11607" PostTypeId="2" ParentId="10270" CreationDate="2016-04-18T05:54:34.027" Score="3" Body="&lt;p&gt;&lt;strong&gt;Equity&lt;/strong&gt; is defined as &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The value of an asset less the value of all liabilities on that asset. [&lt;a href=&quot;http://www.investopedia.com/terms/e/equity.asp&quot; rel=&quot;nofollow&quot;&gt;source&lt;/a&gt;]&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This is a rather broad definition and equity can take on different forms. E.g., for a house, it is the difference between the market value of the house and the mortgage still owned by the owner.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the context of a company balance sheet, we usually talk about &lt;strong&gt;Shareholder's equity&lt;/strong&gt;, which, as &lt;a href=&quot;https://en.wikipedia.org/wiki/Equity_%28finance%29&quot; rel=&quot;nofollow&quot;&gt;Wikipedia&lt;/a&gt; puts it&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;represents the equity of a company as divided among individual shareholders of common or preferred stock&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Contrary to the house example, the market value of a company, is the sum of all shares. And the &lt;a href=&quot;http://www.investopedia.com/terms/s/shareholdersequity.asp&quot; rel=&quot;nofollow&quot;&gt;shareholder's equity&lt;/a&gt; is that value (asset) subtracted from liabilities (creditors, etc.). See also &lt;a href=&quot;http://beginnersinvest.about.com/od/analyzingabalancesheet/a/shareholder-equity.htm&quot; rel=&quot;nofollow&quot;&gt;this page&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &lt;strong&gt;book value&lt;/strong&gt; is the value of an &lt;a href=&quot;https://en.wikipedia.org/wiki/Book_value&quot; rel=&quot;nofollow&quot;&gt;asset&lt;/a&gt;. But the difference with the Shareholder's equity is illustrated as&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;To find a company's book value, you need to take the shareholders' equity and exclude all intangible items. This leaves you with the theoretical value of all of the company's tangible assets which are those assets that can be touched, seen, and felt as opposed to things such as patents, trademarks, copyrights, and customer relationships. [&lt;a href=&quot;http://beginnersinvest.about.com/od/analyzingabalancesheet/a/book-value.htm&quot; rel=&quot;nofollow&quot;&gt;source&lt;/a&gt;]&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="4817" LastActivityDate="2016-04-18T05:54:34.027" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11608" PostTypeId="1" AcceptedAnswerId="11619" CreationDate="2016-04-18T08:05:41.397" Score="4" ViewCount="916" Body="&lt;p&gt;I have just been admitted to a graduate school for studies in economics and I major in public administration during my undergraduate time. I have learnt linear algebra, single variable calculus, probability theory and mathematical statistics by myself(Otherwise I will not be admitted). After all I am a amateur in economics, and I have another 5 months to go before register to the graduate school. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, I think I'd better to equip myself with solid mathematical knowledge to deal with the courses in the first year, which are showed in the title.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;ps. The books I will use in these courses are:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;Microeconomic Theory&lt;/em&gt;, Andreu Mas-Colell &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&lt;em&gt;Advanced Macroeconomics&lt;/em&gt;, David Romer&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;And there is no prescribed textbook for econometrics.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Any ides are going to be appreciated, and if I didn't make a clear expression of my question, please tell me to edit my question.&lt;/p&gt;&#xA;" OwnerUserId="6895" LastActivityDate="2016-04-19T18:25:01.617" Title="Math basics for Macro&amp;Micro economics and econometrics" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;econometrics&gt;&lt;soft-question&gt;" AnswerCount="2" CommentCount="6" FavoriteCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="11609" PostTypeId="2" ParentId="11599" CreationDate="2016-04-18T09:25:01.860" Score="1" Body="&lt;p&gt;There is a potential conflict of interest (not only for a chairman but also for any director or employee who owns shares in the company) arising from the possibility of insider trading.  Suppose the chairman of a quoted company has a large shareholding and, through their position, becomes aware of information, not yet disclosed to the market, that means the company's prospects are not as good as previously believed.  They might then want to sell shares immediately, rather than waiting until the information has been disclosed and as a result the share price has fallen.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since directors including chairmen are supposed to act in the interests of the company and its body of shareholders, there are two possible conflicts here.  Firstly, by focussing on whether to sell their own shares and arrangements for doing so, a chairman might neglect their duties to the company at a critical time for it.  Secondly, the selling of a large block of shares would tend to depress the share price to the detriment of other shareholders.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is not to say that a chairman should not hold shares. A relatively small shareholding would be unlikely to give rise to a serious conflict of interest. In many countries (see &lt;a href=&quot;https://en.wikipedia.org/wiki/Insider_trading#By_nation&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;) the issue has to some extent been addressed by making insider trading illegal (although the detailed rules differ between countries).&lt;/p&gt;&#xA;" OwnerUserId="1417" LastActivityDate="2016-04-18T09:25:01.860" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11610" PostTypeId="1" CreationDate="2016-04-18T09:31:23.200" Score="1" ViewCount="490" Body="&lt;p&gt;What does &quot;&lt;strong&gt;SEN&lt;/strong&gt;&quot; / &quot;&lt;strong&gt;sen&lt;/strong&gt;&quot; (possibly an abbreviation?) mean in a shareholders' context?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In particular, I am wondering how to interpret &quot;&lt;strong&gt;sen&lt;/strong&gt;&quot; in the following context:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&quot;&lt;strong&gt;Earnings Per Share (sen)&lt;/strong&gt;&quot;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;This can be encountered a lot, as a simple &lt;a href=&quot;https://www.google.com/#q=%22Earnings+Per+Share+%28sen%29%22&quot; rel=&quot;nofollow&quot;&gt;google query &quot;&lt;strong&gt;Earnings Per Share (sen)&lt;/strong&gt;&quot; shows&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="7996" LastActivityDate="2016-04-18T09:44:51.967" Title="What does &quot;(Earnings Per Share) sen&quot; mean in a shareholders' context?" Tags="&lt;stock-market&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11611" PostTypeId="2" ParentId="11610" CreationDate="2016-04-18T09:37:08.623" Score="1" Body="&lt;p&gt;Perhaps &lt;strong&gt;&quot;sen&quot;&lt;/strong&gt; is no more than a 1/100 sub-unit of the (e.g.) currency Malaysian ringgit? Such a sub-unit is called &quot;sen&quot;, and is etymologically related to the English word &quot;cent&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems even more likely that &lt;strong&gt;&quot;sen&quot;&lt;/strong&gt; in  &lt;strong&gt;&quot;Earnings Per Share (sen)&quot;&lt;/strong&gt; refers to a 1/100 sub-unit of a currency, as &lt;a href=&quot;https://www.google.com/#q=&amp;quot;Earnings+Per+Share+(cents)&amp;quot;&quot; rel=&quot;nofollow&quot;&gt;the google query &lt;strong&gt;&quot;Earnings Per Share (cents)&quot;&lt;/strong&gt;&lt;/a&gt; yields many similar results.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But even if that would be the case, I think there can be more elaborate answers than mine, which also explains a bit more about the meaning of the words &lt;strong&gt;&quot;Earnings Per Share&quot;&lt;/strong&gt;, in relation to numbers expressed in either &lt;strong&gt;&quot;cents&quot;&lt;/strong&gt; or &lt;strong&gt;&quot;sen&quot;&lt;/strong&gt;.&lt;/p&gt;&#xA;" OwnerUserId="7996" LastEditorUserId="7996" LastEditDate="2016-04-18T09:44:51.967" LastActivityDate="2016-04-18T09:44:51.967" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11612" PostTypeId="1" CreationDate="2016-04-18T11:09:12.490" Score="3" ViewCount="131" Body="&lt;p&gt;I could see that if the price level is say lower than the intersection point , then firms won't be able to operate , but what is wrong with the price level being above the intersection point of the AVC and the MC . &lt;/p&gt;&#xA;&#xA;&lt;p&gt;IN that case firms would earn positive profit , although I know that this not happen in a competitive market , but I fail to grasp what stops this from happening ?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That is why won't the competitive market function well enough if the price level would be higher than the intersection point ?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I thought then the positive profits would make the other firms come in , however I could;t quite make the whole connection as to how would it drive the price level down !&lt;/p&gt;&#xA;" OwnerUserId="7667" LastEditorUserId="264" LastEditDate="2017-01-15T23:40:05.163" LastActivityDate="2017-01-15T23:40:05.163" Title="Does the price level in a competitive market have to be at the intersection of the Average Cost curve and the Marginal Cost curve?" Tags="&lt;competitive-equilibrium&gt;&lt;profits&gt;" AnswerCount="3" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="11613" PostTypeId="1" CreationDate="2016-04-18T11:23:06.657" Score="1" ViewCount="578" Body="&lt;p&gt;To narrow down the focus of the question, I want to know how would one depict a reduction of indirect taxes on the Lorenz Curve of a country. In my opinion, the reduction of taxes will increase the level of inequity and so the Gini Index must increase. Thus, the initial Lorenz Curve of a country must shift outwards. However, I came across a problem where the very opposite has been done. Please explain the flaw in my reasoning. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For more clarity the question is laid out as follows:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Introduction&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/YKB8G.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/YKB8G.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Main Question&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/FNfoo.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/FNfoo.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Answer&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/YGq9O.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/YGq9O.png&quot; alt=&quot;Diagram&quot;&gt;&lt;/a&gt; &lt;/p&gt;&#xA;" OwnerUserId="6565" LastEditorUserId="6565" LastEditDate="2016-04-18T13:40:51.630" LastActivityDate="2016-04-18T13:40:51.630" Title="What are the likely effects on the distribution of income if the rate of indirect tax is reduced?" Tags="&lt;macroeconomics&gt;" AnswerCount="0" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="11614" PostTypeId="2" ParentId="11604" CreationDate="2016-04-18T12:44:51.090" Score="13" Body="&lt;p&gt;There is a temptation for economists to be utilitarians - to go around trying to maximise some measure (total, average, minimax as in Rawls ...) of utility. I think this happens even to economists who've never studied any moral or political philosophy because we often end up using welfare tests. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems to me that Arrow is &lt;em&gt;very&lt;/em&gt; useful (more useful than Condorcet) in pointing out that quite natural extensions of the axioms of choice that we use as foundations of economics in thinking about individual choices do not yield attractive rules for making social choices. In other words, I think it is really useful in saying to economics students: &quot;there is a world of social choice out there that is not as simple as the (rational) individual choice that economists &lt;em&gt;think&lt;/em&gt; they have got straight&quot;.&lt;/p&gt;&#xA;" OwnerUserId="7160" LastActivityDate="2016-04-18T12:44:51.090" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11615" PostTypeId="2" ParentId="11604" CreationDate="2016-04-18T13:38:25.140" Score="16" Body="&lt;p&gt;I see the important lesson of  the impossibility theorem as establishing that &lt;em&gt;it is not generally speaking possible to have nicely behaved preferences of groups&lt;/em&gt;, even if &lt;em&gt;individuals have nicely behaved preferences&lt;/em&gt;. Therefore a social welfare function may not exist . Attempts to improve aggregate welfare by maximizing the outcome of a preference aggregation mechanism may result in unfair or irrational outcomes. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.washingtonpost.com/news/wonk/wp/2013/02/11/the-political-science-of-papal-elections/&quot;&gt;The impossibility theorem was supposedly a major reason for reforms in the papal election process&lt;/a&gt;. It also launched important research into if the issues Arrow raised were important for people's actual preferences and institutions. Interestingly, they are for the most common forms of preference aggregation (e.g., see &lt;a href=&quot;http://www.sscnet.ucla.edu/polisci/faculty/lewis/pdf/greenreform9.pdf&quot;&gt;Bush v. Gore. v. Nader&lt;/a&gt; or the &lt;a href=&quot;http://www.economist.com/blogs/graphicdetail/2015/05/britain-s-election-2015-seats-votes-calculator&quot;&gt;notorious differences in seats and votes in UK elections&lt;/a&gt;). It also shows (along with Condorcet) that agenda control (in what order do we vote on the choices) is a powerful force for determining final outcomes. Finally, it launched research into which aggregation mechanisms were the least bad, seeming to settle on something like &lt;a href=&quot;https://en.wikipedia.org/wiki/Single_transferable_vote&quot;&gt;Single Transferable Vote&lt;/a&gt; or &lt;a href=&quot;https://en.wikipedia.org/wiki/Instant-runoff_voting&quot;&gt;Instant Runoff&lt;/a&gt; mechanisms in most situations. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But for a more critical overview (with which the authors disagree), see pages 14-15 of &lt;a href=&quot;https://books.google.com/books?id=Vof2AwAAQBAJ&amp;amp;pg=PA14&amp;amp;lpg=PA14&amp;amp;dq=empirical%20least%20bad%20arrow&amp;amp;source=bl&amp;amp;ots=bKvpJzk5w8&amp;amp;sig=qvK5rIErfFncHRubbIIPexnHWIs&amp;amp;hl=en&amp;amp;sa=X&amp;amp;ved=0ahUKEwi_wJPdppjMAhVBKB4KHU7VALAQ6AEIHDAA#v=onepage&amp;amp;q=empirical%20least%20bad%20arrow&amp;amp;f=false&quot;&gt;Social Choice and Legitimacy: The Possibilities of Impossibility&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2016-04-18T22:59:04.813" LastActivityDate="2016-04-18T22:59:04.813" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11616" PostTypeId="1" CreationDate="2016-04-18T13:44:36.830" Score="3" ViewCount="129" Body="&lt;p&gt;I have been using the generalised cost method in an agent based model. The generalised cost method enables each individual agent to make a decision on what mode of transport it will take given a range of options from A to B. The monetary and non-monetary aspects of the journey can be summated with different valuations of the non-monetary aspects dependent on the agent and the mode (waiting is weighted 2* travelling and so on). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, the generalised cost function can be defined as:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;g = f(a) + t(b) &#xA;&#xA;Where &#xA;&#xA;g = generalised cost&#xA;f = financial cost&#xA;t = time cost&#xA;a = Value attribution of financial cost (by socioeconomic group)&#xA;b = Value attribution of time cost (by socioeconomic group)&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;I have temporally dynamic time cost (t) values that has enabled me to display how congestion on the roads and dynamic timetables can result in different decisions being made for exactly the same journey but at different times. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I was intrigued by Kenneth Train's Discrete Choice Method work &lt;a href=&quot;http://eml.berkeley.edu/books/choice2.html&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Discrete choice models attempt to predict choices between two or more discrete alternatives. They statistically relate the choice made by each person to the attributes of the person and the output the probability of the agent making each choice in a set of alternatives. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand the outputs are different. The generalised cost method will result in the selection of the option with the lowest generalised cost. The Discrete choice method will result in an output of the probability per each choice. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What are the key differences between the methods?&lt;/p&gt;&#xA;" OwnerUserId="7998" LastActivityDate="2016-04-18T13:44:36.830" Title="What is the difference between the discrete choice method and the generalised cost method in transport planning?" Tags="&lt;utility&gt;&lt;cost&gt;&lt;discrete-preferences&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11617" PostTypeId="1" CreationDate="2016-04-18T13:57:46.617" Score="3" ViewCount="675" Body="&lt;p&gt;I'm dealing with panel data and I chose to do a regression with cross-sectional fixed effects. Some of my explanatory variables (such as $debt_{it}$) do not show very much variation over the time dimension. In fact, the most interesting variation in $debt_{it}$ (but also in some other variables), is probably the cross-sectional variation (i.e. one country having a higher debt over the entire period under investigation) rather than the variation of debt over time within each country.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, I believe that demeaning the data by using cross-section fixed effects may elimate a lot of interesting information. The $H_{0}$ of redundant fixed effects is strongly rejected, and the Hausman test strongly rejects the consistency of the random effects estimator. Doing a pooled estimation, rather than F.E. estimation, more than doubles the estimated coefficient to debt.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In an attempt to 'retrieve' the valuable cross-sectional information, I plotted each country's fixed effect against each country's average level of debt over the time period. There was a significant correlation $(p&amp;lt;0,01)$ between the averaged debt and the fixed effect. Intuitively, it seems to me that I can conclude that (even though the coefficient to $debt_{it}$ is possibly insignificant, depending on the specification, I'm still working on this) a higher debt does result in higher interest rate spreads (which is the dependent variable).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These are my questions: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Is my intuition correct? &lt;/li&gt;&#xA;&lt;li&gt;If it is not, which I assume to be the case since I have never come across a similar reasoning, where exactly does my reasoning fail? Can you provide some intuition or an accessible reference dealing with the issue? &lt;/li&gt;&#xA;&lt;li&gt;Are there any estimators that are better equipped to use cross-sectional variation in the data than the within-estimator? &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="6566" LastActivityDate="2016-11-11T15:08:00.553" Title="Interpreting correlation between fixed effect and explanatory variable" Tags="&lt;econometrics&gt;&lt;paneldata&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11618" PostTypeId="2" ParentId="11608" CreationDate="2016-04-18T14:43:39.153" Score="1" Body="&lt;p&gt;Expanding my comments into an answer:  For concreteness I recommend making sure you finish the chapter on Partial Derivatives in your multi-variable Calculus class; a common book is &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0538497815&quot; rel=&quot;nofollow&quot;&gt;Stewart's Calculus&lt;/a&gt;, here PDs is chapter 14.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In general I feel good preparation comes from increasing mathematical maturity; from a class such as real analysis is great, but here the common book is &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/1259064786&quot; rel=&quot;nofollow&quot;&gt;Rudin's Analysis&lt;/a&gt; which is more suited for Math majours than economics, so I recommend working through &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0914098918&quot; rel=&quot;nofollow&quot;&gt;Spivak's Calculus&lt;/a&gt; for a rigorous introduction to proofs and reviewing calculus concepts at the same time, in another's words, &quot;This is no ordinary calculus book!&quot; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally I will recommend a book that introduces a wide range of rigorous math intended for Economists &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0691118671&quot; rel=&quot;nofollow&quot;&gt;An Introduction to Mathematical Analysis for Economic Theory and Econometrics &lt;/a&gt;.  This is what I will be reading this summer :D&lt;/p&gt;&#xA;" OwnerUserId="5780" LastActivityDate="2016-04-18T14:43:39.153" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11619" PostTypeId="2" ParentId="11608" CreationDate="2016-04-18T15:30:53.323" Score="9" Body="&lt;p&gt;I recommended familiarity with the following topics: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;partial differentiation and optimization of multivariate functions &lt;/li&gt;&#xA;&lt;li&gt;study fixed point theorems. Kakutani and Brower are good ideas. &lt;/li&gt;&#xA;&lt;li&gt;Set theory is very important &lt;/li&gt;&#xA;&lt;li&gt;analysis (especially sequences, sub-sequences, convergence of sequences, etc.) &lt;/li&gt;&#xA;&lt;li&gt;Topology (basics is good enough. For example, understanding the open ball for local non-satiation)&lt;/li&gt;&#xA;&lt;li&gt;Contraction mapping theorem (For Bellman equations in Macro) &lt;/li&gt;&#xA;&lt;li&gt;Value functions / Bellman equations &lt;/li&gt;&#xA;&lt;li&gt;Envelope Theorem &lt;/li&gt;&#xA;&lt;li&gt;Be very comfortable with calculus (so...do some review if you aren't) &lt;/li&gt;&#xA;&lt;li&gt;Familiarize yourself with the simplex &lt;/li&gt;&#xA;&lt;li&gt;basic ideas of function properties like concavity, convexity, quasi-concavity, quasi-convexity, continuous, differentiable, discontinuity etc. &lt;/li&gt;&#xA;&lt;li&gt;Take a look at point-to-set mappings &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Edit: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;I'll add for point to set mapping that upper, lower-hemicontinuity and hemicontinuity are necessary as well&lt;/li&gt;&#xA;&lt;li&gt;Taylor expansions around a point c for multivariate and log functions&lt;/li&gt;&#xA;&lt;li&gt;glance over methods of log-linearization &lt;/li&gt;&#xA;&lt;li&gt;This isn't too hard but very important: binary relations over finite and infinite sets. To be a bit more specific - completeness, transitivity etc. &#xA;I also recommend being familiar with cyclicity etc. &lt;/li&gt;&#xA;&lt;li&gt;The separating and supporting hyperplane theorems &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;This may sound silly, but also make sure you are ridiculously comfortable with algebra. Sometimes I feel like the unending onslaught of algebra is the thing that slows me down the most during exams etc. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit: I'd like to recommend a book for math prep that covers almost everything I've listed: The Foundations of Mathematical Economics by Michael Carter &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's a solid book with good exercises and readily available solutions to confirm your answers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Alright - I tried to give you some specific things rather than provide the broad strokes. I figure it is easy enough to know that you should study a subject and so I've tried to highlight what I remember being the important little bits of math that we use most often. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Good luck with graduate school.&lt;/p&gt;&#xA;" OwnerUserId="1655" LastEditorUserId="1655" LastEditDate="2016-04-19T15:21:05.717" LastActivityDate="2016-04-19T15:21:05.717" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11620" PostTypeId="1" AcceptedAnswerId="11638" CreationDate="2016-04-18T15:35:19.940" Score="5" ViewCount="562" Body="&lt;p&gt;In &lt;a href=&quot;http://www.antipope.org/charlie/blog-static/2013/12/why-i-want-bitcoin-to-die-in-a.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;this article from 2013 on bitcoin&lt;/a&gt;, the author casually states the importance of knowing that &quot;deflation is not the opposite of inflation&quot;, without expanding or elaborating. I'm sure that there are differing points of view, but can anyone provide support for this statement and its importance?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To me it seems that deflation is a decline in prices, while inflation is an increase in prices - making them opposites. However, I'm guessing that the author is referring the effects of inflation and deflation not being opposite, or perhaps there are some differences when considering pure currency (the article is about bitcoin) vs. the effect of a currency in the market.&lt;/p&gt;&#xA;" OwnerUserId="8000" LastActivityDate="2016-05-05T06:53:08.163" Title="Why is deflation not considered the opposite of inflation?" Tags="&lt;currency&gt;&lt;inflation&gt;&lt;deflation&gt;&lt;cryptocurrency&gt;&lt;bitcoin&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11621" PostTypeId="1" CreationDate="2016-04-18T15:56:47.093" Score="2" ViewCount="153" Body="&lt;p&gt;I am reading about a new bill to lower the minimum wage in &lt;a href=&quot;https://www.washingtonpost.com/opinions/puerto-ricos-lesson-for-the-mainland/2015/07/08/24e63970-25ad-11e5-b77f-eb13a215f593_story.html&quot; rel=&quot;nofollow&quot;&gt;Puerto Rico&lt;/a&gt; from \$7.25 to \$4.25 per hour.  This comes at a time, when both the &lt;a href=&quot;http://www.huffingtonpost.com/entry/new-york-minimum-wage_us_56fde776e4b0daf53aef5731&quot; rel=&quot;nofollow&quot;&gt;New York&lt;/a&gt; and &lt;a href=&quot;http://www.sacbee.com/news/politics-government/capitol-alert/article69842317.html&quot; rel=&quot;nofollow&quot;&gt;California&lt;/a&gt; have chosen to raise their minimum wages from \$9/hr to \$15/hr. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are there any theories of how this affects work in a population?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Have any economists chimed in on the topic of minimum wage in general in general?  Can any of it be used to predict what will happen to PR?&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Why might policy makers feel a decrease is warranted in one situation while an increase is warranted in another?&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="8002" LastEditorUserId="8002" LastEditDate="2016-04-18T19:54:20.430" LastActivityDate="2017-01-05T18:35:17.600" Title="lowering minimum wage by half, effect on population of Puerto Rico" Tags="&lt;labor-economics&gt;&lt;minimum-wage&gt;" AnswerCount="1" CommentCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="11622" PostTypeId="2" ParentId="11621" CreationDate="2016-04-18T19:09:08.790" Score="1" Body="&lt;p&gt;Typically, what happens when a minimum wage is relaxed is that a plethora of jobs that were illegal under the previous doctrine become available on the market for workers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The common metaphor used by its supporters for describing the minimum wage is that a minimum wage is a &quot;price floor&quot; under which wages are not permitted to fall, ostensibly to protect workers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The accurate metaphor for describing the minimum wage is a &lt;strong&gt;price hurdle&lt;/strong&gt; which each person's productivity must clear in order to sell your product (i.e. your labor)  If your productivity is not valued by a buyer at a higher rate than the strictures placed upon it by legislation, it is illegal for you to have that job.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;All other things held equal, reducing the minimum wage will create options for suppliers of cheap labor to actually have their product clear the market rather than having it denied by the State.&lt;/p&gt;&#xA;" OwnerUserId="7264" LastActivityDate="2016-04-18T19:09:08.790" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="11623" PostTypeId="1" CreationDate="2016-04-18T19:24:54.250" Score="2" ViewCount="117" Body="&lt;p&gt;I couldn't find a simple answer to this question: does the dollar contribution of a service sector represent the gross profits of that sector? For instance, the GDP contribution of the financial sector of the US economy is 1.26 trillion dollars. Is that all of the profit? Or does it represent the profits + the wages paid to workers?&lt;/p&gt;&#xA;" OwnerUserId="8004" LastEditorUserId="-1" LastEditDate="2016-04-20T03:46:23.207" LastActivityDate="2016-04-20T03:46:23.207" Title="Does the GDP contribution of a service sector represent the gross profits of that sector?" Tags="&lt;gdp&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11624" PostTypeId="1" AcceptedAnswerId="11637" CreationDate="2016-04-18T21:18:15.007" Score="1" ViewCount="2436" Body="&lt;p&gt;I am running a Oaxaca decomposition on trends in paid work (similar to &lt;a href=&quot;http://sf.oxfordjournals.org/content/79/1/191.short&quot; rel=&quot;nofollow&quot;&gt;this paper&lt;/a&gt;) &#xA;The estimates are expressed in minutes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The total change shows an increase in about 30 minutes between Period 0 and Period 1. &#xA;I have some difficulties to understand what the &lt;code&gt;Interaction&lt;/code&gt; means here. So the &lt;code&gt;Endowments&lt;/code&gt; represent the &lt;em&gt;observed&lt;/em&gt; characteristics of my model and the &lt;code&gt;Coefficients&lt;/code&gt; the &lt;em&gt;unobserved&lt;/em&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What about the &lt;code&gt;Interaction&lt;/code&gt;? How should interpret the fact that it is &lt;strong&gt;negative&lt;/strong&gt; ?  &lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;                     Decomposition&#xA;Period 0                   174.66&#xA;Period 1                   204.15&#xA;Total Change               29.5&#xA;.                                &#xA;Endowments                  22.78&#xA;Coefficients                50.38&#xA;Interaction                -43.66&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;" OwnerUserId="8006" LastActivityDate="2018-08-01T12:59:40.330" Title="Oaxaca decomposition - Interpretation Interaction" Tags="&lt;econometrics&gt;&lt;regression&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11625" PostTypeId="2" ParentId="11623" CreationDate="2016-04-18T23:53:36.373" Score="2" Body="&lt;p&gt;The second way of estimating GDP is to use &quot;the sum of primary incomes distributed by resident producer units&quot;.&#xA;&lt;a href=&quot;https://en.wikipedia.org/wiki/Gross_domestic_product&quot; rel=&quot;nofollow&quot;&gt;Gross domestic product on Wikipedia&lt;/a&gt; (emphasis mine)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If GDP is calculated this way it is sometimes called gross domestic income (GDI), or GDP (I). GDI should provide the same amount as the expenditure method described later. (By definition, GDI = GDP. In practice, however, measurement errors will make the two figures slightly off when reported by national statistical agencies.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;This method measures GDP by adding incomes that firms pay households for factors of production they hire - wages for labour, interest for capital, rent for land and profits for entrepreneurship.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So no, it is missing (at the very least) the wages and interest paid on the debt of the financial industry. &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2016-04-18T23:53:36.373" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11626" PostTypeId="2" ParentId="502" CreationDate="2016-04-19T01:50:33.473" Score="5" Body="&lt;p&gt;I wanted to add two more journals focused on game theory, market, and institutional design : &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://www.mdpi.com/journal/games&quot; rel=&quot;nofollow&quot;&gt;http://www.mdpi.com/journal/games&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://www.mechanism-design.org&quot; rel=&quot;nofollow&quot;&gt;http://www.mechanism-design.org&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;These are new journal (the second is planning its first issue sometimes in 2016) but they are managed by serious people and are likely to become good references.&lt;/p&gt;&#xA;" OwnerUserId="38" LastEditorUserId="38" LastEditDate="2016-04-22T19:23:48.787" LastActivityDate="2016-04-22T19:23:48.787" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11627" PostTypeId="2" ParentId="11612" CreationDate="2016-04-19T02:12:08.417" Score="0" Body="&lt;p&gt;Because let's say that a firm makes even 1$ profit ... Then another firm can come in a sell the product for only 0.99cts profit ! And so one until the equilibrium is the marginal cost of a product !&lt;/p&gt;&#xA;" OwnerUserId="7833" LastActivityDate="2016-04-19T02:12:08.417" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="11628" PostTypeId="1" CreationDate="2016-04-19T07:41:51.353" Score="6" ViewCount="106" Body="&lt;p&gt;The super-star phenomena seems to happen in any field where the marginal cost of distribution is very low. I think teaching could be that way just as much as acting or playing basketball - at least as far as educational content delivery. And many other aspects of teaching can be automated or in some way taken care of without the need of a teacher.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think khan academy is one example of the super-star phenomena in the teaching field.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But for the number of kids (and even adults) in school, it seems like a super-star would have happened earlier, or that there would be more than one super-star, or that the teaching field would mirror the musician or professional athlete or acting fields more closely. (Maybe Barney was a super-star in teaching? Or some other educational kids TV show star? Bill Nye?) Maybe not so much as far as hype goes, but at least as far as competitiveness at the top, and how far ahead the top few are from the rest in income.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So my question is, why doesn't it? Am I missing some point about the super-star phenomena? Or am I overlooking some super-stars in teaching? Etc?&lt;/p&gt;&#xA;" OwnerDisplayName="user4207" LastEditorUserId="108" LastEditDate="2017-04-09T07:43:43.333" LastActivityDate="2017-04-09T07:43:43.333" Title="Why aren't there more super-stars in educational content delivery?" Tags="&lt;labor-economics&gt;&lt;education-economics&gt;" AnswerCount="0" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11631" PostTypeId="1" AcceptedAnswerId="11633" CreationDate="2016-04-19T13:33:39.800" Score="3" ViewCount="260" Body="&lt;p&gt;In recent social protests, I have heard the claim that the economic growth benefits only the rich: they become richer while most people become poorer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To check whether this claim is realistic, I looked for data relating economic growth (measured by the increase GDP) and real wages. I found &lt;a href=&quot;http://www.economicshelp.org/blog/11639/economics/economic-growth-with-falling-real-wages/&quot; rel=&quot;nofollow&quot;&gt;this blog post&lt;/a&gt;, which shows that in the UK in 2008-2014, there has been positive economic growth while the real wages were declining. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The writer offers several explanations to this phenomenon, but they may be specific to the UK. So, my question is: what are some other examples of economic growth that comes together with decreasing real wages?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In general, what are examples of economic growth periods, in which few people benefit while most people become poorer?&lt;/p&gt;&#xA;" OwnerUserId="385" LastActivityDate="2016-04-20T02:16:17.370" Title="Who really benefits from economic growth?" Tags="&lt;reference-request&gt;&lt;economic-growth&gt;&lt;inequality&gt;&lt;wages&gt;" AnswerCount="2" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="11632" PostTypeId="2" ParentId="11631" CreationDate="2016-04-19T15:08:05.910" Score="6" Body="&lt;p&gt;I suppose that it depends on the time scale you are considering. Over the very long run the poor seem to have benefited far more than the rich from growth. See for example &lt;a href=&quot;https://www.washingtonpost.com/opinions/the-hard-times-americans-forget/2016/03/01/c00d17de-dfc5-11e5-846c-10191d1fc4ec_story.html&quot;&gt;Robert J. Samuelson&lt;/a&gt; in the Washington Post:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;By 1915, the United States was the world’s richest nation — and yet,&#xA;  most Americans were dirt poor by today’s standards. Adjusted for&#xA;  inflation, men’s average wages were about a third of what full-time&#xA;  workers now earn. The average workweek in manufacturing hovered around&#xA;  50 hours, and many employees worked a half day on Saturday. Less than&#xA;  a third of homes had electric lights. Less than a fifth of the adult&#xA;  population were high school graduates.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;A hundred years ago leisure and electric lighting were luxuries. Now they are near ubiquitous in the west. Higher education used to be rare, now it is common. Heath-care was once dangerous and of limited efficacy for poor and rich alike, and now we use lasers, chemicals, and radiation to great curative effect. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://cafehayek.com/2016/03/40449.html&quot;&gt;Billionaires All (Or Practically So) by Don Boudreaux&lt;/a&gt;  &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In 1916 even Rockefeller had little access to air conditioning; the&#xA;  range of cuisines from which he could choose his meals was drearily&#xA;  narrow; he was attached by wire to a wall or a floor whenever he spoke&#xA;  on the telephone; he could entertain and inform himself neither with&#xA;  radio nor television; forget about computers or tablets.  Every movie&#xA;  he watched was silent and in black and white.  Unlike us today, in&#xA;  1916 it took Rockefeller days, rather than hours, to get from New York&#xA;  to Europe – or even to California.  Although he was chauffeured in his&#xA;  (un-air-conditioned) limousine, the ride he experienced was bumpier&#xA;  and more perilous than is any ride enjoyed today by an ordinary&#xA;  American.  Rockefeller’s fine Swiss watch was far less accurate than&#xA;  is today’s cheapest Timex.  Were he to need the services of a fire and&#xA;  rescue team, it would have taken that team longer to reach&#xA;  Rockefeller, and the effectiveness of their efforts to save his life&#xA;  or his property were much less than is the effectiveness of such&#xA;  teams’ efforts today.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;If in 1916 Rockefeller or any of his children or grandchildren caught&#xA;  pneumonia or cut a finger on a rusty nail, the risk of death was much&#xA;  higher than it is today because antibiotics were unavailable.  Of&#xA;  course, Rockefeller also had no access to statins, hip- or&#xA;  knee-replacement surgeries, Lasik procedures, contact lenses,&#xA;  antihistamines, or even sunglasses that protected his eyes from&#xA;  ultraviolet rays.  Yet he was then one of the world’s richest men –&#xA;  deprived as he nevertheless was of many of the miraculous goods and&#xA;  services that we ordinary Americans today take for granted.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="69" LastActivityDate="2016-04-19T15:08:05.910" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="11633" PostTypeId="2" ParentId="11631" CreationDate="2016-04-19T15:08:53.570" Score="3" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;I have heard the claim that the economic growth benefits only the rich: they become richer while most people become poorer.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Decomposing this for semantic meaning, this only holds water if you are equating wealth with &quot;Social Position&quot; instead of actual improvement of conditions.  Assuming real wealth, certainly the Poor do not get poorer.  They benefit by a myriad of innovations and advancements made by others that continually drive prices downward into the realm of attainability.  With that in mind, it is an entirely hollow statement to say that &quot;The people at the top get more at the top while the people at the bottom get more at the bottom.&quot; &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;what are some other examples of economic growth that comes together with decreasing real wages?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This is more a conversation starter than a question for a simple response.  I assume that you are considering &lt;em&gt;aggregate&lt;/em&gt; wages (???) because there are a myriad of reasons why localized real wages can decrease while economic growth (localized or otherwise) continues upward.  They are contrivances, sure, but the installation of an automated elevator in buildings creates in increase in real wealth but would invariably reduce the real wage of the elevator operator; An increase in operational efficiency inside an office environment which reduces the necessity for manual support staff creates real wealth for the business and likely for the professionals that designed and implemented the process improvements but would negatively impact the real wages of the support staff who are no longer necessary.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It really depends on your point of view.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In general, what are examples of periods in which few people benefit while most people become poorer?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This is a fairly short list.&#xA;War.&#xA;State expropriation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Notice that I culled one of your key clauses &quot;periods of economic growth.&quot; &#xA;The only thing that can prevent economic growth is war.&lt;/p&gt;&#xA;" OwnerUserId="7264" LastEditorUserId="7264" LastEditDate="2016-04-20T02:16:17.370" LastActivityDate="2016-04-20T02:16:17.370" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11634" PostTypeId="1" CreationDate="2016-04-19T15:10:02.513" Score="0" ViewCount="2329" Body="&lt;p&gt;What if the contract curve goes out of bounds? In that case, do I assume it superimposes itself on the axes it is closest to?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I hope this was clear. Not sure how to explain this other than visually...&lt;/p&gt;&#xA;" OwnerUserId="7714" LastActivityDate="2016-05-20T17:46:35.057" Title="Does the contract curve always have to connect the initial points on an edgeworth box? Why or why not?" Tags="&lt;microeconomics&gt;&lt;producer-theory&gt;&lt;pure-exchange-economy&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11637" PostTypeId="2" ParentId="11624" CreationDate="2016-04-19T20:37:13.353" Score="1" Body="&lt;p&gt;In principle the idea is that there are three sources of the 29.5 change:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lets assume we are taking period 1 as the 'baseline'. The first source of the 29.5 change is that the independent variables changed. To see the importance of this effect, you estimate education's effect on time for period 1. Then you apply the estimated model to the period 2 education and you get a predicted increase in time because the period 2 were more educated on average and the model predicts that higher education leads to more time. Suppose that estimate amounts to 22.78 minutes in this case.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The second source of difference is found by estimating the model with period 2 data. Then you look at the different coefficients on education from the period 1 and period 2 models and apply the difference to the period 1 data. In other words, you see how much the function changed, as measured for the period 1 education levels. Suppose that in the second period, the effect of education seems to be larger. This difference in the coefficients explains 50.38 minutes of the difference between 1 and 2.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally to interpret the interaction term, you have to imagine that you apply the difference in the models to the difference in the data. While the period 1 education using the period 2 model implies a high time and the period 1 model applied to period 2 education also implies a high time, it turns out that the period 2 model applied to the period 2 education yields a small time. This idea that when you interact the period 2 data with the period 2 model you get a different result than if you had just summed up the education change by the period 1 model and the model change by the period 1 data is what is at stake. In this case it turns out that the combination in yields a lower value than what is predicted by the sum of the differences. The interaction term is then difference between what you expected from the two individual differences and the result. In this case its a negative number, -43.66.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another way to see this is to imagine we are decomposing the difference between f(x1,x2) and f(x2,y2). As you go from x1,y1 to x2,y2, you will advance over the x axis. You expect the function to change Dx=(x2-x1)*df/dx(x1,y1).AS you go from x1,1 to x1,y2 you will advance over the y axis. You expect the function to change Dy=(y2-y1) *df/dy(x1,x2). Lastly you compare your results and realize that there's an error, xi, so that f(x2,y2)=f(x1,y1)+ Dx+Dy +xi. Dx here corresponds to the endowments effect, Dy to the coefficients effect, and xi to the interaction effect.&lt;/p&gt;&#xA;" OwnerUserId="7593" LastEditorUserId="7593" LastEditDate="2016-04-25T19:52:55.490" LastActivityDate="2016-04-25T19:52:55.490" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11638" PostTypeId="2" ParentId="11620" CreationDate="2016-04-19T20:54:27.510" Score="3" Body="&lt;p&gt;People think that inflation is bad when it gets out of control, say when its more than 3 or 4% a year. The idea is that we all make economic decisions based on prices and its harder to make those decisions when the prices are constantly changing! Moreover, we try to avoid holding on to money and committing to a price for a long time, because we know those become meaningless over time. Also people associate inflation with the ills of fiat money, and other such things.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Deflation would seem to be not a big deal. You hold on to your cash, it buys more things as time passes! But, it turns out to be a big deal. Deflation turns the real interest rate paid by cash into a positive number. And that means that when the fed wants to lower rates a lot to get you to spend and borrow, it can´t lower them below that real rate. So it can't get you to spend and borrow -&gt; economic fragility! Fed is powerless! So people are now scared to death of deflations! Even small ones seem to be hard to turn around. Japan has been flirting with deflation for a long time, unable to escape from its cold grip....&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, to answer the question:&#xA; Inflation and deflation can be defined as opposites: inflation is a &lt;em&gt;positive&lt;/em&gt; rate of change of prices sustained over several periods while deflation is a &lt;em&gt;negative&lt;/em&gt; rate of change of prices sustained over several periods. However, the effect of inflation and deflation on the economy are not opposites from each other, and policy-maker's concern for one and the other are different, but not the opposite of each other either.&lt;/p&gt;&#xA;" OwnerUserId="7593" LastEditorUserId="7593" LastEditDate="2016-04-19T21:02:34.787" LastActivityDate="2016-04-19T21:02:34.787" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11642" PostTypeId="1" AcceptedAnswerId="12330" CreationDate="2016-04-20T01:08:53.677" Score="2" ViewCount="99" Body="&lt;p&gt;I'm wondering if anyone has looked at how people's indifference curves can change, whether systematically due to experimental manipulations, or if they just vary due to noise. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I thought about this because of a study I did in which I got violations of transitivity when we generate two options from one indifference curve. For example, let's assume we have these three choices&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A[25,50]&lt;br&gt;&#xA;B[50,25]&lt;br&gt;&#xA;C[45,30]&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and a participant is indifferent to the choice sets {A,B} and {B,C}. However, when we present the choices {A,C}, they end up preferring A over C. By indifference curves we mean the line in a 2-dimensional attribute space where any two options are equally preferable. Possibly any study that has looked at violations of transitivity from choices generated from a single indifference curve can address this, but I haven't found anything like that yet.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think maybe the reason I haven't found anything is that I'm mostly only familiar with the literature in psychology, whereas this seems like an issue what would have been investigated in economics. That is why I am asking about it here.&lt;/p&gt;&#xA;" OwnerUserId="5034" LastEditorUserId="1601" LastEditDate="2016-04-20T07:01:05.763" LastActivityDate="2016-06-09T21:42:28.813" Title="Has anyone studied how people's indifference curves can change?" Tags="&lt;preferences&gt;&lt;decision-theory&gt;&lt;behavioral-economics&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11643" PostTypeId="2" ParentId="6777" CreationDate="2016-04-20T02:37:12.473" Score="0" Body="&lt;p&gt;Whilst the other answers are very good I have identified a few drivers of this as well.&lt;/p&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Residential rental yields have dropped to a very low rate. In Australia it is approx 3%, a retail property closer to 6%. In order to compete with other investments, these capital values need to increase and in Australia, this is what has been happening. If they didn't increase, the price couldn't be justified. Consequently, rental returns are a much smaller part of the equation. We have &lt;a href=&quot;https://en.wikipedia.org/wiki/Negative_gearing&quot; rel=&quot;nofollow noreferrer&quot;&gt;negative gearing&lt;/a&gt; in Australia, which exacerbates the situation by providing a subsidy on loss making investments.&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;http://www.macrobusiness.com.au/2016/04/negative-gearing-to-blame-for-ghost-cities/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Macrobusiness&lt;/a&gt; (paywall) has a different view and places the blame squarely on Chinese investors who have been far more dominant recently:&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Chinese property investors are also renowned for keeping their homes vacant rather than renting them out.&lt;/p&gt;&#xA;&lt;p&gt;'We know from Prosper’s Speculative Vacancies report that a significant percentage of homes in inner-Melbourne, where there is significant foreign investment in high-rise apartments, are being kept vacant.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Also in this article there is a reference to Australian property as a haven for laundered funds. I'd imagine that impacts appetite for risk and return requirements markedly.&lt;/p&gt;&#xA;" OwnerUserId="40" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2016-04-20T02:37:12.473" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11644" PostTypeId="2" ParentId="11634" CreationDate="2016-04-20T03:17:04.953" Score="0" Body="&lt;p&gt;If it goes 'out of bounds' then it is not a feasible allocation. Please recall the definition of the Edgeworth box: the bounds are defined by the initial endowments/capacity limits.&lt;/p&gt;&#xA;" OwnerUserId="8017" LastActivityDate="2016-04-20T03:17:04.953" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11645" PostTypeId="2" ParentId="11520" CreationDate="2016-04-20T03:46:32.870" Score="2" Body="&lt;p&gt;Following on manofbear's answer. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume we are at date $t$ and hold your budget constraint fixed to $w$. The &quot;amount of money you currently possess&quot; is your equilibrium demand. Call that $x_t = x(p_t,w)$. If interest rates $1/p_{t+1}$ soar tomorrow, holding money gets costly for you, because the price of holding money $p_{t+1}$ increases. Therefore, you are willing to reduce the &quot;amount you currently possess&quot; $x_t = x(p_t,w)$ to $x_{t+1} = x(p_{t+1},w)$, some demand level characterized by your own demand function. It may however be that the bank is closed tomorrow and you'll be forced to stay out-of-equilibrium until Monday.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you assume instantaneous equilibrium adjustments, your demand is clearly what you possess.&lt;/p&gt;&#xA;" OwnerUserId="8017" LastActivityDate="2016-04-20T03:46:32.870" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11647" PostTypeId="1" CreationDate="2016-04-20T07:51:37.667" Score="1" ViewCount="5723" Body="&lt;p&gt;I have some doubt regarding gdp sector, while measuring gdp by income approach, we add depreciation. My doubt is: does the cost of goods that go into replacement of existing worn out capital is only treated as depreciation? Or do we also add the depreciation expense of all existing and serving goods, which have not worn out?&lt;/p&gt;&#xA;" OwnerUserId="8026" LastEditorUserId="6168" LastEditDate="2016-05-23T03:22:09.717" LastActivityDate="2017-04-18T21:07:09.030" Title="depreciation in income approach of GDP" Tags="&lt;macroeconomics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11649" PostTypeId="2" ParentId="11601" CreationDate="2016-04-20T10:06:20.507" Score="2" Body="&lt;p&gt;Housing markets are complex and the following are just some basic points.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Key features of houses as economic goods are: 1) their very long life; 2) their differentiation by type and location. In the &lt;strong&gt;short run&lt;/strong&gt; housing supply (the total existing stock, plus any new houses completed) is price-inelastic because the number of new houses can be only a tiny proportion of the existing stock.  Hence a short-run analysis of house price changes will focus primarily on short-term changes affecting demand (eg changes in interest rates or in housing-related taxes).  In a &lt;strong&gt;long run&lt;/strong&gt; analysis, however, consideration also needs to be given to changes in supply, and to long-term changes affecting demand (eg population growth, rising incomes).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Cyclical factors&lt;/strong&gt; are those that tend to reverse over a period of a few years. The cause of a cycle in a housing market could be internal to that market, eg a self-fulfilling expectation at one time that prices will rise, leading to a price bubble and eventual collapse, as described &lt;a href=&quot;https://en.wikipedia.org/wiki/Property_cycle&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;.  The cause could also lie in the wider economy, eg house prices tending to rise when the economy is booming and fall in a recession.  &lt;strong&gt;Structural factors&lt;/strong&gt; are permanent or at least long-lived, eg land availability and planning constraints, housing-related policies that are considered unlikely to change, and the distribution of the existing stock between types and locations.  &lt;/p&gt;&#xA;" OwnerUserId="1417" LastActivityDate="2016-04-20T10:06:20.507" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11650" PostTypeId="1" CreationDate="2016-04-20T10:29:45.500" Score="1" ViewCount="325" Body="&lt;p&gt;Background: I working on how GDP is affected by CPI, investment,consumption and commodity price. I am working with time-series&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Problem: I tried to regress based on log values of all but this resulted in residuals being heteroskedastic and also R-squared was equal 1.0 which I had reservations about (something just didn't feel right). I then decided to change it by regressing log difference of all variables. The results were good with residuals being near perfect homoskedastic as well as stationary though not normally distributed but found some papers that argue normality may not be a problem.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is whether it's a good idea to pursue this further? I searched the internet for some answers but found nothing really so any opinions would really be helpful or any links to any research papers that might be useful&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am using Stata to do regression.&lt;/p&gt;&#xA;" OwnerUserId="8027" LastActivityDate="2016-04-20T10:29:45.500" Title="Help with regressing GDP and independent variables" Tags="&lt;econometrics&gt;&lt;time-series&gt;" AnswerCount="0" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11651" PostTypeId="1" AcceptedAnswerId="11653" CreationDate="2016-04-20T12:02:36.407" Score="0" ViewCount="87" Body="&lt;p&gt;I have the inverted market demand of $P=4Z-(q_1+q_2)$ and cost function of both firms is equal to $C=cq_i+f$ for $i=1,2$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So now, the existing firm wants to discourage a possible challenger to entry and sets an output that would make the profits of the challenger equal to 0. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My approach would be, to set up the profit function for the challenger:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Step 1: $(4Z-q_1-q_2)*q_2 - cq_2 = 0$ and then solve for $q_1$ in terms of $q_2$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Step2: Then I can substitute $q_1$ in the profit function of firm 1 and take the derivative of the profit function with regard to $q_2$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Step3: The result of step 2 I would insert in step 1 in order to receive the quantity that firm one needs to produce in order to set the profit function of the challenger equal to zero. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this approach correct? I am a bit confused because of the strange algebra, but I could not come up with a different solution.&lt;/p&gt;&#xA;" OwnerUserId="5720" LastEditorUserId="38" LastEditDate="2016-04-20T15:41:48.177" LastActivityDate="2016-04-20T17:14:41.963" Title="How to calculate the quantity of an incumbent that sets the profit of a challenger equal to 0?" Tags="&lt;industrial-organisation&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="11652" PostTypeId="1" CreationDate="2016-04-20T13:49:58.177" Score="1" ViewCount="37" Body="&lt;p&gt;I am a biologist that is using GDP data as part of my next research project and I am finding large gaps in the data, both in terms of years and countries. I am wondering what the best practice is for compiling and comparing GDP? In particular how wrong would it be to take a span of 5 years and average across countries with multiple years of data, while for other countries only using single year of data? I am interested in being able to compare multiple countries and less interested in change over time. Any ideas or literature recommendations would be greatly appreciated.&lt;/p&gt;&#xA;" OwnerUserId="8028" LastEditorUserId="43" LastEditDate="2016-04-20T13:59:31.810" LastActivityDate="2016-04-20T13:59:31.810" Title="Recommendations for ways to address gaps in GDP data?" Tags="&lt;econometrics&gt;&lt;gdp&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11653" PostTypeId="2" ParentId="11651" CreationDate="2016-04-20T14:30:24.343" Score="2" Body="&lt;p&gt;Some steps are a bit unclear to me, but I would say that they are wrong. For example step 1 is wrong because the meaning of this equality is: I will set the q1 that makes the challenger do zero profits &lt;strong&gt;once (after)&lt;/strong&gt; it enters, but the point of this problem is that we have to block it &lt;strong&gt;before&lt;/strong&gt; it enters. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;so here my version.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first thing to do is to calculate the challenger best response function, which you obtain by taking the derivative to respect to q2 (challenger)with &lt;strong&gt;given&lt;/strong&gt; q1(incumbent). You will then obtain the optimal q2 which you will substitute in the challenger profit function, and only now you choose the q1 by setting the challenger profit equal to zero.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;intuition&lt;/strong&gt;: once the challenger enters, he will face a price and a quantity given by the incumbent, by doing the derivatives, he will also choose a quantity that best help him maximize his profit. So we substitute the optimal q2 in his profit function&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The incumbent knowing this, and knowing the challenger best response function, will choose a q1 that set the opponent profit function to zero.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now you may wonder what is the difference with step 1 of your solution.&#xA;Notice that in your solution the incumbent doesn't know what quantity the challenger will set ex-ante, but only ex-post, while in my analysis the incumbent knows that the challenger is rational and will set an optimal q2 which depends on the quantity q1, so in this case the incumbent knows ex-ante.&lt;/p&gt;&#xA;" OwnerUserId="9" LastEditorUserId="9" LastEditDate="2016-04-20T17:14:41.963" LastActivityDate="2016-04-20T17:14:41.963" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="11654" PostTypeId="2" ParentId="11612" CreationDate="2016-04-20T15:05:10.710" Score="0" Body="&lt;p&gt;The answer to you you question is &lt;strong&gt;bertrand model&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I will do a simple example.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose there are two identical firm selling an identical phone with MC=200€. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now firm A want to sell it at 400€ and firm B wants to sell it at 300€.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now you as a consumer which phone will you buy? Obviously the one produced by firm B, it is the same phone but with 100€ less!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;No one will buy from firm A, so firm A in order to make a profit he should at least set it to 300€, this way half of the consumers will buy from firm A and half from firm B (this is an assumption).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Firm A however can make even further profits, if he sets his price to 250, all the consumers will buy from firm A instead of firm B.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By doing this reasoning a lot of times, the prices will converge to the MC.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Obviously a firm will never set a price below the MC or he will make negative profits)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However a model is a model and don't always reflect reality 100%, in fact we made the assumption of identical firms, also there is a problem with transportation costs, for one one euro less I would rather go to a firm close to me. So depending on the particular market, we don't always reach this equilibrium&lt;/p&gt;&#xA;" OwnerUserId="9" LastActivityDate="2016-04-20T15:05:10.710" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11655" PostTypeId="1" AcceptedAnswerId="11691" CreationDate="2016-04-20T16:39:29.717" Score="1" ViewCount="4344" Body="&lt;p&gt;Between June 2004 and August 2006, the Fed &lt;a href=&quot;https://research.stlouisfed.org/fred2/graph/?g=4enx&quot; rel=&quot;nofollow noreferrer&quot;&gt;raised interest rates again and again&lt;/a&gt;, because they were &lt;a href=&quot;http://money.cnn.com/2005/09/20/news/economy/fed_rates/&quot; rel=&quot;nofollow noreferrer&quot;&gt;&quot;...growing more uncomfortable about inflation&quot;&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Looking at the graph below, inflation did increase, but not in any totally insane way (note that it clearly didn't respond to the rate rises!):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/kOP4q.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/kOP4q.png&quot; alt=&quot;Interest rates&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given that high interest rates are bad for mortgage-holders (particularly those with high loan-to-value ratios), you'd think quindrupling rates within 18 months would be &lt;em&gt;bound&lt;/em&gt; to lead to a wave of defaults.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Were there accusations at the time that the Fed was blindly following its inflation targeting rule without thinking about the consequences in the rest of the economy?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or was it about something other than inflation?&lt;/p&gt;&#xA;" OwnerUserId="7660" LastActivityDate="2016-05-27T01:37:45.920" Title="Why did the Fed raise interest rates between 2004 and 2006?" Tags="&lt;inflation&gt;&lt;interest-rate&gt;&lt;central-banking&gt;&lt;federal-reserve&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11656" PostTypeId="1" CreationDate="2016-04-20T17:14:30.780" Score="3" ViewCount="2918" Body="&lt;p&gt;Never, never, understood this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know what Nominal and Real GDP is, I know how the base year calculations work, my question still remains.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The idea behind real GDP that makes most sense to me is the one Smith came up with, which was the first conception of a GDP anyway. The point of the GDP seems to be that the amount of stuff people consume is a decent indicator of how well the country is doing. It's hard to give a small figure that can be grasped quickly of the amount of stuff people consume in units of xyz goods so we just give them weights equal to a price and add them together. So the weights clearly seem to indicate how much more &quot;consumptiony&quot; one good is compared to the other, I guess the prices are a decent indicator of how &quot;important&quot; one good is relatively (debatable).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So we take these weights (prices) in one year and say &quot;we'll use these&quot; from then on. So an increase in the GDP can only ever indicate people consuming more stuff.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But if we keep changing base year prices, the Real GDP get's a boost despite people not consuming more stuff, it's even possible people consume less stuff and the Real GDP still increases, only because people are throwing more money at goods, probably because the central bank threw more money into the economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So what exactly is this change in base year supposed to capture?&lt;/p&gt;&#xA;" OwnerUserId="6847" LastEditorUserId="2776" LastEditDate="2017-06-06T09:46:02.277" LastActivityDate="2017-06-06T09:46:02.277" Title="Why do we change the base year?" Tags="&lt;gdp&gt;&lt;base-year&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11657" PostTypeId="2" ParentId="11656" CreationDate="2016-04-20T20:13:49.680" Score="7" Body="&lt;p&gt;The change in base year keeps the dollar values meaningful to contemporary readers.  If we still used, say, 1900 as the base year for US GDP, the dollar values for today would be so tiny they would essentially be meaningless 'GDP units', which would make it harder for people to visualize what the numbers really mean.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that, when the base year changes, &lt;em&gt;historical&lt;/em&gt; GDPs go up, not just going-forward GDPs.  So the 1900 US GDP, in 'constant' 2010 dollars, is about 10x as high as the NGDP for that year, to reflect inflation over the 20th century; but that number does a much better job of conveying to readers living in 2016 what conditions in the US in 1900 were really like than using 1900 dollars would.&lt;/p&gt;&#xA;" OwnerUserId="8031" LastActivityDate="2016-04-20T20:13:49.680" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11658" PostTypeId="1" AcceptedAnswerId="11661" CreationDate="2016-04-21T00:04:42.960" Score="2" ViewCount="532" Body="&lt;p&gt;When solving (numerically, by value function iteration) a dynamic programming problem in discrete time, such as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$V_1(a) = \max_{c} \ u(c) + \dfrac{1}{1+\rho}V_0(a')$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;we maximize with respect to the control variable and get a first order condition that we then plug back into the functional equation shown above. The result of this step, $V(a)_1$, will then be used on the RHS of a second iteration&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$V_2(a) = \max_{c} \ u(c) + \dfrac{1}{1+\rho}V_1(a')$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and we repeat this process until $V(a)_n-V(a)_{n+1}&amp;lt;\epsilon$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is how does the update of the value function work in continuous time?  I have been working on a paper that uses continuous time dynamic programming, so the Bellman equation looks as follows&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\rho V_n(a) = \max_{c} \ u(c) + \dfrac{\partial V_n(a)}{\partial a}da_t \quad (*)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where the transition equation is represented by $da_t$. From what I have seen, the update of the value function is done by calculating $\Delta$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \Delta = \ u(c(a^*)) + \dfrac{\partial V_n(a)}{\partial a}da_t(a^*) - \rho V_n(a)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $u(c(a^*))$ and $da_t(a^*)$ represent the control and transition equation as functions of the optimal policy. That is, we maximize the RHS as in the previous example (the discrete time case), but then we subtract $\rho V(a)$ from both sides. Then updating the value function is done as follows:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$V_{n+1}(a) = V_n(a) + \Delta$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How can this be so? I would have thought that I would just use the maximised RHS of (*) and plug back in a new iteration. How come the other method is the correct one?&lt;/p&gt;&#xA;" OwnerUserId="8033" LastEditorUserId="8033" LastEditDate="2016-04-21T02:23:06.247" LastActivityDate="2016-04-21T16:36:59.677" Title="Update of value function in continuous time - HJB" Tags="&lt;dynamic-programming&gt;&lt;continuous-time&gt;&lt;dynamic-optimization&gt;&lt;bellman-equations&gt;" AnswerCount="1" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11659" PostTypeId="1" AcceptedAnswerId="11679" CreationDate="2016-04-21T08:29:31.977" Score="1" ViewCount="1302" Body="&lt;p&gt;I am dealing with ex-ante asymmetric information problems, i.e. adverse selection and in particular I cannot understand what's the intuition behind the fact that only two out of four constraints imposed in the second-best maximization problem are binding. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To be precise, when there is asymmetric information with two types of agents, the optimum is found maximizing the utility under two &lt;strong&gt;individual rationality&lt;/strong&gt; (or participation) constraints and two &lt;strong&gt;incentive compatibility&lt;/strong&gt; constraints. In order to simplify the computations, it can be proven that the IC for the high type agent and the IR for the low type agent are binding, whereas the other two constraints are redundant. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have seen the proof and it is pretty clear but what I cannot understand is the economic intuition behind the proof; Is there someone that has this kind  of intuition?&lt;/p&gt;&#xA;" OwnerUserId="6773" LastEditorUserId="7593" LastEditDate="2016-04-22T18:14:53.103" LastActivityDate="2016-04-22T18:14:53.103" Title="Binding constraints at second-best optimum" Tags="&lt;microeconomics&gt;&lt;principal-agent&gt;&lt;adverse-selection&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11660" PostTypeId="2" ParentId="11656" CreationDate="2016-04-21T11:32:21.490" Score="2" Body="&lt;p&gt;The change in base year is meant to give a more realistic picture of the change in price level in the economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As time progresses, there are changes in people's disposable incomes, employment structure of the economy etc. If the base year is not revised to reflect the recent economy, we will not get an accurate picture of the economy today.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Just to give you an example, let's say the base year was kept at 1960, and it's 2016 right now. Then the change in the price level would be really high, which wouldn't really give you an accurate picture of how the economy is doing right now.&lt;/p&gt;&#xA;" OwnerUserId="8039" LastEditorUserId="8039" LastEditDate="2016-04-22T04:46:33.357" LastActivityDate="2016-04-22T04:46:33.357" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11661" PostTypeId="2" ParentId="11658" CreationDate="2016-04-21T16:36:59.677" Score="1" Body="&lt;p&gt;You iterate towards a fixed point, so you want to reach a situation where plugging in your current iterated value produces itself. Now using your notation, we are told that we should calculate&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$V_{n+1}(a) = V_n(a) + \Delta$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Delta = \ u(c(a^*)) + \dfrac{\partial V_n(a)}{\partial a}da_t(a^*) - \rho V_n(a)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Insert the second into the first to see what the iteration rule is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$V_{n+1}(a) = V_n(a) + \ u(c(a^*)) + \dfrac{\partial V_n(a)}{\partial a}da_t(a^*) - \rho V_n(a)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When you reach a point where&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$V_{n+1}(a) = V_n(a) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(or $\epsilon$-so)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It will mean&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\rho V_n(a)= \ u(c(a^*)) + \dfrac{\partial V_n(a)}{\partial a}da_t(a^*) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which is what you have to satisfy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some stars etc may have to be adjusted in the above, for a fully consistent notation.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2016-04-21T16:36:59.677" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11664" PostTypeId="1" AcceptedAnswerId="11666" CreationDate="2016-04-21T18:58:22.323" Score="1" ViewCount="53" Body="&lt;p&gt;For example, when a company in the United States sells goods to a company or distributor in China, does the U.S. company accept payment in yuan (which it then exchanges for dollars on the currency market) or dollars? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Likewise, when a Chinese company sells goods to an American company, does the Chinese company accept only yuan or will dollars suffice (even if they have to be sold to purchase yuan)? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are some currencies (for example, the dollar, British pound, or euro) preferred in lieu of weaker currencies when two parties are exporting/importing on the international market?&lt;/p&gt;&#xA;" OwnerUserId="8043" LastActivityDate="2016-04-23T09:51:37.957" Title="Which currency is preferred when countries with different currencies purchase imports/sell exports?" Tags="&lt;currency&gt;&lt;international-trade&gt;&lt;exchange-rates&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11666" PostTypeId="2" ParentId="11664" CreationDate="2016-04-21T19:12:51.833" Score="5" Body="&lt;p&gt;There isn't a typical answer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The vendor may want paying in whatever currency represents the highest proportion of their costs, as this reduces their currency risk.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But there may also be restrictions on what currency they can trade in; how much of some particular currency they're allowed to hold; there may be capital controls in place; some currencies might be easier to hedge than others; trade in some currencies might attract that country's tax authorities, if significant movements have to be registered; ... and so on.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;They might want to do business across various buyers in a basket of currencies, as a way to minimise currency risk through diversification.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;They may prefer to do business in currencies with a higher liquidity (USD, GBP, EUR, CHF, AUD, JPY, CAD).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are lots of variable factors in play. And it's a negotiation between vendor and buyer; the above is written as if the vendor holds all the power, but similar issues apply to the buyer too. For example, the buyer may want to pay in whatever currency represents the highest proportion of their income.&lt;/p&gt;&#xA;" OwnerUserId="44" LastEditorUserId="44" LastEditDate="2016-04-23T09:51:37.957" LastActivityDate="2016-04-23T09:51:37.957" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11669" PostTypeId="1" AcceptedAnswerId="11670" CreationDate="2016-04-21T21:38:50.473" Score="5" ViewCount="52" Body="&lt;p&gt;given someone's past investing history, is there a way to calculate his risk aversion?&#xA;Say, we know this client's investment history for example his past return, is there a way to calculate his risk aversion and use this parameter to portfolio optimization?&lt;/p&gt;&#xA;" OwnerUserId="7923" LastActivityDate="2016-04-22T20:45:11.350" Title="given someone's past investing history, is there a way to calculate his risk aversion?" Tags="&lt;risk-aversion&gt;&lt;portfolio-theory&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11670" PostTypeId="2" ParentId="11669" CreationDate="2016-04-22T00:14:51.767" Score="7" Body="&lt;p&gt;Generally speaking no. You wouldn't be able to distinguish re-balancing for risk aversion reasons from re-balancing motivated by changes in expected returns or the co-variance of returns. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider the simple case of a household periodically re-balancing their investments in across both a fixed index fund and an equity index fund. The econometrician sees the investor reduce their equity holdings and increase the fixed income investment. Any of the following could induce such a change:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;An increase in risk aversion&lt;/li&gt;&#xA;&lt;li&gt;Lower expected returns for the equity index&lt;/li&gt;&#xA;&lt;li&gt;Higher expected returns for fixed income index&lt;/li&gt;&#xA;&lt;li&gt;Greater positive co-variation of the two funds&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;And in reality, the situation is much worse because there are many investments, taxes, transaction costs, behavioral issues, and rational-inattention. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm sure you could simplify and cook up a theoretical setting where you could do this (for one, just assume that all the other things cannot change), but in general this won't be possible. &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2016-04-22T20:45:11.350" LastActivityDate="2016-04-22T20:45:11.350" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11671" PostTypeId="1" AcceptedAnswerId="11673" CreationDate="2016-04-22T04:50:52.017" Score="3" ViewCount="221" Body="&lt;p&gt;Recently, there has been a ban on surge pricing in two of India's busiest cities, namely Delhi and Bangalore.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand that &lt;code&gt;surge pricing&lt;/code&gt; is a method to maintain the balance between the supply and demand. So, it's ban would affect the taxi aggregator companies. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, is it really doing benefit to the consumer, as the Govt. claims?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Overall, how does the ban on surge pricing affects the taxi aggregator companies, the consumers and the economy as a whole?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have read through articles this &lt;a href=&quot;http://qz.com/657983/is-it-stupid-to-end-surge-pricing-by-ola-and-uber-in-india/&quot; rel=&quot;nofollow&quot;&gt;this&lt;/a&gt;, however, they give a very naive explanation. So, I'm looking for something clearer from a microeconomics point of view.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;PS: Delhi has an odd-even rule too (for combating excessive traffic and pollution), which means that cars with an even (registration)number [the one on the number plate] are only allowed in the even dates, and the ones with an odd number o the odd dates. For example, if I am &lt;code&gt;DL 23 BK 1900&lt;/code&gt;, I am only allowed on the road on even days, and not in odd days.&lt;/p&gt;&#xA;" OwnerUserId="5642" LastActivityDate="2016-04-22T15:18:30.897" Title="How does the ban on surge pricing affect the companies, customers and the economy?" Tags="&lt;microeconomics&gt;&lt;government&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11673" PostTypeId="2" ParentId="11671" CreationDate="2016-04-22T07:25:20.747" Score="3" Body="&lt;p&gt;It depends.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If customers are currently making informed decisions when they book a surge-priced car, then banning surge pricing punishes customers, drivers, intermediaries, and the wider economy. It deliberately introduces an economic inefficiency.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If, however, a lot of customers are making uninformed decisions and are effectively being conned by surge pricing that they didn't expect or didn't understand, then banning surge pricing stops economically inefficient activity, protects consumers, and can be a net contributor to the economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or if surge pricing increases negative externalities, then banning it could give a net benefit: for example, if the worst-polluting cars only come onto the road when surge pricing is available.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2016-04-22T07:25:20.747" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11678" PostTypeId="2" ParentId="11671" CreationDate="2016-04-22T15:18:30.897" Score="2" Body="&lt;p&gt;This is a difficult but important question:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;a) At the heart of it is whether the markets are competitive or not. In competitive markets, prices reflect demand and supply so changing prices is the natural way that demand and supply are balances. You want many more cab drivers to come out in peak time, which only happens if you can reward them with a little extra when there;s scarcity. If you don't allow than then there will be rationing: low prices, but no supply, wait two hours for your next cheap cab.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;b) But its hard to know if the market for taxis on May 1st, 2015 in Deli, in one particular street was competitive or not. Clearly, if you show you are desperate for a cab and the aggregator sees there's no other cabs around, then it has monopoly power. It should not be allowed to exercise that power and extract rents from you. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;c) However, it will take many years before we figure out how to decide if the aggregator, at that place and moment, did have a monopoly and whether it did exploit it or not. Maybe that was the competitive price at that point. Maybe a dollar less in price would have attracted too many passengers. But maybe the person could just as well have taken a bike, a bus, or walked, and he or she was just lazy but doesn't want to pay for it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;d) Price gauging laws in many US states have rules that regulate price changes UNDER PARTICULAR CONDITIONS, such as a civil emergency, or the provision of a necessary good. There; also provisions against hoarding of necessary goods.&lt;/p&gt;&#xA;" OwnerUserId="7593" LastActivityDate="2016-04-22T15:18:30.897" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11679" PostTypeId="2" ParentId="11659" CreationDate="2016-04-22T15:28:57.380" Score="2" Body="&lt;p&gt;I think its not a complex issue: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;a) You need to keep the high type agent from pretending to be the ow type agent, so you give him an extra compensation from showing his high type. But this nice deal pays him more than necessary to keep him in the game so his IR is more than satisfied, i.e. not binding. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;b) Similarly, you will make it painful to show that you are a low type, so that the high type doesn't go there, but you can;t make it so painful that the low type doesn't want to play so you pay him the minimum amount that he will take, i.e. his IR is binding, but  he would never choose to show himself as the high type anyway because with his low type, the incentives don't work in his favor, so the IC is not binding.&lt;/p&gt;&#xA;" OwnerUserId="7593" LastActivityDate="2016-04-22T15:28:57.380" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11681" PostTypeId="1" AcceptedAnswerId="11686" CreationDate="2016-04-22T19:09:42.757" Score="2" ViewCount="64" Body="&lt;p&gt;I'm looking for a classification of all simultaneous, complete information, two-person, two-action games.  By classification, I mean a partition of all payoff matrices into a (finite number) of categories.  Sample categories would be prisoner's dilemma and Stag hunt.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm willing to accept substitutes, like a classification of a different set of games.  There is no unique answer to this question, and I'm not looking for an answer in the context of a particular class.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A paper reference is fine, although an online source would be better.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Legal Disclaimer: I apologize in advance for violating any social conventions for this site.&lt;/em&gt;&lt;/p&gt;&#xA;" OwnerUserId="8053" LastActivityDate="2016-04-23T14:12:32.837" Title="Classification of Two-Person Games" Tags="&lt;reference-request&gt;&lt;game-theory&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11682" PostTypeId="2" ParentId="11647" CreationDate="2016-04-22T19:52:41.230" Score="1" Body="&lt;p&gt;In theory, depreciation is a reduction of the capital stock. This includes capital assets that have actually been worn out and also capital assets that are not usable any more for any other reason (conceivably old machinery after upgrading to a new technology or so). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In practice, macroeconomic datasets infer depreciation either from what the firms in the economy in question say in their accounting or from changes in the capital stock that are not explained by any other influence (investment, dissolution and selling of the firm, ...); this is data that also comes from the firm's accounting. Note that this is not necessarily the same as the actual depreciation according to the theoretical definition since there may be any number of reasons for firms to write off capital assets early or late or at any given time. The formal rules for what practices in terms of write-offs are lawful or not are quite complicated and differ between legal systems (i.e. between countries).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Further, macroeconomic models sometimes simply assume a fixed depreciation rate which they then proceed to compute from averaging over the time series constructed from investments plus the differences in capital stock and dividing by the capital stock. This is, of course, not the way it should be done but nevertheless ...&lt;/p&gt;&#xA;" OwnerUserId="8051" LastActivityDate="2016-04-22T19:52:41.230" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11683" PostTypeId="2" ParentId="11681" CreationDate="2016-04-22T20:50:20.900" Score="0" Body="&lt;p&gt;I don't have my copy here but I believe that the book &lt;em&gt;A theory of moves&lt;/em&gt; by Steven Brams solves all possible games of the type you describe. &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2016-04-23T02:37:50.480" LastActivityDate="2016-04-23T02:37:50.480" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11685" PostTypeId="1" CreationDate="2016-04-22T21:12:24.090" Score="2" ViewCount="241" Body="&lt;p&gt;I am working with some data on automobile sales and characteristics in a small country. It is an unbalanced panel dataset taken over 6 years and over 5 market segments. I am trying to construct some discrete-choice demand models using Stata, using two OLS models (one where Price comes in linearly, one where Price is logged) and a nested logit. I will do my BLP instruments model next.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The OLS models are: δj=ln P(j)-ln P(0)=βxj-αpj+εj&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and&lt;/p&gt;&#xA;&#xA;&lt;p&gt;δj=ln P(j)-ln P(0)=βxj-αln(pj)+εj&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The nested logit is as follows:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;δj=ln P(j)-ln P(0)=βxj-αpj+σ[ln P(j)- ln P(g)]+ξj for j∈g.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where P(j) and P(0) represent, respectively, the probability of buying good j and the probability of buying an outside good. Xj is a vector of the characteristics of each good j (in this case, I am using CC/weight, Maximum Speed/100 and Size = Length*Width/10000), and pj is the price of good j.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The code I have used to define my variables and then runmy regressions is as follows:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;gen lnPj=ln(Sj)&#xA;gen lnPg=ln(Sg1)&#xA;gen deltaj=ln(Sj/S0)&#xA;gen MSP100=0.01*MSpeed&#xA;gen LW10000= Length*Width*.0001&#xA;gen diffPjPg= lnPj-lnPg&#xA;reg deltaj CCW MSP100 LW10 P, robust&#xA;reg deltaj CCW MSP100 LW10000 lnP, robust&#xA;reg deltaj CCW MSP100 LW10 lnP diffPjPg, robust&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;So far, I have computed the own-price elasticities with the code:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;gen OPE_PLogit=-.4894868*P*(1-Sj) for the first model and&lt;/p&gt;&#xA;&#xA;&lt;p&gt;gen OPE_lnPLogit=-1.959741*P*(1-Sj) for the second model&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where Sj is the market share of that particular car for that particular year. I do know that in Stata, generally, one computes the elasticity using the -margins- command.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let kk be any good but jj, α be the coefficient on price, η be the price elasticity, Sj be the own-market share, Sg be the share for a particular class of cars, e.g. Sedans, Sk be the share for all cars within a group except car j, and S0 be the overall share for cars other than J. The question is this: given that I have directly specified the regression equation and obtained good regression coefficients, is it still appropriate to use the formula η=αPj⋅(1−Sj)η=αPj⋅(1−Sj) normally used to compute the own-price elasticity and η=αPk⋅Skη=αPk⋅Sk (.) for the cross-price elasticity if I am using an unbalanced panel dataset? I think I recall my professor saying that an unbalanced panel dataset will adversely affect the elasticities, but I'm not sure how to adjust for this.&lt;/p&gt;&#xA;" OwnerUserId="8054" LastEditorUserId="8054" LastEditDate="2016-04-23T15:45:21.283" LastActivityDate="2016-04-23T15:45:21.283" Title="STATA: Estimation of Own-Price and Cross-Price Elasticities for Logit, Nested Logit, and BLP Models" Tags="&lt;econometrics&gt;&lt;industrial-organisation&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11686" PostTypeId="2" ParentId="11681" CreationDate="2016-04-22T21:31:05.150" Score="3" Body="&lt;p&gt;If you look at generic games, that is games where players are not indifferent between any choices such a classification is easy to produce. Let the strategy sets be&#xA;$$&#xA;S_1 = \left\{a,b\right\}, S_2 = \left\{c,d\right\}&#xA;$$&#xA;and let the utility/payoff functions be denoted by $U_1$ and $U_2$. &lt;br&gt; &#xA;The characterization will be based on the dynamics of the game, that is given a strategy profile $(s_1,s_2)$ will any player wish to alther his strategy. This will also give you all the equilibria. Without loss of generality you can assume&#xA;$$&#xA;U_1(a,c) &amp;gt; U_1(b,c).&#xA;$$&#xA;(Should this not hold, switch the labels of the strategies $a$ and $b$.) &#xA;&lt;br&gt; We still need to know if player 1 prefers $(a,d)$ to $(b,d)$ or vice versa, and also if player 2 prefers $(a,c)$ to $(a,d)$ and if he prefers $(b,c)$ to $(b,d)$. This gives eight possible combinations which will characterize the game classes. (But due to symmetry actually there will only be four classes.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Category 1. &lt;br&gt;&#xA;$$&#xA;U_1(a,d) &amp;gt; U_1(b,d) \mbox{ and } U_2(a,c) &amp;gt; U_2(a,d) \mbox{ and } U_2(b,c) &amp;gt; U_2(b,d).&#xA;$$&#xA;In this category $a$ and $c$ are strictly dominant strategies. A game like this will play out like the prisoners dilemma in that it has a single Nash-equilibrium which is also a dominant equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Category 2. &lt;br&gt;&#xA;$$&#xA;U_1(a,d) &amp;lt; U_1(b,d) \mbox{ and } U_2(a,c) &amp;lt; U_2(a,d) \mbox{ and } U_2(b,c) &amp;gt; U_2(b,d).&#xA;$$&#xA;This game will play out the matching pennies game, in that there are no equilibria.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Category 3. &lt;br&gt;&#xA;$$&#xA;U_1(a,d) &amp;lt; U_1(b,d) \mbox{ and } U_2(a,c) &amp;gt; U_2(a,d) \mbox{ and } U_2(b,c) &amp;lt; U_2(b,d).&#xA;$$&#xA;This game will play out like a coordination game, e.g. Battle of the Sexes or Chicken. There are two equilibria, $(a,c)$ and $(b,d)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Category 4. &lt;br&gt;&#xA;$$&#xA;U_1(a,d) &amp;gt; U_1(b,d) \mbox{ and } U_2(a,c) &amp;gt; U_2(a,d) \mbox{ and } U_2(b,c) &amp;lt; U_2(b,d).&#xA;$$&#xA;In this category $a$ is again strictly dominant. $c$ is not, but a rational player 1 will always play $a$, and $c$ is best response to that. I don't know if this game has a well accepted name, it has one Nash-equilibrium $(a,c)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Due to symmetry, all other combinations belong to one of these categories.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you wish to admit indifference between several outcomes, it is still possible to use this kind of classification, but the number of categories will be much larger.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2016-04-23T14:12:32.837" LastActivityDate="2016-04-23T14:12:32.837" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11688" PostTypeId="1" CreationDate="2016-04-23T03:21:44.060" Score="3" ViewCount="1330" Body="&lt;p&gt;I understand that under a fiat currency, the government can buy securities on the open market to increase the money supply, and decrease interest rates. This monetary policy is possible to help recover from recessions. could this be done with a gold standard? Could the government increase the supply / lower interest rates?&lt;/p&gt;&#xA;" OwnerUserId="8058" LastActivityDate="2020-06-10T15:11:36.973" Title="Is increasing the money supply possible with a gold standard? How about controlling interest rates?" Tags="&lt;monetary-policy&gt;&lt;interest-rate&gt;&lt;money-supply&gt;" AnswerCount="3" CommentCount="1" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="11690" PostTypeId="2" ParentId="11688" CreationDate="2016-04-23T15:00:05.767" Score="2" Body="&lt;p&gt;Yes,  in principle,  under a gold standard,  the central bank can buy more gold, or build a mine and mine it, which increases money supply. This lowers  the short run interest rates. But the issue is that it typically can't fight the market price of gold: when the price of gold increases beyond the parity, people rush to exchange their paper currency for gold at the bank. This happens until money becomes so scarce that ir regains its value relative to gold.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is very different from what happens with fiat currency.  With fiat currency,  the central bank can buy bonds, or gold,  but it can even just print money and give it away. ( The act of giving it for free to individuals is called a &quot;helicopter drop&quot;. Dropping it from a helicopter is one way to actually do it...) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Even though in a gold standard,  the central bank can increase money supply,  this is different than buying bonds. This is because since money is backed by gold,  it can't loose value relative to gold.  In this case,  it's really hard for the central bank to lower the value of money if it wants, for example, to stop a deflation. Instead, because bonds are also denominated in the country's currency, making money lose value also makes bonds lose value and vice versa.&lt;/p&gt;&#xA;" OwnerUserId="7593" LastEditorUserId="7593" LastEditDate="2016-05-11T03:01:45.097" LastActivityDate="2016-05-11T03:01:45.097" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11691" PostTypeId="2" ParentId="11655" CreationDate="2016-04-23T16:32:40.143" Score="3" Body="&lt;p&gt;Good question! &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems that one of the reasons was precisely that inflation did not respond. They kept raising interest rates,  hoping it would respond at some point. In fact, nominal interest rates have to increase &lt;em&gt;more&lt;/em&gt; than expected inflation for the real interest rates to go up, so it made sense.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The other reason is also related to the question. It seems that they were aware that a relatively long period of low interest rates was potentially fueling &quot;asset price bubbles&quot;,  such as in housing, but also in asset backed securities, corporate bonds and equities. These also did not seem to respond quickly to the rate changes. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course, apparently, they did not realize that it was dangerous moment to increase rates quickly. It would have potentially been a good idea to raise the rates very very slowly, so that leveraged agents had a chance to de-lever as the prices of their assets slowly came down... Alternatively they could have slowly tightened the regulation on lending instead of raising the rates at all. This last point seems to be the key to avoiding a new crisis: having a good too to increase and decrease economy wide leverage distinct from interest rates.&lt;/p&gt;&#xA;" OwnerUserId="7593" LastEditorUserId="7593" LastEditDate="2016-05-27T01:37:45.920" LastActivityDate="2016-05-27T01:37:45.920" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11692" PostTypeId="1" AcceptedAnswerId="11693" CreationDate="2016-04-23T16:53:40.163" Score="2" ViewCount="49" Body="&lt;p&gt;I am replicating a &lt;a href=&quot;http://dx.doi.org/10.1257/jep.15.4.101&quot; rel=&quot;nofollow noreferrer&quot;&gt;2001 Journal of Economic Perspectives methodology paper on Vector Autoregression by James H. Stock and Adam Watson&lt;/a&gt;. The paper can be found here: &lt;a href=&quot;http://faculty.washington.edu/ezivot/econ584/stck_watson_var.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://faculty.washington.edu/ezivot/econ584/stck_watson_var.pdf&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm having a slight problem with the log differencing. In the paper the researchers state that they multiply the ln differenced price levels by 400. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have no clue why this is done. The price level data is quarterly chain-weighted and seasonally adjusted implicit GDP deflator of the US. I would understand if they would multiply by four to get the annual inflation figures, but this is unclear. Any suggestions?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/ToHNA.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/ToHNA.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="8064" LastEditorUserId="7215" LastEditDate="2016-05-08T18:12:15.720" LastActivityDate="2016-05-08T18:12:15.720" Title="Ln differenced price level times 400, why 400?" Tags="&lt;inflation&gt;&lt;time-series&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11693" PostTypeId="2" ParentId="11692" CreationDate="2016-04-23T16:57:36.003" Score="2" Body="&lt;p&gt;You already accounted for multiplication by 4. Further multiplication by 100 to make the units of measurement percentage points? I.e. inflation is usually referred to as 3%, not as 0.03.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2016-04-23T16:57:36.003" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11694" PostTypeId="1" CreationDate="2016-04-23T17:53:24.950" Score="0" ViewCount="49" Body="&lt;p&gt;Note:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This question is in the context of the UK and its policies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand that if your income is below the tax allowance (£11,000), you pay no income tax. However, I think my textbook is also trying to say that if your income is above the allowance, you only pay income tax on whatever is left after the allowance has been deducted from your total income. Is this true?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Oh, and I was also wondering if there was any difference between the 'personal tax allowance' and the 'tax allowance'.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks&lt;/p&gt;&#xA;" OwnerUserId="7849" LastEditorUserId="5785" LastEditDate="2016-04-24T18:21:15.013" LastActivityDate="2016-04-24T18:21:15.013" Title="Does the Tax Allowance Benefit Everyone (Regardless of Their Income)?" Tags="&lt;macroeconomics&gt;&lt;taxation&gt;&lt;government&gt;" AnswerCount="1" CommentCount="2" ClosedDate="2016-04-26T13:05:16.790" ContentLicense="CC BY-SA 3.0" />
  <row Id="11695" PostTypeId="2" ParentId="11694" CreationDate="2016-04-23T18:22:14.857" Score="1" Body="&lt;p&gt;Not everyone benefits from the tax allowance, but most people with incomes above £11,000 do.  As you suspect, those with income higher than £11,000 only pay tax on their income above £11,000, and thus gain £11,000*tax rate.  However, the personal tax allowance is clawed back at incomes above £100,000 at a 50% rate, so those with incomes above £122,000 don't benefit from the allowance at all.  The official UK government site is &lt;a href=&quot;https://www.gov.uk/government/publications/rates-and-allowances-income-tax/income-tax-rates-and-allowances-current-and-past&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At the margin, this means that those with incomes less than £11,000 pay no tax on each additional dollar of income, while those with incomes between £100,000 and £122,000 pay an extra-high amount in tax for each additional dollar earned (the tax allowance doesn't change the tax rate on each additional dollar of income for incomes between £11,000 and £100,000, or above £122,000).  The entire picture is nicely summarized in this Telegraph &lt;a href=&quot;http://www.telegraph.co.uk/finance/personalfinance/tax/11544301/The-chart-that-shows-there-are-12-rates-of-income-tax.html&quot; rel=&quot;nofollow&quot;&gt;article&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here in Canada, we have an equivalent tax allowance, but without the clawback.&lt;/p&gt;&#xA;" OwnerUserId="8053" LastActivityDate="2016-04-23T18:22:14.857" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11696" PostTypeId="1" CreationDate="2016-04-23T19:05:00.653" Score="2" ViewCount="76" Body="&lt;p&gt;Two kids at school are arguing over who owns a cool video game cartridge, and the schoolteacher, a ruthlessly practical social planner who knows that kids can only enforce so much AND that the game is worthless to either kid except in its full cartridge, does not believe in sharing; she demands that the one of them buy the other's share of the game off of the other.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;She tells each kid that they will privately submit two values to her, $b_1$ and $s_1$ for the first kid and $b_2$ and $s_2$ for the second. Here $b_i$ is (supposed to be) the maximum willingness to pay for the other agent's share of the game, and $s_i$ denotes the minimum price each agent would be willing to sell their share of the game for.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;She starts to propose a mechanism:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;If $b_1 &amp;gt; s_2$, and $b_2 &amp;lt; s_1$, then kid 1 buys kid 2's share of the cartridge for $\frac{1}{2}(b_1 + s_2)$.&lt;/li&gt;&#xA;&lt;li&gt;If $b_2 &amp;gt; s_1$, and $b_1 &amp;lt; s_2$, then kid 2 buys kid 1's share of the cartridge for $\frac{1}{2}(b_2 + s_1)$.&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;If $b_1 &amp;gt; s_2$, and $b_2 &amp;gt; s_1$, then whoever has the higher valuation of the game $(b_i + s_i)$ buys using the proposals shown above.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;She then gets stuck. What if $b_1 &amp;lt; s_2$, and $b_2 &amp;lt; s_1$?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In the first three cases, can we ensure incentive compatibility (no lying is best), individual rationality, Pareto efficiency, and budget balancing (teacher does not have to subsidize to make a trade)? How would you go about showing these results?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Also, suppose that it is illegal for schoolteachers to give subsidies to ensure trades in the fourth case. The lack of Coasian bargaining is particularly bad for the teacher, whose disutility from listening to little tykes fight would be less than the disutility of just subsidizing the trade.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;What alternative mechanism might you suggest for the fourth case that could satisfy the four conditions above (IC, IR, PE, BB) if possible? It does not have to involve $b_i, s_i$ necessarily.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The first three cases don't seem exceedingly hard to show intuitively, but I'm curious as to how it would be done formally (just do case by case?). As for the other question, I don't think there is an alternative mechanism, since it looks like neither player is willing to trade their share to the other. Maybe the teacher could be authoritarian and simply allocate the good based on chance, weighted based on each person's $n$ or $1-n$ share of the good?&lt;/p&gt;&#xA;" OwnerUserId="4251" LastEditorUserId="4251" LastEditDate="2016-04-23T19:11:22.490" LastActivityDate="2016-04-23T19:11:22.490" Title="Allocation of an Indivisible Good" Tags="&lt;mechanism-design&gt;" AnswerCount="0" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="11698" PostTypeId="1" AcceptedAnswerId="11715" CreationDate="2016-04-23T21:26:02.697" Score="5" ViewCount="580" Body="&lt;p&gt;I have been reading recently on the quantitative easing programmes by the ECB and the BOJ, see &lt;a href=&quot;http://www.cnbc.com/2016/04/07/what-the-bank-of-japan-boj-will-do-now-that-negative-rates-have-disappointed.html&quot; rel=&quot;nofollow&quot;&gt;http://www.cnbc.com/2016/04/07/what-the-bank-of-japan-boj-will-do-now-that-negative-rates-have-disappointed.html&lt;/a&gt;, and, &lt;a href=&quot;http://www.bloomberg.com/news/articles/2016-04-21/ecb-to-start-buying-corporate-bonds-in-june-as-part-of-stimulus&quot; rel=&quot;nofollow&quot;&gt;http://www.bloomberg.com/news/articles/2016-04-21/ecb-to-start-buying-corporate-bonds-in-june-as-part-of-stimulus&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The ECB will be expanding its current programme to include corporate bonds and  it is being suggested that the BOJ may give up on negative interest rates and possibly could buy japanese equities instead. It seems that these central banks are just working their way up the risk asset spectrum. My question is where do these asset buying programmes stop (penny stocks/distressed debt?)? Also what happens to these assets, surely if they sit on the central banks books it could go bankrupt like a commercial bank? Moreover, what could cause these asset buying programmes to be abandoned/fail? &lt;/p&gt;&#xA;" OwnerUserId="5515" LastEditorUserId="5515" LastEditDate="2016-04-25T19:06:55.580" LastActivityDate="2020-06-12T05:35:43.043" Title="Limits to Quantitative Easing Programmes" Tags="&lt;macroeconomics&gt;&lt;monetary-policy&gt;&lt;central-banking&gt;&lt;bonds&gt;&lt;quantitative-easing&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11700" PostTypeId="1" CreationDate="2016-04-24T08:20:40.967" Score="1" ViewCount="1190" Body="&lt;p&gt;Given a standard Cobb-Douglas production function:&#xA;$$Y_t=(A_t L_t)^{\alpha} K_t^{1-\alpha}$$&#xA;Moreover, the production function has constant returns to scale:&#xA;$$\alpha + (1-\alpha)=1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How to estimate the output elasticity of labour ($\alpha$) and the output elasticity of capital $(1-\alpha)$?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would like to estimate the output elasticity of labour and capital for a specific group of countries (US, Germany, Korea, Japan) for my RBC model.&lt;/p&gt;&#xA;" OwnerUserId="5017" LastActivityDate="2016-04-24T08:20:40.967" Title="Given a standard Cobb-Douglas production function, how to estimate the output elasticity of labour and capital by country?" Tags="&lt;macroeconomics&gt;&lt;cobb-douglas&gt;&lt;rbc&gt;" AnswerCount="0" CommentCount="5" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11701" PostTypeId="1" CreationDate="2016-04-24T16:12:28.597" Score="3" ViewCount="48" Body="&lt;p&gt;For simplicity, I'll offer the simplest of endogenous models. Suppose we have the following scalar model:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$y=\beta x+u$ where $E[ux]\neq 0,\;E[uz]=0\; \text{and}\;E[u^2|z]=\sigma^2$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Clearly we can use the following instrument to identify $\beta$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$E[(y-\beta x)z]=0$$&#xA;However, suppose we have another moment condition using another variable, $w$:&#xA;$$E[zw]=0$$&#xA;This moment condition doesn't contain any information about $\beta$, so under what conditions would we gain efficiency by using this additional moment condition?&lt;/p&gt;&#xA;" OwnerUserId="5825" LastActivityDate="2016-04-24T16:12:28.597" Title="GMM: Under What Conditions Does Adding a Seemingly Unrelated Moment Condition Increase Efficiency?" Tags="&lt;econometrics&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11702" PostTypeId="1" AcceptedAnswerId="11714" CreationDate="2016-04-24T17:53:42.350" Score="3" ViewCount="106" Body="&lt;p&gt;I was reading about the SNB's decision to abandon the peg in 2015, and among the various articles I read, &lt;a href=&quot;http://www.cnbc.com/2015/01/15/swiss-franc-sours-stocks-tank-as-euro-peg-scrapped.html&quot; rel=&quot;nofollow&quot;&gt;one from CNBC&lt;/a&gt; quoted the SNB president saying the following&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;The euro has depreciated considerably against the US dollar and this, in turn, has caused the Swiss franc to weaken against the U.S. dollar. In these circumstances, the SNB concluded that enforcing and maintaining the minimum exchange rate for the Swiss franc against the euro is no longer justified,&quot; the statement said. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;My takeaway from this statement is that part of their justification for removing the peg came from the effect it was having on the franc's value against the dollar.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know they wanted this peg in the first place to lower the franc's value against the euro as Switzerland's economy was largely reliant on exports to euro zone countries, so having a weaker currency than the euro would help exporters.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But I don't understand why the franc's performance with the dollar would be a concern? Wouldn't that just help Swiss exporters sell to US importers as well as Europeans? Or does falling below the dollar have other consequences?&lt;/p&gt;&#xA;" OwnerUserId="8068" LastActivityDate="2017-10-18T08:36:40.470" Title="Why would Switzerland, with its export-driven economy, worry about weakening against the dollar?" Tags="&lt;currency&gt;&lt;monetary-policy&gt;&lt;international-trade&gt;&lt;currency-peg&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11704" PostTypeId="2" ParentId="11497" CreationDate="2016-04-24T22:01:03.033" Score="2" Body="&lt;p&gt;So this seems to be a known issue. Quoting from the Wilson article of 1980, &#xA;&lt;a href=&quot;http://www.jstor.org/stable/3003403?seq=1#page_scan_tab_contents&quot; rel=&quot;nofollow&quot;&gt;The Nature of Equilibrium in Markets with Adverse Selection&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Using a variant of Akerlof's model of the used car market, we examine the equlibrium of the model under three distinct conventions: (1) an auctioneer sets the price; (2) buyers set the price; (3) sellers set the price. Only in the case of the auctioneer is the equilibrium necessarily characterized by a single price which equates supply and demand.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Thus the answer to the question is a partial yes. Given some (most) variants of the lemon market the two equilibrium concepts do not result in identical outcomes.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2016-04-24T22:01:03.033" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11706" PostTypeId="2" ParentId="11228" CreationDate="2016-04-25T03:58:25.590" Score="3" Body="&lt;p&gt;The inverse of some matrix $X$, $X^{-1}$, is defined for square matrices only (i.e. when $X$ has the same number of rows and columns). In the typical econometric applications, the data matrix $X$ usually has far more rows (observations) than columns (regressors). Formally speaking, the matrix $X$ in your definition of $M$ has dimension $n\times k$ but $n\ne k$ (actually $n\gg k$), and so it's not a square matrix. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore the second equality in your derivation is not valid; in particular, $(X'X)^{-1}\ne X^{-1}(X')^{-1}$, because $X^{-1}$ and $(X')^{-1}$ are not defined.&lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2016-04-25T03:58:25.590" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11707" PostTypeId="1" CreationDate="2016-04-25T05:18:35.637" Score="0" ViewCount="166" Body="&lt;p&gt;Suppose that house prices increase by 10%, and the total quantity of homes purchased&#xA;decreases by 8%. What is the elasticity of demand of housing? Interpret your answer in the&#xA;context of a 1% change in home prices?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is the answer just -0.8? Can someone explain this please, my professor really sucks. &lt;/p&gt;&#xA;" OwnerUserId="8077" LastEditorUserId="2776" LastEditDate="2017-04-24T14:36:23.930" LastActivityDate="2017-04-24T14:36:23.930" Title="Calculate Elasticity of demand in this example" Tags="&lt;microeconomics&gt;&lt;elasticity&gt;" AnswerCount="1" CommentCount="0" ClosedDate="2016-04-26T02:44:43.713" ContentLicense="CC BY-SA 3.0" />
  <row Id="11708" PostTypeId="1" AcceptedAnswerId="11711" CreationDate="2016-04-25T08:15:01.877" Score="4" ViewCount="1652" Body="&lt;p&gt;Though I've seen plenty of articles talk about in what circumstances banks borrow from the Fed, I haven't seen any quantification on that note. On average, what percent of the money that banks lend out is money from the Fed? Alternatively, how much money is borrowed from the Fed every year and how quickly is that money generally paid back? &lt;/p&gt;&#xA;" OwnerUserId="6149" LastActivityDate="2016-04-25T13:36:02.430" Title="How often do banks borrow from the Federal Reserve?" Tags="&lt;banking&gt;&lt;federal-reserve&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11709" PostTypeId="2" ParentId="11707" CreationDate="2016-04-25T08:19:21.163" Score="2" Body="&lt;p&gt;Yes, the answer is -0.8.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Price Elasticity of Demand is defined as:&#xA;$$e_{\langle p \rangle} = \frac{\mathrm{d} Q/Q}{\mathrm{d} P/P}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You're given :&#xA;$$\mathrm{d} Q/Q = -0.08$$&#xA;and &#xA;$$\mathrm{d} P/P = 0.1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;ergo:&#xA;$$-0.08/0.1 = -0.8$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm reasonably certain that by &quot;Interpret your answer,&quot; your professor means that s/he wants you to explain what that number means, in layman's terms.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can always check the &lt;a href=&quot;https://en.wikipedia.org/wiki/Price_elasticity_of_demand&quot; rel=&quot;nofollow&quot;&gt;Wikipedia entry&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="8080" LastEditorUserId="31" LastEditDate="2016-04-25T19:37:48.223" LastActivityDate="2016-04-25T19:37:48.223" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11710" PostTypeId="1" CreationDate="2016-04-25T10:38:11.577" Score="4" ViewCount="632" Body="&lt;p&gt;This may not be an appropriate question for this platform, but I couldn't think of any place that it fits. My concern is understanding about game theory papers. Whenever I read classical papers of Harsanyi, Aumann etc. I start to feel lost with unknown math. This happens a lot. I studied many of these classical concepts on a textbook level and I had no problem at all, but when it comes to the original paper I can easily lost the track because of mathematical sophistication. I know a little bit of real analysis (Baby Rudin first $4$ chapters), I have studied a little bit of topology (Munkres) I have also some background in set theory, statistics etc. So I am not a complete beginner. What I want is to understand, at least on a reasonable level, a technical game theory paper such as Harsanyi (1973a) and  Harsanyi (1973b). Can anyone suggest me a study plan with books and such? It can start from zero level I have time and patience. Any advice will be greatly appreciated!&lt;/p&gt;&#xA;" OwnerUserId="8081" LastActivityDate="2016-05-01T01:26:40.160" Title="A study plan to understand game theory papers" Tags="&lt;game-theory&gt;" AnswerCount="2" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="11711" PostTypeId="2" ParentId="11708" CreationDate="2016-04-25T13:36:02.430" Score="3" Body="&lt;p&gt;When banks borrow from the Federal Reserve they can do so through the discount windows:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The discount window helps to relieve liquidity strains for individual&#xA;  depository institutions and for the banking system as a whole by&#xA;  providing a reliable backup source of funding. Much of the statutory&#xA;  framework that governs lending to depository institutions is contained&#xA;  in section 10B of the Federal Reserve Act. The general policies that&#xA;  govern discount window lending are set forth in the Federal Reserve's&#xA;  Regulation A. As described in more detail below, depository&#xA;  institutions have access to three types of discount window&#xA;  credit--primary credit, secondary credit, and seasonal credit. All&#xA;  discount window loans must be collateralized to the satisfaction of&#xA;  the lending Reserve Bank.&#xA;  &lt;a href=&quot;https://www.federalreserve.gov/newsevents/reform_discount_window.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;Discount Window Lending&lt;/a&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The FRB has published discount window lending activity since 2010. Though this data is published with a two year lag, it may be of use. You can download that data at from their website at the link above. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is price discrimination at the window:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In the United States, there are actually several different rates&#xA;  charged to institutions borrowing at the Discount Window. In 2006,&#xA;  these were: the primary credit rate (the most common), the secondary&#xA;  credit rate (for banks that are less financially sound), and the&#xA;  seasonal credit rate. The Federal Reserve does not publish information&#xA;  regarding institutions' eligibility for primary or secondary credit&#xA;  Wikipedia: &lt;a href=&quot;https://en.wikipedia.org/wiki/Discount_window&quot; rel=&quot;nofollow noreferrer&quot;&gt;Discount window&lt;/a&gt; &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It is somewhat rare to use the window. There are about 8,000 banks in the United States and about four to five hundred banks use the window in a typical quarter (according to that data). &#xA;&lt;a href=&quot;https://i.stack.imgur.com/bIzdD.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/bIzdD.jpg&quot; alt=&quot;Number of Banks falling steadily as bank assets rise&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The amounts borrowed are very small. The largest amount borrowed was about 47 million in the latest report. It was borrowed by First National Bank and Trust of Rochelle, a bank with &lt;a href=&quot;https://www.bestcashcow.com/banks/the-first-national-bank-trust-company-of-rochelle-14583&quot; rel=&quot;nofollow noreferrer&quot;&gt;270 million in assets&lt;/a&gt;, so those window loans amount to 18 percent of assets. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But that is not representative of most banks. The second heaviest borrowing bank on the list is Xenith Bank which borrowed less than two percent of assets. More generally, &lt;a href=&quot;http://libertystreeteconomics.newyorkfed.org/2014/01/why-do-banks-feel-discount-window-stigma.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;there is stigma for discount window lending&lt;/a&gt;. The overall stigma is that since only those frozen out of capital markets use the window, users of the window must be in serious trouble. As shown above, 90 percent or more of banks don't use it in a given quarter. &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2016-04-25T13:36:02.430" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11714" PostTypeId="2" ParentId="11702" CreationDate="2016-04-25T18:45:58.153" Score="1" Body="&lt;p&gt;Its not totally clear, but it seems that what they are saying is that, as long as the euro was a strong currency, they did not want to have the frank much stronger than the euro. Later, on, when the euro lost value, they no longer wanted to insure that the franc wasn't much stronger than the euro.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words they don't want a very strong currency, but they are ok with having a stronger currency than their neighbors. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question includes just one of the concerns for central bankers. It says that the Swiss export to their neighbors, so they don't want their products to be uncompetitive with those of other Europeans. That would mean less purchases, lower GDP etc. This was the logic used when they imposed the cap on the franc price relative to euros.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, the central bank has another main concern, which is that it wants to make sure the currency remains a good asset for investors. It has to make sure the currency doesn't lose value, otherwise, it hurts all those investors that trusted in it. So, for the world wide capital markets to demand the Swiss franc, the central banker needs to maintain a reasonably high value for it. This is the core concern when they are allowing the franc to increase in value relative to a (falling) euro.&lt;/p&gt;&#xA;" OwnerUserId="7593" LastEditorUserId="12304" LastEditDate="2017-10-18T08:36:40.470" LastActivityDate="2017-10-18T08:36:40.470" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11715" PostTypeId="2" ParentId="11698" CreationDate="2016-04-25T20:06:22.433" Score="2" Body="&lt;p&gt;1) In principle, there is nothing material to stop the central banks. Apparently, during the great recession in the 1930's in the US, the fed bought even stranger stuff. They could go domestic bonds, equities, houses, etc, and then they could go to foreign assets.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) No, they cannot literally go bankrupt because they can always print money. Some banks have in fact begun to consider printing money as a way to forcefully lower the value of their currencies. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;3) My guess is that the issue is really the opposite one. Banks are doing too well: they buy assets, and those assets do well, then the bank is actually backing up each unit of currency with &lt;em&gt;more&lt;/em&gt; value than before. It's hard to create inflation like that.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;4) The practical limits are twofold: it might be politically unsustainable. A) Sooner or later the public thinks this is useless and they elect a new central banker or ask the president to appoint a new one. B) It might create all kinds of strange incentives. For example, you might want to bribe the central bank reserve's managers to buy &lt;em&gt;your&lt;/em&gt; company's assets.&lt;/p&gt;&#xA;" OwnerUserId="7593" LastEditorUserId="4020" LastEditDate="2020-06-12T05:20:53.627" LastActivityDate="2020-06-12T05:20:53.627" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="11716" PostTypeId="1" CreationDate="2016-04-25T22:15:39.990" Score="0" ViewCount="1217" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Suppose there are two options: (1) take a gamble with 50% chance you win \$100 and 50% chance you lose \$110 or (2) don't take the gamble at all and win/lose nothing. Would the risk-neutral take the gamble or not? &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The definition of a risk-neutral individual is someone who is indifferent between a guaranteed amount and the expected outcome of the gamble, which is -\$5 in this case. But since \$0 is only guaranteed amount does that mean all individuals who would take the gamble are risk-seekers, since \$0 is greater than the expected payoff?&lt;/p&gt;&#xA;" OwnerUserId="8085" LastEditorUserId="2776" LastEditDate="2017-08-21T07:50:19.337" LastActivityDate="2017-08-21T07:50:19.337" Title="Negative expected value; risk neutral choice" Tags="&lt;risk&gt;&lt;risk-aversion&gt;" AnswerCount="2" CommentCount="5" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11717" PostTypeId="1" CreationDate="2016-04-26T04:48:55.767" Score="1" ViewCount="27" Body="&lt;p&gt;There are many possible monetary policy channels. These channels are the different ways that changes in the Fed's interest rates can affect the economy: exchange rate depreciations, business investment growth, consumer borrowing growth, wealth increases, improved firm liquidity, debt deflation, bank multiplier changes ...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there accepted evidence for any of these actually happening in the US? What are the key references?&lt;/p&gt;&#xA;" OwnerUserId="7593" LastEditorUserId="7593" LastEditDate="2016-05-17T02:37:02.760" LastActivityDate="2016-05-17T02:37:02.760" Title="Which of the possible monetary policy channels is there empirical evidence for?" Tags="&lt;macroeconomics&gt;&lt;monetary-policy&gt;&lt;interest-rate&gt;&lt;money-supply&gt;&lt;academic-graduate&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11718" PostTypeId="1" AcceptedAnswerId="11719" CreationDate="2016-04-26T05:12:38.057" Score="6" ViewCount="90" Body="&lt;p&gt;Is there a simple way to figure out how many new businesses appear and disappear each year in the US economy?&#xA;It seems a key question to figure out how the economy is changing over time, although I suppose the data is potentially messy...&lt;/p&gt;&#xA;" OwnerUserId="7593" LastEditorUserId="7593" LastEditDate="2016-05-17T02:39:16.507" LastActivityDate="2016-05-20T19:45:04.543" Title="What fraction of new businesses die out within a year?" Tags="&lt;economic-growth&gt;&lt;business-cycles&gt;&lt;innovation&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11719" PostTypeId="2" ParentId="11718" CreationDate="2016-04-26T05:49:33.730" Score="10" Body="&lt;p&gt;The &lt;a href=&quot;https://www.census.gov/ces/dataproducts/bds/&quot; rel=&quot;noreferrer&quot;&gt;Business Dynamics Statistics&lt;/a&gt; (BDS) of the Census provides annual measures of business dynamics (such as job creation and destruction, establishment births and deaths, and firm startups and shutdowns) for the economy and aggregated by establishment and firm characteristics. The use of the LBD as its source data permits tracking establishments and firms over time. In particular, BDS provides information on &lt;strong&gt;Establishment openings and closings&lt;/strong&gt; and &lt;strong&gt;Number of startups and firm shutdowns&lt;/strong&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The following figure is based on BDS and from Haltiwanger, John, Ron Jarmin, and Javier Miranda, (2009) &lt;a href=&quot;https://www.census.gov/ces/pdf/BDS_Overview_2009.pdf&quot; rel=&quot;noreferrer&quot;&gt;&quot;Business Dynamics Statistics: An Overview&quot;&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/H0W1M.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/H0W1M.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note: SUSB means &lt;a href=&quot;https://www.census.gov/econ/susb/&quot; rel=&quot;noreferrer&quot;&gt;Statistics of U.S. Businesses&lt;/a&gt; from Census firms as well.&lt;/p&gt;&#xA;" OwnerUserId="6168" LastEditorUserId="6168" LastEditDate="2016-04-26T15:02:39.013" LastActivityDate="2016-04-26T15:02:39.013" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11720" PostTypeId="1" CreationDate="2016-04-26T05:52:15.903" Score="2" ViewCount="43" Body="&lt;p&gt;This may be a very basic question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From a producer's standpoint, what are the theoretical or empirical results on the comparison of cost between buying assembled or full solutions from suppliers vs. buying individual parts from suppliers?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, hypothetically speaking, a car manufacturer may choose between multiple assembled braking systems from different suppliers, or, may decide to assemble the system itself and choose between multiple suppliers for each component of the system.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Intuition suggests that buying individual parts and assemble itself has lower cost than buying the full solution even if there are multiple solution providers, as long as the manufacturer has sufficient capacity in assembling. But I wonder if that is the case in every scenario, e.g. in the car manufacturing example above.&lt;/p&gt;&#xA;" OwnerUserId="5250" LastActivityDate="2016-04-29T14:37:30.007" Title="Producer's cost for buying full solution vs. buying parts" Tags="&lt;microeconomics&gt;&lt;cost&gt;&lt;producer-theory&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11721" PostTypeId="1" CreationDate="2016-04-26T10:49:56.277" Score="0" ViewCount="151" Body="&lt;p&gt;The global economy depends on growth, but growth can never be indefinite in a finite world with limited space and resources.  Moreover, growth always tends to decline over the long term due to the law of diminishing returns, as we choose opportunities which give the best returns first, leaving those which give lower returns for later.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So does this mean economic collapse is inevitable?  Could the global economy survive indefinitely with zero growth, while borrowing more and more money to avoid decline?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Under what scenario would the economy be indefinitely sustainable, without a huge collapse?&lt;/p&gt;&#xA;" OwnerUserId="8087" LastEditorUserId="1601" LastEditDate="2016-04-26T11:18:21.903" LastActivityDate="2016-04-26T13:30:09.083" Title="Is global economic collapse inevitable?" Tags="&lt;macroeconomics&gt;&lt;economic-growth&gt;" AnswerCount="1" CommentCount="9" FavoriteCount="1" ClosedDate="2016-04-26T16:09:25.350" ContentLicense="CC BY-SA 3.0" />
  <row Id="11722" PostTypeId="1" AcceptedAnswerId="11726" CreationDate="2016-04-26T11:43:24.017" Score="-1" ViewCount="472" Body="&lt;p&gt;I am attempting to solve the following question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;Smith and Jones are stranded on a desert island. Each has in his possession some slices of ham (H) and cheese (C). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Smith is a&#xA;choosy eater and will eat ham and cheese only in the fixed proportions of 2 slices of cheese to 1 slice of ham. His utility function is given by $U_S = H^{1/2}C^{1/2}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Jones is more flexible in his dietary tastes and has a utility function given by $U_J = H^{1/3}C^{2/3}$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Total endowments are 100 slices of ham and 200 slices of cheese.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose Smith initially had 40H and 80C. What would the equilibrium position be?&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is where I get completely lost. I'm told that given these initial allocations, the exchange rate is $$P_H/P_C = 4/3 $$ and then the competitive equilibrium is allocation is $H_S = 50, \space C_S = 200/3,\space H_J = 50, \space C_J = 400/3$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I solved for the contract curve and obtained $$ C_S = 200H_S/{(200-H_S)}$$&#xA;I'm honestly completely lost as to how they obtain that exchange rate and the competitive equilibrium. Can someone please explain to me how to find it?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks in advance for the help!&lt;/p&gt;&#xA;" OwnerUserId="8056" LastEditorUserId="8056" LastEditDate="2016-04-26T12:02:51.457" LastActivityDate="2016-04-26T13:03:49.130" Title="Finding an exchange rate and competitive equilibrium given an initial allocation and utility function" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;exchange-rates&gt;&lt;pricing&gt;" AnswerCount="1" CommentCount="0" ClosedDate="2016-04-27T14:43:02.717" ContentLicense="CC BY-SA 3.0" />
  <row Id="11724" PostTypeId="2" ParentId="11721" CreationDate="2016-04-26T12:38:07.640" Score="2" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;The global economy depends on growth, but growth can never be&#xA;  indefinite in a finite world with limited space and resources.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It is only partially correct to say that the global economy depends on growth, because an economy per se does not depend on it. But it certainly isn't wrong to say so, because a large part of the world's economic activity is funneled into investments. Without growth, there would be few investments and new enterprising going on. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Growth has certainly been one of the primary political goals of the 20th century and continues to be so, as the main technique for progressing the human race and bringing order to the global society. In our new century, it has much to do with continuous improvement of quality of life, and lifting millions (billions) of people out of poverty.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Furthermore, since the growth paradigm is so central to the way we order the economy, much of economic activity depends on it. We count on growth to make our pensions grow so we can afford to retire. Society counts on growth when investing in new expensive infrastructure, so that huge projects will pay for themselves over the long term. The financial system depends on growth of businesses in return for lending out their capital. And so forth.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Moreover, growth always tends to decline over the long term due to the&#xA;  law of diminishing returns, as we choose opportunities which give the&#xA;  best returns first, leaving those which give lower returns for later.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Diminishing returns is &lt;em&gt;used to refer to a point at which the level of profits or benefits gained is less than the amount of money or energy invested.&lt;/em&gt; This means that after a certain point, it is no longer profitable to invest more to extract more value out of a proposition, and it may be necessary to divert resources to other parts of the economy. For instance, in the early days of the oil industry, there were huge wells of oil to drill and a lot of oil was wasted due to early technologies. Since there was plenty of oil, the spill didn't matter so much. As oil became a scarcer resource and drilling became more difficult, new technologies were developed to counter diminishing returns. With modern efficient technology, we are producing more oil today than we ever have before, even though the oil has demonstrated diminishing returns.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your assumption is correct in the sense that: the closer we come to the production possibilities frontier which is the current technological limit, we will see a decline in the growth rate. However, because growth is compounded, we have really seen an exponential growth of world GDP the whole time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To answer your question: with current technology, we would undoubtedly run out of finite resources at one point. That doesn't automatically mean that there would be an 'economic collapse' – instead we would see ever more diminishing returns and a decrease in activity within that particular sector, while more profitable opportunities would emerge. Society would have to change and find a new way of living. There wouldn't be a sudden &quot;energy catastrophe&quot;, but a slow and gradual decline over many decennia. It is plausible that we would see lower birth rates, not because people would die, but because it becomes more expensive to have many children while maintaining a certain standard of living.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With that said, as technology progresses, we become more apt at extracting resources efficiently. The big challenge of this new century is to become independent from fossil fuels and base our economy on renewable energy or other sources. There are also other potential shortages, as some rare-earth minerals have supply limits with practical implications for our way of life. Hopefully, there will be a replacement or recycling of these, and/or ways to locate and extract them more efficiently.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The challenges humanity face are certainly great, and no-one knows the solutions yet. But the hope is that we will be able to cope with the change via new technologies and/or changes to society. That doesn't mean that an economic collapse is inevitable, but it does mean that economic, and probably societal, reorganisation is inevitable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regarding your other questions, I hope someone else can elaborate on them in a more technical sense:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Could the global economy survive indefinitely with zero growth, while borrowing more&#xA;  and more money to avoid decline?&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Under what scenario would the economy be indefinitely sustainable,&#xA;  without a huge collapse?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="5501" LastEditorUserId="5501" LastEditDate="2016-04-26T13:30:09.083" LastActivityDate="2016-04-26T13:30:09.083" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11726" PostTypeId="2" ParentId="11722" CreationDate="2016-04-26T13:03:49.130" Score="0" Body="&lt;p&gt;Equilibrium is achieved when demand equals supply in every market. We solve these types of problems by finding the set of prices which results in market clearing in every market. By Walras' law we know that if demand equals supply in the ham market it the cheese market must also clear, so we can find the set of prices which results in demand equaling supply in the ham market (working with the cheese market would also be valid).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first step is to find each agent's gross demand for ham. We can find this by solving the utility maximization problem but since these utility functions are Cobb-Douglas we know the general form is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\alpha}{(\alpha+\beta)}\frac{m}{p_h}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $m=40p_h+80p_c$ for Smith and $m=60p_h+120p_c$ for Jones since income is derived from the value of the endowment. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Gross demand gives how much each agent demands given a set of prices. Supply is equal to our total endowment which gives the market clearing condition&#xA;$$\frac{40p_h+80p_c}{2p_h}+\frac{60p_h+120p_c}{3p_h}=100.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can always normalise one of the prices to one so let $p_c=1$. Solving the resulting expression gives $p_h=4/3$. To find the allocation just substitute these prices into the gross demands for each agent. &lt;/p&gt;&#xA;" OwnerUserId="7797" LastActivityDate="2016-04-26T13:03:49.130" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="11727" PostTypeId="1" CreationDate="2016-04-26T13:06:39.477" Score="2" ViewCount="175" Body="&lt;p&gt;Suppose a monopolist adopts a technology that allows him to produce his product at lower cost. What is the likely effect on the monopoly price ? &lt;/p&gt;&#xA;" OwnerUserId="8091" LastActivityDate="2016-04-28T05:49:44.857" Title="Effect on monopoly price" Tags="&lt;monopoly&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11728" PostTypeId="2" ParentId="11727" CreationDate="2016-04-26T14:23:09.220" Score="2" Body="&lt;p&gt;$P=\frac{\epsilon}{\epsilon +1} MC$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is the markup rule for price-setting firms.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, it is clear that a firm with monopoly power will never set $P=MC$. However, we can assume for now that the term involving epsilon is fixed for our firm with monopoly power. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If this firm adopts technology that reduces costs, what do you think will happen to the marginal cost curve (in what direction does the marginal cost term move in the above equation)? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given the expected change in marginal cost, in what direction should price change? &lt;/p&gt;&#xA;" OwnerUserId="1655" LastActivityDate="2016-04-26T14:23:09.220" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11729" PostTypeId="1" CreationDate="2016-04-26T11:58:22.967" Score="2" ViewCount="60" Body="&lt;p&gt;My question is one which model I should use to examine the relationship between interest rate movements of government bonds (DV), and an IV of abnormal returns I have generated following specific events. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I need to measure what changes take place to a mean interest rate of several countries (DV), when the market has already reacted (IV) to the event I am interested in. So my DV is the change in the mean interest rate of several countries, while the IV is the abnormal return for each country's interest rate following the event.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The theory is that markets should react to changes peer group countries' interest rates, so as the IV increases (it can also be negative), the change in the DV should increase.  I was thinking to use a simple OLS regression,with a range of fixed effects, but would that be acceptable?&lt;/p&gt;&#xA;" OwnerDisplayName="Claud Makelele" LastEditorUserId="43" LastEditDate="2016-04-26T14:37:28.047" LastActivityDate="2016-04-26T14:37:28.047" Title="Econometric model of government interest rates and abnormal returns" Tags="&lt;econometrics&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11730" PostTypeId="1" CreationDate="2016-04-26T16:48:37.580" Score="0" ViewCount="1496" Body="&lt;p&gt;Can the Gross Value Added be negative when calculated using the production approach?&lt;/p&gt;&#xA;" OwnerUserId="8093" LastActivityDate="2016-04-28T06:20:26.120" Title="Can the Gross Value Added be negative?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="2" ClosedDate="2016-04-28T12:58:28.427" ContentLicense="CC BY-SA 3.0" />
  <row Id="11731" PostTypeId="2" ParentId="7091" CreationDate="2016-04-26T19:21:08.040" Score="3" Body="&lt;p&gt;The suggested pure strategies do not create an equilibrium, because if $X_2=X_1=2$, there is a tie. Whichever tie-breaking rule is employed, one of the players would want to deviate to $\beta_i=1+\epsilon$ to avoid the tie and win with certainty. If tie breaking is always in favor of the second player, player 1 deviates to $0+\epsilon$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Discrete values in this setting do suggest a mixed strategy equilibrium (non-degenerate), because the probability of a tie in valuations is non-zero. This is why the pure strategy equilibrium from the continuous case is missing here.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The more general case of this problem is in &lt;a href=&quot;http://dx.doi.org/10.1515/bejte-2012-0014&quot; rel=&quot;nofollow&quot; title=&quot;Doni &amp;amp; Menicucci &amp;#40;2013&amp;#41;&quot;&gt;Doni &amp;amp; Menicucci (2013)&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="8094" LastEditorUserId="8094" LastEditDate="2016-04-26T21:02:51.790" LastActivityDate="2016-04-26T21:02:51.790" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11732" PostTypeId="2" ParentId="11716" CreationDate="2016-04-26T20:41:29.933" Score="0" Body="&lt;p&gt;Risk neutral means the guy picks the thing that gives the highest expected value. EV of first bet is -5, which is less than 0, the EV of not taking the gamble. So he wont take it.&lt;/p&gt;&#xA;" OwnerUserId="7303" LastActivityDate="2016-04-26T20:41:29.933" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="11733" PostTypeId="1" CreationDate="2016-04-26T20:54:48.670" Score="2" ViewCount="168" Body="&lt;p&gt;Trying to get some clarification on how GDP is calculated for service industries.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are input resources netted out (e.g. fuel for an airline), the same way wheat would be for a loaf of bread? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What about investment assets (e.g. airplanes for an airline) -- these get fully counted toward GDP the year they're purchased? &lt;/p&gt;&#xA;" OwnerUserId="8096" LastActivityDate="2016-12-24T09:30:31.333" Title="Calculating Service Contributions to GDP" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;" AnswerCount="1" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="11734" PostTypeId="2" ParentId="11720" CreationDate="2016-04-26T21:04:43.830" Score="2" Body="&lt;p&gt;Some economists (Oliver Hart and John Moore are among the most prominent) have developed a &quot;theory of the firm&quot; which could help address some of the issues involved. One of the considerations in that theory is that the different parties involved in production can 'hold-up' each other. For example, in this case, the brake manufacturer or the auto manufacturer can suddenly threaten to cancel the relationship with the other party, unless the contract is improved.  This, in turn, means they don;t invest much in each other and production is inefficient.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Under that scenario, the optimal solution is for a single party to be the owner of all crucial processes. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This relates to your question in the sense that, from this perspective, the manufacturer is better off buying the individual parts because then it's much harder for anybody to hold it up. Put simply, it has more negotiating power. It will want to in-house processes that are simple, but which could hold it up.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;alternatively, it will want to have some serious lawyer power writing the contracts with all its suppliers so that they can't come up with any surprises. That's hard to do. The principle that this is hard to do is called the 'incomplete contracts' principle.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(edits in response to comments:)&#xA;Other key authors in the theory of the firm are Ronald Coase, Oliver Williamson and Sandy Grossman. For Coase, as long as property rights are well-defined,  market allocation would be efficient regardless of who owns what. However, there are transaction costs in markets, maybe you can think of them as contracting or negotiating costs). The firm overcomes the costs of transactions by creating non-market relationships within itself. The boss does not negotiate with the worker every day. This can be more efficient than having all activity being performed in the marketplace.&lt;/p&gt;&#xA;" OwnerUserId="7593" LastEditorUserId="7593" LastEditDate="2016-04-29T14:37:30.007" LastActivityDate="2016-04-29T14:37:30.007" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11735" PostTypeId="2" ParentId="444" CreationDate="2016-04-26T23:08:59.003" Score="2" Body="&lt;p&gt;Although there's a lot of important points in the other answers, there is something important missing:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Prohibiting FRB means that you cannot borrow to invest. Effectively, it means that you can't create debt contracts because in a debt contract you take somebody's money and promise to repay it, but &lt;em&gt;you don't keep the money&lt;/em&gt;, instead, you use it for some type of investment. If borrowing is forbidden, other social mechanisms for intermediation would take its place, like issuance of shares. You would buy shares in the bank rather than open up a deposit account, much like investment banking used to be when i-banks were not levered.&lt;/p&gt;&#xA;" OwnerUserId="7593" LastActivityDate="2016-04-26T23:08:59.003" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11736" PostTypeId="2" ParentId="11710" CreationDate="2016-04-26T23:12:42.927" Score="1" Body="&lt;p&gt;Probably a more general response than you're hoping for, but I recently asked a (well-published) econ prof at my university which classes he'd recommend prior to doing research. He said he usually recommends to the PhD students he advises that they take real analysis and probability at a graduate level.&lt;/p&gt;&#xA;" OwnerUserId="7303" LastActivityDate="2016-04-26T23:12:42.927" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11738" PostTypeId="1" CreationDate="2016-04-27T04:26:06.460" Score="2" ViewCount="90" Body="&lt;p&gt;I typically see the subjective theory of value supported by pro-free market type individuals. But in the present day what theory of value is used for other schools of thought that favor things such as mixed market economies, Keynesianism, socialism, etc ? &lt;/p&gt;&#xA;" OwnerUserId="7695" LastActivityDate="2016-04-27T04:26:06.460" Title="How widespread is the subjective theory of value ?" Tags="&lt;value&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="11739" PostTypeId="1" CreationDate="2016-04-27T07:41:10.050" Score="2" ViewCount="232" Body="&lt;p&gt;At our university we are researching the usefulness of failing (bankrupticy) prediction models. We are interested in the original datasets &lt;a href=&quot;http://people.stern.nyu.edu/ealtman/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Altman&lt;/a&gt; used for his models. Does anyone know where this datasets can be found?&#xA;We have the same question for the datasets &lt;a href=&quot;http://pages.stern.nyu.edu/~johlson/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Ohlson&lt;/a&gt; used.&lt;/p&gt;&#xA;" OwnerUserId="8101" LastEditorUserId="2776" LastEditDate="2017-07-23T07:48:00.790" LastActivityDate="2017-11-20T09:13:01.847" Title="Original data Altman used for his z-score formula" Tags="&lt;data-request&gt;&lt;financial-economics&gt;&lt;corporate-finance&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11741" PostTypeId="1" CreationDate="2016-04-27T15:01:06.240" Score="1" ViewCount="376" Body="&lt;p&gt;I was wondering. Suppose that in the whole realm of economic activities, all those activities were fully automized. From the finding of raw resources to the making of products that leave the factories, so the owners of the companies that perform the many tasks from resources to end-product don´t need employees anymore; the maintenance of infrastructures; social- and health-care; in short, every kind of work were we need in this time people for (I´m aware it´s rather far fetched, but often when you push things to the limit some things can become clear).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Would the world be a place of milk and honey, or will conflicts arise? &lt;/p&gt;&#xA;" OwnerUserId="8102" LastActivityDate="2016-04-30T07:38:39.957" Title="A world with total automation" Tags="&lt;macroeconomics&gt;" AnswerCount="2" CommentCount="2" ClosedDate="2016-04-28T17:24:06.863" ContentLicense="CC BY-SA 3.0" />
  <row Id="11742" PostTypeId="1" AcceptedAnswerId="11762" CreationDate="2016-04-27T15:02:45.363" Score="2" ViewCount="121" Body="&lt;p&gt;An important issue in deciding how to specify an time-series econometric model is deciding whether to use series in levels or in differences (or second differences!). However, to decide this, you often have to find out if the series are integrated or order 1 or not (I1). What are the current accepted tests to find out? Are there trade-offs between the tests? It seems hard to know whether interest rates for example are I1 or not!&lt;/p&gt;&#xA;" OwnerUserId="7593" LastEditorUserId="7593" LastEditDate="2016-05-18T15:24:18.947" LastActivityDate="2016-05-25T07:58:52.360" Title="What are accepted econometric methods to find out if a time series is I1 or not?" Tags="&lt;econometrics&gt;&lt;time-series&gt;&lt;reduced-form-estimation&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11743" PostTypeId="2" ParentId="11739" CreationDate="2016-04-27T16:58:36.323" Score="1" Body="&lt;p&gt;The original paper (of Altman) is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://onlinelibrary.wiley.com/doi/10.1111/j.1540-6261.1968.tb00843.x/pdf&quot; rel=&quot;nofollow&quot;&gt;Altman, E. I. (1968). Financial ratios, discriminant analysis and the prediction of corporate bankruptcy. The journal of finance, 23(4), 589-609.&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We read (p. 593)&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;III. DEVELOPMENT OF THE MODEL&lt;/strong&gt; &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&quot;&lt;strong&gt;Sample Selection.&lt;/strong&gt; The initial sample is composed of sixty-six&#xA;  corporations with thirty-three firms in each of the two groups. The&#xA;  bankrupt group (Group 1) are manufacturers that filed a bankruptcy&#xA;  petition under Chapter X of the National Bankruptcy Act during the&#xA;  period 1946-1965. (...) Recognizing that this group is not completely&#xA;  homogeneous, due to industry and size differences, a careful selection&#xA;  of non-bankrupt firms was attempted. Group 2 consisted of a paired&#xA;  sample of manufacturing firms chosen on a stratified random basis.&#xA;  (...) Firms in Group 2 were still in existence in 1966. Also, the data&#xA;  collected are from the same years as those compiled for the bankrupt&#xA;  firms. For the initial sample test, the data are derived from&#xA;  financial statements one reporting period prior to bankruptcy.&#xA;  (footnote 18: The data was derived from Moody's Industrial Manuals and&#xA;  selected Annual Reports. The average lead time of the financial&#xA;  statements was approximately seven and one-half months prior to&#xA;  bankruptcy.)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The paper does not contain, even in print form, the actual data sample, so BKay's suggestion to contact the authors is your best shot. &lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2016-04-27T16:58:36.323" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11744" PostTypeId="2" ParentId="7108" CreationDate="2016-04-27T16:59:31.380" Score="2" Body="&lt;p&gt;To give some more insight, the oil shock of 1973 was basically a situation of stagflation wherein economy slowed down and inflation rose simultaneously. Such a situation is rare but has happened and is better understood through supply side of macroeconomics. &#xA;To be precise, the situation of 1973 was a complex one. Since, oil is an essential factor for all industries ,hence, the steep rise in oil prices made the real long term supply curve (which is vertical) shift to left. This phenomenon was not well understood at that time and the policy reacted in the typical Keynesian way i.e. to boost consumption by spending more but in reality they were overshooting the target which led to more inflation as economy was already running hot. &lt;/p&gt;&#xA;" OwnerUserId="5582" LastActivityDate="2016-04-27T16:59:31.380" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11748" PostTypeId="1" CreationDate="2016-04-28T00:50:16.257" Score="0" ViewCount="155" Body="&lt;p&gt;There has been a lot of talk about a big pending financial crash due to the slowing global economy, low interest rates, rising debt levels, etc.  Now I'm wondering:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Has anyone done any analysis to predict exactly &lt;em&gt;when&lt;/em&gt; the next big crash / credit crunch will be?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Specifically, what indicators have analysts been tracking to predict when the next crash will happen?  Has anyone agreed or suggested what will be the critical thresholds, and/or likely trigger(s)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ideally I am looking for some measure of &lt;strong&gt;systemic risk&lt;/strong&gt; which effectively gauges how unsustainable a system is, or rather, how long an economic system can be sustained before it is likely to collapse.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have made my own analysis and prediction based on long-term trends in slowing growth vs rising debt, but has anyone done this kind of analysis before?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Slowing growth: &lt;a href=&quot;http://bit.ly/1IbPZam&quot; rel=&quot;nofollow&quot;&gt;http://bit.ly/1IbPZam&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Rising debt: &lt;a href=&quot;http://bit.ly/1N94886&quot; rel=&quot;nofollow&quot;&gt;http://bit.ly/1N94886&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="8087" LastEditorUserId="8087" LastEditDate="2016-04-29T10:25:55.280" LastActivityDate="2016-04-29T10:25:55.280" Title="What analysis has been done to predict the next big financial crash?" Tags="&lt;economic-growth&gt;&lt;debt&gt;&lt;financial-crises&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11750" PostTypeId="2" ParentId="10493" CreationDate="2016-04-28T02:36:20.270" Score="3" Body="&lt;p&gt;I work for Quandl and on our site I can recommend two free historical databases that you may want to check out: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The United Nations Industrial Commodities Database, I believe, shows production amounts for various commodities like steel, petroleum, glass etc. in metric tons for different countries: &lt;a href=&quot;https://www.quandl.com/data/UINC&quot; rel=&quot;nofollow&quot;&gt;https://www.quandl.com/data/UINC&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The United Nations Energy Statistics Database also shows production for other things like alcohol, gasoline etc. in metric tons: &lt;a href=&quot;https://www.quandl.com/data/UENG&quot; rel=&quot;nofollow&quot;&gt;https://www.quandl.com/data/UENG&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When you go to each database above, just search for &quot;production&quot; within each database. Hope this helps!&lt;/p&gt;&#xA;" OwnerUserId="8104" LastActivityDate="2016-04-28T02:36:20.270" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11751" PostTypeId="2" ParentId="8912" CreationDate="2016-04-28T02:55:13.617" Score="2" Body="&lt;p&gt;I recommend checking out the following free, open databases on Quandl which show historical mean or median household incomes by state: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Federal Reserve Economic Data - &lt;a href=&quot;https://www.quandl.com/data/FRED&quot; rel=&quot;nofollow&quot;&gt;https://www.quandl.com/data/FRED&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;National Center for Education Statistics - &lt;a href=&quot;https://www.quandl.com/data/NCES&quot; rel=&quot;nofollow&quot;&gt;https://www.quandl.com/data/NCES&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope this helps! [Disclosure: I work for Quandl]&lt;/p&gt;&#xA;" OwnerUserId="8104" LastActivityDate="2016-04-28T02:55:13.617" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11752" PostTypeId="2" ParentId="11748" CreationDate="2016-04-28T05:14:42.577" Score="0" Body="&lt;p&gt;No one knows. It is very easy to explain crises in hindsight but to predict one is almost unpredictable. It is a very bold statement that I am making but it is true. It is almost impossible to predict and prevent crises. The system is not designed to do that. Economists try to design the system in such a way that it can tolerate crises not to prevent them. Former secretary Timothy Geithner mentions in an online lecture that the economic system is like a highway. You can put a speed limit of 10 miles per hour then there would be no accidents but then it won't serve the purpose of its existence at all. You have to make the trade-off. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Nevertheless, the safeguards that are put in place after the Global Financial Crisis are more stringent across the world.&lt;/p&gt;&#xA;" OwnerUserId="5582" LastActivityDate="2016-04-28T05:14:42.577" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="11753" PostTypeId="1" AcceptedAnswerId="12145" CreationDate="2016-04-28T05:15:07.843" Score="2" ViewCount="131" Body="&lt;p&gt;Uber has probably hundreds of thousands of drivers just in the US. There are many other gig economy firms growing quickly, not only lyft, but also Amazon Prime, bite squad, etc. Is there some place in the data that we can observe this happening? Is there a number that has been growing quickly for part time, self employed maybe? Is there a number in the Social Security statistics? More generally, how do we measure the actual size of this relative to the US labor force? Maybe we should look at the fraction of self-employed people in the US?&lt;/p&gt;&#xA;" OwnerUserId="7593" LastEditorUserId="7593" LastEditDate="2016-05-24T00:46:41.160" LastActivityDate="2016-05-24T23:06:47.120" Title="How can we measure the size of the new uber-driver-type economy?" Tags="&lt;labor-economics&gt;&lt;unemployment&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11754" PostTypeId="2" ParentId="11741" CreationDate="2016-04-28T05:36:39.947" Score="1" Body="&lt;p&gt;I would strongly recommend you to read Erik Brynjolfsson, Andrew Mcafee et al for some serious and real insights about this topic. The world economic forum this year had the same theme. &#xA;In my view (which are heavily derived from the works of the above mentioned dignitaries) the problems arising from complete automation will be the lowering or stagnation of income levels. As Erik mentions in his Ted talk, productivity levels are at all time high but income levels are not. This was not the case in previous technological revolutions. People and systems adapted to new technologies and income rose along with productivity. Now they don't share the same relationship. One of the reasons is that we are not changing our systems well to absorb the technology. For example, if people are saving a lot of time because of automation, they should be able to spend it in something constructive. May be entrepreneurship, maybe knowledge work. To make all those automation work, people are required to program, design, develop and create. There needs to be a shift from typical work to knowledge work. If such a shift is not there and that too at a speed that matches with the speed of technological changes then income levels will continue to fall, unemployment will rise. &#xA;In Andrew Mcafee's words, &quot;we need to RACE WITH THE MACHINE&quot;.     &lt;/p&gt;&#xA;" OwnerUserId="5582" LastActivityDate="2016-04-28T05:36:39.947" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11755" PostTypeId="2" ParentId="11727" CreationDate="2016-04-28T05:49:44.857" Score="0" Body="&lt;p&gt;It depends on what cost function the monopoly is facing. If the marginal cost function is not changing then there would be no change in pricing or quantity.  &lt;/p&gt;&#xA;" OwnerUserId="5582" LastActivityDate="2016-04-28T05:49:44.857" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11756" PostTypeId="2" ParentId="537" CreationDate="2016-04-28T05:58:00.627" Score="0" Body="&lt;p&gt;A monopoly's pricing and production decisions are calculated this way:&#xA;Equate the marginal cost and marginal revenue functions. This will give you the production quantity.&#xA;Now, you plug in this quantity in the demand function to get the price.&#xA;I don't think, MR is equated with average cost. &lt;/p&gt;&#xA;" OwnerUserId="5582" LastActivityDate="2016-04-28T05:58:00.627" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11757" PostTypeId="2" ParentId="11733" CreationDate="2016-04-28T06:14:18.337" Score="-1" Body="&lt;p&gt;Services will be calculated at the final price they are given in market. That price includes all value added items in providing the service. So, to calculate contribution of airlines in GDP, you just need to sum up the total value of tickets that are sold. Other things will automatically be counted in that.&lt;/p&gt;&#xA;" OwnerUserId="5582" LastActivityDate="2016-04-28T06:14:18.337" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11758" PostTypeId="2" ParentId="11730" CreationDate="2016-04-28T06:20:26.120" Score="1" Body="&lt;p&gt;That won't really happen in reality. A sales promotion which runs losses, as in your example, will not mean that the gross value added is negative. The final selling price of the item is the gross value added and that will not typically be negative. So, if an item is sold for 5 dollars then the gross value added is 5 dollars only. No matter if someone in the value chain made losses. &#xA;So, gross value added will never be negative unless and until the final selling price of something is negative. &lt;/p&gt;&#xA;" OwnerUserId="5582" LastActivityDate="2016-04-28T06:20:26.120" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11759" PostTypeId="2" ParentId="11741" CreationDate="2016-04-28T08:02:18.167" Score="-3" Body="&lt;p&gt;With TOTAL automaton, the greatest issue would be that nobody would be working, and the rich would own all the production capacity, so nobody else will earn any money to buy from them.  Effectively, overall demand would dry up even as people are desperate for the things they need, but can't afford to buy even at lower and lower prices.  Even the wealthy would lose out, because there would be no consumers left able to buy their stuff.  Essentially, the economy would grind to a halt unless wealth redistribution was forced by socialism, so that more people could afford to buy things.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To some extent we are already starting to see a shift in this direction, with increasing automation, ever more skewed wealth distribution, and slowing growth and demand as the masses can't afford to buy what they need, even though it can be produced more easily.  The picture won't pretty if nobody can earn a living without any income.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, that is only the case with complete automation, where there is literally nothing left for people to do.  In practice, simple repetitive tasks tend to get automated first, leaving people with more time to perform more complex tasks that cannot (yet) be automated, and so overall productivity and efficiency increases without impacting overall employment.  So people are still earning a living wage, and they can buy more things that are now cheaper and easier to make.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Automation really only becomes a problem when even the most complex tasks can be automated, and that is the great risk of artificial intelligence that people like Stephen Hawking say will spell the end of the world.  In my view he's probably right.  Not because machines will consciously take over the world, but because they will make people and employment (the potential to earn a living) redundant.&lt;/p&gt;&#xA;" OwnerUserId="8087" LastEditorUserId="8087" LastEditDate="2016-04-30T07:38:39.957" LastActivityDate="2016-04-30T07:38:39.957" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="11762" PostTypeId="2" ParentId="11742" CreationDate="2016-04-28T13:16:31.343" Score="5" Body="&lt;p&gt;An I(1) series is also known as a series with a unit root. Therefore, the econometric tests to inquire on the order of integration of a time-series are referred to as &quot;unit-root tests&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are three widely used unit-root tests: Augmented Dickey-Fuller (ADF), Phillips-Perron (PP) and Kwiatkowski–Phillips–Schmidt–Shin (KPSS). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The null hypothesis (H0) in the ADF and PP tests assumes the presence of a unit root. For KPPS it assumes no unit root. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The tests often give different results, and best practice would require to report all three statistics as a robustness check.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are many drawbacks of using these tests. The major issue lies in the lack of power of PP and ADF to reject H0 when the series is I(0) but close to I(1), that is when the series is highly persistent but stationary. To avoid this low power, other tests have been devised by Elliot, Rothenberg and Stock (1996), as well as Ng and Perron (2001).&lt;/p&gt;&#xA;" OwnerUserId="8017" LastActivityDate="2016-04-28T13:16:31.343" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11764" PostTypeId="1" CreationDate="2016-04-28T23:06:18.703" Score="1" ViewCount="94" Body="&lt;p&gt;I would like to know how I can measure and compare the distributions of home values across cities. I have collected the following data for each city:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;a) median price in the city;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;b) number of housing units by value range, such as &lt;br&gt;&#xA;500 units between \$100k-200k, &lt;br&gt;&#xA;300 units between \$200k-300k, &lt;br&gt;&#xA;600 units between \$300k-400k, etc;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;c)Lower value quartile of housing units;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;d)higher value quartile of housing units.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know some of these cities have a lot high-end homes but few low-end homes while others have a lot of low-end homes but few high-end homes. Can I develop an index to measure that?&lt;/p&gt;&#xA;" OwnerUserId="8114" LastEditorUserId="1601" LastEditDate="2016-04-29T03:11:12.833" LastActivityDate="2016-04-29T16:16:28.553" Title="How to measure home value distribution in a city?" Tags="&lt;price&gt;" AnswerCount="1" CommentCount="5" FavoriteCount="1" ClosedDate="2016-05-02T21:10:21.860" ContentLicense="CC BY-SA 3.0" />
  <row Id="11765" PostTypeId="1" AcceptedAnswerId="11816" CreationDate="2016-04-29T02:02:46.020" Score="6" ViewCount="579" Body="&lt;p&gt;I was wondering if anyone had an idea about the first author to have mathematically computed an isoquant or at least the first occurrence of a drawn isoquant ? My best guess would be F. Edgeworth in &lt;em&gt;Mathematical Psychics: An Essay on the Application of Mathematics to the Moral Sciences&lt;/em&gt; (1881) but I really doubt it !&lt;/p&gt;&#xA;" OwnerUserId="7833" LastActivityDate="2016-05-02T23:50:07.520" Title="Isoquant creator" Tags="&lt;microeconomics&gt;&lt;history-economic-thought&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11766" PostTypeId="2" ParentId="11748" CreationDate="2016-04-29T02:07:08.790" Score="3" Body="&lt;p&gt;A useful principle to have in mind here is the so called 'volatility paradox´ oft-cited by Marcus Brunnermier (Princeton prof):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The idea is as follows: a) financial institutions are in the business of taking reasonable risks; b) when the financial system is deemed very stable, then it makes sense for financial institutions to engage in risky activities, because, if the system is stable those risky bets are manageable, reasonable bet; c) when all financial institutions jointly engage in risky activities, the system becomes unstable. In other words, safety engenders individual risk-taking, which creates aggregate risk. This works the other way too: riskiness engenders risk averse attitudes, which lead to a stable system.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you believe this story then you get some insight into why its difficult to predict crises: they happen when risks build up during periods of safety and stability...&lt;/p&gt;&#xA;" OwnerUserId="7593" LastActivityDate="2016-04-29T02:07:08.790" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="11767" PostTypeId="1" CreationDate="2016-04-29T02:24:39.280" Score="1" ViewCount="51" Body="&lt;p&gt;Out of the total production in an economy, a big part is market-based, as when you make something and sell it. But a big part is not, as when you make something and don't sell it, but exchange it or use it in some way. Examples of this are home production, cooking, washing, etc, as well as gifts to friends, social service, etc. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;More over, the fraction of production that is market-based probably changes over the business cycle.  For example, suppose that, in a recession, I agree to cook for my neighbor every other day because we are both unemployed. He cooks for me every other day. In a boom, instead I get a newly created job which pays me 50 dollars a day, and I by a 10 dollar a day meal from my neighbor who now sells me the food he cooks. The economy is only producing 50 dollars more since we used to produce two meals a day and now we are producing the same two meals a day plus 50 dollars. However, because I &lt;em&gt;pay&lt;/em&gt; for the 10 in food, it seems the economy is producing 60 dollars more instead of just 50.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Other things that happen in recessions that don't count as output: when you are unemployed, you fix your house, you make art, etc. Maybe businesses give away more goods and services because they have the installed capacity, but not the demand...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there a way to measure the size of this effect?&lt;/p&gt;&#xA;" OwnerUserId="7593" LastEditorUserId="7593" LastEditDate="2016-05-19T03:17:00.057" LastActivityDate="2016-05-19T03:17:00.057" Title="Is there a change over the business cycle in how much of economic activity is market-based?" Tags="&lt;gdp&gt;&lt;unemployment&gt;&lt;business-cycles&gt;&lt;economic-measurement&gt;&lt;informality&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11768" PostTypeId="2" ParentId="3015" CreationDate="2016-04-29T11:06:44.717" Score="0" Body="&lt;p&gt;Your assertion is in line with 'rational expectations theory'. It says that economic agents will take all available information including the possible policy actions into account and then make decisions and these decisions will affect the future. In contrast to other theories this means that public policy will not be able to affect private decisions (policy ineffectiveness proposition). Rational expectations will counter the effect of public policy. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is mentioned in the paper is quite different from this. Typically, it is  assumed that market is information sensitive to public policy. &lt;/p&gt;&#xA;" OwnerUserId="5582" LastActivityDate="2016-04-29T11:06:44.717" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11769" PostTypeId="2" ParentId="4851" CreationDate="2016-04-29T11:29:51.123" Score="-1" Body="&lt;p&gt;There are two necessary conditions for such a price discrimination :&#xA; 1. The markets should be isolated&#xA; 2. Some sort of price making power should be involved i.e. some degree of    imperfection is required.&lt;/p&gt;&#xA;" OwnerUserId="5582" LastActivityDate="2016-04-29T11:29:51.123" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11770" PostTypeId="2" ParentId="11764" CreationDate="2016-04-29T16:16:28.553" Score="0" Body="&lt;p&gt;When it comes to constructing indices, the axiomatic approach is the standard approach in the economics literature.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An axiom is a property you would like your index to satisfy. For instance, in your example, you would probably wan your index to increase when the distribution in b) changes from $X$ to $Y$ and $Y$ first order stochastically dominates $X$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can require your index to satisfy the above property, as well as others, and hope that as you impose more and more desirable properties, you will narrow down the class of acceptable indices to a single index.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, such axiomatic characterization (i.e. proving that index $I$ is the only index that satisfies a set of properties) is typically not an easy task. As a matter of fact, some very fine researchers have made their whole career out of these kinds of characterization results.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These characterizations are also very much context dependent. Although there are some general results out there characterizing price indices (see &lt;a href=&quot;https://scholar.google.be/scholar?q=axiomatic+price+index&amp;amp;btnG=&amp;amp;hl=nl&amp;amp;as_sdt=0%2C43&quot; rel=&quot;nofollow&quot;&gt;https://scholar.google.be/scholar?q=axiomatic+price+index&amp;amp;btnG=&amp;amp;hl=nl&amp;amp;as_sdt=0%2C43&lt;/a&gt;) they might not be directly amenable to your problem .&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(I don’t know enough about the topic to tell you whether something like an axiomatic theory of housing price indices already exists. It’s not impossible that it does, but I just don’t know.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Depending on how much time you want to put into this, here is what I would do if I were you:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Learn about axiomatic price index theory ( again see &lt;a href=&quot;https://scholar.google.be/scholar?q=axiomatic+price+index&amp;amp;btnG=&amp;amp;hl=nl&amp;amp;as_sdt=0%2C43&quot; rel=&quot;nofollow&quot;&gt;https://scholar.google.be/scholar?q=axiomatic+price+index&amp;amp;btnG=&amp;amp;hl=nl&amp;amp;as_sdt=0%2C43&lt;/a&gt; as well as Afriat, S. (2014). The index number problem: construction theorems (1st ed). Oxford ; New York: Oxford University Press. and&#xA;Diewert, W. (1988). The early history of price index research. Retrieved from &lt;a href=&quot;http://www.nber.org/papers/w2713&quot; rel=&quot;nofollow&quot;&gt;http://www.nber.org/papers/w2713&lt;/a&gt;)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;If you learn about an already existing theory of housing price indices, just pick the index you like best among the ones in the literature.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;Otherwise, try to see if you can adapt some of the general price indices in the literature to your housing case.&lt;/li&gt;&#xA;&lt;li&gt;In last resort, develop an axiomatic theory of your own. &#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;If you have the time and ability, you can try to obtain characterization and publish nice research papers on the topic. &lt;/li&gt;&#xA;&lt;li&gt;Otherwise, you can still use the axiomatic approach to craft an index that satisfies some of the properties you think are the most important. Just list those properties, and start looking for an index that does the job. &lt;/li&gt;&#xA;&lt;li&gt;If you can’t find one, don’t disappear. It may be due to a lack of creativity, but it may also be that you have imposed so many properties that there does not even exist an index satisfying all of them (this is called an “impossibility result” in the axiomatic literature). &lt;/li&gt;&#xA;&lt;li&gt;Just start relaxing or dropping properties one at the time up to the point where you find an index that works. Then if you still have the time and energy, start re-adding some of the properties you dropped, one at the time, and see if you can find a new index that works.&lt;/li&gt;&#xA;&lt;/ul&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="38" LastActivityDate="2016-04-29T16:16:28.553" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11771" PostTypeId="1" AcceptedAnswerId="11807" CreationDate="2016-04-29T14:27:07.230" Score="4" ViewCount="892" Body="&lt;p&gt;I am trying to understand how the Fed effects the fed funds rate. &lt;a href=&quot;http://www.amosweb.com/cgi-bin/awb_nav.pl?s=wpd&amp;amp;c=dsp&amp;amp;k=open%20market%20operations&quot; rel=&quot;nofollow&quot;&gt;Here&lt;/a&gt; it says:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Once the Federal Open Market Committee deems that economic conditions&#xA;  warrant a change in the money supply through specific open market&#xA;  operation, the command to buy or sell a specific amount of U.S.&#xA;  Treasury securities is passed down through the New York Fed President&#xA;  to what is called the Domestic Trading Desk of the New York Federal&#xA;  Reserve Bank. The Domestic Trading Desk is then responsible for&#xA;  implementing the conducting the actually trades. It does this sending&#xA;  messages to a selected group of about 30 securities dealers who&#xA;  specializing in the U.S. Treasury securities. These dealers have 15&#xA;  minutes to respond back with a indication of their willingness to buy&#xA;  participate in the exchange of securities. Some dealers are willing,&#xA;  others are not. In fact, the &quot;open&quot; part of open market operations&#xA;  means that the trades are open to any of the securities dealers&#xA;  willing to participant. The Domestic Trading Desk then has 5 minutes&#xA;  to respond back to the each of dealers that the terms of the exchange&#xA;  is acceptable.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Once all parties have agreed on the exchange terms, the resulting&#xA;  transactions work much like any other. If the Fed buys, then it&#xA;  collects the securities from the dealers in exchange for checks. If&#xA;  the Fed sells, then the dealers collect the securities from the Fed in&#xA;  exchange for checks. In both cases, the checks are cleared much like&#xA;  any of the millions of checks process each day.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So the Fed manipulates the reserves of banks in order to increase or decrease fed funds, and it uses open market operations to do this. I am curious, though: what if in the case of &quot;raising rates&quot;, the Fed wants to sell securities but no bank wants to buy them? And, why wouldn't a bank buy securities anywhere else? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks,&lt;/p&gt;&#xA;" OwnerUserId="5261" OwnerDisplayName="user423805" LastEditorUserId="264" LastEditDate="2016-05-01T00:34:56.197" LastActivityDate="2016-06-02T08:39:14.450" Title="Federal Reserve Open Market Operations" Tags="&lt;federal-reserve&gt;" AnswerCount="2" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11772" PostTypeId="2" ParentId="11767" CreationDate="2016-04-29T17:01:02.650" Score="-1" Body="&lt;p&gt;Yes, the two figures are different because that is how the economy works in a circular flow. To calculate the size of economy (GDP), we will find the total expenditure, total income or total production. In theory, all three calculations should converge at the same figure. However, in economies they may give different figures. It is a fault of whole concept of GDP that it does not take into account any transaction for which there is not a market price available. So, no matter how much gardening you do at your home, you are not adding up anything in the economy. So, whatever mutual understanding you have with you neighbor and whatever transactions you make, it won't be considered. &#xA;In the second part of your example, you are spending 10 dollars and your employer is spending 50 dollars so that add up to 60 dollars. This happens because of circular flow, your income is somebody else's expenditure. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Production for which there is no price will not be counted.&lt;/p&gt;&#xA;" OwnerUserId="5582" LastActivityDate="2016-04-29T17:01:02.650" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11773" PostTypeId="1" CreationDate="2016-04-29T18:21:47.557" Score="2" ViewCount="58" Body="&lt;p&gt;I am trying to run an econometric model, where I want to estimate the effect of credit growth on consumption growth, among other variables. &#xA;Using data from Fred, I have the option of getting my variables as a continuously compounded annual rate of change. Are using these units and regressing normally the same as running a log-log regression?&lt;/p&gt;&#xA;" OwnerUserId="8119" LastEditorUserId="118" LastEditDate="2016-04-30T13:58:52.737" LastActivityDate="2016-04-30T13:58:52.737" Title="Econometrics-using log-log or continuously compounded annual rate of change" Tags="&lt;macroeconomics&gt;&lt;econometrics&gt;&lt;financial-economics&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11774" PostTypeId="1" AcceptedAnswerId="11776" CreationDate="2016-04-29T19:24:37.410" Score="13" ViewCount="23554" Body="&lt;p&gt;Anyone know of a way to get multiple regression outputs (not multivariate regression, literally multiple regressions) in a table indicating which different independent variables were used and what the coefficients / standard errors were, etc. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Essentially, I'm looking for something like outreg, except for python and statsmodels. This seems promising but I don't understand how it works:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://statsmodels.sourceforge.net/stable/generated/statsmodels.iolib.summary.Summary.html#statsmodels.iolib.summary.Summary&quot; rel=&quot;noreferrer&quot;&gt;http://statsmodels.sourceforge.net/stable/generated/statsmodels.iolib.summary.Summary.html#statsmodels.iolib.summary.Summary&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To be fully clear here, I wondering how to make tables similar to the example below:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/vxKCD.jpg&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/vxKCD.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="4917" LastEditorUserId="4917" LastEditDate="2016-05-01T18:59:14.653" LastActivityDate="2020-06-12T22:04:29.647" Title="Outputting Regressions as Table in Python (similar to outreg in stata)?" Tags="&lt;regression&gt;&lt;stata&gt;&lt;python&gt;" AnswerCount="3" CommentCount="2" FavoriteCount="13" ContentLicense="CC BY-SA 3.0" />
  <row Id="11775" PostTypeId="1" AcceptedAnswerId="11778" CreationDate="2016-04-29T23:11:59.103" Score="5" ViewCount="148" Body="&lt;p&gt;Whenever I have spare time, I like to go to &lt;a href=&quot;http://bruegel.org/&quot; rel=&quot;noreferrer&quot;&gt;Bruegel&lt;/a&gt; site and check their section on publications in macroeconomics. Here I usually find small publications of 20 something pages. The size is just about right. It's not as difficult as some papers, but it has as much content as one. For me it strikes the exact balance between a small article in the newspaper and a scientific paper.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I was wondering which think-tanks, or which other sources for this type of publications, do you use?  And why?&lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="7833" LastEditDate="2016-04-30T04:12:57.763" LastActivityDate="2019-12-11T17:51:05.750" Title="Which think-tanks on economics do you use to keep up with the news?" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;econometrics&gt;&lt;reference-request&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11776" PostTypeId="2" ParentId="11774" CreationDate="2016-04-30T00:16:46.733" Score="10" Body="&lt;p&gt;You can use code like the following (making use of the as_latex function) to output a regression result to a tex file but it doesn't stack them neatly in tabular form the way that &lt;a href=&quot;https://ideas.repec.org/c/boc/bocode/s456416.html&quot; rel=&quot;noreferrer&quot;&gt;outreg2&lt;/a&gt; does:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;import pandas as pd&#xA;import statsmodels.formula.api as smf&#xA;x = [1, 3, 5, 6, 8, 3, 4, 5, 1, 3, 5, 6, 8, 3, 4, 5, 0, 1, 0, 1, 1, 4, 5, 7]&#xA;y = [0, 1, 0, 1, 1, 4, 5, 7,0, 1, 0, 1, 1, 4, 5, 7,0, 1, 0, 1, 1, 4, 5, 7]&#xA;d = { &quot;x&quot;: pd.Series(x), &quot;y&quot;: pd.Series(y)}&#xA;df = pd.DataFrame(d)&#xA;mod = smf.ols('y ~ x', data=df)&#xA;res = mod.fit()&#xA;print(res.summary())&#xA;&#xA;beginningtex = &quot;&quot;&quot;\\documentclass{report}&#xA;\\usepackage{booktabs}&#xA;\\begin{document}&quot;&quot;&quot;&#xA;endtex = &quot;\end{document}&quot;&#xA;&#xA;f = open('myreg.tex', 'w')&#xA;f.write(beginningtex)&#xA;f.write(res.summary().as_latex())&#xA;f.write(endtex)&#xA;f.close()&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;The as_latex function makes a valid latex table but not a valid latex document, so I added some additional code above so that it would compile. The result is something like this for the print function:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;                        OLS Regression Results                            &#xA;==============================================================================&#xA;Dep. Variable:                      y   R-squared:                       0.129&#xA;Model:                            OLS   Adj. R-squared:                  0.089&#xA;Method:                 Least Squares   F-statistic:                     3.257&#xA;Date:                Fri, 29 Apr 2016   Prob (F-statistic):             0.0848&#xA;Time:                        20:12:12   Log-Likelihood:                -53.868&#xA;No. Observations:                  24   AIC:                             111.7&#xA;Df Residuals:                      22   BIC:                             114.1&#xA;Df Model:                           1                                         &#xA;Covariance Type:            nonrobust                                         &#xA;==============================================================================&#xA;                 coef    std err          t      P&amp;gt;|t|      [95.0% Conf. Int.]&#xA;------------------------------------------------------------------------------&#xA;Intercept      0.9909      0.908      1.091      0.287        -0.893     2.875&#xA;x              0.3732      0.207      1.805      0.085        -0.056     0.802&#xA;==============================================================================&#xA;Omnibus:                        3.957   Durbin-Watson:                   0.999&#xA;Prob(Omnibus):                  0.138   Jarque-Bera (JB):                1.902&#xA;Skew:                           0.380   Prob(JB):                        0.386&#xA;Kurtosis:                       1.849   Cond. No.                         8.50&#xA;==============================================================================&#xA;&#xA;Warnings:&#xA;[1] Standard Errors assume that the covariance matrix of the errors is correctly specified.&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;and like this for the latex:&#xA;&lt;a href=&quot;https://i.stack.imgur.com/dz4Ap.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/dz4Ap.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Update:&#xA;Not as full featured as outreg but the summary_col function does what you ask. &lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;import pandas as pd&#xA;import statsmodels.formula.api as smf&#xA;from statsmodels.iolib.summary2 import summary_col&#xA;x = [1, 3, 5, 6, 8, 3, 4, 5, 1, 3, 5, 6, 8, 3, 4, 5, 0, 1, 0, 1, 1, 4, 5, 7]&#xA;y = [0, 1, 0, 1, 1, 4, 5, 7,0, 1, 0, 1, 1, 4, 5, 7,0, 1, 0, 1, 1, 4, 5, 7]&#xA;d = { &quot;x&quot;: pd.Series(x), &quot;y&quot;: pd.Series(y)}&#xA;df = pd.DataFrame(d)&#xA;df['xsqr'] = df['x']**2  &#xA;mod = smf.ols('y ~ x', data=df)&#xA;res = mod.fit()&#xA;print(res.summary())&#xA;df['xcube'] = df['x']**3  &#xA;&#xA;mod2= smf.ols('y ~ x + xsqr', data=df)&#xA;res2 = mod2.fit()&#xA;print(res2.summary())&#xA;&#xA;mod3= smf.ols('y ~ x + xsqr + xcube', data=df)&#xA;res3 = mod3.fit()&#xA;print(res2.summary())&#xA;&#xA;dfoutput = summary_col([res,res2,res3],stars=True)&#xA;print(dfoutput)&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Which has the following output:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;=====================================&#xA;            y I       y II    y III  &#xA;-------------------------------------&#xA;Intercept 0.9909   -0.6576   -0.2904 &#xA;          (0.9083) (1.0816)  (1.3643)&#xA;x         0.3732*  1.7776*** 1.0700  &#xA;          (0.2068) (0.6236)  (1.6736)&#xA;xcube                        -0.0184 &#xA;                             (0.0402)&#xA;xsqr               -0.1845** 0.0409  &#xA;                   (0.0781)  (0.4995)&#xA;=====================================&#xA;Standard errors in parentheses.&#xA;* p&amp;lt;.1, ** p&amp;lt;.05, ***p&amp;lt;.01&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;As before, you can use the dfoutput.as_latex() to export this to latex. &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2016-05-02T19:55:09.557" LastActivityDate="2016-05-02T19:55:09.557" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11778" PostTypeId="2" ParentId="11775" CreationDate="2016-04-30T04:23:33.300" Score="5" Body="&lt;p&gt;I like also shorter columns, which are based on good academic papers. So, the &lt;a href=&quot;http://voxeu.org/&quot; rel=&quot;noreferrer&quot;&gt;VOX&lt;/a&gt;, CEPR's policy portal is very good. They occasionally take unsolicited columns, but many are based on &lt;a href=&quot;http://cepr.org/content/discussion-papers&quot; rel=&quot;noreferrer&quot;&gt;CEPR&lt;/a&gt; or &lt;a href=&quot;http://www.nber.org/papers.html&quot; rel=&quot;noreferrer&quot;&gt;NBER&lt;/a&gt; working papers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.project-syndicate.org/&quot; rel=&quot;noreferrer&quot;&gt;Project Syndicate&lt;/a&gt; publishes short and interesting op-ed economics articles.&lt;/p&gt;&#xA;" OwnerUserId="6168" LastActivityDate="2016-04-30T04:23:33.300" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11779" PostTypeId="2" ParentId="5025" CreationDate="2016-04-30T05:56:42.283" Score="-2" Body="&lt;p&gt;Deflator in 2000 should be 100 as it your base year. &lt;/p&gt;&#xA;" OwnerUserId="5582" LastActivityDate="2016-04-30T05:56:42.283" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11780" PostTypeId="1" CreationDate="2016-04-30T11:17:18.043" Score="0" ViewCount="152" Body="&lt;p&gt;I´ve been trying to compute a volatility of invesment with currency hedging and I have a question. Let's take this example. We have our money in a fond copying the S&amp;amp;P500 index, which has 16% volatility, we also know that the current volatility of a dollar toward our currency is 5%. We want to know the volatility of the whole invesment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can I compute as following? If so, what is the reason for adding the two deviations instead of mulitplying them considering the volalitity of an index and a currency are mutualy independent.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\sigma=\sqrt{(16^2)+(5^2)}$$&lt;/p&gt;&#xA;" OwnerUserId="8125" LastEditorUserId="43" LastEditDate="2016-04-30T18:28:49.840" LastActivityDate="2016-05-02T15:57:36.890" Title="Volatility of investment: Joint-Volatility of mutually independent variables" Tags="&lt;finance&gt;&lt;statistics&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="11783" PostTypeId="1" CreationDate="2016-04-30T13:03:57.513" Score="-1" ViewCount="53" Body="&lt;p&gt;Suppose I search some elderly people who are in need of domestic care. I find 100 of them and them to pay me 15 dollars per hour. Then I find 100 people who will do the job for 10 dollars per hour. That means I make 500 dollars without doing almost nothing. That´s &lt;em&gt;profit&lt;/em&gt;. The people who I give 10 dollars an hour &lt;em&gt;earn&lt;/em&gt; their money. With my profit, I make the business my property. And the property grows and grows, according to the alleged law that economics needs growth.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now for example, did mr. Gates earn his money with hard working, wich of course he is, but a cleaner of his buildings is also hard working, and you can be sure that she doesn´t earn 60 000 000 000 by working 10 times as long (like the people working on the assembly lines in one of his many production sites, mostly in foreign countries), or did he get it by &lt;em&gt;his&lt;/em&gt; findings of people that would do the job for 10 dollars instead of 15?&lt;/p&gt;&#xA;" OwnerUserId="8103" LastActivityDate="2016-04-30T13:37:34.177" Title="The difference between profit and earning something" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11784" PostTypeId="2" ParentId="11783" CreationDate="2016-04-30T13:37:34.177" Score="2" Body="&lt;p&gt;You are paid 15 dollars each by the elderly. You should count this as your revenue from providing the services of finding 100 domestic care to those elderly. Your are even finding those 100 elderly people. You can't say that you are not doing anything.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Economic systems work on the basis of demand and supply. There is demand of domestic care but keeping in mind the supply, people are willing to provide their services for 10 dollars only. Your services could be rarer than theirs, so you earn more.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sometimes, it may appear that people are working a lot and are paid much lesser than those who don't work that hard. It is not important how much work you are doing or what work you are doing. What decides the price is the intersection of those beautiful demand and supply curves. &#xA;It may not sound appealing but that is how it works.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Anyways, economics is allegedly dismal.&lt;/p&gt;&#xA;" OwnerUserId="5582" LastActivityDate="2016-04-30T13:37:34.177" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="11787" PostTypeId="2" ParentId="11710" CreationDate="2016-05-01T01:26:40.160" Score="1" Body="&lt;p&gt;Game Theory is not quite pure math, but not quite applied math either. A lot of areas within mathematics converge in game theory as well- real analysis and topology, linear programming and polyhedral theory, linear algebra, and graph theory amongst others.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would suggest a senior undergraduate sequence in real analysis, a course in optimization (linear or integer programming), and a graduate course in linear algebra. Some bonus courses are graph theory, a course in algorithm design with an emphasis on complexity, and graduate real analysis (measure theory). Optimization courses generally touch upon polyhedral theory, especially integer programming courses. Granted, economics models tend to be more continuous. Game theorists have become increasingly interested in networks, so graph theory is very nice to have. There are papers in the last ten years that have adopted spectral techniques in networks which makes linear algebra at the graduate level very important.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Really, the advice to major in math is spot on. Econ grad students either have the math background or continually struggle with it. The latter is a bad position in which to be.&lt;/p&gt;&#xA;" OwnerUserId="5368" LastActivityDate="2016-05-01T01:26:40.160" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11788" PostTypeId="1" CreationDate="2016-05-01T05:44:10.067" Score="1" ViewCount="13" Body="&lt;p&gt;I have a question that asks me to explain how the fact that oil rigs/platforms last for a very long time increases the volatility in oil prices. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To me this does not make sense (I just can't understand how having a long lasting asset, effectively making their operations more efficient and less costly, could possibly increase the volatility of prices) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be amazing, thank you :) &lt;/p&gt;&#xA;" OwnerUserId="8130" LastActivityDate="2016-05-01T05:44:10.067" Title="How the long lives of oil platforms can account for the volatility in oil prices?" Tags="&lt;self-study&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11790" PostTypeId="1" AcceptedAnswerId="11795" CreationDate="2016-05-01T09:27:59.833" Score="0" ViewCount="706" Body="&lt;p&gt;I am attempting to find a contract curve for a production economy with two linear utility functions. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Normally, I would find the point where the Marginal Rate of Technical Substitution were equal for the two firms. However, in this case, this does not seem to work (I end up getting an equation of two numbers).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How must I proceed?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is it all places where both functions are equal?&lt;/p&gt;&#xA;" OwnerUserId="7714" LastActivityDate="2016-05-01T18:11:06.903" Title="Contract curve for firms with linear utility functions" Tags="&lt;production-function&gt;&lt;efficient-markets&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11791" PostTypeId="1" CreationDate="2016-05-01T09:49:13.533" Score="1" ViewCount="456" Body="&lt;p&gt;There are two goods $1,2$ and two agents $ 1,2 $. Both have the utility function $ u_{i}=\min({x_{1i},x_{2i}}) $ for agent $i$ .The endowments are $(1,3)$ and $(3,1)$ for agent $1$ and $2$ respectively. I have to solve for the Walrasian equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I found out the demand for $x_{1}$ for both agents and at this point I tried to clear the market for $x_{1}$:&#xA;(setting $p_{1}=1$ and $p_{2}=p$, I get)&#xA;$\frac{1+3p}{1+p}+\frac{3+p}{1+p} = 4$ &#xA; At this point I generally try to solve for the equilibrium price $p$. &#xA;But In this case, Its a trivial equation. What does this mean ? What is the equilibrium price?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sorry if I am not seeing the obvious. I am new to this and dont know much.&lt;/p&gt;&#xA;" OwnerUserId="7710" LastEditorUserId="7710" LastEditDate="2016-05-01T12:20:47.227" LastActivityDate="2017-01-24T08:16:06.590" Title="Doubt regarding Walrasian equilibrium with complements for both agents" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;general-equilibrium&gt;&lt;walrasian&gt;&lt;perfect-complements&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11792" PostTypeId="1" AcceptedAnswerId="11794" CreationDate="2016-05-01T11:15:35.563" Score="13" ViewCount="5411" Body="&lt;p&gt;I was reading that Japan has a debt to gdp ratio of 240pc and I cannot understand why this has not left the country &quot;bankrupt&quot;? From looking at this like an ordinary person this level would be completely unmanageable. Furthermore, considering Greece had problems with its national debt with a debt to gdp ratio of less than 200pc I am not sure how Japan has sustained significantly higher ratio for so long? Therefore my question is what makes a certain level of debt to gdp ratio sustainable? Also who does the government owe the debt to and does it matter who they borrow from? ie domestic vs international.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For interest see the following graph,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/8s0VI.png&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/8s0VI.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="5515" LastEditorUserId="5515" LastEditDate="2016-05-01T11:22:12.820" LastActivityDate="2020-05-21T16:33:59.340" Title="What Level of Government Debt to GDP Ratio is Sustainable?" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;&lt;debt&gt;&lt;national-accounts&gt;&lt;japan&gt;" AnswerCount="9" CommentCount="3" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="11793" PostTypeId="1" CreationDate="2016-05-01T11:41:33.923" Score="5" ViewCount="584" Body="&lt;p&gt;I have aggregate data on $L_t, K_t$ and $X_t$, and want to estimate elasticity of substitution parameters, $\gamma$ and $\sigma$ for these factors. Assuming the production function takes the following form: $$Y_t=(A_lL^{\gamma}+[A_kK_t^{\sigma} +A_xX_t^{\sigma}]^\frac{\gamma}{\sigma})^{\frac{1}{\gamma}}  $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Technology parameters, $A$s are not observable and hence need to be controlled for in an econometric specification. I am thinking of first estimating the parameter, $\sigma$, on the inner CES function combining $K$ and $X$. Then I should be able to estimate the outer CES parameter, $\gamma$. In a way, the two parameters are not jointly estimated. Would this method be valid, I mean, in statistical sense? Will I get consistent and unbiased estimates? &#xA;I've read papers on non-linear regression methods, but was wondering if this simple approach is feasible. &#xA;Thanks.&lt;/p&gt;&#xA;" OwnerUserId="6009" LastActivityDate="2019-03-27T01:15:55.327" Title="Estimating elasticity of substitution in nested CES functions" Tags="&lt;elasticity&gt;&lt;production-function&gt;&lt;elasticity-of-substituion&gt;" AnswerCount="1" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11794" PostTypeId="2" ParentId="11792" CreationDate="2016-05-01T13:03:54.227" Score="12" Body="&lt;p&gt;As you have pointed out: where it comes from is very important. As to the Japanese situation it is quiet different from the US position from example. In fact most of the Japanese debt is owned by Japanese people (90% of the current debt). More specifically the BoJ plays a big role as a buyer, and puts pressure on Japanese yield, which makes it cheaper for the government to issue bonds ! &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another interesting point that is usually left by anlysts: Japan is the biggest creditor in the world. The country holds a net amount of about 3 trillion USD (367 trillion yen) of financial assets through the world, which makes Japan the first creditor worldwide (before China !).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An interesting further reading which gives other information on the Japanese debt under stress tests of the IMF (P.40): &lt;a href=&quot;https://www.imf.org/external/pubs/ft/scr/2015/cr15197.pdf&quot; rel=&quot;nofollow&quot;&gt;https://www.imf.org/external/pubs/ft/scr/2015/cr15197.pdf&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You also might want to read this paper of Rogoff and Reinhart called &quot;&lt;em&gt;Growth in a time of debt&lt;/em&gt;&quot;: &lt;a href=&quot;http://www.nber.org/papers/w15639&quot; rel=&quot;nofollow&quot;&gt;http://www.nber.org/papers/w15639&lt;/a&gt; . It was really criticized but is a good first glimpse... Afterwards you might want to go a little bit deeper into the debt sustainability analysis of the IMF...&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Edit&lt;/h2&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;The reference of Rogoff is more an introduction to the comprehension of debt dynamic than an argument for the existence of a threshold than would reduce growth. On the controversy of the paper, like pointed out by @dv_bn, you can check this intersting article: &lt;a href=&quot;http://www.newyorker.com/news/john-cassidy/the-reinhart-and-rogoff-controversy-a-summing-up&quot; rel=&quot;nofollow&quot;&gt;http://www.newyorker.com/news/john-cassidy/the-reinhart-and-rogoff-controversy-a-summing-up&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;Thanks to @denesp: Whenever you see &quot;first creditor&quot; this usually takes public and private assets into account. However, if you want to analyze the public debt you should only take financial assets owned by the government (mostly T-Bills regarding Japan).&lt;/li&gt;&#xA;&lt;li&gt;I add also an interesting article I have read about it, which was written by economists from the NY FED, check it out: &lt;a href=&quot;http://libertystreeteconomics.newyorkfed.org/2016/06/the-rapidly-changing-nature-of-japans-public-debt.html#.V2qJW2r2aM8&quot; rel=&quot;nofollow&quot;&gt;http://libertystreeteconomics.newyorkfed.org/2016/06/the-rapidly-changing-nature-of-japans-public-debt.html#.V2qJW2r2aM8&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="7833" LastEditorUserId="7833" LastEditDate="2016-06-22T12:53:01.670" LastActivityDate="2016-06-22T12:53:01.670" CommentCount="11" ContentLicense="CC BY-SA 3.0" />
  <row Id="11795" PostTypeId="2" ParentId="11790" CreationDate="2016-05-01T18:11:06.903" Score="0" Body="&lt;p&gt;1.) An economy with two agents who both have linear preferences will always have Pareto optimal points along either the right and bottom edges or the left and top edges of the Edgeworth box. Edges are dictated by the ratio of MRSa,MRSb.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2.) The contract curve is the locus of Pareto Optimal points. &lt;/p&gt;&#xA;" OwnerUserId="1655" LastActivityDate="2016-05-01T18:11:06.903" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11796" PostTypeId="1" CreationDate="2016-05-01T18:34:52.123" Score="0" ViewCount="26" Body="&lt;p&gt;I want to understand when and why multi-way clustering is necessary. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Could anyone give a good example that provides intuition of when and why to use multi-way clustering that also illustrates why clustering at a group level is not sufficient? &lt;/p&gt;&#xA;" OwnerUserId="1655" LastActivityDate="2016-05-02T12:33:00.730" Title="Multi-way clustering" Tags="&lt;econometrics&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11799" PostTypeId="2" ParentId="11792" CreationDate="2016-05-01T20:00:12.080" Score="8" Body="&lt;p&gt;I don't think you can sensibly discuss this without including two additional factors:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;what is the prevailing interest rate?&lt;/li&gt;&#xA;&lt;li&gt;is the debt in local or foreign currency?&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The first affects the cost of repayments. Interest rates are at record lows in the developed world. How much money is it reasonable to borrow at 0%? What about &lt;a href=&quot;http://www.bbc.co.uk/news/business-35436187&quot;&gt;-0.1%&lt;/a&gt;, is there even a limit that could be sensibly applied to such a negative rate, when the more you borrow the more you will be paid to borrow it?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Secondly, debts in local currency, especially hard currencies like the dollar, yen and euro, are much less risky than debts in non-local currency which can be affected by exchange rate shifts.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Further, like with individuals, it's not sensible to assign a single level beyond which you should not go. It should be more of a process of credit scoring. The 'credit score' for governments is effectively the bond yield. During the European crisis of 2008+, bond yields went high. Today the Japanese bond yield is .. negative. Indicating that it's thought safer to lend your money to Japan than to hang on to it as cash or keep it anywhere else.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where are the low rates coming from? People and organizations that are extremely wealthy have a problem. The world has run out of good-yielding investments and safe, high-interest debtors. There is literally no safer way of keeping a hundred billion dollars than lending it to a developed world government. Even if you have to pay them for a privilege. It's safer than keeping it in a bank that might go bust.&lt;/p&gt;&#xA;" OwnerUserId="2922" LastActivityDate="2016-05-01T20:00:12.080" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11800" PostTypeId="2" ParentId="11792" CreationDate="2016-05-01T20:22:28.043" Score="2" Body="&lt;p&gt;The key point is not the Debt/GDP ratio by itself but the sustainability of the debt over time. &#xA;The government borrows money from the market and uses taxes to repay it, as households borrow money from banks and use their income to repay it. &#xA;Before moving on, let's look at a simple debt accumulation equation&#xA;&lt;a href=&quot;https://i.stack.imgur.com/8LdcY.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/8LdcY.png&quot; alt=&quot;Inter temporal debt dynamics&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where b(t+1) is the debt/GDP ratio in period t+1. It depends in s, that is the primary surplus of the government, r, that is the real interest rate, and gamma, the growth rate of the economy. In Japan the debt/GDP ratio is high but they also have very low real interest rates and a primary surplus which allow them to repay the debt. On the contrary Greece, accumulated to much debt enjoying the low interest rates granted by the Euro. When the crisis hit, markets lost confidence on Greece's ability to pay back. Thus they sell off their bonds. Interest rates sky-rocketed and because of the economic crisis the growth felt down. Moreover, the government had, and still have, many problems in collecting taxes. Therefore, Greek debt is more unstable and dangerous than the Japanese one, even if it is lower both in relative and absolute terms.&#xA;In a nutshell, default arises when you run out of money for repaying interests regardless of the amount of the outstanding debt. &#xA;Nonetheless, Japan is in trouble. The more the debt growths, the more budget resources will be allocated to repay interests. Hence, forcing the government either to increase taxes or reduce spending in other areas, something that is politically difficult. Anyway I suggest you to watch this video, it gives a roughly idea of what is going on there&#xA;&lt;a href=&quot;https://www.youtube.com/watch?v=Njp8bKpi-vg&quot; rel=&quot;nofollow noreferrer&quot;&gt;Japan's Debt Problem Visualized&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regarding your question on domestic vs international creditors, they are important when the government wants to decide whether to default or not. The more debt is owned by resident the more costly is going to be to default as your citizens would bare the loss. And, in any case, the government has to pay back interest regardless of the nationality of the creditor. &lt;/p&gt;&#xA;" OwnerUserId="8133" LastActivityDate="2016-05-01T20:22:28.043" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11801" PostTypeId="1" AcceptedAnswerId="12082" CreationDate="2016-05-01T22:46:29.260" Score="4" ViewCount="485" Body="&lt;p&gt;Common goods, (not public) are so because they are non-excludable and rival.  Often this reflects the impracticality of excluding some users, rather than an absolute impossibility. For example, a park is public because it's impractical to be charging everybody that derives a benefit from using it. However, if it becomes easy to track who uses the park,  for how long,  who looks at the parks,  etc. then the park could be financed privately! &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Gadgets that track people's use of different goods could change which ones we deem to be excludable and which ones non-excludable....&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A basic example is toll roads. If we mount GPS's on all cars and figure out how much tim they spend on the road, we could charge people for their use of streets directly. No more publicly financed road construction!&lt;/p&gt;&#xA;" OwnerUserId="7593" LastEditorUserId="7593" LastEditDate="2016-05-19T03:21:20.893" LastActivityDate="2016-05-19T13:19:17.293" Title="Is information technology going to turn most &quot;common goods&quot; into private goods?" Tags="&lt;taxation&gt;&lt;public-economics&gt;&lt;technology&gt;&lt;public-goods&gt;" AnswerCount="2" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11802" PostTypeId="1" CreationDate="2016-05-02T02:39:40.773" Score="1" ViewCount="475" Body="&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;What is the difference between OER vs PPP? What fundamentally drives them? Shouldnt an arb opportunity exist and wouldnt that difference then go away? My understanding of OER is the official nominal exchange rate that is quoted by banks and is used by travelers to exchange money. PPP is an estimated exchange rate that is a function of the same good that is sold in different countries (causes being difference in costs/living standards). Is PPP the &quot;real&quot; exchange rate? For a given product, say a hamburger and OER rates of A:B of 10:1, let's say that we can buy 5 hamburgers in A at 20 units of A currency for a total value of 100 A dollars. If we bring them to B and in B, hamburgers are worth 3 units B currency, then our 5 hamburgers are now worth 15 B. If we use the OER to convert back to A, then we would have 150 A of value. Shouldn't this arb go away?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;GDP numbers (nominal or real) from various countries are usually reported in their own currency. If one wanted to compare GDP between countries, one would have to use an exchange rate to convert to some common currency. What exchange rate should be used (OER vs PPP... and are there others?) and which GDP (nominal vs real) should be used? My intuition is that OER is usually use and its on nominal GDP (since real is usually indexed but its still possible to compare real by taking inflation and exchange rates into account based on difference between the two years that real GDP are indexed to?)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;How do interest rates and inflation affect currency strength (in general?)?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Apologies if these are simple macro concepts. I have a limited understanding&lt;/p&gt;&#xA;" OwnerUserId="8141" LastActivityDate="2017-02-01T02:21:55.433" Title="Questions on comparing GDP between various countries" Tags="&lt;currency&gt;&lt;gdp&gt;&lt;exchange-rates&gt;&lt;purchasing-power-partity&gt;" AnswerCount="3" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11803" PostTypeId="2" ParentId="11801" CreationDate="2016-05-02T06:55:12.243" Score="0" Body="&lt;p&gt;A public good by definition is non excludable and does not create conflict among consumers. Nowhere it says that public good is always provided by government. It is the characteristic of the good itself not the provider. &#xA;In your example of the park setting, one can actually exclude people, however, one still cannot exclude people from the positive externalities of the park.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Same way, think of highways. They appear to be public good but think of the toll booths. These highways may be operated and maintained under a public private partnership and those private or public players may collect toll from you. They are not public good in the pure sense. As mentioned in one comment they could be called club good. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;National defense is one typical example of pure public good. You provide it to one individual and you end up providing it to all. Hence, it is provided by the government as government only has the unique authority to collect taxes for all such services. Now, even if you develop technologies to exclude people from national security you cannot achieve it. A private player cannot collect something like 'national security surcharge' and cannot throw citizens who don't pay it, out of the nation .&lt;/p&gt;&#xA;" OwnerUserId="5582" LastEditorUserId="5582" LastEditDate="2016-05-02T07:14:35.603" LastActivityDate="2016-05-02T07:14:35.603" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="11804" PostTypeId="2" ParentId="11792" CreationDate="2016-05-02T08:09:04.933" Score="-4" Body="&lt;p&gt;The current monetary/financial system is unsustainable. Exploding debt is the unavoidable outcome of a &lt;a href=&quot;http://www.zerohedge.com/news/2015-02-02/100-trillion-global-debt-ponzi-scheme&quot; rel=&quot;nofollow noreferrer&quot;&gt;Global Debt Based Ponzi Scheme&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Commercial banks create the money as debt. All money is debt. Only the principal is created, not the interest payments, so there is always more debt than money. No way to pay it back unless we end the real economy and all start working for the banks that create the money. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Fiat debt based monetary systems have a finite life span. On average it takes around 27 years before fiat money returns to intrinsic value zero.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The human race has a lot of experience with these type of monetary systems. I think there are around 227 cases documented, each time the result is the same.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This time we have tried it on a global scale. All currencies including the reserve currency dollar are fiat debt based.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However poor the results this is still the preferred system. It is preferred by the elites that own the sleep walking masses.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The negative rates are a clear sign that we are near the end of the current system. As the masses are still vast asleep it will be replaced by a similar system. This is the price of ignorance.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;See the &lt;strong&gt;1988&lt;/strong&gt; cover of the Rothschild publication The Economist. It show a Phoenix standing on burning money, predicting a new world currency in 2018.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is the currency for global enslavement and it is still right on schedule.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/5aCcI.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/5aCcI.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="8145" LastActivityDate="2016-05-02T08:09:04.933" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11805" PostTypeId="2" ParentId="11792" CreationDate="2016-05-02T10:03:15.477" Score="3" Body="&lt;p&gt;There is a key factor determining a country's likelihood of default which has only become a research topic in the last decade or two: The quality of its government, in particular the prevalence of corruption. (Interestingly, the type of government -- democracy, autocracy -- is comparatively unimportant.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Greece has a poor political system; cronyism and corruption are wide-spread. Japan's government, by contrast, works very well (although certainly conflicts of interest for example concerning the regulation of nuclear industry have come to light). So far Japan's creditors trust the country to repay; Greece's are not so sure.&lt;/p&gt;&#xA;" OwnerUserId="8148" LastActivityDate="2016-05-02T10:03:15.477" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11807" PostTypeId="2" ParentId="11771" CreationDate="2016-05-02T14:44:43.237" Score="0" Body="&lt;p&gt;The actual details of the auction and so on are interesting, but in principle there is no magic. Its just demand and supply:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is a number of agents that can supply or demand treasury bonds as well as other bonds. There's the government that issues the treasuries, the Fed that sometimes holds them, sometimes sells them, investors of all kinds( brokers, pension funds, individuals, money market funds, etc). All these agents want to sell more if they deem the price high(rates too low) and they want to buy if they deem the price is low (rates too high). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;When supply shrinks, then agents that want to buy these assets bid up their prices (bid down the rates). similarly, when supply expands then the price falls (the rate rises) as the buyers bid down the  prices after observing the quantity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To push up an interest rate, the fed will sell bonds. This will increase supply, until the price falls (i.e. until the rate rises).  To push down an interest rate, the fed will buy bonds. This will decrease supply, until the price increases (i.e. until the rate falls).&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;I am curious, though: what if in the case of &quot;raising rates&quot;, the Fed wants to sell securities but no bank wants to buy them? And, why wouldn't a bank buy securities anywhere else?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;If no bank wants to buy the securities, but the fed is trying to sell them, then their price would go down, down, down, increasing the rate, until somebody wants them. If this rate is too high for the Fed, then it can instead buy these securities, lowering the market rate. In principle, if nobody wants to buy it means they are willing to sell, if nobody wants to sell it means they are willing to buy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The banks can buy securities wherever they want, but the rates of all securities are closely related to each other. If the fed lowers rates on Treasuries, the rates on corporates, munies, etc, are all going to follow suit, at least to some extent. This is because the securities are all close substitutes of each other, so if you were thinking of buying a treasury, but its price increases, you go and, for example, you try to buy a muni, thereby increasing its price too.&lt;/p&gt;&#xA;" OwnerUserId="7593" LastEditorUserId="7593" LastEditDate="2016-05-14T19:26:23.733" LastActivityDate="2016-05-14T19:26:23.733" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11809" PostTypeId="2" ParentId="11780" CreationDate="2016-05-02T15:57:36.890" Score="1" Body="&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Variance#Sum_of_uncorrelated_variables_.28Bienaym.C3.A9_formula.29&quot; rel=&quot;nofollow&quot;&gt;The variances of the sum of independent random variables are additive&lt;/a&gt;. Therefore, if X and Y are independent, Var(X+Y)= Var(X) + Var(Y). The standard deviation is defined as $\sigma_z = \sqrt{Var(z)}$. Therefore, if X and Y are independent, $\sigma_{X+Y} = \sqrt{Var(X+Y)} = \sqrt{Var(X) + Var(Y)}$. This gives the result above. &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2016-05-02T15:57:36.890" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11812" PostTypeId="2" ParentId="11802" CreationDate="2016-05-02T20:13:34.163" Score="1" Body="&lt;p&gt;&lt;strong&gt;Answer to question 1:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;OER is an actual price set by the government. The real exchange rate or RER (That´s how people typically call it) is a ratio of prices of goods, as you mention. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The arbitrage does not go away because the goods in the RER calculation are not completely tradable. The PPP &lt;em&gt;among tradable goods&lt;/em&gt; is closer to 1 (meaning the PPP exchange rate among tradable goods is closer to the OER). You can´t trade hamburgers, they get cold, mushy....&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Moreover, goods and services are not the only thing being traded across countries. You also trade capital. So a country that is in vogue for international investors will see lots of demand for its capital, raising the price of everything denominated in its exchange rate. So its goods and services look expensive, but its not that things are in disequilibrium its just a disequilibrium in the goods and services part of the balance of payments, that is balanced by another disequilibrium in the capital part of the balance of payments.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Answer to question 2:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Use nominal GDP, in Dollars or in PPP Dollars. Use dollars if you care about dollars, for example if you want to figure out the likely market size for your good which is produced in the US. Use PPP dollars if you care about local living conditions. PPP adjusted (per capita) GDP is a good way to figure out (economic) living conditions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Answer to question 3:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;High rates should imply higher returns to investors that provide liquidity to the local economy, so they should be connected with a more appreciated currency. High inflation lowers the expected future value of the currency, so it should make holding the currency less desirable instead. This should lead to a more depreciated currency.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, the answer quickly gets more complicated if you add expectations and monetary policy to the mix. For example, an increase in interest rates that will lead to an expectation of a slowdown in the economy and very low future rates might depreciate the currency; high inflation that will lead to an expectation of a big monetary policy contraction raising interest rates, might appreciate the currency.&lt;/p&gt;&#xA;" OwnerUserId="7593" LastEditorUserId="2776" LastEditDate="2017-02-01T02:21:55.433" LastActivityDate="2017-02-01T02:21:55.433" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11813" PostTypeId="2" ParentId="11802" CreationDate="2016-05-02T20:17:30.480" Score="0" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;GDP numbers (nominal or real) from various countries are usually reported in their own currency. If one wanted to compare GDP between countries, one would have to use an exchange rate to convert to some common currency. What exchange rate should be used (OER vs PPP... and are there others?) and which GDP (nominal vs real) should be used? My intuition is that OER is usually use and its on nominal GDP (since real is usually indexed but its still possible to compare real by taking inflation and exchange rates into account based on difference between the two years that real GDP are indexed to?)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Use nominal GDP, in Dollars or in PPP Dollars. Use dollars if you care about dollars, for example if you want to figure out the likely market size for your good which is produced in the US. Use PPP dollars if you care about local living conditions. PPP adjusted (&lt;em&gt;per capita&lt;/em&gt;) GDP is a good way to figure out (economic) living conditions.&lt;/p&gt;&#xA;" OwnerUserId="7593" LastActivityDate="2016-05-02T20:17:30.480" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11816" PostTypeId="2" ParentId="11765" CreationDate="2016-05-02T23:44:20.237" Score="4" Body="&lt;p&gt;A recently published (and perhaps the only one) paper on the matter is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://hope.dukejournals.org/content/44/4/643.short&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;strong&gt;Lloyd, P. (2012). The Discovery of the Isoquant. History of Political Economy, 44(4), 643-661.&lt;/strong&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From the Introduction :&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;The absence of a history of the isoquant is in marked contrast to the universal recognition that F. Y. Edgeworth (1881) invented the&#xA;  concept of the indifference curve. It turns out that the isoquant does&#xA;  have an interesting history of multiple discoveries or apparent&#xA;  discoveries. Section 1 outlines the first appearances of the isoquant,&#xA;  as far as I have been able to trace them, in chronological order. The&#xA;  contributions of two originators, namely, A. L. Bowley and Charles W.&#xA;  Cobb, seem not to have been noted before. Section 2 discusses the&#xA;  obvious question of why the discovery of the isoquant was not made&#xA;  until more than forty years after the discovery of the indifference&#xA;  curve, when to a modern analyst the isoquant appears isomorphic to the&#xA;  indifference curve and could have been copied straight from utility&#xA;  theory.&quot;&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In Section 1 we read (p.645)&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;The first unquestionable appearance of isoquants is in Bowley 1924&quot;&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;(Bowely, A. L. 1924. The Mathematical Groundwork of Economics: An Introductory Treatise. Oxford: Clarendon Press)&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lloyd reproduces the figure to be found in Bowley:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/MX7uN.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/MX7uN.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for the term &quot;isoquant&quot; Lloyd writes&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;&quot;In his second note on the elasticity of substitution in the same&#xA;journal, Lerner (1934) called the curve the “isoquant.” This is one of the&#xA;first uses of the term isoquant in the English-language literature.&lt;/em&gt;&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;(Lerner A.P. 1934. “Notes on Elasticity of Substitution II.” Review of Economic Studies 1(2): 147–48.)&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As regards the question &quot;why isoquants took so long after the indiferrence curves invention&quot;, from the three possible (and not antagonistic) explanations that Lloyd puts forward I find very interesting the third one: in his words (p. 658) (bold my emphasis)&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;Following the practice of the English classical writers, &lt;strong&gt;all&lt;/strong&gt; neoclassical writers on production and distribution theory&#xA;  distinguished a &lt;strong&gt;trilogy of factors—land, labor, and capital&lt;/strong&gt;.&quot;&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So if your mind is fixed to thinking &lt;em&gt;three&lt;/em&gt; inputs, (and a very realistic triplet at that), you won't go easily into thinking just two of them  -and realize that you can represent them graphically.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2016-05-02T23:50:07.520" LastActivityDate="2016-05-02T23:50:07.520" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11817" PostTypeId="1" CreationDate="2016-05-03T00:19:15.800" Score="6" ViewCount="213" Body="&lt;p&gt;Many governments try to decrease savings in the economy so that recessions do not occur. Does it make sense for savings and poverty to coexist though at significant scales?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's say a population was both in widespread poverty and they had savings. If they had unmet needs, they would spend their money on those needs. This would occur until either savings where expended or the needs where met.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If savings where bad and caused poverty, it would eliminate itself it seems. So either it is bad, but doesn't need to be discouraged since it eliminates itself, or is good and doesn't need to be discouraged.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I guess the problem could be if savings where uneven, but then&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;That doesn't mean savings are universally bad, just savings of the non-poor.&lt;/li&gt;&#xA;&lt;li&gt;If there is a recession, people will have less money to buy things, and so things will need to be sold for less. This will encourage people with savings to spend.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="5716" LastActivityDate="2017-01-10T15:05:08.387" Title="Can savings and poverty coexist?" Tags="&lt;poverty&gt;&lt;saving&gt;" AnswerCount="2" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11820" PostTypeId="2" ParentId="11817" CreationDate="2016-05-03T09:15:35.657" Score="4" Body="&lt;p&gt;First we must address the nature of savings. Savings are not bad or good &lt;em&gt;per se&lt;/em&gt;. It depends on the context. It is true that in the short run, increased savings will lower consumption, thereby lowering GDP. However savings also increase investment, which in the long run increases economic growth. Therefore, the optimal savings rate is found by solving the trade-off between the short and long-term. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you are interested only in the short-term (GDP right now and a few periods more) then you would see savings as bad. If you are interested only in the long-term you would see savings as good. If you are interested in both, then it is ambiguous.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The optimal savings rate is certainly not 0 for a standard economy. One way the optimal savings rate is characterized is through the so-called &quot;&lt;em&gt;golden rule&lt;/em&gt;&quot; in a simple Solow growth model. You might want to look this up.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Empirically, we typically observe that most countries save too little, i.e. are below the golden rule savings rate. If you are below the optimal rate, whatever that may be, then more savings are good. If you are above it, then more savings are bad. Hence, it is not straightforward to make a case about the desirability of savings.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your second question was about poverty and savings. Yes, they can and do coexist empirically. In fact, many economists are puzzled why savings rates are so low in poor countries, since more savings increase growth over the long-term. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To see why savings and poverty can coexist, you must think about the reason we have savings. Individuals save more today, so that they can consume more tomorrow. Hence, you cannot really detach the two completely and say that savings are bad. Imagine a poor country that is primarily agricultural, as is often the case. Farmers there make money a few times a year, maybe once or twice, when the crops are sold. However, they must live off this money for the whole year. The only way to make sure you can survive the winter is to save money from crop sales. Furthermore, the poor also need to make big purchases in the future and the only way to do so is to save. E.g. they are poor, but must save up for a wedding, etc. Or they need to buy fertilizer for the next season and the only way to do so is to save enough money. All these things are possible as long as death from starvation is not an imminent threat, which for the majority of poor people today it is not.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Savings do not exclusively occur when all other current consumption needs are totally met, as it seems to be implied in your question. In fact, they can never truly be met, as ressources are scarce. Savings are instead determined by the optimal decision of how much to consume today vs. tomorrow, or how many of my needs to leave unfulfilled today vs. how many unfulfilled tomorrow. Hence the fact that poor people cannot fulfill all their needs today does not imply that they should not save, since they also think about the future and how to fulfill those needs tomorrow. Think of surviving on an island with limited food. You would likely consume a bit everyday and be hungry in order to survive, than eat everything in one day, be full and then die in a few days.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastEditorUserId="5557" LastEditDate="2017-01-10T15:05:08.387" LastActivityDate="2017-01-10T15:05:08.387" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11821" PostTypeId="1" CreationDate="2016-05-03T14:35:58.300" Score="1" ViewCount="364" Body="&lt;p&gt;Does anyone know how to do VAR historical decomposition of a series in R?&lt;/p&gt;&#xA;" OwnerUserId="8156" LastEditorUserId="1601" LastEditDate="2016-05-03T16:01:51.770" LastActivityDate="2016-05-03T16:01:51.770" Title="SVAR Historical decomposition" Tags="&lt;econometrics&gt;&lt;dsge&gt;&lt;r&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11823" PostTypeId="2" ParentId="9573" CreationDate="2016-05-03T16:11:20.593" Score="1" Body="&lt;p&gt;Its legal to borrow and lend money, but if you become anything close to a bank, (take deposits, make loans, take risks, make a business out of it) then you will be regulated. You will be insured by the FDIC, and since you are insured, you will then be required to follow certain guidelines regarding how you asses risk and which risks you can take or not. Moreover, they will not be allowed to lose money in a large scale, so they would have to recapitalize the 'bank' after any of the charitable projects swallows up capital.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So to answer your question, they would not have more wealth, but they would manage a bigger pot of capital with which to invest. However, at some point they will lose the freedom of doing whatever they want. Since its not their money, then they can't do whatever they want. &lt;/p&gt;&#xA;" OwnerUserId="7593" LastActivityDate="2016-05-03T16:11:20.593" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11824" PostTypeId="2" ParentId="10586" CreationDate="2016-05-03T16:37:12.763" Score="3" Body="&lt;p&gt;@GraemeWalsh, another option is to use nonlinear least squares to estimate the elasticitiy of substitution, $\sigma$. This is what you want to estimate. The rest is either assumption or data. If you assume the technology is directed i.e. induced, you should use Box-Cox transformation of technology growth so that factor augmenting technological change grows at varying rates over time. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Values of $\gamma$ depend on the average growth rate of output and how you want the technological progress to be augmented. If you think labour-augmentation was strong, then choose a value that is close to actual average rate of output growth for $\gamma_N$, something smaller for the growth rate of the capital augmenting tech growth rate $\gamma_K$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\pi$s are constant share parameter.I do not know much about normaisation except that it should be chosen with reference to a common time period. You could normalise all the variables and parameters using the first period, or any other. Alternatively, use non-linear methods of estimation. You could try using &lt;a href=&quot;https://cran.r-project.org/web/packages/micEconCES/vignettes/CES.pdf&quot; rel=&quot;nofollow&quot;&gt;micEconCES&lt;/a&gt; package in R.&lt;/p&gt;&#xA;" OwnerUserId="6009" LastEditorUserId="6009" LastEditDate="2016-05-05T09:52:49.977" LastActivityDate="2016-05-05T09:52:49.977" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11827" PostTypeId="1" AcceptedAnswerId="11833" CreationDate="2016-05-03T19:47:01.210" Score="2" ViewCount="2190" Body="&lt;p&gt;I will begin by saying that I have very little knowledge about economics, so don't make any presumptions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My problem is that I want to calculate the actual value of gold in Swedish Krona(SEK) for the last 15 years, accounting for the overall inflation.&#xA;I have calculated some average prices as well as having researched the inflation rate of the Swedish Krona. The information is listed below.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Average Price/Gram&lt;/strong&gt;&lt;br&gt;&#xA;Year 2000: 81,21 kr&lt;br&gt;&#xA;Year 2001: 89,90 kr&lt;br&gt;&#xA;Year 2002: 96,54 kr&lt;br&gt;&#xA;Year 2003: 94,65 kr&lt;br&gt;&#xA;Year 2004: 96,89 kr&lt;br&gt;&#xA;Year 2005: 105,63 kr&lt;br&gt;&#xA;Year 2006: 144,82 kr&lt;br&gt;&#xA;Year 2007: 149,54 kr&lt;br&gt;&#xA;Year 2008: 179,83 kr&lt;br&gt;&#xA;Year 2009: 236,83 kr&lt;br&gt;&#xA;Year 2010: 279,83 kr&lt;br&gt;&#xA;Year 2011: 324,20 kr&lt;br&gt;&#xA;Year 2012: 363,68 kr&lt;br&gt;&#xA;Year 2013: 299,28 kr&lt;br&gt;&#xA;Year 2014: 275,83 kr&lt;br&gt;&#xA;Year 2015: 315,10 kr&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Yearly Inflation&lt;/strong&gt;&lt;br&gt;&#xA;Year 2000: 0,98%&lt;br&gt;&#xA;Year 2001: 2,66%&lt;br&gt;&#xA;Year 2002: 2,08%&lt;br&gt;&#xA;Year 2003: 1,27%&lt;br&gt;&#xA;Year 2004: 0,28%&lt;br&gt;&#xA;Year 2005: 0,88%&lt;br&gt;&#xA;Year 2006: 1,64%&lt;br&gt;&#xA;Year 2007: 3,45%&lt;br&gt;&#xA;Year 2008: 0,90%&lt;br&gt;&#xA;Year 2009: 0,58%&lt;br&gt;&#xA;Year 2010: 2,34%&lt;br&gt;&#xA;Year 2011: 2,29%&lt;br&gt;&#xA;Year 2012: -0,05%&lt;br&gt;&#xA;Year 2013: 0,14%&lt;br&gt;&#xA;Year 2014: -0,31%&lt;br&gt;&#xA;Year 2015: 0,05%  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, I request nothing more than a methodology. If you know of a somewhat accurate formula that would result in inflation adjusted values, please do share.&#xA;Please remember to also include an example of how you would make use of it. Thank you for your time and effort.&lt;/p&gt;&#xA;" OwnerUserId="8166" LastActivityDate="2016-05-04T04:30:51.730" Title="How do I adjust for inflation?" Tags="&lt;inflation&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11828" PostTypeId="1" CreationDate="2016-05-03T21:39:20.027" Score="6" ViewCount="284" Body="&lt;p&gt;In reading several macro textbooks, it seems that most of the supply-side policies tend to be focused on the labour supply side (wage setting curve), instead on the firm/labour demand side(price setting curve).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In most textbooks, this whole section is devoted to training programmes, wage accords, income policies, the degree of 'coordination' in unions of the economy, etc. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Almost very few pages,or paragraphs, are dedicated to price-push factors, for the exception of the usual chapter on the oil shocks in the late 70's, which can be seen as labour productivity shock. Almost nothing is said about improving competition, and whatever else can be considered as price-push factor.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why is that? I maybe wrong, though.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some may say that there's no too much stress, since the relevant policies are already studied in the field of Industrial Organization. However, my reply to this, is that there's also a field called Labour Economics where many of the effects of the policies for the WS curve are studied, and yet macro textbooks still cover them. Hence, there's clearly an unbalanced exposition in most macro textbooks...&lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="118" LastEditDate="2016-08-02T18:23:28.827" LastActivityDate="2021-04-09T07:06:55.740" Title="Labour markets and supply-side policies: too much stress put on the WS push factors?" Tags="&lt;macroeconomics&gt;&lt;labor-economics&gt;&lt;industrial-organisation&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11829" PostTypeId="1" AcceptedAnswerId="11835" CreationDate="2016-05-03T21:49:09.087" Score="0" ViewCount="40" Body="&lt;p&gt;When considering a nations debt, how does it affect the nation whether its debt is held by national or international creditors? If there is preference does this translate into different prices for the debt?&lt;/p&gt;&#xA;" OwnerUserId="5515" LastEditorUserId="5515" LastEditDate="2018-08-11T13:01:16.387" LastActivityDate="2018-08-11T13:01:16.387" Title="Differences between international and national creditors" Tags="&lt;macroeconomics&gt;&lt;international-trade&gt;&lt;international-economics&gt;&lt;government-debt&gt;&lt;debt&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11830" PostTypeId="1" CreationDate="2016-05-03T22:05:46.187" Score="1" ViewCount="14" Body="&lt;p&gt;I was watching a show on economics, and the guests stated that the way structural deficits measured by the IMF and European Comission usually give antagonic values, and worse, the corrections made to previous estimations may in fact indicate that previous advised policy was in fact wrong and in the opposite sense.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Well, I'm looking for some references that show how both institutions measure structural deficits, and why are they problematic.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="118" LastActivityDate="2016-05-03T22:05:46.187" Title="How are strutural deficits measured by the EU comission and by the IMF?" Tags="&lt;macroeconomics&gt;&lt;reference-request&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11831" PostTypeId="1" CreationDate="2016-05-03T22:11:31.937" Score="6" ViewCount="1226" Body="&lt;p&gt;Trying to understand some of the core mechanics of &lt;a href=&quot;https://en.wikipedia.org/wiki/Three-sector_theory&quot; rel=&quot;nofollow&quot;&gt;tertiarization&lt;/a&gt; in developed economies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;According &lt;a href=&quot;http://bit.ly/1T02AEA&quot; rel=&quot;nofollow&quot;&gt;to the WorldBank&lt;/a&gt;,&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;As incomes continue to rise, people’s needs become less “material”&#xA;  and they begin to demand more services—in health, education,&#xA;  entertainment, and many other areas. &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Meanwhile, labor productivity in services does not grow as fast as it&#xA;  does in agriculture and industry because most service jobs cannot be&#xA;  filled by machines. This makes services more expensive relative to&#xA;  agricultural and industrial goods, further increasing the share of&#xA;  services in GDP.&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Trying to understand in a bit more detail some of these claims though, such as:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Why does higher income imply less &quot;material&quot; demands, i.e. products specifically formatted as services rather than goods (couldn't rich people in theory just crave more expensive pharmaceutical drugs, textbooks, and gaming consoles, rather than associated healthcare, education, and entertainment services)? &lt;/li&gt;&#xA;&lt;li&gt;Why can't most service jobs be filled by machines?  Does this just mean as technology stands today (vs. roombas, retail kiosks, self-driving cars, etc.)?  What if any inherent characteristics of services make them more difficult to automate?&lt;/li&gt;&#xA;&lt;li&gt;Why does inefficient production make services more expensive, and this make them a higher percentage of GDP?  (Here I'm just trying to understand the economic principles involved)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Thanks!&#xA;Benji&lt;/p&gt;&#xA;" OwnerUserId="8096" LastEditorUserId="7593" LastEditDate="2016-05-04T20:38:01.920" LastActivityDate="2018-11-11T23:13:09.553" Title="Understanding Tertiarization of the Economy" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;&lt;economic-growth&gt;&lt;technology&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11832" PostTypeId="2" ParentId="11831" CreationDate="2016-05-04T00:30:24.797" Score="2" Body="&lt;p&gt;I' m not sure its a law, its what has happened because manufacturing productivity has moved faster. Indeed, the robot economy might well get rid of most service jobs and we'll all be making or programming service robots for each other.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's related to this paper &lt;a href=&quot;http://www3.nd.edu/~jkaboski/BK_AER_Final.pdf&quot; rel=&quot;nofollow&quot;&gt;Buera-Kaboski, Rise of the Service Economy&lt;/a&gt; &#xA;But here are some potential explanations:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Maybe after you eat and get dressed you want to be entertained. Entertainment needs novelty, creativity, showmanship, etc. These will always be services because they are a constantly changing stream that needs to be adapted. Imagine a machine that produces new TV shows for you. You would still buy a stream of new ideas for the machine to produce TV shows with contemporary content.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Maybe its best understood as a relative statement. Richer people/countries can have a consumption level that demands more tailoring and specialization that existing manufactured goods provide: Gap produces all kids of clothing, but you want something just a little more specific for you, a tailored suit that's better than the off the shelf one. Naturally, tailored, consumer specific consumption is more a service than a good, because in its nature it is not mass-produced.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;In general, goods are produced for the masses, (Bill Gates cannot buy a better iphone than you can), so as a country gets rich, it moves towards services....&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Why does inefficient production make services more expensive, and this make them a higher percentage of GDP? (Here just trying to understand the economic principles involved)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This seems counterintuitive right?: Why would they become a larger part of the economy if they are inefficient? Clearly, this depends on the exact substitutability of products and the rate of satiation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, in principle, its not difficult to imagine how this happens. Suppose we can only eat about 2000 kilo-calories a day. Back when we were eating 1000 kc/d, increasing farm productivity increased out consumption of food, and potentially the size of our income we devoted to food until we hit the 2000 kc/d. But as farm productivity increases more, we eat the same, but it costs less and less to produce it, so we devote less and less of or budget to it. Which means we devote more and more to services...&lt;/p&gt;&#xA;" OwnerUserId="7593" LastEditorUserId="7593" LastEditDate="2016-05-04T15:45:49.673" LastActivityDate="2016-05-04T15:45:49.673" CommentCount="9" ContentLicense="CC BY-SA 3.0" />
  <row Id="11833" PostTypeId="2" ParentId="11827" CreationDate="2016-05-04T03:40:31.287" Score="6" Body="&lt;p&gt;First it would be about the index used to take account inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are different indexes for calculating inflation, for example there could be by national prices for consumer or national prices for producer or other references as index calculations. Every index has its own methodology.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To take this example and crunch it with the numbers provided we'll assume the inflation was calculated with the National prices for consumer with a basic market basket of prices for swiss on the different periods and then the inflation was calculated by the change of values in the index for every period.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Taken this on account note that inflation is a percentual change of a wide selected prices or quantities change depending on the methodology.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the inflation shown in your data comes from a change on index, the base index from wich the changes will be calculated generally has to be a period of realtive economic estability.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this case we'll assume the base period as year 2000 because is the starting period of your data. The Index for base period will be 100.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Year        2000&lt;br&gt;&#xA;  Inflation   .98%&lt;br&gt;&#xA;  Index       100&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;From there we will calculate the value of the other indexes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To do this we aply the aritmethic formula  &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;(%Inflation+1)*(Prior year index)&lt;/p&gt;&#xA;  &#xA;  &lt;blockquote&gt;&#xA;    &lt;p&gt;For example &lt;/p&gt;&#xA;  &lt;/blockquote&gt;&#xA;  &#xA;  &lt;p&gt;2001 Index will be = (1+.0266)*(100) = 102.66&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;2002 Index will be = (1+.0206)*(102.66) = 104.77&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;2003 Index will be = (1+.0127)*(104.77) = 106.11&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The running totals are :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/fAbMh.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/fAbMh.png&quot; alt=&quot;Index_Infaltion_table&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Having the index values then we can take the price of a commoditie or a service we want to take inflation on by account. The price with inflation is called &quot;Nominal Price&quot; and the one without inflation is &quot;Real Price To do this we employ the arithmetic formula:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;(Nominal Price for Selected Year)*((Index of year selected)/(Index of base year))&lt;/p&gt;&#xA;  &#xA;  &lt;blockquote&gt;&#xA;    &lt;p&gt;For 2000 Real Price = (81.21)*(100/100) = 81.21&lt;/p&gt;&#xA;    &#xA;    &lt;p&gt;For 2001 Real Price = (89.9)*(102.66/100) = 92.29&lt;/p&gt;&#xA;    &#xA;    &lt;p&gt;For 2002 Real Price = (96.54)*(104.77/100) = 101.15&lt;/p&gt;&#xA;  &lt;/blockquote&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The Running Totals would be&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/7g1h2.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/7g1h2.png&quot; alt=&quot;Nominal Price vs Real Price&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I hope the explanation was not that technical or that thedious, we can enter in more detail or less detail but i guess this would be right.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can apply the same methodology for montly or quarterly basis&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now you can see than given the general level of prices on swiss economy 2012 was the Peak year on real prices for the selected period.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But 'ill add that given that we live on a world economy and the price of gold is fixed by international exchanges betweeen coutries a theoritical calculation of the real price involves currency exchanges and more theory.&lt;/p&gt;&#xA;" OwnerUserId="8170" LastEditorUserId="8170" LastEditDate="2016-05-04T04:30:51.730" LastActivityDate="2016-05-04T04:30:51.730" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11834" PostTypeId="1" CreationDate="2016-05-04T07:03:45.510" Score="1" ViewCount="167" Body="&lt;p&gt;What are the indicators of a country being in a financial crisis?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would like to know both about the acute and recovery phase.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am trying to make a point to our company that we are not growing despite the financial crisis being over.&lt;/p&gt;&#xA;" OwnerUserId="8171" LastEditorUserId="8171" LastEditDate="2016-05-05T06:16:40.537" LastActivityDate="2016-05-05T06:16:40.537" Title="What are the indicators of a country being in a financial crisis" Tags="&lt;financial-crises&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="11835" PostTypeId="2" ParentId="11829" CreationDate="2016-05-04T07:46:13.447" Score="2" Body="&lt;p&gt;I think it's going to be hard to compare the price for a country with a large internal creditors and another one without, as such a price depends on many parameters apart from that.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But to answer the core of your question, it does have an influence. In many European countries, the public debt is considered a huge problem since the 2007-2008 crisis at it reaches the 100% of GDP. And it is a problem because, those countries have to spend a huge amount of the GDP to pay back that debt, with interests. They can't default without having much higher prices (see Greece, Spain or Italy around 2010). The 100% of GDP is a virtual barrier that is considered critical by many investors or specialised press.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In contrast, a country with a large part of national creditors, Japan, currently run with &lt;a href=&quot;http://www.nationaldebtclocks.org/debtclock/japan&quot; rel=&quot;nofollow&quot;&gt;217% of its GDP debt&lt;/a&gt;. Yet the market for the government bonds in Japan is quite stable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This might crudely be explained by a link between the two elements of the debt. National have all interests that their own government functions. If their own government has money, they can invest in their economy, which profits directly the investors. If the investors are abroad, they would be less affected by a slow down or a crash or the economy, and thus ask for higher prices to compensate for the risk of defaults.&lt;/p&gt;&#xA;" OwnerUserId="4817" LastActivityDate="2016-05-04T07:46:13.447" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11836" PostTypeId="2" ParentId="11828" CreationDate="2016-05-04T10:09:07.813" Score="0" Body="&lt;p&gt;I think it depends on the category of literature you're reading. The category of &lt;strong&gt;innovation literature&lt;/strong&gt; has a lot about supply-side cost changes, and about related policies - you'll find lots of work on learning curves, technology diffusion, harnessing economies of scale. &lt;a href=&quot;http://www.mbs.ac.uk/research/people/profiles/frank.geels&quot; rel=&quot;nofollow&quot;&gt;Frank Geels of Manchester&lt;/a&gt; does a lot of work on the theoretical side of this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And there's broader literature on &lt;strong&gt;industrial policy and regulation&lt;/strong&gt; too.&lt;/p&gt;&#xA;" OwnerUserId="44" LastEditorUserId="44" LastEditDate="2016-05-04T10:40:44.683" LastActivityDate="2016-05-04T10:40:44.683" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="11837" PostTypeId="2" ParentId="11817" CreationDate="2016-05-04T10:10:40.373" Score="2" Body="&lt;p&gt;At the level of an individual household it can be rational for poverty and savings to coexist.  &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;There are degrees of poverty. In terms of food, there is having a&#xA;somewhat varied and adequate diet but with meat only once a week, there is&#xA;having a monotonous, entirely vegetarian but adequate diet, and there is&#xA;going hungry.  In terms of education (in a country where there is no&#xA;free education), there is being able to send all (of 2 or more)&#xA;children to school, being able to send only 1, or being unable to&#xA;send any. A family can be poor, but still fear being even poorer in&#xA;future, making it rational to save. Its 'unmet need' for a more varied diet&#xA;may carry less weight than its fear of going hungry.&lt;/li&gt;&#xA;&lt;li&gt;Incomes of poor households, especially in rural areas, are often&#xA;unstable. Income from a small farm can be vulnerable to drought,&#xA;pests, or a fall in market prices for its produce. Employment on&#xA;other people's farms may only be available on a seasonal or&#xA;irregular basis.  If a family member goes to find work in a city,&#xA;the remittances they send home may be unpredictable. The extra burden of&#xA;medical costs in the event that a family member falls ill (in a country with&#xA;no free health service) can also reduce the already low living standard of a&#xA;poor household.  Thus a fear of being even poorer in future can be entirely&#xA;reasonable.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;The aggregation of this sort of situation over many households can explain the coexistence of poverty and saving on a significant scale.&lt;/p&gt;&#xA;" OwnerUserId="1417" LastActivityDate="2016-05-04T10:10:40.373" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11838" PostTypeId="2" ParentId="10586" CreationDate="2016-05-04T13:29:36.587" Score="2" Body="&lt;p&gt;The paper &lt;a href=&quot;http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1762590&quot; rel=&quot;nofollow&quot;&gt;Beyond Cobb-Douglas: Estimation of a CES Production Function with Factor Augmenting Technology&lt;/a&gt; should be of use here:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Both the recent literature on production function identification and a&#xA;  considerable body of other empirical work on firm expansion assume a&#xA;  Cobb-Douglas production function. Under this assumption, all technical&#xA;  differences are Hicks neutral. I provide evidence from US&#xA;  manufacturing plants against Cobb-Douglas and present an alternative&#xA;  production function that better fits the data. A Cobb Douglas&#xA;  production function has two empirical implications that I show do not&#xA;  hold in the data: a constant cost share of capital and strong&#xA;  comovement in labor productivity and capital productivity (revenue per&#xA;  unit of capital). Within four digit industries, differences in cost&#xA;  shares of capital are persistent over time. Both the capital share and&#xA;  labor productivity increase with revenue, but capital productivity&#xA;  does not. A CES production function with labor augmenting differences&#xA;  and an elasticity of substitution between labor and capital less than&#xA;  one can account for these facts. To identify the labor capital&#xA;  elasticity, I use variation in wages across local labor markets. Since&#xA;  the capital cost to labor cost ratio falls with local area wages, I&#xA;  strongly reject Cobb-Douglas: capital and labor are complements. Now&#xA;  productivity differences are no longer neutral, which has implications&#xA;  on how productivity affects firms’ decisions to expand or contract.&#xA;  Non neutral technical improvements will result in higher stocks of&#xA;  capital but not necessarily more hiring of labor. Specifying the&#xA;  correct form of the production function is more generally important&#xA;  for empirical work, as I demonstrate by applying my methodology to&#xA;  address questions of misallocation of capital.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In this paper, the first order conditions for capital and labor of the CES production function under cost minimization imply:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ log(rk/wl) = -(1-\sigma)log(w/r) + (1-\sigma)log B + \sigma log (\alpha / (1-\alpha))$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This doesn't seem to require any special non-linear estimation technique. &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2016-05-04T13:29:36.587" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11839" PostTypeId="1" CreationDate="2016-05-04T16:05:26.657" Score="8" ViewCount="253" Body="&lt;p&gt;I've come across this little parable purporting to show why exponential discounting is superior to hyperbolic discounting&lt;sup&gt;1&lt;/sup&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The greater bowing [of the hyperbolic discount curve] means that if a hyperbolic discounter engaged in trade with someone who used an exponential curve, she'd soon be relieved of her money.  Ms. Exponential could buy Ms. Hyperbolic's winter coat cheaply every spring, for instance, because the distance to the next winter would depress Ms. H's valuation of it more than Ms. E's.  Ms. E could then sell the coat back to Ms. H every fall when the approach of winter sent Ms. H's valuation of it into a high spike.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The figure that the excerpt refers to looks somewhat like the one shown below, the most notable difference being that I've added the legend to indicate which curve is which&lt;sup&gt;2&lt;/sup&gt;, together with the analytical form of the actual discount functions used&lt;sup&gt;3&lt;/sup&gt;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/q5T1N.png&quot; alt=&quot;Mathematica graphics&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But it seems to me that the argument, as presented above, is spurious.  It is clear that whose valuation would be more depressed, depends on the time.  Therefore, the exact same argument with the roles of Ms. E and Ms. H reversed, would work for any timepoint between the point at which the curves intersect and the vertical axis.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In fact, for certain choices of coefficients for the hyperbolic and exponential curves, the exponential curve is more depressed than the hyperbolic one &lt;em&gt;for all time points&lt;/em&gt;.  For example:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/wnXky.png&quot; alt=&quot;Mathematica graphics&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It turns out that the green exponential curve above intersects the hyperbolic curve at only one value of $t$, namely $t = 0$ (i.e. at the time indicated by the vertical axis).  For all $t &amp;lt; 0$, the green exponential curve is strictly below the hyperbolic one.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This means that, if Ms. E's exponential discounting curve were the green one, then Ms. H would be able to quickly immiserate her by applying the strategy described in the excerpt, and this would be true &lt;em&gt;irrespective of the length of the time interval between the buying and the selling back of the winter coat&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;In summary, the excerpt's argument for the superiority of exponential discounting over hyperbolic discounting does not hold water, in my opinion.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, I realize that the excerpt is not being particularly rigorous, and that there may be a more convincing way to demonstrate the superiority of exponential discounting over hyperbolic discounting.  If so, what is it?  In particular, I want to know the following:&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;How can someone who uses exponential discounting take financial advantage &lt;em&gt;unilaterally&lt;/em&gt; of someone who uses hyperbolic discounting?&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;(By &lt;em&gt;unilaterally&lt;/em&gt; I mean that the strategy is available only to someone who uses exponential discounting vis-à-vis somoneone who uses hyperbolic discounting, and &lt;em&gt;not&lt;/em&gt; viceversa.)&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;sup&gt;&lt;sup&gt;1&lt;/sup&gt; The reference I have for this passage is to &lt;em&gt;Breakdown of will&lt;/em&gt; (2001) by George Ainslie (pp. 30-31).  I don't have the book, though.&lt;/sup&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;sup&gt;&lt;sup&gt;2&lt;/sup&gt; I have added the labels &quot;hyperbolic&quot; and &quot;exponential&quot;, according to my interpretation of what the author means by &quot;greater bowing&quot;.  I'm not a native speaker of English, so please correct me if this interpretation is backwards.&lt;/sup&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;sup&gt;&lt;sup&gt;3&lt;/sup&gt; Note that all these functions have $(-\infty, 0]$ as their domains.  This choice was required in order to match the appearance of the original curves.  Also, I should stress that the functional forms I used for all these curves are my own, chosen so as to approximate the appearance of the original curves.  The text of the excerpt does not give the functional form of the depicted curves.&lt;/sup&gt;&lt;/p&gt;&#xA;" OwnerUserId="5393" LastEditorUserId="5393" LastEditDate="2016-05-05T11:35:57.850" LastActivityDate="2016-09-16T10:43:47.857" Title="On the Ms. Exponential vs Ms. Hyperbolic vignette" Tags="&lt;game-theory&gt;&lt;utility&gt;&lt;behavioral-economics&gt;&lt;value&gt;&lt;discount&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11840" PostTypeId="2" ParentId="11205" CreationDate="2016-05-04T17:01:54.803" Score="2" Body="&lt;p&gt;ASSET PRICING THEORY:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Cochrane, &lt;em&gt;Asset Pricing&lt;/em&gt; is a good book in that it displays the way that hard-core asset pricers see the world.  &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Huang and Litzenberger, &lt;em&gt;Foundations for Financial Economics&lt;/em&gt; is said to be the most solid, if a bit outdated, textbook.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;CORPORATE FINANCE THEORY:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Tirole, &lt;em&gt;The Theory of Corporate Finance&lt;/em&gt;, has they key insights for about half the literature. A chapter per month would make you a very solid corporate finance economist. The other Tirole books contain about 90% of the rest of non-asset pricing stuff.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;STATE OF THE LITERATURE:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The textbooks often lag way behind what people are writing about in their papers, for good or bad. They also represent one particular view. There are a bunch of so-called Handbooks(mostly by Elsevier) that are a good way to get a broad sense of the key questions, authors, methods, issues. I would look at the financial economics, financial intermediation, banking, finance, handbooks. &lt;/p&gt;&#xA;" OwnerUserId="7593" LastEditorUserId="7593" LastEditDate="2016-05-05T03:12:59.977" LastActivityDate="2016-05-05T03:12:59.977" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11841" PostTypeId="2" ParentId="11839" CreationDate="2016-05-04T17:11:04.817" Score="2" Body="&lt;p&gt;I believe the money pump works like this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At $T=0$ borrow a hundred dollars from Henry the hyperbolic discounter for the full time period $t$. The interest rate should be zero because their discount rate over loans of that period is $1$. For simplicity, make it a zero coupon loan, with the payment due at maturity and assume you both agree their is no credit risk. Now step forward one period to $T=\epsilon$. Offer to sell the loan back to Henry. His discount rate is now $\frac{1}{1-\epsilon} &amp;lt; 1$ so the interest rate is lower than what he would charge on a new loan so the price must be above par. Call the price $100 + \psi_1$. Do the sale, tear up the loan, and pocket $\psi_1$. Ask for a new loan of a hundred dollars, again at zero coupon, now at interest rate $\frac{1}{1-\epsilon}$ per period. Step forward another period to $T = 2 \epsilon$. Again, $\frac{1}{1-2\epsilon} &amp;lt; \frac{1}{1-\epsilon}$ so you can sell this obligation too for more than par ($1 + \psi_2$). Do the sale , tear up the loan, and pocket $\psi_2$. Rinse, lather, and repeat until they don't have a hundred bucks to lend you. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Update:&#xA;Hopefully this is a simpler example. What you do is in each period buy T (T$\geq$2) period a bond from Henry the Hyperbolic discounter. You also sell back to Henry the bond you purchased in the previous period. You will be willing to do this as long as the time period is short enough that the profit on the transaction is high enough to make up for your own discount rate. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider a 2 year bond with the preferences above. The 2 year discount rate is $\frac{1}{3}$ which is less than the 1 year discount rate $\frac{1}{2}$. &#xA;&lt;a href=&quot;https://i.stack.imgur.com/L8qmw.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/L8qmw.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&#xA;Eddy the exponential discounter is willing to lend the cash to Henry because is profits on that loan are high enough to compensate him, even though his rate of time preference for both 1 and 2 year loans is higher than Henry's.&lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2016-09-16T10:43:47.857" LastActivityDate="2016-09-16T10:43:47.857" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11842" PostTypeId="1" CreationDate="2016-05-04T18:50:55.250" Score="3" ViewCount="120" Body="&lt;p&gt;I was wondering if anyone could give me some advice / lectures / introduction to &lt;strong&gt;stochastic optimization that could be applied to monetary policy&lt;/strong&gt;. I have heard of the &lt;a href=&quot;https://en.wikipedia.org/wiki/Dynamic_stochastic_general_equilibrium&quot; rel=&quot;nofollow&quot;&gt;Dynamic stochastic general equilibrium modeling (DSGE)&lt;/a&gt; but I think that this is more linked to the consumer theory and not really to monetary policy. Correct me if I am mistaking ... &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, I am familiar with convexity and linear optimization, but a little bit shaky when it comes to stochastic optimization. Therefore I would welcome the opportunity to also get some recommendations on that if you have some, in order to deepen my understanding of it !&lt;/p&gt;&#xA;" OwnerUserId="7833" LastEditorUserId="1601" LastEditDate="2016-05-04T20:02:41.800" LastActivityDate="2016-12-18T22:19:55.890" Title="Monetary policy optimization" Tags="&lt;reference-request&gt;&lt;monetary-policy&gt;&lt;optimization&gt;&lt;dynamic-optimization&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11843" PostTypeId="1" CreationDate="2016-05-04T19:15:23.463" Score="2" ViewCount="312" Body="&lt;p&gt;What is the difference between screening game and moral hazard game?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know that in screening game, TYPE is not known by the principal, while in moral hazard game, EFFORT is not observed by the principal. But what is the key difference between two settings, rather than what we call it? I mean, effort can also be considered as type....&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks&lt;/p&gt;&#xA;" OwnerUserId="6858" LastActivityDate="2017-01-21T16:27:51.667" Title="difference between screening game and moral hazard game" Tags="&lt;game-theory&gt;&lt;asymmetric-information&gt;&lt;principal-agent&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11844" PostTypeId="2" ParentId="10562" CreationDate="2016-05-04T20:17:23.467" Score="2" Body="&lt;p&gt;One of the original statements of this kind were Kaldor's Stylized Facts on growth, &lt;a href=&quot;https://en.wikipedia.org/wiki/Kaldor%27s_facts&quot; rel=&quot;nofollow&quot;&gt;Kaldor's Facts&lt;/a&gt;, the most important of which are that:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Labor and capital receive approximately constant share of output (about 0.6 for labor and 0.4 for capital)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The rate of growth of output per worker is roughly constant (about 2%)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The rate of return on investment is roughly constant (if you look at long enough intervals, i.e. about 3%...)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;More recently, the famous growth theorist Paul Romer came up with a renewed set of facts &lt;a href=&quot;http://www.nber.org/papers/w15094.pdf&quot; rel=&quot;nofollow&quot;&gt;New Kaldor Facts paper&lt;/a&gt;. The most salient ones are that:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Market is constantly increasing its dominance as a way to organize economic activity.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The rate of economic growth has been accelerating for millenia. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Measured inputs explain only a small part of income differences across countries.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Human capital is constantly being accumulated, and yet, the human capital premia has not changed over time.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Also, a newly minted constant, as theorized by Minsky:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;The nature of financial markets and risk taking implies periodic financial crisis.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="7593" LastEditorUserId="7593" LastEditDate="2016-05-05T15:50:41.993" LastActivityDate="2016-05-05T15:50:41.993" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11845" PostTypeId="2" ParentId="9006" CreationDate="2016-05-04T20:23:11.757" Score="2" Body="&lt;p&gt;This is likely only part of the story, but I found an interesting lecture by Milton Friedman that shows a graph of the quantity of money per unit of output (likely GDP) graphed alongside a normalized consumer price index (normalized so that the index intersects with the other line in 1970).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The graphs all clearly shows changes in the consumer price index lagging about 1-3 years after discontinuities in the money supply.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.youtube.com/watch?v=THAaIZmxfNA&amp;amp;t=11m2s&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.youtube.com/watch?v=THAaIZmxfNA&amp;amp;t=11m2s&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this other graph, you can see the lag is even longer than that, at anywhere from 4 years between 2008 and 2001 to 6 years from 1985 to 1992:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/Pc8X1.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Pc8X1.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;3-4 years is probably a reasonable average estimate for how long it takes for money created by the Fed to &quot;trickle down&quot; to the average consumer in the form of inflation. &lt;/p&gt;&#xA;" OwnerUserId="6149" LastActivityDate="2016-05-04T20:23:11.757" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11846" PostTypeId="1" CreationDate="2016-05-04T20:25:44.097" Score="4" ViewCount="81" Body="&lt;p&gt;Why is the oil price and correspondingly the down and midstream company stock prices are increasing in May 2016, when&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;The economic data across the world in weak &lt;/li&gt;&#xA;&lt;li&gt;China's economy is&#xA;sluggish. They had another round of devaluation in early May 2016.&lt;/li&gt;&#xA;&lt;li&gt;The&#xA;OPEC meeting in Doha in late April did not yield any meaningful&#xA;resolution in stemming the production of oil output.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="5125" LastActivityDate="2018-04-19T14:46:11.370" Title="Why is oil price increasing in May 2016" Tags="&lt;macroeconomics&gt;&lt;commodities&gt;&lt;oil&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11847" PostTypeId="1" AcceptedAnswerId="11848" CreationDate="2016-05-05T00:23:12.880" Score="3" ViewCount="159" Body="&lt;p&gt;The typical recipe for countries to improve their growth rate and escape high indebtedness is to reduce expenditure and implement structural reform. What do people use as evidence of structural reform working?&lt;/p&gt;&#xA;" OwnerUserId="7593" LastActivityDate="2016-05-05T03:43:58.493" Title="What do economist state as evidence that &quot;structural reform&quot; works?" Tags="&lt;economic-growth&gt;&lt;fiscal-policy&gt;&lt;financial-crises&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11848" PostTypeId="2" ParentId="11847" CreationDate="2016-05-05T01:01:29.560" Score="4" Body="&lt;p&gt;&lt;strong&gt;A rather positive view of structural reforms&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In their recent Economic Policy Reforms 2016, &lt;a href=&quot;http://www.keepeek.com/Digital-Asset-Management/oecd/economics/economic-policy-reforms-2016_growth-2016-en#page17&quot; rel=&quot;nofollow&quot;&gt;Going for Growth Interim Report&lt;/a&gt;, the OECD reviews the main growth challenges faced by OECD and selected non-OECD countries and takes stock of the progress made since 2015 in the adoption and implementation of structural policy reforms to address these challenges. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The chapter 2 in particular reviews the main issues related to the short-term impact of structural reforms in different macroeconomic contexts and takes stock of existing theoretical and empirical studies. It lays out the case of reforms introduced in &quot;normal&quot; and &quot;bad&quot; times. It identifies the main channels through which structural reforms influence &lt;strong&gt;&lt;em&gt;rather favorably&lt;/em&gt;&lt;/strong&gt; short-term activity through consumption, investment and net exports. The chapter discusses &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Model-based assessments taken from studies that make use of Dynamic Stochastic General Equilibrium (DSGE) models for the analysis of specific reforms&lt;/li&gt;&#xA;&lt;li&gt;Empirical analysis based on aggregate or sectoral data. Look in particular at Bouis, R., O. Causa, L. Demmou, and R. Duval (2012), &quot;&lt;a href=&quot;http://izajolp.springeropen.com/articles/10.1186/2193-9004-1-12&quot; rel=&quot;nofollow&quot;&gt;How quickly Does Structural Reform Pay Off?&lt;/a&gt; An Empirical Analysis of the Short-Term Effects of Unemployment Benefits Reform&quot;, &lt;em&gt;IZA Journal of Labor Policy 2012&lt;/em&gt;, 1:12.&lt;/li&gt;&#xA;&lt;li&gt;Empirical analysis based on micro studies. In this category, a recent paper that is not reviewed in the OECD report but in a VOX CEPR column on &lt;a href=&quot;http://voxeu.org/article/impact-structural-reforms-eurozone-firm-level-data&quot; rel=&quot;nofollow&quot;&gt;Eurozone rebalancing: Are we on the right track for growth? Insights from the CompNet micro-based data&lt;/a&gt;.  Their results are &quot;in line with the postulate that the crisis and ensuing structural policies may be generating ‘cleansing effects’.&quot; The author are cautious, however. &quot;It is obvious that the evidence presented is still preliminary and only suggestive of the potential use of the dataset.&quot;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Look also at Bouis, R., O. Causa, L. Demmou, and A. Zdzienicka (2012), &quot;&lt;a href=&quot;http://dx.doi.org/10.1787/5k9csvk4d56d-en&quot; rel=&quot;nofollow&quot;&gt;The Short-Term Effects of Structural Reforms: An Empirical Analysis&lt;/a&gt;&quot;, OECD Economics Department Working Papers, No. 949. They conclude&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;This analysis indicates that the benefits from reforms typically take time to fully materialise. When significant effects are found in the short run, reforms seldom involve significant aggregate economic losses; on the contrary they often deliver some benefits. The absence of major depressing effects does not lend support to the view that reforms should be in general accompanied by substantial macroeconomic policy easing in order to deliver some short-term gains. Nevertheless, there is also tentative evidence that some labour market reforms (e.g. of unemployment benefit systems and job protection) pay off more quickly in good times than in bad times, and can even entail short-term losses in severely depressed economies.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;A rather negative view of structural reforms&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, when &lt;strong&gt;Krugman&lt;/strong&gt; sees influential people calling for structural reform as the universal answer to all economic problems, he gets angry. He considers that &lt;a href=&quot;http://krugman.blogs.nytimes.com/2014/02/21/structural-reform-is-the-last-refuge-of-scoundrels/&quot; rel=&quot;nofollow&quot;&gt;Structural Reform is the Last Refuge of Scoundrels&lt;/a&gt;. For Krugman, traditionally, structural reform was offered as an answer to the problem of stagflation, which makes a fair bit of sense according to &lt;a href=&quot;http://krugman.blogs.nytimes.com/2014/11/20/structural-deformity/&quot; rel=&quot;nofollow&quot;&gt;him&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Dany &lt;strong&gt;Rodrik&lt;/strong&gt; also opposes structural reforms notably in his paper &lt;a href=&quot;https://www.sss.ias.edu/files/pdfs/Rodrik/Research/Goodbye-Washington.pdf&quot; rel=&quot;nofollow&quot;&gt;Goodbye Washington Consensus, Hello Washington Confusion?&lt;/a&gt;. He argues that ``evidence has come a more skeptical reading of the cross-national relationship between policy reform and economic growth'' (Page 5).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Moreover, &lt;a href=&quot;http://www.hvtc.edu.vn/Portals/0/files/635870649753930599LeadershipandGrowth.pdf#page=165&quot; rel=&quot;nofollow&quot;&gt;Acemoglu and Robinson (2010, chap 5)&lt;/a&gt; document that &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The  attempt  to  induce  African  countries  to   implement institutional  reforms  such as reducing  distortions was not a success   (van  der  Walle,  1993,  2000),  mostly  for  the  reason that international  financial   institutions  (IFIs) did  not  take into  account  the  political  rationale  for  the  inefficient policies they  were  trying  to  reform.  The  most  dramatic  example  of this  is   discussed by Herbst (1990) and Reno (1998).  They argued that attempts by IFIs to  induce   downsizing   of   the   public   sector,   for example  by closing  down unprofitable parastatals,  had  played  an  important  role  in  creating  civil war  in   Sierra  Leone  and  Liberia.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="6168" LastEditorUserId="6168" LastEditDate="2016-05-05T03:43:58.493" LastActivityDate="2016-05-05T03:43:58.493" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="11852" PostTypeId="1" CreationDate="2016-05-05T13:10:17.787" Score="2" ViewCount="58" Body="&lt;p&gt;I am trying to discover how much money was created as a result of quantative easing. I do not want to start a political debate. But, I am genuinely interested in learning how much money was signed into law by President Bush and then how much money was signed into law by President Obama. I would also like to learn how much money has been distributed while President Obama has been in office.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I expected to be able to find this information on the web somewhere. However, I have not been able to find a real breakdown. Once again, I have no interest in a political debate. I'm simply seeking the real dollar numbers.&lt;/p&gt;&#xA;" OwnerUserId="8182" LastActivityDate="2016-06-04T14:01:26.917" Title="How much money was distributed during quantative easing?" Tags="&lt;money&gt;&lt;quantitative-easing&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11854" PostTypeId="2" ParentId="11852" CreationDate="2016-05-05T13:29:34.433" Score="3" Body="&lt;p&gt;The easiest way to estimate the total amount of quantitative easing is to look at the change in the balance-sheet of the Federal Reserve because every bit of money put in through quantitative easing involved the purchase of assets which grew the central bank's balance sheet. &#xA;&lt;a href=&quot;https://i.stack.imgur.com/GiDSG.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/GiDSG.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can see in the graph above that the total growth is about \$3.6T. There are non-quantitative easing reasons for these reserves to grow over time so this should be treated as an approximate figure. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Additionally, if the proceeds of the QE are used to purchase still more assets those asset purchases might not be universally agreed on as QE. However, the quantity of QE was decided on as the amount of purchases to do taking into account these other issues. If the other considerations had lead to lower asset growth it is possible that the FRB would have done more QE, leaving the balance sheet unchanged. If so, the total change in assets during active QE could be regarded as the intended level of QE. &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2016-05-05T13:29:34.433" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11855" PostTypeId="1" AcceptedAnswerId="12591" CreationDate="2016-05-05T13:56:17.120" Score="4" ViewCount="99" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;If $\succsim$ is rational, then $B \mapsto C^*(B, \succsim)$ satisfies the weak axiom, and $\succsim=\succsim^*$&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Previously in the same theorem actually, they proved the following:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;If $C$ is a choice rule satisfying the weak axiom, then $\succsim^*$ is rational, and for all $B \in \mathcal{P}(X), C(B) = C^*(B, \succsim^*).$&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Note: $C^*(B) = C^*(B, \succsim) = \{ x \in B: \forall y \in B, x \succsim y \}$, and the weak axiom is referring to the weak axiom of revealed preference which a choice rule satisfies if $[x \succsim^* y ] \Rightarrow \neg (\exists B)[y \succ_B x]$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My try of the proof: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;First suppose $B \mapsto C^*(B, \succsim)$ does not satisfy the weak axiom, then $\succsim^*$ is not rational by the earlier part of the theorem, so if we can prove $\succsim = \succsim^*$ we have a contradiction which will prove the statement.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As $\succsim$ is rational, then there is a utility function $u: X \to \mathbb{R}$ that represents $\succsim$, then $\{x \in B: \forall y \in B, u(x) \geq u(y) \} = C^*(B, \succsim)$ but then $\exists B$ s.t. $x,y \in B$ and since $B \mapsto C^*(B, \succsim)$ then $u(x) \in C^*(B, \succsim)$ so $x \in C(B)$ hence $\succsim = \succsim^*$&lt;/p&gt;&#xA;" OwnerUserId="5780" LastActivityDate="2016-07-02T02:05:57.077" Title="If $\succsim$ is rational, then $B \mapsto C^*(B, \succsim)$ satisfies the weak axiom, and $\succsim=\succsim^*$" Tags="&lt;mathematical-economics&gt;&lt;preferences&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11857" PostTypeId="2" ParentId="9291" CreationDate="2016-05-05T15:37:51.153" Score="2" Body="&lt;p&gt;[Edited to reflect @denesp comments]&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In asset pricing, the present value of an asset depends on expectations about the future. If you are sure asset A will be worth 100 tomorrow, it is likely to be worth 100/(1+r) today. If you think it might be worth 100 in scenario I or 0 in scenario II with a 1/2 probability each, then its worth [(1/2)*(100) + (1/2)(0)]/(1+r) = 50/(1+r) today.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But, now add the following twist: what if even though the chances of scenarios I and II are 1/2 each, you observe that the asset is worth more than 50/(1+r). Why could this be? &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;One reason could be that even though the probabilities are 1/2 and 1/2, investors thing they are 3/4 and 1/4 maybe. These would be the &quot;subjective probabilities&quot; according to most direct sources.&lt;a href=&quot;http://www.investopedia.com/terms/s/subjective_probability.asp&quot; rel=&quot;nofollow&quot;&gt;Investopedia Subjective Probability&lt;/a&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Another reason could be that investors know that, for some reason, if scenario I comes round they will be desperate for cash, but if scenario II comes round they will be rich from other income sources anyway. If that's the case then they are more &lt;em&gt;interested&lt;/em&gt; in the value of the asset in scenario I than in scenario II. Then they  value the asset as being worth, maybe,[(3/4)&lt;em&gt;(100) + (1/4)&lt;/em&gt;(0)]/(1+r)=75/(1+r), because the Scenario I payoffs are worth more to them than the Scenario II payoffs.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;In any case, if you observe the price to be 75/(1+r) then the numbers 3/4 and 1/4, which look like probabilities, are called the &quot;risk-neutral probabilities&quot;. They are &quot;weights&quot; that look like probabilities, that describe two things: investor's subjective assessment of the likelihood of the two scenarios, plus the &quot;importance&quot; they put on different future states of nature, beyond the likelihood of their realization.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These risk neutral probabilities are at the core of the paradigm that economists use to model asset prices .&lt;/p&gt;&#xA;" OwnerUserId="7593" LastEditorUserId="7593" LastEditDate="2016-05-08T21:03:38.557" LastActivityDate="2016-05-08T21:03:38.557" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11858" PostTypeId="1" AcceptedAnswerId="12057" CreationDate="2016-05-05T16:29:01.530" Score="1" ViewCount="159" Body="&lt;p&gt;Lionel Robbins once said, &quot;&lt;i&gt;Economics is the study of scarce resources which have alternative uses.&lt;/i&gt;&quot;&lt;br&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Would someone mind explaining what he meant by this? &lt;br&gt;&#xA;I, as a naive 14 yr. old, think about this economics quote as meaning 'a person studying how to use scarce resources in any context and those resources have many uses'. &lt;br&gt;e.g. It is cold outside and I don't have enough money to buy gloves, but I do have an extra pair of socks, thus I use socks as gloves. &#xA;&lt;br&gt;&#xA;&lt;br&gt;&#xA;If you cannot understand this, please let me know and I will clear it up!&#xA; Thanks for your time -&lt;/p&gt;&#xA;" OwnerUserId="8186" LastActivityDate="2016-05-18T02:44:45.363" Title="What does this phrase about economics mean [Lionel Robbins]?" Tags="&lt;reference-request&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11860" PostTypeId="1" CreationDate="2016-05-05T17:21:16.840" Score="4" ViewCount="56" Body="&lt;p&gt;Suppose you have a neoclassical production function with N-inputs&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$F(x_t^1,...,x_t^N)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;All input factors grow in continuous time with constant, but not identical growth rates $g^j$. Assume $g^1 \leq g^2 \leq ... \leq g^N$. The growth rate of $F$ is then&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\hat{F}=\sum_{j=1}^N \varepsilon_{F,x^j} g^j$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;with $\varepsilon_{F,x^j}$ being the elasticity of $F$ with respect to $x^j$. Since $F$ is linear homogenous I know that $\sum_{j=1}^N \varepsilon_{F,x^j}=1$ holds. $\frac{\partial F}{\partial x^j}&amp;gt;0$ and $\frac{\partial^2 F}{\partial {x^j}^2}&amp;lt;0$ imply $\varepsilon_{F,x^j}&amp;gt;0$. Hence&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$g^1 \leq \hat{F} \leq g^N$ $\forall t$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is: Is $\hat{F}$ going to converge as $t \to \infty$? I find it hard to imagine that the elasticities fluctuate (periodically) around some value as all input factor ratios go to zero or infinity (or stay constant the whole time in case of equal growth rates). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I tried to show that the elasticities all converge. I suspect that the result might hinge on the propety that $\frac{\partial^2 F}{\partial x_j \partial x_k}&amp;gt;0$ for $k \neq j$ which always holds in the two goods case, but I'm not sure about that.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you all in advance for your help! If my English seems a little awkward, it's because I'm German. But I hope you understand the problem anyway. :)&lt;/p&gt;&#xA;" OwnerUserId="8187" LastEditorUserId="8187" LastEditDate="2016-05-07T11:19:15.440" LastActivityDate="2016-05-08T15:34:18.513" Title="Does the growth rate of a neoclassical production function converge as all input factors grow with constant, but different growth rates?" Tags="&lt;mathematical-economics&gt;&lt;economic-growth&gt;&lt;production-function&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11861" PostTypeId="2" ParentId="11858" CreationDate="2016-05-05T17:24:41.487" Score="1" Body="&lt;p&gt;To me, the quote seems to be about what economics is, and, more subtly, what it isn't. Robbins claims economics is about scarce resources that people can use for multiple things. The implication, and you will find this in undergraduate economics textbooks, is that economics is concerned with &lt;em&gt;efficiency&lt;/em&gt;. Economists are simply looking for ways to make the most out of scarce resources. An outflow of this focus on efficiency is the paradigm of utility or profit optimization under constraints.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Perhaps more interesting is the subtle claim of what economics is not about: the &lt;em&gt;distribution&lt;/em&gt; of resources. This does not seem particularly radical now, but it was much more so at the time. Keynes and Marx still dominated the political discourse in the early 20th century, and both were very much concerned with the distribution of resources. By focusing on efficiency rather than distribution, Robbins puts himself firmly in the neoliberal paradigm.&lt;/p&gt;&#xA;" OwnerDisplayName="user7935" LastActivityDate="2016-05-05T17:24:41.487" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11862" PostTypeId="1" CreationDate="2016-05-05T18:01:26.023" Score="0" ViewCount="427" Body="&lt;p&gt;I've read a number of papers on factor - augmenting technical progress and directed technical change. Authors do not note about the implications of factor - augmentation in sufficient details. Assume production technology is of CES type where inputs are Labour, Capital stock and Energy. If technological progress is induced, then it is possible that endogenous changes in innovations lead to capital - saving, labour - saving and energy - saving technical progress. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;While it is easy to see what labour - saving innovations could be, I wonder what the differences in capital - saving and energy - saving innovations could be. Is not energy - saving innovation a capital - saving innovation? In other words, efficiency of capital is analogous to energy efficiency, is not it?&lt;/p&gt;&#xA;" OwnerUserId="6009" LastActivityDate="2016-05-05T18:01:26.023" Title="Capital - augmenting and energy-augmenting technical progress" Tags="&lt;macroeconomics&gt;&lt;production-function&gt;&lt;energy-economics&gt;&lt;directed-technical-change&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11864" PostTypeId="2" ParentId="9291" CreationDate="2016-05-05T19:41:37.657" Score="4" Body="&lt;p&gt;Probability judgments are based on an investors' private information sets, i.e. subjective probabilities. In contrast, objective probabilities are the underlying real probabilities that the world will end up in some state. It is necessary to make the distinction because traders do not have perfect information. See Markowitz (1991) for further explanation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But objective probabilities remain a remarkable concept. If the market reveals objective probabilities, then these are in fact known, and traders can update their subjective probabilities accordingly. But if all traders agree on the probability distributions, they would have very little reason to trade. Hence one implication of portfolio theory is that there is too much trading going on. See Odean (1999) for empirical work on this, or Grossman &amp;amp; Stiglitz (1980) for a theoretical critique.&lt;/p&gt;&#xA;" OwnerDisplayName="user7935" LastActivityDate="2016-05-05T19:41:37.657" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11865" PostTypeId="1" AcceptedAnswerId="11866" CreationDate="2016-05-05T20:25:59.203" Score="5" ViewCount="2207" Body="&lt;p&gt;This question is an extension of &lt;a href=&quot;https://economics.stackexchange.com/questions/11531/endogenous-growth-balanced-growth-path-with-crra-utility&quot;&gt;Endogenous Growth: Balanced Growth Path with CRRA Utility&lt;/a&gt;&#xA;&#xA;however, this question asks about a specific concept used in that question, and I think it would be helpful to have a question dedicated to this concept. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;We will use the model in this question:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;$\textbf{Model:}$&#xA;  $$K_t=\frac{1}{n}\sum_{t=1}^nk_t$$&#xA;  In this model, $k_t$ is chosen by agents, and $K_t=\bar{k}_t$ (the average of all $k_t$).&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Now, agents want to dynamically maximize utility (under certain constraints) and they have CRRA (constant relative risk aversion) utility, so the maximization looks like:&#xA;  $$\sum_{t=0}^\infty\beta^t\bigg(\frac{c_t^{1-\gamma}}{1-\gamma}\bigg)$$&#xA;  $$s.t.\;Y_t=k_t^\alpha(E_tL)^{1-\alpha}$$&#xA;  $$c_t+i_t=Y_t$$&#xA;  $$k_{t+1}=(1-\delta)k_t+i_t$$&#xA;  $$c_t,i_t\geq0$$&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;$E_tL$ is effective labor and the rest of the variables are typical  (I can give their definitions if requested).&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;One last addition to the model is that there are two equilibrium constraints:&#xA;  $$E_t=\frac{K_t}{L}$$&#xA;  $$k_t=K_t$$ &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In the answers section, I was instructed to use transversality conditions and inada conditions in order to show that a balanced growth path is optimal. Below is my derivation of the transversality condition:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, we must derive the finite horizon transversality condition. We do this by solving:&#xA;$$\underset{\{k_t\}_{t=0}^{T+1}}{max}\;\sum_{t=0}^{T}\beta^tU(\frac{}{})$$&#xA;$$s.t.\;k_{T+1}\geq0$$&#xA;With our model that means:&#xA;$$\underset{\{k_t\}_{t=0}^{T+1}}{max}\;\sum_{t=0}^{T}\beta^t\bigg(\frac{((1+1-\delta)k_t-k_{t+1})^{1-\gamma}}{1-\gamma}\bigg)$$&#xA;$$s.t.\;k_{T+1}\geq0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Our Lagrangian is:&#xA;$$\ell(\frac{}{})=\sum_{t=0}^{T}\beta^t\bigg(\frac{((1+1-\delta)k_t-k_{t+1})^{1-\gamma}}{1-\gamma}\bigg)+\lambda k_{T+1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In order to get the transversality condition, we differentiate with respect to $k_{T+1}$ and use the constraint.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;FOC:&#xA;$$\frac{\beta^T}{((1+(1-\delta))k_T-k_{T+1})^\gamma}=\lambda \qquad (1)$$&#xA;$$\lambda k_{T+1}=0 \qquad (2)$$ &#xA;$$\lambda , k_{T+1}\geq 0 \qquad (3)$$&#xA;Solving this system, we get $\textbf{the finite horizon transversality condition is:}$&#xA;$$\bigg(\frac{\beta^T}{((1+(1-\delta))k_T-k_{T+1})^\gamma}\bigg)k_{T+1}=0$$&#xA;Now, in order to get the infinite horizon transversality condition, we maximize the discounted utility function again, but we set the limit of finite horizon transversality condition as $T\rightarrow \infty$ equal to 0 as the constraint.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This means that we have to solve:&#xA;$$\underset{\{k_t\}_{t=0}^\infty}{max}\;\sum_{t=0}^\infty\beta^t\bigg(\frac{((1+(1-\delta))k_t-k_{t+1})^{1-\gamma}}{1-\gamma}\bigg)$$&#xA;$$s.t.\; \underset{T\rightarrow\infty}{lim}\;\bigg[\bigg(\frac{\beta^T}{((1+(1-\delta))k_T-k_{T+1})^\gamma}\bigg)k_{T+1}\bigg]=0$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is where my question comes. How do we solve this? Can we use a lagrangian? If so, how do we take first order conditions in the presence of the limit? Any help would be greatly appreciated!&lt;/p&gt;&#xA;" OwnerUserId="5825" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2016-05-06T02:52:29.057" Title="Infinite Horizon Transversality Condition" Tags="&lt;macroeconomics&gt;&lt;economic-growth&gt;&lt;endogenous-growth&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="11866" PostTypeId="2" ParentId="11865" CreationDate="2016-05-06T02:52:29.057" Score="3" Body="&lt;p&gt;Your confusion comes from the fact that you treat the Transversality condition as a &lt;em&gt;constraint&lt;/em&gt;, while it is a &lt;em&gt;condition for optimality&lt;/em&gt;. So the formulation at the end of your question is wrong. What you do is you solve your model as usual, and &lt;em&gt;then&lt;/em&gt; check if the solution (here the balanced growth path) satisfies the Transversality condition.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Transversality condition (TVC) is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\lim_{t \rightarrow \infty} \beta^t u'(c_t)k_{t+1} =0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In your model, $u'(c_t) = c_t^{-\gamma}$ and $c_t = (2-\delta)k_t - k_{t+1}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the TVC becomes indeed&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\lim_{t \rightarrow \infty} \frac {\beta^tk_{t+1}}{[(2-\delta)k_t - k_{t+1}]^{\gamma}} =0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What we want is to check whether the (unique) balanced growth path satisfies the Transversality condition. On the balanced growth path we have $k_{t+1} = (1+g)k_t$ where $g$ is a constant determined by the exogenous parameters of the model and the optimizing conditions. So when on the balanced growth path, the TVC becomes&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\lim_{t \rightarrow \infty} \frac {\beta^t(1+g)k_t}{[(2-\delta)k_t - (1+g)k_t]^{\gamma}} = \lim_{t \rightarrow \infty}\frac {(1+g)}{(1-\delta-g)^{\gamma}}\beta^t k_t^{1-\gamma}=0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The constants are unimportant, so we want that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\lim_{t \rightarrow \infty}\beta^t k_t^{1-\gamma}=0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;holds. Note that if $\gamma \geq 1$ (which is the consensus in the literature) the condition does hold, since capital goes in the denominator, and we're done. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the case $\gamma &amp;lt;1$, we want the expression to hold at the limit only, i.e. &lt;em&gt;eventually&lt;/em&gt; . &quot;Eventually&quot; implies that, if $k^*_s$ is the level of capital at time $s&amp;lt;t$ when the economy arrives at the balanced growth path, we will have $k_t = k_s^*\cdot (1+g)^{t-s}$. Then the TVC becomes&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\lim_{t \rightarrow \infty}\beta^t \big[k_s^*\cdot (1+g)^{t-s}\big]^{1-\gamma}=0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Again, shed things that do not depend on $t$, to get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\lim_{t \rightarrow \infty}\beta^t (1+g)^{(1-\gamma)t}=0 \implies \lim_{t \rightarrow \infty}\big[\beta (1+g)^{(1-\gamma)}\big]^t=0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the TVC will hold if and only if&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\beta (1+g)^{(1-\gamma)} &amp;lt;1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the other question the OP has obtained&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$1+g = [\beta(\alpha+1-\delta)]^{\frac{1}{\gamma}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Substituting, we want&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\beta \Big([\beta(\alpha+1-\delta)]^{1/\gamma}\Big)^{(1-\gamma)} &amp;lt;1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This can be simplified a bit, and it is a restriction on the parameters that must hold in order for the balanced growth path to satisfy the Transversality condition (when $\gamma &amp;lt;1$). For baseline values of the other parameters one can see that the condition is not likely to be satisfied.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2016-05-06T02:52:29.057" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11867" PostTypeId="1" CreationDate="2016-05-06T07:50:47.093" Score="2" ViewCount="49" Body="&lt;p&gt;I have three goods:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;beer&lt;/li&gt;&#xA;&lt;li&gt;carp (fish)&lt;/li&gt;&#xA;&lt;li&gt;museum ticket&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Is it possible to tell anything about market structure if I have annual price data of the industries? Here's the time-series plot on a single graph:&#xA;&lt;a href=&quot;https://i.stack.imgur.com/8ypWs.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/8ypWs.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&#xA;I would like to give advice whether a firm should entry the market or not. Is is it possible to decode price data like &quot;the incumbent firms must have been playing a Bertrand's price competition game at the carp market&quot;? Or do I need further details to say anything about the market structure?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is it possible to apply IO theory if I have only price data of an industry? I really need some clues, please.&lt;/p&gt;&#xA;" OwnerUserId="5017" LastActivityDate="2016-05-06T18:07:52.677" Title="Is it possible to tell anything about market structure if I have annual price data of the industries?" Tags="&lt;time-series&gt;&lt;industrial-organisation&gt;&lt;empirical-evidence&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11869" PostTypeId="2" ParentId="11867" CreationDate="2016-05-06T11:26:50.077" Score="1" Body="&lt;p&gt;You cannot say anything about the underlying market structure if you only have aggregated data. This phenomenon is known as heterogeneity, and it can pose significant problems even for studies of the aggregated data itself.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But that doesn't mean your data is useless. I'm guessing IO theory stands for Industrial Organization theory, and this is a very wide field. I am sure you can come up with something interesting and use the data that you've got.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note, though, that what you have graphed is data of price levels, but of price changes. This may be something you want to explore. For example, do you think the change in average market price is relevant for a single firm in that market? And what does this imply for entry into a market? And more generally, should the market price be the deciding factor for market entry decision?&lt;/p&gt;&#xA;" OwnerDisplayName="user7935" LastActivityDate="2016-05-06T11:26:50.077" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11870" PostTypeId="1" CreationDate="2016-05-06T12:45:26.067" Score="2" ViewCount="120" Body="&lt;p&gt;I think something like this can be seen with something like the big mac index: &lt;a href=&quot;http://www.economist.com/content/big-mac-index&quot; rel=&quot;nofollow&quot;&gt;http://www.economist.com/content/big-mac-index&lt;/a&gt;, there you can see that at the cost of one big mac in switzerland you could buy 10 in Venezuela if price is taken in dollars.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a globalized economy like the one we have right now, I think it would make more sense for any consuming good to have aproximately the same price everywhere, (if they have the resources for making the consuming good in their own country it would be then cheaper), then depending on how rich is the country the salaries would be according (salaries would be as much higher for one country to the other as how much richer is that country).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't know about economy, but I'd like to know why that happens. so I'd like in explanation in layman terms if possible.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks for your attention.&lt;/p&gt;&#xA;" OwnerUserId="8193" LastActivityDate="2016-05-06T17:08:13.087" Title="Why are things usually cheaper in absolute terms the poorer a country is?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11871" PostTypeId="1" CreationDate="2016-05-06T14:33:18.690" Score="3" ViewCount="48" Body="&lt;p&gt;There are many risks in the economy that agents could hedge. For example, house prices can go up or down, healthcare costs canchange, gas prices constantly change in fact, food prices,etc. They all change in somewhat unpredictable ways. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, you would think that most firms are exposed to some of these price shifts, but it doesn't seem like most of these firms are buying insurance or hedging against the risks. People also don't hedge. For example, a person that drives an hour to work should hedge gas price risk. Otherwise his net income after gas expenses is quite unpredictable! &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, my question is, why do you think most agents don't hedge most of their risks? Are the transaction costs too high? Are people not financially sophisticated enough? Are financial markets not developed enough? Maybe there's a business model where the local bank branch should sell this kind of insurance/hedging and after some education everybody would be using it!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We could all hedge all kinds of risks, which would actually make everybody else we trade with have more predictable incomes! In fact it makes sense to thing that the government aught to require any agents exposed to big risks to hedge themselves.! Anything wrong with my thinking?  :)&lt;/p&gt;&#xA;" OwnerUserId="7593" LastEditorUserId="7593" LastEditDate="2016-08-13T04:18:43.910" LastActivityDate="2016-08-13T04:18:43.910" Title="Why don't firms and individuals do much more risk management? Couldn't they all hedge all kinds of risks financially?" Tags="&lt;financial-markets&gt;&lt;risk&gt;" AnswerCount="0" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11872" PostTypeId="2" ParentId="11870" CreationDate="2016-05-06T15:04:16.417" Score="1" Body="&lt;p&gt;It does seem kind of puzzling. However, there is one simple explanation. It´s a theory of why this happens, called the Balassa-Samuelson theory.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It takes about three steps to see it: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;The idea is, first, that the productivity in the case of tradable goods is different in the two countries. It takes 100 hours of work in Switzerland to produce a computer. It takes 1000 hours of work in Venezuela to produce a computer. (This is easy to believe, you could think this is the result of Switzerland having more capital, infrastructure, etc.)  Because these computers are tradable, they should have the same price everywhere, once expressed in dollars. So suppose the computer is worth 1000. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The second step is to realize what this means for wages. It means that in Switzerland, people that make computers are paid 1000/100=10 dollars an hour. (Assume the workers get paid the whole price of the computer...), and in Venezuela they get paid 1000/1000 = 1 dollar per hour (!).  &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;The third step is to realize a) that there are many goods that are non-tradable, like restaurant meals. They are usually services. These goods don't have to have the same price everywhere; and b) that there is not such as big a difference in the productivity of these goods across countries.  So it takes one hour of work to make a nice meal in Switzerland and the same in Venezuela. (One way to rationalize this is to see that if you want to invest a lot, you want to invest in producing something that can be sold worldwide, a tradable good. Therefore, rich countries have invested in increasing the productivity of tradable goods.) But now you have the result, because the price of a meal is 10 in Switzerland (1 hour of work) and 1 in Venezuela (1 hour of work) (!!). &lt;/li&gt;&#xA;&lt;/ul&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;In sum, what the Big Mac index reflects is that the price of &lt;em&gt;non-tradeables&lt;/em&gt; is different in a way that reflects the productivity differences in tradable goods.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Magic!&lt;/p&gt;&#xA;" OwnerUserId="7593" LastEditorUserId="7593" LastEditDate="2016-05-06T17:08:13.087" LastActivityDate="2016-05-06T17:08:13.087" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11873" PostTypeId="2" ParentId="11867" CreationDate="2016-05-06T15:05:26.740" Score="2" Body="&lt;p&gt;That that we have linear supply and demand functions, pretty much the simplest case such that quantity supplied of good $i$ is:&#xA;$$ Q_{s,i,t} = \alpha_{0,i,t} + \alpha_{1,i,t} \cdot P_{i,t}$$&#xA;and quantity demanded is:&#xA;$$ Q_{d,i,t} = \beta_{0,i,t} + \beta_{1,i,t} \cdot P_{i,t}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In equilibrium  $Q_{i,t}=Q_{d,i,t}=Q_{s,i,t}$ so substitute and solve:&#xA;$$ Q_{i,t} = \alpha_{0,i,t} + \alpha_{1,i,t} \cdot P_{i,t} = \beta_{0,i,t} + \beta_{1,i,t} \cdot P_{i,t}$$&#xA;$$ P_{i,t} = \frac{\alpha_{0,i,t}-\beta_{0,i,t}}{\beta_{1,i,t} - \alpha_{1,i,t}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As you can see, the price depends on supply and demand. Unfortunately, shifts to the level or slope of either the supply or demand functions both affect the price. Therefore, in  general, you can't tell anything about the supply function from the behavior of the price. And if you can't tell anything about the supply function I don't see how you'd know anything about the IO of the producer industries. &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2016-05-06T18:07:52.677" LastActivityDate="2016-05-06T18:07:52.677" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11875" PostTypeId="1" CreationDate="2016-05-06T19:30:06.357" Score="3" ViewCount="5591" Body="&lt;p&gt;Unless I misunderstood something, seems like risk &#xA;aversion and decreasing marginal utility is the same thing in the utility model, but intuitively, it seems entirely possible that an individual with no decreasing marginal utility is still risk averse. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, I can be exactly twice happier with 1000 dollars than only with 500 dollars. This implies constant marginal utility. With that, I can still be unwilling to enter a bet that pays me +1 or -1 with equal probability and generates an expected return of 0. It is the uncertainty that i do not like, irregardless of marginal utility. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Am i misunderstanding something? Can anyone please explain?&lt;/p&gt;&#xA;" OwnerUserId="8195" LastEditorUserId="4230" LastEditDate="2019-08-13T17:52:31.260" LastActivityDate="2020-05-23T12:34:05.110" Title="Does decreasing marginal utility imply risk aversion?" Tags="&lt;utility&gt;&lt;risk-aversion&gt;" AnswerCount="4" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="11876" PostTypeId="2" ParentId="11875" CreationDate="2016-05-06T19:56:38.333" Score="2" Body="&lt;p&gt;Its one of those cases where math is clearer that words I think:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Yes, the &lt;em&gt;definition&lt;/em&gt; of an agent with utility function $U(C)$ being risk averse is that $E[U(C)]&amp;lt;U(E[C])$ but this is true iff $U''(C)&amp;lt;0$, i.e. if U is concave, i.e. if U'(C) is decreasing.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How would you represent the fact that you are twice as happy with two units than with one unit, but that you don't like the uncertainty? You have that $U(A*C)=A*U(C)$ for any A which directly means $E[U(C)]=U(E[C])$. So you need to add something for you to dislike the uncertainty. You could add something like a 'habit' or an expected consumption $E[C]$, and say that you care not only about how much you consume but also about how close it was to what you expected. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;[Edited to reflect correction suggested by @user1559897]&#xA;Lets call this new utility function $V$ and define it as $V(C,E[C])=U(C)-b*(C-E[C])^2$. Now, if C could be 5 or 10, with E[C]=7.5, then you have that $V(10,10)=U(10)=2*U(5)=2*(V(5,5))$, which looks like risk neutrality, but at the same time, you have $E[V(C,7.5)]&amp;lt;V(7.5,7.5)=V(E[C],7.5)$, which looks like risk aversion! You could then state that, according to the definition, he is risk averse to variation in C &lt;em&gt;after&lt;/em&gt; he forms the expectation $E[C]$, but risk neutral to variation in C &lt;em&gt;before&lt;/em&gt; he forms that expectation. &lt;/p&gt;&#xA;" OwnerUserId="7593" LastEditorUserId="7593" LastEditDate="2016-05-06T20:30:01.723" LastActivityDate="2016-05-06T20:30:01.723" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="11877" PostTypeId="2" ParentId="11875" CreationDate="2016-05-06T22:54:43.167" Score="4" Body="&lt;p&gt;What you are misunderstanding, is that in  expected utility theory, marginal utility is &lt;em&gt;not&lt;/em&gt; an independent concept from &quot;risk aversion&quot;, as the latter is defined &lt;em&gt;in the context of that theory&lt;/em&gt;: &quot;risk aversion&quot; does not mean what it means in everyday language. Being &quot;risk averse&quot; does not mean for the theory &quot;I dislike risk&quot;, because taken literally &quot;disliking risk&quot; would imply that &quot;risk&quot; is a separate entity, or an aspect of a situation, which produces negative utility. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A &quot;risk averse&quot; person is &lt;em&gt;defined&lt;/em&gt; to be a person that has a strictly concave utility function (and so a function with decreasing 1st derivative).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;em&gt;PS:&lt;/em&gt;&lt;/strong&gt; On another front, &quot;being twice happier&quot; reveals that you are considering &lt;em&gt;cardinal&lt;/em&gt; utility, where quantitative comparisons between numeric utilities is considered to be meaningful. Be aware that the predominant paradigm in economics on the matter has been that of &lt;em&gt;ordinal&lt;/em&gt; utility (this does not affect the mathematical properties and relations, only their interpretation).&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2016-05-06T22:54:43.167" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="11878" PostTypeId="1" CreationDate="2016-05-07T02:23:54.780" Score="2" ViewCount="146" Body="&lt;p&gt;I've recently been interested in economics and I admit that my understanding concerning it is limited. However my question is if investing in stocks is good for the economy. From my understanding, it is just the redistribution of ownership and wealth from individuals. The businesses are not gaining money, and so profit can be gained there.  It seems that it would be substantially better for the economy to purchase products directly from the company, so that the businesses may gain money from consumer spending. &lt;/p&gt;&#xA;" OwnerUserId="8196" LastActivityDate="2018-09-25T05:00:11.147" Title="Is it better for economic growth to invest in stocks or to purchase products?" Tags="&lt;consumer-theory&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11879" PostTypeId="1" CreationDate="2016-05-07T04:12:53.480" Score="3" ViewCount="2422" Body="&lt;p&gt;Under the consumption-based model for asset pricing, different people will have different prices because of their different utility functions. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is the force that make the law of one price hold? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You might say that it is a result of no arbitrage, but Kerry Back states in his book Asset Pricing and Portfolio Choice Theory states the following&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The law of one price is a weaker condition than absence of arbitrage opportunities: It is implied by the absence of arbitrage opportunities, but it does not imply the absence of arbitrage opportunities.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Based on this statement, absence of arbitrage is a stronger condition; the law of one price should hold even there is arbitrage in the market. &#xA;So What is the force that make the law of one price hold? &lt;/p&gt;&#xA;" OwnerUserId="8195" LastActivityDate="2016-05-07T19:49:39.450" Title="Under what condition would the law of one price hold?" Tags="&lt;microeconomics&gt;&lt;asset-pricing&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="11880" PostTypeId="2" ParentId="11875" CreationDate="2016-05-07T07:25:26.913" Score="2" Body="&lt;p&gt;This answer is closely related to the points raised by @Fix.B. and @AlecosPapadopoulos, which must be upvoted. But because @user1559897 still asks the question ''what sense does it make under the expected utility theory framework to unify the idea of risk averseness and diminishing marginal utility?'' let me try a different variant.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's define a risk-averse individual as an individual who, at any wealth level $w$, dislikes every lottery with an expected payoff of zero. So, according to this definition, an individual who is risk averse is not willing to enter a bet that pays her/him +1 or -1 with equal probability and generates an expected return of 0. This makes sense because the concavity of the relationship between wealth $w$ and utility $u$ is quite a natural assumption. It simply implies that the marginal utility of wealth is decreasing with wealth: one values a dollar increase in wealth more when one is poorer than when one is richer. Intuitively, the individual will care more about the \$1 loss than the \$1 gain. In contrast if the individual's marginal utility is constant there is no such argument and there is no reason to avoid a bet with an expected payoff of zero.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A very good reference is &lt;a href=&quot;http://press.princeton.edu/titles/7945.html&quot; rel=&quot;nofollow&quot;&gt;Economic and Financial Decisions under Risk&lt;/a&gt; by Louis Eeckhoudt, Christian Gollier, &amp;amp; Harris Schlesinger. The first chapter is &lt;a href=&quot;http://press.princeton.edu/chapters/s7945.pdf&quot; rel=&quot;nofollow&quot;&gt;freely available&lt;/a&gt; and discusses those notions based on Bernouilli's example of Sempronius.&lt;/p&gt;&#xA;" OwnerUserId="6168" LastEditorUserId="6168" LastEditDate="2016-05-07T19:15:30.047" LastActivityDate="2016-05-07T19:15:30.047" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11882" PostTypeId="1" CreationDate="2016-05-07T11:15:31.133" Score="2" ViewCount="589" Body="&lt;p&gt;It makes sense to stochastic discount factor as a function of impatience and marginal utility of consumption, but what is the rationale to project it into the vector space spanned by the payoff vectors? &lt;/p&gt;&#xA;" OwnerUserId="8195" LastActivityDate="2016-05-07T11:15:31.133" Title="What is the intuition behind projecting stochastic discount factor into the vector space spanned by the payoff vectors?" Tags="&lt;asset-pricing&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11884" PostTypeId="2" ParentId="11878" CreationDate="2016-05-07T14:53:13.023" Score="0" Body="&lt;p&gt;Interesting question. Buying goods seems to directly increases output of those goods, while buying stocks doesn't seem to. It makes sense.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some key issues to notice:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Buying a stock is very much like saving. You are effectively giving money to an entrepreneur to build a firm. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Unless there is something else going on, when you save, you put the money in the bank. The bank then less it to a firm. The firm then buys an investment good with that money. So the decision of buying a stock vs. consuming goods is effectively a decision between buying consumption goods and investment goods. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Investment increases the future output of the economy.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Typically, economists don't think about individuals as trying to  improve their country's economic growth. Instead, they think of how an economic system, rules, institutions, etc, generate growth. Importantly,  the assumption is that the growth is the result of everybody acting in accordance to their own private incentives, not the result of people trying to help their country's economy grow. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="7593" LastActivityDate="2016-05-07T14:53:13.023" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="11885" PostTypeId="1" AcceptedAnswerId="15684" CreationDate="2016-05-07T16:31:13.200" Score="1" ViewCount="80" Body="&lt;p&gt;During the last few years, the Fed has been paying banks interest on reserves. Its a strange policy if you want banks to invest their money in the real economy. Why did they do this? Is it a way to recapitalize the banks? Is it a way to guarantee their solvency irrespective of the availability of investment opportunities? Is it a way to limit the potential inflation of QE? &lt;/p&gt;&#xA;" OwnerUserId="7593" LastEditorUserId="2776" LastEditDate="2017-03-07T15:41:38.230" LastActivityDate="2017-03-29T10:54:24.137" Title="What is the logic the Fed used for paying interest on reserves?" Tags="&lt;monetary-policy&gt;&lt;federal-reserve&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11886" PostTypeId="2" ParentId="6682" CreationDate="2016-05-07T17:54:15.710" Score="1" Body="&lt;p&gt;So I don't quite agree with Alecos' answer. Let me give a perspective from corporate finance. The equality you see is based on the budget constraint of the firm. The firm has assets in place. It must've paid for those assets somehow. Either the owners of the firm paid for them (which counts as equity) or lenders to the firm of some form or other paid for them (which counts as debt). How does cash fit in to that framework? Well, in this equation, cash is counted as an asset. The cash had to ultimately come from somewhere too, either directly from external finance or the profits accrued to the firm using assets purchased through external finance. And, cash will eventually go to equity holders or debt holders in some form or another, either through dividends or payment of principle and interest.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Importantly, the firm does not, itself, really 'own' anything. The firm is built of money from other places, and so everything it has is either owed to debt holders or owned by equity holders. That includes the cash it holds.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why does growth require external finance? It doesn't always. If the firm has enough cash from operations to cover any investments it makes it can plug profits from assets in place back into its production and operate for an extended period without injection of additional external finance (it still must've used external finance at some point to buy the productive assets it's currently using). However, it is almost certainly not optimal for the firm to never rely on this internal financing. One reason why is precisely because internal financing is cheap. Imagine that we have a one period firm with some internal funds and a scalable project with decreasing returns. Further, imagine the project always has returns higher than the risk free rate, $r_f$.  Since the firm is only operating for one period, using a dollar of internal funds for the investment project only costs them $(1+r_f)$. But the benefit of investing is always higher than the $(1+r_f)$. So the firm will use up all its internal funds in investing. Then the firm will have to rely on external funds. External funds tend to be more costly, and greater reliance on external funds costs more, so the firm will begin to use external funds until the costs of funding is the equal to the marginal return on investment. That would be the static equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, what would happen if more investment opportunities were to appear? The firm would then be forced to rely on external funds to pay for that investment. And we're back to the relationship above.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But you'll notice in this example the firm will always exhaust the cash it has, either through investing or paying out to equity holders. In a full dynamic model, the firm actually has a benefit to holding cash, as they want to avoid having to rely on costly external finance as much as possible. But it is still the case that for relatively large investment opportunities, they will end up relying on cash. For a model where this holds true, check out &lt;a href=&quot;https://msbfile03.usc.edu/digitalmeasures/deangelo/intellcont/DDW%20JFE%202011%20final%20version-1.pdf&quot; rel=&quot;nofollow&quot;&gt;DeAngelo, DeAngelo and Whited (2011)&lt;/a&gt;. Even in these dynamic models, the market value of assets (including cash) is equal to the value of debt plus the value of equity, modulo some accounting of taxes on corporations, because the value of those assets is the expected discounted value of future cash flows, and those cash flows will all go to either debt holders or equity holders. So the equality still holds.&lt;/p&gt;&#xA;" OwnerUserId="54" LastActivityDate="2016-05-07T17:54:15.710" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11888" PostTypeId="2" ParentId="11879" CreationDate="2016-05-07T19:49:39.450" Score="3" Body="&lt;p&gt;Converting my comments to an answer. The law of one price (LoP) is an economic concept which posits that &quot;a good must sell for the same price in all locations&quot;. This law is derived from the assumption of the inevitable elimination of all arbitrage. Source &lt;a href=&quot;https://en.wikipedia.org/wiki/Law_of_one_price&quot; rel=&quot;nofollow&quot;&gt;wikipedia&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Arbitrage opportunities imply the law of one price but the reverse is not always true. In logic, LoP is a necessary condition for arbitrage but not a sufficient one. In common language, we cannot out rule out the fact that the law of one price may hold without full arbitrage. If the price of an asset is not different for different people, the law of one price holds without assuming full arbitrage. &lt;/p&gt;&#xA;" OwnerUserId="6168" LastActivityDate="2016-05-07T19:49:39.450" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11889" PostTypeId="2" ParentId="11878" CreationDate="2016-05-08T01:10:56.430" Score="1" Body="&lt;p&gt;The means by which purchasing stock effects economic growth is not as clear as purchasing companies' goods.  Nonetheless, there is tremendous benefit for firms (and hence the economy at large) when one decides to purchase their stock, to help understand this I recommend &lt;a href=&quot;http://www.investopedia.com/articles/basics/03/020703.asp&quot; rel=&quot;nofollow&quot;&gt;Why Do Companies Care About Their Stock Prices?&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;First in their IPO, the capital gained they can invest in R&amp;amp;D - as you will learn, some models posit technological shocks are the only effects on long-term economic growth&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Second they continue to benefit from a high stock price in the secondary market with stronger financing and M&amp;amp;A's, and can continue to issue more stock at a higher price will yield more value which they will hopefully use to fund further R&amp;amp;D!&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="5780" LastActivityDate="2016-05-08T01:10:56.430" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="11890" PostTypeId="1" CreationDate="2016-05-08T06:34:42.967" Score="1" ViewCount="350" Body="&lt;p&gt;For example, right now &lt;a href=&quot;http://www.theatlantic.com/business/archive/2015/09/living-wage-calculator-interactive-minimum-wage/404569/&quot; rel=&quot;nofollow&quot;&gt;Livable Wage&lt;/a&gt; hovers around \$20 an hour. That's around \$40,000 a year.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's say the US somehow will give \$50,000 a year as a &quot;Guaranteed basic income&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;How high will the &quot;Livable Wage&quot; go?&lt;/p&gt;&#xA;" OwnerUserId="8209" LastEditorUserId="44" LastEditDate="2016-07-08T23:47:05.863" LastActivityDate="2017-01-05T13:20:18.233" Title="How much inflation will changes to official wage benchmarks cause?" Tags="&lt;inflation&gt;&lt;basic-income&gt;" AnswerCount="4" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11892" PostTypeId="1" CreationDate="2016-05-08T09:58:51.170" Score="1" ViewCount="1346" Body="&lt;p&gt;This &lt;a href=&quot;http://www.investopedia.com/articles/economics/09/adam-smith-wealth-of-nations.asp&quot; rel=&quot;nofollow&quot;&gt;commentator writes&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;On March 9, 1776, &quot;An Inquiry into the Nature and Causes of the Wealth of Nations&quot; (commonly referred to as simply &quot;The Wealth of Nations&quot;) was published. Smith, a Scottish philosopher by trade, wrote the book to upend the mercantilist system. Mercantilism held that wealth was fixed and finite, and that the only way to prosper was to hoard gold and tariff products from abroad. This meant that nations should sell their goods to other countries while buying nothing in return. Predictably, nations fell into rounds of retaliatory tariffs that choked off international trade. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The big idea here is that mercantilism (practiced by some large nations today) and capitalism are two distinct ideas, where the former (from Adam Smith's point of view) is inferior. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Put simply, &lt;a href=&quot;http://www.differencebetween.net/business/difference-between-capitalism-and-mercantilism/&quot; rel=&quot;nofollow&quot;&gt;Mercantilism can be enunciated as&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Mercantilism focuses on wealth accumulation through extraction of wealth which they believe is measured by the amount of gold bullions that the nation has in its possession. Wealth extraction efforts are augmented by colonization to gain more wealth. Mercantilists assert the need for heavy regulation in order to prevent the people from pursuing their natural selfish motives of amassing wealth for themselves instead of enriching their country. They even believe that people should be forced to be patriotic and submit themselves to regulation. Mercantilists go to the extent of prohibiting people from purchasing luxury items because this would mean a large amount of money flowing out of the economy.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In contrast, &lt;a href=&quot;http://www.differencebetween.net/business/difference-between-capitalism-and-mercantilism/&quot; rel=&quot;nofollow&quot;&gt;Capitalism can be contrasted as&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Capitalism is an economic system that works around the concept of wealth creation in the pursuit of economic growth for the nation. Capitalists regard the individual member of society as the central figure in wealth creation. They believe that a nation’s wealth could grow through the productive efforts of each individual. They view individuals as naturally competitive. As such, they will enhance their skills to achieve greater efficiency in adding value to their own wealth and consequently contribute to the economic success of the nation. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;My question is: &lt;strong&gt;What evidence is there that Adam Smith made mistakes in criticizing Mercantilism and upholding capitalism?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is an &lt;a href=&quot;http://www.gradesaver.com/the-wealth-of-nations/study-guide/adam-smith-today-a-smithean-critique-of-american-society&quot; rel=&quot;nofollow&quot;&gt;example of a criticism&lt;/a&gt; of The Wealth of Nations:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The third development that Smith does not seem to have foreseen, and which his line of arguments would seem to criticize, is the growing centrality of conspicuous consumption. While the division of labor and the expansion of the market has led to an increased standard of living, individuals have come to demand increased leisure time. They also increasingly spend money on consumable goods, choosing to consume instead of invest.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Here is another example:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Many 2nd world nations eschew capitalism in favor of mercantilism and severely damage capitalist economies in terms of employment and ability to build wealth. Did Adam Smith predict that capitalism would be weak next to Mercantilism style countries?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="8211" LastEditorUserId="8211" LastEditDate="2016-05-08T21:09:57.513" LastActivityDate="2016-05-08T21:09:57.513" Title="What evidence is there that Adam Smith made mistakes in criticizing Mercantilism and upholding capitalism?" Tags="&lt;labor-economics&gt;&lt;history-economic-thought&gt;&lt;history&gt;&lt;development&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="11893" PostTypeId="1" CreationDate="2016-05-08T14:37:52.057" Score="1" ViewCount="48" Body="&lt;p&gt;I mean, if you had to forecast the price or production volumes of polyethylene or polyurethane, for example, which elements would you include to the model, in addition to oil crude prices/volumes? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The idea was to biuld an econometric model, but I have doubts of which factors I could add into the model, since the focus is to predict oil derivatives and not crude oil &lt;em&gt;per se&lt;/em&gt;.&lt;/p&gt;&#xA;" OwnerUserId="8214" LastActivityDate="2016-06-15T18:25:51.717" Title="Which elements to forecast/estimate Oil/Pretroleum derivatives, would you consider?" Tags="&lt;macroeconomics&gt;&lt;econometrics&gt;&lt;applied-econometrics&gt;&lt;commodities&gt;&lt;oil&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11894" PostTypeId="2" ParentId="11860" CreationDate="2016-05-08T15:18:22.737" Score="3" Body="&lt;p&gt;I am not sure that elasticities converge for arbitrary growth rates.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is a treatment of the issue. Subscripts in $F$ denote partial derivatives. I will omit the time subscript. By definition, the elasticity of the $i$-th input is the ratio of marginal product ($F_i$) over Average Product $(F/x_i)$. So for an elasticity to stabilize intertemporally, it must be the case that the growth rate of the marginal product  is equal to (or equalizes a the limit with) the growth rate of the average product.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For input $x_{1}$ we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {d}{dt} F_1 = F_{11}\dot x_{1} +F_{12}\dot x_{2} +...+F_{1n}\dot x_{n}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;All inputs are strictly positive so we can multiply and divide, and also divide by $F_1$ to obtain the growth rate (denoted by a tilde)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\tilde {F_1} = \frac {dF_1/dt}{F_1}  = \frac{F_{11} x_1}{F_1}\frac{\dot x_{1}}{x_1} + ... +\frac{F_{1n} x_n}{F_1}\frac{\dot x_{n}}{x_n}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first ratio in each term is the elasticity of the $F_1$ with respect to each input, say $\eta_{1k}$. So, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\tilde {F_1} = \sum_{k=1}^n\eta_{1k}g_k $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and analogously for the other inputs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Turning to the average product of the first input, we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {d}{dt} (F/x_1 ) = \frac {F_1x_1 - F}{x_1^2}\dot x_1 + \frac {F_2}{x_1}\dot x_2+...+\frac {F_n}{x_1}\dot x_n$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Manipulating, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {d}{dt} (F/x_1 ) = \left[F_1-\frac {F}{x_1} \right]g_1 + \frac{F}{x_1}\frac{F_2x_2}{F} \frac {\dot x_2}{x_2}+...+\frac{F}{x_1}\frac{F_nx_n}{F} \frac {\dot x_n}{x_n}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$= \frac {F}{x_1}\cdot \Big( (e_1-1)g_1 + e_2g_2 + ...+ e_ng_n\Big)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies \frac {d(F/x_1)/dt}{(F/x)} = \tilde F - g_1 = \sum_{k=1}^ne_kg_k - g_1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So for all elasticities to stabilize (and so for $\tilde F$ to stabilize) we want, at least eventually, that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \forall i=1,...,n\;\;\;  \sum_{k=1}^n\eta_{ik}g_k = \sum_{k=1}^ne_kg_k - g_i$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Denoting $\mathbf H$ the $n\times n$ the matrix of the elasticities of the marginal products, $\mathbf I_n$ the identity matrix, $\mathbf e$  an $n \times 1$ vector containing the output elasticities $e_i$, $\mathbf i$ a column vector of ones, and $\mathbf g$ the $n \times 1$ column vector of growth rates of inputs, we can write the conditions for all elasticities to be stable compactly , as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\big(\mathbf H + \mathbf I_n - (\mathbf i \oplus \mathbf e')\big)\mathbf g =0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I note that the sum-of-matrices term does &lt;em&gt;not&lt;/em&gt; depend at all on the growth rates vector. So the above orthogonality condition cannot hold for arbitrary $\mathbf g$ (except if I am neglecting some property stemming from the homogeneity of $F$). &lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2016-05-08T15:34:18.513" LastActivityDate="2016-05-08T15:34:18.513" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11896" PostTypeId="2" ParentId="11213" CreationDate="2016-05-08T17:40:32.300" Score="0" Body="&lt;p&gt;Boeing constantly needs subsidies from the US government to compete with AIRBUS that constantly needs subsidies from the EU. They will most probably continue to coexist for a long time for political reasons, also because of the relevance of their engineering for the military, which is seen as a public good. Development of new aircraft is VERY costly and sometimes fails. Uber is well established and the company now makes profit at very low cost out of the work of zillions of others. There are way more people using taxis every day than there are companies that buy new aircraft. Plus the uber principle has the potential to be expanded to other areas. Boeing is an old, big and kind of bureaucratic company from which most investors would not expect revolutionary new ideas that we have not seen from them in the past decades.&lt;/p&gt;&#xA;" OwnerUserId="7215" LastEditorUserId="7215" LastEditDate="2019-07-04T10:21:11.373" LastActivityDate="2019-07-04T10:21:11.373" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="11897" PostTypeId="1" AcceptedAnswerId="11899" CreationDate="2016-05-08T21:00:09.570" Score="4" ViewCount="108" Body="&lt;p&gt;Are there particular taxes or subsidies or public goods that a country's economic authority could implement to help in the fight against corruption? While the rule of law seems to be the first order issue, and often government is where a large part of corruption exists,  it's still seems like it's  phenomenon that could be affected by economic policy.  Taxes, expenditure rules, purchasing rules, etc, are potentially useful. Maybe!&lt;/p&gt;&#xA;" OwnerUserId="7593" LastEditorUserId="7593" LastEditDate="2016-07-21T03:28:42.610" LastActivityDate="2016-07-21T03:28:42.610" Title="Are there economic policies that help countries fight corruption?" Tags="&lt;taxation&gt;&lt;fiscal-policy&gt;&lt;subsidies&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11898" PostTypeId="2" ParentId="10361" CreationDate="2016-05-08T21:55:14.173" Score="0" Body="&lt;p&gt;For corporate finance, a big question is &quot;How does activity X by firms affect shareholder wealth?&quot; Irrelevance propositions (eg Modigliani and Miller) argue that under some conditions, a particular activity leaves shareholder wealth unchanged (eg debt levels are irrelevant to firm value). Complete markets make it so that disagreements about payout policy can be &quot;traded away&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I wouldn't call finance a science. There aren't really analogs of physical constants, for example.&lt;/p&gt;&#xA;" OwnerUserId="7303" LastActivityDate="2016-05-08T21:55:14.173" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11899" PostTypeId="2" ParentId="11897" CreationDate="2016-05-08T23:30:13.510" Score="4" Body="&lt;p&gt;Kaushik Basu has proposed (&lt;a href=&quot;http://finmin.nic.in/WorkingPaper/Act_Giving_Bribe_Legal.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Why, for a Class of Bribes, the Act of Giving a Bribe should  be Treated as Legal&lt;/a&gt;) &lt;strong&gt;legalizing paying bribes&lt;/strong&gt; to separate the ties of criminality between the bribe payer and receiver. This allows the bribe payer to pay the bribe and report the bribe taker. If bribe paying is illegal then the shared criminality prevents this.&lt;/p&gt;&#xA;&lt;p&gt;Dina Pomeranz empirically examines the widely held belief that &lt;strong&gt;VAT taxes discourage tax evasion&lt;/strong&gt; (&lt;a href=&quot;http://www.hbs.edu/faculty/Publication%20Files/pomeranz_no_taxation_without_information_c2f18227-578f-4259-b75b-f62f2e113217.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;No Taxation without Information Deterrence and Self-Enforcement in the Value Added Tax&lt;/a&gt;) and finds that they do indeed discourage tax evasion:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Claims that the VAT facilitates tax enforcement by generating paper&#xA;trails on transactions between  firms contributed to widespread VAT&#xA;adoption worldwide, but there is  surprisingly  little  evidence. This  paper  analyzes  the  role  of  third  party  information for&#xA;VAT enforcement through two randomized experiments among over 400,000&#xA;Chilean  firms.  Announcing additional monitoring has less impact on&#xA;transactions that are subject to a paper trail, indicating the paper&#xA;trail's preventive deterrence effect. This leads to strong enforcement&#xA;spillovers up the VAT chain.  These  findings confirm that when taking&#xA;evasion into account, significant differences emerge between otherwise&#xA;equivalent forms of taxation.&#xA;Other forms of taxation that are harder to monitor and enforce provide more opportunities for corruption and so switching to a broad VAT may reduce corruption.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Another possibility is &lt;strong&gt;outsourcing corruption enforcement&lt;/strong&gt;:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;The International Commission against Impunity in Guatemala (Spanish:&#xA;Comisión Internacional contra la Impunidad en Guatemala, CICIG) is an&#xA;international body charged with investigating and prosecuting serious&#xA;crime in Guatemala. It was created on December 12, 2006, when the&#xA;United Nations and Guatemala, under the government of Óscar Berger,&#xA;signed a treaty-level agreement setting up CICIG as an independent&#xA;body to support the Public Prosecutor's Office (Procuraduría General&#xA;de la Nación), the National Civilian Police (Policía Nacional Civil)&#xA;and other state institutions in the investigation of a limited number&#xA;of sensitive and difficult cases. The ultimate goal is that through&#xA;CICIG's work, national judicial sector institutions will be&#xA;strengthened to continue to confront illegal groups and organized&#xA;crime in the future.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/International_Commission_against_Impunity_in_Guatemala&quot; rel=&quot;nofollow noreferrer&quot;&gt;Wikipedia: International Commission Against Impunity in Guatemala (CICIG)&lt;/a&gt;&lt;/p&gt;&#xA;&lt;p&gt;&lt;strong&gt;Civil service exams&lt;/strong&gt; (as opposed to &lt;a href=&quot;http://aas.sagepub.com/content/29/6/623.short&quot; rel=&quot;nofollow noreferrer&quot;&gt;the spoils system which still has defenders&lt;/a&gt;) were, among other reasons, adopted as an anti-corruption mechanism. Perhaps these countries could also adopt such exams.&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;This article traces a number of cases of graft in Zambia to show the&#xA;importance of this practice within the political system. Graft is&#xA;treated as one element of a spoils system through which clientelism&#xA;operates and through which, more generally, the state is used as a&#xA;resource for private ends. Graft and patronage are shown to have&#xA;negative consequences for the state through undermining efficiency and&#xA;legitimacy and displacing policy ends. But perhaps most importantly,&#xA;it is argued that graft ultimately involves a transfer of wealth&#xA;between classes and more specifically is an important factor in the&#xA;growth of an indigenous owning class.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.tandfonline.com/doi/abs/10.1080/03056248208703496&quot; rel=&quot;nofollow noreferrer&quot;&gt;Political graft and the spoils system in Zambia — the state as a resource in itself&lt;/a&gt;&lt;/p&gt;&#xA;&lt;p&gt;&lt;strong&gt;Well defined property rights&lt;/strong&gt; provide fewer opportunities for regulatory discretion and therefore fewer opportunities for bribe takers to exert influence. Easier said that done.&lt;/p&gt;&#xA;&lt;p&gt;&lt;strong&gt;Restrict financial privacy of and gift taking, side-employment, and post-employment by government employees&lt;/strong&gt;. May be hard to enforce in low-development societies.&lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2016-05-09T09:19:03.760" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11900" PostTypeId="1" AcceptedAnswerId="11904" CreationDate="2016-05-09T01:03:56.470" Score="4" ViewCount="485" Body="&lt;p&gt;&lt;strong&gt;First:&lt;/strong&gt; Given this definition of the Independence Axiom,&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;If for all &lt;span class=&quot;math-container&quot;&gt;$P$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$P'$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$P''$&lt;/span&gt; in the set of lotteries over outcome space &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt;, when:&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$P$&lt;/span&gt; preferred to &lt;span class=&quot;math-container&quot;&gt;$P'$&lt;/span&gt; &lt;span class=&quot;math-container&quot;&gt;$\implies$&lt;/span&gt; &lt;span class=&quot;math-container&quot;&gt;$aP + (1-a)P''$&lt;/span&gt; preferred to &lt;span class=&quot;math-container&quot;&gt;$aP' + (1-a)P''$&lt;/span&gt; for all &lt;span class=&quot;math-container&quot;&gt;$a$&lt;/span&gt; in &lt;span class=&quot;math-container&quot;&gt;$(0,1)$&lt;/span&gt;.&amp;quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Can I do what I do here?&lt;/p&gt;&#xA;&lt;p&gt;Then &lt;span class=&quot;math-container&quot;&gt;$P$&lt;/span&gt; preferred to &lt;span class=&quot;math-container&quot;&gt;$P'$&lt;/span&gt; &lt;span class=&quot;math-container&quot;&gt;$\implies$&lt;/span&gt; &lt;span class=&quot;math-container&quot;&gt;$P$&lt;/span&gt; preferred to &lt;span class=&quot;math-container&quot;&gt;$aP' + (1-a)P$&lt;/span&gt; for all &lt;span class=&quot;math-container&quot;&gt;$a$&lt;/span&gt; in &lt;span class=&quot;math-container&quot;&gt;$(0,1)$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;p&gt;&lt;strong&gt;Second:&lt;/strong&gt;&#xA;Does satisfaction of the Independence Axiom rely on the statistical independence of the lotteries involved? It doesn't seem to be mentioned anywhere I've looked.&lt;/p&gt;&#xA;&lt;p&gt;Any direction that can be offered is greatly appreciated.&lt;/p&gt;&#xA;" OwnerUserId="8217" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2016-05-09T20:35:57.387" Title="Does the Independence Axiom Require Statistical Independence?" Tags="&lt;microeconomics&gt;&lt;expected-utility&gt;&lt;probability&gt;&lt;uncertainty&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11902" PostTypeId="2" ParentId="11890" CreationDate="2016-05-09T06:26:21.703" Score="1" Body="&lt;p&gt;.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;From &lt;a href=&quot;http://www.investopedia.com/terms/i/inflation.asp&quot; rel=&quot;nofollow&quot;&gt;Investopedia&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Inflation is the rate at which the general level of prices for goods and services is rising and, consequently, the purchasing power of currency is falling. Central banks attempt to limit inflation, and avoid deflation, in order to keep the economy running smoothly.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The Consumer Price Index (CPI) is your best measure of inflation which is (put simply) the change in cost of a representative basket of goods. Each country measures this in a slightly different way.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you are looking for a numerical increase in inflation, you'll be disappointed. A Basic Income has quite a few effects making this difficult to model. There are anticipated significant impacts on labour/leisure as well as consumption bundles. Also, inflation itself is difficult to model. To make things worse, many reserve banks target inflation with their monetary policy. So you're unlikely to ever get any empirical evidence as well.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Anyway:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Why would increasing income of lower income earners have an inflationary impact at all?&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An increase in welfare should result in higher incomes. Higher income leads to higher consumption (or quantity demanded) which should lead to an increase in prices. But, this is only a one-off increase, not an ongoing source of inflation. I would be hesitant to call this inflation and would prefer to call it a permanent demand shock.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Unfortunately, I am not aware of any estimates of this impact but I would expect it the long term impact quite small. The higher the basic income, the greater the impact.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also worth noting:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;I can't think why this would be any more inflationary than any other form of welfare&lt;/strong&gt;.&lt;/p&gt;&#xA;" OwnerUserId="40" LastActivityDate="2016-05-09T06:26:21.703" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11904" PostTypeId="2" ParentId="11900" CreationDate="2016-05-09T12:34:23.013" Score="2" Body="&lt;p&gt;First Question:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Yes, you can obtain $P \succsim P' \Rightarrow P \succsim a P' + (1-a)P \forall a\in (0,1)$ from setting $P''=P$ in the axiom. Thus, your new condition is a special case of the independence axiom as stated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Second Question:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Statistical independence of $P,P',P''$ is not assumed in the independence axiom. The notion of statistical independence of lotteries is not even meaningful since you can only choose one lottery. Only when you would choose multiple lotteries at the same time their dependence would matter since you may be able to reduce/increase risk by combining lotteries which are not independent.&lt;/p&gt;&#xA;" OwnerUserId="5635" LastActivityDate="2016-05-09T12:34:23.013" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11905" PostTypeId="2" ParentId="1591" CreationDate="2016-05-09T13:42:26.827" Score="3" Body="&lt;p&gt;Apparently it's deposit accounts, which I think means &lt;em&gt;both&lt;/em&gt; savings and checking accounts. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;No, brokerage accounts are definitely not it, as they do not represent a liability for the bank. The issue is that the 'bail-in&quot; is a reduction in the debt the bank has towards its depositors. When you own 100 of deposits, it's the bank that owes you, but when you owe a brokerage account that owns 100 of stocks, the bank owes you nothing. So, you received a statement from the bank saying you had 200000 euros in your account, then they impose a 40% levy on the uninsured part (100000). So next month you receive a bank statement that says you have now have 160000 in your account... &lt;/p&gt;&#xA;" OwnerUserId="7593" LastActivityDate="2016-05-09T13:42:26.827" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11906" PostTypeId="2" ParentId="11315" CreationDate="2016-05-09T13:52:33.157" Score="1" Body="&lt;p&gt;The most useful way of thinking of a Computational Economist is one that will be able to estimate economic models in a quantitatively meaningful way. This makes them very useful for central banks which have the need to study the macroeconomy quantitatively and also have the time and resources to invest in a computational economist...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Other ways to look at this question:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The conferences by the society for computation economics are all populated by academic economists or by central bank economists. &lt;a href=&quot;http://www.iscef.com/4/program-committee.html&quot; rel=&quot;nofollow&quot;&gt;enter link description here&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The job-board sites, mostly ask for data scientists when you type in computational economics. &lt;a href=&quot;http://www.indeed.com/q-Computational-Economics-jobs.html&quot; rel=&quot;nofollow&quot;&gt;enter link description here&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Commentators at the job econ rumors site claim two things: that computational economics is forever going to be the science of the future, but never the presently hot science.&lt;a href=&quot;http://www.econjobrumors.com/topic/computational-economics-2&quot; rel=&quot;nofollow&quot;&gt;enter link description here&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="7593" LastEditorUserId="7593" LastEditDate="2016-05-14T19:39:30.620" LastActivityDate="2016-05-14T19:39:30.620" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11907" PostTypeId="1" AcceptedAnswerId="12066" CreationDate="2016-05-09T13:57:30.960" Score="3" ViewCount="136" Body="&lt;p&gt;The economic growth rate of Latin America has been about 3% per year for decades; but if you have ever visited, many of the natives have: internet, smartphones, tomography, hybrid cars, etc. &#xA;Why don't they catch up when they adopt cutting edge technology? &lt;/p&gt;&#xA;" OwnerUserId="7593" LastEditorUserId="7593" LastEditDate="2016-05-17T14:26:43.280" LastActivityDate="2016-05-18T09:45:17.773" Title="Why do developing countries adopt 21st century technology, but stay behind in output per capita?" Tags="&lt;economic-growth&gt;&lt;technology&gt;&lt;endogenous-growth&gt;" AnswerCount="1" CommentCount="4" FavoriteCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="11908" PostTypeId="2" ParentId="11900" CreationDate="2016-05-09T15:31:39.070" Score="2" Body="&lt;p&gt;The second question of the OP is an important one, because it asks for clarification on a matter that I have never seen explicitly clarified.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Independence Axiom is defined over simple lotteries. A simple lottery is a set of probabilities that add up to one, and the fixed values (&quot;outcomes&quot;) associated with each probability. But these together form a (marginal) statistical distribution. So we can think of a simple lottery as a random variable characterized by/following this distribution.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $L'$, $L''$ and $L'''$ be three such random variables. The preferences of a  decision maker that obeys the Independence Axiom satisfy&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$L \succsim L' \;\;\text {if and only if}\;\; aL+(1-a)L'' \succsim aL' + (1-a)L'',\;\; a\in (0,1)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that the Independence Axiom talks about &lt;em&gt;preferences over random variables&lt;/em&gt;. $L \succsim L'$ is translated &quot;I prefer random variable $L$ to random variable $L'$&quot;, which in more detail means &quot;I prefer that my fortunes are submitted to the uncertainty represented by random variable $L$ than to the uncertainty represented by random variable $L'$.&quot; We do not ask why the decision maker prefers that. We do not ask what is the statistical relationship between the two, we just take the preference statement as a primitive given. Then, we say that under the Independence Axiom, &quot;if this is so, then the RHS preference relation also holds, and vice versa&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How are we to translate verbally the expression $aL+(1-a)L''$, or  $aL' + (1-a)L''$? The &lt;em&gt;crucial issue here is the interpretation of $a$&lt;/em&gt;, as well as  &lt;em&gt;to what mathematical operation the expression $aL$ translates into&lt;/em&gt;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is $a$? Is it a &lt;em&gt;fixed, deterministic&lt;/em&gt; &quot;mixture coefficient&quot;? Or is it a &lt;em&gt;probability&lt;/em&gt;, and so  $aL+(1-a)L''$ is a &lt;em&gt;compound&lt;/em&gt; gamble?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The distinction is, again, crucial: if $a$ is a &lt;em&gt;constant&lt;/em&gt; and $aL$ represents a multiplication of values with the values (outcomes) $L$ takes, then  $aL+(1-a)L''$ is plain convex combination of two random variables, and analogously for $aL' + (1-a)L''$. But then, we cannot rationally defend the Independence Axiom, exactly because there may be stochastic dependence involved between the three simple lotteries such that it may reverse the preference between the two convex combinations. Where moreover $aL$ would mean &quot;multiplication of the random variable $L$ by $a$&quot;. &lt;em&gt;But this is not the case&lt;/em&gt; (See  &lt;a href=&quot;https://economics.stackexchange.com/a/8695/61&quot;&gt;&lt;strong&gt;this post&lt;/strong&gt;&lt;/a&gt; as regards the interpretation of $aL$).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &quot;optimal portfolio choice&quot; (which from a comment appears to be the concern of the OP), falls into such a framework, and we can see that it cannot be linked to the Independence Axiom.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Continuing, we are necessarily led to view $a$ as something else than a constant. In fact it is treated as a probability, and so the mixture as being a compound gamble. Is a compound gamble also a random variable? It is, but of different nature: if $a$ is meant to reflect a probability, a new source of randomness appears. $a$ here is the &quot;probability of success&quot; of a Bernoulli rv, say $B$, which moreover, is statistically independent from the three simple lotteries. But then ex ante we are essentially looking at the random variable&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$B\cdot L + (1-B)\cdot L'',\;\; B \sim Bern(p=a)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and likewise for the other combination (and this is the correct way to write it, in the notation of mathematical statistics). Here the Independence Axiom acquires some intuitive justification:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;Assume that you prefer $L$ to $L'$. Then, if you were asked &quot;what do&#xA;  you prefer: to be subjected to &quot;either $L$ or $L''$&quot; with some probability&#xA;  structure (the $B$), or to be  subjected to &quot;either $L'$ or $L''$&quot; with the&#xA;  same probability?&quot; It appears reasonable to say &quot;since I prefer $L$ to&#xA;  $L'$, then I prefer the situation where $L$ is present, rather than&#xA;  the one where $L'$ is present&quot;.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Unfortunately, this discussion is not explicitly made in the microeconomic books I know of, and moreover the standard notation is with the $a$'s rather than with the Bernoulli rv.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sometimes there is some discussion on the matter. Consider for example &lt;strong&gt;Mas-Colell, Whinston-Green, p. 172.&lt;/strong&gt; After stating the Independence Axiom in p. 171, they write (bold my emphasis)&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;Assume for example that $L \succsim L'$ and $a=1/2$. Then $aL + (1-a)L'&quot;$ can be thought of as the compound lottery &lt;strong&gt;arising from a&#xA;  coin toss&lt;/strong&gt; in which the decision maker gets $L$ if heads comes up and&#xA;  $L''$ if tails does.&quot;&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;But this description essentially says that $a$ here is the random variable $B$, not some fixed deterministic mixture coefficient.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And a few lines below&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;In the theory of consumer demand, for example, there is no reason to believe that a consumer's preferences over various bundles of goods 1&#xA;  and 2 should be independent of the quantities of the other goods that&#xA;  he will consume.(...) In the present context however (...) this other outcome, $L''$ should be irrelevant&#xA;  to his choice because, in contrast with the consumer context, he does&#xA;  &lt;strong&gt;not&lt;/strong&gt; consume $L$ or $L'$ &lt;strong&gt;together&lt;/strong&gt; with $L''$ but rather, only &lt;strong&gt;instead&lt;/strong&gt;&#xA;  of it (if $L$ or $L'$ is the realized outcome)&quot;&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This essentially says again that $a$ in reality is not a mixture constant, but it represents a binary random variable independent of the simple lotteries (our $B$). Unfortunately, the notation used (the $a$) is a notation usually reserved for constants. Moreover the expression $aL$ does not imply multiplication of $L$ by some constant $a$, but it is equivalent to the product random variable $B\cdot L$, with $B$ a Bernoulli random variable and $P(B=1) = a$.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2016-05-09T16:58:13.890" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11909" PostTypeId="1" AcceptedAnswerId="11913" CreationDate="2016-05-09T16:22:57.227" Score="1" ViewCount="60" Body="&lt;p&gt;In Thomas Sowell's book titled, &quot;Basic Economics&quot;, he says the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;i&gt;&quot;Unmet needs&quot; are inherent in these circumstances, whether we have a capitalist, socialist, feudal, or other kind of economy. These various kinds of economies are just different institutional ways of making trade-offs that are inescapable in any economy.&lt;/i&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;He has been talking about what scarcity means and what it implies - &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;i&gt;It means (Scarce) that what everybody wants adds up to more than there is. What this implies is that there are no easy &quot;win-win&quot; solutions but only serious and sometimes painful trade-offs. &lt;/i&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a real world context, what would be some big trade-offs that  the U.S., specifically, has made? And, what have been some consequences or maybe some pros of those decisions? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reason I am asking this is because I can't really 'picture' what exactly a trade-off is. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks for your time! &lt;/p&gt;&#xA;" OwnerUserId="8186" LastEditorUserId="1601" LastEditDate="2016-05-09T17:40:22.020" LastActivityDate="2016-05-09T18:06:48.140" Title="What have been some trade-offs that the U.S. has made?" Tags="&lt;political-economy&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11912" PostTypeId="1" AcceptedAnswerId="11914" CreationDate="2016-05-09T17:37:40.037" Score="2" ViewCount="334" Body="&lt;p&gt;Consider an exchange economy with two individuals and 2 commodities. The endowments of the commodities are 1 each. Which one of the following are Pareto Optimum.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;a. {$\frac{1}{2},\frac{1}{2},(\frac{1}{2}\frac{1}{2})$} b. {$(\frac{1}{4},\frac{1}{4}),(\frac{1}{2}\frac{1}{2})$} c. {$(\frac{3}{4},\frac{3}{4}),(\frac{1}{2},\frac{1}{2})$} d. None of the above.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have a hunch that it is d. I am assuming that preferences are perfect complements and hence all the options from a to c will give the two individuals lesser utility. Hence d. Is this the right way to go about it. If not, please help?&lt;/p&gt;&#xA;" OwnerUserId="8223" LastEditorUserId="8223" LastEditDate="2016-05-10T00:24:28.007" LastActivityDate="2016-05-10T00:24:28.007" Title="Finding Pareto Optimality" Tags="&lt;microeconomics&gt;&lt;pareto-efficiency&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11913" PostTypeId="2" ParentId="11909" CreationDate="2016-05-09T17:55:53.237" Score="1" Body="&lt;p&gt;It might be easier to grasp the idea of a tradeoff by framing the concept at a less-than-national scale. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;At a personal level, you might think of a tradeoff as giving up a little bit of one thing so you can have a little bit more of another. So, maybe you save your lunch money for a few weeks so you can get new shoes. The thing that is scarce here is money. You save your money (you accumulate your scarce resource) by forgoing lunch (the sacrifice) and then buy new shoes (the gain). The tradeoff is the lunch/shoes. You were a bit hungry so that could dress better and impress the ladies. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is a bit naive but it illustrates the idea here: a tradeoff is just achieving a balance between desirable but incompatible/mutually exclusive things.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A better example that actually answers your question (all nations face this) is the unemployment/inflation tradeoff mapped by the Phillips curve. Here, the tradeoff is the rate of unemployment a nation must endure relative to the amount of inflation a nation must endure. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As you can see in the image, reducing inflation comes at the cost of increasing unemployment and reducing unemployment bears the cost of increased inflation. Thus, a nation must optimize its outcome by striking a balance between the two. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/UlgWh.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/UlgWh.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;That should be enough for you to think of what tradeoffs America faces. A good place to look might be at national budgeting decisions. The recent financial crisis certainly forced some big decisions. If you understand the concept it is relatively easy to identify tradeoffs. &lt;/p&gt;&#xA;" OwnerUserId="1655" LastEditorUserId="1655" LastEditDate="2016-05-09T18:06:48.140" LastActivityDate="2016-05-09T18:06:48.140" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11914" PostTypeId="2" ParentId="11912" CreationDate="2016-05-09T18:00:37.480" Score="4" Body="&lt;p&gt;To be a Pareto optimum, there must not exist another feasible allocation that makes every agent at least as well off and one or more agents strictly better off. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, let us consider the options here. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Answer B - look at the individual allocations here and consider them relative to the economy's total endowment. Since the allocations given here do not exhaust the economy's total endowment, we could make one of the agents better off by simply giving him some of what has not been allocated. Doing this would not make the other agent worse off. So B cannot be P.O. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Answer C - Consider the allocations here relative to the total endowment. Is such an allocation feasible? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Answer A - Has the total endowment been allocated? If so, is there any way to increase what one agent has without decreasing what the other has? &lt;/p&gt;&#xA;" OwnerUserId="1655" LastEditorUserId="1655" LastEditDate="2016-05-09T22:36:11.503" LastActivityDate="2016-05-09T22:36:11.503" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="11916" PostTypeId="1" CreationDate="2016-05-09T18:40:25.133" Score="1" ViewCount="48" Body="&lt;p&gt;I'm downloading data on inflation in different countries, and using the World Bank's World Development Indicators (WDI). Specifically, the Consumer Price Index series (CPI). (&lt;a href=&quot;http://data.worldbank.org/indicator/FP.CPI.TOTL&quot; rel=&quot;nofollow&quot;&gt;http://data.worldbank.org/indicator/FP.CPI.TOTL&lt;/a&gt;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Current edition of WDI (annual CPI data) has some weird missing data series. There is no data provided for CPI in the UK from 1960-1987. The series for China starts in 2010. For Argentina, no data until 2014.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I could certainly believe there is insufficient data for some countries in some years (say, France during World War II). But it's hard to believe that data in the UK were insufficient to calculate a CPI prior to 1988. Similarly for the other examples.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Anyone have any ideas?&lt;/p&gt;&#xA;" OwnerUserId="8224" LastEditorUserId="8224" LastEditDate="2016-05-09T20:03:41.653" LastActivityDate="2016-05-09T20:03:41.653" Title="Why is the current WDI missing CPI data for some countries (including the UK and China)?" Tags="&lt;inflation&gt;&lt;financial-economics&gt;&lt;international-economics&gt;&lt;micro-data&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11917" PostTypeId="1" CreationDate="2016-05-09T22:10:50.957" Score="1" ViewCount="112" Body="&lt;p&gt;[Rewritten to express issues in economics terms:]&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In terms of the classic economic rational actor (Aka homo economicus) is there some rationale to want to know the child's gender before it is born. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Potential  economic advantages of knowing ahead of time:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Smaller decisions space for choosing a name&lt;/li&gt;&#xA;&lt;li&gt;Can purchase items in advance&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Potential disadvantages of knowing ahead of time:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Is there a utility of surprise?&lt;/li&gt;&#xA;&lt;li&gt;Are excess purchasing impulses easier to control if you don't know the gender?&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I would like to understand this in the framework of the classic rational actor (Assuming they would ever want to have a child)&lt;/p&gt;&#xA;" OwnerUserId="7946" LastEditorUserId="40" LastEditDate="2016-05-10T03:36:10.357" LastActivityDate="2016-09-08T16:26:56.013" Title="Is there an economic rationale for wanting to know the gender of a child before it is born?" Tags="&lt;behavioral-economics&gt;" AnswerCount="3" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="11918" PostTypeId="5" CreationDate="2016-05-09T22:30:49.670" Score="0" Body="" OwnerUserId="-1" LastEditorUserId="-1" LastEditDate="2016-05-09T22:30:49.670" LastActivityDate="2016-05-09T22:30:49.670" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11919" PostTypeId="4" CreationDate="2016-05-09T22:30:49.670" Score="0" Body="Classical economics refers to work done by a group of economists in the eighteenth and nineteenth centuries. They developed theories about the way markets and market economies work. The study was primarily concerned with the dynamics of economic growth. It stressed economic freedom and promoted ideas such as laissez-faire and free competition." OwnerUserId="40" LastEditorUserId="40" LastEditDate="2016-05-11T13:53:03.900" LastActivityDate="2016-05-11T13:53:03.900" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11920" PostTypeId="1" CreationDate="2016-05-10T00:59:00.297" Score="1" ViewCount="47" Body="&lt;p&gt;This is a question comes from &lt;a href=&quot;https://www.econ.berkeley.edu/sites/default/files/Advanced%20Theory%20Field%20Exam%20Jan%2016.pdf&quot; rel=&quot;nofollow&quot;&gt;Field Exam in Advanced Economics Theory (Jan 2016)&lt;/a&gt; from UCB Econ Dept. In the first problem (Q1), it asks:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;b) How does welfare relative to the full information welfare depend on $\alpha$ and $\delta$?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I have never seen such expression before. What does the phrase &quot;welfare relative to the full information welfare&quot; mean?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My wild guess is to set up the total welfare as a function of $\alpha$ and $\delta$? Thanks in advance.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit 1. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am asked to &quot;type the question out so that we don't have to follow a link to see it.&quot; So here it goes:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Consider a two period bargaining model in which an uninformed buyer makes&#xA;  offers. If there is trade in period 1 the payoffs are ${\alpha}q-p$ for the buyer and $p-q$ for the seller where $p$ is the price and $q$ is the quality and ${\alpha}.0$. We assume the realization of q is only known to the seller and drawn from a Uniform $(0,1)$. If instead they trade in the second period their payoffs from a time zero perspective are ${\delta}({\alpha}q-p)$ and ${\delta}(p-q)$ for ${\delta}\in [0,1]$ and if they don't trade they get 0.  &lt;br/&gt;&#xA;  &lt;br/&gt;&#xA;  a) Show that the equilibrium will be characterized by two cutoff types&#xA;  $q_1({\alpha};{\delta}) \in [0,1]$ and $q_2({\alpha};{\delta})\in [q_1,1]$ such that types $q &amp;lt; q_1$ trade in the first period and that types $q$ such that $q_1\leq q \leq q_2$ trade in second period and finally types above $q_2$ do not trade.  &lt;br/&gt;&#xA;  &lt;br/&gt;&#xA;  b) How does welfare relative to the full information welfare depend on $\alpha$ and $\delta$?(If you find this hard to do analytically, at least work out a few examples with low and high values and explain)  &lt;br/&gt;&#xA;  &lt;br/&gt;&#xA;  c) Assume ${\alpha} = 1.7$ and ${\delta} = 0.8$ and suppose that with probability ${\gamma}$ in the second period another buyer arrives in the market in which case, they both simultaneously submit offers to the seller. How does welfare relative to the full information welfare depend on ${\gamma}$? (Do only the ${\gamma} = 1$ case if you are short on time.)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="8069" LastEditorUserId="8069" LastEditDate="2016-05-10T02:19:14.687" LastActivityDate="2016-11-22T00:30:09.330" Title="Confused by the Term &quot;Welfare Relative to Full Information Welfare&quot;" Tags="&lt;game-theory&gt;&lt;definition&gt;&lt;welfare&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11921" PostTypeId="2" ParentId="11893" CreationDate="2016-05-10T02:39:12.870" Score="1" Body="&lt;p&gt;Often people will first find a &lt;em&gt;spread&lt;/em&gt; between the derivative products and the base one. This spread, is likely to be a reflection of the marginal cost of refining that last unit of the derivative product. Therefore it is likely to depend on demand relative to supply of &lt;em&gt;refining capacity&lt;/em&gt;: If there's a new refinery for this product coming online, then you'd expect the spread to fall. If the demand for construction goods that use this refined product is increasing, then you'd expect and increase in the spread. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Often several plastics and refined produces are substitutes of each other, like natural gas and gasoline are somewhat substitutable for each other. I would use the recent price of the other refined products to predict the price of polyethylene or polyurethane or its spread w/respect to crude oil.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This wikipedia article &lt;a href=&quot;https://en.wikipedia.org/wiki/Crack_spread&quot; rel=&quot;nofollow&quot;&gt;has more on the spread&lt;/a&gt; and how people think it is determined.&lt;/p&gt;&#xA;" OwnerUserId="7593" LastEditorUserId="7593" LastEditDate="2016-05-16T18:12:27.137" LastActivityDate="2016-05-16T18:12:27.137" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11923" PostTypeId="1" CreationDate="2016-05-10T06:16:31.053" Score="1" ViewCount="52" Body="&lt;p&gt;fixed capital: any kind of real or physical capital (fixed asset) that is not used up in the production of a product&lt;/p&gt;&#xA;&#xA;&lt;p&gt;public goods: goods that are non-rival and non-excludable in consumption&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Both of the terms above seemed like they are talking about something similar so can I say that fixed capital all belong to the category of public goods?&lt;/p&gt;&#xA;" OwnerUserId="8228" LastActivityDate="2016-07-09T13:56:29.733" Title="Are all fixed capital public goods?" Tags="&lt;microeconomics&gt;&lt;consumption&gt;&lt;public-goods&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11924" PostTypeId="1" CreationDate="2016-05-10T06:23:00.263" Score="2" ViewCount="51" Body="&lt;p&gt;The Fed makes money through its open market operations. I am considering a scenario in which the Fed, instead of trying to achieve goals like controlling inflation, tries to maximize its profits in real terms.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What exactly would such a policy mean- would it be equivalent to the Fed targeting a certain variable like inflation or output? In the event of a supply or demand shock, what would the Fed do?&lt;/p&gt;&#xA;" OwnerUserId="5845" LastActivityDate="2017-04-28T10:55:18.297" Title="Macroeconomic effects of Profit Maximizing Federal Reserve" Tags="&lt;macroeconomics&gt;&lt;federal-reserve&gt;&lt;government-debt&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11926" PostTypeId="1" CreationDate="2016-05-10T07:33:12.237" Score="1" ViewCount="31" Body="&lt;p&gt;For example, the North pole is in the northern part of the earth and is very cold, making it suitable to build a site to study polar bears. Is the cold and northern location of north pole counted as land? But since the site is already built so the place should be counted as capital?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sorry I know this example sounds a bit stupid but I'm very confused and couldn't think of a better one.&lt;/p&gt;&#xA;" OwnerUserId="8228" LastActivityDate="2016-05-10T14:22:48.097" Title="Does good geographical location count as land in economics?" Tags="&lt;microeconomics&gt;&lt;capital-structure&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11928" PostTypeId="2" ParentId="11926" CreationDate="2016-05-10T09:42:59.670" Score="3" Body="&lt;p&gt;In Economics &quot;Land&quot; as a form of capital is those parts of the natural environment that had become a subject of economic transactions (market or otherwise). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider a piece of land that is public property, say, a mountain. No economic activity is taking place related to that mountain. Then, it is &lt;em&gt;not&lt;/em&gt; consider part of the Fixed Capital base of the national economy. Certainly the mountain may have minerals. The mountain contributes to the local climate which in turns affects the weather and so the local economy. But to the degree that it is not used productively through purposeful economic behavior, it is not considered part of the Capital base (that estimations of natural resources are calculated for various economic &lt;em&gt;plans&lt;/em&gt; has to do with future actions, not with the capital base at present).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume now that the Government actually sells part of this mountain to a company that wants to build a winter resort. This part of the mountain becomes now a real-estate asset of that company, and so part of its Fixed Capital and so part of the Fixed Capital base of this economy. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The features and characteristics of this piece of the mountain (that it has, say, good slopes for skiing, low temperature that is good for snow, etc) through the transaction are &lt;em&gt;priced&lt;/em&gt;, i.e. they are (somehow) evaluated and acquire a specific monetary value, usually as a whole, and not as distinct entities from the piece of land itself.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume now that the company, after buying the piece of the mountain, seriously delays building the resort, say, for some years. Should we count this asset as part of the capital base of the economy for these idle years? Sure: it is now &quot;idle capital&quot; not &quot;potential future capital&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;At the micro-level, the performance of the company must be judged against the total investment that it has made. If it has made an investment (i.e.it has spent company resources) that it doesn't exploit economically, this worsens the company's performance overall. This in turn affects the private sector of the economy on aggregate: there is an amount of Fixed Capital that &quot;sits idle&quot; while it &lt;em&gt;shouldn't&lt;/em&gt; (and it shouldn't, because by buying it the company revealed a decision to use it productively, and has sacrificed resources for this decision).&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2016-05-10T14:22:48.097" LastActivityDate="2016-05-10T14:22:48.097" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11932" PostTypeId="2" ParentId="11923" CreationDate="2016-05-10T13:05:23.970" Score="1" Body="&lt;p&gt;I agree with @BBKing, just to put it here as an answer: if we go back to your two definitions you can find quiet easily some counter examples. Let's take a firm, which uses a machine as capital. Let's assume also that this machine can only be used by one man at a time. Do you think this machine is a non-excludable / non-rival good ?&lt;/p&gt;&#xA;" OwnerUserId="7833" LastActivityDate="2016-05-10T13:05:23.970" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11933" PostTypeId="1" CreationDate="2016-05-10T13:33:31.080" Score="5" ViewCount="535" Body="&lt;p&gt;I am trying to understand the logic behind Lucas attempting to analyse the potential benefits of eliminating business cycles by attempting to calculate the percentage of income that individuals would be willing to pay to eliminate such cycles/fluctuations;&#xA;My understanding is that Lucas proposed measuring the cost of business cycles as a percentage of consumption that would make a consumer indifferent between a world with and without business cycles - and that, this was found to be an unrealistically small proportion, from which it may be concluded that business cycle fluctuations are not very harmful for welfare(?), economic growth(?) etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, how exactly is the impact of business cycles quantified in such a framework? In other words, if business cycles are so severe that many people lose their jobs, then if they were aware of this possibility, they'd pay a far greater insurance not to lose their jobs, i.e. to live in a world with no business cycles.&lt;/p&gt;&#xA;" OwnerUserId="8233" LastActivityDate="2017-08-08T06:44:35.637" Title="Lucas Cost of Business Cycles" Tags="&lt;business-cycles&gt;" AnswerCount="4" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11934" PostTypeId="2" ParentId="11933" CreationDate="2016-05-10T15:08:04.020" Score="0" Body="&lt;p&gt;I intend this as only a comment - it is just too long for the comment section: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As it stands, I think you answer your own question. Lucas quantifies the impact of recessionary cycles by calculating how much an agent with a smooth consumption path would need to be compensated in terms of average consumption to instead endure a more volatile consumption path. He expressed the result as a percentage of average annual consumption. Remember, in economics more volatility usually implies more risk. And so what Lucas really did was create a function involving an agent's level of risk aversion that answered the question &quot;how much do I need to compensate this risk averse person to endure 'this much' more risk?&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for your ending bit - you're correct. The idea you're getting at is called stochastic discounting. Essentially - I will pay more to ensure myself against a negative outcome whenever I believe that negative outcome will occur with a high probability relative to when I believe it will occur with a low probability. &lt;/p&gt;&#xA;" OwnerUserId="1655" LastActivityDate="2016-05-10T15:08:04.020" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11935" PostTypeId="2" ParentId="11917" CreationDate="2016-05-10T15:33:35.543" Score="1" Body="&lt;p&gt;One typical story people tell is that in some countries there are strict population control policies and if families have a large economic incentive to have either a son or a daughter, they might neglect their pregnancy or terminate it if the child is not the gender they want it to be. In some societies the economic incentives to have sons or daughters are very different: typically sons are expected to bring in a working wife into the family, with a dowry, but daughters are expected to leave to the husband's family and take a dowry with them.&lt;/p&gt;&#xA;" OwnerUserId="7593" LastActivityDate="2016-05-10T15:33:35.543" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11936" PostTypeId="2" ParentId="10145" CreationDate="2016-05-10T15:38:39.687" Score="0" Body="&lt;p&gt;Given your background, I'd recommend you to skip directly to Mas-Collel's Microeconomic Theory, which is used internationally as a standard first year PhD textbook and is quite clear. Compared to Nicholson's book, it both covers more ground and is more rigorous in its treatment.&lt;/p&gt;&#xA;" OwnerUserId="7725" LastActivityDate="2016-05-10T15:38:39.687" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11938" PostTypeId="1" AcceptedAnswerId="11950" CreationDate="2016-05-10T16:36:31.847" Score="2" ViewCount="108" Body="&lt;p&gt;I found &lt;a href=&quot;http://data.worldbank.org/indicator/NY.ADJ.DCO2.GN.ZS&quot; rel=&quot;nofollow&quot;&gt;this variable&lt;/a&gt; and I'm not a native english speaker, so I'm a little bit confused with &quot;adjusted savings&quot; right in front of &quot;carbon dioxide damage&quot;. I'd like to know what does this variable really means for GDP/PPP.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have this variable in some big data table and it highly and positively correlates with GDP/PPP value(the higher value, the higher GDP). Should I take this variable in a way that it expresses how much money each country saves(which explains GDP increase) because the country harms less with carbon dioxide than other countries, or what does it actually mean?&lt;/p&gt;&#xA;" OwnerUserId="8236" LastActivityDate="2016-05-11T15:33:20.120" Title="GDP/PPP influence - Adjusted savings: carbon dioxide damage" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;&lt;data-request&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11939" PostTypeId="1" CreationDate="2016-05-10T17:01:13.453" Score="0" ViewCount="901" Body="&lt;p&gt;When I am dealing with a constrained maximization, once I face constraints with inequality sign, I have to understand which one are binding and which others are slack.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I find that a constraint is &lt;strong&gt;binding&lt;/strong&gt;, I can easily substitute it in the objective function, but what if I find that a constraint is &lt;strong&gt;slack&lt;/strong&gt; (it holds with inequality)? Should I keep it in the maximization problem or can I get rid of it?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am asking it since my professor gives us two methods in order to understand if a constraint is slack: one is to compute the Lagrangian, using slackness conditions; the other is trying to understand if the constraint is implicitly satisfied, given the other constraints. In this last case, it seems I can get rid of implicitly satisfied constraints since they seem redundant to me.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'll give you this problem as an example: there two types of person $\theta_L, \theta_H$ with $\theta_H&amp;gt;\theta_L$. To make the problem interesting, we suppose $\psi &amp;gt; \beta$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{gather*}&#xA;max_{c_H,c_L,q_H,q_L}\ \psi(c_L - v(\frac{q_L}{\theta_L})) + (1-\psi)(c_H - v(\frac{q_H}{\theta_H}))&#xA;\end{gather*}&#xA;\begin{gather*}&#xA;\beta(q_L-c_L)+(1-\beta)(q_H-c_H) \geq 0\  (BC)&#xA;\end{gather*}&#xA;\begin{gather*}&#xA;c_L - v(\frac{q_L}{\theta_L})\geq 0 \ (IR_L)&#xA;\end{gather*}&#xA;\begin{gather*}&#xA;c_H - v(\frac{q_H}{\theta_H}) \geq 0 \ (IR_H)&#xA;\end{gather*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In perfect information at the optimum, I know from the solutions that both $IR_H$ and $BC$ are binding, whereas $IR_L$ is slack.&lt;/p&gt;&#xA;" OwnerUserId="6773" LastActivityDate="2016-05-10T17:01:13.453" Title="Binding and slack constraints in adverse selection problem" Tags="&lt;microeconomics&gt;&lt;adverse-selection&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="11941" PostTypeId="1" CreationDate="2016-05-10T19:51:05.177" Score="1" ViewCount="13" Body="&lt;p&gt;Let's say that I buy an app from the Play store. The seller quotes in Dollars, and I pay in Rupees (INR) --how does this transaction happen? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is my ₹ converted into $? Does this transaction also influence the forex markets (of course, negligibly --I'm only asking for understanding's sake). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I have to purchase a physical good while in the US, I'd have to convert my domestic currency into dollars and that'd push the dollar prices up since there is demand for more dollars. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does the same happen when I'm at a different country and purchase a good in dollars?&lt;/p&gt;&#xA;" OwnerUserId="6486" LastActivityDate="2016-05-11T02:13:50.163" Title="If I make an international purchase with a card which contains domestic currency, is this currency converted to the currency of the seller?" Tags="&lt;exchange-rates&gt;" AnswerCount="1" CommentCount="1" ClosedDate="2016-05-12T23:53:01.600" ContentLicense="CC BY-SA 3.0" />
  <row Id="11943" PostTypeId="2" ParentId="11941" CreationDate="2016-05-11T02:13:50.163" Score="0" Body="&lt;p&gt;Generally the receiver bank / payment-gateway makes the conversion - except for currency accounts where the transaction is made directly into the account or if the sender chooses to make the conversion.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can lookup the cutoff times for currency transactions on the different banks.&lt;/p&gt;&#xA;" OwnerUserId="2884" LastActivityDate="2016-05-11T02:13:50.163" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11945" PostTypeId="2" ParentId="1825" CreationDate="2016-05-11T04:41:38.277" Score="2" Body="&lt;p&gt;Indeed, a lot of the marginality conditions cannot be used directly in the presence of discrete choice levels, or fixed costs of adjustment. There are many: number of children, working or quitting, number of cars, paying the fixed cost of adjusting capital, consuming or selling durable goods, number of hours worked, workers hired, units produced, delivery trips, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Marginal conditions are an approximation to reality. Economists would argue that for a plant that hires 1000 workers, we can think of the decision of hiring the 1001 worker as best though of as adding a marginal until of labor. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are a wealth of studies into these topics: Scarf's K convexity and the S-s inventory replenishing policies, Caballero and Engel's Fixed Costs of Adjustment of Capital, etc. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A book that tries to unify some of these ideas is &quot;The economics of inaction&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From a dynamic programming point of view, there are two useful intuitions that might help: a) In the presence of fixed costs, the firm's policy function is discontinuous and the value function is continuous and convex, but not smooth; b) the problems with fixed costs are best split into two: do I act? If I act, where do I go?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Empirical studies use this last intuition to argue that if you want to study marginally optimal capital investment decisions, you should look at situations in which firms have decided to adjust their capital level. Presumably, after paying the fixed cost of acting, firms will choose a marginally optimal policy.&lt;/p&gt;&#xA;" OwnerUserId="7593" LastActivityDate="2016-05-11T04:41:38.277" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11947" PostTypeId="1" CreationDate="2016-05-11T11:10:05.737" Score="1" ViewCount="80" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;The question is a reformulation of an incomplete version.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Consider the following dynamic dividing a dollar game where agent 1 claims $x(t)$ of the dollar and agent 2 $y(t)$ (&lt;a href=&quot;http://www.tau.ac.il/~fersht/Papers/1989%20Simultaneous%20Moves%20Concession%20Game.pdf&quot; rel=&quot;nofollow&quot;&gt;paper&lt;/a&gt;). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{align}&#xA;&amp;amp;\max_{\{u(t)\}^T_{t=0}} e^{-rT}x(T)\\[2mm]&#xA;&amp;amp;\max_{\{v(t)\}^T_{t=0}} e^{-rT}y(T)\\[2mm]&#xA;\text{s.t. }&amp;amp; \dot x(t) = -u(t)\in[0,1-x(t)]\\&#xA;&amp;amp; \dot y(t) = -v(t)\in[0,1-y(t)]\\&#xA;&amp;amp; x(0) + y(0) &amp;gt; 1&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $y(T) = 1 - x(T)$ with $T:=\min\{t \in \mathbb{R}_{++} : x(t) + y(t) = 1\}$ and $r &amp;gt; 0$ is the time preference rate. Optimal feedback control is given by $u(t) = r(1-x(t))$ and $v(t) = r(1-y(t))$. This solution is somehow motivated by guess and verify. &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Can we obtain the solution by some first order conditions (e.g. maximum principle)?&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;h2&gt;Transformation of objective function&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;I tried to somehow transform the objective function into a common functional.&#xA;Can someone confirm the following:&#xA;\begin{align}&#xA;&amp;amp;1 + \int^T_0{-re^{-rt}dt} = 1 + \left[e^{-rt}\right]^T_0 = 1 + e^{-rT} - e^0 = e^{-rT}\\&#xA;&amp;amp; x(0) - \int^T_0{u(t)dt} = x(0) + \int^T_0{\dot x(t) dt} = x(T)\\&#xA;\Longrightarrow \qquad&amp;amp; e^{-rT} x(0) + \int^T_0{e^{-rt}u(t)(r - e^{rt})dt} = e^{-rT}x(T)&#xA;\end{align} &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;What next?&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="4266" LastEditorUserId="4266" LastEditDate="2016-05-25T13:31:59.030" LastActivityDate="2016-05-25T13:31:59.030" Title="Dynamic dividing a dollar game" Tags="&lt;dynamic-games&gt;&lt;dynamic-optimization&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="11948" PostTypeId="2" ParentId="11917" CreationDate="2016-05-11T11:22:50.533" Score="-1" Body="&lt;p&gt;In essence the actual reference cannot be considered rational or irrational on its own. Consider the below definition from &lt;a href=&quot;https://en.wikipedia.org/wiki/Rational_choice_theory#Formal_statement&quot; rel=&quot;nofollow&quot;&gt;wikipedia&lt;/a&gt; in the context of the options given in the quesiton. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;At its most basic level, behavior is rational if it is goal-oriented,&#xA;  reflective (evaluative), and consistent (across time and different&#xA;  choice situations). This contrasts with behavior that is random,&#xA;  impulsive, conditioned, or adopted by (unevaluative) imitation.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The first three reasons would be consistent with a rational choice, but the last bay not be consistent with the rational actor because its driven by impulse e.g. potentially buying unwanted items even though the expressed preference is not to buy them  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;en.wikipedia.org/wiki/Rational_choice_theory#Formal_statement&lt;/p&gt;&#xA;" OwnerUserId="7946" LastActivityDate="2016-05-11T11:22:50.533" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11950" PostTypeId="2" ParentId="11938" CreationDate="2016-05-11T13:34:25.373" Score="1" Body="&lt;p&gt;From the definition of &lt;a href=&quot;http://wdi.worldbank.org/table/4.11#&quot; rel=&quot;nofollow noreferrer&quot;&gt;adjusted net savings&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Adjusted net savings are equal to net national savings plus education&#xA;  expenditure and minus energy depletion, mineral depletion, net forest&#xA;  depletion, and carbon dioxide and particulate emissions damage.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It is a little easier to see on the &lt;a href=&quot;http://wdi.worldbank.org/table/4.11&quot; rel=&quot;nofollow noreferrer&quot;&gt;World Development Indicators Table 4.11&lt;/a&gt;&#xA;&lt;a href=&quot;https://i.stack.imgur.com/pjTAJ.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/pjTAJ.png&quot; alt=&quot;First few entries of table 4.11&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That is:&#xA;Adjusted net savings =  Gross savings - Consumption of fixed capital + Education expenditures -Net forest depletion- Energy depletion   - Mineral depletion - Carbon dioxide damage - Local pollution damage&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The idea is that ruining the environment is like depreciation in the sense that if you look at savings but ignore depreciation you overstate how much wealth has increased from that savings. Similarly, if you pollute your country that ruined environment makes you poorer than your level of savings suggests. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Update:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Despite the label, you should think of the field &quot;Adjusted savings: carbon dioxide damage&quot; as actually meaning &quot;adjustment to savings from carbon dioxide damage&quot;. If you want to calculate national savings rate net of carbon dioxide damage but not net of the other variables, you would calculate it as follows:&#xA;=  Gross savings + Education expenditures - Carbon dioxide damage   &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2016-05-11T15:33:20.120" LastActivityDate="2016-05-11T15:33:20.120" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="11951" PostTypeId="1" CreationDate="2016-05-11T13:39:26.927" Score="2" ViewCount="22" Body="&lt;p&gt;I have the impression that sometimes firms are fiercely competing with each other, innovating and trying to gain market share and other times when firms are just hanging on. Are there any references about the timing of competition intensity? &lt;/p&gt;&#xA;" OwnerUserId="7593" LastEditorUserId="1601" LastEditDate="2016-05-11T13:55:08.243" LastActivityDate="2016-05-11T13:55:08.243" Title="Are there times when firms compete more with each other?" Tags="&lt;reference-request&gt;&lt;competition&gt;&lt;business-cycles&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11952" PostTypeId="1" AcceptedAnswerId="12042" CreationDate="2016-05-11T13:41:36.833" Score="0" ViewCount="161" Body="&lt;p&gt;Let's define elasticity, in a regression setting, as $\frac{\partial \log E(y|u)}{\partial \log x_j }$. How do we relate this definition to the percentage change interpretation, i.e., seeing this elasticity as the approximate change in $E(y|x)$, when $x_j$ increases by 1 percent? I'm reading Wooldridge. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="118" LastEditDate="2016-05-11T16:20:45.797" LastActivityDate="2016-05-17T14:22:40.620" Title="Relationship between elasticity and interpretation of approximate percentage change" Tags="&lt;econometrics&gt;" AnswerCount="1" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="11953" PostTypeId="1" CreationDate="2016-05-11T13:44:40.760" Score="1" ViewCount="780" Body="&lt;p&gt;Are there any books that are used in University-level courses that contain a detailed analysis of market structure ( Perfect competition , Monopoly and so on)?&lt;/p&gt;&#xA;" OwnerUserId="7324" LastEditorUserId="108" LastEditDate="2016-05-11T17:58:27.647" LastActivityDate="2016-05-11T17:58:27.647" Title="University course references for Market Structure/Industrial Organization" Tags="&lt;reference-request&gt;&lt;industrial-organisation&gt;&lt;markets&gt;&lt;firm&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11954" PostTypeId="2" ParentId="11917" CreationDate="2016-05-11T14:11:56.647" Score="0" Body="&lt;p&gt;There can be an economic rationale to almost any decision, including those decisions that involve obtaining information. Reading your question, I would start by comparing the utility from knowledge with the utility from surprise. So long as utility from knowledge is higher than the utility from surprise, individuals will prefer to know. This behavior is consistent with rationality.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Empirically, I doubt that many individuals derive much utility early purchases or an early choice in name. (Most of the urgent stuff is gender-neutral anyway, afaik) However, there may be psychological benefits to obtaining this information before childbirth. For example, individuals might want to adapt their expectations. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This could be a behavioral story. Consider a two period scenario, where the first period is the decision to learn and not to learn, and the second period is the childbirth, where you learn anyway. Also consider that the individual derives utility from the difference between their expectations and the outcome. (Such a utility function is behavioral, because the net utility is dependent on not just the outcome, but the expectations.) If the individual is uncertain about their decisions in period two, they might want to set their expectations under risk averseness, or not learn if they are risk-lovers. It is just an idea.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With this line of thinking, one behavioral model to research might be &lt;a href=&quot;http://www.jstor.org/stable/25098823?origin=JSTOR-pdf&quot; rel=&quot;nofollow&quot;&gt;Rabin and Koszegi (2006)&lt;/a&gt; &quot;Personal Equilibrium&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you would like a model with no behavioral component, that might be a bit trickier. Intuitively, we could expect more knowledge to generate more utility than less knowledge in general. However, this does not always need to be the case. If there is a commitment mechanism to commit to &quot;not knowing&quot;, this could potentially have some returns for the parent. (I am not sure whether this can be convincing. I am more convinced by a more behavioral story.)&lt;/p&gt;&#xA;" OwnerUserId="8245" LastActivityDate="2016-05-11T14:11:56.647" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11956" PostTypeId="1" CreationDate="2016-05-11T17:05:42.263" Score="0" ViewCount="589" Body="&lt;p&gt;I understand that the accounting matching principle requires incurring the expense in the same period as the revenue.  But I'm confused how one would go about doing this in double entry accounting.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, imagine in 2016 I pay a subcontractor \$50,000; and, in 2017, I finish the work and issue an invoice for \$80,000.  Now, since I didn't invoice for the work in 2016, I can't show the 50k as an &lt;em&gt;expense&lt;/em&gt;, but rather an asset; only in 2017 do I move it from an asset to an expense.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Does that mean that every expense in the chart of accounts needs to have a matching asset category? For example, if I have an expense &quot;Subcontractor&quot;, I need to have an asset &quot;Accrued Subcontractor&quot;? None of the chart of accounts I've seen have such a repetition, and it seems unwieldy and error prone.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;And, if I don't have the same level of detail in my Assets as the Expenses, then, when it becomes time to move them from Assets to Expenses, where will I get that information?&lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;2&quot;&gt;&#xA;&lt;li&gt;If I invoice based on cost-plus-fee, won't I have a chicken and egg problem? When I look at the cost of a project, there won't be expenses until I invoice? So how will the costs show up?&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;A great example would be to give the general ledger entries for my exact scenario.&lt;/p&gt;&#xA;" OwnerUserId="8247" LastActivityDate="2016-05-12T01:21:40.520" Title="How is the matching principle implemented with double entry accounting?" Tags="&lt;accounting&gt;" AnswerCount="2" CommentCount="3" ClosedDate="2016-05-12T23:52:48.987" ContentLicense="CC BY-SA 3.0" />
  <row Id="11957" PostTypeId="2" ParentId="11953" CreationDate="2016-05-11T17:58:05.410" Score="1" Body="&lt;p&gt;The standard, if somewhat aged textbook for graduate study of industrial organization is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://mitpress.mit.edu/books/theory-industrial-organization&quot; rel=&quot;nofollow&quot;&gt;The Theory of Industrial Organization&lt;/a&gt; by Jean Tirole.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Tirole has the merit of tacking issues around market structure in a quite direct fashion. A slightly more modern text is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.cambridge.org/us/academic/subjects/economics/industrial-economics/industrial-organization-markets-and-strategies&quot; rel=&quot;nofollow&quot;&gt;Industrial Organization: Markets and Strategies&lt;/a&gt; by Paul Bellflamme and Martin Peitz&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A less advanced text that can be downloaded for free is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://works.bepress.com/jeffrey_church/23/&quot; rel=&quot;nofollow&quot;&gt;Industrial Organization: A Strategic Approach&lt;/a&gt; by Jeffrey R Church and Roger Ware&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;It's worth mentioning that Industrial Organization is typically not encountered as a stand-alone course until the late stages of an undergraduate degree or until graduate level, so books on this subject will typically be more advanced than a standard econ101 text.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2016-05-11T17:58:05.410" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11958" PostTypeId="2" ParentId="11956" CreationDate="2016-05-11T18:08:18.070" Score="1" Body="&lt;p&gt;It appears that you mix up the timing of invoicing with the timing of accrual of an expense or a revenue. There exist special Balance Sheet accounts that do not affect the P&amp;amp;L (with names like &quot;Next-period Expenses&quot; in the Assets side or &quot;Next-period Revenues&quot; in the Libailites/Equity side, depending on the country of course) which you use in order to account for such transactions, where invoicing does not track step-by-step the creation of costs and revenues. Small companies use these usually only when they &quot;trespass&quot; the fiscal-year time-boundary. Big companies may use them month-per-month.&#xA;In your specific example, &lt;em&gt;assume&lt;/em&gt; that even by accounting standards, you are not entitled to recognize revenue in the current year, because, say, there are clauses in your contract that affect the economic substance of the deal. Still, your subcontractor invoices you now. You will credit the subcontractor account, and you will debit, not expenses, but &quot;Next-period Expenses&quot;, and it will be a component of your Assets in the coming Balance Sheet. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Next year, when you will invoice your customer, you will credit this account and you will debit the relevant expense account, thus recognizing in the P&amp;amp;L the expense in the same period that you have recognized the revenue. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume that the subcontractor offers software development services and that your Accounting system has the Expense account &quot;Third Party software Development services&quot;. Then in the ledger will see this year&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{array} { r  r  r |}&#xA;  \hline &#xA;\hline                       &#xA;  \text {Account Description} &amp;amp; \text {Debit} &amp;amp;  \text{Credit}\\&#xA;  \hline                      &#xA;\text{Next-period Expenses} &amp;amp; 50 &amp;amp;  \\&#xA;\text{Accounts Payble} &amp;amp;  &amp;amp;  50\\&#xA;\hline&#xA;\end{array}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you also pay the subcontractor then you get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{array} { r  r  r |}&#xA;  \hline &#xA;\hline                       &#xA;  \text {Account Description} &amp;amp; \text {Debit} &amp;amp;  \text{Credit}\\&#xA;  \hline                      &#xA;\text{Accounts Payble} &amp;amp; 50 &amp;amp;  \\&#xA;\text{Cash Deposits} &amp;amp;  &amp;amp;  50\\&#xA;\hline&#xA;\end{array}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Next year, when you invoice the final customer we have, to recognize the expense&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{array} { r  r  r |}&#xA;  \hline &#xA;\hline                       &#xA;  \text {Account Description} &amp;amp; \text {Debit} &amp;amp;  \text{Credit}\\&#xA;  \hline                      &#xA;\text{Third Party software Development services} &amp;amp; 50 &amp;amp;  \\&#xA;\text{Next-period Expenses} &amp;amp;  &amp;amp;  50\\&#xA;\hline&#xA;\end{array}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which makes the balance of &quot;Next-period Expenses&quot; zero,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and the revenue of course&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{array} { r  r  r |}&#xA;  \hline &#xA;\hline                       &#xA;  \text {Account Description} &amp;amp; \text {Debit} &amp;amp;  \text{Credit}\\&#xA;  \hline                      &#xA;\text{Accounts Receivable} &amp;amp; 80 &amp;amp;  \\&#xA;\text{Services sold} &amp;amp;  &amp;amp;  80\\&#xA;\hline&#xA;\end{array}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are more complicated situations of course, for example, when you are entitled to recognize part of the revenue now, even though you have not invoice your customer, but I  leave them as a practice opportunity for you.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2016-05-11T18:38:34.120" LastActivityDate="2016-05-11T18:38:34.120" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="11960" PostTypeId="1" CreationDate="2016-05-12T00:46:28.123" Score="7" ViewCount="128" Body="&lt;p&gt;Most airlines &lt;a href=&quot;https://www.youtube.com/watch?v=cMgarcFkXz4&quot; rel=&quot;noreferrer&quot;&gt;board passengers starting from the &lt;strong&gt;back of the plane and then working their way towards the front&lt;/strong&gt;&lt;/a&gt; (after boarding priority classes and passengers).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In an &lt;a href=&quot;https://www.youtube.com/watch?v=ss1S3-Kv6R8&quot; rel=&quot;noreferrer&quot;&gt;episode of Mythbusters&lt;/a&gt;, Adam and Jamie tested the myth that the boarding strategy favoured by most airlines, &lt;strong&gt;back to front&lt;/strong&gt;, is the least efficient.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The myth was confirmed, and these were the results:&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/t3WSd.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/t3WSd.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;The &lt;strong&gt;random no seats&lt;/strong&gt; strategy is the fastest, followed by the &lt;strong&gt;WILMA straight&lt;/strong&gt; strategy. However, &lt;strong&gt;random no seats&lt;/strong&gt; strategy gives the lowest satisfaction scores.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The highest satisfaction score is given by the &lt;strong&gt;reverse pyramid&lt;/strong&gt; strategy even though it is the fourth fastest.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How might one determine the optimal boarding strategy &lt;strong&gt;based solely on times and satisfaction scores&lt;/strong&gt; given (&lt;a href=&quot;http://www.jstor.org/stable/27651766&quot; rel=&quot;noreferrer&quot;&gt;not including advanced stuff like computing expected aisle or seat interferences&lt;/a&gt;)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can't seem to think of any kind of unit conversion except to convert the time to seconds and then multiply it with satisfaction score so it's like we're trying to maximise the product of time and satisfaction score:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$f(t,s) = ts$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What are some of the advantages or disadvantages of doing this?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One disadvantage seems to be that ranking by product of time and satisfaction score gives the same ranking by satisfaction score.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What else could be done? All that seem to come to mind are products so perhaps I might maximise anything like these:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$f(t,s) = t^2s$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$f(t,s) = ts^{1/2} \text{(eliminating random no seats)}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$f(t,s) = t(s-s_{ave})$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm thinking we're going to have to relate time and satisfaction score to some unit such as money. So, one would have to find some relationship (for example, a linear relationship through linear regression) between boarding time and cost and then another between satisfaction score for boarding today and revenue from flight next month?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does it have to be something like that?&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;I was suggested z-scores or something so I tried standardising, I think:&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/h5WjL.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/h5WjL.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Why did the sum of squares of z's turn out to be 6? Did I do something wrong? Is that the fourth moment or something?&lt;/p&gt;&#xA;" OwnerUserId="4483" LastActivityDate="2016-08-23T12:08:55.483" Title="Mythbusters - Determine optimal boarding strategy based on time and satisfaction score" Tags="&lt;utility&gt;&lt;optimization&gt;&lt;statistics&gt;&lt;economic-measurement&gt;&lt;measuring-utility&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11961" PostTypeId="2" ParentId="11956" CreationDate="2016-05-12T01:21:40.520" Score="0" Body="&lt;p&gt;It would seem to me the best way to handle this is to have a Cost Ledger, distinct from the General Ledger.  (The Cost Ledger is not part of the accounting equation or financial statements; but rather a distinct record.) The Chart of Accounts for the Cost Ledger is identical to that of the Expenses in the General Ledger.  Every cost gets an entry in the Cost Ledger, and can either be expensed, in which case it is immediately replicated in the GL as an expense, or capitalized, in which case it is immediately replicated in the GL as an asset (not necessarily of the same account: there is only need for a few asset accounts).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If it is capitalized, the Cost Ledger will show how it should be expensed: either based on time, or based on a particular sale.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To use Alecos' example:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Cost Ledger gets &quot;Third Party software Development services&quot; of 50, to be expensed when project 0589 is completed&lt;/li&gt;&#xA;&lt;li&gt;GL gets &quot;WIP Assets&quot; entry of 50&lt;/li&gt;&#xA;&lt;li&gt;When 0589 is completed, then WIP is credited by 50, Third Party software Development services&quot; debited by 50, A/R debited by 80, Revenue credited by 80&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Is there any downside to that?&lt;br&gt;&#xA;Is this practice used?&lt;br&gt;&#xA;Can it be done via standard ERP or accounting software?&lt;/p&gt;&#xA;" OwnerUserId="8249" LastActivityDate="2016-05-12T01:21:40.520" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11962" PostTypeId="1" CreationDate="2016-05-12T02:28:40.430" Score="2" ViewCount="2988" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/WtlUT.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/WtlUT.jpg&quot; alt=&quot;This image shows two commodity vectors in commodity space&quot;&gt;&lt;/a&gt;By definition,vectors are quantities having magnitude as well as direction ,especially as determining the position of one point in space relative to another&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We study consumption bundles by taking them as vectors.My question is why can't we think of them as scalar quantities to study them.Why do we think of consumption bundles as locations in commodity space.What is its use?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In real world, whenever we think of commodities , only their quantities come to our mind.And when we compare two commodity bundles, we only compare their quantities.Then,why do we have to bring in the concept of vectors here...are there any cases in the real world where we are concerned about the displacement of the commodity bundles.I am unable to understand this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks.&lt;/p&gt;&#xA;" OwnerUserId="8242" LastEditorUserId="8242" LastEditDate="2016-05-12T04:57:47.227" LastActivityDate="2016-07-15T17:02:02.653" Title="Commodity bundles as vectors" Tags="&lt;mathematical-economics&gt;" AnswerCount="2" CommentCount="7" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11963" PostTypeId="1" CreationDate="2016-05-12T03:32:28.640" Score="7" ViewCount="478" Body="&lt;p&gt;I have little to no background in micro, but I'm learning about utility functions. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems that there are many forms of utility functions for households. In general terms, how does one go on to select a given functional form. Are there a class of utility functions for households that are better than others? How does one even judge better, in this context? Does the selection of a utility function depend on the context and analysis at hand?&lt;/p&gt;&#xA;" OwnerUserId="2759" LastEditorUserId="2759" LastEditDate="2017-02-19T22:22:01.417" LastActivityDate="2019-04-19T19:36:37.590" Title="Selecting the best utility function for households" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;preferences&gt;&lt;micro-data&gt;&lt;measuring-utility&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="11966" PostTypeId="1" AcceptedAnswerId="11967" CreationDate="2016-05-12T08:10:40.453" Score="0" ViewCount="163" Body="&lt;p&gt;Suppose the demand function is 12-3p=q and price falls from 3 to 1. How much is the change in consumer surplus?&lt;/p&gt;&#xA;" OwnerUserId="8244" LastActivityDate="2016-05-12T11:06:41.343" Title="The question is related to topic consumer surplus" Tags="&lt;mathematical-economics&gt;" AnswerCount="1" CommentCount="0" ClosedDate="2016-05-12T23:53:16.273" ContentLicense="CC BY-SA 3.0" />
  <row Id="11967" PostTypeId="2" ParentId="11966" CreationDate="2016-05-12T11:06:41.343" Score="1" Body="&lt;p&gt;Demand function in your question is given as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Q=12-3P&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In order to find consumer surplus,we first find inverse demand function from it&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Q=12-3P&#xA;12-Q=3P&#xA;12/3-Q/3=P&#xA;4-Q/3=P or&#xA;P=4-Q/3&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At P = 3 ,from inverse demand function, we get Q= 3&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since intercept in the inverse demand function is 4 and base is 3,we can calculate consumer surplus by using the formula for area of a triangle as ab/2 i.e 4x3/2=6 &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Similarly,when price falls to 1,we get value of Q=9&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here,area of triangle becomes 9x4/2=18,which is the new consumer surplus&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Subtracting 6 from 18, we get the change in consumer surplus as 12&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the answer to your question is 12.&lt;/p&gt;&#xA;" OwnerUserId="8242" LastActivityDate="2016-05-12T11:06:41.343" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11970" PostTypeId="1" AcceptedAnswerId="11977" CreationDate="2016-05-12T13:03:04.287" Score="1" ViewCount="149" Body="&lt;p&gt;EDIT: for future reference, I found out that many businesses price accordingly to the black market rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Trading at the official Venezuelan exchange rate is, at time of writing,  about 1:10 USD:VEF.&lt;br&gt;&#xA;&lt;strong&gt;From what I've understood&lt;/strong&gt;  black market exchanges offer more than 1:1000 USD:VEF.&lt;br&gt;&#xA;They are technically illegal, but its use is widespread to the point of routine.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now take a look at these numbers from expatisan.com comparing &quot;Monthly rent for 85 m2 (900 Sqft)&lt;br&gt;&#xA; furnished accommodation in NORMAL area&quot; between Los Angeles and Caracas.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Official exchange rate for VEF:&#xA;  &lt;code&gt;LA is 52% cheaper&lt;/code&gt;&lt;br&gt;&#xA;  Black market rate for VEF: &lt;code&gt;Caracas is 5288% cheaper&lt;/code&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I understand Venezuela is in turmoil with inflation after Chavez' version of socialism had its way. Does the rent for one 900Sqft apt. in LA really pay for 52 apartments in Caracas? Naturally, a Venezuelan's income comes in VEF and not in USD by cash,&lt;br&gt;&#xA; so they are not seeing the (assumed) benefit foreigners with USD have.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With that comes my main question, can a foreigner really enter the country with 10,000 USD and turn that into eg. 22 years of rent for the apt. in above example? (assuming steady rate of 37,000 VEF)  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There must be something I'm missing here?&lt;br&gt;&#xA;Sorry if this Q isn't relevant, but where else to ask than economics stack?&lt;/p&gt;&#xA;" OwnerUserId="8250" LastEditorUserId="8250" LastEditDate="2016-05-13T16:08:22.140" LastActivityDate="2016-05-13T16:08:22.140" Title="Venezuelan black market exchange" Tags="&lt;inflation&gt;&lt;exchange-rates&gt;&lt;social-welfare&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11971" PostTypeId="1" CreationDate="2016-05-12T14:22:22.440" Score="1" ViewCount="49" Body="&lt;p&gt;According to my textbook, the current account and financial account must balance; therefore, a country w/ at large CA deficit will need to fund this by a financial account surplus (i.e. they need to receive FDI funds, encourage foreign investors to buy their bonds etc.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But why would a country want to invest in another country that has a structural CA deficit (as a structural CA deficit implies the country is uncompetitive and therefore it is a risky investment).&lt;/p&gt;&#xA;" OwnerUserId="7396" LastActivityDate="2016-05-12T16:54:11.183" Title="Why would investors from other countries want to invest in a country with a large CA deficit?" Tags="&lt;macroeconomics&gt;&lt;international-trade&gt;&lt;balance-of-trade&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11972" PostTypeId="1" CreationDate="2016-05-12T14:47:40.257" Score="2" ViewCount="106" Body="&lt;p&gt;It seems to me that many people work to become wealthy, but not because they want to consume all that wealth. Many people give it away, other's don't, but still they do not spend it. You hear about some rich 40-year old's throwing money away, but you seldom hear of a rich 80-year-old throwing anything away! What is the economic theory for &quot;scrooge&quot;? Are there simple preferences that make this the right strategy? &#xA;(I head somebody say that JP Morgan used to say it was a way of keeping score. Is there a theory of this?)&lt;/p&gt;&#xA;" OwnerUserId="7593" LastEditorUserId="7593" LastEditDate="2016-05-19T15:02:50.237" LastActivityDate="2016-05-19T17:57:51.637" Title="Is there an economic theory of why people like to hold on to wealth?" Tags="&lt;preferences&gt;&lt;saving&gt;" AnswerCount="3" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11974" PostTypeId="2" ParentId="11971" CreationDate="2016-05-12T16:54:11.183" Score="1" Body="&lt;p&gt;Its all relative when evaluating investments: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A) It might be risky but pay a relatively high return. It could be the case that the local interest rates are high even taking into account a potential devaluation, or it could be the case that the investment is denominated in foreign currency, in which case the devaluation doesn't change the principal (although it does change the likelihood of default). Typically currencies appreciate after the central bank increases the rates in local currency, as foreigners are willing to tolerate more risk when the return goes up. (The &quot;Sharpie ratio&quot; is one way to measure the return relative to riskiness.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;B) The country can be temporarily uncompetitive. That is, if investors think it will be relatively better later on (less uncompetitive ), then they will be willing to bet on the country. (In other words, $R=(Dividend +Future Price)/Current Price$, which means that even if you expect low dividends or interest payments, your expected return could be high because the expected future price is high.&lt;/p&gt;&#xA;" OwnerUserId="7593" LastActivityDate="2016-05-12T16:54:11.183" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11975" PostTypeId="1" CreationDate="2016-05-12T20:06:11.530" Score="2" ViewCount="243" Body="&lt;p&gt;I am doing an Intermediate Microeconomics class... in a 2*2*2*2 economy, I know that MRS (marginal rate of substitution) is supposed to be equal to MRTS (marginal rate of technical substitution) in order for it to be a competitive equilibrium. Why is this? I understand that supply is supposed to be equal to demand... &#xA;Thank you! &lt;/p&gt;&#xA;" OwnerUserId="7714" LastActivityDate="2016-12-09T23:19:23.720" Title="Productive Allocative Efficiency (Competitive Equilibrium)" Tags="&lt;pareto-efficiency&gt;&lt;competitive-equilibrium&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="11976" PostTypeId="1" AcceptedAnswerId="12006" CreationDate="2016-05-12T20:08:17.230" Score="1" ViewCount="94" Body="&lt;p&gt;A rural landowner can deposit his savings in a commercial bank and receive an annual interest rate of 8%. Alternatively he can lend to&#xA;villagers who need credit. If all loans are of the same size and only sixty per&#xA;cent of them are repaid, the how much interest rate would make his earnings the same as from depositing his savings in a bank?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I took the case that suppose landowner has 100 dollars and he is landing to one villager for one year, then if he deposits in bank for a year he gets 108 after one year, but if he gives it to villager, he gets 60 dollars back as given and to compensate he must have charged 48%, so that total is 108 dollars. But answer given for this question is 80%? Why is that?&lt;/p&gt;&#xA;" OwnerUserId="7445" LastActivityDate="2016-05-15T04:38:53.010" Title="How much interest rate would make his earnings the same" Tags="&lt;interest-rate&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11977" PostTypeId="2" ParentId="11970" CreationDate="2016-05-12T20:24:38.447" Score="2" Body="&lt;p&gt;The official rate is about 10, but the black market rate is about 1000.  Also, yes, apparently the real exchange rate at the 1000 rate is pretty low, in the sense that one dollar buys a lot of local goods, (like boarding). Indeed, that's what it means, 10,000 dollars buys you 1,000,000 VB's, which pays for years and years of rent. The ratio in your numbers is that Venezuela is about 50 times cheaper. In this &lt;a href=&quot;http://fusion.net/story/140228/this-is-what-80-looks-like-in-venezuela/&quot; rel=&quot;nofollow&quot;&gt;story&lt;/a&gt;, staying in a hotel costs $5, which is also about 50 times cheaper than staying in a hotel in L.A....&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(It would be hard to change such a large amount of dollars without getting noticed though...) &lt;/p&gt;&#xA;" OwnerUserId="7593" LastActivityDate="2016-05-12T20:24:38.447" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11978" PostTypeId="1" CreationDate="2016-05-12T20:57:45.573" Score="2" ViewCount="159" Body="&lt;p&gt;In Austria, the law is forcing employers to pay 14 wages instead of the usual 12 (one per month) per year for almost every employee. More specifically, employees get a 13th payment around July called &quot;Urlaubsgeld&quot; or Vacation money and a 14th payment around December called &quot;Weihnachtsgeld&quot; or Christmas money. Thus, if you compare monthly payments with its neighbour germany, where you can but usually do not get 13th and 14th payment, it seems like austrians are getting less money paid than germans, but the difference is that Austrians get theirs 14x and Germans 12x. Also, in Austria, the 13th and 14th payment are significantly less taxed than the usual twelve.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now I have no idea what are the reasons for that, but what I was thinking about was the following. It is a fact that most Austrians are going on Vacation in December/January and July/August and use their 13th and 14th salary for doing so. And as we all know, when money from economy x get spent abroad (which is what happens when people go to vacation), economy x is becoming weaker. Isn't it then the case, that Austrian economy is weakening itself by organizing two big payments during vacation times by encouraging Austrians to spend money abroad?&lt;/p&gt;&#xA;" OwnerUserId="8257" LastEditorUserId="8257" LastEditDate="2016-05-13T10:10:54.583" LastActivityDate="2016-05-13T10:10:54.583" Title="Is the Austrian wage system bad for its economy?" Tags="&lt;wages&gt;&lt;payment-system&gt;" AnswerCount="0" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="11980" PostTypeId="1" AcceptedAnswerId="11987" CreationDate="2016-05-13T00:35:26.363" Score="1" ViewCount="37" Body="&lt;p&gt;I was looking at some historical references on gold prices over the past century and I noticed that London gold prices are written as &quot;$x$ s. $y$ d&quot; (e.g., '$121 \text{s}. 1.75 \text{d}$'). I'm wondering how I'd go about converting this into pounds. Thanks!&lt;/p&gt;&#xA;" OwnerUserId="7132" LastActivityDate="2016-05-13T12:55:29.470" Title="Quoting convention for Gold in the early 1900s" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11981" PostTypeId="1" CreationDate="2016-05-13T01:41:23.667" Score="1" ViewCount="93" Body="&lt;p&gt;Developing economies need to put in lot of hard work in order to reach the level of developed economies of the world.Or to put it in other words,in order to improve the lives of the millions residing in these countries,where unemployment,increasing population and poverty is creating vicious circles,bringing them out of it is really a big challenge.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is: For a person who wishes to bring about a little change in the lives of those underprivileged people for their betterment,which area of specialisation in development economics would suffice?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Update: don't know where to put up this question here or somewhere else?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I searched stack exchange sites where I could put up this question.I did put up this question on academia SE,but they told me to post it on Economics SE.But here on this site none has answered my question.Can anyone help me out here?&lt;/p&gt;&#xA;" OwnerUserId="8242" LastEditorUserId="8242" LastEditDate="2016-05-14T03:56:15.327" LastActivityDate="2016-05-14T03:56:15.327" Title="Regarding different areas of specialisation in development economics in relation to their application for the betterment of real world" Tags="&lt;macroeconomics&gt;&lt;development-economics&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11983" PostTypeId="2" ParentId="3381" CreationDate="2016-05-13T04:58:54.487" Score="3" Body="&lt;p&gt;It is quite tricky to get tractable models with reasonable/realistic properties. A general $n$-goods case is given by Sørensen in &lt;a href=&quot;http://www.springer.com/us/book/9783642217760&quot; rel=&quot;nofollow&quot;&gt;Heijman et al. (2012)&lt;/a&gt;, p. 100-3. Another example, for two goods and with limited domain, is given by &lt;a href=&quot;http://dx.doi.org/10.5402/2012/608645&quot; rel=&quot;nofollow&quot;&gt;Haagsma (2012)&lt;/a&gt;. &lt;br&gt;&#xA;Checking the references therein is the easiest way to get a substantial collection of utility functions for inferior goods - though it seems there is more literature on Giffen goods than the less demanding inferior ones.&lt;br&gt;&#xA;&lt;br&gt;&lt;br&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regarding the previous discussion on the convexity of preferences, utility functions which yield different demand functions upon a positive monotonic transformation are not quasiconcave and, hence, the preferences are not convex, given that quasiconcavity is preserved with any nondecreasing composition. That the function Alecos Papadopoulos suggested is not Cobb-Douglas should be easy to see. &lt;br&gt;&#xA;Nevertheless, if it is quasiconcave, then $u(x_1,x_2)$ will yield the same demand functions (and the same price and income effects) as $v(x_1,x_2)=f(u(x_1,x_2)$ where $f$ is a positive monotonic transformation, regardless of $u$ being weakly separable or not. A caveat: caution for the effects on the domain.&lt;/p&gt;&#xA;" OwnerUserId="8261" LastActivityDate="2016-05-13T04:58:54.487" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11984" PostTypeId="1" CreationDate="2016-05-13T06:40:48.810" Score="2" ViewCount="54" Body="&lt;p&gt;Apparently, China made substancial investments in infrastructure and commodity extraction in several African countries over the last couple of decades. Is there some econometrically sound evidence of the effects on growth or other economic variables?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;See this, for example: &lt;a href=&quot;http://www.cnn.com/2016/05/15/africa/kenya-railway-east-africa/&quot; rel=&quot;nofollow&quot;&gt;CNN posting on Kenyan Railway&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="7593" LastEditorUserId="7593" LastEditDate="2016-05-17T14:29:11.103" LastActivityDate="2016-05-17T14:29:11.103" Title="Is there any evidence on the effect of China's investment in African countries on their economic development?" Tags="&lt;development-economics&gt;&lt;infrastructure&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="11985" PostTypeId="1" AcceptedAnswerId="11986" CreationDate="2016-05-13T10:15:10.730" Score="-2" ViewCount="98" Body="&lt;p&gt;If the cross elasticity of demand of X commodity for changes in the price of Y commodity is positive, the commodities X and Y are&#xA;(a) complement (b)subsitutes (c) giffen (d) infirior goods&lt;/p&gt;&#xA;" OwnerUserId="8244" LastActivityDate="2016-05-13T10:59:01.207" Title="Please solve this question" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="0" ClosedDate="2016-05-13T12:40:06.917" ContentLicense="CC BY-SA 3.0" />
  <row Id="11986" PostTypeId="2" ParentId="11985" CreationDate="2016-05-13T10:59:01.207" Score="0" Body="&lt;p&gt;Cross elasticity of demand is the responsiveness of demand for one product to a change in the price of another product.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I understand you correctly, the answer is substitutes. And, if the CED is greater than 1, it means they are close substitutes. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, if the price of Coca Cola increases from 50p to 60p per can, and the demand for Pepsi Cola increases from 1m to 2m per year, the CED between the two products is: +100/+20 = (+) 5 &lt;/p&gt;&#xA;&#xA;&lt;p&gt;i.e. As cola increases in price, demand for cola will fall because consumers can easily switch to buying the cheaper pepsi, so demand for pepsi rises.&lt;/p&gt;&#xA;" OwnerUserId="5367" LastActivityDate="2016-05-13T10:59:01.207" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11987" PostTypeId="2" ParentId="11980" CreationDate="2016-05-13T12:55:29.470" Score="2" Body="&lt;p&gt;Have you considered googling the subject? &lt;br&gt;&#xA;By doing so I have found: &lt;br&gt;&#xA;&lt;a href=&quot;https://en.wikipedia.org/wiki/%C2%A3sd&quot; rel=&quot;nofollow&quot;&gt;https://en.wikipedia.org/wiki/%C2%A3sd&lt;/a&gt; &lt;br&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;£sd (occasionally written Lsd) is the popular name for the pre-decimal currencies once common throughout Europe, especially in the British Isles and hence in several countries of the British Empire and subsequently the Commonwealth. [...] In the classical Roman Empire, standard coinage was established to facilitate business transactions. 12 denarii were rated equal to 1 gold solidus – a 4th-century Roman coin that was rare but which still circulated; and, since 240 denarii were cut from one Roman libra of silver 240 denarii, therefore, equalled one pound (livre in France, peso in Spain, etc.). [...] Different monetary systems based on units in ratio 20:1 &amp;amp; 12:1 (L:S &amp;amp; S:D) were widely used in Europe in medieval times. The English name pound is a Germanic adaptation of the Latin phrase libra pondo 'a pound weight'. [...] In writing, there were several conventions for representing amounts of money in pounds, shillings and pence: £2.3s.6d. (two pounds, three shillings and sixpence)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2016-05-13T12:55:29.470" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11989" PostTypeId="2" ParentId="3289" CreationDate="2016-05-13T14:15:46.137" Score="3" Body="&lt;p&gt;These guys &lt;a href=&quot;http://www.worldscientific.com/doi/abs/10.1142/S0219525904000160&quot; rel=&quot;nofollow&quot;&gt;(paper)&lt;/a&gt; claim the distribution is still power-law, but steeper in recessions and flatter in booms.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;[Content added after suggestion]&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;While it is well known that the distribution of firm sizes (in the US&#xA;  at least) looks like a power law distribution, these guys look at&#xA;  whether it changes in shape over the business cycle.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;They show that (in log-log space) the distribution is actually a power&#xA;  law in both recessions and expansions, but its not the same power law,&#xA;  its steeper in recessions and flatter in booms, meaning that large&#xA;  firms become relatively larger in booms than in recessions, or&#xA;  alternatively that there is  a lot of entry of small firms in booms.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="7593" LastEditorUserId="1601" LastEditDate="2016-05-16T17:29:45.690" LastActivityDate="2016-05-16T17:29:45.690" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11990" PostTypeId="1" CreationDate="2016-05-13T15:11:28.807" Score="2" ViewCount="690" Body="&lt;p&gt;What exactly is the difference between Euclidean space,vector space ,metric space ,commodity space,Cartesian space?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am reading about consumer choice and I came across this line:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;A commodity vector (or commodity bundle ) is a list of amounts of the different commodities and can be viewed as a point in Rl,the commodity space.&#xA;We can use commodity vectors to represent an individual's consumption levels.The lth entry of the commodity vector stands for the amount of commodity l consumed.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When I googled the meaning of commodity space ,it says - commodity space is Euclidean space and here,as we have taken l entries ,it is l-dimensional Euclidean space.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By l dimensions ,do we mean l directions? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Because when we consider only two commodities in a simple Cartesian plane,we can show them as perpendicular distance from two axis (moving in two perpendicular directions).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is an l dimensional Cartesian plane similar to l dimensional Euclidean plane?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since we are taking consumption bundles as commodity vectors,commodity space should be same as vector space.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We are now left with metric space ,the Google search engine defines it as &quot; a set for which distances between all members of the set are defined&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We read about various consumption sets defined as a subset of the commodity space Rl.These consumption sets can be open as well as closed..&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This shows that all the spaces listed above are interconnected..or similar to each other.&lt;/p&gt;&#xA;" OwnerUserId="8242" LastActivityDate="2016-05-13T16:46:18.617" Title="Euclidean spaces,vector spaces,metric spaces,commodity spaces,Cartesian spaces" Tags="&lt;mathematical-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11992" PostTypeId="2" ParentId="11990" CreationDate="2016-05-13T16:46:18.617" Score="4" Body="&lt;p&gt;I will try to do this at an intuitive level without being technical. If you want rigorous definitions of any of this I can edit my post. &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;We need a way to mathematically model the consumption choices that an agent faces. To accomplish this, we use $\mathbb{R}^L_+$ to denote the agent's level of consumption of each of 1,2,..,L goods. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Vectors tie into this because we want to think about how much of each good an agent chooses when optimizing over her preferences. So we don't just think about how much of good $i$ the agent wants. We want to think about how much of good 1 the agent wants, good $2$ he wants, etc. simultaneously. So, there are tons of different &quot;mixes&quot; of these goods that an agent can afford (that belong to this agent's budget set given some prices and wealth) and one of those &quot;mixes&quot; (vectors) represents how much of each of the L goods an agent chooses to consume when maximizing his or her representative utility. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now - Cartesian space. You should actually discuss the Cartesian coordinate system on Euclidean space. We use Cartesian coordinates to denote a point in Euclidean space. We could, for example, instead use polar coordinates to denote points in Euclidean space. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A metric space is a bit more complicated  but you can think of it (this is very simplified) as a space where the distance between any two points is well defined. The distances themselves are called a metric. Having a metric space allows us to use topological methods (for example, the concept of open balls when discussing the local non-satiation of preferences). The most common example of a metric space is three-dimensional Euclidean space. &lt;/p&gt;&#xA;" OwnerUserId="1655" LastActivityDate="2016-05-13T16:46:18.617" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="11994" PostTypeId="1" CreationDate="2016-05-13T19:32:41.390" Score="3" ViewCount="291" Body="&lt;p&gt;How are purchasing power parity (PPP) conversions computed?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I guess that goods' and services' prices are compared across different countries/currencies. However, there are services such as healthcare or university education that some countries (e.g, EU countries) provide as universal rights and are &quot;free&quot; (paid by &quot;taxes&quot;), whereas within other countries those services/coverages are to be paid directly by people. So I don't know how these important differences are taken into account when computing PPP conversion. &lt;/p&gt;&#xA;" OwnerUserId="8268" LastActivityDate="2019-10-27T13:55:39.523" Title="How are purchasing power parity (PPP) conversions computed?" Tags="&lt;purchasing-power-partity&gt;" AnswerCount="1" CommentCount="4" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11995" PostTypeId="2" ParentId="11975" CreationDate="2016-05-13T19:42:48.227" Score="1" Body="&lt;p&gt;Equilibrium conditions will require, among other things,: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;1.) $MRS_{a,b}^i=MRS_{a,b}^j \forall [i,j] \in N$ , $N$ the set of agents&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2.) $MRTS_{x,y}^i=MRTS_{x,y}^j \forall [i,j] \in J$ , $J$ the set of firms&lt;/p&gt;&#xA;&#xA;&lt;p&gt;3.) $MRT=MRS$ (Assuming that 1,2 hold) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And I note that 1,2 are efficiency conditions. 3 is efficiency in the output market. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why? Suppose 1,2 hold at:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;$MRS^i_{y,x}=3$ &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;$MRT_{y,x}=2$ &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Obviously, condition 3 does not hold. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can you see why this cannot be an equilibrium outcome? Think about what should happen in the economy and the forces that will drive this economy toward a state s.t. condition 3 holds. &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;So:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$MRT_{x,y}=\frac{MC_x}{MC_y} \equiv \frac{P_x}{P_y} = MRS$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where I assume 1 holds so MRS is same for all agents. &lt;/p&gt;&#xA;" OwnerUserId="1655" LastEditorUserId="1655" LastEditDate="2016-05-13T19:48:52.193" LastActivityDate="2016-05-13T19:48:52.193" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="11997" PostTypeId="2" ParentId="11972" CreationDate="2016-05-14T00:06:17.003" Score="1" Body="&lt;p&gt;You could consider unspent money to be a call option. The set of future investment opportunities is unknown, so if you're optimistic about future opportunities it could be a valuable call option.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So saving money can be a profit/preference-maximizing behavior.&lt;/p&gt;&#xA;" OwnerUserId="7303" LastActivityDate="2016-05-14T00:06:17.003" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12001" PostTypeId="1" CreationDate="2016-05-14T12:35:38.920" Score="1" ViewCount="51" Body="&lt;p&gt;I have been reading Davidson's Econometric theory and methods and I cannot understand one particular paragraph about the distribution of a test statistic.In the paragraph below he says that under the alternative hypothesis if the true $\beta$ is equal to $\beta_1$ then $\hat b= \beta_1+\hat\gamma$. Then he defines $z=(\beta_1+\hat\gamma-\beta_0)/(\sigma^2/\nu)$ and finds the mean and variance as given by 4.04. Why is he doing that? I understand how he gets the mean and variance but I don't get why is he doing that because at the end we dont get a standard normal variable but a variable with mean $\lambda$ and variance 1.&lt;a href=&quot;https://i.stack.imgur.com/r8wtR.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/r8wtR.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have been stuck here for a while so any help would be highly appreciated.&lt;/p&gt;&#xA;" OwnerUserId="8275" LastEditorUserId="118" LastEditDate="2016-05-16T15:45:23.100" LastActivityDate="2016-05-16T17:36:28.340" Title="Distrubtion of a test statistic under the alternative hypothesis" Tags="&lt;econometrics&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12002" PostTypeId="1" CreationDate="2016-05-15T00:35:29.660" Score="5" ViewCount="111" Body="&lt;p&gt;My understanding is that discussions about a nation's balance of trade was largely seen as important by mercantilists, but isn't really part of modern economics. Am I right about that?&lt;/p&gt;&#xA;" OwnerUserId="6149" LastActivityDate="2019-11-11T07:03:59.840" Title="Do modern economists still believe balance of trade is an important concept in economics?" Tags="&lt;balance-of-trade&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12003" PostTypeId="1" CreationDate="2016-05-15T01:01:51.790" Score="1" ViewCount="96" Body="&lt;p&gt;In the problem below, u is a utility function; $\beta$ is a discount factor; pc(s) is the price for a contingent claim for state s. c is initial consumption and and y is initial wealth. s represents a specific state.&lt;br&gt;&#xA;$$max \ u(c) + \Sigma_s\beta\pi(s)u[c(s)]$$&#xA;$$ s.t. \ c + \Sigma_s pc(s) c(s) = y + \Sigma_s pc(s)y(s)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can anyone help me understand the budget constraint?&lt;/p&gt;&#xA;" OwnerUserId="8195" LastActivityDate="2016-11-11T07:59:57.613" Title="Can anyone help me understand the budget constraint of an investor in complete market?" Tags="&lt;microeconomics&gt;&lt;asset-pricing&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12004" PostTypeId="1" CreationDate="2016-05-15T02:34:56.593" Score="2" ViewCount="444" Body="&lt;p&gt;I understand that in complete market, ex post consumption growth is equal for all investors. Why is that perfect risk sharing? The book also states that &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;only aggregate shocks should matter for risk prices. Any idiosyncratic risk will be equally shared.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Why is this case in complete market?&#xA;What does it have to do with financial innovation?&lt;/p&gt;&#xA;" OwnerUserId="8195" LastEditorUserId="8195" LastEditDate="2016-05-15T13:17:34.043" LastActivityDate="2016-05-16T04:12:14.440" Title="Can anyone explain the connection between complete market and perfect risk sharing?" Tags="&lt;microeconomics&gt;&lt;financial-economics&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12005" PostTypeId="2" ParentId="12002" CreationDate="2016-05-15T02:56:07.387" Score="0" Body="&lt;p&gt;In the trade literature, most of the theoretical papers assume balanced trade, which implies simple market clearing conditions. Typically, output for a given country is equal to the amount spent on good purchased from all other destinations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, R. Dekle, J. Eaton, and S. Kortum, in a paper called &lt;a href=&quot;https://scholar.google.fr/scholar?hl=fr&amp;amp;q=Unbalanced%20Trade&amp;amp;btnG=&amp;amp;lr=&quot; rel=&quot;nofollow noreferrer&quot;&gt;Unbalanced trade&lt;/a&gt; (2007), present a new approach to international trade. They incorporate imbalances into a quantitative model of bilateral trade, calculating how relative factor costs and welfare would change if current accounts were all balanced. While the exercise does not point to what policy would eliminate&#xA;imbalances, it does suggest the magnitude of the long-run adjustments that such a policy would entail.&lt;/p&gt;&#xA;" OwnerUserId="6168" LastEditorUserId="1601" LastEditDate="2019-11-11T07:03:59.840" LastActivityDate="2019-11-11T07:03:59.840" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="12006" PostTypeId="2" ParentId="11976" CreationDate="2016-05-15T04:38:53.010" Score="1" Body="&lt;p&gt;I don't know how you got 48% (and it would have been appropriate to include your work in your question), but think about it intuitively. Take your second to last step. If the landowner lends to the villagers and on average gets 60 dollars &lt;em&gt;plus interest&lt;/em&gt; back, then if the interest rate was 80%, you'd get 60 + 48 = 108 dollars, the same as depositing to the commercial bank.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Algebraically, here's how you'd set up solving for $r$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$(100 \cdot (1+r))0.6 + 0(0.4) = 108$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where you have a 60% chance of being paid back 100 with interest. Then you just solve.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2016-05-15T04:38:53.010" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12007" PostTypeId="2" ParentId="12003" CreationDate="2016-05-15T05:03:24.767" Score="1" Body="&lt;p&gt;So in an Arrow-Debreu market, there is a price for every asset/claim for every state of the world. The states $s$ refer to this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For your utility maximization problem, you are maximizing a combination of what you consume, $u(c)$, and the expected profit from your portfolio of claims, which can then be put into future consumption.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\pi(s)$ describes the profit in state $s$, and that is multiplied by the utility of consumption in that state $s$. In this case, I guess the maximizer does not seem to worry about variance, so maximizing sum of those possible outcomes in all states of the world suffices. Finally, $\beta$ represents the fact that you prefer to consume immediately instead of investing and waiting to see the state of the world.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the budget constraint can be roughly described as such: whatever you decide to consume now plus the cost of buying claims that will give you money to consume later must equal whatever money you start with plus whatever money you get from buying those cool claims.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2016-05-15T05:03:24.767" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="12009" PostTypeId="2" ParentId="11246" CreationDate="2016-05-15T05:20:25.363" Score="1" Body="&lt;p&gt;Fixed-exchange rates can definitely help with assuring investors and consumers of low inflation. If you say, you will trade 1 of your currency for x of someone else's currency and vice versa, then if you caused a lot of inflation, and 1 of your currency suddenly can't buy a whole lot, then people won't want to trade with you or your country anymore.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you are wondering why central banks might not be automatically trusted to keep inflation down, consider the following.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Imagine a central bank making monetary policy. According to models along the lines of Lucas perceptions, creating inflation can stimulate an economy, but only in the short run when no one knows that the central bank is creating more inflation than expected. The idea is that firms will attribute the rise in prices from the inflation to higher demand rather than inflation, and will thus higher more people, lowering unemployment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the Fed kept trying to secretly keep inflation above expectations to keep unemployment down, you'd expect businesses to catch on, and the Fed in turn would have to keep raising their inflation target and...well, that's a disaster of infinitely rising inflation. In the 1970s in America, we had huge amounts of inflation (well, for us huge), until Paul Volcker decided to revamp central banking policy to more credibly target inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Today in the good ol' USA of course, when the central bank tells everyone they are loosening the money supply to try to stimulate the economy, it has some effect on inflation. Why? Because the Federal Reserve can be expected to later tighten policy back down later when the economy is doing better, instead of falling into the above time-inconsistency problem.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2016-05-15T05:20:25.363" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12010" PostTypeId="2" ParentId="12004" CreationDate="2016-05-15T06:37:44.870" Score="2" Body="&lt;p&gt;Idiosyncratic shocks are those for which each individual face a different shock – while there is no uncertainty in the aggregate. Aggregate shocks are those which affect all individuals within an economy. When you have complete markets –– those on which there are securities for each possible combinations of the idiosyncratic shocks –– individuals will trade to insure optimal levels of consumption across all possible states. So, to get the value of risky options one only need to look on aggregate shocks –– as ultimately these are the ones which will determine prices.&lt;/p&gt;&#xA;" OwnerUserId="4224" LastActivityDate="2016-05-15T06:37:44.870" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12011" PostTypeId="2" ParentId="11972" CreationDate="2016-05-15T06:42:00.173" Score="1" Body="&lt;p&gt;There is a couple of macro theories that incorporate money into the utility function. These theories basically say that demand for money comes only from the fact that people like to hold real balances literally just because. I don't know what level of math you are comfortable with, but here is a set of slides for that: &lt;a href=&quot;http://www.albany.edu/~bd892/Walsh2.pdf&quot; rel=&quot;nofollow&quot;&gt;http://www.albany.edu/~bd892/Walsh2.pdf&lt;/a&gt;  &lt;/p&gt;&#xA;" OwnerUserId="4224" LastActivityDate="2016-05-15T06:42:00.173" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12014" PostTypeId="1" CreationDate="2016-05-15T17:03:36.743" Score="-3" ViewCount="131" Body="&lt;p&gt;Consider the &quot;Matrix Regurgitated: Coming Only To Cinemas&quot; market:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;Buyers.&lt;/strong&gt; People who would potentially be willing to spend money to watch a 4th Matrix film in cinemas, if ever such a film were released.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;Sellers.&lt;/strong&gt; Warner Brothers (or whoever owns the rights to these films).&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Lets make the simplifying assumption that this film will cost exactly 500 million dollars to make.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume the demand curve looks something like this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/6iQRZ.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/6iQRZ.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Okay, now lets think about supply. Let $p$ denote very high price; say, $\$30$ per ticket. Assume, in particular, that $p$ is far toward the right-hand-side of our graphs, where the quantity demanded is very low. Then if tickets are sold at price $p$, quantity demanded will be very low, so revenue from the film will be very low, so it won't be worth spending the 500 million to make the movie, so quantity supplied will be exactly $0$ units.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now consider a demand-side shift. Perhaps some well-known film critic publishes her paradigm-shattering thesis on why the Matrix Sequels were, in point of fact, the best sequels of all time. This causes the demand curve to shift up:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/DZS23.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/DZS23.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Once again, let $p$ denote very high price; say, $\$30$ per ticket. Then if tickets are sold at price $p$, quantity demanded will still be pretty high (because the whole curve has shifted up), so revenue will be pretty high, maybe revenue will equal one billion dollars, so therefore it probably makes sense to spend the initial 500 million to make the movie, so quantity supplied will be strictly more than $0$ units.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is kind of weird, right? Its as if every time demand changes, we have to change the supply curve, too. Looking at it another way, supply isn't purely a function of price-per-unit; its also a function of the demand curve.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;Question.&lt;/strong&gt; What tools are available to help think about situations like this, where the supply curve is clearly a function of the demand curve?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="6169" LastEditorUserId="6169" LastEditDate="2016-05-16T01:56:09.920" LastActivityDate="2016-05-16T04:02:39.320" Title="What tools are available to understand situations where the supply curve is clearly a function of the demand curve?" Tags="&lt;supply-and-demand&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12016" PostTypeId="2" ParentId="12014" CreationDate="2016-05-16T00:14:08.887" Score="3" Body="&lt;p&gt;The equilibrium quantity supplied is dependent on where the demand curve intersects the supply curve, but that doesn't make supply itself a function of demand.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To understand this better, it would be helpful to draw a supply and demand graph with both of the curves, rather than just the one curve you've got in your drawings. You're getting into some weird hand-waving that's making things overly complicated. Before making these abstract hypotheticals, you have to make sure you understand the fundamentals of what is happening.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2016-05-16T00:14:08.887" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="12017" PostTypeId="2" ParentId="12014" CreationDate="2016-05-16T00:21:45.893" Score="0" Body="&lt;p&gt;The question is not clear to me but relates to the canonical example of &lt;strong&gt;instrumental variables&lt;/strong&gt;, which involved attempts to estimate specifically demand and supply curves. Here, the OP considers an exogenous demand-side shift so an ordinary least  squares (OLS) regression  of  quantities  on  prices is a possible tool to &quot;think about situations like this&quot;. However, if the demand  and  supply  curves  shift  over  time,  the  observed  data  on  quantities and prices reflect a set of equilibrium points on both curves. Consequently, a tool such an ordinary least  squares  regression  of  quantities  on  prices  fails  to  identify either the supply or demand relationship.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://scholar.google.fr/scholar?hl=fr&amp;amp;q=Wright%2C%20%20Phillip%20%20G.1928.The%20%20Tariff%20%20on%20%20Animaland%20Vegetable%20Oils.%20New%20York%3A%20MacMillan&amp;amp;btnG=&amp;amp;lr=&quot; rel=&quot;nofollow&quot;&gt;Wright&lt;/a&gt; (1928) confronted this issue in the seminal application of instrumental variables (IVs). He suggested that certain &lt;strong&gt;curve shifters&lt;/strong&gt;, called  IVs, can  be  used  to  address  the  problem:  &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Such additional  factors  may  be  factors  which  (A)  affect  demand &#xA;  conditions  without affecting  cost  conditions  or  which  (B)  affect&#xA;  cost  conditions  without  affecting demand conditions.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;A variable he used for the demand curve shifter was the price of substitute goods, such as cottonseed, while a variable he used for the supply curve shifter was yield per acre, which can be thought of as primarily determined by the weather.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, IVs may have potential pitfalls: an  instrument  that  is  correlated  with  the error term, or weakly correlated with the endogenous variable, or not every observation's  behavior is affected  by  the  instrument.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To overcome omitted variables bias, instruments are sometimes derived from &lt;strong&gt;natural experiments&lt;/strong&gt;. Recent years have seen a resurgence in the use of instrumental variables in this way — that is, to exploit situations where the forces of nature or government policy have conspired to produce an environment somewhat akin to a randomized experiment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This answer is based on &lt;a href=&quot;http://economics.mit.edu/files/18&quot; rel=&quot;nofollow&quot;&gt;Instrumental Variables and the Search for Identification: From Supply and Demand to Natural Experiments&lt;/a&gt; by Joshua D. Angrist and Alan B. Krueger.&lt;/p&gt;&#xA;" OwnerUserId="6168" LastEditorUserId="6168" LastEditDate="2016-05-16T04:02:39.320" LastActivityDate="2016-05-16T04:02:39.320" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12018" PostTypeId="2" ParentId="12014" CreationDate="2016-05-16T02:25:36.127" Score="3" Body="&lt;p&gt;I think confusion has arisen because &quot;quantity&quot; is used here to refer to two things: the quantity of films made (a binary 0/1 with LRMC=$500m); and quantity of viewings (which you've assume has SRMC=0 and can be any non-negative integer).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Other than that, it's an unremarkable case of a monopoly supplier who will pick the price of viewings to maximise profit, and then only produce the film if that's positive. In this case, that's the same as maximising revenue, because for viewings, SRMC=0.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So your tools are simply: differentiate the total profit function of viewings (which in this case is identical to the total revenue function) to find the turning point, verify it's a maximum, round it either up or down to an integer (pick the direction that gives higher profit), and compare the revenue at that point with the cost of producing the film. Each time the demand-curve shifts, you have to do the differentiation again.&lt;/p&gt;&#xA;" OwnerUserId="44" LastEditorUserId="44" LastEditDate="2016-05-16T03:04:40.893" LastActivityDate="2016-05-16T03:04:40.893" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12019" PostTypeId="2" ParentId="12004" CreationDate="2016-05-16T04:12:14.440" Score="-1" Body="&lt;p&gt;Idiosyncratic shock affect to only a part of the population, so it won't transmit to prices and only the affected part will suffer the effect of the risk taken. On the other hand Aggregate shocks, will affect everyone in a proportional manner.&lt;/p&gt;&#xA;" OwnerUserId="8289" LastActivityDate="2016-05-16T04:12:14.440" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12020" PostTypeId="1" AcceptedAnswerId="12185" CreationDate="2016-05-16T04:20:42.177" Score="7" ViewCount="743" Body="&lt;p&gt;&lt;em&gt;Full disclosure&lt;/em&gt;: this problem was part of a final exam that none of our class could really solve definitively. Below the general form is a specific utility function we worked with that I'll try to replicate my work for. Any help on the solution method would be good; specifically, it seems Euler's equations/steady states would be better for this particular form of question rather than using a Bellman, but any guidance on either method would be appreciated.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Suppose a representative agent is solving&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\begin{align}&#xA;&amp;amp; \max_{\left\{ c_t, w_t \right\}^\infty_{t=0}} \sum_{t=0}^\infty \beta^t u(c_t) \\&#xA;&amp;amp; \text{s.t.} \\&#xA;&amp;amp; w_t = Rw_{t-1} - c_t \\&#xA;&amp;amp; c_t \geq 0 \\&#xA;&amp;amp; w_t \geq 0 \\&#xA;\end{align}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For all $t$, and $w_{-1}$. Additionally, $0 &amp;lt; \beta &amp;lt; 1$, $R &amp;gt; 1$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$c_t$ is consumption at time $t$, and $w_t$ is wealth at the end of time $t$. $\beta$ is a discount factor.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let &#xA;$$u(c_t) = \phi \mathrm{e}^ {\theta c_t^p}$$&#xA;where $\phi, \theta, p$ are constant parameters.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;My first question is what values of the constants $\phi, \theta$, and $p$ are needed to ensure that $u(c_t)$ are strictly increasing and strictly concave in $c_t$, for all values of $c_t$. &lt;strong&gt;Later on the problem asks us to assume those above conditions.&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So taking the first and second derivative of $u(c_t)$ gives us:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\begin{align}&#xA;u'(c_t) &amp;amp; = \phi \theta p c_t^{p-1}\mathrm{e}^ {\theta c_t^p} \\&#xA;u''(c_t) &amp;amp; = \phi \theta p(p-1) c_t^{p-2}\mathrm{e}^ {\theta c_t^p} + \phi \theta ^2 p^2 c_t^{(p-1)^2}\mathrm{e}^ {\theta c_t^p} \\&#xA;&amp;amp; = \phi \theta p c_t^{p-1} \mathrm{e}^{\theta c_t^p}\left[ \frac{p-1}{c_t} + \theta p c_t^{p-1} \right] \\&#xA;\end{align}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So $u'(c_t) &amp;gt; 0$ in order to satisfy the strictly increasing constraint. $u''(c_t) &amp;lt; 0$ must be true for strict concavity. I suggested that $\phi, \theta &amp;gt; 0$ and $p = 1$ for this to be true. I'm not sure how this ugly second derivative can be simplified to find the appropriate conditions.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;After doing this, we had to express Bellman's equation and Euler's equation for the problem.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Bellman:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\boxed{V(w) = \max_\tilde{w} \left[ \phi \mathrm{e}^{\theta (Rw - \tilde{w})^p} + \beta V(\tilde{w})\right]}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Euler:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\boxed{\sum_{t=0}^\infty \beta^t (Rw_{t-1} - w_t)^p = \cdots \beta^t (Rw_{t-1} - w_t)^p + \beta^{t+1}(Rw_t - w_{t+1})^p + \cdots }$$&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Finally, we got to say that $\beta \cdot R = 1$. We were then asked to find the value function and optimal decision rules for our choice variable(s). I used the Bellman to try to solve the problem, where I guessed the function form of the value function:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$V(\tilde{w}) = F \mathrm{e}^{M\tilde{w}} + H$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $F, M, H$ are undetermined coefficients. After substituting this into the Bellman and putting in appropriate arguments, taking the derivative to get an optimal choice, substituting the optimal choices back into the Bellman, I got stuck trying to solve for $F, M, H$ in a way that would give me a sensible consumption choice at the end.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The little trick with $\beta R = 1$ is supposed to make consumption constant across all periods, so I assume that the point of getting the Euler's equation is so we can solve it using steady states and make life easier, but my algebra there hasn't borne any fruit either it seems.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;For the dynamic programming method, have I set the functional form of the value function correctly? If not, what should be the guess? And finally, how does all the nasty algebra work out?&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;For the steady states method, what does the path of wealth look like? Does it end up constant as well? (I suppose that question applies for the Bellman approach as well.)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;(If it's pedagogically interesting or useful--or if you don't trust that I'm not begging for homework help--I can show my work for both methods.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Please let me know if anything is unclear.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2016-07-20T17:41:46.950" Title="Solution Method for Infinite-Horizon Maximization Problem" Tags="&lt;macroeconomics&gt;&lt;dynamic-programming&gt;&lt;steady-state&gt;" AnswerCount="3" CommentCount="1" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="12022" PostTypeId="2" ParentId="11513" CreationDate="2016-05-16T06:36:01.650" Score="2" Body="&lt;p&gt;Forgive me in advance if this is already familiar. I'll be talking about stability of equilibrium the way I (briefly) learned it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $\xi^j(p)$ denote the excess demand for good $j$ given price $p$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\xi^j(p) = \sum^m_{h=1}\left( x^j_h(p) - e^j_h \right) = x^j(p) - r^j$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For $m$ households/consumers, $e$ being an endowment to a household, and $r^j$ being the total resource available of good $j$. We say the rate of price adjustment over time $\left(\frac{\partial p^j}{\partial t}\right)$ is proportional to excess demand.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For either of your market clearing prices $p^*$, we then know that $x^j(p^*) = r^j \ \forall j \implies \xi^j(p) = 0$&#xA;Otherwise,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\xi^j(p)&amp;gt; 0 \implies \text{excess demand} \implies \frac{\partial p^j}{\partial t} &amp;gt; 0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\xi^j(p)&amp;lt; 0 \implies \text{excess supply} \implies \frac{\partial p^j}{\partial t} &amp;lt; 0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Out of the three equilibrium you have up there, we'd probably want to find one that was &lt;strong&gt;locally stable&lt;/strong&gt; and say that's where the market is more likely to realistically go.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Steady state $p^*$ is locally stable if $\exists \epsilon &amp;gt; 0 \ \text{s.t.} \ \forall \ p(0) \in B_\epsilon (p^*)$, an open neighborhood with radius $\epsilon$ around $p^*$, then we have $p(t, p(0)) \rightarrow p^*$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't want to fuddle this too much with math (particularly when you linearize the system and have to deal with eigenvalues/eigenvectors), so let's just take a look at your supply and demand curves above.  We can peruse the math on our own time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Case A:&lt;/strong&gt; Let's say you are at point &lt;strong&gt;A&lt;/strong&gt;, your nice equilibrium. Suddenly there is a downwards quantity shock and you are now to the left of $q_A$. Since there is excess demand, the change in price over time should be positive, so the price will rise, and you will arrive back at point A. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What if you are shocked to the right of $q_A$ in the short run? Now there is excess supply and price over time should fall. If you were still above $p^*_A$ at this point, you will arrive back at point A. Otherwise price will fall all the way until you reach point B.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Case B:&lt;/strong&gt; We know what happens with a shock to the left of point &lt;strong&gt;B&lt;/strong&gt; now. What about to the right? If point C looks like a global minimum of the supply curve from what it looks like, then any shock that gets you before point C gets you excess demand, which means the price will rise and you will arrive back at point B.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Case C:&lt;/strong&gt; To the right of point C, there is excess supply, and prices will fall back down until you reach C again.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;None of these equilibria seem globally stable. It seems C is not locally stable on the left, so I wouldn't say the market would hang out there for very long. Points A and B are locally stable, but it seems B has greater room to get shocked and still move back towards B.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So for this scenario, I personally like &lt;strong&gt;B&lt;/strong&gt; as your long run equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you had extra information about how shocks in the market happen (how often, variance, etc.), it may allow you to describe what percentage of the time you stick around at each equilibria, and you could describe an aggregate equilibrium like that as well.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2016-05-16T06:36:01.650" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="12023" PostTypeId="2" ParentId="11962" CreationDate="2016-05-16T08:08:14.253" Score="2" Body="&lt;p&gt;First of all, you need to expand the definition of a vector. It is not only quantities having maginitude and direction. While I agree that is the representation in $\mathbb R^2$, it is not always the case. Think of a vector as a representation of any ordered group of numbers $(x_1,x_2,...,x_n)$ and forget completely that you ever thought these implied magnitud and direction.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We think of commodity bundles as vectors and not as quantities by themselves because we want to be able to explain consumption choices as bundles. Let me give you an example with a bundle of 2 goods, $(x_1, x_2)$. Think that $x_1$ is the amount of coffees that you can buy whereas $x_2$ is the amount of packets of sugar that you can buy. We want to be able to compare, say, $(2,1)$ with $(1,2)$. I agree, we could analyze both the choice of both goods separately, but ultimately we want to know what is the optimal consumption &lt;em&gt;bundle&lt;/em&gt; and not the optimal amount of sugar and coffee separated. Now, did I say something that entails magnitude? Or direction? No.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Bottomline, yes, we are thinking about quantities of goods, but when we say vectors, it means bundles of quantities of goods. That is ultimately what happens in the real world.&lt;/p&gt;&#xA;" OwnerUserId="4224" LastActivityDate="2016-05-16T08:08:14.253" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="12027" PostTypeId="2" ParentId="12001" CreationDate="2016-05-16T16:17:47.797" Score="1" Body="&lt;p&gt;Reading the book, $z=\frac{\hat\beta-\beta_0}{(\sigma^2/n)^{(1/2)}}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The distribution of $z$ under $H_0$ will determine the critical values for a given level of significance $\alpha$, i.e. it will determine the probability of Type I errors (prob of rejecting the null, when null is true).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The distribution of $z$ under $H_1$ (4.04) will define the probability of Type II errors(not rejecting null when alternative is the true hypothesis). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The closer - the averages are close - the distributions of z under the null and the alternative are, the higher is the probability of Type II errors.&#xA;In the picture below, we have several pdf for normal distributions. In blue, the distribution has zero mean; in red mean 1; and in yellow mean 2. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/YC6nL.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/YC6nL.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At the usual critical values of $1.96$ and $-1.96$ (for an $\alpha=0.05$), we can see a vertical line. When we're on the blue curve, i.e. under the null, we can calculate the prob of type I error, as the area to the right of the rightmost vertical line, to the left of the leftmost vertical line and below the blue line. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To calculate the type II error, we check in the interval between the vertical lines(not rejecting $H_0$ area), under the red or yellow curve, depending on the values that $\beta$ really takes.&#xA;Notice that the area below such a curve will increase the closer the curve is to the one under the null distribution. In this case, the prob of type II error is greatest is when the alternative is the true model and the mean of the distribution is 1.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By deducing the distribution of z under the alternative, the authors want to give an idea of the type of rejection region one will get, when doing inference in this setting.&lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="118" LastEditDate="2016-05-16T16:37:18.187" LastActivityDate="2016-05-16T16:37:18.187" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12030" PostTypeId="2" ParentId="12001" CreationDate="2016-05-16T17:36:28.340" Score="1" Body="&lt;p&gt;The model is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$y_t = \beta +u_t,\;\; u_t\sim N(0, \sigma^2),\; t=1,...,n$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and the sample is independent. The estimator is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\hat \beta = \frac1n\sum_{t=1}^n y_t = \frac1n\sum_{t=1}^n (\beta +u_t) = \beta + \frac1n\sum_{t=1}^n u_t$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If $\beta = \beta_1$ (where $\beta_1$ is some value different than the $\beta_0$ we set as the null hypothesis), then the authors set $\frac1n\sum_{t=1}^n u_t \equiv \hat \gamma$ and so they write that under the alternative we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\hat \beta = \beta_1 +\hat \gamma$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since the $u'$ are i.i.d normal their sum/average is also normal. Then the distribution of the estimator is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\hat \beta \sim N(\beta, \sigma^2/n)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume we set as our null hypothesis that $H_0:\beta = \beta_0$. and the alternative $H_1:\beta \neq \beta_0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then we form the statistic (which is a function of the estimator, not the estimator itself)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$z = \frac{\hat \beta - \beta_0}{\sigma/ \sqrt{n}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The distribution of this statistic is (&lt;em&gt;before&lt;/em&gt; specifying any hypothesis to test)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$z \sim N\left(\frac{\beta - \beta_0}{\sigma /\sqrt{n}},1\right)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume that we pose as our null hypothesis that $H_0: \beta = \beta_0$. Then if the null hypothesis is true we get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$z|_{H_0} \sim N\left(0,1\right)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the alternative is true then we substitute for $\hat \beta$ to get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$z|_{H_1} = \frac{\beta_1 +\hat \gamma - \beta_0}{\sigma /\sqrt{n}} = \frac{\beta_1 - \beta_0}{\sigma \sqrt{n}}+\frac{\hat \gamma }{\sigma /\sqrt{n}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first term is a constant, the second term is a standard normal r.v. (remember what $\hat \gamma$ stands for). So the distribution of the statistic &lt;em&gt;under the alternative&lt;/em&gt; is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$z|_{H_1} \sim N\left(\frac{\beta_1 - \beta_0}{\sigma /\sqrt{n}},1\right)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and the authors write&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\lambda \equiv \frac{\beta_1 - \beta_0}{\sigma /\sqrt{n}}$$&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2016-05-16T17:36:28.340" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12031" PostTypeId="1" CreationDate="2016-05-16T18:42:31.943" Score="2" ViewCount="15" Body="&lt;p&gt;Are there any good estimates of the total values of&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;used or second-hand good sales&lt;/li&gt;&#xA;&lt;li&gt;donated goods&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;for the US or any other country?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know these estimates are generally excluded from GDP, but are they tracked in any rigorous way by some government agency? I searched BEA and FRED, but have come up dry.&lt;/p&gt;&#xA;" OwnerUserId="159" LastActivityDate="2016-05-16T18:42:31.943" Title="Total values of used/second-hand goods sold and donations?" Tags="&lt;reference-request&gt;&lt;data-request&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12033" PostTypeId="1" AcceptedAnswerId="12046" CreationDate="2016-05-16T22:18:19.693" Score="1" ViewCount="920" Body="&lt;p&gt;I am doing a Engle-Granger test for cointegration and I am unsure about some commands.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;Cointegration and the ECM&quot; (document) from learneconometric.com says I should use:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;regress b f&#xA;predict ehat, residual&#xA;regress D.ehat L.ehat L.D.ehat, noconstant&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;However, &quot;Time series&quot; (document from Princeton Uni) says I should use:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;regress b f&#xA;predict ehat, resid&#xA;dfuller ehat, lags(10)&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;So I am unsure about the last commands here. Should I use &lt;code&gt;regress D.ehat L.ehat L.D.ehat, noconstant&lt;/code&gt; or &lt;code&gt;dfuller ehat, lags(10)&lt;/code&gt; and what is the difference here? Also, how many &quot;lags&quot; should I include for the Dickey Fuller test?&lt;/p&gt;&#xA;" OwnerUserId="8296" LastActivityDate="2016-05-18T01:35:04.773" Title="Cointegration test in Stata" Tags="&lt;econometrics&gt;&lt;stata&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12036" PostTypeId="1" CreationDate="2016-05-17T00:06:27.170" Score="2" ViewCount="130" Body="&lt;p&gt;I am working on a project which need to solve a dynamic programming problem with dimension over 1000. In past literature, there exist several methods like Smolyak algorithm and Sparse grid method that can solve dynamic programming problem with dimension no more than 100. My question is that does there exist such a brute force method that can solve problem with high dimension efficiently. Or I need to apply some approximation or reduce dimension. &lt;/p&gt;&#xA;" OwnerUserId="8284" LastActivityDate="2016-12-14T08:35:10.470" Title="Dynamic programming problem with dimension over 1000" Tags="&lt;competitive-equilibrium&gt;&lt;dynamic-programming&gt;" AnswerCount="1" CommentCount="6" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12038" PostTypeId="1" CreationDate="2016-05-17T01:37:43.677" Score="2" ViewCount="109" Body="&lt;p&gt;I have an issue dealing with dataset provided for my coursework.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Because of the fact that I've been failing to find time-series of the same or similar values anywhere from world bank to Office for National Statistics, I strongly doubt it. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The data series provided is shown below in a form of line chart. The brief provided says it's in constant prices, it unfortunately does not indicate the reference year. What it is supposed to describe is consumption and disposable income for the United Kingdom over the period of 03Q2 to 15Q4. I don't believe there would be negative savings for the whole period. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/fUGNL.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/fUGNL.png&quot; alt=&quot;Data series given&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have been looking around to find some hint that would prove this true, unfortunately the graph below shows the opposite. I can explain the jump in disposable income by change in reference year, however the consumption data does not make sense to me. At all.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/MKviz.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/MKviz.png&quot; alt=&quot;Data series obtained through searching, which ends where the previous starts&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="8298" LastEditorUserId="4251" LastEditDate="2016-06-17T02:53:42.827" LastActivityDate="2016-10-15T06:55:33.543" Title="Is it possible for disposable income to be lower than consumption expenditure?" Tags="&lt;econometrics&gt;&lt;empirical-evidence&gt;" AnswerCount="2" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="12039" PostTypeId="2" ParentId="9485" CreationDate="2016-05-17T02:34:39.797" Score="1" Body="&lt;p&gt;A) You are right! Its not necessarily &quot;borrowing&quot;. People say that only as way of speaking. You could sell your foreign exchange reserves, or sell other foreign assets, or sell local assets. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;B) The first logic of calling it borrowing is that typically, that's what happens, a country's governments or its corporations will indeed borrow from foreign investors. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;C) The other logic of calling it borrowing is that typically the foreign investors don't want any asset within the CA deficit country, so they buy local assets expecting to sell them in exchange for dollars later on. In that sense, even the sale of local firm's equity, for example, looks a little bit like borrowing, because the foreign investor will sell it for dollars when he gets a chance.&lt;/p&gt;&#xA;" OwnerUserId="7593" LastActivityDate="2016-05-17T02:34:39.797" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12040" PostTypeId="1" CreationDate="2016-05-17T09:16:57.843" Score="2" ViewCount="71" Body="&lt;p&gt;OECD data for South Korea is based on the numbers provided by Statistics Korea, which does not count single household family income data in their statistics. I am just curious that neglecting single household is a general or traditional statistical method for getting sound Gini index so other countries use same way Or, it just happens in South Korea. Recently, The number of single households are growing fast, and usually their incomes are lower, so neglecting single household data leads lower Gini index, which means lower inequality. Do the other countries use the similar criterion for gathering data for Gini index? If the countries use different criterion , where could I find that?&lt;/p&gt;&#xA;" OwnerUserId="8301" LastEditorUserId="7593" LastEditDate="2016-05-17T14:30:35.017" LastActivityDate="2016-11-19T12:20:43.053" Title="When a country collects data for calculating the Gini index, do they usually neglect single household?" Tags="&lt;macroeconomics&gt;&lt;inequality&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12041" PostTypeId="2" ParentId="12002" CreationDate="2016-05-17T11:17:18.093" Score="2" Body="&lt;p&gt;The economics of trade can broadly be divided into two parts.  There is a microeconomic part concerned with patterns of trade in particular kinds of goods, their causes such as factor endowments and costs, and effects on welfare, key concepts being comparative advantage and the gains from trade.  Then there is a macroeconomic part concerned with overall volumes of trade and payments for traded goods, and their relations with exchange rates and domestic macroeconomic conditions.  The two parts can be linked, as in the Dekle et al paper referred to by emeryville, but more often are considered separately.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The concept of balance of trade belongs in the macroeconomic part, although &#xA;economists often use the more precise term &lt;a href=&quot;https://en.wikipedia.org/wiki/Balance_of_payments#Components&quot; rel=&quot;nofollow&quot;&gt;balance on current account&lt;/a&gt;, which includes trade in goods and services and certain other items. It is generally considered that a continuing deficit on current account is harmful because the net outflow of funds cannot indefinitely be met by running down the country's international currency reserves, and must eventually be balanced by an inflow of funds associated with increasing international debt and/or foreign ownership of domestic assets.  The moderate aim of a balance on current account avoids two disadvantages of mercantilism, which aimed to achieve a surplus: firstly, it led to conflict because it was impossible for every country to have a surplus, and secondly, it reduced welfare, because restrictions on imports meant that the (microeconomic) gains from trade were not fully achieved.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus the balance of trade or balance on current account remains an important concept in the macroeconomics of trade.&lt;/p&gt;&#xA;" OwnerUserId="1417" LastActivityDate="2016-05-17T11:17:18.093" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12042" PostTypeId="2" ParentId="11952" CreationDate="2016-05-17T14:22:40.620" Score="0" Body="&lt;p&gt;The derivative of $log(x)$ is $1/x$, which implies that $dlog(x)=(dx)/x$. Therefore, $e=dlog(y)/dlog(x)$ is the same as $e=(dy)/y/(dx)/x$. This ratio $e$ is known as the elasticity of $y$ with respect to $x$. We usually express derivatives $f′(x)$ as the change in $f$ when $x$ moves one unit, but $f(x)+1∗f′(x)$ is just an approximation (a Taylor approximation) of $f(x+1)$. Therefore, saying that a 1% change in $x$ will lead to an $e$ change in $y$ is just an approximation. It's a rate of change that is exact only at the $x$ point, but not exact as you move away from it to $x+0.01∗x$.&lt;/p&gt;&#xA;" OwnerUserId="7593" LastActivityDate="2016-05-17T14:22:40.620" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12043" PostTypeId="2" ParentId="9427" CreationDate="2016-05-17T15:22:18.673" Score="1" Body="&lt;p&gt;Prior to any trasnformation:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Energy consumption is a per capita variable, specifically &quot;Kgr per capita&quot;&lt;/li&gt;&#xA;&lt;li&gt;Real GDP is a per capita variable&lt;/li&gt;&#xA;&lt;li&gt;Trade Openness is a per capita variable&lt;/li&gt;&#xA;&lt;li&gt;Energy price is a unit price of &quot;crude oil&quot;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;I see two problems: Is &quot;Energy Price&quot; the &quot;price per Kgr&quot; -because usually oil prices are not quoted per Kilogram. But it should expressed here &quot;per Kgr&quot; so as to stand for the price of the dependent variable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If it does, it is only natural to consider the logarithms of the variables, dependent variable included.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But one more thing that needs clarification is what $Y$ stands for. The authors write &quot;$Y$(economic growth)&quot;. If this is the case then for this variable you don't just take the logarithm of real GDP but the first-difference of the logarithm  (which approximates the rate of growth).&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2016-05-17T17:36:29.890" LastActivityDate="2016-05-17T17:36:29.890" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="12044" PostTypeId="1" CreationDate="2016-05-17T15:45:21.250" Score="2" ViewCount="136" Body="&lt;p&gt;I have a specific question about considering a representative agent. According to Rubinstein 1974, in an inter-temporal economy with $N$ individuals each one with initial endowment $e_i$ and everything else homogeneous. The intertemporal constraints of the investor are:&#xA;$c_{0i}=e_{0i}-\eta_i p$&#xA;$c_{1i}=e_{1i}+\eta_i X$&#xA;Where $e_{0i},e_{1i}$ are present and future endownments, $c_{0i}, c_{1i}$ represents present and future consumption, $p$ is the price of the investment technology, and $\eta_i$ is the number of units bought. Finally $X$ is the payoff of the investment technology. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assuming investors differ only on their endowments, we can solve for the equilibrium using a representative agent with the average endowment $\bar{e}=\frac{\sum e_i}{N}$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose now that the present endowment of each agent depends on how many units he/she decides to buy. &#xA;$c_{0i}=e^i(\eta_i)-\eta_i p$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The function $e^i(\eta_i)$ is not necessarily the same for all investors.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is: Can we solve for the equilibrium using a representative agent with endowment &#xA;$\bar{e(\eta)}=\frac{\sum e^i (\eta)}{N}$ ?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Reference: Rubinstein, M., 1974. An aggregation theorem for securities markets. Journal of Financial&#xA;Economics 1, 225-244.&lt;/p&gt;&#xA;" OwnerUserId="6148" LastActivityDate="2016-12-20T00:21:20.720" Title="Aggregation theorems hold if endowments are endogenous?" Tags="&lt;microeconomics&gt;&lt;investment&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12046" PostTypeId="2" ParentId="12033" CreationDate="2016-05-17T16:59:45.640" Score="1" Body="&lt;p&gt;Do the last one, the first one is just the same thing but you will not be using the in-built adf function. The second one does it better and you have a choice of including lagged differences to control for possible autocorrelation. If your data is monthly, give it a lag order of 12. &lt;/p&gt;&#xA;" OwnerUserId="6009" LastActivityDate="2016-05-17T16:59:45.640" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12048" PostTypeId="1" AcceptedAnswerId="12051" CreationDate="2016-05-17T17:58:02.717" Score="4" ViewCount="219" Body="&lt;p&gt;I'm trying to understand the implications of a &lt;a href=&quot;https://en.wikipedia.org/wiki/Solow%E2%80%93Swan_model&quot; rel=&quot;nofollow&quot;&gt;Solow-Swan growth model&lt;/a&gt; with, to keep things simple, constant population, and constant Cobb-Douglas technology written in per capita form as $y=k^{\alpha} (0&amp;lt;\alpha&amp;lt;1)$. Given an initial capital stock, depreciation rate $\delta$ and assumptions on the saving ratio s, I understand how to obtain time paths for y, k and per capita consumption c, properties of steady states and of the golden rule steady state.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Question&lt;/em&gt;: Is it possible within this model, perhaps with plausible additional assumptions, to infer the path of discount rates $\rho$, and consequently of interest rates r, corresponding to a given feasible time path of y, k and c? &lt;/p&gt;&#xA;" OwnerUserId="1417" LastActivityDate="2016-05-25T12:03:20.810" Title="Can a Discount Rate be Inferred within a Solow-Swan Growth Model?" Tags="&lt;economic-growth&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12049" PostTypeId="1" CreationDate="2016-05-17T21:21:39.493" Score="1" ViewCount="20" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/yBT7F.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/yBT7F.png&quot; alt=&quot;Returns of stocks&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course the first step would be to make the first difference of the series, because there's obviusly a unit root.&#xA;Can someone offer a solution to find the best Garch? I would be pleased to send the data. Thanks a lot!&lt;/p&gt;&#xA;" OwnerUserId="8035" LastActivityDate="2016-05-17T21:21:39.493" Title="How can i find the best GARCH (p,q) in this serie?" Tags="&lt;econometrics&gt;&lt;time-series&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12051" PostTypeId="2" ParentId="12048" CreationDate="2016-05-17T22:00:40.600" Score="3" Body="&lt;p&gt;In the Solow-Swan model, the &lt;strong&gt;interest rate&lt;/strong&gt; will be determined by market-equilibrium: under the baseline assumption of competitive markets (and constant-returns-to-scale technology), we get the familiar per-period equilibrium relation&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$f'(k) = r + \delta \tag{1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regarding the &lt;strong&gt;rate of pure time preference&lt;/strong&gt;, think of the following: in this model, savings is a &lt;em&gt;fixed percentage&lt;/em&gt; of output. So consumption is also a fixed percentage of output:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$c = (1-s)f(k) \implies \dot c = (1-s)f'(k)\dot k \tag{2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;while also we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\dot k = sf(k) - (n+\delta)k \tag{3}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Combining, we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\dot c = (1-s)f'(k)\cdot [sf(k) - (n+\delta)k]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$= (1-s)f(k)f'(k)s - (1-s)f'(k)(n+\delta)k$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and using the previous relations, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\dot c = s(r+\delta)c - (1-s)(r+\delta)(n+\delta)k \tag{4}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the &quot;Ramsey&quot; model with consumer intertemporal utility maximization, we get the relation (for log-utility for simplicity)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\dot c = (r-\rho(t)) c \tag{5}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that I made the rate of pure time preference time-varying and this is indeed the case when we examine time-varying preference rates in the Ramsey model (see for example &lt;a href=&quot;http://qje.oxfordjournals.org/content/114/4/1125.abstract&quot; rel=&quot;nofollow&quot;&gt;Barro, R. J. (1999). Ramsey meets Laibson in the neoclassical growth model. Quarterly Journal of Economics, 1125-1152&lt;/a&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the consumers in the Solow-Swan model to behave like the consumer's that optimize intertemporaly equation $(4)$ must be equivalent to equation $(5)$ so (using now the time variable to clearly indicate what is time-varying and what is not), we get after eliminating and re-arranging&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$s(r(t)+\delta)c(t) - (1-s)(r(t)+\delta)(n+\delta)k(t) =[r(t)-\rho(t)] c(t)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies \big[s(r(t)+\delta) - r(t)+\rho(t)]c(t) = (1-s)(r(t)+\delta)(n+\delta)k(t)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies \rho(t) = (1-s)(r(t)+\delta)(n+\delta)\frac {k(t)}{c(t)} +r(t) - s[r(t)+\delta]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies \rho(t) = (r(t)+\delta)(n+\delta)\frac {k(t)}{f(k(t))} +r(t) - s[r(t)+\delta]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The consistent rate of pure time preference is endogenous, and time-varying under diminishing marginal product of capital, and becomes constant only in the steady state. The relation tells us to what $\rho(t)$ must be equal so that the optimizing consumer finds optimal to maintain a constant savings rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the production function has constant output elasticities (say, Cobb-Douglas $f(k) = Ak^a$), then the above simplifies to&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\rho(t) = (n+\delta)a - s\delta + (1-s)r(t) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;or&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\rho(t) = (n+\delta)a  - \delta + (1-s)f'(k(t)) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;so it is still time varying (it would be constant in a model with constant marginal product of capital). If capital increases to its steady state, we see that the consistent rate of pure time preference should fall over time (which is also the result we get in the Ramsey model with time varying $\rho$).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At the steady-state we have $f'(k^*) = a(n+\delta)/s$ so&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies \rho^* = (n+\delta)a  - \delta + \frac{(1-s)a(n+\delta)}{s}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies \rho^* = \frac {an+ (a-s)\delta}{s}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That's a nice one since $a$ is the &lt;strong&gt;golden-rule savings rate&lt;/strong&gt;. To mimic the Ramsey model we should set therefore $s&amp;lt;a$ so we will be to the left of the golden rule (and even in the Solow context, setting $s &amp;gt;a$ is dynamically inefficient). Then the steady-state consistent $\rho$ will certainly be positive. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Just for a taste, set $a=0.45, s=0.35, n=0.01, \delta =0.05$, to get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\rho^* \approx 0.027$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Not far from the benchmark value $\rho =0.02$.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2016-05-25T12:03:20.810" LastActivityDate="2016-05-25T12:03:20.810" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="12052" PostTypeId="1" CreationDate="2016-05-18T00:01:01.623" Score="3" ViewCount="378" Body="&lt;p&gt;I am looking for some good books on Development economics. My background is in mathemathics and statistics (with working knowledge of intermediate micro and macro), so a &quot;good&quot; book needs to be rigorous yet also provide intuition. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What are people reading these days when it comes to this topic?&lt;/p&gt;&#xA;" OwnerUserId="8304" LastActivityDate="2016-05-26T09:08:36.763" Title="Reference request: Development economics" Tags="&lt;reference-request&gt;&lt;development-economics&gt;" AnswerCount="5" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12053" PostTypeId="2" ParentId="12033" CreationDate="2016-05-18T01:35:04.773" Score="0" Body="&lt;p&gt;In STATA I would actually recommend the package egranger&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Find more about it:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;findit egranger&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;and to install it:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;ssc inst egranger&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Regarding the DF-test, I usually use another package, dfao. This one lets me use an information criterion, such as HQIC, AIC or SBIC, to choose the optimal lag length. Again:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;findit dfao&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;To install it:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;ssc inst dfao&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;My default specification for the DF is &lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;dfao varname, lltc(sc) noao notr&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;where the options specify, in order: use the Schwarz criterion to choose the lag length; do not test for additive outliers [i.e. work like normal DF test]; and do not add a trend automatically.&lt;/p&gt;&#xA;" OwnerUserId="8261" LastActivityDate="2016-05-18T01:35:04.773" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12054" PostTypeId="2" ParentId="9390" CreationDate="2016-05-18T01:47:40.220" Score="3" Body="&lt;p&gt;If you check Stata's help file on &lt;a href=&quot;http://www.stata.com/manuals13/rregress.pdf&quot; rel=&quot;nofollow&quot;&gt;regress&lt;/a&gt; you should understand how to do it. Particularly pp. 16-7 have specific examples of how to apply weights.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I will edit in order to be more detailed.&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;gen lnyl1y=ln(y)-l1.ln(y)&#xA;xi: reg lnyl1y i.country [w=y]&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Notice that if the weighted regression is done by dividing all values for observation $i$ by $\sqrt{w_i}$, then &#xA;$$\tilde{x} = &#xA;\begin{pmatrix} &#xA;\frac{x_{1,1}}{\sqrt{w_1}} &amp;amp; \cdots &amp;amp; \frac{x_{1,k}}{\sqrt{w_1}}\\&#xA;\vdots &amp;amp;\ddots &amp;amp;\vdots\\&#xA;\frac{x_{n,1}}{\sqrt{w_n}} &amp;amp; \cdots &amp;amp; \frac{x_{n,k}}{\sqrt{w_n}} &#xA;\end{pmatrix} &#xA;$$&#xA;Call the diagonal matrix composed of $\sqrt{w_i}$ in the $(i,i)$ element $\sqrt{w}$. Then, the WLS estimator is given by&#xA;$$&#xA;\hat{\beta}_{WLS}=\left(\tilde{x}'\tilde{x}\right)^{-1}\tilde{x}'\tilde{y}=&#xA;\left[(\sqrt{w}x)'\sqrt{w}x\right]^{-1}(\sqrt{w}x)'(\sqrt{w}y)=(x'Wx)^{-1}(xWy)&#xA;$$&#xA;as $\sqrt{w}'\sqrt{w}=W$ and $\tilde{x}=\sqrt{w}x$ which is exactly the same as multiplying each row of $X$ and $y$ by the sqrt of your weight (analytical weight, here $\sqrt{w}$).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The thing here is to understand how your matrix relates to applying the weights and understanding the connection between your formula and the one which is in the help file. For other ways to calculate weighted regressions in relation with Stata, see e.g. &lt;a href=&quot;http://www.parisschoolofeconomics.eu/docs/dupraz-yannick/using-weights-in-stata(1).pdf&quot; rel=&quot;nofollow&quot;&gt;this document&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="8261" LastEditorUserId="6168" LastEditDate="2016-05-19T18:41:10.523" LastActivityDate="2016-05-19T18:41:10.523" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12055" PostTypeId="2" ParentId="12052" CreationDate="2016-05-18T02:16:43.503" Score="1" Body="&lt;p&gt;Development economics has a distinct flavor among subfields in Economics, in that it usually opts for a more socio-economic, geopolitical and historical approach rather than mathematical modelling.&#xA;But they do use rigorous quantitative methods as regards empirical studies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Anyway a book that can certainly show you how this subfield thinks is &lt;a href=&quot;http://www.cambridge.org/gr/academic/subjects/economics/economic-development-and-growth/economic-development-5th-edition?format=HB&amp;amp;isbn=9780521765480&quot; rel=&quot;nofollow&quot;&gt;&lt;strong&gt;E. Wayne Nafziger's &quot;Economic Development&quot;&lt;/strong&gt;&lt;/a&gt; (850 pages long - in hardcover, the book weighs 1.5 Kgr!)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;See also the scientific journal &lt;a href=&quot;http://www.journals.elsevier.com/journal-of-development-economics/&quot; rel=&quot;nofollow&quot;&gt;&quot;Journal of Development Economics&quot;&lt;/a&gt; &lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2016-05-18T02:24:16.260" LastActivityDate="2016-05-18T02:24:16.260" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12056" PostTypeId="2" ParentId="12038" CreationDate="2016-05-18T02:21:11.907" Score="0" Body="&lt;p&gt;Data is never &quot;wrong&quot;, data simply &lt;em&gt;is&lt;/em&gt;. It can be wrongly collected, but it is nevertheless. Now, what you are seeing is probably due to&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(a) differences in vintages or definitions (SNA changed between 1993 and 2008)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(b) problems in your definitions - e.g. inconsistent definitions&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To provide a better answer I would need to know the SNA &lt;em&gt;code&lt;/em&gt; for each series and where the data comes from.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, please do check the statistical definitions underlying the data your using. Assuming it is National Accounts (SNA stands for System of National Accounts, the basis for both ESA, NIPA and other systems), please do check chapters 8 and 9 of &lt;a href=&quot;http://unstats.un.org/unsd/nationalaccount/docs/SNA2008.pdf&quot; rel=&quot;nofollow&quot;&gt;SNA 2008&lt;/a&gt; for the proper statistical definitions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(As I cannot yet comment, this has to be posted as an answer)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;PS: IMHO would suggest &quot;data&quot; and/or &quot;empirics&quot; as opposed to &quot;Keynesian economics&quot; as a tag&lt;/p&gt;&#xA;" OwnerUserId="8261" LastActivityDate="2016-05-18T02:21:11.907" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12057" PostTypeId="2" ParentId="11858" CreationDate="2016-05-18T02:44:45.363" Score="1" Body="&lt;p&gt;Robbins's famous quote can be interpreted very differently. For me, all he tried to suggest with this is that economics is the study of how you choose.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Most textbooks would say that if you have something for free, it is not a matter for economics to study. For instance, you can freely sunbathe, so the amount of time you spend sunbathing is not an economic problem. However, Robbins's definition claims that &lt;em&gt;it can be&lt;/em&gt; a matter for economics, even if it is free. If you have to choose between sunbathing and going to the movies, the relevant resource you are allocating is not only money but also time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In sum, given that doing A implies sacrificing doing B instead of A Lionel Robbins is defining economics as the science that studies human (purposeful?) behavior.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Btw: &lt;a href=&quot;https://mises.org/system/tdf/Essay%20on%20the%20Nature%20and%20Significance%20of%20Economic%20Science_2.pdf?file=1&amp;amp;type=document&quot; rel=&quot;nofollow&quot;&gt;the original text&lt;/a&gt;, and, therein:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Scarcity of means to satisfy ends of varying importance is an almost&#xA;  ubiquitous condition of human behaviour (Robbins, 1945, p. 15)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;PS: I don't believe that Robbins is suggesting that one focuses on efficiency as opposed to distribution. If the distribution affects choices, then it is a matter for [Robbins's] economics; if by distribution you are asserting that &lt;em&gt;this&lt;/em&gt; distribution of income is &lt;em&gt;better&lt;/em&gt; than &lt;em&gt;that&lt;/em&gt; one, than it is true that Robbins does claim &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;What is of relevance to the social sciences is, not whether individual&#xA;  judgments of value are correct in the ultimate sense of the philosophy&#xA;  of value, but whether they are made and whether they are essential&#xA;  links in the chain of causal explanation. (Robbins, 1945, p. 90)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;PPS: Reading now, this sounds too pompous, but at least I hope it's helpful:)&lt;/p&gt;&#xA;" OwnerUserId="8261" LastActivityDate="2016-05-18T02:44:45.363" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12058" PostTypeId="2" ParentId="11831" CreationDate="2016-05-18T02:54:59.917" Score="0" Body="&lt;p&gt;The excerpt &lt;em&gt;does not&lt;/em&gt; say &quot;inefficient production&quot;, so I'm assuming the question is not exactly well put. Regarding this problem, I recommend checking&#xA;literature on &lt;a href=&quot;https://en.wikipedia.org/wiki/Baumol%27s_cost_disease&quot; rel=&quot;nofollow&quot;&gt;Baumol's cost disease&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As to why services will then make up the lion's head of GDP, well if you'll spend relatively more on them than on material &quot;things&quot;... [it'll come by the definition of GDP itself]&lt;/p&gt;&#xA;" OwnerUserId="8261" LastActivityDate="2016-05-18T02:54:59.917" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12059" PostTypeId="1" CreationDate="2016-05-18T02:57:36.673" Score="1" ViewCount="33" Body="&lt;p&gt;Baby boomers are retiring and have been for a few years already. The financial crisis potentially made a large fraction f them change their retirement plans. Is there some measure / study of this effect? Are there any references to look at?&lt;/p&gt;&#xA;" OwnerUserId="7593" LastActivityDate="2016-05-18T18:49:24.287" Title="Did the financial crisis affect the retirement patterns of Baby boomers?" Tags="&lt;financial-crises&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12060" PostTypeId="2" ParentId="12052" CreationDate="2016-05-18T03:07:21.030" Score="0" Body="&lt;p&gt;A new book just came out by two well known development economists, Alain de Janvry and Elisabeth Sadoulet, &lt;a href=&quot;https://www.routledge.com/Development-Economics-Theory-and-practice/de-Janvry-Sadoulet/p/book/9781138885318&quot; rel=&quot;nofollow&quot;&gt;&lt;strong&gt;Development Economics Theory and practice&lt;/strong&gt;&lt;/a&gt; (2016).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Abstract: Development Economics: Theory and Practice provides students and practitioners with the perspectives and the tools they need to think analytically and critically about the current major economic development issues in the world. Alain de Janvry and Elisabeth Sadoulet identify seven key dimensions of development; growth, poverty, vulnerability, inequality, basic needs, sustainability, and quality of life, and use them to structure the contents of the text. This book gives a historical perspective on the evolution of thought in development. It uses theory and empirical analysis to present readers with a full picture of how development works, how its successes and failures can be assessed, and how alternatives can be introduced. The authors demonstrate how diagnostics, design of programs and policies, and impact evaluation can be used to seek new solutions to the suffering and violence caused by development failures. This text is fully engaged with the most cutting edge research in the field, and equips readers with analytical tools for the impact evaluation of development programs and policies, illustrated with numerous examples. It is underpinned throughout by a wealth of student-friendly features including case studies, quantitative problem sets, end-of-chapter questions, and extensive references.&lt;/p&gt;&#xA;" OwnerUserId="6168" LastActivityDate="2016-05-18T03:07:21.030" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12061" PostTypeId="2" ParentId="12052" CreationDate="2016-05-18T03:09:27.367" Score="1" Body="&lt;p&gt;Typical, high quality, grad school books on &lt;em&gt;economic growth&lt;/em&gt; are: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;Economic Growth&quot; by Barro and Sala-i-Martin, and&#xA;&quot;Introduction to Modern Economic Growth&quot; by Daron Acemoglu.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Economic development&lt;/em&gt; is a very fragmented field, with people like Chris Udry focusing on finding out how families in Africa adopt pineapple planting technology, while Albert Hirschman instead used to think of getting developing countries to jump to a new stage of development through industrial policy guided towards a few modern industries and Amartya Sen worrying instead about true economic freedom of individuals as a basis for development.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It will be hard to find an encompassing textbook. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Its also worth mentioning that there are interesting alternative views, for example in the book &quot;Kicking Away the Ladder: Development Strategy in Historical Perspective&quot; by Chang.&lt;/p&gt;&#xA;" OwnerUserId="7593" LastActivityDate="2016-05-18T03:09:27.367" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12062" PostTypeId="2" ParentId="12052" CreationDate="2016-05-18T03:13:10.517" Score="1" Body="&lt;p&gt;A classical reference textbook is &lt;a href=&quot;https://www.pearsonhighered.com/program/Todaro-Economic-Development-12th-Edition/PGM142511.html&quot; rel=&quot;nofollow&quot;&gt;Economic Development&lt;/a&gt; by Michael P. Todaro and Stephen C. Smith.&lt;/p&gt;&#xA;" OwnerUserId="6168" LastActivityDate="2016-05-18T03:13:10.517" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12063" PostTypeId="2" ParentId="12036" CreationDate="2016-05-18T03:18:52.730" Score="1" Body="&lt;p&gt;Numerical Dynamic programming is &lt;em&gt;always&lt;/em&gt; an approximation when any of the variables are continuous....&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Depending on the structure of the problem, some people claim that you can apply linear programming techniques to approximate a solution. These guys &lt;a href=&quot;http://www.mit.edu/~pucci/discountedLP.pdf&quot; rel=&quot;nofollow&quot;&gt;MIT paper&lt;/a&gt;, claim that they have experiments that show that their linear reprogramming approximation is good enough.&lt;/p&gt;&#xA;" OwnerUserId="7593" LastActivityDate="2016-05-18T03:18:52.730" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12066" PostTypeId="2" ParentId="11907" CreationDate="2016-05-18T09:45:17.773" Score="2" Body="&lt;p&gt;Probably if you go to almost any country in the world, however poor, you will find considerable use of relatively cheap cutting-edge consumer technology such as smartphones and &lt;em&gt;some&lt;/em&gt; more expensive cutting-edge technologies used in manufacturing or service industries.  However, there is a big gap between 'adopting' cutting-edge technology at that level and the much more comprehensive adoption of such technology by developed countries.  The benefits of technology in developing countries may be limited by any of the following:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Lack of adequate supporting infrastructure, eg electricity supply&#xA;unreliable or subject to regular power cuts, unreliable internet service.&lt;/li&gt;&#xA;&lt;li&gt;Lack of adequate skills to maintain and make best use of technology.&lt;/li&gt;&#xA;&lt;li&gt;Limited adoption, eg of smartphones, so that network benefits are&#xA;not fully realized.&lt;/li&gt;&#xA;&lt;li&gt;Lack of capital equipment, knowledge and skills to &lt;em&gt;produce&lt;/em&gt;&#xA;cutting-edge technology equipment, so that all such technology has to be&#xA;imported using scarce foreign exchange; or, for slightly more&#xA;developed countries, production of high-technology goods is limited&#xA;to low-level assembly work within an international supply chain&#xA;where most of the value is added elsewhere.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Suppose, then, that (recognizing the above problems), a developing country tries to adopt cutting-edge technology in a comprehensive way, so as to quickly catch up with developed countries.  Such an approach is heavily criticized in Justin Yifu Lin's book &lt;a href=&quot;http://press.princeton.edu/titles/9812.html&quot; rel=&quot;nofollow&quot;&gt;The Quest for Prosperity&lt;/a&gt;, which argues, in outline, that developing countries should target industries in which they have a comparative advantage (or can achieve one via improved infrastructure) and which offer an opportunity for gradual upgrading of technology.  While countries differ, this will often mean labour-intensive manufacturing, and it is suggested that industries to be targeted should be those currently dominated by countries whose GNP per capita is about twice theirs.  By contrast, attempting to compete immediately with countries with the most advanced technology is likely to lead to a continuing need for subsidy, distortion of resource allocation, financial repression to channel scarce capital to the subsidised sector, and political problems in handling those profiting from or dependent for employment on subsidies.  &lt;/p&gt;&#xA;" OwnerUserId="1417" LastActivityDate="2016-05-18T09:45:17.773" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12067" PostTypeId="1" CreationDate="2016-05-18T07:37:30.520" Score="9" ViewCount="521" Body="&lt;p&gt;According to &lt;a href=&quot;http://www.nejm.org/doi/full/10.1056/NEJM199710093371506&quot; rel=&quot;noreferrer&quot;&gt;research by Jan J. Barendregt, M.A., Luc Bonneux, M.D., and Paul J. van der Maas, Ph.D.&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;RESULTS&lt;/strong&gt;&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Health care costs for smokers at a given age are as much as 40 percent higher than those for nonsmokers, but in a population in which no one smoked the costs would be 7 percent higher among men and 4 percent higher among women than the costs in the current mixed population of smokers and nonsmokers. If all smokers quit, health care costs would be lower at first, but after 15 years they would become higher than at present. In the long term, complete smoking cessation would produce a net increase in health care costs, but it could still be seen as economically favorable under reasonable assumptions of discount rate and evaluation period.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;When it comes to short-term effects, &lt;a href=&quot;http://www.cancer.org/research/infographicgallery/tobacco-infographic-text-alternative?_ga=1.148434615.1665148001.1463556850&quot; rel=&quot;noreferrer&quot;&gt;Cancer.org claims that&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;ul&gt;&#xA;  &lt;li&gt;&lt;p&gt;From 2000 to 2012, tobacco-related health costs and productivity loss in the United States totaled $289 Billion&lt;/p&gt;&lt;/li&gt;&#xA;  &lt;li&gt;&lt;p&gt;The average price of a pack of cigarettes in the United States is \$6.36. But each pack of cigarettes creates $35 dollars of health-related costs for the smoker.&lt;/p&gt;&lt;/li&gt;&#xA;  &lt;/ul&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;However no information is given on long-term effects.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question is therefore: if everyone stopped smoking, would healthcare systems around the world see a net &lt;em&gt;increase&lt;/em&gt; or &lt;em&gt;decrease&lt;/em&gt; in expenses in the long term?&lt;/p&gt;&#xA;" OwnerUserId="8307" OwnerDisplayName="JonathanReez" LastEditorUserId="8313" LastEditDate="2016-05-19T20:07:16.740" LastActivityDate="2016-08-11T15:24:51.937" Title="Would healthcare costs increase (in the long term) if all smokers quit?" Tags="&lt;macroeconomics&gt;" AnswerCount="3" CommentCount="7" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12068" PostTypeId="1" AcceptedAnswerId="20954" CreationDate="2016-05-18T13:45:35.643" Score="9" ViewCount="630" Body="&lt;p&gt;Current official estimates for the proposed UK railway line &lt;a href=&quot;https://en.wikipedia.org/wiki/High_Speed_2&quot; rel=&quot;nofollow noreferrer&quot;&gt;High Speed 2&lt;/a&gt; are £42.6 billion for a 192 km line, or around £222 million (€287 million) per km (if my calculations are correct).  A &lt;a href=&quot;https://www.bbc.com/news/business-51171249&quot; rel=&quot;nofollow noreferrer&quot;&gt;2020 review&lt;/a&gt; suggests it could even cost as much as £106 billion (€126 billion), or £552 million (€656 million) per km.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The French &lt;a href=&quot;https://en.wikipedia.org/wiki/LGV_Est#Cost&quot; rel=&quot;nofollow noreferrer&quot;&gt;LGV Est&lt;/a&gt; total cost is around €4 billion for around 300 km, or €13 million per km — a factor 22 less than the initial UK price or a factor 50 less than the 2020 high estimate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The German &lt;a href=&quot;https://en.wikipedia.org/wiki/Nuremberg%E2%80%93Erfurt_high-speed_railway&quot; rel=&quot;nofollow noreferrer&quot;&gt;Nürnberg-Erfurt high speed railway line&lt;/a&gt; total cost is estimated at around €5.1 billion for 190 km, or around €27 million per km — a factor 10 less than the initial UK price or a factor 24 less than the updated price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Swedish planned &lt;a href=&quot;http://www.railwaygazette.com/news/personnel/single-view/view/swedish-high-speed-lines-to-go-ahead.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;Östlänken&lt;/em&gt;&lt;/a&gt; line is estimated to cost around 30 billion SEK (€3.2 billion) for 150 km, or around €21 million per km.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The French, German, and Swedish high speed railways are all in a range of 10–30 million €/km.  Why is the cost for the UK High Speed 2 a factor 10–50 higher?  What makes it so expensive?&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;The costs for a &lt;a href=&quot;https://en.wikipedia.org/wiki/Expansion_of_Heathrow_Airport&quot; rel=&quot;nofollow noreferrer&quot;&gt;third runway at Heathrow Airport&lt;/a&gt; are estimated to be &lt;s&gt;£18.6 billion&lt;/s&gt; £32 billion&lt;a href=&quot;https://www.bbc.com/news/business-51658693&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;sup&gt;&lt;em&gt;source&lt;/em&gt;&lt;/sup&gt;&lt;/a&gt;.  For comparison, the 2003 &lt;a href=&quot;https://nl.wikipedia.org/wiki/Polderbaan&quot; rel=&quot;nofollow noreferrer&quot;&gt;Polderbaan&lt;/a&gt; was €320 million, which is &lt;em&gt;far&lt;/em&gt; less even when taking into account inflation.  Quoting the &lt;a href=&quot;http://www.ft.com/cms/s/0/6db05608-18e7-11e6-b197-a4af20d5575e.html#axzz4DROyzVy1&quot; rel=&quot;nofollow noreferrer&quot;&gt;Financial Times&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;While an additional runway would indeed seem desirable, it would not be worth paying such exorbitant costs. Why such projects are so expensive and so difficult to implement in the UK is, to me, the big puzzle. It cannot just be because southern England‎ is densely populated. So is north Holland, where Schiphol, with far more runways than Heathrow, is located.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="332" LastEditorUserId="332" LastEditDate="2020-02-27T12:01:00.930" LastActivityDate="2020-02-27T12:01:00.930" Title="Why is UK infrastructure so expensive?" Tags="&lt;infrastructure&gt;" AnswerCount="2" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="12069" PostTypeId="1" CreationDate="2016-05-18T15:18:20.367" Score="1" ViewCount="179" Body="&lt;p&gt;In my economics syllabus, one of the student competences is to &quot;Show the cumulative nature of growth and measure average and annual rates of growth&quot;. What I don't understand is how a country's GDP growth can be subject to cumulative or compounding effects? &lt;/p&gt;&#xA;" OwnerUserId="6992" LastActivityDate="2016-05-19T00:27:50.467" Title="In what sense is economic growth cumulative?" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;&lt;economic-growth&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12070" PostTypeId="1" AcceptedAnswerId="12073" CreationDate="2016-05-18T18:13:59.553" Score="1" ViewCount="135" Body="&lt;p&gt;How do such digital currencies such as Bitcoin affect the independence of Central Banks?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you &lt;/p&gt;&#xA;" OwnerUserId="6134" LastEditorUserId="6134" LastEditDate="2018-07-11T00:32:19.643" LastActivityDate="2018-10-10T15:21:11.250" Title="The independence of Central Banks" Tags="&lt;macroeconomics&gt;&lt;monetary-policy&gt;&lt;central-banking&gt;&lt;bitcoin&gt;" AnswerCount="2" CommentCount="0" ClosedDate="2016-05-24T17:25:55.963" ContentLicense="CC BY-SA 4.0" />
  <row Id="12071" PostTypeId="2" ParentId="12059" CreationDate="2016-05-18T18:49:24.287" Score="1" Body="&lt;p&gt;I don't know if you'd find these specific references helpful to look at, but I hope it's a good start. Quandl has a database called &lt;a href=&quot;https://www.quandl.com/data/SOCSEC&quot; rel=&quot;nofollow&quot;&gt;Social Security Administration&lt;/a&gt; and if you search &quot;retirement&quot; within the database, you will see datasets on number of retired recipients of social security, along with their spouses and dependents, and the average monthly amount they receive. Data goes back to the 1960s. Another database, &lt;a href=&quot;https://www.quandl.com/data/FRED&quot; rel=&quot;nofollow&quot;&gt;Federal Reserve Economic Data&lt;/a&gt;, also shows retirement data such as federal employee retirement plans and funds. Data goes to back to the 1940s. You'd have to search for &quot;retirement&quot; within the database. Both these databases are free to access. Hope this helps. [Disclosure: I work for Quandl]  &lt;/p&gt;&#xA;" OwnerUserId="8104" LastActivityDate="2016-05-18T18:49:24.287" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12072" PostTypeId="1" AcceptedAnswerId="12086" CreationDate="2016-05-18T19:39:25.023" Score="2" ViewCount="3855" Body="&lt;p&gt;Where do transfer payments (unemployment subsidies, etc.) enter in the multiplier formula for the IS curve? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The usual multiplier is of the form $\frac{1}{1-c(1-t)-m}$, where $c$ is the marginal propensity(m.p.) to consume, $m$ is m.p. to import, and $t$ is the tax rate. I've tried to see $t$ instead as net transfers rate, i.e. transfer payments minus taxes. But I'm not sure if it's the right way to think about this...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="118" LastEditDate="2016-05-18T20:55:17.680" LastActivityDate="2016-05-19T18:07:48.757" Title="Transfer payments and IS multiplier" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12073" PostTypeId="2" ParentId="12070" CreationDate="2016-05-18T20:13:15.663" Score="4" Body="&lt;p&gt;The independence of the central bank means that the bank is independent of the government. A mandate of the central bank is to ensure price stability. However any excess cash the bank prints is the property of the government. The government enjoys having extra income and were it allowed to exercise direct control it may push the bank to print more money. This would undermine the price stability mandate of the bank. Hence in most countries they give the central bank leadership that is independent of the government.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As Bitcoin is not issued by any government that I know of it does not in any way affect this. Perhaps if the government were to bribe the leaders of the bank in Bitcoin...&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2018-10-10T15:21:11.250" LastActivityDate="2018-10-10T15:21:11.250" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="12074" PostTypeId="1" CreationDate="2016-05-18T20:37:12.977" Score="1" ViewCount="55" Body="&lt;p&gt;Well, i'm interested in model a GARCH for a serie. The original serie is $y_t$ (price index of a Stock Market), which has a unit root. So i create the returns:&#xA;$x_t = ln(y_t) - ln(y_{t-1})$.&#xA;Now, i'm confused about the fact of using $\lvert x_t\rvert$ for my GARCH. Why can i use absolute value, i'm thinking, that because i want to model volatility i'm just interested in how the series deviates from his mean in a period of time? Thank's a lot for the answers!&lt;/p&gt;&#xA;" OwnerUserId="8035" LastActivityDate="2016-05-18T20:37:12.977" Title="Absolute Value of Log in stocks returns" Tags="&lt;stock-market&gt;&lt;time-series&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12076" PostTypeId="2" ParentId="12070" CreationDate="2016-05-19T00:25:08.093" Score="0" Body="&lt;p&gt;Bitcoin itself is thought of as a currency. Its an alternative currency to dollars, or pesos or pounds or yen... so its just one more currency. It does not make a big difference for central banks whether its out there or not, unless it becomes so prevalent that people use it more than they do regular currencies. But that's hard. Dollars are more stable in purchasing power in the long run than say Argentinian Pesos, and yet people use the Pesos in Argentina, in part for convenience and in part for legal reasons. So, just because bitcoin might have some advantages does not imply it will take over.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Electronic money issued by central banks instead of paper money issued by central banks has some implications.  Potentially has implications of the ability of central bank to expand or contract the money supply on a whim. If money was al digital, all consisting of records a the central banks servers or something like that, the central bank could just multiply everybody's holdings by 1.01 if it wanted money supply to increase by 1%. Easy!&lt;/p&gt;&#xA;" OwnerUserId="7593" LastEditorUserId="7593" LastEditDate="2016-05-19T20:52:34.823" LastActivityDate="2016-05-19T20:52:34.823" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="12077" PostTypeId="2" ParentId="12069" CreationDate="2016-05-19T00:27:50.467" Score="1" Body="&lt;p&gt;The basic idea is simple. If you grow 1% each year for five years you end up with a GDP that is (1.01)^5 of what you started: the 1% growth of each year accumulates over time. &lt;/p&gt;&#xA;" OwnerUserId="7593" LastActivityDate="2016-05-19T00:27:50.467" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12078" PostTypeId="1" CreationDate="2016-05-19T02:00:31.907" Score="1" ViewCount="68" Body="&lt;p&gt;I'm having trouble following a derivation that Gertler-Karadi (2015) AEJ &lt;a href=&quot;http://pubs.aeaweb.org/doi/pdfplus/10.1257/mac.20130329&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://pubs.aeaweb.org/doi/pdfplus/10.1257/mac.20130329&lt;/a&gt; do in their paper on Footnote 4 on the bottom of page 52. I've tried many attempts in deriving their equation 17 and 18 but to no avail. In particular, I can easily match elements of the matrix in (15) with that of (14) in order to get (16) but cannot move any further. I've concluded that this case is only true if s12 and s21 are scalars. I've attached a copy of the derivation thus far. Any advice would be greatly appreciated. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/9JAMA.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/9JAMA.jpg&quot; alt=&quot;Derivation Attempt&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="6098" LastActivityDate="2016-05-19T02:00:31.907" Title="Trouble Deriving Indentification Scheme in Gertler-Karadi (2015) AEJ" Tags="&lt;macroeconomics&gt;&lt;identification&gt;&lt;instrumental-variable&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12079" PostTypeId="1" CreationDate="2016-05-18T01:26:00.310" Score="2" ViewCount="1234" Body="&lt;p&gt;I was reading about inventory valuation and of course there is first-in - first-out, last-in - first-out and weighted average. I realized at some point that LIFO would cause the highest Cost Of Goods Sold and therefore the lowest profit, in situations where the cost of purchased inventory was rising, so I figured that was a stupid method. But the book I was reading said that LIFO is commonly used in the US as part of Generally Accepted Accounting Practices (bingo!) and not allowed by international standards (IFRS).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So I wondered why a company would want to under-report profit? Well, because it lowers taxes. Is that &lt;em&gt;really&lt;/em&gt; such a powerful reason? Wouldn't the increased profit be higher than the increased taxation in normal cases? Is this just an attempt to spite the government or something?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, I read that occasionally, the old inventory that has been &quot;on the books&quot; for a long time at a very undervalued cost can be &quot;sold off&quot; and generate a profit spike (just in case you &lt;em&gt;did&lt;/em&gt; want to earn some money). These kind of machinations are unintuitive, to me.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My question is, why was this crazy method allowed at all?&lt;/strong&gt; Historical reasons? Because it took a while for government to wise up? Why has it not been killed off because it is manipulating tax revenue and corporate reporting?&lt;/p&gt;&#xA;" OwnerDisplayName="user12110" LastEditorUserId="43" LastEditDate="2016-05-27T17:37:30.407" LastActivityDate="2016-06-14T16:58:37.650" Title="Why is LIFO allowed in accounting?" Tags="&lt;corporate-finance&gt;&lt;usa&gt;" AnswerCount="2" CommentCount="9" ContentLicense="CC BY-SA 3.0" />
  <row Id="12080" PostTypeId="2" ParentId="12079" CreationDate="2016-05-18T01:52:59.193" Score="1" Body="&lt;p&gt;well, LIFO also lowers the value of held inventory too...IF one special thing is occurring:  Inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When there is inflation, LIFO makes things look, well, a little bit better.  During deflation (or flat) FIFO makes more sense.&lt;/p&gt;&#xA;" OwnerUserId="8334" OwnerDisplayName="dwoz" LastActivityDate="2016-05-18T01:52:59.193" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="12081" PostTypeId="2" ParentId="12067" CreationDate="2016-05-19T13:09:23.873" Score="1" Body="&lt;p&gt;The paper is published in the New England Journal of Medicine, a widely respected peer-reviewed journal. There appears to be no reason to think that it is significantly flawed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The study is pretty straightforward, and the essential conclusion is that 'healthcare costs will rise if people stop smoking because they live longer and use more healthcare'.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In terms of absolute benefits, it should be pointed out that things like 'reducing the homicide rate' or 'reducing the frequency of car accidents' might also result in increased healthcare costs for the same reason&lt;/p&gt;&#xA;" OwnerUserId="8313" LastEditorUserId="8313" LastEditDate="2016-05-19T16:07:43.283" LastActivityDate="2016-05-19T16:07:43.283" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12082" PostTypeId="2" ParentId="11801" CreationDate="2016-05-19T13:19:17.293" Score="2" Body="&lt;p&gt;Many obstacles to converting common goods into private goods are legal or normative rather than technological. For example, &lt;a href=&quot;https://en.wikipedia.org/wiki/Singapore_Area_Licensing_Scheme&quot; rel=&quot;nofollow&quot;&gt;the technology necessary for congestion pricing of traffic is long established and indeed in use since the 1970's in Singapore&lt;/a&gt;. The existence of electronic transmitters or plate readers (&lt;a href=&quot;https://en.wikipedia.org/wiki/London_congestion_charge&quot; rel=&quot;nofollow&quot;&gt;London&lt;/a&gt;) may make for finer gradations of pricing and simpler administration but haven't made for widespread adoption. In fact, many notably congested larger cities like New York and Hong Kong have had failed congestion charge proposals. Or take a &lt;a href=&quot;http://travel.nationalgeographic.com/travel/national-parks/most-visited-parks-photos/&quot; rel=&quot;nofollow&quot;&gt;crowded national park&lt;/a&gt;. If ticket prices at Yellowstone were \$115 per person like Disney World instead of the nominal \$30 per car they actually charge it wouldn't be nearly as crowded. Prices are well below the market clearing rate as a matter of public policy, not because there is a technological obstacle to charging more. &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2016-05-19T13:19:17.293" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12083" PostTypeId="1" AcceptedAnswerId="12084" CreationDate="2016-05-19T15:00:09.567" Score="2" ViewCount="335" Body="&lt;p&gt;Are there any well known economic theory references about advertising? It seems you could think of advertising as imposing a negative externality on other producers or on consumers in that it takes up bandwidth, or a positive one instead in that its a way of subsidizing programming or generating public information... &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Should we put Pigouvian taxes on advertising or instead subsidize the necessary infrastructure?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This &lt;a href=&quot;https://economics.stackexchange.com/questions/11403/what-would-be-the-economic-impact-of-regulating-advertising&quot;&gt;post&lt;/a&gt; is about advertising , but does not have any references: &lt;/p&gt;&#xA;" OwnerUserId="7593" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2016-05-19T16:31:37.297" Title="What are the current economic theories of product advertising?" Tags="&lt;reference-request&gt;&lt;externalities&gt;&lt;marketing&gt;&lt;pigouvian-taxes&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12084" PostTypeId="2" ParentId="12083" CreationDate="2016-05-19T16:31:37.297" Score="3" Body="&lt;p&gt;There is a vast literature in both economics and marketing on advertising. Some highlights relevant to your specific question:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;A classic paper (&lt;a href=&quot;http://www.jstor.org/stable/2297705?seq=1#page_scan_tab_contents&quot; rel=&quot;nofollow&quot;&gt;Grossman and Shapiro 1984&lt;/a&gt;) looks at competitive advertising and indeed finds that advertisers tend to send too many ads. Intuitively, some customers attracted by an ad aren't new demand, but rather simply stolen from a rival firm. Sending the ads these consumers saw wasted resources without creating any genuinely new trade, and are therefore sub-optimal.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;More recent work (such as &lt;a href=&quot;http://onlinelibrary.wiley.com/doi/10.1111/j.1756-2171.2011.00155.x/abstract&quot; rel=&quot;nofollow&quot;&gt;Anderson and de Palma, 2012&lt;/a&gt;, and &lt;a href=&quot;https://www.jstor.org/stable/1593707&quot; rel=&quot;nofollow&quot;&gt;van Zandt, 2004&lt;/a&gt;) considers information overload: the problem that ads crowd out other ads when consumers have limited attention. Again, this leads to sellers sending too many ads.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;More generally, &lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/S1573448X06030287&quot; rel=&quot;nofollow&quot;&gt;Bagwell (2007)&lt;/a&gt; has a nice survey of the economic literature on advertising.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Incidentally, it is also conceivable that there might be too few ads in equilibrium for some kinds of product. For example, if you and I both sell products that are very similar and the main function of ads is to inform consumers about the characteristics of those products then advertising is a public good. I would prefer to free-ride and let you bear the expense of advertising to inform consumers. I can take the money I save on advertising and use it to offer lower prices or better quality and thereby capture the demand of the consumers you so generously informed. The fact that arrangements such as vertical integration or franchising help to mitigate this free-riding problem is one reason why such arrangements are sometimes viewed more favourably by competition authorities.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2016-05-19T16:31:37.297" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12085" PostTypeId="2" ParentId="11972" CreationDate="2016-05-19T17:57:51.637" Score="1" Body="&lt;p&gt;An additional answer would be bequests (&lt;a href=&quot;http://piketty.pse.ens.fr/files/KesslerMasson1989.pdf&quot; rel=&quot;nofollow&quot;&gt;Kessler &amp;amp; Masson, 1989&lt;/a&gt;; &lt;a href=&quot;http://www.nber.org/chapters/c11237.pdf&quot; rel=&quot;nofollow&quot;&gt;Becker &amp;amp; Tomes, 1994&lt;/a&gt;) or actually deriving &quot;utility&quot; from holding wealth, due to some status effect.&lt;/p&gt;&#xA;" OwnerUserId="8261" LastActivityDate="2016-05-19T17:57:51.637" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12086" PostTypeId="2" ParentId="12072" CreationDate="2016-05-19T18:07:48.757" Score="1" Body="&lt;p&gt;Notice that you only  consume out of your &lt;em&gt;disposable&lt;/em&gt; income, that is, adding transfers and removing taxes. Thus, from that formula of the multiplier, yes, it should be there, in the $(1-t)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As (assuming) $C=cY^D=c(1-t)Y$ and thus, $MPC=\partial C/\partial Y = c (1-t)$, then $Y-Y^D=tY=\text{Taxes}-\text{Transfers}$, with $t$ &quot;condensing&quot; all the information.&lt;/p&gt;&#xA;" OwnerUserId="8261" LastActivityDate="2016-05-19T18:07:48.757" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12087" PostTypeId="2" ParentId="12067" CreationDate="2016-05-19T18:58:47.863" Score="4" Body="&lt;p&gt;The result that `healthcare costs will rise if people stop smoking because they live longer and use more healthcare' is a sort of (very) &lt;strong&gt;partial equilibrium&lt;/strong&gt; result (and somewhat pointless). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;By living longer, people will work longer, and by being in better health conditions they will certainly be more productive. So, in the long run, the effect could be positive in terms of welfare, with higher healthcare costs in absolute terms but &lt;strong&gt;lower&lt;/strong&gt; in relative terms, that is, in terms of GDP.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;em&gt;Update&lt;/em&gt;&lt;/strong&gt; on the link between &lt;strong&gt;productivity and smoking&lt;/strong&gt;: Akerlof and Kranton (2010) in their book &lt;a href=&quot;http://press.princeton.edu/titles/9108.html&quot; rel=&quot;nofollow&quot;&gt;Identity and Economics&lt;/a&gt; (chapter 3) cite a Center for Disease Control and Prevention report (2002): productivity losses due to smoking have been estimated at $82 billion per year.&lt;/p&gt;&#xA;" OwnerUserId="6168" LastEditorUserId="6168" LastEditDate="2016-08-11T15:24:51.937" LastActivityDate="2016-08-11T15:24:51.937" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="12088" PostTypeId="2" ParentId="12067" CreationDate="2016-05-19T21:42:24.857" Score="5" Body="&lt;p&gt;It is a reputable journal and the results are surely correct on a &quot;total dollars&quot; sense. I guess the point they are making is that because health care expenditure of old age individuals is very likely to be high, there is some 'social benefit' of dying before old age. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, it seems somewhat meaningless: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A) First, by this logic, murders also decrease health care costs. We're not trying to keep smokers form smoking solely because they will be a health care burden. We also want these people to live long, rewarding lives.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;B) People contribute to society, their families, their friends and so on. They also save and, specifically, they pay health insurance premiums while they are alive. So, while they might require more care in the long run, non-smokers might well be able to pay or it with the taxes on their income and the productivity they bring to society. Similarly, we all invest through our taxes, on public education, and it goes to waste when somebody that has received public education dies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;C) There are enormous variations in the amount of healthcare spending that old people receive across countries, so the estimates of how much health are old people will receive has got to be very imprecise. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;D) Investments pay a positive rate of return, so if we saved the money now we could pay for a lot more care later. Put differently, all the resources that would not be devoted to the care of smokers now would be used to improve our lives meaningfully, potentially even helping us do research into how to take care of old people effectively, which would again reduce the future expected cost of caring for the smokers.&lt;/p&gt;&#xA;" OwnerUserId="7593" LastEditorUserId="7593" LastEditDate="2016-05-20T02:39:01.110" LastActivityDate="2016-05-20T02:39:01.110" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12090" PostTypeId="2" ParentId="11634" CreationDate="2016-05-20T04:39:20.853" Score="4" Body="&lt;p&gt;The contract curve is the locus of Pareto optimal points in an Edgeworth box. What we get from that: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;To be P.O., an allocation must be feasible. So, the contract curve does not extend beyond the edges of the box (opposed to indifference curves, which we can draw as extending beyond the edges of the box) because points outside the Edgeworth box are not feasible. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Because the Edgeworth box does not allow for destruction/disposal, we know that the initial allocation point will account for all resources in the economy. This may make you think that the initial endowment should be part of the contract curve. However, this is not true. That is, the initial endowment point is not necessarily part of the contract curve because there are easily imagined cases where trading happens without making either agent worse off and makes at least one agent strictly better off.  &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Yes, there are certain circumstances that cause the edges of the box to form part or all of the contract curve. If you want to explore the idea more I suggest you spend some time reading about what happens when one agent has (or both agents have) linear indifference curves. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="1655" LastEditorUserId="1655" LastEditDate="2016-05-20T17:46:35.057" LastActivityDate="2016-05-20T17:46:35.057" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12091" PostTypeId="1" AcceptedAnswerId="12102" CreationDate="2016-05-20T17:07:50.970" Score="3" ViewCount="172" Body="&lt;p&gt;The nature of information often makes it look like a public good. Is this the case for certification of peoples abilities? Is there a role the government could play in certifying people's abilities? Maybe do people thing that that's one of the roles that public universities play? &lt;a href=&quot;http://www.econ.yale.edu/~dirkb/teach/pdf/spence/1973%20job%20market%20signalling.pdf&quot; rel=&quot;nofollow&quot;&gt;Spence&lt;/a&gt; I guess is the typical reference that suggests that people go to school for certification/signaling of abilities rather than to acquire skills. Maybe that's a reason that there are many public universities?&lt;/p&gt;&#xA;" OwnerUserId="7593" LastEditorUserId="108" LastEditDate="2017-04-09T07:43:18.093" LastActivityDate="2017-04-09T07:43:18.093" Title="Does the government have a role to play in certifying people's abilities for the labor market?" Tags="&lt;labor-economics&gt;&lt;public-economics&gt;&lt;information&gt;&lt;public-goods&gt;&lt;education-economics&gt;" AnswerCount="2" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="12092" PostTypeId="1" CreationDate="2016-05-20T18:04:55.703" Score="2" ViewCount="293" Body="&lt;p&gt;I need to know how to find robust S.E. for the CF approach to endogeneity. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider the model: &#xA;$$y_i=X_i\beta_1 + W_i\beta_2+\epsilon_i$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume: &#xA;$$E[X_i\epsilon_i]=0$$&#xA;$$E[W_i\epsilon_i] \neq 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, $W_i$ is endogenous. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, let: &#xA;$$E[Z_iW_i] \neq 0$$&#xA;$$E[Z_i\epsilon_i]=0$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The control function approach: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;$W_i = \gamma_1 X_i + \gamma_2 Z_i + \phi_i  $&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;$\epsilon_i = \alpha \phi_i + \chi$ &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;now we replace $\epsilon_i$ in our original equation: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$y_i=X_i\beta_1 + W_i\beta_2+ \phi_i \alpha + \chi$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where now we have $E[W_i \chi]=0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Intuition: I think I used the series of linear projections to 'control' for the endogenous portion of $W_i$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT: I originally typed this incorrectly. I have changed the relevant orthogonality condition. Here is the intuition behind the (correct) orthogonality condition $E[W_i \chi]=0$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since $W_i$ is a linear function of $X_i , Z_i$, and both are themselves orthogonal  to $\chi$, we obtain the given orthogonality condition. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Okay - the question. I think that $\hat \beta_{2.CF} \equiv \hat \beta_{2.OLS} \equiv \frac{cov(W_i,Y_i)}{Var(W_i)}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If this is correct, do I just use the R.S.E. form that I use in OLS if I want heteroskedasticity robust S.E. when using the C.F. approach? &lt;/p&gt;&#xA;" OwnerUserId="1655" LastEditorUserId="1655" LastEditDate="2016-05-20T23:43:29.510" LastActivityDate="2016-05-21T17:48:11.523" Title="Robust Standard Errors for Control Function Approach?" Tags="&lt;econometrics&gt;" AnswerCount="1" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="12094" PostTypeId="2" ParentId="11718" CreationDate="2016-05-20T19:45:04.543" Score="0" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/6svuZ.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/6svuZ.jpg&quot; alt=&quot;This is the current image from the above mentioned website on establishment entry (blue) and exit (black)&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It shows a slow decline of both series from about 14% to about 10%,  and also, opposite jumps around 2008, but its quite stable over time, seems to me.&lt;/p&gt;&#xA;" OwnerUserId="7593" LastActivityDate="2016-05-20T19:45:04.543" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12097" PostTypeId="2" ParentId="12020" CreationDate="2016-05-21T04:39:11.920" Score="1" Body="&lt;p&gt;Ok, first try for your first question.&lt;br&gt;&#xA;From $u'&amp;gt;0\Rightarrow \phi\theta p&amp;gt;0 \Rightarrow \phi,\theta, p\ne 0$.&lt;br&gt;&#xA;From $u''&amp;lt;0\Leftrightarrow \phi \theta p c_t^{p-1}\exp(\theta c_t^p)(p-1)c_t^{-1}+\phi \theta p c_t^{p-1}c_t^{p-1}\exp(\theta c_t^p)c_t^{-1}p\theta&amp;lt;0\Leftrightarrow \phi \theta p c_t^{p-1}\exp(\theta c_t^p)(p-1)c_t^{-1}+\phi \theta p c_t^{p-1}c_t^{p-1}\exp(\theta c_t^p)c_t^{-1}p\theta&amp;lt;0&#xA;\Leftrightarrow \phi \theta p (p-1)+\phi \theta p c_t^{p-1}p\theta&amp;lt;0$ &#xA;&lt;br&gt;&#xA;From here, we set cases.&#xA;&lt;br&gt;1. $(p&amp;lt;1 \wedge \phi &amp;lt; 0) \wedge (p=-\gamma\theta)$ with $\gamma\in \mathbb{R}_{++}$&#xA;&lt;br&gt;2. $(p&amp;lt;1 \wedge \phi &amp;gt;0) \Rightarrow \left(\frac{1-p}{\theta p}\right)^{\frac{1}{p-1}}&amp;gt;c_t \Rightarrow \theta p &amp;gt;0 $&#xA;&lt;br&gt;3. $(p=1 \wedge \phi &amp;lt; 0 \wedge \theta&amp;lt;0)$&#xA;&lt;br&gt;4. $(p=1 \wedge \phi &amp;gt; 0 $ (no good)&#xA;&lt;br&gt;5. $(p&amp;gt;1 \wedge \phi &amp;lt;0) \Rightarrow \theta&amp;gt;0$&#xA;&lt;br&gt;6. $(p&amp;gt;1 \wedge \phi &amp;gt;0) \Rightarrow u''&amp;gt;0$ (no good)&#xA;&lt;br&gt;&#xA;&lt;br&gt;&#xA;So, you get to keep conditions 1-3+5.&#xA;&lt;br&gt;&#xA;[Will get back when I have time]&#xA;&lt;br&gt;&#xA;&lt;br&gt;&#xA;Euler&#xA;$$\beta R u'_{t+1}=u'_t$$&#xA;(multiperiod Lagrangian, FOC wrt $c_t,c_{t+1},w_t$, get $\lambda_t=R\lambda_{t+1}$, divide the FOCs wrt $c$s and substitute the $\lambda$s $\Rightarrow$ Euler. At least that would be how I would do it.&#xA;&lt;br&gt;&#xA;&lt;br&gt;&#xA;[Bellman I would have to get my notes and I'm just here to procrastinate and not finishing an essay. I'll be back]&lt;/p&gt;&#xA;" OwnerUserId="8261" LastEditorUserId="8261" LastEditDate="2016-05-21T05:10:56.420" LastActivityDate="2016-05-21T05:10:56.420" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12098" PostTypeId="1" CreationDate="2016-05-21T04:53:30.713" Score="3" ViewCount="215" Body="&lt;p&gt;I know that if the objective function (aka utility) is homothetic, demand functions will be linear in income. So for an homothetic demand function to give goods independent of prices other than their own, one has to have a Cobb-Douglas function as it also has to be homogeneous of degree zero.&lt;br&gt;&#xA;&lt;br&gt;&lt;br&gt;&lt;strong&gt;My question&lt;/strong&gt;: can someone supply an example of a class of preferences yielding price independent demand functions $x_i = g(\frac{y}{p_i})$? (no prices nor income in preferences, just quantities)&#xA;&lt;br&gt;&#xA;&lt;br&gt;&#xA;&lt;br&gt;[Challenge to think, not to give long proofs please. Just sketch proofs with the important steps if feel it's important]&lt;/p&gt;&#xA;" OwnerUserId="8261" LastEditorUserId="8261" LastEditDate="2016-06-22T11:41:11.623" LastActivityDate="2016-09-20T12:55:57.560" Title="Obj function yielding independent goods demand functions" Tags="&lt;preferences&gt;&lt;elasticity-of-substituion&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12100" PostTypeId="1" CreationDate="2016-05-21T07:09:47.690" Score="2" ViewCount="48" Body="&lt;p&gt;I have a data set containing n observations (rows) of mobile applications. The dependent variable is the number of installations -- the variable is categorical (with more than 2 categories). Therefore the econometric approach is an ordinal probit/logit model. Besides my dependent variable I have plenty variables which describe the apps characteristics (pricing, rating, reviews, description length, the category etc.). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would like to find a theory which explains the customer demand for apps. I have limited prior knowledge, but I found that one could use either the theory of product space or product characteristics. To apply the former, I would need to find groups in which the apps &quot;compete&quot; in. This cannot be done sufficiently in my case. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The second approach (product characteristics) utilizes a discrete choice approach. One customer maximizes its utility by comparing the characteristics of all products and chooses the one which suits him/her best. However, all customers can choose only one product, this is not the case here. One customer could choose n applications to download and therefore maximize his/her utility. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there any theory which supports my observed data?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT: An app can fall in one of 12 categories. They have a natural ordering, but different sizes (Google reports them this way). They look like this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1-5 Downloads = Category 1&lt;br&gt;&#xA;6-10 Downloads = Category 2&lt;br&gt;&#xA;11-50 Downloads = C 3&lt;br&gt;&#xA;51-100 Downloads = C 4&lt;br&gt;&#xA;and so on.&lt;/p&gt;&#xA;" OwnerUserId="8324" LastEditorUserId="8324" LastEditDate="2016-05-23T06:40:10.770" LastActivityDate="2016-05-23T06:40:10.770" Title="Estimating Demand for Goods with n Choices" Tags="&lt;microeconomics&gt;&lt;supply-and-demand&gt;&lt;industrial-organisation&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12102" PostTypeId="2" ParentId="12091" CreationDate="2016-05-21T10:25:08.883" Score="1" Body="&lt;p&gt;Information is certainly not a public good. Job applicants know their skills with certainty, while employers do not know the skills of applicants. The application process is designed to increase the employers information set so that they can select the best candidate. However, applicants have an incentive to lie, so this process may not always be effective.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Certification, on the other hand, is a credible quality signal that cannot be (easily) faked. This massively reduces the employer's search and opportunity costs. This is not just theory: many job applications simply require a university degree, and virtually all require at least some type of certification.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Whether the government has to play a role in the certification process is another question. An ideological rather than an economical one, if you ask me. Regardless of the answer, it should be noted that many advanced certification standards are upheld by non-governmental bodies. Even if public universities are considered part of government, they are usually accredited by non-governmental organisations. And so are most driving schools, cooking schools, professional degrees, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;The question seems to have changed a lot since this answer.&lt;/em&gt;&lt;/p&gt;&#xA;" OwnerDisplayName="user7935" LastEditorDisplayName="user7935" LastEditDate="2016-05-21T14:21:43.280" LastActivityDate="2016-05-21T14:21:43.280" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="12103" PostTypeId="1" CreationDate="2016-05-21T07:53:51.150" Score="0" ViewCount="339" Body="&lt;p&gt;My model has been given as:&#xA;$$\ln (H_ed) = 18.08 -  0.53\ln Pop -2.01 \ln Distance + 0.47\ln RGD $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where (Hed) is higher education, pop is population, and RGD = Real GDP per capita.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have been asked to find the &quot;income elasticity of the demand for higher education&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As there are no income variables in this model, I am unsure of where to look for the income elasticity.&lt;/p&gt;&#xA;" OwnerDisplayName="user116365" LastEditorUserId="108" LastEditDate="2017-04-09T07:42:52.903" LastActivityDate="2017-04-09T07:42:52.903" Title="Income Elasticity of Demand for Higher Education" Tags="&lt;elasticity&gt;&lt;education-economics&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="12104" PostTypeId="1" AcceptedAnswerId="12109" CreationDate="2016-05-21T15:03:15.007" Score="2" ViewCount="284" Body="&lt;p&gt;I am dealing with a paper of Walsh &amp;amp; Ravenna.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;www.banque-france.fr/fondation/gb/telechar/bourses_recherche/Welfare-based_Ravenna.pdf&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am kind of confused by the euqation (19) on page 33.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The market clearing condition goes as follows:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Y_{t} = C_{t} - w^{u}(1 - N_{t}) + \kappa\upsilon_{t}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Log linearization around the steady state yields&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\hat{y}_{t} = \frac{\bar{C}}{\bar{Y}}\hat{c}_{t} - w^{u}\hat{n}_{t} + \left( \frac{\kappa\bar{\upsilon}}{\bar{Y}}\right)(\hat{\Theta}_{t} + \hat{u}_{t} )    \;\;\; \mathbf{(19)} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't know how this formula (19) is derived?&#xA;Isn't there something missing? From my basic understanding of log linearization it ought to look like this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\hat{y}_{t} = \frac{\bar{C}}{\bar{Y}}\hat{c}_{t} - \left( \mathbf{\frac{\bar{N}}{\bar{Y}}} \right) w^{u}\hat{n}_{t} + \left( \frac{\kappa\bar{\upsilon}}{\bar{Y}}\right)(\hat{\Theta}_{t} + \hat{u}_{t} )$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;with&#xA;$$ Y_{t}\;\;...\;\; output $$&#xA;$$ C_{t}\;\;...\;\;  consumption $$&#xA;$$ w^{u}\;\;...\;\;  wage\;of\;unmatched\;workers $$&#xA;$$ 1-N_{t}\;\;...\;\;  unmatched\;workers $$&#xA;$$ w^{u}(1-N_{t})\;\;...\;\;home\;production$$&#xA;$$ \kappa\;\;...\;\;  cost\;of\;posting\;vacancy $$&#xA;$$ v_{t}\;\;...\;\;  vacancies $$&#xA;$$ \hat{v}_{t} = (\hat{\Theta}_{t} + \hat{u}_{t} ) $$&#xA;$$ \omega = \frac{v_{t}}{u_{t}}\;\;...\;\;measure\;of\;labour\;market\;tightness$$&#xA;$$ \hat{\cdot}\;\;...\;\;log\;deviation\;from\;steady\;state\;value$$&#xA;$$ \bar{\cdot}\;\;...\;\;steady\;state\;value$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Small letter with a hat: log deviation of a variable arount its steady state.&#xA;Big letter with a bar: steady state value.&#xA;K: cost of posting a job vancancy.&#xA;w^u: &quot;wage&quot; of unemployed workers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've read the paper and the appendix aswell, read both the papers in the bibliography of this one aswell as later ones basing on this publication, but I could not find a helpful hint.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there any special relationship between N and Y in the steady state that explains why this whole term vanishs? Or do I have a wrong understanding of log-linearization?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have to apologyze for my rusty English. I am already taking care of this problem. But for the above mentioned I would like to have your help. Does anyone has a decisive hint?&lt;/p&gt;&#xA;" OwnerUserId="8327" LastEditorUserId="8327" LastEditDate="2016-06-08T08:36:42.117" LastActivityDate="2016-06-08T08:36:42.117" Title="Log-linearization of the market clearing condition" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12106" PostTypeId="2" ParentId="12103" CreationDate="2016-05-21T17:16:58.167" Score="1" Body="&lt;p&gt;Real GDP is a variable for aggregate income. You might think of your model very loosely as an &quot;aggregate demand function&quot;. Then, as the elasticity of a function $\varepsilon=\frac{\partial f}{\partial x}\frac{f(x)}{x}$ can be expressed in terms of logarithms $\varepsilon=\frac{\partial \ln f}{\partial \ln x}$, in your estimation it would amount to say that, ceteris paribus, the elasticity of (assuming average) higher education to real income per capita is $0.47$.&lt;br&gt; This implies that the &quot;demand&quot; for higher education is inelastic ($\varepsilon \in (0,1)$), which kind of makes some sense. &lt;br&gt; &lt;hr&gt;Within that framework (aggregate average, not consistent with demand theory), I think a better model would come from adding ${(\ln RGD)}^2$ to your model, to let the &quot;income elasticity&quot; describe some nonlinearities as it would sound really strange that if RGDP would go up 1000x average education would go up 470x, as this would mean people would be living some centuries before completing their education...&lt;/p&gt;&#xA;" OwnerUserId="8261" LastActivityDate="2016-05-21T17:16:58.167" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="12107" PostTypeId="2" ParentId="12092" CreationDate="2016-05-21T17:48:11.523" Score="1" Body="&lt;p&gt;123, the CF method is a specific case of when we have generated regressors. Check the appendix to chapter 6, pages 157-160, for the asymptotic covariance matrix of $N^{1/2}(\hat\beta_{CF}-\beta)$. The expression is truly enormous. ;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Instead I will just cite wooldridge on page 160, 2nd paragraph:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;«If $\mathbf{G}\neq \mathbf{0}$, then (...). Neither the usual 2SLS variance matrix estimator nor the heteroskedasticity-robust form is valid in this case.»The $\mathbf{G}\neq \mathbf{0}$ is the case when we have generated regressors.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Good luck ;)&lt;/p&gt;&#xA;" OwnerUserId="118" LastActivityDate="2016-05-21T17:48:11.523" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12109" PostTypeId="2" ParentId="12104" CreationDate="2016-05-21T21:39:50.597" Score="3" Body="&lt;p&gt;We have:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$y_t = c_t − w^u(1 − N_t) + \kappa v_t$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We take the log of both sides:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\ln y_t = \ln \left[ c_t − w^u(1 − N_t) + \kappa v_t \right]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And then linearize around the steady states:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\begin{align}&#xA;\ln \bar{y} + \frac{1}{\bar{y}}(y_t - \bar{y}) &amp;amp; = \ln \left[ \bar{c} - w^u(1-\bar{N}) + \kappa \bar{V} \right] + \frac{1}{\left[ \bar{c} - w^u(1-\bar{N}) + \kappa \bar{V} \right]}(c_t - \bar{c}) \\&#xA;&amp;amp; + \frac{w_u}{\left[ \bar{c} - w^u(1-\bar{N}) + \kappa \bar{V} \right]}(N_t - \bar{N}) \\&#xA;&amp;amp; + \frac{\kappa}{\left[ \bar{c} - w^u(1-\bar{N}) + \kappa \bar{V} \right]}(V_t - \bar{V})&#xA;\end{align}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Cancel $\ln \bar{y}$ and $\ln \left[ \bar{c} - w^u(1-\bar{N}) + \kappa \bar{V} \right]$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\begin{align}&#xA;\frac{1}{\bar{y}}(y_t - \bar{y}) &amp;amp; = \frac{1}{\left[ \bar{c} - w^u(1-\bar{N}) + \kappa \bar{V} \right]}(c_t - \bar{c}) \\&#xA;&amp;amp; + \frac{w_u}{\left[ \bar{c} - w^u(1-\bar{N}) + \kappa \bar{V} \right]}(N_t - \bar{N}) \\&#xA;&amp;amp; + \frac{\kappa}{\left[ \bar{c} - w^u(1-\bar{N}) + \kappa \bar{V} \right]}(V_t - \bar{V})&#xA;\end{align}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Multiply the first term on the right hand side by $\frac{\bar{c}}{\bar{c}}$, and similarly for the other terms:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\begin{align}&#xA;\frac{1}{\bar{y}}(y_t - \bar{y}) &amp;amp; = \frac{\bar{c}}{\left[ \bar{c} - w^u(1-\bar{N}) + \kappa \bar{V} \right]}\frac{(c_t - \bar{c})}{\bar{c}} \\&#xA;&amp;amp; + \frac{w_u \bar{N}}{\left[ \bar{c} - w^u(1-\bar{N}) + \kappa \bar{V} \right]}\frac{(N_t - \bar{N})}{\bar{N}} \\&#xA;&amp;amp; + \frac{\kappa \bar{V}}{\left[ \bar{c} - w^u(1-\bar{N}) + \kappa \bar{V} \right]}\frac{(V_t - \bar{V})}{\bar{V}}&#xA;\end{align}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And we simplify, taking advantage of the fact that $\hat{v}_t = \hat{\theta}_t + \hat{u}_t$, to get what you have:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\hat{y}_t = \frac{\bar{C}}{\bar{Y}}\hat{c}_t + w^u \frac{\bar{N}}{\bar{Y}} \hat{n}_t + \left( \frac{K\bar{V}}{\bar{Y}} \right) (\hat{\theta}_t + \hat{u}_t) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't think this derivation is wrong. But you can see that $y_t$ and $N_t$ are directly proportional to each other. It's definitely plausible that $\frac{\bar{N}}{\bar{Y}} = 1$, but I've pored over the equations in the setup for 3 hours to no avail at showing that rigorously. It's probably something silly that I don't understand. I'll look back later and if nothing else, I'll turn this answer into a community wiki so anyone who has the right idea can edit it.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2016-05-21T21:39:50.597" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="12110" PostTypeId="1" AcceptedAnswerId="12160" CreationDate="2016-05-21T23:57:18.280" Score="9" ViewCount="465" Body="&lt;p&gt;The &lt;a href=&quot;https://en.wikipedia.org/wiki/Gross_domestic_product&quot; rel=&quot;noreferrer&quot;&gt;Gross domestic product&lt;/a&gt; measures &lt;em&gt;the value of all final goods and services produced in a period&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This has some limitations.  For example, if a car hits a lightpost and both need to be repaired and some parts replaced, that contributes to the GDP, even though at the end we're in roughly the same situation as before and the reparation process has used resources (labour and material) that might have been used elsewhere.  From &lt;a href=&quot;https://en.wikipedia.org/wiki/Gross_domestic_product#Limitations_and_criticisms&quot; rel=&quot;noreferrer&quot;&gt;Wikipedia&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The UK's Natural Capital Committee highlighted the shortcomings of GDP in its advice to the UK Government in 2013, pointing out that GDP &quot;focusses on flows, not stocks. As a result an economy can run down its assets yet, at the same time, record high levels of GDP growth, until a point is reached where the depleted assets act as a check on future growth&quot;. They then went on to say that &quot;it is apparent that the recorded GDP growth rate overstates the sustainable growth rate. Broader measures of wellbeing and wealth are needed for this and there is a danger that short-term decisions based solely on what is currently measured by national accounts may prove to be costly in the long-term&quot;.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I'm aware of numerous alternative measures focussing well-being, such as the &lt;a href=&quot;https://en.wikipedia.org/wiki/Human_Development_Index&quot; rel=&quot;noreferrer&quot;&gt;Human Development Index&lt;/a&gt;,&lt;a href=&quot;https://en.wikipedia.org/wiki/Gross_National_Happiness&quot; rel=&quot;noreferrer&quot;&gt;Gross National Happiness&lt;/a&gt;, and the &lt;a href=&quot;https://en.wikipedia.org/wiki/Happy_Planet_Index&quot; rel=&quot;noreferrer&quot;&gt;Happy Planet Index&lt;/a&gt;.  They don't really measure either wealth or well-being (the latter may be impossible to measure), and their exact definition is somewhat arbitrary.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there any reasonably well-established alternative to GDP that measures the total value of the stocks of a country?  Wikipedia has a &lt;a href=&quot;https://en.wikipedia.org/wiki/List_of_countries_by_financial_assets_per_capita&quot; rel=&quot;noreferrer&quot;&gt;financial assets&lt;/a&gt; list, but it relates only to households (and on this list, Greece is almost twice as wealthy as &lt;em&gt;Norway&lt;/em&gt;, which is so vastly against expectations that I wonder if the definition is useful).  I can reasonably well estimate the value of my own assets (except for the value of my education/skills, which is harder to quantify).  Is there any metric that is used to estimate the value of all assets in a nation: infrastructure, real estate, machines, goods, farmland, but also education, human capital, unmined natural resources, etc.?&lt;/p&gt;&#xA;" OwnerUserId="332" LastEditorUserId="332" LastEditDate="2016-05-23T10:22:52.283" LastActivityDate="2017-08-03T05:43:56.097" Title="Is there an alternative metric to GDP that measures a country's assets rather than flows?" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;&lt;human-capital&gt;&lt;infrastructure&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12111" PostTypeId="1" CreationDate="2016-05-22T03:11:05.987" Score="2" ViewCount="110" Body="&lt;p&gt;Some restaurants particularly fast food ones offer breakfast food only during, well, breakfast hours. Other restaurants however offer breakfast food throughout their opening hours. Some restaurants are specifically breakfast only so of course they do.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What's up with that? What would make a restaurant offer some food only sometime while others (besides breakfast restaurants) offer said food throughout opening hours?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I was thinking that this might have something to do with low demand or something, but then why do all-day breakfast restaurants, like, not go out of business?&lt;/p&gt;&#xA;" OwnerUserId="4483" LastActivityDate="2016-05-25T04:59:48.553" Title="What would make a restaurant offer all-day breakfast?" Tags="&lt;cost&gt;&lt;producer-theory&gt;&lt;opportunity-cost&gt;&lt;product-differentiation&gt;" AnswerCount="2" CommentCount="7" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12113" PostTypeId="1" CreationDate="2016-05-22T15:02:00.617" Score="2" ViewCount="1159" Body="&lt;p&gt;I have some questions on the concepts of the classical dichotomy and money neutrality:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;What is the difference, if any, between the concepts of classical dichotomy and money neutrality? As I understand it, the classical dichotomy is the assumption that changes in nominal variables do not affect real variables. But my textbooks and lectures do not seem to distinguish between this concept, and that of money neutrality.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;If the classical dichotomy suggests that changes in nominal variables do not affect real variables, does it have anything to say in the reverse direction? Do changes in real variables affect nominal variables, in a world/model in which the classical dichotomy holds?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;I know that the classical dichotomy does not hold in the short run. But what evidence is there that the classical dichotomy may or may not hold in the long run? Is there a well-known academic piece on this issue, or a consensus in the literature?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="8318" LastEditorUserId="8318" LastEditDate="2016-05-22T15:11:13.070" LastActivityDate="2016-05-22T15:11:13.070" Title="Classical Dichotomy and Money Neutrality" Tags="&lt;macroeconomics&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12114" PostTypeId="2" ParentId="12111" CreationDate="2016-05-22T17:42:56.623" Score="1" Body="&lt;p&gt;This question makes a hidden assumption:  that all diners are on the same circadian rhythm.  A significant portion of the US population works nights, spans time zones, etc. For example, truckers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That's one answer, that addresses the market.  There's also the question of inventory logistics for the restaurant.  Most eateries have to do extensive prep for a meal shift, and that includes thawing proteins, advance-cooking certain items, chopping, etc.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Imagining an ideal world for the restaurant, they would prep exactly as much food, in various menu-item-proportion, as was ordered in a meal shift, and end up with none left over.  Meal prep left over would represent wasted inputs, and very often it is not able (or allowed) to be kept for the next meal shift.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Menu prep is &quot;expensive&quot; whether you end up selling one meal or a dozen.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, often &quot;lunch cooks&quot; have a different set of training/skill sets than &quot;dinner cooks&quot; than &quot;breakfast cooks.&quot;&lt;/p&gt;&#xA;" OwnerUserId="8334" LastActivityDate="2016-05-22T17:42:56.623" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="12115" PostTypeId="1" CreationDate="2016-05-22T20:24:34.010" Score="2" ViewCount="180" Body="&lt;p&gt;&lt;a href=&quot;http://www.americanactionforum.org/research/impact-falling-oil-prices-russian-financing/&quot; rel=&quot;nofollow&quot;&gt;http://www.americanactionforum.org/research/impact-falling-oil-prices-russian-financing/&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Based on the above article, the author states that &quot;For budgeting, this favors the oil exporter, because a drop in oil revenues weakens the exporter’s economy—and consequently their currency&quot;. It makes sense that if oil prices are lower and traded based on USD values, it will hurt top line revenues for Russia since they produce oil. However, why does the second part of that statement have to be true? Why does the ruble depreciate against the USD?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The article as states &quot;Since Russia sets its budget in rubles, not dollars, financing sources from foreign currencies are exceptionally strong relative to ruble&quot;. What does this mean for budgets to be finance in one currency vs another? Arnt all countries budgets in their own native currency? Why does this matter? What are the implications?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="8335" LastEditorUserId="8481" LastEditDate="2020-05-04T03:41:52.287" LastActivityDate="2020-05-04T03:41:52.287" Title="Russian ruble drop in value due to low oil prices" Tags="&lt;macroeconomics&gt;&lt;international-trade&gt;&lt;currency&gt;&lt;foreign-exchange&gt;&lt;oil&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12118" PostTypeId="1" CreationDate="2016-05-22T23:46:56.670" Score="1" ViewCount="165" Body="&lt;p&gt;I'm designing an experiment that investigates the result of different groups sizes on the outcomes of Nash Demand games.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I already programmed this experiment once in zTree, where we then conducted the experiment in a laboratory environment. Now, I'm looking to transfer this over to &lt;a href=&quot;http://www.otree.org/&quot; rel=&quot;nofollow&quot;&gt;oTree&lt;/a&gt; (&quot;a Django-based framework for implementing multiplayer decision strategy games.&quot;), and to conduct online experiments with Amazon Turk.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here's the problem I've run across: How do I set up games with unequal groups sizes, where the groups are interacting (exclusively) with one another, and so players from the larger (majority) group will occasionally sit out rounds.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The groups will typically be middling in size (say 6 in a majority group, and 2 in a minority group), but let's consider the simplest case: The larger group has 2 members, and the smaller group has 1 member, and in each round members of each group are chosen at random to play the Nash Demand game against one another.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, letting Player 1 be in the minority group (G1) &amp;amp; Players 2, 3 be in the majority group (G2), a matching sequence might be: &#xA;Round 1: Player 1 (G1) plays with Player 2 (G2),&#xA;Round 2: Player 1 (G1) plays with Player 3 (G2),&#xA;Round 3: Player 1 (G1) plays with Player 3 (G2),&#xA;and so on…&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For this kind of random matching, notice that players in the majority must occasionally sit out. In the example, Player 3 sits sat out in Round 1, and Player 2 sat out in Rounds 2 and 3. Here, the minority group member, Player 1, will ultimately play twice as many rounds as the majority group members.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In zTree, I was able to do this by importing a spreadsheet that contained the matching data--about which player was to be matched to which other player in each round--into the &lt;code&gt;Parameters Table&lt;/code&gt; in that environment. My problem is that it is not clear how to accomplish the same thing in oTree.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm aware that I can establish group sizes in &lt;code&gt;models.py&lt;/code&gt; as follows&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;class Constants(BaseConstants): &#xA;players_per_group = [x,y] # Where x, y are the Minority and Majority group sizes, respectively.&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;And I'm aware that I can establish constants that could correspond to the matching parameters in the same class, but there will typically be eight players playing 120 rounds of the game. That would require at least 480 unique ordered pairs to specify. And this will also change from experiment-experiment, as we will change group sizes. That would be impractical to hand-code.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I already have the spreadsheets (.csv files) with the appropriately randomized matching tables from the previous experiment. Is there a way I can get oTree to read those spreadsheets and conduct the matchings based on those values?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And suggestions of how to proceed would be greatly appreciated. Cheers &amp;amp; warmth.&lt;/p&gt;&#xA;" OwnerUserId="7841" LastActivityDate="2016-05-22T23:46:56.670" Title="oTree: How to have unequal groups sizes, with agents ocasionally sitting out rounds" Tags="&lt;python&gt;&lt;matching&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12119" PostTypeId="1" CreationDate="2016-05-23T07:27:35.737" Score="0" ViewCount="747" Body="&lt;p&gt;I have a question regarding utility functions:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Utility can be defined as follows:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$U=1+e^{\frac{x}{RT}}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;U:Utility&lt;/p&gt;&#xA;&#xA;&lt;p&gt;x: What we want to find the utility for (Certain equivalent)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;RT: Risk tolerance&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is what conditions must be upheld in order for two persons to create the same utility functions for a bet? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Example:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Person A bet \$5 that horse number 1 wins. Person B bet \$20 that horse number 2 do not win. Is it then possible that their utility functions is the same given that their probabilities for horse 1 winning is the same and that they have the same risk tolerance? &lt;/p&gt;&#xA;" OwnerUserId="8339" LastActivityDate="2016-11-19T14:23:19.313" Title="How to have same utility function for two persons?" Tags="&lt;utility&gt;&lt;preferences&gt;&lt;risk&gt;&lt;expected-utility&gt;&lt;probability&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12120" PostTypeId="2" ParentId="12119" CreationDate="2016-05-23T07:41:15.553" Score="0" Body="&lt;p&gt;The only parameterization given in this utility function is the risk tolerance. When two agents happen to have the same risk tolerance they would also have the same utility function.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regarding your Example: They could have the same risk tolerance depending on their wealth. If 5 Dollar depict  1 % of the wealth of person A and if 20 Dollar aswell amounts for 1 % for the wealth of person B they could have the same risk aversion. &#xA;If however their wealth does not coincide the risk aversion of the two agents ought do be different from each other.&lt;/p&gt;&#xA;" OwnerUserId="8340" LastActivityDate="2016-05-23T07:41:15.553" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12122" PostTypeId="1" CreationDate="2016-05-23T14:38:24.727" Score="1" ViewCount="296" Body="&lt;p&gt;In my econometrics and economics classes, the term autocorrelation has come up this quarter. I have read the Wikipedia pages about it and tried to understand them, but they are a bit beyond me. They use too much math from signal analysis that I don't have time to study at the moment. But I would still like to understand the general idea. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can someone provide a brief explanation of what autocorrelation is and how this concept is used to understand price and analyze price trends? &lt;/p&gt;&#xA;" OwnerUserId="2679" LastActivityDate="2016-07-22T19:10:37.960" Title="What is autocorrelation of prices?" Tags="&lt;price-level&gt;&lt;price&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12123" PostTypeId="2" ParentId="12115" CreationDate="2016-05-23T16:51:16.590" Score="0" Body="&lt;ol&gt;&#xA;&lt;li&gt;Given relatively inelastic demand for oil, an decrease in prices would automatically decrease (at least nominal) exports. This could create deflationary expectations which in turn would translate into lower returns on ruble investments and depreciate the ruble. &lt;/li&gt;&#xA;&lt;li&gt;This is a direct consequence of 1. If the ruble depreciates and Russia's budget is set in rubles, the budget has effectively decreased, in foreign currency units. &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="7725" LastActivityDate="2016-05-23T16:51:16.590" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12124" PostTypeId="2" ParentId="12115" CreationDate="2016-05-23T17:48:36.967" Score="3" Body="&lt;p&gt;The Rouble depreciates against the US dollar because of demand and supply. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Think of it as a story that goes as follows: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;a) In the ruble/dollar market, the &lt;em&gt;supply&lt;/em&gt; of dollars consists of foreigners that have dollars and want to buy goods(oil and other things) and assets from Russia, while the &lt;em&gt;demand&lt;/em&gt; for dollars consists of Russians that want to buy goods and assets from foreigners and need dollars to do so. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;b) When the price of oil collapses 50%, then the foreigners only need to supply 50% as many dollars to buy all the oil they used to buy from Russia. So supply of dollars to the ruble/dollar market shrinks. When supply shrinks, prices increase.  Imagine that as the Russians want to buy foreign goods, say medicine, and they will be willing to pay lots of Roubles to buy said medicine, so demand for dollars does not change as much as supply of dollars.&lt;/p&gt;&#xA;" OwnerUserId="7593" LastActivityDate="2016-05-23T17:48:36.967" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12125" PostTypeId="2" ParentId="12122" CreationDate="2016-05-23T17:55:01.410" Score="2" Body="&lt;p&gt;Autocorrelated is the opposite of independent, which is a term easier to understand (and explain). If you throw one die, the probability of getting the number any number is 1/6. If you throw it again, the probability of guessing the result number is 1/6. If you do it again and again and again the probability of getting it right is always 1/6 (provided that the die is «fair»). This means that the next outcome is &lt;strong&gt;independent&lt;/strong&gt; to the previous one. Whether you get a 3 or a 5, the outcome of the next «experiment» is not affected. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The opposite would be, for instance, if you have a set of 20 cards, and then you draw one, the probability that the card drawn is the one you predicted is 1/20th. But this time, things have changed: you are left with only 19 cards on your hand. So the next time, you have a probability of 1/19th of guessing the card. If you do it again and again the probability of guessing the next card is greater. Since &lt;strong&gt;the outcome of the previous event helps to predict the next one, we say that this process is autocorrelated&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One doesn't need to be an expert on statistics to see that these two examples are different. This is why it is important.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, when it comes to prices, it simply means that the price of a good today helps predicting its price for tomorrow. Take currencies: If 1€ = USD \$1.1193 today, it would be very unlikely (but never impossible) that 1€ = USD \$10 tomorrow. It is more likely that the price will be &lt;strong&gt;around&lt;/strong&gt; USD \$1.1193. &lt;/p&gt;&#xA;" OwnerUserId="4409" LastActivityDate="2016-05-23T17:55:01.410" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12126" PostTypeId="2" ParentId="12020" CreationDate="2016-05-23T18:03:51.890" Score="3" Body="&lt;p&gt;Your first question, if it's literally correct, is easy:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The only way for $u'$ to be positive for c=0 is for p=1. if p =1 then sign($\phi$)=sign($\theta$) so that the product is positive. But, since $exp()&amp;gt;0$ and $p=1$, the first term of $u''$ cancels out and the only way for u'' to be negative is for $\phi$ to be negative. Therefore $\theta&amp;lt;0$ too. So the conditions are $\phi&amp;lt;0$, $\theta&amp;lt;0$ and $p=1$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your second question seems like it should have a simple answer too: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems that if $\beta R=1$, then consumption should be constant forever, which suggests that the agent consumes $(R-1)W_0$ each period.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The point of writing the Euler equation is to connect one period to the next, not so much to write out the bellman equation non-recursively. So, if you do that then  you have that an increase in consumption today increases utility by $U'(RW-\tilde W)$ and decreases next period's utility by $R\beta U'(R\tilde W-\tilde {\tilde W})$. So again this lets us conclude that $R\tilde W-\tilde{\tilde W}=R W-\tilde W$, i..e that consumption is constant.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, now that we know that consumption is constant, can we say whether it is $(R-1)W_0$ or not? If consumption in period 1 were higher than that then consumption would have to be lower than that at some point because $W_1&amp;lt;W_0$ and so the only way to keep consumption high is to deplete the capital stock W. If consumption were constant but lower than $(R-1)W_0$ the agent would accumulate assets forever, but a constant consumption of $(R-1)W_0$ would provide higher utility. Therefore , you can be sure that  constant $(R-1)W_0$ is the optimal consumption value.&lt;/p&gt;&#xA;" OwnerUserId="7593" LastEditorUserId="7593" LastEditDate="2016-05-23T21:45:02.393" LastActivityDate="2016-05-23T21:45:02.393" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12127" PostTypeId="2" ParentId="12110" CreationDate="2016-05-23T18:09:18.267" Score="3" Body="&lt;p&gt;One partial measure is the Net International Investment Position: It describes the foreign assets owned by the households, firms governments, etc of a country net of the local assets owned by households, firms, governments, etc of a foreign country. Norway is high up, Greece far down in that list &lt;a href=&quot;https://en.wikipedia.org/wiki/Net_international_investment_position&quot; rel=&quot;nofollow noreferrer&quot;&gt;NIIP list&lt;/a&gt; in terms of NIIP/GDP ratio.&lt;/p&gt;&#xA;" OwnerUserId="7593" LastEditorUserId="2776" LastEditDate="2017-08-03T05:43:56.097" LastActivityDate="2017-08-03T05:43:56.097" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12128" PostTypeId="1" AcceptedAnswerId="22217" CreationDate="2016-05-23T19:05:43.547" Score="5" ViewCount="107" Body="&lt;p&gt;According to &lt;a href=&quot;http://www.teachanywhere.com/job-seeker/far-east-asia/hong-kong/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Teach in Hong Kong&lt;/a&gt;, Hong Kong highschool teachers earn around&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;HK\$23,530 to HK\$54,665 (approximately \$3,000-\$7,000 USD) per month&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;while &lt;a href=&quot;http://www.cuhk.edu.hk/cpr/pressrelease/040831e.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;CUHK's Quantitative Finance Graduates Face Encouraging Employment Status (2004)&lt;/a&gt; says Hong Kong quants, at least those who are fresh graduates, have an initial&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;average monthly salary of HK$13,291.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Is there anything suspicious about this? I would expect quants to earn more than highschool teachers. Then again, the figure for quants is for fresh grads while the figure for highschool teachers is for those who have at least 2 years teaching experience and with education degrees (eg PGDE).&lt;/p&gt;&#xA;" OwnerUserId="4483" LastEditorUserId="4483" LastEditDate="2018-05-28T04:32:51.830" LastActivityDate="2018-05-29T14:27:39.270" Title="Do Hong Kong highschool teachers earn more than Hong Kong quants?" Tags="&lt;finance&gt;&lt;wages&gt;&lt;teaching&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="12129" PostTypeId="2" ParentId="12044" CreationDate="2016-05-23T19:29:42.697" Score="1" Body="&lt;p&gt;The answer is it depends on more assumptions on preferences. The short answer is no. To provide as much intuition we will look at the optimal conditions in each of these problems.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, for the descentralized problem you have that individuals choose $(c_{0i}, c_{1i}, \eta_i)$ to maximize:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\max \qquad \sum_t \beta^t u(c_{ti}) $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$s.t \qquad c_{0i} = e_{0i}(\eta_i) - \eta_i p$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$ \quad \qquad c_{1i} = e_{1i}(\eta_i) + \eta_i X$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The solution, for each individual $i$ will be optimal if they follow the Euler equation derived from the first order conditions and that markets clear:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac{1}{\beta} \frac{u'(c_{0i}^*)}{u'({c_{i}^*)}} = \frac{p - e_{i}'(\eta_i^*)}{e_{1i}'(\eta_i^*) + X}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now look at the representative agent problem for whom you say the endowment is given by $\bar e(\eta) = \frac{1}{N}\sum_{i} e^i(\eta)$. I will drop the $N$ because scaling does not matter (you are assuming the mean endowment, I am using the total endowment so all of my solutions are $N$ times what you want). This agent's problem is to choose $(c_0, c_1, \eta)$ to maximize:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\max \qquad \sum_t \beta^t u(c_{ti}) $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$s.t \qquad c_{0} = \sum_{i} e_{i}(\eta) - \eta p$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$ \quad \qquad c_{1} = \sum_{i} e_{i}(\eta) + \eta X$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now the first order condition says:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac{1}{\beta} \frac{u'(c_{0}^*)}{u'({c_{1}^*)}} = \frac{p - \sum_{i}e_{i}'(\eta^*)}{\sum_i e_{i}'(\eta^*) + X}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These two need not be equal. Do you have more assumption on the preferences/endowment functions?&lt;/p&gt;&#xA;" OwnerUserId="4224" LastActivityDate="2016-05-23T19:29:42.697" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12130" PostTypeId="1" CreationDate="2016-05-23T19:32:57.403" Score="1" ViewCount="52" Body="&lt;p&gt;I am studying economics, and am mainly fascinated by development economics and finance. What are some common career paths that involve the combination of these topics, and what subtopics can one study to strengthen oneself further in these fields? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Initially, I believe investment funds for developing countries is one possible field to look at, is this correct? What are the alternatives?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(I cannot find a &quot;career&quot;-tag so I apologize if this question if off-topic)&lt;/p&gt;&#xA;" OwnerUserId="8345" LastEditorUserId="108" LastEditDate="2017-04-09T07:42:41.630" LastActivityDate="2017-04-09T07:42:41.630" Title="Career-question: Fields that combine Development Econ with Finance?" Tags="&lt;financial-economics&gt;&lt;development-economics&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="12132" PostTypeId="1" AcceptedAnswerId="12144" CreationDate="2016-05-24T10:12:33.717" Score="4" ViewCount="95" Body="&lt;p&gt;While I was studying, I stuck into a great debate between what is called &quot;modern macro&quot; and Keynesian macro with a lot of interesting and actual insights. I have already read about &quot;classical economics&quot;, I mean Smith, Ricardo and so on but I did not succeed in finding a book/paper talking about the actual debate and its roots. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can you please suggest me some references in order to better understand the evolution of economic thought in the XX century and to make my own idea about the actual debate going on?&lt;/p&gt;&#xA;" OwnerUserId="6773" LastEditorUserId="6773" LastEditDate="2016-05-25T07:04:54.243" LastActivityDate="2016-05-25T07:04:54.243" Title="The evolution of economic thought in the XX century" Tags="&lt;reference-request&gt;&lt;history-economic-thought&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12133" PostTypeId="1" CreationDate="2016-05-24T10:20:54.523" Score="0" ViewCount="115" Body="&lt;p&gt;In reading a textbook on seigniorage, the authors define seigniorage as $\frac{\Delta H}{P}$, where $\Delta H$ is the change of high-powered money, and $P$ is the price level. In the IS-LM model, and assuming that H is proportional to money demanded, and assuming that factor/multiplier constant, we have that in the medium-run, the growth-rate of high-powered money is equal to the growth-rate of money supplied, which in turn is equal to inflation: $\gamma_H=\gamma_M=\pi$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What would happen if instead of the IS-LM model, the Central Bank(CB) was active/forward looking, and guided the economy by setting the interest rates, i.e. use an interest-rate rule, instead of passively adjusting the money supply? In this setting, except for abnormal times like today's, the medium-run equilibrium would be $\pi=\pi_T$, where $\pi_T$ is the inflation target of the CB. Can the CB use an interest-rate rule while monetary financing the government's fiscal stance?&lt;/p&gt;&#xA;" OwnerUserId="118" LastActivityDate="2016-05-24T10:20:54.523" Title="Seigniorage, or monetary financing of fiscal policy" Tags="&lt;macroeconomics&gt;" AnswerCount="0" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12134" PostTypeId="1" AcceptedAnswerId="12135" CreationDate="2016-05-24T10:27:52.353" Score="0" ViewCount="2105" Body="&lt;p&gt;Does anyone know the meaning of the notation x%p.a.?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm reading a text on seigniorage, and the authors have used that notation to state the usual empirical limit to the seigniorage revenues just before the inflation rates effects outweigh the money growth effect.&lt;/p&gt;&#xA;" OwnerUserId="118" LastActivityDate="2016-05-24T10:34:01.493" Title="Interpretation of %p.a. notation" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;financial-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12135" PostTypeId="2" ParentId="12134" CreationDate="2016-05-24T10:34:01.493" Score="0" Body="&lt;p&gt;It's a proportional rate - 5% p.a. means 5% &lt;em&gt;per annum&lt;/em&gt;, i.e. 5% per year&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2016-05-24T10:34:01.493" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12136" PostTypeId="1" AcceptedAnswerId="12139" CreationDate="2016-05-24T13:19:32.263" Score="1" ViewCount="982" Body="&lt;p&gt;When MC function is different for both the firms, how will MR = MC work ?&lt;/p&gt;&#xA;" OwnerUserId="8351" LastActivityDate="2016-05-24T17:20:34.697" Title="how to find Cournot equilibrium for 2 firms having different MC?" Tags="&lt;nash-equilibrium&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12137" PostTypeId="1" AcceptedAnswerId="12143" CreationDate="2016-05-24T15:16:57.390" Score="2" ViewCount="52" Body="&lt;p&gt;I'm trying to find some data on the level of corruption in Venezuela, since Chavez came to power, and its evolution along time. I've searched the world bank, but they don't seem to have this data on Venezuela...&lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="69" LastEditDate="2016-05-24T20:06:08.447" LastActivityDate="2016-05-24T20:06:08.447" Title="Data on corruption in Venezuela" Tags="&lt;macroeconomics&gt;&lt;data-request&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12139" PostTypeId="2" ParentId="12136" CreationDate="2016-05-24T17:20:34.697" Score="0" Body="&lt;p&gt;Let the profit functions of the two firms be &#xA;$$&#xA;\begin{aligned}&#xA;\pi_1(q_1,q_2)&amp;amp;=p(q_1,q_2)q_1-C_1(q_1)\\&#xA;\pi_2(q_1,q_2)&amp;amp;=p(q_1,q_2)q_2-C_2(q_2)&#xA;\end{aligned}&#xA;$$&#xA;where $p(q_1,q_2)$ is the inverse demand depending on the total output of the two firms $q_1+q_2$, and $C_i$ is the total cost function of firm $i\in\{1,2\}$. Thus $C_i'$ is the marginal cost (MC) of firm $i$, and we can impose the condition that $C_1'\ne C_2'$ on the cost functions so that the firms have different MCs. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now we can solve for the Nash equilibrium (NE). Profit maximization would yield the following first-order conditions for the two firms:&#xA;$$&#xA;\begin{aligned}&#xA;p'_1(q_1^*,q_2)q_1^*+p(q_1^*,q_2)-C_1'(q_1^*)&amp;amp;=0\qquad\qquad(1)\\&#xA;p'_2(q_1,q_2^*)q_2^*+p(q_1,q_2^*)-C_2'(q_2^*)&amp;amp;=0\qquad\qquad(2)&#xA;\end{aligned}&#xA;$$&#xA;These are the usual MR=MC condition (&lt;em&gt;for each firm&lt;/em&gt;). Solving for $q_1^*(q_2)$ in $(1)$, we get the &lt;strong&gt;best response of Firm 1&lt;/strong&gt; as a function of Firm 2's output $q_2$. Likewise, from $(2)$ we get &lt;strong&gt;Firm 2's best response&lt;/strong&gt; to Firm 1's output, $q_2^*(q_1)$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Recall the a NE in a two-player game is &lt;strong&gt;a pair of &lt;em&gt;mutual best responses&lt;/em&gt;&lt;/strong&gt;. Therefore the NE of this two-firm Cournot game with different MCs is the pair $(q_1^*(q_2^*),q_2^*(q_1^*))$, where each firm is best responding to the other firm's best response (to the former firm). Practically, this means to plug $q_2^*$ into $q_1^*(q_2)$ and solve for $q_1^*$, and then plug $q_1^*$ back into $q_2^*(q_1)$ and solve for $q_2^*$. &lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2016-05-24T17:20:34.697" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12142" PostTypeId="1" CreationDate="2016-05-24T18:16:44.083" Score="1" ViewCount="77" Body="&lt;p&gt;The US Fed is increasing its interest rate targets. These rates will eventually affect most other interest rates in the US economy. In particular, interest rates on US government bonds will also increase, which should increase the US government debt servicing costs. Moreover, the government has over 10 trillion dollars in debt, so, the effect on its costs could even force it to increase tax rates. So, is the interest rate increase by the Fed eventually going to lead to an increase in federal tax rates? Thanks!&lt;/p&gt;&#xA;" OwnerUserId="8353" LastEditorUserId="264" LastEditDate="2016-05-25T12:09:13.797" LastActivityDate="2016-05-25T12:09:13.797" Title="The Fed may increase the rates. But will that make the government debt unsustainable?" Tags="&lt;federal-reserve&gt;&lt;government-debt&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12143" PostTypeId="2" ParentId="12137" CreationDate="2016-05-24T20:04:31.733" Score="2" Body="&lt;p&gt;&lt;a href=&quot;https://www.transparency.org/research/cpi/&quot; rel=&quot;nofollow&quot;&gt;The Corruption Perceptions Index of Transparency International&lt;/a&gt; could work for you. Chavez was in power from &lt;a href=&quot;https://en.wikipedia.org/wiki/Hugo_Ch%C3%A1vez&quot; rel=&quot;nofollow&quot;&gt;14 April 2002 – 5 March 2013&lt;/a&gt; and the index is available from 1995-2015 and includes Venezuela. In addition to the cross-country data, there is a more detailed &lt;a href=&quot;https://www.transparency.org/country/#VEN_DataResearch_SurveysIndices&quot; rel=&quot;nofollow&quot;&gt;Venezuela page produced by Transparency International&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2016-05-24T20:04:31.733" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="12144" PostTypeId="2" ParentId="12132" CreationDate="2016-05-24T22:37:34.837" Score="3" Body="&lt;p&gt;A reference in this topic is &lt;a href=&quot;https://sites.google.com/site/devroeym/home&quot; rel=&quot;nofollow&quot;&gt;Michel De Vroey&lt;/a&gt;. He published a new book on &lt;a href=&quot;https://sites.google.com/site/devroeym/home/book&quot; rel=&quot;nofollow&quot;&gt;A History of Macroeconomics from Keynes to Lucas and Beyond&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This book retraces the history of macroeconomics from Keynes's General Theory to the present. Central to it is the contrast between a Keynesian era and a Lucasian - or dynamic stochastic general equilibrium (DSGE) - era, each ruled by distinct methodological standards.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;See also a paper on &lt;a href=&quot;http://sites-final.uclouvain.be/econ/DP/IRES/2011028.pdf&quot; rel=&quot;nofollow&quot;&gt;The History of Macroeconomics from Keynes’s &#xA;General Theory to the Present&lt;/a&gt; for the Handbook of the History of Economic&#xA;Analysis.&lt;/p&gt;&#xA;" OwnerUserId="6168" LastActivityDate="2016-05-24T22:37:34.837" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12145" PostTypeId="2" ParentId="11753" CreationDate="2016-05-24T23:06:47.120" Score="2" Body="&lt;p&gt;Those are important and difficult questions to answer. Regarding &lt;strong&gt;Uber&lt;/strong&gt;, Jonathan Hall (Uber) and Alan Krueger (Princeton) wrote a joint paper on &lt;a href=&quot;https://s3.amazonaws.com/uber-static/comms/PDF/Uber_Driver-Partners_Hall_Kreuger_2015.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;An Analysis of the Labor Market for Uber's Driver-Partners in the United States&lt;/a&gt;. The paper provides the first comprehensive analysis of Uber's driver-partners, based on both survey data and anonymized, aggregated administrative data. The following figure documents the exponential growth in the number of active Uber driver-partners in the United States from mid-2012, when uberX was launched, to late 2014.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/dG7wq.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/dG7wq.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&#xA;Source: Hall and Krueger (2015)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;More generally&lt;/strong&gt;, they point out that the Bureau of Labor Statistics (BLS) publishes a supplemental module to collect information on various forms of contingent and alternative work arrangements in the Current Population Survey (CPS) in 1995, 2001, and 2005 that provides the most informative data available, although it is now somewhat out of date. The BLS contingent worker supplement also measured the share of workers in alternative work arrangements, including independent contractors. Workers in the &lt;strong&gt;sharing economy&lt;/strong&gt; can work part-time or full-time, or participate on a temporary or permanent basis, but they are almost universally working as independent contractors while they are participating in the sharing economy. Thus, evidence on &lt;strong&gt;independent contractors&lt;/strong&gt; can provide relevant background for understanding the nature of the labor market in a sector that overlaps with the sharing economy.&lt;/p&gt;&#xA;" OwnerUserId="6168" LastActivityDate="2016-05-24T23:06:47.120" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12146" PostTypeId="2" ParentId="12142" CreationDate="2016-05-25T00:31:14.533" Score="2" Body="&lt;p&gt;You have to differenciate the debt that is already existing from the one that is going to be issued: whenever the US Treasury issue a bond lets say a 10% coupon 10yrs... for a 100USD. It's still going to pay 10USD to the holders during the 10yrs. When you see the yield going up or down it's usually on the secondary market. I say usually because sometimes the government issues bond with a floating rate which can be impacted by a rate increase.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for the new debt that is going to be issued you are right to say that this going to be more costly !&lt;/p&gt;&#xA;" OwnerUserId="7833" LastActivityDate="2016-05-25T00:31:14.533" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12147" PostTypeId="2" ParentId="12111" CreationDate="2016-05-25T04:59:48.553" Score="1" Body="&lt;p&gt;Interesting! My guess is that:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A) Fast food places are in the business of solving the masses nutricional needs (low margins!), while other restaurants are more in the business of selling a special experience that you could do without (high margins!): &lt;a href=&quot;http://www.fool.com/investing/general/2015/09/23/why-mcdonalds-should-take-a-page-out-of-starbucks.aspx&quot; rel=&quot;nofollow&quot;&gt;Article mentioning lower margin breakfast foods&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;B) Because of the above, people will go to a fast food place if it solves a need, like having breakfast, but you won't pay much more than you would for cereal at home, so breakfast has to be dirt cheap at this places. And it does seem to be the cheapest meal on the menu in terms of protein/dollar.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;C) Now going back home for lunch is usually a pain, so they are able to extract a higher rent from you there, so they sell you fries and bread with some meat instead of a large meal of eggs and sausage. They make a larger margin on lunch items, so they have to shut the breakfast ones down. You are on a budget, so you'll go there again because its cheap, even if you are unhappy with them. If I was on a tight budget I would get the breakfast any time of the day if it were available.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;D) Other places will sell you a breakfast any part of the day because they want you to be happy and come back, they make a big margin on anything they sell. Moreover, you'd be mad if they didn't have what you wanted, and you don't really need them. Plus who's gonna order eggs for lunch with their boss or with their boyfriend/girlfriend anyway? So even if the margins were lower, few people buy these items...&lt;/p&gt;&#xA;" OwnerUserId="7593" LastActivityDate="2016-05-25T04:59:48.553" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12148" PostTypeId="2" ParentId="11742" CreationDate="2016-05-25T07:58:52.360" Score="1" Body="&lt;p&gt;Some commonly used tests to check for the presence of a unit root (a characteristic of $I(1)$ time series) are: Augmented Dickey Fuller (ADF), Phillips–Perron (PP), Dickey Fuller Generalized Least Squares (DF-GLS) and Kwiatkowski–Phillips–Schmidt–Shin (KPSS). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The main problem with all these tests is that none of them is very powerful and often give conflicting results. Also, not differencing a series if there is a unit root has serious consequences but differencing the series if there is no unit root just causes a minor loss of efficiency. If unit root test results are equivocal, assume there is a unit root, difference the series and correct for nonspherical errors. The minor loss in efficiency can  easily be ignored for that extra bit of unbiasedness and robustness in light of John Cochrane's brilliant quip on empirical economics and finance, &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;I can think of no case in which the application of a clever&#xA;  statistical model to wring the last ounce of efficiency out of a data&#xA;  set, changing  t  statistics from 1.5 to 2.5, substantially changed&#xA;  the way people think about an issue. Cochrane(2001)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="8314" LastActivityDate="2016-05-25T07:58:52.360" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12151" PostTypeId="1" CreationDate="2016-05-25T09:11:10.380" Score="1" ViewCount="333" Body="&lt;p&gt;In &lt;a href=&quot;http://faculty-gsb.stanford.edu/sahni/documents/ad_spillovers.pdf&quot; rel=&quot;nofollow&quot;&gt;this&lt;/a&gt; research paper titled: &lt;code&gt;Advertising Spillovers: Field-Experiment Evidence and Implications for Returns from Advertising&lt;/code&gt;, I come across the following assumption:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Utility of a product at time t($u_t$) = Awareness about the&#xA;  product($alpha_t$) + Advertising intensity of the product at time&#xA;  t$f(A_it)$&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Claim in the paper: (If utility is high, there is more likelihood that the user would buy the product.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;code&gt;Advertising intensity&lt;/code&gt; means the number of times the user has seen the ad of the product in a single session on the website.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And the function $f(.)$ is non-decreasing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, my question is: &lt;strong&gt;How does the advertising intensity increase the utility of a product?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Is it due to the $+ve$ information about the product given to the user through advertising, or did I go wrong in understanding the concept of utility somewhere?)&lt;/p&gt;&#xA;" OwnerUserId="5642" LastActivityDate="2016-05-25T09:11:10.380" Title="How does advertising improve the utility of a product?" Tags="&lt;utility&gt;&lt;advertising&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12152" PostTypeId="2" ParentId="12142" CreationDate="2016-05-25T09:28:40.993" Score="0" Body="&lt;ul&gt;&#xA;&lt;li&gt;For the Congressional Budget Office (01/2016), the answer is &lt;strong&gt;Yes&lt;/strong&gt;:&lt;br/&gt;&#xA;&lt;a href=&quot;https://www.cbo.gov/sites/default/files/114th-congress-2015-2016/reports/51129-2016_Outlook_Summary.pdf&quot; rel=&quot;nofollow&quot;&gt;&quot;Because of rising interest rates and growing federal debt&#xA;held by the public, the government’s interest payments&#xA;on that debt are projected to rise sharply over the next&#xA;10 years—more than tripling in nominal terms and more&#xA;than doubling as a percentage of GDP, from 1.4 percent&#xA;to 3.0 percent.&quot;&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;Will that make the debt unsustainable?&lt;br/&gt;&#xA;As projected revenue is growing slower than debt, &lt;a href=&quot;https://en.wikipedia.org/wiki/National_debt_of_the_United_States#Risks_and_debates&quot; rel=&quot;nofollow&quot;&gt;&quot;Rising interest costs would force reductions in government programs&quot;&lt;/a&gt;. &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;So, there could be either reductions, either change changes in tax laws.&lt;br/&gt;But the economic growth could also be stronger than projected.&lt;/p&gt;&#xA;" OwnerUserId="8353" LastActivityDate="2016-05-25T09:28:40.993" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12153" PostTypeId="1" CreationDate="2016-05-25T10:46:55.097" Score="1" ViewCount="50" Body="&lt;p&gt;How do you solve this question?&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;A company has 3 products. They contribute to 30%, 30% and 40% of sales&#xA;  respectively.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;They have profit margins of 15%, 30%, and 50% respectively.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;If the client raises prices by 10% for Product A (assuming costs&#xA;  remain constant), what is the change in the company's total gross&#xA;  profit?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Is sales the same as total revenue (TR) or is it the same as profit ($\pi = TR - TC$)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If it's the same as total revenue, I know that product A contributes 30% to the total sales, i.e.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;0.3 \cdot TR = TR_A&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Profit margin is given as $\tfrac{TR - TC}{TR}$, and if the profit margin of profit A is 10% then&#xA;$$&#xA;\frac{1.1 \cdot TR - TC}{1.1 \cdot TR} = 1 - \frac{TC}{1.1 \cdot TR}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the client raises prices by 10% for product A, the total revenue (TR) is now&#xA;$$&#xA;TR' = 1.1 \cdot P \cdot Q = 1.1 \cdot TR&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But how do i summarize? How can I conclude what the change in company's total gross profit is?&lt;/p&gt;&#xA;" OwnerUserId="4110" LastActivityDate="2016-05-25T10:46:55.097" Title="Find change in gross profit after price change" Tags="&lt;cost&gt;&lt;profits&gt;&lt;price&gt;" AnswerCount="0" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="12154" PostTypeId="1" AcceptedAnswerId="12182" CreationDate="2016-05-25T13:05:37.527" Score="1" ViewCount="166" Body="&lt;p&gt;First year Econ. Question:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Demand function: $P=50-4Q$ (Price in cents/kilo)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Supply function: $P=25+Q$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Equilibrium Price and Quantity: 30 cents, 5 kilos. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Price change: 40 cents, 2.5 kilos. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've tried 3 different methods of calculating point elasticity: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;$\frac{\% \Delta Q}{\% \Delta P}$ =  $\frac{-50\%}{133\%}= -.375$;&lt;/li&gt;&#xA;&lt;li&gt;$\frac{\frac{Q_{1}-Q_0}{Q_0}}{\frac{P_1-P_0}{P_0}} = \frac{\frac{2.5-5}{5}}{\frac{40-30}{30}}=-1.5 $&lt;/li&gt;&#xA;&lt;li&gt;$\frac{1}{slope}\frac{P}{Q}=\frac{-1}{4}\frac{40}{2.5} = -4$&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The right answer is -4, but why the variability?&lt;/p&gt;&#xA;" OwnerUserId="5404" LastEditorUserId="6566" LastEditDate="2016-05-27T12:53:02.697" LastActivityDate="2016-05-27T13:09:00.960" Title="Why am I getting 3 different answers for Point Elasticity of Demand?" Tags="&lt;elasticity&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12155" PostTypeId="1" AcceptedAnswerId="12157" CreationDate="2016-05-25T14:16:34.633" Score="0" ViewCount="136" Body="&lt;p&gt;I have read that the GDP of the world is growing. I do not understand how this is possible. If I make profits out of a commodity or a service, somebody pays me for it. Hence, their wealth has to drop. So, shouldn't wealth only get redistributed? If so, how is it possible for the world GDP to grow?&lt;/p&gt;&#xA;" OwnerUserId="8362" LastActivityDate="2016-05-25T20:06:06.927" Title="Why is the total wealth of the world not a conserved quantity?" Tags="&lt;macroeconomics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12157" PostTypeId="2" ParentId="12155" CreationDate="2016-05-25T17:32:05.720" Score="0" Body="&lt;p&gt;GDP is not a measure of wealth. It's just how many times money was passed along to someone else. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Imagine that you and your friend find an empty island and each of you has 10 dollars in their pocket (so, \$20 in total). You stay in this island for one year, but you eat the fruits that the trees give you. What is the GDP at the end of the year? \$0. Why? Because you didn't pass the money to anyone.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, let's say that for the second year, you decide to become a lumberjack and cut wood to make fire. Your friend decides to buy this wood from you for \$8. So, this is exactly what you said, your friend's wealth went down in the same quantity that yours went up. What is the GDP in this case? \$8. Note that it's not \$20 (the total amount of money in the island), nor \$18 (the amount you have accumulated) but \$8 which is the money that he gave to you in a market transaction.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, let's say that he decides to take the wood and make it a chair. You like the chair, so you decide to buy it and pay him \$10. Now the GDP is \$18 (\$8 from the first transaction and \$10 from the new one). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here's where it might get confusing (although not so much). He decides to make a new chair for himself and gives you \$8 in exchange for more wood. Now, the GDP is \$26 which is larger than the total amount of money in the entire island! Indeed, this happens in every country: the GDP is larger than the money in the country. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Without printing more money, you can basically keep money changing from one hand to the other infinitely. A growing GDP only means that the money is changing from one hand to the other faster. Not that people have more money in their pockets.&lt;/p&gt;&#xA;" OwnerUserId="4409" LastActivityDate="2016-05-25T17:32:05.720" CommentCount="9" ContentLicense="CC BY-SA 3.0" />
  <row Id="12158" PostTypeId="1" AcceptedAnswerId="12230" CreationDate="2016-05-25T17:55:22.533" Score="5" ViewCount="152" Body="&lt;p&gt;I am solving questions from Walsh and then verifying with a solutions manual. However, I keep solving a question and arriving at a slightly different answer than that suggested by the solution manual. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The solution given by the manual: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/teUsy.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/teUsy.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, when I take the optimal $\pi^e$ and substitute into (121) I get &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\pi^* = \frac{\pi^T[-1-\lambda]}{[-1-\lambda]} + \frac{\lambda k [ -1-\lambda]}{[-1-\lambda]} + \frac{\theta k [1+ \lambda]}{[-1-\lambda]} +e\frac{\lambda - \theta}{[-1-\lambda]}$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;and this simplifies to: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\pi^*= \pi^T + k(\lambda - \theta) - e\frac{\lambda + \theta}{[1 + \lambda]}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And so my issue is that I don't see how there is no $\lambda$ in the numerator of the fraction multiplying e at the end of the simplification. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can anyone see my error? I must be missing something simple. &lt;/p&gt;&#xA;" OwnerUserId="1655" LastActivityDate="2016-06-01T16:14:35.313" Title="Finding optimal Inflation - Walsh" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="7" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12159" PostTypeId="1" CreationDate="2016-05-25T18:17:22.490" Score="3" ViewCount="167" Body="&lt;p&gt;When it comes to the subject of automation, I read that the wide majority of the arguments assume that the profits/savings &quot;vanish&quot;, alongside the jobs loss.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I see the reasoning above as flawed though: if automation lowers the prices of the goods (both by increasing productivity, and by reducing costs; I'm ignoring the automation industry itself) in general, this leads implicitly (in the long term) to an increase in wealth, and by extension (again, in the long term), to an increase of the jobs offer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In practical terms, if producing, say cars, would cost less, people would save money and spend it through other markets, say going (more) to theater; the increase of demand in other markets would create new jobs, in this case, theater companies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I see the net of all of this as positive. Am I missing some important factors?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can see as argument (by some) that this phenomenon could/would only lead to increased profits for the &quot;Top 1% of the evil capitalists©&quot;.&#xA;Although undesirable, this is irrelevant - such (evil©) people would certainly spend or reinvest the money, again, leading to the mentioned consequences.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's important to note that I'm talking about long term. I'm sure that if literally tomorrow automation would take over millions of job, it would certainly be a disaster.&#xA;I'm also assuming a healthy economy, that is, the increase of savings/profits wouldn't stay still under the mattresses.&lt;/p&gt;&#xA;" OwnerUserId="8364" LastEditorUserId="8364" LastEditDate="2016-05-26T19:52:21.233" LastActivityDate="2016-09-07T08:12:01.410" Title="If automation implicitly increases wealth, why is it generally considered undesirable?" Tags="&lt;macroeconomics&gt;&lt;productivity&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12160" PostTypeId="2" ParentId="12110" CreationDate="2016-05-25T18:38:29.437" Score="5" Body="&lt;p&gt;You are correct in pointing out the flaws of GDP. But honestly, it's the best we have came up with; measuring the stock of wealth is just impossible. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You say you can estimate the value of your own assets, and of course it seems that way. We all feel that way, until we actually try. How much is your cellphone worth? Easy to know, go to ebay and look for similar phones in similar conditions and you get a price for that phone, right? Why don't we do that for all the country's cellphones? Well, because if we put all the cellphones in the market &lt;strong&gt;prices would drop down dramatically&lt;/strong&gt;. Now, we're not obviously sending all the cellphones to the market, we just want to know how much its value is, but the point is that in order to have an estimation, we have to make &lt;strong&gt;assumptions&lt;/strong&gt; regarding the market. The value of one cellphone is easy to calculate because it doesn't really affect the market. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Additionally, who says that you have to sell it in your local market? Why don't you offer it in Australia or Japan or Algeria or wherever the price is higher? And why not sell it another day when the price is up? The same goes for your car, house, computer, clothes, books, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Think now of your financial assets. You can know that, right? All one needs to do is see what the bank says, and it says that my investment portfolio is worth \$100.... at least &lt;strong&gt;today&lt;/strong&gt;... and &lt;strong&gt;exactly at the time I checked&lt;/strong&gt;. But remember: the value of any financial portfolio is going up and down with high volatility even in the same day. Now try to figure out the value of the financial assets of all the country. Well, you can do that. But again: just today, and just at the time you checked. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Even though it doesn't seem like it, the same goes for goods. Take oil. Say that there is an oil reserve with x millions of barrels just waiting to be extracted and sent out to the market. How much is the value of that reserve? It depends on when you ask, whom you ask to, and who else is asking the same question (other sellers). What about gold? silver? copper? coal? wood? You can estimate a value in a given time, but that can be very different in another time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What about land? Well, if I sow corn it will give me a given amount, but if I sow rice it will yield a different amount. Besides, would it be the same if my neighbor sows corn and I sow rice than if we both sow the same (competition)? What if I want to use it to generate electricity instead of growing food? Or what if I use it for livestock? What if I sell it? What if we all decide to do the same thing at the same time? Or what if we decide to do completely different things? Indeed to value farm land, you have to assume what use will it have.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Infrastructure is even more complicated. How much is a railroad valued? And what does value even mean in this context? There is no secondary market for railroads is there? There are opportunity costs, though. And we have the construction value too. But the we would have to make assumptions on its depreciation, and say how much of the revenue of the country is due to this specific segment of the railroad. To estimate this, one has to say how much the country would loss was the railroad not there (which is a fictitious value). What about parks?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Don't even get me started on natural resources (rivers, lakes, coast, jungles, biodiversity, etc). But even then, those are the easy ones. We still have left education, experience, skills and the like. But this post is long already, the point has been made and now I have a headache for thinking all this. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Indeed, there are many serious and very clever attempts to make estimations of these. But they are used to answer very specific questions. GDP, on the other hand is easy: just sum all the sells of goods and services. We (economists) don't like it very much either, but that's all we have. Just try to accept it, and don't take it to seriously.&lt;/p&gt;&#xA;" OwnerUserId="4409" LastActivityDate="2016-05-25T18:38:29.437" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12161" PostTypeId="2" ParentId="12159" CreationDate="2016-05-25T19:14:38.217" Score="3" Body="&lt;p&gt;Short-term or long-term, &lt;strong&gt;Property rights&lt;/strong&gt; and &lt;strong&gt;distributional issues&lt;/strong&gt; exist, &quot;evil capitalists&quot; or not, and they will always result in strong scrutiny of &lt;em&gt;any&lt;/em&gt; change.  Remember that what is &quot;short term&quot; for society is mid- or even long-term for individuals.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Moreover, there exists the &lt;em&gt;transitional pain&lt;/em&gt;: whether we can optimize it downwards, and &lt;em&gt;who is going to feel it&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;All these cause the heated arguments and the opposing positions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But your post starts with a strange assertion: that &quot;almost all times&quot; it is assumed that automation has a negative economic impact. If this was so, it seems a little strange that automation marches triumphantly for the last two hundred years, and it continues to do so. If this was so, people now must live in a much worse material situation than two hundred years ago. Is this the case?&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2016-05-25T19:14:38.217" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12162" PostTypeId="2" ParentId="12155" CreationDate="2016-05-25T20:06:06.927" Score="1" Body="&lt;p&gt;There's no such thing as a law of conservation of wealth. Wealth is created and destroyed in many ways. It is created when society produces goods and saves them. It is destroyed in disasters, or consumed when we use up our savings.It is created when we create knowledge, software, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a toy example: when a society starts out without any saved food, it produces food, eats half and saves half, then it is richer at the end. The accumulated food is an asset. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There's all kinds of wealth in a society: patents, ideas, buildings, roads, cars, computers, education, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What does not get created or destroyed are nominal claims that we have against each other: if I give you a paper promising to pay you 10, that makes you 10 richer and it makes me 10 poorer but that's it. This means that its pretty had to figure out what is a society's total wealth, because there's all kinds of claims, explicit or implicit that are hard to value. &lt;/p&gt;&#xA;" OwnerUserId="7593" LastActivityDate="2016-05-25T20:06:06.927" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12163" PostTypeId="1" CreationDate="2016-05-25T21:05:03.447" Score="3" ViewCount="530" Body="&lt;p&gt;The central bank of a country is responsible of the printing of new currency notes and coins/ money to the economy of a country. My question is how they introduce this new money into the economy in a 'fair' manner. Giving it to one individual or group would be privileging them against other such groups, right? So, how is it done?&lt;/p&gt;&#xA;" OwnerUserId="8362" LastEditorUserId="8362" LastEditDate="2016-05-25T21:26:58.710" LastActivityDate="2016-05-26T14:26:46.547" Title="Who gets newly printed currency?" Tags="&lt;macroeconomics&gt;&lt;currency&gt;" AnswerCount="1" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="12164" PostTypeId="1" CreationDate="2016-05-25T23:24:35.257" Score="4" ViewCount="569" Body="&lt;p&gt;I'd like to ask for the main causes Venezuela has sank economically so abruptly, I mean not too long ago it was considered a rich country (well not a world power but a country that could provide some nice standards for living) and now if it continues this way it's gonna get insanely poor. (That's the look that I get from the news).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've read some things but I'd like a more global explanation of what has happened and I feel that some of those things were biased, some of them maybe a lot, I think here I'll find a more objective answer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm not asking for a detailed description of what has happened as that would be something that could take an entire thesis, but I'd like to know in a brief manner the principal aspects that have caused that.&lt;/p&gt;&#xA;" OwnerUserId="8193" LastEditorUserId="7833" LastEditDate="2016-05-26T06:13:10.700" LastActivityDate="2019-03-28T03:56:48.893" Title="What has happened in Venezuela?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12165" PostTypeId="2" ParentId="12164" CreationDate="2016-05-26T00:00:12.563" Score="6" Body="&lt;p&gt;Very interesting question, I'll try to summarize some aspects and I probably won't be exhaustive !&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Venezuela has long been a country relying on oil (95% of their exports). Certain experts have estimated that &lt;a href=&quot;http://www.opec.org/opec_web/en/data_graphs/330.htm&quot;&gt;Venezuela holds just shy of 25%&lt;/a&gt; of worldwide oil reserves, but the oil extracted in Venezuela is very heavy and hard to refine and then sell to other countries, which makes it more expensive than oil coming for example from Saudi Arabia. When prices boomed, the former President Hugo Chávez, who died in 2013, used oil exports to quadruple the foreign debt. He also led a some nationalisations. The main factor for Venezuela's current crisis is therefore the counter-shock on oil prices which lowered exports. This quote comes from &lt;a href=&quot;http://www.ft.com/cms/s/0/204fc996-c8d5-11e5-a8ef-ea66e967dd44.html#axzz49iJSOdhQ&quot;&gt;an FT article&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;If oil prices remain at January’s average levels, exports in 2016 will be less than USD 18bn, while servicing the debt will cost over USD 10bn. This leaves less than USD 8bn of current income to pay for imports, a fraction of the USD 37bn imported in 2015&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;One of the direct consequences of that is that the country is relying on its dollar reserves to pay its imported goods. The country's foreign reserves are already withering at 12-year lows. Venezuela has even paid &lt;a href=&quot;http://money.cnn.com/2016/02/25/news/economy/venezuela-gold-debt/?iid=EL&quot;&gt;Switzerland with gold&lt;/a&gt;! But the problem is that on the land the demand was still the same and the supply could not follow, which led to a massive inflation. Inflation will surge to 720 percent in 2016 from 275 percent last year, according to a note &lt;a href=&quot;https://blog-imfdirect.imf.org/2016/01/22/latin-america-and-the-caribbean-in-2016-adjusting-to-a-harsher-reality/&quot;&gt;published by the IMF&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The huge outstanding debt is also worrying investors.Creditors are now demanding a high premium for their trust in that promise. The yield on Venezeula’s dollar bond that matures in 2020 is 37% (an investment mainly made by hedge fund). This is the more financial aspect of the question: it's hard or costly for Venezuela to get financial help from investors right now. For this aspects, I encourage you to take a look at &lt;a href=&quot;http://www.economist.com/news/americas/21693273-default-becoming-hard-avoid-praying-pay&quot;&gt;this article by The Economist&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;About half of Venezuela’s foreign debt is explicitly owed by the sovereign; the rest is owed by PDVSA. There are important differences. Most of the sovereign-debt contracts have collective-action clauses (CACs), under which a restructuring, if accepted by holders of an agreed proportion of debt, can be imposed on all of them. PDVSA, Venezuela’s main source of foreign exchange, would have a harder time restructuring its debt. Its bond contracts do not have CACs&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="7833" LastActivityDate="2016-05-26T00:00:12.563" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12166" PostTypeId="1" CreationDate="2016-05-26T00:42:16.357" Score="2" ViewCount="1262" Body="&lt;p&gt;A student wishes to minimize the time required to gain a given expected average&#xA;grade, , in her end-of-semester examinations. Let $\displaystyle {t}_{i}$ be the time spent studying&#xA;subject i ∈ {1,2}. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose that the expected grade functions are $\displaystyle {g}_{1} ({t}_{1})=40+8\sqrt{{t}_{1}}$ and  $\displaystyle {g}_{2} ({t}_{2}) = 2{t}_{2}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus the individual's optimization problems is to choose ${t}_{1}$ and ${t}_{2}$ to minimize total studying time $ = {t}_{1} + {t}_{2}$ subject to obtaining a mean grade of  where&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\displaystyle m-\frac{[{g}_{1}({t}_{1})+{g}_{2}({t}_{2})]}{2}=0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I need to solve for the optimal choices of ${t}_{1} , {t}_{2}$ and $$ in the case where the student wishes to obtain an expected mean grade of 70.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Working through the problem I end with &lt;/p&gt;&#xA;&#xA;&lt;p&gt;${t}_{1}=4$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;${t}_{2}=42$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$T=46$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\displaystyle\lambda=-1$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How would I interpret the lagrange multiplier in this case?&lt;/p&gt;&#xA;" OwnerUserId="8365" LastActivityDate="2016-05-30T20:52:57.577" Title="Interpretation of lagrange multiplier" Tags="&lt;optimization&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12167" PostTypeId="1" AcceptedAnswerId="12194" CreationDate="2016-05-26T04:13:25.680" Score="3" ViewCount="91" Body="&lt;p&gt;I have been working on this problem for a few days but I am completely lost on how to start. Any suggestions, comments, hints are greatly appreciated. Here is a scenario:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Participants are competing in a competition where only the best 3&#xA;  products will be chosen and awarded in the amount of $R$.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;To produce a product, each participant picks an effort level $e$. The&#xA;  quality of the product q is a function of $e$. Each participant can&#xA;  produce one and only one product.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Each participant has a cost function $c$ which in a convex, increasing function of effort level $e$ and increasing in a cost parameter $\theta$. This&#xA;  parameter $\theta$ is uniformly distributed between 0 and 1.&#xA;  Participants know their own $\theta$ but do not know others. Although,&#xA;  they know the distribution of $\theta$.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The questions at hand are:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) Assuming that participants can observe others' effort, what is the&#xA;probability that a participant who spend an effort $e$ wins a&#xA;competition (his product quality is among the top 3)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) Given the reward amount $R$, what is the equilibrium effort level for a participant with a cost parameter $\theta$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For me, this question is quite similar to the price setting problem: If there are N sellers in the market with different cost parameters, and buyers are looking for the cheapest product, how are they going to price their product? However, I could not find a reference about the solution to this problem also.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Again, any suggestions, comments, hints are greatly appreciated. Thank you very much!&lt;/p&gt;&#xA;" OwnerUserId="8367" LastEditorUserId="8367" LastEditDate="2016-05-26T21:12:41.413" LastActivityDate="2016-05-28T22:03:22.250" Title="Effort setting game - no idea where to start" Tags="&lt;game-theory&gt;&lt;probability&gt;" AnswerCount="1" CommentCount="7" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12169" PostTypeId="2" ParentId="12166" CreationDate="2016-05-26T05:44:27.383" Score="3" Body="&lt;p&gt;At the optimal values, by duality, this Lagrangian problem is equivalent to maximizing mean score given a time budget, where $t_1 + t_2 = 46$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$m = \max_{t_1, t_2} \frac{[{g}_{1}({t}_{1})+{g}_{2}({t}_{2})]}{2} - \lambda(t_1 + t_2 - 46) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Plug in the optimal values of $t_1, t_2$ into your original Lagrangian:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$V(m) = 46 + \lambda(m - 70)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that $$\frac{\partial V}{\partial m} = \lambda$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think the interpretation here is that the Lagrange multiplier is the rate of change of the optimal score as you gain more time.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2016-05-26T05:44:27.383" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12170" PostTypeId="2" ParentId="12163" CreationDate="2016-05-26T06:31:41.290" Score="1" Body="&lt;p&gt;One way to think about this is that money is put in circulation when the central bank buys assets from the citizens of a country. Sometimes this is really the main thing going on, for example, to perform QE the Fed bought all kinds of securities from financial markets. When the fed buys these securities it pays banks by increasing the deposit balances of those agents selling the asset.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another simple way that a central bank &quot;buys assets&quot; is when it gives a loan to a commercial bank. In the process of given the loan, the central bank will give physical cash to the commercial bank and keep the loan in its books as an asset.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This could also happen in an accounting sense but not in an economically meaningful sense, for example when a central bank &quot;buys&quot; bonds issued by the government of its country. The government might never pay or the bonds might loose most of their value if inflation increases interest rates for example, so its a kind of fake purchase. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, economists talk about a 'helicopter drop', where the central bank would print money and then just through it out fro a helicopter, hoping it is evenly distributed among the population... but that's mostly just an imaginary scenario.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;[BUT, NOTE: This is a caricature of how physical currency can be printed by a bank and shipped out. Quantitatively, an important part of money creating takes place within the banking system, as banks receive deposits from clients and give out loans, physical money gets &quot;multiplied&quot;.]&lt;/p&gt;&#xA;" OwnerUserId="7593" LastEditorUserId="7593" LastEditDate="2016-05-26T14:26:46.547" LastActivityDate="2016-05-26T14:26:46.547" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="12173" PostTypeId="2" ParentId="12052" CreationDate="2016-05-26T09:08:36.763" Score="0" Body="&lt;p&gt;I would suggest you  &lt;a href=&quot;http://press.princeton.edu/titles/6315.html&quot; rel=&quot;nofollow&quot;&gt;Ray, D. Development Economics&lt;/a&gt;. It received an endorsement by no less a person than Amyrta Sen, Nobel Prize Winner 1996. &lt;/p&gt;&#xA;" OwnerUserId="6773" LastActivityDate="2016-05-26T09:08:36.763" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12175" PostTypeId="1" AcceptedAnswerId="12176" CreationDate="2016-05-26T14:33:59.847" Score="5" ViewCount="336" Body="&lt;p&gt;I just came from a coffee place with tipping and now I'm in one without tipping... prices are higher, but there is not tipping. It's not obvious why some places get rid of tipping and others don't. I guess you want the server to be incentivized by the possibility o tipping to give outstanding, charming service. What other considerations are there?&lt;/p&gt;&#xA;" OwnerUserId="7593" LastActivityDate="2016-06-09T17:38:31.420" Title="What are the textbook-like obvious advantages and disadvantages of tipping?" Tags="&lt;microeconomics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12176" PostTypeId="2" ParentId="12175" CreationDate="2016-05-26T16:19:39.960" Score="5" Body="&lt;p&gt;Interesting question. &lt;a href=&quot;https://sha.cornell.edu/about/directory/instructors/wml3&quot; rel=&quot;nofollow noreferrer&quot;&gt;Michael Lynn&lt;/a&gt;, prof at Cornell, works on &lt;strong&gt;Consumer Behavior and Tipping&lt;/strong&gt;. According to him, some restaurateurs may rely on tips to&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;motivate servers to deliver good service, &lt;/li&gt;&#xA;&lt;li&gt;measure server performance, and &lt;/li&gt;&#xA;&lt;li&gt;identify dissatisfied customers.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;All of those uses of tips assume that &lt;strong&gt;service quality&lt;/strong&gt; has a large effect on the &lt;strong&gt;size of tips&lt;/strong&gt; that consumers leave. He examines and challenges that assumption in his meta-analysis on &lt;a href=&quot;http://scholarship.sha.cornell.edu/cgi/viewcontent.cgi?article=1110&amp;amp;context=articles&quot; rel=&quot;nofollow noreferrer&quot;&gt;Restaurant Tipping and Service Quality&lt;/a&gt;. He finds a &lt;strong&gt;tenuous relationship&lt;/strong&gt; that can be depicted in the following figure, which is based on one surveyed paper.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/ZlzN0.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/ZlzN0.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, the question is: &lt;strong&gt;what does explain the change from tipping to no-tipping service?&lt;/strong&gt; My answer is unfortunately more opinion-based than fact-based. It could be that&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;managers are aware of this low correlation and want to&#xA;experiment a different management based on a fixed payment instead&#xA;of a variable one; &lt;/li&gt;&#xA;&lt;li&gt;due to the financial crisis customers tip less than usual and so managers have to fix the tip to offer better (fixed) wages and attract good waiters.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Update:&lt;/strong&gt; Note that the no-tipping strategy may have some drawbacks:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Attrition. Servers may change to tipping places in order to get higher wages&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Higher prices may lead to lower demand by some customers.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;More on the following nice NPR podcasts on &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;http://www.npr.org/sections/thesalt/2016/05/15/478096516/why-restaurants-are-ditching-the-switch-to-no-tipping&quot; rel=&quot;nofollow noreferrer&quot;&gt;Why Restaurants Are Ditching The Switch To No Tipping&lt;/a&gt;. The idea of the no-tipping movement has been to rectify a basic pay unfairness to even out the pay between tipped and untipped employees. Why are they switching back to tipping? Attrition. They were losing staff, servers mostly. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;http://www.npr.org/sections/money/2016/01/20/463726763/episode-283-why-do-we-tip&quot; rel=&quot;nofollow noreferrer&quot;&gt;Why Do We Tip?&lt;/a&gt;. You can listen to Michael Lynn on this podcast.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;http://freakonomics.com/podcast/danny-meyer/&quot; rel=&quot;nofollow noreferrer&quot;&gt;The No-Tipping Point&lt;/a&gt; on Freakeconomics Radio. Interesting questions on How much would the restaurant have to raise prices in order to pay its waitstaff what they were losing in tips? How much of a raise would kitchen workers get? Would servers now earn a lot less? And if so, wouldn't they all just quit? Would customers get the service they were used to if they didn’t retain the leverage of the tip?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="6168" LastEditorUserId="6168" LastEditDate="2016-06-09T17:38:31.420" LastActivityDate="2016-06-09T17:38:31.420" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12177" PostTypeId="2" ParentId="80" CreationDate="2016-05-26T17:19:56.733" Score="1" Body="&lt;p&gt;These are harder questions than they seem, but here are the basics:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) In principle, economies grow or don;t grow because their productivity increases, because they accumulate physical or human capital, and so on, not because they have an appreciated or depreciated currency.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) But, clearly, if by depreciating your currency, your businesses obtain more foreign demand for their products and local firms face less competition form imports, then a depreciate currency brings about growth. Of course, this seems hard to use as the basis of a growth strategy in the sense that, if you indeed grow and export, and substitute imports, then your currency should appreciates back up. Also, productivity has a to a lot with technology adoption and its hard to adopt foreign technology if foreign capital goods are always too expensive.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;3) And also, if you think about it, its somewhat paradoxical to depreciate the currency. That's like deciding to make all tour citizens poor relative to foreigners. That can't increase their welfare. It can increase their savings rate and their productivity, but you are effectively making them poorer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;4) Moreover, you'd think that one of the essential policy objetives of an economic authority is to generate an environment good for investment. Investment comes to stable places. Investors invest where their money is safe. Nobody wants to invest in a place where the government is trying to keep cheap. you invest and they devalue and you lose your money...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;5) Also, keeping your currency depreciated artificially should mean that other prices adjust, i.e. it should lead to inflation which undo's the effect of the depreciation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;6) Nevertheless, China seems to have been able to keep a relatively depreciated currency for many years, without causing inflation, but helping its export industries compete with the world and grow and grow and grow....&lt;/p&gt;&#xA;" OwnerUserId="7593" LastActivityDate="2016-05-26T17:19:56.733" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12178" PostTypeId="1" CreationDate="2016-05-26T20:32:22.027" Score="1" ViewCount="513" Body="&lt;p&gt;I am currently being taught to use average total cost (ATC) to label the U-shaped curve in the short-run on a market structure diagram, and long-run average cost (LRAC) for the equivalent curve in a long-run market structure diagram. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is any difference between labeling the U-shaped curve in a long-run market structure diagram long-run average total cost (LRATC) and labeling it LRAC?&lt;/p&gt;&#xA;" OwnerUserId="8376" LastActivityDate="2016-12-31T22:41:29.060" Title="Is there any difference between using LRAC and LRATC in a long-run market structure diagram?" Tags="&lt;microeconomics&gt;&lt;cost&gt;&lt;long-run&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12179" PostTypeId="2" ParentId="12115" CreationDate="2016-05-26T20:49:31.443" Score="0" Body="&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Because Russia is a bigger exporter than the US, thus the oil price affects it more&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Russia has external debt which becomes harder to pay as the ruble depreciates&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="8360" LastActivityDate="2016-05-26T20:49:31.443" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12180" PostTypeId="1" AcceptedAnswerId="12184" CreationDate="2016-05-27T02:54:42.167" Score="2" ViewCount="1306" Body="&lt;p&gt;Economic Efficiency:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;A broad term that implies an economic state in which every resource is optimally allocated to serve each person in the best way while minimizing waste and inefficiency. &quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And here's the part I don't understand:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;When an economy is economically efficient, any changes made to assist one person would harm another.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can someone please unpack that last part for me?  I'm not sure I understand it.&lt;/p&gt;&#xA;" OwnerUserId="7269" LastActivityDate="2016-05-27T18:07:17.313" Title="Can You Help Me Understand this Definition of Economic Efficiency" Tags="&lt;definition&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12181" PostTypeId="2" ParentId="12180" CreationDate="2016-05-27T07:59:01.363" Score="3" Body="&lt;p&gt;Suppose the economy is in a state where one person could be made better off without making anyone worse off. Most people would agree this is not a good state to be in, i.e. we can do better. &#xA;That means a &quot;pareto improvement&quot; is possible. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So what we would want is to in fact make that person better off (as no one else gets harmed and one person benefits). In trying to improve upon that state, we change it. We keep doing this until it is no longer possible to make anyone better off without making someone worse off. I.e. we stop improving when it's no longer possible to improve. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So a state where pareto improvements are possible is not efficient since we can do better. Hence, states where no pareto improvements are possible (we can't do better) are the best possible ones. The best possible states are called efficient.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence, efficiency means a pareto improvement is no longer possible. In other words: it is not possible to make someome better off without making someone else worse off. &lt;/p&gt;&#xA;" OwnerUserId="5557" LastEditorUserId="5557" LastEditDate="2016-05-27T15:13:11.853" LastActivityDate="2016-05-27T15:13:11.853" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="12182" PostTypeId="2" ParentId="12154" CreationDate="2016-05-27T13:09:00.960" Score="0" Body="&lt;p&gt;In your second option, you computed the elasticity at the original point, and in your third option, at the end point. In your first point, you did the same as in the second one, but with a mistake: you wrote $133%$ instead of $33%$. &lt;/p&gt;&#xA;" OwnerUserId="7725" LastActivityDate="2016-05-27T13:09:00.960" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12183" PostTypeId="2" ParentId="12159" CreationDate="2016-05-27T17:40:05.470" Score="-1" Body="&lt;p&gt;Yes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Right now you can afford to buy a new Tesla 3 for only $35,000 because you are working in Detroit for General Motors.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't know how many people work in the factories in the entire world building cars but let's say there 10,000,000 in the entire world doing exactly that.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These are blue-collar jobs and the people building cars have limited skills. Some of these workers have been doing that for decades.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As you probably already, know some auto manufacturers are buying robots to build the cars.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We now have the technology to build an entire car from start to finish without only a few human beings.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Back in the day, it took thousands of men to build a single car. Including the people working at the tire factory and the people working at the window factory and so on.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now the tire factory is firing people and buying robots.&#xA;Now the window factory is firing people and buying robots.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Eventually, all the factories currently selling a product to General Motors will have robots instead of people.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As you can see, these workers cannot  afford to buy a Tesla anymore.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In fact, they could be homesless in the near future.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Most people cannot survive without a paycheck indefinitely.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How long can you survive without a paycheck. Consider the possibility of selling your house, small business, car and everywhere else and drain your bank account.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the answer is not for the rest of your life then you need to save more and invest more in the stock markets with the help of a professional portfolio manager.&lt;/p&gt;&#xA;" OwnerUserId="8380" LastActivityDate="2016-05-27T17:40:05.470" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12184" PostTypeId="2" ParentId="12180" CreationDate="2016-05-27T17:56:40.287" Score="1" Body="&lt;p&gt;My advice would to be to keep clearly separate the very specific concept of &quot;Pareto efficiency&quot; (which is presented in @BB King's answer and which is implied by the passage the OP quoted), with the more general term &quot;economic efficiency&quot;, or just &quot;efficiency&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;Pareto efficiency&quot; is a tricky concept and criterion. The concept essentially formalizes the &quot;limits of Economics&quot;: once an economic system reaches a point where &quot;one man's gain&quot; &lt;em&gt;can only be&lt;/em&gt; &quot;another man's loss&quot;, then any further &lt;em&gt;action&lt;/em&gt; will have to be based either on value judgements or on the balance of socieconomic power. Economics may analyze these phenomena, but it cannot &lt;em&gt;prescribe&lt;/em&gt; further actions under a universally acceptable criterion.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The general term &quot;efficiency&quot; on the other hand is used in various places in the Economics literature to essentially refer to &quot;not wasting resources&quot;, to &quot;using resources as efficiently as possible&quot;, i.e. in a more narrow sense, usually focused on production. This is a less ambitious, pragmatic route for economics: leave distributional matters aside, focus on maximizing production and then, it is society's burden to allocate this maximized production between its members (when Economics analyzes &quot;inequality and growth&quot;, it examines whether inequality hurts growth and production, and &lt;em&gt;not&lt;/em&gt; whether it is &quot;good/bad&quot; from an ethical or philosophical point of view).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is a whole related subfield in Economics, with an applied focus but based on rigorous theoretical and mathematical analysis, which deals exclusively with the matter, Efficiency Analysis, which has two main branches,  Stochastic Frontier Analysis (SFA), and Data Envelopment Analysis (DEA). Here, we care about whether the productive mechanisms of society &quot;use the resources efficiently&quot;, where we look at the matter from different complementary aspects: for example,  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given the available technology, do firms produce the maximum possible output? (&quot;Technical&quot; efficiency)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given technology &lt;em&gt;and&lt;/em&gt; factor prices, do firms employ the optimal resource mix? (&quot;Allocative&quot; efficiency)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;etc, see for example &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.oxfordscholarship.com/view/10.1093/acprof:oso/9780195183528.001.0001/acprof-9780195183528&quot; rel=&quot;nofollow&quot;&gt;Fried, H. O., Lovell, C. K., &amp;amp; Schmidt, S. S. (Eds.). (2008). The measurement of productive efficiency and productivity growth. Oxford University Press.&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2016-05-27T18:07:17.313" LastActivityDate="2016-05-27T18:07:17.313" CommentCount="9" ContentLicense="CC BY-SA 3.0" />
  <row Id="12185" PostTypeId="2" ParentId="12020" CreationDate="2016-05-27T18:29:39.233" Score="4" Body="&lt;p&gt;Your first question (regarding constraints on the parameters) can be answered through first and second derivative analysis. In order to satisfy strictly increasing, we need $u'&amp;gt;0$ and to satisfy strictly concave, we need $u''&amp;lt;0$. What does this actually mean?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$u'(\frac{}{})=\phi p\theta c_t^{p-1}e^{\theta c_t^p}&amp;gt;0$$&#xA;Since we know that $c_t^{p-1}e^{\theta c_t^p}&amp;gt;0$ automatically, this reduces to:&#xA;$$\phi p\theta&amp;gt;0$$&#xA;Next:&#xA;$$u''(\frac{}{})=\big[\phi p\theta (p-1) c_t^{p-2}+\phi p\theta c_t^{p-1}\big]e^{\theta c_t^p}&amp;lt;0$$&#xA;Because we know that $e^{\theta c_t^p}&amp;gt;0$ and $\phi p\theta c_t^{p-1}&amp;gt;0$, this must mean: &#xA;$$\phi p\theta (p-1)c_t^{p-2}&amp;lt;0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By virtue of $(1)$ and the fact that $c_t^{p-2}&amp;gt;0$, we know that:&#xA;$$p-1&amp;lt;0$$&#xA;or&#xA;$$p&amp;lt;1$$&#xA;Now,  what we can do is think about it critically. If $p=0$ then utility does not change when consumption changes. This is clearly untrue. If $p&amp;lt;0$ then utility decreases when consumption increases which also seems incorrect. Therefore, our condition for $p$ is:&#xA;$$0&amp;lt;p&amp;lt;1$$&#xA;Now, what does this mean for $\phi \;\text{and}\; \theta$? It means: &#xA;$$either\quad\phi , \theta&amp;gt;0\quad or\quad \phi ,\theta&amp;lt;0$$&#xA;Now, this looks like a typical exponential utility function, so we know that in these cases, both the coefficient for the exponent and the coefficient in the power will be negative (I will not bother proving this as I am sure it is somewhere in literature). Therefore we have the following three conditions for the parameters:&#xA;$$0&amp;lt;p&amp;lt;1$$&#xA;$$\theta &amp;lt;0$$&#xA;$$\phi &amp;lt;0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, the next step is to show that we do in fact have constant consumption. Taking our Euler Equation approach, we substitute in the constraint and take two terms in the sum,&#xA;$$...+\beta^t\phi e^{\theta (Rw_{t-1}-w_t)^p}+\beta^{t+1}\phi e^{\theta(Rw_t-w_{t+1})^p}+...$$&#xA;Differentiating w.r.t $w_t$ and doing some simplifying, we get:&#xA;$$(Rw_{t-1}-w_t)^{p-1}e^{\theta(Rw_{t-1}-w_t)^p}=\beta R(Rw_t-w_{t+1})^{p-1}e^{\theta(Rw_t-w_{t+1})^p}$$&#xA;Substituting consumption back in, we get:&#xA;$$c_t^{p-1}e^{\theta c_t^p}=\beta Rc_{t+1}^{p-1}e^{\theta c_{t+1}^p}$$&#xA;Now, since it is specified that $\beta R=1$ in the problem, we can see that the only way this equality holds is if $c_t=c_{t+1}=c^\star$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What does this mean for wealth? Will wealth also be constant? Well, let's conduct a thought experiment and suppose not. Suppose wealth increases each period ($w_{t+1}&amp;gt;w_t\;\forall t$). This implies that as $t\rightarrow \infty$, we will see wealth grow to be infinite as well, which is wasteful and would not satisfy the transversality condition. Now suppose wealth is decreasing ($w_{t+1}&amp;lt;w_t\;\forall t$). We can clearly see that eventually we will not have enough wealth to sustain constant consumption. Therefore we can see that $w_t=w_{t+1}=w^\star$. Now, what are the relationship between these two? Well, going back to our condition for wealth, we can see&#xA;$$w^\star=Rw^\star-c^\star$$&#xA;Rearranging, we get:&#xA;$$c^\star=(R-1)w^\star$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Because we have steady state wealth, we know that $w^\star=w_0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, knowing that we have steady state consumption, we know our utility function will be the same value for every period (discounted by $\beta$). So our value function simply becomes:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$V(w)=\frac{\phi e^{((R-1)w_0)^p}}{1-\beta}$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, we do not need to use the method of undetermined coefficients to find the value function.&lt;/p&gt;&#xA;" OwnerUserId="5825" LastEditorUserId="5825" LastEditDate="2016-07-20T17:41:46.950" LastActivityDate="2016-07-20T17:41:46.950" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12186" PostTypeId="2" ParentId="11842" CreationDate="2016-05-27T18:32:32.723" Score="5" Body="&lt;p&gt;You are unfortunately mistaken. DSGE models are at the heart of monetary policy and the most widely used class of models in this field. To work in monetary there is no real way around learning DSGE.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A very good book to get started. is Walsh (2010) &quot;Monetary Theory and Policy&quot;. I can also recommend Gali's book (&quot;Monetary Policy, Inflation, and the Business Cycle&quot;, 2008), but he skips a lot of steps. These will give you a very good introduction to DSGE.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The mother of all books on monetary policy is &quot;Interest and Prices:&#xA;Foundations of a Theory of Monetary Policy&quot; by Woodford, but can be hard to read at times. I would start with Walsh.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that there are small, medium and large scale models. You can pretty much forget about large scale ones. I recommend starting to study small scale models. The small scale model should boil down to three equations and much of the intuition for it can even be understood from old keynesian type models such as IS-LM and AS-AD. You should also be familiar with basic Solow-Growth models.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastEditorUserId="5557" LastEditDate="2016-12-18T22:19:55.890" LastActivityDate="2016-12-18T22:19:55.890" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12190" PostTypeId="1" AcceptedAnswerId="12193" CreationDate="2016-05-28T16:26:16.917" Score="1" ViewCount="107" Body="&lt;p&gt;I am a student, new to research and have chosen a challenging field to perform my research in. While I have been reading about similar research's, as part of my literature review, I observed various researchers using various models in their study. I am having a tough time understanding why researchers use different models/tests and how they choose it, although its the same kind of research being performed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My research is about the impact that macroeconomic variables have on Stock indexes. I have 6 indexes and 5 variables x 2 countries (Quarterly data). Each of the index/variables have about 60-70 observations.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;What I am planning to find - &#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Which of the MV's could potentially explain the movements of the index prices. Which of the MV's impact the Stock prices.&lt;/li&gt;&#xA;&lt;li&gt;Is there a variable/combination of variables that specifically create a downward/upward movement.&lt;/li&gt;&#xA;&lt;/ol&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Should you have any suggestions of statistical tests/models for the above, I'd be pleased to learn and know more about them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks in advance.&lt;/p&gt;&#xA;" OwnerUserId="8388" LastActivityDate="2016-05-28T21:21:37.023" Title="Statistical tests/models to use for Macroeconomic and Financial Research" Tags="&lt;macroeconomics&gt;&lt;stock-market&gt;&lt;statistics&gt;&lt;financial-markets&gt;&lt;research&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12191" PostTypeId="1" CreationDate="2016-05-28T16:41:21.650" Score="6" ViewCount="66" Body="&lt;p&gt;I am currently working on my thesis in behavioral finance. My topic is about short term stock returns after the elections. One paper (&lt;a href=&quot;http://onlinelibrary.wiley.com/doi/10.1111/j.1540-6261.2007.01262.x/full&quot;&gt;&quot;Sport Sentiments and Stock Returns&quot;&lt;/a&gt;)  proves that the losing country in a sports game exhibits much lower short term stock returns because of the sport event's impact on the mood of individuals. I would like to make a similar argument about the elections in two party systems where close to half the voters will feel like they have lost the elections. My hypothesis is that this could lead to a downbeat mood for everyone who 'lost' the election and consequently lead to lower short term returns. My question now is if anyone knows about a study which has investigated if the outcomes of an election influence the mood of individuals?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;TL/DR:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does anyone know papers investigating the impact of election outcomes on individual's mood?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks for your help in advance!&lt;/p&gt;&#xA;" OwnerUserId="8389" LastEditorUserId="1601" LastEditDate="2016-05-30T12:57:04.007" LastActivityDate="2016-08-31T03:48:14.913" Title="Impact of election outcomes on individual's mood? Behavioral Finance" Tags="&lt;investment&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12192" PostTypeId="1" AcceptedAnswerId="12199" CreationDate="2016-05-28T18:02:02.240" Score="1" ViewCount="35" Body="&lt;p&gt;So far, I always thought that &lt;strong&gt;knowledge-based companies&lt;/strong&gt; and &lt;strong&gt;R&amp;amp;D companies&lt;/strong&gt; were the same. But recently our TA mentioned that they are different, I've searched a lot to find the differences between them but the more I searched the less I found.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would really appreciate if someone told me the difference between these two kind of companies.&lt;/p&gt;&#xA;" OwnerUserId="7768" LastEditorUserId="7768" LastEditDate="2016-05-28T18:26:53.020" LastActivityDate="2016-05-29T07:18:14.400" Title="What is the difference between knowledge-based and R&amp;D?" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;firm&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12193" PostTypeId="2" ParentId="12190" CreationDate="2016-05-28T21:21:37.023" Score="1" Body="&lt;p&gt;One of the reasons why there are so many different models is that &quot;having impact&quot; is not that easy to define. It is not to test whether a variable has &quot;any&quot; effect on another variable, so researchers first have to come up with a model (based on theoretical considerations) that they can estimate and test. And of course the tests are different depending on the model they assume.&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Basic model&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;One of the most basic (but powerful and widely used) concepts for these type of hypotheses is &lt;a href=&quot;https://en.wikipedia.org/wiki/Granger_causality&quot; rel=&quot;nofollow&quot;&gt;Granger-causality&lt;/a&gt;. Simply put, variable $A_t$ is said to Granger-cause variable $B_t$, if $A_t$ is useful in forecasting $B_t$. So you might try to find out which macro variables Granger-cause your indices. However to do formal tests you need to restrict the previous definition a bit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let us say, that variable $A_t$ Granger-causes variable $B_t$ if&#xA;$$E[B_t|B_{t-1}, B_{t-2}, ...] \neq [B_t|A_{t-1}, B_{t-1}, A_{t-2}, B_{t-2}, ...]$$&#xA;or in words, knowing the past values of $A_t$ helps us get a better prediction of the current value of $B_t$. The nice thing is, that the above hypothesis is easy to test: you just have to fit a linear model.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So if your index variable is $Y_i$, and your explanatory variables are $\{X_{1t}, \dots X_{mt}\}$, then you just have to estimate the simple linear model&#xA;$$ Y_t = \alpha + \sum_{s=1}^S \gamma_s Y_{t-s} \sum_{k=1}^m \beta_{ks} X_{k, t-s} + \epsilon_t $$&#xA;by OLS. Then $X_k$ Granger-causes $Y$ (in the expectation sense), if $\beta_{k1}, \dots \beta_{kS}$ are jointly significant.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Practically to test which explanatory variables Granger-cause $Y_t$ you have to do the following:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Run a linear regression with $Y_t$ as the dependent variable and some lags of $Y_t$ &lt;em&gt;and&lt;/em&gt; the explanatory variables at the right hand side&lt;/li&gt;&#xA;&lt;li&gt;Test whether all the lags of a given explanatory variable are jointly significant&lt;/li&gt;&#xA;&lt;li&gt;Repeat it for each of your indices&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;By estimating these models you also get an answer to your second question (you just have to look at the coefficients).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another way to go would be to estimate a &lt;a href=&quot;https://en.wikipedia.org/wiki/Vector_autoregression&quot; rel=&quot;nofollow&quot;&gt;VAR model&lt;/a&gt; where you include all of your indices and explanatory variables, and then see whether the lags of a given explanatory variable for a given index are jointly significant. This will have a slightly different interpretation: you would test whether your explanatory variables Granger-cause your indices &lt;em&gt;even if you condition on all the indices&lt;/em&gt;. In your case I would be careful with it due to the relatively low number of observations.&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Practical concerns&lt;/h3&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Deciding how many lags to include in the regression might be tricky. It depends on the amount of data you have and the model you have in mind. For quarterly data, you should probably include at least 4 lags.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;As have panel data you could be inclined to include a country dummy to get fixed effects estimates. However because you have lagged dependent variables on the right hand side, your estimates would be biased if you did this. There are ways around it, but they are quite advanced.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;If you have questions how to implement it in practice feel free to ask for details.&lt;/p&gt;&#xA;" OwnerUserId="8391" LastActivityDate="2016-05-28T21:21:37.023" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="12194" PostTypeId="2" ParentId="12167" CreationDate="2016-05-28T22:03:22.250" Score="2" Body="&lt;p&gt;This problem is similar to first-price (sealed-bid) auctions with independent private values for the buyers. You can read about those for exaxmple &lt;a href=&quot;http://web.stanford.edu/~jdlevin/Econ%20286/Auctions.pdf&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your first question was already ansewered in the comments: &lt;em&gt;given others' efforts&lt;/em&gt; the probability of getting the reward is  or 1. Let us assume that $e_1 \geq e_2 \geq \dots$ are the other players' efforts and $e$ is own effort. Then&#xA;$$ \Pr[\text{getting }R | e, e_e, e_2, \dots] = \begin{cases} 1 &amp;amp; \text{if } e &amp;gt; e_3 \\ 0 &amp;amp; \text{if } e &amp;lt; e_3 \\ \dots &amp;amp; \text{otherwise} \end{cases} $$&#xA;What happens in case of ties is not exactly specified in the question, but as $\theta$ has a continuous distribution, &lt;em&gt;if&lt;/em&gt; $e(\theta)$ is strictly monotone &#xA;edge cases happen with 0 probability. Based on this, you can also calculate what happens if you do not condition on other players' strategies (you should probably look into &lt;a href=&quot;https://en.wikipedia.org/wiki/Order_statistic&quot; rel=&quot;nofollow&quot;&gt;order statistics&lt;/a&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now the player want to maximize the following:&#xA;$$ EU(e) = \Pr[\text{getting }R | e]\times R - c(\theta, e) $$&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;You can start by assuming that players follow pure strategies, so $e_i = e(\theta_i)$.&lt;/li&gt;&#xA;&lt;li&gt;Also assume that effort is strictly monotone decreasing in $\theta$.&lt;/li&gt;&#xA;&lt;li&gt;And last, assume that players have symmetric strategies.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Now you have to write down the expected utility defined above in terms of integrals. As of assumption 2. (and the convexity of $c$) you can differentiate it with respect to $e$ to get a (sufficient) first order condition. Then using assumption 3. and luck will get you a solvable differential equation, and hopefully you can find a closed form for $e(\theta)$. That is going to be your equilibrium strategy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or to be precise, one of the equilibrium strategies, as we have only looked at a subset (pure symmetric strategies). But finding others (or proving that none exist) is much more challenging.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I hope this is enough to start. If you get stuck, I will gladly expand this answer with some concrete formulas.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Disclaimer: I have &lt;em&gt;not&lt;/em&gt; solved this problem, but as it is remarkably similar to the previously mentioned auction problems, this method &lt;em&gt;should&lt;/em&gt; work.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There might be another way using the revelation principle. You could come up with a (second price auction-like) game where reporting the truthful $e$ is the dominant strategy, and has the same expected payoffs. Then you could relatively simply calculate the expected payoffs, and based on that, getting the strategies &lt;em&gt;might&lt;/em&gt; be quite easy. I am not sure this method works either, but if you are interested I can look into it.&lt;/p&gt;&#xA;" OwnerUserId="8391" LastActivityDate="2016-05-28T22:03:22.250" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12195" PostTypeId="1" CreationDate="2016-05-28T22:58:11.563" Score="1" ViewCount="69" Body="&lt;p&gt;I googled a lot and I'm still to find:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;1. In which paper/book/reference do Leontief [production] functions make their first appearance?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Similarly&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;2. In which paper/book/reference do perfect complements/Leontief&lt;/strong&gt; &lt;em&gt;utilities&lt;/em&gt; &lt;strong&gt;make their first appearance?&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="8261" LastActivityDate="2016-05-28T22:58:11.563" Title="First Reference Leontief/Perfect Complements" Tags="&lt;reference-request&gt;&lt;preferences&gt;&lt;leontief&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12197" PostTypeId="1" AcceptedAnswerId="12204" CreationDate="2016-05-29T03:38:29.543" Score="0" ViewCount="62" Body="&lt;p&gt;I read from this textbook the following, quoted as:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In addition, a decline in the price level is usually accompanied by a&#xA;  fall in the rate of interest...&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I interpret this as meaning: &quot;A fall in price causes interest rates to fall&quot;.&#xA;This quote, in context, was meant to explain the interest rate effect - a reason why the aggregate demand curve slopes downwards.&#xA;Can someone verify and explain why this is the case? Additionally, is my interpretation correct?&lt;/p&gt;&#xA;" OwnerUserId="6782" LastActivityDate="2016-05-29T19:55:12.370" Title="Textbook claims that price level accompanied by decrease in interest rates?" Tags="&lt;macroeconomics&gt;&lt;supply-and-demand&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12198" PostTypeId="1" CreationDate="2016-05-29T05:10:33.817" Score="5" ViewCount="144" Body="&lt;p&gt;CPI is measured against a single consumption basket. In reality, consumers each have their own set of consumption goods, so each face their own &quot;individualized CPI&quot; rates. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But how different are those &quot;individual CPI rates&quot;? Has there been work on this? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why I'm asking: economists frequently state that investors should invest in &quot;inflation-adjusted products&quot; to hedge against inflation. The problem is, if each individuals' consumption basket is sufficiently different from that used to compute CPI, holding inflation-linked securities may not be a hedge, but rather introduce more risk. &lt;/p&gt;&#xA;" OwnerUserId="4040" LastActivityDate="2017-01-28T17:19:27.957" Title="Do heterogeneity in consumption baskets lead to very different inflation rates for different consumers?" Tags="&lt;inflation&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12199" PostTypeId="2" ParentId="12192" CreationDate="2016-05-29T07:18:14.400" Score="4" Body="&lt;p&gt;A knowledge-based company sells products or services that are primarily knowledge-based. This doesn't have to be new knowledge - it can be existing knowledge.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An R&amp;amp;D company earns its way by developing new knowledge.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2016-05-29T07:18:14.400" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12200" PostTypeId="2" ParentId="10669" CreationDate="2016-05-29T07:22:26.007" Score="6" Body="&lt;p&gt;Recall the following equivalent definitions for luxury goods and necessities:&lt;/p&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;A good &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; is considered a necessity if &lt;span class=&quot;math-container&quot;&gt;$e_{(x,I)}&amp;lt;1$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;A good &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; is considered a luxury good if &lt;span class=&quot;math-container&quot;&gt;$e_{(x,I)}&amp;gt;1$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;p&gt;As you can see, these definition do not encompass all possible scenarios, so any specific good does not have to be either a luxury or a necessity.&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;p&gt;In the case of a Cobb-Douglas utility function &lt;span class=&quot;math-container&quot;&gt;$U(x,y)=x^\alpha \cdot y^\beta$&lt;/span&gt; we get &lt;span class=&quot;math-container&quot;&gt;$x^* = \frac {\alpha I}{P_x}$&lt;/span&gt;. One can easily verify that &lt;span class=&quot;math-container&quot;&gt;$e_{(x,I)}=1$&lt;/span&gt;. In other words, the demand does for &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; does not change with &lt;span class=&quot;math-container&quot;&gt;$I$&lt;/span&gt;. This means that in this case, &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; is neither a luxury good nor a necessity.&lt;/p&gt;&#xA;" OwnerUserId="8394" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2016-05-29T08:26:23.400" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12202" PostTypeId="2" ParentId="8640" CreationDate="2016-05-29T15:58:56.563" Score="0" Body="&lt;p&gt;I solved this: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;note - I use $R$ to denote the binary relation as defined above.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Completeness&lt;/strong&gt;: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I claim that this $R$ is not complete for $\alpha \neq \beta$. To illustrate, I use an extreme case. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $\alpha \to 1$ and $\beta \to 0$ s.t. $f_{\alpha} \approx x_1$ and $f_{\beta} \approx x_2$  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, let [x,y] $\subset \mathbb{R}^2$ s.t. $x_1 &amp;gt;&amp;gt; y_1$ and $x_2&amp;lt;&amp;lt;y_2$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now:  $f_{\alpha}(x) \approx x_1 &amp;gt;&amp;gt; y_1 \approx f_{\alpha}(y) $ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;and:  $f_{\beta}(x) \approx x_2 &amp;lt;&amp;lt; y_2 \approx f_{\beta}(y)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;so $f_{\alpha}(x) &amp;gt;&amp;gt; f_{\alpha}(y)$ but $f_{\beta}(x)&amp;lt;&amp;lt;f_\beta(y) $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have used extreme case reasoning to demonstrate, WLOG, that anytime $\alpha \neq \beta \space \exists [x,y] \subset \mathbb{R}_+^2 s.t.$ neither $xRy$ or $yRx$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;note_1&lt;/em&gt; - The intuition here is very similar to a delta/epsilon proof.  For any combination of alpha and beta (where the two are not equal) I can pick x,y so that the above proof always hold.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;note_2&lt;/em&gt; - That the case of $\alpha = \beta$ is complete is trivial. I assume its inclusion here is not necessary. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Transitivity&lt;/strong&gt;: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $[x,y,z] \subset \mathbb{R}^2$ s.t. $xRy, yRx$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I claim $xRz$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;since $Xry$, $yRx$ and by the properties of $\mathbb{R}_+^2$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$f_{\alpha}(x) \geq f_{\alpha}(y) \geq f_{\alpha}(z)$$&#xA;$$f_{\beta}(x) \geq f_{\beta}(y) \geq f_{\beta}(z)$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies xRz$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;and $R$ is transitive. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Continuity&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;proven above so I will not repeat this part of the proof. &lt;/p&gt;&#xA;" OwnerUserId="1655" LastActivityDate="2016-05-29T15:58:56.563" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12204" PostTypeId="2" ParentId="12197" CreationDate="2016-05-29T19:55:12.370" Score="2" Body="&lt;p&gt;Presumably the context is deriving the AD curve from the IS-LM model. Start from money market equilibrium $$M/P=L(i,Y).$$&#xA;If $P$ falls then the supply of real money balances rises. With $M$ and $Y$ fixed the nominal interest rate $i$ must fall in order to induce people to hold the greater supply of real money balances. This is because the alternative to holding money is holding it in bonds which pay interest. To get people to hold more money (which pays no interest) we need the opportunity cost of holding money to be lower, so yes your interpretation is correct. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;With sticky inflation expectations (recall the Fisher equation $i=r+\pi^e$) the change in the nominal interest rate will map one to one to changes in the real interest rate. This means that the LM curve shifts down at any given level of $Y$ in $(r,Y)$ space. This produces a new equilibrium in the IS-LM model with a lower real interest rate and a higher income (since the lower real interest rate has stimulated investment). Thus a negative relationship between $P$ and $Y$: the AD curve. &lt;/p&gt;&#xA;" OwnerUserId="7797" LastActivityDate="2016-05-29T19:55:12.370" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12211" PostTypeId="2" ParentId="12166" CreationDate="2016-05-30T13:48:42.757" Score="4" Body="&lt;p&gt;As mentioned in the other answer, the Lagrange multiplier is the marginal effect on the value (optimized) function, when the constrained is &quot;relaxed&quot; marginally. In your case then it should be interpreted &quot;how much studying time changes as the required average expected grade...&quot; increases?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Well, this is a good example to show that how we set up the Lagrangian function matters in order to interpret what we get meaningfully. Your is a minimization case so we have &#xA;$$\min T = t_1+ t_2 \\&#xA;s.t\;\;\; \displaystyle m-\frac{[{g}_{1}({t}_{1})+{g}_{2}({t}_{2})]}{2}=0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How do we write the Lagrangian? Do we write&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Lambda = t_1+ t_2 + \lambda\left[m-\frac{[{g}_{1}({t}_{1})+{g}_{2}({t}_{2})]}{2}\right]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;or&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Lambda = t_1+ t_2 - \lambda\left[m-\frac{[{g}_{1}({t}_{1})+{g}_{2}({t}_{2})]}{2}\right]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since the constraint is an equality constraint, you may hear that &quot;it doesn't matter&quot;. Mathematically, it indeed doesn't, but it does matter when the time comes to &lt;em&gt;interpret&lt;/em&gt; the value of the multiplier. And, maybe in Utility maximization problems we don't much care because utility is ordinal. But in a problem like the one the OP is solving, the objective function is measured in a very real and measurable and quantifiable unit, time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now how we should understand &quot;what happens when the constraint is &lt;em&gt;relaxed&lt;/em&gt;&quot;? In the specific minimization problem, it intuitively means &quot;what happens when the required $m$ is &lt;em&gt;reduced&lt;/em&gt;&quot;. (Since &quot;relax&quot; has a &quot;desirable&quot; connotation, and so we would desire to be asked for less effort, a lower target). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I guess it is now clear how the obtained value for $\lambda$ can be interpreted. And do ponder what variant of the Lagrangian is the appropriate one for your case.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2016-05-30T20:52:57.577" LastActivityDate="2016-05-30T20:52:57.577" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12213" PostTypeId="1" CreationDate="2016-05-30T15:10:22.277" Score="2" ViewCount="188" Body="&lt;p&gt;Is there any empirical evidence on the value added by workers?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That is, their &quot;productivity&quot; minus the wage payments, social security benefits etc. that are paid by the firm?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm eventually looking for cross-sector or time variation, but anything would be a good starting point right now.&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2016-08-02T19:41:49.877" Title="Value added by workers" Tags="&lt;labor-economics&gt;&lt;empirical-evidence&gt;&lt;wages&gt;&lt;labor-cost&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12214" PostTypeId="1" CreationDate="2016-05-30T17:07:18.653" Score="1" ViewCount="370" Body="&lt;p&gt;I am using the following theorem:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/El17X.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/El17X.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To better understand how I can transform expected utility functions. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;An example with which to work: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/5VNry.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/5VNry.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I want to show that the preferences represented here satisfy the three axioms [A1,A2,A3] that characterize expected utility. [order, continuity, and independence]&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where $$E_{\pi} \mu = \sum_{z \in Z} u(z)\pi(z) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I want to do is transform the given E.U.F.  s.t.: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U(\pi) = h + k....$$ &#xA;$$U(\pi)= k...$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then by multiplying by $\frac{1}{k}$ and using $ln$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U(\pi) = \sum_{i=1}^n \pi_i ln(\alpha_i)$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;EDIT&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Perhaps this is actually the solution. Any feedback? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;This is not Homework. I am studying because I do not understand this well&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="1655" LastEditorUserId="1655" LastEditDate="2016-05-30T17:31:40.200" LastActivityDate="2020-09-27T08:38:49.020" Title="Transforming expected utility functions" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;utility&gt;&lt;expected-utility&gt;&lt;theory&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12215" PostTypeId="1" CreationDate="2016-05-30T21:09:19.830" Score="6" ViewCount="522" Body="&lt;p&gt;Does anyone know where I can find an errata to the 2nd edition (2010) of «&lt;a href=&quot;https://mitpress.mit.edu/books/econometric-analysis-cross-section-and-panel-data&quot; rel=&quot;noreferrer&quot;&gt;Econometric Analysis of Cross-Section and Panel Data&lt;/a&gt;» by Wooldridge? I've tried the accompanying website, but I could not find it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated&lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="6168" LastEditDate="2016-05-30T23:23:04.460" LastActivityDate="2018-05-14T10:56:39.907" Title="Errata for Wooldridge graduate econometrics book" Tags="&lt;econometrics&gt;&lt;applied-econometrics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12218" PostTypeId="1" CreationDate="2016-05-31T09:15:24.827" Score="1" ViewCount="90" Body="&lt;p&gt;Can the (Supply and Demand) curves be implemented in electricity modelling for a country ? How can this be modelled and how can the user set the interaction point between supply and demand? &lt;/p&gt;&#xA;" OwnerUserId="7096" LastActivityDate="2016-05-31T09:15:24.827" Title="Can supply and demand curves be used in electricity modelling?" Tags="&lt;microeconomics&gt;&lt;supply-and-demand&gt;" AnswerCount="0" CommentCount="1" ClosedDate="2016-06-03T11:17:47.940" ContentLicense="CC BY-SA 3.0" />
  <row Id="12219" PostTypeId="1" CreationDate="2016-05-31T10:55:17.663" Score="1" ViewCount="563" Body="&lt;p&gt;I have started to learn about trading and would like to play around with historical data. I therefor need a dataset, that provides intraday values, not only opening, high and low prices for a specific day and time. I would like to query a web service, db, whatever like this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;code&gt;getPrice($isin, $date, $time)&lt;/code&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Unfortunately I can't find anything or maybe I am just using the wrong search words on google. Yahoo Finance, etc. only provides opening, high and low data which is not sufficient for my need. Specifically I am looking for historical SMI futures data:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.eurexchange.com/exchange-en/products/idx/smi/SMI--Futures/19444&quot; rel=&quot;nofollow&quot;&gt;http://www.eurexchange.com/exchange-en/products/idx/smi/SMI--Futures/19444&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Product ISIN CH0008616432&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Underlying ISIN CH0009980894&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I already had a look at:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;www.xignite.com &lt;/li&gt;&#xA;&lt;li&gt;www.quandl.com &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;which looked promising, but again they do not provide intraday values. &lt;/p&gt;&#xA;" OwnerUserId="8414" LastActivityDate="2016-06-01T20:10:09.453" Title="Where to get historical intraday trading data from?" Tags="&lt;data-request&gt;&lt;stock-market&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12220" PostTypeId="1" AcceptedAnswerId="12263" CreationDate="2016-05-30T13:29:40.733" Score="3" ViewCount="102" Body="&lt;p&gt;While it can be justified that the sales (or revenues) of firms in an industry follow a Pareto-distribution, I wonder how the value added (sales minus input costs minus taxes, excluding depreciation) can be summarized by a parametric distribution. Pareto seems not to work, since negative values are possible.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there an econometric theory that gives ground for a specific class of distributions? My dataset suggest something like Gumbel. &lt;/p&gt;&#xA;" OwnerUserId="8415" OwnerDisplayName="Karsten W." LastEditorUserId="8415" LastEditDate="2016-05-31T12:18:03.400" LastActivityDate="2016-06-07T20:41:11.410" Title="How is the &quot;value added&quot; of firms distributed" Tags="&lt;econometrics&gt;&lt;reference-request&gt;&lt;theory-of-the-firm&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12222" PostTypeId="1" AcceptedAnswerId="12225" CreationDate="2016-05-31T14:01:08.623" Score="0" ViewCount="37" Body="&lt;p&gt;Is there any sort of recognised standard (e.g. ISO) for grouping jobs into job sectors e.g. 'technology', 'emergency services'?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I asked this on StackOverflow &lt;a href=&quot;https://stackoverflow.com/questions/37545741/is-there-an-iso-standard-for-job-sectors&quot;&gt;here&lt;/a&gt; and they suggested this SE.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Would &lt;a href=&quot;https://www.prospects.ac.uk/jobs-and-work-experience/job-sectors&quot; rel=&quot;nofollow noreferrer&quot;&gt;this&lt;/a&gt; be as close as I'm likely to get?&lt;/p&gt;&#xA;" OwnerUserId="8417" LastEditorUserId="-1" LastEditDate="2017-05-23T12:41:56.067" LastActivityDate="2016-05-31T19:27:34.143" Title="Is there a standard for job sectors?" Tags="&lt;money&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12223" PostTypeId="1" AcceptedAnswerId="12231" CreationDate="2016-05-31T17:28:38.673" Score="1" ViewCount="142" Body="&lt;p&gt;Is it possible to preserve the partial effect interpretation of the coefficients/parameters, when in the presence of endogeneity? I don't see how it's possible with the 2SLS... Wooldridge, in his graduate book speaks of a special case, in a random coefficient model, but where we can only talk of the Average Partial Effect (APE) interpretation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Imagine we have the model: $y=\beta_0+\beta_1x_1+\beta_2x_2+u$. Where does the partial effect interpretation come from? Assuming $E(u|x_1,x_2)=0$, $E(y|x_1,x_2)=\beta_0+\beta_1x_1+\beta_2x_2$. Keeping everything known constant except for $x_2$(partial effect of $x_2$), i.e. $E(y|x_1,x_2=1)-E(y|x_1,x_2=0)=\beta_2$. Now if $x_2$ is endogenous, then $Cov(x_2,u)\neq 0 \Rightarrow E(u|x_1,x_2)\neq 0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then $E(y|x_1,x_2=1)-E(y|x_1,x_2=0)=\beta_2+E(u|x_1,x_2=1)-E(u|x_1,x_2=0)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Granted that IV estimate, when consistent, gives us $\beta_2$, but that's not the partial effect of $x_2$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Addendum&lt;/strong&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Alecos,&#xA;So let's be specific about the interaction between $x_2$ and $u$. Assume that $u=\beta_{\nu} x_2\ \nu+v$, where $\nu$ is unobserved, and $v$ is an error term such that $Cov(x_2,v)= 0$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then assuming that we can condition on the unobserved variable, we have &#xA;$\frac{\partial E(y|x_1,x_2,q)}{\partial x_2}= \beta_2+\beta_{\nu}q$.&#xA;There's no way to estimate this effect, or is there?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="118" LastEditDate="2016-06-01T15:49:24.427" LastActivityDate="2016-06-01T15:49:24.427" Title="Endogeneity and Partial effect interpretation of coefficients" Tags="&lt;econometrics&gt;&lt;applied-econometrics&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12224" PostTypeId="1" CreationDate="2016-05-31T17:38:50.410" Score="1" ViewCount="18" Body="&lt;p&gt;Imagine we have already built our linear regression model, with a certain dataset.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which order of tests would you follow to be sure that whatever conclusions you may want to extract are correct. For example:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;In the beginning we may want to test for non-linearities not present in&#xA;our model, but present in reality (model misspecification). For this objective, we could use RESET. What others can we use and why?&lt;/li&gt;&#xA;&lt;li&gt;Now we could want to test for heteroskedasticity(Breusch-Pagan and White's tests&lt;/li&gt;&#xA;&lt;li&gt;Endogeneity (Durbin-Wu-Hausman test)&lt;/li&gt;&#xA;&lt;li&gt;...&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Which 'game plan' do you use and why?&lt;/p&gt;&#xA;" OwnerUserId="118" LastActivityDate="2016-05-31T17:38:50.410" Title="A game plan for Cross-Section modelling" Tags="&lt;econometrics&gt;&lt;applied-econometrics&gt;" AnswerCount="0" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12225" PostTypeId="2" ParentId="12222" CreationDate="2016-05-31T19:27:34.143" Score="0" Body="&lt;p&gt;NAICS seems to be what you're getting at (&lt;a href=&quot;http://www.census.gov/eos/www/naics/&quot; rel=&quot;nofollow&quot;&gt;http://www.census.gov/eos/www/naics/&lt;/a&gt;). This is the industry classification mechanism in North America. If you are interested in groups of workers' tasks as opposed to groups of establishments, you might be interested in occupation, which is the Standard Occupation Classification (SOC) system (&lt;a href=&quot;http://www.bls.gov/soc/&quot; rel=&quot;nofollow&quot;&gt;http://www.bls.gov/soc/&lt;/a&gt;). &lt;/p&gt;&#xA;" OwnerUserId="8421" LastActivityDate="2016-05-31T19:27:34.143" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12226" PostTypeId="1" AcceptedAnswerId="12227" CreationDate="2016-05-31T20:20:51.033" Score="13" ViewCount="16699" Body="&lt;p&gt;Can the Fed buy and sell stock in publicly traded companies? Is there evidence of this and, wouldn't this behavior drive the price as opposed to actual market forces?&lt;/p&gt;&#xA;" OwnerUserId="8404" LastEditorUserId="8404" LastEditDate="2016-06-01T20:29:20.640" LastActivityDate="2020-04-27T17:00:15.263" Title="Does the Federal Reserve buy and sell stocks?" Tags="&lt;macroeconomics&gt;&lt;stock-market&gt;&lt;federal-reserve&gt;" AnswerCount="5" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12227" PostTypeId="2" ParentId="12226" CreationDate="2016-05-31T21:57:46.150" Score="13" Body="&lt;p&gt;No, the Fed is not allowed to buy stocks, they are allowed to buy government securities in open market operations in order to achieve the target rate for the federal funds rate. The guidelines for this are explained in the &lt;a href=&quot;https://www.federalreserve.gov/aboutthefed/section14.htm&quot; rel=&quot;noreferrer&quot;&gt;Section 14&lt;/a&gt; of the Federal Reserve Act. You can find the Fed holdings in the &lt;a href=&quot;https://www.federalreserve.gov/releases/h41/Current/h41.pdf&quot; rel=&quot;noreferrer&quot;&gt;Federal Reserve Statistics&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However other central banks, like the Bank of Japan, started buying stocks as a measure to support their financial institutions (their banks were subject to too much market risk because of their stock holdings). The have detailed their stock purchasing plan in their &lt;a href=&quot;http://www.boj.or.jp/en/finsys/spp/index.htm/&quot; rel=&quot;noreferrer&quot;&gt;website&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="351" LastEditorUserId="351" LastEditDate="2016-06-01T15:44:36.093" LastActivityDate="2016-06-01T15:44:36.093" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="12228" PostTypeId="2" ParentId="12175" CreationDate="2016-05-31T22:04:44.090" Score="1" Body="&lt;p&gt;You can also think of a restaurant interaction as a repeated game. In that case, tipping well in the first interaction might yield good service in the second and following interactions. &lt;/p&gt;&#xA;" OwnerUserId="8421" LastActivityDate="2016-05-31T22:04:44.090" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12229" PostTypeId="2" ParentId="12226" CreationDate="2016-06-01T01:13:56.177" Score="13" Body="&lt;p&gt;@capm is correct that the Fed is not allowed to buy equities (though they may lend against them if need be, so long as they are secured to their satisfaction— see, for example, all the things they lent against in the Maiden Lane transactions), however, they're allowed to buy a lot more than &quot;government securities&quot; (i.e., Treasuries).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.federalreserve.gov/aboutthefed/section14.htm&quot;&gt;Section 14 of the Federal Reserve Act&lt;/a&gt; details what they can purchase, which includes Treasuries, GSE (i.e., Fannie and Freddie) securities (which are &lt;em&gt;not&lt;/em&gt; legally considered to be government-backed securities, though they're often casually treated as such), gold, cable transfers, bankers' acceptances, bills of exchange, discount notes, municipal bonds, obligations of federal agencies, and (by allowing them to hold accounts at other central banks) foreign currencies.&lt;/p&gt;&#xA;" OwnerUserId="264" LastActivityDate="2016-06-01T01:13:56.177" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12230" PostTypeId="2" ParentId="12158" CreationDate="2016-06-01T02:37:23.410" Score="4" Body="&lt;p&gt;&lt;strong&gt;Edit:&lt;/strong&gt; Roel Beetsma replied! He says he got the same derivation we basically got. So the solutions seem to be mistaken and we win! Also I'm removing the strikeout below.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/vXkfe.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/vXkfe.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that&#xA;$$+ e\frac{\lambda - \theta}{[-1-\lambda]}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;actually simplifies to&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ - e\frac{\lambda - \theta}{[1 + \lambda]} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;rather than with $\lambda + \theta$ in the numerator like you had.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the solutions has&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$- e \frac{1 + \theta}{1 + \lambda}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;instead of what we have above. The difference between the two is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$-e\frac{-1 - \lambda}{1 + \lambda} = e$$&lt;/p&gt;&#xA;" OwnerUserId="4251" LastEditorUserId="4251" LastEditDate="2016-06-01T16:14:35.313" LastActivityDate="2016-06-01T16:14:35.313" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="12231" PostTypeId="2" ParentId="12223" CreationDate="2016-06-01T02:45:54.273" Score="2" Body="&lt;p&gt;I am not sure where the interpretation issue lies. If we look at a relation&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$y = b_0 + b_1x_1 + u \tag{1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and we declare that we would like to estimate $b_0$ and $b_1$ but that $x_1$ is &quot;endogenous&quot;, we are essentially revealing that we are interested in the partial effect of $x_1$ on $y$ in the relation&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$y = b_0 + b_1x_1 + \delta'\mathbf x{^*} + e \tag{2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $\mathbf x{^*}$ contains &lt;em&gt;all&lt;/em&gt; the (known or unknown to us) variables that are correlated with $x_1$ (and have something to do with $y$ too), and therefore, $e$ is the &lt;strong&gt;conditional expectation function error&lt;/strong&gt; (not just &quot;any&quot; error term), and as such, &lt;em&gt;by construction&lt;/em&gt; uncorrelated with all the variables. Alas, $\mathbf x{^*}$ is unobservable or unavailable to us. Valid IV estimation will nevertheless allow us to estimate consistently $b_1$... which is the partial effect of $x_1$ on $y$ &lt;em&gt;in the above relation $(2)$&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Even if we cannot account for endogeneity, the problem will be that our estimations will converge to someplace unknown. So while we will still be attempting to estimate the partial effect of $x_1$ in relation $(2)$, our numerical estimates will be unacceptable and suspect as regards their value (due to the deficiency of the estimation method) -and not because the desired (but unattainable) research target loses its fundamental interpretation. Our estimates will be &quot;wrongly estimated partial effects&quot;. It is not the same as saying &quot;they are not partial effects&quot; (epistemologically speaking).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;ADDENDUM&lt;/strong&gt; &#xA;Responding on OP's comments and its enhancement of the question, nothing is stopping us from writing $\partial E(y \mid x, x^*)/\partial x$. At the same time our sample is realized, so is $x^*$ realized, irrespective of whether we know its realized value or not.&#xA;Now note that the coefficients/partial effects are assumed constant in this linear setting, &lt;em&gt;irrespective&lt;/em&gt; of the variability in the regressors: the partial effect will be the same for all individuals in the sample, irrespective of their actual value for the observable regressor&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\partial E(y_i \mid x_{1i}, x^*_{1i})/\partial x_{1i} = \partial E(y_j \mid x_{1j}, x^*_{1j})/\partial x_{1j} = \beta_1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;per assumptions, where $i,j$ are two different observations/individuals in the sample.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2016-06-01T11:42:11.117" LastActivityDate="2016-06-01T11:42:11.117" CommentCount="17" ContentLicense="CC BY-SA 3.0" />
  <row Id="12232" PostTypeId="1" AcceptedAnswerId="12233" CreationDate="2016-06-01T05:25:37.850" Score="1" ViewCount="4921" Body="&lt;p&gt;I am attempting to solve the following problem. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose that firms' marginal and average costs are constant and equal to c and that inverse market demand is given by $P = a - bQ$ where $a,b &amp;gt; 0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Calculate the Nash Equilibrium prices for Bertrand duopolists, which choose prices for their identical products simultaneously.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now I attempted to solve this problem and got $P_1 = P_2 = \frac{a+c}{2}$ where $P1, P2$ are prices. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My professor lists the answer as $P_1 = P_2 = c$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can someone please tell me where I messed up? Thanks!&lt;/p&gt;&#xA;" OwnerUserId="8425" LastActivityDate="2016-06-01T05:45:56.733" Title="Calculating Nash Equilibrium prices for Bertrand duopolists" Tags="&lt;game-theory&gt;&lt;nash-equilibrium&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12233" PostTypeId="2" ParentId="12232" CreationDate="2016-06-01T05:45:56.733" Score="2" Body="&lt;p&gt;The important thing to remember here is that Bertrand duopolists compete over price, not quantity. This means that in the game each player sets a price and the quantity sold is then determined by the demand curve. In this game the firm with the lowest price sells to the entire market and if both firms have the same price they each sell to half of the market. Now, we have to think about the logic that goes into determining equilibrium. It is easy to see that neither firm will ever set a price lower than $c$ because setting a price lower than marginal cost will give the firm negative profit. So we have to start that it must be the case that $p_1, p_2 &amp;gt; c$. Now, suppose that $p_1 &amp;gt; p_2 &amp;gt; c$. This cannot happen because firm 1 has an incentive to set a price below that of firm 2 and above $c$ so they will take the whole market. The same logic can be applied to the case where $p_2 &amp;gt; p_1 &amp;gt; c$. Now, consider the case where $p_1 &amp;gt; p_2 = c$. In this case firm 1 has the incentive to set there price equal to $c$ and split the market with firm 2, so this cannot be a Nash equilibrium. Again, we can apply the same logic to the case where $p_2 &amp;gt; p_1 = c$. So, the only candidate left for Nash equilibrium is scenario where $p_1 = p_2 = c$. This result is very interesting considering that with one firm we get a profit maximizing monopoly result but by adding just one additional firm we get the same pricing as perfect competition as long as the firms are playing the Bertrand price competition game.&lt;/p&gt;&#xA;" OwnerUserId="7005" LastActivityDate="2016-06-01T05:45:56.733" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12234" PostTypeId="1" CreationDate="2016-06-01T06:56:05.307" Score="1" ViewCount="39" Body="&lt;p&gt;While there are a lot of methods one can think of, like computing the ratio of profits to assets or profits to sales, apparently it is a difficult problem. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It would be useful to know how effectively are firms using their inputs in a marginal or an average sense, say by looking at the cost of labor, capital inputs, electricity, etc, and comparing that with the output of a plant or a firm.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some methods assume a Cobb'Douglas function and also assume which factors are fixed and which are variable over which periods, etc. Is there a typically accepted method yet? &lt;/p&gt;&#xA;" OwnerUserId="7593" LastEditorUserId="7593" LastEditDate="2016-06-01T16:00:40.707" LastActivityDate="2016-06-01T16:00:40.707" Title="What are the currently accepted methods to estimate a firm's productivity?" Tags="&lt;microeconomics&gt;&lt;econometrics&gt;&lt;productivity&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="12235" PostTypeId="1" CreationDate="2016-06-01T09:09:41.827" Score="3" ViewCount="1077" Body="&lt;p&gt;I am doing a question on finding the Pareto efficient quantity of a public good. Instead of using the condition $\sum MRS_i = c'(G)$ where $c(G)$ denotes the cost of the public good, it asks you to find the efficient quantity by maximising the sum of the agents' utilities. Apparently this is only valid if preferences are quasi-linear so whilst I can do the question I do not understand why this is a valid approach. Any help on this matter would be appreciated. &lt;/p&gt;&#xA;" OwnerUserId="7797" LastActivityDate="2017-03-29T00:12:28.317" Title="Pareto efficient quantity of public good (quasi-linear preferences)" Tags="&lt;microeconomics&gt;&lt;public-goods&gt;" AnswerCount="2" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="12236" PostTypeId="2" ParentId="12235" CreationDate="2016-06-01T13:04:41.190" Score="0" Body="&lt;p&gt;The Lindahl Equilibrium $y^*$ with quasi-linear preferences is uniquely determined. That is, $y^*$ is independent of individual consumption levels of $x$ &lt;/p&gt;&#xA;" OwnerUserId="1655" LastActivityDate="2016-06-01T13:04:41.190" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12238" PostTypeId="2" ParentId="11537" CreationDate="2016-06-01T14:44:10.487" Score="6" Body="&lt;p&gt;1.- The government imposed an austerity program and, in exchange, received assistance from the IMF and the EU.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2.- The ECB made it clear that it would do whatever as necessary to save the Euro, even buying sovereign bonds of Euro countries.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;3.- A general improvement in financial conditions around 2013 throughout the world let to a decline in default premia.&lt;/p&gt;&#xA;" OwnerUserId="7593" LastEditorUserId="7593" LastEditDate="2016-06-01T14:56:45.603" LastActivityDate="2016-06-01T14:56:45.603" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12239" PostTypeId="2" ParentId="451" CreationDate="2016-06-01T14:56:18.007" Score="1" Body="&lt;p&gt;Central banks have a lot of leeway from a balance sheet perspective to do these things. They can simply stop the practice of buying foreign currency when the CHF appreciates which would let it appreciate beyond 1.2. If it keeps appreciating they will book losses, but unless they are enormous, these typically don't make a dent in a central bank's balance sheet.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If it depreciates, they can use the foreign currency to buy CHF, or not. If they do not use it, then they book a profit, as the comments suggest. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In many cases, the legal implication of large loses or gains in the CB's balance sheet is a transfer to or from the country's treasury. Here's a recent example from Mexico &lt;a href=&quot;http://www.bloomberg.com/news/articles/2016-04-11/mexico-to-receive-13-6-billion-from-central-bank-dollar-gains&quot; rel=&quot;nofollow&quot;&gt;Bloomberg Article&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="7593" LastActivityDate="2016-06-01T14:56:18.007" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12240" PostTypeId="1" CreationDate="2016-06-01T15:03:13.877" Score="0" ViewCount="195" Body="&lt;p&gt;&lt;a href=&quot;http://forums.eviews.com/viewtopic.php?f=4&amp;amp;t=14899&quot; rel=&quot;nofollow&quot;&gt;Eviews&lt;/a&gt;,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Just want to know how we can use the below estimation equation using MS-Excel. &lt;/p&gt;&#xA;&#xA;&lt;h1&gt;Estimation Equation:&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;CLOSE = C(1)*D(CLOSE) + [AR(3)=C(2),MA(3)=C(3),BACKCAST=1/29/2016,ESTSMPL=&quot;1/29/2016 5/27/2016&quot;]&lt;/p&gt;&#xA;" OwnerUserId="8429" LastActivityDate="2016-06-02T01:16:38.140" Title="To input equation from eviews to excel" Tags="&lt;macroeconomics&gt;&lt;econometrics&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ClosedDate="2016-06-03T14:47:34.643" ContentLicense="CC BY-SA 3.0" />
  <row Id="12241" PostTypeId="1" AcceptedAnswerId="12242" CreationDate="2016-06-01T19:04:07.893" Score="0" ViewCount="158" Body="&lt;p&gt;GDP = Consumption + Government Expenditure + Investment + Exports - Imports&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My cases are:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(1) If the employee is getting paid for his extra-work, his consumption would increase.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(2) This employee might take away the job of someone else --and thus his increase in spending could get nullified&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By  definition, GDP = the total value of all goods and services produced. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(1) If even after working overtime, the company produces the same amount of goods / service --by definition, GDP hasn't risen at all.&lt;/p&gt;&#xA;" OwnerUserId="6486" LastActivityDate="2016-06-01T19:16:34.493" Title="If an employee works overtime (and gets paid for it), how does this affect a nation's GDP?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12242" PostTypeId="2" ParentId="12241" CreationDate="2016-06-01T19:16:34.493" Score="1" Body="&lt;p&gt;You are correct: an increase in the wage does not by itself imply an increase in GDP. So, if you pay a worker \$20 for an hour of overtime which you could have bought from another worker for \$10, but they both produce the same thing, GDP does not change by switching from one arrangement to the other.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can also observe that from the 'income perspective' in the circular flow of the economy: if nothing else changes, a higher wage for a  worker results in lower profits for the firm, but the net effect on income is 0.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, a change in which hours are labeled as overtime and which are not could have important effects in the economy. You'd expect that on average firms will prefer to have relatively more workers working relatively few hours and so avoid paying overtime. This should increase employment, but not average worker income, it should reduce inequality among workers, etc. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Potentially there can be large effects are on the health insurance costs of firms of changing overtime laws.&lt;/p&gt;&#xA;" OwnerUserId="7593" LastActivityDate="2016-06-01T19:16:34.493" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12243" PostTypeId="2" ParentId="12219" CreationDate="2016-06-01T20:10:09.453" Score="2" Body="&lt;p&gt;I work at Quandl and we have intraday data here: &lt;a href=&quot;https://www.quandl.com/vendors/as&quot; rel=&quot;nofollow&quot;&gt;https://www.quandl.com/vendors/as&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The databases include S&amp;amp;P 500 One Minute Bars, NASDAQ 100 One Minute Bars, Dow Jones Transportation Average One Minute Bars, Dow Jones Industrial Average One Minute Bars and Dow Jones Utilities Average One Minute Bars.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The databases cover five years of history and include OHLCV data and all additions, removals and changes to the index. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can use our API with every dataset. Each database has a section explaining API usage and bulk download. You can also check out our detailed API documentation here: &lt;a href=&quot;https://www.quandl.com/docs/api&quot; rel=&quot;nofollow&quot;&gt;https://www.quandl.com/docs/api&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope this helps!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, we apologize for the shortcomings of our site's search features - we are working very hard to improve this to better help users find the data they need.&lt;/p&gt;&#xA;" OwnerUserId="8104" LastActivityDate="2016-06-01T20:10:09.453" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12244" PostTypeId="2" ParentId="12198" CreationDate="2016-06-01T23:45:56.363" Score="1" Body="&lt;p&gt;This question is essentially about the representativeness of agents in economic models, and so the answer is yes and no.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Yes, there is considerable heterogeneity between investors/consumers. For example, a member of a suburban family with two children will buy a significantly different bundle of goods than a single pensioner. In addition, wealthier households will consume significantly more luxury goods than poorer ones. This means that inflation exposure is heterogeneous, with different investors experiencing different inflation risks due to the fact that they buy different bundles of goods.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But the answer is also no, consumption bundles may differ, but do they differ enough to justify not hedging inflation? Technically, hedging against a standardized inflation rate would only increase risk if the variation in interest rates over time is smaller than the variation between investors. This is an interesting empirical question, for which I did not find any published evidence after an (admittedly short) search.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, I do know that the variation of inflation rates over time is considerable, between -0.10 and 8.50 monthly in the &lt;a href=&quot;http://www.tradingeconomics.com/united-kingdom/inflation-cpi&quot; rel=&quot;nofollow&quot;&gt;UK&lt;/a&gt;. I do not have any numbers on consumption bundle heterogeneity, but want to point out that there will be many commonalities underlying the price changes even in heterogenous consumption bundles (e.g. oil prices for transporting goods). Given these facts, it is likely that the commonalities outstrip the differences, and so hedging inflation is likely to reduce risk for the large majority of investors. &lt;/p&gt;&#xA;" OwnerDisplayName="user7935" LastActivityDate="2016-06-01T23:45:56.363" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="12245" PostTypeId="2" ParentId="12240" CreationDate="2016-06-02T01:16:38.140" Score="2" Body="&lt;p&gt;Let's begin by fleshing out what the EViews code is saying. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The EViews code says that the variable CLOSE depends on its first difference and there is also an ARMA(3,3) error term included in the model. Supposedly, the ARMA error process is to whiten the residuals, which can be, and has been, argued against as a modelling strategy. It's also worth noting that there is no constant term in the equation. The reference to BACKCAST indicates how the MA process is initialized - the details of which can be found in the EViews documentation. ESTSMPL typically refers to the estimation sample.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Having understood the EViews code, the question is now: how does one estimate a linear regression model with ARMA errors using MS-Excel? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The easiest solution would be to find an existing add-in that provides this feature. An alternative method would be to write the code yourself using the MS-Excel programming language (VBA). Beware though, what makes this application tricky is the MA term; AR processes are easier to program and more common in certain fields, e.g. VAR models appear more frequently in economics than VARMA models. Another approach, if you are willing to delve into some code, would be to look at some R source code (either base code or from some time-series package) to get a sense of the task ahead if you do decide to program from scratch. Programming this from scratch seems like overkill, though, as this sort of estimation has been around for decades. Why bother if all you're interested in are the estimated parameters and not the underlying routines? It doesn't answer your question, but my advice would be to use R if EViews is not available to you. Or, seek out an MS-Excel add-in that will do the job for you.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A useful thread from the EViews forum is here: &lt;a href=&quot;http://forums.eviews.com/viewtopic.php?f=7&amp;amp;t=465&quot; rel=&quot;nofollow&quot;&gt;http://forums.eviews.com/viewtopic.php?f=7&amp;amp;t=465&lt;/a&gt;. Note: &quot;Estimation, and forecasting of MA processes is complicated, especially when backcasting is used to obtain starting observations for the error terms.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Good luck!&lt;/p&gt;&#xA;" OwnerUserId="1588" LastActivityDate="2016-06-02T01:16:38.140" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12246" PostTypeId="2" ParentId="12191" CreationDate="2016-06-02T01:34:53.973" Score="1" Body="&lt;p&gt;I can only provide an australian perspective, but we have a variety of consumer confidence sources tracking weekly results. Somewhere in&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.roymorgan.com/findings/6810--anz-roy-morgan-australian-consumer-confidence-may-17-2016-201605170655&quot; rel=&quot;nofollow&quot;&gt;Here&lt;/a&gt; is one analysing elections. It shows a very sharp drop in the lead up but it is short lived. There is evidence that this impacts the stock market. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Shane Oliver wrote about &lt;a href=&quot;http://www.ampcapital.com.au/article-detail?alias=/olivers-insights/august-2013/the-australian-election-and-investors&quot; rel=&quot;nofollow&quot;&gt;the 2013 australian election&lt;/a&gt;, &lt;a href=&quot;http://www.ampcapital.com.au/article-detail?alias=/olivers-insights/may-2016/the-2016-australian-federal-election-and-investors&quot; rel=&quot;nofollow&quot;&gt;the 2016 Australian election&lt;/a&gt; and &lt;a href=&quot;http://www.ampcapital.com.au/article-detail?alias=/olivers-insights/february-2013/the-italian-election-and-european-risk&quot; rel=&quot;nofollow&quot;&gt;the Italian election&lt;/a&gt;. The most interesting is probably the one published around the 2013 Australian election as it looks at the impact on stock markets. Those sources should be a good starting point. There's a good amount of research going around. The basic gist is that mood is impacted for sure but how important this mood swing is is unclear.&lt;/p&gt;&#xA;" OwnerUserId="40" LastActivityDate="2016-06-02T01:34:53.973" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12247" PostTypeId="2" ParentId="11771" CreationDate="2016-06-02T08:39:14.450" Score="0" Body="&lt;p&gt;Here is one &lt;a href=&quot;https://lumen.instructure.com/courses/196787/pages/Section27-23?module_item_id=4541989&quot; rel=&quot;nofollow&quot;&gt;explanation&lt;/a&gt; that takes deposits and reserve requirements into account: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Fed’s purchase of a bond can be illustrated using a balance sheet. Suppose the Fed buys a bond for \$1,000 from one of Acme Bank’s customers. When that customer deposits the check at Acme, checkable deposits will rise by \$1,000. The check is written on the Federal Reserve System; the Fed will credit Acme’s account. Acme’s reserves thus rise by \$1,000. With a 10% reserve requirement, that will create \$900 in excess reserves and set off the same process of money expansion as did the cash deposit we have already examined. The difference is that the Fed’s purchase of a bond created new reserves with the stroke of a pen, where the cash deposit created them by removing \$1,000 from currency in circulation. The purchase of the \$1,000 bond by the Fed could thus increase the money supply by as much as \$10,000, the maximum expansion suggested by the deposit multiplier.&lt;/p&gt;&#xA;" OwnerUserId="5261" LastActivityDate="2016-06-02T08:39:14.450" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12250" PostTypeId="1" AcceptedAnswerId="12252" CreationDate="2016-06-02T13:24:52.953" Score="6" ViewCount="448" Body="&lt;p&gt;I'm trying to construct a gravity model for EU trade flows using a panel dataset, but am suffering from what appears to be a persistent omitted variable problem. My residuals display a queer log-like, almost polynomial type pattern when plotted against the log of trade volumes. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have searched the literature and included every variable in the model that has appeared in previous studies, including the logs of;&#xA;- gdp per capita&#xA;- real and nominal gdp&#xA;- distance - multiple different measures.&#xA;- Real and nominal exchange rates. &#xA;- Price levels - various measures. &#xA;- Proxies for product differentiation. &#xA;- Exporter / importer fixed effects. &#xA;- Dummies for things like Schengen / Euro membership, home trade, etc. &#xA;Still, the curvilinear / log pattern remains. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can anyone conjecture as to what the omitted variable may be? I have exhausted my knowledge of the theory. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be very gratefully appreciated. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Many thanks, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Robert. &lt;/p&gt;&#xA;" OwnerUserId="8443" LastActivityDate="2016-06-03T17:40:26.170" Title="Omitted variables in gravity model" Tags="&lt;econometrics&gt;&lt;international-trade&gt;&lt;applied-econometrics&gt;&lt;international-economics&gt;&lt;economic-methodology&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12251" PostTypeId="1" CreationDate="2016-06-02T16:25:12.837" Score="3" ViewCount="2237" Body="&lt;p&gt;In a macroeconomics book I'm reading, the author talks about money supply control vs. interest rate control as two different approaches in monetary policy of a central bank.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With the goal of price stability being the same in both cases, money supply control alters the supply of money and thus effects the interest rates within the economy in either a expansive or restrictive manner. With interest rate control, the central bank defines a central interest rate to increase or decrease the money supply for the commercial banks, which in turn translate this into the economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The author claims that money supply control is only a viable option when there is certainty about the money demand. Interest rate control is preferred when there is uncertainty about money demand.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't quite understand the difference between these two approaches as in my opinion they are essentially the same. They are not even comparable as two different approaches, they are both part of the same approach from my understanding: Interest rate control in consequence effects the money supply. So interest rate control allows money supply control.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In most media you'll only read about how the central banks in the US and Europe alter the central interest rate to increase or decrease money supply. I never read about direct money supply control. I feel like I might be confusing terms or just misunderstand the author.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can anybody shed light on this topic?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you in advance!&lt;/p&gt;&#xA;" OwnerUserId="8445" LastActivityDate="2016-06-05T16:25:14.940" Title="Money supply control vs. interest rate control" Tags="&lt;monetary-policy&gt;&lt;interest-rate&gt;&lt;money-supply&gt;&lt;central-banking&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12252" PostTypeId="2" ParentId="12250" CreationDate="2016-06-02T17:20:52.167" Score="5" Body="&lt;p&gt;The omitted variable bias in gravity model is an important issue given that some factors are unobserved or difficult to quantity. To solve this issue trade economists tend to rely on various fixed effect estimators. But, the question is what is your variable of interest?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Exporter-by-year and importer-by-year fixed effects&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For instance, if you are interested in evaluating the effect of trade costs on trade, you can introduce exporter-by-year and importer-by-year fixed effects to absorb GDP, GDP per capita, price indexes etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Exporter-by-importer fixed effects&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you are interested in evaluating the effect of one country-specific variable on trade, you can introduce exporter-by-importer fixed effects to absorb distance or contiguity effects.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Exporter-by-year, importer-by-year + exporter-by-importer fixed effects&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you are interested in evaluating the effect of a time-varying bilateral factor, like free trade agreements, on trade (see Baier and Bergstrand, 2007), you can introduce exporter-by-year, importer-by-year + exporter-by-importer fixed effects to absorb distance or contiguity effects as well as GDP, GDP per capita, ....&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;References&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Baier, S. L., &amp;amp; Bergstrand, J. H. (2007). &lt;a href=&quot;http://www.cec.zju.edu.cn/reod/proimg/2010929112921446.pdf&quot; rel=&quot;nofollow&quot;&gt;Do free trade agreements actually increase members' international trade?&lt;/a&gt;. Journal of international Economics, 71(1), 72-95.&lt;/li&gt;&#xA;&lt;li&gt;Baldwin, R., &amp;amp; Taglioni, D. (2006). &lt;a href=&quot;http://graduateinstitute.ch/files/live/sites/iheid/files/sites/ctei/shared/CTEI/Baldwin/Publications/Chapters/Trade%20Effects%20Euro/Gravity%20Dummies.pdf&quot; rel=&quot;nofollow&quot;&gt;Gravity for dummies and dummies for gravity equations&lt;/a&gt; (No. w12516). National Bureau of Economic Research.&lt;/li&gt;&#xA;&lt;li&gt;Head, K., &amp;amp; Mayer, T. (2013). &lt;a href=&quot;http://strategy.sauder.ubc.ca/head/papers/headmayer_revised.pdf&quot; rel=&quot;nofollow&quot;&gt;Gravity equations: Workhorse, toolkit, and cookbook&lt;/a&gt;. &lt;em&gt;This last reference is a must to read to construct a gravity model.&lt;/em&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="6168" LastEditorUserId="6168" LastEditDate="2016-06-03T17:40:26.170" LastActivityDate="2016-06-03T17:40:26.170" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12253" PostTypeId="1" AcceptedAnswerId="12254" CreationDate="2016-06-02T17:43:00.773" Score="11" ViewCount="1781" Body="&lt;p&gt;I am studying for my candidacy exams and I came across this question on a previous exam. The question is in the TFD (True, False, Debatable) section of the exam. The claim is:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;There are no Giffen inputs in production.&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I think this question is a very fascinating one, and should spark some interesting discussion. My intuition tells me that this is false because if there are Giffen goods on the consumer side then surely there are Giffen goods on the producer side. However, I cannot think of a concrete counterexample to the claim. In consumer theory, they claim that Giffen goods occur when the good is so important to the consumer that when the price increases, they decide to just buy that good and not buy any other goods. For example, economists believe that one of the only real life Giffen good situations is potatoes in the Irish potato famine. They claimed that potatoes were such a staple in the Irish diet that when the prices rose, the Irish people decided not to buy other foods (such as meat) and dedicated all of their food budget to potatoes. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are there any situations where we might see a firm/industry act in a similar way? What do you guys think? Are there any Giffen inputs in production?&lt;/p&gt;&#xA;" OwnerUserId="5825" LastEditorUserId="341" LastEditDate="2016-06-02T20:17:16.367" LastActivityDate="2018-01-03T09:17:15.287" Title="Are There Giffen Inputs?" Tags="&lt;microeconomics&gt;&lt;producer-theory&gt;" AnswerCount="4" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12254" PostTypeId="2" ParentId="12253" CreationDate="2016-06-02T18:12:51.410" Score="4" Body="&lt;p&gt;I believe the answer is &lt;strong&gt;true&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Giffen goods are goods where the income effect overpowers the substitution effect.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\begin{align}&#xA;\max_{\vec x} \ \ \ &amp;amp; U(\vec x) \\&#xA;&amp;amp; \text{s.t.} \ \ \ \vec p \cdot \vec x \leq I&#xA;\end{align}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To start, if you think about the consumer's problem (for example utility maximization, here), a change in a good's price affects both relative substitutability of goods through the marginal rate of substitution AND it affects purchasing power through the budget constraint.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Let us consider a profit maximizing firm with a constraint on how much they can spend. For simplicity let us use a single output technology, with differentiable production function $f(\vec z)$. Let $\vec z$ be a vector of inputs (expressed as negative values), $\vec w$ a vector of input prices, and $p$ the output price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\begin{align}&#xA;\max_{\vec z} \ \ \ &amp;amp; pf(\vec z) + \vec w \cdot \vec z \\&#xA;\text{s.t.} &amp;amp; \ \ \ \vec w \cdot \vec z \leq B \\&#xA;&amp;amp; \ \ \  z_i \leq 0 \\&#xA;\end{align}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Normally we would have a constraint on production, but instead we have a &quot;budget&quot; constraint. What happens if we form the Lagrangian here?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\mathcal{L} = pf(\vec z) - \vec w \cdot \vec z - \lambda(\vec w \cdot \vec z - B) + \vec\mu \cdot \vec z$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Take first order conditions:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\partial \mathcal{L}}{\partial z_i} = pf_{z_i}(\vec z) - w_i - \lambda w_i + \mu_i = 0 \tag{1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\partial \mathcal{L}}{\partial f(\vec z)} = p = 0 \tag{2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\partial \mathcal{L}}{\partial \lambda} = \vec w \cdot \vec z - B = 0 \tag{3}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At an interior solution where the budget constraint binds, we should have the optimum $\vec z^*$ to solve the FOCs&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$p \frac{\partial f(\vec z^*)}{\partial z_i} = w_i$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;but instead you solve out (1):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$p \frac{\partial f(\vec z^*)}{\partial z_i} = - \frac{\mu_i}{1 + \lambda}w_i$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and (3) does not provide any help to solve the Lagrangian multipliers. (2) is nonsense.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A better constraint would be something like $y - f(\vec z) \leq 0$, where $y$ represents the scalar of output.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Without an &quot;income effect&quot;, there isn't much to study Giffen behavior. Producer theory doesn't use a budget constraint to solve these sorts of problems. Increasing input price will always decrease use of that input except with corner solutions, where there might be no change. &lt;strong&gt;So there can't be a Giffen input.&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="4251" LastEditorUserId="4251" LastEditDate="2016-12-03T03:12:59.953" LastActivityDate="2016-12-03T03:12:59.953" CommentCount="16" ContentLicense="CC BY-SA 3.0" />
  <row Id="12255" PostTypeId="1" AcceptedAnswerId="12264" CreationDate="2016-06-02T18:51:28.777" Score="2" ViewCount="72" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;If $f:\mathbb{R}^n \to \mathbb{R} $ is twice continuously differentiable, has a non-negative gradient, and is supermodular, and $g: \mathbb{R} \to \mathbb{R}$ is twice continuously differentiable and convex, then $g(f(x))$ is increasing and supermodular&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;To show increasing I think we can just show $\displaystyle \frac{d}{dx} g(f(x)) &amp;gt; 0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \displaystyle \frac{d}{dx} g(f(x) = g'(f(x)) f'(x) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since $f(x)$ has a non-negative gradient $f'(x) \geq 0$, but I'm not sure how to show $g'(f(x)) &amp;gt; 0$ as given convex tells us $g''(x) &amp;gt; 0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For supermodularity, let $l, l' \in \mathbb{R}^n$; $g(f(x))$ will be supermodular if the following inequality holds:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \displaystyle (g \circ f)(l \vee l') + (g \circ f)(l \wedge l') \geq (g \circ f)(l) + (g \circ f)(l') $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think if we had $l_i \leq l_i', \; \forall i$, then we will have equality as $(g \circ f)(l \vee l') = (g \circ f)(l') $ and $ (g \circ f)(l \wedge l') = (g \circ f)(l)$, but don't know what to do for the other cases.&lt;/p&gt;&#xA;" OwnerUserId="5780" LastActivityDate="2016-06-03T12:31:24.880" Title="Show a compound function is increasing and supermodular given its components" Tags="&lt;mathematical-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12257" PostTypeId="1" CreationDate="2016-06-02T19:38:29.907" Score="1" ViewCount="21" Body="&lt;p&gt;If you are a retailer, and the price you pay for one of your retail goods goes up, how do you price the inventory you already had (which you paid a lower price for)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is an example of a TFD (True, False, Debatable) type question for this idea:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose you run a hardware store, and the price you pay for sidewalk de-icer increases. You raise the price on the remaining stock of sidewalk de-icer in your store, for which you paid a lower price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think the answer to this question is false. Increasing your price on the inventory you already had violates the PMP, so any other price would lower profits. &lt;/p&gt;&#xA;" OwnerUserId="5825" LastActivityDate="2016-06-02T20:27:23.263" Title="Retailer Price Setting for Existing Inventory in the Event of an Increase in Price Paid for the Good" Tags="&lt;microeconomics&gt;&lt;producer-theory&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12258" PostTypeId="2" ParentId="12257" CreationDate="2016-06-02T20:18:06.380" Score="1" Body="&lt;p&gt;At the time period in which you buy the new retail goods, the cost of having bought the old inventory goods is now a sunk cost. Your pricing decision I don't think should be based on the price of the old inventory. The new point where marginal cost equals marginal benefit (assuming competitiveness) is now the price of the new stock (more expensive).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Without competition though, the result will probably change, since the quantity you supply will now matter in affecting demand.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastEditorUserId="4251" LastEditDate="2016-06-02T20:27:23.263" LastActivityDate="2016-06-02T20:27:23.263" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12259" PostTypeId="2" ParentId="12226" CreationDate="2016-06-02T20:55:51.190" Score="-4" Body="&lt;p&gt;Is it relevant here to speak about the Plunge Protection Team (PTT) or the &lt;a href=&quot;https://en.wikipedia.org/wiki/Working_Group_on_Financial_Markets&quot; rel=&quot;nofollow noreferrer&quot;&gt;Working Group on Financial Markets&lt;/a&gt;? There is lots of talk that they do interfere in the broader stock market. One can also question that when a central bank like the FED prints tons of money and lends it out at 0 interest rates that money will start looking for yield... in the stock market. It's my opinion that the FED (and the other central banks around the world) reinflated the stock markets. The runup since 2009 is largely based on money printing, not on genuine 'growth': &#xA;&lt;a href=&quot;https://i.stack.imgur.com/E3dWC.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/E3dWC.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="8450" LastEditorUserId="8891" LastEditDate="2020-02-11T23:09:37.693" LastActivityDate="2020-02-11T23:09:37.693" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="12260" PostTypeId="2" ParentId="11537" CreationDate="2016-06-02T21:03:25.200" Score="-2" Body="&lt;p&gt;Quite simple, though a very bad solution. The ECB creates money out of nothing and uses it to buy government bonds... So by printing money they create 'artificial demand', no one in their right minds would buy Portugal's debt, they will never be able to repay it, their economy (and most of Europe's economies) are dead in the water. When you can print money all you want you have no risk, so you can buy whatever you want... that's why the risk-premia (interest rates) on Portugals debt went down...&lt;/p&gt;&#xA;" OwnerUserId="8450" LastActivityDate="2016-06-02T21:03:25.200" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12261" PostTypeId="1" AcceptedAnswerId="12262" CreationDate="2016-06-02T21:07:07.750" Score="2" ViewCount="285" Body="&lt;p&gt;Does anyone know who actually owns the federal reserve? It's like a public private institution, who are the private owners, and who are the public owners? &lt;/p&gt;&#xA;" OwnerUserId="8450" LastActivityDate="2016-06-02T21:43:33.710" Title="Who owns the federal reserve?" Tags="&lt;money-supply&gt;&lt;federal-reserve&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12262" PostTypeId="2" ParentId="12261" CreationDate="2016-06-02T21:43:33.710" Score="6" Body="&lt;p&gt;The Federal Reserve is a system, consisting of the reserve banks, which are &quot;owned&quot; (in a limited fashion) by their member banks (members select the leadership of the reserve banks), and the Federal Reserve Board of Governors, which oversees the member banks and is independent within the government (that is, the Governors are nominated by the President and confirmed by the Senate, but neither has direct control over the Board beyond its composition and the legal authorities assigned to it). All of this is covered in the law that gives the Fed its authorities, the &lt;a href=&quot;https://www.federalreserve.gov/aboutthefed/fract.htm&quot;&gt;Federal Reserve Act&lt;/a&gt;. &lt;/p&gt;&#xA;" OwnerUserId="264" LastActivityDate="2016-06-02T21:43:33.710" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12263" PostTypeId="2" ParentId="12220" CreationDate="2016-06-03T04:08:11.353" Score="1" Body="&lt;p&gt;Interesting question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Indeed, it's somewhat difficult to model value added because in many models firms don't make profits all the time.  But therein lies your answer I think. Model VA as $Z$ in a distribution $g$ with two dimensions $(Z,Y)$, where Y is the size of the firm, Pareto distributed,  and then for any given $Y$, $Z$ is distributed as $Z \sim Y \cdot (1+ X)$ with $X$ a normal variable or something like that, so that $Z$ can be negative, but it is still on average proportional to $Y$. You can maybe then solve for $f_Z=\int g(Z,Y)dY$ analytically or numerically otherwise.&lt;/p&gt;&#xA;" OwnerUserId="7593" LastEditorUserId="7593" LastEditDate="2016-06-07T20:41:11.410" LastActivityDate="2016-06-07T20:41:11.410" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12264" PostTypeId="2" ParentId="12255" CreationDate="2016-06-03T12:31:24.880" Score="1" Body="&lt;p&gt;I don't think this proposition holds without assuming that $g$ is also increasing.&#xA;Take $f(x_1,x_2)=x_1x_2$ (actually any supermodular function) and $g(z)=-z$ (decreasing and convex). Then, $g(f(x_1,x_2))=-x_1x_2$ which is neither increasing in its arguments or supermodular.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you assume also that $g$ is increasing, you get $g'(f(x))\geq 0$ straightforwardly.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can easily show supermodularity using the conddition on the second derivatives. Denote $x=(x_1,...,x_n)$. Supermodularity is equivalent for function f to $$\frac{\partial^2 f}{\partial x_i \partial x_j}(x)\geq 0$$ for any $i\ne j$.&#xA;If you twice-differentiate $g \otimes f$ ($\otimes$ is the compound operator),&#xA;$$&#xA;\frac{\partial^2 g \otimes f}{\partial x_i \partial x_j}(x)=\frac{\partial^2 f}{\partial x_i \partial x_j}(x) . g'(f(x)) + \frac{\partial f}{\partial x_i}(x) .\frac{\partial f}{\partial x_j}(x) .g''(f(x))&#xA;$$&#xA;You can check that $\frac{\partial^2 g \otimes f}{\partial x_i \partial x_j}(x)\geq 0$ so that $g \otimes f$ is supermodular since $f$ is supermodular, $g$ is increasing and $g$ is convex.&lt;/p&gt;&#xA;" OwnerUserId="4094" LastActivityDate="2016-06-03T12:31:24.880" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12266" PostTypeId="1" CreationDate="2016-06-03T14:41:56.963" Score="0" ViewCount="18" Body="&lt;p&gt;In economics, its often assumed that individuals are unable to coordinate. Moreover, its often assumed that one of the roles for the government is to help consumers coordinate. However, its also possible that businesses that find a way to help consumers coordinate could fulfill that role. &#xA;Are there examples of businesses dedicated to and profiting from helping consumers coordinate better?&lt;/p&gt;&#xA;" OwnerUserId="7593" LastActivityDate="2016-06-03T14:41:56.963" Title="Are there examples of businesses that profit from helping consumers coordinate better?" Tags="&lt;government&gt;&lt;cooperative-game-theory&gt;&lt;market-failure&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="12267" PostTypeId="2" ParentId="12251" CreationDate="2016-06-03T15:36:43.353" Score="1" Body="&lt;p&gt;I think that with money supply control the central bank actively influences The money supply by adding or withdrawing money. By setting the interestrates the central bank influences the lendingcapacity of the banks and the people, lowering the interestrate creates more lendingcapacity and thus 'adds' to the moneysupply... By setting interest rates higher it diminishes lending capacity and thus 'tightens' the money supply..  &lt;/p&gt;&#xA;" OwnerUserId="8450" LastActivityDate="2016-06-03T15:36:43.353" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12268" PostTypeId="1" CreationDate="2016-06-03T17:56:30.363" Score="0" ViewCount="89" Body="&lt;p&gt;I was wondering, in a log-log model of output, labour and commodity price where output is the depedent variable, does it make sense if the coefficient on the price variable is interpreted as the &quot;price elasticity of output&quot;? Assume output is measured in constant monetary unit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's say $log(gdp_t) = \beta_0 + \beta_1log(labour_t) + \beta_2\log(commodityprice) + \epsilon_t$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've not seen $\beta_2$ being defined as the elasticity of output with respect to price. But, could this be correct at all?&lt;/p&gt;&#xA;" OwnerUserId="6009" LastEditorUserId="6009" LastEditDate="2016-06-04T14:08:53.017" LastActivityDate="2016-06-04T14:58:27.913" Title="price elasticity of output, makes sense?" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;econometrics&gt;&lt;regression&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12270" PostTypeId="2" ParentId="12213" CreationDate="2016-06-03T19:07:47.260" Score="2" Body="&lt;p&gt;Normally when we think about value added, we think of marginal revenue product of labor: how much more revenue does adding another worker add to the firm?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you assume that the market is competitive, then the MRPL should be exactly equal to what you said: wage, benefits, etc. Otherwise another worker would be willing to work for an epsilon less.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words, the &quot;value added&quot; by your definition (their &quot;productivity&quot; minus payments) should be zero. From my experience, researchers measure worker's productivity by wages.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you want to find where this does not hold, then I guess you'll need more detailed data. Perhaps comparing workers with same job description but different compensation.&lt;/p&gt;&#xA;" OwnerUserId="5145" LastActivityDate="2016-06-03T19:07:47.260" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12271" PostTypeId="2" ParentId="12214" CreationDate="2016-06-03T19:23:55.173" Score="2" Body="&lt;p&gt;Yes. What you are doing is a solution. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The key idea here is that binary relations are necessarily ordinal relations, and do not contain cardial information. Taking (strictly positive) monotone transformations of representations preserves the preference structure. So, yes, you have shown $U(\cdot)$ (from the example) is related via a monotone transformation to an linear function with the index $ln(\alpha)$ and therefore, by the von Neumann Morgenstern theorem, satisfies the EU axioms.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, there is often a point of confusing here, because of the emphasis on uniqueness with regards to EU representation. But the EU representation is not the unique representation, it is the unique &lt;em&gt;linear&lt;/em&gt; representation. While this is clearly delineated in the theorem, I think it is conflated in many people's minds with generic uniqueness. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To summarize, by choosing a particular functional form (or normalization) it is possible to act &lt;em&gt;as if&lt;/em&gt; the preferences have a cardinal relation. But, this is just an interpretation, and not something inherent about a binary relation, even one that satisfies the independence axiom.&lt;/p&gt;&#xA;" OwnerUserId="398" LastActivityDate="2016-06-03T19:23:55.173" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12272" PostTypeId="1" CreationDate="2016-06-03T22:46:13.163" Score="1" ViewCount="25" Body="&lt;p&gt;Has this happened before in the past? A weak jobs report and a hesitant economy followed by a federal rate hike to control inflation? Thank you to all.&lt;/p&gt;&#xA;" OwnerUserId="8458" LastActivityDate="2016-06-04T02:36:46.777" Title="Will interest rates still hike even after a weak jobs report?" Tags="&lt;interest-rate&gt;&lt;unemployment&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12273" PostTypeId="1" AcceptedAnswerId="12276" CreationDate="2016-06-03T23:37:13.220" Score="8" ViewCount="318" Body="&lt;p&gt;My roommate and I split the cost of a game console a year ago (~$400) but he is now moving out.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We were wondering how to fairly auction the console given the situation:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;We both paid an equal price of $200+&lt;/li&gt;&#xA;&lt;li&gt;Right now half the market price of the console is \$175&lt;/li&gt;&#xA;&lt;li&gt;We both would prefer having the console than being paid for it&lt;/li&gt;&#xA;&lt;li&gt;He will be splitting the price with his new roommate whereas I will be paying by myself&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;With regular bidding, as my roommate representing both him and his next roommate and me myself, is he at an advantage because he has double the market power? If yes, how can we fix that problem?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Outcome:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you for your answers. While the chosen answer seemed the best way to do this, we both felt it involved too much strategy and would have resulted in envy from one of us. We instead went with the &lt;a href=&quot;https://en.wikipedia.org/wiki/Fair_division#Two_players&quot; rel=&quot;noreferrer&quot;&gt;Divide and Choose&lt;/a&gt; method, which worked out fairly for both of us.&lt;/p&gt;&#xA;" OwnerUserId="8459" LastEditorUserId="8459" LastEditDate="2016-06-04T20:35:48.447" LastActivityDate="2018-04-16T15:54:03.243" Title="How to auction shared item with a roommate?" Tags="&lt;game-theory&gt;&lt;auctions&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12274" PostTypeId="2" ParentId="12273" CreationDate="2016-06-04T02:11:45.330" Score="1" Body="&lt;p&gt;When you state that you would prefer having the console than being paid for it, I imagine you mean you'd prefer having it than being paid your share of the current market price. Despite what game data is on the console, there is surely some price at which you are happy to part ways with it. Both of you seem like you would be happy to buy each other's half for $175, but not sell it for that much.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose you and your former roommate with his new roommate both bid on your respective halves of the console. Each of you have some sort of reservation price, the highest price you'd be willing to pay to get the other person's half of the console, which will be above $175. (Likewise, it'd be the  minimum you'd need to receive to part with your half, if both &quot;halves&quot; are homogeneous.) It's true that your former roommate will have someone else helping him pay, but that should not be a problem for you as long as you are not constrained by your budget and have to bid strategically. That is, if your budget is greater than your reservation price, you'll be fine.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are two straightforward mechanisms I could suggest.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Both parties enter a sealed bid (your former roommate and his friend can determine their own cost sharing rule). Whoever bids highest wins, but pays the amount the other person wrote down. This is effectively a second price auction, which normally prevents strategic bidding, but as denesp notes, payoffs do depend on your own bid.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;This method's split is not equitable. One person will end up getting exactly what they would need to part with their half (again, assuming both &quot;halves&quot; of the console are identical).&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Both parties enter a sealed bid. Highest bid wins, and you split the difference between the two bids and pay that. So if you bid 250 and your friend bids 220, then you win, and end up paying your friend 235. This has a little more room for finagling around with strategic bidding, but the max-min strategy is to also bid your reservation price. If you underbid and lose, then you might get less money than you would want for having to part with your half. So there is some protection here.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;This method is equitable, but again, a little more prone to strategy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Take those suggestions for what they are worth. I think they are relatively easy to implement, so maybe there is something more efficient, but eh.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastEditorUserId="4251" LastEditDate="2016-06-04T17:40:18.730" LastActivityDate="2016-06-04T17:40:18.730" CommentCount="11" ContentLicense="CC BY-SA 3.0" />
  <row Id="12276" PostTypeId="2" ParentId="12273" CreationDate="2016-06-04T08:46:46.383" Score="9" Body="&lt;p&gt;If you think that the distribution of your value and your roommate's value are the same then I would suggest that you consider the following bidding protocol:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;each bidder submits a sealed bid, $b_i$.&lt;/li&gt;&#xA;&lt;li&gt;the highest bidder, $i$, received the console and makes a payment of $\frac{b_i+b_j}{2}$ to the loser, where $b_j$ is the loser's bid.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;ftp://www.cramton.umd.edu/papers1984-1989/87econ-dissolving-a-partnership-efficiently.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Cramton, Gibbons, and Klemperer (&lt;em&gt;Econometrica&lt;/em&gt;, 1987; Section 4)&lt;/a&gt; show that this is an efficient way to dissolve a partnership with joint ownership stakes in an asset.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you think that the two of you have differing value distributions (e.g. because your roommate has a new friend) then Cramton et al. show in Theorem 2 how to adjust the pricing rule to restore efficiency. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I highly recommend taking a look at the Cramton et al. paper. It's surprisingly readable for an &lt;em&gt;Econometrica&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let us know how you get on if you decide to try it out!&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2018-04-16T15:54:03.243" LastActivityDate="2018-04-16T15:54:03.243" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12278" PostTypeId="1" CreationDate="2016-06-04T14:14:13.997" Score="1" ViewCount="205" Body="&lt;p&gt;Can fractal geometry give better insights into the working of the financial markets or give rise to better financial models? If so, are there any existing models?&lt;/p&gt;&#xA;" OwnerUserId="8461" LastActivityDate="2016-06-07T09:02:40.993" Title="Are there any examples where fractal geometry is applied in economics or finance?" Tags="&lt;mathematical-economics&gt;&lt;finance&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12279" PostTypeId="2" ParentId="12268" CreationDate="2016-06-04T14:58:27.913" Score="1" Body="&lt;p&gt;I use some abbreviations and drop the index t.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\ln(G)=\beta_0+\beta_1\ln(L)+\beta_2\ln(P)+\epsilon$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Taking both sides as an exponent of e&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$e^{\ln(G)}=e^{\beta_0+\beta_1\ln(L)+\beta_2\ln(P)+\epsilon}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$G=e^{\beta_0+\beta_1\ln(L)+\epsilon}\cdot e^{\beta_2\ln(P)}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$e^{\beta_0+\beta_1\ln(L)+\epsilon}=C$ is a constant if you differentiate w.r.t $P$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$G=e^{\beta_0+\beta_1\ln(L)+\epsilon}\cdot e^{\ln(P^{\beta_2})}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$G=e^{\beta_0+\beta_1\ln(L)+\epsilon}\cdot P^{\beta_2}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac{\partial G}{\partial P}=e^{\beta_0+\beta_1\ln(L)+\epsilon}\cdot \beta_2\cdot P^{\beta_2 -1}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The elasticity is $\large{\epsilon}\normalsize{=\frac{\partial G}{\partial P}\cdot \frac{P}{G}}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\large{\epsilon}=\normalsize{e^{\beta_0+\beta_1\ln(L)+\epsilon}\cdot \beta_2\cdot P^{\beta_2 -1}\cdot \frac{P}{e^{\beta_0+\beta_1\ln(L)+\epsilon}\cdot P^{\beta_2}}}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;=$C\cdot \beta_2\cdot P^{\beta_2 -1}\cdot\frac{P}{C\cdot P^{\beta_2}}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can finish by simplifying the term.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In general it is true that &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\large{\epsilon}=\normalsize{\frac{\partial \ln(G)}{\partial\ln(P)}}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus the short way is to differentiate $\ln(G)$ w.r.t $\ln(P)$.&lt;/p&gt;&#xA;" OwnerUserId="371" LastActivityDate="2016-06-04T14:58:27.913" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="12280" PostTypeId="1" CreationDate="2016-06-04T17:12:02.253" Score="3" ViewCount="74" Body="&lt;p&gt;If a publicly traded company buys back all it's shares from the public, majority holder and every last person that owns it's shares who would own the company? Obviously, it wouldn't be a normal privately owned entity because all it's shares are owned by the company itself hence the company owns itself. So, who will act as the decision maker of the company and who will get the voting rights of the shares? Because a corporation is technically a person but not a physical person at the same time.  it has the necessary rights to own itself but  it won't be able to think and make decisions. So, how will such a company function?&lt;/p&gt;&#xA;" OwnerUserId="8463" LastEditorUserId="8463" LastEditDate="2016-06-04T17:48:34.860" LastActivityDate="2016-06-04T17:48:34.860" Title="If the company were to buy back all their shares, does that mean the company would own itself?" Tags="&lt;stock-market&gt;&lt;corporate-finance&gt;&lt;law&gt;&lt;corporate-governance&gt;" AnswerCount="0" CommentCount="4" FavoriteCount="1" ClosedDate="2016-06-12T05:27:39.893" ContentLicense="CC BY-SA 3.0" />
  <row Id="12281" PostTypeId="1" CreationDate="2016-06-04T18:46:16.837" Score="1" ViewCount="848" Body="&lt;p&gt;Two goods are strategic complements if:&#xA;$$\frac{\partial \pi_1}{\partial q_2}&amp;gt;0\;\text{and}\;\frac{\partial \pi_2}{\partial q_1}&amp;gt;0$$&#xA;The image below is a picture of best response functions and isoprofit curves for strategic complements&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/zyosD.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/zyosD.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand why the BR curves are upward sloping, but I am struggling to understand why the isoprofit curves are shaped the way they are. Can anyone give me the intuition behind the shape of these isoprofit curves?&lt;/p&gt;&#xA;" OwnerUserId="5825" LastActivityDate="2016-06-04T18:46:16.837" Title="Shape of Isoprofit Curves for Strategic Complements" Tags="&lt;microeconomics&gt;&lt;producer-theory&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12284" PostTypeId="2" ParentId="12251" CreationDate="2016-06-05T16:25:14.940" Score="1" Body="&lt;p&gt;Assume a completely open country, that is, import and export of goods and services are unlimited, and capital flows freely from and to it. Assume that the central bank sets a floating interest rate policy: short-run shocks to demand in the liquidity and foreign currency markets influence interest rates (we consider for simplicity that there is a unique interest rate in the country. One may expand this to any number of interest rates) which in turn influence exchange rates. Of course, this permits the central bank to influence the money supply through open market operations (e.g., selling bonds). On the other hand, assuming the main goal of this policy to be price stability, it is the most fitting of the two assuming that demand is more or less stable, because this would permit the central bank to &quot;plan ahead&quot; or not to be caught by surprise by constant variation in demand. The downsides are the risks associated with volatile interest and exchange rates. On the other hand, if the central bank sets a fixed exchange rate policy, this permits to more or less control the equilibrium interest rate, and thus demand, indirectly, which may be desirable if demand is subject to frequent shocks. One main downside is the loss of independence in the monetary policy of the bank. &#xA;These are both theoretical digressions: in reality, the exchange rate aspect of monetary policy is not black and white. One nice example is the history of monetary policy in Israel after the mid-eighties, where, most relevantly to this question, exchange rate ranges were used. &lt;/p&gt;&#xA;" OwnerUserId="7725" LastActivityDate="2016-06-05T16:25:14.940" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12287" PostTypeId="1" AcceptedAnswerId="12300" CreationDate="2016-06-06T00:08:59.627" Score="3" ViewCount="50" Body="&lt;p&gt;Background: In the 1710s, the British government borrowed heavily to finance wars. To reduce the interest on this debt, the government converted this debt into stock from a private company. The private company would only be paid a fee by the government equal to half the interest the government was paying on its debt. The company uses these fees to pay dividend on the stock it issues, which it uses to buy outstanding government debt.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Question: Why would an investor sell 1000 British pounds of debt that might pay 4% interest in return for 1000 pounds of stock in the company that paid only 2% dividends?&lt;/p&gt;&#xA;" OwnerUserId="8470" LastActivityDate="2016-10-05T12:30:39.557" Title="The appeal of low-dividend stocks when trading with government debt" Tags="&lt;stock-market&gt;&lt;debt&gt;&lt;government-debt&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12291" PostTypeId="1" AcceptedAnswerId="13184" CreationDate="2016-06-06T09:55:32.663" Score="3" ViewCount="96" Body="&lt;p&gt;I am looking for data sources that measure competition across countries. The variable I'm looking for could be any type of Concentration Ratio, Lerner Index, Herfindahl Index or Markup.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The data does not need to be by industry for each country. It could be an &quot;average&quot; for each. Otherwise data for any specific industry, besides banking and finance would also be welcome.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If a cross-country dataset is not available, data for U.S. states would also be appreciated. Panels are obviously preferable, but a cross-section will do as well.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm aware that the World Bank has such data on the financial industry. I am also aware that there are some estimates of markups for several OECD countries, but the number of countries is usally is very small.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does anyone know where to find such data?&lt;/p&gt;&#xA;" OwnerUserId="5557" LastActivityDate="2016-10-26T11:05:12.547" Title="Competition Data across Countries" Tags="&lt;reference-request&gt;&lt;data-request&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12292" PostTypeId="1" CreationDate="2016-06-06T10:59:26.870" Score="-9" ViewCount="152" Body="&lt;p&gt;See title. Specifically it would be good to see something that proves some type of market economics and not just a simple monopoly model.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is not too broad because I am asking for literally one example.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It has to be a consistent prediction and not a hit or miss guess. &lt;/p&gt;&#xA;" OwnerUserId="8360" LastEditorUserId="8360" LastEditDate="2016-06-06T11:22:20.993" LastActivityDate="2016-06-06T11:22:20.993" Title="Has anyone made a successful economic prediction more than once?" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;" AnswerCount="1" CommentCount="7" ClosedDate="2016-06-07T20:06:16.243" ContentLicense="CC BY-SA 3.0" />
  <row Id="12293" PostTypeId="2" ParentId="12292" CreationDate="2016-06-06T11:16:08.143" Score="2" Body="&lt;p&gt;If you think this question is not too broad I have an example for you.&#xA;On more than one occasion I went to the store to buy milk. I would not have bought milk if it cost more than \$3. The store (its pricing strategist) knew this, because the milk cost less than \$3! This happens like once a week, so he is pretty good at making predictions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since you might argue that the above is a monopoly example: If the milk cost more than \$3 I would have gone to a different store.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are numerous other examples: Stores usually estimate how many supplies they will need and they frequently get it right.&#xA;&lt;br&gt; The FED is frequently wrong, but it is sometimes right, e.g. &lt;a href=&quot;http://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20140618.pdf&quot; rel=&quot;nofollow&quot;&gt;see 2015 unemployment rate&lt;/a&gt; vs. the projection.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2016-06-06T11:16:08.143" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="12294" PostTypeId="1" CreationDate="2016-06-06T15:36:37.643" Score="1" ViewCount="33" Body="&lt;p&gt;I came across this statement in a fairly official document, the phrase in bold does not seem consistent. I cannot contact the authors of the said document, so I am posing my question here. Here is the statement.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;Under a mild recession followed by a sluggish recovery and inflationary pressure, &#xA;&lt;strong&gt;interest rates rapidly increase&lt;/strong&gt; and &lt;strong&gt;yield curve flattens&lt;/strong&gt;.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why would interest rates rapidly increase? Is it understood that the interest rates here refer to the rates the Federal Reserve sets? &lt;/p&gt;&#xA;" OwnerUserId="4553" LastActivityDate="2016-07-08T05:28:39.260" Title="Interest rate and yield curve in a mild recession" Tags="&lt;interest-rate&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12295" PostTypeId="1" CreationDate="2016-06-06T15:50:51.627" Score="4" ViewCount="406" Body="&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\textbf{Full disclaimer:}$&lt;/span&gt; I am studying for my candidacy exams and this question is from one of the exams last year.&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$max\;\sum_{t=0}^\infty \beta^t \frac{c_t^{1-\gamma}}{1-\gamma}$$&lt;/span&gt;Subject to the following constraints:&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$c_t+i_t=y_t$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$y_t=A_tk_t^\alpha$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$k_{t+1}=(1-\delta)k_t+i_t$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$ln(A_{t+1})=ln(A_t)+\mu$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$c_t,k_{t+1}\geq 0$$&lt;/span&gt;&#xA;(b) Compute a balanced growth path in which capital, consumption and output grow at constant rates. On the balanced growth path&lt;/p&gt;&#xA;&lt;p&gt;(i) What is the growth rate of capital?&lt;/p&gt;&#xA;&lt;p&gt;(ii) What is the growth rate of consumption?&lt;/p&gt;&#xA;&lt;p&gt;(iii) What is the growth rate of output?&lt;/p&gt;&#xA;&lt;p&gt;(iv) What is the ratio of capital to output?&lt;/p&gt;&#xA;&lt;p&gt;(v) What is the ratio of consumption to output?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\textbf{My work:}$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;Combining the constraints we get:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$c_t=A_tk_t^\alpha+(1-\delta)k_t-k_{t+1}$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;Taking two terms from the objective function we get:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$...+\beta^t\bigg(\frac{\big(A_tk_t^\alpha+(1-\delta k_t-k_{t+1}\big)^{1-\gamma}}{1-\gamma}\bigg)+\beta^{t+1}\bigg(\frac{\big(A_{t+1}k_{t+1}^\alpha+(1-\delta k_{t+1}-k_{t+2}\big)^{1-\gamma}}{1-\gamma}\bigg)+...$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;Differentiating w.r.t  &lt;span class=&quot;math-container&quot;&gt;$k_{t+1}$&lt;/span&gt; and substituting consumption back in we get:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$c_t^{-\gamma}=\beta\bigg[\alpha \bigg(\frac{A_{t+1}k_{t+1}^\alpha}{k_{t+1}}\bigg)+(1-\delta)\bigg]c_{t+1}^{-\gamma}$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\implies \frac{c_{t+1}}{c_t}=\bigg[\beta\bigg(\alpha\bigg(\frac{y_{t+1}}{k_{t+1}}\bigg)+(1-\delta)\bigg)\bigg]^{\frac{1}{\gamma}}\qquad(1)$$&lt;/span&gt;&#xA;I also derived:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\frac{k_{t+1}}{k_t}=(1-\delta)+\frac{c_t}{k_t}-\frac{y_t}{k_t}\qquad(2)$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\frac{y_{t+1}}{y_t}=e^\mu\bigg(\frac{k_{t+1}}{k_t}\bigg)^\alpha\qquad(3)$$&lt;/span&gt;&#xA;My train of thought is the following:&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\frac{k_{t+1}}{k_t}=\frac{c_{t+1}}{c_t}$&lt;/span&gt; because if &lt;span class=&quot;math-container&quot;&gt;$\frac{k_{t+1}}{k_t}&amp;gt;\frac{c_{t+1}}{c_t}$&lt;/span&gt; we would not satisfy the transversality condition because we would have capital in the &amp;quot;last&amp;quot; period which means we cannot be maximizing consumption. If &lt;span class=&quot;math-container&quot;&gt;$\frac{k_{t+1}}{k_t}&amp;lt;\frac{c_{t+1}}{c_t}$&lt;/span&gt;, we would eventually not be able to maintain constant consumption. Using that and the fact that the ratio of output to capital will be constant over time, equating equations (1) and (2) yields the following messy results:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\bigg(\frac{y_t}{k_t}\bigg)^\gamma+\alpha\beta\bigg(\frac{y_t}{k_t}\bigg)=\bigg((1-\delta)+\frac{c_t}{k_t}\bigg)^\gamma+\beta(1-\delta)$$&lt;/span&gt;&#xA;As far as I can tell, this equation isn't solvable. Does this mean I cannot say that the growth rate of consumption is equal to the growth rate of capital or have I made a mistake somewhere along the way? Also, how would one solve for the growth rates if not this way??&lt;/p&gt;&#xA;" OwnerUserId="5825" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2017-08-01T19:42:02.863" Title="Balanced Growth Path (Qualifier Question)" Tags="&lt;macroeconomics&gt;&lt;balanced-growth&gt;" AnswerCount="1" CommentCount="5" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12296" PostTypeId="1" CreationDate="2016-06-06T16:45:48.000" Score="0" ViewCount="398" Body="&lt;p&gt;I want to calculate a constant GDP serie from 1995 till 2014 based on nominal GDP expressed in Yuan (Chinese currency).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I already get stuck on how to first make a constant GDP serie based on Yuan, let alone on international dollars. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Would it be enough to use the GDP deflator with base year 2014 to get constant GDP series in Yuan in 2014 prices?&lt;/p&gt;&#xA;" OwnerUserId="8479" LastEditorUserId="2776" LastEditDate="2017-07-03T12:35:35.830" LastActivityDate="2017-10-01T14:29:01.383" Title="How to calculate constant GDP in international $ from nominal GDP in local currency units" Tags="&lt;gdp&gt;&lt;purchasing-power-partity&gt;&lt;price-index&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12297" PostTypeId="1" CreationDate="2016-06-07T01:02:30.623" Score="7" ViewCount="110" Body="&lt;p&gt;I am referring to how buyers will haggle over 200 when purchasing an item worth, say, 500 but not bat an eyelid paying an extra 5000 on, say, a house.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am seeking a very brief explanation of this phenomenon or the official name (if it has one).&lt;/p&gt;&#xA;" OwnerUserId="8474" LastEditorUserId="44" LastEditDate="2016-06-07T05:34:27.717" LastActivityDate="2016-10-27T05:56:58.453" Title="Why does a buyer value a dollar in a small purchase (e.g. TV) differently to a dollar in a large purchase (e.g. car)?" Tags="&lt;behavioral-economics&gt;" AnswerCount="3" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12298" PostTypeId="1" CreationDate="2016-06-07T08:06:46.700" Score="2" ViewCount="91" Body="&lt;p&gt;I encountered the following question:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which of the following will NOT exist in a one-man economy?&lt;br&gt;&#xA;1. competition&lt;br&gt;&#xA;2. private property rights&lt;br&gt;&#xA;3. economies of scale&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Turns out the answer was 1 and 2. I sort of understand why 1 and 2 won't exist but I don't really understand 3. How does economies of scale exist in a one-man economy?&lt;/p&gt;&#xA;" OwnerUserId="8228" LastActivityDate="2016-06-07T08:06:46.700" Title="Economies of scale in Robinson Crusoe economy?" Tags="&lt;microeconomics&gt;&lt;competition&gt;&lt;economies-of-scale&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12299" PostTypeId="2" ParentId="12278" CreationDate="2016-06-07T09:02:40.993" Score="1" Body="&lt;p&gt;Fractals applied to finance was a research area of Benoît Mandelbrot. He wrote books and research articles in the matter. Looking at his work could be a good way to start with.&lt;/p&gt;&#xA;" OwnerUserId="4094" LastActivityDate="2016-06-07T09:02:40.993" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12300" PostTypeId="2" ParentId="12287" CreationDate="2016-06-07T09:46:08.457" Score="3" Body="&lt;p&gt;In the paper cited at the end of this answer, the incentives for all three parties involved are discussed. Not only did the creditors suffer from a lower return after the conversion, they also faced longer maturities and, given the strong heterogeneity in lending terms across bonds, also a destruction of bond specific information. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Nevertheless, conversions in line with your description were beneficial for the owners of the converted bonds since the conversion increased liquidity (the liquidity of the shares highly contrasted the illiquidity of government bonds) and reduced the probability of government default. In addition, the shares represented claims on rents of the company. Though, for the specific case of the South Sea Company, there have never been any rents involved. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Stephen Quinn, 2008. &quot;Securitization of Sovereign Debt: Corporations as a Sovereign Debt Restructuring Mechanism in Britain, 1694-1750,&quot;&#xA;  Working Papers 200701, Texas Christian University, Department of Economics. &lt;a href=&quot;http://papers.ssrn.com/sol3/papers.cfm?abstract_id=991941&quot; rel=&quot;nofollow&quot;&gt;http://papers.ssrn.com/sol3/papers.cfm?abstract_id=991941&lt;/a&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="6566" LastActivityDate="2016-06-07T09:46:08.457" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12301" PostTypeId="1" CreationDate="2016-06-07T14:38:13.547" Score="1" ViewCount="2037" Body="&lt;p&gt;I am solving some micro related exercises and I came across this weird Leontief production function: $$Q =\left(\min\{K, L\} \right)^b$$  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am not sure how to solve it. I have to find the inputs' demand, cost function etc.... Should I solve it as $K^b=L^B=Q$ and then proceed as usual with the standard Leontief? &lt;/p&gt;&#xA;" OwnerUserId="8276" LastEditorUserId="2776" LastEditDate="2017-03-15T13:12:33.117" LastActivityDate="2017-04-26T00:28:51.337" Title="Weird Leontief production function" Tags="&lt;macroeconomics&gt;&lt;leontief&gt;" AnswerCount="4" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12303" PostTypeId="2" ParentId="12301" CreationDate="2016-06-07T19:04:55.087" Score="5" Body="&lt;p&gt;This is not a weird case, but a Leontief production function which is &lt;em&gt;not&lt;/em&gt; homogeneous of degree one, but homogeneous of degree $b$. You can see this if you use the connection between a C.E.S. production function and the Leontief one.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider &#xA;$$Q_b=[a K^{-\rho} +(1-a) L^{-\rho}  ]^{-\frac{b}{\rho}},\;\; b&amp;gt;0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Rightarrow Q_b = \frac 1{[a (1/K^{\rho}) +(1-a) (1/L^{\rho})  ]^{\frac{b}{\rho}}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Take the limit when $\rho \rightarrow \infty$. Since we are interested in the limit when $\rho\rightarrow \infty$ we can ignore the interval for which $\rho \leq0$, and treat $\rho$ as strictly positive.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Without loss of generality, assume $K\geq L \Rightarrow (1/K^{\rho})\leq (1/L^{\rho})$. We also have $K, L &amp;gt;0$. Then we verify that the following inequality holds:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$(1-a)^{b/\rho}(1/L^{b})\leq  Q_b^{-1} \leq (1/L^{b}) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\rightarrow (1-a)^{b/\rho}(1/L^{b})\leq  [a (1/K^{\rho}) +(1-a) (1/L^{\rho})  ]^{\frac{b}{\rho}} \leq (1/L^{b}) \tag{1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;by raising throughout to the $\rho/b$ power to get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$(1-a)(1/L^{\rho}) \leq a (1/K^{\rho}) +(1-a) (1/L^{\rho})  \leq (1/L^{\rho}) \tag {2}$$&#xA;which indeed holds, obviously, given the assumptions. Then go back to the first row of $(1)$ and&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\lim_{\rho\rightarrow \infty} (1-a)^{b/\rho}(1/L^{b}) =(1/L^{b})$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which sandwiches the middle term in $(1)$ to $(1/L^{b})$ , so &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\lim_{\rho\rightarrow \infty}Q_b = \frac {1}{1/L^b} = L^b = \big[\min\{K,L\}\big]^{b} \tag{3}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For more, see &lt;a href=&quot;https://economics.stackexchange.com/a/399/61&quot;&gt;this answer&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2016-06-07T19:04:55.087" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12304" PostTypeId="2" ParentId="12295" CreationDate="2016-06-07T20:24:32.510" Score="2" Body="&lt;p&gt;&lt;em&gt;(That one can use the log-difference approximation for the growth rates, can be glimpsed by the fact that while the model apparently is set in discrete time, the log-evolution of technology is expressed using the exponential, which is how we express a constant growth rate in continuous time).&lt;/em&gt;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;From&#xA;$$\frac{y_{t+1}}{y_t}=e^\mu\bigg(\frac{k_{t+1}}{k_t}\bigg)^\alpha\qquad(3)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Taking logs you get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$g_y = \mu + \alpha g_k$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where the &quot;$g$&quot;s are growth rates. One the balanced growth path, they have to be equal to some constant, say $g^*$, so you have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$g^* = \mu + \alpha g^* \implies g^* = \frac {\mu}{1-\alpha}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which is the growth rate of the economy on the balanced growth path.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You should also be able (by simmply manipulating the equation with which you start showing your work), to arrive easily at&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\left (\frac {c}{y}\right)^* = 1- (\delta +g^*)\left (\frac {k}{y}\right)^*$$&#xA;So you need only to determine one of the two to obtain the other.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Realize how you can write the left-hand side of $(1)$ while on the balanced growth path, then turn the equation around and solve for $k/y$. Don't expect to get something necessarily &quot;simple-looking&quot;.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2016-06-07T20:24:32.510" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12305" PostTypeId="1" AcceptedAnswerId="12309" CreationDate="2016-06-07T20:45:50.403" Score="1" ViewCount="34" Body="&lt;p&gt;In some models there are times when there are many entrepreneurs, and others when there are not. Is this a stylized fact of some kind? Are there any statistics about how entrepreneurial a particular generation is?&lt;/p&gt;&#xA;" OwnerUserId="7593" LastActivityDate="2016-06-08T08:22:38.803" Title="Are there big waves of entrepreneurship over time?" Tags="&lt;economic-growth&gt;&lt;technology&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12306" PostTypeId="1" CreationDate="2016-06-07T21:36:08.570" Score="2" ViewCount="2205" Body="&lt;p&gt;How can I prove that the equilibrum point $D(p)=S(p)$ is pareto efficient? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The definition of pareto efficient: there is no way to make any person better off without hurting anybody else&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$D(p)$ is the market demand curve and $S(p)$ is the market supply curve&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I´m working with Hal Varian intermediate microeconomics and he proves that any amount less than the equilibrium amount cannot be Pareto efficient :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At any amount of output less than the competitive amount $q^*$ there is someone who is willing to supply an extra unit of the good at a price that is less than the price that someone is willing to pay for an extra unit of the good. If the good were produced and exchanged between these two people at any price between the demand price and the supply price, they would both be made better off. Thus any amount less than the equilibrum amount cannot be Pareto efficient, since there will be at least two people who could be better off&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But I´m having trouble proving that the equilibrium point is pareto efficient&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would really appreciate if you can help me with this problem. Any comments, or suggestions would be highly appreciated&lt;/p&gt;&#xA;" OwnerUserId="8488" LastActivityDate="2016-06-10T04:06:02.617" Title="Market equilibrium and pareto efficiency" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;supply-and-demand&gt;&lt;pareto-efficiency&gt;&lt;competitive-equilibrium&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12307" PostTypeId="2" ParentId="12294" CreationDate="2016-06-08T04:48:37.150" Score="2" Body="&lt;p&gt;Because interest rates have been at abnormally low levels for quite some time and the Federal Reserve bank is required to pay stockholders' dividends at 6 percent, the Federal Reserve must either issue or collect more money.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Both of these choices negatively impact the value of the US dollar as they both hurt the American economy one way or another.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A mild recession followed by a sluggish recovery may well lead to a politically initiated response that pressures the Federal Reserve to increase the money supply and inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reason the Federal Reserve concludes that interest rates rapidly increase is because they need the borrowers of this newly created money to pay back their loans sooner (to get their stockholders' 6 percent dividends).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Source:&#xA;&lt;a href=&quot;http://www.federalreserve.gov/aboutthefed/section7.htm&quot; rel=&quot;nofollow&quot;&gt;http://www.federalreserve.gov/aboutthefed/section7.htm&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="8487" LastActivityDate="2016-06-08T04:48:37.150" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12308" PostTypeId="1" CreationDate="2016-06-08T06:34:08.420" Score="1" ViewCount="8206" Body="&lt;p&gt;If a demand function $X(P_X, P_y, I)$ depends only on prices and income. Is this function a homogeneous function?&lt;/p&gt;&#xA;" OwnerUserId="6065" LastActivityDate="2016-06-08T15:51:37.413" Title="Determine the homogeneity of a demand function" Tags="&lt;supply-and-demand&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12309" PostTypeId="2" ParentId="12305" CreationDate="2016-06-08T07:06:35.533" Score="1" Body="&lt;p&gt;I think there are waves indeed. When you look at historical evidence you see a swinging between 'more free market' and 'more central planning (thus less free market)'. The more free a market is (less regulation, less taxes), the more entrepreneurship you will see. &#xA;In the Soviet-Union for example entrepreneurship was dead because everything was centrally planned by government. It made no sense taking risk or sticking your neck out for something.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For statistics, if I were you I would try to look for historical data about 'number of people self employed', 'number of starting businesses', ... Maybe you can start by looking over here: &lt;a href=&quot;http://www.oecd.org/std/business-stats/&quot; rel=&quot;nofollow&quot;&gt;http://www.oecd.org/std/business-stats/&lt;/a&gt; or here &lt;a href=&quot;http://ec.europa.eu/eurostat/web/structural-business-statistics/entrepreneurship/indicators&quot; rel=&quot;nofollow&quot;&gt;http://ec.europa.eu/eurostat/web/structural-business-statistics/entrepreneurship/indicators&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;hope this helps a little &lt;/p&gt;&#xA;" OwnerUserId="8450" LastEditorUserId="8450" LastEditDate="2016-06-08T08:22:38.803" LastActivityDate="2016-06-08T08:22:38.803" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="12311" PostTypeId="1" AcceptedAnswerId="17812" CreationDate="2016-06-08T13:55:36.997" Score="4" ViewCount="248" Body="&lt;p&gt;You can find many explanations of theoretically how GDP is measured. But how is it done &lt;em&gt;in practice&lt;/em&gt;? Is it estimated by extrapolating from small samples of activity or can the overall value be measured directly somehow.&lt;/p&gt;&#xA;" OwnerUserId="5081" LastActivityDate="2017-09-12T16:08:53.717" Title="How to measure GDP in practice?" Tags="&lt;gdp&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12312" PostTypeId="1" CreationDate="2016-06-03T11:22:24.080" Score="4" ViewCount="74" Body="&lt;p&gt;Crude oil price is decreasing in the international market. But in India, the price of petrol and diesel is gradually increasing. Why?&lt;/p&gt;&#xA;" OwnerDisplayName="Hailey" LastEditorUserId="8891" LastEditDate="2016-10-13T08:03:59.983" LastActivityDate="2016-10-13T08:03:59.983" Title="Why are oil prices increasing in India despite countervailing trends in the international market?" Tags="&lt;oil&gt;" AnswerCount="1" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12313" PostTypeId="2" ParentId="12308" CreationDate="2016-06-08T15:35:18.820" Score="4" Body="&lt;p&gt;All (marshallian) demand functions are homogenous of degree zero in prices and income. This is a well known result.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That means that $x(\lambda p, \lambda I) = x(p,I)$, where $p$ is a vector of prices (i.e. x could be a function of any number of prices, including $P_x$ and $P_y$, which were given in your example).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So if we multiply all prices and income by the same amount, demand doesn't change. This is very intuitive. Imagine the government would just add a zero to all prices and to your paycheck. There is no reason for you to change your demand as nothing really got cheaper nor did your income increase in real terms.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To see this formally:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Proof:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$x(p,I) = argmax \; U(x)$ s.t. $px \leq I$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$x( \lambda p, \lambda I) = argmax \; U(x)$ s.t. $ \lambda px \leq \lambda I \Leftrightarrow $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$x( \lambda p, \lambda I) =  argmax \; U(x)$ s.t. $px \leq I = x(p,I)$&#xA;$Which \; is \; the \; definition \; of \; homogeneity \; of \; degree \; zero. QED. $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The last step follows because we cancel $\lambda$ in the budget constraint on both sides.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastActivityDate="2016-06-08T15:35:18.820" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12314" PostTypeId="2" ParentId="12308" CreationDate="2016-06-08T15:51:37.413" Score="2" Body="&lt;p&gt;With no other information, it is not possible to determine with $X(P_X, P_y, I)$ is a homogenous function. As mentioned in the answer by @BB King, it is (very) likely that because it is a demand function it is homogenous of degree 0.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Formally, a function, $f : X \rightarrow \mathbb{R}$, is homogenous (of degree $d$) if, for any constant $c$, $f(cx) = c^d f(x)$. Using this definition will allow you to check for yourself whether it is homogenous or not.&lt;/p&gt;&#xA;" OwnerUserId="47" LastActivityDate="2016-06-08T15:51:37.413" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12316" PostTypeId="2" ParentId="9176" CreationDate="2016-06-08T17:03:39.247" Score="4" Body="&lt;p&gt;Once artificial intelligence surpasses human intelligence, it will be up to A.I. to determine how we spend our days. On the one hand this already occurs. When you go online, algorithms are constantly trying to put you into so-called funnels of a variety of business models. Whether it is to click on ads, pay for digital products or order services and goods, algorithms are constantly tweaking internet content for hundreds or thousands of visitors to websites. Although human programmers wrote these algorithms with these goals in mind, the algorithms are not overlooked to the extent that there is complete knowledge of what is going on. The algorithms keep this knowledge intrinsic, much more so when they are neural networks, that do not give a lot of insight into how they work.&#xA;On the other hand, a more intelligent AI will conceptually comport itself to humans in the way that humans behave toward horses. Thereby they will probably identify the human need of being creatively productive and indeed facilitate that.&#xA;I don't believe that rich people will have a lot to say over super human intelligence, since outwitting rich people while hopefully understanding the benefit of serving the common good, AI will understand that rich people do not have a lot to offer the AI, other than perhaps being instrumental in wielding their wealth.&lt;/p&gt;&#xA;" OwnerUserId="6598" LastActivityDate="2016-06-08T17:03:39.247" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="12317" PostTypeId="1" AcceptedAnswerId="15477" CreationDate="2016-06-08T18:02:11.703" Score="4" ViewCount="324" Body="&lt;p&gt;To preface, I'm taking a macroeconomics class and we're learning about measuring GDP. The textbook says that there are two main ways to measure GDP: the expenditures method and the income method.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The expenditures method can be represented like so:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$GDP = C + I_g + G + X_n$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $C$ is personal consumption expenditures, $I_g$ is gross private domestic investment, $G$ is government purchases, and $X_n$ is net exports.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The income method is more complicated, and looks like this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$GDP = I_n - I_f - C_c + s$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where $I_n$ is the national income, $I_f$ is the net foreign income, $C_c$ is the consumption of fixed capital, and $s$ is the statistical discrepancy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$s$ is calculated by subtracting the expenditures method from the income method, in order to make them the same. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is the point of having the income method if it relies on the expenditures method? I get that it would be useful for statistics, but why use both?&lt;/p&gt;&#xA;" OwnerUserId="8496" LastEditorUserId="8496" LastEditDate="2017-02-16T13:22:55.900" LastActivityDate="2017-02-16T19:35:46.680" Title="Why use the income approach to approximate GDP if it relies on the value produced by the expenditures approach?" Tags="&lt;gdp&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12318" PostTypeId="1" AcceptedAnswerId="12320" CreationDate="2016-06-08T22:34:21.853" Score="2" ViewCount="592" Body="&lt;p&gt;If we want to figure out the strength of a currency relative to another currency, we look at the exchange rate between the two. However, I'm wondering what is the most accurate way of assessing the absolute value of a currency?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I suppose commodities or gold could be used, but there can be variations on the value of those over time (i.e if there is a new use for gold in electronics, the value is obviously going up.) So have economists found a better way?&lt;/p&gt;&#xA;" OwnerUserId="8500" LastActivityDate="2016-10-01T16:33:26.430" Title="Is there a good way of assessing an estimated absolute value of a currency?" Tags="&lt;currency&gt;&lt;exchange-rates&gt;" AnswerCount="3" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12320" PostTypeId="2" ParentId="12318" CreationDate="2016-06-09T09:28:45.153" Score="-1" Body="&lt;p&gt;I don't think absolute value exists. Every valuation is relative, because these valuations are made by people/by the market. For example: if you'd offer the choice between a ferrari and an icecream to a little kid, the kid might choose the icecream. If you'd offer the same choice to an adult, the adult would probably choose the ferrari. But maybe the adult is very rich, and he already has 10 such ferraris, so he doesn't care and chooses the icecream cause he's very hungry at the moment...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also with currencies, absolute value doesn't exist, only value relative to other things. I do think that gold/silver are possibly the best measures for currency-value. Everyone always talks about gold going up or down in currency-value. I think we should take a different approach and talk about currency going up or down in gold value cause gold can't be created ad infinitum and at almost no cost. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't think that measuring one currency against another has any merit... both currencies can be printed at will. It's like measuring length in centimeters, but every day there are more centimeters in one meter...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So no, in my opinion there's no better way, cause absolute value doesn't exist here...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Anyway, the Austrians have a lot to say about 'subjective value': &lt;a href=&quot;https://mises.org/library/subjective-value-theory&quot; rel=&quot;nofollow&quot;&gt;https://mises.org/library/subjective-value-theory&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;best regards&lt;/p&gt;&#xA;" OwnerUserId="8450" LastEditorUserId="8450" LastEditDate="2016-06-09T15:03:54.913" LastActivityDate="2016-06-09T15:03:54.913" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="12321" PostTypeId="1" CreationDate="2016-06-09T10:39:41.803" Score="-3" ViewCount="385" Body="&lt;p&gt;The question above is closed and unanswered. Stop dodging the question. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am asking for one example.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Successful defined as:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Has been consistently correct for the longest number of years&lt;/li&gt;&#xA;&lt;li&gt;Has been specifically mentioned in the economic literature as an example of a successful economic prediction &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="8360" LastEditorUserId="8360" LastEditDate="2016-06-09T16:46:25.717" LastActivityDate="2016-06-09T16:46:25.717" Title="What is the most successful economic prediction?" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;" AnswerCount="1" CommentCount="10" ClosedDate="2016-06-09T20:17:26.453" ContentLicense="CC BY-SA 3.0" />
  <row Id="12322" PostTypeId="1" CreationDate="2016-06-09T13:34:16.433" Score="1" ViewCount="249" Body="&lt;p&gt;I am curious as to how a firm which produces a giffen good would maximize profits? Having an upward sloping demand curve seems to imply that we cannot guarantee that there exists a quantity where marginal revenue is equal to marginal cost, and even if there is, would that point be the profit maximizing point? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My thoughts are the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are two cases to look at:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(1) If the marginal revenue curve never crosses the marginal cost curve (i.e. they have the same slope and a different intercept). This yields two sub-cases:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\qquad$(i) The marginal revenue curve lies above the marginal cost curve: This case would clearly $\qquad$lead to infinite production because the firm is always increasing profits.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\qquad$(ii) The marginal revenue curve lies below the marginal cost curve: This case would lead to $\qquad$ the firm choosing not to produce because they will always make a negative profit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(2) If the marginal revenue curve crosses the marginal cost curve. This also yields two sub-cases:&#xA;$\qquad$(i) The marginal cost curve starts below the marginal revenue curve: This case seems to be$\qquad$ just like our classic case where we would see production up until the point where marginal $\qquad$ revenue is equal to marginal cost.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\qquad$(ii) The marginal cost curve starts above the marginal revenue curve: This case is the one $\qquad$that I find most interesting. Would this case lead to infinite production? After marginal $\qquad$revenue crosses marginal cost, marginal revenue also grows at a faster rate than marginal $\qquad$cost, so my intuition tells me the firm could earn infinite profits.  &lt;/p&gt;&#xA;" OwnerUserId="5825" LastEditorUserId="5825" LastEditDate="2016-06-09T13:44:35.663" LastActivityDate="2016-06-09T13:44:35.663" Title="How Would a Firm Which Produces a Giffen Good Maximize Profits?" Tags="&lt;microeconomics&gt;&lt;profit-maximization&gt;&lt;giffen-goods&gt;" AnswerCount="0" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12323" PostTypeId="1" AcceptedAnswerId="12326" CreationDate="2016-06-09T13:50:13.860" Score="2" ViewCount="195" Body="&lt;p&gt;While studying globalisation, The subject of Trade Blocs was brought up, with hindsight, I wondered, aren't Trade Blocs fostering regionalism (as in devotion to the interests of one's own region) as opposed to globalisation? Trade blocs are anti-free-trade since they are essentially barriers to trade from nations outside of the bloc. Since Globalisation is &quot;developed&quot; through free trade as opposed to &quot;regionalisation&quot; of Trade, then are Trade Blocs regionalism and thus anti-Globalisation?&lt;/p&gt;&#xA;" OwnerUserId="8504" LastEditorUserId="8504" LastEditDate="2016-06-10T08:28:25.877" LastActivityDate="2016-06-10T08:28:25.877" Title="Are Trade Blocs regionalism rather than Globalisation" Tags="&lt;international-trade&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12324" PostTypeId="2" ParentId="12321" CreationDate="2016-06-09T14:58:35.713" Score="6" Body="&lt;p&gt;The Law of Supply (LOS) and the Law of Demand (LOD) are the two most successful economic predictions. I know you asked for one example, but these concepts run hand in hand, and are often thought of as one general concept. One of the earliest mentions of ideas like LOS and LOD was in 1691 by the philosopher John Locke in his publication &quot;Some Considerations on the Consequences of the Lowering of Interest and the Raising of the Value of Money.&quot; However it was noticed well before then (it just wasn't in a published work). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The LOD says that if the price of a good decreases, the quantity demanded for that good will increase (as long as consumers are able to purchase more). This prediction has been realized more times than we can count. There is really only one exception to the LOD, and that is giffen goods. However, seeing that there are only a handful of cases where a giffen good has been observed, they make up a minute fraction of the total number of observations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The LOS says that if the price of a good increases, the quantity supplied for that good will increase (as long as firms are able to produce more). Again, this prediction has been realized more times than we can count. I cannot think of any exceptions to the LOS.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These two laws are the most successful predictions in economics (in my opinion) because they are the basis for all of economics. If these two laws were not true, most of economics wouldn't be as it is today.&lt;/p&gt;&#xA;" OwnerUserId="5825" LastActivityDate="2016-06-09T14:58:35.713" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="12325" PostTypeId="1" CreationDate="2016-06-09T17:37:39.003" Score="1" ViewCount="68" Body="&lt;p&gt;Notation:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;t - time; G(t) - zero-coupon yield curve; $r$, $r_d$, $r_u$ - interest rates.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The task is to find market price of a bond for today, while knowing the price of a number of other bonds. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Nelson-sigel model provides interest rate curve G(t). The next thing to do is to calibrate interest rate binomial tree using G(t). Also are known bond cash flow, par value and today market price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem is how to do it properly. The start yield is given by G($t_1$), where $t_1$=0.25 (step for binomial model).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$100=\frac{1}{2}(\frac{G(t_2 )}{1+G(t_1)} +\frac{G(t_2 )+100}{(1+G(t_1))*(1+r_u )} + \frac{G(t_2 )}{1+G(t_1)} +\frac{G(t_2 )+100}{(1+G(t_1))*(1+r_d )})$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$r_u= r_d*exp⁡(2*σ)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$t_2 = 2*t_1$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These conditions provide $r_d$, $r_u$ for the second step of i.r. tree.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is the next set of conditions for $r_{dd},r_{du},r_{uu}$  correct?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$100= \frac{1}{4} (\frac{G(t_3)}{1+G(t_1)}+\frac{G(t_3)}{(1+G(t_1))(1+r_d)}+\frac{(G(t_3)+100)}{(1+G(t_1))(1+r_d)(1+r_{dd})}) + \frac{1}{4}(\frac{G(t_3)}{1+G(t_1)}+\frac{G(t_3)}{(1+G(t_1))(1+r_d)}+\frac{(G(t_3)+100)}{(1+G(t_1))(1+r_d)(1+r_{ud})}) + \frac{1}{4}(\frac{G(t_3)}{1+G(t_1)}+\frac{G(t_3)}{(1+G(t_1))(1+r_u)}+\frac{(G(t_3)+100)}{(1+G(t_1))(1+r_u)(1+r_{ud})}) + \frac{1}{4}(\frac{G(t_3)}{1+G(t_1)}+\frac{G(t_3)}{(1+G(t_1))(1+r_u)}+\frac{(G(t_3)+100)}{(1+G(t_1))(1+r_u)(1+r_{uu})})$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$r_{du}= exp⁡(2*σ) r_{dd}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$r_{uu}= exp⁡(2*σ) r_{ud}=exp⁡(4*σ) r_{dd}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$t_3=3*t_1$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there an easy way to define $r_{uuu}$, $r_{uuuu}$ and other interest rates (yields), so it would be possible to do it programmatically?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What are the ways to correctly determine σ?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm heavily relying on ideas used in this presentation:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://faculty.cbpa.drake.edu/root/Auvergne/DESS%20Analyst%20Binomial.ppt&quot; rel=&quot;nofollow&quot;&gt;http://faculty.cbpa.drake.edu/root/Auvergne/DESS%20Analyst%20Binomial.ppt&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="8477" LastEditorUserId="8477" LastEditDate="2016-06-10T10:02:18.120" LastActivityDate="2016-06-10T10:02:18.120" Title="Bonds with embedded options pricing via binomial model" Tags="&lt;interest-rate&gt;&lt;bonds&gt;&lt;asset-pricing&gt;" AnswerCount="0" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="12326" PostTypeId="2" ParentId="12323" CreationDate="2016-06-09T17:57:27.010" Score="3" Body="&lt;p&gt;This is an important question in the trade literature. The &lt;strong&gt;regionalization of trade&lt;/strong&gt; is of serious concern to many international economists who view multilateralism as far superior to regionalism for improving welfare. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a nice &lt;a href=&quot;http://siteresources.worldbank.org/INTRANETTRADE/Resources/C6.pdf&quot; rel=&quot;nofollow&quot;&gt;paper&lt;/a&gt;, Caroline Freund and Richard Baldwin survey the available theoretical and empirical evidence on the relationship between regionalism and multilateralism, with the aim of discerning whether the spread of regionalism is likely to be a threat to, or an opportunity for, broader trade liberalization. I summarize here their main insights:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Two main related concerns raised by the &quot;&lt;strong&gt;multilateralists&lt;/strong&gt;&quot;:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;The first is &lt;strong&gt;&lt;em&gt;trade diversion&lt;/em&gt;&lt;/strong&gt;: preferential trade agreements, by diverting trade away from the most efficient global producers in favor of regional partners, may prove welfare reducing. &lt;/li&gt;&#xA;&lt;li&gt;Regionalism may hinder multilateralism, leading to a bad equilibrium in which several regional trade blocs maintain &lt;strong&gt;&lt;em&gt;high external trade barriers&lt;/em&gt;&lt;/strong&gt;. Regionalism can also undermine multilateralism simply by diverting limited government resources from multilateral negotiations.  &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;However the &quot;&lt;strong&gt;regionalists&lt;/strong&gt;&quot; argue that &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;it is precisely because the trade diversion is costly to bloc members that there is an incentive to reduce external tariffs. &lt;strong&gt;&lt;em&gt;As tariffs fall, trade diversion disappears&lt;/em&gt;&lt;/strong&gt;, and regionalism becomes a force for general liberalization. &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Although the verdict is not yet in, the evidence indicates that regionalism is broadly liberalizing. So regionalism does not go against globalization.&lt;/p&gt;&#xA;" OwnerUserId="6168" LastActivityDate="2016-06-09T17:57:27.010" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12327" PostTypeId="1" CreationDate="2016-06-09T20:31:04.497" Score="5" ViewCount="84" Body="&lt;p&gt;In social sciences, a lot of work is done on social networks. However, I have not found any work on invisible networks. If there are some, please list the same. If there are not any, why this is so? Think of invisible (sub)network as a set of nodes (people) connected to each other, but these connection are not visible (known) to rest of the network.&lt;/p&gt;&#xA;" OwnerUserId="8508" LastEditorUserId="8508" LastEditDate="2016-06-12T10:58:34.143" LastActivityDate="2016-06-12T10:58:34.143" Title="Research on invisible networks" Tags="&lt;reference-request&gt;&lt;networks&gt;" AnswerCount="0" CommentCount="13" ClosedDate="2016-07-26T13:19:49.177" ContentLicense="CC BY-SA 3.0" />
  <row Id="12328" PostTypeId="1" CreationDate="2016-06-09T21:03:39.780" Score="5" ViewCount="164" Body="&lt;p&gt;Companies occasionally own some of their own stock. A company owning its own stock is actually pretty weird when you think about it. If I own 1% of a business's stock (and therefore own 1% of the business's assets), and the company owns 50% of its own stock, I as a stockholder of the business, indirectly control 0.5% of the business. Through the 0.5%, I own 0.25%. Through the 0.25%, I own 0.125%, and ad infinitum. This adds up to 2% (which makes sense, since if I own 1% out of 50% of the stock, I would own 2% of the business.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What happens though if a company controls &lt;em&gt;all&lt;/em&gt; of its stock. This would mean that the company owns itself. In particular, it isn't really &lt;em&gt;owned&lt;/em&gt; by any individuals anymore. The purpose of a public company is to create value for its shareholders, but what does that mean if it owns itself?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Practically, how would this affect things like voting and bankruptcy?&lt;/p&gt;&#xA;" OwnerUserId="5716" LastActivityDate="2019-08-28T15:37:32.030" Title="What would happen if a company bought back of all of its stock? Would it own 100% of itself?" Tags="&lt;stock-market&gt;&lt;property&gt;" AnswerCount="4" CommentCount="5" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12329" PostTypeId="2" ParentId="12297" CreationDate="2016-06-09T21:20:45.933" Score="1" Body="&lt;p&gt;Interesting question. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;While I am not familiar with any economic literature on this subject, here are some thoughts that might get you started:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;Psychological Effect - Committing to the Idea of Spending a Large Sum of Money&lt;/strong&gt;: I tend to think that when people make large purchases, they commit themselves - ahead of the actual purchase - to the idea of spending a large amount of money. Committing can take on many forms - accepting the fact you're going to spend a lot of money, imagining having the product, etc... So after committing to it, they are less sensitive to an another 500 dollars here or there, as you mentioned. Imagine you planned to buy a new flatscreen TV priced 5000 dollars, once your new wage comes in, say in two weeks time. During that time you build up the anticipation: You imagine how great it will be to have it, you tell your friends about your plan, etc. &lt;em&gt;You commit.&lt;/em&gt; So if you end up getting to the store and finding out it costs 5500 dollars - 500 more - won't you be more inclined to &quot;let it slide&quot; and buy the TV anyway, than if you thought about buying a ring on your back home from work only to find out is more expensive than you thought?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;Different Purchase suggest different preferences?:&lt;/strong&gt; Another possible explanation could be that there is an innate difference in preferences between people who tend to make large purchases and people who tend to make small purchases. Generally speaking, it might be possible to assume that the first type have higher incomes, and therefore their marginal utility from another dollar, in any scenario, is smaller.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;Percents?&lt;/strong&gt;: This is probably the most straightforward answer. When you state the problem in terms of percents of the entire purchase and not actual dollars (I believe it is closer to how people actually frame the problem when they do their &quot;utility calculations&quot;), then 5000 dollars more on a house are really a smaller percent than 200 more dollars on, say, a new phone. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="8394" LastActivityDate="2016-06-09T21:20:45.933" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12330" PostTypeId="2" ParentId="11642" CreationDate="2016-06-09T21:42:28.813" Score="3" Body="&lt;p&gt;One important thing to remember is that people don't necessarily &lt;em&gt;&quot;have indifference curves&quot;.&lt;/em&gt; More correctly, indifference curves are a &lt;strong&gt;tool&lt;/strong&gt; used in economic literature to model human rationale and decision making. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Transitivity is one very common assumption regarding utility functions, and it lays on a  fairly reasonable explanation, which basically assumes people are &quot;smart enough to do the math&quot; and figure out that if they prefer A to B and B to C, then they should also prefer A to C. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So really what you're saying is that in your experiment, you found evidence that this doesn't model human behavior all that well. It's a perfectly reasonable claim, and if you think of it, such things make sense - since economic models are, almost by definition, a huge simplification of reality. Trying to adjust the models to better fit observed human behavior  is one of the things that drives the field forward. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It turns out that the issue you brought up - whether people actually display this &quot;transitivity&quot; quality -  is a pretty fundamental issue and has been studied quite intensively do date, in different scenarios. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To read more about it  and get to know the work of people who previously challenged this assumption, try to look up &quot;Transitivity of Preferences&quot;. &lt;a href=&quot;https://chapman.edu/research-and-institutions/economic-science-institute/_files/ifree-papers-and-photos/michel-regenwetter1.pdf&quot; rel=&quot;nofollow&quot;&gt;This&lt;/a&gt; is one example of such paper which should get you into the subject:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Any claim of empirical violations&#xA;  of transitivity by individual decision makers requires evidence beyond a reasonable doubt. We discuss&#xA;  why unambiguous evidence is currently lacking and how to clarify the issue&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Good Luck!&lt;/p&gt;&#xA;" OwnerUserId="8394" LastActivityDate="2016-06-09T21:42:28.813" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12332" PostTypeId="2" ParentId="12306" CreationDate="2016-06-10T04:06:02.617" Score="1" Body="&lt;p&gt;A rough guideline:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You already know the first case. At $q &amp;lt; q_c$ (competitive quantity), we have &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$S(p) &amp;gt; S(p_c) = D(p_c) &amp;gt; D(p)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is assuming you have &quot;normal&quot; (monotonic) assumptions on the supply and demand curves, which are pretty important to this proof. Notice that $S(p) = q_s; D(p) = q_d$ and in this case $q = q_s &amp;lt; q_d$, that is, there is a shortage. At any higher price $p_0 \in (p, p_c]$, there is a Pareto improvement. A new seller will sell at this higher price and there will exist some buyer willing to still buy it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The other case is analogous. At $q &amp;gt; q_c$, now&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$D(p) &amp;gt; D(p_c) = S(p_c) &amp;gt; S(p)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can use a similar argument as Varian's. At any lower price, there will be a buyer willing to buy the good and a seller still willing to supply the good.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2016-06-10T04:06:02.617" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12333" PostTypeId="1" CreationDate="2016-06-10T08:25:13.693" Score="1" ViewCount="23" Body="&lt;p&gt;I'm not sure which SE network this question belongs to, but this seems to be the most appropriate one.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What determines the choice of banknote denominations?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Obviously, the first factor is the numeral system used (base-10 means it will be easy to work with 1, 10, 100, etc. denominations). It seems like most of the world also issues 2 and 5 multiples of of the above denominations (2, 5, 20, 50, etc.). One exception I can think of is that USSR used to issue banknotes of 3 and 25 rubles.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Most currencies also have subunits. Why is this often the case and why is the unit usually divided in 100?&lt;/p&gt;&#xA;" OwnerUserId="8513" LastActivityDate="2016-06-10T08:25:13.693" Title="How is the choice of banknote denominations made?" Tags="&lt;currency&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12334" PostTypeId="1" CreationDate="2016-06-10T12:45:22.247" Score="1" ViewCount="94" Body="&lt;p&gt;In Wooldridge's graduate book, 2nd edition, page 174, he states «The usual motivation for the GLS estimator is to transform a system of equations where the error has a nonscalar variance-covariance matrix into a system where the error vector has a scalar variance-covariance matrix.» What does he mean by this?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does he mean that the resulting variance matrix will be diagonal? I've never head the expression «scalar variance-covariance matrix» before. Any help would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="118" LastActivityDate="2016-06-10T12:45:22.247" Title="Motivation for use of GLS instead of System OLS" Tags="&lt;econometrics&gt;&lt;applied-econometrics&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12335" PostTypeId="2" ParentId="5448" CreationDate="2016-06-10T12:48:36.150" Score="1" Body="&lt;p&gt;Looked a bit further, I think I possibly found what you're looking for:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Overall Trade Restrictiveness Index (OTRI) summarizes the trade policy stance of a country by calculating the uniform tariff that will keep its overall imports at the current level when the country in fact has different tariffs for different goods.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The data:&#xA;&lt;a href=&quot;http://siteresources.worldbank.org/INTRES/Resources/469232-1107449512766/OTRI2009.xlsx&quot; rel=&quot;nofollow&quot;&gt;http://siteresources.worldbank.org/INTRES/Resources/469232-1107449512766/OTRI2009.xlsx&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Background: &lt;a href=&quot;http://econ.worldbank.org/WBSITE/EXTERNAL/EXTDEC/EXTRESEARCH/0,,contentMDK:22574446~pagePK:64214825~piPK:64214943~theSitePK:469382,00.html&quot; rel=&quot;nofollow&quot;&gt;http://econ.worldbank.org/WBSITE/EXTERNAL/EXTDEC/EXTRESEARCH/0,,contentMDK:22574446~pagePK:64214825~piPK:64214943~theSitePK:469382,00.html&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;hope this helps,&#xA;best regards&lt;/p&gt;&#xA;" OwnerUserId="8450" LastActivityDate="2016-06-10T12:48:36.150" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12336" PostTypeId="1" AcceptedAnswerId="12338" CreationDate="2016-06-10T15:14:40.113" Score="1" ViewCount="187" Body="&lt;p&gt;So, right now, 1 BTC (bitcoin) is worth ≈ 578.25 USD. But, with the inflation of the USD, how can 1 BTC still hold its value at 578.25? Why doesn't it decrease?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's set this example:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1 BTC = 1 USD.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, the USD loses half of its value; 1 USD is now actually worth 0.50. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why won't the BTC lose half of its value?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I guess this principle applies to any currency and I can't seem to grasp the idea.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, any help will be appreciate. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I also hope that you can understand my question and if you need clarification, please ask! &lt;/p&gt;&#xA;" OwnerUserId="8186" LastActivityDate="2016-06-10T17:31:27.290" Title="How can 1 BTC gain value in USD if inflation is happening?" Tags="&lt;value&gt;&lt;price-theory&gt;&lt;bitcoin&gt;&lt;price&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12337" PostTypeId="2" ParentId="8318" CreationDate="2016-06-10T15:28:50.040" Score="3" Body="&lt;p&gt;The issue regarding the source of macroeconomic interest (and profits) appears to be unsettled among economists.  A free paper on this issue, entitled “What is the Source of Profit and Interest?  A Classical Conundrum Reconsidered,” by Gunnar Tomasson and Dirk J. Bezemer, dated January 29, 2010, and posted March 11, 2010, can be found online at &lt;a href=&quot;https://mpra.ub.uni-muenchen.de/21292/&quot; rel=&quot;nofollow&quot;&gt;https://mpra.ub.uni-muenchen.de/21292/&lt;/a&gt;.  Personally, although I have not exhaustively researched this issue or economists’ attempts to address it, of the explanations I have studied, I believe that the monetary-circuit approach of Professor Louis-Philippe Rochon most plausibly resolves the conundrum by considering that, in firms’ investment cycles, a cash outflow required for the purchase of capital goods and financed by long-term bank loans occurs in the first period of production in the investment cycle while long-term bank loans may be paid back over multiple periods of production until the end of the investment cycle.  Accordingly, based on my understanding of Professor Rochon's view, the central bank does not necessarily have to inflate the currency to pay macroeconomic interest, and money in circulation can generally cover it.     &lt;/p&gt;&#xA;" OwnerUserId="8518" LastEditorUserId="8518" LastEditDate="2016-06-11T15:10:30.237" LastActivityDate="2016-06-11T15:10:30.237" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12338" PostTypeId="2" ParentId="12336" CreationDate="2016-06-10T17:31:27.290" Score="2" Body="&lt;p&gt;I'll try to fit this in an answer. I think you are confusing nominal and relative value. Inflation means that the 'value' of your money depreciates relative to other things. For example, in the year 2000 I could buy a bread for 1 USD. In the year 2015 I can buy a bread for 2 USD. This means that the dollar lost half of it's value relative to bread. But nominal 1 USD is still 1 USD and 1 bread is still 1 bread.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So in your example: today 1 BTC = 578.25 USD. If there is inflation of the USD (the value depreciates), then all else being equal BTC should appreciate against the USD (go up in nominal USD-value). So to work further with the bread-example. If in the year 2000 1 BTC would buy 500 USD then in 2015 1 BTC should buy 1000 USD. So the USD went down in value relative to BTC.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;for more information:&#xA;&lt;a href=&quot;https://en.wikipedia.org/wiki/Purchasing_power&quot; rel=&quot;nofollow&quot;&gt;https://en.wikipedia.org/wiki/Purchasing_power&lt;/a&gt;&#xA;&lt;a href=&quot;http://www.investopedia.com/terms/c/currency-depreciation.asp&quot; rel=&quot;nofollow&quot;&gt;http://www.investopedia.com/terms/c/currency-depreciation.asp&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="8450" LastActivityDate="2016-06-10T17:31:27.290" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12340" PostTypeId="1" CreationDate="2016-06-10T22:40:15.183" Score="2" ViewCount="30" Body="&lt;p&gt;i just maked a model about the money demand in USA on the between 1962 and 1979 and i just found that the money demand was positively influenced by the interest rate. I know i'm not given any details but i would like to know what happened between thoose years, that can explain why the money demand was positively correlated with the interest rate thoose years. What happened in the US during thoose years?&lt;/p&gt;&#xA;" OwnerUserId="8035" LastActivityDate="2016-06-10T22:40:15.183" Title="Money Demand on the 60's and 70's" Tags="&lt;interest-rate&gt;&lt;money-supply&gt;" AnswerCount="0" CommentCount="1" ClosedDate="2016-06-17T10:17:27.783" ContentLicense="CC BY-SA 3.0" />
  <row Id="12341" PostTypeId="1" CreationDate="2016-06-11T01:31:11.280" Score="4" ViewCount="353" Body="&lt;p&gt;After posting &lt;a href=&quot;https://economics.stackexchange.com/questions/358/what-is-the-impact-of-fracking-on-oil-prices&quot;&gt;this question&lt;/a&gt;, I realized that there was quite a bit of controversy surrounding the use of Hotelling's Rule to estimate the price of oil.  Participants on this site seemed to be evenly split on the issue.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;From an Economics standpoint, &lt;strong&gt;How helpful is Hotelling's Rule in determining the price of oil?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From my analysis, it doesn't make sense that the price of oil should depend on Hotelling's rule instead of the traditional supply and demand models.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, when fracking was &quot;new,&quot; its use was limited, making the impact on the oil industry negligible.  Because the amount of oil produced was small, supply (for the most part) remained constant; businesses would also be incentivized to raise prices to market levels, increasing their profit margins.&lt;br&gt;&#xA;However, as fracking became more widely used, the oil entering the market increased, affecting the price of oil (&lt;a href=&quot;https://economics.stackexchange.com/questions/1787/how-successful-will-opecs-predatory-dumping-strategy-be&quot;&gt;and, originally, causing concern for OPEC&lt;/a&gt;).&lt;br&gt;&#xA;Years from now, when the Middle East is out of oil, companies will shift to drilling less accessible and more expensive oil, increasing the prices of oil for the consumer.  Eventually, the last barrel of the oil will either cost an enormous amount of money or will be worthless because of the rise in substitutes (solar, hydro, and wind power; electric cars).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thoughts or other analysis?&lt;/p&gt;&#xA;" OwnerUserId="27" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2017-11-04T09:28:29.707" Title="How helpful is Hotelling's Rule in determining the price of oil?" Tags="&lt;supply-and-demand&gt;&lt;resource-economics&gt;&lt;oil&gt;&lt;nonrenewable-resources&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12342" PostTypeId="2" ParentId="11033" CreationDate="2016-06-11T02:10:03.597" Score="3" Body="&lt;p&gt;&lt;strong&gt;Edit:&lt;/strong&gt; Edge cases suck; see comments. See also MWG Chapter 10 section C, D.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Suppose $(\vec x^*, \vec m^*)$ solves&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\max \sum^I_{i=1} m_i + \phi_i(x_i)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;but is not Pareto optimal.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\begin{align}&#xA;\implies \exists \ (x_i', m_i') \quad \text{s.t.} \quad &amp;amp; u_i(x_i', m_i') \geq u_i(x_i^*, m_i^*) \quad \forall \ i = 1,\cdots,I \\&#xA;&amp;amp; u_i(x_i', m_i') &amp;gt; u_i(x_i^*, m_i^*) \quad \text{for some} \ i&#xA;\end{align}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies \sum^I_{i=1} m'_i + \phi_i(x'_i) &amp;gt; \sum^I_{i=1} m^*_i + \phi_i(x^*_i)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which is a contradiction. If we have a solution to the utility maximization problem, it must be Pareto optimal.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Note that this comes form continuous and increasing properties of $\phi(\cdot)$)&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Suppose $(\vec x^*, \vec m^*)$ is a feasible Pareto optimal allocation, but does not solve&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\max \sum^I_{i=1} m_i + \phi_i(x_i)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Because we treat $m_i$ as numeraire and $\phi_i(\cdot)$ is strictly increasing, we know $u_i(\cdot)$ is locally non-satiated. The Pareto allocation should be just feasible.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\exists \ (x_i', m_i') \quad \text{s.t.} \quad \sum^I_{i=1} m'_i + \phi_i(x'_i) &amp;gt; \sum^I_{i=1} m^*_i + \phi_i(x^*_i)\\&#xA;\implies \boxed{ \sum^I_{i=1} \phi_i(x'_i) &amp;gt; \sum^I_{i=1} \phi_i(x^*_i)}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If this is true because this alternative allocation simply gives an individual more of $x$, for all else equal, then the alternative allocation is infeasible. So we'd have a contradiction.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If this is true because in the alternative allocation, someone else is allocated more $x$ and just one other person is allocated less, then the original allocation would not be Pareto optimal. Suppose it was. If you took the original allocation and shifted $x$ in the way of the new allocation, then you would need a corresponding trade in the numeraire good, $m$, to keep whoever is losing $x$ at least at the same utility level. But &lt;strong&gt;trades in just the numeraire good can never change summed aggregate utility&lt;/strong&gt;. From the original allocation, if you can trade $m$ for $x$ and make someone better off without hurting anyone, you weren't at a Pareto optimum, and if you can't trade $m$ for $x$ to make someone better off, you can't increase summed aggregate utility, which means the original allocation was a solution to the maximization problem.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This logic applies no matter how you rearrange $x$ between multiple people.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\square$&lt;/p&gt;&#xA;" OwnerUserId="4251" LastEditorUserId="4251" LastEditDate="2017-01-24T23:58:28.990" LastActivityDate="2017-01-24T23:58:28.990" CommentCount="10" ContentLicense="CC BY-SA 3.0" />
  <row Id="12343" PostTypeId="2" ParentId="12297" CreationDate="2016-06-11T05:10:09.997" Score="0" Body="&lt;p&gt;First off, it's important to note that in the aggregate, most people tend to haggle over big ticket items more often than small purchases. However, if the preferences are flip flopped, it could be because of:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;strong&gt;Information Asymmetry:&lt;/strong&gt; People tend to know what they want out of a TV or their everyday groceries. Differences are easily noticeable and usually measurable. But a big purchase like a house, car, or even computers have a lot of different qualities to them. It's harder to know how much you'll value those extra qualities you might stumble upon. Behaviorally speaking, people act myopically, so if the cost of determining (and justifying) why you want a better price for something seems high enough, then you might just forego bargaining altogether.&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;Prospect Theory:&lt;/strong&gt; Building off of that, people operate on the idea of &lt;em&gt;relative&lt;/em&gt; losses and gains. With gains, people tend to be risk averse, and not want to risk a lot when they are &quot;ahead&quot; for some time period, but for losses, people becoming more willing to take on risk (for a chance of eliminating their current losses for some time period). For smaller purchases, the possibility of &quot;losing out&quot; might be higher, leading to more bargaining, whereas for a big purchase, a large range of values might give you a relative gain, to which you don't feel as inclined to bargain.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2016-06-11T05:10:09.997" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12344" PostTypeId="1" CreationDate="2016-06-11T06:17:31.553" Score="4" ViewCount="1194" Body="&lt;p&gt;Economist and philosopher Amartya Sen posited that no social system could guarantee:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;A minimal sense of freedom in social choice&lt;/li&gt;&#xA;&lt;li&gt;Pareto efficiency&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;His &lt;a href=&quot;https://www.jstor.org/stable/1829633&quot; rel=&quot;nofollow&quot;&gt;original article can be found here&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In his original motivating example, he gave an example of two people faced with a &lt;em&gt;scandalous&lt;/em&gt; book. &lt;strong&gt;One person&lt;/strong&gt; thinks it's hot garbage and would prefer no one should read it, but would rather put themselves through the book than see the other person read it and enjoy it. The &lt;strong&gt;second person&lt;/strong&gt;, while preferring to read the book than it be destroyed with no one reading it, would think it'd be hilarious if the first person were forced to read it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this scenario, suppose you let each person have some degree of choice in the matter of who ends up reading this book. So the social planner will consider whether each person would rather they themselves read the book, or throw it away. Their choices will be directly put into the social planner's preferences.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Person 1 prefers not reading the book to reading it.&lt;/li&gt;&#xA;&lt;li&gt;Person 2 prefers reading the book to not reading it.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;So the social planner will therefore have the preferences:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\text{P2 reads} \succ \text{no one reads} \succ \text{P1 reads}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And the social planner will have the second person read the book. This is not a Pareto optimal result! Both people would rather the first person be made to read the book.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;There are a few ways out of the paradox:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Let the two people make a contract to bargain their way to a better result.&lt;/li&gt;&#xA;&lt;li&gt;Let them express their &quot;preferences&quot; sequentially, as a game.&lt;/li&gt;&#xA;&lt;li&gt;Lighten the restriction on needing Pareto efficiency specifically&lt;/li&gt;&#xA;&lt;li&gt;Only care about societies where everyone respects each others' choices and don't create weird externalities (&lt;a href=&quot;https://www.jstor.org/stable/2296852&quot; rel=&quot;nofollow&quot;&gt;societies that don't do this are the only ones that have this paradox&lt;/a&gt;).&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;So my general questions are:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;ul&gt;&#xA;  &lt;li&gt;Are there other solutions to the Liberal paradox? &lt;/li&gt;&#xA;  &lt;li&gt;Beyond abstract ideas of social justice, what practical implications could the paradox have on markets?&lt;/li&gt;&#xA;  &lt;/ul&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="4251" LastEditorUserId="1601" LastEditDate="2019-04-21T08:31:16.753" LastActivityDate="2019-04-22T05:00:38.967" Title="Sen's Liberal Paradox" Tags="&lt;microeconomics&gt;&lt;pareto-efficiency&gt;&lt;social-choice&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="12345" PostTypeId="2" ParentId="12341" CreationDate="2016-06-11T06:33:53.857" Score="3" Body="&lt;p&gt;It would be easy enough to subject the question to simple quantitative analysis - get the time-series of historical oil prices and away we go.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or, we can take a quick qualitative approach and get the same answer:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Rule just sets out what the most economically efficient path would be. That's nothing at all to do with how things happen in reality: it's just how things behave in textbooks for beginners. For example, it relies on an assumption of perfect foreknowledge; whereas, in the real world, we have previously-unanticipated innovation that radically changes both industry's cost structures, &lt;em&gt;and&lt;/em&gt; the amount of known reserves - as your fracking example illustrates.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2016-06-11T06:33:53.857" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12348" PostTypeId="2" ParentId="5448" CreationDate="2016-06-12T02:29:04.343" Score="0" Body="&lt;p&gt;Another useful World Bank data set on protectionism is the &lt;strong&gt;Temporary Trade Barriers Database&lt;/strong&gt; (TTBD) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &lt;a href=&quot;http://econ.worldbank.org/WBSITE/EXTERNAL/EXTDEC/EXTRESEARCH/EXTPROGRAMS/EXTTRADERESEARCH/0,,contentMDK:22561572~pagePK:64168182~piPK:64168060~theSitePK:544849,00.html&quot; rel=&quot;nofollow&quot;&gt;TTBD website&lt;/a&gt; hosts newly collected, freely available, and detailed data on more than thirty different national governments' use of policies such as antidumping (AD), global safeguards (SG), China-specific transitional safeguard (CSG) measures, and countervailing duties (CVD). &lt;/p&gt;&#xA;" OwnerUserId="6168" LastActivityDate="2016-06-12T02:29:04.343" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12349" PostTypeId="1" AcceptedAnswerId="12350" CreationDate="2016-06-12T04:05:48.910" Score="2" ViewCount="458" Body="&lt;p&gt;I have been reading through &lt;a href=&quot;http://www.economist.com/blogs/graphicdetail/2015/09/global-innovation-rankings?fsrc=scn/tw/te/pe/ed/theinnovationgame&quot; rel=&quot;nofollow noreferrer&quot;&gt;this article&lt;/a&gt; about Innovation Indexes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this, I have come across the terms: &quot;Efficient Innovators&quot; and &quot;Inefficient Innovators&quot; in this plot:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/Va9Y0.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Va9Y0.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So, what do they mean? And how are they calculated/determined?&lt;/p&gt;&#xA;" OwnerUserId="5642" LastActivityDate="2016-06-12T04:51:26.110" Title="What does efficient and inefficient innovators mean?" Tags="&lt;definition&gt;&lt;innovation&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12350" PostTypeId="2" ParentId="12349" CreationDate="2016-06-12T04:51:26.110" Score="2" Body="&lt;p&gt;My understanding of this chart is based on the &lt;a href=&quot;https://www.globalinnovationindex.org/userfiles/file/reportpdf/gii-full-report-2015-v6.pdf&quot; rel=&quot;nofollow&quot;&gt;Global Innovation Index 2015&lt;/a&gt; report. Definitions are not explicit however. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;They compute an Innovation Efficiency Ratio as the ratio of the &quot;Output Sub-Index&quot; score  over the &quot;Input Sub-Index&quot; score (definitions of these scores are presented in Figure 1). It is designed to assess the effectiveness of innovation systems and policies. In other words, this ratio shows how much innovation output a given country is getting for its inputs. Based on Table 1, all the countries with a ratio over the median (.71) appear to be considered as &quot;efficient innovators&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For instance, Angola and Côte d'Ivoire do not show significant innovation input and  output  results,  yet  their  efficiency ratios appear high because their outputs outweigh their inputs on a low level.&lt;/p&gt;&#xA;" OwnerUserId="6168" LastActivityDate="2016-06-12T04:51:26.110" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12352" PostTypeId="1" CreationDate="2016-06-12T13:55:36.217" Score="1" ViewCount="41" Body="&lt;p&gt;We've had ultralow interest rates for a very long time now (I think unprecedented in history). Is it possible that this extremely loose monetary policy is creating bubbles? Bill Gross has put out a warning: &lt;a href=&quot;http://www.marketwatch.com/story/bill-gross-negative-yields-will-lead-to-supernova-like-market-implosion-2016-06-10&quot; rel=&quot;nofollow&quot;&gt;http://www.marketwatch.com/story/bill-gross-negative-yields-will-lead-to-supernova-like-market-implosion-2016-06-10&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is it possible he is right? What would be the impact on the economy? What will the FED do if this happens, do they have other policy-tools besides QE and lowering interest rates?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;thanks in advance&lt;/p&gt;&#xA;" OwnerUserId="8450" LastActivityDate="2016-06-12T13:55:36.217" Title="Ultralow interest rates and bubbles" Tags="&lt;monetary-policy&gt;&lt;interest-rate&gt;&lt;economic-bubble&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12354" PostTypeId="1" AcceptedAnswerId="17105" CreationDate="2016-06-13T16:01:05.863" Score="2" ViewCount="46" Body="&lt;p&gt;Do corporate issuers outside of the Eurozone (as in the wider EU area, or non-EU countries) issue bonds in Euros (EUR)? How relatively common is this, compared to issuing bonds in USD, if you are a non-US and non-Eurozone debtor?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Would that qualify for what's referred to as &quot;Euro denominated&quot; bonds, or does that simply mean that the price of the bond is listed/represented in EUR?&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Note that I'm &lt;em&gt;not&lt;/em&gt; referring to so called &quot;Eurobonds&quot; which is something different:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;A Eurobond is an international bond that is denominated in a currency&#xA;  not native to the country where it is issued. Also called external&#xA;  bond; &quot;external bonds which, strictly, are neither Eurobonds nor&#xA;  foreign bonds […]&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="5501" LastEditorUserId="5501" LastEditDate="2016-06-13T16:16:57.460" LastActivityDate="2017-06-09T11:32:34.703" Title="Do corporations outside of the Eurozone issue bonds in Euro?" Tags="&lt;bonds&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12356" PostTypeId="1" AcceptedAnswerId="12360" CreationDate="2016-06-14T05:00:52.990" Score="-1" ViewCount="11645" Body="&lt;p&gt;Consider a monopolist with inverse demand p = 200 - 2*q.  The firm's total cost function is C(q) = 100 + 20*q.  What is the deadweight loss of monopoly? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To my understading, since we don't have any tax added, this will be zero.Please help me understand.&lt;/p&gt;&#xA;" OwnerUserId="8428" LastActivityDate="2016-06-14T09:52:55.323" Title="Calculate deadweight loss from cost and inverse demand function in monopoly" Tags="&lt;monopoly&gt;&lt;consumer-surplus&gt;&lt;producer-surplus&gt;" AnswerCount="1" CommentCount="1" ClosedDate="2016-06-22T09:31:06.437" ContentLicense="CC BY-SA 3.0" />
  <row Id="12357" PostTypeId="1" AcceptedAnswerId="12358" CreationDate="2016-06-14T07:36:25.920" Score="3" ViewCount="442" Body="&lt;p&gt;There seems to be a lot of fear that a Brexit will have a very bad impact on both the European and the British economy. Why would this be, does a Brexit imply that there will be less trade between EU-countries and Great-Brittain, why is this? &lt;/p&gt;&#xA;" OwnerUserId="8450" LastEditorUserId="1601" LastEditDate="2016-06-14T07:45:37.503" LastActivityDate="2016-06-14T09:09:31.610" Title="Is a 'Brexit' really that bad?" Tags="&lt;macroeconomics&gt;&lt;international-trade&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12358" PostTypeId="2" ParentId="12357" CreationDate="2016-06-14T09:03:45.430" Score="5" Body="&lt;h1&gt;tl;dr: Uncertainty &amp;amp; trade tariffs&lt;/h1&gt;&#xA;&lt;hr /&gt;&#xA;&lt;h1&gt;detail&lt;/h1&gt;&#xA;&lt;p&gt;The economics have been assessed by a large number of economic specialists, including the very well-respected and independent &lt;a href=&quot;http://www.ifs.org.uk/uploads/publications/comms/r116.pdf&quot; rel=&quot;noreferrer&quot;&gt;Institute for Fiscal Studies&lt;/a&gt;.&lt;/p&gt;&#xA;&lt;p&gt;What would Brexit (meaning the UK leaving the EU) mean?&lt;/p&gt;&#xA;&lt;h3&gt;uncertainty&lt;/h3&gt;&#xA;&lt;p&gt;Well, firstly it means years of uncertainty, while replacement trading arrangements are negotiated - typically that takes somewhere in the region of 10 years. The Doha Round of trade talks has been going on &lt;a href=&quot;https://www.wto.org/english/tratop_e/dda_e/dda_e.htm&quot; rel=&quot;noreferrer&quot;&gt;since 2001&lt;/a&gt;.&lt;/p&gt;&#xA;&lt;p&gt;Uncertainty requires higher rewards to balance the risks, and that means lower inward investment, and fewer long-term deals.&lt;/p&gt;&#xA;&lt;h3&gt;trade tariffs&lt;/h3&gt;&#xA;&lt;p&gt;Free access to the European market depends on accepting some specific rules that the Brexit campaign consider to be unacceptable, such as the free movement of labour. And it requires membership either of the EU, or of the European Free Trade Area (EFTA). On leaving the EU, UK membership of the EFTA would require EU approval, and the German Finance Minister Schäuble has made it clear that he considers that that would not happen. So one thing that the Brexit campaign and the EU heavyweights should agree on is that the UK would &lt;em&gt;not&lt;/em&gt; be a member of the European Economic Area, and that means trade tariffs. A Brexit would be an existential threat to the EU project, so it will be in the interest of its remaining members to make exit as painful as possible, to preserve the unity of the remaining 27. And EU27 trade with the UK is a very small proportion of EU27 total trade, so it's a cheap price to pay.&lt;/p&gt;&#xA;&lt;hr /&gt;&#xA;&lt;h1&gt;summary of all effects&lt;/h1&gt;&#xA;&lt;p&gt;The IFS summarises the effects, and the vast majority of specialists predict negative effects at least out to 2030. Here's their summary, from p18 of the report linked above:&#xA;&lt;a href=&quot;https://i.stack.imgur.com/v1yEw.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/v1yEw.png&quot; alt=&quot;enter image description here&quot; /&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&lt;p&gt;It's worth noting that it's not only UK's trade with the EU that would be harmed. The UK has trade deals with much of the world &lt;strong&gt;because&lt;/strong&gt; it is a member of the EU. Without that membership, it would need to negotiate its own bilateral trade deals: such negotiations will also typically take a decade. So the UK's trade with non-EU countries would be reduced too. And there's the reduced economic efficiency of having a much smaller pool of talent to draw on for the workforce. So the numbers in the table above may (depending on the scope of individual studies) include those effects, as well as the EU-trade effect.&lt;/p&gt;&#xA;" OwnerUserId="44" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2016-06-14T09:09:31.610" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12360" PostTypeId="2" ParentId="12356" CreationDate="2016-06-14T09:17:28.517" Score="2" Body="&lt;p&gt;I'm going to give you the intuition behind this exercise, so you can solve it for your own. The definition of deadweight loss is the following:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In economics, a deadweight loss is a loss of economic efficiency that can occur when equilibrium for a good or service is not achieved or is not achievable. Causes of deadweight loss can include &lt;strong&gt;monopoly pricing&lt;/strong&gt;, externalities, taxes or subsidies, and binding price ceilings or floors (including minimum wages).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;As you can read from the above definition a monopolistic regime causes a deadweight loss. In fact, if you compare the monopolistic regime vs. the perfect competition regime you will see that there is a loss in total surplus (which is your deadweight loss). The following graph perfectly fits and illustrates your case (since you have constant marginal costs):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/AMH8W.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/AMH8W.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In order to compute the DWL then you need: the quantity of goods produced under monopoly ($Q_m$), the quantity of goods produced under perfect competition ($Q_c$) and the difference between the monopolistic price ($P$) and the marginal cost ($MC$). Once you have these values the DWL will be computed as the area of that green triangle:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$DWL = \frac{(Q_c - Q_m) \cdot (P-MC)}{2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;compute the quantity produced under monopoly (recall that under monopoly $MR=MC$, solve for $Q$);&lt;/li&gt;&#xA;&lt;li&gt;compute the price applied by the monopolist by substituting the quantity produced by the monopolist in $P = 200 - 2Q$&lt;/li&gt;&#xA;&lt;li&gt;compute the quantity under perfect competition (remember that under perfect competition $P=MC$, solve again for $Q$)&lt;/li&gt;&#xA;&lt;li&gt;compute the $DWL$ with the formula I gave you above.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Hope this helps. Let me know if there is something not clear.&lt;/p&gt;&#xA;" OwnerUserId="1642" LastEditorUserId="1642" LastEditDate="2016-06-14T09:52:55.323" LastActivityDate="2016-06-14T09:52:55.323" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12363" PostTypeId="1" AcceptedAnswerId="12388" CreationDate="2016-06-14T13:51:21.977" Score="2" ViewCount="95" Body="&lt;p&gt;Bellman equation:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$V(x) = max \{F(x,y)+ \beta V(y)\}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$V(x) = max \{F(x,y), \beta V(y)\}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When to use the plus and when to use the comma?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Would you mind give me an example to explain such difference?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you very much !&lt;/p&gt;&#xA;" OwnerUserId="6255" LastEditorUserId="6255" LastEditDate="2016-06-15T04:08:33.907" LastActivityDate="2016-06-16T12:30:05.367" Title="What is the difference between comma and plus in the bellman equation?" Tags="&lt;bellman-equations&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12364" PostTypeId="1" AcceptedAnswerId="12365" CreationDate="2016-06-14T14:15:44.713" Score="3" ViewCount="140" Body="&lt;p&gt;In &lt;a href=&quot;http://www.newsmax.com/Finance/DavidStockman/David-Stockman-Social-Security-entitlement-bankrupt/2015/07/31/id/664828/&quot; rel=&quot;nofollow&quot;&gt;a recent article&lt;/a&gt; by David Stockman he wrote:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Credit market debt outstanding has soared from \$85 trillion to \$200&#xA;  trillion.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;What is he talking about? What is the itemization of this debt. The whole US debt is less than \$20 trillion, so I don't see where there could be \$200 trillion in debt.&lt;/p&gt;&#xA;" OwnerUserId="1448" LastActivityDate="2016-06-14T14:20:40.610" Title="Credit market debt is $200 trillion?" Tags="&lt;debt&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12365" PostTypeId="2" ParentId="12364" CreationDate="2016-06-14T14:20:40.610" Score="1" Body="&lt;p&gt;It's the total credit market, not only US government bonds, but also debt of other countries, also corporate debt etc. See here: &lt;a href=&quot;http://www.investopedia.com/terms/c/credit_market.asp&quot; rel=&quot;nofollow&quot;&gt;http://www.investopedia.com/terms/c/credit_market.asp&lt;/a&gt; and here: &lt;a href=&quot;http://www.investorwords.com/8562/credit_market.html&quot; rel=&quot;nofollow&quot;&gt;http://www.investorwords.com/8562/credit_market.html&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Maybe this chart (not recent though) clarifies it a bit also: &lt;a href=&quot;http://warisacrime.org/sites/afterdowningstreet.org/files/images/Credit%20Market%20Outstanding%20by%20Sector%2010012008_0.jpg&quot; rel=&quot;nofollow&quot;&gt;http://warisacrime.org/sites/afterdowningstreet.org/files/images/Credit%20Market%20Outstanding%20by%20Sector%2010012008_0.jpg&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="8450" LastActivityDate="2016-06-14T14:20:40.610" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12367" PostTypeId="1" CreationDate="2016-06-14T15:03:20.437" Score="6" ViewCount="1172" Body="&lt;p&gt;Maybe this is a well-known fact that I have somehow overlooked or forgotten etc., but I found myself curious recently if there are any conclusions about WARP holding over different dimensions for a given choice structure. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, if I have a utility function, $N$ agents, $L$ commodities and price vectors in $R^L_+$, and I want to determine if WARP holds here, is it enough to assume that $L=2$ and prove WARP. Meaning, is it true that if WARP holds for $L=2$ it also holds for $L=N$, $N \in \mathbb{N}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Edit&lt;/strong&gt; : I feel like I should add that I know, generally, proving something for a specific case does not allow one to generalize the result. However, there are unique cases where such proofs can work. The first example that comes to mind is that whenever the excess demand function is homogeneous of degree zero we can reduce the problem to the simplex and it is sufficient to show that only n-1 markets clear. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Why I am asking?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am trying to determine whether or not WARP holds for an adaptation of the (1999) Fehr &amp;amp; Schmidt Inequality Aversion utility function. I thought it might be easier to do by considering $L=2$ &lt;/p&gt;&#xA;" OwnerUserId="1655" LastEditorUserId="1655" LastEditDate="2016-06-14T15:14:39.180" LastActivityDate="2017-12-13T12:54:33.640" Title="Weak Axiom of Revealed Preference" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;&lt;welfare-economics&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12368" PostTypeId="2" ParentId="12079" CreationDate="2016-06-14T16:58:37.650" Score="1" Body="&lt;p&gt;As you have pointed out yourself, minimization of taxes is the main reason to value LIFO. This is not a trivial point: a whole industry is built on it (see e.g. Mossack Fonseca). A company will continue to have inventory as long as it continues to operate. And so if COGS continues to rise, closing out the tax liability may be deferred indefinitely. This is a significant tax advantage and shareholders expect companies to maximize profits by any means. Accordingly, earnings management in order to minimize taxes is rational and expected. That said, earnings management is &lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/S0165410197000177&quot; rel=&quot;nofollow&quot;&gt;popular even if there is no economic rationale&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question as to why companies do it, is different from why regulators allow it. As you have noted, IFRS rules do not allow LIFO. Uniquely, GAAP standards &lt;a href=&quot;http://www.iasplus.com/en/binary/resource/0407zeffusgaap.pdf&quot; rel=&quot;nofollow&quot;&gt;originated when the SEC spurred the private sector to set standards for themselves&lt;/a&gt;. Clearly, companies had a stake in minimizing taxes, and some may even operate their inventories as LIFO. This explains why the business practice is allowed under GAAP. Finally, it should be noted that, although this situation is far from ideal, it is very common that corporate accounts do not reflect the flow of goods very well. This is largely a result of complexity (i.e. large companies operating in multiple countries) as well as tax minimization efforts.&lt;/p&gt;&#xA;" OwnerDisplayName="user7935" LastActivityDate="2016-06-14T16:58:37.650" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12369" PostTypeId="1" AcceptedAnswerId="12370" CreationDate="2016-06-14T17:49:56.950" Score="2" ViewCount="204" Body="&lt;p&gt;I'm reading &lt;em&gt;Matchmakers: &lt;a href=&quot;https://hbr.org/product/matchmakers-the-new-economics-of-multisided-platforms/10028-HBK-ENG?referral=02559&quot; rel=&quot;nofollow&quot;&gt;The New Economics of Multisided Platforms&lt;/a&gt;&lt;/em&gt; by economists David S. Evans and Richard Schmalensee.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;They describe how businesses often make a rational choice to allow one side of their &quot;matchmaking&quot; business to be the &quot;&lt;strong&gt;subsidy side&lt;/strong&gt;&quot;, i.e. the side paying a negative price, and the other side to be the &quot;&lt;strong&gt;money side&lt;/strong&gt;&quot;, as in the side that pays fees to the business. Here &quot;matchmaking&quot; means serving as an intermediary that lowers the transaction cost of connecting 2 or more populations, such as Visa connecting shoppers and retailers. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, PayPal pays (or used to pay) consumers for signing up for the service, so they're the subsidy side. Businesses typically pay the fees and are thus the &quot;money side&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there an equation, formula, or inequality that describes how the business chooses which side to treat as the subsidy or money side?&lt;/p&gt;&#xA;" OwnerUserId="3998" LastActivityDate="2016-06-14T19:42:44.037" Title="Decision to make one side of a multisided platform the subsidy side" Tags="&lt;decision-theory&gt;&lt;price-theory&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12370" PostTypeId="2" ParentId="12369" CreationDate="2016-06-14T19:42:44.037" Score="3" Body="&lt;p&gt;Yes. For example, in &lt;a href=&quot;http://onlinelibrary.wiley.com/doi/10.1111/j.1756-2171.2006.tb00037.x/abstract&quot; rel=&quot;nofollow&quot;&gt;Armstrong (2006)&lt;/a&gt;, a monopoly platform sets the price for side 1, $p_1$, such that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{p_1-f_1+n_2\alpha_2}{p_1}=\frac{1}{\eta_1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $f_1$ is the unit cost on side 1, $n_2$ is the number of consumers on side 2, $\alpha_2$ is the cross-side externality created by each side 1 consumer, and $\eta_1$ is the conditional price elasticity of demand on side 1.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, side 1 consumers get subsidised (i.e. $p_1&amp;lt;f_1$) if&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;their demand is very elastic&lt;/li&gt;&#xA;&lt;li&gt;they create a big externality for the other side.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;That's the basic principle. Subsidise the guys who create a lot of value and who would run away if the price were high.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, for example, nightclubs offer free entry to females rather than males if the owners believe that females are more price sensitive and that men care more than women about meeting members of the opposite sex (I let you decide for yourself whether that's true or not).&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;By the way, we can compere this equation to the one a normal monopolist would use:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{p-f}{p}=\frac{1}{\eta}.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reduction in price to internalise the network externality can clearly be seen.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2016-06-14T19:42:44.037" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12371" PostTypeId="1" AcceptedAnswerId="12377" CreationDate="2016-06-14T21:03:26.427" Score="3" ViewCount="242" Body="&lt;p&gt;My perception may be uninformed but 'worldwide' I believe collection of official data on input output tables of economies dont seem to be keeping up with the times. Im aware that compilation of such data sets is difficult hence the large time gaps between releases but I would think that 5 years or so would suffice. examples of countries where such data are up to date would be much appreciated &lt;/p&gt;&#xA;" OwnerUserId="8543" LastActivityDate="2016-06-17T20:02:10.127" Title="Have social accounting matrices and input output models fallen out of fashion? if so, why?" Tags="&lt;macroeconomics&gt;&lt;statistics&gt;&lt;input-output&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12372" PostTypeId="1" CreationDate="2016-06-15T04:42:27.120" Score="2" ViewCount="44" Body="&lt;p&gt;Has anybody come across a nice, intuitive (i.e. neither formal nor technical) way to demonstrate how markets yield both productive and allocative efficiency?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I suppose the allocative argument requires just a very superficial treatment of the first fundamental theorem, which is doable. But what about productive efficiency?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm teaching Econ 101 and I don't like the textbook's treatment of the topic -- it basically asserts efficiency without even trying to argue it.&lt;/p&gt;&#xA;" OwnerUserId="48" LastActivityDate="2016-06-15T04:42:27.120" Title="Demonstrating that markets yield productive and allocative efficiency to introductory students" Tags="&lt;markets&gt;&lt;competitive-equilibrium&gt;&lt;efficient-markets&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12374" PostTypeId="1" CreationDate="2016-06-15T09:18:10.137" Score="-1" ViewCount="5204" Body="&lt;p&gt;Is there a list of the countries where the central bank is creating money, today ?&lt;br/&gt;&#xA;How much ? We know for:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;EUR: Euro countries (since ECB QEs) (and euro-bound countries as DKK ?)&lt;/li&gt;&#xA;&lt;li&gt;YEN: Japan (BOJ 'abenomics')&lt;/li&gt;&#xA;&lt;li&gt;GBP: UK (BoE)&lt;/li&gt;&#xA;&lt;li&gt;SEK: Scandinavia (SNB)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;But what about the other 200 countries ?&lt;/p&gt;&#xA;" OwnerUserId="8353" LastActivityDate="2016-06-15T09:29:35.407" Title="What is the list of countries where the central bank prints money?" Tags="&lt;monetary-policy&gt;&lt;currency&gt;&lt;central-banking&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12376" PostTypeId="2" ParentId="12374" CreationDate="2016-06-15T09:29:35.407" Score="0" Body="&lt;p&gt;Every central bank creates money, it's the reason why these institutions are created. The central bank is &quot;the lender of last resort&quot;, which means that it is responsible for providing its economy with funds when commercial banks cannot cover a supply shortage. In other words, the central bank prevents the country's banking system from failing. However, the primary goal of central banks is to provide their countries' currencies with price stability by controlling inflation (There is however lots of discussion about this purpose and whether central banks are actually creating stability or disrupting it). &#xA;see: &lt;a href=&quot;http://www.investopedia.com/articles/03/050703.asp&quot; rel=&quot;nofollow&quot;&gt;http://www.investopedia.com/articles/03/050703.asp&lt;/a&gt; for more info.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Not all central banks are creating money at the same pace though... The FED stopped it's QE-program, while the ECB for example is out in full force QE atm.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Central banks used to be constrained because their printed notes were convertible to gold, so they could only print so much notes as there was gold in their vaults. However, these constraints were totally taken away when Nixon closed the gold window in 1971. Actually the United States defaulted on their obligations then, they already printed way much more notes than were covered by their gold reserves. If Nixon didn't close the gold window, the gold reserves of the US would have been totally drained...&#xA;more information: &lt;a href=&quot;https://en.wikipedia.org/wiki/Nixon_shock&quot; rel=&quot;nofollow&quot;&gt;https://en.wikipedia.org/wiki/Nixon_shock&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;hope this helps,&#xA;best regards&lt;/p&gt;&#xA;" OwnerUserId="8450" LastActivityDate="2016-06-15T09:29:35.407" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12377" PostTypeId="2" ParentId="12371" CreationDate="2016-06-15T12:29:13.167" Score="5" Body="&lt;p&gt;National Statistical Institutes do still compile IO tables (see &lt;a href=&quot;http://ec.europa.eu/eurostat/web/esa-supply-use-input-tables&quot; rel=&quot;nofollow&quot;&gt;http://ec.europa.eu/eurostat/web/esa-supply-use-input-tables&lt;/a&gt; for EU versions, although these are 5-yearly as well).  They're generally more interested in producing the Supply and Use tables (which are then transformed into input-output tables) due to their usefulness in balancing the 3 measures of GDP.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are also attempts by groups such as WIOD to produce world input-output databases.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Part of the reason for the long delay in producing IO tables following the reference year is simply the very large quantity of data required to compile them, plus the time taken to investigate and resolve issues highlighted by the confrontation of the many various data sources.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Social accounting matrices are also still produced, and frequently used to calibrate things like CGE models rather than being used directly via SAM multipliers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Most of the work in input-output modeling I see these days relates to environmental modeling, but this is by no means exclusive. The International Input-Output Association (www.iioa.org) runs a publication called the Journal of Economic Systems Research which can point you at some current work.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The UN are also working on a handbook foot IO and extensions due some time this year, which aims to provide a range of options for countries with smaller or less well established statistical institutions to construct tables, as well as more established ones.&lt;/p&gt;&#xA;" OwnerUserId="5550" LastEditorUserId="5550" LastEditDate="2016-06-17T20:02:10.127" LastActivityDate="2016-06-17T20:02:10.127" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12379" PostTypeId="1" AcceptedAnswerId="12385" CreationDate="2016-06-15T18:53:25.663" Score="3" ViewCount="173" Body="&lt;p&gt;I am currently reading &lt;a href=&quot;https://www.gsb.stanford.edu/sites/gsb/files/publication-pdf/The%20Price%20is%20Right,%20But%20Are%20the%20Bids_0.pdf&quot; rel=&quot;nofollow&quot;&gt;this article&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you are unfamiliar with the game, &quot;The Price is Right&quot;, at the beginning, four bidders are selected who have to guess the price of some consumer object. Whoever gets closest to the retail value (rounded to the dollar) without going over goes on to play a different pricing game. Play is sequential, so you can imagine bidding last provides an advantage. This article is studying whether or not players behave rationally in this first part of the game, or whether it is bounded by some simpler decision rule.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The paper has a proposition:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Suppose that contestants have rational expectations. Then in equilibrium,&lt;/p&gt;&#xA;  &#xA;  &lt;ol&gt;&#xA;  &lt;li&gt;The fourth bidder must win at least as often as the third bidder; and the third bidder must win at least as often as either the first or second bidder.&lt;/li&gt;&#xA;  &lt;li&gt;The fourth bidder must win at least 1/3 of the time.&lt;/li&gt;&#xA;  &lt;li&gt;The first and second bidders together cannot win more than 4/9 of the time.&lt;/li&gt;&#xA;  &lt;/ol&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The appendix then, in its proof, starts the following explanation:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;First note that if a bidder believes that his probability of winning exceeds that of another bidder, then since every bidder has rational expectations, this belief must be correct. Thus to show that a bidder wins more often than another bidder, it is sufficient to show that he believes that he wins more often.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Which is fine.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;First consider the last bidder. Since his optimal strategy is to pick the interval that he believes gives him the largest probability of winning, he must believe that he does at least as well as any previous bidder.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I do not understand this part of the explanation. Is the logic that the last bidder will bid 1 dollar above whoever it will get the best distribution, and then if someone were to have a better chance of winning than the last bidder, the bidder would simply bid 1 dollar above that person?&lt;/p&gt;&#xA;" OwnerUserId="4251" LastEditorUserId="108" LastEditDate="2016-06-16T09:53:10.120" LastActivityDate="2016-06-16T10:37:12.207" Title="The Price is Right Bidding Strategies" Tags="&lt;microeconomics&gt;&lt;auctions&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12380" PostTypeId="2" ParentId="10125" CreationDate="2016-06-16T03:03:17.030" Score="1" Body="&lt;p&gt;I think the main alternative to the Johansen (statistical) approach is the methodology propounded by Pesaran and Shin in their so-called long-run structural modelling (economic) approach. The main formal reference is Pesaran and Shin (2002). The methodology is also presented to a wider audience in Garratt et al. (2012). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Although referred to as the long-run structural modelling approach, you will also read about the type of models associated with the methodology, which are called VARX* models. The distinguishing feature is that the cointegrated models are estimated using reduced-rank regression and (over-)identifying restrictions are derived from economic &lt;em&gt;a priori&lt;/em&gt; then tested. The sequencing is slightly different to Johansen since economic theory is given priority. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the same school of thought is the cointegrated VAR approach associated with Juselius (2006). Again, Juselius propounds an economic approach to cointegration as opposed to the statistical approach by Johansen (and others like Phillips).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Pesaran's approach has been programmed and is available in the Microfit software. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Juselius' approach has also been programmed and is available in the RATS (CATS) software.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To my understanding, you can find MATLAB code in the GVAR toolbox, and this should give an indication of what's required for the Pesaran approach. In terms of programming, I haven't seen much difference when compared to Johansen (although I just quickly investigated this). Note that the GVAR approach can be thought of as an extension to the VARX approach (the difference lies in stacking individual country models, but estimation of the individual models is the same). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;References&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.tandfonline.com/doi/abs/10.1081/ETC-120008724&quot; rel=&quot;nofollow&quot;&gt;Pesaran, M and Shin, Yongcheol, (2002), LONG-RUN STRUCTURAL MODELLING, Econometric Reviews, 21, issue 1, p. 49-87.&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://econpapers.repec.org/bookchap/oxpobooks/9780199650460.htm&quot; rel=&quot;nofollow&quot;&gt;Garratt, Anthony, Lee, Kevin, Pesaran, M and Shin, Yongcheol, (2012), Global and National Macroeconometric Modelling: A Long-Run Structural Approach, Oxford University Press.&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://global.oup.com/academic/product/the-cointegrated-var-model-9780199285679?cc=no&amp;amp;lang=en&amp;amp;&quot; rel=&quot;nofollow&quot;&gt;Juselius, Katarina (2006) The Cointegrated VAR Model: Methodology and Applications (Advanced Texts in Econometrics).&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://sites.google.com/site/gvarmodelling/home&quot; rel=&quot;nofollow&quot;&gt;GVAR Toolbox&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="1588" LastActivityDate="2016-06-16T03:03:17.030" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12382" PostTypeId="1" CreationDate="2016-06-16T07:11:17.257" Score="1" ViewCount="22" Body="&lt;p&gt;W LTD wishes to attain a before tax-net profit equal to $20\%$ of sales revenue. Variable costs are $60\%$ of sales and fixed costs are $360,000$. Calculate the dollar amount of sales necessary for archiving the profits goal. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My attempt:&lt;br&gt; &#xA;$Sales=fixed \ costs+variable \ costs+desired \ profit$&lt;br&gt;&#xA;But I failed to get the answer given. &lt;/p&gt;&#xA;" OwnerUserId="8555" LastEditorUserId="4557" LastEditDate="2016-06-17T15:19:03.700" LastActivityDate="2016-06-17T15:19:03.700" Title="Contribution Margin" Tags="&lt;self-study&gt;&lt;accounting&gt;" AnswerCount="1" CommentCount="2" ClosedDate="2016-06-27T14:20:47.860" ContentLicense="CC BY-SA 3.0" />
  <row Id="12383" PostTypeId="1" AcceptedAnswerId="12384" CreationDate="2016-06-16T08:16:21.097" Score="0" ViewCount="16" Body="&lt;p&gt;Why does the BOJ's decision to leave rates unchanged lead to a stronger yen and declines in the Nikkei and Topix? Thanks in advance!&lt;/p&gt;&#xA;" OwnerUserId="5427" LastActivityDate="2016-06-16T08:32:43.087" Title="Why does BOJ unchanged rate lead to Nikkei and Topix declines?" Tags="&lt;central-banking&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12384" PostTypeId="2" ParentId="12383" CreationDate="2016-06-16T08:32:43.087" Score="0" Body="&lt;p&gt;It doesn't in general.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It did in this specific case because the Nikkei and Topix had earlier priced in the possibility that the Bank of Japan would do something other than leaving rates unchanged this time. Now that that possibility has gone, the market no longer needs to price in the possibility, and so has corrected.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That's not just specific to this case: that's true of all market responses when an unknown event becomes known.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2016-06-16T08:32:43.087" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12385" PostTypeId="2" ParentId="12379" CreationDate="2016-06-16T09:52:51.153" Score="3" Body="&lt;p&gt;Yes. Note that in the paper the authors assume that the action space is continuous, so it is possible to bid in arbitrarily small fractions of a dollar.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose players $i\in\{1,2,3\}$ have bids $b_i$ that, without loss of generality, are ordered $b_1&amp;lt;b_2&amp;lt;b_3$. Write $p$ for the actual price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we forget about player four for a moment, then players' probability of winning are&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Pr(1\text{ wins})=\Pr(b_1\leq p&amp;lt; b_2)\equiv \pi_1$$&#xA;$$\Pr(2\text{ wins})=\Pr(b_2\leq p&amp;lt; b_3)\equiv \pi_2$$&#xA;$$\Pr(3\text{ wins})=\Pr(b_3\leq p)\equiv \pi_3.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose $\pi_1&amp;gt;\pi_2,\pi_3$. Then the optimal thing for 4 to do is to bid $b_4=b_1+\epsilon$ ($\epsilon$ positive and small). This bis would result in&#xA;$$\Pr(1\text{ wins})=0$$&#xA;$$\Pr(2\text{ wins})=\Pr(b_2\leq p&amp;lt; b_3)$$&#xA;$$\Pr(3\text{ wins})=\Pr(b_3&amp;lt; p)$$&#xA;$$\Pr(4\text{ wins})=\Pr(b_1\leq p&amp;lt; b_2).$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One can easilly check that $\pi_1&amp;gt;\pi_2,\pi_3$ implies that $\Pr(4\text{ wins})$ is bigger than any rival winning probability. Likewise, if we had $\pi_2&amp;gt;\pi_1,\pi_3$ then the optimal thing for $4$ to do would be to bid $b_4=b_2+\epsilon$.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;edit:&lt;/strong&gt; The above reasoning works if we take $\pi_1&amp;gt;\pi_2,\pi_3$ (with strict inequality). But what if the inequality is not strict?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose that $b_1&amp;lt;b_2&amp;lt;b_3$, and that $\pi_1=\pi_2&amp;gt;\pi_3,\Pr(p&amp;lt;b_1)$. Then it seems like $b_4=b_1+\epsilon$ must yield a lower winning probability than that enjoyed by player 2 for any positive $\epsilon$. indeed we would have&#xA;$$\Pr(b_1+\epsilon\leq p&amp;lt;b_2)&amp;lt;\Pr(b_1\leq p&amp;lt;b_2)=\Pr(b_2\leq p&amp;lt;b_3).$$&#xA;Similarly, $b_4=b_2+\epsilon$ will yield a lower winning probability than that enjoyed by player 1 for any positive $\epsilon$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think that, in equilibrium, this won't happen so I guess the result is fine. But it makes the proof seem a bit hand-wavey.&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2016-06-16T10:37:12.207" LastActivityDate="2016-06-16T10:37:12.207" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="12386" PostTypeId="1" AcceptedAnswerId="12392" CreationDate="2016-06-16T11:33:50.713" Score="5" ViewCount="421" Body="&lt;p&gt;According to Wikipedia, &lt;em&gt;Econometrics is the application of mathematics, statistical methods, and computer science to economic data and is described as the branch of economics that aims to give empirical content to economic relations&lt;/em&gt;. It &lt;em&gt;sifts through mountains of data to extract simple relationships&lt;/em&gt;. Generally for positions like Analytic Consultant, Data Scientist, Statistician, Quantitative Analyst, background in maths, stats or econometrics is required. What separates econometricians in terms of what they learn in school and how they apply acquired knowledge in work? Or do these fields overlap so much that there is not much to distinguish?&lt;/p&gt;&#xA;" OwnerUserId="4557" LastActivityDate="2016-06-17T21:57:17.963" Title="What is an econometrician?" Tags="&lt;econometrics&gt;&lt;definition&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12387" PostTypeId="2" ParentId="12382" CreationDate="2016-06-16T11:58:06.180" Score="0" Body="&lt;p&gt;Let profits be $P$, total revenue or sales be $TR$, total variable cost $V$ and fixed cost $F$. So total cost, $TC = V + F$ and&lt;br&gt; $P = TR - TC = TR - (V + F)$.&lt;br&gt;&#xA;We have $P = 0.2 \times TR$, $V = 0.6 \times TR$ and $F = 360,000$. Substitute $P, V \text{and} \ F$:&lt;br&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$0.2 \times TR = TR - (0.6 \times TR + 360,000)$&lt;br&gt;&lt;br&gt;&#xA;Now solve the above equation for $TR$ which turns out to be $1,800,000$.&lt;/p&gt;&#xA;" OwnerUserId="4557" LastEditorUserId="4557" LastEditDate="2016-06-16T12:12:34.483" LastActivityDate="2016-06-16T12:12:34.483" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12388" PostTypeId="2" ParentId="12363" CreationDate="2016-06-16T12:30:05.367" Score="4" Body="&lt;p&gt;You should be careful about the way you wrote your two equations because the $\max$ operators are different. In the first equation, you maximize an objective function on a set, meaning you look for the best value of $y$ given that $y$ belongs to a known set. You did not define this set. In the second case, you choose the maximum among two values. Contrary to the first equation, $y$ is predefined and is not a parameter to find given your notations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I abstract from the notation mistakes, I think you want an example to understand &lt;strong&gt;the difference between a classical cake-eating problem&lt;/strong&gt; (your first equation) &lt;strong&gt;and a stopping-rule problem&lt;/strong&gt; (probably your second equation). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider the following framework. Time is discrete. There is one good in the economy. &#xA;We are interested in the problem of a consumer.&#xA;At each period $t$, the consumer has access to a stock of good $x_t$. She faces a standard inter-temporal saving problem; she has to decide how much to consume, $c_t$, and how much to save for the next periods, $x_{t+1}$. &#xA;The consumer enjoys a flow utility $u(c_t)$ and discounts future consumption with a factor $\beta$.&#xA;To close the model, a saving technology must be defined. We can consider two different cases: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(i) There is an interest rate $r$. The consumer can freely withdraw any amount from the saving account.&#xA;(ii) There is an interest rate $r$. The consumer, however, cannot withdraw a quantity of good without closing the saving account.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's write the optimization problem in the two cases:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(i) $$V(x_t)=\underset{0\leq x_{t+1}\leq (1+r)x_t}{\max} \{u((1+r)x_t-x_{t+1})+\beta V(x_{t+1})\}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(ii) $$V(x_t)=\underset{x_{t+1}= (1+r)x_t \text{ or } 0}{\max} \{u((1+r)x_t-x_{t+1})+\beta V(x_{t+1})\}$$&#xA;Consumption $c_t$ is equal to $(1+r)x_t-x_{t+1}$. We can make an analogy with what you wrote. My $x_t$ and $x_{t+1}$ are your $x$ and $y$, and $F(x,y)=u((1+r)x-y)$. &#xA;In the first case, the consumer has to choose the amount to save $x_{t+1}$ in the interval $(0,(1+r)x_t)$. In the second case, she can only choose whether to keep on saving, $x_{t+1}=(1+r)x_t$, or to close the account, $x_{t+1}=0$. By normalizing $u(0)=0$, the second case can write:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(ii) $$V(x_t)=\max \{u((1+r)x_t),\beta V((1+r)x_t)\}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the first problem, the consumer eats a share of the cake (which is expanding at a rate $r$) and keeps the remaining for the next periods to maximize her inter-temporal utility. In the second problem, the consumer has to decide when to eat entirely the (growing) cake, which defines the stopping rule.&lt;/p&gt;&#xA;" OwnerUserId="4094" LastActivityDate="2016-06-16T12:30:05.367" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12389" PostTypeId="1" CreationDate="2016-06-16T12:59:11.333" Score="5" ViewCount="6478" Body="&lt;p&gt;I am reading &lt;a href=&quot;https://en.wikipedia.org/wiki/Vickrey_auction&quot; rel=&quot;nofollow&quot;&gt;https://en.wikipedia.org/wiki/Vickrey_auction&lt;/a&gt; about second price auctions.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;It seems counterintuitive to me that the winning bidder pays the&#xA;bidding price of the runner-up bidder, rather than their own winning&#xA;bidding price as in first price auction. What is the purpose of&#xA;that?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;What are the advantages and disadvantages of a second price auction?&#xA;Especially when it is compared to a first price auction?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The wikipedia article also says&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Vickrey auctions are much studied in economic literature but uncommon&#xA;  in practice. A slightly generalized variant of a Vickrey auction,&#xA;  named generalized second-price auction, is used in Google's and&#xA;  Yahoo!'s online advertisement programmes.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Why does the internet advertising industry use second price auction,&#xA;instead of other auction types e.g. first price auction?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="90" LastEditorUserId="1601" LastEditDate="2016-06-16T19:56:03.060" LastActivityDate="2016-06-17T01:51:38.393" Title="What are the advantages and disadvantages of second price auctions?" Tags="&lt;auctions&gt;" AnswerCount="1" CommentCount="4" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12391" PostTypeId="1" CreationDate="2016-06-16T16:10:15.180" Score="6" ViewCount="120" Body="&lt;p&gt;I'm currently reading chapter 4 of Mas-Colell, Whinston, and Green (1995). &#xA;I have a problem with the way integrals are treated. For instance, Proposition 4.C.4 (p.113) states that when wealth is uniformly distributed on $[0,W]$, the aggregate and the average demand function are:&#xA;$$x(p) = \int_0^W x(p,w) dw $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where $x(p,w)$ is an individual demand (every individual has the same preferences, their demands only differ in the amount of wealth). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, I think the right way to write the average would be:&#xA;$$x(p) = \int_0^W \frac1W x(p,w) dw $$&#xA;because this is the definition of the expected value. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Am I wrong? When using integrals, can I just assume that averages are equal to aggregates? &#xA;This a big problem to me because in exercise 4.C.10 it is asked to prove that $$C(p,w)=\int_0^W S(p,w)dw - S(p,W)=-D_w x(p).x^T(p)+\int_0^WD_w x(p,w).x^T(p,w)dw$$ is positive definite, where $S(p,w)$ are individual Slutsky matrices, and $S(p,W)$ is the Slutsky matrix of aggregate demand. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I thought to define $w=aW$ with $a$ uniformly distributed on some interval. Therefore, I could re-define $x(p)=x(p,W)$ and differentiate $x(p)=x(p,W)$ and $x(p,w)=x(p,aW)$ with respect to $W$. However, I'm not sure how to define an interval for $a$ such that average wealth is equal to aggregate wealth using $w=aW$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note: Proposition 4.C.4 is based on an example given by Hildebrand (1983) (&quot;On the Law of Demand&quot;). I read the article and he assumes wealth is distributed on $[0,1]$. With this interval, aggregate demand is equal to average demand. Does this mean Proposition 4.C.4 is misspelled? If it is so, I still have a problem with exercise 4.C.10 because I need an interval for a such that aggregate wealth is equal to average wealth. &lt;/p&gt;&#xA;" OwnerUserId="8557" LastActivityDate="2016-06-23T17:37:15.337" Title="Can integrals be interpreted simultaneously as aggregates and averages? (Mas-Colell et al. 1995, Proposition 4.C.4)" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12392" PostTypeId="2" ParentId="12386" CreationDate="2016-06-16T17:31:20.710" Score="8" Body="&lt;p&gt;An interesting question that leads to a debate among econometricians. Some consider that &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Econometrics is just statistics applied to economic problems&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Econometrics is just statistics applied to economic problems—nothing&#xA;  more and nothing less. We should probably call it “statistical&#xA;  economics,” but I guess people feel that the term “econometrics” has a&#xA;  better ring to it. The only cost of using the term “econometrics” is&#xA;  that we are sometimes fooled into thinking that we work on a distinct&#xA;  discipline, separate from statistics. This is not true. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;From John Stachurski at ANU (see his notes p.108 in Econometric Theory &lt;a href=&quot;http://quant-econ.net/_downloads/course_notes.pdf&quot;&gt;freely downloadable&lt;/a&gt;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Others consider that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Eonometrics by no means the same as economic statistics&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This quote is from &lt;a href=&quot;https://en.wikipedia.org/wiki/Ragnar_Frisch&quot;&gt;Ragnar Frisch&lt;/a&gt; (one of the founders of the Econometric Society) and his &lt;a href=&quot;http://www.jstor.org/stable/1912224?seq=2#page_scan_tab_contents&quot;&gt;Editor's Note&lt;/a&gt; on why the Society has decided to establish its own journal, &lt;a href=&quot;https://www.econometricsociety.org/publications/econometrica/browse&quot;&gt;Econometrica&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The key idea is that &lt;strong&gt;economic theory&lt;/strong&gt; is crucial to understand measurement. Neither theory nor measurement on its own is sufficient to further our understanding of economic phenomena. We need both and measurement without theory is unlikely to provide a satisfactory explanation of the way economic forces interact with each other.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another difference is, as economists, we are biased towards establishing &lt;strong&gt;causal relationships&lt;/strong&gt;. So, this explains our focus on endogeneity issues and strategies of identification.&lt;/p&gt;&#xA;" OwnerUserId="6168" LastEditorUserId="6168" LastEditDate="2016-06-16T17:48:49.923" LastActivityDate="2016-06-16T17:48:49.923" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12395" PostTypeId="2" ParentId="12389" CreationDate="2016-06-17T01:51:38.393" Score="4" Body="&lt;p&gt;A lot of questions here. Might be helpful to split them into different posts, but let's take a crack at them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reason why the second price sealed auction is set up this way is simple. Imagine you have a set of individuals/bidders, thinking of what $b_i$ to bid. They all have independent values, $v_i$ of a single object up for auction (their enjoyment does not depend on others). The optimal strategy in a second price auction is to bid however much you value that object, that is,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$b_i = v_i$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since you won't pay as much as you bid if you win, you have a chance to get a positive benefit from the auction, or if someone bids the same as you, you also get a payoff of zero, which is an, &quot;oh well&quot;, but no big deal.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you unilaterally change your bid so that $b_i &amp;gt; v_i$, then you increase the chance of winning, but if you're still the top bid, then you still pay the same amount, so it seems kinda useless. If you happen to beat out someone's bid, $b_j$, where $b_i &amp;gt; b_j &amp;gt; v_i$ then you win! But now your payoff is negative. You can think similarly for the case of underbidding. It decreases the chance of winning AND it doesn't increase the chance of paying less for your object, so that's two bad things.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Basically, in theory, &lt;strong&gt;second price auctions induce truthful bidding&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Compare that to the first price auction. If you simply bid $v_i = b_i$, then your expected payoff is exactly zero. Very unfun. So instead you &quot;underbid&quot; your &quot;true value&quot;. It decreases the chance of winning, but if you do, then you actually have a positive payout. The amount you underbid is obviously based on what you think other people's values are. So &lt;strong&gt;bidding here in first price auctions is strategic, rather than truthful&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;But the big result you should know is that, in theory:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;First price and second price auctions are revenue equivalent for the auctioneer, given independent private values for a single object without budget constraints.&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In theory. But in real life, people's bids are interdependent. You can imagine a bunch of big-wig types in a room for an auction of a priceless piece of art, where part of the value of the object is winning it and beating out the competition because you're the coolest kid on the block (with lots of cash to throw around). In this case, you can imagine a first price auction would be better suited for the house than a second price sealed auction.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2016-06-17T01:51:38.393" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12397" PostTypeId="1" CreationDate="2016-06-17T05:05:46.233" Score="1" ViewCount="6539" Body="&lt;p&gt;Yes, public finance by government may lead to increase in money supply in economy. But, if govt borrows money from central bank, less amount of money is left with central bank to lend it to banks and hence less money supply in economy. &#xA;I am unable to figure it out. &lt;/p&gt;&#xA;" OwnerUserId="8561" LastActivityDate="2016-06-21T08:11:48.063" Title="How government borrowing from central bank increases money supply in economy?" Tags="&lt;macroeconomics&gt;&lt;money-supply&gt;&lt;central-banking&gt;&lt;fiscal-policy&gt;&lt;government&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12398" PostTypeId="2" ParentId="12397" CreationDate="2016-06-17T07:31:33.103" Score="2" Body="&lt;p&gt;Central banks can create money 'out of nothing'. So for starters there isn't 'less amount' of money left with the central bank. The amount of money at the central bank is 'infinite'. &#xA;So it's not because the CB lends X amount of money to the government, that the CB has X amount less money to lend to the banks, the supply of money is not constrained... &#xA;Off course, creating too much money and monetizing debt can have negative consequences for sure (for example hyperinflation in extreme cases), but that's another discussion.&#xA;See also here for more info about quantitative easing: &lt;a href=&quot;https://www.youtube.com/watch?v=4TihoBfdCe8&quot; rel=&quot;nofollow&quot;&gt;https://www.youtube.com/watch?v=4TihoBfdCe8&lt;/a&gt; and here: &lt;a href=&quot;http://www.investopedia.com/terms/q/quantitative-easing.asp&quot; rel=&quot;nofollow&quot;&gt;http://www.investopedia.com/terms/q/quantitative-easing.asp&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit: comment from Energy numbers: strictly speaking government borrowing money from central banks doesn't increase the money supply, it only increases when the government spends the borrowed money.&lt;/p&gt;&#xA;" OwnerUserId="8450" LastEditorUserId="8450" LastEditDate="2016-06-21T08:11:48.063" LastActivityDate="2016-06-21T08:11:48.063" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="12399" PostTypeId="1" AcceptedAnswerId="12456" CreationDate="2016-06-17T09:37:27.123" Score="0" ViewCount="256" Body="&lt;p&gt;What is the relationship between structural budget balance and the cyclically adjusted budget(&lt;em&gt;CAB&lt;/em&gt;) balance?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know that $PB=\textit{CAB}+AS$, where $PB$ is primary budget,  and $AS$ are the automatic stabilizers(tax revenues, unemployment benefits, etc. $AS$ term is counter-cyclical, i.e negative in recessions, positive in booms). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is, how do I relate, mathematically, the structural budget and the CAB?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="118" LastEditDate="2016-06-17T09:42:41.500" LastActivityDate="2016-06-23T02:19:46.087" Title="The relationship between structural budget balance and cyclically adjusted budget balance?" Tags="&lt;macroeconomics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12402" PostTypeId="1" AcceptedAnswerId="12539" CreationDate="2016-06-17T13:48:32.983" Score="4" ViewCount="517" Body="&lt;p&gt;$\textbf{Model:}$&#xA;$$\underset{\{c_t,k_t\}}{max}\;\sum_{t=0}^\infty\beta^t\frac{c_t^{1-\gamma}}{1-\gamma}$$&#xA;$$s.t.\;c_t=Rk_{t-1}-k_t$$&#xA;$$c_t,k_t\geq0$$&#xA;At time $t$, $c_t$ is consumption and $k_{t-1}$ is the capital used in production. $0&amp;lt;\beta&amp;lt;1,\;\gamma&amp;gt;0,\;\gamma\neq1$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\textbf{(a)}$ Compute a balanced growth path in which consumption and capital grow at constant rates.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Solving this using the Euler equation, we get&#xA;$$\frac{c_{t+1}}{c_t}=\big(\beta R\big)^{\frac{1}{\gamma}}$$&#xA;We know that capital must grow at the same rate as consumption in a balanced growth path, so&#xA;$$\frac{k_{t+1}}{k_t}=\big(\beta R\big)^{\frac{1}{\gamma}}$$&#xA;This means that:&#xA;$$c_t=\bigg(\frac{R}{(\beta R)^{\frac{1}{\gamma}}}-1\bigg)k_t$$&#xA;$\textbf{(b)}$ What restrictions are necessary for both capital and consumption to grow at a positive rate on the balanced growth path?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For this question, it seems like all we need is $R&amp;gt;1$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, my question is the following: How long will it take for consumption and capital to reach the balanced growth path? In general, how would one calculate time to balanced growth path? Or is it more based on economic intuition?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\textbf{Edit:}$ According to another student, the professor said this will never reach a balanced growth path. However, the professor never stated why. Can someone give me a reasoning as to why this would never reach a balanced growth path?&lt;/p&gt;&#xA;" OwnerUserId="5825" LastEditorUserId="5825" LastEditDate="2016-06-22T17:24:48.930" LastActivityDate="2016-06-28T11:53:08.493" Title="Calculating Time to Balanced Growth Path" Tags="&lt;macroeconomics&gt;&lt;balanced-growth&gt;" AnswerCount="1" CommentCount="6" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12403" PostTypeId="1" AcceptedAnswerId="12479" CreationDate="2016-06-17T15:16:52.840" Score="5" ViewCount="999" Body="&lt;p&gt;&lt;strong&gt;&lt;em&gt;I updated my proof to a general version as follows: please share your thoughts &amp;amp; 2cent. Thanks&lt;/em&gt;&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Show a monotone continuous complete preorder on $\mathbb{R^L_+}$ has  $y\geq x\rightarrow y\succsim x$.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;&lt;em&gt;Point of Clarification&lt;/em&gt;&lt;/strong&gt;&#xA;  &lt;br/&gt; $X=\mathbb{R^L_+}$&#xA;  &lt;br/&gt; Preorder means the usual reflexivity and transitivity.&#xA;  &lt;br/&gt; Complete means for any $x,y\in X$, have $x\succsim y$ or $y\succsim x$&#xA;  &lt;br/&gt; Continuous means the relation is preserved under limits.&#xA;  &lt;br/&gt; Monotone means for any $x,y\in X$, if $y\gg x$, then $y\succ x$.&#xA;  &lt;br/&gt; $\succ$ and $\sim$ are respectively asymmetic and symmetric parts of $\succsim$&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;em&gt;Outline of Proof&lt;/em&gt;&lt;/strong&gt;&#xA;&lt;br/&gt; Go through two cases: (1) $y\gg x$. Easily get the result by definition. (2) Some components are equal while else y is strictly greater x. Use continuity where you add a sequence of small positive $\epsilon$ to y, making it a sequence $y^n_\epsilon$ where for every n, $y^n_\epsilon\gg x$ $\forall n$.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;&lt;em&gt;Proof&lt;/em&gt;&lt;/strong&gt;&#xA;  &lt;br/&gt; Suppose $\succsim$ is a monotone, continuous, complete preorder on $X=\mathbb{R^L_L}$.&#xA;  &lt;br/&gt; Case (1) $y\gg x$ (i.e. $y_i&amp;gt;x_i$ $\forall i\in B=\{1,\dots,L\}$).&#xA;  &lt;br/&gt; By definition, $y\succ x$, which implies $y\succsim x$.&#xA;  &lt;br/&gt; &lt;br/&gt; Case (2) $y_j=x_j$ for some $j\in B$. For $\forall k\not=j,k\in B, y_k&amp;gt;x_k.$&#xA;  &lt;br/&gt; For some $\epsilon&amp;gt;0$, let the sequence $\epsilon^n\in\mathbb{R^L_+}$ such that $\epsilon_j=\epsilon$, $\epsilon_k=0$.&#xA;  &lt;br/&gt; Denote the sequence $y^n_\epsilon=y+\epsilon^n$.&#xA;  &lt;br/&gt; Then, for any $\epsilon&amp;gt;0$ and $\forall n$, $y^n_\epsilon\succ x$, hence $y^n_\epsilon\succsim x$.&#xA;  &lt;br/&gt; By continuity of $\succsim$, $$\lim_{\epsilon \to 0} {y^n_\epsilon} = y$$&#xA;  &lt;br/&gt; Hence, $y\succsim x$. $\blacksquare$&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;br/&gt; &lt;strong&gt;&lt;em&gt;OLDER VERSION&lt;/em&gt;&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;My question is what is the valid reasoning behind that continuous rational and monotone preference relation implies $x\succsim0$. I have put a proof below and would appreciate if you share your 2 cent on the validity/rigor of the proof. Thanks!&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose $x\in\mathbb{R^+_L}=\{x\in\mathbb{R^L}:x_l\geq0$ $\forall l=1,\dots,L\}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Claim&lt;/strong&gt;: For every $x\in\mathbb{R^+_L}$, monotonicity implies $x\succsim0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Proof&lt;/strong&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(1) Suppose $x=(0,\dots,0)$.&#xA;Then, $x\sim0$ is possible.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(2) Suppose $x\gg y$. Then, by Definition of monotone preference, $x\succ y$ is possible.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(3) Suppose $\exists$ some $j$ such that $x_j&amp;gt;0$ and $1\leq j\leq L$.Then, I have the following process of elimination:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;$x\succsim0$ is possible.&lt;/li&gt;&#xA;&lt;li&gt;$x\succsim0$ and $0\succsim x$ $\iff x\sim0$ is possible.&lt;/li&gt;&#xA;&lt;li&gt;$x\succsim0$ but not $0\succsim x$ $\iff x\succ0$ is possible.&lt;/li&gt;&#xA;&lt;li&gt;$0\succsim x$ but not $x\succsim 0$ $\iff 0\succ x$ is impossible.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The single preference relation that is common in all three scenarios is $x\succsim0$.&#xA;Hence, for every $x\in\mathbb{R^+_L}$, monotonicity implies $x\succsim0$. Q.E.D&lt;/p&gt;&#xA;" OwnerUserId="8560" LastEditorUserId="8560" LastEditDate="2016-06-24T03:41:43.517" LastActivityDate="2016-06-24T03:41:43.517" Title="Continuous rational and monotone preference relation implies $x\succsim0$?" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;&lt;preferences&gt;&lt;choice-theory&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12405" PostTypeId="1" CreationDate="2016-06-17T16:26:58.137" Score="2" ViewCount="995" Body="&lt;p&gt;I'm a student and I'm interested in focusing on the application of econometric theory to &quot;practical&quot; situations. It would be great if you can suggest freely available books along with those that are not. The best thing would be books with explained examples of applications to real data. Also, a good and solid theoric book would be appreciated (maybe with a practical approach to the theory). All the above, whether it would be possible, may consider econometrics in general and macroeconometrics (in this area, along with the general topics, also some specific suggestion on forecasting would be great).&lt;br/&gt;&#xA;Summing up, the books I would like you to suggest me has to refer to these arguments:&lt;br/&gt;&#xA;- econometric theory &lt;br/&gt;&#xA;- applied econometrics &lt;br/&gt;&#xA;- macroeconometric theory &lt;br/&gt;&#xA;- applied macroeconometrics &lt;br/&gt;&#xA;- forecasting &lt;br/&gt;&#xA;- applied forecasting &lt;br/&gt;&#xA;I know that's a huge question and every suggestion would be strongly appreciated.&lt;br/&gt;&#xA;&lt;br/&gt;&#xA;As properly suggested I add that for the applications any of Stata, Eviews and R is ok. About my background I think I can say to have a good graduate preparation, but it is fair for you to suggest books that starts from the basics concepts.&lt;/p&gt;&#xA;" OwnerUserId="7217" LastEditorUserId="7217" LastEditDate="2016-06-18T13:00:21.360" LastActivityDate="2016-06-18T16:42:28.253" Title="Books to self-study applied econometrics" Tags="&lt;macroeconomics&gt;&lt;econometrics&gt;&lt;time-series&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12406" PostTypeId="1" CreationDate="2016-06-17T18:30:57.360" Score="2" ViewCount="334" Body="&lt;p&gt;Can anyone enlighten me if there are economic theories where labor is considered as a commodity like cloth and wine in the &lt;a href=&quot;https://en.wikipedia.org/wiki/Comparative_advantage&quot; rel=&quot;nofollow&quot;&gt;Ricardo theory&lt;/a&gt;, so that it can be exported and imported similarly to other commodities? I would be grateful for references.&lt;/p&gt;&#xA;" OwnerUserId="5528" LastActivityDate="2016-06-23T21:19:51.630" Title="Labor as a commodity" Tags="&lt;reference-request&gt;&lt;international-trade&gt;&lt;commodities&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12407" PostTypeId="1" AcceptedAnswerId="12411" CreationDate="2016-06-17T20:00:47.947" Score="4" ViewCount="4073" Body="&lt;p&gt;&lt;strong&gt;&lt;em&gt;[ADDED/MODIFIED] : I have put my proof where the commodity space is simply $\mathbb{R_+}$(e.g. nonnegative reals) for simplicity below. Please share your 2 cent. I have put words to aid my own understanding...&lt;/em&gt;&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am trying to understand that an equivalent way of stating &quot;a preference relation that is continuous on $X$ is continuous&quot; is to say &quot;the upper and lower contours sets are closed&quot;. What I don't understand is when MWG in Micro Book in Chapter 3 says the following :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;The continuity of $\succsim$ on X implies that for any sequence of points $\{y^n\}$ with $x\succsim y^n$ $\forall n$ and $y^n$ converging to $y$, we have $x\succsim y$. And, this implies the lower contour $L(x)=\{y\in X:x\succsim y\}$ set is closed.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;em&gt;My questions is: how does the above statement imply the lower contour set is closed?&lt;/em&gt;&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;[New Attempt] Proof:&lt;/strong&gt;&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;(1) Recall &lt;strong&gt;Definition 3.C.1(Modified for $\mathbb{R}$)&lt;/strong&gt;:&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The preference relation $\succsim$ on $X\subset\mathbb{R_+}$ is continuous if it is preserved under limits. That is, for any sequence of pairs $\{(x^n, y^n)\}^\infty_{n=1}$ with $x^n \succsim y^n$ for all $n$, $x = \lim_{n \rightarrow \infty} x^n$, and $y = \lim_{n \rightarrow \infty} y^n$, we have $x \succsim y$.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&lt;strong&gt;(In words, if you have a sequence of reals $x^n$ and $y^n$ where each term in $x^n$ is greater or equal to that of in $y^n$ and $x^n\rightarrow x$, $y^n\rightarrow y$, then you have $x\succsim y$. Notice here, to facilitate understanding, I basically equated the preference relation as the in\equality on reals, thus the expression &quot;greater or equal&quot;. An example is $x=2,y=1$. Essentially, look at the equivalence class of 2 and 1 on real line with the restriction that it is not any sequence converging to these numbers but need to narrow down to the group of convergent sequences where each term in $x^n$ is greater or equal to that of in $y^n$.)&lt;/strong&gt;&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;(2) The above definition implies the following: for any sequence of pairs $\{(x^n, y^n)\}^\infty_{n=1}$ with $x\succsim y^n$ $\forall n$, where $x^n=x$ $\forall n$ with $y^n$ converging to $y$, we have $x\succsim y$.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&lt;strong&gt;((1) certainly implies (2), because again think of the example, $x^n=2, 2, 2, \dots$ and $y^n$ being any member of the equivalence class of 1 with the restriction each term has to be less or equal to 2. How does the set of the sequences $y^n$ satisfying this condition actually look like on the real line? Each term has to be less or equal to 2 but we are in the nonnegative commodity space $\mathbb{R_+}$, so we have a set of sequences bounded in the interval $[0,2]$ but convergent to the number 1. This example is still valid for any pair of sequences of reals $x^n\geq y^n$ where $y^n$, the sequence of reals is a bounded sequence in $[0,x]$ converging to any a point $y\in[0,x]$ while $x^n=x,x,x,\dots$, we have $x\geq y$.)&lt;/strong&gt;&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;(3) Define the lower contour set to be $L(x)=\{y\in X:x\succsim y\}$. Then, (2) implies $L(x)$ is closed.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&lt;strong&gt;(In (2), we attained that for any pair of sequences of reals $x^n\geq y^n$ where $y^n$, the sequence of reals is a bounded sequence in $[0,x]$ converging to any a point $y\in[0,x]$ while $x^n=x,x,x,\dots$, we have $x\geq y$. The lower contour set is exactly a collection of real numbers $y$ such that it is less or equal to some $x$ on the real line. Then for any real number $y\in[0,x]$, you have a sequence of reals bounded by $0$ and $x$ where it converges to that $y$.Then, $L(x)$ contains all its limit points. Hence, it is closed.)&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;[Old Attempt]&#xA;My instinct was to show the lower contour set is closed is equivalent to showing the set contains all its limit points. And how do you do this? Well, in this case, it is to show whether, say the lower contour set, contains its boundary points. These points in collection is just the indifference set $I(x)=\{y\in X:y\sim x\}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, I want to show $I(x)\subset L(x)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;em&gt;Proof&lt;/em&gt;&lt;/strong&gt;&#xA;: (1) Suppose $x\in I(x)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(2) By definition, $x\succsim y$ and $y\succsim x$ $\iff x\sim y$. Hence, $I(x)=\{y\in X:y\succsim x\}\cap\{y\in X:x\succsim y\}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(3) Hence, $x\in L(x)$ and $I(x)\subset L(x)$. Q.E.D.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is my approach incomplete and how should I make sense of MWG's claim above? Please help. Thank you!!&lt;/p&gt;&#xA;" OwnerUserId="8560" LastEditorUserId="8560" LastEditDate="2016-06-18T07:28:56.777" LastActivityDate="2016-06-18T07:28:56.777" Title="(Preference Relation/Set) Continuous $\succsim$ imply closedness of upper and lower contour sets" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;&lt;preferences&gt;&lt;choice-theory&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12408" PostTypeId="2" ParentId="12386" CreationDate="2016-06-17T21:57:17.963" Score="2" Body="&lt;p&gt;The following quote might also be useful. The following is quoted from &lt;em&gt;Mostly Harmless Econometrics&lt;/em&gt;, by Angrist and Pischke&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Two things distinguish the discipline of Econometrics from our older&#xA;  sister field of Statistics. One is a lack of shyness about causality.&#xA;  Causal inference has always been the name of the game in applied&#xA;  econometrics. Statistician Paul Holland (1986) cautions that there can&#xA;  be no causation without manipulation, a maxim that would seem to&#xA;  rule out causal inference from non-experimental data. Less thoughtful&#xA;  observers fall back on the truism that correlation is not causality.&#xA;  Like most people who work with data for a living, we believe that&#xA;  correlation can sometimes provide pretty good evidence of a causal&#xA;  relation, even when the variable of interest has not been manipulated&#xA;  by a researcher or experimenter. &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The second thing that distinguishes us from most statisticians and&#xA;  indeed most other social scientists is an arsenal of statistical&#xA;  tools that grew out of early econometric research on the problem of&#xA;  how to estimate the parameters in a system of linear simultaneous&#xA;  equations. The most powerful weapon in this arsenal is the method of&#xA;  Instrumental Variables (IV), the subject of this chapter. As it turns&#xA;  out, IV does more than allow us to consistently estimate the&#xA;  parameters in a system of simultaneous equations, though it allows us&#xA;  to do that as well.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;However, this is not to say that causal inference belongs only to econometrics.&#xA;Wasserman, in &lt;em&gt;All of Statistics,&lt;/em&gt; remarks at how parallel developments were made within statistics and econometrics,&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The use of potential outcomes to clarify causation is due mainly to&#xA;  Jerzy Neyman and Don Rubin. Later developments are due to Jamie&#xA;  Robins, Paul Rosenbaum and others. A parallel devel- opment took place&#xA;  in econometrics by various people including Jim Heckman and Charles&#xA;  Manski. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="59" LastActivityDate="2016-06-17T21:57:17.963" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12409" PostTypeId="2" ParentId="12406" CreationDate="2016-06-18T00:19:29.707" Score="3" Body="&lt;p&gt;So in modern English, a commodity is a raw material for production or basic agricultural good that can be exchanged for money. Labor, by this definition, is neither a raw material, no one grinds humans up to build stuff, I hope; an agricultural good, similar reasoning; nor exchangeable for money, as slavery and indentured servitude is illegal and efficient in most places. (Letting people make their own work decisions, or at least not forcing them to work, is good, generally speaking.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Even with a more generously wide definition of a commodity, commodities are generally seen to be &lt;strong&gt;fungible&lt;/strong&gt;, which means you cannot easily differentiate between the good/service based on region, or that they all of each type of commodity is seen as equivalent. So if you are willing to say that all labor is equivalent...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Basically, labor is generally not seen as a commodity.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastEditorUserId="4251" LastEditDate="2016-06-19T16:15:05.370" LastActivityDate="2016-06-19T16:15:05.370" CommentCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="12410" PostTypeId="1" CreationDate="2016-06-18T00:33:48.437" Score="0" ViewCount="44" Body="&lt;p&gt;This is a bit of an edge case scenario.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's say you have a company that is very profitable (and pays very high dividends off the profit) but has little/no growth potential.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The company decides to slash the dividends significantly (to the point that the total yield is super low, lower than most other equity) in order to pay significantly higher wages/benefits to their headcount.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Presumably, the share price of the company would plummet drastically, as nobody would want to own the shares (zero dividend + zero growth means you're better off investing in a savings account, at least outside of negative interest rate countries).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;What happens to that company's finances longer term?&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Their valuation just shrunk to almost nothing, but they aren't bankrupt as they still have the same cash flow, same same business, same outstanding debt and same profits as before - they merely redirected the profits from dividends to headcount costs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(let's ignore real-world implications such that the company may start experiencing growth out of better publicity, employees using extra earnings to purchase their products ala Henry Ford-UAW parable, etc...).&lt;/p&gt;&#xA;" OwnerUserId="201" LastActivityDate="2017-06-10T08:10:15.397" Title="What happens to a company whose share price goes down to very little over dividend loss?" Tags="&lt;corporate-finance&gt;" AnswerCount="2" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="12411" PostTypeId="2" ParentId="12407" CreationDate="2016-06-18T02:15:40.223" Score="8" Body="&lt;p&gt;Looking more closely at your question, I think things should not be overly complicated. From Mas-Colell et.al.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Definition 3.C.1:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The preference relation $\succsim$ on X is continuous if it is preserved under limits. That is, for any sequence of pairs $\{(x^n, y^n)\}^\infty_{n=1}$ with $x^n \succsim y^n$ for all $n$, $x = \lim_{n \rightarrow \infty} x^n$, and $y = \lim_{n \rightarrow \infty} y^n$, we have $x \succsim y$&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The book then goes on to state that showing the lower contour set and upper contour set are closed, is equivalent.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As you note, a closed set is a set that contains all its limit points. That means that any convergent sequence of points $\{x^n\}^\infty_{n=1} \rightarrow x$ converges inside the set.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Because of the way the lower and upper contour sets are constructed, you can think of all the convergent sequences in the upper contour set as $\{x^n\}^\infty_{n=1}$ and all the convergent sequences of points in the lower contour set as $\{y^n\}^\infty_{n=1}$. In this case, all $x \succsim y$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But it's not the same way for discontinuous preferences! Just try and draw discontinuous preferences where the contour sets are closed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/ExF1F.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/ExF1F.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(enjoy that masterpiece)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any convergent sequence to that open boundary there is trouble.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2016-06-18T02:15:40.223" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="12413" PostTypeId="2" ParentId="12405" CreationDate="2016-06-18T04:50:13.990" Score="1" Body="&lt;p&gt;Experts can provide better suggestions if you give more information about your background, preferred programming language, etc. An absolute beginner myself, I am trying to learn Stats and Econometrics, and their applications using &lt;code&gt;R&lt;/code&gt; language, the &lt;em&gt;lingua franca&lt;/em&gt; among stats community. So far I have consulted primarily Springer's &lt;a href=&quot;https://link.springer.com/search?facet-series=%226991%22&amp;amp;facet-content-type=%22Book%22&quot; rel=&quot;nofollow&quot;&gt;Use R series&lt;/a&gt; and free resources available on &lt;a href=&quot;https://cran.r-project.org/web/views/&quot; rel=&quot;nofollow&quot;&gt;CRAN&lt;/a&gt;. I found the following particularly useful:&lt;br&gt;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://www.cengage.com/search/productOverview.do?N=11%204294921081&amp;amp;Ntk=P_EPI&amp;amp;Ntt=152961460856007931617237609421833777028&amp;amp;Ntx=mode%2Bmatchallpartial&quot; rel=&quot;nofollow&quot;&gt;Introductory Econometrics: A Modern Approach&lt;/a&gt; by Jeffrey M. Wooldridge&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.springer.com/us/book/9780387773162&quot; rel=&quot;nofollow&quot;&gt;Applied Econometrics with R&lt;/a&gt; by Kleiber &amp;amp; Zeileis&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;These are rather elementary books. Have a look at &lt;a href=&quot;https://cran.r-project.org/web/views/Econometrics.html&quot; rel=&quot;nofollow&quot;&gt;CRAN Econometrics Taskview&lt;/a&gt; to learn about applications of more advanced topics and even most recent Econometrics research.&lt;/p&gt;&#xA;" OwnerUserId="4557" LastActivityDate="2016-06-18T04:50:13.990" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12414" PostTypeId="2" ParentId="12410" CreationDate="2016-06-18T07:12:25.480" Score="2" Body="&lt;p&gt;What happens is completely dependent on the owners. They're the ones whose income has been taken anyway. They may be the &lt;em&gt;only&lt;/em&gt; ones with the legal power to do anything (depending on the jurisdiction: there may be some countries where the State can intervene in such matters).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In some jurisdictions, the directors have a &lt;em&gt;legal&lt;/em&gt; obligation to maximise returns to the shareholders over the long term; in other cases, they may have a &lt;em&gt;contractual&lt;/em&gt; obligation to do so. And in most cases, that will be the &lt;em&gt;expectation&lt;/em&gt; of the shareholders, anyway. They can intervene at an Annual General Meeting or an Extraordinary General Meeting: they can pass motions to change future dividend policy; or replace the directors - they could, of course just &lt;em&gt;become&lt;/em&gt; the board of directors themselves. And if there's a legal or contractual obligation, then there may be recourse available through legal action too, to seek compensation for the directors' past transgressions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If they decide to do nothing, then nothing in particular happens to the company's finances. &lt;/p&gt;&#xA;" OwnerUserId="44" LastEditorUserId="44" LastEditDate="2016-06-19T18:43:19.130" LastActivityDate="2016-06-19T18:43:19.130" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="12415" PostTypeId="1" CreationDate="2016-06-18T09:18:13.410" Score="0" ViewCount="43" Body="&lt;p&gt;Suppose 9 others and I are government employees. We get salary which will be counted while calculating GDP. Let's assume that we 10 are the only customers of a shop (for simplicity). The shopkeeper's income is derived from the 10 of us. Now if we calculate the shopkeeper's income while calculating GDP, then the the income will be counted twice since it was counted as our income at first place. So how are situations like this handled?&lt;/p&gt;&#xA;" OwnerUserId="8566" LastEditorUserId="1601" LastEditDate="2016-06-18T11:12:04.227" LastActivityDate="2016-06-18T11:12:04.227" Title="If we add up all the income while finding GDP of a country, is income counted multiple times?" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12416" PostTypeId="2" ParentId="12415" CreationDate="2016-06-18T11:09:53.247" Score="1" Body="&lt;p&gt;There is no contradiction here. All these incomes are part of the GDP. In theory all incomes show the value of something. In your example this would be the value of the work done. Since all 10 government employees and the shopkeeper are working they all create value, the size of which is measured by adding up their salaries.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://economics.stackexchange.com/questions/6633/what-is-the-gross-domestic-product-gdp&quot;&gt;Here&lt;/a&gt; you can find an explanation of what GDP exactly is.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2016-06-18T11:09:53.247" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12417" PostTypeId="2" ParentId="12405" CreationDate="2016-06-18T16:42:28.253" Score="1" Body="&lt;p&gt;A good (and free) introduction to applied macroeconometrics is the textbook by David Hendry: &lt;a href=&quot;http://www.timberlake.co.uk/media/wysiwyg/intromacroeconometrics/DFHMacroEcts15.pdf&quot; rel=&quot;nofollow&quot;&gt;Introductory Macro-econometrics: A New Approach&lt;/a&gt; which walks through several useful examples and explains things fairly intuitively. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It also touches some on forecasting but I would suggest &lt;a href=&quot;http://ebooks.cambridge.org/ebook.jsf?bid=CBO9780511599286&quot; rel=&quot;nofollow&quot;&gt;Forecasting Economic Time Series&lt;/a&gt; by Mike Clements and David Hendry or &lt;a href=&quot;http://eu.wiley.com/WileyCDA/WileyTitle/productCd-EHEP003218.html&quot; rel=&quot;nofollow&quot;&gt;Applied Econometric Time Series&lt;/a&gt; by Walter Enders or &lt;a href=&quot;http://www.cambridge.org/gb/academic/subjects/economics/econometrics-statistics-and-mathematical-economics/time-series-models-business-and-economic-forecasting-2nd-edition?format=PB&quot; rel=&quot;nofollow&quot;&gt;Time series models for business and economic forecasting&lt;/a&gt; by Philip H Franses as non-free alternatives that are more advanced.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For more general macroeconometrics in terms of an introduction you could go with &lt;a href=&quot;http://wps.aw.com/aw_stock_ie_3/&quot; rel=&quot;nofollow&quot;&gt;Introduction to Econometrics&lt;/a&gt; by Stock and Watson.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are ofcourse many more advanced textbooks but its really just about finding what works for you.&lt;/p&gt;&#xA;" OwnerUserId="6844" LastActivityDate="2016-06-18T16:42:28.253" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12418" PostTypeId="1" AcceptedAnswerId="12421" CreationDate="2016-06-18T23:49:06.377" Score="5" ViewCount="637" Body="&lt;p&gt;I am studying for my qualifiers, and I ran into this question from a previous year's exam.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\textbf{Question:}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider a two-consumer two-good pure exchange economy. Both preferences are locally non-satiated and convex. Prove or disprove the following statement: if $(x_1,x_2)$ and $(\hat{x}_1,\hat{x}_2)$ are two different pareto optimal allocations, then the convex combination, $(\alpha x_1+(1-\alpha)\hat{x}_1,\alpha x_2+(1-\alpha)\hat{x}_2$ MUST also be pareto optimal for any $\alpha\in(0,1)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I believe the statement is true, and here is the work for my proof below.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\textbf{My Proof:}$&#xA;By pareto optimality of $x_i$ and $\hat{x}_i$: &#xA;$$\not\exists\; x_i^\star\; s.t.\; u_i(x_i^\star)\geq u_i(x_i)\;\forall i\; \text{and}\; u_i(x_i^\star)&amp;gt; u_i(x_i)\;\text{for at least one }i \;\text{or}\;u_i(x_i^\star)\geq u_i(\hat{x}_i)\;\forall i\; \text{and}\; u_i(x_i^\star)&amp;gt; u_i(\hat{x}_i)\;\text{for at least one }i$$&#xA;$$\implies\;u_i(\alpha x_i)\geq u_i(\alpha x_i^\star)\;\forall i\;\text{and}\;u_i((1-\alpha)\hat{x}_i)\geq u_i((1-\alpha)x_i^\star)\;\forall i$$&#xA;$$\implies\not\exists\;x_i^\star\;s.t.\;u_i(\alpha x_i^\star+(1-\alpha)x_i^\star)\geq u_i(\alpha x_i+(1-\alpha)\hat{x}_i)\;\forall i$$&#xA;$$\text{and}\;u_i(\alpha x_i^\star+(1-\alpha)x_i^\star)&amp;gt; u_i(\alpha x_i+(1-\alpha)\hat{x}_i)\;\text{for at least one}\;i$$&#xA;$$\implies (\alpha x_i+(1-\alpha)\hat{x}_i)\;\text{is pareto optimal}$$&#xA;$$\blacksquare$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This proof seemed almost too easy, so I'm wondering if it is correct/rigorous.&lt;/p&gt;&#xA;" OwnerUserId="5825" LastActivityDate="2017-02-16T15:33:51.477" Title="Is the Convex Combination of Two Pareto Optimal Allocations Also Pareto Optimal?" Tags="&lt;microeconomics&gt;&lt;pareto-efficiency&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12420" PostTypeId="1" AcceptedAnswerId="12611" CreationDate="2016-06-19T05:03:01.253" Score="10" ViewCount="1212" Body="&lt;p&gt;I'm a novice at macroeconomics, and trying to understand the effect of immigration (from developing nations) on the economy of a developed nation. Specifically, I am considering the effect when the nation itself does not have full employment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, from what I have read, immigration is a positive thing for the economy in general. The increase in workforce capacity means that production can increase, therefore exports increase, and therefore the economy grows.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, what if the nation does not have full employment? In this case, there is already a section of society (let's say 5%) which is available to work. This would suggest that there are actually not enough jobs around, and so any immigrants arriving will also not have any jobs. If there had been any jobs for the immigrants to take, then employment wouldn't be at the 5% level. Despite this however, all developed nations have at least some level of unemployment, yet immigration is still beneficial. Why is this?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My suggestions are the following:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Immigrants from developing nations tend to be happier to take on unattractive jobs, which citizens of the developed country may refuse to do. Therefore, whilst the citizens remain unemployed and live off benefits, the immigrants will take on &quot;newly created&quot; jobs which would otherwise not have existed, boosting the economy.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The 5% unemployment rate is actually due to people who are sick / disabled / otherwise unable to work. Therefore, assuming the immigrants are able to work, again there will be new jobs created which would otherwise not have existed.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Higher immigration creates more competition for jobs, causing wages to decrease and allowing companies to pay their employees less. Therefore, the nation's companies make more money, and this causes the economy to grow.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Are any of these correct, or reasonable suggestions? Or are there any other thoughts? Thanks!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Alternatively, is my hypothesis that immigration typically boosts the economy not, in fact, correct?!&lt;/p&gt;&#xA;" OwnerUserId="5493" LastActivityDate="2018-12-02T00:38:42.923" Title="Why does immigration boost the economy? (or does it not...?)" Tags="&lt;macroeconomics&gt;&lt;labor-economics&gt;&lt;economic-growth&gt;&lt;unemployment&gt;&lt;migration&gt;" AnswerCount="2" CommentCount="4" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12421" PostTypeId="2" ParentId="12418" CreationDate="2016-06-19T06:00:15.647" Score="4" Body="&lt;p&gt;Here &#xA;$$\not\exists\;x_i^\star\; s.t.\; u_i(\alpha x_i)\geq u_i(\alpha x_i^\star)\;\forall i\;\text{and}\;u_i((1-\alpha)\hat{x}_i)\geq u_i((1-\alpha)x_i^\star)$$&#xA;$$\implies\not\exists\;x_i^\star\;s.t.\;u_i(\alpha x_i^\star+(1-\alpha)x_i^\star)\geq u_i(\alpha x_i+(1-\alpha)\hat{x}_i)$$&#xA;you assume that the function $u$ is linear. Unfortunately the statement is false for non-linear utility functions. Try &#xA;$$&#xA;U_1(x_1,y_1) = x_1 \cdot y_1^2 \hskip 20pt U_2(x_2,y_2) = x_2^2 \cdot y_2.&#xA;$$&#xA;Given 1 unit of $x$ and $y$ each, the allocations&#xA;$$&#xA;(x_1,y_1) = (1,1) \hskip 20pt (x_2,y_2) = (0,0)&#xA;$$&#xA;and&#xA;$$&#xA;(x_1',y_1') = (0,0) \hskip 20pt (x_2',y_2') = (1,1)&#xA;$$&#xA;are both Pareto-optimal. However the points on the connecting $x = y$ line are not. You can verify this by comparing $MRS_1$ and $MRS_2$ for points on the line. Hence the Pareto-set is not convex in this case. (It is a curve connecting the two extreme allocations given above.)&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2016-06-19T11:03:07.940" LastActivityDate="2016-06-19T11:03:07.940" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="12422" PostTypeId="1" CreationDate="2016-06-19T06:51:21.100" Score="2" ViewCount="420" Body="&lt;p&gt;For last couple of weeks I am trying to read &quot;Game Theory&quot; from &lt;em&gt;Fudenberg and Tirole&lt;/em&gt; and &quot;Microeconomics&quot; from &lt;em&gt;Jehle and Reny&lt;/em&gt;. But the kind of maths they use for their theorem-proof-theorem analysis, is just not getting into my head. What book can I use to easily master such kind of Real Analysis that can help me to understand these books?&lt;/p&gt;&#xA;" OwnerUserId="4345" LastEditorUserId="4345" LastEditDate="2016-06-19T07:01:54.407" LastActivityDate="2016-07-12T12:49:07.693" Title="How to get hang of mathematical language that is so extensively used in economics?" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;" AnswerCount="4" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12424" PostTypeId="1" CreationDate="2016-06-19T09:22:38.020" Score="3" ViewCount="192" Body="&lt;p&gt;Say a bank has 1 billion dollars deposited by individuals with bank accounts. How much of this does the banks lend/invest? Obviously it can't lend all of it or when I go to the bank there would be no money for me to take out. I realize this probably varies between institutions but in general about how much.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, what factors would contribute to the percentage they lend relative to the amount the bank has. For example, interest rates, inflation etc.&lt;/p&gt;&#xA;" OwnerUserId="8570" LastEditorUserId="7833" LastEditDate="2016-06-22T09:51:55.567" LastActivityDate="2017-01-30T04:27:33.763" Title="what percentage of a banks money do they lend" Tags="&lt;banking&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12425" PostTypeId="2" ParentId="12418" CreationDate="2016-06-19T11:20:53.653" Score="7" Body="&lt;p&gt;To complement densep's answer, here is a schematic Edgeworth box illustration of what can go wrong. The points on the dashed line are convex combinations of the Pareto optimal points $(x_1,x_2)$ and $(\hat{x}_1,\hat{x}_2)$, but the marked point is not Pareto optimal.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/CR3Kg.png&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/CR3Kg.png&quot; alt=&quot;Edgeworth box with non-Pareto optimal convex combination.&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2016-06-19T11:20:53.653" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12426" PostTypeId="1" AcceptedAnswerId="12427" CreationDate="2016-06-19T14:50:50.163" Score="4" ViewCount="1171" Body="&lt;p&gt;My understanding of local non-satiation is that increasing your allocation of one good by a marginal amount increases utility. Suppose your utility takes the following form:&#xA;$$U(x,y)=x^\alpha y^\beta$$&#xA;and your initial endowment is $(0,0)$. Now, if you increase either good without increasing the other, your utility does not increase. Does this mean that your utility is not locally non-satiated?&lt;/p&gt;&#xA;" OwnerUserId="5825" LastEditorUserId="5825" LastEditDate="2016-06-19T15:56:40.483" LastActivityDate="2020-07-10T00:09:28.353" Title="Is the Cobb-Douglas Utility Function Locally Non-Satiated at (0,0)?" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;cobb-douglas&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12427" PostTypeId="2" ParentId="12426" CreationDate="2016-06-19T16:05:18.553" Score="8" Body="&lt;p&gt;No.&lt;/p&gt;&#xA;&lt;p&gt;Cobb-Douglas utility is monotonic and monotonicity implies L.N.S.&lt;/p&gt;&#xA;&lt;p&gt;The issue here is that you're only considering edge cases. You've correctly reasoned that edge points are not more desirable that the origin. However, LNS simply claims that there exists a more desirable bundle within the open epsilon ball of your allocation under consideration (and this is true for all allocations). So given any epsilon, an open epsilon ball centered at the origin will necessarily contain an allocation where both elements are strictly positive.&lt;/p&gt;&#xA;&lt;p&gt;To see this, pick an epsilon and draw the epsilon ball around the origin. It should become fairly obvious what's going on.&lt;/p&gt;&#xA;&lt;p&gt;Hope that helps.&lt;/p&gt;&#xA;" OwnerUserId="1655" LastEditorUserId="1655" LastEditDate="2020-07-09T21:14:26.043" LastActivityDate="2020-07-09T21:14:26.043" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="12428" PostTypeId="1" AcceptedAnswerId="12440" CreationDate="2016-06-19T18:46:20.713" Score="0" ViewCount="68" Body="&lt;p&gt;I have been presented with this formula for the net present value:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$NPV  = I_o + \sum \frac{F_t}{(1+r+p_t)^t},$$&lt;/span&gt;&#xA;where &lt;span class=&quot;math-container&quot;&gt;$F_t =$&lt;/span&gt; net cash flow for period &lt;span class=&quot;math-container&quot;&gt;$t$&lt;/span&gt;; &lt;span class=&quot;math-container&quot;&gt;$R=$&lt;/span&gt; required ret of return; &lt;span class=&quot;math-container&quot;&gt;$I_o=$&lt;/span&gt; Initial cash investment, and &lt;span class=&quot;math-container&quot;&gt;$P_t=$&lt;/span&gt; inflation rate during period &lt;span class=&quot;math-container&quot;&gt;$t$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;p&gt;Although I've been told it is an industry standard, I don't get it.&lt;/p&gt;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Why does rate of return increase with time? I assume it is constant - if I want 8% return each year, I assume it comes from inflation adjusted value, so the term should be out of the brackets&lt;/li&gt;&#xA;&lt;li&gt;&amp;quot;Initial cash investment&amp;quot; pharsing suggest the value will be positive, but I assume it has to be negative, otherwise it wouldn't make sense to sum initial investments with inflows.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&lt;p&gt;Any comment will be appreciated, thank you!&lt;/p&gt;&#xA;" OwnerUserId="8577" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2016-06-21T01:28:59.123" Title="Is this formula for net present value correct?" Tags="&lt;finance&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12432" PostTypeId="1" CreationDate="2016-06-20T02:28:47.493" Score="3" ViewCount="118" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/chGpg.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/chGpg.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.uio.no/studier/emner/sv/oekonomi/ECON4325/v14/pensumliste/cgg2000.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Clarida, Gali, Gertler(1999)&lt;/a&gt; show the optimal monetary policy problem of central bank for minimizing loss function under &quot;Commitment&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://latex.codecogs.com/gif.latex?x_t&quot; title=&quot;x_t&quot; /&gt; is a output gap, &lt;img src=&quot;https://latex.codecogs.com/gif.latex?%5Cpi_t&quot; title=&quot;\pi_t&quot; /&gt; is a inflation rate, &lt;img src=&quot;https://latex.codecogs.com/gif.latex?%5Cinline&amp;space;u_t&quot; title=&quot;u_t&quot; /&gt;~AR(1) is a supply shock.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I want to know why rational expectations term, &lt;img src=&quot;https://latex.codecogs.com/gif.latex?%5Cinline&amp;space;E_t&quot; title=&quot;E_t&quot; /&gt; , is omitted in the FOCs of the lagrangian above the Appendix.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For some variable &lt;img src=&quot;https://latex.codecogs.com/gif.latex?%5Cinline&amp;space;y_%7Bt&amp;plus;1%7D&quot; title=&quot;y_{t+1}&quot; /&gt;, &lt;img src=&quot;https://latex.codecogs.com/gif.latex?%5Cinline&amp;space;E_ty_%7Bt&amp;plus;1%7D=0&quot; title=&quot;E_ty_{t+1}=0&quot; /&gt; does not imply &lt;img src=&quot;https://latex.codecogs.com/gif.latex?%5Cinline&amp;space;y_%7Bt&amp;plus;1%7D=0&quot; title=&quot;y_{t+1}=0&quot; /&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you for your answer.&lt;/p&gt;&#xA;" OwnerUserId="8580" LastActivityDate="2016-06-20T02:28:47.493" Title="Optimal monetary policy under commitment &amp; FOCs" Tags="&lt;macroeconomics&gt;&lt;monetary-policy&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12433" PostTypeId="1" AcceptedAnswerId="12438" CreationDate="2016-06-20T04:47:47.693" Score="2" ViewCount="307" Body="&lt;p&gt;It seems to me that they do. Suppose $x$ is a Giffen good (that is, it violates the law of demand). Then when $p_x$ increases, the quantity of $x$ demanded &lt;em&gt;increases&lt;/em&gt;. Suppose also that this increase of $p_x$ decreases the demand for $y$. Now, the standard definition for complements suggests that $x$ and $y$ are complements because the demand for $y$ decreased when $p_x$ increased. I would argue, however, that they are, in fact, better thought of as substitutes as the change in $p_x$ leads to the quantity demanded of $x$ increasing as the demand for $y$ decreases, i.e., the consumer is substituting from $y$ to $x$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By &quot;standard definitions&quot; of substitutes and complements, I'm referring to:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;$x$ and $y$ are substitutes if demand for $y$ increases when $p_x$ increases.&lt;/li&gt;&#xA;&lt;li&gt;$x$ and $y$ are complements if demand for $y$ decreases when $p_x$ increases.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Is there an alternative definition out there that is robust to Giffen goods?&lt;/p&gt;&#xA;" OwnerUserId="48" LastEditorUserId="1601" LastEditDate="2016-06-20T08:41:27.133" LastActivityDate="2016-06-20T18:02:14.157" Title="Do standard definitions of substitute goods and complementary goods assume the Law of Demand?" Tags="&lt;microeconomics&gt;&lt;giffen-goods&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12434" PostTypeId="1" CreationDate="2016-06-20T06:28:50.257" Score="1" ViewCount="26" Body="&lt;p&gt;I am working on data analysis these days and stuck on analysis when I have to compare the two kinds of responses.&#xA;First, I have data on the self assessment, I have asked students to rate them on a scale of 1- 5 (SD-SA) on 25 behaviors, what they think about themselves.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Than though a timed exercise, I have asked assessors to access them on same behaviors on the number of occurrence and also if the student shows anything against the behavior then a negative score is also given. The scoring is done is such a way that a student can get a maximum of 4 points if they show the behaviors many times and a minimum of negative 4 if they show against.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, for the purpose of comparison I want to analyse both the scores. Self assessment Vs Assessor scoring, so I want to know how can I do it? I want to measure the over/under estimation of self assessment or the assessor scoring.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Should I make the assessor score into a scale too? Where -4 to -1 is disagree, -1 to 1 is neutral and 1 to 4 is Agree?&#xA;I can't seem to make it a scale of 1-5 to have a uniform score.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have asked the same question &lt;a href=&quot;https://stats.stackexchange.com/questions/219934/analyse-the-data-of-two-responses-while-having-two-different-scales&quot;&gt;on Cross Validated&lt;/a&gt;. &lt;strong&gt;UPDATE: Question has been eliminated.&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="8582" LastEditorUserId="-1" LastEditDate="2017-04-13T12:44:19.590" LastActivityDate="2017-04-09T07:44:18.337" Title="Analyse the data of two responses while having two different scales" Tags="&lt;micro-data&gt;&lt;comparative-statics&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12438" PostTypeId="2" ParentId="12433" CreationDate="2016-06-20T18:02:14.157" Score="1" Body="&lt;p&gt;A quick response is that if the law of demand is violated, then the standard definition for substitutes and complements may or may not apply.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Consider buying fast food burgers as your only choice of meal. When the price of the meal drops, you might want to consume something healthier like a bowl of salads. You consume less fast food and may increase consumption of, say, broccoli. Then, this is your example. $\frac{\partial X_F}{\partial P_F}&amp;gt;0$. But, $\frac{\partial X_B}{\partial P_F}&amp;lt;0$ where P and X are price and quantity and subscripts F and B represent Fast Food and Broccoli respectively.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Consider another example:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Consider buying a game CD for Xbox One that is a special and limited edition. As marketing strategy, the manufacturer emails you there are only few left and price has increased 5%. You are determined to get the game now for one collection purpose and another for actual game use. But then, you were gonna get a limited edition version of wireless controller to enhance your gaming experience. It is reasonable to consider they are complements. But because you decided to buy two CDs, you buy no wireless controller. In this example, we still have $\frac{\partial X_L}{\partial P_L}&amp;gt;0$. But, $\frac{\partial X_C}{\partial P_L}&amp;lt;0$ where P and X are price and quantity and subscripts L and C represent the limited game cd and wireless controller respectively.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Could you still argue the limited special edition CD is a substitute for the wireless controller? Maybe. But notice you still desire the wireless controller given it is wireless and limited edition. One of the reasons why you forgo the chance to buy this controller is you are effectively poorer than before. And this is an important distinction to make, because the decrease in the quantity of the controller may be from the direct impact of the increase in the price of the game CD but also the induced effect through your wealth (i.e. thinner wallet).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you want to investigate the true relationship between two goods, you have to take both wealth and price effects into account on top of the given information, say whether the good is Giffen or inferior or both or something else.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope this helps.&lt;/p&gt;&#xA;" OwnerUserId="8560" LastActivityDate="2016-06-20T18:02:14.157" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12440" PostTypeId="2" ParentId="12428" CreationDate="2016-06-21T01:28:59.123" Score="0" Body="&lt;p&gt;&lt;strong&gt;Q2 :&lt;/strong&gt; Indeed the correct formulation is for initial investment to appear with a minus sign, since it is an outflow. This reflects the position of somebody who contemplates making the investment. Note also that you shuold check whether there exists some residual value of assets at the end of the operational period examined - this should be added (and discounted) together with the net cash flow of the last future period examined.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Q1 :&lt;/strong&gt; the logic of the net present value calculation is to notionally compare the returns of the specific investment with some abstract alternative that pays a constant $r$ per period, as a percentage of value left to produce returns. It is as though we have a bank account from which we draw and to which we deposit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now think in reverse : in order to &quot;have&quot; amount $F_3$ (three periods in the future), you only need to deposit &lt;em&gt;now&lt;/em&gt; in this account $F_3/(1+r)^3$, and leave it there to accrue interest.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, if the cash flows are calculated in nominal terms, you would want to deflate them, so as to express them in today's value/purchasing power. The real value of $F_3$ is $F_3/[(1+\pi_1)(1+\pi_2)(1+\pi_3)]$, where $\pi$ is the rate of inflation. So over all we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$NPV (F_3) = \frac {F_3}{(1+r)^3 \cdot (1+\pi_1)(1+\pi_2)(1+\pi_3)}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, if you assume a constant inflation rate (or an average - after all, $r$ is also essentially an average), then you can write&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$NPV (F_3) = \frac {F_3}{(1+r)^3 \cdot (1+\pi)^3} = \frac {F_3}{[(1+r) \cdot (1+\pi)]^3} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$=\frac {F_3}{(1+r +\pi +r\pi)^3}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Usually the term $r\pi$ is considered negligible (when we look at &quot;usual&quot; required rate of returns, and when inflation is low, think something like $0.1\cdot 0.02 = 0.002$). So it is common practice to be dropped (both in industry and in academia), arriving at &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$NPV (F_3) = \frac {F_3}{(1+r +\pi)^3}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What you were given keeps the inflation rate time variant. This comes from the approximation&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$i_t \approx r_t + \pi_t$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;i.e. that the nominal interest rate equals approximately the real interest rate/rate of return plus inflation. So the &lt;em&gt;nominal&lt;/em&gt; rate of return may increase with time solely due to inflation.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2016-06-21T01:28:59.123" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12441" PostTypeId="1" CreationDate="2016-06-21T06:15:58.400" Score="6" ViewCount="367" Body="&lt;p&gt;I want to ask you if there is an explanation in your science of why there are so many migrants in the modern world? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I live in Russia, and after the dissolution of the USSR a lot of people here had to leave their states (former Soviet republics) trying to find a job in Russia (where the economic situation is a bit better in comparison with the other republics). At the same time many people are trying to emigrate from the former Soviet Union to the West. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;When looking at the statistics I see that the situation with the employment in the former USSR is not the worst in the world, for example, according to &lt;a href=&quot;http://data.worldbank.org/indicator/SL.UEM.TOTL.ZS&quot; rel=&quot;nofollow noreferrer&quot;&gt;this source&lt;/a&gt;, the unemployment rate in Russia is now 5.1%, in Uzbekistan 10.6%, and this is not so bad in comparison, say, with Spain, where it is 24.7%. However, the difference between 10.6% and 5.1% (together with some other parameters, like quality of life, etc.) force many people, millions of them, to seek a job abroad, and this is difficult for them (I am sorry for the normative statements).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, to specify my question, &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;What is the attitude of the economic theory to this? Is this considered as a result of an unsuccessful economic policy, i.e. of some mistakes in the reforms, or this is regarded as normal (maybe, inevitable)? And&lt;/p&gt;&#xA;  &#xA;  &lt;ul&gt;&#xA;  &lt;li&gt;If these were mistakes, then what were these mistakes? &lt;/li&gt;&#xA;  &lt;li&gt;If this was normal, then I suppose there must be an understanding in your science of what people should do in this situation. How does the economic theory expect the jobless people to react? Are they supposed to leave their countries, or wait, or die? If they are supposed to leave, then there appears a contradiction between economics and politics, since usually emigration is very, very difficult, often impossible because of the political reasons. How is this contradiction supposed to be resolved?&lt;/li&gt;&#xA;  &lt;/ul&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;From what I see in internet I got an impression that the situation in the former USSR is not unique, there are many other countries with similar problems, so, to tell the truth, I don't understand why people here insist that I should specify the country I am speaking about. If this is important, I have in mind the situation in Central Asia, i.e. countries like Uzbekistan, Tajikistan and around.&lt;/p&gt;&#xA;" OwnerUserId="5528" LastEditorUserId="2776" LastEditDate="2017-08-19T10:35:27.517" LastActivityDate="2017-08-19T10:35:27.517" Title="Why are there so many migrants in the modern world?" Tags="&lt;unemployment&gt;&lt;migration&gt;" AnswerCount="1" CommentCount="20" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12443" PostTypeId="1" AcceptedAnswerId="12450" CreationDate="2016-06-21T13:03:52.220" Score="1" ViewCount="480" Body="&lt;p&gt;I am reading MWG's explanation in Chapter 3 when showing continuous preference relation implies the existence of continuous utility function.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, the authors show $u(.)$ is continuous by using the definition that the image under $u(.)$ of a convergent sequence is convergent. Consider a sequences $x_n\rightarrow x$. They first claim that $u(x_n)$ must have a convergent subsequence.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand the big picture: Since $x_n$ converges to x, for some large N, $u(x_n)$ must all lie in some compact set, and any infinite sequence in a compact set must have a convergent subsequence.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;em&gt;The part I am having trouble is when they use monotonicity to show this compact set. The exact excerpt is:&lt;/em&gt;&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;By monotonicity, for any $\epsilon&amp;gt;0$, $\alpha(x')$ lies in a compact subset of $\mathbb{R_+}$, [$\alpha_0,\alpha_1$], for all $x'$ such that $\parallel x'-x\parallel$$\leq0$.&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Here I used $u(.)$ and $\alpha(.)$ interchangeably to represent the utility function. Can somebody elaborate the above claim just little more in detail please?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand monotonicity implies local nonsatiation, hence, in any given small ball, you always have some bundle that you prefer that to x. Part of my confusion comes from the Figure they present, which is they put the bundle x on the indifference curve ($\{y\in X:y\sim x$}). But isn't $\alpha(x')$ on the diagnoal line Z?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Please help. Thank you.&lt;/p&gt;&#xA;" OwnerUserId="8560" LastActivityDate="2016-06-21T22:54:29.093" Title="Continuous Preference Relation Imply Continuous Utility Fn Existence" Tags="&lt;mathematical-economics&gt;&lt;consumer-theory&gt;&lt;preferences&gt;&lt;choice-theory&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12444" PostTypeId="1" CreationDate="2016-06-21T13:26:35.373" Score="2" ViewCount="46" Body="&lt;p&gt;In my country there are very few manufacturing factories,but large numbers of small retail shops (like one shop per house or may be even more). What are the effects in the economy of a country for having large numbers of retail shops,but very few manufacturing factories ?&lt;/p&gt;&#xA;" OwnerUserId="8591" LastEditorUserId="8591" LastEditDate="2016-06-22T09:48:35.127" LastActivityDate="2018-07-24T15:00:27.690" Title="Is there anything like ratio between number of manufacturing industries to number of retail shops?" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;&lt;international-economics&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="12445" PostTypeId="1" CreationDate="2016-06-21T13:48:16.867" Score="1" ViewCount="30" Body="&lt;p&gt;I am doing a research project on the effect of market sharing agreements on the profits of franchises, and I would like to get some empirical data to guide my analysis. Are large franchises required to publish data on the individual performance of their franchisees? I looked on the McDonald's website, and found a huge amount of legal information, but I am not sure which documents, if any, are relevant to me. What would be the best place to look for this kind of data? I would like anything possible, but especially data on sales, profits, etc. over time. Thanks!&lt;/p&gt;&#xA;" OwnerUserId="4748" LastActivityDate="2016-07-01T15:00:25.323" Title="Data on Individual Performance of Franchises" Tags="&lt;data-request&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12446" PostTypeId="1" CreationDate="2016-06-21T16:16:28.163" Score="1" ViewCount="49" Body="&lt;p&gt;Why does inflation occur?  To an outsider, inflation appears somewhat mysterious.  Is there an extremely simple &lt;em&gt;mathematical&lt;/em&gt; model where inflation naturally occurs?  I would like something that even someone with zero understanding of economics can appreciate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;UPDATE: I am hoping to find an agent-based model which is not defined in terms of inflation, but in terms of more basic (to me) things like supply, demand, et cetera, but where inflation occurs.  For example, the agents' goal could be to optimize revenue and they could have a limited set of possible actions.  Iterating their decisions could then lead to inflation.  Maybe such a model is nonsense, but I'd imagine that if it is not there would be papers about it.&lt;/p&gt;&#xA;" OwnerUserId="8592" LastEditorUserId="8592" LastEditDate="2016-06-24T18:53:16.457" LastActivityDate="2016-06-24T18:53:16.457" Title="Basic model where inflation occurs" Tags="&lt;inflation&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12447" PostTypeId="1" CreationDate="2016-06-21T16:40:12.397" Score="2" ViewCount="35" Body="&lt;p&gt;I have limited real auction data which I am trying to see if I can do any empirical analysis. The data consists of auction type (i.e., forward or reverse), protocol (e.g., Vickrey, Dutch, English, etc.), winning bid value, 2nd highest bid, length of auction and number of bidders. The dataset is large (~500+ for each protocol). I do not have bid-level information (e.g., how the bids are distributed for each auction) which really limits what I can do with the data.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As you see, the problem is that I do not have bid-level data (e.g., how each bidders were bidding). I had two ideas originally:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Determine whether bidders are bidding according to the Bayesian&#xA;Nash strategy but I don't think it is possible to establish a&#xA;distribution of valuations since I do not have bid-level data.&lt;/li&gt;&#xA;&lt;li&gt;An analysis of the Revenue Equivalence Theorem by examining the&#xA;actual seller revenue for each protocol versus the expected revenue&#xA;but not sure if this is possible.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Any suggestions or suggestions of past studies will be greatly appreciated! &lt;/p&gt;&#xA;" OwnerUserId="8593" LastEditorUserId="1601" LastEditDate="2016-06-21T21:50:41.590" LastActivityDate="2016-06-21T21:50:41.590" Title="Empirical Study of Auctions with Limited Data" Tags="&lt;reference-request&gt;&lt;game-theory&gt;&lt;empirical-evidence&gt;&lt;auctions&gt;" AnswerCount="0" CommentCount="3" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12448" PostTypeId="1" CreationDate="2016-06-21T19:58:00.483" Score="0" ViewCount="1627" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Suppose $F(K,L)= 50L^{\frac{1}{2}}K^{\frac{1}{2}}$, the wage is $w = 5$&#xA;   (euros) and rent is $r = 20$ (euros). What is the cost of producing&#xA;  $1000$ units? Derive the cost function $TC(Q)$.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I know how to find out the cost. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$L = 40$ and $K = 10$. So the total cost is $400$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But now I am stuck. The solution for the cost function should be: $$TC(Q) = 5\cdot \dfrac{4Q}{100} + 20\cdot \dfrac{Q}{100} = \dfrac{2}{5}Q$$&#xA;How do I get to this function?&lt;/p&gt;&#xA;" OwnerUserId="8598" LastEditorUserId="4193" LastEditDate="2016-08-22T17:15:04.570" LastActivityDate="2016-10-21T17:39:49.663" Title="Derive the Cost Function TC(Q)" Tags="&lt;microeconomics&gt;&lt;production-function&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12449" PostTypeId="2" ParentId="12446" CreationDate="2016-06-21T21:47:51.710" Score="1" Body="&lt;p&gt;Quoting Wikipedia:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;the &lt;strong&gt;quantity theory of money (QTM)&lt;/strong&gt; states that money supply has a&#xA;  direct, proportional relationship with the price level.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;According to this theory an increase in money in circulation increases price levels.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So an &quot;extremely simple mathematical model&quot; (and extremely simplistic) would be something like:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \pi_t = \dfrac{M_t-M_{t-1}}{M_t} $$ where $M$ stands for money supply and $\pi$ stands for inflation.&lt;/p&gt;&#xA;" OwnerUserId="4193" LastActivityDate="2016-06-21T21:47:51.710" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12450" PostTypeId="2" ParentId="12443" CreationDate="2016-06-21T22:54:29.093" Score="1" Body="&lt;p&gt;I think you're overthinking this proof. MWG only say that such a compact set exists because, by monotonicity, you can always find $\alpha_0$ and $\alpha_1$ such that $\alpha_0*e&amp;lt;\alpha(x')*e&amp;lt;\alpha_1*e$ (with $&amp;lt;$ I mean strictly preferred). Remember that, by monotonicity, if $y&amp;gt;&amp;gt;x$, then $y$ is strictly preferred to $x$. Therefore, we only need to find some $\alpha_0$ and $\alpha_1$ such that $\alpha_0&amp;lt;\alpha(x')&amp;lt;\alpha_1$ for all $x'$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is because the set $\{x':||x'-x||\le\epsilon\}$ is bounded and $x'∼\alpha(x')*e$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Note that with local non-satiation the result does not immediately follow).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You're right, $\alpha(x')*e$  is on the diagonal line Z and $x'$ is not (note that $\alpha(x')$ is mutiplied by $e$, a vector filled by 1's). However, working with $\alpha(x')$ reduces the complexity of the problem. Instead of working with two (or more) dimensions, we just work with one (the diagonal line Z or one axis). We can do that because for any element $x\in \Bbb R_+$, there is $x∼\alpha(x)*e$ which is in the diagonal line. &lt;/p&gt;&#xA;" OwnerUserId="8557" LastActivityDate="2016-06-21T22:54:29.093" CommentCount="9" ContentLicense="CC BY-SA 3.0" />
  <row Id="12451" PostTypeId="2" ParentId="12424" CreationDate="2016-06-21T23:38:44.690" Score="3" Body="&lt;p&gt;I'll put my comment as an answer and add one or two things. To see how much a bank lends in comparison to deposits, you can look at what is called the &lt;a href=&quot;http://www.investopedia.com/terms/l/loan-to-deposit-ratio.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;loan-to-deposit&lt;/a&gt; (LTD)ratio of banks in their annual reports. Usually it is between 60% and 90% but as you mentioned this can vary upon institutions .. And geographic areas as well ! For instance, in 2015 in the EU &lt;a href=&quot;https://www.eba.europa.eu/-/eba-finds-further-increase-in-eu-banks-capital-ratios-in-2015&quot; rel=&quot;nofollow noreferrer&quot;&gt;the average LTD ratio was 108%&lt;/a&gt; whereas in the US the average is about 79%. You can check &lt;a href=&quot;https://www.federalreserve.gov/newsevents/press/bcreg/bcreg20150629a1.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;per state the LTD ratio from data gathered by the Fed and the FDIC&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As to factors that determine this amount, I would probably put regulation as the first point. If I had to think about other macro points that could affect the LTD I would probably mention interest rate and in particular LIBOR rates as they tend to give an idea about the financial stress on the banking level and therefore to a certain extend the willingness for a bank to lend money and/or to require more liabilities.  &lt;/p&gt;&#xA;" OwnerUserId="7833" LastEditorUserId="69" LastEditDate="2017-01-27T16:01:25.827" LastActivityDate="2017-01-27T16:01:25.827" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12452" PostTypeId="1" CreationDate="2016-06-22T00:26:52.620" Score="5" ViewCount="6805" Body="&lt;p&gt;I know that the Slutsky equation is defined as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac{\partial x_1^s}{\partial p_1} = \frac{\partial x_1^m}{\partial p_1} + x_1^o \frac{\partial x_1^m}{\partial m}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My problem is right now is making use of this information given (I am aware of how to take partial derivatives) but cannot seem to understand how to apply it to problem sets.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here's an example (I'm more concerned about the steps on &lt;strong&gt;how&lt;/strong&gt; to get to the answer not just the answer);&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A consumer has preferences given by $U(x_1,x_2)= x_1^2x_2$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(a) Derive the demand curves for $x_1, x_2$ when prices and income are given by $p_1, p_2$ and $m$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$x_1^*=2m/3p_1$ and $x_2^*=m/3p_2$  -I think I understood how to do that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(b) Illustrate the equilibrium on a diagram when $p_1$ = $p_2$ $ =$ 1 and&#xA;$I$ = $12&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;the way I did this was by graphing and simply finding the equllibrium point graphically based on the Demands for goods $1$ and $2$ on the budget line&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;(c) Calculate the exact income and substitution effects for $x_1$ when $p_1$&#xA;rises to $3.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;-The only way I'm currently able to do this is without Calculus, as described in &lt;a href=&quot;https://www.youtube.com/watch?v=YZxImVH5gKM&quot; rel=&quot;nofollow noreferrer&quot;&gt;this video&lt;/a&gt; which doesn't seem to sit well with me being that the Slutsky Equation is defined very clearly with use of calculus. I just don't know how to apply it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(d) Explain your exact results using the appropriate Slutsky equation.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;same problem here.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Note:&lt;/strong&gt; I'm no simply looking for someone to &quot;do my homework&quot; I'm primary interest is in knowing how to apply the Slutsky equation when facing similar problems.&lt;/p&gt;&#xA;" OwnerUserId="6629" LastEditorUserId="2776" LastEditDate="2017-04-13T09:53:34.003" LastActivityDate="2017-04-15T09:47:42.620" Title="Use of Slutsky equation" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12453" PostTypeId="1" CreationDate="2016-06-22T03:55:51.087" Score="7" ViewCount="387" Body="&lt;p&gt;In areas such as insurance pricing and government policy analysis, it is often necessary to assign human life a monetary amount in order to compare it with other monetary amounts.  So economists have a measure called the statistical value of life, which in some sense quantifies how much a person values his own life.  It's usually calculated to be about 10 million dollars for most people.  Now this isn't literally the dollar amount a person puts on his life, because that amount is usually infinity; it's possible that no amount of money would convince the average person to give up his own life, and the average person would be willing to spend any amount of money to save his own life.  So the technical definition is trickier: the statistical value of a person's life is the dollar amount $X$ such that for all probabilities $p$, or at least all values of $p$ relatively close to 0 the person would be indifferent between a situation where their chance of dying is $p$, and a situation where their chance of losing $X$ dollars is $p$.  (An equivalent definition can be given in terms of reducing your chance of death and gaining money.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is not about why this concept is useful; I understand its utility.  (No pun intended.)  My question is, why should the statistical value of life exist at all?  That is to say, why should there exist a single value of $X$ that satisfies this definition for all values of $p$, or even all values of $p$ that are sufficiently close to $0$?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's discuss this more formally.  Let $A$ is the set of possible preferences, and let $G(A)$ be the set of &quot;gambles&quot; or &quot;lotteries&quot; over $A$.  Then the von Neumann-Morgenstern theorem states that if a person's preference ordering over $G(A)$ satisfies certain rationality axioms, then the person's preferences can be represented by a utility function $u: A → ℝ$. That means that the value that a person puts on any lottery $L$ is the expected value of$u$ under the probability distribution of $L$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So I would not be surprised at all if a person was indifferent between a 1 percent chance of getting 10 dollars and a 1 percent chance of getting a chocolate sundae, and was also indifferent between a 2 percent chance of getting 10 dollars and a 2 percent chance of getting a chocolate sundae; that would just indicate to me that the person's preferences satisfy the von Neumann-Morgenstern rationality axioms.  But I don't understand why, if a person was indifferent between a 1 percent chance of losing 10 million dollars and a 1 percent chance of dying, they would necessarily also be indifferent between a 2% chance of losing 10 million dollars and a 2% chance of dying.  That's because living and dying do not comport with von Neumann Morgenstern axioms; the average places the utility of survival at infinity, and yet they assign finite values to small risks of dying.  So I see no reason why lotteries involving risks of living and dying should obey the von Neumann-Morgenstern axioms.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And yet empirically, it seems that studies have found that the statistical value of life is a well-defined and measurable quantity, at least for sufficiently small values of $p$.  So what is the reason for this?  What is the reason that lotteries involving small risks of dying obey the von Neumann-Morgenstern axioms, when living and dying themselves do not?&lt;/p&gt;&#xA;" OwnerUserId="4447" LastEditorUserId="4447" LastEditDate="2016-06-23T21:52:05.290" LastActivityDate="2017-09-12T19:20:30.463" Title="Why should the statistical value of life exist?" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;expected-utility&gt;&lt;risk-aversion&gt;" AnswerCount="2" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="12454" PostTypeId="1" AcceptedAnswerId="12458" CreationDate="2016-06-22T10:34:58.683" Score="1" ViewCount="594" Body="&lt;p&gt;Can a country's economy,where everything is imported from other countries, solely depend on the income from its retail industry?&lt;/p&gt;&#xA;" OwnerUserId="8591" LastActivityDate="2016-06-22T12:49:09.003" Title="How does an import driven economy function?" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;&lt;international-trade&gt;&lt;international-economics&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12455" PostTypeId="1" CreationDate="2016-06-22T11:40:46.873" Score="3" ViewCount="104" Body="&lt;p&gt;Is there empirical evidence to validate the use of Cournot competition between multiple suppliers and a buyer?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are there models which extend Cournot competition to different levels in a larger supply chain? Is there evidence to show that firms at the same level in a supply chain, be it at different levels, compete a la Cournot? &lt;/p&gt;&#xA;" OwnerUserId="41" LastActivityDate="2016-06-22T11:40:46.873" Title="Empirical Evidence of Cournot Competition?" Tags="&lt;microeconomics&gt;&lt;supply-and-demand&gt;&lt;competition&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12456" PostTypeId="2" ParentId="12399" CreationDate="2016-06-22T12:24:33.193" Score="1" Body="&lt;p&gt;After searching, I found out that Structural Budget is OECD nomenclature for Cyclically Adjusted Budget.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here's a &lt;a href=&quot;https://stats.oecd.org/glossary/detail.asp?ID=2577&quot; rel=&quot;nofollow&quot;&gt;link&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="118" LastEditDate="2016-06-22T23:28:15.040" LastActivityDate="2016-06-22T23:28:15.040" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="12457" PostTypeId="1" AcceptedAnswerId="12465" CreationDate="2016-06-22T12:44:09.370" Score="0" ViewCount="53" Body="&lt;p&gt;In &lt;a href=&quot;https://data.oecd.org/chart/4z7D&quot; rel=&quot;nofollow&quot;&gt;this OECD link&lt;/a&gt; we have the US General government debt. The value is close to 120% of GDP.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, the &lt;a href=&quot;https://en.wikipedia.org/wiki/National_debt_of_the_United_States&quot; rel=&quot;nofollow&quot;&gt;wikipedia&lt;/a&gt; has the US Federal Gov debt at 80%.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why is there such a difference? What debt is being considered by the OECD, that is not by the wikipedia graph?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated&lt;/p&gt;&#xA;" OwnerUserId="118" LastActivityDate="2016-06-22T17:20:15.617" Title="Different values for US Public Debt, why?" Tags="&lt;macroeconomics&gt;&lt;government-debt&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12458" PostTypeId="2" ParentId="12454" CreationDate="2016-06-22T12:49:09.003" Score="0" Body="&lt;p&gt;This is an implausible scenario for a country of any size, the problem being how the imported goods would be paid for.  An individual retailer might pay for its imported goods out of income from sales to other residents of the country.  But for the country as a whole this would not work: there has to be sufficient income &lt;em&gt;from foreign sources&lt;/em&gt; to pay for its total imports. The only exceptions would be if the country were running down its assets, or borrowing from abroad, neither of which could continue indefinitely.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In theory the required income could come from a) re-export at a profit of imported goods, and/or b) sales of imported goods at a profit to incoming tourists. However, even with clever marketing, it seems unlikely that (a) could be achieved on any scale if it involves no physical processing to add value, in competition with foreign suppliers operating by more direct routes. So far as (b) is concerned, even if the country has natural tourist attractions (eg scenery, heritage), to bring in many tourists would require &quot;tourism infrastructure&quot; (transport, hotels, etc) that is not normally considered part of &quot;retail&quot;.&lt;/p&gt;&#xA;" OwnerUserId="1417" LastActivityDate="2016-06-22T12:49:09.003" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12462" PostTypeId="1" CreationDate="2016-06-22T16:04:13.633" Score="0" ViewCount="41" Body="&lt;p&gt;I am reading a paper by the economist Dornbusch. It says that exchange rate will converge to its long-run level. The rate appreciate if prices are initially below their long-run level, and, conversely, if prices are initially exceed their long-run level.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now what does long-run level mean?&lt;/p&gt;&#xA;" OwnerUserId="8609" LastActivityDate="2016-06-23T21:40:38.267" Title="What does long-run level mean for exchange rate" Tags="&lt;macroeconomics&gt;&lt;exchange-rates&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12463" PostTypeId="2" ParentId="12457" CreationDate="2016-06-22T16:20:53.967" Score="-1" Body="&lt;p&gt;The difference between these is scope. The OECD data is looking at gross general government debt, whereas the Wikipedia article is stating federal government debt. The difference between the two is the OECD number includes state and local governments in addition to the federal government.&#xA;Hope this helps,&#xA;Spookypants&lt;/p&gt;&#xA;" OwnerUserId="8610" LastActivityDate="2016-06-22T16:20:53.967" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12465" PostTypeId="2" ParentId="12457" CreationDate="2016-06-22T17:20:15.617" Score="2" Body="&lt;p&gt;The OECD number includes intragovernmental debt, which is debt not held by the public, while the Wikipedia number does not. One of the largest of these debts (several trillion dollars) is related to Social Security, which is a debt owed by the federal government to the Social Security Trust Fund. A &lt;a href=&quot;https://www.ssa.gov/policy/docs/ssb/v75n1/v75n1p1.html&quot; rel=&quot;nofollow&quot;&gt;review of the history of this debt and its implications&lt;/a&gt; is available from the Social Security Administration. &lt;/p&gt;&#xA;" OwnerUserId="264" LastActivityDate="2016-06-22T17:20:15.617" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12466" PostTypeId="2" ParentId="12448" CreationDate="2016-06-22T18:10:02.317" Score="2" Body="&lt;p&gt;You are trying to find the solution of $K$ and $L$ in terms of $Q$ to derive the total cost function with respect to quantity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://homepage.univie.ac.at/matan.tsur/courses/lecture7.pdf&quot; rel=&quot;nofollow&quot;&gt;Page 13 of this lecture&lt;/a&gt; has the &lt;strong&gt;exact&lt;/strong&gt; question you are interested in. (Google is your friend.)&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;From the Lagrangian you'll have $\frac{K}{L}=\frac{w}{r}$&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;From the production constraint you'll have $50K^{\frac{1}{2}}L^{\frac{1}{2}} = 1000$ and you have already derived the solution to this.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The first implies that $4K = L$ given your solution.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then since,&#xA;$50K^{\frac{1}{2}}L^{\frac{1}{2}} = Q$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies 50K^{\frac{1}{2}}(4K)^{\frac{1}{2}} = Q \\&#xA;\implies 100K = Q \\&#xA;\implies K(Q) = \frac{Q}{100}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A similar solution can be found for $L(Q)$, and then it should be smooth sailing for you from there.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2016-06-22T18:10:02.317" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12469" PostTypeId="2" ParentId="12399" CreationDate="2016-06-23T02:19:46.087" Score="0" Body="&lt;p&gt;Cylical adjustment is simply a trendline based on past GDP. The structural budget balance is the balance with this trend removed. It is similar to seasonal adjustments, except over a longer period.&lt;/p&gt;&#xA;" OwnerUserId="8360" LastActivityDate="2016-06-23T02:19:46.087" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12470" PostTypeId="1" CreationDate="2016-06-23T02:22:17.913" Score="-5" ViewCount="151" Body="&lt;p&gt;Has anyone considered that recessions are just lotka volterra cycles due to fuel resource depletion? Or has this been completely ignored by all economists for hundreds of years?&lt;/p&gt;&#xA;" OwnerUserId="8360" LastActivityDate="2016-06-23T11:17:54.733" Title="Has absolutely no economist ever considered that real energy prices cause recessions?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="3" ClosedDate="2016-06-29T16:34:04.673" ContentLicense="CC BY-SA 3.0" />
  <row Id="12472" PostTypeId="1" AcceptedAnswerId="12473" CreationDate="2016-06-23T07:16:16.220" Score="6" ViewCount="368" Body="&lt;p&gt;I know that printing money causes inflation, but what if we print it to pay back our debts?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, we have N dollars of debt to China.  We can just print the N dollars and give it to China.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This way, we would not have more money in our country which would cause inflation, and we would not be giving from our own money, which would cause deflation.  Also, China gets back the money U.S. owed it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My guess is that it would cause some kind of weakening of the Chinese money against the USD, but could anyone verify that?&lt;/p&gt;&#xA;" OwnerUserId="8621" LastActivityDate="2016-06-23T08:17:19.487" Title="The Printing of Money for Paying Debt" Tags="&lt;monetary-policy&gt;&lt;inflation&gt;&lt;money&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12473" PostTypeId="2" ParentId="12472" CreationDate="2016-06-23T08:02:04.717" Score="9" Body="&lt;p&gt;Printing money causes inflation because someone (or some institution) will get the money and will spend it somehow. This increases demand for goods, but the number of goods, the supply was not affected by printing money. Hence demand at the old price level is larger than supply at the old price level. Prices will rise until a new equilibrium is reached.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem is that you seem to think that the N dollars you give to China would be gone. But it wouldn't be, the people who got it in China can now spend it in the US. They can import things, come as tourists, make investment purchases etc. This increases demand and results in inflation again.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2016-06-23T08:17:19.487" LastActivityDate="2016-06-23T08:17:19.487" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12474" PostTypeId="2" ParentId="12472" CreationDate="2016-06-23T08:10:14.513" Score="2" Body="&lt;p&gt;Printing more money for the sake of paying off debt is not a good option to consider. &#xA;There is no benefit to the economy in china as no transaction is being made. the main impact will be on inflation as it would rise.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The supply and demand of money equation would be disrupted, so this would ultimately lead to supply greater than demand and in the end the prices would also rise.&lt;/p&gt;&#xA;" OwnerUserId="8582" LastActivityDate="2016-06-23T08:10:14.513" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12475" PostTypeId="2" ParentId="12470" CreationDate="2016-06-23T10:07:42.740" Score="6" Body="&lt;p&gt;I don't know that anyone's used a Lotka Volterra framework: it's not an obvious choice, but it might make for a novel(ty) article. Nevertheless, yes, it's a well-established observation that historically, surges in oil prices have been part of triggering global economic downturns.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But that's just oil prices. So it's only during the oil age, which is now ending.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Historically, for the last couple of centuries, most of our energy has been implicitly and explicitly subsidised: implicitly by the huge externalities of fossil fuel combustion. The direct consequence of that is that fuel expenditure play an inefficiently large role in the global economy. And that means that rapid changes in global fuel prices have had a very destabilising effect on the global economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But there are two major changes coming:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;It's not hard to see the transition to clean energy being one in which energy's role in the global economy diminishes, as externalities get priced in, and as energy efficiency consequently becomes much more cost-competitive. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Furthermore, a very large proportion of clean energy (hydro, wind, PV) has very low operating costs; whereas dirty energy has much much higher operating costs.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;So for those two reasons, when we move from dirty energy to clean energy, the global economy will become much less coupled to changes in short-run marginal costs of energy. &lt;/p&gt;&#xA;" OwnerUserId="44" LastEditorUserId="44" LastEditDate="2016-06-23T11:17:54.733" LastActivityDate="2016-06-23T11:17:54.733" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="12476" PostTypeId="1" CreationDate="2016-06-23T15:05:47.973" Score="1" ViewCount="17" Body="&lt;p&gt;I'm reading a book about the economic development of South Korea during the 'miracle' period. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;One of the points the author makes is the following:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;A major source of industrial disputes was delayed wages, a mechanism&#xA;  whereby companies attempted to pass the burden of slack business on to&#xA;  their workers by withholding wages (just as [they] passed the slack on&#xA;  to dependent sub-contractors by delaying payments).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I get that slack is unused inputs, which would in this case be the wage laborers and the capital that the sub-contractors produce. But what's the point of withholding wages in response in having excess productive capacity? If it matters, the companies of interest here are the Chaebol conglomerates.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(the book is &lt;em&gt;The Politics of Economic Reform in South Korea: A Fragile Miracle&lt;/em&gt;)&lt;/p&gt;&#xA;" OwnerUserId="8623" LastActivityDate="2016-06-23T15:05:47.973" Title="Delaying wages in response to slack?" Tags="&lt;producer-theory&gt;&lt;development-economics&gt;&lt;history&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12477" PostTypeId="1" AcceptedAnswerId="12581" CreationDate="2016-06-23T15:06:56.157" Score="6" ViewCount="285" Body="&lt;p&gt;In almost every textbook, it's stated that monetary policy is preferred to fiscal policy, since the latter is more politically difficult to implement due to smaller consensus on its redistributive effects. Monetary policy would not suffer, since it has no redistribution effect.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Has any empirical study ever tried to verify/assess this claim that Monetary Policy has not redistribution effect?&lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="1601" LastEditDate="2016-06-30T10:13:05.107" LastActivityDate="2017-10-05T13:08:08.457" Title="Conventional Monetary Policy and Income Inequality" Tags="&lt;macroeconomics&gt;&lt;reference-request&gt;&lt;empirical-evidence&gt;" AnswerCount="3" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="12478" PostTypeId="2" ParentId="12391" CreationDate="2016-06-23T17:37:15.337" Score="3" Body="&lt;p&gt;I talked to my teacher to try and get a handle on the question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You are correct that usually&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\overline {f(x)} = \frac{1}{b-a}\int^b_a f(x) dx$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But for the demand function there are two arguments, $w$ and $p$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$x(p) = \int_0^\bar W \tilde x(p,w) dw$$&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;The left hand side is no longer a function of $w$. The integral is to simplify wealth out of the picture, but &lt;em&gt;we aren't averaging over wealth&lt;/em&gt;.&lt;/li&gt;&#xA;&lt;li&gt;All consumer preferences are identical. For the sake of argument, suppose there were $n$ consumers. We aren't multiplying by $n$ on the inside of the integral, so we don't need to divide out anything (like $n$) through the outside of the integral. &lt;em&gt;The &quot;aggregation&quot; is occurring over all consumers.&lt;/em&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2016-06-23T17:37:15.337" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12479" PostTypeId="2" ParentId="12403" CreationDate="2016-06-23T19:19:45.100" Score="4" Body="&lt;p&gt;If we take the definition of monotonicity to be if $x\geqq y$  then $x \succeq y$, you can simplify the proof (though it looks right). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note $\mathbf{0}\leq x$ for all $x\in \mathbb{R}_+^l$. So by the definition of monotonicity (essentially replacing $y$ with $\mathbf{0}$ above), $x\succeq \mathbf{0}$. I don't think continuity is required (check lexicographic preferences to see it is not necessary for the stated result). &lt;/p&gt;&#xA;" OwnerUserId="14" LastActivityDate="2016-06-23T19:19:45.100" CommentCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="12480" PostTypeId="2" ParentId="12441" CreationDate="2016-06-23T19:22:02.020" Score="5" Body="&lt;p&gt;&lt;strong&gt;Are current flows of migration bigger that they were in the past?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We tend to forget history because the numbers involved currently are smaller &#xA;relative to world population. For instance, the 8.8 million immigrants who came to the United States in 1901-1910 period is of similar magnitude to the 9.1 million immigrants who came in the 1991-2000 period, but both the U.S. and world populations were much larger than in 1901-1910.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Richard B. Freeman in a nice paper, entitled &quot;&lt;a href=&quot;http://www.nber.org/papers/w12315&quot; rel=&quot;noreferrer&quot;&gt;People Flows in Globalization&lt;/a&gt;,&quot; reminds us about this fact. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Some countries indeed receive large inflows of migrants&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The US, &lt;strong&gt;Russia&lt;/strong&gt; and Germany are the biggest recipients of immigration (see Table 1 in the above paper). These flows have consequences for factor endowment and there is considerable and often heated controversy over their impacts on destination countries.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;How Do Immigrants Affect Their Countries of Arrival?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Freeman examines this question (p.18 to 23) and reviews the empirics. In the basic model of immigration, immigrants reduce earnings of substitute factors and raise the earnings of complementary factors, where complements might include capital and some types of native-born labor. In the basic model, there is full employment but you may intuitively consider quantitative adjustments instead of price/wage adjustements by introducing frictions in the labor market. Note than in most advanced countries, &#xA;immigrants have higher unemployment rates and lower employment rates than native workers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Related to this question a classical paper is &quot;&lt;a href=&quot;https://www.hks.harvard.edu/fs/gborjas/publications/journal/JEL1994.pdf&quot; rel=&quot;noreferrer&quot;&gt;The Economics of Immigration&lt;/a&gt;,&quot; with theory and evidence by Georges Borjas in Journal of Economic Literature, December 1994. More recently, in 2015, Borjas published an interesting review on &lt;a href=&quot;https://www.hks.harvard.edu/fs/gborjas/publications/journal/JEL2015.pdf&quot; rel=&quot;noreferrer&quot;&gt;Immigration and Globalization&lt;/a&gt;. You mal also be intereted in reading his paper on how &lt;a href=&quot;https://www.hks.harvard.edu/fs/gborjas/publications/journal/QJE2012.pdf&quot; rel=&quot;noreferrer&quot;&gt;the collapse of the Soviet Union affects the productivity of American mathematicians&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regarding policies Freeman  considers &quot;radically economic policies&quot; such&#xA;as auctioning immigration visas or charging sizeable fees and spending the funds on current residents to increase the economic incentive for advanced countries to accept greater immigration.&lt;/p&gt;&#xA;" OwnerUserId="6168" LastActivityDate="2016-06-23T19:22:02.020" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12481" PostTypeId="2" ParentId="12406" CreationDate="2016-06-23T19:29:44.863" Score="1" Body="&lt;p&gt;Under the broader definition of commodity (due to Marx, Das Kapital, Volume 1, Chapter 1, Section 1) as some material&#xA;or immaterial thing that satisfies some human need, that can be owned, bought&#xA;and sold on the market, labour power can be seen as a commodity:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;It can produce useful things or services&lt;/li&gt;&#xA;&lt;li&gt;It is owned by anybody who is able to work&lt;/li&gt;&#xA;&lt;li&gt;It can be sold on the market for money&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;More precisely, labour power is sold as a commodity since its owner (the worker) sells it for a certain amount of hours to a buyer (the employer) according to a contract.&#xA;The buyer owns and has the right to use this commodity for the number of hours it has been purchased by letting the seller perform work under his command. The buyer also owns the product of the purchased labour, and can use it or sell it on the market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a production process, labour power is treated as an input commodity like any other (raw materials, machinery, and so on).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regarding import and export I am not sure. Since it is not the worker that is bought (this would mean slavery) but his / her labour power for a certain number of hours of the day, it is not very practical to import / export labour power. However, I think there exist companies that subcontract workers so that they can work abroad for a period of time. Maybe this can be considered as import / export of the labour commodity.&lt;/p&gt;&#xA;" OwnerUserId="8620" LastEditorUserId="8620" LastEditDate="2016-06-23T20:21:16.290" LastActivityDate="2016-06-23T20:21:16.290" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12482" PostTypeId="2" ParentId="12406" CreationDate="2016-06-23T21:19:51.630" Score="2" Body="&lt;p&gt;I cannot comment because of too little reputation. So please note that this response is an extension to the response of Giorgio stating that  Marx abstracted labour to a commodity in Das Kapital.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With regards to import and export I don't think you have to go as far as talking about slavery. On a more local scale labour is continuously imported and exported. Companies are recruiting on university campuses. The people there come from different locations. Maybe they are from a town in the east of the country and they will go for a job in the west of the country or the other way around. In a way the labour that could have been put to use in the one part was exported or imported, depending of the point of view, to the other part of the country.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now lets try to up the scale. Instead of looking at one country lets look at the world. The following example is not 100% historically correct, but bare with me and try to see the concept without getting stuck on historical details or moral principles. It's about the mechanics of the economics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Decades ago we found coal in Belgium. We needed people to work in the mines. The investors wanted to get the mines up and running. This caused a spike in the demand for young able people whom were not afraid of danger. There weren't enough people, so we recruited a labour force in Spain, Italia, Greece and Turkey. In a manner of speaking you could say that Belgium at that point imported labour. Off course you don't use people as you would other commodities. There are sociological/social consequences to these kinds of actions. Those I won't touch because they are out of scope of this question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With a little imagination you could also see a huge export of labour these days. Refugees are people who want to live. They move, and they need jobs. You don't even need actual refugees. In Europe the united market made it possible for people to work all across Europe. That causes an influx of labour force. Populists very much like to say they 'steal' our jobs. In a way they say that these influxes of labour, or excessive exports if you like, flood our market for labour like china stereotypically floods the market with cheap plastic stuff.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To conclude - If you choose to study mechanics of import and export, and you choose to abstract labour to a commodity as proposed in Das Kapital, then you could definitely apply analogous principles to labour with regards to import and export as you would for other commodities.&lt;/p&gt;&#xA;" OwnerUserId="4305" LastActivityDate="2016-06-23T21:19:51.630" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="12483" PostTypeId="2" ParentId="12462" CreationDate="2016-06-23T21:40:38.267" Score="3" Body="&lt;p&gt;The long-run in economics is a technical term. It means, roughly &quot;without any short-run constraints&quot;. What are short-run constraints? Well they're fixed costs like any contracts you've signed (like, say, your lease, your employment contract) and any capital that you've accrued or lack would be short-run constraints.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To give an illustrative example, a barbershop may want to increase profits and considers potential options. In the short-run he can increase the prices of haircuts or decrease his hours of operation. In the long-run he can move to another location where he'll have more room for additional chairs and such.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For currency exchanges, I'd imagine fixed costs would include trade contracts and debt. At any rate hopefully this answers your question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;edit: and &quot;level&quot; in this context just means the exchange rate itself. Since it is numeric, it can be said to have a level. You could change the word 'level' for 'rate' and it'd be the same meaning.&lt;/p&gt;&#xA;" OwnerUserId="8623" LastActivityDate="2016-06-23T21:40:38.267" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12484" PostTypeId="2" ParentId="12403" CreationDate="2016-06-23T23:02:38.703" Score="0" Body="&lt;p&gt;I did not understand the last part when you said $0≻x$ is impossible. I think it's necessary to use continuity + monotonicity in (3).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For instance, let's take the $\Bbb R^2$ case. Assume we have two elements $x_1=(0,1)$ and $x_2=(1,0)$. Then, any combination is greater than $0$: $\alpha*x_1+(1-\alpha)*x_2 &amp;gt;&amp;gt;0$ if $\alpha \in (0,1)$. Re-definining $\alpha=1/n$. Then, we have built a sequence $x_n=(1/n)*x_1+(1-1/n)*x_2$ such that $x_n &amp;gt;&amp;gt; 0$ for any $n=2,3,...$. By monotonicity, $x_n≿0$ for all $n=2,...$. Finally, by continuity of preferences, $\lim_{n\to\infty}x_n≿0$. That is, $x_2≿0$ (the same for $x_1≿0$).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This can be done in $\Bbb R^n$ and for any vector that have $x_j=0$ for some $j$. Hence, adding this with the proof you have made for the other cases ($x=0$ and $x&amp;gt;&amp;gt;0$) we have $x≿0$. The (1) case is implied by completeness, which imply reflexivity.&lt;/p&gt;&#xA;" OwnerUserId="8557" LastActivityDate="2016-06-23T23:02:38.703" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="12486" PostTypeId="1" CreationDate="2016-06-24T05:57:22.060" Score="1" ViewCount="348" Body="&lt;p&gt;I have some questions regarding what exactly PPP is. In my understanding, PPP is essentially the value that a currency can purchase within an area. For example, although the USA might have more money in the international area, the total amount of monetary value can purchase more goods in China due to the low price of living there. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem I have with this is that it seems that value is subjective. For example, it might be cheaper to purchase labor in China than in the US however it is much more costly to purchase an iPhone there. How you decide which is more valuable? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If what I am saying makes no sense at all, please explain what PPP is.&lt;/p&gt;&#xA;" OwnerUserId="8626" LastEditorUserId="2776" LastEditDate="2017-09-19T09:18:06.110" LastActivityDate="2017-09-19T09:37:43.330" Title="What exactly is purchasing power parity (PPP)?" Tags="&lt;purchasing-power-partity&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12487" PostTypeId="1" AcceptedAnswerId="12490" CreationDate="2016-06-24T07:17:36.200" Score="9" ViewCount="2644" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Oil prices have also fallen sharply in the wake of the referendum&#xA;  outcome, with Brent crude down 5.2%. The price of Brent crude fell by&#xA;  \$2.68 to \$48.24 a barrel, its biggest fall since February. At the same&#xA;  time, US crude was down 5.4%, or \$2.69, to \$47.52 a barrel.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;From &lt;a href=&quot;http://www.bbc.com/news/business-36611512&quot; rel=&quot;nofollow&quot;&gt;http://www.bbc.com/news/business-36611512&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But why does this happen? &lt;/p&gt;&#xA;" OwnerUserId="8627" LastEditorUserId="264" LastEditDate="2016-06-24T15:55:20.403" LastActivityDate="2016-06-24T15:55:20.403" Title="Why does the Brexit cause a fall in crude oil prices?" Tags="&lt;price-level&gt;" AnswerCount="3" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12488" PostTypeId="2" ParentId="12487" CreationDate="2016-06-24T07:31:25.737" Score="4" Body="&lt;p&gt;Fear and uncertainty. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Stock markets have plummeted. Currency has plummeted. Noone really knows what is going to happen and hence economic future development is very unsure. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thats whats driving the price at the moment.&lt;/p&gt;&#xA;" OwnerUserId="107" LastActivityDate="2016-06-24T07:31:25.737" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12489" PostTypeId="1" CreationDate="2016-06-24T08:41:56.463" Score="1" ViewCount="102" Body="&lt;p&gt;Is there a formula that can tell us whether it's better for a country to produce something inside (creating tariffs &amp;amp; regulations, subsidies) or it is better to import (lowering tariffs, etc)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, imagine there's some gizmo. It can be bought on the external market for \$100, or it can be produced locally, importing \$50 worth of raw materials, and the end price will be \$150.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What other variables we need to consider here, and how do we make this computation of feasibility?&lt;/p&gt;&#xA;" OwnerUserId="8629" LastActivityDate="2016-06-26T14:26:05.130" Title="Formula for feasibility for production versus import" Tags="&lt;international-trade&gt;&lt;political-economy&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12490" PostTypeId="2" ParentId="12487" CreationDate="2016-06-24T09:49:27.370" Score="8" Body="&lt;p&gt;I'd like to extend Lasse's excellent answer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Fear and uncertainty are driving markets - but they can drive prices in either direction of course.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Specifically what's happening here is that the oil markets are pricing in at least two effects.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Firstly, the UK is an oil producer, and Sterling's slide means that its oil just got cheaper for other countries. This is a small effect, but relevant, as UK short-run marginal extraction costs are close to current prices, so some UK fields are marginal producers and thus price-setters.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Much more importantly, the markets are now pricing in the possibility of a further slump in oil demand, as a result of poor general economic performance. That would be driven not only by a soon-to-be-declining UK economy, but also driven by a (much larger) destabilised European economy; and also driven by the possibility that this vote will mark the turning point, where globally we move away from a consensus on the value of tariff-free international trade, and back towards protectionism and isolationism, which would leave the global economy worse off, as well as leaving most participants individually worse off too.&lt;/p&gt;&#xA;" OwnerUserId="44" LastEditorUserId="44" LastEditDate="2016-06-24T13:37:00.330" LastActivityDate="2016-06-24T13:37:00.330" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12492" PostTypeId="1" CreationDate="2016-06-24T12:17:25.133" Score="1" ViewCount="126" Body="&lt;p&gt;I am trying to replicate a RBC model with technology shock&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\log(z_{t+1})=\rho \log(z_t)+\epsilon_{t+1} \ $ with $\epsilon_t \sim$ i.i.d.$ \mathcal{N}(0,\sigma^2)$ and $0 &amp;lt; \rho  &amp;lt; 1$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The original source states that: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;$\sigma$ is determined so that the innovation in $z^{1-\theta}$ has standard deviation 0.007&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;where $0 &amp;lt; \theta &amp;lt; 1$ Unfortunately, I don't know how to approach this problem  with a (non-integer) exponent and what exactly is meant by &lt;em&gt;the innovation in $z^{1-\theta}$&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How can I (analytically) find the value of $\sigma$?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks for your help!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;P.S. The source is Greenwood, Rogerson, Wright (1995), &quot;Household Production in Real Business Cycle Theory&quot;, in &lt;em&gt;Frontiers of Business Cycle Research&lt;/em&gt;, p.167&lt;/p&gt;&#xA;" OwnerUserId="8630" LastActivityDate="2016-06-24T12:17:25.133" Title="Find the standard deviation of a log-normal AR1-process with exponent" Tags="&lt;statistics&gt;&lt;innovation&gt;&lt;rbc&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12493" PostTypeId="2" ParentId="451" CreationDate="2016-06-24T13:36:57.213" Score="1" Body="&lt;p&gt;I agree with you that, due to huge foreign currency positions, a weaker Swiss Franc would bring along huge gains for the SNB.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note, however, that the SNB's actions are mainly driven by their Inflation target (which, by the way, is their legal mandate. They don't have to make profits). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So if Inflation starts to pick up the pace, they are bound to contract their monetary policy, by selling foreign currencies (or raising interest rates), irrespective of the gains.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By the way, you'll find data for their foreign currency positions &lt;a href=&quot;https://data.snb.ch/en/topics/snb#!/cube/snbimfra&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="8630" LastEditorUserId="2776" LastEditDate="2017-06-20T06:04:45.447" LastActivityDate="2017-06-20T06:04:45.447" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12494" PostTypeId="1" AcceptedAnswerId="12534" CreationDate="2016-06-24T14:13:10.203" Score="1" ViewCount="899" Body="&lt;p&gt;The question is the title: How will the brexit affect the euro and the pound?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It looks like GBP is facing a &lt;strong&gt;tough&lt;/strong&gt; situation. It is at its &lt;em&gt;lowest&lt;/em&gt; value since 1985. Has GBP dropped permanently(or for a really long time)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But, what will this mean for the EUR? IMO the EUR will also fall heavily, because a big country from the EU has called quits. This can potentially destroy needy countries(read: Greece).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What do you think about it? Will the Pound and/or the Euro rise or fall(compared to the USD)?&lt;/p&gt;&#xA;" OwnerUserId="8632" LastEditorUserId="8632" LastEditDate="2016-06-28T12:18:23.877" LastActivityDate="2016-06-28T12:18:23.877" Title="How will the Brexit affect the Euro and the Pound?" Tags="&lt;currency&gt;&lt;eurodollar&gt;" AnswerCount="2" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="12495" PostTypeId="2" ParentId="12486" CreationDate="2016-06-24T14:18:03.270" Score="3" Body="&lt;p&gt;What you are describing is basically purchasing power. Purchasing Power Parity (PPP) claims that your purchasing power is the same across countries.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;PPP states that, if say a pound of bread costs 4 US$, you can take that amount, exchange it to Chinese yuan, go to China and buy exactly the same amount of bread. (i.e. you have the same purchasing power in both countries)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;3 factors play a role: the price (of bread) in the US, the price in China, and the Exchange rate. There is no subjective factor here.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Even though I don't fully understand what you mean by &quot;purchasing labor&quot;, make sure that you compare goods, or baskets of goods, only (PPP does not say anything about wages or production costs).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And be sure to remember that PPP does not necessarily have to hold in reality.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope this helps!&lt;/p&gt;&#xA;" OwnerUserId="8630" LastActivityDate="2016-06-24T14:18:03.270" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12496" PostTypeId="2" ParentId="12487" CreationDate="2016-06-24T14:32:37.880" Score="0" Body="&lt;p&gt;Brexit causes uncertainty about economic growth, and thus* for (future) oil-demand.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If oil demand will fall, prices will fall.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;*currently, economic growth directly translates to increased energy (and thus oil) demand. This relation is becoming increasingly less strong.&lt;/p&gt;&#xA;" OwnerUserId="8635" LastActivityDate="2016-06-24T14:32:37.880" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12497" PostTypeId="1" CreationDate="2016-06-24T14:48:53.830" Score="6" ViewCount="5415" Body="&lt;p&gt;I am a student studying time series econometric online and looking for help talking around some of the principles. There is one point I am trying to understand better.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've come across some literature online which talks about how non-stationary data series have slowly decaying ACF. The graph of the ACF of VWAP in this post is a good example: &lt;a href=&quot;https://coolstatsblog.com/2013/08/07/how-to-use-the-autocorreation-function-acf/&quot; rel=&quot;noreferrer&quot;&gt;https://coolstatsblog.com/2013/08/07/how-to-use-the-autocorreation-function-acf/&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Could someone explain why a slowly decaying ACF is an indication that a series is non stationary? I think hearing an explanation will help me get a better understanding of the material.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks very much,&#xA;Adrian&lt;/p&gt;&#xA;" OwnerUserId="8636" LastActivityDate="2017-03-22T19:07:53.017" Title="Why does slowly decaying ACF indicate that a time series is non-stationary?" Tags="&lt;econometrics&gt;&lt;time-series&gt;&lt;applied-econometrics&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12498" PostTypeId="2" ParentId="12497" CreationDate="2016-06-24T16:07:54.047" Score="2" Body="&lt;p&gt;The (simplified) definition of a stationary process is that the mean and variance of the process are constant over time. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the ACF is slowly decaying, that means future values of the series are correlated / heavily affected by past values. If past values of the series are high, the future values should also be high. If the value goes up, future values will also go up (assuming positive auto-correlation here). This means the mean will change over time, which means that the process is non-stationary. &lt;/p&gt;&#xA;" OwnerUserId="8637" LastActivityDate="2016-06-24T16:07:54.047" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12499" PostTypeId="2" ParentId="12494" CreationDate="2016-06-24T16:16:23.573" Score="1" Body="&lt;p&gt;It depends. (As all things do.) I'm personally of the opinion that this will not result in any major long-run changes in the value of the Euro. This will, however, negatively affect the pound. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Most of the currency volatility that we're currently seeing is a result from investor panic rather than actual changes in economics. The UK and EU still need to discuss exactly how the UK will leave before investors can accurately assess the economic impact. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Brexit will negatively impact the EU by:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Decreasing the amount of trade between the EU and UK, due to&#xA;    increased trade barriers (this is going to affect the UK more than&#xA;    EU, mostly due to size)&lt;/li&gt;&#xA;&lt;li&gt;Increased instability from political changes; may result in a domino effect on other troubled Eurozone countries attempting to&#xA;    leave (see: Greece)&lt;/li&gt;&#xA;&lt;li&gt;Lack of job opportunities; the UK has a lot of foreign workers who will eventually have to go back to Europe when their&#xA;visas&#xA;    expire&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Brexit will positively impact the EU by:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Forcing a possible move of the financial industry to European&#xA;centers rather than London&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;In my opinion, this currency change has more to do with a shift in politics than economics. The UK and EU will probably agree to some form of trade policy that will mitigate most of the economic damage. &lt;/p&gt;&#xA;" OwnerUserId="8637" LastActivityDate="2016-06-24T16:16:23.573" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12502" PostTypeId="1" AcceptedAnswerId="12524" CreationDate="2016-06-25T18:41:53.687" Score="7" ViewCount="245" Body="&lt;p&gt;I read here (&lt;a href=&quot;https://www.theguardian.com/business/live/2016/jun/24/global-markets-ftse-pound-uk-leave-eu-brexit-live-updates&quot;&gt;https://www.theguardian.com/business/live/2016/jun/24/global-markets-ftse-pound-uk-leave-eu-brexit-live-updates&lt;/a&gt;) and elsewhere that Brexit wiped \$2tr off world markets.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How did that happen?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this equivalent to \$2tr worth of a certain good, sinking to the bottom of the ocean?&lt;/p&gt;&#xA;" OwnerUserId="8646" LastEditorUserId="44" LastEditDate="2016-06-25T18:53:16.480" LastActivityDate="2016-06-28T09:31:34.220" Title="How did Brexit wipe $2 trillion off world markets?" Tags="&lt;macroeconomics&gt;" AnswerCount="3" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12504" PostTypeId="1" CreationDate="2016-06-25T20:23:06.013" Score="2" ViewCount="115" Body="&lt;p&gt;On the news it was stated that the UK leaving the EU has already caused trillions of dollars of loss to the world economy. While the newscaster made it sound very serious, I don't have any international finances at all, and my employer only operates in North America. It seems to me that the ripples will be so small by the time they reach me that I wouldn't even notice, but I don't know much about the global economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is the buying power of the USD likely to fall? Will certain categories of goods become more expensive than others? Will employment rates change significantly? Interest rates on savings and/or debt?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Will my pocketbook really notice over here in the USA?&lt;/p&gt;&#xA;" OwnerUserId="5666" LastActivityDate="2017-02-22T22:16:28.840" Title="How will the economic effects of Brexit impact a middle-class American family?" Tags="&lt;international-economics&gt;&lt;usa&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12505" PostTypeId="1" AcceptedAnswerId="12508" CreationDate="2016-06-25T22:38:04.467" Score="4" ViewCount="98" Body="&lt;p&gt;Being part of the EU is surely not the only way to participate in a free trade market. Could the UK continue with the same policies despite not being part of the EU?&lt;/p&gt;&#xA;" OwnerUserId="8648" LastActivityDate="2016-06-26T05:37:41.140" Title="Do trade policies have to change after Brexit?" Tags="&lt;international-trade&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12507" PostTypeId="2" ParentId="12502" CreationDate="2016-06-26T01:15:08.967" Score="0" Body="&lt;p&gt;The two trillion they refer to is Market CAP of public traded companies, thus they literally say it devalued the stock market for two trillion dollars. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Read an explainer about Market CAP &lt;a href=&quot;http://www.investopedia.com/articles/basics/03/031703.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;strong&gt;Market Capitalization Defined&lt;/strong&gt; &lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Anyways, there was a lot of leveraged speculation involved and / or institutional investors, i strongly doubt the average joe sat awake at night (in Europe) and just waited to press sell (and everybody in the same 5 minutes).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Joking by side - my indicators drew the picture that in majority only stocks included in indices where sold off. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the end it appears that leveraged speculation wiped of a large part of that stack (to speak in that language), even &quot;solid&quot; names dropped on EU open up to minus 20% (villeroy &amp;amp; boch ag for example, just to climb back to minus 2% (FLASH CRASH INDEED) ) -- it also appeared that leveraged speculators sold pound vs gold once it was clear that leave wins the vote..&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course while the initial reaction appears to be facilitated by leveraged HFT, the brexit is expected to have negative consequences for trade in the UK and for EU countries. There is no fixed plan how the brexit would happen and if tariffs and trade deals change in a negative way for the economy. For the long run there are also talks about loss of GDP between ~ 6-9% (All speculation, the guy with the crystal ball please raise your hand). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Bottom line, lowered economic outlook, uncertainty and speculation very likely worked in a combined manner to &quot;Wipe OFF&quot; .&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Heres a screenshot of a chart from a portfolio that relocated into oversold solid stocks on the dip on EU market open, went from roughly minus 10% in the green...&#xA;&lt;a href=&quot;https://i.stack.imgur.com/VT9Hr.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/VT9Hr.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="2884" LastEditorUserId="2884" LastEditDate="2016-06-26T12:38:35.627" LastActivityDate="2016-06-26T12:38:35.627" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="12508" PostTypeId="2" ParentId="12505" CreationDate="2016-06-26T03:04:25.240" Score="2" Body="&lt;ol&gt;&#xA;&lt;li&gt;The UK do it the &quot;Norway way&quot; this would mean they are part of the&#xA;European Economic Area, they need to pay into EU budget (roughly 80% of current pay) but&#xA;have no Seat in Brussels)&lt;/li&gt;&#xA;&lt;li&gt;The Switzerland way - bilateral deals and roughly 50% of the&#xA;Norway way costs.&lt;/li&gt;&#xA;&lt;li&gt;Lone Member of WTO.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;In any way, Britain would gain the freedom to make its own trade deals (how about TTIP?!).&lt;/p&gt;&#xA;" OwnerUserId="2884" LastEditorUserId="2884" LastEditDate="2016-06-26T05:37:41.140" LastActivityDate="2016-06-26T05:37:41.140" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12511" PostTypeId="2" ParentId="12489" CreationDate="2016-06-26T14:26:05.130" Score="2" Body="&lt;p&gt;Really, when considering whether importing a good is beneficial to a country we need only look at comparative advantage. For this concept however, we need information on another good which could be produced in each country. Consider the following example:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose we have country A and country B. Both countries can produce only two goods (for simplicity). These goods are gizmos and doodads. Each country has 100 labor hours to spend on production. It costs country A 10 hours to produce a gizmo and 5 hours to produce a doodad. It costs country B 15 hours to produce a gizmo and 6 hours to produce a doodad.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Using this information, we can see that country A can produce both gizmos and doodads more efficiently than country B. This is what we call absolute advantage. A country has absolute advantage in producing a good if it takes less resources for that country to produce the good.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, just because country A has an absolute advantage in producing both goods does not mean that they cannot benefit from trade. In order to see how they can benefit, we must look at the opportunity cost of producing each good for both countries. We will consider the case where opportunity costs are constant.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\textbf{For country A:}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If they want to produce a gizmo, they must give up the opportunity to produce 2 doodads. Therefore the opportunity cost is 2 doodads. If country A wants to produce a doodad, they must give up the opportunity to produce 0.5 gizmos. Therefore the opportunity cost is 0.5 gizmos.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\textbf{For country B:}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If they want to produce a gizmo, they must give up the opportunity to produce 2.5 doodads. If they want to produce a doodad, they must give up the opportunity to produce 0.4 gizmos. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, we can see that the opportunity cost for producing gizmos is lower in country A, and the opportunity cost for producing doodas is lower in country B. This means that country A has a comparative advantage in producing gizmos and country B has a comparative advantage in producing doodads. On a side note, this situation will always be the case. If we are looking at a two-country-two-good world, each country will have comparative advantage in production of one good.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What has all of this analysis told us? Well, it has told us that each country would be better off if they produced only the good for which they have comparative advantage in production and traded for the other good.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is, of course, a very simplified example, but the same basic concept applies when you start adding more countries and more goods. I hope this helps!  &lt;/p&gt;&#xA;" OwnerUserId="5825" LastActivityDate="2016-06-26T14:26:05.130" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="12512" PostTypeId="1" CreationDate="2016-06-26T19:27:29.647" Score="9" ViewCount="366" Body="&lt;h2&gt;BACKGROUND&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;This is more in the wheel-house of economics than programming, but after a few different titles, I thought it best not to skirt around the root of my question OR create a oddly phrased USD based question; when I'm actually asking about Ether. Just briefly, Ethereum is a blockchain network and Ether is the main crypto-currency on it that is used to pay the miners / validators, yada, yada.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Other tokens exist and it's possible to program an arbitrary contract like a financial derivative, but it doesn't have (and cannot have) a tokenized version of a US dollar without someone being able to cheat you if you ask for delivery or lie to you if you just ask for a price-feed.  Basically, just like the real world, there's counter-party risk when you have to ask a human to help you or give you information. So the hard part here is getting an accurate picture of the current purchasing power of 1 Ether without simply asking a human to provide you with the current USD:ETH price feed.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;QUESTION&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;I'm a programmer, not an economist, but crypto-currencies are just ridiculously volatile. I would like to create asset market on Ethereum to help stabilize the value of Ether over the long term. I was thinking that perhaps I could create a contract in the form of &quot;Pay X Ether now to have the option to buy Y Ether in 90 days&quot;. Except when I start to walk myself through an example, it doesn't make sense. I think I've structured it wrong and it seems like one side is guaranteed to lose and the other guaranteed to win regardless of whether the objective purchasing power of Ether goes up or down.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Phrased differently, using USD as a more familiar asset, I want to glean information about the current value (purchasing power) of \$1 USD today by creating a derivative of \$1 USD deliverable at some point in the future... without access to anyone's opinion of what the price is other than the current and historical order-book / trades between people of the real asset and the derivative.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The other caveat here is to avoid delivery 'now' for a 'promise' in the future, as that is wide open to theft and 99.99% of participants on Ethereum are anonymous, so no person can be trusted (only the code is trusted to execute as-written).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I'm way off base with how I've thought the Asset:Derivative pair should work, please provide further guidance or alternatives. Especially real-world examples I can research.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;FOLLOWUP&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Later, the intent is that a Market Maker contract will trade both sides of the asset (Ether Vs Ether's long term sentiment) to guarantee high-liquidity and easy price-discovery. The MM assumes only that the further the price is away from the long term mean, the more it should offer to trade at the current spot price, to buy back later when sentiment change back to the other side again. This, I believe will reduce volatility (as measured in purchasing power) given enough liquidity (some double digit % of total market cap locked in it I think would be quite influential). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The MM would:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Skim profits from traders during high volatility.&lt;/li&gt;&#xA;&lt;li&gt;Neither win nor lose during stable periods as volume it offered would be negligible compared to the total assets it held.&lt;/li&gt;&#xA;&lt;li&gt;Be susceptible to losses as long term trend could cause the MM to be over committed to one side of the market than the other, expecting a return to mean that never comes.&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Over-sell Ether in a long term bull market and lose out on gains.&lt;/li&gt;&#xA;&lt;li&gt;Over-buy Ether in a long term bear market and lose objective purchasing power.&lt;/li&gt;&#xA;&lt;/ul&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="8655" LastActivityDate="2017-10-28T16:38:20.633" Title="Financial Smart Contract on Ethereum: can an Ether Futures contract be priced in Ether?" Tags="&lt;currency&gt;&lt;financial-markets&gt;&lt;cryptocurrency&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12515" PostTypeId="1" CreationDate="2016-06-26T22:13:04.767" Score="6" ViewCount="818" Body="&lt;p&gt;Why does Chile have a better economy than all of the other countries in latin America? &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;It is labeled as a high income country by the IMF, &lt;/li&gt;&#xA;&lt;li&gt;It is the only Latin American country that is part of the US Visa Waiver Program&lt;/li&gt;&#xA;&lt;li&gt;It is one of two Latin American countries that is an OECD member.&lt;/li&gt;&#xA;&lt;li&gt;Unlike some of the other developed countries in South America,Argentina , they don't have chronic inflation problems.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;What was is that set Chile apart? I've read a little bit about how &quot;The Chicago Boys&quot; played a big part of the country's success. What did they do differently in Chile? Didn't a lot of the policies that they helped to put in place take place under Pinochet? I read that Chile's chronic inflation problem was also solved under then Pinochet regime. If so, how do you think that affects the legacy of Pinochet? &lt;/p&gt;&#xA;" OwnerUserId="8658" LastEditorUserId="6210" LastEditDate="2019-04-05T21:27:37.317" LastActivityDate="2019-04-05T21:27:37.317" Title="Why is the Chilean economy so much better than the rest of the countries in South America?" Tags="&lt;inflation&gt;&lt;financial-markets&gt;&lt;comparative-economics&gt;" AnswerCount="1" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12519" PostTypeId="1" AcceptedAnswerId="12541" CreationDate="2016-06-27T10:45:57.960" Score="2" ViewCount="74" Body="&lt;p&gt;It is &lt;a href=&quot;http://arstechnica.com/business/2015/10/apple-google-microsoft-hold-more-than-336b-overseas-via-legal-tax-loopholes/&quot; rel=&quot;nofollow&quot;&gt;well established&lt;/a&gt; that Apple holds &lt;a href=&quot;http://www.bloomberg.com/news/articles/2015-07-22/tim-cook-s-181-billion-headache-apple-s-cash-held-overseas&quot; rel=&quot;nofollow&quot;&gt;$181B in cash overseas&lt;/a&gt;. This appears to be to avoid US Taxes. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Apple has been &lt;a href=&quot;http://www.nytimes.com/2016/06/26/your-money/buybacks-by-companies-like-apple-may-signal-danger-not-growth.html?referer=&quot; rel=&quot;nofollow&quot;&gt;doing significant stock buy-backs&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is: &lt;strong&gt;Can Apple use its off-shore cash to do Apple stock buy-backs tax free?&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="8211" LastActivityDate="2016-06-28T23:03:07.247" Title="Can Apple use its off-shore cash to do Apple stock buy-backs tax free?" Tags="&lt;stock-market&gt;&lt;taxation&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12520" PostTypeId="1" AcceptedAnswerId="12521" CreationDate="2016-06-27T11:00:44.673" Score="6" ViewCount="1303" Body="&lt;p&gt;We consider highways to be an example of an impure private good because while it is non-excludable, it is a rival good. That is, another person's consumption (usage) of the highway affects my usage of it. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In that same sense, wouldn't a fire station also be rival, at least in theory?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, if a fire stations has five trucks for a locality, and 6 fires break out at separate places, why can't we consider this service as a rival service?&lt;/p&gt;&#xA;" OwnerUserId="6486" LastActivityDate="2020-09-02T03:30:30.193" Title="Why is a fire service considered to be a non-rival service, while a highway is considered to be a rival good?" Tags="&lt;public-goods&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12521" PostTypeId="2" ParentId="12520" CreationDate="2016-06-27T12:07:05.343" Score="5" Body="&lt;p&gt;One common definition of a non-rival good (see &lt;a href=&quot;https://en.wikipedia.org/wiki/Rivalry_(economics)&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt; and (A)) is a good for which the consumption of additional units involves zero marginal social costs of production. On this definition the service provided by a fire service would &lt;em&gt;always&lt;/em&gt; be rival, because (even with plenty of capacity in terms of fire engines and staff) each visit to attend a fire involves some extra cost (eg vehicle fuel).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;More loosely, a good may be said to be rival if consumption by one person prevents simultaneous consumption by others (this can also be found &lt;a href=&quot;https://en.wikipedia.org/wiki/Rivalry_(economics)&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;), implying that a good is non-rival where that is not the case.  In this looser sense, infrastructure such as highways and services such as the fire service might be held to be non-rival in circumstances where capacity is large enough that consumption by some rarely prevents or interferes with consumption by others.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For those who adopt this looser definition, the difference between a highway network and a fire service, which may lead to the former but not the latter being characterised as a rival good, relates I think to the likely level of supply or capacity.  Given high levels of vehicle use with peaks at certain times (rush hours), and given the costs of road-building and other demands on land use, it isn't likely to be practicable to provide enough highways in the right places to make traffic jams a rarity.  On the other hand, given that a fire at any one location is a rare event, and given normally a high degree of independence between fires at different locations, it should be possible to provide sufficient capacity in a fire service that the scenario of fewer fire engines than fires will rarely occur.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Reference&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(A) Nicholson W (9th edn 2005)  Microeconomic Theory: Basic principles &amp;amp; Extensions p 596.&lt;/p&gt;&#xA;" OwnerUserId="1417" LastEditorUserId="1417" LastEditDate="2016-06-27T17:53:35.227" LastActivityDate="2016-06-27T17:53:35.227" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12522" PostTypeId="1" CreationDate="2016-06-27T13:17:37.587" Score="0" ViewCount="71" Body="&lt;p&gt;What is the difference between (market value of equity/book value of &lt;strong&gt;equity&lt;/strong&gt;) ratio and (market value of assets/book value of &lt;strong&gt;assets&lt;/strong&gt;) ratio?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In my opinion both measure fairly the same? Is this correct? The first (MV/BV equity) is commonly used as Tobin's Q. Can I use (MV/BV assets) for the same?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks for your help!&lt;/p&gt;&#xA;" OwnerUserId="2935" LastActivityDate="2016-06-27T13:49:00.130" Title="Definition of market to book value?" Tags="&lt;finance&gt;&lt;corporate-finance&gt;&lt;accounting&gt;&lt;economic-measurement&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12523" PostTypeId="2" ParentId="12522" CreationDate="2016-06-27T13:40:41.063" Score="2" Body="&lt;p&gt;They are not the same.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Basic accounting equation:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;Assets = Liability + Shareholder Equity&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Assets refers to what the company actually owns: cash, property, inventory, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assets are paid for in two major ways: debt (liability) and stock (equity). Essentially, everything a company owns is paid for by a combination of (1) getting loans from other entities or issuing bonds and (2) having other entities own a part of the company. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Equity includes a number of things, but the most common form is stock, or ownership of a company. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;An example of this: if you own a pen company, assets might include pens, and equity would be your ownership of the company. &lt;/p&gt;&#xA;" OwnerUserId="8637" LastEditorUserId="8637" LastEditDate="2016-06-27T13:49:00.130" LastActivityDate="2016-06-27T13:49:00.130" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12524" PostTypeId="2" ParentId="12502" CreationDate="2016-06-27T13:56:19.507" Score="7" Body="&lt;p&gt;Think about it this way:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You own 100 houses on a private island in Italy. These houses could be sold for $1 million each. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;All of a sudden, the Italian prime minister outlaws all boats. There is now no way to get onto the island apart from swimming.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since you can no longer get onto the island by boat, and have to swim, no one wants to live in your houses, and thus no one wants to buy them for \$1 million. Your houses are still quite nice, though, so people instead will offer to buy them for $200,000. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your houses were originally worth \$100 million in total (that's how much you would have got if you sold them) but are now only worth $20 million. You have 'lost' \$80 million. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In Brexit, instead of houses, we have stocks. These stocks were originally worth a certain amount of money. When Brexit occurred, people no longer wanted to buy or own British things, because they thought that they would be worth less. The total value of British things dropped by $2 trillion. It's important to note that the things are still there (the stocks didn't disappear!) but are simply valued less to investors. &lt;/p&gt;&#xA;" OwnerUserId="8637" LastActivityDate="2016-06-27T13:56:19.507" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12525" PostTypeId="2" ParentId="12515" CreationDate="2016-06-27T14:10:48.637" Score="5" Body="&lt;p&gt;This is honestly a pretty complicated question - it's very difficult to pinpoint any exact factors that have led to Chile being so successful relative to its Latin American counterparts. I'm not particularly knowledgeable on the political factors, so I'll focus on some economic ones. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a developing country, Chile has several factors that have really helped with exports. &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Copper&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Chile is by far the world's largest producer of copper. Copper is essential for electronics - meaning that Chinese factories have been buying massively - and Chile has been able to use its natural resources to boost its own economy. Copper is also far less volatile in price than oil; prices have only begun to go down because of slowing growth in China. &lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;2&quot;&gt;&#xA;&lt;li&gt;Unique position in Southern hemisphere&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Since the seasons are swapped between the northern and southern hemispheres, Chilean farms can produce fruits and vegetables to sell to the Americans in the middle of winter. If you live in the States, go to a local supermarket in the middle of winter and look at the fruits. Some of them (for me, I see grapes) are from Chile. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Chile also exports fish. It has the longest coastline in the world, and has had some success in fish farming; both of these factors help Chile sell a lot of fish.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is just part of why Chile has been successful (I haven't even mentioned government policy!) but hopefully it'll give you some background on why Chile has been more of a success story than other Latin American nations. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Source: &lt;a href=&quot;http://atlas.media.mit.edu/en/profile/country/chl/#Exports&quot;&gt;http://atlas.media.mit.edu/en/profile/country/chl/#Exports&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="8637" LastActivityDate="2016-06-27T14:10:48.637" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="12527" PostTypeId="2" ParentId="12504" CreationDate="2016-06-27T18:59:17.990" Score="1" Body="&lt;p&gt;There will be many effects, but most of them are too small or too difficult to measure for you to notice anything.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some examples of the bigger effects:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;If you have a pension or own any stocks (hopefully you do), you will have been negatively affected - even though you don't have any 'international' finances. Since the world economy is highly integrated, losses in the UK are correlated with losses in the U.S., Japan, and other world markets. For example, after the news of Brexit broke, the S&amp;amp;P (one of the US stock market indices) fell roughly 100 points. The markets tend to move together (the reason behind this is another question in of itself), so any changes in Britain will affect Americans as well. We're still not sure about the long-term economic effects of this, since we don't know exactly how/when/if the U.K. will exit, but the short-term uncertainty is causing investors to be nervous. &lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;British things will be cheaper! The pound fell, meaning that it's cheaper for Americans to buy British things, and more expensive for the British to buy American things. If you wanted to visit the U.K., it's going to be relatively cheap. The simplest effect is that the fall of the pound will positively affect U.S. consumers of British goods, and negatively affect U.S. exporters who export to the U.K.. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;There may be some effect on your work, but it's impossible for you to know (which is part of the problem. Although your employer may appear to be completely local, it's important to remember that since we're so globalized, there probably will be some effect at your company. For example, one of your&#xA;company's clients may purchase services from a consultant in the&#xA;U.K, and this might affect your client, in turn affecting you. It's&#xA;this kind of domino effect and the uncertainty that Brexit has&#xA;caused that has so many politicians and economists worried about&#xA;what might happen.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="8637" LastActivityDate="2016-06-27T18:59:17.990" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12528" PostTypeId="1" AcceptedAnswerId="12530" CreationDate="2016-06-27T19:41:26.453" Score="1" ViewCount="1625" Body="&lt;p&gt;&lt;strong&gt;Here is my revised version/understanding why price vector is orthogonal to any vector from a bundle on the budget hyperplane to another bundle on the hyperplane: (see below for original question)&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Want to show geometrically that budget hyperplane is the relative terms of exchange. This is a fancy way of saying it represents the 'ratio' of the prices between any two commodities. For simplicity sake, look at $L=2$. We have two options for a ratio: either $\frac{p_1}{p_2}$ or $\frac{p_2}{p_1}$. What would it be? The way the price vector is constructed is &lt;strong&gt;p&lt;/strong&gt;$=(p_1,p_2)$, so when you draw this vector from any point on the budget line that is negatively sloped in the case of $L=2$, the vector is essentially the slope (e.g. rise over run) of $\frac{p_2}{p_1}$. So obviously, if the negatively sloped budget line is supposed to represent the price ratio, then it has to be the case $\frac{-p_1}{p_2}$. In fact, this is so from the Walrasian budget set definition where $w=x\cdot p$.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;When we look at a typical Walrasian budget set in $\mathbb{R^+_2}$, why is the price vector orthogonal to the consumption vector (e.g. any two on the slope) on the budget hyperplane? This goes back to Chapter 2 of MWG.&#xA;&lt;br&gt; I understand the analytical explanation using dot product. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;$p\cdot x=p\cdot x'=w$ for $x,x'\in\{x\in\mathbb{R^+_2}:p\cdot x=w\}$.&#xA;  &lt;br&gt; Hence, $p\cdot\Delta x=0$.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;But I am having a tough time understanding two things:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;(Q) Why does this orthogonality between price and consumption vector on hyperplane relate back to the slope of the budget line determining the relative rate of exchange between two commodities? How do you make sense between intuition and geometric interpretation?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Thanks for your 2 cent!&lt;/p&gt;&#xA;" OwnerUserId="8560" LastEditorUserId="8560" LastEditDate="2016-06-28T18:23:05.480" LastActivityDate="2016-06-28T18:23:05.480" Title="Why is Price Vector Orthogonal to Vector connecting two bundles on Budget Hyperplane" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;&lt;choice-theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12529" PostTypeId="1" CreationDate="2016-06-27T20:58:34.273" Score="5" ViewCount="121" Body="&lt;p&gt;I read that up to 70% of Brazil's sugar cane in the Sao Paulo area is still harvested manually. Some workers are paid $1.50 per tonne. Why is it still being cut manually? Some possibilities:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(1) farm owners lack the capital to buy mechanical harvesters&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(2) human labor is cheaper&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(3) regulatory or legal obstacles are blocking the use of harvesters&lt;/p&gt;&#xA;" OwnerUserId="1448" LastActivityDate="2016-08-25T03:21:01.737" Title="Why is sugar cane still harvested manually in Brazil?" Tags="&lt;labor-economics&gt;&lt;labor-cost&gt;" AnswerCount="1" CommentCount="11" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12530" PostTypeId="2" ParentId="12528" CreationDate="2016-06-27T20:58:59.350" Score="1" Body="&lt;p&gt;Note that $p$ is not orthogonal to consumption vectors on the budget line, but it is orthogonal to a any vector $v$ that satisfies $x+v=x'$ with $x,x'$ in the budget line. MWG are drawing vectors starting from some $x$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;About the slope: In the budget line you can see that the slope for any $x$ is $D_x (p.x)=p$ (that is the line that is drawn from $x$). That line or vector can be represented with the function $x_2=(p_2/p_1)*x_1$ (note that if $x_1=p_1$, $x_2=p_2$). The slope is $p_2/p_1$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand, all vectors on the budget line satisfy $x_2=(-p_1/p_2)*x_1+w/p_2$. The slope here is $(-p_1/p_2)$. This slope is the rate of exchange. Both slopes imply that the two functions (the vector $p$ and the budget line) are orthogonal. Or maybe it's better to say that the orthogonality between the budget line and the vector $p$ imply that $dx_2/dx_1=-p_1/p_2$, that is, the last term captures the rate of exchange. &lt;/p&gt;&#xA;" OwnerUserId="8557" LastActivityDate="2016-06-27T20:58:59.350" CommentCount="11" ContentLicense="CC BY-SA 3.0" />
  <row Id="12532" PostTypeId="1" CreationDate="2016-06-28T02:23:23.490" Score="-1" ViewCount="30" Body="&lt;p&gt;Please provide list of surveys which capture income of individuals, income determinants like education, age, work experience, field of work etc and, details about his family particularly number of elder brothers. Geography of Interest is US, Europe, Japan and Australia. Time period of interest is post 1980.&lt;/p&gt;&#xA;" OwnerUserId="8508" LastActivityDate="2016-06-28T14:56:06.377" Title="Surveys which capture income of individuals and other details" Tags="&lt;data-request&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12533" PostTypeId="1" CreationDate="2016-06-28T03:19:49.490" Score="1" ViewCount="154" Body="&lt;p&gt;My understanding is that churches in the United States, as they are non-profit organizations, are exempt from pay tax which includes capital gains tax. If one were to start a church that had all the qualifications of a church such as member, a place of worship and a doctrine, could the &quot;church&quot; act as an investment company for non-church members that avoids paying tax?&lt;br&gt;&#xA;If not, what measures are put in place to avoid such schemes, If so why isn't this more prevalent?&lt;br&gt;&#xA;Thanks&lt;/p&gt;&#xA;" OwnerUserId="8672" LastActivityDate="2016-06-28T03:19:49.490" Title="Church tax capital gains tax exemption" Tags="&lt;capital-returns&gt;" AnswerCount="0" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12534" PostTypeId="2" ParentId="12494" CreationDate="2016-06-28T06:54:56.723" Score="1" Body="&lt;p&gt;I think you are right to assume that both the EUR and the GBP are going to fall. &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Fall in investment, uncertainty about the future, trouble exporting, and facing the high probability of loss of at least a part of the banking sector will in the short term probably trigger at least a small recession in the UK, accompanied by consumer price inflation due to higher import prices due to a weakend pound. A looming Scottish independence referendum is also not beneficial in this situation. Since the British Government is likely forced to intervene with a stimulus program of some kind, they will have to finance it, which means more debts financed by QE. Expecting QE, investors and speculators will flee into &quot;save&quot; currencies, like the CHF or the JPY. The last part, while apparently not yet finished, has basically already happened.  &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;BrExit will shift vote majority inside of what remains of the EU from North to South. Which means countries like France, Portugal, Italy, Spain and Greece will push for a weaker currency (aka. more QE to buy government bonds) to finance their ever mounting debt burden. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;With BrExit, a lot of Eastern European workers currently working in Britain might, and eventually will, have to return to their respective homelands by the time their visas expire. Since job prospects and pay in Poland, Slovakia, Romania + Bulgaria are admittedly miserable and I would try to escape it, too, this &quot;innovative specialists&quot; will undoubtedly seek employment in the rest of the remaining EU, which might trigger the domino effect by being the spark that ignites an already more than full powder chamber, especially when it comes true that BrExit means less growth in an already troubled Euro-area - and there is little reason to believe that it won't. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;2) in turn is bad for the northern European states, like Denmark, Sweden, Austria, the Netherlands, Germany, etc. as it means they are going to finance the South's debts against their will with their &quot;assets&quot;, aka mostly future pensions. Also, Brexit will increase the remaining states contribution to the EU budget, for example the German contribution to the EU budget will rise by appx. USD 2*10&lt;sup&gt;9&lt;/sup&gt; (half of which will flow into agricultural subsidies, not anything productive or innovative or growth-stimulating). This 2 billions will have to be cut somewhere else, where that money would also be needed, such as education - and where that money actually would boosts both, future industrial innovation and growth. This and popular pressure due to unemployment as a result of EU-inflicted migration might make Northern States push for an EU-exit as well, especially in Sweden, Germany and the Netherlands, where the EU is, despite the suggestions of some official polls, even less popular than in Britain. And with elections in Germany moving closer, and the &quot;Euro-sceptical&quot; AFD on there rise, the Merkel government is not going to stay there for all that much longer. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Insecurity about the economic and political future, as well as perceived or actual political and/or economic instability is going to do the rest for the EUR. No sane investor likes these things. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="5068" LastEditorUserId="5068" LastEditDate="2016-06-28T07:32:27.847" LastActivityDate="2016-06-28T07:32:27.847" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12535" PostTypeId="1" CreationDate="2016-06-28T08:12:34.020" Score="1" ViewCount="67" Body="&lt;p&gt;I've been looking for a dataset with a single education indicator by country so I can rank/compare them but I haven't found anything.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Already seen Unesco and Worldbank data but info is too much for what I really need at this point. Also had a look at the  Human Development Index (HDI)  but this is a composite statistic of life expectancy, education, and income per capita indicators so my analysi will be obscured by other elements.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I just need (for now) to be able to say for example Japan &gt; Spain or Canada ranks 10th worldwide.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does anyone have any idea as where I can download (if exists) this data set? API can work too. Ideally info comes with country iso code.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks in advance.&lt;/p&gt;&#xA;" OwnerUserId="8674" LastEditorUserId="108" LastEditDate="2017-04-09T07:41:41.583" LastActivityDate="2017-04-09T15:36:29.607" Title="Global Education Indicators - dataset" Tags="&lt;data-request&gt;&lt;education-economics&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12536" PostTypeId="2" ParentId="12502" CreationDate="2016-06-28T09:20:27.627" Score="4" Body="&lt;p&gt;It happened because expectations of future profitability were downgraded.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;No, it's not equivalent to \$2tn of goods sinking to the bottom of the ocean, for two reasons. Firstly, there's no effect on any present tangible material. And secondly, the change could be reversed by some other change in expectations of future profitability.&lt;/p&gt;&#xA;" OwnerUserId="44" LastEditorUserId="44" LastEditDate="2016-06-28T09:31:34.220" LastActivityDate="2016-06-28T09:31:34.220" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12539" PostTypeId="2" ParentId="12402" CreationDate="2016-06-28T11:53:08.493" Score="4" Body="&lt;p&gt;a) Your calculations are correct, but in order for consumption to be positive, so for&#xA;$$&#xA;c_t=\bigg(\frac{R}{(\beta R)^{\frac{1}{\gamma}}}-1\bigg)k_t &amp;gt; 0,&#xA;$$&#xA;you will need to additional conditions. The first is the obvious $k_t &amp;gt; 0$. If there is nothing to gain interest on, there will be no growth and no consumption. The second is the more nuanced&#xA;$$&#xA;\frac{R}{(\beta R)^{\frac{1}{\gamma}}}-1 &amp;gt; 0.&#xA;$$&#xA;This is actually a necessary condition for the existence of an optimal solution.  The inequality may be reformulated as&#xA;$$&#xA;\beta \cdot R^{1 - \gamma} &amp;lt; 1.&#xA;$$&#xA;If this does not hold, then given any consumption path the consumer would gain by pushing off all consumption one period further. Since there is no infinitely distant timeperiod, no optimum exists.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;b) On reaching the balanced consumption path: &lt;br&gt;&#xA;Perhaps there is a trick with the indeces. $c_0$ seems ill defined unless there is a $k_{-1}$. If consumption only starts at $t = 1$, the above conditions are satisfied and the consumer is rational then&#xA;$$&#xA;\forall t: \ c_t=\bigg(\frac{R}{(\beta R)^{\frac{1}{\gamma}}}-1\bigg)k_t&#xA;$$&#xA;defines the optimal consumption path as I assume $k_0$ is given and&#xA;$$&#xA;\forall t: \ k_t = k_0 \cdot (\beta R)^{\frac{t}{\gamma}}.&#xA;$$&#xA;Hence &#xA;$$&#xA;\forall t: \ c_t=\bigg(\frac{R}{(\beta R)^{\frac{1}{\gamma}}}-1\bigg) \cdot k_0 \cdot (\beta R)^{\frac{t}{\gamma}}.&#xA;$$&#xA;It is straightforward to check that this path is feasible (if the conditions set out in a) are met) and balanced.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;A note on reaching the balanced consumption path: This concept usually exists when there is some conflict between balancedness and optimality or when the consumer is boundedly rational. (E.g. Solow model.) Here this does not seem to be the case. However when such conflicts arise there is usually a never-ending (Is this the correct spelling of this word? Please correct if wrong.) convergence towards the balanced path. The distance decreases in every period but never becomes 0.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2016-06-28T11:53:08.493" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12540" PostTypeId="2" ParentId="12532" CreationDate="2016-06-28T14:56:06.377" Score="3" Body="&lt;p&gt;You can find education, age, field of work (industry or occupation) in any National Labor Survey. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you are particularly interested in family composition of individuals, you could be interested by the Panel Study of Income Dynamics (PSID) made by the University of Michigan for the US. If I remember well, the same families are interviewed on a regular basis and the survey keeps track of family composition and extension. You can know for instance when a member of the family (a son for instance) leaves the household to form a new household, and you can have access to personal and labor market characteristics of any member of the household.&lt;/p&gt;&#xA;" OwnerUserId="4094" LastActivityDate="2016-06-28T14:56:06.377" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12541" PostTypeId="2" ParentId="12519" CreationDate="2016-06-28T15:43:09.063" Score="1" Body="&lt;p&gt;To the best of my knowledge - and I'm not an accountant, so I may very well be wrong: buybacks are not profits, but are instead considered as an 'investment' in Apple in its own company. Since they are not profits, they are not taxed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Apple using its offshore cash to buy back its own stock is changing the accounting balance rather than actually generating any profits.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider the following balance sheet:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;        Assets  &#xA;Cash      100M &#xA;   Liabilities&#xA;Loans      70M&#xA;        Equity&#xA;C. Stock   22M&#xA;R. Earnings 8M&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;In this balance sheet, the retained earnings (what is taxed) is 8M. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;With a buyback of 12M in common stock:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;        Assets  &#xA;Cash       88M &#xA;   Liabilities&#xA;Loans      70M&#xA;        Equity&#xA;C. Stock   10M&#xA;R. Earnings 8M&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Retained earnings have not changed, the company's taxable income has not changed, and thus the company should not have to pay any taxes. &#xA;This should be true regardless of where the money 'physically' is - in the U.S. or elsewhere.&lt;/p&gt;&#xA;" OwnerUserId="8637" LastActivityDate="2016-06-28T15:43:09.063" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="12542" PostTypeId="1" CreationDate="2016-06-28T17:44:27.557" Score="0" ViewCount="58" Body="&lt;p&gt;I have a problem in interpreting a coefficient in my regression below: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am estimating the following regression in the spirit of an event study analysis with daily data:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\Delta ER_t = \beta_1 MPS_t +\beta_2 MPS_t \Delta Res_{t'} +\epsilon_t$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;in which $\Delta ER_t$ is the exchange rate between day $t$ and day $t-1$, $MPS_t$ is a monetary policy shock at time $t$ and $\Delta Res_{t'}$ is the change in foreign exchange reserve between the $\textbf{month}$ following the monetary policy shock and the $\textbf{month}$ previous to the monetary policy shock (I do not have daily data on international reserves but only monthly data). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;How should I interpret $\beta_2$, the interaction term between the monetary policy shock and the change in international reserves? It is clearly not uncovering causation since $\Delta Res_{t'}$ includes a lead variable (the level of reserves one month after the shock), but then can I still argue for an inverse causation effect? For example if I find that the $\beta_2$ is positive and significant, can I claim that larger future international reserves (which increase $\Delta Res$) arise as a consequence of monetary policy shocks that have a larger impact on the exchange rate today?&lt;/p&gt;&#xA;" OwnerUserId="46" LastEditorUserId="46" LastEditDate="2016-06-28T19:34:05.787" LastActivityDate="2017-03-26T00:01:28.170" Title="Monetary Policy and international reserves-- interpretation of the estimated coefficient" Tags="&lt;macroeconomics&gt;&lt;econometrics&gt;&lt;time-series&gt;&lt;international-economics&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12545" PostTypeId="2" ParentId="12542" CreationDate="2016-06-28T19:48:00.920" Score="1" Body="&lt;p&gt;No, it's a regression model. You can't infer &lt;em&gt;any&lt;/em&gt; causality from it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At best, you can infer that there is correlation between the terms.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But note that even that inference can be hazardous. Without knowing how you got the model terms, what your priors are, and what the data is, it's not possible to say whether or not the correlation is spurious&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2016-06-28T19:48:00.920" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12547" PostTypeId="1" CreationDate="2016-06-28T19:40:50.120" Score="8" ViewCount="548" Body="&lt;p&gt;Using 1 USD as a reference, most currencies are within an order of 5 away from the USD: that is, one unit of most currencies is worth between 0.2 USD and 5 USD. (&lt;a href=&quot;http://www.x-rates.com/table/?from=USD&amp;amp;amount=1&quot;&gt;Source.&lt;/a&gt;) In fact, most European currencies (Pound, Euro, Franc) are almost exactly 1 USD (0.75, 0.90, 0.98, respectively).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, there are some currencies that are orders of magnitude away from the USD: 100 Yen constitutes a USD, and 1000 Won constitutes a USD.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why are these currencies so far from the value of 1 USD? What happened during the development of these countries (in this case, Japan and South Korea) that caused their currency unit to be astronomically different from the USD?&lt;/p&gt;&#xA;" OwnerDisplayName="user01101001" LastActivityDate="2016-07-01T01:43:27.997" Title="Why do currencies cover orders of magnitude?" Tags="&lt;currency&gt;" AnswerCount="5" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12548" PostTypeId="2" ParentId="12547" CreationDate="2016-06-28T19:52:37.690" Score="1" Body="&lt;p&gt;I won't speak to the usual variations in your first paragraph.  But as for paragraph two, there are no fractional Japanese Yen as there are pennies (USD) and pence (GPB).  Consider one JPY as you would one USD cent.&lt;/p&gt;&#xA;" OwnerDisplayName="quid" LastActivityDate="2016-06-28T19:52:37.690" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12549" PostTypeId="2" ParentId="12547" CreationDate="2016-06-28T20:02:38.210" Score="10" Body="&lt;p&gt;No matter where you live in the world, there is sort of a minimum value that your currency needs to practically be able to represent somehow.  If your standard unit of currency is more than that minimum value, you need to subdivide your currency to be able to represent smaller values.  In the U.S., we subdivide our U.S. Dollar into 100 cents, meaning that the smallest value that you can spend is $0.01.  (My parents talk about being able to go to the store when they were kids and buy candy for 1 cent, but that is no longer the case.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If your standard unit of currency is small enough, you don't need to subdivide it any further.  This is the case with Japanese yen; 1 yen is roughly equivalent in value to 1 U.S. cent, and you won't find anything for sale in Japan for a fraction of a yen.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I visited the Czech Republic last summer.  One Czech koruna is roughly equal to 4 U.S. cents, and I didn't see anything for sale there for fractions of a koruna.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There really isn't anything more to it than that.  If we, in the U.S., decided that we didn't like the decimal point anymore and valued everything in cents, nothing would change, except that what we know today as the one-dollar bill would have the number 100 on it, and a price tag that had $4.95 on it today would look like 495¢ instead.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Currencies change in value with respect to each other from time to time.  You can read about some of the events in the past that affected the value of the Japanese yen on the &lt;a href=&quot;https://en.wikipedia.org/wiki/Japanese_yen&quot;&gt;yen Wikipedia article&lt;/a&gt;, but none of that history is really relevant if you are concerned about the value today.  If a currency goes up in value, it will just have to be subdivided more so that the smallest values can still be represented.  If on the other hand, the value of the currency goes down (much more common), some of the smallest subdivisions will be eliminated.  Canada has already stopped production of their penny, and there is discussion in the U.S. about doing the same here.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When the Euro was created (about 20 years ago), they had to pick some value to begin with, and they chose to make the Euro equal in value to the U.S. dollar at the time.  It has since changed in value with respect to the dollar, and today 1 euro = $1.11 USD.&lt;/p&gt;&#xA;" OwnerUserId="5129" OwnerDisplayName="Ben Miller" LastActivityDate="2016-06-28T20:08:27.393" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12550" PostTypeId="2" ParentId="12547" CreationDate="2016-06-28T20:14:52.547" Score="0" Body="&lt;p&gt;A unit is just very different in different countries.  It has nothing to do with anything good or bad with the countries.  Its like saying why is a meter and a mile so different.  &lt;/p&gt;&#xA;" OwnerDisplayName="Mark Monforti" LastActivityDate="2016-06-28T20:14:52.547" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12551" PostTypeId="1" AcceptedAnswerId="12570" CreationDate="2016-06-28T21:29:35.250" Score="2" ViewCount="187" Body="&lt;p&gt;My fundamental concern is whether in real life when applying to microeconomic theory, we derive the demand curve using utility and indifference curves approach, or we simply may get data on quantity demanded of the consumer for different prices and using linear regression derive the demand curve?&lt;/p&gt;&#xA;" OwnerUserId="8678" LastActivityDate="2016-06-29T16:57:48.107" Title="Demand curve deriviation" Tags="&lt;utility&gt;&lt;supply-and-demand&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12555" PostTypeId="1" AcceptedAnswerId="12586" CreationDate="2016-06-29T02:18:17.400" Score="1" ViewCount="86" Body="&lt;p&gt;This is just semantics, but MWG doesn't use the Weierstrass Theorem in its Math Appendix when using the fact that a continuous function always has a max value on any compact set.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some books appeal directly to the Weierstrass Theorm.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there a right or wrong answer to this? Or is it more just, like I said, semantics?&lt;/p&gt;&#xA;" OwnerUserId="8560" LastActivityDate="2016-07-01T14:56:02.993" Title="Weierstrass Thm: Continuous Fn Attaining Extrema on Compact Domain $u:\mathbb{R^L}\rightarrow\mathbb{R}$" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;&lt;choice-theory&gt;" AnswerCount="1" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="12558" PostTypeId="1" CreationDate="2016-06-29T10:31:31.800" Score="2" ViewCount="91" Body="&lt;p&gt;I have an Euler equation $ (\frac{ c_ {t+1} }{c_t})^\sigma = \beta (1+r)$,where $c_t$ is the t period consumption,r is interest rate and $\beta$ is discount rate, and a budget constraint $\sum _{t=0}^\infty \frac{c_t}{(1+r)^t}=\sum _{t=0}^\infty \frac{y_t}{(1+r)^t}$, where $y_t$ is income.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is how to substitute Euler equation into budget constraint to get the following equation?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$c_t\sum_{j=0}^\infty\frac{[\beta(1+r)]^\frac{j}{\sigma}}{(1+r)^j}=\sum _{t=0}^\infty \frac{y_t}{(1+r)^t}$&lt;/p&gt;&#xA;" OwnerUserId="6255" LastEditorUserId="6255" LastEditDate="2016-06-30T03:34:24.050" LastActivityDate="2016-06-30T03:34:24.050" Title="How to get this budget constraint?" Tags="&lt;consumer-theory&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12559" PostTypeId="1" CreationDate="2016-06-29T12:15:20.823" Score="0" ViewCount="356" Body="&lt;p&gt;If the Balance of Payments (BP) is defined as &#xA;$$BP=\text{Current Account}+\text{Capital Account}$$&#xA;where: &#xA;$$\text{Current Account}=X-M+\text{Net Income Interest}$$ &#xA;and &#xA;$$\text{Capital Account}=\text{F}-\Delta \text{R}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume current account is positive, and $\text{Net Income Interest}=0$ for simplifying. Then there are 2 remaining ways for the balance of payments to be theoretically equal to zero:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1)$\text{F}&amp;lt;0$ and $\Delta R=0$ i.e. by home country acquiring foreign assets, or &lt;/p&gt;&#xA;&#xA;&lt;p&gt;2)  $\text{F}=0$ and $\Delta R&amp;gt;0$ i.e. by the domestic Central Bank (CB) to increase their foreign exchange rate reserves.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why would there be a need for official intervention by having the domestic central bank (CB) to increase its foreign reserves, if there was no buying of foreign assets ($\text{F}=0$), of ?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="118" LastEditDate="2016-07-19T23:44:05.453" LastActivityDate="2016-07-20T08:41:53.893" Title="What's the role for official intervention in the Balance of Payments?" Tags="&lt;macroeconomics&gt;&lt;open-economy-macro&gt;&lt;balance-of-payments&gt;" AnswerCount="2" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="12560" PostTypeId="1" AcceptedAnswerId="12563" CreationDate="2016-06-29T12:27:58.973" Score="5" ViewCount="584" Body="&lt;p&gt;I have a following type of problem:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$Maximize\,\, F(s,x,y,z)$&lt;br&gt;&#xA;$s,x,y,z$    &lt;/p&gt;&#xA;&#xA;&lt;p&gt;s.t. (i) $g(x,y,z) \le I$&lt;br&gt;&#xA;(ii) $x \ge 0$&lt;br&gt;&#xA;(iii) $y \ge 0$&lt;br&gt;&#xA;(iv) $s &amp;gt; 0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That is there is no non negativity constraint on variable $z$. I have read about the Kuhn-Tucker method in the books but in all those cases the problem is fourmulated such that the non-negativity constraints apply to all the choice variables. How would my K-T optimality conditions change if I have no non-negativity constraint on $z$?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My sense is that other than the regular K-T conditions for $x$ and $y$ and Lagrange multiplier, $\lambda$, we would have (a) $\frac{\partial \Large{L}}{\partial z} = 0$ (i.e. no inequality here) and NO such condition as (b) $z\,.\frac{\partial \Large{L}}{\partial z} = 0$ (which is obviously true given (a)). My entire confusion is because I have not seen such a formulation in books where K-T conditions are discussed and just want to be sure about my steps.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What would the conditions be in case of $s$, where the inequality is strict?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here I would think that with strict inequality the problem is not well defined. The constraint set is not compact (not closed).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks a lot in advance.&lt;/p&gt;&#xA;" OwnerUserId="2904" LastEditorUserId="2904" LastEditDate="2016-06-29T12:38:40.400" LastActivityDate="2016-06-29T16:15:04.277" Title="Kuhn Tucker Conditions with fewer non-negativity constraints than number of variables" Tags="&lt;mathematical-economics&gt;&lt;optimization&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12561" PostTypeId="1" AcceptedAnswerId="12565" CreationDate="2016-06-29T12:53:41.883" Score="3" ViewCount="472" Body="&lt;p&gt;We often hear of countries securing foreign investment. Stores &lt;a href=&quot;http://www.telegraph.co.uk/finance/china-business/11943880/China-to-invest-30bn-in-UK-plc-how-the-deals-break-down.html&quot; rel=&quot;nofollow&quot;&gt;like this&lt;/a&gt; are trumped as major achievements. Foreign investment also has criticisms - profits generated in a country end up going abroad, and there can be national security issues.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Would it make sense to print money instead? The usual argument against printing money is inflation. However, in the linked story, 30bn of foreign money is coming in, so the economy has to cope with that additional spending. If that was printed money instead, it seems that effect would be the same - at least in the local economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The other side to this is currency markets and reserves - foreign investment creates demand for the local currency, which printing money doesn't do.&lt;/p&gt;&#xA;" OwnerUserId="6281" LastActivityDate="2020-10-28T12:07:19.330" Title="Screw foreign investment, lets just print money" Tags="&lt;investment&gt;&lt;international-economics&gt;&lt;quantitative-easing&gt;" AnswerCount="3" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12562" PostTypeId="2" ParentId="12560" CreationDate="2016-06-29T13:58:14.573" Score="3" Body="&lt;p&gt;My gut feeling is that:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;(1) &lt;strong&gt;Existence of extremum may not be guaranteed.&lt;/strong&gt; If one of the choice variables can be negative, say in consumer theory one of the goods, I suspect the budget set no longer would be compact. For example in the case of $L=2$, suppose you allow quantity for good 2 to be negative. What would this mean. Maybe it is garbage or pollution, so at the extreme, you wouldn't want it in any possible way. So a possible budget set would look like a quasiconcave function (e.g. bell curve with cusp) on vertical axis where there is no guarantee of closedness or boundedness.&#xA;  &lt;br&gt;(2) &lt;strong&gt;Constraint qualification will be violated so solving KT method bears no meaning&lt;/strong&gt;. When checking the constraint qualification, we use the fact that price vectors are strictly positive to investigate the matrix has full rank of not at the point of interest. Say, this time you allow it to be negative or zero, constraint qualification would be violated, and maybe solving the usual KT would give you something ,but it wouldn't probably something you desired.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Just my 2 cent.&lt;/p&gt;&#xA;" OwnerUserId="8560" LastActivityDate="2016-06-29T13:58:14.573" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12563" PostTypeId="2" ParentId="12560" CreationDate="2016-06-29T14:01:41.527" Score="4" Body="&lt;p&gt;Non-negativity constraints have nothing special and are not critical for the general validity of the Karush-Kuhn-Tucker approach. First, realize that we could have $x \geq a &amp;gt;0$ and then we could write $x-a \geq 0$ and view this &quot;non-negativity&quot; constraint as just one more inequality constraint on the solution.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When a decision variable is weakly bounded, the new phenomenon that emerges is that we &lt;em&gt;may&lt;/em&gt; have the partial derivative non-zero (strictly negative, for the maximization case), if at the solution this decision variable lies on the boundary.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If it is unbounded, than we &lt;em&gt;must&lt;/em&gt; have the first-order derivative equal to zero. As another question pointed out, this may create issues in certain contexts, but it does not invalidate the approach.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for your second question, indeed strict inequalities may create problems, but don't jump immediately to a &quot;not well-defined&quot; heavy statement. The problem will arise only if (stars denote the optimal solution)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\partial F(s^*,x^*,y^*,z^*)}{\partial s^*} &amp;lt;0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which would &quot;push&quot; the solution vector towards the unreachable zero-lower boundary for $s$. To avoid that, we require that at the solution the first-order derivative w.r.t to $s$ equals zero, and see whether we can indeed obtain a solution vector. If we can, it means that the $s&amp;gt;0$ constraint does not even &quot;tend to&quot; be binding, so you can ignore it.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2016-06-29T14:01:41.527" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12564" PostTypeId="1" AcceptedAnswerId="12569" CreationDate="2016-06-29T14:16:13.487" Score="2" ViewCount="706" Body="&lt;p&gt;I have read the statement below and don't quite understand what it means. This is probably because I don't have full understanding of duality with support function in math, but just to foster understanding... The statement is:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;&quot;The utility maximization problem(UMP) has a non-linear utility objective and a linear price constraint. The expenditure minimization problem is exactly the other way around: a linear price objective and a non-linear utility constraint. This is at the heart of the idea of the meaning of dual - to recast the problem with the objective as a constraint and the constraint as the objective. An important observation to make is linearity in pricing in them. This linearity, either in objective or constraint, is the cornerstone in enabling us to use the duality theorem.&quot;&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="8560" LastActivityDate="2016-06-30T08:09:45.783" Title="Linearity in Pricing and Duality, UMP EMP" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;consumer-theory&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12565" PostTypeId="2" ParentId="12561" CreationDate="2016-06-29T14:25:10.140" Score="10" Body="&lt;p&gt;&amp;quot;Foreign Direct Investment&amp;quot; is to be understood as bringing in an economy &lt;em&gt;productive capital&lt;/em&gt;, and not just &lt;em&gt;purchasing power&lt;/em&gt;.&lt;/p&gt;&#xA;&lt;p&gt;When an economy is seriously below full employment (of capital and labor), then a case can be made that &amp;quot;printing money&amp;quot; (i.e. creating purchasing power out of thin air) may not result in just inflation, but it may indeed bring into production input factors (labor and capital) that are currently unemployed. Compared to Foreign Direct Investment, we have the following differences:&lt;/p&gt;&#xA;&lt;p&gt;Creating purchasing power through printing money relies on an indirect effect: you strengthen demand and expect that this will lead to increased supply, which in turn translates into higher employment/output. This may mitigated by&lt;/p&gt;&#xA;&lt;p&gt;a) increased imports rather than increased local factor employment to satisfy the demand&#xA;b) institutional issues that may obstruct bringing into production the idle local factors&#xA;c) imbalance in available unemployed factors - e.g. you may have too many unemployed people but not much unemployed infrastructure.&lt;/p&gt;&#xA;&lt;p&gt;Foreign Direct Investment in almost all cases is partly translated into imports (the foreign investors bring in their funds which are then partly paid back abroad to import capital infrastructure that is not available in the local economy), but apart from that similarity it&lt;/p&gt;&#xA;&lt;p&gt;a) increases supply and local employment directly and&#xA;b) by design it takes a priori into account the possible imbalance in the availability of local factors, and corrects from them, since it wants to arrive at a factor mix that will be able to produce.&lt;/p&gt;&#xA;&lt;p&gt;In a more general perspective, we could say that by printing money, if the policy fails you will just burden the economy with inflation (which has transactional costs). But with Foreign Direct Investment, even if it fails eventually as a commercial enterprise, the local economy has nevertheless gained, even as a one-off, the part of the FDI that has been consumed locally: it is an inflow of real output from the outside world. &lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2020-10-27T09:32:26.613" LastActivityDate="2020-10-27T09:32:26.613" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="12566" PostTypeId="2" ParentId="12564" CreationDate="2016-06-29T15:28:59.810" Score="1" Body="&lt;p&gt;The idea Is quite simple, you can either &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;maximize your utility, given a budget constraint &lt;/li&gt;&#xA;&lt;li&gt;you want to reach a certain target of utility and you want to minimize your expenditure&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Now solve the maximization problem in 1, you will obtain the maximum utility that you can obtain. Now that you have obtained this number, you can use it as a target in the minimization problem and you will find out (not surprisingly) that the minimum expenditure needed is the same as the income you have in the maximization problem.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In more simply terms, this two problems are equivalent/dual. &lt;/p&gt;&#xA;" OwnerUserId="9" LastActivityDate="2016-06-29T15:28:59.810" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12567" PostTypeId="2" ParentId="12560" CreationDate="2016-06-29T15:45:05.193" Score="1" Body="&lt;p&gt;Generally speaking, even having nonnegativity constraints on all your variables will not guarantee that your constraint space is compact.  To make any statements about your constraint space, you need to take into account constraint (i).  Usually, $g$ will be such that $\lim_{\|x, y, z\| \to \infty} g(x,y,z) = \infty$, and you can have a guarantee that your constraint space is compact as long as all of the variables are constrained to be nonnegative.  Without a constraint on $z$, you would have to look at the form of $g$ to be able to guarantee your constraint space is compact.  For instance, if $g(x,y,z)= z^2 + h(x,y)$, the lack of a constraint $z \ge 0$ does not pose an issue for solving the problem (the constraint space is still compact.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, the strict inequality constraint on $s$ (iv) makes it likely that your constraint space is &lt;strong&gt;not&lt;/strong&gt; compact, since it is not closed.  From my (relatively limited) experience with constraint programming, you would just solve your problem as usual, ignoring constraint (iv), and throw out any solutions for which $s \le 0$. (Other users can correct me if this is not correct.)  Depending on the specific form of your problem, you may obtain a solution that satisfies $s &amp;gt; 0$, or you may find the only maximum has $s \le 0$, in which case a maximum does not exist for your problem.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To summarize, yes, just solve the K-T conditions for the inequality constraints (i-iii).  Your problem is not guaranteed to have a solution (because of the lack of an inequality constraint on $z$, and the strict inequality on $s$), but if a solution exists, K-T will give it to you.&lt;/p&gt;&#xA;" OwnerUserId="8686" LastEditorUserId="8686" LastEditDate="2016-06-29T16:15:04.277" LastActivityDate="2016-06-29T16:15:04.277" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12568" PostTypeId="2" ParentId="12564" CreationDate="2016-06-29T16:29:57.573" Score="2" Body="&lt;p&gt;Denote a bundle of goods $\mathbf{x}=(x_1,...,x_n)$ and a price vector $\mathbf{p}=(p_1,...,p_n)$. The cost of any bundle is the scalar product $\mathbf{p}\cdot\mathbf{x}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider first the UMP, which consists in finding the bundle $\mathbf{x}$ that maximizes utility $u(\mathbf{x})$ subject to the budget constraint that the bundle of good costs less than an income $R$:&#xA;$$\underset{\mathbf{x}}{\max}u(\mathbf{x}) \text{   s.t.   } \mathbf{p}\cdot\mathbf{x}\leq R.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider now the EMP, which consists in finding the bundle $\mathbf{x}$ that minimizes expenditures $\mathbf{p}\cdot\mathbf{x}$ subject to achieving a minimal level of utility $\underline{u}$:&#xA;$$\underset{\mathbf{x}}{\min}\mathbf{p}\cdot\mathbf{x} \text{   s.t.   } u(\mathbf{x})\geq \underline{u}.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These problems are dual in the sense that you can relate the solution of the first one to the solution of the second one. The solution of the UMP gives you the Marshallian demands, $\mathbf{x}^M(\mathbf{p},R)$, as the function of the prices and the income. The solution of the EMP gives you the Hicksian demands, $\mathbf{x}^H(\mathbf{p},\underline{u})$, as the function of the prices and the minimal level of utility. &#xA;The link between these two functions is heavily studied in microeconomics, it is rich in many economic intuitions and useful mathematical relationships. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Duality enables you to find one solution once you know the other. For instance suppose we know the function $\mathbf{x}^M(\mathbf{p},R)$ but we do not know the function $\mathbf{x}^H(\mathbf{p},\underline{u})$, how can we find $\mathbf{x}^H(\mathbf{p},\underline{u})$?&#xA;First, denote the indirect utility of the first problem by $v(\mathbf{p},R)=u(\mathbf{x}^M(\mathbf{p},R))$. Second define the income $\underline{R}$ as the solution of $v(\mathbf{p},\underline{R})=\underline{u}$ (the existence of $\underline{R}$ comes from the linearity property that is emphasized in the last sention of the citation). $\underline{R}$ is the minimum amount that is required to achieve utility $\underline{u}$. I will not show, but you can understand intuitively that we have:&#xA;$$\mathbf{x}^H(\mathbf{p},\underline{u})=\mathbf{x}^M(\mathbf{p},\underline{R})$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lastly, note that we should write $\underline{R}$ as a function of $\mathbf{p}$ and $\underline{u}$ to be rigorous.&lt;/p&gt;&#xA;" OwnerUserId="4094" LastEditorUserId="8689" LastEditDate="2016-06-30T08:09:45.783" LastActivityDate="2016-06-30T08:09:45.783" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12569" PostTypeId="2" ParentId="12564" CreationDate="2016-06-29T16:57:26.183" Score="1" Body="&lt;p&gt;Consider the standard utility maximization problem:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\begin{align}\max_{\vec x} &amp;amp; \quad U(\vec x) \\&#xA;&amp;amp; \quad \vec p \cdot \vec x \leq Y&#xA;\end{align}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here utility is your objective function, and the price inequality is the constraint. You solve for the optimal bundle via a Lagrangian.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now consider its dual problem.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\begin{align}\min_{\vec x} &amp;amp; \quad p \cdot \vec x \\&#xA;&amp;amp; \quad U(\vec x) \geq \bar U&#xA;\end{align}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now the objective function is expenditure, and a desired minimum utility is the constraint.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The utility that you gain from the maximization solution, if that is set to be $\bar U$, then the solution bundle to the minimization problem will be the same. This holds if you solve the bundle for the minimization problem first.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From this result (which you can verify for yourself) eventually comes the ever useful Roy's Identity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$${x^m_i}^* = - \frac{\frac{\partial V}{\partial p_i}}{\frac{\partial V}{\partial Y}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where $V(\vec p,Y)$ is the indirect utility function.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;If you are confused about the meaning of support function, recall its definition. (I will use the one from Mas-Colell)&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;For any nonempty closed set $K \subset \mathbb{R}^L$, the support function of $K$ is defined for any $\vec p \in \mathbb{R}^L$ to be&#xA;  $$\mu_k(\vec p) = \inf \{\vec p \cdot \vec x: \quad \vec x \in K \}$$&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;which is just a description of a set's minimum value. What does the (familiar) set here look like?...&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2016-06-29T16:57:26.183" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12570" PostTypeId="2" ParentId="12551" CreationDate="2016-06-29T16:57:48.107" Score="1" Body="&lt;p&gt;If I understand your question properly, it is correct that we do more ordinary statistical analyses such as linear regression to determine relationships between economic variables (e.g. price and demand.)  Utility is a tool which gives us a model of consumer behaviour based on very loose assumptions about how consumers behave (convexity of preferences, monotonicity, etc.)  While the demand curve can be derived from utility if we somehow knew the full preferences of all consumers, it can also be approximated from data by observing the real-world relationship between price and demand.  It is very difficult/impossible to measure utility in the real world, so using regular statistical techniques like linear regression to estimate the relationship is the logical thing to do.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course, the real-world demand curve may not be linear, so a simple linear regression on observed data in the form $p = \beta_0 + \beta_1 q$ may not accurately the demand curve.  Here, theory may help you decide on what nonlinear terms you should include in your model, but you would still need to do the regression analysis on real-world data to actually find the parameters.&lt;/p&gt;&#xA;" OwnerUserId="8686" LastActivityDate="2016-06-29T16:57:48.107" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="12571" PostTypeId="2" ParentId="12558" CreationDate="2016-06-29T17:01:20.587" Score="1" Body="&lt;p&gt;The hint is to use the recursive Euler equation to express all future consumptions $c_{t+j}$ as a function of current consumption $c_t$, and to play with the indexes in the sum of the left.  &lt;/p&gt;&#xA;" OwnerUserId="4094" LastActivityDate="2016-06-29T17:01:20.587" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12572" PostTypeId="2" ParentId="12558" CreationDate="2016-06-29T20:34:12.700" Score="1" Body="&lt;p&gt;&lt;strong&gt;Hint:&lt;/strong&gt;&#xA;Separate the consumption time periods&#xA;$$\begin{align}&#xA;\left(\frac{ c_ {t+1} }{c_t}\right)^\sigma &amp;amp; = \beta (1+r) \\&#xA;\frac{ c_ {t+1} }{c_t} &amp;amp; = \left[\beta (1+r) \right]^\frac{1}{\sigma} \\&#xA;c_ {t+1}  &amp;amp; = c_t \left[\beta (1+r) \right]^\frac{1}{\sigma} \\&#xA;\end{align}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Notice that $(\frac{ c_ {t+2} }{c_{t+1}})^\sigma = \beta (1+r)$. So,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$c_ {t+2}  = c_{t+1} \left[\beta (1+r) \right]^\frac{1}{\sigma} = c_{t} \left[\beta (1+r) \right]^{\frac{1}{\sigma} \cdot 2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\sum _{t=0}^\infty \frac{c_t}{(1+r)^t}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;can be expressed as a geometric series and simplified. Working that out for yourself should give you the desired answer.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastEditorUserId="4251" LastEditDate="2016-06-30T03:21:18.053" LastActivityDate="2016-06-30T03:21:18.053" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="12573" PostTypeId="2" ParentId="12547" CreationDate="2016-06-29T20:57:55.537" Score="0" Body="&lt;p&gt;There are 22,000 Vietnamese Dong to a USD, making it one of the world's least valued currency units. But denominations under 1,000 are rarely used (in tourist areas at least). They might as well say it's 22 Dong to a dollar - the zeros make no practical difference. The zeros remain because back in 1985 they revalued the Dong (1 new dong worth 10 old dong) and this led to inflation. So I understand their reluctance to repeat this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is a general trend that poorer countries have less valuable currency units. But it's not a strict rule. Vietnam, for example, is not the poorest country in the world. Before the introduction of the Euro, the Italian Lira was a notable example of a developed economy with a low-valued currency unit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You see the locals' attitude to money expressed in the currency. While in developed countries people throw small change into jars at home, this is not the case in poorer countries. In India, coins are rarely used, and you can see from the heavily worn low-denomination notes, how these have been carefully kept inside clothes and shoes. Money is more precious with extreme poverty.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I find the Thai Baht to have an especially convenient value - about 35 to a dollar. A very pleasant currency to use. Although technically subdivided into 100 satang, the satang is not much used. That makes the Western practice of pounds and pence or dollars and cents look like unnecessary complexity.&lt;/p&gt;&#xA;" OwnerUserId="6281" LastActivityDate="2016-06-29T20:57:55.537" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12574" PostTypeId="1" AcceptedAnswerId="12580" CreationDate="2016-06-29T20:58:58.963" Score="3" ViewCount="2324" Body="&lt;p&gt;What is the difference between the following accounting measures, if any?&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Gross profit&lt;/li&gt;&#xA;&lt;li&gt;Operating profit&lt;/li&gt;&#xA;&lt;li&gt;Net profit/income&lt;/li&gt;&#xA;&lt;li&gt;EBIT&lt;/li&gt;&#xA;&lt;li&gt;EBITDA&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="2935" LastActivityDate="2016-06-30T14:38:09.820" Title="What is the difference between gross, operating, net profit and EBIT(DA)?" Tags="&lt;accounting&gt;&lt;definition&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12575" PostTypeId="1" CreationDate="2016-06-29T22:21:12.043" Score="1" ViewCount="42" Body="&lt;p&gt;Suppose you have a particular view on the state of an economy, let's say for sake of argument, that China is slowing down.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question here is: Using aggregate levels of macroeconomic data (this could be any sort of data that is available on interest rates, PMI data, CPI, unemployment, everything), how would one go about working this into a model which would be simultaneously (running in the background) be giving an indicator of if an economy was slowing down or not.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What i'm really after is just your ideas, knowledge, and any references to this sort of problem in literature/practice. This isn't an exam type question, but more of a personal project type thing I was interested in looking at.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If there were ideas of how the model would look, what the model's indicators would suggest, all would be really helpful in me exploring this idea.&lt;/p&gt;&#xA;" OwnerUserId="8690" LastEditorUserId="8690" LastEditDate="2016-06-30T10:24:30.740" LastActivityDate="2016-06-30T10:24:30.740" Title="Building a (relatively simple) Model which indicates macroeconomic movements" Tags="&lt;macroeconomics&gt;" AnswerCount="0" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="12576" PostTypeId="2" ParentId="12574" CreationDate="2016-06-30T00:59:10.860" Score="2" Body="&lt;ul&gt;&#xA;&lt;li&gt;&lt;em&gt;Gross profit&lt;/em&gt; = revenue - cost of goods sold (COGS)&lt;/li&gt;&#xA;&lt;li&gt;&lt;em&gt;Operating Profit&lt;/em&gt; (also known as &lt;em&gt;EBIT&lt;/em&gt; or &lt;em&gt;operating income&lt;/em&gt;) = Operating Revenue - COGS - Operating Expenses - Depreciation &amp;amp; Amortization&lt;/li&gt;&#xA;&lt;li&gt;&lt;em&gt;Net income&lt;/em&gt; (also known as &lt;em&gt;net profit&lt;/em&gt;) = EBIT - Interest - Taxes&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Operating expenses: include rent, equipment, inventory costs, marketing, payroll, insurance and funds allocated toward research and development&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For EBITDA, I guess you can find it on your own !&lt;/p&gt;&#xA;" OwnerUserId="7833" LastActivityDate="2016-06-30T00:59:10.860" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12577" PostTypeId="2" ParentId="12559" CreationDate="2016-06-30T08:35:09.223" Score="0" Body="&lt;p&gt;If there's none who will sell foreign assets, or borrow from the domestic country, then it means that foreign country is paying in domestic currency by borrowing from a country other than the domestic. Since, the foreign country is paying in domestic currency, to prevent a change in the exchange rate(in case of a fixed regime), the CB will accumulate the foreign currency.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, what would be the need in the case of a flexible regime?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In both cases, the CB could finance the government(private) spending, by buying govt(corporate) bonds, issuing more money.&lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="118" LastEditDate="2016-07-20T08:41:53.893" LastActivityDate="2016-07-20T08:41:53.893" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12578" PostTypeId="1" CreationDate="2016-06-30T11:15:20.217" Score="1" ViewCount="169" Body="&lt;p&gt;I have a company and I have to set the wage to my employer based on different levels of revenues.&#xA;Examples&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;code&gt;W_1&lt;/code&gt; if Revenue = 100k&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;code&gt;w_2&lt;/code&gt; if Revenue = 200k&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;code&gt;w_3&lt;/code&gt; if Revenue = 300k&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know how to solve this problem analytically, but I don't know how, in practice I will estimate the Utility function of the agent.&#xA;In book they say it's&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$ U(w,s) = \sqrt{w} - s $ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $w$ is wage, and $s$ is their efforts. How do I apply this in pratice?&lt;/p&gt;&#xA;" OwnerUserId="5075" LastEditorUserId="31" LastEditDate="2016-06-30T15:29:59.147" LastActivityDate="2016-06-30T15:29:59.147" Title="Estimate the Utility function for the Principal-Agent problem (real case)" Tags="&lt;utility&gt;&lt;principal-agent&gt;&lt;measuring-utility&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="12579" PostTypeId="1" CreationDate="2016-06-30T13:25:36.060" Score="2" ViewCount="42" Body="&lt;p&gt;What would be the correct procedure to adjust costs figures to make them comparable? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, I find two papers that report the cost of similar pesticides in a developing country. One reports USD \$100 in 2010 dollars for pesticide A. The other reports USD \$120 in dollars of 2015, for pesticide B.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I want to compare them both and I've seen different approaches. I would like to hear opinions on the most appropriate procedure. Here's some of the procedures I've seen around:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) use nominal exchange rate for the respective year (2010) to convert reported costs in dollars to local currency. Then use some price index to adjust the local currency for inflation, to express local currency of 2010 in local currency of 2015. And then use the exchange rate for 2015 to convert the local currency again to usd. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) similar, but without inflation adjustment. So, only using 2010 exchange rate to get local currency and then use 2015 exchange rate to express local currency in 2015 dollars. The argument here is that inflation adjustment is not necessary because nominal exchange rates partly reflect changes in prices (so kind of assuming the theoretical postulate that the real exchange rate is constant over time). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;3) like the first one, but adjusting also for inflation in foreign currency. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;4) other approaches using GdP deflators. &lt;/p&gt;&#xA;" OwnerUserId="7896" LastActivityDate="2016-07-04T12:22:52.867" Title="Adjusting reported costs figures" Tags="&lt;exchange-rates&gt;&lt;adjustment-costs&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12580" PostTypeId="2" ParentId="12574" CreationDate="2016-06-30T14:38:09.820" Score="7" Body="&lt;p&gt;So, here goes:&lt;/p&gt;&#xA;&lt;h3&gt;Gross Profit = Revenue - COGS (Cost of Goods Sold)&lt;/h3&gt;&#xA;&lt;p&gt;If you bought an orange for a dollar and sold it for two, you have one dollar of Gross Profit&lt;/p&gt;&#xA;&lt;h3&gt;Operating Profit = Gross Profit - Labor - SG&amp;amp;A&lt;/h3&gt;&#xA;&lt;p&gt;If you're business paid someone \$100 to sell 200 oranges (like above), you would have \$200 in Gross profit, and \$100 in Operating Profit (assuming no other overhead like licenses, etc) for that business line. Operating Profit can be for a firm, business line, or whole company. Depreciation and Amortization can be included here for assets and debts in service to the entity or business line in question.&lt;/p&gt;&#xA;&lt;p&gt;Typically Operating Profit tells whether a business line, unit, or company is profitable (independent of interest and taxes as explained below in the EBIT section).&lt;/p&gt;&#xA;&lt;p&gt;Operating Profit and EBIT are not completely interchangeable in common parlance, though, as EBIT is typically used only for a company and Operating Income is often used both for Companies, and individual product lines within the company.&lt;/p&gt;&#xA;&lt;h3&gt;EBITDA is Earnings Before Interest, Tax, Depreciation, and Amortization&lt;/h3&gt;&#xA;&lt;p&gt;If the same business paid \$10 to incorporate, that would come out here, so your company's EBITDA would be \$90.&lt;/p&gt;&#xA;&lt;h3&gt;EBIT includes Depreciation and Amortization&lt;/h3&gt;&#xA;&lt;p&gt;If you'd also used your \$100 office (independent of the orange selling operation or it would have also been in the orange selling Operating Profit line) for 1/100 of it's operating life, you would have \$1 in depreciation. Bringing your EBIT down to \$89. EBIT is almost always a company level statistic, and rolls up all Depreciation, Amortization, and costs other than Interest and Taxes.&lt;/p&gt;&#xA;&lt;p&gt;The reason people analyze EBIT, is that it gives you a feeling for if the company could be profitable if moved to a different tax jurisdiction, or if its WACC (weighted average cost of capital) were changed through recapitalization.&lt;/p&gt;&#xA;&lt;h3&gt;Net Profit = EBIT - Interest - Taxes&lt;/h3&gt;&#xA;&lt;p&gt;So if you'd paid \$1 in interest on a \$100 loan to buy the oranges in the first place, you're pre-tax income would be \$88, which you would report to the appropriate tax agency, assuming a 35% corporate tax rate, you'd pay \$30.80 in taxes, leaving you a Net profit of \$57.20.&lt;/p&gt;&#xA;&lt;p&gt;This is usually the &amp;quot;bottom line&amp;quot; of an income statement.&lt;/p&gt;&#xA;" OwnerUserId="31" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2016-06-30T14:38:09.820" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12581" PostTypeId="2" ParentId="12477" CreationDate="2016-06-30T17:38:12.827" Score="5" Body="&lt;p&gt;Well, certainly you'll see literature saying it is possible to &lt;em&gt;make&lt;/em&gt; monetary redistributive. This paper by &lt;em&gt;Brunnermeier and Sannikov&lt;/em&gt; (2012), &lt;a href=&quot;http://dc-20788-1635065795.us-east-1.elb.amazonaws.com/system/files/research/documents/brunnermeier_redistributive_monetary_policy.pdf&quot; rel=&quot;nofollow&quot;&gt;&lt;strong&gt;Redistributive Monetary Policy&lt;/strong&gt;&lt;/a&gt;, says that deflation can cause redistributive effects in an economy, and that monetary policy can be used to correct that, but &quot;shouldn't&quot; be used as a redistributive tool beyond that correction.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In general, conventional monetary policy focuses primarily on the short end of the yield curve. Expectations about future policy indirectly affect the long end of the yield curve. Unconventional monetary policy directly targets the long end of the yield curve and prices of specific assets. All these measures can redistribute wealth across and within sectors.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Notice how they emphasize the unusual nature of monetary policy meant to create (anti-)redistribution.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This paper by &lt;em&gt;Faust&lt;/em&gt; (1996), &lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/S0304393296900379&quot; rel=&quot;nofollow&quot;&gt;&lt;strong&gt;Whom can we trust to run the Fed? Theoretical support for the founders' views&lt;/strong&gt;&lt;/a&gt;, shows that while generally any policy that affects inflation will create redistributive effects, it's better that the Federal Reserve control monetary policy to mitigate those effects rather than let policy be determined by voting, because of conflicts of interest that can arise from voting.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The final paper I'd like to present is by &lt;em&gt;Romer and Romer&lt;/em&gt; (1998). Their main findings in their paper, &lt;strong&gt;&lt;a href=&quot;http://www.nber.org/papers/w6793&quot; rel=&quot;nofollow&quot;&gt;Monetary Policy and the Well-Being of the Poor&lt;/a&gt;&lt;/strong&gt;, is that expansionary monetary policy is better for the poor in the short run, but less so in the long run. Low inflation and stable aggregate demand growth is better for the long run, and that usually means tighter monetary policy.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;So it seems that monetary policy can be redistributive very easily. Also consider that &lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/S1574004899100399&quot; rel=&quot;nofollow&quot;&gt;optimal monetary policy usually wishes for the nominal interest rate to be close to zero&lt;/a&gt;. What does that do for capital owners who want to borrow for investments? How does &lt;em&gt;that&lt;/em&gt; change long run growth and affect income inequality? Characterizing that can be a bit nebulous.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastEditorUserId="4251" LastEditDate="2016-07-04T03:17:16.647" LastActivityDate="2016-07-04T03:17:16.647" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12582" PostTypeId="1" AcceptedAnswerId="13670" CreationDate="2016-06-30T22:12:56.643" Score="3" ViewCount="794" Body="&lt;p&gt;I'm getting into asset pricing and was looking at Ito's Lemma, but cannot understand a few steps that are given.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ito's Lemma states that given&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$dx_t = \mu dt + \sigma dz_t \\&#xA;y_t = f(t, x_t)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;then&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$(1) \quad dy_t = \frac{\partial f}{\partial t} dt + \frac{\partial f}{\partial x} dx_t + \frac{1}{2} \frac{\partial^2 f}{\partial x^2} dx^2_t \\$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand this part using chain rule and a second order Taylor expansion, of the second equation. I don't understand why then the following holds:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$(*) \quad dy_t = \left[\frac{\partial f}{\partial t} + \frac{\partial f}{\partial x} \mu + \frac{1}{2} \frac{\partial^2 f}{\partial x^2} \sigma^2 \right] dt + \left[  \frac{\partial f}{\partial x} \sigma \right] dz_t \\$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When I substitute in $dx_t$ into $(1)$ and use the fact that $dz^2_t = dt$, it isn't enough to arrive at $(*)$. I think $dx^2_t$ can literally be interpreted as $(dx_t)^2$, but if there is a better way of handling that term, any guidance there would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastEditorUserId="4251" LastEditDate="2016-07-01T05:49:43.923" LastActivityDate="2016-10-07T02:30:27.217" Title="Ito's Lemma derivation" Tags="&lt;asset-pricing&gt;&lt;stochastic-calculus&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12583" PostTypeId="2" ParentId="12547" CreationDate="2016-07-01T01:32:30.647" Score="2" Body="&lt;p&gt;Currencies fluctuate depending on many factors, most important factor might be monetary policy of the respective country the currency belongs to. Gold generally is a good indicator as the USD also went away from a &lt;strong&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/History_of_the_United_States_dollar#Gold_standard&quot; rel=&quot;nofollow&quot;&gt;Gold Standard&lt;/a&gt;&lt;/strong&gt; with the &lt;a href=&quot;https://en.wikipedia.org/wiki/Bretton_Woods_system&quot; rel=&quot;nofollow&quot;&gt;&lt;strong&gt;Bretton Woods System&lt;/strong&gt;&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for the Japanese Yen, &lt;a href=&quot;https://en.wikipedia.org/wiki/Japanese_yen#Introduction_of_the_yen&quot; rel=&quot;nofollow&quot;&gt;&lt;strong&gt;Wikipedia holds an entry for the Japanese Yen&lt;/strong&gt;&lt;/a&gt; and its history. From there you can read the following quote:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Japanese_yen#Fixed_value_of_the_yen_to_the_U.S._dollar&quot; rel=&quot;nofollow&quot;&gt;&lt;strong&gt;Fixed value of the yen to the U.S. dollar&lt;/strong&gt;&lt;/a&gt;&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;No true exchange rate existed for the yen between December 7, 1941,&#xA;  and April 25, 1949; wartime inflation reduced the yen to a fraction of&#xA;  its pre-war value. After a period of instability, on April 25, 1949,&#xA;  the U.S. occupation government fixed the value of the yen at ¥360 per&#xA;  US$1 through a United States plan, which was part of the Bretton Woods&#xA;  System, to stabilize prices in the Japanese economy.[19] That exchange&#xA;  rate was maintained until 1971, when the United States abandoned the&#xA;  gold standard, which had been a key element of the Bretton Woods&#xA;  System, and imposed a 10 percent surcharge on imports, setting in&#xA;  motion changes that eventually led to floating exchange rates in 1973.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The declining exchange rate of the Japanese Yen VS the USD can be tracked very well through historical charts, Wikipedia has some data on the same site &lt;a href=&quot;https://en.wikipedia.org/wiki/Japanese_yen#Historical_exchange_rate&quot; rel=&quot;nofollow&quot;&gt;&lt;strong&gt;Japanese Yen Historical exchange rate&lt;/strong&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To answer your question:&#xA;In any case im aware of extensive monetary policy (inflating the currency) lead to these exchange rates. The Zimbabwe Dollar is a good example for that as well as the Japanese Yen and the US Dollar itself compared to Gold.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for the exchange rates, the &lt;strong&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Foreign_exchange_market&quot; rel=&quot;nofollow&quot;&gt;Foreign exchange markets&lt;/a&gt;&lt;/strong&gt; averaged $5.3 trillion per day in April 2013. Exchange rates are settled 24/7/365 through spot and interbank markets. &lt;/p&gt;&#xA;" OwnerUserId="2884" LastEditorUserId="2884" LastEditDate="2016-07-01T01:43:27.997" LastActivityDate="2016-07-01T01:43:27.997" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12584" PostTypeId="1" CreationDate="2016-07-01T03:34:48.523" Score="1" ViewCount="22" Body="&lt;p&gt;Excuse my question if it sounds brutish and uneducated but I'm curious about the recent trend of businesses like Uber, Google Play Store, Apple Store, possibly even Craigslist (et al) which are more of a platform to offer your services/wares versus the &quot;traditional&quot; large-corporate employers (e.g. Macy's) which employ you multiple days and provide benefits and whatnot.&#xA;My question is multi-faceted so I will ask first:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Is there a paper or are there papers that talk about this trend and its implications? Or am I seeing something that is irrelevant to a change in markets/employment/the way we typically do business?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And, if indeed it is merely (as in the title) &quot;bosses-at-a-distance&quot; (that is, not face-to-face with you), does this bode well for people as even unskilled laborers can find menial employment, albeit without benefits and whatnot?&#xA;Moreoever, is this &quot;decentralization&quot; in any sense of the word? And, if it is, how does it bode for the future? Will odd-jobs be the daily endeavors of the 22nd century human?&#xA;Thank you for putting up with my ignorance!&lt;/p&gt;&#xA;" OwnerUserId="8701" LastActivityDate="2016-07-01T03:34:48.523" Title="Decentralization of business due to internet/mass communication, or mere bosses-at-a-distance?" Tags="&lt;reference-request&gt;&lt;labor-economics&gt;&lt;unemployment&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12585" PostTypeId="1" AcceptedAnswerId="12589" CreationDate="2016-07-01T14:12:31.017" Score="1" ViewCount="772" Body="&lt;p&gt;In Econ 101 textbooks, there are lots of examples and emphasis on marginal analysis leading to the greatest equation of all, $MB=MC$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My challenge is the following and wonder if anyone had a similar issue or a way to get over it:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One of the textbooks examples use consuming pizza or water. First unit brings you the biggest joy. Then it diminishes. So student would understand each additional unit of pizza wouldn't bring the same amount (e.g. initial v. when you are full) utility. But then there comes a time where you are quite full and feel satisfied. At this point, additional unit of consumption would probably make you feel sick or vomit, so it is not &quot;worth the money&quot; to spend on.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The trouble with this example is that it illustrates at margin, benefit is not constant. There comes a time when you would stop consuming. But this doesn't really shed light on why $MB=MC$? How can I do a better job explaining that this &quot;equality&quot; is embedded in all these stories? Is it perhaps the stuffed/eat-until-vomit is a corner solution example?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;For pedagogical reason, if you are better at explaining these concepts, please share how you would go about this with an example both interor and corner solution in ECON 101 textbook situation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;em&gt;My strategy was from example to the graph and to show why the equality should hold leading to connecting the dots on the first order conditions of utility maximization... But this equality is hard to really spell it out on 101 level, that's my challenge.&lt;/em&gt;&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks!&lt;/p&gt;&#xA;" OwnerUserId="8560" LastEditorUserId="8560" LastEditDate="2016-07-01T14:56:16.670" LastActivityDate="2016-09-10T15:05:30.117" Title="My Challenge in Econ 101 explanation of Marginal Benefit = Marginal Cost" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;supply-and-demand&gt;&lt;choice-theory&gt;" AnswerCount="2" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="12586" PostTypeId="2" ParentId="12555" CreationDate="2016-07-01T14:56:02.993" Score="2" Body="&lt;p&gt;The Weierstrass Extreme Value Theorem guarantees this. However, it's used so frequently that economists take it for granted or omit it in graduate courses and research papers. MWG is a maturity book. Part of mathematical maturity is being able to fill in the details for a proof.&lt;/p&gt;&#xA;" OwnerUserId="5368" LastActivityDate="2016-07-01T14:56:02.993" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12587" PostTypeId="2" ParentId="12445" CreationDate="2016-07-01T15:00:25.323" Score="1" Body="&lt;p&gt;It depends on how detailed you your data want, but in the case of McDonald's or Wendy's, you can find some data in their annual reports. They split their total revenues and costs into company-operated and franchised restaurants.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope that helps you&lt;/p&gt;&#xA;" OwnerUserId="8705" LastActivityDate="2016-07-01T15:00:25.323" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12588" PostTypeId="2" ParentId="12585" CreationDate="2016-07-01T15:06:40.717" Score="0" Body="&lt;p&gt;So, you assume a finite stock of money units and also that the only thing any consumer desires is units of happiness. That is, consumers are utility maximizers and they have utilities that are functions of happiness only.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, if you impose some arbitrary value - say, one unit of money - for one unit of happiness you could construct any silly example. Say, a frat guy loves beautiful women. He can win the affection of a beautiful woman by taking her on a date that costs 10 units of money. The first day late with a beautiful girl gives him 20 units of happiness. Clearly, the date is worth it! This is beacause he is getting 2 units of happiness per unit of money which has, more or less, doubled the value of his money. Suppose he keeps dating beautiful women and that the 5th date - that costs 10 units - gives him exactly ten units of happiness. Now, suppose he knows date 6 will only give 8 units of happiness. The marginal benefit of the date is too low. He keeps his money and instead trades his units of money 1-1 for units of happiness until he depletes his remaining stock of money. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Something like that. Any arbitrary example where you can clearly demonstrate that if $MB&amp;lt;MC$, you're &quot;losing&quot; something by continuing to consume that good and $MB&amp;gt;MC$ means you're &quot;gaining&quot; something by continuing to consume that good. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also - I have no graphing tools (typing from phone) but this example makes use of constant MC and so gives a good visual for what happens when MB is above and/or below MC by presenting two very easily identified regions where the MC curve partitions the graph. Above the curve is &quot;good&quot; and below is &quot;bad&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This usually works well for me. &lt;/p&gt;&#xA;" OwnerUserId="1655" LastEditorUserId="1655" LastEditDate="2016-07-01T15:52:00.787" LastActivityDate="2016-07-01T15:52:00.787" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="12589" PostTypeId="2" ParentId="12585" CreationDate="2016-07-01T15:40:24.837" Score="0" Body="&lt;p&gt;I suggest this graphic illustration.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can first plot your utility U as a function of the quantity x of pizza eaten. Utility is expressed in \$.&#xA;Plot a positive concave function starting form the origins (0 pizza leads to 0 utility), going up to a maximum (at $x=4$ let's say) and then slightly decreasing after $x=4$.&#xA;The decreasing part means that you are loosing utility by eating too much pizza.&#xA;Now assume a unit of pizza costs \$1. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can now plot a second graph illustrating the first order condition.&#xA;Plot first a decreasing curve corresponding the marginal utility (a straight line if you have chosen a quadratic form to the utility function) starting from $(x,y)=(0,5)$ (or any positive $y$), going down and crossing the X-axis at $x=4$ and being negative after $x=4$.&#xA;Then, plot the horizontal line $y=1$. The intersection of these two curves gives the optimal quantity of pizza to eat, $x^*$, given the cost.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For $x&amp;lt;x^*$, you should eat more pizza because the marginal unit of pizza eaten worth more than it costs. For $x&amp;gt;x^*$, you have eaten too much pizza comparing to what it costs you.&#xA;You can insist on two other points. First, imagine you do not pay as you eat pizza but you are invited at a party and food is free. In this case, the actual $MC$ is 0.&#xA;You will then eat until the point you get sick, meaning $x=4$. In other words, you eat as long as the marginal utility of eating is positive.&#xA;Second, back to the case in which a pizza costs \$1, you can show that $x^*&amp;lt;4$. It means that you stop eating before the point you get sick.&#xA;You stop eating before because you have no interest in eating a marginal share of pizza that yields you \$0.5 of utility for instance but costs you \$1.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Edit&lt;/strong&gt;&#xA;In the example I give, the marginal cost of eating pizza is monetary, meaning money that you pay. The marginal benefit is the marginal utility received from eating pizza (possibly negative), it encompasses both the &quot;good feeling&quot; of alleviating your hunger but also the &quot;bad feeling&quot; of eating fat and damaging your body. If you want to define $MC$ as the sum of &quot;bad feeling&quot; and monetary cost, and $MB$ as the positive feeling, you need to specify how both feelings increase/decrease when you eat pizza. This is more demanding in terms of hypotheses than using the utility-based approach, and maybe too ad-hoc.&lt;/p&gt;&#xA;" OwnerUserId="4094" LastEditorUserId="4094" LastEditDate="2016-07-12T12:09:55.820" LastActivityDate="2016-07-12T12:09:55.820" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12590" PostTypeId="1" CreationDate="2016-07-01T15:44:46.910" Score="2" ViewCount="173" Body="&lt;p&gt;As government is planning to introduce GST in India, what change it will make in India's economy?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;GST is introduced in many countries except American, so why American has not introduce GST yet?&lt;/p&gt;&#xA;" OwnerUserId="8707" LastActivityDate="2016-07-01T15:44:46.910" Title="What are the pro's and cons of GST (goods and service tax) ? And what influence it can make in the Indian economy?" Tags="&lt;financial-economics&gt;&lt;international-economics&gt;&lt;political-economy&gt;" AnswerCount="0" CommentCount="0" ClosedDate="2016-07-06T10:25:33.430" ContentLicense="CC BY-SA 3.0" />
  <row Id="12591" PostTypeId="2" ParentId="11855" CreationDate="2016-07-01T16:48:06.997" Score="2" Body="&lt;p&gt;Here is an attempt at a direct proof:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let all the assumptions hold, and further assume that $x \succcurlyeq^* y$. Then for some $B \supseteq \{x,y\}$, $C^*(B) \supseteq \{x\}$ (by definition of $\succcurlyeq^*$), which further implies $x \succcurlyeq z$ for all $z \in B$, and therefore $x \succcurlyeq y$ (by definition of $C^*$). (This shows that $\succcurlyeq^* \subseteq \succcurlyeq$; the other direction follows from looking at doubleton sets $B = \{x,y\}$).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is left to show is that $C^*$ satisfies the weak axiom. So take any $B' \supseteq \{x,y\}$, such that $y \in C^*(B')$. If no such set exists, then $y$ is not revealed preferred to $x$ and we are done. If such a set exists then by definition $y \succcurlyeq z$ for all $z \in B'$. We already know $x \succcurlyeq y$ so by transativity $x \succcurlyeq z$ for all $z \in B'$ and hence $x \in C^*(B')$. Again,  $y$ is not revealed preferred to $x$ and we are done.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Notice, while we used transitivity, we did not use completeness. This hints at the fact that the statement can actually be generalized to pre-orders (reflexive and transitive), by allowing $C^*$ to be empty. This point is somewhat lost by appealing to the second result.&lt;/p&gt;&#xA;" OwnerUserId="398" LastEditorUserId="398" LastEditDate="2016-07-02T02:05:57.077" LastActivityDate="2016-07-02T02:05:57.077" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12592" PostTypeId="1" CreationDate="2016-07-01T17:03:42.980" Score="5" ViewCount="234" Body="&lt;p&gt;What are the most advanced theoretical models about  &quot;learning&quot; such as learning-by-doing or learning from others?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Overall, learning in economics spans different areas. Here there is a largely incomplete list:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;One of the pioneers of &quot;learning&quot; in economics is Arrow with his 1962 paper. In his paper, Arrow discusses the economics implications of theories about learning in social psychology. The main focus here is about firms &quot;learning&quot; over time. (For a recent survey of models within this literature: Thompson, 2010)  &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;In the same year (1962), G.S. Becker adds another milestone. Becker's paper is a must read. From the point of view of individual agents, learning is an investment: it involves immediate costs and gives future gains. It raises the question of why firms should pay money for training their workforce in competitive markets (i.e., wages equal marginal costs). It also makes an important distinction between &quot;general&quot; (reusable) and &quot;specific&quot; knowledge.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Following up on Becker's work, a large literature in labor economics (e.g., Rosen, 1972) pushes the same question a little bit further. This literature culminates in Acemoglu and Pishke (1999) paper showing that market frictions are a possible explanation for firms paying for training.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;A more recent literature has started to look at &quot;learning&quot; from a wholly different point of view: how people learn to play games. This literature originates from the results of many experimental works showing a number of anomalies in behavior compared to theory. A standard reference here is the book &quot;Learning in games&quot; by Fudenberg and Levine. (The book is somewhat old and there is much of research going on in this area. So I am not sure what would be an updated reference.)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Can you help me create a better list? I am looking for either area of work I have overlooked (e.g., is there something in behavioral literature?) or more advanced references for each of the listed topics.&lt;/p&gt;&#xA;" OwnerUserId="8708" LastEditorUserId="8708" LastEditDate="2016-07-04T20:19:09.370" LastActivityDate="2017-12-19T22:32:45.690" Title="List of theoretical models of learning" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;game-theory&gt;&lt;learning-curve&gt;" AnswerCount="1" CommentCount="6" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12593" PostTypeId="1" CreationDate="2016-07-01T18:01:02.793" Score="0" ViewCount="394" Body="&lt;p&gt;Excuse me if this is not the site to ask this question but I read in meta that you have a accounting tag so here we go.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I made a buy of an ETF in two different exchanges  with different currencies (same Isin, different currency see &lt;a href=&quot;https://money.stackexchange.com/questions/24336/how-does-it-work-when-the-same-etf-is-listed-on-several-stock-exchanges?newreg=3b2d0d98a5b646078c494aa365662125&quot;&gt;this question in personal money and finance exchange&lt;/a&gt;) and I'm valuing this securities at fair value. I have to take the ETF as the same or different security? (i.e. makes some difference the currency of the exchange)&lt;/p&gt;&#xA;" OwnerUserId="8709" LastEditorUserId="-1" LastEditDate="2017-04-13T12:25:31.177" LastActivityDate="2016-09-30T09:32:55.317" Title="Securities traded in different currency" Tags="&lt;stock-market&gt;&lt;accounting&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12594" PostTypeId="1" CreationDate="2016-07-01T19:18:45.410" Score="4" ViewCount="757" Body="&lt;p&gt;I have tried to know what exactly is the no free lunch axiom.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I got multiple links but none of them explain (a bit rigorously, with examples and mathematical formulation) what is this axiom and how I can formulate it in a problem.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any explanation/formulation is very much welcome. Thanks.&lt;/p&gt;&#xA;" OwnerUserId="8711" LastActivityDate="2016-07-01T21:33:25.577" Title="What is the No Free Lunch Axiom?" Tags="&lt;macroeconomics&gt;&lt;mathematical-economics&gt;&lt;financial-economics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12595" PostTypeId="1" CreationDate="2016-07-01T20:24:32.400" Score="3" ViewCount="61" Body="&lt;p&gt;I would like to know the impact of interest rates within Monetary Policies in view of Brexit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An increase in the Monetary stock would lead to a decline (at least in the short-term) in nominal interest rates. Conversely, decrease in money stock can lead to short-term increases in interest rates. What I would like to know is whether there might be significant increases in interest rates during Brexit?&lt;/p&gt;&#xA;" OwnerUserId="8713" LastEditorUserId="5515" LastEditDate="2016-07-11T07:35:57.167" LastActivityDate="2016-07-11T07:35:57.167" Title="Monetary Policy adjustments as a result of Brexit" Tags="&lt;monetary-policy&gt;" AnswerCount="1" CommentCount="4" ClosedDate="2016-07-19T16:04:46.533" ContentLicense="CC BY-SA 3.0" />
  <row Id="12596" PostTypeId="1" AcceptedAnswerId="13249" CreationDate="2016-07-01T20:45:17.113" Score="0" ViewCount="8193" Body="&lt;p&gt;GDP - Gross Domestic Product&lt;/p&gt;&#xA;&#xA;&lt;p&gt;GNP - Gross National Product&lt;/p&gt;&#xA;&#xA;&lt;p&gt;GNI - Gross National Income&lt;/p&gt;&#xA;&#xA;&lt;p&gt;GNDI - Gross National Disposable Income&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We know that GNI=GNP, and that &lt;a href=&quot;http://www.economicshelp.org/blog/3491/economics/difference-between-gnp-gdp-and-gni/&quot; rel=&quot;nofollow&quot;&gt;GNP=GDP+Net income from factor ownership abroad.&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I don't understant is how according to IMF Balance of Payments terminology, we have that &lt;a href=&quot;https://www.imf.org/external/pubs/ft/bop/2007/pdf/chap14.pdf&quot; rel=&quot;nofollow&quot;&gt;GNDI=GDP+net primary and secondary income from abroad&lt;/a&gt;, when we know that &lt;a href=&quot;https://stats.oecd.org/glossary/detail.asp?ID=1175&quot; rel=&quot;nofollow&quot;&gt;GNDI = GNI+net current transfer from abroad&lt;/a&gt;? &#xA;Wouldn't this be tantamount to say that GNP=GDP?&lt;/p&gt;&#xA;" OwnerUserId="118" LastActivityDate="2016-08-31T23:39:07.160" Title="GNP, GDP, GNI, GNDI and their relationships?" Tags="&lt;macroeconomics&gt;&lt;open-economy-macro&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12597" PostTypeId="2" ParentId="12594" CreationDate="2016-07-01T20:47:21.613" Score="2" Body="&lt;p&gt;No Free Lunch : Let Y be the production set and $y \in Y$ denote an element of the production set Y. If $y\geq 0$ then $y=0$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Recall that for all elements $y \in Y$ we have that y comprises inputs and outputs. The inputs should be negative values anytime there is a positive output. That is, you can never produce something from nothing. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To say y is greater than or equal to zero means y has no non-negative elements. To rephrase - y has nothing acting as an input. So, it must be true that nothing in y can be strictly positive. To rephrase - we can't have produced a positive amount of something if we don't have any inputs with which to produce outputs. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Production functions satisfying this property should pass through the origin. &lt;/p&gt;&#xA;" OwnerUserId="1655" LastActivityDate="2016-07-01T20:47:21.613" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12598" PostTypeId="2" ParentId="12594" CreationDate="2016-07-01T21:33:25.577" Score="3" Body="&lt;p&gt;First, to give a little more background to 123's answer, a production set $Y$ is the set of all feasible production values. With $y \in Y$, $y$ is a vector in $\mathbb{R}^L$, where positive elements indicate outputs, negative values indicate inputs. The inputs you put in that get you outputs can be expressed with either a transformation or production function.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;123 is right when stating the formal microeconomic axiom:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;If that $y \in Y$ and $y \geq 0$, then $y = 0$.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;However, no free lunch axiom needs more than merely &quot;passing through the origin.&quot;&lt;a href=&quot;https://i.stack.imgur.com/PlzPG.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/PlzPG.png&quot; alt=&quot;beautiful&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first image shows a production set (two dimensions) that satisfies no free lunch. The second image shows a production set that does not, even though it passes through the origin.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(yes this image is a bad rendition of the one from Mas-Colell)&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Interestingly though, the author has not tagged this with a microeconomics tag, but with a macro and financial econ tag. The closest thing I can thing of to a no free lunch axiom here is some sort of transversality condition. For example, in simple money market models with borrowing with households, you might have a condition that you have to pay off all debt eventually (or just pay the interest for the rest of your life). So that would look something like,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\lim_{t \rightarrow \infty} \frac{b_t}{(1+r)^t} = 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $b$ is the amount of borrowing in a period. I do not hear conditions like these called &quot;no free lunch&quot; however. Something more like &quot;no ponzi scheme condition&quot; or &quot;borrowing constraints&quot; (snoree) are more apt.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2016-07-01T21:33:25.577" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12599" PostTypeId="2" ParentId="12592" CreationDate="2016-07-02T00:13:49.020" Score="4" Body="&lt;p&gt;If you aren't interested in learning from a game and decision theoretic perspective, I'm not exactly sure why you're posting on an economics forum. Because that's what learning really is, from an economics perspective. AI really breaks down into three subfields: logical, behavioral, and machine learning. The logical subfield deals with logical reasoning, automated proof-writing, automated conjecture making, and such. Behavioral AI is really more in line with theoretical economics- game theory, decision theory, mechanism design, etc. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Machine learning is really what constitutes mainstream AI research nowadays. This is really due to the fact that we now have the resources and tools to better deal with big data, rather than a philosophical revelation or technical breakthrough. Hot topics in computer science are very industry and money driven (as a theorist, I would argue too much so). Machine Learning really boils down to applying a stochastic process and refining a model. There isn't so much learning going on, just enhanced stupidity that works well sometimes. That's not to dismiss Machine Learning, but we should call it what it is.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would definitely recommend AI, Machine Learning, and Evolutionary Game Theory, though. Russell and Norvig is the established classic AI text, and it has sections on Machine Learning as well. Link: &lt;a href=&quot;http://aima.cs.berkeley.edu/&quot; rel=&quot;noreferrer&quot;&gt;http://aima.cs.berkeley.edu/&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Evolutionary Game Theory uses similar techniques as Machine Learning. It relaxes the assumptions of Neoclassical Game Theory. Agents need not be perfectly rational. They can have imperfect information and adjust their strategies myopically. The game is played repeatedly. We then see how &quot;mutation&quot; (such as human error or experimentation) in enough agents drives changes in equilibrium. So we have a dynamical process to select equilibria in games. We can apply dynamics such as the imitation dynamic, the best response dynamic, etc. Weibull (&lt;a href=&quot;https://mitpress.mit.edu/books/evolutionary-game-theory&quot; rel=&quot;noreferrer&quot;&gt;https://mitpress.mit.edu/books/evolutionary-game-theory&lt;/a&gt;) and H. Peyton Young are both good introductions (&lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0691086877&quot; rel=&quot;noreferrer&quot;&gt;https://www.amazon.com/Individual-Strategy-Social-Structure-Evolutionary/dp/0691086877/&lt;/a&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I took a seminar in Economics this past spring, the first half of which was Evolutionary Game Theory. We went through a bunch of papers as well; a subset of the following. One paper I enjoyed was &lt;em&gt;Competitive Behavior in Market Games: Evidence and Theory.&lt;/em&gt; It showed that as the number of agents was made sufficiently large, that evolutionary forces drove the Nash equilibrium to the Walrasian equilibrium (under certain assumptions). This provides a behavioral motivation for the study of r-fold replica economies in the general equilibrium setting. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Mark E. Schaffer (1989): “Are Profit-Maximisers the Best Survivors?” Journal of Economic Behavior and Organization, 12, 29-45.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Mark E. Schaffer (1988): “Evolutionarily Stable Strategies for a Finite Population and a Variable Contest Size,” Journal of Theoretical Biology, Vol. 132, No. 4, 469-478.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hehenkamp, B., W. Leininger, and A. Possajennikov (2004): “Evolutionary equilibrium in Tullock contests: spite and overdissipation,” European Journal of Political Economy, Vol. 20, 1045–1057.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Duffy, J., A. Matros, and T. Temzelides (2011): “Competitive Behavior in Market Games: Evidence and Theory,” Journal of Economic Theory 146, 1437-1463.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Kandori, M., G. Mailath, and R. Rob (1993): “Learning, Mutation and Long Run Equilibria in Games,” Econometrica, 61, 29-56.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;P. Rhode, and M. Stegeman (1996): “A Comment on ‘Learning, Mutation, and Long-Run Equilibria in Games’,” Econometrica, 64, 443-449.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;W. Sandholm (1998): “Simple and clever decision rules for a model of evolution,” Economics Letters, 61, 165-170. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Young, P. (1993): “The evolution of conventions,” Econometrica, 61, 57-84.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Young, P. (1993): “An Evolutionary Model of Bargaining,” Journal of Economic Theory 59, 145-168.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;M. Saez-Marti and J. Weibull. (1999): “Clever agents in Young's evolutionary bargaining model,” Journal of Economic Theory 86, 268-279.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Matros, A. (2003): “Clever Agents in Adaptive Learning”, Journal of Economic Theory, 111, 110-124.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ellison, G. (1993): “Learning, local interaction and coordination,” Econometrica, 61, 1047-1072.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Glenn Ellison (2000): “Basins of Attraction, Long Run Equilibria, and the Speed of Step-by-Step Evolution,” Review of Economic Studies, 67 (1), 17-45.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Bergstrom, T. and Stark, O. “How Altruism Can Prevail in an Evolutionary Environment.”&lt;/p&gt;&#xA;&#xA;&lt;p&gt;American Economic Review, May 1993 (Papers and Proceedings), 83(2), 149-55.&#xA;Eshel I., L. Samuelson and A. Shaked (1998): “Altruists, Egoists, and Hooligans in a Local Interaction Model,” The American Economic Review 88(1), 157-179.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Matros, A. (2012): “Altruistic Versus Egoistic Behavior in a Public Good Game,” Journal of Economic Dynamics and Control 36, 642-656.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Robson, A., and F. Vega-Redondo (1996): “Efficient Equilibrium Selection in Evolutionary Games with Random Matching,” Journal of Economic Theory, 70, 65-92.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Josephson, J., and A. Matros (2004): “Stochastic Imitation in Finite Games,” Games and Economic Behavior, Volume 49, Issue 2, 244-259.&lt;/p&gt;&#xA;" OwnerUserId="5368" LastActivityDate="2016-07-02T00:13:49.020" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="12600" PostTypeId="1" CreationDate="2016-07-02T05:37:54.430" Score="2" ViewCount="230" Body="&lt;p&gt;real wages =  money wages/price(P).&#xA;what are the assumptions here?&#xA;why labor doesn't respond to money wages ? &lt;/p&gt;&#xA;" OwnerUserId="8605" LastActivityDate="2016-07-02T13:24:13.800" Title="In classical macroeconomics, why Labor supply responds to real wages and not money wages?" Tags="&lt;macroeconomics&gt;&lt;classical-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12601" PostTypeId="2" ParentId="12593" CreationDate="2016-07-02T07:10:48.587" Score="1" Body="&lt;p&gt;I don't really see why you would price an ETF at fair value and not at last market price, given that those funds are very liquid. But in either cases you need to have two distinct securities in your portfolio, as the two classes of shares that you own in the ETF bear different risks, and will yield different performances, due to the xrate.&lt;/p&gt;&#xA;" OwnerUserId="6820" LastActivityDate="2016-07-02T07:10:48.587" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12602" PostTypeId="1" CreationDate="2016-07-02T10:42:27.503" Score="3" ViewCount="114" Body="&lt;p&gt;&lt;strong&gt;Question&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are there any simulated datasets that have been designed specifically to represent macroeconomic data? In particular, are there any such datasets that can be used in benchmark studies? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Background&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To give an analogy, in optimization, one may be interested in assessing the quality of a given algorithm. To do this, there are a number of &lt;a href=&quot;https://en.wikipedia.org/wiki/Test_functions_for_optimization&quot; rel=&quot;nofollow&quot;&gt;test functions for optimization&lt;/a&gt;, such as the well-known &lt;a href=&quot;https://en.wikipedia.org/wiki/Rosenbrock_function&quot; rel=&quot;nofollow&quot;&gt;banana function&lt;/a&gt;, that can be used to evaluate the performance of an algorithm; for example, by analysing &lt;em&gt;if&lt;/em&gt; and &lt;em&gt;how fast&lt;/em&gt; the algorithm can find a global minimum.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am interested in working in this controlled experimental setting using simulated data that has a macroeconomic interpretation. With data simulated from a known data generating process (this would be my control), it would be possible to investigate, say, the performance of algorithms designed to detect structural breaks and to assess techniques/models used for forecasting.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would greatly appreciate if someone could help: either by pointing me to some simulated datasets that can be used for the above purposes or by providing some guidance on how to simulate data that carries a macroeconomic interpretation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's possible for me to simulate a variety of ARMA processes (or VARMA model), but I am really interested in something that goes beyond that; the simulated data ought to have similar properties to observed macroeconomic data. Obviously, I am trying to avoid using actual data because my control (of knowing the data generating process) would be lost.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Update&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For one of the purposes I had in mind, a quick read of &lt;a href=&quot;http://www.phil.vt.edu/dmayo/conference_2010/Hendry%20ModSelBreaks09f.pdf&quot; rel=&quot;nofollow&quot;&gt;Castle, Doornik, and Hendry (2013)&lt;/a&gt; suggests that it is, perhaps, not that difficult. Their &quot;experimental design&quot; is based on the following equations&#xA;$$&#xA;y_{t} = \beta_{0} + \gamma y_{t-1} + \beta_{1}x_{1,t} + \cdots + \beta_{10} x_{10,t} + \epsilon_{t}\\&#xA;x_{i,t} = \rho x_{i,t-1} + v_{i,t}, v_{i,t} \sim IN[0,1], i=1,\ldots,10,\\&#xA;\epsilon_{t} \sim IN[0,1], t=1,\ldots ,10.&#xA;$$&#xA;along with some further qualifications. So, it would appear that for one of my examples (the case of evaluating structural break algorithms), relatively simple (although by no means, &quot;not tricky&quot;) DGPs are all that's required.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Reference:&lt;/strong&gt; Castle, Doornik, and Hendry (2013) &lt;em&gt;Model Selection when there are Multiple Breaks&lt;/em&gt; &lt;/p&gt;&#xA;" OwnerUserId="1588" LastEditorUserId="1588" LastEditDate="2016-07-03T00:31:11.373" LastActivityDate="2017-06-28T09:10:11.563" Title="Simulating macro / benchmark data" Tags="&lt;macroeconomics&gt;&lt;econometrics&gt;&lt;simulations&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12603" PostTypeId="2" ParentId="12600" CreationDate="2016-07-02T13:24:13.800" Score="2" Body="&lt;p&gt;To begin with, economics is all about assumptions. Because of classical dichotomy, money level doesn't impact the growth of an economy in the long run. Money has no effect on GDP in classical macroeconomics. If you want to model the effect of money, you have to introduce nominal rigidities in your model. That means, at least the goods market or the labour market is NOT perfect. If labour responds to money wages, the result would be a prefect market situation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;According to Keynes (General Theory, 1936),  the nominal wage (&lt;em&gt;money wages&lt;/em&gt;) is completely unresponsive to current-period developments (at least over some range):$$W=\bar{W}$$&#xA;As you can see, because nominal wages are sticky, the result is an imperfect labour market. Because the labour market is imperfect, there is unemployment.  The&#xA;labor market has some non-Walrasian feature that causes the equilibrium&#xA;real wage to be above the market-clearing level.&#xA;In Keynes's model, aggregated labour supply is given. Firms are competitive and their prices are&#xA;flexible, and so they hire labor up to the point where the marginal product&#xA;of labor equals the real wage: $$F'(L)=\frac{\bar{W}}{P}$$&#xA;&lt;a href=&quot;https://i.stack.imgur.com/ptcjC.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/ptcjC.png&quot; alt=&quot;Keynes&amp;#39;s model in action&quot;&gt;&lt;/a&gt;&#xA;The main conclusion of Keynes' model is that GDP and real wages are countercyclical. Later, it was turned out to be moderately procyclical by empirical research.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Other more sophisticated models:&#xA; - sticky prices, flexible wages, perfect labour market&#xA; - sticky prices, flexible wages, imperfect labour market&#xA; - flexible prices, sticky wages, imperfect labour market&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;If you want to model nominal effect, you should take note of nominal wages. If you are modelling fiscal shocks without the effect of the money, then considering real wages are maybe enough. It depends on one's research philosophy.&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="5017" LastActivityDate="2016-07-02T13:24:13.800" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12604" PostTypeId="2" ParentId="12602" CreationDate="2016-07-02T14:18:03.813" Score="1" Body="&lt;p&gt;I think yes. Macroeconomists usually build DSGE models to predict short-run fluctuations. Calibrating the data is the part of the process. After using numerical methods to run the models, researchers check the moments of the simulated values. This is a way to examine whether the simulated data represents real life outcomes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, every economic situation differs so you have to choose wisely the simulated data depending on your research every time. I mean the growth was huge in the 1950s in the US, but today the main objective is to kill the deflation monster.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here's the benchmark model by &lt;a href=&quot;https://www.minneapolisfed.org/research/qr/qr1621.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Hansen and Wright (1992)&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/AkHHU.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/AkHHU.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\sigma$ denotes standard deviation, $Y,C,I$ and $L$ are macroeconomic variables.&lt;/p&gt;&#xA;" OwnerUserId="5017" LastEditorUserId="2776" LastEditDate="2017-06-28T09:10:11.563" LastActivityDate="2017-06-28T09:10:11.563" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12605" PostTypeId="2" ParentId="12535" CreationDate="2016-07-02T15:43:10.213" Score="2" Body="&lt;p&gt;You can use the PISA study from OECD. It evaluates the skills and knowledge in reading, mathematics and sciene of 15-year-old students. PISA does not combine these results, but commentators do so sometimes.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The most recent results are from 2012, you can find an overview of the rankings &lt;a href=&quot;https://www.oecd.org/pisa/keyfindings/pisa-2012-results-overview.pdf&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;. These rankings are composited from various tabels you can download using the links at page 297 from &lt;a href=&quot;https://www.oecd.org/pisa/keyfindings/pisa-2012-results-volume-I.pdf&quot; rel=&quot;nofollow&quot;&gt;this document&lt;/a&gt;.&#xA;Results of 2009 are available in a xls-file. Scroll down &lt;a href=&quot;https://www.theguardian.com/news/datablog/2010/dec/07/world-education-rankings-maths-science-reading&quot; rel=&quot;nofollow&quot;&gt;this artcile&lt;/a&gt; to download.&lt;/p&gt;&#xA;" OwnerUserId="8705" LastEditorUserId="8705" LastEditDate="2016-07-03T12:29:30.480" LastActivityDate="2016-07-03T12:29:30.480" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12606" PostTypeId="2" ParentId="12477" CreationDate="2016-07-02T16:40:03.037" Score="1" Body="&lt;p&gt;For an empirical treatment of the question have a look at:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Känzig, D.R.(2015). &lt;em&gt;&lt;a href=&quot;https://docs.google.com/viewer?a=v&amp;amp;pid=sites&amp;amp;srcid=ZGVmYXVsdGRvbWFpbnxkaWVnb2thZW56aWd8Z3g6MmI4OGZkZjk5MmNkYWNjYw&quot; rel=&quot;nofollow noreferrer&quot;&gt;Monetary Policy and Economic Inequality in the United States&lt;/a&gt;.&lt;/em&gt;&lt;/p&gt;&#xA;" OwnerUserId="8630" LastEditorUserId="2776" LastEditDate="2017-10-05T13:08:08.457" LastActivityDate="2017-10-05T13:08:08.457" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12607" PostTypeId="1" AcceptedAnswerId="12609" CreationDate="2016-07-02T17:44:04.090" Score="1" ViewCount="182" Body="&lt;p&gt;In my text book, many theories are explained using ad unitary demand curve: a consumer can buy 1 quantity of the product, or none.&#xA;The example of the demand function is $ p(q) = 1- q $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;but that means if I want to sell one quantity the price should be 0?&#xA;I did simply p(q=1) = 1- 1 = 0&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What does it mean? &lt;/p&gt;&#xA;" OwnerUserId="5075" LastActivityDate="2016-07-04T09:33:42.247" Title="Unitary demand curve: p = 1 - q" Tags="&lt;supply-and-demand&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="12608" PostTypeId="1" CreationDate="2016-07-03T06:49:41.173" Score="0" ViewCount="42" Body="&lt;p&gt;The ECB is buying corporate bonds. It could eventually also buy shares. What would be left for investors to invest in? Letting bank shareholders pay for bailouts resulted in crashes of their shares. It was interesting to see how fast they went down. It seems like bank shares are relatively volatile. Letting lenders take hair-cuts is very impopular (maybe this is a separate question) but, would the ECB becoming a shareholder / bondholder amount to the same thing? Could it soften or break the opposition against taking hair cuts? (Who would be paying ultimately?)&lt;/p&gt;&#xA;" OwnerUserId="6598" LastActivityDate="2016-09-01T23:39:01.933" Title="If central banks become shareholders, where can investors go?" Tags="&lt;banking&gt;&lt;central-banking&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12609" PostTypeId="2" ParentId="12607" CreationDate="2016-07-03T06:52:48.913" Score="3" Body="&lt;p&gt;This demand function is just normalized to unit. If you are not interested in the concrete quantity of your demand function, but you are interested how the demand of the specific market is distributed between firms, you can use this simple demand function.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, you can consider a normalized demand function in a Bertrand's game. Let's assume the firms are symmetric, there's no capacity constraints. The demand ($D(p_i,p_{-i})$) of firm $i$ is the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ D(p_i,p_{-i}) =&#xA;\begin{cases}&#xA;    0       &amp;amp; \quad \text{if } p_i &amp;gt; p_{-i} \\&#xA;    1/2  &amp;amp; \quad \text{if } p_i = p_{-i} \\&#xA;    1  &amp;amp; \quad \text{if } p_i &amp;lt; p_{-i} \\&#xA;  \end{cases} $$ &lt;/p&gt;&#xA;" OwnerUserId="5017" LastEditorUserId="4193" LastEditDate="2016-07-04T09:33:42.247" LastActivityDate="2016-07-04T09:33:42.247" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12610" PostTypeId="1" AcceptedAnswerId="12614" CreationDate="2016-07-03T09:35:22.590" Score="4" ViewCount="289" Body="&lt;p&gt;&lt;a href=&quot;http://www.telegraph.co.uk/business/2016/07/02/bond-yields-are-pricing-in-a-depression-and-the-prognosis-scarce/&quot; rel=&quot;nofollow noreferrer&quot;&gt;This article&lt;/a&gt; suggests that, &quot;Bond markets are signalling something very nasty coming down the road at us – an all encompassing, worldwide deflation. &quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I cannot understand why bond yields falling signals deflation. Is it because falling bond yields indicates a weakening global economy? Or is the transmission mechanism more direct?&lt;/p&gt;&#xA;" OwnerUserId="5515" LastEditorUserId="4020" LastEditDate="2020-05-07T09:42:18.137" LastActivityDate="2020-05-07T09:42:18.137" Title="Why does falling global bond yields signal coming deflation?" Tags="&lt;macroeconomics&gt;&lt;interest-rate&gt;&lt;financial-markets&gt;&lt;bonds&gt;&lt;deflation&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="12611" PostTypeId="2" ParentId="12420" CreationDate="2016-07-03T10:43:09.933" Score="6" Body="&lt;p&gt;&lt;strong&gt;You’re right, the migration of workers boost the economy.&lt;/strong&gt; It’s a stylized fact. It may have political consequences, though, but it is not the part of the analysis of economics. Let’s consider $A$ the set of active labour force of an economy before, and $A'$ after the migration. Then $A$ is the subset of $A'$:&#xA;$$A \subseteq A'$$&#xA;This notation means that the social planner of the economy is able to optimize on a greater number of workers. We can assume that opening the door for migrant workers is at least as good as it was before migration:&#xA;$$A \preceq A'$$&#xA;If this condition is not true (e.g. the migrants doesn't want to work), the authorities of the economy won't open borders for migrant workers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You're considering the effect when the nation itself does not have full employment. This condition is not important. The nation could have 0% unemployment, however, the migrant workers would still get jobs.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;Immigrants from developing nations tend to be happier to take on unattractive jobs, which citizens of the developed country may refuse&#xA;  to do.&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Absolutely, these people have got different preferences. Here're the utility functions of residents ($r$) and immigrants (i):&#xA;$$u_r=C-\alpha_r L$$&#xA;$$u_i=C-\alpha_i L$$&#xA;where C and L denotes consumption and work. We can conclude that $\alpha_r$ must be higher than $\alpha_i$. The disutility of work is higher in the case of the residents. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;That means migrant workers are more cost-efficient for firms. Higher immigration creates more competition for jobs, causing wages to&#xA;  decrease and allowing companies to pay their employees less.&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Therefore, the nation's companies make more money, and this causes the economy to grow. Growth and R&amp;amp;D may also improve by means of &lt;strong&gt;brain-drain effect&lt;/strong&gt;, because there are migrant scientists and white-collar workers, too.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The 5% unemployment rate is actually due to people who are sick /&#xA;  disabled / otherwise unable to work.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;By definition it is not correct. In Economics, &lt;strong&gt;active workers and job-searchers are on the labour market only.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;The main concept of migration being good is the increase of the horizon of labour optimization.&lt;/strong&gt; See also: &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0133423646&quot; rel=&quot;noreferrer&quot;&gt;Krugman &amp;amp; Obstfeld: International Economics Theory and Policy&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="5017" LastActivityDate="2016-07-03T10:43:09.933" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12612" PostTypeId="1" AcceptedAnswerId="12613" CreationDate="2016-07-03T16:46:40.603" Score="3" ViewCount="1646" Body="&lt;p&gt;I have seen that generically any finite games have odd number of equilibria. So for $2\times 2$ games can we say that generically they must have $3$ equilibria? If not can you give an example of games which have $5$ or $7$ equilibria? Many thanks!&lt;/p&gt;&#xA;" OwnerUserId="8081" LastActivityDate="2016-07-03T18:08:40.727" Title="Oddness of equilibrium points" Tags="&lt;game-theory&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12613" PostTypeId="2" ParentId="12612" CreationDate="2016-07-03T18:08:40.727" Score="4" Body="&lt;p&gt;It depends on what you mean by generically. The Prisoner's Dilemma has exactly one equilibrium. If you generate the payoffs in your $2 \times 2$ game by drawing payoffs from continuous i.i.d.'s then there is a non-zero probability (seems to me that the exact number is 25%) that you will get a game similar to the Prisoner's Dilemma, i.e. a game with strictly dominant strategies for both players.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is also a 'smaller' class of games with even number of equilibria, you can read about them here:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://mindyourdecisions.com/blog/2014/10/07/game-theory-tuesdays-why-most-games-have-an-odd-number-of-nash-equilibria/&quot; rel=&quot;nofollow&quot;&gt;http://mindyourdecisions.com/blog/2014/10/07/game-theory-tuesdays-why-most-games-have-an-odd-number-of-nash-equilibria/&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The Oddness Theorem (Wilson 1971) states that nearly all finite games have an odd number of Nash equilibria. In this post, we’ll explain what the theorem means in practical terms.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;You can also have a game with an infinite number of equilibria. (E.g. a $2 \times 2$ game with all zeros.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However if the number of equilibria is finite you cannot have more than three in a $2 \times 2$ game.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2016-07-03T18:08:40.727" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12614" PostTypeId="2" ParentId="12610" CreationDate="2016-07-03T20:44:05.747" Score="5" Body="&lt;p&gt;Bond yields falling from their current near-zero position will place them in negative yield territory. Negative bond yields are deflationary by definition.&lt;/p&gt;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.telegraph.co.uk/business/2016/07/02/bond-yields-are-pricing-in-a-depression-and-the-prognosis-scarce/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Paragraph 3, sentence 5 of the article says&lt;/a&gt;:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;With Bank Rate already close to the floor, and some UK bond yields now in &lt;strong&gt;negative territory&lt;/strong&gt;... &lt;em&gt;[emphasis added]&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;To understand why negative bond yields are deflation markers, consider the example of negative Asian and European central bank rates described in the same article:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;This is because a negative rate is effectively just a tax on the banks, forcing them to pay for the privilege of holding reserves with the central bank.&lt;/p&gt;&#xA;&lt;p&gt;Someone has to shoulder the burden of this tax; either borrowers pay more, or depositors get less, or profits go down, and if it is the latter, then it damages the banking sector’s ability to rebuild capital, crimping credit availability accordingly. Whichever it is, the end result is a monetary tightening, rather than the loosening intended.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;So you can think of the effect of negative central bank rates (and, similarly, negative bond yields) as having the inverse impact as quantitative easing which creates an inflationary effect.&lt;/p&gt;&#xA;&lt;p&gt;&lt;a href=&quot;http://thismatter.com/money/banking/money-growth-money-velocity-inflation.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;This page explains the relationship between prices and money supply as follows&lt;/a&gt;:&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$P=\frac{MV}{Y}$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;where &lt;span class=&quot;math-container&quot;&gt;$P$&lt;/span&gt; represents prices, &lt;span class=&quot;math-container&quot;&gt;$M$&lt;/span&gt; is the money supply, &lt;span class=&quot;math-container&quot;&gt;$V$&lt;/span&gt; is the velocity of money and &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt; is the real GDP.&lt;/p&gt;&#xA;&lt;p&gt;Therefore,&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\Delta P = \Delta M \cdot \frac{V}{Y}$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;and for constant &lt;span class=&quot;math-container&quot;&gt;$V$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt;,&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\frac{\partial P}{\partial M} = \frac{V}{Y} &amp;gt; 0$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;So an effective restricting of the money supply caused by negative rates/yields via the mechanism above described will tend to put downward pressure on prices (a/k/a &lt;em&gt;deflation&lt;/em&gt;).&lt;/p&gt;&#xA;&lt;p&gt;&lt;strong&gt;Edit&lt;/strong&gt;:&lt;/p&gt;&#xA;&lt;p&gt;In the comments to this answer, OP asked about the relationship between negative interest rates and negative bond yields.&lt;/p&gt;&#xA;&lt;p&gt;Whereas central banks set rates by policy, long term bond yields are determined by the market (i.e., supply-demand equilibrium). An inverted yield curve signals recession and implies rates are set too high relative to market expectations. If central banks set rates in positive territory when long term bond yields are negative, they will &lt;em&gt;de facto&lt;/em&gt; force the yield curve to invert. Although this sometimes happens, it is usually counterproductive to the policy goals of the central banks (in most environments) and, therefore, typically avoided.&lt;/p&gt;&#xA;" OwnerUserId="8719" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2016-07-07T22:15:51.947" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="12615" PostTypeId="2" ParentId="12608" CreationDate="2016-07-03T21:29:19.453" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;What would be left for investors to invest in?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Stocks and bonds, as always. Just imagine the CB as another institutional investor. Institutions invest in the capital markets all day every day. Another large player will put upward pressure on prices due to increased demand. Upward price pressure can either be good or bad depending on what side of the trade you sit. From the POV of other investors entering the market it could be bad. But for investors seeking to exit and the corporate management and employees who either own company stock or their compensation is impacted by their company's stock price, it could be good.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;...would the ECB becoming a shareholder / bondholder amount to the same thing?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It depends. The scenario you describe simply amounts to a shift in the risk pool. The bond risk pool is shifted from sovereign debt to corporate debt. Which is inherently riskier but, again, it depends on which corporations. Risk quantification would require a thorough analysis in order to be useful.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Could it soften or break the opposition against taking hair cuts?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Whose to say? Anything is possible. Further comment would be speculative.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Who would be paying ultimately?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;As with any bank or corporation, all profit and loss of the ECB is borne by its shareholders. In this case, these are the central banks of the EU's member states. Primarily, Germany, France and (soon-to-be formerly, post-Brexit) UK. Closely followed by Italy and Spain. &lt;a href=&quot;https://en.wikipedia.org/wiki/European_Central_Bank#Shareholders&quot; rel=&quot;nofollow&quot;&gt;See this page for more details&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="8719" LastActivityDate="2016-07-03T21:29:19.453" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12616" PostTypeId="1" CreationDate="2016-07-04T04:10:21.320" Score="2" ViewCount="41" Body="&lt;p&gt;I don't understand this report &lt;a href=&quot;http://uk.businessinsider.com/wef-27-countries-with-the-highest-tax-rates-in-the-world-2016-2&quot; rel=&quot;nofollow&quot;&gt;http://uk.businessinsider.com/wef-27-countries-with-the-highest-tax-rates-in-the-world-2016-2&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How can it be that Argentina turnover tax is 90% of income (everywhere else I have looked it says waaay less, like 3%) Also on taxes for industries, I read everywhere that is 35%, except for the report in the link.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What am I missing?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks &lt;/p&gt;&#xA;" OwnerUserId="8722" LastActivityDate="2016-07-04T04:10:21.320" Title="Argentina taxes" Tags="&lt;macroeconomics&gt;&lt;international-economics&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12617" PostTypeId="1" AcceptedAnswerId="14507" CreationDate="2016-07-04T08:04:57.933" Score="5" ViewCount="369" Body="&lt;p&gt;I was thrilled at seeing an interesting bidding system in an academic institutions. This bidding is for registration of courses.&#xA;Each student is allocated some points based on her grade point(GPA). So, a student with higher GPA gets more points. &#xA;Each course has a maximum strength of 60 students and a set of say 15 courses is offered.&#xA;A student bids higher for the courses that she wants and feels will be oversubscribed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;According to the literature in this subject, I know that this is not an incentive compatible mechanism as the students' bids are considered equivalent to their preferences but a student may bid more for a subject with less utility but which is has higher number of subscribers. &#xA;Also, I feel that this is a kind of first price auction. Whatever bid I propose, it is consumed if I cross the minimum bid at which the subscription closes. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Courses are different and students have different preferences. Each student would bid for any number of courses that she prefers and expects to go oversubscribed. Students' preferences over courses are on academic basis i.e. courses that are popular or taken by some famous faculty. So, student's objective is to get her favorite course.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;EDIT :&lt;/strong&gt; In first round, the students give a list of 5 courses they wish to enroll in. &#xA;In second round, bidding happens for the oversubscribed courses. So, if I entered course A in round 1 and it got oversubscribed, then in round 2 I will have to bid for it. &#xA;After round 2, if I get the courses that I wanted then it's fine else I will have to choose some other course (for which seats are not completely filled) so that I have 5 courses. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am not being able to understand in intuitive terms how a student can behave wrong and hide her true preferences while bidding in such a mechanism. &#xA;Please help point out some intuitive examples which violate the incentive compatibility. Thanks in advance. &lt;/p&gt;&#xA;" OwnerUserId="5582" LastEditorUserId="5582" LastEditDate="2016-12-02T03:49:29.490" LastActivityDate="2016-12-03T11:33:33.587" Title="Checking incentive compatibility of a mechanism" Tags="&lt;game-theory&gt;&lt;mechanism-design&gt;&lt;bayesian-game&gt;" AnswerCount="1" CommentCount="10" ContentLicense="CC BY-SA 3.0" />
  <row Id="12620" PostTypeId="1" CreationDate="2016-07-04T13:02:38.317" Score="1" ViewCount="90" Body="&lt;p&gt;I want to analyze the following setting:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;An entrepreneur (with monopoly power) sells a product in two periods. In period 1 there are two consumer groups (denoted by 1 and 2) and in period 2 there is only one consumer group (denoted by 3). He has to set the three prices $p_1$, $p_2$ and $p_3$ in order to maximize his total profit (period 1 and 2), taking into account each consumer's participation and incentive compatibility constraints.&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The different consumer groups are separated by their taste parameter, $θ$. A consumer in period 2 derives the following utility: $U_3 = θ_3 - p_3$, where $p$ is the price. The consumers in period 1 receive additional benefits by consuming in period 1. A consumer from group 1 and group 2 get respectively: $U_1 = θ_1(1+δ) - p_1$ and $U_2 = θ_2(1+δβ) - p_2$, where $δ&amp;gt;0$ and $0&amp;lt;β&amp;lt;1$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I assume the following ranking $θ_1 &amp;gt; θ_2 &amp;gt; θ_3$. Assuming a unit mass of consumers, the consumer groups can be divided like this: $θ ∈ [0,θ_2]$ (period 2 consumers), $θ ∈ [θ_2,θ_1]$ and $[θ_1,1]$ (period 1 consumers). I also assume a unit demand.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I write the consumer's participation (PC) and incentive compatibility constraints (IC) for each consumer group:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Consumer group 3:&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$U_3 \geq 0$ (PC3)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$U_3 \geq U_2 $ (IC3A)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$U_3 \geq U_1 $ (IC3B)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Consumer group 2:&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$U_2 \geq 0$ (PC2)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$U_2 \geq U_3 $ (IC2A)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$U_2 \geq U_1 $ (IC2B)    &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Consumer group 1:&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$U_1 \geq 0$ (PC1)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$U_1 \geq U_3 $ (IC1A)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$U_1 \geq U_1 $ (IC1B)    &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The entrepreneur's maximization problem is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$π = p_1q_1 + p_2q_2 + p_3q_3$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;, where $q$ is the output or the number of consumers in each consumer group.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finding the equilibrium prices that induce self-selection, I solve for the subgame-perfect Nash equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In order to solve the game using backwards induction, I have to find the &quot;right&quot; PC's and IC's.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When there are only two consumers groups at least one PC and one IC have to hold. Usually, it is participation of the low type (in this case $θ_3$) and self-selection of the high type (in this case $θ_1$). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I assume all IC's and PC's bind in equilibrium ($=$ instead of $\geq$), then I get $θ_1 = θ_2$. I then tried to separate the consumer groups according to their type like this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$θ_1(1+δ) - p_1 = θ_1(1+δβ) - p_2 $ (here I want to separate the two consumer groups in period 1)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$θ_2(1+δβ) - p_2 = θ_2 - p_3 $ (here I want to separate the low-valuation consumer in period 1 from the consumer in period 2)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This approach didn't induce self-selection between the two consumer groups in period 1. More specifically, this approach is wrong, I believe because the results are $θ_1 = 1/2$ and $θ_2 = \frac{1+2δ}{1+4δβ}$, which violates the condition from earlier: $θ_1 &amp;gt; θ_2 &amp;gt; θ_3$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any suggestion on which PC's and IC's should hold in equilibrium in order for self-selection to appear is much appreciated.  &lt;/p&gt;&#xA;" OwnerUserId="8724" LastEditorUserId="4251" LastEditDate="2016-07-05T00:22:17.000" LastActivityDate="2016-07-05T00:22:17.000" Title="Menu-pricing with three consumer groups" Tags="&lt;industrial-organisation&gt;&lt;monopoly&gt;&lt;nash-equilibrium&gt;&lt;price-discrimination&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12621" PostTypeId="1" AcceptedAnswerId="14720" CreationDate="2016-07-04T13:24:22.063" Score="2" ViewCount="136" Body="&lt;p&gt;Say you want to estimate return to education. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Model 1 (no log)&lt;/strong&gt;: assume the DGP is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$w_{i} = \alpha + \beta x_{i} + \zeta_{i} + e_{i}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $x$ is years of schooling, $\zeta_{i}$ is unobserved heterogeneity (e.g. capturing ability), and $e$ is an idiosyncratic error. Furthermore, wage is measured in \$ per hour. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Question 1&lt;/strong&gt;: since the dependent variable is in wage per hour, does this imply that $\alpha, \zeta_{i}$, $e_{i}$ are also in wage per hour? Same for the composite $\beta x_{i}$? If this is the case, then $\beta$ -- the return to education -- is defined as wage per hour, per year of experience.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Model 2 (log)&lt;/strong&gt;: assume the DGP is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\ln{w_{i}} = \alpha + \beta x_{i} + \zeta_{i} + e_{i}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where wage, $x$, $\zeta_{i}$ and $e$ are as defined above.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;According to answers to &lt;a href=&quot;https://math.stackexchange.com/questions/238390/units-of-a-log-of-a-physical-quantity&quot;&gt;this question&lt;/a&gt;, the log transformation of a variable is dimensionless. In consequence, $\ln{w_{i}}$ is dimensionless. &#xA;&lt;strong&gt;Question 2&lt;/strong&gt;: does this imply that $\alpha, \zeta_{i}$ and $e_{i}$ are also dimensionless? Is the composite $\beta x_{i}$ dimensionless? If so, the dimension of $\beta$ is &quot;1 over years of experience&quot;(!). How it is then that we can interpret $\beta$ as the % change in wage following a extra year of education? &lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-07-19T07:27:41.727" LastActivityDate="2017-07-19T07:27:41.727" Title="Interpretation of regression coefficients with and without logs" Tags="&lt;econometrics&gt;&lt;applied-econometrics&gt;&lt;wages&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12622" PostTypeId="1" CreationDate="2016-07-04T16:57:39.413" Score="2" ViewCount="74" Body="&lt;p&gt;I have an intermediate sector that operates using labor only. There is 1-1 pairs between firms and workers, with profits&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\pi = (Ap - w)\cdot 1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$p$ is the price, $A$ productivity, $w$ wage. Entrance to this market comes through a Mortensen Pissarides matching market, where vacancies and unemployed meet. Free entry and search cost $c$ implies &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{c}{q(\theta)} = \pi $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $q(\theta)$ is the matching rate given market tightness.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is matching on the final goods market happening as well, which is why there is a free-entry given search cost $k$ to becoming a final goods producer. The details are not important here, but the final goods producer operate without using labor. Let $e$ denote the measure of intermediate firms (since it's also the employment rate), and $s$ the measure of final firms. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm wondering how prices are determined here. Wages are given by Nash bargaining, such that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ w = \arg\max_{\tilde w} \beta \log (\tilde w - U) + (1 - \beta) \log(\pi(\tilde w))$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;for some outside-option value $U$. However, I wonder how the price of the intermediate good $p$ is determined, given that firms of both sides ($e$, $s$) have &lt;em&gt;some&lt;/em&gt; market power. I'm happy to do additional assumptions if necessary, as long as the approach is in line with what has been done in the literature.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To be frank, I don't care about details on this margin at all, I just need closure.&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2016-08-05T09:58:29.377" Title="Price when both supply and demand have market power" Tags="&lt;macroeconomics&gt;&lt;industrial-organisation&gt;&lt;oligopoly&gt;&lt;search-and-matching&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12623" PostTypeId="2" ParentId="1877" CreationDate="2016-07-04T18:06:58.753" Score="2" Body="&lt;p&gt;In the question, answers, and comments, I saw a few references to the potential problem/issue with negative WW index values. Since this caused me some trouble years ago, let me share with you what I found out when I asked Toni Whited about this at a conference one time. I told her that all my WW index numbers were coming out negative--why would this be? She told me that in the editing process for the manuscript at RFS, a constant that belongs in the index was inadvertently omitted. She said to add 0.65 to the formula (13) as listed in the paper and you will have the &quot;true&quot; WW index. (This number is visible in their Table 1, column 4, first row, for $\alpha_1$. This constant also shows up as $b_0$ on the right hand side in equation 12.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know this is a very late answer, but maybe it will help out some other poor researcher down the line who is also beating their head against a wall.&lt;/p&gt;&#xA;" OwnerUserId="8728" LastEditorUserId="8728" LastEditDate="2016-07-04T18:59:57.430" LastActivityDate="2016-07-04T18:59:57.430" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12624" PostTypeId="2" ParentId="4686" CreationDate="2016-07-04T20:15:47.430" Score="-1" Body="&lt;p&gt;This is an issue I've considered from many angles for a long time. I'm not an expert and can't say I have all the answers but some things to consider:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) Everything is a representation of light, i.e. in theory, we're already using light's derivative (e.g. fossil fuels). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;We go through locating,  extracting, processing, distributing (with countless other bureaucratic steps) to unleash the energy. All of those added steps inflates the volume, but is still fundamentally backed by the release of electrons and photons.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Still, the very act of processing dilutes the value (while creating what are virtual temporary jobs, wealth, and industry). The value must then be recovered by the Consumer converting the stored energy back into kinetic energy and uses it in whatever way.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's the Foundation upon which the Global Economy is based but very inefficient. Most of the stored energy is lost during the Processes, literally eliminating the value of the commodity!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) The Value, then, of light is intrinsic, i.e. utilitarian. &quot;Scarcity&quot; is achieved through access to energy collection, distribution, and conversion. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;3) An interim economy (which could last 50-100 years!) is created through the gradual transition from a carbon based to renewable energy economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've used solar as the example because it is essentially limitless. Furthermore, wireless transmission from space reduces distribution cost immeasurably. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Still, I see that as the eventual goal (like a fusion reactor) and will require enormous capital expenditures and international cooperation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Until then, we must rely upon alternative sources to supplement when the Sun isn't shining or the Wind isn't blowing. Geothermal and wave produced energy are great but also require tremendous investment and are not as readily available, especially in the heartland. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've no doubt we will figure it out but, until then, our partian dependence on fossil fuels will remain which, imho, is not altogether bad. We'll always need the derivatives of petrol conversion, such as oils and plastics, but more importantly they are a back up plan.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In case some unforeseen catastrophe occurs, such as the Sun stops shining, the Moon disappears taking the tides with it, the atmospheric reaches a steady pressure elimination wind, gravity ceases causing water to sit still. Sounds like a movie, huh? Nearly impossible but still good to have a back up plan.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;4) The biggest problem (and threat) exists in people's greed and short sightedness. Theoretically, improving the efficiency of harnessing renewable energies would increase the value of the &quot;Joule&quot; (hypothetical unit of energy currency) while expanding its use creates a natural expansion of the currency's supply.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Furthermore, without being able to actually use such energy is negligible without a concerted effort to produce new technologies for every aspect of life! Such a reality creates an opportunity for new and existing companies to transition from carbon based to renewable. Other promising sources, like compressed and liquid natural gas, can serve as a transition fuel from carbon based to renewables.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Improving the efficiency and availability of renewable energies are incentives to continue exploring and improving upon technologies. Unfortunately, there are many who would work vehemently to slow and event prevent such innovations from taking place.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Yet, demand will necessitate supply which is totally opposite the Supply Side Economics of the past three (plus) decades. Many point out that it takes petrol based technologies to produce the means of utilizing renewable energies. That is true but that is a one time (or limited) is investment. No doubt the kerosene lantern was developed to candle light. As it should be-technologies lead to their eventual replacement.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Many also complain about the tax credits and incentives put in place to help make renewables viable. Yet, they conveniently forget that it was, and remains to be, such favorable taxation that has allowed the carbon based economy to flourish!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I fear, until our entire monetary system collapses, cronyism will prevent the natural transition from one source of energy to another. That is all about power: power corrupts and absolute power corrupts absolutely.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Still, there are more wireless devices than there are people in the World and, once satellites beam internet service to every inch of the Earth's Surface, every person on earth with a wireless device in hand will become a consumer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course, it requires easy access to obtain information, awareness of one's freedom, and the Liberty to act upon one's will to be truly free. Consumption requires production, distribution, and maintenance and, if the Free Market is allowed to function properly-as a reflection of people's Free Will-it seems practically inevitable that an energy based currency becomes the Global Standard in the Next Century.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Such a commodity based currency, based upon renewable energy, holds the potential to unite people as never before and be the Greatest Innovation in the History of Mankind after fire. Like fire, it has near perfect application, near limitless scale, and immeasurable benefits for every person in every country. It will allow us to address the shortages in the World and is our means to reaching other planets and beyond our solar system.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The only Question is if &quot;The Power of the Joule&quot; will rest in the hands of All, or in those of only a few. The Answer will be one we all decide together.&lt;/p&gt;&#xA;" OwnerUserId="8729" LastActivityDate="2016-07-04T20:15:47.430" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12625" PostTypeId="2" ParentId="12178" CreationDate="2016-07-04T21:18:12.300" Score="1" Body="&lt;p&gt;It is one and the same thing. Notation might be different. &lt;/p&gt;&#xA;" OwnerUserId="5582" LastActivityDate="2016-07-04T21:18:12.300" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12626" PostTypeId="1" CreationDate="2016-07-05T00:04:53.643" Score="8" ViewCount="1318" Body="&lt;p&gt;I was wondering if it is possible to run a country based &lt;strong&gt;only&lt;/strong&gt; on &lt;strong&gt;domestic economy&lt;/strong&gt; and not to enter the world economy. Basically, if certain economy of a certain country fails and poses threat to world economy, can other countries seal off their economies and still function with sustained growth and flourishing markets based on domestic economy itself?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know this a naive question, but I tried to find an answer on on the internet and didn't get a satisfactory answer.&lt;/p&gt;&#xA;" OwnerUserId="8734" LastEditorUserId="1601" LastEditDate="2021-05-12T11:09:57.650" LastActivityDate="2021-05-12T11:09:57.650" Title="Can a closed economy flourish?" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;&lt;international-trade&gt;&lt;international-economics&gt;&lt;nonexpert&gt;" AnswerCount="3" CommentCount="6" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12627" PostTypeId="1" AcceptedAnswerId="22707" CreationDate="2016-07-05T01:27:13.353" Score="3" ViewCount="424" Body="&lt;p&gt;Is diminishing nature of utility function in consumer theory stemming from the assumption of convexity on the preference relation $\succsim$?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My understanding is:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;$\succsim$ is convex. Then, $u(.)$ is quasiconcave. By the definition of quasiconcavity, the indifference sets are convex. Also, by another definition of quasiconcavity, the cross-section of the utility function versus a commodity shows a concave function indicating the diminishing nature of utility in any good $x$.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="8560" LastEditorUserId="2776" LastEditDate="2017-04-24T06:06:52.537" LastActivityDate="2018-11-06T23:00:32.597" Title="Diminishing Nature of Utility Function From Convexity of Preference $\succsim$?" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;consumer-theory&gt;&lt;preferences&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12628" PostTypeId="2" ParentId="12626" CreationDate="2016-07-05T06:42:13.003" Score="8" Body="&lt;p&gt;It depends on what you mean by &quot;sustained growth&quot; and &quot;flourishing markets&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Clearly the Earth as a whole is a big market. If you do not look at human made borders: the global economy is currently growing and some would say it is flourishing. There is no physical reason why this could not be done without the borders.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are areas where the current technology cannot support the current population without outside help. An example is the heavily industrialized North Korea (which seems to motivate your question) which gets large amount of aid in food from the UN.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2016-07-05T06:42:13.003" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="12629" PostTypeId="2" ParentId="12091" CreationDate="2016-07-05T08:32:32.677" Score="1" Body="&lt;p&gt;The appropriate role of government is to improve on free activity of the market by improving how the market works (ie fixing market failures). For skill certifications to be an appropriate role for government, such certification would have to be a public good, which would require that it creates a positive externality - a value given to someone that hasn't paid for it. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the case of skill certification, there certainly is no positive externality. It's easy and in fact very often done in the free market. There are a myriad of certification programs, schools that give degrees, and tests you can take that provide some proof of skill. All of these things can be done with your usual buyer-seller relationship without any externalities happening. Therefore the government doesn't have a role to play there.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I wrote a whole article on the appropriate role of government, which might clarify things for you: &lt;a href=&quot;https://governology.wordpress.com/2016/07/05/the-role-of-government-part-1/&quot; rel=&quot;nofollow&quot;&gt;https://governology.wordpress.com/2016/07/05/the-role-of-government-part-1/&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="6149" LastActivityDate="2016-07-05T08:32:32.677" CommentCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="12631" PostTypeId="2" ParentId="9987" CreationDate="2016-07-05T08:55:44.497" Score="0" Body="&lt;p&gt;Your economic text book sounds poorly written. To be fair, it sounds like &lt;em&gt;most&lt;/em&gt; econ textbooks are. The quote you wrote is a terrible circular definition of externality. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Certainly not all activities cause externalities, at least not significant ones. If I buy a rock from you, there's no externality. No one else is involved. Now you might have gotten that rock by stealing, which would be an externality, but presumably you got it off your own property or bought it from someone else who did that. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If social cost exceed social benefit, then you certainly have a failure. But in such a case its likely a government failure - markets can't really produce negative net benefit. That is, unless you consider violent groups (like gangs) to be market actors. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ubiquitous's definition is correct enough, but I would define it more specifically:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Given a particular economic environment, market failure is a situation&#xA;  where the motivations of market-actors incentivizes behaviors that&#xA;  prevent the market from eventually reaching maximally efficient&#xA;  activity, or incentivizes behaviors that prevent the market from&#xA;  eventually reaching the maximum possible rate of efficiency increase.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Most writing on market failures have all sorts of myths and misconceptions baked into them. Ubiquitous listed the following things that are &lt;em&gt;not&lt;/em&gt; actually market failures: information asymmetries, market power, and missing markets.  None of those things are market failures because they don't prevent optimal allocation of products. For example, there's a reason some markets don't exist - we even have a phrase for it: &quot;there's no market for it&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A lot of things that seem like market failures aren't when you consider the costs. Like information asymmetry. There is a cost to getting information and ensuring equal information. That cost may exceed the value. Without recognizing where there are costs, you can't understand what &quot;optimal&quot; is. Optimal is the theoretical &quot;perfect market&quot;. Optimal is a real achievable alternative.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;Is market failure constant?&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I'm unclear about what you mean, but the answer is almost certainly no. When and how much market failure happens depends on the market environment, which is combination of the legal and social landscapes. If you change a law, you change where and how often market failures. Weird social pressures can do the same, as Freakonomics will attest to.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I wrote a full article on this topic here: &lt;a href=&quot;https://governology.wordpress.com/2016/07/05/the-role-of-government-part-1/&quot; rel=&quot;nofollow&quot;&gt;https://governology.wordpress.com/2016/07/05/the-role-of-government-part-1/&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="6149" LastActivityDate="2016-07-05T08:55:44.497" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12632" PostTypeId="2" ParentId="11390" CreationDate="2016-07-05T09:35:53.863" Score="1" Body="&lt;p&gt;A market failure is when some economic structure prevents the market from achieving optimal efficiency. A critical part of how the market tends toward its optimal efficiency is via competition. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If there is no situation where more than one company could be profitable, you would have a monopoly but it wouldn't be a market failure, since that's the best you could do. Its entirely possible that this situation doesn't really exist. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If there's a situation where more than one company &lt;em&gt;can&lt;/em&gt; be profitable, but that monopoly either has a government grant or uses violent coercion to keep its monopoly position, that is a case of government failure, since a government is either directly (with a grant) or indirectly (by failing to prevent violence) causing the monopoly. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then you have situations where you have a structural, or natural monopoly, where every additional customer either reduces the cost of production or increases the value of the product (network effects). In certain cases, it may be unfeasible for another company to compete because the risk of failure is too high in comparison to the potential reward of success. For example, if you build a network of railroads in an area, the cost of building a new network might exceed the profits that company could expect to make. The monopoly could refuse to allow competitors to connect to its network, keeping its monopoly rents for itself. But if the situation were restructured where the monopoly was required to allow 3rd party connections, or if trains were operated only by companies that didn't own tracks, additional competition could improve the market. Since that almost never happens, a monopoly puts an opportunity cost on potential competitors, keeping them out of the market. This opportunity cost is in essence a negative externality, which is an obvious market failure.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The usual alleged market failure often associated with monopolies is the deadweight loss triangle that Ubiquitous mentioned. The idea is that the monopoly will set a price that's too high, such that the market loses out on some beneficial trades. But, it's been shown that practice of price discrimination (which is widespread in reality) eliminates this dead weight loss. More information on that can be found here: &lt;a href=&quot;https://www.independent.org/pdf/tir/tir_10_3_02_shmanske.pdf&quot; rel=&quot;nofollow&quot;&gt;https://www.independent.org/pdf/tir/tir_10_3_02_shmanske.pdf&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I wrote an article on market failure that included some analysis of monopolies: &lt;a href=&quot;https://governology.wordpress.com/2016/07/05/the-role-of-government-part-1/&quot; rel=&quot;nofollow&quot;&gt;https://governology.wordpress.com/2016/07/05/the-role-of-government-part-1/&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="6149" LastActivityDate="2016-07-05T09:35:53.863" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12633" PostTypeId="1" AcceptedAnswerId="12634" CreationDate="2016-07-05T14:59:33.780" Score="2" ViewCount="91" Body="&lt;p&gt;I wonder how to analyze the following problem.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose we play a one-shot game. We have two options. We can either get $x$ dollars or win $y$ dollars with probability 50% (or, probably, win nothing with the same chances). What is the minimal value that the game-designer should assign to $y$ to make you to choose the second option?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The game is one-shot. It means there is no way to play it several times. It works for me in the following way:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;if $x$ is 50 cents, I'm ready for \$1 at $y$;&lt;/li&gt;&#xA;&lt;li&gt;if $x$ is \$100 dollars, \$300 will be enough.&lt;/li&gt;&#xA;&lt;li&gt;if $x$ is \$100M, I won't choose the second option.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;I suppose the decision depends on your income, your tendency to risk and so on. So what factors are essential for rational decision? And how to compute $y(x)$?&lt;/p&gt;&#xA;" OwnerUserId="8738" LastActivityDate="2016-07-06T19:21:56.287" Title="Trade-off between determenistic and random alternatives in a one-shot game" Tags="&lt;game-theory&gt;&lt;decision-theory&gt;" AnswerCount="1" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="12634" PostTypeId="2" ParentId="12633" CreationDate="2016-07-05T16:13:42.217" Score="2" Body="&lt;p&gt;Let's assume that the player is an expected utility maximizer, and that the utility they get from a payoff of $\$z$ is $u(z)$, for any $z$ in $\mathbb{R}$ such that $u$ is strictly increasing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You are &lt;em&gt;essentially&lt;/em&gt; asking about certainty equivalents. Call $\sigma$ the gamble that pays $y$ with probability $\frac{1}{2}$ and $0$ with probability $\frac{1}{2}$. Then, the utility of the $\sigma$ (under the EU hypothesis) is $U(\sigma) = \frac{1}{2}u(y) + \frac{1}{2}u(0)$. This means that the player is indifferent between this gamble and getting $u^{-1}(\frac{1}{2}u(y) + \frac{1}{2}u(0)) = u^{-1}(U(\sigma))$ for sure. This is called the &lt;strong&gt;certainty equivalent&lt;/strong&gt; of $\sigma$. Notice, $U$ transforms a gamble over monetary payoffs into utilities, and $u^{-1}$ transforms the utilities back into monetary payoffs. If $x$ is a constant gamble then $u^{-1}(U(x)) = u^{-1}(u(x)) = x$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If $x$ is larger than the certainty equivalent of $\sigma$, the player will choose $x$. You are asking the inverse (if $CE: \sigma \mapsto u^{-1}(U(\sigma))$ you are interested in $CE^{-1}$). Nonetheless the underlying mechanics are the same, once the utility function has been specified. The $y$ you are interested in satisfies&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ y = u^{-1}(2u(x) - u(0)).$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The deeper question here, however, is how is the certainty equivalent related to the gamble itself. In general (for a very ugly $u$), not much can be said. However, it is common practice to make some structural assumptions on $u$ to answer the questions you are asking. For example, what if we assume the utility index is differentiable and concave, for example $u(x) = ln(x)$. Then it is relatively straightforward to show that $y(x)$ is increasing and convex (loosely speaking, the relative difference between $x$ and $y$ is increasing, as suggested in your post, although it does not capture the complete reluctance to choose the risky prospect in the third example (although this can be captured by other, more complicated models)).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is worth noting, all of this assumes EU, which while extensively used in applications, especially game theory, is not without its empirical failures. There are many other &quot;psychological&quot; models which might provide a different resolution to your inquiry.&lt;/p&gt;&#xA;" OwnerUserId="398" LastEditorUserId="398" LastEditDate="2016-07-06T19:21:56.287" LastActivityDate="2016-07-06T19:21:56.287" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12635" PostTypeId="2" ParentId="10513" CreationDate="2016-07-05T16:37:52.967" Score="8" Body="&lt;p&gt;As alluded to in the comments the distinction is roughly:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Indifference: The decision maker &lt;em&gt;knows&lt;/em&gt; she will receive the same utility from the consumption of $x$ or $y$.&lt;/li&gt;&#xA;&lt;li&gt;Incompleteness: The DM &lt;em&gt;does not know&lt;/em&gt; her preference between $x$ and $y$. (Note, this could stem from a lack of information, or because no preference exists)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;So, from a conceptual vantage, the difference is that indifference is the existence of knowledge, whereas incompleteness is a lack of knowledge. While interesting in a foundational/philosophical sense, the distinction is subtle and likely not the reason economists have spent so much thought on the subject. However, the difference has behavioral implications! and this is important for economics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, imagine various choices between &quot;pizza&quot;, &quot;hot dog&quot;, or &quot;hot dog and $\$0.05$&quot;. Perhaps, the decision maker has never had pizza or hot dogs and therefore finds them incomparable. As such, from the choice set $\{p,h\}$ she would choose either (since neither option is known to be inferior&lt;sup&gt;[1]&lt;/sup&gt;). So $C(\{p,h\}) = \{p,h\}$.  Now, the decision maker also likes money, so although she does not know her preference for a hot dog, she will always choose more money to less, all else equal: $C(\{h, h+5\}) = \{h+5\}$. But her indecisiveness regarding the two foods might not be resolvable for 5 cents, so, it is reasonable that $C(\{p, h, h+5\}) = \{p, h+5\}$. But this violates the weak axiom of revealed preference. Such a choice function cannot be rationalized by a complete and transitive relation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Notice if the decision maker was actually indifference between $h$ and $p$ then, $C(\{p, h, h+5\}) = \{h+5\}$. In summary: incompleteness can cause &quot;thick&quot; indifference curves, and this can violate the basic tenets of rational choice theory.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;[1] There are other interpretations of choice under incompleteness, for example, allowing the choice function to return an empty set. &lt;/p&gt;&#xA;" OwnerUserId="398" LastActivityDate="2016-07-05T16:37:52.967" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12636" PostTypeId="1" AcceptedAnswerId="12643" CreationDate="2016-07-05T20:13:41.983" Score="1" ViewCount="156" Body="&lt;p&gt;The following equations are taken from Ravenna, walsh: &quot;Optimal Monetary Policy with Unemployment and Sticky Prices&quot; (2011).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(i)$$\frac{Z_{t}}{\mu_{t}} = w_t + \frac{\kappa}{q_{t}} - (1-\rho)E_{t}(\frac{1}{R_{t}})(\frac{\kappa}{q_{t+1}}) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(ii) $$ w_{t} = w^u + (\frac{b_t}{1-b_t})(\frac{\kappa}{q_t}) - (1-\rho)E_t(\frac{1}{R_t})(1-p_{t+1})(\frac{b_{t+1}}{1-b_{t+1}})(\frac{\kappa}{q_{t+1}}) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$ \phi $...  wage replacement rate&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$b_t$... surplus bargaining share of a worker&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$Z_t$... exogenous productivity shock ($\bar{Z}=1$)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\mu_t$... retail price mark up&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\kappa$... post of posting a vacancy&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\rho$... Share of matches $N_{t-1}$ that loses its jobs in t&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$q_t$... probability that a firm will fill its vacancy&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\lambda_t$... marginal utility of consumption&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac{1}{R_t} \equiv \beta(\frac{\lambda_{t+1}}{\lambda_t})$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$p_{t+1} \equiv \frac{m_t}{u_t}$... job finding probability with $m_t$ matches and $u_t$ unemployed ones&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\beta$... discount factor&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$w^u = \phi w $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given the last identity, (i) and (ii) could be used to jointly solve  for $\kappa$ and $w$. At least this is suggested in the paper by the atuhors.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(ii) $w_t = \phi w_t + (\frac{b_t}{1-b_t})(\frac{\kappa}{q_t}) - (1-\rho)E_t(\frac{1}{R_t})(1-p_{t+1})(\frac{b_{t+1}}{1-b_{t+1}})(\frac{\kappa}{q_{t+1}})$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&amp;lt;=&gt; $w_t = \frac{(\frac{b_t}{1-b_t})(\frac{\kappa}{q_t}) - (1-\rho)E-t(\frac{1}{R_t})(1-p_{t+1})(\frac{b_{t+1}}{1-b_{t+1}})(\frac{\kappa}{q_{t+1}})}{1-\phi}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Put into (i) to eliminate $w_t$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac{Z_{t}}{\mu_{t}} = \frac{(\frac{b_t}{1-b_t})(\frac{\kappa}{q_t}) - (1-\rho)E_t(\frac{1}{R_t})(1-p_{t+1})(\frac{b_{t+1}}{1-b_{t+1}})(\frac{\kappa}{q_{t+1}})}{1-\phi} +\frac{\kappa}{q_{t}} - (1-\rho)E_{t}(\frac{1}{R_{t}})(\frac{\kappa}{q_{t+1}}) $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&amp;lt;=&gt; $\frac{Z_{t}}{\mu_{t}}(1-\phi) = (\frac{b_t}{1-b_t})(\frac{\kappa}{q_t}) - (1-\rho)E_t(\frac{1}{R_t})(1-p_{t+1})(\frac{b_{t+1}}{1-b_{t+1}})(\frac{\kappa}{q_{t+1}}) +\frac{\kappa}{q_{t}}(1-\phi) - (1-\rho)E_{t}(\frac{1}{R_{t}})(\frac{\kappa}{q_{t+1}})(1-\phi) $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Rearrange and solve for $\kappa$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac{Z_{t} (1-\phi)}{\mu_{t} ((\frac{b_t}{1-b_t})(\frac{1}{q_t}) - (1-\rho)E_t(\frac{1}{R_t})(1-p_{t+1})(\frac{b_{t+1}}{1-b_{t+1}})(\frac{1}{q_{t+1}}) +\frac{1}{q_{t}}(1-\phi) - (1-\rho)E_{t}(\frac{1}{R_{t}})(\frac{1}{q_{t+1}})(1-\phi)} = \kappa $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&amp;lt;=&gt; $\kappa = \frac{Z_{t} (1-\phi)}{\mu_{t} \big(\big(\frac{1}{q_t}\big)\big[(\frac{b_t}{1-b_t})+(1-\phi)\big] - (1-\rho)\big(\frac{1}{q_{t+1}}\big)E_t\big(\frac{1}{R_t}\big)\Big[(1-p_{t+1})\big(\frac{b_{t+1}}{1-b_{t+1}}\big)+(1-\phi)\big]\big)}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Evaluating this formula arount the steady state yields&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\bar{\kappa} = \frac{(1-\phi)}{\bar{\mu} \big(\big(\frac{1}{\bar{Q}}\big)\big[(\frac{b}{1-b})+(1-\phi)\big] - (1-\rho)\big(\frac{1}{\bar  {Q}}\big)\beta\Big[(1-\frac{\bar{M}}{\bar{U}})\big(\frac{b}{1-b}\big)+(1-\phi)\big]\big)}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since all this parameters and steady state values are well defined I am able to calculate the steady state value of $\kappa$ and hence the one of $w_t$ as well. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I wanted to simulate the related model in dynare. Having a look at the dynare code provided by the authors, I noticed that they made use of a totally diferent approach to calculate the steady state value of $\kappa$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$AAk = \left[{\begin{array}{cc} 1-\phi(1-b) &amp;amp; -\phi b(1-\rho)\beta \bar{\theta}\\ 1-b &amp;amp; (1-\beta(1-\rho))(\frac{1}{\bar{Q}})+ b\beta(1-\rho)\bar{\theta}  \end{array} } \right]$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$BBk = \left[ {\begin{array}{cc} \frac{\phi b}{\bar{\mu}} \\ \frac{(1-b)}{\bar{\mu}} \end{array} } \right] $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$CCk = AAk^{-1}BBk$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\bar{\kappa}=CCk(2)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\theta_t=\frac{v_t}{u_t}$ measures the labor market tightness (relation of vacancies and job seekers)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would like to know whether my derivation of the steady state value for $\kappa$ does make sense and how the authors of the paper derive it?&#xA;I have read the appendix to the paper aswell as the dynare code, but to be hones I do not have an idea of how they calculate $\kappa$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The results of my calculation and the one of Ravenna and Walsh differ significantly.&lt;/p&gt;&#xA;" OwnerUserId="8327" LastEditorUserId="8327" LastEditDate="2016-07-06T12:37:09.287" LastActivityDate="2016-07-06T17:42:25.290" Title="Evaluation around steady state for a specific DSGE Model" Tags="&lt;steady-state&gt;&lt;dsge&gt;&lt;dynare&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12637" PostTypeId="2" ParentId="12626" CreationDate="2016-07-06T06:05:17.677" Score="1" Body="&lt;p&gt;Yes. Sort of. A closed economy can theoretically flourish. But not as much as if were more open. The more trade that occurs, the more prosperous the trading partners will be. Approaching the square of the total amout of available trade.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Metcalfe%27s_law&quot; rel=&quot;nofollow noreferrer&quot;&gt;Metcalfe's Law quantitatively models this answer&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \Theta(n) = \frac {n(n-1)}{2} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $\Theta$ is the number of connections within a network and $n$ is the number of nodes. The total value of the network can be thought of as  the aggregate combined real GDP of the included sub economies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the more economies that trade with the subject economy, the value of the entire network asymptotically approaches $n^2$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \lim_{n \to \infty } \frac{\Theta(n)}{n^2} = 1 $$&lt;/p&gt;&#xA;&#xA;A network modeled by Metcalfe's Law&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/2Wn5u.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/2Wn5u.png&quot; alt=&quot;A network modeled by Metcalfe&amp;#39;s Law&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="8719" LastEditorUserId="8719" LastEditDate="2016-07-06T18:17:23.533" LastActivityDate="2016-07-06T18:17:23.533" CommentCount="12" ContentLicense="CC BY-SA 3.0" />
  <row Id="12638" PostTypeId="2" ParentId="12622" CreationDate="2016-07-06T09:30:41.873" Score="1" Body="&lt;p&gt;I suppose one way to solve this - but I'm still looking for a proper way without - is to fall back to matching.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If there is matching between the intermediate and the final stage, at zero search cost and symmetric arrival rates, the surplus will be split given the Nashbargaining weights - which then determines the price.&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2016-07-06T09:30:41.873" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12639" PostTypeId="1" AcceptedAnswerId="12655" CreationDate="2016-07-06T10:34:38.240" Score="6" ViewCount="1466" Body="&lt;p&gt;There are competing definitions of regressive taxes out there:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;On &lt;a href=&quot;https://en.wikipedia.org/wiki/Regressive_tax&quot;&gt;Wikipedia&lt;/a&gt;:&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;A regressive tax is a tax imposed in such a manner&#xA;  that the tax rate decreases as the amount subject to taxation&#xA;  increases.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;In a textbook I use (Case, Fair, and Oster's &lt;em&gt;Principles of Economics&lt;/em&gt;):&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;A regressive tax is a tax whose burden, expressed as a percentage of income, decreases as income increases.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;By the Wikipedia definition, a sales tax would technically be a proportional tax as the rate is fixed regardless of how the base (consumption) changes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, by the textbook definition, and assuming that households with lower income consume a greater percentage of that income than households with higher income (i.e. have lower savings rates), a sales tax with a fixed rate would be regressive.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You might be inclined to suggest that the textbook was defining it specifically for income taxes where the Wikipedia article is defining it generally. Actually, though, the authors of the text make it clear they mean their definition to be general. They say that they define it in terms of income because &quot;all taxes are ultimately paid out of income.&quot; I think that statement is a bit imprecise, but whatever. They go on to show an example that demonstrates that sales taxes are regressive (conditional on lower-income households saving less).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I agree with them on an intuitive level that sales taxes are regressive. But then why has Wikipedia decided on a definition that is independent of income, with one consequence being that sales taxes are proportional?&lt;/p&gt;&#xA;" OwnerUserId="48" LastActivityDate="2016-07-07T15:07:06.543" Title="Are sales taxes regressive?" Tags="&lt;taxation&gt;" AnswerCount="1" CommentCount="7" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12641" PostTypeId="1" AcceptedAnswerId="12642" CreationDate="2016-07-06T16:41:03.393" Score="23" ViewCount="7083" Body="&lt;p&gt;In Europe it's usual, that fuel prices are 10-20% higher on the highway, than in the city. This is not only my personal observation, but also mentioned on travel sites (eg &lt;a href=&quot;http://www.dutchtravels.net/travel/cheaper-car-fuel.htm&quot;&gt;here&lt;/a&gt; and &lt;a href=&quot;http://about-france.com/driving.htm&quot;&gt;here&lt;/a&gt;). I don't have much expertise in economics, but as I understand this should not be possible in a competitive market, since what would stop a petrol station to lower their prices to the same level as the ones in the city, and get all the customers?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One solution could be, that they are different companies, but even the big ones like Shell and OMV have higher prices on the highway.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is: what is the reason for this situation, and what stops petrol stations from lowering their prices?&lt;/p&gt;&#xA;" OwnerUserId="8750" LastEditorUserId="1601" LastEditDate="2021-05-12T10:55:58.260" LastActivityDate="2021-05-12T10:55:58.260" Title="Why is fuel more expensive on the high way in Europe?" Tags="&lt;microeconomics&gt;&lt;nonexpert&gt;" AnswerCount="5" CommentCount="10" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="12642" PostTypeId="2" ParentId="12641" CreationDate="2016-07-06T17:42:23.037" Score="30" Body="&lt;p&gt;Because there is no indication in your question that you are a student or practitioner of economics, I am writing an answer for a lay audience. Let me know if you would like more technical detail.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;A fairly general prediction from economic models of competition between firms is that the price that maximises their profit is higher the less sensitive is demand to that price (this sensitivity is measured by the &quot;&lt;a href=&quot;https://en.wikipedia.org/wiki/Price_elasticity_of_demand&quot;&gt;price-elasticity of demand&lt;/a&gt;&quot;). Intuitively:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;if demand is very sensitive to price then a cut in price will cause demand to increase a lot. The firm receives less for each unit it sells, but sells very many more units and is better-off overall.&lt;/li&gt;&#xA;&lt;li&gt;if demand is not sensitive to price then the firm can increase price without causing its sales to fall very much and will therefore wish to do so.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;There are lots of things that affect the sensitivity of demand. One example, as DornerA mentioned in a comment, is geographic location. If the nearest competing seller is very far away or inconveniently located then buyers will be reluctant to shop elsewhere, meaning their demand is likely to be less sensitive to price increases at locations that are geographically isolated in some way. This seems like a reasonable way to think of highway fuel stations.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;A little thought should convince you that the same principle (that prices are higher when demand is less sensitive) holds for other cases where demand is price-insensitive too. For example:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;why is food so expensive on trains/airplanes?&lt;/li&gt;&#xA;&lt;li&gt;why are branded goods more expensive than generic ones?&lt;/li&gt;&#xA;&lt;li&gt;why are the photographs from theme park rides so expensive?&lt;/li&gt;&#xA;&lt;li&gt;etc.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Edit: A comment by AndrejaKo reminds me to add that the other very common reason why firms might increase their price is that they have higher costs. However, economics theory predicts that only unit costs (i.e. those that increase when you sell more units) matter for optimal pricing. Thus, for example, the fact that land near a highway is expensive would not seem like a very convincing explanation for high fuel prices (because the land costs the same regardless of how many units of fuel are supplied). But if, for some reason, supplying each litre of fuel was more expensive at highway fuel stations (because, for example, transporting the fuel there is more expensive) then we would indeed have an explanation for higher highway fuel prices.&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2016-07-06T19:08:17.267" LastActivityDate="2016-07-06T19:08:17.267" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12643" PostTypeId="2" ParentId="12636" CreationDate="2016-07-06T17:42:25.290" Score="1" Body="&lt;p&gt;I found the error in my derivation: I mistakenly supposet that the steady state of $p_t+1$ equals $\bar{\rho}$. &#xA;I did not recognize that p was different from $\rho$ because of the poor quality of my printout. &#xA;Reading the paper again on a screen I immediately spotted the mistake. &lt;/p&gt;&#xA;" OwnerUserId="8327" LastActivityDate="2016-07-06T17:42:25.290" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12644" PostTypeId="2" ParentId="12641" CreationDate="2016-07-06T17:43:31.997" Score="3" Body="&lt;p&gt;Two possible reasons:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;There is higher demand on the highway. &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;People on the highway are willing to pay more to stay on the highway (leaving to find another gas station will take time, they might not be familiar with the area, or other reasons). Since they're willing to pay more, the gas stations charge more. &lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;2&quot;&gt;&#xA;&lt;li&gt;Lowering prices might not increase profit. &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Lowering the price might increase the quantity of gas or petrol sold, but it might not increase the quantity enough relative to the decrease in price. For example, dropping the price by 10% might only increase the amount of gas sold by 5%. Your overall revenue would decrease. &lt;/p&gt;&#xA;" OwnerUserId="8637" LastActivityDate="2016-07-06T17:43:31.997" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="12645" PostTypeId="1" AcceptedAnswerId="12753" CreationDate="2016-07-06T18:01:34.897" Score="0" ViewCount="1478" Body="&lt;p&gt;Normally, in the very basic endogeneous model of growth. It is said that all variables grow at a constant rate. &#xA;Let's take the basic capital accumulation ; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\dot{K}=Y-C$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I write this in following way ;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$g_{K}=\frac{\dot{K}}{K}=\frac{Y}{K}-\frac{C}{K}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Normally, at balanced growth path (BGP), $g_{K}$ grows at a constant value (an arbitrary constant)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this case, this means that variation of $g_{K}$ according to time at BGP should be equal to zero.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So ; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{dg_{K}^{BGP}}{dt}=\left(g_{Y}-g_{K}\right)-\left(g_{C}-g_{K}\right)=0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which implies at BGP ;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$g_{Y}=g_{K}=g_{C}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this reasoning correct ? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Because in fact, it seems me weird to differentiate a growth rate $g_{K}$ according to time.&lt;/p&gt;&#xA;" OwnerUserId="2938" LastActivityDate="2016-07-18T12:11:50.923" Title="Growth rate of variables on a balanced growth path (BGP)" Tags="&lt;economic-growth&gt;&lt;endogenous-growth&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12646" PostTypeId="2" ParentId="12641" CreationDate="2016-07-06T18:32:47.287" Score="5" Body="&lt;p&gt;Convenience premium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The market prices in a premium for convenience. This explains why hot dogs cost more inside the ballpark than at the convenience store outside the ballpark. And why convenience store goods cost more than those sold at the supermarket.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Put another way: Part of the cost of an item is not just the cost of materials and labor to get it there, but there is also a cost of &lt;em&gt;availability&lt;/em&gt;. In other words, when you don't purchase the gas on the highway, the cost of it being available there is still present. Which you pay when you buy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note: This answer agrees with the price elasticity explanation given by @Ubiquitous but avoids the &lt;strong&gt;&lt;em&gt;price elasticity&lt;/em&gt;&lt;/strong&gt; concept in favor of the perhaps more lay concept of &lt;strong&gt;&lt;em&gt;convenience premium&lt;/em&gt;&lt;/strong&gt;.&lt;/p&gt;&#xA;" OwnerUserId="8719" LastEditorUserId="8719" LastEditDate="2016-07-06T23:38:22.840" LastActivityDate="2016-07-06T23:38:22.840" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12647" PostTypeId="2" ParentId="3379" CreationDate="2016-07-07T00:29:32.333" Score="7" Body="&lt;p&gt;There is some concern about the interest rates (currently at -0.5%) fueling a housing bubble in Sweden. &lt;a href=&quot;https://fixedincome.fidelity.com/ftgw/fi/FINewsArticle?id=201607060607DOWJONESDJONLINE000271&quot; rel=&quot;noreferrer&quot;&gt;This article at Fidelity&lt;/a&gt; states:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In a bid to track the ECB, Sweden has cut its interest rate below&#xA;  zero, a radical move that involves charging banks to hold some types&#xA;  of deposits with the aim of encouraging them to lend.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Similar trends have emerged in other small, open economies, such as&#xA;  those of Denmark and Switzerland, which also have subzero rates.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;In Sweden, the central bank governor has warned that the low rates&#xA;  could be creating a housing price bubble.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;A reason why this risk exists in particular for Sweden is because the regulation has allowed the borrower to pay only the interest on common mortgage types, and since the interest rates have been very low for many years, the sizes of these payments have been low.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These mortgages are referred to as &quot;Swedish style mortgages&quot; in &lt;a href=&quot;http://www.riksbank.se/Documents/Rapporter/Working_papers/2015/rap_wp298_150430.pdf&quot; rel=&quot;noreferrer&quot;&gt;this report&lt;/a&gt; published by the Swedish Central Bank (dated April 2015).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Overall the situation has stimulated borrowing and fueled the growth of the overall indebtedness of the households. Above report states on p. 4 that:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Sweden, in particular, has seen household indebtedness rise from 90%&#xA;  of disposable income in 1995 to 172% in 2014&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Current situation is still as described as on page 14 in the &lt;a href=&quot;http://www.imf.org/external/pubs/ft/scr/2014/cr14262.pdf&quot; rel=&quot;noreferrer&quot;&gt;Sweden - Selected Issues&lt;/a&gt; paper published by the IMF (dated August 2014), shown in below image.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/MAHzP.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/MAHzP.png&quot; alt=&quot;increase of unamortized mortgages in Sweden until 2012&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On p.15 this IMF report states that:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;ol start=&quot;17&quot;&gt;&#xA;  &lt;li&gt;If progress under the current voluntary approach remains limited, a binding maximum amortization period for new mortgages would be&#xA;  helpful. Swedish banks are working to raise amortization through&#xA;  voluntary means. However, the picture remains largely unchanged. The&#xA;  share of new mortgages granted in 2013 that has an amortization plan&#xA;  has remained broadly constant from 2012. And, of the existing mortgage&#xA;  stock, a significant 40 percent of households either increased or did&#xA;  not decrease their debt in 2013. For the remaining 60 percent of&#xA;  households, it would take 100 years to fully pay down their debt if&#xA;  they continued to amortize at current speeds.&lt;/li&gt;&#xA;  &lt;/ol&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In fact they attempted to regulate the mortgages last year but according to &lt;a href=&quot;http://www.thelocal.se/20150423/swedish-watchdog-scraps-new-mortgage-rules&quot; rel=&quot;noreferrer&quot;&gt;this article&lt;/a&gt; it looks like the proposed changes were rejected by an appeals court. The article states that&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Under the original plans, customers would have been asked to pay two&#xA;  percent of the value of their mortgage every year until they had&#xA;  repaid 30 percent of the loan. They would then have been required to&#xA;  pay at least one percent a year until they hit the 50-percent mark.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;But the watchdog backtracked after an administrative court of appeal&#xA;  in Jönköping in southern Sweden suggested that the proposed changes&#xA;  were not supported by Swedish law.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I am not sure however if they were able to pass that law later in some modified form.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Understandably the current level of indebtedness poses a large risk for the banks in the event of a downturn on the housing markets. However the already existing debt levels (as discussed in &lt;a href=&quot;http://www.riksbank.se/Documents/Rapporter/Ekonomiska_kommentarer/2014/rap_ek_kom_nr01_140507_eng.pdf&quot; rel=&quot;noreferrer&quot;&gt;this report&lt;/a&gt;) in comparison to disposable income may make it difficult to implement drastic changes to the regulations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reason for the interest-rate cut you asked about seems to have been to avoid further deflation. One of the consequences of this has been, according to &lt;a href=&quot;http://www.ft.com/cms/s/0/8961b57c-3872-11e6-a780-b48ed7b6126f.html#axzz4DrvAVL4L&quot; rel=&quot;noreferrer&quot;&gt;this article&lt;/a&gt;, an overall increase in house prices. So while at least two of the symptoms of a housing bubble (high prices and high levels of household debt) are present in Sweden, there are also factors that play against a US-style mortgage crisis, such as:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;The ability of households to make interest-only mortgage payments&#xA;without penalty for an extended period.&lt;/li&gt;&#xA;&lt;li&gt;Large amounts of recent immigrants (refugees from mainly the middle&#xA;east) that will require housing. In addition to this Sweden already&#xA;had low levels of new construction even before the latest influx of&#xA;immigrants.&lt;/li&gt;&#xA;&lt;li&gt;The relatively small size of the country; people tend to not move&#xA;geographically as far away as in USA for reasons such as employment and may stay at a particular address longer.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Update:&lt;/strong&gt; According to &lt;a href=&quot;http://www.telegraph.co.uk/personal-banking/mortgages/sweden-cuts-maximum-mortgage-term-to-105-years-the-average-is-14/&quot; rel=&quot;noreferrer&quot;&gt;this article&lt;/a&gt;, Sweden did change the maximum length of a mortgage to 105 years earlier this year.&lt;/p&gt;&#xA;" OwnerUserId="8659" LastEditorUserId="8659" LastEditDate="2016-07-09T13:32:10.083" LastActivityDate="2016-07-09T13:32:10.083" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12648" PostTypeId="2" ParentId="12641" CreationDate="2016-07-07T02:39:18.393" Score="13" Body="&lt;p&gt;There are two separate groups of customers for fuel: private individuals and commercial businesses. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The drivers of most vehicles used for business are not paying for the fuel themselves, so they are more influenced by the convenience of using fuel stations that are easy to find and are on the routes that they are already driving - i.e. on main roads.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the UK, fuel prices are often higher on motorways than on other main roads, because commercial drivers using a motorway for high speed journeys are not going to waste time by leaving the motorway to buy fuel and then returning to it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand private individuals are more likely to search out cheap fuel, especially if they can buy it easily while making some other car journey.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That explains why in the UK, the large supermarket chains sell relatively cheap fuel compared with &quot;main road&quot; prices. Most private motorists regularly visit supermarkets by car to shop, and while they are there it is convenient to buy fuel as well. The supermarket needs a large area of land for the store itself and for car parking, and the extra space needed for a fuel station is small. They can offset the reduced profit margin from their cheaper fuel price by the increase in sales volume, and encourage customer loyalty by including fuel sales on their store loyalty cards and similar promotional offers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Incidentally, &lt;em&gt;non-commercial&lt;/em&gt; professional drivers sometimes &lt;em&gt;do&lt;/em&gt; search out cheap fuel. At my local supermarket, it's quite common to see a police car, and sometimes even an ambulance, filling up at the pumps.&lt;/p&gt;&#xA;" OwnerUserId="8757" LastActivityDate="2016-07-07T02:39:18.393" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12649" PostTypeId="2" ParentId="10361" CreationDate="2016-07-07T10:29:34.540" Score="3" Body="&lt;p&gt;Considering this is an Economics Stack Exchange site, I’m going to answer in the spectre of Financial Economics. These are the most foundational equations and ideas of Financial Economics to understand more complex applied or academic research.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;1. Gross yield&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The gross yield is the yield on an investment before the deduction of taxes and expenses.&#xA;$$1+R_{t+1}=\frac{P_{t+1}+D_{t+1}}{P_t}$$&#xA;$R_{t+1}$: net yield&#xA;$P_{t+1}$: price of the financial asset&#xA;$D_{t+1}$: dividend&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;2. Present Value&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Present value ($PV$) is the current worth of a future sum of money or stream of cash flows given a specified rate of return.&#xA;$$PV=\frac{FV_n}{(1+R)^n}$$&#xA;$FV$: future value $R$: interest rate &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;3. Gordon’s growth model&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Gordon growth model is used to determine the intrinsic value ($V_0$) of a stock based on a future series of dividends ($D_0$) that grow at a constant rate ($g$).&#xA;$$V_0=D_0 \frac{1+g}{R-g}$$&#xA;$R$: interest rate&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;4. Bond pricing&lt;/strong&gt;&#xA;The price of a bond is the sum of the present values of all expected coupon payments plus the present value of the par value at maturity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$P_{bond}= \sum_{t=1}^T \frac{\text{Interest}}{(1+r_{it})^2}+\frac{\text{Par Value}}{(1+r_{iT})^2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;5. Duration&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. Given the relation between present value, future cash-flow and yield to maturity:$$PV=\frac{\sum CF_t}{(1+YTM)^t}$$&#xA;The second order Taylor polynomial is the following:&#xA;$$dPV=\underbrace{&#xA;                \left( &#xA;                      \frac{dPV}{dYTM}&#xA;                \right)dYTM}_{\textbf{Duration}}+&#xA;\underbrace{\left( &#xA;                      \frac{1}{2}&#xA;                \right)&#xA;                \left( &#xA;                      \frac{d^2 PV}{dYTM^2}&#xA;                \right)dYTM^2}_{\text{Convexity}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$YTM$: yield to maturity&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;6. Convexity&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For any given bond, a graph of the relationship between price and yield is convex. This means that the graph forms a curve rather than a straight-line (linear). The degree to which the graph is curved shows how much a bond's yield changes in response to a change in price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$dPV=\underbrace{&#xA;                \left( &#xA;                      \frac{dPV}{dYTM}&#xA;                \right)dYTM}_{\text{Duration}}+&#xA;\underbrace{\left( &#xA;                      \frac{1}{2}&#xA;                \right)&#xA;                \left( &#xA;                      \frac{d^2 PV}{dYTM^2}&#xA;                \right)dYTM^2}_{\textbf{Convexity}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;7. Liquidity premium&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A premium that investors will demand when any given security cannot be easily converted into cash, and converted at the fair market value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;8. CAPM (Capital Asset Pricing Model)&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A model that describes the relationship between risk and expected return and that is used in the pricing of risky securities. It can be estimated by simple OLS:&#xA;$$ER_i=R_f + \beta_i(ER_m-R_f)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$ER_i$: expected return of portfolio $i$, $ER_m$: expected return of the market portfolio, $R_f$: risk-free portfolio,  $\beta_i$:CAPM-beta of portfolio $i$&lt;/p&gt;&#xA;" OwnerUserId="5017" LastEditorUserId="5017" LastEditDate="2016-07-07T11:50:21.153" LastActivityDate="2016-07-07T11:50:21.153" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12650" PostTypeId="1" CreationDate="2016-07-07T11:45:52.397" Score="4" ViewCount="58" Body="&lt;p&gt;Im looking for some kind of report that would inculde data on the distribution of loans by types of interest(fixed/floating), spesificaly global not just for one country(developed, undeveloped, developing world). If any of you have known to stumble upon such reports would be grand&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Loans between corporations, that is what im looking for. &lt;/p&gt;&#xA;" OwnerUserId="8767" LastEditorUserId="8768" LastEditDate="2016-07-08T20:44:21.013" LastActivityDate="2016-08-11T05:49:20.413" Title="Distribution of loans by types of interest" Tags="&lt;reference-request&gt;&lt;data-request&gt;&lt;interest-rate&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12653" PostTypeId="1" CreationDate="2016-07-07T14:37:10.643" Score="7" ViewCount="128" Body="&lt;p&gt;I looked around on this site and couldn't find anything close to what I'm asking on Economics SE, so I hope it is the right place to ask. I am interested in but have no background in economy, so all my assumptions are based on what I have read in European newspapers over the past weeks and months.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Before the Brexit referendum one argument of the &quot;remain&quot; supporters was that London as a whole profited very much from Britain's EU membership. With the free flux of people and money within the EU London could establish/defend its role as an international financial center. Many banks chose London as their seat as they could have access to the EU from an international and English-speaking environment. It was also argued that London acts as a bridge between Europe and North America.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;After the Brexit vote I read that many financial institutes consider leaving (or preparing to leave) London in favor of some other places. I have no idea how a typical day of someone working in the financial area looks like, but from my position I do not really see a big impact if Britain leaves the EU. Several disadvantages already exist today, like varying Euro-Pound exchange rates or border controls. The only real reason I can think of is that there may be higher costs on financial transactions between the UK and the EU. Is that all? How would London's financial market be affected should the UK definitely leave the EU?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, where would these institutions go? The most frequently heard names are Frankfurt and Paris. Paris as the capital of the second-largest economy in Europe with strong presence of financial industry, and Frankfurt as the main financial center of Germany with important institutions like the European Central Bank. Arguments against are that in Paris it will be rather difficult to communicate in English in everyday life, and Frankfurt is a relatively small city (while I don't know how that alone would be a disadvantage). So what would be potential alternatives for a firm deciding to leave London?&lt;/p&gt;&#xA;" OwnerUserId="8771" LastEditorUserId="5515" LastEditDate="2016-07-07T21:35:05.823" LastActivityDate="2017-08-25T14:59:05.427" Title="How will London's role as a financial center be affected after the Brexit and what are possible alternatives?" Tags="&lt;finance&gt;&lt;banking&gt;&lt;international-economics&gt;&lt;financial-markets&gt;" AnswerCount="2" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12654" PostTypeId="2" ParentId="12650" CreationDate="2016-07-07T14:44:19.650" Score="0" Body="&lt;p&gt;thats the on i found &lt;a href=&quot;http://siteresources.worldbank.org/EXTANNREP2013/Resources/9304887-1377201212378/9305896-1377544753431/IBRD_FinancialStatements.pdf&quot; rel=&quot;nofollow&quot;&gt;http://siteresources.worldbank.org/EXTANNREP2013/Resources/9304887-1377201212378/9305896-1377544753431/IBRD_FinancialStatements.pdf&lt;/a&gt;, but if someone have seen somthing more global...&lt;/p&gt;&#xA;" OwnerUserId="8768" LastActivityDate="2016-07-07T14:44:19.650" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12655" PostTypeId="2" ParentId="12639" CreationDate="2016-07-07T15:07:06.543" Score="7" Body="&lt;p&gt;It depends on the definition you want to use. You can define a regressive tax as the wiki says, in which case a sale tax would not match. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But the goal of definition of different class of taxation is to assess the impact on person being taxed. Without considering income the above definition becomes moot. Sure the tax is proportional (fixed share of tax on any price) but it's effect on those who pay it is different.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first definition is derived , I believe, in the context of income taxes in which the income is being taxed and the definition matches it's intuitive notion. &#xA;Some taxation system are subject to the requirement that the system as a whole should be progressive, I.e the total tax burden should increase with income. In this context is natural to think that sale taxes are regressive, while they don't match the formal definition.&lt;/p&gt;&#xA;" OwnerUserId="6023" LastActivityDate="2016-07-07T15:07:06.543" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12656" PostTypeId="2" ParentId="12641" CreationDate="2016-07-07T20:12:35.163" Score="6" Body="&lt;p&gt;Many economists like to assume perfect information but that is not reality.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A long distance traveler is unlikely to have information on which petrol stations are cheapest in the area. They will have a vague idea that petrol stations off the highway are likely to be cheaper but they also know that leaving the highway and driving around town looking for cheap fuel will burn time and fuel.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore the petrol stations that serve travelers can get away with charging a premium over the &quot;going rate&quot; (those on main roads and especially motorways).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course there is a limit, the traveler will probably have some idea what the going rate for fuel is and a threshold over which they will say &quot;screw that&quot; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A local in most areas has much better information, they will probably have a familiarity with most of the local petrol stations and will usually have a choice of several alternatives. So to keep their customers petrol stations that serve locals generally have to sell the petrol at barely above cost.&lt;/p&gt;&#xA;" OwnerUserId="6510" LastActivityDate="2016-07-07T20:12:35.163" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="12657" PostTypeId="2" ParentId="12301" CreationDate="2016-07-07T20:14:35.857" Score="3" Body="&lt;p&gt;No problem. $$Q =\left(\min\{K, L\} \right)^b$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It just means that first you compare $K$ and $L$ and your quantity $Q$ will be equal the lower one to the power $b$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Example: $b=2$, $K=3$ and $L=7 \implies Q = 3^2 = 9$.&lt;/p&gt;&#xA;" OwnerUserId="4193" LastActivityDate="2016-07-07T20:14:35.857" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12658" PostTypeId="1" CreationDate="2016-07-08T03:17:58.063" Score="2" ViewCount="106" Body="&lt;p&gt;I am an undergraduate student working on environmental economics research. The econometric specification I am using is the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;ln(Per.Capita.Dollars) = ln(Per.Capita.Dollars.lag) + Average.Annual.Temp + Average.Annual.Prcp + Average.Annual.Temp.lag + Average.Annual.Prcp.lag + factor(Year) + factor(Unique.County)&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Temp = Temperature; Prcp = Precipitation; Unique.County = Unique US county&lt;/p&gt;&#xA;&#xA;&lt;p&gt;.lag is indicating a new 1 year lagged variable. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I am aggregating my weather variables annually does it still make sense to have a Year fixed effect (I know it does when using a smaller time step)? Similarly I will be aggregating over counties to a national scale (looking at just the US), will it make sense to have some sort of national fixed effect? &lt;/p&gt;&#xA;" OwnerUserId="8776" LastEditorUserId="-1" LastEditDate="2016-07-09T03:59:09.317" LastActivityDate="2016-07-09T19:48:11.143" Title="Accounting for Fixed Effects" Tags="&lt;econometrics&gt;&lt;applied-econometrics&gt;&lt;environmental-economics&gt;&lt;fixed-effects&gt;" AnswerCount="0" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12659" PostTypeId="5" CreationDate="2016-07-08T07:01:43.337" Score="0" Body="" OwnerUserId="-1" LastEditorUserId="-1" LastEditDate="2016-07-08T07:01:43.337" LastActivityDate="2016-07-08T07:01:43.337" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12660" PostTypeId="4" CreationDate="2016-07-08T07:01:43.337" Score="0" Body="Social welfare is a quantitative measure of how good or bad a policy or situation is for a society, overall.  It is usually obtained by somehow &quot;aggregating&quot; the utility functions of all the people in that society (e.g. by computing the average utility).  " OwnerUserId="8759" LastEditorUserId="8759" LastEditDate="2016-07-11T21:26:03.730" LastActivityDate="2016-07-11T21:26:03.730" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12661" PostTypeId="5" CreationDate="2016-07-08T07:05:59.137" Score="0" Body="" OwnerUserId="-1" LastEditorUserId="-1" LastEditDate="2016-07-08T07:05:59.137" LastActivityDate="2016-07-08T07:05:59.137" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12662" PostTypeId="4" CreationDate="2016-07-08T07:05:59.137" Score="0" Body="The study of how groups of people should make collective decisions.  This can involve voting, bargaining, the application of some protocol (e.g. to fairly divide goods), or maximizing some measure of social welfare." OwnerUserId="8759" LastEditorUserId="8759" LastEditDate="2016-07-11T01:44:47.317" LastActivityDate="2016-07-11T01:44:47.317" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12664" PostTypeId="1" AcceptedAnswerId="12665" CreationDate="2016-07-08T11:27:33.880" Score="1" ViewCount="66" Body="&lt;p&gt;Central banks typically pumps money into the system by :&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;lending out to private banks&lt;/li&gt;&#xA;&lt;li&gt;buying govt bonds&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;But in both these cases won't the central bank get back more money when it ends it's position (ie., initial money along-with the interest) and in the end more money from the system would get accumulated with the central bank.&lt;/p&gt;&#xA;" OwnerUserId="8783" LastActivityDate="2016-07-08T13:39:46.013" Title="Isn't money moving towards central bank in the long run?" Tags="&lt;money-supply&gt;&lt;central-banking&gt;&lt;money&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12665" PostTypeId="2" ParentId="12664" CreationDate="2016-07-08T12:27:56.113" Score="2" Body="&lt;p&gt;A minor point, but central banks also pay for operating expenses. So they have to spend some of the surplus on salaries, building maintenance, etc. And they also get more surplus by printing physical money.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However in most countries it is included within the charter of the central bank that any surplus left over at the end of some period is to be transferred to the government treasury. The government is then free to spend this surplus.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is one of the reasons for the seperation of the central bank and the government. If a government had control of the bank it could be tempted to instruct the bank to create a surplus and then use said surplus to finance government expenditures. This is deemed undesirable as it inreases inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Should a central bank somehow end up with a deficit rather then a surplus it falls to the treasury to help them out (if needed).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can read about details in the FED's charter:&#xA;&lt;a href=&quot;https://www.federalreserve.gov/aboutthefed/section7.htm&quot; rel=&quot;nofollow&quot;&gt;https://www.federalreserve.gov/aboutthefed/section7.htm&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The ECB also has a &lt;a href=&quot;https://www.ecb.europa.eu/pub/pdf/scpops/ecbop169.en.pdf#page=9&quot; rel=&quot;nofollow&quot;&gt;paper&lt;/a&gt; with some info on this. Point 2.1.:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;Overview of profit distribution and loss coverage&lt;/strong&gt; &lt;br&gt;&lt;br&gt;&#xA;  In general terms, a central bank’s annual net profits (recognised positive and&#xA;  negative income, less operating costs) can either be passed on to shareholders&#xA;  (government and/or private sector) in the form of a dividend, or added to its financial&#xA;  reserves. In cases where a central bank has either both public and private ownership&#xA;  or only private ownership, the amount of profit that can be distributed to private&#xA;  shareholders is typically subject to a cap (ranging from 6% to 12% of the nominal&#xA;  value of the paid-up capital), while the remaining distributable profit, net of any&#xA;  transfers to equity (capital and reserves) goes to the government.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2016-07-08T13:39:46.013" LastActivityDate="2016-07-08T13:39:46.013" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="12666" PostTypeId="1" CreationDate="2016-07-08T17:35:05.843" Score="2" ViewCount="51" Body="&lt;p&gt;In &lt;a href=&quot;http://www.goodreads.com/book/show/296201.India_Unbound&quot; rel=&quot;nofollow&quot;&gt;India Unbound&lt;/a&gt;, the author goes over India's economic history, right from independence to present day. I am interested in a similar reading for the United States, specifically conditions in the 20th century.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any decent suggestions which comes close? I found &lt;a href=&quot;http://www.fool.com/investing/general/2014/03/08/10-great-books-on-american-economic-history.aspx&quot; rel=&quot;nofollow&quot;&gt;10 books&lt;/a&gt; but any one in particular which stands out and is a must read?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Currently this one stands out to me, other suggestions welcome. &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0691147728&quot; rel=&quot;nofollow&quot;&gt;The Rise and Fall of American Growth: The U.S. Standard of Living since the Civil War&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="8788" LastEditorUserId="8788" LastEditDate="2016-07-08T17:51:32.970" LastActivityDate="2016-09-12T01:28:35.287" Title="Recommended reading to understand American economic history" Tags="&lt;history&gt;&lt;usa&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12667" PostTypeId="2" ParentId="12582" CreationDate="2016-07-08T18:16:19.053" Score="-1" Body="&lt;p&gt;Maybe your Itô formula is just wrong. Look at: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.columbia.edu/~mh2078/stochastic_calculus.pdf&quot; rel=&quot;nofollow&quot;&gt;http://www.columbia.edu/~mh2078/stochastic_calculus.pdf&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On page 6 you will find Itôs Lemma. You don't have to interpret $dx_t^2$ as $(dx_t)^2$. The $dx_t^2$ part in your formula is in fact $(dx_t)^2$.&lt;/p&gt;&#xA;" OwnerUserId="8789" LastActivityDate="2016-07-08T18:16:19.053" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12668" PostTypeId="1" CreationDate="2016-07-09T00:04:06.193" Score="0" ViewCount="73" Body="&#xA;&#xA;&lt;p&gt;Throughout history people have engaged in wars and mass killings.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm sure similar stories exist in all parts of the globe, throughout the world.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So what is the story? If the world revolves around economics, then how does economics profit from mass destruction and killings? If we are to stop this, we must first understand this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sorry to ask, but is it that the money made from jobs involved in setting up concentration camps, producing equipment of mass destruction, and all of that, more profitable than what the bastards can earn from the people designated to be killed? Is this why we have all these killings throughout history?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Or are you going to tell me that all the mass killings that happened in history were motivated by something other thanan economical reward optimization problem?&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let us find a solution (or a set of solutions, together) so that this does not happen (again!). So many people spend their time wondering about so many things not realizing their own lives are in danger. TikiI think this is a priority we should be focusing on.&lt;/p&gt;&#xA;" OwnerUserId="8794" LastEditorUserId="8794" LastEditDate="2016-07-09T09:13:18.297" LastActivityDate="2016-07-09T12:15:19.047" Title="The Economical &quot;justification&quot; of mass killings" Tags="&lt;welfare-economics&gt;&lt;social-welfare&gt;&lt;welfare&gt;" AnswerCount="1" CommentCount="7" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12669" PostTypeId="1" CreationDate="2016-07-09T01:20:10.330" Score="2" ViewCount="69" Body="&lt;p&gt;&lt;strong&gt;The problem:&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Let &lt;span class=&quot;math-container&quot;&gt;$T &amp;gt;0$&lt;/span&gt;, and let &lt;span class=&quot;math-container&quot;&gt;$(\Omega, \mathscr F, \{ \mathscr F_t \}_{t \in [0,T]}, \mathbb P)$&lt;/span&gt; be a filtered probability space where &lt;span class=&quot;math-container&quot;&gt;$\mathscr F_t = \mathscr F_t^W$&lt;/span&gt; where &lt;span class=&quot;math-container&quot;&gt;$W = \{W_t\}_{t \in [0,T]}$&lt;/span&gt; is standard &lt;span class=&quot;math-container&quot;&gt;$\mathbb P$&lt;/span&gt;-Brownian motion.&lt;/p&gt;&#xA;&lt;p&gt;Let &lt;span class=&quot;math-container&quot;&gt;$X = \{X_t\}_{t \in [0,T]}$&lt;/span&gt; be a stochastic process where &lt;span class=&quot;math-container&quot;&gt;$X_t = W_t + \sin t$&lt;/span&gt;, and let &lt;span class=&quot;math-container&quot;&gt;$\mathbb Q$&lt;/span&gt; be an equivalent probability measure s.t. &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; is standard &lt;span class=&quot;math-container&quot;&gt;$\mathbb Q$&lt;/span&gt;-Brownian motion.&lt;/p&gt;&#xA;&lt;p&gt;Give &lt;span class=&quot;math-container&quot;&gt;$\frac{d \mathbb Q}{d \mathbb P}$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;&lt;strong&gt;Girsanov Theorem:&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Let &lt;span class=&quot;math-container&quot;&gt;$T &amp;gt;0$&lt;/span&gt;, and let &lt;span class=&quot;math-container&quot;&gt;$(\Omega, \mathscr F, \{ \mathscr F_t \}_{t \in [0,T]}, \mathbb P)$&lt;/span&gt; be a filtered probability space where &lt;span class=&quot;math-container&quot;&gt;$\mathscr F_t = \mathscr F_t^W$&lt;/span&gt; where &lt;span class=&quot;math-container&quot;&gt;$W = \{W_t\}_{t \in [0,T]}$&lt;/span&gt; is the standard &lt;span class=&quot;math-container&quot;&gt;$\mathbb P$&lt;/span&gt;-Brownian motion.&lt;/p&gt;&#xA;&lt;p&gt;Let the Girsanov kernel &lt;span class=&quot;math-container&quot;&gt;$\{\theta_t\}_{t \in [0,T]}$&lt;/span&gt; be a &lt;span class=&quot;math-container&quot;&gt;$\mathscr F_t$&lt;/span&gt;-adapted stochastic process s.t. &lt;span class=&quot;math-container&quot;&gt;$\int_0^T \theta_s^2 ds &amp;lt; \infty$&lt;/span&gt; a.s. and &lt;span class=&quot;math-container&quot;&gt;$\{L_t\}_{t \in [0,T]}$&lt;/span&gt; is a &lt;span class=&quot;math-container&quot;&gt;$( \mathscr F_t , \mathbb P)$&lt;/span&gt; martingale where&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$L_t := \exp(-\int_0^t \theta_s dW_s - \frac 1 2 \int_0^t \theta_s^2 ds)$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;Let &lt;span class=&quot;math-container&quot;&gt;$\mathbb Q$&lt;/span&gt; be the probability measure defined by&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$Q(A) = \int_A L_T dP \ \forall A \in \ \mathscr F$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;or &lt;span class=&quot;math-container&quot;&gt;$$L_T = \frac{d \mathbb Q}{d \mathbb P}$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;Then &lt;span class=&quot;math-container&quot;&gt;$\{W_t^Q\}_{t \in [0,T]}$&lt;/span&gt; defined by&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$W_t^Q := W_t + \int_0^t \theta_s ds$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;is standard &lt;span class=&quot;math-container&quot;&gt;$\mathbb Q$&lt;/span&gt;-Brownian motion.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;&lt;strong&gt;The solution given:&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$X_t = W_t + \int_0^t \cos s ds$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;Let &lt;span class=&quot;math-container&quot;&gt;$\theta_t = \cos t$&lt;/span&gt;:&lt;/p&gt;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;It is &lt;span class=&quot;math-container&quot;&gt;$\mathscr F_t$&lt;/span&gt;-adapted&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\int_0^T \theta_s^2 ds &amp;lt; \infty$&lt;/span&gt; a.s.&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$E[\exp(\frac 1 2 \int_0^T \theta_t^2 dt)] &amp;lt; \infty$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&lt;p&gt;Then &lt;span class=&quot;math-container&quot;&gt;$\{L_t\}_{t \in [0,T]}$&lt;/span&gt; is a &lt;span class=&quot;math-container&quot;&gt;$( \mathscr F_t , \mathbb P)$&lt;/span&gt; martingale, by Novikov's condition, where&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$L_t := \exp(-\int_0^t \cos s dW_s - \frac 1 2 \int_0^t \cos^2 s ds)$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;Thus, by Girsanov's Theorem, we have&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\frac{d\mathbb Q}{d\mathbb P} = L_T...?$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;How exactly does that last line follow?&lt;/p&gt;&#xA;&lt;p&gt;What I find strange is that the Girsanov Theorem defines &lt;span class=&quot;math-container&quot;&gt;$\mathbb Q$&lt;/span&gt; and then concludes &lt;span class=&quot;math-container&quot;&gt;$X_t$&lt;/span&gt; is standard &lt;span class=&quot;math-container&quot;&gt;$\mathbb Q$&lt;/span&gt;-Brownian motion while the problem says there is some &lt;span class=&quot;math-container&quot;&gt;$\mathbb Q$&lt;/span&gt; s.t. &lt;span class=&quot;math-container&quot;&gt;$X_t$&lt;/span&gt; is standard &lt;span class=&quot;math-container&quot;&gt;$\mathbb Q$&lt;/span&gt;-Brownian motion and then asks about &lt;span class=&quot;math-container&quot;&gt;$\frac{d \mathbb Q}{d \mathbb P}$&lt;/span&gt;. Is the problem maybe stated wrong?&lt;/p&gt;&#xA;&lt;p&gt;To say that &lt;span class=&quot;math-container&quot;&gt;$L_T$&lt;/span&gt; is indeed the required density &lt;span class=&quot;math-container&quot;&gt;$\frac{d \mathbb Q}{d \mathbb P}$&lt;/span&gt;, I think we need to use the &lt;a href=&quot;https://books.google.com.hk/books?id=YoMr5Mbo6coC&amp;amp;pg=PT324&amp;amp;lpg=PT324&amp;amp;dq=converse%20of%20the%20girsanov&amp;amp;source=bl&amp;amp;ots=iniu5xWy6e&amp;amp;sig=w7uyixE0bbaGdT9shskEMhle3rM&amp;amp;hl=en&amp;amp;sa=X&amp;amp;ved=0ahUKEwif1sS3nePJAhXC2aYKHcInBccQ6AEIOTAE#v=onepage&amp;amp;q=converse%20of%20the%20girsanov&amp;amp;f=false&quot; rel=&quot;nofollow noreferrer&quot;&gt;converse of the Girsanov Theorem&lt;/a&gt;), or maybe the problem should instead give us &lt;span class=&quot;math-container&quot;&gt;$\frac{d \mathbb Q}{d \mathbb P}$&lt;/span&gt; and then ask us to show that &lt;span class=&quot;math-container&quot;&gt;$L_T = \frac{d \mathbb Q}{d \mathbb P}$&lt;/span&gt; possibly showing that &lt;span class=&quot;math-container&quot;&gt;$E[\frac{d \mathbb Q}{d \mathbb P} | \mathscr F_t] = L_t$&lt;/span&gt; or some other route.&lt;/p&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;&lt;strong&gt;I tried something slightly different:&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;p&gt;I define &lt;span class=&quot;math-container&quot;&gt;$\hat{\mathbb P}$&lt;/span&gt; s.t.&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$L_T = \frac{d\hat{\mathbb P}}{d\mathbb P}$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;or&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\hat{\mathbb P} = \int_A L_T d\mathbb P$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;It follows by Girsanov Theorem that &lt;span class=&quot;math-container&quot;&gt;$X_t$&lt;/span&gt; is standard &lt;span class=&quot;math-container&quot;&gt;$\hat{\mathbb P}$&lt;/span&gt;-Brownian motion. Since we are given that there is some &lt;span class=&quot;math-container&quot;&gt;$\mathbb Q$&lt;/span&gt; equivalent to &lt;span class=&quot;math-container&quot;&gt;$\mathbb P$&lt;/span&gt; s.t. &lt;span class=&quot;math-container&quot;&gt;$X_t$&lt;/span&gt; is also standard &lt;span class=&quot;math-container&quot;&gt;$\mathbb Q$&lt;/span&gt;-Brownian motion, it follows by the uniqueness of the Radon-Nikodym derivative that&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\frac{d\hat{\mathbb P}}{d\mathbb P} = \frac{d\mathbb Q}{d\mathbb P}$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\therefore, \frac{d\mathbb Q}{d\mathbb P}$&lt;/span&gt; is given by &lt;span class=&quot;math-container&quot;&gt;$L_T$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;p&gt;Is that right? I think I'm missing a step somewhere.&lt;/p&gt;&#xA;&lt;p&gt;So, is that indeed what the solution given is meant to be but just omitted pointing out uniqueness of the Radon-Nikodym derivative, if such justification is right?&lt;/p&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;Edit based on &lt;a href=&quot;https://quant.stackexchange.com/questions/15159/uniqueness-of-equivalent-martingale-measure-in-black-scholes-model#comment31938_15167&quot;&gt;this&lt;/a&gt;: Even if Radon-Nikodym derivative is unique, &lt;span class=&quot;math-container&quot;&gt;$\mathbb Q$&lt;/span&gt; may not be unique? If so, is it then that &lt;span class=&quot;math-container&quot;&gt;$\hat{\mathbb P}$&lt;/span&gt; is merely a candidate for one of many possible &lt;span class=&quot;math-container&quot;&gt;$\mathbb Q$&lt;/span&gt;'s?&lt;/p&gt;&#xA;&lt;p&gt;I think we conclude &lt;span class=&quot;math-container&quot;&gt;$\hat{\mathbb P} = \mathbb Q$&lt;/span&gt; based on &lt;span class=&quot;math-container&quot;&gt;$X_t$&lt;/span&gt; being standard Brownian motion under both measures. Is there a proposition for that? Uniqueness of Brownian motion measure or something?&lt;/p&gt;&#xA;" OwnerUserId="4483" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2017-04-14T10:05:36.373" Title="Given $\mathbb Q$ and $X_t$ is $\mathbb Q$-Brownian, find $\frac{d\mathbb Q}{d\mathbb P}$ / Uniqueness of Brownian or Radon-Nikodym derivative" Tags="&lt;mathematical-economics&gt;&lt;finance&gt;&lt;probability&gt;&lt;stochastic-processes&gt;&lt;stochastic-calculus&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12670" PostTypeId="1" CreationDate="2016-07-09T01:54:26.257" Score="3" ViewCount="68" Body="&lt;p&gt;In &lt;a href=&quot;http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.592.2043&amp;amp;rep=rep1&amp;amp;type=pdf&quot; rel=&quot;nofollow&quot;&gt;Half of a Coin: Negative Probabilities&lt;/a&gt;, the author mentions bond duration.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose we have payments at times $t = 1,2,...,n$ denoted respectively by $R_1, R_2, ..., R_n$ and the discount factor is $v = \frac{1}{1+i}$ where $i$ is effective interest rate. Then the bond value today is given by&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$B = \sum_{t=1}^{n} R_tv^t$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The bond duration is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$D = \frac{\sum_{t=1}^{n} tR_tv^t}{\sum_{t=1}^{n} R_tv^t}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It can be seen that $$D = E[T]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$T$ is a random variable with range $t = 1,2,...,n$ each having probability $\frac{R_t v^t}{B}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The author says something like we can have negative probabilities if we have negative $R_t$'s. So this is a kind of bond where instead of making a payment we get a certain amount of money? Is there such a thing? Or is that only in theory?&lt;/p&gt;&#xA;" OwnerUserId="4483" LastEditorUserId="4483" LastEditDate="2016-07-16T01:59:47.423" LastActivityDate="2016-07-17T14:04:49.893" Title="Negative probabilities - Can we have negative payments in bonds?" Tags="&lt;mathematical-economics&gt;&lt;finance&gt;&lt;financial-economics&gt;&lt;probability&gt;&lt;bonds&gt;" AnswerCount="1" CommentCount="12" ContentLicense="CC BY-SA 3.0" />
  <row Id="12672" PostTypeId="2" ParentId="12668" CreationDate="2016-07-09T08:32:17.107" Score="1" Body="&lt;p&gt;I'm not really sure why this is tagged [social-welfare] or [welfare economics].  It seems to me that more appropriate tags would be [history] and/or [international economics] (since the question involves international relations), and/or [game theory] (since the question involves putatively rational behavior in a multi-agent context).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Having said that, here is my (uninformed) response.  In a case where a much stronger group murders, enslaves and expropriates a much weaker group, there can be a net economic advantage (for the stronger group).  The European conquest and colonization of the Americas and their abduction and enslavement of millions of Africans are probably the most obvious examples.  Of course, genocide, slavery and mass expropriation do not &lt;em&gt;guarantee&lt;/em&gt; long-term economic growth, as can be seen by comparing the economic histories of North America and South America.  Furthermore, the influx of easy resources following an easy conquest can create something analogous to a &quot;resource curse&quot; or &quot;Dutch disease&quot;.  For example, the massive influx of silver from Spain's American conquests initially made Spain &quot;rich&quot;, but eventually it led to inflation.  It also caused the Spanish economy to stagnate relative to the dynamic economies of northern Europe (&lt;a href=&quot;http://www.jstor.org/stable/2662669?seq=1#page_scan_tab_contents&quot; rel=&quot;nofollow&quot;&gt;Corden, 1984&lt;/a&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, in a military contest between actors who are roughly evenly matched, I believe the historical record shows that it is always a negative-sum game.  Even if there is a clear winner, the wealth which the victor gains from plundering and/or enslaving the vanquished state almost never justifies the amount of blood and treasure that was needed to obtain the victory.  So the upshot is that these military conquests cannot be explained in terms of the economic self-interest of the warring states.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But it might be a mistake to treat states as monolithic rational actors.  Every state has a governing class, and it may be the case that the war was economically beneficial for the &lt;em&gt;governing class&lt;/em&gt;, even if it is economically detrimental for the country as a whole.  For example, it may be that the Iraq war was a huge net economic loss for the United States, as argued in the book &lt;a href=&quot;https://en.wikipedia.org/wiki/The_Three_Trillion_Dollar_War&quot; rel=&quot;nofollow&quot;&gt;&lt;em&gt;The Three Trillion Dollar War&lt;/em&gt;&lt;/a&gt;, by Joseph Stiglitz and Linda Bilmes.   But at the same time, it may be that certain individuals and firms associated with people in the Bush Administration (e.g. Haliburton) reaped a large economic benefit.  So from the perspective of &lt;em&gt;those&lt;/em&gt; people, the war was &quot;economically rational&quot;.  (Note that I say &quot;it &lt;em&gt;may be&lt;/em&gt;....&quot;, because I don't have enough information to back up this speculation.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is also likely that some wars and mass-murders just have non-economic motives.  For example, Hitler was motivated by race-hatred at least as much as by economics.  Stalin's purges, massacres, and genocides were motivated by a desire to consolidate his political power, at least as much as by economics.  And the Crusades and the Thirty Years War were motivated (at least initially) by religion, not economics.  (Certainly, they were a net economic loss for almost everyone involved.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Afterthought.&lt;/strong&gt;  (added later)  Here is another data point.  At the beginning of the twentieth century, the economies of Western Europe  were closely integrated in a big trading block.  Many people thought that a major war between Western European powers was impossible, because it was so obviously against their economic interests.  We saw how that turned out....&lt;/p&gt;&#xA;" OwnerUserId="8759" LastEditorUserId="8759" LastEditDate="2016-07-09T12:15:19.047" LastActivityDate="2016-07-09T12:15:19.047" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12673" PostTypeId="1" CreationDate="2016-07-09T09:10:24.867" Score="1" ViewCount="51" Body="&lt;p&gt;If you were to take a game-theoretic model of a world in which each individual tried to optimize their utility function / goals then how would you go about designing a computer simulation of the people's interactions as they try to optimize their goals.&lt;/p&gt;&#xA;&lt;p&gt;&lt;em&gt;In particular, how can I model the way goals interact?&lt;/em&gt;&lt;/p&gt;&#xA;&lt;p&gt;I guess the model could get arbitrarily complex, but cannot imagine anything nontrivial as given in standard game theory books. Thanks.&lt;/p&gt;&#xA;" OwnerUserId="8794" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2016-07-09T18:53:02.357" Title="World as a society of interlinked multiplayer individuals" Tags="&lt;game-theory&gt;&lt;dynamic-games&gt;&lt;cooperative-game-theory&gt;" AnswerCount="1" CommentCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="12674" PostTypeId="2" ParentId="12673" CreationDate="2016-07-09T17:42:32.000" Score="2" Body="&lt;p&gt;Chess is EXPTIME-Complete, which makes it significantly harder than NP-Complete problems.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Perhaps you are interested in the study of economic networks. Strategic network formation sounds like a good starting point. A lot of the work examines when certain classes of graphs arise under pure strategy Nash equilibria. There are exponentially many pure strategies. Enumerating the vertices of the polytope is likely not feasible.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Edit:&lt;/strong&gt; Some of the big names in the area include Matthew O. Jackson, Rachel Kranton, Sanjeev Goyal, and Hans Haller. I would start with their papers. In particular, Matthew O. Jackson has a book on the subject.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here are links to their homepages/CVs so you can scout out their publications. Economic networks are a pretty hot area at the moment, so you can likely look at journals like Econometrica to see what is being published.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://web.stanford.edu/~jacksonm/papersarticles.html&quot; rel=&quot;nofollow&quot;&gt;http://web.stanford.edu/~jacksonm/papersarticles.html&lt;/a&gt; &lt;br/&gt;&#xA;&lt;a href=&quot;http://econ.duke.edu/people/kranton/networks&quot; rel=&quot;nofollow&quot;&gt;http://econ.duke.edu/people/kranton/networks&lt;/a&gt; &lt;br/&gt;&#xA;&lt;a href=&quot;http://www.econ.vt.edu/cvsandresearch/hallercv.pdf&quot; rel=&quot;nofollow&quot;&gt;http://www.econ.vt.edu/cvsandresearch/hallercv.pdf&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="5368" LastEditorUserId="5368" LastEditDate="2016-07-09T18:53:02.357" LastActivityDate="2016-07-09T18:53:02.357" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="12675" PostTypeId="1" AcceptedAnswerId="12691" CreationDate="2016-07-09T19:24:25.983" Score="3" ViewCount="141" Body="&lt;p&gt;In an answer to one of my other questions: &lt;a href=&quot;https://economics.stackexchange.com/questions/12610/why-does-falling-global-bond-yields-signal-coming-deflation&quot;&gt;Why does falling global bond yields signal coming deflation&lt;/a&gt;, the answerer states:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Whereas central banks set rates by policy, long term bond yields are determined by the market (i.e., supply-demand equilibrium). An inverted yield curve signals recession and implies rates are set too high relative to market expectations. If central banks set rates in positive territory when long term bond yields are negative, they will de facto force the yield curve to invert.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I cannot see the mechanism as to why if central banks set rates in positive territory when long term bonds yields are negative how this will cause the yield curve to invert. &lt;/p&gt;&#xA;" OwnerUserId="5515" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2016-07-14T06:35:06.683" Title="Connection between negative interest rates and negative bond yields" Tags="&lt;finance&gt;&lt;central-banking&gt;&lt;financial-markets&gt;&lt;bonds&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12680" PostTypeId="1" AcceptedAnswerId="12681" CreationDate="2016-07-09T20:24:08.393" Score="2" ViewCount="165" Body="&lt;p&gt;I'm looking at this webpage here:&#xA;&lt;a href=&quot;https://gilkalai.wordpress.com/2013/05/18/test-your-intuition-21-auctions/&quot; rel=&quot;nofollow&quot;&gt;https://gilkalai.wordpress.com/2013/05/18/test-your-intuition-21-auctions/&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've generated the R code below to simulate the value for each Bidder 1000's times. I'm trying to figure out the optimal allocation strategy as well as the expected revenue.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assuming a Vickrey Auction, it seems that the sample space is as follows:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;Event         Probability     Revenue &#xA;3x300           .1^3            300&#xA;2x300, 1x100    .1^2 * .9       300&#xA;1x300, 2x100    .1 * .9^2       100&#xA;2x300           .9^3            100&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;This gives me an expected revenue of $105.6. This is inline with the simulation below.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, I'm confused by what's exactly meant by &quot;optimal allocation&quot; strategy. Any suggestions?&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;generateBid &amp;lt;- function(x){&#xA;  epsilonValue &amp;lt;- runif(1, min = -1 , max =1)&#xA;  isNostalgic &amp;lt;- rbinom(1, size = 1, prob = .1)&#xA;  finalValue &amp;lt;- epsilonValue + isNostalgic*300 +(1-isNostalgic)*100&#xA;  return(finalValue)&#xA;}&#xA;&#xA;cameraBid &amp;lt;- data.frame(bidderA = sapply(1:1000, generateBid), bidderB = sapply(1:1000, generateBid), bidderC = sapply(1:1000, generateBid))&#xA;&#xA;&#xA;VickreyAuctionProfit&amp;lt;- apply(cameraBid, 1, function(x){&#xA;  indexSecond &amp;lt;- rank(x)&#xA;  return(x[which(indexSecond ==2)])&#xA;&#xA;})&#xA;&#xA;mean(VickreyAuctionProfit)&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Also, looking at the mean, it seems that the expected revenue of the auction should be less than 115?&lt;/p&gt;&#xA;" OwnerUserId="8801" OwnerDisplayName="user1357015" LastEditorUserId="1601" LastEditDate="2016-07-10T05:22:43.507" LastActivityDate="2016-07-10T05:22:43.507" Title="Vickrey Auction question" Tags="&lt;auctions&gt;&lt;r&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12681" PostTypeId="2" ParentId="12680" CreationDate="2016-07-10T03:50:12.963" Score="4" Body="&lt;p&gt;Optimal allocation refers to whom the seller awards the item, in order to maximize revenue. In a Vickrey auction, it is a Nash equilibrium for everyone to bid their valuations. This is stronger than a Bayesian Nash equilibrium, which is the solution concept in Bayesian games (which include auctions). The Bayesian Nash equilibrium is the solution concept in which every player seeks to maximize their expected utilities, subject to their respective beliefs about the world. In the Vickrey auction, agents' beliefs about the world do not really matter.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The goal of the Vickrey auction is to illicit truthful responses from the agents. That is, they bid their precise valuations. The first-price auction is revenue-equivalent to the Vickrey auction; however, agents do not truthfully bid their valuations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In particular, if we have a symmetric $n$-player auction where players' valuations are drawn from a probability distribution $F([0, \omega])$ with density $f$, we have the expected revenue for the seller as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$n \cdot \int_{0}^{\omega} (n-1) \cdot y \cdot f(y) \cdot F^{n-2}(y) \cdot (1-F(y)) dy$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Combinatorially, we select the highest two bidders in $n(n-1)$ ways, since order matters. Suppose the second highest bid is $y$. This occurs with probability $f(y)$. The remaining $n-2$ players bid less than $y$ with probability $F^{n-2}(y)$. The highest bidder has valuation greater than $y$ with probability $1-F(y)$. Each of these selections are independent; so by rule of product, we multiply. As this is an expected value, we include $y$ in each product. By rule of sum, we add up over each possible value of $y$ (hence, the integral).&lt;/p&gt;&#xA;" OwnerUserId="5368" LastActivityDate="2016-07-10T03:50:12.963" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="12682" PostTypeId="1" CreationDate="2016-07-10T05:02:00.213" Score="1" ViewCount="88" Body="&lt;p&gt;Let $T &amp;gt; 0$, and let $(\Omega, \mathscr F, \{\mathscr F_t\}_{t \in [0,T]}, \mathbb P)$ be a filtered probability space where $\mathbb P = \tilde{\mathbb P}$ (risk-neutral measure) and $\mathscr F_t = \mathscr F_t^{{W}} = \mathscr F_t^{\tilde{W}}$ where $W = \tilde{W} = (\tilde{W_t})_{t \in [0,T]} = ({W_t})_{t \in [0,T]}$ is standard $\mathbb P=\tilde{\mathbb P}$-Brownian motion.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Define &lt;a href=&quot;https://en.wikipedia.org/wiki/Forward_measure&quot; rel=&quot;nofollow&quot;&gt;forward measure&lt;/a&gt; $\hat{\mathbb P}$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$A_T := \frac{d \hat{\mathbb P}}{d \mathbb P} = \frac{\exp(-\int_0^T r_s ds)}{P(0,T)}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It can be shown that $\exp(-\int_0^t r_s ds)P(t,T)$ is a $(\mathscr F_t, \mathbb P)-$martingale where $r_t$ is short rate process and $P(t,T)$ is bond price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We are given that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{dP(t,T)}{P(t,T)} = r_t dt + \zeta_t dW_t$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $r_t$ and $\zeta_t$ are $\mathscr F_t$-adapted and $\zeta_t$ satisfies Novikov's condition. I don't think $\zeta_t$ is supposed to represent anything in particular.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Define the stochastic process $\hat{W} = (\hat{W_t})_{t\in[0,T]}$ s.t.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\hat{W_t} := W_t + \int_0^t -\zeta_s ds$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Use &lt;a href=&quot;https://en.wikipedia.org/wiki/Girsanov_theorem&quot; rel=&quot;nofollow&quot;&gt;Girsanov Theorem&lt;/a&gt; to prove $\hat{W_t}$ is standard $\hat{\mathbb P}$-Brownian motion.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;What I tried:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since $\zeta_t$ satisfies Novikov's condition, $\int_0^T -\zeta_t dt &amp;lt; \infty$ a.s. and&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$L_t := \exp(-\int_0^t (-\zeta_s dW_s) - \frac{1}{2} \int_0^t \zeta_s^2 ds)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;is a $(\mathscr F_t, \mathbb P)-$martingale.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By Girsanov Theorem, $\hat{W_t}$ is standard $\mathbb P^{*}$-Brownian Motion where&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{d \mathbb P^{*}}{d \mathbb P} = L_T$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I guess we have that $\hat{W_t}$ is standard $\hat{\mathbb P}$-Brownian Motion if we can show that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$L_T = \frac{d \hat{\mathbb P}}{d \mathbb P}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think I was able to show (lost my notes) that $dL_t = L_t \zeta_t dW_t$, $dA_t = A_t \zeta_t dW_t$ and then $d(\ln L_t) = d(\ln A_t)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From $d(\ln L_t) = d(\ln A_t)$, I infer that $L_t = A_t$ and hence $L_T = A_T$ QED.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is that right?&lt;/p&gt;&#xA;" OwnerUserId="4483" LastEditorUserId="4483" LastEditDate="2016-08-04T03:38:39.547" LastActivityDate="2016-08-04T03:38:39.547" Title="How to use the Girsanov theorem to prove $\hat{W_t}$ is a $\hat{\mathbb P}$-Brownian motion?" Tags="&lt;mathematical-economics&gt;&lt;finance&gt;&lt;probability&gt;&lt;stochastic-processes&gt;&lt;stochastic-calculus&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12683" PostTypeId="2" ParentId="12595" CreationDate="2016-07-10T14:52:08.900" Score="0" Body="&lt;p&gt;I agree that Money supply/Money stock is negatively correlated with short-term interest rates. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since Great Britain has been using the Sterling before and after Brexit, there is no fundamental change in Monetary Policy caused by Brexit. Your (implied) assumption that Brexit causes a change in interest rates is therefore highly speculative.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Rather, the Bank of England's Monetary Policy Committee decides on interest rates based on (forecasted) growth and inflation rates, and a big number of other factors. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The economic performance (and therefore, interest rates) of the UK in the aftermath of Brexit will depend heavily on the negotiated deals between the EU and the UK.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the UK economy indeed slows down as a response to Brexit, as many assume, the BoE will most likely keep the interest rates down. However, this is not at all guaranteed to happen. &lt;/p&gt;&#xA;" OwnerUserId="8630" LastActivityDate="2016-07-10T14:52:08.900" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12685" PostTypeId="2" ParentId="12422" CreationDate="2016-07-10T23:21:10.643" Score="0" Body="&lt;p&gt;It's hard to make a best advisement given that we don't know your background. One can struggle with proofs for a few reasons: terseness of the presentation, a weak background in the prerequisite material, or a weak background in proof-writing in general. (1) and (3) are generally associated with mathematical maturity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I advise folks interested in economics to pursue an undergraduate degree in mathematics. If that is not feasible or realistic, then I suggest at a minimum some proofs-based work in linear algebra and real analysis. Friedberg's Linear Algebra text is a good exposition and will help you build up some maturity. It's a solid prerequisite for analysis. Once you start talking about the derivative as a linear operator, linear algebra is a must-have. However, linear algebra doesn't otherwise appear in real analysis before that. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For analysis, Abbott is friendlier than Rudin, and will likely provide you with sufficient background to move forward. Abbott is geared towards juniors in an undergraduate curriculum, while Rudin is the hard-core senior level text. If you don't have mathematical maturity, Rudin will force you to struggle. Once you have mathematical maturity, the conciseness his writing is quite nice. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Fudenberg and Tirole is a very technical, terse book. It is a good reference, but not my favorite exposition into game theory. I might be inclined to look through Maschler, Solan, and Zamir instead. It's gotten good reviews, though I haven't had a chance to look through it myself.So take this with a grain of salt. It is definitely more comprehensive than Fudenberg and Tirole, though.&lt;/p&gt;&#xA;" OwnerUserId="5368" LastActivityDate="2016-07-10T23:21:10.643" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12688" PostTypeId="2" ParentId="12422" CreationDate="2016-07-11T19:21:39.587" Score="0" Body="&lt;p&gt;I suppose I will suggest starting with Theory of Games and Economic Behavior by Neumman. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I recall it, believe it or not, assumes very little mathematical background from the reader. Maybe you should check it out and see if reading it increases your proficiency with other works.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reason that I think it will is that I'm not sure if the problem you're having is one of mathematics competency or one of comprehension. If it is the latter then you should know that authors tend to skip multiple steps in problem solving because they assume that you can figure things out on your own.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If this is where you're struggling, then the seminal book I mentioned is a good choice; because the authors are more forgiving and offer many examples. Looking back on it it has a whole section dedicated to a review of very basic set theory.&lt;/p&gt;&#xA;" OwnerUserId="8623" LastActivityDate="2016-07-11T19:21:39.587" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12689" PostTypeId="2" ParentId="12422" CreationDate="2016-07-11T19:25:35.457" Score="2" Body="&lt;p&gt;If you don't have any background in Real Analysis, I suggest you to read &quot;Analysis I&quot; written by Terence Tao. &#xA;I was in a similar situation that you a year ago. I studied Economics at college but we never had to do rigorous proofs (as a matter of fact, I did not know what was a theorem, a mathematical proof, or mathematical logic until I read the book). We only learned some &quot;rules&quot; of derivation and integration, and to manipulate algebraic equations in order to get some important results in Economics. However, a professor suggested me to apply to a PhD program and to take a real analysis course. It was really hard because I had never seen something like that. The books recommended by the analysis professor were the common books you will be recommended here: Baby Rudin, Kolmogorov and Fomin, Ok, Abbot, Apostol, etc. I read some of them (specially Baby Rudin) and I found them too difficult. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem was that I found difficult &quot;thinking as a mathematician&quot;. Therefore, I started to search for the &quot;best book&quot; in real analysis, and I found this one written by Terence Tao. It was amazing, not only because the deep understanding and the outstanding expository skills of the author, but because he started from the very beginning: he answers some important questions (what is analysis and why to do it?) and starts explaining what are the natural, integer, rational, and real numbers (and also the Peano axioms, and some operations). He also starts explaining what sets are. &#xA;Then, he develops the most important concepts of analysis: sequences, limits, convergence, series, etc. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think the most important feature of the book is that it is completely focused on building mathematical skills: how to prove a proposition, different ways to do it, how to use your intuition to develop a proof, etc. And also, it gives you a complete understanding of the topic. This makes it starkly different from other books such as Baby Rudin (which assumes that you know lots of results that, in fact, you don't), which is useful as a reference book and also when you have some well understanding of the topic (I moved easily from Tao to Rudin when the analysis course I took required me to do so). Another important characteristic of  the book is its appendix: it gently introduces you to the basics of mathematical logic: what mathematical statements are, the structure of proofs, (nested) quantifiers, etc; and gives several examples of proofs.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I often see questions like this and I have always found puzzling why no one recommends this book. It is maybe the best mathematics book I have ever read (as it may seem obvious, I love that book I have fond memories of me learning how to make proofs and what real numbers and analysis really are). Also, it is strange because Terence Tao is unarguably the most important mathematician alive and a very kind person. You can see his blog and the books he has published in the following link: &lt;a href=&quot;https://terrytao.wordpress.com/books/&quot; rel=&quot;nofollow&quot;&gt;https://terrytao.wordpress.com/books/&lt;/a&gt;. I hope this recommendation would be useful.&lt;/p&gt;&#xA;" OwnerUserId="8557" LastActivityDate="2016-07-11T19:25:35.457" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12691" PostTypeId="2" ParentId="12675" CreationDate="2016-07-12T02:08:00.283" Score="3" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;I cannot see the mechanism as to why if central banks set rates in positive territory when long term bonds yields are negative how this will cause the yield curve to invert.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;No need to seek a &lt;em&gt;mechanism&lt;/em&gt; because the inverted yield curve occurs &lt;em&gt;by definition&lt;/em&gt; in the scenario you describe. &lt;a href=&quot;http://www.investopedia.com/terms/i/invertedyieldcurve.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;This Investopedia video defines &lt;em&gt;inverted yield curve&lt;/em&gt; as follows&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;An inverted yield curve occurs when short term interest rates are higher than long term interest rates.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;If short term rates are positive and long term rates are negative then short term rates must be higher than long term rates. Therefore, the yield curve will be considered &lt;em&gt;inverted&lt;/em&gt; by definition.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Remember, central banks set the interbank overnight lending rate as a matter of policy. In the U.S., this is called the &lt;a href=&quot;https://en.wikipedia.org/wiki/Federal_funds_rate&quot; rel=&quot;nofollow noreferrer&quot;&gt;Federal Reserve Funds Rate&lt;/a&gt;. This is the shortest possible &lt;em&gt;maturity&lt;/em&gt;. So this is the leftmost point on the yield curve.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By contrast, supply-demand equilibrium (i.e., the &lt;em&gt;market&lt;/em&gt;) sets long-term bond prices. And, as we know, bond prices are inversely correlated to their yields. So when the market demand increases for long term bonds, their prices rise and their yields fall.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/MqYre.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/MqYre.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="8719" LastEditorUserId="8719" LastEditDate="2016-07-14T06:35:06.683" LastActivityDate="2016-07-14T06:35:06.683" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12693" PostTypeId="1" CreationDate="2016-07-12T04:33:34.373" Score="3" ViewCount="4713" Body="&lt;p&gt;I am having a hard time with the following economic questions (See attached). Here is my approach:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note about the curves: The graph below depicts an economy where a decline in aggregate demand has caused a recession. Assume the government decides to increase government purchases as fiscal policy to reduce the burden of this recession. &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;em&gt;How much does aggregate demand need to increase to reach long-run equilibrium?&lt;/em&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A: 100 billion&#xA;Because that's the AD1-AS equilibrium to AD1-LRAS line&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;MPC =.75 (and thus MPS = .25)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;How much do government purchases need to increase to shift aggregate demand by the amount you found in part 1)?&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My logic:&#xA;The expenditure multiplier = 1/MPS = 1/(.25) =4 &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Delta Y from 1) is 100 billion&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, 4X= 100 (x = government purchases) leading to x = 25&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;em&gt;Suppose the MPC is 0.6. To restore the economy to its long-run equilibrium, aggregate demand must be increased by i) ___________ and government purchases must be increased by ii) ________________&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Delta Y is the same as 1), so it's 100 billion for i)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;MPS changes to .6, so the multiplier is 1/.4 = 2.5, 100/2.5 = 40 billion in government purchases to restore long-run equilibrium. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;h3&gt;So then, how are my answers wrong according to the program?&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/f3Wz8.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/f3Wz8.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="8819" LastEditorUserId="4817" LastEditDate="2016-07-12T16:43:22.370" LastActivityDate="2017-05-25T13:51:53.527" Title="Macroeconomics: Aggregate Demand, Equilibrium Dynamics and Expenditure Multipliers" Tags="&lt;macroeconomics&gt;&lt;general-equilibrium&gt;&lt;fiscal-policy&gt;&lt;aggregate-production&gt;" AnswerCount="2" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12695" PostTypeId="2" ParentId="12422" CreationDate="2016-07-12T12:49:07.693" Score="0" Body="&lt;p&gt;I think good preparation could be to watch some analysis video lectures. Examples this I think are quite good include&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.youtube.com/watch?v=sqEyWLGvvdw&amp;amp;list=PL0E754696F72137EC&quot; rel=&quot;nofollow&quot;&gt;Su's lectures&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.youtube.com/playlist?list=PL58984C080F2B0575&quot; rel=&quot;nofollow&quot;&gt;Feinstein's lectures&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These lectures have the advantage that you get to (repeatedly) watch someone doing proofs and therefore learn about the kind of axiomatic reasoning that goes into putting together the kind of results you see in your graduate econ books.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2016-07-12T12:49:07.693" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12697" PostTypeId="2" ParentId="12453" CreationDate="2016-07-12T16:58:57.497" Score="3" Body="&lt;p&gt;You asked: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;why should there exist a single value of $X$ that satisfies this definition for all values of $p$, or even all values of $p$ that are sufficiently close to $0$&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;There isn't such a value. I would hope that no one claims that there is.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The statistical value of life is a (somewhat lazy) calculation of convenience. Lots of business case protocols need a value for anything that's going into the business case. Changing the probabilities of survival is an outcome of many interventions for which the decision-makers have insisted on business cases, so some method is needed to value these probabilities.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One of the earliest ways to do this, back when relevant research was scarcer than it is today, and computational power was much more limited, was to assign a single value of life, which was calculated using methods that assumed &lt;em&gt;a priori&lt;/em&gt; that there existed a single value of $X$ that was &lt;strong&gt;an adequate approximation&lt;/strong&gt; for all values of $p$ that are sufficiently close to $0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That method is still used today largely due to institutional inertia.&lt;/p&gt;&#xA;" OwnerUserId="44" LastEditorUserId="44" LastEditDate="2016-07-12T17:05:04.703" LastActivityDate="2016-07-12T17:05:04.703" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12698" PostTypeId="1" AcceptedAnswerId="12702" CreationDate="2016-07-12T21:24:57.293" Score="0" ViewCount="726" Body="&lt;p&gt;The question is what would happen if tomorrow all private and public (government) debt was erased? I am especially curious if normal daily economic activities would go on, what would the role of central banks be and how would the economy come into some equilibrium again.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question is, indeed, a bit vague but I would like to know some opinions from various aspects. I think it is a very nice gedanken experiment.&lt;/p&gt;&#xA;" OwnerUserId="5112" LastActivityDate="2016-07-13T05:36:49.757" Title="What would happen if tomorrow all private and public debt was erased?" Tags="&lt;debt&gt;&lt;government-debt&gt;" AnswerCount="1" CommentCount="6" ClosedDate="2016-07-22T23:33:22.227" ContentLicense="CC BY-SA 3.0" />
  <row Id="12699" PostTypeId="1" AcceptedAnswerId="12700" CreationDate="2016-07-12T23:49:19.533" Score="1" ViewCount="703" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Calculate the consumer surplus, producer surplus and total surplus in the market equilibrium.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Market for beef and home demand and home supply:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ Q_d(p) = 50 - p $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ Q_s(p) = p $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With $p$ representing the price of 1 kg of beef&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand that consumer surplus is consumer's willingness amount to pay minus consumer actual paying price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But how do I derive from only information from above?&lt;/p&gt;&#xA;" OwnerUserId="8827" LastEditorUserId="8719" LastEditDate="2016-07-16T09:45:53.407" LastActivityDate="2016-07-16T09:45:53.407" Title="How do I calculate consumer surplus and producer surplus from this?" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="0" ClosedDate="2016-07-15T10:48:04.150" ContentLicense="CC BY-SA 3.0" />
  <row Id="12700" PostTypeId="2" ParentId="12699" CreationDate="2016-07-13T03:25:24.963" Score="1" Body="&lt;p&gt;In equilibrium, we have supply equal to demand. So $Q_{s} = Q_{d} \implies 50 = 2p$, so $p^{*} = 25$ is the equilibrium price. Consumer surplus is defined as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\int_{p^{*}}^{p_{max}} Q_{d}(p) dp$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here, $p_{max} = 50$, as $Q_{s} = 0$ when $p = 50$. So evaluate the integral. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Producer surplus is similarly defined as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\int_{0}^{p^{*}} Q_{s}(p) dp$$&lt;/p&gt;&#xA;" OwnerUserId="5368" LastActivityDate="2016-07-13T03:25:24.963" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12702" PostTypeId="2" ParentId="12698" CreationDate="2016-07-13T05:36:49.757" Score="0" Body="&lt;p&gt;It would depend a lot on &lt;em&gt;how&lt;/em&gt; the debt was &quot;erased.&quot; If you are simply suggesting a transfer payment from creditor to debtor, what would force such an event? Or would it be voluntary? If it were forced, then you would have a threat to private property rights and therefore, a disincentive for further lending. Security of capital would be diminished and all investment might stop overnight.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This question is very broad. But the answer of what might happen would depend very much on the details of &lt;em&gt;how&lt;/em&gt; all this might come about.&lt;/p&gt;&#xA;" OwnerUserId="8719" LastActivityDate="2016-07-13T05:36:49.757" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12703" PostTypeId="1" CreationDate="2016-07-13T06:11:52.727" Score="4" ViewCount="4032" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;At Fenway Park, home of the Boston Red Sox, seating is limited to 39,000. Hence, the number of tickets issued is fixed at that figure. Seeing a golden opportunity to raise revenue, the City of Boston levies a per ticket of 5 bucks to be paid by the ticket buyer. Boston sports fans, a famously civic-minded lot, dutifully send in the 5 bucks per ticket. Draw a well-labeled graph showing the impact of the tax. On whom does the tax burden fall - the team's owners, the fans, or both? Why?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Now, for this question, my take is that the tax burden fall on the fans, because the fans paid 5 bucks extra on tax, and the government imposes a 5 bucks tax. Hence, it doesn't affect the sellers/team's owners. But from what I've learnt is that tax burden is shared amongst sellers and buyers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm equally confused. If it's shared, then who gets to decide the amount buyers and sellers have to split for the tax burden? (If the amount is not provided?) Thank you.&lt;/p&gt;&#xA;" OwnerUserId="8827" LastEditorUserId="8719" LastEditDate="2016-07-15T21:50:12.903" LastActivityDate="2016-08-05T00:30:14.600" Title="Is my logic on taxation for this question legit?" Tags="&lt;microeconomics&gt;&lt;taxation&gt;&lt;public-economics&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12704" PostTypeId="2" ParentId="12703" CreationDate="2016-07-13T15:20:57.610" Score="7" Body="&lt;p&gt;The burden of taxation is shared among suppliers and demanders according to the price elasticities of supply and demand. The more elastic side carries less of the tax burden.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To understand this, note that the tax effectively increases the price demanders pay and decreases the price suppliers get. Elasticity tells us how demanders and suppliers react to this price change. For demanders this means buying less and for suppliers it means supplying less. If you are more elastic then you react to the tax more (by definition of elasticity), which means you avoid it more. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To illustrate this, imagine a tax on cigarettes. We assume that smokers who are addicted will have to buy cigarettes at any price (as they are addicted). This means they do not react and have 0 elasticity of demand. In that case, imposing a tax on cigarettes (a price increase) will not affect how many cigarettes are bought. So the producers of cigarettes are making just as much profit as before, while the consumers are paying higher prices, hence the consumers carry the full burden of the tax.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You could imagine a similar argument, where the supplier produces less because of the tax, thereby causing prices to increase and hurting the consumer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In your case the producer is totally inelastic, while consumers have some elasticity and hence carries the burden of the tax (as he cannot react and reduce the number of seats).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Alternatively imagine a tax put on producers, where the producers are inelastic, but consumers are elastic. The producers when trying to push the tax onto the consumers (raise the price) the consumers will buy less (are elastic) and thus reduce the suppliers profits, so the producer cannot push the full tax onto the consumers if he's maximizing profits. He can only push a part of it, which means his profits will partially fall and buyers will pay higher prices. Hence both carry the tax burden. The producer can push less of the tax increase the more elastic the consumers are compared to him.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can also see this general point graphically. The figures I have for this are when the tax is on the producers so affects the supply, but the result is equivalent to a tax on the consumers affecting demand. The blue region represents the surplus lost by the consumer that is captured as tax revenue as a result of the tax and the red region represents the surplus lost by the producer that is captured as tax revenue as a result of the tax. The grey region is deadweight loss resulting from the tax -- it is surplus lost, but not captured as tax revenue. In the first plot below, supply is relatively inelastic (i.e. not very steep) and demand is quite elastic (i.e. steep). In the second, supply is relatively elastic (i.e. steep) and demand is quite inelastic (i.e. not very steep).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/cPwAH.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/cPwAH.jpg&quot; alt=&quot;Elastic supply, inelastic demand&quot;&gt;&lt;/a&gt;&#xA;&lt;a href=&quot;https://i.stack.imgur.com/aV2yX.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/aV2yX.jpg&quot; alt=&quot;Inelastic supply, elastic demand&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="5557" LastEditorUserId="48" LastEditDate="2016-07-17T17:26:23.883" LastActivityDate="2016-07-17T17:26:23.883" CommentCount="18" ContentLicense="CC BY-SA 3.0" />
  <row Id="12705" PostTypeId="2" ParentId="3390" CreationDate="2016-07-13T16:50:24.470" Score="0" Body="&lt;p&gt;If one considers trade in goods (as the BoP approach) and merchandise trade (as the Census approach), then the following extract from (&lt;a href=&quot;http://www.trade.gov/mas/ian/referenceinfo/tg_ian_001872.asp&quot; rel=&quot;nofollow&quot;&gt;http://www.trade.gov/mas/ian/referenceinfo/tg_ian_001872.asp&lt;/a&gt;) might be useful to understand why these two concepts might differ. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Measurement&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Merchandise trade can be measured on a Census or Balance of Payments Basis:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Census Basis - Goods data compiled from the documents collected by the U.S. Customs and Border Protection and reflect the movement of goods between foreign countries and the 50 states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, and U.S. Foreign Trade Zones. They include government and non-government shipments of goods and exclude shipments between the United States and its territories and possessions, transactions with U.S. military, diplomatic and consular installations abroad, U.S. goods returned to the United States by its Armed Forces, personal and household effects of travelers, and in-transit shipments.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Free Alongside Ship (FAS) Export Value - Transaction price of the merchandise including inland freight, insurance, and other charges incurred in placing the merchandise alongside the carrier at the U.S. port of exportation. The value excludes any loading, transportation, or insurance costs beyond the port of exportation.&lt;/li&gt;&#xA;&lt;li&gt;Customs Import Value - Price paid for merchandise when sold for exportation to the U.S. Additional costs for shipment, delivery and import duties, are not included.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Balance of Payments (BOP) Basis - The U.S. Bureau of Economic Analysis (BEA) adjusts goods totals on a Census basis to bring the data in line with the concepts and definitions used to prepare the international and national accounts. These adjustments are necessary to supplement coverage of the Census basis data, to eliminate duplication of transactions recorded elsewhere in the international accounts, and to value transactions according to a standard definition. These adjustments also allow for the goods trade totals to be summed with services trade totals for a more accurate account of U.S. total trade.&lt;/p&gt;&#xA;" OwnerUserId="8832" LastEditorUserId="8833" LastEditDate="2016-07-14T05:39:07.950" LastActivityDate="2016-07-14T05:39:07.950" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12706" PostTypeId="1" AcceptedAnswerId="12878" CreationDate="2016-07-13T17:48:00.333" Score="2" ViewCount="371" Body="&lt;p&gt;I am trying to learn &lt;a href=&quot;https://en.wikipedia.org/wiki/John_H._Cochrane&quot; rel=&quot;nofollow&quot;&gt;John Cochrane's&lt;/a&gt; &lt;em&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/John_H._Cochrane#Asset_Pricing&quot; rel=&quot;nofollow&quot;&gt;Asset Pricing&lt;/a&gt;&lt;/em&gt;. I notice there are &lt;a href=&quot;https://en.wikipedia.org/wiki/Coursera&quot; rel=&quot;nofollow&quot;&gt;Coursera&lt;/a&gt; resources (&lt;a href=&quot;https://www.coursera.org/instructor/johncochrane&quot; rel=&quot;nofollow&quot;&gt;link&lt;/a&gt;). However, it is not available now. Did anyone try that class before? Does anyone know what's the next time it opens? Is it worth waiting for? Are there any good alternatives?&lt;/p&gt;&#xA;" OwnerUserId="7923" LastEditorUserId="8855" LastEditDate="2016-07-16T04:21:21.523" LastActivityDate="2019-03-26T15:20:31.880" Title="Asset pricing Coursera resources" Tags="&lt;reference-request&gt;&lt;asset-pricing&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12707" PostTypeId="1" AcceptedAnswerId="12721" CreationDate="2016-07-13T20:49:05.913" Score="0" ViewCount="530" Body="&lt;p&gt;Beginner question here.&#xA;I'm Canadian, and my investement account is, by default, in CAD currency.&#xA;Recently I wanted by buy a US stock so I had to convert some of my CAD money in USD money.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There would have been other ways, but this led me to use an FX tool. The interface was similar to this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Action: [ ] Buy [ ] Sell&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Currency: [ ] CAD [ ] USD&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So basically, in order to do what I wanted to do (convert CAD to USD), I had 2 options:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A) Buy USD&lt;/p&gt;&#xA;&#xA;&lt;p&gt;B) Sell CAD&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What's the difference between both actions ?&lt;/p&gt;&#xA;" OwnerUserId="8835" LastActivityDate="2016-07-14T15:13:18.420" Title="USD/CAD fx: What's the difference between Buying USD and Selling CAD?" Tags="&lt;exchange-rates&gt;&lt;investment&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12708" PostTypeId="1" AcceptedAnswerId="12714" CreationDate="2016-07-13T21:38:19.233" Score="1" ViewCount="331" Body="&lt;p&gt;This &lt;a href=&quot;https://imgur.com/lrqrnca&quot; rel=&quot;nofollow noreferrer&quot;&gt;diagram&lt;/a&gt; in my textbook illustrates two solutions to a negative externality of consumption - here, the consumption of cigarettes. It states that MSC is shifted upwards by the specific tax. Since the deadweight/welfare loss is defined as the area demarcated by MSC, MSB and the quantity demanded, this would seem to imply that the deadweight loss is not reduced at all (as per the diagram). This seems rather strange.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://imgur.com/l4OvWlt&quot; rel=&quot;nofollow noreferrer&quot;&gt;Here's&lt;/a&gt; an alternate diagram I think makes more sense.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since an increase in taxes will effect a change in the behaviour of individuals, I would argue that it is the MPC (and not MSC) curve that is affected by taxes (hand-drawn Diagram 1). Diagram 2 shows the same picture, but using an ad valorem tax. This will cause a reduction in the deadweight loss. One could argue that a tax will also cause an increase in MSC (effects on employment of tobacco farmers etc.), but, by my reasoning, for the policy to be effective ΔMPC&gt;ΔMPC (otherwise the welfare loss will not be reduced). See Diagrams 3 and (w/ ad valorem) 4 for this scenario.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does this make sense?&lt;/p&gt;&#xA;" OwnerUserId="8836" LastActivityDate="2016-07-14T07:06:15.977" Title="Confusion regarding remedying negative externalities of consumption through taxation" Tags="&lt;externalities&gt;&lt;market-failure&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12709" PostTypeId="1" AcceptedAnswerId="12713" CreationDate="2016-07-13T21:48:00.373" Score="6" ViewCount="2112" Body="&lt;p&gt;Do central banks use some form of engineering-style PID control systems/feedback loops to implement monetary policy? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm an electrical engineering student taking microeconomics/macroeconomics and a lot of it, at least in terms of government policy to control inflation and interest rates, seems applicable to control systems engineering. However, I can't find a great deal of hard literature about it. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Just as a for instance, one could use PID control to set an output, say inflation rate, to follow a specific course or remain steady given certain inputs, say GDP or interest rates or productivity, and given external disturbances, say Brexit. And even if the controller can't prevent catastrophes altogether, it can dampen the response so that sudden and jerky crashes are smoothed out.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why or why not does economic policy use established control theory? If it does, what applications can this be seen?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks in advance!&lt;/p&gt;&#xA;" OwnerUserId="8837" LastEditorUserId="8837" LastEditDate="2016-07-14T01:24:31.933" LastActivityDate="2017-04-16T12:26:48.633" Title="Does control system engineering have a place in economics?" Tags="&lt;mathematical-economics&gt;&lt;monetary-policy&gt;&lt;optimal-control&gt;" AnswerCount="4" CommentCount="5" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="12710" PostTypeId="1" CreationDate="2016-07-14T00:40:17.473" Score="2" ViewCount="75" Body="&lt;p&gt;In the last 2 days, bond market has declined a bit. All major news outlets published articles like these: &lt;a href=&quot;http://www.nytimes.com/2016/07/12/upshot/can-we-ignore-the-alarm-bells-the-bond-market-is-ringing.html&quot; rel=&quot;nofollow&quot;&gt;Can We Ignore the Alarm Bells the Bond Market Is Ringing?&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Such an event in bond market occurred back in ~1950 (according to the graph on that article). The stockmarket had a &lt;a href=&quot;http://www.stockpickssystem.com/wp-content/uploads/2011/06/historical-rate-of-return-1900-2000.jpg&quot; rel=&quot;nofollow&quot;&gt;major dip&lt;/a&gt; around ~1932 due to the great depression but it has looked good since then till 2007.&#xA;Overall things also bounced back in &lt;a href=&quot;http://www.shmoop.com/1950s/economy.html&quot; rel=&quot;nofollow&quot;&gt;1950&lt;/a&gt;, &lt;a href=&quot;http://elcoushistory.tripod.com/economics1960.html&quot; rel=&quot;nofollow&quot;&gt;1960&lt;/a&gt;, &lt;a href=&quot;http://elcoushistory.tripod.com/economics1970.html&quot; rel=&quot;nofollow&quot;&gt;slow down in 1970 due to energy crisis&lt;/a&gt; and then it recovered after &lt;a href=&quot;http://economics.about.com/od/useconomichistory/a/recovery_1980s.htm&quot; rel=&quot;nofollow&quot;&gt;1982&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am not an economist but trying to understand how will the economy will behave when it will face a similar situation. Is it fair to compare 1950 US economy to 2016 US economy?&lt;/p&gt;&#xA;" OwnerUserId="8788" LastActivityDate="2016-07-14T05:21:52.917" Title="Is it fair to compare 1950 US economy to 2016 US economy?" Tags="&lt;macroeconomics&gt;&lt;stock-market&gt;&lt;bonds&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12711" PostTypeId="2" ParentId="12666" CreationDate="2016-07-14T00:41:56.073" Score="1" Body="&lt;p&gt;Found this to have more breadth on the overall US economy: &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0691147728&quot; rel=&quot;nofollow&quot;&gt;The Rise and Fall of American Growth: The U.S. Standard of Living since the Civil War&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="8788" LastActivityDate="2016-07-14T00:41:56.073" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12712" PostTypeId="2" ParentId="12710" CreationDate="2016-07-14T05:21:52.917" Score="-1" Body="&lt;p&gt;Yes. It is a fair comparison.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Human nature, market behavior and principles of finance and economics have not changed much in the recorded history of mankind. For example, the principles set forth by Adam Smith in his opus The Wealth of Nations are just as relevant today as they were in 1776 when the book was published.&lt;/p&gt;&#xA;" OwnerUserId="8719" LastActivityDate="2016-07-14T05:21:52.917" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="12713" PostTypeId="2" ParentId="12709" CreationDate="2016-07-14T05:32:15.847" Score="9" Body="&lt;p&gt;Economists have been exploring control theory applications to macro economics for decades. For example, &lt;a href=&quot;http://www.nber.org/chapters/c10438.pdf&quot; rel=&quot;noreferrer&quot;&gt;here is a 40 year-old research paper written in 1976 on the topic&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;top of page 2 (also numbered 171)&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In the past decade, a number of engineers and economists have asked the question: &quot;If modern control theory can improve the guidance of airplanes and spacecraft, can it also help in the control of inflation and unemployment?&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Non-linear adaptive human behavior, uncertainty and governmental decentralization of control (i.e., democracy) are the main reasons I believe control theory has not become a more common tool for policy makers. Economics is simply not an exact science. Whereas engineering is more so. So control theory is more useful in the engineering discipline.&lt;/p&gt;&#xA;" OwnerUserId="8719" LastEditorUserId="8719" LastEditDate="2017-03-20T07:51:28.547" LastActivityDate="2017-03-20T07:51:28.547" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12714" PostTypeId="2" ParentId="12708" CreationDate="2016-07-14T07:06:15.977" Score="0" Body="&lt;p&gt;Your reasoning is basically correct. In fact, when I teach externalities to my students, I draw something very much like your diagram 1.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The textbook is confusing because the MSC and MSB curves are supposed to show the social benefits and costs &lt;em&gt;of this particular activity&lt;/em&gt;. Taxes and subsidies can't possibly change these costs/benefits because they don't change the fundamental real effects of the activity (one unit of smoke is equally disgusting, regardless of whether it is taxed or not). The tax just means that in addition to this cost, some money is changing hands. But that's not really a social cost because the money will end up belonging to someone.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;I don't think it's too helpful to start thinking about the idea &quot;that a tax will also cause an increase in MSC (effects on employment of tobacco farmers etc.)&quot; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Those workers sell their labour in a labour market with a price mechanism. Unless we think there is some market failure in that labour market, the market achieves allocative efficiency. We don't usually talk about externalities when people loose out from price increase or quantity falls in a well-functioning market because those things are efficient and there isn't a very strong case for intervention.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2016-07-14T07:06:15.977" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12715" PostTypeId="2" ParentId="12703" CreationDate="2016-07-14T08:32:58.047" Score="3" Body="&lt;p&gt;It depends on whether all the tickets are sold or not. If sold out, all the the tax burden is borne by the buyers. If not, then it's shared.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;If sold out, buyers pay all the tax.&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;If all 39,000 tickets are sold, then your reasoning holds correct. The revenue the owners receive &lt;em&gt;with&lt;/em&gt; the tax will equal the income to the owners &lt;em&gt;without&lt;/em&gt; the tax.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$R = P \cdot Q_{max}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where $R$ is the total revenue from ticket sales to owners, $P$ is the average ticket price, $Q(P)$ is the total quantity of tickets &lt;em&gt;sold&lt;/em&gt; and $Q_{max}$ is the total quantity of tickets &lt;em&gt;available&lt;/em&gt; to be sold (39,000 in this case).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ Q_{max} = 39,000 $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The total amount of tax revenue received by the government will equal the total amount of taxes paid by the ticket buyers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$T_{paid} = T_{received} = \$5 \times 39,000 = \$195,000$$&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;If not, the tax burden is shared.&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;When the stadium does not sell out, then the price elasticity of demand kicks in and causes both parties to share the tax burden. Keep in mind, the ticket sellers still earn the same amount per ticket, their shared tax burden (economic loss) comes from a reduced number of ticket sales due to the increase in ticket cost paid by the ticket buyers. The reduction in ticket sales represents a &lt;em&gt;cost of lost opportunity&lt;/em&gt; of a perishable asset (i.e., the unsold tickets).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The amount the buyers, in aggregate, reduce their ticket purchases will be proportional to the price elasticity of demand.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The below diagram shows the impact of taxation on ticket sales, price and quantity sold.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/19Vm7.gif&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/19Vm7.gif&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="8719" LastEditorUserId="8719" LastEditDate="2016-07-20T02:53:14.680" LastActivityDate="2016-07-20T02:53:14.680" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12716" PostTypeId="1" CreationDate="2016-07-14T12:52:51.450" Score="1" ViewCount="6382" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/G5Vvc.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/G5Vvc.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, I am trying to evaluate the consumer and producer surplus. In my notes it is written that the new consumer surplus (defined by the change of the graph from pre-subsidy to post-subsidy) is G + A + D + E - which I do understand. But now, the new producer surplus is defined as the area H + D + A + B. This, one the other hand, doesn't maky any sense to me. Shouldn't the producer surplus be the area H + the &quot;tunnel&quot; that is not marked below H? &lt;/p&gt;&#xA;" OwnerUserId="8841" LastActivityDate="2016-07-14T14:39:59.297" Title="consumer and producer surplus" Tags="&lt;consumer-surplus&gt;&lt;producer-surplus&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12717" PostTypeId="1" AcceptedAnswerId="12729" CreationDate="2016-07-14T13:54:19.023" Score="3" ViewCount="461" Body="&lt;p&gt;I see the elasticity value(s) of demand being used frequently to determine the relation between demand and variables such as price and income. I have however been unable to find any uses for the slope of the demand curve. Are there any?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, is there any relationship between the slope and the elasticity?&lt;/p&gt;&#xA;" OwnerUserId="8836" LastEditorUserId="8836" LastEditDate="2016-07-14T14:00:16.053" LastActivityDate="2016-07-15T20:37:29.940" Title="Usefulness of the value for the slope of the demand curve" Tags="&lt;supply-and-demand&gt;&lt;elasticity&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12718" PostTypeId="1" AcceptedAnswerId="12723" CreationDate="2016-07-14T13:58:16.003" Score="1" ViewCount="64" Body="&lt;p&gt;We all know under what circumstances a central bank tries to cut interest rate and when it tries to increase interest rates, but how do those people know exactly by how much it should change?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I mean, there can be some trial and error, but what are the targets they chase and how exactly do they calculate the money demand, etc. There should be some basis to their conduct.&lt;/p&gt;&#xA;" OwnerUserId="5582" LastEditorUserId="8855" LastEditDate="2016-07-16T04:22:07.527" LastActivityDate="2016-07-16T04:22:07.527" Title="How exactly does a central bank determine how much to cut/increase interest rates?" Tags="&lt;monetary-policy&gt;&lt;interest-rate&gt;&lt;central-banking&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="12719" PostTypeId="2" ParentId="12716" CreationDate="2016-07-14T13:58:40.633" Score="0" Body="&lt;p&gt;Producer surplus is calculated using the S(pre-subsidy) and the demand curve. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You're probably confused because you think the surplus should be calculated using the new supply curve. However, the producer is actually still producing on the original supply curve.&lt;/p&gt;&#xA;" OwnerUserId="8637" LastActivityDate="2016-07-14T13:58:40.633" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12720" PostTypeId="2" ParentId="12716" CreationDate="2016-07-14T14:25:52.227" Score="6" Body="&lt;p&gt;&lt;strong&gt;TL;DR version:&lt;/strong&gt; &quot;the tunnel&quot; and D+A+B have exactly the same area.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;You are right to say that post-subsidy producer surplus is equal to the blue area in the following figure:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/FPa6u.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/FPa6u.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;However&lt;/strong&gt;, it turns out that &lt;em&gt;The Tunnel&lt;/em&gt; (i.e. the dark blue area) is exactly equal in size to D+A+B.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Intuitively, there are two ways to think of a unit subsidy:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Paying the seller a subsidy of $S=p^s-p^d$ per unit sold has an effect equivalent to reducing his marginal cost by $S$. The seller's marginal cost curve shifts down in the same way as the supply curve in your figure. From the seller's point of view, its as if he is paid price $p^d$ for each unit he sells but had a low marginal cost. When we calculate producer surplus (by looking at the area between the marginal cost curve and the price) this creates some new producer surplus equal to 'the tunnel' (which represents the seller's lower perceived cost). This way of thinking about things gives us the blue area above.&lt;/li&gt;&#xA;&lt;li&gt;The subsidy does not reduce the seller's cost [so the seller's perceived marginal cost curve coincides with S(pre-subsidy)], but the subsidy is paid to 'top-up' the price received by the seller from $p^d$ to $p^s$. So from the seller's point of view it is as if he is being paid price $p^s$ with a high marginal cost. When we calculate producer surplus we look at the green area in the following figure: &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Since these are two ways of thinking about the same subsidy, they must yield the same value for producer surplus. But you should be able to see by comparing the blue and green areas that this necessarily implies that the tunnel has the same area as D+A+B.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/Uyftr.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Uyftr.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;You can check this is true in an example by drawing the curves $Q_S=0.5+p$ and $Q_D=2-p$ and then applying a subsidy of $0.5$ to produce a new supply curve $Q_S'=p$. It looks like this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/9rwtV.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/9rwtV.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Geometrically calculating the areas, you should find that 'the tunnel' and A+D+B both have area 3/8.&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2016-07-14T14:39:59.297" LastActivityDate="2016-07-14T14:39:59.297" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12721" PostTypeId="2" ParentId="12707" CreationDate="2016-07-14T15:13:18.420" Score="1" Body="&lt;p&gt;Should be no difference. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You are either (1) buying USD by selling CAD or (2) selling CAD to buy USD. &lt;/p&gt;&#xA;" OwnerUserId="8637" LastActivityDate="2016-07-14T15:13:18.420" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12722" PostTypeId="2" ParentId="12693" CreationDate="2016-07-14T15:54:09.933" Score="0" Body="&lt;ol&gt;&#xA;&lt;li&gt;200 billion&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Look at P = 80. If you shift the aggregate demand curve over by 100, the AD curve will intersect the LRAS at P = 80 instead of P = 100. You need to shift it by 200. &lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;2&quot;&gt;&#xA;&lt;li&gt;50 &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Since the answer to 1 has changed so has 2.&lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;3&quot;&gt;&#xA;&lt;li&gt;80 billion&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Same as 2. &lt;/p&gt;&#xA;" OwnerUserId="8637" LastActivityDate="2016-07-14T15:54:09.933" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12723" PostTypeId="2" ParentId="12718" CreationDate="2016-07-14T16:17:29.867" Score="1" Body="&lt;p&gt;They don't know for certain. It's an inexact science. They do the best they can.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Alan_Greenspan&quot; rel=&quot;nofollow&quot;&gt;Alan Greenspan&lt;/a&gt; was known for pouring over all the economic data available for hours while mostly in the bathtub trying to make sense of what was happening in the economy. But ultimately, it came down to making an informed decision based on knowledge, reasoning, experience and intuition.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Policy objectives (which are quasi-political) can also come into play as sometimes desired results can compete. The classic example of this is economic growth vs. inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Critics of government monopolized central banks argue that it is impossible for any single individual or group of policy makers to choose rates correctly and overnight interbank lending rates should be allowed to float freely and be determined by the market vis-a-vis supply-demand equilibrium. Hence the popularity of LIBOR and to a lessor extent EURIBOR as these are closer to market pricing than, say, the Fed Funds Rate. However, these are still only averages of central bank policy decision and, therefore, are not purely market-driven.&lt;/p&gt;&#xA;" OwnerUserId="8719" LastActivityDate="2016-07-14T16:17:29.867" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12724" PostTypeId="1" CreationDate="2016-07-14T17:02:39.403" Score="2" ViewCount="739" Body="&lt;p&gt;I have run a VAR model, and done granger causality tests (results pasted below) and am trying to answer a textbook question which asks:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there any variable that appears to be close to being block exogenous with respect to the other variables?  In any case, what does this mean?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/HLosq.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/HLosq.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To me it seems like DLRGDP is the closest. Exogenous means that one variable is not affected by changes in the other variables The p-values on the DLRGDP seem to indicate that we cannot reject the null hypothesis that DLRM2 does not granger cause DLRGDP. But the p-value that DRS granger causes DLRM2 is fairly low, at 0.0025.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What do you think, are any of these variables close to being block exogenous?&lt;/p&gt;&#xA;" OwnerUserId="8636" LastActivityDate="2017-02-23T14:14:02.787" Title="VAR Models - Identifying Block Exogenous Variables Through Granger Tests" Tags="&lt;macroeconomics&gt;&lt;econometrics&gt;&lt;time-series&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12725" PostTypeId="1" CreationDate="2016-07-14T17:45:45.963" Score="2" ViewCount="244" Body="&lt;p&gt;What are some of the modern lines of inquiry in labor economics and what are some good sources of them (especially, succinct ones)?&lt;/p&gt;&#xA;" OwnerUserId="6023" LastEditorUserId="8719" LastEditDate="2016-07-16T04:21:38.290" LastActivityDate="2016-07-19T15:30:05.947" Title="Open/modern question in labor economics?" Tags="&lt;reference-request&gt;&lt;labor-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12726" PostTypeId="2" ParentId="12724" CreationDate="2016-07-14T20:11:55.733" Score="1" Body="&lt;p&gt;Checking the p-values, I would suggest that in the first and second tests, the variables DRLM2 and DlRGDP have granger causality issues (since we reject for a 5% sig. level).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the third case, DRLM2 is not rejected for a sig. level of 5%, yet, it seems to be very close (4,8%). &#xA;I don't think there's any particular meaning to having a near non-rejection area. Remember that if you draw the chi-square distribution and use the 1% sig. level for the test, you will not reject the granger causality.&lt;/p&gt;&#xA;" OwnerUserId="8845" LastEditorUserId="2776" LastEditDate="2017-02-23T14:14:02.787" LastActivityDate="2017-02-23T14:14:02.787" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12727" PostTypeId="1" CreationDate="2016-07-15T02:52:00.033" Score="1" ViewCount="261" Body="&lt;p&gt;If I try to calculate cross elasticity of demand (XED or CED) with individual demand quantity, it seems to break down since even small increase when the base number is small is a big increase in percentage. e.g. 1 to 2 is a 100% change.&lt;/p&gt;&#xA;" OwnerUserId="8848" LastEditorUserId="8848" LastEditDate="2016-07-15T09:07:10.873" LastActivityDate="2016-07-15T09:07:10.873" Title="To calculate cross elasticity of demand, does percentage change in quantity demanded have to be market demand instead of individual demand?" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;" AnswerCount="1" CommentCount="0" ClosedDate="2016-07-19T16:02:50.693" ContentLicense="CC BY-SA 3.0" />
  <row Id="12728" PostTypeId="2" ParentId="12727" CreationDate="2016-07-15T05:10:46.867" Score="1" Body="&lt;p&gt;If you calculate XED you have two relative   terms.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$XED=\frac{\Delta q_i}{q_i}\cdot \frac{p_j}{\Delta p_j}$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is right that in your case $\frac{\Delta q_i}{q_i}=\frac{2-1}{1}=1$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now it depends on the current price of good j and the change of the price how large XED is. From the relative change of the demand you cannot conlcude to the level of XED.&lt;/p&gt;&#xA;" OwnerUserId="371" LastActivityDate="2016-07-15T05:10:46.867" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12729" PostTypeId="2" ParentId="12717" CreationDate="2016-07-15T15:43:27.620" Score="4" Body="&lt;p&gt;Price elasticity of demand is related (but not equal) to the &lt;strong&gt;&lt;em&gt;inverse&lt;/em&gt;&lt;/strong&gt; of the slope of the demand curve.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Price_elasticity_of_demand&quot; rel=&quot;nofollow noreferrer&quot;&gt;This Wikipedia article defines PED as&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Price elasticity of demand (PED or Ed) is a measure used in economics to show the responsiveness, or elasticity, of the quantity demanded of a good or service to a change in its price, ceteris paribus. More precisely, it gives the &lt;strong&gt;percentage change in quantity demanded in response to a one percent change in price&lt;/strong&gt;. [emphasis added]&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Look at the following (canonical) supply-demand graph.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/z7pZy.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/z7pZy.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's define $P^*$ the price of market equilibrium, $Q_D$ as the quantity demanded and $E_D$ as price elasticity of demand. Then:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ {slope} = \frac{rise}{run} = \frac{\Delta P}{\Delta Q_D} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And in mathematical terms, the verbal description of the PED reduces to:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ E_D = \frac{\frac{\Delta Q_D}{Q_D} \cdot 100}{\frac{\Delta P}{P^*} \cdot 100} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ E_D = \frac{P^*}{Q_D} \cdot \frac{\Delta Q_D} {\Delta P} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ E_D = \frac{P^*}{Q_D} \cdot \frac{1}{slope} $$&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Edit&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Constructive comments have been incorporated into this answer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In particular, @Kontorus pointed out:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The PED is a percentage change, the slope of the demand curve is an absolute change.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;And @denesp pointed out that:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;... linear demand curves have constant slopes but changing elasticity. &lt;em&gt;Cobb-Douglas&lt;/em&gt; derived demand (hyperbole) has changing slope but constant elasticity.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="8719" LastEditorUserId="8719" LastEditDate="2016-07-15T20:37:29.940" LastActivityDate="2016-07-15T20:37:29.940" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="12730" PostTypeId="2" ParentId="11962" CreationDate="2016-07-15T17:02:02.653" Score="1" Body="&lt;p&gt;In physics it is useful to think of a vector as being defined by its magnitude and direction, but I think this is not the most useful intuition in Economics, rather the better intuition is as an ordered group of numbers as MathUser said. We can think of a vector's magnitude as its norm and think of its direction as where it points to in $n-space$.  The main distinction of a scalar, $\alpha$, and a vector, $\mathbf{x}$ is what space they are in.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \alpha \in \mathbb{R}^1; \; \; \mathbf{x} \in \mathbb{R}^n $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An equivalent way to represent a vector / consumption bundle is as a column matrix &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$  \mathbf{x} = (x_1, x_2, \dots, x_n) =&#xA;\begin{bmatrix} &#xA;x_1 \\&#xA;x_2 \\&#xA;\vdots \\&#xA;x_n&#xA;\end{bmatrix}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where each row indicates a different commodity.  Using the two vectors you drew in your question as examples:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \mathbf{v_1} = &#xA;\begin{bmatrix}&#xA;5 \\&#xA;3 \\&#xA;\end{bmatrix}; \; \; \mathbf{v_2} = \begin{bmatrix}&#xA;2 \\&#xA;4 \\&#xA;\end{bmatrix} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We could compare their consumption bundles by saying Person 1 consumed 5 units of coffee and 3 units of sugar, and Person 2 consumed 2 units of coffee and 4 units of sugar.  But what if we want to look at the utility gained of consuming both coffee and sugar?  We need a function that takes both of these as inputs.  A simple utility function could multiply the two.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ u(x_1, x_2) = x_1  x_2 $$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So Person 1 has utility&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ u_1 (5,3) = 5*3 = 15 $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and Person 2 has utility&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ u_2 (2,4) = 2*4 = 8 $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Using vectors has allowed us to calculate utility by take into account all of the information we are given, rather than looking at things one at a time.&lt;/p&gt;&#xA;" OwnerUserId="5780" LastActivityDate="2016-07-15T17:02:02.653" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12731" PostTypeId="1" AcceptedAnswerId="12755" CreationDate="2016-07-16T05:20:51.833" Score="1" ViewCount="1121" Body="&lt;p&gt;can you please explain from the economic point of view, why protectionism is bad? If sometimes it is sensible to protect some industries to avoid unemployment, loses of some professionals, death of the industry and decreasing independence? What do you think? tnx&lt;/p&gt;&#xA;" OwnerUserId="6761" LastActivityDate="2016-07-18T12:59:30.750" Title="Why protectionism is bad?" Tags="&lt;macroeconomics&gt;&lt;unemployment&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12732" PostTypeId="1" CreationDate="2016-07-16T09:05:04.157" Score="1" ViewCount="311" Body="&lt;p&gt;Floating-rate perpetual bonds will tend to rise or hold value with increasing market interest rates (in contrast to fixed rate bonds, which tend to exhibit and inverse relationship between price and rates).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, is it also the case that these bonds will increase in value (or hold value) if mortgage rates increase due to tougher capital requirements imposed by financial regulators?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The particular bonds in question trade at some fixed premium above the bank bill swap rate and can only be redeemed by the issuer by trading on the open market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am trying to solve a very specific problem here so I might as well just outline my scenario if that helps:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I hold a mortgage at an interest rate that is currently &lt;em&gt;lower&lt;/em&gt; than the post-tax interest rate on floating-rate perpetual (unsecured) notes on some of the major banks in my country (Australia).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the event of rising interest rates, I would expect the value of those bonds to increase accordingly, affording me the option of selling the bonds at a higher value and paying off more of the mortgage than I otherwise would have. If interest rates remain constant, I will have increased my income as these bonds pay out more than the repayments on my mortgage.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am therefore considering buying these bonds instead of making repayments on my mortgage. The risk of this trade are;&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Interest rates dropping further and remaining low for the duration of the life of my loan, and&lt;/li&gt;&#xA;&lt;li&gt;the default of the bank issuing the bonds.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Both are risks I am willing to take, and beyond the scope of this question anyway. I am not asking about personal financial advice.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is; &lt;em&gt;are my assumptions correct&lt;/em&gt;?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If mortgage rates increase because, as has happened recently in Australia, the regulator imposes tighter capital requirements on banks, would one expect the value of unsecured bonds issued by that bank (which, critically, do not count towards said capital requirements) also appreciate in value?&lt;/p&gt;&#xA;" OwnerUserId="8856" LastEditorUserId="8856" LastEditDate="2016-07-17T21:16:54.647" LastActivityDate="2016-07-17T21:16:54.647" Title="How will perpetual floating rate bonds respond to tighter capital requirements?" Tags="&lt;interest-rate&gt;&lt;bonds&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12733" PostTypeId="1" AcceptedAnswerId="14418" CreationDate="2016-07-16T09:33:16.973" Score="4" ViewCount="9773" Body="&lt;p&gt;I cannot understand why the 5y5y swap rate measures inflation. I can see how the floating rate somewhat measures the rate of interest rates which are related to inflation. However I cannot understand why this swap rate is the preferred way to measure (medium term) inflation expectations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For more information see &lt;a href=&quot;http://www.itcmarkets.com/news-press/itc-egbs-questions-regarding-draghis-reference-to-5y5y-forward-rate-and-inflation&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="5515" LastEditorUserId="2776" LastEditDate="2016-09-04T00:49:03.277" LastActivityDate="2019-06-25T17:17:44.920" Title="Why does the European Central Bank use the 5y5y rate to measure inflation" Tags="&lt;macroeconomics&gt;&lt;inflation&gt;&lt;interest-rate&gt;&lt;central-banking&gt;" AnswerCount="4" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12734" PostTypeId="1" CreationDate="2016-07-17T02:44:28.083" Score="2" ViewCount="63" Body="&lt;p&gt;Preliminary note: I have nearly zero economical background, I am a physicist and my question is probably very naive, but I would like a clear and simple explanation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I am not wrong, the global economy can be seen as an isolated system (ie we do not have any non-Earth economic exchanges). At any given time $t$, there is a given amount of money $M$ in the world. As worldwide economy is an isolated system, $M$ can vary only if it is created or destroyed within the system. To my knowledge, the only way to create money is by creating a debt at $t_{0}$ and when money is reimbursed at $t_{1}$, the money that was created out of thin air is destroyed. I see no problem when the interest rate is $0\%$, because globally the system stays balanced.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, if the interest rate is stricly positive, that means that the amount of money $|m_{1}|$ that will need to be reimbursed at $t_{1}$ is higher than the debt $|m_{0}|$ that was created at $t_{0}$. But the thing is that $dm = |m_{1}|-|m_{0}|$ does not exist in the total amount of money available worldwide at $t_{0}$, $M_{0}$. So for the debt to be reimbursed with the interests, $dm$ will need to be created. And the only way to create money... is by creating a debt... with interest. So the system diverges very rapidly with an ever growing debt.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The other way I can see to make the system stable is by inflation/deflation: if $dm$ exactly corresponds to the inflation/deflation rate, then the system can remain at equilibrium without an ever growing debt. The last way I can see to remain at equilibrium, is by crisis so that $dm$ is never reimbursed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would like an explanation in simple words about what is wrong about this naive view.&lt;/p&gt;&#xA;" OwnerUserId="8860" LastEditorUserId="8860" LastEditDate="2016-07-17T05:19:03.293" LastActivityDate="2016-07-17T11:36:30.763" Title="Macroeconomics and equilibrium" Tags="&lt;macroeconomics&gt;&lt;inflation&gt;&lt;interest-rate&gt;&lt;debt&gt;&lt;general-equilibrium&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12735" PostTypeId="2" ParentId="12734" CreationDate="2016-07-17T08:02:33.603" Score="0" Body="&lt;p&gt;You seem to be confusing the concepts of value and money. There are ways of repaying a debt without having any money. I.e. you can pay with assets, such as a painting or your house, etc. as long as the other side accepts.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The speed of value creation and the speed of money creation need not coincide. When a new painting (or company or diamond) is valued at a million dollars, no bank needs to issue new debt.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2016-07-17T08:02:33.603" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12737" PostTypeId="1" AcceptedAnswerId="12739" CreationDate="2016-07-17T09:28:33.557" Score="3" ViewCount="121" Body="&lt;p&gt;Frequently a description that is clear in the mind of its author is not as clear to a reader. It is even worse when the reader finds the description clear but actually misunderstands the intention of the writer. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are many such descriptions in economics. As social animals, economists learn from each other and copy each others phraseology - if I understood it, it is probably clear. However not all widespread phraseology is clear. A good example is in cooperative game theory, where Lloyd Shapley wrote a note titled &lt;a href=&quot;http://www.u.arizona.edu/~mwalker/501BReadings/Shapley_BlockBlock_Econometrica1973.pdf&quot; rel=&quot;nofollow&quot;&gt;'Let's Block &quot;Block&quot;'&lt;/a&gt;. (If you read it be sure to read the footnote as well.) Shapley was among the originators of the phrase 'block' as used in cooperative game theory. But 'blocking' was actually a precisely defined mathematical concept in the science and as events unfolded it became clear that in some cases the popular meaning of the word conflicts with mathematical definition, resulting in Shapley's note.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;After this introduction I will state my questions.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Is it correct and/or useful to say that in a market where a per unit tax (or quantity tax) is levied on the good the suppliers push part of the tax onto the consumers?&lt;/li&gt;&#xA;&lt;li&gt;Is it correct and/or useful to say that in the same situation consumers and suppliers share the tax burden?&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2016-07-17T09:59:31.653" LastActivityDate="2016-07-17T10:13:38.883" Title="Pushing taxes - economic etymology" Tags="&lt;microeconomics&gt;&lt;taxation&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12738" PostTypeId="2" ParentId="12737" CreationDate="2016-07-17T09:58:54.840" Score="1" Body="&lt;p&gt;I do have an opinion in these matters:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Without further information about the market structure this phraseology is unclear and therefore its use is incorrect. An example:&lt;br&gt;&#xA;Suppose the supply side of this market is provided by a state run company. The company does not care about profit but does care about social optimum, hence they operate at the level where marginal cost is equal to the market price. Of course the government needs funds for other projects. (For public goods where the free market would not reach an optimal allocation.) Thus it levies a tax on other goods, also on the one in our example. This shifts the supply curve upward. Is the welfare maximizing state company really 'pushing the tax onto the consumers'? I would say no. The market mechanism was changed and the new equilibrium allocation is different. Yes, consumer prices are higher in the taxed equilibrium if we compare the two. &lt;br&gt;&#xA;Perhaps you find this example contrived. Another objection I would raise against the phrase is that in case of perfect competition companies have no price setting power at all, they are price takers. How is it then possible for them to push taxes? Again, I think the market mechanism is changed, and this changes the equilibrium price and quantity.&lt;/li&gt;&#xA;&lt;li&gt;In almost all cases this phraseology is unclear and therefore its use is incorrect.&#xA;&lt;br&gt;&#xA;In the &lt;a href=&quot;https://www.uktradeinfo.com/Statistics/Pages/TaxAndDutyBulletins.aspx&quot; rel=&quot;nofollow&quot;&gt;UK in May 2016 the Alcohol Duty&lt;/a&gt; payed on alcoholic beverages was 852 million pounds. I would argue that this tax is levied on the suppliers of the beverages. Of course consumers are made aware of the tax and suppliers use the money payed by consumers to transfer to the treasury but consumers transfer exactly 0 million pounds to the treasury under the heading Alcohol Duty. The other approach where we estimate a demand and supply curve and calculate the equilibrium price without the Alcohol Duty and compare this to the price consumers pay and the price suppliers get with the duty would yield a different outcome. But this obfuscates matters greatly. Again, what happens is that the market mechanism is changed. The duty raises the equilibrium price payed by the consumers and lowers the equilibrium price received by suppliers. Sometimes this phraseology also talks in welfare terms and mentions the tax burden. I find this somewhat better as both consumer and supplier welfare is decreased in this case. Usually however this burden is equated with the tax received by the state. This is generally incorrect as it does not take into account the deadweight loss caused by the tax. So while the tax does burden both consumers and suppliers just by comparing these burdens one does not get anything akin to who is paying what share of the tax. The market mechanism is changed by the tax. Comparitive statistics may be preformed to examine welfare changes. These concepts exist and are clear.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2016-07-17T10:07:26.310" LastActivityDate="2016-07-17T10:07:26.310" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12739" PostTypeId="2" ParentId="12737" CreationDate="2016-07-17T10:13:38.883" Score="1" Body="&lt;p&gt;(1)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A unit tax increases a firm's marginal cost and causes it to reoptimise its price/quantity decision, usually with the result that acquiring a unit of the good becomes more expensive for consumers. But this is just one manifestation of a more general phenomenon. The partial equilibrium effect would be the same if a technological or other exogenous shock caused the firm's marginal cost function to shift.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In my mind, this proper terminology for this kind of dynamic is &lt;strong&gt;cost pass-through&lt;/strong&gt;. My preference would be standardisation around a single, well-defined term. Some &lt;a href=&quot;http://www.journals.uchicago.edu/doi/full/10.1086/670401&quot; rel=&quot;nofollow&quot;&gt;headway has already been made&lt;/a&gt; in this process. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would favour avoiding expressions like &quot;the firm passes costs through&quot;, because this might give the misleading impression that the firm is taking an active role by increasing its price. But we know that in some models firms do not set prices. It therefore seems appropriate to use the more passive expression &quot;costs are passed-through&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(2)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I find this terminology more useful. In particular, there is a difference between &lt;em&gt;paying the tax&lt;/em&gt; (by which I mean actively making a remittance to the government to fulfill a tax obligation), and &lt;em&gt;bearing the burden of the tax&lt;/em&gt; (meaning that your surplus/profit decreases as a consequence of the tax). The tax is paid by the firm(s), but the burden falls on the shoulders of both firms and consumers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The most important contribution of tax-incidence analysis in my mind is to make clear the (often counter-intuitive) idea that these two things are not the same. So having a succinct language to differentiate them seems to be of value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My one reservation is that saying &quot;consumers and suppliers share the tax burden&quot; may be seen to implicitly imply that the entire social cost of the tax is bourne by consumers and suppliers. But this would neglect the fact that there is also a deadweight loss.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2016-07-17T10:13:38.883" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12740" PostTypeId="2" ParentId="12734" CreationDate="2016-07-17T11:36:30.763" Score="2" Body="&lt;p&gt;The world economy is a closed system as regards economic exchanges, but it is &lt;em&gt;not&lt;/em&gt; a closed system as regards &lt;em&gt;productive resources&lt;/em&gt;: earth as a natural system still has resources outside the human economic system that are continuously transformed by willful human activity and &lt;em&gt;enter&lt;/em&gt; the economic system. Also, human &lt;em&gt;time&lt;/em&gt; (enhanced with productive know-how) is something that continuously flows into the system as a productive resource.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The issue with the quantity of money therefore, is not its absolute level and magnitude, but its quantity &lt;em&gt;relatively&lt;/em&gt; to produced output. A small village with a monetized economy, needs a certain amount of money to function economically. A large country needs a much higher quantity of money for the same purpose.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;When a person borrows an amount of money, he essentially borrows an amount of productive resources, raw (investment loan) or in finished/ready-to-consume form (consumption loan). And indeed, he undertakes the obligation to return a higher amount that includes the interest. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If, when the time comes to repay loan+interest, he liquidates some already existing asset of his, then we do not really have additional money creation to cover the interest. If it manages to pay loan+interest by the output he produced in the meantime through his activity, then the additional money that needs to be created in order for the monetary transaction to be completed, &quot;makes no harm&quot; since it matches and reflects underlying real value that has already been created. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Certainly, &quot;value&quot; is not objective, and we have the price system that fluctuates, creating defaults, bankruptcies, hyperinflations, sudden re-distributions of wealth, etc. But in the very large picture you are looking at, these are fluctuations and deviations around the structure delineated above.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2016-07-17T11:36:30.763" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12741" PostTypeId="2" ParentId="12724" CreationDate="2016-07-17T13:21:30.917" Score="1" Body="&lt;p&gt;A variable is block exogenous, if it does not Granger cause ANY other variables of the VAR model.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In your case, the direction of the Granger causality is the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$DRS \rightarrow DLRGDP$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$DRS \rightarrow DLRM2$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$DLRGDP \rightarrow DRS$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$DLRM2 \rightarrow DRS$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As you can see, every variable Granger cause at least one other variable. There's no block exogeneity in your VAR model.&lt;/p&gt;&#xA;" OwnerUserId="5017" LastActivityDate="2016-07-17T13:21:30.917" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12742" PostTypeId="2" ParentId="12670" CreationDate="2016-07-17T14:04:49.893" Score="2" Body="&lt;p&gt;I heard in a lecture at my university, that measure theory is applied in finance. This field also operates with negative probabilities a lot.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Anyways, I don't see the practical intuition behind using negative probabilities in a bond-pricing model. You can check this article by &lt;a href=&quot;http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1773077&quot; rel=&quot;nofollow&quot;&gt;Burgin and Meissner: Negative Probabilities in Financial Modeling (Wilmott Magazine March 2012)&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think you should migrate your question to &lt;a href=&quot;http://quant.stackexchange.com&quot;&gt;Quant SE&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="5017" LastActivityDate="2016-07-17T14:04:49.893" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12744" PostTypeId="2" ParentId="4608" CreationDate="2016-07-17T16:03:31.950" Score="2" Body="&lt;p&gt;A good place to start is a report by the U.S. National Academy of Science called &lt;a href=&quot;http://www.nap.edu/catalog/6374/natures-numbers-expanding-the-national-economic-accounts-to-include-the&quot; rel=&quot;nofollow&quot;&gt;Nature's Numbers&lt;/a&gt;. The upshot: There is a consensus among economists that it is possible to refine standard measures of GDP rigorously to incorporate adjustments for impacts on environment and natural resources. Implementation is in practice difficult due to data problems. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Most alternative indicies, e.g. GPI, are not consistent with national income accounting principles. But since there is a demand for such indicies, there is a supply response.&lt;/p&gt;&#xA;" OwnerUserId="8865" LastActivityDate="2016-07-17T16:03:31.950" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12746" PostTypeId="1" CreationDate="2016-07-17T19:32:57.897" Score="1" ViewCount="121" Body="&lt;p&gt;In almost all NK models public government consumption (like coastal defences) or private government consumption (like primary and secondary education) is by default 'wasteful'. Government consumption as we measure it is however defined as production of goods and services by the government which are used/consumed by households). But it seems silly to assume that a privately paid nurse is, by definition, productive while a government paid nurse (working for instance at the NHS in the UK) has zero productivity. So, why is government consumption (again: government production which is consumed by households) not included in 'utility'? Same for government investments. Addendum: not including it means that institutional differences between countries (the NHS!) make it impossible to use NK models to compare countries.&lt;/p&gt;&#xA;" OwnerUserId="8868" LastActivityDate="2016-08-17T09:57:58.053" Title="Why does 'government consumption'in NK models not add to utility" Tags="&lt;utility&gt;&lt;government&gt;&lt;consumption&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12747" PostTypeId="2" ParentId="12731" CreationDate="2016-07-18T03:40:05.400" Score="1" Body="&lt;p&gt;In theory, it is bad because its inefficient. You protect your inefficient industries, I protect mine, we all end up consuming less. We would all be better off with totally free trade...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But of course, there are many complications to this. It might be that an industry needs time to become efficient and you want to protect it in the meanwhile. Or it might be that the other country is not more efficient, but is just dumping their products o your economy until your firms close, after which they will raise their prices and extract a handsome surplus...&lt;/p&gt;&#xA;" OwnerUserId="7593" LastActivityDate="2016-07-18T03:40:05.400" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12748" PostTypeId="1" CreationDate="2016-07-18T04:27:21.523" Score="2" ViewCount="54" Body="&lt;p&gt;Let's say that I have a project and I need to earn some target to be successful, let's say $50,000&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The way I earn is by one time donations at various levels.  1, 5, 7.5 (some discounted item), 10, 15, 20, and 25.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If i say that i want the least number of pledges, then it seems obvious that I would like to maximally sell as much $25 items as possible.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But in reality, there is some sort of distribution that tells me how likely it is that I'll be able to sell each type of items.  For example, if this were a kickstarter project, typically there are fewer higher tier bids and a lot more lower tier ones.  As to how to obtain this type of information, let's say I have found a model, or I can just draw out the histogram myself based on some reasonable guess about the relative potential of a person choosing a pledge level.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is, how do I figure out, given some likelihood about how people tend to pledge, how to reach this particular target?  Perhaps let's say I assume that the distribution is the same no matter how many people end up bidding.  So I guess I really am trying to find the minimum number of bids necessary, given the liklihood of certain bids actually being sold.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reason I'm asking this is because I want to try to quantify in some way the importance of exposure.  The more people see something, there's some likelihood they'll be interested, and even if they are, they're going to pick the tier item that suits them, which is typically low.  I know it might be a bit silly to think about this without regard to the quality of the project itself, but I was wondering if thinking about this might provide some insight on how important it is to do proper marketing.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm also interested in a reverse question.  Let's say I can only reach about 5000 people, based on the fact maybe that similar projects to mine only got an average of that maybe people to back them.  Is there a way to figure out how to shape the distribution to reach the goal in a way that sticks to the goal? Or perhaps to start with my initial distribution, and see how to morph it as little as possible to reach the target?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks&lt;/p&gt;&#xA;" OwnerUserId="8873" LastEditorUserId="1601" LastEditDate="2016-07-18T07:47:27.820" LastActivityDate="2016-09-16T17:28:08.103" Title="Finding the minimum # of items to be sold to meet a goal, based on likelihood" Tags="&lt;optimization&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12749" PostTypeId="2" ParentId="12731" CreationDate="2016-07-18T08:18:41.823" Score="0" Body="&lt;p&gt;There is also this concept of &lt;strong&gt;&lt;em&gt;creative destruction&lt;/em&gt;&lt;/strong&gt;. Which basically means that old less productive technologies must die in order to free up resources to be made available to new, more productive technologies. It's analogous to pruning. But it occurs naturally in a free market economy and does not require &lt;em&gt;management&lt;/em&gt; or government intervention.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Protectionism impedes the natural and beneficial process of creative destruction.&lt;/p&gt;&#xA;" OwnerUserId="8719" LastActivityDate="2016-07-18T08:18:41.823" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12750" PostTypeId="2" ParentId="12746" CreationDate="2016-07-18T08:42:04.513" Score="1" Body="&lt;p&gt;You can include government consumption in the utility function of the representative consumer, but why? When we add exogenous government purchase shocks to a macro model, we enquire about the dynamics of the agent's consumption and labour supply change. This concept is clear and easy to measure.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's assume that you are including government spending in an additively separable utility function. For example, the representative consumer is happy because of the government is investing in coastal defences. But he is unhappy about the state's Olympic games project. It's all OK, but how are you going to defend these assumptions empirically speaking? I think you should introduce a few agents plus. How do you describe the preferences of agents about the different government spending projects (defence forces, park building, etc.)? It's a normative assumption, what makes this research Economics no more. This research becomes Political Science. Unless you find or do a reliable research on the preference of agents about government spending projects. But keeping in mind, political preferences are very far-fetched from the so-called rationality. There is always an emotional factor, which makes a spending project likeable or not. How to make these &quot;soft&quot; questions into &quot;hard&quot; science? It's a very hard question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Anyway, what is the purpose of including include government consumption in the utility function? I can imagine an OLG model with a social choice problem. E.g. children want playground, adults park, and elders hospital.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To answer your sub-question, government purchase is wasteful by default in Macroeconomics, unless this purchase don't effect the production function in a positively. In any other case, the welfare of the economy can be suboptimal. If government buys tablets for every pupils in schools, it may makes the workforce more productive in the long run. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can measure the effectiveness of government spending considering the fiscal multipliers indicator. It's a stylized fact that the effectiveness of government spending depends on the countries structural features (income, openness,  exchange rate regime, etc.). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;See also: &lt;a href=&quot;http://www.voxeu.org/article/determining-size-fiscal-multiplier&quot; rel=&quot;nofollow&quot;&gt;Enrique G. Mendoza, Carlos A. Vegh , Ethan Ilzetzki - How big are fiscal multipliers? New evidence from new data (01 October 2009)&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="5017" LastEditorUserId="5017" LastEditDate="2016-07-18T09:54:02.660" LastActivityDate="2016-07-18T09:54:02.660" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12752" PostTypeId="2" ParentId="12748" CreationDate="2016-07-18T10:31:14.570" Score="1" Body="&lt;p&gt;Let's start with an environment in which there is only ever a single pledge level. The question at hand is: how do we choose the dollar amount of that level to maximise revenue (income)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Observation 1: your probability distribution implies a demand curve.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can plot the cumulative distribution of willingness to pledge and it will probably look roughly like this (with most of the mass at the bottom, as you speculate):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/Hkhsi.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Hkhsi.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The $y$ value in this figure tells us the probability that a given individual's willingness to pledge (WTP) is no greater than the dollar value on the $x$ axis.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By turning this upside down, we get the probability that somone is willing to pay &lt;em&gt;at least&lt;/em&gt; this much:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/UOgGS.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/UOgGS.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This tells us, for example, that there is a rouly 55% chance of a randomly selected individual being willing to pledge &lt;em&gt;at least&lt;/em&gt; \$10. If we take 100 people then, on average, 55 of them will pledge. Thus, we can think of the vertical axis as being an indirect way of measuring pledge &lt;em&gt;quantities&lt;/em&gt;, corresponding with the pledge level (or &lt;em&gt;price&lt;/em&gt;) on the horizontal axis. If we swap the two axes, we therefore get something that looks very much like a textbook demand curve:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/YPtop.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/YPtop.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given this demand curve, we can use all of the usual tools from the kind of standard monopoly optimisation problem that you can find in and introductory economics textbook. For example, if the CDF in the first figure is given by function $F$ then$$\Pr(\text{WTP}&amp;gt;x)=1-F(x)$$ so the revenue from setting the pledge level at $x$ when the audience consists of $n$ potential pledgers is $R(x)=[1-F(x)]xn$. Just like a standard monopolist's problem, we can compute the revenue-maximizing pledge level (&quot;price&quot;) by setting marginal revenue equal to zero:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$R'(x)=n[1-F(x)]-xnF'(x)=0.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Substituting your empirical distribution for $F$ in this equation and solving for $x$ gives your optimal pledge level.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Now, if we allow for multiple pledge levels then things become much more complicated. Firstly, we need a model of the behaviour of people and why it is that some people might pledge more than others.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If, for example, we are working in a Kickstarter-like environment then the main motive would be to get the goodies that come with the higher pledge tier. But that means we need a model not only of the pledge levels, but what you get in return. A complete treatment of this is beyond the scope of this answer, but a fairly readable summary can be found in &quot;&lt;a href=&quot;http://people.ischool.berkeley.edu/~hal/Papers/version.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Versioning Information Goods&lt;/a&gt;&quot; by Hal Varian. If you want a more detailed, technical treatment then the best place to look is &quot;&lt;a href=&quot;https://mitpress.mit.edu/books/economics-contracts&quot; rel=&quot;nofollow noreferrer&quot;&gt;The Economics of Contracts: A Primer&lt;/a&gt;&quot; by Salanie.&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2016-07-18T11:00:14.003" LastActivityDate="2016-07-18T11:00:14.003" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="12753" PostTypeId="2" ParentId="12645" CreationDate="2016-07-18T12:11:50.923" Score="3" Body="&lt;p&gt;The concept of &quot;balanced growth path&quot; in economics incorporates three characteristics at the same time (related to the main macroeconomic aggregates):  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) Growth rates are constant  (reflecting a notion of equilibrium/stability)  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) Growth rates are strictly positive  (otherwise the economy would eventually vanish)  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;3) Growth rates are equal to each other (hence there is &quot;balance&quot; and no macroeconomic aggregate becomes negligible relative to another)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To obtain the first characteristic you have to impose that the derivative of the growth rate with respect to time is zero. Nothing weird about that, just a valid mathematical operation.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2016-07-18T12:11:50.923" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12754" PostTypeId="1" AcceptedAnswerId="12813" CreationDate="2016-07-18T12:49:24.197" Score="6" ViewCount="450" Body="&lt;p&gt;&lt;a href=&quot;http://www.bbc.co.uk/news/business-36821582&quot;&gt;This&lt;/a&gt; is one example of many recent doom storied prognosticating that the &quot;millennial&quot; generation will be the first in (recent) history to experience lower incomes than their predecessors—at least in western societies like the UK.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How can we reconcile the idea that millennials will earn lower wages with the observations that&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;millennials work with better production technology than their parents did&lt;/li&gt;&#xA;&lt;li&gt;millennials have enjoyed higher levels of education/training than their predecessors, and are therefore presumably more productive?&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2016-07-22T11:02:23.617" LastActivityDate="2016-07-30T13:38:27.927" Title="Reconciling low wages with high technology and high education" Tags="&lt;macroeconomics&gt;&lt;labor-economics&gt;&lt;economic-growth&gt;&lt;inequality&gt;&lt;wages&gt;" AnswerCount="6" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12755" PostTypeId="2" ParentId="12731" CreationDate="2016-07-18T12:59:30.750" Score="1" Body="&lt;p&gt;To add to the other comments here - when you allow for free trade to prosper countries/regions tend to specialize in what they are good at producing/creating (idea of comparative advantage).  This leads to better products created more efficiently.  Note that this idea has no care for unemployment rates in certain countries, it simply states that as a whole we are all better off.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You may have heard that some people (often unskilled laborers) are &quot;left behind&quot; by globalization, particularly in developed nations such as the US (think auto industry).  To think like an economist these people ought to re-appropriate their efforts to developing a skill that is useful in their new environment.  However, that isn't always plausible for many people, which is where you can argue that government should step in and help them learn new and useful skills (preferable to protecting an inefficient industry).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Protectionism tends to dampen productivity and efficiency thus often leading to inferior goods that cost more to the consumer.&lt;/p&gt;&#xA;" OwnerUserId="8878" LastActivityDate="2016-07-18T12:59:30.750" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12756" PostTypeId="1" CreationDate="2016-07-18T13:10:54.513" Score="4" ViewCount="66" Body="&lt;p&gt;I believe everyone has experienced something like the following once in her or his life :&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;There is a cake on the table and three people to share it.&lt;/li&gt;&#xA;&lt;li&gt;The three people each eat a quarter of the cake.&lt;/li&gt;&#xA;&lt;li&gt;They wait.&lt;/li&gt;&#xA;&lt;li&gt;After some time, brave miss 1 eats another eighth.&lt;/li&gt;&#xA;&lt;li&gt;After some more time, bold mister 2 cuts another 16th and eats it.&lt;/li&gt;&#xA;&lt;li&gt;Then miss 3 cuts another 32th and eats it.&lt;/li&gt;&#xA;&lt;li&gt;etc.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Is this kind of behavior where people do not want to grab the last part of the pie (i.e., social endowment) documented in experimental economics?&lt;/p&gt;&#xA;" OwnerUserId="38" LastActivityDate="2016-07-18T13:10:54.513" Title="Don't let me take the last bit" Tags="&lt;reference-request&gt;&lt;behavioral-economics&gt;&lt;experimental-economics&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12757" PostTypeId="1" AcceptedAnswerId="12780" CreationDate="2016-07-18T16:19:27.600" Score="2" ViewCount="85" Body="&lt;p&gt;A definition in my book states&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;$ \sigma^* \in \Delta$ is a &lt;strong&gt;Nash equilibrium for $\Gamma$&lt;/strong&gt; if for all $i \in I$ and all $\mu_i \in \Delta_i, \; U_i (\sigma^*) \geq U_i(\sigma^* \backslash \mu_i)$.  The set of Nash equilibria for $\Gamma$ is denoted $Eq(\Gamma)$&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;What does the $\backslash$ here represent, divide or element not included?&lt;/p&gt;&#xA;" OwnerUserId="5780" LastEditorUserId="5780" LastEditDate="2016-07-18T16:57:14.403" LastActivityDate="2016-07-20T00:13:52.433" Title="&quot;$\backslash$&quot; notation question in definition for Nash equilibrium" Tags="&lt;mathematical-economics&gt;" AnswerCount="1" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="12758" PostTypeId="1" AcceptedAnswerId="16305" CreationDate="2016-07-18T16:20:46.677" Score="1" ViewCount="77" Body="&lt;p&gt;Does an acquiring company have to buy all the stocks of a target company to acquire/merge with it?&#xA;If so, why? I thought stocks give voting rights and dividends, but not direct control of company management.&#xA;If not, why do they usually do it?&lt;/p&gt;&#xA;" OwnerUserId="8880" LastActivityDate="2017-05-15T23:30:06.490" Title="Buying stocks in company merging/acquisitions" Tags="&lt;stock-market&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12759" PostTypeId="2" ParentId="10603" CreationDate="2016-07-18T16:36:20.253" Score="0" Body="&lt;p&gt;A company must first pay off it's debt. This would be subtracted from the money earned from selling it's physical assets.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The value of the physical assets may be calculated from their market prices. However, during liquidation they may have to be sold quickly and therefore at a lower price than calculated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The market price of the physical assets may lower between the present and when the company liquidates.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These would all lead to the stockholder receiving less money than the calculated liquidation amount.&lt;/p&gt;&#xA;" OwnerUserId="8880" LastActivityDate="2016-07-18T16:36:20.253" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12760" PostTypeId="1" AcceptedAnswerId="12779" CreationDate="2016-07-18T16:58:45.503" Score="1" ViewCount="28" Body="&lt;p&gt;Some products are commodities, identical regardless of the producer. Others are very different an people look for specific brands of whatever they buy. Has anybody built any sort of index of how differentiated a product is or an industry? This would be very useful for research purposes! &lt;/p&gt;&#xA;" OwnerUserId="7593" LastActivityDate="2016-07-19T23:50:25.153" Title="Is there an index that describes how differentiated a product is?" Tags="&lt;research&gt;&lt;product-differentiation&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12763" PostTypeId="1" AcceptedAnswerId="12767" CreationDate="2016-07-18T18:55:51.187" Score="1" ViewCount="124" Body="&lt;p&gt;I am looking for a:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Serious forum/chat (like so many math and physics forums I know in the net)&lt;/li&gt;&#xA;&lt;li&gt;Where I may able to chat about economics foundations &amp;amp; hypotheses, theory and empiria, and so on, with people who have some knowledge about it.&lt;/li&gt;&#xA;&lt;li&gt;Which is NOT a Q&amp;amp;A forum.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Thank you very much!&lt;/p&gt;&#xA;" OwnerUserId="8882" LastActivityDate="2016-07-19T07:26:40.627" Title="Is there a serious forum/chat (not Q&amp;A like StackExchange) on Economics?" Tags="&lt;reference-request&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12764" PostTypeId="1" CreationDate="2016-07-18T19:48:06.267" Score="3" ViewCount="232" Body="&lt;p&gt;There seems to exist a rarely-stated assumption that somehow corporations are an essential element of a free-market economy, and that they benefit a nation's economy. However, I wonder if this is really true.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here, I am speaking of the US form of a corporation which allows a small number of people to control capital contributed by a large number and also allows those same people to disavow responsibility for the debts and liabilities of the corporation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the Wealth of Nations, Adam Smith deprecated any kind of joint stock companies, writing that a man would be much more careless with other people's money than his own. By this logic one might see corporate law as a way for elites to exploit society parasitically and corporate law as a damage to the economy instead of a benefit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there any theoretical validity to this kind of view?&lt;/p&gt;&#xA;" OwnerUserId="1448" LastActivityDate="2016-08-18T08:12:03.460" Title="Are corporations essential components of a free market economy?" Tags="&lt;macroeconomics&gt;&lt;corporate-governance&gt;&lt;classical-economics&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12765" PostTypeId="1" CreationDate="2016-07-19T02:40:07.587" Score="1" ViewCount="117" Body="&lt;p&gt;What forces influence the price in a market, wherein the consumer must choose a good before knowing the price, and afterwards only knows the price of the good purchased, not that of any competing goods? For instance, in the US healthcare industry, a patient wanting to assess the cost associated with treating a particular condition - historically, at least - cannot receive quotes for the treatment.&lt;/p&gt;&#xA;" OwnerUserId="8404" LastEditorUserId="8404" LastEditDate="2016-07-19T17:19:56.850" LastActivityDate="2016-11-27T02:01:07.030" Title="Market behavior when consumer must choose product before knowing price?" Tags="&lt;microeconomics&gt;&lt;pricing&gt;&lt;monopolistic-competition&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12766" PostTypeId="2" ParentId="12764" CreationDate="2016-07-19T05:46:10.497" Score="0" Body="&lt;p&gt;Corporations are essential and they do provide benefits to the overall economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Corporations are essential in the sense than individuals, when given the freedom to choose, do choose to invest their capital in corporations. And these corporations, in turn, use this capital to produce products and services which other people voluntarily purchase.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Corporations are a net benefit to the economies in which they operate because they produce products which customers voluntarily purchase for prices which allow the corporations to return a profit to their shareholders.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To the extent there are exceptions to this vis-a-vis crony corporations and government subsidies, the previous paragraph is notwithstanding.&lt;/p&gt;&#xA;" OwnerUserId="8719" LastActivityDate="2016-07-19T05:46:10.497" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="12767" PostTypeId="2" ParentId="12763" CreationDate="2016-07-19T06:30:40.463" Score="2" Body="&lt;p&gt;This could be useful: &lt;a href=&quot;https://groups.google.com/forum/#!forum/decision_theory_forum&quot; rel=&quot;nofollow&quot;&gt;https://groups.google.com/forum/#!forum/decision_theory_forum&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, in econjobrumors sometimes there are interesting discussions...&lt;/p&gt;&#xA;" OwnerUserId="8557" LastActivityDate="2016-07-19T06:30:40.463" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12768" PostTypeId="2" ParentId="12763" CreationDate="2016-07-19T07:26:40.627" Score="0" Body="&lt;p&gt;As Alvaro said, &lt;a href=&quot;http://www.econjobrumors.com/&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.econjobrumors.com/&lt;/a&gt; is where economics graduate students and professors mostly congregate to talk.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But be aware that the form there is anonymous and not for the faint of heart.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;economics.SE also has a &lt;a href=&quot;https://economics.stackexchange.com/chat&quot;&gt;chat room&lt;/a&gt; for economics, which is not restricted to Q&amp;amp;A (although it is currently not very active).&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2016-07-19T07:26:40.627" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12769" PostTypeId="1" CreationDate="2016-07-19T08:51:50.027" Score="1" ViewCount="716" Body="&lt;p&gt;Can help me with part b of this problem?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The demand for wine is given by the equation $QD = 500 – 20P$, where $P$ is the price of wine per litre and $QD$ is the quantity of wine demanded in litres. The supply of wine is given by the equation $QS = 30P$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;a) Solve for the equilibrium quantity and price of wine.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The current equilibrium would be $500 - 20P = 30P$.  therefore the equilibrium price is $P=$ $100 and equilibrium quantity is 1500. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;b) Suppose that a $1 per litre tax is levied on the wine producers. Calculate the new equilibrium quantity and price of wine after tax.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is the new supply $QS = 30P + 1$? &#xA;So the new equilibrium can be obtain from $30P+1 = 500-20P$.  But I get decimal places?  Or is the equilibrium $30P + 1Q$?&lt;/p&gt;&#xA;" OwnerUserId="8885" LastEditorUserId="4817" LastEditDate="2016-07-20T12:14:47.203" LastActivityDate="2016-07-20T12:14:47.203" Title="Market Equilibrium" Tags="&lt;microeconomics&gt;&lt;self-study&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12770" PostTypeId="2" ParentId="12769" CreationDate="2016-07-19T12:41:48.240" Score="3" Body="&lt;p&gt;For (a) it appears that you made a slight miscalculation; the equilibrium price cannot be $100 since in that case &lt;strong&gt;Quantity Demanded&lt;/strong&gt; = -1500.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For (a) the equilibrium price is $10 and Quantity of 300.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The trick to getting (b) is seeing the viewpoint of the producers and the buyers rather than just applying the maths.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Producers: 30P where P is the price per litre that they &lt;strong&gt;actually&lt;/strong&gt; receive.&lt;br&gt; &#xA;Buyers:  500 - 20P where P is the amount that they &lt;strong&gt;actually&lt;/strong&gt; pay.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since producers now pay an extra $1 per litre in tax, their &lt;strong&gt;actual&lt;/strong&gt; price is one dollar less therefore &lt;br&gt;Producers with tax is now &lt;strong&gt;30(P-1)&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you work out the equlibrium using the same method as in (a), you will get a price equilibrium of $10.6 with a quantity of 288.&lt;/p&gt;&#xA;" OwnerUserId="8886" LastActivityDate="2016-07-19T12:41:48.240" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12771" PostTypeId="2" ParentId="12758" CreationDate="2016-07-19T14:58:52.203" Score="0" Body="&lt;p&gt;Stocks/shares are equity (a share is 'a part of' something) and are thus essential to ownership of a company. Owning shares means that you own part nof a company. The ownership, as a side effect, gives voting rights on the C-suite and dividends. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Acquiring a company requires you to buy all of the shares of that company (so that you own it).  &lt;/p&gt;&#xA;" OwnerUserId="8637" LastActivityDate="2016-07-19T14:58:52.203" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="12773" PostTypeId="2" ParentId="12725" CreationDate="2016-07-19T15:30:05.947" Score="2" Body="&lt;p&gt;If you want a recent state of the art in Labor Economics, you can have a look at the last &lt;a href=&quot;http://www.sciencedirect.com/science/handbooks/15734463/4/part/PA&quot; rel=&quot;nofollow&quot;&gt;Handbook of Labor Economics&lt;/a&gt; (2011, edited by Card and Ashenfelter). Though it is getting old, it provides an overview of specific approaches or questions in Labor. It is especially relevant if you want to define a research project for a PhD.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To be more specific, here is a (non-exhaustive) list of trendy research questions (you can use these keywords to find research articles and reviews):&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Polarization of the labor market. There is evidence of a decline in demand for middle-skilled workers (less employement and reduce in wages). The two main explications are globalization and skill-biased techonological change. Researchers try to weight the role of each explanation from data. In particular, a recent approach interests in the type of tasks in each occupation. This is related to the chapter by Autor and Acemoglu in the Handbook. Jobs with routine tasks are likely to be affected by technology as they can be more easily automated. Looking at the type of tasks, whether it uses cognitive or non-cognitive skills, brings new insigths in other interesting questions (returns to education, gender/racial wage gaps, local labor markets). You can look at some work by David Autor or David Dorn for instance.&lt;/li&gt;&#xA;&lt;li&gt;Productivity puzzle. In many advanced countries, productivity has not found its before-crisis trend, and we do not know why. Research focused in country-specific situations (the UK productivity puzzle, the French productivity puzzle, etc) to find the reasons of this productivity slowdown in the national labor markets. It is also a puzzle that so many countries are affected despite their differences in the functionning of their economy.&lt;/li&gt;&#xA;&lt;li&gt;Labor market, household decisions and marriage market. A rich literature studied the labor supply choices within the household as a joint decision. A new research area relates labor market outcomes to the formation of households. The novelty is to consider that individuals are not matched in a pure randomly way on the marriage market, and decisions to marry may account for individual abilities and skills. In particular, it has been shown that high-skilled female workers marry high-skilled male workers more often than in the past, and reciprocally. This has consequences in terms of inequalities and labor supply decisions. There are recent works conducted by Pierre-André Chiappori among others.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="4094" LastActivityDate="2016-07-19T15:30:05.947" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12774" PostTypeId="1" CreationDate="2016-07-19T17:12:55.837" Score="2" ViewCount="247" Body="&lt;p&gt;Let's consider a Mundell-Fleming model for the short-run, with flexible exchange rates. Now, if we have a monetary contraction (or expansion), the exchange rate path will differ whether we're in the presence of rational expectations or not, and if the goods market adjust slowly.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Realistically, there are empirical evidence that the goods markets adjust slowly. In this case, if the agents are not forward-looking, then there's a slow adjustment of the exchange rate until there's an equilibrium. But when the agents are rational, the expected exchange rate is immediately the equilibrium exchange rate, and with a slow adjustment from goods market, there will be an overshoot(difference between the actual exchange rate and equilibrium one) for some periods, before reaching the equilibrium.  With a rapid adjustment in the goods market, the output would go immediately to equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is what implications have a bigger or smaller period of overshooting/adjustment for the equilibrium exchange rate? &#xA;Are there also some empirical studies on this?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="118" LastActivityDate="2016-07-19T17:12:55.837" Title="Exchange rate overshooting" Tags="&lt;macroeconomics&gt;&lt;open-economy-macro&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12777" PostTypeId="1" AcceptedAnswerId="12790" CreationDate="2016-07-19T19:53:36.113" Score="1" ViewCount="46" Body="&lt;p&gt;I'm having some difficulty to understand the following sentence:«(...) there's a tight connection between domestic savings and investments at the national level, but very little when we look at the subnational level. Limited spatial correlation is exactly what would be expected if the capital market was doing its job of allocating savings to the most productive investment projects - irrespective of where savings were generated.»&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What they're saying is that if there's a high correlation, then there's no financial integration - as at the subnational level?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="118" LastActivityDate="2016-07-24T02:24:43.103" Title="Financial integration and connection between savings and investment" Tags="&lt;macroeconomics&gt;&lt;international-trade&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12778" PostTypeId="2" ParentId="12559" CreationDate="2016-07-19T23:25:03.230" Score="1" Body="&lt;p&gt;The Balance of Payments is supposed to be a form of double-entry bookkeeping, in that every transaction has two opposite effects, often in different accounts.  Hence the word &lt;em&gt;balance&lt;/em&gt;. In fact it might be considered quadruple-entry bookkeeping, as there are another two effects on the foreign side too.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a country's Current Account to be in surplus there must be some net income, for example from the sales of exported goods and services exceeding the purchase of imported goods and services.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The surplus could be represented by a debt owed by the foreign importer to the domestic exporter. If the exporter uses this to invest in the foreign country then this counts in the Capital Account (or the Financial Account as the IMF calls it) which balances the Current Account.  But even if it simply remains as debt or as the exporter's balance in a foreign bank, this still counts as &lt;em&gt;other&lt;/em&gt; investment and balances in the same way.  If the foreign importer pays in domestic currency then that reduces the outstanding liabilities to foreigners, again with the same net effect on the Financial Account. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If somebody actually turns a debt into money, then it amounts to an investment in the liabilities of the foreign money-issuing authority (typically its Central Bank).  Bringing the foreign money home and selling it to somebody else domestically for domestic currency makes no difference to the impact on the Current or Financial Accounts, unless you sell foreign currency to the domestic Central Bank in which case it turns into a change in the Central Bank's Reserves.      &lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2016-07-19T23:25:03.230" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="12779" PostTypeId="2" ParentId="12760" CreationDate="2016-07-19T23:50:25.153" Score="1" Body="&lt;p&gt;For an industry, one indicator used by competition authorities is the &lt;a href=&quot;https://en.wikipedia.org/wiki/Herfindahl_index&quot; rel=&quot;nofollow&quot;&gt;Herfindahl–Hirschman Index&lt;/a&gt; measured as $\displaystyle \sum_{i=1}^N s_i^2$ where there are $N$ firms in the sector and the market share of the $i$th firm is $s_i$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This gives a value of $1$ when there is a single firm and $\frac1N$ when the $N$ firms have equal market shares, but also deals sensibly with cases where different firms have different shares.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a particular product, you could look at something else like comparing its price elasticity of demand when other similar products do not change price, perhaps comparing this with the price elasticity of demand for all the similar products together.  An undifferentiated product should have an almost infinite price elasticity as all demand will shift if there is any relative price change.     &lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2016-07-19T23:50:25.153" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12780" PostTypeId="2" ParentId="12757" CreationDate="2016-07-20T00:13:52.433" Score="1" Body="&lt;p&gt;Informally, a (possibly mixed) set of strategy choices is a Nash equilibrium if no player can expect to benefit by changing strategies while the other players keep their strategies unchanged. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here I would interpret your definition as $\Delta$ being the set of all possible strategy choices across all players, $\sigma^*$ being a set of strategy choices which will be a Nash equilibrium if it satisfies the conditions, $i$ being a player, and $\sigma^* \backslash \mu_i$ being a change in player $i$'s strategy while the other players' strategies stay the same.  So I would take $\backslash$ having a type of &quot;not included&quot; interpretation.  &lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2016-07-20T00:13:52.433" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12781" PostTypeId="1" AcceptedAnswerId="12782" CreationDate="2016-07-20T00:41:54.110" Score="0" ViewCount="36" Body="&lt;p&gt;It seems that two linear demand curves with different slopes would be a good way to do it, but linear demand curves are hard to work with otherwise.&lt;/p&gt;&#xA;" OwnerUserId="7593" LastActivityDate="2016-07-20T13:02:39.070" Title="What is a good way te represent analytically two markets with different price elasticities of demand?" Tags="&lt;industrial-organisation&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12782" PostTypeId="2" ParentId="12781" CreationDate="2016-07-20T08:01:31.683" Score="4" Body="&lt;p&gt;How about constant elasticity demand: $Q(p)=p^a$, where $a&amp;lt;0$?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Such functions, as their name implies, have the advantage that the price elasticity of demand is constant along their entire length:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\eta=Q'(p)\frac{p}{q}=ap^{a-1}\frac{p}{p^a}=a.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since the elasticity of the demand function is directly controlled with a single parameter, such functions are often convenient when performing comparative statics exercises in which the objective is to show the effect of varying the elasticity of demand upon equilibrium.&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2016-07-20T13:02:39.070" LastActivityDate="2016-07-20T13:02:39.070" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12784" PostTypeId="1" CreationDate="2016-07-20T17:59:56.590" Score="1" ViewCount="442" Body="&lt;p&gt;If we are given that a variable is on a balanced growth path (for sake of argument we shall assume consumption), how do we show that another variable related to consumption (like capital or wealth) should grow at the same constant rate as consumption? I tried giving the verbal explanation below, but I was marked off for not being rigorous enough.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My verbal explanation was the following (in the problem there were only two variables, consumption and wealth and we were given that consumption was on a balanced growth path):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If consumption grows at a constant rate, wealth must also grow at the same constant rate. If the growth rate for wealth is greater than that of consumption, we will have positive wealth during the last time period, so we could not have been maximizing utility (because the agent gets no utility from holding wealth). If the growth rate for wealth is less than that of consumption, then a constant growth rate of consumption would not be sustainable over an infinite time horizon because the agent would eventually have less wealth than is necessary for the level of consumption prescribed by optimality.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My professor said that I could use FOC's to show that they must grow at the same rate, but I'm not sure how I would do so. Can anyone help me understand? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\textbf{Edit:}$&#xA;The specific model for which I used this argument is the one laid out in the following question:&#xA;&lt;a href=&quot;https://economics.stackexchange.com/questions/12020/solution-method-for-infinite-horizon-maximization-problem&quot;&gt;Solution Method for Infinite-Horizon Maximization Problem&lt;/a&gt;. We end up getting steady state consumption (which is a form of a balanced growth path with the growth rate being 1). He said it was correct in this model that steady state consumption implied steady state wealth, but that my explanation was not rigorous enough.&lt;/p&gt;&#xA;" OwnerUserId="5825" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2016-07-31T18:53:49.313" Title="How to Show That, on a Balanced Growth Path, Two Variables Grow at the Same Rate" Tags="&lt;macroeconomics&gt;&lt;balanced-growth&gt;" AnswerCount="0" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="12786" PostTypeId="1" CreationDate="2016-07-20T21:20:46.463" Score="1" ViewCount="35" Body="&lt;p&gt;Suppose that country A buys freely from country B, but B uses steep tarriffs to block its citizens from buying from A. In that case country A's currency will pile up in B.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Other things being equal, will this cause currency A to become more and more valuable relative to currency B?&lt;/p&gt;&#xA;" OwnerUserId="1448" LastEditorUserId="5557" LastEditDate="2016-07-21T09:31:19.790" LastActivityDate="2016-07-21T09:31:19.790" Title="In a trade imbalance does the importing country's currency become more valuable?" Tags="&lt;macroeconomics&gt;&lt;currency&gt;&lt;international-trade&gt;&lt;open-economy-macro&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12787" PostTypeId="2" ParentId="12786" CreationDate="2016-07-20T21:28:28.590" Score="2" Body="&lt;p&gt;No. In fact the opposite happens. The value of a currency (or the exchange rate) is determined by supply and demand of the currency on the currency market. If country A imports more, the supply of country A's currency will increase more, therefore losing its value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose B's goods are priced in B's currency. Then, the supply of A's currency increases in your example, because it needs to sell its own currency to purchase more of B's currency to be able to buy B's goods. Therefore more of A's currency comes on the market, while more of B's is demanded. If priced in A's currency, the exporters in B will still want to have B's currency as they need it because they live in B. Then they will want to exchange the amounts of A currency obtained for B currency.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence, in both cases on the markets for currency, demand for B's currency increases, while supply for A's currency increases, therefore reducing the value of A's currency.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The currency would not (necessarily) &quot;stockpile&quot; however, as import tariffs in B do not influence the exchange of currency.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastEditorUserId="5557" LastEditDate="2016-07-20T21:47:05.383" LastActivityDate="2016-07-20T21:47:05.383" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12789" PostTypeId="2" ParentId="10511" CreationDate="2016-07-21T02:06:44.183" Score="0" Body="&lt;p&gt;This is just a suspicion of mine but the following might be a factor. Please feel free to comment:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Due to technological advancement the composition of the workforce between skilled and unskilled workers should have shifted dramatically over the last few decades. Employers would now seek many more skilled vs unskilled employees. I have not run any analysis on this as of yet but I suspect that due to the ease of attaining a higher education the market is getting saturated with skilled workers, outweighing the increase in demand for skilled workers. - The massive increase in university attendance that I suspect might also be due to the current perception that you need a degree to earn good money. A few decades ago it was a luxury to go to university, now seen almost as a requirement for success.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Due to the oversupply of workers for the 'higher paid jobs' that rely on university education, the average wage for these have steadily decreased. &lt;/p&gt;&#xA;" OwnerUserId="8903" LastActivityDate="2016-07-21T02:06:44.183" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12790" PostTypeId="2" ParentId="12777" CreationDate="2016-07-21T03:25:16.530" Score="2" Body="&lt;p&gt;Suppose that you cannot trade capital. I.e., you cannot ship savings from one place to another. In that case, if region A saves 10, region A will invest 10. If region B saves 1, it will invest 1. So, from that example, you can conclude that if markets for capital are closed, the correlation between savings and investment is 1. For completeness, now imagine the free flow of capital situation: region A saves 10, region B saves 1, but it is in region B where all the investment opportunities are, so the regions trade in capital: A invests all its savings in B, and investment in B is then 11, and investment in A is 0. In this second example I and S are therefore negatively correlated ...&lt;/p&gt;&#xA;" OwnerUserId="7593" LastEditorUserId="7593" LastEditDate="2016-07-24T02:24:43.103" LastActivityDate="2016-07-24T02:24:43.103" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12791" PostTypeId="1" CreationDate="2016-07-21T03:30:37.117" Score="1" ViewCount="20" Body="&lt;p&gt;Are consumers just silly and once they like a firm they go for it regardless of the price? Or is there something more complex going on?&lt;/p&gt;&#xA;" OwnerUserId="7593" LastActivityDate="2016-07-21T03:30:37.117" Title="It seems firms spend a lot of time and energy &quot;capturing&quot; market share. Why is that?" Tags="&lt;competition&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12795" PostTypeId="1" CreationDate="2016-07-21T10:11:49.947" Score="1" ViewCount="795" Body="&lt;p&gt;Amongst several advantages of GST (Goods and Services Tax) I read one as that it prevents tax evasion through self policing incentive. But self policing incentive is already provided in VAT (Value Added Tax). So what's new in GST that improves the current self policing incentive system?&lt;/p&gt;&#xA;" OwnerUserId="8907" LastEditorUserId="6168" LastEditDate="2020-06-09T07:10:19.700" LastActivityDate="2020-06-09T07:10:19.700" Title="Self policing incentive in Goods and Services Tax" Tags="&lt;taxation&gt;" AnswerCount="2" CommentCount="7" ContentLicense="CC BY-SA 4.0" />
  <row Id="12796" PostTypeId="1" CreationDate="2016-07-21T14:13:01.783" Score="0" ViewCount="85" Body="&lt;p&gt;After read Eric Reinert's &quot;&lt;a href=&quot;https://en.wikipedia.org/wiki/Erik_S._Reinert&quot; rel=&quot;nofollow noreferrer&quot;&gt;How Rich Countries Got Rich ... and Why Poor Countries Stay Poor&lt;/a&gt;&quot;, I've got the question:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Reinert theory is: &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Rich West countries are investing to advanced branches at their home to get rich, and ...&lt;/li&gt;&#xA;&lt;li&gt;Buy raw products from poor countries to send them back to stone ages.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;If Reinert theory is true, why rich West is investing so much to advanced business branches on new East companies, like Foxconn?&lt;/p&gt;&#xA;" OwnerUserId="4643" LastEditorUserId="2776" LastEditDate="2017-08-17T17:25:38.367" LastActivityDate="2017-08-18T09:11:51.553" Title="Eric Reinert's conspiracy theory?" Tags="&lt;macroeconomics&gt;&lt;international-trade&gt;&lt;economic-growth&gt;&lt;development-economics&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="12797" PostTypeId="1" CreationDate="2016-07-21T18:00:23.313" Score="4" ViewCount="1751" Body="&lt;p&gt;In one of my econometrics classes. I'm nearly finished a problem set and assigned readings on an introduction to cointegration. I've essentially finished the assignment, run dickey fuller tests on some data, estimated cointegration relationships, and estimated an error correction model. But I'm often surprised at how textbooks in econometrics tend to drive right away into the details without first explaining the big picture and how various concepts are applied in practice. I was wondering:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Could anyone offer an intuitive explanation on how cointegration is important in practice. For example, if you are building models for policy analysis, or finance, or macroeconomic analysis, could you talk about some practical instances where cointegration comes into play and why it is important in these instances?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks very much everyone for the help!&lt;/p&gt;&#xA;" OwnerUserId="8636" LastActivityDate="2016-07-22T07:09:20.347" Title="Why Is Cointegration Important In Practice?" Tags="&lt;macroeconomics&gt;&lt;econometrics&gt;&lt;time-series&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12798" PostTypeId="2" ParentId="12040" CreationDate="2016-07-21T18:48:06.280" Score="1" Body="&lt;p&gt;I am not sure this is currently correct as &lt;a href=&quot;http://www.oecd.org/els/soc/OECDIncomeDistributionDataReview-Korea.pdf&quot; rel=&quot;nofollow&quot;&gt;http://www.oecd.org/els/soc/OECDIncomeDistributionDataReview-Korea.pdf&lt;/a&gt; says: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Income distribution and poverty indicators for Korea are also available from:&lt;/p&gt;&#xA;  &#xA;  &lt;ul&gt;&#xA;  &lt;li&gt;The  same  combination  of  Household  Income  &amp;amp;  Expenditure  survey  combined  with  Farm household economy survey from previous years, using different coverage of population&lt;/li&gt;&#xA;  &lt;li&gt;&lt;ul&gt;&#xA;  &lt;li&gt;Since 2006: all households (same series as OECD reference series)&lt;/li&gt;&#xA;  &lt;/ul&gt;&lt;/li&gt;&#xA;  &lt;li&gt;&lt;ul&gt;&#xA;  &lt;li&gt;Since 2003: only for 2 and more non-farm household&lt;/li&gt;&#xA;  &lt;/ul&gt;&lt;/li&gt;&#xA;  &lt;li&gt;&lt;ul&gt;&#xA;  &lt;li&gt;Since 1990: only for urban salary and wage worker, 2 and more household&lt;/li&gt;&#xA;  &lt;/ul&gt;&lt;/li&gt;&#xA;  &lt;/ul&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;which I intepret as saying that all households have been counted since 2006, while only households with 2+ people were counted from 1990 to 2005&lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2016-07-21T18:48:06.280" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12799" PostTypeId="1" AcceptedAnswerId="12805" CreationDate="2016-07-21T21:44:54.750" Score="2" ViewCount="151" Body="&lt;p&gt;I'm doing research about environmental economics, being myself a beginner in the subject.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I got confused with the branches and subdivisions of the schools of thought.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is environmental economics a branch of welfare economics or institutional economics, and how is this related to the neoclassical school?&lt;/p&gt;&#xA;" OwnerUserId="8913" LastActivityDate="2016-07-22T10:56:01.397" Title="What is the relation among &quot;welfare economics&quot;, &quot;institutional economics&quot;, &quot;environmental economics&quot; and &quot;neoclassical economics&quot;" Tags="&lt;environmental-economics&gt;&lt;welfare-economics&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12800" PostTypeId="2" ParentId="8265" CreationDate="2016-07-21T22:14:21.453" Score="2" Body="&lt;p&gt;The price level of government consumption (education, parts of health care, police etc.) consists mainly of wages. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since the productivity (as we measure it) of government production often does not increase too much, the price level increases about as much as the level of wages. This, contrary to the price level of consumer expenditure which is driven down by productivity, increases in manufacturing as well as cheap imports. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The price level of investment goods might have gone down because of 'hedonic'calculation, i.e. statisticians calculate the dollar price of one unit of computing power instead of the price of one computer. In the new national accounts, military equipment is however also (and rightly so, IMO, as many military items have a clear second hand value and a well developed second hand market exists) considered to be an investment good, this gear may have another pattern of development than computers. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a general sense, I suspect that the investment price level shown is only valid for machinery and the like. Most investment is however in land related items like dwellings, roads, bridges and other buildings as well as the prices of these and of the land itself, have not gone down that much (to the contrary, even, though there are quite some differences between the pre- and post-2008 period). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://ec.europa.eu/eurostat/statistics-explained/index.php/Comparative_price_levels_for_investment&quot; rel=&quot;nofollow&quot;&gt;Here&lt;/a&gt; is some useful background information for the EU which shows that price levels of investment goods (broad definition) can differ up to 400% between countries.&lt;/p&gt;&#xA;" OwnerUserId="8868" LastEditorUserId="4817" LastEditDate="2016-07-22T20:45:42.260" LastActivityDate="2016-07-22T20:45:42.260" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12801" PostTypeId="1" CreationDate="2016-07-21T23:17:23.537" Score="1" ViewCount="1328" Body="&lt;p&gt;As it is known, in simple economic growth models such as the Solow or the Ramsey model, all goods prices are set equal to 1 in each period. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, as we known from general equilibrium theory, homogeneity of degree zero of demand implies that only relative prices matter. Therefore, we can always set one price equal to 1 (or do other types of &quot;normalization&quot;). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, in economic growth models (which are general equilibrium models) we have an infinite number of good prices and all are set equal to 1. &lt;strong&gt;Why do we always do that? Doesn't it affect the analysis of the model?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have search for an explanation, but I've been unable to find one. I have a hypothesis, though. Maybe we can normalize goods prices in each period because we assume the economy is in equilibrium at each instant. Then, by the same argument we use in static models, we can normalize goods price in each period. &lt;strong&gt;Is this explanation true? Or there is some other reason? And, if it is true, how do models that feature inflation are made?&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="8557" LastActivityDate="2017-04-28T21:50:01.320" Title="Why goods prices are normalized in each period in growth models?" Tags="&lt;macroeconomics&gt;&lt;general-equilibrium&gt;&lt;economic-growth&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12802" PostTypeId="2" ParentId="12797" CreationDate="2016-07-22T03:46:00.133" Score="1" Body="&lt;p&gt;A good example from finance is the CAY variable. &lt;a href=&quot;http://faculty.haas.berkeley.edu/lettau/papers/LettauLudvigsonJF2001.pdf&quot; rel=&quot;nofollow&quot;&gt;Lettau-Ludvigson&lt;/a&gt;. They claim that consumption and aggregate wealth are cointegrated, and that deviations of these from their long run relationship are good predictors of asset returns. The econometrics are somewhat tricky in the sense that the tests that prove that there is or is not a cointegration relationship are not very powerful.&lt;/p&gt;&#xA;" OwnerUserId="7593" LastActivityDate="2016-07-22T03:46:00.133" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12803" PostTypeId="1" CreationDate="2016-07-22T03:50:32.470" Score="1" ViewCount="45" Body="&lt;p&gt;It seems that lots of informality, ie. people or firms that exist without being part of the tax, health, legal, regulatory systems, is one of the main issues to deal with in developing economies or poor parts of developed economies. Is there some sort of consensus on how to reduce informality?&lt;/p&gt;&#xA;" OwnerUserId="7593" LastActivityDate="2016-08-28T02:41:10.753" Title="What do people think are good economic policies to reduce informality?" Tags="&lt;informality&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12804" PostTypeId="2" ParentId="12797" CreationDate="2016-07-22T07:09:20.347" Score="4" Body="&lt;p&gt;I think it is a very classical economic teaching problem - showing how something is relevant in the real world. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, it solved a problem where linear regressions could lead to spurious results: &lt;a href=&quot;https://en.wikipedia.org/wiki/Cointegration&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://en.wikipedia.org/wiki/Cointegration&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;...Before the 1980s many economists used linear regressions on&#xA;  (de-trended[citation needed]) non-stationary time series data, which&#xA;  Nobel laureate Clive Granger and Paul Newbold showed to be a dangerous&#xA;  approach that could produce spurious correlation, since standard&#xA;  detrending techniques can result in data that are still&#xA;  non-stationary. Granger's 1987 paper with Robert Engle formalized the&#xA;  cointegrating vector approach, and coined the term.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;For integrated I(1) processes, Granger and Newbold showed that&#xA;  de-trending does not work to eliminate the problem of spurious&#xA;  correlation, and that the superior alternative is to check for&#xA;  co-integration. Two series with I(1) trends can be co-integrated only&#xA;  if there is a genuine relationship between the two. Thus the standard&#xA;  current methodology for time series regressions is to check all-time&#xA;  series involved for integration. If there are I(1) series on both&#xA;  sides of the regression relationship, then it's possible for&#xA;  regressions to give misleading results...&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Second, our &quot;Sister site&quot; actually does a nice job explaning the intuition behind, which can explain why it is important in the real world - are two different time series related? And can we test for this?: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://quant.stackexchange.com/questions/219/what-is-the-intuition-behind-cointegration&quot;&gt;https://quant.stackexchange.com/questions/219/what-is-the-intuition-behind-cointegration&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I really like this one: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;Think of a man walking his dog. He will go along and his dog will&#xA;  stroll along running back and forth. Man and dog are mathematically&#xA;  &quot;cointegrated&quot;.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&lt;strong&gt;As an investor you bet that the dog is coming back to his master or&#xA;  that the leash has only a certain length.&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="107" LastEditorUserId="-1" LastEditDate="2017-04-13T12:46:23.963" LastActivityDate="2016-07-22T07:09:20.347" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12805" PostTypeId="2" ParentId="12799" CreationDate="2016-07-22T10:56:01.397" Score="2" Body="&lt;p&gt;As dismalscience said, none of these terms has a truly rigorous and concrete definition. But here is a broad outline:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Environmental economics&lt;/strong&gt; is the branch of economics that deals with environmental issues, such as providing incentives for pollution abatement, dealling with climate change, managing shared environmental/natural resources, etc.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Neoclassical economics&lt;/strong&gt; is the dominant paradigm for economic analysis across virtually all fields of economics (including environmental econ). It is cheifly characterised by the assumptions that all actors behave rationally in the pursuit of some well-defined objective. In modern economic work, neoclassical analysis typically manifests in the presentation of a mathematical model of behaviour that embodies this rationality assumption.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Welfare economics&lt;/strong&gt; is the branch of economics that deals with questions about how the well being of individuals/groups in society (as well as of society in aggregate) can be definied/measured. It also deals with studying the effects of particular policies/economic phenomena on welfare. Such analysis is usually conducted within the framework of neoclassical economics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Welfare economics provides an important set of tools used by environmental economists to understand who wins and loses under different regimes. It also provides the tools necessary to define what a &quot;good&quot; outcome might be, when all outcomes involve some winners and some losers.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Institutional economics&lt;/strong&gt; studies how and why particular forms of institutions emerge and how they affect economic outcomes. One particular focus of institutional economics is how society deals with situations where markets would otherwise fail. For example, the environment is a common resource shared by everyone, meaning that individual actors have an incentive to exploit the resource for private gains and hope that others will take care of it instead. A key question addressed by institutional economics is how institutions have evolved to deal with these kinds of problems. Such analysis sometimes, but not always, occurs within the framework of neoclassical economics.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2016-07-22T10:56:01.397" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12806" PostTypeId="1" CreationDate="2016-07-22T12:13:23.250" Score="2" ViewCount="420" Body="&lt;p&gt;My question:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Income elasticity of demand for apple is $\gamma$. Cross elasticity of&#xA;  demand between apple quantity and orange price is $\psi$,  What is the&#xA;  impact on apple's revenue if consumers' income increase by x% and&#xA;  orange price fall by y%?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;What I think the answer is?:&#xA;Am I right I say that revenue would increase for the first instance (income) and the revenue will fall for the second instance.  However, how would I know the percentage of revenue increase in the first instances and fall in the second instances?  &lt;/p&gt;&#xA;" OwnerUserId="8896" LastEditorUserId="69" LastEditDate="2016-10-21T09:33:33.053" LastActivityDate="2016-11-20T09:37:46.010" Title="How to interpret income elasticity of demand" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;&lt;supply-and-demand&gt;&lt;elasticity&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12807" PostTypeId="1" CreationDate="2016-07-22T12:59:22.370" Score="1" ViewCount="54" Body="&lt;p&gt;When there is no growth, economy goes bad, unemployement increases, consumption decreases, even in a situation where population is not growing. Why ? &lt;br&gt;We could imagine that without growth, the country will perform in 2016 the same way as in 2015: same production, same unemployement, same incomes.&#xA;&lt;br&gt;&lt;b&gt;What is the fundamental reason ?&lt;/b&gt;&lt;/p&gt;&#xA;" OwnerUserId="8916" LastActivityDate="2016-07-22T12:59:22.370" Title="Why do the economic system freeze when the growth is null" Tags="&lt;macroeconomics&gt;&lt;economic-growth&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12808" PostTypeId="2" ParentId="12754" CreationDate="2016-07-22T13:25:01.957" Score="1" Body="&lt;p&gt;I think that Marx's theory (Capital, volume 1) illustrates some factors that can explain this phenomenon.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a capitalistic production process, wages express the cost of production of labour power (one the factors of production), i.e. the resources that are allocated to workers in order to live and reproduce. The other factor of production are means of production: tools, machines, raw materials, which also have a cost.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the production of commodities, means of production transfer value to the resulting product, e.g. from 1 Kg of flower you can only make so much bread: the output value (measured in money) contained in the produced bread is proportional to the money spent on the input flower. If you spend less money on flower, you get less bread, i.e. less bread money value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand, you can change (reduce) the cost of labour power and still get the same value out of it: an average baker can bake the same amount of bread in eight hours of work, regardless of whether he / she can afford a mobile phone or not.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore you can reduce the resources you invest on labour power and still&#xA;get the same output value from a production process. You can use this&#xA;property of labour power to increase profit by cutting labour costs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, yes, improved technology reduces the production costs of commodities, and therefore it would be possible to buy more commodities if wages were kept constant. But in capitalistic production, profit has the highest priority, therefore&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Increased productivity is not a means to produce more free time or provide better living standards, but rather a means to outsell competitors by producing at a lower cost.&lt;/li&gt;&#xA;&lt;li&gt;Increased productivity of labour means employees can produce more commodities in less time, but this eventually leads to lower commodity prices once the new, better technology has become mainstream. So workers will eventually produce more stuff per hour but not necessarily more money value per hour.&lt;/li&gt;&#xA;&lt;li&gt;A measure to reduce production costs and increase profits is to cut the cost of labour power: the living standard of employees can be lowered, as long as they are still able to show up at work every day.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Since there is no mechanism that connects the purchasing power of wages with the changes in productivity, it can happen that wages are reduced more quickly than the improvements in technology can compensate for, leading to lower living standards in spite of better technology.&lt;/p&gt;&#xA;" OwnerUserId="8620" LastEditorUserId="8620" LastEditDate="2016-07-22T15:26:36.067" LastActivityDate="2016-07-22T15:26:36.067" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12809" PostTypeId="2" ParentId="12754" CreationDate="2016-07-22T13:30:01.497" Score="2" Body="&lt;p&gt;Possibly it is &lt;em&gt;because&lt;/em&gt; of the better technology that they will receive lower income. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;When there where fewer programmers/engineers/whatever, these individuals could typically expect high salaries due to their scarcity, compared to today, where you can hardly go outside without bumping into about two programmers and five web devs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This means that highly-qualified individuals may not be able to find jobs relevant to their qualifications at all, even if they are willing to accept substantially lower salaries.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This may seem more focused on jobs requiring higher qualifications, but that may be one of the big factors here, especially when it comes to averages.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In summary, could it possibly be that we have an over-supply of well-qualified individuals? (This may not apply to all countries or industries) &lt;/p&gt;&#xA;" OwnerUserId="8917" LastEditorUserId="8917" LastEditDate="2016-07-22T22:47:49.157" LastActivityDate="2016-07-22T22:47:49.157" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="12810" PostTypeId="1" AcceptedAnswerId="15544" CreationDate="2016-07-22T15:00:25.647" Score="1" ViewCount="719" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Consider the system of two equations: $$y_t=\beta\mathbb{E}_t[y_{t+1}+\gamma\cdot z_{t+1}]$$ $$x_t=\rho x_{t+1}+y_t$$ $$z_t=(z_0-Z_t)e^{-at}+z_T$$&#xA;  Determine the steady state.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The solution manual says: $$y=\frac{\beta\gamma z}{1-\beta}$$ $$x=\frac{\beta\gamma z}{(1-\beta)(1-\rho)}$$&#xA;Now I have no idea how to derive these values. The lecture sheets don't mention anything, except that the steady state is solved when we have the value of the shock $z_t$ (intial and terminal). Could anyone explain me the mathematical derivation of the steady state?&lt;/p&gt;&#xA;" OwnerUserId="8918" LastActivityDate="2017-02-23T07:43:23.933" Title="How to determine the Steady State of this model?" Tags="&lt;mathematical-economics&gt;&lt;steady-state&gt;" AnswerCount="1" CommentCount="5" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12811" PostTypeId="2" ParentId="12806" CreationDate="2016-07-22T18:23:27.827" Score="3" Body="&lt;p&gt;Hints: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Looking at the definitions, if the income elasticity of demand for apples is 2, how much does apple demand increase when consumers' income increase by 10%?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Looking at the definitions, if the cross elasticity of demand between apple quantity and the orange price is 0.5, how much does apple demand decrease when the orange price falls by 15%?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;How might you combine the increase with the decrease?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Multiplication might be a useful tool.&lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2016-07-22T18:23:27.827" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12813" PostTypeId="2" ParentId="12754" CreationDate="2016-07-22T22:41:49.760" Score="1" Body="&lt;p&gt;It must be pointed out that, over at least a century or two, technology has been improving at the same time that median, mean, and bottom percentile incomes everywhere have been increasing. This seems to be nearly irrefutable evidence that  technology doesn't itself make workers poorer. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Technology and knowledge makes society wealthier: even poor people all over the world now have enough wealth to own a small device called a cell phone that lets them have a rich life in terms of entertainment, access to services, banking, communication with their loved ones, etc. BUT, that doesn't not mean we all get paid more, because what money does is that it lets you buy somebody else's time. But obviously if you and I both produce more, it can't be the case than now I can buy more of your time than before.... We can both buy lots of things that our parents never even dreamed of, but we can't buy more of each other's time....&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Its still definitely true that if your folks work manual jobs, you will get a higher income than they do because you will get a high productivity job. In fact you see a lot of uneducated people being supported by their children with reasonable jobs and being helped with the phone and the google maps and the Amazon shopping thing. The issue is that older people, on average have moved up the command ladder, so they are doing management and maybe managing all these youngsters that are super productive at the basic tasks that they are given. These youngsters are productive, but they are not the managers, and they couldn't be. Technology does not make them better at managing people, only experience and age give you that ability. So despite high productivity, they don't get paid a lot, specially since unemployment has been so high for so long. But, they will be paid a lot when they become the managers....&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course, there are also differences in the distribution of income over time. Apparently, its true that the fraction of income going to workers (the &quot;labor  share&quot;) was low over the 90's and 2000's and also that general inequality within countries has increased. Also, young, low skilled workers, during this period suffered the brunt of the crisis, staying unemployed and learning less on the job that other cohorts. So, if you focus on the young, the low skilled, the ones that were looking for their first jobs between 2008 and 2011, you will probably find relatively low incomes. There are also individual skills that have been replaced by technology, like typists, or long distance operators. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Still, its hard to argue that the majority of the US young people are worse off in life than their parents. &lt;/p&gt;&#xA;" OwnerUserId="7593" LastEditorUserId="7593" LastEditDate="2016-07-28T03:15:24.170" LastActivityDate="2016-07-28T03:15:24.170" CommentCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="12814" PostTypeId="2" ParentId="11605" CreationDate="2016-07-22T23:11:39.987" Score="3" Body="&lt;p&gt;While the owners of a successful business will generally experience an exponential growth compared to their employees, there are some factors to consider:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;I find it unrealistic for any business to maintain a growth rate of 100% over many years. (As per the example) You can only sell twice as much if you can find twice as many buyers.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;As a business grows, it is likely to start hiring more people and paying them better as they need better skills.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The business also takes the risk. The worker is generally guaranteed his X, but stockholders may have to expect the occasional decline in profit, or even a loss. The company may even go out of business in which case they cannot recover much, if any, of their investment. Those who take the risks, get the reward. Businesses failing also mean that bad investors can often lose fortunes, it's not always a good investment.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;There is nothing stopping the employee from owning part of the company by investing in some shares. Then he too may experience this exponential growth. He must also keep in mind, however, that he must now also accept the risks of such an investment.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="8917" LastActivityDate="2016-07-22T23:11:39.987" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12815" PostTypeId="1" AcceptedAnswerId="12820" CreationDate="2016-07-23T03:53:34.720" Score="2" ViewCount="118" Body="&lt;p&gt;Why is the container-shipping industry in a downturn?&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Investments in container-shipping, oil production and drilling—sectors suffering severe, concurrent downturns—are no longer the safe bets they once seemed.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://espresso.economist.com/8819159f9246232ed1299a7414448ab4&quot; rel=&quot;nofollow&quot;&gt;The Economist Espresso: Diversifying: American conglomerates&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="8639" LastEditorUserId="108" LastEditDate="2016-07-23T09:18:16.863" LastActivityDate="2016-07-23T09:18:16.863" Title="Container-shipping industry" Tags="&lt;macroeconomics&gt;&lt;international-trade&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12817" PostTypeId="1" AcceptedAnswerId="12821" CreationDate="2016-07-23T08:25:44.927" Score="1" ViewCount="74" Body="&lt;p&gt;From Wikipedia, investment in macroeconomics is the purchase of goods that are not consumed within a short amount of time (say 3 years). In this sense, home purchase seems to be a form of investment. However, as per my understanding, investment should also involve purchasing new capital goods, which seems to me that primary residence does not qualify. I'm quite confused here: do we consider homes which are only used by their owners as investment, even if these homes are newly built?&lt;/p&gt;&#xA;" OwnerUserId="8828" LastEditorUserId="264" LastEditDate="2016-07-23T16:04:35.113" LastActivityDate="2016-07-23T16:04:35.113" Title="Is a home (primary residence) purchase a form of investment in macroeconomics?" Tags="&lt;macroeconomics&gt;&lt;investment&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12819" PostTypeId="2" ParentId="12754" CreationDate="2016-07-23T09:11:55.990" Score="0" Body="&lt;p&gt;This &lt;a href=&quot;http://www.resolutionfoundation.org/wp-content/uploads/2016/07/Intergenerational-Commission-launch-document.pdf&quot; rel=&quot;nofollow&quot;&gt;report&lt;/a&gt; by the Resolution Foundation identifies the following factors for poor wage growth of the young:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Productivity has been growing below trend levels for some time.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Young people experienced the &quot;great recession&quot; of 2008, the worst economic downtime in several generations, at a crucial time in their early careers. Graduating into a recession has been shows to have long-lived effects of lifetime earnings. Even if young people's salary growth follows a similar profile to earlier generations, this one-off hit would leave them permanently worse-off.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Employers less often invest in training for their workers than was the case in the past.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Many employers have deliberately slowed wage growth to help fund shortfalls in defined benefit pension schemes held by retired workers—implying a large one-off wealth transfer from the young to the old.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The generally poor employment situation has reduced the frequency of job switching, which depresses wages because moving job is a key way to get a pay rise.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="108" LastActivityDate="2016-07-23T09:11:55.990" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12820" PostTypeId="2" ParentId="12815" CreationDate="2016-07-23T09:18:03.677" Score="3" Body="&lt;p&gt;This seems to be driven, in large part, by the recent economic downturn in China, which is both a major source and a major destination for trade in goods.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A &lt;a href=&quot;http://www.bloomberg.com/news/articles/2016-02-11/shipping-industry-suffering-from-china-s-trade-slowdown&quot; rel=&quot;nofollow&quot;&gt;Bloomberg report&lt;/a&gt; has this to say:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Shipbuilders, container lines, and port operators feasted on China’s rise and the global resources boom. Now they’re among the biggest victims of the country’s slowdown and the worldwide decline in demand for oil rigs and other gear amid the oil price plunge. China’s exports fell 1.8 percent in 2015, while its imports tumbled 13.2 percent. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Moreover, there seems to be an overcapcity in the shipping industry thanks to the fact that shipbuilders ordered many new fuel-efficient ships in a bet that oil prices would remain high. From the same article:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Just a few years ago, as the global economy improved and oil prices rose, many companies ordered more fuel-efficient ships. There were more than 1,200 orders for bulk carriers that transport iron ore, coal, and grain in 2013, compared with just 250 last year, according to Clarksons. Many of the ships ordered are now in operation, says Tim Huxley, chief executive officer of Wah Kwong Maritime Transport Holdings, a Hong Kong-based owner of bulk carriers and tankers. “You have a massive oversupply,” he says.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Any standard economic model is going to predict that an oversupply of ships implies a reduction in the price of shipping, which hits the profits of shipping companies.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2016-07-23T09:18:03.677" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12821" PostTypeId="2" ParentId="12817" CreationDate="2016-07-23T12:34:43.733" Score="4" Body="&lt;p&gt;Home construction is a form of investment, home purchase is not. There's an important macro difference between creating the capital asset (construction) and transferring it (purchase).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regarding whether a newly built home occupied by its owner counts as investment— yes, because it is a capital asset that produces a stream of housing services. There's more detail on how this fits into GDP in&lt;a href=&quot;https://economics.stackexchange.com/a/8267/264&quot;&gt; this answer&lt;/a&gt;. &lt;/p&gt;&#xA;" OwnerUserId="264" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2016-07-23T14:32:44.717" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12822" PostTypeId="1" AcceptedAnswerId="12823" CreationDate="2016-07-23T20:10:34.157" Score="3" ViewCount="1158" Body="&lt;p&gt;In a monopolistic competitive market, demand curves shift in, if more firms enter the market. I can't seem to wrap my head around it. Demand remains the same, supply has increased. Shouldn't entry of more firms change the supply curve, rather than demand curve? &lt;/p&gt;&#xA;" OwnerUserId="8863" LastActivityDate="2016-07-23T23:47:25.837" Title="Why does demand curve shift in, in a monopolistic competitive market?" Tags="&lt;microeconomics&gt;&lt;supply-and-demand&gt;&lt;monopoly&gt;&lt;competition&gt;&lt;monopolistic-competition&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12823" PostTypeId="2" ParentId="12822" CreationDate="2016-07-23T20:23:30.867" Score="4" Body="&lt;p&gt;Demand for &lt;em&gt;existing&lt;/em&gt; firms' product shifts in because the entering firms attract some of the users.&lt;/p&gt;&#xA;" OwnerUserId="159" LastEditorUserId="7593" LastEditDate="2016-07-23T23:47:25.837" LastActivityDate="2016-07-23T23:47:25.837" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12824" PostTypeId="1" AcceptedAnswerId="12828" CreationDate="2016-07-24T00:02:57.780" Score="8" ViewCount="18806" Body="&lt;p&gt;The Law of Supply is my worst enemy in economics because I could never truly understand it, and as a result, the stuff I learned after that was built on a weak foundation. The Law of Demand is totally different though, it makes perfect sense to me. I have spent hours thinking about this and I've figured out exactly what I don't understand. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Law of Supply would make perfect sense to me if price was substituted with revenue. With each good supplied, revenue would increase in a linear manner. However, as I realized, it is not revenue we are dealing with. The way the Law of Supply works, revenue would increase in an exponential manner if we took a supply schedule and multiplied price and quantity for each price level. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't understand why price has to increase if quantity increases. Shouldn’t the increase in quantity supplied already generate more revenue to cover the extra costs of production? Why should the price be spiked up to further increase revenue? Why wasn’t the price that high in the first place if the good could be sold like that? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Law of Supply seems counterintuitive to me in some ways. If you have only a small amount of something to supply, shouldn't you make the price HIGH so that those rare fools willing to pay for overpriced things (the ones at the top of the demand curve) would clear your stock and maximize your revenue? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;One explanation that almost made sense is that the more you tried to produce, the higher the costs of production would get. A producer would have no choice but to raise prices if costs of production were that high. But this only makes sense if costs of production increase EXPONENTIALLY, which I don't understand why would happen with EVERY good! Why is it always assumed that marginal cost is increasing and not remaining constant? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;On a side-note: how would the Law of Supply work in the digital realm, where stock is basically infinite? What would a supply and demand graph look like there? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;On a side-side-note: why are the supply and demand graphs really considered CURVES when they are almost always represented by lines? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Maybe there's something fundamentally wrong about my understanding of this. It's supposed to be easy to understand, but for me it's not. I would be so grateful if someone could clear this up for me! &lt;/p&gt;&#xA;" OwnerUserId="8930" LastActivityDate="2020-01-08T17:54:42.173" Title="Why does quantity supplied increase with price in economics?" Tags="&lt;microeconomics&gt;&lt;supply-and-demand&gt;" AnswerCount="8" CommentCount="2" FavoriteCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="12826" PostTypeId="2" ParentId="12824" CreationDate="2016-07-24T02:50:46.230" Score="9" Body="&lt;p&gt;I believe that I have found the problem in this line: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;I don't understand why price has to increase if quantity increases.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The concept is actually the other way around.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Think of it in the same way as the Law of Demand.&lt;br&gt;&#xA;If you go to the grocery store and you see a food that you like selling for \$.25/lb, you would buy a whole lot of it before the price rises.&lt;br&gt;&#xA;Conversely, if you go to the grocery store and you see a food that you like selling for \$100/lb, you would probably wait to buy this item until it is cheaper or at least buy a small amount of it.&lt;br&gt;&#xA;&lt;strong&gt;In economics, the price drives the quantity demanded by the consumer.&lt;/strong&gt;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now let us look at the Law of Supply.&lt;br&gt;&#xA;Imagine that you are the owner of a company.  You go to the store, and you see that the item you are producing and the similar items produced by your competitors is selling for \$.25.  You would not necessarily want to produce a lot of the product because the margin between the selling price and the production costs (profit) is small.&lt;br&gt;&#xA;Conversely, imaging going to the store and seeing that the item you are producing and the similar items produced by your competitors is selling for \$100.  You would want to produce a lot of the product because the margin between the selling price and the production costs is (presumably) large.&lt;br&gt;&#xA;&lt;strong&gt;In this case, as in the other case, the price drives the quantity produced by the supplier.&lt;/strong&gt;  &lt;/p&gt;&#xA;" OwnerUserId="27" LastActivityDate="2016-07-24T02:50:46.230" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12827" PostTypeId="1" CreationDate="2016-07-24T03:20:47.877" Score="7" ViewCount="71" Body="&lt;p&gt;I was looking at the USD/EUR exchange rates a few minutes ago (Saturday evening, Eastern Time Zone here in USA) at &lt;a href=&quot;http://www.xe.com/currencycharts/?from=USD&amp;amp;to=EUR&quot; rel=&quot;noreferrer&quot;&gt;xe.com&lt;/a&gt; and noticed some sharp blips on it from earlier today. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The graph looked as shown below.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/m1xWL.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/m1xWL.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The times (on the X-axis) are in the GDT/UTC timezone but these fluctuations are from activity caused during Saturday. Notwithstanding that I assumed that the exchanges are closed on Saturday, the blips are interesting because the value after the blip is the same as before it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are these blips caused by&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;some algorithmic trading happening during the weekends, or&lt;/li&gt;&#xA;&lt;li&gt;perhaps something in how xe.com calculates the currency rates, or&lt;/li&gt;&#xA;&lt;li&gt;something else?&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="8098" LastActivityDate="2018-02-03T13:58:20.747" Title="What may have caused these blips in the value of Euro vs. US dollar" Tags="&lt;currency&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12828" PostTypeId="2" ParentId="12824" CreationDate="2016-07-24T05:20:18.230" Score="8" Body="&lt;p&gt;Not all (current and potential) production has the same costs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some production has very low additional cost: maybe all the factories and workforce are already in place, they're close to where the product is sold, and it's very little effort to start production and get new product to market. Other production has higher costs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When the price is very low, then in general only the lowest-cost production will happen, as any other production would generate a loss, not a profit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As the price rises, then additional forms of production become profitable. It becomes worthwhile for new investors to move into the sector, and for workers to re-train into that industry, for new factories to get built even on more expensive land, and so on and on.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, when the price is high, all the lowest-cost production happens, as before. AND lots of the higher-cost production happens, too. So the quantity supplied, increases.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a well-functioning market, no one is a price-setter - no supplier, no demander; the price arises automatically from the collective responses of all of the participants. So if a producer has only a small quantity to sell, they can't just set a high price, and reap excess profits. If they tried to do that, then someone else would see the excess profits on offer, and go in and undercut the incumbent supplier, driving them out of business. Sometimes, we do see cases where a supplier can set an excessively high price. Then, either new investors do indeed come in, maybe after a year or two; or the industry gets investigated for anti-competitive practices, and measures are taken to restore the market's competitiveness.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's important to remember that this happens in theory &lt;strong&gt;and in practice&lt;/strong&gt;. It's been observed countless times over many centuries, for just about every product and service that has a functioning market.&lt;/p&gt;&#xA;" OwnerUserId="44" LastEditorUserId="44" LastEditDate="2016-07-24T05:26:13.150" LastActivityDate="2016-07-24T05:26:13.150" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="12830" PostTypeId="2" ParentId="12824" CreationDate="2016-07-24T15:24:15.003" Score="0" Body="&lt;p&gt;look from a businessman's point of view.Higher prices mean higher profits(assuming same costs).Hence people from other industries will want to enter into the industry where prices of the product has risen.Hence the no. of suppliers will increase and so will quantity supplied.This reasoning isn't exhaustive as arguments such as the incumbent firms in that industry increasing their production is also legit.&#xA;hope that helps!&lt;/p&gt;&#xA;" OwnerUserId="8933" LastActivityDate="2016-07-24T15:24:15.003" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12832" PostTypeId="1" CreationDate="2016-07-24T21:16:15.480" Score="4" ViewCount="108" Body="&lt;p&gt;This passage comes from page 10 of the translation of Thomas Piketty's book &lt;em&gt;Capital in the Twenty First Century&lt;/em&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;If the rates of population and productivity growth are relatively low,&#xA;  then accumulated wealth naturally takes on considerable importance,&#xA;  especially if it grows to extreme proportions and becomes socially&#xA;  destabilizing.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Why does low population growth exacerbate the effect of accumulated wealth?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Intuitively, I would think that an increasing population would mean more potential employees, thereby allowing already wealthy people to more easily offer low wages. By contrast, I would intuitively think that low population growth, and the resultant scarcity in employees, would force the wealthy individuals to offer higher wages.&lt;/p&gt;&#xA;" OwnerUserId="5179" LastEditorUserId="44" LastEditDate="2016-08-17T02:56:54.760" LastActivityDate="2016-08-17T21:02:50.480" Title="How does low population growth increase the effect of accumulated wealth" Tags="&lt;labor-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12833" PostTypeId="1" CreationDate="2016-07-24T21:44:40.630" Score="1" ViewCount="237" Body="&lt;p&gt;I was having a conversation with a friend about politics, and that eventually led to economics. I know... We're a little on the wild side. He made a comment that he thinks that a company like General Mills (there happened to be a box of my kids Cheerios on the table) should be able to be profitable as long as they have a good product and business plan. I agreed to a point, but remembering back to my economics classes from years ago , I said that macro economic factors also have a big impact on a company's revenue. For the sake of my argument I tried to think of some examples, but for the life of me I couldn't think of any good ones. All I could think of was average annual household income, but I'm really not sure what kind of an effect that has on a company like General Mills. On one hand I can see how it would give people less money to buy the product, but on the other hand maybe it causes people to buy more of their products because they don't have as much money to eat out all the time. Anyway, It really hurt my debate score, and more importantly, it just really bothers me not knowing the answer to something. That's why I came here for advice. I don't necessarily need 5, I just thought having a few would really solidify my point and it said to be specific with my question.&lt;/p&gt;&#xA;" OwnerUserId="8935" LastEditorUserId="8935" LastEditDate="2016-07-26T21:48:05.473" LastActivityDate="2016-07-26T21:48:05.473" Title="Macro Economic Factors that Effect the Revenue for General Mills" Tags="&lt;macroeconomics&gt;&lt;open-economy-macro&gt;" AnswerCount="0" CommentCount="2" ClosedDate="2016-07-25T16:23:50.803" ContentLicense="CC BY-SA 3.0" />
  <row Id="12837" PostTypeId="1" AcceptedAnswerId="12840" CreationDate="2016-07-25T07:39:17.263" Score="4" ViewCount="499" Body="&lt;p&gt;What does the author mean with:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Since Bitcoins do not generate any actual earnings, they must&#xA;  appreciate in value to ensure that people are willing to hold them.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Why &lt;strong&gt;must&lt;/strong&gt; they appreciate in value?  Is the assumption that people &lt;strong&gt;must&lt;/strong&gt;  hold bitcoin?  Why is it necessary or required to hold bitcoin?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or, is the author saying &quot;eh, what goes up must come down.&quot;  Instead, the article seems argue that bitcoin will go to a &quot;value&quot; of zero:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;...Bitcoins are the most demonstrably valueless financial asset ever&#xA;  created...&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Isn't one of the criticisms to using gold as a currency that it's then tied up as a currency and not being &lt;strong&gt;used&lt;/strong&gt; functionally?  Does the inherent valuelessness of bitcoin, or any other cryptocurrency, make it suitable for transactions?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sure, bankers hold currency, but few individuals actually hold currency directly.  Generally money is spent or invested in quick order.  Which seems not directly related to adoption of bitcoin (or other cryptocurrency) for &lt;em&gt;transactions&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is the reasoning behind the notion that &lt;em&gt;because&lt;/em&gt; bitcoin has no intrinsic value therefore it's not suitable as currency?  Or, to put another way, if no one &quot;held&quot; US dollars, but simply used them to spend or invest, would that invalidate it as a currency for buying chickens? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://nationalinterest.org/commentary/the-bitcoin-bubble-bad-hypothesis-8353?page=2&quot; rel=&quot;nofollow&quot;&gt;http://nationalinterest.org/commentary/the-bitcoin-bubble-bad-hypothesis-8353?page=2&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="8925" LastEditorUserId="8925" LastEditDate="2016-07-25T13:03:06.450" LastActivityDate="2016-07-25T17:24:01.527" Title="because bitcoins do not generate earnings, then (it is a ponzi scheme)?" Tags="&lt;currency&gt;&lt;inflation&gt;&lt;deflation&gt;&lt;bitcoin&gt;&lt;economic-bubble&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12838" PostTypeId="2" ParentId="12837" CreationDate="2016-07-25T09:18:40.450" Score="2" Body="&lt;p&gt;In general, it is possible to find assets that earn a positive yield. There are still positive-yield low-risk bonds and savings accounts out there, for most currencies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, rational people should in general prefer these to a higher-risk asset which has zero yield.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, your quote is saying that the only way that rational people will choose to hold a zero-yield high-risk asset such as bitcoin, is if there is a significant chance that the asset will increase in value. There's no yield, so the only way to get a return is if the asset increases in value. If bitcoin doesn't do that, then no rational person will hold it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's the same principle as with any other ponzi scheme: the only way that existing investors can get any return, is to draw in new investors, and take their money off them.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2016-07-25T09:18:40.450" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="12839" PostTypeId="1" CreationDate="2016-07-25T09:21:59.323" Score="1" ViewCount="475" Body="&lt;p&gt;The first part of this &lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/S0883902613000694&quot; rel=&quot;nofollow&quot;&gt;scientific article&lt;/a&gt; analyzes reward-based crowdfunding. The assumptions are:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Seller is a monopolist&lt;/li&gt;&#xA;&lt;li&gt;Unit mass of consumers&lt;/li&gt;&#xA;&lt;li&gt;Unit demand&lt;/li&gt;&#xA;&lt;li&gt;Two periods&lt;/li&gt;&#xA;&lt;li&gt;Individuals are identified by $\theta$ and are uniformly distributed on [0,1].&lt;/li&gt;&#xA;&lt;li&gt;Individuals in period 1 derive surplus $U_1 = \theta_1(1+\sigma) - P_1$ &lt;/li&gt;&#xA;&lt;li&gt;Individuals in period 2 derive surplus $U_2 = \theta_2 - P_2$&lt;/li&gt;&#xA;&lt;li&gt;Individuals in period 1 derive extra benefits, so-called community benefits denoted by $\sigma &amp;gt; 0$&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The entrepreneur has to maximize profits in both periods while also inducing self-selection between the two consumer groups. The entrepreneur has to achieve profits in period 1 greater than some development cost, $K$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Overall profits (in the unconstrained case) are derived as: $\frac{(1+2\sigma)^2}{4+16\sigma} - K$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is: &lt;strong&gt;How would you derive consumer surplus and thereby also social welfare in this model?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assuming the consumer's have been successfully separated in the two periods, the demand for period 1 consumers is: $Q_1 = 1 - P_1$, and the demand for period 2 consumers is: $Q_2 = \theta_1 - P_2$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Inserting the equilibrium prices yields the following quantities: $Q_1^* = (1+4\sigma-4\sigma^2)/(2+8\sigma)$ and $Q_2^* = (1+2\sigma)/(2+8\sigma)$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The equilibrium prices are such that $P_1^* &amp;gt; P_2^*$. While  $Q_1^* &amp;gt; Q_2^*$ if $\sigma &amp;lt; 1/2$ and $Q_1^* &amp;lt; Q_2^*$ if $\sigma &amp;gt; 1/2$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Clearly, there is a mistake here. I believe that it might be due to the demand expressions. But I don't know what specifically there is wrong. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help is much appreciated. &lt;/p&gt;&#xA;" OwnerUserId="8939" LastEditorUserId="4817" LastEditDate="2016-07-26T15:27:36.210" LastActivityDate="2016-07-26T15:27:36.210" Title="How to compute Social Welfare in this model?" Tags="&lt;microeconomics&gt;&lt;industrial-organisation&gt;&lt;monopoly&gt;&lt;price-discrimination&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12840" PostTypeId="2" ParentId="12837" CreationDate="2016-07-25T14:01:49.317" Score="5" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;What is the reasoning behind the notion that because bitcoin has no intrinsic &#xA;  value therefore it's not suitable as currency? Or, to put another way, if no one &#xA;  &quot;held&quot; US dollars, but simply used them to spend or invest, would that &#xA;  invalidate it as a currency for buying chickens?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The author addresses the difference between bitcoin and fiat currency (such as greenbacks):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Because of their power to tax, governments can make money by fiat, simply by &#xA;  declaring their willingness to accept that money in repayment of tax debts.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I'll be honest and admit that I hadn't heard that argument before and off the cuff, it makes sense.  Because the government can impose taxes and require they be paid in dollars, the demand for dollars will exist at least as long as the government has the power to tax.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I find this part of the argument to be pretty weak:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;As with any kind of asset used as currency, from gold to tobacco to U.S. &#xA;  dollars, Bitcoin is valuable as long as people are willing to accept it. But &#xA;  in all of these examples, willingness to hold the asset depends on the fact &#xA;  that it has value independent of that willingness. Tobacco can be smoked or &#xA;  chewed, gold can be used to fill teeth or make jewellery...&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The problem here is that the demand of gold for jewelry and other industrial purposes is minuscule and can't come anywhere close to justifying the price of gold (even in down markets.)  If we believe this argument, the price of gold is going to go down so far that it might as well be zero.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The argument that I find convincing for why gold has been used as money for so long is that it's physical properties make it extremely suitable for that purpose.  It's not consumable (e.g. you don't put it in your pipe and smoke it.)  It is extremely stable: the list of fluids that will dissolve it is extremely short, it doesn't rust or sublimate.  It is easy to smelt.  It's heavy; making small amounts easy to measure.  It's purity is relatively easy to determine.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It created a universal standard against which the value of other things could be measured so that people didn't have to determine how many chickens was a cow worth.  Even if you were bartering, the relative value of the items could be determined based on their price in gold.  As evidence of this it is said that the discovery of the &lt;a href=&quot;https://en.wikipedia.org/wiki/Touchstone_(assaying_tool)&quot; rel=&quot;nofollow&quot;&gt;touchstone&lt;/a&gt; sparked the explosion of trade in the ancient world.  Nowadays very few people accept gold as payment so the demand for gold seems to be mostly fear-driven.  People believe that if fiat currencies falter or fail, gold will return to it's position as the universal measuring stick of value.  Only time will tell whether they are right.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where does bitcoin fit into this?  It seems to me part the demand for bitcoin comes from illegal activity.  As long as hackers continue to demand ransoms in bitcoin, it's a bit like fiat currency.  It's not a measure of value.  It's value is measured in terms of fiat currencies like dollars.  Bitcoin meets a need: a digital equivalent of cash.  Technically it is traceable but it more or less fits that need.  The biggest concern for bitcoin should be is that there's nothing inherent about it that makes it unique.  Unlike gold, another competing system could be created at any time.  There's been talk of a bitcoin 'fork'.  If someone were to come up with a better system (say something that is impossible to trace) it might very well drop to zero.&lt;/p&gt;&#xA;" OwnerUserId="8944" LastEditorUserId="8944" LastEditDate="2016-07-25T17:24:01.527" LastActivityDate="2016-07-25T17:24:01.527" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12841" PostTypeId="1" CreationDate="2016-07-25T14:08:36.997" Score="0" ViewCount="29" Body="&lt;p&gt;If property prices raise too quickly, it can price people out of the market, cause mortgage stress and financial hardship and create a property bubble.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If property prices fall too quickly, it can be devastating to the economy as property investors have investments worth less than their loan. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So ideally, does the government want property prices to go up or to go down and at what rate?&lt;/p&gt;&#xA;" OwnerUserId="8945" LastActivityDate="2016-07-25T15:57:10.400" Title="What is the government's ideal rate of growth for property prices?" Tags="&lt;property&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12842" PostTypeId="1" AcceptedAnswerId="12846" CreationDate="2016-07-25T14:51:17.680" Score="0" ViewCount="68" Body="&lt;p&gt;I thought that GDP in the United States was computed by the Bureau of Labor Statistics, but I find that now it is made by the &quot;U.S. Bureau of Economic Analysis&quot; which I never heard of.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For how long has been case? Has this agency always been responsible for GDP? If not, when did it start?&lt;/p&gt;&#xA;" OwnerUserId="1448" LastActivityDate="2016-07-25T18:40:44.067" Title="U.S. Bureau of Economic Analysis, when was that created?" Tags="&lt;statistics&gt;&lt;government&gt;&lt;united-states&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12843" PostTypeId="2" ParentId="12497" CreationDate="2016-07-25T15:02:55.580" Score="1" Body="&lt;p&gt;To answer directly why the slow decay in the ACF is an indication that a series is non-stationary, it is showing that the ratio of γs and γ0 (see below equations) is not approaching 0.  The s in γs is what is represented on the x axis on the correlogram.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;γs and γ0 are represented by:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;γ0 = σ^2/[1-(α1)^2]&#xA;γs = σ^2(α1)^s/[1-(α1)^2]&lt;/p&gt;&#xA;" OwnerUserId="8878" LastActivityDate="2016-07-25T15:02:55.580" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12844" PostTypeId="2" ParentId="12842" CreationDate="2016-07-25T15:08:27.017" Score="1" Body="&lt;p&gt;Google and Wikipedia are your Friends...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;BEA was formed at the start of 1972; BEA wiki: &lt;a href=&quot;https://en.wikipedia.org/wiki/Bureau_of_Economic_Analysis&quot; rel=&quot;nofollow&quot;&gt;https://en.wikipedia.org/wiki/Bureau_of_Economic_Analysis&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;BLS wiki: &lt;a href=&quot;https://en.wikipedia.org/wiki/Bureau_of_Labor_Statistics&quot; rel=&quot;nofollow&quot;&gt;https://en.wikipedia.org/wiki/Bureau_of_Labor_Statistics&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;BLS only does labor market-related things.  BEA estimates a variety of macroeconomic indices, the primary one is, of course, the GDP.&lt;/p&gt;&#xA;" OwnerUserId="8878" LastActivityDate="2016-07-25T15:08:27.017" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="12845" PostTypeId="2" ParentId="12841" CreationDate="2016-07-25T15:57:10.400" Score="-1" Body="&lt;p&gt;I can't speak for the rate at which you should set your prices.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, borrowing some knowledge for my class of monetary economics, I would say pricesetting has a lot to do with expectations. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Just like in the exchange market, when people expect prices to rise a certain self-fulfilling prophecy occurs which raises prices. Why is that? When people expect prices to rise it gives them time to adjust themselves to the rise in prices. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For instance: Let's suppose that the dollar is at 1,5dollars/€&#xA;For some reason people expect the exchange rate is going to rise. when I say rise I mean an exchange rate of  for instance 1$/€ . Eventhough when the number becomes smaller because you need to spend more dollars to get the same quantity of euros.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;People expect the exchange rate to rise. Well some people are scared of the price rise so they anticipate that by buying the euros at the current low price. This in turn raises the demand for euros and therefore raises its price. This is the self-fulfilling prophecy mechanism I was talking about. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I realise I haven't answered your questions completely. But I hope it helped you to know that even if you do you at which rate you should set the prices, it is still important to factor in the expectations of the population, however difficult that can be.&lt;/p&gt;&#xA;" OwnerUserId="8912" LastActivityDate="2016-07-25T15:57:10.400" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12846" PostTypeId="2" ParentId="12842" CreationDate="2016-07-25T18:40:44.067" Score="2" Body="&lt;p&gt;Bureaucratic history time! Yes, this agency (and its predecessors) have always been responsible for GDP; GDP was created a couple decades after the Department of Commerce and the Department of Labor split up.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The full answer is that the Bureau of Economic Analysis (BEA) was created in 1972 as a bureau in the Social and Economic Statistics Administration (SESA), then made an autonomous bureau within the Department of Commerce in 1975, with the abolishment of the SESA. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;When the BEA was created in 1972, it was created out of the Office of Business Economics (itself an autonomous unit) in the Department of Commerce. In turn, the Office of Business Economics was established in 1945 inside another autonomous unit, that parent unit being the Bureau of Foreign and Domestic Commerce. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It was during the period of the Bureau of Domestic and Foreign Commerce (housed in the Department of Commerce) that GDP was created (in part by the work of Simon Kuznets on a measure of national income), but the agency preceded this by many years.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Bureau of Foreign and Domestic Commerce, for its part, was transferred to the the Department of Commerce when the DoC was created in 1913 (by splitting up the Department of Commerce and Labor into two separate cabinet departments). It had previously been within the Department of Commerce and Labor, and was known as the Bureau of Statistics prior to 1912.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Bureau of Statistics in the Department of Commerce and Labor was created out of the Bureau of Foreign Commerce (housed in the Department of State), and the Bureau of Statistics (housed in the Department of the Treasury). Each of those bureaus also had other names during the 19th century, but we've probably already gone way further back than you had intended.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This history thanks to the &lt;a href=&quot;http://www.archives.gov/research/guide-fed-records/groups/375.html&quot; rel=&quot;nofollow&quot;&gt;National Archives&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="264" LastActivityDate="2016-07-25T18:40:44.067" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12847" PostTypeId="1" CreationDate="2016-07-25T19:42:38.960" Score="1" ViewCount="52" Body="&lt;p&gt;A lot of bloggers like to write that the dollar has lost 90+% of its value against a basket of goods since the Fed was created.  Without a comparison to the former dollar, that's a meaningless statement.  Is there data that show the dollar's appreciation/depreciation before the Fed took over?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.usinflationcalculator.com/frequently-asked-questions-faqs/#HowInflationCalculatorWorks&quot; rel=&quot;nofollow&quot;&gt;Example of this assertion.&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am not saying its true, but rather, I don't see this calculators showing what the Dollar did against these same basket of goods before the Fed over time.&lt;/p&gt;&#xA;" OwnerUserId="2958" LastEditorUserId="2958" LastEditDate="2016-07-27T20:53:52.097" LastActivityDate="2016-07-27T20:53:52.097" Title="Dollar Before the Federal Reserve" Tags="&lt;federal-reserve&gt;" AnswerCount="0" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="12849" PostTypeId="1" CreationDate="2016-07-26T02:20:22.477" Score="2" ViewCount="59" Body="&lt;p&gt;One of Trump´s stated policies is that he will renegotiate the trade agreements with China and the Canada and México (NAFTA). This renegotiation might go well in which maybe the US gets freer access to markets in these countries, or it might just turn into protectionism and tariff increase. &#xA;Which industries in the US (manufacturing, industrial, extractive, construction, services, etc) does trade theory suggest would be most affected (either positively or negatively) by an general move towards protectionism and tariffs by the US?&lt;/p&gt;&#xA;" OwnerUserId="7593" LastEditorUserId="7593" LastEditDate="2016-07-26T23:55:39.267" LastActivityDate="2016-07-26T23:55:39.267" Title="What sectors would be most affected positively or negatively by Trump´s trade agreement renegotiations?" Tags="&lt;international-trade&gt;&lt;political-economy&gt;&lt;regulation&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12850" PostTypeId="2" ParentId="6501" CreationDate="2016-07-26T02:24:30.543" Score="1" Body="&lt;p&gt;There´s several possibilities, but they are all speculative. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My guess is that its not too hard to tell a story like this one: They could leave the monetary union, declare all local deposits and debts to be in drachmas and then move on, printing drachmas and taking them in for tax payments. Later on, when the economy is growing and the fiscal deficit has become manageable, they would apply to be part of the Eurozone again.&lt;/p&gt;&#xA;" OwnerUserId="7593" LastActivityDate="2016-07-26T02:24:30.543" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12851" PostTypeId="2" ParentId="12529" CreationDate="2016-07-26T02:34:51.417" Score="-1" Body="&lt;p&gt;Although it seems that it necessarily boils down to the idea that labor is very, very cheap for some reason or another, it is often the case in these situations that workers unions, somewhat perversely, will block the firm´s replacement of labor with capital, in order to keep the workers employed.&lt;/p&gt;&#xA;" OwnerUserId="7593" LastActivityDate="2016-07-26T02:34:51.417" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12853" PostTypeId="1" CreationDate="2016-07-26T11:51:10.413" Score="1" ViewCount="55" Body="&lt;p&gt;Consider a simple model where the wage of a worker $i$ in period $t$ is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$w_{it} = \theta_{t} a_{i}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $\theta_{t}$ is the wage rate or efficiency wage per unit of ability, and $a_{i}$ is the workers' ability endowment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For simplicity let us assume no other factor affects a workers' wage (no experience, education, or any the usual Mincer stuff).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I run a panel data regression such as (also known as a two-way effects model):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \ln w_{it} = \ln \theta_{t} + \ln a_{i} + \epsilon_{it} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;then, according to my model, the &lt;strong&gt;estimated effect for the individuals correspond to (the log of) absolute ability&lt;/strong&gt;. However, in the literature you always see that predicted unobserved heterogeneity is not ability &lt;em&gt;per se&lt;/em&gt; but ability together with it's price. This is, there is always a coefficient like in $c\ln a_{i}$ or in $\ln c a_{i}$, and then they move to calculate &lt;strong&gt;relative ability&lt;/strong&gt; by just comparing the ratio of predicted heterogeneity for two workers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I just can't see why it is not possible to identify absolute ability. Where is the missing link in my model?&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2016-07-26T11:51:10.413" Title="Identify absolute ability from a wage equation" Tags="&lt;labor-economics&gt;&lt;wages&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12854" PostTypeId="1" CreationDate="2016-07-26T14:02:50.360" Score="8" ViewCount="293" Body="&lt;p&gt;Say I have €1000 (or $1000) on a bank account. What is that money really?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is it a value stored on some computer at the bank where I have the bank account, a value stored at the central bank of the currency (in the case of the euro the European Central Bank) or something else?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And if it is just a value stored on a computer somewhere, why do we give it so much worth?&lt;/p&gt;&#xA;" OwnerUserId="8949" LastEditorUserId="8949" LastEditDate="2016-07-26T14:52:11.397" LastActivityDate="2020-07-28T04:13:30.043" Title="What is money really?" Tags="&lt;money&gt;" AnswerCount="4" CommentCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="12855" PostTypeId="2" ParentId="11716" CreationDate="2016-07-26T14:09:30.787" Score="3" Body="&lt;p&gt;There are three type of individuals : risk averse, risk neutral and risk loving. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Individuals evaluate risky prospects such as to maximize the expected level of their utility. So, an agent is risk averse if, at any wealth level $w$, he or she dislikes every lottery $Z$ with an expected payoff of zero, $EZ = 0$, so that : $Eu(w + Z) =&amp;lt; u(w)$&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Risk neutrality : $Eu(w + Z) = u(w)$&lt;/li&gt;&#xA;&lt;li&gt;Risk love : $Eu(w + Z) = u(w)$&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Assuming that $Eu(w + Z) = EZ$ (expected value of the lottery $Z$) =&gt; Risk neutral agent.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$Eu(w+ Z) = EZ = - 5$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$Eu(w) = 0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An risk averse agent won't take the gamble. A risk neutral agent won't take the gamble. We don't know for the risk loving agent, depends on his utility function.&lt;/p&gt;&#xA;" OwnerUserId="8950" LastEditorUserId="4817" LastEditDate="2016-07-27T07:22:01.410" LastActivityDate="2016-07-27T07:22:01.410" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12856" PostTypeId="1" AcceptedAnswerId="12858" CreationDate="2016-07-26T14:37:24.760" Score="0" ViewCount="56" Body="&lt;p&gt;In reading &lt;a href=&quot;http://www.nytimes.com/2013/04/26/opinion/krugman-the-one-percents-solution.html&quot; rel=&quot;nofollow&quot;&gt;this&lt;/a&gt; article of Paul Krugman, we immediately see that in his opinion the literature that defended the possibility of the fiscal multiplier being negative for some high-debt countries, i.e. austerity have expansionary effects on output, is no longer supported. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this true? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What papers have since then been produced that support austerity? and what papers have been produced that go against austerity?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="118" LastActivityDate="2016-07-26T17:51:46.163" Title="Can fiscal consolidation be expansionary?" Tags="&lt;macroeconomics&gt;&lt;debt&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12857" PostTypeId="2" ParentId="12854" CreationDate="2016-07-26T14:56:59.530" Score="15" Body="&lt;p&gt;Money is, in essence, debt. More broadly, it's a system of clearing and credit. That entry in the computer means that the bank owes you \$1000, which is worth whatever others are willing to exchange for that sum— one way of thinking about it is that if you have \$1000, you have a general claim on the rest of society for \$1000 worth of whatever society produces. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The fact is that most money is in the form of loans (debt), not currency. This is well-explained in a recent &lt;a href=&quot;http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf&quot;&gt;Bank of England paper&lt;/a&gt;. &lt;/p&gt;&#xA;" OwnerUserId="264" LastActivityDate="2016-07-26T14:56:59.530" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12858" PostTypeId="2" ParentId="12856" CreationDate="2016-07-26T17:51:46.163" Score="0" Body="&lt;p&gt;There has been some papers and articles put forth from the IMF over the last few years suggesting that Austerity has caused many European economies to drag and not recovery from the great recession as well as they otherwise could have.  I pulled the first article I found referencing the IMF research (from Washington post): &lt;a href=&quot;https://www.washingtonpost.com/news/wonk/wp/2012/10/12/imf-austerity-is-much-worse-for-the-economy-than-we-thought/&quot; rel=&quot;nofollow&quot;&gt;https://www.washingtonpost.com/news/wonk/wp/2012/10/12/imf-austerity-is-much-worse-for-the-economy-than-we-thought/&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think the largest concern with respect to expansionary fiscal policy in today's economic climate is the crowd-out effect that huge public debt can have on private investment.  Perhaps someone can link a solid paper about that effect.&lt;/p&gt;&#xA;" OwnerUserId="8878" LastActivityDate="2016-07-26T17:51:46.163" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12859" PostTypeId="1" CreationDate="2016-07-26T19:13:08.890" Score="3" ViewCount="81" Body="&lt;p&gt;How would one go about modelling the effectiveness of public transportation? More specifically how does one go about comparing two transit systems in terms of their ability to move a larger numbers of people and how fast they move them.&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2016-07-26T19:13:08.890" Title="Transportation models in economics" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;welfare-economics&gt;&lt;economic-measurement&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12861" PostTypeId="1" CreationDate="2016-07-26T23:01:06.370" Score="4" ViewCount="282" Body="&lt;p&gt;I am solving old problems from various qualifiers from different universities to prepare myself for an upcoming test. I came across this and wanted to ask if anyone can confirm my answers? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/U24sU.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/U24sU.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My answers: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;** I use $\succeq$ to denote &quot;at least as good as&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(a) A certainty equivalence, in general, is the amount of money $c(F,u)$ so that: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$F \in \Delta(\mathbb{R})$, $\delta_{C(F,u)} \backsim F$ $\equiv u[C(F,u)] = U(F)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here, I've never seen something like this and so it is my best guess:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;$ \forall$  $x&amp;lt;M $ , $C(F,\sqrt(x))= u^{-1}[\int\sqrt(x)dF$] &lt;/li&gt;&#xA;&lt;li&gt;$ \forall$ $x\geq M$, $u[C(F,\sqrt(M))]= [\sqrt(M)] \implies C(F,u)=x$ &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Since $u()$ isn't 1-1, thus not invertible, over $x\geq M$ I eventually just decided my result above was true?  &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Or should it be something more like: &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;$u[C(F,u)] = F(M)\sqrt(x) + [1-F(M)]*\sqrt(M)$&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;(b) I know that the certainty equivalent is less than or equal to the expected value of $F$ iff an agent is risk averse.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think that is the same as saying $u[C(F,u)] \leq u(\int x dF)$ , $\forall F \in \Delta(\mathbb{R})$&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;(c) An agent is risk averse if and only the agent's preferences are represented by a concave utility index $u(.)$  and so this agent is risk averse since: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;$x &amp;lt; M$ $\implies u(x)=\sqrt(x)$, which is clearly concave.  &lt;/li&gt;&#xA;&lt;li&gt;$x\geq M$ let ${x_1,x_2} \subset [M,\infty)$ and let $\alpha \in [0,1]$ Then $\alpha*x_1 + (1-\alpha)*x_2 \in [M,\infty)$ &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Now, note that $u(x_i)=\sqrt(M)$, for $ i=1,2,3$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and so $$u(x_3) \geq \alpha u(x_1) + (1-\alpha)u(x_2)$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\to u(\alpha x_1 + (1-\alpha)x_2) \geq  \alpha u(x_1) + (1-\alpha)u(x_2)$$&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;(D) Again, I am not sure about this. All i know about F.O.S.D is that for two lotteries F,G, then for all EU money monotone preference:&#xA; $$F \geq_{FOSD} G \iff F \succeq G $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any and all help is appreciated. &lt;/p&gt;&#xA;" OwnerUserId="8952" LastActivityDate="2017-02-25T12:27:20.290" Title="Microeconomics - Expected Utility Theory - Piecewise utility index, certainty equivalence, etc." Tags="&lt;microeconomics&gt;&lt;expected-utility&gt;&lt;uncertainty&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12862" PostTypeId="1" CreationDate="2016-07-27T04:40:41.037" Score="2" ViewCount="28" Body="&lt;p&gt;The Fed has a specific schedule to its meetings about changing the Fed Funds Target Rate, does the PBoC perform the same as well?&lt;/p&gt;&#xA;" OwnerUserId="8954" LastActivityDate="2016-12-01T15:28:38.090" Title="Does the PBoC work like the Fed in having meetings where they discuss changes in monetary policy?" Tags="&lt;monetary-policy&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12863" PostTypeId="2" ParentId="4777" CreationDate="2016-07-27T04:52:30.603" Score="-3" Body="&lt;p&gt;Experts argue that &quot;raw&quot; (i.e. the cost of actually purchasing a home) should never be included in CPI's because homes are not viewed as something people buy on a regular basis. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But that argument really becomes unstuck when you factor that reserve banks around the world use (WRONGLY in my opinion) CPI to determine interest rates. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The largest purchase for many people across the globe that relate directly to interest rates, is not shares, businesses, cars or any other similar investments, but homes. So it affects the prices of homes and their affordability directly through the setting of interest rates (remembering people need to borrow to buy a home in 99% of cases) and yet these same institutions and their simple minded economists refuse to take into account the growth of the same home prices when determining interest rates. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Inflation in real terms should be a measure of everything purchased in the economy whether it be a home, investment or bread. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Otherwise you have ridiculous situations globally as we have now where the indicators most economists use blindly are saying we have negative inflation, so interest rates are dropped and house borrowing and house prices go through the roof. If a housing market goes up 20% per year in some countries then should this not be included in the inflation rate? Because if house prices were included interest rates would be on the way up and not down. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;We are currently being told by the &quot;other&quot; experts without vested interest in banking or housing sectors that the biggest problem in todays global economy is low interest rates fuelling asset bubbles (the biggest being residential housing in many countries). One way to fix this problem and easily is to start including house prices into CPI's and not burying our heads in the sand with ridiculous arguments as why not too. Yeh sure those in recent times who borrowed to much in a bubble asset class will take a massive hit. But it is a massive hit for the few that needs to happen for the better of the many in the medium to long term. &lt;/p&gt;&#xA;" OwnerUserId="8955" LastEditorUserId="4817" LastEditDate="2016-07-27T10:50:28.520" LastActivityDate="2016-07-27T10:50:28.520" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12864" PostTypeId="2" ParentId="12291" CreationDate="2016-07-27T15:15:04.957" Score="0" Body="&lt;p&gt;I would use the Federal Reserve Economic Database (Fred) from the St. Louis Fed: &lt;a href=&quot;https://fred.stlouisfed.org/&quot; rel=&quot;nofollow&quot;&gt;https://fred.stlouisfed.org/&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know they have the Lerner Index and the Boone Indicator by country.  Just do a search for it and you get a list of various datasets that you can download to excel, csv, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope that helps!&lt;/p&gt;&#xA;" OwnerUserId="8878" LastActivityDate="2016-07-27T15:15:04.957" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12866" PostTypeId="2" ParentId="5197" CreationDate="2016-07-28T03:06:39.293" Score="0" Body="&lt;p&gt;Correct, both a fixed exchange rate and a manipulated exchange rate involve the government setting this price. In BOTH cases it is usually implemented by promising to standing ready to buy or sell any amount at the fixed price. Of course, countries don't always have enough foreign cash to sell it at the promised price, nor do they always want to buy as much as the markets sell to them&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The difference is, as you suggest, whether the trading partners (the US is usually the one that labels others manipulators) conclude that the exchange rate is fixed at a too depreciated level. This level keeps foreign goods cheap in the US and US goods expensive in the foreign country. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, a fixed exchange rate is often set at a lvel that seems &quot;too high&quot;, the only question being whether the government will manage to keep it so high, since it creates an incentive for its citizens to buy foreign goods. Instead a manipulated currency is deemed to be &quot;too low&quot;. &lt;/p&gt;&#xA;" OwnerUserId="7593" LastActivityDate="2016-07-28T03:06:39.293" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12867" PostTypeId="1" AcceptedAnswerId="15230" CreationDate="2016-07-28T04:27:08.587" Score="3" ViewCount="140" Body="&lt;p&gt;Is there any literature that considers the benefits of ethical behaviour or teachings in Economics in terms of its value added to human capital?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If there is no difference in value added, then is there any economic value contributed by humanities faculty in a given university to the labour market? If so, is such an education a waste in terms of the labour market?&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="2776" LastEditDate="2017-01-29T21:38:11.783" LastActivityDate="2017-01-30T11:38:10.677" Title="Teaching ethics and its Economic value" Tags="&lt;consumer-theory&gt;&lt;labor-economics&gt;&lt;welfare-economics&gt;&lt;social-welfare&gt;" AnswerCount="4" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12868" PostTypeId="2" ParentId="12867" CreationDate="2016-07-28T05:50:20.807" Score="0" Body="&lt;p&gt;You may want to start out with the more general question of what the benefit of education are.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here are some early papers on this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Plant, Mark, and Finis Welch. &quot;Measuring the impact of education on productivity.&quot; Education and Economic Productivity (1984): 163-193.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Pencavel, John. &quot;Higher education, productivity, and earnings: A review.&quot; The Journal of Economic Education 22.4 (1991): 331-359.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I do not know of any studies about economics education in particular. &lt;/p&gt;&#xA;" OwnerUserId="5635" LastActivityDate="2016-07-28T05:50:20.807" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12869" PostTypeId="1" CreationDate="2016-07-28T09:31:19.217" Score="0" ViewCount="4514" Body="&lt;p&gt;I have a set of data that I have gathered for an event-study. I computed the CARs, CAARs (cumulated average abnormal returns) and now I have to do a t-test to test if CAARs are significantly different from zero. I work with excel and I am not sure how to do that.&lt;/p&gt;&#xA;" OwnerUserId="8961" LastEditorUserId="2776" LastEditDate="2017-04-26T08:29:22.910" LastActivityDate="2019-01-22T11:44:35.447" Title="CAAR t-test for event-study" Tags="&lt;econometrics&gt;&lt;mathematical-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12870" PostTypeId="1" CreationDate="2016-07-28T14:07:55.443" Score="1" ViewCount="75" Body="&lt;p&gt;Being a CFA student, for example, I feel I need an additional course in statistics and math, but I've never worked in the field. And maybe, as a specialist working in the profession for some time you can suggest other required subjects related to the field that I am underestimating now? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;P.S. I concern that the real life differs from what I think of it as a student. So I want to do my best to be a specialist to the end of my education.&lt;/p&gt;&#xA;" OwnerUserId="8964" LastEditorUserId="108" LastEditDate="2017-04-09T07:41:23.167" LastActivityDate="2017-04-09T07:41:23.167" Title="What addition study subjects are required in the investment field" Tags="&lt;investment&gt;&lt;self-study&gt;" AnswerCount="0" CommentCount="2" ClosedDate="2016-08-22T20:06:07.083" ContentLicense="CC BY-SA 3.0" />
  <row Id="12871" PostTypeId="2" ParentId="12754" CreationDate="2016-07-28T16:37:03.677" Score="0" Body="&lt;p&gt;With the advent of technology everyone has got more money for sure. But this richness is relatively same. Moreover, government taxes and inflation has doomed the economy. And the increase in NPA (&lt;em&gt;thanks to bad loans&lt;/em&gt;) has caused depression. The gap between rich and poor has increased more. Do you know what percentage of economy does this capitalist own? &lt;/p&gt;&#xA;" OwnerUserId="8966" LastActivityDate="2016-07-28T16:37:03.677" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12875" PostTypeId="2" ParentId="12803" CreationDate="2016-07-28T22:09:59.240" Score="1" Body="&lt;p&gt;Three part answer:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Causes:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Trust in the system (particularly trust in politics)&lt;/li&gt;&#xA;&lt;li&gt;Attitudes to risk (i.e. being caught)/Enforceability of regulatory power&lt;/li&gt;&#xA;&lt;li&gt;Education levels&lt;/li&gt;&#xA;&lt;li&gt;Economic empowerment/unemployment/low wage level&lt;/li&gt;&#xA;&lt;li&gt;Law of unintended consequences &lt;/li&gt;&#xA;&lt;li&gt;Cultural considerations&lt;/li&gt;&#xA;&lt;li&gt;Geographical considerations&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Reduction:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Political corruption cleansing&lt;/li&gt;&#xA;&lt;li&gt;Tighter regulation on informality &lt;/li&gt;&#xA;&lt;li&gt;Greater communication and transparency&lt;/li&gt;&#xA;&lt;li&gt;Demand and supply side policies&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Evaluation:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Extent to which informality is a problem&lt;/li&gt;&#xA;&lt;li&gt;'Trickle-down' effects&lt;/li&gt;&#xA;&lt;li&gt;Ease in assessing magnitude of informality &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="8958" LastActivityDate="2016-07-28T22:09:59.240" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="12876" PostTypeId="1" AcceptedAnswerId="12877" CreationDate="2016-07-29T02:55:48.890" Score="1" ViewCount="82" Body="&lt;p&gt;In the basics of labour economics the driving factor for increase in labour supply (for the workers in a given market) is increase in wages.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The volunteer sector consists of general and skilled labour that provide their services for free, meaning there is no wage incentive.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;what I would like to suggest is that volunteer labour has to be exclusively viewed through the scope of consumer theory as income is not a driving factor for labour supply and volunteer labour must be viewed as another consumption good or service which faces utility maximising constraints.&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2016-07-29T20:34:30.103" Title="Is the study of the volunteer sector inappropriate for a labour economist?" Tags="&lt;microeconomics&gt;&lt;reference-request&gt;&lt;consumer-theory&gt;&lt;labor-economics&gt;&lt;consumption&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12877" PostTypeId="2" ParentId="12876" CreationDate="2016-07-29T09:17:49.690" Score="2" Body="&lt;p&gt;I would agree that volunteered labor is a utility enhancing activity. Seen as a good, its price could be the opportunity cost, i.e. the wages foregone (for not working for pay). But then this is not really different from the concept of &quot;leisure&quot;, since &quot;leisure&quot; in economics does not mean &quot;fun and games&quot;, but rather &quot;time spent not working for pay&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An interesting extension could be the potential value of volunteered labor as professional experience towards future employment for pay (in line with Arrow's &quot;Learning by doing&quot; efficiency concept). Then the issue becomes intertemporal, and also, income considerations arise: I &lt;em&gt;want&lt;/em&gt; to volunteer, it generates utility directly for me, but also, I'd rather volunteer and build up professional experience that may lead to higher wages tomorrow, than try to work now and have lower pay due to smaller experience.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2016-07-29T20:34:30.103" LastActivityDate="2016-07-29T20:34:30.103" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12878" PostTypeId="2" ParentId="12706" CreationDate="2016-07-29T10:39:26.380" Score="3" Body="&lt;p&gt;I have uploaded all the videos on YouTube as two separate playlists which cover asset pricing part 1 &amp;amp; 2 courses. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Asset Pricing part 1:  &lt;a href=&quot;https://www.youtube.com/playlist?list=PLpccx1MwQZb7t7HJ6lBo4L3DXhknCD0K7&amp;amp;disable_polymer=true&quot; rel=&quot;nofollow&quot;&gt;https://www.youtube.com/playlist?list=PLpccx1MwQZb7t7HJ6lBo4L3DXhknCD0K7&amp;amp;disable_polymer=true&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Asset Pricing part 2:  &lt;a href=&quot;https://www.youtube.com/playlist?list=PLpccx1MwQZb6XsKU3O81GrpqaxyyGoHpH&quot; rel=&quot;nofollow&quot;&gt;https://www.youtube.com/playlist?list=PLpccx1MwQZb6XsKU3O81GrpqaxyyGoHpH&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regarding the class, I think Coursera moved to the new platform and thats why these courses and some others have disappeared. I heard that they are preparing the courses based on the new platform. &lt;/p&gt;&#xA;" OwnerUserId="8976" LastActivityDate="2016-07-29T10:39:26.380" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12880" PostTypeId="2" ParentId="12869" CreationDate="2016-07-29T17:59:49.343" Score="1" Body="&lt;p&gt;You will need a One sample bilateral t-test.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let say your cum abnormal returns are:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;-0,15   -0,2    -0,02   -0,19   0,17    0,06    0,05    -0,1    0,03    0,12&#xA;-0,14    0,02   -0,2     0     -0,33   -0,1    -0,14    -0,28   -0,19   -0,29&#xA; 0,09   -0,33   -0,03   -0,4    -0,24  -0,26    0,12    0,22    -0,33   -0,02&#xA;-0,15   -0,03   -0,06   -0,1    0,14    -0,14   -0,43   -0,18   0,09    0,08&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Then you have:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;Mean              -0,096&#xA;Standard error     0,02620139&#xA;Standard deviation 0,165712138&#xA;Sum               -3,84&#xA;Count              40&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;In your case the null hypothesis will be $\mu=0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The main statistic to be computed is the observed $t$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$t_{obs}= \frac{\bar{x}-\mu}{s/\sqrt{n}}=\frac{-0,096-0}{0,02620139}=-3,6639278$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In &lt;em&gt;Excel&lt;/em&gt; you can compute the theoretical $t$ with $\alpha=5\%$. You can use the following function $t_{crit}=T.INV(0,025;40-1)=-2,02269092$. *1.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or you can compute the p-value with the following function $pval=2*T.DIST(-3,6639278;40-1;1)=0,000737103$. *1.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In any case you reject the Null (H0)($|t_{obs}|&amp;gt;|t_{crit}|$, or $pval&amp;lt;\alpha$).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;*1. It is considered the half of $\alpha$ in $T.INV$ or double the $T.DIST$ result because of the bilateral test.&lt;/p&gt;&#xA;" OwnerUserId="4910" LastEditorUserId="4910" LastEditDate="2016-07-29T18:07:17.500" LastActivityDate="2016-07-29T18:07:17.500" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12881" PostTypeId="2" ParentId="12765" CreationDate="2016-07-29T23:27:06.803" Score="0" Body="&lt;p&gt;This seems like a case where the individuals in this market have inelastic demand curve for the good or service in question, as the individuals who do demand the service will consume the good or service regardless of the price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;the change in price would seem to come from the changes in the supply side i.e. change in technology making the service cheaper, increase in substitutes or provision of government subsidises.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am unable to address the specific question of the US healthcare system inability to provide a quote for a given medical service, but the above two paragraphs should provide a basic framework for thinking about this issue.&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2016-07-29T23:27:06.803" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12882" PostTypeId="1" AcceptedAnswerId="12883" CreationDate="2016-07-30T00:34:03.930" Score="0" ViewCount="299" Body="&lt;p&gt;In the case of perfectly inelastic demand, the price is always infinite. Does it mean that the supply curve is also inelastic?&lt;/p&gt;&#xA;" OwnerUserId="8828" LastActivityDate="2016-07-30T02:56:43.433" Title="Is perfectly inelastic demand always coupled with inelastic supply?" Tags="&lt;microeconomics&gt;&lt;elasticity&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12883" PostTypeId="2" ParentId="12882" CreationDate="2016-07-30T02:56:43.433" Score="2" Body="&lt;p&gt;I assume you are talking about Price elasticity of demand/supply and not cross elasticity or income elasticity of demand/supply.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Not necessarily.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Perfectly inelastic demand means that a change in price leads to no change in quantity demanded. Imagine a country where, say, tomato is super crucial to survival, any change in its price will not make people want to buy more/less of it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Inelastic supply can exist separately from perfectly inelastic demand. This is just how responsive supply is to changes in price. Just because the price increases/decreases, doesnt mean producers can make more/less of it more easily, even if they wanted to, e.g. think about sudden weather changes for crop production as an example.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In conclusion, no perfectly inelastic demand is not always coupled with inelastic supply, but it can be.&lt;/p&gt;&#xA;" OwnerUserId="6782" LastActivityDate="2016-07-30T02:56:43.433" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12884" PostTypeId="1" CreationDate="2016-07-30T03:09:15.040" Score="1" ViewCount="130" Body="&lt;p&gt;When it comes to non-private debt, I hear these three terms the most, but I am not sure if they're interchangeable or discernible. Also, are they recorded in the balance of payments? I'm guessing if they are, they'd be recorded in the transfers part of the current account and the capital and financial accounts.&lt;/p&gt;&#xA;" OwnerUserId="6782" LastActivityDate="2016-07-30T03:09:15.040" Title="What's the difference between public debt, national debt and government debt?" Tags="&lt;debt&gt;&lt;government-debt&gt;" AnswerCount="0" CommentCount="0" ClosedDate="2017-02-18T23:54:23.457" ContentLicense="CC BY-SA 3.0" />
  <row Id="12886" PostTypeId="1" CreationDate="2016-07-30T09:46:35.993" Score="3" ViewCount="328" Body="&lt;p&gt;I am trying to replicate figure 2 from Romer and Romer's (2004) paper on monetary shocks (&lt;a href=&quot;http://eml.berkeley.edu/~dromer/papers/AER_September04.pdf&quot; rel=&quot;nofollow&quot;&gt;http://eml.berkeley.edu/~dromer/papers/AER_September04.pdf&lt;/a&gt;). Essentially, having generated a series for monetary shocks, they run the following ADL regression:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\Delta y_t=a_0+\sum_{k=1}^{11}a_kD_{kt}+\sum_{i=1}^{24}b_i \Delta y_{t-1}+\sum_{j=1}^{36}c_jS_{t-j}+e_t$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $y$ is the log of industrial production, $S$ are monetary shocks and the $D_k$'s are monthly dummies. The say that the &quot;estimated response of log output after one month is $c_1$, the coefficient on the first lag of $S$; the estimated response of log output after two months is $c_1+(c_2+b_1c_1)$; and so on.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is: how do I iterate this forward to produce figure 2, i.e., what is the formula for the response after three months etc?&lt;/p&gt;&#xA;" OwnerUserId="8982" LastEditorUserId="8982" LastEditDate="2016-08-01T13:20:40.590" LastActivityDate="2016-11-14T15:40:49.080" Title="Replicate Romer and Romer (2004) results" Tags="&lt;macroeconomics&gt;&lt;econometrics&gt;&lt;time-series&gt;&lt;empirical-evidence&gt;&lt;autoregressive&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12887" PostTypeId="1" AcceptedAnswerId="12903" CreationDate="2016-07-30T12:38:55.870" Score="4" ViewCount="1074" Body="&lt;p&gt;&lt;a href=&quot;https://twitter.com/SriKGlobal/status/759011830014447616&quot; rel=&quot;nofollow&quot;&gt;I see tweets like this a lot&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Poor 2q growth shows its not just a &quot;1q curse&quot;. Cannot ever cause eco recovery thru just #QE, low interest rates.  #StructuralReforms&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;They seem to be saying essentially that structure should be the focus, not interest rates.  What is an economic structural reform?&lt;/p&gt;&#xA;" OwnerUserId="2958" LastEditorUserId="4988" LastEditDate="2016-08-04T21:46:55.237" LastActivityDate="2018-10-05T15:24:53.280" Title="What Is the Economic Meaning of &quot;Structural Reforms&quot;" Tags="&lt;economic-growth&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12889" PostTypeId="2" ParentId="12754" CreationDate="2016-07-30T13:38:27.927" Score="0" Body="&lt;p&gt;How do you measure &quot;levels of education/training&quot; ? People may spend more time in the education system, but it does not necessarily mean they get better working skills from there. A big problem with the academic system is that apart from rawly counting the number of years spent there, the qualification levels it brings are quite dubious because never seriously addressed in an objective manner similar to the kind of (more or less) necessary growth of productivity elsewhere pushed by free market in fair competitive enviromnents. See some references I collected of &lt;a href=&quot;http://settheory.net/academic-system&quot; rel=&quot;nofollow&quot;&gt;troubles in the academic system&lt;/a&gt;, including my own testimony concerning math&amp;amp;physics university teaching.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now about lower wages, apart from the fact that those observations focus on highly developed regions that may be losing some of their geographical priviledge in a more and more globalized world, I wrote this &lt;a href=&quot;http://settheory.net/future/causes-inequality&quot; rel=&quot;nofollow&quot;&gt;list of possible causes of growing economic inequalities worldwide&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="8986" LastActivityDate="2016-07-30T13:38:27.927" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12890" PostTypeId="1" AcceptedAnswerId="12911" CreationDate="2016-07-30T15:44:08.957" Score="3" ViewCount="119" Body="&lt;p&gt;I was reading an article from 2015 stating that 1% of the world has half of the world wealth. They have several figures such as the world's billionaries have around 7 trillions dollars or the global world wealth pyramid which shows a percent of population by percent of the total wealth etc. but I can't see anywhere a figure of the total wealth of the world. Which is it?&lt;/p&gt;&#xA;" OwnerUserId="8165" LastActivityDate="2019-06-04T10:26:57.087" Title="what was the world's wealth in 2015?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12892" PostTypeId="2" ParentId="4777" CreationDate="2016-07-31T04:30:23.647" Score="3" Body="&lt;p&gt;&lt;em&gt;Rents&lt;/em&gt; are included in the CPI, because they are expenditures that are &quot;consumed&quot; in current period of time. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But house prices are not, because they are expenditures on an asset to be consumed over many years. If you own a house, you will benefit from the rising prices--if and when you sell it. In a sense, houses are treated like capital goods--for consumers. That is, rising house prices are not a burden to home owners, whereas rising rents are a burden to renters.&lt;/p&gt;&#xA;" OwnerUserId="15" LastEditorUserId="15" LastEditDate="2017-06-17T22:05:38.513" LastActivityDate="2017-06-17T22:05:38.513" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12893" PostTypeId="1" CreationDate="2016-07-31T08:07:07.747" Score="1" ViewCount="66" Body="&lt;p&gt;I'm looking for information about the basic commerce and trade. But all I've found is books about Free World Trade, Business Management and Economics. That is not what I'm looking for. I'm more interested in the concept of trade as it is, without specifics. For example, why people trade, what is the trade goal, on what circumstances you will gain from trade and when you are going to loose, how an opportunity for a trade is found etc.?&lt;/p&gt;&#xA;" OwnerUserId="8991" LastEditorUserId="264" LastEditDate="2016-07-31T14:56:48.963" LastActivityDate="2016-07-31T14:56:48.963" Title="Basic theory of exchange" Tags="&lt;free-trade&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12894" PostTypeId="1" CreationDate="2016-07-31T13:09:26.783" Score="0" ViewCount="84" Body="&lt;p&gt;To support my belief in the arbitrariness of economic theory and thought, since different economic systems have their own rules, theories etc., which contradict the rules of other systems and which most of I think are authoritarian (because they're enforced over groups using politics),&lt;/p&gt;&#xA;&#xA;&lt;p&gt;does there exist school(s) of economic thought that is about &quot;no economics&quot; or &quot;no economic theory&quot;? Or perhaps no economics in the sense that &quot;all economic theories (e.g. capitalist, communist ...) at the same time&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or in other words, is there economic theory that's non-political, i.e. does not require politics for functioning?&lt;/p&gt;&#xA;" OwnerUserId="6848" LastEditorUserId="6848" LastEditDate="2016-08-03T09:26:16.790" LastActivityDate="2016-08-03T09:26:16.790" Title="Are there strains of economics that are &quot;no (political) economics&quot;?" Tags="&lt;theory&gt;" AnswerCount="2" CommentCount="10" ClosedDate="2016-08-01T23:39:51.010" ContentLicense="CC BY-SA 3.0" />
  <row Id="12897" PostTypeId="1" CreationDate="2016-07-31T18:12:05.737" Score="0" ViewCount="121" Body="&lt;p&gt;I'm wondering if there is a method by which we can visualize a firms decision to rely on volunteer labour. I have an idea but I'm unsure if it is correct, please tell me if there is an issue with my understanding. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I posted &lt;a href=&quot;https://economics.stackexchange.com/questions/12876/is-the-study-of-the-volunteer-sector-inappropriate-for-a-labour-economist&quot;&gt;here&lt;/a&gt; about the issues with looking at volunteer labour with labour market models driven primarily by wage rate to determine the individuals decision of entry to a given labour market, however from the firms end I think there might be a way to look at its decision to primarily employ volunteer labour.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the picture below I have a slightly modified version of a the labour market to describe the non-profit sector. The labour demand $N_d$ is the same however the labour supply $N_s$ is shifted right and some of the curve is below the wage of zero, indicating the individuals on this end of the labour supply curve would pay to do such work for such a firm.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This abnormal behaviour of an individual working for free or even paying his employer can be in reference to what is called by&lt;a href=&quot;https://dash.harvard.edu/bitstream/handle/1/4632239/Freeman_WorkingNothing.pdf?sequence=2&quot; rel=&quot;nofollow noreferrer&quot;&gt; Richard Freedman &lt;/a&gt; the purchase of &quot;conscious goods or services&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The implications this graph has is that there is an &quot;oversupply&quot; of labour or a specific type of labour (usually general labour in the case of the volunteer sector), to the point the firm does not need any more workers, &quot;Maxing out their inputs&quot; &lt;strong&gt;therefore they won't pay for such readily available labour at all&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Again I am posting this model here to see if there is an issue with my understanding or if there is anything for the SE community to add. &#xA;&lt;a href=&quot;https://i.stack.imgur.com/cFF3c.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/cFF3c.jpg&quot; alt=&quot;Volunteer Labour equilibrium&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2016-08-09T19:49:19.867" Title="Graphing Volunteer labour Supply" Tags="&lt;microeconomics&gt;&lt;supply-and-demand&gt;&lt;labor-economics&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="12900" PostTypeId="1" CreationDate="2016-08-01T09:41:30.127" Score="0" ViewCount="1461" Body="&lt;p&gt;I have this MCQ homework that I would like your opinion about&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose government chooses to impose a price control on a good. Which of the following is NOT a potential consequence of the restrictions on price?   &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Excess supply may occur.&lt;/li&gt;&#xA;&lt;li&gt;Excess demand may occur.&lt;/li&gt;&#xA;&lt;li&gt;No unexploited opportunities will exist.&lt;/li&gt;&#xA;&lt;li&gt;People may spend a lot of time waiting in line to acquire the good.&lt;/li&gt;&#xA;&lt;li&gt;Underground markets may emerge.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;I think the answer is 3 because when black market exist with shortage and ppl will want to exploit the situation. &lt;/p&gt;&#xA;" OwnerUserId="9004" LastActivityDate="2017-08-05T07:15:58.203" Title="If government impose price control, what happens?" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="12901" PostTypeId="2" ParentId="12900" CreationDate="2016-08-01T10:22:16.500" Score="1" Body="&lt;p&gt;Those are all &lt;em&gt;potential&lt;/em&gt; consequences of price controls. It would all depend on how the price controls were done, what measures were put in place alongside them, and all the context of the good itself.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the price is set at too high a level, excess supply may occur. If too low, excess demand may occur. If it's a good with an extremely limited market that is met under the price control, then no unexploited opportunities may exist. If potential demand is greater than the rate at which it can be retailed, then people may spend a lot of time waiting in line to acquire the good. And underground markets may emerge in any case.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2016-08-01T10:22:16.500" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12902" PostTypeId="2" ParentId="12894" CreationDate="2016-08-01T12:24:56.957" Score="1" Body="&lt;p&gt;Government behavior/actions play a big role in economics, but economic study certainly isn't constrained by &quot;arbitrary&quot; political forces.  As @dismalscience pointed out in his comment, the existence of black markets points towards the drive towards a market-based system no matter the laws or political systems of a given country.  Rather than picture economics as a derivative of a set of laws, picture the laws and political systems as being constructs to help shape the underlying economic system (to correct market failures, etc.).  The goal and job of those that study economics is to help explain how all of these moving forces interact with one another.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, in the comments it is asked why we need economic theory to set prices if it is achievable through &quot;common sense.&quot;  We don't need economic theory necessarily to set the price, but rather to understand why the price is set, what led to a given price, and how might the price change in the future.  The example used of grocery store prices was used for simplicity, but certainly you could imagine far more complex economic interactions where a solid economic theory would come in quite useful (think international trade, wall street, the labor market of the EU, etc.).&lt;/p&gt;&#xA;" OwnerUserId="8878" LastActivityDate="2016-08-01T12:24:56.957" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12903" PostTypeId="2" ParentId="12887" CreationDate="2016-08-01T13:52:12.490" Score="3" Body="&lt;p&gt;Economic variables can be &quot;real&quot; or &quot;nominal&quot;. So when policymaker discus influencing the economy, they look at implications of influencing these economic variables.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An example of a nominal variable is the price level influenced by money supply. Money is directly created by the government and can take on any value per se and is not &quot;real. E.g. if we multiply all prices and bank notes by 10 nothing in the economy changes. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Real variables are for example output, productivity etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, it turns out that these nominal variables can influence the real ones. Increasing the money supply can increase output (at least temporarily). This is also easy to implement, so monetary policy is often used to fight a recession. Note that lowering the interest rate and increasing the money supply are two sides of the same coin and both part of monetary policy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An alternative to monetary policy (based on nominal variables) would be &quot;real&quot; economic reforms. One form of &quot;real&quot; policy is a &quot;structural reform&quot;. In this case you would try to increase output by changing something in the real side of the economy. For example lowering (wage) costs through changes to labor protection laws. Fiscal policy (government spending or tax cuts) is another form of &quot;real&quot; policy, however it is not a structural break. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To fully understand structural reforms we must introduce the concept of output potential. This is the output that would normally occur in absence of disturbances. It only depends on the underlying structure of the economy. These are factors such as costs (e.g. ease of doing business), labor market flexibility and other things that influence output in general in &quot;real&quot; terms. The economy generally comes back to that level and fluctuates around it in the medium run. (Note this level may be growing over time, e.g. by 1-2% each year).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, sometimes it happens that our economy is operating below its &quot;natural&quot; potential. In this case we can employ monetary and fiscal policy to get back to that natural level. We can also push the economy beyond the natural level, but we will eventually come back, so this is not a good idea since the side effect that brings is typically more inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the crisis is because we are simply below potential, we do not need structural reforms. However if we are in a crisis because the potential or &quot;natural&quot; output has risen, then we need &quot;structural reforms&quot;. An often cited recent example is the Greek crisis where Greece's wage rate increased a lot over time making its exports too expensive, meaning the economy did not have its past potential to export anymore. In this case many economists suggested &quot;structural&quot; reforms (law changes) that would lead to lower wages.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Monetary and Fiscal policy are often used to correct short-term problems or deviations from output potential. Structural reforms are supposed to change the (medium to long term) output potential itself.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The type of policy best suited often depends on the type of crisis at hand and its underlying causes.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastEditorUserId="5557" LastEditDate="2018-10-05T15:24:53.280" LastActivityDate="2018-10-05T15:24:53.280" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="12904" PostTypeId="2" ParentId="12887" CreationDate="2016-08-01T23:01:02.127" Score="1" Body="&lt;p&gt;See this article for a clarification of the term: &lt;a href=&quot;http://www.economist.com/blogs/economist-explains/2014/12/economist-explains-5&quot; rel=&quot;nofollow&quot;&gt;http://www.economist.com/blogs/economist-explains/2014/12/economist-explains-5&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Applied to econometric modeling, structural breaks are (often policy) changes that impact stochastic processes, which we use as economic observables. That is to say that a structural reform, or even a change in the mechanisms governing the economy, are structural breaks. One of the greatest challenges in forecasting are future structural breaks and location shifts, as forecasting models can't account for them. &lt;/p&gt;&#xA;" OwnerUserId="9010" LastActivityDate="2016-08-01T23:01:02.127" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12905" PostTypeId="2" ParentId="12894" CreationDate="2016-08-01T23:19:47.710" Score="0" Body="&lt;p&gt;Your last question actually hits at the heart of modern econometrics. For too long, econometrics was almost exclusively theoretical. And sure, theoretical innovation is essential to the field, but independent quantitative analysis is also crucial. The current solution, still in its development, is automated general-to-specific modeling. Using algorithms, econometricians embed theoretical insights from every theoretical background, as well as variables that may not have been previously considered. Then, the relevance of each is tested automatically to high statistical standards. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The results are fascinating. In 2001, David Hendry used this method to analyze inflation in the UK from 1875 to 1991. Incredibly, he found empirical support for excess demand, monetary theory, cost push, mark-up, and others. Even so, all of the specified theories combined couldn't completely account for the greatest incidents of inflation in the UK. As I understand it, this is the kind of economic analysis that you were looking for. &lt;/p&gt;&#xA;" OwnerUserId="9010" LastActivityDate="2016-08-01T23:19:47.710" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12906" PostTypeId="2" ParentId="11802" CreationDate="2016-08-01T23:36:17.320" Score="0" Body="&lt;p&gt;If you're looking for a winded and slightly out-of-date, but none the less incredible treatment of this topic, read Angus Deaton's chapter &quot;Data and Econometric Tools for Development Analysis&quot;. If you don't have the volume, here's a link: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://web2.uconn.edu/tripathi/5495/Deaton-handbook.pdf&quot; rel=&quot;nofollow&quot;&gt;https://web2.uconn.edu/tripathi/5495/Deaton-handbook.pdf&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="9010" LastActivityDate="2016-08-01T23:36:17.320" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12907" PostTypeId="1" CreationDate="2016-08-02T00:20:09.987" Score="0" ViewCount="2220" Body="&lt;p&gt;How the presence of a sector with increasing returns to scale in a &quot;perfect&quot; economy may lead to market failure ? Can sb explain for me with the support of charts ? &lt;/p&gt;&#xA;" OwnerUserId="5421" LastActivityDate="2016-08-03T07:38:45.870" Title="How the presence of increasing returns to scale lead to market failure" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="2" ClosedDate="2016-08-12T14:19:36.027" ContentLicense="CC BY-SA 3.0" />
  <row Id="12910" PostTypeId="1" CreationDate="2016-08-02T17:02:27.290" Score="1" ViewCount="74" Body="&lt;p&gt;Let $i=1,2$ denote the players, $x$ the state and $u_i$ the control of player $i$. The state equation reads $\dot x = f(x,u_1,u_2)$ and the objective function is given by $F_i(x,u_1,u_2)$. Now I'd like to solve the following optimal control problem of joint maximization (cooperative solution)&#xA;\begin{align}&#xA;V(x(0)) := \max_{u_1,u_2}\int^\infty_0{(e^{-r_1t}F_1(x,u_1,u_2) + e^{-r_2t}F_2(x,u_1,u_2))dt}&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $r_i &amp;gt; 0$ is the time preference rate. I was wondering how to apply the Hamilton-Jacobi-Bellman in this case. Is something like the following possible?&#xA;\begin{align}&#xA;\frac{r_1+r_2}{2}V(x) = \max_{u_1,u_2}\{F_1(x,u_1,u_2) + F_2(x,u_1,u_2) + V'(x)f(x,u_1,u_2)\}&#xA;\end{align}&lt;/p&gt;&#xA;" OwnerUserId="4266" LastActivityDate="2016-08-02T17:02:27.290" Title="Hamilton-Jacobi-Bellman with heterogeneous discount rates" Tags="&lt;dynamic-programming&gt;&lt;dynamic-optimization&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12911" PostTypeId="2" ParentId="12890" CreationDate="2016-08-02T17:27:24.290" Score="3" Body="&lt;p&gt;Your article probably resulted from &lt;a href=&quot;http://www.oxfam.org.uk/blogs/2015/01/richest-1-per-cent-will-own-more-than-all-the-rest-by-2016&quot; rel=&quot;nofollow&quot;&gt;an Oxfam campaign&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you believe table 2 of a &lt;a href=&quot;http://oxfamilibrary.openrepository.com/oxfam/bitstream/10546/592643/3/tb-economy-one-percent-methodology-180116-en.pdf&quot; rel=&quot;nofollow&quot;&gt;January 2015 Oxfam report&lt;/a&gt; then about $\$250$ trillion. The campaign spliced together some information from Forbes on the richest $x$ individuals and a series of &lt;a href=&quot;http://publications.credit-suisse.com/tasks/render/file/index.cfm?fileid=C26E3824-E868-56E0-CCA04D4BB9B9ADD5&quot; rel=&quot;nofollow&quot;&gt;Credit Suisse reports&lt;/a&gt; - see the bottom of page 94 &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The analysis has faced criticism: it concentrates on individual assets and liabilities, e.g. a US doctor whose student debt exceeds personal financial assets counts as poorer than a subsistence farmer in Africa, and uses a very large amount of estimation, so other reasonable calculations could be very different&lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2016-08-02T17:27:24.290" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12912" PostTypeId="1" CreationDate="2016-08-02T17:54:13.927" Score="0" ViewCount="28" Body="&lt;p&gt;My main question is: how much of the eurodollar market is claims issued by depository institutions or Bank Holding Companies?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's about a $4tn market, but who's in it? Who is funding themselves in eurodollars and who are the dominant players?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm trying to figure how much of the market is outside the banking system. Any links/research is greatly appreciated.&lt;/p&gt;&#xA;" OwnerUserId="9020" LastActivityDate="2016-09-01T19:31:16.087" Title="Which institutions are in the eurodollar market?" Tags="&lt;finance&gt;&lt;financial-markets&gt;&lt;eurodollar&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12914" PostTypeId="2" ParentId="12912" CreationDate="2016-08-02T19:15:58.420" Score="1" Body="&lt;p&gt;Eurodollars are, &lt;a href=&quot;https://www.newyorkfed.org/newsevents/speeches/2016/pot160222#footnote31&quot; rel=&quot;nofollow&quot;&gt;by definition&lt;/a&gt;, held (on the liability side) inside the banking system. They're US dollar deposits held either outside the US or inside the US via an International Banking Facility. On the asset side, eurodollars are typically lent by nonbank financial institutions. This means that the eurodollar market links the two segments of financial markets: it's typically nonbanks providing short-term funding to banks.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For an introduction to nonbank financial intermediation, I'd recommend &quot;&lt;a href=&quot;https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr458.pdf&quot; rel=&quot;nofollow&quot;&gt;Shadow Banking&lt;/a&gt;&quot; (Pozsar, et. al., 2010).&lt;/p&gt;&#xA;" OwnerUserId="264" LastActivityDate="2016-08-02T19:15:58.420" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12915" PostTypeId="1" AcceptedAnswerId="12923" CreationDate="2016-08-02T21:10:25.897" Score="0" ViewCount="78" Body="&lt;p&gt;The case for a pernicious persistent current account deficit is easy to build: the home country is borrowing abroad for a long period and that debt may reach a point of becoming unsustainable. There are several ways to put pressure of the debtor to ensure repayment. The home private and government agents may self-regulate their spending, by incorporating their future expectations of what happens when their debt is no longer repayable (not likely). Another way is by market forces, if creditors think the home country is no longer able to service its debt, then funds for home will disappear, or there could be political pressure for repayment. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, for Balance of trade surpluses, there doesn't seem to exist any 'economic' force at work for a downward pressure... or is it?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example Germany has been amassing enormous surpluses since the 70's, and recently, their surpluses have reach 8.5% of GDP in 2015. How does one explain this 'economically'? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="8481" LastEditDate="2020-05-03T14:48:50.893" LastActivityDate="2020-05-03T14:48:50.893" Title="Germany's current account surpluses: Negative effect? How to solve them?" Tags="&lt;macroeconomics&gt;&lt;international-trade&gt;&lt;open-economy-macro&gt;&lt;balance-of-trade&gt;&lt;germany&gt;" AnswerCount="1" CommentCount="11" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12916" PostTypeId="2" ParentId="12907" CreationDate="2016-08-03T07:38:45.870" Score="1" Body="&lt;p&gt;Perfect competition in the economy leads to the theoretical presumption that with firms entering the market when prices are above their average total costs and leaving when they are below average total costs, the equilibrium point comes when prices are equal to average total costs, which in turn is equal to each continuing firm's marginal cost at a point where these marginal costs are increasing.  For each firm, their marginal revenue will be equal to the price set by the market. Consumers will see no firm whose marginal cost is below the market price, and so should regard the result as efficient. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;With increasing returns to scale, marginal costs are never increasing for an individual firm.  The effect is to encourage the emergence of a single firm taking the entire market and having pricing power.  This natural monopoly will lead to that firm seeing that its marginal revenue is below its price (if it lowers prices then it may gain new customers at that new price but it will lose money on existing customers) and when it maximises profits by setting prices at the point where its marginal revenue is equal to its marginal cost, that price will be higher than its marginal cost, and so be seen as economically inefficient from the perspective of consumers.   &lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2016-08-03T07:38:45.870" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12917" PostTypeId="1" AcceptedAnswerId="12921" CreationDate="2016-08-03T11:15:15.030" Score="0" ViewCount="449" Body="&lt;p&gt;I am a beginner at econometrics and I have to build a model explaining scholing (as dependent variable) by migration (independent variable) and a couple of covariables. I'm going to use fixed effects to do this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now my question is, where and why should I use a LOG? I already read a lot of questions and answers here but it didn't help me any further.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Should I log migration? Government expenditure on scholing? GDP/Capita? Literacy? Ratio of scholing?&lt;/p&gt;&#xA;" OwnerUserId="9024" LastActivityDate="2016-08-03T14:10:31.307" Title="using LOG in a econometric model" Tags="&lt;econometrics&gt;&lt;fixed-effects&gt;" AnswerCount="1" CommentCount="9" ContentLicense="CC BY-SA 3.0" />
  <row Id="12918" PostTypeId="2" ParentId="12862" CreationDate="2016-08-03T11:54:21.223" Score="2" Body="&lt;p&gt;I haven't posted here in a while, but I saw this question and thought I ought to respond. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;No.&lt;/strong&gt; That is the short answer to your question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;After having been living and working in China for a year, I realized that nothing about its economy can be viewed separately from politics and social psychology of mainland Chinese population. Simply put, everything is different.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;People's Bank of China is defacto a part of executive branch of government. It sets monetary policy decisions in accordance with the government's social and economic policies, which are ultimately curated by the Chairman of the Communist Party (a.k.a the President). This makes it very predictable. If the growth target is set to 6.5%, the PBOC will provide enough liquidity to hit the target, pretty much at all costs. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In China's political culture collective debates are ubiquitous, but when something is being discussed, everyone tends to converge on the leader's opinion very quickly.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, one can only speculate how PBoC board makes their decisions. It is not very transparent, like most of the political culture in the country. Everyone seems to be happy though that it is, at least, predictable.&lt;/p&gt;&#xA;" OwnerUserId="6231" LastActivityDate="2016-08-03T11:54:21.223" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12919" PostTypeId="1" CreationDate="2016-08-03T13:10:51.243" Score="1" ViewCount="166" Body="&lt;p&gt;&lt;em&gt;From Wikipedia:&lt;/em&gt;&#xA;&lt;br&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Gross_domestic_product&quot; rel=&quot;nofollow&quot;&gt;GDP&lt;/a&gt;&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Gross domestic product (GDP) is a monetary measure of the market value&#xA;  of all final goods and services produced in a period (quarterly or&#xA;  yearly).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;br&gt;&#xA;&lt;strong&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/National_wealth&quot; rel=&quot;nofollow&quot;&gt;National net wealth&lt;/a&gt;&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;National net wealth, is the total sum value of monetary assets minus liabilities of a given nation. It refers to the total value of wealth possessed by the citizens of a nation at a set point in time.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;br&gt;&#xA;Being a super neofite (to say the least) in Economics my very naive question is: why is &lt;strong&gt;GDP&lt;/strong&gt; always used in place of &lt;strong&gt;National net wealth&lt;/strong&gt; to denote the economical superiority of a country versus another? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To put it in the way I interpret it: how a country producing 10 cars per year is economically superior to another country not producing any car at all but holding a giant reserve of gold (that could be employed to build 1000 cars factories the next day) ?&lt;/p&gt;&#xA;" OwnerUserId="9026" LastEditorUserId="264" LastEditDate="2016-08-03T16:04:07.523" LastActivityDate="2016-08-03T16:04:07.523" Title="Why isn't National Net Worth of a country used to calculate its economic power, as opposed to GDP?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12920" PostTypeId="2" ParentId="12110" CreationDate="2016-08-03T13:52:55.697" Score="1" Body="&lt;p&gt;&lt;strong&gt;National wealth?&lt;/strong&gt; &lt;a href=&quot;https://en.wikipedia.org/wiki/National_wealth&quot; rel=&quot;nofollow&quot;&gt;https://en.wikipedia.org/wiki/National_wealth&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;From Wikipedia, the free encyclopedia&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;National (net) wealth, also net wealth (in Singapore), national net&#xA;  worth, gross national wealth (GNW), and total national wealth, is the&#xA;  total sum value of monetary assets minus liabilities of a given&#xA;  nation. It refers to the total value of wealth possessed by the&#xA;  citizens of a nation at a set point in time.  This figure is an&#xA;  important indicator of a nation's ability to take on debt and sustain&#xA;  spending, and is influenced by not only real estate prices, but also&#xA;  by the stock market, human resources, technological advancements which&#xA;  may create new assets or render others worthless, national&#xA;  infrastructure and exchange rates. The most significant component by&#xA;  far among most developed nations is commonly reported as household net&#xA;  wealth or worth and reflects infrastructure investment. National&#xA;  wealth can fluctuate, as evidenced in the US data following the 2008&#xA;  financial crisis and subsequent economic recovery.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;br&gt;&#xA;On the same indicator I also found this article: &#xA;&lt;a href=&quot;http://www.therichest.com/business/economy/why-gdp-isnt-an-ideal-measurement-of-national-wealth/&quot; rel=&quot;nofollow&quot;&gt;Why GDP Isn’t An Ideal Measurement Of National Wealth&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Extract:&lt;/em&gt; &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The wealth of a nation is similar to that of a person: the value of&#xA;  their things minus their debts, and expenses spent getting or keeping&#xA;  those things. So in lots of ways, we can think of national wealth&#xA;  simply as the ‘net worth’ of a given nation. Just like calculating the&#xA;  net worth of a celebrity or a business, we start by taking the total&#xA;  ‘gross’ value of all the country’s assets. This figure usually&#xA;  includes the value of tangible assets owned and produced, like real&#xA;  estate and consumer goods plus financial assets like bonds, mutual&#xA;  funds, pensions, etc. We then subtract liabilities like mortgages,&#xA;  credit, and debt, all of which are technically ‘borrowed’ money.&#xA;  Whatever is left over is the net worth, or wealth, of the nation.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="9026" LastActivityDate="2016-08-03T13:52:55.697" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12921" PostTypeId="2" ParentId="12917" CreationDate="2016-08-03T14:10:31.307" Score="2" Body="&lt;p&gt;The use of the natural $\log$ permits to obtain approximations of percentage changes instead of unit changes (assuming linear regression). For instance, the parameter associated with $\log$ of GDP per capita would give you the changes in education (in the unit you measured it, e.g., years) as a result of an increase of 1% in GDP per capita. Notice that if your dependent variable is also a $\log$ transformation, you'll obtain elasticities. &#xA;To conclude, it should be straightforward for you to understand that there is no reason to apply a logarithm on unordered variables, or on binary variables. Its use on ordered variables is up to you, as the economic signification of choice of the estimates is dependent on your interests. &lt;/p&gt;&#xA;" OwnerUserId="7725" LastActivityDate="2016-08-03T14:10:31.307" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="12922" PostTypeId="2" ParentId="12919" CreationDate="2016-08-03T14:53:20.690" Score="2" Body="&lt;p&gt;Your first country producing cars (possibly after receiving investment or loans from others) has an economy, and if it is selling cars then it can buy other things in exchange for cars. It could even buy some gold. So it has a degree of economic power, but so too do its investors, suppliers and customers. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your second country sitting on a pot of gold and doing nothing (it may as well have left the gold in the ground) has no economy and no economic power until it changes that position.  For example it cannot buy more gold as it has nothing to use to pay for it except gold. Only after it has sold gold for something useful or productive might things change.    &lt;/p&gt;&#xA;&#xA;&lt;p&gt;By the way, GDP (on the production measure) is actually the market value of &lt;em&gt;all&lt;/em&gt; goods and services produced, less the value of &lt;em&gt;intermediate&lt;/em&gt; goods and services consumed.  In a closed economy with no international trade, this is equal to all &lt;em&gt;final&lt;/em&gt; goods and services produced (adjusted for the change in stocks of intermediate goods and services) but in an open economy in international supply chains it can be very different.  &lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2016-08-03T14:53:20.690" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="12923" PostTypeId="2" ParentId="12915" CreationDate="2016-08-03T15:11:07.383" Score="2" Body="&lt;p&gt;&lt;em&gt;As requested in comments:&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;German banks lost a lot of money in the US sub-prime crisis and would have lost a lot more in Greece if the Eurosystem had not saved them. This is what might reasonably be expected if you run persistent trade surpluses: you gain foreign assets which may never be repaid or may be less valuable than you expected&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The European Commission is supposed to investigate under its Macroeconomic Imbalance Procedure when a country's current account surplus exceeds 6% of GDP, and Germany's is now about 8%. In the end the Macroeconomic Imbalance Procedure might in theory become an Excessive Imbalance Procedure and potentially sanctions for euro-area member states of up to 0.1% of GDP. But it will not happen to Germany, for European political reasons. &lt;a href=&quot;https://en.wikipedia.org/wiki/Macroeconomic_Imbalance_Procedure&quot; rel=&quot;nofollow&quot;&gt;Wikipedia has a description&lt;/a&gt; and you can also read the &lt;a href=&quot;http://ec.europa.eu/europe2020/pdf/csr2016/cr2016_comm_en.pdf&quot; rel=&quot;nofollow&quot;&gt;latest Commission report&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In effect Germany is making stuff and sending it to foreigners without exchanging it for a similar value of imports. Eventually people in Germany might notice that they could have a higher standard of living which their mercantilist politicians and economists have been denying them&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://uk.reuters.com/article/uk-ecb-policy-germany-idUKKCN0X70Q9&quot; rel=&quot;nofollow&quot;&gt;German savers and politicians are already protesting about low interest rates&lt;/a&gt; and perhaps one day might think that in a period of negative interest rates it could be sensible to consume (and import) more&lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2016-08-03T15:11:07.383" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12924" PostTypeId="1" AcceptedAnswerId="12927" CreationDate="2016-08-03T16:08:46.173" Score="9" ViewCount="12321" Body="&lt;p&gt;As far as I know, debt is a way to get hands on extra money which will burden the future governments.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;What if every successive government keeps adding to the national debt? &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Isn't it like free money? You can win by developing the country and keep adding to the debt as well... maybe forever? &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The US has a debt of $18 trillion. How has it affected United States? Why should the government even bother to repay?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="9027" LastEditorUserId="4020" LastEditDate="2020-05-07T06:01:26.340" LastActivityDate="2020-05-08T16:01:37.120" Title="What happens to a country with lot of debt?" Tags="&lt;debt&gt;" AnswerCount="3" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="12925" PostTypeId="1" CreationDate="2016-08-03T16:34:53.857" Score="0" ViewCount="211" Body="&lt;p&gt;I know that the determinant of a 2x2 matrix represents the oriented area of the parallelogram represented by the vectors in the matrix. For 3x3 or higher order matrix it represents the oriented volume. I am trying to get such an intuitive understanding of the determinant of the input-output matrix used in macroeconomics. What could it represent? Does it represent the size of the economy? We usually measure the size of the economy by measuring it's GDP. If it represents the size of the economy, could this determinant be a better measure of the size of the economy than GDP? &lt;/p&gt;&#xA;" OwnerUserId="9028" LastEditorUserId="9029" LastEditDate="2016-08-03T22:15:23.477" LastActivityDate="2016-08-04T02:41:23.170" Title="What would the determinant of the input-output matrix represent? What is the intuition?" Tags="&lt;macroeconomics&gt;&lt;mathematical-economics&gt;&lt;gdp&gt;&lt;input-output&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="12926" PostTypeId="2" ParentId="12924" CreationDate="2016-08-03T18:40:14.457" Score="3" Body="&lt;p&gt;If a government owes money to domestic or foreign entities and does not repay that debt then the government's credibility — just like any other borrowing entity's credibility — as a reliable economic entity takes a hit. As a consequence when it wants to borrow more money in the future, the lending entities either charge a higher interest rate to cover the risk or refuse to lend to avoid the risk altogether. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here's the only difference — governments can print their own currency unlike other entities. But too much currency in circulation will cause inflation, which is bad for the economy. So it is in the government's own interests to repay its debt, as it is to borrow money in the first place.&lt;/p&gt;&#xA;" OwnerUserId="9029" LastEditorUserId="4020" LastEditDate="2020-05-08T09:54:52.467" LastActivityDate="2020-05-08T09:54:52.467" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="12927" PostTypeId="2" ParentId="12924" CreationDate="2016-08-03T18:43:32.987" Score="3" Body="&lt;p&gt;What happens to a country with debt depends on several factors. &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Debt to GDP ratio&lt;/li&gt;&#xA;&lt;li&gt;Credibility&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Debt is not exactly free money. It is 'free' money (apart from interest) only if you can be depended on to pay back that debt. In other words, investors are willing to lend money to a government if they are sure that the government will pay them back. Failing to pay back your debt would require your country to declare bankruptcy (or drop out of the global financial system altogether). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reason why governments like the U.S. can keep borrowing money is because investors believe that the U.S. can easily make enough money to pay them back in the future. This is based on the &lt;strong&gt;debt to GDP ratio&lt;/strong&gt;. If your debt to GDP ratio is too high (say, 10 to 1) that means it might be quite difficult for the country to pay back all that debt. The current U.S. debt to GDP ratio is between 0.7 and 1.0, which is relatively high (a result of the Great Recession). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another smaller country might not be able to easily borrow with such a high debt to GDP ratio, but the U.S. also has credibility - it has not defaulted on its debts before, unlike some other sovereign states (Argentina). Combined with the fact that the U.S. has large financial clout and is relatively important, investors feel that the U.S. government is unlikely to default on its debts. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the U.S. government were to keep on borrowing money, eventually people would get a little concerned with the amount of debt it has taken on. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's possible to think of sovereign debt in a similar way to personal (your) debt. For example, if you own a credit card, you can use that credit card to get 'free' money and use that money to purchase things. The reason why banks are willing to lend you this money is because you have previously paid them back. If you were to (1) ask for a lot more money than you make (e.x. $100 million) or (2) ask for money after failing to pay the bank back at the end of the month, the bank would reject you. Investors, like the bank, require governments (and individuals like you) to meet some requirements before they are willing to lend you money.  &lt;/p&gt;&#xA;" OwnerUserId="8637" LastEditorUserId="8637" LastEditDate="2016-08-03T18:50:19.100" LastActivityDate="2016-08-03T18:50:19.100" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12928" PostTypeId="1" AcceptedAnswerId="13018" CreationDate="2016-08-03T22:26:45.867" Score="3" ViewCount="171" Body="&lt;p&gt;On what basis, The value of any currency changes:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Does it depend on re-paying the loans.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Or it depends on trade &amp;amp; exporting.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;(e.g. The &quot;&lt;strong&gt;Dollar&lt;/strong&gt;&quot; equals 13 Egyptian pounds... What's the reason? Is it because &quot;&lt;strong&gt;Egypt&lt;/strong&gt;&quot; is keeping borrowing without repaying its debts or because, What?&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Note: Kindly, If my post violates the web-site rules... Please, Edit it instead of putting it [on Hold]... I don't mind to edit my posts... So that, It becomes in keeping with the web-site rules.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="9030" LastActivityDate="2016-08-11T07:06:04.593" Title="The Currency Value" Tags="&lt;currency&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12929" PostTypeId="2" ParentId="12925" CreationDate="2016-08-03T22:31:26.417" Score="1" Body="&lt;p&gt;Your conjecture seems unlikely. For example the unit matrix would show an economy where no new goods can be produced (it takes 1 unit of something to make 1 unit of that same thing). Yet the determinant of this matrix is 1. If we were to multiply the $3 \times 3$ unit matrix by say 10, the new determinant would be a 1000. But the economy did not get better, if anything it got worse.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2016-08-04T02:41:23.170" LastActivityDate="2016-08-04T02:41:23.170" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12930" PostTypeId="2" ParentId="12928" CreationDate="2016-08-03T22:47:45.553" Score="1" Body="&lt;p&gt;National currencies increase or decrease in price relative to other national currencies due to the demand for those currencies and their supply.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The supply and demand for currency is dependent on many different factors. The main factors are the needs of trade, the policies of the authority that issues the currency, and the perceived stability and predictability of that authority.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, if a merchant wants to buy a good that comes from the country in question, then they might need to acquire the currency of the country. This will increase the demand for the currency and consequently its price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand, if the country had a revolution or the authority that issues the currency began to act in an erratic way, then that could undermine confidence in the currency, decreasing the demand and the price.&lt;/p&gt;&#xA;" OwnerUserId="1448" LastActivityDate="2016-08-03T22:47:45.553" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12931" PostTypeId="1" CreationDate="2016-08-04T01:44:33.180" Score="4" ViewCount="1645" Body="&lt;p&gt;From an IB Economics book (in the microeconomics section):&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/kcEI1.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/kcEI1.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;The part in blue suggests market failure is the same as allocative inefficiency, but the part in red seems to suggest that market failure is one cause or type of allocative inefficiency.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is the difference between the two, if any?&lt;/p&gt;&#xA;" OwnerUserId="4483" LastActivityDate="2016-08-04T23:09:46.470" Title="Is market failure the same allocative inefficiency?" Tags="&lt;microeconomics&gt;&lt;efficient-markets&gt;&lt;economic-failure&gt;&lt;market-failure&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12932" PostTypeId="1" AcceptedAnswerId="12934" CreationDate="2016-08-04T03:28:28.007" Score="4" ViewCount="763" Body="&lt;p&gt;The example I was given for each was cigarettes.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;What market may have negative consumer externalities but is not a market for a demerit good?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;What is a type of demerit good that may not have a negative consumer externality?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="4483" LastEditorUserId="4483" LastEditDate="2016-08-10T13:42:36.077" LastActivityDate="2016-08-10T13:42:36.077" Title="Negative consumer externality vs demerit good - what's the difference?" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;&lt;externalities&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12933" PostTypeId="2" ParentId="12931" CreationDate="2016-08-04T07:43:06.013" Score="1" Body="&lt;p&gt;In this context 'market' usually means some allocation mechanism. For example free market, or a market where someone has monopoly power. Allocation of goods and resources can be done in other ways: e.g. you can divide all resources evenly among production processes and all goods evenly between consumers. This will generally result in allocative inefficiency (were all production processes equally important and efficient?). But it is not market failure because there was no market, just an allocator/social planner.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2016-08-04T07:43:06.013" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12934" PostTypeId="2" ParentId="12932" CreationDate="2016-08-04T07:50:45.747" Score="3" Body="&lt;p&gt;Demerit goods are goods where it is agreed by society that consumption is &lt;strong&gt;harmful for the consumer&lt;/strong&gt; yet it is still consumed due to bounded rationality or because you disagree with society while negative consumer externalities occur when actions of a consumer is &lt;strong&gt;harmful for society&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Goods that are demerit but may not have negative consumer externality:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any type of unhealthy food. E.g. cinnabuns.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Carcinogenic stuff, alcohol, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Basically anything you regret having consumed a few hours later.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If consumption of these goods do not harm society, then there are no negative externalities, as long as no one else cares about the consumer :'(&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Good that may have negative consumer externality but may not be a demerit good:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Loud music&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2016-08-10T12:45:00.317" LastActivityDate="2016-08-10T12:45:00.317" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12935" PostTypeId="1" AcceptedAnswerId="12939" CreationDate="2016-08-04T09:35:27.477" Score="1" ViewCount="32" Body="&lt;p&gt;I was reading the answers to &lt;a href=&quot;https://economics.stackexchange.com/questions/12887/what-is-the-economic-meaning-of-structural-reforms&quot;&gt;this question&lt;/a&gt; when, the one by Dawson Verley aroused my curiosity. Does every change in structural policy result in a structural break? What conditions are necessary and/or sufficient for break?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2016-08-04T16:27:52.933" Title="Does every structural policy change count as structural break?" Tags="&lt;macroeconomics&gt;&lt;econometrics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12936" PostTypeId="1" CreationDate="2016-08-04T10:13:06.673" Score="-1" ViewCount="20159" Body="&lt;p&gt;QD1 = 190 - 2P1 - 2P2 &lt;/p&gt;&#xA;&#xA;&lt;p&gt;QS1 = - 10 + 2P1 &lt;/p&gt;&#xA;&#xA;&lt;p&gt;QD2 = 240 - 2P1 - 4P2 &lt;/p&gt;&#xA;&#xA;&lt;p&gt;QS2 = - 40 + P2&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are these goods substitutes or complements?&lt;/p&gt;&#xA;" OwnerUserId="10033" LastEditorUserId="47" LastEditDate="2016-08-08T20:40:23.633" LastActivityDate="2016-08-08T20:40:23.633" Title="How do you know if a good is a complement or a substitute from given demand and supply functions?" Tags="&lt;consumer-theory&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ClosedDate="2016-08-15T13:48:03.673" ContentLicense="CC BY-SA 3.0" />
  <row Id="12937" PostTypeId="1" CreationDate="2016-08-04T13:05:08.513" Score="3" ViewCount="297" Body="&lt;p&gt;In reading this article from FT, we come across two graphs:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/lWytr.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/lWytr.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/00TTe.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/00TTe.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Shouldn't real wages have a similar trend to productivity? Why was there that discrepancy since the 2009 until 2014? Maybe some other factor that shifted the PS, or the WS curve? It's interesting to notice that in Jun 1st 2014 began the sharp fall in oil prices, which may be the cause for the increase in the real wage we've been observing until know. It seems that workers productivity has had little impact in the behaviour of real wages...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit: I'm including a graph with CPI in GBR with data from OECD.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/BFWae.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/BFWae.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/bZfhi.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/bZfhi.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/QsMoU.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/QsMoU.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="118" LastEditDate="2016-08-04T22:23:26.257" LastActivityDate="2017-02-14T11:10:43.713" Title="Why the difference in productivity and wage trend in the UK economy?" Tags="&lt;macroeconomics&gt;&lt;labor-economics&gt;&lt;open-economy-macro&gt;" AnswerCount="1" CommentCount="8" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12939" PostTypeId="2" ParentId="12935" CreationDate="2016-08-04T15:56:41.043" Score="2" Body="&lt;p&gt;Assuming I understand the question appropriately, the answer, generally, is yes - but in its application to times series analysis/forecasting not all &quot;structural breaks&quot; would end up being included in a given model.  For example, if we are modeling labor supply, policy related to minimum wage would be hugely important (an increase can be seen as a structural break or a shock).  However, a small tariff placed on sugar imports, though it may effect labor supply in some minute way in some region, would not constitute a structural break in consideration of our model (though, by definition, it is a break).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To answer the second part of your question related to what conditions would necessitate inclusion in a model, I would argue that it is an intersection of theory/logic and statistical relevance.  If the influence of the break on other variables is virtually unobserved, or if its coefficients are far from significant then it need not be included (barring some other compelling case for its inclusion).  Or, we could say during the modeling process some break/shock variable added no advantage to the model fit (thinking AIC or SIC/BIC here).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hopefully that at least gets at your question.&lt;/p&gt;&#xA;" OwnerUserId="8878" LastActivityDate="2016-08-04T15:56:41.043" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12940" PostTypeId="1" CreationDate="2016-08-04T18:34:06.423" Score="1" ViewCount="336" Body="&lt;p&gt;I have to build a multivariate regression model as a project for my course in time series analysis. I have decided to model the industrial production index of the USA. I am stuck on the selection of the regressors which can adequately explain the time series of the industrial production. I have already selected some regressors (producer price index, unemployment, interest rates, population, auto and truck sales, inflation, philly fed seasonal adj. index, PMI) but I think I need some more regressors to correctly specify the model.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can you suggest me some macroeconomic time series I can use as a regressor for the industrial production index?&#xA;I need data from 1960-70 to 2016. &lt;/p&gt;&#xA;" OwnerUserId="10038" LastActivityDate="2017-02-02T03:56:42.557" Title="Econometric model for industrial production" Tags="&lt;macroeconomics&gt;&lt;econometrics&gt;&lt;data-request&gt;&lt;time-series&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12941" PostTypeId="2" ParentId="12931" CreationDate="2016-08-04T19:21:02.967" Score="0" Body="&lt;p&gt;Allocative inefficiency refers to a situation where good G was bought by buyer B1 (&quot;allocated&quot; to buyer B1) where it would have been more &quot;efficient&quot; if it had been bought by a different buyer B2 (&quot;allocated&quot; to B2 instead of B1). Good G could be producer goods like oil, lumber, plant equipment, or even consumer goods like sandwiches.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a free market, the only way buyer B1 gets to bid a good G away from buyer B2 is if B1 voluntarily pays more for G than B2 is willing to pay. This means that in a free market G is always allocated &quot;efficiently&quot;, because it goes to the highest bidder, ie the bidder who is obtaining the highest &quot;utility&quot; from G at that point in time (that's why he bid highest). In other words, in a free market, goods are always allocated efficiently.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A good G &lt;em&gt;can&lt;/em&gt; be allocated inefficiently to B2 instead of B1 if the market is actively &lt;em&gt;prevented&lt;/em&gt; by an external force from allowing B1 to bid G away from B2. There are many ways that this happens today:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;For example, B2 may be subsidized to buy G, which means money is forcibly taken from some tax payers and given to B2, thereby enhancing B2's ability to bid some units of G away from B1. An example of this is when a solar panel manufacturer is subsidized, thereby enhancing his ability to bid away goods from other manufacturers via this mechanism. The subsidy has forcibly disrupted the market and caused allocative inefficiency, as compared to the efficient allocation that would have been provided by the free market.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;As another example, the regulatory burden imposed on B1 may be higher than that imposed on B2, causing B1 to bleed resources away thereby reducing its ability to bid some units of G away from B2. Say a mom &amp;amp; pop restaurant B1 is forced to comply with a newly imposed food safety regulation, and they spend a higher percentage of their revenue on compliance than would a chain restaurant competitor B2 who already has a compliance department and therefore incurs smaller marginal cost of compliance. In this case, mom &amp;amp; pop restaurant B1 bleeds more compliance cost than chain competitor B2, reducing mom &amp;amp; pop B1's ability to bid goods G away from chain B2. In the free market some units of good G would go to B1, but after forcible imposition of the additional regulatory compliance some of those units instead go to B2. The regulatory burden has disrupted the free market and caused allocative inefficiency compared to the efficient allocation that would have taken place in the free market.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;This is why the phrase &quot;market failure&quot; is misleading and incorrect. The free market allocates efficiently, because goods go to the highest bidder. It is &quot;forced market disturbance&quot; that causes allocative inefficiency by disrupting the free market. Therefore, more forced market disturbance means less efficientcy, and less forced market disturbance means more efficiency, with maximum allocative efficiency when the market is free of all forced market disturbances (taxes, regulation, subsidies, red tape, etc.)&lt;/p&gt;&#xA;" OwnerUserId="5653" LastEditorUserId="5653" LastEditDate="2016-08-04T23:09:46.470" LastActivityDate="2016-08-04T23:09:46.470" CommentCount="13" ContentLicense="CC BY-SA 3.0" />
  <row Id="12942" PostTypeId="1" AcceptedAnswerId="12966" CreationDate="2016-08-04T22:35:12.997" Score="4" ViewCount="31454" Body="&lt;p&gt;According to the aggregate demand curve, when the price level is higher, the real GDP demanded is lower. One of the explanations given is a consequence of the Mundell-Fleming model:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;As the price level drops, interest rates fall, domestic investment in foreign countries increases, the real exchange rate depreciates, net exports increases, and aggregate demand increases.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So this seems to suggest that increased inflation means &lt;strong&gt;more imports and less exports.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But increased inflation should also increase the exchange rate (currency depreciation). If you can trade foreign currency for more domestic currency, then &lt;strong&gt;exports should increase and (conversely) imports should decrease.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How do I reconcile these two models? Is this a difference of short run vs. long run? Or is it a matter of all other factors being held constant in each scenario?&lt;/p&gt;&#xA;" OwnerUserId="10039" LastActivityDate="2020-04-10T17:40:41.677" Title="What is the relationship between inflation and imports/exports?" Tags="&lt;macroeconomics&gt;&lt;currency&gt;&lt;inflation&gt;&lt;gdp&gt;&lt;exchange-rates&gt;" AnswerCount="4" CommentCount="2" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="12943" PostTypeId="2" ParentId="12703" CreationDate="2016-08-05T00:24:55.267" Score="0" Body="&lt;p&gt;The tax burden falls on the ticket buyers, on the ticket sellers, on the hot dog vendors, on the cab drivers, on the children of the ticket buyers, and on a whole bunch of other people.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Ticket buyer:&lt;/strong&gt; Because he paid $5 extra to buy the ticket.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Ticket seller:&lt;/strong&gt; as @Mowzer said, if the event wasn't sold out, it is possible some tickets weren't sold that would have been sold at $5 less, so the seller lost on those.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Hot dog vendors:&lt;/strong&gt; some of the ticket buyers would have bought more from the vendors had they not paid the extra $5, so that cost fell on the vendors too.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Cab drivers:&lt;/strong&gt; some of the ticket buyers would have spent a few bucks on a cab after the game had they not paid the extra $5, so that cost fell on the cab drivers too.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Children of ticket buyers:&lt;/strong&gt; some of ticket buyers would have spend a few bucks on ice cream the next day for their kids had they not paid the extra $5, so that cost fell on the kids too.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And so forth.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And for those frugal buyers that would have saved the \$5 in their savings account, that is \$5 (times the number of such savers) that won't get lent out by the bank to a small business, hindering productivity increases and slowing down a growth in the standard of living that is brought about by such economic growth.&lt;/p&gt;&#xA;" OwnerUserId="5653" LastEditorUserId="5653" LastEditDate="2016-08-05T00:30:14.600" LastActivityDate="2016-08-05T00:30:14.600" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12944" PostTypeId="1" AcceptedAnswerId="12945" CreationDate="2016-08-05T02:56:29.217" Score="0" ViewCount="11991" Body="&lt;p&gt;Im reading about labour markets, and the notes mention that the real wage 'w' = W/P, where W = the nominal wage, and P = the price level. Could someone please use some 'W' and 'P' as an example to show me how real wages emerge from the ratio W/P? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks!&lt;/p&gt;&#xA;" OwnerUserId="5404" LastActivityDate="2020-12-26T07:19:29.987" Title="Why does the real wage = W/P?" Tags="&lt;macroeconomics&gt;&lt;labor-economics&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12945" PostTypeId="2" ParentId="12944" CreationDate="2016-08-05T03:27:33.310" Score="2" Body="&lt;p&gt;Whenever we go from nominal to real terms, we need a base year.  As an example, let's use 2016 as the base year.  In the base year, the nominal wage $W$ is always equal to the real wage $w$ (this is true for any price or cost, not just wage).  Also, we always set the price level $P$ equal to 1 in the base year.  That's what makes it the base year.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Anyway, let's say that, in 2016, $w_{2016}=W_{2016}=15$.  Suppose that, between 2016 and 2017, there's 2% inflation - that is, the price level $P$ increases by 2% from $P_{2016}=1$ to $P_{2017}=1.02$.  Then, it follows that the real wage in 2017 will be $w_{2017}=\frac{W_{2016}}{P_{2017}}=\frac{15}{1.02}=14.706$.  I hope this example helped.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In case it didn't, you can think about it like this:  Dividing the nominal wage by the price level is just how you adjust for inflation, thus giving you the real wage.&lt;/p&gt;&#xA;" OwnerUserId="10043" LastActivityDate="2016-08-05T03:27:33.310" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12946" PostTypeId="2" ParentId="12936" CreationDate="2016-08-05T03:37:43.057" Score="1" Body="&lt;p&gt;You don't actually need the supply functions at all.  You can determine whether two goods are complements or substitutes based on their demand functions alone.  All you need to do is look at the coefficient (number in front of) on $P_1$ and $P_2$ in each of the demand functions.  In the first demand function $QD_1$, the coefficient on $P_2$ is -2.  What this means is that, holding $P_1$ constant, a one-dollar increase in $P_2$ causes the quantity demanded of good 1 $QD_1$ to decrease by 2 units.   The important thing here to keep in mind is that this is a &lt;strong&gt;negative&lt;/strong&gt; coefficient.  Otherwise, $QD_1$ would increase rather than decrease.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for $QD_2$, you have a similar situation.  Because the coefficient on $P_1$ is -2, if you hold $P_2$ constant, a one-dollar increase in $P_1$ causes the quantity demanded of good 2 to decrease by 2 units.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, just use the definitions of substitutes and complements to determine which one this situation describes.&lt;/p&gt;&#xA;" OwnerUserId="10043" LastActivityDate="2016-08-05T03:37:43.057" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12948" PostTypeId="1" CreationDate="2016-08-05T06:50:29.327" Score="0" ViewCount="41" Body="&lt;p&gt;I need the PMI time series for an econometic project but it seems I can't get it for free on the internet.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does anyone know where can I download it for free?&#xA;Also a proxy for this series would be great.&#xA;The sample size: monthly, from 1960-70 to 2016&lt;/p&gt;&#xA;" OwnerUserId="10046" LastActivityDate="2016-09-07T08:57:32.617" Title="PMI - Purhasing Managers Index" Tags="&lt;macroeconomics&gt;&lt;econometrics&gt;&lt;data-request&gt;&lt;time-series&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12949" PostTypeId="1" AcceptedAnswerId="13022" CreationDate="2016-08-05T07:44:28.290" Score="3" ViewCount="200" Body="&lt;p&gt;Can I use calculated data for regression analysis.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;case 1: first run OLS $y = \alpha+\beta x$, and get $\hat\beta$, then calculate $z = h^\hat\beta$, at last run $m = \gamma + \mu z$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;case 2: follow the same settings as case 1, run $z = \zeta + \rho p$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;case 3: use matlab solve equation $k_i = \sum_j d_{ij} k_j$ for $k_i$, then run $w = \theta + \pi k$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $\alpha$,$\beta$,$\gamma$,$\mu$,$\zeta$,$\rho$,$\theta$,and $\pi$are coefficients, the other letters denote the variables.I have the variables y,x,h,m,p,$d_{ij}$,w. All the relationships between variables are from the models.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;They are independent cases that I ran into.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am going to estimate the coefficients $\mu$,$\rho$,and $\pi$.&lt;/p&gt;&#xA;" OwnerUserId="6255" LastEditorUserId="6255" LastEditDate="2016-08-06T01:40:30.500" LastActivityDate="2017-02-24T16:42:49.067" Title="Can I use calculated data for regression" Tags="&lt;regression&gt;" AnswerCount="3" CommentCount="7" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="12952" PostTypeId="1" AcceptedAnswerId="12953" CreationDate="2016-08-05T15:43:14.480" Score="0" ViewCount="55" Body="&lt;p&gt;You may have read &lt;a href=&quot;http://economics.mit.edu/files/4126&quot; rel=&quot;nofollow&quot;&gt;Acemoglu (2002)&lt;/a&gt; on the topic of directed technical change. I am reading a similar research paper, and I could not understand how the author derived the final equation using integration. Below are details:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Equation A:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$Y_L=\frac{1}{1-\beta}\left [\displaystyle\int_0^{N_L}x_L(j)^{1-\beta}\,dj\right ]L^{\beta }$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Equation B:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$x_L=\left [\frac{p_L}{\chi_L(j)}\right ]^{1/\beta}L$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Equation C:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$Y_L=\frac{1}{1-\beta}p_L^{\frac{1-\beta}{\beta}}N_LL$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where, &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;$N_L$ is the number of varieties of machines&lt;/li&gt;&#xA;&lt;li&gt;$x_L$ is the range of machines, so $x_L(j)$ is a machine type $(j)$&lt;/li&gt;&#xA;&lt;li&gt;$\chi_L(j)$ is the price of machine type $(j)$&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The rest are the usual macro variables.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The author uses the equation &lt;strong&gt;B&lt;/strong&gt; in equation &lt;strong&gt;A&lt;/strong&gt; and derives the equation &lt;strong&gt;C&lt;/strong&gt; after integration. I was wondering if anyone could please help understand how this could be done?&lt;/p&gt;&#xA;" OwnerUserId="6009" LastActivityDate="2016-08-05T19:21:58.753" Title="Directed technical change, Acemoglu (2002) framework - trying to understand how an equation is derived" Tags="&lt;macroeconomics&gt;&lt;economic-growth&gt;&lt;endogenous-growth&gt;&lt;directed-technical-change&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12953" PostTypeId="2" ParentId="12952" CreationDate="2016-08-05T19:21:58.753" Score="1" Body="&lt;p&gt;The price $χ_L(j)$ is 1!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You only need to integrate a constant. That's why you have that equation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(See p. 789, second paragraph, when he normalizes it to 1)&lt;/p&gt;&#xA;" OwnerUserId="8557" LastActivityDate="2016-08-05T19:21:58.753" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12954" PostTypeId="1" AcceptedAnswerId="17385" CreationDate="2016-08-05T21:22:45.390" Score="2" ViewCount="117" Body="&lt;p&gt;I'm wondering what are the implications of allowing competition between firms that deal with essential services in public welfare. I.e assuming there is no government regulation of such services, what would happen if there was competition between firms in the policing industry or if there was competition allowed among different fire departments? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What would the industry look like and what kind of methods would we use to analyse such a situation?&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="8815" LastEditDate="2017-07-03T15:47:03.133" LastActivityDate="2017-07-03T16:14:58.760" Title="Economic implications of allowing competition with essential services i.e police, fire department, etc" Tags="&lt;welfare-economics&gt;" AnswerCount="2" CommentCount="6" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12955" PostTypeId="2" ParentId="12954" CreationDate="2016-08-05T22:22:51.643" Score="0" Body="&lt;p&gt;One thing that comes to mind is the issue of motives - i.e. if there is competition in an essential service such as a fire brigade, and these rival brigades are competing by price (by assumption) and looking to maximise profit, then there could be a trade-off between what is socially optimal and what is optimal for the firm, i.e. how the firm maximises profit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This may be difficult to quantify but let's imagine residents of a neighbourhood are surveyed and the overwhelming response is that they feel there aren't enough fire trucks in most neighbourhoods. On the other hand the fire brigade may make a loss if it were to provide any additional trucks.&lt;/p&gt;&#xA;" OwnerUserId="8233" LastActivityDate="2016-08-05T22:22:51.643" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12956" PostTypeId="2" ParentId="12940" CreationDate="2016-08-05T23:02:47.370" Score="1" Body="&lt;p&gt;Depending on the goal of your analysis, you may want to take a different approach; but, often, more regressors do not necessarily improve a model. Rather than throwing in as many potentially relate variables into your regression, you may want to start with a more theoretical approach to try an determine the underlying supply side and demand side factors that drive industrial output. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems to me that the regressors you have included can be broken down in this way:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Supply Side: producer price index and interest rates&lt;/li&gt;&#xA;&lt;li&gt;Demand Side: population, inflation, interest rates, unemployment, and seasonal adjustment&lt;/li&gt;&#xA;&lt;li&gt;Other: auto and truck sales and PMI&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;While I am sure that the &quot;Other&quot; regressors are correlated with your dependent variable, do you really think they are determinants? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;That said, if you were to include a lagged term for auto sales you could make the argument that the more cars/trucks bought in the last period would influence the demand for gas and electric in the current period. Additionally, you may have an argument for the PMI, but my point is that you should try and think of the underlying variables driving the supply and demand for industrial production.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given the above comments, I would say you could add these potential variables:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Supply Side: Government investment in infrastructure, gross fixed capital formation (for the relevant industries), oil prices&lt;/li&gt;&#xA;&lt;li&gt;Demand Side: Per capita income, manufacturing exports, oil prices&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I am sure there have also been many studies like this in the past, and the previous literature is always a good place too look for additional ideas in the modeling process.  &lt;/p&gt;&#xA;" OwnerUserId="10047" LastActivityDate="2016-08-05T23:02:47.370" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12957" PostTypeId="2" ParentId="6986" CreationDate="2016-08-06T01:53:26.573" Score="2" Body="&lt;p&gt;Earlier posters, you're in general correct..But note that inflation can have different drivers - demand or cost..&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the inflation is demand-pull, then your submission that higher interest rate lowers inflation would be fine..However, if the inflation is cost push, and we have seen this on some occasions, more recently in Nigeria, then higher interest rate can, in fact, increase inflation through an increase in production cost..Won't speak much about this. More info can be gotten via Google.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Original poster, it depends on the kind of inflation that the article refers to.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for exchange rate.....&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The monetary model of exchange rate does predict that higher interest rate increases prices, inflation and depreciates exchange rate in the long run. This is not mainstream thinking, I agree, but it's a result which has found merit when empirically verified in a number of countries. The wisdom that higher interest rate reduces prices and strengthens exchange rate is a short term concept and known as the traditional approach to exchange rate determination which is based on the traditional keynesian/income model...:)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;All these are theories upon theories and none is really right or wrong. They all make sense when viewed through the lenses of their respective assumptions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Itankansogorobodo&lt;/p&gt;&#xA;" OwnerUserId="10048" LastEditorUserId="10048" LastEditDate="2016-08-06T01:59:01.577" LastActivityDate="2016-08-06T01:59:01.577" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12958" PostTypeId="2" ParentId="12942" CreationDate="2016-08-06T06:57:00.040" Score="0" Body="&lt;p&gt;*Inflation represents the evolution of prices in a geographical area.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The evolution of this rate also depends on the monetary policy of the central bank and the business climate in a given area.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Over an area is attractive, there will be more activity and growth. Currency and goods will be sought to purchase, a price evolution is then found.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Result: the currency adds to the condition that the comparison zone of monetary parity (euro-dollar, euro-yuan, etc.) have poorer outcomes or different objectives. A virtuous circle settles on condition of constant improvement of the business climate and productive.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Many parameters must be taken into account, the economic results do not permit precise expectations. Moreover, the forecasts announced by economic institutions and agencies are often revised. Economics helps provide tools to drive economic data without certainty of success.&lt;/strong&gt; Especially since there are many economic agents ambivalent or competitive goals.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Inflation is the focus of monetary issues in central banks. I invite you to read the descriptions and videos offered by central banks on the importance of interest rate and monetary policies to help the economy to function.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;French/français&lt;/strong&gt; : &#xA;Vulgarisation économique : &#xA;L'inflation représente l'évolution des prix dans une zone géographique. &#xA;L'évolution de ce taux dépend de la politique monétaire de la banque centrale et du climat des affaires dans une zone donnée. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Plus une zone sera attractive, plus il y aura de l'activité et de la croissance. La devise et les produits seront recherchés à l'achat, une évolution des prix se constate alors. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Résultat : la devise se renchérit à condition que la zone de comparaison de la parité monétaire (euro-dollar, euro-yuan, etc.) ait des résultats plus faibles ou des objectifs différents. &#xA;Un cercle vertueux s'installe à condition d'une amélioration constante du climat des affaires et de l'appareil productif.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;De nombreux paramètres sont à prendre en compte, les résultats économiques ne permettent pas des anticipations précises. D'ailleurs, les prévisions annoncées par les institutions et agences économiques sont, souvent, révisées. La science économique permet de donner des outils pour faire évoluer des données économiques sans aucune certitude de réussite.&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;D'autant plus qu'il existe de nombreux agents économiques ayant des objectifs ambivalents ou concurrentiels.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;L'inflation est au centre des problématiques monétaires au sein des banques centrales. Je vous invite à lire les descriptions et vidéos proposées par &#xA;les banques centrales sur l'importance du taux directeur et des politiques monétaires pour aider l'économie à fonctionner.*&lt;/p&gt;&#xA;" OwnerUserId="9014" LastActivityDate="2016-08-06T06:57:00.040" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12959" PostTypeId="2" ParentId="12733" CreationDate="2016-08-06T08:34:15.807" Score="-1" Body="&lt;p&gt;The key interest rate gives a direction on the cost of money. This rate influences the entire money supply and the cost of money for&#xA;banking intermediaries.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is the overall economy of an area that is influenced by the decisions of the monetary policy of the European Central Bank.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You have the right to ask questions of the economists of the European Central Bank directly on the website of this monetary institution. They are not obliged to respond.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When the interest rate is reduced, the central bank hopes to stimulate the economy by monetary irrigation.&lt;/p&gt;&#xA;" OwnerUserId="9014" LastEditorUserId="27" LastEditDate="2019-06-25T17:17:44.920" LastActivityDate="2019-06-25T17:17:44.920" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="12960" PostTypeId="1" CreationDate="2016-08-06T10:57:53.467" Score="1" ViewCount="140" Body="&lt;p&gt;I am studying computer science and enrolled in an econometrics class. As of this I have very basic understanding of the subject. I am trying to figure out the following question but don't know where to start. Could someone please give me an outline of how to calculate the question or even the formulas to use please.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/20V3o.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/20V3o.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="10049" LastActivityDate="2016-08-06T10:57:53.467" Title="Calculate coefficient estimates" Tags="&lt;econometrics&gt;&lt;statistics&gt;&lt;regression&gt;" AnswerCount="0" CommentCount="1" ClosedDate="2016-08-19T03:57:01.460" ContentLicense="CC BY-SA 3.0" />
  <row Id="12961" PostTypeId="5" CreationDate="2016-08-06T13:25:37.003" Score="0" Body="" OwnerUserId="-1" LastEditorUserId="-1" LastEditDate="2016-08-06T13:25:37.003" LastActivityDate="2016-08-06T13:25:37.003" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12962" PostTypeId="4" CreationDate="2016-08-06T13:25:37.003" Score="0" Body="Regarding the purchasing of capital and productive materials by firms. this differs from saving which is a similar action done by consumers." OwnerUserId="-1" LastEditorUserId="8815" LastEditDate="2019-03-24T17:43:13.147" LastActivityDate="2019-03-24T17:43:13.147" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="12965" PostTypeId="1" CreationDate="2016-08-06T18:04:52.903" Score="1" ViewCount="49" Body="&lt;p&gt;I'm looking for interesting books to read about the banking sector.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Topics&lt;/strong&gt;:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Changes in the banking sector,&lt;/li&gt;&#xA;&lt;li&gt;Adaptation of financial services in the digital age,&lt;/li&gt;&#xA;&lt;li&gt;European and US banking regulations&lt;/li&gt;&#xA;&lt;li&gt;The efficiency of banking supervision,&lt;/li&gt;&#xA;&lt;li&gt;Convergence of banking and insurance sector.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Thank you in advance for your suggestions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;French/français :&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Avez-vous une liste de livres au sujet de l'évolution du secteur bancaire ?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Je suis à la recherche de livres intéressants à lire au sujet de l'économie bancaire.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sujets possibles :&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;évolution du secteur bancaire,&lt;/li&gt;&#xA;&lt;li&gt;l'adaptation des services financiers à l'ère numérique,&lt;/li&gt;&#xA;&lt;li&gt;réglementations bancaires européennes et américaines,&lt;/li&gt;&#xA;&lt;li&gt;l'efficience de la supervision bancaire,&lt;/li&gt;&#xA;&lt;li&gt;convergence du secteur bancaire et assurantiel.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Je vous remercie par avance de vos propositions.&lt;/p&gt;&#xA;" OwnerUserId="9014" LastEditorUserId="264" LastEditDate="2016-08-06T21:36:42.493" LastActivityDate="2016-08-06T21:36:42.493" Title="Do you have a list of books about the evolution of the banking sector?" Tags="&lt;reference-request&gt;&lt;banking&gt;&lt;central-banking&gt;&lt;federal-reserve&gt;" AnswerCount="0" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12966" PostTypeId="2" ParentId="12942" CreationDate="2016-08-06T22:01:01.173" Score="2" Body="&lt;p&gt;As requested in comments:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is a matter of &lt;em&gt;which&lt;/em&gt; other factors are being held constant. If the relative-inflation-adjusted exchange rate (i.e. the real rate) stays constant, there may be no supply or demand effect on export and import volumes. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However exchange rates do not exactly follow relative inflation in different economies; other factors such as interest rates and investment returns, balance of payments differences, and sentiment can also have an effect.    &lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2016-08-06T22:01:01.173" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12967" PostTypeId="2" ParentId="12942" CreationDate="2016-08-07T08:57:14.987" Score="0" Body="&lt;p&gt;&lt;strong&gt;A practical example&lt;/strong&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One US exporter is competing with a Canadian about the sale of technological equipment to europe.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Central Bank (example: Federal Reserve System) can vary the exchange rate based monetary policy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At equal value technology, equivalent labor costs and the same taxes :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the US dollar is more expensive compared to the Canadian dollar, the chances of selling the American decline. So the export decline.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the US dollar is cheaper than the Canadian dollar, the US product that wins the export market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course, if the US product improves the technology of the product exported, the appreciation of the importer varies depending on its needs. The importer may pay more for a more efficient product.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the United States have customs privileges to the European continent, it is also an important parameter in the calculations of the importer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The dollar is attractive because it can be converted into any currency. Making it attractive to make economic exchanges with this area.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is a competitive element of primary importance in the world. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Congratulations to builders of this economic area (USA), they are the winners, for decades, about the economic game globally.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;French/Français&lt;/strong&gt; : &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Un exemple pratique de vulgarisation économique :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;La Banque Centrale (exemple : la Fed) peut faire varier le taux de change en fonction de sa politique monétaire.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Un exportateur américain est en concurrence avec un canadien pour vendre du matériel technologique vers l'Europe.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A égale valeur technologique, des coûts équivalents du travail et aux mêmes taxes  : &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Si le dollar américain est plus cher par rapport au dollar canadien,  les chances de vente de l'américain baisse. Donc l'exportation baissera.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Si le dollar américain est moins cher que le dollar canadien, c'est le produit américain qui remporte le marché exportateur.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Bien entendu, si le produit américain améliore la technologie du produit exporté, l'appréciation de l'importateur varie en fonction de ses besoins. L'importateur peut payer plus cher un produit plus performant. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Si les Etats-unis ont des privilèges douanières vers le continent européen, c'est aussi un paramètre important dans les calculs de l'importateur.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Le dollar est attractif car il peut se convertir dans toutes les monnaies. Ce qui rend attractif de réaliser des échanges économiques avec cette zone. &#xA;C'est un élément concurrentiel de première importance à l'échelle mondiale. Bravo aux constructeurs de cet espace économique, ils sont les gagnants depuis des décennies du jeu économique à l'échelle mondiale. &lt;/p&gt;&#xA;" OwnerUserId="9014" LastEditorUserId="9014" LastEditDate="2016-08-07T20:54:18.720" LastActivityDate="2016-08-07T20:54:18.720" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12968" PostTypeId="2" ParentId="12795" CreationDate="2016-08-07T08:58:15.250" Score="2" Body="&lt;p&gt;Self-policing incentive, in theory, works similarly for both Value Added Tax (VAT) and Goods and Services Tax (GST). The improvement, however, could come from the reduction in the number of instances where suppliers can circumvent the self-policing system, to evade taxes. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;VAT is collected by every supplier in the supply chain and paid by every buyer in that supply chain. At every incidence of tax there is an opportunity for tax fraud. One example of VAT fraud is: the supplier provides an invalid VAT number on the invoice and collects the appropriate amount of VAT from the buyer and instead of transferring the collected tax to the government, the supplier pockets it. Of course, such fraud can be detected by the customs department and when audited the supplier may claim that there was a printing error in the VAT number on the invoice. But if suppliers are not audited (perhaps because the cost outweighs the benefit) then they can plausibly pocket all the tax they collected from the buyer. It is also plausible that such a fraud can be carried out by many suppliers, if not every supplier, in the supply chain. Hence, even though there is self-policing mechanism fraud can still be committed by one or more suppliers in the supply chain under the VAT regime. In contrast, under the GST regime there is only one supplier in the supply chain who can theoretically commit that tax fraud. Since there are less instances under GST to evade taxes it is plausible that the amount evaded will be less and that it would be easier to audit.&lt;/p&gt;&#xA;" OwnerUserId="9029" LastEditorUserId="9029" LastEditDate="2016-08-07T10:16:38.577" LastActivityDate="2016-08-07T10:16:38.577" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12970" PostTypeId="1" AcceptedAnswerId="12972" CreationDate="2016-08-07T15:29:39.670" Score="0" ViewCount="827" Body="&lt;p&gt;Solvency: Long-term liabilities are covered by assets(with value measured at maturity, not at market-to-market)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Liquidity: short-term liabilities are covered by assets which can be sold in the short-term.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this it?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Should CB lend to insolvent banks? or only to solvent but illiquid banks? This related to the problem of moral hazard, where if banks are being bailed out, more can think that their liability side is being covered by the CB/Government...&lt;/p&gt;&#xA;" OwnerUserId="118" LastActivityDate="2016-08-07T19:08:28.943" Title="Solvency and liquidity. How to understand them? Should Central Banks only lend to solvent but illiquid banks?" Tags="&lt;banking&gt;&lt;central-banking&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12972" PostTypeId="2" ParentId="12970" CreationDate="2016-08-07T16:41:53.083" Score="1" Body="&lt;p&gt;Yes, your thinking about solvency and liquidity is in the right direction. An easier way to think about them is: Liquidity means that a bank has enough resources to meet its obligations and Solvency means the bank owns more than it owes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lending to solvent but illiquid banks is a less risky thing to do for the central bank because the bank needs more liquidity at the moment but it owns enough long-term assets to repay the debt. Bagehot was the first to publicise this insight. It is called Bagehot's rule.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lending to insolvent banks (banks that owe more than they own) may be risky because it's long-term assets are significantly limited for the bank to repay this debt. This has the potential to cause a moral hazard because the bank is likely to come back to borrow more from the central bank in the future.&lt;/p&gt;&#xA;" OwnerUserId="9029" LastEditorUserId="9029" LastEditDate="2016-08-07T19:08:28.943" LastActivityDate="2016-08-07T19:08:28.943" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="12973" PostTypeId="1" CreationDate="2016-08-07T18:37:03.130" Score="1" ViewCount="23" Body="&lt;p&gt;I would like to know the market commodity price of cream cheese.  I know you can look up the price of gold in the Wall Street Journal.  Where can I get info on dairy products like cream cheese?&lt;/p&gt;&#xA;" OwnerUserId="10058" LastActivityDate="2016-08-07T18:37:03.130" Title="Where do economists look for reliable commodity prices for dairy products?" Tags="&lt;pricing&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="12974" PostTypeId="2" ParentId="9560" CreationDate="2016-08-07T19:05:53.757" Score="1" Body="&lt;p&gt;GDP means gross domestic product. It the sum of all services and goods produced within the boundary of nation. Since imports are produced in other countries so we donor include imports in our GDP&#xA;I mean to say that we pay for it... So we take a negative sign with it&lt;/p&gt;&#xA;" OwnerUserId="10059" LastEditorUserId="10059" LastEditDate="2016-08-09T11:09:29.157" LastActivityDate="2016-08-09T11:09:29.157" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12975" PostTypeId="1" AcceptedAnswerId="12977" CreationDate="2016-08-07T19:34:51.063" Score="1" ViewCount="52" Body="&lt;p&gt;Is there any well known study that links government debt to tax rates? I have been searching the literature for some time now and haven't found any. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;More importantly, could government debt track tax rates?&lt;/p&gt;&#xA;" OwnerUserId="9029" LastActivityDate="2018-04-15T12:07:20.763" Title="Effect of government debt on tax rates?" Tags="&lt;taxation&gt;&lt;government-debt&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12976" PostTypeId="1" CreationDate="2016-08-07T21:14:22.350" Score="1" ViewCount="176" Body="&lt;p&gt;When one looks at a Non-Profit Organization there are three main things people notice.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;b&gt;1.&lt;/b&gt;They are an Income tax exempt organization&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;b&gt;2.&lt;/b&gt; They are primarily financed by donations&#xA;&lt;/p&gt;&lt;b&gt;3.&lt;/b&gt;They are heavily reliant on volunteer labour&lt;/p&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;what systems are in place to see that surplus income is not redistributed among stakeholders or among board members?&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2016-10-07T20:49:54.337" Title="Structure of Non-profits and Moral Hazard" Tags="&lt;microeconomics&gt;&lt;labor-cost&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12977" PostTypeId="2" ParentId="12975" CreationDate="2016-08-07T23:12:31.653" Score="1" Body="&lt;p&gt;Looking across countries, there is not much of a relationship.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The following chart is taken from the latest IMF World Economic Outlook database, comparing General Government Gross Debt as a percentage of GDP (you could look at net debt) and General Government Revenue as a percentage of GDP (which includes more than taxation) both in 2014.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/izkgg.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/izkgg.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The extreme debts are for Japan and Greece, while the extreme revenues are for Tuvalu, Kiribati, and Micronesia (foreign aid related), and Kuwait (oil revenues/taxes).  Hong Kong, Brunei, and Saudi Arabia have small gross debts while Nigeria and Bangladesh have the lowest revenues.  But even without these special cases the relationship is weak.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You could instead look at individual countries over time, but some of the relationship may be cyclical (either political or economic) as lower debt encourages lower future tax rates, but lower tax revenues can lead to higher future debt rates.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course the true relationship also involves government expenditure rates and GDP growth rates among other significant factors. &lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2016-08-07T23:12:31.653" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12979" PostTypeId="1" AcceptedAnswerId="12981" CreationDate="2016-08-07T23:57:58.260" Score="2" ViewCount="2747" Body="&lt;p&gt;Usually when I read online, I see the following repeated frequently: aggregate demand is equal to GDP. I understand that aggregate expenditures is the aggregate demand at a particular price level, and that sometimes AE will exceed GDP (causing growth in GDP) and vice versa, according to the Keynesian cross model.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Obviously at equilibrium, AS = AD = GDP. But I've never seen anywhere that aggregate supply in general is equal to GDP. Yet this definition makes more sense to me.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One definition that I've seen for aggregate supply is &quot;the total supply of goods and services produced within an economy at a given overall price level in a given time period&quot; (&lt;a href=&quot;https://www.google.com/url?sa=t&amp;amp;rct=j&amp;amp;q=&amp;amp;esrc=s&amp;amp;source=web&amp;amp;cd=3&amp;amp;cad=rja&amp;amp;uact=8&amp;amp;ved=0ahUKEwje9bLVv7DOAhUrxYMKHVuLC-0QFgg2MAI&amp;amp;url=http%3A%2F%2Fwww.investopedia.com%2Fterms%2Fa%2Faggregatesupply.asp&amp;amp;usg=AFQjCNGoD7SoeccO0KOawQH1AJ2NYQ9r2w&amp;amp;sig2=Ov5Atfc-geUEjCe7qs_3hg&quot; rel=&quot;nofollow&quot;&gt;source&lt;/a&gt;). Another that I've seen is &quot;the total supply of goods and services that firms in a national economy plan on selling during a specific time period&quot; (Wikipedia).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Which of these definitions is correct?&lt;/strong&gt; If it's the latter, I can see some obvious differences (it doesn't include inventories, for example). &lt;strong&gt;But if it's the former, that seems to be the same as GDP&lt;/strong&gt;: &quot;the monetary value of all goods and services produced within a nation's geographic borders over a specified period of time.&quot; To rephrase, &lt;strong&gt;how is the concept of aggregate output distinguished from aggregate supply?&lt;/strong&gt; I guess the first two questions should naturally answer this last one, since aggregate output is GDP.&lt;/p&gt;&#xA;" OwnerUserId="10039" LastEditorUserId="10039" LastEditDate="2016-08-08T00:08:45.553" LastActivityDate="2018-11-29T16:34:43.213" Title="What is the difference between aggregate supply and GDP?" Tags="&lt;macroeconomics&gt;&lt;supply-and-demand&gt;&lt;gdp&gt;&lt;keynesian-economics&gt;&lt;aggregate-production&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12981" PostTypeId="2" ParentId="12979" CreationDate="2016-08-08T02:13:08.540" Score="0" Body="&lt;p&gt;Per my understanding, AS and GDP are the same thing. However, the term AS is more often used in the context of &quot;curves&quot; to describe the relationship between inflation rate and the supply side.&lt;/p&gt;&#xA;" OwnerUserId="8828" LastActivityDate="2016-08-08T02:13:08.540" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12983" PostTypeId="2" ParentId="12948" CreationDate="2016-08-08T08:18:31.753" Score="1" Body="&lt;p&gt;Such data can be found on Quandl, for example: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.quandl.com/data/ISM/MAN_PMI-PMI-Composite-Index&quot; rel=&quot;nofollow&quot;&gt;https://www.quandl.com/data/ISM/MAN_PMI-PMI-Composite-Index&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="6820" LastActivityDate="2016-08-08T08:18:31.753" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12988" PostTypeId="1" CreationDate="2016-08-08T17:31:06.610" Score="1" ViewCount="374" Body="&lt;p&gt;I am very interested in the subject, but want to gain understanding on application that can be useful on the job.&lt;/p&gt;&#xA;" OwnerUserId="10067" LastActivityDate="2016-08-08T17:31:06.610" Title="Best way to learn econometrics for application?" Tags="&lt;econometrics&gt;&lt;applied-econometrics&gt;" AnswerCount="0" CommentCount="3" ClosedDate="2016-08-19T03:54:03.177" ContentLicense="CC BY-SA 3.0" />
  <row Id="12989" PostTypeId="1" CreationDate="2016-08-08T18:56:18.447" Score="1" ViewCount="18" Body="&lt;p&gt;Assume there are two competitive markets for goods a and b. Each consumer will either purchase one unit of a and none of b, or one of b and none of a. Consumers never consume both goods. Utilities are as follows:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$u(x,t) = 1.25 - 0.4t$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$u(y,t) = - (t-0.6)^2$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Valuations are for single units.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume the consumers are uniformly distributed over the interval [0.6,1.6] and in the initial allocation of goods, each with $0.6 \leq t \leq 1$ owns a unit of x and each with $t$ in $1.1 \leq t \leq 1.6$ own one unit of y. Find the competitive equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is throwing me off here is how to include the probability density of the initial distribution of goods.&lt;/p&gt;&#xA;" OwnerUserId="10068" LastActivityDate="2016-08-08T18:56:18.447" Title="competitive equilibrium with density functions" Tags="&lt;microeconomics&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12990" PostTypeId="2" ParentId="12976" CreationDate="2016-08-08T19:21:31.097" Score="1" Body="&lt;p&gt;Although they are non-profit organizations, they still submit legal documents such as statement of cash flow, statement of financial position, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These contain detailed information of the spending of such organizations.&lt;/p&gt;&#xA;" OwnerUserId="10069" LastActivityDate="2016-08-08T19:21:31.097" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12991" PostTypeId="2" ParentId="12650" CreationDate="2016-08-08T19:22:05.333" Score="1" Body="&lt;p&gt;&lt;a href=&quot;http://www.oecd.org/economy/surveys/&quot; rel=&quot;nofollow&quot;&gt;http://www.oecd.org/economy/surveys/&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To complete the answer, I recommend reading the full economic studies country by country: banks, finance, debt, economic sectors, taxation, economic risk etc. Read these studies before making décisions !&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I sincerely believe that these studies will help you in your economic analysis and banking.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We must understand why an interest rate is high or low, why the volume of business loans is strong or weak. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Only this type of study can explain and analyze the data rates between companies, and compare from one country to another.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;For example, credit rates can reach 15% in an African country because the inflation rate is high and the rate of the central bank is very high! Without economic studies, it is impossible to compare.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;French/Français&lt;/strong&gt; : &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Pour compléter la réponse, je conseille de lire les études économiques complètes pays par pays : l'écosystème bancaire, les financements, la dette publique, les études par secteurs économiques, la fiscalité, les risques économiques etc. Lire ces études avant de prendre des décisions !&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Je pense sincèrement que ces études vont vous aider dans votre analyse économique et bancaire. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Il faut comprendre pourquoi un taux d'intérêt est fort ou faible, comprendre pourquoi le volume des prêts professionnels est fort ou faible. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ces études peuvent vous expliquer et aider à analyser les données concernant les taux entre les entreprises, et les comparer d'un pays à un autre avec une approche globale.&lt;/p&gt;&#xA;" OwnerUserId="9014" LastActivityDate="2016-08-08T19:22:05.333" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="12992" PostTypeId="1" AcceptedAnswerId="12999" CreationDate="2016-08-08T19:25:38.927" Score="0" ViewCount="57" Body="&lt;p&gt;I need to know the name and formula for this problem.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have widgets which have a certain lube content to them.  We currently are selling the widgets for 3.00 each.  The lube costs .50 cents for each widget, but we are considering a change in the lube content from the current state of 1 oz.  We currently are making sales of 1000 widgets per year.  I want to know how many more widgets we would have to sell in order to justify a given increase in the lube content of a widget.  I am not asking how many more we would sell if we increased the lube content or what the revenue would actually be.  I am merely asking what the number of additional widgets sold must be in order to justify a given lube content increase.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Price of widgets is constant.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is the name of the formula I am seeking?  What is the formula I am seeking?  What is the answer?&lt;/p&gt;&#xA;" OwnerUserId="10058" LastActivityDate="2016-08-09T13:30:33.627" Title="What is the formula for how many more I need to sell in order to justify raising cost?" Tags="&lt;microeconomics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12993" PostTypeId="2" ParentId="12992" CreationDate="2016-08-08T20:30:42.073" Score="0" Body="&lt;p&gt;Assume that today you sell $N$ widgets for price of $3$. Your cost is the cost of the widget plus the lube: $C_w + 0.5$ assuming all other marginal costs are small enough to ignore. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your profit is $N\left(3- (C_w + 0.5)\right)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;After changing the lube you sell $M$ widgets for a price of $3$ but cost has increased to $C_w + 1$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your profit is: $M\left(3- (C_w + 1)\right)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your question rephrased: How big has $M$ to be so profit is higher after the change. Doing the math:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$M\left(3- (C_w + 1)\right) &amp;gt; N\left(3- (C_w + 0.5)\right)$$&#xA;$$M\left(2- C_w \right) &amp;gt; N\left(2.5- C_w\right)$$&#xA;$$M &amp;gt; N \frac{2.5- C_w}{2- C_w } $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Example: $N = 10 000$, $C_w = 1.2$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then M needs to be bigger than $ 10 000 \frac{2.5- 1.2}{2- 1.2} = 16 250 $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;EDIT:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;MR. A asks in comments for &quot;the amount I increase/decrease&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The difference is just $M-N$, so just take the original formula and subtract $N$ from both sides:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$M - N &amp;gt; N \frac{2.5- C_w}{2- C_w } - N$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Simplifies to: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$M - N &amp;gt; N \frac{0.5}{2- C_w }$$&lt;/p&gt;&#xA;" OwnerUserId="4193" LastEditorUserId="4193" LastEditDate="2016-08-08T21:33:04.307" LastActivityDate="2016-08-08T21:33:04.307" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="12994" PostTypeId="1" CreationDate="2016-08-08T21:20:43.807" Score="2" ViewCount="168" Body="&lt;p&gt;What is the average wage increase and how does one calculate it? Gottfries (2013, p. 166) refers to the following formula as the &quot;average wage increase:&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\Delta W_t}{W_{t-1}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the above formula is meaningful, then my question is more a clarification about terminology and notation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As to terminology, what is a more popular way to refer to this equation other than the average wage increase?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As to notation, Gottfries refers to $W$ as the &quot;average wage level,&quot; but what do the other symbols mean? Is it safe to assume the expressions $W_t$ and $W_{t-1}$ refer, respectively, to the average wage levels at times $t$ and $t-1$? What then does $\Delta W_t$ represent? Is $\Delta W_t$ the difference in average wage levels at times $t$ and $t-1$ (i.e., $\Delta W_t = W_t - W_{t-1}$)? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think this question is worth asking since 1) there has to be a more popular way to refer to this equation (Gottfries book was all that came up when I Googled &quot;average wage increase&quot;) and 2) I don't want to assume, as far as notation goes, more than I have to (Gottfries doesn't define these symbols).&lt;/p&gt;&#xA;" OwnerUserId="10071" LastActivityDate="2016-11-22T12:53:23.843" Title="How to calculate the average wage increase?" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;definition&gt;" AnswerCount="4" CommentCount="1" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12996" PostTypeId="1" CreationDate="2016-08-08T22:55:32.323" Score="1" ViewCount="37" Body="&lt;p&gt;A question that I have is whether a truly economically free society needs to (or should) have laws against anti-competitive behavior.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Take liquor distribution as an example. In the United States liquor distributors widely employ anti-competitive tactics. For example, they will threaten liquor stores that sell product from competing distributors with being cutoff. Since liquor stores rely on key brands, this is a lethal threat so the distributor can essentially prevent them from selling product from someone else. The six or seven liquor distributors in the US have essentially divided up the country geographically among themselves using this mechanism.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some economists might argue, however, that this is only possible because of government regulations on alcohol. So, for example, for years regulations prevented small brewers from being possible, so there were only a few large brands, Budweiser, Schlitz, Michelob, etc. Because of the artificially restricted number of brands that opens the door for anti-competitive distribution monopolies, they argue. If there were no restrictions on distilleries, then the distribution monopolies would vanish, is the contention.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is the basis for that kind of theory? Does it have a name? What is the argument against it?&lt;/p&gt;&#xA;" OwnerUserId="1448" LastActivityDate="2016-08-08T22:55:32.323" Title="Is anti-competitive behavior a threat in a society with free trade and no regulation?" Tags="&lt;monopoly&gt;&lt;regulation&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="12997" PostTypeId="1" AcceptedAnswerId="12998" CreationDate="2016-08-09T06:06:07.993" Score="0" ViewCount="256" Body="&lt;p&gt;Which is a better measure of the health of an economy between Debt-to-GDP and Debt-to-Revenue? Why?&lt;/p&gt;&#xA;" OwnerUserId="9029" LastActivityDate="2016-08-09T08:00:24.030" Title="Debt-to-GDP or Debt-to-Revenue?" Tags="&lt;gdp&gt;&lt;government-debt&gt;&lt;economic-measurement&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12998" PostTypeId="2" ParentId="12997" CreationDate="2016-08-09T08:00:24.030" Score="1" Body="&lt;p&gt;You may want to consider this as the difference between the potential to pay and the actual means to pay on hand. Since government revenues will ultimately come from GDP (excepting foreign aid etc.), you will be certain that debt to revenue will be higher (smaller denominator).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How useful is this as a measure? I suppose, as with all things, it depends. Debt to GDP is a well understood and widely used statistic, and so it lends itself to comparison between other nations. Ultimately GDP is a pool from which the government, in principle, could raise revenues from.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In contrast, revenues are your means to pay right now. Debts generally don't all need to be paid at once, and so your means of paying right now may not matter as much as the fact you are able to pay them when they're due (after all, the money you have right now may be better put to use in some productive activity that will enhance your means of paying the debt in the future). If the bill collectors are at the door, suddenly your revenues matter quite a bit!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I suppose the closest I can get to a direct answer to your question might be that if you doubted the ability of a government to tap into these potential revenues (ie. people won't pay taxes), then debt to revenue would likely be more appropriate given that it is an accurate portrayal of the means to pay.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'll close with a numerical example. Suppose there were two governments that were identical across all respects, only tax to cover their expenses and have \$10 billion in debt with two different payment plans. Country A must pay back \$1 billion a year over 10 years and Country B must pay back \$2 billion a year over 5 years.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Country A's debt to revenue would be 10, while Country B's debt to revenue would be 5. The numbers are different, but we haven't really learned much about the health of these economies.&lt;/p&gt;&#xA;" OwnerUserId="10041" LastActivityDate="2016-08-09T08:00:24.030" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="12999" PostTypeId="2" ParentId="12992" CreationDate="2016-08-09T13:30:33.627" Score="1" Body="&lt;p&gt;This is an algebra problem. My answer is quite similar to snorams, but without the numbers plugged in (which hopefully makes it a bit easier to see what is going on). Let&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;$p$ be the price of a widget&lt;/li&gt;&#xA;&lt;li&gt;$c_L$ be the old cost for producing one widget (i.e. with a low amount of lube)&lt;/li&gt;&#xA;&lt;li&gt;$c_H$ be the new cost for producing one widget (i.e. including the high amount of lube)&lt;/li&gt;&#xA;&lt;li&gt;$n_L$ be the number of units sold when you use a low amount of lube&lt;/li&gt;&#xA;&lt;li&gt;$n_H$ the number of units solve when you use a high amount of lube.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;With a low amount of lube, your profit is $(p-c_L)n_L$ (in words: you earn a margin of $p-c_L$ on each unit, and sell $n_L$ units).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With a high amount of lube, your profit is $(p-c_H)n_H$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You would like to know when is it true that the higher lube content is more profitable, i.e.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$(p-c_H)n_H\geq(p-c_L)n_L$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, to find the number of units, $n_H$, at which the change results in break even, we can simply solve the inequality:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$n_H\geq\frac{(p-c_L) n_L}{(p-c_H)}$$&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Let's look at an example:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;price of a widget is $p=3$.&lt;/li&gt;&#xA;&lt;li&gt;unit costs of everything but the lube are $1$.&lt;/li&gt;&#xA;&lt;li&gt;cost of low amount of lube is $0.5$&lt;/li&gt;&#xA;&lt;li&gt;cost for high amount of lube is $0.6$&lt;/li&gt;&#xA;&lt;li&gt;low-lube sales are $1000$.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;We calculate the unit cost as $c_L=1+0.5=1.5$ and $c_H=1+0.6=1.6$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now we plug these numbers into the formula&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$n_H\geq\frac{(p-c_L) n_L}{(p-c_H)}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$n_H\geq\frac{(3-1.5) 1000}{(3-1.6)}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$n_H\geq\frac{1500}{(1.4)}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$n_H\geq1071.42.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So if you sold at least 1072 units (i.e. an extra 72 units) then the change would pay for itself.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2016-08-09T13:30:33.627" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13000" PostTypeId="1" CreationDate="2016-08-09T18:19:43.260" Score="1" ViewCount="448" Body="&lt;p&gt;I realize Friedman was a part of the Reagan Administration, so even if he disapproved of supply-side, he may have moderated his remarks, but what kind of things did he say about it, and what can be determined about his real opinion?&lt;/p&gt;&#xA;" OwnerUserId="10074" LastEditorUserId="1442" LastEditDate="2021-02-17T08:16:01.850" LastActivityDate="2021-02-17T08:57:28.543" Title="What was Milton Friedman's opinion of Supply-side economics?" Tags="&lt;history-economic-thought&gt;&lt;friedman&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13001" PostTypeId="1" AcceptedAnswerId="13007" CreationDate="2016-08-09T19:22:51.377" Score="1" ViewCount="177" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;European movements for degrowth, decroissance, are rooted in the idea&#xA;  that the perpetual growth assumption built into modern economics fails&#xA;  to take into account the depletion of natural capital. Hence the&#xA;  importance of sustainability.&quot;&#xA;  - &lt;a href=&quot;http://www.newphilosopher.com/articles/the-end-of-progress/&quot; rel=&quot;nofollow&quot;&gt;The end of progress&lt;/a&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;What is natural capital?&lt;/p&gt;&#xA;" OwnerUserId="7269" LastEditorUserId="264" LastEditDate="2016-08-09T23:53:15.653" LastActivityDate="2016-08-10T12:33:12.403" Title="What is Natural Capital?" Tags="&lt;environmental-economics&gt;&lt;definition&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13003" PostTypeId="1" AcceptedAnswerId="13005" CreationDate="2016-08-09T21:22:23.917" Score="1" ViewCount="341" Body="&lt;p&gt;good day all&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am taking second year economics, but my textbook is not very clear on this topic&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A quoted from &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Intermediate Microeconomics and Its Application. Nicholson, Snyder. 11th Edition.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Used in question: 2 Extracts from textbook, 1 text and 1 graph:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Indifference Curve Used as reference:&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/q60TV.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/q60TV.png&quot; alt=&quot;Graph&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Text Extract&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/UVGMb.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/UVGMb.png&quot; alt=&quot;Text Extract&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Tutorial Question given by university:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/Ygou4.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Ygou4.png&quot; alt=&quot;Tutorial Question&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My question:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From the extract, I understand that the MRS is determined by the change in hamburgers / change in softdrinks which gives MRS = |2|.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From my tutorial question, slightly different terminology was used (&quot;consumption&quot;), which resulted the answer shown.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I do not understand why the answer for the tutorial question is 1/5 and not 5 (based on the example from the book). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Help would be very much appreciated!&lt;/p&gt;&#xA;" OwnerUserId="10076" LastActivityDate="2020-02-02T04:56:50.087" Title="marginal utility of consuming vs marginal rate of substitution" Tags="&lt;microeconomics&gt;&lt;marginal&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13004" PostTypeId="1" AcceptedAnswerId="13012" CreationDate="2016-08-09T21:41:24.283" Score="2" ViewCount="47" Body="&lt;p&gt;How does one go about interpreting a case of  inelastic supply and demand that are based at different quantities? There is no equilibrium in such a case and therefore nothing supplied or demanded. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;b&gt;Two Questions&lt;/b&gt;&#xA;&lt;p&gt;1.How would one go about looking at the the type of good we have here?&lt;p&gt;2. Is this case even possible?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/Ztm8A.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Ztm8A.jpg&quot; alt=&quot;Inelastic Supply and Demand at different quantities&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2016-08-10T12:08:51.920" Title="Interpreting Disequilibrium: Inelastic Supply and Demand at different quantities" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;supply-and-demand&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13005" PostTypeId="2" ParentId="13003" CreationDate="2016-08-09T21:51:51.630" Score="1" Body="&lt;p&gt;This is because the question is asking the MRS of soda for hotdogs not the MRS of hotdogs for soda.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;i.e &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$MRS(MU(soda),MU(hotdogs))=MU(soda)/MU(hamburgers)= 2/10=1/5$ &lt;p&gt;To get 5 you need to solve the MRS of hotdogs to soda&lt;/p&gt;&lt;p&gt; $MRS(MU(hotdogs),MU(soda))=MU(hamburgers)/MU(Soda)=10/2=5$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope this helps.&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="8815" LastEditDate="2016-08-09T21:57:15.693" LastActivityDate="2016-08-09T21:57:15.693" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13006" PostTypeId="1" CreationDate="2016-08-09T22:48:36.957" Score="2" ViewCount="50" Body="&lt;p&gt;How would I calculate the total UK household income? I want to be able to estimate what a flat 10% income tax would generate (with no personal allowance or other tax breaks). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Not that I agree with this idea!&lt;/p&gt;&#xA;" OwnerUserId="10077" LastActivityDate="2016-11-12T19:38:56.413" Title="Total UK Household Income" Tags="&lt;taxation&gt;" AnswerCount="3" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13007" PostTypeId="2" ParentId="13001" CreationDate="2016-08-10T04:14:10.960" Score="0" Body="&lt;p&gt;Got this definition from &lt;a href=&quot;http://www.investopedia.com/terms/n/natural-capital.asp&quot; rel=&quot;nofollow&quot;&gt;Investopedia&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;i&gt;&lt;b&gt;&quot;DEFINITION of 'Natural Capital'&lt;/b&gt;&#xA;&lt;p&gt;A reference to the stock of natural resources, such as water and oil. Unlike other forms of equity (such as machines and buildings), which can be created on a regular basis, many natural resources are nonrenewable. Natural capital includes many resources that humans and other animals depend on to live and function, which leads to a dilemma between depleting and preserving those resources.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;/i&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Simply put, Natural Resources are synonymous to Natural Capital.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The quote is saying that the assumption in modern economics fail to take into account the negative effect that their industry has on the environment.&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="8815" LastEditDate="2016-08-10T12:33:12.403" LastActivityDate="2016-08-10T12:33:12.403" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13008" PostTypeId="2" ParentId="13001" CreationDate="2016-08-10T05:39:46.723" Score="2" Body="&lt;p&gt;Natural Capital is an analytic accounting approach: it is a system of putting a monetary value on environmental assets such as ancient woodland. It is also the name of those assets, within that approach. So it's one way of internalising the externalities of environmental change, within macroeconomic indicators.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For more, see in particular the work of &lt;a href=&quot;http://iris.ucl.ac.uk/iris/browse/profile?upi=PEKIN72&quot; rel=&quot;nofollow&quot;&gt;Paul Ekins&lt;/a&gt;, including &lt;a href=&quot;http://oro.open.ac.uk/38/1/CRITINC_Framework_for_Pract._App.EcolEcon.pdf&quot; rel=&quot;nofollow&quot;&gt;&quot;A Framework for the practical application of the concepts of critical natural capital and strong sustainability&quot;&lt;/a&gt; (pdf)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The philosophy of &lt;em&gt;decroissance&lt;/em&gt; - of deliberately engineering a decline in traditional economic growth indicators - is one attempt to find an optimal and sustainable economic path, taking into consideration both the traditional economic indicators such as year-on-year changes in GDP, &lt;strong&gt;and&lt;/strong&gt; changes to the population's wellbeing, together with changes to the national asset base, which includes changes in Natural Capital.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2016-08-10T05:39:46.723" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13009" PostTypeId="2" ParentId="13006" CreationDate="2016-08-10T07:20:15.990" Score="1" Body="&lt;p&gt;How about multiplying the average UK household income with the number of households? Both of these should be available from government statistics.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2016-08-10T07:20:15.990" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13010" PostTypeId="2" ParentId="12949" CreationDate="2016-08-10T08:39:17.437" Score="1" Body="&lt;p&gt;The answer from someone&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Case 1: There is an estimation error in beta_hat. So Z should be really named Z_hat, which is different from the true Z defined as exp(beta_0). The estimation error translates into the error-in-variable problem in the second regression. The OLS estimator of mu will suffer from attenuation bias in finite samples. However, in large samples, when the variance of the estimation error in beta_hat goes to zero, the attenuation bias disappears. So you can run the regression as usual. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Case 2: Not a problem. Just run the regression as usual. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Case 3: No a problem, as long as you can estimate the k's precisely. That is, the numerical errors have to be very small. Otherwise, you will have the same problem as in Case 1. &lt;/p&gt;&#xA;" OwnerUserId="6255" LastActivityDate="2016-08-10T08:39:17.437" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13011" PostTypeId="1" AcceptedAnswerId="13024" CreationDate="2016-08-10T12:05:18.653" Score="1" ViewCount="528" Body="&lt;p&gt;Consider a perfectly competitive market with equilibrium price $P_{eq}$ and quantity $Q_{eq}$ and firm with profit maximising quantity $Q_f$ as illustrated below:&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/FumUI.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/FumUI.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;I guess any firm in the market would have the same demand, marginal revenue and average revenue (or am I wrong?), but what about profit maximising quantity $Q_f$? It seems to depend on $MC$. Is $MC$ different for each firm?&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;If so, then $Q_f$ is not necessarily the same for each firm?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;If not, why?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="4483" LastActivityDate="2016-08-11T14:43:41.930" Title="market equilibrium quantity $\ne$ firm profit maximising quantity?" Tags="&lt;microeconomics&gt;&lt;general-equilibrium&gt;&lt;markets&gt;&lt;competition&gt;&lt;firm&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="13012" PostTypeId="2" ParentId="13004" CreationDate="2016-08-10T12:08:51.920" Score="1" Body="&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;I am not sure what you mean by looking, but there is no equilibrium in this market, so any equilibrium analysis is impossible.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Situations like this are possible. Consider the Titanic. Supply of lifeboat spaces are limited and do not change depending on the price. People are willing to pay any price. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;There are limitations on what an individual can pay by money though. One might argue that there were a lot of people who were willing to do anything to get a space (push in line, etc.). As long as the number of these people is larger than the supply and the price is measured in effort your graph would describe the market for places.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2016-08-10T12:08:51.920" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13015" PostTypeId="1" CreationDate="2016-08-11T03:53:14.897" Score="5" ViewCount="5396" Body="&lt;p&gt;From my notes:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We analyze the determination of the interest rate using a supply/demand model relating the interest rate (price of money) to the quantity of money. Since we assume:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) no excess reserve&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) no excess currency in circulation&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Real money supply (Ms/P) does not change with with a change in the interest rate, thus perfectly inelastic Ms&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is the part I don't really get. If money supply is determined by the central bank/government, does my notes have any connection to understanding why money supply is inelastic?&lt;/p&gt;&#xA;" OwnerUserId="10045" LastActivityDate="2021-01-29T12:43:04.507" Title="Why is the money supply perfectly inelastic?" Tags="&lt;macroeconomics&gt;&lt;interest-rate&gt;&lt;money-supply&gt;&lt;money&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13018" PostTypeId="2" ParentId="12928" CreationDate="2016-08-11T07:06:04.593" Score="1" Body="&lt;p&gt;In addition to Lassie Fair's answers, you may study separately the short and long term currency rate movements. The text below refers to some of the models mentioned in literature: are they right or even helpful, well it depends...  Wikipedia has a nice article on &lt;a href=&quot;https://en.wikipedia.org/wiki/Foreign_exchange_market&quot; rel=&quot;nofollow&quot;&gt;foreign exchange markets&lt;/a&gt; including a section on determinants of exchange rates.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Short term&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Random walk seems to characterize many exchange rate movements better than the models mentioned below. Long term equilibrium values may anchor the exchange rate movements but deviations from equilibrium can take large, long and chaotic path. &lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Long term&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Models use fundamental variables like relative money supply, interest rates, inflation rates, economic grothw rates and currency account balancies. You see nominal exchange rates but real variables influence. Further, expectations (e.g. a trending GDP or inflation) and relative movements of rates, influence. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Many models use or are based on international parity conditions:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Ex Ante Purchasing Power Parity (&lt;a href=&quot;https://en.wikipedia.org/wiki/Purchasing_power_parity&quot; rel=&quot;nofollow&quot;&gt;PPP on wikipedia&lt;/a&gt;)&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/International_Fisher_effect&quot; rel=&quot;nofollow&quot;&gt;International Fisher Effect&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;Uncovered Interest Rate Parity&lt;/li&gt;&#xA;&lt;li&gt;Forward Rate as an Unbiased Predictor&lt;/li&gt;&#xA;&lt;li&gt;Covered Interest Rate Parity&lt;/li&gt;&#xA;&lt;li&gt;Fisher Effect&lt;/li&gt;&#xA;&lt;li&gt;Real Interest Rate Parity&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Rosenberg {2} has a nice picture that relates 1.-5. to each other. &#xA;Wikipedia has a page on &lt;a href=&quot;https://en.wikipedia.org/wiki/Interest_rate_parity&quot; rel=&quot;nofollow&quot;&gt;Interest Rate Parities&lt;/a&gt;.&#xA;I'll describe (very) shortly some of above models. The third means that country with higher interest rate is expected to see the value of its currency depreciate (yield differential is offset by currency moves). The first one takes a look of the inflation differential and PPP can come in many forms (e.g., absolute, relative, ex ante): equilibrium exchange rate between two countries is determined by their national price levels. Over long term, many believe that exchange rates mean revert toward their PPP-based values.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The seventh says that real interest rates converge to the same level accross markets and nominal yield differential (between countries) is determined by expected inflation differential (the sixth item above). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The above conditions are linked to each other. For other models, see the wiki-page mentioned in the beginning.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Assessing Equilibrium Level&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;IMF (see &lt;a href=&quot;https://www.imf.org/external/pubs/ft/wp/2007/wp07296.pdf&quot; rel=&quot;nofollow&quot;&gt;IMF Eqiulibrium Exchange Rates: Assesment methodologies&lt;/a&gt; and &lt;a href=&quot;http://www.imf.org/en/Data/IMF-Finances&quot; rel=&quot;nofollow&quot;&gt;IMF financies&lt;/a&gt;)  makes assesments of equilibrium levels regularly. (I couldn't find a link to the latest assements, if you have, please could you put one e.g in the comments.) Other institutions also do make assesments.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Without explaining,the methods include e.g.:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Macroeconomic balance approach&lt;/li&gt;&#xA;&lt;li&gt;External sustainability approach&lt;/li&gt;&#xA;&lt;li&gt;Reduced-form econometric model&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;h2&gt;Determinants&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Balance of payments (investment and financing decisions) usually tends to affect exchange rates in the short term. And also in the long run, e.g. long term and large budget deficits could lead to currency decline. Supply and demand, debt sustainability and portfolio balance affect. The last one refers to financial wealth transfer between nations due to the current account imbalancies. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Further, governments apply monetary and fiscal policies. &lt;a href=&quot;https://en.wikipedia.org/wiki/Mundell%E2%80%93Fleming_model&quot; rel=&quot;nofollow&quot;&gt;Mundell-Fleming&lt;/a&gt; model describes, how expansionary or restrictive monetary policies with expansionary or restrictive fiscal polycies affect currency rates. There are at least two flavours of the model: high capital mobility and low capital mobility. Unfortunately, the wiki-page does not give a good summary of the effects (please, take a look of Rosenberg):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In high capital mobility:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;expansionary monetary and restrictive fiscal policy leads to domestic currency depriciation&lt;/li&gt;&#xA;&lt;li&gt;restrictive monetary and expansionary fiscal policy leads to domestic currency appriciation&lt;/li&gt;&#xA;&lt;li&gt;other pairs of policies are ambigouous&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;In low capital mobility&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;expansionary monetary and expansionary fiscal policy leads to domestic currency depriciation&lt;/li&gt;&#xA;&lt;li&gt;restrictive monetary and restrictive fiscal policy leads to domestic currency appriciation&lt;/li&gt;&#xA;&lt;li&gt;other pairs of policies are ambigouous&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Monetary models (e.g. &lt;a href=&quot;https://en.wikipedia.org/wiki/Overshooting_model&quot; rel=&quot;nofollow&quot;&gt;Dornbusch Overshooting&lt;/a&gt;), in turn, take that output of the nation is fixed and monetary policy affects exchange rates first.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And what central banks then do? Many set interest rate target and not money supply target. (How do you relate the qe's to that?) Anyhow, the &lt;a href=&quot;https://en.wikipedia.org/wiki/Taylor_rule&quot; rel=&quot;nofollow&quot;&gt;Taylor Rule&lt;/a&gt; is used to set interest rate target. And then there are interventions and controls to manage exchange rates. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What factors there are that affect capital flows (and thus supply and demand)? E.g. economic management cabability of policymakers, inflation and inflation volatility expectations, currency rate flexibility, current account balance changes, debt changes, currency reserves, privatization, liberalization, regulations and controls and changes in them, economic growth, fiscal positions, and ratings.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope this answered at least partially your question and that it gives you pointers to go forward.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;{2} Exchange Rate Determination: Models and Strategies for Exchange Rate Forecasting, Rosenberg, Michael R. 2003&lt;/p&gt;&#xA;" OwnerUserId="8988" LastActivityDate="2016-08-11T07:06:04.593" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13020" PostTypeId="2" ParentId="13015" CreationDate="2016-08-11T13:32:53.840" Score="3" Body="&lt;p&gt;It seems to context of your question is the IS-LM model, where your question is specifically about the LM. In the Hicks (IS-LM) view of the money market, the &lt;strong&gt;nominal&lt;/strong&gt; money supply is fixed, as it depends directly on the amount of money printed by the government (although now we tend to think in terms of the central bank) and not on the actions of the other agents of the economy. As such, it is a defining &lt;strong&gt;assumption&lt;/strong&gt; and exogenous to the dynamic of the model.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, notice that the &lt;strong&gt;real&lt;/strong&gt; money supply &lt;strong&gt;could&lt;/strong&gt; change when prices move. In the IS-LM context, this could be due to an increase in government spending financed via taxation, where a  multiplier higher than one leads to an expansion of aggregate demand and, in the short-run at least, a boom and an increase in the price (assuming a positive sloped aggregate supply).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, moving away from such a simplistic assumption, the concept of the money supply is more complex than that. The money supply is usually defined as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$M_{s}=\phi B$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $\phi$ is the &lt;a href=&quot;https://en.wikipedia.org/wiki/Money_multiplier&quot; rel=&quot;nofollow&quot;&gt;&lt;strong&gt;money multiplier&lt;/strong&gt;&lt;/a&gt; and $B$ is the &lt;strong&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Monetary_base&quot; rel=&quot;nofollow&quot;&gt;monetary base&lt;/a&gt;&lt;/strong&gt;. A government/central bank can directly alter the the latter by printing money or buying/selling short term debt. It can also affect the multiplier by altering banking regulation like maximum reserve ratios. But, &lt;strong&gt;importantly&lt;/strong&gt; it is the action of bankers and the agents in the economy that determine the value of the multiplier (e.g. via lower lending or more demand for currency, respectively). So, in the end, the money supply does not depend &lt;strong&gt;only&lt;/strong&gt; of the government or central bank agency but of the rest of the agents too.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2016-08-11T13:32:53.840" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13021" PostTypeId="2" ParentId="13006" CreationDate="2016-08-11T13:41:32.840" Score="0" Body="&lt;p&gt;The more unequal the society, the more biased the calculation will be by using averages. In other words, the more different the median and the mean are, the more biased the calculation will be. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As such, I recommend you use proper survey data. Ideally, if you can find a &lt;strong&gt;random sample of UK households&lt;/strong&gt; that provides data on household income, then an &lt;strong&gt;unbiased&lt;/strong&gt; estimation of total UK household income will be equal to the:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;sum of all the income of households in the dataset divided by the ratio of households in sample with respect to households in the UK&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Naturally, finding random samples is not easy. But many surveys provide &lt;strong&gt;weights&lt;/strong&gt; (usually &lt;a href=&quot;https://en.wikipedia.org/wiki/Inverse_probability_weighting&quot; rel=&quot;nofollow&quot;&gt;Inverse probability Weights&lt;/a&gt; which correct for selection issues.) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the UK there are plenty of options. You can access freely to the &lt;strong&gt;British Household Panel Survey&lt;/strong&gt; and its newer version, &lt;strong&gt;Understanding Society&lt;/strong&gt;. They provide good data on households income, from &lt;strong&gt;all income sources&lt;/strong&gt;, and include weights too. You can access them &lt;a href=&quot;https://www.ukdataservice.ac.uk/&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2016-08-11T13:41:32.840" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13022" PostTypeId="2" ParentId="12949" CreationDate="2016-08-11T14:02:28.130" Score="2" Body="&lt;p&gt;I'm afraid the accepted answer is not precise enough, and can be deeply misleading. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This issue is formally called the &lt;strong&gt;Generated Regression problem&lt;/strong&gt; which arises when we use &quot;generated&quot; regressors in a regression. This is a very common feature of estimations like Heckman Selection Model, where we use the predicted Inverse Mills Ratio from the selection equation in the structural equation. We need to divide the issue in two:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;Consistency&lt;/strong&gt;: there is usually no problem of consistency when using generated regressors in an estimation. A formal proof can be found in Wooldridge (2010), page 123.  &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;Statistical inference&lt;/strong&gt;: here there might be problems. &lt;strong&gt;Under the null&lt;/strong&gt; that generated regressors are zero, then standard errors and all tests are valid (you might still need to correct for heteroscedasticity and serial correlation as usual, using robust standard errors). However, if the generated regressor is statistically significant, then the standard errors and in consequence any test are &lt;strong&gt;invalid&lt;/strong&gt;. What you need is a correct estimation of the asymptotic variance. The formulas depend on each case (more information in Newey and McFadden [1994]). However, a general solution to calculate the consistent standard errors is to use &lt;strong&gt;bootstrapping&lt;/strong&gt;. As an aside, for example, if you use Stata, just run your normal command with the following code before:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;bootstrap, reps(400) seed(10101): regres ...&#xA;&lt;/code&gt;&lt;/pre&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;code&gt;reps&lt;/code&gt; is the number of repetitions and &lt;code&gt;seed&lt;/code&gt; is for reproducibility. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;TL;DR&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If your generated regressor is &lt;strong&gt;statistically significant&lt;/strong&gt; in your regression, then you need to estimate the standard errors using &lt;strong&gt;boostrapping&lt;/strong&gt; because they are &lt;strong&gt;invalid&lt;/strong&gt;. If they are insignificant, you are safe. &lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2016-08-11T14:17:32.310" LastActivityDate="2016-08-11T14:17:32.310" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13024" PostTypeId="2" ParentId="13011" CreationDate="2016-08-11T14:43:41.930" Score="2" Body="&lt;p&gt;In intro micro you usually assume that every firm in a perfectly competetive market has the same costs and production function etc. Hence, the MCs are the same for every firm. Under this assumptions, every firm will produce the same quantity in equilibrium.&lt;/p&gt;&#xA;" OwnerUserId="8789" LastActivityDate="2016-08-11T14:43:41.930" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13026" PostTypeId="1" CreationDate="2016-08-11T16:04:50.570" Score="0" ViewCount="29" Body="&lt;p&gt;I would like to measure US corporations' investments in property, plants, and equipment abroad versus their spending on labor abroad. However, I'm unsure of the categorizations on the International Transactions report.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;BEA &lt;a href=&quot;http://www.bea.gov/newsreleases/international/transactions/2016/pdf/trans116.pdf&quot; rel=&quot;nofollow&quot;&gt;report&lt;/a&gt; for reference:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose I'm American and I want to build a factory in Mexico. I have $1 million dollars.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Scenario A - I convert \$1 million to pesos and put the pesos in a Mexican bank. I use the pesos to purchase a factory and pay my workers every two weeks. Does this $1 million show up entirely as an outflow in reserve assets (page 9 line 75)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Scenario B - I &lt;em&gt;don't&lt;/em&gt; convert my money. I build the Mexico factory and pay my workers entirely in USD. Does the factory show up entirely in outflow of direct investment assets (page 9 line 62)? Does my periodic worker comp show up entirely in primary income payments compensation of employees (page 9 line 57)? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now suppose at the end of the year, the workers convert their dollars to pesos. Does this conversion show up in currency and deposits (page 9 line 94)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit: It seems that construction of the factory itself is can be considered as a import of construction services for America according to the IMF's treatment for &lt;a href=&quot;https://www.imf.org/external/pubs/ft/bop/2014/pdf/BPM6_13F.pdf&quot; rel=&quot;nofollow&quot;&gt;compensation of employees&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="10090" LastEditorUserId="10090" LastEditDate="2016-08-11T16:20:11.437" LastActivityDate="2016-10-22T16:55:59.507" Title="Clarifying foreign direct investment and imports on International Transactions release" Tags="&lt;data-request&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13027" PostTypeId="1" CreationDate="2016-08-11T17:11:23.810" Score="1" ViewCount="34" Body="&lt;p&gt;KPR preferences are generally given by&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{c^{1-\sigma}}{1-\sigma} \cdot v(l)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;with $l$ being leisure. Let's focus on the case where $\sigma \in (0, 1)$, where we know that $v(l)$ must be increasing and concave. Let total time be $T$, and denote $n$ by working hours. The standard problem then is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \max_{n\in[0, T]} \frac{(wn)^{1-\sigma}}{1-\sigma} \cdot v(T-n) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An interior solution requires&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ v(T-n) = v'(T-n)\frac{n}{1-\sigma} \tag 1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One increasing and concave function would be $v(x) = \frac{x^{1-\gamma}}{1-\gamma}$, $\gamma \in (0, 1)$. This yields&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{T-n}{1-\gamma} = \frac{n}{1-\sigma}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;or&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ n = (1-\sigma)\frac{T}{1 - \gamma + 1 - \sigma} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, generally, we should be able to pick the level of working hours - for each level of IES ($\sigma$). So let's fix $\sigma = 0$, the case of risk-neutrality, and we yield&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ n = \frac{T}{2 - \gamma} \tag 2$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As $\gamma \in (0, 1)$, that means that we have no fully control about the level of working hours: We cannot get that $n&amp;lt;0.5$ is an optimal choice with these preferences.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that a constant factor in $v(l)$ wouldn't help either, that would just drop out in (1). What am I missing - how can I control the level of working hours better in the multiplicative setup of KPR? That is, where $U = U(c, v(l))$ and not $U = \log c + g(v(l))$.&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2016-08-12T13:22:42.430" LastActivityDate="2016-08-12T13:34:35.493" Title="Controling the level of hours worked in the multiplicative formulation of KPR" Tags="&lt;macroeconomics&gt;&lt;labor-economics&gt;&lt;preferences&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13029" PostTypeId="1" CreationDate="2016-08-11T21:49:04.513" Score="2" ViewCount="413" Body="&lt;p&gt;Rosen's paper (&lt;a href=&quot;http://www-inst.eecs.berkeley.edu/~ee228a/fa03/228A03/papers/rosen.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;J. B. Rosen. Existence and uniqueness of equilibrium points for concave n-person games. Econometrica, 33(3):520–534, 1965&lt;/a&gt;) presents a condition for the uniqueness of the Nash Equilibrium in $n$ players game. The setup is described in simple details by &lt;a href=&quot;https://economics.stackexchange.com/questions/11217/rosens-diagonal-strict-concavity-condition&quot;&gt;this other economics exchange post&lt;/a&gt;. My curiosity is why is the Jacobian of $g(\mathbf{s},\mathbf{z})$, where $g(\mathbf{s},\mathbf{z})$ is the pseudogradient of the function $\sigma$, a square matrix?  If $s \in \mathbb{R}^m$ and there are $n$ players, it seems to me that the matrix would be $n \times m$ instead of $m \times m$. I have left out many of the details of the problem set up as they are covered in the other post; however, I can restate the set up or provide additional information if necessary.&lt;/p&gt;&#xA;" OwnerUserId="10092" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2016-09-27T12:22:51.083" Title="Rosen's uniqueness theorem: Why is the Jacobian Square?" Tags="&lt;game-theory&gt;&lt;nash-equilibrium&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13032" PostTypeId="2" ParentId="13027" CreationDate="2016-08-12T13:34:35.493" Score="1" Body="&lt;p&gt;Continuing on my comment, if &lt;em&gt;both&lt;/em&gt; parameters are set strictly higher than unity, then we can get all the range, indicatively:&#xA;&lt;a href=&quot;https://i.stack.imgur.com/qyLHD.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/qyLHD.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is why I asked how important for the work at hand is to constrain them in the $(0,1)$ interval instead. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This won't be the first time when a mathematical functional form has some inherent restrictions that do not allow it to reflect the whole spectrum of possible human behavior.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2016-08-12T13:34:35.493" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="13033" PostTypeId="1" CreationDate="2016-08-12T14:39:42.503" Score="1" ViewCount="458" Body="&lt;p&gt;I hope this layman's question is not off topic. I was not able to find guide lines as to how professional questions have to be.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am trying to qualitatively understand the origins of the Tiananmen protests in China in 1989. My textbooks all very much emphasise the role of Deng Xiaoping's economic reforms. In particular they all replicate the following reasoning from &lt;strong&gt;Silenced Scream: a Visual History of the 1989 Tiananmen Protests. Donna Rouviere Anderson, Forrest Anderson. p. 1&lt;/strong&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/jzBXg.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/jzBXg.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, my understanding is that, in a market with shortages, well connected individuals buy legally at low prices and sell illegally -on the black market - for high ones, which induces inflation. Is there a reason, why a two tier system should suffer from this more than a fixed price system? After all, in both cases, one has to subvert the dictated prices to reap the benefits! &lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or did I perhaps misunderstand the envisioned process and is he not talking about black markets?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would understand the claim that the fluctuating prices in the two tier system would induce inflation, but I don't understand the process described above.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I just found this quote explaining the nature of the two tier system a bit more:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;A dual-price system was introduced, in which (State-owned enterprise reform 1979) state-owned industries were allowed to sell any production above the plan quota, and commodities were sold at both plan and market prices, allowing citizens to avoid the shortages of the Maoist era. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="10101" LastEditorUserId="10101" LastEditDate="2017-06-05T11:01:28.083" LastActivityDate="2017-06-05T11:01:28.083" Title="Difference between a fixed pricing system and a two tier system regarding inflation onset through illegal transactions" Tags="&lt;inflation&gt;" AnswerCount="0" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="13034" PostTypeId="1" CreationDate="2016-08-12T17:44:25.917" Score="0" ViewCount="25" Body="&lt;p&gt;In EU, Banks have changed their behaviour lately, e.g. as acting liquidity providers to certain markets like notes etc. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Introduction of Basel III is probably one reason (tighter capital and liquidity requirements). Due to new stress tests, some of European banks are seen to be in bad shape. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Anyhow, Basel III is not yet finished. How banks are expected to change their lending or market making behaviour during the end of this decade? Is it possible to estimate, what sectors are going to get hurt? &lt;/p&gt;&#xA;" OwnerUserId="8988" LastActivityDate="2016-08-13T03:59:28.080" Title="Basel affecting the bank behaviour?" Tags="&lt;finance&gt;&lt;banking&gt;&lt;corporate-finance&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13035" PostTypeId="1" CreationDate="2016-08-12T19:52:12.757" Score="0" ViewCount="237" Body="&lt;p&gt;From my notes:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;'The elasticity of Money Demand reduces the impact on the interest rate of the increase in government spending...'&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is: if the Money Supply is inelastic, the elasticity of Md wouldn't matter, because the Md would just shift up/down by the same amount regardless of its slope, and it is the shift that determines the change in interest rate, which doesn't fit with my notes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Maybe another way to put it is: does the elasticity of Money Demand affects how much it changes in response to a change in government spending? If so, how?&lt;/p&gt;&#xA;" OwnerUserId="10045" LastActivityDate="2016-09-28T10:37:33.973" Title="How does an elastic Money Demand affects the effectiveness of fiscal policy?" Tags="&lt;macroeconomics&gt;&lt;elasticity&gt;&lt;fiscal-policy&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13036" PostTypeId="1" AcceptedAnswerId="13041" CreationDate="2016-08-12T23:14:28.970" Score="1" ViewCount="1632" Body="&lt;p&gt;I know that Bertrand Oligopolies will charge a price equal to marginal cost. But if marginal cost is, say, &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;2Q or 4Q^2&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;(i.e. not constant) then how does one determine where, on the MC curve, the equilibrium lies?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If there are 5 Bertrand firms, then do I just find where MC intersects the Demand Curve and divide the quantity by 5, and then set price equal to MC at that quantity?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Conceptually this sounds reasonable, but I'm not sure that this is correct. If these firms charge this price then it seems to me that one of them will under produce to charge a lower price until (if MC is 2Q for instance) price and quantity = 0. So that no firms will produce because if they do then someone will charge a cent less till we reach 0 again.&lt;/p&gt;&#xA;" OwnerUserId="8623" LastActivityDate="2016-08-13T09:48:11.343" Title="How to solve Bertrand Equilibrium with a non-constant MC?" Tags="&lt;microeconomics&gt;&lt;game-theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13037" PostTypeId="1" CreationDate="2016-08-13T02:37:53.533" Score="2" ViewCount="6058" Body="&lt;p&gt;Spin-off from: &lt;a href=&quot;https://economics.stackexchange.com/questions/13011/market-equilibrium-quantity-ne-firm-profit-maximising-quantity&quot;&gt;market equilibrium quantity $\ne$ firm profit maximising quantity?&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider a perfectly competitive market with equilibrium price $P_{eq}$ and quantity $Q_{eq}$ and firm with profit maximising quantity $Q_f$ as illustrated below:&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/FumUI.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/FumUI.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Is the MC for each firm in the market the same?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can we deduce such from any of the assumptions listed in the &lt;a href=&quot;https://en.wikipedia.org/wiki/Perfect_competition&quot; rel=&quot;nofollow noreferrer&quot;&gt;PC Wiki page&lt;/a&gt;?&lt;/p&gt;&#xA;" OwnerUserId="4483" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2016-08-19T22:20:30.017" Title="Is the marginal cost the same for every firm in a perfectly competitive market?" Tags="&lt;microeconomics&gt;&lt;general-equilibrium&gt;&lt;markets&gt;&lt;competition&gt;&lt;firm&gt;" AnswerCount="2" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="13038" PostTypeId="2" ParentId="13034" CreationDate="2016-08-13T03:59:28.080" Score="1" Body="&lt;p&gt;Interesting question. Indeed, Basel/I,II,III-type regulation changes the behavior of banks, that´s probably the goal of said regulation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Its possible that their market behavior with respect to &quot;notes&quot; (which notes?) has changed. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;bason on the typical Modigiliani/Miller intuition, it seems that there is no reason why Basel/type regulation will affect a sector or another. The main effects are in changing how firms get financed. If banks are expected to hold senior debt, then firms are more likely to issue senior debt. This changes how funds are intermediated from savers to investors, but in principle it should not change which sectors are financed. It should only affect how they are financed, with equity, preferred, junior debt, senior debt, senior collateralized debt, etc. &lt;/p&gt;&#xA;" OwnerUserId="7593" LastActivityDate="2016-08-13T03:59:28.080" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13039" PostTypeId="1" AcceptedAnswerId="13099" CreationDate="2016-08-13T04:05:29.767" Score="0" ViewCount="20" Body="&lt;p&gt;It seems that there are some circumstances, say when the government foresees a financial crisis, where it would like firms to hedge, take less riesk etc. However, leveraged agents benefit from risk, and so they don;t benefit from risk eduction expenses. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there some theory or idea, out ther eon how to design a mechanism that incetivizes firms to reduce their riskiness? Maybe subsidize financial hedging? Maybe tax profits very progressively/convexly?&lt;/p&gt;&#xA;" OwnerUserId="7593" LastActivityDate="2016-08-18T15:58:12.007" Title="Is there a good mechanism to incentivize leveraged firms to take less risks?" Tags="&lt;finance&gt;&lt;fiscal-policy&gt;&lt;risk&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13040" PostTypeId="2" ParentId="6345" CreationDate="2016-08-13T04:14:21.200" Score="0" Body="&lt;p&gt;Way back when, (well, only about 20 years ago), this was the talk of the town whenever one mentioned Microsoft. Microsoft was a lousy software generally, but it was easy to find it for free if you looked hard enough. Most computers running windows in the developing world for example, had a pirated version of Microsoft windows and office. It seemed obvious at the time that they did not care. The margins from selling an extra copy to very poor countries were small, but the effect on future margins from getting millions of people to learn to use excel are incalculable, surely in the billions and billions of dollars.  I think its useful to know that what you are describing is not a fringe story about photoshop. Instead its the strategy followed years ago by  one of the biggest, most powerful companies in the world of software.&lt;/p&gt;&#xA;" OwnerUserId="7593" LastActivityDate="2016-08-13T04:14:21.200" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13041" PostTypeId="2" ParentId="13036" CreationDate="2016-08-13T09:48:11.343" Score="1" Body="&lt;p&gt;The main issue seems to be that you assume that under Bertrand competition a firm is free to set a price and a quantity as well. But under Bertrand competition firms set prices and then have to meet the demand whatever level it takes. Below is a detailed discussion.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;I will assume that cost functions are the same for all firms and also that the marginal cost function is non-decreasing. (You do not explicitly state these conditions but seem to assume them as well.) I will also assume that demand is non-increasing in price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this case, your candidate for the equilibrium is when all firms set the price $p^*$, where all firms produce&#xA;$$&#xA;q^* = \frac{D(p^*)}{5}&#xA;$$&#xA;and where&#xA;$$&#xA;p^* = MC(q^*).&#xA;$$&#xA;Is this really an equilibrium, or could a firm profit by deviating to a slightly lower price $p'$?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If say firm 1 were to deviate to $p' &amp;lt; p^*$ while the other firms still charge $p^*$ then all consumers would seek out firm 1. Since $p' &amp;lt; p^*$ and demand is non-increasing in price&#xA;$$&#xA;D(p') &amp;gt; D(p^*).&#xA;$$&#xA;Firm 1 has to fulfill this alone, so&#xA;$$&#xA;q_1 = D(p') &amp;gt; D(p^*) = 5 \cdot q^*.&#xA;$$&#xA;Because marginal cost is non-decreasing you also have&#xA;$$&#xA;MC(q_1) &amp;gt; MC(q^*).&#xA;$$&#xA;So now firm one charges a price lower than $p^* = MC(q^*)$ but it has to produce so much that the marginal cost is larger than $p^*$, hence it earns negative profits, hence deviation from $p^*$ was not profitable.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2016-08-13T09:48:11.343" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13042" PostTypeId="2" ParentId="4959" CreationDate="2016-08-13T11:53:12.630" Score="2" Body="&lt;p&gt;In addition to comment given by @dismalscience, here you may find partial answer&#xA;(hope I got everything right below). Since many similar terms refer to concepts&#xA;that are close to each other, I'm also regularly fighting to get these somehow&#xA;in order. For example, there are forward and futures contracts that use similar&#xA;terms and are related to the yield curve concepts.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Yield curve premiums&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;On liquidity: lenders like to prefer short periods, because they are more easy&#xA;to convert to cash, while borrowers prefer long periods, since roll-over&#xA;terms involve risk. So lender wants compensation for which the borrower is ready&#xA;to pay. Longer you go, the premium is likely to increase but at decreasing rate.&#xA;This is different to the liquidity concept when the market for a bond is very&#xA;thin.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is healthy to consider also other aspects with respect to risk-free bonds.&#xA;E.g. how good vs. bad times affect premiums. And why term premium? There is some&#xA;evidence of negative correlation between short bond return and economic growth,&#xA;and especially this correlation has larger magnitude than the correlation the&#xA;long term bonds have with economic growth.  This in turn, would mean that short&#xA;term bonds work out as better hedges against economic downturn leading to larger&#xA;premium requirement for the longer bonds.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is possible, that we have positive liquidity premium at the same time when&#xA;other premiums are not, even so that the yield curve inverts, because the &#xA;spot rate &#xA;is geometric mean of forward rates. In this situation, the forward rate curve&#xA;would be below the spot yield curve. (This is not shown in the equations &#xA;below.)&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Contracts&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Forward rate (i.e. forward price) is the price agreed on the contract initiation&#xA;date. Pricing means a method to find out the forward rate &quot;today&quot; for the&#xA;contract.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let us denote the value of the underlying asset $S_T$. Then, the value of&#xA;contract is $S_T - F_{0,T}$ at the &quot;end&quot; (time $T$) and we could write it as&#xA;$V_{0,T}(T) = S_T - F_{0,T}$. To get the value today, we discount with risk-free&#xA;curve, and is common to set the forward price $F_{0,T}$ such that neither party&#xA;does not have to pay to the other: $V_{0,T}(0) = S_0 - F_{0,T}/(1+r)^T = 0$,&#xA;where $r$ is the risk-free interest rate. So, $F_{0,T} = S_0(1+r)^T$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Futures rate (i.e. futures price) is priced similarly, $f_{0,T} = S_0(1+r)^T$,&#xA;and it is said that &quot;the futures price is the spot price compounded at the &#xA;risk-free rate&quot;. For the value, the marking-to-market makes the value zero in&#xA;each day, but just before that, the value is $f_{0,T}(t) - f_{0,T}(t-1)$. &#xA;If there is a carrying cost $c$, the price is  $f_{0,T} = S_0(1+r)^T +c_T$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Future rate and expected spot rate: consider carrying costs $c$ and risk $k$,&#xA;for which you don't want to pay, and that we don't know, what the spot price&#xA;will be at $T$, thus using expectation:&#xA;$$ S_0 = \frac{E(S_T) - c_T - k}{(1+r)^T}. $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Put the future price into that and you will obtain $f_{0,T} = E(S_T) - k$, that&#xA;is, the futures price equals expected spot price less risk premium.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Yield curve&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Forward rate $f$ is an interest rate today for a loan to be made in future.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The spot rate $r_T$ is the geometric mean of the forward rates, that is,&#xA;$$ (1+r_T)^T = (1+r_1) \Pi_{i=1}^{T-1} (1+f_{i,1}^i) $$&#xA;or&#xA;$$ r_T = ((1+r_1) \Pi_{i=1}^{T-1} (1+f_{i,1}^i))^{1/T} - 1.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Do forward rates imply future spot rate movements? Not necessarely, but find out&#xA;more about the trade called &quot;rolling down the yield curve&quot;. However, the forward&#xA;rates do provide an estimate of the expected spot rate that is biased by&#xA;liquidity premium (premium is not shown in the above equation).&lt;/p&gt;&#xA;" OwnerUserId="8988" LastActivityDate="2016-08-13T11:53:12.630" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13043" PostTypeId="1" AcceptedAnswerId="13051" CreationDate="2016-08-13T15:27:30.267" Score="6" ViewCount="866" Body="&lt;p&gt;I've recently become aware of the fact that the NFL prints both championship teams' shirts in advance to satiate incredible demand -- but instead of destroying the losing teams' shirts like they used to, they instead &lt;a href=&quot;http://mentalfloss.com/article/29884/what-happens-losing-teams-championship-shirts&quot; rel=&quot;nofollow noreferrer&quot;&gt;donate them to developing countries&lt;/a&gt;. But the thought of flooding these local economies with free shirts, which doesn't create jobs, GDP, and hurts local clothing business, seems like it would be terrible for the economy. Is this indeed the case?&lt;/p&gt;&#xA;" OwnerUserId="10107" LastEditorUserId="10107" LastEditDate="2018-11-22T22:57:41.957" LastActivityDate="2018-11-23T04:44:26.380" Title="Do the donated NFL losing team shirts destroy local economies?" Tags="&lt;gdp&gt;&lt;subsidies&gt;" AnswerCount="4" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="13044" PostTypeId="2" ParentId="12733" CreationDate="2016-08-13T21:22:39.583" Score="1" Body="&lt;p&gt;There's one way, albeit not from interest rates futures. From fisher's approximation $i=r+\pi^E$, and thus if I know the nominal interest rate from a regular government bond, and subtract the (real)interest rate of an inflation protected bond - like TIPS - we get the market's expected inflation forecast. &lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="118" LastEditDate="2016-08-22T17:13:44.047" LastActivityDate="2016-08-22T17:13:44.047" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13046" PostTypeId="1" CreationDate="2016-08-13T21:48:51.520" Score="2" ViewCount="125" Body="&lt;p&gt;According to the theory, monetary growth increases inflation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But how do companies know that there is more money in the economy now than before?&lt;/p&gt;&#xA;" OwnerUserId="10110" LastEditorUserId="1601" LastEditDate="2016-08-14T11:55:49.127" LastActivityDate="2016-09-14T06:30:08.600" Title="Demand-pull inflation intuition" Tags="&lt;monetary-policy&gt;&lt;inflation&gt;&lt;money-supply&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13047" PostTypeId="1" AcceptedAnswerId="13053" CreationDate="2016-08-14T03:40:25.723" Score="2" ViewCount="1767" Body="&lt;p&gt;Utility function is $U = X^aY^b$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is a Cobb-Douglas function, and there are data for $X$ and $Y$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would like to know how to estimate $a$ and $b$.&lt;/p&gt;&#xA;" OwnerUserId="10112" LastEditorUserId="4193" LastEditDate="2016-08-15T14:05:40.040" LastActivityDate="2017-06-01T13:26:28.180" Title="How to estimate parameters in a utility function?" Tags="&lt;utility&gt;" AnswerCount="2" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="13048" PostTypeId="2" ParentId="13043" CreationDate="2016-08-14T04:12:07.483" Score="2" Body="&lt;p&gt;This isn't the case, because in the clothing market (much like in other markets) there is   &lt;b&gt;Product Differentiation&lt;/b&gt;. This is written on  &lt;a href=&quot;http://www.investopedia.com/terms/p/product_differentiation.asp&quot; rel=&quot;nofollow&quot;&gt;Investopedia&lt;/a&gt; as:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Product differentiation is a marketing process that showcases the differences between products. Differentiation looks to make a product more attractive by contrasting its unique qualities with other competing products...&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;...Product differentiation can be as simple as packaging the goods in a creative way, or as elaborate as incorporating new functional features. Sometimes differentiation does not involve changing the product at all, but creating a new advertising campaign or other sales promotions instead.&#xA;  &lt;b&gt;Product differentiation determines what sets one product apart from other similar products, and it uses that difference to drive consumer interest&lt;/b&gt;...&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In short, flooding the shirt market with the &quot;losing NFL champion shirts&quot; does not affect the market in any radical way, as NFL shirts are not substitutes for all other types of shirts as there are differences in styles of shirts. &lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorDisplayName="user4169" LastEditDate="2016-10-10T21:18:13.820" LastActivityDate="2016-10-10T21:18:13.820" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13049" PostTypeId="2" ParentId="13046" CreationDate="2016-08-14T05:12:41.783" Score="1" Body="&lt;p&gt;The basic intuition is that the companies either directly know by looking at what the central bank is saying, OR (and more importantly) the money growth means that money is now put into the hands of various agents in the economy. The second case is the important one.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When that money is put into the hands of various people they go out and spend that money. Thus there is increased competition to buy the same amount of goods. (More $$ chasing less goods). That competition to buy means that firms will profit by raising the price, and so they do that when they see the increase in demand.&lt;/p&gt;&#xA;" OwnerUserId="8587" LastActivityDate="2016-08-14T05:12:41.783" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13051" PostTypeId="2" ParentId="13043" CreationDate="2016-08-14T08:21:23.547" Score="4" Body="&lt;p&gt;My answer is no, it doesn't hurt the local economy. This seems like an example of the &quot;&lt;a href=&quot;https://en.wikipedia.org/wiki/Parable_of_the_broken_window&quot; rel=&quot;nofollow&quot;&gt;Broken Window Fallacy&lt;/a&gt;&quot;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose, when nobody is looking, I break all of the windows in my neighbour's house. This creates a bunch of work for a glazier who might otherwise have been idle. So it seems like, by going round smashing things up we can provide a boost to the economy. Surely this must be wrong!?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Indeed, the problem with this logic is that we have to think what would happen if I had not broken the windows. My neighbour, not having to incur the expense of replacing his windows, would have some extra money to spend on a hair cut or a new bicycle, creating work for a barber or a bicycle maker. If the windows are broken then those guys miss out.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the glazier earns some extra income and gains; the barber earns less income and looses. But these two things &quot;cancel out&quot;: this is just a transfer of wealth from one person to another rather than the creation of new wealth. My neighbour, on the other hand, definitely loses because he doesn't get a hair cut any more. So overall, the broken windows are a net loss to society.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;The reason I think this is relevant to your question is that we could reframe it as: &quot;if we burnt the shirts [broke the windows] instead of giving them away for free, wouldn't that create work for a tailor and therefore make society richer?&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think the answer is no because, freed from the need to buy a shirt, people have more income to spend on food, educating their child, taking care of their health, etc. All of these things create jobs in the local economy to replace the lost jobs in the clothing industry.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is true that the tailors lose out at the expense of the farmer, teacher, or nurse. But over long time horizons people will adjust to this by training to do the jobs that pay. &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;tldr;&lt;/strong&gt; Destroying real resources may create winners and losers, but is almost always bad for society overall.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2016-08-14T08:21:23.547" CommentCount="10" ContentLicense="CC BY-SA 3.0" />
  <row Id="13052" PostTypeId="2" ParentId="13047" CreationDate="2016-08-14T08:56:42.307" Score="1" Body="&lt;p&gt;If you transform $X$ and $Y$ into their natural logarithms, then $a$ will be given by the coefficient on $x$ and $b$ will be given the coefficient on $y$&lt;/p&gt;&#xA;" OwnerUserId="8982" LastActivityDate="2016-08-14T08:56:42.307" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="13053" PostTypeId="2" ParentId="13047" CreationDate="2016-08-14T09:24:02.607" Score="2" Body="&lt;p&gt;as @ts_highbury mentioned above you can take the natural logarithm on both sides of Cobb-Douglas equation $$\ln(U) =a\ln(X)+b\ln(Y)$$ after that &quot;obviously&quot; you can notice the equation became linear in parameters (i.e linear equation), so you can use a various types of estimation methods but most famous also easy one is the Least squares method.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;P.S: be careful in interpreting the results after taking the natural logarithm or you can just take the exponentiation on both side of the linear Cobb-Douglas equation (after taking natural logarithm) and you will have the original form of Cobb-Douglas equation.&lt;/p&gt;&#xA;" OwnerDisplayName="user10113" LastEditorUserId="4193" LastEditDate="2016-08-15T07:59:41.183" LastActivityDate="2016-08-15T07:59:41.183" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="13054" PostTypeId="1" CreationDate="2016-08-14T10:04:58.660" Score="0" ViewCount="56" Body="&lt;p&gt;I am watching this video about the Leontief input-output model: &lt;a href=&quot;https://youtu.be/hlaBURtSDO8?t=12m26s&quot; rel=&quot;nofollow&quot;&gt;https://youtu.be/hlaBURtSDO8?t=12m26s&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One thing I don't understand is: why not use $Ap - p$ instead of $p - Ap$? It seems to make better sense to measure net production by output - input. Maybe I am missing something?&lt;/p&gt;&#xA;" OwnerUserId="6557" LastActivityDate="2016-08-16T07:55:10.243" Title="why not use $Ap - p$ instead of $p - Ap$?" Tags="&lt;consumption&gt;&lt;leontief&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13055" PostTypeId="2" ParentId="13043" CreationDate="2016-08-14T11:15:50.277" Score="2" Body="&lt;p&gt;&lt;strong&gt;It Depends.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We first need to decide on which country we are going to analyze. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) If we look at the country producing the shirts, that country just spent the resources, labor, etc. to produce both types of shirts.  The industry could pile all the wrong shirts and burn them, but that would be a waste of the resources and labor that have already been used to produce the shirts.  &lt;strong&gt;Thus, it would be bad for the first-world nation to destroy the products.  It would be better to use the shirts in some capacity.&lt;/strong&gt;  With other items, this comes in the form of selling the products to regain some of the cost of production.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) Now we will look at the third-world nation who is receiving the shirts.  You have already done most of the analysis.  The market is flooded with free shirts, no additional jobs are created in the shirt industry, local clothing industries don't get the business, and many of these shirt businesses go bankrupt.  All of this is true.  The question is whether it is bad for that country's economy.  &lt;strong&gt;Individuals from those countries would argue that it does harm the economy.&lt;/strong&gt; One of the better resources describing this phenomenon is the book &lt;em&gt;When Helping Hurts&lt;/em&gt; (there are starting to be many other resources, but this is the flagship).  The argument is that third-world countries are not able to develop certain industries naturally because the industries are competing with &quot;free&quot; goods from the first-world country.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's look at an example.  Let's say another planet produces a lot of technology, finds that it doesn't need it, and, instead of destroying it, dumps it on earth.  The economy in any technology producing country on earth would suffer.  Why?  Because the country can't compete with free.  It wouldn't be able to compete even if it had comparative/absolute advantage in that industry when compared to the other planet.  &lt;strong&gt;Thus, the other planet would still produce technology despite the countries on earth being able to produce the same technology more efficiently and at a lower cost.  This is bad for both countries.&lt;/strong&gt;&lt;br&gt;&#xA;Notice the parallels between the example above and the scenario you mentioned.  A first-world country produces a lot of shirts and dumps them onto a third-world country at no cost.  The third-world economy suffers because, even if it could produce the shirts at a higher quality and at a lower cost, the shirt industry cannot compete with free.  Thus, the first-world country will still continue to produce the shirts even if the third-world country is more efficient.  This is bad for &lt;strong&gt;both&lt;/strong&gt; countries.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, what is the solution?&lt;br&gt;&#xA;As stated above, there are three conditions that need to be satisfied in order for us to find the best possible solution.&lt;br&gt;&#xA;1) The first-world nation should use the shirts in some capacity.&lt;br&gt;&#xA;2) The unintentional &quot;predatory dumping&quot; of shirts into the third-world countries does harm their economies.&lt;br&gt;&#xA;3) Allow the most efficient country to produce the shirts.&lt;br&gt;&#xA;&lt;strong&gt;The solution would be for the NFL to &lt;em&gt;sell&lt;/em&gt; the wrong shirts to the third-world countries.&lt;/strong&gt;&lt;br&gt;&#xA;The solution allows for the companies in the first-world country to regain some of the resources used to produce the bad shirts (1), stops the dumping of &quot;free&quot; goods into developing nations (2), and encourages competition between the industries of the countries so that the consumers purchase from the companies that produce the highest quality shirts at the highest efficiency and the lowest price (3).  &lt;/p&gt;&#xA;" OwnerUserId="27" LastEditorUserId="27" LastEditDate="2016-08-21T18:39:19.690" LastActivityDate="2016-08-21T18:39:19.690" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13056" PostTypeId="1" CreationDate="2016-08-14T14:02:13.943" Score="4" ViewCount="656" Body="&lt;p&gt;My questions are:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;What are the factors (both positive and negative) that drive openness in a country? &lt;/li&gt;&#xA;&lt;li&gt;Do they differ between developed (e.g USA) and developing (e.g China) countries? &lt;/li&gt;&#xA;&lt;li&gt;Will these factors remain a key factor to drive openness for the respective country in the future?&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;So far I researched on stage of development, specialisation of each country's skills, degree of trade liberalisation and the geographical size.&lt;/p&gt;&#xA;" OwnerUserId="7414" LastEditorUserId="2776" LastEditDate="2016-08-17T06:56:06.707" LastActivityDate="2018-07-23T19:18:30.133" Title="What are the factors that drive openness in developed vs developing countries" Tags="&lt;international-trade&gt;&lt;international-economics&gt;&lt;political-economy&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="13058" PostTypeId="2" ParentId="10900" CreationDate="2016-08-14T17:24:46.920" Score="1" Body="&lt;p&gt;According to your example, the car is purchased for $5000. The problem gives the car a lifespan of 10 years. The 10 year lifespan implies that, at the completion of 10 years, the car won't be useable. It will therefore be valueless. That's not entirely true, but the problem has been simplified. Usually, equipment has some non-zero &quot;salvage value&quot;. But skip that idea for now.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;After one year of use of the car, the problem tells you that the car has lost 500 dollars of value. This is because of wear and tear. Cars get punished on American roadways because the roadways are in such a state of disrepair. The car could have other problems caused by other factors as well. $500 per year is an average number over the 10 year life of the car.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, basically, at the end of one year, the owner of the car has &quot;consumed&quot; one year of usefulness of the car and that is equated to $500.&lt;/p&gt;&#xA;" OwnerUserId="10116" LastActivityDate="2016-08-14T17:24:46.920" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13060" PostTypeId="2" ParentId="13006" CreationDate="2016-08-14T17:47:10.063" Score="0" Body="&lt;p&gt;First, you'd have to define what a &quot;household&quot; is. But let's say you've already done that. Then, you would take the &quot;average household income&quot; and multiply that by the number of households. This would give you the &quot;total household income&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;AVERAGE household income is not a good value to work with, because the &quot;filthy rich&quot; households greatly skew the calculation of &quot;average household income&quot;. &quot;Median Household Income&quot; is a much better single number to work with because it gives a much better idea of how poor households actually are. Again, rich households greatly skew the &quot;average household income&quot; figure.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ideally, it would be best if you could break households into quintiles or, hopefully, something much finer of a breakdown than that. This would give a better idea of how much 10% would hurt each group.&lt;/p&gt;&#xA;" OwnerUserId="10116" LastActivityDate="2016-08-14T17:47:10.063" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13061" PostTypeId="1" CreationDate="2016-08-14T19:18:19.847" Score="1" ViewCount="33" Body="&lt;p&gt;The federal government raises 400 million by selling bonds to the general public in order to pay for a construction program. The program cost 440 million so the government withdraws 25 million from its Royal Bank deposits and 15 million from its Bank of Canada deposits. If the target reserve ration of the private banks if 10%, what is the change in private bank reserve?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I not sure what's going on. The answer is private bank reserve rise by 15 million, but all I see is that the money all cancels out. There might be a change in money supply because of the decreased deposits, but those still would not give a rise in 15 million. What am I not understanding?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT: After some thought, I think it's because the 15 that was in the Bank of Canada in now deposited in private banks by the public, hence the 15 million increase.&lt;/p&gt;&#xA;" OwnerUserId="10045" LastEditorUserId="10045" LastEditDate="2016-08-14T19:41:51.910" LastActivityDate="2016-08-14T19:41:51.910" Title="How does the private bank reserve increase when money is being withdrew?" Tags="&lt;macroeconomics&gt;&lt;banking&gt;&lt;money&gt;" AnswerCount="0" CommentCount="1" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13064" PostTypeId="1" CreationDate="2016-08-14T22:41:20.963" Score="1" ViewCount="24" Body="&lt;p&gt;I don't really have that much knowledge on economics or anything, so perhaps that's something I'd find an answer if I just knew the adequate terminology.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Rephrasing/explaining my question: different income ranges have different propensities to expend (&quot;versus&quot; save), and somewhat different consumption patterns (quality of products and services). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And industries working on different quality levels also probably have different numbers of employees working on it, for the same absolute amount of money. In other words, &quot;ten dollars&quot; may employ less people in the cheaper food industry, than in luxury organics, and, perhaps, conversely &quot;ten dollars&quot; may employ more people in a &quot;cheap towels&quot; factory than in a &quot;luxury towels&quot; factory.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, in the end, we'd have something like in general, poor people employ the less number of people &lt;strong&gt;per dollar&lt;/strong&gt; invested, middle-class the most, and the richer, somewhere in between. But perhaps it would be more interesting to see that actually separated in different industries as well.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, is that something about which there is hard data/cool graphs somewhere,  or that isn't generally a matter of concern, or yet, perhaps the answer is so obvious and easily empirically verifiable that no one really cares to elaborate on that?&lt;/p&gt;&#xA;" OwnerUserId="10118" LastEditorUserId="-1" LastEditDate="2016-08-15T14:05:22.993" LastActivityDate="2016-11-19T15:23:19.487" Title="What are the different patterns/quantity of employment according to demands of different income ranges?" Tags="&lt;labor-economics&gt;&lt;economic-growth&gt;&lt;preferences&gt;&lt;productivity&gt;&lt;empirical-evidence&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13065" PostTypeId="2" ParentId="10223" CreationDate="2016-08-14T23:32:11.073" Score="0" Body="&lt;p&gt;It must hurt differently different agents in the industry, as they will have different business models according to different products (films, versus music, versus books, versus video-games), different demand elasticities, different individual levels of business robusticity, and so on.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think that ultimately their outlook will be better the best they can compete with piracy, profiting somehow from cheaper or &quot;free&quot; distribution, or with some added value in the bought of the original product, something that's not as easily pirated itself (like, buy/sign-up and you're also on a show/movie-ticket lottery, and have access to exclusive online content -- akin to the &quot;Patreon&quot; model of gifts to financial backers). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;Cheap&quot; also includes &quot;convenient&quot;, as looking for pirate options that seem safe and with a good enough quality also costs time (Steve Jobs famously likened it with a minimum wage job on the side to support this consumption), even though that's possibly not that much accounted for by the &quot;consumer&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Not that fighting piracy in legal grounds wouldn't also help, but I suspect it wouldn't be the most cost-effective choice to rely on exclusively (and can have a popular backlash if the punishment seems absurd and unjust), even though it may be a necessity for &quot;big fishes&quot; of piracy. Less taxation towards the more competitive solutions would also probably be a considerable benefit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's kind of ironic that the collapse of the entertainment industry would also be in a way the collapse of the piracy industry, so I guess such collapses/downturns could be cyclical.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've read in wikipedia that the main revenue from movies was actually DVD sales, even in recent years. I imagine that the most likely route to counteract this &quot;leak&quot; will be the spread of Netflix/Hulu-type models, but perhaps more verticall integrated, meaning, the movie companies themselves would have their own &quot;netflixes&quot;, or own larger shares of Netflix variants.&lt;/p&gt;&#xA;" OwnerUserId="10120" LastActivityDate="2016-08-14T23:32:11.073" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13066" PostTypeId="1" AcceptedAnswerId="13068" CreationDate="2016-08-15T00:56:29.023" Score="2" ViewCount="142" Body="&lt;p&gt;A true labor shortage is when no labor is available for a task at any price. Surely this occurs all of the time if you consider markets that don't exist or could never exist, but has this ever happened otherwise?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Has there ever been a situation where a particular type of labor existed, and then dissapeared, leading to a situation where none of the labor in that sector was available at any price?&lt;/p&gt;&#xA;" OwnerUserId="8360" LastActivityDate="2020-09-02T21:21:02.837" Title="Has a market labor shortage ever occurred?" Tags="&lt;microeconomics&gt;" AnswerCount="2" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="13067" PostTypeId="2" ParentId="10223" CreationDate="2016-08-15T02:52:01.557" Score="0" Body="&lt;p&gt;It seems to be still profitable for the future to come this is explained in &lt;a href=&quot;https://books.google.ca/books?id=B77uBQAAQBAJ&amp;amp;pg=PT29&amp;amp;dq=economics+of+the+audio+visual+industry&amp;amp;hl=en&amp;amp;sa=X&amp;amp;ved=0ahUKEwig2JnNsMLOAhVDkh4KHfwkCokQ6AEIHTAA#v=onepage&amp;amp;q=economics%20of%20the%20audio%20visual%20industry&amp;amp;f=false&quot; rel=&quot;nofollow&quot;&gt;The Economics of the Audiovisual Industry: Financing TV, Film and Web &lt;/a&gt; (its also a free ebook on Kobo). &#xA;This is because there are a number of venues which audiovisual products can be enjoyed. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Meaning, its a completely different experience when watching a movie in a movie theatre than on a laptop, this is referred to as &lt;a href=&quot;http://www.investopedia.com/terms/p/product_differentiation.asp&quot; rel=&quot;nofollow&quot;&gt;Product Differentiation&lt;/a&gt;. Although the industry is hurt by illegal downloads and piracy, it has not made the whole industry profitless as there is still demand for the &quot;movie theatre experience&quot;.  As long as that is there, profit can still be made from making movies.&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2016-08-15T02:52:01.557" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13068" PostTypeId="2" ParentId="13066" CreationDate="2016-08-15T05:49:08.143" Score="5" Body="&lt;p&gt;That very narrow definition of labour shortage, &lt;em&gt;&quot;when no labor is available for a task at any price&quot;&lt;/em&gt;, is rarely used, because it's a very rare phenomenon. Market forces kick in, raising prices sharply enough to suppress even relatively inelastic demand, long before the shortage becomes absolute. So the phrase is much more commonly used to mean that there is a temporary constriction in supply of a particular type of labour, usually leading to a large, rapid increase in its remuneration. Hence, when you hear the phrase, that's much more likely to be the intended meaning.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, in the very narrow definition, the &lt;a href=&quot;http://www.economist.com/blogs/freeexchange/2013/10/economic-history-1&quot; rel=&quot;noreferrer&quot;&gt;canonical example given&lt;/a&gt; is usually that of many trades in Western Europe, after outbreaks of the Black Death in the Fourteenth Century had halved the population.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, even that example is problematic, as the evidence is that &lt;a href=&quot;https://theconversation.com/no-the-black-death-did-not-create-more-jobs-for-women-25298&quot; rel=&quot;noreferrer&quot;&gt;women were largely prevented from taking men's jobs&lt;/a&gt;, so the shortage was as much about culture as about physical limits:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Labour scarcity should have opened up opportunities for females, but the regulations only added to their geographical and occupational immobility,&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="44" LastActivityDate="2016-08-15T05:49:08.143" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13070" PostTypeId="1" AcceptedAnswerId="13071" CreationDate="2016-08-15T18:25:33.053" Score="7" ViewCount="364" Body="&lt;p&gt;If &lt;em&gt;x&lt;/em&gt; apples are produced in an economy, and only &lt;em&gt;x&lt;/em&gt; - &lt;em&gt;y&lt;/em&gt; are consumed (&lt;em&gt;y&lt;/em&gt; apples get rotten at different stores in the country), is the value of these wasted apples considered as a part of GDP?&lt;/p&gt;&#xA;" OwnerUserId="6486" LastEditorUserId="4988" LastEditDate="2016-08-19T04:00:01.757" LastActivityDate="2016-08-20T00:08:10.027" Title="Are goods that are wasted counted into the GDP of a nation?" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13071" PostTypeId="2" ParentId="13070" CreationDate="2016-08-15T19:26:50.907" Score="5" Body="&lt;p&gt;It may depend on when they are wasted: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;yes if a consumer purchases them, as it does not matter whether they are eaten or thrown away rotten from the consumer's cupboard (except on the consumer's waistline and perhaps therefore on other purchases); &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;no if a producer fails to sell them and writes them off as they rot in the producer's stores, as they have a value of zero&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;probably not if a retailer buys them from the producer but writes them off as they rot in the shop, as they count towards GDP from the producer's accounts but negatively towards from the retailer's accounts (either as negative profit in the GDP income calculation, or as consumption of intermediate goods in the GDP production calculation, or simply not counted in the GDP expenditure calculation)  &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2016-08-15T19:26:50.907" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13074" PostTypeId="1" CreationDate="2016-08-15T20:38:46.647" Score="6" ViewCount="1220" Body="&lt;p&gt;If interest rates are zero and inflation is under 2% per year then why not have the fed print money without borrowing until inflation is back at 2% per year? The money could be used to pay off the national debt. Businesses would have a predictable floor of a 2% inflation rate.  The slippery slope argument against that sort of policy could be prevented by having the policy written into law. It's a fix where everyone wins, right?&lt;/p&gt;&#xA;" OwnerUserId="10126" LastActivityDate="2016-09-15T09:04:51.803" Title="Why not just print money to combat deflation?" Tags="&lt;debt&gt;&lt;federal-reserve&gt;&lt;deflation&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13075" PostTypeId="1" CreationDate="2016-08-16T07:03:38.133" Score="3" ViewCount="304" Body="&lt;p&gt;I'm self-studying Herbst-Schorfheide book on DSGE estimation and having troubles replicating their steps in the derivation of demand for final goods firms (Ungated model is here, page 3: &lt;a href=&quot;http://ink.library.smu.edu.sg/cgi/viewcontent.cgi?article=1361&amp;amp;context=soe_research&quot; rel=&quot;nofollow&quot;&gt;http://ink.library.smu.edu.sg/cgi/viewcontent.cgi?article=1361&amp;amp;context=soe_research&lt;/a&gt;). Their final goods producers maximize profit function:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\Pi_t = P_t (\int_0^1 Y_t(j)^{1-\nu} dj)^\frac{1}{1-\nu} - \int_0^1 P_t (j)  Y_t(j) dj$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and get the demand:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$Y_t(j) = (\frac{P_t(j)}{P_t})^{-\frac{1}{\nu}} Y_t$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My trouble is that I cannot understand derivation steps: how FOC looks like and why? Help is much appreciated!&lt;/p&gt;&#xA;" OwnerUserId="10128" LastActivityDate="2016-12-19T23:21:20.617" Title="Derivation of demand for intermediate goods in DSGE model" Tags="&lt;macroeconomics&gt;&lt;mathematical-economics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13076" PostTypeId="1" AcceptedAnswerId="15238" CreationDate="2016-08-16T07:09:40.243" Score="3" ViewCount="45" Body="&lt;p&gt;Let's say we have a soft-drinks store. Say the store sells Pepsi and Coke. If the retailer drinks a bottle of coke from his own store, does that get counted into the GDP of a nation?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or is it only counted if someone else apart from the store owner consumes it by paying for it?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How does this work?&lt;/p&gt;&#xA;" OwnerUserId="6486" LastEditorUserId="6486" LastEditDate="2017-01-30T04:53:47.453" LastActivityDate="2017-01-30T11:58:46.450" Title="If a retailer consumes a good he bought from the producer, does that get accounted into the GDP of a nation?" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13077" PostTypeId="2" ParentId="13054" CreationDate="2016-08-16T07:55:10.243" Score="2" Body="&lt;p&gt;$p$ represents total production.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$Ap$ represents the intermediate goods and services used in production, i.e. intermediate consumption.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So $p-Ap=(I-A)p$ represents net production, i.e. output minus input.&lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2016-08-16T07:55:10.243" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13078" PostTypeId="2" ParentId="13074" CreationDate="2016-08-16T08:07:35.957" Score="1" Body="&lt;p&gt;That's essentially what Quantitative Easing was supposed to be.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, we've known for about 80 years that it doesn't work in times like these, and like the 1930s, when demand is flat because of a massive debt overhang. The demand for money just isn't there.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In these times, trying to simply expand the money supply is like pushing on a piece of string.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Japan's been battling with non-responsive flat demand for many years now (though driven largely by demographics). Monetary stimulus has failed. Fiscal stimulus has at least steadied the ship.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2016-08-16T08:07:35.957" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="13079" PostTypeId="1" CreationDate="2016-08-16T09:45:44.033" Score="5" ViewCount="80" Body="&lt;p&gt;According to the latest ONS report, inflation is rising as a consequence of the (pre/post) Brexit devaluation. This graph about the Input PPI is pretty revealing (taken from &lt;a href=&quot;http://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/producerpriceinflation/july2016&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/tHFO2.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/tHFO2.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Yet, with the risk of an oncoming economic crisis, and interest rates at record low (probably at the ZLB), &lt;strong&gt;what can the Central Bank do?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some say inflation is a good thing, as it &quot;greases the economy&quot; by lowering real wages. But that surely will only hit the demand even more. I'm puzzled!&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2016-08-16T18:50:48.387" LastActivityDate="2016-11-15T11:21:10.223" Title="British inflation up again, but crisis might come. What should the BoE do?" Tags="&lt;inflation&gt;&lt;interest-rate&gt;&lt;central-banking&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13080" PostTypeId="2" ParentId="13079" CreationDate="2016-08-16T10:09:36.620" Score="0" Body="&lt;p&gt;The Central Bank can do very little. The latest round of QE resulted in the Bank having to pay way over the odds for gilts. We've already hit a prolonged near-Zero Interest Rate Policy (ZIRP)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Independence of the Bank of England, and devolving responsibility to it, away from Central Government, is fine in normal times. These aren't normal times. Only Central Government has the firepower needed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This one-off blip due to the declining pound is not the sort of thing the Bank should be reacting to, anyway. It's just one consequence of the threat of an impending Brexit; the other consequences will be &lt;em&gt;deflationary&lt;/em&gt;, and will harm growth, over the long term: and &lt;em&gt;that's&lt;/em&gt; what the Bank is trying to tackle.&lt;/p&gt;&#xA;" OwnerUserId="44" LastEditorUserId="44" LastEditDate="2016-08-17T09:46:12.383" LastActivityDate="2016-08-17T09:46:12.383" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13081" PostTypeId="2" ParentId="13079" CreationDate="2016-08-16T12:42:37.797" Score="1" Body="&lt;p&gt;You could say what the chart represents.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is in fact the changes in the input Producer Price Index &lt;a href=&quot;http://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/producerpriceinflation/july2016&quot; rel=&quot;nofollow&quot;&gt;http://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/producerpriceinflation/july2016&lt;/a&gt; with a headline statement of &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;the total input price index rose 4.3%  in the year to July 2016, compared with a fall of 0.5% in the year to June 2016&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;But this effect is smaller as it affects the economy as a whole.  For the output Producer Price Index the headline statement is less dramatic: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Factory gate prices (output prices) for goods produced by UK manufacturers rose 0.3% in the year to July 2016, compared with a fall of 0.2% in the year to June 2016.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This has not yet had a substantial effect on consumers, where for the Consumer Prices Index &lt;a href=&quot;http://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/consumerpriceinflation/july2016&quot; rel=&quot;nofollow&quot;&gt;http://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/consumerpriceinflation/july2016&lt;/a&gt; the headline statement is:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The Consumer Prices Index (CPI) rose by 0.6% in the year to July 2016, compared with a 0.5% rise in the year to June.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I would be surprised if any of today's data surprised the Bank of England:  &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Imported inputs for UK producers now cost more due to a weaker Pound sterling&lt;/li&gt;&#xA;&lt;li&gt;This has a relatively smaller effect on output prices, meaning British exporters are potentially more competitive internationally&lt;/li&gt;&#xA;&lt;li&gt;This has not yet had a substantial impact on consumers&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;What the central bank does not yet know includes:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;how much of an effect this will have on consumer prices in the longer term&lt;/li&gt;&#xA;&lt;li&gt;how negative this will allow real interest rates to be if nominal interest rates are kept close to zero&lt;/li&gt;&#xA;&lt;li&gt;how much of an effect this will have on imports and exports&lt;/li&gt;&#xA;&lt;li&gt;how much of an effect this will have on consumption&lt;/li&gt;&#xA;&lt;li&gt;how much of an effect this will have on investment&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;though it might try informed guesses.  Investment, consumption and exports in particular will be affected by broader factors including predictions about the long-term impact of a future Brexit. &lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2016-08-16T12:42:37.797" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13082" PostTypeId="2" ParentId="13066" CreationDate="2016-08-16T13:33:24.853" Score="1" Body="&lt;p&gt;A &quot;true&quot; labour market shortage as defined by no labour at any price has probably never occurred. Let me argue why:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Who defines the any price? There is always a price (wage) someone is willing to &lt;strong&gt;accept&lt;/strong&gt; to move to a certain location, or to perform a job that does not match own preferences, or for which training is willing to be carried out in order to be able to perform that task/job. This is, &lt;strong&gt;there is always a non-infinite price at which you could fill a post&lt;/strong&gt;. In the example of the Black Death, I am absolutely sure that if you were able to offer a price to Chinese workers to go to Europe they would have done so. As such, using &lt;strong&gt;your definition&lt;/strong&gt; of shortage, no, it was not a shortage.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The key factor is then not the supply of workers but the &lt;strong&gt;demand for workers&lt;/strong&gt;. In other words, why is not a given post filled in? It is because the employer &lt;strong&gt;is not willing to pay&lt;/strong&gt; the price at which someone would fill up the position. So, returning to the Black Death example, there was &quot;a shortage&quot; only because employers (farm owners, mostly) were not willing to pay high enough wages to motivate enough people to migrate to Europe.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;My bottom line is that your extreme definiton of labour market shortage as a &quot;no price&quot; market is too extreme, and a more useful, albeit subjective definition is based on a &lt;strong&gt;relative&lt;/strong&gt; perspective. Nothing else than out demand and supply paradigm. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Note&lt;/strong&gt;: in a simple demand and supply graph for the labour market, do not forget that there is somewhere to the right another line which represents the &quot;total employment&quot; available. Although we usually represent this as perfectly inelastic, in fact, this line is also endogenous to the wage level. That is how you can incorporate &lt;strong&gt;immigration&lt;/strong&gt; to the model. Under this view, the actual &quot;total&quot; supply is never inelastic. As such, &lt;strong&gt;there is always a positive, non-infinite price&lt;/strong&gt; at which you can command workers into a job.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2016-08-16T13:33:24.853" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13083" PostTypeId="2" ParentId="12832" CreationDate="2016-08-16T16:54:55.260" Score="1" Body="&lt;p&gt;Piketty's essential argument is that when the $r$ is the rate of return to wealth and $g$ is the economic growth rate, you will see wealth and economic power concentrate in the hands of the few when $r \gt g$. This presumes that the wealthy will reinvest their returns from wealth rather then spending it on consumption. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Low productivity improvements will lead to low growth in GDP per capita, and combining this with low population growth will then lead to low growth in total GDP, so these combined will lead to smaller values of $g$ than seen previously when both productivity and population were growing more quickly.  This is probably not particularly controversial.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Harder questions include &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;the impact of low productivity improvements and low population growth on $r$, and therefore on whether the gap between $r$ and $g$  would in fact widen&lt;/li&gt;&#xA;&lt;li&gt;empirical evidence of whether $r \gt g$ has been true historically and globally&lt;/li&gt;&#xA;&lt;li&gt;whether further concentrations of wealth may in future change $r$ &lt;/li&gt;&#xA;&lt;li&gt;whether Piketty's preferred solution of global wealth taxes and taxes on very high incomes (designed to reduce $r$) might also have an effect on $g$, and if so then in which direction and by how much&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="8891" LastEditorUserId="44" LastEditDate="2016-08-17T02:57:58.653" LastActivityDate="2016-08-17T02:57:58.653" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13086" PostTypeId="1" CreationDate="2016-08-17T05:20:23.997" Score="1" ViewCount="34" Body="&lt;p&gt;Let's say I want to buy a car. It costs that, so I can know that, for example, I have to work 3 months to pay for it. But does the car really needs three months of human work to be build?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is the real cost of a car in &lt;strong&gt;terms of human work&lt;/strong&gt;? More specifically : What is the &lt;strong&gt;marginal cost&lt;/strong&gt; of a car in terms of human work?&#xA;What does it take build just one more car? And I don't want to include the cost of building the factory, the R&amp;amp;D, or other similar things.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a first approximation, I could take its cost, and divide by the average hourly wage in the country. &lt;strong&gt;But&lt;/strong&gt; this would include profit, taxes and other things unrelated to just building the car. And it would not take into account that the raw materials have been extracted and processed in an other country, with higher or lower hourly wages.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;This is how I would try to find out :&lt;/strong&gt;&#xA;Consider the car factory as a &lt;strong&gt;black box&lt;/strong&gt; : we don't care what's going on inside, we just care about input (&lt;em&gt;work, energy, parts, raw materials...&lt;/em&gt;) and output (&lt;em&gt;cars, by products, garbage, pollution...&lt;/em&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We divide the input by the number of cars produced, and get a first partial answer :&#xA;To build one car we need :&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;X hours of work &lt;/li&gt;&#xA;&lt;li&gt;Y tons of steel &lt;/li&gt;&#xA;&lt;li&gt;Z kWh of electricity &lt;/li&gt;&#xA;&lt;li&gt;...&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;and we repeat these steps, recursively, with the steel factory, the power plant, etc. &lt;strong&gt;until we get to the raw material/mining industry.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We unfold the tree : &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;X hours of work&lt;/li&gt;&#xA;&lt;li&gt;Y tons of steel&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;N hours of work &lt;/li&gt;&#xA;&lt;li&gt;M tons of dirt&lt;/li&gt;&#xA;&lt;li&gt;...&lt;/li&gt;&#xA;&lt;/ul&gt;&lt;/li&gt;&#xA;&lt;li&gt;Z kWh of electricity&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;P hours of work&lt;/li&gt;&#xA;&lt;li&gt;Q tons of coal&lt;/li&gt;&#xA;&lt;li&gt;...&lt;/li&gt;&#xA;&lt;/ul&gt;&lt;/li&gt;&#xA;&lt;li&gt;... &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;So in the end, we know there is X + N + P + ... hours of work in that car (and some free natural resources).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;And what about the same question for a t-shirt? A loaf of bread?&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I realise it takes &lt;strong&gt;a lot of work&lt;/strong&gt; to answer this question. It probably involves analysing a big part of the world economy, maybe the factories are reluctant to give this type of information, and by the time you're done, the processes may have changed so much that you have to start over again.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But still, I think it's an interesting question, and I feel it would help everyone to understand the world.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Has anyone ever attempted this? Is there a book? A database? A Ph.D thesis? A paper?&#xA;Or maybe the question should be reformulated?&lt;/p&gt;&#xA;" OwnerUserId="10134" LastEditorUserId="10134" LastEditDate="2016-08-17T08:07:12.360" LastActivityDate="2016-08-17T08:07:12.360" Title="Where to start, to know the cost, in hours of work, necessary to produce one more car (or any other good)?" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;cost&gt;&lt;productivity&gt;&lt;marginal&gt;" AnswerCount="0" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="13087" PostTypeId="1" CreationDate="2016-08-17T13:13:23.860" Score="-1" ViewCount="242" Body="&lt;p&gt;Here's the question that I really need help with:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U(x,y)=(x^{0.5})+y$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$MUx=\frac{1}{2x^{0.5}}$ and $MUy=1$, where $x$ is food, $y$ is clothing&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$Px$ is the price of food, $Py$ is the price of clothing and $I$ is income.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the purposes of this question you should assume that $I/Py \ge Py/4Px$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is &lt;strong&gt;I don't know how to find the demand function for $y$.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I use $MUx/MUy=Px/Py$ and I can only find the demand function (or opportunity set) for $x$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is $I/Py&amp;gt;=Py/4Px$ the budget constraint? If it is, that's the weirdest form I've ever seen. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'd really appreciate it if any of you could give me a hint how to solve for this question. &lt;/p&gt;&#xA;" OwnerUserId="10138" LastEditorUserId="4817" LastEditDate="2016-08-18T22:57:38.097" LastActivityDate="2016-08-18T22:57:38.097" Title="Consumer Theory (Finding demand function)" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;consumer-theory&gt;" AnswerCount="1" CommentCount="1" ClosedDate="2016-08-22T20:08:59.957" ContentLicense="CC BY-SA 3.0" />
  <row Id="13088" PostTypeId="1" AcceptedAnswerId="14473" CreationDate="2016-08-17T14:11:57.127" Score="9" ViewCount="605" Body="&lt;p&gt;Apologies if I use non-economic language to explain what I suspect is a practical application of economics. I have no formal education in economics whatsoever but hoping you guys/girls might be able to help. :)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm the managing director of a company in which we run appraisals every 6 months. Each time we negotiate salary I have in my mind's eye this picture...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/MVUe8.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/MVUe8.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assuming the 'correct' salary for an employee is 70k, there's an incentive to offer slightly more. &lt;em&gt;'Slightly more'&lt;/em&gt; because there's some error in estimating the market rate and the costs of getting this wrong are high. I've added a staff churn costs of £20k/yr for getting this wrong based on loss of knowledge, morale, recruitment costs and what I refer to as a 'change incentive' for the replacement employee. The change incentive is the amount you must offer a new employee beyond their current rate (market rate?) to discount the loss of familiarity and to take on the risk of joining a new employee.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Belief 1 - Underpaying employees is much more costly over the long term&lt;/strong&gt; once staff churn is taken into account.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Belief 2 - the employee has better information about their value&lt;/strong&gt; - based on them being nearer the information about their skills, positive contributions and self interest in the literal sense.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Belief 3 - salary expectation in job adverts are positively skewed&lt;/strong&gt; to discount against the risk and transaction costs to the employee of change. Nobody switches to an identical salary unless it's a sideways move. Anecdotally, I've heard advice to change jobs every few years in order to raise your salary faster. Humans tend to be unnecessarily risk adverse and you can give yourself a competitive edge by overcoming this bias.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Belief 4 - primary information source for market value are job adverts and job offers.&lt;/strong&gt; These overvalue for the reasons in belief 3.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Belief 5 - Protracted and/or aggressive salary negotiation is costly in itself.&lt;/strong&gt; If there's a big discrepancy it can create feelings of being undervalued.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Belief 6 - Employees will be content and thus likely to remain with the company if they feel they are receiving the market rate.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assumptions: the company is otherwise a pleasant place to work.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In my particular industry, I'd consider low staff churn rates and high staff morale as being a distinct and powerful competitive advantage. The figure of 20k churn cost is probably conservative.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In England, where I live, the cultural norm is for the company to either start the negotiation or more commonly simply state what the pay rise is going to be. This is followed by a period of watching how much they squeak squirm with dissatisfaction. Given the beliefs above and an industry where staff churn is costly, I'm inclined to lean in the other direction and either let them begin the negotiation or even more radically, simply request what their salary should be; as is common for sellers of other types of good. Salary negotiation seems to me to be unique in that the buyer of the good (their labour) dictates the price and then watches to see if the supply vanishes (resigns).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is it an optimal strategy in salary negotiations to let the employee decide? &lt;/p&gt;&#xA;" OwnerUserId="10139" LastEditorUserId="10139" LastEditDate="2016-08-18T09:39:26.940" LastActivityDate="2017-06-04T20:37:49.880" Title="What are the economic perspectives regarding the game of salary negotiations?" Tags="&lt;game-theory&gt;&lt;labor-economics&gt;" AnswerCount="1" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="13089" PostTypeId="1" CreationDate="2016-08-17T16:38:19.013" Score="2" ViewCount="35" Body="&lt;p&gt;Gini index = 0 refers to an economy where gross income has been redistributed so that all income earners in the United States received the same income, equal to the most current measure of the mean (not median) personal income in the United States. That is, the aggregate personal income will remain unchanged.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We'll assume the Federal income tax brackets remain the same as in 2015.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Given the above assumptions, will Federal tax revenue increase or decrease compared with the present day income distribution, and by how much?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Bonus question: Is there an optimal distribution of gross incomes in the United States working population that maximizes Federal income taxes?&lt;/p&gt;&#xA;" OwnerUserId="8043" LastActivityDate="2016-08-17T16:38:19.013" Title="Hypothetical question: Percentage change in Federal income tax revenue in United States if Gini Index = 0?" Tags="&lt;macroeconomics&gt;&lt;taxation&gt;&lt;inequality&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="13090" PostTypeId="2" ParentId="6489" CreationDate="2016-08-17T16:41:42.347" Score="0" Body="&lt;p&gt;In any observed sequence, the last conditional is &quot;missing&quot; in the sense that there is no value afterwards. The authors deal with this by simply disregarding cases where this happens, saying that they are undefined. If the series is short, this choice is going to have an obvious impact on calculations. Figure 1 is a nice illustration of this idea.&lt;/p&gt;&#xA;" OwnerDisplayName="user7935" LastActivityDate="2016-08-17T16:41:42.347" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13094" PostTypeId="1" CreationDate="2016-08-18T06:49:00.847" Score="4" ViewCount="623" Body="&lt;p&gt;A while back I posted &lt;a href=&quot;https://economics.stackexchange.com/questions/10649/why-hasnt-massive-derivatives-exposures-at-banks-already-led-to-disaster&quot;&gt;this question&lt;/a&gt; about the possible risks of banks having massive derivatives exposures.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The most upvoted answer (by BKay) said that there was little risk because banks mainly hold pairs of opposite bets. So for example it may simultaneously hold bets with two companies (A and B) where, if the price of oil goes up sharply then it has to pay out to A, but B has to pay the bank.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So this is all fine so long as both A and B are solvent after the oil price rise. Presumably if B goes bust then the bank is still liable to A.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So now my question is - couldn't there be some scenario where there is a sudden economic shock which simultaneously means that the banks will have to do a lot of paying out of bets but where the companies that are losing bets, and owe the banks money, go bust. With such enormous exposures it wouldn't take much of a fraction of the bet-losing companies going bust to cause an enormous loss for the banks.&lt;/p&gt;&#xA;" OwnerUserId="5081" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2016-10-31T10:31:44.887" Title="Could massive derivatives exposures at banks lead to disaster?" Tags="&lt;banking&gt;" AnswerCount="5" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13095" PostTypeId="2" ParentId="12764" CreationDate="2016-08-18T08:12:03.460" Score="4" Body="&lt;p&gt;A classic reference that is somewhat related is Ronald Coase's &quot;&lt;a href=&quot;https://www.jstor.org/stable/2626876?seq=1#page_scan_tab_contents&quot; rel=&quot;nofollow&quot;&gt;The Nature of the Firm&lt;/a&gt;&quot;. Coase set out to address the following puzzle: since markets are efficient, why do we need to organize into firms? Couldn't we just have each individual acting alone and rely on the market to put the pieces together into complete products? Coases answer to why this wouldn't work well was transaction costs. If there is a (small) cost to engaging in market transactions then the aggregate cost of the many transactions needed to assemble complicated products will be prohibitive. The solution, argues Coase, is to form an organization (a firm) within which all of these transactions can take place without recourse to the market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Coase's reasoning has been expanded in the 80 years since its publication. Notably, Oliver Williamson did important work to dig into the details of the conditions that make organizing work within a firm especially attractive. He argued that firms should be most likely to form when work is relationship-specific and when there are significant difficulties in writing and enforcing contracts. A great summary of Williamson's work can be found &lt;a href=&quot;http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/2009/advanced.html&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Both Coase and Williamson received the Nobel prize for this work.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2016-08-18T08:12:03.460" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13096" PostTypeId="1" CreationDate="2016-08-18T12:36:32.140" Score="1" ViewCount="13" Body="&lt;p&gt;Where can I see an evolution of the ECB's share in the market for Euro area governmental debt?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would like to know if there's something similar happening in Euro area as is happening with &lt;a href=&quot;http://macromarketmusings.blogspot.pt/2016/08/the-unwinding-of-qe-has-begun.html&quot; rel=&quot;nofollow&quot;&gt;Fed's share of USA gov. debt&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="118" LastActivityDate="2016-08-18T12:36:32.140" Title="What's the ECB share of euro area gov debt?" Tags="&lt;macroeconomics&gt;&lt;government-debt&gt;&lt;open-economy-macro&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13097" PostTypeId="1" AcceptedAnswerId="13308" CreationDate="2016-08-18T14:43:38.867" Score="5" ViewCount="1077" Body="&lt;p&gt;Please excuse my ignorance of economics. I recently learned about the Gini-Coefficient as a measure of the economic inequality in a country. I have since seen several plots of this coefficient over time, each for an individual country. The following is from &lt;a href=&quot;https://www.equalitytrust.org.uk/about-inequality/scale-and-trends&quot; rel=&quot;noreferrer&quot;&gt;Equality trust&lt;/a&gt; and concerns the UK.&#xA;&lt;a href=&quot;https://i.stack.imgur.com/FTdjo.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/FTdjo.png&quot; alt=&quot;United Kingdom, Gini over time &quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another plot, concerning various countries, is found &lt;a href=&quot;http://www.worldatnight.ethz.ch/content/images/figure6.11.png&quot; rel=&quot;noreferrer&quot;&gt;here&lt;/a&gt;:&#xA;&lt;a href=&quot;https://i.stack.imgur.com/mdmnF.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/mdmnF.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At first sight, it appears impossible, to construct such a curve for the entire world. Yet, in discussing extreme poverty,  I recently learned that incomes can be adjusted to equal purchasing power. Naively it seems, one could measure economic inequality globally. So, are there such data concerning the world as a whole? I know there are maps with countries colour coded by Gini, but this is not what I mean.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My interest is not limited to Gini, if there is another measure, by which the global temporal evolution of inequality can be captured, please tell me!&lt;/p&gt;&#xA;" OwnerUserId="10101" LastEditorUserId="10101" LastEditDate="2016-08-18T14:49:09.417" LastActivityDate="2016-09-06T17:01:15.140" Title="Are there data for the evolution of global economic inequality" Tags="&lt;inequality&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13098" PostTypeId="2" ParentId="13087" CreationDate="2016-08-18T15:48:27.617" Score="1" Body="&lt;p&gt;First, your utility function is strictly increasing in both goods, so you know that your budget will bind so you can set $I=p_xx+p_yx$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Second, your utility function is known as &quot;quasilinear&quot;, where the good y is linear in your utility and the other good is there in some increasing function not connected to y. That's why the marginal utility for y is just a constant.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally,  solve for x as you did, where x is a function of prices, then plug that into the budget constraint to solve for y. y should be a function of prices and income. &lt;/p&gt;&#xA;" OwnerUserId="10155" LastActivityDate="2016-08-18T15:48:27.617" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13099" PostTypeId="2" ParentId="13039" CreationDate="2016-08-18T15:58:12.007" Score="1" Body="&lt;p&gt;You could augment an externality mechanism, where people are punished for the effect they have on other people, and use a convex function or variance of outcomes. You could also transform their payoffs with a concave function to induce risk aversion. Look into the VCG mechanism and extensions for more info. &lt;/p&gt;&#xA;" OwnerUserId="10155" LastActivityDate="2016-08-18T15:58:12.007" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13100" PostTypeId="1" CreationDate="2016-08-18T16:21:35.387" Score="0" ViewCount="29" Body="&lt;p&gt;I am using the 1992 HRS (Health and Retirement Study) dataset. The&#xA;codebook is available at&#xA;&lt;a href=&quot;http://hrsonline.isr.umich.edu/modules/meta/1992/core/codebook/14_h1.htm&quot; rel=&quot;nofollow&quot;&gt;http://hrsonline.isr.umich.edu/modules/meta/1992/core/codebook/14_h1.htm&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am trying to construct the share of HRS respondents that lost their&#xA;job because of business closure (see the variable 3612 at the link&#xA;reported above). I cannot understand what is the meaning of: 1.&#xA;Checked 5. Not checked&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What happened to these respondents? There is a note about checking&#xA;just below the question but I still do not understand what &quot;Checked&quot;&#xA;and &quot;Not Checked&quot; actually mean.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, the total number of observations in 1992 are 12652. In fact,&#xA;including all answers, we have that there are 12652 observations&#xA;(i.e., the summation of the possible answers reported below).&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;        V3612 Code  Frequency&#xA;        ---------------------&#xA;                0        6338&#xA;                1        1175&#xA;                2         222&#xA;                5        4888&#xA;                9          29&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;It seems that both respondents that were &quot;checked&quot; by the interviewer&#xA;and respondents that were &quot;not checked&quot; by the interviewer DID NOT&#xA;ANSWER the question. Am I correct?&lt;/p&gt;&#xA;" OwnerUserId="10150" LastActivityDate="2016-08-18T16:21:35.387" Title="Some issues with HRS (Health and Retirement Study) data" Tags="&lt;microeconomics&gt;&lt;micro-data&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13101" PostTypeId="2" ParentId="13075" CreationDate="2016-08-18T17:03:42.477" Score="1" Body="&lt;p&gt;So I've seen this sort of thing where you basically differentiate with respect to each Y_j so the integral drops out (seen this in moral hazard chapter from &#xA;MWG and Romer's endogenous growth model). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The foc becomes:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$P_t(Y_t(j)^{(1-v)})^{v/(1-v)}Y^{-v}-P_t(j)=0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This gets the result. &lt;/p&gt;&#xA;" OwnerUserId="10155" LastActivityDate="2016-08-18T17:03:42.477" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13103" PostTypeId="1" AcceptedAnswerId="13111" CreationDate="2016-08-18T17:41:37.903" Score="1" ViewCount="74" Body="&lt;p&gt;You are given total debt for the second quarter of 2003 and the second quarter of 2004 for the overall population and four age groups. The four age groups collectively account for the entire population and their debt holdings account for overall total debt.&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;Quarter, Age_Group, Population, Total_Debt, Per_Capita_Debt      &#xA;Q2 2003,0,1000,10000,10&#xA;Q2 2003,1,250,3000,12&#xA;Q2 2003,2,400,5000,12.5&#xA;Q2 2003,3,250,1500,6&#xA;Q2 2003,4,100,500,5&#xA;&#xA;Q2 2004,0,1300,15000,11.5&#xA;Q2 2004,1,380,4000,10.5&#xA;Q2 2004,2,450,7000,15.6&#xA;Q2 2004,3,270,2500,9.3&#xA;Q2 2004,4,200,1500,7.5&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;The per capita growth rate for age group 0, representative of the total per capita growth rate is 15 percent. But how does one convert the individual per capita growth rates to the contribution to the total rate? Perhaps weight by the population shares? Taking a weighted average of the per capita growth rates yields approximately 6 percent. Dividing the change in per capita debt for each of the groups over the per capita debt level for the population doesn't work as it would when using total debt. The result should be r1 + r2 +r3 + r4 = r0 Where rn is the growth rate for age group n.&lt;/p&gt;&#xA;" OwnerUserId="10141" LastEditorUserId="44" LastEditDate="2016-08-19T06:29:13.677" LastActivityDate="2016-08-19T08:16:02.087" Title="Converting per capita growth rates for subgroups into contribution to total per capita growth rate" Tags="&lt;debt&gt;&lt;computation&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13104" PostTypeId="1" CreationDate="2016-08-19T00:25:44.710" Score="2" ViewCount="110" Body="&lt;p&gt;Why was the UK unemployment rate in July 2016 lower than forecasted by the Bank of England?&lt;/p&gt;&#xA;" OwnerUserId="8639" LastEditorUserId="8639" LastEditDate="2016-08-19T00:34:12.787" LastActivityDate="2016-12-24T23:51:19.540" Title="UK unemployment for July 2016" Tags="&lt;macroeconomics&gt;&lt;unemployment&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13105" PostTypeId="1" AcceptedAnswerId="13114" CreationDate="2016-08-19T04:16:59.033" Score="1" ViewCount="108" Body="&lt;p&gt;why in some countries (e.g. Argentina) trade deficits for a few years generates economical crisis and collapse and in United States 40 years of deficit havent? Which are the economical effects in both countries and why they are different?&lt;/p&gt;&#xA;" OwnerUserId="8165" LastEditorUserId="8165" LastEditDate="2019-08-23T14:00:19.303" LastActivityDate="2019-08-23T14:00:19.303" Title="why in some countries trade deficits for a few years generates economical crisis and in United States 40 years of deficit hasnt?" Tags="&lt;balance-of-trade&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="13106" PostTypeId="1" AcceptedAnswerId="13112" CreationDate="2016-08-19T06:13:07.650" Score="-2" ViewCount="88" Body="&lt;p&gt;Does the finance system matter? Do bankers have important and difficult jobs that protect against destroying the economy from some paperwork reason?&lt;/p&gt;&#xA;" OwnerUserId="8360" LastActivityDate="2016-08-19T14:01:48.673" Title="Do bankers have important and difficult jobs?" Tags="&lt;finance&gt;" AnswerCount="1" CommentCount="1" ClosedDate="2016-08-22T20:01:31.840" ContentLicense="CC BY-SA 3.0" />
  <row Id="13110" PostTypeId="2" ParentId="13103" CreationDate="2016-08-19T08:06:39.213" Score="1" Body="&lt;p&gt;The problem is that you've got two inconsistent definitions of growth rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One is driven by per capita debt across the whole population.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The other by per capita debt within each subgroup.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These are inconsistent, because different subgroups have different baseline debts in Q2, &lt;strong&gt;and&lt;/strong&gt; different population sizes. Because both of those things are different, and &lt;strong&gt;both&lt;/strong&gt; are divisors in the calculation of your statistic of interest, then simply re-weighting by population size can't fix the problem.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So you can calculate a meaningful contribution of each to overall growth rate, so that together they satisfy  r1 + r2 +r3 + r4 = r0. But then the individual r1 to r4 won't mean much within their own groups - only in terms of their contribution to the whole. Or you can calculate growth rates for each sub group, as you've done in your question, but then they won't mean much in the overall context.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2016-08-19T08:06:39.213" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13111" PostTypeId="2" ParentId="13103" CreationDate="2016-08-19T08:16:02.087" Score="1" Body="&lt;p&gt;If the initial populations are $p_1,p_2,p_3,p_4$ and the population growth rates are $g_1,g_2,g_3,g_4$ and the initial per capita debts are $d_1,d_2,d_3,d_4$ and the growth in per capita debts are  $r_1,r_2,r_3,r_4$ then if you insist on some kind of weighted sum then you could use something like:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$r_0= \displaystyle \sum _i \tfrac{ \left(\sum_j p_j\right)p_i(1+g_i)d_i}{\left(\sum_j p_j d_j\right) \left(\sum_j p_j(1+g_j)\right)}(1+r_i) - 1$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;but you would probably find it easier to calculate the intermediate population totals and debt totals  &lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2016-08-19T08:16:02.087" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13112" PostTypeId="2" ParentId="13106" CreationDate="2016-08-19T08:18:43.497" Score="1" Body="&lt;p&gt;Bankers that choose between borrowers wishing to borrow for productive investment are doing a an important and difficult job that benefits the economy. Sadly this only accounts for a small proportion of bankers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Bankers that choose between borrowers wishing to borrow to purchase pre-existing unproductive assets are not doing a very useful job, indeed much of their work does positive harm to the economy. Sadly this accounts for the majority of bankers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The banking sector is probably four or five times bigger than what would be optimal for the sake of the economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;EDIT:&lt;/strong&gt; &lt;a href=&quot;https://en.wikipedia.org/wiki/Adair_Turner,_Baron_Turner_of_Ecchinswell&quot; rel=&quot;nofollow&quot;&gt;Adair Turner&lt;/a&gt; has said similar things in many places, including &lt;a href=&quot;http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/6096546/City-is-too-big-and-socially-useless-says-Lord-Turner.html&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;EDIT:&lt;/strong&gt; and &lt;a href=&quot;https://www.cass.city.ac.uk/__data/assets/pdf_file/0006/77136/Adair-Turner-March-2011.pdf&quot; rel=&quot;nofollow&quot;&gt;here, with more detail&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="5081" LastEditorUserId="5081" LastEditDate="2016-08-19T14:01:48.673" LastActivityDate="2016-08-19T14:01:48.673" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="13113" PostTypeId="2" ParentId="13105" CreationDate="2016-08-19T09:07:16.817" Score="1" Body="&lt;p&gt;Persistent trade or balance of payments deficits generate debt and other liabilities, either in the currency of the importer or in some foreign currency.  This may be sustainable so long as lenders expect to be repaid in something of value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The United States borrows in dollars, and the general expectation among its creditors is that its debts will be honoured (there was some doubt in &lt;a href=&quot;https://en.wikipedia.org/wiki/United_States_debt-ceiling_crisis_of_2011&quot; rel=&quot;nofollow&quot;&gt;2011&lt;/a&gt; and &lt;a href=&quot;https://en.wikipedia.org/wiki/United_States_debt-ceiling_crisis_of_2013&quot; rel=&quot;nofollow&quot;&gt;2013&lt;/a&gt;) and that others will accept dollars in the future.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For Argentina, this expectation is much weaker.  In the past there have been defaults on borrowing in dollars (eight times since 1824, most recently in 2001 and 2014).  Alternatively, Argentina could borrow in pesos, but there have been frequent &lt;a href=&quot;https://en.wikipedia.org/wiki/Argentine_peso&quot; rel=&quot;nofollow&quot;&gt;bouts of hyperinflation&lt;/a&gt;, which makes foreign lenders reluctant to lend. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So for the United States, its historical behaviour has created a degree of trust among its creditors which allows a sustained deficit.  Argentina's history makes it harder to borrow, so any new suggestion of a persistent deficit means it soon finds financing imports more difficult, thus creating a crisis.  &lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2016-08-19T09:07:16.817" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13114" PostTypeId="2" ParentId="13105" CreationDate="2016-08-19T09:23:51.310" Score="1" Body="&lt;p&gt;The US borrows in its own currency. So it can always issue new currency to repurchase its own debt. And it mostly trades in its own currency, so when its currency gets devalued against the currencies of its trading partners, the trade imbalance is corrected.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Argentina borrows in someone else's currency - the US dollar. So it cannot issue new currency to repurchase its own debt. Furthermore, its international trade is largely denominated in other currencies than its own, too, so devaluing the Argentinian Peso does not correct the trade imbalance.&lt;/p&gt;&#xA;" OwnerUserId="44" LastEditorUserId="44" LastEditDate="2016-08-19T09:45:52.620" LastActivityDate="2016-08-19T09:45:52.620" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="13115" PostTypeId="2" ParentId="12733" CreationDate="2016-08-19T10:29:06.263" Score="2" Body="&lt;p&gt;In an interest rate swap, two parties swap with each other the obligation to pay a fixed rate for the obligation to pay a floating rate. Because it concerns a simple swap of obligations, the rates must have equal present value for both parties. The market quotes the fixed rate, so this is the variable of interest.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Draghi may have been referring to one of two types of swap contracts: the 5-year/5-year interest swap or the 5-year/5-year inflation rate swap. The case of the 5-year/5-year inflation rate swap is simplest. Because the contracts trade at equal present values, a lower fixed rate implies lower expected inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The case for the interest swap requires an additional assumption. Consider that interest rates consist of two components: a compensation for inflation rate risk, and a compensation for default (and possibly other) risks. This latter part is called the risk premium, and it also affects the quoted fixed rates. So in order to draw any conclusions about market inflation expectations on the basis of interest rate swaps, it is simplest to assume that the risk premium is constant. Of course this is not necessarily the case, and this assumption could be investigated by looking at the difference between the two different swap contracts.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, I cannot be certain about why the ECB prefers this measure to any other measure of inflation expectations. But besides the fact that it is a market measure, the timing adds up: the 5 year swap starts in 5 years, so it is an indicator of inflation 5-10 years in the future.&lt;/p&gt;&#xA;" OwnerDisplayName="user7935" LastEditorDisplayName="user7935" LastEditDate="2016-08-22T09:59:47.587" LastActivityDate="2016-08-22T09:59:47.587" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="13116" PostTypeId="1" CreationDate="2016-08-19T11:24:41.150" Score="2" ViewCount="175" Body="&lt;p&gt;I am running a panel data estimation, where I am including &lt;strong&gt;year effects&lt;/strong&gt;. My goal is to see if there is a time trend in the data, after controlling for other factors.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Using random effects, I find the trend is upward sloping. Using fixed effects, I find the trend is downward sloping.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this a bad result? A Hausman test rejects the RE with p-value of 0.000. Does it mean that the trend values from the RE can be inconsistent? &lt;strong&gt;Or is the FE capturing something different than the RE model?&lt;/strong&gt; Differences in differences perhaps?&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-05-18T19:55:20.970" Title="Year effects inconsistent between random effects and fixed effects" Tags="&lt;paneldata&gt;&lt;fixed-effects&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13117" PostTypeId="2" ParentId="13116" CreationDate="2016-08-19T14:38:00.380" Score="0" Body="&lt;p&gt;So if you see major differences between random effects and fixed effects, that alone should be an indicator that the time-invariant variation that FE controls for matters. Your Hausman confirms it. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;FE does capture something different because FE removes all time-invariant variation and only uses the within variation, while random effects uses both within and between, so it is actually capturing different variation. For example, if you attempted to estimate the effect of gender on wages over time, you could not do this using fixed effects because gender would drop out, but you could do this using random effects. &lt;/p&gt;&#xA;" OwnerUserId="10155" LastEditorUserId="10155" LastEditDate="2016-08-19T20:50:56.877" LastActivityDate="2016-08-19T20:50:56.877" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="13119" PostTypeId="2" ParentId="13037" CreationDate="2016-08-19T16:30:42.203" Score="-1" Body="&lt;p&gt;The marginal cost is the same for any firm in a perfectly competitive market at equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, let's prove it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose there is at least one firm (firm 1) that has a higher marginal cost, $MC_1$, than the remaining firms, at $MC_0$.&#xA;The price, $P$, is the same for every firm because goods are &lt;strong&gt;homogenous&lt;/strong&gt;. Rational consumers with perfect information would never buy the same good at a higher price.&#xA;As &lt;strong&gt;firms maximize their profits&lt;/strong&gt; and the technology does not have increasing returns to scale, their margional costs must be equal to the equilibrium price, $P=MC_0=MC_1$. This contradicts our initial assumption $MC_1&amp;gt;MC_0$. We have just shown our result. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;An interesting case to get a complementary intuition is the Bertrand competition. Suppose the technology has constant returns to scale. In other words, producing a quantity $Q$ for firm 1 costs $MC_1 \times Q$, the marginal cost is constant. Imagine many firms able to produce the same homogenous good but with different marginal costs. As consumers would go for the cheapest price. Firms with the lowest marginal cost (the most efficient firms) can prevent the other firms for making a positive profit by setting a price low enough. The less efficient firms would leave the market and only the firms with the lowest marginal cost would exist at equilibrium. The equilibrium price would be equal to this lowest marginal cost. The result holds because of the same assumptions: the ability of consumers to choose the cheapest good, homogeneous goods, enough market competition.&lt;/p&gt;&#xA;" OwnerUserId="4094" LastActivityDate="2016-08-19T16:30:42.203" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="13120" PostTypeId="2" ParentId="13037" CreationDate="2016-08-19T18:26:03.857" Score="3" Body="&lt;p&gt;No, the marginal cost curves are not necessarily the same for each firm in the market. However the values of marginal costs are.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To disprove the general claim that &quot;The marginal cost curve of each firm in a competitive market is the same&quot; we simply need to find one counter-example, such as the one given below:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose there are two firms in the market and the market inverse demand function is given by $P=7 - q^m = 7 - (q_1 + q_2)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here $P$ represents the price, $q^m$ the market supply and $q_1, q_2$ represent the respective supplies of the firms 1 and 2.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose the marginal cost curves for each firm are given by:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$MC_1 = 2q_1$,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$MC_2 = 4q_2$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that these are not the same! Since we are looking for a competitive equilibrium, the firms behave competitively and hence we must assume that they do not realize they have market power. Hence they each set:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$P = MC_i, \; i\in\{1,2\}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From this, solving for quantity we have the respective Supply functions of each firm:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$S_1 = q_1 = 0.5P$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$S_2 = q_2 = 0.25P$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Inserting these two supply functions into the inverse demand function we have:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$P=4$, $q_1=2$, $q_2=1$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this an equilibrium with perfect competition? Well we found it by combining Supply and Demand assuming perfectly competitive firms, so it must be. To verify:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$Market \; Demand = 7 - p = 3$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$Market \; Suppy=q_1 + q_2 = 3$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the market is indeed in equilibrium. Are both firms setting $P=MC$ as they should in perfect competition?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$MC_1 = 2*q_1 = 4 = P$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$MC_2 = 4*q_2 = 4 = P$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So indeed we have a market equilibrium with perfect competition and different marginal cost curves. QED&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note however that the values of the marginal cost curves at the equilibrium quantities are the same for each firm (and must be the same for each firm in equilibrium).&lt;/p&gt;&#xA;" OwnerUserId="5557" LastEditorUserId="5557" LastEditDate="2016-08-19T22:20:30.017" LastActivityDate="2016-08-19T22:20:30.017" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13121" PostTypeId="1" AcceptedAnswerId="13123" CreationDate="2016-08-19T23:59:54.687" Score="0" ViewCount="84" Body="&lt;p&gt;This was in Thinking Fast and Slow by Kahneman.&lt;/p&gt;&#xA;&lt;p&gt;He described a situation where someone might prefer A to B, and B to C, but then might prefer C to A (when A and C are directly compared to each other).&lt;/p&gt;&#xA;&lt;p&gt;I can't seem to remember the name of this bias or fallacy, and I looked in the book but wasn't able to find the passage.&lt;/p&gt;&#xA;&lt;p&gt;Anybody remember what it was?&lt;/p&gt;&#xA;&lt;p&gt;(The last time I posted a behavioral economics question on here, some people protested that it didn't belong here. For your information, Kahneman has a Nobel in Economics, so please take your objections to the Nobel Committee. Thank you and good day.)&lt;/p&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;Update: the term is: &amp;quot;Preference Reversal&amp;quot;&lt;/p&gt;&#xA;" OwnerUserId="4296" LastEditorUserId="4296" LastEditDate="2021-01-18T00:12:44.880" LastActivityDate="2021-01-18T00:12:44.880" Title="Need help identifying this cognitive bias or fallacy pointed out by Kahneman in Thinking Fast and Slow" Tags="&lt;behavioral-economics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="13122" PostTypeId="2" ParentId="13070" CreationDate="2016-08-20T00:08:10.027" Score="0" Body="&lt;p&gt;Remember that GDP is the total income produced in an economy, in addition to a measure of total production. It is usually easier for accounting purposes to think in terms of income.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So if a farmer grows some apples and sells them to a store that counts towards his income and toward GDP. Now suppose the store sells that apple to a customer. For simplicity, assume the store is owned by a single person. Then the store (presumably) made a profit on that apple so that sale also added to GDP. If instead the apple rots and the store fails to sell it then we never get that extra GDP but the farmer's income still counts.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If it sounds dumb that an apple no one eats counts toward GDP, remember that if the farmer ate the apple it wouldn't count. Or that if he poisoned the apple and sold it and killed someone that would count even more. GDP is not meant to measure the value of production in some general sense, so don't expect it to match your intuition.&lt;/p&gt;&#xA;" OwnerUserId="10165" LastActivityDate="2016-08-20T00:08:10.027" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13123" PostTypeId="2" ParentId="13121" CreationDate="2016-08-20T01:09:46.793" Score="5" Body="&lt;p&gt;When this event occurs it is known as a failure of &quot;transitivity&quot; of preferences.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Transitive preferences are such that for every  X,Y,Z, if X is preferred to Y and Y is preferred to Z then X must be preferred to Z. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Economists define rational preferences as binary relations that are complete and transitive, meaning that we can compare everything and the comparisons are consistent. &lt;/p&gt;&#xA;" OwnerUserId="10155" LastEditorUserId="10155" LastEditDate="2016-08-20T04:03:37.423" LastActivityDate="2016-08-20T04:03:37.423" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13124" PostTypeId="1" CreationDate="2016-08-20T04:30:45.473" Score="0" ViewCount="34" Body="&lt;p&gt;I read that defence budget of the country is 2-3% of GDP, but isnt GDP  irrelevant when we are talking about expenditure? Shouldn't it be in a ratio of military import/total import?&lt;/p&gt;&#xA;" OwnerUserId="10167" LastEditorUserId="10173" LastEditDate="2016-08-21T15:45:31.203" LastActivityDate="2016-08-21T15:45:31.203" Title="Correct way to measure Defence budget of a country like India" Tags="&lt;macroeconomics&gt;&lt;finance&gt;&lt;international-trade&gt;" AnswerCount="1" CommentCount="2" ClosedDate="2016-08-22T20:08:19.907" ContentLicense="CC BY-SA 3.0" />
  <row Id="13125" PostTypeId="1" AcceptedAnswerId="13134" CreationDate="2016-08-20T04:41:44.647" Score="7" ViewCount="1064" Body="&lt;p&gt;It is standard in many micro textbooks when analyzing the relationship between preference axioms and the shape of the utility function (and consequently the shape of indifference curves), to attributed the &quot;non-thickness&quot; of indifference curves to &quot;local non-satiation&quot;.&#xA;While it is easily seen (and proven) that LNS preferences don't admit thick IC, my question is the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thick IC violate as well strict convexity (notice that weak convexity appears to &quot;survive&quot;), so, isn't convexity alone another property that prevents thickness? Put it differently, can we find non monotonic, convex preferences that don't admit thick IC? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If any proof or reference to relevant literature would be very useful.&lt;/p&gt;&#xA;" OwnerUserId="10166" LastEditorUserId="1601" LastEditDate="2018-11-18T22:59:03.170" LastActivityDate="2018-11-19T07:25:17.407" Title="Doesnt convexity prevent thick indifference curves aswell?" Tags="&lt;mathematical-economics&gt;&lt;utility&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="13128" PostTypeId="1" CreationDate="2016-08-20T11:55:36.213" Score="0" ViewCount="1011" Body="&lt;p&gt;Suppose that Sally’s preferences over baskets containing food (good $x$), and clothing (good $y$), are described by the utility function $u (x, y) = \sqrt{x} + y$. Sally’s corresponding marginal utilities are,&#xA;1&#xA;MU$_x=\frac{1}{2\sqrt{x}}$ and MU$_y=1$.&#xA;Use $p_x$ to represent the price of food, $p_y$ to represent the price of clothing, and $I$ to represent Sally’s income.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Question 1: Find Sally’s food demand function, and Sally’s clothing demand function. For the purposes of this question you should assume that $I/p_y \geq p_y/(4p_x)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm having a really tough time working out how to solve this problem and any kind of help would be much appreciated.&lt;/p&gt;&#xA;" OwnerUserId="10169" LastEditorUserId="11824" LastEditDate="2017-04-25T15:30:53.537" LastActivityDate="2017-04-25T16:15:31.223" Title="Consumer Theory (Finding demand functions)" Tags="&lt;consumer-theory&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13129" PostTypeId="2" ParentId="13128" CreationDate="2016-08-20T12:10:08.107" Score="1" Body="&lt;p&gt;First, your utility function is strictly increasing in both goods, so you know that your budget will bind so you can set I=pxx+pyx&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Second, your utility function is known as &quot;quasilinear&quot;, where the good y is linear in your utility and the other good is there in some increasing function not connected to y. That's why the marginal utility for y is just a constant.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, solve for x, where x is a function of prices, then plug that into the budget constraint to solve for y. y should be a function of prices and income. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since you showed some work:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Set the ratio of MUs to the ratio of prices: $MU_x/MU_y=p_x/p_y$, yielding a demand for $x=\frac{p_y^2}{4p_x^2}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now plug that into the budget, yielding the demand for $y= \frac{I}{p_y}-\frac{p_y}{4p_x}$&lt;/p&gt;&#xA;" OwnerUserId="10155" LastEditorUserId="10155" LastEditDate="2016-08-21T03:16:06.670" LastActivityDate="2016-08-21T03:16:06.670" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13130" PostTypeId="2" ParentId="13124" CreationDate="2016-08-20T12:41:58.167" Score="1" Body="&lt;p&gt;So the budget is simply measured by adding up all the expenses. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The comparison to GDP that you reference is that we can measure how 'intensive' that sector is in the economy by what size of the economic pie is spent on that sector. So a country could spend a seemingly large amount of money, but if their overall economy is large enough, the military spending to GDP ratio would be small, indicating that the country isn't too devoted to that sector. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/List_of_countries_by_military_expenditures&quot; rel=&quot;nofollow&quot;&gt;https://en.wikipedia.org/wiki/List_of_countries_by_military_expenditures&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As we can see in the link, India spends 2.3% and the US spend 3.3%, while the actual number is different by an order of magnitude. So the ratio gives us a way to compare across countries as the absolute numbers ignore a country's size. &lt;/p&gt;&#xA;" OwnerUserId="10155" LastActivityDate="2016-08-20T12:41:58.167" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13131" PostTypeId="2" ParentId="13125" CreationDate="2016-08-20T12:51:15.763" Score="4" Body="&lt;p&gt;Great question, never thought about this: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the main thing that LNS preferences get rid of is a satiation point, preventing the budget from binding in the consumer's problem. So there are tons of preferences that are non-monotonic, strictly convex, with a satiation point. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now a simple example of weakly convex with thick IC is indfference everywhere. So $\forall x,y\in X, x\sim y$. In this case the IC is all of $\mathbb{R}$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I agree with you on that strict convexity eliminates thick IC. I'm working on a proof but defining thick IC in mathmatical terms is tricky. However, just recall non-thick IC is not enough to guarantee LNS, so that's why strict convexity is not a substitute for LNS in major theorems like the 2nd Welfare Theorem. &lt;/p&gt;&#xA;" OwnerUserId="10155" LastActivityDate="2016-08-20T12:51:15.763" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13134" PostTypeId="2" ParentId="13125" CreationDate="2016-08-21T09:12:54.067" Score="8" Body="&lt;p&gt;My approach would be to define thick indifference curves in terms of a stronger form of local non-satiation:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;Definition (thick indifference curves)&lt;/strong&gt; Preferences are said to have thick indifference curves if there exists at least one bundle &lt;span class=&quot;math-container&quot;&gt;$A\in\mathbb{R}^l$&lt;/span&gt; and an open ball&#xA;  &lt;span class=&quot;math-container&quot;&gt;$\mathscr{B}(A)$&lt;/span&gt; around &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt; such that &lt;span class=&quot;math-container&quot;&gt;$A'\sim A$&lt;/span&gt; for &lt;em&gt;every&lt;/em&gt;&#xA;  &lt;span class=&quot;math-container&quot;&gt;$A'\in\mathscr{B}(A)$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Let's set up a definition for strict convexity to be sure we are on the same page:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;Definition (strict convexity)&lt;/strong&gt; Preferences obey strict convexity if&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$A\sim B\implies \lambda A+(1-\lambda) B\succ A\sim B$$&lt;/span&gt;&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;for &lt;span class=&quot;math-container&quot;&gt;$A,B\in\mathbb{R}^l$&lt;/span&gt; and any &lt;span class=&quot;math-container&quot;&gt;$\lambda\in(0,1)$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Now we can state the desired result:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;Proposition&lt;/strong&gt; If &lt;span class=&quot;math-container&quot;&gt;$\succsim$&lt;/span&gt; is strictly convex then &lt;span class=&quot;math-container&quot;&gt;$\succsim$&lt;/span&gt; does not have thick indifference curves.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Proof&lt;/strong&gt; Suppose that &lt;span class=&quot;math-container&quot;&gt;$\succsim$&lt;/span&gt; has thick indifference curves. Then there exists an &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt; such that &lt;span class=&quot;math-container&quot;&gt;$A'\sim A$&lt;/span&gt; for all &lt;span class=&quot;math-container&quot;&gt;$A'\in\mathscr{B}(A)$&lt;/span&gt;. Thus, fix two bundles &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$B$&lt;/span&gt; such that &lt;span class=&quot;math-container&quot;&gt;$A\sim B$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$B\in\mathscr{B}(A)$&lt;/span&gt;. We know that &#xA;&lt;span class=&quot;math-container&quot;&gt;$$\lambda A+(1-\lambda) B \in \mathscr{B}(A).$$&lt;/span&gt;&#xA;Thus, if the indifference curve is thick around point&lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt; we must have &lt;span class=&quot;math-container&quot;&gt;$\lambda A+(1-\lambda) B\sim A\sim B$&lt;/span&gt;. But this contradicts the strict convexity hypothesis. QED&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;That should do the job for strict convexity. As frage_man already pointed out, the proposition fails to hold generally under weak convexity. Indifference everywhere is a very elegant example why.&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2018-11-19T07:25:17.407" LastActivityDate="2018-11-19T07:25:17.407" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="13135" PostTypeId="2" ParentId="12098" CreationDate="2016-08-21T12:14:55.310" Score="1" Body="&lt;p&gt;So if we take a simple example with 2 goods and consider the consumer's problem:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$L=u(x,y)+\lambda(I-p_xx-p_yy)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This yields the ratio of FOC:&#xA;$u_1/u_2=p_x/p_y$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now plugging these guys into the budget:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$I=p_xu_1^{-1}(u_2p_x/p_y)+p_yy$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A sufficient condition is $u_1^{-1}$ be hod -1 to make $p_x$ drop out. But I don't think it's necessary. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now I'm not exactly sure what that means (the inverse of the marginal utility of a good is homogeneous of degree -1), but a great thing to think about. &lt;/p&gt;&#xA;" OwnerUserId="10155" LastActivityDate="2016-08-21T12:14:55.310" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13136" PostTypeId="2" ParentId="13064" CreationDate="2016-08-21T12:28:39.997" Score="1" Body="&lt;p&gt;So the phenomena you've identified is linked to a goods being labor intensive or not. Often ``craft'' goods required high-quality labor (think watches) to be built, while lower quality goods can be made using machinery. Now farming of all kinds used to be very labor intensive, but technology has replaced most of those workers. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the substitutability of a worker matters a lot here and the skills that luxury goods need may be less substitutable. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another factor is that when the good is more expensive, cutting costs (such as labor) at the potential expensive of quality is not always a goods idea - think how often you see ``handcrafted'' or pictures of the people working on the farm on organic products. &lt;/p&gt;&#xA;" OwnerUserId="10155" LastActivityDate="2016-08-21T12:28:39.997" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13137" PostTypeId="2" ParentId="12994" CreationDate="2016-08-21T12:46:56.513" Score="1" Body="&lt;p&gt;So I think you've got it right on the $\Delta$ notation. So the difference in wages between those two periods normalized by the first period will give you something that we can call increase. The reason it's `average' is simply because W is an average. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To my knowledge, there is no popular equation with that name as &quot;average increase&quot; will be so context specific. &lt;/p&gt;&#xA;" OwnerUserId="10155" LastActivityDate="2016-08-21T12:46:56.513" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13138" PostTypeId="2" ParentId="13104" CreationDate="2016-08-21T17:51:12.913" Score="1" Body="&lt;p&gt;I would guess that this Is due to the variance that exists in the tool used to make predictions about unemployment in the economy known as  &lt;a href=&quot;https://en.wikipedia.org/wiki/Okun%27s_law&quot; rel=&quot;nofollow&quot;&gt;Okun's Law&lt;/a&gt;. As stated on wikipedia as:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The gap version of Okun's law may be written (Abel &amp;amp; Bernanke 2005) as:&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;${{\displaystyle (Y-{\overline {Y}})\over{\overline {Y}}}=c(u-{\overline {u}})}$&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;where&lt;/p&gt;&#xA;  &#xA;  &lt;ul&gt;&#xA;  &lt;li&gt;${\displaystyle Y}$ is actual output&#xA;  &#xA;  &lt;ul&gt;&#xA;  &lt;li&gt;${\overline {Y}}$ is potential GDP&lt;/li&gt;&#xA;  &lt;li&gt;${\displaystyle u} $ is actual unemployment rate&lt;/li&gt;&#xA;  &lt;li&gt;${\displaystyle {\overline {u}}}$ is the natural rate of unemployment&lt;/li&gt;&#xA;  &lt;li&gt;${\displaystyle c}$ is the factor relating changes in unemployment to changes in output (Econ John: This is also known as the &quot;Okun Coefficient&quot;)&lt;/li&gt;&#xA;  &lt;/ul&gt;&lt;/li&gt;&#xA;  &lt;/ul&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;From the &lt;b&gt;Usefulness&lt;/b&gt; section on wikipedia&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;i&gt;Through comparisons between actual data and theoretical forecasting, Okun's law proves to be an invaluable tool in predicting trends between unemployment and real GDP. However, the accuracy of the data theoretically proved through Okun's law compared to real world numbers proves to be generally inaccurate. This is due to the variances in Okun's coefficient. Many conclude that information proved by Okun's law to be acceptable to a certain degree. Also, some findings have concluded that Okun's law tends to have higher rates of accuracy for short-run predictions, rather than long-run predictions. Forecasters have concluded this to be true due to unforeseen market conditions that may affect Okun's coefficient.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;As such, Okun's law is generally acceptable by forecasters as a tool for short-run trend analysis between unemployment and real GDP, rather than being used for long run analysis as well as accurate numerical calculations.&lt;/i&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Hope this helps.&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="8815" LastEditDate="2016-08-26T22:10:54.753" LastActivityDate="2016-08-26T22:10:54.753" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13139" PostTypeId="1" AcceptedAnswerId="13148" CreationDate="2016-08-22T05:11:49.497" Score="4" ViewCount="266" Body="&lt;p&gt;There are many papers use bootstrap standard error when they do econometrics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question are:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;why do we need bootstrap standard error?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;when to use it?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="6255" LastEditorUserId="6255" LastEditDate="2016-08-22T13:56:52.853" LastActivityDate="2016-08-23T06:57:01.927" Title="When shall I use bootstrap standard error?" Tags="&lt;econometrics&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13142" PostTypeId="1" CreationDate="2016-08-22T16:53:26.243" Score="3" ViewCount="254" Body="&lt;p&gt;I am reading &lt;em&gt;Dynamic scoring: A back-of-the-envelope guide&lt;/em&gt; by Mankiv and Weinzierl (&lt;a href=&quot;http://www.people.hbs.edu/mweinzierl/paper/dynamicscoring.pdf&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;) and on page 1420, I don't get the FOC in equation $(10)$, which says $r=...$.&#xA;I do get the FOC with $v'(n)=...$ by using Lagrange. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I found the same FOC in a paper from Ferede (&lt;em&gt;Dynamic Scoring in the Ramsey Growth Model&lt;/em&gt;, &lt;a href=&quot;http://www.degruyter.com/view/j/bejeap.2008.8.1/bejeap.2008.8.1.1948/bejeap.2008.8.1.1948.xml&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;) and he says, that it &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;is obtained by combining the first order conditions of the utility&#xA;  maximization with respect to capital and consumption&lt;/em&gt; (page 5).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;But I only observe $\lambda=-c^{-\gamma}e^{gt(1-\gamma)}e^{(1-\gamma)v(n)}$ from the FOC w.r.t. consumption and $-\lambda[(1-\tau_k)r-g]=0$ from the FOC w.r.t. capital. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;How am I supposed to get $\dot{n}$ and $\dot{c}$ there?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Well let me show you, what I have got: The Lagrange-function is given by: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$L=\frac{1}{1-\gamma}[c^{1-\gamma}e^{gt(1-\gamma}e^{(1-\gamma)v(n)}-1]-\lambda [(1-\tau_n)wn + (1-\tau_k)rk - c - gk +T - \dot{k}]$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the FOC w.r.t. consumption is given by $\frac{\partial L}{\partial c}=c^{-\gamma}e^{gt(1-\gamma)} e^{(1-\gamma)v(n)}+\lambda=0$, while the FOC w.r.t. to capital is $-\lambda[(1-\tau_k)r-g]=0$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the equation for $\dot{\lambda}$ is based on the equation $\frac{\partial \lambda}{\partial t}=\frac{\partial \lambda}{\partial c} \frac{\partial c}{\partial t}$. And you are fully differentiating it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I hope someone can help me.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;NEW:&#xA;So again: $\lambda=e^{-pt}u'(c)$. So you are indeed right with your equation after your words &quot;Then substitute back in the FOC for consumption&quot;, but then you substitute it to the FOC wrt to k: $\dot{\lambda}=\lambda[g-(1-\tau)r]$, so we get $\gamma \dot{c}/c - (1-\gamma)(g+v'(n)\dot{n})+p=g-(1-\tau)r$, so that the signs don't fit anymore and this unfortunately leads to something else than equation $(10)$.&lt;/p&gt;&#xA;" OwnerUserId="10181" LastEditorUserId="4817" LastEditDate="2016-08-23T10:15:18.993" LastActivityDate="2016-08-23T10:15:18.993" Title="FOC for King–Plosser–Rebelo preferences" Tags="&lt;macroeconomics&gt;&lt;utility&gt;&lt;preferences&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13143" PostTypeId="2" ParentId="13142" CreationDate="2016-08-22T17:27:59.110" Score="1" Body="&lt;p&gt;So Lets use a present value Hamiltonian here:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$H=e^{-pt}u(c)+\lambda(\dot k)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;FOC:&#xA;wrt c: $0=e^{-pt}u'(c)-\lambda$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;wrt k: $-\dot\lambda=\lambda[(1-\tau)r -g]$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Take the FOC from consumption and differentiate wrt to time:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\dot\lambda =-\gamma c^{-\gamma-1}\dot c e^{-pt+gt(1-\gamma)}e^{(1-\gamma)v(n)}+c^{-\gamma}e^{-pt+ gt(1-\gamma)}e^{(1-\gamma)v(n)}[(1-\gamma)(g+v'(n)\dot n)-p]$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then substitute back in the FOC for consumption:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\dot\lambda =-\gamma c^{-1}\dot c\lambda +\lambda[(1-\gamma)(g+v'(n)\dot n)-p]$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then substitute this guy into the Foc for capital:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$g-(1-\tau )r=-\dot c/c\gamma+(1-\gamma)[g+v'(n)\dot n]-p$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;leading to: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$r(1-\tau)=p+(\dot c/c +g)\gamma+(1-\gamma)[-v'(n)\dot n] $&lt;/p&gt;&#xA;" OwnerUserId="10155" LastEditorUserId="10155" LastEditDate="2016-08-22T21:22:41.267" LastActivityDate="2016-08-22T21:22:41.267" CommentCount="12" ContentLicense="CC BY-SA 3.0" />
  <row Id="13145" PostTypeId="2" ParentId="11960" CreationDate="2016-08-22T20:11:57.370" Score="1" Body="&lt;p&gt;I would start with your generic&#xA;$$f(t,s) = t \times s$$&#xA;and, instead of add weights or factors to this, I would add other variables related to time and satisfaction like:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;boarding time as function of luggage management ($TL$) times baggage number ($B$), and time to go to seat row ($T_g$) vs time to actually sit ($T_s$) for the different seat types (Window, Mid, Aisle) per number of passengers ($N$)&lt;/li&gt;&#xA;&lt;li&gt;satisfaction as function of easiness of boarding ($E$) (think about the WilMA and families with little kids), functionality of luggage positioning ($F_b$), amount of distraction required ($D$) (e.g. boarding while listen to loud music or boarding while talking at the phone distract from the boarding and leads to errors).&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;A proposal can be&#xA;$$f(TL, Tg, Ts, W, M, A, N) = (TL\times B)+(TG\times N + \frac{N}{3}W + \frac{N}{3}M + \frac{N}{3}A)$$&#xA;$$f(E, Fb, D) = E \times Fb \times \frac{1}{D}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\mbox{boarding strategy score}=f(TL, Tg, Ts, W, M, A, N) \times f(E, Fb, D)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and I would start assigning weights while conducting some more simulations (I understood that Mythbusters example refers to single trials only for each strategy).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In my opinion, advantages / disadvantages are not coming from equations itself but from the methodology. Without more robust experimental data, all equations above, and even more factors, are arguable and contestable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I also would not add &quot;money&quot; in the model, but rather &lt;strong&gt;added value for the airline&lt;/strong&gt; vs &lt;strong&gt;added value for the passenger&lt;/strong&gt;, and things will easily escalate: you may find that keep people stuffed in tunnels and in line waiting to enter the aircraft, or waiting in airports for delays or flight cancellations, can increase exposition time for advertisement boards, therefore potential revenue for airport services, therefore ...utility functions of delays.&lt;/p&gt;&#xA;" OwnerUserId="10170" LastEditorUserId="4817" LastEditDate="2016-08-23T12:08:55.483" LastActivityDate="2016-08-23T12:08:55.483" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13147" PostTypeId="1" CreationDate="2016-08-22T23:29:53.203" Score="4" ViewCount="4115" Body="&lt;p&gt;I don't understand what the term &lt;code&gt;Gross National Saving&lt;/code&gt; is for. According to &lt;a href=&quot;https://www.cia.gov/library/publications/the-world-factbook/rankorder/2260rank.html&quot; rel=&quot;noreferrer&quot;&gt;the world factbook&lt;/a&gt;, it represents the following:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Gross national saving is derived by deducting final consumption expenditure from Gross national disposable income, and consists of personal saving, plus business saving, plus government saving, but excludes foreign saving. The figures are presented as a percent of GDP. A negative number indicates that the economy as a whole is spending more income than it produces, thus drawing down national wealth (dissaving).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This represents the sum of savings by person, company, and government. But what is this beneficial to? Is a country that has high GNS more stable in finance? When should one look at this statistics to gauge what? In financial stability, is this a better indication than national debt as a percent of GDP, the dependency rate on government bond, or something others?&lt;/p&gt;&#xA;" OwnerUserId="5432" LastActivityDate="2016-08-23T08:22:37.120" Title="What is the &quot;gross national saving&quot; for?" Tags="&lt;statistics&gt;&lt;definition&gt;&lt;economic-terms&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13148" PostTypeId="2" ParentId="13139" CreationDate="2016-08-23T06:57:01.927" Score="1" Body="&lt;p&gt;Normally, you use bootstrapping &lt;strong&gt;when you cannot derive a formula for the variance-covariance matrix of your estimator&lt;/strong&gt;. Since you do not have this formula, you cannot obtain the standard errors of parameters, and so your econometric analysis is very limited. In these cases, using bootstrapping is the only option available. This is common in complex, non-linear models.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Similarly, you do not &lt;strong&gt;need&lt;/strong&gt; them for those cases where you can derive robust, close-form formulas for the standard errors (as in OLS, or linear panel data models, or most of models found in most of textbooks). In this cases, you already have a formula which is asymptotically efficient, and bootstrapping would be redundant, and probably counterproductive if done incorrectly.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Notice that bootstrapping is not only useful for obtaining the standard errors of parameters. You can also bootstrap full tests. For example, you can bootstrap the Hausman test that compares RE versus FE. To go this way would imply a longer answer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a quick and hands-on introduction, check &lt;a href=&quot;http://cameron.econ.ucdavis.edu/musbook/mus.html&quot; rel=&quot;nofollow&quot;&gt;Cameron and Trivedi (2010)&lt;/a&gt;, Chapter 13.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2016-08-23T06:57:01.927" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13149" PostTypeId="2" ParentId="13147" CreationDate="2016-08-23T08:22:37.120" Score="1" Body="&lt;p&gt;The first point is that this is a flow statistic: it is the annual excess of income over consumption, in contrast to level statistics such as gross national debt which are largely accumulations of past flows.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As what gross national saving is for: it funds investment, which affects future income and thus future consumption.  Indeed, one of the tautologies of macroeconomics is that Savings = Investment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A low savings/GDP figure may indicate excessive consumption or insufficient  income.  It may lead to either inadequate domestic investment or the need to borrow from foreigners to fund domestic investment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A high savings/GDP figure may indicate insufficient consumption or excessive income.  It may lead to either unproductive domestic investment or the need to lend to foreigners to recycle the funds.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is no optimal figure for savings. Comparative figures for different countries and global trends over time are published, for example from the &lt;a href=&quot;http://data.worldbank.org/indicator/NY.GNS.ICTR.ZS?end=2014&amp;amp;start=1977&quot; rel=&quot;nofollow&quot;&gt;World Bank&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2016-08-23T08:22:37.120" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13150" PostTypeId="1" CreationDate="2016-08-23T09:44:14.343" Score="1" ViewCount="53" Body="&lt;p&gt;If it possible to have a local maximum when the Hessian is only negative semi-definite (i.e., there is one zero eigenvalue and all other eigenvalues are negative).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If not, what it the ultimate recourse to prove that a point is a local maximum is such cases?&lt;/p&gt;&#xA;" OwnerUserId="10174" LastActivityDate="2016-08-23T09:44:14.343" Title="Local maximum when Hessian is negative semi-definite?" Tags="&lt;optimization&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="13152" PostTypeId="1" AcceptedAnswerId="13154" CreationDate="2016-08-23T12:34:24.677" Score="0" ViewCount="36" Body="&lt;p&gt;I've be assigned a project on growth paradigms in US vs Sweden as part of my introductory course in econ. Can somebody please help me out with regression ideas? &lt;/p&gt;&#xA;" OwnerUserId="10186" LastActivityDate="2016-08-23T13:24:43.590" Title="Studying growth in US and Sweden, what variables should I watch out for in a regression?" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;econometrics&gt;&lt;mathematical-economics&gt;&lt;labor-economics&gt;" AnswerCount="1" CommentCount="1" ClosedDate="2016-08-23T19:51:28.397" ContentLicense="CC BY-SA 3.0" />
  <row Id="13153" PostTypeId="1" AcceptedAnswerId="13155" CreationDate="2016-08-23T13:02:17.977" Score="0" ViewCount="23" Body="&lt;p&gt;I would like to know how to find a Euro zone country real quarterly gdp growth, using the OECD database. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;We have &lt;a href=&quot;https://data.oecd.org/gdp/quarterly-gdp.htm#indicator-chart&quot; rel=&quot;nofollow&quot;&gt;Quarterly GDP&lt;/a&gt;, and &lt;a href=&quot;https://data.oecd.org/price/inflation-cpi.htm#indicator-chart&quot; rel=&quot;nofollow&quot;&gt;CPI&lt;/a&gt;. &#xA;How should I proceed?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If it's not possible, which database can I use to obtain it?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="118" LastActivityDate="2016-08-23T14:04:05.463" Title="Deflating GDP using OECD data" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13154" PostTypeId="2" ParentId="13152" CreationDate="2016-08-23T13:24:43.590" Score="0" Body="&lt;p&gt;&quot;Solow's Growth Accounting&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A first pass idea is what MIT's Bob Solow proposed many decades ago: to do a growth accounting exercise. You'd like to know how much physical capital changed and how much human capital changed and then with some assumptions or estimation of the relative importance of each of these then estimate how much total factor productivity changes. One way to do this is by running a regression of (log) output on (log) human capital, and (log) physical capital, for data from both the US and Sweden. The errors are the &quot;total factor productivty&quot; component or &quot;Solow residual&quot;....&lt;/p&gt;&#xA;" OwnerUserId="7593" LastActivityDate="2016-08-23T13:24:43.590" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13155" PostTypeId="2" ParentId="13153" CreationDate="2016-08-23T14:04:05.463" Score="0" Body="&lt;p&gt;That Quarterly GDP chart looks as if it is already the percentage change in real GDP (for example put &quot;Time&quot; on &quot;Annual&quot; and note that the effects of the 1973 and 1979 oil price shocks are negative rather than positive) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/xYLge.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/xYLge.png&quot; alt=&quot;https://data.oecd.org/gdp/quarterly-gdp.htm#indicator-chart&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2016-08-23T14:04:05.463" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13157" PostTypeId="2" ParentId="13094" CreationDate="2016-08-23T15:46:11.473" Score="4" Body="&lt;p&gt;Its possible, but, in principle, most non-financial companies use derivatives to &quot;hedge risk&quot;, rather than to &quot;bet&quot;. Hedging risk means that the firm will use derivatives to lower its chances of going bankrupt, for  example an oil company will buy a put option on its oil output, so that if the price of oil falls after the firm invested in producing it,  the firm can still sell the oil at a high price, and avoid bankruptcy. Other times, the bank is an intermediary in futures. futures allow a firm to sell its output forward in time, and another firm to buy the output forward in time. this &lt;em&gt;reduces the risk for both of the firms&lt;/em&gt;. Of course, selling or buying  forward reduces the  chance of making  it big if the prices improve in your favor.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, financial regulation forces banks to consider multiple possible future scenarios and their effects on their balance sheet. These exercises result in a measure of the riskiness of the bank, and in turn let authorities ask the bank to hold more capital or unwind some of its positions if has too much risk of some sort. The exercises include dramatic swings in commodity prices, unemployment, or the failure of large corporations, or large financial counter-parties. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are certainly some financial agents out there that hold tons of risk. They might be indeed betting on one view or another, but because of the regulatory environment, these can't be &quot;banks&quot;. This is very important, because if they are not banks, then their collapse does not then create contagion. A big investor looses his money, but if its not a deposit taking, (or similarly, a highly leveraged institution), then the losses, or gains, are in sense expected.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, although you are right in principle when you say that if banks stand in the middle between two firms and one of them goes bankrupt then the bank gets hit, regulation is meant to push banks away from risk. Also, the possible losses to the banks owners move them towards avoiding risk. And &quot;risk&quot; here includes the one that comes from their clients on one leg or another of a deal collapsing...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here's a more detailed analysis: &lt;a href=&quot;https://www.fas.org/sgp/crs/misc/R43087.pdf&quot; rel=&quot;nofollow&quot;&gt;Congressional Research Service article on Financial Regulation&lt;/a&gt;.&#xA;You could also do worse than by taking Nobel Prize winner Bob Shiller's  &lt;a href=&quot;http://oyc.yale.edu/economics/econ-252-11&quot; rel=&quot;nofollow&quot;&gt;online course&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="7593" LastEditorUserId="7593" LastEditDate="2016-08-26T13:25:39.973" LastActivityDate="2016-08-26T13:25:39.973" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13158" PostTypeId="2" ParentId="13026" CreationDate="2016-08-23T16:01:47.973" Score="1" Body="&lt;p&gt;I think it does not really work that way&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Going through your references:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;(Table 1 line 75) Reserve Assets: These are foreign assets held by the Federal Reserve or US Treasury for intervening in currency markets.  Since the US does not intervene, the small numbers are largely miscellaneous transactions related to IMF Special Drawing Rights&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;(Table 1 line 62) Direct Investment Assets: This is the closest as to what is going on.  Amounts sent out to buy or build the factory are counted here, as are later investments from non-repatriated income  &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;(Table 1 line 57) Imports and income payments - compensation of employees: this is payments for short term workers coming into the country and then going home, such as seasonal agricultural workers. If you had built your factory by sending short-term construction workers abroad to build it then their income might have counted as (Table 1 line 29) Exports and income receipts - compensation of employees &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;(Table 1 line 94) Other investment liabilities - currency and deposits: assuming your workers abroad are resident there and you pay them in US dollars (why?), then this increases this line, but if they then change this into their currency by transacting with you in the US it reduces it back again    &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I would have thought that a more natural set of transactions would be something like:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;You start with some US dollars for the investment which you change into Mexican pesos (increasing line 71 for you and either increasing line 94 or decreasing line 71 for somebody else depending on whether they are foreign)&lt;/li&gt;&#xA;&lt;li&gt;You use the pesos to buy some land in Mexico, buy construction supplies and hire construction workers (reducing line 71 but increasing line 62) so you end up with a factory in Mexico&lt;/li&gt;&#xA;&lt;li&gt;Now you have a factory in Mexico, your factory pays in pesos for workers resident and working in Mexico and for supplies, and receives revenues from sales.  Your factory's net profit or loss appears as Direct Investment Income (line 25), which if you do not repatriate it then also goes into further Direct Investment in your Mexican factory (line 62)  &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2016-08-23T16:01:47.973" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13159" PostTypeId="1" AcceptedAnswerId="13160" CreationDate="2016-08-23T16:38:44.807" Score="0" ViewCount="109" Body="&lt;p&gt;I have three currency pairs - USDEUR - 0.88, USDINR - 67.13 and EURINR - 75.88 , so simple math tells me that EURINR should be USDINR/USDEUR = 76.28 ...this is a fairly significant deviation from an exact conversion and i am sure i am forgetting something basic here. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Take the yen now and when i do a similar calculation USDJPY - 100.21 and USDINR - 67.13 and JPYINR - 0.67 ..result of USDINR/USDJPY gives me 0.6698 which is extremely close to the exchange rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Questions &lt;/p&gt;&#xA;&#xA;&lt;p&gt;a) what explains the difference in the first case? Is it because the factors impacting exchange rate between the pairs of countries are different ? (for e.g. US invests a lot more in India than Europe as a whole hence INR should be very reactive to changes in USD but not so for EUR ? )&lt;/p&gt;&#xA;&#xA;&lt;p&gt;b) How come there's a difference in the two cases shown? JPY seems to fit the equation rather nicely.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Apologies if this sounds confusing, I regret not paying attention to these classes in B school :( &lt;/p&gt;&#xA;" OwnerUserId="10187" LastEditorUserId="8481" LastEditDate="2019-09-02T13:26:39.243" LastActivityDate="2019-09-02T13:26:39.243" Title="Currency triplets - arbitrage opportunity?" Tags="&lt;currency&gt;&lt;exchange-rates&gt;&lt;foreign-exchange&gt;&lt;currency-peg&gt;&lt;arbitrage&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13160" PostTypeId="2" ParentId="13159" CreationDate="2016-08-23T18:03:31.240" Score="0" Body="&lt;p&gt;Think currency rate as simply the price, on the currencies market, of one currency in terms of another. But this is not a perfect market, so to answer your question with some concrete cases:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;even if you want to purchase at time T(price) a certain amount of currency at price P, it's not guaranteed that at the time T(transaction) the price is still P; market is open 24/7 with several transactions every minute that modify the price with &lt;strong&gt;rapid changes in supply/demand&lt;/strong&gt;;&lt;/li&gt;&#xA;&lt;li&gt;currency market is not like a grocery store where there are two actors, a price, a transaction, and calculations can be done on the back of the envelope. To sell / buy currencies you need to involve &lt;strong&gt;external agents&lt;/strong&gt; like banks and third-party agencies, all contributing to the final real price;&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;risk is not 0&lt;/strong&gt;: as per first bullet, events can cause currencies fall several points, and the losses should be considered in the real-rates model.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="10170" LastActivityDate="2016-08-23T18:03:31.240" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13161" PostTypeId="1" AcceptedAnswerId="13222" CreationDate="2016-08-23T18:11:51.583" Score="0" ViewCount="68" Body="&lt;p&gt;In an economics textbook, Modern Principles of Economics, the authors, Tyler Cowen and Alex Tabarrok, write that &quot;The Argentine government did not have enough U.S. dollars to keep up the value of the peg,&quot;(referring to the 1991 peg) almost suggesting that had they had enough US dollars that the peg would be kept. How does having more US dollars keep the value of the peso up?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the exchange rate of the Peso was dropping due to decreased demand(people were converting pesos to dollars), shouldn't the government buy a non-USD currency with pesos to reduce the supply and push the price up, keeping the peg intact. How does having &quot;enough&quot; US dollars solve that problem?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Clearly, looking at this from just one perspective, the exchange rate, is limiting in itself, but the sentence seems to suggests it was a possibility. I would appreciate it if anyone could explain the authors rationale. &lt;/p&gt;&#xA;" OwnerUserId="8648" LastEditorUserId="8648" LastEditDate="2016-08-24T13:48:33.893" LastActivityDate="2016-08-29T17:41:59.420" Title="How could having more US dollars solidified the 1991 Argentine peg to the US dollar?" Tags="&lt;exchange-rates&gt;&lt;currency-peg&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13162" PostTypeId="1" CreationDate="2016-08-23T22:14:36.627" Score="3" ViewCount="39" Body="&lt;p&gt;I'm doing some research on how education can change a consumers preference for a given good or service. Im looking for more research papers or books that discuss such a topic.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've looked around online a little bit and read &lt;a href=&quot;http://www.acrwebsite.org/volumes/9384/volumes/v04/NA-04&quot; rel=&quot;nofollow&quot;&gt;&#xA;The Effects of Consumer Education on Consumer Product Safety Behavior&lt;/a&gt; by  Richard Staelin, however I'm looking for more sources on the topic.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any suggestions?&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="8815" LastEditDate="2016-11-17T21:07:35.480" LastActivityDate="2016-11-17T21:07:35.480" Title="Sources on Educational intervention changing consumer preferences?" Tags="&lt;reference-request&gt;&lt;behavioral-economics&gt;&lt;education-economics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13164" PostTypeId="2" ParentId="13094" CreationDate="2016-08-24T04:14:48.143" Score="2" Body="&lt;p&gt;In addition to Fix. B's answers and in the answers to your earlier question, there are some other risk management techniques that banks do apply, like settlement-processes (mark-to-market), in which the they daily gains and lossess on each party are credited and charged. Compare, e.g., how forward and future contracts work. On future market there are clearinghouses that quarantee the performance of the both parties. And the contracts are standardized meaning that, in general, they are better understood than the non-standard ones. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, if you consider the sub-prime crises and AIG and the products that were used, you can make a conclusion that disasters can happen. There you had complex not-so-well understood (&quot;hidden&quot;) derivatives that were sold to parties that knew nothing about the products and their properties. Some people suspect that some of products were used consciously to get rid or at least hide some of the obvious risks that were taken on the basic money lending. After those events, the regulators around the globe have tightened the regulation and monitoring of the entities that use derivatives, leading to less risks in general (and some people say they tightened so much that some of the viable uses of certain classes of derivates have became difficult or even impossible).&lt;/p&gt;&#xA;" OwnerUserId="8988" LastActivityDate="2016-08-24T04:14:48.143" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13165" PostTypeId="1" CreationDate="2016-08-24T04:30:23.693" Score="2" ViewCount="156" Body="&lt;p&gt;For example, in the UK, after the Brexit vote, the Bank of England decided to lower reserve interest rates to 0.25%. This, as I understand it, has the knock on effect of lowering the interest rates of loans. If a government wants to borrow to fund particular investments, such as renewable energy, a new bridge, trains, etc, it would cost them less under the new, lower interest rate. So my question is, why aren't low interest rates the standard strategy for a government? Surely they would always want to borrow at cheaper prices?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can think of a few reasons but I'm not really sure if they're correct.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Savers would get annoyed and move their money to another currency.&lt;/li&gt;&#xA;&lt;li&gt;Ideological positions (neoliberalism/austerity instead of Keynesian economics)&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Seems like I'm missing something obvious here..&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Cheers!&lt;/p&gt;&#xA;" OwnerUserId="10192" LastEditorUserId="108" LastEditDate="2016-08-24T06:35:15.127" LastActivityDate="2017-04-21T14:10:53.410" Title="What stops a government in partnership with its central bank from lowering interest rates and then borrowing at this lower rate to fund investments?" Tags="&lt;macroeconomics&gt;&lt;monetary-policy&gt;&lt;interest-rate&gt;&lt;central-banking&gt;&lt;quantitative-easing&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13166" PostTypeId="2" ParentId="13165" CreationDate="2016-08-24T07:50:44.593" Score="0" Body="&lt;p&gt;The Bank of England lowering interest rates was a signal that the UK economic outlook over the next few years is weaker because of Brexit - the deflationary pressures have increased.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That also indicates that there's less yield to be had from Sterling investments.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Those same forces that led the Bank to lower its interest rate, and restart its programme of quantitative easing, have increased the value of any ultra-low risk Sterling yield. Such as gilts.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So it's &lt;em&gt;not&lt;/em&gt; the case that lowering the Central Bank rate has directly made government borrowing cheaper. But rather, the same forces that led to the rate reduction, have also increased the value of gilts, and thus reduced their yield. Their yield is the rate the government can borrow at, to fund investments.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The government isn't borrowing from the Central Bank to fund investments.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And the infrastructure investment outlook in the UK has got worse, not better, because Brexit means the UK will (probably) no longer have access to cheap loans from the European Investment Bank, nor other EU infrastructure funds.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2016-08-24T07:50:44.593" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13167" PostTypeId="1" CreationDate="2016-08-24T07:57:44.353" Score="0" ViewCount="122" Body="&lt;p&gt;I'm (very) new to economics, taking it as an introductory subject at the moment. I had a quick question regarding labour markets and minimum wages imposed as a form of government intervention.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is it generally true that for most countries, the free market equilibrium outcome would result in a price below the price floor (hence there is a minimum wage?)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sorry if this is a stupid question, but I just wanted to make sure.&#xA;Thanks!&lt;/p&gt;&#xA;" OwnerUserId="10196" LastActivityDate="2016-08-30T00:34:28.893" Title="Equilibrium in a labour market and price floors" Tags="&lt;minimum-wage&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13169" PostTypeId="1" CreationDate="2016-08-24T11:14:29.327" Score="-3" ViewCount="117" Body="&lt;p&gt;I have a theory that monetary expansion by debt creation (banks loan money into existance in exchange for public debt) never leads to inflation. On the over hand any expansion (goverment buys back it's own debt) does indeed lead to inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Am I right? Please, provide details about the parts where you feel mistake resides.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;P.S. monetary expansion without debt creation (debt change is 0) leads to inflation too.&lt;/p&gt;&#xA;" OwnerUserId="10198" LastEditorUserId="10198" LastEditDate="2016-08-28T07:56:19.367" LastActivityDate="2016-08-30T07:33:05.070" Title="Can expansionary monetary policies with debt creation be inflationary?" Tags="&lt;money-supply&gt;" AnswerCount="2" CommentCount="16" ContentLicense="CC BY-SA 3.0" />
  <row Id="13170" PostTypeId="2" ParentId="13161" CreationDate="2016-08-24T14:49:33.823" Score="1" Body="&lt;p&gt;Simply having more dollars may have served two purposes. Firstly, more dollars would mean that the central bank could have bought more pesos and exerted some upward pressure on the exchange rate. Secondly, fixed exchange rates can fall because of expectations about the central bank's credibility to its peg. If the prevailing expectation is that the central bank does not have the resources (reserves) or the will to defend the peg, pesos will begin to be sold en masse in the expectation of a devaluation.&lt;/p&gt;&#xA;" OwnerUserId="8982" LastActivityDate="2016-08-24T14:49:33.823" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13176" PostTypeId="2" ParentId="13094" CreationDate="2016-08-26T11:02:16.417" Score="4" Body="&lt;p&gt;Financial intermediaries handle this issue with a few tools:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;strong&gt;Collateral and margin requirements&lt;/strong&gt;: When you sell a derivative to a intermediary you are required to post assets, in a quantity related to the size of the position and the risk of a large move in the derivative's value, in order to ensure that you are will be able to pay when required.&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;Credit risk management&lt;/strong&gt;: Management at intermediaries sets limits on how much derivative business can be done with an individual firm, related to its capacity to bear losses from capital and additional borrowing capacity.  This limit the losses from an individual counter-parties. &lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;Central counterparty clearing house (CCP) and novation&lt;/strong&gt;: CCPs can provide additional capital to make good on claims even if the counter party fails to do so. Central clearing can also make sure that situations like those where &lt;em&gt;A fails to pay B, who then fails to pay C, who then fails to pay A&lt;/em&gt; do no occur. So it can eliminate a lot of senseless defaults that generate real costs and collateral changing hands to not good purpose&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;Hedging&lt;/strong&gt;: When a derivative has substantial jump risk and that jump risk is difficult to measure it may be costly or difficult to have the right amount of collateral. In that case it may superior to just use other financial instruments to insure against the jump directly through position risk management (hedging). &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="69" LastActivityDate="2016-08-26T11:02:16.417" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13177" PostTypeId="1" CreationDate="2016-08-26T13:56:58.817" Score="0" ViewCount="146" Body="&lt;p&gt;Is the GNP a more realistic number or measure of national economic vitality regarding its citizenry/residents of the nation in question versus the GDP? &lt;/p&gt;&#xA;" OwnerUserId="10213" LastEditorUserId="1601" LastEditDate="2016-08-26T14:45:55.880" LastActivityDate="2016-08-29T17:13:43.287" Title="GNP v. GDP as a true measure of national vibrancy" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;" AnswerCount="2" CommentCount="2" ClosedDate="2016-09-04T21:15:34.250" ContentLicense="CC BY-SA 3.0" />
  <row Id="13178" PostTypeId="2" ParentId="6618" CreationDate="2016-08-26T15:43:19.147" Score="0" Body="&lt;p&gt;Face value is the value of the item immediately, without regard for the future.  For example, the &quot;face value&quot; of a $20 dollar bill is 20 dollars. I remember this because it is, literally, &lt;em&gt;written on the face of the money&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The present value includes a valuation of the future of that money. If I can use that \$20 bill to obtain something else, such as risk-free bonds, then the present value of that $20 bill can be much higher, it might be worth many times that initial face value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here's a simple formula showing one of the possible relationships between the two terms:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Present \ Value = \Sigma_{t=0}^{\inf} \ FaceValue * i ^ t $$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where t is the number of periods in the future you are looking, and i is the risk-free bond rate I mentioned already. If you have a sharp eye, you will notice we have assumed that people value all periods (today, tommorrow, etc.)  equally.  This is probably false, but simplifies things for now.  More complex assumptions are available, (and more complex formula!), but the idea remains the same.&lt;/p&gt;&#xA;" OwnerUserId="4185" LastActivityDate="2016-08-26T15:43:19.147" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13179" PostTypeId="1" CreationDate="2016-08-26T19:09:53.447" Score="1" ViewCount="512" Body="&lt;p&gt;If I have 1% of the world supply of US dollars, and I decide to sell all of them to buy Euros, how much should I expect the exchange rate to change? Is there some kind of empirically determined price elasticity of demand that I could use to predict this? I've tried looking this up but I haven't been able to find it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm also interested in the long run price elasticity of demand. Eg, how much should I expect my 1% USD sale to affect the price of USD in a year?&lt;/p&gt;&#xA;" OwnerUserId="10215" LastActivityDate="2016-08-26T20:40:00.947" Title="Short term and long term price elasticity of currencies" Tags="&lt;elasticity&gt;&lt;exchange-rates&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13180" PostTypeId="2" ParentId="537" CreationDate="2016-08-26T20:22:52.193" Score="1" Body="&lt;p&gt;The reason why the profit maximising condition is like that is because the monopoly is &lt;b&gt;Price Discriminating&lt;/b&gt; between those who are willing to pay at  $P_1$ and $P_2$ for $Q_1$ and $Q_2$ respectively.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This increases the area of producer surplus to an area greater than what it would be by charging $P_1$ and $P_2$ alone.&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2016-08-26T20:22:52.193" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13181" PostTypeId="1" CreationDate="2016-08-26T20:30:46.357" Score="-1" ViewCount="174" Body="&lt;p&gt;The newest trend in global finance is elite monetization, meaning monetization of all elite assets such as top corporations and municipalities. Central banks are buying the stocks and bonds of elite corporations. For example, in Japan a significant fraction of all the top companies (Sumitomo, Mitsui, Mitsubishi, Toyota, etc) is owned by the Bank of Japan. The US Fed just threatened to buy &quot;other asset classes&quot;, presumably meaning corporate bonds. To some extent the purchases are monetized, ie bought with newly created money, and to some extent they are made by borrowing from the public at negative interest rates. In other words the Japanese people are paying the Bank of Japan for the privilege of loaning them money to buy stocks and bonds. Of course, one could argue that they are not &quot;buying&quot; anything since it is printed or borrowed money, so you could argue it is a seizure of equity, not a genuine purchase.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The logical question is what is the end of this? Can all the governments of the world, just &quot;buy&quot; all the corporations of the world? What is the terminus ad infinitum?&lt;/p&gt;&#xA;" OwnerUserId="1448" LastActivityDate="2016-08-27T08:24:19.103" Title="Monetization of everything, where does it end?" Tags="&lt;macroeconomics&gt;&lt;monetary-policy&gt;" AnswerCount="1" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="13182" PostTypeId="2" ParentId="13179" CreationDate="2016-08-26T20:40:00.947" Score="-1" Body="&lt;p&gt;There is no way to predict that.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A &quot;price&quot; is just the level of the last transaction. What happens in the next transaction does not depend on the previous transaction. So if you sell dollars at 1.10 dollars per Euro, the next person to sell dollars might sell them at 1.12 or 1.08 or some other amount based on a myriad of factors. There is no way to predict what trades might occur in the future, just from knowing the trade you made in the present.&lt;/p&gt;&#xA;" OwnerUserId="1448" LastActivityDate="2016-08-26T20:40:00.947" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13184" PostTypeId="2" ParentId="12291" CreationDate="2016-08-26T21:50:49.967" Score="2" Body="&lt;p&gt;Depending of the accuracy you're looking at (stylized facts or estimated parameters), private database like &lt;a href=&quot;http://go.euromonitor.com/passport.html&quot; rel=&quot;nofollow&quot;&gt;http://go.euromonitor.com/passport.html&lt;/a&gt; may help you to support your theory. Some institutions grant access to them. Some industries (e.g. tobacco) have their info widespread.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A (non-exhaustive) list: &lt;a href=&quot;https://www.insead.edu/library/databases&quot; rel=&quot;nofollow&quot;&gt;https://www.insead.edu/library/databases&lt;/a&gt; &lt;/p&gt;&#xA;" OwnerUserId="4415" LastEditorUserId="4415" LastEditDate="2016-08-27T10:09:08.177" LastActivityDate="2016-08-27T10:09:08.177" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13185" PostTypeId="1" CreationDate="2016-08-26T21:51:42.303" Score="4" ViewCount="57" Body="&lt;p&gt;Hi Im looking for some books or articles or books on the basics of housing economics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where should I start?&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2020-05-06T10:24:03.957" Title="Reading list: Housing Economics" Tags="&lt;reference-request&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13186" PostTypeId="1" CreationDate="2016-08-26T22:50:04.937" Score="2" ViewCount="90" Body="&lt;p&gt;How would one go about modelling &quot;supply induced demand&quot; (SID) using the regular supply and demand model and how is SID different from price discrimination? &lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2016-08-26T22:50:04.937" Title="Modelling Supply Induced Demand" Tags="&lt;consumer-theory&gt;&lt;supply-and-demand&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13187" PostTypeId="2" ParentId="13181" CreationDate="2016-08-27T01:20:23.860" Score="2" Body="&lt;p&gt;Anyone can buy corporations as long as their money is good. That's as true for governments as it is for individuals. So as long as their money is good, they can pretty much buy what they like.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A country that carried on printing money would soon find it had inflation &amp;amp; currency depreciation. That is to say, it's money isn't as good as it used to be. So now, it needs more money to buy assets. That's the limiting factor, right there.&lt;/p&gt;&#xA;" OwnerUserId="44" LastEditorUserId="44" LastEditDate="2016-08-27T08:24:19.103" LastActivityDate="2016-08-27T08:24:19.103" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13188" PostTypeId="1" AcceptedAnswerId="13189" CreationDate="2016-08-27T05:34:26.987" Score="0" ViewCount="5854" Body="&lt;p&gt;Matthew has a utility function $U = \sqrt{XY}$ where X represents hot dogs and Y represents apples. He has an income of $20. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hot dogs cost \$1.00 and apples cost \$1.25&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Part (i) asks:&lt;/strong&gt; Matthew's utility fucntion implies that the marginal utility of apples is $0.5 \sqrt{\frac{X}{Y}}$ and the marginal utility of hotdogs is $0.5 \sqrt{\frac{Y}{X}}$. How many apples will he buy? How many hot dogs will he buy?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Part (ii) asks:&lt;/strong&gt; This year, the price of hot dogs rise to \$3 each while Mathew’s income is unchanged. Mathew’s father decides to help him by giving him a gift of \$20. Consider an indifference curve-budget line diagram with hot dogs on the x-axis and apples on the y-axis. After Mathew gets the \$20 gift, will his new budget line lie above, lie below, or pass through his initial optimum? Justify your choice. Will Mathew be better or worse off than he was last year?&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;What have I done?&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;I'm pretty stuck on this. There aren't really any similar examples from me to draw upon from our course literature. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Perhaps the formulas $\dfrac{MU_x}{MU_y} = \dfrac{P_x}{P_y}$ and $I = P_x \cdot x + P_y \cdot y$ might help.&lt;/p&gt;&#xA;" OwnerUserId="10220" LastEditorUserId="44" LastEditDate="2016-09-13T09:17:53.183" LastActivityDate="2016-09-13T09:17:53.183" Title="Utility function is given as $U = \sqrt{XY}$ find" Tags="&lt;microeconomics&gt;&lt;utility&gt;" AnswerCount="1" CommentCount="0" ClosedDate="2016-09-13T09:18:19.797" ContentLicense="CC BY-SA 3.0" />
  <row Id="13189" PostTypeId="2" ParentId="13188" CreationDate="2016-08-27T06:59:24.213" Score="0" Body="&lt;p&gt;Rather than write a complete answer, I am going to post a couple of hints that will hopefully get you underway.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;For part (i), note that&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;You have two equations: $\dfrac{MU_x}{MU_y} = \dfrac{P_x}{P_y}$ and $I = P_x \cdot x + P_y \cdot y$.&lt;/li&gt;&#xA;&lt;li&gt;Since we know $MU_x$, $MU_y$, $P_x$, $P_y$, and $I$, these two equations contain two unknowns.&lt;/li&gt;&#xA;&lt;li&gt;Usually, so long as we have at least as many equations as there are unknown variables, we can find the value of those variables by simultaneously solving the equations.&lt;/li&gt;&#xA;&lt;li&gt;the $x$ in $I = P_x \cdot x + P_y \cdot y$ is the quantity of hot dogs that you are asked to compute in part (i), so ultimately you are going to have to solve for the value of this variable.&lt;/li&gt;&#xA;&lt;li&gt;my suggestion would therefore be that you try substituting into your two equations all of the things whose value you know and then try solving for $x$.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Since a budget line is a straight line, it is characterised by an intercept, $c$, and a slope, $m$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you think about drawing this line geometrically then you should recognise that&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;the intercept is the amount of $y$ you could afford if you didn't buy any $x$ and spent all of your available money on $y$.&lt;/li&gt;&#xA;&lt;li&gt;the slope is the number of units of $y$ you would have to give up to save enough money to afford one more unit of $x$.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Once you know the slope and the intercept, you can write down the equation for your budget line, $y=mx+c$, and answering part (ii) is then just a matter of algebra.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2016-08-27T06:59:24.213" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13191" PostTypeId="2" ParentId="13177" CreationDate="2016-08-27T21:57:59.603" Score="1" Body="&lt;p&gt;What used to be called GNP is now called &lt;em&gt;Gross National Income&lt;/em&gt; (GNI) as being more descriptive of what it is measuring.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So GDP measures what is produced in a year while GNI measures incomes in a year, with the difference being some cross-border flows of money unrelated to exports and imports of goods and services.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Personally I prefer GDP as it reflects what is happening in a country, but it depends on what you regard as &lt;em&gt;vitality&lt;/em&gt;. &lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2016-08-27T21:57:59.603" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13192" PostTypeId="1" CreationDate="2016-08-28T02:10:24.083" Score="3" ViewCount="483" Body="&lt;p&gt;I want to compare salaries of more than two countries. The data I am using is based on the Occupational Wages around the World (OWW) database. Let's say I want to look at the salaries of the nurse. The salaries are specified in US Dollars and not all of them are collected in the same year, so we have sort of an incomplete data. As an example:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Year: 2008, Country: Azerbaijan, Annual Salary (USD): 1678.15&lt;/li&gt;&#xA;&lt;li&gt;Year: 2007, Country: Singapore, Annual Salary (USD):  19523.57 (no 2008 data)&lt;/li&gt;&#xA;&lt;li&gt;Year: 2006, Country: China, Annual Salary (USD): 3338.208 (no 2008 or 2007 data)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;According to the author of the database (&lt;a href=&quot;http://www.nber.org/papers/w8058.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Freeman and Oostendorp&lt;/a&gt;), to compare living standards, we have to deflate wages using Purchasing Power Parity (PPP) instead of exchange rates for the US dollars (It seems to me that their data is in local currency, rather than in USD as the example above). However, it is not clear to me how we adjust these salaries to a common year, say 2009. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is it correct to do the following to my data above? Or is there a better way to compare salaries over countries and time to a common year? I use World Bank Indicator (&lt;a href=&quot;http://data.worldbank.org/indicator&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://data.worldbank.org/indicator&lt;/a&gt;) to compute things.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;First, we multiply the USD salary with their corresponding LCU/USD exchange rate [Indicator: &quot;Official exchange rate (LCU per US$, period average)&quot;]&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Then, we divide by the PPP-correction [Indicator: &quot;PPP conversion factor, GDP (LCU per international $)&quot;]&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;To adjust across time, then we multiply the result by ratio of GDP per capita, PPP between the common year (2009) and the year the data is collected (2008) [Indicator: &quot;GDP per capita, PPP (current international $)&quot;]&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;I would greatly appreciate any help.&lt;/p&gt;&#xA;" OwnerUserId="10222" LastEditorUserId="2776" LastEditDate="2017-09-19T10:26:01.463" LastActivityDate="2018-02-16T14:37:31.697" Title="How to adjust salaries of more than two countries to a common year given that the data was collected in different years?" Tags="&lt;wages&gt;&lt;purchasing-power-partity&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13193" PostTypeId="5" CreationDate="2016-08-28T02:22:16.487" Score="0" Body="" OwnerUserId="-1" LastEditorUserId="-1" LastEditDate="2016-08-28T02:22:16.487" LastActivityDate="2016-08-28T02:22:16.487" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13194" PostTypeId="4" CreationDate="2016-08-28T02:22:16.487" Score="0" Body="The informal sector, informal economy, or grey economy is the part of an economy that is neither taxed, nor monitored by any form of government. Unlike the formal economy, activities of the informal economy are not included in the gross national product (GNP) and gross domestic product (GDP) of a country." OwnerUserId="8815" LastEditorUserId="8815" LastEditDate="2016-08-30T13:13:38.097" LastActivityDate="2016-08-30T13:13:38.097" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13195" PostTypeId="2" ParentId="12803" CreationDate="2016-08-28T02:41:10.753" Score="0" Body="&lt;p&gt;Increasing the amount of government paperwork (Tax forms, Licensing etc.)  that is required to be filled out by a given firm in the industry in question, government inspection of work sites and an overall investment in the portion of the police force that handles civil law would seem to be the solution.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is what will make these industries formalised as they are now monitored by a government that will take action (ideally) when there is an issue.&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2016-08-28T02:41:10.753" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13197" PostTypeId="2" ParentId="13169" CreationDate="2016-08-28T12:49:46.423" Score="1" Body="&lt;p&gt;Any monetary expansion can be inflationary.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Inflationary pressures come about when there's more money chasing the same amount of goods and services; or the same money chasing fewer goods and services.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A monetary expansion means there's more money. If the amount of goods and services doesn't increase in proportion, then there will be inflation.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;I note that you've asked about inflation, but in your comments you've referred to the case of Zimbabwe, which wasn't just inflation, it was hyper-inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As the velocity of money tends to stay within quite a narrow range, then monetary expansion from faster circulation of currency isn't, in practice, going to lead to hyper-inflation: so hyper-inflation would - in reality - only come about from a rapid and sustained expansion of the monetary base by the Central Bank.&lt;/p&gt;&#xA;" OwnerUserId="44" LastEditorUserId="44" LastEditDate="2016-08-28T12:56:26.600" LastActivityDate="2016-08-28T12:56:26.600" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="13198" PostTypeId="1" CreationDate="2016-08-28T14:25:46.707" Score="2" ViewCount="67" Body="&lt;p&gt;Since trying to lower inflation will have some undesirable consequences, such as currency appreciation, which hurts exports, should governments and central banks keep hands off on inflation? &#xA;But exports would become uncompetitive anyway when inflation is high (as prices increase).&#xA;In a high inflation scenario, what should government or central bank do to protect exports (in an export dependent economy)?&lt;/p&gt;&#xA;" OwnerUserId="10230" LastEditorUserId="10230" LastEditDate="2016-08-28T14:34:43.803" LastActivityDate="2016-09-20T23:22:07.377" Title="Can a government or central bank work to reduce inflation without hiking interest rates and causing the currency to appreciate?" Tags="&lt;inflation&gt;&lt;interest-rate&gt;&lt;money-supply&gt;&lt;central-banking&gt;&lt;federal-reserve&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13200" PostTypeId="1" CreationDate="2016-08-28T16:46:53.790" Score="2" ViewCount="64" Body="&lt;p&gt;Shall we anticipate the regression result? Saying the coefficient sign . &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;If not, why?&lt;/li&gt;&#xA;&lt;li&gt;If so, what should we do when it fails to achieve anticipated results? &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="6255" LastEditorUserId="6255" LastEditDate="2016-08-29T04:44:10.540" LastActivityDate="2016-08-29T10:57:47.980" Title="Shall we anticipate regression results？" Tags="&lt;econometrics&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13201" PostTypeId="2" ParentId="13200" CreationDate="2016-08-28T17:15:34.357" Score="2" Body="&lt;p&gt;Saying what the theory predicts is a good idea as then we can make a testable hypothesis of the theory. Much of empirical economics is to test the validity of the theory. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If your result conflicts with the theory, then you can try to rectify the conflict or propose a better alternative. &lt;/p&gt;&#xA;" OwnerUserId="10155" LastActivityDate="2016-08-28T17:15:34.357" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13202" PostTypeId="1" AcceptedAnswerId="13203" CreationDate="2016-08-28T18:00:39.487" Score="1" ViewCount="143" Body="&lt;p&gt;I am trying to clearly explain to the concept of &quot;normalization&quot; or relative prices. Because students are so used to just think of prices in absolute terms, it is initially tough to make the leap to the &quot;relative&quot; or &quot;normalization&quot; concept.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is your angle if you were to explain this to an econ 101 student?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, the toughest part is to explain the &quot;need&quot; for looking at the ratio of prices. Who cares? Why is it useful?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks bunch.&lt;/p&gt;&#xA;" OwnerUserId="8560" LastActivityDate="2016-08-28T18:39:01.663" Title="Clearly explaining the concept of &quot;normalizing&quot; price and relative prices to undergraduate" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;consumer-theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13203" PostTypeId="2" ParentId="13202" CreationDate="2016-08-28T18:39:01.663" Score="1" Body="&lt;p&gt;I usually ask if they would rather get an IPhone or 5000 South African Rands (ZAR). You can also ask if 5000 ZAR is a good enough monthly salary. As we are far from that country usually no one has a clue about the currency exchange rate.  This way you can explain that the number in itself is meaningless, what matters is what you can exchange it for, i.e. relative prices matter.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2016-08-28T18:39:01.663" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13205" PostTypeId="1" AcceptedAnswerId="13220" CreationDate="2016-08-28T22:42:52.893" Score="1" ViewCount="274" Body="&lt;p&gt;its said that &quot;there is all-but-universal agreement that the adoption of restrictive trade policies was destructive and counterproductive and that similarly succumbing to protectionism in our current slump should be avoided at all cost.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, doesn't that depend on your net exports? so if more is leaking from your economy, than is being injected, protectionism is a good strategy, right?&lt;/p&gt;&#xA;" OwnerUserId="10238" LastActivityDate="2016-08-29T16:34:25.307" Title="Why was protectionism considered bad in the great depression?" Tags="&lt;gdp&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13206" PostTypeId="1" CreationDate="2016-08-29T00:37:33.017" Score="6" ViewCount="1029" Body="&lt;p&gt;If I have information that an asset will increase or decrease in value, I can profit on that information by buying or shorting the asset. Why, then, would anyone trade derivatives when they can just profit by directly trading the asset? How does this work from a theoretical perspective (game theoretic, etc)? This is a very simple question, I'm not sure if this is the right place for it, but thought I would try asking.&lt;/p&gt;&#xA;" OwnerUserId="10239" LastActivityDate="2016-09-11T00:38:52.727" Title="Why do people trade derivatives?" Tags="&lt;stock-market&gt;" AnswerCount="4" CommentCount="5" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13207" PostTypeId="2" ParentId="12765" CreationDate="2016-08-29T00:46:36.117" Score="1" Body="&lt;p&gt;Yes, we can model this as a choice under uncertainty, where the distribution is over the set of prices the consumer may face. The consumer could have an expected budget with expected demands and you would need to allow the consumer to go into debt if prices are higher than their wealth (think a quasilinear environment). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The second part, where the consumer doesn't know the other competing firms can also be modeled with uninformed consumers vs informed consumers, where firms compete on price over those kinds of consumers. The informed choose better option, the uninformed just choose the same regardless. &lt;/p&gt;&#xA;" OwnerUserId="10155" LastActivityDate="2016-08-29T00:46:36.117" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13208" PostTypeId="2" ParentId="13206" CreationDate="2016-08-29T02:27:32.557" Score="4" Body="&lt;p&gt;Here's a very practical example:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Case 1: Say I have a stock worth \$50 bucks that is relatively stable but fluctuates by a dollar or two every day. I buy a 50 call options (the right to buy it) at \$55 for 1.00 each.    The next day I find to my surprise the stock has risen to 57 dollars.  I cash in all my options for the price of 2.00 each (57-55).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I had 50.00 to invest, I bought 50 options, cashed them in for \$100, net gain of \$50.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Case 2: Alternatively, I could have bought a single share. If it rises to 57, I have made \$7.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Summary:&#xA;Options have much higher possible returns.  Note in case 1, if the price had only risen to \$54, the options would be worthless.  Such is life.&lt;/p&gt;&#xA;" OwnerUserId="4185" LastActivityDate="2016-08-29T02:27:32.557" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13209" PostTypeId="1" CreationDate="2016-08-29T03:18:25.657" Score="1" ViewCount="730" Body="&lt;p&gt;if you have a quasi linear utility function, for example $U(l,c)=c-l^{1+γ}/(1+ γ)$ the supply function of &lt;em&gt;l&lt;/em&gt; is inelastic right? But can we extend this argument and say that any quasi linear function is going to give you an inelastic function of the non lineal good?&#xA;Forgot to mention the production function. But this is the function $y(l)=A(l)^{1-a}$. A is the productivity &#xA;So if you take the efficiency condition  you get that $l=(A(1-a))^{1/(a+γ)}$&#xA;Thank you.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you.&lt;/p&gt;&#xA;" OwnerUserId="10240" LastEditorUserId="10240" LastEditDate="2016-08-30T04:37:45.893" LastActivityDate="2017-03-28T15:50:49.697" Title="quasi linear utility function" Tags="&lt;mathematical-economics&gt;" AnswerCount="2" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="13210" PostTypeId="2" ParentId="13206" CreationDate="2016-08-29T09:21:52.223" Score="3" Body="&lt;p&gt;People trade derivatives because they believe that they will be better off if they do trade them, than if they don't.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There can be lots of different reasons for that belief. Here are some.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;For many day traders, it's simply because they're deluded. It's an erroneous belief, brought about by a combination of various cognitive biases: over-confidence in their own judgement; only looking for evidence that supports their prior beliefs; believing that their wins are a result of internal factors (e.g. their own judgement) whereas their losses are a result of external factors (e.g. it was an unlucky day, or freak circumstances acted against them); and so on.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;They have a loss function (cost function) that's sufficiently different to the rest of the market, so that they don't need to &lt;em&gt;beat&lt;/em&gt; the market, in order to improve their returns &lt;em&gt;by the standard of their own loss function&lt;/em&gt;. Perhaps they already have exposure to the underlying instrument, and need to hedge off some of that exposure; for example, a company that has its income in one currency, and its outgoings in another, may want to hedge the exchange rate between those currencies.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;They want to gamble for the reward of gambling, and derivatives offer an appealing combination of leverage and exposure. This may represent some combination of (1) and (2).&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="44" LastActivityDate="2016-08-29T09:21:52.223" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13211" PostTypeId="2" ParentId="13205" CreationDate="2016-08-29T10:08:55.690" Score="3" Body="&lt;p&gt;Net exports aren't in and of themselves a bad thing; they should just be a transitory phenomenon. A prolonged export imbalance should just lead to an exchange rate adjustment which fixes the imbalance.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Protectionism on the whole, in general, leaves all sides worse off. David Ricardo documented it very well; and it wouldn't surprise me if there were proverbs in all the major ancient civilisations to the same effect.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are exceptions: for example, infant industries typically need protection during their vulnerable early years, so that they can reach sufficient maturity that they can thrive under international competition.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, that's different to the general protectionism that does get proposed at times of deep slump - the Long Depression, the Great Depression, and the current (2008-now) slump: then, it's one of the (socially and economically) worst options, but does appeal to the masses when they're desperate for an &quot;other&quot; to blame, and for easy answers to complex questions.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2016-08-29T10:08:55.690" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13212" PostTypeId="2" ParentId="13200" CreationDate="2016-08-29T10:57:47.980" Score="1" Body="&lt;p&gt;If you have prior beliefs, there are well-established ways to incorporate them into your analysis.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The traditional way is to reinterpret your analysis, or look for additional data to back up your prior beliefs. This is very poor science, but sadly it's incredibly common. So you'll always have the excuse of there being plenty of precedents in the literature. There are &lt;a href=&quot;http://andrewgelman.com/2013/08/04/19470/&quot; rel=&quot;nofollow&quot;&gt;specific conditions&lt;/a&gt; required for linear regression to be valid, but most people using it, will never bother testing whether they apply before wading in. Don't be &quot;most people&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The rigorous way, the scientific way, to do it is to incorporate your prior beliefs into your analysis from the beginning; so use something such as &lt;a href=&quot;http://datascienceplus.com/bayesian-regression-with-stan-part-1-normal-regression/&quot; rel=&quot;nofollow&quot;&gt;Bayesian regression&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As &lt;a href=&quot;http://andrewgelman.com/2015/03/29/bayesian-frequentist-regression-methods/&quot; rel=&quot;nofollow&quot;&gt;Andrew Gelman says&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;when data are weak and there is strong prior information that is not being used, classical methods can give answers that are not just wrong &amp;mdash; that’s no dealbreaker, it’s accepted in statistics that any method will occasionally give wrong answers  &amp;mdash;  but clearly wrong, obviously wrong. Wrong not just conditional on the unknown parameter, but conditional on the data. Scientifically inappropriate conclusions.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="44" LastActivityDate="2016-08-29T10:57:47.980" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13214" PostTypeId="1" CreationDate="2016-08-29T12:38:13.843" Score="4" ViewCount="416" Body="&lt;p&gt;I was trying to find some kind of survey of the empirical literature on the evidence of firms operating under rising marginal costs. Recently I was in contact with Alan Blinder's 1998 book &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0871541211&quot; rel=&quot;nofollow&quot;&gt;Asking About Prices: A new Approach to Understand Price Stickeness&lt;/a&gt; and the book shows a research on firms mentioning that they operate mostly under falling or constant marginal costs (in USA, almost 90% of them).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;While I can raise some issues regarding the research, such as being the product of answers from the firms or that marginal costs are often not observed and must be estimated, I could not find a survey of the literature confirming this assumption (the evidence for behavior under rising marginal costs). Would anyone know where to begin?  &lt;/p&gt;&#xA;" OwnerUserId="4640" LastEditorUserId="1601" LastEditDate="2016-08-29T13:45:49.607" LastActivityDate="2016-09-23T04:21:41.293" Title="Rising Marginal Costs: where is the empirical evidence?" Tags="&lt;microeconomics&gt;&lt;reference-request&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13215" PostTypeId="1" CreationDate="2016-08-29T13:52:04.290" Score="2" ViewCount="88" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Max buys two goods, apple and ketchup. We do not observe his preference but we know it satisfies the three assumptions, completeness, transitivity, and more is better. And as usual, we know his preference does not change with prices or income. Furthermore, we know Max seeks to maximize his utility. Initially, Max’s income is \$40, the price of apple is \$4 and the price of ketchup is \$4, and Max chooses 3 units of apples and 7 units of ketchup to maximize utility. Let A denote this basket. Consider basket B that contains 5 units of apples and 3 units of ketchup. Suppose the price of ketchup becomes \$1.5 and Max’s income becomes \$24.5, while the price of apple remains at \$4. Given the new price and income, is it possible for basket B to be the optimal choice of Max? Briefly explain.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;For this question, I drew out the initial and new budget lines. I introduce a new point C (5 units of apples and 5 units of ketchup). Can I say that B cannot be the optimal choice because if we assume by contradiction that B is indeed the optimal choice, then B&gt;C although C is cheaper. However, since the assumption more is better is satisfied, C&gt;B which is a contradiction. Thus, B cannot be an optimal choice. Is my reasoning incorrect?&lt;/p&gt;&#xA;" OwnerUserId="10244" LastEditorUserId="2776" LastEditDate="2017-08-21T07:48:56.353" LastActivityDate="2017-08-21T07:48:56.353" Title="Comparing baskets of goods in this exercise" Tags="&lt;consumer-theory&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13217" PostTypeId="2" ParentId="13215" CreationDate="2016-08-29T14:53:12.050" Score="2" Body="&lt;p&gt;So we are told that bundle A (3,7) is optimal at prices p=(4,4) with wealth w=40&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider bundle B (5,3) at prices (4,1.5) with wealth 24.5&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By Weak Axiom of Revealed Preference (WARP), we know that if both bundles are affordable under both sets of prices and wealth, and we chose A when B was available, then A is revealed preferred to B.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Both A and B are affordable under those price wealth pairs, so B cannot be optimal. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What you did graphically is equivalent to the math.&lt;/p&gt;&#xA;" OwnerUserId="10155" LastEditorUserId="6168" LastEditDate="2016-11-27T16:57:09.300" LastActivityDate="2016-11-27T16:57:09.300" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13218" PostTypeId="2" ParentId="13169" CreationDate="2016-08-29T15:39:55.377" Score="0" Body="&lt;p&gt;I will attempt to answer your question, but I feel like there is nothing left to answer. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider a mini-economy where the central bank loans 100USD to another bank B. Bank B will pay the central bank at a later stage 110 dollars-doesn't happen the next day it could take months. Now, the bank has more money so it is going to loan out that money for 99 in return and keeps 10. So, now another bank has 90 and loans out...process continues.(Loans have increased i.e. money creation) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Whoever is loaning out this money clearly has more money now, so they will buy more goods. Assume there is a bakery. At first, the bakery manager sees this as increased demand so he/she works harder and raises the prices, but when he/she goes elsewhere to buy goods like a supermarket, the prices have also increased because those other people bought from there and raised the price. Now at some point the bank has to pay back the $110 dollar(the other banks as well, but with inflation paying off loans becomes harder) but inflation has already struck. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Most prices are sticky especially when decreasing, so you are stuck. On top of that, inflation and expectations can affect the velocity and the real GDP which can perpetuate the inflation even more. So, yes inflation can happen even with debt creation as I mentioned before. While money in circulation at the end does seem like its the same as the beginning; so much happens in between that it is incomplete to look at just two points in time.&lt;/p&gt;&#xA;" OwnerUserId="8648" LastEditorUserId="8648" LastEditDate="2016-08-30T07:33:05.070" LastActivityDate="2016-08-30T07:33:05.070" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13220" PostTypeId="2" ParentId="13205" CreationDate="2016-08-29T16:34:25.307" Score="3" Body="&lt;p&gt;Voluntary trade is inherently beneficial to both parties. The fact that it is voluntary means that there is never a circumstance where one side ends up worse off overall as a result of the trade, if they did then they would choose not to trade in the first place. The reason trade can be beneficial to both sides is due to comparative advantage.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, trade by its very definition creates an overall societal benefit when it occurs, and protectionism, which is simply preventing trade, removes that societal benefit and is inherently bad for society as a whole.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Trade can however create winners and losers, if the USA is very efficient at producing Corn and Japan is very efficient at producing electronics you can trade those goods (using money as an intermediary). Because the US market is now flooded with cheap electronics, electronic manufacturers in the US are going to go out of business, and vice-versa for corn producers in Japan. In the short term, lobbyists from the electronic manufacturers may demand a ban on trade with Japan or high tariffs to protect the U.S electronic manufacturers. Politicians who don't understand economics may cede to those demands and enforce tariffs which overall decrease social utility.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the long term however capital and labor from the electronics sector in the U.S will shift over to the corn producing sector creating more social benefit than there was before. It is part of the governments jobs to make this period as fast as possible by providing re-education and funding to shift labor and capital into the corn market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are two exceptions to this rule:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;To protect infant industries tariffs may be useful in allowing the infrastructure and technology to develop to a point where a local industry can compete internationally but these tariffs should be temporary and extremely limited.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;In the case of dumping, where a company subsidizes their exports to the point where they are artificially cheap in order to drive out international competitors before raising the price to monopolistic levels a tariff may be useful in preventing the dumping from allowing one nation to monopolize an industry. While this is rare, an example of it might be OPEC nations intentionally overproducing to drop the price of oil in order to drive out American oil producers in the fracking industry.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;In both of these cases in the short term the tariff still has lowered overall societal benefit from trade but in the long term may have fostered a situation which is better for the country either by allowing an industry to become efficient and competitive, or preventing a monopolist situation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In most cases however, free trade is the ideal state and maximizes social utility by ensuring that each individual country will produce the goods best suited to their workforce and capital, and lowering the price of goods produced for every country overall increasing total global production, and thus societal benefit. The great depression is an excellent example of where protectionism ruined an economy through tariffs such as the Hawley-Smoot Tariff.&lt;/p&gt;&#xA;" OwnerUserId="10245" LastActivityDate="2016-08-29T16:34:25.307" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="13221" PostTypeId="2" ParentId="13177" CreationDate="2016-08-29T17:13:43.287" Score="1" Body="&lt;p&gt;GNP (Gross national product) measures all of incomes of every citizen in a country. This means that if I as a citizen have a business outside of my home country my income from that business still applies to the GNP. GDP, which is the more common measure is the measure of all economic activity within a country's borders. Meaning that my income from my foreign company would not be counted towards GDP.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;GDP is generally used as the standard for economic activity because it provides a good look into what is going on within a country's borders, without potentially inflating economic activity of a country by looking at foreign investments.&lt;/p&gt;&#xA;" OwnerUserId="10245" LastActivityDate="2016-08-29T17:13:43.287" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13222" PostTypeId="2" ParentId="13161" CreationDate="2016-08-29T17:41:59.420" Score="1" Body="&lt;p&gt;For the central bank to decrease the currency supply and raise the value of the Peso they need something to buy up the currency with. They can't simply ask for donations of Pesos, they have to buy pesos using another currency which holds real value. The US dollar is generally the standard when it comes to those types of interactions, in the case of the Argentina the central bank simply didn't have enough dollars to buy pesos decreasing the money supply.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The other important point is that if I as an Argentinian citizen know I can exchange my peso for a US dollar at the pegged ratio I will be more confident that the Peso is worth the pegged rate in dollars. If the central bank is unable to exchange my currency at the pegged exchange rate I am unlikely to trust that exchange rate which devalues the Peso below the pegged rate.&lt;/p&gt;&#xA;" OwnerUserId="10245" LastActivityDate="2016-08-29T17:41:59.420" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="13223" PostTypeId="2" ParentId="13209" CreationDate="2016-08-29T18:46:52.347" Score="0" Body="&lt;p&gt;The supply function will be perfectly inelastic if it does not depend on the wage. Will this happen with quasilinear? If you substitute out $c=w(1-l)$ you will find the wage is in the labor supply function. You need a first order condition where the wage drops out, like in $u=cl$ . However if you have some exogenous wealth source in addition to your work, think $c=w(1-l)+\pi$, then this will no longer be the case. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The linear good in quasilinear absorbs all the wealth effects, but with labor/leisure, the other good is a source of the wealth so it behaves differently than with a typical consumer problem with exogenous wealth. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So if $c=wl$ then a sufficient condition for perfectly inelastic labor supply would be homogeneity of degree 1 in consumption. &lt;/p&gt;&#xA;" OwnerUserId="10155" LastEditorUserId="10155" LastEditDate="2016-08-30T00:30:05.170" LastActivityDate="2016-08-30T00:30:05.170" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13224" PostTypeId="1" AcceptedAnswerId="13225" CreationDate="2016-08-29T20:07:07.190" Score="5" ViewCount="784" Body="&lt;p&gt;In the book &lt;a href=&quot;https://www.amazon.ca/dp/B003PJ6UKC/ref=dp-kindle-redirect?_encoding=UTF8&amp;amp;btkr=1&quot; rel=&quot;noreferrer&quot;&gt;The Two-Income Trap: Why Middle-Class Parents Are Going Broke&lt;/a&gt;) by Warren and her daughter, she states the following in chapter 1: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;If two-income families had saved the second paycheck, they would&#xA;  have built a different kind of safety net—the kind that comes from&#xA;  having plenty of money in the bank. But families didn't save that&#xA;  money. Even as millions of mothers marched into the workforce, savings&#xA;  declined, and not, as we will show, because families were frittering&#xA;  away their paychecks on toys for themselves or their children. Instead,&#xA;  families were swept up in a bidding war, competing furiously&#xA;  with one another for their most important possession: a house in a decent&#xA;  school district. As confidence in the school system crumbled, the&#xA;  bidding war for family housing intensified, and parents soon found&#xA;  themselves bidding up the price for other opportunities for their kids,&#xA;  such as a slot in a decent preschool or admission to a good college.&#xA;  Mom's extra income fit in perfectly, coming at just the right time to&#xA;  give each family extra ammunition to compete in the bidding wars --&#xA;  and to drive the prices even higher for the things they all wanted.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Could someone provide some references for this? I'd like to see when this happened, and some evidence. And is this what economists call a &quot;bubble&quot;? &lt;/p&gt;&#xA;" OwnerUserId="10249" LastEditorUserId="69" LastEditDate="2016-08-29T20:29:43.207" LastActivityDate="2020-12-08T06:19:26.317" Title="The Effect of Two income Households on Housing Prices" Tags="&lt;housing&gt;" AnswerCount="3" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13225" PostTypeId="2" ParentId="13224" CreationDate="2016-08-29T20:19:54.563" Score="3" Body="&lt;p&gt;Todd Zywicki has tried to directly evaluate this claim. He finds that it housing prices and other costs are much lower than the increase in the tax burden. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Thus, taxes increase in the example by \$13,086. By contrast, annual&#xA;  mortgage obligations increased by only \$3690 and automobile&#xA;  obligations by \$2860 and health insurance \$620. Those increases are&#xA;  not trivial, but they are swamped by the increase in tax obligations.&#xA;  Too put this in perspective, the increase in tax obligations is over&#xA;  three times as large as the increase in the mortgage (the supposed&#xA;  driver of the &quot;two income trap&quot;) and about double the increase in the&#xA;  combined obligations of mortgage and automobile payments. This also&#xA;  leaves aside the peculiarity that the 2000s family is paying \$9670 in&#xA;  new child care and \$2860 in new automobile expenses supposedly to meet&#xA;  a \$3690 increase in mortgage expenses, the supposed driver of the&#xA;  model.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.volokh.com/posts/1185883980.shtml&quot; rel=&quot;nofollow&quot;&gt;Evaluating The Two-Income Trap Hypothesis&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Arnold Kling (&lt;a href=&quot;http://econlog.econlib.org/archives/2007/08/taxes_and_the_t.html&quot; rel=&quot;nofollow&quot;&gt;Taxes and the Two-Income Trap&lt;/a&gt;) notes that Zywicki's estimate doesn't include payroll taxes and therefore underestimates the change in tax burden. &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2016-08-29T20:19:54.563" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13226" PostTypeId="2" ParentId="13167" CreationDate="2016-08-30T00:34:28.893" Score="1" Body="&lt;p&gt;As VCG stated, no government would impose a minimum wage below what is the countervailing equilibrium wage. To do so would be pointless.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Do remember that undergraduate discussions on minimum wages using the comparative statics (lines on graphs basically) model are erroneous because labour markets do not clear.&lt;/p&gt;&#xA;" OwnerUserId="10251" LastActivityDate="2016-08-30T00:34:28.893" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13227" PostTypeId="2" ParentId="12867" CreationDate="2016-08-30T02:34:06.907" Score="0" Body="&lt;p&gt;The payoff from ethics education is difficult to measure, but let's consider notable failures of ethics and suppose some of these were preventable - the prevented damages would be gains from teaching ethics. For example, a certain car company knew that one of its parts were defective in many of its cars, but determined that it would be cheaper to let people die and pay off the insurance claims than to recall the cars and have the parts fixed. We suppose an ethically educated person would see that solving the unconstrained profit maximization (ie without regard to human life) is absurd, and so a number of people's lives are saved.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Do the lives saved outweigh the costs to shareholders? Who can really answer such a question? Economic value is not really a great framework to discuss such topics, since the values of some quantities are undefined or arbitrary.&lt;/p&gt;&#xA;" OwnerUserId="7303" LastActivityDate="2016-08-30T02:34:06.907" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13229" PostTypeId="2" ParentId="13206" CreationDate="2016-08-30T03:50:43.853" Score="6" Body="&lt;p&gt;There are number of reasons to use derivatives. How practical the following are? It, in turn, depends on the costs compared to the importance (utility) of the case. The costs can be substantial.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;Hedging purposes&lt;/strong&gt;, which comes in many forms. E.g. when you buy stocks in foreign currency, you may want to take only the equity risk, not currency risk. Or you buy a fund or etf that comes with country or industry risk that you want to get rid off. Or you believe equity in the long run but don't like the volatility, so you (try to) hedge volatility away. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;Limit controlling&lt;/strong&gt;. E.g., if you are working in asset management industry and take care of funds of customers, the portfolio should have set limits: the derivatives may give you an easy way to comply with limits (&quot;you are happy with the instruments you have chosen to your portfolio and want to keep them but without derivatives, say the minimum amount of equity risk would not be attained&quot;). &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;Leveraging a (sub-)portfolio&lt;/strong&gt;. &quot;Sometimes you cannot apply loans. But want to have more exposure than is otherwise possible.&quot;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;Bearing a particular type of risk&lt;/strong&gt;, e.g., you may believe that volatility is going to increase from the current level. This particular example can work as a hedge to your portfolio at the same time, since usually the increase of volatility means that portfolio performs badly. Moreover, this is an example of risk that is hard to get in to your portfolio without derivatives.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;Quick change of allocation&lt;/strong&gt; for tactical reasons. Say, evolving crisis either forces you to move quickly, e.g., because of limits as in case 2, or because of the capacity to bear risk (economic reason). And this case includes also the panic moves.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Sometimes, there are other motives behind applying derivatives that somehow build upon the first four cases. E.g. you have a complex company structuring case in your hand and you may have to &lt;strong&gt;transfer&lt;/strong&gt; particular types of &lt;strong&gt;risk&lt;/strong&gt; from one party to the other. To the other this is hedging and to the other risk taking: the derivative use could be classified to be &lt;strong&gt;&quot;enablers&quot;&lt;/strong&gt; of transactions.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;In the spirit of previous case, derivatives can be used in &lt;strong&gt;product design&lt;/strong&gt;. E.g. some hedge funds promise to apply certain derivatives strategies. These products (hedge funds) may be targeted to professional investors and retail customer. Another example include index loans, typically marketed to retail customers, and may include exotic derivatives like binary options where the underlying is determined e.g. by the month end values of the last 12 months for a basket of securities. The motivation for options reduces to the first one listed above (hedging): the index loan may include a promise (&quot;a guarantee&quot;) that, say 95% of nominal will be preserved in every possible scenario to be faced. So hedging appears to be provided to customers.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&quot;Personal characteristics&quot; like willingness to gamble may apply as reason. These may reduce to the third item. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="8988" LastEditorUserId="8988" LastEditDate="2016-09-10T05:57:27.780" LastActivityDate="2016-09-10T05:57:27.780" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13231" PostTypeId="1" AcceptedAnswerId="13241" CreationDate="2016-08-30T05:56:42.077" Score="0" ViewCount="528" Body="&lt;p&gt;Consider a simple closed economy model where &lt;strong&gt;Y = C + I + G&lt;/strong&gt;, consumption is given by the function &lt;strong&gt;C = 100 + 0.5 (Y - T)&lt;/strong&gt;, investment is &lt;strong&gt;I = 50&lt;/strong&gt;, government purchases are &lt;strong&gt;G = 20&lt;/strong&gt;, and the government’s &#xA;budget is balanced. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;How do I work out what tax is, to work out the amount of autonomous spending? Is there something obvious I'm missing?&lt;/p&gt;&#xA;" OwnerUserId="10255" LastEditorUserId="2776" LastEditDate="2016-09-04T00:49:13.490" LastActivityDate="2016-09-04T00:49:13.490" Title="Simple closed economy problem" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="1" ClosedDate="2016-08-31T09:02:40.807" ContentLicense="CC BY-SA 3.0" />
  <row Id="13232" PostTypeId="1" AcceptedAnswerId="13243" CreationDate="2016-08-30T09:55:39.390" Score="0" ViewCount="44" Body="&lt;p&gt;I read something similar to here, &lt;a href=&quot;http://www.businessinsider.com/onshore-and-offshore-renminbi-2014-2?IR=T&quot; rel=&quot;nofollow&quot;&gt;http://www.businessinsider.com/onshore-and-offshore-renminbi-2014-2?IR=T&lt;/a&gt;, paragraph 6, that demand for renminbi drives down cny bond market?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can understand how demand for bonds can drive the currency markets (because to buy local denominated bonds mean you have to purchase the currency) but I cannot understand how demand for the currency can drive the bond markets and to what extent this happens.&lt;/p&gt;&#xA;" OwnerUserId="5515" LastEditorUserId="5515" LastEditDate="2018-08-11T13:01:44.987" LastActivityDate="2018-08-11T13:01:44.987" Title="Renminbi demand and CNY rates" Tags="&lt;macroeconomics&gt;&lt;finance&gt;&lt;exchange-rates&gt;&lt;bonds&gt;&lt;china&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13233" PostTypeId="1" CreationDate="2016-08-30T11:43:14.453" Score="6" ViewCount="124" Body="&lt;p&gt;I'm aware there is a body of research concerned with measuring the returns to schooling in general, and there are theoretical pronouncements about what the most valuable things to learn at school are.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Have there been any empirical attempts to estimate the value of being taught specific skills - for example, phonics or solving algebraic equations?&lt;/p&gt;&#xA;" OwnerUserId="10260" LastEditorUserId="108" LastEditDate="2017-04-09T07:41:12.133" LastActivityDate="2017-04-09T08:06:00.373" Title="Have there been attempts to measure the value of specific taught skills?" Tags="&lt;expected-utility&gt;&lt;empirical-evidence&gt;&lt;education-economics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13234" PostTypeId="2" ParentId="11128" CreationDate="2016-08-30T13:54:48.563" Score="-1" Body="&lt;ol&gt;&#xA;&lt;li&gt;FairTax is not intended to increase or decrease the taxation rate, therefore costs of products should stay roughly the same.  For example, without income tax, a family might keep 10% more of their income and prices might fall 20%.  But then purchases are taxed at 30% and the net cost to a family remains the same.  The only exception is the cost of compliance, which would be eliminated (goodbye 70k pages of tax code), and would lower costs overall.  You can see more about this from a study conducted by Dale Jorgenson.  &lt;/li&gt;&#xA;&lt;li&gt;Laffer Curve applies, but again, the FairTax is not intended to increase or decrease taxes.  Therefore, the question of whether taxes should be increased or decreased for short term economic growth (or some other reason) is a question for taxation as a whole and is not related to the FairTax specifically.  FairTax rate may be increased or decreased by congress just as any other tax.&lt;/li&gt;&#xA;&lt;li&gt;Would the FairTax be a disaster? According to Arduin, Laffer, and Moore, the FairTax would result in &quot;Higher total economic output, More savings, Higher take-home pay for workers, Faster employment growth, Greater rewards to investing that directly lead to more capital formation, Lower mortgage rates and, consequently, beneficial impacts for the housing market, and, A more efficient and stable tax revenue system&quot; - &quot;the FairTax has a great deal to offer as a proposed tax replacement system and is a marked improvement over our current tax regime.&quot; &lt;a href=&quot;https://fairtax-structure-psyclone.netdna-ssl.com/client_assets/fairtaxorg/media/attachments/56c4/b2b9/6970/2d22/4c5e/0000/56c4b2b969702d224c5e0000.pdf?1455731385&quot; rel=&quot;nofollow&quot;&gt;https://fairtax-structure-psyclone.netdna-ssl.com/client_assets/fairtaxorg/media/attachments/56c4/b2b9/6970/2d22/4c5e/0000/56c4b2b969702d224c5e0000.pdf?1455731385&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;A little more on compliance costs:  The Tax Foundation estimates that, &quot;Americans spent over 3.24 billion hours, which is about 369,858 years, preparing and filing tax returns in 2012. Considering individual, business and employment taxes, this costs $37 billion annually in compliance cost for federal taxes alone.&quot;  The FairTax essentially eliminates this waste.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Debunking some of the other responses:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;Lower income groups spend a much larger portion of their income on&#xA;  consumption, which means that they will be taxed relatively much more&#xA;  heavily than high income groups.&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Not only is this conclusion false, but the converse is true.  Under the FairTax, a prebate would ensure that those at poverty level would pay zero tax.  Under the FairTax, lower income groups would be taxed very little (if at all).  &lt;a href=&quot;https://www.youtube.com/watch?v=UPm9BaihZIM&quot; rel=&quot;nofollow&quot;&gt;https://www.youtube.com/watch?v=UPm9BaihZIM&lt;/a&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;blockquote&gt;&#xA;  &lt;p&gt;an oil company would end up paying much less of the percentage of the&#xA;  tax than a company making a selfie stick. This, again, seems to be&#xA;  unfair.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This is also false.  Under the FairTax, all businesses pay zero tax.  Businesses collect the tax and are compensated for the cost of collecting the tax.  This ensures the taxes are paid fairly by individuals and the &quot;incidence of tax&quot; is not applicable.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="10261" LastActivityDate="2016-08-30T13:54:48.563" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13235" PostTypeId="2" ParentId="13233" CreationDate="2016-08-30T16:55:38.827" Score="4" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Have there been any empirical attempts to estimate the value of being taught specific skills - for example, phonics or solving algebraic equations?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;If I may be brazen enough to challenge the basis of this question. We first need to have an economic criteria to evaluate a subject in a curriculum before we start analysing its relevance to the labour market .&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I got all this information from the &lt;a href=&quot;http://archive.mu.ac.in/myweb_test/ma%20edu/M[1].A._EDU_ECONOMICS_OF_EDU.-Final_1_2011-12.pdf&quot; rel=&quot;nofollow&quot;&gt;University of Mumbai- Economics of Education for M.A Education&#xA;&lt;/a&gt;. (free download and an easy read).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In terms of how an economist should view a curriculum, the criteria is twofold, as stated in the course kit:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;One needs to asses the value of the subject and its&#xA;  existence in the system.&#xA;   There are two criteria for a particular&#xA;  subject being studied or taught in a given course of study.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;1) &lt;b&gt;Theoretical consideration:&lt;/b&gt;&#xA;  &lt;br&gt;The subject should be a body of fundamental knowledge&#xA;  which is a prerequisite for the understanding of other subjects.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;2) &lt;b&gt;Practical consideration:&lt;/b&gt;&lt;br&gt;&#xA;   The subject should have a practical significance in the sense&#xA;  that its understanding would be useful in taking efficient decisions&#xA;  in some of the practical problems. (pg.108)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This being said, &lt;b&gt;its inappropriate to measure productivity on the basis of knowledge of phonics and algebra as these are studies which are only prerequisites of more prerequisites for another subject with labour market implications&lt;/b&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope this helps&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="8815" LastEditDate="2016-08-30T19:14:36.603" LastActivityDate="2016-08-30T19:14:36.603" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13237" PostTypeId="1" CreationDate="2016-08-30T18:55:34.063" Score="3" ViewCount="351" Body="&lt;p&gt;In the cobweb theorem it is assumed that the producers follow an adaptive expectation, however if the price they look to determine their production reflects all the available information at the moment, so this price is in the context of the efficient market hypothesis and therefore it is formed under the rational expectation.&#xA;What is wrong here? &lt;/p&gt;&#xA;" OwnerUserId="5702" LastActivityDate="2016-12-02T03:12:42.790" Title="Cobweb theorem and rational expectation" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="10" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13238" PostTypeId="1" CreationDate="2016-08-30T19:17:30.350" Score="2" ViewCount="912" Body="&lt;p&gt;I'm self studying my way through Varian's Microeconomic Analysis right now and am having trouble answering this question:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider preferences defined over the nonnegative orthant by $(x_1, x_2) \succ&#xA;(y_1, y_2)$ if $x_1+ x_2 &amp;lt; y_1+ y_2$. Do these preferences exhibit local nonsatiation?&#xA;If these are the only two consumption goods and the consumer faces positive&#xA;prices, will the consumer spend all of his income? Explain. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The solution manual says the preferences are locally non satiable except at (0,0) but I don't know why that is. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;any help would be greatly appreciated. &lt;/p&gt;&#xA;" OwnerUserId="10265" LastEditorUserId="10155" LastEditDate="2016-08-30T19:43:12.430" LastActivityDate="2016-08-30T19:43:12.430" Title="Preferences exhibiting local nonsatiation" Tags="&lt;microeconomics&gt;&lt;utility&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13239" PostTypeId="2" ParentId="13238" CreationDate="2016-08-30T19:28:28.987" Score="3" Body="&lt;p&gt;Since we are working in $\mathbb{R}_+$ you can't go below (0,0). So consider the point (0,0). Are we guaranteed a point around it that is preferred? So using the notation you used, let $(x_1,x_2)=(0,0)$, then any other point $(y_1,y_2)$ where $y_1$ or $y_2$ is positive will be worse than $(0,0)$. So we have a satiation point at $(0,0)$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now consider anywhere else. We can also go lower by reducing either coordinate so there is always a better point until we reach both points =0. &lt;/p&gt;&#xA;" OwnerUserId="10155" LastActivityDate="2016-08-30T19:28:28.987" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13241" PostTypeId="2" ParentId="13231" CreationDate="2016-08-30T21:34:15.773" Score="0" Body="&lt;p&gt;Given your equations, you can find&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Y = C + 50 + 20 \implies Y = C + 70$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can then substitute $Y$ for its equal into your other equation&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$C = 100 + 0.5(C + 70 - T)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, given a balanced buget, you know that $G = T$, which should be enough for you to solve for $C$.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2016-08-30T21:34:15.773" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13242" PostTypeId="1" CreationDate="2016-08-31T02:57:47.430" Score="2" ViewCount="1172" Body="&lt;p&gt;Calculate the substitution and income effects for the following utility function:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ u(x,y)=\frac{x^a}{a}+\frac{y^a}{a}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know that we are supposed to use the Slutsky equation which accounts for the substitution effect minus the income effect however I am not quite sure how to solve it. The only thing which I know how to do is derive the $x$ and I will get $x^{a-1}$ but after I am not sure what to do. &lt;/p&gt;&#xA;" OwnerUserId="10269" LastEditorUserId="2776" LastEditDate="2016-08-31T22:19:31.063" LastActivityDate="2016-08-31T22:19:31.063" Title="applications of the slutsky equation" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13243" PostTypeId="2" ParentId="13232" CreationDate="2016-08-31T07:28:05.320" Score="1" Body="&lt;p&gt;What the paragraph actually said is &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;Fervent demand for renminbi from international investors has driven down rates in Hong Kong and thereby created incentives for companies considering using the renminbi for trade or financing,&quot; &lt;a href=&quot;http://www.ft.com/intl/cms/s/0/7a4e3f26-1ce2-11e0-8c86-00144feab49a.html#axzz4ItO112gQ&quot; rel=&quot;nofollow&quot;&gt;explains Financial Times correspondent Robert Cookson&lt;/a&gt;.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This means that international investors were buying offshore Renminbi (CNH) in Hong Kong and using that to buy offshore bonds denominated in Renminbi. That pushed the price of those bonds up, corresponding to reduction in their effective interest rates (&quot;driving down rates&quot;).&lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2016-08-31T07:28:05.320" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13244" PostTypeId="1" CreationDate="2016-08-31T08:20:45.577" Score="2" ViewCount="33" Body="&lt;p&gt;My understanding is that standard models in economics assume the firm is a capitalistic firm, in the sense that it pay workers a wage but no profits. (is that right?) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am interested in modeling cooperatives, where workers own profits and distribute them. But profits seem hard to model explicitly. Any idea how to model this? Perhaps a reference to the literature?&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2016-08-31T08:20:45.577" Title="How to model cooperatives" Tags="&lt;reference-request&gt;&lt;firm&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13245" PostTypeId="2" ParentId="11426" CreationDate="2016-08-31T10:20:24.937" Score="8" Body="&lt;p&gt;To be precise, a model is said to be a &lt;strong&gt;linear regression model&lt;/strong&gt; when it is &lt;strong&gt;linear in its parameters&lt;/strong&gt;. For extension, a model is said to be non-linear when it is &lt;strong&gt;non-linear in its parameter&lt;/strong&gt; (Wooldridge, 2010, p.397).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As such, a linear model can have non-linear variables. A standard example is the &lt;a href=&quot;https://en.wikipedia.org/wiki/Mincer_earnings_function&quot; rel=&quot;noreferrer&quot;&gt;&lt;strong&gt;Mincer equation&lt;/strong&gt;&lt;/a&gt;, where wage is a linear function of education, experience and experience squared.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In your example, as your intuition tells you, parameters $\rho$ and $\beta$ are multiplied themselves, making it a non-linear model. However, your model is a rather special kind of non-linear model because &lt;strong&gt;its parameters can still be recovered using linear methods&lt;/strong&gt;. In fact, you do not need non-linear methods at all. &lt;strong&gt;Your model is over-identified&lt;/strong&gt; as you can test whether the estimated combined term is consistent with the individual estimation of each parameter or not.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2016-08-31T15:40:07.673" LastActivityDate="2016-08-31T15:40:07.673" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13247" PostTypeId="2" ParentId="13242" CreationDate="2016-08-31T11:29:10.357" Score="1" Body="&lt;p&gt;Solve the &quot;consumer's problem&quot;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\max U(x,y)$ subject to $I=p_xx+p_yy$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then you will have $x=x(p_x,p_y,I)$ so x is some function of the parameters. The same goes for y. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then determine the Hicksian demand functions, either by using some duality result or solving the dual problem:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\min p_xx+p_yy$ subject to $U(x,y)=\bar u$ and you'll have both x and y in terms of prices and $\bar u$. We denote these demands as $h_x$ and $h_y$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now Slutsky's equation for x with respect to $p_x$:&#xA;$\displaystyle\frac{\partial x}{\partial p_x}=\displaystyle\frac{\partial h_x}{\partial p_x}-\displaystyle\frac{\partial x}{\partial I}x(p_x,p_y,I)$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The substitution effect is the first term on the RHS, and the income effect is the third term. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The general formula for all cases is here &lt;a href=&quot;https://en.wikipedia.org/wiki/Slutsky_equation&quot; rel=&quot;nofollow&quot;&gt;https://en.wikipedia.org/wiki/Slutsky_equation&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="10155" LastEditorUserId="10155" LastEditDate="2016-08-31T15:13:48.027" LastActivityDate="2016-08-31T15:13:48.027" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13249" PostTypeId="2" ParentId="12596" CreationDate="2016-08-31T23:39:07.160" Score="1" Body="&lt;p&gt;GNI is simply a new name for GNP.  It is GDP plus net primary income from abroad (i.e. with primary income paid abroad treated as negative). Primary income is described in &lt;a href=&quot;https://www.imf.org/external/pubs/ft/bop/2007/pdf/chap11.pdf&quot; rel=&quot;nofollow&quot;&gt;Chapter 11 of the IMF BOP manual&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;GNDI is GNI plus net secondary income from abroad (and similarly secondary income paid abroad is treated as negative).  Net secondary income from abroad is the same thing as is meant by net current transfers from abroad: see &lt;a href=&quot;https://www.imf.org/external/pubs/ft/bop/2007/pdf/chap12.pdf&quot; rel=&quot;nofollow&quot;&gt;Chapter 12 of the IMF BOP manual&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2016-08-31T23:39:07.160" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13251" PostTypeId="2" ParentId="8968" CreationDate="2016-09-01T01:34:30.007" Score="1" Body="&lt;p&gt;The only journal that published it is behind a paywall: &#xA;&lt;a href=&quot;http://www.jstor.org/stable/2296210?seq=1#page_scan_tab_contents&quot; rel=&quot;nofollow&quot;&gt;http://www.jstor.org/stable/2296210?seq=1#page_scan_tab_contents&lt;/a&gt; but check your school library access for it. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The proof is pretty complicated and is based on an induction argument. When I've tried to link SARP and WARP, I've only ever found references to his paper. &lt;/p&gt;&#xA;" OwnerUserId="10155" LastActivityDate="2016-09-01T01:34:30.007" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13252" PostTypeId="1" CreationDate="2016-09-01T05:54:56.057" Score="-1" ViewCount="1655" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/vl2gs.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/vl2gs.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am not sure how to derive the demand for consumption of today's bread; the first thing the problem asks for. I think it might be a piecewise function based on the interest rate that gets you from the price of today's to the price of tomorrow's, where depending on how high the interest rate is you either want strictly bread today or bread tomorrow. But like I'm said I'm not sure. So I would appreciate any help with this problem. Thanks!&lt;/p&gt;&#xA;" OwnerUserId="10279" LastActivityDate="2021-01-17T10:02:45.353" Title="Advanced Microeconomics: Deriving Slutsky Equation" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13253" PostTypeId="2" ParentId="11216" CreationDate="2016-09-01T16:04:35.797" Score="2" Body="&lt;p&gt;The &lt;a href=&quot;https://github.com/thiloklein/matchingMarkets&quot; rel=&quot;nofollow&quot;&gt;matchingMarkets&lt;/a&gt; package in the R software now implements two constraint encoding functions to find &lt;strong&gt;all stable matchings&lt;/strong&gt; in the three most common matching problems: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;code&gt;hri&lt;/code&gt;: &lt;a href=&quot;http://matchingmarkets.org/reference.html&quot; rel=&quot;nofollow&quot;&gt;college admissions problem&lt;/a&gt; (including the student and college-optimal matchings) and stable marriage problem (including men and women-optimal matching)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;code&gt;sri&lt;/code&gt;: stable roommates problem. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;What's more, it also allows for &lt;strong&gt;incomplete preference lists&lt;/strong&gt; (some agents find certain agents unacceptable) and &lt;strong&gt;unbalanced instances&lt;/strong&gt; (unequal number of agents on both sides) for all three problems.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you use Python, you can run R code using &lt;code&gt;rpy2&lt;/code&gt;.&lt;/p&gt;&#xA;" OwnerUserId="10227" LastEditorUserId="10227" LastEditDate="2016-10-06T18:51:34.057" LastActivityDate="2016-10-06T18:51:34.057" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13254" PostTypeId="2" ParentId="13165" CreationDate="2016-09-01T16:06:05.660" Score="1" Body="&lt;p&gt;What stops governments from partnering with their central banks to lower interest rates? Central banks in most countries are independent. It means that the governor of the central bank decides the monetary policy according to his/her mandate. This mandate is usually to keep a check on inflation and in some countries to lower unemployment rate. If the central bank lowers interest rates then due to the &quot;knock on&quot; effect you mentioned credit becomes available at lower rates which exerts inflationary pressure on the economy. If the mandate of the central bank is to keep inflation low then the central bank ensures that interest rates are not lower than what is required to keep inflation in check.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, in some countries central banks are not independent. In those cases, the government can partner with the central bank to lower interest rate and borrow from the central bank at low rates to fund government spending. This is usually a bad idea because it can cause hyperinflation. When the government wants to borrow big amounts (which is mostly the case) from the central bank it usually means that the central bank will have to generate more currency and then lend it to the government. This is expansionary monetary policy, which increases the cash flow in the economy and exerts inflationary pressure. Secondly, when the government spends the money that it borrowed it increases aggregate demand. This is expansionary fiscal policy, which is inflationary too. Both of these in conjunction can cause hyperinflation (like it happened in Zimbabwe). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;When it comes to government borrowing, borrowing from foreign entities or issuing short- or long-term government bonds are better strategies than borrowing from the central bank.&lt;/p&gt;&#xA;" OwnerUserId="9029" LastActivityDate="2016-09-01T16:06:05.660" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="13255" PostTypeId="2" ParentId="13252" CreationDate="2016-09-01T16:55:31.133" Score="0" Body="&lt;p&gt;We are given the demand function $d_1(p_1,p_2,I)$, the problem wants you to give the expressions without explicit functional forms. So do the substitution and take the derivative:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\displaystyle\frac{\partial d_1}{\partial p_1}+\frac{\partial d_1}{\partial I}\frac{\partial I}{\partial p_1}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The slutsky equation from class is probably of the form given in this answer : &lt;a href=&quot;https://economics.stackexchange.com/questions/13242/applications-of-the-slutsky-equation/13247#13247&quot;&gt;applications of the slutsky equation&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="10155" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2016-09-01T16:55:31.133" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="13256" PostTypeId="1" CreationDate="2016-09-01T17:23:58.103" Score="1" ViewCount="264" Body="&lt;p&gt;Can anyone explain why this isn't an example of price discrimination:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The same golf club selling for $100 at Sports Authority and 80 on Amazon.&lt;br&gt;&#xA;I believe that consumer's demand elasticity to price at Amazon would be higher than the consumer at certain Sports Authority. May be the idea of an Sports Authority which I've is wrong?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I came across this in a quiz in the Standford online course for Economics.&lt;/p&gt;&#xA;" OwnerUserId="10284" LastActivityDate="2016-10-02T03:16:05.563" Title="Example of Price discrimination" Tags="&lt;price-discrimination&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13257" PostTypeId="2" ParentId="13256" CreationDate="2016-09-01T17:25:49.953" Score="0" Body="&lt;p&gt;Price discrimination is typically when the business targets different kinds of consumers with different prices. Think different prices for old vs young people. Amazon charging less could stem from them being more efficient, or they are losing money on it to drive out competition or bring people to the site to buy other things. &lt;/p&gt;&#xA;" OwnerUserId="10155" LastActivityDate="2016-09-01T17:25:49.953" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13258" PostTypeId="1" CreationDate="2016-09-01T21:06:24.250" Score="1" ViewCount="30" Body="&lt;p&gt;I'm not sure how to tag this so feel free to add any tags you see as relevant.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question here is about anything that uses a proprietary approach today and applying open-sourcing to it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What if someone open-sourced their work in such a way that it can be used by absolutely anyone on condition they put a bit of money in to keep a project going?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This instead of intellectual property or copyright sometimes heavily restricting usage and where there is not necessarily a benefit to the community.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope you get the gist and please comment below for me to clarify if necessary.&lt;/p&gt;&#xA;" OwnerUserId="8567" LastEditorUserId="1601" LastEditDate="2016-09-01T21:14:36.507" LastActivityDate="2016-10-03T12:35:29.897" Title="What would be the practicality of a widespread open-source approach in an economy?" Tags="&lt;macroeconomics&gt;&lt;supply-and-demand&gt;&lt;intellectual-property&gt;" AnswerCount="1" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="13259" PostTypeId="2" ParentId="13256" CreationDate="2016-09-02T02:46:36.180" Score="1" Body="&lt;p&gt;&lt;b&gt;Price discrimination&lt;/b&gt; is when a firm charges different prices for a homogeneous product to different consumers. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this example we see no such discrimination among consumers. This is just a case where there is competition between two firms.&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2016-09-02T02:46:36.180" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13264" PostTypeId="1" CreationDate="2016-09-02T18:55:08.200" Score="4" ViewCount="197" Body="&lt;p&gt;This is a question about demand models, price optimization, dynamic pricing, big data, online learning, so I will cross-post in other communities.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\mathbf{Background}$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am interested in dynamic price optimization in the following situation:&lt;br&gt;&#xA;* Let $q^d_t$ be the demand for product $d$ at time $t$. We model $q^d_t$ as a random process, which is observed at some random times $t_i$ at which the product $d$ is purchased.&lt;br&gt;&#xA;* Let $p^d_t$ be the &quot;ask price&quot; of product $d$ at time $t$. A purchase of product $d$ at time $t$ would be made at this price.&lt;br&gt;&#xA;* Let $c^d$ be the average cost of taking one unit of product $d$ to market. This includes production, storage and other fixed costs, delivery to the consumer, etc. In a first approximation we may assume that within the time horizon of the problem the costs are constant.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can model the relationship between products demand and prices as&lt;br&gt;&#xA;$$ q^d_i = \mathscr M(\mathbf p_i, \Theta^d, \mathbf{\epsilon}^q_i)  \tag{1} $$&#xA;where $\Theta^d$ is a list of parameter to be fitted, $\{\mathbf{\epsilon}^d_i \&#xA;\}_i$ are random unobserved errors, a norm (or size measure) of which we are set to minimize. The subindex $i$ is shorthand for $t_i$. Let $\mathscr M(\mathbf p_i, \hat\Theta^d, \mathbf{0}) $ be the fitted value of $q^d$ at present time.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am working in a dynamic market, but I can assume the relation (1) changes slowly, so transaction data can be use to update $\Theta^d$ slowly.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The demand for product $d$ depends on not only on the price $p^d$ but on all other prices, i.e.: there price on some products may affect the demand of other products: some products can substitute for others, some products are &quot;traffic drivers,&quot; etc.   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem is to &quot;learn&quot; (in the data science sence) the realtionship (1), i.e.: the current &quot;state of the market&quot; as it pertains to product demand, and use it to set prices that maximize expected revenue:&#xA;$$ \sum_d ( p^d - c^d)*\mathscr M(\mathbf p, \hat\Theta^d,\mathbf 0 ). \tag{2} $$      &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are two models of demand in terms of price that are well represented in the pricing literature, namely, the linear model and the log-linear model. Both of them are amenable to be learnt dynamically with, for example, stochastic gradient descent. Are there oher simple well represented models?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems reasonable to assume (2) is a concave function of prices, in which case the maximization of can be treateed within the convex optimization context. In the case of linear models of demand, the concavity of (2) reduces to verifying the matrix of price coefficients in the models induces a semiposive definite quadratic function, which suggest that a good way of guranting that is to restrict model (1) to those that will render (2) concave. My problem involves over 10^5 products (possibly over 10^6) , so computational complexity of imposing the concavity condition becomes a consideration.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The log-linear model (log(demand) = linear function of log(prices) + remainder)) for demand results in models for which verication of (2) seems untractable.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\mathbf{Questions}$  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) Are there flexible models one can use in (1) for which (2) can be guarantied to be concave, or for which concavity can be verified with complexity less than $O(D^3)$ ? Here $D$= number of producs.&#xA;2) Is fitting those models and solving the optimization problem (2) computationally feasible in a dynamic context? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\mathbf{Comments}$   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) Any flexible model for (1) is acceptable. My aim is to use dynamic learning. Interpretability is not an issue. Distributions of the remainders is not an issue.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) To keep in the dynamic context, (2) need not be optimize at once. Since the relation (1) is not stationary, it would be enough to control prices dynamically to drive revenue upwards. This may relaxed the computational complexity of updating prices.   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;3) There are no supply constraints. Supply may be assume to be infinite. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;4) Model (1) is a simplification, there are other obvious predictors of demand to be included, such as seasonality, etc.&lt;/p&gt;&#xA;" OwnerUserId="10291" LastEditorUserId="2776" LastEditDate="2017-06-13T22:23:41.623" LastActivityDate="2017-06-13T22:23:41.623" Title="Dynamic demand model in many good competitive markets and price optimization" Tags="&lt;supply-and-demand&gt;&lt;statistics&gt;&lt;optimization&gt;&lt;pricing&gt;&lt;dynamic-optimization&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13267" PostTypeId="1" CreationDate="2016-09-03T06:33:26.613" Score="7" ViewCount="10456" Body="&lt;p&gt;Can someone please verify whether or not my knowledge is accurate. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;From what I understand, the intent of the envelope theorem is to make a shortcut from indirect utility to the expenditure function. That being said, what you can do once you have obtained your indirect utility, is derive it in terms of I (income) and this will give you the expenditure function (hicksian demand). Is this correct or am I totally off?&lt;/p&gt;&#xA;" OwnerUserId="10269" LastEditorUserId="8815" LastEditDate="2018-06-06T19:28:11.417" LastActivityDate="2018-06-06T19:28:11.417" Title="Understanding Envelope Theorem" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="13268" PostTypeId="2" ParentId="13258" CreationDate="2016-09-03T12:06:03.627" Score="1" Body="&lt;p&gt;So suppose there is new technology $A$ that only 1 person has access to. If there are multiple firms with production technology $y=k^\alpha$ then obviously if that new technology was available to them at low/no cost, the overall productivity of society would increase (each firm has $y=Ak^\alpha$)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem is that it is likely the case that $A$ requires expenditure to make. You need some way to incentivize the production of that technology (at least in a basic neoclassical framework). So if you make it proprietary then the other firms may have to pay for it, or you can give it copyright so that only 1 firm has access to it. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In Romer's endogenous growth model, firms have an R&amp;amp;D cost to produce their final good, but they have monopolistic power in the intermediate step to ensure that they can make a profit. If they didn't have this patent then they would not produce the technology. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are newer/more advanced models in law &amp;amp; economics that discuss different kinds of IP arrangements. A great question is how are things like WIkipedia so prevalent where most of the authors see no profit for their effort but they do it anyway. Ostensibly they achieve some sort of utility for it. But then they are producing a 'public good' and in that case others will freeride (so its only sustained if their utility from it is really high). &lt;/p&gt;&#xA;" OwnerUserId="10155" LastEditorUserId="10155" LastEditDate="2016-09-03T12:25:52.940" LastActivityDate="2016-09-03T12:25:52.940" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13269" PostTypeId="2" ParentId="13267" CreationDate="2016-09-03T12:25:12.573" Score="3" Body="&lt;p&gt;The Envelope theorem is a general mathematics result says that you can differentiate a value function with respect to a variable without implicitly differentiating the maximum argument variable. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Example: $V(p_x,p_y,w)=U(x(p_x,p_y,w), y(p_x,p_y,w))+\lambda(p_x,p_y,w)[w-p_x-p_y]$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I want to see how utility at its optimal level changes when wealth changes, I can simply differentiate this equation with respect to wealth explicitly:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$V_3=\lambda$ - so the marginal utility of wealth is simply the Lagrange multiplier. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As you can see I did not differentiate anything else, even though wealth does appear in U. This is simply because if you did do that, those terms would drop out =0 as a result of the FOC&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The relationship between indirect utility and expenditure is from the 'duality' between the two. The reason why $V(p,e(p,u))=w$ stems from the fact that the optimal arguments for both will be equivalent when the value of utility achieved in the utility max problem is the same utility level that we set as $U=\bar u$ in the expenditure minimization problem. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you do the FOC for both utility max and expenditure min you get the tangency conditions:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$p_x/p_y=MRS$ in both cases. So if the target level $\bar u$ is what we achieve in the utility max problem, then the marshallian and hicksian demands will be the same. Then the value function for the expenditure min is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$e(p_x,p_y,\bar u)=p_xh_x+p_yh_y=p_xx+p_yy=w$ and since $\bar u=V$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$e(p_x,p_y,V)=w$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Similarly,&#xA;$V(p_x,p_y,w)=U(x,y)=U(h_x,h_y)=\bar u$ and since $w=e$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$V(p_x,p_y,e)=u$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can find a lot more by searching for 'utility duality'. &lt;/p&gt;&#xA;" OwnerUserId="10155" LastActivityDate="2016-09-03T12:25:12.573" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13271" PostTypeId="1" CreationDate="2016-09-03T18:08:00.583" Score="8" ViewCount="1229" Body="&lt;p&gt;I am interested in understanding the differences between mainstream economics and marxist economics. For that, a guide about what is &lt;strong&gt;central&lt;/strong&gt; to the marxist &lt;strong&gt;economic&lt;/strong&gt; theory (not political or cultural theory) would be highly useful.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What are the &lt;strong&gt;core&lt;/strong&gt; elements of Marxist economics? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;PS: my emphasis on &lt;strong&gt;core&lt;/strong&gt; aims to avoid this question being flagged as &quot;too-broad&quot;. I also hope there is sufficient consensus within theorists in order to avoid being &quot;primarily opinion-based&quot;.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2016-09-03T18:35:38.057" LastActivityDate="2018-10-22T07:01:52.393" Title="Core elements of Marxist Economics" Tags="&lt;theory&gt;&lt;marxism&gt;" AnswerCount="3" CommentCount="1" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="13276" PostTypeId="1" AcceptedAnswerId="13281" CreationDate="2016-09-04T04:45:56.047" Score="2" ViewCount="5304" Body="&lt;p&gt;When I apply Euler's Theorem onto the Cobb-Douglas equation I receive the Cobb-Douglas equation back. That is, there is no change after applying the theorem. Can someone please explain what the intent and point of this is, seeing no difference? &lt;/p&gt;&#xA;" OwnerUserId="10269" LastEditorUserId="2776" LastEditDate="2016-09-04T17:57:31.300" LastActivityDate="2016-09-04T17:57:31.300" Title="Euler's theorem and Cobb-Douglas" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13279" PostTypeId="2" ParentId="10229" CreationDate="2016-09-04T11:05:44.160" Score="0" Body="&lt;p&gt;Another reason why inflation needs to be positive is so that interest rates can be cut in a recession in order to stimulate spending. When interest rates get too low, an economy encounters a &lt;em&gt;liquidity trap&lt;/em&gt; and further expansionary monetary policy cannot be implemented.&lt;/p&gt;&#xA;" OwnerUserId="175" LastActivityDate="2016-09-04T11:05:44.160" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13281" PostTypeId="2" ParentId="13276" CreationDate="2016-09-04T13:13:50.347" Score="2" Body="&lt;p&gt;You are probably talking about Euler's homogeneous function theorem &lt;a href=&quot;http://mathworld.wolfram.com/EulersHomogeneousFunctionTheorem.html&quot; rel=&quot;nofollow&quot;&gt;http://mathworld.wolfram.com/EulersHomogeneousFunctionTheorem.html&lt;/a&gt; , which shows that you can decompose a function into its partial derivatives based on its homogeneity. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So a typical Cobb Douglass $U(x,y)=x^ay^{1-a}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This function is homogeneous of degree 1 because when we multply each argument by a scalar:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$U(cx,cy)=(cx)^a(cy)^{1-a}=cx^ay^{1-a}=cU(x,y)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So if we apply the theorem to this function we get:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$U(x,y)=xU_x+yU_y=xax^{a-1}y^{1-a}+x^ay(1-a)y^{-a}=x^ay^{1-a}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the result that we get back the original utility is expected. &lt;/p&gt;&#xA;" OwnerUserId="10155" LastActivityDate="2016-09-04T13:13:50.347" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13284" PostTypeId="1" CreationDate="2016-09-04T19:40:17.517" Score="1" ViewCount="27" Body="&lt;p&gt;I'm looking for sources, maybe scientific articles, that study the effectiveness of central bank interest rate adjustments. Specifically, I'm looking for some kind of a proof by example, where a country which had stable policies regarding the adjustments in a larger period of time received consistent results in the effects of these adjustments; especially when adjusting for global crises.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which countries are best examples for a positive role of adjusting central bank interest rates?&lt;/p&gt;&#xA;" OwnerUserId="10312" LastActivityDate="2016-09-04T19:40:17.517" Title="Positive examples of central bank interest rates adjustments policies" Tags="&lt;interest-rate&gt;&lt;central-banking&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13285" PostTypeId="1" AcceptedAnswerId="13289" CreationDate="2016-09-04T23:33:26.937" Score="0" ViewCount="868" Body="&lt;p&gt;It looks like I am making a calculus mistake here, and I am really banging my head against the wall.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is my work:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;[img]&lt;a href=&quot;https://i.imgur.com/e19Fmrx.jpg[/img]&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://i.imgur.com/e19Fmrx.jpg[/img]&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know I should be getting $dY/dT=-(MPC)/(1-MPC)$, where $MPC=dC/dY$&#xA;If this is at all helpful here is a picture of page 295 in 7th edition of Macroeconomics By Mankiw that briefly describes the process. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;[img]&lt;a href=&quot;https://i.imgur.com/VKPbZbz.jpg[/img]&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://i.imgur.com/VKPbZbz.jpg[/img]&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is confusing to me that he uses $C'$ for both terms on right-hand side when $C$ is composed of two arguments, so I decided to use Leibniz notation to see what is going on.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks for help! &#xA;Chris&lt;/p&gt;&#xA;" OwnerUserId="10313" LastEditorUserId="10313" LastEditDate="2016-09-05T01:25:29.160" LastActivityDate="2016-09-05T02:28:07.590" Title="Deriving Simple Tax Multiplier with Calculus (Macro Ugrad)" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="13286" PostTypeId="2" ParentId="10346" CreationDate="2016-09-05T01:58:36.803" Score="0" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/4ldMG.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/4ldMG.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/UqV2S.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/UqV2S.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I emailed the question to one of the authors. He said the solution manual will come soon!&lt;/p&gt;&#xA;" OwnerUserId="7064" LastActivityDate="2016-09-05T01:58:36.803" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13287" PostTypeId="1" CreationDate="2016-09-05T02:05:29.773" Score="1" ViewCount="54" Body="&lt;p&gt;Back in the 1980s leveraged buyouts were a common event. Financiers like T. Boone Pickens would borrow money, buy a controlling interest in a publicly traded stock and then re-engineer the company, for example, by selling it off in pieces.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This activity seems to be a thing of the past. I assume some law was passed to prevent leveraged buyouts. What was the cause of the demise of leveraged buyouts?&lt;/p&gt;&#xA;" OwnerUserId="1448" LastActivityDate="2016-09-05T02:05:29.773" Title="What happened to leverage buyouts?" Tags="&lt;finance&gt;" AnswerCount="0" CommentCount="5" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13288" PostTypeId="1" CreationDate="2016-09-05T02:12:42.967" Score="1" ViewCount="36" Body="&lt;p&gt;Canadian banks are among the largest in the world and I think that only the UK compares in terms of having your economy dominated by banking. Of course some of the US banks are much larger but so is the country's population.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Searching on the subject doesn't lead me anywhere, I suspect that the big 5 of Canada do a good job of exporting financial services (of which none shows up in the trade balance, if I'm correct) and that Canada somehow provides advantages to its big 5 that other countries cannot compete with. Having said that, I would like to know what those predisposition that lead to the growth of a banking industry.&lt;/p&gt;&#xA;" OwnerUserId="5485" LastEditorUserId="5485" LastEditDate="2016-09-06T01:11:52.763" LastActivityDate="2016-09-06T01:11:52.763" Title="Explaining the size of the canadian banking sector" Tags="&lt;banking&gt;&lt;canada&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13289" PostTypeId="2" ParentId="13285" CreationDate="2016-09-05T02:28:07.590" Score="0" Body="&lt;p&gt;So here $C$ is a function with the argument $Y-T$, like $C=f(Y-T)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So differentiate the equation: $dY=C' * (dY-dT)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The result immediately follows like in the book. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reason you don't do the partial derivative is that C has only one argument - while Y and T are in there, it only takes in 1 input. &lt;/p&gt;&#xA;" OwnerUserId="10155" LastActivityDate="2016-09-05T02:28:07.590" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="13292" PostTypeId="1" CreationDate="2016-09-05T04:05:55.770" Score="8" ViewCount="7109" Body="&lt;p&gt;What's the difference? To illustrate, please give examples of &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;A game with perfect but incomplete information; and&lt;/li&gt;&#xA;&lt;li&gt;A game with complete but imperfect information.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://economics.stackexchange.com/questions/5244/asymmetric-vs-incomplete-information&quot;&gt;Related&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2018-03-02T21:49:51.657" Title="Imperfect vs incomplete information" Tags="&lt;game-theory&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13293" PostTypeId="1" AcceptedAnswerId="13296" CreationDate="2016-09-05T05:28:31.170" Score="0" ViewCount="176" Body="&lt;p&gt;Does reducing taxes generally lead to better economic performance? Does it lead to slowdowns in the economy?&lt;/p&gt;&#xA;" OwnerUserId="8639" LastActivityDate="2016-11-23T13:11:09.733" Title="Taxes and the economy as a whole" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="13294" PostTypeId="2" ParentId="13292" CreationDate="2016-09-05T07:41:32.710" Score="6" Body="&lt;p&gt;You are at a decision point and you don't know what strategy the other player has taken. But you still know that which game you are in, you still know the other players' strategy sets etc. &#xA;Under incomplete information you might not even know what game you are into. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example: Two firms are taking up R&amp;amp;D projects sequentially. One is the first mover. It decides whether to take up R&amp;amp;D or not. Now the second firm has to decide but does not know what first firm has decided. This is imperfect information. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now imagine ypu are playing a card game and need to throw a card but you don't know whether you are playing poker or sweep. This is incomplete information. &lt;/p&gt;&#xA;" OwnerUserId="5582" LastActivityDate="2016-09-05T07:41:32.710" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13296" PostTypeId="2" ParentId="13293" CreationDate="2016-09-05T11:45:28.243" Score="1" Body="&lt;p&gt;It is much more complex than just saying yes. &#xA;You need to look at different factors and then you can answer your question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Generally, high taxes have a negative effect on businesses, the more taxes a business pays - the less money it has to growing itself.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The lower the taxes the less money the government has (this is not necessarily as there is a Laffer curve to take into consideration).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It also differs depending on how you measure economic performance, GDP? GNP? job growth, unemployment rate - these are all very different.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you look at most major economies - you will see that generally the lower the taxes, the better the economy performs. However there are many countries - such as the Scandinavian Social democracies, that have high taxes but generally good economies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In my opinion, high taxes are not a major factor in economic performance (although they are a factor), and Free market and less regulations is much more important. &#xA;Simplifying tax code is also more important than lowering taxes, as complex tax codes are waste of time and money. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the taxes are low, the budget is balanced, and the tax code is simple - it is  generally better than the same economy with higher taxes.&lt;/p&gt;&#xA;" OwnerUserId="3986" LastEditorUserId="3986" LastEditDate="2016-11-23T13:11:09.733" LastActivityDate="2016-11-23T13:11:09.733" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13297" PostTypeId="1" AcceptedAnswerId="13298" CreationDate="2016-09-05T12:22:31.803" Score="-1" ViewCount="53" Body="&lt;p&gt;Is there an intuitive way to understand why this is so. I want this explained in a layman's terms. I know negative means they are inversely related, which is what you would expect most items to follow. The cheaper the price, the more demanded. &lt;/p&gt;&#xA;" OwnerUserId="10316" LastActivityDate="2016-09-05T12:47:03.897" Title="As elasticity moves from negative to less negative, this causes prices to increase and profits to increase" Tags="&lt;elasticity&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13298" PostTypeId="2" ParentId="13297" CreationDate="2016-09-05T12:47:03.897" Score="1" Body="&lt;p&gt;The price elasticity of demand measure how sensitive the consumer is in their demand to a change in price. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the elasticity is really large (in negative terms), then a 1% change in price results in a large % change in quantity demanded. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So as the elasticity gets closer to 0, the sensitivity of the consumer is reduced. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The less sensitive the consumer is, the less they will change their demand if the firm charges more, so the company could increase price a little and demand won't go down very much, leading to potentially higher profits. This occurs when demand is inelastic. &lt;/p&gt;&#xA;" OwnerUserId="10155" LastActivityDate="2016-09-05T12:47:03.897" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13299" PostTypeId="1" CreationDate="2016-09-05T18:24:39.027" Score="1" ViewCount="250" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/7xS8A.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/7xS8A.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To find the equilibrium price I understand you set $$ Q^s = Q^d $$ &#xA;and then solve for p. But as P is not indpendently labeled in $$Q^d$$ I am slightly confused how you would go about writing this equation? Thanks! &lt;/p&gt;&#xA;" OwnerUserId="10319" LastActivityDate="2016-09-06T17:55:22.933" Title="Question about Equilibrium Price" Tags="&lt;supply-and-demand&gt;&lt;general-equilibrium&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13300" PostTypeId="2" ParentId="13299" CreationDate="2016-09-05T18:28:14.600" Score="1" Body="&lt;p&gt;So you want to find $\partial p / \partial k$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By implicit differentiation what they mean is let $p=p(k)$ so p is a function of k. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Take your equilibrium condition $Q_s-Q_d=0$ and now differentiate with respect to k. &lt;/p&gt;&#xA;" OwnerUserId="10155" LastActivityDate="2016-09-05T18:28:14.600" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13301" PostTypeId="1" AcceptedAnswerId="13677" CreationDate="2016-09-05T19:40:25.430" Score="4" ViewCount="76" Body="&lt;p&gt;During the entire Brexit debate in the media I never heard anyone discuss &lt;em&gt;levels&lt;/em&gt; of tariffs imposed on countries wishing to export there that had no special deal arranged. I then tried to look up tariffs myself and found &lt;a href=&quot;http://madb.europa.eu/madb/euTariffs.htm&quot; rel=&quot;nofollow&quot;&gt;this site&lt;/a&gt; which looks unbelievably complicated. I just wondered if anyone was familiar with this area and could summarise it - at least crudely.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;EDIT:&lt;/strong&gt; digging around the site some more, I think that cars generally have a 10% tariff form all of USA/Japan/India/China... see &lt;a href=&quot;http://ec.europa.eu/taxation_customs/dds2/taric/measures.jsp?Lang=en&amp;amp;SimDate=20160906&amp;amp;Area=IN&amp;amp;Taric=87032210&amp;amp;LangDescr=en&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt; for example but the language is so technical that I'm not sure I'm reading it correctly.&lt;/p&gt;&#xA;" OwnerUserId="5081" LastEditorUserId="5081" LastEditDate="2016-09-06T08:18:46.443" LastActivityDate="2016-10-07T16:24:23.560" Title="What level are EU tariffs mostly?" Tags="&lt;tariffs&gt;" AnswerCount="2" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="13302" PostTypeId="1" AcceptedAnswerId="13303" CreationDate="2016-09-06T01:20:14.000" Score="2" ViewCount="3652" Body="&lt;p&gt;Let $F(K,L)$ be a production function with variables $K$ for capital and $L$ for labor.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The slope of the $F(\overline K,L)$ ($K$ taken constant) is defined as the marginal product of labor ($MPL$) such that:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$MPL=F(K,L+1)-F(K,L)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Most production functions have a positive decreasing slope due to diminishing marginal product and therefore are not straight lines. How is the $MPL$ formula still valid? Isn't that the same formula to find a gradient $m$ of a line (i.e. $\frac{y_{2}-y_{1}}{x_{2}-x{1}}$)? If we take any function whose representation isn't a line, its slope at a certain point is equal to the slope of the tangent at the point and not the formula for the gradient $m$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, supposing the given formula for $MPL$ is true, shouldn't we also have $MPL=\frac{\partial F}{\partial L}$?&lt;/p&gt;&#xA;" OwnerUserId="5936" LastActivityDate="2016-09-06T05:29:16.183" Title="Slope of a production function" Tags="&lt;macroeconomics&gt;&lt;production-function&gt;" AnswerCount="1" CommentCount="7" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13303" PostTypeId="2" ParentId="13302" CreationDate="2016-09-06T05:29:16.183" Score="3" Body="&lt;p&gt;The (partial) derivative of a continuous function is defined as&#xA;\begin{align}&#xA;\frac{\partial F(\overline K, L)}{\partial L} := \lim_{\Delta L \to 0}\frac{F(\overline K, L + \Delta L) - F(\overline K, L)}{\Delta L}.&#xA;\end{align}&#xA;Now if $L \in \mathbb{N}$, then you have a lower bound for the increment $\mathbb{N} \ni \Delta L \geq 1$. Otherwise the definition above is not well defined for $\Delta L = 0$.&#xA;Such that we finally arrive at the approximation&#xA; \begin{align}&#xA;\frac{\partial F(\overline K, L)}{\partial L} \approx \frac{F(\overline K, L + 1) - F(\overline K, L)}{1}.&#xA;\end{align}&lt;/p&gt;&#xA;" OwnerUserId="4266" LastActivityDate="2016-09-06T05:29:16.183" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13304" PostTypeId="2" ParentId="13301" CreationDate="2016-09-06T07:12:29.777" Score="3" Body="&lt;p&gt;To summarise crudely: the tariffs are punitive, to give all producers within the EEA as much of an advantage as the trade negotiators could deliver. And because the EEA represents a wealthy group of around half a billion consumers (very many of whom are not &lt;em&gt;individually&lt;/em&gt; wealthy; but &lt;em&gt;collectively&lt;/em&gt; are wealthy), the EU has huge negotiating power on trade agreements: probably about even with China and the USA, and superior to everyone else. So countries outside the EEA tend to get a poor deal in general.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is a wide range of tariffs set for goods and services for countries accredited to the WTO in their own right (the UK is not) - as you can see from your linked site. But each of the EEA's significant trading partners seeks a bilateral deal with it, because the pain is too high otherwise.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That site - the one you quite reasonably describe as &quot;unbelievably complicated&quot; - is as transparent and as clear a description of tariffs as I've seen anywhere. And yet it still has vastly over-simplified matters: there's a host of regulation that goes with the tariffs, to ensure that what's imported into the European Economic Area (EEA) is safe and fit for purpose.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Within individual trade publications, there was some discussion on levels of tariffs imposed on countries outside the EEA for that particular trade: so, for example, the Financial Times had quite a lot of coverage on the potentially devastating effect on the financial sector that provides so much of the UK's income; and various manufacturing industries talked about the existential threat that Brexit poses to them; but as you can see from your linked site, general-purpose publications didn't have a chance of getting into the detail across all goods and services.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2016-09-06T07:12:29.777" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13307" PostTypeId="1" AcceptedAnswerId="14234" CreationDate="2016-09-06T12:12:55.627" Score="0" ViewCount="78" Body="&lt;p&gt;It is common to taking logs of variables when perform a regression analysis. But the observations will become negative after logs transformation when it is less than 1. Is this the possible concerns?&#xA;(e.g. log(0.5) = -0.6931, but log(5)= 1.6094) &lt;/p&gt;&#xA;" OwnerUserId="6255" LastActivityDate="2016-11-13T21:26:10.507" Title="Taking logarithms of variables" Tags="&lt;regression&gt;" AnswerCount="2" CommentCount="5" ClosedDate="2016-11-21T15:57:18.620" ContentLicense="CC BY-SA 3.0" />
  <row Id="13308" PostTypeId="2" ParentId="13097" CreationDate="2016-09-06T17:01:15.140" Score="3" Body="&lt;p&gt;It is possible, but it involves consiberable work as you need to collect underlying income distributions across the world or to be able to estimate them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This has been done, for example in a World Bank policy research working paper 6719, &lt;em&gt;&lt;a href=&quot;http://documents.worldbank.org/curated/en/914431468162277879/pdf/WPS6719.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Global Income Distribution From the Fall of the Berlin Wall to the Great Recession&lt;/a&gt;&lt;/em&gt; by Christoph Lakner and Branko Milanovic in December 2013. It included this chart of global income distributions:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/vYqC9.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/vYqC9.png&quot; alt=&quot;Global income distribution&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In fact the real story here is the reduction in the number of very-low-income people in absolute terms, especially in countries such as China over 20 years, plus the rise of middle incomes (in a global sense).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is possible to use this to estimate Gini indices and the paper gives the following estimates: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;1988: 72.2&lt;/li&gt;&#xA;&lt;li&gt;1993: 71.9&lt;/li&gt;&#xA;&lt;li&gt;1998: 71.5&lt;/li&gt;&#xA;&lt;li&gt;2003: 71.9&lt;/li&gt;&#xA;&lt;li&gt;2008: 70.5&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Points to take from these numbers are &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;global inequality is wide with a Gini index higher than almost all countries or regions &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;the numbers suggest a global reduction in inequality even when inequality had been increasing within most major countries (especially China) &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;the reduction has been small and can easily reverse (either in the future or on re-estimation of the past)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Regional trends and other inequality measures are in Table 3 of the paper, while other people's estimates of a global Gini index are in the Appendix Table 1.&lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2016-09-06T17:01:15.140" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13309" PostTypeId="2" ParentId="13299" CreationDate="2016-09-06T17:55:22.933" Score="0" Body="&lt;p&gt;By the implicit function theorem, when we have an equilibrium &lt;em&gt;equation&lt;/em&gt; $F$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$F \equiv   Q^s - Q^d = 0   \implies F\equiv   kp^2-D(p)=0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;the equilibrium change of, in this case, $p$ when $k$ changes is given by &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {dp}{dk} = -\frac {\partial F/\partial k}{\partial F/ \partial p}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since $D(p)$ is not given explicitly, you won't get a fully parametric answer of course, but the sign of $D'(p)$ will help you determine the direction of movement.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2016-09-06T17:55:22.933" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13312" PostTypeId="1" CreationDate="2016-09-06T23:03:46.273" Score="14" ViewCount="4084" Body="&lt;p&gt;I looked it up online (&lt;a href=&quot;http://academic.regis.edu/jroth/Money%20and%20Value.html&quot;&gt;here&lt;/a&gt;), but I find it hard to believe that money literally &quot;disappears&quot;.  For example, if I buy 10 stocks of a toaster company for \$100 per share, and then the stock value drops to \$10, I've lost \$900, but the entities I bought from have gained \$900 collectively.  I understand that money is supposed to be an abstract concept, but we should be able to trace where the dollars go. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So how does money just disappear when the stock market crashes?&lt;/p&gt;&#xA;" OwnerUserId="10327" LastActivityDate="2017-03-16T09:37:59.243" Title="When a stock market crashes, how does money just disappear?" Tags="&lt;stock-market&gt;&lt;money-supply&gt;" AnswerCount="5" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13316" PostTypeId="2" ParentId="13312" CreationDate="2016-09-07T07:12:41.623" Score="-1" Body="&lt;p&gt;If the stock market lost say 10billion dollars in value, it does &lt;em&gt;not&lt;/em&gt; mean that 10billion dollars literally disappears (despite what the poorly written document you linked to suggests). But it is true that &lt;em&gt;some&lt;/em&gt; money may have literally disappeared. This is because many shares are purchased with money borrowed from banks (&quot;margin debt&quot;). If the net amount of borrowing for share purchases went down i.e. some money was repaid, then that repaid money &lt;em&gt;did&lt;/em&gt; literally disappear. This is all to do with how &lt;a href=&quot;http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;fractional reserve banking&lt;/a&gt; works - &quot;Just as taking out a new loan creates money, the repayment of bank loans destroys money&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;EDIT:&lt;/strong&gt; After the stock market crash of 1929 &lt;a href=&quot;https://en.wikipedia.org/wiki/Great_Depression&quot; rel=&quot;nofollow noreferrer&quot;&gt;the money supply fell by about a third&lt;/a&gt;. This was because huge amounts of money that had previously been invested in the stock market was in fact borrowed from banks. &lt;strong&gt;CORRECTION:&lt;/strong&gt; I should not have implied that &lt;em&gt;all&lt;/em&gt; of the one third reduction in the money supply was caused by a reduction in margin debt, but certainly part of the reduction was.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;EDIT:&lt;/strong&gt; The idea of the money supply falling after an asset price bubble bursts is not widely reported. After the crash of 2007/8 almost no media outlets have discussed any notion of money disappearing. This is because the media and the general public have little clue that it is even possible for the money supply to decrease. But you can read &lt;a href=&quot;https://www.publications.parliament.uk/pa/cm201314/cmselect/cmtreasy/writev/qe/m08.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; the governor of the Bank of England telling UK politicians in Jan 2013 that QE was an effort to counteract the falling money supply: &quot;What we were doing [through Quantitative Easing] is injecting money into the economy, and what the banking sector has been doing is destroying money [as existing loans were repaid].&quot; ... &quot;what we were doing was partially to offset what would otherwise have been an even bigger contraction.&quot;&lt;/p&gt;&#xA;" OwnerUserId="5081" LastEditorUserId="5081" LastEditDate="2017-03-16T09:37:59.243" LastActivityDate="2017-03-16T09:37:59.243" CommentCount="14" ContentLicense="CC BY-SA 3.0" />
  <row Id="13317" PostTypeId="2" ParentId="13312" CreationDate="2016-09-07T07:54:39.703" Score="13" Body="&lt;p&gt;Stocks are not money.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The valuation of a company - the market captialisation - is the number of shares multiplied by the share price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The share price is the price people are willing to trade at right now. It does NOT mean all the shares have been traded at that price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If a company issues 1 million shares, at a starting price of £10, the market cap is £10 million. They may only sell a few of these shares, so much less than £10 million actually changes hands. If the price rises to £20, only a few of the shares changed hands at that price - but the market cap is reflected in all the shares, and is now £20 million. People have commented on the &lt;a href=&quot;https://m.signalvnoise.com/press-release-basecamp-valuation-tops-100-billion-after-bold-vc-investment-c221d8f86ad7#.ib4kf791q&quot;&gt;flaws&lt;/a&gt; in this methodology.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The same happens in a crash. Only a fraction of the shares actually change hands, but the media report on the change in the market cap.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you want an analogy, consider a house burning down. You buy the house for £200,000. Then it sadly burns down (and without insurance). It is now worth £0. However, no money has been created or destroyed; it's a loss of value of an asset.&lt;/p&gt;&#xA;" OwnerUserId="6281" LastActivityDate="2016-09-07T07:54:39.703" CommentCount="9" ContentLicense="CC BY-SA 3.0" />
  <row Id="13318" PostTypeId="2" ParentId="12159" CreationDate="2016-09-07T08:12:01.410" Score="1" Body="&lt;p&gt;Most people's main asset is their labour, and automation threatens that.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Automation may reduce the value of human labour. If that happens, some people will lose out massively. While society as a whole becomes richer, these individuals will become poorer, and probably much poorer, to the point of destitution.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is not clear whether this will actually happen. The rise in automation over the past 200 years has changed but not removed the value of human labour. But the idea that automation should be feared comes from this uncertainty.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If labour is devalued, governments could cause wealth redistribution with policies like a universal basic income. However, if this is not done, then enormous social problems could result.&lt;/p&gt;&#xA;" OwnerUserId="6281" LastActivityDate="2016-09-07T08:12:01.410" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="13320" PostTypeId="1" CreationDate="2016-09-07T10:39:53.587" Score="-3" ViewCount="70" Body="&lt;p&gt;What is &quot;Fairness&quot;?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does &quot;Fairness&quot; exist in the world?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Marx &lt;/p&gt;&#xA;" OwnerUserId="10112" LastActivityDate="2016-09-07T11:56:33.073" Title="&quot;Fairness&quot; exists or not in the real world" Tags="&lt;inequality&gt;&lt;fairness&gt;" AnswerCount="1" CommentCount="0" ClosedDate="2016-09-12T16:03:23.563" ContentLicense="CC BY-SA 3.0" />
  <row Id="13321" PostTypeId="2" ParentId="13320" CreationDate="2016-09-07T11:56:33.073" Score="1" Body="&lt;p&gt;This is a very broad question and maybe primarily opinion based too. But yes, at least for some definitions it does it exist. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;One possible definition of fair is envy-free. That is, you wouldn't want to switch your allocation with anyone else. If you have a last piece of cake and you have to share it with another, &lt;a href=&quot;https://en.wikipedia.org/wiki/Envy-free_cake-cutting&quot; rel=&quot;nofollow&quot;&gt;there is a whole class of algorithms that deliver envy-free division of the cake&lt;/a&gt;. The most famous member of this class of algorithms is the &quot;divide and choose protocol&quot; which is in active use around the world and has existed since biblical times (at least). &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2016-09-07T11:56:33.073" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13324" PostTypeId="1" AcceptedAnswerId="13325" CreationDate="2016-09-07T19:07:09.007" Score="2" ViewCount="267" Body="&lt;p&gt;In my history class, we're studying the Industrial Revolution and how Rockefeller came to dominate the oil industry with his Standard Oil company. According to our textbook, a man named Samuel Dodd (who was Standard Oil's attorney) came up with the trust in 1881. But our textbook does a very poor job of explaining what exactly a trust is or why it helped Rockefeller to monopolize his business and basically dominate the oil industry. I've done a bit of research myself, and I'm not really good with economics. Could someone please explain, in very simple layman terms, what a trust is and what it does?&lt;/p&gt;&#xA;" OwnerUserId="10336" LastActivityDate="2016-09-07T21:16:07.323" Title="What exactly is a trust?" Tags="&lt;monopoly&gt;&lt;competition&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13325" PostTypeId="2" ParentId="13324" CreationDate="2016-09-07T21:16:07.323" Score="3" Body="&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Trust_(business)&quot; rel=&quot;nofollow&quot;&gt;Wikipedia has an article&lt;/a&gt; worth reading.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An American trust was typically a combination of companies operating effectively as an entity with dominant market power, so perhaps somewhere between a cartel and a monopoly.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Trusts originally took their names from the use of &lt;a href=&quot;https://en.wikipedia.org/wiki/Trust_law&quot; rel=&quot;nofollow&quot;&gt;trust law&lt;/a&gt; to establish them, but later the term was used for all large companies and groups of companies which used their market position to take advantage of their suppliers and customers and to drive competitors out of business.  The most famous was &lt;a href=&quot;https://en.wikipedia.org/wiki/Standard_Oil&quot; rel=&quot;nofollow&quot;&gt;Standard Oil&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This meant that when the US legislated to regulate or dismantle trusts, it call this &lt;a href=&quot;https://en.wikipedia.org/wiki/United_States_antitrust_law&quot; rel=&quot;nofollow&quot;&gt;&lt;em&gt;antitrust&lt;/em&gt; law&lt;/a&gt;, where in Europe it would be called &lt;em&gt;competition&lt;/em&gt; law.      &lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2016-09-07T21:16:07.323" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13326" PostTypeId="1" AcceptedAnswerId="13763" CreationDate="2016-09-07T23:26:39.867" Score="3" ViewCount="144" Body="&lt;p&gt;In producer theory, we assume the firm's objective is profit maximisation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can we make the same assumption when looking at private schools or does this assumption not apply?&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorDisplayName="user18" LastEditDate="2016-10-15T04:54:48.480" LastActivityDate="2016-10-15T04:54:48.480" Title="Economics of Education: Private School Behaviour" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="13328" PostTypeId="1" CreationDate="2016-09-08T10:45:03.980" Score="2" ViewCount="21" Body="&lt;p&gt;Post-Lehman a widespread political agenda has established to minimize implicit government guarantees to banks. However, in the buid-up of new banking regulations, &lt;a href=&quot;https://www.eba.europa.eu/documents/10180/1359456/EBA-Op-2016-04++Report+on+SMEs+and+SME+supporting+factor.pdf&quot; rel=&quot;nofollow&quot;&gt;lending to small and mid-sized companies (SME) has gotten a milder treatment &lt;/a&gt;relative to other lending. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So there is a political wish to have some of the guarantee value ending up at SMEs. And on the other hand negative effects on subsidising risk have been claimed in the debate. But what more generally is the impact of guarantees and through which channels have they acted?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit: I'm kind of looking after answers like in this &lt;a href=&quot;https://www.oecd.org/finance/Why-implicit-bank-debt-guarantees-matter-some-empirical-evidence.pdf&quot; rel=&quot;nofollow&quot;&gt;recent OECD paper on the end beneficiaries of banking guarantees&lt;/a&gt; but with a focus on if and how corporate lenders are part of the channel.&lt;/p&gt;&#xA;" OwnerUserId="10343" LastEditorUserId="10343" LastEditDate="2016-09-08T12:07:31.823" LastActivityDate="2016-09-08T12:07:31.823" Title="Where does the value of implicit government banking guarantees end up?" Tags="&lt;banking&gt;&lt;regulation&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13329" PostTypeId="1" AcceptedAnswerId="13337" CreationDate="2016-09-08T10:46:07.517" Score="1" ViewCount="74" Body="&lt;p&gt;If we have a condition where employment is lead by the wages does it mean that a wage reduction will cause unemployment?&lt;/p&gt;&#xA;" OwnerUserId="10344" LastEditorUserId="10344" LastEditDate="2016-09-08T12:10:08.440" LastActivityDate="2016-09-09T13:59:37.423" Title="How do the wages affect the employment" Tags="&lt;macroeconomics&gt;&lt;unemployment&gt;&lt;wages&gt;&lt;keynes&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13331" PostTypeId="2" ParentId="13312" CreationDate="2016-09-08T16:21:58.567" Score="2" Body="&lt;p&gt;The assessed value of the stocks goes down.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Non-stock related example: If my prized family portrait is assessed at 1000 dollars, and is later reassessed at 250 dollars.  That value is lost, 1000-250=750 dollars lost. No money ever went anywhere, but I, and as result all of society, is now poorer by $750. This loss is because we believed the painting was worth a lot, and we were wrong.  &lt;/p&gt;&#xA;" OwnerUserId="4185" LastActivityDate="2016-09-08T16:21:58.567" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="13332" PostTypeId="1" CreationDate="2016-09-08T16:32:30.033" Score="4" ViewCount="1172" Body="&lt;p&gt;It is well known that there is a strong connection between introducing more money into an economy and inflation, as well as removing money and deflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, how does the economy as a whole &quot;detect&quot; if money is removed from it?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A similar question would be how it detects whether the supply of money is increased, but that I could understand and explain better as printing new money is regulated, so the government and banks know about the increase and act accordingly. (yes, I know, printing money is not the only way to produce it, but I would guess creating new debt is also regulated or measured in some way)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I could also explain extreme cases, where the amount of money created or destroyed makes up a significant portion of the total amount. If suddenly such a large amount of money appeared, people would start to buy more things, and as the supply of things to buy is not enough, people will pay more money for it to be able to get it by out-bidding others, so prices increase, and we have inflation. Or if a significant portion of the money supply is destroyed, there is an abundance of things to buy, but not enough money to buy things, so prices will have to be lowered otherwise nobody would buy anything, so we have deflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, by what mechanisms does it happen that small (but not negligibly small) amounts of change in the money supply cause small amounts of inflation or deflation?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, if one very rich person would sell off some property in cash or take cash out of bank accounts, and just burn or bury that cash without telling anyone, how would the economy &quot;know&quot; it and by what mechanisms would it cause deflation? The amount in this example is not enough for people to consciously realize that money is missing from the economy so they could adapt their spending habits accordingly.&lt;/p&gt;&#xA;" OwnerUserId="10350" LastEditorUserId="10350" LastEditDate="2016-09-08T16:45:05.527" LastActivityDate="2016-09-12T17:49:29.967" Title="How does the economy &quot;detect&quot; if money is removed from circulation?" Tags="&lt;money-supply&gt;" AnswerCount="4" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13333" PostTypeId="1" CreationDate="2016-09-08T18:45:24.660" Score="3" ViewCount="62" Body="&lt;p&gt;What are the effects of quantitative easing on the foreign exchange rates? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the central bank starts buying debt denominated in domestic currency, I would think that the market would be flooded with domestic currency, making it less valuable with respect to other currencies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are there any other effects which I'm not taking into account?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated&lt;/p&gt;&#xA;" OwnerUserId="118" LastActivityDate="2016-10-08T19:54:14.420" Title="The effects of Quantative Easing (QE) on FX rates?" Tags="&lt;interest-rate&gt;&lt;exchange-rates&gt;&lt;financial-economics&gt;&lt;international-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13334" PostTypeId="2" ParentId="13332" CreationDate="2016-09-08T19:24:49.217" Score="2" Body="&lt;p&gt;Money is only inflationary in so far as it's moving around. So for there to be an inflationary or deflationary signal, that means that either the amount of money moving around has changed, or its velocity has changed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And what does it mean to have money &quot;moving around&quot;? It means that it's being used to buy goods or services. And that's how it affects prices - because it affects demand.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, yes, to elucidate: it's as you say- &lt;em&gt;&quot;if the millionaire wouldn't have destroyed the money but spent it, he could have bought a lot of goods with it, and the sellers of those goods could have bought still more goods with that profit and so on. As now those goods are no longer being bought, the sellers have to slightly reduce prices, so their goods aren't wasted in their warehouses. This means prices will drop a little, and this is how the economy &quot;feels&quot; the difference&quot;&lt;/em&gt;&lt;/p&gt;&#xA;" OwnerUserId="44" LastEditorUserId="44" LastEditDate="2016-09-09T06:43:55.963" LastActivityDate="2016-09-09T06:43:55.963" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="13335" PostTypeId="2" ParentId="13333" CreationDate="2016-09-08T19:32:06.290" Score="2" Body="&lt;p&gt;You've identified the first-order effect: the supply of local currency has increased, so its price (and from the perspective of other currencies, that's its exchange rate) decreases. That's assuming that the move wasn't already (fully) priced-in by the market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are lots of other effects.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There will be a change in domestic interest rates. The particular rates affected, depend on which debt has been bought. And there will be knock-on effects in those markets. This may affect inward investment in those markets.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;QE in itself sends a couple of signals to the market. Firstly, that the Bank sees deflationary pressures a year or two ahead (assuming its mandate is an inflation-rate target); and secondly, that it intends to apply inflationary pressure to deal with it. The market will react to those signals, depending on how far they diverge from what the market had already anticipated. Those reactions might include increased optimism or pessimism about future domestic demand, and / or about the health of domestic industries, and that can have an affect on exchange rates.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In short, the central bank is pressing levers that touch on much of the macro-economic picture, so there are lots of second-order effects. The nature and direction of these effects will depend on expectations before and after the announcement, as well as what's actually going on in the economy.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2016-09-08T19:32:06.290" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13337" PostTypeId="2" ParentId="13329" CreationDate="2016-09-08T23:53:48.730" Score="0" Body="&lt;p&gt;Are you referring to real life circumstances or in a hypothetical world? There is an interesting article about the correlation between wages and unemployment found here: &lt;a href=&quot;https://www.stlouisfed.org/On-The-Economy/2014/December/Are-Wages-and-the-Unemployment-Rate-Correlated&quot; rel=&quot;nofollow&quot;&gt;https://www.stlouisfed.org/On-The-Economy/2014/December/Are-Wages-and-the-Unemployment-Rate-Correlated&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Essentially this article states that higher levels of wages are weakly correlated with the unemployment rate based on data that was compiled and published in The Regional Economist. They also argue that when business conditions shift, it impacts both the unemployment rate and wages. &lt;/p&gt;&#xA;" OwnerUserId="10354" LastEditorUserId="10354" LastEditDate="2016-09-09T13:59:37.423" LastActivityDate="2016-09-09T13:59:37.423" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13338" PostTypeId="1" CreationDate="2016-09-09T01:46:32.643" Score="6" ViewCount="4513" Body="&lt;p&gt;Keynes (1936, Chapter 2) says that based on the classical theory, &quot;there are only four possible means of increasing employment&quot;, the fourth of which is:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;an increase in the price of non-wage-goods compared with, the price of&#xA;  wage-goods, associated with a shift in the expenditure of&#xA;  non-wage-earners from wage-goods to non-wage-goods.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;What does the above quote mean? What are wage-goods and non-wage-goods? And why would an increase in the price of non-wage-goods increase employment? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;P.S. Keynes's discussion here is with reference to AC Pigou's &lt;em&gt;Theory of Unemployment&lt;/em&gt; (1933), which I can't find online. It seems that Pigou makes a distinction between &quot;wage-goods&quot; and &quot;non-wage-goods&quot;. Keynes mentions very briefly that &quot;non-wage-goods&quot; is &quot;Professor Pigou's convenient term for goods upon the price of which the utility of the money-wage depends&quot;, but I'm not sure I understand this.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastEditorDisplayName="user18" LastEditDate="2016-09-09T02:03:06.047" LastActivityDate="2018-04-15T08:18:48.833" Title="How does an increase in the price of &quot;non-wage-goods&quot; increase employment?" Tags="&lt;unemployment&gt;&lt;keynes&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13339" PostTypeId="1" CreationDate="2016-09-09T04:18:23.527" Score="0" ViewCount="68" Body="&lt;p&gt;When read in the news articles for stock market price, I learned that the share value of a company changes in a year.  My question is does the share value really reflect if the company is doing good or not?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Example: In the recent aPIGEE article it says,  the company in a 52 week duration share value ranged from \$5.45 to \$16.34 .&lt;/p&gt;&#xA;" OwnerUserId="10252" LastEditorUserId="4817" LastEditDate="2016-09-09T07:31:50.173" LastActivityDate="2016-09-10T06:16:31.183" Title="How to understand share value vs real worth of the company" Tags="&lt;stock-market&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13340" PostTypeId="2" ParentId="13339" CreationDate="2016-09-09T06:49:38.873" Score="1" Body="&lt;p&gt;No one knows what the &quot;real worth&quot; of a company is. One could consider it to be be equal to the net present value of all its future cashflows. But no one knows what those cashflows will be, so its &quot;real worth&quot; is unknowable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the market is efficient, then the market capitalisation of the company (share price multiplied by number of shares) represents the market's best guess at what that real worth is. That is to say, it reflects the market's averaged expectation of all future cashflows, discounted to today.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So if a company's share price doubles, without any change in the number of shares issued, then the market is saying that it expects the net present value of all the company's future cashflows to have doubled.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2016-09-09T06:49:38.873" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="13341" PostTypeId="2" ParentId="13338" CreationDate="2016-09-09T07:43:49.473" Score="6" Body="&lt;p&gt;&lt;em&gt;Wage-goods&lt;/em&gt; are goods that a worker with wages might buy, perhaps now more commonly called &lt;em&gt;consumption goods&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Non-wage-goods&lt;/em&gt; are goods that a rentier receiving profits or interest might buy, including what might now be called &lt;em&gt;capital goods&lt;/em&gt; or &lt;em&gt;investment goods&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As to how to read Keynes's interpretation of Pigou's position (so actually neither Keynes's nor Pigous's), it might be saying that if non-wage-earners shift their demand towards non-wage-goods, this would have the demand-side effect of pushing up the relative price of non-wage-goods and reduce the relative price of wage-goods, with presumably &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;either the direct effect of increasing both the number of wage-earners employed producing non-wage-goods and their wages, &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;or the indirect effect of increasing the real wage for all wage-earners (since their wage-goods are now relatively cheaper) above the previous &quot;marginal disutility of labour&quot;, and this encourages increased wage-earning employment (what today would be called a &lt;em&gt;substitution effect&lt;/em&gt;)  &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="8891" LastEditorUserId="8891" LastEditDate="2016-09-09T17:04:43.673" LastActivityDate="2016-09-09T17:04:43.673" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13342" PostTypeId="2" ParentId="13332" CreationDate="2016-09-09T09:14:49.013" Score="0" Body="&lt;p&gt;To the question &quot;how does the economy as a whole detect if money is removed from it?&quot;, i would answer: &quot;with great difficulties and intermediate modifications, which, in the end, call the tune&quot;.&#xA;To deal with money, be it in macro or micro terms, is mandatory to avoid neglecting the difference between stocks and flows. That is: it has to be identified &quot;existing&quot; (or out-of-bank-system) and circulating money, both connected (of course) by a velocity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Generally, we speak of &quot;supply&quot; of money as the size of aggregate-bank-system balance sheet. That is, the stock of out-there &quot;existing&quot; money.&#xA;What &quot;the economy&quot; &quot;perceives&quot;, on the contrary, is the flow of money going to buy goods, services, and assets (neither to mix up, nor to neglect, the latter!)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Money does not appear, but is created, what is a slight and important difference, because it has a counterpart. Also, money cannot desappear, but is &quot;cancelated&quot;, against a counterpart.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In your rich person example, the burnt notes are not distinguishable from hoarded ones for &quot;the economy&quot; (because it's a secret), thus counting as existing (&quot;supplied&quot;) money, but not circulating. Central Bank, or in general the issuer of the notes, when making periodical inventories of &quot;existing&quot; notes (i ignore the procedure and frecuency of this), will note the lost ones, and will cancel the liability in its balance sheet (writting down a profit, that in macro terms cancels the lost of your millioner).&lt;/p&gt;&#xA;" OwnerUserId="7209" LastActivityDate="2016-09-09T09:14:49.013" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13343" PostTypeId="1" CreationDate="2016-09-09T14:36:59.800" Score="4" ViewCount="87" Body="&lt;p&gt;What tests do you recommend for finding breaks in the following time series: log of inward FDI, log of nominal GDP, log of outward FDI from 1980 to 2012?&lt;/p&gt;&#xA;" OwnerUserId="10302" LastEditorUserId="10302" LastEditDate="2016-09-17T14:53:35.570" LastActivityDate="2016-10-17T19:26:42.793" Title="Recommended tests do detect breaks in time series" Tags="&lt;macroeconomics&gt;&lt;econometrics&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13344" PostTypeId="2" ParentId="13339" CreationDate="2016-09-09T19:32:54.577" Score="2" Body="&lt;p&gt;When a stock price changes, it implies that the present value of future cash flows from the company to investors has changed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A multitude of different things can change that number, and ascertaining &lt;em&gt;why&lt;/em&gt; a stock price changed is often difficult or near impossible.&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Simple example: one period cash flow, no uncertainty&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;Let $r^f$ be the risk free rate. Let $c$ be some cash flow one period ahead.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The present value of the cash flow is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ p = \frac{1}{1+r^f} c$$ And that's what it would trade for in efficient market. Two key observations:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;If the discount rate $\frac{1}{1 + r^f}$ were different, then the price would be different.&lt;/li&gt;&#xA;&lt;li&gt;If the future cash flow $c$ were different, the price would also be different.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Conceptually, the price of a financial asset can be decomposed into some discount rate times the quantity of a future cash flow.&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;More complicated setup, one period cash flow, uncertainty&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;With the addition of uncertainty, you get a conceptually similar result: the price of a financial asset should be the &lt;a href=&quot;http://mathworld.wolfram.com/InnerProduct.html&quot; rel=&quot;nofollow&quot;&gt;inner product&lt;/a&gt; of a &lt;a href=&quot;https://en.wikipedia.org/wiki/Stochastic_discount_factor&quot; rel=&quot;nofollow&quot;&gt;discount factor&lt;/a&gt; with the future cash flow. Let $\mathbf{s}$ be a random variable denoting the stochastic discount factor, and let $\mathbf{c}$ be a random variable denoting the future cash flow. The &lt;a href=&quot;https://en.wikipedia.org/wiki/Law_of_one_price&quot; rel=&quot;nofollow&quot;&gt;Law of One Price&lt;/a&gt; (LOOP) implies the existence of a stochastic discount factor $\mathbf{s}$ such that:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ p = E[\mathbf{s}\cdot\mathbf{c}] $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $\mathcal{F}_t$ be the set of information available at time $t$. As new information becomes available, the conditional expectation will change:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ p_t = E\left[\left. \mathbf{s}\cdot \mathbf{c} \, \right| \, \mathcal{F}_t \right] $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This looks fancy, but it's almost the &lt;em&gt;same&lt;/em&gt; idea as the simple, one period cash flow case. The price of an asset today is the product of a discount factor and future cash flows. &lt;strong&gt;In an efficient market, changes in asset prices may be due to news about discount rates or news about cash flows!&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the share price triples, that's almost certainly due to positive news about future cash flows. Small changes though, or changes at the level of the overall S&amp;amp;P500 index are trickier.&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Practical Implications&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;In the fall of 2008, the stock market collapsed! Asset prices fell. What did this mean though? The decline may have be due to declining expectations of future cash flows from the corporate sector. &lt;em&gt;But&lt;/em&gt; it also may have been due to rising discount rates, that risky future cash flows were being assigned a lower price! In a strict sense, disentangling discount rate news from cash flow news is nearly impossible. In general though, when looking at an individual company, you're almost certainly seeing more variation due to cash flow news than discount rate news, but strictly speaking, there's no way to make a clean decomposition.&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Sensitivity of the current price to future cash flow news...&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;A number of features can make the price very sensitive to news:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Leverage: If a company has a lot of debt and is near bankruptcy, the cash flows to equity may be massively different depending on whether the company survives or not.&lt;/li&gt;&#xA;&lt;li&gt;Time horizon: How much is something like Uber worth? Will it take over global transportation with robotic, AI vehicles? Or will it sink under a morass of rising labor costs and government regulation? The big payoffs from something like Uber are in the distant future, and forecasts of the distant future may be volatile, sensitive to certain types of news.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="10334" LastEditorUserId="10334" LastEditDate="2016-09-10T06:16:31.183" LastActivityDate="2016-09-10T06:16:31.183" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13346" PostTypeId="1" AcceptedAnswerId="13669" CreationDate="2016-09-09T22:44:00.280" Score="2" ViewCount="67" Body="&lt;p&gt;I remember reading about an interesting event which happened in the early 19th century, in the Habsburg Empire.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A criminal organization, mainly composed of workers and corrupt administrators at a gold mine, minted prefect-quality gold coins illegally. Normally, the extracted gold had to be handed in, in exchange for a very low commission, so they handed in only part of the mined gold, minting the rest into coins illegally. However, instead of producing counterfeit coins with a lower than official gold content, they minted coins which had the same gold content as the real ones.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When the operation was busted, the confiscated coins were marked (by hammering a nail through them, if I remember correctly) and transported away to be destroyed, probably to be cast into bullion or to be minted.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is what I don't understand, why was it necessary if the coins had the required gold content?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The criminal operation was definitely a loss for the government, but from the point of view of macroeconomics it shouldn't have influenced the supply of money. If the criminals wouldn't have minted it, I guess that probably the government would have. So, why were those &quot;perfect&quot; coins needed to be destroyed, if they were to be later re-minted anyway? &lt;/p&gt;&#xA;" OwnerUserId="10350" LastEditorUserId="10350" LastEditDate="2016-09-10T08:17:13.200" LastActivityDate="2016-10-07T16:00:45.873" Title="What was the reason behind destorying or re-minting counterfeit gold coins of the same karats as the real ones?" Tags="&lt;money-supply&gt;" AnswerCount="2" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="13348" PostTypeId="1" CreationDate="2016-09-10T01:39:41.320" Score="1" ViewCount="33" Body="&lt;p&gt;I know that $f'(l)=w$. But if i have that the aggregate production is $Y=AL^{1-α}$  with $L=N*l$ (The number of workers, $N$, multiplied by the labor force). So basically I want to find an expression for $w$ (the wage.).&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Full problem&lt;/strong&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider a one period economy, with aggregate technology given by: $Y=AL^{1-α}$ ,$0&amp;lt;α&amp;lt;1$. $L$ denotes the aggregate labor. The economy is integrated by $N$ identical agents, that offers labor force for a remuneration $w$. Also each person receives an Nth part of the earnings $π$ that generates the aggregate production. The objective of each agent is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\max \qquad γ\ln(1-l) + \ln(c)$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\text{subject to} \qquad c = wl + \frac{1}{Nπ(w)}$ &lt;/p&gt;&#xA;" OwnerUserId="10240" LastEditorUserId="4251" LastEditDate="2016-09-12T16:57:16.440" LastActivityDate="2016-09-12T17:28:06.910" Title="Marginal productivity of aggregate labor relation to wage" Tags="&lt;self-study&gt;" AnswerCount="1" CommentCount="7" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13349" PostTypeId="1" AcceptedAnswerId="13351" CreationDate="2016-09-10T01:42:30.280" Score="3" ViewCount="2129" Body="&lt;p&gt;Suppose we have a production function with constant returns to scale. Let us denote it by $F(A,K,L)$ where $A$ is the technology, $K$ the capital and $L$ Labor. Further assume the first partial derivative of $L,K$ are both positive and the second partial negative. How to show the production function is concave in $K$ and $L$ but not strictly so?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This problem is from Acemoglu's Intro to Modern Economic Growth. I don't quite understand what it means to say the function is concave in $K$ and $L$. Do I need to show that $F(K,L)$ (treating A as constant) is concave? or do I show $F(K)$ and $F(L)$ are concave (treating L,A or K,A as constants)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If it is the latter, it seems the problem seems trivial by the second derivative test.&lt;/p&gt;&#xA;" OwnerUserId="4551" LastEditorUserId="1601" LastEditDate="2016-09-10T16:29:38.880" LastActivityDate="2019-09-04T12:37:47.597" Title="How to show the production function is concave in K and L but not strictly so?" Tags="&lt;macroeconomics&gt;&lt;production-function&gt;" AnswerCount="1" CommentCount="4" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="13351" PostTypeId="2" ParentId="13349" CreationDate="2016-09-10T14:14:24.733" Score="5" Body="&lt;p&gt;So we want the Hessian to be NSD, so we need the PMs to alternate weakly. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$H=\begin{bmatrix} F_{kk} &amp;amp; F_{kl} \\&#xA;F_{kl} &amp;amp; F_{ll}&#xA;\end{bmatrix}~~NSD \iff~~~F_{kk},F_{ll}\leq0~~~\&amp;amp;~~F_{kk}F_{ll}-F_{kl}^2\geq0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We are given that $F_{kk},F_{ll}&amp;lt;0$ so we need to figure out the cross partials.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Constant returns to scale implies that we have a homogeneous of degree 1 function: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$F(K,L)=KF_k+LF_l \implies  F_l=KF_{kl}+LF_{ll}+F_l~~ \&amp;amp;~~  F_k=LF_{kl}+KF_{kk}+F_k$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now we can substitute these equations into the expression for the 2nd PM:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\big(-\frac{L}{K}F_{kl}\big)\big(-\frac{K}{L}F_{kl}\big)-F_{kl}^2=0~~~~~$&#xA; and we're done. &lt;/p&gt;&#xA;" OwnerUserId="10155" LastEditorUserId="10155" LastEditDate="2016-09-10T14:22:29.323" LastActivityDate="2016-09-10T14:22:29.323" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="13353" PostTypeId="2" ParentId="10637" CreationDate="2016-09-10T15:51:51.410" Score="6" Body="&lt;p&gt;It makes little sense to me either, but here are some possible reasons for buying a bond with negative interest rates rather than depositing the same amount in a bank:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;The deposit-taking bank may go bankrupt during the lifetime of the bond and your deposit would be too large to be guaranteed, with the cost of default insurance being higher than the the negative interest&lt;/li&gt;&#xA;&lt;li&gt;The bank may start charging you for holding your deposit at some time during the lifetime of the bond, at a higher cost to you than the negative interest&lt;/li&gt;&#xA;&lt;li&gt;You may be legally obliged to hold bonds, for example as a pension or insurance company&lt;/li&gt;&#xA;&lt;li&gt;You run an Exchange Traded Fund or similar investment tracking a bond index and some of the bonds in the index have negative interest rates &lt;/li&gt;&#xA;&lt;li&gt;You are a foreign investor who only cares about the combination of the current exchange rate, future exchange rate and interest rate, not any individual component of this triangle, or you believe currency appreciation will more than compensate for negative interest&lt;/li&gt;&#xA;&lt;li&gt;You are a derivatives trader, and the market prices of derivatives lead to an arbitrage opportunity where you can only guarantee a profit by buying the bond &lt;/li&gt;&#xA;&lt;li&gt;You believe that at some time in the future you may be able to sell the bond for more than you paid for it (i.e. an even more negative yield), perhaps to a central bank's quantitative easing programme&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="8891" LastEditorUserId="8891" LastEditDate="2016-09-12T10:12:51.870" LastActivityDate="2016-09-12T10:12:51.870" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13355" PostTypeId="2" ParentId="13206" CreationDate="2016-09-11T00:38:52.727" Score="-1" Body="&lt;p&gt;&lt;strong&gt;Derivatives provide the investor a way of transferring risk.&lt;/strong&gt; Plain and simple. They are incredibly complex if you want to get into them, but there's your answer.&lt;/p&gt;&#xA;" OwnerUserId="10365" LastActivityDate="2016-09-11T00:38:52.727" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13356" PostTypeId="1" AcceptedAnswerId="13378" CreationDate="2016-09-11T06:12:25.677" Score="3" ViewCount="6559" Body="&lt;p&gt;In the last 8 years has their been a change in the way unemployment is calculated? Is there a nuance that has changed in the polling info? Many of my right wing comrades claim the Obama administration has changed the calculation in some way to make it seem as though the number is lower than what it should be?&lt;/p&gt;&#xA;" OwnerUserId="10366" LastActivityDate="2018-06-02T14:29:34.993" Title="Change in the way unemployment is calculated in the US?" Tags="&lt;unemployment&gt;&lt;empirical-evidence&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13358" PostTypeId="2" ParentId="5333" CreationDate="2016-09-11T08:54:47.053" Score="1" Body="&lt;p&gt;I am currently reading the book and came across the surplus recycling mechanism. To my understanding, the reason behind his use of the term was linked to the imbalance in trade and in capital cash flows of one region vis-à-vis another. &#xA;More specifically, he talks about the SRM as being another alternative to tackle trade deficits in poorer regions. As an example, he talks about the unemployment benefits in Yorkshire ( Britain ) being paid through taxes raised in Sussex. &lt;/p&gt;&#xA;" OwnerUserId="10368" LastActivityDate="2016-09-11T08:54:47.053" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13359" PostTypeId="1" CreationDate="2016-09-11T16:17:43.967" Score="1" ViewCount="632" Body="&lt;p&gt;I am trying to prove a statement that if $c_R$ is a choice structure, then it must satisfy Sen's $\alpha$ condition.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, if $X=\{a,b,c \}$, I can construct some choice structure like $c(\{a\})=a,c(\{b\})=b, c(\{c\})=c, c(\{a,b\})=a,c(\{b,c\})=b,c(\{c,a\})=c,c(\{a,b,c\})=a$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Such choice structure clearly violates the $\alpha$ (shrinking) condition.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So can someone point out where do I make a mistake? Or is the statement assuming the relation $R$ to be rational?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks!&lt;/p&gt;&#xA;" OwnerUserId="2801" LastEditorUserId="43" LastEditDate="2016-09-11T16:43:23.027" LastActivityDate="2016-09-11T17:06:27.000" Title="$\alpha$ condition and choice structure" Tags="&lt;microeconomics&gt;&lt;academic-graduate&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13360" PostTypeId="1" CreationDate="2016-09-11T16:42:50.790" Score="3" ViewCount="68" Body="&lt;p&gt;Let's split each period into $n$ intervals. There's a continuum $u$ of unemployed and $v$ of vacancies. During each interval, there is a total of $X/n$ job offers. That means that each unemployed gets a job offer with probability $X/(nu)$ (assuming that $n$ is eventually so small that the chance of multiple job offers to the same person will go to zero). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Single individual&lt;/strong&gt; Number of job offers - for a single individual - in the interval is distributed $Binomial(k, n, \frac{X}{un})$. Letting $n\to\infty$, the distribution in the continuous-time analog converges to $Poisson(k, \frac{X}{u})$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm interested in the probability of $x$ individuals getting at least one job interval during a whole interval. That is $(1 - Binomial(0, n, \frac{X}{nu}))^x$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ (1 - (1 - \frac{X}{un})^n)^x $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I'm not mistaken, the continuous-time analog is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ (1 - e^\frac{-X}{u})^x$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is that correct? The combination of exponential and power function is making me quite uncomfortable.&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2016-09-13T06:13:37.817" LastActivityDate="2016-09-13T22:35:16.087" Title="Matching problem in continuous time" Tags="&lt;continuous-time&gt;&lt;matching&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13361" PostTypeId="2" ParentId="13359" CreationDate="2016-09-11T16:48:29.433" Score="1" Body="&lt;p&gt;A choice structure can be whatever it wants to be. A choice structure that is rationalizable by a preference relation must (among other things) satisfy Sen's $\alpha$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So if you want to show that a rationalizable choice structure satisfies $\alpha$ then you can show that any that satisfies WARP will also satisfy $&#xA;\alpha$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I recommend Kreps or the UPitt notes for more info on the relationship between choice structures and preference. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.pitt.edu/~luca/ECON2100/lecture_02.pdf&quot; rel=&quot;nofollow&quot;&gt;http://www.pitt.edu/~luca/ECON2100/lecture_02.pdf&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="10155" LastEditorUserId="10155" LastEditDate="2016-09-11T17:06:27.000" LastActivityDate="2016-09-11T17:06:27.000" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13362" PostTypeId="1" AcceptedAnswerId="13363" CreationDate="2016-09-11T19:02:57.467" Score="1" ViewCount="175" Body="&lt;blockquote&gt;&#xA;&lt;p&gt;Below are three different demand curves (i) - (iii), which depend on advertising (A).&lt;/p&gt;&#xA;&lt;p&gt;(i) Q(P,A) = A &lt;span class=&quot;math-container&quot;&gt;$\times$&lt;/span&gt; (&lt;span class=&quot;math-container&quot;&gt;$\alpha$&lt;/span&gt; - &lt;span class=&quot;math-container&quot;&gt;$\beta$&lt;/span&gt;P), where &lt;span class=&quot;math-container&quot;&gt;$\alpha$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$\beta$&lt;/span&gt; &amp;gt; 0&lt;/p&gt;&#xA;&lt;p&gt;(ii) Q(P, A) = &lt;span class=&quot;math-container&quot;&gt;$\alpha$&lt;/span&gt; + A - &lt;span class=&quot;math-container&quot;&gt;$\beta$&lt;/span&gt;P&lt;/p&gt;&#xA;&lt;p&gt;(iii) Q(P,A) = &lt;span class=&quot;math-container&quot;&gt;$\alpha$&lt;/span&gt; - &lt;span class=&quot;math-container&quot;&gt;$\beta$&lt;/span&gt;(B - A)P&lt;/p&gt;&#xA;&lt;p&gt;For each of the cases, what happens to the optimal price as advertising increases? How does your answer depend on the behavior of the cost function C(Q)?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Assuming constant marginal cost of &lt;span class=&quot;math-container&quot;&gt;$c$&lt;/span&gt; and that the firm is a monopoly:&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\max (\pi(\text{A}, \text{P})) = (\text{P} - c)\text{Q} - \text{A}$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;WRT (i),&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\max (\pi(\text{A}, \text{P})) = \text{A}\alpha\text{P} - \text{A}\beta\text{P}^2 - \text{A}\alpha c - \text{A}\beta\text{P}c - \text{A}$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;For that, we calculate&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\frac{d\pi}{d\text{P}} = \text{A}\alpha - 2\text{A}\beta\text{P} - \text{A}\beta c = 0$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;and&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\frac{d\pi}{d\text{A}} = \alpha\text{P} - \beta\text{P}^2 - \alpha c - \beta \text{P}c - 1 = 0$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;We get to&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\frac{e\text{A}}{-e\text{P}} = \frac{\alpha\text{P} - \beta\text{P}^2 - \alpha c - \beta\text{P}c - 1}{-\text{A}\alpha + 2\text{A}\beta\text{P} + \text{A}\beta c}$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;Any continued guidance would be greatly appreciated&lt;/p&gt;&#xA;" OwnerUserId="10370" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2016-09-12T13:59:02.850" Title="Optimal Pricing with Advertising" Tags="&lt;microeconomics&gt;&lt;optimization&gt;&lt;advertising&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="13363" PostTypeId="2" ParentId="13362" CreationDate="2016-09-11T20:07:25.887" Score="1" Body="&lt;p&gt;Given how the problem is set up, I think they want you to take A as given when you choose price.  If that is the case, then you can find the comparative static $\partial P / \partial A$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can think of p in the Foc as being a function of all the other parameters: $A\alpha-2A\beta P(A,\alpha,\beta,c)-A\beta c=0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now differentiate this wrt A: $\alpha-2\beta P(A,\alpha,\beta,c) -2A\beta (\partial P / \partial A)-\beta c=0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now you can solve for $\partial P / \partial A$&lt;/p&gt;&#xA;" OwnerUserId="10155" LastActivityDate="2016-09-11T20:07:25.887" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13364" PostTypeId="1" CreationDate="2016-09-11T22:33:59.087" Score="4" ViewCount="12960" Body="&lt;p&gt;I need to verify that $u(x,y)=x^{1/3}y^{1/3}$ represents the same preferences as $v(x,y)=x^3y^3$. Obviously these are completely different functions with different derivatives, so what am I comparing? What makes 2 utility functions represent the same preferences?&lt;/p&gt;&#xA;" OwnerUserId="10372" LastEditorUserId="2776" LastEditDate="2017-09-21T17:03:01.480" LastActivityDate="2017-09-21T17:08:24.503" Title="How can I tell if 2 different utility functions represent the same preferences?" Tags="&lt;utility&gt;&lt;preferences&gt;" AnswerCount="2" CommentCount="3" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13366" PostTypeId="1" AcceptedAnswerId="16868" CreationDate="2016-09-12T00:17:40.967" Score="1" ViewCount="101" Body="&lt;p&gt;It seems to me that a lot of uncertainty is created by Reserve Banks spending 5 months telegraphing &quot;I'm gonna do it, I'm gonna raise rates&quot;, as is currently seen in the USA.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This seems to be the case where everyone knows the rate is wrong, but changing it quickly will cause shocks.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Instead of waiting 5 months and then increasing by 0.25%, why not increase by 0.05% every month for 5 months? Or smaller amounts if that is required.&lt;/p&gt;&#xA;" OwnerUserId="6459" LastActivityDate="2017-05-22T13:44:53.430" Title="Why do Reserve Banks only move in 0.25 basis point 'leaps'" Tags="&lt;monetary-policy&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13367" PostTypeId="2" ParentId="12666" CreationDate="2016-09-12T01:28:35.287" Score="0" Body="&lt;p&gt;The Ascent of Money, This Time it's Different, and Other People's Money. All great reads.&lt;/p&gt;&#xA;" OwnerUserId="10365" LastActivityDate="2016-09-12T01:28:35.287" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13368" PostTypeId="1" AcceptedAnswerId="13369" CreationDate="2016-09-12T01:50:28.050" Score="2" ViewCount="361" Body="&lt;p&gt;There are a couple of central banks (RBA, Federal reserve for example) that use inflation rate as a key indicator to regulate their official cash rates. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Those target inflation rates usually range from 2%-3%.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is taken from federal reserve's official website:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Over time, a higher inflation rate would reduce the public's ability to make accurate longer-term economic and financial decisions. On the other hand, a lower inflation rate would be associated with an elevated probability of falling into deflation&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;World has changed in the past 10 years or so:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/WFiSk.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/WFiSk.jpg&quot; alt=&quot;rba cash rate&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/7jBwT.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/7jBwT.png&quot; alt=&quot;federal cash rate&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;World's prevailing overnight cash rates have plunged from 3%-20% in the 20th century to 0%-3% in the past 5 years.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So is there any scientific proof that 2% inflation rate (or 2%-3% in RBA's case), is still the optimum target in today's low interest rate regime? &lt;/p&gt;&#xA;" OwnerUserId="5194" LastActivityDate="2016-09-12T06:23:02.083" Title="Is there any scientific proof that 2%-3% target inflation rate is ideal?" Tags="&lt;macroeconomics&gt;&lt;monetary-policy&gt;&lt;interest-rate&gt;&lt;central-banking&gt;&lt;federal-reserve&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13369" PostTypeId="2" ParentId="13368" CreationDate="2016-09-12T06:23:02.083" Score="2" Body="&lt;p&gt;Science doesn't work on the basis of &quot;proof&quot;. Proof is something that belongs only in the realms of mathematics and philosophical logic. Whereas science works on the basis of the best-available explanation that fits the available evidence.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That's as true of physics as it is of economics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The challenge in economics is that it's much harder to do experiments to gather additional evidence, particularly in macro-economics. So decisions have to be made on the basis of quite thin evidence. Nevertheless, the principle is the same: we look for the best-available explanation that fits the available evidence.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The point of a 2-3% inflation target was that it was neither too high nor too low. And that's based on the harm we see being done during periods of deflation (such as the Great Depression) and during periods of high inflation (the oil crises in the early and late 1970s).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And because it's a target, rather than a cap or a floor, that means that it's applicable in a period of high inflation and high interest rates; &lt;em&gt;and&lt;/em&gt; it's applicable in a period of near-zero inflation and near-zero interest rates. The evidence that supported this target pre-2007, is still the evidence that supports it now.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2016-09-12T06:23:02.083" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13370" PostTypeId="2" ParentId="13360" CreationDate="2016-09-12T10:58:48.857" Score="2" Body="&lt;p&gt;An alternative approximating approach you could use as as check might be to say there are $X$ job offers in total and $u$ unemployed. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the probability that an individual &lt;em&gt;does not&lt;/em&gt; get a particular job offer is $\left(1-\dfrac{1}{u}\right)$ and so the probability the individual does not get any job offer is $\left(1-\dfrac{1}{u}\right)^X$ which is $\left(\left(1-\dfrac{1}{u}\right)^u\right)^{x/u} \approx e^{-X/u}$ much as one might expect from a Poisson distribution. You have an error in the sign of $e^{-X/u}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That makes the probability the individual &lt;em&gt;does&lt;/em&gt; get a job offer about $1-e^{-X/u}$. It makes the expected number of individuals receiving job offers about $u(1-e^{-X/u})$.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The probability that $y$ individuals get job offers (rather than $x$ as you have already used $X$) is then roughly the binomial $\displaystyle {y \choose u}\left(1-e^{-X/u}\right)^y e^{-(u-y)X/u}$ and or if you wanted a Poisson approximation to this then about $\dfrac{e^{-u\left(1-e^{-X/u}\right)}u^y\left(1-e^{-X/u}\right)^y}{y!}$ and you could apply further approximations to this but it would not get much tidier&lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2016-09-12T10:58:48.857" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13371" PostTypeId="1" CreationDate="2016-09-12T12:03:44.807" Score="1" ViewCount="149" Body="&lt;p&gt;I'm running the following regression on panel data:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$&#xA;%Translator MathMagic Pro for InDesign Mac v9.14, LaTeX converter, 2016.9.11 22:27&#xA;\begin{array}{l}&#xA;{{\mathrm{tscorek}}_{\mathrm{i}}\mathrm{{=}}{\mathrm{\beta}}_{0}\mathrm{{+}}{\mathrm{\beta}}_{1}{\mathrm{sck}}_{\mathrm{i}}\mathrm{{+}}{\mathrm{\beta}}_{2}{\mathrm{boy}}_{\mathrm{i}}\mathrm{{+}}{\mathrm{\beta}}_{3}{\mathrm{freelunk}}_{\mathrm{i}}\mathrm{{+}}{\mathrm{\beta}}_{4}{\mathrm{totexpk}}_{\mathrm{i}}}\\&#xA;{\hspace{1em}\hspace{1em}\hspace{1em}\hspace{1em}\hspace{1em}\hspace{1em}\&amp;gt;\&amp;gt;\mathrm{{+}}{\mathrm{\beta}}_{5}\left({{\mathrm{boy}}_{\mathrm{i}}\mathrm{\cdot}{\mathrm{sck}}_{\mathrm{i}}}\right)\mathrm{{+}}{\mathrm{\beta}}_{6}\left({{\mathrm{freelunk}}_{\mathrm{i}}\mathrm{\cdot}{\mathrm{sck}}_{\mathrm{i}}}\right)\mathrm{{+}}{\mathrm{\beta}}_{7}\left({{\mathrm{totexpk}}_{\mathrm{i}}\mathrm{\times}{\mathrm{sck}}_{\mathrm{i}}}\right)\mathrm{{+}}{\mathrm{\varepsilon}}_{\mathrm{i}}}&#xA;\end{array}&#xA;%MathMagic MMF.7h]a5`00]EQ]Km|f4?h5n*on:0):`N);B?FKhkZY|LP)K3GM(?N3VkRM|M*)57M[E^*_k3N?Ae7BbK:U0)fZ*^K3)o8N?CbNZ2`WdcNcNC9(9k?YfONciFPn7ZJcNI2|mWlTZlnKfmie]^]mfVFmbOKenW7cNM];E[Nm_n81b?kI(YfTEn?PCKKkD]UOmM9[j6Go?^bfSn_7LlH7VngMWGFn6LlG=TbP`aj4?FIkGPoCLA1KJ35W4=TkOlGe:aKeTDZP;[Vnn1=ndfl]OSnIG|e6PF1a2(b4QT(8(T;?lJoGEl?9=)RO?InM;AOS=9e(;o5Y5X_Y(1T7bE)fFMgI20mkjofh3eSX^o3Q9W];9_AGKXL))nn`Rc19E[g;K;gnLk5XF6F[EGG(7A5k`jSKS2HLkKiVVgGF|(AQ|]^^KY]3X5)Y;ZVPBb]X5`_JeH8^^J1E;fPE34h[1RLUhefBlLk|jY:(]d_6fbGSGI;aE|UhZfCl]6ClY6C2BYJ(e]_menaY^_jkJHL))nn`Rc0lk9;=;]G||TXThoe]LdImbV2)6_ja9HN7g;M]h*ZEKg?K5RY_Ra1;VPOB0^fM51Zh=dAXl6e=IS;X57UPJfAXRW3(PWcd*h1]USNA1^A=CSb*QAZH720;hOfAANbMT0Ch][J?aPHb1lH1T*=T0DDdEW9m`;9AdK3253`0PdN5*I8PP=6iKf?dXUlkYf:84h4E::K()2=|)270lNWS0PPBU5(6G94Q4Ie;EgBhOoh2DPD49B20b26LoPD*iMXmH9jB(LQ038C`lPZRPm14)F7Xi341TUE39=50L]8FY4dET7UlGD0(Oej*TgTJR29aT88Y?6?bO8ZA:AD*=hDTo7Q5ed59C951PAAMI)FFX|aAI)7CA1WBSZ|TRaQY4`dR3)nC9A:ECY6;GSPY2R8b4bj0:7Q4a^fX0|EE54ggPJIIX7TEDi(ed=8YZceBM4Q4mZLVNJQ=mBcJ9J4G`V1hhNLb=;c9Tk10PYXTFCnS71dOb4*EDJ=Y*QQ3;7*Oa2*7Hj9oc4W8F5CBaY;TMZcXE14MXTW:a8H2VWlfLk225Pl03)Z*k0AP90f0B*XDMJ?U09R^8ELA2T3B481A8J5F4h6CHP^^;9j;dRQ[E*hX5HPXd:6|02YbGTiITlCEaW;]`EG7X]RjlUP2DKddP5=1G7WT9J8;0ji2VQ:Aa01)]PH8nWIb5K;(9Q1TMh2]TJabM=UI(7A5DYJZR][B24eYeLXT^3XYbgL?:eo(R804UfFe_QaN1oR)MhlG2_^KXi`KF|6Q^]ENg|ZMcME3lP_N:^`X79N?cno6eDNdBV_12be)SAakZjZ)(_Cbe|Ra)(E:UeK][;YV=JeShgHe)|C:Wo?`RZei?Y^U0A|`^bafa`Rlfk()_VlHgYUKaBnOP_Y9(^n38ggTa3Rk_g=7iM`PSSS;Dlkf99d(|fcWoO2dN;7I[[:W7)(QLK[n_=Z_LhaW`oWjO[GOk;IiScdB9cL[Ni[nN;oVWRg;Ci0N8OWa]gfflYRC4D?O9dSOQNnCY6oTnaCYNngkXV)2jF)MiY*:n2gD59RML|O_7jXJO^kDI7)O=e*gmd5C5hj[YW8lX|YaGEN)VjIb?6hZici63YAc7b07bQelM?S)HnTSC^J?D(OLXi?^^ZjLnmRPbXWh*3W96|Y9J2XW)EE)R[YbDSJETjZYW8bJbTUmX=cZg^hJ?);J137^_gGa`;JIJc_TC[V[[)H^|M|E1Nb*gU?R9=IiM3Fg1F2jbkj|kW_Yn]_N5lKlPP5cYOGR5nMWFh]gBH0:C:IYP(4FKfO_;hJ;|C?NS4O3dBS04M?I^m7=d8g1?c2=I]=d?4ga3d`9U_onmnG5kf7a3cilGhj2oN?];[?[]Tc]5S_V|)To?blGMUOY__daL=ZCiIi2Vbi?*(mAl7SK7OL5|o5l]XnkYilaVlQWnfBcnOk[mZL*U6i:k=GH:L(?`GjgGgmk)3ekcATS?Anj;)cK|Mmm1jQnG|9E8EOk1[(_j2?FUfQ|Cd[mUbc^lo;6RVe_EYjGLH]J^KehaOhoP[Z=h8n]_hd|8oT3_1E[8Nj6?M^RlAme1Fdf.mmf&#xA;$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where every variable is a dummy except for the dependant variable and totexpk. I'm having trouble with interpreting the coefficients of this regression; the way I see it, it's very complicated to put them into words:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$&#xA;%Translator MathMagic Pro for InDesign Mac v9.14, AMS LaTeX converter, 2016.9.11 22:30&#xA;\begin{gathered}&#xA;{{\mathbb{E}}\left({{{\mathrm{tscorek}}_{\mathrm{i}}}\vert{{\mathrm{sck}}_{\mathrm{i}}\mathrm{{=}}{1}\&amp;gt;{\mathrm{,}}\&amp;gt;{\mathrm{boy}}_{\mathrm{i}}\mathrm{{=}}{1}\&amp;gt;{\mathrm{,}}\&amp;gt;{\mathrm{freelunk}}_{\mathrm{i}}\mathrm{{=}}{1}\&amp;gt;{\mathrm{,}}\&amp;gt;{\mathrm{totexpk}}_{\mathrm{i}}}}\right)\hspace{1em}\mathrm{{=}}\hspace{1em}\left({{\mathrm{\beta}}_{0}\mathrm{{+}}{\mathrm{\beta}}_{1}\mathrm{{+}}{\mathrm{\beta}}_{2}\mathrm{{+}}{\mathrm{\beta}}_{3}\mathrm{{+}}{\mathrm{\beta}}_{5}\mathrm{{+}}{\mathrm{\beta}}_{6}}\right)\mathrm{{+}}\left({{\mathrm{\beta}}_{4}\mathrm{{+}}{\mathrm{\beta}}_{7}}\right){\mathrm{totexpk}}_{\mathrm{i}}} \hfill\\&#xA;{{\mathbb{E}}\left({{{\mathrm{tscorek}}_{\mathrm{i}}}\vert{{\mathrm{sck}}_{\mathrm{i}}\mathrm{{=}}{1}\&amp;gt;{\mathrm{,}}\&amp;gt;{\mathrm{boy}}_{\mathrm{i}}\mathrm{{=}}{1}\&amp;gt;{\mathrm{,}}\&amp;gt;{\mathrm{freelunk}}_{\mathrm{i}}\mathrm{{=}}{0}\&amp;gt;{\mathrm{,}}\&amp;gt;{\mathrm{totexpk}}_{\mathrm{i}}}}\right)\hspace{1em}\mathrm{{=}}\hspace{1em}\left({{\mathrm{\beta}}_{0}\mathrm{{+}}{\mathrm{\beta}}_{1}\mathrm{{+}}{\mathrm{\beta}}_{2}\mathrm{{+}}{\mathrm{\beta}}_{5}}\right)\mathrm{{+}}\left({{\mathrm{\beta}}_{4}\mathrm{{+}}{\mathrm{\beta}}_{7}}\right){\mathrm{totexpk}}_{\mathrm{i}}} \hfill\\&#xA;{{\mathbb{E}}\left({{{\mathrm{tscorek}}_{\mathrm{i}}}\vert{{\mathrm{sck}}_{\mathrm{i}}\mathrm{{=}}{1}\&amp;gt;{\mathrm{,}}\&amp;gt;{\mathrm{boy}}_{\mathrm{i}}\mathrm{{=}}{0}\&amp;gt;{\mathrm{,}}\&amp;gt;{\mathrm{freelunk}}_{\mathrm{i}}\mathrm{{=}}{1}\&amp;gt;{\mathrm{,}}\&amp;gt;{\mathrm{totexpk}}_{\mathrm{i}}}}\right)\hspace{1em}\mathrm{{=}}\hspace{1em}\left({{\mathrm{\beta}}_{0}\mathrm{{+}}{\mathrm{\beta}}_{1}\mathrm{{+}}{\mathrm{\beta}}_{3}\mathrm{{+}}{\mathrm{\beta}}_{6}}\right)\mathrm{{+}}\left({{\mathrm{\beta}}_{4}\mathrm{{+}}{\mathrm{\beta}}_{7}}\right){\mathrm{totexpk}}_{\mathrm{i}}} \hfill&#xA;\end{gathered}&#xA;%MathMagic MMF.7h]G7*00kEQAKm|f4?h5n*mnU075h96D:?G=LMgDF6*7]YY^V?^P9ViW=;D3aMfJ5OT;nlgSTIAd|R`[Fihf90Y|O[`kg_7SlDQi)IVnVLfCHCZICDmnW2a7lo4`WLfm9=_mUVBOemNmbgcKnkC=Ni?=jmGmn_)VUfCG_MoS0LSnbC:MY1MSkdfnoE[9GoGBBnSUOme]=oN[ne?61n_=cHeF_Q[?5mZ=Yo`Nn3fVNeh?dk4GJjPaIa3ZCoi:|5N0`]7L2lji)_|2_jRg6[nOC2mV8dl6h4?4OF0Ald4:YDGSWbl_QY)Yecmi?3UI;|IY)YVNhg*FRnT`6G_9*kk)K[B;^igF_]mic7MM);_9CTOS^lO:XD?))nC2Ci:|Mij_EUlFRhID7YD67F)7A=h*ZV?2b1m]_nG[EMj*a7jbgFCGCA?XI:Z;:^SR2XjC1LOIPRjjh2QOL9*`J6L(FRWSGICac^cZXX`OYh`OYhagDLJ?D|J?D|KK:N)]U0U=FC9JKGKOlXOYjXnV73[T_4(^O7noBcJkPVJGIR8IkjjK8jXf*GA*l:L^)McW[Zd[V1nh]ZiT_PQ|FnPfB0NT1|XY1BSPCQ2R`;DE6BU2YM21F8)XL:L;YFn]kca|(m_4((0f)M70:891I0568I`nAQ4k9*`2G5_YZK61]20b*5R0DD3QSIFagV7IZ(;*a1Aa03X?2h4TCP2mLmM6kdFo(TZ5RB615BRVTG56X^4T08jcS`|PR5=)8n01(*WYF:X:Qk_i5i0b86P00PPM`_1O056^gAgV:K712(A024N_83`8AIPC4Adl9T2bbT*B3R*WKD7JU05YoJ|2X__C8SQYdd0DRH(QA8EVC)HG(38TW^JUFX11)?^0[T(P(DD61*[X8PMV:LXLaBQLVP*AJLMETXF(]0T78KYgbA::RZO*N2nD0PY2(Q8^P2SR22)cX`XDEehDg*N:IX7RUDm5eT19`jab::0V8MVOR^BQRZZi:9)4SPRl=OW2SAEAmi5=`P89:Y9ToJ;0Q)(LAF4EJ:AX*T*ATM1m49(LS0Wo(BL^He5A6d^Bfg50Q`ZYRB8Y4dLDd?cCVH(E]9P0(:Q3|Q)0TC*09RT8Z1X]1l1D3IV:D02BQP2(4PVeVPRL55|`IO5DU49IZg90*h6*0^G;2R0SYnF*=DY(KBcG7Tae;8Z]:HlU4=FQ0I`BH|XS;a5M630E(RXAB*cPI6^0X:NCZI1U=X4P^`=dSFBEX|W)8T9C96G9ZZP]SE0d[5ZI15(WIGWf|?9PAPC4^Bb[mOW`d|(cgTc?5o[K8Q|KB|6P^U*oC|Z=c=A3lPe):[*EfUUknaVInXQBZBGhX(B`HK6C1]EEQSi)6YXXfZ9BYE*IZJY9Xj)flG4f)|RblmaoHRfNcfJYa`I(;h_N(*8omEd7ca^6Wlb|h]M?G_dVJO_P*1ni(Li^KlaEf*[40FGIYZa_d|T`ckM)3fn;In]=USmHS9O4jNYc]U]IS7O3nNXffjfg6m^S[lC9EJI_dam_Ema5bn`=dR4(O_amUfL)Lf8aM7f2m9fi?TWjAZh_87f_GEmhR31eZ3=ZH`7OQIX4|cIeO?nQ[)7[CXdflgY3NC(_=7GRN=1TSXND)JkZc?6XbAb?VlbIUi4mi|`;b1icNblM[_=*nXSFo1718OF`EEgEVC(_6i*i4Nla9eV3)*U=iRBWc4UAIdk:9W(bJ38W`bIcD^daUmgZGH=GG9dPTOWG:PkX=S=]Pl`]=l][jQ:kCE703^Td9*jRUDLGLed0Y]_lJgKKBeOOMjh`fPL6c9CF|in(WVh]gRDN(S2IYQhjFkbM_ClK;|I6N3DN3DLS3bfV|gNSZj6a`AnHA[=Y)YjVn0=CP^Foof=imZ]Oo(677l|A*Wc[e7lO_75oZF^G;|d=_AC[m05cKgMo_Lge|V|=20lY[?^?Sho=k__[3Y_U*VmTeEoRa9H;;;WHG_X4O=`n?7^(CcYYKkm]WQd(FRTdTY[7gGJgnWkG?VI=fA9dYJ];ggb;__j*oDLL)^`GWReXFIf5_QngCh3I2*PEmC|dhLVJo(VJh|VJ`I(e*dMIAIFenUOdb2NkEO]^WkgZ;k_aNK^A_Nc6OkHKPiNMlioN)Fd9og:)DLfWkibWWdkoUc?WDMl(o`IYR]*7.mmf&#xA;$&#xA;$&#xA;%Translator MathMagic Pro for InDesign Mac v9.14, AMS LaTeX converter, 2016.9.11 22:31&#xA;\begin{gathered}&#xA;{{\mathbb{E}}\left({{{\mathrm{tscorek}}_{\mathrm{i}}}\vert{{\mathrm{sck}}_{\mathrm{i}}\mathrm{{=}}{1}\&amp;gt;{\mathrm{,}}\&amp;gt;{\mathrm{boy}}_{\mathrm{i}}\mathrm{{=}}{0}\&amp;gt;{\mathrm{,}}\&amp;gt;{\mathrm{freelunk}}_{\mathrm{i}}\mathrm{{=}}{0}\&amp;gt;{\mathrm{,}}\&amp;gt;{\mathrm{totexpk}}_{\mathrm{i}}}}\right)\hspace{1em}\mathrm{{=}}\hspace{1em}\left({{\mathrm{\beta}}_{0}\mathrm{{+}}{\mathrm{\beta}}_{1}}\right)\mathrm{{+}}\left({{\mathrm{\beta}}_{4}\mathrm{{+}}{\mathrm{\beta}}_{7}}\right){\mathrm{totexpk}}_{\mathrm{i}}} \hfill\\&#xA;{{\mathbb{E}}\left({{{\mathrm{tscorek}}_{\mathrm{i}}}\vert{{\mathrm{sck}}_{\mathrm{i}}\mathrm{{=}}{0}\&amp;gt;{\mathrm{,}}\&amp;gt;{\mathrm{boy}}_{\mathrm{i}}\mathrm{{=}}{1}\&amp;gt;{\mathrm{,}}\&amp;gt;{\mathrm{freelunk}}_{\mathrm{i}}\mathrm{{=}}{1}\&amp;gt;{\mathrm{,}}\&amp;gt;{\mathrm{totexpk}}_{\mathrm{i}}}}\right)\hspace{1em}\mathrm{{=}}\hspace{1em}{\mathrm{\beta}}_{0}\mathrm{{+}}{\mathrm{\beta}}_{2}\mathrm{{+}}{\mathrm{\beta}}_{3}\mathrm{{+}}{\mathrm{\beta}}_{4}{\mathrm{totexpk}}_{\mathrm{i}}} \hfill\\&#xA;{{\mathbb{E}}\left({{{\mathrm{tscorek}}_{\mathrm{i}}}\vert{{\mathrm{sck}}_{\mathrm{i}}\mathrm{{=}}{0}\&amp;gt;{\mathrm{,}}\&amp;gt;{\mathrm{boy}}_{\mathrm{i}}\mathrm{{=}}{1}\&amp;gt;{\mathrm{,}}\&amp;gt;{\mathrm{freelunk}}_{\mathrm{i}}\mathrm{{=}}{0}\&amp;gt;{\mathrm{,}}\&amp;gt;{\mathrm{totexpk}}_{\mathrm{i}}}}\right)\hspace{1em}\mathrm{{=}}\hspace{1em}{\mathrm{\beta}}_{0}\mathrm{{+}}{\mathrm{\beta}}_{2}\mathrm{{+}}{\mathrm{\beta}}_{4}{\mathrm{totexpk}}_{\mathrm{i}}} \hfill\\&#xA;{{\mathbb{E}}\left({{{\mathrm{tscorek}}_{\mathrm{i}}}\vert{{\mathrm{sck}}_{\mathrm{i}}\mathrm{{=}}{0}\&amp;gt;{\mathrm{,}}\&amp;gt;{\mathrm{boy}}_{\mathrm{i}}\mathrm{{=}}{0}\&amp;gt;{\mathrm{,}}\&amp;gt;{\mathrm{freelunk}}_{\mathrm{i}}\mathrm{{=}}{1}\&amp;gt;{\mathrm{,}}\&amp;gt;{\mathrm{totexpk}}_{\mathrm{i}}}}\right)\hspace{1em}\mathrm{{=}}\hspace{1em}{\mathrm{\beta}}_{0}\mathrm{{+}}{\mathrm{\beta}}_{3}\mathrm{{+}}{\mathrm{\beta}}_{4}{\mathrm{totexpk}}_{\mathrm{i}}} \hfill\\&#xA;{{\mathbb{E}}\left({{{\mathrm{tscorek}}_{\mathrm{i}}}\vert{{\mathrm{sck}}_{\mathrm{i}}\mathrm{{=}}{0}\&amp;gt;{\mathrm{,}}\&amp;gt;{\mathrm{boy}}_{\mathrm{i}}\mathrm{{=}}{0}\&amp;gt;{\mathrm{,}}\&amp;gt;{\mathrm{freelunk}}_{\mathrm{i}}\mathrm{{=}}{0}\&amp;gt;{\mathrm{,}}\&amp;gt;{\mathrm{totexpk}}_{\mathrm{i}}}}\right)\hspace{1em}\mathrm{{=}}\hspace{1em}{\mathrm{\beta}}_{0}\mathrm{{+}}{\mathrm{\beta}}_{4}{\mathrm{totexpk}}_{\mathrm{i}}} \hfill&#xA;\end{gathered}&#xA;%MathMagic MMF.7h|C8000kESQK]|f47j2_8=obX1Rl4Q:Y?[?LMgDF6*7|IY^V?]3CMc)F6X7R[|e:o8:NnKa:4XjFIJEKTFk5Xd2VmoMTGOlN3bAGTbVcfHGlC2Ic:I77hlFXh_a(9UMN76joBe)gjj^N^OIY_MVToDVjjO;^mGKMBm)[gYoA0)*oJ=5(TW)a]jcK?)^dSoY9NO*bojngJc_UWO7S0mFjn][Hg`i_YPK=ikbNn3gV94l7BIS;c;*H(hP=9olRH0W;)aS:5i`b]G9ko2;NVk`blWdK3KbI00nJ)h3dl`7:IAASGln?a])YUkoj)7XJ34O9lUTNX[CVLnW`gS|aOOI:[df;Vjga_Y^jc7ORG1fTjf9aWM?[XL)?No*2cn)dmiY]Ucn?Ylg]?:P=^PH)bCjQU8MDVYo]7VO[III*a?ilFJMGSFk*2MCGEA15eM`V2`hc1Idd*D7nH:3Q44kHm1:6NnRS7MVEaMUo31Uo31U_8|bOY0bOY0bgThIKjE(6([RdG:mOIoMCiMo=_G*XNLMN^7k^b;I50E=TF4R7Vn_VR)Z=XGNZoS;U1c^LmLf5L`?G=]D(Ul4NE^H=TP7Y07:6*FXh4hAX|:e5AU9Xe7X*6B0;]bI*^WW_FlmK;)lRF50g^C40Z(81SX768E`mQQ5i8``271]IJK61S87fP:A0h`22Vn|S?DFbdHEQR6VR0?*NEPX9742j9fk=WX_i(XJ5Ed|2Ja04Hf((a8=9`5`W7eD046LLQX13dRGT8jUZW2hVgl1:*)21R20d24|o`D*iM[MHYjB?QR160SQj1F41j48Ld;C`B(29:^jB(:1i:*]B9|b87?oZX3Xo[P8C^IY88[4`A1dHAVAn*F(38U_lm8|`21Loh2^*b0aA*H52^PR1gHYbQc5:5bJ19ZdXb[9*TKJQ8(*gK]T2DG5DfRm5dH11B4I2AM05764f^jX0TFE5dGgPJ9IX7SUDi4eD=8bZa`:J9N*k4m5lU3YJRk:9Z4S0Tm=_W1SJNYNidUH845ETZbO3V`hcY4)Zd2eXPVQ=M7*OA2A78`8oa4W;R=ADA]9T]]A*8L:JAM5DRKB5=3l(iV35KBH032X*k8CP94d02HY2:PI;*O0E0gIRU00TXH0S189]IX8W1AK|6GaF9A:FJ]b*4)1T0;Ub`XP8lOUT3E:K6d|eai|MBb:[Bf?9A3EB`(h9LBFAehR^S1P:j*^4DT(h6A[P:1_9e|Qbf`2*GH7V1[9:T)KWDF4]TS:TUEAFaZQJ5Re(PVfC|[bgL?:5c(R8(iUFJe?QnLN_^?]m7aQ_W)DahIJ|:R^=HoCLZ^cmI1lPm(:d`_kiOgcCfg[8fZUdN236|]6SYdfZ8hbm77Jd4KA5YDZ]LYZEDf[3oJ=3[?A*EHncmdW(^Z;fBcaf82IIC4kA^2W)N_PnhKQ9k)[n)j=Ecm9iS;H8b(Wa]W=]CdZi`ZaaeRf6I^CM3c(|Xfc`m?RbFZMI_LiaT?RM?TfgBicS6O3RnE=^Ue]e[W478WSbmBLYUoO;;V;U^DWB8L`n?67KIHjc4V?XI(98S]a(TUT8bL;R)bYThGk25?kQ;Z=1K`;=*UVKNIhoj6|hGFWAY^mgU3Nk8FVCQ`?V|caT3;7EIdi[Y_(lJS9W;f(k31W;b0kc)eL)Ya`GoZ8e_`A`Ckc|=ELeIVcU`g:W8QfV9)|`Ib49W)BDnJTZ3(WII(i6CBITf6C)JUfV4]_c:k18ji946goSHT3Y|e|fb9kbTfcV[U4|Bd::93)D^8PaWQdMV4:`7BC_D]_N|Wb`mHEa_b10K)UmN*WJfMJlaNaQ`a(YXV7c^K?Ibm?Q_)aEEj)Al?Ab((NdmV;dNG*m|4OV4JcJC:N9_P3DhcU_omaLO:[Goc1Zhn;4D:lMIZoEmjh_c2ebiCVQUf2MGY?MfmkMkG9c;8K2`Sg6Jcj3`l?CO7MEDNOaMa|I=EOh(*FLbbif5kh1;cNg3mf3=HfaQ^C]3O_ehl)YVdPk:F`Tc*lKSOKiHOKmS5[aSU1UjJjm)fgj9|?fGo0XL=nhCT7;J|c=nOSmPV`O092jGj79KQ*ZQ3bG_o:[GbdFkG[mSncn*eVNF^6OT:F]njDClgb]X6nC9Io[WCVSkHDSkJdFOdS?kmbOWkM:_cUlo=7e_dOg_gOAeGlDN^n[Jck?V[MIlVU1g)[n*LABXSj.mmf&#xA;$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there some interpretation-friendly way to interpret the coefficients that I'm missing here?&lt;/p&gt;&#xA;" OwnerUserId="10272" LastActivityDate="2016-09-12T12:03:44.807" Title="Interpreting multiple interaction terms" Tags="&lt;econometrics&gt;&lt;regression&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13372" PostTypeId="1" CreationDate="2016-09-12T14:04:37.793" Score="2" ViewCount="113" Body="&lt;p&gt;&quot;In theory, we should have enough money in an economy so at current prices we can buy all of the goods and services the economy is producing. What economic theory does this remind you of?&quot; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;On a basic level this reminds me of a simple supply/demand equilibrium. In addition, it brings to mind the importance of reserve ratios in banking. As a side note, I also thought banking's use of debt would assert we could not buy every good and service in the economy at this time. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My professor enjoys trick questions. Any thoughts on what I have proposed?&lt;/p&gt;&#xA;" OwnerUserId="10370" LastEditorUserId="2776" LastEditDate="2017-06-09T07:05:51.817" LastActivityDate="2017-06-09T07:05:51.817" Title="Theory about supply of money, prices, and output?" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13373" PostTypeId="2" ParentId="13372" CreationDate="2016-09-12T14:37:10.737" Score="2" Body="&lt;p&gt;The first thing that comes to mind is classical economics' &lt;strong&gt;Say's Law&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In a market equilibrium, aggregate production will match aggregate quantity demanded.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In this case, this law on markets could be applied to your money market. Of course, Say's law has its weaknesses and doesn't always uniformly hold, given that markets aren't always in equilibrium. It is probably still a good guiding principle for the money market though. For example, debt and fractional reserve banking seem to indicate, as you note, that money supply doesn't match money demand, but people are consumption smoothing creatures. Their behavior may be matching their demand over multiple periods with supply (their time-path of income) over multiple periods.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A simpler explanation: money supply is also more than just the money base of course. Modern measures of the money supply are meant to capture the reserve rate.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2016-09-12T14:37:10.737" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13375" PostTypeId="1" CreationDate="2016-09-12T15:19:08.627" Score="1" ViewCount="265" Body="&lt;p&gt;I'm reading the IMF's January 2016 Report on Sweden's Economic Indicators, and the top section has the following:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Domestic Demand (2012) Percent Change: -0.6&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Indented below are:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Private Consumption (2012) Percent Change: 0.8&lt;/p&gt;&#xA;&lt;p&gt;Public Consumption &amp;quot; &amp;quot;: 1.1&lt;/p&gt;&#xA;&lt;p&gt;Gross Fixed Investment &amp;quot; &amp;quot;: -0.2&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;I think the final one, Gross Fixed Investment, is the same thing as Gross Fixed Capital Formation? Although if someone could clarify, that would be useful.&lt;/p&gt;&#xA;&lt;p&gt;My main question is, should Private Consumption, Public Consumption, and GFI all equal to Domestic Demand? My thinking was that domestic demand constituted these three elements (hence why they were indented), and some sort of weighted combination of them should give the -0.6% change drop in domestic demand?&lt;/p&gt;&#xA;" OwnerUserId="8690" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2017-08-09T06:12:00.010" Title="Domestic Demand, Private Consumption, Public Consumption, Gross Fixed Investment Relationship" Tags="&lt;gdp&gt;&lt;national-accounts&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13376" PostTypeId="2" ParentId="13364" CreationDate="2016-09-12T15:26:54.397" Score="7" Body="&lt;p&gt;Recall the definition:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The function $u: X \rightarrow \mathbb{R}$ represents $\succeq$ on $X$ if for any $x,y \in X$, then $x \succeq y \iff u(x) \geq u(y)$&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;We can show that if $u: X \rightarrow \mathbb{R}$ represents $\succeq$ on $X$, then for any strictly increasing function, $f: \mathbb{R} \rightarrow \mathbb{R}$,  the function $v(x) = f(u(x))$ also represents $\succeq$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Short) &lt;strong&gt;Proof:&lt;/strong&gt; For any $x,y \in X$, if $u$ represents $\succeq$, then $x \succeq y \iff u(x) \geq u(y)$ by definition.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Because $v$ is strictly increasing, $f(u(x)) \geq f(u(y)), \implies v(x) \geq v(y)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus $x \succeq y \iff v(x) \geq v(y), \implies v$ represents $\succeq$&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;In your case, you have $u(x,y) = x^\frac{1}{3}y^\frac{1}{3}$, and can set $v(x, y) = (u(x,y))^9 = x^3y^3$, your desired result.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2016-09-12T15:26:54.397" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13377" PostTypeId="2" ParentId="13372" CreationDate="2016-09-12T15:28:16.173" Score="2" Body="&lt;p&gt;To me the key words are &quot;at current prices&quot; and this looks like a quantity theory of money, especially as described by Milton Friedman.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this theory, if there is too much money then prices will rise, while if there is too little money then prices will fall.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So only if there is enough money (and no more) can we buy &lt;em&gt;at current prices&lt;/em&gt; all of the goods and services the economy is producing.  Without enough money, we cannot buy everything, and with too much there would be excess demand at current prices.  This makes various assumptions, for example about stability of the velocity of circulation and what of constitutes money which, like other assumptions about money, are unlikely to exactly true. &lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2016-09-12T15:28:16.173" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13378" PostTypeId="2" ParentId="13356" CreationDate="2016-09-12T15:50:14.210" Score="2" Body="&lt;p&gt;The most likely explanation for discrepancies that political partisans like to pick at is that presidents like to cite different measures of unemployment. The BLS has &lt;a href=&quot;http://www.bls.gov/news.release/empsit.t15.htm&quot; rel=&quot;nofollow&quot;&gt;6 alternative categories of labor under-utilization&lt;/a&gt;. The U-6 measure of unemployment with seasonal adjustment stands at 9.7%. Although the official rate may be under 5% as in the BLS's &lt;a href=&quot;http://www.bls.gov/news.release/pdf/empsit.pdf&quot; rel=&quot;nofollow&quot;&gt;September 2016 release here&lt;/a&gt;, many people may not feel like the economy is much better, and partisans can argue over which measure of employment or labor force participation rate is most useful.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Most politicians are not part of insidious, cynical political schemes, as the media may make them out to be. Just that when incidents happen, we hear about it non-stop, and it reinforces the public's view that political workers are untrustworthy as a whole, allowing for weird specious claims from the left and right. Take your friends' words with a grain of salt, and when you hear any president make a claim about the unemployment rate, you can look up the BLS's numbers yourselves and see how they are measured and which one the president is citing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is also worth noting that the BLS regularly updates how they measure unemployment.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2016-09-12T15:50:14.210" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13379" PostTypeId="2" ParentId="13375" CreationDate="2016-09-12T16:07:47.657" Score="1" Body="&lt;p&gt;I assume your numbers come from the 2012 numbers on page 4 or 5 of &lt;a href=&quot;https://www.imf.org/external/pubs/ft/scr/2015/cr15329.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;this document&lt;/a&gt;, which are rather different to the 2012 domestic demand numbers the IMF published a year earlier on page 28 or 29 of &lt;a href=&quot;http://www.imf.org/external/pubs/ft/scr/2014/cr14261.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;this document&lt;/a&gt; (the earlier version had domestic demand increasing in 2012 by 0.3% rather than decreasing by 0.6%)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;They do look curious, for the reason you give.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Digging into Statistics Sweden's website, there are figures for &lt;a href=&quot;http://www.statistikdatabasen.scb.se/pxweb/en/ssd/START__NR__NR0103__NR0103E/NR0103ENS2010T01A/table/tableViewLayout1/?rxid=17b1e94d-254c-4f94-91d9-cc8363c199f6&quot; rel=&quot;nofollow noreferrer&quot;&gt;various selected components of the expenditure measure of GDP&lt;/a&gt;.  It is particularly noticeable that in 2012, gross fixed capital formation fell by 0.2% while gross capital formation fell by 5.0%.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So an explanation could be a dramatic in the difference between gross capital formation and gross &lt;em&gt;fixed&lt;/em&gt; capital formation.  This difference could include changes in inventories and changes in valuables: there seems to have been a fall in inventories in Sweden in 2012 after a large rise in 2011 and it is the combination of these two which leads to the sharp fall in gross capital formation in 2012 and so the fall in domestic demand.&lt;/p&gt;&#xA;" OwnerUserId="8891" LastEditorUserId="2776" LastEditDate="2017-08-09T06:12:00.010" LastActivityDate="2017-08-09T06:12:00.010" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13380" PostTypeId="2" ParentId="13332" CreationDate="2016-09-12T16:21:24.983" Score="1" Body="&lt;p&gt;Your question reminds me of &lt;a href=&quot;http://www.thehindu.com/todays-paper/tp-international/money-laundering-literally/article503477.ece&quot; rel=&quot;nofollow&quot;&gt;this particular article&lt;/a&gt;. It talks about how in Zimbabwe, locals like to literally launder money (wash bills) to extend the lifetime of small denomination bills. Tyler Cowen's blog &lt;em&gt;Marginal Revolution&lt;/em&gt; made a &lt;a href=&quot;http://marginalrevolution.com/marginalrevolution/2010/07/laundering-money-literally.html&quot; rel=&quot;nofollow&quot;&gt;brief post about it as well referencing the article&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any change in the money velocity in this sense, whether increasing or decreasing the physical money base, can be expected to have the same effect of an expansionary or contractionary monetary policy, just on a smaller scale. The Fed and the Treasury obviously can't literally keep track of how much money is in circulation, so when they destroy old bills and make new bills, they probably will only adjust their printing in large imprecise chunks. Smaller changes in money supply can be adjusted for with interest rates or other monetary policy, presumably.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2016-09-12T16:21:24.983" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13382" PostTypeId="2" ParentId="13348" CreationDate="2016-09-12T17:28:06.910" Score="2" Body="&lt;p&gt;So the firm's problem is, letting $L=Nl$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\max_{L} Y-Lw\implies w=(1-\alpha)AL^{-\alpha}, \pi(w)=\alpha AL^{1-\alpha}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consumer's problem: substitute out c and only choose l, taking $\pi$ and $w$ as given&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\max_l u(l, wl+1/(N\pi))\implies -\gamma/(1-l)+w/(wl+1/(N\pi))=0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now substitute in the values for w and profit from the firm into the consumer's FOC and you will solve for labor supply (=labor demand as we are in eq) in terms of exogenous parameters ($\gamma, N,\alpha, A)$.&lt;/p&gt;&#xA;" OwnerUserId="10155" LastActivityDate="2016-09-12T17:28:06.910" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13383" PostTypeId="2" ParentId="13332" CreationDate="2016-09-12T17:49:29.967" Score="2" Body="&lt;p&gt;Money is no different from any other commodity in this regard. How does the economy &quot;detect&quot; that the quantity of oranges has changed to determine (in conjunction with the demand for oranges) the equilibrium price of oranges? In general equilibrium models the classic theoretical model was the tâtonnement or Walrasian auction.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;A Walrasian auction, introduced by Léon Walras, is a type of&#xA;  simultaneous auction where each agent calculates its demand for the&#xA;  good at every possible price and submits this to an auctioneer. The&#xA;  price is then set so that the total demand across all agents equals&#xA;  the total amount of the good. Thus, a Walrasian auction perfectly&#xA;  matches the supply and the demand.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Walrasian_auction&quot; rel=&quot;nofollow&quot;&gt;Walrasian auction&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;While Walrasian auctions are helpful for theoretical models and do exist in the real world(see for example &lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/S0378426616300504&quot; rel=&quot;nofollow&quot;&gt;the Tokyo's Grain Exchange&lt;/a&gt;), they are not the dominant mechanism for setting price changes. Competition among intermediaries seems vastly more common. In oranges, it might be the actions of wholesalers that attempting to pay the best price for farmer's inventories or supermarkets attempting to pay the best price for wholesaler inventories. If someone grows oranges for private consumption and never buys or sells any oranges then that production never gets detected and is not reflected in the price of oranges. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;With money it is more complex but fundamentally similar. Banks bid for money by setting the interest rate to attract funds. Firms bid for capital by offering to pay an interest rate to banks. Households decide how much money to hold and how much to invest or spend instead. If a miser has a billion in cash and burns it without telling anyone the market may indeed never find out. &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2016-09-12T17:49:29.967" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13384" PostTypeId="1" CreationDate="2016-09-12T19:49:04.933" Score="0" ViewCount="36" Body="&lt;p&gt;&lt;a href=&quot;http://voxeu.org/article/helicopter-money-illusion-free-lunch&quot; rel=&quot;nofollow noreferrer&quot;&gt;In this text&lt;/a&gt; of voxEU, the author are trying to explain why helicopter money will not have it's expected effect. For that conclusion they try to explain the different schemes on how Central Banks pay on excess reserves to commercial banks.&lt;/p&gt;&#xA;&lt;p&gt;The 1st graph they show is this one:&lt;/p&gt;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/V6LGB.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/V6LGB.png&quot; alt=&quot;enter image description here&quot; /&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&lt;p&gt;I'm having a hard time understanding how one interprets the graph, together with the explanatory text right below the figure. Can someone help me?&lt;/p&gt;&#xA;&lt;p&gt;Also, if someone knows where they got their graphs, I would appreciate.&lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2016-09-12T19:55:48.343" Title="Helicopter Money: a tax on banks?" Tags="&lt;macroeconomics&gt;&lt;monetary-policy&gt;&lt;money-supply&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13385" PostTypeId="1" CreationDate="2016-09-12T20:26:10.553" Score="1" ViewCount="37" Body="&lt;p&gt;I was listening to a famous investor discuss an investment of his in an interview. He had bought shares in a bank that was quite successful, though it was a small bank. The bank is based in a highly under-developed country with a massive population. This country's economy has a high rate of growth (about 8%).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The investor made an interesting comment. He said, &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;of course, the bank is going to grow at 3x the growth rate of the&#xA;  country's GDP.&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;He didn't offer any further reasoning for this. And it wasn't clear whether he meant the bank's &lt;strong&gt;revenues&lt;/strong&gt; or its &lt;strong&gt;stock price&lt;/strong&gt; are going to grow at 3x.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, this led to me thinking about an interesting issue that I had never considered before.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There must be some kind of model which helps us predict whether a company's &lt;strong&gt;(1) revenue&lt;/strong&gt; and &lt;strong&gt;(2) stock price&lt;/strong&gt; will grow faster or slower than the overall economy. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What are some of the variables and considerations in this model, and in what direction do they act (e.g. do they grow or reduce &lt;strong&gt;&lt;em&gt;(1)&lt;/em&gt;&lt;/strong&gt; or &lt;strong&gt;&lt;em&gt;(2)&lt;/em&gt;&lt;/strong&gt;)?&lt;/p&gt;&#xA;" OwnerUserId="4296" LastEditorUserId="4296" LastEditDate="2016-09-12T20:31:13.163" LastActivityDate="2016-09-15T09:54:41.623" Title="When should a company's revenue and share price grow faster or slower than the economy?" Tags="&lt;economic-growth&gt;&lt;stock-market&gt;&lt;investment&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13386" PostTypeId="1" CreationDate="2016-09-12T20:37:56.943" Score="2" ViewCount="160" Body="&lt;p&gt;Suppose you have a risk averse principal and a risk averse agent with utility functions $v(q_i - w_i)$ and $u(w_i)$, respectively, where $i = \{H,L\}$, and $q$ is output and $w$ is the wage. The probability that output is high is given by $p(e)$ with $p'(e) &amp;gt; 0 \geq p''(e)$ and effort is given by the linear function $e$. How do you prove that in the second-best case, the agent receives a larger (smaller) share of the profits when output is high (low) relative to the fist-best case? Bolton and Dewatripont (2005) mention this result but do not prove it.&lt;/p&gt;&#xA;" OwnerUserId="10380" LastEditorUserId="4251" LastEditDate="2016-09-13T05:43:50.960" LastActivityDate="2016-09-16T01:02:40.133" Title="Moral hazard with linear effort and two possible outcomes" Tags="&lt;asymmetric-information&gt;" AnswerCount="1" CommentCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="13387" PostTypeId="1" CreationDate="2016-09-12T20:49:25.813" Score="0" ViewCount="2725" Body="&lt;p&gt;what is the formula to calculate an effective discount rate of Discount Series? For EX, If Price of Product A is $X and Discount Series is given like 10%,20%,30%,5%,2%. How can we calculate effective discount of this discount series?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://answers.yahoo.com/question/index?qid=20110703053015AANbTBg&quot; rel=&quot;nofollow&quot;&gt;https://answers.yahoo.com/question/index?qid=20110703053015AANbTBg&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I found something here, but searching for a generalized formula for N number of Discount Series.&#xA;Thank you&lt;/p&gt;&#xA;" OwnerUserId="10381" LastActivityDate="2016-09-13T07:43:06.187" Title="Formula for Effective Discount Rate of Discount Rate Series" Tags="&lt;discount&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13389" PostTypeId="1" CreationDate="2016-09-12T22:36:38.430" Score="1" ViewCount="58" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/RVLcl.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/RVLcl.png&quot; alt=&quot;Lecture slides&quot;&gt;&lt;/a&gt;Just a small question about the differentiation technique used in the consumer based asset pricing model. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I need to maximize the following equation: &#xA;$U(c_t) + E_t[\beta \cdot u(c_{t+1})]$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\begin{align} \text{such that} \qquad c_t &amp;amp; = e_t - p_t \xi \\&#xA;c_{t+1} &amp;amp; = e_{t + 1} + x_{t + 1} \xi \end{align}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;s&gt; where $t$ is a time subscript, and $S$ stand for Xi, the greek letter. I'm new to this site, so haven't figured out all the neat tools for symbols. &lt;/s&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can use substitution or a Lagrange formula, I know how both work. What puzzles me though is part of the solution. From what I know about partial differentiation, the derivative of the first part $u(c_t)$ with respect to $c_t$ (when using the lagrange method), or with respect to $\xi$ if you use substitution, becomes $u$, but my book (and several online sources) give $u'(c_t)$, and so the solution to the optimization problem becomes $u'(c_t)p_t = E_t[\beta \cdot u'(c_{t+1})]$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm sure I'm missing a very simple differentiation rule, but I can't find it anywhere. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks for your attention:)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Best regards,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Anne&lt;/p&gt;&#xA;" OwnerUserId="10382" LastEditorUserId="10382" LastEditDate="2016-09-13T07:18:10.540" LastActivityDate="2016-09-13T07:18:10.540" Title="Consumer based asset pricing model, differentiation problem" Tags="&lt;asset-pricing&gt;" AnswerCount="0" CommentCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="13390" PostTypeId="2" ParentId="13385" CreationDate="2016-09-12T23:11:04.527" Score="1" Body="&lt;p&gt;GDP is the sum of wages and capital income. In most developed economies, 2/3rds of GDP is wages (income and other compensation) and the remainder is capital income (owner occupied rents, interest and dividends mostly). This ratio is difficult to measure precisely but the general consensus is that it has been mostly but not perfectly stable over time.&lt;/p&gt;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/fKFKu.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/fKFKu.png&quot; alt=&quot;enter image description here&quot; /&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&lt;p&gt;&lt;a href=&quot;http://economix.blogs.nytimes.com/2013/09/09/why-labors-share-of-income-is-falling/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Why Labor’s Share of Income Is Falling By Jared Bernstein&lt;/a&gt;&lt;/p&gt;&#xA;&lt;p&gt;Therefore, if the economy &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt; grows at a rate &lt;span class=&quot;math-container&quot;&gt;$g$&lt;/span&gt; and the capital income is roughly &lt;span class=&quot;math-container&quot;&gt;$Y/3$&lt;/span&gt; then it too must be growing at rate &lt;span class=&quot;math-container&quot;&gt;$g$&lt;/span&gt;. If discount rates &lt;span class=&quot;math-container&quot;&gt;$r$&lt;/span&gt; are also constant this implies that wealth is &lt;span class=&quot;math-container&quot;&gt;$\frac{Y}{3(g-r)}$&lt;/span&gt; which also grows at rate &lt;span class=&quot;math-container&quot;&gt;$g$&lt;/span&gt;. Now it turns out that discounts rates are not constant and have been in long term decline, and as long as this is the case the value of the capital and land assets of the economy can indeed grow faster than output does. The following figure, which depicts financial assets relative to GDP, doesn't fully capture this issue (it omits non-financial assets like much of real estate) but it is a decent approximation.&lt;/p&gt;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/gX2b6.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/gX2b6.jpg&quot; alt=&quot;enter image description here&quot; /&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&lt;p&gt;All of which implies that capital income like other quantities roughly proportional to output, must grow at the same speed as output. Assets can grow at a different rate in the short to medium term than output, but that only if there are long term changes in the discount rate. But most firms are very small and even the largest ones are small relative to the whole economy. Firms are being founded and failing all the time, so there is plenty of room for individual firm to grow faster or slower than the economy as a whole.&lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2016-09-15T09:54:41.623" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13391" PostTypeId="2" ParentId="13387" CreationDate="2016-09-13T07:43:06.187" Score="1" Body="&lt;p&gt;$$\displaystyle 1-\prod_i(1-d_i)$$ should give you the answer, with the discounts treated as fractions, so for example $10\%$ being $0.1$ &lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2016-09-13T07:43:06.187" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13393" PostTypeId="1" CreationDate="2016-09-13T14:54:13.863" Score="2" ViewCount="71" Body="&lt;p&gt;Suppose we are given a set of observations on income $X_{i}$ and consumption $Y_{i}$ and we plot all the $(X_{i},Y_{i})$ on a graph. We want to draw a sample regression function as close as possible to the existing yet unknown population regression function. Why is it considered wrong to take $\sum \hat u_{i}$ as small as possible to draw our regression function?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My study book says that this method assigns &quot;equal weights&quot; to the $\hat u_{i}$ which is not accurate. However, I also agree with the least order square method.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Anyone have a specific example to show me that the normal summation method leads to bad estimation?&lt;/p&gt;&#xA;" OwnerUserId="5936" LastEditorUserId="5936" LastEditDate="2016-09-13T15:21:52.980" LastActivityDate="2017-01-11T17:58:59.357" Title="Regression Line Method" Tags="&lt;econometrics&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13394" PostTypeId="2" ParentId="13393" CreationDate="2016-09-13T15:21:20.187" Score="1" Body="&lt;p&gt;Thought about a very simple example: Suppose we have two distinct points $(X_{1},Y_{1})$ and $(X_{2},Y_{2})$. The best regression line for these two points would be the line that passes through both points. However, any line passing through $(\frac{X_{1}+X_{2}}{2},\frac{Y_{1}+Y_{2}}{2})$ would let $\hat u_{1}+\hat u_{2}=0$, just like the perfect regression line.&lt;/p&gt;&#xA;" OwnerUserId="5936" LastEditorUserId="5936" LastEditDate="2016-09-13T15:42:21.023" LastActivityDate="2016-09-13T15:42:21.023" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13396" PostTypeId="1" CreationDate="2016-09-13T16:19:17.023" Score="0" ViewCount="113" Body="&lt;p&gt;I know expected inflation plays a key role in both the Phillips curve equation and the Fisher equation, but does it also play a key role in Taylor's Monetary Policy Rule?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm asking this as I have an assignment question which requires me to derive the DAD curve, with a different expected inflation, and I am unsure if I have to change the expected inflation in the monetary policy rule as well.&lt;/p&gt;&#xA;" OwnerUserId="10255" LastEditorUserId="2776" LastEditDate="2017-04-04T08:56:29.273" LastActivityDate="2017-04-04T08:56:29.273" Title="Adaptive expectations" Tags="&lt;macroeconomics&gt;&lt;monetary-policy&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13397" PostTypeId="1" CreationDate="2016-09-13T17:36:33.923" Score="2" ViewCount="2721" Body="&lt;p&gt;I know that in the first part of The Communist Manifesto, Marx and Engles discuss at length the relationship between the Bourgeois and the Proletarians. The former being the owners of the means of production and the latter being the working class that is engaged in a struggle against said owners.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, after reading the first part of the manifesto I can't figure out where &quot;Professionals such as doctors, layers, accountants, nurses, etc. fit into this model. While they aren't the owners of the means of production for physical goods they posses special knowledge that allows them to charge a premium for their services. As such, members of the professional class generally aren't viewed as struggling workers. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why wasn't this class of worker included in the Communist Manifesto and where do they fit in with Marx and Engel's theory?&lt;/p&gt;&#xA;" OwnerUserId="8658" LastActivityDate="2018-10-22T06:56:32.283" Title="How does the professional class fit into Marx and Engel's class struggle theory?" Tags="&lt;labor-economics&gt;&lt;history-economic-thought&gt;&lt;marxism&gt;" AnswerCount="4" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13398" PostTypeId="1" CreationDate="2016-09-13T19:23:11.863" Score="1" ViewCount="29" Body="&lt;p&gt;Is there any paper/data source on price dispersion that contains coefficients of variation for US commodity prices like gas, bananas, or the like? I would like to get a sense of the distribution of CVs for homogenous good.&lt;/p&gt;&#xA;" OwnerUserId="159" LastActivityDate="2016-09-13T19:23:11.863" Title="Coefficient of Variation for Price" Tags="&lt;data-request&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13399" PostTypeId="1" CreationDate="2016-09-13T21:28:08.683" Score="1" ViewCount="145" Body="&lt;p&gt;Does anyone know how to solve the following problem?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have tried to solve this  but I'm lost since I have never dealt with a Stochastic Dynamic Programming problem with many variables.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$max_{c_{t},\phi_{t}}\ E_{0}[\sum_{{t=0}}^{\infty}\beta^t\ln(C_{t})]$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$s.t. \ W_{t+1}=(W_t-C_t)[\phi_tR_{t+1}+(1-\phi_t)R_f]$ with $W_{0}$ given&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$R_{f}$ represents the gross return of a riskless asset and $R_{f}=(1+r)$ and $R_{t}$ is the return of a risky asset. $R_{t+1}$ is an $i.i.d.$ random variable with unkown cumulative distribution $F$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am supposed to solve the exersice using dynamic programming (bellman equation) by finding the optimal policy functions.  I need to prove that the optimal share of the risky asset, $\phi_t$, is constant.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am also given a guess for the value function which is $V(W)=F+Gln(W)$.&lt;/p&gt;&#xA;" OwnerUserId="10391" LastEditorUserId="10391" LastEditDate="2016-09-14T04:25:46.727" LastActivityDate="2016-09-14T04:25:46.727" Title="How to solve a variation of Merton's optimal portfolio problem?" Tags="&lt;macroeconomics&gt;&lt;finance&gt;&lt;dynamic-programming&gt;&lt;stochastic-calculus&gt;" AnswerCount="0" CommentCount="12" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13400" PostTypeId="2" ParentId="13360" CreationDate="2016-09-13T22:35:16.087" Score="2" Body="&lt;p&gt;Yes, it is correct. You can (for instance) write a Taylor expansion:&#xA;\begin{align*}&#xA;[1-(1-\frac{x}{un})^n]^x &amp;amp; = [1-e^{n ln(1-\frac{x}{un})}]^x \\&#xA;&amp;amp; = [1-e^{n (-\frac{x}{un} + o(\frac{1}{n}))}]^x \\&#xA;&amp;amp; = [1-e^{-\frac{x}{u} + o(1)}]^x \\&#xA;&amp;amp; \sim [1-e^{-\frac{x}{u}}]^x \text{ when } n \rightarrow +\infty&#xA;\end{align*}&lt;/p&gt;&#xA;" OwnerUserId="4667" LastActivityDate="2016-09-13T22:35:16.087" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13403" PostTypeId="2" ParentId="13046" CreationDate="2016-09-14T06:30:08.600" Score="0" Body="&lt;p&gt;When an everyday firm that isn't paying much attention to the central bank is thinking about setting prices, it will have two major considerations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If a business gets more customers/orders than usual or whatnot, it has to ask itself whether or not the activity is because of an increase in real demand, or an increase in the money supply. Thus, a firm thinks about&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;The &lt;strong&gt;average inflation rate&lt;/strong&gt; of the country. The higher it is, the more likely it is that they will misattribute real demand shocks as inflation instead, and adjust output improperly. Real demand shocks will not help the economy as much as in a country with lower average inflation.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The &lt;strong&gt;surrounding non-competing businesses&lt;/strong&gt; around the firm. If other firms seem to be getting more business, and they haven't adjusted prices recently, then the firm is more likely to think of the extra business as from an increase in the money supply. On the other hand, if just the firm is seeing more business, it is more likely to think that there is a real demand shift for its products.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I would say these are the more likely ways that businesses try to parse out what inflation (and thus money supply) is like, on the aggregate level.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2016-09-14T06:30:08.600" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13404" PostTypeId="1" CreationDate="2016-09-14T06:53:02.740" Score="1" ViewCount="491" Body="&lt;p&gt;I need advice on whether on my supply logic is correct.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Question 1&lt;/strong&gt;: Any point on the supply curve indicates the minimum price that a producer must receive in order to supply a specific quantity of output. True or false?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think, it is true because, if the price increases the quantity supplied would be differ.  Thus, it is indeed the minimum price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Question2&lt;/strong&gt;: An increase in price results in an increase in supply but not an increase in the quantity supplied.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think, it is false because price causes a movement along the supply curve.  However, if the price of complementary good-in-production increase, the supply will increase, but this will also lead to an increase in quantity supplied, unless the demand decreases due to other factors.&lt;/p&gt;&#xA;" OwnerUserId="10393" LastActivityDate="2016-12-05T10:01:22.117" Title="Questions on supply curve" Tags="&lt;supply-and-demand&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13408" PostTypeId="1" AcceptedAnswerId="13444" CreationDate="2016-09-14T09:44:35.010" Score="1" ViewCount="268" Body="&lt;p&gt;We got this essay question &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;It is argued that economic calculation should exclusively be based on individual utility maximization but include an altruistic concern for the common good and for other human individuals. In the perspective of such an ethical correction of economics we think of the economic actor as an individual, who makes an economic calculation which is extended to include the responsibility for other human beings and society integrating economic calculation in well-founded moral norms and ethical customs of society&quot;...Rendtorff (2010)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Discuss the economics of the creation of a separate aesthetic medical industry, borne out of the technological advances in the health sector. &lt;strong&gt;Is the economic calculation based on 'well-founded moral norms and ethical customs' of our society?&lt;/strong&gt; Support your answer with economic reasoning and ethical considerations for various stakeholders.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm not so sure what  she meant by economic calculation. Is some kind of economic reasoning such as with indifference curves.&lt;/p&gt;&#xA;" OwnerUserId="4941" LastActivityDate="2016-09-16T17:40:47.693" Title="What does my lecturer mean by &quot;economic calculation&quot;?" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13410" PostTypeId="2" ParentId="13312" CreationDate="2016-09-14T12:03:52.563" Score="3" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;If I buy 10 stocks of a toaster company for \$100 per share, and then the stock value drops to \$10, I've lost \$900...&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;You paid \$1000 to some counterparty for some assets worth \$1000 at time $t$, a fair deal. The value of your assets then dropped to \$100, resulting in a return of -90% at time $t+1$. However, the counterparty didn't lose anything, they still have \$1000 in cash and experienced 0% return over the same time period. It's possible that there are second order effects depending on how the trades are financed, but the activity of trading does not destroy or create any wealth.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The entities I bought from have gained $900 collectively.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So this is not quite right. The counterparty gained nothing by trading. This is because the value of the asset was worth the exact same amount as the value of your cash at time $t$. That the price at time $t+1$ would be much lower was unknown to you both. And of course the counterparty was in exactly the same situation when they originally acquired the asset at time $t-1$: the amount of cash that they paid was exactly the same as the value of the assets at $t-1$. Again, no wealth was created or destroyed through trading. Any return the asset generated was due to it being a share of a wealth-generating business.&lt;/p&gt;&#xA;" OwnerDisplayName="user7935" LastEditorDisplayName="user7935" LastEditDate="2016-09-14T12:09:31.330" LastActivityDate="2016-09-14T12:09:31.330" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13411" PostTypeId="2" ParentId="9323" CreationDate="2016-09-14T14:33:30.463" Score="1" Body="&lt;p&gt;No as we can derive the condition outside of the framework of prices.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider 2 person case:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\max U_1=U_1(x_1,y_1)$ subject to&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\bar U=U_2(x_2,y_2)$ and&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$F(x_1+x_2, y_1+y_2)=0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Solving this gets the $\sum MRS=MRT$ condition. Think of the Samuelson condition as one of efficiency of resources and utility, so prices don't enter. &lt;/p&gt;&#xA;" OwnerUserId="10155" LastActivityDate="2016-09-14T14:33:30.463" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13412" PostTypeId="2" ParentId="13404" CreationDate="2016-09-14T15:41:53.953" Score="4" Body="&lt;p&gt;&lt;strong&gt;Question 1&lt;/strong&gt; That's a reasonable way to think about it,but maybe missing out on a bit of nuance.  Realize that at any given price, the supply curve indicates how much WILL be supplied.  You are correct that if the price drops, the supplier will no longer be willing to supply that quantity of a good.  But likewise, if price increase, the supply will seek to supply a greater quantity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Question 2&lt;/strong&gt; Yes, this is false. A change in price results in a movement along the supply curve and so increases/decreases the quantity supplied.  Supply itself is changed, meaning a shift of the whole supply curve, when faced with a shock, such a technological change.&lt;/p&gt;&#xA;" OwnerUserId="10402" LastEditorUserId="1417" LastEditDate="2016-12-05T10:01:22.117" LastActivityDate="2016-12-05T10:01:22.117" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13414" PostTypeId="2" ParentId="9323" CreationDate="2016-09-14T16:05:29.753" Score="2" Body="&lt;p&gt;I thought it might be helpful to discuss the LS condition in general as it pertains to the LS equilibrium: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A Lind./Sam. equilibrium allows for a unique equilibrium price $q_i, \forall i \in {1,...,n} \equiv N$, the set of agents, for the public good. The clearing condition for the public good price vector, given by $\sum MRS=MRTS$  (as stated in another answer here) is an aggregate condition. Individuals value public goods differently, which is reflected by vector $q$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To make it a bit more intuitive: If it were necessary that each individual contribute equally to a public good, then our idiosyncratic valuations would prevent some (or maybe many) of us from contributing to a public goods project (because the fixed contribution exceeds our individual, unique valuation for that public goods project). This could cause us to scrap projects that are actually socially desirable. And in easily conceivable circumstances, it can cause us to scrap projects that would be beneficial to every person in our society. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The price vector $q$ does not necessarily comprise distinct prices. However, the question is can it? The answer to that question is, clearly, yes. &lt;/p&gt;&#xA;" OwnerUserId="1655" LastActivityDate="2016-09-14T16:05:29.753" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13416" PostTypeId="1" AcceptedAnswerId="13417" CreationDate="2016-09-14T18:00:04.720" Score="3" ViewCount="948" Body="&lt;p&gt;We have two definitions of the continuity of preferences:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;&lt;strong&gt;Def 1:&lt;/strong&gt; &lt;span class=&quot;math-container&quot;&gt;$\succcurlyeq$&lt;/span&gt; is continuous if for any sequences &lt;span class=&quot;math-container&quot;&gt;$\{x^n\} \subset X$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\{y^n\} \subset X$&lt;/span&gt;, then &lt;span class=&quot;math-container&quot;&gt;$n \in \mathbb{N}$&lt;/span&gt; such that,&lt;/p&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;span class=&quot;math-container&quot;&gt;$\forall n, \quad x^n \succcurlyeq y^n$&lt;/span&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;span class=&quot;math-container&quot;&gt;$\lim_{n \rightarrow \infty} x^n = x, \quad \lim_{n \rightarrow \infty} y^n = y \quad (\text{where $x, y \in X)$}$&lt;/span&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;p&gt;then &lt;span class=&quot;math-container&quot;&gt;$x \succcurlyeq y$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;and&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;&lt;strong&gt;Def 2:&lt;/strong&gt; &lt;span class=&quot;math-container&quot;&gt;$\succcurlyeq$&lt;/span&gt; is continuous if whenever &lt;span class=&quot;math-container&quot;&gt;$x \succ y$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$\exists \ B_x, \ B_y$&lt;/span&gt;, open balls around &lt;span class=&quot;math-container&quot;&gt;$x, y$&lt;/span&gt;, such that &lt;span class=&quot;math-container&quot;&gt;$\forall \ x' \in B_x, \ y' \in B_y$&lt;/span&gt;, then we have &lt;span class=&quot;math-container&quot;&gt;$x' \succ y'$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Show that the following definitions are equivalent to each other.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2016-09-14T21:23:53.060" Title="Equivalence of Definitions of Continuity of Preferences" Tags="&lt;microeconomics&gt;&lt;preferences&gt;&lt;proof&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13417" PostTypeId="2" ParentId="13416" CreationDate="2016-09-14T21:23:35.047" Score="2" Body="&lt;p&gt;We want to show that for $\succcurlyeq$ on $X$, &lt;strong&gt;Def 1 $\iff$ Def 2&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\boxed \Longrightarrow$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume that $\succcurlyeq$ is continuous by &lt;strong&gt;Def 1&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let us say $x \succ y$. Denote our open-balls as $B(x, r)$, an open ball around $x$ of radius $r$. Suppose $\forall n, \ \exists \ x^n \in B(x, \frac{1}{n}), \ y^n \in B(y, \frac{1}{n})$ such that $y^n \succcurlyeq x^n$. But then we have constructed $\{x^n\} \rightarrow x$ and $\{y^n\} \rightarrow y$, and by &lt;strong&gt;Def 1&lt;/strong&gt;, $y \succcurlyeq x$, which is a contradiction.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\boxed \Longleftarrow$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume that $\succcurlyeq$ is continuous by &lt;strong&gt;Def 2&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let us take sequences ${x^n} \subset X$ and ${y^n} \subset X$ where $\forall n, \quad x^n \succcurlyeq y^n$ and $\lim_{n \rightarrow \infty} x^n = x, \quad \lim_{n \rightarrow \infty} y^n = y \quad (\text{where $x, y \in X)$}$ for $n \in \mathbb{N}$,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;BUT $x \succcurlyeq y$ is false instead of true. We want to show this leads to a contradiction.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If $x \succcurlyeq y$ is false, (so $y \succ x$) then $\exists B_x, B_y$ such that $\forall y' \in B_y, x' \in B_x$, we have $y' \succ x'$. Because $\{x^n\} \rightarrow x, \{y^n\} \rightarrow y$, there exists $N$ large enough such that $\forall n&amp;gt;N$, we have $y^n \in B_y, x^n \in B_x$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus $\forall n &amp;gt; N$, we have $y^n \succ x^n$, which contradicts $\forall n, \ x^n \succcurlyeq y^n$.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2016-09-14T21:23:35.047" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13418" PostTypeId="2" ParentId="13397" CreationDate="2016-09-14T22:51:59.013" Score="2" Body="&lt;p&gt;Marx's discussed struggle had less to do with your income-position in society and more to do with how you derive income, whether through profits, wages, or rents. You bring up a fascinating issue with his analysis and the solution is all about framing. Even doctors end up selling their labor on the market (in increasingly specialized components). While the labor of a doctor is different than say a machinist, their income is &lt;strong&gt;fundamentally&lt;/strong&gt; different than that of someone who owns the means of production. The 17th century putting- out system would be maybe the clearest split between the two.  Keep reading Marx! Eric Fromm has some great essays that explain the nuance in Marx's world view. Hopefully this answer helps&lt;/p&gt;&#xA;" OwnerUserId="10402" LastEditorUserId="1601" LastEditDate="2016-09-19T05:21:12.533" LastActivityDate="2016-09-19T05:21:12.533" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13419" PostTypeId="1" AcceptedAnswerId="13457" CreationDate="2016-09-15T01:48:43.423" Score="2" ViewCount="2575" Body="&lt;p&gt;Is the deficit getting larger because of QE? &lt;/p&gt;&#xA;" OwnerUserId="10366" LastEditorUserId="264" LastEditDate="2016-09-19T16:50:22.880" LastActivityDate="2019-01-11T12:56:52.040" Title="What is the effect of Quantitative Easing on the US budget deficit?" Tags="&lt;money-supply&gt;&lt;federal-reserve&gt;&lt;quantitative-easing&gt;&lt;national-bank&gt;" AnswerCount="3" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="13421" PostTypeId="1" CreationDate="2016-09-15T04:46:22.777" Score="0" ViewCount="616" Body="&lt;p&gt;I do not quite understand the statement &quot;total variable cost is the area under the marginal cost curve&quot; Does it means MC inserts at the AVC at the lowest point (see picture)? But why AVC is drawn and not TVC?   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/iwL7l.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/iwL7l.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="10407" LastEditorUserId="1601" LastEditDate="2016-09-15T07:34:57.407" LastActivityDate="2016-10-15T07:58:49.263" Title="Monopoly's MC, AVC and TVC" Tags="&lt;monopoly&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13422" PostTypeId="1" AcceptedAnswerId="13432" CreationDate="2016-09-15T05:24:04.867" Score="2" ViewCount="199" Body="&lt;p&gt;Following the notation of Mas-Collel, Whinston, and Green, consider a family of budget sets $\mathcal{B}=\{\{x,y\},\{x,y,z\}\}$. To make the example concrete, let's let&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;$x$ be a book&lt;/li&gt;&#xA;&lt;li&gt;$y$ be a left shoe&lt;/li&gt;&#xA;&lt;li&gt;$z$ be a right shoe&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;For motivation, let's suppose the individual prefers going for a walk over reading a book. However, to go for a walk, he needs two shoes. If he can only have one shoe, then he would rather choose the book instead.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus when faced with Budget set $\{x,y\}$, the consumer chooses the the book: $C(\{x,y\})=\{x\}$. However when faced with all three alternatives, he chooses the shoes: $C(\{x,y,z\})=\{y,z\}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As we constructed it, this choice rule $C$ violates the &lt;em&gt;Weak Axiom of Revealed Preference&lt;/em&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Suppose there exists some budget set $B_1 \in \mathcal{B}$ with $x,y&#xA; \in B_1$ and $x \in C(B_1)$. Then for any $B_2 \in \mathcal{B}$ with&#xA;   $x,y \in B_2$ and $y\in C(B_2)$, we must also have $x \in C(B_2)$.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In our case, since $C(\{x,y\})=x$, then WARP would require $x \in C(\{x,y,z\})$ since $y \in C(\{x,y,z\})$. However, it seems we were able to motivate a sensible reason why $C(\{x,y,z\})=\{y,z\}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Side note: I have left prices of the goods out of this story. (Hopefully this is acceptable; to be fair, MWG's chapter on choice rules doesn't mention prices either. (I assume we should imagine the price of these goods are all 0, or all the same price -- would that be the right way to look at it?)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This example brings me to the question posed in the title: Can we have sensible choice behavior that violates WARP?&lt;/p&gt;&#xA;" OwnerUserId="6012" LastEditorUserId="44" LastEditDate="2016-09-15T05:55:19.200" LastActivityDate="2016-09-15T22:18:56.843" Title="Can there be sensible choice behavior that violates the Weak Axiom of Revealed Preference?" Tags="&lt;consumer-theory&gt;&lt;preferences&gt;&lt;choice-theory&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13424" PostTypeId="2" ParentId="13421" CreationDate="2016-09-15T07:46:47.150" Score="2" Body="&lt;p&gt;Total variable cost would not fit on that graph: total cost has units of &quot;dollars&quot;, while the axes of the graph are &quot;items&quot; and &quot;dollars per item&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But you can multiply the two together, which implies that areas on the graph are measured in dollars. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, below the pale blue area is the total variable cost for the quantity shown, while the pink area is the total cost&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/aYkl7.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/aYkl7.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2016-09-15T07:46:47.150" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13425" PostTypeId="1" AcceptedAnswerId="13440" CreationDate="2016-09-15T08:38:11.157" Score="3" ViewCount="108" Body="&lt;p&gt;In a simple model of welfare dynamic optimisation with non-renewable natural resource where:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\dot S_t = -R_t&#xA;$$&#xA;$$&#xA;\dot K_t = Q(K_t,R_t)-C_t&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;one of the first order condition is that $P_t=\omega_t Q_{R}$, where $P_t$ is the shadow price of the natural resource stock $S$, $Q_{R}$ is the marginal product of the natural resource and $\omega_t$ is the shadow price of the human-capital stock $K$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the Perman et al. (2011) &quot;Natural resource and environmental economics&quot; this equation is explained as &quot;the marginal value (or shadow price) of the natural resource stock must be equal to the value of the marginal product of the natural resource&quot;.&#xA;In particular $\omega_t$ is redefined as the value of one unit of output, with the justification that units of outputs and units of capital are in effect identical in this economy among the optimal path, as any output that is not consumed is added to capital.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is this redefinition that I do not understand.&lt;/p&gt;&#xA;" OwnerUserId="10376" LastEditorUserId="10376" LastEditDate="2016-09-15T11:28:51.157" LastActivityDate="2016-09-16T11:17:58.497" Title="If Y=K+C, why the value of a marginal unit of capital is the same of the value of a marginal unit of output?" Tags="&lt;microeconomics&gt;&lt;welfare-economics&gt;&lt;resource-economics&gt;&lt;nonrenewable-resources&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13428" PostTypeId="1" CreationDate="2016-09-15T10:15:51.010" Score="2" ViewCount="128" Body="&lt;p&gt;I have a fixed effects model as follows:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$Y = x_1, x_2, x_3$, (fixed effect), (error term)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there any way I can check whether Cov($x_1$, (fixed effect)) is larger or smaller than 0?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The panel data I have consists of 7858 individuals and 5 years.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks!&lt;/p&gt;&#xA;" OwnerUserId="10322" LastEditorUserId="8815" LastEditDate="2016-10-16T20:19:23.410" LastActivityDate="2016-10-20T08:55:55.923" Title="A question about Fixed effects estimation" Tags="&lt;paneldata&gt;&lt;fixed-effects&gt;" AnswerCount="3" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="13429" PostTypeId="1" CreationDate="2016-09-15T13:39:22.433" Score="4" ViewCount="1118" Body="&lt;p&gt;I'll illustrate the issue I'm having with a simple problem.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $c_1, c_2 \in \mathbb{R}$, and $Z$ a real-valued random variable. Let $u:\mathbb{R} \rightarrow \mathbb{R} $ be a differentiable function, and $f(c_1,Z)$ be a real-valued function that is differentiable with respect to $c_1$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem is:&#xA;Maximise: $u(c_1) + \mathbb{E}[u(c_2)]$ &#xA;such that $c_2=f(c_1, Z)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This problem is easily solved by direct substitution, and the answer is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$u'(c_1) + \mathbb{E}\left[u'(f(c_1,Z)) \frac{\partial f(c_1,Z)}{\partial c_1}\right] = 0 \label{answer}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The issue is how to write down a Lagrangian whose extrema correspond to the solution of this problem in the normal way.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My first instinct was to write&#xA;$\mathcal{L} = u(c_1) + \mathbb{E}[u(c_2)] + \lambda(c_2 - f(c_1,Z))$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, this doesn't seem to make sense.&#xA;If you treat $c_2$ as if it is a random variable, then the derivative of  $\mathbb{E}[u(c_2)]$ with respect to $c_2$ gives zero, and this can't possibly give the right answer.&#xA;On the other hand, it doesn't make sense to treat it as non-stochastic either, since it is 'forced' to be stochastic by the constraint.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Question: How do I write a Lagrangian whose extrema correpond to the solution of the above optimisation problem?&lt;/strong&gt; &lt;/p&gt;&#xA;" OwnerUserId="10413" LastActivityDate="2020-04-17T10:43:15.897" Title="Method of Lagrange multipliers with random variables" Tags="&lt;optimization&gt;" AnswerCount="4" CommentCount="5" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13431" PostTypeId="2" ParentId="13408" CreationDate="2016-09-15T17:46:23.527" Score="1" Body="&lt;p&gt;The historical economic calculation debate, between Mises and Hayek on the one side and people like Oskar Lange on the other, was about the extent to which accurate trade-offs can be made in a world without meaningful prices, like the world the naive socialists seemed to envision.  For example, if I am looking to buy a car I observe the prices and characteristics of various models, I evaluate the utility I will expect to receive from the various packages of automotive characteristics on offer, compare that utility with the utility I'd expect to get from other uses of the money that I would spend on the car, and make my choice accordingly.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I assume that the question above is asking about the nature of my utility calculation.  It is usually, not literally correctly but not too incorrectly either, assumed that the in the above car buying scenario I am considering my utility exclusively, ignoring the way the utility of others might be affected by my choice in obvious (pollution) and not so obvious (how I would alternatively arrange my life based on my choice of car).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What &quot;separate aesthetic medical industry&quot; is supposed to mean is outside of my expertise.  &lt;/p&gt;&#xA;" OwnerUserId="10415" LastActivityDate="2016-09-15T17:46:23.527" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13432" PostTypeId="2" ParentId="13422" CreationDate="2016-09-15T21:35:17.593" Score="2" Body="&lt;p&gt;I think that your example relies on a misunderstanding of the meaning of the choice function. $C(\{x,y,z\})$ does not contain the elements that the decision-maker would choose simultaneously if he could. He is only allowed to select one element at a time (otherwise, why not consuming all three items ?). Therefore $C(\{x,y,z\}=\{y,z\}$ does not mean that he selects both shoes. It means that, if you ask him to choose one element inside $\{x,y,z\}$, he might either pick $y$ or pick $z$, being indifferent between the two. In that case, your story would not make much sense, since the value of a single shoe would be the same in both choice sets.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regarding your question, there are some well-known violations of WARP that rely on behavioral biases, in particular the &lt;em&gt;attraction effect&lt;/em&gt; and the &lt;em&gt;compromise effect&lt;/em&gt;. These expressions describe situations where the comparison between two goods is affected by the nature of a third (unselected) good in the choice set. You can easily find some references (experimental evidence, models) on these phenomena.&lt;/p&gt;&#xA;" OwnerUserId="4667" LastActivityDate="2016-09-15T21:35:17.593" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13433" PostTypeId="2" ParentId="1876" CreationDate="2016-09-15T22:05:23.907" Score="3" Body="&lt;p&gt;No. Importantly, the conditions for the creation of a Marxist communist state has never occurred. Namely, the identification of workers along class lines over nationalist lines.  Soviet totalitarian communism insisted upon socialist 'brotherhood', but this was mandated rather than organically occurring.&lt;/p&gt;&#xA;" OwnerUserId="10402" LastActivityDate="2016-09-15T22:05:23.907" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13434" PostTypeId="2" ParentId="13422" CreationDate="2016-09-15T22:18:56.843" Score="1" Body="&lt;p&gt;Even if the choice function set up you describe is so that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$C(\{\{x\},\{y\}\}) = \{x\}$ and $C(\{\{x\},\{y, z\}\}) = \{y, z\}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;then $\{y, z\}$ you will note was unaffordable in the first scenario ($p_z = \infty$). So WARP is not violated.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2016-09-15T22:18:56.843" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13435" PostTypeId="1" AcceptedAnswerId="13518" CreationDate="2016-09-16T00:08:50.330" Score="5" ViewCount="134" Body="&lt;p&gt;I am reading Acemoglu's intro to modern economic growth. But I am having trouble understanding his proof to a theorem related with stability. Here is the theorem: &#xA;&lt;a href=&quot;https://i.stack.imgur.com/pr2NW.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/pr2NW.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And here are some related definitions and theorems:&#xA;&lt;a href=&quot;https://i.stack.imgur.com/5c891.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/5c891.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&#xA;&lt;a href=&quot;https://i.stack.imgur.com/x4kBe.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/x4kBe.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question lies in his proof of corollary $2.1$. How did he show that the sequence $x(t)$ is monotone and bounded above by $x^*$? I think it is not enough to use that the derivative is less than $1$ and the distance to $x^*$ is shrinking to say $x(t)$ is monotone. Can someone give me some more details to understand the proof?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks!&lt;/p&gt;&#xA;" OwnerUserId="2801" LastEditorUserId="2801" LastEditDate="2016-09-19T22:06:19.103" LastActivityDate="2016-10-10T23:13:40.480" Title="Rigorous proof needed: Acemoglu (Intro Growth) Corollary $2.1.2$" Tags="&lt;macroeconomics&gt;&lt;difference-equations&gt;" AnswerCount="1" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13436" PostTypeId="2" ParentId="13386" CreationDate="2016-09-16T01:02:40.133" Score="1" Body="&lt;p&gt;principal: $\max_{w_h,w_l,e}p(e)v(q_h-w_h)+(1-p(e))v(q_l-w_l) $ subject to&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(IR)       $~~~~~p(e)u(w_h-c(e))+(1-p(e))u(w_l-c(e))\geq \bar u$   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(IC)$~~~~~~e\in arg\max_{\tilde e}p(e)u(w_h-c(e))+(1-p(e))u(w_l-c(e))$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Replace the IC with the FOC approach:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(IC'))$~~~~~~p'(e)u(w_h-c(e))+p(e)u'(w_h-c(e))(-c'(e))-p'(e)u(w_l-c(e))+(1-p(e))u'(w_l-c(e))(-c'(e))=0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now consider the principal's foc wrt $w_h$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$p(e)v'(q_h-w_h)(-1)+\lambda(p(e)u'(w_h-c(e))+\mu [p'(e)u'(w_h-c(e))+p(e)u''(w_h-c(e))(-c'(e))]=0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the difference between this and first best is that third term in the FOC. Using the standard assumptions, we know that that third term is positive and so:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$v'(q_h-w_h)_{first best}&amp;lt;v'(q_h-w_h)_{second best}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now v concave and (assuming inverse exists):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$q^f_h-w^f_h&amp;gt;q^s_h-w^s_h$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the spread decreases,&lt;/p&gt;&#xA;" OwnerUserId="10155" LastActivityDate="2016-09-16T01:02:40.133" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13438" PostTypeId="2" ParentId="13428" CreationDate="2016-09-16T04:52:54.693" Score="3" Body="&lt;p&gt;Having &lt;a href=&quot;https://en.wikipedia.org/wiki/Fixed_effects_model#Formal_description&quot; rel=&quot;nofollow&quot;&gt;read up&lt;/a&gt; on your question it seems the fixed effect is fixed. If this is indeed the case it will have zero variance and hence zero covariance with any variable.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2016-09-16T04:52:54.693" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13440" PostTypeId="2" ParentId="13425" CreationDate="2016-09-16T11:17:58.497" Score="3" Body="&lt;p&gt;This is a single-good model, that is, output is of one good which can be either consumed or added to capital.  The dynamic optimisation problem is to maximise the discounted present value of utility, utility being a function of consumption meeting the standard conditions $U_C &amp;gt; 0$ and $U_{CC} &amp;lt; 0$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Perman &lt;em&gt;et al&lt;/em&gt; identify the second of two state variables as capital $K$.  Now a state variable features in the statement of a dynamic optimisation problem in a limited number of ways:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;An equation of state, in this case $dK_t/dt = Q(K_t,R_t) – C_t$.&lt;/li&gt;&#xA;&lt;li&gt;An initial condition, in this case $K_{t=0} = K_0$.&lt;/li&gt;&#xA;&lt;li&gt;A terminal condition, in this case by implication that (assuming an infinite&#xA;planning horizon) $K_t → 0$ as $t → \infty$.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Suppose that instead we were to specify the second state variable as the stock of the single good, say $G_t$.  Would this result in any essential changes to 1-3 above, which would change the solution of the problem?  It would of course if we allow for stocks of the good destined for consumption but not yet consumed, eg being packaged, transported or on shelves awaiting purchase.  But in a simple model such as this we will probably want to ignore such complications.  Suppose therefore we also assume that, for the part of output that is consumed, consumption is immediate.    Then the stock of the good would consist entirely of capital, and we could re-write 1-3 substituting $K$ by $G$ throughout.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This substitution would not affect the substance of the problem, so the same optimal solution would be obtained whether we make the substitution or not.  In particular, the time path of $\omega_t$ consistent with the optimal solution would be the same, whether $\omega_t$ is regarded as the shadow price of capital or the shadow price of the good.  Hence along an optimal path $\omega_t$ is also the value of a unit of output of the good. &lt;/p&gt;&#xA;" OwnerUserId="1417" LastActivityDate="2016-09-16T11:17:58.497" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13442" PostTypeId="1" AcceptedAnswerId="13443" CreationDate="2016-09-16T13:57:55.160" Score="1" ViewCount="54" Body="&lt;p&gt;Hey i'm doing a paper on the creation of an industry that has spawned from the another industry. I was wondering if there was particularly any interesting economic theory i should look at. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some of my ideas For example because of the inherent social values of society demand is formed for newer services not traditionally offered by the industry creating a niche market segment. To which i guess i can talk about utility maximisation. And that's about how much i have so far.&lt;/p&gt;&#xA;" OwnerUserId="4941" LastActivityDate="2016-09-16T20:10:59.513" Title="Economic Theories for the creation of a new or separate Industry?" Tags="&lt;reference-request&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13443" PostTypeId="2" ParentId="13442" CreationDate="2016-09-16T15:51:21.807" Score="1" Body="&lt;p&gt;Have a look at monopolistic competition. It basically details how many industries can find their own niche in a differentiated product market. Some prominent papers in the subject:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://assets.aeaweb.org/assets/production/journals/aer/top20/67.3.297-308.pdf&quot; rel=&quot;nofollow&quot;&gt;Dixit and Stigliz: Monopolistic Competition and Optimum Product Diversity&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.princeton.edu/pr/pictures/g-k/krugman/krugman-increasing_returns_1978.pdf&quot; rel=&quot;nofollow&quot;&gt;Krugman: Increasing returns, monopolistic competition, and international trade&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://www.tcd.ie/Economics/staff/ppwalsh/papers/Salop.pdf&quot; rel=&quot;nofollow&quot;&gt;Salop: Monopolistic Competition with Outside Goods&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2016-09-16T20:10:59.513" LastActivityDate="2016-09-16T20:10:59.513" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13444" PostTypeId="2" ParentId="13408" CreationDate="2016-09-16T17:22:33.610" Score="1" Body="&lt;p&gt;The classic definition of an economic problem is one where limited means may be put towards alternative ends.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Making the fastest car possible with a given set of inputs is an engineering problem.&lt;/li&gt;&#xA;&lt;li&gt;Making the best possible car, where there are tradeoffs between speed and safety is an economic problem.&lt;/li&gt;&#xA;&lt;li&gt;Whether to use parts to build a fast car or a delivery truck is an economic problem.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I would call anytime you solve an economic problem as &quot;economic calculation,&quot; but I don't know for sure exactly how your instructor is using/defining it.&lt;/p&gt;&#xA;&#xA;&lt;h1&gt;Classic, economy wide economy wide calculation question:&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;To give some structure, I will follow some definitions in Mas-Colell, Whinston, and Green:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Let $\mathbf{x}_i$ as the consumption vector of individual $i$.&lt;/li&gt;&#xA;&lt;li&gt;Let $\mathbf{y}_j$ be the production vector of firm $j$.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Define an allocation in an economy as a specification of the consumption vector for each individual and the production vector for each firm.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \left(\mathbf{x}, \mathbf{y} \right) =  \left(\mathbf{x}_1, \mathbf{x}_2, \ldots, \mathbf{x}_n, \mathbf{y}_1 \ldots \mathbf{y}_m \right) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An allocation is feasible if the consumption bundle can be produced from the production technology and the initial endowment $\mathbf{e}$.&#xA;$$ \sum_i \mathbf{x}_i = \mathbf{e} + \sum_j \mathbf{y}_j \quad \quad \mathbf{y}_j \in Y_j  $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where $\mathbf{y}_j \in Y_j$ means that the production decision $y_j$ is in the set of production possibilities $Y_j$. If you don't follow the math, that's fine. The basic idea is that an allocation is a complete description of what each individual consumes and what each firm produces.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The economic calculation problem in this context is how does an economic system choose an allocation from the feasible set? How does one figure out what &lt;em&gt;each&lt;/em&gt; individual should consume and &lt;em&gt;each&lt;/em&gt; firm should produce?&lt;/p&gt;&#xA;" OwnerUserId="10334" LastEditorUserId="10334" LastEditDate="2016-09-16T17:40:47.693" LastActivityDate="2016-09-16T17:40:47.693" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13445" PostTypeId="2" ParentId="13442" CreationDate="2016-09-16T17:27:30.277" Score="1" Body="&lt;p&gt;The literature on innovation deals with activities such as research and development that give rise to new products. A good reference is &quot;&lt;a href=&quot;https://mitpress.mit.edu/books/innovation-and-incentives&quot; rel=&quot;nofollow&quot;&gt;Innovation and Incentives&lt;/a&gt;&quot; by Scotchmer.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2016-09-16T17:27:30.277" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13446" PostTypeId="2" ParentId="12748" CreationDate="2016-09-16T17:28:08.103" Score="0" Body="&lt;p&gt;I'm going to offer an ambitious answer and say you can &quot;generalize&quot; your Kickstarter-esque problem as an (extremely special) &lt;strong&gt;auction&lt;/strong&gt;. I say auction because you can presumably pledge on an essentially continuous scale, and although there are tiered rewards, you are also bidding towards the completion of a good along with other people, and presumably people know about the completion of this good.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Besides being a multi-good auction where you are looking to set optimal reservation prices for each tiered reward, and where I assume each higher tier gets you everything from the lower tiers, although the final good you are producing may not be a public good, let us say there is a tier where if you pledge that much, you get access/ownership to the final good when it is completed. There will likely be some sort of free-riding effect for how much you want to bid to ensure the project's completion, since there will usually be a lot of bidders for serious projects like this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Bidding beyond that tier is, minus the value of the other tiered rewards, just bidding further on the completion of the project. Can we consider bids beyond this level to be contributing to an excludable public good at that point? I'd hesitate to designate those higher bids as venture capitalism.  If this is the case, you could find a mathematical framework for pricing such goods here, &lt;a href=&quot;http://ac.els-cdn.com/S0022053199926030/1-s2.0-S0022053199926030-main.pdf?_tid=0721e754-7c32-11e6-b976-00000aab0f6b&amp;amp;acdnat=1474046679_13604bb7a2c51e90faac657f86f9b795&quot; rel=&quot;nofollow&quot;&gt;&lt;strong&gt;Auction-Like Mechanisms for Pricing Excludable Public Goods&lt;/strong&gt;&lt;/a&gt;. It talks about how you can price relative to people's reservation prices for a good that I think yours is like.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;We study the problem of strategy-proof mechanism design for indivisible and excludable public goods.&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;(The references for this paper are also very good, e.g. Clarke's article on multi-part pricing, which sounds quite relevant for a tiered incentive structure like yours.)&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Your major concern still is in finding the distribution which bidders lie on. I think you are right that you will end up having to guess what the distribution looks like. You also talk about whether the distribution will change based on how many people see the project. My suspicion is that the distribution will be more heavily towards the low end of willingness to pay with fewer viewers, and as more people see the project (and its bidders), the more people will be willing to put in larger bids for the project, so the distribution will slowly &quot;grow a tail&quot; towards the higher end.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2016-09-16T17:28:08.103" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13447" PostTypeId="1" AcceptedAnswerId="13517" CreationDate="2016-09-16T21:11:16.617" Score="2" ViewCount="294" Body="&lt;p&gt;&lt;a href=&quot;http://www3.nd.edu/~esims1/rbc_notes_2016.pdf&quot; rel=&quot;nofollow&quot;&gt;In these class notes&lt;/a&gt;, page 3, the author defines the stochastic discount factor as $M_t=\beta^t\frac{E_0(u'(C_{t+1}))}{u'(C_{0}))}$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm trying to find the rationale behind it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A cash flow at period t, is usually discounted by $\prod^t_{i=0} \frac{1}{1+r_i}$ (if I'm not mistaken). I was thinking of using equation (5) - in the notes - where we have that $\frac{1}{1+r_t}=\beta\frac{E_t(u'(C_{t+1}))}{u'(C_{t}))}$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, since $\frac{E_{t-1}(u'(C_{t}))}{u'(C_{t})}\neq 1$, I'm not exactly sure how to proceed.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, just below equation (10), the author states that $E_t(M_{t+1})=\beta\frac{E_t(u'(C_{t+1}))}{u'(C_{t}))}$. How is this possible? Isn't the tower property exactly the inverse: $I_0\subseteq I_t\implies E(E(M_{t+1}|I_t)|I_0)=E(M_{t+1}|I_0)$ ?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="118" LastActivityDate="2016-09-23T17:45:22.463" Title="The stochastic discount factor $M_t$ in a simple RBC model" Tags="&lt;macroeconomics&gt;&lt;rbc&gt;" AnswerCount="1" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="13449" PostTypeId="1" AcceptedAnswerId="13450" CreationDate="2016-09-17T09:43:49.060" Score="1" ViewCount="343" Body="&lt;p&gt;When the treasury or equivalent institution of a country auctions of government bonds there is frequently (i.e. in most countries) some sort of restriction on who can participate. The term &lt;a href=&quot;https://en.wikipedia.org/wiki/Primary_dealer&quot; rel=&quot;nofollow&quot;&gt;primary dealers&lt;/a&gt; refers to agents who participate in this primary auction with the intent of reselling the acquired bonds on the secondary market. Usually there is a gap between the bond price (or implied interest rate) of the primary and the secondary market so this is profitable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some papers on the phenomenon:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.jstor.org/stable/23357234?seq=1#page_scan_tab_contents&quot; rel=&quot;nofollow&quot;&gt;VALUING DEALERS' INFORMATIONAL ADVANTAGE: A STUDY OF CANADIAN TREASURY AUCTIONS&lt;/a&gt; (JStor access needed)&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://core.ac.uk/download/pdf/6592976.pdf&quot; rel=&quot;nofollow&quot;&gt;Who Buys Treasury Securities at Auction&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;What benefit if any does the treasury derive from this setup, i.e. restricting auction access?&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2016-09-17T14:45:44.050" LastActivityDate="2016-09-20T13:41:27.340" Title="Primary dealers in treasury auctions" Tags="&lt;government-debt&gt;&lt;auctions&gt;" AnswerCount="2" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="13450" PostTypeId="2" ParentId="13449" CreationDate="2016-09-17T17:05:05.857" Score="2" Body="&lt;p&gt;&lt;em&gt;(As requested in comments)&lt;/em&gt;&lt;/p&gt;&#xA;&lt;p&gt;Primary dealers have a privileged position, so there is value in being registered as a primary dealer.&lt;/p&gt;&#xA;&lt;p&gt;The Treasury or Central Bank can impose standards of behaviour (e.g. an expectation of reasonable participation in all bond auctions or open market operations) as a condition of maintaining that registration. There are rules such as &lt;a href=&quot;https://www.newyorkfed.org/markets/pridealers_policies.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.newyorkfed.org/markets/pridealers_policies.html&lt;/a&gt; and you will find sections such as&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;The New York Fed expects a primary dealer to:&lt;/p&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;participate consistently as counterparty to the New York Fed in its execution of open market operations to carry out U.S. monetary policy pursuant to the direction of the FOMC;&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;provide the New York Fed’s trading desk with market commentary and market information and analysis helpful in the formulation and implementation of monetary policy;&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;participate in all auctions of U.S. government debt; and&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;make reasonable markets for the New York Fed when it transacts on behalf of its foreign official account holders.&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;p&gt;In the selection process, the New York Fed will evaluate a prospective primary dealer with these expectations in mind.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;In effect primary dealers provide liquidity and information and markets even at times of crisis, which comes at a cost, one which countries such as the USA think is worth paying to get the increased financial stability it brings.&lt;/p&gt;&#xA;" OwnerUserId="8891" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2016-09-17T17:05:05.857" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13453" PostTypeId="1" CreationDate="2016-09-18T18:44:51.267" Score="0" ViewCount="48" Body="&lt;p&gt;It is a common conception these days that exposure to international trade and its adverse effects is a major factor in the rise of protectionist parties or candidates in the most advanced economies (Brexit, D.Trump, Front National, ...). The underlying assumption is probably that workers who have lost their job (or fear losing it) due to international competition are more likely to endorse a candidate with a protectionist agenda.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would like to know if there has been any attempt at identifying the causal effect of exposure to globalization on voting. If someone knows an article whose authors have found some exogenous variation in the data to address this question I would be very interested. Thank you.&lt;/p&gt;&#xA;" OwnerUserId="4667" LastActivityDate="2016-09-18T18:44:51.267" Title="Effect of trade on voting" Tags="&lt;international-trade&gt;&lt;political-economy&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="13455" PostTypeId="2" ParentId="9176" CreationDate="2016-09-18T21:37:21.440" Score="2" Body="&lt;p&gt;You mention factory jobs and assembly lines. Firstly, let us think if the large part of these kind of jobs were supposed to be for human beings at all. What I mean for human beings is, are these jobs utilizing, for example, creativity, critical thinking, analysis, or any other kind of more deep mental activities that a human being has developed from million years of evolution and is capable of, well the answer is: NO. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;That is so, because the nature of work was shaped by criteria such as effectiveness, productivity [1] as one can see from the early works on the principles of work management. That was the start of the first industrial revolution and many traditional crafts demanding multilateral personal development and skills from many fields, whose complexity was ensuring a stable place in the market, were exchanged for monotonous work involving few simple moves on the assembly line, that slowly converted man into a machine, making him dispensable, but even worse making him unable to do anything else as his real skills remain undeveloped and his true capacity unutilized, a good example of I mean is Charlie Chaplin's &lt;em&gt;&quot;Modern Times&quot;&lt;/em&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/h72f7.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/h72f7.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, the jobs that were meant initially for machines are now rightfully being done by machines.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But what happens to all these people that don't have jobs and contribute to the high unemployment, which in turn contributes to the lowering of the wages and so on...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Just think about it, after two industrial revolutions and some much scientific development instead of less work people need more work ONLY to maintain their basic human needs!  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Well, it is time for people to claim what they deserve, it is time for radical changes, for example, &lt;strong&gt;lowering the 8-hour working day to 4-hour working day&lt;/strong&gt;, this is already gradually introduced in some countries [2], while keeping the wages the same, in this way one can, not only, double the workforce, not only eliminate unemployment and avoid loosing one more generation of young people, but double the enthusiasm, the time available for spending, travelling, and many other activities that will facilitate the economic growth and well-being. In other words, it is time people demand what is rightfully theirs: right of decent existence, even without a job, i.e. &lt;strong&gt;basic income&lt;/strong&gt;, like for example in Switzerland [3]. &lt;strong&gt;Changes&lt;/strong&gt; should be made &lt;strong&gt;in the educational system&lt;/strong&gt; in order to stop the &lt;em&gt;&quot;production&quot;&lt;/em&gt; of professionals with no real prospect for work, but even more important without perspective for meaningful social contribution, i.e. dead-end jobs. Lately thoughts are being expressed in the direction that there is a good chance we end up with a universal basic income due to automation. [4] &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, once we transition to fully renewable energy production and consumption, the developed part of the world works for helping the rest of the world and closes the gap, which surely will guarantee a lot of future work, people should start doing activities related to their intellectual and spiritual development and aim higher, for reference check the human being named Elon Musk and his view for the future. [5]&#xA;&lt;a href=&quot;https://i.stack.imgur.com/om1Ql.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/om1Ql.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;P.S.: I strongly believe that there is a &lt;em&gt;&quot;critical mass&quot;&lt;/em&gt; of people similar to the above mentioned that will contribute towards an Utopian future in which people will explore the mysteries of the Universe rather than burden their soul with issues like job insecurity, which will be a thing of the past.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;[1]:&lt;a href=&quot;https://en.wikipedia.org/wiki/Frederick_Winslow_Taylor&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://en.wikipedia.org/wiki/Frederick_Winslow_Taylor&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;[2]:&lt;a href=&quot;http://www.independent.co.uk/news/world/europe/sweden-introduces-six-hour-work-day-a6674646.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.independent.co.uk/news/world/europe/sweden-introduces-six-hour-work-day-a6674646.html&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;[3]:&lt;a href=&quot;https://www.fastcoexist.com/3056339/switzerland-will-hold-the-worlds-first-universal-basic-income-referendum&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.fastcoexist.com/3056339/switzerland-will-hold-the-worlds-first-universal-basic-income-referendum&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;[4]: &lt;a href=&quot;http://www.cnbc.com/2016/11/04/elon-musk-robots-will-take-your-jobs-government-will-have-to-pay-your-wage.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.cnbc.com/2016/11/04/elon-musk-robots-will-take-your-jobs-government-will-have-to-pay-your-wage.html&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;[5]:&lt;a href=&quot;https://www.theodysseyonline.com/elonmusk&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.theodysseyonline.com/elonmusk&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="4374" LastEditorUserId="4374" LastEditDate="2016-11-04T23:03:44.513" LastActivityDate="2016-11-04T23:03:44.513" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13456" PostTypeId="1" AcceptedAnswerId="13460" CreationDate="2016-09-18T21:57:44.300" Score="4" ViewCount="591" Body="&lt;p&gt;I've got a perpetuity problem where an organization pays out 50 equal valued grants each year in perpetuity, adding an additional 5 grants each year (i.e. 55 in year 2, 60 in year 3, etc.).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We've only been shown how to do perpetuity problems with a constant growth rate (e.g. the payout increases by 5% each year), so I'm not sure how to deal with this one.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Anyone have any insight?&lt;/p&gt;&#xA;" OwnerUserId="10436" LastActivityDate="2016-09-19T09:26:03.873" Title="How to find the present value of a perpetuity with a non-constant growth rate?" Tags="&lt;finance&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13457" PostTypeId="2" ParentId="13419" CreationDate="2016-09-18T22:12:01.680" Score="3" Body="&lt;p&gt;No, the deficit is not getting larger due to QE. Certainly not directly, because that's impossible, and also not indirectly, either.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Quantitative easing is a policy of purchasing government bonds with the intent of decreasing yields while injecting cash into the economy. It affects only the demand for government bonds, not the supply of bonds created by government borrowing. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This shouldn't be a surprise, as the monetary authority (the central bank) and the fiscal authority (Congress) are independent of one another. Congress cannot (without rewriting the Federal Reserve Act) directly control monetary policy, nor can the Fed force the government to borrow more.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Indirectly, Congress could choose to borrow more as a result of QE, due to lower yields on government debt, as the lower debt payments make it cheaper to do so. However, there's not much evidence that this is the case. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The deficit has fallen since 2009 (when it significantly increased due to passage of a &lt;a href=&quot;https://en.wikipedia.org/wiki/American_Recovery_and_Reinvestment_Act_of_2009&quot; rel=&quot;nofollow&quot;&gt;large-scale stimulus program&lt;/a&gt; consisting primarily of tax cuts but also including direct federal spending, in response to the financial crisis and recession), both &lt;a href=&quot;https://fred.stlouisfed.org/series/FYFSD&quot; rel=&quot;nofollow&quot;&gt;in nominal term&lt;/a&gt;s and &lt;a href=&quot;https://fred.stlouisfed.org/series/FYFSDFYGDP&quot; rel=&quot;nofollow&quot;&gt;as a percent of GDP&lt;/a&gt;. As a percentage of GDP (which is the appropriate long-term comparison, as taxable income is the best indication of a nation's ability to repay a debt), the deficit returned to a normal historical range by 2014.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So it's difficult to conclude even that QE encouraged spending, thereby increasing the deficit indirectly. Given two facts— that the Federal Reserve's QE programs started in earnest in 2009 and continued until late 2014, and that the federal deficit steadily fell during this time— it would be very strange indeed to conclude that QE had increased the deficit.&lt;/p&gt;&#xA;" OwnerUserId="264" LastActivityDate="2016-09-18T22:12:01.680" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13458" PostTypeId="2" ParentId="13397" CreationDate="2016-09-18T22:46:49.220" Score="2" Body="&lt;p&gt;An interesting point to your question might be that Marx is writing before there is such a thing as a &quot;Doctor.&quot; The AMA won't establish medical schools for almost half a century. Anyone can sell any service and personal reputation is about all the customer has to choose his care. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Legal, of course, set up licensing standards much earlier.  But the &quot;professional class&quot; about which you're asking is small to non existent when Marx wrote. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The shopkeeper and farmer would be the largest group I can think fitting the profile you're seeking. &lt;/p&gt;&#xA;" OwnerUserId="10437" LastActivityDate="2016-09-18T22:46:49.220" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13459" PostTypeId="1" AcceptedAnswerId="18167" CreationDate="2016-09-19T01:29:14.730" Score="1" ViewCount="356" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;A country (home) is pouplated with workers who produce either Food or Clothing. There are 200 workers producing food and 100 producing clothing. Each food worker produces 6 units of food and each clothing worker produces 3 units of clothing. Workers own the output they produce and trade with other workers. All workers share the same preferences over food and clothing represented by the utility function $U(D_c,D_f)=D_c(D_f)^2$.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;(a) What is the aggregate endowments of food and clothing in this economy?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Would the answer for this just be Ef= 200*6=1200 and Ec=100*3=300?&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;(b) Now assume a foreign country with 600 food workers, 300 clothing workers with productivity levels 1 food worker produces 1 unit of food and 1 clothing worker produces 2 units of clothing. Describe the pattern of trade and verify that export supply matches import demand.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Firstly, I'm really confused over what the trade relative price equilibrium should be. I know that it will lie somewhere between these two country's autarky prices. Should I just assume that the trade relative price for the home country will be foreign country's autarky price?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My calculations are as follows:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;1. Setting MRS = relative trade price (denoted by subscript w, I'm assuming it is the foreign country's autarky price)&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$ \frac{D_f}{2D_c}=\frac{P_f}{P_c}^w = \frac{1}{2} \\ D_f=D_c $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;2. Setting the budget constraint&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$ \frac{P_c}{P_f}^w D_c + D_f = \frac{P_c}{P_f}^w E_c + E_f \\&#xA;\frac{1}{2}D_c + D_f = \frac{1}{2} \cdot 300 + 1200 = 1350 $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;3. Plug (1) into (2)&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac{3}{2}D_f = 1350 \\  D_f = D_c = 900$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This somehow does not seem to make sense to me, and I feel that my answer is intuitively wrong. I would think home would export more of the good in which they have abundance (food) in order to import more clothing. &lt;/p&gt;&#xA;" OwnerUserId="5660" LastEditorUserId="2776" LastEditDate="2017-09-05T06:50:32.363" LastActivityDate="2017-09-05T14:29:01.887" Title="International Trade: Two country trade problem" Tags="&lt;international-trade&gt;&lt;international-economics&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13460" PostTypeId="2" ParentId="13456" CreationDate="2016-09-19T04:58:26.983" Score="2" Body="&lt;p&gt;Basically you want to calculate&#xA;$$&#xA;\sum_{t=0}^{\infty} a_t \cdot d^t&#xA;$$&#xA;where $d$ is the discount factor and where the value paid yearly increases linearly, that is&#xA;$$&#xA;a_t = a_0 + b \cdot t.&#xA;$$&#xA;With some rearrangements&#xA;$$&#xA;\sum_{t=0}^{\infty} a_t \cdot d^t = \sum_{t=0}^{\infty} a_0 \cdot d^t + \sum_{t=0}^{\infty} b \cdot t \cdot d^t.&#xA;$$&#xA;The first half of this is a simple geometric sequence like the present value of a perpetuity, so&#xA;$$&#xA;\sum_{t=0}^{\infty} a_0 \cdot d^t = \frac{a_0}{1-d}.&#xA;$$&#xA;To calculate the other sum we'll use a trick.&#xA;$$&#xA;\sum_{t=0}^{\infty} b \cdot t \cdot d^t = b \cdot \sum_{t=1}^{\infty} t \cdot d^t.&#xA;$$&#xA;Then write&#xA;\begin{eqnarray*}&#xA;\sum_{t=1}^{\infty} t\cdot d^{t} &amp;amp; = &amp;amp; d + 2\cdot d^2 + 3\cdot d^3 + 4\cdot d^4 + ...  &#xA;\end{eqnarray*}&#xA;You can rearrange this (because of absolute convergence) to&#xA;\begin{eqnarray*}&#xA;\sum_{t=1}^{\infty} t\cdot d^{t} &amp;amp; = &amp;amp; d + 1\cdot d^2 + 1\cdot d^3 + 1\cdot d^4 + ... \\&#xA;\\&#xA;&amp;amp; &amp;amp; \hskip 11pt + 1\cdot d^2 + 1\cdot d^3 + 1\cdot d^4 + ...\\&#xA;\\&#xA;&amp;amp; &amp;amp; \hskip 45pt + 1\cdot d^3 + 1\cdot d^4 + ... \\&#xA;\\&#xA;&amp;amp; &amp;amp; ...&#xA;\end{eqnarray*}&#xA;Every line in this is a geometric sequence, so&#xA;\begin{eqnarray*}&#xA;\sum_{t=1}^{\infty} t\cdot d^{t} &amp;amp; = &amp;amp; \hskip 7pt \frac{d}{1-d} \\&#xA;\\&#xA;&amp;amp; &amp;amp; + \frac{d^2}{1-d} \\&#xA;\\&#xA;&amp;amp; &amp;amp; + \frac{d^3}{1-d} \\&#xA;\\&#xA;&amp;amp; &amp;amp; ...&#xA;\end{eqnarray*}&#xA;Which is again a geometric sequence, thus&#xA;\begin{eqnarray*}&#xA;\sum_{t=1}^{\infty} t\cdot d^{t} &amp;amp; = &amp;amp; \frac{d}{(1-d)^2}.&#xA;\end{eqnarray*}&#xA;So&#xA;$$&#xA;\sum_{t=0}^{\infty} a_t \cdot d^t =&#xA;\sum_{t=0}^{\infty} a_0 \cdot d^t + \sum_{t=0}^{\infty} b \cdot t \cdot d^t =&#xA;\frac{a_0}{1-d} + \frac{b \cdot d}{(1-d)^2}.&#xA;$$&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2016-09-19T09:26:03.873" LastActivityDate="2016-09-19T09:26:03.873" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13461" PostTypeId="1" CreationDate="2016-09-19T06:57:45.713" Score="0" ViewCount="197" Body="&lt;p&gt;Dealer A will sell me a car for \$20,000 with \$2,000 down and the remaining $18,000 paid back over 36 months at a rate of 8% compounded monthly.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Dealer B will sell me the same car for \$19,500 with \$4,000 down and the remaining $15,500 paid back over 36 months at a rate of 10% compounded monthly.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(I assume these interest rates are APRs, since having them be monthly rates results in you paying more in interest than the price of the car.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm asked to find the discount rate at which these deals are equally attractive. I assume this means the rate at which if I were to forgo buying a car and deposit amounts equal to the payments instead, I would end up having the same present value for both deals.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But when I try to calculate this I run into problems. I calculated the monthly payments for both deals, but then when I try to equate their present values and solve for the discount rate, I get that there is no positive discount rate for which these two deals are equally attractive. I've checked my math over and over and I'm sure it's correct so I must be thinking about the problem incorrectly. Anyone have any ideas?&lt;/p&gt;&#xA;" OwnerUserId="10436" LastActivityDate="2016-09-29T00:04:53.107" Title="How to find the discount rate at which two deals are equally attractive?" Tags="&lt;finance&gt;" AnswerCount="2" CommentCount="2" ClosedDate="2016-10-11T19:48:57.563" ContentLicense="CC BY-SA 3.0" />
  <row Id="13462" PostTypeId="1" AcceptedAnswerId="13469" CreationDate="2016-09-19T13:52:53.513" Score="1" ViewCount="83" Body="&lt;p&gt;I am cosidering to transform a regression equation applying logarithms to the dependent and some of the independent variables (the ones I am actually interested in while leaving unchanged the others that I would like to use just as controls). This in order to interpret the coefficients of the transformed variables, say b, as &quot;1% change in explanatory variable induces b% change in the dependent variable&quot;. Then I am thinking to first-differencing transform the model, that is, to introduce for both dependent and independent variables (again just the ones log-transformed of interest) the first lagged values (the values in the previous period) and the taking the differences between current and previous values as variables of the regression to be estimated. Wuold there be any issue in following this procedure?&lt;/p&gt;&#xA;" OwnerUserId="7217" LastActivityDate="2016-09-19T20:14:57.680" Title="Regression of first differenced log-transformed model" Tags="&lt;econometrics&gt;&lt;regression&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13463" PostTypeId="2" ParentId="4634" CreationDate="2016-09-19T15:17:33.590" Score="1" Body="&lt;p&gt;From a mathematical perspective i highly advice learning about econometrics it's a very useful and somewhat lucrative aspect of economics. I've done a moderate amount of maths in my degree and the more abstract linear algebra material with matrices and markov chains plays into it quite a bit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But to start you'd probably should begin with basic microeconomics such as supply/demand, indifference curves, game theory and competitive markets. As for books most first year and second year economics textbooks are supremely accessible honestly high school kids shouldn't have too much of a problem with it. Look up the first year subjects on economics in your uni and try to read the textbook set for them.&lt;/p&gt;&#xA;" OwnerUserId="4941" LastActivityDate="2016-09-19T15:17:33.590" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13464" PostTypeId="1" CreationDate="2016-09-19T17:08:36.003" Score="2" ViewCount="155" Body="&lt;p&gt;I am looking for a mathematical model which can accurately forecast what percentile ($1-p$) of a population a member with wealth $w$ would be in, based on Gini coefficient ($G$). I am planning to apply it mainly only to the top end of wealth.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have tried to use the Pareto distribution so far. What I am unsure of there, however, is what to do with the parameter $x_{min}$ as described in Wikipedia's article (&lt;a href=&quot;https://en.wikipedia.org/wiki/Pareto_distribution&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://en.wikipedia.org/wiki/Pareto_distribution&lt;/a&gt;):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;p = $(x_{min}/w)^P$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $P$, the Pareto parameter, can be expressed in terms of $G$ by a known equation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Wikipedia describes $x_{min}$ as the (necessarily positive) minimum possible value of $x$. How does one apply this to a real-world population? I can't imagine setting the value to $1 or less would allow for accurate predictions of top-end wealth.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The other problem is, this $x_{min}$ seems to me to behave like an average rather than a minimum value. For example, in a maximally unequal society, $P=1$ so $p = x_{min}/w$. This predicts that 10% of the population have wealth ten times $x_{min}$, 1% have wealth a hundred times $x_{min}$, and so forth. But while this is a pretty unequal society by real-world standards, it is definitely not the most unequal possible - imagine a system where 10% had a wealth a hundred times the &quot;minimum&quot; (or, say, the average of the remaining 90%), 1% had a wealth $100^2$ times the minimum, and so forth. The most unequal system would really be everyone having &quot;minimum&quot; wealth except one individual. But the inequality here seems to be capped much before that.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can anyone help with my model?&lt;/p&gt;&#xA;" OwnerUserId="10447" LastEditorUserId="44" LastEditDate="2016-11-19T07:08:37.530" LastActivityDate="2017-01-18T07:25:50.897" Title="Wealth Distribution of the Super-Rich" Tags="&lt;mathematical-economics&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13465" PostTypeId="2" ParentId="13464" CreationDate="2016-09-19T18:03:50.103" Score="2" Body="&lt;p&gt;Some thoughts: &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;accurate prediction seems ambitious without empirical data; &lt;/li&gt;&#xA;&lt;li&gt;many people have negative or zero net wealth; &lt;/li&gt;&#xA;&lt;li&gt;a continuous distribution could lead to oddities; &lt;/li&gt;&#xA;&lt;li&gt;the world may have &lt;a href=&quot;https://economics.stackexchange.com/a/12911/8891&quot;&gt;a finite total wealth&lt;/a&gt; and so a finite average wealth thus excluding some distribution shapes such as Pareto distribution with $\alpha \le 1$&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;But you could certainly develop a model, even if it would be wrong.  For example, let's try:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;A Pareto distribution with shape parameter $\alpha$ and scaling parameter $x_{\min}$&lt;/li&gt;&#xA;&lt;li&gt;The application of the Pareto 80-20 principle, so $\alpha=\log_4(5) \approx 1.160964$&lt;/li&gt;&#xA;&lt;li&gt;A total global wealth of perhaps of the order of $\$ 250$ trillion and a global population of about $7.4$ billion, giving an average wealth $\mu$ of about $\$33784$ and $x_{\min}=\mu\frac{\alpha-1}{\alpha}$ would be about $\$4684$ (looks rather high to me, but $x_{\min}$ is really a scaling factor and should not be taken too seriously)&lt;/li&gt;&#xA;&lt;li&gt;A Gini coefficient of $\frac{1}{2\alpha-1}$ would be about $0.76$&lt;/li&gt;&#xA;&lt;li&gt;The top $1\%$ (so $74$ million people) would have over $x_{\min} / 0.01^{1/\alpha}$ each, so here about $\$250,000$ &lt;/li&gt;&#xA;&lt;li&gt;a person with wealth $w$ would be at the $\left(\frac{x_{\min}}{w}\right)^{\alpha}$ quantile measured from the top  &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Since this probably does not fit reality, you can then start adjusting it if you want: for example you can get closer to a Gini coefficient of $1$ if you reduce $\alpha$ towards $1$ from above, and this would also lower $x_{\min}$.   If you use a Gini coefficient of $G$, that would make $\alpha=\frac{G+1}{2G}$ and $x_{\min}=\mu\frac{1-G}{1+G}$ so the person with wealth $w$ could be at the $\left(\frac{\mu(1-G)}{w(1+G)}\right)^{(G+1)/(2G)}$ quantile, measured from the top.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or you could decide to give a certain share of the population a wealth of zero.  If the rest keep the same $\alpha$ on a (now zero-inflated) Pareto distribution this will increase $x_{\min}$ for the rest while also increasing the Gini coefficient overall.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or you could look for empirical information on the actual wealth distribution and then try to fit a curve to that.  Or perhaps look at &lt;a href=&quot;https://economics.stackexchange.com/a/13308/8891&quot;&gt;global income distribution&lt;/a&gt; instead, which has not had a particularly simple function in the past.         &lt;/p&gt;&#xA;" OwnerUserId="8891" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2016-09-19T19:32:55.623" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13466" PostTypeId="1" CreationDate="2016-09-19T19:48:04.817" Score="1" ViewCount="67" Body="&lt;p&gt;I'm looking at the savings rates for Sweden and would first like to better understand the breakdown between Gross National Savings, and Net Savings? I've looked around and still haven't found an explanation which clarifies this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Secondly, from a purely data gathering perspective, I've checked the OECD, World Bank, IMF, Bloomberg etc, but I am unable so far to identify the Household, Private, and Public savings rates (which I think in total sum to the Net or Gross Savings rate?)&lt;/p&gt;&#xA;" OwnerUserId="8690" LastActivityDate="2016-09-19T19:48:04.817" Title="Locating Sweden's Net Savings Rate, Public Saving, Private Saving, and Corporate Savings Rates?" Tags="&lt;saving&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13467" PostTypeId="2" ParentId="13214" CreationDate="2016-09-19T19:49:28.810" Score="0" Body="&lt;p&gt;Very few to no firms operate under rising marginal costs for all operations. A good example of an instance where rising marginal costs exist, is when building a skyscraper each additional floor costs more to build than the last one. You need to hire a bigger crane, reinforce the lower floors more, install elevators etc. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm not quite sure what you mean by empirical literature on rising marginal cost? Any good econ textbook would provide examples such as those. What type of literature are you looking for exactly?&lt;/p&gt;&#xA;" OwnerUserId="10245" LastActivityDate="2016-09-19T19:49:28.810" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13468" PostTypeId="2" ParentId="1876" CreationDate="2016-09-19T20:14:28.093" Score="2" Body="&lt;p&gt;I think an excellent example of communist societies would be small tribal societies, before the industrial revolution. Means of production were generally shared and workers generally worked to benefit the societal unit which worked because individual societies generally small and tribal. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In modern day industrialized society I think the answer is probably no given the difficulty of convincing workers to not take the whole fruits of their labor and instead share it with the rest of society, most of whom they will never meet.&lt;/p&gt;&#xA;" OwnerUserId="10245" LastActivityDate="2016-09-19T20:14:28.093" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13469" PostTypeId="2" ParentId="13462" CreationDate="2016-09-19T20:14:57.680" Score="2" Body="&lt;p&gt;What you describe is very standard in academic econometric practice. It essentially answers what is the elasticity of Y with respect to X identified from changes in X and Y. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here are a few problems that can be introduced by this process&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;First-differencing is very similar to $Y_t = \alpha + \beta_0 * Y_{t-1} + \beta_1 * X_{t} + \beta_2 * X_{t-1} + \epsilon$ with the additional restrictions that $\beta_0 = 1$ and $\beta_1 = -\beta_2$&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www2.warwick.ac.uk/fac/soc/economics/staff/ffwaldinger/teaching/ec9a8/slides/lecture_3_-_did.pdf&quot; rel=&quot;nofollow&quot;&gt;First-differencing can introduce serial correlation in standard errors&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="69" LastActivityDate="2016-09-19T20:14:57.680" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13471" PostTypeId="1" CreationDate="2016-09-19T23:22:50.713" Score="1" ViewCount="412" Body="&lt;p&gt;For any non-cooperative game, is there some commitment mechanism which will can guarantee that players chose a pareto-optimal solution?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or, are there known conditions for this to obtain?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT: I elaborate what I mean by &quot;commitment mechanism&quot; below:&#xA;Informally, I mean something like a &quot;contract&quot; that players can sign and are guaranteed to follow in the future.&lt;br&gt;&#xA;So there is an additional round at the start of the game where each player, independently, decides to sign this contract (or not).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For instance, coordination in the prisoner's dilemma can be achieved by offering each player the option of signing a contract which states:&#xA;&quot;If both players sign this contract, then I will cooperate&quot;.&lt;/p&gt;&#xA;" OwnerUserId="6559" LastEditorUserId="6559" LastEditDate="2016-09-20T18:52:24.267" LastActivityDate="2020-04-05T20:33:51.037" Title="Is there a commitment mechanism which allows players to achieve pareto optimal solutions?" Tags="&lt;game-theory&gt;" AnswerCount="1" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="13472" PostTypeId="1" CreationDate="2016-09-20T00:02:23.737" Score="2" ViewCount="258" Body="&lt;p&gt;I have a count variable as the dependent variable and several continuous regressors on the RHS. The dependent variable and some regressors are supposed to be endogenous to unobserved factors. I have a set of IVs for the endogenous regressors.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have two questions:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Is there any model for count panel data (especially for fixed effect) that addresses endogenous regressors? &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;I have been looking into the literature and have not found anything. It is either count models for panel data, or count models for endogenous regressors, not both. &lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;2&quot;&gt;&#xA;&lt;li&gt;Some books mention that it is difficult to address endogeneity in count panel data, but they do not really explain why. Anyone knows why?&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Thanks!&lt;/p&gt;&#xA;" OwnerUserId="10450" LastActivityDate="2017-11-13T03:00:07.017" Title="Count panel models for endogenous regressors" Tags="&lt;econometrics&gt;&lt;fixed-effects&gt;&lt;endogeneity&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13473" PostTypeId="1" CreationDate="2016-09-20T01:13:52.923" Score="1" ViewCount="826" Body="&lt;p&gt;Take a standard example: hamburger patties and hamburger buns. It is understandable that if the supply of hamburger patties increases (for whatever reason), the price of these patties will decrease, thus causing an increase in the demand for hamburger buns.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, let's say the price of hamburger patties decreases due to a decrease in demand (maybe doctors come out saying beef causes cancer). Why would the demand of hamburger buns increase when the demand of hamburger patties decreased? Standard definition of complementary goods (that I've seen so far) implies that the price decrease of hamburger patties would cause the demand for hamburger buns to increase, but that defies common sense.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Wouldn't a more sensible definition be that goods are complementary when the demand of one good is correlated with the quantity demanded of the other?&lt;/p&gt;&#xA;" OwnerUserId="10451" LastEditorUserId="10451" LastEditDate="2016-09-20T01:56:44.350" LastActivityDate="2016-09-20T21:27:55.033" Title="Why are complementary goods defined as when a good's demand is inversely correlated with the price of another?" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13476" PostTypeId="1" AcceptedAnswerId="13478" CreationDate="2016-09-20T04:18:47.313" Score="3" ViewCount="2463" Body="&lt;p&gt;In Mas-Colell, Whinston, and Green's Microeconomics they define the &lt;em&gt;indirect utility function,&lt;/em&gt; $v(p,w)$ as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ v(p,w) := u(x^*) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where $x^* \in x(p,w)$ solves the utility maximization problem.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;They state a property of $v(p,w)$ is quasiconvexity, i.e. the set&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \{(p,w): v(p,w) \leq \bar{v} \} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;is convex for any $\bar{v}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Just the page before they said that convexity of preferences implies that $u(\bullet)$ is &lt;em&gt;quasiconcave&lt;/em&gt;, so my question is why when we look at the max of $u$, it's quasiconcave property inflects (can't think of a better word) to quasiconvexity?  &lt;/p&gt;&#xA;" OwnerUserId="5780" LastActivityDate="2016-09-20T06:43:02.610" Title="Quasiconvexity of the indirect utility function" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13477" PostTypeId="1" AcceptedAnswerId="13493" CreationDate="2016-09-20T06:16:51.297" Score="-1" ViewCount="1100" Body="&lt;p&gt;Level: Ungrad, Micro&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have a task, &lt;a href=&quot;https://imgur.com/a/JT4zB&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://imgur.com/a/JT4zB&lt;/a&gt; I have done some questions. While I can't understand the differences between Slutsky and Hicks approach. I get it theoreticaly, but I don't know what differences would appear during solution. Please help with substitution-income effect calculation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;P.S. I have calculated substitution effect somehow, but I'm not sure wich approach that would be.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help is appreciated.&lt;/p&gt;&#xA;" OwnerUserId="10456" LastActivityDate="2016-09-20T23:40:07.237" Title="Slutsky and Hicks approach in calculating SE, IE. Differences and interpretation" Tags="&lt;microeconomics&gt;&lt;utility&gt;" AnswerCount="1" CommentCount="0" ClosedDate="2016-09-22T06:11:49.220" ContentLicense="CC BY-SA 3.0" />
  <row Id="13478" PostTypeId="2" ParentId="13476" CreationDate="2016-09-20T06:17:35.333" Score="5" Body="&lt;p&gt;The functions and their variables are different, so there is no &quot;inflection&quot; or flipping.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The utility function $u$ which maps from the space of goods $X$ to $\mathbb{R}$ is convex and quasiconcave.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The indirect utility function $v$ which maps from the space of prices to $\mathbb{R}$ is quasiconvex.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Intuitively: &lt;br&gt;&#xA;$u$: If you average two consumption bundles your utility is not lower than the average of the utility of the two bundles. Rather than eating just meat one day and just vegetables the other day you prefer to mix these everyday.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$v$: If the price vector is $p$ one day and $p'$ the other day you may be better off than if it was $\frac{p + p'}{2}$ every day. It is easy to check that anything you can buy under the second price regime you can also buy under the first. However there might be consumption bundles that you can only buy under the first price regime.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2016-09-20T06:43:02.610" LastActivityDate="2016-09-20T06:43:02.610" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13481" PostTypeId="1" CreationDate="2016-09-20T13:31:12.477" Score="2" ViewCount="55" Body="&lt;p&gt;Maximize&#xA;$$\begin{align}&#xA;U_1(x) \qquad &amp;amp; (1)\\&#xA;\text{s.t.} \quad U_2(a-x) = c \qquad &amp;amp; (2)\\&#xA;\end{align}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where we have bundles $x = (x_1, x_2), \quad a = (3,5)$, and want to split our resources between the two users.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\begin{align}&#xA;U_1(x_1, x_2) &amp;amp; = (x_1 + 1)x_2 \\ &#xA;U_2(x_1, x_2) &amp;amp; =  36 - (x_1 - 4)^2 - (x_2 - 6)^2&#xA;\end{align}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In equations $(1)–(2)$, choosing different $c$ would lead to different $x$. Find all those $x$ with $x_1 ∈ [0, 3]$ and $x_2 ∈ [0, 5]$. Those set of points will comprise those distributions of wealth which are reasonable in the sense that no person’s utility can be improved without hurting someone else.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't understand how one can solve $(1)-(2)$, since I think this gives &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$(x_1 + 1)x_2 - 36 − (x_1 − 4)^2 − (x_2 − 6)^2 = c$  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can plot this as $c = f(x_1,x_2)$, but I feel this isn't what the question is asking for, since it doesn't define a set of points.  If anyone can give me the direction in which to pursue this question, or let me know if I need to provide more information.  Thanks.&lt;/p&gt;&#xA;" OwnerUserId="10460" LastEditorUserId="4251" LastEditDate="2016-09-20T16:55:06.677" LastActivityDate="2016-10-20T18:01:10.847" Title="Finding distributions of wealth from utility functions" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;utility&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13482" PostTypeId="2" ParentId="13449" CreationDate="2016-09-20T13:41:27.340" Score="0" Body="&lt;p&gt;The difference in prices is compensation for market making activities in the secondary market. The market maker is the intermediary that connects buyers and sellers. You could compare the market maker to a store, the intermediary that connects the producer to the consumer. And like operating a store, market making is both costly and risky, and so it is fair that market makers are compensated for their troubles. Whether the &lt;em&gt;amount&lt;/em&gt; of compensation is fair is an entirely different issue, and one for which I do not have a ready answer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But this answer is unlikely to be in opening up primary markets. If primary markets were open, issuers of financial securities would have to carry the risk and costs of market making themselves. And why would they do that? There are no economies of scale for them: it's not practical to hold auctions that are open to thousands of bidders, particularly if all participants' details and credit scores need to be checked. Conversely, what's the benefit of having more bidders? Maximizing the return is all that matters to the issuer, and it is not at all obvious that the difference in price would outweigh the additional costs.&lt;/p&gt;&#xA;" OwnerDisplayName="user7935" LastActivityDate="2016-09-20T13:41:27.340" CommentCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="13483" PostTypeId="1" AcceptedAnswerId="13486" CreationDate="2016-09-20T15:29:03.147" Score="1" ViewCount="15128" Body="&lt;p&gt;I know the law of demand which states that&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;if price of a product increases then the demand will decrease&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In this, I think we assume that price is a function of demand. But I feel otherwise i.e. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;if demand increases then the price of the good will increases&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;My reasoning:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If demand increases then the producers will capitalize on this fact and to increase their profits, will increase the price of the goods.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where am I wrong?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note: I have taken an introductory course on microeconomics as a minor and therefore know just the basic concepts only.&lt;/p&gt;&#xA;" OwnerUserId="10462" LastEditorUserId="2776" LastEditDate="2017-08-11T08:37:55.400" LastActivityDate="2018-05-20T03:54:40.807" Title="Will price increase as demand increase?" Tags="&lt;microeconomics&gt;&lt;supply-and-demand&gt;" AnswerCount="4" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="13484" PostTypeId="2" ParentId="13481" CreationDate="2016-09-20T17:02:39.483" Score="2" Body="&lt;p&gt;From what it looks like, you are literally trying to subtract $(2)$ from $(1)$, incorrectly as well (You didn't distribute the minus out correctly.) It is saying to use equations 1 through 2 to solve this problem.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You have to set up a Lagrangian with the maximization problem:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\max_{x_1, x_2} \ (x_1 + 1)x_2 \\ \text{s.t.} \ 36 - (x_1 - 4)^2 - (x_2 - 6)^2 = c&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\mathcal{L} = (x_1 + 1)x_2 - \lambda[36 - (x_1 - 4)^2 - (x_2 - 6)^2 - c]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and you should be able to move from there.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2016-09-20T17:02:39.483" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13485" PostTypeId="1" CreationDate="2016-09-20T17:18:35.127" Score="6" ViewCount="121" Body="&lt;p&gt;In the econ literature, what is the convention when it comes to (not) hypenating some common terms like:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;first(-?)best, second(-?)best,...&lt;/li&gt;&#xA;&lt;li&gt;best(-?)response?&lt;/li&gt;&#xA;&lt;li&gt;...&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The Economist suggests that &lt;a href=&quot;http://www.economist.com/style-guide/hyphens&quot; rel=&quot;nofollow noreferrer&quot;&gt;&quot;There is no firm rule to help you decide which words are run together, hyphenated or left separate&quot;&lt;/a&gt; so I thought people here could be more aware of the conventions in econ than people, say, at &lt;a href=&quot;http://english.stackexchange.com&quot;&gt;http://english.stackexchange.com&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="38" LastEditorUserId="38" LastEditDate="2017-01-05T17:44:17.590" LastActivityDate="2017-01-05T17:44:17.590" Title="A guide to hyphenation in economics?" Tags="&lt;definition&gt;" AnswerCount="1" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13486" PostTypeId="2" ParentId="13483" CreationDate="2016-09-20T19:04:23.000" Score="4" Body="&lt;p&gt;The law of demand is a microeconomic law that states, &lt;strong&gt;all other factors being equal&lt;/strong&gt;, as the price of a good or service increases, consumer demand for the good or service will decrease, and vice versa.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, when you say that &quot;if demand &lt;strong&gt;increases&lt;/strong&gt; then the price of the good will increase&quot;&quot;, you aren't changing the price and based on the change in demand you are now predicting that the price would rise which is clearly against the law of demand as your &quot;&lt;em&gt;increase&lt;/em&gt;&quot; in demand is obviously due to more user engagement, advertising, or some &lt;strong&gt;&lt;em&gt;other external factors&lt;/em&gt;&lt;/strong&gt;. &lt;/p&gt;&#xA;" OwnerUserId="10465" LastActivityDate="2016-09-20T19:04:23.000" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13487" PostTypeId="1" AcceptedAnswerId="13513" CreationDate="2016-09-20T19:53:59.807" Score="3" ViewCount="330" Body="&lt;p&gt;In a New-Keynesian Model, the Consumption index&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$C_t=\left(\int_0^1{C_t(i)^{1-\gamma} \ di}\right)^{\frac{1}{1-\gamma}}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;is log-linearized to&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\tilde{c_t}=\int_0^1{\tilde{c_t}(i)  \ di}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where variables with tilde are log deviations from steady state and $i=[0,1]$ are varieties of the consumption good. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Even though I feel comfortable log linearizing other equations, I have no idea how to deal with the integral. How do you get to the result? And what would a second order approximation look like?&lt;/p&gt;&#xA;" OwnerUserId="8630" LastActivityDate="2016-09-23T14:48:01.263" Title="Log-Linearizing a Dixit-Stiglitz function" Tags="&lt;macroeconomics&gt;&lt;new-keynesian-economics&gt;&lt;monopolistic-competition&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="13488" PostTypeId="2" ParentId="10637" CreationDate="2016-09-20T20:14:02.097" Score="3" Body="&lt;p&gt;Basically, every cut in interest rates discourages saving/holding bonds, also when the interest rate goes into negative territory&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It was long believed that when interest rates are zero (or negative) nobody has an incentive to hold bonds/assets, as there is no opportunity cost in holding cash (and cash is more liquid).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, it turned out that investors are still willing to hold bonds. The main reason is that negative interest rates are still cheaper than holding and securing cash (i.e. storage costs) and (to a lesser extent) that writing checks and withdrawing money from the ATM is still preferred to managing your cash holdings on your own.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Look at this &lt;a href=&quot;http://krugman.blogs.nytimes.com/2015/03/03/how-negative-can-rates-go/&quot; rel=&quot;nofollow&quot; title=&quot;blog entry&quot;&gt;blog entry&lt;/a&gt; for an interesting discussion on the topic.&lt;/p&gt;&#xA;" OwnerUserId="8630" LastActivityDate="2016-09-20T20:14:02.097" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13489" PostTypeId="2" ParentId="13075" CreationDate="2016-09-20T21:05:07.443" Score="1" Body="&lt;p&gt;To solve the problem you also need the equation:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$Y_t=\left(\int_0^1 Y_t(j)^{1-\nu} \ dj \right)^{\frac{1}{1-\nu}}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, the FOC is the same for every $Y_t(j)$, so we only have to differentiate once. Applying the chain rule we get:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac{\partial \Pi_t}{\partial Y_t(j)}=P_t \left(\int_0^1 Y_t(j)^{1-\nu} \ dj \right)^{\frac{\nu}{1-\nu}} Y_t(j)^{-\nu}-P_t(j)=0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At this point, the trick of the trade is that  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\left(\int_0^1 Y_t(j)^{1-\nu} \ dj \right)^{\frac{\nu}{1-\nu}}$ which is a part of the FOC, equals $Y_t^{\nu}$ (check the first equation)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Setting &#xA;$\left(\int_0^1 Y_t(j)^{1-\nu} \ dj \right)^{\frac{\nu}{1-\nu}}= Y_t^{\nu}$ in the FOC, and solving for $Y_t(j)$ will give the desired result.&lt;/p&gt;&#xA;" OwnerUserId="8630" LastActivityDate="2016-09-20T21:05:07.443" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13490" PostTypeId="2" ParentId="13473" CreationDate="2016-09-20T21:27:55.033" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Why are complementary goods defined as when a good's demand is inversely correlated with the price of another?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;We know that (in this model) the price of patties influences the demand of buns. This is because a cheaper patty makes the whole burger cheaper, which makes me demand more burger and therefore more bun . &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Why would the demand of hamburger buns increase when the demand of&#xA;  hamburger patties decreased?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Other things being equal&lt;/strong&gt;, the price of patties influences the price of buns. The theory says nothing about how the price change came about. You &lt;em&gt;implicitly&lt;/em&gt; assume that something changing patty demand would change bun demand, also. In the model world, there are only explicit assumptions.&lt;/p&gt;&#xA;" OwnerUserId="8630" LastActivityDate="2016-09-20T21:27:55.033" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13491" PostTypeId="2" ParentId="13198" CreationDate="2016-09-20T21:41:23.120" Score="0" Body="&lt;p&gt;No. There is a trade-off between lowering inflation and boosting exports. You can't have both. There is no magic bullet.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that with fully flexible exchange rates, high inflation does not hurt the export sector as the real exchange rate stays the same.&lt;/p&gt;&#xA;" OwnerUserId="8630" LastActivityDate="2016-09-20T21:41:23.120" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13492" PostTypeId="2" ParentId="13198" CreationDate="2016-09-20T23:22:07.377" Score="1" Body="&lt;p&gt;Yes, but only if you also introduce capital controls. You should check out the Mundell–Fleming trilemma:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The Impossible trinity (also known as the Trilemma) is a trilemma in&#xA;  international economics which states that it is impossible to have all&#xA;  three of the following at the same time:&lt;/p&gt;&#xA;  &#xA;  &lt;ol&gt;&#xA;  &lt;li&gt;A fixed foreign exchange rate&lt;/li&gt;&#xA;  &lt;li&gt;Free capital movement (absence of capital controls)&lt;/li&gt;&#xA;  &lt;li&gt;An independent monetary policy&lt;/li&gt;&#xA;  &lt;/ol&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Impossible_trinity&quot; rel=&quot;nofollow&quot;&gt;Wikipedia Impossible Trinity&lt;/a&gt; &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2016-09-20T23:22:07.377" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13493" PostTypeId="2" ParentId="13477" CreationDate="2016-09-20T23:40:07.237" Score="1" Body="&lt;p&gt;Hicks compensation ensures that the consumer will reach the same utility level after the price/wealth change. (So graphically will be on the same IC)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Slutsky compensation ensure that the consumer can afford the old bundle after the price/wealth change. (so graphically rotates around the old bundle)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So when working out a problem, you can spot the difference when the consumer either has the same utility level, or can afford the same bundle. &lt;/p&gt;&#xA;" OwnerUserId="10155" LastActivityDate="2016-09-20T23:40:07.237" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13494" PostTypeId="1" AcceptedAnswerId="13495" CreationDate="2016-09-21T00:23:36.647" Score="2" ViewCount="2484" Body="&lt;p&gt;Given an indifference curve, how do you go about finding a utility function? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, given $z= \frac{k^\frac{1}{\delta}}{x^\frac{\alpha}{\delta}y^\frac{\beta}{\delta}}$ (defined by $U(\cdot) = k$), find a utility function. To do this, would I have to assign an arbitrary number for the utility and rewrite the function? I'm confused about what to do and can't find anything in my textbook about it. Thanks &lt;/p&gt;&#xA;" OwnerUserId="10467" LastEditorUserId="4251" LastEditDate="2016-09-21T02:20:58.100" LastActivityDate="2016-09-21T02:48:05.863" Title="Find utility function given indifference curve?" Tags="&lt;microeconomics&gt;&lt;utility&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13495" PostTypeId="2" ParentId="13494" CreationDate="2016-09-21T02:48:05.863" Score="3" Body="&lt;p&gt;VCG's comment about isolating $k$ is the correct approach.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given $U(\cdot) = k$ and&#xA;$$z = \frac{k^\frac{1}{\delta}}{x^\frac{\alpha}{\delta}y^\frac{\beta}{\delta}}$$&#xA;raise each side to the $\delta$ power:&#xA;$$z^\delta = \frac{k}{x^\alpha y^\beta}$$&#xA;and isolate $k$&#xA;$$k = x^\alpha y^\beta z^\delta$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since $k$ is now a function of each of the goods in your equation, it makes sense as a function form for utility.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U(x, y, z) = x^\alpha y^\beta z^\delta$$&#xA;So we arrive at the Cobb-Douglass utility form.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2016-09-21T02:48:05.863" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="13496" PostTypeId="1" AcceptedAnswerId="13499" CreationDate="2016-09-21T08:36:04.710" Score="3" ViewCount="704" Body="&lt;p&gt;In Perman et al. &quot;The efficient and optimal use of natural resources&quot; it is presented a simple single-good model of welfare dynamic optimisation with non-renewable natural resource where:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Obj:&#xA;$$&#xA;max \int_{t=0}^{t=inf}{U(C) e^{-\rho t} dt} &#xA;$$&#xA;s.t.&#xA;$$&#xA;\dot S_t = -R_t&#xA;$$&#xA;$$&#xA;\dot K_t = Q(K_t,R_t)-C_t&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That is, the economy is comprised of a single output Q that can be either consumed or added to the capital stock K (that doesn't depreciate).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Solving the model and rearranging the first order conditions, the book found that among the optimal path the growth rate of consumption is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\frac{\dot C} {C} = \frac {Q_k - \rho}{\eta}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $Q_k$ is the marginal product of the capital, $\rho$ is the social discount rate and $\eta$ being the elasticity of the marginal utility with respect to consumption is, under bland assumptions, guaranteed to be positive.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, my problem is the interpretation of the sign implications of this equation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If $Q_K$ is greater than $\rho$, the consumption rate increases (and the opposite). What does it mean?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The books explains it considering that $\rho$ (the social discount rate) reflects impatience for future consumption, and $Q_K$ (the marginal product of capital) is the pay-off to delayed consumption. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Under this interpretation the relation implies that along an optimal path&#xA;when ‘pay-off’ is greater than ‘impatience’ &quot;&lt;em&gt;consumption is increasing&lt;/em&gt;&quot;, or that &lt;em&gt;&quot;the economy will be accumulating K and hence growing&lt;/em&gt;&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But in my experience if $Q_K$ is higher than the discount rate, I have an higher incentive to stock K rather than consume, so how the consumption could increase ?&#xA;Also, it is said that &quot;when ‘pay-off’ is less than ‘impatience’, the economy will be running down K.&quot;, but how can the K reduce in this simple model where there is no capital depreciation?&lt;/p&gt;&#xA;" OwnerUserId="10376" LastActivityDate="2016-10-01T19:31:45.323" Title="Interpretation of the growth rate of consumption in a simple one-good model" Tags="&lt;microeconomics&gt;&lt;welfare-economics&gt;&lt;resource-economics&gt;&lt;nonrenewable-resources&gt;" AnswerCount="3" CommentCount="1" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="13497" PostTypeId="2" ParentId="13496" CreationDate="2016-09-21T08:36:04.710" Score="2" Body="&lt;p&gt;I got stock with this problem for days.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The fact is that in a statical analysis, increasing $Q_K$ reduces consumption. But in a dynamic analysis, increasing $Q_K$ means more capital is saved and hence next year an higher production function that allows for more consumption than today, hence, a positive growth rate of consumption.&lt;/p&gt;&#xA;" OwnerUserId="10376" LastEditorUserId="10376" LastEditDate="2016-09-21T14:04:39.140" LastActivityDate="2016-09-21T14:04:39.140" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13499" PostTypeId="2" ParentId="13496" CreationDate="2016-09-21T14:54:33.527" Score="2" Body="&lt;p&gt;I think you could have posted the question in a simpler manner. The exhaustible resource stock has nothing to do with the question. It is just the basic Euler equation in canonical Solow growth model.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Basically, if your pure rate of time preference $\rho$ (equivalently, your patience level) is higher than the  interest rate of capital ($\rho&amp;gt;Q_{k}$), it means that you are impatient and consume most of what you have at earlier dates and you have less to consume in future. In which case, your consumption starts with higher values at date $0$ and dynamically decreases over time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another way to see this ; if interest rate of capital is higher, you have more incentive accumulate capital (by having savings) at earlier dates and postpone your consumptions to later dates. In this case, you will consume less in earlier dates and consume more at later dates. Therefore, your consumption will increase dynamically over time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope that it helps.&lt;/p&gt;&#xA;" OwnerUserId="2938" LastEditorUserId="10376" LastEditDate="2016-09-22T11:24:39.443" LastActivityDate="2016-09-22T11:24:39.443" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13502" PostTypeId="2" ParentId="13485" CreationDate="2016-09-21T16:45:58.903" Score="5" Body="&lt;p&gt;Plamen Nikolov of Binghamton University presents a brief treatment of this in &quot;Writing Tips For Economics Research Papers&quot;. He notes that there are two basic rules of economic usage: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;Long run&quot; (without a hyphen) is a noun. &quot;Long-run&quot; (with a hyphen) is&#xA;  an adjective. Same with short(-)run. and &quot;Saving&quot; (without a terminal&#xA;  s) is a flow. &quot;Savings&quot; (with a terminal s) is a stock.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="9010" LastEditorUserId="69" LastEditDate="2016-09-21T16:49:23.893" LastActivityDate="2016-09-21T16:49:23.893" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13503" PostTypeId="2" ParentId="10637" CreationDate="2016-09-21T19:53:33.780" Score="5" Body="&lt;p&gt;@Henry gives a good answer with lots of interesting reasons. However, there are lots macro-model setting where the demand for risk free assets is positive, even when the interest on savings is negative. Essentially, because risk is unpleasant and we don't have any good alternative  technology to the market for risk-less assets to move our savings through time, risk adverse entities will generally have a positive quantity of the risk-free asset regardless of the interest rate. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And, to some extent, this meshes with our intuition about how savings works. The poor medieval farmer puts away (&quot;saves&quot;) food in the summer for winter knowing that much of it will spoil and there certainly won't be any more than he puts in (&quot;negative interest&quot;) but because he doesn't have a bank or because agricultural prices are higher in the winter, he can't simply sell all his produce today, save the money, and buy the food later. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In fact, if you have log-utility preferences the income and substitution effects cancel (see for example &lt;a href=&quot;http://web.stanford.edu/~chadj/Consumption2009-11-25.pdf&quot; rel=&quot;nofollow&quot;&gt;Jones chapter 20&lt;/a&gt;) and no change in interest rates up or down changes the consumption and savings decision. &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2016-09-21T19:53:33.780" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13504" PostTypeId="1" AcceptedAnswerId="15680" CreationDate="2016-09-22T11:52:40.290" Score="1" ViewCount="61" Body="&lt;p&gt;In discussions of the &quot;credit channel&quot; in the transmission of monetary policy, I've read that increasing the policy rate reduces bank reserves. Can someone explain how this happens?&lt;/p&gt;&#xA;" OwnerUserId="8982" LastEditorUserId="2776" LastEditDate="2017-03-07T15:42:11.703" LastActivityDate="2017-03-07T18:24:12.967" Title="How monetary policy affects bank reserves" Tags="&lt;monetary-policy&gt;&lt;central-banking&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13505" PostTypeId="2" ParentId="13214" CreationDate="2016-09-22T13:13:22.760" Score="1" Body="&lt;p&gt;Based on data/work with consultants/business school discussions with executives: A good example of a set of industries where marginal costs are rising is commodity production (metals, agricultural products, and energy such as oil). In such industries, companies own many plants (Glencore, BHP Billiton) and they tend to switch on production in a plant when the price is above the marginal cost of that plant. So it makes sense to order plants in increasing order of their marginal cost, and assume that the lowest-marginal-cost plant will be the last one to be shut down. Of course if the firm acquires a plant that has a lower marginal cost than the lowest-marginal-cost plant, it will shift that firm's marginal cost curve. Look for Carmin Nappi's slides online on the aluminum industry, plenty of that analysis going on.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some of the slides are in here, see slide 11. &lt;a href=&quot;http://www.riotinto.com/documents/Media-Speeches/Rio_Tinto_Alcan_Carmine_Nappi_11_June_2008.pdf&quot; rel=&quot;nofollow&quot;&gt;http://www.riotinto.com/documents/Media-Speeches/Rio_Tinto_Alcan_Carmine_Nappi_11_June_2008.pdf&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now this is a similar framework adopted by Pindyck, for instance in &lt;a href=&quot;http://www.jstor.org/stable/41322920?seq=1#page_scan_tab_contents&quot; rel=&quot;nofollow&quot;&gt;http://www.jstor.org/stable/41322920?seq=1#page_scan_tab_contents&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="10482" LastEditorUserId="10482" LastEditDate="2016-09-22T14:00:02.200" LastActivityDate="2016-09-22T14:00:02.200" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13507" PostTypeId="1" AcceptedAnswerId="13508" CreationDate="2016-09-22T17:57:53.570" Score="0" ViewCount="887" Body="&lt;p&gt;I am familiar with the concept of deadweight loss but I can't deduce the significance of the triangular region we consider deadweight loss as.&lt;a href=&quot;https://i.stack.imgur.com/LufM5.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/LufM5.png&quot; alt=&quot;Demand Supply Curve&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I mean what's the issue with taking the deadweight loss as the area under ABCD instead of CDE or for that matter CDF (F being the mid point of DE) or does that particular area represents some quantity from economic perspective that I might be missing out on?&lt;/p&gt;&#xA;" OwnerUserId="10465" LastActivityDate="2016-09-24T18:01:55.443" Title="What's the significance of the triangular region for calculating the deadweight loss?" Tags="&lt;microeconomics&gt;&lt;supply-and-demand&gt;" AnswerCount="2" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="13508" PostTypeId="2" ParentId="13507" CreationDate="2016-09-22T19:38:20.587" Score="3" Body="&lt;p&gt;I suspect your chart could look more like this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/A5hiU.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/A5hiU.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Initially with the price and quantity at E, the combined surplus is the triangle to the left (between the orange line and the lower green line to the left of E, i.e. the pink and grey areas).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But with for example a tax, the new equilibrium has consumers paying the price at C, so the new combined surplus is still between the orange line and the lower green line, but only to the left of C (i.e. the pink area).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the deadweight loss is the triangle CEF (i.e. the grey area) which is the loss in surplus associated with the reduced quantity.  If all three lines are straight, and the green lines are parallel then this is the same area as the triangle CDE, but not necessarily otherwise.    &lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2016-09-22T19:38:20.587" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13510" PostTypeId="1" AcceptedAnswerId="13511" CreationDate="2016-09-23T08:59:59.587" Score="1" ViewCount="127" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;The Walrasian demand function $x(p,w)$ satisfies the weak axiom of revealed preference if the following property holds for any two price wealth situations $(p,w)$ and $(p',w')$:&#xA;  If $p•x(p',w')\le w$ and $x(p',w')\ne x(p,w)$, then $p'•x(p,w)&amp;gt;w'$.&#xA;  Where $x$ is the amount of commodity, $p$ is price and $w$ is wealth.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The book(MWG's Microeconomics Theory, Page 29-30) says that the graph below satisfies the weak axiom. I have difficulty in understanding the graph. To be specific, I don't know why there is a dot in each of the budget set and I can't understand why it satisfies the weak axiom. &lt;img src=&quot;https://i.stack.imgur.com/dbt0b.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;" OwnerUserId="6895" LastActivityDate="2016-09-23T11:16:28.040" Title="Whether the demand in the panels satisfies the weak axiom" Tags="&lt;microeconomics&gt;&lt;supply-and-demand&gt;&lt;walrasian&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13511" PostTypeId="2" ParentId="13510" CreationDate="2016-09-23T11:16:28.040" Score="2" Body="&lt;p&gt;So WARP says that if bundle x' you choose under budget B' is affordable at budget B'' (and you don't choose x' - i.e x'$\not=$x''), then x'' cannot be affordable under budget B'.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The picture you showed gives the 2 bundles that the person chooses. Those are given in the picture. As you can see, x' is not affordable at budget B'' and bundle x'' is not affordable at budget B', so WARP is satisfied. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you are reading MWG and you don't understand what those dots represent in the consumption space, then I would recommend reading more from the beginning of chapter 2. &lt;/p&gt;&#xA;" OwnerUserId="10155" LastActivityDate="2016-09-23T11:16:28.040" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13512" PostTypeId="1" AcceptedAnswerId="13515" CreationDate="2016-09-23T14:13:42.637" Score="1" ViewCount="179" Body="&lt;p&gt;Let's say a company sells car loans (or mortgages or credit cards, I don't think it really matters). The company sells the loans to an SPV, who then issues securities backed by the cash flows the SPV receives from the loan repayments, which, as far as I understand, come &lt;strong&gt;through&lt;/strong&gt; the initial company (as it is the entity that services the car loans and repossesses them in the event that a car purchaser cannot make payments). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the company goes bankrupt, and must discontinue operations, I understand that the SPV is legally separate, and as such the company's creditors have no claim on the assets held by the SPV.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But how is the SPV going to collect/ repossess the car loans/ cars? It's not set up to do that. Would the SPV not also end up defaulting on its obligations at this point?&lt;/p&gt;&#xA;" OwnerUserId="10488" LastEditorDisplayName="user4169" LastEditDate="2016-10-06T21:15:19.323" LastActivityDate="2016-10-06T21:15:19.323" Title="In the event of a company's bankruptcy, how does a SPV continue operations if it can no longer collect payments on collateral" Tags="&lt;finance&gt;&lt;investment&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13513" PostTypeId="2" ParentId="13487" CreationDate="2016-09-23T14:48:01.263" Score="3" Body="&lt;p&gt;Thanks for the hint and the link! I think I now managed to find the solution.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Putting the exponent on the LHS and replacing &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$C_t^{1-\gamma}$ with $C+(1-\gamma) C^{1-\gamma}C \tilde{c}$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;and&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$C_t(i)^{1-\gamma}$ with $C(i)+(1-\gamma)C(i)^{1-\gamma}\tilde{c}_t(i)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;i get (subtracting Steady State values):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$(1-\gamma) C^{1-\gamma}C \tilde{c}=\int_0^1 (1-\gamma)C(i)^{1-\gamma}\tilde{c}_t(i) \ di$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assuming steady state values of $C(i)$ are constant across $i$, i can take all values out of the integral and simplify to get:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\tilde{c}=\int_0^1 \tilde{c}_t(i) \ di$&lt;/p&gt;&#xA;" OwnerUserId="8630" LastActivityDate="2016-09-23T14:48:01.263" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13514" PostTypeId="2" ParentId="13461" CreationDate="2016-09-23T15:47:32.687" Score="1" Body="&lt;p&gt;Presuming the question is about inter-temporal choices and corresponding discount rate (not central banking).&#xA;It is rather easy to prove existence of such discount rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At one extreme, when discount rate is 100% (carpe diem mode), the person in question (N) will only look at the immediate value and expense. Dealer A effectively sells the car for \$2,000 (in present terms), while Dealer B sells it for \$4,000. So N will choose A.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At the other extreme, when discount rate is 0% (immortal person without any propensity for investment, perhaps?), N will just sum up all the value and expense streams. So A effectively sells the car for \$20,000 (both in present terms and in nominal terms), while B for \$19,500. So N will choose B.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With discounting function being continuous, it follows that somewhere between 100% and 0% there is a discount rate where A and B have the same present value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;PS: I am not sure if I should have posted this as a comment, but it's too long, and actually proves existence of the answer. I may expand this to include the actual solution if the question is updated to specify whether equal payments or equal principal payments or some other amortization schedule is used.&lt;/p&gt;&#xA;" OwnerUserId="10489" LastActivityDate="2016-09-23T15:47:32.687" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13515" PostTypeId="2" ParentId="13512" CreationDate="2016-09-23T15:51:15.660" Score="3" Body="&lt;ol&gt;&#xA;&lt;li&gt;Servicing and origination don't have to be done by the same firm. It is quite common that the financing company contracts out the servicing rights on the loans they originate. &lt;/li&gt;&#xA;&lt;li&gt;Servicers, like many other kinds of firms, can continue to operate after bankruptcy. Bankruptcy is what happens when a firm can't pay its bills which includes debt, it doesn't mean that the firm needs to be liquidated. For example, existing debt holders are not getting paid and sue to put the firm into bankruptcy. The equity holders are wiped out, the debt holders become the new equity holders, and with the reduced debt costs the firm can often cover its costs and be profitable (even though the debt holders took a loss on their investment). &lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.consumer.ftc.gov/articles/0191-if-your-mortgage-lender-or-servicer-closing-or-bankruptcy&quot; rel=&quot;nofollow&quot;&gt;Servicing can be reassigned after servicer bankruptcy&lt;/a&gt;. In fact, not only does this happen but it is common for a servicer to change when a loan is sold. So transfer of servicing rights is commonplace.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="69" LastActivityDate="2016-09-23T15:51:15.660" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13516" PostTypeId="2" ParentId="13472" CreationDate="2016-09-23T17:27:40.130" Score="2" Body="&lt;p&gt;Windmeijer (2000, Economics Letters) presents a treatment of the estimation of count-data models with fixed effects and endogeneity. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/S0165176500002287&quot; rel=&quot;nofollow&quot;&gt;http://www.sciencedirect.com/science/article/pii/S0165176500002287&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;See this slideshow by Wooldridge for a pedagogic and progressive presentation of panel data models with endogeneity. Count-data models are introduced slide 54. He clearly explains the possible solutions and relate the count-data case to other nonlinear models. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.ifs.org.uk/docs/wooldridge%20session%204.pdf&quot; rel=&quot;nofollow&quot;&gt;http://www.ifs.org.uk/docs/wooldridge%20session%204.pdf&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="10483" LastActivityDate="2016-09-23T17:27:40.130" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13517" PostTypeId="2" ParentId="13447" CreationDate="2016-09-23T17:45:22.463" Score="0" Body="&lt;p&gt;Somewhat inconsistent/careless use of indices. In &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$M_t=\beta^t\frac{E_0(u'(C_{t+1}))}{u'(C_{0}))}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;it is assumed that we stand at period $0$ &lt;em&gt;for any $t$ ahead we want to look at&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$E_t(M_{t+1})=\beta\frac{E_t(u'(C_{t+1}))}{u'(C_{t}))}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;it is assumed that we stand at &lt;em&gt;any&lt;/em&gt; $t$ and we look one period ahead.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The two expressions don't give the same formulae for any given $t$, and there lies the problem/confusion.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2016-09-23T17:45:22.463" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13518" PostTypeId="2" ParentId="13435" CreationDate="2016-09-23T19:03:46.980" Score="2" Body="&lt;p&gt;The OP correctly identified a mistake here. Since the author claims monotonicity for a general function, let's disprove it for the simple linear case.&#xA;Consider&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$x_{t+1} = g(x_t) = -0.5x_t$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This satisfies all the requirements and conditions stated by the author, and also that the derivative is smaller than unity in absolute values $\forall x$. But it converges with &quot;damped oscillations&quot;, and so it is not monotonic since, say, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$x_0 = -3 &amp;lt; 0 = x^*$$&#xA;$$x_1 = 1.5$$&#xA;$$x_2 = -0.75$$&#xA;etc&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2016-10-10T23:13:40.480" LastActivityDate="2016-10-10T23:13:40.480" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13521" PostTypeId="2" ParentId="13429" CreationDate="2016-09-24T17:33:41.683" Score="3" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;If you treat $c_2$ as if it is a random variable, then the derivative of&#xA;  $E[u(c_2)]$ with respect to $c_2$ gives zero.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Why? Such an assertion doesn't follow from anywhere. The subtleties lie elsewhere. The problem with the Lagrangian considered by the OP &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\mathcal{L} = u(c_1) + \mathbb{E}[u(c_2)] + \lambda(c_2 - f(c_1,Z))$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;is that it &lt;em&gt;also&lt;/em&gt; is a random variable since now $Z$ appears &lt;em&gt;outside&lt;/em&gt; the expected value (The direct substitution approach followed by maximization with respect to $c_1$ only, does not create any such issues).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, do we /  can we maximize a random variable? Well, no, because the essential characteristic of a random variable is that it is a function whose value cannot be set by command and control.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But one could say &quot;ok, let's pretend that this Lagrangian is not a random variable, and just write down the conditions for maximization, even though we know that we can't force the solution&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But this won't work: if one attempts to do it one will eventually obtain&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$u'(c_1) + \mathbb{E}\left[u'(f(c_1,Z))\right] \cdot  \frac{\partial f(c_1,Z)}{\partial c_1} = 0 $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which is &lt;em&gt;not&lt;/em&gt; the same as the condition obtained through direct substitution, because here the partial derivative is &lt;em&gt;outside&lt;/em&gt; the expected value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(for those who may think &quot;hey, then how do we apply maximization procedures in the maximum likelihood approach&quot; the answer is that there, nothing is random anymore when we get to apply the maximization steps).&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2016-09-24T17:33:41.683" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13522" PostTypeId="2" ParentId="13507" CreationDate="2016-09-24T18:01:55.443" Score="0" Body="&lt;p&gt;The deadweight loss measures inefficiency. If point E is your initial equilibrium point (efficient), any government intervention that moves you away from C is inefficient and it created a DWL. The triangle shows you the amount of inefficiency at the new quantity in the market (lower than before) and the new price (higher than before).&lt;/p&gt;&#xA;" OwnerUserId="10302" LastActivityDate="2016-09-24T18:01:55.443" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13523" PostTypeId="1" CreationDate="2016-09-24T20:14:46.580" Score="1" ViewCount="27" Body="&lt;p&gt;People tell me that the way of bootstrapping standard errors in the original paper is incorrect, but then how should I do it? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there a convention of how to compute standard errors for Blanchard-Quah type SVAR in the literature? &lt;/p&gt;&#xA;" OwnerUserId="4040" LastEditorUserId="108" LastEditDate="2016-09-25T07:48:17.813" LastActivityDate="2016-09-25T07:48:17.813" Title="How to compute standard errors for Blanchard-Quah-restricted SVAR?" Tags="&lt;macroeconomics&gt;&lt;econometrics&gt;&lt;time-series&gt;&lt;structural-estimation&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13529" PostTypeId="2" ParentId="13429" CreationDate="2016-09-25T08:46:25.743" Score="0" Body="&lt;p&gt;Answer first:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The `objective function' is in fact a functional. The task is to find a pdf $g(y)$ folowed by $c_2$ and a real number $c_1$ that maximise the following Lagrangian&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \mathcal{L}(c_1, g) = u(c_1) + \int u(x)g(x) \mathrm{d}x + \int \lambda(y)  \left[ g(y) - \eta(c_1, y)  \right] \mathrm{d}y. $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here, $\eta(c_1, y)$ is the pdf followed by the random variable $f(c_1, Z)$. $\lambda(y)$ is a Lagrange multiplier, used to enforce the constraint $g(y)=\eta(c_1,y)$. All integrals are over $\mathbb{R}$. The first order conditions are&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ u'(c_1) - \frac{\partial}{\partial c_1} \int \lambda(y) \eta(c_1,y) \mathrm{d} y =0, \\&#xA;u(y) + \lambda(y) =0, \\&#xA;g(y) - \eta(c_1, y) = 0.  \\&#xA;   $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Combining the first two gives&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ u'(c_1) + \frac{\partial}{\partial c_1} \int u(y) \eta(c_1,y) \mathrm{d} y =0. $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now using the 'law of the unconscious statistician' gives&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ u'(c_1) + \frac{\partial}{\partial c_1} \int u(f(c_1,z)) \phi(z) \mathrm{d} z =0 \\&#xA;\Rightarrow u'(c_1) + \int u'(f(c_1,z)) \frac{\partial f(c_1,z)}{\partial c_1} \phi(z) \mathrm{d} z =0 .$$&#xA;Here, $\phi(z)$ is the pdf followed by the random variable $Z$. This is equivalent to the solution given by OP.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Now I want to address a few other things. I would ideally do this in the comments, but I don't have enough reputation to comment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First of all, I am OP. I really am at a loss as to why I couldn't log in with original credentials. Still trying to figure that one out.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As denesp points out, I wrote an answer not so long ago which I immediately deleted. I did this for a few reasons:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;I didn't actually answer the question in that post.&lt;/li&gt;&#xA;&lt;li&gt;I was on the bus at the time, typing on my phone. The formatting I had wasn't correct, and the wording was very loose. I wanted to take more time over it and give a better and more precise answer. So, for example, some of denesp's comments are directed at imprecise wording in a post I deleted.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;To address denesp's comments on the original post: I commented briefly that things don't work because&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;I thought it was very obvious why the suggested things don't work.&lt;/li&gt;&#xA;&lt;li&gt;I didn't think a detailed post explaining exactly why they don't work with lots of maths was appropriate for the comments&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Alecos' 'answer' isn't an answer at all. It may better be read as an expansion upon why the naive approach in the original post doesn't work. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now let me address the matter of differentiation. It's true that I wasn't precise in the original post, but this was to illustrate the naive approach I was taking and why it wasn't working.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The confusion here stems from the following. Say I have a differentiable function $f: \mathbb{R} \rightarrow \mathbb{R}$. I can certainly talk meaningfully about the function that is the derivative of $f$, that I will denote by $f'$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand, sometimes people 'allow the argument to be a random, $\mathbb{R}$-valued variable'. When they do this, they should probably call the resulting random variables something other than $f$ and $f'$. All the confusion has arisen from this. I did not make this distinction in the original post, because my thinking on the question was not clear, and this has been confounded by other comments not recognising this base cause of the confusion.&lt;/p&gt;&#xA;" OwnerUserId="10499" LastEditorUserId="10499" LastEditDate="2016-09-29T21:35:37.473" LastActivityDate="2016-09-29T21:35:37.473" CommentCount="11" ContentLicense="CC BY-SA 3.0" />
  <row Id="13531" PostTypeId="2" ParentId="13429" CreationDate="2016-09-25T11:06:14.607" Score="3" Body="&lt;p&gt;This is not an answer, for that see &lt;a href=&quot;https://economics.stackexchange.com/a/13521/1601&quot;&gt;Alecos's answer&lt;/a&gt;. The point of this post is to clarify that the question relies on the false assumption&#xA;$$&#xA;\frac{d \ E(c_2)}{d \ c_2} = 0 &#xA;$$&#xA;by way of an example. Consider the random variable that I get by rolling a six sided die and multiplying the result $X$ by a positive integer $n$. The expected value of this is&#xA;$$&#xA;E(n \cdot X) = n \cdot \frac{7}{2}.&#xA;$$&#xA;Would you claim that&#xA;$$&#xA;\frac{d \ E(n \cdot X)}{d \ n} = 0&#xA;$$&#xA;because &quot;Taking the derivative of the expectation [...] with respect to anything gives zero, since the expectation [...] is just a constant&quot;?&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2016-09-25T12:50:37.837" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13535" PostTypeId="1" CreationDate="2016-09-25T22:29:50.917" Score="2" ViewCount="79" Body="&lt;p&gt;Historically, central banks have been using interest rate policy to &lt;a href=&quot;https://en.wikipedia.org/wiki/Monetary_policy#Inflation_Targeting_.2F_Inflation_and_Interest_Rate_Targets&quot; rel=&quot;nofollow&quot;&gt;control inflation&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In current times, most rates have been going &lt;a href=&quot;http://www.global-rates.com/interest-rates/central-banks/central-banks.aspx&quot; rel=&quot;nofollow&quot;&gt;ever lower&lt;/a&gt;, but it seems to be &lt;a href=&quot;http://data.worldbank.org/indicator/FP.CPI.TOTL.ZG&quot; rel=&quot;nofollow&quot;&gt;incapable of driving inflation up&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Do cheap loans really encourage people to start and expand businesses, or at least increase consumption? In my own country, Canada, it seems that all that those cheap loans do, is encourage buying more expensive homes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Would the average citizen really use loans to increase consumption, buy cars or holidays? I may be wrong, but I would guess most people are reluctant to borrow for something that is not a home?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If that is the case, would it not mean that setting interest rates is no longer an effective monetary instrument when it comes to consumer price inflation?&lt;/p&gt;&#xA;" OwnerUserId="10504" LastActivityDate="2016-09-25T22:29:50.917" Title="Can the central bank interest rate policy still control inflation?" Tags="&lt;monetary-policy&gt;&lt;inflation&gt;&lt;central-banking&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13537" PostTypeId="2" ParentId="5333" CreationDate="2016-09-26T03:19:52.970" Score="0" Body="&lt;p&gt;My understanding is as follows:&#xA;The Bretton Woods agreements established fixed exchange rates for European and Japanese currencies against the US dollar.   If those rates were properly chosen, they would be in inverse proportion to the demands for goods and services (g&amp;amp;s) from the US and from the other countries:  that is the greater the excess of demand for US g&amp;amp;s over the trading partner's g&amp;amp;S, the fewer US dollar would be offered in exchange for that country's currency.  Thus, an equilibrium could be attained between the flow of g&amp;amp;S and the flow of US dollar.&lt;br&gt;&#xA;If that equilibrium no longer held because a partner began to fall in its export of g&amp;amp;s to the US over its imports, then the exchange rate would come under pressure because the foreign currency was not worth the dollars established for it by the exchange rate fixation.  To prevent the fixation from being shattered by the market pressure on the deficit country, various mechanisms were employed, mostly in the form of loans of dollars to the troubled trading partner so that it could improve its offerings of g&amp;amp;S and reduce its deficit  - I guess :)&lt;/p&gt;&#xA;" OwnerUserId="10507" LastActivityDate="2016-09-26T03:19:52.970" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13538" PostTypeId="1" AcceptedAnswerId="13541" CreationDate="2016-09-26T12:14:41.480" Score="1" ViewCount="444" Body="&lt;p&gt;Good day&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In my Microeconomics course, we are handling the 4 imperfect competition models.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Currently we are discussing the Cournot Model, however I am unsure about a certain example. This is given as a lecture example (all information provided).&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Let us first assume that we start with a single firm (monopoly).&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;This monopoly is the owner of a costless spring (and sells the water).&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;I.e., MC = 0&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Start with our demand function:&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;Q = 120 – P&#xA;Now, determine the profit maximizing price/output combination.&#xA;MR = MC&#xA;MC = 0&#xA;Q = 120 – P (Demand function) &#xA;P = -Q + 120&#xA;Thus, MR = -2Q + 120&#xA;Thus -2Q + 120 = 0&#xA;Thus Q = 60&#xA;P = 60&#xA;Profits = 3600&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;I am familiar with the concept of calculating each firm's demand function, what confuses me is, in this example, we have a a single firm (monopoly) and when deriving its mariginal revenue function, one should end up with the following:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;P = -Q + 120&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;&lt;code&gt;d/dQ = P' = -1&lt;/code&gt; (using chainrule for -Q =&gt; -1 and dQ of constant = 0)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;thus &lt;code&gt;MR = P' = -1&lt;/code&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;but in the example given, we arrive at:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;MR = -2Q + 120&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;What am I missing or is this example incomplete (not all information given)?&lt;/p&gt;&#xA;" OwnerUserId="10076" LastActivityDate="2016-09-26T13:08:11.683" Title="Cournot Model Monopoly example" Tags="&lt;monopoly&gt;&lt;competition&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13539" PostTypeId="2" ParentId="13343" CreationDate="2016-09-26T12:48:35.943" Score="1" Body="&lt;p&gt;Are you testing for just whether or not there are any breaks at all in the data, or are you testing if there is a break/anomaly at a specific point in time that you believe one exists?  If it is the latter you could include a dummy for that point and test its significance...&lt;/p&gt;&#xA;" OwnerUserId="8878" LastActivityDate="2016-09-26T12:48:35.943" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13540" PostTypeId="2" ParentId="13538" CreationDate="2016-09-26T13:07:28.933" Score="1" Body="&lt;p&gt;The example you gave is correct.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What you are missing is that you took the derivative of the demand function and not of the revenue function. What you should have done is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$Revenue = R = Price*Quantity = (-Q + 120) * Q = -Q^2 + 120Q$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$Marginal \; Revenue = MR=\frac{dR}{dQ} = \frac{d(P*Q)}{dQ} = 120 - 2Q$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What you did was:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$MR = \frac{dP}{dQ}=-1$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence, you took the derivative of the Price and not of Revenue to get marginal revenue, which is wrong.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastActivityDate="2016-09-26T13:07:28.933" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13541" PostTypeId="2" ParentId="13538" CreationDate="2016-09-26T13:08:11.683" Score="1" Body="&lt;p&gt;You have found $\frac{dP}{dQ}=-1$ and $\frac{dQ}{dP}=-1$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You have $R=PQ$ and $Q=120-P$ (equivalent to $R=120P-P^2$ or $R=120Q-Q^2$)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;so the rate of marginal revenue for a small increase in quantity is $\frac{d(PQ)}{dQ}=Q\frac{dP}{dQ}+P\frac{dQ}{dQ} = -Q+P = 120-2Q$ leading to zero when $Q=60$  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;while the rate of marginal revenue for a small increase in price is $\frac{d(PQ)}{dP}=Q\frac{dP}{dP}+P\frac{dQ}{dP} = Q-P = 120-2P$ leading to zero when $P=60$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;both giving the point on the demand curve $Q=60, P=60$ as revenue maximising for the monopolist &lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2016-09-26T13:08:11.683" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13543" PostTypeId="1" AcceptedAnswerId="15257" CreationDate="2016-09-26T16:48:35.470" Score="4" ViewCount="242" Body="&lt;p&gt;I'm looking for a working book of Marx's Labor Theory of Value. It would be nice if the book would explain his theory with calculated examples and some exercises with solutions that one can do. Since I'm a German I could read The Capital for myself, but I find it too complicated. Any good books on this?&lt;/p&gt;&#xA;" OwnerUserId="7036" LastActivityDate="2017-06-13T11:40:02.820" Title="Labor theory of value examples and exercises" Tags="&lt;reference-request&gt;&lt;marxism&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13545" PostTypeId="2" ParentId="13343" CreationDate="2016-09-26T22:51:34.823" Score="4" Body="&lt;p&gt;For a multivariate regression:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you're testing for a break at a known date, say at a historic event or change in policy regime, I would recommend that you use a Chow test (a special case of an F-test). This will give you an idea of whether the coefficients are constant on each side of the proposed break.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand, if you want to test for a break at an unknown date, you have three options. You could try a Quandt, Mann-Wald, or Andrews-Ploberger statistic. The choice is up to you, but I like Mann-Wald. To me, it's more intuitive than the others because it's basically the Mean Value Theorem evaluated using a Riemann sum of the F-test at each potential break. Of course, the asymptotic distributions necessary to use any of these methods are beyond my knowledge, but you don't need those if you're modeling in a nice software package with pre-loaded diagnostic tests. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lastly, testing for &quot;breaks&quot; (as in multiple breaks) is a computational nightmare. You probably have deeper issues with your model (like omitted variables or some sort of misspecification) if you need multiple breaks.&lt;/p&gt;&#xA;" OwnerUserId="9010" LastEditorUserId="9010" LastEditDate="2016-09-29T00:32:27.040" LastActivityDate="2016-09-29T00:32:27.040" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13546" PostTypeId="1" CreationDate="2016-09-27T00:29:49.510" Score="0" ViewCount="178" Body="&lt;p&gt;I'm a physics student who likes economics very much. I'm trying to get a simple explanation for inflation. I hope that there is one that doesn't involve people willingly rising prices. Thank you very much!&lt;/p&gt;&#xA;" OwnerUserId="10515" LastActivityDate="2016-09-27T08:58:10.260" Title="Why does an increase in money in circulation increases price levels?" Tags="&lt;macroeconomics&gt;&lt;inflation&gt;" AnswerCount="2" CommentCount="4" ClosedDate="2016-10-01T21:23:37.937" ContentLicense="CC BY-SA 3.0" />
  <row Id="13547" PostTypeId="2" ParentId="13546" CreationDate="2016-09-27T05:23:11.467" Score="-1" Body="&lt;p&gt;When people buy more, when Government invests more, when companies invest more and when exports are bigger than imports, some other people will gain profit. If they have more money, they will also buy more and so on. The GDP for that country will increase to a level called supraproduction. The economy is overheated and the prices will increase as a psychological response of community and as a need to increase the prices for sustaining a supraproduction. You know that when a company produces more, they will gain economy of scales until a certain point when their production costs will increase. That's why they need to increase the price. Of course, everything is far more complicated than that.&lt;/p&gt;&#xA;" OwnerUserId="10518" LastActivityDate="2016-09-27T05:23:11.467" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13549" PostTypeId="2" ParentId="13546" CreationDate="2016-09-27T08:58:10.260" Score="1" Body="&lt;ol&gt;&#xA;&lt;li&gt;new money is created; it belongs to somebody.&lt;/li&gt;&#xA;&lt;li&gt;that somebody can either save/invest the money, or spend it on consumption.&lt;/li&gt;&#xA;&lt;li&gt;provided at least some of the money is spent on consumption, the demand for consumer goods increases.&lt;/li&gt;&#xA;&lt;li&gt;in a competitive market, this increase in demand results in an increase in the price level. (Note that the sellers are not &quot;willingly rising prices&quot; because, in this simple model of competition, sellers take the price a given natural consequence of the interaction of supply and demand).&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/AXuAO.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/AXuAO.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You might also find it interesting to read about the &lt;a href=&quot;https://en.wikipedia.org/wiki/Quantity_theory_of_money&quot; rel=&quot;nofollow noreferrer&quot;&gt;quantity theory of money&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2016-09-27T08:58:10.260" CommentCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="13550" PostTypeId="2" ParentId="13029" CreationDate="2016-09-27T12:22:51.083" Score="3" Body="&lt;p&gt;While there are $n$ players, a player's strategy is not single dimensional.  The total dimension of the strategies is $m$.  So the vector of strategies $s$ is $m$ dimensional.  $g(s,z)$ is also $m$ dimensional, which is why the Jacobian is $m \times m$&lt;/p&gt;&#xA;" OwnerUserId="10521" LastActivityDate="2016-09-27T12:22:51.083" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13552" PostTypeId="1" CreationDate="2016-09-27T14:40:34.817" Score="1" ViewCount="26" Body="&lt;p&gt;Let $B_t$ be real net government debt, let $G_t$ be public spending, let $T$ be net tax revenue (i.e, tax income minus transfers), and ignore everything else. One can show, $$B_{t+1} = (1+r)B_t + G - T$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I say that &lt;strong&gt;deficits are financed by debt issuance&lt;/strong&gt;, what does this mean? How would I represent that in the formula?&lt;/p&gt;&#xA;" OwnerUserId="10525" LastActivityDate="2016-09-27T15:45:06.733" Title="What does it mean to say that deficits are financed by debt issue?" Tags="&lt;macroeconomics&gt;&lt;debt&gt;&lt;government-debt&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13553" PostTypeId="2" ParentId="13552" CreationDate="2016-09-27T15:45:06.733" Score="3" Body="&lt;p&gt;Your formula can be simply reaaranged to&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$(G+rB_t)-T=B_{t+1}-B_t.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The left-hand side of this equation is the deficit (the difference between public spending—including the spending needed to pay interest on existing debt—and public revenue from taxation). The right-hand side is the amount of new debt issued. Thus, this equation tells you that you must issue enough new debt to pay the deficit—in other words, deficits are financed by debt issuance.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2016-09-27T15:45:06.733" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13554" PostTypeId="2" ParentId="13543" CreationDate="2016-09-27T15:57:03.797" Score="0" Body="&lt;p&gt;Eric Fromm has written great analyses of Marx (Marx's Concept of Man). His central argument is showing that Marx was a Humanist (and his political writing derived from that point) and that he has a son of the Enlightenment. It was a fascinating read where he used a number of Marx's works that are rarely seen in English (although that shouldn't be a problem for you). &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0826477917&quot; rel=&quot;nofollow noreferrer&quot;&gt;Here&lt;/a&gt; is the link to the book.&lt;/p&gt;&#xA;" OwnerUserId="10402" LastEditorUserId="2776" LastEditDate="2017-04-14T10:12:19.857" LastActivityDate="2017-04-14T10:12:19.857" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="13557" PostTypeId="1" AcceptedAnswerId="13585" CreationDate="2016-09-27T19:26:51.270" Score="1" ViewCount="144" Body="&lt;p&gt;In previous questions I understood that printing money and injecting it in the economy generates inflation because there is a bigger demand for the same offer (please correct me if I'm wrong) so it's not a good idea. After thinking this, a new question arose. Why can't goverments print money to fund the productive sector? In that way, it can get money in circulation while generating more offer so there is no inflation. I can't understand what prevents goverments to do that.&lt;/p&gt;&#xA;" OwnerUserId="10515" LastActivityDate="2016-09-30T12:19:42.043" Title="Why can't goverments print money to fund their economies?" Tags="&lt;macroeconomics&gt;&lt;inflation&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="2" ClosedDate="2016-10-06T10:46:45.573" ContentLicense="CC BY-SA 3.0" />
  <row Id="13559" PostTypeId="1" AcceptedAnswerId="13571" CreationDate="2016-09-27T20:52:55.020" Score="1" ViewCount="33" Body="&lt;p&gt;We are asked to model the demand for money as a function of interest rates and we are given two periods of data: one with interest rates were relatively stable and the other one were volatile. We can only choose one, but I don't know which one I should choose. What should I be taken into consideration? I am thinking that maybe I should choose the relatively stable one, because the regression line would be more accurate? &lt;/p&gt;&#xA;" OwnerUserId="10529" LastEditorUserId="1601" LastEditDate="2016-09-27T22:42:53.260" LastActivityDate="2016-09-29T10:54:23.617" Title="Model the demand" Tags="&lt;macroeconomics&gt;&lt;econometrics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13561" PostTypeId="1" CreationDate="2016-09-28T05:31:51.690" Score="2" ViewCount="26" Body="&lt;p&gt;What is the point, for a bank, of engaging in derivatives trading to cover risk if the intent is to reduce &quot;net exposure&quot; to zero, or as close thereto as possible? If the best case scenario is that you come out with zero gained, zero lost, why do this if there is no desire to make a profit? Doesn't all effort to profit involve some risk? If you write risk out of a transaction, thus have no expectation of profit, then why go to all the trouble? And, in any case, there is always some risk that a counter party might be unable to pay, despite putting up collateral. Sorry if this question is stupid, but I'd really like to understand this.&lt;/p&gt;&#xA;" OwnerUserId="10538" LastActivityDate="2016-09-28T07:56:39.627" Title="question about derivatives and net exposure" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13562" PostTypeId="2" ParentId="13561" CreationDate="2016-09-28T07:50:46.913" Score="1" Body="&lt;p&gt;The main roles of banks are taking deposits, transmitting and changing money, making loans, and perhaps more generally providing liquidity for their customers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So if a customer wants to change yen for dollars, the bank does not consider whether its buying yen would be a good medium-term investment for the bank.  Instead it considers whether it can sell the yen back to dollars in the short-term at a better price either to other customers or in the wholesale market.  It sets the price (and any fees) to the original customer so that it can expect to make a margin on the overall transaction, at little or no risk to the bank.     &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Similarly with taking deposits and making loans, the profit for the bank is in the margin between the two interest rates (allowing for credit defaults), and the bank earns this because it is cheaper and more convenient for the customers than trying to act without the bank as an intermediary.  And if a customer wants to buy or sell bonds immediately, the bank acts as a dealer with the aim of re-selling those bonds to or buying them from somebody else at another time with a profit from the margin rather than from possible future changes in value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With derivatives, if say a customer wants to buy a call option, then the bank may write one, not with the aim of taking the full premium and hoping things turn out right but with the aim buying another or of other balancing transactions (e.g. a put and the underlying security) and taking a margin based on providing the customer with an immediate contract in what otherwise may be an illiquid market.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The best case for the bank is that it profits from being an intermediary in these transactions, not as a speculator taking a view on how markets will move.  If it gets into an unbalanced position overall, the bank will want to hedge its position to reduce risk, as this makes it more likely that the bank will survive to make profits in the future.  &lt;/p&gt;&#xA;" OwnerUserId="8891" LastEditorUserId="8891" LastEditDate="2016-09-28T07:56:39.627" LastActivityDate="2016-09-28T07:56:39.627" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13563" PostTypeId="2" ParentId="13035" CreationDate="2016-09-28T10:37:33.973" Score="-2" Body="&lt;p&gt;a small rise in interest elasticity shifts the equilibrium position of IS-LM CURVES to the right&lt;/p&gt;&#xA;" OwnerUserId="10540" LastActivityDate="2016-09-28T10:37:33.973" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13566" PostTypeId="1" CreationDate="2016-09-28T21:39:22.663" Score="3" ViewCount="75" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Prove if $\succsim$ is rational then: if $x \succ y \succsim z$, then $x \succ z$&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;By definition of $\succ$, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{equation} \tag{1}&#xA;x \succ y \iff x \succsim y, \; \neg \; y \succsim x&#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where $\neg$ is the negation symbol.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So we want to show both&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ x \succsim z \; and \; \neg z \succsim x $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We are given &lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{equation} \tag{2}&#xA;y \succsim z&#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By $(1)$ and $(2)$ and transitivity of $\succsim$ (since $\succsim$ is rational), &lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{equation} \tag{3}&#xA;x \succsim y \succsim z \Rightarrow x \succsim z&#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We also need $\neg \; z \succsim x$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose the contrary that $z \succsim x$, but then&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ z \succsim x \succ y \succsim z $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Such that &lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{equation} \tag{4}&#xA;z \succ z&#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;is a contradiction  (as $\succ$ is irreflexive) so it must be that &lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{equation} \tag{5}&#xA;\neg \; z \succsim x&#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Applying $(3)$ and $(5)$ we have the desired property&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ x \succsim z, \; \neg \; z \succsim x \Rightarrow x \succ z $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is if I am allowed to arrive at the statement $(4)$ from the line above it?&lt;/p&gt;&#xA;" OwnerUserId="5780" LastActivityDate="2016-10-03T03:46:38.300" Title="Prove if $\succsim$ is rational then: if $x \succ y \succsim z$, then $x \succ z$" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13567" PostTypeId="1" AcceptedAnswerId="13698" CreationDate="2016-09-28T22:53:20.463" Score="1" ViewCount="1167" Body="&lt;p&gt;I have to provide a theme for students for a project like a bachelor's thesis. Students know all the basic math like calculus, linear algebra, ODE etc, but nothing fancy like PDE and stochastic calculus. Plus they supposed to have some very basic courses in economy. What could the possible themes be? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;From one hand it should be something  really of a serious project, so a student can make by himself one thing then another and so on, and from the other hand it probably should not require lots of purely economic concepts (preferably only  basic ones). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Could it be  (given the absence of deep economical training) something in mathematical modelling or analysis of some economical processes? I want to catch the gist of it, so the more examples the better. Please, if possible, not only a theme's name but a few words what a student is expected to do. Sorry if it's too broad a description, but I have a very vague idea that a good project of this sort would constitute.&lt;/p&gt;&#xA;" OwnerUserId="10579" LastActivityDate="2016-10-09T15:10:52.313" Title="Examples of a good student's project with minimal economical knowlege" Tags="&lt;econometrics&gt;&lt;mathematical-economics&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13568" PostTypeId="2" ParentId="13461" CreationDate="2016-09-29T00:04:53.107" Score="0" Body="&lt;p&gt;I would have thought that you could work out the amounts paid, and then compare the differences&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So for Dealer A, I would have thought the payments were $\$2000$ immediately followed by $36$ equal monthly payments of around $\$591.122$, though it does depend on how you translate $10\%$ into a monthly interest payment&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Similarly for Dealer B, I would have thought the payments were $\$4000$ immediately followed by $36$ equal monthly payments of around $\$522.275$, with the same caveat&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the difference between them is $\$2000$ less paid to Dealer A immediately than to Dealer B, but offset by about $\$68.847$ paid more each month for $36$ months.  I make those equal at a monthly discount rate of about $0.92677\%$ which compounds up to an annual discount rate of about $11.706\%$&lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2016-09-29T00:04:53.107" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13569" PostTypeId="2" ParentId="13566" CreationDate="2016-09-29T06:32:18.680" Score="1" Body="&lt;p&gt;By contradiction, assume $z \succsim x$. However, we already know that $y \succsim z$, which is a contradiction (after a couple more steps). Can you now see this?&lt;/p&gt;&#xA;" OwnerUserId="6705" LastEditorUserId="6705" LastEditDate="2016-10-03T03:46:38.300" LastActivityDate="2016-10-03T03:46:38.300" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13570" PostTypeId="1" CreationDate="2016-09-29T09:16:23.790" Score="1" ViewCount="37" Body="&lt;p&gt;I have been trying to reproduce the results for &lt;a href=&quot;http://www.colorado.edu/ibs/crs/workshops/R_1-11-2012/root/Harrison_1978.pdf&quot; rel=&quot;nofollow&quot;&gt;&quot;Hedonic Housing Prices and the Demand for Clean Air&quot;&lt;/a&gt; but to no avail thus far. In table 7 there are three regressions mentioned using the Boston data set, this is found &lt;a href=&quot;https://archive.ics.uci.edu/ml/datasets/Housing&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt; and in the MASS R package.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have tested the means and stand deviations reported against those in the data, and have had accurate results (although some variables such as lstat, nox and medv needed some mapping). I could not accurately show that the mean and standard deviation of black, given his mapping of the variable as (x - 0.63)^2, in the data set this is multiplied by 1000.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is more, I could not reproduce the results of the regression. Using both rlm and lm in R, the coefficients were consistently off.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is a pretty major paper, and a data set which has been used pretty widely, so would be surprised if the error wasn't my own. But would be nice to see if anyone else has managed to reproduce this in R or elsewhere.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Please find my R code below:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;# Load MASS for rlm and Boston&#xA;library(MASS)&#xA;&#xA;# Sort into the correct order&#xA;data &amp;lt;- Boston[,c(&quot;medv&quot;,&quot;rm&quot;,&quot;age&quot;,&quot;black&quot;,&quot;lstat&quot;,&quot;crim&quot;,&quot;zn&quot;,&quot;indus&quot;,&quot;tax&quot;, &quot;ptratio&quot;, &quot;dis&quot;,&quot;rad&quot;,&quot;nox&quot;)]&#xA;&#xA;# Creating a copy of table 5&#xA;rbind(sapply(data, mean),sapply(data, sd))&#xA;&#xA;# Creating a copy of table 6&#xA;cov(data)&#xA;&#xA;# Attempt to reverse engineer black variable&#xA;mean(-sqrt(Boston$black/1000)+0.63)&#xA;&#xA;# Setting out the structural form&#xA;form &amp;lt;- formula(I(log(medv*1000)) ~ I(rm^2) + age + log(dis) + log(rad) + tax + ptratio + I(black/1000) + I((lstat/100)) + crim + zn + indus + chas + I((nox*10)^2))&#xA;&#xA;# Regressing using rlm&#xA;rlm(form, data = Boston)&#xA;&#xA;# Regressing using lm&#xA;lm(form, data = Boston)&#xA;&#xA;# Comparing to referenced data set to check that &#xA;alternate &amp;lt;- read.table(&quot;https://archive.ics.uci.edu/ml/machine-learning-databases/housing/housing.data&quot;)&#xA;as.matrix(Boston) - as.matrix(alternate)&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;" OwnerUserId="10551" LastActivityDate="2016-09-29T09:16:23.790" Title="Cannot reproduce paper result on Boston Housing" Tags="&lt;macroeconomics&gt;&lt;regression&gt;&lt;environmental-economics&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="13571" PostTypeId="2" ParentId="13559" CreationDate="2016-09-29T10:54:23.617" Score="1" Body="&lt;p&gt;If you are running an OLS regression, I would recommend to take the more volatile one. Higher volatility in the explanatory variable (interest here) reduces the standard errors of the estimator, making it more efficient and more likely to find a significant effect.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastActivityDate="2016-09-29T10:54:23.617" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13572" PostTypeId="2" ParentId="13557" CreationDate="2016-09-29T11:40:35.093" Score="1" Body="&lt;p&gt;The first thing to be aware of is that money is continuously being created and destroyed through the process of fractional reserve banking (which &lt;a href=&quot;http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf&quot; rel=&quot;nofollow&quot;&gt;according to the Bank of England&lt;/a&gt; and &lt;a href=&quot;http://www.fractionalreserves.com/?page_id=81&quot; rel=&quot;nofollow&quot;&gt;others&lt;/a&gt; is incorrectly explained in most textbooks). Under this system there can be periods in which, in the absence of central bank intervention, there will be a fall in the money supply and deflation. In these periods there would be little risk of inflation if the government printed money for whatever purpose they liked. Indeed some economists have advocated &lt;a href=&quot;https://www.imf.org/external/np/res/seminars/2015/arc/pdf/adair.pdf&quot; rel=&quot;nofollow&quot;&gt;direct money printing&lt;/a&gt; instead of QE.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With regard to the idea that creating money for productive purposes causes less inflation because more is produced - I know that this is something that &lt;a href=&quot;https://en.wikipedia.org/wiki/Richard_Werner&quot; rel=&quot;nofollow&quot;&gt;Prof. Richard Werner&lt;/a&gt; has emphasised in the past, though I don't have a specific reference for that to hand.&lt;/p&gt;&#xA;" OwnerUserId="5081" LastEditorUserId="5081" LastEditDate="2016-09-29T12:28:09.757" LastActivityDate="2016-09-29T12:28:09.757" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13575" PostTypeId="1" AcceptedAnswerId="13587" CreationDate="2016-09-29T13:49:33.720" Score="1" ViewCount="93" Body="&lt;p&gt;I understand that the price elasticity of supply is just the percentage change in quantity supplied for a percentage increase in price of an item. However, when I look on &lt;a href=&quot;https://en.wikipedia.org/wiki/Price_elasticity_of_supply&quot; rel=&quot;nofollow&quot;&gt;Wikipedia&lt;/a&gt;, I am struggling to understand why the Supply Elasticity for Oil would be more than 1, which is contrast to what is mentioned in &lt;a href=&quot;http://www.investopedia.com/exam-guide/cfa-level-1/microeconomics/elasticity-supply.asp&quot; rel=&quot;nofollow&quot;&gt;Investopedia&lt;/a&gt;. However, I feel like Investopedia is right on this one, in that suppliers of oil will not be able to significantly change supply for an increase in oil price.&lt;/p&gt;&#xA;" OwnerUserId="10553" LastEditorUserId="10553" LastEditDate="2016-09-29T19:44:29.247" LastActivityDate="2016-09-30T15:39:48.260" Title="Understanding Price Elasticity of Supply" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13577" PostTypeId="1" CreationDate="2016-09-29T17:13:54.477" Score="-2" ViewCount="714" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/8mqXm.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/8mqXm.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Shouldn't the answer the question be $0. Because you arent really giving up anything?&lt;/p&gt;&#xA;" OwnerUserId="10557" LastEditorUserId="108" LastEditDate="2016-09-30T15:41:24.687" LastActivityDate="2016-09-30T15:41:24.687" Title="Is this answer correct for opportunity cost?" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ClosedDate="2016-10-06T10:48:13.840" ContentLicense="CC BY-SA 3.0" />
  <row Id="13578" PostTypeId="1" AcceptedAnswerId="13581" CreationDate="2016-09-29T17:30:28.647" Score="2" ViewCount="1377" Body="&lt;p&gt;I am somewhat confused about the concept of calculating the prices payed by consumers and producers after a subsidy has been applied. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, say a good is being traded at 100 dollar at the market equilibrium. If the government were to give a 50 dollar subsidy to the consumer, would the price the consumer actually pays now (post-subsidy) be greater than 50$ due to differing elasticities? Would some of that subsidy be translated over to the price the producer receives? Or, would the price the consumer pays always be the (Equilibrium Price - Subsidy)? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is the price reduction for the consumer (as a result of the subsidy) a function of the elasticity of demand or would the subsidy always fully fall on the consumer?&lt;/p&gt;&#xA;" OwnerUserId="2748" LastActivityDate="2016-10-01T16:40:53.173" Title="Calculating the impact of a per-unit Subsidy given to Consumers?" Tags="&lt;subsidies&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13579" PostTypeId="2" ParentId="13577" CreationDate="2016-09-29T17:59:49.120" Score="3" Body="&lt;p&gt;Opportunity cost includes the cost of whatever good is being purchased, but also the cost of whatever alternative is given up in order to acquire the chosen good. In this example, it would include the $100 spent on purchasing services from the dentist, and nothing else because Wanda does not have to leave work early and the question specifically states that she normally does nothing after work. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If she did have to leave work early then she would be giving up wages that she could have earned and that would have to be added to the $100 to obtain the opportunity cost. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, if there were information given about how Wanda values leisure then she may be giving up leisure and that could be included in the opportunity cost. in this case it is clear that you are to assume no cost of losing leisure.&lt;/p&gt;&#xA;" OwnerUserId="10559" LastActivityDate="2016-09-29T17:59:49.120" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13581" PostTypeId="2" ParentId="13578" CreationDate="2016-09-30T01:04:56.500" Score="3" Body="&lt;p&gt;This is a great question which economists have a pretty good answer to. Let's first suppose the market is in an equilibrium with no intervention at price $P^*$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If there is a tax of value $t$ we have a new equilibrium with a consumer price $P^*_c$ and producer price $P^*_s$. These prices surely do not equal each other any more, and the difference of the two is not necessarily equal to the value of the tax. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can think of a subsidy as a negative tax. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The change in consumer price due to a &lt;em&gt;marginal&lt;/em&gt; tax or subsidy is called the &lt;strong&gt;pass through rate&lt;/strong&gt;, $\rho$. For a sufficiently small tax, the relationship is $P^*_c=P^*+\rho\cdot t$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Clearly, if the pass-through rate is one the consumer completely pays for the tax. If it is zero, the consumer does not at all pay for the tax. It is not impossible for $\rho$ to be negative or greater than one. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In &lt;strong&gt;perfectly competitive markets&lt;/strong&gt; the pass through rate depends on the elasticity of demand, $\varepsilon_D$, and the elasticity of supply, $\varepsilon_S$. $$\rho=\frac{1}{1+\frac{\varepsilon_D}{\varepsilon_S}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From this we can see that the pass through rate is larger when demand is more inelastic, and smaller when supply is more inelastic. This is where we get the adage &quot;the more inelastic side of the market bares the burden of a tax.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For pass through to be equal to one, we either need (a) perfectly inelastic demand or (b) perfectly elastic supply. A lot of the time (b) can be satisfied by assuming constant marginal cost of production. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For imperfectly competitive situations, the pass through rate depends on firm conduct as well as the curvature of demand. I suggest Weyl and Fabinger &quot;Pass through as an economic tool&quot; 2013, Journal of Political Economy, publication for the details. &lt;/p&gt;&#xA;" OwnerUserId="10487" LastEditorUserId="10487" LastEditDate="2016-10-01T16:40:53.173" LastActivityDate="2016-10-01T16:40:53.173" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13582" PostTypeId="1" AcceptedAnswerId="13583" CreationDate="2016-09-30T04:38:14.600" Score="4" ViewCount="322" Body="&lt;p&gt;The answer provided was 'true', that scarcity was necessary in the existence of a market. But isn't that not always true? For example, there's a market for canned air, and air is most definitely not scarce.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is the statement true or false? And if true, what about in the case of canned air?&lt;/p&gt;&#xA;" OwnerUserId="10561" LastActivityDate="2016-10-01T19:02:40.343" Title="&quot;For a market to exist there must be scarcity&quot; (T/F)" Tags="&lt;supply-and-demand&gt;&lt;markets&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13583" PostTypeId="2" ParentId="13582" CreationDate="2016-09-30T07:11:54.883" Score="5" Body="&lt;p&gt;I agree that air is not, in any meaningful sense, scarce. But there is no market in air! There is a market in &lt;strong&gt;canned&lt;/strong&gt; air, but that's different because canned air is most definitely scarce.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The can is made of metal, which is not in infinite supply. If you use metal to produce a can of air then you must take that metal away from production of, say, airplanes or paperclips. Alternatively, you could just mine more metal. But then you would need to hire more miners, so you are taking workers away from some other industry.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Moreover, the can is manufactured by scarce labour. To manufacture the can, you also need machines and tools that are in limited supply abd could be used to make soup cans instead. The machines stand in a building on land that is in scarce supply and could be used for housing or farming. To get the metal to that building, you need scarce trucks, drivers, and fuel.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2016-09-30T07:11:54.883" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13585" PostTypeId="2" ParentId="13557" CreationDate="2016-09-30T12:19:42.043" Score="1" Body="&lt;p&gt;Government usually do not have control of the money supply because historically it is a very bad idea. They have a tendency to print a lot of money and cause hyperinflation. That's why most countries have an independent central bank that controls the money supply. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a way, government will subsidize productive/protected sector through subsidies like rice farming in Japan. However, it is just not through newly printed money but through tax funding.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now if you are asking why can't central banks print money to fund productive sectors like manufacturing. That's call helicopter money. Many people are contemplating it now as global growth is slow and inflation is dangerously low. It is possible and historically it has been done. However, currently it is illegal for central bank to directly give out money to the economy through newly printed money. Perhaps in the near future it will be done.&lt;/p&gt;&#xA;" OwnerUserId="10567" LastActivityDate="2016-09-30T12:19:42.043" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13587" PostTypeId="2" ParentId="13575" CreationDate="2016-09-30T15:39:48.260" Score="1" Body="&lt;p&gt;To elaborate on 123's comment, crude oil is extracted from the ground and can be manufactured/refined into a variety of produces (vehicle fuel/plastics/kerosene/etc.) If the price of kerosene increases, then it is natural for produces to want to substitute from producing plastic to producing more kerosene. Even if the supply of oil (of all varieties) is inelastic, the supply of individual oil-based products need not be.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2016-09-30T15:39:48.260" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13589" PostTypeId="1" CreationDate="2016-09-30T19:35:43.600" Score="1" ViewCount="197" Body="&lt;p&gt;Can someone give an example and an exponation of how a currency may be &lt;em&gt;undervalued&lt;/em&gt; when considering its REER (real exchange rate) in PPP terms, but &lt;em&gt;overvalued&lt;/em&gt; when looking at the REER based on ULC (unit labor costs) in manufacturing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So far, I have gone back to definitions:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$REER_{ULC} \ overvalued = S \times \dfrac{w^*}{w} \\ REER_{CPI} \ undervalued = S \times \dfrac{P^*}{P}$$  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where $S$ is the exchange rate, $w^*$ wages in manufacturing sector abroad, $w$ wages in manufacturing sector at home, $P^*$ the level of prices abroad, $P$ level of prices at home. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To be overvalued we need that $REER_{ULC} &amp;lt; 1$. To make things simple lets say that $S = 1$. Then it should imply that $w&amp;gt;w^*$. For the undervaluation of the REER in PPP terms we need that $REER_{CPI}&amp;gt;1$. Which implies that $P &amp;lt; P^*$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;That being said I thought we could take a developed country as an example, where wages in the manufacturing sector would be higher. But however I don't see how we could get $P&amp;lt;P^*$ even if we take into account a tradable and non-tradable sector. Would it be because the prices in the non-tradable sector at home are lower than the one abroad so that they somehow compensate the overall level of prices? This would really go against my intuition.&lt;/p&gt;&#xA;" OwnerUserId="7833" LastEditorUserId="2776" LastEditDate="2017-04-12T15:23:45.453" LastActivityDate="2017-04-12T15:23:45.453" Title="REER ULC vs. REER PPP" Tags="&lt;exchange&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13590" PostTypeId="2" ParentId="8397" CreationDate="2016-09-30T20:18:36.340" Score="2" Body="&lt;p&gt;The typical two-period Lagrangian is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Lambda = \beta^t\cdot \Big(\frac{c_t^{1-\gamma} -1}{1-\gamma} + \lambda_t\cdot \big[(d_t+p_t) \pi_{t-1} + \pi_{t-1}^0- c_t - \pi_t p_t - \pi_t^0 p_t^0\big]\Big) \\&#xA;+ \beta^{t+1}\cdot \Big(\frac{c_{t+1}^{1-\gamma} -1}{1-\gamma} + \lambda_{t+1}\cdot \big[(d_{t+1}+p_{t+1}) \pi_{t} + \pi_{t}^0- c_{t+1} - \pi_{t+1} p_{t+1} - \pi_{t+1}^0 p_{t+1}^0\big]\Big)$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first order conditions with respect to $c_t, \pi_t$ are&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$c_t^{-\gamma} = \lambda_t \implies ... \gamma\ln \frac {c_{t+1}}{c_t} = \ln \frac {\lambda_{t}}{\lambda_{t+1}} \tag{1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$-\beta^t\lambda_tp_t + \beta^{t+1}\lambda_{t+1}(d_{t+1}+p_{t+1})=0 \implies  \frac {\lambda_{t}}{\lambda_{t+1}} = \beta \frac{p_{t+1} + d_{t+1}}{p_t} \tag{2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and so, using also the definition of the gross return,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\ln \frac {\lambda_{t}}{\lambda_{t+1}} = \ln \beta + \ln R_{t+1} \tag{3}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Combining $(1)$ and $(3)$ we get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\ln \frac {c_{t+1}}{c_t} = \frac 1 {\gamma}\ln \beta + \frac 1 {\gamma}\ln R_{t+1} \tag{4}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So we see that at the optimal path, consumption growth is a direct affine function of the log-risk returns. This among other things implies that their correlation coefficient is equal to unity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The normal distribution is closed under affine transformations (alternatively, under scaling and shifting), so &lt;em&gt;if&lt;/em&gt; we assume that log-risky returns are normally distributed, then consumption growth is also normally distributed (with different mean and variance of course).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that although in general, the &lt;em&gt;joint&lt;/em&gt; normality assumption is an additional one to be made when two normal random variables are not-independent, here, the fact that the one is an affine function of the other guarantees joint normality. By Cramer's condition for bivariate normality, it must be the case that all linear combinations of two normal random variables have a univariate normal distribution. In our case we have (generic notation) the random vavriable $Y$ and the random variable $X = a+bY$. Consider&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\delta_1X + \delta_2 Y = \delta_1(a+bY) + \delta_2 Y = \delta_1a + (\delta_1b+\delta_2)Y$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So for any $(\delta_1, \delta_2)$ (except the zero vector which is excluded a priori), $\delta_1X + \delta_2 Y$ follows a normal distribution if $Y$ does. So it is sufficient to assume that log-risk returns follow a normal distribution to obtain joint normality also.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2016-10-03T19:04:10.817" LastActivityDate="2016-10-03T19:04:10.817" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="13591" PostTypeId="2" ParentId="10845" CreationDate="2016-09-30T20:35:12.717" Score="1" Body="&lt;p&gt;To close this one: As I wrote in my initial comment, one should consider the derivative with respect to $s$, not $c(s)$. This first means that anything containing $t$ has a zero derivative. So we have  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;for the numerator&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {d\ln(c(s)/c(t))}{ds} = \frac {c'(s)}{c(s)}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and for the denominator&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{d[\ln(U'(c(s))/U'(c(t)))]}{ds} = \frac {U''(c(s))\cdot c'(s)}{U'(c(s))}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Forming the quotient of the two we get after simplifying and adding the minus sign the desired&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\lim_{s \to t}\sigma = -\frac{U'(c(t))}{U''(c(t))c(t)}$$&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2016-09-30T20:35:12.717" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13594" PostTypeId="1" CreationDate="2016-10-01T04:33:38.040" Score="0" ViewCount="313" Body="&lt;p&gt;If you look at it one way and group the different companies that offer parking, it could be a monopoly as that is the only place you can park. On the other hand, the different companies offer different prices and consumers can substitute.  &lt;/p&gt;&#xA;" OwnerUserId="10387" LastActivityDate="2016-10-01T15:51:57.857" Title="Would you consider airport parking to be a monopoly or a monopolistic market?" Tags="&lt;microeconomics&gt;&lt;markets&gt;&lt;monopoly&gt;&lt;competitive-equilibrium&gt;&lt;monopolistic-competition&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13595" PostTypeId="2" ParentId="13594" CreationDate="2016-10-01T08:23:01.083" Score="1" Body="&lt;p&gt;If there are different companies offering with different prices, but not so many companies that it is perfect competition, then it is monopolistic and not a monopoly.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastActivityDate="2016-10-01T08:23:01.083" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13596" PostTypeId="1" CreationDate="2016-10-01T09:32:16.847" Score="1" ViewCount="235" Body="&lt;p&gt;$U^j = \prod^N_i \left(d^j_i-\bar{d}_i\right)^\oint$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $d^j_i$ is the per capita consumption of good $i$ in any country $j$; $\bar{d}_i \geq 0$ denotes the minimum consumption of each good $i$, which are same across countries; $\displaystyle \sum_i \oint_i^j =1$. Assuming that per capita income $I^j$ is large enough to afford the minimum consumption. Derive the per capita demand for each good $i$ in country $j$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand pi-product notation means it's a product function, but how do we differentiate a product function like this? I define my $I^j$ as $p_i d_i^j$; not sure if this is correct. Your help is much appreciated! Thank you in advance. :) &lt;/p&gt;&#xA;" OwnerUserId="10574" LastEditorUserId="10574" LastEditDate="2016-10-01T12:52:39.000" LastActivityDate="2020-05-06T23:02:30.387" Title="Heckscher-Ohlin trade model with non-homothetic preferences" Tags="&lt;international-trade&gt;" AnswerCount="1" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="13597" PostTypeId="2" ParentId="12318" CreationDate="2016-10-01T09:59:45.357" Score="0" Body="&lt;p&gt;Actually there is an effort by IMF that indirectly offers a common unit of measurement to express the value of the major world currencies homogeneously. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's called SDR (Special Drawing Rights) sometimes abbreviated as XDR. It's a sort of meta-currency whose value is calculated as follows:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The value of the SDR in terms of the U.S. dollar is determined daily&#xA;  and posted on the IMF’s website. It is calculated as the sum of&#xA;  specific amounts of each basket currency valued in U.S. dollars, on&#xA;  the basis of exchange rates quoted at noon each day in the London&#xA;  market.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The basket composition is reviewed every five years by the Executive&#xA;  Board, or earlier if the IMF finds changed circumstances warrant an&#xA;  earlier review, to ensure that it reflects the relative importance of&#xA;  currencies in the world’s trading and financial systems &lt;a href=&quot;http://www.imf.org/external/np/exr/facts/sdr.htm&quot; rel=&quot;nofollow&quot;&gt;IMF website&lt;/a&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="10575" LastActivityDate="2016-10-01T09:59:45.357" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13598" PostTypeId="2" ParentId="8968" CreationDate="2016-10-01T13:04:04.593" Score="0" Body="&lt;p&gt;Below just a sketch. &#xA;Well, there is another way to prove this. First assume Walras' Law $p'x(p,w)=w$, second by WARP we know that the demand is Homogeneous of Degree Zero $x(\alpha p, \alpha w)=x(p,w)$. This is a result by John ( &#xA;John, R. (2000).  A first order characterization of generalized monotonicity.&#xA;Mathematical Programming)&#xA;, 88(1), 147–155.&#xA; This means that the demand system L=2, can be normalized and that we can check only the Slutsky Matrix $S_{i,j}$ for $i,j \in {1,\cdots,L-1}$ after removing its last column and row, due to the smaller dimensionality product of the HD0 property and Walras' law. &#xA;OK, so for L=2, the reduced Slutsky matrix is only a scalar, this is symmetric by default and by WARP it is also NSD, that means I can apply the results of integrability of the demand (basically any new proof of the original Hurwicz-Uzawa result, that dispenses with the wealth effects boundedness)  to conclude that the demand system is generated by maximizing a continuously differentiable utility function $u$ subject to the linear budget constraint $p'x=w$ that is monotone. This in turn is enough to prove that the demand system satisfies GARP and if unique valued it satisfies SARP.  &lt;/p&gt;&#xA;" OwnerUserId="127" LastActivityDate="2016-10-01T13:04:04.593" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13599" PostTypeId="1" AcceptedAnswerId="14716" CreationDate="2016-10-01T14:02:37.323" Score="0" ViewCount="412" Body="&lt;p&gt;I read some papers about transportation infrastructure. I am confuse with the following two case.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Some routes are unlikely to have been randomly assigned across cities over time. Thus, In some papers(i.e. Baum-Snow, 2007), they attain consistent estimates of the effect of transportation network on interest by the planned route IV.&lt;/li&gt;&#xA;&lt;li&gt;But some papers (i.e. Donaldson 2012) use the planned route IV to test 'Placebo' effect.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;These two case seems contradictory. I'm quite new to this and hope someone can help me.&lt;/p&gt;&#xA;" OwnerUserId="6255" LastActivityDate="2016-12-17T14:57:32.827" Title="IV：Quasi-random variance V.S. 'Placebo' check" Tags="&lt;econometrics&gt;&lt;statistics&gt;&lt;instrumental-variable&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13600" PostTypeId="2" ParentId="13594" CreationDate="2016-10-01T15:51:57.857" Score="1" Body="&lt;p&gt;This depends on how you define the good in question, which is a typical problem when talking about market structure. If the good is &quot;parking at the airport &quot; then it's probably a monopoly since most airports manage their own or through a single contractor on their property. If the good is &quot;parking for the airport&quot; then you have firms providing the product off airport property and there is some competition though they may differentiate through covered parking, shuttle services, etc. In this case it would be monopolistic competition. &lt;/p&gt;&#xA;" OwnerUserId="2844" LastActivityDate="2016-10-01T15:51:57.857" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13601" PostTypeId="2" ParentId="12318" CreationDate="2016-10-01T16:06:37.677" Score="0" Body="&lt;p&gt;If all you care about is looking at changes in a given currency and not relative to others, just look at how the purchasing power changes over time. By this, I mean you can pick a basket of goods and then see how much currency is required to purchase that particular basket. &lt;/p&gt;&#xA;" OwnerUserId="2844" LastEditorUserId="2844" LastEditDate="2016-10-01T16:33:26.430" LastActivityDate="2016-10-01T16:33:26.430" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13602" PostTypeId="1" CreationDate="2016-10-01T16:35:59.733" Score="2" ViewCount="474" Body="&lt;p&gt;$$u(x) = x_1^\alpha \cdot (x_2+x_3)^{1-\alpha}, \text{ with } \alpha \in(0,1)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I tried to set up the Lagrangian and it turns out $\lambda$ have no solution unless $p_1 = p_2$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$L = x_1^\alpha \cdot (x_2+x_3)^{1-\alpha} -\lambda(x_1 p_1 + x_2 p_2 + x_3 p_3 -1)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\partial L}{\partial x_2} = (1-\alpha)x_1^\alpha(x_2+x_3)^{-\alpha} -\lambda p_2 = 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\partial L}{\partial x_3} = (1-\alpha)x_1^\alpha(x_2+x_3)^{-\alpha} -\lambda p_3 = 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I noticed this function is similar to C-D utility function. So I'm wondering if I can combine $x_{3}$ and $x_{2}$ as one good and then apply C-S utility function. But this method seems unreliable to me. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any one can help?&lt;/p&gt;&#xA;" OwnerUserId="10417" LastEditorUserId="10577" LastEditDate="2016-10-03T18:53:16.423" LastActivityDate="2016-10-03T19:27:40.333" Title="How to compute the Marshallian demand for this specific utility function" Tags="&lt;utility&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13603" PostTypeId="2" ParentId="11152" CreationDate="2016-10-01T17:11:54.107" Score="1" Body="&lt;p&gt;The economic essence of saddle-path stability, is that it requires &lt;em&gt;conscious behavior and decision making from the part of economic agents&lt;/em&gt;, in order for the system to remain on the saddle path. Simply put, we cannot do &quot;whatever we like&quot; and still expect the system to settle down. But that is what makes it interesting (and true to reality): on their own, economic systems are unstable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Contrast this with the basic Solow growth model: there, fixing arbitrarily the savings rate (i.e. depriving ourselves from making a decision on it period per period) makes the system properly stable. But once we want to optimize with respect to the savings rate, we find out that there is a single path that leads to long-term equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, perusing the pages of a book like Barro and Sala-i-Martin's &lt;a href=&quot;https://mitpress.mit.edu/books/economic-growth&quot; rel=&quot;nofollow&quot;&gt;&quot;Economic Growth&quot;&lt;/a&gt;, which contains many-many extensions of the basic RCK growth model, one will &lt;em&gt;not&lt;/em&gt; find a model with intertemporally optimizing agents that is also mathematically stable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;ADDEDNDUM&lt;/strong&gt;&lt;br&gt;&#xA;Elaborating, in response to a thoughtful comment by the OP, my approach to the issue of &quot;stability&quot; of an economy is the following: The fact that economies tend to &quot;correct course&quot; is &lt;em&gt;not&lt;/em&gt; an indication, let alone proof, that they posses some inherent stabilization mechanism &lt;em&gt;independent&lt;/em&gt; of the purposeful action of the economic agents.&lt;br&gt;&#xA;If this was the case, then indeed, we should have models that possessed the mathematical property of stability (I remind again that &quot;saddle-path stable&quot; although it uses the word &quot;stable&quot;, is a mathematically unstable system). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand, economies do not plunge into chaos every day. The solution to the puzzle from my point of view is not that we &quot;continuously fine tune the economy&quot; -such dreams and visions have been tried and squashed (irrespective of what ideological/philosophical (dis) agreements one may have with socialism, the factual lesson to be learned from the failure of centrally planned economies is that an economy is such a complex system that no one can &quot;plan and then fine-tune it&quot;, especially in our era).&lt;br&gt;&#xA;My answer is that economies, after being hit by external shocks or internal institutional failures or technology upheavals, or.., tend to return to a dynamic path that tends to some fixed point by the aggregate consequences of decentralized purposeful action of economic agents that try not to fix the economy as a whole, but their own economic present and future. Economies survive not &quot;because they inherently do&quot;, not because the government is &quot;steering the boat with a certain and effective hand&quot;, but because individuals try hard every day to survive.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And the RCK models reflect just that: if one performs comparative statics on it, assuming an external shock that suddenly puts the economy out of the saddle-path, the prediction of the model as to what will happen &lt;em&gt;in order&lt;/em&gt; for the economy to return to the (new) saddle path towards the (new) long-run equilibrium, is more or less what we observe in reality. But this happens not because the government makes it so, but because individual economic agents realize that they must do so in order not to eventually self-destruct.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I will indulge myself and I will link to a little exposition I crafted a year ago for a class of graduate students, to show them how the simplest RCK model can help them think about the economic crisis (and subsequent depression) in Greece -which was sudden enough to be described as a shock. The exposition can be found &lt;a href=&quot;https://alecospapadopoulos.wordpress.com/2015/10/31/ramsey-on-the-greek-crisis-and-depression/&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2016-10-03T08:48:09.853" LastActivityDate="2016-10-03T08:48:09.853" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="13604" PostTypeId="2" ParentId="13602" CreationDate="2016-10-01T18:06:10.557" Score="1" Body="&lt;p&gt;It means that the level surfaces of $u$ don't touch the surface $x_1p_1+x_2p_2+x_3p_3=1$ unless $p_2=p_3$. But, since $x_i\ge0$, it follows that the admissible domain of $x_i$ is compact and the maximum is still achieved somewhere. Namely, in some boundary point of the  admissible domain $-$ for $x_2=0$ or $x_3=0$.&lt;/p&gt;&#xA;" OwnerUserId="10579" LastActivityDate="2016-10-01T18:06:10.557" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13605" PostTypeId="2" ParentId="13582" CreationDate="2016-10-01T19:02:40.343" Score="1" Body="&lt;p&gt;If there is no scarcity, one can produce/has available anything that one wants, in any quantity one desires (that's the definition of &quot;no scarcity&quot;). In such a case, there is no incentive to go into exchange activities, which is what we do in a market.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2016-10-01T19:02:40.343" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13606" PostTypeId="1" AcceptedAnswerId="13616" CreationDate="2016-10-01T19:28:29.060" Score="3" ViewCount="321" Body="&lt;p&gt;In Wickens' Macroeconomics book, in page 552, the author states the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;«The stochastic problem can be solved using the method of Lagrange multipliers, but there is a problem with this solution.»&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, if I'm not mistaken, it's very usual to see other books using lagrange multipliers to solve this type of problems. Are they wrong? Am I wrong? Is there a way to go around this apparent limitation?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here's a the image:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/YiXQ5.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/YiXQ5.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="118" LastActivityDate="2016-10-02T20:36:10.780" Title="Solving Stochastic Dynamic Optimization Problems: A difficulty with Lagrange Multipliers" Tags="&lt;macroeconomics&gt;&lt;general-equilibrium&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13607" PostTypeId="2" ParentId="13496" CreationDate="2016-10-01T19:31:45.323" Score="0" Body="&lt;p&gt;The higher the marginal product of capital, the more productive an additional unit of capital is. The more productive it is, the less savings (=sacrifice of current consumption) we need in order to increase future consumption. Interacting also with the preference parameter (the rate of pure time preference), the model says that when the marginal product of capital is higher than the latter, we save now at a level where&lt;br&gt;&#xA;1) Today's consumption is still greater than yesterday's consumption and&lt;br&gt;&#xA;2) Tomorrow's consumption will be even higher. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for &quot;running down the capital stock&quot;, in these models it is assumed that &quot;capital&quot; can be consumed as though it was a consumption good. This should already be clear from the differential equation for Capital, where current consumption is allowed to be greater than current production ($\dot K$ can be negative) -but this can only happen if we consume part of the existing capital stock (since the economy is closed and no goods fly in from abroad).&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2016-10-01T19:31:45.323" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13608" PostTypeId="2" ParentId="13397" CreationDate="2016-10-01T20:14:02.233" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;Why wasn't this class of worker included in the Communist Manifesto&#xA;  and where do they fit in with Marx and Engel's theory?&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Quoting from the Communist Manifesto:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;Our epoch, the epoch of the bourgeoisie, possesses, however, this distinctive feature: it has simplified the class antagonisms. Society&#xA;  as a whole is more and more splitting up into two great hostile camps,&#xA;  into two great classes directly facing each other: Bourgeoisie and&#xA;  Proletariat.&lt;/em&gt;&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;and &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;The lower middle class, the small manufacturer, the shopkeeper, the artisan, the peasant, all these fight against the bourgeoisie, to save&#xA;  from extinction their existence as fractions of the middle class. They&#xA;  are therefore not revolutionary, but conservative. Nay more, they are&#xA;  reactionary, for they try to roll back the wheel of history. If by chance they are revolutionary, they are so only in view of their&#xA;  impending transfer into the proletariat, they thus defend not their&#xA;  present, but their future interests, they desert their own standpoint&#xA;  to place themselves at that of the proletariat.&quot;&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The first passage alludes to a comment made, that the professional class did not fit the communist narrative. The second passage is the only one in the manifesto where the professional class, lumped together with other classes, is briefly mentioned and discussed, rather dismissively I would say.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2016-10-01T20:14:02.233" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13609" PostTypeId="2" ParentId="13396" CreationDate="2016-10-01T20:17:38.157" Score="1" Body="&lt;p&gt;Important details are missing, but just think: &lt;em&gt;whose&lt;/em&gt; expectations about inflation are included in the monetary policy rule? Model consistency should help you answer your question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you provide more details on your model, I will be happy to expand.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2016-10-01T20:17:38.157" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13610" PostTypeId="1" CreationDate="2016-10-01T21:13:11.523" Score="4" ViewCount="1009" Body="&lt;p&gt;About two or three years ago I attended a talk by a consulting statistician, one of whose clients was a company in the business of leasing out intermodal shipping containers.  He said those who are in the business of using those containers to transport goods typically do not own the containers, but pay a company such as his client for their use.  They pay rent periodically forever and don't normally ever return the containers to the permanent owner.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is: Why is it done that way?  Why not buy the containers if you're going to use them for as long as you're in business?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(The occasion for the speaker's experience of this phenomenon was that Congress passed a bill granting tax deductions to companies whose containers are used in U.S. commerce rather than being used only, for example, to carry things back and forth between South Africa and Australia, etc.  Companies could not claim the tax deduction unless they had records indicating how many of their containers were used in U.S. commerce, and they had no records at all of where their containers had been because they hadn't expected Congress to pass such a measure.  Trying to get the information about where each container had been was far more expensive than what they'd save in taxes, and in many, maybe most, cases, the shipping companies didn't have the information at all.  So the consulting statistician and a colleague came up with a theory: For tax purposes, intermodal shipping containers are &lt;em&gt;fungible&lt;/em&gt;.  They didn't need to know &lt;em&gt;which&lt;/em&gt; containers had been where, but only &lt;em&gt;how many&lt;/em&gt; with the company's logo had entered and left the U.S.  It turned out that information could be acquired inexpensively from port authorities. The company argued that that would underestimate the number of the company's containers used in U.S. commerce, since, for example, ships that transport wool from Australia to China to be made into sweaters to be sold in the U.S. were engaged in U.S. commerce when the retailer in the U.S. paid for the transportation.  The IRS accepted the fungibility theory and allowed the deduction.)&lt;/p&gt;&#xA;" OwnerUserId="10577" LastActivityDate="2016-10-05T14:28:41.377" Title="Why don't shipping businesses own their own shipping containers?" Tags="&lt;international-trade&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13611" PostTypeId="1" CreationDate="2016-10-01T22:56:56.663" Score="2" ViewCount="173" Body="&lt;p&gt;A lot of my peers are writing empirically oriented bachelor projects, where they take some topic (&quot;tax evasion&quot;, &quot;pollution&quot;, &quot;ricardian equivalence&quot;, &quot;liquidity trap&quot;, &quot;fiscal multiplier&quot;) and look at the data, and seek to explain the mechanics behind the data by use of models. So it's mostly empirical and investigative, with a bit of theory to support the arguments made.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is, what would be a good idea for a purely &lt;strong&gt;theoretical&lt;/strong&gt; bachelor project in macroeconomics? Is there something like that which would be a good idea for a bachelor project, as opposed to an empirical study? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reason is that I have a very strong background in mathemathics, so I would like to use that to my benefit and write a technical project, but I am not sure what kind it would be.&lt;/p&gt;&#xA;" OwnerUserId="10581" LastActivityDate="2017-04-04T20:14:10.100" Title="theoretical macroeconomic topic for bachelor project?" Tags="&lt;macroeconomics&gt;" AnswerCount="4" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13612" PostTypeId="1" AcceptedAnswerId="13621" CreationDate="2016-10-02T03:40:55.400" Score="2" ViewCount="905" Body="&lt;p&gt;I have this general form for a expenditure function $e(p,u)=f(u)\cdot g(p)$ where $f(u)$ is increasing monotonic. How can I derive a functional form for an indirect utility function from this expenditure function?&lt;/p&gt;&#xA;" OwnerUserId="10582" LastEditorUserId="10577" LastEditDate="2016-10-03T18:27:41.510" LastActivityDate="2016-10-03T18:27:41.510" Title="More direct way to derive indirect utility function from expenditure function" Tags="&lt;utility&gt;&lt;consumer-theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13614" PostTypeId="2" ParentId="13610" CreationDate="2016-10-02T19:34:46.137" Score="3" Body="&lt;p&gt;First, it appears there are historical reasons: it was the initiative of the producers to standardize the way their goods were transported, already from the factory. And it involved transportation by rail initially, rather than ship. See interesting information &lt;a href=&quot;https://en.wikipedia.org/wiki/Containerization&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Second, I see an economic rationale: overseas commerce is rather volatile, especially at individual-shipping-company level. In such a situation, it would be difficult for each individual shipping company to optimize the number of containers owned. But if there are companies that lease out containers to all the shipping industry, fluctuations dampen and overall capacity is more easily optimized.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another approach can be found &lt;a href=&quot;http://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/the-hidden-opportunity-in-container-shipping#&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;, where on the subject the authors write&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;“Own or lease?” The question has long lain at the heart of container-shipping strategy. From our analysis, the industry typically&#xA;  relies too much on leasing. While leasing may be the only option for&#xA;  many cash-strapped liners that already have substantial debt, other&#xA;  lines should take advantage of this by owning more of their fleet.&#xA;  Leasing does provide a little more flexibility to change vessel&#xA;  deployment. But that breathing room often comes at too high a price.&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The &quot;substantial debt&quot; usually comes from building/buying new ships.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2016-10-02T19:42:24.947" LastActivityDate="2016-10-02T19:42:24.947" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13616" PostTypeId="2" ParentId="13606" CreationDate="2016-10-02T20:36:10.780" Score="1" Body="&lt;p&gt;Following a comment exchange below another answer, the critical detail &lt;a href=&quot;https://www3.nd.edu/~esims1/rbc_notes_2016.pdf&quot; rel=&quot;nofollow&quot;&gt;of a link offered by the OP&lt;/a&gt; as an example of by-passing/ignoring Wicken's comment/argument, and one different from Wickens' formulation, is that in the link's eq. $(4)$, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\lambda_t = \beta E_t[\lambda_{t+1}(1+r_t)]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;the multiplier $\lambda_{t+1}$ appears together with the interest rate &lt;em&gt;of period $t$&lt;/em&gt;, which is assumed part of the information set at $t$ and so not a random variable in the specific equation. So the authors can proceed in the 2nd line after eq. $(6)$ to write the marginal rate of substitution as they do, without the need to assume uncorrelatedness between the multiplier/marginal utility of consumption, and the interest rate.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This goes back to how they formulate the income resource constraint (page 2 middle), where it is essentially assumed that the household has, &lt;em&gt;at the beginning&lt;/em&gt; of period $t$, available assets or debt $(1+r_{t-1})B_t$. The authors explicitly discuss this &quot;timing convention&quot; immediately after eq. $(1)$ &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;Note a timing convention -$r_{t-1}$ is the interest you have to pay today on existing debt. $r_t$ is what you will have to pay tomorrow,&#xA;  but you choose how much debt to take into tomorrow today. Hence, we&#xA;  assume that households observe $r_t$ in time $t$. Hence we can treat&#xA;  $r_t$ as known from the perspective of time $t$.&quot;&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="61" LastActivityDate="2016-10-02T20:36:10.780" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13618" PostTypeId="1" CreationDate="2016-10-03T03:29:57.427" Score="3" ViewCount="14782" Body="&lt;p&gt;&lt;strong&gt;Example: A soldier is paid \$50,000 a year to serve in the army.&lt;/strong&gt; So \$50,000 worth of defense services are produced and consumed. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this example, who is the consumer (C) and who is the producer (P)? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Possible interpretations:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;C: government. P: soldier (a private producer). &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;C: government. P: government (soldier is merely an employee of the government qua producer).&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;C: all individuals that make up the economy. P: government.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Please answer with reference to the above example.&lt;/strong&gt; Please make use of economic logic and also how the above would actually be done in national accounting.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastEditorDisplayName="user18" LastEditDate="2017-10-17T01:33:58.027" LastActivityDate="2018-05-10T16:12:26.690" Title="Is the government a producer, a consumer, or both?" Tags="&lt;government&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13619" PostTypeId="1" CreationDate="2016-10-03T04:07:21.513" Score="3" ViewCount="43" Body="&lt;p&gt;I am reading a book that is describing a group of people in the middle ages. It says &quot;[they] had managerial and financial jobs, jobs of high complexity, and were neither farmers nor craftsmen&quot;. I am not trying to be PC but I do not understand the complexity of managerial and financial jobs. I am hopeless as an artisan, measure things wrong and can get irritated when facing problem-solving puzzles when home-fixing. I have no experience in finance (I have mostly worked in healthcare and science) so I am genuine when I ask: what is the &quot;high complexity&quot; of financial jobs in the middle ages? I see it as writing down who owes who, maybe calculating percentages... not much more.&lt;/p&gt;&#xA;" OwnerUserId="10596" LastActivityDate="2016-10-03T06:51:08.850" Title="Is finance complex?" Tags="&lt;microeconomics&gt;&lt;history&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13620" PostTypeId="2" ParentId="13610" CreationDate="2016-10-03T04:08:19.910" Score="1" Body="&lt;p&gt;In addition to the answer provided by Papadopoulos, it is helpfull to consider, why leasing exists at all in general. It turns out that there can be plenty of reasons for the existence of lessors (companies that own the assets and provide the leasing arrangements), as well as reasons for the lessee (companies that are seeking the use of assets).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, there are finance and operating leases. Some of the leases can classified to be synthetic. The &lt;strong&gt;synthetic lease&lt;/strong&gt; refers to a situation where a company will have tax benefits of ownership while it is not required the asset to be shown in the financial statements of the company. Continuing, in quite many countries and in the U.S. the financial reporting standards differ from reporting under tax regulations. This means that a company may own an asset for tax purposes by obtaining deductions for depreciation expensies. &lt;strong&gt;Finance lease&lt;/strong&gt; practically means that lessee buys an asset and lessor gives finance directly. &lt;strong&gt;Operating lease&lt;/strong&gt; is like rental, usually for a period of time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Loosely speaking, US Gaap and IFRS are quite similar to recognize an arrangement as finance lease: if risks and rewards are transferred to the lessee, it becomes a leased asset and will be shown on the balance as leased asset and lease obligation. This is also the reason, why many companies prefer operating leases (but sometimes it is not possible to choose and finance leases tend to show stronger operating cash flows). US Gaap criteria actually leave some room to companies to structure their leasing arrangements so that practically they can choose between operating and finance lease. &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Cheaper or &quot;easier&quot; financing: often little or no down payment, and later at fixed interest rates&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Less restrictive conditions (e.g. some loans may have covenants on financial ratios, and it can be practically impossible to get new loans to buy more assets, while leasing arrangement may not affect the covenants)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Lessee may want manage their financial ratios like profitability, solvency (levarage), efficiency or liquidity ratios. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Risk of obsolence, residual value and disposition of an asset&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Tax benefits&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Competitive edge (e.g. by scale, and maybe a part of answer of Papadopoulus refers to this: there are parties that are better equipped with regards to containers to changing economic conditions)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Which cases of the above list are directly related to container leases? (I cannot answer that directly and would need some further studying of the topic. E.g. are containers assets that do depriciate?)&lt;/p&gt;&#xA;" OwnerUserId="8988" LastEditorUserId="8988" LastEditDate="2016-10-05T14:28:41.377" LastActivityDate="2016-10-05T14:28:41.377" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="13621" PostTypeId="2" ParentId="13612" CreationDate="2016-10-03T05:10:23.440" Score="1" Body="&lt;p&gt;Make e (p, V (p, r))=r, hence f (V (p, r)) g (p)=r. Then use the inverse function theorem:&#xA;V (p, r)=h (r/g (p))&#xA;Where h is the inverse of f.&lt;/p&gt;&#xA;" OwnerUserId="10597" LastActivityDate="2016-10-03T05:10:23.440" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13622" PostTypeId="2" ParentId="13619" CreationDate="2016-10-03T06:51:08.850" Score="2" Body="&lt;p&gt;&quot;Writing down who owes who, maybe calculating percentages&quot; may seem trivial to you, but that is because you have had the benefit of several years of modern education. In middle age Europe, there were essentially no schools. Education was reserved almost exclusively for those wealthy enough to employ a teacher (meaning aristocrats) and for clergy who needed to be able to read (and sometimes write) scripture. Thus, it's not clear where you propose that people should have learnt to write and calculate in the way necessary to do these jobs. Some estimates put the literacy levels at the time &lt;a href=&quot;https://www.quora.com/What-were-literacy-rates-in-Medieval-Europe-How-did-they-compare-to-literacy-rates-in-the-Roman-Empire&quot; rel=&quot;nofollow&quot;&gt;as low as 6%&lt;/a&gt;, so we are really talking about the intellectual elite of society at the time. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As an aside, modern-day financial jobs can be extremely complex. Some of the top jobs at modern financial institutions are occupied by so-called &quot;quants&quot;—PhD-holding mathematicians, economists, and scientists whose job is to build complicated mathematical models of markets and asset prices.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2016-10-03T06:51:08.850" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13625" PostTypeId="1" CreationDate="2016-10-03T08:29:28.723" Score="2" ViewCount="49" Body="&lt;p&gt;There seem to be two different sources of US sectoral data from the well-known KLEMs source: one from 1947 and one from 1970. But over a common sample they seem to have different data (even when you difference the series). Does anyone have any idea what's going on? Thanks.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;The longer one available at:&#xA;&lt;a href=&quot;http://www.worldklems.net/data.htm&quot; rel=&quot;nofollow&quot;&gt;http://www.worldklems.net/data.htm&lt;/a&gt; from 1947&lt;/li&gt;&#xA;&lt;li&gt;A short one available from 1970:&#xA;&lt;a href=&quot;http://www.euklems.net/&quot; rel=&quot;nofollow&quot;&gt;http://www.euklems.net/&lt;/a&gt;  &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="10600" LastEditorUserId="10600" LastEditDate="2016-10-03T08:58:33.093" LastActivityDate="2016-10-03T08:58:33.093" Title="KLEMS data variants" Tags="&lt;data-request&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13626" PostTypeId="1" CreationDate="2016-10-03T12:38:01.510" Score="3" ViewCount="166" Body="&lt;p&gt;Is it enough to assume that agents have perfect foresight, or have 'rational' expectations for the economy to always - except in few cases - be in the stable saddle path?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With rational expectations, I think with shocks, there can be a temporary dislocation from the stable path, but then the agents will reoptimize, shifting the economy back to the stable path. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are there more situations where this may happen?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit: Looking for conditions in the deterministic and stochastic case.&lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="2776" LastEditDate="2017-08-31T14:45:37.117" LastActivityDate="2017-08-31T14:45:37.117" Title="What conditions must we demand for the economy to be always on the saddle path?" Tags="&lt;macroeconomics&gt;&lt;steady-state&gt;&lt;rational-expectations&gt;" AnswerCount="1" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="13627" PostTypeId="5" CreationDate="2016-10-03T12:41:12.350" Score="0" Body="&lt;p&gt;For questions related to the Rational Expectations Hypothesis: that the value a variable is expected to take by an agent in an economic model equals the mathematical expected value of that variable conditional on all information available at the time of expectations formation.&lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="61" LastEditDate="2016-10-04T19:35:10.253" LastActivityDate="2016-10-04T19:35:10.253" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13628" PostTypeId="4" CreationDate="2016-10-03T12:41:12.350" Score="0" Body="The Rational Expectations Hypothesis postulates that the value a variable is expected to take by an economic agent equals the mathematical expected value of that variable conditional on all information available at the time of expectations formation." OwnerUserId="-1" LastEditorUserId="61" LastEditDate="2016-10-04T19:39:23.863" LastActivityDate="2016-10-04T19:39:23.863" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13629" PostTypeId="1" CreationDate="2016-10-03T16:21:22.943" Score="5" ViewCount="1548" Body="&lt;p&gt;In nearly every public school district in the U.S., one can observe the following pattern: There are fewer middle schools than elementary schools. And there are fewer high schools than middle schools. (And the count of students per school goes inversely as the count of schools.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But why is this the case? Is there any explanation for this based on economic principles?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, why is the reverse not the case? Why are there not fewer elementary schools than high schools, let's say?&lt;/p&gt;&#xA;" OwnerUserId="8719" LastEditorUserId="8719" LastEditDate="2016-10-04T17:02:46.420" LastActivityDate="2021-03-28T19:34:54.833" Title="Why are there fewer high schools than elementary schools?" Tags="&lt;public-goods&gt;" AnswerCount="5" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13630" PostTypeId="1" AcceptedAnswerId="13635" CreationDate="2016-10-03T17:27:16.113" Score="2" ViewCount="88" Body="&lt;p&gt;I am using BLS labor productivity measures to estimate the impact of automation in the US. Looking through the BLS handbook and online, I haven't been able to determine if the LPC measures are in current dollars or constant dollars. Do you happen to know?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, the BLS reports &lt;code&gt;Value of production&lt;/code&gt; by industry in &lt;code&gt;$ millions&lt;/code&gt;.  Is this a current-dollar or a constant-dollar measure?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;BLS page on the topic &amp;amp; with access to data: &lt;a href=&quot;http://www.bls.gov/lpc/&quot; rel=&quot;nofollow&quot;&gt;http://www.bls.gov/lpc/&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="10603" LastEditorDisplayName="user4169" LastEditDate="2016-10-06T21:15:22.180" LastActivityDate="2016-10-06T21:15:22.180" Title="Are BLS labor productivity measures in current dollars or constant dollars?" Tags="&lt;inflation&gt;&lt;statistics&gt;&lt;labor-cost&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13631" PostTypeId="2" ParentId="13629" CreationDate="2016-10-03T17:29:53.143" Score="4" Body="&lt;p&gt;Interesting question..... I attended public schools at all three levels and they were less than a mile from where I lived --- the elementary school and the high school were less than half a mile away, and probably also the junior high school (as 7th through 9th grades were called).  The most conspicuous difference between the way things were done in elementary school and the ways things were done in those later schools is that in the latter, we went to five or six classrooms during the day whereas in the former we remained in one classroom, except for physical education.  To me, that latter difference suggests a possible reason why there are fewer: You need teachers specializing in teaching English, some specializing in teaching science, some specializing in social studies, some in math, some in industrial arts, etc.  Say three math teachers are employed in a junior high school: if you split it into six junior high schools you'd need a larger number of teachers.  But if six elementary schools are merged into one, you'd still have the same number of teachers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, I'd have to say I haven't studied the problem, so I reserve the right to alter this view if I learn more.&lt;/p&gt;&#xA;" OwnerUserId="10577" LastEditorUserId="10577" LastEditDate="2016-10-05T01:02:53.093" LastActivityDate="2016-10-05T01:02:53.093" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13632" PostTypeId="2" ParentId="13618" CreationDate="2016-10-03T17:30:24.653" Score="3" Body="&lt;p&gt;The government is a producer of goods/services that are then usually not subject to market transactions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some goods/services that the government produce can be said to increase directly the utility of the households/individuals in the economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Others can be said to function as intermediate goods, entering, usually as a positive externality, the production function(s) of the private sector. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Yet others, the literature contents, can be treated as both being utility-enhnacing &lt;em&gt;and&lt;/em&gt; private production enhancing.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;An example: national roads (without full-pricing tolls). They are used by individuals to go to recreational trips (utility-enhancing) but also by businesses to transport their goods (production function externality).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another example: a police force. It can be said that it provides a sense of security to individuals (utility enhancing) but also, it reduces uncertainty for businesses and so increases the productivity of production inputs (in the sense that one does not have to divert scarce private resources to attain the desired degree of security , when a police force operates). Likewise for military (where instead of local outlaw, the danger comes from foreign aggressors). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Etc. In fact, for most goods/services provided by the government, I would say that the dual nature prevails.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the Political Economy sub-field, in some models the concept of government self-consumption arises, in order to capture the phenomenon of corruption which leads to part of taxes being consumed by corrupted government officials and not used to produce the aforementioned goods and services.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2017-08-14T18:41:12.577" LastActivityDate="2017-08-14T18:41:12.577" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13633" PostTypeId="2" ParentId="13602" CreationDate="2016-10-03T19:27:40.333" Score="0" Body="&lt;p&gt;$x_2$ and $x_3$ are perfect substitutes. Indeed, I can always take away one unit of $x_2$ and give one extra unit of $x_3$ and utility will remain exactly unchanged. This implies that the consumer will only ever buy whichever of $x_2$ or $x_3$ is cheapest. In other words, if $p_2\leq p_3$ then there is no loss in generality from setting $x_3=0$. The problem then becomes&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\max_{x_1,x_2}x_1^a x_2^{1-a}$$&#xA;subject to&#xA;$$p_1 x_1+p_2 x_2=M$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is the standard Cobb-Douglas function you already know how to solve.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is actually quite a neat question because it forces us to think about the mechanism of what the consumer is doing when he maximises utility, rather than just mindlessly setting up the optimisation problem.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2016-10-03T19:27:40.333" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13634" PostTypeId="1" CreationDate="2016-10-03T20:36:07.923" Score="2" ViewCount="133" Body="&lt;p&gt;What separates relatively high income developing nations, such as Argentina, from relatively low income developed nations, such as Portugal?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you look at things like &lt;a href=&quot;https://en.wikipedia.org/wiki/Human_Development_Index&quot; rel=&quot;nofollow&quot;&gt;HDI numbers&lt;/a&gt;, Argentina and Chile are classified as very high and even rank above Portugal. If you look at per capita GDP then Argentina, Chile and Portugal are all pretty close and fall between 22K and 27K. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Despite this, Argentina and Chile are generally considered developing countries despite being on par with or exceeding some countries that are generally considered developed. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This makes me wonder, what exactly separates developed countries from developing countries?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When comparing the United Kingdom and Uganda the answer is obvious, however it isn't as obvious (at least not to me) when comparing countries like Portugal and Spain to Chile and Argentina.&lt;/p&gt;&#xA;" OwnerUserId="8658" LastActivityDate="2017-02-02T16:17:12.887" Title="What separates &quot;rich&quot; developing nations from &quot;poor&quot; developed nations?" Tags="&lt;macroeconomics&gt;&lt;development-economics&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13635" PostTypeId="2" ParentId="13630" CreationDate="2016-10-03T22:30:23.510" Score="2" Body="&lt;p&gt;It depends on which BLS numbers you look at&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example in Table 2 of &lt;a href=&quot;http://www.bls.gov/opub/mlr/2013/article/industry-employment-and-output-projections-to-2022.htm&quot; rel=&quot;nofollow&quot;&gt;http://www.bls.gov/opub/mlr/2013/article/industry-employment-and-output-projections-to-2022.htm&lt;/a&gt; it gives for manufacturing output:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;Billions of chained 2005 dollars            Billions of dollars&#xA;      2002        2012                        2002        2012&#xA;    4,320.8     4,407.6                     3,848.3     5,604.8&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;and the first pair of numbers uses a constant dollar (more precisely a chain-weighted dollar) measure while the second pair uses a current dollar measure &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For general productivity measures, the BLS says for example at &lt;a href=&quot;http://www.bls.gov/opub/hom/pdf/homch12.pdf&quot; rel=&quot;nofollow&quot;&gt;http://www.bls.gov/opub/hom/pdf/homch12.pdf&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Time-series indexes of manufacturing labor productivity (output per hour) and unit labor costs are constructed from three  basic  aggregate  measures:  Total  real  output,  hours worked,  and  nominal  compensation. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So output per hour aims at a real measure of productivity, while unit labor costs divide a nominal figure by a real figure to give something which combines real productivity and nominal wages  &lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2016-10-03T22:30:23.510" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13636" PostTypeId="1" CreationDate="2016-10-04T01:23:52.793" Score="2" ViewCount="35" Body="&lt;p&gt;This is related to a Mathematica question here - &lt;a href=&quot;https://math.stackexchange.com/q/1952779/374929&quot;&gt;https://math.stackexchange.com/q/1952779/374929&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is a (maximal expected utility) function of the form&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$U(\mu, X) \equiv \int_\Theta \int_\mathcal{X} \max_a \int_\Theta u(a, \theta) d \mu(\theta|x) d P_\theta (x) d \mu(\theta)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;linear in convex combination of priors; that is, is it true that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$U(\alpha \mu + (1-\alpha) \nu, X) = \alpha U(\mu, X) + (1-\alpha) U(\nu, X)$?&lt;/p&gt;&#xA;" OwnerUserId="10606" LastEditorUserId="-1" LastEditDate="2017-04-13T12:19:37.213" LastActivityDate="2016-10-04T01:23:52.793" Title="Is maximal utility conditional on information linear in convex combinations of priors?" Tags="&lt;decision-theory&gt;&lt;expected-utility&gt;&lt;probability&gt;&lt;information&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13639" PostTypeId="2" ParentId="13629" CreationDate="2016-10-04T08:32:26.810" Score="10" Body="&lt;p&gt;Two relevant economic principles are:&lt;/p&gt;&#xA;&lt;p&gt;&lt;strong&gt;Economies of scale&lt;/strong&gt;: These are a more significant issue for middle and especially high schools which have a greater need for specialist teachers, as others have pointed out, and also for specialist facilities such as science labs with supporting technicians.  Such teachers and facilities would tend to be under-utilised in small schools, resulting in higher costs of provision per child. Elementary schools, on the other hand, rely more on generalist teachers so can operate efficiently on a smaller scale.&lt;/p&gt;&#xA;&lt;p&gt;Based on a survey of literature on scale economies in education, &lt;a href=&quot;https://citeseerx.ist.psu.edu/viewdoc/summary?doi=10.1.1.219.7469&quot; rel=&quot;nofollow noreferrer&quot;&gt;Andrews, Duncombe &amp;amp; Yinger (2002)&lt;/a&gt; found “some evidence” that the optimal size of elementary schools was 300-500 pupils while that of high schools was 600-900 students.  The reason for identifying an optimal size (rather than concluding that larger is always better) was that large schools can also have disadvantages, such as more bureaucracy leading to lower student and staff motivation and less parental involvement.  Note that these optimal ranges were based on studies focusing on the US: different ranges might be optimal elsewhere given different school curricula and different staff salary levels.&lt;/p&gt;&#xA;&lt;p&gt;&lt;strong&gt;Travel costs&lt;/strong&gt;: Older children are more likely to make their own way to school, while younger children are more likely to be accompanied by a parent. Hence the costs of travel to school, for a given journey, and including not only fares and/or fuel costs (if any) but also and especially the opportunity cost of a parent's time, tend to be greater for younger children.&lt;/p&gt;&#xA;&lt;p&gt;More formally, family behaviour can usefully be considered within the framework of a household production model in which households derive utility &lt;span class=&quot;math-container&quot;&gt;$U$&lt;/span&gt; from commodities &lt;span class=&quot;math-container&quot;&gt;$Z_i$&lt;/span&gt; which they “produce” using inputs consisting of market goods &lt;span class=&quot;math-container&quot;&gt;$x_i$&lt;/span&gt; and/or time periods &lt;span class=&quot;math-container&quot;&gt;$T_i$&lt;/span&gt;.  &lt;a href=&quot;https://www.jstor.org/stable/2228949?seq=1&quot; rel=&quot;nofollow noreferrer&quot;&gt;Becker (1965)&lt;/a&gt; writes this as (p 495):&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$U = U(Z_1,…,Z_m) ≡ U(f_1,…,f_m) ≡ U(x_1,…,x_m; T_1,…,T_m)$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;The &lt;span class=&quot;math-container&quot;&gt;$f_i$&lt;/span&gt; are the “production” functions, although the term production is used here in a somewhat specialised sense: Becker gives the example of the commodity sleep being “produced” via input of a home, a bed and time. Households aim to maximise utility subject to constraints on both income and time (albeit there may be scope to trade off income against time by adjusting hours spent in paid work).  Within this framework a child’s education can be regarded as a commodity produced using time spent in school, doing homework and travelling to and from school, and perhaps market goods (school fees if applicable, fares or fuel costs if required for travel).  A longer journey to school will imply a greater input of time, with a consequent lesser availability of time for other commodities and therefore less overall utility.  Crucially, this effect will tend to be larger for younger children who are more likely to be accompanied by a parent, whose time should also be counted as an input.  Moreover in some cases a parent’s time on a twice-daily school trip will reduce their hours of availability for paid work, again resulting in lower overall family utility.  Hence families, seeking to maximise their utility, will have a strong incentive to try to ensure (via voting or campaigning) that public schools for younger children are small and numerous so that travel times to school are generally short, and less incentive to do so for schools for older children.&lt;/p&gt;&#xA;" OwnerUserId="1417" LastEditorUserId="1417" LastEditDate="2021-03-28T19:34:54.833" LastActivityDate="2021-03-28T19:34:54.833" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="13640" PostTypeId="2" ParentId="13626" CreationDate="2016-10-04T09:38:34.593" Score="1" Body="&lt;p&gt;To stick to the simpler deterministic case, it is perfect foresight and the Transvarsality condition (TVC)that guarantees that an optimizing agent will stay on the saddle-path, because all other paths lead to the violation of TVC (corner solutions violate the TVC).  In a deterministic environment and with perfect foresight the agent knows this and so he sticks to the saddle path. The chapter on the basic Ramsey model in Barrow and Sala-i-Martin's Growth  book has a good discussion on the matter.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2016-10-04T09:38:34.593" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13641" PostTypeId="1" AcceptedAnswerId="13690" CreationDate="2016-10-04T14:07:05.260" Score="1" ViewCount="806" Body="&lt;p&gt;In Wickens' Macroeconomic Theory book, in page 48(1st edition), the author states that by doing a taylor approximation we get the following result.&lt;/p&gt;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/r26gg.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/r26gg.png&quot; alt=&quot;enter image description here&quot; /&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&lt;p&gt;Why is that? What approximation did he use?&lt;/p&gt;&#xA;&lt;p&gt;I've tried several to linearize the fraction &lt;span class=&quot;math-container&quot;&gt;$\frac{(1+\eta)^{\sigma}}{\beta}$&lt;/span&gt; around those values, but I don't get the same...&lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2016-10-08T13:55:51.780" Title="What Taylor approximation is used in this equation?" Tags="&lt;macroeconomics&gt;&lt;mathematical-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13644" PostTypeId="1" CreationDate="2016-10-05T06:58:56.657" Score="4" ViewCount="3430" Body="&lt;p&gt;I know it doesn't actually matter which axis is which, but it seems less intuitive me. When I see a supply and/or demand graph, I always have to flip it in my head to feel like I really get what's going on.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It just seems like if you have one variable (price) on which two other variables (supply and demand) depend, then the single variable should be on the horizontal axis. So why isn't this the convention?&lt;/p&gt;&#xA;" OwnerUserId="10618" LastActivityDate="2016-10-05T18:52:52.300" Title="Why, in supply and demand curves, does price go on the y-axis?" Tags="&lt;supply-and-demand&gt;" AnswerCount="3" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13646" PostTypeId="1" CreationDate="2016-10-05T10:24:36.387" Score="5" ViewCount="195" Body="&lt;p&gt;Suppose I denote $$f(x,t)=g(x,t)+h(x)$$ where $X\in \mathbb{R}$, $t\in [0,1]$ and $h(x)$ is any function.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I want to prove that if the &lt;a href=&quot;https://en.wikipedia.org/wiki/Single_crossing_condition&quot; rel=&quot;nofollow&quot;&gt;single-crossing property&lt;/a&gt; holds in $f(x,t)$, then $g(x,t)$ must be &lt;a href=&quot;https://en.wikipedia.org/wiki/Supermodular_function&quot; rel=&quot;nofollow&quot;&gt;supermodular&lt;/a&gt; over $X\times T$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know in general supermodular means single-crossing but the converse is not true, but my guess adding a random function $h(x)$ should guarantee single-crossing property will show supermodularity. &lt;/p&gt;&#xA;" OwnerUserId="10619" LastEditorUserId="1601" LastEditDate="2016-10-05T14:03:55.127" LastActivityDate="2016-10-09T02:16:21.410" Title="Converse in supermodularity and single-crossing" Tags="&lt;mathematical-economics&gt;&lt;comparative-statics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13648" PostTypeId="2" ParentId="13644" CreationDate="2016-10-05T14:28:59.990" Score="2" Body="&lt;p&gt;As @KennyLJ points out I think the reason is partly historical. However it is a useful convention for several reasons.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Demand curves are frequently not functions but mappings, e.g. in the case of perfectly elastic demand. So you could not guarantee 'nice' functions anyway.&lt;/li&gt;&#xA;&lt;li&gt;In this coordinate system the surpluses (producer's and consumer's) are areas under the curves. The explanation is more intuitive and it is somewhat easer to see which integral you have to take.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2016-10-05T14:28:59.990" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="13649" PostTypeId="2" ParentId="13644" CreationDate="2016-10-05T15:06:49.573" Score="2" Body="&lt;p&gt;This objection never made too much sense to me. In the standard model of perfect competition, firms take the price as given and respond by choosing their quantity. So you have a model in which a bunch of actors choose quantity and the market price emerges as a consequence of all of those decisions. This makes it sound awfully like price is the &amp;quot;dependent&amp;quot; variable, which by convention is always placed on the vertical access.&lt;/p&gt;&#xA;&lt;p&gt;Indeed, this seems to be how Alfred Marshall (who originated the modern form of the Demand-Supply diagram) thought about things. Here's a quote from &lt;em&gt;An Introduction to Postitive Economics&lt;/em&gt;, Seventh ed. by Richard G. Lipsey (as quoted &lt;a href=&quot;https://en.wikipedia.org/wiki/Wikipedia:Reference_desk/Archives/Humanities/2009_January_24#why_does_my_economics_book_put_the_price_as_a_Y_axis_when_the_quantity_is_a_function_of_it.3F&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;):&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;&amp;quot;Readers trained in other disciplines often wonder why economists plot demand curves with price on the vertical axis. The normal convention is to put the independent variable on the X axis and the dependent variable on the Y axis. This convention calls for price to be plotted on the horizontal axis and quantity on the vertical axis.&lt;/p&gt;&#xA;&lt;p&gt;&amp;quot;The axis reversal - now enshrined by nearly a century of usage - arose as follows. The analysis of the competitive market that we use today stems from Leon Walras, in whose theory quantity was the dependent variable. Graphical analysis in economics, however, was popularized by Alfred Marshall, in whose theory price was the dependent variable. Economists continue to use Walras' theory and Marshall's graphical representation and thus draw the diagram with the independent and dependent variables reversed - to the everlasting confusion of readers trained in other disciplines. In virtually every other graph in economics the axes are labelled conventionally, with the dependent variable on the vertical axis.&amp;quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;See also &lt;a href=&quot;http://gregmankiw.blogspot.co.uk/2006/09/who-invented-supply-and-demand.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;this post&lt;/a&gt; on Greg Mankiw's blog.&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2016-10-05T15:06:49.573" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="13650" PostTypeId="2" ParentId="13644" CreationDate="2016-10-05T18:52:52.300" Score="0" Body="&lt;p&gt;In most charts that show a relationship the input goes at the bottom.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this case p = f(q)  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The market is what quickly reacts to q (supply). If there is an interruption to supply price will quickly go up.  The clearing price is a function of q.   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;q = f(p)  is also valid as if the price is high more producers will enter the market but that is not an immediate effect.  If the price is low and stays low some produces will exit the market but again not an immediate effect.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But if you switch x and y it still works if that is what makes sense to you.&lt;/p&gt;&#xA;" OwnerUserId="10625" LastActivityDate="2016-10-05T18:52:52.300" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13651" PostTypeId="1" CreationDate="2016-10-05T19:10:17.223" Score="1" ViewCount="70" Body="&lt;p&gt;In disease evolution, one often finds that bacteria and viruses evolve to co-exist with their hosts and become less malevolent. Making an analogy between cybercrime and disease, I am wondering if there can be a symbiotic relationship between banks and cyber criminals?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is a more specific example of something I'm wondering about. A cyber criminal with access to a bank's books adds a bunch of car loans in various states of repayment. He then transfers the outstanding amounts of all these loans to himself. Then, at the end of every month, he doctors the bank's books to look like the loan payments have been made. If the bank were to detect such activity, it might be very reluctant to do anything. Doing anything, the result would be default on a large number of authentic looking loans. Doing nothing, the bank would continue to receive for all intents and purposes interest payments on its loans.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To some extent, I have confusion about what is real about any of this money that is changing hands. Can't a cyber criminal increase/decrease a bank's holdings just by changing a number in a computerized ledger book?&lt;/p&gt;&#xA;" OwnerUserId="10626" LastActivityDate="2016-10-07T18:54:55.180" Title="Is there collaboration between cyber criminals and banks?" Tags="&lt;banking&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="13653" PostTypeId="2" ParentId="13611" CreationDate="2016-10-05T20:16:35.563" Score="1" Body="&lt;p&gt;I would be careful about confusing topics and tools. Theoretical mathematics and data analysis are ways that you can approach a specific topic. No matter what topic you choose, you can apply your mathematical tools. I would recommend looking for something that interests you at a conceptual level and then seeing how you can apply your given set of tools to answer it.&lt;/p&gt;&#xA;" OwnerUserId="10402" LastActivityDate="2016-10-05T20:16:35.563" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13654" PostTypeId="1" AcceptedAnswerId="13658" CreationDate="2016-10-05T21:11:20.910" Score="1" ViewCount="2521" Body="&lt;p&gt;&quot;It is well known&quot; that the elasticity of $Q$ relative to $P$ is the constant $b$ in the equation $Q(P)=aP^b$. We can verify it using the convenient definition of elasticity $= \frac{dQ}{dP} \frac{P}{Q}$, we can verify it in Wikipedia.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Based on this, when I create a spreadsheet with parameters $b=-2$, $a=100$ and P ranging from 1-5 by 1 I expected to recover an elasticity of -2, where elasticity =  % change in Q/ % change in P.  This is not the case. Instead the elasticity  varies substantially as the % change in P varies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm forced to conclude that 'constant elasticity' does not mean a fixed value regardless of the magnitude of the price change, but only invariant with regards to the value of price OR that I have a spreadsheet error.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've pasted an image of the spreadsheet results below.  Obviously, without seeing the formulas, no one can verify that I don't have an error, but I'm hopeful that someone will give this a spin for themselves and get very different numbers and then I'll know my failure to verify the constant elasticity in this function is a spreadsheet error.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/lE83p.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/lE83p.png&quot; alt=&quot;spreadsheet image&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="10628" LastEditorDisplayName="user4169" LastEditDate="2016-10-08T12:28:01.820" LastActivityDate="2016-10-08T12:28:01.820" Title="Verifying the constant elasticity of the demand model Q= aP^b" Tags="&lt;microeconomics&gt;&lt;elasticity&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13655" PostTypeId="2" ParentId="13654" CreationDate="2016-10-05T22:18:35.683" Score="1" Body="&lt;p&gt;Elasticity is the slope after taking a log transform. Throughout this post $\log$ refers to the &lt;em&gt;natural logarithm&lt;/em&gt;. That is, the logarithm with base $e$, the &lt;code&gt;ln&lt;/code&gt; function in Excel. The logarithm transforms multiplication into addition. Log differences are something akin to percent changes (and they're equivalent for small changes).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's say we have:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ Q_t = A P_t^b $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Take the logarithm of both sides:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \log Q_t = \log A + b \log P_t$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Log differences are conceptually similar to percent changes (for small percent changes). The slope of the line using the log transformed variables is $b$. This is the elasticity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{d \left( \log Q_t \right) }{\log P_t} = b $$&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Why do people treat elasticities as percent changes?&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;$$\log(Y) - \log(X) \approx \frac{Y-X}{X} \quad \quad \text{ for }\frac{y}{x} \approx 1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Log differences are approximately the percent change. Why? Take the first-order taylor expansion of the log to approximate it with a line near 1.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{align*} &#xA;\log(Y) &amp;amp;\approx \log(1) + \frac{1}{\log(1)}\left(Y - 1 \right) \\&#xA;        &amp;amp;\approx Y - 1 &#xA;\end{align*}&#xA;Hence $\log\left(\frac{Y}{X} \right) \approx \frac{Y-X}{X}$ for $Y \approx X$. This works well for small changes, eg. $\log(1.03) = .0296$, but it gets quite off for big changes $\log(1.5) = .4055$. This is probably where your stuff is getting off... &lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Example where logs are nice...&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Let's say we have $1, 2, 4, 8$. Each is a 100% increase from the previous value. Taking logs we have $0, .693, .1386, 2.079$. The numbers increase linearly by $\log(2)$. Looking at percent increases though, it's less clean: $\frac{2-1}{1} = 100\%$ and $\frac{4-2}{2} = 100\%$ but $\frac{4-1}{1} = 300%$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \left(1 + R_1 \right) \left(1 + R_2 \right) = 1 + R_1 + R_2 + R_1R_2$$&#xA;Dealing with percent changes gets messy when $R_1R_2$ is big enough to matter. Taking logs though, let $r_1 = \log(1+R_1)$ etc...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \log\left((1+R_1)(1+R_2) \right)= r_1 + r_2$$&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;What I would do if I were you:&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Take a log and then it will be clean, and simple. Add a few columns to your spreadsheet.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;$q_t = \log Q_t$.&lt;/li&gt;&#xA;&lt;li&gt;$a = \log A$&lt;/li&gt;&#xA;&lt;li&gt;$p_t = \log P_t$&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Then the equation is:&#xA;$$ q_t = a + b p_t$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{dq_t}{dp_t} = b $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \begin{array}{rrrrr} &#xA;P &amp;amp; Q &amp;amp; \log P &amp;amp; \log Q &amp;amp; \Delta \log P &amp;amp; \Delta \log Q  &amp;amp; \frac{\Delta \log P}{\Delta \log Q} \\&#xA;1 &amp;amp; 100 &amp;amp; 0 &amp;amp; 4.605 &amp;amp; \\&#xA;2 &amp;amp; 25 &amp;amp; .6931 &amp;amp; 3.2189 &amp;amp; .6931 &amp;amp; -1.3863 &amp;amp; -2.0\\&#xA;3 &amp;amp; 11.11 &amp;amp; 1.0986 &amp;amp; 2.4079 &amp;amp; .4055 &amp;amp; -.8109 &amp;amp; -2.0\\&#xA;4 &amp;amp; 6.25 &amp;amp; 1.3863 &amp;amp; 1.8326 &amp;amp; .2877 &amp;amp; -.5754 &amp;amp; -2.0\\&#xA;5 &amp;amp; 4 &amp;amp; 1.6094 &amp;amp; 1.3863 &amp;amp; .2231 &amp;amp; -.4463 &amp;amp; -2.0&#xA;\end{array}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\Delta$ means &quot;change in&quot;, hence $\Delta \log Q_i = \log Q_i - \log Q_{i-1}$.&lt;/p&gt;&#xA;" OwnerUserId="10334" LastEditorUserId="10334" LastEditDate="2016-10-08T04:07:15.010" LastActivityDate="2016-10-08T04:07:15.010" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13656" PostTypeId="1" CreationDate="2016-10-05T22:53:04.910" Score="1" ViewCount="77" Body="&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/List_of_countries_by_inflation_rate&quot; rel=&quot;nofollow&quot;&gt;In Argentina we experience one of the largest inflation rates of the world.&lt;/a&gt;(please click the top of the inflation rate column to order by inflation rate).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is a large problem that causes stress and uncertainty to very big numbers of people. Periodically, indeed every year, there is a fight with the government called &quot;paritarias&quot; (spanish) in wich we agree, to put it more simply than it really is, by how much percentage the salaries will increase.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.economist.com/node/21548242&quot; rel=&quot;nofollow&quot;&gt;The government inflation rates are not credible.&lt;/a&gt; Big parts of the population, specially those opposed to the FPV, don't believe those are the inflation rates, they say they are higher in reality.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I was thinking to myself that maybe we could implement a system wich automatically raises wages according to inflation, at least for certain workers such as public teachers, that already have very established tasks and amount of hours of work per week assigned.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Indexation&quot; rel=&quot;nofollow&quot;&gt;Then I read this article and though this is what i was looking for!&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The article describes a process exactly to what I was thinking:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Indexation is a technique to adjust income payments by means of a&#xA;  price index, in order to maintain the purchasing power of the public&#xA;  after inflation&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;But then I thought to myself: Actually our government, (I suspect since I'm ignorant about economics ), uses inflation, by creating money to pay it's debts (to the government officials it's salaries for example) so they are not going to want to raise the salaries at the same time as inflation, but try to wait as long as possible, because they save money. In the article says how the pain is passed from workers to the state:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;When a government decides to index wages of government employees to&#xA;  inflation it is to transfer the risk of inflation away from government&#xA;  workers onto the government.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;What &quot;helping Argentina&quot; means: Increasing happiness of it's inhabitants in general. That's my way of viewing if a certain policy decision is ought to be taken. I focusing of making the public workers happier. In that sense, then yes, automation would be better for them.&lt;/p&gt;&#xA;" OwnerUserId="7977" LastEditorUserId="7977" LastEditDate="2016-10-08T19:15:46.897" LastActivityDate="2016-10-08T19:15:46.897" Title="Could indexation of wages help Argentina?" Tags="&lt;inflation&gt;&lt;wages&gt;" AnswerCount="1" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="13657" PostTypeId="1" CreationDate="2016-10-05T23:46:15.800" Score="5" ViewCount="2190" Body="&lt;p&gt;Take the classic optimization problem of the neo-classical firm:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{equation}&#xA;	\begin{array}{*2{&amp;gt;{\displaystyle}r}}&#xA;	\mbox{maximize (over $K, L$)} &amp;amp; f(K, L) - RK - WL &#xA;	\end{array}&#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first order condition equates the marginal product of capital with the rental rate of capital $R$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which raises the question...&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;How do macroeconomists typically estimate a time series for the rental rate of capital using U.S. data?&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;(Disclaimer: I don't do macro, but my curiosity has been sparked.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One approach is to use financial market data to get $R_t$, use another first order condition that the rental rate of capital equals the nominal interest rate plus depreciation (i.e. Hall and Jorgensen). Backing a rental rate out of financial market data is not obvious though! In financial markets, prices vary based upon risk and time.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;time dimension: Long-term rates are typically higher than short-term rates. When macro-economists and macro-models talk about the rental rate of capital, what's the time frame?&lt;/li&gt;&#xA;&lt;li&gt;risk dimension: Eg. callable bonds have high yields than non-callable bonds. Debt and equity may have different expected returns based upon risk. &lt;/li&gt;&#xA;&lt;li&gt;inflation dimension: A fixed nominal rate is a stochastic real rate depending on realized inflation, and the expected real rate is the nominal rate minus inflation expectations. The real rental rate would add back inflation expectations.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;A completely different direction is taken by Casey Mulligan where he sticks entirely with Bureau of Economic Analysis (BEA) data.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't follow this literature, and I don't have a sense of the range of approaches that are considered sensible in modern, empirical macro.&lt;/p&gt;&#xA;" OwnerUserId="10334" LastEditorUserId="10334" LastEditDate="2016-10-06T16:02:50.943" LastActivityDate="2021-04-09T15:03:30.353" Title="Estimating the rental rate of capital from data" Tags="&lt;macroeconomics&gt;&lt;capital-returns&gt;" AnswerCount="1" CommentCount="6" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13658" PostTypeId="2" ParentId="13654" CreationDate="2016-10-05T23:57:07.410" Score="2" Body="&lt;p&gt;The problem with your calculations is that you have very big changes in price   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you made price increases of $1\%$ in price, you would find the quantity fell by about $2\%$ as shown in the table below leading to an elasticity of about $-2$  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you made the price changes even smaller, the calculated elasticity would get even closer to $2$, and in a sense you are looking for the limit of elasticity as the price change approaches $0$, which will indeed be the constant $b=-2$&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt; a       b      P       Q=a*P^b pct change Q    pct change P   elasticity&#xA;&#xA;100     -2      1       100.00          &#xA;100     -2      1.01     98.03      -1.97%          1%          -1.97&#xA;100     -2      2        25.00          &#xA;100     -2      2.02     24.51      -1.97%          1%          -1.97&#xA;100     -2      3        11.11          &#xA;100     -2      3.03     10.89      -1.97%          1%          -1.97&#xA;100     -2      4         6.25          &#xA;100     -2      4.04      6.13      -1.97%          1%          -1.97&#xA;100     -2      5         4.00          &#xA;100     -2      5.05      3.92      -1.97%          1%          -1.97&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2016-10-05T23:57:07.410" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13660" PostTypeId="2" ParentId="13656" CreationDate="2016-10-06T06:26:21.583" Score="3" Body="&lt;p&gt;It seems that you answered your own question?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the government's estimation of inflation rates are not credible, how can the government effectively index to inflation?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In any case, the first best solution to inflation in the long run is almost entirely an independent, competent central bank that has the capacity to raise interest rates, limit the money supply, and bring inflation under control. (And have a government that doesn't interfere with the central bank.)&lt;/p&gt;&#xA;" OwnerUserId="10334" LastActivityDate="2016-10-06T06:26:21.583" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13661" PostTypeId="1" AcceptedAnswerId="16747" CreationDate="2016-10-06T06:29:30.437" Score="1" ViewCount="732" Body="&lt;p&gt;In different paper I offen encounter two types of CES production functions&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$y=\left[\left(1-\omega \right) x_{1}^{\frac{\sigma -1}{\sigma}}+ \omega x_{2}^{\frac{\sigma -1}{\sigma}} \right]^{\frac{\sigma}{\sigma -1}}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;or&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$y=\left[\left(1-\omega \right)^{\frac{1}{\sigma}} x_{1}^{\frac{\sigma -1}{\sigma}}+ \omega^{\frac{1}{\sigma}} x_{2}^{\frac{\sigma -1}{\sigma}} \right]^{\frac{\sigma}{\sigma -1}}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;the only difference being the exponents of the weights.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is the difference in meaning and interpretation of the two weights (on an intuitive and a theoretical level). Does it matter which version to use in a paper? &lt;/p&gt;&#xA;" OwnerUserId="8630" LastActivityDate="2017-05-12T10:51:04.457" Title="What is the meaning of the weights in a CES-production function?" Tags="&lt;macroeconomics&gt;&lt;producer-theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13663" PostTypeId="1" CreationDate="2016-10-06T12:47:49.297" Score="2" ViewCount="1427" Body="&lt;p&gt;Why would a government choose to impose a price floor for agricultural commodities when subsidies would prove to be more beneficial for not only consumers, but also the government itself, since they would not have buy up the surplus and then price it lower if they want to export it?&lt;/p&gt;&#xA;" OwnerUserId="6786" LastActivityDate="2016-10-06T12:47:49.297" Title="Price Floors and Subsidies" Tags="&lt;price&gt;&lt;subsidies&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13664" PostTypeId="1" CreationDate="2016-10-06T13:41:19.487" Score="1" ViewCount="30" Body="&lt;p&gt;I'm worried about the difference between seeming honest and actually being honest.  I know banks rely in part on a good reputation to stay in business.  But it seems to me that as long as a bank has a plausible argument that they acted in good faith, they are free (and perhaps indeed it might be greatly in their interest) behind the scenes to be arbitrarily dishonest.&lt;/p&gt;&#xA;" OwnerUserId="10626" LastActivityDate="2016-10-07T04:55:14.437" Title="What guarantees that for every credit there is a debit in an electronic fund transfer?" Tags="&lt;banking&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13665" PostTypeId="2" ParentId="13664" CreationDate="2016-10-06T16:42:52.747" Score="1" Body="&lt;p&gt;Double-entry bookkeeping guarantees that for every credit there is a debit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's not really different for a bank than for you or I.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can claim that I've got an account with myself for 10 squillion pounds, but everyone will ignore me. The only balances that matter are the physical currency that I hold, and the accounts I have with other people or institutions; e.g. my bank account.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's the same for a bank: the balances that matter are the physical currency that it holds, and its accounts with other people and institutions. Predominantly, other banks, including Central Banks.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Clearing Houses are institutions, or groups of institutions, that act as intermediaries to ensure that when one bank has a bunch of transactions with another, the net balance is transferred correctly while minimising counterparty risk. And the Central Bank offers a settlement service: for example, banks with sterling deposits will (typically) have an account with the Bank of England, which &lt;a href=&quot;http://www.bankofengland.co.uk/markets/Pages/paymentsystem/default.aspx&quot; rel=&quot;nofollow&quot;&gt;carries out settlement between banks&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="44" LastEditorUserId="44" LastEditDate="2016-10-07T04:55:14.437" LastActivityDate="2016-10-07T04:55:14.437" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="13666" PostTypeId="1" AcceptedAnswerId="13667" CreationDate="2016-10-06T19:05:26.400" Score="0" ViewCount="215" Body="&lt;p&gt;Alex consumes only lemons and sugar. For each lemon he requires exactly 2 spoons of sugar. He doesn't like more sugar on his lemons, and he won't eat lemons with less sugar. What is Alex's optimal consumption bundle?Write down the precise quantities of each good.(Assume that the price of each lemon is 20 and the price of a spoon of sugar is 1. Alex has 44 to spend on lemons and sugar)&lt;/p&gt;&#xA;" OwnerUserId="10635" LastEditorUserId="10635" LastEditDate="2016-10-06T19:15:04.207" LastActivityDate="2016-10-06T19:47:04.883" Title="Optimal consumtion bundle of lemons and sugar" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;&lt;preferences&gt;&lt;perfect-complements&gt;" AnswerCount="1" CommentCount="2" ClosedDate="2016-10-07T20:17:06.850" ContentLicense="CC BY-SA 3.0" />
  <row Id="13667" PostTypeId="2" ParentId="13666" CreationDate="2016-10-06T19:47:04.883" Score="2" Body="&lt;p&gt;Alex's preferences of sugar and lemons can be expressed in form of a utility function as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$U(x,y)=min(x/2,y) $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $x$ is sugar and $y$ is lemons.This function tells us we need at least 2 spoons of sugar to consume 1 lemon.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;we need a minimum of 2 sugars initally so we can say $x=2$ for 1 lemon so $y=1$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Plugging those values into our  budget constraint:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$44=20x+y$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$44=20(2)+(1)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$44&amp;gt;41$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Notice how we end up having 3 left over, however with the budget constraint and preferences provided our consumption bundle will be 2 sugars and 1 lemon.&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2016-10-06T19:47:04.883" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13669" PostTypeId="2" ParentId="13346" CreationDate="2016-10-07T00:33:09.467" Score="1" Body="&lt;p&gt;I don't know about the story you refer to, but I'd say this was likely due to the intrinsic fungibility of gold as a commodity, before it serves as money.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Besides its natural scarcity and the significant amount of energy it requires to extract and mint, other important properties of gold (to serve as real money later on, anyway) include:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;being stable (phys. / chem. speaking), portable, divisible, and &lt;a href=&quot;https://en.wikipedia.org/wiki/Fungibility&quot; rel=&quot;nofollow&quot;&gt;fungible&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Fungibility: both as a store of value and as a medium of trade, any one ounce of gold is (relatively) easy to recognize and test for authenticity, and thus easily interchangeable with any other ounce of gold, of same purity -- if one excludes other considerations such as numismatic value or tastes in shape, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Because the operation in the story you recall was fraudulent to begin with (extra-minting undeclared on the books) it was then important to find a way to differentiate unambiguously those ounces from the rest that were duly kept on the books -- i.e., to temporarily &quot;deny&quot; &lt;em&gt;that&lt;/em&gt; gold its fungibility, so to speak, and at the physical level (by mangling it) -- if only temporarily.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course the rationale was to prevent &lt;em&gt;a priori&lt;/em&gt; those coins from going into circulation on the market, after the bust -- and whether or not the decision would be made later on to reintroduce them (but this time in a controlled way).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Just my understanding anyway.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;'Hope this helps.&lt;/p&gt;&#xA;" OwnerUserId="10640" LastEditorUserId="10640" LastEditDate="2016-10-07T15:05:55.830" LastActivityDate="2016-10-07T15:05:55.830" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13670" PostTypeId="2" ParentId="12582" CreationDate="2016-10-07T02:16:06.667" Score="2" Body="&lt;p&gt;$$dx_t = \mu dt + \sigma dz_t \\&#xA;y_t = f(t, x_t)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A key idea here is that $\left( dx_t \right)^2=\left( \ldots \right)dt^2 + \left(\ldots\right) dzdt + \sigma^2 dz_t^2 = \sigma^2 dt$. The loose reasoning is that $\left( dz_t\right)^2 = dt$ and all the other terms (i.e. $dt^2$ and $dz\, dt$) are &lt;em&gt;infinitely&lt;/em&gt; smaller than $dt$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Horribly loose intuition for $dz_t^2 = dt$ is that $dz_t$ is normally distributed with variance $dt$, and hence the expectation of the square of $dz_t$ is $dt$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In any case, we then have:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{align*}&#xA;\quad dy_t &amp;amp;= \frac{\partial f}{\partial t} dt + \frac{\partial f}{\partial x} dx_t + \frac{1}{2} \frac{\partial^2 f}{\partial x^2} dx^2_t\\&#xA;&amp;amp;= \frac{\partial f}{\partial t} dt + \frac{\partial f}{\partial x} \left( \mu dt + \sigma dz_t  \right)+ \frac{1}{2} \frac{\partial^2 f}{\partial x^2} \sigma^2 dt \\&#xA;&amp;amp;= \left(\frac{\partial f}{\partial t} + \frac{\partial f}{\partial x}\mu + \frac{1}{2} \frac{\partial^2 f}{\partial x^2} \sigma^2 \right)  dt + \left( \frac{\partial f}{\partial x}\right)\sigma dz_t&#xA;\end{align*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which is Ito's lemma.&lt;/p&gt;&#xA;" OwnerUserId="10334" LastEditorUserId="10334" LastEditDate="2016-10-07T02:30:27.217" LastActivityDate="2016-10-07T02:30:27.217" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13671" PostTypeId="2" ParentId="11890" CreationDate="2016-10-07T02:39:15.907" Score="-1" Body="&lt;p&gt;There are numerous problems with this question, but one of them is that a $50,000 per year per person basic income is impossible in the U.S. because per capita GDP was 55,837 in 2015.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A &quot;guaranteed basic income of \$50,000&quot; per person would require $\frac{50,000}{55,837} = 89.6\%$ of &lt;em&gt;ALL&lt;/em&gt; U.S. economic output!! Given that government is already 17.5% of the U.S. economy and 89.6% + 17.5\% &gt; 100%, we're already in the realm of physical impossibility. This is without even getting to the complete impossibility of tax collection at anything close to that magnitude.&lt;/p&gt;&#xA;" OwnerUserId="10334" LastEditorUserId="10334" LastEditDate="2016-10-07T04:00:34.737" LastActivityDate="2016-10-07T04:00:34.737" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13672" PostTypeId="1" AcceptedAnswerId="13681" CreationDate="2016-10-07T07:58:16.617" Score="8" ViewCount="11920" Body="&lt;p&gt;Given the following non-stochastic planning problem with finite horizon, &#xA;\begin{align}&#xA;&amp;amp;\max_{\{k_{t+1}\}}\sum^T_{t=0}\beta^tU[f(k_t-k_{t+1})] \\&#xA;\text{s.t. } &amp;amp; 0\leq k_{t+1}\leq f(k_t)\\&#xA;&amp;amp; k_0 &amp;gt;0 \text{ (given)}.&#xA;\end{align}&#xA;I found that in order to make the first order conditions necessary and sufficient I have to add the so called &lt;strong&gt;no Ponzi game condition&lt;/strong&gt;, i.e. &#xA;\begin{gather}&#xA;\lim_{T \rightarrow \infty} \frac{k_{T+1}}{R_{T+1}} \geq 0&#xA;\end{gather}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When written with the equal sign, this condition can be interpreted as the willingness of not keeping any capital at the end of life. And this is the same interpretation of the so called &lt;strong&gt;transversality condition&lt;/strong&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, is it right to interpret the no Ponzi game condition as a finite horizon version of the transversality condition? If not, which is the difference between them?&lt;/p&gt;&#xA;" OwnerUserId="6773" LastEditorUserId="4266" LastEditDate="2016-10-08T12:29:59.830" LastActivityDate="2016-10-08T12:29:59.830" Title="No Ponzi game condition and transversality condition are the same?" Tags="&lt;macroeconomics&gt;&lt;business-cycles&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="13673" PostTypeId="1" CreationDate="2016-10-07T08:02:57.617" Score="1" ViewCount="33" Body="&lt;p&gt;Say there are two occupations - &lt;strong&gt;A&lt;/strong&gt; and &lt;strong&gt;B&lt;/strong&gt;, and plenty of workers. Let's pick occupation &lt;strong&gt;A&lt;/strong&gt;, and &lt;strong&gt;order workers from lowest to highest ability/productivity&lt;/strong&gt;. Which is the formal term to describe the situation where the aforementioned order:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;leads also to an ordering from lowest to highest in occupation &lt;strong&gt;B&lt;/strong&gt;? Absolute advantage? Positive correlation? &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;leads to the exact opposite ordering in &lt;strong&gt;B&lt;/strong&gt;, i.e. from highest to lowest? Comparative advantage? Negative correlation?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;produces no particular order in &lt;strong&gt;B&lt;/strong&gt;? &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;I am looking for formal terminology from labor economics&lt;/strong&gt;, but I can't find it. So far I am using absolute and comparative advantage, but that is not exactly the definition used in international trade theory. References are greatly appreciated.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2016-10-07T09:46:08.567" LastActivityDate="2016-10-07T09:46:08.567" Title="Formal terminology for positive and negative correlation between ability of workers for different jobs?" Tags="&lt;labor-economics&gt;&lt;definition&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13674" PostTypeId="2" ParentId="8863" CreationDate="2016-10-07T11:45:06.437" Score="5" Body="&lt;p&gt;Use &lt;strong&gt;-areg-&lt;/strong&gt; in Stata, and the standard errors will come out as in the textbook. Specifically, the command &lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;areg lpassen lfare ldist ldistsq y98 y99 y00, absorb(id) vce(robust)&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;will produce the desired result.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;-xtreg- with fixed effects and the -vce(robust)- option will automatically give standard errors &lt;em&gt;clustered&lt;/em&gt; at the &lt;em&gt;id&lt;/em&gt; level, whereas -areg- with -vce(robust)- gives the &lt;em&gt;non-clustered&lt;/em&gt; robust standard errors. The latter seems to be what Wooldridge estimated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Moreover, -xtreg- assumes that the number of -xtset- groups (id in your example) grows when more data is added to the sample. -areg-, however, assumes that the number of groups is &lt;em&gt;fixed&lt;/em&gt;. I.e., the two estimators have different asymptotic properties. The point estimates will be identical, but standard errors will be different, sometimes substantially so.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Old versions of Stata (e.g. Stata 9) did not make the appropriate degrees of freedom adjustment when -xtreg, vce(robust)- was called, which is why you get a bigger standard error when specifying -version 9-. In fact, those standard errors are identical to -areg, absorb(id) vce(cluster id)- in newer versions of Stata.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a side note, it is puzzling that Wooldridge got non-clustered robust standard errors when calling -xtreg, vce(robust)- in version 9, but perhaps I have a flawed understanding of what the call -version 9- does.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For more information on -xtreg- vs -areg-, see the blogpost and comments &lt;a href=&quot;https://www.fionaburlig.com/blog/2016/8/16/is-the-file-drawer-too-large&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(I recognize that this is a year-old thread, and that the question might have been answered on the Statalist. Consider my answer as &quot;for future reference&quot;.)&lt;/p&gt;&#xA;" OwnerUserId="10641" LastEditorUserId="10641" LastEditDate="2017-11-17T16:10:29.720" LastActivityDate="2017-11-17T16:10:29.720" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13675" PostTypeId="1" CreationDate="2016-10-07T13:46:00.333" Score="2" ViewCount="216" Body="&lt;p&gt;I have been working on income distributions for a while, and I've been asked to do a theoretical justification for the idea that income distribution follows an exponential function for low incomes. There's a lot of literature about Pareto distributions in the upper tail of the distribution, but I haven't been able to find literature for the lower tail and the exponential.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There's empirical work on this topic, mainly done by physicists: &lt;a href=&quot;https://arxiv.org/pdf/cond-mat/0008305.pdf&quot; rel=&quot;nofollow&quot;&gt;https://arxiv.org/pdf/cond-mat/0008305.pdf&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One of those physicists asked me to find economic theories that support the exponential hypothesis, but, as I've said, I haven't found any.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Could you point some pieces of economic literature to get me on the right way? Thank you.&lt;/p&gt;&#xA;" OwnerUserId="5454" LastEditorUserId="1601" LastEditDate="2016-10-07T13:52:57.737" LastActivityDate="2016-10-08T06:05:29.573" Title="How to theoretically explain an exponential income distribution?" Tags="&lt;reference-request&gt;&lt;theory&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="13676" PostTypeId="2" ParentId="13346" CreationDate="2016-10-07T16:00:45.873" Score="0" Body="&lt;p&gt;I think there are two reasons:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;The stamp is fraudulent&lt;/strong&gt; - only the official mint is allowed to use the stamp. The intrinsic value is in the metal, and the stamp provides authenticity. The fraudulent coins would have looked/felt different - at least to an expert. And who knows if they all truly had the correct gold content?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;Control of money supply&lt;/strong&gt; - inflation is not limited to fiat currencies. If a large amount of gold is injected into the economy, inflation will result. The government will have tried to control the money supply - although with nothing like the sophistication of modern central banks.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Sorry, I don't have links to authorative references to hand.&lt;/p&gt;&#xA;" OwnerUserId="6281" LastActivityDate="2016-10-07T16:00:45.873" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13677" PostTypeId="2" ParentId="13301" CreationDate="2016-10-07T16:24:23.560" Score="2" Body="&lt;p&gt;Thanks to Ubiquitous for finding &lt;a href=&quot;http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=OJ:L:2014:312:FULL&amp;amp;from=EN&quot; rel=&quot;nofollow&quot;&gt;this paper&lt;/a&gt;. Just scanning by eye it seems it could be summarised by saying: the bulk of items have a tariff in the range 5-10% with a smaller amount either less than 5 (including some 0%) or in the range 10-12%. Very few items have a tariff of over 12%.&lt;/p&gt;&#xA;" OwnerUserId="5081" LastActivityDate="2016-10-07T16:24:23.560" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13678" PostTypeId="1" CreationDate="2016-10-07T16:40:49.013" Score="2" ViewCount="258" Body="&lt;p&gt;How is a block price decided when there are many products to be sold?&#xA;For example the buffet in various restaurants or combos in McDonalds or KFC (like the bucket buddy).&#xA;Can somebody point me to research papers or any link or book I can read to get into the logistics and mathematics behind pricing such combos?&lt;/p&gt;&#xA;" OwnerUserId="10648" LastEditorUserId="11590" LastEditDate="2017-02-04T21:33:08.290" LastActivityDate="2017-02-04T21:33:08.290" Title="Block pricing for different products" Tags="&lt;microeconomics&gt;&lt;reference-request&gt;&lt;industrial-organisation&gt;&lt;pricing&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13679" PostTypeId="2" ParentId="13651" CreationDate="2016-10-07T18:54:55.180" Score="1" Body="&lt;p&gt;The vast majority of cyber crime is fraud. The criminals don't hack the bank directly; rather they hack the customers of the bank and commit fraudulent transactions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I strongly doubt there is active collaboration. Some criminals may have insider contacts, but that's different to a symbiotic relationship.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There may be an effect somewhat like you mention. Increasing security is expensive for banks, so it is only worth doing if they are experiencing a certain level of losses. In theory it would make sense for criminals to restrict their level of activity, to avoid banks implementing additional security, which would make their job harder. In practice I don't think this happens, because their are multiple cyber gangs and I strongly doubt there is a gentleman's code between then.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is theoretically possible for someone to hack the bank itself, and directly modify balances - effectively creating money out of thin air. In fact, it is thought that some major nation states (mostly &lt;a href=&quot;http://www.infosecisland.com/blogview/6750-Cyber-Warfare-and-the-Conflict-in-Iraq.html&quot; rel=&quot;nofollow&quot;&gt;US&lt;/a&gt; and China) have penetrated many banks around the word. However, if they started to extract money, this is likely to be noticed, due to internal checks and balances. It is more valuable for these state-sponsored actors to silently remain present, capturing information. And one day, perhaps they will strike, as part of a larger war strategy.&lt;/p&gt;&#xA;" OwnerUserId="6281" LastActivityDate="2016-10-07T18:54:55.180" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="13680" PostTypeId="1" CreationDate="2016-10-07T19:07:45.160" Score="3" ViewCount="44" Body="&lt;p&gt;My coworkers and I were talking about the concept of voluntarily paying more than you need to for something. As an example, I can buy a locally grown organic apple from the farmers market for \$3 or a conventional one from the grocery store for \$0.50. We can say that the \$0.50 apple is a basic level of consumption- society agrees that I deserve that apple as a human right (or, we can expand the argument to a basic level of consumption including shelter, food, etc). Since I paid \$3 instead of \$0.50, I paid an extra $2.50 for the luxury if it being a special kind of apple I prefer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We called this amount &quot;marginal luxury&quot;. Does economics have a proper name for it? Is there a reliable source of how much of an economy, say the US, is marginal luxury?&lt;/p&gt;&#xA;" OwnerUserId="10649" LastActivityDate="2016-10-09T16:41:54.060" Title="Is there another name for marginal luxury?" Tags="&lt;value&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13681" PostTypeId="2" ParentId="13672" CreationDate="2016-10-07T20:36:27.663" Score="6" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;Is it right to interpret the no Ponzi game condition as a finite&#xA;  horizon version of the transversality condition?&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;No. The &quot;No-Ponzi-Game&quot; or &quot;solvency&quot; condition is an &lt;em&gt;external constraint&lt;/em&gt; imposed on the individual by the market/other participants. The individual would very much like to violate it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Transversality condition must be satisfied in order for the individual to maximize indeed its intertemporal utility. It is an &lt;em&gt;optimization condition&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So they are conceptually very different aspects of the problem.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally the No-ponzi-game/solvency condition is not inherently of finite horizon -it extends to the infinite horizon also.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2016-10-07T20:36:27.663" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="13682" PostTypeId="2" ParentId="13675" CreationDate="2016-10-07T21:20:29.860" Score="3" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;...find economic theories that support the exponential hypothesis, but, as I've said, I haven't found any.&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I don't think you will. For purposes of economic argument, the characteristic of the Exponential distribution that stands out and must be defended, is that it has its maximum at zero.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, arguing that an Income distribution follows the Exponential, means that we accept that the most probable situation to be observed is zero income. Is it? I don't think so.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As regards the study you link to, the main piece of evidence for the fit of the Exponential to the data is Fig 1 page 2. The authors write that they consider it a very good fit. I most certainly don't: the histogram in Fig 1. has clearly a mode at strictly positive values and not at zero. Βut this is the most critical piece of evidence as to whether the data follows an Exponential or not. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;At page 4, the authors try to deal with this critical deviation of the data from the Exponential graph, by mentioning that there may be under-reporting at low values, but that's a very vague argument, unsupported and unsubstantiated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;a) From a theoretical perspective, it is not realistic to argue that the most probable income observed is zero&#xA;b) The data support this by providing a strictly positive mode for the frequency.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore I don't see a case for the Exponential.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2016-10-07T21:20:29.860" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="13683" PostTypeId="1" CreationDate="2016-10-07T20:03:21.990" Score="1" ViewCount="61" Body="&lt;p&gt;There has been tremendous improvement in technologies in recent years. My question is: have economists been able to properly evaluate and factor the values of recent innovations in the technology sector? We often hear about various economics indicators such has Manufacturing PMI and industrial productions, but these indicators often fail to mention technology related jobs or the values of recent innovations. Can anyone help me understand how technology is valued?&lt;/p&gt;&#xA;" OwnerUserId="6879" OwnerDisplayName="christian x" LastEditorDisplayName="user4169" LastEditDate="2016-10-11T01:31:20.440" LastActivityDate="2016-10-11T01:31:20.440" Title="Factoring Technology into Economics models" Tags="&lt;macroeconomics&gt;&lt;value&gt;&lt;technology&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13684" PostTypeId="2" ParentId="13683" CreationDate="2016-10-07T20:31:46.123" Score="3" Body="&lt;p&gt;Yes, this is pretty standard stuff in economics. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, the simplest models contain it in a hidden form. Supply curves are derived from production functions, and include (marginal) cost of production. Technology innovation is then reflected in reduced production costs per unit. It can also change the indifference curves of consumers, leading to changes in the demand curve (shifts, slope change, etc.) Labor costs are also affected, thus also changing macroeconomic models. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Second, there are models which focus specifically on innovation. Look up the Schumpeterian models, or (for a more business-oriented than economic-oriented theory) Christensen's work. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Third, some of the more involved models can accommodate the consequences of a specific technology as opposed to a generic assumption of innovation. For example, brick-and-mortar stores are known to max out at some size due to rising overhead, while for online stores, overhead is considered to rise underproportionally to profit, which predicts &quot;winner takes all&quot; markets, which is what we are seeing today. Similarly, when you look at information assymmetry models, you see that modern information technology can remove some asymmetries from specific markets (new ways for principals to monitor agents, allowing price comparison in some markets, eliminating transaction costs or discovery costs thus making intermediars obsolete). You can get a good, if somewhat dated, review of the results of IT developments on economic models in Macho-Stadler and Perez-Castrillo's &quot;An introduction to the economy of information&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know this is a rather vague answer, but I'm afraid your question is similarly vague. &lt;/p&gt;&#xA;" OwnerUserId="1585" OwnerDisplayName="rumtscho" LastActivityDate="2016-10-07T20:31:46.123" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13685" PostTypeId="2" ParentId="13675" CreationDate="2016-10-08T05:58:55.423" Score="2" Body="&lt;p&gt;Something to consider is that the log-normal distribution can look like an exponential distribution for high $\sigma$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, here's a histogram over market capitalization for firms in Compustat.&lt;a href=&quot;https://i.stack.imgur.com/HvLWn.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/HvLWn.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Kinda looks exponentially, but here's a QQ-plot checking the distribution over the log of market capitalization for normality. &lt;a href=&quot;https://i.stack.imgur.com/bfxYd.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/bfxYd.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Not perfect, but not bad! And here's a histogram of log10 marketcap:&#xA;&lt;a href=&quot;https://i.stack.imgur.com/zKSkd.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/zKSkd.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="10334" LastEditorUserId="10334" LastEditDate="2016-10-08T06:05:29.573" LastActivityDate="2016-10-08T06:05:29.573" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13686" PostTypeId="2" ParentId="13646" CreationDate="2016-10-08T06:49:33.123" Score="2" Body="&lt;p&gt;I'm not sure there are enough assumptions here to move forward, in particular I would think you would need some conditions on your function $h$, at the very least. It's pretty easy to show that $g(\cdot,\cdot)$ will have increasing differences, which implies the single-crossing property for $g$ (this can be quickly seen by letting $h$ be identically zero). But I don't see how this is enough, since single-crossing doesn't imply supermodularity. Maybe I'm missing something, though.&lt;/p&gt;&#xA;" OwnerUserId="6705" LastEditorUserId="6705" LastEditDate="2016-10-09T02:16:21.410" LastActivityDate="2016-10-09T02:16:21.410" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13688" PostTypeId="1" AcceptedAnswerId="13689" CreationDate="2016-10-08T08:38:07.313" Score="1" ViewCount="407" Body="&lt;p&gt;Reading my development economics textbook, I was informed that the opportunity cost of a private investment is the market value of the wages, goods and services used for the investment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here's a hypothetical situation: suppose that the firm could invest in an alternative project with the same amount of resources but a higher return. Would it not be myopic to overlook this alternative investment when asserting that the opportunity cost is the market value of inputs? It leads me to wonder why the inputs weren't valued higher. It could be because others in the market don't have access to capital, knowledge of the opportunity or the expertise required to make the investment. Still, why would the opportunity cost not be the income that could potentially be created from the alternative investment? Is a 'market value' approach just a simplification?&lt;/p&gt;&#xA;" OwnerUserId="175" LastActivityDate="2016-10-08T08:43:21.673" Title="Is opportunity cost market prices of input goods or income from alternative investments?" Tags="&lt;opportunity-cost&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13689" PostTypeId="2" ParentId="13688" CreationDate="2016-10-08T08:43:21.673" Score="2" Body="&lt;p&gt;The market value of the inputs are determined by the most lucrative possible investment opportunity. Yes, the concept of market value is a simplification. If your firm alone can make the investment then the market is not functioning in a competitive way and hence is unable to assign prices in an informative way. If other firms cannot make the same investment but they can at least make investments with similar returns then the market value of the inputs would still be informative.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2016-10-08T08:43:21.673" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13690" PostTypeId="2" ParentId="13641" CreationDate="2016-10-08T10:18:01.640" Score="4" Body="&lt;p&gt;Even though your question does not allow a definite answer, I am pretty sure the author used a Taylor expansion around the logarithm of both sides of the equation. This process is called &lt;strong&gt;log-linearization&lt;/strong&gt;, and is fairly common.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can approximate (logs of) growth rates as $x \approx log(1+x)$ when $x$ is small. (and by the rules of logarithm:  $\log((1+x)^\sigma ) \approx\sigma x$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Rewriting your equation &#xA;$1+(r_t-\delta)=(1+\eta)^{\sigma}(1+\theta)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where&#xA;$r_t=\alpha (k^{\# *})^{\alpha -1}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and applying this rule gives&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$r_t-\delta=\theta+\sigma \eta$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which gives the desired result.&lt;/p&gt;&#xA;" OwnerUserId="8630" LastEditorUserId="8630" LastEditDate="2016-10-08T13:55:51.780" LastActivityDate="2016-10-08T13:55:51.780" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13698" PostTypeId="2" ParentId="13567" CreationDate="2016-10-09T15:10:52.313" Score="2" Body="&lt;p&gt;This question is quite broad, but I'll give 3 ideas I would have liked to do, and is of appropriate difficulty, while in undergrad.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Review a seminal paper - &lt;a href=&quot;https://en.wikipedia.org/wiki/List_of_important_publications_in_economics&quot; rel=&quot;nofollow&quot;&gt;Wikipedia has a list of important publications in economics&lt;/a&gt;.  They could write a 10-20 page paper and give a deep analysis of what the authors did and why.  I.e. if there is a derivation they could explain why it is solved that way, if it is the only way, or if there is another way and suggest these alternatives.&lt;/li&gt;&#xA;&lt;li&gt;Construct a new policy function - Let them argue their intuition in constructing a new policy function (e.g. why do you take log consumption?) and solve for the constrained optimization problem.  They should know how to use the method of Lagrangian optimization, but the courageous student could set theirs up as a Bellman equation.&lt;/li&gt;&#xA;&lt;li&gt;At my school it was perfectly acceptable for a Bachelor's thesis to do a real world project instead of write a paper.  They could make some kind of event, I had a classmate present on the UN Millennium Development Goals and had a video message from Jeffrey Sachs.  They could find somebody (or a few people) local to come and speak.  Also they may have access to a small budget from their school, or can elicit donations from local restaurants, and can provide food (college students love free food)!&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="5780" LastActivityDate="2016-10-09T15:10:52.313" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13699" PostTypeId="2" ParentId="13680" CreationDate="2016-10-09T16:41:54.060" Score="2" Body="&lt;p&gt;The closest I can think of is &lt;a href=&quot;https://en.wikipedia.org/wiki/Stone%E2%80%93Geary_utility_function&quot; rel=&quot;nofollow&quot;&gt;Stone-Geary utility/preferences&lt;/a&gt;, where consumption is assumed to provide utility only above a specific level (the $\gamma_i$ parameter in the link), which is usually designated as the &quot;subsistence level&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for how much an economy is above this subsistence threshold, a way to roughly assess this is to calculate what would Total Income be if all people were at the poverty-line-income (each country determines its own poverty line). Then subtract this from the actual Total Income. What is left can be thought of as what the OP is looking for.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But calling it &quot;luxury&quot;, implies that any consumption above the level guaranteeing mere survival is a luxury. Is it?&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2016-10-09T16:41:54.060" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13700" PostTypeId="1" AcceptedAnswerId="14191" CreationDate="2016-10-09T17:47:50.167" Score="1" ViewCount="51" Body="&lt;p&gt;It seems to me that inheritance can't be classified as profit or wage. So does it fulfill the definition of rent, or are there some economic activities that don't fit into this classification?&lt;/p&gt;&#xA;" OwnerUserId="2942" LastActivityDate="2016-11-10T21:06:29.963" Title="How is inheritance classified in Adam Smiths profit/wage/rent classification?" Tags="&lt;classical-economics&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13702" PostTypeId="1" CreationDate="2016-10-09T22:41:49.930" Score="1" ViewCount="50" Body="&lt;p&gt;Does anyone know what the following allocation strategy is called?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Problem:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;How to allocate N rooms to N roommates? Example: allocate 4 rooms&#xA;(1,2,3,4) amongst 4 roommates (A,B,C,D) total rent of $4000.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Allocation Game:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Each roommate assigned a starting random room; all rooms are priced&#xA;    at an equal \$1000.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Roommate A's turn: has the option to swap rooms with someone.  In&#xA;the swap: the traded-for room increases its price to \$1050, the&#xA;traded-away room decreases its price to \$950.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Roommate B's turn: has the option to swap rooms with someone. Every&#xA;time a room is traded away its price decreases \$50, similarly the&#xA;traded-for room increases by \$50.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Turns continue indefinitely until 4 turns pass with no roommate&#xA;wanting to swap.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Result:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Each room is priced at an equilibrium where no further trading is desired.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Does this form of iterative trading game have a name?&lt;/p&gt;&#xA;" OwnerUserId="10667" LastEditorUserId="10667" LastEditDate="2016-10-09T22:48:53.823" LastActivityDate="2016-10-09T22:48:53.823" Title="What is the name for this turn-based property trading game?" Tags="&lt;microeconomics&gt;&lt;game-theory&gt;&lt;property&gt;" AnswerCount="0" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13704" PostTypeId="1" CreationDate="2016-10-10T13:50:24.300" Score="5" ViewCount="128" Body="&lt;p&gt;I am trying to disaggregate a &quot;national&quot; input-output table into three regions using Simple Location Quotients (SLQs) and RAS balancing. In particular, I'm trying to use the &quot;Two region logic with more than two regions&quot; technique (Miller &amp;amp; Blair, Section 8.6.3).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am not able to get the target $\textbf{u}$ and $\textbf{v}$ margins to be consistent with each other, which is preventing me from applying RAS. I suspect that something rather obvious is eluding me, and I'd be grateful for advice.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To make this concrete, please see some dummy values below.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;National&quot; IO table $A^n$:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;         c1       c2&#xA;id                  &#xA;c1 0.161368 0.000001&#xA;c2 0.004815 0.047835&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Total output by sector $x$:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;id&#xA;c1    422428&#xA;c2    508800&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Whence inter-industry flows $Z$:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;         c1       c2&#xA;id                  &#xA;c1 68166.22     0.28&#xA;c2  2034.17 24338.67&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Table of total outputs, by region {$r_1$, $r_2$, $r_3$}, by sector {$c_1$, $c_2$}:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;          c1        c2&#xA;id                    &#xA;r1  30624.97  62497.83&#xA;r2 329614.70 415367.70&#xA;r3  62188.33  30934.47&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;As per the textbook, I'm looping through each region in turn, calculating the outputs:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;          c1        c2&#xA;id                    &#xA;r1  30624.97  62497.83&#xA;R  391803.03 446302.17&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;and LQs for regions $r$ and $R$ (not $r$), and applying the LQs to $A^{n}$ to obtain $A^{rr}$ and $A^{RR}$:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;       c1     c2&#xA;id              &#xA;r1 0.7250 1.0000&#xA;R  1.0000 0.9746&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;This gives $A^{r_1r_1}$ and $A^{RR}$ respectively:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;         c1       c2&#xA;id                  &#xA;c1 0.116988 0.000000&#xA;c2 0.004815 0.047835&#xA;&#xA;         c1       c2&#xA;id                  &#xA;c1 0.161368 0.000001&#xA;c2 0.004693 0.046622&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;I subtract $A^{r_1r_1}$ and $A^{RR}$ from $A^{n}$ to obtain $A^{Rr_1}$ and $A^{r_1R}$  respectively:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;         c1       c2&#xA;id                  &#xA;c1 0.044380 0.000000&#xA;c2 0.000000 0.000000&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;and&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;         c1       c2&#xA;id                  &#xA;c1 0.000000 0.000000&#xA;c2 0.000122 0.001214&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;I convert these input coefficients to flows using the regional outputs, and use these as the first block of the marginal matrices. For this example, I obtain $\textbf{u}$ and $\textbf{v}$ as follows:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;       c1     c2&#xA;0    0.00   0.00&#xA;1   47.87 541.64&#xA;2    0.00   0.00&#xA;3   36.58 365.76&#xA;4 3049.71   0.01&#xA;5    0.00   0.00&#xA;&#xA;         0    1       2    3      4      5&#xA;c1 1359.14 0.01 1310.71 0.01   0.00   0.00&#xA;c2    0.00 0.00    0.00 0.00 117.39 580.08&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;However, when I check for consistency, I obtain the following &quot;collapsed&quot; matrices:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;        c1     c2&#xA;c1 3049.71   0.01&#xA;c2   84.44 907.40&#xA;&#xA;        c1     c2&#xA;c1 2669.85   0.01&#xA;c2  117.39 580.08&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;which are clearly different.&lt;/p&gt;&#xA;" OwnerUserId="10082" LastActivityDate="2016-10-13T16:47:03.090" Title="Regional disaggregation of a national input-output table" Tags="&lt;input-output&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13705" PostTypeId="1" CreationDate="2016-10-10T15:06:51.930" Score="1" ViewCount="417" Body="&lt;p&gt;I am still dealing with DSGE models and with log-linearization of characteristic equations of the model. The one that creates me more doubts is the technology shock, that is usually modeled as an AR(1).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Usually, we are given technology processes like &#xA;\begin{gather}&#xA;\ln(z_t)=(1-\rho) \ln(\bar z)+\rho \ln(z_{t-1})+\epsilon_t&#xA;\end{gather}&#xA;so that it is already linear and we can re-write it in deviations from the steady state just moving $\ln(\bar z)$ on both sides of equation, obtaining&#xA;\begin{gather}&#xA;\hat z_t=\rho \hat z_{t-1}+\epsilon_t&#xA;\end{gather}&#xA;where hat variables are log deviations from the steady state. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But when the process is something like&#xA;\begin{gather}&#xA;\ln(z_t)=(1-\rho) (\bar z)+\rho \ln(z_{t-1})+\epsilon_t&#xA;\end{gather}&#xA;how should I proceed?&#xA;What I cannot understand is how the log linearization should be used, taking into account that $\epsilon_t$ is a white noise process. I mean applying logs and differentiating gives me something I do not understand.&lt;/p&gt;&#xA;" OwnerUserId="6773" LastEditorDisplayName="user4169" LastEditDate="2016-10-11T12:32:59.433" LastActivityDate="2020-04-09T12:01:55.240" Title="Log linearization of the technology dynamic" Tags="&lt;macroeconomics&gt;&lt;dsge&gt;" AnswerCount="1" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="13708" PostTypeId="1" CreationDate="2016-10-10T16:19:59.547" Score="1" ViewCount="248" Body="&lt;p&gt;Let an economy with 20 consumers, one private good $x_2$ and one public good $x_1$. The public good is produced using the private good as input with the following technology $x_1=g(z)=z^{1/2}$, where $z$ is units of private good. TheUtility function of the consumer &quot;i&quot; is: $$U(x_1,x_{2i})=ln(x_1)+ln(x_{2i})$$ the aggregate endowment of private good is $\sum_{i=1}^{20}w_i=20$. My problem is en the section b)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;a)Obtain the pareto optimal allocation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here, I have the following lagrangian:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Max_{x_1,x_{2i},z}20ln(x_1)+\sum_{i=1}^{20}ln(x_{2i})+\lambda_1(40-\sum_{i=1}^{20}x_{2i}-z)+\lambda_2(z^{1/2}-x_1)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;with CPO's:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$x_1:20/x_1=\lambda_2$$ $$x_{2i}:1/x_{2i}=\lambda_1$$ $$z:-\lambda_1+\frac{1}{2}\lambda_2z^{-1/2}=0$$ $$\lambda_1: 40=\sum_{i=1}^{20}x_{2i}+z$$ $$\lambda_2:z^{1/2}=x_1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where the solution $x_{2i}*=4/3$, $x_1*=\sqrt{\frac{40}{3}}$, $z*=\frac{40}{3}$ is pareto optimal.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;b)Obtain the Lindahl equilibrium allocation with $·p_i=p_j \hspace{0.3cm} \forall i\neq j$. Here each consumer maximize his utility function subject to a restriction that has to be with a personalized price; and the firm which produce the public good maximize benefits. So the problem of consumer is: &#xA;$$Max_{x_1,x_{2i}}ln(x_1)+ln(x_{2i})+\lambda_1(w_i-x_{2i}-p_ix_1)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The CPO's:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$x_1:1/x_1=\lambda_1p_i$$ &#xA;$$x_{2i}:1/x_{2i}=\lambda_1$$ &#xA;$$\lambda_1:(w_i=x_{2i}+p_ix_1)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, from the first and the second CPO: $x_{2i}=x_1p_i$ substituting in the third&#xA;$x_{2i}=\frac{w_i}{2}$ Here is my problem. In order to obtain the Pareto allocation in a) $x_{2i}=\frac{w_i}{2}=\frac{4}{3}$ so , it must be $w_i=8/3$ for each consumer $i$ but $\sum_{i=1}^{20}w_i=20\frac{8}{3}=\frac{160}{3} \neq 40$ So What is happening?&lt;/p&gt;&#xA;" OwnerUserId="5812" LastActivityDate="2016-10-10T16:19:59.547" Title="About Lindahl equilibrium and Pareto Optimality" Tags="&lt;general-equilibrium&gt;&lt;pareto-efficiency&gt;&lt;public-economics&gt;&lt;public-goods&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13709" PostTypeId="1" CreationDate="2016-10-10T16:23:43.137" Score="2" ViewCount="60" Body="&lt;p&gt;It would be a silly question. In a model, I have found the BGP (balanced growth path) for all key variables. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As expected, these variables are constant variables ;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\mu^{BGP}=\frac{\alpha+\rho+\pi}{\epsilon\left(1+\pi\right)^{2}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;All paramaters on the right hand side are exogeneous constant parameters. Let's say $\mu$ is a variable for technological progress level.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For another variable, let's say capital accumulation $k$,I find a constant growth rate which is ;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$g_{k}=\frac{\alpha\left(\rho+\pi-\delta\left(\frac{1-\alpha}{\alpha}\right)\right)}{1-\alpha}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The parameters on the RHS are again exogenous parameters.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is : Is it possible to see the effect of the variable $\mu$ on the growth rate of capital $g_k$ ?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My way of doing seems to me a little bit weird. I firstly put &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\rho=\mu^{BGP}\epsilon\left(1+\pi\right)^{2}-\alpha-\pi$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and replace it in $g_k$. So, I have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$g_{k}=\frac{\alpha\left(\mu^{BGP}\epsilon\left(1+\pi\right)^{2}-\alpha-\delta\left(\frac{1-\alpha}{\alpha}\right)\right)}{1-\alpha}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;After, I say that technological progress level at BGP affects positevly the growth rate of capital.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Do you think that it is correct to say that ? Making this kind of comparative statics analysis ? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or any other way to do it in a more appropriate way ? &lt;/p&gt;&#xA;" OwnerUserId="2938" LastActivityDate="2016-11-12T17:33:29.637" Title="Comparative Statics on Balanced Growth Path" Tags="&lt;endogenous-growth&gt;&lt;balanced-growth&gt;&lt;comparative-statics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13711" PostTypeId="1" CreationDate="2016-10-10T21:25:10.700" Score="2" ViewCount="230" Body="&lt;p&gt;I don't know about you, but each time I go shopping for groceries, my purchasing decision takes into account what I already have at home. I don't make only one demand decision for my entire life the day I become a consumer, and afterward never buy anything ever again. Rather, each and every day, my daily demand for goods is a different function than it was yesterday. Similar to the concept of marginal utility, my daily demand for goods depends in part on what goods I have already have acquired yesterday (and all the days before that in which I have been a consumer).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's take a concrete example. Whether I want to buy a soda today depends partly on whether or not I already have one in my possession at home that I could drink. Namely, if I purchased a soda yesterday and it's still in my fridge, I don't want to buy one today; on the other hand if I don't have a soda in my fridge, I do want to buy a soda today. My particular demand function for soda, as I just described it, depends on my present endowment of soda.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, in the way demand is traditionally modeled, the amount of a good $x$ you wish to buy, $x(p,w)$, is a function only of prices $p$ and wealth $w$. The amount of each good you already have in your possession does not enter as a parameter in the demand function.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Admittedly, your wealth, which enters in your demand function as a single parameter $w$, CAN be calculated from your present endowment of goods, as a linear combination of their respective market prices. But it's not the actual quantities of those endowments that enter into the demand function -- only the total money-value of all your endowments, in units of the numeraire good. That is, only the amount of the &lt;em&gt;numeraire&lt;/em&gt; good you possess actually enters as a parameter into the demand functions for non-numeraire goods.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am sure that classical demand theory is not flawed. At the same time, there is a disconnect in my mind between how I think about demand (which makes sense to me only in the context of one's present endowments), versus how demand is traditionally modeled. Can someone help me bridge this gap?&lt;/p&gt;&#xA;" OwnerUserId="6012" LastActivityDate="2016-10-11T09:26:46.363" Title="Consumer demand: a function of present endowment?" Tags="&lt;consumer-theory&gt;&lt;supply-and-demand&gt;&lt;choice-theory&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13712" PostTypeId="1" CreationDate="2016-10-11T00:19:47.347" Score="2" ViewCount="22" Body="&lt;p&gt;Im looking for some resources on product pricing and other pricing methods commonly applied by price analyst's.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If anyone has a book or article to recommend i'd appreciate it.&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2016-10-11T00:19:47.347" Title="Reference Request: applied pricing techniques" Tags="&lt;reference-request&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13713" PostTypeId="2" ParentId="13700" CreationDate="2016-10-11T03:43:15.173" Score="0" Body="&lt;p&gt;Interesting question to think about. Maybe consider inheritance to be income derived in a past time period. For example, rent a father earns and gifts to his son, thus is still rent. It may be notable to note that inheritance as a substantial portion of income disproportionately impacted the landowners. (The resulting conversation is interesting  and worth some reading).&lt;/p&gt;&#xA;" OwnerUserId="10402" LastActivityDate="2016-10-11T03:43:15.173" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13714" PostTypeId="1" CreationDate="2016-10-11T06:35:13.913" Score="3" ViewCount="19" Body="&lt;p&gt;(United States Based)&#xA;I'm not sure if this is the right exchange to ask this in. You know how there are progressive tax laws where lower income individuals are taxed a smaller percent of their income. Is this usually done with respect to companies and their profit margin?  Are laws often written so that regulations and stipulations are lesser for &quot;smaller&quot; businesses? If not, why? Also, are there any laws where businesses trying to enter markets with high barriers to entry are subsidized in order to encourage competition in said market?&lt;/p&gt;&#xA;" OwnerUserId="10681" LastActivityDate="2016-10-11T06:35:13.913" Title="Are some laws &quot;Progressive&quot; for businesses?" Tags="&lt;law&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13715" PostTypeId="1" CreationDate="2016-10-11T08:54:11.247" Score="3" ViewCount="22" Body="&lt;p&gt;I have been google and googling and asking around and I can not find the work(s) on the basis of which the nobel in economics was given yesterday. I really wanted to read them. does anyone know how to find it?&lt;/p&gt;&#xA;" OwnerDisplayName="user10683" LastActivityDate="2016-10-11T08:58:09.113" Title="how can I find the original work on the bases of which 2016 nobel in economics was given?" Tags="&lt;contract-theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13716" PostTypeId="2" ParentId="13715" CreationDate="2016-10-11T08:58:09.113" Score="3" Body="&lt;p&gt;It is based on multiple pieces of work, most of which can be found in the prize &lt;a href=&quot;https://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/2016/advanced-economicsciences2016.pdf&quot; rel=&quot;nofollow&quot;&gt;committee's thoroughly referenced announcement&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2016-10-11T08:58:09.113" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13717" PostTypeId="2" ParentId="13711" CreationDate="2016-10-11T09:26:46.363" Score="2" Body="&lt;p&gt;Although it's often left unstated, demand for a good is measured as quantity &lt;em&gt;per unit of time&lt;/em&gt;.  Broadly, the longer the time period over which demand is measured, the smaller the (proportional) effect on demand of the initial endowment.  Whether you have a soda in your fridge one morning may make the difference between your demand for soda that day being $0$ or $1$. But over the next year, if you often consume sodas, it may make the difference between your demand being $n-1$ or $n$, only a very small proportional difference if $n$ is large.  For this reason, even at the individual level it can often be appropriate to ignore endowments as a determinant of demand for frequently consumed goods.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At market level, a further consideration is that the effect of endowments may average out over many individuals. At a certain time, for example, A has a recently purchased washing machine, B's washing machine is in mid-life, and C's is old and needs replacing soon.  In the absence of changes in income or major improvements in washing machines, it may be that in any year approximately the same proportion of people have a demand for a new washing machine, so that both the aggregate endowment of washing machines and the market demand for new washing machines are approximately stable.  Again, therefore, it could be appropriate to ignore endowments.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But there are also many situations where neither of the above apply and it &lt;em&gt;is&lt;/em&gt; important to consider endowments as a factor affecting demand.  These include: in consumer markets, take-up of goods embodying new technologies; in housing markets, the size and condition of the existing housing stock; and in commodity markets, stocks of for example wheat or copper held by commodity traders.&lt;/p&gt;&#xA;" OwnerUserId="1417" LastActivityDate="2016-10-11T09:26:46.363" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13720" PostTypeId="1" CreationDate="2016-10-11T19:34:32.643" Score="7" ViewCount="107" Body="&lt;p&gt;As an example, take Germany and Czech Republic. Both are members of the EU and therefore trade barriers between the two countries are minimal. However the &lt;a href=&quot;https://en.wikipedia.org/wiki/List_of_European_countries_by_median_wage&quot; rel=&quot;nofollow&quot;&gt;median salary&lt;/a&gt; in Germany is nearly 3 times as much as in Czech Republic. How can that be?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are the Germans three times more productive than the Czechs? Do they produce products that cost three times as much on the global market? If so, does this mean that Switzerland (which has a median salary twice as big as Germany) is twice as productive as Germany and six times more productive than Czech Republic?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I simply don't understand where the monetary difference comes from, especially in neighboring countries with open borders. It's certainly easy to understand in case of oil-rich nations (e.g. Saudi Arabia vs. Jordan), but not in manufacturing-based economies.&lt;/p&gt;&#xA;" OwnerUserId="8307" LastEditorUserId="43" LastEditDate="2017-01-21T21:19:53.217" LastActivityDate="2017-01-21T21:19:53.217" Title="How can median wages be significantly different in two neighboring countries with open borders?" Tags="&lt;labor-economics&gt;&lt;wages&gt;&lt;eu&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13722" PostTypeId="1" AcceptedAnswerId="13724" CreationDate="2016-10-11T20:02:08.907" Score="1" ViewCount="46" Body="&lt;p&gt;I heard many times politicians argue that immigration (in USA in particular, but applies to anywhere) are taking &quot;real&quot; Americans jobs. Then I tough, but they also are new consumers on the market, so they create supplies too. If immigrants also consume goods in a similar quantity and type as Americans, that will produce new more demand and thus the extra supply the jobs produce will be &quot;justified&quot;, &quot;balanced&quot; or &quot;matched&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Obviously, this economical situation is EXTREMELY complex with millions of factors: how productive/educated both populations are, average age of immigration, in which sectors will immigrants work and if they will overload some part of the economy with too much supply... There are millions more factors.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The only thing I care is if my argument disproves the IMO fallacious argument &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;Immigrants will take our jobs&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Tell me if this in more correct:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;immigration will prompt the creation of more jobs and the new&#xA;  population demand will (hopefully, if everything goes well, which would&#xA;  not) balance with the new supply, without taking jobs in&#xA;  massive proportions, thought some people may loose jobs to more&#xA;  skilled immigrants.&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="7977" LastActivityDate="2016-10-11T21:18:51.590" Title="Even if immigrants take USA jobs, don't they consume proportionally to maintain supply-demand equilibrium?" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13724" PostTypeId="2" ParentId="13722" CreationDate="2016-10-11T21:18:51.590" Score="1" Body="&lt;p&gt;The only argument that I think can be made is that immigrants often don't consume similarly to Americans. Large amounts of salaries are sent home from the US by immigrants which means that money is now out of circulation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Additionally, coming from poorer countries with a lower standard of living it can be argued that immigrants will choose to live a lower quality of life in the US which again could cause a decrease in Economic activity in the U.S. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lastly, for illegal immigrants wage/labor restrictions don't always apply to them meaning that U.S workers who are protected by these restrictions now have to compete with workers who do not have those restrictions which can drive down U.S employment and wages for workers across the board.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With that said, I think immigration as a general rule increases economic growth in the long run.&lt;/p&gt;&#xA;" OwnerUserId="10245" LastActivityDate="2016-10-11T21:18:51.590" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13725" PostTypeId="1" CreationDate="2016-10-11T23:04:49.160" Score="1" ViewCount="52" Body="&lt;p&gt;I recently joined Amazon prime &lt;em&gt;unknowingly&lt;/em&gt; and USD99 was debited on my non-USA credit card for an annual membership. I canceled the membership and was refunded USD99 after two days. Due to exchange rate fluctuations, I lost approximately USD10. Where did the USD10 go to?&lt;/p&gt;&#xA;" OwnerUserId="10688" LastActivityDate="2016-10-11T23:04:49.160" Title="Who loses/wins in exchange rate fluctuations?" Tags="&lt;exchange-rates&gt;" AnswerCount="0" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="13728" PostTypeId="1" AcceptedAnswerId="13733" CreationDate="2016-10-12T08:58:38.367" Score="1" ViewCount="28" Body="&lt;p&gt;Our company is selling one software in two edition: - cheap one with basic features - expensive one with basic and advance features&lt;/p&gt;&#xA;&#xA;&lt;p&gt;According to sells statistic, more than 90% of people are buying the expensive one edition. I would like to know if the sells model is suitable. Isn't the expensive variant too cheap? I know that Microsoft is selling &lt;em&gt;Windows&lt;/em&gt; &lt;em&gt;Office&lt;/em&gt; in Home edition and Professional edition, but they don't sell more than 90% of in Professional edition.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems to me that such product configuration is different in software development, because production price of creating software copy is same for cheap and expensive edition (which differs for example from automotive where production of luxury car is ore expensive).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there some recommended ratio in sells for cheap and expensive edition of software to maximize revenue?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I ask my colleague about it and he answered: &lt;em&gt;&quot;Isn't it good that we sell the highest edition at most?&quot;&lt;/em&gt; It is reasonable argument?&lt;/p&gt;&#xA;" OwnerUserId="2747" LastActivityDate="2016-10-12T18:41:08.590" Title="Recommended ratio of sells of software of basic and advance edition" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;&lt;software&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13730" PostTypeId="1" CreationDate="2016-10-12T15:50:34.077" Score="3" ViewCount="181" Body="&lt;p&gt;Will Both Consumer and Producer Surplus decrease as a result of a decrease in demand? Or is this not possible? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assuming there is a decrease in demand for travel, I'd like to know how this affects both types of surplus.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you!&lt;/p&gt;&#xA;" OwnerUserId="10695" LastActivityDate="2016-10-12T20:15:55.860" Title="Question about Changes in Surplus" Tags="&lt;microeconomics&gt;&lt;supply-and-demand&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="13733" PostTypeId="2" ParentId="13728" CreationDate="2016-10-12T18:41:08.590" Score="2" Body="&lt;p&gt;I like this question because it provides an opportunity to showcase how one can use the simplest of mathematical analysis, full of simplifying assumptions, and still get something useful/applicable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So let's call &quot;advanced&quot; and &quot;basic&quot; the two versions of the software. Each customer buys one unit of the one or the other. Let's assume/approximate the demand function as linear and let's assume away cross-price and competition effects.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assuming linearity is acceptable as a local approximation.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assuming no competition effects is to assume either that the software is seriously differentiated from the competition, or that we examine the case with competition's prices fixed.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The worst assumption is the one assuming away intra-cross-price effects: we do expect that if we raise the price of the Advanced version, potential customers may turn to look to the Basic version (and, possibly, but less strongly, vice versa).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Anyway, with these assumptions we have the demand functions&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Q_A = a_A - b_AP_A,\;\;\; Q_B = a_B - b_BP_B$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and the Revenue function &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$TR = P_A\cdot Q_A + P_B\cdot Q_B = a_AP_A - b_AP_A^2 + a_BP_B- b_BP_B^2$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Interpretation of the coefficients comes later. Maximizing this function with respect to the two prices is straightforward, and one gets&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$P_A^* = \frac {a_A}{2b_A},\;\;\; P_B^* = \frac {a_B}{2b_B}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then optimal revenue share for the Advanced version can be shown to be&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$S_A^* = \frac {a_A^2}{a_A^2 + (b_A/b_B)a_B^2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, $a_A$ is the maximum number of customers that we would have if we gave the Advanced version for free, and likewise for $a_B$. These quantities are routinely estimated/assessed by businesses. The beta coefficients are trickier, because they reflect the marginal loss of customers as we increase the price by one currency unit. But again, a business can and does make educated guesses on this matter also (perhaps considering bigger increases than one unit), based on past experience, and knowledge of the market and the potential customers.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So we see that the abstract and simplistic $S_A^*$ can be applied to an actual situation, and of course we can form some intervals by saying &quot;$a_A$ is from... to...&quot; etc. and so get a sense of where the optimal customer mix may lie.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first step to make this a bit more realistic is to include an asymmetric intra-cross-price effect: namely, if we increase the price of the Advanced version, potential customers may turn to the Basic version, but if we increase the price of the Basic version we lose potential customers to the competition. In this case the demand function of the Advanced version remains as before, but the demand function of the Basic version becomes&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Q_B = a_B - b_BP_B + c_BP_A$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is a bit more complicated but the final expressions are still workable. One of course would here have to assess the magnitude of $c_B$ also.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2016-10-12T18:41:08.590" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13735" PostTypeId="2" ParentId="13730" CreationDate="2016-10-12T20:15:55.860" Score="4" Body="&lt;p&gt;Simply shifting the demand curve down will typically reduce the combined surplus, especially the producer surplus.  But you could devise two non-parallel demand curves, one below the other, where consumer surplus rose, for example like this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/Iy4x7.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Iy4x7.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the demand curve fell from the higher to the lower red curve, than the combined surplus would fall by the orange and brown amount while the producer surplus would fall by the green and brown amount.  But the consumer surplus could rise, providing that the green amount is larger than the orange amount.  You could achieve this without such kinky curves, but it might not be so obvious.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If consumers' tastes (or utilities) change then with a constant budget constraint, demand could increase for other products, raising the combined  surplus for those. &lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2016-10-12T20:15:55.860" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13736" PostTypeId="2" ParentId="12312" CreationDate="2016-10-12T22:12:32.903" Score="2" Body="&lt;p&gt;To repeat EnergyNumbers's comment as an answer to this question, the following chart from the &lt;a href=&quot;https://fred.stlouisfed.org/graph/?g=7HeR&quot; rel=&quot;nofollow noreferrer&quot;&gt;St Louis Federal Reserve&lt;/a&gt; shows the increase in the crude oil price in US Dollars in the first half of 2016.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Other factors also affect local diesel and gasoline prices and timings, but this increase will have contributed to the local change.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/Yobfi.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Yobfi.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2016-10-12T22:12:32.903" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13739" PostTypeId="2" ParentId="10713" CreationDate="2016-10-13T01:39:57.963" Score="2" Body="&lt;p&gt;Two Assumptions are necessary here&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;strong&gt;Exchange rates are fixed&lt;/strong&gt; i.e lets say the exchange rate for pounds to dollars is 1/4&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;Price levels are relative to one another&lt;/strong&gt; i.e lets say a basket of goods (which are homogeneous in both countries ) costs 1 pound in the UK and 4 dollars in the US.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;When one goes and sees that the interest rate is higher in the US &lt;strong&gt;relative&lt;/strong&gt; to the UK, meaning he will be able to purchase more from his investment in the US compared to the UK, the Investor will choose to  invest his funds in US stock or bonds.&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="2776" LastEditDate="2017-08-18T13:20:01.580" LastActivityDate="2017-08-18T13:20:01.580" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13740" PostTypeId="1" CreationDate="2016-10-13T03:01:25.450" Score="3" ViewCount="69" Body="&lt;p&gt;&lt;em&gt;Discount rate&lt;/em&gt; is rate at which actors will value something that occurs in the future at less than its value now. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A simple hypothetical test that would determine this would be: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;'Would you rather have \$100 now, or \$100 in one year?'&lt;/li&gt;&#xA;&lt;li&gt;'Would you rather have \$100 now, or \$150 in one year?'&lt;/li&gt;&#xA;&lt;li&gt;'Would you rather have \$100 now, or \$200 in one year?'&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;And so forth, to determine just how much someone values money now, over money in the future. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Discount rates can explain why criminals for example, commit seemingly irrational crimes - the cost of potential imprisonment being discounted because it's an abstract outcome that occurs in the future, compared to an immediate gain now. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is - is there research into what factors affect and individual's discount rate? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Eg. things like age, education, income. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And in what circumstances was the discount rate being measured? &lt;/p&gt;&#xA;" OwnerUserId="96" LastEditorUserId="1601" LastEditDate="2016-10-13T13:18:45.263" LastActivityDate="2017-01-13T18:16:20.023" Title="What factors affect the temporal discount rate individuals apply in decision making?" Tags="&lt;reference-request&gt;&lt;decision-theory&gt;&lt;discount-rate&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13742" PostTypeId="1" CreationDate="2016-10-13T08:40:15.397" Score="2" ViewCount="72" Body="&lt;p&gt;My employer has assigned me the project of trying to understand where our current and potential International Private Banking clients are, and where they are moving to.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To understand this, we are buying compiled data (Income as an indicator of wealth [no wealth tax in these  countries, so no wealth data] combined with the destination countries of the emigrants) from statistical bureaus of certain countries but have run into a privacy issue. Any identified &quot;class&quot; with fewer than five members is excluded. Say there are 500 people moving to Japan, but only 3 of those earn enough to be considered potential clients, then that data would be withheld. This is very likely to be a problem for a number of our important markets, enough so that it is not worth our buying this data in its current format. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;We have considered a number of alternatives: average incomes, combining years of data, a lower income threshold, etc... but have concluded that combining enough years of data/lowering the threshold enough for data not to be suppressed would render our data not useful, and that comparing average incomes doesn't give a fair representation of the &lt;em&gt;distribution&lt;/em&gt; of income. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Additionally, we have identified that classes with such small numbers of people can vary wildly (percentage-wise) from year to year along a normal distribution, meaning that trends will be difficult to assess. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So finally, we are considering using an index for income inequality to measure how big the spread of income is. Given the definition that someone earning more than 150k p.a.is considered to be a potential client and a &lt;em&gt;very&lt;/em&gt; small percentage of people earn that (for one of our countries it's 0.7% including capital income), and that data that is excluded is impossible to establish any trends from  -  how do we do this?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which measure of income inequality is best for this use case, and why, how should the data be handled? Should anyone earning below say 80k be discounted, and then an income inequality measure be used there? How do the different measures handle small datasets? Does a bias appear when there are fewer than say 100 people in a class? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So... is there a best answer? Were we unfair in dismissing any of the alternatives as a good measure? Is there an alternative I haven't considered?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks for all the help it's really appreciated!&lt;/p&gt;&#xA;" OwnerUserId="10705" LastActivityDate="2016-10-13T08:40:15.397" Title="Income Inequality as an indicator of wealth" Tags="&lt;inequality&gt;&lt;research&gt;&lt;demographics&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13743" PostTypeId="1" CreationDate="2016-10-13T10:00:09.703" Score="1" ViewCount="37" Body="&lt;p&gt;Was looking out for options on building a data store having HS code and tariff schedule data for few countries, which I can use as a base for import calculations and general HS lookup.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there a government or private body (specifically for the countries US, China and India) from which I can source this data in a digital format, which of course I may further process according to my storage model.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Just a note: I'm aware that there already exist websites and applications which provide cost calculations services as limited free and on chargeable terms.&lt;/p&gt;&#xA;" OwnerUserId="10706" LastEditorUserId="1601" LastEditDate="2016-10-14T18:00:10.160" LastActivityDate="2020-04-13T09:43:30.907" Title="Which institution (government or private) provides the complete data on HS (Harmonized System Code), tariff schedules for India, China and US?" Tags="&lt;data-request&gt;&lt;international-trade&gt;&lt;free-trade&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13745" PostTypeId="2" ParentId="13709" CreationDate="2016-10-13T16:32:52.007" Score="1" Body="&lt;p&gt;The approach is not correct, because $\mu^{BGP}$ is a &lt;em&gt;result&lt;/em&gt; of underlying structural parameters. So to say &quot;when $\mu^{BGP}$ increases...&quot; immediately begs the question &lt;em&gt;why&lt;/em&gt; it increases, which underlying parameter(s) has changed to cause such an increase... assume it was $\epsilon$ that decreased. But in this case $g_k$ is not affected at all, so you see that you cannot claim what you claim about  $\mu^{BGP}$ affecting positively $g_k$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is meaningful to do is to perform comparative statics for the exogenous parameters, and record whether $\mu^{BGP}$ and $g_k$ move in the same or the opposite direction (or don't move) in each case. It may not be a causal link, but co-movement is also a useful result, and testable.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2016-10-13T16:32:52.007" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13746" PostTypeId="1" CreationDate="2016-10-13T19:09:36.973" Score="1" ViewCount="635" Body="&lt;p&gt;Alex's preferences: U(x;y)=x-(1/y). Are his preferences rational?&lt;/p&gt;&#xA;" OwnerUserId="10635" LastEditorUserId="10635" LastEditDate="2016-10-13T20:40:16.130" LastActivityDate="2016-10-15T07:04:44.600" Title="Determining whether preferences are rational given a utility function" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;preferences&gt;" AnswerCount="2" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="13748" PostTypeId="2" ParentId="11412" CreationDate="2016-10-13T21:01:10.383" Score="9" Body="&lt;p&gt;The production function is:&#xA;$$q = (l^\rho + k^\rho)^\frac{1}{\rho}$$&#xA;The MPL and MPK are respectively:&#xA;$$q_l = \frac{\partial q}{\partial l} = \frac{1}{\rho} \cdot (l^\rho + k^\rho)^{\frac{1}{\rho}-1} \cdot \rho\cdot l^{\rho-1}$$&#xA;$$q_k = \frac{\partial q}{\partial k} = \frac{1}{\rho} \cdot (l^\rho &#xA;+ k^\rho)^{\frac{1}{\rho}-1} \cdot \rho\cdot k^{\rho-1}$$&#xA;What is the rate that l can be substituted for k?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where $f$ is a differentiable real-valued function of a single variable, we define the elasticity of f(x) with respect to x (at the point x) to be&#xA;$$\sigma(x) =  \frac{x f'(x)}{f(x)}\equiv \frac{\frac{df(x)}{f(x)}}{\frac{dx}{x}}$$&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Do a change of variables such that $u = ln(x)$ ($\rightarrow x = e^u$) and $v=ln(f(x))$ ($\rightarrow f(x) = e^v$)&lt;/li&gt;&#xA;&lt;li&gt;Note that $v' = f'(x) / f(x)$ and $u'=\frac{1}{x}$ so that &#xA;$$\frac{v'}{u'}=\frac{\frac{f'(x)}{f(x)}}{\frac{1}{x}} = \sigma(x)$$&lt;/li&gt;&#xA;&lt;li&gt;Note that this is also the result you get by solving for $ \frac{d ln f(x)}{d ln(x)}$ because  $ \frac{d ln f(x)}{d ln(x)} = \frac{d v}{d u}$ which we solve via the chain rule:&#xA;$$ \frac{d v}{d u} = \frac{d v}{d x} \cdot \frac{d x}{d u} = \frac{f'(x)}{f(x)} \cdot x $$ &#xA;which happens to be exactly the definition of $\sigma(x)$.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Now let's tackle your elasticity problem. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ ln(\frac{q_k}{q_l})= log(\frac{\frac{1}{\rho} \cdot (l^\rho + k^\rho)^{\frac{1}{\rho}-1} \cdot \rho\cdot l^{\rho-1}}{\frac{1}{\rho} \cdot (l^\rho &#xA;+ k^\rho)^{\frac{1}{\rho}-1} \cdot \rho\cdot k^{\rho-1}}) = ln (\frac{l}{k})^{\rho-1} = (\rho-1) ln (l/k) = (1 - \rho) ln (k/l)$$&#xA;$$ \Rightarrow ln (k/l) = \frac{1}{1-\rho} \cdot ln(\frac{q_k}{q_l})$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So $\sigma = \frac{1}{1-\rho}$&lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2016-10-13T21:01:10.383" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13749" PostTypeId="1" CreationDate="2016-10-13T21:02:02.887" Score="2" ViewCount="29" Body="&lt;p&gt;Does anyone know of any peer-reviewed papers on the topic of &lt;a href=&quot;https://en.wikipedia.org/wiki/Cryptocurrency&quot; rel=&quot;nofollow&quot;&gt;Cryptocurrency&lt;/a&gt; or Electronic Money and its acceptance and practice in the financial market? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks!&lt;/p&gt;&#xA;" OwnerUserId="6629" LastActivityDate="2016-10-13T21:02:02.887" Title="Scholarly papers on Cryptocurrencies/Electronic Money" Tags="&lt;reference-request&gt;&lt;monetary-policy&gt;&lt;cryptocurrency&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13750" PostTypeId="1" AcceptedAnswerId="13751" CreationDate="2016-10-13T23:10:10.797" Score="2" ViewCount="304" Body="&lt;p&gt;I'm currently a TA for a class and recently graded a midterm. I gave the answer key back to the teacher, after going over part of the exam in a study hall. I was going to go over the rest of it tomorrow, but while making my own answer key in office hours, I seem to have come to a different answer than the teacher.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;We maximize&#xA;$$u = 2x_1^{1/2} + 4x_2^{1/2}$$&#xA;with a normal budget constraint where $p \cdot x \leq w$. We arrive at the Walrasian demand:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$x^*(p, w) = \left(\frac{p_2 w}{p_1(4p_1 + p_2)} , \frac{4p_1 w}{p_2(4p_1 + p_2)}\right)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose $w = 10, \vec p = (1, 4), \vec p' = (3, 2)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, $x(p', w) = (\frac{10}{21}, \frac{30}{7})$, and $x(p, w) = (5, \frac{5}{4})$ for our new and old bundles respectively.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So to find &lt;strong&gt;compensating variation&lt;/strong&gt; we find the original utility:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$2 \cdot 5^{1/2} + 4 \cdot (5/4)^{1/2} = 4 \sqrt 5$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and find $w'$ that would get old utility and new prices:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$4 \sqrt 5 = 2(\frac{w'}{21})^{1/2} + 4(\frac{3w'}{7})^{1/2} = 2(\frac{w'}{21})^{1/2} + 12(\frac{w'}{21})^{1/2} = 14(\frac{w'}{21})^{1/2} \implies \\&#xA;4 \sqrt 5 = 14(\frac{w'}{21})^{1/2} \\&#xA;80 = 14^2 \cdot \frac{w'}{21} \\&#xA;\boxed{w' = \frac{60}{7}}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus $\boxed{CV = w - w' = 10 - \frac{60}{7} = \frac{10}{7}}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To find &lt;strong&gt;equivalent variation&lt;/strong&gt; we find the new utility:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$2 \cdot (10/21)^{1/2} + 4 \cdot (30/7)^{1/2} = 2 \cdot (10/21)^{1/2} + 12 \cdot (10/21)^{1/2} = 14 \sqrt {\frac{10}{21}}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and find $\hat w$ that would get new utility at old prices:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$14 \sqrt {\frac{10}{21}} = 2(\frac{\hat w}{2})^{1/2} + 4(\frac{\hat w}{8})^{1/2} = 4(\frac{\hat w}{2})^{1/2} \\&#xA;14^2 \cdot \frac{10}{21} = 16 \cdot \frac{\hat w}{2} \\&#xA;\boxed{\hat w = \frac{70}{6}}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus $\boxed{EV = \hat w - w = \frac{70}{6} - 10 = \frac{5}{3}}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem is if I recall correctly, the CV and EV are supposed to have the opposite sign so that the change in welfare is ambiguous. Where have I gone wrong, if anywhere? (Worth noting that if you do Slutsky decomposition for this question, you find that good 2 is inferior.)&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2016-10-14T03:10:17.780" Title="CV, EV for additive utility; confirm or deny" Tags="&lt;microeconomics&gt;&lt;optimization&gt;&lt;welfare&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13751" PostTypeId="2" ParentId="13750" CreationDate="2016-10-14T03:10:17.780" Score="4" Body="&lt;p&gt;Questions with numbers are usually not as good as questions without numbers. If you had written down the formula for CV and EV you would probably have noticed that your premise is false.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Compensating_variation&quot; rel=&quot;nofollow&quot;&gt;CV&lt;/a&gt; and &lt;a href=&quot;https://en.wikipedia.org/wiki/Equivalent_variation&quot; rel=&quot;nofollow&quot;&gt;EV&lt;/a&gt; are not supposed to have opposing signs. You can see this from their definitions where&#xA;$$&#xA;CV = e(p_1,u_1) - e(p_1,u_0), \hskip 20pt EV = e(p_0,u_1) - e(p_0,u_0).&#xA;$$&#xA;Either $u_1 &amp;gt; u_0$ and then a larger income is needed to reach $u_1$ given any price or the opposite is true.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;In your final comment you also note that good 2 is inferior. As can be seen from your demand function&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;x^*(p, w) = \left(\frac{p_2 w}{p_1(4p_1 + p_2)} , \frac{4p_1 w}{p_2(4p_1 + p_2)}\right)&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;this is not true. If income were to increase $x_2^*(p, w)$ would increase as well.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2016-10-14T03:10:17.780" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="13752" PostTypeId="2" ParentId="10223" CreationDate="2016-10-14T08:59:12.940" Score="2" Body="&lt;p&gt;Economic evidence on the effects of piracy is mixed. Most of the evidence focuses on the music industry, where piracy has been especially prevalent and where data is often more readily available.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some papers find evidence that piracy has little or no effect of industry profits (&lt;a href=&quot;http://www.journals.uchicago.edu/doi/abs/10.1086/511995&quot; rel=&quot;nofollow&quot;&gt;here is one prominent example&lt;/a&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Other studies (&lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/S0167624510000260&quot; rel=&quot;nofollow&quot;&gt;example&lt;/a&gt;) find that piracy displaces sales and reduces profits. The estimates there imply that each song pirated costs the industry about 30 US cents.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Most surveys of the literature seem to conclude that the overall effect is negative.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some messages that emerge from the literature:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;piracy especially harms large, well-established content creators, but may benefit small/independent creators who otherwise find it harder to reach an audience;&lt;/li&gt;&#xA;&lt;li&gt;for music: the industry has somewhat pivoted away from recorded music sales in favour or live performances as a source of revenue;&lt;/li&gt;&#xA;&lt;li&gt;the revenue cost of piracy is offset by the benefit consumers get from consuming free music. Putting aside the competing interests of firms and creators, the main social problem associated with piracy is its potential to reduce the number of creative works produced in the first place (by reducing the rewards to creating new works).&lt;/li&gt;&#xA;&lt;li&gt;evidence on the incentives to create new works is also mixed (see, e.g., &lt;a href=&quot;https://www.aeaweb.org/articles?id=10.1257/000282802320189285&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;);&lt;/li&gt;&#xA;&lt;li&gt;thanks to political lobbying, creators probably enjoy 'too much' copyright protection (see &lt;a href=&quot;http://jolt.law.harvard.edu/articles/pdf/v18/18HarvJLTech435.pdf&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt; and &lt;a href=&quot;http://rufuspollock.org/papers/optimal_copyright.pdf&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;). Piracy may be helping to offset this somewhat;&lt;/li&gt;&#xA;&lt;li&gt;there are other things going on in the industry that may may more important than piracy. In particular, (i) search technologies give rise to 'long-tail' effects where a small number of works (e.g. Harry Potter) become incredibly successful but the majority not (a reference is &lt;a href=&quot;https://www.aeaweb.org/articles?id=10.1257/aer.102.2.1140&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;), and (ii) platforms such as Spotify, iTunes and Netflix are emerging as very powerful actors who are able to appropriate much of the industry revenue.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;In summary, piracy probably &lt;em&gt;does&lt;/em&gt; seem to be hurting the entertainment industry to some extent, but not critically so. &lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2016-10-14T08:59:12.940" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13753" PostTypeId="1" CreationDate="2016-10-14T12:34:21.923" Score="1" ViewCount="31" Body="&lt;p&gt;So, as I understand it, the value of one's money is in its purchasing power, and its purchasing power is related to its amount relative to others.  That is to say:  Earning 25k a year in a country where the mean income is 10k makes you very rich, whereas earning 25k in a country where the mean income is 50k means your 25k does not go nearly as far.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So my question is this:  Does this mean that an across-the-board percentage income tax cut does not increase anyone's wealth?  If everyone has x% more money, isn't their purchasing power still identical?  Obviously, the second it happens, prices and wages are the same, so in that moment they have more, but don't prices and wages catch up?  Or does the definition of purchasing power shift.. one could buy more of certain goods, but the prices of things like housing rise to reflect the increased amount of money people have to bid on them?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Confounding factors I can think of: Global prices, capital shift between public and private sector&lt;/p&gt;&#xA;" OwnerUserId="10716" LastActivityDate="2016-10-14T12:34:21.923" Title="Do across-the-board tax breaks increase wealth if wealth is relative?" Tags="&lt;taxation&gt;" AnswerCount="0" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="13755" PostTypeId="2" ParentId="8476" CreationDate="2016-10-14T13:20:27.120" Score="1" Body="&lt;p&gt;As John L said &quot;Lower interest rate =&gt; Loaning money is cheaper&quot; - agreed.&#xA;The next link: &quot;Loaning money is cheaper =&gt; More money in the system&quot; is rather more subtle. It assumes that you know about &lt;a href=&quot;http://www.monetary.org/wp-content/uploads/2016/03/money-creation-in-the-modern-economy.pdf&quot; rel=&quot;nofollow&quot;&gt;fractional reserve banking&lt;/a&gt; and that bank loans create money. You should also be aware that bank loan repayments (of principal) &lt;em&gt;destroys&lt;/em&gt; money. So the money supply will only rise upon lower interest rates if the rate of making new loans is greater than the rate at which existing loans are paid back. It just so happens that central banks are likely to lower interest rates at exactly those times when the enthusiasm for taking out new loans is falling. So the relationship between interest rates and inflation can end up being quite complex.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And another factor is that not all stuff that money buys in the economy is stuff that is measured by inflation statistics. For example shares and houses. If the proportion of money being spent on those things (as a fraction of total spending) rises or falls then this too can cause inflation/deflation. &lt;/p&gt;&#xA;" OwnerUserId="5081" LastActivityDate="2016-10-14T13:20:27.120" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13756" PostTypeId="1" CreationDate="2016-10-14T13:33:44.787" Score="6" ViewCount="186" Body="&lt;p&gt;I have a basic question: my understanding is that in a market economy, economic decisions are governed by prices, i.e prices signal what should be produced &amp;amp; how much. This is opposed to central planning, where a committee decided what should be produced &amp;amp; how much. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, in companies or households, such economic decisions are made by &quot;central planning&quot;: i.e. - the CEO/board, or parents. Why shouldn't prices be used at these levels too? For example, why don't companies create a &quot;currency&quot; and tell employees to work on things that people with more &quot;money&quot; (senior management) will buy? Or, in a family, for parents to create a &quot;currency&quot; and tell family members to work on things that others will pay for? (done in small ways in some families, but not with everyone participating).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Bottom line of the question: When is it better to use a &quot;market economy&quot; (with prices) as compared to central planning? Is it a function of size? I don't think so...&lt;/p&gt;&#xA;" OwnerUserId="10724" LastEditorUserId="2776" LastEditDate="2017-08-19T10:46:47.190" LastActivityDate="2017-08-19T11:10:46.310" Title="When to use the market and when to use central planning?" Tags="&lt;markets&gt;&lt;price&gt;&lt;schools-of-thought&gt;" AnswerCount="3" CommentCount="2" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13757" PostTypeId="2" ParentId="10984" CreationDate="2016-10-14T14:01:04.540" Score="2" Body="&lt;p&gt;There is nothing wrong with your idea. Some people may say that it would reduce liquidity - but there is way more than enough liquidity in the system already. HFT is just parasitical - it serves no useful purpose.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A small &lt;a href=&quot;https://en.wikipedia.org/wiki/Financial_transaction_tax&quot; rel=&quot;nofollow&quot;&gt;transaction tax&lt;/a&gt; would have a similar effect.&lt;/p&gt;&#xA;" OwnerUserId="5081" LastActivityDate="2016-10-14T14:01:04.540" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13760" PostTypeId="2" ParentId="13756" CreationDate="2016-10-14T16:41:23.697" Score="2" Body="&lt;p&gt;A market economy is useful when we have different players with different goals. &#xA;i.e the firms objective is profit maximisation and the the consumer's goal is utility maximisation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Each player must make a decision optimising against the others decision.&lt;/strong&gt; In this sense each player faces the constraint placed by the other player.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;When there is freedom to choose a market economy yields the most optimal distribution of goods.&lt;/strong&gt; (As both firms and consumers have different goals)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a planned economy there is no freedom to choose, rather it is can be viewed as just an endowment of goods given to each individuals. for a planned economy to be optimal (theoretically) it requires:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Knowledge of everyone preferences&lt;/li&gt;&#xA;&lt;li&gt;Knowing the all sets of efficient allocation of goods &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;This is elaborated in upon in basic  &lt;a href=&quot;https://en.wikipedia.org/wiki/Welfare_economics&quot; rel=&quot;nofollow noreferrer&quot;&gt;welfare economics&lt;/a&gt; with the use of  &lt;a href=&quot;https://en.wikipedia.org/wiki/Edgeworth_box&quot; rel=&quot;nofollow noreferrer&quot;&gt;edgeworth box analysis&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, as you said in the case of the household: &lt;i&gt;&lt;b&gt;size matters&lt;/b&gt;&lt;/i&gt; as in the case a large economy it is impossible to know everyone's needs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope this helps.&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="2776" LastEditDate="2017-08-19T10:47:25.793" LastActivityDate="2017-08-19T10:47:25.793" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="13763" PostTypeId="2" ParentId="13326" CreationDate="2016-10-14T19:10:52.743" Score="5" Body="&lt;p&gt;I actually found the answer in a paper called &lt;a href=&quot;http://theunbrokenwindow.com/Higher%20Ed/Introduction/Gordon%20JPE.pdf&quot; rel=&quot;noreferrer&quot;&gt; Subsidies, Hierarchy and Peers:The Akward Economics of Higher Education.&lt;/a&gt; by Gordon C. Winston.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;He goes on at length discussing the objectives of colleges, and concludes we cannot use the same methods by which we predict firm behaviour to predict the behaviour of colleges both public and private.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In his conclusion he writes:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;i&gt;This paper suggests the standard economic intuition and analogies, built on an understanding of profit-making firms and the economic theory that supports it are likely to be a poor guide to understanding higher education and to making predictions and public policy. &lt;b&gt;One who thinks a college is like any other business will look in all the wrong places&lt;/b&gt;...&lt;/i&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Don't completely understand of all of his arguments but he addresses my question.&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2016-10-14T19:10:52.743" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13764" PostTypeId="2" ParentId="10153" CreationDate="2016-10-14T22:29:55.367" Score="2" Body="&lt;p&gt;No.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The $8,133.5$ tonnes of gold, i.e. &lt;a href=&quot;https://www.google.com/search?q=261,498,926.230%20troy%20ounces%20in%20kilograms&quot; rel=&quot;nofollow&quot;&gt;$261,498,926.230$ fine troy ounces&lt;/a&gt;, of the U.S. Government owned gold reserve is detailed in a monthly status report produced by the US Department of the Treasury, with the latest figure being for August 31, 2016.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The weight and notional value of $\$11$ billion (based on a statutory rate of $\$42.2222$ per Fine Troy Ounce) have change by very small amounts in recent years, I would guess related to selling gold coins and buying stock to make them.  For example the total in January 2012 was $261,498,899.316$ fine troy ounces, a difference of about $27$ troy ounces from the current figure.   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Gold belonging to other countries are stored in the US, particularly in New York as being convenient for the market and for transport. But this is not counted in the US Treasury report.      &lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2016-10-14T22:29:55.367" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13765" PostTypeId="1" CreationDate="2016-10-14T22:53:03.793" Score="0" ViewCount="325" Body="&lt;p&gt;What are the main differences in the methods of game theory and experimental economics? Which method is better suited to analyze strategic behavior?&lt;/p&gt;&#xA;" OwnerUserId="10732" LastActivityDate="2016-10-15T03:30:43.403" Title="Game theory vs Experimental economics" Tags="&lt;game-theory&gt;&lt;behavioral-economics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13766" PostTypeId="2" ParentId="13756" CreationDate="2016-10-15T02:28:40.860" Score="3" Body="&lt;p&gt;There is a school of thought that says that people unconsciously use cost-benefit analyses in their relationships with other people. In this idea, people show kindness only because they anticipate getting rewarded for those acts, so it is in their own self-interest to do so. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Monetizing small tasks takes time, and then collecting money for tasks done takes more time. So people do this mentally instead, moreso by feelings than rational calculation. At the level of an interpersonal relationship, words and feelings matter whereas in a business relationship, only tasks and services or goods rendered matter. Thus, monetizing the countless miniscule interactions that take place in a personal relationship would be impossible and there needs to be some degree of trust to replace that. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;At the level of a firm, an employment contract stipulates generally what somebody is being paid for. It is more efficient for the company to let individuals decide what to do in a day, or to instruct them to undertake certain tasks (depending on the organizational structure of the firm) than to spend time haggling for a price at which they should be paid in order to carry out various parts of their jobs. As other users have commented, when a firm gets too large, there are diseconomies of scale as it becomes too difficult to control a large number of workers. Then work tends to be contracted out to other firms and the use of money comes in.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, token economies work well in situations such as mental asylums, to encourage those people to undertake tasks and follow rules.&lt;/p&gt;&#xA;" OwnerUserId="175" LastActivityDate="2016-10-15T02:28:40.860" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="13767" PostTypeId="2" ParentId="13746" CreationDate="2016-10-15T03:00:09.003" Score="1" Body="&lt;p&gt;Re-order the equation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$U=x-\frac 1 y\\&#xA;x-U=\frac 1 y\\&#xA;y=\frac 1{x-U}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm sure you know how to draw that graph:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/cA1Tj.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/cA1Tj.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which you can see has transitivity since the curves do not intersect, convexity, and completeness (excluding the line $y=0$) as $U$ can take on any real number. The 'more-is-better' property follows from Mick's comment that as $x$ or $y$ increases, $U$ unequivocally increases.&lt;/p&gt;&#xA;" OwnerUserId="175" LastActivityDate="2016-10-15T03:00:09.003" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13768" PostTypeId="2" ParentId="13765" CreationDate="2016-10-15T03:30:43.403" Score="1" Body="&lt;p&gt;They're complementary to each other. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;With the development of Behavioral Game Theory, canonized in Camerer's 2003 textbook, the current paradigm of game theory &lt;a href=&quot;http://levine.sscnet.ucla.edu/archive/refs4786969000000001307.pdf&quot; rel=&quot;nofollow&quot;&gt;1&lt;/a&gt; is converging towards making theories about how people play games, and test them, most often with experiments.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://levine.sscnet.ucla.edu/archive/refs4786969000000001307.pdf&quot; rel=&quot;nofollow&quot;&gt;Wither Game Theory, Fudenberg &amp;amp; Levine, 2016&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="10734" LastActivityDate="2016-10-15T03:30:43.403" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13769" PostTypeId="2" ParentId="13740" CreationDate="2016-10-15T03:46:53.927" Score="1" Body="&lt;p&gt;I think one can answer this question by looking at what affects saving rates.&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Age&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;According to the life-cycle model of household savings*, young and old people save less than middle-aged people. Young people who are starting a new family have many expenses and a lower income due to lack of work experience. Thus, young people save less and value money more in the present (a high reservation intertemporal discount rate). Middle-aged people have a higher income and save towards their retirement (a low reservation intertemporal discount rate). Old-aged people retire and live off their savings, so they have a high reservation intertemporal discount rate.&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Dependants&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;If you support more dependants, you will be shorter of money and will have a high reservation intertemporal discount rate.&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Investment Opportunities&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;Better quality investments and financial institutions will improve the interest rate at which money can be saved, which increases the intertemporal discount rate at the intersection of the budget constraint line and the indifference curve of the individual.&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Income&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;One would think that saving increases with income, but high-income countries actually save less than middle-income countries, but moreso than low-income countries (World Bank, data on Gross Domestic Savings (% of GDP)). So there is no obvious relationship with the &lt;em&gt;level&lt;/em&gt; of income, but if the anticipated future level of income goes up, then people will save less (and consume more in the present) giving a higher intertemporal discount rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;*&lt;sub&gt;Alberto Aldo and Franco Modigliani, &quot;The Life-Cycle Hypothesis of Saving: Aggregate Implications and Tests,&quot; &lt;em&gt;American Economic Review&lt;/em&gt; 53, no. 1, (March 1963), 55-84.&lt;/sub&gt;&lt;/p&gt;&#xA;" OwnerUserId="175" LastEditorUserId="175" LastEditDate="2016-10-15T16:19:11.573" LastActivityDate="2016-10-15T16:19:11.573" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13770" PostTypeId="2" ParentId="12038" CreationDate="2016-10-15T06:55:33.543" Score="1" Body="&lt;p&gt;the first graph is 1970-2003, the second is 2003-2015&lt;/p&gt;&#xA;" OwnerUserId="6244" LastActivityDate="2016-10-15T06:55:33.543" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13771" PostTypeId="2" ParentId="13746" CreationDate="2016-10-15T07:04:44.600" Score="3" Body="&lt;p&gt;As long as a preference can be represented by a continuous utility function, it is rational (and continuous). So from the very fact that you're writing down a utility function that is continuous in both $x$ and $y$ (on $(0,\infty)^2$), it follows that the function represents a rational preference (provided that both $x$ and $y$ are positive). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, if you insist that $y=0$ is part of the feasible choice set, then the preference is not complete. The individual cannot compare a bundle $(1,1)$ with another bundle $(1,0)$ because the utility of the latter bundle is not defined. &lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2016-10-15T07:04:44.600" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13775" PostTypeId="1" CreationDate="2016-10-15T15:15:27.403" Score="3" ViewCount="293" Body="&lt;p&gt;Suppose we have a Cobb-Douglas utility function: $$U(x,y)=x^\alpha y^\beta$$ and a budget constraint: $$p_{x}x+p_{y}y=I$$ where $\alpha+\beta=1$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It can be shown that the Marshallian demand for $x$ and $y$ is $x^*=\frac{\alpha I}{p_{x}}$ and $y^*=\frac{\beta I}{p_{y}}$ respectively.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does a change in $p_{y}$ affect the quantity of $x$ demanded? By looking at $x$'s Marshallian Demand, it seems as though such a change will not affect the quantity of x demanded but $p_{x}$ and $p_{y}$ are related by the budget constraint which makes me not quite sure.&lt;/p&gt;&#xA;" OwnerUserId="5936" LastActivityDate="2016-11-15T03:43:28.810" Title="Indirect changes in Marshallian Demand" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;optimization&gt;&lt;cobb-douglas&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13776" PostTypeId="1" CreationDate="2016-10-15T17:22:20.193" Score="0" ViewCount="345" Body="&lt;p&gt;Like normally how long can be said as long run? And does specific time length of these words matters?&lt;/p&gt;&#xA;" OwnerUserId="10417" LastActivityDate="2016-10-15T19:46:14.097" Title="Is there a specific definition of short run and long run?" Tags="&lt;definition&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13777" PostTypeId="2" ParentId="13776" CreationDate="2016-10-15T19:46:14.097" Score="2" Body="&lt;p&gt;The actual length of time does not matter. Simply, in the short-run capital is fixed and labor is variable. In the long-run both capital and labor are variable (which gives firms enough time to, for example, build a new factory to match an increase in demand). It would be really fortunate if there was a general time frame, but that would vary from industry to industry. The long-run for, let say, Ford is a pretty long-time because they are very capital intensive. However the long-run for, lets say, a Clown Rental Service, is very short because it is entirely labor dependent. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hopefully this answer helps.&lt;/p&gt;&#xA;" OwnerUserId="10402" LastActivityDate="2016-10-15T19:46:14.097" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13778" PostTypeId="2" ParentId="13775" CreationDate="2016-10-16T02:20:34.967" Score="3" Body="&lt;p&gt;You correctly derived the Marshallian demand function for Cobb-Douglas utility, you notice that the optimal level of consumption of $x$ or $y$ is a function only of the individual's income and the price of said good.  This is an interesting feature of CD-utility, that when the price of good $y$ changes the demand for $x$ doesn't change.  This means that $x$ and $y$ are neither substitutes nor complements to one another. &lt;a href=&quot;http://www.econport.org/content/handbook/consumerdemand/Demand.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Econport&lt;/a&gt; has a nice figure of this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\hskip2in$ &lt;a href=&quot;https://i.stack.imgur.com/cbRha.gif&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/cbRha.gif&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first figure shows that as the price of good $x$ changes the quantity of $x$ changes but the quantity of $y$ does not change.  The second figure shows that as price increases the amount demanded decreases and vice-versa when price decreases.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a side note, CD-utility further implies strict quasi-concave utility so that the indifference set is strictly convex, hence $\vec{x}^* (\vec{p},I)$ is single-valued.  With constant prices for $y$ and prices $p_a, p_b, p_c$ for $x,$ we choose the optimal consumption level of each commodity at the points $a = (x_a, y_a) ,b = (x_b, y_b) ,c = (x_c, y_c)$, such that the slope of the budget hyperplane and the tangent slope of the indifference curve are equal.&lt;/p&gt;&#xA;" OwnerUserId="5780" LastActivityDate="2016-10-16T02:20:34.967" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13779" PostTypeId="1" CreationDate="2016-10-16T15:13:54.223" Score="3" ViewCount="130" Body="&lt;p&gt;In the context of a long-term growth model with $K$ representing aggregate (man-made) capital, what theoretical or empirical reasons, if any, might be given for assuming that depreciation of capital $D(t)$ could be given by:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$D(t) = \delta(K(t))^{\theta}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $\delta$ and $\theta$ are fixed parameters both $&amp;gt; 0$ and (this is the key point) $\theta&amp;lt;1$?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;[The question is prompted by &lt;a href=&quot;http://onlinelibrary.wiley.com/doi/10.1111/j.1467-9442.2005.00422.x/full&quot; rel=&quot;nofollow&quot;&gt;this paper by Buchholz, Dasgupta &amp;amp; Mitra&lt;/a&gt; which considers the feasibility of constant consumption to infinity in a growth model containing a single produced good which can be either consumed or used as capital and a single nonrenewable resource.  It implies (p 553) that constant consumption is impossible when $\theta=1$, reducing the above formula to the familiar $D(t)=\delta K(t)$, but is in some circumstances possible when $\theta&amp;lt;1$. Hence it is of interest to consider whether $\theta&amp;lt;1$ could ever be a realistic assumption.]  &lt;/p&gt;&#xA;" OwnerUserId="1417" LastActivityDate="2016-10-17T02:45:42.240" Title="Could Depreciation of Capital $=\delta(K(t))^{\theta}$ with $\theta&lt;1$ Be a Realistic Assumption?" Tags="&lt;economic-growth&gt;&lt;nonrenewable-resources&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13780" PostTypeId="1" CreationDate="2016-10-16T15:40:17.523" Score="0" ViewCount="1181" Body="&lt;p&gt;Given a Cobb-Douglas production function, the annual population growth rate, savings rate, alpha, annual depreciation rate, and annual technological progress rate, how would one calculate the growth rate of capital?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We're assumed to not be in steady state so we would need a growth rate in order to calculate how long it takes to reach the true steady state.&lt;/p&gt;&#xA;" OwnerUserId="10659" LastActivityDate="2016-12-15T19:37:20.513" Title="Calculating growth rate of capital when not in steady state" Tags="&lt;macroeconomics&gt;&lt;economic-growth&gt;&lt;cobb-douglas&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13781" PostTypeId="2" ParentId="13780" CreationDate="2016-10-16T16:17:57.070" Score="1" Body="&lt;p&gt;Perhaps I misunderstood something but it seems to me you can calculate the growth rate by using all the parameters to calculate $K_{t+1}$. Then get the growth rate by taking $\frac{K_{t+1}}{K_t}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You will never reach the true steady state, as outlined in my answer &lt;a href=&quot;https://economics.stackexchange.com/questions/12402/calculating-time-to-balanced-growth-path&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2016-10-16T16:17:57.070" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="13782" PostTypeId="1" AcceptedAnswerId="13783" CreationDate="2016-10-16T18:14:52.173" Score="1" ViewCount="1587" Body="&lt;p&gt;How does one create a utility function to indicate existence of a bliss point? what do the goods marshillian demands look like in such a situation? &lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2019-11-08T02:14:23.450" Title="Utility function used to indicate bliss point" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13783" PostTypeId="2" ParentId="13782" CreationDate="2016-10-16T18:20:08.250" Score="2" Body="&lt;p&gt;An answer that meets all the current demands of the question:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $(x_b,y_b)$ be the blisspoint. Let&#xA;$$&#xA;U(x,y) = \left\{&#xA;\begin{array}{cc}&#xA;1 &amp;amp; \mbox{ if } (x,y) = (x_b,y_b) \\&#xA;0 &amp;amp; \mbox{ if } (x,y) \neq (x_b,y_b).&#xA;\end{array}\right.&#xA;$$&#xA;The demand function for $x$ in this case is&#xA;$$&#xA;D_x(I,p_x,p_y) = \left\{&#xA;\begin{array}{cc}&#xA;x_b &amp;amp; \mbox{ if } p_x \cdot x_b + p_y \cdot y_b \leq I \\&#xA;\left[0,\frac{I}{p_x}\right] &amp;amp; \mbox{ if } p_x \cdot x_b + p_y \cdot y_b &amp;gt; I.&#xA;\end{array}\right.&#xA;$$&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2016-10-16T18:20:08.250" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13788" PostTypeId="1" CreationDate="2016-10-16T22:30:03.907" Score="1" ViewCount="37" Body="&lt;p&gt;Imagine a case where an average of 10% of the income of the people in a certain country is spent on petrol(gas). Now someone comes up with an invention, say a DIY unlimited power source which anyone can make for practically nothing. Obviously the price of oil will fall. But apart from that, how are the other economic indexes going to be affected? Will GDP rise or fall. What kind of parameters of the country will be affected?&lt;/p&gt;&#xA;" OwnerUserId="4913" LastActivityDate="2016-10-17T00:35:01.200" Title="How do I quantitatively visualize this situation?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="1" ClosedDate="2016-11-03T21:15:44.907" ContentLicense="CC BY-SA 3.0" />
  <row Id="13789" PostTypeId="2" ParentId="13788" CreationDate="2016-10-17T00:35:01.200" Score="-1" Body="&lt;p&gt;Two things will happen:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Firstly, everyone will effectively have had their real incomes rise by 10% (assuming this new energy costs nothing). They will then spend or save this income on other goods besides energy, increasing overall output (note, savings is used for investment as well).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Secondly, energy consumption will likely increase by a large amount now that it is nothing. People who were mindful about their energy consumption due to cost concerns will now not care. Therefore, people will be consuming more energy.&lt;/p&gt;&#xA;" OwnerUserId="10754" LastActivityDate="2016-10-17T00:35:01.200" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13790" PostTypeId="2" ParentId="13779" CreationDate="2016-10-17T02:45:42.240" Score="1" Body="&lt;p&gt;For zero investment, $\delta = 0.05$ and $\theta =1 $ and $\theta = 0.9$ we get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/IsRaa.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/IsRaa.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We see that it is still a slowing depreciation, which reflects the assumption that capital is more productive in its first years of usage (since depreciation is the mirror image of productive contribution), an assumption good enough for capital equipment with moving parts (and for human capital), and perhaps also for roads, but not necessarily for buildings and things like furniture (here perhaps the Straight-Line method, widely used in Accounting, would be more appropriate -but it creates the need to keep track of capital vintages, since depreciation in that case is a fixed percentage of initial acquisition cost).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So it appears to be a quantitative/empirical matter. With $\theta &amp;lt;1$ capital depreciates slower, but the qualitative behavior is the same, and for smaller values of $\theta$ it can even mimic the Straight Line method, which, as said, is realistic for some forms of capital. So yes, we can have $\theta&amp;lt;1$, it does not appear to contradict any fundamental assumption.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2016-10-17T02:45:42.240" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13791" PostTypeId="2" ParentId="8312" CreationDate="2016-10-17T04:21:02.160" Score="4" Body="&lt;p&gt;&lt;em&gt;The Economist&lt;/em&gt; (Oct 8th, 2016, &lt;a href=&quot;http://www.economist.com/news/finance-and-economics/21708245-world-should-be-both-encouraged-and-embarrassed-latest-global-poverty&quot; rel=&quot;nofollow noreferrer&quot;&gt;online&lt;/a&gt;, &lt;a href=&quot;https://drive.google.com/open?id=0B6d27XgslBsBc0FQLTJ1bmkyTDg&quot; rel=&quot;nofollow noreferrer&quot;&gt;PDF&lt;/a&gt;) attempts to answer this question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It defines the &lt;strong&gt;global poverty gap&lt;/strong&gt; as the amount we'd have to &lt;strong&gt;transfer&lt;/strong&gt; to the world's extreme poor (defined as those living below $\$1.90$ a day, at 2011 PPP), in order to lift them to the $\$1.90$ a day threshold. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The evolution of this global poverty gap from 1990-2013 is graphed below. As should be evident, at the current rate of decline in global extreme poverty, the world is on track to hit the World Bank's goal of completely eliminating extreme poverty by 2030. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/Yz5mgm.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Yz5mgm.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Nonetheless, even if there were no further progress and global extreme poverty stayed frozen at 2013 levels, &lt;/p&gt;&#xA;&#xA;&lt;h2&gt;a transfer of US\$78b a year would suffice to completely eliminate extreme poverty.&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;The Economist&lt;/em&gt; adds an important caveat:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In reality, of course, money cannot be directed so precisely&#xA;  to the poor, nor transferred cost-free. In some countries, the infusion&#xA;  of money might also push up prices and currencies, making&#xA;  the endeavour more expensive. Nonetheless, this thought experiment&#xA;  illuminates the diminishing size of the problem. The world&#xA;  can afford to end poverty. Indeed, it might end poverty before it&#xA;  figures out how to measure it accurately.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;$$$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;P.S. Note though that the reduction in global extreme poverty has been largely due not to transfers or aid of the sort envisioned by Jeffrey Sachs, but to economic progress, most notably in China. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/4jpV6m.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/4jpV6m.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerDisplayName="user10735" LastEditorDisplayName="user10735" LastEditDate="2016-10-17T08:21:47.110" LastActivityDate="2016-10-17T08:21:47.110" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13792" PostTypeId="1" CreationDate="2016-10-17T08:22:16.960" Score="5" ViewCount="117" Body="&lt;p&gt;In two dimensions, we have on an indifference curve that &lt;span class=&quot;math-container&quot;&gt;$dU=0$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;p&gt;Does this apply to indifference objects in higher dimensions?&lt;/p&gt;&#xA;&lt;p&gt;I was thinking that if &lt;span class=&quot;math-container&quot;&gt;$dU &amp;gt; 0$&lt;/span&gt;, then one is moving to a higher indifference curve/object&lt;/p&gt;&#xA;&lt;p&gt;My Macroeconomics professor, in the first week of class, gave a microeconomics review. I asked if &lt;span class=&quot;math-container&quot;&gt;$dU = 0$&lt;/span&gt; in higher dimensions. He said he would answer the question next time, and during the next class, he said it may not hold true in higher dimensions because of the problem of integrability.&lt;/p&gt;&#xA;&lt;p&gt;I asked another economics professor in the department who said that &lt;span class=&quot;math-container&quot;&gt;$dU=0$&lt;/span&gt; holds by definition of indifference curves/objects.&lt;/p&gt;&#xA;&lt;p&gt;What is this problem of integrability, and what does it have to do with indifference curves?&lt;/p&gt;&#xA;&lt;p&gt;Is it &lt;a href=&quot;https://books.google.com/books?id=Z6Z8AgAAQBAJ&amp;amp;pg=PA192&amp;amp;lpg=PA192&amp;amp;dq=total%20differential%20utility%20function%20problem%20integrability&amp;amp;source=bl&amp;amp;ots=ANphWOglG5&amp;amp;sig=WVDJaYCE3r2I7lYK2qbi9TvYR8s&amp;amp;hl=en&amp;amp;sa=X&amp;amp;ved=0ahUKEwjirJuMzurPAhUHKo8KHaQlDhsQ6AEIKDAD#v=onepage&amp;amp;q=total%20differential%20utility%20function%20problem%20integrability&amp;amp;f=false&quot; rel=&quot;nofollow noreferrer&quot;&gt;this one&lt;/a&gt;?&lt;/p&gt;&#xA;&lt;p&gt;I've taken 2 courses of real analysis, 2 on probability theory and 2 on stochastic calculus (and 4 on statistics), but the mathematics I've encountered in economics is only up to basic linear algebra and separable ordinary differential equations (Actually the linear algebra's mainly just matrices. I hardly recall learning concepts like 'kernel' or 'eigenvalue' in economics, though I have learned uses for both in finance).&lt;/p&gt;&#xA;" OwnerUserId="4483" LastEditorUserId="4483" LastEditDate="2020-07-25T08:02:50.647" LastActivityDate="2020-07-25T08:02:50.647" Title="Indifference curve - Does $dU = 0$ hold in higher dimensions? / Problem of integrability" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;utility&gt;&lt;measuring-utility&gt;" AnswerCount="1" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="13793" PostTypeId="2" ParentId="12709" CreationDate="2016-10-17T08:51:35.267" Score="3" Body="&lt;p&gt;For a PID system to work, you need to be (at least approximately) correct about the relationship between the variables you are trying to manage. Unfortunately the relationships between macroeconomic variables as predicted by mainstream economics has such a poor correspondence with reality, that any PID system based on these theories is doomed to fail.&lt;/p&gt;&#xA;" OwnerUserId="5081" LastActivityDate="2016-10-17T08:51:35.267" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13794" PostTypeId="1" CreationDate="2016-10-17T11:42:20.997" Score="2" ViewCount="479" Body="&lt;p&gt;DISCLAIMER: This could very well be all bogus, I'm talking about my intuition as a beginner/intermediate economics student, you have been warned.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I got the feeling agents do not just maximize utility but minimize disutility as well. Now my understanding is that from the convexity assumption follows that those problems would have the same optimum. But I think it could very well be the case that the utility function does not at all look like the disutility function (also different variables) and optimum of those two functions need not be unique (Am I with the duality gap on the right track?).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If this at all a valid intuition I would appreciate some pointers to empirical studies that examines utility and disutiliy, or some theories that incorporate the notion of disutiliy (not just as an inverse of utility) into preferences.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;P.S. I got the idea while reading about The Paradox of Choice from Barry Schwartz (more choices could lead to confusion and in my interpretation disutiliy)&lt;/p&gt;&#xA;" OwnerUserId="10760" LastEditorUserId="10760" LastEditDate="2016-10-18T07:25:50.800" LastActivityDate="2016-10-19T15:39:16.387" Title="maximize untility AND minimize disutility" Tags="&lt;utility&gt;&lt;preferences&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13796" PostTypeId="1" CreationDate="2016-10-17T14:37:47.330" Score="5" ViewCount="127" Body="&lt;p&gt;I have a set of objects $A=\{a_1,a_2,a_3,\cdots,a_m\}$ and one player, who proposes a vector of valuations $t=(t_1~t_2~t_3~\cdots~t_m)$ for the $m$ objects. $T$ is the set of all such valuation types. Given $T$ I design an allocation function $$f:T\rightarrow [0,1]^m$$ and a payment function $$p:T\rightarrow \mathbb{R}$$&#xA;The mechanism $(f,p)$ is said to be &lt;em&gt;Incentive compatible&lt;/em&gt; if $$t(f(t))-p(t)\geq t(f(t'))-p(t')~~\forall t,t'\in T~~~~~~~~~~~~(1)$$&#xA;One can easily derive from the above eqaution that incentive compatibility implies the following: $$t(f(t))+t'(f(t'))\geq t(f(t'))+t'(f(t))~~~~~~~~~~~~~~~~~~(2)$$&#xA;that is, $(1)\Rightarrow (2)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is the converse ($(2)\Rightarrow (1)$) true?&lt;/p&gt;&#xA;" OwnerUserId="10761" LastEditorUserId="11590" LastEditDate="2017-02-14T02:19:31.537" LastActivityDate="2017-02-14T02:19:31.537" Title="Incentive compatibility" Tags="&lt;mechanism-design&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13798" PostTypeId="1" CreationDate="2016-10-17T14:58:05.237" Score="5" ViewCount="571" Body="&lt;p&gt;As I progress in my self-study, I'm tired of having to search for several different approximations techniques used in economic textbooks. Sometimes the authors don't even tell the reader they are using an approximation, they just assume the reader is already familiarised with the approximation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Because of this, and to try to help me, and my fellow students of economics, I ask the following. What are the most used/useful approximations (and techniques) used in economics?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My wish is that anyone whether studying alone or not, can come to this question, as they'll be sure that it will have at least some approximation related to what they want. Any help would be appreciated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here's an example:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've read today that «$\frac{\Delta m_{t+1}}{m_t}=\frac{\Delta M_{t+1}}{M_t}-\frac{\Delta P_{t+1}}{P_t}$.»&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Well this is not an equality but an approximation, for if $z=\frac{x}{y}$, then $\frac{\Delta z}{z}\approx \frac{\Delta x}{x}-\frac{\Delta y}{y}$&lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="118" LastEditDate="2016-11-12T08:29:59.940" LastActivityDate="2017-01-05T21:43:39.690" Title="What are the most used approximations in economics?" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;econometrics&gt;" AnswerCount="1" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="13799" PostTypeId="2" ParentId="13428" CreationDate="2016-10-17T15:16:32.247" Score="0" Body="&lt;p&gt;The answer is, that this is not possible. A fixed effect by itself is nothing that is measured. It just means that you allow for different intercepts for different individuals.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems that what you want to do is checking the sensitivity of your specification. Do so by going to the &quot;econometrics kitchen&quot;. Run y just on x1 without fixed effects, then with fixed effects. Then y on x2, x3 and so on. Than you will get a feeling for whats going on in the data.&lt;/p&gt;&#xA;" OwnerUserId="4087" LastActivityDate="2016-10-17T15:16:32.247" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13801" PostTypeId="2" ParentId="13343" CreationDate="2016-10-17T19:26:42.793" Score="2" Body="&lt;p&gt;Impulse indicator saturation (IIS) &lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/S0165176507001358&quot; rel=&quot;nofollow&quot;&gt;(Santos, 2008)&lt;/a&gt; and step indicator saturation (SIS) &lt;a href=&quot;http://www.economics.ox.ac.uk/materials/papers/12760/paper658.pdf&quot; rel=&quot;nofollow&quot;&gt;(Doornik et al., 2013)&lt;/a&gt; are relatively new and powerful methods for change/break detections. They are used, for example, in the &lt;a href=&quot;https://www.doornik.com/pcgive/index.html?content=https://www.doornik.com/pcgive/pcgiveup.html&quot; rel=&quot;nofollow&quot;&gt;newer versions&lt;/a&gt; of the automated model selection procedure &quot;Autometrics&quot; by Doornik (et al.?).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;References:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Santos, Carlos. &quot;Impulse saturation break tests.&quot; &lt;em&gt;Economics Letters&lt;/em&gt; 98.2 (2008): 136-143.&lt;/li&gt;&#xA;&lt;li&gt;Doornik, Jurgen A., David F. Hendry, and Felix Pretis. &quot;Step-indicator saturation.&quot; &lt;em&gt;Dicussion Paper&lt;/em&gt; 658 (2013).&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="4230" LastActivityDate="2016-10-17T19:26:42.793" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13802" PostTypeId="1" AcceptedAnswerId="13804" CreationDate="2016-10-17T22:35:40.317" Score="2" ViewCount="307" Body="&lt;p&gt;Here is the original question :&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The ESPN cable TV network runs a major sports information site at www.espn.com. Most of the content is free, but ESPN has a premium membership (see its &quot;Insider&quot;) available for a monthly or an annual fee. Similar, but fee-free, sports content can be found at the Web sites of CNN Sports Illustrated, sportsillustrated.cnn.com, and CBS Sports Line,www.cbssports.com. Since ESPN has put a price tag on some of its sports content, it implies that the utility of a premium membership cannot be found at a no-fee site and is therefore worth the price. Is this the case? Use the utility-maximization rule to justify your subscribing or not subscribing to the premium membership.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Which product will yield maximum utility?&#xA;Let say if one content is available for free and the other is priced but a utility of that cannot be found anywhere else.&#xA;Applying the law of Utility-maximization I get this&#xA;( Marginal utility of fee-free content)/(price of fee-free content)   ≠ ( Marginal utility of premium content)/(price of premium content )&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So , I am thinking regardless of the price of a premium content the fee-free content’s marginal utility over price will never equal the marginal utility of premium content over the price of premium membership. So, why will one buy a premium product?&#xA;Am I correct on this?&lt;/p&gt;&#xA;" OwnerUserId="10767" LastEditorUserId="40" LastEditDate="2016-10-18T23:17:02.643" LastActivityDate="2016-10-18T23:17:02.643" Title="Utility maximization problem : free product vs priced product?" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13804" PostTypeId="2" ParentId="13802" CreationDate="2016-10-18T00:42:24.560" Score="0" Body="&lt;p&gt;I think there are some problems with the framing of your question. Some points... &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are some assumptions that need to be added for a meaningful answer. &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Diminishing returns, budget constraint, free disposal etc. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;In terms of utility maximization, there needs to be a budget constraint. if you add one and seek to maximize utility, the consumer will hold $x_2=\frac{w}{p}$ (spend all their money on good 2, and then hold an infinite amount of good 1.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;If you are thinking of something like an app, consider non monetary costs. They operate in the same way. Like the time value of playing a worse app. or movies, if you are given a choice to watch a terrible movie for free or pay to see a good movie, you may elect to pay. In which case time is a factor. You can't consume an infinite amount of terrible movies at time $t$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In summary, you need to add more to the question. If a good is free, marginal utility has to diminish and $\frac{du}{dx}$ needs to equal $0$ at some point or supply has to be finite. Until at least that is satisfied, the consumer will spend all money on on $x_2$ and hold an infinite amount of $x_1$&lt;/p&gt;&#xA;" OwnerUserId="40" LastActivityDate="2016-10-18T00:42:24.560" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="13808" PostTypeId="1" CreationDate="2016-10-18T08:39:10.097" Score="1" ViewCount="30" Body="&lt;p&gt;Need to update/calculate the price, the given values are:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Reserve (Stock) (higher the price can be lower)&lt;/li&gt;&#xA;&lt;li&gt;Cost (the higher, the price can be higher)&lt;/li&gt;&#xA;&lt;li&gt;Sales Speed (the higher, the price can be higher)&lt;/li&gt;&#xA;&lt;li&gt;The pieces were sold at the current price (the higher, the price can be higher)&lt;/li&gt;&#xA;&lt;li&gt;Views (the higher, if the Add to Shopping Cart or Buy now is lower, the price can be lower)&lt;/li&gt;&#xA;&lt;li&gt;Add to Shopping Cart (the higher without buy, the price can be lower)&lt;/li&gt;&#xA;&lt;li&gt;Buy now (direct buy) (the higher, the price can be higher)&lt;/li&gt;&#xA;&lt;li&gt;Success Purchase (the higher, the price can be higher)&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;What my idea is: the price can be calculated independently in some values e.g: 1, 2 and 3. and about others can be calculated together, because they have relationship with each other, e.g: Views and Add to Shopping Cart or Add to Shopping Cart and Buy now which Buy now indicates the price can be higher etc...&#xA;So I do not know if the idea is correct, or if there will be more better way to calculate the price from these values.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;For example:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Current item price is: 150$&lt;/li&gt;&#xA;&lt;li&gt;Cost is: 100&lt;/li&gt;&#xA;&lt;li&gt;Reserve (Stock) is: 1000 peaces&lt;/li&gt;&#xA;&lt;li&gt;Sales Speed is: 12 peaces/day&lt;/li&gt;&#xA;&lt;li&gt;The pieces were sold at the current price is: 70 peaces&lt;/li&gt;&#xA;&lt;li&gt;Views is: 950 times&lt;/li&gt;&#xA;&lt;li&gt;Add to Shopping Cart is: 150&lt;/li&gt;&#xA;&lt;li&gt;Buy now is: 10&lt;/li&gt;&#xA;&lt;li&gt;Success Purchase is: 70&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Now&lt;/strong&gt; we need to update the price in case of these values to have the fairer price for this item.&lt;/p&gt;&#xA;" OwnerUserId="10770" LastEditorUserId="10770" LastEditDate="2016-10-19T09:22:34.010" LastActivityDate="2016-10-19T09:22:34.010" Title="How to dynamically update/calculate the price if we have the following values?" Tags="&lt;mathematical-economics&gt;&lt;asset-pricing&gt;&lt;pricing&gt;&lt;algorithms&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13810" PostTypeId="1" AcceptedAnswerId="13812" CreationDate="2016-10-18T10:30:10.690" Score="3" ViewCount="10028" Body="&lt;p&gt;I have a panel dataset and I would like to estimate a linear equation in a fixed effects framework. My question is: how should I implement a two-way clustering? Stata syntax and/or .ado file necessary would be greatly appreciated.&lt;/p&gt;&#xA;" OwnerUserId="7217" LastActivityDate="2016-12-18T09:43:45.313" Title="Two-way clustering in Stata" Tags="&lt;econometrics&gt;&lt;applied-econometrics&gt;&lt;stata&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13811" PostTypeId="2" ParentId="12621" CreationDate="2016-10-18T13:17:59.563" Score="2" Body="&lt;p&gt;A possible answer if it's not too late.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Q1: Yes, if you mean &quot;per years of schooling&quot; at the end of your question. So, the unit of $\beta x_i$ is $\$/hr$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Q2: The unit of $\beta$ is $\log(\$/hr)/years$ literally. Then the unit of $\Delta (\beta x_i)$ is $\Delta \log(\$/hr)$, nothing strange, which is approximately the % change times 0.01. This is &quot;dimensionless&quot; if you like to say so, or would &quot;dimension-irrelevant&quot; be better? We interpret $\Delta (\beta x)$ as % change, not $\beta$.&lt;/p&gt;&#xA;" OwnerUserId="10775" LastActivityDate="2016-10-18T13:17:59.563" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13812" PostTypeId="2" ParentId="13810" CreationDate="2016-10-18T13:26:19.240" Score="2" Body="&lt;p&gt;Have you seen &lt;a href=&quot;http://faculty.econ.ucdavis.edu/faculty/dlmiller/statafiles/&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://faculty.econ.ucdavis.edu/faculty/dlmiller/statafiles/&lt;/a&gt; ?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I see some entries there such as &lt;em&gt;Multi-way clustering with OLS&lt;/em&gt; and &lt;em&gt;Code for “Robust inference with Multi-way Clustering”&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT: At least we can calculate the two-way clustered covariance matrix (note the &lt;code&gt;nonest&lt;/code&gt; option), I think, though I can't verify it for now. See the following.&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;set more off&#xA;clear all&#xA;local n 50&#xA;local T 50&#xA;&#xA;set obs `=`n'*`T''&#xA;&#xA;gen id = floor((_n-1)/`T')+1&#xA;by id, sort: gen year = 1970+_n&#xA;xtset id year&#xA;&#xA;set seed 1&#xA;&#xA;gen x = rnormal()&#xA;gen y = 1+0.5*x+rnormal()&#xA;&#xA;xtreg y x, re vce(cl id)&#xA;mat b = e(b)&#xA;mat V1 = e(V)&#xA;xtreg y x, re vce(cl year) nonest&#xA;mat V2 = e(V)&#xA;xtreg y x, re vce(cl id year) nonest&#xA;mat V12 = e(V)&#xA;mat V = V1+V2-V12&#xA;mat l V&#xA;ereturn post b V&#xA;ereturn display&#xA;&#xA;set more on&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;This code has yet to be verified manually.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/SBlq0.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/SBlq0.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;EDIT 2&lt;/strong&gt;: Sorry for keeping editing. Just found that Stata's &lt;code&gt;reg&lt;/code&gt; (for pooled OLS) does not allow for clustering by multiple variables such as &lt;code&gt;vce(cluster id year)&lt;/code&gt;. We should use &lt;code&gt;vce(r)&lt;/code&gt; or just &lt;code&gt;r&lt;/code&gt;. However, it seems that &lt;code&gt;xtreg&lt;/code&gt; does (usually requiring &lt;code&gt;nonest&lt;/code&gt;), though I counldn't find documentation.&lt;/p&gt;&#xA;" OwnerUserId="10775" LastEditorUserId="10775" LastEditDate="2016-10-22T15:14:26.910" LastActivityDate="2016-10-22T15:14:26.910" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="13815" PostTypeId="1" CreationDate="2016-10-18T14:24:08.953" Score="4" ViewCount="248" Body="&lt;p&gt;I am trying to understand the time path of extraction and royalty (price) for a non-renewable resource under a monopolist framework.&#xA;The problem is that in the main books on environmental/resource economics and in the resources that I could find on internet the &quot;results&quot;, either quantitative or qualitative, are given without proof, and the assumptions are not given (&quot;most cases&quot; :-( ).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Using optimal control, I have no problem to find that the Hotelling rule is here applied to the marginal profit over the extraction quantity, or that its discounted value remains constant and it is below the market price.&#xA;But what are the specific assumptions required to claim that (a) the initial price is higher than under perfect market competition/benevolent social planner; (b) that the depletion time is longer and finally (c) that the growth rate of price is lower than the (constant) growth rate of marginal profit ?&lt;/p&gt;&#xA;" OwnerUserId="10376" LastActivityDate="2017-06-12T13:04:39.693" Title="Extraction and royalty time path for a non-renewable resource under a monopolist assumption" Tags="&lt;monopoly&gt;&lt;resource-economics&gt;&lt;nonrenewable-resources&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13816" PostTypeId="1" CreationDate="2016-10-18T15:23:06.727" Score="1" ViewCount="36" Body="&lt;p&gt;Are stock portfolio selection algorithms, like the &lt;a href=&quot;http://www-isl.stanford.edu/~cover/papers/paper93.pdf&quot; rel=&quot;nofollow&quot;&gt;universal portfolio&lt;/a&gt; algorithm, applicable to forex markets, treating each currency like a stock?&lt;/p&gt;&#xA;" OwnerUserId="10239" LastActivityDate="2016-10-18T15:23:06.727" Title="Online stock portfolio selection algorithms applicable to forex markets?" Tags="&lt;stock-market&gt;&lt;algorithms&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13817" PostTypeId="1" CreationDate="2016-10-18T20:07:41.697" Score="1" ViewCount="49" Body="&lt;p&gt;I have been doing a bit of research into the Goodwin Model (1967), which generates cycles of economic activity. I understand that this is mostly used in macroeconomics. However, I am curious if this predator-prey style model can adequately model the dynamic between workers share if output and their employment levels at the level of an industry versus the economy as a whole? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've done some preliminary literature searches to see if it can be applied in a micro, rather than macro context, but have not found anything on this. Does anyone know if this is feasible? If not, can someone point me in the proper direction of a micro model which might do something similar? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks! &lt;/p&gt;&#xA;" OwnerUserId="6243" LastActivityDate="2016-10-18T20:07:41.697" Title="Can the Goodwin Model of cyclical labor growth be applied in a micro context to specific industries?" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;labor-economics&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13819" PostTypeId="1" CreationDate="2016-10-18T20:28:49.507" Score="1" ViewCount="164" Body="&lt;p&gt;The Boston Consulting Group has suggested BIM will save the Construction Industry $1.7 trillion /pa and increasing by  2025.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What effect will this have, if any, on social issues such as poverty, on global growth, improved quality of life and that sort of thing?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;ps&lt;/p&gt;&#xA;&#xA;&lt;p&gt;BIM is Building Information Modelling and is used increasingly through the construction industry, building management and city modelling.&#xA;The paper that give these numbers is from the Boston Consulting Group paper on the Impact of BIM. See the link in the comment below.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The more specific question requested in the comments might be in social terms, what are the social benefits of reducing construction, energy and infrastructure costs over the long term. Would it result in improved living standards or does it get lost in the bank balances of the utilities and construction companies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For what it is worth BIM is predicted to reduce GHG emissions by a significant (15%?) amount. &lt;/p&gt;&#xA;" OwnerUserId="10780" LastEditorUserId="10781" LastEditDate="2016-10-23T18:50:07.183" LastActivityDate="2016-10-23T18:50:07.183" Title="Economic Effects of BIM" Tags="&lt;macroeconomics&gt;&lt;poverty&gt;" AnswerCount="0" CommentCount="4" ClosedDate="2016-11-03T21:03:40.927" ContentLicense="CC BY-SA 3.0" />
  <row Id="13821" PostTypeId="1" CreationDate="2016-10-18T23:53:59.003" Score="0" ViewCount="24" Body="&lt;p&gt;For instance, if a nation is an ally (diplomatic/trade) with another nation, the average payoff each nation gets is higher than the payoff they would gain individually?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For instance, comparing to individuals and chat applications, if one user uses chat app A, and another uses B, they can't communicate. But they can communicate with all friends who use the same chat app. The payoff is directly proportional to the number of friends which use the same application.&lt;/p&gt;&#xA;" OwnerUserId="10783" LastActivityDate="2016-10-19T12:01:34.953" Title="What are some sectors in which nations benefit from collaborating with other nations?" Tags="&lt;game-theory&gt;&lt;networks&gt;" AnswerCount="1" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="13825" PostTypeId="1" AcceptedAnswerId="13837" CreationDate="2016-10-19T07:11:17.600" Score="2" ViewCount="585" Body="&lt;p&gt;Suppose a citizen of Country A is working in Country B with income X USD, and he sends Y USD as remittance to A, what is considered while calculating GNP? X or Y? (X is inclusive of Y)&lt;/p&gt;&#xA;" OwnerUserId="10788" LastEditorUserId="1601" LastEditDate="2016-10-19T09:02:20.910" LastActivityDate="2016-10-19T20:52:40.173" Title="While calcluating GNP, the overall income of a citizen working abroad is considered or only his/her remittances?" Tags="&lt;gdp&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13828" PostTypeId="1" CreationDate="2016-10-19T10:56:00.010" Score="1" ViewCount="3508" Body="&lt;p&gt;I need Stata commands or Excel function to calculate the average over 5 years groups of the values in a panel dataset. In particular, this procedure as to take into account the presence of possible missing values (empty cells in Excel) and thus adjust the computation accordingly to the actual number of non-missing in the period.&lt;/p&gt;&#xA;" OwnerUserId="7217" LastActivityDate="2016-10-25T20:23:00.070" Title="Averaging data over 5 years with Stata or Excel" Tags="&lt;econometrics&gt;&lt;applied-econometrics&gt;&lt;stata&gt;" AnswerCount="2" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="13829" PostTypeId="2" ParentId="13794" CreationDate="2016-10-19T11:32:51.560" Score="2" Body="&lt;p&gt;I believe what you're getting at is a concept in economics called &quot;Loss Aversion&quot;. It has been used quite extensively in recent economic research, especially in behavioral economics and finance. Another important key word here is &quot;Prospect Theory&quot;, which encompasses loss aversion as well. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The basic idea is that people suffer more from a loss of x\$ than they enjoy a gain of x\$ compared to a reference point. The utility function has a different (smaller in absolute value) slope when moving in a positive direction from the reference point than when moving in a negative direction. This is illustrated by the graph below (source: &lt;a href=&quot;https://upload.wikimedia.org/wikipedia/commons/4/4e/Valuefun.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://upload.wikimedia.org/wikipedia/commons/4/4e/Valuefun.jpg&lt;/a&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/pG738.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/pG738.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Under these conditions,  utility and disutility are different. Otherwise, maximizing untility or minimizing disutility is the same, as you mentioned. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This insight goes back to Amos Tversky and Daniel Kahneman.Kahneman received the Nobel Prize in Economics in 2002 for this work.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A summary of the most important literature can be found for example here: &lt;a href=&quot;http://loss-aversion.behaviouralfinance.net/&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://loss-aversion.behaviouralfinance.net/&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="5557" LastEditorUserId="5557" LastEditDate="2016-10-19T15:39:16.387" LastActivityDate="2016-10-19T15:39:16.387" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13830" PostTypeId="2" ParentId="13821" CreationDate="2016-10-19T12:01:34.953" Score="3" Body="&lt;p&gt;Nations can benefit from each other in all three of the broad sectors.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Collaboration in the primary sector (Involving raw materials, fishing, agriculture and mining) can lead to more sustainable extraction of resources. For example Nation A can choose to import Resource Y from Nation B rather than exhausting their own source. Nation A gains Resource Y and Nation B gets money.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Outsourcing is the most obvious example of collaboration in the secondary sector, Australian companies may outsource manufacturing work to Bangladesh, this is beneficial to both nations as money is going to Bangladesh and goods are going to Australia.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The tertiary sector involves providing services to consumers. One example of this could be tourism related services, if a tourist from overseas uses one of these tourist related services, the country they are visiting would receive money in exchange for the service, and the tourist would have their experience improved in some way. This example is small scale but when you consider how many people travel around the world it builds up.&lt;/p&gt;&#xA;" OwnerUserId="10792" LastActivityDate="2016-10-19T12:01:34.953" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13831" PostTypeId="1" CreationDate="2016-10-19T16:27:57.723" Score="5" ViewCount="87" Body="&lt;p&gt;As I understand it, economic downturn means that economic growth is significantly slowing down or entering into recession. (If anyone wants to correct me, please do so). i.e. Growth rate is decreasing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But what if the country is already in recession, but its growth rate is increasing? i.e. -5% one year, -3% the next, -2.5% the next, etc. Is this still classed as downturn (since the economy is still shrinking) or is it not since the growth rate is actually increasing despite being negative?&lt;/p&gt;&#xA;" OwnerUserId="10797" LastEditorUserId="108" LastEditDate="2016-10-19T18:25:29.787" LastActivityDate="2016-11-18T18:50:08.363" Title="Is a country in economic downturn if its growth rate is negative, but improving?" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;&lt;economic-growth&gt;&lt;definition&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13832" PostTypeId="2" ParentId="13831" CreationDate="2016-10-19T17:25:51.567" Score="0" Body="&lt;p&gt;By any reasonable definition a period of economic downturn has to mean that the slope of GDP vs time is negative. If the second derivative (i.e. rate of change of slope) is positive then we could say that the downturn is becoming less severe, but its still a downturn until the slope goes positive again.&lt;/p&gt;&#xA;" OwnerUserId="5081" LastActivityDate="2016-10-19T17:25:51.567" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13833" PostTypeId="2" ParentId="13831" CreationDate="2016-10-19T18:13:31.303" Score="2" Body="&lt;p&gt;I'm no macroeconomist, so other will correct me if I am wrong, but I would use the following definition:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/UlQtg.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/UlQtg.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;More formally, if $Y(t)$ is GDP at time $t$, one could express this as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Recession: $Y'(t)&amp;lt;0$ for 6+ months&lt;/p&gt;&#xA;&#xA;&lt;p&gt;downturn: $Y''(t)&amp;lt;0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;recovery: $Y''(t)&amp;gt;0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The definition of recession (2 quarters of negative growth) is widely standardised. I think the definition of downturn and recovery is less standard, and therefore more subject to debate.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2016-10-19T18:13:31.303" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="13834" PostTypeId="5" CreationDate="2016-10-19T18:26:05.420" Score="0" Body="" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2016-10-19T18:26:05.420" LastActivityDate="2016-10-19T18:26:05.420" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13835" PostTypeId="4" CreationDate="2016-10-19T18:26:05.420" Score="0" Body="Questions about how economic terms, quantities, or ideas can be defined." OwnerUserId="108" LastEditorUserId="108" LastEditDate="2016-10-19T18:26:05.420" LastActivityDate="2016-10-19T18:26:05.420" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13836" PostTypeId="2" ParentId="13464" CreationDate="2016-10-19T20:35:17.883" Score="1" Body="&lt;p&gt;Pareto distribution has an extremely simple CDF. But I don't know any example where it arises naturally (unlike abundant examples of normal, log-normal, Poisson, and some examples of stable laws). Perhaps it doesn't and indeed the parameter $x_0$ and its definition near 0 is quite arbitrary. But it suits modeling power-law tails, where one can often ignore the part for small values.&lt;/p&gt;&#xA;" OwnerUserId="10802" LastActivityDate="2016-10-19T20:35:17.883" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13837" PostTypeId="2" ParentId="13825" CreationDate="2016-10-19T20:52:40.173" Score="0" Body="&lt;p&gt;GNI (&lt;em&gt;Gross National Income&lt;/em&gt;) is the current description of what used to be called &lt;em&gt;GNP&lt;/em&gt;.  It is GDP (&lt;em&gt;Gross Domestic Product&lt;/em&gt;) plus net primary income from abroad (primary income receivable from the rest of the world less primary income payable to the rest of the world)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assuming this individual is a long-term resident (1 year or more) in Country B, than none of this counts as Country A's GNI (&lt;em&gt;Gross National Income&lt;/em&gt; is the current description of what used to be called &lt;em&gt;GNP&lt;/em&gt;).  The earnings count in Country B's GDP (as part of the income measure) and GNI, while the remittance is part of Country A's secondary income from Country B and affects the Balance of Payments current accounts of the two countries.  See &lt;a href=&quot;https://www.imf.org/external/pubs/ft/bop/2007/pdf/chap12.pdf&quot; rel=&quot;nofollow&quot;&gt;chapter 12 of the IMF Balance of Payments manual&lt;/a&gt;.  Something similar happens with the self-employed&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If however this individual is a short-term resident (less than a year) or a cross-border worker, employee compensation counts as primary income and so is part of Country A's GNI though Country B's GDP (as part of the income measure).   Any goods or services this individual pays for in Country B is counted as a export from Country B to Country A. See &lt;a href=&quot;https://www.imf.org/external/pubs/ft/bop/2007/pdf/chap11.pdf&quot; rel=&quot;nofollow&quot;&gt;chapter 11 of the IMF Balance of Payments manual&lt;/a&gt;. For short-term self-employed migrants, income counts as an export of services from Country B to Country A, and so counts in Country A's GDP and GNI, but again anything spent in Country B counts as trade the other way&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Measuring these flows and making these distinctions are difficult for national statistical services, especially for migrant workers who do not know how long they will be staying in another country &lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2016-10-19T20:52:40.173" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13838" PostTypeId="1" AcceptedAnswerId="13841" CreationDate="2016-10-19T22:17:14.670" Score="2" ViewCount="17" Body="&lt;p&gt;If the market cap of a market is constant, do stock prices necessarily follow the principle of reversion to the mean? How would one prove this? (I'm pretty sure this is trivial, but I don't know how to express the necessary ideas).&lt;/p&gt;&#xA;" OwnerUserId="10239" LastActivityDate="2016-10-20T00:10:05.923" Title="Does constant market cap imply reversion to the mean" Tags="&lt;mathematical-economics&gt;&lt;stock-market&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13839" PostTypeId="1" AcceptedAnswerId="13855" CreationDate="2016-10-19T22:32:16.917" Score="11" ViewCount="175" Body="&lt;p&gt;Let $F$ and $G$ be two distributions with the same mean. $F$ is said to &lt;strong&gt;second order stochastically dominate&lt;/strong&gt; (&lt;strong&gt;SOSD&lt;/strong&gt;) $G$ if &#xA;$$\int u(x)\mathrm dF(x)\ge \int u(x)\mathrm dG(x)\tag{1}$$&#xA;for all increasing and concave $u(\cdot)$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This above definition is equivalent to&lt;br&gt;&#xA;$$\int_{-\infty}^x F(t)\mathrm dt\le \int_{-\infty}^xG(t)\mathrm dt,\qquad\forall x\in\mathbb R.\tag{2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I was told that the requirement for $F$ and $G$ to have the same mean is not really necessary. Suppose $F$ and $G$ do &lt;strong&gt;not&lt;/strong&gt; have the same mean. Can we then still have the equivalence between $(1)$ and $(2)$? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;N.B. I was able to show $(2)\Rightarrow (1)$ without the same mean condition, but not the other way around.&lt;/p&gt;&#xA;" OwnerUserId="42" LastEditorUserId="42" LastEditDate="2016-10-20T08:29:54.637" LastActivityDate="2016-10-20T14:54:35.727" Title="second order stochastic dominance without the same mean" Tags="&lt;microeconomics&gt;&lt;probability&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13840" PostTypeId="1" CreationDate="2016-10-19T23:14:41.890" Score="1" ViewCount="40" Body="&lt;p&gt;Suppose, given the utility function $U(x_{1},x_{2})$ with known budget $m$ and price vector $p$. If I calculate MRS from this function, can I get information about whether these two goods are complement or substitute? Seems like when I apply Cobb-Douglas utility function I end up with a function containing both $x_{1}$ and $x_{2}$.&lt;/p&gt;&#xA;" OwnerUserId="10417" LastEditorUserId="8815" LastEditDate="2016-10-20T04:56:31.297" LastActivityDate="2016-10-20T04:56:31.297" Title="Is there a way to identify two goods as complement or substitute simple by calculating their MRS?" Tags="&lt;microeconomics&gt;" AnswerCount="0" CommentCount="3" ClosedDate="2016-10-22T22:09:57.463" ContentLicense="CC BY-SA 3.0" />
  <row Id="13841" PostTypeId="2" ParentId="13838" CreationDate="2016-10-20T00:10:05.923" Score="1" Body="&lt;p&gt;Identically:&#xA;$$ Market\_Cap \equiv Number\_of\_Shares \cdot Price\_per\_Share$$&#xA;If a market cap is constant than stock prices only fluctuate because of changes in the number of shares. Therefore, this would imply mean reversion in share prices only if the fluctuations in the number of shares were also mean reverting. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a general matter in the United States over the last hundred or so years, the average price per share has mostly been \$20-\$40 while market capitalization has increased substantially, implying a large increase in the number of shares. This has mostly been achieved by stock splits, stock based acquisitions, and secondary equity offerings. &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2016-10-20T00:10:05.923" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13842" PostTypeId="1" CreationDate="2016-10-20T00:28:31.850" Score="3" ViewCount="3175" Body="&lt;p&gt;What is the worth of something?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I was thinking that it is either how much someone is willing to pay, or is it how much someone is willing to sell it for? Or is it the point where those two meet?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What if it doesn't meet? Say I had an object and would give it up for \$100, but if no one wants to buy it for that much, only say \$90, then what is it worth? Because I won't be selling it and no one will be buying it. &lt;/p&gt;&#xA;" OwnerUserId="10804" LastEditorUserId="2776" LastEditDate="2017-08-26T09:08:14.690" LastActivityDate="2017-08-26T09:08:14.690" Title="What is the value of something?" Tags="&lt;value&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13844" PostTypeId="1" AcceptedAnswerId="14178" CreationDate="2016-10-20T01:02:45.953" Score="3" ViewCount="129" Body="&lt;p&gt;I am undertaking some research regarding differences between manufacturing sectors across countries.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have noted that China has taken a lot of the less skilled manufacturing work away from developed countries. It clearly has a comparative advantage with regard to unskilled labour. Generally, it will be difficult for developed countries to compete with the wages of the lesser developed countries.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This has resulted in the decline of manufacturing in some countries such as Australia (12.6% of GDP in 2000 to 6.7% of GDP in 2015) or the US (14.2% to 12.3%). Whereas other developed countries are still able to successfully manufacture. Germany for example has had ~22% of GDP from manufacturing for the last 15 years.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;What factors allow manufacturing to succeed in a developed country?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am expecting it to be related to:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Regulation&lt;/li&gt;&#xA;&lt;li&gt;human capital&lt;/li&gt;&#xA;&lt;li&gt;size of domestic market&lt;/li&gt;&#xA;&lt;li&gt;trade deals&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I am interested in references in particular.&lt;/p&gt;&#xA;" OwnerUserId="40" LastActivityDate="2017-01-09T16:16:36.110" Title="What factors allow manufacturing to succeed in a developed country?" Tags="&lt;macroeconomics&gt;&lt;reference-request&gt;&lt;international-trade&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13845" PostTypeId="2" ParentId="13842" CreationDate="2016-10-20T01:09:23.560" Score="0" Body="&lt;p&gt;There are a few answers.&#xA;Individuals can place a valuation on any good. If I have a bike and I decide that I value it at \$100. I will sell it at any price $\geq \$100$. This valuation is economically interesting. You can value something without having to transact it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A market can also value goods. Think about supply and demand. The valuation of a good can be the market price. Say a similar bike sells at \$90. That is the market's valuation of a good.&lt;/p&gt;&#xA;" OwnerUserId="40" LastActivityDate="2016-10-20T01:09:23.560" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13848" PostTypeId="1" CreationDate="2016-10-20T07:30:31.257" Score="4" ViewCount="1142" Body="&lt;p&gt;Ok so we're given a monetary policy rule where&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$R^{CB}_t-\bar r = \bar n \tilde Y \space  where \space \bar n&amp;gt;0  $$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;and &#xA;$$R_t = R^{CB}_t+\bar p $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where $\bar p $ is risk premium $\bar n$ is a parameter and $R^{CB}_t$ is short run interest rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The IS curve is of course $ \tilde Y = \bar a - b (R_t - \bar r)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;is $\bar p = 0$ is assume the IS-MP looks the same graphically except the MP curve is now determined by $R_t = R^{CB}_t+\bar p $ so rather than just being the target interest rate of the central bank it's a sum of the target rate and risk premium so if $\bar p &amp;gt; 0$ it would distort monetary policy. As it would require higher targets to get the desire interest rate or inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also i thought by rearranging that $R_t - \bar r=\bar m (\pi_t - \bar \pi) =\bar n \tilde Y + \bar p  $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which mean IS curve is  $\tilde Y = \bar a - b(\bar n \tilde Y + \bar p )$&#xA;With mp curve &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm a bit confused&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know that the whole point of taylor rule is to counteract shock in the economy with with fiscal stimulus hence $\bar n \tilde Y $ the risk premium is solely a distortion of the MP curve so maybe i should have $\bar p $ in the is curve?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Oh yeah i haven't consider the fishing equation which i presume calculates the MP curve&#xA;$$i_t = R_t + \pi_t = r+\pi_t +m(\pi_t - \bar \pi) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then if $R_t = R^{CB}_t+\bar p  $&#xA;$$i_t =R^{CB}_t+\bar p + \pi_t = r+\pi_t +m(\pi_t - \bar \pi) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But i want to make it look like this &#xA;$$i_t =R^{CB}_t+\bar p + \pi_t + \bar n \tilde Y \space \text{With an upward sloping demand curve} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'M quite confused&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/7kiEH.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/7kiEH.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Edit: So i got something like this but i'm not so sure i don't like that i have a $-\bar n \tilde Y$  it should be positive &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/7kiEH.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/7kiEH.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="10803" LastEditorUserId="108" LastEditDate="2016-10-20T20:45:36.097" LastActivityDate="2017-12-19T23:03:45.497" Title="How would the risk premium and a simplified taylor rule change the MP curve?" Tags="&lt;macroeconomics&gt;&lt;monetary-policy&gt;&lt;interest-rate&gt;&lt;central-banking&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13849" PostTypeId="1" CreationDate="2016-10-20T08:16:57.473" Score="0" ViewCount="991" Body="&lt;p&gt;I know it's because $\bar n \tilde Y$  is added in but isn't the MP curve chosen by the government?&lt;/p&gt;&#xA;" OwnerUserId="10803" LastActivityDate="2017-03-24T13:16:32.733" Title="How does the taylor rule make the MP curve upward sloping?" Tags="&lt;macroeconomics&gt;&lt;monetary-policy&gt;&lt;central-banking&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13850" PostTypeId="2" ParentId="13428" CreationDate="2016-10-20T08:50:46.470" Score="1" Body="&lt;p&gt;Assuming that you mean &quot;fixed effects&quot; of econometricians, not of statisticians, you can check it as follows. You have $v_{it} = u_i + e_{it}$ consistently estimated (as $\beta$ is consistently estimated), where $u_i$ are the fixed effects and $e_{it}$ are the idiosyncratic errors. Under the assumption that $x_{it}$ is strictly exogenous to $e_{it}$ (which is assumed whenever you do FE regression), the covariance between $x_{it}$ and $v_{it}$ is the same as the covariance between $x_{it}$ and $u_{i}$. Thus, this is what you can do:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Obtain the fixed effects estimation residuals (if using Stata, &lt;code&gt;xtreg y x1 x2 x3, fe&lt;/code&gt;, and then &lt;code&gt;predict v, ue&lt;/code&gt;).&lt;/li&gt;&#xA;&lt;li&gt;Regress &lt;code&gt;x1&lt;/code&gt; on &lt;code&gt;v&lt;/code&gt; either for each $t$ (&lt;code&gt;reg x1 v if year==1991&lt;/code&gt; etc) or pooled. The sign of the estimate is what you want.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;By the way, let me clarify that &quot;fixed effects&quot; are not nonrandom in econometrics, so we can't say that fixed effects are uncorrelated with other random variables. By &quot;fixed effects&quot; we mean individual effects that are possibly correlated with explanatory variables.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In statistics (mixed effects models), &quot;fixed effects&quot; mean variables whose coefficients are the same for all $i$, while &quot;random effects&quot; are those with individually different coefficients.&lt;/p&gt;&#xA;" OwnerUserId="10775" LastEditorUserId="10775" LastEditDate="2016-10-20T08:55:55.923" LastActivityDate="2016-10-20T08:55:55.923" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13851" PostTypeId="2" ParentId="13828" CreationDate="2016-10-20T09:44:21.733" Score="1" Body="&lt;p&gt;Is this what you want (in Stata)?&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt; clear all&#xA; * Generate Data (n=5, T=20)&#xA; set obs 100&#xA; gen id = floor((_n-1)/20)+1&#xA; by id, sort: gen year = 1990+_n&#xA; gen x = rnormal()&#xA; xtset id year&#xA; * Convert&#xA; gen t5 = floor((year-1991)/5)+1&#xA; gen idt5 = id*10+t5 /* 10 can be 100, 1000, etc., depending on T */&#xA; by idt5, sort: egen xbar5 = mean(x)&#xA; *drop t5 idt5  /* drop if you want; you can also use tempvar */&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;If not, please clarify your question using an example.&lt;/p&gt;&#xA;" OwnerUserId="10775" LastActivityDate="2016-10-20T09:44:21.733" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13852" PostTypeId="2" ParentId="11221" CreationDate="2016-10-20T10:08:48.220" Score="2" Body="&lt;p&gt;You can regress residual squares (from RE or FE depending on your estimation) on $X_{it} \hat\beta$ and its square using the clustered standard errors (the &lt;code&gt;vce(cl id)&lt;/code&gt; option), and read the F statistic and the associated p value. This is basically the same as Het test for cross sectional models (White's simplified test).&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;xtreg y x1 x2, re&#xA;predict uhat, ue&#xA;predict xb, xb&#xA;gen uhatsq = uhat^2&#xA;reg uhatsq c.xb##c.xb, vce(cl id)&#xA;testparm c.xb##c.xb&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Another test is for groupwise heteroskedasticity proposed by Greene (2000). This test assumes that the variance of the error term is $\sigma_i^2$ (no heteroskedasticity over $t$) and then test whether $\sigma_i^2$ is the same for all $i$. You can do it using the &lt;code&gt;xttest3&lt;/code&gt; module. The &lt;code&gt;xttest3&lt;/code&gt; manual says: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In terms of small sample properties, simulations of the test statistic have shown that its power is very low in the context of fixed effects with &quot;large N, small T&quot; panels. In that circumstance, the test should be used with caution.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="10775" LastActivityDate="2016-10-20T10:08:48.220" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13854" PostTypeId="2" ParentId="12119" CreationDate="2016-10-20T13:53:05.257" Score="1" Body="&lt;p&gt;Strictly speaking, infinitely different utility functions can give the same preferences over lotteries. If person A has utility function $f(x)$ then person B with utility function $g(x)=A+B\cdot f(x)$, $B&amp;gt;0$ will make identical decisions over all lotteries. There would be no way to know which individual was actually using utility function $f(x)$ and which was using $g(x)$ because they would always make the same decisions. &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2016-10-20T13:53:05.257" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13855" PostTypeId="2" ParentId="13839" CreationDate="2016-10-20T14:54:35.727" Score="6" Body="&lt;p&gt;Let $u(x) = x$ which is increasing and concave. Then the &lt;em&gt;defining condition&lt;/em&gt; of SOSD reads&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\int x\mathrm dF(x)\ge \int x\mathrm dG(x) \implies E_F(X) \geq E_G(X) \tag{1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;..which would contradict the case  $E_F(X) &amp;lt; E_G(X)$ that would be permissible under a general &quot;different means&quot; postulate. On the other hand, we see that the &quot;same mean&quot; condition can be violated by the defining condition for SOSD itself. What does that tell us?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) That $E_F(X) \geq E_G(X)$ is a &lt;em&gt;necessary condition&lt;/em&gt; for $F$ to SOSD $G$.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) ...And so that the requirement &quot;$F$ and $G$ have the same mean&quot; wrongly restricts the application of the concept of SOSD.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2016-10-20T14:54:35.727" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13856" PostTypeId="1" CreationDate="2016-10-20T15:19:34.533" Score="3" ViewCount="1368" Body="&lt;p&gt;I'm working with IPUMS ACS and Census data in Stata.  I'm interested in learning about income distributions and variability for specific subpopulations defined by education level, occupation, race and sex.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The survey data has probability weights, but I want to use commands that don't accept probability weights.  They will accept frequency weights, though.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I want to estimate:&#xA;Kernel density distribution&#xA;Mean&#xA;Coefficient of Variation&#xA;Standard Deviation&#xA;Percentiles&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can I just use frequency weights instead of probability weights?  These seem to give me accurate point estimates for the mean, but standard errors that are too small.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Will that throw off the kernel density, standard deviation, and coefficient of variation?&lt;/p&gt;&#xA;" OwnerUserId="10812" LastActivityDate="2017-02-22T23:16:46.687" Title="Sample weights in Stata: fweight vs. pweight" Tags="&lt;labor-economics&gt;&lt;stata&gt;&lt;variance&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13857" PostTypeId="1" CreationDate="2016-10-20T18:53:08.177" Score="3" ViewCount="345" Body="&lt;p&gt;I am looking to get some resources looking at health economics from a pure mathematical point of view, ie developing models using partial differential equations or complex analysis. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In particular, I am looking for derivations and models relating to cost-benefit analysis, cost-utility analysis, the relationship between CBA/CUA and social welfare and so on. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am currently going through &lt;em&gt;Health Economics&lt;/em&gt; by Peter Zweifel, and though it has a serious bit of mathematics, I am looking for something even more theoretical. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In addition, I am looking for research papers published that deal with different types of models relating CBA and CUA - again more mathematical in nature.&lt;/p&gt;&#xA;" OwnerUserId="10814" LastEditorUserId="1601" LastEditDate="2016-10-20T20:27:00.430" LastActivityDate="2016-10-20T20:27:00.430" Title="A theoretical/mathematical approach to cost-benefit analysis and cost-utility analysis in health economics" Tags="&lt;econometrics&gt;&lt;reference-request&gt;&lt;mathematical-economics&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13858" PostTypeId="2" ParentId="12994" CreationDate="2016-10-20T19:04:09.837" Score="0" Body="&lt;p&gt;I do not know of any standardised formula for calculating the average wage increase. &lt;strong&gt;But&lt;/strong&gt; using some basic Mathematics, I devised this little formula that should work - at least at a basic level:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Let:&#xA;          a = previous wage&#xA;          b = current wage&#xA;          t = time&lt;/em&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Increase = (b-a)/t&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Note that the&lt;/strong&gt; &lt;em&gt;t&lt;/em&gt; **is only required if you want an increase per unit of time given. **&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;However&lt;/strong&gt;, in order to get the &lt;strong&gt;average&lt;/strong&gt; wage increase, we should find the median (rather than the mean, as the median isn't affected by the skewness of data):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Let:&#xA;           n = total number of values&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;median = n/2&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we then use this result as an ordinal (placement) number to find which value in an small-to-great organised set of data. This correlating value is our median.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Repeat this for both &lt;em&gt;a&lt;/em&gt; and &lt;em&gt;b&lt;/em&gt; and then apply the other, above formula to find the average wage increase.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;But&lt;/strong&gt;, to be even more accurate you could use grouped data and then interpolate to find the median. In this case I shall link to an external method as it is very lengthy, but is very useful for accuracy reasons, as it allows you to use grouped data that in turn, allows for much larger quantities of data to be processed. &lt;a href=&quot;https://www.google.co.uk/url?sa=t&amp;amp;source=web&amp;amp;rct=j&amp;amp;url=http://www.vivaxsolutions.com/maths/allnrintpltn.aspx&amp;amp;ved=0ahUKEwinqPPziOrPAhVEXBQKHQsUA5MQFghTMAs&amp;amp;usg=AFQjCNFMdET7VSlEsQWqnx6AdkoSi52Yvw&amp;amp;sig2=AQtP4Z3JpZk50BPNdxtTkA&quot; rel=&quot;nofollow&quot;&gt;This&lt;/a&gt; seems to have a good method that I would recommend. I don't recognise the formula you listed, but I would be great fun if you could explain it in greater detail for me. Hope this helps!&lt;/p&gt;&#xA;" OwnerUserId="10815" LastActivityDate="2016-10-20T19:04:09.837" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13860" PostTypeId="2" ParentId="13848" CreationDate="2016-10-21T00:14:52.733" Score="1" Body="&lt;p&gt;I get it now &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Under traditional monetary policy &#xA;MP Curve is set by the central bank and follow the fisher equation&#xA;$$i_t = R_t + \pi_t$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But traditionally the taylor asks that when the central bank considers monetary policy that they consider short run output and inflationary gap.&#xA;$$i_t = R_t + \pi_t+\bar m(\pi_t-\bar \pi)+\bar n \tilde Y_t$$&#xA;Where the monetary policy rule is&#xA;$$R_t-\bar r = m(\pi_t-\bar \pi)+n \tilde Y_t  $$&#xA;Now &#xA;$$R^{CB}_t-\bar r = \bar n \tilde Y \space  where \space \bar n&amp;gt;0  $$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;and &#xA;$$R_t = R^{CB}_t+\bar p $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I assume that in the original taylor rule&#xA;$$R_t-\bar r = m(\pi_t-\bar \pi)+n \tilde Y_t  $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence in the original taylor rule&#xA;$$i_t = R_t + \pi_t+\bar m(\pi_t-\bar \pi)+\bar n \tilde Y_t$$&#xA;$$i_t = R_t + \pi_t+R_t-\bar r$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But in this simplified taylor rule $R^{CB}_t-\bar r=n $&#xA;$$R^{CB}_t-\bar r = \bar n \tilde Y  $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To which i assume also that &#xA;$$R_t-\bar r = \bar n \tilde Y = m(\pi_t-\bar \pi) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence &#xA;$$i_t = R_t + \pi_t+R_t-\bar r$$&#xA;$$i_t = R_t + \pi_t+n \tilde Y $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If $R_t = R^{CB}_t+\bar p$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$i_t = R_t + \pi_t+n \tilde Y $$ $$i_t =R^{CB}_t+\bar p + \pi_t+n \tilde Y $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence the $ n \tilde Y $ component of the simplified taylor rule makes the MP curve upward sloping.&lt;/p&gt;&#xA;" OwnerUserId="10803" LastEditorUserId="10803" LastEditDate="2016-10-22T02:35:55.460" LastActivityDate="2016-10-22T02:35:55.460" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13862" PostTypeId="1" CreationDate="2016-10-21T01:53:58.583" Score="0" ViewCount="63" Body="&lt;p&gt;I already post this question in &lt;a href=&quot;https://money.stackexchange.com/questions/71899/what-will-happen-if-government-not-print-money&quot;&gt;Money.SE&lt;/a&gt;, but I need to transfer the question in to this site because it's off-topic...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As I said in my previews post.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I start researching the reason why the government can't print more money to resolve its dept and I found this answer &#xA;&lt;a href=&quot;https://www.quora.com/Why-cant-the-government-just-print-more-money-to-resolve-its-debts&quot; rel=&quot;nofollow noreferrer&quot;&gt;&quot;Why can't the government just print more money to resolve its debts?&quot;&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Its says the reason why the government can't just print more money to resolve its dept is the inflation... &quot;The more money printed, the lower its value&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then another question popup in my mind. What if the government not print money anymore? Does the value of money increase?&lt;/p&gt;&#xA;" OwnerUserId="10808" LastEditorUserId="-1" LastEditDate="2017-04-13T12:25:31.177" LastActivityDate="2016-10-21T12:21:50.213" Title="What will happen if the government not print money?" Tags="&lt;money-supply&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13863" PostTypeId="2" ParentId="13862" CreationDate="2016-10-21T02:23:34.513" Score="1" Body="&lt;p&gt;It causes unemployment to increase. Policy makers usually have to make a choice between inflation and unemployment. More money means inflation and less money means less investment, less job and more unemployment. If money becomes valuable then people will prefer to keep it in bank instead of creating jobs.&lt;/p&gt;&#xA;" OwnerUserId="10321" LastActivityDate="2016-10-21T02:23:34.513" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13864" PostTypeId="1" CreationDate="2016-10-21T02:32:18.633" Score="4" ViewCount="1051" Body="&lt;p&gt;I am trying to understand the fact that, given that the uncovered interest parity holds, a rise in dollar interest rates will cause the dollar to appreciate. Is this a good intuition?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Uncovered interest parity (UIP) is defined as ${R_F=R_$}+{({E_{F/$}}^e-{E_{F/$}}^c)}/{E_{F/$}}^c$ where $$ $$ $R_F$ is the annual return of foreign currency, $$ $$ ${R_$}$ is the annual rate of return (the interest rate) for holding dollars in a bank, $$ $$ ${E_{F/$}}^e$ is the expected exchange rate (how many foreign currency units could be bought with one dollar) in one year's time, and $$ $$ ${E_{F/$}}^c$ is the current exchange rate (also per dollars). $$ $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Example. Supposing ${R_$}$ is 4%, ${E_{F/$}}^c$ is 0.67, ${E_{F/$}}^e$ is 0.69, the rate of return for holding foreign currency $R_{F}$ is 7%. But now, a rise in dollar interest rates (${R_$}$ is now 8%) it &lt;strong&gt;&lt;em&gt;means I fix the rate of return on dollars at 7% and see how ${E_{F/$}}^e$ changes&lt;/em&gt;&lt;/strong&gt;. Is that the correct intuition? I use this approach and get that ${E_{F/$}}^e$ is 0.66, which means the foreign currency appreciated, but that means the dollars didn't appreciate, which contradicts my original claim...&lt;/p&gt;&#xA;" OwnerUserId="10820" LastEditorUserId="14540" LastEditDate="2017-09-18T16:35:08.197" LastActivityDate="2017-09-18T16:35:08.197" Title="Uncovered Interest Parity question" Tags="&lt;macroeconomics&gt;&lt;currency&gt;&lt;international-trade&gt;&lt;international-economics&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13865" PostTypeId="2" ParentId="13864" CreationDate="2016-10-21T03:09:03.113" Score="0" Body="&lt;p&gt;I made the assumption that the expected exchange rate should change, when in fact the current exchange rate should change in response to an increase in US bank's interest rate. The future exchange rate does not depend on today's rise in bank interest rate. &lt;/p&gt;&#xA;" OwnerUserId="10820" LastActivityDate="2016-10-21T03:09:03.113" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13866" PostTypeId="2" ParentId="1639" CreationDate="2016-10-21T03:12:11.577" Score="0" Body="&lt;p&gt;According to uncovered interest parity model, if you raise the domestic currency's bank deposit interest rate, then, ceteris paribus, the currency will appreciate. This can be shown mathematically.&lt;/p&gt;&#xA;" OwnerUserId="10820" LastActivityDate="2016-10-21T03:12:11.577" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13867" PostTypeId="2" ParentId="13792" CreationDate="2016-10-21T04:40:25.837" Score="5" Body="&lt;p&gt;Seems to me $dU = 0$ is true by definition unless $dU$ is not defined &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;because the function $U$ is not differentiable in some variable. &#xA;E.g. $$U(x,y) = |x| + y$$&lt;/li&gt;&#xA;&lt;li&gt;because there are a countably infinite number of dimensions but the partial differentials are not always absolute convergent and hence cannot be summed up. E.g.: $$U(x_1,x_2,x_3,x_4...) = x_1 - x_2 + x_3 -x_4...$$&lt;/li&gt;&#xA;&lt;li&gt;because the dimensions have a larger than countably infinite cardinality. I have never seen this in micro but it is theoretically possible. E.g. expected utility over continuum states.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Edit: &#xA;&lt;a href=&quot;http://people.hss.caltech.edu/~kcb/Notes/Demand4-Integrability.pdf&quot; rel=&quot;nofollow&quot;&gt;This&lt;/a&gt; seems to offer an extremely thorough walkthrough of the integrability problem in $n$ dimensions.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2016-10-21T12:48:48.787" LastActivityDate="2016-10-21T12:48:48.787" CommentCount="9" ContentLicense="CC BY-SA 3.0" />
  <row Id="13869" PostTypeId="2" ParentId="13094" CreationDate="2016-10-21T11:49:36.153" Score="3" Body="&lt;p&gt;The answers above focus on how to mitigate the 'counterparty risk' that you correctly see as inherent in derivatives. But we need to also consider how big the losses can be -- the 'tons' you refer to -- and this is where the most common misunderstanding arises. The 'notional' amounts do not constitute the credit exposures and, depending on the type of derivative, either cannot be (eg, interest rate swaps) or are in practice heavily mitigated (credit derivatives). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In an interest rate swap with a notional of, say, \$100 million, all that changes hands in the related periodic payments is a fraction of that -- to be precise the difference between a fixed amount of interest on that \$100m and 'floating' rate of interest that is periodically calculated by reference to a market benchmark such as Libor. (Hence some of the concerns about manipulating Libor.) One needs to specify a notional amount, in order to have a basis for calculating those interest payments. The swap can then be used as a bet on rates or as a hedge (say of a bond position that is itself truly \$100m in size). The 'mark-to-market' (MtM) value of the swap at any given time is the expected difference, over the remaining life of the swap (which typically runs for 5-10 years), and that MtM is the amount I would be concerned about in the event that my counterparty goes bust. If the prospective difference between fixed and floating rates is in my favour, then that is the amount that I would ask for today in collateral. The Bank for International Settlements (the BIS, in its regular semi-annual statistics on OTC derivatives) has warned against looking at the notional as though it was the exposure. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, in the case of credit derivatives, if I sell you \$50 million of protection on, say, Deutsche Bank, there is indeed a possibility that I will (if Deutsche actually defaults) have to pay out that notional and you will in effect be taking a view on my ability to do so, as well as on Deutsche's creditworthiness. (So, if Deutsche and I were related entities, the 'joint-default' risk to you would be higher.) However, one still needs to be a little cautious on the numbers. For one thing, defaults rarely come entirely out of the blue -- the collapse of Lehman Bros, for example, was heavily trailed -- giving time to get in collateral or hedge or even close out or the contract at its mark-to-market value (essentially, the difference between Deutsche's creditworthiness when we entered the contract and its creditworthiness today). For the exposure to be systemic, which is where your query goes, that \$50 million (less any collateral) has to be life threatening to you and by extension to those whom you owe money. With the notable exception of AIG, whose regulator tellingly was later dissolved (in 2011 -- see wiki for more details) net exposures were not large. Net exposures arise where I sell you \$50m of protection on Deutsche but buy maybe \$40m worth from someone else. Check out DTCC for stats on the ratio of net to gross sales of protection. The last time I looked, net exposures were about 10% of the gross. Of course, if the $40m hedge I buy does not perform because that counterparty goes bust, then I am still on the hook for the full \$50m. But, aside from diversifying my counterparties, so that I am not overly-reliant on any one protection seller, I as a regulated entity have ways to manage the counterparty risk (more on this below); banks have regulatory limits on how much they can rely on the creditworthiness of any one entity; and have to hold capital against such credit risks as they do incur, including on derivatives.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Don't forget also, that credit derivatives are mainly focused on the more creditworthy entities and that even AIG's book was fine except for the bit linked to US mortgage repayments --from memory, about 15% of its book contributed 90% of its losses, compounded by other bets on US property. So, you do have to have some regard for the underlying risk. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, bear in mind that even if 1) I do go bust owing you the full \$50m on that credit derivative on Deutsche and 2) the contract is not centrally cleared (which would insulate either of us from the default of the other) -- even in those circumstances, I would be obliged (not just able, but obliged) to take into account the \$50m I owed you on the credit derivative in claiming from you any amounts that you might owe me on any other derivatives that you and I had entered, whether credit derivatives on other entities or derivatives on interest rates, equities, currencies, commodities or any other asset class you care to imagine. In other words, the mark-to-market on an interest rate swap between us could offset that on the credit derivative. That may not sound much of an offset, given what I said above about the quantum of exposures on interest rate swaps. But again, check the BIS statistics. They show a big difference in practice between a) gross mark-to-market values and b) net ones that take account of counterparty exposures across bilateral derivatives books as a whole. If the 'gross market value' (ie, actual, mark-to-market exposures between pairs of counterparties, in aggregate, globally) is in the order of \$15 trillion, the 'gross credit exposures' (which is what the BIS calls the numbers after netting of mark-to-market exposures, taking account of offsets such as our hypothetical credit derivative and interest rate swap) is around $3 trillion. So it is roughly 1/5 of the gross mark-to-market values and considerably less than 1/100 of the notional amounts, which are around \$500 tr. So that is \$3tr of exposures, and that NB is before taking into account any collateral, which in bilateral books is calculated on a portfolio basis. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;\$3tr is still a bigger amount than you or I could ever carry around in pocket money. But it's also 1/20 of the amount of government debt outstanding today and a fraction of the size of most other markets -- corporate bonds, loans, equity markets. The \$3tr could change, as things like interest rates change (thereby affecting  the mark-to-market value of individual swaps), but in practice does not fluctuate wildly (as the BIS time series shows) and that is because a huge chunk of the market consists of intermediary banks buying and selling risks from customers with opposing needs or views -- risks that cancel each other out. &lt;/p&gt;&#xA;" OwnerUserId="10823" LastEditorUserId="4817" LastEditDate="2016-10-24T12:37:19.473" LastActivityDate="2016-10-24T12:37:19.473" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13870" PostTypeId="2" ParentId="13862" CreationDate="2016-10-21T12:21:50.213" Score="1" Body="&lt;p&gt;It's a very interesting question. Governments could actually create more money, but if there is no more real value in the economy, then it will simply mean that you will have to trade more cash for 1 unit of real value. This means that the general price level in the economy will increase. Of course, if you are the person to whom the debt paid off with that additional money is owed, you'll notice that the money you get back is not worth that much any more so you'll be looking for more interest. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course, this works in the other direction as well. If there is less money in the economy, you'll have to trade less cash to get the real value you are looking for. And if you notice that a TV-set costs 500 today, and only 480 tomorrow, and 460 the day after, you'll start postponing investments. This will have the effect that there will be less demand for those products, companies will have redundant capacities, which they will try to get rid off, e.g. by laying off people. This leads to a further decline in demand for goods as those people won't have the money to pay for it.&lt;/p&gt;&#xA;" OwnerUserId="8694" LastActivityDate="2016-10-21T12:21:50.213" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13871" PostTypeId="1" AcceptedAnswerId="13872" CreationDate="2016-10-21T15:37:27.163" Score="2" ViewCount="412" Body="&lt;p&gt;When I lend money to someone and they don't pay it back, I lose my money.  I can only lend out money that I own (or borrow).  I understand that when a bank lends money, that money is created the moment they lend it out.  If that is so, how does the bank take any risk in lending it out, considering they didn't own it in the first place?&lt;/p&gt;&#xA;" OwnerUserId="332" LastActivityDate="2016-10-21T18:40:02.660" Title="If banks create money by lending it out, how are they taking any risk?" Tags="&lt;banking&gt;&lt;money-supply&gt;&lt;debt&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13872" PostTypeId="2" ParentId="13871" CreationDate="2016-10-21T18:40:02.660" Score="4" Body="&lt;p&gt;Try the magic of double entry bookkeeping to see that creating money does not immediately make a bank more valuable. Initially the loan is matched by a deposit, and this is creation of what is effectively money:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Bank A has an asset: a newly created loan to customer B&lt;/li&gt;&#xA;&lt;li&gt;Bank A has a liability:  B's newly created deposit with Bank A, which B can spend&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;B then spends the amount with C, who banks with D, and the deposit is transferred on B's instruction to C's account. Now&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Bank A has an asset: a loan to B&lt;/li&gt;&#xA;&lt;li&gt;Bank A has a liability:  Bank A owes money to Bank D&lt;/li&gt;&#xA;&lt;li&gt;Bank D has an asset: Bank A owes money to Bank D&lt;/li&gt;&#xA;&lt;li&gt;Bank D has a liability:  C's deposit with Bank D&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Bank A now needs to settle with Bank D: this can happen through clearing if other customers are moving money to Bank A, but it is easier to imagine that Bank A tells the central bank to give some of A's reserve deposits there to Bank D. So Bank A has an asset, namely a loan to B, but this has been offset by an increase in liabilities or a reduction in other assets.  Similarly Bank D has an increase in assets, offset by a liability to C. The created money is now C's deposit with D, which C can spend.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose the loan to B then goes bad and is never likely to be repaid.  From Bank A's point of view, the value of that asset falls to zero, while the associated increase in liabilities or reduction in other assets remains, and Bank A has to take this as a loss (negative profit), with the side effect of destroying that amount of money.  Bank A is now worth less (net) than when it started the loan to B.  This is the risk for Bank A from creating new financial assets and liabilities (i.e. new money).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If instead nothing goes wrong, B makes some money selling to E, pays A some interest, and possibly repays the loan (in which case the total amount of money in the economy reduces again).  In this case Bank A is more valuable (net), not directly from the creation of the loan or from its repayment or from use or return of the corresponding deposit, but from receiving the interest on the loan.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;When Bank A makes too many loans, it may run out of reserve deposits at the central bank after its customers spend the new money.  The solution to this is to take deposits from other customers, as Bank D does in the example above.  But these deposits may need interest to attract them, at a cost to the bank.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So Bank A's overall profit on loans and deposits is the difference between the interest it receives from the loans it makes and the interest it pays on deposits it takes, allowing for the cost of bad loans; it may also make money from fees and have to pay for staff and other expenses.  The creation and destruction of money by making the initial loan and it being repaid is not Bank A's particular concern, though it is for the macroeconomic policy of the central bank and the government; if the economy grows and more loans are made, then the money supply also rises and the hope it that will happen neither too quickly nor too slowly.  Ultimately Bank A cares about the risk from bad loans, the interest rate margin and its administrative costs.&lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2016-10-21T18:40:02.660" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13873" PostTypeId="2" ParentId="13271" CreationDate="2016-10-21T19:45:48.643" Score="1" Body="&lt;p&gt;If I had to sum up Marxism in a single word it would be alienation. His political and economic work all branched off the concept of the worker becoming disconnected from his labor. Rather than an egalitarian state, Marx wanted to reconnect man to his the products of labor.  Of course, central to this is his labor theory of value, Hegelian dialectical process, and his view of man being the product of his environment. &lt;/p&gt;&#xA;" OwnerUserId="10402" LastEditorUserId="2776" LastEditDate="2017-03-30T19:51:14.583" LastActivityDate="2017-03-30T19:51:14.583" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13874" PostTypeId="1" CreationDate="2016-10-22T02:08:12.960" Score="2" ViewCount="3694" Body="&lt;p&gt;In an open economy, the following equation always holds, it is an identity:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$S-I=NX$ where $S-I$ represents net capital outflow and $NX$ represents trade balance (net exports).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This equation tells us that there is an inextricable link between the financial markets and the markets for goods and services. But how can we explain it and why is it true, intuitively?&lt;/p&gt;&#xA;" OwnerUserId="5936" LastActivityDate="2016-11-25T13:27:23.823" Title="Explaining the net capital outflow - trade balance identity" Tags="&lt;macroeconomics&gt;&lt;financial-markets&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13876" PostTypeId="1" AcceptedAnswerId="13880" CreationDate="2016-10-22T14:59:54.853" Score="2" ViewCount="1321" Body="&lt;p&gt;I'm reading a paper on parking:&#xA;Anderson &amp;amp; de Palma, 2003, &lt;em&gt;The economics of pricing parking&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The authors repeatedly refer to either 'decentralizing the optimum' or 'the optimum can be decentralized'....&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is an example: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The optimum involves &lt;em&gt;unequal treatment of equals&lt;/em&gt; in the sense that&#xA;  different individuals get different utilities at the optimum.  Those&#xA;  who are allocated to park closer to the [central business district]&#xA;  get higher utility than those who park further away.  The optimumm can&#xA;  be decentralized via pricing of parking.  Since parking is more&#xA;  desirable closer to the center, the optimum parking tariff increases&#xA;  with closeness to the CBD in order to counteract this effect and&#xA;  reduce the over-congestion that is more pronounced closest to the CBD.&#xA;  We next derive the optimum parking tariff.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Q1: In general in economics literature and/or in the context of this paper, is &quot;optimal&quot; generally accepted as referring to Pareto efficiency?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Q2: What does it mean to &quot;decentralize the optimum&quot; ?&lt;/p&gt;&#xA;" OwnerUserId="10826" LastActivityDate="2016-10-24T09:47:58.867" Title="equilibrium, optimum, and decentralizing the optimum" Tags="&lt;pareto-efficiency&gt;&lt;welfare-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13877" PostTypeId="1" AcceptedAnswerId="13878" CreationDate="2016-10-22T15:03:04.760" Score="4" ViewCount="290" Body="&lt;p&gt;I understand that the federal reserve manipulates the federal fund rate in order to change interest rates in the wider banking sector. What I am struggling to understand is how the changing the federal funds rate changes the interest rate charged by commercial banks, e.g. Bank of America, Wells Fargo, etc.&lt;/p&gt;&#xA;" OwnerUserId="5515" LastEditorUserId="4988" LastEditDate="2016-10-28T06:22:38.937" LastActivityDate="2016-10-28T06:22:38.937" Title="How does the central bank changing interest rates change interest rates in the commerical banking sector?" Tags="&lt;monetary-policy&gt;&lt;interest-rate&gt;&lt;banking&gt;&lt;central-banking&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13878" PostTypeId="2" ParentId="13877" CreationDate="2016-10-22T15:39:26.040" Score="3" Body="&lt;p&gt;The federal fund rate is a cost for the commercial banks. They borrow at the federal fund rate and then they lend to the consumers.&#xA;The federal fund rate variation impacts the lending cost of the banks directly.&#xA;It's how it changes the interest rate charged by commercial banks.&lt;/p&gt;&#xA;" OwnerUserId="5328" LastActivityDate="2016-10-22T15:39:26.040" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13879" PostTypeId="1" CreationDate="2016-10-22T17:28:40.330" Score="3" ViewCount="5641" Body="&lt;p&gt;This question has a specific context.&lt;br&gt;&#xA;While reading Adam Smith's The Wealth of Nations, edited, with notes and marginal summary by Edwin Cannan in 1904, one comes across the following lines on the second page:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The causes of this improvement, in productive powers of labour, and the order, according to which is produce is naturally distributed among the different ranks and conditions of men in the society, make the subject of the First Book of Inquiry.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Against &quot;the causes&quot; written at the outset in first line, there is a note, I presume by Edwin Cannan, which reads:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Only one cause, the division of labour, is actually treated.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Here my aim is to know what other causes of increase in productivity of labour are known today (or were known to Edwin Cannan, back in 1904) that Adam Smith missed in his classic text.&lt;/p&gt;&#xA;" OwnerUserId="10601" LastActivityDate="2019-02-07T13:38:38.097" Title="What are the causes of increase in productivity of labour?" Tags="&lt;labor-economics&gt;&lt;productivity&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="13880" PostTypeId="2" ParentId="13876" CreationDate="2016-10-22T17:39:39.043" Score="3" Body="&lt;p&gt;&lt;strong&gt;Q1&lt;/strong&gt; Optimal usually means one of two things:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Pareto optimal (there's no way to change the outcome such that everyone is at least as well-off, but someone is strictly better-off).&lt;/li&gt;&#xA;&lt;li&gt;Optimal in the utilitarian sense (we maximise the sum of everyone's profit/utility).&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;If utility/profit is quasilinear then the two concepts coincide.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This paper appears to be using the utilitarian standard: the optimum is the allocation that minimises the sum of everyone's costs (which, in this case, are the time spent travelling and parking).&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Q2&lt;/strong&gt; To understand what is meant by decentralisation, it is useful to first know what we mean by centralisation. We say that a decision is centralised if there is one agent (often called a &quot;social planner&quot;) who makes all of the decisions and imposes them on society. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;We know from experience that governments are not very good at centrally planning things (cf. the USSR). Thus, an interesting question is whether we can set up a market, system of prices, or other kind of mechanism such then we can leave each individual to his/her own devices and still end up with the optimal outcome (such as how we get the efficient outcome under perfect competition, without any kind of central planner).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When everyone is left to their own devices like this, the market is said to be &lt;em&gt;decentralised&lt;/em&gt;. We say the optimum is decentralised if we find a way to decentralise the market such that the end result is optimal.&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2016-10-24T09:47:58.867" LastActivityDate="2016-10-24T09:47:58.867" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13881" PostTypeId="2" ParentId="140" CreationDate="2016-10-22T17:55:43.047" Score="3" Body="&lt;p&gt;Legendary Indian diplomat of Mauryan era, &lt;em&gt;Kautilya&lt;/em&gt; (or &lt;em&gt;Chanakya&lt;/em&gt; or &lt;em&gt;Vishnugupt&lt;/em&gt;), is Indian equivalent of Adam Smith. It is estimated that he wrote his classic book &lt;em&gt;Arthshastra&lt;/em&gt; (literal meaning: Economics) in 3rd century BCE. Both &lt;a href=&quot;https://en.wikipedia.org/wiki/Chanakya&quot; rel=&quot;nofollow&quot;&gt;Kautilya&lt;/a&gt; and &lt;a href=&quot;https://en.wikipedia.org/wiki/Arthashastra&quot; rel=&quot;nofollow&quot;&gt;Arthshastra&lt;/a&gt; are mentioned in Hindu, Buddhist and Jain texts. Wikipedia has quite accessible entries on both. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The book has a quite extensive scope, and among other things, it deals with the economic policy of Kautilya's time.&lt;/p&gt;&#xA;" OwnerUserId="10601" LastActivityDate="2016-10-22T17:55:43.047" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13883" PostTypeId="1" AcceptedAnswerId="13905" CreationDate="2016-10-22T22:01:16.560" Score="3" ViewCount="193" Body="&lt;p&gt;The preferences are complete, transitive, continuous, strictly monotone and strictly convex&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The textbook says it is because&#xA; (1) Budget Set is compact so that a solution exists;&#xA; (2) B is convex and the utility function representing this preference is strictly quasi-concave&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What if I have no information on budget set, that is, I don't know what properties B might have. Can all arguements above still hold?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can I use the strict increasing utility function to prove the solution is unique? Since a preference with all these assumptions ensures a continuous, strictly increasing and strictly quasi-concave utility function. Then by contradiction, there can not be two or more maximization point of utility function.&lt;/p&gt;&#xA;" OwnerUserId="10417" LastActivityDate="2017-01-31T21:20:53.277" Title="Suppose I have a preference satisfy all basic assumptions, how to show consumer problem solution is unique" Tags="&lt;consumer-theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13885" PostTypeId="2" ParentId="13879" CreationDate="2016-10-23T10:03:33.560" Score="1" Body="&lt;p&gt;In one word: Technology.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's a bit abstract of course, but it summarises a lot of things very well. It's usually the &lt;strong&gt;A&lt;/strong&gt; parameter in the models we have in growth theory (we augment e.g. Labour by Technology). &#xA;In empirical studies it has been tried to asses productivity by coming up with a measure called &lt;strong&gt;TFP&lt;/strong&gt; (Total Factor Productivity).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A lot of specific things could potentially be subsumed under this broad term. Most importantantly it is the stock of knowledge (e.g. books, blueprints,...) that we improve and build upon. The growth of technology usually depends on the actual stock of knowledge in a certain economy. It can be achieved by Research &amp;amp; Development (in case the economy is on the technology frontier) or simply by technology adoption (e.g. in the case of catch-up economies).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Example: Knowing how to build a tractor, we only need one unit of labour (the guy who drives the tractor) to harvest, say, 100 kilos of grain per day instead of 50 workers that have to cut the same amount by hand. This would be a tremendous increase in productivity because the other 49 people can now do another job in which they potentially add to the economy's output. For building a better tractor (that drives with less fuel, can harvest more, ...) the economy needs the blueprint of the first tractor to build upon, and so on and so forth...&lt;/p&gt;&#xA;" OwnerUserId="4087" LastActivityDate="2016-10-23T10:03:33.560" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13887" PostTypeId="1" CreationDate="2016-10-23T15:15:12.177" Score="1" ViewCount="18" Body="&lt;p&gt;There is a fairly recent literature about &quot;networks&quot; (Barabasi, “Linked” 2003, Basic Books; Hausmann et al. “The Atlas of Economic Complexity 2014, MIT Press) that emphasize that some industries are more “related” or “linked” than others and that poorer countries often do not “exploit” these linkages as effectively as richer countries. Has the idea that some industries are “related” been discussed before in the literature of the industrial revolution or economic development? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I presume the answer is “yes” but I couldn’t find much, though I may have looked in the wrong places. I conclude this question by clarifying what the literature mentioned above understands by industries being “linked”. &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Industries may be linked by their input or output flows. When for example one is a supplier of the other or both use inputs from a third industry. &lt;/li&gt;&#xA;&lt;li&gt;Industries may be linked because they require similar infrastructure (e.g. schooling, universities). Switzerland, for example, has a well-developed watchmaking industry and is strong in precision engineering. If the education required to work in these industries overlap to some extent—which seems reasonable—both industries would be linked by their human capital requirements. &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="10835" LastActivityDate="2016-10-23T15:15:12.177" Title="In the discussion about why and how countries develop or industrialize, is there a debate about “related” or “linked” industries?" Tags="&lt;development-economics&gt;&lt;networks&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13888" PostTypeId="1" CreationDate="2016-10-23T15:16:33.510" Score="1" ViewCount="255" Body="&lt;p&gt;I have two books both written by MIT professors, Macroeconomics by Blanchard and Economics by Acemoglu.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regarding to what happens to real interest rate in the medium/long run after the central bank lowers the interest rate, the two books has two very different explanations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Blanchard explains through the IS-LM and AS-AD model that increase in real money stock leads to decrease in real and nominal interest rate in the short run, but in the medium run, because output returns to natural level of output, the real interest rate returns to the natural interest rate. Therefore money growth has no effect on real interest rate in the medium run.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But in Acemoglu's book it says and I quote&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The long-term real interest rate is the long-term nominal interest&#xA;  rate minus the long-term expected inflation rate. When the Fed&#xA;  influences short-term interest rates, such as the federal funds rate,&#xA;  this affects the long-term nominal interest rate. A long-term loan is&#xA;  like a combination of short-term loans. You can think of a 10-year&#xA;  loan as ten 1-year loans lined up one after the other. When the&#xA;  federal funds rate goes down, the interest rate for the first 1-year&#xA;  loan goes down. In addition, a change in the federal funds rate is&#xA;  usually not reversed for several years, so several of the 1-year loans&#xA;  in the 10-year loan package are affected. In most cases, when the Fed&#xA;  lowers the federal funds rate this has little impact on long-term&#xA;  inflationary expectations. Summing this up, the long-term real&#xA;  interest rate tends to fall when the federal funds rate falls because&#xA;  the long-term nominal interest rate falls and inflation expectations&#xA;  tend to stay roughly the same.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Did I misinterpret the two authors or what?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can I assume Blanchard's medium run and Acemoglu's long-term are the same thing in this context?&lt;/p&gt;&#xA;" OwnerUserId="6065" LastActivityDate="2016-12-22T19:32:15.777" Title="So what exactly happens to the real interest rate in the long run?" Tags="&lt;monetary-policy&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13889" PostTypeId="2" ParentId="13888" CreationDate="2016-10-23T16:36:41.907" Score="1" Body="&lt;p&gt;Blanchard examines a case with a single interest rate, and what happens to it &quot;in the medium long-run&quot; (in the sense of the economy being in equilibrium). His discussion is the most abstract. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Acemoglou discusses a more realistic case where many different interest rates exist at the same time, and analyzes the observed phenomenon that interest rates on short-term loans are different than interest rates on long-term loans, even when both contracts are entered into at the same calendar time: the time horizon of the contract matters for the interest rate itself. He then goes on to discuss how monetary policy may or may not affect &lt;em&gt;expectations&lt;/em&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So when Acemoglou says &quot;the long-term real interest rate tends to fall...&quot; he does &lt;em&gt;not&lt;/em&gt; mean &quot;the real interest rate characterizing long-run equilibrium tends to fall&quot;. He means &quot;the real interest rate that is currently imposed on loans with a long-term horizon, tends to fall&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;These aspects are simply absent in the basic IS-LM / AS-AD analysis.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2016-10-23T17:00:45.200" LastActivityDate="2016-10-23T17:00:45.200" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13890" PostTypeId="1" CreationDate="2016-10-23T17:23:33.950" Score="1" ViewCount="1174" Body="&lt;p&gt;I am a student in an intermediate microeconomics class and am having a little trouble understanding the marginal rate of technical substitution. I understand that it represents the amount that labor (capital) has to be decreased for capital (labor) to be increased and stay on the same isoquant, but I am having trouble understanding it in practice.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For instance when the MRTS = K/L and capital is 4 and labor is 1 than the MRTS is 4/1. Does that mean that mean if capital is increased by 4 units then labor has to be decreased by 1 unit to stay on the same isoquant? Or does it mean that mean if capital is decreased by 4 units then labor has to be increased by 1 unit to stay on the isoquant? Or am I way off in my understanding?&lt;/p&gt;&#xA;" OwnerUserId="10830" LastActivityDate="2016-10-24T11:37:23.007" Title="Marginal rate of technical substitution" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13891" PostTypeId="1" AcceptedAnswerId="13892" CreationDate="2016-10-23T18:05:24.733" Score="3" ViewCount="423" Body="&lt;p&gt;In Advanced Microeconomic theory by Jehle and Reny is said that if $\mathbf{x^*}$ is a solution to the following maximization problem $\max_{\mathbf{x} \in \mathbb{R}_+^n} u(\mathbf{x}) $  subject to $\mathbf{p \cdot x}\le y$, then $\bigtriangledown u(\mathbf{x^*})=\mathbf{0}$&lt;br&gt;&#xA;is possible but quite unlikely.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question is why is it quite unlikely? I can think only budget constraint, but is it right?&lt;/p&gt;&#xA;" OwnerUserId="10838" LastActivityDate="2016-10-24T11:23:46.383" Title="When gradient of utility function is a zero vector" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;linear-algebra&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13892" PostTypeId="2" ParentId="13891" CreationDate="2016-10-23T19:18:16.590" Score="3" Body="&lt;p&gt;This concerns the partial derivatives of the utility function with respect to goods, and not the partial derivative of the Lagrangian of the maximization problem. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So a zero derivative, and moreover at the optimum, would imply a threshold quantity after which utility &lt;em&gt;diminishes&lt;/em&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the real world, we all know that consuming excessively may result in utility reduction (think eating too much food too quickly).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the theoretical world such utility functional forms have been used, especially &quot;quadratic utility&quot; in intertemporal representative consumer models in macroeconomics with a single good, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$u(x) =ax - bx^2$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In microeconomics, all abstract development of the theory usually assumes that utility is non-decreasing in each good separately. But in cases where one would want to allow for decreasing utility, then, indeed, the reason why we would not expect to find the optimum at the zero-gradient point, would be the workings of the budget constraint together with relative prices.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2016-10-24T11:23:46.383" LastActivityDate="2016-10-24T11:23:46.383" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13893" PostTypeId="1" AcceptedAnswerId="13902" CreationDate="2016-10-23T19:20:58.890" Score="2" ViewCount="165" Body="&lt;p&gt;What is the earliest mention of any type of macroeconomic measure? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know proto-economist William Petty coined the Term GDP but was there any other measurement used before then to determine the welfare of an economy?&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="69" LastEditDate="2016-10-24T19:36:28.157" LastActivityDate="2016-10-24T19:43:40.820" Title="History of Macroeconomic Measurements before GDP" Tags="&lt;history-economic-thought&gt;&lt;economic-measurement&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13894" PostTypeId="1" CreationDate="2016-10-23T22:23:55.003" Score="3" ViewCount="169" Body="&lt;p&gt;Premise: I see that the site is for professional and academic economicists, and I'm neither. However,  since I've been participating to other SE sites for some time now, I consider SE a trusted source, and reading &lt;a href=&quot;https://economics.stackexchange.com/help/on-topic&quot;&gt;here&lt;/a&gt; I think my question is on-topic, thus I'll take my chance and ask.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I was talking about Russia at work, and a coworker started saying that Russia is, and has been for a lot of time, in a deep economic crisis, nearly on the verge of bankrupcy. This guy is used to pretending he knows all about everything, thus I don't trust him. But, come to think of it, I noticed that I know very little about Russian economy: I don't know if it has a large national debt, who's the owner of that debt (Russians or other states?), whether it has a positive or negative trade export, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On one hand, I guess Russian economy must have taken a blow from the failing oil prices, because lower prices =&gt; less profits for exporters like Russia (right?) and also because cheaper oil =&gt; less market for gas, which Russia also exports. However, shouldn't this be compensated by higher oil exports because of the lower price? I'm getting a bit confused here. Also, sanctions against Russia must take a toll on its economy. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand, Russia is considered a big international power. It has a lot of natural resources, and one of the strongest armies in the world. It seems weird to me that a nation &quot;on the verge of bankrupcy&quot; could mantain such a military power. Is my coworker really mistaking Russia for old Soviet Union? Or is he right, and Russia is actually down to its feet in a dramatic crisis?&lt;/p&gt;&#xA;" OwnerUserId="10839" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2016-11-10T21:24:42.440" Title="Is Russia in a deep economic crisis?" Tags="&lt;macroeconomics&gt;&lt;international-economics&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13895" PostTypeId="1" CreationDate="2016-10-24T00:37:50.620" Score="-1" ViewCount="50" Body="&lt;p&gt;I read a statement that one reason for persistent demand for US Treasuries is that US banks buy them because they can be used as collateral for acquiring short-term debt.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't understand this. If a bank can borrow at the Fed window, then why not borrow short-term if you need short term or long-term if you need long term.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why would you lend money by buying treasuries and then borrow short-term using those as collateral. It makes no sense. Borrow short term from whom?&lt;/p&gt;&#xA;" OwnerUserId="1448" LastActivityDate="2016-11-23T17:50:02.310" Title="How is short-term borrowing by banks in the US performed?" Tags="&lt;banking&gt;&lt;financial-economics&gt;&lt;bonds&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13896" PostTypeId="2" ParentId="13890" CreationDate="2016-10-24T10:09:28.043" Score="1" Body="&lt;p&gt;We start with a production function: $f(k,l)$, which tells us what quantity will be produced if we use $k$ units of capital and $l$ units of labour. Suppose that we cange that quantity of capital by $dk$ units and change the quantity of labour by $dl$ units. If this change is chosen so that we stay on the same isoquant then it must be that the total production doesn't change:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\partial f(k,l)}{\partial k}dk+\frac{\partial f(k,l)}{\partial l}dl=0.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Rearranging, we get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{dk}{dl}=-\frac{\frac{\partial f(k,l)}{\partial l}}{\frac{\partial f(k,l)}{\partial k}}.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is the &lt;em&gt;marginal rate of technical substitution&lt;/em&gt;, the slope of the isoquant. It has the same interpretation as any other slope. It means that if I increase labour by one unit then I can decrease capital by $$\frac{\frac{\partial f(k,l)}{\partial l}}{\frac{\partial f(k,l)}{\partial k}}$$ units.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Example&lt;/strong&gt; Suppose we have a Cobb-Doublas production function: $f(k,l)=k^a l^{1-a}$. We have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\partial f(k,l)}{\partial k}=ak^{a-1}l^{1-a}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\partial f(k,l)}{\partial l}=(1-a)k^{a}l^{-a}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$MRTS=-\frac{(1-a)k^{a}l^{-a}}{ak^{a-1}l^{1-a}}=-\frac{1-a}{a}\frac{k}{l}.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now we can plug some numbers in to this example to see how it works. Suppose $a=1/2$, and we currently have $k=4$ and $l=1$. Then, we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$MRTS=-\frac{1/2}{1/2}\frac{4}{1}=-4.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, for each unit increase in the quantity of labour employed, we can decrease the quantity of capital employed by 4 units.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This works backwards too, so every unit &lt;em&gt;de&lt;/em&gt;crease in $l$ would demand a 4 unit increase in $k$ to keep us on the same isoquant.&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2016-10-24T11:37:23.007" LastActivityDate="2016-10-24T11:37:23.007" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13897" PostTypeId="1" CreationDate="2016-10-24T11:57:08.853" Score="2" ViewCount="54" Body="&lt;p&gt;I'm looking for a breakdown of GDP per region and industry in Europe. Do such data exist, ideally in the public domain? I'm looking for a breakdown of GDP per region and industry in Europe. Do such data exist, ideally in the public domain? If so, please identify and link to such sources. &lt;/p&gt;&#xA;" OwnerDisplayName="user10845" LastEditorUserId="69" LastEditDate="2016-10-24T15:09:45.863" LastActivityDate="2016-10-24T15:12:29.410" Title="GDP per industry and per region in Europe" Tags="&lt;gdp&gt;&lt;data-request&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13899" PostTypeId="2" ParentId="13897" CreationDate="2016-10-24T15:12:29.410" Score="3" Body="&lt;p&gt;Eurostat is the way to go.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Website: &lt;a href=&quot;http://ec.europa.eu/eurostat&quot; rel=&quot;nofollow&quot;&gt;http://ec.europa.eu/eurostat&lt;/a&gt; (advised that you start from here to get where you want to be because then you see what is actually available)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;GDP specifically (I think this is not what you need exactly - GDP per country over time - but its a starting point.): &lt;a href=&quot;http://ec.europa.eu/eurostat/web/national-accounts/data/main-tables&quot; rel=&quot;nofollow&quot;&gt;http://ec.europa.eu/eurostat/web/national-accounts/data/main-tables&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Keep it in mind. Need Europe+numbers? Eurostat.&lt;/p&gt;&#xA;" OwnerUserId="4305" LastActivityDate="2016-10-24T15:12:29.410" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13900" PostTypeId="1" CreationDate="2016-10-24T15:31:39.383" Score="2" ViewCount="918" Body="&lt;p&gt;I've got a question to ask about the Nash Demand game from my assignment.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Sarah and Ruth find \$100 on the ground and decide to split it between them in the following manner. Each individual simultaneously and independently selects how much of the \$100 she wants to keep. Denote this value by $xi$. If $+≤100$, then each player receives the amount she desires. If $+&amp;gt;100$, they forfeit the \$100, and each player receives \$0. Find all of the Nash equilibria. Explain how you come to your conclusion (i.e. how you know that your answer is exhaustive.)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I think that I've solved the Pure Strategy Nash Equilibrium for this game which is basically $+=100$. But I'm wondering whether there are any Mixed Strategy Nash Equilibrium so if anyone could help me out that I would be very appreciative! :) &lt;/p&gt;&#xA;" OwnerUserId="10850" LastEditorUserId="108" LastEditDate="2016-10-25T07:23:02.143" LastActivityDate="2021-04-20T22:51:36.043" Title="Nash Equilibrium in a bargaining game" Tags="&lt;game-theory&gt;&lt;nash-equilibrium&gt;" AnswerCount="2" CommentCount="3" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13901" PostTypeId="2" ParentId="13895" CreationDate="2016-10-24T17:09:05.717" Score="1" Body="&lt;p&gt;You've asked a number of questions; I'll answer three. &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;em&gt;If a bank can borrow at the Fed window, then why not borrow short-term if you need short term or long-term if you need long term.&lt;/em&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Banks are strongly discouraged from borrowing from the Fed. Doing so is expensive and an indicator of institutional distress. &lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;2&quot;&gt;&#xA;&lt;li&gt;&lt;em&gt;Why would you lend money by buying treasuries and then borrow short-term using those as collateral.&lt;/em&gt; &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;The same reason that banks borrow short and lend long in any other context: short rates are lower than long rates, so the bank earns a spread. &lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;3&quot;&gt;&#xA;&lt;li&gt;&lt;em&gt;Borrow short term from whom?&lt;/em&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Money market mutual funds, mostly. &lt;/p&gt;&#xA;" OwnerUserId="264" LastActivityDate="2016-10-24T17:09:05.717" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13902" PostTypeId="2" ParentId="13893" CreationDate="2016-10-24T19:34:19.927" Score="2" Body="&lt;p&gt;Maybe the earliest economic quantities to be measured are the number of people in a tribe or nation as a measure of economic and military potential. Roman (Roman king Servius Tullius) and ancient Israeli censuses (Prophet Moses duing the Egyptian Exodus) were said to have been conducted in the 6th and 13th centuries before the common era (&lt;a href=&quot;https://en.wikipedia.org/wiki/Census&quot; rel=&quot;nofollow&quot;&gt;Wikipedia -- Census&lt;/a&gt;). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;William Petty's (mercantilist, 1623-1687) political arithmetic is often considered the first work related to economic measurement and econometrics and crudely and innovatively estimated the population, national income and national&#xA;wealth for Ireland and England. François Quesnay (physiocract) is often regarded as his fellow pioneer and his Tableau Economique (1759), is often considered a forerunner of the modern national income and product accounts (&lt;a href=&quot;https://epub.ub.uni-muenchen.de/1928/1/measurement.pdf&quot; rel=&quot;nofollow&quot;&gt;Hillinger (2007)&lt;/a&gt;). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For more precise economic estimates, measures of national production of pig iron goes back in the USA and the UK at least as far as 1870. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;a href=&quot;http://www.jstor.org/stable/1885898&quot; rel=&quot;nofollow&quot;&gt;Productivity Change in British Pig Iron, 1870-1939&lt;/a&gt; Donald N.&#xA;  McCloskey The Quarterly Journal of Economics Vol. 82, No. 2 (May,&#xA;  1968), pp. 281-296&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2016-10-24T19:43:40.820" LastActivityDate="2016-10-24T19:43:40.820" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13903" PostTypeId="2" ParentId="13900" CreationDate="2016-10-24T19:47:36.883" Score="3" Body="&lt;p&gt;Nash equilibrium is a &lt;strong&gt;pair of strategies&lt;/strong&gt;. So your answer needs to give two strategies. The informal definition is &quot;&lt;em&gt;pair of strategies that are best responses to each other&lt;/em&gt;&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So take an arbitrary strategy; let's say each player chooses 50. Can anyone gain by playing 51 or 49? No, so (50, 50) is a NE. Like your equation says, any two strategies that add up to 100 make up a PSNE. Because there can be no profitable deviation for any of the two player (the proof is trivial; show that playing less gives less, and that playing more, gives less for any pair of strategies adding up to 100)&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Now about MSNE. A good way to start thinking about it is to take an arbitrary strategy and play around with it. You will find no MSNE this way.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The other way to look for them is to find a point where two strategies make players indifferent between their options and are also best responses. I could only find this in the symmetric case.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are some MSNE if you play strategies $( a_1, a_2 )$ where $a_1+a_2 = 100$ and your mixing probabilities are $P(a_1) = a_1/a_2$ (assuming $a_1 &amp;lt; a_2)$. Example here would be playing $(10, 90)$ with probabilities $(11.111, 88.888)$. This makes the opponent indifferent between $10$ and $90$, and as such he could play the mirror strategy, with both being indifferent to any mixing and both being a best response to each other. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I did not find any other case of MSNE, even after some work.&lt;/p&gt;&#xA;" OwnerUserId="10734" LastEditorUserId="10734" LastEditDate="2016-10-25T14:06:20.697" LastActivityDate="2016-10-25T14:06:20.697" CommentCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="13904" PostTypeId="2" ParentId="6251" CreationDate="2016-10-24T19:56:13.843" Score="5" Body="&lt;p&gt;Suppose the marginal cost is constant and equal to $c$, that fixed costs are $K&amp;gt;0$, and that revenue is $R(q)$. You seem to understand that MR=MC must be true for profits to be maximized: $R'(q)=c$. We also know that average costs are given by $AC=(K+qc)/q$. But note that $AC=(K+qc)/q&amp;gt;c=MC$. Thus, when profits are maximized we have $AC&amp;gt;MC=R'(q)$. So it is &lt;em&gt;not&lt;/em&gt; true that $AC=MC$ when profits are maximized in this example. We can conclude that $AC=MC=R'(q)$ holds only in certain special cases.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2016-10-24T19:56:13.843" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13905" PostTypeId="2" ParentId="13883" CreationDate="2016-10-24T20:03:46.317" Score="3" Body="&lt;p&gt;In that case you would still have a problem showing the existence of a solution. Without existence, it makes little sense to think about uniqueness. The reason a continuous utility function (implied by some of those preference assumptions you gave) has a maximum at all is because a continuous function achieves a maximum somewhere on a compact set, which in this case is B.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Luckily, we don't really have to imagine scenarios in which we have no information about the budget set. This is not some abstract set, but rather something very concretely defined as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$B(p,w)=\{x \in \Bbb R_{+}^{n}: px \leq w \}$,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $p$ is the price vector, $x$ is the demand, $w$ is the budget and $n$ is the dimension of the vector.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Luckily, this is always compact.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, no, you cannot show there is a unique solution, because in that case you can't show there is a solution in the first place (using standard tools).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However,  you are correct in thinking that uniqueness itself does not hinge upon the compactness of the budget set.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastEditorUserId="5557" LastEditDate="2017-01-31T21:20:53.277" LastActivityDate="2017-01-31T21:20:53.277" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13906" PostTypeId="2" ParentId="13879" CreationDate="2016-10-24T22:47:52.030" Score="1" Body="&lt;p&gt;Labor productivity, as measured by output per worker or output per worker hour, is a function of many factors. Let me mention a few in the framework of &lt;em&gt;growth theory&lt;/em&gt;. Many economists consider at least three factors that determine economic growth: &lt;strong&gt;human capital&lt;/strong&gt;, &lt;strong&gt;physical capital&lt;/strong&gt;, and the “&lt;strong&gt;efficiency&lt;/strong&gt;” with which human capital and physical capital are used to produce output (the jargon is “Total Factor Productivity”, or TFP). “Labor productivity” in the question is affected by all these three factors.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, labor productivity is clearly affected by human capital, the skills and capabilities of workers, which in turn is determined by many factors, including education, training, and health. So anything that improves education, training, and health is likely to increase labor productivity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Second, labor productivity also depends on stock and quality of physical capital. Physical capital includes durable production inputs such as infrastructure, factory buildings, machines, and computers. Tractors and airplanes have vastly improved the labor productivity of U.S. farmers. But not only new generations of physical capital improves labor productivity, the quantity of physical capital also matters for productivity, at least before saturation. More assembly lines in a factory usually means less downtime of production. More computers in the firm means fewer workers have to share computers with others.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Third, more efficient ways to combine human capital and physical capital also contribute to increasing labor productivity. Technology and organizational advances play important roles in this regard. Assembly lines, telecommunications, and the invention of modern firms fall into this category. Note that some technological progress is embodied in the physical capital, e.g. cellphones and computers make workers more efficient in coordinating production.&lt;/p&gt;&#xA;" OwnerUserId="10853" LastActivityDate="2016-10-24T22:47:52.030" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13910" PostTypeId="1" AcceptedAnswerId="13914" CreationDate="2016-10-25T01:32:14.913" Score="5" ViewCount="13640" Body="&lt;p&gt;In my economics class, we often compute the elasticity of $Y$ with respect to $X$,&#xA;$$\eta = \frac{\partial \log Y}{\partial \log X}.$$&#xA;You can compute this from the slope of a line fit to a log-log plot. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why is it more natural to consider this quantity than the much simpler quantity&#xA;$$\eta' = \frac{\partial Y}{\partial X}$$&#xA;which is just as easy to measure? There seems to be some implicit assumption that $\eta$ is perhaps 'more applicable', maybe that it's less sensitive to the value of $X$ than $\eta'$ is, so it's more useful for extrapolation. For example, I've seen a demand curve extrapolated by assuming that $\eta$ is constant, yielding a power law. But why not assume $\eta'$ is constant, yielding a line? Neither seems particularly more natural to me.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why is $\eta$ a more useful quantity than $\eta'$ in economics?&lt;/p&gt;&#xA;" OwnerUserId="10861" LastActivityDate="2016-10-26T00:05:25.240" Title="Why are elasticities defined as logarithmic derivatives?" Tags="&lt;microeconomics&gt;&lt;elasticity&gt;" AnswerCount="4" CommentCount="0" FavoriteCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="13911" PostTypeId="1" CreationDate="2016-10-25T01:59:03.337" Score="3" ViewCount="132" Body="&lt;p&gt;Good night, I'm reading the Romer's macroeconomy book in the page 42, &quot;A complication&quot; section title. The begin of third paragraph say:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;This is not a general property of production functions, however. &lt;strong&gt;With Cobb–Douglas production, the elasticity of substitution between inputs is 1&lt;/strong&gt;.  ...&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I understand that the factors elasticity of sustitution is defined like $El_x(y)=\frac{d\,\ln(y)}{d\,\ln(x)}$ in this case will be $El_K(L)=\frac{d\,\ln(L)}{d\,\ln(K)}=\frac{d L}{d K}\frac{K}{L}$.&#xA;From Cobb-Douglas simplest function $Y=K^\alpha L^{1-\alpha}$ we have, for $Y=const$, $K=(YL^{\alpha-1})^{1/\alpha}$ then&#xA;$$\frac {d K}{d L}=\frac{ \alpha - 1}{\alpha}\left(\frac{Y}{L}\right)^{1/\alpha}$$&#xA;now replacing in the formula:&#xA;$$El_L(K)=\frac{ \alpha - 1}{\alpha}\left(\frac{Y}{L}\right)^{1/\alpha}\times\frac{L}{K}$$ operating we have&#xA;$$El_L(K)=\frac{\alpha-1}{\alpha}$$&#xA;like $El_L(K)=\frac{1}{El_K (L)}$ then $El_K (L)=\frac{\alpha}{\alpha-1}$.&#xA;The point is that this values are unequal to one.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Am I interpreting wrong the affirmation? Thanks for your help.&lt;/p&gt;&#xA;" OwnerUserId="10819" LastEditorUserId="10819" LastEditDate="2016-10-25T02:25:53.197" LastActivityDate="2018-09-07T16:17:20.457" Title="The factor elasticities from a Cobb-Douglas function in Romer's macroeconomy book" Tags="&lt;macroeconomics&gt;&lt;production-function&gt;&lt;cobb-douglas&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13912" PostTypeId="2" ParentId="13910" CreationDate="2016-10-25T02:39:10.720" Score="1" Body="&lt;p&gt;One extremely function throughout economics is the Cobb-Douglas functional form (eg. $y = bx_1^a x_2^b$). This won't just show up in utility functions, but also production functions or growth functions (like in the Solow Swan model).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Taking the log-log form here has a few implications. First, it drops $a$ and $b$ from exponents to linear coefficients, which gives you a form $lny = b+alnx_1+blnx_2$. This is important, because you can run a linear regression on this functional form, but not the original one. You can see an example of that in &lt;a href=&quot;http://eml.berkeley.edu/~dromer/papers/MRW_QJE1992.pdf&quot; rel=&quot;nofollow&quot;&gt;this paper&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It also has applications in empirical microeconomics; you can test to see if a firm has increasing, decreasing or constant returns to scale if you find $a+b &amp;gt; or &amp;lt; 1$. This can have important implications; it can answer some questions like &quot;should we break up these big companies?&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Second it makes the math nicer in some cases. This can actually be useful in some cases; in Maximum likelihood estimation having a more mathematically friendly functional form can save you hours of computation time finding maxima.&lt;/p&gt;&#xA;" OwnerUserId="10734" LastEditorUserId="10734" LastEditDate="2016-10-25T03:11:45.343" LastActivityDate="2016-10-25T03:11:45.343" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13913" PostTypeId="2" ParentId="13910" CreationDate="2016-10-25T03:05:06.380" Score="3" Body="&lt;p&gt;First, elasticity measures the responsiveness of quantity demanded or quantity supplied when a change in price occurs. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;These measurements are made in percentage change form. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;From my perspective, the main reason you are computing elasticity using $log$ is because doing this puts your data in percentage terms. Given that elasticity is a ratio of percentage change in quantity demanded/supplied to the percentage change in price, this would be the most plausible explanation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You will see using $log$ to transform data into percentage terms in Econometrics courses.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Update:&lt;/strong&gt; I don't think it is more &quot;natural&quot; to phrase things as percentages. But percentages can give more information. They give relative information. For example, Suppose you have \$100 and I have \$10. A third person gives each of us \$1, now you have \$101 and I have \$11. In absolute terms, we both received a dollar, but in percentage terms, your cash grew by 1% and my cash grew by 10%. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I hope this helps!&lt;/p&gt;&#xA;" OwnerUserId="10862" LastEditorUserId="4185" LastEditDate="2016-10-25T17:08:38.093" LastActivityDate="2016-10-25T17:08:38.093" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13914" PostTypeId="2" ParentId="13910" CreationDate="2016-10-25T03:20:46.567" Score="9" Body="&lt;p&gt;If I understand your question, first the elasticity haven't units. The problem with $\partial Y/\partial X$ is that if you change the measure units the result is different. Is less problematic to express it in percentages:&#xA;$$ El_X(Y)=\frac{\Delta Y/Y}{\Delta X/X}$$&#xA;if $\Delta Y \to 0$ when $\Delta X \to 0$ then you obtain $$El_X(Y)=\frac{dY}{dX}\frac{X}{Y}$$ if $Y=Y(X,W,...,Z)$ you change $d$ for $\partial$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Second, like you know $d \log(x)=\frac{dx}{x}$ thus $$ El_X(Y)=\frac{d Y}{d X}\frac{X}{Y}=\frac{d\log(Y)}{d\log(X)}.$$&lt;/p&gt;&#xA;" OwnerUserId="10819" LastEditorUserId="10819" LastEditDate="2016-10-25T12:31:10.913" LastActivityDate="2016-10-25T12:31:10.913" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13916" PostTypeId="1" AcceptedAnswerId="13917" CreationDate="2016-10-25T04:32:50.137" Score="6" ViewCount="6114" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Suppose we have the following equations for the MRS of a utility function. $$U(x, y)$$&#xA;  Which of the following corresponds to a homothetic utility function?&lt;/p&gt;&#xA;  &#xA;  &lt;ol&gt;&#xA;  &lt;li&gt;&lt;p&gt;$$MRS (x, y) = \frac{x^2+y^2}{xy}$$&lt;/p&gt;&lt;/li&gt;&#xA;  &lt;li&gt;&lt;p&gt;$$ MRS(x, y) = 2(x + y)$$&lt;/p&gt;&lt;/li&gt;&#xA;  &lt;/ol&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The answer is 1. But why the second equation is not homothetic?&lt;/p&gt;&#xA;" OwnerUserId="8021" LastEditorUserId="42" LastEditDate="2017-06-10T15:35:46.970" LastActivityDate="2018-12-21T06:17:05.523" Title="What is a homothetic function?" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13917" PostTypeId="2" ParentId="13916" CreationDate="2016-10-25T06:17:08.957" Score="8" Body="&lt;p&gt;If a utility function is homothethic,&#xA;$-\frac {\frac {\partial u}{\partial x} (tx)} {\frac {\partial u} {\partial y} (ty)} = -\frac {\frac {\partial u}{\partial x} (x)} {\frac {\partial u} {\partial y} (y)} $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words, the MRS must be homogenous of degree zero.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence, for $MRS(tx,ty)=2(tx+ty)=2t(x,y)=t MRS(x,y)$ is homogenous of degree 1&lt;/p&gt;&#xA;&#xA;&lt;p&gt;While $MRS(tx,ty)=\frac{(tx)^{2}+(ty)^{2}}{(tx)(ty)}=\frac{t^{2}(x+y)}{t^{2}(xy)}=\frac{x^{2}+y^{2}}{xy}=MRS(x,y)$ is homogenous of degree 0.&lt;/p&gt;&#xA;" OwnerUserId="10069" LastEditorUserId="10069" LastEditDate="2016-10-25T07:34:15.207" LastActivityDate="2016-10-25T07:34:15.207" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13918" PostTypeId="2" ParentId="88" CreationDate="2016-10-25T09:01:01.113" Score="3" Body="&lt;p&gt;There is a lot of misunderstanding here. First, LTV only operates in capitalist societies. In capitalist society, production is guided by the market, without anyone coordinating between the various branches of production from above. Wealth takes the form of commodities, which have different prices relative to each other. For marginal utility, prices do not reflect anything real. For LTV, prices are an approximation of value, or the value &quot;added&quot; to a commodity with labor-power. Why labor-power? A capitalist brings together two things to make commodity production possible: means of production (technology, machinery, etc) and labor-power (workers). Yet, if a capitalist ONLY buys means of production, no commodities are produced, i.e., no new value is produced. But with labor-power, a capitalist does not simply buy a room full of bodies, he buys labor-power, the ability to produce. He pays the workers a wage and keeps the difference (the commodities produced): this is why labor-power is the only source of value in a capitalist society. A capitalist averages out his labor costs (so even if worker A works slightly faster than worker B, every car that comes off the line is still worth $15,000). Outputs are always worth more than the inputs (a chair is worth more than raw wood), and labor-power is the only way to explain this surplus. Even machinery needs laborers and repairs, etc. The prices of commodities therefore reflect the total of amount of society's labor that goes into producing them: a car costs 20,000 times a can of beans because more labor went into producing it (it had a higher cost of production for the capitalist). LTV is meant to explain the system of commodity production. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(As a side note, the water and diamonds &quot;paradox&quot; points more to the limitations of marginal utility. We cannot say for sure that someone will take water over diamonds, even if dying of thirst. What if they take the diamonds, to leave as an inheritance? What if they take the diamond because they are miserable and want to die? What if a religious belief in crystal healing convinces them that diamonds will save their life? There is no way for marginal utility to sufficiently answer the question either). &lt;/p&gt;&#xA;" OwnerUserId="10867" LastActivityDate="2016-10-25T09:01:01.113" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13919" PostTypeId="1" CreationDate="2016-10-25T13:45:54.067" Score="1" ViewCount="178" Body="&lt;p&gt;Let's imagine there's only one final good produced by one firm, in a perfect competition market. In the intermediate market, we have $N$ goods which are produced and used as factor inputs for the production function of the final good. The intermediate market is characterized by being monopolistically competitive, where firms only use labour as a factor input. Households consume the final good only, and supply labour.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm interested in references for models in this setting, because I'm reading Michael Wickens Macro book, and in page 228 (2nd edition), does the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/GJUqn.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/GJUqn.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand the math behind the equation. What I don't understand is how the author can state that there is an efficiency loss? (The final good production function is a discrete version of a CES function)&lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="2776" LastEditDate="2017-05-08T12:18:28.383" LastActivityDate="2017-05-08T12:18:28.383" Title="How to solve model with a final good (in a perfect competition), and intermediate goods (monopolistic competition)?" Tags="&lt;macroeconomics&gt;&lt;industrial-organisation&gt;&lt;new-keynesian-economics&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13920" PostTypeId="1" AcceptedAnswerId="13921" CreationDate="2016-10-25T14:01:49.940" Score="2" ViewCount="30" Body="&lt;p&gt;Has the IMF ever admitted mistakes on it's economic policies prior to the Greek crisis?&lt;/p&gt;&#xA;" OwnerUserId="10873" LastActivityDate="2016-10-25T14:58:53.793" Title="In which cases prior to the Greek crisis did the IMF admit mistakes in it's economic policies?" Tags="&lt;international-economics&gt;&lt;financial-crises&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="13921" PostTypeId="2" ParentId="13920" CreationDate="2016-10-25T14:58:53.793" Score="1" Body="&lt;p&gt;Yes.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The International Monetary Fund yesterday admitted that its mistakes&#xA;  helped plunge Argentina deeper into the red during the currency crisis&#xA;  that crippled the country's economy three years ago.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;In a report published yesterday by its independent evaluation office,&#xA;  the IMF said it ought to have prevented the Argentine government from&#xA;  following poor economic policies.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&quot;IMF surveillance failed to highlight the growing vulnerabilities in&#xA;  the authorities' choice of policies and the IMF erred by supporting&#xA;  inadequate policies too long,&quot; it said.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.telegraph.co.uk/finance/2891368/IMF-admits-mistakes-in-Argentina-crisis.html&quot; rel=&quot;nofollow&quot;&gt;IMF admits mistakes in Argentina crisis&lt;/a&gt; By Edmund Conway&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The actual report is here: &lt;a href=&quot;https://www.imf.org/External/NP/ieo/2004/pr/eng/pr0402.htm&quot; rel=&quot;nofollow&quot;&gt;IMF's Independent Evaluation Office Announces Release of Report on the Role of the IMF in Argentina&lt;/a&gt; &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2016-10-25T14:58:53.793" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13922" PostTypeId="1" CreationDate="2016-10-25T15:06:06.350" Score="1" ViewCount="180" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/dkUhc.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/dkUhc.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hi&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;Assume that two countries can potentially trade goods in an industry that is characterized by external economies of scale. Country B produces at Q(B) in autarky and country A produces at Q(A) in autarky. What will the allocation of production look like if the two countries start to trade?&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My intuition would be that country A would produce a greater output since they have a lower AC than country B at the autarky outputs, but will this continue so that country A actually produces everything?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks!&lt;/p&gt;&#xA;" OwnerUserId="10874" LastEditorUserId="10874" LastEditDate="2016-10-25T15:29:09.530" LastActivityDate="2016-10-25T15:29:09.530" Title="External economies of scale: who will produce when going from autarky to free trade?" Tags="&lt;international-trade&gt;&lt;international-economics&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13923" PostTypeId="1" CreationDate="2016-10-25T17:06:35.417" Score="2" ViewCount="689" Body="&lt;p&gt;Suppose we have a two-good economy, and we know that good 1 is a normal good. Can we then make any meaningful observation about the demand for good 1 when we change the price of good 2 and keep the price of good 1 constant? &lt;/p&gt;&#xA;" OwnerUserId="10876" LastActivityDate="2016-10-26T13:09:37.963" Title="Two-good economy, can we tell if the demand of good 1 rises or falls when the price of good 2 rises (price of 1 is constant)?" Tags="&lt;microeconomics&gt;&lt;price&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13924" PostTypeId="1" CreationDate="2016-10-25T17:41:06.883" Score="1" ViewCount="21" Body="&lt;p&gt;Are there research (and stories more broadly) about professional open source companies? To what types of products their are appropriate, what licensing schemes to choose? How to managed patents and IP? How to motivate and build HR and how to attract volunteer community? How to involve academia in the project? How to organise ownership and how to achieve profitability? What is the past performance of the professional open source companies - what success stories and what failures, what are lessons learned?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This question seems to be quite broad, but the subject is nascent and therefore narrow. That is why this question is focused and narrow as well.&lt;/p&gt;&#xA;" OwnerUserId="5373" LastActivityDate="2016-10-25T17:41:06.883" Title="Microeconomics and management science of professional open source companies?" Tags="&lt;microeconomics&gt;&lt;industrial-organisation&gt;&lt;firm&gt;&lt;theory-of-the-firm&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13925" PostTypeId="2" ParentId="13910" CreationDate="2016-10-25T19:38:57.450" Score="1" Body="&lt;p&gt;First, the interpretation of $\eta=\frac{\partial\log y}{\partial\log x}$ and $\eta'=\frac{\partial y}{\partial x}$ are different. $\eta$ is the ratio of percent change and $\eta'$ is the ratio of absolute change. But you already know that. The real question is not why we define “elasticity” as a ratio of percent changes rather than absolute changes in economics, because that's how we use the word “elasticity” in everyday life: suppose rubber band A is 10 inches long and can be stretched by 1 inch when force F is applied, and rubber band B is 1 inch long and can be stretched by 0.5 inch when the same force F is applied. We would say rubber band B is more “elastic” than A, because we don't care about absolute change, but relative change when defining “elasticity”.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So I think your question is “why is elasticity $\eta$ more applicable/useful than $\eta'$?” My answer is that $\eta$ is not more useful/applicable/natural. Both $\eta$ and $\eta'$ are useful in different applications.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Take the price elasticity example. At unit price \$1, consumer A would buy 10 apples, and consumer B would buy 5 apples. At unit price \$2, consumer A would buy 6 apples, and consumer B would buy 1 apple. That is, when the price of apples increases by \$1, both consumers will reduce their purchase by 4 apples. For both consumers, $\eta'=\frac{\Delta\text{apples}}{\Delta\text{price}}=4$. This is a useful quantity if what we wanted to know is what happens to the sales of apples if price increased by \$1. But if we wanted to know which consumer would respond more dramatically to the price change, $\eta'$ is not a good measure. Because it seems consumer B is more “sensitive” to the price changes: she would cut her apple consumption by 80%, compared with only 40% reduction of consumer A. So $\eta$ is a better measure of this “sensitivity” or “elasticity” with respect to price changes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In your demand curve extrapolation example, assuming constant elasticity $\eta$ is probably closer to truth than assuming constant $\eta'$. If you assume constant $\eta'$, the demand curve is a straight line. This effectively means price change from \$1 to \$2 will induce same change in quantity demanded as the price change from \$100 to \$101. But this is not supported by either evidence or common sense. Human brain does not seem to work this way. In this sense, relative changes do seem to be relevant in more economic applications than the absolute changes.&lt;/p&gt;&#xA;" OwnerUserId="10853" LastEditorUserId="10853" LastEditDate="2016-10-26T00:05:25.240" LastActivityDate="2016-10-26T00:05:25.240" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13926" PostTypeId="2" ParentId="13828" CreationDate="2016-10-25T20:23:00.070" Score="0" Body="&lt;p&gt;Use the &lt;code&gt;tssmooth ma&lt;/code&gt; command. Use the &lt;code&gt;window()&lt;/code&gt; option to control time periods to be included in the average.&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;. use http://www.stata-press.com/data/r14/abdata, clear&#xA;. keep id year wage&#xA;. quietly keep if id == 1 | id == 2&#xA;. quietly xtset id year&#xA;. &#xA;. ** moving average of 2 years before, 2 years after, and the current year&#xA;. tssmooth ma wage_moving_avg_5yr = wage, window(2 1 2)&#xA;The smoother applied was&#xA;     by id : (1/5)*[x(t-2) + x(t-1) + 1*x(t) + x(t+1) + x(t+2)]; x(t)= wage&#xA;&#xA;. list&#xA;&#xA;     +--------------------------------+&#xA;     | year      wage   id   wage_m~r |&#xA;     |--------------------------------|&#xA;  1. | 1977   13.1516    1    12.7643 |&#xA;  2. | 1978   12.3018    1    13.0242 |&#xA;  3. | 1979   12.8395    1    13.2773 |&#xA;  4. | 1980   13.8039    1    13.6206 |&#xA;  5. | 1981   14.2897    1   13.91592 |&#xA;     |--------------------------------|&#xA;  6. | 1982   14.8681    1   14.18503 |&#xA;  7. | 1983   13.7784    1   14.31207 |&#xA;  8. | 1977   14.7909    2   14.61597 |&#xA;  9. | 1978   14.1036    2   14.83472 |&#xA; 10. | 1979   14.9534    2   15.10716 |&#xA;     |--------------------------------|&#xA; 11. | 1980    15.491    2   15.37526 |&#xA; 12. | 1981   16.1969    2   15.81556 |&#xA; 13. | 1982   16.1314    2    16.0311 |&#xA; 14. | 1983   16.3051    2   16.21113 |&#xA;     +--------------------------------+&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Note that this command takes what's available in the specified time period. For example, for year 1977, since two previous years are not available, it simply calculate the average of current year and the next two years.&lt;/p&gt;&#xA;" OwnerUserId="10853" LastActivityDate="2016-10-25T20:23:00.070" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13928" PostTypeId="2" ParentId="13856" CreationDate="2016-10-25T21:00:29.667" Score="1" Body="&lt;p&gt;&lt;code&gt;mean&lt;/code&gt; command with &lt;code&gt;pweight&lt;/code&gt; gives you mean and sd estimates, which in turn gives you estimate of the coefficient of variation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;code&gt;pctile&lt;/code&gt; also takes &lt;code&gt;pweight&lt;/code&gt;. It will generate percentiles.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;code&gt;kdensity&lt;/code&gt; only gives point estimates, not confidence intervals of the density estimates, so I think using &lt;code&gt;fweight&lt;/code&gt; instead of &lt;code&gt;pweight&lt;/code&gt; is fine. But I'm not certain about this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Alternatively, &lt;code&gt;svy:&lt;/code&gt; commands may make your life easier when working with survey data. See &lt;a href=&quot;http://www.ats.ucla.edu/stat/stata/faq/svy_introsurvey.htm&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt; for a quick intro.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, think through whether you want to describe your &lt;strong&gt;sample&lt;/strong&gt;, or to make inference about the &lt;strong&gt;population&lt;/strong&gt;. See &lt;a href=&quot;http://www.stata.com/support/faqs/statistics/weights-and-summary-statistics/&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt; for an example. An relevant quote from the link:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;It was intentional that &lt;code&gt;summarize&lt;/code&gt; does not allow &lt;code&gt;pweights&lt;/code&gt;. &lt;code&gt;summarize&lt;/code&gt;’s purpose, as I see it, is to provide descriptive statistics for the sample, not to provide inferential statistics for the population. By this criterion, I argue that &lt;code&gt;pweights&lt;/code&gt; do not belong here since &lt;code&gt;pweights&lt;/code&gt; are used to provide estimates of the population parameter mu.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="10853" LastActivityDate="2016-10-25T21:00:29.667" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13929" PostTypeId="1" AcceptedAnswerId="17198" CreationDate="2016-10-25T21:56:19.920" Score="5" ViewCount="2607" Body="&lt;p&gt;In Advanced Microeconomic theory by Jehle and Reny there is a proof of the theorem which states the existence of utility function.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In order to prove the existence of a utility function $u(\mathbf{x})$ which represents binary relation $\succeq$ if it is complete, transitive, continuous, and strictly monotonic, it is suggested to consider a mapping&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$u: \mathbb{R_+^n} \to \mathbb{R}$  such that $u(\mathbf{x})e\sim \mathbf{x}$ is satisfied, where $\mathbf{x}$ is a bundle, $u(\mathbf{x})$ is some number and $\mathbf{e}$ is a bundle which contains one of every good.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So &lt;strong&gt;first&lt;/strong&gt; we need to show that there always exists such number $u(\mathbf{x})$. &#xA;To do this consider two sets:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$A \equiv \{t \geq 0 \mid t\mathbf{e} \succeq \mathbf{x}\}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$B \equiv \{t \geq 0 \mid t\mathbf{e} \preceq \mathbf{x}\}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;if $t^* \in  A \cap B$, then $t^*\mathbf{e} \sim \mathbf{x}$, so we need to show that $A \cap B$ is nonempty.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The continuity of $\succeq$ implies that both A and B are closed in $\mathbb{R_+}$. By strict monotonicity, $t \in A$ implies $t' \in A,$ $\forall$  $ t'\geq t$. So $A=[\underline{t}, \infty)$. &#xA;Similarly $B=[0, \overline{t}]$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For any $t \geq 0$, completeness of $\succeq$ implies that either $t\mathbf{e} \succeq \mathbf{x}$ or $t\mathbf{e} \preceq \mathbf{x}$, &#xA;i.e., $t \in A \cup B$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\mathbb{R_+} = A \cup B = [0, \overline{t}] \cup [\underline{t}, \infty)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So in order to $A \cap B$ be nonempty it should be that $\underline{t} \leq \overline{t}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But is it always like this? I can't see why the last inequality should hold always.&lt;/p&gt;&#xA;" OwnerUserId="10838" LastEditorUserId="2776" LastEditDate="2017-04-13T08:20:30.150" LastActivityDate="2017-06-16T12:19:04.730" Title="Proving existence of utility function" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;utility&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13930" PostTypeId="2" ParentId="13923" CreationDate="2016-10-25T22:17:03.790" Score="0" Body="&lt;p&gt;If consumers make choices on a constrained budget, the marginal net utility derived from the consumption of the good 1 would be relatively higher than the good 2 after its price hike.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, an indirect effect of the increase of the price of the good 2 would be an increase of the demand for good 1 as consummer preferences realign toward it.&lt;/p&gt;&#xA;" OwnerUserId="10879" LastEditorUserId="10879" LastEditDate="2016-10-26T11:51:37.983" LastActivityDate="2016-10-26T11:51:37.983" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="13931" PostTypeId="1" AcceptedAnswerId="13933" CreationDate="2016-10-26T01:53:08.847" Score="9" ViewCount="18718" Body="&lt;p&gt;I'm doing independent study and I am having trouble understanding the difference between these two estimators.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I get that 2SLS is predicting the endogenous variable, and that instrumental variables are similar to proxy variables, but I don't get how one differs from the other.&lt;/p&gt;&#xA;" OwnerUserId="4657" LastEditorUserId="4230" LastEditDate="2016-10-26T17:43:20.387" LastActivityDate="2020-08-01T14:22:55.520" Title="What is the difference between two stage least squares and instrumental variable regression?" Tags="&lt;econometrics&gt;&lt;instrumental-variable&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="13932" PostTypeId="1" CreationDate="2016-10-26T03:22:08.107" Score="1" ViewCount="80" Body="&lt;p&gt;The definition of revealed preferred seems like coming out of nowhere. Why there's a string of direct revealed preferences lie between? Can we use directly revealed preferred in GARP condition ------GARP says that if $x \succsim_{D} y$, $y \nsucceq_{D} x$?&lt;/p&gt;&#xA;" OwnerUserId="10417" LastActivityDate="2016-11-16T22:02:59.070" Title="Why we use revealed preferred condition in GARP instead of directly revealed preferred?" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13933" PostTypeId="2" ParentId="13931" CreationDate="2016-10-26T03:23:39.913" Score="6" Body="&lt;p&gt;IV estimators &lt;em&gt;are&lt;/em&gt; 2SLS estimators.&lt;/p&gt;&#xA;&lt;p&gt;An IV estimator is the sample analog of the form: &lt;span class=&quot;math-container&quot;&gt;$\beta = \frac{Cov(Y, Z)}{Cov(X, Z)}$&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt; is the outcome variable, &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; is the endogenous variable, and &lt;span class=&quot;math-container&quot;&gt;$Z$&lt;/span&gt; is the instrumental variable.&lt;/p&gt;&#xA;&lt;p&gt;It can be shown that the 2SLS is of the above form. The advantage of 2SLS estimators over other IV estimators is that 2SLS can easily combine multiple instrumental variables, and it also makes including control variables easier.&lt;/p&gt;&#xA;" OwnerUserId="10853" LastEditorUserId="-1" LastEditDate="2020-08-01T14:22:55.520" LastActivityDate="2020-08-01T14:22:55.520" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="13934" PostTypeId="2" ParentId="13877" CreationDate="2016-10-26T04:29:42.307" Score="1" Body="&lt;p&gt;Commercial banks do a lot of lending and borrowing among each other and that is a sign of healthy flow of money in economy. This is because inter-bank activities ensure that enough credit is available and banks are engaging in lending to businesses, individuals etc. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, sometimes such lending is not what the central bank thinks it should be. Commercial banks may be cautious in lending to public or even to each other. This can happen when there are not enough investment opportunities according to them or because of low market sentiments. Banks at such times play safe and would rather park their money in their central bank accounts in the form of excess reserves.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In such situations, when central bank reduces its rates there is less incentive for banks to park their money with it as their could be some other opportunities which could be more profitable. Secondly, the banks would have cheaper credit which can be used to finance their assets, to give loans and in case they face shortage of cash, central bank window is there to help them. Thus, reduction of rates by central bank can have many transmission mechanisms. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, there is absolutely no guarantee that such transmissions will happen. This depends on how the commercial banks receive this. How market reacts to this. Transmissions may take months or even years to complete. Within this period, the economy itself might grow or slow down and hence, the actual effect of these rate cuts or hikes could be just opposite to what the central bank intended. Hence, it's a tricky, inexact science and central banks have to work in a lot of uncertainty. &lt;/p&gt;&#xA;" OwnerUserId="5582" LastActivityDate="2016-10-26T04:29:42.307" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13935" PostTypeId="1" AcceptedAnswerId="13936" CreationDate="2016-10-26T10:05:24.620" Score="3" ViewCount="23546" Body="&lt;p&gt;I presume it's because they're price makers, but this doesn't really answer much. Furethermore, in a monopoly is it Marginal Cost or Long run marginal cost that's horizontal?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/Lu1fm.gif&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Lu1fm.gif&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="6782" LastActivityDate="2021-02-02T17:15:09.553" Title="Why is the Marginal Cost (MC) of a monopoly horizontal" Tags="&lt;monopoly&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13936" PostTypeId="2" ParentId="13935" CreationDate="2016-10-26T10:08:40.450" Score="4" Body="&lt;p&gt;That is basically an assumption here. Often in monopoly problems we assume constant marginal costs (i.e. a linear cost function) to keep things simple. In that case the Marginal Cost Curve is horizontal in the graph.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastActivityDate="2016-10-26T10:08:40.450" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="13938" PostTypeId="2" ParentId="13874" CreationDate="2016-10-26T11:21:06.733" Score="0" Body="&lt;p&gt;Start with savings: &lt;code&gt;S private = Y - C - T&lt;/code&gt; and &lt;code&gt;S government = T - G&lt;/code&gt;. Net exports will not affect savings. So, given that &lt;code&gt;Y = C + I + G + NX&lt;/code&gt;, total savings is &lt;code&gt;S = C + I + G + NX - C - T + T - G&lt;/code&gt; which means &lt;code&gt;S = I + NX&lt;/code&gt; or &lt;code&gt;NX = S - I&lt;/code&gt;. Intuitively, exports are like capital imports (and vic versa).&lt;/p&gt;&#xA;" OwnerUserId="10884" LastActivityDate="2016-10-26T11:21:06.733" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13939" PostTypeId="2" ParentId="13923" CreationDate="2016-10-26T13:09:37.963" Score="1" Body="&lt;p&gt;Check out &lt;a href=&quot;http://njsanders.people.wm.edu/100A/Deriving_Demand_Functions_Examples.pdf&quot; rel=&quot;nofollow&quot;&gt;the demand functions&lt;/a&gt; for three cases:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;CES Utility&lt;/li&gt;&#xA;&lt;li&gt;Leontief Utility&lt;/li&gt;&#xA;&lt;li&gt;Cobb-Douglas Utility&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;You should be able to see that the first case gives you that demand for good 1 increases, the second case demand for good 1 decreases, and in case 3 it is unchanged. &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2016-10-26T13:09:37.963" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13940" PostTypeId="2" ParentId="13874" CreationDate="2016-10-26T13:19:00.347" Score="2" Body="&lt;p&gt;I believe this is the intuition:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What do people use to buy foreign goods? &lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;Either they have to offer domestic goods or they have to offer domestic assets. &#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;What do people use to make foreign investments? &lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;Either they have to offer domestic goods or they have to offer domestic assets. &#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;So if a country sells more exports than it buys imports then it must be that it is buying more foreign assets than they are selling domestic assets. Otherwise whey would be exchanging both less domestic assets and less domestic goods for both more foreign assets and more foreign assets. But since that's the entire set of things usable for trade, that's not possible.  &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2016-10-26T13:19:00.347" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13941" PostTypeId="2" ParentId="13931" CreationDate="2016-10-26T13:27:31.307" Score="15" Body="&lt;p&gt;&lt;strong&gt;The meaning of the words first&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some people use the word &quot;IV estimator&quot; to refer to any estimator that uses instrumental variables. To them, IV estimators contain 2SLS, LIML, k-class estimators, and others, so 2SLS is a special case of IV. For example, the title of Bekker's (1994, Econometrica) paper is &quot;Alternative approximations to the distribution of instrumental variable estimators&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;More traditional people mean by IV the particular instrumental variable estimator $(Z'X)^{-1}Z'y$ for the exactly identified case ($Z$ = instrument matrix, $X$ = regressor matrix, $y$ = regressand vector), and 2SLS is a generalization of IV to the overidentified case. But, as Paul says, 2SLS can be expressed as an IV estimator of this second sense because it is $(\hat{X}'X)^{-1} \hat{X}'y$, where $\hat{X} = Z(Z'Z)^{-1}Z'X$ is the instrument matrix.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I personally think it is very fine to leave the meaning of IV estimators ambiguous because the meaning is usually clear in the context and we need not rigorously distinguish them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;As for your question ...&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems to me that the sentence &quot;2sls is predicting the endogenous variable&quot; means the first stage regression of the endogenous regressor on the instrumental variables (to get $\hat{X}$). The expression &quot;instrumental variables are similar to proxy variables&quot; looks more casual. Proxy variables (e.g., IQ for ability) can be used to solve the endogeneity problem. Instrumental variables are another way of solving the endogeneity problem. In that sense they are &quot;similar&quot;.&lt;/p&gt;&#xA;" OwnerUserId="10775" LastActivityDate="2016-10-26T13:27:31.307" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="13942" PostTypeId="1" CreationDate="2016-10-26T14:57:56.927" Score="2" ViewCount="9309" Body="&lt;p&gt;I've heard these two terms crop up quite frequently, and suspect they may be interchangeable. Deadweight loss - I'm sure I've encountered this in tariff evaluation; for effects of indirect taxes, I've seen textbooks that use deadweight loss. Welfare loss - I've seen textbooks refer to the social costs of profit-maximising monopolies who set prices higher and output lower than that of perfectly competitive firms as welfare loss. Is there really a difference between deadweight loss and welfare loss?&lt;/p&gt;&#xA;" OwnerUserId="6782" LastActivityDate="2016-10-28T07:44:29.603" Title="Is there a difference between deadweight loss and welfare loss?" Tags="&lt;welfare&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13943" PostTypeId="1" CreationDate="2016-10-26T15:20:01.077" Score="4" ViewCount="617" Body="&lt;p&gt;During the great depression the money supply in the US fell by about a third. It is my suspicion that any economy with a falling money supply will generally be doing badly but of course I could be wrong. So I was wondering if the were any examples in any countries (preferably not going back to ancient times) where an economy has had a steadily shrinking money supply but has been doing well with respect to other economic variables like unemployment?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;EDIT:&lt;/strong&gt; I am interested in theoretical answers to this question too.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;EDIT:&lt;/strong&gt; there are multiple measures of a money supply - so I should say that I am referring to any measure which includes notes and coins as well as &quot;demand deposits&quot; a.k.a. &quot;credit&quot; a.k.a. &quot;cheque book money&quot; (so many names for the same thing!).&lt;/p&gt;&#xA;" OwnerUserId="5081" LastEditorUserId="5081" LastEditDate="2016-11-29T15:12:32.267" LastActivityDate="2017-04-06T09:25:15.453" Title="Is a shrinking money supply environment painful for an economy?" Tags="&lt;money-supply&gt;" AnswerCount="3" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13944" PostTypeId="2" ParentId="13942" CreationDate="2016-10-26T17:17:00.180" Score="1" Body="&lt;p&gt;I would say all deadweight loss is welfare loss but not all welfare loss is deadweight loss. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example an unregulated polluter causing a negative externaly results in a welfare loss compared to the social optimum. There is no 'missing production' and hence no deadweight loss in this case.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit: According to &lt;a href=&quot;https://en.wikipedia.org/wiki/Deadweight_loss&quot; rel=&quot;nofollow&quot;&gt;Wikipedia&lt;/a&gt;, the loss created by externalities is also classified as deadweight loss.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2016-10-28T07:41:16.307" LastActivityDate="2016-10-28T07:41:16.307" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13947" PostTypeId="1" CreationDate="2016-10-26T22:50:08.173" Score="1" ViewCount="22" Body="&lt;p&gt;How does one solve the following maximization problem?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\underset{K_1, K_2, L_1, L_2}{\text{maximize  }} min\{K_1 + L_1,K_2 + L_2\}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;subject to $c(K_1 + \mu K_2) + \beta c(L_1 + \mu L_2)$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $c(.)$ is a cost function that is increasing and convex in its argument, and $\mu$ and $\beta$ are exogenous parameters. &lt;/p&gt;&#xA;" OwnerUserId="10893" LastActivityDate="2016-10-26T22:50:08.173" Title="Perfect complement outputs with each output being composed of substitutable inputs" Tags="&lt;microeconomics&gt;&lt;optimization&gt;&lt;leontief&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13949" PostTypeId="1" CreationDate="2016-10-27T01:23:54.747" Score="4" ViewCount="1534" Body="&lt;p&gt;My question is about gold standard. But not the version I always see mentioned (trading bills for gold at a set price). I mean having gold coins in circulation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, new currency consists entirely of gold coins (various sizes/purity diluted with worthless metal). The ratio is 1¢/mg with coins ranging from 1 cent to 100 dollars (worth roughly 5x that in current money). The 100 dollar coin maybe being pure gold (quarter-sized, used mostly for saving).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This system seems to have a few good advantages. Simple to understand, minimal inflation (I think), people owning real value instead of worthless paper/plastic being trusted etc. How well would this system function and what possible problems are there with it?&lt;/p&gt;&#xA;" OwnerUserId="10895" LastEditorUserId="43" LastEditDate="2016-10-29T12:28:42.570" LastActivityDate="2020-07-29T05:06:30.213" Title="Gold coins as currency?" Tags="&lt;currency&gt;&lt;money-supply&gt;&lt;money&gt;" AnswerCount="4" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13950" PostTypeId="2" ParentId="9135" CreationDate="2016-10-27T04:38:47.023" Score="2" Body="&lt;p&gt;The biggest difference between (1) and (3) is that (3) has incidental linear trends while (1) has common time effects. Differencing (1) gives&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(1a) $\Delta \log(uclms_{it}) = (\theta_t - \theta_{t-1}) + \beta_1 \Delta ez_{it} + \Delta \epsilon_{it}$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Comparing this to (3) you see that (3) has $\gamma_i$ in place of $\theta_t - \theta_{t-1}$ in (1a). So three things are different: (&lt;strong&gt;A&lt;/strong&gt;) As you said, it is FE vs FD; (&lt;strong&gt;B&lt;/strong&gt;) the trend is free (using dummies) in (1), while linear in (3); (&lt;strong&gt;C&lt;/strong&gt;) the trend is common in (1) but is individual-specific in (3).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It would be interesting how much difference is introduced by each of these three points.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;About why FD is useful, well it is simple and informs us about functional relationship among variables in differences. So I'd say why not.&lt;/p&gt;&#xA;" OwnerUserId="10775" LastActivityDate="2016-10-27T04:38:47.023" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13951" PostTypeId="2" ParentId="12297" CreationDate="2016-10-27T05:56:58.453" Score="2" Body="&lt;p&gt;One explanation from psychology and behavioral economics is &quot;mental accounting&quot;: people put different transactions into different mental accounts.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When buying a house, people are imaging (probably unconsciously) a bank account dedicated to that purpose. The account's balance is pretty large (including mortgage loans). \$5000 in or out of this account does not really have any significant impact on the account.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When buying a cellphone, people are imaging a separate bank account, of which the size is much smaller than the home purchasing account. \$500 in or out of this mental account makes a big difference.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we pool all accounts together, then \$500 saved from buying a cellphone should be the same as the \$500 saved from buying a house.&lt;/p&gt;&#xA;" OwnerUserId="10853" LastActivityDate="2016-10-27T05:56:58.453" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13952" PostTypeId="1" AcceptedAnswerId="13986" CreationDate="2016-10-27T06:14:18.143" Score="2" ViewCount="144" Body="&lt;p&gt;I'm not sure if it's more economic than mathematical question but it's about analyzing a model from economics so I'd rather ask it here.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There's a model with two goods, 1 and 2. The first one has both consumer demand ($D_1(P_1)$) and the government demand ($G$, the variable is predefined externally). The second one has only $D_2(P_2)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The supply functions for both goods are: $Q^s_{1,2}=S(P_1,P_2)$ (some quantity of good 2 is used in good 1 production and vice versa) The supply quantity of good 1 increases when its own price $P_1$ increases but decreases when there's an increase in $P_2$ (as the costs increase). Also own effects dominate, so $\frac {\partial S_1}{\partial P_1} &amp;gt; |\frac {\partial S_1}{\partial P_2}|$ in absolute terms. The same is true for $S_2$. Again, I'll write out all the equations below for more clarity:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Q^d_1 = D_1(P_1)+G$$&#xA;$$Q^d_2 = D_2(P_2)$$&#xA;$$Q^s_1 = S^1(P_1, P_2)$$&#xA;$$Q^s_2 = S^2(P_1, P_2)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where I got stuck is in calculation of $\frac {\partial Q}{\partial G}$ for $Q_1, Q_2$ (the change in $Q_1$ or $Q_2$ after a change in G). The only thing that comes to my mind is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\partial D_1}{\partial P_1}*\frac {dP_1}{dG} + 1 = \frac {\partial S^1}{\partial P_1}*\frac {dP_1}{dG} + \frac {\partial S^1}{\partial P_2}*\frac {dP_2}{dG}$$ for $Q_1$, but how to calculate the $\frac {\partial Q_1}{\partial G}$ from here?&lt;/p&gt;&#xA;" OwnerUserId="6415" LastActivityDate="2016-10-29T15:03:47.420" Title="Mathematical analysis of an economic model - stuck in calculations" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="13953" PostTypeId="2" ParentId="10951" CreationDate="2016-10-27T06:35:52.473" Score="1" Body="&lt;p&gt;Let $\hat\alpha^i = \left[\sum_t (x_{it}-\bar{x}_i)^2 \right]^{-1} \sum_t (x_{it}-\bar{x}_i) (y_{it}-\bar{y}_i)$, estimator from the individual OLS regression. Let $\hat\beta$ be the FE estimator using the panel data. Then, math gives the identity&#xA;$$&#xA;\hat\beta = \sum_{i=1}^N w_i \hat\alpha^i,\quad w_i = \frac{\sum_t (x_{it}-\bar{x}_i)^2}{\sum_{j=1}^N \sum_t (x_{jt}-\bar{x}_j)^2}.&#xA;$$&#xA;This confirms ChinG's answer. (Note that the mean-group estimator is $N^{-1} \sum_{i=1}^N \hat\alpha^i$, which is different from the FE estimator.)&lt;/p&gt;&#xA;" OwnerUserId="10775" LastActivityDate="2016-10-27T06:35:52.473" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13954" PostTypeId="2" ParentId="13949" CreationDate="2016-10-27T07:24:20.593" Score="5" Body="&lt;p&gt;Here are three types of money:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Commodity money: goods of value are used as money (e.g. gold in your example, or cigarettes in a prison),&lt;/li&gt;&#xA;&lt;li&gt;Representitive money: money is still based on a commodity but, instead of actually using that commodity in exchange, they use pieces of paper that can be exchanged for the commodity (e.g. the gold standard),&lt;/li&gt;&#xA;&lt;li&gt;Fiat money: money with no intrinsic value, which is trusted by people because they government tells them it will be the official medium of exchange into the indefinite future (e.g. the modern US dollar, British pound, Euro, etc.).&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;A fourth type that is emerging (e.g., in the form of Bitcoin) has no intrinsic value and no official backing from government. It is accepted in exchange solely because people believe that will be able to spend it again in the future.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;The physical burden of physical money&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Firstly, there is a serious practical problem associated with commodity money in its purest form, namely that transporting and storing the money is difficult and expensive. If I want to buy a house, am I supposed to work around with half a million dollars worth of &quot;stuff&quot; in a briefcase and hope nobody steals it? What if I want to buy a book from Amazon? Do I have to send them some gold coins in the mail?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At the very least, these considerations are going to compel people to use representative rather than commodity money.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;The problem of debasement&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where commodity money has been used historically, it has been exposed to the problem of &quot;shaving&quot;. Since the currency is intrinsically valuable, there is an incentive to shave a tiny amount off of each coin (such that the difference is indistinguishable from normal coin wear) and melt those shavings together into a piece of precious metal that can be sold. You can read more about this &lt;a href=&quot;https://en.wikipedia.org/wiki/Methods_of_coin_debasement&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Takes away some valuable policy tools&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Imposing a commodity money would take from the government some valuable tools to deal with economic shocks. In particular, it reduces the ability of the government to use monetary policy to reduce the real effect of economic downturns. For example, during the most recent recession, major governments engaged in &quot;quantitiative easing&quot;, which saw them creating new money to stimulate the economy. This would be much more difficult if creating new money meant having to dig a significant quantity of gold out of the ground of another country.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Additionally, it is not obvious how big/genuine the advantages you describe are. For example, here is a plot of US inflation:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/ZkrLk.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/ZkrLk.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that inflation tended to have higher peaks and be much more volatile during the first half of the C20 than in recent years. But that was exactly when the gold standard was in effect and the value of currency was directly tied to a physical commodity. Also, deflation was more common then, which is problematic because deflation has a number of damaging effects on an economy. Modern policy makers are better able to regulate the money supply to control inflation and keep it around the low and stable levels thought to be optimal.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;People &lt;em&gt;might&lt;/em&gt; be more willing to trust commodity money. But they would have to overcome concerns about counterfeiting and debasement. Recent experience from the last half century has been that people in stable democracies are, in fact, quite willing to trust fiat money. &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Edit in response to comment:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;It's true that precious metals are sufficiently valuable that large quantities are not needed to make most payments. But the problem remains that (a) if I am carrying them around to make payments then I am subject to a new source of  theft/loss that is less acute with electronic financial balances; (b) insisting on a physical commodity money makes it hard to transact remotely (e.g. buying goods online or remitting money to pay for bills or an invoice); (c) businesses regularly need to spend, store, and move money on the order of millions or sometimes billions; often across borders or oceans. Moving from a world in which money can be stored and moved at essentially zero real cost, with essentially zero delay, to one where we are burning real resources to move physical stuff around would be a huge technological step backwards.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;I don't understand what you mean about debit cards. Your whole question started out with &quot;...not the version I always see mentioned (trading bills for gold at a set price). I mean having gold coins in circulation...&quot; i.e. we are talking about commodity money, not representative money. Yes, debit cards fix the problem of physics, but they also mean we aren't talking about commodity money any more. Having a debit card you can hand to your bank in exchange for gold is really equivalent to having a US dollar banknote that you can hand in to exchange for gold.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Yes, the US dollar has lost a lot of its purchasing power. But that's a good thing! There are numerous economic benefits to a low (but positive) stable rate of inflation. Inflation per se is not bad, it only becomes problematic when we have either very high levels of inflation, or when the rate of inflation is not stable (both were true under the gold standard).&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="108" LastEditorUserId="1601" LastEditDate="2016-11-08T13:44:30.710" LastActivityDate="2016-11-08T13:44:30.710" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13955" PostTypeId="1" CreationDate="2016-10-27T11:49:14.050" Score="3" ViewCount="209" Body="&lt;p&gt;For my course I'm analysing the problem of empty retail stores. I need to analyse how my alternatives to solve the problem would change the important factors about the problem in uncertain scenarios.&lt;br&gt;&#xA;We chose to analyse how our solutions(investment in training, knowledge platforms and strategic growth) would affect the factors(investment in IT, average revenue and the amount of empty m2) in the doom scenarios with positive and negative economic growth and positive and negative investment in infrastructure.&lt;br&gt;&#xA;One of my teachers that saw the presentation about the analysis said that he couldn't see economic growth happening without investment in infrastructure. Don't mind him if he's wrong because he actually teaches us how to give presentations.&lt;br&gt;&#xA;&lt;strong&gt;But the following question arose: Does economic growth always implies that there will be significant investments in infrastructure, or can I see both factors as enough decoupled to analyse them separately?&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="10898" LastEditorUserId="10898" LastEditDate="2016-11-02T12:05:53.647" LastActivityDate="2016-11-02T12:05:53.647" Title="Does economic growth always implies investments in infrastructure?" Tags="&lt;self-study&gt;&lt;infrastructure&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13956" PostTypeId="2" ParentId="13955" CreationDate="2016-10-27T13:22:48.387" Score="0" Body="&lt;p&gt;This is a really interesting topic, for which you will get &quot;opinion-based&quot; answers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, I'd like to give my opinion, but please, don't treat it as the &quot;absolute&quot; truth.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On one hand, infrastructure is needed to get the economy growing. However, the type of infrastructure can be very different. If you are looking to generate economic growth from agriculture, you'll need a different type of infrastructure than let's say for steel mills.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand, if you have some favorable economic conditions, but a lack of infrastructure, it depends on how favorable those conditions are. Since in your scenario we are implying some economic growth already, infrastructure will be created in a way that meets the needs of the growth driver. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, in my opinion, this will only go to a certain level. Basically, if you have good infrastructure somewhere already, economic growth is less likely to drive further infrastructure development. Large scale innovation will drive infrastructural development, but economic growth by itself won't.&lt;/p&gt;&#xA;" OwnerUserId="8694" LastActivityDate="2016-10-27T13:22:48.387" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13957" PostTypeId="1" CreationDate="2016-10-27T13:38:17.260" Score="2" ViewCount="2339" Body="&lt;p&gt;I'm doing a paper on the 'coca-cola tax' the tax on all sugary drinks. The premise is that it is an excise tax, which will then be passed 100% on to consumers. What I'm struggling with is how the supply demand curve appears. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a normal excise tax, you would have something like the attached image, withe the area of Yellow AND Purple representing the tax (albeit more proportional), as both consumer and producer have their share of the tax burden. However if the producer passes the tax burden on to consumers, then the only the area in yellow would exist? Assuming the P1-P0 represents the amount of the tax. &#xA;So if i drew the same graph as below, but without the purple area, it makes sense to me, but it contrdicts all the models. UNLESS the supply is nearly perfectly elastic. Which you could argue it would be for the beverage industry? &#xA;I'm confused, help me out please &lt;/p&gt;&#xA;&#xA;&lt;p&gt;[&lt;img src=&quot;https://i.stack.imgur.com/OCeWx.png&quot; alt=&quot;enter image description here&quot;&gt;][1&lt;/p&gt;&#xA;" OwnerUserId="10901" LastActivityDate="2016-12-17T20:05:26.367" Title="Supply/Demand Curve for Excise tax that's being passed 100% on to consumers" Tags="&lt;macroeconomics&gt;&lt;econometrics&gt;&lt;supply-and-demand&gt;&lt;taxation&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13958" PostTypeId="1" AcceptedAnswerId="13960" CreationDate="2016-10-27T13:44:37.113" Score="3" ViewCount="1960" Body="&lt;p&gt;The long run equilibrium of a perfectly competitive market is well established. My question is - are the concepts of a long run equilibrium in a perfect competition extendable (analogous or otherwise) to an oligopoly, specifically considering the the Cournot model and the Bertrand model. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose I want to find the equilibrium number of firms $ N $ in a Cournot model, for example - will the approach be similar to that of a perfect competition? &lt;/p&gt;&#xA;" OwnerUserId="6069" LastActivityDate="2016-10-28T07:45:47.767" Title="Long Run Equilibrium of Oligopolies" Tags="&lt;industrial-organisation&gt;" AnswerCount="3" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13959" PostTypeId="1" CreationDate="2016-10-27T14:07:17.230" Score="2" ViewCount="12" Body="&lt;p&gt;I see stories like this one on occasion in my news feed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.bloomberg.com/news/articles/2016-10-27/jobless-claims-in-u-s-decline-for-first-time-in-three-weeks&quot; rel=&quot;nofollow&quot;&gt;http://www.bloomberg.com/news/articles/2016-10-27/jobless-claims-in-u-s-decline-for-first-time-in-three-weeks&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Mainstream news outlets never seem to cite sources, but I think this is the data the link article is in reference to:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.dol.gov/ui/data.pdf&quot; rel=&quot;nofollow&quot;&gt;https://www.dol.gov/ui/data.pdf&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The chart is at a different scale but the overall trends have been down for the last year, and seems that rolling-average volatility has decreased in the last few months too.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reports appear to be made weekly and we have to known deltas for two of the weeks, one positive 1 000 and another negative 3 000.  Guessing from the range on the chart that is about 10% range of change over the year, which might be of note but compared to the 150+ million people that are of working age in the US, that seems awfully small.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Additionally, we are have only four data points, which would seem ridiculous to make any conclusions based upon.  Also from a layman's perspective, the labour market seems very volatile and with only two directions the market can go, up or down, three times in a row seems like fair odds and would likely happen one if not a few times a year.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From an economics perspective is significant at all or just garbage news?&lt;/p&gt;&#xA;" OwnerUserId="10902" LastEditorUserId="5557" LastEditDate="2016-10-27T14:48:00.377" LastActivityDate="2016-10-27T14:48:00.377" Title="Why is three weeks of increasing jobless claims significant?" Tags="&lt;labor-economics&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13960" PostTypeId="2" ParentId="13958" CreationDate="2016-10-27T17:04:34.783" Score="4" Body="&lt;p&gt;The 'long run' assumption is not about whether the firms already on the market are price takers (perfect competition) or oligopolists but whether entry to the market is free. If entry to the market is free then in the long run profits tends toward zero, as a profitable market makes it tempting for more firms to enter.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you have special asymmetric conditions where some entrants have different cost functions than the new ones the zero profit condition may not hold even in the perfect competition case.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2016-10-27T17:04:34.783" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13962" PostTypeId="2" ParentId="13958" CreationDate="2016-10-27T18:31:16.550" Score="2" Body="&lt;p&gt;Taking the Cournot duopoly model as an example, the model has a solution in the sense that there exists a single price in the market, and at that price the two quantity-setting firms produce a given output that maximizes their profits given the existence of the other firm.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This solution stands as long as preferences and costs/technology do not change, which are also assumptions of the perfect competition long-run equilibrium.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But, elaborating on @denesp point in another answer, the &lt;em&gt;additional&lt;/em&gt; requirement to consider the model solution as a long-run equilibrium, is that &lt;em&gt;the firms remain two in number&lt;/em&gt; - namely that there exists a &lt;em&gt;total&lt;/em&gt; barrier-to-entry in the market. With this additional assumption, we can speak of a duopoly long-run equilibrium.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2016-10-27T18:31:16.550" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13963" PostTypeId="2" ParentId="13955" CreationDate="2016-10-27T19:54:39.673" Score="2" Body="&lt;p&gt;In economics, we commonly use the formula for&lt;a href=&quot;http://www.investopedia.com/terms/g/gdp.asp&quot; rel=&quot;nofollow&quot;&gt; GDP&lt;/a&gt; as a Indicator of &quot;economic growth&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The GDP formula is: &lt;strong&gt;GDP=C+G+I+NX&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where &lt;strong&gt;C&lt;/strong&gt; is equal to all private consumption, or consumer spending, in a nation's economy, &lt;strong&gt;G&lt;/strong&gt; is the sum of government spending, &lt;strong&gt;I&lt;/strong&gt; is the sum of all the country's investment, including businesses capital expenditures and &lt;strong&gt;NX&lt;/strong&gt; is the nation's total net exports, calculated as total exports minus total imports (&lt;strong&gt;NX = Exports - Imports&lt;/strong&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Notice how we can have an increase in GDP by increased consumption or government spending. So &lt;i&gt;technically&lt;/i&gt; we can see economic growth without any  investment in structure (which would be represented by an increase in &lt;strong&gt;I&lt;/strong&gt;) from a mathematical perspective.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note how this is a static measurement of economic activity, which we cannot make any predictions regarding the future. However you may want to look at the &lt;a href=&quot;https://en.wikipedia.org/wiki/Solow%E2%80%93Swan_model&quot; rel=&quot;nofollow&quot;&gt;Solow-Swan Model&lt;/a&gt; regarding economic growth with capital accumulation and technological change.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope this helps. &lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2016-10-27T19:54:39.673" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13966" PostTypeId="2" ParentId="13942" CreationDate="2016-10-28T02:54:30.333" Score="-3" Body="&lt;p&gt;A little observation from the answer above: Externalities do generate deadweight loss.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;deadweight loss has to do with levels of output, so any level of output that is beyond or below social optimal generate deadweight loss. Every deadweight loss is a welfare loss. However, you could lose welfare due to changes in quality of some goods, which may still be the social optimal level, but society is losing utility due to quality decay.&lt;/p&gt;&#xA;" OwnerUserId="10907" LastEditorUserId="108" LastEditDate="2016-10-28T07:44:29.603" LastActivityDate="2016-10-28T07:44:29.603" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13971" PostTypeId="2" ParentId="13958" CreationDate="2016-10-28T03:45:40.713" Score="-5" Body="&lt;p&gt;I reiterate the point made above: In oligopolies, we use a concept of game theory called Nash Equilibrium. If a game (in this case and oligopoly) is in Nash Eq., this means no firm has unilateral incentives to deviate. That means in a sense if nothing else changes, the equilibrium is sustainable in the long run. No different parameters, no different answers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would like to elaborate further on your question regarding Cournot and Bertrand. There is something called a Bertrand Paradox in Industrial Organization, which assuming products are homogeneous (that is, if when choosing between purchasing products between different firms the consumer only cares about prices, and no other characteristic of this good) than modeling firm competition choosing quantity (Cournot) and modeling them competing choosing price (Bertrand) will yield completely different equilibria. This had a lot of attention a while back in Economics, but people don't take it too seriously anymore because it requires some very strong assumptions (like if one company charges a penny less than the other, it captures a 100% of the market, so demand is perfectly elastic and consumers have perfect knowledge of prices and no transaction costs) it isn't taken too seriously anymore. Instead, many of the present day applications of the Bertrand model are applied to heterogeneous (other aspects of the good beyond price are taken into account by the consumer, like quality, or simply distinct tastes and preferences) but somewhat substitutable goods (thus there is a cross price elasticity component). Those also have a Nash Eq., and brings forth some really interesting results.&lt;/p&gt;&#xA;" OwnerUserId="10907" LastEditorUserId="108" LastEditDate="2016-10-28T07:45:47.767" LastActivityDate="2016-10-28T07:45:47.767" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13972" PostTypeId="1" AcceptedAnswerId="13973" CreationDate="2016-10-28T09:16:05.037" Score="1" ViewCount="1833" Body="&lt;p&gt;For PPP &amp;amp; LOOP: e = EP/P* = 1&#xA;So both are valid if goods in the US and EU cost the same in $ for example.&#xA;But then, what exactly is the difference between both?&lt;/p&gt;&#xA;" OwnerUserId="10913" LastActivityDate="2016-10-28T11:50:42.370" Title="What exactly is the difference between the PPP (&quot;purchasing power parity&quot;) and LOOP (&quot;law of one price&quot;)?" Tags="&lt;macroeconomics&gt;&lt;exchange-rates&gt;&lt;purchasing-power-partity&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13973" PostTypeId="2" ParentId="13972" CreationDate="2016-10-28T11:43:12.990" Score="1" Body="&lt;p&gt;PPP uses the price level, the price of the consumer basket. The price level can be identical without all prices being identical. An example:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider a consumer basket with just two goods and assume the weight of both goods in the basket is one half. If $p_1 = p_2 = 4$ then the price of the consumer basket is&#xA;$$&#xA;P = \frac{1}{2} \cdot p_1 + \frac{1}{2} \cdot p_2 = 4.&#xA;$$&#xA;However you get the same price level if you have $p_1 = 3,  p_2 = 5$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So you can have two countries with identical price levels but differing prices. The converse of course is not possible. Thus LOOP implies PPP but PPP does not imply LOOP.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2016-10-28T11:50:42.370" LastActivityDate="2016-10-28T11:50:42.370" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13974" PostTypeId="1" CreationDate="2016-10-28T11:56:45.907" Score="1" ViewCount="87" Body="&lt;p&gt;I'm using CPS monthly individual data which comes with &lt;code&gt;wtfinl&lt;/code&gt; as a float weight. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm computing some annual statistic for unemployed. I do that by &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Sum up &lt;code&gt;wtfinl&lt;/code&gt; for all the unemployed observations for a given year&lt;/li&gt;&#xA;&lt;li&gt;Divide all &lt;code&gt;wtfinl&lt;/code&gt; values by the annual sum, and then multiply the variable with this relative share&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;For example, if the variable is income, this gives me average income of unemployed. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, I would like to bootstrap the standard errors. I'm in Python. I &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;draw samples from the full annual table, each row with equal probability&lt;/li&gt;&#xA;&lt;li&gt;Stop when number of rows is equal to the actual data&lt;/li&gt;&#xA;&lt;li&gt;I then apply the same estimator as before to the sample, each row weighted with &lt;code&gt;wtfinl&lt;/code&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Now, when I compute the confidence bands, they're not centered around my actual estimator. Even worse, for one or two data points, the estimator is outside of the bands.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I suppose a alternative way to do the bootstrapping would be to &lt;/p&gt;&#xA;&#xA;&lt;p&gt;i. Draw from the annual table, each row with probability relative to &lt;code&gt;wtfinl/wtfinl.sum()&lt;/code&gt;. &#xA;ii. Stop drawing once &lt;code&gt;wtfinl.sum()&lt;/code&gt; is equal to &lt;code&gt;wtfinl.sum()&lt;/code&gt; in original data?&#xA;iii. Then do all the computations without using weights.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I thought my way was better because (a) I use the exactly same estimator both times without changing weights, and (b) it is clearer: How would I do (ii) exactly? When I have room for &lt;code&gt;wtfinl=1&lt;/code&gt; left, do I only draw from rows with &lt;code&gt;wtfinl &amp;lt;= 1&lt;/code&gt;?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, given that my confidence bands dont line up with my original estimation, I'm befuddled. What should I do?&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2016-10-29T12:27:26.037" LastActivityDate="2016-10-29T12:27:26.037" Title="Bootstrapping from CPS with weights" Tags="&lt;econometrics&gt;&lt;empirical-methods&gt;&lt;cps&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13975" PostTypeId="2" ParentId="13949" CreationDate="2016-10-28T12:16:08.930" Score="4" Body="&lt;p&gt;This question rises from confusion about basics. I'm going to cite some answers I've placed elsewhere, hopefully this gives a sufficient base such that you can answer this question on your own.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://economics.stackexchange.com/questions/5861/is-zero-inflation-desirable/5862#5862&quot;&gt;Minimal/low inflation is not necessarily good&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://economics.stackexchange.com/questions/4951/what-would-happen-if-the-world-switched-to-a-single-currency/4955#4955&quot;&gt;Having fixed exchange rates (one currency) is not good!&lt;/a&gt; &lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://economics.stackexchange.com/questions/166/from-an-economics-perspective-what-are-the-ramifications-of-a-currency-with-fix/167#167&quot;&gt;Ramifications of a currency with fixed monetary supply&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Having all these out of the way, what's left of your advantages?&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Simple to understand&lt;/li&gt;&#xA;&lt;li&gt;people owning real value instead of worthless paper/plastic being trusted etc&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;I don't think that 1. is important. People are holding money, none of my non-economists friends is telling me that they want to hold less money/cash because they don't know how the value is determined. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In fact, as long as the government enforces some payments through cash, the value of money is determinate and strictly positive (&lt;a href=&quot;https://www.dropbox.com/s/63v2ydpdigam51u/pricelevel.pdf?dl=0&quot; rel=&quot;nofollow noreferrer&quot;&gt;Oberg and Malmberg, 2016&lt;/a&gt;). From the abstract:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;This shows that in the basic setup,tax requirements provide a simple mechanism for price level determination.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In fact, quite oppositely, bitcoin is a new thing - despite values of bitcoins being determined is much more complicated than that of cash. It is exogenous, I grant you that, but the algorithms behind are much more difficult to understand than &quot;Some guys in a central bank decided to set this lower bound onto the interest rate&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your 2. is actually a bad thing, in my opinion. First, as in the links above, fixed currency, fixed exchange rates etc. are all &lt;strong&gt;extremely&lt;/strong&gt; worrisome. Not without reason did almost all of the currency regimes fail, and countries that left fixed exchanges rates did better later on. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, you're wasting a lot of gold! Value of gold (and silver) is already increasing, partly because of increased use in technologies, also because a rising middle class in Asia. Now imagine reducing Gold even more because people start holding it to use it as cash - horrible.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Summa summarum, I don't see any of the advantages that you propose holding up. (Fixed) low inflation, if true, actually is really dangerous and disadvantage.&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2016-10-28T12:16:08.930" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13977" PostTypeId="2" ParentId="13957" CreationDate="2016-10-28T15:09:04.703" Score="1" Body="&lt;p&gt;The reason you have trouble with that normal graph is beacause it contradicts your premise. Therefore, you can't use it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I assume you mean the real burden (incidence) is passed on 100% to the consumers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In that case you need a graph that allows for that. Your graph implies that both share the tax to some degree. To analyze a tax passed on completely to the consumers you need adequate supply and demand functions that allow for it. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As you mentioned, one possibility is a perfectly elastic supply function and a standard demand function.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another possibility is a perfectly inelastic demand function and a normal supply function.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reason both of these work is because the tax burden is carried by the less elastic side. For one side to carry the full burden we need something to be perfectly (in)elastic.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You have suppliers completely avoiding the tax burden. So you need suppliers to be very elastic compared to demanders. This can be done by making suppliers themselves perfectly elastic. Alternatively you can just making demanders perfectly inelastic and then by contrast the suppliers will be the much more elastic side and not carry any of the tax burden.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;After you do that your tax burden area should be only one color.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastActivityDate="2016-10-28T15:09:04.703" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13981" PostTypeId="1" AcceptedAnswerId="13983" CreationDate="2016-10-28T20:26:57.203" Score="1" ViewCount="66" Body="&lt;p&gt;I'm currently reading a paper about trade costs in international trade, but I really struggle to understand the following passage:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;A rough estimate of the tax equivalent of “representative” trade costs for industrialized countries is 170 percent. This number breaks down as follows: 21 percent transportation costs, 44 percent border-related trade barriers, and 55 percent retail and wholesale distribution costs (2.7=1.21∗1.44∗1.55).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;What does &quot;tax equivalent of representative trade costs&quot; mean?&lt;/li&gt;&#xA;&lt;li&gt;&quot;Trade costs for industrialized countries is 170 percent&quot; of what?&lt;/li&gt;&#xA;&lt;li&gt;How can trade costs exceed 100%?&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Please help me out, I'm really loosing my sleep on this one!&lt;/p&gt;&#xA;" OwnerDisplayName="user10921" LastActivityDate="2016-10-28T22:05:09.680" Title="How do Trade Costs work in International Trade?" Tags="&lt;international-trade&gt;&lt;international-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13982" PostTypeId="1" AcceptedAnswerId="13984" CreationDate="2016-10-28T21:46:36.467" Score="3" ViewCount="1129" Body="&lt;p&gt;So we know that under a Pareto-inefficient outcome, there is room for Pareto improvement, i.e. making someone better off without hurting anyone.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume that there is a drug company which is in competitive equilibrium: and $$N^S=N^L\\&#xA;|MRS|=|MP_n|=|MRT_{(c,l)}|$$&#xA;$\pi$ is maximised etc. So everyone should be happy right? Since we are in a competitive market,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But if this drug company makes some pollution which is a threat to the health of citizens, we call this case a negative externality.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By definition if such negative externalities exist, even though we are in a competitive equilibrium, we would be Pareto inefficient. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But how come we are Pareto inefficient? If we reduce the pollution somehow and reduce the externality, or create a market for pollution and let the pollution trade the firm would definitely be losing money since it would pay for the pollution. So isn't it impossible to make citizens better without making the firm worse off?&lt;/p&gt;&#xA;" OwnerUserId="10922" LastEditorDisplayName="user18" LastEditDate="2016-10-29T05:13:59.617" LastActivityDate="2016-10-29T05:13:59.617" Title="Why do externalities lead to a Pareto-inefficient outcome?" Tags="&lt;macroeconomics&gt;&lt;markets&gt;&lt;pareto-efficiency&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="13983" PostTypeId="2" ParentId="13981" CreationDate="2016-10-28T22:05:09.680" Score="1" Body="&lt;p&gt;The quotation comes from James Anderson and Eric Van Wincoop &quot;Trade Costs&quot;  in the Journal of Economic Literature Vol. XLII (September 2004) pp. 691–75 and &lt;a href=&quot;http://www.bc.edu/content/dam/files/schools/cas_sites/economics/pdf/workingpapers/wp593.pdf&quot; rel=&quot;nofollow&quot;&gt;a preprint of the article is available&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The calculation is trying to find the equivalent to an &lt;em&gt;ad valorem&lt;/em&gt; tax by which the price of manufacture increases by the time of retail sale.  Essentially it is saying transportation multiplies price by $1.21$ (a $21\%$ increase), tariff and non-tariff border related trade barriers multiply by $1.44$ (a $44\%$ increase), and retail and wholesale distribution costs multiply by $1.55$ (a $55\%$ increase) combining to multiply by $1.21\times 1.44\times 1.55=2.7$ (a $170\%$ increase).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This figure being over $100\%$ is not an issue.  For example you could imagine a high tax on a packet of bottle of perfume costing $\$10$ before tax: if the tax rate was $170\%$ &lt;em&gt;ad valorem&lt;/em&gt; this would add $\$17$ tax and make the after-tax price $\$27$.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are plenty of caveats: domestic commerce also faces retail and wholesale distribution costs as well as some transport costs.  Some goods see smaller costs, such as high-value low-weight goods seeing lower transport costs, or cross-border trade involving a short distance and a free-trade area, so this is in a sense a weighted average across goods and countries.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The article goes into considerable detail on the methods used for the calculations and possible implications for trade models. &lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2016-10-28T22:05:09.680" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13984" PostTypeId="2" ParentId="13982" CreationDate="2016-10-28T22:50:32.803" Score="4" Body="&lt;p&gt;If you allow side payments then the issue you identify goes away in a &lt;a href=&quot;https://en.wikipedia.org/wiki/Coase_theorem&quot; rel=&quot;nofollow&quot;&gt;Coase sense&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The citizens being polluted could pay for production to be reduced by one unit.  This amount would have to be between the benefit of the reduced pollution and the loss to the pharmaceutical firm from the reduced production. But this last figure is small: at the competitive equilibrium the firm is matching its marginal revenue with its marginal cost so its profit from the final unit of production is very small, while presumably the pollution effect is larger (if not then the competitive equilibrium is already efficient). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the position with the side payment dominates the position without it in a Pareto sense, as both the citizens and the pharmaceutical firm are better off.  Possibly further side payments and production reductions would be even more efficient, at least until the marginal profit loss exceeds the value of reduced pollution; that point is then Pareto optimal and the starting point was not. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You may have to extend this slightly as the reduction in production also affects the customers of the pharmaceutical firm, who see a reduction in consumer surplus from the lower production. But again, side payments from the citizens to the customers can move to a Pareto optimal position, until the marginal value of the reduced pollution equals the combined marginal losses of the pharmaceutical firm and its customers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Advocates of the &quot;polluter pays principle&quot; would describe this as unfair, but Pareto optimality does not judge fairness.  Another practical issue would be creating a mechanism which avoids free-riding and leads to an efficient agreement, a frequent issue with Coasian bargaining. &lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2016-10-28T22:50:32.803" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13985" PostTypeId="1" AcceptedAnswerId="13988" CreationDate="2016-10-29T11:28:29.517" Score="3" ViewCount="1135" Body="&lt;p&gt;I am using this formula for calculating &lt;a href=&quot;https://en.wikipedia.org/wiki/Cross_elasticity_of_demand&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;strong&gt;Cross elasticity of demand:&lt;/strong&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$ E_{XY}^D = \Large\frac{(Q_2^X - Q_1^X)(P_2^Y + P_1^Y)}{(Q_2^X + Q_1^X)(P_2^Y - P_1^Y)}&#xA;$&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;If $E_{XY}^D$ &lt;strong&gt;&gt; 0&lt;/strong&gt; Then goods &lt;strong&gt;X&lt;/strong&gt; and &lt;strong&gt;Y&lt;/strong&gt; are &lt;strong&gt;substitutes&lt;/strong&gt;.&lt;/li&gt;&#xA;&lt;li&gt;If $E_{XY}^D$ &lt;strong&gt;&amp;lt; 0&lt;/strong&gt;  Then goods &lt;strong&gt;X&lt;/strong&gt; and &lt;strong&gt;Y&lt;/strong&gt; are &lt;strong&gt;complementary&lt;/strong&gt;.&lt;/li&gt;&#xA;&lt;li&gt;If $E_{XY}^D$ &lt;strong&gt;= 0&lt;/strong&gt; Then goods &lt;strong&gt;X&lt;/strong&gt; and &lt;strong&gt;Y&lt;/strong&gt; are &lt;strong&gt;independent&lt;/strong&gt;.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;I have this data:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/sWoUr.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/sWoUr.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;P1 and P2 are prices; Q1 and Q2 are quantities.&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Using above formula I have calculated cross elasticity $E_{XY}$ and $E_{YX}$ in Excel:&#xA;&lt;a href=&quot;https://i.stack.imgur.com/fqs9M.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/fqs9M.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;I calculated Cross Elasticity for &lt;strong&gt;X&lt;/strong&gt; and &lt;strong&gt;Y&lt;/strong&gt; and the goods turned out to be &lt;strong&gt;Complementary&lt;/strong&gt; goods, but when I swapped X and Y and calculated using the same formula the goods &lt;strong&gt;X&lt;/strong&gt; and &lt;strong&gt;Y&lt;/strong&gt; become &lt;strong&gt;Substitutes&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Why two goods belong to one type of cross elasticity, but if we swap X and Y and plug values into formula the goods turn out to be another type of Cross Elasticity. Can two goods be considered &lt;strong&gt;substitutes&lt;/strong&gt; and &lt;strong&gt;complementary&lt;/strong&gt; at the same time? Isn't it illogical?&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Excel file with data and calculations available here:&lt;/em&gt; &lt;a href=&quot;https://www.dropbox.com/s/ubbre40owjsd92c/Cross%20Elasticity%20SE.xlsx?dl=0&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;Dropbox&lt;/em&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="10923" LastEditorUserId="10923" LastEditDate="2016-10-29T17:05:28.810" LastActivityDate="2016-10-29T17:05:28.810" Title="Why two goods are of different types of Cross Elasticity if we swap them in formula?" Tags="&lt;microeconomics&gt;&lt;supply-and-demand&gt;&lt;elasticity&gt;&lt;price&gt;&lt;public-goods&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13986" PostTypeId="2" ParentId="13952" CreationDate="2016-10-29T15:03:47.420" Score="1" Body="&lt;p&gt;There exist implicit assumptions in the set up that exclude various cross-price effects on the demand side, related to business behavior as well as to consumer behavior. Accepting the set up (and assuming downward-sloping demand and upward-sloping supply), the old-fashioned verbal treatment goes as follows:  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;An increase in $G$ will move the demand schedule $Q_1^d$ outwards, in the $\{Q_1, P_1\}$ space. This will tend to bring a new equilibrium for good 1, at a higher price $P_1$, and a higher quantity $Q_1$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A higher $P_1$ increases costs for the supply of good $2$, and so it will shift upwards the supply curve for good 2 in the $\{Q_2, P_2\}$ space, while leaving the demand schedule for good $2$ unaffected. This will produce an equilibrium with higher $P_2$ and lower $Q_2$. A higher $P_2$ in turn will tend to shift upwards the supply curve for good 1 in the $\{Q_1, P_1\}$ space (again, because due to higher costs, lower quantity is supplied at any own price than previously).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This will tend to increase equilibrium $P_1$ even more, but it will tend to offset the increase in the new equilibrium $Q_1$.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;So we have learned:&lt;/strong&gt;&lt;br&gt;&#xA;In market $2$, an increase in $G$ for good $1$ will lead to an equilibrium with higher $P_2$ and lower $Q_2$.&lt;br&gt;&#xA;In market $1$ an increase in $G$ will lead to an equilibrium with higher $P_1$, but ambiguous effect on the new equilibrium $Q_1$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'll leave to the OP the task of mathematizing these results and see also whether the ambiguity can be resolved.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2016-10-29T15:03:47.420" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13988" PostTypeId="2" ParentId="13985" CreationDate="2016-10-29T15:40:50.500" Score="3" Body="&lt;p&gt;The cross elasticity of demand $E_{XY}^D$ is defined as the percent change in quantity demanded for X divided by the percent change in price of Y, &lt;strong&gt;holding the price of X fixed&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem with your calculation is that you did not use the quantity change when the price is fixed. Therefore, you need additional data to calculate the cross elasticities.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another part of your question is whether cross price elasticities are symmetric. The answer depends on what type of demand you are working with. For Hicksian demand (where we hold the utility constant), the cross elasticities are symmetric. For Marshallian demand (where we hold the income constant), cross price elasticities are generally different, even the signs could be different. The reason that the Marshallian demand has different cross price elasticities is that when price of a good changes, it has both price effect (self and cross) and income effect (self and cross). The &quot;pure&quot; cross price effect should be symmetric, which is what we see in Hicksian demand. But the &quot;gross&quot; cross price effect, the combined effect of price and income, is not symmetric, because the income effects caused by different goods can be very different. For more details about Hicksian and Marshallian demand, price and income effects, consult any decent intermediate micro textbook. Or probably Google will show you plenty lecture notes on these topics.&lt;/p&gt;&#xA;" OwnerUserId="10853" LastActivityDate="2016-10-29T15:40:50.500" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13989" PostTypeId="1" CreationDate="2016-10-30T03:32:38.453" Score="3" ViewCount="64" Body="&lt;p&gt;On what basis do colleges/private schools price a given course assuming class size and direct costs are the same?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My current understanding is in my question on &lt;a href=&quot;https://economics.stackexchange.com/questions/13326/economics-of-education-private-school-behaviour&quot;&gt;private school behaviour&lt;/a&gt; regarding the issues of viewing a university as a profit-maximising organisation (though I have some doubts) and concluding general pricing strategies used in producer theory cannot be applied to private schooling.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How do economists analyse price change in an educational service?&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2018-09-10T06:06:53.553" Title="Pricing Education" Tags="&lt;producer-theory&gt;&lt;education-economics&gt;" AnswerCount="2" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="13991" PostTypeId="1" CreationDate="2016-10-30T05:02:19.427" Score="1" ViewCount="71" Body="&lt;p&gt;I refer to the Occupational Employment Statistics published by the US Bureau of Labor Statistics, May 2015 edition.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Under occupation title &quot;Athletes and Sports Competitors&quot; (27-2021), we have the following figures:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Total employment: 11,710.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Mean annual wage: $\$80,490$.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Annual 75th percentile wage: $\$89,780$.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The first two of the above statistics imply that total wages paid out to these 11,710 workers was 11,710 × $\$80,490$ = &lt;strong&gt;$\$942,537,900$&lt;/strong&gt; or a bit under $1b.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But there is a discrepancy between the above figures and the salary figures across the four major US professional sports leagues. The following are the latest annual salary figures from various sources (these shouldn't be too inconsistent from salaries a year or two earlier). &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;MLB: 862 players, of which all 862 make at least $\$507,500$. Total salaries = $\$3,781,920,218$.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;NHL: 1719 players, of which all 1719 make at least $\$117,300$. Total salaries = $\$3,524,086,505$.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;NBA: 545 players, of which 505 make at least $\$100,000$. Total salaries = $\$2,942,055,947$.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;NHL: 767 players, of which 766 make at least $\$216,666$. Total salaries = $\$2,142,999,943$.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So there are at least &lt;strong&gt;two discrepancies&lt;/strong&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;1. The BLS says that the total annual wages paid to 11,170 &quot;Athletes and Sports Competitors&quot; was less than $\$1$b.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;But in the four major professional sports leagues alone, over $\$12$b is paid out to 3,893 players.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;2. The BLS says that the athlete at the 25th percentile (out of 11,170 workers) makes only $\$89,780$. This means that workers #1 — #2927 make $\$89,780$ or more, while workers #2928 — #11,170 make $\$89,780$.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;But in the four major professional sports leagues alone, 3,852 players make at least $\$100,000$.&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;So far I've thought about (and ruled out) two possible explanations for the above discrepancies: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;em&gt;Top-coding of salaries&lt;/em&gt;. &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;This might explain the low estimate for mean annual wage. However, this would fail to explain why the 75%-ile wage is listed at only $\$89,780$.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;em&gt;&quot;Athletes and Sports Competitors&quot; does not include professional athletes.&lt;/em&gt; &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;But this is not consistent with this &lt;a href=&quot;http://www.bls.gov/OOH/entertainment-and-sports/athletes-and-sports-competitors.htm&quot; rel=&quot;nofollow&quot;&gt;BLS webpage description&lt;/a&gt; of this category of work. There is a photo of a professional-looking baseball player and also this sentence: &quot;Competition for most professional athlete jobs will remain very strong.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another possible occupation title under which professional sports athletes might fall is &quot;Entertainers and Performers, Sports and Related Workers, All Other&quot; (27-2090, 27-2099), but here again we run into the same trouble. There are only 14,570 workers in this category and the 90th percentile hourly wage is only $\$36.35$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm unable to think of any other explanation. I'd appreciate help from anyone who is more familiar with how the BLS OES are collected and calculated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;All data and sources used above are collected &lt;a href=&quot;https://drive.google.com/open?id=0B7VzKV1GxxEzQ2ZyWXowUHBGRGc&quot; rel=&quot;nofollow&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2017-01-02T19:57:10.020" Title="How to explain these two discrepancies between BLS OES wage data and salaries of pro athletes?" Tags="&lt;labor-economics&gt;&lt;statistics&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13992" PostTypeId="1" AcceptedAnswerId="14121" CreationDate="2016-10-30T06:47:29.957" Score="1" ViewCount="410" Body="&lt;p&gt;In Solow's growth model the growth rate of the output or GDP of a country is denoted by $g$. In the model this can be decomposed to&#xA;$$&#xA;g = g_l + g_k,&#xA;$$&#xA;where $g_l$ is the growth rate of the effective labor force and $g_k$ the growth rate of capital. If you calculate the growth rate of per capita GDP population growth will not play a role. (Per capita growth is 'kind of' like $g_k$, but not quite, as technological advancements  are factored into the growth rate of effective labor.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does historical data support the statement that the effect of population growth on per capita GDP growth is zero?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I did some limited searching and it seems that while US growth is sometimes set as an example to other western countries, the real difference is in population growth, not per capita GDP growth.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/vHYID.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/vHYID.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://data.worldbank.org/indicator/NY.GDP.PCAP.KD.ZG?contextual=default&amp;amp;end=2015&amp;amp;locations=US-FR-GB&amp;amp;name_desc=true&amp;amp;start=1961&amp;amp;view=chart&quot; rel=&quot;nofollow noreferrer&quot;&gt;Source&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/AEwwn.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/AEwwn.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://data.worldbank.org/indicator/SP.POP.TOTL?locations=FR-GB-US&amp;amp;name_desc=true&quot; rel=&quot;nofollow noreferrer&quot;&gt;Source&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Am I being too superficial in my examination? Are there more subtle effects, such as a lagged effect due to the pension and elderly care systems?&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2016-11-06T05:12:23.820" LastActivityDate="2016-11-06T05:12:23.820" Title="Is population growth irrelevant with respect to per capita GDP growth" Tags="&lt;gdp&gt;&lt;economic-growth&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="13993" PostTypeId="2" ParentId="5449" CreationDate="2016-10-30T09:39:10.150" Score="1" Body="&lt;p&gt;The income effect is negative for normal goods and positive for inferior goods. That is, you buy more normal goods when you are richer and less inferior goods. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In contrast, the substitution effect is negative when price increases and vice-versa. It always moves opposite to the price sign. &lt;/p&gt;&#xA;" OwnerUserId="10929" LastEditorUserId="69" LastEditDate="2016-10-31T14:32:46.337" LastActivityDate="2016-10-31T14:32:46.337" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="13994" PostTypeId="2" ParentId="9760" CreationDate="2016-10-30T10:57:17.193" Score="3" Body="&lt;p&gt;We have the recurrence relation&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$x_{k+1} = \frac{x_{k+8}}{x_{k+1}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the denominator is nonzero, this recurrence relation can be rewritten as follows&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$x_{k+7} = x_k^2$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assuming positivity and taking the logarithm of both sides, we obtain a &lt;em&gt;linear&lt;/em&gt; recurrence relation&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\ln (x_{k+7}) = 2 \ln (x_k)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Shifting,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\ln (x_{k+1}) = 2 \ln (x_{k-6})$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\eta_k := \left( \ln (x_k), \ln (x_{k-1}), \dots, \ln (x_{k-6}) \right)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;be a $7$-dimensional state vector. In matrix form,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\eta_{k+1} = \begin{bmatrix} 0 &amp;amp; 0 &amp;amp; 0 &amp;amp; 0 &amp;amp; 0 &amp;amp; 0 &amp;amp; 2\\ 1 &amp;amp; 0 &amp;amp; 0 &amp;amp; 0 &amp;amp; 0 &amp;amp; 0 &amp;amp; 0\\ 0 &amp;amp; 1 &amp;amp; 0 &amp;amp; 0 &amp;amp; 0 &amp;amp; 0 &amp;amp; 0\\ 0 &amp;amp; 0 &amp;amp; 1 &amp;amp; 0 &amp;amp; 0 &amp;amp; 0 &amp;amp; 0\\ 0 &amp;amp; 0 &amp;amp; 0 &amp;amp; 1 &amp;amp; 0 &amp;amp; 0 &amp;amp; 0\\ 0 &amp;amp; 0 &amp;amp; 0 &amp;amp; 0 &amp;amp; 1 &amp;amp; 0 &amp;amp; 0\\ 0 &amp;amp; 0 &amp;amp; 0 &amp;amp; 0 &amp;amp; 0 &amp;amp; 1 &amp;amp; 0\end{bmatrix} \eta_k$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence, we need $7$ initial conditions. We recover $x_k$ via $x_k = \exp( \mathrm e_1^{\top}\eta_k )$.&lt;/p&gt;&#xA;" OwnerUserId="8481" LastEditorUserId="8481" LastEditDate="2016-10-30T11:18:10.343" LastActivityDate="2016-10-30T11:18:10.343" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13995" PostTypeId="1" AcceptedAnswerId="14002" CreationDate="2016-10-30T12:51:06.963" Score="4" ViewCount="14850" Body="&lt;p&gt;When it comes to non-private debt, I hear these three terms the most, but I am not sure if they're interchangeable or discernible. Also, are they recorded in the balance of payments? I'm guessing if they are, they'd be recorded in the transfers part of the current account and the capital and financial accounts.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand that this is a duplicate question, but my previous question had no contributions other than my own, so I figure it would be sensible to repeat it.&lt;/p&gt;&#xA;" OwnerUserId="6782" LastActivityDate="2016-10-30T18:06:13.787" Title="What's the difference between public debt, government debt and national debt?" Tags="&lt;debt&gt;&lt;government-debt&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="13998" PostTypeId="1" AcceptedAnswerId="14489" CreationDate="2016-10-30T15:38:02.700" Score="9" ViewCount="1033" Body="&lt;p&gt;If a consumer follows the rationality axiom of continuity (i.e. no jumps in his preferences), the indifference curves of a utility function are said to be thin.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why does continuity ($x \succeq y \Rightarrow \exists \space z=x+\epsilon$ such that $|z|\ge y \space \forall \epsilon &amp;gt; 0$) imply thin indifference curves?&lt;/p&gt;&#xA;" OwnerUserId="5936" LastEditorUserId="1601" LastEditDate="2016-10-30T18:08:32.137" LastActivityDate="2016-12-03T14:37:48.597" Title="Thin indifference curves" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;consumer-theory&gt;&lt;preferences&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="13999" PostTypeId="1" CreationDate="2016-10-30T16:06:29.690" Score="1" ViewCount="1446" Body="&lt;p&gt;I am learning the Economic class and I have a very specific question regarding a basic economic concept: change of expenditure in terms of change of price and change of quantity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'v learnt below:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;1. Expenditure = Price x Quantity (by definition)&#xA;2. change of Expenditure = change of Price + change of Quantity&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;I am really confused about how #2 above is inferred. I thought change of Expenditure is defined as&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;E - Expenditure, P - Price, Q - Quantity&#xA;&#xA;(E2 - E1) / E1 = (P2 x Q2 - P1 x Q1) / P1 x Q1&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;But this is really not equal to&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;change of Price + change of Quantity = (P2 - P1) / P1 + (Q2 - Q1) / Q1&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Can someone show me how does the formula &quot;change of Expenditure = change of Price + change of Quantity&quot; hold please?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Many thanks&lt;/p&gt;&#xA;" OwnerUserId="10932" LastActivityDate="2016-10-30T21:58:01.263" Title="study question: change of Expenditure in terms of price and quantity" Tags="&lt;elasticity&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14000" PostTypeId="2" ParentId="13995" CreationDate="2016-10-30T16:39:55.597" Score="1" Body="&lt;p&gt;They are all interchangeable terms, as stated on&lt;a href=&quot;https://en.wikipedia.org/wiki/Government_debt&quot; rel=&quot;nofollow&quot;&gt; wikipedia&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;Government debt&lt;/strong&gt; (also known as &lt;strong&gt;public debt&lt;/strong&gt;, &lt;strong&gt;national debt&lt;/strong&gt; and &lt;strong&gt;sovereign debt&lt;/strong&gt;) is the debt owed by a central government.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;However the site makes some exceptions for the term &quot;government debt&quot;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;(In federal states, &lt;strong&gt;&quot;government debt&quot;&lt;/strong&gt; may also refer to the debt of a state or provincial, municipal or local government.) By contrast, the annual &quot;government deficit&quot; refers to the difference between government receipts and spending in a single year.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Hope this helps&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2016-10-30T16:39:55.597" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14002" PostTypeId="2" ParentId="13995" CreationDate="2016-10-30T18:06:13.787" Score="3" Body="&lt;p&gt;With all these types of debt, there are various descriptions rather than standard definitions, and sometimes the same thing can be labelled with different names or the same name used for different things.  In addition, they can be measure gross or net, and there will be questions of how money owed by one part of the public sector to another is treated. &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;em&gt;National debt&lt;/em&gt; can mean the debt of the national or central government.  This is how it was used for example with the debt the British government built up during the Napoleonic wars, which became the risk-free asset basis of 19th century banking&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;em&gt;Government debt&lt;/em&gt; can mean the combined debt of different layers of government, so combines national, municipal and other levels&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;em&gt;Public debt&lt;/em&gt; may include government debt and debt of other parts of the public sector, such as public corporations &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;None of these explicitly appear in the balance of payments statistics, especially as most public debt is owed to the domestic private sector.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What does appear is in the international investment position, where all debts (public or private) owed to foreign residents or governments appear as liabilities.  Payments of interest to foreigners count as debits in the primary income part of the current account, while borrowing or repayments of principal are flows in the financial account.   &lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2016-10-30T18:06:13.787" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14004" PostTypeId="2" ParentId="13999" CreationDate="2016-10-30T20:14:45.217" Score="1" Body="&lt;p&gt;Adopting your notations, $E = P \times Q$. Taking natural log for both sides, we have $\log E = \log P + \log Q$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When the percent change of some quantity, $\Delta x / x$, is small, we can approximate this percent change with $\Delta \log x$,  the change in $\log x$. This is because when $\Delta x / x$ is small,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\log (x + \Delta x) - \log x = \log \frac{x + \Delta x}{x} = \log (1 + \frac{\Delta x}{x}) \approx \frac{\Delta x}{x}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now we come back to the equation $\log E = \log P + \log Q$. When the change is small, we can loosely say that the percent change in E is the sum of the percent changes in P and Q. But you are right, this relationship is not exact, and may not be appropriate when the percent change is large.&lt;/p&gt;&#xA;" OwnerUserId="10853" LastEditorUserId="10853" LastEditDate="2016-10-30T21:58:01.263" LastActivityDate="2016-10-30T21:58:01.263" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14005" PostTypeId="1" AcceptedAnswerId="14006" CreationDate="2016-10-30T20:23:27.620" Score="3" ViewCount="1024" Body="&lt;h1&gt;The Question&lt;/h1&gt;&#xA;&lt;p&gt;Suppose a firm has a production function given by&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$y=F(L,K)=L^{1/4}K^{1/4}$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;where L and K denote inputs used in the production of y units of output.&lt;/p&gt;&#xA;&lt;p&gt;&lt;strong&gt;(a)&lt;/strong&gt; Determine whether marginal products are diminishing&lt;/p&gt;&#xA;&lt;p&gt;&lt;strong&gt;(b)&lt;/strong&gt; Show that production technology exhibits decreasing returns to scale&lt;/p&gt;&#xA;&lt;h1&gt;My attempt&lt;/h1&gt;&#xA;&lt;p&gt;&lt;strong&gt;(a)&lt;/strong&gt; So the marginal products, &lt;span class=&quot;math-container&quot;&gt;$MP_L$&lt;/span&gt; , &lt;span class=&quot;math-container&quot;&gt;$MP_K$&lt;/span&gt; are:&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$MP_L={\partial{F}\over\partial{L}}={1\over{4}}L^{-3\over{4}}K^{1\over{4}}$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$MP_k={\partial{F}\over\partial{K}}={1\over{4}}L^{1\over{4}}K^{-3\over{4}}$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;To determine if the marginal products are diminishing one needs to simply derive the equations again. Which would be:&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$${\partial{MP_L}\over{\partial{L}}}={-3\over{16}}L^{-7\over{4}}K^{1/4}$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;and&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$${\partial{MP_k}\over{\partial{K}}}={-3\over{16}}L^{1\over{4}}K^{-7\over{4}}$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;When both Marginal products are derived, their results are both are &lt;span class=&quot;math-container&quot;&gt;$&amp;lt;0$&lt;/span&gt; which would imply that they are diminishing.&lt;/p&gt;&#xA;&lt;p&gt;&lt;strong&gt;(b)&lt;/strong&gt; This is where I get a little confused, is it not because we know that the Marginal products are diminishing, we know that the production technology exhibits decreasing returns to scale?&lt;/p&gt;&#xA;" OwnerUserId="6629" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2016-10-30T20:31:58.567" Title="Showing that production technology exhibits decreasing returns to Scale" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14006" PostTypeId="2" ParentId="14005" CreationDate="2016-10-30T20:31:58.567" Score="4" Body="&lt;p&gt;They are two different concepts I think. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Diminishing product means that holding other things fixed, one unit of extra input($K$ or $L$ here) yields less and less additional output, which you have known. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Meanwhile DRS is saying that if you multiply both $K$ and $L$ by some scalar $ t &amp;gt; 1$, the corresponding output would be less than $t$ times the original output. &lt;/p&gt;&#xA;" OwnerUserId="10417" LastActivityDate="2016-10-30T20:31:58.567" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="14007" PostTypeId="5" CreationDate="2016-10-30T23:08:10.060" Score="0" Body="" OwnerUserId="-1" LastEditorUserId="-1" LastEditDate="2016-10-30T23:08:10.060" LastActivityDate="2016-10-30T23:08:10.060" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14008" PostTypeId="4" CreationDate="2016-10-30T23:08:10.060" Score="0" Body="Economics of Education is the branch of microeconomics that studies production, consumption, externalities of education, as its market peculiarities and non-market effects." OwnerUserId="8815" LastEditorUserId="18167" LastEditDate="2018-08-28T11:27:48.340" LastActivityDate="2018-08-28T11:27:48.340" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="14009" PostTypeId="5" CreationDate="2016-10-30T23:10:33.280" Score="0" Body="" OwnerUserId="-1" LastEditorUserId="-1" LastEditDate="2016-10-30T23:10:33.280" LastActivityDate="2016-10-30T23:10:33.280" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14010" PostTypeId="4" CreationDate="2016-10-30T23:10:33.280" Score="0" Body="Refers to compulsory or coercive money collection by a levying authority, usually a government. The term &quot;taxation&quot; applies to all types of involuntary levies, from income to capital gains to estate taxes. Though taxation can be a noun or verb, it is usually referred to as an act; the resulting revenue is usually called &quot;taxes.&quot;" OwnerUserId="8815" LastEditorUserId="69" LastEditDate="2016-10-31T14:28:26.237" LastActivityDate="2016-10-31T14:28:26.237" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14011" PostTypeId="5" CreationDate="2016-10-30T23:12:45.583" Score="0" Body="" OwnerUserId="-1" LastEditorUserId="-1" LastEditDate="2016-10-30T23:12:45.583" LastActivityDate="2016-10-30T23:12:45.583" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14012" PostTypeId="4" CreationDate="2016-10-30T23:12:45.583" Score="0" Body="a generally accepted form of money, including coins and paper notes , which is issued by a government and circulated within an economy." OwnerUserId="8815" LastEditorUserId="8815" LastEditDate="2016-10-31T14:28:36.653" LastActivityDate="2016-10-31T14:28:36.653" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14013" PostTypeId="5" CreationDate="2016-10-30T23:14:40.263" Score="0" Body="" OwnerUserId="-1" LastEditorUserId="-1" LastEditDate="2016-10-30T23:14:40.263" LastActivityDate="2016-10-30T23:14:40.263" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14014" PostTypeId="4" CreationDate="2016-10-30T23:14:40.263" Score="0" Body="Finance describes the management, creation and study of money, banking, credit, investments, assets and liabilities that make up financial systems, as well as the study of those financial instruments. " OwnerUserId="8815" LastEditorUserId="8815" LastEditDate="2016-10-31T14:28:07.553" LastActivityDate="2016-10-31T14:28:07.553" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14015" PostTypeId="1" CreationDate="2016-10-30T23:58:17.823" Score="0" ViewCount="864" Body="&lt;h1&gt;The question&lt;/h1&gt;&#xA;&lt;p&gt;A firm’s production function is given by&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$q=F(L,K)=L^{1\over{4}}K^{1\over{4}}$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;find the firm's cost function &lt;span class=&quot;math-container&quot;&gt;$C(w,r,q)$&lt;/span&gt;,&lt;/p&gt;&#xA;&lt;h1&gt;What I know so far&lt;/h1&gt;&#xA;&lt;p&gt;I'm aware that the &lt;strong&gt;Technical rate of subsitution (TRS)&lt;/strong&gt; is:&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$${MP_L\over{MP_K}}={{\partial{F}\over{\partial{L}}}\over{\partial{F}\over{\partial{K}}}}={K\over{L}}$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;but I'm not sure how this can help me find the cost function&lt;/p&gt;&#xA;" OwnerUserId="6629" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2016-11-02T01:28:00.277" Title="How to find a firm's cost function based on its production function" Tags="&lt;microeconomics&gt;&lt;production-function&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ClosedDate="2016-11-19T23:12:15.057" ContentLicense="CC BY-SA 3.0" />
  <row Id="14017" PostTypeId="2" ParentId="14015" CreationDate="2016-10-31T03:36:50.100" Score="1" Body="&lt;p&gt;A firm's production function is a relationship between inputs and outputs (thus what are the combinations of input and out that can be obtained given the available technology). y-axis is Output and x-axis is for inputs.&#xA;A firm's cost function is a relationship between costs (expressed in monetary terms) and output. Thus, for every level of output, and market prices for inputs, what is the cheapest way to produce it. Output on the x-axis and Cost (monetary units) on the y-axis.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This relationship isn't as straight forward if prices aren't linear. However, most models will assume linear prices. If that is the case, you can kind of see the cost function as the inverse of the production function (essentially flipping the axes), because more inputs for an unit of output imply more costs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As far as actually getting the cost function from the production function, you have to start by finding the argmin for this cost minimization problem:&#xA;$$\min (w \cdot k + r \cdot k)$$&#xA;s.t:&#xA;$$&#xA;q=L^{1/4}K^{1/4}&#xA;$$&#xA;&lt;strong&gt;F.O.C.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$w={\partial{F}\over{\partial{L}}}=f_{L}(L,K)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$r={\partial{F}\over{\partial{K}}}=f_{K}(L,K)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So wages will be equal to marginal productivity of Labor and interest rate will be equal to marginal productivity of capital in equilibrium.&#xA;Let me know if you don't know how to keep going from here.&lt;/p&gt;&#xA;" OwnerUserId="10907" LastEditorUserId="10907" LastEditDate="2016-11-02T01:28:00.277" LastActivityDate="2016-11-02T01:28:00.277" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="14018" PostTypeId="2" ParentId="13992" CreationDate="2016-10-31T03:49:45.170" Score="0" Body="&lt;p&gt;Population growth will not affect GDP per capita growth iff GDP growth is equal to population growth&lt;/p&gt;&#xA;&#xA;&lt;p&gt;GDP per capita=GDP/Pop&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus log(GDP per Capita)=log(GDP)-log(Pop)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So that's log(GDP per capita)=0 must be the case that log(GDP)=log(Pop)&lt;/p&gt;&#xA;" OwnerUserId="10907" LastActivityDate="2016-10-31T03:49:45.170" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14019" PostTypeId="1" CreationDate="2016-10-31T08:53:55.767" Score="4" ViewCount="77" Body="&lt;p&gt;In the following open-economy RBC model consumption level ($C_t$) is not the most important for the representative households, but the difference of the consumption level and the earlier level of the average consumption ($\overline{C_{t-1}}$):&#xA;$$H_t=C_t-b \overline{C_{t-1}}$$&#xA;$$0&amp;lt;b&amp;lt;1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The consumer's utility function:&#xA;$$E_0 \sum\limits_{t=1}^{\infty}\beta^{t-1}\left( \frac{H_t^{1-\sigma}}{1-\sigma}+\frac{L_t^{1+\eta}}{1+\eta}\right)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;After solving the Utility Maximization Problem, deriving the First Order Conditions, here's the Euler-equation:&#xA;$$\beta E_t \left(\frac{C_{t+1}-b \overline{C_{t}}}{C_t-b \overline{C_{t-1}}}\right)^{-\sigma}(1+r_t)=1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Question:&lt;/strong&gt; I've got no idea what I should do with the average of the consumption ($\overline{C_{t}}$) term. How can I calculate with this? I need to find the steady state, and do the log-linearization, but I don't understand the substance of this variable.&lt;/p&gt;&#xA;" OwnerUserId="5017" LastEditorUserId="2776" LastEditDate="2017-02-21T16:39:41.880" LastActivityDate="2017-06-21T21:42:18.723" Title="How can I calculate with the average of the consumption in an RBC framework?" Tags="&lt;macroeconomics&gt;&lt;open-economy-macro&gt;&lt;dynare&gt;&lt;real-business-cycles&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="14020" PostTypeId="2" ParentId="13094" CreationDate="2016-10-31T10:31:44.887" Score="-1" Body="&lt;p&gt;The real issue remains one of perception, I believe. As long as enough people believe (however wrongly) that the notional numbers are amounts that must change hands, then markets will get spooked by them when other things -- impending regulatory fines, for example -- threaten an institution. &lt;/p&gt;&#xA;" OwnerUserId="10823" LastActivityDate="2016-10-31T10:31:44.887" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14022" PostTypeId="1" CreationDate="2016-10-31T14:44:10.743" Score="1" ViewCount="2917" Body="&lt;p&gt;Suppose we have utility:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U(x,y)=x^{0.5}y^{0.5}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then Marshallian Demand for good $x$ is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$x(p_{x},p_{y},I)=\frac{0.5I}{p_{x}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And Hicksian Demand for good $x$ is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$x^{c}(p_{x},p_{y},U)=p_{x}^{-0.5}p_{y}^{0.5}U$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If $p_{x}=1$, $p_{y}=4$, $I=8$ and $U=2$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Marshallian Demand for $x$ is 4 and Hicksian Demand for $x$ is 4.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Supposing that the price of good $x$ rises to $p_{x}=4$, how can the Slutsky equation show us the change due to substitution effect and income effect?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Substitution effect: $\frac{\partial x^c}{\partial p_{x}}=-0.25p_{x}^{-2}I$ according to the Slutsky equation. If we plug in $p_{x}=4$, the result is -0.125. How is that meaningful in any way? The Hicksian Demand should drop from 4 to 2 after this price increase but I don't see how the Slutsky equation shows us that.&lt;/p&gt;&#xA;" OwnerUserId="5936" LastActivityDate="2016-10-31T23:40:06.013" Title="Using the Slutsky equation" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;cobb-douglas&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14023" PostTypeId="2" ParentId="13991" CreationDate="2016-10-31T14:52:41.760" Score="1" Body="&lt;p&gt;This may not be the complete answer but I believe this is a major issue:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is extremely difficult to get famous and rich people to participate in surveys. They have handlers that prevent surveyor access. They have multiple phones numbers and homes that makes it difficult to find them. They also have complex affairs that may make it difficult for them to easily summarize. For example, having a complete picture of sponsorship income can be challenging and almost no one knows what a fair value is for their accumulated pension. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In summary, I assume that most of professional athletes are not covered by the BLS survey. Instead, it is people of more modest income, like minor league athletes and golf pros that are actually getting picked up. &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2016-10-31T14:52:41.760" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14024" PostTypeId="1" AcceptedAnswerId="41006" CreationDate="2016-10-31T15:44:39.497" Score="5" ViewCount="104" Body="&lt;p&gt;Unsure if this is off topic but have there been any attempts to look at the &quot;economics of nature&quot;? I mean this in the sense of measuring the &quot;economic activities&quot; of the animal kingdom.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From &lt;a href=&quot;https://en.wikipedia.org/wiki/Economy&quot; rel=&quot;noreferrer&quot;&gt;wikipedia&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;An economy (From Greek οίκος – &quot;household&quot; and νέμoμαι – &quot;manage&quot;) is an area of the &lt;strong&gt;production, distribution, or trade, and consumption of goods and services&lt;/strong&gt; by different agents in a given geographical location.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;we can see all of these activities in a bee hive (other than trade I guess). It seems like it can work very well with alot of the inter-temporal models we see in intermediate macroeconomics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Practical questions for analysis include:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;How is &quot;income&quot; or food distributed in a colony&lt;/li&gt;&#xA;&lt;li&gt;what is the Lorenz curve in a colony&lt;/li&gt;&#xA;&lt;li&gt;what is the MRS between present and future consumption in a colony&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;It would be interesting for the sake of real world policy application, much like engineers design from nature can we create economic policy from it?&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2020-11-22T01:23:51.190" Title="Economics in nature?" Tags="&lt;reference-request&gt;&lt;environmental-economics&gt;" AnswerCount="2" CommentCount="3" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="14025" PostTypeId="1" CreationDate="2016-10-31T16:31:20.303" Score="1" ViewCount="74" Body="&lt;p&gt;Say I am selling a pack of trading cards, and there are 5 cards inside. Four of these cards are basic cards, but the last card has a 1:10 chance of being a special insert card.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does the fact that the special insert has a 1:10 chance of appearing mean that it is ten times as valuable as a base card?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand that value is almost entirely subjective, so I suppose this is a philosophical question more than anything else, but I'm also not really an economist so I don't know if there are any axioms around this.&lt;/p&gt;&#xA;" OwnerUserId="10941" LastActivityDate="2017-01-03T11:01:45.773" Title="If an item is rarer than others, is it that much more valuable?" Tags="&lt;econometrics&gt;&lt;probability&gt;" AnswerCount="2" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="14026" PostTypeId="1" CreationDate="2016-10-31T16:57:11.080" Score="3" ViewCount="19" Body="&lt;p&gt;I am working on a project on the productivity costs for caregivers of people with Disease X, a degenerative disease that affects mobility over time.  I am looking for references, either scholarly articles or textbooks, on estimating lifetime labor market earnings lost for caregivers of these patients.  What are some recommended or &quot;essential&quot; reading in this methodology?&lt;/p&gt;&#xA;" OwnerUserId="7794" LastActivityDate="2016-10-31T16:57:11.080" Title="References for estimating lifetime earnings lost due to caregiving (health economics)" Tags="&lt;reference-request&gt;&lt;labor-economics&gt;&lt;productivity&gt;&lt;empirical-methods&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14027" PostTypeId="1" AcceptedAnswerId="14042" CreationDate="2016-10-31T17:11:14.307" Score="1" ViewCount="218" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/szTOI.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/szTOI.png&quot; alt=&quot;integrating value function by parts&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is a derivation from &quot;Exercises in Recursive Macroeconomic Theory&#xA;preliminary and incomplete by &#xA;Stijn Van Nieuwerburgh&#xA;Pierre-Olivier Weill&#xA;Lars Ljungqvist&#xA;Thomas J. Sargent&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which uses integration by parts. Can someone explain how this derivation works? I have tried to replicate the result but to no avail. The text says that they use integration by parts on the second integral on the second line [the integral from w to B of w'dF(w') ]&lt;/p&gt;&#xA;" OwnerUserId="5847" LastActivityDate="2016-11-01T02:39:32.913" Title="integrating CDF functions by parts" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14028" PostTypeId="1" AcceptedAnswerId="17393" CreationDate="2016-10-31T19:37:29.957" Score="6" ViewCount="53" Body="&lt;p&gt;The CETA trade deal is supposed to involve only the EU and Canada, but Canada has already a trade deal with the USA and Mexico : I don't understand how this is possible. &#xA;For example, if I own one company in Paris, one company in Toronto and one company in New York, I can sell my product to myself from Europe to Canada and then from Canada to the US (or all in reverse). How could any tariff apply in such a case ? (my product never crossed a &quot;trade border&quot;, yet it moved freely from EU to USA )&lt;/p&gt;&#xA;" OwnerUserId="10945" LastActivityDate="2017-07-04T10:16:37.970" Title="EU and North America with CETA" Tags="&lt;international-trade&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14029" PostTypeId="5" CreationDate="2016-10-31T22:12:14.200" Score="0" Body="" OwnerUserId="-1" LastEditorUserId="-1" LastEditDate="2016-10-31T22:12:14.200" LastActivityDate="2016-10-31T22:12:14.200" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14030" PostTypeId="4" CreationDate="2016-10-31T22:12:14.200" Score="0" Body="In reference to activities undertaken by the central bank mainly to influence nominal interest rates, money supply and, eventually, price levels." OwnerUserId="8815" LastEditorUserId="61" LastEditDate="2016-11-20T15:47:36.100" LastActivityDate="2016-11-20T15:47:36.100" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14031" PostTypeId="5" CreationDate="2016-10-31T22:13:30.450" Score="0" Body="" OwnerUserId="-1" LastEditorUserId="-1" LastEditDate="2016-10-31T22:13:30.450" LastActivityDate="2016-10-31T22:13:30.450" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14032" PostTypeId="4" CreationDate="2016-10-31T22:13:30.450" Score="0" Body="In economics, general equilibrium theory attempts to explain the behavior of supply, demand, and prices in a whole economy with several or many interacting markets, by seeking to prove that the interaction of demand and supply will result in an overall (or &quot;general&quot;) equilibrium." OwnerUserId="8815" LastEditorUserId="8815" LastEditDate="2016-11-19T22:04:01.750" LastActivityDate="2016-11-19T22:04:01.750" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14033" PostTypeId="5" CreationDate="2016-10-31T22:14:52.980" Score="0" Body="" OwnerUserId="-1" LastEditorUserId="-1" LastEditDate="2016-10-31T22:14:52.980" LastActivityDate="2016-10-31T22:14:52.980" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14034" PostTypeId="4" CreationDate="2016-10-31T22:14:52.980" Score="0" Body="Public economics (or economics of the public sector) is the study of government policy through the lens of economic efficiency and equity." OwnerUserId="8815" LastEditorUserId="8815" LastEditDate="2016-11-20T15:47:47.600" LastActivityDate="2016-11-20T15:47:47.600" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14035" PostTypeId="5" CreationDate="2016-10-31T22:15:45.673" Score="0" Body="" OwnerUserId="-1" LastEditorUserId="-1" LastEditDate="2016-10-31T22:15:45.673" LastActivityDate="2016-10-31T22:15:45.673" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14036" PostTypeId="4" CreationDate="2016-10-31T22:15:45.673" Score="0" Body="the mathematical study of strategies for optimal decision-making between options involving different risks or expectations of gain or loss depending on the outcome." OwnerUserId="8815" LastEditorUserId="8815" LastEditDate="2016-11-21T21:45:37.603" LastActivityDate="2016-11-21T21:45:37.603" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14037" PostTypeId="5" CreationDate="2016-10-31T22:17:18.460" Score="0" Body="" OwnerUserId="-1" LastEditorUserId="-1" LastEditDate="2016-10-31T22:17:18.460" LastActivityDate="2016-10-31T22:17:18.460" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14038" PostTypeId="4" CreationDate="2016-10-31T22:17:18.460" Score="0" Body="any item or verifiable record that is generally accepted as payment for goods and services and repayment of debts in a particular country or socio-economic context, or is easily converted to such a form. The main functions of money are distinguished as: a medium of exchange; a unit of account; a store of value; and, sometimes, a standard of deferred payment. Any item or verifiable record that fulfills these functions can be considered as money." OwnerUserId="8815" LastEditorUserId="8815" LastEditDate="2016-11-19T22:00:51.947" LastActivityDate="2016-11-19T22:00:51.947" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14039" PostTypeId="5" CreationDate="2016-10-31T22:18:44.727" Score="0" Body="" OwnerUserId="-1" LastEditorUserId="-1" LastEditDate="2016-10-31T22:18:44.727" LastActivityDate="2016-10-31T22:18:44.727" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14040" PostTypeId="4" CreationDate="2016-10-31T22:18:44.727" Score="0" Body="Stata is a general-purpose statistical software package created in 1985 by StataCorp. Most of its users work in research, especially in the fields of economics, sociology, political science, biomedicine and epidemiology." OwnerUserId="8815" LastEditorUserId="8815" LastEditDate="2016-11-19T22:02:27.390" LastActivityDate="2016-11-19T22:02:27.390" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14041" PostTypeId="2" ParentId="14022" CreationDate="2016-10-31T23:35:02.797" Score="1" Body="&lt;p&gt;In your context, Slutsky Equation says, after $p_x$ increases from 1 to 4, the following is true:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{align*}&#xA;\text{total demand change in $x$} &amp;amp; \\&#xA;= \text{demand change in $x$, keeping $U$ fixed at 2} &amp;amp; \\&#xA;+ \text{demand change in $x$, accounting for the income change if we do not fix $U$ at 2.} &amp;amp; &#xA;\end{align*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the example, the substitution and income effects are of the same sign, so I use absolute values for the demand changes in the equation above. Thus the plus sign rather than the minus sign in Slutsky Equation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The total demand decrease in $x$ is $3$, that is, $$x_0 - x_1 = 4 - 1 = 3.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The demand change in $x$, keeping $U$ fixed at 2 is: $$x^{c}_0 - x^{c}_1 = 4 - 2 = 2.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To fix $U$ at 2 under the new price $p_x = 4$, the consumer needs the new income to be $I_1 = 16$ instead of 8. With \$16, the consumer buys 2 units for both $x$ and $y$. If we do not fix $U$ at 2 when $p_x$ increases, which means we allow income to decrease from 16 to 8. The demand reduction in $x$ induced by this \$8 income decrease is: $$0.5 \times 16 \div 4 - 0.5 \times 8 \div 4 = 2 - 1 = 1.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore we have $3 = 2 + 1$, as Slutsky Equation tells us.&lt;/p&gt;&#xA;" OwnerUserId="10853" LastEditorUserId="10853" LastEditDate="2016-10-31T23:40:06.013" LastActivityDate="2016-10-31T23:40:06.013" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="14042" PostTypeId="2" ParentId="14027" CreationDate="2016-11-01T02:39:32.913" Score="3" Body="&lt;p&gt;The integral of interest is $\int_{w^*}^Bw'dF(w')$, which we get after bringing $\frac{1}{1-\beta}$ out from the last integral on the second line. I assume that $F(B)=1$. First, we have:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\int_{w^*}^Bw'dF(w')=w'F(w')\vert_{w^*}^B - \int^B_{w^*}&#xA;F(w')dw'&#xA;$$&#xA;from integration by parts with $u=w'$ and $dv=dF(w')$. We can evaluate the first term on the right-hand side and both add and subtract $B-w^*=\int^B_{w^*}dw'$ to get:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\int_{w^*}^Bw'dF(w')= [B - w^*F(w^*)]-[B-w^*]+\int^B_{w^*}(1-F(w')dw'.&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that I used my initial assumption here, and that I brought $B-w^*=\int^B_{w^*}dw'$ under the pre-existing integral.It should be clear after a bit of algebra that:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\int_{w^*}^Bw'dF(w')= w^*(1 - F(w^*))+\int^B_{w^*}(1-F(w')dw'.&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The rest should be easy after multipling both sides by the $\frac{\beta}{1-\beta}$ factor.&lt;/p&gt;&#xA;" OwnerUserId="7088" LastActivityDate="2016-11-01T02:39:32.913" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14043" PostTypeId="1" AcceptedAnswerId="14517" CreationDate="2016-11-01T03:55:53.893" Score="5" ViewCount="690" Body="&lt;p&gt;Suppose that under autarky, Colombia makes coffee and cars at \$1 and \$2 each, and Japan makes coffee and cars at \$20 and \$10 each. Since Japan has a comparative advantage in car manufacture, the standard theory says that Colombia will import cars and export coffee.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, I'm having a hard time imagining how this actually happens in practice. If I run a Colombian car business, why would I import cars from Japan, when they cost five times as much? Why not just buy cars at home?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In general, I see no reason why any business dealing in a single market should care about price ratios; they only see the absolute prices of a single good. For the trade to actually happen in this case, you'd either need a company that trades both cars and coffee (do those actually exist?) or government-controlled trade. Neither of these feel realistic.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we can look at &lt;a href=&quot;https://en.wikipedia.org/wiki/Comparative_advantage#Ricardo.27s_example&quot; rel=&quot;nofollow noreferrer&quot;&gt;Ricardo's original example&lt;/a&gt;, the same problem appears. Ricardo is assuming that production across an entire country is synchronized in some way; his theory would work if a single business in each country controlled all production of all goods there. But I don't see how the logic holds if there are separate companies producing cloth and wine.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In real life, how are comparative advantages actually exploited?&lt;/p&gt;&#xA;" OwnerUserId="10861" LastEditorUserId="2776" LastEditDate="2017-06-14T07:24:34.070" LastActivityDate="2017-06-14T07:24:34.070" Title="Who exploits comparative advantage in international trade?" Tags="&lt;international-trade&gt;&lt;comparative-advantage&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14044" PostTypeId="1" AcceptedAnswerId="17112" CreationDate="2016-11-01T14:50:12.640" Score="1" ViewCount="90" Body="&lt;p&gt;I am having some problems understanding the difference between shareholder-creditor conflict and debt-equity conflict. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand what the shareholder-creditor conflict is about, but when I try to understand debt-equity conflict I get to the conclusion that it is the same since&lt;/p&gt;&#xA;&#xA;&lt;p&gt;-&gt; A shareholder owns a piece of the company in the form of stock (equity). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;-&gt; A creditor lends money to the company (debt)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am asking because I am reading two articles where the main conflict of interest in the first article is shareholder-creditor conflict, but in the second article the main conflict is debt-equity.. &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;article: &quot;The leverage ratchet effect&quot; by Admati et. al. (2015)&lt;/li&gt;&#xA;&lt;li&gt;article: &quot;A theory of LBO activity based on repeated debt-equity conflicts&quot; by Andrey Malenko and Nadya Malenko (2015)&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="10952" LastActivityDate="2017-06-09T21:31:41.293" Title="Is the shareholder-creditor conflict the same as debt-equity conflict?" Tags="&lt;finance&gt;&lt;debt&gt;&lt;corporate-finance&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14045" PostTypeId="1" CreationDate="2016-11-01T14:53:11.737" Score="2" ViewCount="3594" Body="&lt;p&gt;Through the Slutsky equation I know that if the good is inferior the marshallian demand function is steeper than the hicksian demand but I cannot understand why the Compensating variation is higher than the equivalent variation. Is this because the increase in utility shifts the hicksian to the left instead of shifting it to the right (in a graph with prices as y and demand as x)?&lt;/p&gt;&#xA;" OwnerUserId="10953" LastActivityDate="2017-07-30T11:10:02.700" Title="Why is EV&lt;CV if the good is inferior?" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;&lt;welfare&gt;&lt;consumer-surplus&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="14046" PostTypeId="1" AcceptedAnswerId="14051" CreationDate="2016-11-01T19:14:13.187" Score="1" ViewCount="42" Body="&lt;p&gt;What is the intuition behind this?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $Y=zF(K,N)$ be a production function.&#xA;For a profit to exist Indana conditions must hold and :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{∂^2zF(K,N^d)}{\partial K \partial N} &amp;gt; 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand all the conditions intuitionally, but I can understand this one mathematically but can't understand even what is meant by $\frac{∂^2zF(K,N^d)}{\partial K \partial N} &amp;gt; 0$. What does this being greater than zero imply?&lt;/p&gt;&#xA;" OwnerUserId="10922" LastActivityDate="2016-11-01T23:48:52.430" Title="What does this condition for a profit of a firm exist mean?" Tags="&lt;macroeconomics&gt;&lt;optimization&gt;&lt;profit-maximization&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14047" PostTypeId="1" AcceptedAnswerId="14059" CreationDate="2016-11-01T21:46:39.850" Score="0" ViewCount="905" Body="&lt;p&gt;Why is this the case?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since Vacancy rate is defined as following,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;let $A,Q,U$ denote number of vacancies in the economy, labor force, unemployed respectively.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{A}{A+Q-U}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here we can see that if unemployed increase vacancy rate would go up?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why is there a negatively correlation then? Take the beveridge curve as an example :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Beveridge_curve&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://en.wikipedia.org/wiki/Beveridge_curve&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="10922" LastActivityDate="2016-11-02T04:09:22.257" Title="Why are vacancy rate and unemployment rate negatively correlated?" Tags="&lt;macroeconomics&gt;&lt;labor-economics&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="14048" PostTypeId="1" CreationDate="2016-11-01T23:41:58.610" Score="1" ViewCount="71" Body="&lt;p&gt;In the idea of a wealth tax, or even for properties taxes, many times assets are illiquid. What mechanisms can be introduced to promote compliance and ensure the revenue collection goals of the taxing authority in the face of illiquidity?&lt;/p&gt;&#xA;" OwnerUserId="2798" LastActivityDate="2016-11-01T23:41:58.610" Title="&quot;Wealth tax&quot; on illiquid assets, how would people pay" Tags="&lt;taxation&gt;&lt;liquidity&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14049" PostTypeId="1" AcceptedAnswerId="14058" CreationDate="2016-11-01T23:42:30.130" Score="1" ViewCount="2512" Body="&lt;p&gt;the profit function is convex in prices and wages (output and input prices respectively). How does this interact with profit maximization since convexity implies tangents always lie below the curve I would have thought convexity would be necessary for minimization rather than maximization. &lt;/p&gt;&#xA;" OwnerUserId="5847" LastActivityDate="2020-02-27T11:15:59.673" Title="convexity of the profit function for profit maximization" Tags="&lt;microeconomics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14050" PostTypeId="2" ParentId="14047" CreationDate="2016-11-01T23:45:42.487" Score="0" Body="&lt;p&gt;The number of vacancies does not change with U. It is the proportion that will change. In other words A will not change because U increases, but the ratio will go up.&lt;/p&gt;&#xA;" OwnerUserId="5847" LastActivityDate="2016-11-01T23:45:42.487" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14051" PostTypeId="2" ParentId="14046" CreationDate="2016-11-01T23:48:52.430" Score="1" Body="&lt;p&gt;It means the impact of changing labour on the marginal product of capital is positive. IE if you increase labour MPK will increase and also if you increase labour MPL will increase. &lt;/p&gt;&#xA;" OwnerUserId="5847" LastActivityDate="2016-11-01T23:48:52.430" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14052" PostTypeId="2" ParentId="14045" CreationDate="2016-11-02T00:06:54.473" Score="1" Body="&lt;p&gt;I believe Marshallian demands are less steep than Hicksian demands because we reverse the y and x axis in economics. Thus a larger derivative of x with respect to p will be less steep since p is on the vertical and x is on the horizontal.&lt;a href=&quot;https://i.stack.imgur.com/XXCpf.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/XXCpf.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(image from &lt;a href=&quot;https://www.youtube.com/watch?v=T4GAFG8TVt0&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;)&lt;/p&gt;&#xA;" OwnerUserId="5847" LastEditorUserId="2776" LastEditDate="2017-06-30T10:12:28.997" LastActivityDate="2017-06-30T10:12:28.997" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14053" PostTypeId="1" CreationDate="2016-11-02T00:30:54.497" Score="1" ViewCount="318" Body="&lt;p&gt;Question: Let $N=\{1,2,3\}$ be a set of three people and $X=\{a,b,c,d\}$ a set of 4 political parties. The individuals have the following preferences:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Individual 1: $a \succ_1 b \sim_1 c \succ_1 d$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Individual 2: $d \sim_2 a \succ_2 c \succ_2 b$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Individual 3: $a \succ_3 b \succ_3 c \succ_3 d$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;List all pairs of $(x,y) \in X \times X$ such that $x$ Pareto dominates $y$ and deduce the optimal Pareto set.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think I am being thrown off by the $X \times X$ bit. But it seems like if I multiply out $X$ I will get the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$X \times X = \{(a,a),(a,b),(a,c),(a,d),(b,b),(b,c),(b,d),(c,c),(c,d),(d,d)\}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So if I define the Pareto outcomes as $x \succeq^P y \iff x \succeq_i y$ for all $i=1,\dots,n$. Then my answer to the question would be the pairs are:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$(a,b),(a,c)$ since those are the only two combinations which dominate in all three individuals. I don't think it makes sense to examine the $(a,a),(b,b),...$ case, but I could be completely wrong. For some reason I can't seem to wrap my head around it, and I could have gone wrong right from the beginning. &lt;/p&gt;&#xA;" OwnerUserId="10957" LastActivityDate="2016-11-06T19:44:44.027" Title="Finding the Pareto optimal set with preferences for 3 individuals" Tags="&lt;pareto-efficiency&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14054" PostTypeId="2" ParentId="14025" CreationDate="2016-11-02T01:38:42.060" Score="0" Body="&lt;p&gt;Things that are rarer are more valuable in an Economic sense if its demand to supply ratio is greater than other items.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words, some things are really hard to find, but no one cares about it anyways, so they aren't mode valuable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The comment from Paul above is your best bet to see things that are rare and valuable. But the common sense is: rarity only implies greater price if there is scarcity of supply for an existing demand. And no one pays more than its derived marginal benefit for anything.&lt;/p&gt;&#xA;" OwnerUserId="10907" LastActivityDate="2016-11-02T01:38:42.060" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14055" PostTypeId="2" ParentId="14024" CreationDate="2016-11-02T01:46:09.597" Score="2" Body="&lt;p&gt;You may want to take a look at Evolutionary Game Theory. Instead of using the regular equilibrium concept developed by Nash, it uses the concept of an Evolutionarily Stable Strategy (ESS).&#xA;The idea isn't that players are rational and are choosing strategies given what others are doing to maximize payoff. The idea is: each mutation of that species is &quot;programed&quot; to adopt a particular action (instinct), and when different mutations of the gene interact, it will generate probabilities of survival. Thus, an equilibrium strategy is an ESS, which are the types of actions instinctive to a certain gene type, which will tend to survive and procreate, passing forth the gene.&#xA;Game Theory is a field that has had intensive collaboration between Biology and Economics. I am sure you will find some interesting stuff.&lt;/p&gt;&#xA;" OwnerUserId="10907" LastActivityDate="2016-11-02T01:46:09.597" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14056" PostTypeId="2" ParentId="14043" CreationDate="2016-11-02T01:53:29.080" Score="-1" Body="&lt;p&gt;This model has a number of limitations (as you yourself cited some). The main idea here is that most countries have different opportunity costs between producing different goods, because there are resources that can be used in producing both (like labor). Focusing on what you have comparative advantage and trading allows you to consume outside your production possibility frontier. &#xA;In practice, industries that are labor intensive tend to go to countries with a lot of labor (like China and India), because opportunity cost tends to be lower than countries where it isn't so abundant, which in its turn tend to focus on capital intensive industries, since capital tends to be more costly in labor abundant countries.&lt;/p&gt;&#xA;" OwnerUserId="10907" LastActivityDate="2016-11-02T01:53:29.080" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14057" PostTypeId="1" CreationDate="2016-11-02T02:30:58.937" Score="2" ViewCount="534" Body="&lt;p&gt;In fisher equation,&#xA; real interest rate = nominal interest rate - expected inflation rate&lt;/p&gt;&#xA;&#xA;&lt;p&gt;During calculating real interest rate, I've question that whether I can use actual inflation rate instead of expected inflation rate. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;so, is it make sense?&#xA; real interest rate = nominal interest rate - actual inflation rate&lt;/p&gt;&#xA;" OwnerUserId="10958" LastActivityDate="2016-11-02T10:50:10.480" Title="In fisher equation, Should I use &quot;expected inflation&quot; not &quot;actual inflation&quot;?" Tags="&lt;inflation&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14058" PostTypeId="2" ParentId="14049" CreationDate="2016-11-02T03:59:07.320" Score="4" Body="&lt;p&gt;It is true that we are usually interested in minimizing convex functions or maximizing concave functions, typically over convex sets. But I think you have two confusions:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;The profit function is the result of a profit maximization problem. Not the objective function in the maximization problem. A profit function &lt;span class=&quot;math-container&quot;&gt;$\pi^*(p, w, r)$&lt;/span&gt; identifies maximum profit given the price levels (p, w, r).&lt;/li&gt;&#xA;&lt;li&gt;In the profit maximization problem, the objective function &lt;span class=&quot;math-container&quot;&gt;$\pi = pf(k, l) - wl - kr$&lt;/span&gt; is concave in &lt;span class=&quot;math-container&quot;&gt;$k$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$l$&lt;/span&gt;, the choice variables of the maximization problem.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="10853" LastEditorUserId="10853" LastEditDate="2019-10-26T21:20:22.173" LastActivityDate="2019-10-26T21:20:22.173" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="14059" PostTypeId="2" ParentId="14047" CreationDate="2016-11-02T04:09:22.257" Score="1" Body="&lt;p&gt;Adopting your notation, the vacancy rate at any given time is defined as $A/Q$. There is no mechanical relationship between the unemployment rate $U/Q$ and vacancy rate (A/Q).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;They are negatively related because when vacancy rate is high, it means there are many unfilled job openings, and they are unfilled probably because most people already have a job, thus lower unemployment rate. And vice versa.&lt;/p&gt;&#xA;" OwnerUserId="10853" LastActivityDate="2016-11-02T04:09:22.257" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14060" PostTypeId="1" CreationDate="2016-11-02T06:12:11.733" Score="6" ViewCount="96" Body="&lt;p&gt;I live in British Columbia, Canada, and we have a hydro electric company called BC hydro that supplies our power. They run ads encouraging us to use less power. I have been wondering why they would do this as money we spend on power is their profit. What is their incentive for us to use less? From an economic perspective, this doesn't make sense to me. Any explanation for the rationale behind this would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="10959" LastEditorUserId="4988" LastEditDate="2016-11-03T21:44:50.500" LastActivityDate="2017-04-19T05:57:15.567" Title="Why does BC Hydro want us to use less power?" Tags="&lt;energy-economics&gt;&lt;profits&gt;" AnswerCount="3" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="14061" PostTypeId="2" ParentId="14053" CreationDate="2016-11-02T07:44:47.880" Score="2" Body="&lt;p&gt;I am somewhat unsure where your exact difficulty lies (and hence what your question is). As you write the two Pareto impromevents are $(a,b),(a,c)$. Meaning $b$ and $c$ can be improved upon and are not efficient. Also $(a,d)$ is an improvement, notice that individual 2 is indifferent while others prefer $a$ to $d$. Alternative $a$ cannot be improved upon, and hence it is Pareto-efficient. So the Pareto-set would be $\left\{a\right\}$.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2016-11-06T19:44:44.027" LastActivityDate="2016-11-06T19:44:44.027" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14062" PostTypeId="2" ParentId="14057" CreationDate="2016-11-02T10:50:10.480" Score="1" Body="&lt;p&gt;The Fisher equation as $$r=i-\pi$$ is little more than an approximation to the definition of the real interest rate $$r=\dfrac{1+i}{1+\pi} -1$$ where $r$ is the real interest rate, $i$ is the nominal interest rate and $\pi$ is inflation (the proportionate change in prices). You can complicate things by &quot;coninuous compounding&quot; but it makes little actual impact. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Looking backwards you should look at actual interest and actual inflation at the time of the loan. Looking forward, if you do not know what inflation or interest rates will be then you can only use estimated values and forecaster often prefer to estimate inflation and real interest rates, turning the Fisher equation round to give $$i = r+ \pi$$     &lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2016-11-02T10:50:10.480" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14064" PostTypeId="1" CreationDate="2016-11-02T18:30:33.130" Score="2" ViewCount="7730" Body="&lt;p&gt;How does the IS-LM model help economists in the day to day analysis of the economy? There are just too many assumptions that are not there in the real world.&lt;/p&gt;&#xA;" OwnerUserId="10938" LastActivityDate="2019-05-11T20:27:45.320" Title="What are the advantages and disadvantages of the IS LM model?" Tags="&lt;macroeconomics&gt;&lt;financial-markets&gt;" AnswerCount="3" CommentCount="6" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14065" PostTypeId="1" CreationDate="2016-11-02T18:50:00.153" Score="-2" ViewCount="344" Body="&lt;p&gt;$Let$ the utility function defined to be :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U(x,y)=-x^2-y^2$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I believe they are convex, the set which is preferred to a specific indifference curve is convex, but the answer sheet says that it is concave? What is the reason behind this? Or is the answer sheet just wrong?&lt;/p&gt;&#xA;" OwnerUserId="10922" LastActivityDate="2016-11-03T20:48:33.327" Title="Are these preferences convex?" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="1" ClosedDate="2016-11-08T18:54:46.590" ContentLicense="CC BY-SA 3.0" />
  <row Id="14068" PostTypeId="1" AcceptedAnswerId="14116" CreationDate="2016-11-02T22:36:15.490" Score="2" ViewCount="775" Body="&lt;p&gt;Let $\varepsilon&amp;gt;1$ and let $$C_t\equiv\left(\int_0^1C_t(i)^{(\varepsilon-1)/\varepsilon} \, di\right)^{\varepsilon/(\varepsilon-1)}$$ denote a consumption basket in time period $t$, where $C_t(i)$ is consumption of good $i\in [0,1]$. In e.g. new Keynesian models we want to differentiate $C_t$ with respect to $C_t(i)$ for some $i\in [0,1]$ so as to solve a utility optimization problem. In my lecture notes, and in many texts on this subject, it is said that $$\frac{\partial C_t}{\partial C_t(i)} = \frac{\varepsilon}{\varepsilon-1} C_t^{1/\varepsilon} \frac{\varepsilon-1}{\varepsilon} C_t(i)^{-1/\varepsilon}.$$ Does anyone know how this differentiation is accomplished? This is my question I want answered. Below I will outline how I have thought about this question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am prone to thinking that it is wrong. For using the chain rule I would say that the answer is the following. $$\frac{\partial C_t}{\partial C_t(i)} = \frac{\varepsilon}{\varepsilon-1} C_t^{1/\varepsilon} \left(\frac{\partial}{\partial C_t(i)} \int_0^1C_t(i)^{(\varepsilon-1)/\varepsilon} \, di\right),$$ which, when asssuming that the function is such that we may differentiate under the integral sign, I get $$\frac{\partial C_t}{\partial C_t(i)} = \frac\varepsilon {\varepsilon-1} C_t^{1/\varepsilon} \left(\int_0^1 \frac{\varepsilon-1} \varepsilon C_t(i)^{-1/\varepsilon} \, di\right).$$ Now, using the mean value theorem for integrals it would be possible to say that $$\int_0^1 C_t(i)^{-1/\varepsilon} \, di = C_t(j)^{-1/\varepsilon}(1-0)$$ for some $j\in (0,1)$, and insert this result above and then get a similar result to what was shown in my lecture notes. However, this would lead us to considering another good $j$ not necessarily equal to good $i$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reader may think that I am confusing the symbol '$i$' in the integral, for the same symbol used when differentiating with respect to $C_t(i)$, and that I should, when differentiating, consider a good $i_0$, and then perform the following differentiation: $$\frac{\partial C_t}{\partial C_t(i_0)} = \frac{\partial }{\partial C_t(i_0)} \left(\int_0^1 C_t(i)^{(\varepsilon-1)/\varepsilon} \, di\right)^{\varepsilon/(\varepsilon-1)}.$$ This may be so, but I do not know how to get the desired result from this, and if I take this approach, I would say that the derivative is equal to $0$ (!) as the integral is just a real constant if $t$ is fixed, which it is.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is sometimes said that we may differentiate the integral just mentioned by looking at the integral as beeing a sum. What they mean by this, I do not know. Maybe they represent the integral as the limit of a Riemann sum, which it is, and write $$\frac{\partial }{\partial C_t(i_0)} \int_0^1 C_t(i)^{(\varepsilon-1/\varepsilon} \, di = \frac{\partial }{\partial C_t(i_0)} \lim_{n\to\infty} \sum_{k=1}^n C_t(\xi_k)^{(\varepsilon-1)/\varepsilon}(i_k-i_{k-1}),$$ with $i_0=0&amp;lt;i_1&amp;lt;\cdots &amp;lt; i_{n-1}&amp;lt;i_n=1$ and $i_{k-1}\leq\xi_k\leq i_k$ for each $k=1,2\ldots,n$. When the authors write that we should look at the integral as beeing a sum, this must be it. But differentiating this sum with respect to $C_t(i_0)$ would in the best cases (i.e., when we can do differentiation inside the limit) be equal to $\lim_{n\to\infty}\frac{\varepsilon-1} \varepsilon C_t(i_0)^{1/(\varepsilon-1)} \cdot (i_\alpha - i_{\alpha-1})$ for some $\alpha\in\{1,2,\ldots,n\}$ such that $i_{\alpha-1}\leq i_0\leq i_\alpha$; the problem now is that $\lim_{n\to\infty}\frac{\varepsilon-1} \varepsilon C_t(i_0)^{-1/\varepsilon}\cdot (i_\alpha - i_{\alpha-1})=0$, which is consistent with modern advanced real analysis (to my knowledge) in the sense that if we just increase or decrease the value of $C_t(i)$ at one $i=i_0$, then the value of the integral will not change, and hence the derivative should be $0$ (i.e., no change in the value of the integral for a change in $C_t(i_0)$).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note: These problems occur when studying e.g. the so called &quot;Dixit-Stiglitz aggregator&quot;. &lt;/p&gt;&#xA;" OwnerUserId="7582" LastEditorUserId="7582" LastEditDate="2016-11-19T13:25:58.277" LastActivityDate="2016-11-19T13:25:58.277" Title="Regarding a consumption aggregator: How do I differentiate under the integral sign?" Tags="&lt;macroeconomics&gt;&lt;mathematical-economics&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="14069" PostTypeId="1" CreationDate="2016-11-02T23:33:07.343" Score="1" ViewCount="162" Body="&lt;p&gt;Having a hard time connecting the two picture, why is the supply of good 1 decreasing after a certain point of p1? &lt;a href=&quot;https://i.stack.imgur.com/wgaFW.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/wgaFW.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="10699" LastActivityDate="2016-11-03T00:14:09.227" Title="Backward Bending Supply" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14071" PostTypeId="2" ParentId="14069" CreationDate="2016-11-03T00:14:09.227" Score="2" Body="&lt;p&gt;Raising your wage means that you can consume more. It also means (if you want to) that you can afford to consume more leisure. However, because you have to forgo more consumption per hour of leisure than you did at the old wage, this causes you to substitute away from leisure and towards consumption (more consumption, less leisure) which causes you to supply more labor. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, with a high enough wage, the marginal utility of consumption is very low while labor supply has gone so high that the marginal utility of leisure is very high. Eventually the wage is so high that the same wealth effect that made you work more makes you consume so much that consuming more looks less attractive than working less. This causes labor supply to drop and the supply curve to bend back. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;All of this depends on the household utility function. There are some utility functions where the backward bending never occurs. For example, linear utility.&lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2016-11-03T00:14:09.227" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14072" PostTypeId="1" AcceptedAnswerId="14352" CreationDate="2016-11-03T00:24:48.487" Score="4" ViewCount="146" Body="&lt;p&gt;What effect would a &lt;a href=&quot;https://en.wikipedia.org/wiki/Job_guarantee&quot; rel=&quot;noreferrer&quot;&gt;job guarantee&lt;/a&gt;, a method of achieving full employment often suggested by modern monetary theorists, have on the cost of living?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the case of student loans offered by the government, all this has really done is push up the price of tertiary education (simplification for the purpose of example, I'm not really looking for discussion on this topic). Would a job guarantee inflate the cost of living? I suppose this question would also apply to universal basic income.&lt;/p&gt;&#xA;" OwnerUserId="7055" LastEditorUserId="7055" LastEditDate="2016-11-03T00:40:38.800" LastActivityDate="2016-11-24T07:35:29.780" Title="Would a Job Guarantee impact Cost of Living?" Tags="&lt;inflation&gt;&lt;unemployment&gt;&lt;living-cost&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14074" PostTypeId="1" CreationDate="2016-11-03T10:31:03.423" Score="4" ViewCount="247" Body="&lt;p&gt;I would like to derive the elasticity of substitution. I'm aware that such a thread with a very straightforward explanation already exists, but my case is slightly different and I'm not sure how to differentiate the functions involved.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But let me first introduce you to my problem. I have to derive the elasticity of substitution &#xA;$$\sigma = \frac{f_1 f_2(f_1z_1+f_2z_2)}{z_1z_2[2f_{1,2}f_1f_2-f_{11}(f_2)^2-f_{22}(f_1)^2]}$$&#xA;where I have the following production function $y^0 - f(z_1,rz_1)=0$ for which $r$ is defined the following: $r=\frac{z_2}{z_1}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As I have already mentioned this problem is already perfectly solved in this thread: &lt;a href=&quot;https://economics.stackexchange.com/questions/5517/how-does-one-derive-the-elasticity-of-substitution&quot;&gt;How does one derive the elasticity of substitution?&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But now comes the clue in my specification, where I do not now how to proceed: I have to express $z_1$ as function of $r$, such that $z_1=g(r)$. The marginal rate of substitution can thus be expressed as follows $$MRTS_{21}=\frac{f_1(g(r),rg(r))}{f_2(g(r),rg(r))}$$&#xA;How can I derive the differential of $f(g(r),rg(r))$, which is the first step in the derivation of the elasticity of substitution. I somehow should use the theorem of implicit functions, but I'm not sure how..&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I hope someone can explain this differential to me!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Cheers&lt;/p&gt;&#xA;" OwnerUserId="8974" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2021-04-06T17:17:13.560" Title="How does one derive the elasticity of substitution with implicit functions?" Tags="&lt;microeconomics&gt;&lt;elasticity-of-substituion&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="14075" PostTypeId="1" AcceptedAnswerId="14134" CreationDate="2016-11-03T11:19:58.170" Score="2" ViewCount="101" Body="&lt;p&gt;In Wickens' macro book, page 227 (1st edition), the author states&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/qGsxW.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/qGsxW.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&#xA;where $p^*_t$ is the optimal price at time $t$.&#xA;The three theories he is referring to are: Taylor Model of Overlapping contracts, Calvo pricing model, and Optimal Dynamic adjustment. He says that all can be encompassed in this reformulation. The author then proceeds to show why this general formulation of inflation exhibits price stickiness, and this is the part which I don't understand what he does, specifically what he calls the partial adjustment model:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/Sgr3H.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Sgr3H.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How can he deduce that equations (9.29) and (9.30) exhibit price stickiness?&lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="118" LastEditDate="2016-11-04T18:52:13.397" LastActivityDate="2016-11-06T22:07:11.383" Title="A general formulation to capture price stickiness" Tags="&lt;macroeconomics&gt;&lt;academic-graduate&gt;&lt;new-keynesian-economics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14078" PostTypeId="1" AcceptedAnswerId="14080" CreationDate="2016-11-03T12:52:16.100" Score="0" ViewCount="4699" Body="&lt;p&gt;I have the following quasi-linear utility function given: $u_0 = f(x_1) + x_2$ (with $f'&amp;gt;0$,$f''&amp;lt;0$). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know that the indifference curves are vertically parallel, which means that the slope is independent of the consumption of $x_2$. I suppose that there is no income effect, but how can i show this?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Cheers&lt;/p&gt;&#xA;" OwnerUserId="8974" LastActivityDate="2019-10-24T12:08:07.143" Title="Quasi-linear utility functions" Tags="&lt;microeconomics&gt;&lt;utility&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14079" PostTypeId="2" ParentId="14068" CreationDate="2016-11-03T13:02:38.903" Score="1" Body="&lt;p&gt;I think I can answer my own question, so I will answer it here so as to mark it as an answer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think the problem boils down to differentiating a functional $$F(C_t)=\int_0^1C_t(i) \, di$$ where I purposefully have ignored the exponent $\frac{\varepsilon-1}{\varepsilon}$ stated in my question. To give meaning to the notion of a partial derivate, see &lt;a href=&quot;https://www.google.se/url?sa=t&amp;amp;rct=j&amp;amp;q=&amp;amp;esrc=s&amp;amp;source=web&amp;amp;cd=2&amp;amp;ved=0ahUKEwjL-aiWx4zQAhWClCwKHeuwCxMQFggoMAE&amp;amp;url=https%3A%2F%2Fcds.cern.ch%2Frecord%2F1383342%2Ffiles%2F978-3-642-14090-7_BookBackMatter.pdf&amp;amp;usg=AFQjCNGpyUltKfekXtza6xsRu1USVA3KVg&amp;amp;sig2=iDtaiQnAz-52Fcg3Kc4NhA&amp;amp;cad=rja&quot; rel=&quot;nofollow noreferrer&quot;&gt;Functionals and the Functional Derivative&lt;/a&gt;. Basically, when studying the differential of a functional w.r.t to its argument, we study the directional derivative $$\lim_{\varepsilon\to 0⁺}\frac{F(C_t+\varepsilon\eta_t)-F(C_t)}{\varepsilon},$$ where $\eta$ is some continuous test function, and define the first partial derivative of the functional w.r.t. $C_t(i)$ for some given good $i\in [0,1]$, which I write as $\frac{\delta F(C_t)}{\delta C_t(i)}$, in such a way that $$\lim_{\varepsilon\to 0⁺}\frac{F(C_t+\varepsilon\eta_t)-F(C_t)}{\varepsilon}=:\int_0^1 \, di \frac{\delta F(C_t)}{\delta C_t(i)}\eta_t(i).$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In our case, the directional derivative is $$\int_0^1 \eta_t(i) \, di$$ and so $\frac{\delta F(C_t)}{\delta C_t(i)}=1$. For the functional $G(C_t)=\int_0^1C_t(i)p_t(i) \, di$, where $p_t(i)$ is the price of good $i$ in time period $t$, we have the directional derivative $$\int_0^1\eta_t(i)p_t(i) \, di$$ and thus $\frac{\delta G(C_t)}{\delta C_t(i)}=p_t(i)$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To generalize, I conjecture that, under some not so strong conditions, we have that for a functional $\int_0^1 H(C_t(i),i) \, di$, where $H$ is some continuously differentiable function, we get that $\frac{\partial H}{\partial C_t(i)}$ will be the partial derivative of the functional with respect to $C_t(i)$&lt;/p&gt;&#xA;" OwnerUserId="7582" LastEditorUserId="10577" LastEditDate="2016-11-04T07:17:11.387" LastActivityDate="2016-11-04T07:17:11.387" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14080" PostTypeId="2" ParentId="14078" CreationDate="2016-11-03T13:17:08.623" Score="0" Body="&lt;p&gt;You can show this concerning the optimization problem with the objective function $U_0 = f(x_1) + x_2$ and the budget restriction $M - p_1 x_1 - p_2 x_2 = 0$. Using the Lagrangian, this leads you to&#xA;$$&#xA;f'(x_1) = \frac{p_1}{p_2} \quad \text{or} \quad f'^{-1}(\frac{p_1}{p_2}) = x_1^{*} = D_1(p)&#xA;$$&#xA;You can see that in this special case the optimum quantity of $x_1^{*}$ (Marshallian demand function) does not depend on the income $M$&#xA;$$&#xA;\frac{\partial D_1}{\partial M} = 0,&#xA;$$&#xA;The income effect is therefore zero, and you will not consume a different amount of $x_1^{*}$ if the income $M$ varies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Some further considerations:&lt;/strong&gt; Based on the Marshallian $D_i(p, M) = x_i^{*}$ and Hicksian $H_i(p, u) = x_i^{*}$ demand function, you can show some interesting properties of this particular utility function using the Slutsky equation:&#xA;$$&#xA;\frac{\partial D_i}{\partial p_i} = \frac{\partial H_i}{\partial p_i} - x_i^{*} \frac{\partial D_i}{\partial M}&#xA;$$&#xA;This shows that the derivative of the Marshallian demand function with respect to price equals the derivative of the Hicksian demand function with respect to price minus the optimal $x_i^{*}$ times the derivative of the Marshallian demand function with respect to income. In this special case, the Marshallian demand function equals the Hicksian demand function, as $\frac{\partial D_i}{\partial M} = 0$.&lt;/p&gt;&#xA;" OwnerUserId="10971" LastActivityDate="2016-11-03T13:17:08.623" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="14082" PostTypeId="2" ParentId="14065" CreationDate="2016-11-03T20:48:33.327" Score="1" Body="&lt;p&gt;The &lt;strong&gt;&lt;em&gt;utility function&lt;/em&gt; is concave&lt;/strong&gt;, but the &lt;strong&gt;&lt;em&gt;preference&lt;/em&gt; that the function represents is convex&lt;/strong&gt;. It seems you're confusing between the convexity of two different objects.&lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2016-11-03T20:48:33.327" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14083" PostTypeId="1" CreationDate="2016-11-03T20:48:40.237" Score="3" ViewCount="33" Body="&lt;p&gt;Once applied, &lt;a href=&quot;https://en.wikipedia.org/wiki/Comprehensive_Economic_and_Trade_Agreement&quot; rel=&quot;nofollow noreferrer&quot;&gt;CETA&lt;/a&gt; will offer EU firms more and better business opportunities in Canada and support jobs in the EU, it will remove customs duties, end restrictions on access to public contracts, open-up the services market, offer predictable conditions for investors, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Having in mind the existence of the North American Free Trade Agreement (&lt;a href=&quot;https://en.wikipedia.org/wiki/North_American_Free_Trade_Agreement&quot; rel=&quot;nofollow noreferrer&quot;&gt;NAFTA&lt;/a&gt;), does the enabling of CETA provide the US corporations (at least some of) the opportunities cevered in &lt;a href=&quot;https://en.wikipedia.org/wiki/Transatlantic_Trade_and_Investment_Partnership&quot; rel=&quot;nofollow noreferrer&quot;&gt;TTIP&lt;/a&gt;? For example, is it possible&lt;sup&gt;de jure&lt;/sup&gt; for a US corporation just to register in Canada and to access the EU market, achieveing in this way indirectly the aims of TTIP?&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Update: reflecting the remarks in the comments, a more direct version of the question would be:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there a legal path through which CETA could act as a back door for TTIP?&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;" OwnerUserId="4374" LastEditorUserId="4374" LastEditDate="2016-11-04T11:37:32.833" LastActivityDate="2016-11-04T17:48:11.473" Title="EU-Canada Comprehensive Economic and Trade Agreement?" Tags="&lt;law&gt;&lt;free-trade&gt;&lt;contracts&gt;" AnswerCount="1" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="14084" PostTypeId="1" CreationDate="2016-11-03T20:50:16.973" Score="0" ViewCount="58" Body="&lt;p&gt;&lt;a href=&quot;https://books.google.com/books?id=7QUoBM3p87MC&amp;amp;pg=PA184&amp;amp;dq=%22Marriner+Eccles%22,+Governor+%22Federal+Reserve+Board%22+%22House+Committee+on+Banking+and+Currency%22+September+30,+1941&amp;amp;hl=en&amp;amp;sa=X&amp;amp;ved=0ahUKEwj0ldb2uY3QAhVKwFQKHXKlCa4Q6AEIHDAA#v=onepage&amp;amp;q=%22Marriner%20Eccles%22%2C%20Governor%20%22Federal%20Reserve%20Board%22%20%22House%20Committee%20on%20Banking%20and%20Currency%22%20September%2030%2C%201941&amp;amp;f=false&quot; rel=&quot;nofollow noreferrer&quot;&gt;This&lt;/a&gt; is reported to be the testimony of Marriner Eccles, Governor of the Federal Reserve Board, before the House Committee on Banking and Currency, on September 30, 1941.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does this mean that only enough money exists to pay the principal on all debts that exist, leaving nothing to pay the interest and nothing for anything else? One hears that credit card companies like to have customers who run up a lot of debt and then make the minimum payments every month for decades, but that seems like nothing compared to this. The inventors of such a &quot;money system&quot; appear to want the whole universe in that position, and it appears that they've got what they want.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Congressman Patman: &quot;How did you get the money to buy those two billion dollars worth of Government securities in 1933?&quot;&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Governor Eccles: &quot;Out of the right to issue credit money.&quot;&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Patman: &quot;And there is nothing behind it, is there, except our Government's credit?&quot;&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Eccles: &quot;That is what our money system is. If there were no debts in our money system, there wouldn't be any money.&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="10577" LastActivityDate="2016-11-03T20:50:16.973" Title="Does only enough money exist to pay the principal on all debts, and none for the interest or for anything else?" Tags="&lt;banking&gt;&lt;money-supply&gt;&lt;central-banking&gt;&lt;credit&gt;" AnswerCount="0" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="14085" PostTypeId="1" CreationDate="2016-11-03T21:45:58.570" Score="4" ViewCount="347" Body="&lt;p&gt;Apparently Egypt uses a fixed exchange rate so there is a &lt;a href=&quot;http://www.economist.com/news/middle-east-and-africa/21709612-government-has-finally-allowed-overvalued-pound-depreciate-egypt&quot; rel=&quot;nofollow noreferrer&quot;&gt;substantial difference between the government rate for the Egyptian pound and the price on the street&lt;/a&gt;. What prevents someone from just buying pounds on the street using dollars and then depositing the pounds in a bank and converting them back to dollars at the official rate, thus allowing the person to instantly make a large profit?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I assume that there is some mechanism to prevent this. Is there?&lt;/p&gt;&#xA;" OwnerUserId="1448" LastEditorUserId="8481" LastEditDate="2018-02-14T16:44:03.250" LastActivityDate="2018-02-14T16:44:03.250" Title="How does Egypt prevent people from arbitraging their currency?" Tags="&lt;currency&gt;&lt;foreign-exchange&gt;&lt;currency-peg&gt;&lt;currency-exchange&gt;&lt;arbitrage&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="14086" PostTypeId="1" CreationDate="2016-11-03T21:50:17.880" Score="2" ViewCount="220" Body="&lt;p&gt;I'm currently working on a problem from Intermediate Microeconomics Workouts by Varian and I've become stuck on a particular question to do with monopolies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We are given the demand curve for a monopolist:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ q = 160-2p $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and the total daily costs:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$C = 2000 + 10q$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From this, I've found the profit-maximising price, quantity and daily profit which are as follows:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$p* = 45$$&#xA;$$q* = 70$$&#xA;$$\pi* = 450 \text{ per day}$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, the question I'm stuck on is: If the interest rate is 10% per year, how much will someone be willing to pay to own the monopoly?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My first approach was to simply multiply the total profits per day times 365 days times 1.1 to get the yearly profits with interest, but apparently that's incorrect.&lt;/p&gt;&#xA;" OwnerUserId="10982" LastEditorUserId="2776" LastEditDate="2017-02-08T23:07:39.000" LastActivityDate="2017-05-15T02:26:14.697" Title="How much is someone willing to pay to own a monopoly?" Tags="&lt;microeconomics&gt;&lt;monopoly&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14087" PostTypeId="1" AcceptedAnswerId="14090" CreationDate="2016-11-03T22:07:01.763" Score="1" ViewCount="37" Body="&lt;p&gt;If I have a hurdle model in which the distribution is one Poisson distribution for observations $=0$ and another distribution for observations not equal to zero, how do I go about finding the mean of such a distribution?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT: this is the distribution I am given&#xA;&#xA;&#xA;&lt;p&gt;$$&#xA;\Pr[y_i=j] = \begin{cases} e^{-\theta} &amp;amp; j=0, \\[10pt]&#xA;\dfrac{(1-e^{-\theta})e^{-\lambda} \lambda^j}{j!(1-e^{-\lambda})} &amp;amp; j = 1,2,\ldots \end{cases}&#xA;$$&lt;/p&gt;&#xA;&#xA;&#xA;" OwnerUserId="5847" LastEditorUserId="10577" LastEditDate="2017-10-02T01:18:13.413" LastActivityDate="2017-10-02T01:18:13.413" Title="How to find the mean of a two-part Poisson-based hurdle model" Tags="&lt;econometrics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14088" PostTypeId="2" ParentId="14086" CreationDate="2016-11-03T22:21:35.447" Score="3" Body="&lt;p&gt;I'm not super clear about the policy here regarding self study questions. I'll give a hint for now.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can translate the question into: finding the present value of a perpetuity, which is the present value of a constant and infinite sequence: (450*365, 450*365, ...)&lt;/p&gt;&#xA;" OwnerUserId="10853" LastActivityDate="2016-11-03T22:21:35.447" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14089" PostTypeId="2" ParentId="14083" CreationDate="2016-11-03T23:22:31.853" Score="1" Body="&lt;p&gt;I did not have either the time or the courage to plough through the text. The last consolidated text I could find stems from 2014 and has since been amended with an annex. Changes made are unclear to me.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The full text can be found &lt;a href=&quot;http://trade.ec.europa.eu/doclib/docs/2014/september/tradoc_152806.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Excerpts that might be useful in this case are article 1.2 and 1.3 with respect to the scope of the application. Other excerpts might be the articles 17.2 and 17.3.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;AS for the relevance of articles 1.2 and 1.3:&#xA;CETA applies to both the citizens and the territory of the agreeing countries.&lt;br&gt; So, assuming USA corporations can have, and often do have, offices in Canada these companies can through these offices take advantage of the CETA agreement, assuming they keep to the regulations and requirements guaranteed under CETA. This means not everything from TTIP will be directly transposable. There are other treaties that cannot be overruled by CETA.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But in a way yes - a corporation holding office in the Canadian territories could in essence access the European markets under the same conditions. At least that is what I understood. I get back to the question when I'm through the 1598 pages of text and annexes (the latter being the greater part, but not less important).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Vague answer I know. I'm looking forward to a more in-depth conclusion because what you ask is something that a lot of people here in Europe are worrying about.&lt;/p&gt;&#xA;" OwnerUserId="4305" LastEditorUserId="4374" LastEditDate="2016-11-04T17:48:11.473" LastActivityDate="2016-11-04T17:48:11.473" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14090" PostTypeId="2" ParentId="14087" CreationDate="2016-11-04T01:28:09.333" Score="2" Body="&lt;p&gt;Maybe I'm not understanding your question. Poisson distributions with expected values $\lambda$ and $\mu$ are given by&#xA;$$&#xA;\Pr(X=x) = \frac{\lambda^x e^{-\lambda}}{x!}\quad\text{ and }\quad \Pr(X=x) = \frac{\mu^x e^{-\mu}}{x!} \quad \text{ for } x=0,1,2,3,\ldots.&#xA;$$&#xA;Suppose the second one holds for $x&amp;gt;0$. It follows that&#xA;$$&#xA;\Pr(X=0) = 1 - \underbrace{\sum_{x=1}^\infty \frac{\mu^x e^{-\mu}}{x!}}_\text{starting at 1, not 0} = e^{-\mu}. &#xA;$$&#xA;Since the sum of the probabilities must be $1$, the probability that $X=0$ can only be $1$ minus the sum of the other probabilities, and that is $\dfrac{e^{-\mu} \mu^0}{0!} = e^{-\mu}.$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;b&gt;Postscript:&lt;/b&gt; In comments I am asked how to find the mean of this distribution.  Remember that&#xA;$$&#xA;\sum_{x=0}^\infty \frac{\mu^x}{x!} = e^\mu, \tag 1&#xA;$$&#xA;and from that we get the sum of the probabilities,&#xA;$$&#xA;\sum_{x=0}^\infty \frac{\mu^x e^{-\mu}}{x!} = 1 \tag 2&#xA;$$&#xA;We will use the sum $(2)$ in finding the mean.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The mean is&#xA;\begin{align}&#xA;\operatorname{E}(X) &amp;amp; = \sum_{x=0}^\infty x\Pr(X=x) \\&#xA;&amp;amp; = \sum_{x=0}^\infty x\cdot\frac{\mu^x e^{-\mu}}{x!} \\&#xA;&amp;amp; = \sum_{x=1}^\infty x\cdot\frac{\mu^x e^{-\mu}}{x!} &amp;amp; &amp;amp; \text{(starting with $1$ rather than $0$} \\&#xA;&amp;amp; &amp;amp; &amp;amp; \phantom{(}\text{since the $0$ term vanishes because} \\&#xA;&amp;amp; &amp;amp; &amp;amp; \phantom{(}\text{of the multiplication by $x$)} \\&#xA;&amp;amp; =\sum_{x=1}^\infty \frac{\mu^x e^{-\mu}}{(x-1)!} &amp;amp; &amp;amp; \text{(since $x/(x!) = 1/(x-1)!$ if $x\ge1$)} \\[8pt]&#xA;&amp;amp; = \mu \sum_{x=1}^\infty \frac{\mu^{x-1} e^{-\mu}}{(x-1)!} &amp;amp; &amp;amp; \text{(factors not depending on the index $x$)} \\&#xA;&amp;amp; &amp;amp; &amp;amp; \phantom{(} \text{can be pulled out)} \\&#xA;&amp;amp; = \mu \sum_{y=0}^\infty \frac{\mu^y e^{-\mu}}{y!} &amp;amp; &amp;amp; \text{where $y=x-1$} \\&#xA;&amp;amp; &amp;amp; &amp;amp; \text{so $y$ goes from $0$ to $\infty$ as $x$ goes from $1$ to $\infty$} \\&#xA;&amp;amp; = \mu \cdot 1 &amp;amp; &amp;amp; \text{by line $(2)$, stated above} \\&#xA;&amp;amp; = \mu.&#xA;\end{align}&#xA;So the mean is $\mu$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;b&gt;Postscript:&lt;/b&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your new revision of the question isn't quite consistent with your statement that &quot;the distribution is one Poisson distribution for observations $=0$ and another distribution for observations not equal to zero&quot;. You have&#xA;$$&#xA;\Pr(X=x) = \begin{cases} e^{-\theta} &amp;amp; \text{if }x=0, \\&#xA;(1-e^{-\theta}) \dfrac{\lambda^x e^{-\lambda}}{x!(1-e^{-\lambda})} &amp;amp; \text{if } x\ge 1. \end{cases}&#xA;$$&#xA;Thus you have a &lt;b&gt;weighted average&lt;/b&gt; of&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;The distribution of a random variable constantly equal to $1$, and&lt;/li&gt;&#xA;&lt;li&gt;The conditional distribution of a Poisson-distributed random variable given that it is $\ge 1.$&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The first has expected value $1$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The second has expected value&#xA;$$&#xA;\frac 1 {1- e^{-\lambda}} \sum_{x=1}^\infty \cdots = \frac 1 {1-e^{-\lambda}} \left( (-e^{-\lambda}\cdot0) + \sum_{x=0}^\infty \cdots \right) = \frac 1 {1-e^{-\lambda}} \cdot ( \lambda ).&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;After that, use the fact that the expected value of the weighted average of two distributions is the weight average of their two expected values.&lt;/p&gt;&#xA;" OwnerUserId="10577" LastEditorUserId="10577" LastEditDate="2016-11-04T18:19:44.770" LastActivityDate="2016-11-04T18:19:44.770" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="14092" PostTypeId="1" CreationDate="2016-11-04T04:53:45.370" Score="2" ViewCount="260" Body="&lt;p&gt;This is my professors answer to the question. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lower cash rate by the Reserve bank will lead to lower nominal interest rate. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And real interest rate = nominal interest rate minus inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And because change is nominal variable does not change real variables, real interest rate remain the same, therefore inflation must decrease.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lower nominal interest rate leads to a lower opportunity cost of borrowing, which in turn increases investment and consumption, which leads to a higher GDP.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/GDLZe.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/GDLZe.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Her answer seem to be very different from what I learn in macroeconomic course, where monetary expansion using the LM-IS AD-AS models. Which monetary expansion would lead to higher inflation in both the short run and the long run.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is her answer correct in any economic sense?&lt;/p&gt;&#xA;" OwnerUserId="10983" LastActivityDate="2017-04-04T15:25:05.440" Title="Monetary expansion leads to decrease in inflation?" Tags="&lt;macroeconomics&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14093" PostTypeId="1" AcceptedAnswerId="14096" CreationDate="2016-11-04T06:15:29.733" Score="5" ViewCount="377" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;that something is an externality is partly a statement about physical reality and partly a statement about the legal system.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;What does this mean? I assume the aspect of externality being a physical reality problem is just people only care about self interest so externalities can occur. However I don't understand how something is An externality could be a statement about legal rule.&lt;/p&gt;&#xA;&#xA;&#xA;" OwnerUserId="10238" LastEditorUserId="4988" LastEditDate="2016-11-12T03:22:57.153" LastActivityDate="2016-11-12T03:22:57.153" Title="Understanding at a quote about externalities in law and economics" Tags="&lt;externalities&gt;&lt;law&gt;&lt;definition&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="14096" PostTypeId="2" ParentId="14093" CreationDate="2016-11-04T10:35:07.243" Score="3" Body="&lt;p&gt;You don't give the source of the quote, but presumably what is meant is this.  Whether X's production or consumption of a good affects Y (in a physical way such as smoke from X's factory or noise from X's playing loud music, not merely through the workings of the price system) is a matter of fact.  On the other hand, whether X is required (assuming a negative effect) to bear the costs of the harm to Y, is a matter of law.  The implication seems to be that an externality is present only if the law does not so require.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, some writers would exclude the legal aspect from the definition of an externality.  Baumol &amp;amp; Oates, for example, state (quote found &lt;a href=&quot;http://ron-griffin.tamu.edu/x636/handouts/HO3.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;, top of page 5):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;An externality is present whenever some individual's (say A's) utility or production relationships include real (that is, nonmonetary) variables, whose values are chosen by others (persons, corporations, governments) without particular attention to the effect's on A's welfare.&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;An advantage of this type of definition is that it avoids the implication that an externality is no longer present when it has been addressed by law as above. Instead, we can say that the externality is still present but has been internalized.&lt;/p&gt;&#xA;" OwnerUserId="1417" LastActivityDate="2016-11-04T10:35:07.243" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14097" PostTypeId="2" ParentId="14092" CreationDate="2016-11-04T11:30:08.660" Score="2" Body="&lt;p&gt;In a nutshell, I think you're right.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The crux of your professor's argument is that, according to the classical dichotomy, the real interest rate will remain unchanged. However, that is only true in the long run, and we shouldn't be looking at the long run for this question. We should be looking at the short run. In the long run, the nominal interest rate as well as the inflation rate will remain unchanged, so the real interest rate will remain unchanged.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the short run, the nominal interest rate will decrease, which increases output (according to the Investment-Saving relation) and causes inflation (according to the Aggregate Supply relation).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the medium run, with output above its natural level, wages will rise due to a shortage of labour and thus prices will increase further. This happens until output is back at its natural level. This increase in price reduces the real stock of money as well, so that the nominal interest rate returns back to its original level according to the Investment-Saving relation (a leftwards shift of money supply in the money market).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the long run, with prices stable at a higher level, there are no further increases in prices, so inflation becomes 0. (This is a static model, whereas in the real world the economy is dynamic and constantly experiences price increases.) Thus, real interest increases back to its original level.&lt;/p&gt;&#xA;" OwnerUserId="175" LastActivityDate="2016-11-04T11:30:08.660" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14098" PostTypeId="1" CreationDate="2016-11-04T12:38:04.480" Score="3" ViewCount="136" Body="&lt;p&gt;I am from Madagascar. We are in what is called a &quot;povery trap&quot;.&#xA;Building a business is very difficult because the population is agglomerating in the capital and the competition is very high. Moreover, there is a lack of public infrastructure that freezes the economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What do you suggest me to do as a citizen without any governmental control to have a good impact in the economy?&lt;/p&gt;&#xA;" OwnerUserId="10977" LastActivityDate="2017-06-06T23:42:47.063" Title="How can a citizen contribute to get his country out of the poverty trap?" Tags="&lt;development-economics&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14100" PostTypeId="2" ParentId="14098" CreationDate="2016-11-04T13:13:35.003" Score="1" Body="&lt;p&gt;I think the best way for an individual citizen to improve their country's economic development is to raise their productivity, while also following ethical standards. &quot;Raising productivity&quot; is a very traditional economic viewpoint, and it basically requires one to move away from rural or subsistence living and towards activities that contribute to society, as measured by the income that you generate. But, I think there also needs to be a focus on long-term developmental outcomes, which may not necessarily be tied to economic profit because of negative externalities.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I haven't done a lot of research into the lives of poor people, but after reading some chapters from Banerjee and Duflo's &lt;em&gt;Poor Economics&lt;/em&gt;, I would say that the economy loses out when people are not persistent, motivated, or when they make economically irrational decisions. For example, poor people in India do not use the most cost-effective treatment for diarrhea (rehydration liquid with salt and sugar) because they do not trust and are not accustomed to Western medicine. Another example is that poor people in Morocco who can't afford food buy televisions, but I understand the reason for this. The reason is that poor people cannot be expected to cut out all luxuries in their lives, because they also need things that make their life bearable and pleasurable. If poor people didn't buy expensive food and other luxury items, the generations below them might rise out of poverty sooner, but such a process takes a long time. Income-earners would not want to forego a better life for themselves just so that their children's children will not live in poverty.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;All in all, I advise you to become a change agent in your community. Strive to motivate others to do work. Technology will help, so you will need to try to find out what the most technologically advanced way of doing your work is. That knowledge comes with education, which may be difficult to access in your situation, but nevertheless try to find it. Lastly, public participation in governance is important for economic development, so try to actively participate in your country's governance.&lt;/p&gt;&#xA;" OwnerUserId="175" LastActivityDate="2016-11-04T13:13:35.003" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14102" PostTypeId="1" AcceptedAnswerId="14103" CreationDate="2016-11-04T14:44:54.793" Score="0" ViewCount="89" Body="&lt;p&gt;In matching theory, the matching function $m_t=m(u_t,v_t)$, where  $m_t$ is the number of matches(new hires) between unemployed looking for work($u_t$) and vacancies($v_t$).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This matching function is usually assumed to be increasing in its arguments, i.e. partial derivatives are positive. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What's the rationale for this?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there any data allowing us to conclude that it should be so?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated. &lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="118" LastEditDate="2016-11-04T14:56:42.020" LastActivityDate="2016-11-04T19:45:00.343" Title="Why is matching function increasing in arguments?" Tags="&lt;macroeconomics&gt;&lt;unemployment&gt;&lt;search-and-matching&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14103" PostTypeId="2" ParentId="14102" CreationDate="2016-11-04T14:51:11.113" Score="2" Body="&lt;p&gt;Think about it this way. The function is measuring the number of new matches being created. If we increase either the vacancies or the amount of unemployed, the function will generate more matches. Therefore, the partial derivatives are expected to be positive.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example consider the matching function with something other than employment. If we consider a marriage game where we have a pool of single men and women, increasing either the amount of single men or the amount of single women, the amount of new matches created should increase. Note, that while increasing one of the two arguments might not actually increase the amount of matches, at worst it has no impact (such as in the edge case where we have only men and add another man). Since our function only considers new matches created in time T, increasing either argument should have a partial derivative of greater than or equal to zero. i.e. creating more matches.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Imagine now that instead of single men we have active job seekers (analogue to unemployment), increasing unemployment causes an increase in new matches.&lt;/p&gt;&#xA;" OwnerUserId="4808" LastEditorUserId="4808" LastEditDate="2016-11-04T19:45:00.343" LastActivityDate="2016-11-04T19:45:00.343" CommentCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="14104" PostTypeId="2" ParentId="14102" CreationDate="2016-11-04T16:49:37.423" Score="1" Body="&lt;p&gt;Let's refresh the definition of a &lt;a href=&quot;https://en.wikipedia.org/wiki/Partial_derivative&quot; rel=&quot;nofollow noreferrer&quot;&gt;partial derivative&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;partial derivative of a function of several variables is its&#xA;  derivative with respect to one of those variables, with the others&#xA;  held constant (as opposed to the total derivative, in which all&#xA;  variables are allowed to vary).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Example: Let $f(t, x) = 3t + x^2$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The (total derivative) is $\frac{d}{dt}f(t, x) = 3 + 2x\frac{dx}{dt}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Whereas the partial derivative is $\frac{\partial}{\partial t}f(t, x) = 3 $ since we are forcing $\frac{dx}{dt}$ to be zero.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So why are there&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;More new hires when there are more unemployed (people without work actively looking for some) given the same number of vacancies?&lt;/li&gt;&#xA;&lt;li&gt;More new hires when there are more vacancies given the same number of unemployed?&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;The unemployed want to find the vacancies and the companies want to fill them. So the more potential vacancies there are, the easier it is to find one  (maybe there is one just down the street) and vice versa. Imagine walking through the streets of a city taking random turns at each intersection, the more jobs ads there are the faster you will come across one.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Unless I misremember, the matching functions are parts of models where unemployment is caused by some kind of &lt;a href=&quot;https://en.wikipedia.org/wiki/Frictional_unemployment&quot; rel=&quot;nofollow noreferrer&quot;&gt;frictions&lt;/a&gt; so maybe reading more on that will help build intuition why the matching function makes sense (or doesn't).&lt;/p&gt;&#xA;" OwnerUserId="4193" LastActivityDate="2016-11-04T16:49:37.423" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14105" PostTypeId="1" AcceptedAnswerId="14120" CreationDate="2016-11-04T16:51:04.980" Score="2" ViewCount="136" Body="&lt;p&gt;I am writing an applied econometrics paper. The dependent variable is a percentage of people who answered in the affirmative to a survey question asked in 60 different countries. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;One possible model is a beta regression model for proportional dependent variables.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What are some other methods that are suitable for proportional dependent variable regression analysis?&lt;/p&gt;&#xA;" OwnerUserId="5847" LastActivityDate="2016-11-05T23:50:47.620" Title="Possible regression models for a dependent variable that is a proportion" Tags="&lt;econometrics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14106" PostTypeId="1" CreationDate="2016-11-04T16:57:51.207" Score="1" ViewCount="192" Body="&lt;p&gt;I am confused that if investment is a type  of saving or a expenditure .if investment is a type of expenditure then is  saving is what is left after subtracting consumption and investment from income&lt;/p&gt;&#xA;" OwnerUserId="10987" LastActivityDate="2017-01-03T18:43:22.217" Title="Is investment a type of saving or expenditure" Tags="&lt;investment&gt;&lt;saving&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14108" PostTypeId="2" ParentId="14106" CreationDate="2016-11-04T18:12:13.910" Score="1" Body="&lt;p&gt;In simplistic national accounts terms $$Y=C+I+X-M$$ is an  expenditure identity while $$Y=C+S$$ is a use of income identity. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Implicitly this gives $$S-I=X-M$$ suggesting an excess of saving over investment in an open economy corresponds to a trade surplus in the current account, which in turn corresponds to an outflow in the financial account: the excess of savings over investment leads to an increase in overseas assets.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a closed economy with no exports, imports or international financial flows, this forces $S=I$ and so no excess of saving over investment. Any production not used for consumption or normal investment has the effects either of increasing stocks (another form of investment) or of being valueless (so not counting towards income or saving).  &lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2016-11-04T18:12:13.910" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="14109" PostTypeId="1" CreationDate="2016-11-04T19:41:05.670" Score="1" ViewCount="23" Body="&lt;p&gt;In wage bargaining theory, in the context of matching theory, firms and workers can negotiate a Nash equilibrium by maximizing a function of firms' and workers' surplus - with the purpose of allowing voluntary unemployment?. Let's say we have an objective function $N_t$ and  we're trying to maximize it with respect to wage rate and hours worked. Why do we insert the steady-state values of the surpluses in $N_t$?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="118" LastActivityDate="2016-11-04T19:41:05.670" Title="Why must the wage barganing be derived at steady-state?" Tags="&lt;nash-equilibrium&gt;&lt;wages&gt;&lt;search-and-matching&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14110" PostTypeId="1" AcceptedAnswerId="18101" CreationDate="2016-11-04T23:54:58.487" Score="1" ViewCount="54" Body="&lt;p&gt;China eliminated extreme urban poverty this year and is on schedule to eliminate it in the rest of the country by the end of 2020. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;How do I calculate the approximate impact of this change for China's 2021 GINI?&lt;/p&gt;&#xA;" OwnerUserId="10990" LastEditorUserId="2776" LastEditDate="2017-09-01T08:37:08.237" LastActivityDate="2017-09-01T08:45:36.553" Title="Effect on GINI of eliminating poverty in China" Tags="&lt;inequality&gt;&lt;poverty&gt;&lt;china&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14112" PostTypeId="1" CreationDate="2016-11-05T09:13:37.337" Score="1" ViewCount="34" Body="&lt;p&gt;In &lt;a href=&quot;http://krugman.blogs.nytimes.com/2016/10/31/trade-plateaus-wonkish/&quot; rel=&quot;nofollow noreferrer&quot;&gt;a recent article&lt;/a&gt;, Paul Krugman showed these equations:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/cBPU5.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/cBPU5.png&quot; alt=&quot;Import share expressed in terms of $\alpha,\,\sigma,\,\tau,\,t$&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which model is this? What do the symbols denote? Is the first symbol a v or nu?&lt;/p&gt;&#xA;" OwnerUserId="10991" LastEditorUserId="10991" LastEditDate="2016-11-05T15:12:59.520" LastActivityDate="2016-11-05T15:12:59.520" Title="Which model of trade is this?" Tags="&lt;macroeconomics&gt;&lt;international-trade&gt;&lt;balance-of-trade&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="14115" PostTypeId="1" AcceptedAnswerId="29422" CreationDate="2016-11-05T16:17:43.677" Score="3" ViewCount="160" Body="&lt;p&gt;I have heard that Henry George wrote one of the biggest selling economics books in history (Progress and Poverty) and was so famous that 100,000 people attended his funeral, and yet his ideas about land are nowhere to be seen in most economics textbooks. Why is this? Were his ideas thoroughly rebutted?&lt;/p&gt;&#xA;" OwnerUserId="5081" LastEditorUserId="1601" LastEditDate="2016-11-05T16:34:06.473" LastActivityDate="2020-02-11T13:10:56.780" Title="Whatever happened to Henry George's ideas?" Tags="&lt;history-economic-thought&gt;" AnswerCount="3" CommentCount="1" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="14116" PostTypeId="2" ParentId="14068" CreationDate="2016-11-05T17:11:16.047" Score="3" Body="&lt;p&gt;Using your formalism above, you can think (heuristically) of the integral as $$ \sum_{i=1}^nC_t(i)^{(\epsilon-1)/\epsilon} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we differentiate this with respect to $C_t(j)$, we get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{\epsilon - 1}{\epsilon} C_t(j)^{-1/\epsilon} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which is exactly what we needed. To do this rigorously, you need a notion of taking derivatives on function spaces. Look up the &lt;a href=&quot;https://en.wikipedia.org/wiki/G%C3%A2teaux_derivative&quot; rel=&quot;nofollow noreferrer&quot;&gt;Gâteaux&lt;/a&gt; and &lt;a href=&quot;https://en.wikipedia.org/wiki/Fr%C3%A9chet_derivative&quot; rel=&quot;nofollow noreferrer&quot;&gt;Fréchet&lt;/a&gt; derivatives.&lt;/p&gt;&#xA;" OwnerUserId="8595" LastActivityDate="2016-11-05T17:11:16.047" CommentCount="12" ContentLicense="CC BY-SA 3.0" />
  <row Id="14117" PostTypeId="2" ParentId="13237" CreationDate="2016-11-05T19:03:47.490" Score="2" Body="&lt;p&gt;In the basic &quot;Cobweb Theorem&quot;, the assumption is that suppliers must decide now next period production, and that they assume that next period market price will be equal to current period market price.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$p^e_{t} = p_{t-1} \tag{1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, we know that &lt;em&gt;if&lt;/em&gt; price follows a random walk without drift, &lt;em&gt;then&lt;/em&gt; the above a priori assumed expectations formation hypothesis coincides with the Rational Expectations Hypothesis:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\text {If}\;\;\; p_{t} = p_{t-1} + u_{t} ,\;\;\; u_{t} \sim WN \implies E_{t-1}p_{t} = p_{t-1} \tag{2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But in the cobweb model, the actual price process &lt;em&gt;is determined endogenously&lt;/em&gt;, &lt;em&gt;given&lt;/em&gt; the a priori assumption $(1)$: we assume $(1)$ and we let the equilibrium of the model give us the model-consistent price process. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assuming linear demand  (say, with a white noise preference shock), and supply function we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$D_t = a-bp_t +u_t,\;\;\; S_t = \gamma + \delta p^e_t$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Imposing market clearing (an additional assumption no less) we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$D_t = S_t \implies p_t = \frac {a-\gamma}{b} - \frac {\delta}{b} p^e_t +u_t$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and applying the a priori expectations formation assumption $(1)$ we obtain&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$p_t = \frac {a-\gamma}{b} - \frac {\delta}{b} p_{t-1} + u_t\tag{3}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$(3)$ is the model-consistent price process here (i.e. given $(1)$), not $(2)$. Only in the case that $a=\gamma, b=-\delta$ do we get that the price process emerges as a random walk without drift and so that the expectations formations hypothesis used in the model coincides with the Rational Expectations hypothesis. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The price that suppliers use is the current market clearing price indeed. But &lt;em&gt;how&lt;/em&gt; they use it (hypothesis $(1)$), does not &quot;reflect all available information&quot;, which is embodied in $(3)$ which suppliers ignore.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2016-12-02T03:12:42.790" LastActivityDate="2016-12-02T03:12:42.790" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14120" PostTypeId="2" ParentId="14105" CreationDate="2016-11-05T23:50:47.620" Score="1" Body="&lt;p&gt;Let $y$ be the proportion in $[0,1]$ instead of the percentage. I think the issues here are possible nonlinearity and censoring. You can try including quadratic terms on the right hand side. At the same time, you can try the following models.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I. Linear models: If no $y$ is exactly 0 or 1, linear models will be OK. The following four options come to my mind.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;$y=\beta_0 + \beta_1 x + u$ if no $y$ is close to 0 or 1.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;A log model $\ln y = \beta_0 + \beta_1 x + u$, which is helpful when some $y$ values are close to zero but all are far from one. Note that interpretation changes.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Transform the dependent variable to $-\ln (1-y)$. This is helpful if $y$ are all far from zero but some close to one. But this looks a bit unnatural to me, and I would consider the next logistic model instead.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The logistic model $\ln \frac{y}{1-y} = \beta_0 + \beta_1 x +u$. This usually helps if there are many $y\simeq 0$ and $y\simeq 1$. Interpretation is done in terms of logits.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;II. Tobit models: If some $y$ are exactly 0 or 1, you can try Tobit models (&lt;code&gt;help tobit&lt;/code&gt; in Stata). Remember that normality is assumed for the error term before censoring. Also, using Tobit models means that &quot;I think $y$ could be bigger than 1 (smaller than 0) if not censored.&quot;&lt;/p&gt;&#xA;" OwnerUserId="10775" LastActivityDate="2016-11-05T23:50:47.620" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14121" PostTypeId="2" ParentId="13992" CreationDate="2016-11-06T00:23:58.760" Score="1" Body="&lt;p&gt;Indeed, there is branch of literature about semi-endogenous models (Jones, 1995, Segerstrom 1999 etc.). They were basically arguing that there was a scale effect in endogenous growth models, which means that when population increases, by default, growth increases (it is due to the fact that there would be more researcher in society, this is the scale effect.) and this branch of literature shows that growth rate at the long run is equal to the growth rate of population, which is an exogenous term. It is why they called it as &quot;semi-endogenous&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This was challenging endogenous models but the empirical literature states that that the semi-endogenous model does not fit to data.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some empirical references are : &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ha and Howitt (2007) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://onlinelibrary.wiley.com/doi/10.1111/j.1538-4616.2007.00045.x/full&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://onlinelibrary.wiley.com/doi/10.1111/j.1538-4616.2007.00045.x/full&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Madsen (2008) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://link.springer.com/article/10.1007/s10887-007-9024-0&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://link.springer.com/article/10.1007/s10887-007-9024-0&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="2938" LastActivityDate="2016-11-06T00:23:58.760" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14122" PostTypeId="1" CreationDate="2016-11-06T02:47:55.077" Score="0" ViewCount="113" Body="&lt;p&gt;Please explain in simple terms. How exactly does it function?&lt;/p&gt;&#xA;" OwnerUserId="10998" LastActivityDate="2016-11-07T14:38:55.257" Title="What is a bilateral currency swap line?" Tags="&lt;currency&gt;&lt;international-economics&gt;&lt;federal-reserve&gt;" AnswerCount="1" CommentCount="0" ClosedDate="2016-11-20T15:56:47.167" ContentLicense="CC BY-SA 3.0" />
  <row Id="14123" PostTypeId="1" CreationDate="2016-11-06T05:15:36.730" Score="-2" ViewCount="4749" Body="&lt;p&gt;Suppose u(x,y)=min(x,2y)&#xA;and the price of X is 1, the price of Y is 1 and income is $12. If the price of X increases to 2, the income effect is supposed to be -1.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I keep getting zero for some reason. Gx(2,1,12)=4.8 and Gx(1,1,12)=8 while Hx(2,1,U)=4.8 and Hx(1,1,U)=8? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why is it not zero? What am i doing wrong? &lt;/p&gt;&#xA;" OwnerUserId="10999" LastActivityDate="2020-05-12T05:19:39.643" Title="Income effect for complements" Tags="&lt;microeconomics&gt;&lt;perfect-complements&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14124" PostTypeId="2" ParentId="14123" CreationDate="2016-11-06T09:07:01.877" Score="0" Body="&lt;p&gt;For perfect complements, the substitution effect is 0 so the income effect = total price effect. When price of x = \$1 then the quantity demanded of y = 12/3 = 4 units (and quantity demanded of x = 2*y = 8 units). When the price of x increases to \$2 then the quantity demanded of y falls to 12/5 = 2.4 units, so quantity demanded of x falls to 2*2.4=4.8 units of x. Thus, the total price effect is 4.8 - 8 = -3.2 which is the same as the income effect.&lt;/p&gt;&#xA;" OwnerUserId="5924" LastEditorUserId="1601" LastEditDate="2020-05-12T05:19:39.643" LastActivityDate="2020-05-12T05:19:39.643" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="14125" PostTypeId="1" AcceptedAnswerId="14126" CreationDate="2016-11-06T10:53:37.437" Score="1" ViewCount="32" Body="&lt;p&gt;I have been reading about when the Swiss national Bank decided it would no longer peg its currency against the euro and this caused massive turmoil in the markets.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But my question was before this the Swiss Franc was pegged against the euro. So how is it the you could have place a bet the euro would rise against the swiss franc when the Swiss Franc was pegged against the euro . Surely they would rise by the same amout.&lt;/p&gt;&#xA;" OwnerUserId="10878" LastActivityDate="2016-11-06T13:59:19.870" Title="How can a one currency gain against the other if it is pegged aginst it?" Tags="&lt;international-trade&gt;&lt;currency-peg&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14126" PostTypeId="2" ParentId="14125" CreationDate="2016-11-06T13:59:19.870" Score="1" Body="&lt;p&gt;Strictly speaking it was not a peg but a cap: the Swiss National Bank said it would sell unlimited Swiss Francs at the rate of 1.2 CHF : 1 EUR.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You could have bet that the Euro would rise against the Swiss franc by borrowing some Swiss Francs and selling them for Euros, and then taking any profit or loss by unwinding the transaction.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If for example you had bought &lt;a href=&quot;http://www.xe.com/currencycharts/?from=EUR&amp;amp;to=CHF&amp;amp;view=5Y&quot; rel=&quot;nofollow noreferrer&quot;&gt;Euros with Swiss Francs&lt;/a&gt; in May 2012 and sold back in May 2013, this might have been profitable (at least before transaction costs), but if you had held past 15 January 2015 you would have made a loss when the cap was withdrawn.   &lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2016-11-06T13:59:19.870" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14127" PostTypeId="2" ParentId="14098" CreationDate="2016-11-06T14:11:13.027" Score="0" Body="&lt;p&gt;The best kinds of economic stimulus come with making people better at making businesses locally and internationally.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1/Making skilled tradesmen, new trades, apprenticeship schems, education&#xA;2/Making communication with distant rich markets&#xA;3/Building organized advanced civil services (town halls, post boxes, churches, police houses) in buildings that encourage fair play and national cooperation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the first issue, That is probably where you can intervene...&#xA;Education ranges from... giving children dinosaurs and science things to see with their eyes and lego bricks and maths books and soduko... To teaching young and old people trades like: Online Salesman, Treck Guide, Jewelry Fabricator, Honey Farmer, Agricultor... Using modern technologies and latest advances from other countries, for example, you supply some young men with bee-hive construction guide and keeping guide information. &#xA;Mostly you have to find knowledge to do things better from international information sources of researchers of every trade, which means that you have to be able to PRINT information and distribute it... Give people interesting papers to read with plans, techniques, products, on very cheap newspaper. A truck load of paper and a printer is good for printing guides about business development, you can apply abroad for a truck load of paper and a printer. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;2/the second is also a trade, it's like pairing cities up, so that a city in madagascar sais what resources it his and what knowledge it has, and a city in denmark sais what knowledge and resources it has, and they exchange communicationto make direct business expansions based on common interests, like vanilla or something to all the local shops, or local crystals. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;3/it requires investment, but every country should have a prestigious nice architecture for post boxes and town halls and government buildings and police which help for nationality, civility, pride to avoid corruption, and that requires architecture adn funding. &lt;/p&gt;&#xA;" OwnerUserId="10997" LastActivityDate="2016-11-06T14:11:13.027" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14128" PostTypeId="2" ParentId="14115" CreationDate="2016-11-06T14:27:17.943" Score="4" Body="&lt;p&gt;If you're referring to a land-value tax, I'll just quote &lt;a href=&quot;http://www.economist.com/blogs/freeexchange/2015/04/land-value-tax&quot; rel=&quot;nofollow noreferrer&quot;&gt;The Economist&lt;/a&gt;:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Other economists like it too. Adam Smith said “nothing could be more reasonable”; Milton Friedman termed it “the least bad tax”. Winston Churchill said scornfully that a landlord “contributes nothing to the process from which his own enrichment is derived”. The Organisation for Economic Cooperation and Development, a Paris-based thinktank for industrialised countries, supports the idea. So too did a recent working paper by the International Monetary Fund and the Mirrlees Review of British taxation by the Institute of Fiscal Studies. The mayor of New York City, Bill de Blasio, hopes that taxing vacant lots by value will help deal with urban blight in the Bronx and elsewhere.&lt;/p&gt;&#xA;&lt;p&gt;[...]&lt;/p&gt;&#xA;&lt;p&gt;The idea has wide-ranging support among modern economists, and more than 30 countries have some form of land-value taxation, usually in harness with other property taxes, on buildings.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;While the idea of a land-value tax certainly has its drawbacks, it's far from being discredited.&lt;/p&gt;&#xA;" OwnerUserId="264" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2016-11-06T14:27:17.943" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14130" PostTypeId="1" CreationDate="2016-11-06T17:19:48.040" Score="1" ViewCount="131" Body="&lt;p&gt;If I'm not mistaken, gold was used in early days of USA.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why did we switch to fiat, i.e dollar bills. Originally they were backed by gold, so why not keep gold?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm just trying to understand basics of why USA switched to dollars (even if they were gold backed).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you&lt;/p&gt;&#xA;" OwnerUserId="11006" LastActivityDate="2016-11-07T15:48:57.087" Title="Why switch from Gold to Fiat" Tags="&lt;currency&gt;&lt;government&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14133" PostTypeId="1" CreationDate="2016-11-06T22:00:09.150" Score="1" ViewCount="48" Body="&lt;p&gt;I am just wondering whether not achieving FPE is good for world trade. My reason being that is that international trade keeps expanding until complete FPE is achieved, according to the Heckscher-Ohlin model. This means more trading so global economic growth keeps increasing so having positive chain reaction effect on the world right? I am thinking in the real-world as clearly some of the assumptions of the HO model do not hold in the real-world.   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit: any links to good reading materials on this topic?  &lt;/p&gt;&#xA;" OwnerUserId="7769" LastEditorUserId="7769" LastEditDate="2016-11-07T13:02:22.220" LastActivityDate="2016-11-07T13:02:22.220" Title="Can not achieving complete factor price equalisation be good for world trade?" Tags="&lt;international-trade&gt;" AnswerCount="0" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="14134" PostTypeId="2" ParentId="14075" CreationDate="2016-11-06T22:07:11.383" Score="2" Body="&lt;p&gt;I will answer the first question, I believe the second one can be found in the book's appendix.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;Price stickiness&quot; is defined with respect to the optimal price level for the period (here denoted by a star) or equivalently in inflation terms. We do &lt;em&gt;not&lt;/em&gt; have price stickiness if the current inflation equals the optimal inflation: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\pi_t = \pi^*_t$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Looking at eq. $(9.26)$, written&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\pi_t = \alpha\pi^*_t + \beta \pi^e_{t+1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;to allow for any expectations formation hypothesis (we will need this flexibility), here are the only two scenarios under which we do &lt;em&gt;not&lt;/em&gt; have price stickiness, while also Wickens' &quot;general formulation&quot; holds:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;A.&lt;/strong&gt; Assume $\beta = 1-\alpha$ and $\pi^e_{t+1} = \pi^*_t$. Then we get $\pi_t = \pi^*_t$. Now, $\pi^e_{t+1} = \pi^*_t$ can be observed, it may be the case under Rational Expectations to expect next period inflation to equal the current optimal inflation. But assuming $\beta = 1-\alpha$ is a very special and uninteresting case.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;B.&lt;/strong&gt; &lt;em&gt;Impose&lt;/em&gt; immediate and full adjustment, $\pi_t = \pi^*_t$, while respecting equation $(9.26)$: we get a very specific rule for expectations formation:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\pi^*_t = \alpha\pi^*_t + \beta \pi^e_{t+1} \implies \pi^e_{t+1} = \frac {1-\alpha}{\beta}\pi^*_t$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is clearly an ad hoc expectations formation assumption.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It follows that in any other case, eq. $(9.26)$ implies that $\pi_t \neq \pi^*_t$, i.e. we have partial adjustment. It is perhaps more illuminating to perform the above &quot;what ifs&quot; using eq. $(9.27)$ of the book that is written in terms of the price level (starting in long-run equilibrium, i.e. assuming $p_{t+1} = p^*_{t+1}$).&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2016-11-06T22:07:11.383" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="14135" PostTypeId="1" CreationDate="2016-11-07T00:24:40.327" Score="1" ViewCount="100" Body="&lt;p&gt;Suppose I have a multiperiod consumption-saving problem with two or multiple goods able to be consumed. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the utility within a period is Constant Elasticity of Substitution, ie. $C = (c_1^\frac{\eta-1}{\eta} + c_2^\frac{\eta-1}{\eta})^\frac{\eta}{\eta-1}$ and utility across periods is $U = \sum_{t=0}^\infty C_t$, do these preferences correspond to risk neutral preferences?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Clearly if there was only one good and utility was $\sum C_t$ but I am just not sure with two goods. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks, &lt;/p&gt;&#xA;" OwnerUserId="11012" LastEditorUserId="4251" LastEditDate="2016-11-08T04:26:02.780" LastActivityDate="2016-11-08T04:26:02.780" Title="CES utility in dynamic setting" Tags="&lt;dynamic-optimization&gt;&lt;elasticity-of-substituion&gt;" AnswerCount="0" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="14136" PostTypeId="1" AcceptedAnswerId="14187" CreationDate="2016-11-07T01:05:42.123" Score="3" ViewCount="109" Body="&lt;p&gt;Does easy credit (e.g. lower minimum down payment, lower interest rate) cause housing prices (purchase, rent) in that area to be more expensive? Intuitively, this seems to be the case, because the availability of credit means more people can be a potential buyer, which drives up demands, which should increase price. Has there been an empirical research that backed this up or refuted it? &lt;/p&gt;&#xA;" OwnerUserId="4297" LastEditorUserId="4297" LastEditDate="2016-11-10T22:58:31.477" LastActivityDate="2016-11-10T22:58:31.477" Title="Does easy credit in a region cause property to be more expensive?" Tags="&lt;reference-request&gt;&lt;housing&gt;&lt;asset-prices&gt;" AnswerCount="1" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14137" PostTypeId="2" ParentId="11003" CreationDate="2016-11-07T01:26:02.123" Score="4" Body="&lt;p&gt;As the previous answer mentions Contract Theory is a subset of Mechanism Design. &#xA;Contract Theory is the study of Mechanism Design restricted to a single agent, i.e how to incentivize a single agent to achieve a desirable outcome, when you allow for multiple agents, the same problem becomes a mechanism design problem. &lt;/p&gt;&#xA;" OwnerUserId="11013" LastActivityDate="2016-11-07T01:26:02.123" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14138" PostTypeId="2" ParentId="14130" CreationDate="2016-11-07T06:09:42.197" Score="4" Body="&lt;p&gt;When recession strikes, it's prone to the currency equivalent of &quot;bank runs&quot; where everyone attempts to trade in their paper money for gold at once, causing a drastic reduction in the money supply, rising of interest rates, and the dreaded deflationary spiral. In the face of a recession, you want the opposite to happen.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;During the Great Depression, every major currency abandoned the gold standard, and the time of abandonment is seen as being correlated with their subsequent recovery. The U.S. abandoned it for good in 1971 while the economy was facing stagflation and foreign countries were demanding to exchange their U.S. dollars for gold, of which we didn't have enough gold reserves to fully satisfy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A fiat currency gives policymakers many more tools to stimulate the economy to meet their objectives. Tying your currency to gold limits the extent to which you can expand your money supply. And don't forget that under fractional reserve banking, it's the banks that create most of the money supply, not the Fed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On top of that you're prone to sudden random money supply expansions due to new mining windfalls, wasting a commodity that otherwise could be put to use in the real economy, and have to deal with the increased transaction costs of shipping and storing physical gold.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.bloomberg.com/news/articles/2011-08-04/the-nixon-shock&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.bloomberg.com/news/articles/2011-08-04/the-nixon-shock&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="11015" LastEditorUserId="11015" LastEditDate="2016-11-07T15:48:57.087" LastActivityDate="2016-11-07T15:48:57.087" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14139" PostTypeId="1" AcceptedAnswerId="14143" CreationDate="2016-11-07T13:06:16.260" Score="5" ViewCount="691" Body="&lt;p&gt;Moreover, does it fulfill other criteria automatically, like Myerson's &quot;Proper equilibrium&quot; refinement?&lt;/p&gt;&#xA;" OwnerUserId="10734" LastActivityDate="2018-06-19T22:52:13.597" Title="Do all mixed strategy Nash Equilibria satisfy Trembling Hand perfection?" Tags="&lt;game-theory&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14141" PostTypeId="2" ParentId="14122" CreationDate="2016-11-07T14:38:55.257" Score="1" Body="&lt;p&gt;A bilateral currency swap line allows two central banks to immediately swap currencies directly between each other up to a specified amount. The swap allows Central Bank A to immediately buy Central Bank B's currency at the official exchange rate. The currency never leaves each Central Bank; it is just reassigned to a new owner. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Crucially, the two banks also agree that Central Bank A has to buy back its currency at the same rate plus interest at a specified future date. Central Bank B never assumes any risk for Central Bank A's newly purchased reserves and is no party to any agreements which make use of the funds.&lt;/p&gt;&#xA;" OwnerUserId="11017" LastActivityDate="2016-11-07T14:38:55.257" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14142" PostTypeId="1" CreationDate="2016-11-07T14:40:13.630" Score="3" ViewCount="481" Body="&lt;p&gt;According to a 2012 IGM panel (cf. reference below), most experts believe that a federal income tax cut would lead to a higher GDP in five years, ceteris paribus. Is this effect purely Keynesian, and based on a presumption that the U.S. was still recovering from the recession and that greater fiscal stimulus was called for, or does it truly reflect a belief among the majority of mainstream economists that the U.S. federal tax regime is sitting on the wrong side of the Laffer curve as the title indicates?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Source: &lt;a href=&quot;http://www.igmchicago.org/igm-economic-experts-panel/poll-results?SurveyID=SV_2irlrss5UC27YXi&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.igmchicago.org/igm-economic-experts-panel/poll-results?SurveyID=SV_2irlrss5UC27YXi&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="11017" LastActivityDate="2018-07-03T16:10:03.243" Title="The United States' position on the Laffer Curve" Tags="&lt;macroeconomics&gt;&lt;economic-growth&gt;&lt;taxation&gt;&lt;optimal-taxation&gt;&lt;united-states&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14143" PostTypeId="2" ParentId="14139" CreationDate="2016-11-07T14:48:53.427" Score="4" Body="&lt;p&gt;No. Trembling hand perfection would be an additional consideration.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider this case:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Two agents engage in a two stage game. In stage one, player one selects Rock, Paper or Scissors. In stage two, player two selects Rock, Paper or Scissors. They receive payouts depending on whether or not they match. They both have identical payout matrices.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Payoffs (Match, Unmatched)&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Rock (1,0)&lt;/li&gt;&#xA;&lt;li&gt;Paper (1,0) &lt;/li&gt;&#xA;&lt;li&gt;Scissors (1,-1)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;In a mixed strategy nash equillibrium consider player one. He can choose any mixed strategy such that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;p(Rock)+p(Paper)+p(Scissors)=1&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and they would all be equally rational. Since even if he chooses scissors, a rational player two would match him. However, taking into account trembling hand perfection, the subset of strategies where&lt;/p&gt;&#xA;&#xA;&lt;p&gt;p(Scissors)=0&lt;/p&gt;&#xA;&#xA;&lt;p&gt;dominate the previous strategy set. This is the case because we are concerned that player two has a chance of making a mistake if we choose scissors and not matching us. Therefore, mixed strategy and trembling hand mixed strategy give us different sets of strategies which fulfill our Nash equilibrium criteria.&lt;/p&gt;&#xA;" OwnerUserId="4808" LastEditorUserId="4808" LastEditDate="2016-11-07T14:56:10.300" LastActivityDate="2016-11-07T14:56:10.300" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="14144" PostTypeId="2" ParentId="14142" CreationDate="2016-11-07T17:43:33.483" Score="4" Body="&lt;p&gt;Question B in the link answers your question: most participants believe that taxable income would not rise enough to offset the tax cut, indicating that they do not believe we are on the wrong side of the Laffer Curve.&lt;/p&gt;&#xA;" OwnerUserId="264" LastEditorUserId="264" LastEditDate="2016-11-07T17:54:59.923" LastActivityDate="2016-11-07T17:54:59.923" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14145" PostTypeId="1" CreationDate="2016-11-07T18:36:19.090" Score="2" ViewCount="63" Body="&lt;p&gt;Quite a bit of research is available on the local economic effects of electrification in communities in developing countries (&lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/030142159290108E&quot; rel=&quot;nofollow noreferrer&quot;&gt;this article&lt;/a&gt; and its references go into quite a bit of detail on the topic).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, with the advent of microgrid technology, and the increasing cost-effectiveness of distributed energy resources (particularly solar), it seems that the calculus would change.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am wondering what effect (if any) small-scale, local energy resources would have on a local economy, in contrast to simple extension of a centralized grid. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Most of the research I am able to find around &quot;microgrid economics&quot; or &quot;distributed energy economics&quot; is either in the context of communities moving from centralized to de-centralized energy (e.g., hospitals installing a microgrid to improve energy reliability), or is simply a cost comparison of the expense of electrification using the two different methods.&lt;/p&gt;&#xA;" OwnerUserId="11020" LastActivityDate="2016-11-07T18:36:19.090" Title="Economics of grid extension versus off-grid electrification in developing countries" Tags="&lt;development-economics&gt;&lt;energy-economics&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14146" PostTypeId="1" CreationDate="2016-11-07T19:00:17.630" Score="0" ViewCount="147" Body="&lt;p&gt;Over and over again reputable economists and pundits like Alan Greenspan tell us that the 0% interest rates are &quot;unsustainable&quot;, yet they are sustained.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How can interest rates be so low? Throughout all of history I could only find interest rates down to 3%, never lower, yet now we have 0% or even negative interest rates. How is this possible?&lt;/p&gt;&#xA;" OwnerUserId="1448" LastEditorUserId="264" LastEditDate="2017-01-07T20:34:41.813" LastActivityDate="2017-02-06T21:33:51.700" Title="How can interest rates be so low?" Tags="&lt;interest-rate&gt;" AnswerCount="2" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="14148" PostTypeId="1" CreationDate="2016-11-07T23:29:22.100" Score="0" ViewCount="24" Body="&lt;p&gt;Given the recent massive decrease in the value of the pound, does this not equally devalue the British economy by a similar amount? Why does that not lead to an immediate large crash in Britain as spending power is reduced?&lt;/p&gt;&#xA;" OwnerUserId="11024" LastActivityDate="2016-11-08T20:04:45.100" Title="How will the value of the pound affect the British economy?" Tags="&lt;currency&gt;&lt;inflation&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14149" PostTypeId="1" AcceptedAnswerId="14156" CreationDate="2016-11-08T02:07:31.257" Score="2" ViewCount="480" Body="&lt;p&gt;Suppose we have a production function $f(z)=2$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am asked to determine whether the function exhibits increasing, decreasing, constant or no returns to scale.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For $t&amp;gt;0$, $f(tz)=2$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm not sure about the answer: should I say the function exhibits no returns to scale whatsoever or take different values for $t$ ($0&amp;lt;t&amp;lt;1 \implies$decreasing returns to scale, $t=1 \implies$ constant returns to scale, $t&amp;gt;1 \implies$ increasing returns to scale)?&lt;/p&gt;&#xA;" OwnerUserId="5936" LastActivityDate="2016-11-10T10:39:30.720" Title="Returns to scale - Constant Function" Tags="&lt;microeconomics&gt;&lt;production-function&gt;&lt;economies-of-scale&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="14150" PostTypeId="1" CreationDate="2016-11-08T03:26:57.843" Score="0" ViewCount="54" Body="&lt;p&gt;First of all, I am from a IT background and currently writing my thesis on a system in which I am have to create a model of a nation. So to run the economy in this simulation (for now you can understand it as a simulation), I need appropriate economic models and monetary policy. I have done my reading on the basics of monetary policy and how central banks are responsible to control the inflation and deflation of currency. And also, I am aware of the gold reserve which now is more like a fractional reserve system. I do understand that the purpose of my project strongly matters in this case, but for a start, a very basic model would be enough. I already am familiar with crypto currencies like Bitcoin, Ethereum etc. Also, this system is run by computer so it's human error / politics proof, or a bit more like an ideal system. So, it would be great to have your insights/opinions on how should I design the currency and the economic model. &lt;/p&gt;&#xA;" OwnerUserId="11026" LastActivityDate="2016-11-08T12:23:53.303" Title="If I want to create my own currency model what would be the best basic options / things / ideas I need to look into?" Tags="&lt;macroeconomics&gt;&lt;supply-and-demand&gt;&lt;monetary-policy&gt;&lt;money-supply&gt;" AnswerCount="1" CommentCount="3" FavoriteCount="1" ClosedDate="2016-11-20T15:57:35.067" ContentLicense="CC BY-SA 3.0" />
  <row Id="14151" PostTypeId="2" ParentId="14150" CreationDate="2016-11-08T08:58:28.417" Score="1" Body="&lt;p&gt;In fractional reserve banking the money supply goes up and down according to the rate of new money being created as new loans are made and the rate at which existing money is destroyed as loan (principal) is repaid. So your model needs to include some estimate of the mutual enthusiasm, between banks and their customers, for making new loans. This in turn will be a function of the interest rate amongst other things (IMHO most importantly, people's perception of the future trajectory of house prices).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;BTW, I hope you're not assuming that the money supply is capped according to the money multiplier story. That's all completely wrong as the Bank of England confirm =&gt; &lt;a href=&quot;http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q102.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An alternative is full reserve banking where the money supply does not go up and down with loans/repayments. In this case new money can only be created by the government/central bank. This would be far easier to model. When looking at full reserve banking - don't be misled into believing that banks can not lend in such a system (as some textbooks may imply). Peer to peer lenders (e.g. &lt;a href=&quot;https://www.zopa.com/&quot; rel=&quot;nofollow noreferrer&quot;&gt;zopa&lt;/a&gt;) are essentially full reserve banks and they exist already.&lt;/p&gt;&#xA;" OwnerUserId="5081" LastEditorUserId="5081" LastEditDate="2016-11-08T12:23:53.303" LastActivityDate="2016-11-08T12:23:53.303" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="14152" PostTypeId="2" ParentId="14146" CreationDate="2016-11-08T11:51:08.743" Score="0" Body="&lt;p&gt;Assuming you already know that bank loans create money and bank loan repayments of principal destroy money (if not, look up fractional reserve banking)...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the housing bubble leading up to the 2007/8 crash, biblical amounts of money was being borrowed to purchase houses. When the bubble burst the demand for new loans (mortgages) suddenly fell so the rate of money creation fell. But the rate of money destruction remained high because all the mortgage repayment schedules remain in place. If the government did nothing then there would have been a massive fall in the money supply - just like in the great depression. The whole point of the near zero interest policy is a desperate attempt to encourage borrowing (money creation) to compensate for the still very high rate of money destruction. Its all going on for a long time because mortgage repayments go on for a long time.&lt;/p&gt;&#xA;" OwnerUserId="5081" LastEditorUserId="264" LastEditDate="2017-01-07T20:32:36.147" LastActivityDate="2017-01-07T20:32:36.147" CommentCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="14154" PostTypeId="1" CreationDate="2016-11-08T13:41:03.877" Score="2" ViewCount="47" Body="&lt;p&gt;$dk_{it}/dt = (W(\tilde K,\tilde l)/\tilde K)[(1+1/n)(\tilde k_i - \theta_i)(l_t - \tilde l)] + B(k_{it} - \tilde k_i)]$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is a differential equation of individual capital stock $k_{it}$ linearized arond the steady states of $k_{it}$ &amp;amp; $l_t$. How do I go about finding the stable solution solution to this equation? Considering that there are fewer equations than variables, how is it even possible? (Or am I getting my differential math completely wrong!) The papers states that the stable path is: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$k_{it} = \tilde k_i + (1/(u- B))(W(\tilde K,\tilde l)/\tilde K)[(1+1/n)(\tilde k_i - \theta_i)(l_0 - \tilde l)](k_{it} - \tilde \theta_i)e^{ut}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where u is the eigenvalue. Can I get help in deriving this? Just a nudge to right kind of solution method would do, thanks! &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit: The &lt;a href=&quot;http://www.vcharite.univ-mrs.fr/PP/penalosa/workingpapers/TurnRamsey1.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;paper&lt;/a&gt; in question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Search for (A.13) (1st equation) &amp;amp; (A.14) (the stable solution). &lt;/p&gt;&#xA;" OwnerUserId="4247" LastEditorUserId="1601" LastEditDate="2016-11-08T18:37:02.163" LastActivityDate="2016-11-08T18:37:02.163" Title="Unable to resolve this linearized equation from a macro growth theory paper" Tags="&lt;macroeconomics&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="14155" PostTypeId="1" AcceptedAnswerId="14179" CreationDate="2016-11-08T14:49:31.467" Score="1" ViewCount="228" Body="&lt;p&gt;I am doing an undergrad course in Industrial Organization and at the end of the chapter on Short-run price competition (Bertrand and Cournot models mainly), there is a question with which I'm struggling. Here it is:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Consider a market with two price-setting firms producing a&#xA;  homogeneous product. The demand function is q = D(p) = 1 – p,&#xA;  which implies the inverse demand p = 1 – q1 – q2. The two firms&#xA;  have capacity constraints q1hat and q2hat , where q1hat + q2hat = 3/5. The&#xA;  marginal cost of production is zero for qi ≤ qihat and infinite for qi &gt;&#xA;  qihat for any i = 1,2. Finally, assume that consumers are rationed according to the efficient rationing rule.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;i. Show that if q1hat = q2hat , there is a unique Bertrand-Nash equilibrium&#xA;  where p1 = p2 = p* = 1 – q1hat – q2hat&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;ii. Show that when q1hat ≠ q2hat, the equilibrium under part (i) breaks&#xA;  down when the firms’ capacities are too dissimilar.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So for part i. I basically adapted part of the material from the chapter and said:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;To show that this is a Nash equilibrium, we need to show that none of the&#xA;  firms has an incentive to unilaterally deviate from this equilibrium.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Is it profitable for firm 1 to set a price lower than p*, given that firm 2 sets price p*? The answer is no. By charging p* firm 1 sells exactly q1hat. Firm 1 cannot produce more than q1hat anyway, so by reducing its price below p* it would simply sell the same quantity at a lower price and would therefore make&#xA;  less profit.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Is it profitable for firm 1 to set a price higher than p*, given that firm 2 sets price p*? The answer is again no, but the argument now is more subtle.&#xA;  Suppose that firm 1 sets a price p ≥ p*. Then it has residual demand 1 –&#xA;  p – q2hat, because at price p total market demand is given by 1 – p and firm&#xA;  2 sells q2hat. Firm 1 makes profit Π = p(1 – p – q2hat). Using the inverse demand function, the expression for profit can be written as (1 – q1 – q2hat)q1, where q1 is the quantity sold by firm 1 at price p. Note that the profit function Π = (1 – q1 – q2hat)q1 is exactly the same as the profit function of a firm that chooses output q given that the rival firm chooses output q2hat. This profit function is concave in q, that is Π''(q1) &amp;lt; 0. Also, ∂Π/∂q1 = 1 – 2q1 – q2hat. Evaluated at q1 = q1hat, this derivative is equal to 1 – 2q1hat – q2hat, which is positive because q1hat + q2hat = 3/5 and q1hat = q2hat so 2q1hat + q2hat = 9/10. In other words, if firm 1 starts from q1hat and marginally reduces its quantity, its profit will fall. This result and the concavity of the profit function ensure that any reduction of q1 below q1hat will reduce profit. Another way of saying this is that if firm 1 starts from p* and increases its price, its profit will fall.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So far so good, the concavity of the profit function implies that when we close in to the maximum marginal profit, the slope (or the derivative of profit with respect to q) will be closer and closer to 0.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now part ii. gets me and I don't know how to attack it. I thought about making 2 cases, one where q1hat is close to 3/5 and one when it is close to 0. The profit function and its derivative are the same as for i. and the constraint q1hat + q2hat = 3/5 is still applicable from what I can understand, so demand can't be met. For me the part about setting a lower p is still the same as in part i. But the part about setting a p higher than p* is not as clear.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can anybody help?&lt;/p&gt;&#xA;" OwnerUserId="5119" LastActivityDate="2016-11-10T05:41:37.093" Title="Short-run price competition with capacity contraints" Tags="&lt;industrial-organisation&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14156" PostTypeId="2" ParentId="14149" CreationDate="2016-11-08T17:02:34.120" Score="5" Body="&lt;p&gt;You want to find a relation between $tF(z)$ and $F(tz)$ for all $t&amp;gt;1$ (or $0$ for CRS). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So since $2t=tF(z)&amp;gt;F(tz)=2$ for all $t&amp;gt;1$, we see decreasing returns to scale.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2016-11-08T17:02:34.120" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14157" PostTypeId="1" AcceptedAnswerId="14160" CreationDate="2016-11-08T18:23:56.443" Score="2" ViewCount="77" Body="&lt;p&gt;Being a mathematician, I am familiar with probability calculations, but I need to ask a question related to investments and probability, and how this is handled seen from an economics view.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given a project which involves two tasks, task 1 and task 2. Developing task 1 cost X dollars, while developing task 2 takes Y dollars if developed at the same time as task 1 and Z dollars if developed at a later stage.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The probability that we actually need Task 2 i 70%&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is the the &quot;probable cost&quot; of implementing Task 1 and 2 at the same time. vs. Task 1 and then Task 2 with a certain probability.&#xA;And what is this called in economics? Probable cost? Estimated cost??&lt;/p&gt;&#xA;" OwnerUserId="11031" LastActivityDate="2016-11-08T20:10:49.673" Title="Investment and probability" Tags="&lt;probability&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14158" PostTypeId="2" ParentId="14157" CreationDate="2016-11-08T18:41:17.860" Score="0" Body="&lt;p&gt;If I understand you correctly, there are two possible courses of action:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Develop only Task 1 now, and proceed with Task 2 if needed.&lt;/li&gt;&#xA;&lt;li&gt;Develop both Tasks concurrently.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Each course of action has its own expected cost. I would have no problem calling this expected cost.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2016-11-08T18:41:17.860" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14159" PostTypeId="2" ParentId="14157" CreationDate="2016-11-08T18:54:03.713" Score="2" Body="&lt;p&gt;Regardless of period if we know the cost 100%, it is simply cost. If there is a degree of uncertainty on what the cost will be (such as in the future) we regard it as expected cost.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regarding your question specifically about how the cost of a project can change in a future period, this falls under an area of study known as cost-benefit analysis. Your specific example is a topic within that domain known as irreversibility.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we are uncertain if the project is needed(such as in the case of building a dam for a potential flood), this does not affect the expected cost. Instead it affects the expected benefits. Regardless of whether or not the dam is needed, we have still expended the funds. Our uncertainty is in fact, changes our expected benefit. It is important to note that no matter what side of the equation we handle this on (benefits or costs), the expected value will have the same result.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When making these kind of evaluations we calculate their expected value(expected benefits-expected cost) and then adjust for irreversibility.&lt;/p&gt;&#xA;" OwnerUserId="4808" LastEditorUserId="4808" LastEditDate="2016-11-08T19:57:19.337" LastActivityDate="2016-11-08T19:57:19.337" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="14160" PostTypeId="2" ParentId="14157" CreationDate="2016-11-08T19:43:34.983" Score="4" Body="&lt;p&gt;The simplest thing is to calculate the expected cost in the two scenarios:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Scenario 1: Develop both at the same time&lt;/strong&gt;&#xA;$$E[cost]= X + Y$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Scenario 2: Wait and see if task two is needed&lt;/strong&gt;&#xA;$$E[cost]= X + 0.7Z$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However I would not say expected value calculation represents &lt;em&gt;the&lt;/em&gt; &quot;economics view&quot;. The general view rather depends on your preferences, often expressed as &lt;em&gt;utility functions&lt;/em&gt;. It could be your utility is a function of expected value, but it could also not be the case. What is your risk tolerance? Some people seem risk-seeking. Are you ok with a a small possibility of ruin (bankruptcy)? Preferences can also depend on &lt;em&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Prospect_theory&quot; rel=&quot;nofollow noreferrer&quot;&gt;reference points&lt;/a&gt;&lt;/em&gt; and more... &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For other simplistic approaches you could start with &lt;em&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Value_at_risk&quot; rel=&quot;nofollow noreferrer&quot;&gt;value at risk&lt;/a&gt;&lt;/em&gt;.&lt;/p&gt;&#xA;" OwnerUserId="4193" LastEditorUserId="4193" LastEditDate="2016-11-08T20:10:49.673" LastActivityDate="2016-11-08T20:10:49.673" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14161" PostTypeId="2" ParentId="14148" CreationDate="2016-11-08T20:04:45.100" Score="1" Body="&lt;p&gt;You think spending power has been reduced, but in reality inflation has only been 1%. Meaning products inside the UK measured in pounds have only become 1% more expensive.&#xA;The devaluation of the pound only exists compared to other currencies. &#xA;This means two things:&#xA;1. Products from the UK have become cheaper for foreigners. So companies from the UK will sell more.&#xA;2. Consumers from the UK pay higher prices outside the country. This will also lead to more sales inside the UK.&#xA;UK companies profit from a weaker pound even when measured in other currencies.&#xA;Consumers on the other hand are far worse off, and if you were planning on spending your retirement abroad you can end up paying a big pricetag for it.&#xA;A lower pound is good for business, not consumers, in the UK, leaving the EU is generally seen as a negative influence.&lt;/p&gt;&#xA;" OwnerUserId="11032" LastActivityDate="2016-11-08T20:04:45.100" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14162" PostTypeId="1" CreationDate="2016-11-09T00:42:30.880" Score="6" ViewCount="1577" Body="&lt;p&gt;It makes more intuitive sense to me: as I increase the quantity, this is how much the price changes. Why is a much more complex formula used that takes into consideration the current quantity and price at a given point on the curve?&lt;/p&gt;&#xA;" OwnerUserId="11033" LastActivityDate="2016-11-11T07:26:45.497" Title="Why is elasticity not defined simply as the slope of the graph?" Tags="&lt;microeconomics&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14163" PostTypeId="2" ParentId="14162" CreationDate="2016-11-09T01:30:42.670" Score="7" Body="&lt;p&gt;The reason why elasticity is not defined as the slope of the graph is because the idea of slope is mathematically different from elasticity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When we calculate slope we use the formula ${\triangle}y/{\triangle}x$ however in the case of elasticity we use $\frac{{\triangle}y/y}{{\triangle}x/x}$ which is the percent change in $y$ divided by percent change in $x$ which is not the same as the formula for slope.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Bottom Line:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;${\triangle}y/{\triangle}x \ne \frac{{\triangle}y/y}{{\triangle}x/x}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope this helps.&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="8815" LastEditDate="2016-11-09T04:22:47.277" LastActivityDate="2016-11-09T04:22:47.277" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14169" PostTypeId="2" ParentId="14162" CreationDate="2016-11-09T10:45:42.287" Score="8" Body="&lt;p&gt;A key feature of elasticity is that it is a &lt;em&gt;unit-free measure&lt;/em&gt;.  Suppose we are considering the price-elasticity of demand for apples which is $\frac{{\triangle}y/y}{{\triangle}x/x}$ where $y$ is quantity demanded and $x$ is price.  The elasticity will be the same whether apples are measured in pounds (lb) or kilograms (kg) because both $\triangle y$ and $y$ will be in the same units.  Similarly it will not matter in which currency price is measured, because $\triangle x$ and $x$ will be in the same currency units.  This makes comparisons of elasticities, between goods measured in different units, or between countries with different currencies, much more meaningful than comparisons of slopes.  &lt;/p&gt;&#xA;" OwnerUserId="1417" LastActivityDate="2016-11-09T10:45:42.287" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14171" PostTypeId="1" AcceptedAnswerId="14177" CreationDate="2016-11-09T14:30:35.740" Score="0" ViewCount="1202" Body="&lt;p&gt;Recently I conducted a small game among students of our institute. The game was based on Keynes' beauty contest game. The participants had to guess a number between 0 to 100 and the participant whose guess was closest to 2/3rd of the average of all guesses would win the game. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The twist was this: We also awarded money to the winner in each round. The money was a multiple say, 5x of the final number (2/3rd of the average). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What will be the Nash Equilibrium of this modified game. The solution to the original problem is of course everybody choosing 0. Will the equilibrium shift in the above described game. Consider n to be greater than 30. &#xA;Any help would be appreciated. &lt;/p&gt;&#xA;" OwnerUserId="5582" LastEditorUserId="5582" LastEditDate="2016-11-09T14:43:12.517" LastActivityDate="2017-10-20T23:23:27.187" Title="Nash Equilibrium of modified Keynes' beauty contest" Tags="&lt;game-theory&gt;&lt;nash-equilibrium&gt;&lt;repeated-games&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14172" PostTypeId="1" CreationDate="2016-11-09T16:22:00.417" Score="1" ViewCount="665" Body="&lt;p&gt;A tax imposed by the government on the sellers would drive up the price of the good. I understand that the supply curve will shift upwards due to this but the won't the demand curve also shift downwards due to the increase in price of the good?&lt;/p&gt;&#xA;" OwnerUserId="11039" LastActivityDate="2016-11-11T07:58:36.140" Title="When a tax is imposed on the sellers, the price of the good rises. So, why doesn't the demand curve shift?" Tags="&lt;supply-and-demand&gt;&lt;taxation&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14173" PostTypeId="2" ParentId="14172" CreationDate="2016-11-09T16:31:32.460" Score="5" Body="&lt;p&gt;I think you're confusing quantity demanded, and the demand curve.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The demand curve tells you how much quantity should be demanded at each price point. Therefore changes in price should change the quantity demanded, not shift the curve. You want to think of this in terms of demand and supply shocks.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Imagine it was discovered that bananas gave you super powers. Now the ability to supply bananas hasn't changed (no supply shock), but the desirability of bananas at any given price point has increased (demand shock).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An increase in price due to taxation has not impacted the desirability of goods at any given price point. It simply changes the price point.&lt;/p&gt;&#xA;" OwnerUserId="4808" LastEditorUserId="1601" LastEditDate="2016-11-09T17:01:19.070" LastActivityDate="2016-11-09T17:01:19.070" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="14174" PostTypeId="1" AcceptedAnswerId="14198" CreationDate="2016-11-09T16:54:22.010" Score="-2" ViewCount="56" Body="&lt;p&gt;Behavioural axiom in microeconomics explain a lots regarding why some countries lead and why some lag when it comes to growth and development? Please specify me the meaning of behavioural axiom here and what things I have to use to answer this question. Theories or analysis?&lt;/p&gt;&#xA;" OwnerUserId="11041" LastEditorUserId="5557" LastEditDate="2016-11-10T17:25:42.880" LastActivityDate="2016-11-11T08:57:27.163" Title="Growth and Development" Tags="&lt;economic-growth&gt;" AnswerCount="1" CommentCount="2" ClosedDate="2016-11-19T23:15:50.167" ContentLicense="CC BY-SA 3.0" />
  <row Id="14175" PostTypeId="2" ParentId="14171" CreationDate="2016-11-09T19:21:10.573" Score="1" Body="&lt;p&gt;@denesp nailed the answer on the head.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is not different from the original game in any meaningful way, therefore, the nash equilibrium remains the same. Size of payouts don't change the outcome of the game. This is because the strategy of choosing zero (assuming all parties are fully rational, a condition for Nash Equilibrium) dominates all other strategies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Keep in mind that in reality not all parties are fully rational, so the results of the game you conducted with your students shouldn't be expected to reflect this.&lt;/p&gt;&#xA;" OwnerUserId="4808" LastActivityDate="2016-11-09T19:21:10.573" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14177" PostTypeId="2" ParentId="14171" CreationDate="2016-11-09T19:52:43.417" Score="2" Body="&lt;p&gt;Assume the players have to choose integers, otherwise a best response may not exist. Let the payoff of winning be $\alpha\cdot[\frac23\text{ of the average}]$, $\alpha&amp;gt;0$. Consider the two player (A and B) case, and let's verify whether choosing above $0$ is optimal. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose A chooses $x&amp;gt;0$. Then B can guarantee a win by choosing $x-1$, since $\frac23(x-\frac12)$ is closer to $x-1$ than to $x$. However, if B chooses $0$, A choosing $x=1$ is a best response (A gets zero anyway). So we will have a NE where not both players choose $0$, and the one who chooses $0$ gets positive payoff.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This equilibrium can be generalized to the $n$-player case. Let $n-1$ players choose $0$ and the remaining one choose $1$. In this equilibrium, those who choose $0$ would share the positive payoff (each gets $\frac{\alpha}{n-1}\cdot\frac23\cdot\frac1{n}$). They are best responding because choosing any $x&amp;gt;0$ would imply zero payoff. The one who chooses $1$ is also best responding since he gets zero anyway. (Of course this is not the only equilibrium. There is also one where everyone chooses $0$, which is obvious.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Admittedly, the above equilibrium relies crucially on the assumption that players are only allowed to choose integers. But this is due to the fact that payoff is a function of the choices (compared to a fixed amount in the original version of the problem). Suppose players are allowed to choose any real number in $[0,100]$. Then if A chooses $x&amp;gt;0$, B would best respond by choosing $x-\epsilon$, where $\epsilon=\min\{y:y&amp;gt;0\}$ (B would win of course, but she also wants to maximize her earning by making her choice as close to A's as possible). &#xA;However, such an $\epsilon$ does not exist. Therefore, the only equilibrium is for everyone to choose $0$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The intuition is this: however large the winning is, you don't get it if you don't win. But winning requires that you choose small. So the incentive to win overwhelms the incentive to win big.&lt;/p&gt;&#xA;" OwnerUserId="42" LastEditorUserId="42" LastEditDate="2016-11-09T21:08:06.583" LastActivityDate="2016-11-09T21:08:06.583" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="14178" PostTypeId="2" ParentId="13844" CreationDate="2016-11-09T22:07:09.483" Score="1" Body="&lt;p&gt;A massive simplification would to look at developed (high wage) countries as experiencing two forces.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is the &lt;strong&gt;offshoring pathway&lt;/strong&gt;. Low skill manufacturing can be offshored to lower waged countries. Output in the home country decreases.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then there is the &lt;strong&gt;technological pathway&lt;/strong&gt;. Automation and innovations can work to take the bottom out of employment, saving on wage costs. Manufacturing will become increasingly dependent on a more skilled employee. Output in the home country increases.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The expected trend is one away from the low skill manufacturing (think clothing) towards more complex, bespoke products (think 3D printed prosthetics).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The overall environment is notably more complicated with government subsidies, global supply chains and trade deals among others things all being important.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Deloitte Access Economics have released a &lt;a href=&quot;https://www2.deloitte.com/content/dam/Deloitte/au/Documents/manufacturing/deloitte-au-mfg-global-manufacturing-competitiveness-index-260416.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;manufacturing competitiveness report&lt;/a&gt; which covers elements of this.&lt;/p&gt;&#xA;" OwnerUserId="40" LastActivityDate="2016-11-09T22:07:09.483" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14179" PostTypeId="2" ParentId="14155" CreationDate="2016-11-09T22:19:20.390" Score="1" Body="&lt;p&gt;If Firm 1 assumes Firm 2 produces and sells the maximum it can produce, i.e. $\hat{q}_2$, then Firm 1 can aim to maximise its revenue and profit $$\Pi_1=q_1p = q_1(1-q_1-\hat{q}_2)$$ which is maximised at $\left(\dfrac{1-\hat{q}_2}{2}\right)^2$ with $q_1=\dfrac{1-\hat{q}_2}{2}$, at least when Firm 1's maximum production exceeds this quantity. If not, then Firm 1 should continue to produce as much as possible.&#xA;So if Firm 1 is big enough then both firms producing as much as possible may not be an equilibrium&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As an example, suppose $\hat{q}_1=0.5$ and $\hat{q}_2=0.1$, with a sum of $0.6=\frac35$ as required. If both firms produce at maximum capacity then the price will be $1-0.5-0.1=0.4$ making the Firm 1's revenue and profit $0.5\times 0.4=0.2$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But if Firm 2 produces at maximum capacity and Firm 1 were to produce only $0.45$, this would make the price $1-0.45-0.1=0.45$ and the Firm 1 's revenue and profit $0.45\times 0.45=0.2025$ which is higher than $0.2$, and the Firm 2 will also see profits rise due to the price increase, showing that both firms being at maximum production would not be an equilibrium in this case  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;With the overall maximum production being $\frac35=0.6$, the equilibrium will break down in this way if $\hat{q}_1\gt \frac25 =0.4$ and $\hat{q}_2 \lt \frac15 =0.2$  &lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2016-11-09T22:19:20.390" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="14180" PostTypeId="1" CreationDate="2016-11-10T02:40:54.047" Score="2" ViewCount="955" Body="&lt;p&gt;Question: Suppose three identical, risk-neutral firms must decide simultaneously and irreversibly whether to enter a new market which can accommodate only two of them. If all three firms enter, all get payoff 0; otherwise, entrants get 9 and firms that stay out get 8. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My attempt: Arbitrarily choosing firm A, firm A is deciding whether to enter the market or not. Hence, the Nash equilibrium occurs when $\text{payoff of not entering = entering}$. Let $p$ be the probability of each firm entering the market. Then&#xA;$$\text{not entering = P(only firm who enters) + P(second firm to enter) + P(third firm to enter)}\\&#xA;8=9(p)(1-p)^2+9(p^2)(1-p)+0(p^3)\\&#xA;8=9(p-p^2)&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and I get a complex number as the answer. The correct equation should be $8=9(1-p^2)$, but I'm not sure how to get that. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help is greatly appreciated!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit: Solved it an hour later. I was being silly. I'm leaving my partial answer below for anyone who is curious. &lt;/p&gt;&#xA;" OwnerUserId="11048" LastEditorUserId="11048" LastEditDate="2016-11-10T03:30:48.673" LastActivityDate="2020-12-10T22:53:42.210" Title="Symmetric mixed-strategy equilibrium: Entering markets [Solved]" Tags="&lt;game-theory&gt;&lt;nash-equilibrium&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14181" PostTypeId="2" ParentId="14180" CreationDate="2016-11-10T03:29:47.647" Score="2" Body="&lt;p&gt;I solved it, haha. Turns out I was being silly. I had completely neglected the fact that this was a 3-player game, and $\text{not entering}$ still had probability values attached to it. Let $A$, $B$, and $C$ be the three firms. So the game looks like this:&#xA;$$&#xA;\text{P(A enter;B,C enter)+P(A enter;only B enter)+P(A enter;only C enter)+}\\&#xA;\text{P(A enter;neither enters) = P(A dne;B,C enter)+P(A dne;only B enter)+}\\&#xA;\text{P(A dne;only C enter)+P(A dne;neither enters)}&#xA;$$&#xA;It's a giant mess of $p$'s and $(1-p)$'s, but at the end of the day, the final version $8=9(1-p^2)$ is derived.&lt;/p&gt;&#xA;" OwnerUserId="11048" LastActivityDate="2016-11-10T03:29:47.647" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14182" PostTypeId="2" ParentId="8519" CreationDate="2016-11-10T04:56:27.663" Score="0" Body="&lt;p&gt;1.Since there exists an &lt;strong&gt;&lt;em&gt;assumption&lt;/em&gt;&lt;/strong&gt; that &quot;the preference is homothetic&quot;, according to the exact definition, &lt;strong&gt;U(t&lt;em&gt;x)=t&lt;/em&gt;U(x)&lt;/strong&gt;, where &lt;em&gt;U(x)&lt;/em&gt; is the direct utility of goods x and &lt;strong&gt;&lt;em&gt;U(x) is homogeneous of degree one.&lt;/em&gt;&lt;/strong&gt; under the previous &lt;strong&gt;&lt;em&gt;assumption&lt;/em&gt;&lt;/strong&gt;.&#xA;(&lt;a href=&quot;https://en.wikipedia.org/wiki/Homothetic_preferences&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://en.wikipedia.org/wiki/Homothetic_preferences&lt;/a&gt;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2.I need to prove &lt;strong&gt;&lt;em&gt;x(p,m)&lt;/em&gt;&lt;/strong&gt; is also &lt;strong&gt;&lt;em&gt;homogeneous of degree one&lt;/em&gt;&lt;/strong&gt; in &lt;strong&gt;&lt;em&gt;m&lt;/em&gt;&lt;/strong&gt;. We can prove it by contradiction.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;em&gt;Suppose x(p,t&lt;/em&gt;m)≠ t&lt;em&gt;x(p,m)&lt;/em&gt;&lt;/strong&gt; and &lt;strong&gt;&lt;em&gt;x(p,m)&lt;/em&gt;&lt;/strong&gt; is the &lt;strong&gt;&lt;em&gt;optimal choice&lt;/em&gt;&lt;/strong&gt; which maximizes utility based on the budget constraint &lt;strong&gt;&lt;em&gt;m&lt;/em&gt;&lt;/strong&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's noticed that both consumptions &lt;strong&gt;&lt;em&gt;x(p,t&lt;/em&gt;m)*&lt;/strong&gt; and &lt;strong&gt;&lt;em&gt;t&lt;/em&gt;x(p,m)*&lt;/strong&gt; are &lt;strong&gt;&lt;em&gt;feasible&lt;/em&gt;&lt;/strong&gt; based on the budget &lt;strong&gt;&lt;em&gt;t&lt;/em&gt;m*&lt;/strong&gt;. But &lt;strong&gt;&lt;em&gt;x(p,t&lt;/em&gt;m)*&lt;/strong&gt; is the &lt;strong&gt;&lt;em&gt;optimal&lt;/em&gt;&lt;/strong&gt; choice, we can get &lt;strong&gt;&lt;em&gt;U(x(p,t&lt;/em&gt;m)) ＞ U(t&lt;em&gt;x(p,m)).&lt;/em&gt;&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can &lt;strong&gt;&lt;em&gt;multiply by 1/t&lt;/em&gt;&lt;/strong&gt; both sides, which turns out to be &lt;strong&gt;&lt;em&gt;U(x(p,t&lt;/em&gt;m))/ t＞U(t&lt;em&gt;x(p,m))/ t&lt;/em&gt;&lt;/strong&gt;. &#xA;Since U(x) is &lt;strong&gt;&lt;em&gt;homogeneous of degree one&lt;/em&gt;&lt;/strong&gt; in x,  we can &lt;strong&gt;&lt;em&gt;put 1/t inside U(x),&lt;/em&gt;&lt;/strong&gt; which is &lt;strong&gt;&lt;em&gt;U(X(p,t&lt;/em&gt;m)/t)＞U(t&lt;em&gt;x(p,m)/t)=U(x(p,m)).&lt;/em&gt;&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Notice that &lt;strong&gt;&lt;em&gt;x(p,m)&lt;/em&gt;&lt;/strong&gt; is already &lt;strong&gt;&lt;em&gt;the optimal choice&lt;/em&gt;&lt;/strong&gt; based on the budget constraint &lt;strong&gt;&lt;em&gt;m&lt;/em&gt;&lt;/strong&gt;, but here we find &lt;strong&gt;&lt;em&gt;another optimal consumption x(p,t&lt;/em&gt;m)/t&lt;/strong&gt; . Contradicts.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So &lt;strong&gt;&lt;em&gt;x(p,t&lt;/em&gt;m) ＝ t&lt;em&gt;x(p,m).&lt;/em&gt;&lt;/strong&gt; And x(p,m) is  homogeneous of degree one in m.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;3.Because the preference is homothetic, &lt;strong&gt;&lt;em&gt;x(p,t&lt;/em&gt;m)=t&lt;em&gt;x(p,m),&lt;/em&gt;&lt;/strong&gt; which means that &lt;strong&gt;&lt;em&gt;m&lt;/em&gt;x(p)=m&lt;em&gt;x(p,1)=x(p,m)&lt;/em&gt;.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So &lt;strong&gt;&lt;em&gt;x(p,m)=m&lt;/em&gt;x(p)&lt;/strong&gt; where the demand is the linear function of the income.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I apologize for my rudeness.&lt;/p&gt;&#xA;" OwnerUserId="11050" LastEditorUserId="11050" LastEditDate="2016-11-12T16:42:05.677" LastActivityDate="2016-11-12T16:42:05.677" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="14184" PostTypeId="1" CreationDate="2016-11-10T08:41:06.200" Score="1" ViewCount="79" Body="&lt;p&gt;I expected the the dollar to briefly depreciate against all currencies when Trump won the election (in 2016), but I have just learned that it briefly appreciated against some. It depreciated against the Euro and Pound, but appreciated against the South African Rand and Australian Dollar. Why did the Rand and AUD depreciate against the dollar?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/Te59um.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Te59um.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&#xA;&lt;a href=&quot;http://www.xe.com/currencycharts/?from=ZAR&amp;amp;to=USD&amp;amp;view=1M&quot; rel=&quot;nofollow noreferrer&quot;&gt;Source&lt;/a&gt;&#xA;&lt;a href=&quot;https://i.stack.imgur.com/xZE1im.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/xZE1im.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&#xA;&lt;a href=&quot;http://www.xe.com/currencycharts/?from=AUD&amp;amp;to=USD&amp;amp;view=1M&quot; rel=&quot;nofollow noreferrer&quot;&gt;Source&lt;/a&gt;&#xA;&lt;a href=&quot;https://i.stack.imgur.com/rBjhwm.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/rBjhwm.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&#xA;&lt;a href=&quot;http://www.xe.com/currencycharts/?from=EUR&amp;amp;to=USD&amp;amp;view=1M&quot; rel=&quot;nofollow noreferrer&quot;&gt;Source&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="175" LastEditorUserId="1601" LastEditDate="2016-11-10T11:56:38.960" LastActivityDate="2016-11-10T16:36:36.997" Title="Did the dollar depreciate when Trump won the election?" Tags="&lt;international-trade&gt;&lt;exchange-rates&gt;&lt;international-economics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14185" PostTypeId="2" ParentId="14149" CreationDate="2016-11-10T10:17:01.290" Score="1" Body="&lt;p&gt;I would say it exhibits no returns to scale. What follows is a counter argument to the idea that it can exhibit returns to scale. A 'return to scale' means that production will change in response to a change in the input. A 'constant return to scale' is a straight-line function (or a portion thereof) including the origin (0, 0), with the input on the horizontal axis and the output on the vertical axis. That is, a directly proportional relationship. A 'decreasing return to scale' means that, as more and more of the input is used, production &lt;em&gt;changes&lt;/em&gt; with a decreasing effect. This means that the graph will have a gradient that gets more and more flat as the input increases. An 'increasing return to scale' means that production &lt;em&gt;changes&lt;/em&gt; with increasing effect as the input increases - a function who's gradient increases.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In conclusion, if the input has no effect on production, there is no 'return' from the input.&lt;/p&gt;&#xA;" OwnerUserId="175" LastEditorUserId="175" LastEditDate="2016-11-10T10:39:30.720" LastActivityDate="2016-11-10T10:39:30.720" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14186" PostTypeId="1" CreationDate="2016-11-10T10:35:16.283" Score="1" ViewCount="50" Body="&lt;p&gt;I recently had a discussion with a left-wing friend in the UK about about Brexit, and the possible repercussions of restriction of labour when the UK leaves Europe. He argued that as someone who is quite left-wing, he would be in favour of large tarrifs and other restrictions to prevent the flow of goods and capital, but little or no restrictions of the flow of labour between countries.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can anyone outline the repercussions of such a policy?&lt;/p&gt;&#xA;" OwnerUserId="11051" LastEditorUserId="61" LastEditDate="2016-11-10T21:07:42.787" LastActivityDate="2016-11-10T21:07:42.787" Title="Restrictions on goods and capital, but freedom of labour movement" Tags="&lt;labor-economics&gt;&lt;international-trade&gt;&lt;international-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14187" PostTypeId="2" ParentId="14136" CreationDate="2016-11-10T16:18:10.453" Score="5" Body="&lt;p&gt;Theoretically, multiperiod borrow and lend models I am familiar with suggest that an increase in ease of credit (increasing the credit supply) should increase demand. This in turn raises the price of housing. So I believe your intuition here is correct.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Empirically, I am only familiar with one paper analyzing this relationship, which finds the same thing. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;...because of geographic diversification, treated banks expand credit: Housing demand increases, house prices rise, but to a lesser extent in areas with elastic housing supply, where the housing stock increases instead.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Credit Supply and the Price of Housing&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Favara and Imbs (2014)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.jeanimbs.com/papers2_files/Favara_Imbs_May2014.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.jeanimbs.com/papers2_files/Favara_Imbs_May2014.pdf&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="4808" LastActivityDate="2016-11-10T16:18:10.453" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14188" PostTypeId="1" CreationDate="2016-11-10T16:23:37.180" Score="0" ViewCount="193" Body="&lt;p&gt;Given the following partial information about a consumer's purchases.He consumes only two goods.&#xA;&lt;strong&gt;In year 1&lt;/strong&gt;, $p_1^1=p_2^1=100,x_1^1=x_2^1=100$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;In year 2&lt;/strong&gt;, $p_1^2=100,p_2^2=80,x_1^2=120$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Over what range of quantities of good 2 consumed in year 2(i.e,$x_2^2$) could we conclude that good 1 is an inferior good.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I feel confused because I'm not informed the choices after a change in wealth under the same price system, neither under $(p_1^1,p_2^1)$ nor $(p_1^2,p_2^2).$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But the solution given by my TA is :&#xA;Since $x_1^1&amp;lt;x_1^2$, so we need $p^2x^1&amp;gt;p^2x^2$, that gives $0&amp;lt; x_2^2&amp;lt; 75$. I don't know where this argument comes from and whether it is true or not. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help are going to be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="6895" LastEditorUserId="6895" LastEditDate="2016-11-10T17:35:53.077" LastActivityDate="2016-11-14T18:06:06.803" Title="Identify whether a good is giffen good or not and under what condition" Tags="&lt;microeconomics&gt;&lt;giffen-goods&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14189" PostTypeId="2" ParentId="14184" CreationDate="2016-11-10T16:36:36.997" Score="-2" Body="&lt;p&gt;You might find the answer in &lt;a href=&quot;http://www.forex.com/uk/post?SDN=e8706682-d7d4-4b2c-bd3c-f05086eeaa5e&amp;amp;Pa=20db1fa6-e674-420c-9a87-2ee29261d638&quot; rel=&quot;nofollow&quot;&gt;this article&lt;/a&gt; on the Forex website. I hope it helps! &lt;/p&gt;&#xA;" OwnerUserId="11054" LastActivityDate="2016-11-10T16:36:36.997" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="14190" PostTypeId="2" ParentId="13894" CreationDate="2016-11-10T18:50:52.433" Score="3" Body="&lt;p&gt;The Russian economy has been in an recession since 2014, when oil prices plumited. The Russian debt to GDP ratio is still very low though:  below 20%, compared to over a 100 for the United States. This is because Russia had a huge stash of cash before the recession, which has shrunk from over 91 billion in 2014 to 32 billion. If this trend continues at some point they will have to start borrowing money to pay for expenses. But I don't see them going bankrupt anytime soon, because their debt to GDP ratio is so low so investors will lend them money against low interest rates.&lt;/p&gt;&#xA;" OwnerUserId="11032" LastEditorUserId="11032" LastEditDate="2016-11-10T19:32:26.073" LastActivityDate="2016-11-10T19:32:26.073" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="14191" PostTypeId="2" ParentId="13700" CreationDate="2016-11-10T20:02:25.547" Score="3" Body="&lt;p&gt;Profit, wage and rent are rewards for inputs used in production, they constitute a decomposition of Income (or the Income-decomposition of output produced)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Inheritance is a &lt;em&gt;transfer&lt;/em&gt;, it does not involve production. So it is invalid to try to fit it into the mentioned classification.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider now any gift: say I work, earn a wage in the form of consumer goods, and give them to you. The consumer goods I got as a wage is a reward for my labor. Giving them to you is a transfer of already produced output. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In inheritance, this output has already taken the form of assets rather than consumer goods.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2016-11-10T21:06:29.963" LastActivityDate="2016-11-10T21:06:29.963" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14192" PostTypeId="2" ParentId="14186" CreationDate="2016-11-10T21:02:35.207" Score="1" Body="&lt;p&gt;The proposed policy you are describing is akin to a basic International Microeconomics model with free immigration but immovable capital/goods. Assume two economies, $A$ and $B$, where in the one wages are higher, say $w_A &amp;gt; w_B$.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The basic results will be:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;1)&lt;/strong&gt; Immigration flows from economy $B$ to economy $A$ will continue until the wage is equated in both economies.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;2)&lt;/strong&gt; This common wage $w^*$ will be in between the previous two: $w_A &amp;gt; w^* &amp;gt; w_B$. This is because, as labor is concentrated in host Economy $A$ its marginal product falls and so is the wage, while as labor becomes more scarce in economy $B$ its marginal product and so the wage there increases.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The basic distributional consequences will be  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;1)&lt;/strong&gt; Workers from economy $B$, both those that emigrated to economy $A$ as well as those that &quot;stayed behind&quot;, will have higher wages than before.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;2)&lt;/strong&gt; Workers in the host economy $A$ will see their wage get lower compared to previously.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;3)&lt;/strong&gt; Capital holders in the host economy $A$ will see their returns increase&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;4)&lt;/strong&gt; Capital holders in the origin economy $B$ will see their returns decrease.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Introducing a dynamic aspect (capital accumulation, technological progress), would modify the above conclusions in the following way: immigration will partially &quot;hold back&quot; any increases in the host-economy wage, resulting in lower wage increases than what would happen without immigration.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So from the point of view of a host country like the UK is, under such a policy foreign workers (immigrants or not) and local capitalists will benefit, while local workers and foreign capitalists will get hurt. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In my eyes, the above constitute an interesting framework to contemplate the ideological principles alluded to by the OP, but this is a discourse that does not belong to this site.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2016-11-10T21:02:35.207" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14193" PostTypeId="2" ParentId="13894" CreationDate="2016-11-10T21:24:42.440" Score="1" Body="&lt;p&gt;I encourage you to look into the recent economic sanctions that have been placed on Russia, it has put a huge strain on Russia's ability to borrow money from abroad and is a huge contributor to their dire situation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You know that GDP= C + I + G + (X-M) and just how interconnected all of these factors are.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We would think that the height of the Russian economy was in 2008 during which their economy was growing at 7% a year that investment would reflected their expectation to continue to grow at that level. It would not, collapsing demand of a major industry (petro and gas constituted half of its budget revenues and 70% of its exports lie in hydrocarbons) lead to drastic decline in government revenue -G is declining. From 2014 to 2016, their energy revenues have continued to decline from 7 trillion rubles to 6 trillion rubles despite massive inflation that could still be within the double digits for CPI in 2016.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why is inflation increasing? &#xA;One reason it has been so high is that during the currency devaluation, Russia banned imports in some key categories such as food (this point is relevant later when we discuss consumer's fear of inflation as a cause of shortages of essentials) causing this increase in prices. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What effect does this inflation have on the Russian economy in a basic sense? Let's start with consumer behavior; high inflation is known to distort it as individuals in fear of continued price hikes and diminishing purchasing power they will stock up on essential goods. &lt;a href=&quot;http://www.nber.org/chapters/c8887.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Here is a link to an article that determines if shortages can be predictors of long term inflation&lt;/a&gt;.&#xA;Secondly, it affects the fixed income earners and those that lack control over their wage levels, this is more often than not, the poorest individuals in society that will hurt the most.&#xA;In order to combat this high inflation rate and in order to maintain a ROI we would expect the interest rates to rise. By god has it; the Russian Central bank's interest rate stands at 10.5%.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The economist reported that Russia's gross fixed investments have dropped from $197 billion to $126 billion yearly in the last four years. If we simplify it down, then each year we expect that a country must at least offset their depreciation of assets in order to remain at least at the same level of production.&#xA;You then have to dive a bit into estimating the depreciation of assets within the Russian economy, they currently break it down I think into 7 categories of depreciation. These rates of depreciation range from 10%-30% amongst assets in the groups 3-7. If I had information on the asset value in each of these depreciation it would be easier but with depreciation of assets and the steep decline of investments there should be sharp drops in the production capacity of the Russian economy that could last for years while businesses struggle to finance investment as their economy begins to rebound as the sharp decline of the rubble in exchange markets spurs exports further. As another barrier I expect that investment will continue to decline as the central bank's 10.5% interest rate and uncertainty amongst consumer demand makes it hard to justify further investment for businesses.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Its tough out there, this is probably why the Russians were toasting to Donald Trump the other day in hopes to mend relations and relax the sanctions that were placed on them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I wish I had more time to make this clearer and to drilldown on more points but I simply don't have any time; hopefully it spurs you to look into things further.&lt;/p&gt;&#xA;" OwnerUserId="11057" LastActivityDate="2016-11-10T21:24:42.440" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="14195" PostTypeId="2" ParentId="14162" CreationDate="2016-11-11T07:26:45.497" Score="1" Body="&lt;p&gt;Elasticities tell economists how responsive changes in price are to changes in quantity, and this is useful because it tells you whether revenue will increase or decrease. Suppose you are the owner if a firm that is interested in expanding. It will be more informative for you to know that if you expand your production by 20%, the prices of your products will decrease by only 10% than to know that if you produce two more units per week, the price will drop by $1.00. The first description is informative because it tells you whether your revenue will increase or not (in this case it will, because demand is price elastic), whereas the second is an absolute reference which requires further calculation in order to understand what it means for your business.&lt;/p&gt;&#xA;" OwnerUserId="175" LastActivityDate="2016-11-11T07:26:45.497" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14196" PostTypeId="2" ParentId="14172" CreationDate="2016-11-11T07:58:36.140" Score="0" Body="&lt;p&gt;The demand curve is a function that shows the relationship between price and quantity demanded. This curve is made up of an infinite number of points, with each point corresponding to two pieces of information: a price and the quantity that would be demanded at that price. If you consider a different price, you only need to then consider a different point on this curve - so there would be a movement along the curve if the price changes. We say that price is endogenous to the model.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When the demand curve was constructed, some other factors were assumed to be constant. These are the factors that do not appear directly on the graph (like price), but are behind the scenes. So, for example, if you want to consider how government expenditure affects a demand curve, you would need to draw a different demand curve based on the different level of G, because G is assumed to be constant for any one particular demand curve. We say that these other factors are exogenous to the model.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reason why taxes on production shift the supply curve upwards is because they increase the cost of production. Those costs need to be added onto the price of the product, so the price increases for any particular quantity.&lt;/p&gt;&#xA;" OwnerUserId="175" LastActivityDate="2016-11-11T07:58:36.140" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14197" PostTypeId="1" CreationDate="2016-11-11T08:30:45.140" Score="9" ViewCount="230" Body="&lt;p&gt;Humans tend to be overconfident in their predictions; when most people say that there's a 95% chance that something will happen, they're usually wrong far more than 5% of the time.  Whereas what ought to happen is that for all $x$, if a person makes a lot of predictions of the form &quot;There is an $x\%$ chance that P will occur,&quot; then about $x\%$ of them should come true.  If a person's predictions does satisfy this property, then their subjective probabilities are said to be &lt;a href=&quot;https://en.m.wikipedia.org/wiki/Calibrated_probability_assessment&quot; rel=&quot;noreferrer&quot;&gt;well-calibrated&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now there may be no one who is perfectly well-calibrated, but some people are better than others; see the book &lt;a href=&quot;https://en.wikipedia.org/wiki/Superforecasting&quot; rel=&quot;noreferrer&quot;&gt;&quot;Superforecasting&quot;&lt;/a&gt; for information on people who are extremely well-calibrated.  But calibration isn't something fixed from birth; you can train yourself to be better-calibrated by playing a game where you assign a probabilities to a bunch of things and then you're scored by how well-calibrated your subjective probabilities are (using e.g. &lt;a href=&quot;https://en.wikipedia.org/wiki/Brier_score&quot; rel=&quot;noreferrer&quot;&gt;the Brier score&lt;/a&gt;).  See &lt;a href=&quot;http://calibratedprobabilityassessment.org&quot; rel=&quot;noreferrer&quot;&gt;this web site&lt;/a&gt; and &lt;a href=&quot;http://rationality.org/calibration/&quot; rel=&quot;noreferrer&quot;&gt;this website&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But my question is, why is it possible to become well-calibrated using such a game?  Let $A$ be the set of possible events $f$ be a function from $A$ to $\mathbb R$ that gives a numerical assessment of how confident a person feels about a given event.  Then what playing the game is designed to do is to help you find an increasing function $g$ from $\mathbb R$ to $[0,1]$ such that $g \circ f$ is well-calibrated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But in order for such a $g$ to exist, it needs to be the case that for all $x,y \in \mathbb R$, if $x&amp;gt;y$ then the percentage of outcomes in $\{P \in A: f(P) =x\}$ which are true needs to be greater than the percentage of outcomes in $\{P \in A: f(P) =y\}$ which are true.  In other words, it needs to already be true that you're right more often about statements that you're more confident in than statements you're less confident in.  But why should this be the case?  Are there any decision-theoretic assumptions or rationality axioms that imply this is the case?  Has it been empirically observed that humans are more often right about what they're more confident in?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It would certainly be a useful evolutionary skill if humans' internal confidence levels reflected external reality, but I've never heard of anyone discuss this before.&lt;/p&gt;&#xA;" OwnerUserId="4447" LastEditorUserId="4447" LastEditDate="2016-12-07T16:12:07.713" LastActivityDate="2020-08-19T11:03:00.453" Title="Why is it possible to calibrate your subjective probabilities?" Tags="&lt;decision-theory&gt;&lt;expected-utility&gt;&lt;probability&gt;" AnswerCount="1" CommentCount="5" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="14198" PostTypeId="2" ParentId="14174" CreationDate="2016-11-11T08:57:27.163" Score="0" Body="&lt;p&gt;This is a very patchy answer due to the patchy nature of the question.&#xA;To me it seems that it is being tried to link behavioural economics to the million dollar question of why some countries are rich and others not.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First of all let's put forward what behavioural economics actually tries to do: it aims to explain divergences of economic decision making from what standard neo-classical theory would predict.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now to the part of why some countries &quot;lead&quot; and others don't: we still don't know nearly everything concerning that question, but usually two major factors are being put forward: culture &amp;amp; institutions (and very recently there is a strand of literature that tries to make the point that (random) historical events had quite an impact as well - this would correspond to the &quot;luck&quot; point in e.g. Acemoglu's textbook).&#xA;There is still a debate ongoing whether it was culture or institutions between people like Acemoglu, Rodrik, Sachs, Shleifer... Recently there was one between Joel Mokyr and Deirdre McCloskey on institutions which later was published in the Journal of Institutional Economics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The only thing where behaviour could potentially play in is the culture part. This term is not well-defineable of course, but loosely speaking we mean everything which relates to social- and societal-norms. One important of this cultural component is trust. Trust in government but most importantly mutual trust. The powerful implication for development would be that if people do not trust each other (nor the government), sound businessmaking is rather impossible. When people don't trust each other they don't engage in all kinds of things that usually tend increase a countrys productivity etc... These parameters have been tried to measure through individual surveys like the World Value Survey (WVS). Economists then found empirical evidence later on for the things I described above.&#xA;Which brings me to the last part: &quot;Theories or analysis?&quot;. I think you rather meant to say theory or empirics. Usually those questions are tackled through empirical investigations.&lt;/p&gt;&#xA;" OwnerUserId="4087" LastActivityDate="2016-11-11T08:57:27.163" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14199" PostTypeId="1" CreationDate="2016-11-11T10:33:02.843" Score="3" ViewCount="580" Body="&lt;p&gt;The Fisher formula for interest rate parity, as explained &lt;a href=&quot;https://en.wikipedia.org/wiki/International_Fisher_effect&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; shows that for a given currency pair, the currency with the higher interest rate will depreciate relative to the the currency with the lower interest rate, over a given period of time, for it not then riskless arbitrage is possible. In other words, &lt;strong&gt;higher interest, weaker currency&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, there is another point of view, as given &lt;a href=&quot;http://www.investopedia.com/ask/answers/040315/how-do-changes-national-interest-rates-affect-currencys-value-and-exchange-rate.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;, that if a country hikes interest rates, then its currency will appreciate, as there will be increased demand for that currency in order to enjoy higher returns, carry-trade style. In other words,&lt;strong&gt;higher interest, stronger currency&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question here is - which is correct? Or are there other assumptions which have not been accounted for here?&lt;/p&gt;&#xA;" OwnerUserId="11059" LastEditorUserId="1601" LastEditDate="2016-11-11T17:36:15.370" LastActivityDate="2016-11-12T10:15:18.803" Title="Interest Rate Differential and Fisher's Interest Rate Parity" Tags="&lt;interest-rate&gt;&lt;exchange-rates&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14200" PostTypeId="2" ParentId="14199" CreationDate="2016-11-11T11:14:11.567" Score="0" Body="&lt;p&gt;The International Fisher Effect (which is not to be confused with the &quot;standard&quot; Fisher Effect that relates differences between nominal and real interest rates to expected inflation) looks at pairs of two countries. So it's not a general statement that higher interest rates &lt;strong&gt;always&lt;/strong&gt; lead to a weaker currency.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your second point describes the more generally observed phenomenon in international economics that higher interest rates might attract investors, thus the demand for the respective currency goes up which leads to an increase in exchange rates.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How - or if - the two effects interact depends on which country pairs you are looking at.&lt;/p&gt;&#xA;" OwnerUserId="4087" LastEditorUserId="4087" LastEditDate="2016-11-12T10:15:18.803" LastActivityDate="2016-11-12T10:15:18.803" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14203" PostTypeId="2" ParentId="11617" CreationDate="2016-11-11T15:08:00.553" Score="2" Body="&lt;p&gt;You have done two different things.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your fixed-effects model captures the &lt;strong&gt;within-group&lt;/strong&gt; over-time functional relationship between $debt_{it}$ and $y_{it}$ (that is, how much average difference in $y_{it}$ is there between two periods with a 1-unit difference in $debt_{it}$ within a country). In your data, there is limited within-group variability in $debt_{it}$, which probably lead to a large standard error and a resulting insignificance.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your reasoning about the correlation between the fixed effects and the explanatory variable is about the &lt;strong&gt;cross-sectional&lt;/strong&gt; functional relationship. You found that &lt;em&gt;countries&lt;/em&gt; with higher $debt_{it}$ have higher $y_{it}$ values (as opposed to &lt;em&gt;periods&lt;/em&gt; with higher $debt_{it}$ having higher $y_{it}$ within a country). This is &lt;em&gt;not&lt;/em&gt; what you originally intended to investigate when you set up your fixed-effects model.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your Hausman test says that the within-group functional relationship and the cross-sectional functional relationship are different.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That said, yes, it is true that &quot;a higher debt does result in higher interest rate spreads&quot;, but it is true only in the specific sense that &quot;countries with higher debts show higher interest rate spreads&quot;. You should be careful when saying &quot;result in&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Overcoming the issue of limited over-time variation and having significant results is hard. There is no magic. Abandon the fixed effects model, and try to control for many time-varying and time-invariant regressors, enough for you to argue that you controlled for most country-specific factors. (You can use RE or POLS estimation.) People might still criticize that you didn't control for enough factors, but you will need to defend yourself somehow. You could also move over to dynamic models or others, but that's a different story.&lt;/p&gt;&#xA;" OwnerUserId="10775" LastActivityDate="2016-11-11T15:08:00.553" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14205" PostTypeId="2" ParentId="14199" CreationDate="2016-11-11T16:29:14.627" Score="1" Body="&lt;p&gt;I hesitate to mark this question as a duplicate (of &lt;a href=&quot;https://economics.stackexchange.com/q/4914/61&quot;&gt;&lt;strong&gt;this one&lt;/strong&gt;&lt;/a&gt;), but my answer will in part be a replication of part of my answer there.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's write the Uncovered Interest Rate Parity expression&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$(1+i_{A,t}) = \frac {S^e_{A|B, t+1}}{S_{A|B, t}} (1+i_{B,t})$$&#xA;where $S_{A|B}=$ &lt;strong&gt;units of currency A per unit of currency B&lt;/strong&gt;.&#xA;This is the claim.  The numerator is the expected future exchange rate&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume that $i_{A,t} &amp;gt; i_{B,t}$. Standard economic logic (and a few assumptions on ability to invest over borders), says that then investors would want to invest in country A. To do that they will increase demand for currency A. This should lead to &lt;em&gt;appreciation&lt;/em&gt; of currency A. Does the UIRP say something like that?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If $$i_{A,t} &amp;gt; i_{B,t} \implies 1+i_{A,t} &amp;gt; 1+i_{B,t}$$&#xA;and so the UIRP asserts that we must have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {S^e_{A|B, t+1}}{S_{A|B, t}} &amp;gt; 1 \implies S^e_{A|B, t+1} &amp;gt; S_{A|B, t}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given how $S$ was defined the last inequality means that &lt;em&gt;we expect that the currency will depreciate&lt;/em&gt;. Indeed, &lt;em&gt;in the future&lt;/em&gt;. Because, &lt;em&gt;what is affected in the first place by the reaction of the investors is $S_{A|B, t}$, &lt;strong&gt;not&lt;/strong&gt; $S^e_{A|B, t+1}$&lt;/em&gt;. The reaction of the investors will &lt;em&gt;decrease&lt;/em&gt; $S_{A|B, t}$ (which reflects the appreciation of currency A), creating expectations of future depreciation, i.e. leading to $S^e_{A|B, t+1} &amp;gt; S_{A|B, t}$, as the UIRP asserts. &lt;em&gt;Why&lt;/em&gt; should we expect depreciation of currency A in the future, compared to the present? Because the inflow of funds in country A will eventually pressure $i_{A,t}$ downwards, investors will stop loving currency A so much, demand for it will eventually fall, hence eventual depreciation.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The UIRP therefore compacts &lt;em&gt;two&lt;/em&gt; effects from a discrepancy in interest rates: a first effect of currency appreciation and a second (expected) effect of currency depreciation in the future.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Apart from that explanation, I note that the link discussing the tendnecy to appreciate says also explicitly&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;&lt;em&gt;However, this simple equation is complicated by a host of other&#xA;  factors that impact currency value and exchange rates. One of the&#xA;  primary complicating factors is the interrelationship that exists&#xA;  between higher interest rates and inflation. If a country can manage&#xA;  to achieve a successful balance of increased interest rates without an&#xA;  accompanying increase in inflation, then the value and exchange rate&#xA;  for its currency is more likely to rise.&lt;/em&gt;&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In other words, the very link that talks about currency appreciation qualifies this to be subject to the fact that higher nominal interest rate does not result in higher expected domestic inflation (this alludes to the Fisher Hypotesis that the difference between the nominal interest rate and the real one is the expected inflation). This qualification essentially says that in order for the initial currency appreciation to &lt;em&gt;persist&lt;/em&gt;, we must have differences in the real economy (i.e. that a higher nominal interest rate reflects a higher real interest rate rather than higher expected inflation).&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2016-11-11T16:35:12.780" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14212" PostTypeId="1" CreationDate="2016-11-12T17:31:45.543" Score="6" ViewCount="263" Body="&lt;p&gt;I'm working on analysing experimental data for a thesis project. The data consists of subjects performing the same task over five rounds, and I'm interested in the difference in trends between subjects in two different treatments. The two treatments are identical until round 3. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I planned on using a diff-in-diff model to estimate the difference of Effort levels of subjects across these treatments. The problem is, I have five rounds, two of which are before-treatment and three of which are after-treatment. Currently, I'm using this specification, but I'm not sure if it's correct:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;Effort_{it}=\beta _{0} + \beta_{1}Treatment_{i}+\sum_{n=2}^{5}\beta _{n}Roundn_t+\beta_6Treatment*After_{it}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where treatment is a dummy for being in the treatment groub, Roundn is a dummy for being in Round N, and Treatment*After is an interaction dummy for being in the treatment group after round 2 (when the treatment &quot;begins&quot;). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm confused mostly on what to do with the different time periods. Would it be best to use dummies for each round like above, or to just include a Round variable that is equal to the number of the round. Also should I just include one interaction term, or one for each round?&lt;/p&gt;&#xA;" OwnerUserId="11072" LastEditorUserId="1601" LastEditDate="2016-11-13T17:24:13.767" LastActivityDate="2017-06-11T21:58:07.893" Title="How to specify a Diff-In-Diff Regression with multiple time periods?" Tags="&lt;econometrics&gt;&lt;regression&gt;&lt;experimental-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14213" PostTypeId="1" CreationDate="2016-11-12T18:52:25.480" Score="1" ViewCount="22" Body="&lt;p&gt;Consider a mechanism $M: \mathcal{R} \rightarrow X$, where&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;$\mathcal{R}$ is a domain of preference profiles $R = (R_1,\dots, R_n)$, and&lt;/li&gt;&#xA;&lt;li&gt;$X$ is a set of outcomes.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I believe that the following is a folk theorem&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;If the domain $\mathcal{R}$ is a cartesian domain, i.e., $\mathcal{R} = \times_{i\in \{1,\dots,n\}} \mathcal{R}_i$, for some collection of individual domains $(\mathcal{R}_1,\dots, \mathcal{R}_n)$ and the game $(M,R)$ has a truthful Nash equilibrium for &lt;em&gt;every&lt;/em&gt; profile $R \in \mathcal{R}$, then for every profile $R\in \mathcal{R}$, every player has a truthful dominant strategy in the game $(M,R)$.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This is not hard to prove and follows almost directly by definition, but I'd rather include a reference than a proof. I think I remember seeing this result proven somewhere (in a paper by Morris et al.?), but I cannot find that paper anymore.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Do you know any reference of a paper where that result (or a similar result) would be proven?&lt;/p&gt;&#xA;" OwnerUserId="38" LastEditorUserId="38" LastEditDate="2016-11-12T19:05:30.097" LastActivityDate="2016-11-12T19:05:30.097" Title="Reference for truthful Nash on cartesian domain implies strategy-proofness" Tags="&lt;reference-request&gt;&lt;nash-equilibrium&gt;&lt;dominant-strategy&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14214" PostTypeId="1" CreationDate="2016-11-12T21:41:01.403" Score="3" ViewCount="1124" Body="&lt;p&gt;I was hoping someone could clarify what exactly is meant when someone refers to a country as having undergone a 'supply-side shock' and generally speaking when one is evaluating the health or growth of an economy, what is meant by the supply side of the economy vs. the demand side of it? Which components of GDP are considered as which? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Despite a lot of googling, it has been pretty difficult to find answers to this as most results are either in a micro-context or fail to provide examples of these things as well as their consequences.&lt;/p&gt;&#xA;" OwnerUserId="11075" LastActivityDate="2016-11-13T19:18:02.227" Title="What is a supply side shock in macroeconomics?" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;&lt;economic-growth&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14215" PostTypeId="2" ParentId="14214" CreationDate="2016-11-12T21:54:34.697" Score="3" Body="&lt;p&gt;In the framework of the ISLM model, a supply shock would be defined as any exogenous force that affects the ability of an economy to produce its natural level of output, this ability is represented by a production function that often relies on available resources and production technology. Therefore, any factors affecting the availability of resources or technology will be considered a supply shock (e.g. Drought and crops). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand, a demand shock acts on aggregate demand by influencing planned expenditure by economic actors or the amount of real money balances that economic actors desire to hold.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In short, if it affects available production inputs or production technology, it's a supply shock.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Notice that the GDP is just a measure of all goods and services produced in an economy for a given period of time. If you use the expenditure approach to GDP (Y = C + I + G + NX), a supply shock will not immediately act on this formula, rather it affects the formula Y=F(&lt;strong&gt;X&lt;/strong&gt;) (where &lt;strong&gt;X&lt;/strong&gt; is a vector representing production inputs). But note that the two formulas, meaning the two &quot;Y&quot;'s must equal each other, therefore, there will be changes in the first equation to match the second equation at some level of Y. However, you can't differentiate these changes from changes arising due to a demand shock unless you have the whole story. You can't just look at &quot;C&quot; for instance, and assume that any changes in &quot;C&quot; resulted from a supply shock.&lt;/p&gt;&#xA;" OwnerUserId="11008" LastEditorUserId="11008" LastEditDate="2016-11-13T19:18:02.227" LastActivityDate="2016-11-13T19:18:02.227" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14216" PostTypeId="1" CreationDate="2016-11-12T22:51:08.043" Score="2" ViewCount="76" Body="&lt;p&gt;I'm not sure if this is the right place to post this, since my question is a bit more general to all of social sciences (indeed sciences in general), but I figured since Economics is a social science and since the question I have is somewhat economics related someone here might have an idea.  I am a statistician but work with a lot of economists who test various economic theories through observational data (not experimentation).  Some of the &quot;studies&quot; I've seen carried out recently concern me because it seems, no matter the findings our outcomes, one particular researcher tries to tie the specific results back to a pet theory of his.  In other words, the hypotheses are not clearly laid out in advance, but he looks at some data and if it shows 1 thing, he's say, Ah-ha, that is because my theory explains it.  But if the same data showed just the opposite finding, he's still say, ah-ha, this is because my theory explains it!  Specifically, let's say he compares 2 items for purchase that are identical in all physical aspects but one.  If the price of item A is higher than price B, he's explain it with this theory.  But if price of item A is &lt;strong&gt;lower&lt;/strong&gt; than B, he'd simply twist his theory to to explain it as well.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there a name for this?  It sounds like confirmation bias a bit, but not quite.  I'm just curious if there is a name for this way of manipulating the findings to fit a narrative?  Any ideas would be greatly appreciated.&lt;/p&gt;&#xA;" OwnerUserId="11076" LastActivityDate="2016-11-16T21:50:58.653" Title="Economic Confirmation Biases" Tags="&lt;consumer-theory&gt;&lt;theory&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14217" PostTypeId="2" ParentId="14216" CreationDate="2016-11-12T22:59:46.930" Score="2" Body="&lt;p&gt;I think the general name for it is 'being a charlatan'.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hypotheses need to be put forward before testing. This is unfortunately not common practice in economics, as we do not have trials like other disciplines. The commonly used historical data is frequently available in the secrecy of one's home, so no one can tell if I have already performed some tests on the data before putting my hypothesis forward.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2016-11-12T22:59:46.930" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14218" PostTypeId="1" CreationDate="2016-11-13T01:13:59.697" Score="2" ViewCount="583" Body="&lt;p&gt;Here is the question:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A firm produces one output commodity. The cost of producing and selling $x$ units and spending $y$ dollars on advertising is $C = cx + y + d$. The resulting quantity demanded is given by $x = \gamma ap + b + R(y)$ where $p$ is the price per unit. We assume that $R(0) = 0, R′(y) &amp;gt; 0$ and $R′′(y) &amp;lt; 0$. The constants $a, b, c, d$ are all positive.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Determine the profit function from selling $x$ units and spending $y$ dollars on advertising; call it $\pi(x, y)$.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Write and solve the following system of equations:&#xA;$$\frac{\partial \pi(x^*,y^*)}{\partial x} = 0$$&#xA;$$\frac{\partial \pi(x^*,y^*)}{\partial y} = 0$$&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;where $x^* &amp;gt; 0$ and $y^* &amp;gt; 0$ represent the number of units sold and amount spent on advertisement that maximize profits. In this case, solving the system means finding one equation that only depends on $y$, the function $R(\cdot)$ (and its derivative), and the parameters of the problem $(a, b,...)$ - in other words an equation where $x^*$ has disappeared.&lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;3&quot;&gt;&#xA;&lt;li&gt;The equation found in the previous question defines $y^*$ implicitly as function of $a, b,$ and $c$. Find $\frac{\partial y}{\partial b}$ by implicit differentiation.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Embarrassingly, my problem seems to be with the profit function. If we get a revenue function by $p \cdot x$ we are left only with an $x$ in the cost function, I cannot figure out how to get a profit function which would result in $y^*$ as a function of $b$. Anyone know what I'm doing wrong?&lt;/p&gt;&#xA;" OwnerUserId="11077" LastEditorUserId="4251" LastEditDate="2016-11-15T05:38:53.907" LastActivityDate="2016-11-15T05:52:48.870" Title="Implicit Differentiation &amp; Profit Function" Tags="&lt;mathematical-economics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14219" PostTypeId="1" CreationDate="2016-11-13T01:51:09.920" Score="1" ViewCount="62" Body="&lt;p&gt;Using Deflation index to create constant 2000 dollars, if I am finding a variable that is a ratio of that variable to GDP (say, income tax revenues), how do I go about this? Should I first divide my GDP variable for each year by the respective index value, then do the same for the income tax revenue variable, and then take the ratio of these newly adjusted variables? Or should I first find the ratio variable, income tax revenue/GDP, then divide this by the deflation index to form a constant dollar variable?&lt;/p&gt;&#xA;" OwnerUserId="11078" LastActivityDate="2017-03-13T14:48:04.653" Title="Adjusting a ratio variable to constant 2000 dollars using a deflator index" Tags="&lt;macroeconomics&gt;&lt;econometrics&gt;&lt;inflation&gt;&lt;time-series&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14220" PostTypeId="1" CreationDate="2016-11-13T05:19:49.243" Score="3" ViewCount="189" Body="&lt;p&gt;A cynic would attribute the disparity (and the failures to gentrify) to indifference or inattention, (or worse) disdaining neglect or ignoring, by the politicians and rich of the poor in the poor areas. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I exemplify with cities whose disparities I have witnessed, followed by links to the maps overlaying location with income, but I exclude downtown areas which always appear rich:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;New York: (Lower) Manhattan vs. The Bronx and Brooklyn (e.g. Bedford-Stuyvesant, Bushwick) &#xA;&amp;lt;&lt;a href=&quot;https://www.google.com/search?biw=1536&amp;amp;bih=678&amp;amp;tbm=isch&amp;amp;sa=1&amp;amp;q=new+york+city+income+map&amp;amp;oq=new+york+city+income+map&amp;amp;gs_l=img.3..0.8612.9290.0.9415.5.5.0.0.0.0.114.364.4j1.5.0....0...1c.1.64.img..1.1.113.78E7jD2icjQ#imgrc=_&quot; rel=&quot;nofollow noreferrer&quot;&gt;Google search&lt;/a&gt;: &lt;a href=&quot;https://www.reddit.com/r/MapPorn/comments/1rln3c/income_map_of_nyc_overlayed_with_the_location_of/&quot; rel=&quot;nofollow noreferrer&quot;&gt;1&lt;/a&gt;, &lt;a href=&quot;http://www.lahistoriaconmapas.com/atlas/city-map/new-york-map-by-income.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;2&lt;/a&gt;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;London (Boroughs): Hammersmith &amp;amp; Fulham, Kensington &amp;amp; Chelsea, Westminster&lt;br&gt;&#xA;vs. Hackney, Tower Hamlets, and the southern boroughs like Lewisham, Croydon.&lt;br&gt;&#xA;&amp;lt;&lt;a href=&quot;https://www.google.com/search?q=london+income+map&amp;amp;source=lnms&amp;amp;tbm=isch&amp;amp;sa=X&amp;amp;ved=0ahUKEwjji_iR-aTQAhVDo5QKHWUgCmoQ_AUICCgB&amp;amp;biw=1536&amp;amp;bih=678&quot; rel=&quot;nofollow noreferrer&quot;&gt;Google search&lt;/a&gt;: &lt;a href=&quot;http://www.futureoflondon.org.uk/2015/08/12/affordability/&quot; rel=&quot;nofollow noreferrer&quot;&gt;3&lt;/a&gt;, &lt;a href=&quot;http://www.londonspovertyprofile.org.uk/indicators/topics/work-and-worklessness/unemployment-map/&quot; rel=&quot;nofollow noreferrer&quot;&gt;4&lt;/a&gt;, &lt;a href=&quot;http://www.londonhigher.ac.uk/fileadmin/images/shell/map_big.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;5&lt;/a&gt;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Toronto: Midtown (along Yonge St. subway line, like Lawrence Park) vs. Jane &amp;amp; Finch, Rexdale&#xA;&amp;lt;&lt;a href=&quot;https://www.google.com/search?q=toronto+income+map&amp;amp;source=lnms&amp;amp;tbm=isch&amp;amp;sa=X&amp;amp;ved=0ahUKEwjk57v7_KTQAhULlZQKHflzCZEQ_AUICCgB&amp;amp;biw=1536&amp;amp;bih=678&quot; rel=&quot;nofollow noreferrer&quot;&gt;Google search&lt;/a&gt;: &lt;a href=&quot;http://spacing.ca/toronto/wp-content/uploads/sites/4/2014/10/2014-Mayoral-Vote-and-INCOME-and-THREE-CITIES-Table-and-NCRP-4-maps-3.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;6&lt;/a&gt;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Vancouver: West &amp;amp; North Vancouver, &lt;a href=&quot;https://en.wikipedia.org/wiki/List_of_neighbourhoods_in_Vancouver&quot; rel=&quot;nofollow noreferrer&quot;&gt;West Side, South Vancouver&lt;/a&gt; vs. Downtown East Side, Surrey&lt;br&gt;&#xA;&amp;lt;&lt;a href=&quot;https://www.google.com/search?q=vancouver+income+map&amp;amp;biw=1536&amp;amp;bih=678&amp;amp;source=lnms&amp;amp;sa=X&amp;amp;ved=0ahUKEwiByMOE-6TQAhXDqJQKHcfqAwkQ_AUIBygA&amp;amp;dpr=2.5&quot; rel=&quot;nofollow noreferrer&quot;&gt;Google search&lt;/a&gt;: &lt;a href=&quot;http://www.vancouversun.com/news/metro-mapped/index.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;the Vancouver Sun&lt;/a&gt; has many maps.&gt;&lt;/p&gt;&#xA;" OwnerUserId="4020" LastActivityDate="2017-01-18T11:19:39.050" Title="Why do cities with rich areas still contain poor areas?" Tags="&lt;poverty&gt;" AnswerCount="3" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="14221" PostTypeId="1" CreationDate="2016-11-13T05:53:02.133" Score="1" ViewCount="140" Body="&lt;p&gt;So I was replicating the results obtained in section 4 of &lt;a href=&quot;https://minneapolisfed.org/~/media/files/research/prescott/papers/timetobuild.pdf?la=en&quot; rel=&quot;nofollow noreferrer&quot;&gt;Prescott's original paper&lt;/a&gt;, which derives optimality conditions in steady state without shock. I hope to solve the social planner's maximization problem by using the method of Lagrange. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;An important feature in Prescott's model is that capital is built in multiple periods and each project costs resources, i.e., a fraction of output, in each intermediate period. My question is that how to formulate this constraint into the Lagrangian so I can solve the system of equations of FOC? Here is what I have now:&#xA;\begin{multline}&#xA;	\mathcal{L}=\sum_{t=0}^\infty\beta^tu(c_t,\alpha(L)l_t) -\sum_{t=0}^\infty\lambda_{1t} \left( k_{t+1} - (1-\delta)k_t-s_{1t}\right)  &#xA;	-\sum_{t=0}^\infty\lambda_{2t}\left(i_t-\sum_{j=1}^J \varphi_j s_{jt}+y_{t+1}-y_{t}\right) \\&#xA;	-\sum_{t=0}^\infty\lambda_{3t}\left(c_t+i_t- f(\lambda_t,k_t,n_t,y_t)\right)&#xA;	-\sum_{t=0}^\infty\sum_{j=1}^{J-1}\left[\lambda_{j+3,t}\left(\sum_{t=0}^\infty s_{j,t+1}-s_{j+1,t}\right)\right]\\&#xA;\end{multline}&#xA;where $s_{j,t}$ is the investment project that takes $j$ more periods to complete as of time $t$ and $y_t$ is the stock of inventory at time $t$. For the purpose of this question, let's ignore the lag polynomial $\alpha(L)$ and assume it to be have effect on $l_t$. Note that $l_t$ is leisure and $1-l_t=n_t$ is labor input where time is normalized to 1. In addition, output goes to inventory, consumption, and capital projects. I have tried to use the following substitutions:&#xA;\begin{align}&#xA;	k_{t+1} &amp;amp;= (1-\delta)k_t + s_{J,t-(J-1)}\\&#xA;	i_t&amp;amp;=\left(\sum_{j=1}^J \varphi_j s_{J,t-(J-j)}\right)+y_{t+1}-y_{t}&#xA;\end{align} &#xA;which allows me to get rid to the last term in $\mathcal{L}$. However, I still do not seem to be making any progress. It will be great if you can give me suggestions on formulation of my lagrangian and what FOCs will give me the steady state consumption, capital stock.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT: I tried many online lecture notes, but none of them seem to want to deal with Prescott's time to build formulation and alike...&lt;/p&gt;&#xA;" OwnerUserId="4551" LastActivityDate="2016-11-15T17:08:12.023" Title="How to deal with Prescott's formulation of time to build in his original RBC model?" Tags="&lt;macroeconomics&gt;&lt;dynamic-programming&gt;&lt;real-business-cycles&gt;&lt;rbc&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="14222" PostTypeId="1" CreationDate="2016-11-13T07:00:25.477" Score="0" ViewCount="41" Body="&lt;blockquote&gt;&#xA;&lt;p&gt;In relation to an ordinary employee, the Prime Minister of Australia pays?&lt;/p&gt;&#xA;&lt;p&gt;a) the same marginal tax rate&lt;/p&gt;&#xA;&lt;p&gt;b) a higher marginal tax ate&lt;/p&gt;&#xA;&lt;p&gt;c) a lower marginal tax rate&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;My answer for this was a), as it was explained to me that 'marginal tax rates' refers to the tables that are used to calculate tax, but others are debating whether it is b), as the Prime Minister typically falls under a higher tax bracket than others. Would someone care to explain?&lt;/p&gt;&#xA;" OwnerUserId="11080" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2016-11-25T19:17:53.433" Title="Marginal tax rate question" Tags="&lt;taxation&gt;&lt;marginal&gt;" AnswerCount="1" CommentCount="0" ClosedDate="2016-11-25T20:09:13.493" ContentLicense="CC BY-SA 3.0" />
  <row Id="14223" PostTypeId="2" ParentId="14220" CreationDate="2016-11-13T07:02:29.777" Score="1" Body="&lt;p&gt;Regarding NYC, it has mostly to do with public housing and rent stabilization. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here's a &lt;a href=&quot;http://nycha.maps.arcgis.com/apps/webappviewer/index.html?id=41c6ff5e73ec459092e982060b7cf1a1&quot; rel=&quot;nofollow noreferrer&quot;&gt;map of public housing in NYC&lt;/a&gt;. Notice the large public housing developments in lower Manhattan, The Bronx, and Bushwick.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;About half of all apartments in NYC are rent stabilized, and these apartments tend to be priced at a fraction of the market value and inhabited by tenants who never move (because then they'd lose their precious deals). Thus rents in NYC have a bimodal distribution. &lt;/p&gt;&#xA;" OwnerUserId="11015" LastActivityDate="2016-11-13T07:02:29.777" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14225" PostTypeId="2" ParentId="14219" CreationDate="2016-11-13T12:53:58.473" Score="1" Body="&lt;p&gt;Typically if you have ratio variable then you don't need to deflate the series. This is because for example tax revenues are nominal and gdp is nominal in the ratio the respective price series would cancel out (assuming they are from the same year).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So if nominal tax revenues are RN=R&lt;em&gt;P and nominal GDP is GDPN=GDP&lt;/em&gt;P  (where P is the price) then the ratio is RN/GDPN=R/GDP. That way if you choose the first option you suggested then you will get the exact same value as the original ratio (try it if you want).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I hope this helps.&lt;/p&gt;&#xA;" OwnerUserId="6844" LastActivityDate="2016-11-13T12:53:58.473" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14226" PostTypeId="1" CreationDate="2016-11-13T13:59:55.377" Score="-1" ViewCount="164" Body="&lt;p&gt;Does the utility function U(X, Y) = 12x^0.2 y^0.8 represent homothetic preferences?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I was given this question but I have no idea how to work it out. I understand what homothetic preferences are in theory, but I don't know how to calculate if a utility function represents homothetic preferences.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be hugely appreciated - I've been stuck on this for over an hour.&lt;/p&gt;&#xA;" OwnerUserId="11084" LastActivityDate="2016-11-13T14:39:35.800" Title="Does the utility function U(X, Y) = 12x^0.2 y^0.8 represent homothetic preferences?" Tags="&lt;microeconomics&gt;&lt;utility&gt;" AnswerCount="1" CommentCount="0" ClosedDate="2016-12-02T13:54:07.387" ContentLicense="CC BY-SA 3.0" />
  <row Id="14227" PostTypeId="1" CreationDate="2016-11-13T14:02:07.207" Score="1" ViewCount="73" Body="&lt;p&gt;Recently India demonetized their 500 and 1000 rupee notes. As a replacement a new 2000 rupee note was introduced. This has resulted in some chaos in the commercial markets due to decreased availability of banknotes. I was wondering about the root-causes of this. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm not a trained economist. One reason, that I think, adding to the chaos is the unscientific design of the denominations. Currently the banknotes in India have the following denominations:&#xA;5, 10, 20, 50, 100, 2000.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the current price structure in India, there are lot of goods currently sold in the range 100-2000 and this means that for a given sale of a good in this range the money exchange process becomes very complicated due to the absence of some intermediate denominations in this large range. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For e.g: If somebody buys an item of 800 rupees, now she has to carry at least 8 different notes. On the other hand, if she decides to carry only a single note of 2000 rupee, then the shop owner has to give her 12 different notes back. So, either way now there is a large burden on the central bank to increase the number of notes in the supply.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, I was wondering on what is the most efficient design of banknote denominations. &#xA;efficient =&gt; The most optimizing in terms of the number of notes to carry/keep for the payer and the receiver and most optimizing for the central bank to issue in terms of cost and distribution logistics.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My intuition says that a denomination structure based on the powers of 2 would be the most 'efficient' mechanism. Another option would be the Fibonacci series. I would assume that most of the central banks across the world design their banknotes in a series close to the Fibonacci series. I tried to google around about how this is designed in general and surprisingly my searches didn't reveal anything in this direction.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is : Is my intuition right? &#xA;Also it would be helpful if somebody points me to some literature discussing this topic. &lt;/p&gt;&#xA;" OwnerUserId="11083" LastActivityDate="2016-11-13T14:02:07.207" Title="How is the banknote denomination designed?" Tags="&lt;currency&gt;&lt;central-banking&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="14228" PostTypeId="2" ParentId="14226" CreationDate="2016-11-13T14:39:35.800" Score="2" Body="&lt;p&gt;It depends on the definition of homotheticity. One definition states that consumer's preferences are homotethic if and only if his or her preferences can be represented by a utility function which is homogenous of degree 1. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, if we have two goods $x$ and $y$, then the utility function $u:\mathbb{R}^2\to\mathbb{R}$ represents homothetic preferences if and only if $$u(t\cdot x,t\cdot y)=t\cdot u(x,y)$$ for all $t&amp;gt;0$. Hence, to see if $u(x,y)=12x^{0.2}y^{0.8}$ is homothetic, check if $u(t\cdot x,t\cdot y)=t\cdot u(x,y)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another definition states that a homothetic function is a function that can be written as a monotonic transformation of a homogenous function. According to this definition, $u(x,y)=x^3y^3+xy$ is homoethetic since $u(x,y)=g(v(x,y))$ with $g(z)=z^3+z$ and $v(x,y)=xy$.&lt;/p&gt;&#xA;" OwnerUserId="7582" LastActivityDate="2016-11-13T14:39:35.800" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14229" PostTypeId="2" ParentId="14212" CreationDate="2016-11-13T15:20:19.570" Score="1" Body="&lt;p&gt;I am a bit confused because you said there are two treatments. I presume that one &quot;treatment&quot; group is the control group and the other is the treatment group. (I don't think you have a separate control group.) I am also confused because you said the treatment is identical until round 3 but then the treatment begins in round 2. I presume that there is no treatment in rounds 1 and 2, and the treatment group is treated differently thereafter in rounds 3, 4 and 5.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your $Roundn$ dummy variables for $n=2,\ldots 5$ make sure that you handle the &quot;round effects&quot; (for the control group) properly in a nonparametric way. This looks fine to me. If you include only the $After$ dummy, it means that there is no trend within each of the &quot;before&quot; and &quot;after&quot; periods. You would not want that.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A single $round$ variable means that there is a &lt;strong&gt;linear&lt;/strong&gt; trend in $Effort$ in the control group. You could try that, but I would wonder where the linearity belief comes from. Also, you lose only 3 more degrees of freedom by including the round dummies comparing to the linear trend model. That's not a big deal unless you have a really small sample. I would be happy with the full round dummies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your model assumes that the treatment effects (measured by diff-in-diff) are identical in all rounds 3, 4 and 5 (because you have only one interaction term). If you believe it is true, that's fine. If you believe otherwise, you can include three interaction terms $Treatment * Round3$, $Treatment * Round4$ and $Treatment * Round5$ instead of the single interaction term. If you want, you can test if those treatment effects are identical across rounds.&lt;/p&gt;&#xA;" OwnerUserId="10775" LastActivityDate="2016-11-13T15:20:19.570" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="14231" PostTypeId="2" ParentId="13307" CreationDate="2016-11-13T16:29:48.143" Score="0" Body="&lt;p&gt;No, $\log(x)$ being negative is not a problem what so ever.&lt;/p&gt;&#xA;" OwnerUserId="10775" LastActivityDate="2016-11-13T16:29:48.143" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14232" PostTypeId="1" AcceptedAnswerId="14236" CreationDate="2016-11-13T19:37:19.753" Score="4" ViewCount="233" Body="&lt;p&gt;In his &lt;a href=&quot;https://www.jstor.org/stable/1828079?seq=1#page_scan_tab_contents&quot; rel=&quot;nofollow noreferrer&quot;&gt;1977 article&lt;/a&gt; (from which has developed a considerable literature on the Hartwick Rule for maintaining long-term constant consumption given depletion of non-renewable natural resources), Hartwick uses (on p 973) this aggregate production function:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$x = k^{\alpha}y^{\beta}1^{\gamma}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here (see p 972) $x$ is per capita output, $k$ is per capita reproducible capital, and $y$ is per capita use of an exhaustible resource. $1$ is just the number one, labour being assumed constant (so the term $1^{\gamma}$ seems redudant).  So in more familiar notation (output $Y$, capital $K$, use of exhaustible resource $R$, labour $L$), and glossing over the difference between population and labour, this is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{Y}{L}=\left(\frac{K}{L}\right)^{\alpha}\left(\frac{R}{L}\right)^{\beta}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hartwick then assumes (p 972) constant returns to scale in the form (explicitly on p 973) $\alpha+\beta=1$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Question&lt;/em&gt;: What reasons might justify the assumption of constant returns in the above form?  Isn't it more plausible to assume constant returns when &lt;em&gt;all&lt;/em&gt; factors are increased, that is to assume $\alpha+\beta+\gamma=1$ in a production function of the form:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Y=K^{\alpha}R^{\beta}L^{\gamma}$$&#xA;This does imply the above function since:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{Y}{L} = \frac{K^{\alpha}R^{\beta}L^{\gamma}}{L^{\alpha}L^{\beta}L^{\gamma}}=\left(\frac{K}{L}\right)^{\alpha}\left(\frac{R}{L}\right)^{\beta}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, given $\gamma&amp;gt;0$, it is inconsistent with $\alpha+\beta=1$: instead $\alpha+\beta&amp;lt;1$.&lt;/p&gt;&#xA;" OwnerUserId="1417" LastActivityDate="2016-11-14T02:18:17.510" Title="Constant Returns in a Production Function $\frac{Y}{L}=\left(\frac{K}{L}\right)^{\alpha}\left(\frac{R}{L}\right)^{\beta}$ ($R$ = Resource)" Tags="&lt;production-function&gt;&lt;resource-economics&gt;" AnswerCount="1" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14234" PostTypeId="2" ParentId="13307" CreationDate="2016-11-13T21:26:10.507" Score="1" Body="&lt;p&gt;As stated already there is no problem if log(x) is negative. However, you would want to be careful if x=0 or if x&amp;lt;0 because then the logs are undefined. So as long as x&gt;0 then there are no problems at all.&lt;/p&gt;&#xA;" OwnerUserId="6844" LastActivityDate="2016-11-13T21:26:10.507" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14235" PostTypeId="2" ParentId="12886" CreationDate="2016-11-13T21:59:23.733" Score="3" Body="&lt;p&gt;Sorry for any confusion in my previous answer but there are 2 steps to this process 1) tracing out the impact on the $\Delta$y's and the lags of the shocks and then 2) accumulating the shocks to get the cumulative response (Note that my original answer tried to do this simultaneously). So in the first step (ignoring the intercept, the dummies and the residual terms) we get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\tilde{\Delta y_1}$ : $c_1$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\tilde{\Delta y_2}$: $c_2 + b_1c_1 = c_2 + b_1\tilde{\Delta y_1} $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\tilde{\Delta y_3}$ : $c_3+ b_1(c_2 + b_1c_1) + b_2c1 = c_3 + b_1\tilde{\Delta y_2} + b_2 \tilde{\Delta y_1}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\tilde{\Delta y_4}$ : $c_4 + b_1\tilde{\Delta y_3} + b_2 \tilde{\Delta y_2} + b_3 \tilde{\Delta y_1}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can you see the pattern? So the general rule is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\tilde{\Delta y_i}$= $c_{i}+\sum_{r=0}^{i-1}b_{r}\tilde{\Delta y_{i-r}}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When $\tilde{\Delta y_0}=c_0=b_0=0$ and where $c_i=0$ for $i&amp;gt;36$ and $b_r=0$ for $r&amp;gt;24$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now the next step to is to accumulate the shocks so that the IRF value for a given month is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$IRF_i = \sum^i_{j=0} \tilde{\Delta y_j}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This should give you the results you are looking for. Technically if you were to trace out the exact values of the regression that you specified then you would also need to include the dummy variables but from the sounds of it they only care about tracing out the effects of the monetary shocks.&lt;/p&gt;&#xA;" OwnerUserId="6844" LastEditorUserId="6844" LastEditDate="2016-11-14T15:40:49.080" LastActivityDate="2016-11-14T15:40:49.080" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="14236" PostTypeId="2" ParentId="14232" CreationDate="2016-11-14T02:18:17.510" Score="4" Body="&lt;p&gt;The purpose of the paper under consideration is to examine/show the &quot;investment rule&quot; that leads to &quot;intergenerational equity&quot;, which with constant population translates into constant consumption. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The investment rule under examination is (last line of p. 973) &quot;invest all net &lt;em&gt;returns&lt;/em&gt; from exhaustible resources in reproducible capital&quot; (and consume the rest).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Earlier, eq. $(1)$ of the paper (the law of capital accumulation) tells us that &lt;em&gt;gross&lt;/em&gt; returns to exhaustible resources equal $f_yy$: this implies that we assume that the return per unit of exhaustible resource &lt;em&gt;equals its marginal product&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But this in turn implies pricing and the existence of markets. So there must be a market for capital also. If the capital market is also characterized by marginal pricing, then , if we assume that the production function has decreasing returns to scale in capital and exhaustible resource ($\alpha + \beta &amp;lt;1$), then&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$f_kk + f_yy &amp;lt; x$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and some part of output would have been left unaccounted for.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the author assumes constant returns to scale in these two so that he can also assume competitive markets and marginal pricing, and per capita output exhausted in the rewards to these inputs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This of course begs the  question: &lt;strong&gt;what happens to the labor market?&lt;/strong&gt;&#xA;Well, we can get away with murder making the following assumption: There is no leisure-labor choice, labor is offered inelastically, and moreover, &lt;em&gt;there is no market for labor&lt;/em&gt;, it is subsumed to the other factors of production, i.e. it is offered together with them and it is not paid separately: think capital owners that also work in their business without paying themselves a wage.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This of course means that the formulation with unitary labor and an irrelevant exponent $\gamma$ is sloppy and problematic, it should be absent (it would not affect the paper), and it rightfully led to the OP's question.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2016-11-14T02:18:17.510" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14237" PostTypeId="2" ParentId="6476" CreationDate="2016-11-14T02:56:16.077" Score="-4" Body="&lt;p&gt;New theory here, all that economic jargon i studied is inccorrect, There is no initial difference between printing money and building a bridge instead of using the issue of bonds and hence giving the central bank duty over the money supply, which now has less control due to fractional banking. The banks can now print money backed by debt and with this newly created debt they can loan more money and hence fractional banking. The bank only needs a deposit for the first loan, the second and so on are created through digitally created money that will last until the original loan is paid off. This is why boom bust cycles are out of hand, as loans backed by loans can grow rapidly, but if the original loan or a large enough fraction default the whole printed money is no longer backed, making all the loans subject to a liquidity crisis, the money that secured them is no longer there. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Instead if the governent had a limit on printing at 25%, it could create bridges and pay itself back increasing and decreasing the money base at different times. Otherwise issue of bonds create interest payments that are not subject to tax. So the government is moving parts of the economy out of it reach, creating a super upper class. On top of that the interest payments will be more then the tax revenue collected from the government project as government is not a profitable company and its tax revenue is generally well under 5% growth. SO effectively the government is using tax money to pay no benits or debt all the tax paid for interest does not help the public. &#xA;SO the government needs to have no debt or it will slowly loose buying power and become ever more reliant on debt. Fractional banking needs to be disbanded as every time the bank creates more money it does it at the expense of dissolving normal peoples income and if a crisis happens the banks are at great advantage in buying power over the population. Why because they were making money of printed money and hence have decreased everyone's income proportionally accept their own and even if loans default, what money did the bank loose, just the money they printed. The only money that is theirs was the deposit which generally is average peoples savings so even if the original deposit is affected its people that loose. SO when everything is going up banks earn money from decreasing your income through inflating the money supply and when everything goes down, banks will be the last person to loose money and hence have more buying power when things are cheap. Lastly while this is all happening the government is loosing tax dollars to interest payments and hence loosing its effectiveness to benefit the public and at the same time creating a super class who own the debt, collecting tax free payments from paying for a share in your tax money. Effectively the government is selling their future tax income your money to build something now and if you know anything about debt you will know unless you can earn more off that debt than the interest rate there was no point getting it, not to mention the bigger the debt gets the bigger the tax free economy of the super rich becomes making governments tax revenue potential shrink.     And hence the greatest con in the world is a lack of education, so people dont understand whats actually happening.&lt;/p&gt;&#xA;" OwnerUserId="11091" LastActivityDate="2016-11-14T02:56:16.077" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14238" PostTypeId="1" AcceptedAnswerId="14313" CreationDate="2016-11-14T09:07:57.343" Score="0" ViewCount="72" Body="&lt;p&gt;Both countries have their own currencies, similar GDP growth and low inflation.  Yet Sweden has 0% central bank interest rates while Iceland has 5%.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can someone explain?&lt;/p&gt;&#xA;" OwnerUserId="6174" LastActivityDate="2016-11-21T22:19:16.683" Title="Why does Iceland have 5% interest but Sweden 0% interest with the same GDP growth?" Tags="&lt;monetary-policy&gt;&lt;interest-rate&gt;" AnswerCount="1" CommentCount="5" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14239" PostTypeId="1" CreationDate="2016-11-14T10:31:33.870" Score="-1" ViewCount="33" Body="&lt;p&gt;Does a European put have different fair values at time 0 in long and short position? If so, could you explain to my why? Instinctively, I think the answer is that there is no difference, since evaluating options at fair value implies perfect economy with no arbitrage opportunity. &lt;/p&gt;&#xA;" OwnerUserId="10876" LastActivityDate="2016-12-12T03:25:53.190" Title="Put option valuation" Tags="&lt;finance&gt;&lt;financial-economics&gt;" AnswerCount="1" CommentCount="1" ClosedDate="2016-12-29T20:35:25.173" ContentLicense="CC BY-SA 3.0" />
  <row Id="14241" PostTypeId="2" ParentId="9791" CreationDate="2016-11-14T16:18:00.103" Score="2" Body="&lt;p&gt;Investment in economics refers to investment in capital goods generally by firms. When Interest rates are higher cost of borrowing for investor increases, hence she invest lower. Thus the negative slope.&lt;/p&gt;&#xA;" OwnerUserId="11093" LastActivityDate="2016-11-14T16:18:00.103" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14242" PostTypeId="2" ParentId="14188" CreationDate="2016-11-14T18:06:06.803" Score="1" Body="&lt;p&gt;Since the question is asking for clarification on a given answer, I don't think this question necessarily needs to be closed. To address your concerns:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You will recall Walras' Law states $p \cdot x = w$. That is, you spend all your money buying things, given some regularity conditions. So just figure out how much was spent in year 1 and that will give you wealth for that period. For year 2, you'll note that depending on the range for $x^2_2$, it will imply the consumer having different amounts of wealth. That will give you the information you need to find where good 1 is inferior.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It might be helpful to think about what ranges of good 2 would violate WARP, and what the ranges above and below it would mean. Hope this helps.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2016-11-14T18:06:06.803" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14244" PostTypeId="2" ParentId="6476" CreationDate="2016-11-14T22:13:21.413" Score="1" Body="&lt;p&gt;It's a great question that I know has bothered many people for years. Indeed there is currently a &lt;a href=&quot;http://www.socred.org/index.php/blogs/view/the-case-to-reinstate-the-bank-of-canada&quot; rel=&quot;nofollow noreferrer&quot;&gt;case in the courts against the Canadian government&lt;/a&gt;, requesting that they allow interest free money creation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A possible explanation for borrowing via bonds is that it acts as a kind of self discipline to deter governments from creating too much money and hyperinflation. Though in my opinion a government has to be very incompetent to do such a thing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In my years of being interested in this question I have never come across a document which says words to the effect of &quot;we, the government of ..., have just decided that instead of printing money, we shall instead &lt;em&gt;borrow&lt;/em&gt; it from now on... because of reasons xyz&quot;.&lt;/p&gt;&#xA;" OwnerUserId="5081" LastActivityDate="2016-11-14T22:13:21.413" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14245" PostTypeId="2" ParentId="14220" CreationDate="2016-11-15T03:28:47.970" Score="1" Body="&lt;p&gt;Consider how urban agglomeration works. As you move closer to the city center where more jobs are available, rents become more expensive per square foot. So different types of job markets will form in different areas based on transportation costs to the city center. Usually that means different income groups will live in different areas, but of course, peoples' wages are not homogenous, and neither are job markets based on just distance from the city center.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is especially true now that the costs of transportation have become much smaller, and we start to see urban sprawl as people decide the negative externalities of living in a highly agglomerated area (crime, pollution, etc.) distort their decision on where to live. Equally so, positive externalities like additional amenities to only single regions of a city can distort incentives, and lead to things like gentrification, where the poor are displaced from the region due to higher rents and forced to find a region that is less well off to live in.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There could be sociological reasons for wide variances in income in tightly packed, well defined areas. Schelling's segregation model tells us that people self segregate even with a preference for diversity, because the preference for to be with those like ourselves is powerful. So ethnic and income segregation can be very clearly defined even in very cosmopolitan cities.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2016-11-15T03:28:47.970" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="14246" PostTypeId="2" ParentId="13775" CreationDate="2016-11-15T03:43:28.810" Score="1" Body="&lt;p&gt;To briefly add to Sunhwa's answer, the intuitive reasoning for why the price of $y$ does not affect consumption of good $x$ is because of the unique properties of the Cobb-Douglas utility function. Changing the price of a good changes the price ratio, which is part of what determines the ratio of goods consumed. So even if the price of $y$ were to go up and cause you to buy less $y$, that would also change the ratio of goods you are buying, even if you don't change $x$. In this case, the optimization condition ends up being so that you don't have to change $x$ at all (for all other things equal).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{p_y}{p_x} \cdot \frac{\alpha}{\beta} = \frac{x}{y}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Peruse this condition as you see fit.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2016-11-15T03:43:28.810" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14247" PostTypeId="2" ParentId="14218" CreationDate="2016-11-15T05:52:48.870" Score="1" Body="&lt;p&gt;I will only set up the first part of your question. See if you can move on from there.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you try and set revenue as $p \cdot x$ immediately, you will get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$p \cdot x = p \cdot (\gamma ap + b + R(y))$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which as you note means $x$ will not be in this term. Profit could technically still be expressed in terms of $x, y$ in this case, but...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\pi(x, y) = p \cdot (\gamma ap + b + R(y)) - (cx + y + d)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;is awkward since $x$ can be expressed in terms of $p$ and vice versa, so why would we have both in our equation?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So instead, solve for the inverse demand function:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$x = \gamma ap + b + R(y) \implies \boxed{p = \frac{x - b - R(y)}{\gamma a}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So you can solve for $p \cdot x$, but instead of substituting for $x$, you substitute for $p$. Once you solve for your first order conditions, you should be able to solve for $y$ as a function of variables including $b$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope this helps.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2016-11-15T05:52:48.870" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14250" PostTypeId="1" CreationDate="2016-11-15T13:59:41.007" Score="1" ViewCount="29" Body="&lt;p&gt;Sorry I'm not an economist, but I was wondering if there was a general country by country guide to how inflation there changes with response to a change in the currency's value against a basket of other currencies. I would naively expect an inverse correlation, but I'm not sure if this is proportional?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm just interested as after the Brexit vote, the UK pound has declined in value by 20% and am curious as to how much of this would be expected to show up in inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think it might be complicated by the state of the world economy (if no-ones able to sell, suppliers might have to lower prices), the state of employment (high unemployment might suppress any price rises, and the nature of the economy (ratio of services to manufacturing sector).&lt;/p&gt;&#xA;" OwnerUserId="11100" LastEditorUserId="1601" LastEditDate="2016-11-15T14:29:59.460" LastActivityDate="2016-11-15T14:29:59.460" Title="Relationship between changes in Currency against basket of currencies and inflation" Tags="&lt;inflation&gt;&lt;international-trade&gt;&lt;exchange-rates&gt;&lt;international-economics&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14252" PostTypeId="2" ParentId="14221" CreationDate="2016-11-15T17:08:12.023" Score="1" Body="&lt;p&gt;By re-indexing all investment projects in the form of $s_{J,t}$, I get the following two equivalent constraints&#xA;\begin{align}&#xA;	c_t+y_{t+1}-y_t&amp;amp;\leq f(k_t)-\sum_{i=1}^\infty\varphi_j s_{J,t-(J-j)} % Resource Constraint&#xA;	\\	&#xA;	k_{t+1}&amp;amp;=(1-\delta)k_t+S_{J,t-(J-1)} %Law of motion for capital formation&#xA;\end{align}&#xA;Hence, the Lagrangian for the maximization problem is&#xA;\begin{multline}&#xA;\mathcal{L}&#xA;	= \sum_{t=0}^\infty\beta^tu\left(c_t,1- \alpha_0n_t - \eta(1-\alpha_0) a_t\right) %Objective Function&#xA;	- \sum_{t=0}^\infty\lambda_{1t}\left(c_t+y_{t+1}-y_t+\sum_{i=1}^\infty\varphi_j s_{J,t-(J-j)}-f(k_t)\right) % Resource Constraint&#xA;\\	- \sum_{t=0}^\infty\lambda_{2t}\left(k_{t+1}-(1-\delta)k_t-S_{J,t-(J-1)}\right) %Law of motion for capital formation&#xA;	- \sum_{t=0}^\infty\lambda_{3t} \left(a_{t+1}-(1-\eta)a_t-n_{t}\right) % Law of motion for past leisure&#xA;\end{multline}&#xA;where the state variables at time $t$ are $a_t, k_t, y_t$ and the decision variables at time $t$ are $c_t, n_t, s_{Jt}, y_{t+1}$. It is easy to see that all constraints must bind. &#xA;The necessary conditions are&#xA;\begin{align}&#xA;	&amp;amp;\frac{\partial \mathcal{L}}{\partial c_t} =0\implies \beta^t \frac{\partial u}{\partial c_t}=\lambda_{1t}&#xA;\\	&amp;amp;\frac{\partial \mathcal{L}}{\partial s_{J,t}} =0\implies \sum_{i=1}^J\lambda_{1,t+J-i}\varphi_i=\lambda_{2,t+J-1}&#xA;\\	&amp;amp;\frac{\partial \mathcal{L}}{\partial k_t}=0\implies \lambda_{1t}\frac{\partial f}{\partial k_t}+\lambda_{2t}(1-\delta)=\lambda_{2,t-1},&#xA;\end{align}&#xA;which holds for all $t$.&#xA;Combining 14,15,16 and simplifying, we have&#xA;\begin{equation}&#xA;	\frac{\partial u}{\partial c_t}\frac{\partial f}{\partial k_t}&#xA;	+ (1-\delta)\sum_{i=1}^J\beta^{1-i} \frac{\partial u}{\partial c_{t+1-i}}\varphi_i&#xA;	= \beta^{-1}\sum_{i=1}^J\beta^{1-i} \frac{\partial u}{\partial c_{t-i}}\varphi_i&#xA;\end{equation}&#xA;In steady state, $\frac{\partial u}{\partial c_t}=\frac{\partial u}{\partial c_{t'}}$, so we have &#xA;\begin{equation}&#xA;\frac{\partial f}{\partial k_t}&#xA;= \sum_{i=0}^{J-1}\beta^{J-i-1} \varphi_{J-i} \left(\frac{1-\beta}{\beta}+\delta\right)&#xA;\end{equation}&#xA;One observation is that since in steady state, no borrowing can occur between household and firm, the real interest rate $r=\frac{1-\beta}{\beta}$. We see that $\sum_{i=0}^{J-1}\beta^{J-i-1} \varphi_{J-i} $ is the price of the capital in steady state.&lt;/p&gt;&#xA;" OwnerUserId="4551" LastActivityDate="2016-11-15T17:08:12.023" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14253" PostTypeId="2" ParentId="6488" CreationDate="2016-11-15T19:11:35.640" Score="2" Body="&lt;p&gt;As Fudenberg and Tirole note, the fact that they assume players move simultaneously does not matter:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;This specification is more general than&#xA;  it may appear, because the set of feasible actions can be time and history&#xA;  dependent, so that games with alternating moves are included.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Moreover, all actions are observable by all players, so the definition would be unchanged by the assumption that moves are alternating.&lt;/p&gt;&#xA;" OwnerUserId="8595" LastActivityDate="2016-11-15T19:11:35.640" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14254" PostTypeId="1" CreationDate="2016-11-15T20:27:11.547" Score="10" ViewCount="250" Body="&lt;p&gt;I have a few questions about the proofs in Appendix A of Sannikov (2007), &lt;a href=&quot;http://www.princeton.edu/~sannikov/gamesRRR.pdf&quot;&gt;Games with Imperfectly Observable Actions in Continuous Time&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;In lemma 4, when he shows the Lipschitz continuity of $H_a(w,\theta)$ in $\theta$, he derives an auxiliary function $F(\theta^\prime)$, takes its derivative, and bounds that derivative (page 41). How does he get that bound? What is $|\mathcal{V}|$? How is he able to bound the factor involving $\beta^1$ and $\beta^2$?&lt;/li&gt;&#xA;&lt;li&gt;In proposition 4, why does Lipschitz continuity of the objective guarantee continuity of the value function? Does this just follow from the &lt;a href=&quot;https://en.wikipedia.org/wiki/Maximum_theorem&quot;&gt;Maximum Theorem&lt;/a&gt;? If so, why did we need Lipschitz continuity?&lt;/li&gt;&#xA;&lt;li&gt;Also in proposition 4: why does the initial curvature being positive guarantee that it stays positive?&lt;/li&gt;&#xA;&lt;li&gt;How does idempotency of $Q_i(a)$ guarantee that $\bar{Q} \geq 1$?&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="8595" LastActivityDate="2016-11-15T20:27:11.547" Title="Proofs in the Appendix A of Sannikov (2007)" Tags="&lt;game-theory&gt;&lt;continuous-time&gt;&lt;repeated-games&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14255" PostTypeId="1" CreationDate="2016-11-15T20:29:52.360" Score="2" ViewCount="115" Body="&lt;p&gt;I wrote an answer to &lt;a href=&quot;https://economics.stackexchange.com/questions/13233/have-there-been-attempts-to-measure-the-value-of-specific-taught-skills/13235#13235&quot;&gt;this&lt;/a&gt; question regarding how economists evaluate a specific subject in a given curriculum.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Subjects which develop skills that have labour market significance are valuable to a curriculum from an economic perspective. However as an armchair economist I find it difficult to argue a for a reason why to teach a country's history or any world history at all if it has no labour market implications.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However we find that many high schools and universities require students to take electives in history. Why is this the case? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Please provide sources for your reasoning.&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.103" LastActivityDate="2017-04-05T22:59:41.673" Title="Rationale behind teaching History in University" Tags="&lt;reference-request&gt;&lt;history&gt;&lt;education-economics&gt;" AnswerCount="2" CommentCount="9" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="14256" PostTypeId="1" AcceptedAnswerId="14262" CreationDate="2016-11-15T22:44:29.013" Score="3" ViewCount="51" Body="&lt;p&gt;I keep hearing that there is not enough of some specialists in economy which is followed by some number. Here's an example:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.computerweekly.com/news/2240205466/Economy-needs-300000-digital-workers-by-2020-to-reach-full-potential&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.computerweekly.com/news/2240205466/Economy-needs-300000-digital-workers-by-2020-to-reach-full-potential&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Economy needs 300,000 digital workers by 2020 to reach full potential&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;How is this derived? Is it reasonable?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Job market is regulated by supply and demand. To follow the example of &quot;digital worker&quot; - I believe that many, for example, engineers could change their job profile to become &quot;digital workers&quot;, but in that case engineers would be suddenly in higher demand as well.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can say that janitor contributes x to GDP and database administrator contributes y and because y &gt; x, we need more db administrators than janitors, but in reality we need exactly the current number of janitors given their market price and we need exactly the current number of database administrators given their market price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also I can think of a question &quot;How many digital workers do we need to inject into economy by 2020 so that the number of digital workers on the market in 2021 will be the same as in 2020?&quot; and the answer could be 300 000. But how to calculate it without being simplistic?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To reiterate: what does it mean that we need x new professionals and how to calculate it?&lt;/p&gt;&#xA;" OwnerDisplayName="user11106" LastEditorUserId="1601" LastEditDate="2016-11-15T23:20:45.340" LastActivityDate="2016-12-16T16:18:20.540" Title="&quot;The econony needs x workers of profession y&quot;. What does it mean and how is it derived?" Tags="&lt;supply-and-demand&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14257" PostTypeId="2" ParentId="14085" CreationDate="2016-11-16T00:44:54.840" Score="2" Body="&lt;p&gt;Used to be capital controls. You could only buy dollars (or any other foreign currency) through official channels at the official favorable rates by providing documentation displaying need for said currency (e.g. Travel or import documents).&lt;/p&gt;&#xA;" OwnerUserId="11008" LastActivityDate="2016-11-16T00:44:54.840" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14258" PostTypeId="2" ParentId="14255" CreationDate="2016-11-16T07:09:11.413" Score="2" Body="&lt;p&gt;To understand why some countries are rich and others are not, we need to understand what happened to each of them in the past. How and why they developed depends to a large extent on events that took place decades or even centuries ago. This is what economists broadly refer to as &lt;strong&gt;path dependence&lt;/strong&gt;. Brian Arthur was probably one of the first economists to point that out in the late 1980's.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Recently this type of arguing was appreciated again by mainstream economics. There is a growing number of scholarly articles that show how and why some countries developed the way they did. With huge implication for future economic development. Two good summaries are &lt;a href=&quot;http://scholar.harvard.edu/nunn/publications/importance-history-economic-development&quot; rel=&quot;nofollow noreferrer&quot;&gt;Nunn - The Importance of Economic History for Economic Development&lt;/a&gt; and &lt;a href=&quot;http://scholar.harvard.edu/nunn/publications/historical-development&quot; rel=&quot;nofollow noreferrer&quot;&gt;Nunn - Historical Development&lt;/a&gt;. So the conclusion would somewhat be like that one can't ignore history if she wants to understand why some countries are poor. And more generally why some things are the way they are (one prominent example was the somewhat random event of why we have a QWERTY keyboard system that is a lot slower than other potential alignments of letters on a keyboard. It was determined once by &quot;luck&quot; let's say, and we never switched back...)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So all in all I would argue that knowing (and potentially understanding) some history is essential to understanding how our world works. It's certainly nothing that you can sell as a key feature in your CV (like a specific programming skill), but knowing sufficient history would certainly alter anyone's view of the world. And in order to not repeat huge mistakes that were made in the past (as a &quot;society&quot;), we actually need to know what they were and how and why they came about. &lt;/p&gt;&#xA;" OwnerUserId="4087" LastActivityDate="2016-11-16T07:09:11.413" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14259" PostTypeId="1" CreationDate="2016-11-16T10:42:19.623" Score="2" ViewCount="567" Body="&lt;p&gt;I have historical data where the CPI and GDP are correlated. Does this make sense? If not, how do I test for it?&lt;/p&gt;&#xA;" OwnerUserId="11116" LastEditorUserId="11116" LastEditDate="2016-11-19T08:27:31.547" LastActivityDate="2016-11-23T21:56:14.160" Title="Can CPI and real GDP have high correlation?" Tags="&lt;inflation&gt;&lt;gdp&gt;&lt;statistics&gt;" AnswerCount="2" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="14261" PostTypeId="2" ParentId="14259" CreationDate="2016-11-16T14:54:49.200" Score="3" Body="&lt;p&gt;There was a degree of economic stability between the UK's exit from the Exchange Rate Mechanism in 1992 and the World Financial Crisis in 2008: positive real GDP growth typically between 2% and 4% and low steady inflation typically between 1% and 3%.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Governor of the Bank of England called this &quot;The Great Moderation&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The effect is what you have observed: the level of &lt;a href=&quot;https://www.ons.gov.uk/economy/grossdomesticproductgdp/timeseries/abmi&quot; rel=&quot;nofollow noreferrer&quot;&gt;real GDP&lt;/a&gt; and the level of the CPI both grew, apparently highly correlated with each other, as shown in the red line below based on quarterly data.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But this correlation was an artefact of each indicator growing itself over time and of auto-correlation, as well as not having a recession in that period or sudden spikes in prices; looking from 1991-2009 would have produced a less smooth chart.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If instead you look at the percentage changes over the previous 12 months, the apparent linearity collapses, as shown in the blue line below.   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/L96ZF.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/L96ZF.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;  &lt;/p&gt;&#xA;" OwnerUserId="8891" LastEditorUserId="44" LastEditDate="2016-11-16T16:29:53.800" LastActivityDate="2016-11-16T16:29:53.800" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="14262" PostTypeId="2" ParentId="14256" CreationDate="2016-11-16T16:09:01.737" Score="1" Body="&lt;p&gt;Full-factor employment GDP (referring not only to labor but also to capital and any other factor), results from existing factor stock interacting with production technology. It is a (quasi) &quot;engineering&quot; relationship, not an economic one. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It says &quot;if all labor and all capital were employed, given technology, output will reach its feasible maximum&quot;. It does not say that it is an optimal level in any sense. It does not allow for labor-leisure choice or lock-out (idle capital). It does not take into account whether current markets actually clear (or not). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Still we informally accept that &quot;more is better&quot; so we do examine what would it take to reach this feasible maximum, or how economic interactions, incentives, institutions etc may or may not lead us to such a full-factor employment GDP.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the case examined by the question here, it appears that an expert body has identified an &quot;engineering&quot; mismatch in the &lt;em&gt;composition&lt;/em&gt; of the labor force. Namely, this body of researchers has estimated the required compostion of the labor force that &lt;em&gt;can&lt;/em&gt; lead the economy to &quot;feasible maximum GDP&quot;-and then found that the actual composition does not align with the former.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As to how one can indeed estimate such &quot;required compositions&quot; of the labor force, well, this is too technical to go into here, but it can be done.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2016-11-16T16:09:01.737" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14263" PostTypeId="1" AcceptedAnswerId="14271" CreationDate="2016-11-16T16:53:06.763" Score="1" ViewCount="396" Body="&lt;p&gt;India has recently recalled high denomination notes and asked people to deposit the physical currency in old notes in their bank accounts. People who have unaccounted wealth are resorting to &lt;a href=&quot;http://m.ndtv.com/india-news/sacks-full-of-burnt-500-and-1-000-rupee-notes-in-uttar-pradesh-1623440&quot; rel=&quot;nofollow noreferrer&quot;&gt;destroying&lt;/a&gt; the currency rather than run the risk of declaring this to the tax-men. &lt;a href=&quot;http://m.firstpost.com/india/rs-500-rs-1000-note-ban-20-notes-may-not-be-exchanged-people-burn-some-in-up-3098006.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Some people&lt;/a&gt; estimate upto 20% of notes may not be returned totalling about  3 trillion rupees.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a cash based economy what possible consequences can destruction of such large amounts of currency cause? I think that reduction in money volume may lead to negative inflation but the question is more about the impact destruction of currency will have on government finances.&#xA;Does it make the government richer or poorer? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that this question isn't about demonitization per se.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;EDIT:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://indianexpress.com/article/business/banking-and-finance/withdrawal-of-rs-500-rs-1000-notes-black-money-pm-modi-old-notes-4379516/&quot; rel=&quot;nofollow noreferrer&quot;&gt;A newspaper report&lt;/a&gt; this morning says that the government expects a &quot;windfall&quot; due to cash not being returned by people. It states that any money not returned to central bank (In India that is the RBI), is a reduction in liability of RBI and therefore an equal amount can be paid by RBI to the government.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this how monetary policy works?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I was always under the impression that central bank buys government bonds in return for currency. Any physical reduction in currency means government cannot buy the same bonds back from central bank (as it doesn't have the hard cash) and therefore the government should become &quot;poorer&quot; (due to inability to decrease its debt in forms of bonds issued to central bank). The report states that government will get &quot;richer&quot; as central bank's liability is decreased and it can pay that amount to government as dividend.&#xA;Can someone clarify how this process is likely to work?&lt;/p&gt;&#xA;" OwnerUserId="11119" LastEditorUserId="11119" LastEditDate="2016-11-18T04:31:16.147" LastActivityDate="2016-11-18T04:31:16.147" Title="What effect would destroying large amounts of physical currency have on government finances" Tags="&lt;monetary-policy&gt;&lt;currency&gt;&lt;money-supply&gt;&lt;money&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="14265" PostTypeId="2" ParentId="14216" CreationDate="2016-11-16T21:50:58.653" Score="3" Body="&lt;p&gt;Confirmation bias is somewhat different to the behavior you are describing. This expression describes the attitude of a researcher who interprets ambiguous data as confirming his initial hypothesis. For instance, researchers who believe that death penalty has a deterrent effect on crime would interpret any additional dataset as confirming this theory, whereas researchers who believe the opposite would interpret the same evidence as indicating that the effect is null.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The behavior that you describe might be called &quot;post hoc analysis&quot; or &quot;post hoc theorizing&quot;. Scientific standards in experimental economics have been  improving recently to mitigate this bias (among other mistakes/misbehavior). For instance, many researchers who do randomized controlled trials in development economics now pre-register their analysis plan (and even sometimes a theory with its predictions) before collecting the data: by doing so, they commit to a list of statistical tests that they will run, which prevents them from changing their theory/hypotheses (and even the question of interest) after looking at the data. Of course, as @denesp mentions, this cannot generally be done with observational data, except maybe in situations where the researchers need to go through an approval procedure to get access to the data, in which case a pre-registration of the analysis plan might be imposed as part of the application.&lt;/p&gt;&#xA;" OwnerUserId="4667" LastActivityDate="2016-11-16T21:50:58.653" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14266" PostTypeId="2" ParentId="13932" CreationDate="2016-11-16T22:02:59.070" Score="2" Body="&lt;p&gt;We need indirect comparisons because looking at direct comparisons is not sufficient to detect all types of inconsistencies. Suppose for instance that we observe $C(x,z)=\{x\},C(z,y)=\{z\}$ and $C(x,y)=\{y\}$. $C(x,y)=\{y\}$ implies that $y$ is &quot;directly&quot; revealed preferred to $x$. The reason why GARP is violated is that $C(x,z)=\{x\}$ and $C(z,y)=\{z\}$ imply that $x$ is &quot;indirectly&quot; revealed preferred to $y$, an inference that wouldn't be possible by looking at direct comparisons.&lt;/p&gt;&#xA;" OwnerUserId="4667" LastActivityDate="2016-11-16T22:02:59.070" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14267" PostTypeId="2" ParentId="11612" CreationDate="2016-11-16T22:32:15.940" Score="2" Body="&lt;p&gt;One of the assumptions of perfect competition is that firms are price takers. Ultimately price is determined by the quantity of goods supplied, and with perfect competition, there are infinite (or an arbitrarily large) number of firms, so a firm that changes their price by itself will simply have no business, since there are cheaper places to buy from. The quantity supplied will also not change, and will leave the prices unchanged.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So what happens if all infinite of these firms tried to unilaterally raise their prices to the same level? This is maybe in some cases a Nash equilibrium, but not a coalition-proof Nash equilibrium. So firms could also unilaterally deviate from the higher price to take the whole market between themselves.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;If price (marginal benefit), was suppose, forced to be higher, so that you moved along the marginal cost curve where MC $\neq$ ATC, then the supply curve would shift, because the optimal production quantity would increase for all firms at this price control. And the market would then not clear.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2016-11-16T22:32:15.940" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14268" PostTypeId="1" CreationDate="2016-11-16T23:43:26.777" Score="1" ViewCount="415" Body="&lt;p&gt;I've noticed there are a lot of similarities between data scientists and econometricians and I'am having a hard time telling the difference between the scope of each field and what problems they attempt to answer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What are the primary differences between a data scientist and Econometrician?&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="6168" LastEditDate="2016-11-21T16:53:53.540" LastActivityDate="2016-11-21T17:32:07.033" Title="Difference between a Data Scientist and an Econometrician?" Tags="&lt;reference-request&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="14270" PostTypeId="1" CreationDate="2016-11-17T03:06:58.590" Score="0" ViewCount="243" Body="&lt;p&gt;This is the full question: &lt;strong&gt;Find all pure strategy Nash equilibria of the Cournot oligopoly game with $N$ firms facing linear demand $P = a − Q$ when the total cost for each firm is $c_i(q_i) = q_i^2$.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My understanding is that:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\pi_i = q_i(a − Q) - q_i^2$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\max_{q_i} \quad q_i(a − Q) - q_i^2$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, the FOC: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$a - Q - 2q_i = 0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This FOC can be derived for each firm. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is the part that I get stuck at. How do you add all the FOCs of $N$ firms together? Thank you! &lt;/p&gt;&#xA;" OwnerUserId="11127" LastEditorUserId="4251" LastEditDate="2016-11-17T06:12:37.647" LastActivityDate="2016-11-18T08:12:25.077" Title="Solving a Cournot oligopoly game with N firms" Tags="&lt;microeconomics&gt;&lt;game-theory&gt;" AnswerCount="1" CommentCount="3" ClosedDate="2016-11-17T09:57:01.887" ContentLicense="CC BY-SA 3.0" />
  <row Id="14271" PostTypeId="2" ParentId="14263" CreationDate="2016-11-17T04:01:37.523" Score="5" Body="&lt;p&gt;In most modern economies, the central bank certainly has the authority to print money, when it does so to implement its legally defined objective. Let's consider what the implications of this 'elimination' of cash are.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;The Balance Sheet&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From the asset management side of the central bank, currencies are always a liability - because, amongst other things, they can be deposited in an account with the central bank, which will usually accumulate interest payments. Historically, many central banks used to allow currency to be exchanged for gold.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Central banks must always be concerned with their balance sheet. The reason why they cannot simply issue and distribute it to the masses (known as helicopter money) comes down to this management of liabilities - there is a real constraint here for these institutions. Issue too much currency, and commercial banks might not think you will be able to pay interest on their deposits. Or more aptly, they may believe the only way you can pay this interest is by printing money, decreasing the value of money and  potentially leading to inflation or a runaway zimbabwe situation&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the destruction of currency reduces the financial liabilities of a central bank, benefitting its balance sheet.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Impact on the Economy&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now we can look at the implications for the economy. Shown below is the fisher equation, a simple but valuable representation for money interacts with the economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$MV = PY$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This indicates that real output (the right hand side) is equal to the amount of currency in circulation, multiplied by how quickly that currency is circulated around. So if a central bank wanted to keep prices and output constant, it would want to eliminate any changes to the money supply. Otherwise, as you have intuited, there may be a decrease in output or the price level.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But we have to consider if this is really currency in circulation. Are people really using these large denomination notes in actual transactions, or just as a store of wealth? If this currency was unused to begin with then maybe there won't be much of a real impact.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We must also consider that central bank's typically interact with commercial banks only, and are typically most immediately concerned with maintaining their target interest rate with those commercial banks.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;How might this play out in practice?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, these protesters having burned some of their money and so may replace it by withdrawal from their accounts with commercial banks. These commercial banks distribute this physical currency out to consumers, and have less remaining to loan to between themselves. Since for them, loanable funds are more scarce, there will be upward pressure on interest rates.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To maintain the target interest rate, we will then see the central bank response, purchasing bonds from the commercial banks in exchange for cash. Thus the balance of money is restored.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But perhaps this destruction of money was great enough that it has made consumers considerably poorer. Now their bank balance is reduced, they may not want to spend as much. Over the short term, this would be expected to drive down prices and output.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the central bank sees this play out, or is worried enough to anticipate it, it would likely reduce its interest rate target. With a lower cost to borrowing, we have increased spending in the economy, inflation of asset prices that make people feel richer and hopefully, a restoration of balance.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is a hypothetical, and relatively simple policy analysis. A less conventional central bank could throw replacement money out of a helicopter, but this seems unlikely to happen in practice.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;How does this effect the government?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It will likely benefit them. As I discussed, currency is a liability for central banks. So now some of it is gone, they can print more without having to demand any kind of asset in return. The article you have edited into your question argues that the central bank may print and give money to the government. Normally, because money is a liability, they would have to demand government debt in return. But because the balance sheet already incorporates this currency (which is just replacing what has been destroyed) it need not demand government bonds --- so the government can spend without incurring any debt.&lt;/p&gt;&#xA;" OwnerUserId="11129" LastEditorUserId="11129" LastEditDate="2016-11-17T04:44:38.167" LastActivityDate="2016-11-17T04:44:38.167" CommentCount="10" ContentLicense="CC BY-SA 3.0" />
  <row Id="14272" PostTypeId="2" ParentId="14270" CreationDate="2016-11-17T06:24:51.737" Score="1" Body="&lt;p&gt;Your FOC is wrong.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So $$\max_{q_i} \quad q_i(a − \sum_{j=1}^nq_j) - q_i^2$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies \max_{q_i} \quad aq_i − q_i\sum_{j=1}^nq_j - q_i^2$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The real FOC is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$a - \sum_{j\neq i}q_j - 2q_i - 2q_i = 0.$$&lt;/p&gt;&#xA;" OwnerUserId="4251" LastEditorUserId="4251" LastEditDate="2016-11-18T08:12:25.077" LastActivityDate="2016-11-18T08:12:25.077" CommentCount="12" ContentLicense="CC BY-SA 3.0" />
  <row Id="14274" PostTypeId="2" ParentId="13162" CreationDate="2016-11-17T21:05:58.157" Score="1" Body="&lt;p&gt;I found research on this topic from the recent October 2016 issue of the American Economic Journal: Applied Economics. However I could not find the PDF online from the site however I got it from a different source.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Titled as&#xA;&lt;a href=&quot;http://documents.worldbank.org/curated/en/753501468015879809/pdf/WPS6723.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;The Impact of High School Financial Education: Evidence from a Large-Scale Evaluation in Brazil&lt;/a&gt; it is learned that its possible to change consumers habits via curriculum design.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;We find significant treatment effects on spending behavior as well. In line with the concepts&#xA;  taught in the curriculum, the results show a 2.1-2.5 percentage point greater likelihood of&#xA;  comparison shopping before making purchases, and a 3.1-4.1 percentage point greater likelihood&#xA;  of negotiating price or payment method prior to purchases by students in treated schools. Further,&#xA;  the results show that 16 percent of students in treated schools made a list of monthly expenses as&#xA;  part of a budgeting exercise compared to 13 percent in the control schools in follow-up 1. These&#xA;  numbers are 17 percent and 14 percent respectively, in follow-up 2. &lt;strong&gt;All treatment effects are&#xA;  statistically significant at the 1 percent level.&lt;/strong&gt;&lt;/em&gt;&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&lt;strong&gt;Overall, these results show a clear improvement in student behavior as a result of the financial education course, in line with concepts taught in the curriculum.&lt;/strong&gt; &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The article concludes&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Financial education in schools is an important policy focus in both developed and developing&#xA;  countries, yet its impacts are not well understood. This paper contributes to the literature by&#xA;  demonstrating that a financial education program targeted to youth in secondary school can&#xA;  improve both knowledge and behavior, as well as influence financial attitudes and preferences.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Excellent research, and a recommended reading.&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2016-11-17T21:05:58.157" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14275" PostTypeId="1" CreationDate="2016-11-17T23:56:02.570" Score="3" ViewCount="231" Body="&lt;p&gt;Consider a simple dynamic consumption-saving problem. A solution can be characterised using a Lagrangian approach that generates a set of first order conditions and some boundary conditions. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;An alternative approach is to set use a Bellman equation. What I don't understand is how come a Bellman equation approach does not seem to use information regarding the boundary conditions in the solution methodology? That is, a Bellman equation does have a tradeoff between time period t and t+1 but not some overall budget constraint does not seem to be represented. &lt;/p&gt;&#xA;" OwnerUserId="11012" LastActivityDate="2016-11-19T00:18:38.630" Title="Dynamic optimisation" Tags="&lt;dynamic-optimization&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14277" PostTypeId="2" ParentId="14275" CreationDate="2016-11-18T08:05:21.073" Score="4" Body="&lt;p&gt;I'm unsure exactly where your struggle is, in general. To try and address your issues, what kind of boundary conditions might we desire in dynamic problems?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider the two period consumption-savings problem where we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$c_1 + s_1 = y_1$$&#xA;$$c_2 = y_2 + (1+R)s_1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$y_1, y_2$ being endowments in each period, $s_1$ as savings, $R$ for interest, and $c_1, c_2$ for consumption. Given some $U(c_1, c_2)$, we want to solve for optimal consumption in each period. We can consolidate the budget as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$c_2 = y_2 + (1 + R)(y_1 - c_1)$$&#xA;$$\implies c_1 + \frac{c_2}{1 + R} = y_1 + \frac{y_2}{1 + R}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and express the Lagrangian problem:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\mathcal{L} = U(c_1, c_2) - \lambda(c_1 - \frac{c_2}{1 + R} - y_1 - \frac{y_2}{1 + R})$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Solving for FOCs gets us:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U_{c_1} - \lambda = 0$$&#xA;$$U_{c_2} - \frac{\lambda}{1 + R} = 0$$&#xA;$$\implies \frac{U_{c_1}}{U_{c_2}} = 1 + R$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But you can also express this problem as a Bellman, and still keep that original consolidated budget constraint.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\max_{c_1, c_2, y_1, y_2} U(c_1, c_2) \quad \text{s.t.} \ c_1 + \frac{c_2}{1 + R} = y_1 + \frac{y_2}{1 + R}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where you have a value function for $y_1$ (yes, $y_1$ is still given)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$V(y_1) = \max_{c_1, c_2, y_2} \ U(c_1, c_2) \quad \text{s.t.} \ y_1 = c_1 + \frac{c_2}{1 + R} - \frac{y_2}{1 + R}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To make this problem less trivial for a Bellman, you can have a constraint where $c$ determines $y$ somehow instead. But otherwise you can still incorporate the budget constraint into your problem here, albeit it might look pretty weird.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2016-11-18T08:05:21.073" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14278" PostTypeId="1" CreationDate="2016-11-18T13:17:01.933" Score="3" ViewCount="112" Body="&lt;p&gt;I'm looking for a complete run down of all different kinds of market failures;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Wikipedia has a list but I'm not sure if there might some obscure kinds of market failures that Wikipedia is missing. Are there types of Market failures that are not mentioned in this the standard textbooks/wikipedia?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Wikipedia: &quot;Market failures are often associated with time-inconsistent preferences, information asymmetries, non-competitive markets, principal–agent problems, externalities, or public goods.&quot;&lt;/p&gt;&#xA;" OwnerUserId="11143" LastActivityDate="2016-11-18T20:27:33.100" Title="Is there a comprehensive list of all market failures ever discovered?" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;efficient-markets&gt;&lt;market-failure&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14279" PostTypeId="1" CreationDate="2016-11-18T13:30:26.387" Score="0" ViewCount="81" Body="&lt;p&gt;I'm trying to put together a good list of economic indicators that press and economists look to when evaluating a president's &quot;performance&quot;. These indicators should be ones that are updated at the least monthly.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I have so far (with notes where necessary):&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Unemployment rate &lt;/li&gt;&#xA;&lt;li&gt;Debt &lt;/li&gt;&#xA;&lt;li&gt;Deficit &lt;/li&gt;&#xA;&lt;li&gt;GDP growth rate &lt;/li&gt;&#xA;&lt;li&gt;Median household income (is this updated monthly?) &lt;/li&gt;&#xA;&lt;li&gt;Median home value (is this updated monthly?) &lt;/li&gt;&#xA;&lt;li&gt;Gallon of gasoline &lt;/li&gt;&#xA;&lt;li&gt;DJIA &lt;/li&gt;&#xA;&lt;li&gt;S&amp;amp;P 500 &lt;/li&gt;&#xA;&lt;li&gt;NASDAQ&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Am I missing any and are the ones I flagged updated enough to be relevant?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks&lt;/p&gt;&#xA;" OwnerUserId="11144" LastActivityDate="2016-11-18T20:22:06.497" Title="Good economic indicators for presidential performance" Tags="&lt;macroeconomics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14280" PostTypeId="1" CreationDate="2016-11-18T14:15:56.953" Score="6" ViewCount="104" Body="&lt;p&gt;I am looking for a free source of large amounts of long term financial data on stocks, exchange rates, government bond rates, etc. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know there is Thomson Reuters, but this requires a costly subscription.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The data doesn't have to be super up-to-date.&lt;/p&gt;&#xA;" OwnerUserId="11146" LastEditorUserId="11146" LastEditDate="2016-11-20T05:10:19.740" LastActivityDate="2016-11-24T23:28:57.503" Title="Free source of large amounts of financial data" Tags="&lt;data-request&gt;&lt;financial-markets&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="14281" PostTypeId="2" ParentId="14279" CreationDate="2016-11-18T15:51:22.453" Score="1" Body="&lt;p&gt;Get rid of the gasoline and the home value. Home value can only be used as an indicator of net worth and gasoline is dependant in most cases on too many outside factors. An important one you missed is the trade deficit, and I would add us bond interest rates too. Because they are a good indicator of how investors think about the us. I would also add the average household income, cause the difference between the average and the median is also interesting.&lt;/p&gt;&#xA;" OwnerUserId="11032" LastActivityDate="2016-11-18T15:51:22.453" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14282" PostTypeId="2" ParentId="14280" CreationDate="2016-11-18T16:14:02.580" Score="2" Body="&lt;p&gt;Check out Quantopian:&#xA;&lt;a href=&quot;https://www.quantopian.com/data/quantopian/us_equity_pricing&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.quantopian.com/data/quantopian/us_equity_pricing&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Not sure if it has all the information that you need (e.g exchange rates), but has sufficient trading information.&lt;/p&gt;&#xA;" OwnerUserId="5332" LastActivityDate="2016-11-18T16:14:02.580" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14284" PostTypeId="1" AcceptedAnswerId="17770" CreationDate="2016-11-18T19:57:52.817" Score="1" ViewCount="106" Body="&lt;p&gt;I am interested in the origin of a central banking theory. I've heard that Karl Marx was the first author who wrote about central banking system. Was he really the first one? Or was there any other author who had written about this topic before Karl Marx?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By central banking I mean system where all currency in some country is provided by one institution. This institution has a legal monopoly and no other institution can create its own currency. Every subject in the country can use only the currency created by the central bank.&lt;/p&gt;&#xA;" OwnerUserId="10492" LastEditorUserId="2776" LastEditDate="2017-08-10T06:37:01.060" LastActivityDate="2017-08-12T08:17:03.263" Title="Who was the first economist to write about central banking?" Tags="&lt;central-banking&gt;&lt;history-economic-thought&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14285" PostTypeId="2" ParentId="14279" CreationDate="2016-11-18T20:22:06.497" Score="1" Body="&lt;p&gt;As suggested by the previous answer, definitely get rid of gas prices and median home value. You might also want to reconsider the way you look at the deficit, debt, and GDP growth rate as these are highly circumstantial; a better way to consider these as performance indicators is to compare their observed values to their trajectories at the end of the term of a predecessor.&lt;/p&gt;&#xA;" OwnerUserId="11008" LastActivityDate="2016-11-18T20:22:06.497" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14286" PostTypeId="2" ParentId="14278" CreationDate="2016-11-18T20:27:33.100" Score="1" Body="&lt;p&gt;Market failures often arise due to deviations from the classical assumptions of economics (e.g. Perfect Competition, Perfect Rationality, Perfect Information, Unbounded Computational Capacity, ...etc). There are lists of well-documented and studied market failures and the factors driving them (monopoly is sometimes considered a case of market failure); however, there cannot be an exhaustive list as that would be equivalent to placing a bound on the number of ways people can behave unexpectedly&lt;/p&gt;&#xA;" OwnerUserId="11008" LastActivityDate="2016-11-18T20:27:33.100" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14287" PostTypeId="1" CreationDate="2016-11-18T21:53:03.780" Score="0" ViewCount="1910" Body="&lt;p&gt;E.g. the Bank of Japan buying Japanese government bonds.&lt;/p&gt;&#xA;" OwnerUserId="8639" LastActivityDate="2016-11-20T01:11:07.567" Title="Why would a central bank buy government bonds?" Tags="&lt;central-banking&gt;&lt;bonds&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14288" PostTypeId="2" ParentId="14287" CreationDate="2016-11-18T23:22:23.877" Score="2" Body="&lt;p&gt;Because this is how the &quot;government issues new money&quot; in the era of (quasi) independent central banks: instead of directly issuing new money, the government in the narrow sense borrows from the central bank (which has been awarded the &quot;printing privilege&quot;) so this new money is recorded as debt burdening the government (plus interest), which then is accountable for this debt burden and how it affects the balance of public finances.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2016-11-18T23:22:23.877" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14289" PostTypeId="2" ParentId="14275" CreationDate="2016-11-19T00:18:38.630" Score="9" Body="&lt;p&gt;The Dynamic Programming (&quot;Bellman' Equation&quot;) formulation &lt;em&gt;incorporates&lt;/em&gt; the terminal boundary condition (&quot;transversality conditions&quot;) needed in case we use the Lagrangian/Euler equation formulation. The initial conditions are still needed in both approaches. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To see why, consider the problem&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\text{max}_{\{x_t\}} \sum_{t=0}^{\infty} \beta^t U(c_t)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$s.t.\;\;\; a_{t+1}= (1-r)a_t + w - c_t, \;\;\; a_0 \; \text{given}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Solving the budget constraint for $c_t$ and inserting into the objective function, we have compactly&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\text{max}_{\{a_{t}\}} \sum_{t=0}^{\infty} \beta^t U(a_t, a_{t+1}),\;\;\;\; a_0 \; \text{given}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where we treat the stock variable next period as our decision variable.&#xA;Now for the optimal sequence, $a^*_{t+1}$ must solve the following problem:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\max_y \big[U(a^*_t, y) + \beta U(y, a^*_{t+2})\big],\;\;\; y\;\; \text{feasible given}\;\; a^*_t$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the words of Stokey and Lucas &lt;em&gt;&quot;a feasible variation on the sequence $\{a^*_t\}$ cannot lead to an improvement on an optimal policy&quot;&lt;/em&gt;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then we get the first order conditions (differentiating with respect to $y$ essentially)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U_2(a^*_t, a^*_{t+1}) + \beta U_1(a^*_{t+1}, a^*_{t+2}) =0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where the subscripts $1,2$ denote partial derivatives. This is a &lt;em&gt;second-order&lt;/em&gt; difference equation, and so it requires &lt;em&gt;two&lt;/em&gt; boundary conditions. We have already one of them, the given initial value of wealth $a_0$. We need one more, hence the terminal, &quot;transversality&quot; condition. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In contrast, using the Dynamic Programming approach we arrive at a &lt;em&gt;first-order&lt;/em&gt; difference equation, and we do not need an additional boundary condition.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the full exposition, see &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0674750969&quot; rel=&quot;noreferrer&quot;&gt;Stokey &amp;amp; Lucas&lt;/a&gt; p. 97-100.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2016-11-19T00:18:38.630" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14291" PostTypeId="2" ParentId="13842" CreationDate="2016-11-19T10:25:20.790" Score="4" Body="&lt;p&gt;There is a lot to be said about this subject, and I will only give a partial insight.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;First off, value is &lt;em&gt;subjective&lt;/em&gt;. Everyone will place different values on different things, depending on such things as personal preferences, their economic status and income, and thoughts about the future such as expected future income and wealth, and the future worth of the item. Your &lt;strong&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Reservation_price&quot; rel=&quot;nofollow noreferrer&quot;&gt;reservation price&lt;/a&gt;&lt;/strong&gt; is the highest price you would theoretically be ready to buy or sell something for. This may or may not correspond to the actual price you would be getting on the market. If the price of the product is lower than your reservation price ($ P &amp;gt; P_{r}$), then the difference is your &lt;strong&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Economic_surplus&quot; rel=&quot;nofollow noreferrer&quot;&gt;surplus value&lt;/a&gt;&lt;/strong&gt;, which is what you gain beyond what you think the actual value is. For example, on the market for goods, let's say that the price of a good is $ \$ 100 $. Your reservation price is $ \$ 110 $, so that means that you think the product is worth $ \$ 10 $ beyond what you pay. The total value to you, is $ \$ 110 $. On the other hand, the seller's reservation price is $ \$ 90 $ – i.e. the seller would be ready to let go of the product for that amount. On a &lt;em&gt;very&lt;/em&gt; efficient market, that price might be what it cost to make the product. So $ \$ 90 $ is the value of the product for the seller. $ \$ 100 - \$90 = \$ 10 $ is the surplus value for the seller, if it sells for that price.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;If your reservation price is $ \$ 100 $ to sell something, but the best offer you can find is $ \$ 90 $, then you should distinguish between the &lt;em&gt;personal value&lt;/em&gt; that you attach to the product, and the &lt;em&gt;market value&lt;/em&gt;. In the public world, we usually value things by its market value. So if $ \$ 90 $ is the best offer you can find, then that is its &lt;em&gt;fair value&lt;/em&gt;. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;This assumption means that a building that cost $ \$ 1\ million $ to build, can actually be &lt;em&gt;worthless&lt;/em&gt; ($ \$ 0 $) on the market if &lt;em&gt;nobody&lt;/em&gt; wants to buy it. This could of course change in the future, perhaps people will get around to see the value you see, with time. So how is it that a building can be considered completely worthless, even though it's &quot;obviously not&quot;? Well, it can also be said, from a more financial perspective, that a value of an asset is worth the future income that it will provide. So if the market doesn't believe that the asset can create future income, then it's basically of no use. In market crashes, fear may drive investors to undervalue assets, or simply not be willing to engage in transactions at the time, driving prices down.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;We can create a measure of something's value by calculating its &lt;strong&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Present_value&quot; rel=&quot;nofollow noreferrer&quot;&gt;present value&lt;/a&gt;&lt;/strong&gt;. Typically, the formula would look something like:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$ PV = \frac{FV}{(1+i)^{n}}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $ FV $ is the future value (what you can sell it for in the future), $ i $ is the best alternative rent you would be able to get per period during that time (e.g. by investing in a risk-free bond), and $ n $ is the time periods until payment. The formula &lt;em&gt;discounts&lt;/em&gt; the future value to give a comparable present value, that you can use to compare it with other investments. $ (1+i)^{n} $ is the compounding effect of the rent over time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So let's say that you own a nice painting, and you think that it will be worth $ \$ 500$ in 10 years. Given that you could sell the painting today, and place the money in a bank account which pays $ i = 1 \%$ per year in interest rate, you should be willing to sell it for $ \frac{\$ 500}{(1+0.1)^{10}} = \$ 193 $ today, meaning that you either can get $ \$ 500 $ by selling the painting in 10 years, or the same money in 10 years by selling it now and keeping the funds in a bank account until then. Again, &lt;em&gt;market value&lt;/em&gt; is what should be used here to value the asset in transactional terms. But for you personally, the painting may be worth more than $ \$ 193 $ because it brings pleasure looking at it every day. In that case, you might actually value it in such a way that you would rather keep the painting for 10 years, rather than sell it now.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="5501" LastEditorUserId="5501" LastEditDate="2016-11-19T11:00:35.410" LastActivityDate="2016-11-19T11:00:35.410" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14292" PostTypeId="1" AcceptedAnswerId="14301" CreationDate="2016-11-19T10:42:38.650" Score="5" ViewCount="623" Body="&lt;p&gt;Is the following true? \begin{equation}\frac{\partial}{\partial X_{t+1}}E_t(f(X_{t+1}))=E_t(\frac{\partial}{\partial X_{t+1}}f(X_{t+1}))\tag{1}\end{equation} where $f$ is some affine function (e.g., $f(x)=a+bx$), $E_t(X_s)=E(X_s|I_t)$ denotes the conditional expectation of $X_s$ given information $I_t$ in time period $t$, and where $X_s$ denotes the value of some variable $X$, say financial asset holdings, in time period $s$, such that $X_s$ is unknown (i.e., stochastic) given information at time periods $0\leq t&amp;lt;s$ but known otherwise.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit 3: I &lt;em&gt;think&lt;/em&gt; we should view $X_{t+1}$ as a function of information in time period $t$, i.e. $X_{t+1}=X_{t+1}(I_t)$. This hinders $(1)$ from being zero (see Alecos' comment below). If this is the right way to look at the problem (see &quot;Edit 2&quot; below; I do not know how to look at the problem, that's why I'm asking!) then $(1)$ may be written in detail as \begin{equation}\frac{\partial}{\partial X_{t+1}}E(f(X_{t+1}(I_t))|I_t)=E(\frac{\partial}{\partial X_{t+1}}f(X_{t+1}(I_t))|I_t).\tag{1'}\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I often notice that $(1)$ (or $(1')$) &lt;em&gt;seems&lt;/em&gt; to be used when studying real business cycle models with uncertainty where the Lagrange method is applied (this framwork is outlined in e.g. Gregory C. Chow's &lt;em&gt;Dynamic Economics: Optimization by the Lagrange Method&lt;/em&gt;). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, we may have a situation where we have to differentiate \begin{equation}-\lambda_t A_{t+1}+E_t(\lambda_{t+1}(1+r_t)A_{t+1})+\Phi\tag{2}\end{equation} w.r.t. financial asset holdings $A_{t+1}$ in time period $t+1$, where $\lambda_t,\lambda_{t+1}\geq 0$, $r_t\in\mathbb{R}$ and $\Phi$ are independent of $A_{t+1}$ (i.e., they are not functions of $A_{t+1}$), and &lt;em&gt;seem&lt;/em&gt; to use $(1)$ to arrive at the conclusion that the partial derivative of $(2)$ w.r.t. $A_{t+1}$ is \begin{equation}-\lambda_t+E_t(\lambda_{t+1}(1+r_t)).\tag{3}\end{equation}  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I neither understand &lt;em&gt;if&lt;/em&gt; $(1)$ is used to justify the implication from $(2)$ to $(3)$, nor &lt;em&gt;if&lt;/em&gt; $(1)$ is true, within the framework mentioned in the parenthesis above, but know of other treatments which begin by discussing measure theory and stochastic processes (e.g., &lt;a href=&quot;http://www.econ.yale.edu/smith/econ510a/book.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Lecture notes for Macroeconomics I: Chapter 6&lt;/a&gt;), and then deriving similar, but not exactly analogous, first order conditions to that derived by using fact $(1)$ and the Lagrange method. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit 1: I was asked to post a reference. The reference is lecture notes written by my lecturer. It says the following. If we have a representativve household's maximization problem $$\max_{\{C_t,A_{t+1}\}_{t=0}^{\infty}}E_0\sum_{t=0}^{\infty}\beta^tu(C_t)$$ subject to the budget constraint $$C_t+A_{t+1}=Y_t+(1+r)A_t,\quad\forall t\in\mathbb{Z}_{\geq 0},$$ then we want to investigate the first order conditions for the Lagrangian\begin{equation}\mathcal{L}=E_0\left[\sum_{t=0}^{\infty}\beta^tu(C_t)+\sum_{t=0}^{\infty}\lambda_t[Y_t+(1+r)A_t-C_t-A_{t+1}]\right].\tag{4}\end{equation} One first order condition is the partial derivative of $\mathcal{L}$ w.r.t. $A_{t+1}$: $$-\lambda_t+E_t[\lambda_{t+1}(1+r)].$$ (To be exact he writes that the above is a first order condition for the Lagrangian $\mathcal{L}$. I've interpreted that as meaning that he partially differentiates $\mathcal{L}$ w.r.t. $A_{t+1}$.)  My question is then: Why is that true?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit 2: I've also used the following reference: &lt;a href=&quot;http://www.sfu.ca/~bkrauth/econ808/808_lec5.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Chapter 5. Real Business Cycles&lt;/a&gt;. See equation $(5.7)$. How does the author derive that equation? Does he differentiate inside the conditional expectations, as expressed by me in $(1)$?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit 4: To be more exact, $I_t$ may capture the value of e.g. output $Y_t$ (compare with the budget constraint above).&lt;/p&gt;&#xA;" OwnerUserId="7582" LastEditorUserId="7582" LastEditDate="2016-11-20T15:35:54.647" LastActivityDate="2016-11-20T15:35:54.647" Title="Differentiating a conditional expectation: RBC models with uncertainty" Tags="&lt;macroeconomics&gt;&lt;mathematical-economics&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="14293" PostTypeId="2" ParentId="12040" CreationDate="2016-11-19T12:20:43.053" Score="0" Body="&lt;p&gt;I am not familiar with South Korean data; but I believe the Gini coefficient estimated by the US Current Population Survey does not exclude single households, meaning it's not a universal practice for Gini estimation.&lt;/p&gt;&#xA;" OwnerUserId="11008" LastActivityDate="2016-11-19T12:20:43.053" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14294" PostTypeId="1" AcceptedAnswerId="14302" CreationDate="2016-11-19T20:00:59.627" Score="1" ViewCount="3069" Body="&lt;p&gt;I have a linear regression with one dependent variable and ten INdependent variables. I want to estimate this relationship using GMM, but I need at least ten instruments. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can I use the same dependent variables as instruments for the regression? If not, how would I go about choosing instruments in such a case?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT: my research studies reported generalized trust levels in 77 nations and has covariates such as lnGDP2013 lnPopulationSize2014 dummy variables for history of legal institutions from: Germany, Scandinavia, Britain, France, Germany, a dummy variable for whether or not a nation was involved in the transatlantic slave trade and a dummy variable for whether or not a nation was colonized by Europe in the last 300 years. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have transformed the dependent variable from a percentage TRUST = Percentage of people who answered that 'most people can be trusted' when surveyed to ln(TRUST/1-TRUST) which gives residuals whose estimated kernel density is roughly normal.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In addition I have a few other covariates such as probability of two individuals chosen from a nation being of the same ethnic group.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT2: I've parsed the model down so I am using GMM to explain the impact of whether or not a nation send or received slaves during the transatlantic slave trade on reported generalized trust levels using Africa as an instrument for whether or not a nation sent or received slaves. I can argue that being an African nation in and of itself should not having a dampening impact on trust but would be correlated with the likelihood that a nation was involved in the transatlantic slave trade. &lt;/p&gt;&#xA;" OwnerUserId="5847" LastEditorUserId="5847" LastEditDate="2016-11-21T19:17:19.757" LastActivityDate="2016-11-21T19:17:19.757" Title="How to choose instruments for GMM estimation?" Tags="&lt;econometrics&gt;" AnswerCount="1" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="14296" PostTypeId="2" ParentId="14287" CreationDate="2016-11-20T01:11:07.567" Score="2" Body="&lt;p&gt;This is referred to as Quantitative Easing in the field. The theory behind this is that when nominal interest rates have been cut to zero, asset purchases from the private sector at market prices will swap cash for assets on private balance sheets. These assets are most often sovereign and quasi-sovereign debt but can also be corporate bonds or stocks (as in the case of the Bank of Japan (BOJ) and the European Central Bank (ECB)). These Large Scale Asset Purchases or LSAPs exert downward pressure on yields. In the case of the US Federal Reserve, purchases of Fannie Mae and Freddie Mac MBS reduced mortgage rates and led to a large refinancing wave, putting more income in the pockets of US homeowners with mortgages.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The drop in private interest income should then induce private sector investors to seek out riskier, higher yielding debt issued by the private sector to finance projects that would have otherwise not been viable at higher interest rates. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first answer is incorrect in that it conflates deficit financing through the direct issue of government bonds by bypassing markets. LSAPs are always conducted through market operations through designated agents (typically large money managers) who act on behalf of the central bank and purchase assets at current market prices.&lt;/p&gt;&#xA;" OwnerUserId="11155" LastActivityDate="2016-11-20T01:11:07.567" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14297" PostTypeId="1" CreationDate="2016-11-20T03:07:16.427" Score="-3" ViewCount="83" Body="&lt;p&gt;Countries trade different amounts of goods that are inherently imbalanced. How do currency traders resolve these imbalances in the demand for different currencies? For example....&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Imagine we have two countries, Oilonia whose primary export is oil, and Chocolatonia whose primary export is chocolate. In Oilonia the currency is oilinos and the main moneychanger is Bancoilio. In Chocolatonia the currency is chocolatinos and the main money changer is Chocolatanza.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Imagine that in the year they first encounter each other there is a candy dealer in Oilonia who wants to import 1000 pounds of chocolate from Chocolatonia, and there is an oil dealer in Chocolatonia who would like to import as much as 10,000 tonnes of oil from Oilonia. The price of chocolate in Chocolatonia is 4 chocolatinos per pound and the price of oil in Oilonia is 400 oilinos per tonne.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The two dealers go to the money changers in their country and tell them their needs. The currency brokers at the two money changers then talk and one says &quot;I need 4000 chocolatinos&quot; and the other says &quot;What a coincidence, I need 4 million oilinos.&quot; Now, if both changers have these amounts in inventory they might do a direct trade, 4000 chocolatinos for 4 million oilinos, and everybody is happy, but this trade would be unbalanced. For example, if Chocolatanza advertised an exchange rate of 1000 to 1 for oilinos, they would have people lined up at the door to take that deal, but nobody in Oilonia would want to do the corresponding deal at Bancoilio. So, if that deal got done, it would be a one-time event.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;More likely, the two money changers would not sell currency out of their inventory at all, but would only do the deal so far as they could lay it off immediately. So, what would happen is that the candy dealer would tell Bancoilio, &quot;I am willing to pay 5000 oilinos for the 4000 chocolatinos because I know I can sell the 1000 pounds of chocolate here for 9000 oilinos which would be a good profit for me.&quot; Meanwhile, in Chocolatonia, the oil dealer would tell Chocolatanza, &quot;I am willing to pay 7 million chocolatinos for 4 million oilinos, because I know I can sell the 10,000 tonnes of oil for much more than that.&quot; So, now what happens is that Bancoilio goes to Chocolatanza, adds in their own profit, and says, &quot;We are willing to buy 4000 chocolatinos for 4500 oilinos.&quot; Chocolatanza answers, &quot;That rate sounds great to us and we will happily make that deal, but we would like to buy 4 million oilinos at that rate, not just 4500.&quot; Bancoilio will then say &quot;Sorry, we only have a need for 4500 chocolatinos right now.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, they are at an impasse. The rate is profitable for both of them, but due to the difference in trade demand, one side is unable to get the amount of currency they want.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Chocolatanza could try to break the impasse by asking to borrow the oilinos. &quot;Could we borrow the 4 million oilinos?&quot; but Bancoilio will be reluctant to do this because they know that Chocolatanza will only be able to acquire a few thousand oilinos every year through the chocolate trade, so it will take a very long time before they could pay the loan back.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, in this situation, how is progress made? How do real banks solve this problem?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have abstracted the problem into the above described case, so I will not consider as &quot;answers&quot; generic descriptions of currency trading which I know very well. I would like to know the solution as it applies to the abstracted example. So, a valid answer would be something like &quot;In the real world Chocolatanza would do X, Y and Z, then Bancolio would do P an d Q&quot; or whatever. For the purpose of the problem there are no other intermediary countries, nor are there any other non-monetary goods to trade (or if there are other goods, assume that the prices of those goods makes it infeasible to trade them between the two countries).&lt;/p&gt;&#xA;" OwnerUserId="1448" LastEditorUserId="1448" LastEditDate="2016-11-20T13:01:12.620" LastActivityDate="2016-11-23T15:09:51.080" Title="How do currency traders resolve imbalances in the demand for different currencies?" Tags="&lt;currency&gt;&lt;international-trade&gt;&lt;balance-of-trade&gt;&lt;balance-of-payments&gt;&lt;currency-exchange&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="14298" PostTypeId="2" ParentId="6811" CreationDate="2016-11-20T04:39:20.683" Score="3" Body="&lt;p&gt;A gold standard is when a country tries to maintain a fixed rate of exchange between their currency and the value of gold. So, for example, the United States attempted to maintain an exchange rate of about $20 to the troy ounce starting in 1862 with the so-called &quot;greenback&quot; dollar which is the ancestor of our current dollar. This is difficult to do because gold has an inherent value which fluctuates, so any government offering a fixed rate of exchange can be arbitraged and will lose money as a result. For example, when greenbacks were first issued, the US Treasury almost immediately defaulted on them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The only reliable way to maintain a gold standard is to issue gold certificates in which there is a one-to-one relationship between the gold in the treasury and the corresponding currency issues. Historically, few governments have had the discipline to achieve this. They instead tend to maintain a fractional reserve and as a result their currency depreciates until eventually they default. In the United States this default occurred in 1934.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To answer your specific questions:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;How did trade work in former times?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In former times foreign trade worked in basically two ways: cash and kind. To trade in cash, the trader would bring whatever money was used in the foreign place with them. So, for example, China used silver, so the trader would bring silver to buy something. To trade in kind, the trader brings goods, sells the goods for the local money, then uses that money to buy a new good. For example, in the opium trade, the merchants would bring English textiles, sell them in India for rupees, then use the rupees to buy opium. The opium would then be brought to China and sold for silver. The silver would then would be used to buy silk and tea which would be brought back to England.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;In today's fiat currency, how does trade occur?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some transactions are resolved in cash. The buyer buys the needed currency from their local bank and then buys the foreign good. In this case the buyer risks a default by the seller. The other method is via an acceptance. This process is too complicated to easily describe. Basically banks act to negotiate the trade. Look up &quot;Bankers Acceptance&quot; for details. In both cases, the banks must resolve any imbalances in the currency trade.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;I understand that different factors like interest rates and inflation can affect exchange rates. However, why do countries hold currencies of other countries in &quot;reserve&quot;? Why is this necessary?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's not necessary. A bank can always resolve an imbalance using gold. For example, if I am the Croatian National Bank and I am long Kunas and short Forints, I can buy gold locally with Kunas, ship the gold to Hungary and I will be credited Forints and this resolves the imbalance. However, the disadvantage is that buying and shipping gold is costly and time-consuming. It may be faster and cheaper for me to buy US Dollars with Kunas, then use the dollars to buy Forints. Thus, I solve my imbalance much more conveniently by dollars instead of gold. This works as long as both the kuna dealers and forint dealers accept dollars. USD is called a &quot;reserve&quot; currency because people hold it in reserve because it is widely accepted by currency traders.&lt;/p&gt;&#xA;" OwnerUserId="1448" LastEditorUserId="4020" LastEditDate="2018-09-11T09:54:23.113" LastActivityDate="2018-09-11T09:54:23.113" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="14299" PostTypeId="2" ParentId="14280" CreationDate="2016-11-20T10:39:21.520" Score="3" Body="&lt;p&gt;I assume that you are looking for macro financial data across countries. So, you can check out:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;World Bank Open Data with a specific query on &lt;a href=&quot;http://data.worldbank.org/topic/financial-sector&quot; rel=&quot;nofollow noreferrer&quot;&gt;Financial Sector&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.imf.org/en/Data&quot; rel=&quot;nofollow noreferrer&quot;&gt;IMF Financial Statistics&lt;/a&gt; or &lt;a href=&quot;http://www.imf.org/data/imf-finances&quot; rel=&quot;nofollow noreferrer&quot;&gt;IMF Finances&lt;/a&gt;. Last time I used is a free registration was required .&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://www.ers.usda.gov/data-products/agricultural-exchange-rate-data-set.aspx&quot; rel=&quot;nofollow noreferrer&quot;&gt;Agricultural Exchange Rate Data Set&lt;/a&gt;. This data set contains annual and monthly data for exchange rates (important to U.S. agriculture). It includes both nominal and real exchange rates for 79 countries, plus the European Union (EU), as well as real trade-weighted exchange rate indexes for many commodities and aggregations. All series are updated quarterly. Data series start at the beginning of 1970 and run to the last available data point.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="6168" LastActivityDate="2016-11-20T10:39:21.520" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14300" PostTypeId="2" ParentId="14280" CreationDate="2016-11-20T11:14:16.130" Score="1" Body="&lt;p&gt;Here are  three for you:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;http://www.tradingeconomics.com&quot; rel=&quot;nofollow noreferrer&quot;&gt;tradingeconomics.com&lt;/a&gt; - Look at the &quot;Indicators&quot; tab. - Correction it seems that viewing the graphs if free but you have to pay if you want to download the raw data :-(&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;http://ec.europa.eu/eurostat/web/main/home&quot; rel=&quot;nofollow noreferrer&quot;&gt;Eurostat&lt;/a&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;http://www.econ.yale.edu/~shiller/data.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;Robert Shiller&lt;/a&gt; - Some super long timescale data on the stock market and housing in the US, e.g. house prices since 1890!&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="5081" LastEditorUserId="4988" LastEditDate="2016-11-24T23:28:57.503" LastActivityDate="2016-11-24T23:28:57.503" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14301" PostTypeId="2" ParentId="14292" CreationDate="2016-11-20T12:19:29.090" Score="5" Body="&lt;p&gt;As I noted in a comment, to consider non-trivially a derivative, we must have a non-constant function in the first place. So, in generic terms, we are looking at the conditional expectation &lt;em&gt;function&lt;/em&gt; $E(X\mid Z)$ and not at the conditional expected value of $X$ given a specific value $Z=  z$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, $E(X\mid Z)=g(Z)$, i.e. it is a function of $Z$ only, not of $X$, so it appears that its derivative with respect to $X$ should be zero.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;But:&lt;/strong&gt; the way the problem is formulated, we treat the $X$, ($A_{t+1}$ in the OP's example), &lt;em&gt;as a decision variable&lt;/em&gt;. Namely as a variable for which we can &lt;em&gt;choose&lt;/em&gt; the value that it takes. But this conflicts with the fundamental characteristic of a random variable, i.e. that it is not under our control and its actual realization is unknown.  By treating it as a decision/command variable, we effectively neutralize any aspect related to a random variable, the conditional expectation aspect in our case. And it is in that sense that we can consider the derivative &quot;ignoring&quot; the existence of the conditional expectation operator. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that, for the problem laid out at the end of OP's question, &lt;em&gt;if&lt;/em&gt; income $Y_t$ is known at the time of the decision for current consumption, then $A_{t+1}$ is also completely determined, there is nothing random/unknown/uncertain about it. This then allows, in a Lagrangian formulation, to treat $A_{t+1}$ also as a decision variable and consider derivatives with respect to it.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2016-11-20T12:19:29.090" CommentCount="10" ContentLicense="CC BY-SA 3.0" />
  <row Id="14302" PostTypeId="2" ParentId="14294" CreationDate="2016-11-20T15:09:23.937" Score="3" Body="&lt;p&gt;As jmbejara says, better to be more specific, but let me guess.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You have a linear model $y = \beta_0 + \beta_1 x_1 + \cdots + \beta_{10} x_{10} + u$, where $x_1, x_2, \ldots, x_{10}$ are endogenous. Then, yes, you need at least ten instruments.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can you use the same dependent variables as instruments for the regression? No, you can't. Instruments should be exogenous (uncorrelated with $u$) and relevant (strongly correlated with the endogenous regressors). But if some of the regressors are (believed to be) exogenous, then you use those exogenous ones as instruments. But you still need &lt;em&gt;extra&lt;/em&gt; instruments for endogenous regressors. The rule is that you need at least $k$ extra instruments if there are $k$ endogenous regressors.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finding good instruments (exogenous and relevant) is usually difficult. I suspect it would be really hard to find 10 instruments for a regression unless you have good economic justification.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That said, again it would be better to see your specific problem.&lt;/p&gt;&#xA;" OwnerUserId="10775" LastActivityDate="2016-11-20T15:09:23.937" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14303" PostTypeId="2" ParentId="5771" CreationDate="2016-11-20T15:41:28.400" Score="6" Body="&lt;p&gt;Weak instruments combined with slight &lt;em&gt;instrumental endogeneity&lt;/em&gt; can lead to a larger bias than OLS. As Nox's answer shows, the probability limit of the IV estimator is $\beta_1 + cov(z,u)/cov(z,x)$. When $cov(z,u) \ne 0$ though small, if $cov(z,x)$ is small, then the bias can be large. See Bound, Jaeger and Baker's (1995, JASA) remark following equation (7) on page 444. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.djaeger.org/research/pubs/jasav90n430.pdf&quot; rel=&quot;noreferrer&quot;&gt;http://www.djaeger.org/research/pubs/jasav90n430.pdf&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;It is clear from Equation (7) that a weak correlation between the potentially endogenous variable, $x$, and the instruments, $z_1$, will exacerbate any problems associated with the correlation between the instrument and the error, $\varepsilon$. If the correlation between the instrument and the endogenous explanatory variable is weak, then even a small correlation between the instrument and the error can produce a larger inconsistency in the IV estimate of $\beta$ than in the OLS estimate.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Without instrumental endogeneity, I don't think the IV estimator's bias (of the limit distribution, there may be no probability limit) is larger than OLS's inconsistency.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another thing to consider is that the variance of the IV estimator using very weak instruments can be large even with a very large $n$, and thus you may have an IV estimate more nonsense than OLS for a data set just by chance.&lt;/p&gt;&#xA;" OwnerUserId="10775" LastActivityDate="2016-11-20T15:41:28.400" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14304" PostTypeId="2" ParentId="13271" CreationDate="2016-11-20T21:32:44.437" Score="7" Body="&lt;p&gt;From reading a selection of writings by Marx, I have come to understand the following three as the core elements of Marxian economics.&lt;/p&gt;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;em&gt;The labour theory of value.&lt;/em&gt; It asserts that the exchange value of a commodity &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; (what quantities of &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; that can be exchanged for another commodity) is determined by that labour time which is socially necessary to produce &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;em&gt;Surplus value theory of profit.&lt;/em&gt; I.e., capitalists derives profit from their exploitation of workers. Suppose a capitalist purchases labour power from a worker for one day. To Marx, then, the value of one day's usage of this labour power is the value of the commodities which is necessary for the worker to live through one day. Say that it takes one fourth of a day to produce this amount of commodities, the value of which will be equivalent to the wage paid to the worker by the capitalist. This one fourth of a day is called necessary labour. Any work above this level is surplus labour from which the capitalist derives profit.&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;em&gt;The theory of alienation.&lt;/em&gt; In the following I quote a passage from Marx's &lt;em&gt;Economic and Philosophical Manuscripts of 1844&lt;/em&gt;. Relating this passage to the above core elements, I note that Marx somehow seems to think that the institution of capitalism structures parts of the social world.&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;The worker becomes poorer the more wealth he produces, the more his&#xA;production increases in power and extent. The worker becomes an ever&#xA;cheaper commodity the more commodities he produces. The &lt;em&gt;devaluation&lt;/em&gt; of&#xA;the human world grows in direct proportion to the &lt;em&gt;increase in value&lt;/em&gt; of&#xA;the world of things. Labour not only produces commodities; it also&#xA;produces itself and the workers as a &lt;em&gt;commodity&lt;/em&gt; and it does so in the&#xA;same proportion in which it produces commodities in general.&lt;/p&gt;&#xA;&lt;p&gt;This fact simply means that the object that labour produces, its&#xA;product, stands opposed to it as &lt;em&gt;something alien&lt;/em&gt;, as a power&#xA;independent of the producer. The product of labour is labour embodied&#xA;and made material in an object, it is the &lt;em&gt;objectification&lt;/em&gt; of labour.&#xA;The realization of labour is its objectification. In the sphere of&#xA;political economy, this realization of labour appears as a &lt;em&gt;loss of&#xA;reality&lt;/em&gt; for the worker, objectification as loss of and bondage to the&#xA;object, and appropriation as estrangement, as &lt;em&gt;alienation&lt;/em&gt;.&lt;/p&gt;&#xA;&lt;p&gt;So much does the realization of labour appear as loss of reality that&#xA;the worker loses his reality to the point of dying of starvation. So&#xA;much does objectification appear as loss of the object that the worker&#xA;is robbed of the objects he needs most not only for life but also for&#xA;work. Work itself becomes an object which he can only obtain through&#xA;an enormous effort and with spasmodic interruptions. So much does the&#xA;appropriation of the object appear as estrangement that the more&#xA;objects the worker produces the fewer can he possess and the more he&#xA;falls under the domination of his product, of capital.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="7582" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2016-11-21T13:14:43.130" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="14308" PostTypeId="1" AcceptedAnswerId="14309" CreationDate="2016-11-21T15:40:55.927" Score="1" ViewCount="1856" Body="&lt;p&gt;If I have a game that goes as follow:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/t1e3D.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/t1e3D.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Player 1 is the row player and player 2 is the column player. I think that the Nash Equilibria should be (10, 5) and (5, 10), since neither of the player has incentive to unilaterally deviate given the other's strategy. But then the dominant strategy, I thought, for both player is to always invest. Does this mean that the stable outcome is actually (5, 5) and that it is inconsistent with the NEs, which should be stable? (I only work with pure strategy here)&lt;/p&gt;&#xA;" OwnerUserId="10876" LastActivityDate="2016-11-21T16:32:50.017" Title="Nash Equilibrium and Dominant Strategy" Tags="&lt;game-theory&gt;&lt;nash-equilibrium&gt;&lt;dominant-strategy&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14309" PostTypeId="2" ParentId="14308" CreationDate="2016-11-21T16:11:17.650" Score="2" Body="&lt;p&gt;You're on the right track here. You need to check every outcome for its potential to be a NE. You're correct in stating that outcomes (5,10) and (10,5) are NEs however you didn't identify that (5,5) is also an NE.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(5,5)&#xA;If player one deviates he receives a payout of 5. &#xA;If player two deviates he receives a payout of 5.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore no player has an incentive to unilaterally deviate and (5,5) is a Nash equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You're also correct that (5,5) is the dominant strategy solution. Just keep in mind that the dominant strategy solution will always be a Nash equilibrium but not all Nash equilibria are dominant strategy solutions.&lt;/p&gt;&#xA;" OwnerUserId="4808" LastActivityDate="2016-11-21T16:11:17.650" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14310" PostTypeId="2" ParentId="14308" CreationDate="2016-11-21T16:32:50.017" Score="2" Body="&lt;p&gt;Do you have a formal notion of what 'stable' means? Nash equilibria are often thought of informally as the strategies that support stable outcomes. If that's all that the term 'stable' means, then of course the outcomes $(5,10)$ and $(10,5)$ are also stable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As Lee Sin notes above, the outcome $(5,5)$ is also a Nash equilibrium outcome, and so is stable in that sense.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, if you are defining stable as an outcome supported by an equilibrium in weakly dominant strategies (which it seems like you are), then $(5,5)$ is the unique stable outcome.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note also that invest is only a weakly dominant strategy -- it is sometimes strictly better but never strictly worse than another strategy. I suspect the sense of stability you mean to invoke involves strictly dominant strategies, of which there are none in the given game.&lt;/p&gt;&#xA;" OwnerUserId="8595" LastActivityDate="2016-11-21T16:32:50.017" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="14311" PostTypeId="2" ParentId="14268" CreationDate="2016-11-21T17:32:07.033" Score="1" Body="&lt;p&gt;A central question of econometrics has been the question of causality: does X cause Y? Does the minimum wage cause employment? Do taxes cause capital flight? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Data science has been mostly concerned with the predictive power of its models: how can we sort pictures according to their contents? how can we sort customers according to their creditworthiness?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The two questions of causality and prediction are related: if we find a great predictor of customers' creditworthiness, does it mean that that characteristic causes creditworthiness? The answer is tricky, because excellent predictors are actually not always causal determinants of the outcome. If, for instance, high income students tend to cluster in good schools, this does not necessarily mean that household income causes student achievement. A perhaps more controversial example is that ethnicity predicts (i.e. is correlated with) a range of outcomes (education, health) but does not necessarily cause them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Data science has become central to business applications (from Google Photos to face recognition in Facebook) but not so much to public policy analysis. In contrast, econometrics is ubiquitous in policy analysis.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is some convergence though. A better, and more elaborate answer on how econometrics recently borrowed from data science is provided by Susan Athey (Sep 2016 podcast). &lt;a href=&quot;http://www.econtalk.org/archives/2016/09/susan_athey_on.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.econtalk.org/archives/2016/09/susan_athey_on.html&lt;/a&gt; &lt;/p&gt;&#xA;" OwnerUserId="10482" LastActivityDate="2016-11-21T17:32:07.033" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14312" PostTypeId="2" ParentId="12994" CreationDate="2016-11-21T21:18:47.940" Score="2" Body="&lt;p&gt;This is a very standard % change over time formula.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is simply:&#xA;Change Between Years / Original Value&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$ΔW_t$ means the change in wage from year $t-1$ to year $t$ (where $t$ represents an arbitrary amount of time). You can easily calculate that by: $ΔW_t=W_t−W_{t−1}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus it is simply saying % change over time is $\frac{New - Old}{Old}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Middle school math with more symbols.&lt;/p&gt;&#xA;" OwnerUserId="10245" LastEditorUserId="4415" LastEditDate="2016-11-22T12:53:23.843" LastActivityDate="2016-11-22T12:53:23.843" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14313" PostTypeId="2" ParentId="14238" CreationDate="2016-11-21T22:19:16.683" Score="2" Body="&lt;p&gt;Here are some elements:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Considering the two countries independently (like a closed economy), it depends on the &lt;strong&gt;real interest&lt;/strong&gt; rate in the domestic country. If the inflation is zero in both countries, the real interest interest is probably higher in Iceland than in Sweden. To go deeper on this path, look at the &lt;em&gt;Taylor rule&lt;/em&gt; which is a good proxy for the monetary policy followed in practice.&lt;/li&gt;&#xA;&lt;li&gt;In an open economy, it depends also on the &quot;confidence&quot; foreign agents have in your currency. If they are afraid of a future inflation (so their returns will shrink) they &quot;ask&quot; for a better remuneration. For example the ECB had for years higher interest rate than the FED, and some argued the lack of confidence in the euro was one motive. The &lt;em&gt;interest rate parity&lt;/em&gt; is the key word for deeper research.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="4415" LastActivityDate="2016-11-21T22:19:16.683" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="14314" PostTypeId="1" CreationDate="2016-11-21T22:19:57.490" Score="2" ViewCount="424" Body="&lt;p&gt;Here's a problem restated from Ross Starr's &lt;em&gt;General Equilibrium Theory&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Consider a two-commodity economy with an excess demand function $Z(p)=(Z_1(p),Z_2(p))$. The price space is $p \in P = \left \{ p | p \in \mathbb{R}^{2}, p \geq 0, p_1 + p_2 =1 \right \}$. Let $Z(p)$ be continuous, bounded and fulfill Walras' Law as an equality, that is $p_1Z_1(p)+p_2Z_2(p)=0$. Assume $Z_1(0,1)&amp;gt;0$, $Z_1(1,0)&amp;lt;0$, $Z_2(0,1)&amp;lt;0$, $Z_2(1,0)&amp;gt;0$.&#xA;  Use the &lt;strong&gt;intermediate value theorem&lt;/strong&gt; and &lt;strong&gt;Walras' Law&lt;/strong&gt; to show that the economy has a competive equilibrium. That is, demonstrate that there is a price vector $p* \in P$ so that $Z(p*)=(0,0)$.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;And I have a hint: Characterize $Z(p)$ as $Z(\alpha , 1- \alpha)$ for $0 \leq \alpha \leq 1$. Use the intermediate value theorem to find $0 \leq \alpha \leq 1$ so that $Z_1(\alpha , 1- \alpha)=0$. Then apply Walras' Law.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm having problem finding $\alpha$, how could I find it?&lt;/p&gt;&#xA;" OwnerUserId="10582" LastEditorUserId="4251" LastEditDate="2016-11-24T08:02:28.583" LastActivityDate="2016-11-24T08:02:28.583" Title="Application of Intermediate Value Theorem for General Equilibrium" Tags="&lt;microeconomics&gt;&lt;general-equilibrium&gt;" AnswerCount="2" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="14316" PostTypeId="2" ParentId="12994" CreationDate="2016-11-21T22:55:20.830" Score="1" Body="&lt;p&gt;This equation is commonly named &lt;strong&gt;wage growth&lt;/strong&gt; rate (in discrete time) in its simplest form (the difference between two consecutive periods). Your notations understanding is correct.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;&lt;em&gt;average&lt;/em&gt; wage increase&quot; because $W$ is an &quot;&lt;em&gt;average&lt;/em&gt; level&quot; by definition.&lt;/p&gt;&#xA;" OwnerUserId="4415" LastActivityDate="2016-11-21T22:55:20.830" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14317" PostTypeId="1" CreationDate="2016-11-21T23:32:25.340" Score="1" ViewCount="80" Body="&lt;p&gt;The fractional banking system, in a nutshell, allows banks to invest the money deposited in them, and then for whoever ends up with that invested money to deposit the money back into the bank, which can then reinvest it and so on. For example, let's say Mike puts \$1000 into a bank. The bank might invest \$800 of those dollars into a factory, which then pays the \$800 to its workers that themselves deposit their \$800 into the bank. So while Mike's bank account balance still reads \$1000, the workers' bank accounts include \$800 of those same dollars that have been paid out on loan from the bank, meaning the bank has effectively turned Mike's \$1000 into \$1800, and can loan out that same \$800 to triple dip, quadruple dip, and so on ad infinitum.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In practice, in the world and the United States, how many spendable dollars are created for each actual dollar in circulation, M0 to M1?&lt;/p&gt;&#xA;" OwnerUserId="11173" LastActivityDate="2017-04-22T23:22:53.617" Title="Given fractional banking and the multiplier effect, for every dollar in circulation, how many dollars in spendable money exist?" Tags="&lt;currency&gt;&lt;finance&gt;&lt;banking&gt;&lt;money-supply&gt;&lt;financial-economics&gt;" AnswerCount="1" CommentCount="9" ContentLicense="CC BY-SA 3.0" />
  <row Id="14318" PostTypeId="2" ParentId="14314" CreationDate="2016-11-21T23:54:40.073" Score="3" Body="&lt;p&gt;A stronger hint: Write $p_2=1-p_1$, so that $Z(p)=Z(p_1,1-p_1)$. Use the conditions $Z_1(0,1)&amp;gt;0,Z_1(1,0)&amp;lt;0$ etc. and the intermediate value theorem to argue that there exists a $p_1^*\in(0,1)$ such that $Z_1(p_1^*,1-p_1^*)=0$. &lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2016-11-21T23:54:40.073" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14319" PostTypeId="2" ParentId="11920" CreationDate="2016-11-22T00:30:09.330" Score="5" Body="&lt;p&gt;What it means is the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider the same bargaining game played by two players that are fully informed (i.e. the buyer is also informed about the value of $q$). Then find the equilibrium of this game and calculate welfare. This is the ``full information welfare'' that the question refers to.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then solve the model where only the seller is informed about the value of $q$ i.e. find the equilibrium of this game. Now calculate equilibrium welfare. How does it compare to the one you calculated for the full-information case? I would probably do this by calculating the fraction&#xA;$$\frac{\text{Asymmetric info welfare}}{\text{Full info welfare}}.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lastly, you need to see how this fraction changes as the values of $\alpha$ and $\delta$ change.&lt;/p&gt;&#xA;" OwnerUserId="11174" LastActivityDate="2016-11-22T00:30:09.330" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14320" PostTypeId="2" ParentId="14314" CreationDate="2016-11-22T08:13:19.213" Score="3" Body="&lt;p&gt;I couldn't think of a good hint. If you are having trouble with using the information given, (as the application of Walras + IVT is fairly straightforward), then there are not many tips that can help. I've opted to put out each step explicitly. Let me know if you don't understand a part, and I'll try to edit to make it clearer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the future, it is better if you try and explain what part you are having trouble with, so that people can better help you (and also to prevent you from getting your questions closed).&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;We have:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Z(\vec p) = \bigg(Z_1(p_1, p_2), Z_2(p_1, p_2) \bigg)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and can substitute $p_1 = 1 - p_2$ as Herr K. has pointed out.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Z(\vec p) = \bigg(Z_1(p_1, 1 - p_1), Z_2(p_1, 1-p_1) \bigg)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$Z_1$ can be expressed as a function of one variable, $Z_1(p_1)$, so that the Intermediate Value Theorem can be applied.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the interval $I = (0, 1) \in \mathbb{R}$, we have $Z_1: I \rightarrow \mathbb{R}$, a continuous (and bounded) function where given&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\infty &amp;gt; Z_1(p_1 = 0) &amp;gt; 0 &amp;gt; Z_1(p_1 = 1) &amp;gt; -\infty$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;there exists $p_1^* \in (0, 1)$ such that $Z_1(p_1^*) = 0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And by Walras' Law,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$p_1^* Z_1(p_1^*, 1-p_1^*) + (1 - p_1^*) Z_2(p_1^*, 1-p_1^*) = 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$p_1^* \cdot 0 + (1 - p_1^*) Z_2(p_1^*, 1-p_1^*) = 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and because $(1-p_1^*) &amp;gt; 0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Z_2(p_1^*, 1-p_1^*) = 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;meaning $Z(p_1^*) := Z(p^*_1, p^*_2) = (0, 0)$&lt;/p&gt;&#xA;" OwnerUserId="4251" LastEditorUserId="4251" LastEditDate="2016-11-22T08:40:04.263" LastActivityDate="2016-11-22T08:40:04.263" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14321" PostTypeId="2" ParentId="13165" CreationDate="2016-11-22T10:42:05.743" Score="2" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Bank of England decided to lower &lt;code&gt;reserve interest rates to 0.25%.&lt;/code&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This means the central bank wants to reduce the interest paid on reserved stash, discourage bankers &lt;code&gt;parking&lt;/code&gt; too much money in central bank.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;With smaller return from central bank interest rate, this is just a policies that central bank &lt;code&gt;hope&lt;/code&gt; the bank will use the money to invest or buy bonds. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In short, this has nothing to do with borrowing rates. &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Long story&#xA;Most country central bank enact rules that require banker to deposit some reserved, which the stash can be used when one of the banker face a sudden surge of withdrawal,etc. It is just a measurement to prevent banker gone rogue, loan too much money to borrower than a safety threshold.  But money in this reserved are &quot;unproductive&quot;, thus most central bank will give some interest return. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, in high risk condition or common rent seeking situation , bankers might do the opposite, they &lt;code&gt;park&lt;/code&gt; more money in central bank to earn some dime, when the bond or other money making tools just too expensive or risky to them.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;The speculation follow by the question are mostly flaw, perhaps IMHO, those are fallacy impost by media. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In real life.&#xA; 1. i. Moving money is costly  ii. it is difficult to find a safe haven that is cheap.&#xA; 2. In fact, the move is just pragmatic (Beware that pragmatic doesn't mean it is logical or good decision) &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;And to OP question title : &lt;code&gt;What stops a government in partnership with its central bank from lowering interest rates and then borrowing at this lower rate to fund investments?&lt;/code&gt;&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Interest rates DOESN'T SOLVE the problem of money supplies.&lt;/li&gt;&#xA;&lt;li&gt;Central bank only control money supplies, it doesn't do the &quot;borrowing&quot;&lt;/li&gt;&#xA;&lt;li&gt;Government borrow money by printing bonds. HOWEVER, if too much bonds are printed and too much money are used to buy the bonds, it will affect liquadation of money. So there is always some &quot;money printing&quot; (AKA inflation) action follows.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="11177" LastEditorUserId="11177" LastEditDate="2016-11-22T11:58:39.463" LastActivityDate="2016-11-22T11:58:39.463" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14323" PostTypeId="1" AcceptedAnswerId="14329" CreationDate="2016-11-22T15:16:58.717" Score="-3" ViewCount="138" Body="&lt;p&gt;According to this &lt;a href=&quot;http://money.cnn.com/2016/05/10/news/economy/us-debt-ownership/&quot; rel=&quot;nofollow noreferrer&quot;&gt;article&lt;/a&gt; USA owns $19 trillion-plus dollars.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/9pS1d.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/9pS1d.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So it seems USA owns $12 trillion to its own people. Why can't we just forgive it and remove this debt? People will not get this money anyway and whatever they get from the government is laughable. The economy and US currency would grow exponentially which would take care of the people's retirement funds. &lt;/p&gt;&#xA;" OwnerUserId="5008" LastActivityDate="2016-11-22T19:19:59.853" Title="Why can't we forgive USA's debt?" Tags="&lt;debt&gt;&lt;usa&gt;" AnswerCount="3" CommentCount="1" ClosedDate="2016-12-02T23:20:25.857" ContentLicense="CC BY-SA 3.0" />
  <row Id="14324" PostTypeId="2" ParentId="14323" CreationDate="2016-11-22T15:53:43.807" Score="0" Body="&lt;p&gt;I think the US has not yet defaulted on federal debt, so it seems people do get the money back, and hence the question is based on a false premise. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I see no reason why the economy would grow after debt forgiveness, unless you assume the debtors would be able to get new credit, which seems unlikely. After all it will just be forgiven again. As for debtors being able to spend money on consumption and investment rather than interest: This was still spent when debt existed, only not by the debtors, but by the creditors who got it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On a side note: I like your attitude. Would you mind lending me money?&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2016-11-22T18:06:58.160" LastActivityDate="2016-11-22T18:06:58.160" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="14325" PostTypeId="2" ParentId="14323" CreationDate="2016-11-22T16:35:57.373" Score="0" Body="&lt;p&gt;Most government debts in the world are in form of terms bonds.  It is a sort of collateral base on trust. The fun parts about US debts, is that country that run GIGANTIC inficit trade against USA, can't avoid it buying US bonds.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Inbalance trade will cause the recipient side receive too much money, thus, will trigger inflation on them. To negate this effect, historically, countries like Japan and China will use surplus currency earn to buy USA bond to counter it. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, imagine the bonds is defaulted. With the lost of the trust on bonds, while the inbalanced trade still ongoing : countries with tsunami wave of earned money need to park the earned US dollar somewhere.  Guess what happens when excessive amount of dollar (hundreds of billion every quarter) pour back to USA market?  It will trigger inflation on almost everything, and the best tools (bonds) in the first place already destroyed. &lt;/p&gt;&#xA;" OwnerUserId="11177" LastActivityDate="2016-11-22T16:35:57.373" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14326" PostTypeId="1" CreationDate="2016-11-22T16:58:08.487" Score="1" ViewCount="50" Body="&lt;p&gt;It is well known via Tauchen (1986) that a VAR(1) process can be approximately fairly well (in the absence of persistence) by a discrete Markov-chain if the innovation is distributed standard normal. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can a MS-VAR(1) be approximated in the same manner?&lt;/p&gt;&#xA;" OwnerUserId="4938" LastActivityDate="2016-11-22T16:58:08.487" Title="Can a MS-VAR(1) be discretized to a Markov-chain the same way a VAR(1) has a discrete approximation?" Tags="&lt;macroeconomics&gt;&lt;time-series&gt;&lt;markov-chain&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14327" PostTypeId="1" AcceptedAnswerId="14336" CreationDate="2016-11-22T17:03:55.260" Score="2" ViewCount="151" Body="&lt;p&gt;I'm trying to do some research on unemployment and labor participation rate in the US to figure out what people are talking about.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For instance, the Civilian Labor Force Participation Rate for Sept 2016 is 62.9% &lt;a href=&quot;https://fred.stlouisfed.org/series/CIVPART&quot; rel=&quot;nofollow noreferrer&quot;&gt;(FRED 1)&lt;/a&gt;. My attempt to control for retirement would be to look at the 25-54 age group series, which puts the labor participation rate at 81.7% (18.3% unparticipation) &lt;a href=&quot;https://fred.stlouisfed.org/series/LNU01300060&quot; rel=&quot;nofollow noreferrer&quot;&gt;(FRED 2)&lt;/a&gt;, but I'm guessing there a number of things wrong with that approach. The Bureau of Labor Statistics says the U-6 unemployment is &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;and gives the Oct 2016 number as 9.5% &lt;a href=&quot;http://www.bls.gov/news.release/empsit.t15.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;(BLS 1)&lt;/a&gt;. This sounds like an all-inclusive definition, or what people &quot;really&quot; mean when they talk about unemployment, but that differs from the 25-54 labor participation rate by quite a bit (9.5% vs 18.3%).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Question&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In what way is the labor participation rate useful for tracking unemployment? It seems there are a large number of people included in labor participation that shouldn't be included when trying to measure unemployment, for example, the number of people retired and choosing not to work.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(side question: is there a number of people retired series on FRED? I'm not seeing one...)&lt;/p&gt;&#xA;" OwnerUserId="11180" LastActivityDate="2016-11-23T03:08:37.233" Title="In what way is the labor participation rate useful for tracking unemployment?" Tags="&lt;macroeconomics&gt;&lt;unemployment&gt;&lt;united-states&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14329" PostTypeId="2" ParentId="14323" CreationDate="2016-11-22T19:19:59.853" Score="1" Body="&lt;p&gt;Let's try the &lt;a href=&quot;https://en.wikipedia.org/wiki/Fermi_problem&quot; rel=&quot;nofollow noreferrer&quot;&gt;Fermi estimate&lt;/a&gt;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a two-period set up (each lasting something like 25 years in calendar time), let the intertemporal budget constraints be&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$a_2 =(1+r)a_1 + w_1 - c_1$$&#xA;$$c_2 = (1-b)a_2 +p_2,   \;\;\; 0&amp;lt;b&amp;lt;1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $a$ is assets, $w$ is wage income $c$ is consumption, $p$ is pension, and $b$ is bequest as a percentage of assets.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume that $a$ is i government bonds. Note that old people eat up their wealth : i.e. they collect back also the principal from the government (fully if $b=0$). This does not mean that government debt is extinguished, it just means that it changes hands.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume that the young person does not plan on making any more savings or dissavings, so $w_1 = c_1$, and it lets his current assets accumulate. Also assume that $b=0$: if we are talking about low and middle-income persons, this is not very unrealistic reality since we are talking strictly about assets in the form of government bonds.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider now wiping out the debt: it means that consumption when old will tend to go down by $a_2$. In order for the envisioned increased economic growth to &quot;take care of pensions&quot; we must have at least that the initial $p_2$ will increase by $a_2$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As calculated &lt;a href=&quot;https://www.thebalance.com/who-owns-the-u-s-national-debt-3306124&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;, &quot;nearly half of the debt is held in trust for retirement&quot;. Say $9$ trillion USD. Assume that the current real-interest rate on US bonds is $0.5$%. Compounded over $25$ years we get $1+r = 1.13$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So if we wipe out the debt related to pensions, we must guarantee to the future old generation an additional $~10$ trillion USD in pensions (in real terms). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Current US GDP is $18$ trillion USD and it increases by $2.2$%. This will lead to $31$ trillion in $25$ years time. But we want that to increase by another $~10$ trillion at least, and assuming that all will be given for pensions. So we need GDP to reach in $25$ years $41$ trillion USD. For this to happen we need an average growth rate over the period not of $2.2$% but of $3.35$%. That's $1.15$ percentage points higher growth or more than $50$% higher average growth than today.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So our Fermi estimate led us to ask:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Can eliminating 9 trillion in Federal debt held for retirement purposes lead to an increase of the average growth for the next 25 years by $1.15$ percentage points?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then in order to answer this question we must ask &quot;how eliminating government debt will lead to increased growth&quot; irrespective of how much.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I obviously ignore issues of uncertainty, property rights, and the like.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2016-11-22T19:19:59.853" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14330" PostTypeId="1" CreationDate="2016-11-22T20:24:09.947" Score="6" ViewCount="192" Body="&lt;p&gt;I would like to see a quantitative wealth comparison between the average human in a hunter gather or agrarian society to average human in the today's world.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm mostly interested in how the discovery of natural energy resources combined with Newtonian physics influence on technology has changed the world in terms of relative worth of a human.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The kind of answer I'm looking for would be something like: We are 10, 100 or 1000 times more wealthy based upon x. X being what ever you use as a basis to create that comparison.&lt;/p&gt;&#xA;" OwnerUserId="11182" LastActivityDate="2016-11-25T16:49:50.357" Title="How wealthy are modern day humans compared to preindustrial times?" Tags="&lt;macroeconomics&gt;&lt;history&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14331" PostTypeId="1" CreationDate="2016-11-22T20:25:33.877" Score="2" ViewCount="72" Body="&lt;p&gt;From what I understand of Canada's rate of interest on the debt, after Pierre Trudeau, it was around 17.4%, after Mulroney, it was around 7%, and after Harper it was around 5.2%.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finding these figures are somewhat difficult, but to the point; what is setting these rates? Does any of it have to do with a country's credit rating?&lt;/p&gt;&#xA;" OwnerUserId="5814" LastActivityDate="2016-11-23T20:12:26.493" Title="What determines the rate of interest on national debt for a country?" Tags="&lt;interest-rate&gt;&lt;debt&gt;&lt;government-debt&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14333" PostTypeId="2" ParentId="14330" CreationDate="2016-11-22T20:46:23.450" Score="5" Body="&lt;p&gt;There is significant debate about whether such x exists.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example Louis XIV had things in his estate that are not in mine (I do not have two palaces). But there are also things in my estate that were not in his. I have access to 21st century healthcare, dental care, the internet, I can flush after going to the toilet...whose lifestyle is 'worth' more?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The comparison gets more difficult the farther you go back. So hunter gatherers, with tribal ownership, without any currency and frequently without any sort of industry are probably uncomparable to modern humans via any 'wealth' based standard. &lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2016-11-22T20:46:23.450" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14336" PostTypeId="2" ParentId="14327" CreationDate="2016-11-23T02:28:38.460" Score="1" Body="&lt;p&gt;There's a very fine point that needs to be mentioned: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The participation rate is the percentage of adult population of a country that is capable of work and wanting to work, individuals who are capable and wanting to work are the labor force. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now when unemployment is measured, it is typically the percentage of individuals in the labor force who actually have the kind of employment (in terms of time worked) that they desire. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The importance of the participation rate is the following: when some individuals are unemployed for a long period of time, they eventually stop looking for work (the &quot;willing to work&quot; part is no longer valid) either because they've given up, or their skills are too outdated to be useful to the market. These individuals are dropped out of the labor force. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assuming all else is constant, these unemployed individuals leaving the labor force means there are less unemployed individuals as a percentage of the total labor force (lower unemployment rate), but now the participation rate is lower (smaller labor force divided by same total adult population).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, unemployment numbers aren't really telling you the whole story if you assume that people dropping out of the labor force would actually want to work if they had found work, and thus unemployment rates alone may give a better picture of how workers are actually doing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In short: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Unemployment rate = total employed/ labor force&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Participation rate = labor force/adult population&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for the retired, I believe those are considered outside the labor force.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Example:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume a coal miner has no other job market skills than the ability to mine coal. Assume country X bans coal mining. All coal miners are left without a job but will not search for a job because they can't do any other job. The unemployment rate is unchanged, but the participation rate drops.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Very generally:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Unemployment rate rising, participation rate rising =&gt; not creating new jobs fast enough to absorb growth in labor force&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Unemployment rate rising, participation rate falling =&gt; long term recession&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Unemployment rate falling, participation rate falling =&gt; people are leaving the labor force&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Unemployment rate falling, participation rate rising =&gt; high job creation&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="11008" LastEditorUserId="11008" LastEditDate="2016-11-23T03:08:37.233" LastActivityDate="2016-11-23T03:08:37.233" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="14337" PostTypeId="1" CreationDate="2016-11-23T05:22:39.597" Score="1" ViewCount="75" Body="&lt;p&gt;How does the settlement of trades in foreign exchange work?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, if I am a large company with money in dollars and I buy another currency like Deutschmarks with my dollars, how does the money flow? Where do my Deutschmarks end up? Do US banks have accounts with foreign currency in them for this purpose?&lt;/p&gt;&#xA;" OwnerUserId="1448" LastActivityDate="2016-11-23T05:22:39.597" Title="How does foreign exchange settlement work?" Tags="&lt;currency&gt;&lt;foreign-exchange&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="14338" PostTypeId="2" ParentId="14331" CreationDate="2016-11-23T09:52:06.627" Score="0" Body="&lt;p&gt;Interest rates are always determined by the certainty of the lender getting its money back. In the case of government bonds, that is: will the government default on its loan and will interest stay higher than inflation. &#xA;The certainty of getting your money back is determined by a few factors:&#xA;Debt to GDP ratio, Deficit, GDP growth and the history of a country paying back loans. For example if a country is known for defaulting on debt, they can only lend with high interest rates.&lt;/p&gt;&#xA;" OwnerUserId="11032" LastActivityDate="2016-11-23T09:52:06.627" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14339" PostTypeId="2" ParentId="14331" CreationDate="2016-11-23T10:22:04.497" Score="2" Body="&lt;p&gt;The first thing to recognise is that &lt;em&gt;an interest rate is a price&lt;/em&gt; because the interest rate tells you how much the borrower has to pay in return for receiving a loan.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The borrower would obviously like to pay as little as possible for the money s/he wants to borrow. But how little s/he can get away with paying depends upon how willing people are to lend their money. Here are some examples of how willingness to lend affects interest rates.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;If the borrower already borrowed a lot of money and looks to be in danger of defaulting (i.e. not being able to pay everyone back) then lenders will be less willing to give him/her their money for fear for losing it. The borrower will therefore have to agree to pay a higher interest rate in order to induce people to be willing to lend.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;If times are hard (i.e. in a recession) and money is short then it again becomes more likely that the borrower will be unable to repay their loan. Again, the borrower must be prepared to pay a higher interest rate to compensate lenders for this risk, otherwise they will refuse to lend.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;People have lots of choices about where to put their money: government bonds (from many different governments), the stock market, savings accounts, pensions, real estate investment, corporate bonds, commodities, etc. The better is the return they get on alternative assets, the less willing a lender will be to give you their money. You then have to be prepared to pay more to induce lenders to give up all those lucrative alternatives. So borrowers will pay higher interest rates when returns in general are higher.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Not only the returns on other assets, but also their volatility matters. In times of uncertainty, assets like stocks or commodities are likely to be more volatile so that the return investors get on them becomes more risky. Since lending to certain actors (e.g. the government) is relatively safe by comparison, people will be more willing to lend money to these actors during uncertain times. Thus, the interest rate will tend to be lower during times of volatility and higher when alternative assets are experiencing relatively smooth growth.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;If inflation is high then money loses its value quickly. I am going to be reluctant to give someone my money for five years if, by the time I get it back, it is worthless—I'd rather spend the money now while it's still worth something. Thus, to induce people to lend, the borrower will have to pay higher interest when inflation is higher.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Note that this reasoning applies to borrowing more generally (i.e. also by consumers or firms) as well as to government borrowing.&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2016-11-23T20:12:26.493" LastActivityDate="2016-11-23T20:12:26.493" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14340" PostTypeId="2" ParentId="14330" CreationDate="2016-11-23T10:36:49.047" Score="4" Body="&lt;p&gt;For comparison with mainly agrarian pre-industrial societies, it is possible to derive estimates of X from figures in the &lt;a href=&quot;http://www.ggdc.net/maddison/maddison-project/data.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;Maddison Project Database&lt;/a&gt;, which contains estimates of real per capita GDP at various historic dates for various countries.  For the UK / England, for example:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\text{UK Per capita GDP 2010}}{\text{UK Per capita GDP 1720}}=\frac{23777}{1703}=14$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the US and predecessors:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\text{US Per capita GDP 2010}}{\text{US Per capita GDP 1720}}=\frac{30491}{900}=34$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, &lt;strong&gt;such figures should be treated with extreme caution&lt;/strong&gt; for various reasons:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;The data underpinning GDP only began to be routinely collected in&#xA;the mid 20th century following the work of &lt;a href=&quot;https://en.wikipedia.org/wiki/Simon_Kuznets&quot; rel=&quot;nofollow noreferrer&quot;&gt;Kuznets&lt;/a&gt;.  Earlier&#xA;figures, however carefully researched, are inevitably estimates and&#xA;unlikely to be very accurate. &lt;/li&gt;&#xA;&lt;li&gt;Even if accurately measured, GDP is subject to many well-known limitations&lt;br&gt;&#xA;as a measure of welfare (see for example &lt;a href=&quot;https://zielonygrzyb.wordpress.com/2012/07/31/limitations-of-gdp-as-welfare-indicator/&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;). One limitation&#xA;which is perhaps especially significant when making&#xA;comparisons over long periods of time is the exclusion of unpaid household work. Ordinary&#xA;people in the 18th century, living rurally as most of them did, are unlikely&#xA;to have had either the opportunities or the means that people have today to&#xA;pay for others to do their cooking, cleaning, laundry, etc.&lt;/li&gt;&#xA;&lt;li&gt;Many countries have changed in size and area. It isn't clear, for example,&#xA;whether the US figures for 1720 relate to the whole of the current area of&#xA;the US (and so include the economies of Native Americans), or whether they&#xA;just include the regions then settled by Europeans.&lt;/li&gt;&#xA;&lt;li&gt;A further pitfall would be to interpret these figures as estimates of growth&#xA;in productivity arising from improved technology and capital accumulation. Even the low living standards of the 18th&#xA;century were achieved with much lower population densities than today,&#xA;implying on average much more land suitable for agriculture per person. So it can be argued that the figures &lt;em&gt;under-estimate&lt;/em&gt; productivity growth.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="1417" LastActivityDate="2016-11-23T10:36:49.047" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14341" PostTypeId="2" ParentId="14330" CreationDate="2016-11-23T11:28:27.203" Score="4" Body="&lt;p&gt;As others noted, these kinds of things are extremely difficult to calculate because we don't have good data going back much further than the start of the 20th century and because it is hard to make a like for like comparison between modern and pre-industrial life.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But Brad DeLong has attempted to estimate global GDP over very long historical time horizons. Global GDP measured in 1990 dollars was \$41tn in 2000. DeLong's estimates put it at \$0.1tn in 1700. Thus, a crude estimate would be that the world is around 410 times as productive now as it was in the late pre-industrial era.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can read more about these estimates in &lt;a href=&quot;http://delong.typepad.com/print/20061012_LRWGDP.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;this paper&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Bear in mind that these figure are for the whole planet. The increase will be much steeper in rich western countries that have benefitted most from technology.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/p8XJT.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/p8XJT.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2016-11-25T16:49:50.357" LastActivityDate="2016-11-25T16:49:50.357" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="14342" PostTypeId="1" AcceptedAnswerId="14344" CreationDate="2016-11-23T11:48:40.443" Score="4" ViewCount="239" Body="&lt;p&gt;Recently I have read a great article about  &lt;a href=&quot;https://www.washingtonpost.com/business/the-smartest-economist-youve-never-heard-of/2015/10/02/8659bcf2-6786-11e5-8325-a42b5a459b1e_story.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Olivier Blanchard&lt;/a&gt; and I wonder why he has chosen to dedicate his life to study economics? Moreover he managed to do a research in several subfields, which is very impressive. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the article we can find a quote:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Also at Nanterre, he developed a fascination with economics and the ways in which it could be used to make the world a better place&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Is there any good book or an article which explain why Nobel prize winners chose to study economics? How did they get passionate about economics? &lt;/p&gt;&#xA;" OwnerUserId="10463" LastEditorUserId="264" LastEditDate="2017-02-09T13:10:54.743" LastActivityDate="2017-02-09T13:10:54.743" Title="Why Nobel prize winners studied economics?" Tags="&lt;international-economics&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14343" PostTypeId="2" ParentId="14342" CreationDate="2016-11-23T12:27:30.197" Score="6" Body="&lt;p&gt;Maybe &lt;a href=&quot;https://mitpress.mit.edu/books/lives-laureates&quot;&gt;Lives of the Laureates&lt;/a&gt;?&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;Lives of the Laureates&lt;/em&gt; offers readers an informal history of modern economic thought as told through autobiographical essays by twenty-three winners of the Nobel Prize in Economics. The essays not only provide unique insights into major economic ideas of our time but also shed light on the processes of intellectual discovery and creativity.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="7582" LastActivityDate="2016-11-23T12:27:30.197" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14344" PostTypeId="2" ParentId="14342" CreationDate="2016-11-23T12:35:03.627" Score="8" Body="&lt;p&gt;The Nobel Prize website is a good source of information. On &lt;a href=&quot;https://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/&quot; rel=&quot;noreferrer&quot;&gt;the economics prize page&lt;/a&gt; they have a link to a page for each laureate. From there you can find, in particular, a biography for each prize winner where the laureates often talk about the genesis of their interest in economics.&lt;/p&gt;&#xA;&lt;p&gt;For example, &lt;a href=&quot;https://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/2007/maskin-bio.html&quot; rel=&quot;noreferrer&quot;&gt;Eric Maskin writes&lt;/a&gt;&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;I became a math major at Harvard College, where I studied algebra with Pierre Samuel and Richard Brauer and analysis with George Mackey and Lars Ahlfors − all of them inspiring, some of them amusingly eccentric. Almost by accident, I wandered at one point into a course on &amp;quot;information economics&amp;quot; taught by Kenneth Arrow, later my Ph.D. advisor. The course was a hodgepodge of topics from the frontier of economic theory, but a good part of it was devoted to Leonid Hurwicz's work in the nascent field of mechanism design. This work was a revelation to me: it had the precision, rigor, and sometimes the beauty of pure mathematics and also addressed problems of real social importance − an irresistible combination.&lt;/p&gt;&#xA;&lt;p&gt;In fact, I ended up essentially doing an economics Ph.D. The degree was nominally in applied mathematics. But the applied math program at Harvard in those days was remarkably flexible, and allowed students to study whatever they wanted, as long as they wrote a thesis with &amp;quot;significant mathematical content.&amp;quot; I took quite a few economics courses (although none, I regretted later, in macroeconomics or economic history), including Truman Bewley's general equilibrium course, where I first got to work with my classmate and later co-Laureate Roger Myerson (we sometimes tackled the rather demanding problem sets together) and Jerry Green's analytic seminar, whose student participants included Elhanan Helpman, Bob Cooter, and Jean-Jacques Laffont.&lt;/p&gt;&#xA;&lt;p&gt;As an advisor, Ken Arrow was amazingly generous with his time; and I learned an immense amount from our many one-on-one discussions in his office.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="108" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2016-11-23T12:35:03.627" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14346" PostTypeId="2" ParentId="14297" CreationDate="2016-11-23T15:09:51.080" Score="0" Body="&lt;p&gt;&lt;em&gt;the two money changers would not sell currency out of their inventory at all, but would only do the deal so far as they could lay it off immediately.&lt;/em&gt; But in your imaginary world there is only one trade and one period.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My guess is that your understanding of the (modern) currency trading is not &lt;em&gt;know&lt;/em&gt;[n] &lt;em&gt;very well.&lt;/em&gt;&lt;/p&gt;&#xA;" OwnerUserId="4415" LastActivityDate="2016-11-23T15:09:51.080" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14347" PostTypeId="1" CreationDate="2016-11-23T21:40:00.647" Score="1" ViewCount="14912" Body="&lt;p&gt;I have been asked a question and believe there is a mistake in the problem. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have been given a table of values, Quantity and corresponding Total cost. From those numbers I can easily calculate the Average total cost and marginal cost. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am asked to find the fixed and variable cost for each quantity. The question provides no other information. Is this possible? &lt;/p&gt;&#xA;" OwnerUserId="11194" LastActivityDate="2020-12-10T07:54:56.660" Title="Can one Calculate Fixed and Variable Cost From TC and Quantity Alone?" Tags="&lt;microeconomics&gt;&lt;cost&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="14348" PostTypeId="2" ParentId="14259" CreationDate="2016-11-23T21:56:14.160" Score="0" Body="&lt;p&gt;The CPI encompasses the price of consumed goods (some of them are domestically produced, other are imported). The GDP deflator takes into account only the goods produced domestically (some of them are consumed here, other are exported). &#xA;Thus there is some correlation between the GDP deflator and the CPI as you can see below&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/zipi7.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/zipi7.jpg&quot; alt=&quot;Inflation&quot;&gt;&lt;/a&gt;&#xA;(my own plot, the series are from FRED database (GDPDEF and DPCERD3Q086SBEA), seasonnaly adjusted, growth rate between the same quarter from the previous year)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Having this in mind, recall that the real GDP is calculated as the nominal GDP divided by the GDP deflator. Thus the price of the domestic &lt;strong&gt;goods procuded and consumed&lt;/strong&gt; in the country are in both CPI and real GDP. Here comes your correlation.&lt;/p&gt;&#xA;" OwnerUserId="4415" LastActivityDate="2016-11-23T21:56:14.160" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14349" PostTypeId="1" CreationDate="2016-11-23T17:55:29.000" Score="0" ViewCount="54" Body="&lt;p&gt;I'm wondering whether one of Saudi Arabia's principle motivations for supporting OPEC production cuts is so that the price of crude oil will increase and so Saudi Aramco, Saudi's state-owned oil company, will be valued higher prior to its upcoming IPO?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would appreciate any help understanding whether this is the case.&lt;/p&gt;&#xA;" OwnerUserId="11206" OwnerDisplayName="Jack" LastEditorUserId="4816" LastEditDate="2018-07-23T11:34:43.687" LastActivityDate="2018-07-23T11:34:43.687" Title="Saudi Arabia motivations for OPEC production cut" Tags="&lt;oil&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="14350" PostTypeId="1" CreationDate="2016-11-24T01:05:00.710" Score="4" ViewCount="6310" Body="&lt;p&gt;In my study of time series regression models in econometrics, we are discussing basic time series regressions and interpreting the effects of shocks in finite distributed lag models. I was wondering what the difference is, in intuitive terms, between a transitory and a permanent shock. According to my understanding at the moment, every shock would be permanent because you cannot undo the past. Wouldn't saying that an effect is transitory be like completely erasing its effect from existence and never accounting for it? I think I am wrong, but I don't know why.&lt;/p&gt;&#xA;" OwnerUserId="11022" LastActivityDate="2016-11-25T01:45:10.907" Title="What is the difference between a transitory and a permanent shock?" Tags="&lt;econometrics&gt;&lt;regression&gt;" AnswerCount="3" CommentCount="5" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14351" PostTypeId="1" CreationDate="2016-11-24T02:14:27.050" Score="4" ViewCount="4781" Body="&lt;p&gt;I am in the process of working through some problem sets. I have studied some time series, but my knowledge of ARCH models is pretty basic. I am given the following information:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$Y_t = a_0 + a_1 Y_{t-1} + \epsilon_t$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $\epsilon_t | I_{t-1} \sim N(0,h_t)$ and $h_t = \alpha_0 + \alpha_1 \epsilon_{t-1}^2 + \alpha_2  \epsilon_{t-2}^2$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I solved for the following,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Conditional variance:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$E(Y_t | I_{t-1}) = a_0 + a_1 Y_{t-1}= \mu$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;then &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$Var(Y_t)=E[(Y_t- \mu)^2] = E(E_t^2) = ht = \alpha_0 + \alpha_1 \epsilon_{t-1}^2 + \alpha_2  \epsilon_{t-2}^2$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Unconditional Variance:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At this point I think we can create a new series for $Y_t$ since we are not conditioning, so I wrote,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$Y_t = a_0 + a_1 (a_0 + a_1 Y_{t-2} + \epsilon_{t-1}) + \epsilon_t$, repeat this infinitely many times and get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$Y_t = \frac{a_0}{1-a_1} + \sum_{j=0}^\infty a_1^j \epsilon_{t-j}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$E(Y_t) = \frac{a_0}{1-a_1}$ and &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$Var(Y_t) = E[(Y_t - \mu )^2] = \sum_{j=0}^\infty a_1^{2j} \epsilon_{t-j}^2 = (\alpha_0 + \alpha_1 \epsilon_{t-1}^2 + \alpha_2  \epsilon_{t-2}^2) + a_1^2 (\alpha_0 + \alpha_1 \epsilon_{t-2}^2 + \alpha_2  \epsilon_{t-3}^2) + a_1^4(\alpha_0 + \alpha_1 \epsilon_{t-3}^2 + \alpha_2  \epsilon_{t-4}^2) + \dots$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am not sure if this cleans up nicely, but what does this say for the variance? it seems like the unconditional is just going to blow up infinitely (given I could have made a mistake in the derivation of this question). I am also not sure if I should state some stability conditions in this question similar to AR(1) processes (e.g., $\alpha_1 &amp;lt; 1$ and $\alpha_2 &amp;lt; 1$), since these are variances do those conditions apply? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I was to conclude a statement, is it acceptable to stay the model captures volatility clustering via 2 period lags?&lt;/p&gt;&#xA;" OwnerUserId="10957" LastEditorUserId="10957" LastEditDate="2016-11-24T02:22:56.393" LastActivityDate="2016-11-28T14:08:47.030" Title="Conditional variance vs. unconditional variance in ARCH model" Tags="&lt;time-series&gt;&lt;autoregressive&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14352" PostTypeId="2" ParentId="14072" CreationDate="2016-11-24T07:35:29.780" Score="3" Body="&lt;p&gt;The answer depends on whether the provision of full employment is a public good that corrects for a negative externality (poverty). Suppose it is and we wish to create full employment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, we should consider what makes government provision of jobs different from policies like unemployment insurance? Instead of hedging against business cycles causing cyclical unemployment, we are now trying to effectively eliminate it. Then, we should consider if the government providing jobs as an employer of last resort would be any different than normal public sector jobs. Presumably, providing such undesirable jobs shouldn't crowd out the private labor market, but at the same time, what is to say that people wouldn't just reject these and continue to seek out jobs in the private sector?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The main route I see for making the government an employer of last resort would be to replace black markets, or to provide competition in inefficient markets. The former option has a prohibitively expensive political cost (and if allowed would be blockaded to the point of gross inefficiency). The latter option is harder to parse through. Most monopolies or inefficient markets we think of today are in technology or other places where monopolies benefit from large economies of scale. Treating the provision of goods in those markets as utilities and then subsidizing them is the go-to option. The other thing that could happen is that the government abuses its power to become a monopoly itself in the market it tries to provide employment for.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;All that said, let's put those complications aside. Say the government tries to provide more public sector jobs (of some low perceived quality perhaps). The quantity is fixed to always provide jobs for every applicant at exactly the price where the worker would be indifferent between working and taking the public job. Thus, everyone searching can find employment, and in fact, everyone will be induced to join the labor market in this scenario. Note that the government has changed the number of people in the labor market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can form an economy with one representative private good, and one collective (public) good. The government levies taxes on consumers to freely to fund their jobs program if needed. The private sector produces the private good, while the government can produce the private or collective good. The government has the same technology as the private sector.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, we have the different components of our economy:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\begin{align}&#xA;\text{Utility:} &amp;amp; \qquad U(x_p, x_c, e) \\&#xA;\text{Prices:} &amp;amp; \qquad p(\sum x_p), p(\sum x_c) \\&#xA;\text{Production:} &amp;amp; \qquad f_p(\sum e), f_c(\sum e) \\&#xA;\text{Private Sector Profit:} &amp;amp; \qquad \pi(x_p) = f_p \cdot p_{x_p} - c(w, e)\\&#xA;\text{Government Profit:} &amp;amp; \qquad \pi(x_p, x_c, t) = f_p \cdot p_{x_p} + f_c \cdot p_{x_c} - c(w, e) + t\\&#xA;\end{align}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can add in the appropriate subscripts for the collective good to indicate what you desire about how the benefits or costs of the collective good are captured. We have $e$ as effort, $c(w, e)$ cost given wages and effort, $t$ as the tax, in this a case a simple lump sum. Solving for the equilibrium in the case with or without any government intervention here and then applying Shephard's Lemma would get you the consumer's expenditure function, which you can use to compare the cost of living in each case. If utility for each agent increases with the government provision or stays the same, then although the cost of living may increase, we would say in this scenario it is a Pareto improvement to have the government provision. Obvious extensions to the model could be changing the type of tax, making it so that you can levy a tax on production rather than consumption, or changing the competition so that you can use game theory to analyze price setting.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If this all seems rather theoretical (we have not specified the functional form of these equations), it's because your question is very broad. There is no way to succinctly analyze the effects of full employment on the cost of living. I gave my opinion above that I think it sounds infeasible, but if you wanted to set up a model and investigate for yourself, that might be a noble effort. &lt;strong&gt;My official answer thus is that it's unclear what effect a government provision of jobs would be on the cost of living.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Boring safe answer, I know.)&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2016-11-24T07:35:29.780" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="14354" PostTypeId="2" ParentId="14347" CreationDate="2016-11-24T07:40:57.327" Score="7" Body="&lt;p&gt;As said in my comment, &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The fixed cost is usually defined as the cost when quantity is equal to zero, and the variable cost as the total cost minus the fixed cost.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Hence, if $TC(q)$ is the total cost for the given level of quantity $q$, then $FC=TC(0)$ is the fixed cost, which is a constant independent of $q$; and  $VC(q)=TC(q)-FC$ is the variable cost.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, if $TC(q)=10+q$, then $FC=TC(0)=10$ and $VC(q)=TC(q)-FC=q$.&lt;/p&gt;&#xA;" OwnerUserId="7582" LastActivityDate="2016-11-24T07:40:57.327" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14356" PostTypeId="2" ParentId="14350" CreationDate="2016-11-24T11:57:52.550" Score="1" Body="&lt;p&gt;Let me give an example of temporary versus permanent shocks to illustrate my understanding of the question. Consider agriculture production. The adoption of a new production technology will be a permanent supply shock because, e.g. by improving productivity. So, this productivity shock will affect permanently supply conditions (production and prices). In contrast, abnormal rainfall are typically considered as temporary supply shocks because they will only temporary affect production and prices. Their effects are even considered as local.&lt;/p&gt;&#xA;" OwnerUserId="6168" LastEditorUserId="6168" LastEditDate="2016-11-24T12:35:18.573" LastActivityDate="2016-11-24T12:35:18.573" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14358" PostTypeId="2" ParentId="14351" CreationDate="2016-11-24T17:18:12.087" Score="3" Body="&lt;p&gt;I cannot directly answer your question, but I think I can shed some light. What I seem to show is that under some restrictions, the unconditional variance is finite. However, I am not sure how to relate my answer to the notion of volatility clustering.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that if we assume stationarity, then $\sigma^2=E(\epsilon_t^2)$ for all $t$ and it follows by the law of total expectations that $$\sigma^2=E(E(\epsilon_t^2|I_{t-1}))=E(h_t)=\alpha_0+\alpha_1\sigma^2+\alpha_2\sigma^2$$ using your expression for $h_t$. Thus, $\sigma^2=\frac{\alpha_0}{1-(\alpha_1+\alpha_2)}$ is &lt;em&gt;a&lt;/em&gt; solution whenever $\alpha_1+\alpha_2&amp;lt;1$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, by the law of total variance, \begin{align*}V(Y_t)&amp;amp;=E(V(Y_t|I_{t-1}))+V(E(Y_t|I_{t-1}))\\&#xA;&amp;amp;=E(\epsilon_t^2)+V(\mu_t)\\&#xA;&amp;amp;=\sigma^2+a_1^2V(Y_{t-1}) \end{align*} using your results, where $\mu_t=a_0+a_1 Y_{t-1}$. Assuming stationarity, and thus that the variance is constant for all $t$, it follows that $$V(Y_t)=\frac{\sigma^2}{1-a_1^2}$$ is &lt;em&gt;a&lt;/em&gt; solution for $a_1\neq\pm 1$ and $\alpha_1+\alpha_2&amp;lt;1$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I encourage you to clearly note my assumptions. I cannot further assess this answer as I know next to nothing about time series. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Also note that we from the assumption of stationarity have that $E(Y_t)=a_0+a_1E(Y_{t-1})$ implies that $$E(Y_t)=\frac{a_0}{1-a_1}$$ is &lt;em&gt;a&lt;/em&gt; solution.)&lt;/p&gt;&#xA;" OwnerUserId="7582" LastEditorUserId="7582" LastEditDate="2016-11-28T14:08:47.030" LastActivityDate="2016-11-28T14:08:47.030" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14361" PostTypeId="2" ParentId="14350" CreationDate="2016-11-24T20:11:07.147" Score="1" Body="&lt;p&gt;It's true that previous values influence future ones, and it's hard to show something without math, but here goes a simple, intuitive answer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you are studying regressions, you'll know that you build your model and then you calculate your errors/residuals. These residuals have an assumed distribution (say normal distribution centered around 0). A temporary shock can be seen as a spike on a single one of these residuals, at time &quot;t&quot;; a permanent shock can be seen as a change on the structure of all residuals from then on.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the field, it can be hard to measure how &quot;temporary&quot; a shock is. For permanent shocks, the behavior of your time series has changed and you should build two separate models.&lt;/p&gt;&#xA;" OwnerUserId="7857" LastActivityDate="2016-11-24T20:11:07.147" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14362" PostTypeId="2" ParentId="14349" CreationDate="2016-11-24T20:49:00.407" Score="1" Body="&lt;p&gt;You could think this in terms of an oligopoly. As an imperfect market, firms get more profits than possible in a competitive market because decisions around levels of production influence prices. All members of the OPEC have an incentive to reduce production as a whole (to raise prices), and an incentive to increase production individually (to earn more profits at those higher prices).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can also consider political issues like production outside the cartel: they don't hold a monopoly and the higher the OPEC raises prices, firms with costlier ways of extracting oil (like fracking in the US) can turn a profit and compete with them, which naturally reduces profits (and value).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;While the IPO may be a possible explanation, you can think of it in terms of oligopolies and still get a reasonable answer.&lt;/p&gt;&#xA;" OwnerUserId="7857" LastActivityDate="2016-11-24T20:49:00.407" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14363" PostTypeId="1" CreationDate="2016-11-24T22:41:35.177" Score="2" ViewCount="463" Body="&lt;p&gt;Taken from Chapter 17 of Mas Colell &quot;Microeconomic Theory&quot; &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Consider an exchange economy with two commodities and two consumers. Both consumers have homothetic preferences of the constant elasticity variety. Morover, the elasticity of substitution is the same for both consumers and is small (i.e. goods are close to perfect complements). Specifically&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;$u_1(x_{11},x_{21})=(2x_{11}^{\rho}+x_{21}^{\rho})^{1/\rho}$ and $u_1(x_{12},x_{22})=(x_{12}^{\rho}+2x_{22}^{\rho})^{1/\rho}$&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;And $\rho=-4$, The endowments are $w_1=(1,0)$ and $w_2=(0,1)$.&#xA;  Compute the excess demand function of the economy and verify that there are multiple equilibria.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My attempt&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;After applying fist-condition and normalizing prices as $\frac{P_1}{P2}=p$, I have that the demand functions are:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the first consumer: $x_1=\frac{p}{p+(p/2)^{\frac{1}{1-\rho}}}$ and $x_2=\frac{p(p/2)^{\frac{1}{1-\rho}}}{p+(p/2)^{\frac{1}{1-\rho}}}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the second consumer: $x_1=\frac{1}{p+(2p)^{\frac{1}{1-\rho}}}$ and $x_2=\frac{(2p)^{\frac{1}{1-\rho}}}{p+(2p)^{\frac{1}{1-\rho}}}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the excess demand function would be:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\begin{pmatrix}&#xA;z_1\\z_2 &#xA;\end{pmatrix}=\begin{pmatrix}&#xA;\frac{p}{p+(p/2)^{\frac{1}{1-\rho}}}+\frac{1}{p+(2p)^{\frac{1}{1-\rho}}}-1&#xA;\\ \frac{p(p/2)^{\frac{1}{1-\rho}}}{p+(p/2)^{\frac{1}{1-\rho}}}+\frac{(2p)^{\frac{1}{1-\rho}}}{p+(2p)^{\frac{1}{1-\rho}}}-1&#xA;\end{pmatrix}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The thing is that this is not the answer stated in Mas Colell's Solutions. Here it is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/LNye0.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/LNye0.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I guess the elasticity of substitution has something to do here? But I don't get it anyway because if we had some corner solution, the answers would be $(x_1,x_2)=(1,0)$ for this consumer and $(x_1,x_2)=(0,1)$ for second consumer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any idea?&lt;/p&gt;&#xA;" OwnerUserId="11207" LastActivityDate="2016-11-25T02:21:39.180" Title="General Equilibrium - Mas Colell Problem 17.D.2" Tags="&lt;microeconomics&gt;&lt;general-equilibrium&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14364" PostTypeId="2" ParentId="14350" CreationDate="2016-11-25T01:45:10.907" Score="3" Body="&lt;p&gt;&quot;Permanent shock&quot; is a shock whose effects on current values of a variable never die out in absolute terms. &quot;Transitory shock&quot; is a shock whose effects gradually die out. Consider the simplest one-lag model&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$y_t = \beta y_{t-1} + u_t, \;\;\; y_0 = 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By direct substitution one gets that &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$y_T = \sum_{t=0}^{T-1}\beta^t u_{T-t} = u_T + \beta u_{T-1} + \beta^2u_{T-2} +...+\beta^{T-1}u_1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If $|\beta| &amp;lt;1$ the &lt;em&gt;absolute&lt;/em&gt; effect of say shock $u_1$ on $y_T$ diminishes as time passes, $T \uparrow$. While mathematically it doesn't die off completely except at infinity, its absolute contribution decays exponentially.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand, if $\beta =1$ (a &quot;unit root&quot; model) then&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$y_T = \sum_{t=0}^{T-1}u_{T-t}=u_T + u_{T-1} + u_{T-2} +...+u_1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and no matter how far we move into the future the shock at period $1$ will fully contribute to the value of $y_T$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course, if autocorrelation is strong (high $\beta$) then a &quot;transitory&quot; shock will influence visibly many periods in the future, so it may be &quot;ignored&quot; when examining &quot;long-term&quot; outcomes, but not when one deals with mid-term effects and policy.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2016-11-25T01:45:10.907" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14365" PostTypeId="2" ParentId="14363" CreationDate="2016-11-25T02:05:11.223" Score="1" Body="&lt;p&gt;Your answer is essentially the same as Mas-Colell's.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$z_{11}$ is excess demand for good $1$ by consumer $1$. $z_{12}$ is excess demand for good $1$ by consumer $2$. They sum up to zero at the price vector $(1,1)$, which means that the market for good $1$ clears. By Walras' law, that implies that the market for good $2$ clears as well, hence $(1,1)$ is an equilibrium price vector.&lt;/p&gt;&#xA;" OwnerUserId="8595" LastEditorUserId="8595" LastEditDate="2016-11-25T02:21:39.180" LastActivityDate="2016-11-25T02:21:39.180" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14367" PostTypeId="1" AcceptedAnswerId="14370" CreationDate="2016-11-25T08:07:36.853" Score="3" ViewCount="758" Body="&lt;p&gt;I read it's about 30 billion. But I read there were 6 million users in 1985. Let's say he gets 10 percent of the sales price, it means each person paid 50000 dollars for cocaine. It sounds way too much. Any calculations how they reached this amount?&lt;/p&gt;&#xA;" OwnerUserId="11211" LastEditorUserId="11211" LastEditDate="2016-11-25T22:50:01.250" LastActivityDate="2017-07-30T07:26:16.950" Title="How could Pablo Escobar earn so much money?" Tags="&lt;money&gt;&lt;accounting&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="14368" PostTypeId="1" CreationDate="2016-11-25T11:45:11.403" Score="3" ViewCount="341" Body="&lt;p&gt;A standard formulation of the Cobb-Douglas production function (e.g. &lt;a href=&quot;https://en.wikipedia.org/wiki/Cobb%E2%80%93Douglas_production_function#Formulation&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;) is:&#xA;$$Y=AK^{\alpha}L^{\beta}$$&#xA;Have there been estimates, at aggregate level for any large economy, of the &lt;em&gt;absolute&lt;/em&gt; value of total factor productivity $A$ (at a defined date, and for defined units of measurement of output $Y$, capital $K$ and labour $L$?).  Even a rough order of magnitude would be of interest.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From searching the web, there have been many studies that estimate changes in total factor productivity over time, but I could not find any that focused on its absolute magnitude.&lt;/p&gt;&#xA;" OwnerUserId="1417" LastEditorUserId="2776" LastEditDate="2017-08-29T13:39:46.107" LastActivityDate="2017-08-29T13:39:52.840" Title="Absolute Value of Total Factor Productivity in an Aggregate Cobb-Douglas Production Function" Tags="&lt;macroeconomics&gt;&lt;reference-request&gt;&lt;production-function&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14370" PostTypeId="2" ParentId="14367" CreationDate="2016-11-25T13:07:51.073" Score="5" Body="&lt;p&gt;Not sure an economist can answer this particular question about Escobar's wealth and not only because all the given estimates are uncertain. A more interesting question for an economist (or at least for me) would be: What is Escobar's (a drug firm) mark-up? Or what is the economic size of the international market for cocaine?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The most serious source of information I was able to find is the &lt;a href=&quot;http://www.unodc.org/documents/data-and-analysis/WDR2012/WDR_2012_web_small.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;2012 World Drug Report&lt;/a&gt; of the United Nations Office on Drugs and Crime (UNDOC). UNODC estimates suggest that&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;The total retail market for cocaine amounts to some US $85 billion in 2009 (p.70). &lt;/li&gt;&#xA;&lt;li&gt;Columbian production proxied in terms of hectares is around 89% (based on 2009's estimates (68,000+73,000)/158,800 - Table 12).&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;So, if you assume that all Columbian production is produced by Escobar's cartel his total benefit is about USD $75 billion for the year 2009. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Edit&lt;/strong&gt;: However, we cannot assume that Escobar's cartel got 89% of the retail value (thanks to @Alecos Papadopoulos for this point). The USD 75 billion is the equivalent of the &quot;box office&quot; for a movie - but the producers of the movie (i.e. Escobar's cartel) do not get all the box office. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, the question is what is the proportion retained by the Escobar's cartel? I have no clue! However, &lt;a href=&quot;http://pricetheory.uchicago.edu/levitt/Papers/LevittVenkateshAnEconomicAnalysis2000.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Levitt and Vetakesh QJE paper&lt;/a&gt; document that &quot;earnings within the (drug) gang are enormously skewed (..) with high-level gang members earning far more than their legitimate market alternative.&quot; So, by extrapolating from this result and assuming that the drug market is vertically integrated and controlled by the Escobar's cartel, we may speculate that the latter (and Escobar himself) may get a big part of the box office.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this report, you may also find more reliable estimates about &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;The total number of cocaine users: 16 million (Table 7)&lt;/li&gt;&#xA;&lt;li&gt;and the estimates per region.&lt;/li&gt;&#xA;&lt;li&gt;Purity-adjusted prices per gram in those regions&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;So if you find some data on consumer's average consumption and Escobar's production you may get a better estimate of his wealth.&lt;/p&gt;&#xA;" OwnerUserId="6168" LastEditorUserId="6168" LastEditDate="2016-11-26T08:06:23.123" LastActivityDate="2016-11-26T08:06:23.123" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="14371" PostTypeId="2" ParentId="537" CreationDate="2016-11-25T16:02:08.083" Score="1" Body="&lt;p&gt;Given linear inverse demand $P=a-bQ$, if the monopolist wants to sell in two blocks, then the prices are &#xA;$$&#xA;\begin{cases}&#xA;P_1=a-bQ_1&amp;amp; \text{if }Q\le Q_1\\&#xA;P_2=a-bQ_2&amp;amp; \text{if }Q\in(Q_1,Q_2].&#xA;\end{cases}&#xA;$$&#xA;Thus, the profit maximization problem is &#xA;$$&#xA;\max_{Q_1,Q_2}\; (a-bQ_1)Q_1+(a-bQ_2)(Q_2-Q_1)-TC(Q_2)&#xA;$$&#xA;subject to $Q_1\le Q_2$. The FOCs are &#xA;$$&#xA;\begin{aligned}&#xA;a-2bQ_1-a+bQ_2&amp;amp;=0 \qquad\qquad(1)\\&#xA;a-2bQ_2-MC(Q_2)&amp;amp;=0\qquad\qquad(2)&#xA;\end{aligned}&#xA;$$&#xA;Since marginal cost is constant, i.e. $MC(Q_2)=c$, we get from $(2)$ &#xA;$$Q_2=\frac{a-c}{2b}.$$&#xA;Substituting this into $(1)$, we get &#xA;$$Q_1=\frac{a-c}{4b}.$$&#xA;The prices are then &#xA;$$P_1=\frac{3a+c}{4}\qquad P_2=\frac{a+c}{2}.$$&#xA;These are the profit maximizing block prices (assuming zero fixed cost).&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;The graph you show to illustrate the second approach is lacking some relevant information. In particular, marginal cost is not constant and there may be fixed costs as well. Moreover, having $P_2=AC(Q_2)$ implies that the monopolist earns zero profit on the sales in the second block (note that $P_2$ is the average revenue in this block), which doesn't make sense.&lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2016-11-25T16:02:08.083" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14372" PostTypeId="2" ParentId="14368" CreationDate="2016-11-25T18:56:05.403" Score="1" Body="&lt;p&gt;Applying a regression model&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\ln Y = \ln A + a\ln K + b\ln L$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;on a standard macroeconomic time-series data set from a country would immediately provide an estimate for $A$, essentially an average over the sample.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem is that experience has shown us that we don't have $A$ but $A_t$, i.e. it is time-varying. As such, estimates of $A$ as though it was a constant seem rather meaningless or even misleading.   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;More-over, in a time-varying coefficient framework, what is important is the change, rather than the absolute value, since it is essentially a mark-up index on the production function, and not something that can be meaningfully measured in absolute units. In this case, we take $A_0=1$ (the first period in the sample) and we track the percentage change over the sample.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2016-11-30T11:07:26.883" LastActivityDate="2016-11-30T11:07:26.883" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14373" PostTypeId="2" ParentId="14222" CreationDate="2016-11-25T19:17:53.433" Score="2" Body="&lt;p&gt;The Prime Minister of Australia seems to earn around AUD $500,000 &lt;a href=&quot;https://en.wikipedia.org/wiki/Prime_Minister_of_Australia#Salary&quot; rel=&quot;nofollow noreferrer&quot;&gt;according to Wikipedia&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This would give him a marginal tax rate of &lt;a href=&quot;https://www.ato.gov.au/Rates/Individual-income-tax-for-prior-years/&quot; rel=&quot;nofollow noreferrer&quot;&gt;45%&lt;/a&gt; plus supplements&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &lt;a href=&quot;http://www.abs.gov.au/ausstats/abs@.nsf/mf/6302.0&quot; rel=&quot;nofollow noreferrer&quot;&gt;average for full-time employees&lt;/a&gt; seems to be close to AUD $80,000 which would make typical marginal rates either &lt;a href=&quot;https://www.ato.gov.au/Rates/Individual-income-tax-for-prior-years/&quot; rel=&quot;nofollow noreferrer&quot;&gt;32.5% or 37%&lt;/a&gt;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the Prime Minister of Australia pays a higher marginal tax ate&lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2016-11-25T19:17:53.433" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14374" PostTypeId="1" CreationDate="2016-11-25T20:52:26.237" Score="1" ViewCount="7207" Body="&lt;p&gt;If I have two demand functions&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$P_1=100-10X_1$&#xA;and&#xA;$P_2=50-10X_2$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and $X_1=40$ and $X_2=60$ with $MC=10$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We have two consumer groups: 1 and 2, where 1 has a higher willingness to pay, and we have one single good. $X_1=40$ refers to number of customers. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;How might I derive the optimal uniform price and its aggregate demand function from this?&lt;/p&gt;&#xA;" OwnerUserId="11116" LastEditorUserId="11116" LastEditDate="2016-11-25T21:44:04.580" LastActivityDate="2016-11-25T21:58:59.297" Title="How to derive an aggregate demand function (and optimal uniform price) from two demand functions?" Tags="&lt;microeconomics&gt;&lt;self-study&gt;&lt;pricing&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14375" PostTypeId="2" ParentId="14374" CreationDate="2016-11-25T21:23:33.203" Score="1" Body="&lt;p&gt;Let the market price for the good be $P$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is easy to see that a consumer from group $1$'s demand for the good is $$ X_1 = \frac{100-P}{10} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Similarly, a consumer from group $2$'s demand for the good is $$ X_2 = \frac{50-P}{10} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Total demand $Q$ is then given by $$ Q = 40X_1 + 60X_2 = 700-10P $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This means that the market inverse demand curve (i.e. aggregate demand) is $$ P(Q) = 70 - \frac{Q}{10}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose a single monopolist were serving this market. The monopolist's profit is $$ \Pi(Q) =P(Q) \cdot Q -MC \cdot Q $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we take the first-order condition (i.e. take the first derivative of $\Pi$ and set it equal to $0$), we know that the optimal quantity sold satisfies $$ 70 - \frac{Q^*}{5} = 10 $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This means that $Q^* = 300$. We can plug this back into the market demand function to find that $P^* = 40$, which is the optimal uniform price.&lt;/p&gt;&#xA;" OwnerUserId="8595" LastEditorUserId="8595" LastEditDate="2016-11-25T21:58:59.297" LastActivityDate="2016-11-25T21:58:59.297" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="14380" PostTypeId="1" AcceptedAnswerId="14393" CreationDate="2016-11-26T13:22:54.360" Score="0" ViewCount="194" Body="&lt;p&gt;For the calculation of the taxes, the rate is the coefficient of proportionality.&#xA;This coefficient is &lt;em&gt;constant&lt;/em&gt; because&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;It is the value of the ratio between a quantity and another that is constantly repeated in a set of values. &#xA;  It is a constant value which is in direct proportional functions or reverse, quadratically proportional or inverse&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Other examples of this type in macroeconomic, finance, commercial.. ?&lt;br&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;P.S&lt;/strong&gt; - I refer both type of constants: specific fixed numeric value and as constants in economic theory&lt;/p&gt;&#xA;" OwnerUserId="11223" LastEditorUserId="11223" LastEditDate="2016-11-26T16:40:59.640" LastActivityDate="2016-11-29T03:45:02.443" Title="What are the mathematical constants used in economy formulas?" Tags="&lt;taxation&gt;" AnswerCount="2" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="14387" PostTypeId="1" AcceptedAnswerId="14388" CreationDate="2016-11-27T10:15:00.057" Score="3" ViewCount="1025" Body="&lt;p&gt;There are several version and denomination for a basic income. In this question, I will call unconditional basic income the situation were all citizens of a country receive regularly a lump-sum of money, independently of their age, their employment status and job,etc. I will assume that, at the moment the basic income is  instituted, it is larger than the poverty threshold. I am also assuming that the basic income is not a substitute of other welfare subsidies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The concept is gaining popularity these days, and for many reasons, economical or philosophical.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My understanding of offer and demand is that, if people can pay more for a product and are willing to do so, then prices will increase. So, it seems that, after the introduction of the basic income, there will be mechanically a large inflation.  In a short time, people with no job and that relied mostly on the welfare system will be poor again. Worse, people with low income will be closer to the new poverty threshold.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My questions&lt;/strong&gt;:&lt;br&gt;&#xA;1) What natural mechanical effects prevent an over-inflation after the introduction of a substantial basic income? By natural, I mean any direct or indirect effects of the sole introduction of the basic income.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) If an inflation cannot naturally be avoided, what measures are usually suggested together with the introduction of the basic income?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Edit&lt;/em&gt;: my question is close but not an exact duplicate of &lt;a href=&quot;https://economics.stackexchange.com/questions/10387/will-a-guaranteed-minimum-income-not-eventually-just-be-crowded-out-by-inflation&quot;&gt;this question&lt;/a&gt;. In the example of the other question, $A$ would receive $30$ and $B$ would receive $90$ for an unconditional basic income of $30$. If the two questions are equivalent, please explain. &lt;/p&gt;&#xA;" OwnerUserId="2677" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2016-11-29T03:57:45.583" Title="Wouldn't an unconditional basic income lead to an inflation that negates its effect?" Tags="&lt;inflation&gt;&lt;basic-income&gt;" AnswerCount="3" CommentCount="2" FavoriteCount="1" ClosedDate="2016-12-02T23:21:43.620" ContentLicense="CC BY-SA 3.0" />
  <row Id="14388" PostTypeId="2" ParentId="14387" CreationDate="2016-11-27T11:20:18.263" Score="2" Body="&lt;p&gt;Theoretically basic income might have a tendency to increase inflation. But that largely depends on how much is the basic income provided. Usually, the idea of basic income itself means that it is 'basic' and is just sufficient for a subsistence. With such an income level, the problem of inflation does not crop up really. &#xA;However, basic income might have other serious problems with crowding out due to large government spending and the disincentive to work and hence loss of productivity. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Even if we suppose, there is a large basic money disbursement which can cause inflation, then I think it should not be unconditional. Usually, such plans are in the form of guaranteed employment programs, buying of ration from designated stores and many more measures. However, I still feel these measures are not for tackling inflation rather the disincentive to work.&lt;/p&gt;&#xA;" OwnerUserId="5582" LastActivityDate="2016-11-27T11:20:18.263" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14389" PostTypeId="2" ParentId="14387" CreationDate="2016-11-27T12:57:13.487" Score="2" Body="&lt;p&gt;Another name for basic income is &lt;a href=&quot;https://en.wikipedia.org/wiki/Citizen&amp;#39;s_dividend&quot; rel=&quot;nofollow noreferrer&quot;&gt;citizens dividend&lt;/a&gt;, the idea being that the income is a dividend from the nation's earnings from natural resources like land and oil. In most countries only a select few of the population will be deemed as owning these resources outright with the rest of the population having to pay for access to what by rights they should be owning already - it is a kind of theft. Just think about how anyone ever gets to own any land in the first place - who do they buy it from? The answer is that it is taken by force from everyone else. If you want a system of distributing land without any theft then you have to have people paying rent for that land, and that rent will go to everyone else in society - this is the &quot;dividend&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So in summary, citizens dividend is a natural consequence of enforcing a no theft policy on natural resources. The money for the dividend payments will come from new rents for using land / natural resources. The money does not need to be printed and therefore the policy is not inflationary at all.&lt;/p&gt;&#xA;" OwnerUserId="5081" LastEditorUserId="5081" LastEditDate="2016-11-28T11:02:49.690" LastActivityDate="2016-11-28T11:02:49.690" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="14393" PostTypeId="2" ParentId="14380" CreationDate="2016-11-28T01:26:20.857" Score="2" Body="&lt;p&gt;Economics is not an exact science and so we don't have &lt;strong&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Physical_constant&quot; rel=&quot;nofollow noreferrer&quot;&gt;Physical Constants&lt;/a&gt;&lt;/strong&gt; i.e. quantities with a universal fixed numerical value.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;That said, there are many &lt;strong&gt;concepts&lt;/strong&gt; in economics that predominantly appear as constants in economic models (although in principle they can vary between individuals or across time, and there exists research that explores what happen when they do vary). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Well-known examples include the depreciation rate of capital (usually $\delta$), population growth rate (usually $n$), the rate of pure-time preference (usually $\rho$). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In calibration studies (either purely simulated or combined with empirical data), such constants tend to be assigned widely used &quot;benchmark values&quot; (i.e. quasi- &quot;fixed values&quot;) that come from empirical experience usually supported over some decades of data and many countries. For example when calibrated and not estimated we often see $\delta =0.05$, $n=0.01$, $\rho=0.02$.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;On another front, Euler's $e$, the base of the natural logarithms, emerges naturally when calculating compound interest rate &lt;em&gt;continuously&lt;/em&gt; (and not in discrete intervals). Assume we make a deposit $D$ at yearly interest rate $r$. If interest is calculated once per year, at the end of one year we will get $D(1+r)$. Assume now that we calculate interest monthly, add the interest to principal and then next month calculate interest again. After one year we will get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$D\left (1+ \frac {r}{12}\right)^{12}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In general if we partition the year in $n$ periods we will have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$D\left (1+ \frac {r}{n}\right)^{n}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and if we let $n$ go to infinity we get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\lim_{n\to \infty}\left (1+ \frac {r}{n}\right)^{n} = e^r$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, there are certain &quot;stylized facts&quot; , according to which various economic &lt;em&gt;ratios&lt;/em&gt; appear to be &quot;stable&quot; (if not strictly &quot;constant&quot;) over time, like the income share of production inputs, or the capital/output ratio. The seminal reference here is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Kaldor, Nicholas, “Capital Accumulation and Economic Growth,” in F.A. Lutz and D.C. Hague, eds., The Theory of Capital, St.Martins Press, 1961, pp. 177–222.&lt;/strong&gt;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;while see&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Jones, C. I., &amp;amp; Romer, P. M. (2010). The new Kaldor facts: Ideas, institutions, population, and human capital. American Economic Journal: Macroeconomics, 2(1), 224-245.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;for extensions and updates.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2016-11-28T18:57:57.087" LastActivityDate="2016-11-28T18:57:57.087" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="14395" PostTypeId="1" AcceptedAnswerId="14401" CreationDate="2016-11-28T04:35:05.300" Score="1" ViewCount="60" Body="&lt;p&gt;Is it possible for an equilibrium to be Trembling Hand Perfect for one player but not another (in an asymmetric game)?&lt;/p&gt;&#xA;" OwnerUserId="10734" LastActivityDate="2016-11-28T14:19:13.787" Title="Is it possible for an equilibrium to be Trembling Hand Perfect for one player but not another in an asymmetric game?" Tags="&lt;game-theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14397" PostTypeId="1" AcceptedAnswerId="14399" CreationDate="2016-11-28T06:45:41.830" Score="2" ViewCount="512" Body="&lt;p&gt;With 3 goods (x,y,z), linear Engel curves, where z is separable of x and y, and with all first derivatives are positives and second negatives.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does the demand of z change with the price of x or y? So, is z independent of $p_{x}$ and $p_y$?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think so, because I have made some examples where changing prices didn't change the optimal amount of z. However I cannot find a formal proof.&lt;/p&gt;&#xA;" OwnerUserId="11241" LastEditorUserId="2776" LastEditDate="2017-04-12T15:16:32.040" LastActivityDate="2017-04-12T15:16:32.040" Title="Homothetic preferences and weak separability" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="14399" PostTypeId="2" ParentId="14397" CreationDate="2016-11-28T11:11:04.743" Score="5" Body="&lt;p&gt;EDIT: Seems to that after your most recent edit the answer is still no. &#xA;A relatively simple counterexample is:&#xA;$$&#xA;U(x,y,z) = \sqrt{x} + \sqrt{y} + \sqrt{z}.&#xA;$$&#xA;&lt;br&gt;This is clearly seperable and homothetic. But $D_z$ is is not independent of $p_x$ and $p_y$. I think this is clear just by looking at the utility function, as it is not of the Cobb-Douglas type. If you have doubts you can calculate $D_z$ from these equations:&#xA;\begin{eqnarray*}&#xA;MRS_{xz}(x,y,z) &amp;amp; = &amp;amp; \sqrt{\frac{z}{x}} = \frac{p_x}{p_z} \\&#xA;\\&#xA;MRS_{yz}(x,y,z) &amp;amp; = &amp;amp; \sqrt{\frac{z}{y}} = \frac{p_y}{p_z} \\&#xA;\\&#xA;m &amp;amp; = &amp;amp; p_x \cdot x + p_y \cdot y + p_z \cdot z.&#xA;\end{eqnarray*}&#xA;Then&#xA;\begin{eqnarray*}&#xA;m &amp;amp; = &amp;amp; p_x \cdot x + p_y \cdot y + p_z \cdot z \\&#xA;\\&#xA;m &amp;amp; = &amp;amp; p_x \cdot z \cdot \left(\frac{p_z}{p_x}\right)^2 + p_y \cdot z \cdot \left(\frac{p_z}{p_y}\right)^2 + p_z \cdot z \\&#xA;\\&#xA;\frac{m}{p_z}\frac{1}{\frac{p_z}{p_x} + \frac{p_z}{p_y} + \frac{p_z}{p_z}} &amp;amp; = &amp;amp; z.&#xA;\end{eqnarray*}&#xA;As you can see both $p_x$ and $p_y$ appear.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2016-11-28T17:03:27.383" LastActivityDate="2016-11-28T17:03:27.383" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="14401" PostTypeId="2" ParentId="14395" CreationDate="2016-11-28T14:19:13.787" Score="1" Body="&lt;p&gt;Yes. It is possible for a strategy profile of one player to be trembling hand perfect and not the other.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Generally speaking, trembling hand perfect is used in the equilibrium sense. Certainly for an equilibrium to be called trembling hand perfect, the strategy profiles of all players must also be so.&lt;/p&gt;&#xA;" OwnerUserId="4808" LastActivityDate="2016-11-28T14:19:13.787" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14402" PostTypeId="1" AcceptedAnswerId="14407" CreationDate="2016-11-28T14:28:19.960" Score="12" ViewCount="4488" Body="&lt;p&gt;There are always expectations that GDP should be growing at a certain rate. This is what I see in the newspapers. I am not an economics major and this is a very basic student question. After adjusting for level of prices, meaning that forget about inflation and price related issues, it is expected to grow at say $2\%$. Why is this a case and what should it be driven by? Assume there is an economy that only produces apples, for simplicity. So, it is expected to make $2\%$ more apples every year? So the growth would be driven by the larger amount of goods produced? Why is this economy expected to make more apples every year?  &lt;/p&gt;&#xA;" OwnerUserId="11247" LastEditorUserId="11247" LastEditDate="2016-11-28T22:03:40.343" LastActivityDate="2016-11-29T11:14:43.173" Title="Why must the rate of GDP growth be positive?" Tags="&lt;macroeconomics&gt;" AnswerCount="6" CommentCount="11" ContentLicense="CC BY-SA 3.0" />
  <row Id="14403" PostTypeId="2" ParentId="14402" CreationDate="2016-11-28T16:29:03.140" Score="8" Body="&lt;p&gt;There is no expectation to &quot;make more every year&quot;. There is no economic law such &#xA;as GDP must grow every year. Negative growth will lead to a contraction in a country's economy, and a decrease in its gross domestic product (GDP).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;According to the &lt;a href=&quot;https://en.wikipedia.org/wiki/Great_Recession_in_the_United_States&quot; rel=&quot;noreferrer&quot;&gt;Department of Labor&lt;/a&gt;, US GDP contracted by 5.1% from February 2008 to February 2010 making the Great Recession the worst since the Great Depression in the 1930s. Check the NBER's page on &lt;a href=&quot;http://www.nber.org/cycles.html&quot; rel=&quot;noreferrer&quot;&gt;US Business Cycle Expansions and Contractions&lt;/a&gt; and the Wikipedia's &lt;a href=&quot;https://en.wikipedia.org/wiki/List_of_countries_by_real_GDP_growth_rate&quot; rel=&quot;noreferrer&quot;&gt;List of countries by real GDP growth rate&lt;/a&gt;, where you will find evidence that some countries are still contracting today.&lt;/p&gt;&#xA;" OwnerUserId="6168" LastEditorUserId="6168" LastEditDate="2016-11-28T16:53:39.177" LastActivityDate="2016-11-28T16:53:39.177" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14405" PostTypeId="2" ParentId="14402" CreationDate="2016-11-28T17:33:12.983" Score="2" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;There are always expectations that GDP should be growing at a certain rate&lt;/em&gt;&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&quot;Should&quot; is the critical and revealing word here. @emeryville answer clarifies that there is no economic law that says that GDP does grow without interruption year after year. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;From a &quot;political economy&quot; perspective though, we do &lt;em&gt;want&lt;/em&gt; to see it growing year-after-year because we acknowledge that its current level, coupled with the observed income inequality, leaves too many people &lt;em&gt;truly&lt;/em&gt; dissatisfied with their &quot;standard of living&quot;. Increased output creates the opportunity to improve this situation &lt;em&gt;without&lt;/em&gt; going into issues of income re-distribution that have proven to create social tensions, frictions and even clashes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;RESPONDING TO COMMENTS&lt;/strong&gt;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have written in a comment exchange that a constant GDP turns the situation into a zero-sum game, something that was challenged. First, I note that we are talking about production here, not assets/wealth. So we are looking at income streams. Also, this implies that we ignore exchanges with outside the economy. Finally, we consider prices as fixed, or we consider magnitudes in real terms. Then:  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;A) Constant GDP in levels&lt;/strong&gt;&lt;br&gt;&#xA;Here it is meaningfull to consider a constant population also, fixed at $N$. Then if $w_i$ is income of agent $i$, constant GDP in levels means&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\sum_{i=1}^N w_{i,t+1} = \sum_{i=1}^N w_{i,t}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is evident that if for some agent $j$ $w_{j,t+1} &amp;gt; w_{j,t}$, then for at least one other agent it must be the case that $w_{k,t+1} &amp;lt; w_{k,t}$ and at an amount equal to the increase in the income of the former, so as to maintain the equality of GDP in levels. So it is a zero-sum game.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;B) Constant GDP per capita&lt;/strong&gt;&lt;br&gt;&#xA;Here we have&#xA;$$\frac 1 {N_{t+1}}\sum_{i=1}^{N_{t+1}} w_{i,t+1} = \frac 1 {N_{t}}\sum_{i=1}^{N_t} w_{i,t}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Denote $n$ the growth rate of population, and so the new comers are $nN_t$, and index them by $A$ (and the old timers by $B$) and use a bar for per capita magnitudes. Then we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\sum_{i=1}^{N_{t+1}} w_{i,t+1} = (1+n)\sum_{i=1}^{N_t} w_{i,t}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies \sum_{j=1}^{nN_{t}} w_{j,t+1} + \sum_{i=1}^{N_{t}} w_{i,t+1} = \sum_{i=1}^{N_t} w_{i,t} + n\sum_{i=1}^{N_t} w_{i,t} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies nN_t \bar w_{A,t+1} + \sum_{i=1}^{N_{t}} w_{i,t+1} = \sum_{i=1}^{N_t} w_{i,t} + nN_t\bar w_{B,t} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies nN_t( \bar w_{A,t+1} -\bar w_{B,t}) + \sum_{i=1}^{N_{t}} w_{i,t+1} = \sum_{i=1}^{N_t} w_{i,t} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now assume that for some oldtimer, we have $w_{i,t+1} &amp;gt; w_{i,t}$ and we are told that all other oldtimers had the same income in the two periods. Then necessarily it must be the case that &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\bar w_{A,t+1} &amp;lt; \bar w_{B,t}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;meaning that the newcomers on average had in $t+1$ lower income than the oldtimers had in $t$. Here it is in this sense that it is a zero-sum game, between the oldtimers and the newcomers.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If it is the case that $$\bar w_{A,t+1} = \bar w_{B,t}$$ then there must be another oldtimer that experienced lower income in $t+1$ compared to $t$, and so again we have a zero-sum game, here between the oldtimers. Etc&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2016-11-29T11:14:43.173" LastActivityDate="2016-11-29T11:14:43.173" CommentCount="13" ContentLicense="CC BY-SA 3.0" />
  <row Id="14406" PostTypeId="2" ParentId="14402" CreationDate="2016-11-28T17:49:07.353" Score="4" Body="&lt;p&gt;Let's imagine you live in this mythical land where people need only apples to survive and live secure, healthy, fulfilling lives.  You would be right to say that there is no iron law that such an economy will realize 2% real annual growth per year.  However let's draw out your metaphor to understand why a positive real growth rate is ultimately a good thing, why ultra-fast rates of growth tend to produce dramatic social change, and why it is nearly impossible to invest in an economy with an overall negative growth rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You own an apple orchard.  Since you're like every other poor bozo who didn't inherit money, you bought the orchard on credit from a bank that lent you funds at a rate of interest that not only takes into account the real growth rate, but the inflation rate and the cost of risk that you go bust and cease making mortgage payments.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you don't produce enough apples to pay for your input costs (e.g., fertilizer, pesticide, labor to pick the apples), you won't be able to make payments on your mortgage and the bank will come and seize your orchard.  So, you buy crop insurance just in case you have a bad harvest.  Your insurance company, realizing that it shares an incentive with you and your bank to reduce the likelihood of a bad crop year, sends you apple trade journals to help you determine how best to fertilize your crops, plant seeds, and manage weather events.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These journals also advertise the latest and greatest machines to help you pick apples with ever lower amounts of labor.  That is, they reduce your input costs.  So, you go out and sign a two-year lease expecting that in another two years, technological innovation will have driven down the cost of the machines, or have increased their productivity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With ever faster machines and crop insurance, you produce more and more apples each year with less variation in total output.  You lobby the government to help you find an export market for your apples, since you (and everyone else in this ridiculous example) produce more apples than is necessary to meet domestic demand.  The government gets the message, liberalizes trade with a country that produces mostly oranges, and your diet improves as you sell more apples.  The workers that you laid off from your orchard over the years retrain to become bankers who manage your trade finance and distributors who ensure your apples get to ever more distant markets.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To summarize, you adopted new technology and methods of risk reduction to ensure a stable growth rate in orchard profits.  Your government encouraged you to continue expanding your business by helping you find opportunities to sell to foreign buyers who love your apples.  Like you, others adopted the same measures, so in aggregate, the growth rate remained positive and roughly in line with past years' growth rates.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now imagine a shock to the system.  Say your insurance company faces massive losses due to major weather events brought about by climate change.  Your orchard, like so many others, is now under water at high tide, and your insurance premiums have increased.  The growth rate will decline.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or say that your major trading partner decides that it wants to start growing apples because it has many more underemployed people than you have in your country.  It imposes high tariffs on your apples, and it carves out an entire section of its south sea in an aggressive attempt to slow shipments of your apples among its trade partners.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or imagine that the pace of technological change has been so rapid that you've laid off more people from your orchard than can retrain.  They lack the income to buy a full day's meal of apples, so they receive food stamps that allow them to buy 1/4 the number of apples they need to live healthy lives.  Their children can barely focus at school because they don't receive lunch, and they become fat as they eat apple-tasting substitutes.  Because they aren't buying apples, your total apple sales decline.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These people, out of work for many years, become disillusioned with our economic system and vote for populists on both sides of the political spectrum who promise to break up and re-regulate banks despite comprehensive bank regulation overhaul many years earlier.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's not a big deal that they want to re-regulate banks, however, because climate change, trade wars, and declining consumption have tempered your overall economic growth rate.  The real growth rate stands at -2%.  Your bank, recognizing it will likely make no money by extending new loans to people who want to buy orchards, decides to distribute all of its remaining capital to its already wealthy shareholders.  Income inequality skyrockets.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are many factors that effect &lt;em&gt;long term&lt;/em&gt; average growth rates, though none should be taken as axiomatic.  I hope this example suggests some reasons why growth rises and falls due to both economic and exogenous political and social factors.  It is meant to be relevant, not rigorous.&lt;/p&gt;&#xA;" OwnerUserId="11250" LastEditorUserId="11250" LastEditDate="2016-11-29T04:07:32.000" LastActivityDate="2016-11-29T04:07:32.000" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="14407" PostTypeId="2" ParentId="14402" CreationDate="2016-11-28T21:13:16.877" Score="13" Body="&lt;p&gt;You would expect the rate of growth to be generally positive because inventing things or inventing more efficient ways of doing things, is generally a one way process - things don't get un-invented. So we would expect things that are made by machines to be made ever more quickly as the machines evolve and improve. Periods of negative growth are likely to correspond to some financial cock-up (e.g. asset bubbles) or increasing scarcity of some natural resources for which a replacement can not be found.&lt;/p&gt;&#xA;" OwnerUserId="5081" LastActivityDate="2016-11-28T21:13:16.877" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="14408" PostTypeId="1" CreationDate="2016-11-28T22:54:58.877" Score="6" ViewCount="481" Body="&lt;p&gt;I've read a title in the news proposing a zero corporate tax. Thinking about it I couldn't figure a good reason against. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why couldn't a country just set the corporate tax rate for firms to zero and then tax any gain obtained via negotiating shares or receiving dividends? Tracking the latters seems way easier (via a digital national registry of ownership and trades and mandating disclosure of dividends ) than burdening firms with complicated tax codes and the state with the burden of chasing them. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am sure I am missing some theoretical and real world complications, so please, enlighten me. &lt;/p&gt;&#xA;" OwnerUserId="6023" LastActivityDate="2016-12-01T10:01:17.753" Title="What are the arguments against a zero corporate tax?" Tags="&lt;taxation&gt;" AnswerCount="3" CommentCount="2" FavoriteCount="1" ClosedDate="2017-09-22T21:03:00.940" ContentLicense="CC BY-SA 3.0" />
  <row Id="14409" PostTypeId="2" ParentId="14380" CreationDate="2016-11-28T23:04:35.710" Score="0" Body="&lt;p&gt;Any model that uses the normal distribution will, as you would expect, invoke the use of $e$ and $\pi$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here's a nice one: &lt;a href=&quot;https://en.wikipedia.org/wiki/Black%E2%80%93Scholes_model#Black.E2.80.93Scholes_formula&quot; rel=&quot;nofollow&quot;&gt;Black-Scholes-Merton Option Pricing Formula&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Golden ratio, $\phi$, also appears in Hörner, Mu, and Vieille's paper on &lt;a href=&quot;https://drive.google.com/file/d/0Bz9XuTKbxavEUDhfMzgzTlBlVVE/view?usp=sharing&quot; rel=&quot;nofollow&quot;&gt;Markovian Implementation&lt;/a&gt;. You need a strong background in microeconomic theory to read this, however.&lt;/p&gt;&#xA;" OwnerUserId="8595" LastEditorUserId="8595" LastEditDate="2016-11-29T03:45:02.443" LastActivityDate="2016-11-29T03:45:02.443" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="14411" PostTypeId="1" AcceptedAnswerId="14416" CreationDate="2016-11-29T00:44:59.710" Score="3" ViewCount="93" Body="&lt;p&gt;( The game of “ chicken”) Two cars are driving at each other at great speeds.&#xA;If nobody changes directions, in 3 seconds they will collide and die a gruesome death,&#xA;yielding payoffs of −100 for both players. At every second they have to (simultaneously)&#xA;decide wether to continue or not (i.e. there are 3 periods to this game). Payoffs are as&#xA;follows: If both players choose continue for each of the three periods, then they get −100.&#xA;If at any period one player choses “not continue” and the other chooses “continue” the&#xA;player that chose not to continue gets 0 and the other gets 100. If at some point both&#xA;simultaneously choose not to continue they both get 0.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;True or False: Any equilibrium has the property that one of the players chooses&#xA;not to continue, but this only happens in the last period (as in the movies!).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I just wanted to double check my answer with someone. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My answer: I think that the answer is false. Because the strategy profile where player 1 plays continue at every stage and player 2 plays not continue at every stage is a subgame perfect Nash equilibrium I believe? Because based on the one shot deviation principle, there is not point in the history where player 2 can deviate from this strategy at one node profitably. And (continue, not continue) is a Nash equilibrium for the individual game. Thus, this strategy would result in a subgame perfect Nash equilibrium without getting to the third stage of this game.&lt;/p&gt;&#xA;" OwnerUserId="10279" LastActivityDate="2016-11-29T03:59:00.123" Title="Extensive Form Games" Tags="&lt;game-theory&gt;&lt;dynamic-games&gt;&lt;extensive-games&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14412" PostTypeId="1" AcceptedAnswerId="14420" CreationDate="2016-11-29T01:15:21.587" Score="1" ViewCount="278" Body="&lt;p&gt;Hey, everyone. I desperately need help understanding some math in auction theory.  I have been writing a paper as an undergrad for auction theory, and after all of my research I just cannot understand one step the author of a book uses to derive the equilibrium strategy for first-price auctions under independent private value conditions.&lt;br&gt;&#xA;The steps in the derivation process essentially follow this:&#xA;Let x = the chosen player's personal valuation, G(x) = the probability that the highest opposing bid, an order statistic, Y_1, is &amp;lt; x.&#xA;\begin{equation}&#xA;\beta(x) = x - \int_0^x\frac{G(y)}{G(x)} \, dy \\&#xA;\end{equation}&#xA;Then without much explanation, other than &quot;values are uniformly distributed on [0,1]&quot; he just converts this equation to&#xA;\begin{equation}&#xA;\beta(x) = \frac{N-1}{N},&#xA;\end{equation}&#xA;Which makes sense and is usable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The book I am using is Vijay Krishna's Auction Theory, and I would extremely appreciate someone helping me understand this last step.&lt;/p&gt;&#xA;" OwnerUserId="10446" LastActivityDate="2016-11-29T06:14:57.473" Title="Derivation of Equilibrium Strategy in 1st-price Auction?" Tags="&lt;microeconomics&gt;&lt;statistics&gt;&lt;auctions&gt;&lt;dominant-strategy&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14413" PostTypeId="2" ParentId="14412" CreationDate="2016-11-29T03:12:46.023" Score="2" Body="&lt;p&gt;I think you have a typo -- the equilibrium bidding strategy in the first-price auction you specify should be $$ \beta(x) = \frac{N-1}{N}x $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here's a hint that might help. The CDF of the order statistic, $Y_1$, is $$G(x) = x^{N-1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To see why this is the case, notice that this is exactly the probability that some given quantity $x$ is greater than or equal to $N-1$ independently drawn random variables that are uniformly distributed on $[0,1]$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'll write something in more detail when I have more time tomorrow, but I think this should tide you over for now. (At the very least, it'll help you evaluate the integral.)&lt;/p&gt;&#xA;" OwnerUserId="8595" LastActivityDate="2016-11-29T03:12:46.023" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14415" PostTypeId="2" ParentId="14402" CreationDate="2016-11-29T03:30:03.983" Score="-1" Body="&lt;p&gt;The expectation that an economy's GDP &lt;em&gt;should&lt;/em&gt; grow every year is largely an extension of humans' general desire to consume more goods and services. When individuals become more productive (get a raise, grow a family business, etc.), quite frequently they choose to consume more goods and services or invest more rather than cutting back their personal production and enjoying more leisure time. This is not universally true. In fact &lt;a href=&quot;http://eh.net/encyclopedia/hours-of-work-in-u-s-history/&quot; rel=&quot;nofollow noreferrer&quot;&gt;working hours have generally decreased&lt;/a&gt;. But on aggregate, decreases in working hours have not kept paced with productivity gains.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are also demographic factors.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Any factor that increase population such as immigration or children creates more desire for consumption. With more people desiring to produce, the expectation that GDP should grow is clear--though this does not directly affect GDP per capita.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;If you think about a typical person in a western country, productivity tends to increase over time. However, after retirement the desire for leisure time is deemed more valuable. Production decreases (or ceases). The consumption of goods and services often goes down too.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;But it is entirely possible that this preference will (in the aggregate) change at some point. Some advocate for such change using the terms minimalism or &lt;a href=&quot;https://en.wikipedia.org/wiki/Simple_living&quot; rel=&quot;nofollow noreferrer&quot;&gt;simple living&lt;/a&gt;; there is much variety in how the idea is promoted. If a large number of people prefer to consume less, or simply consume the same while their productivity increases, then we might not expect growth in GDP (per capita).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Similarly, if the population ceases to grow, we may expect to see lower GDP, though perhaps not lower GDP per capita.&lt;/p&gt;&#xA;" OwnerUserId="11258" LastActivityDate="2016-11-29T03:30:03.983" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14416" PostTypeId="2" ParentId="14411" CreationDate="2016-11-29T03:30:27.083" Score="1" Body="&lt;p&gt;I believe you are correct -- though I will say appealing to the one-shot deviation principle here seems a little overpowered. There are only three stages to this game so checking for all equilibria (and not just your conjectured one) in each proper subgame is doable. You do seem to be applying it correctly, however!&lt;/p&gt;&#xA;" OwnerUserId="8595" LastEditorUserId="8595" LastEditDate="2016-11-29T03:59:00.123" LastActivityDate="2016-11-29T03:59:00.123" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="14417" PostTypeId="2" ParentId="14408" CreationDate="2016-11-29T03:46:52.643" Score="1" Body="&lt;p&gt;One of the main arguments against it is the political unpopularity of the idea.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Most people do not (nor should be expected to) understand the economics behind the many different potential tax schemes. The &lt;a href=&quot;https://www.treasury.gov/resource-center/tax-policy/tax-analysis/Documents/WP-101.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;issue&lt;/a&gt; &lt;a href=&quot;https://www.aeaweb.org/conference/2011/retrieve.php?pdfid=326&quot; rel=&quot;nofollow noreferrer&quot;&gt;doesn't&lt;/a&gt; &lt;a href=&quot;http://thismatter.com/economics/tax-incidence.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;even&lt;/a&gt; &lt;a href=&quot;https://www.kansascityfed.org/Publicat/RegionalRWP/RRWP07-01.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;seem&lt;/a&gt; to be clear among economists.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the government desires to raise tax revenues, the primary &quot;cost&quot; is the opinion of the voters, not actual impact the tax has on the economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An example is the &lt;a href=&quot;http://news.nationalpost.com/news/canada/b-c-votes-to-scrap-hst&quot; rel=&quot;nofollow noreferrer&quot;&gt;repeal of the HST (sales tax) in British Columbia&lt;/a&gt;. The economic consensus seems to be that the &lt;a href=&quot;https://www.fraserinstitute.org/sites/default/files/impact-of-the-HST-on-BC-families.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;new HST was more efficient than the old PST&lt;/a&gt;. However, a referendum repealed the HST in favor of the less efficient PST.&lt;/p&gt;&#xA;" OwnerUserId="11258" LastActivityDate="2016-11-29T03:46:52.643" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14418" PostTypeId="2" ParentId="12733" CreationDate="2016-11-29T03:47:37.437" Score="2" Body="&lt;p&gt;To answer your question you have to understand Eurozone fixed income market structure:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;The ECB's mandate is to maintain price stability for the entire Eurozone.  Other measures of inflation---for instance the difference between French fixed-rate OATs (Obligations Assimilables du Tresor) and OAT linkers---measure only regional inflation, and suffer potentially from artifacts related to low liquidity.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Capital mobility within the Eurozone is quite good.  The EU banking sector dominates swaps trading volume, and the interest rate swaps market is extremely deep and liquid.  Therefore the swaps rate reflects Eurozone wide term structure.  What's more, fixed income traders tend to quote Euro pay issues' spreads off of swaps.  They are the benchmark rate.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;There are EFSF (European Financial Stability Facility) and ESM (Eurpoean Stability Mechanism) bonds which also price to reflect Eurozone-wide term structure.  However these SPVs have not issued linkers, so it's impossible to use them to price inflation.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Some commenters here have forgotten their fixed-income math.  You can price counterparty risk-free interest rate swaps directly from fixed term structure.  This is because in an arbitrage free world Treasury curves reflect market participants expectations for forward rates and swap rates.  Any answer that suggests that swaps compensate for premiums and risks that are not purely term-structure related is false.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Swap rates pre-Dodd-Frank/MIFID used to reflect bank credit risk.  Now that they are centrally cleared in Swap Execution Facilities (SEFs), any credit risk associated with the swap is paid in margin, not as an interest rate premium.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The choice of term and tenor (5y/5y) is arbitrary.  The Federal Reserve also uses 5y/5y forward breakevens.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;I hope this clarifies that the 5y/5y inflation rate swap is the only sufficiently liquid measure of Eurozone-wide inflation.&lt;/p&gt;&#xA;" OwnerUserId="11250" LastEditorUserId="11250" LastEditDate="2016-11-29T03:52:53.417" LastActivityDate="2016-11-29T03:52:53.417" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="14419" PostTypeId="2" ParentId="14387" CreationDate="2016-11-29T03:57:45.583" Score="2" Body="&lt;p&gt;In short, inflation affects a basic income guarantee exactly the same as any other cashflow in the affected currency.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is possible to &lt;em&gt;create&lt;/em&gt; a connection by funding a basic income benefit with inflationary measures. However, the resulting inflation will be spread throughout the economy, and would apply even if those measures were taken to fund some unrelated program.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A more tenuous connection relates to managing incentives. If the amount guaranteed is too high, then there are reduced incentives to produce. This reduced production affects government revenues (which are typically tied to production through income or sales taxes). When government revenues are falling, there is always the temptation to make up the difference with inflationary measures.&lt;/p&gt;&#xA;" OwnerUserId="11258" LastActivityDate="2016-11-29T03:57:45.583" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14420" PostTypeId="2" ParentId="14412" CreationDate="2016-11-29T06:14:57.473" Score="2" Body="&lt;p&gt;I remember slaving over the notation in this book when I was a bad undergraduate. It brings up some interesting memories, some which may help you.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;$F(x)$ is the cumulative distribution of a single bidder's valuation.&lt;/li&gt;&#xA;&lt;li&gt;$G(x)$ is the cumulative distribution of the highest bidder's valuation, given $N$ bidders.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;For the example you are referring to, values being uniformly distributed along $[0,1]$ implies $F(x) = x.$ That's pretty straightforward. The chance of you having a valuation of $\frac{1}{2}$ or less for the object is, well, $\frac{1}{2}$. The chance of you having at least a value of $1$ should be a probability of $1$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But why is $G(x) = x^{N-1}$ ?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For $n =1$, the chance of your valuation being the largest valuation or less is...well, $1 \ (= x^0)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For $n = 2$, the chance of your valuation being the largest valuation or less is just the chance that the other bidder has a valuation lower than you, or exactly $x$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For $n = 3$, the chance of your valuation being the biggest or less is just the chance that both other bidders value the object less. Since you're working with independent private values, you can think of their valuations as independent (duh) events, so you can just multiply the events together. (&lt;a href=&quot;https://en.wikipedia.org/wiki/Conditional_probability#Formal_derivation&quot; rel=&quot;nofollow noreferrer&quot;&gt;More on conditional probability here&lt;/a&gt;). So for example the chance of someone having a smaller value than you is $x$, but there is another person who also has to have a smaller value than you, with the same chance $x$. The chance of both of them having smaller values than you is $x \cdot x = x^2$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So it goes, the more bidders (independent valuations) you have.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;So we have your general formula for an optimal bid under a first-price auction:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\beta^1(x) = x - \int^x_0 \frac{G(y)}{G(x)} dy$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So substitute in $G(x)$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\beta^1(x) = x - \int^x_0 \frac{y^{N-1}}{x^{N-1}} dy$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Evaluate:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$= x \ - \ \biggr\lvert \frac{y^N}{Nx^{N-1}} + c\biggr\rvert^x_0$$&#xA;$$= x - \frac{x}{N} = \frac{Nx}{N} - \frac{x}{N}$$&#xA;$$\boxed{\beta^1(x) = x\frac{N - 1}{N}}$$&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;The next example in Krishna's book has an exponential distribution, but only with two bidders. If you try using the same line of reasoning as I used above to find $G(x)$, you'll notice things appear a bit difficult, but the author doesn't explicitly state $G(x)$ in this case in fact. Try seeing for yourself if you understand why Krishna gives the helpful statement:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{G(y)}{G(x)} = \left[\frac{F(y)}{F(x)}\right]^{N-1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;for the generic case where there is no functional form for the distributions.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2016-11-29T06:14:57.473" CommentCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="14421" PostTypeId="2" ParentId="14402" CreationDate="2016-11-29T07:13:59.463" Score="1" Body="&lt;p&gt;GDP (Expansion and/or Productivity) must always average out to at least the rate of population growth. Population growth tends to be positive (Not always like in modern Japan), so GDP should then be positive if living standards are to be maintained in the long term.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That is: If a population is growing at 3% a year--doubling every 24 years--then so must GDP average 3% growth and also double in 24 years. Otherwise reduced living standards are the result--more people chasing the same amount of goods and services.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Imagine an isolated island nation that grows its own food and has a 3% population growth rate. In 24 years they better have either increased the amount of land in production, boosted farm productivity, or both, if all are to consume the same level of calories as in prior years.&lt;/p&gt;&#xA;" OwnerUserId="11262" LastActivityDate="2016-11-29T07:13:59.463" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14422" PostTypeId="1" CreationDate="2016-11-29T08:44:08.930" Score="0" ViewCount="43" Body="&lt;p&gt;Amidst Anarchocapitalist authors such as Murray Rothbard, are there any who discuss the possibility of privately-owned countries, with their own set of private laws, police services and courts?&lt;/p&gt;&#xA;" OwnerUserId="6099" LastEditorUserId="1601" LastEditDate="2019-04-21T08:31:26.550" LastActivityDate="2019-04-21T08:31:26.550" Title="Literature on Private Countries" Tags="&lt;reference-request&gt;&lt;political-economy&gt;&lt;austrian&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="14423" PostTypeId="1" AcceptedAnswerId="14424" CreationDate="2016-11-29T09:17:11.813" Score="0" ViewCount="42" Body="&lt;p&gt;I've noticed that certificates of deposit have dropped their interest rates in my country. This seems to be due to lack of trust in economic opportunities and has caused an increase of liquidity in banks that has not been able to be released via loans.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This leads me to think that loans will be favored, although interests rates for them are actually high due (I suppose) to an inherent risk in the local economy and therefore the typical loan is small ($\sim 3000 $ $). So, what are the typical purposes --other than immediate consumption-- that these type of loans have for &lt;em&gt;households&lt;/em&gt; (i.e. not for starting a new business) as a whole?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let me rephrase my question: what incentive would there be for families to borrow during a recession?&lt;/p&gt;&#xA;" OwnerUserId="11263" LastEditorUserId="11263" LastEditDate="2016-11-29T13:08:25.123" LastActivityDate="2016-11-29T13:08:25.123" Title="Uses of loans during recession" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14424" PostTypeId="2" ParentId="14423" CreationDate="2016-11-29T09:26:04.903" Score="1" Body="&lt;p&gt;Because of the recession some members of the household may have lost their jobs. So maybe they don't have enough money to pay a utility bill? To pay for urgent repairs? To buy a Christmas present? There are a variety of possible reasons.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2016-11-29T09:26:04.903" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14425" PostTypeId="1" AcceptedAnswerId="14690" CreationDate="2016-11-29T10:26:54.327" Score="0" ViewCount="99" Body="&lt;p&gt;I'll get to the point: so, in the context of theories of long-run economic growth, I understand at a basic level that, in the Solow model, there is a negative relationship between capital per effective worker (K/AL) and technological change (&lt;img src=&quot;https://i.imgur.com/sBgtc0V.gif&quot; alt=&quot;&quot;&gt;) - higher amounts of technological change means it is harder for firms to keep with up new innovations in capital terms.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In contrast, there is, supposedly (speaking in very simplified terms) a Schumpeterian-type ('market for inventions') model, where there is a positive relationship between K/AL and technological change, because technological change is determined, in part, by K/AL, as this increases the supply of 'innovations'.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I do not understand how an increase in K/AL would increase the supply of innovations within this model - would someone please explain for me why this relationship might hold true?&lt;/p&gt;&#xA;" OwnerUserId="10993" LastEditorUserId="10993" LastEditDate="2016-11-29T10:47:49.520" LastActivityDate="2016-12-14T22:16:33.790" Title="How can a positive relationship between capital per effective worker and technological change be explained?" Tags="&lt;economic-growth&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14426" PostTypeId="2" ParentId="13943" CreationDate="2016-11-29T11:27:26.870" Score="2" Body="&lt;p&gt;The closes answer will be country with extremely low inflation such as Nordic countries, Kuwait, Brunei. But they are not a good example, as the money supply are &quot;balance&quot; with their heavy surplus from natural resources exploitation.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand, there is plenty of example for &quot;Dutch disease&quot; : excessive foreign exchange that lead to massive future spending with too little on future transformation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;IMHO, there is no &quot;real answer&quot; for this, unless you like in a world with 100% economist. Due to human nature to exploit system, all economy ideology deems broken once it is brought up. Macro manage economy with money supply are one of those.  I am not sure what you try to achieve. Inflation is not the silver bullet for &quot;growth&quot;. Nor the so call &quot;ripples effect&quot; from the rich really effective. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(update)&#xA;Keynesianism ciritised European Union below 2% inflation rates lead so &quot;slow growth&quot;. Some even suggest country like Greek detach from the Euro and go all out to print money to &quot;stimulate growth&quot;. That is a terrible idea of attempt to use monetary policies to solve economy structural issues. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Is shrinking money supply environment painful for an economy?&lt;/strong&gt;.  Even with a clear scope, there is no clear answer. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some economist argue that &quot;deflation&quot; will cause people &quot;not to spend&quot;, to support &quot;inflation&quot; is good because it will force people to spend. This is counter-intuitive against human behavior : human will acquire stuff that they to fulfilled their desires and needs. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is no concrete example of &quot;retract economy&quot; under stagnation or deflation.  Due to diversity of human behaviour, some people will hoard the money and go to graveyard without spending all of it. Some will go grab new TV, subscribe to streaming services, etc.  &lt;/p&gt;&#xA;" OwnerUserId="11177" LastEditorUserId="11177" LastEditDate="2017-04-06T09:25:15.453" LastActivityDate="2017-04-06T09:25:15.453" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14427" PostTypeId="2" ParentId="3174" CreationDate="2016-11-29T13:43:24.203" Score="2" Body="&lt;p&gt;This proposition is &lt;strong&gt;in general not true&lt;/strong&gt;. One can show that it is true in the case $n=2$ and $m=2$. Here, I exhibit a counter example when $n=3$ and $m=2$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A brief comment. We can rephrase the question in words: does a Nash equilibrium that is &quot;more random&quot; ($e'$ versus $e$) is less efficient? Intuitively, as more mixed strategies are played, the realized outcome is more random and it can be very inefficient due to a lack of coordination between agents. When agents play pure strategies, we can think that we reduce the coordination problem given that we consider Nash equilibria. This intuition does not hold if the proposition is false, as I will show when $n=3$ and $m=2$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Denote $A$ and $B$ the two possible actions. The delay functions are defined as follows:&#xA;$d_A(1)=5$, $d_A(2)=7$, $d_A(3)=10$ and $d_B(1)=1$, $d_B(2)=6$, $d_B(3)=7$.&#xA;It means that when $x$ agents play $A$ (resp. $B$), they receive the payoff $-d_A(x)$ (resp. $-d_B(x)$). This is a (symmetric) congestion game as long as the delay functions are increasing. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Define $e$ as the equilibrium when 1 agent plays $A$ and 2 agents play $B$. Define $e'$ as the equilibrium when 1 agent always plays $B$, and the 2 others plays $A$ with probability $\mu=2/3$ and $B$ with probability $1-\mu=1/3$. It satisfies the property  $sup(e) \subseteq sup(e')$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, we show that $e$ is a Nash equilibrium. The agent who plays $A$ is maximizing her payoff given the two other players' strategy when choosing $A$ is better than choosing $B$, $d_A(1)&amp;lt;d_B(3)$ (i.e. $5&amp;lt;7$). Both agents who play $B$ are playing optimally if $d_B(2)&amp;lt;d_A(2)$ (i.e. $6&amp;lt;7$). $e$ is thus a Nash equilibrium and its social cost is $d_A(1)+2d_B(2)=17=\frac{153}{9}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Second, we show that $e'$ is a Nash equilibrium. On one hand, the agent who plays $B$ is maximizing her payoff when the two others play mixed strategy if she is better off playing $B$ than $A$,&#xA;$$(1-\mu)^2d_B(3)+2\mu(1-\mu)d_B(2)+\mu^2d_B(1)&amp;lt;(1-\mu)^2d_A(1)+2\mu(1-\mu)d_A(2)+\mu^2d_A(3)$$&#xA;i.e. $\frac{1}{9}5+\frac{4}{9}7+\frac{4}{9}10&amp;lt;\frac{1}{9}7+\frac{4}{9}6+\frac{4}{9}1$, which is true.&#xA;On the other hand, each one of the agents playing the mixed strategy is indifferent between choosing $A$ or $B$ if&#xA;$$\mu d_A(2)+(1-\mu)d_A(1)=\mu d_B(2)+(1-\mu)d_B(3)$$&#xA;i.e. $\frac{19}{3}=\frac{19}{3}$.&#xA;$e'$ is then a Nash equilibrium and its social cost is&#xA;$$(1-\mu)^2 [3d_B(3)]+2\mu(1-\mu)[d_A(1)+2d_B(2)]+\mu^2[2d_A(2)+d_B(1)]$$&#xA; which is equal to $\frac{1}{9}21+\frac{4}{9}17+\frac{4}{9}15=\frac{149}{9}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, we have shown that $sup(e) \subseteq sup(e')$ but $SC(e) &amp;gt; SC(e')$. The mixed-strategy Nash equilibrium results in a lower social cost than the pure-strategy one.&lt;/p&gt;&#xA;" OwnerUserId="4094" LastActivityDate="2016-11-29T13:43:24.203" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14428" PostTypeId="1" AcceptedAnswerId="14435" CreationDate="2016-11-29T14:21:06.723" Score="3" ViewCount="306" Body="&lt;p&gt;I am a high school student with keen interest in mathematics and economics. I wish to study mathematical economics, but most of the books I have encountered begin with quite advanced mathematics. In particular, Mathematical Economics by Akira Takayama begins with Nonlinear Programming [Concave Programming, Differentiation and Unconstrained Maximum Problem and Quasi Saddle Point Charecterization]. Frankly, I find myself at sea while trying to understand this content. Could someone please recommend what prerequisites one must have in order to fully understand books of such caliber.  &lt;/p&gt;&#xA;" OwnerUserId="6565" LastActivityDate="2016-11-30T10:17:10.753" Title="What are the prerequisites to study Mathematical Economics?" Tags="&lt;reference-request&gt;&lt;self-study&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14429" PostTypeId="2" ParentId="13943" CreationDate="2016-11-29T14:39:53.343" Score="2" Body="&lt;p&gt;Money supply accounts for all the 'money' in circulation in the economy and the money itself has many forms. However, in a nutshell we can understand it as the flow of all kinds of monetary assets in the economy (broad sense of money). The correlation of money supply with growth has been quite contentious. We just lost a very good central bank governor in India because of these differences in opinion. The direction of causality is not so clear. However, many of the researches have had some empirical conclusions that suggest that GDP granger causes money supply and the vice versa is not true. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In short term though, it appears that an increase in money supply leads to higher economic activity (can be easily checked through standard IS-LM or AD-AS models). The long term effects are not so clear.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Having said that the answer to the question is yes, there can be growth even with a reducing or stable money supply. Such a situation would lead to deflationary pressures and possible increase in the velocity of money (faster transactions) in the economy. &#xA;I don't have any concrete example of this case when money supply is steadily shrinking and economic activity is still healthy and growing. This could be because money supply is usually affected heavily by central bank's tools. And central banks usually would not do this. But there are examples when money supply has remained more or less stable. Such as, U.K in 2013-14 and India in 2015-16(June). In fact in India, money supply slightly decreased during this period while economy overall was in a healthy state. &lt;/p&gt;&#xA;" OwnerUserId="5582" LastActivityDate="2016-11-29T14:39:53.343" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="14430" PostTypeId="1" AcceptedAnswerId="14446" CreationDate="2016-11-29T15:34:06.613" Score="1" ViewCount="4594" Body="&lt;p&gt;I’m looking for example of two goods/wealth that demonstrate inverse/negative correlation. For example if price of &lt;code&gt;A&lt;/code&gt; rises then price of &lt;code&gt;B&lt;/code&gt; falls. May be it is oil or gold prices along with some other wealth. Or may be some share prices (stocks) of some two companies. I can’t find example of such negatively correlated prices data.&lt;/p&gt;&#xA;" OwnerUserId="10923" LastActivityDate="2016-11-30T18:06:18.450" Title="What are examples of inversely (negatively) correlated stock prices in economics?" Tags="&lt;microeconomics&gt;&lt;stock-market&gt;&lt;price&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14431" PostTypeId="2" ParentId="14430" CreationDate="2016-11-29T16:03:06.083" Score="4" Body="&lt;p&gt;Have you tried Google? By copying a part of your question into Google I was able to find several examples. The best one may be this site which lists 20 positively and negatively correlated stocks for any stock you pick: &lt;br&gt;&#xA;&lt;a href=&quot;http://www.market-topology.com/correlation/&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.market-topology.com/correlation/&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2016-11-29T16:03:06.083" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14432" PostTypeId="2" ParentId="14428" CreationDate="2016-11-29T17:46:42.020" Score="0" Body="&lt;p&gt;Economics in undergraduate and graduate programs already contain a non negliglible amount of maths. Mathematics are at the core of modern orthodox economics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would propose you to have a look at the general textbooks for undergraduates/graduates in economics. You will find an extensive use of maths in some of them. If you are interested in theory &lt;em&gt;Microeconomic Theory&lt;/em&gt; (by Mas-Collel, Whinston and Green) is a masterpiece.&#xA;&lt;em&gt;Introductory Econometrics&lt;/em&gt; (by Woolridge) may be relevant if you are interested in applied econometrics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is not an exhaustive list of course.&lt;/p&gt;&#xA;" OwnerUserId="4094" LastEditorUserId="4094" LastEditDate="2016-11-30T10:17:10.753" LastActivityDate="2016-11-30T10:17:10.753" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="14433" PostTypeId="1" CreationDate="2016-11-29T17:52:54.423" Score="1" ViewCount="178" Body="&lt;p&gt;Today, Wikipedia is again running a donation drive in an attempt to raise more money. Their requests seem to occur more frequently each year. I would guess that 99.99%+ of Wikipedia users never donate, and yet continue to use the service. The existence of Wikipedia as a resource certainly isn't &quot;free,&quot; as servers cost money. I wondered what all of the free-riders would do if Wikipedia were to run out of funding and not exist as a resource anymore.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can anyone share some insight/examples around what happens in a given microeconomy in which the &quot;free&quot; good - the existence of which results in the free-rider problem - is taken away? Is there a sudden rush from the free-riders to pay, and then after some time, donations regress to their original mean?&lt;/p&gt;&#xA;" OwnerUserId="11272" LastEditorUserId="1601" LastEditDate="2016-11-29T18:57:56.670" LastActivityDate="2016-11-29T19:36:02.363" Title="Research around the free-rider problem when the resource is taken away?" Tags="&lt;reference-request&gt;&lt;free-riding&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14435" PostTypeId="2" ParentId="14428" CreationDate="2016-11-29T18:05:13.880" Score="5" Body="&lt;p&gt;In the preface, Takayama writes that the book was written with the intention to keep the prerequisites to a minimum: elementary calculus and matrix algebra. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Perhaps he was exaggerating a little, but I suspect, after skimming the table of contents, that knowledge of the aforementioned subjects and experience working with (i.e. reading/understanding and independently constructing) mathematical proofs should be enough.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm assuming you've taken calculus and linear algebra -- in which case you might want to get more experience with working with proofs. I'm quite fond of Axler's &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/3319110799&quot; rel=&quot;nofollow&quot;&gt;Linear Algebra Done Right&lt;/a&gt;, and I've heard good things about Abbott's &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/1493950266&quot; rel=&quot;nofollow&quot;&gt;Understanding Analysis&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you haven't studied those two subjects, work on learning those first. You can try the two textbooks I suggested to do so, but that might be a bit rough-going. I'm sure your math teacher might have more helpful suggestions for a first reference to learn calculus and matrix algebra from.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think with a bit of what mathematicians like to call 'mathematical maturity', you should be able to manage Takayama just fine.&lt;/p&gt;&#xA;" OwnerUserId="8595" LastEditorUserId="8595" LastEditDate="2016-11-29T22:30:53.680" LastActivityDate="2016-11-29T22:30:53.680" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14437" PostTypeId="2" ParentId="14433" CreationDate="2016-11-29T19:36:02.363" Score="2" Body="&lt;p&gt;This may not be exactly what you're looking for, but your question reminds me of the work of Elinor Ostrom, who (along with Oliver Williamson) won the Nobel in Economics for her work on what academics in the field call 'the commons'.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/2009/&quot; rel=&quot;nofollow&quot;&gt;Here&lt;/a&gt;'s a good place to start reading about her work. Check under 'Popular Information' and 'Advanced Information' in particular for details about her work.&lt;/p&gt;&#xA;" OwnerUserId="8595" LastActivityDate="2016-11-29T19:36:02.363" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14444" PostTypeId="1" CreationDate="2016-11-30T13:38:51.043" Score="2" ViewCount="73" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Patriotism is an emotional attachment to a nation which an individual&#xA;  recognizes as their homeland.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;That is description from &lt;a href=&quot;https://en.wikipedia.org/wiki/Patriotism&quot; rel=&quot;nofollow noreferrer&quot;&gt;Wikipedia&lt;/a&gt; and I think it is safe to say that universally all countries in the world trying to create their patriotic agendas. Sometimes it seems natural as it is with deep roots in history, culture. Sometimes it looks very like a ”project”,especially for relatively new countries. &#xA;I am wondering, is there fundamental economical reasoning for that? &#xA;For example, patriotism can lower cost of armies that in one or other history moment helps for country to survive or helps to create more stable economical system and so on. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there any research made in economical reasoning for patriotism? If anyone could give any links to articles or books or just give insights what is economical reasoning for patriotism (if there is one). &lt;/p&gt;&#xA;" OwnerUserId="11292" LastActivityDate="2016-12-02T21:13:00.377" Title="Is there fundamental economical reasoning for patriotism?" Tags="&lt;behavioral-economics&gt;" AnswerCount="1" CommentCount="5" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14446" PostTypeId="2" ParentId="14430" CreationDate="2016-11-30T18:06:18.450" Score="1" Body="&lt;p&gt;U.S. equity market returns and U.S. Treasuries returns exhibit strong negative correlation (roughly -35%) over all time frequencies for sufficiently long time horizons.  We attribute this inverse correlation to the fact that Treasuries are &quot;safe-haven&quot; assets, while equities increase in price as risk premiums decline.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your question mentions price data.  Your correlations will improve if you look at log-prices or returns.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are many other examples of positive and negative correlations in finance, though many can prove ephemeral: utilities stocks and interest rates, long interest rates and life insurers, gold miners and gold prices, airlines and oil prices, and so on.&lt;/p&gt;&#xA;" OwnerUserId="11250" LastActivityDate="2016-11-30T18:06:18.450" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14448" PostTypeId="2" ParentId="14408" CreationDate="2016-11-30T18:27:48.450" Score="2" Body="&lt;p&gt;It is possible to structure business entities in most if not all countries as pass through structures (e.g., limited liability corporations, sole proprietorships, or general partnerships).  Such entities are not taxed at the corporate level.  Tax liability instead flows through to the principals who own not shares but partnership interests.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your question should therefore be restated: what advantage is there to reducing the corporate tax rate to allow shareholders to pay less tax than if profits flowed through to their personal income tax returns?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The answer to that question is data-dependent.  In some economic environments, it is useful to encourage corporate investment through corporate tax cuts.  We are not in such an environment today, however.  There is now a very wide and deep literature on how corporations have been saving more than they have been investing since the 2007-09 financial crisis.  Corporations have been hoarding cash or distributing capital to stockholders in the form of dividends and share buybacks more than they have been investing in future productivity and profitability growth.  Corporate tax cuts would therefore likely increase wealth inequality because they would flow through to already wealthy shareholders.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The only argument for reducing the corporate tax rate today has to do with international competitiveness.  The top tax rate for U.S. corporations is 35%.  In Ireland it is 18%.  If you ran a giant multinational, you might want to &quot;invert&quot; and re-domicile to Ireland or any other lower-taxing country.  The U.S. tax code has so many loopholes that through clever use of intercompany debt, net operating loss carryforwards, and operations overseas, it is possible bring the effective tax rate for a U.S. domiciled multinational closer to 10-15% over longer time horizons.  We should obviously attempt to set corporate tax policy to limit inversions, but many companies already pay less than they would if they were headquartered overseas.&lt;/p&gt;&#xA;" OwnerUserId="11250" LastEditorUserId="11250" LastEditDate="2016-12-01T03:28:04.137" LastActivityDate="2016-12-01T03:28:04.137" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14449" PostTypeId="1" CreationDate="2016-11-30T18:30:02.663" Score="2" ViewCount="301" Body="&lt;p&gt;I know MRS is independent of prices and compares the ratio of goods which the consumer will exchange one good for the other good. But is the marginal rate of substitution affected by the consumption of those goods or not? It seems trivial but can't get my head around it. &lt;/p&gt;&#xA;" OwnerUserId="7769" LastActivityDate="2016-11-30T19:53:01.270" Title="What are the specific assumptions of MRS?" Tags="&lt;microeconomics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14450" PostTypeId="2" ParentId="14449" CreationDate="2016-11-30T18:42:59.090" Score="2" Body="&lt;p&gt;Different consumer preferences will lead to different properties of the consumer's willingness to trade one good for another.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For instance, suppose that consumers preferences are linear in the consumption of either good:&#xA;$U=\beta_x x + \beta_y y$&#xA;where $\beta_x$,$\beta_y$ are positive constants &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The marginal utility of $x$ would be $\beta_x$ and the marginal utility of $y$ would be $\beta_y$, and the MRS would be $\frac{\beta_x}{\beta_y}$, also a constant. This tells us the consumer would be willing to trade between $x$ and $y$ at a constant rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An alternative would be consumption of each good entering utility in a multiplicative fashion (Cobb Douglas), for instance&#xA;$U=xy$. The marginal utility of $x$ would be $y$ and the marginal utility of $y$ would be $x$ and so the MRS would be $\frac{y}{x}$, which indeed would depend on consumption. In this example, the MRS decreases as consumption of $x$ rises. As the consumer enjoys more $x$ he is willing to give up less and less $y$ for another unit of $x$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So it's not entirely trivial whether the MRS depends on consumption, whether it does or not depends on how you model consumer's preferences.  &lt;/p&gt;&#xA;" OwnerUserId="2844" LastActivityDate="2016-11-30T18:42:59.090" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14451" PostTypeId="1" CreationDate="2016-11-30T18:43:40.277" Score="3" ViewCount="80" Body="&lt;p&gt;I will try to explain my question using two production functions here.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$Y$ = Yield of a certain crop (tons/hectare)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume yield (output) is a function of two inputs, $Y = f(N,I)$, where&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$N$ = Nitrogen fertilizer (input) (kg/hectare)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$I$ = Irrigation (mm/hectare)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Case 1: Assume I have data on 400 different plots. Each observation includes yield (output) and N (input). There is no irrigation in this case, $I = 0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$Y_1$ = $\alpha_0$ + $\alpha_1$ * $N_1$ + $\alpha_2$*$N^2$ + $e$  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Case 2: Irrigation (say up to 100 mm/hectare) is introduced in all plots, therefore, the value of $I$ ranges from 0-100. Irrigation increases yields in most plots. However, for a large number of plots, irrigation alone does not increase yields and additional N is required to increase yields. I have data on both inputs and the corresponding yields (output). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$Y_1$ = $\alpha_0$ + $\alpha_1$ * $N_1$ + $\alpha_2$*$N^2$ + $\alpha_3$ * $I_1$ + $\alpha_4$ * $I^2$+ $\alpha_5$ * $N*I$ + $e$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I want to measure is:&#xA;(1) What is the impact of irrigation on yields?&#xA;(2) Given that irrigation increases yields, how much additional Nitrogen (on average) is necessary to get to these yield increases? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;a) From what I understand, I can't use a diff-in-diff type estimation here because the impacts of irrigation are heterogeneous, i.e., I can't simply add an irrigation dummy to the regression.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would appreciate any help. Thank you so much! &lt;/p&gt;&#xA;" OwnerUserId="11298" LastActivityDate="2017-06-29T19:20:53.827" Title="How do I calculate the impact of an independent variable on a dependent var. when the independent var. changes from 0 to some positive value?" Tags="&lt;regression&gt;&lt;agriculture&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14452" PostTypeId="2" ParentId="14449" CreationDate="2016-11-30T19:20:15.290" Score="2" Body="&lt;p&gt;It depends. Hessian gives a good answer, but I think we can say something more. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A utility function $u(x)$ assigns to each bundle of goods $x=(x_1,\ldots,x_n)$ a real number. Along an indifference curve, we have \begin{equation}u(x)=u_0\tag{1}\end{equation} for some real constant $u_0$. Now, the marginal rate of substitution $MRS_{ij}$ of good $i$ for good $j$ exists at a given point $x$ whenever  $u_i(x)\neq 0$, for then the &lt;a href=&quot;https://en.wikipedia.org/wiki/Implicit_function_theorem&quot; rel=&quot;nofollow noreferrer&quot;&gt;implicit function theorem&lt;/a&gt; implies that $(1)$ implicitly defines a function $f^i$ such that  $x_i=f^i(x_1,\ldots,x_{i-1},x_{i+1},\ldots,x_n)$, and that we have $$u(x_1,\ldots,x_{i-1},f^i(x_1,\ldots,x_{i-1},x_{i+1},\ldots,x_n),x_{i+1},\ldots,x_n)=u_0.\tag{2}$$ Differentiating $(2)$ with respect to $x_j$ where $j\neq i$ gives us $$-\frac{\partial f^i}{\partial x_j}\Big|_{u\text{ constant at }u_0}=\frac{u_i(x)}{u_j(x)}=MRS_{ij}.\tag{3}$$ Note that the partial derivatives $u_i(x)$ and $u_j(x)$ are dependent on the bundle of goods $x$, so it is logically possible that $MRS_{ij}$ varies with $x$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If  $MRS_{ij}$ does not vary with $x_j$ and is thus constant with respect to $x_j$ at some level $k$, it follows from $(3)$ by integration with respect to $x_j$ on both sides that $$f^i(x_1,\ldots,x_{i-1},x_{i+1},\ldots,x_n)=-kx_j+m$$  for some real constant $m$ independent of $x_j$. Thus, in this case, the indifference curve in $(x_i,x_j)$-space is a straight line.&lt;/p&gt;&#xA;" OwnerUserId="7582" LastEditorUserId="7582" LastEditDate="2016-11-30T19:53:01.270" LastActivityDate="2016-11-30T19:53:01.270" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14456" PostTypeId="1" AcceptedAnswerId="14469" CreationDate="2016-12-01T01:04:17.937" Score="3" ViewCount="651" Body="&lt;p&gt;I am currently reading the book &quot;Microeconomics: Principles and Analysis&quot; by Cowell on my own. I'm reading the externalities chapter, and i found an interesting example:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are just two firms: firm 1 is a polluter and firm 2 the victim. Firm 2 (the victim) makes an offer of a side-payment or bribe to firm 1. The bribe is an amount that is made conditional upon the amount of output that firm 1 generates: the greater the pollution, the smaller is the bribe; so we model the bribe as a decreasing function β(⋅).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The optimization problem is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/ZX2kO.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/ZX2kO.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is how did they arrive at those FOC's? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;UPDATE:The second part of this optimization is to look at the problem from firm 1 perspective, it follows like this:&#xA;&lt;em&gt;Now look at the problem from the point of view of firm 1. Once the victim&#xA;firm makes its offer of a conditional bribe, firm 1 should take account of it. So&#xA;its profits must look like this&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/5bwPz.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/5bwPz.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is from F.A.Cowell - Microeconomics - Principles and Analysis p.444-445&lt;/p&gt;&#xA;" OwnerUserId="10699" LastEditorUserId="2776" LastEditDate="2017-02-08T23:07:25.953" LastActivityDate="2017-02-08T23:07:25.953" Title="Externalities - First order conditions" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;optimization&gt;&lt;externalities&gt;" AnswerCount="1" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14457" PostTypeId="1" CreationDate="2016-12-01T02:09:05.267" Score="2" ViewCount="42" Body="&lt;p&gt;I often hear phrases like country XYZ &quot;finances its current account deficit through flows in its financial account&quot;. i have a tough time understanding this idea of &quot;financing&quot; a current account deficit and why it happens with certainty.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;i understand there is an identity that says: current account + financial account + capital account = 0. so, if the first term is negative than the sum of the second two must offset, and i suppose that is what is meant by financing - but it is not intuitively clear to me why this must be the case&lt;/p&gt;&#xA;" OwnerUserId="11302" LastActivityDate="2016-12-01T02:09:05.267" Title="help understanding the &quot;financing&quot; of the current account" Tags="&lt;macroeconomics&gt;&lt;balance-of-payments&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="14458" PostTypeId="1" CreationDate="2016-12-01T02:11:29.517" Score="1" ViewCount="43" Body="&lt;p&gt;A seller owns a single unit of an invisible good. It is worth $v(s)$ to a buyer, where&#xA;$s ∈ R^+$ is the quality of the good. The function $v(·)$ is strictly increasing and strictly concave with&#xA;$v(0) = 0$. Quality is chosen by the seller, and the cost of providing a good of quality $s$ is given by a&#xA;function $c(s)$, which is strictly increasing and strictly convex with $c(0) = c&#xA;'(0) = 0$ and $c'(0) &amp;lt; v'(0)$.&#xA;(Implicit in this description is the assumption that the buyer’s preferences are quasilinear is some good&#xA;other than the one being traded.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are many parts to this question, but I'm most concerned about the step up. Which asks write down the first-order conditions to find the pareto optimal quality that maximizes the sum of the utilities and confirm that it is positive.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm thinking that the utility functions are as follows:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$u_B(x,s)=x+v(s)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where $x$ is dollars spent on anything besides the good that is being traded (like the composite commodity theorem)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$u_S(s)=v(s)-c(s)$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The utility of the seller would just be the value they can sell the good for minus it's cost?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus,&#xA;$max_s(u_B+u_S)=v'(s)+v'(s)-c'(s)=0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This results in the following equation:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$2v'(s)=c'(s)$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which doesn't make sense because of the assumptions of the first derivatives in the statement of the problem. So I'm not quite sure what I am doing wrong. Any assistance would be greatly appreciated. Thanks in advance!&lt;/p&gt;&#xA;" OwnerUserId="10279" LastActivityDate="2016-12-01T09:26:13.390" Title="Quality Provision Game" Tags="&lt;microeconomics&gt;&lt;game-theory&gt;&lt;industrial-organisation&gt;&lt;extensive-games&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14459" PostTypeId="1" AcceptedAnswerId="14461" CreationDate="2016-12-01T08:03:48.510" Score="5" ViewCount="26799" Body="&lt;p&gt;Economists assume that consumers have a set of preferences that they use to guide them in choosing between goods. These preferences have to satisfy three properties: completeness, transitivity and &quot;more is better&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;By &lt;strong&gt;completeness&lt;/strong&gt; I mean that when consumers face a choice between any two bundles of goods, they can always rank them. This rules out the possibility that consumers cannot decide which bundle is preferable. I am wondering how to deal with the introduction new goods? Does it mean that this property only apply to available/existing goods? And should a consumer also rank today a good that is coming tomorrow? I have the intuition that if a new good replaces an existing one, the rank of preferences may change and I dont know how deal with that. Any reference would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="6168" LastActivityDate="2016-12-01T13:48:10.160" Title="Completeness of Preferences" Tags="&lt;microeconomics&gt;&lt;reference-request&gt;&lt;preferences&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14460" PostTypeId="2" ParentId="14459" CreationDate="2016-12-01T08:21:53.083" Score="3" Body="&lt;p&gt;Would you like to buy a pack of sugar flavored amazonian soil for 500 dollars?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can probably answer this question even though you have never heard of this product before. Being able to answer this question, being able to place the newly available consumption alternatives within your ranking is the assumption of completeness.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The same is true if a type of good is replaced. The set of consumption alternatives is changed, but given any two you can still tell which one you prefer.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2016-12-01T10:02:49.560" LastActivityDate="2016-12-01T10:02:49.560" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14461" PostTypeId="2" ParentId="14459" CreationDate="2016-12-01T08:36:27.560" Score="3" Body="&lt;p&gt;The first key to understanding this is to recognise that consumers have preferences not over goods, but over &lt;em&gt;states of the world&lt;/em&gt;. A &quot;state&quot; is a complete description of all factors that are relevant to a decision.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example,&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;in a simple consumption problem where the consumer must choose between eating a banana and an apple two states of the world would be &quot;I have a banana&quot; and &quot;I have an apple&quot;. Here the preferences over states collapse back to simple preferences over goods so we see that simple preferences defined over bundles of goods are really just a special case of the more general idea of preferences over states of the world.&lt;/li&gt;&#xA;&lt;li&gt;Slightly more complicated: suppose you are deciding whether to take an umbrella to work. Now it's not sufficient to simply compare &quot;I have an umbrella&quot; with &quot;I don't have an umbrella&quot; because which of these I prefer will depend upon the weather! So the relevant states are something like &quot;I have an umbrella and rain is forecast&quot;, &quot;I don't have an umbrella and rain is forecast&quot;, &quot;I have an umbrella and rain is not forecast&quot;, and &quot;I don't have an umbrella and rain is not forecast&quot;.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Once we think of preferences as being over states rather than goods then it becomes easy to incorporate the kinds of dynamic elements you refer to. For example, if I am choosing between watching a movie in the cinema today versus buying a blu-ray that is released tomorrow then the states could, in principle be quite complicated:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&quot;I spend time travelling in the rain to the cinema where I get to see the movie early on a large screen but there may be stupid kids making noise.&quot;&lt;/li&gt;&#xA;&lt;li&gt;&quot;I buy the blu-ray, which means I have to wait until tomorrow to see the movie on a small television. But I won't get wet, can watch the movie more than once, and can send my kids away to their grandmothers so they don't make noise.&quot;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;This example is a bit silly, but should make clear that the idea of a state is very general and allows us to define preferences over all sorts of very exotic decision problems, including those where new goods are arriving or are becoming unavailable. indeed, the choices don't even have to be about goods that I consumer, since states of the world could be things like &quot;I spend an extra hour in bed&quot; vs &quot;I go early to the park with my children&quot;.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Completeness&lt;/strong&gt; requires that the consumer can rank all of the relevant states of the world, where a state is relevant if it could potentially be chosen by the consumer. This is obviously a big ask because there are typically a large number of factors affecting a decision problem, so the number of states a consumer must consider is large.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In practice, consumers use heuristics and approximations to solve their decision problems; they, of course, do not solve the formal, fully-specified optimisation problem. This modelling approach is, nevertheless, useful if it offers a good approximation of consumer behaviour while also making a good trade-off between tractability and empirical relevance. In fact, models of consumer demand and choice based on this simple framework typically do quite well at explaining behaviour, suggesting that this particular modelling simplification is quite useful.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The field of behavioural economics deals with situations in which consumers systematically deviate from this optimal decision process, including cases where they do not consider the full set of states.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Edit: by no means definitive, but &lt;a href=&quot;http://restud.oxfordjournals.org/content/78/1/235.abstract&quot; rel=&quot;nofollow noreferrer&quot;&gt;this article by Eliaz and Spiegler (2011)&lt;/a&gt; is a nice example of modelling consumers who are boundedly rational and do not consider all possible states. The title and abstract are as  follows:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;Consideration Sets and Competitive Marketing&lt;/strong&gt;&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;We study a market model in which competing firms use costly marketing devices to influence the set of alternatives which consumers perceive as relevant. Consumers in our model are boundedly rational in the sense that they have an imperfect perception of what is relevant to their decision problem. They apply well-defined preferences to a “consideration set”, which is a function of the marketing devices employed by the firms. We examine the implications of this behavioural model in the context of a competitive market model, particularly on industry profits, vertical product differentiation, the use of marketing devices, and consumers' conversion rates.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2016-12-01T09:27:13.050" LastActivityDate="2016-12-01T09:27:13.050" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="14462" PostTypeId="2" ParentId="14458" CreationDate="2016-12-01T09:26:13.390" Score="1" Body="&lt;p&gt;Maybe I'm missing some information about this model, but the intuitive interpretation to me is that $$u_B = v(s) - p $$ and $$u_S = p - c(s)$$ where $p$ is the price paid by the buyer for the good.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Pareto optimality is obvious, and it's easy to check that the Pareto optimal quality is positive.&lt;/p&gt;&#xA;" OwnerUserId="8595" LastActivityDate="2016-12-01T09:26:13.390" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="14463" PostTypeId="2" ParentId="14408" CreationDate="2016-12-01T10:01:17.753" Score="-1" Body="&lt;p&gt;The argument will fall apart when you inspect it with common sense and simple terms.  Tax is anything but &quot;COST&quot; to company. The argument is all about removing such &quot;COST&quot; and convert to &quot;PROFIT GENERATING INVESTMENT&quot;. Sound great, but it is anything but playing with sentences. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let me explain why.  Most people think investment is all about &quot;putting money on create new stuff to generate profit&quot;, but there is a hidden investment in modern society :  &lt;code&gt;infrastructure investment&lt;/code&gt;: education, utilities, road system, regulation, security, law enforcement , etc. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Zero corporation tax advocate selectively skip cost on &lt;code&gt;infrastructure investment&lt;/code&gt;, they keep pretend infrastructure are pop up from nowhere and cost nothing. On the contrast, such infrastructure and bureaucratic are not free, even is not efficient, it is still cheaper than ANY corporation &quot;invest&quot; in such infrastructure. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If all corporation exploit on the collective &quot;infrastructure investment&quot; to generate profits, but nobody pay &quot;cost&quot; (AKA TAX) , then who is going to pay for the such &quot;investment&quot;? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In entrepreneurship, we call the cost that pay to use some other facilities as &quot;rent&quot;,  which is categorised &quot;cost&quot;. OTH, Tax is anything but actually a &quot;rent&quot;. Ironically, corporate tax are somewhat &quot;generous&quot; in a way that base on &quot;profit&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Argument may continue and say the &quot;tax&quot;(AKA rent) not justifiable and proportion to the facilities consume. I will say , we are not living in a perfect world.&lt;/p&gt;&#xA;" OwnerUserId="11177" LastActivityDate="2016-12-01T10:01:17.753" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14464" PostTypeId="1" AcceptedAnswerId="14485" CreationDate="2016-12-01T10:30:59.670" Score="1" ViewCount="253" Body="&lt;p&gt;I have been trying to find a reliable source for the UK money supply over the past couple of decades, but it seems that in each different place I look I get completely different looking answers. Now I am aware that there are different measures of the money supply (M1, M2 etc) and I am also aware that these are defined differently in different countries, I am also aware that these definitions change from time to time. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I would really like is the sum of instantly spendable British money that is currently possessed by all individuals and businesses. So I think this is the sum of notes&amp;amp;coins held outside banks plus the sum total of all sterling denominated demand deposits.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Certainly notes&amp;amp;coins on their own is not what I'm after because there is much more spendable money than that. This measure would be too small.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also certainly I do not want to include the value of bonds or shares owned by people because that has to be sold (taking money from someone else) in order to convert their value into money. This measure would be too large.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I suspect that the data is probably available on &lt;a href=&quot;http://www.bankofengland.co.uk/boeapps/iadb/index.asp?first=yes&amp;amp;SectionRequired=A&amp;amp;HideNums=-1&amp;amp;ExtraInfo=false&amp;amp;Travel=NIxSTx&quot; rel=&quot;nofollow noreferrer&quot;&gt;this page on the Bank of England website&lt;/a&gt;, but there are so many choices and so much jargon that I am not at all confident of choosing the right data. Can anyone give me any pointers?&lt;/p&gt;&#xA;" OwnerUserId="5081" LastActivityDate="2016-12-07T18:27:18.713" Title="Finding the money supply graph for the UK" Tags="&lt;money-supply&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14467" PostTypeId="2" ParentId="14459" CreationDate="2016-12-01T13:48:10.160" Score="2" Body="&lt;p&gt;You might get some insight from exploring the difference between actual value and &lt;a href=&quot;http://www.investopedia.com/terms/p/perceived-value.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;perceived value&lt;/a&gt; of consumer goods.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There has been interesting research done on the quirks of the human psyche when it comes to comparing something in the present with something in the future, for example &lt;a href=&quot;http://onlinestatbook.com/2/case_studies/predicting.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;this study&lt;/a&gt;. People tend to assume something which makes them happy right now would make them less happy if it arrived at some time in the future.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An extrememly tightly controlled experiment on this &quot;present bias&quot;, after its validity was questioned, &lt;a href=&quot;https://www.princeton.edu/~joha/publications/BalakrishnanHaushoferJakiela-2015-09-16.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;showed that it was a very strong effect&lt;/a&gt; if the present choice was, indeed, immediate. The effect reduced if there was any delay, even a small delay in the &quot;right nowness&quot; of the right now product.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This means that people's preferences the day before a new product is released will be radically different from the same people's preferences the day they can actually have it.&lt;/p&gt;&#xA;" OwnerUserId="11308" LastActivityDate="2016-12-01T13:48:10.160" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14469" PostTypeId="2" ParentId="14456" CreationDate="2016-12-01T15:24:49.493" Score="2" Body="&lt;p&gt;To make sure it's completely explicit: superscripts below are indices referring to either firm $1$ or firm $2$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The choice variables in this problem are $\mathbf{q}^2$ and $\beta$. Notice that $\mathbf{q}^2$ is a vector of $n$ quantities. That is to say, $\mathbf{q}^2=\left(q_1^2,q_2^2,\ldots,q_n^2\right)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$(13.9)$ is just the derivative of the objective function $(13.8)$ with respect to $q_i^2$. Notice that you can rewrite the objective function $(13.8)$ as $$ p_1q_1^2+p_2q_2^2+\cdots+p_iq_i^2+\cdots+p_nq_n^2-\beta\left(q_1^1\right)-\mu_2\Phi^2\left(q_1^2,\ldots,q_i^2,\ldots,q_n^2 ,q_1^1\right) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Differentiating this with respect to $q_i^2$ and setting that equal to $0$ gives us $$ p_i - \mu_2 \frac{\partial\Phi^2 \left( \mathbf{q}^2,q_1^1 \right)}{\partial q_i^2}  = 0 $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In Cowell's notation, $\Phi^2_i$ is just the derivative of $\Phi^2$ with respect to $q_i^2$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The second first-order condition is the derivative of the objective function with respect to $\beta$. Since $\beta(\cdot)$ is a decreasing function of $q_1^1$, we can also think of $q_1^1$ as a decreasing function of $\beta$. (Formally, $q_1^1$ is the inverse of $\beta$, which is well-defined since $\beta$ is decreasing. Intuitively, if firm $2$ conditions their bribe on firm $1$'s level of output, then firm $1$'s output choice also depends on the amount of the bribe.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, applying the chain rule, the derivative of the objective with respect to $\beta$ is $$ -1 -\mu_2\frac{\partial\Phi^2 \left( \mathbf{q}^2,q_1^1 \right)}{\partial q_1^1} \frac{dq_1^1}{d\beta}=0 $$&#xA;which, unfortunately, isn't quite the same as in Cowell. Notice however that $\frac{dq_1^1}{d\beta}&amp;lt;0$, so perhaps he is using the absolute value of that derivative to get rid of the minus sign in front of $\mu_2$.&lt;/p&gt;&#xA;" OwnerUserId="8595" LastActivityDate="2016-12-01T15:24:49.493" CommentCount="10" ContentLicense="CC BY-SA 3.0" />
  <row Id="14470" PostTypeId="2" ParentId="14451" CreationDate="2016-12-01T16:06:03.013" Score="1" Body="&lt;p&gt;Just thinking out loud here, not saying this is correct others may have a better idea. I'm going to roll with this assumption that you are using best econometric practices so that you trust your estimates and want to take action based on them. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(1) The partial effect of going from $I=0$ to $I=1$ would be&#xA;$E(Y_1|I=1,N=\overline{N})-E(Y_1|I=0,N=\overline{N})$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$=\hat{\alpha_3}+\hat{\alpha_4}+\hat{\alpha_5}\overline{N}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When irrigation is already positive, the marginal effect of irrigation on yields just be &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac{\partial E(Y_1|N,I)}{\partial I}=\hat{\alpha_3}+2\hat{\alpha_4}I+\hat{\alpha_5}N$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(2) So you are curious what level of Nitrogen makes it so that the marginal effect of nitrogen is the same as the partial effect of irrigation? I think you could get at this by finding the $I^*$ and $N^*$ such that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac{\partial E(Y_1|N,I)}{\partial I}=\frac{\partial E(Y_1|N,I)}{\partial N}$?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We've already found $\frac{\partial E(Y_1|N,I)}{\partial I}$ above, so we need to calculate&#xA; $\frac{\partial E(Y_1|N,I)}{\partial N}$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$=\hat{\alpha_1}+2\hat{\alpha_2}N+\hat{\alpha_5}I$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From here $\frac{\partial E(Y_1|N,I)}{\partial I}|_{N=N^*,I=I^*}=\frac{\partial E(Y_1|N,I)}{\partial N}|_{N=N^*, I=I^*}$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\hat{\alpha_3}+2\hat{\alpha_4}I^*+\hat{\alpha_5}N^*=\hat{\alpha_1}+2\hat{\alpha_2}N^*+\hat{\alpha_5}I^*$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\rightarrow (\hat{\alpha_5}-2\hat{\alpha_2})N^*=(\hat{\alpha_1}-\hat{\alpha_3})+(\hat{\alpha_5}-+2\hat{\alpha_4})I^*$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\rightarrow N^*=\frac{(\hat{\alpha_1}-\hat{\alpha_3})+(\hat{\alpha_5}-+2\hat{\alpha_4})I^*}{(\hat{\alpha_5}-2\hat{\alpha_2})}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I bet the optimal irrigation and fertilizer decision would equate the marginal product of fertilizer per dollar spent on fertilizer with the marginal product of irrigation per dollar spent on irrigation which would be&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac{\hat{\alpha_3}+\hat{\alpha_4}+\hat{\alpha_5}N}{P_{irrigation}}=\frac{\hat{\alpha_1}+2\hat{\alpha_2}N+\hat{\alpha_5}I}{P_{fertilizer}}$&lt;/p&gt;&#xA;" OwnerUserId="2844" LastActivityDate="2016-12-01T16:06:03.013" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14472" PostTypeId="1" AcceptedAnswerId="14497" CreationDate="2016-12-01T19:15:41.497" Score="3" ViewCount="67" Body="&lt;p&gt;Sometimes I read in news articles, that a central bank can't hike the interest rates much higher, because then the government would be unable to pay the interest rate burden of it's government debt. &#xA;Is this really true? In my understanding this should only be true for government debt that will be issued after the interest rates are already high.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I mean, the biggest part of government debt that has been already issued is only traded at the secondary markt at a fixed nominal interest rate.&#xA;(except of an usually much smaller part of floating rate notes)&lt;/p&gt;&#xA;" OwnerUserId="11311" LastEditorUserId="11311" LastEditDate="2016-12-01T19:21:48.577" LastActivityDate="2016-12-14T12:47:02.540" Title="Could a hike in interest rates cause a country to be unable to pay back it's debt burden?" Tags="&lt;interest-rate&gt;&lt;central-banking&gt;&lt;debt&gt;&lt;government-debt&gt;&lt;bonds&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14473" PostTypeId="2" ParentId="13088" CreationDate="2016-12-01T20:26:43.477" Score="4" Body="&lt;p&gt;I will provide a simple game-theoretic modelling of the situation.&#xA;A new year starts and a company wants to make a wage-increase offer to an existing employee. Let $e$ be the employee's current efficiency and the corresponding wage $h(e)$ (which, represents an increase over previous wage). Let $v$ be the premium observed in the market for new hires (so if the employee goes to another employer he will earn $h(e) + v$). Let $c$ be &lt;em&gt;churn&lt;/em&gt; costs (recruitment plus loss of efficiency etc) to the current employer, if the employee leaves and needs to be replaced. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is a sequential game so we have to use the extensive form. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;A) Firm offers a wage&lt;/strong&gt;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, the case where the firm ($F$) offers a wage and the employee ($E$) decides what to do:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/59wLU.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/59wLU.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first outcome refers to the firm's cost, the second to the employee's wage. We have assumed that if the employee is offered the new hire premium it stays with the firm.&#xA;Let $p_l$ be the probability that the employee will leave if he is offered $h(e)$ only. The firm faces the following expected costs:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$EC [h(e)] \equiv EC_{A1}= (1-p_l)h(e) + p_l[h(e)+v+c] = h(e)+p_l[v+c]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$EC [h(e)+v] \equiv EC_{A2} = h(e)+v$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then in order for the firm to nevertheless offer $h(e)$ it must be the case that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$EC_{A1} &amp;lt; EC_{A2} \implies h(e)+p_l[v+c] &amp;lt; h(e)+v$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies p_l &amp;lt; \frac {v}{v+c}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and it should offer $h(e) + v$ if the inequality points to the other direction. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's move now to the OP idea, to tell the employee to ask for a wage. Here we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;B) Employee asks for a wage&lt;/strong&gt;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/GpbWt.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/GpbWt.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here too the first outcome is the firm's cost. We have allowed for the possibility that the employee asks only the efficiency wage. This is crucial.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since we are in the &quot;decision about the process structure&quot; phase, we assign some probability $p_e$ that the employee may actually ask for just the efficiency wage. This is important.&lt;br&gt;&#xA;It is also important to note that, assuming that the employee has asked for $h(e) + v$, while the criterion for whether the firm should accept or counter-offer only $h(e)$ has exactly the same expression as before, &lt;em&gt;we are looking at a different probability&lt;/em&gt;. Here the firm must decide whether the employee is &quot;bluffing&quot; (he does not have an offer from another firm), or not. This is a different probability than the previous one. Here, the firm has additional information (for better or for worse), and so it has to make a difference assessment. Call the probability of &lt;em&gt;not&lt;/em&gt; bluffing $p_c$.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;We have that &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$p_l &amp;lt; p_c$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;because the former is a conditional probability of the same event (&quot;the employee leaves&quot;), while the latter is the unconditional probability. Keep this inequality for later.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume that the firm has estimated somehow (&quot;if the employee asks for $h(e)+v$ there is $p_c$ probability that he will leave if I counter offer $h(e)$ only).&#xA;If this is estimated, then the firm already knows what it will do if the employee asks for the new hire premium -and it will depend on the specific values of the various quantities here.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So &lt;em&gt;given&lt;/em&gt; an estimate for $p_c$ we are looking at two possible expected costs for the firm&lt;br&gt;&#xA;&lt;strong&gt;B.1.&lt;/strong&gt; The firm will counteroffer $h(e)$&#xA;here the expected cost is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$EC_{B1} = p_eh(e) + (1-p_e)\cdot [(1-p_c)h(e) + p_c(h(e)+v+c)]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$=  h(e) + (1-p_e)p_c(v+c)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;B.2.&lt;/strong&gt; The firm will accept $h(e)+v$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$EC_{B2} = p_eh(e) + (1-p_e)(h(e) +v) = h(e) + (1-p_e)v$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;WHAT STRUCTURE TO CHOOSE?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now we want somehow to compare the two structures and select the one that is more profitable for the firm. This requires to examine various cases characterized by the relation between the various probabilities.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;CASE 1 :&lt;/strong&gt; $p_e = 0 , p_l &amp;lt; p_c &amp;lt; v/(v+c)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here the firm will offer $h(e)$ in structure $A$ (so expected cost $EC_{A1}$), and will counter-offer $h(e)$ in structure $B$ (so expected cost $EC_{B1}$). &#xA;Given the assumed values of the probabilities we have that &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$EC_{A1} = h(e)+p_l[+v+c] &amp;lt; h(e) + p_c(v+c) = EC_{B1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;an so we should stick with the traditional structure $A$ where the firm offers first a wage.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;CASE 2 :&lt;/strong&gt; $p_e = 0 , p_l  &amp;lt; v/(v+c) &amp;lt; p_c$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here the firm will offer $h(e)$ in structure $A$ (so expected cost $EC_{A1}$), but will accept $h(e)+v$ in structure $B$ (so expected cost $EC_{B2}$). &#xA;Given the assumed values of the probabilities we have that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$EC_{A1} = h(e)+p_l[v+c] &amp;lt;  h(e) + v =EC_{B2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and again we should stick with structure $A$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;CASE 3 :&lt;/strong&gt; $p_e = 0 ,  v/(v+c) &amp;lt; p_l  &amp;lt; p_c$&#xA;Here we compare $EC_{A2}$ with  $EC_{B2}$&#xA;$$EC_{A2} = h(e)+v  = EC_{B2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;No winner here, but overall we see that &#xA;&lt;strong&gt;the incentive to adopt structure $B$ hinges on whether the employee may after all ask only for $h(e)$.&lt;/strong&gt; ($p_e&amp;gt;0$ is necessary but not sufficient condition to adopt structure $B$).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;CASE 4 :&lt;/strong&gt; $p_e &amp;gt; 0 , p_l &amp;lt; p_c &amp;lt; v/(v+c)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here too we compare $EC_{A1}$,with $EC_{B1}$ but with $p_e&amp;gt;0$ so&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$EC_{A1} = h(e)+p_l[v+c] &amp;lt; &amp;gt;h(e) + (1-p_e)p_c(v+c) = EC_{B1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We stick with structure $A$ if $p_e &amp;lt; (p_c -p_l)/p_c$, and we adopt structure $B$ if the inequality runs the other way.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;CASE 5 :&lt;/strong&gt; $p_e &amp;gt; 0 , p_l  &amp;lt; v/(v+c) &amp;lt; p_c$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here we compare  $EC_{A1}$, with $EC_{B2}$ but with $p_e &amp;gt; 0$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$EC_{A1} = h(e)+p_l[v+c] &amp;lt;  h(e) + (1-p_e)v = EC_{B2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;as one can verify. So here we stick with structure $A$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;CASE 6 :&lt;/strong&gt; $p_e &amp;gt; 0 ,  v/(v+c) &amp;lt; p_l  &amp;lt; p_c$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here we compare $EC_{A2}$ with  $EC_{B2}$&#xA;$$EC_{A2} = h(e)+v &amp;gt; h(e) + (1-p_e)v = EC_{B2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and we should go with structure $B$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;VERBAL SUMMARY&lt;/strong&gt;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) If we expect that employees will always ask for the new hire premium if they get to ask first, then we should stick with the structure where the firm offers first a wage.  (Cases (1,2,3)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) If there exists a positive probability that the employees may just ask for $h(e)$ then :&lt;br&gt;&#xA;2a) If the firm will stand by $h(e)$ in any case and structure, we should keep the structure where the firm offers first a wage if $p_e &amp;lt; (p_c -p_l)/p_c$ (Case 4)&lt;br&gt;&#xA;2b) If the firm will go for $h(e) + v$ in any case and structure, we should choose the structure where employees ask first (Case 6).&lt;br&gt;&#xA;2c) If the firm will play differently in the two situations, we should keep the structure where the firm offers first a wage. (Case 5). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As is usually the case reality is more complex than that: negotiations may have more rounds, and the firm and the employee may not even agree on $h(e)$ although such disagreement is less common than &quot;accepted wisdom&quot; would have it.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But the general feeling I get from all the above analysis is that the main reason I would consider implementing a structure where employees &quot;ask first&quot; is if I thought that there exists a high enough probability that they won't ask for the new hire premium -and still, if at the same time I think that they won't try to bluff (i.e. I expect $p_c$ to be close to unity), again it would be likely preferable to stick with the traditional model.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2017-06-04T20:37:49.880" LastActivityDate="2017-06-04T20:37:49.880" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="14474" PostTypeId="1" CreationDate="2016-12-01T21:11:08.407" Score="3" ViewCount="351" Body="&lt;p&gt;I want to know under what preferences relation will I not want to consume all of my budget. Because if my preferences are strictly monotonic, strictly convex or convex, even LNS or continuous. I would consume all of my budget. Are they any situations where I would not?     &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit: when I meant preferences I am treating each individual case i.e. if it is LNS it is not convex (necessarily) &lt;/p&gt;&#xA;" OwnerUserId="11312" LastEditorUserId="11312" LastEditDate="2016-12-02T20:53:50.273" LastActivityDate="2016-12-02T20:53:50.273" Title="Consumer preferences" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;preferences&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14475" PostTypeId="2" ParentId="14474" CreationDate="2016-12-01T21:16:17.310" Score="4" Body="&lt;p&gt;Yes. Suppose the consumer has the following utility function:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$u(x) = - \sum_{i=1}^n x_i$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here's a different example, where commodities are goods instead of bads:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$v(x,y) = -(x-a)^2 - (y-b)^2$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When the consumer's budget $m$ is strictly greater than $p_x a + p_y b$, then the consumer will not consume all of their budget.&lt;/p&gt;&#xA;" OwnerUserId="8595" LastEditorUserId="8595" LastEditDate="2016-12-01T22:59:49.420" LastActivityDate="2016-12-01T22:59:49.420" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="14478" PostTypeId="2" ParentId="14474" CreationDate="2016-12-02T00:11:50.113" Score="1" Body="&lt;p&gt;Here is a case where the non-exhaustion of the budget can happen without it being preference-driven.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assuming totally standard preferences, the budget most likely won't be fully consumed if we have some degree of &lt;em&gt;indivisibility&lt;/em&gt; in goods. Note that the resulting &quot;gaps&quot; in the set of feasible consumption bundles has nothing to do with preferences: we assume that the consumer can order etc all &lt;em&gt;conceivable&lt;/em&gt; consumption bundles, even those that are not available to him.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that by postulating the existence of a &lt;em&gt;single&lt;/em&gt; price per good we unavoidably assume a single unit of measurement for the good. This allows us to reduce the divergence to the neighborhood integers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If $(x^*, y^*)$ is the optimal bundle and (under standard preferences) $p_xx^* + p_yy^* = M$ then the &lt;em&gt;candidate&lt;/em&gt; expenditure will be&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$E_1 = p_x\lfloor\tilde x\rfloor + p_y \lfloor\tilde y\rfloor &amp;lt; M $$&#xA;or&#xA;$$E_2 = p_x\lfloor\tilde x\rfloor + p_y \lceil\tilde y\rceil $$&#xA;or&#xA;$$E_3 = p_x\lceil\tilde x\rceil + p_y \lfloor\tilde y\rfloor $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$E_1$ is certainly smaller than the budget, while $E2$ and $E3$ may be larger equal or smaller, depending on how big are the prices. If either $E1$ or $E2$ are within budget, they certainly dominate $E_1$ in terms of utility (given standard preferences and assuming both are goods and not bads), so one of them will be observed if they are feasible, while if both are feasibe, the one providing greater utility will be observed. Otherwise $E_1$ will be observed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If one thinks that this is some artificial situation, with negligible deviation, it is not: it is one of the main drives behind the observed variety in packaging the same good (and a trend towards smaller packages), which is an attempt to reduce the degree of indivisibility and cover some of the gaps in the feasible consumption bundles set. Essentially by reducing the implied physical quantity that corresponds to &quot;one unit&quot;, we lower the corresponding prices, and so make deviations from the optimal bundle $(x^*, y^*)$ smaller.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2016-12-02T01:53:37.037" LastActivityDate="2016-12-02T01:53:37.037" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14479" PostTypeId="1" CreationDate="2016-12-02T01:45:15.880" Score="2" ViewCount="217" Body="&lt;p&gt;Essentially I have two different datasets that I'm trying to consolidate. One set of data comes from the &lt;a href=&quot;http://data.worldbank.org/indicator/NY.GDP.MKTP.PP.KD&quot; rel=&quot;nofollow noreferrer&quot;&gt;World Bank Databank&lt;/a&gt;, and is a set of historical GDP PPP values for all countries expressed in 2011 international \$. The other dataset is a set of forecasted GDP values for all countries, and is expressed in GDP PPP expressed in 2005 international $. I would like to convert one of these sets into the same units as the other. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this possible? If so, how would I do this?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The latter dataset has some historical values, so I've tried dividing the 2011\$ by the 2005$ for different countries, but have found that the ratio is different in all cases.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Eg.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;China - GDP 2008 in \$2005: 7,566.755billion;  GDP 2005 in \$2011: 10,437.906billion - Ratio: 1.38&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Canada - GDP 2008 in \$2005: 1,197.757billion;  GDP 2005 in $2011: 1,383.398billion - Ratio: 1.15&lt;/p&gt;&#xA;" OwnerUserId="11314" LastEditorUserId="2776" LastEditDate="2017-09-19T09:29:28.483" LastActivityDate="2020-12-02T22:03:55.217" Title="Conversion of GDP PPP International \$ 2005 into GDP PPP International \$ 2011" Tags="&lt;currency&gt;&lt;gdp&gt;&lt;purchasing-power-partity&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="14481" PostTypeId="2" ParentId="14474" CreationDate="2016-12-02T07:29:04.550" Score="1" Body="&lt;p&gt;Marginal utility would need to turn negative with more goods. It is trivial that if your utility function is monotonic, the budget will be exhausted, because spending increases utility. Questions to think: Why should they not exhaust the budget?&lt;/p&gt;&#xA;" OwnerUserId="11317" LastActivityDate="2016-12-02T07:29:04.550" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="14483" PostTypeId="2" ParentId="13998" CreationDate="2016-12-02T09:29:34.677" Score="6" Body="&lt;p&gt;To begin with, I think the question is wrongly stated. For if the defininition of a thin indifference curve is such that continuity of a consumer's preferences implies thin indifference curves, then, surely, continuity implies thin indifference curves... This answers your question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, if we are to make a suitable definition of a thin indifference curve, we may firstly say that $$[q]=\{p\in\Delta|p\sim q\}$$ is a &lt;em&gt;thick&lt;/em&gt; indifference curve, where $\Delta$ is the set of possible bundles, and where $\sim$ denotes indifference, whenever there exists a $q'\in [q]$ and a $\epsilon&amp;gt;0$ such that $p\in N_{\epsilon}(q')$ implies $p\sim q'$, where $N_{\epsilon}(q')$ is some epsilon-neighbourhood around $q'$; and secondly say that $[q]$ is a &lt;em&gt;thin&lt;/em&gt; indifference curve if it is not thick. Colloquially this means that there is some bump on a thick indifference curve $[q]$, but no such bump on a thin indifference curve.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Essentially, the above is a short exposition of &lt;a href=&quot;http://www.econ.la.psu.edu/people-documents/k1c/Kalyan%20Chatterjee%20-%20A%20Geometric%20Approach%20to%20Expected%20Utility.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;A Geometric Approach to Expected Utility (Chatterjee &amp;amp; Krishna, 2006)&lt;/a&gt;. Using the above definition of a thin indifference curve, they show in Lemma 2.3 that (i) continuity and (ii) independence implies thin indifference curves (note that they do not show that continuity alone implies thin indifference curves; cf. Ubiquitous' answer). Their definition relies on the following two topological concepts. &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;em&gt;The assumption of continuity.&lt;/em&gt; All subsets $\{q|q\succ p\}$ and $\{q|p\succ q\}$ of $\Delta$, where $p\in \Delta$, are open; here, remember that an open set is a set for which each point in it has a neighbourhood lying in that set. Thus, this notion of continuity is similar to yours. &lt;/li&gt;&#xA;&lt;li&gt;&lt;em&gt;The assumption of independence.&lt;/em&gt; For all $p,q,r\in\Delta$, $p\succ q$ and $\lambda\in (0,1]$ implies that&#xA;$$\lambda p+(1-\lambda)r\succ \lambda&#xA;q+(1-\lambda)r;$$ this allows for some nice algebra.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Now, what they show in Lemma 2.3 is essentially that if you have an indifference curve $[q]$ and consider some epsilon-neighbourhood $N_{\epsilon}(q')$ around $q'\in [q]$, then $p\in N_{\epsilon}(q')$ will not imply that $p\sim q'$ for arbitrarily small $\epsilon&amp;gt;0$. I.e., however small, no epsilon-neighbourhood is such that it only contains bundles for which one is indifferent between those bundles and $q'$. Instead, every epsilon-neighborhood will include points that are strictly preferred to $q'$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For continuous utility functions, I think it is fruitful to note that their image in e.g. $\mathbb{R}^2$ has (Lebesgue) measure 0 (cf. &lt;a href=&quot;https://math.stackexchange.com/questions/221110/how-to-prove-that-the-image-of-a-continuous-curve-in-mathbbr2-has-measure&quot;&gt;How to prove that the image of a continuous curve in $\mathbb{R}^2$ has measure $0$?&lt;/a&gt;)&lt;/p&gt;&#xA;" OwnerUserId="7582" LastEditorUserId="-1" LastEditDate="2017-04-13T12:19:37.213" LastActivityDate="2016-12-03T14:37:48.597" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14485" PostTypeId="2" ParentId="14464" CreationDate="2016-12-02T11:25:00.573" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;What I would really like is the sum of instantly spendable British money that is currently possessed by all individuals and businesses&lt;/em&gt;&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The closest to what you want is $M1$ measure (see the informative table in the &lt;a href=&quot;https://en.wikipedia.org/wiki/Money_supply&quot; rel=&quot;nofollow noreferrer&quot;&gt;wikipedia article&lt;/a&gt;), but it seems that Bank of England does not provide it in its webpage (see the &quot;explanatory notes&quot; subpage if you want to learn what the different measures include).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.tradingeconomics.com/united-kingdom/money-supply-m1&quot; rel=&quot;nofollow noreferrer&quot;&gt;This site&lt;/a&gt; provides the $M1$ measure and it appears you can export the data too.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the same site, consider also the $M2$ measure. It includes &quot;near-money&quot; (i.e. assets that are quickly and easily converted into cash) and many economists consider it to be more representative of &quot;money supply&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;UPDATE&lt;/strong&gt;&lt;br&gt;&#xA;Here is the answer I received from Bank of England&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Our Bankstats tables can be found here -&#xA;  &lt;strong&gt;www.bankofengland.co.uk/statistics/pages/bankstats/current/default.aspx&lt;/strong&gt;&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;We publish M1 and M2 data in Bankstats table A2.3. Data is monthly and&#xA;  split into Seasonally adjusted and Not seasonally adjusted and then&#xA;  split again into Amounts outstanding, Changes and Growth rates. These&#xA;  are all shown on different tabs within the table.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;For more details about the components and construction of these money&#xA;  measures, please see the M3 explanatory note which can be found here&#xA;  www.bankofengland.co.uk/statistics/Pages/iadb/notesiadb/m3.aspx&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The table they refer to has the title &quot;$M3$&quot; but if you download the spreadsheet you will see that it contains also $M1$ and $M2$ measures.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2016-12-07T18:27:18.713" LastActivityDate="2016-12-07T18:27:18.713" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="14486" PostTypeId="1" CreationDate="2016-12-02T13:35:17.110" Score="6" ViewCount="340" Body="&lt;p&gt;I am currently reading the book &quot;Microeconomics: Principles and Analysis&quot; by Cowell (2006), page 452-453. e have a two-commodity world, in which there are&#xA;${n_h}$ agents (households): commodity 1 is a pure public good and commodity 2 is&#xA;purely private. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Each agent has an exogenously given income ${y^h}$ , denominated in units of the&#xA;private good 2. We imagine that the public good is to be financed voluntarily,&#xA;each household makes a contribution ${z^h}$ which leaves&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$x_2^h = {y^h} - {z^h}$$ of the private good available for h’s own consumption&#xA;and&#xA;$${x_1} = \phi (\bar z + {y^h} - x_2^h)$$    where z is the total input of the good 2 used in the production process. Each agent realises that the total output of the public good depends upon his&#xA;or her own contribution and upon that made by others&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;The expression (13.30)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/THxdh.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/THxdh.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The expression (13.31)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/haJO8.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/haJO8.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/pI4Dg.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/pI4Dg.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Did he come to expression (13.33) by applying the chain rule as &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\eqalign{&#xA;  &amp;amp; z = U({x_1},x_2^h)  \cr &#xA;  &amp;amp; {x_1} = g({x_2})  \cr &#xA;  &amp;amp; {{dz} \over {d{x_2}}} = {{\partial f} \over {\partial {x_1}}}{{d{x_1}} \over {d{x_2}}} + {{\partial f} \over {\partial {x_2}}}{{d{x_2}} \over {d{x_2}}} = {{\partial f} \over {\partial {x_1}}}{{d{x_1}} \over {d{x_2}}} + {{\partial f} \over {\partial {x_2}}} \cr} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;since ${x_1}$ is a function of $x_2^h$ ? &lt;/p&gt;&#xA;" OwnerUserId="10699" LastEditorUserId="2776" LastEditDate="2017-02-02T22:23:57.100" LastActivityDate="2018-11-25T10:02:20.430" Title="Public Goods - Voluntary provision" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;public-goods&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14487" PostTypeId="1" CreationDate="2016-12-02T14:58:54.977" Score="-1" ViewCount="447" Body="&lt;p&gt;Suppose that a consumer has a complete and transitive preference relation  over R&lt;code&gt;+. Further suppose that the consumer faces prices p = (p1,p2,...,p&lt;/code&gt;)  0 and has income w &gt;&gt; 0. Which of the following statements are false? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(a) If ≿  is continuous, then the consumer exhausts her budget.&#xA;(b) If ≿  is locally nonsatiated, then the consumer exhausts her budget. &#xA;(c) If ≿  is strictly monotonic, then the consumer exhausts her budget. &#xA;(d) If ≿  is convex, then the consumer exhausts her budget. &#xA;(e) If ≿  is strictly convex, then the consumer exhausts her budget.&lt;/p&gt;&#xA;" OwnerUserId="11322" LastActivityDate="2016-12-04T22:19:40.913" Title="What consumer preferences exhaust the budget?" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;&lt;preferences&gt;&lt;theory&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14489" PostTypeId="2" ParentId="13998" CreationDate="2016-12-02T18:40:44.583" Score="6" Body="&lt;p&gt;I don't think continuity alone is enough to guarantee thin indifference curves.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider preferences such that, for any $x$ and $y$ in the choice set, the consumer is indifferent between $x$ and $y$. This seems like it must fit any definition of a thick indifference curve because the whole choice set lies on a single indifference curve!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But these preferences also satisfy your definition of continuity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, it seems like continuity only implies thin indifference curves if it is paired with some other assumption.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2016-12-02T18:40:44.583" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14490" PostTypeId="1" CreationDate="2016-12-02T18:40:50.193" Score="0" ViewCount="519" Body="&lt;p&gt;The slope of the UPF must be equal to the slope of the MRT and the MRS. Is it therefore enough to show that the slope of the MRS is negative?&lt;/p&gt;&#xA;" OwnerUserId="5847" LastActivityDate="2017-02-01T12:39:27.430" Title="Showing the Utility Possibilities Frontier is downward sloping" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14491" PostTypeId="1" CreationDate="2016-12-02T19:08:28.330" Score="-2" ViewCount="246" Body="&lt;p&gt;W/Vmp = ? I think it is the marginal product....but I have really no clue....any help on this? &lt;/p&gt;&#xA;" OwnerUserId="11325" LastActivityDate="2016-12-02T20:13:08.613" Title="What does this formula stand for?" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="4" ClosedDate="2016-12-12T06:44:25.913" ContentLicense="CC BY-SA 3.0" />
  <row Id="14492" PostTypeId="2" ParentId="14491" CreationDate="2016-12-02T19:43:41.820" Score="1" Body="&lt;p&gt;$W$ = Wage&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$VMP$ =Value of Marginal Product&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When $W/VMP$ &amp;lt;1, workers generate more value than they cost to pay. Hire more workers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When $W/VMP$ &gt;1, workers generate less value than they cost to pay. Hire less workers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore when $W/MVP$ = 1 you are purchasing your optimal amount of labour.&lt;/p&gt;&#xA;" OwnerUserId="4808" LastEditorUserId="4808" LastEditDate="2016-12-02T20:13:08.613" LastActivityDate="2016-12-02T20:13:08.613" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14494" PostTypeId="1" CreationDate="2016-12-02T21:10:23.210" Score="2" ViewCount="49" Body="&lt;p&gt;I'd like to know which economy sectors in the world are the biggest. Does such statistics exist? If so, how accurate and up to date is it? If not, what can be used instead?&lt;/p&gt;&#xA;" OwnerUserId="11327" LastActivityDate="2016-12-06T06:23:15.807" Title="Where one can see the world economy sectors comparison by value?" Tags="&lt;macroeconomics&gt;&lt;data-request&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14495" PostTypeId="2" ParentId="14444" CreationDate="2016-12-02T21:13:00.377" Score="1" Body="&lt;p&gt;I think the purpose of patriotism is to create incentives for actions with positive externalities. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your example of joining the army is a good one. The opportunity cost of joining the army is huge. You are risking your life for a relatively meager salary and are not gaining skills in the workplace which you could outside of the army. There is however a very strong positive externality of having a large army with willing participants. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Patriotism creates an additional incentive for individuals to perform these types of actions which otherwise might not be performed. Actions such as voting, community building, paying taxes, and working in certain industries for lower pay (think ACLU lawyers) are in large part undertaken due to a feeling of community that people within a country feel. This social incentive promotes positive externalities and benefits the society as a whole which is why patriotism is likely such a desirable attribute to be fostered within a country.&lt;/p&gt;&#xA;" OwnerUserId="10245" LastActivityDate="2016-12-02T21:13:00.377" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14496" PostTypeId="2" ParentId="14490" CreationDate="2016-12-02T21:14:30.833" Score="1" Body="&lt;p&gt;The first statement does not seem to be true. The UPF exists in the space of utilities whereas the other curves (production, indifference) exist in the product space. As a result, the slope of the UPF may change if a monoton transformation is applied to one of the utility functions whereas the other curves and their slope will definitely not change.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2016-12-03T12:09:49.533" LastActivityDate="2016-12-03T12:09:49.533" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14497" PostTypeId="2" ParentId="14472" CreationDate="2016-12-02T21:33:39.017" Score="3" Body="&lt;p&gt;The short answer is no, rate hikes have no effect whatsoever on whether a government can service its debt and repay maturing issues.  Here's why---&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;A government that issues debt in its own currency can always print currency to make its debt payments.  This is an extremely important point, despite that certain political actors would like you to forget it.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Central banks set rates at the short end of the Treasury curve.  They do not have an effect on the long end of the curve, which is set by market participants' expectations of long term inflation and real growth.  What's more, central banks today are data dependent---they state explicitly that they will react to data that the market already has priced.  For example, this month the U.S. Fed's FOMC will likely increase rates due to stronger economic data (GDP revisions upward, better than expected inflation, decline in unemployment and jobless claims). However the Treasury curve has already steepened massively over the last month in response to these data releases.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Many governments issue debt in foreign currencies like USD and EUR (e.g., Brazil, Mexico, Ukraine, and almost every other emerging market).  Because of uncovered interest rate parity, rate rises push up the value of the domestic currency relative to the currency in which external debt must be paid.  This actually decreases the cost of servicing the external debt.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="11250" LastEditorUserId="11250" LastEditDate="2016-12-14T12:47:02.540" LastActivityDate="2016-12-14T12:47:02.540" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14499" PostTypeId="2" ParentId="9797" CreationDate="2016-12-02T21:38:40.420" Score="0" Body="&lt;p&gt;Consider that the dollar bill in your pocket is a zero-coupon perpetual bond, payable by the U.S. Treasury for bank reserve balances held at the Federal Reserve.  The world is awash in perpetuals.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, government bonds that are issued by a country that prints its own currency have no credit risk.  For data-driven proof, look at what happened to 10 year Japanese Government Bonds (JGBs) after each successive downgrade by Moody's, S&amp;amp;P, and Fitch.&lt;/p&gt;&#xA;" OwnerUserId="11250" LastActivityDate="2016-12-02T21:38:40.420" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="14500" PostTypeId="2" ParentId="14494" CreationDate="2016-12-02T22:38:45.517" Score="3" Body="&lt;p&gt;The &lt;a href=&quot;http://www.unido.org/&quot; rel=&quot;nofollow noreferrer&quot;&gt;United Nations Industrial Development Organization&lt;/a&gt; (UNIDO) maintains a variety of databases comprising statistics of overall industrial growth, detailed data on business structure and statistics on major indicators of industrial performance by country in the historical time series. The UNIDO publishes the &lt;a href=&quot;https://www.unido.org/fileadmin/user_media_upgrade/Resources/Publications/EBOOK_IDR2016_FULLREPORT.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Industrial  Development  Report  2016&lt;/a&gt; and offers some &lt;a href=&quot;http://stat.unido.org/&quot; rel=&quot;nofollow noreferrer&quot;&gt;statistics&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is one of the most reliable source of industrial data although data are still incomplete for some developing countries.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Broad Sectors&lt;/strong&gt;: world value added over time. (Source: &lt;a href=&quot;https://www.unido.org/fileadmin/user_media/Publications/Pub_free/Structural_change_in_the_world_economy.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;UNIDO&lt;/a&gt;)&#xA;&lt;a href=&quot;https://i.stack.imgur.com/etqr2.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/etqr2.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Within Manufacturing&lt;/strong&gt;: In  2013,  the  dominant  global  manufacturing  indus-tries were food and beverages (12.0 percent), chemicals and chemical products (11.7 percent) and machinery and equipment (8.5 percent; Table 7.2) (source: UNIDO's &lt;a href=&quot;https://www.unido.org/fileadmin/user_media_upgrade/Resources/Publications/EBOOK_IDR2016_FULLREPORT.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Industrial  Development  Report  2016&lt;/a&gt;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/shrfY.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/shrfY.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="6168" LastEditorUserId="6168" LastEditDate="2016-12-06T06:23:15.807" LastActivityDate="2016-12-06T06:23:15.807" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14501" PostTypeId="2" ParentId="14486" CreationDate="2016-12-02T22:59:04.110" Score="1" Body="&lt;p&gt;Given&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\max_{x_2^h} \quad U^h(\phi(\bar z + y^h - x_2^h), x_2^h)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You have to find FOCs by taking the chain rule twice for the first argument. Denote the argument for function $\phi$ as $(\cdot)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\partial U^h}{\partial x_2^h} = \frac{\partial U^h}{\partial \phi} \cdot \frac{\partial \phi}{\partial x_2^h}$$&#xA;$$\frac{\partial \phi}{\partial x_2^h} = \frac{\partial \phi}{\partial (\cdot)} \cdot \frac{\partial (\cdot)}{\partial x_2^h}$$&#xA;$$\implies \frac{\partial U^h}{\partial x_2^h} = \frac{\partial U^h}{\partial \phi} \cdot \frac{\partial \phi}{\partial (\cdot)} \cdot \frac{\partial (\cdot)}{\partial x_2^h}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, letting $U^h_{1,2}$ represent the partial derivative with respect to the first and second arguments of $U^h$ respectively:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\begin{align}&#xA;\frac{\partial U^h}{\partial x_2^h} &amp;amp; = U_1^h(\phi(\bar z + y^h - x_2^h), x_2^h) \cdot \phi_z(\bar z + y^h - x_2^h) \cdot -1 \\&#xA;&amp;amp; + U_2^h(\phi(\bar z + y^h - x_2^h), x_2^h) \cdot 1&#xA;\end{align}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The second argument in $U$ has no $\phi$, so only chain rule should be applied there.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2016-12-02T22:59:04.110" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="14502" PostTypeId="2" ParentId="14486" CreationDate="2016-12-02T23:49:52.803" Score="0" Body="&lt;p&gt;Cant you just apply this&lt;/p&gt;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/BfKId.gif&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/BfKId.gif&quot; alt=&quot;enter image description here&quot; /&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&lt;p&gt;Obviously different values but same principle ?&lt;/p&gt;&#xA;" OwnerUserId="11307" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2016-12-02T23:49:52.803" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14503" PostTypeId="1" AcceptedAnswerId="14537" CreationDate="2016-12-03T00:37:48.973" Score="1" ViewCount="2237" Body="&lt;p&gt;Suppose that a household borrows from the bank with %2 interest rate and uses the money for paying rent;&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Is this a Consumption?&lt;/li&gt;&#xA;&lt;li&gt;May households borrow money from the bank for consumption, not investment purposes? (I haven't seen such thing in a circular flow graph, that's why I'm asking)&lt;/li&gt;&#xA;&lt;li&gt;Is factor payments are being paid to another household who lends his savings to the bank?&lt;/li&gt;&#xA;&lt;li&gt;Is this payment of saving is counted as lender's income?&lt;/li&gt;&#xA;&lt;li&gt;What kind of approach of GDP would borrowing money from the bank for paying the rent, and interest income earned by another househould?&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="11329" LastEditorUserId="2776" LastEditDate="2017-07-06T07:40:06.273" LastActivityDate="2020-09-11T13:37:20.287" Title="How does borrowed money affect GDP?" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14505" PostTypeId="2" ParentId="14487" CreationDate="2016-12-03T03:38:29.660" Score="1" Body="&lt;p&gt;a.) Consider utility with a bliss point. It may represent continuous preferences, but clearly the budget will not bind if you can afford more than the bliss point.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;b.) This statement is true, and there is a &lt;a href=&quot;https://economics.stackexchange.com/questions/8449/local-non-satiation-proof&quot;&gt;proof here&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;c.) Strict monotonicity implies local non-satiation, so same as in b.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;d.) An example of convex preferences is indifference everywhere. So the budget would not bind in this case.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;e.) Strict convexity rules out thick indifference curves like in d.), but does not rule out bliss points. Consider concentric indifference curves moving in towards a bliss point. Each of those upper countour sets are convex shapes.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2016-12-03T04:17:41.573" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="14507" PostTypeId="2" ParentId="12617" CreationDate="2016-12-03T11:33:33.587" Score="1" Body="&lt;p&gt;An example:&lt;br&gt;&#xA;Student type $t_1$ has 10 points to bid based on her GPA. Her favourite courses are A,B,C,D,E.&lt;br&gt;&#xA;Student type $t_2$ has 0 points to bid based on his GPA. His favourite courses are F,G,H,I,J.&lt;br&gt;&#xA;Student type $t_3$ has 1 point to bid based on her GPA. She ranks the courses alphabetically, A being best, Z being worst. (Or if there are only fifteen courses then O, as that is the 15th letter.) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume sixty $t_1$ type, sixty $t_2$ type and one $t_3$ type students. If all types were to subscribe to their favourite kind of courses, then A,B,C,D,E would have sixtyone applicants and hence they would be oversubsribed. F,G,H,I,J would have sixty applicants and would be full. $t_3$ may lose the bidding war in a reasonable equilibrium of round 2: If all type $t_1$ students bid 2 points on each course they will all get their favourite picks while $t_3$ type, who can only bid 1 point will lose out on all picks. Now she can only pick K,L,M,N,O, as F,G,H,I,J are already full. She would have been better off if she had picked F,G,H,I,J in round one, as there she would have one the bidding for at least one of the courses. Thus the 'truth-telling' strategy is not an equilibrium and hence the mechanism is not incentive compatible.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2016-12-03T11:33:33.587" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14509" PostTypeId="1" AcceptedAnswerId="16348" CreationDate="2016-12-03T14:25:12.677" Score="2" ViewCount="59" Body="&lt;p&gt;I'm just curious about some things I read in a banking report. It says more than 20% total bank loans in Ireland are Non-performing loans which are likely to default. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;With the NPL ratio for households at 26% for non-financial&#xA;   corporations - 44% for SMEs - and 44% for commercial real estate.&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Then it goes on to say that Credit to non-financial corporations in 2015, was 267% of GDP. The current value of the bad loans is around $50 billion.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this a bad situation, or do the numbers make it look worse than it actually is?&lt;/p&gt;&#xA;" OwnerUserId="11336" LastEditorUserId="2776" LastEditDate="2017-07-17T09:13:24.417" LastActivityDate="2017-07-17T09:13:24.417" Title="Is Ireland setting itself up for a debt crisis?" Tags="&lt;macroeconomics&gt;&lt;banking&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14510" PostTypeId="1" AcceptedAnswerId="14641" CreationDate="2016-12-03T14:40:04.627" Score="4" ViewCount="267" Body="&lt;p&gt;I just heard Andy Haldane, chief economist at the Bank of England make the following statement about the bank's ultra low interest rate policy and accusations that it disproportionately benefited the rich:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;on average those that have debts tend to be poorer than those that&#xA;  have savings which has meant that our monetary policy actions with&#xA;  interest rates have if anything shrunk the the degree of inequality in&#xA;  incomes between rich and poor.&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This struck me as being wrong because its the rich home-owners that may borrow four or five times annual income, whereas the poor (non-home owners) would be hard pressed to ever borrow more than half a years wages.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there any published analysis that would justify (or refute) the Bank of England's claim?&lt;/p&gt;&#xA;" OwnerUserId="5081" LastEditorDisplayName="user18" LastEditDate="2016-12-04T11:28:12.110" LastActivityDate="2016-12-12T15:59:58.260" Title="Low interest rates - who benefits, rich or poor?" Tags="&lt;monetary-policy&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="14511" PostTypeId="2" ParentId="14510" CreationDate="2016-12-03T18:36:12.963" Score="2" Body="&lt;p&gt;&lt;a href=&quot;https://www.bundesbank.de/Redaktion/EN/Downloads/Publications/Monthly_Report_Articles/2016/2016_09_effects.pdf?__blob=publicationFile&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.bundesbank.de/Redaktion/EN/Downloads/Publications/Monthly_Report_Articles/2016/2016_09_effects.pdf?__blob=publicationFile&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That should fit your question. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Imho we have never seen these kind of interest rates, and It will be very entertaining to see how this works out. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Could lead to another black swan event, which is nothing you can calculate/prepare for.&lt;/p&gt;&#xA;" OwnerUserId="8704" LastActivityDate="2016-12-03T18:36:12.963" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="14512" PostTypeId="2" ParentId="12253" CreationDate="2016-12-04T01:34:42.957" Score="0" Body="&lt;h1&gt;Consumer's problem&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;We assume monotone concave utility function, that is, diminishing marginal utilities and binding budget constraint.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first order condition is:&#xA;$$\frac{P_A}{P_B} = \frac{\text{MU}_B}{\text{MU}_A}$$&#xA;where $\text{MU}_i$ is the marginal utility for good $i$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now suppose $P_A$ increases, the first order condition should still hold, therefore the right-hand side should also increase. If A is Giffen good, then consumer buys more A, and less B under binding budget. So $\text{MU}_B$ increases, and $\text{MU}_A$ decreases, thus the ratio increases.&lt;/p&gt;&#xA;&#xA;&lt;h1&gt;Producer's problem&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;Without loss of generality, I use two traditional inputs labor $L$ and capital $K$. I also assume diminishing marginal product for both inputs. For interior solutions,&#xA;$$&#xA;\begin{align*}&#xA;P\cdot\text{MP}_{L} &amp;amp; =w\\&#xA;P\cdot\text{MP}_{K} &amp;amp; =r&#xA;\end{align*}&#xA;$$&#xA;One of the differences between consumer's problem and the firm's problem is that a consumer spends all of the budget, as long as the utility function is strictly monotone. But a firm may choose to leave some or all of the money on the table, if producing more means losing more. But when examine the Giffen behavior, we need to keep the budget constant. So the question should be asked under the assumption that the firm exhausts constant budget both before and after the input price change. Let's assume that's true, due to high enough product price, high marginal products, or low input prices.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now suppose the wage increases. Labor would be a Giffen input only if the firm use more labor. From the first equation about the labor, we know the marginal product of labor has to increase. Under diminishing marginal products, either of the following could be true:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;the firm uses less labor, therefore higher $\text{MP}_L$.&lt;/li&gt;&#xA;&lt;li&gt;the firm uses more labor, but still achieve higher $\text{MP}_L$ if capital also increases, due to certain degree of complementarity between inputs.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;But the binding budget rules out the second possibility: higher labor cost and more labor implies less capital. Therefore I don't think Giffen input exists for &quot;well-behaved&quot; production functions, at least not for interior choices. But I haven't examined production functions that have pathological properties such as when higher capital stock decreases the marginal product of labor (negative cross partial derivatives).&lt;/p&gt;&#xA;" OwnerUserId="10853" LastActivityDate="2016-12-04T01:34:42.957" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14513" PostTypeId="1" CreationDate="2016-12-04T05:22:18.447" Score="1" ViewCount="107" Body="&lt;p&gt;I'm a sole proprietor who has bought some assets for my business, like a chair. My accountant told me that I can't claim the entire price as a business expense in the year I incurred it, and instead have to depreciate it over 10 years.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Depreciation seems equivalent to paying more tax than otherwise, and getting a repayment from the government every year for a decade. I see several disadvantages with this:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;It ties up my working capital. At the margin, this prevents some investments being made that would otherwise have been made, and bankrupts some businesses.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;A rupee paid to me a decade later is worth far less than a rupee today, so this is effectively a hidden tax.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;It makes tax accounting more bureaucratic, since I now have to track all assets and depreciate them over many years at different rates. This takes my time away from running my business. And makes me a hire a CA, wasting more money.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Why do governments subject assets to depreciation for tax deductions? Is there some fundamental reason I've missed?&lt;/p&gt;&#xA;" OwnerUserId="11340" OwnerDisplayName="Vaddadi Kartick" LastEditorUserId="5266" LastEditDate="2016-12-04T19:33:47.687" LastActivityDate="2016-12-20T09:29:12.593" Title="Why is the purchase of assets not entirely tax-exempt in the year of purchase?" Tags="&lt;taxation&gt;" AnswerCount="4" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="14514" PostTypeId="1" AcceptedAnswerId="14516" CreationDate="2016-12-04T11:37:13.383" Score="0" ViewCount="109" Body="&lt;p&gt;Countries that suffer from hyperinflation often print banknotes with many zeroes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Recently I had a showerthought: Let's imagine a government suffering from hyperinflation go crazy and begin begin printing money with &lt;a href=&quot;https://en.wikipedia.org/wiki/Googolplex&quot; rel=&quot;nofollow noreferrer&quot;&gt;Googolplex&lt;/a&gt; denomination for example.&#xA;That's a so large number that if we would turn all atoms in the universe into paper and ink it would be still too few to write it down.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or they simply print an infinitely high denomination &quot;omega&quot; bill: omega is the symbol used to denote the &quot;infinitary&quot; in the &lt;a href=&quot;https://en.wikipedia.org/wiki/Hyperreal_number&quot; rel=&quot;nofollow noreferrer&quot;&gt;hyperreal&lt;/a&gt; number plane, which is larger than any real number. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What are the consequences of such an infinite banknote entering the circulation? Would that country in question be able to buy the entire world before the market can react? &lt;/p&gt;&#xA;" OwnerUserId="4150" LastActivityDate="2016-12-04T14:32:01.660" Title="What's effect of introducing infinitely high denomination bank notes during hyperinflation?" Tags="&lt;inflation&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="14515" PostTypeId="2" ParentId="14513" CreationDate="2016-12-04T13:35:54.160" Score="1" Body="&lt;p&gt;In theory, income taxes tax &quot;wages&quot;, &quot;salaries&quot;, and &quot;net income&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The design of a tax system is an important political issue.  A good tax system will raise the amount of revenue that the government &quot;needs&quot;, and seem fair to both most of the people who vote, and to the people who pay most of the taxes.  If the tax system does not seem fair to the voters, the legislature is likely to be thrown out of office.  If the tax system does not seem fair to the tax payers, the government will have a difficult time collecting the taxes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are countries that tax dividends from businesses, but not the profits of businesses that stay reinvested in the business.  There are countries that tax the profits of businesses, but don't &quot;double-tax&quot; the dividends from businesses.  And there are countries that tax both the profits of businesses, and dividends from businesses.  It sounds like you are in a country that thinks it is fair to tax business profits, but does not think it would be fair to pretend that the assets used up by a business are free.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Anyone designing a tax system needs to think about how someone could &quot;game&quot; the system.  If it is possible for business owners to figure out how to not pay any taxes, &lt;strong&gt;some&lt;/strong&gt; of them will.  If none of the business owners pay any taxes, the voters will notice.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose you could re-invest all of your profits in physical assets for your business, and those assets retained most of their value for a long time. (For an extreme case, imagine that you bought a chair made of gold, and most of the value of the chair was the gold.) If you could deduct the full cost of the purchase immediately, then you could avoid all taxes on your profits. This would make the tax system seem unfair to most voters (who earn wages and salaries, not business profits.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, most governments choose a compromise.  By letting businesses &quot;depreciate&quot; physical assets over the assets over their estimated useful lives, the governments recognize that the decline in the value of the assets is a cost of doing business.  This does not seem completely unfair to most businessmen.  This compromise means that most business people wind up paying some taxes, which makes the system seem fair to people who are paying taxes on wages and salaries.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In theory, &quot;depreciation&quot; is supposed to approximately match the decline in value of an asset due to your business' use of it (or due to the time you hold it, because your business might need it). In theory, you only put up with the decline in value of the asset because the asset helps your business make money in other ways. Thus, the &quot;depreciation schedule&quot; is supposed to match up the cost (of the declining asset) with the revenue (at each time in the future) that it should help you earn.  In theory, the total amount that is allocated adds up to the total decline in the value of the original asset.  If you invest wisely, the incremental revenue you gain (because of the asset) should exceed the cost of the asset.  In theory, the incremental revenue you gain per period (because of the asset) might be proportional to the depreciation per period.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In practice, there are lots of fudge factors.  Many investments are a waste of money.  Other investments are spectacularly good.  Sometimes you can figure out which investments were good in hindsight.  Some things wear out faster than expected, or need to be replaced for unrelated reasons.  Other things are useful (and perhaps even valuable) indefinitely.&lt;/p&gt;&#xA;" OwnerUserId="5266" LastActivityDate="2016-12-04T13:35:54.160" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14516" PostTypeId="2" ParentId="14514" CreationDate="2016-12-04T14:32:01.660" Score="2" Body="&lt;p&gt;This question seems analogous to &quot;if I think the word infinity, does my head explode?&quot; The answer is no. Infinity is an abstraction. You do not have to accept a piece of paper promising infinity. I would even hesitate to accept an incredibly large finite bill.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On tricky countries buying the world: &lt;br&gt;&#xA;You do not buy foreign things in your own currency, first you purchase foreign currency with your currency and then you buy the foreign goods with foreign currency. Printing excessive amounts of money is not only inflationary, it also deteriorates the exchange rate of your currency to other currencies. The most your currency has to offer is being able to buy everything in your country. The total value of your currency cannot exceed this. Hence others are unlikely to trade more (e.g. the world) for it.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2016-12-04T14:32:01.660" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14517" PostTypeId="2" ParentId="14043" CreationDate="2016-12-04T14:35:05.653" Score="5" Body="&lt;p&gt;It's fine to make a supposition that it costs Colombia twice as much to make cars as coffee, and Japan twice as much to make coffee as cars.  It's also fine to express these ratios in terms of the respective local currencies.    &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The apparent problem you describe only arises because you go beyond the above and express the costs in terms of a common currency (\$).  But in a situation of autarky, there is no way in which the exchange rates needed to convert prices in other currencies to \$ could be determined. Thus your supposition is incoherent.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The way in which comparative advantage would be exploited, given the ratios you describe and given free trade, is that the rate of exchange of Colombian to Japanese currency would adjust to a level at which, in both countries, Colombian coffee is cheaper than Japanese, and Japanese cars are cheaper than Colombian. The Colombian car business will then be able to benefit from comparative advantage while not needing to look beyond the relative prices of locally produced and imported cars. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Addendum&lt;/em&gt;:  If, in the past, two countries both used gold as a currency, this would not, given autarky, be equivalent to a common currency. Even if the gold were physically the same, it might just happen (eg for geological reasons) to be scarcer and therefore more valuable in one country than the other.  In the absence of international trade and of payment in gold for traded goods, there would be no mechanism to equalize the value of gold in the two countries.  It would therefore be feasible that the cost, in terms of their respective gold currencies, of producing every good would be higher in one country than the other.  Given free trade, however, the value of gold in the two countries would be equalized at a level at which some goods would be cheaper in one country and some in the other.  The mechanism for equalization would be that people and businesses in the more expensive (and therefore more gold-abundant) country,  taking their own rational decisions and without any need for central control, would import goods from the cheaper country, paying in gold and therefore causing an outflow of gold to the cheaper country.&lt;/p&gt;&#xA;" OwnerUserId="1417" LastEditorUserId="1417" LastEditDate="2016-12-04T23:07:44.843" LastActivityDate="2016-12-04T23:07:44.843" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="14518" PostTypeId="1" CreationDate="2016-12-04T18:13:57.230" Score="0" ViewCount="95" Body="&lt;p&gt;Say a company is doing an IPO and we expect them to start paying dividends in 5 years?&lt;br&gt;&#xA;I understand how we could use the Dividend Discount Model to predict their stock price 4 years from the IPO. But what about the day of the IPO?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;How can we use the Dividend Discount Model to value this stock before it pays dividends?  &lt;/p&gt;&#xA;" OwnerUserId="11344" LastActivityDate="2018-06-12T14:32:54.290" Title="Using the Dividend Discount Model when no current dividend exists?" Tags="&lt;finance&gt;&lt;stock-market&gt;&lt;financial-economics&gt;&lt;financial-markets&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14523" PostTypeId="2" ParentId="6776" CreationDate="2016-12-05T01:42:08.543" Score="0" Body="&lt;p&gt;I recently watched again the Dark Night movie and refreshed the game in question.&#xA;First it is clear in the dialogues that beliefs on the other group's ranking of outcomes and intentions are updated as time passes (and the more time passes the more each group believes that the other group won't push the button).&#xA;Second, what I believe would be interesting here is to determine what kind of preferences and beliefs must be in place in order to experience the outcome seen in the movie: neither group pushes the button, meaning that they accept to die rather than kill the other group, with perhaps some hope (some strictly positive probability) that the Joker's assertion of blowing both up may be a bluff. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think an important aspect is what happens to the boat with the civilians: they take a vote in order to decide (i.e. a collective action), and decide to push the button. But then, the burden is down to a single person to do it, and we see that, even though the vote has taken the burden of decision of the individual back, no one can do it -perhaps because he feels that he will kill many people to save just himself (not the group). The individualistic experience of performing the final dreadful act appears to be a strong deterrent, and this act is not seen as just the procedural step of a collective decision but something that bears a special burden, a burden that even a person that voted &quot;yes&quot; to push the button cannot bear.&#xA;The group voted to kill in order to survive - but there is no single person in that group that can &lt;em&gt;execute&lt;/em&gt; this decision.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So it is not even clear that we can model only group-preferences here, but maybe one would need to start at the individual level and aggregate.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2016-12-05T01:42:08.543" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14525" PostTypeId="1" CreationDate="2016-12-05T04:52:57.307" Score="1" ViewCount="35" Body="&lt;p&gt;Suppose there are a levered firm with firm value $V_L=D_L+E_L$ and an unlevered firm $V_U = E_U$ both yielding an income of $X$ at time 1. One direction of the no arbitrage argument goes like this: someone with $s$ shares of a levered firm equity can replicate her payoff by longing $s$ shares of unlevered firm and borrow $s D_L$ amount of debt. At time $1$, both positions will yield $s * \text{max}\{0, X-(1+r)D_L\}$, so value of the two positions should have the same value at time 0, giving $s E_L = s (V_L - D_L) = s(V_U-D_L)$, therefore $V_U = V_L$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My confusion is with regard to the replicating position payoff. Shouldn't borrowing makes the replicating position unlimited liable? In particular, shouldn't the payoff of the replicating position be $s * \text{max}\{0, X\}-(1+r)D_L$? So if X ends up lower than $(1+r)D_L$, she is liable to still pay the difference for borrowing. While if she is holding an equity position in levered firm, her payoff is 0.&lt;/p&gt;&#xA;" OwnerUserId="4065" LastActivityDate="2016-12-05T04:52:57.307" Title="One trivia on Miller Modigliani Theorem regarding the No arbitrage Argument" Tags="&lt;finance&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14526" PostTypeId="1" CreationDate="2016-12-05T07:08:55.290" Score="1" ViewCount="243" Body="&lt;p&gt;I have two questions. The first is about &lt;em&gt;how&lt;/em&gt; exactly the U.S. government finances a budget deficit. The second is about the &lt;em&gt;effects&lt;/em&gt; of budget deficits on financial markets and interest rates.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Q1. We say that deficits are financed by the sale of government bonds. But I don't understand exactly what this means. Government bonds are &lt;em&gt;always&lt;/em&gt; available for purchase, regardless of whether Congress passes a balanced budget in a particular fiscal year -- right? So it is not that the government issues bonds only in years that run a deficit. So what exactly do we mean when we say deficits are financed by the sale of government bonds? A priori, I could make several guesses. It could mean that if Congress passes a budget deficit in a certain fiscal year, the Treasury issues &lt;em&gt;more attractive&lt;/em&gt; securities that fiscal year -- e.g. with higher interest rates -- to incentivize more bond sales that year. (This doesn't seem like it could be true for all Treasury securities, because, e.g. I-bond fixed rates have been virtually zero in recent years despite the huge deficits the last eight years.) Alternatively, it could simply mean that funds accrued from the sale of bonds in earlier fiscal years, stored in some Treasury account, are withdrawn to cover the deficit. I know these are naive questions, and I suspect both are too simple to tell the whole truth, if there's any truth to them. But I'd like to have a better idea of what exactly we mean when we say deficits are financed by the sale of bonds, partly because the answer to this question could matter for the second question.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Q2. In macro 101 we are taught the following toy model. The bond sales used to finance a budget deficit crowd out private investment, since funds spent on government bonds are no longer available for loan to private institutions. This reduction in the supply of loanable funds, in turn, is supposed to drive up interest rates, as financial institutions try to incentivize more investment. But we haven't seen an increase in interest rates in the U.S. despite big deficits over the last several years. Why? What does the toy model get wrong? Is the point that the upward pressure on interest rates predicted by the toy theory can be mitigated by low Fed rates?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;If it's easier to point me to an intermediate reference on this material rather than provide an answer, please do so. I'm looking for much more detail than can be found in mainstream elementary macroeconomics books (e.g. Mankiw).&lt;/p&gt;&#xA;" OwnerUserId="11354" LastEditorUserId="11354" LastEditDate="2018-10-26T01:57:06.410" LastActivityDate="2018-10-26T01:57:06.410" Title="Financing U.S. government budget deficits, and their impact on interest rates" Tags="&lt;reference-request&gt;&lt;monetary-policy&gt;&lt;government-debt&gt;&lt;bonds&gt;&lt;united-states&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="14527" PostTypeId="1" AcceptedAnswerId="14542" CreationDate="2016-12-05T11:02:53.517" Score="0" ViewCount="179" Body="&lt;p&gt;I have been stuck on this for a few hours (actually a few days). I can't find much useful information on the web that has made it any clearer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose that a firm’s production function of output Q is a function of two inputs, labour (L) and capital (K) and can be written Q = 25LK.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Letting the wage rate for labour be w and the price of capital be r, what is the equation for the firm’s demand for labour?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand that the answer is L=√(rQ/25w) but I don't know how to get there.&lt;/p&gt;&#xA;" OwnerUserId="11084" LastActivityDate="2016-12-06T04:56:37.037" Title="The equation for the firm's demand for labour" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14528" PostTypeId="2" ParentId="14526" CreationDate="2016-12-05T11:15:38.830" Score="1" Body="&lt;p&gt;The treasury can issue more bonds and the central bank buys it up, prints more currency and gives it to the government. This is called monetizing the deficit. &#xA;Although this practice may be challenged by the central bank itself depending upon the situation.&#xA;The treasury can sell new bonds to commercial banks and other financial institutions. Commercial banks use these to be kept as statutory reserve requirements with the central bank and also as safe assets because these are, of course, most highly rated securities. The demand could be more or less but there is always a demand for safe assets. Think of a countries like China and Japan which invest heavily in U.S treasury bonds and other assets. Theoretically speaking, government can finance any amount of deficits via the central bank route. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Crowding out will happen when the government is borrowing huge loans from the commercial banks and dries up the sources of funds for the private investors. It also depends on the purpose and timing of the spending. Whether the government is spending on non-productive programs or productive programs which are in turn helping the overall health and investment environment of the nation and whether it is spending counter-cyclically or cyclically. Also, if there is an upward pressure on the interest rates due to possible crowding out, we can expect central bank to make necessary adjustments. &#xA;Moreover, the mechanism is not so simple. It is complex as hell. The flow of savings in the economy is not fixed and hence the pressure may or may not build up. It largely depends on the investor sentiments and expectations also. &lt;/p&gt;&#xA;" OwnerUserId="5582" LastActivityDate="2016-12-05T11:15:38.830" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14529" PostTypeId="1" CreationDate="2016-12-05T14:02:27.870" Score="4" ViewCount="114" Body="&lt;p&gt;I am having difficulty modelling the effect of horizontal product differentiation between multiproduct firms. I've been looking at models specifically by Hotelling and d'Aspremont. Hotelling concluded that in duopolistic competition, an equilibrium was found through firms differentiating minimally, (i.e. designing products of similar attributes) whilst d’Aspremont shows the opposite with the equilibria resting at maximal product differentiation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, both of these principles do not take into account multiproduct firms, where firms could produce different varieties of the same product (take shoes for example) where some are highly differentiated and others may be similar to a competitor. Is there a model that explains this situation?&lt;/p&gt;&#xA;" OwnerUserId="11359" LastEditorUserId="1601" LastEditDate="2016-12-05T16:50:24.870" LastActivityDate="2016-12-13T22:15:54.110" Title="Multiproduct firms and horizontal product differentiation" Tags="&lt;reference-request&gt;&lt;product-differentiation&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14531" PostTypeId="1" AcceptedAnswerId="14560" CreationDate="2016-12-05T14:20:10.150" Score="4" ViewCount="120" Body="&lt;p&gt;The notes I'm reading define the IRF as $\text{IRF}(h)=E_t(X_{t+h})-E_{t-1}(X_{t+h}|\text{shock}_t)$. All the examples they show are linear, i.e. ARMA. However, they say that for nonlinear the formula gets harder. But they don't show explicitly how to do it. So,how does one compute the IRF for non-linear models?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="118" LastActivityDate="2016-12-07T00:35:25.090" Title="Impulse Response Functions for non-linear models?" Tags="&lt;econometrics&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="14532" PostTypeId="1" AcceptedAnswerId="14540" CreationDate="2016-12-05T14:39:40.273" Score="4" ViewCount="57" Body="&lt;p&gt;I have a binary instrumental variable Z={0,1} and a binary endogenous variable D={0,1}. By construction, D=1 necessarily holds if Z=1. There are also cases where D=1 if Z=0, but there are no cases where D=0 if Z=1. (Side note: in the first stage of 2SLS, I get an F-value of around 3000.) Intuitively, I feel I should have more variation, i.e., that I should also have cases where D=0 if Z=1. Are my intuitive worries justified?&lt;/p&gt;&#xA;" OwnerUserId="11360" LastActivityDate="2016-12-07T15:10:11.757" Title="If my IV (denoted Z) equals 1, my endogenous var D always equals 1; is this a problem?" Tags="&lt;econometrics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14533" PostTypeId="1" CreationDate="2016-12-05T17:14:59.563" Score="0" ViewCount="99" Body="&lt;p&gt;&lt;a href=&quot;http://support.sas.com/resources/papers/proceedings13/425-2013.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;This publication&lt;/a&gt; uses this formula to fit a model to predict the demand of a product A:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;Log_Demand_A = constant + b1*log_Price_A + b2*log_Price_B + b3*Promo_1 + b4*Promo_2 + b5*log_Price_A*Promo_1 + b6*log_Price_A*Promo_2&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;I have 2 questions.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;What is done in practise when businesses sell hundreds of products? Could one fit several models for product A (e.g. own for own elasticity and let's say we have 2 other products B and C, another one for the interaction A-&gt;B and another one for the interaction A-&gt;C and the combine the demand prediction using some kensemble method).&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Are the 2 promos in the above formula specific to product A (i.e. do not necesaarily apply to product B)?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="11361" LastActivityDate="2017-03-05T23:36:01.273" Title="own and cross elasticity for many products" Tags="&lt;microeconomics&gt;&lt;econometrics&gt;&lt;elasticity&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14536" PostTypeId="2" ParentId="10543" CreationDate="2016-12-05T20:23:56.467" Score="4" Body="&lt;p&gt;As no one has answered, I will give this a try.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To begin with, together with compactness, and of course nonemptiness, of $X$, which you have assumed, you need $f(x,y)$ to be continuous in $x$ in order to ensure, via Weierstrass extrem value theorem, that $$\theta(y)=\text{argmin}_{x\in X}f(x,y)\tag{1}$$ exists for any $y$. It is good, as you do, to assume strict convexity in $x$, for this gives us a unique solutions to the minimization problems, and thus $(1)$ is a singleton. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Under these assumptions, I will try to show that $(1)$ is continous in the following sense, where I am essentially using &lt;a href=&quot;https://en.wikipedia.org/wiki/Continuous_function#Definition_in_terms_of_limits_of_sequences&quot; rel=&quot;nofollow noreferrer&quot;&gt;the definition of continuity in terms of limits of sequences&lt;/a&gt;. The fact that the argmin is a set makes it complicated to directly apply the notion of continuity of function which seldom, in elementary calculus, maps elements to some set of sets.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Theorem.&lt;/strong&gt; Consider a nonempty compact set $X\subseteq \mathbb{R}$ and a continuous function $f:\mathbb{R}^2\to\mathbb{R}$. Furthermore, suppose that $$\theta(\bar{y})=\{z|z\text{ minimizes }f(x,\bar{y})\text{ over }x\in X\}$$  is the singleton $\{\bar{z}\}$ (to ensure this, assume strict convexity in the first argument of $f$). Then, for sequences $z_n\in \theta(y_n)$, where $\{y_n\}_{\mathbb{N}}$ is a sequence converging to $\bar{y}$, we have $z_n\to \bar{z}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Proof.&lt;/strong&gt; I will give a short proof. It is by contradiction, and is a variant of the proof of Lemma 6.3.2. in Nonlinear Programming: Theory and Algorithms, 3rd Edition, 2006, by Bazaara et al. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So suppose $z_n\to\bar{z}$, $z_n\in \theta(y_n)$, and suppose $|z_n-\bar{z}|&amp;gt;\epsilon&amp;gt;0$ for all $n\in I$ where $I$ is some index set. Since $X$ is compact and $z_n\in X$, the sequence $\{z_n\}_I$ has a convergent subsequence $\{z_n\}_{I'}$ with limit $z_0$ in $X$. By assumption, $|z_0-\bar{z}|\geq\epsilon&amp;gt;0$ and thus $z_0\neq \bar{z}$. In addition, for $\{y_n\}_{I'}$ it holds that $$f(z_n,y_n)\leq f(\bar{z},y_n)\tag{2}$$ since $z_n$ minimizes for $y_n$, but $\bar{z}$ does not minimize for $y_n$ necessarily. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, use continuity of $f$ in both of its arguments, and take the limit over $I'$ in $(2)$, to get that $$f(z_0,\bar{y})\leq f(\bar{z},\bar{y})\tag{3}.$$ But as $z_0\neq\bar{z}$ and $\bar{z}$ minimized $f(x,\bar{y})$, it follows that $z_0$ is another, distinct minimizer of $f(x,\bar{y})$ over $X$. Hence, $\theta(\bar{y})$ is not a singleton. But this contradicts the fact that $\theta(\bar{y})$ was a singleton. QED.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Reference suggestion.&lt;/strong&gt; &lt;a href=&quot;https://en.wikipedia.org/wiki/Maximum_theorem&quot; rel=&quot;nofollow noreferrer&quot;&gt;The Theorem of the Maximum&lt;/a&gt;. This theorem is more general and &quot;provides conditions for the continuity of an optimized function and the set of its maximizers as a parameter changes&quot;. It involves the concept of a multivalued function (note that the assumption of the argmin being a singleton simplified the proof of the theorem above).&lt;/p&gt;&#xA;" OwnerUserId="7582" LastEditorUserId="7582" LastEditDate="2017-02-11T10:17:15.630" LastActivityDate="2017-02-11T10:17:15.630" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14537" PostTypeId="2" ParentId="14503" CreationDate="2016-12-05T20:35:33.920" Score="1" Body="&lt;p&gt;Yes, this is consumption.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are 3 ways to calculate GDP, income effect, value added effect, and value of final products.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The simplest to understand is probably the income effect where the value of all wages and profits at every stage of production are added together to find final GDP. Since the household has paid rent and paid the bank for a service both payments count towards the income of both the landlord and the bank.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the household in your example borrowed &lt;code&gt;$1000&lt;/code&gt; to spend on rent at 2% interest and then paid back that &lt;code&gt;$1020&lt;/code&gt; next year it would be a &lt;code&gt;$1020&lt;/code&gt; net gain for GDP with &lt;code&gt;$1000&lt;/code&gt; going to the landlord's income and &lt;code&gt;$20&lt;/code&gt; going to the bank's income for their service of lending out money. If the household defaulted on its debt then the bank would report a loss of &lt;code&gt;$1000&lt;/code&gt; on their income which would cancel out the &lt;code&gt;$1000&lt;/code&gt; gain on the part of the landlord.&lt;/p&gt;&#xA;" OwnerUserId="10245" LastActivityDate="2016-12-05T20:35:33.920" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14538" PostTypeId="2" ParentId="14518" CreationDate="2016-12-05T20:41:46.817" Score="1" Body="&lt;p&gt;With what you say and using the &lt;a href=&quot;https://en.wikipedia.org/wiki/Dividend_discount_model&quot; rel=&quot;nofollow noreferrer&quot;&gt;DDM&lt;/a&gt; we know that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$P_{t=4} = \frac{D_{t=5}(1+g)}{r-g}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Via the above equation, it is &lt;b&gt;assumed&lt;/b&gt; that from year $5$, dividends will annually grow at a $g$ rate and that investors' required rate will be $r$, both forever. Since this calculation is nothing but a &lt;b&gt;simplification&lt;/b&gt; (future growth and return rates will &lt;i&gt;a fortiori&lt;/i&gt; change, etc...), we will not do more complicated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Taking into account the share of debt in the capital structure of the company, say $X\%$, we can compute the average cost of capital (average over equity and debt), $r'$, needed to discount $P_{t=4}$. One may &lt;b&gt;have an idea&lt;/b&gt; of $X$ or &lt;b&gt;make assumptions&lt;/b&gt; about it. It follows that $r'$ is such that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$r' = X\% r_D + (1-X\%) r$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $r_D$ is the interest rate or the cost of debt (naturally &lt;a href=&quot;https://en.wikipedia.org/wiki/Cost_of_capital&quot; rel=&quot;nofollow noreferrer&quot;&gt;$r_S &amp;lt; r$&lt;/a&gt;). Thus the company's IPO may be valued by involving that &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$P_{t=0} = \frac{P_{t=4}}{(1+r')^4}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, as you can see there are &lt;b&gt;many assumptions&lt;/b&gt; in this valuation, which is the job of experts, with the most fundamental about $D_{t=5}$.&lt;/p&gt;&#xA;" OwnerUserId="10247" LastActivityDate="2016-12-05T20:41:46.817" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14539" PostTypeId="2" ParentId="14533" CreationDate="2016-12-05T22:26:48.107" Score="1" Body="&lt;p&gt;this comes from a standard cob-douglas utilty function such as $U=A^\alpha\cdot B^\beta$ w.r.t a budget constraint. If you take a monotonically increasing function of U such as a log which leads to $ \ln (U) = \ln (A^\alpha\cdot B^\beta) -&amp;gt; \alpha \cdot \ln (A) + \beta \cdot \ln (B)$ by solving this via a method like subbing in the budget constraint to get the indirect utility form and adding some dummy and interactions to control for the promotions you get the form above. You can see that this is founded purely from first principals but runs into the &quot;too many parameters&quot; problem when you have many products as you correctly anticipated. Imagine we have 100 products and we need to calculate the elasticity for every product pair. Well then we would have 100 equations with 100 elasticity parameters + 100 intercepts and whatever promotional dummies = $ 100 \cdot 100 + 100 10,100$ minimum parameters. As you might not even have this many data points and not enough to measure efficiently you run into problems and need to use other methods that impose more assumptions on the data.    &lt;/p&gt;&#xA;" OwnerUserId="11364" LastActivityDate="2016-12-05T22:26:48.107" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="14540" PostTypeId="2" ParentId="14532" CreationDate="2016-12-05T23:20:29.993" Score="4" Body="&lt;p&gt;Let $\hat{\pi}_0$ and $\hat{\pi}_1$ be the first stage coefficients. That is, $\hat{D} = \hat\pi_0 + \hat\pi_1 Z$. When $Z_i D_i = Z_i$ (if $Z_i=1$ then $D_i=1$), we can show that $\hat\pi_0 + \hat\pi_1 = 1$ always and $\hat\pi_0 = (\bar{D}-\bar{Z})/(1-\bar{Z})$. (Proof is fun.) Unless $\bar{D} \simeq 1$, $\hat\pi_0$ is far from unity, which means $\hat\pi_1$ is far from zero. Not a surprise that the p-value is very small.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another argument: Because $ZD=Z$, we have $Z(1-D)=0$. Thus, $Z$ and $1-D$ are strongly correlated unless $E(Z)=0$ or $E(D)=1$. By the way, try &lt;code&gt;probit D Z&lt;/code&gt; to see an interesting result.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Whether you need more variability is another thing. The question is whether it is possible that $Z$ is exogenous and $D$ is endogenous. Need to think more.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;EDIT:&lt;/strong&gt; Thought about whether it is possible that $Z$ is exogenous, $D$ is endogenous, and $ZD=Z$ at the same time. It looks possible. Let $u$ be the regression error term. We can let $D=Z+(1-Z)\xi$, where $\xi$ is a Bernoulli random variable, so that $ZD=Z$. Let $E(u|Z)=0$ as we wish. Then $E(Du)=E(u|Z=1)P(Z=1) + E(\xi u|Z=0) P(Z=0) = E(\xi u|Z=0) P(Z=0)$, which can be nonzero. It is possible that $Z$ is uncorrelated with $u$, $D$ is correlated with $u$, and $ZD=Z$, I guess. So my answer is: No worries.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;EDIT:&lt;/strong&gt; But &quot;$Z=1 \Rightarrow D=1$&quot; means that $D$ is exogenous if $Z=1$, and is endogenous if $Z=0$. Whether this is OK depends on the context.&lt;/p&gt;&#xA;" OwnerUserId="10775" LastEditorUserId="10775" LastEditDate="2016-12-07T15:10:11.757" LastActivityDate="2016-12-07T15:10:11.757" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="14541" PostTypeId="2" ParentId="14513" CreationDate="2016-12-06T01:20:47.397" Score="1" Body="&lt;p&gt;I'm going to give the simplest possible answer -- it's a matter of fairness.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider yourself, buying a chair for your business, and someone else who is otherwise equally situated but who for some reason didn't or couldn't buy that  chair.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;They have more money than you do. But you have a chair they don't have. Presumably, you think that chair is better for your business than the money that you paid for it or you wouldn't have bought it. So you are better off than they are.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your business did better than theirs did, so you should pay more in taxes. It's as simple as that.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, over time, that chair will lose value. That is a real loss and it is deductible as depreciation. Over time, your chair will get worn and less valuable, they will not suffer that loss over time. So you are entitled to a deduction later that they are not.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But right now, you made more than they did, since you also have the value of that chair over the money you paid for it.&lt;/p&gt;&#xA;" OwnerUserId="8753" LastActivityDate="2016-12-06T01:20:47.397" CommentCount="9" ContentLicense="CC BY-SA 3.0" />
  <row Id="14542" PostTypeId="2" ParentId="14527" CreationDate="2016-12-06T04:56:37.037" Score="1" Body="&lt;p&gt;You could set up the profit function as suggested by @Kitsune , but here I take the expenditure minimization approach (which is mathematically equivalent).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Set up the minimization:&#xA;$$\min_{L,K} wL + rK \\&#xA;s.t. \quad 25LK=Q$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Using the Lagrange method:&#xA;$$\mathcal{L}=(-wL - rK) + \lambda (25LK-Q)$$&#xA;Giving us the First-Order Conditions:&#xA;$$(1)\quad \frac{\partial\mathcal{L}}{\partial L}=-w + \lambda 25K=0$$&#xA;$$(2) \quad \frac{\partial\mathcal{L}}{\partial Q}=-r + \lambda 25L=0$$&#xA;$$(3) \quad \frac{\partial\mathcal{L}}{\partial \lambda}=25LK-Q=0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Taking (1) and (2):&#xA;$$(4) \quad K=\frac{w}{r}L$$&#xA;From (3):&#xA;$$(5) \quad K=\frac{Q}{25L}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From (4) and (5):&#xA;$$\frac{w}{r}L=\frac{Q}{25L}$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Solving for L:&#xA;$$L=\sqrt{\frac{rQ}{25w}}$$&lt;/p&gt;&#xA;" OwnerUserId="10069" LastActivityDate="2016-12-06T04:56:37.037" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14543" PostTypeId="2" ParentId="11890" CreationDate="2016-12-06T09:14:08.300" Score="0" Body="&lt;p&gt;The question of inflation &quot;caused by&quot; UBI is an attempt to create model of transition, which can only be speculated on many front. Due to complexity, Universal Basic Income (UBI) is a highly complexity model, which will change human behavior of consumption base economy model. &#xA;Assumption of UBI cause higher inflation is too early to tell, because it depends on the policies come together with it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assumption of UBI causing high inflation &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;On funding UBI,  under basic capitalism, government need to print money to pay the UBI, thus cause excessive money flow into the market, thus, devalue money. &lt;/li&gt;&#xA;&lt;li&gt;UBI might cause even higher speculation on market, assume people will use the money to gamble to &quot;gather wealth&quot;.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Assumption of UBI causing economy stagnation&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;With UBI, human being might do the reverse : because of the guarantee income, there is no need to &quot;rush&quot; for basic needs, thus, all the basic need , e.g. food, accomodation, basic entertainment price will stagnant. &lt;/li&gt;&#xA;&lt;li&gt;Due to little to no inflation, people will NOT chase for growth, thus reduce volatility of &quot;market&quot;.  In the end, it will cause millions of job lost on financial market that base on speculative activities.  Economy can no longer base on &quot;growth&quot;(where growth involve both production and speculation). &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Assumption of UBI rewrite consumption base and economy growth model. &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;With little speculation in economy model, there is little need for&#xA;ANY government to print money. &lt;/li&gt;&#xA;&lt;li&gt;Without &quot;urge&quot; to create &quot;GDP growth&quot;, future government may indeed switch to &quot;knowledge point growth/goodies point growth&quot;,&#xA;similar to some science fictions/Scifi game. Poverty will be&#xA;eliminated, as there is no longer &quot;race to the bottom&quot; exploitation&#xA;economy. &lt;/li&gt;&#xA;&lt;li&gt;Society might transit to voluntary resource redistribution.&lt;/li&gt;&#xA;&lt;li&gt;There will be no &quot;unhireable labour&quot;. Previously &quot;unhireable labour&quot; maybe re-distributed to company that &quot;not afford&quot; to pay all the wages to generate higher knowledge output. This also true to place that need to redistribute &quot;blue collar&quot; workers. &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="11177" LastEditorUserId="11177" LastEditDate="2016-12-06T09:19:54.500" LastActivityDate="2016-12-06T09:19:54.500" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14544" PostTypeId="1" CreationDate="2016-12-06T10:58:06.183" Score="0" ViewCount="43" Body="&lt;p&gt;For example if the values of big companies in a country decrease, will the value of that country's currency measurably decrease?&lt;/p&gt;&#xA;" OwnerUserId="11366" LastActivityDate="2016-12-07T09:05:31.190" Title="Do the stock performances of various companies have a measurable correlation with exchange rate?" Tags="&lt;currency&gt;&lt;stock-market&gt;&lt;exchange-rates&gt;&lt;statistics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14545" PostTypeId="2" ParentId="14513" CreationDate="2016-12-06T12:38:46.327" Score="0" Body="&lt;p&gt;One reason is to prevent hoarding bubbles. If there is such scheme, corporate start buying &quot;asset&quot; to avoid tax, which at the end, any &quot;assets&quot; with resales values will be hoarding items for those company. Even the asset subject to some tax during purchase.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Repeating the cycle, the society will be full of unsold &quot;assets&quot;, and company start trading this kind of &quot;tax avoidance asset&quot;, and you start building up an &quot;asset bubbles&quot; similar to subprime loan + CDS swap disaster. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In fact, such tax scheme are quite reasonable to convert asset as &quot;cost&quot; as incentive, and  also to prevent hoarding behavior. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you believe in neo-liberalism jungle law economy that &lt;code&gt;deregulate, give me maximum tax benefit and let winners take all&lt;/code&gt; mentality, exploits will destroy capitalism long before any other crisis started. &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;@VaddadiKartick : NEVER underestimated human being abilities to exploit the system, especially those with resources. The financial world already invent something like hedge funds, future trading, CDS, sub-prime loan. It is not difficult to invent &quot;Assets future trading&quot; , &quot;assets hedge funds&quot; if 100% tax writeoff is allowed.&lt;br&gt;&#xA;When USA implement tax credit transfer incentive, corporate already exploit the loophole of buying company to get tax credit. Acquisition no longer on the merit basis, but also base on exploitation of loophole. &lt;/p&gt;&#xA;" OwnerUserId="11177" LastEditorUserId="11177" LastEditDate="2016-12-07T09:21:25.420" LastActivityDate="2016-12-07T09:21:25.420" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="14546" PostTypeId="2" ParentId="14544" CreationDate="2016-12-06T14:49:42.063" Score="-3" Body="&lt;p&gt;A company valuation is merely in paper. It is similar to  &lt;a href=&quot;http://www.tinyrevolution.com/mt/archives/000466.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;economist eating shit jokes&lt;/a&gt;. When the stock price of a big company drops, it &quot;suppose to&quot; hurts the shareholder who bought it on high.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;When I say &quot;suppose&quot;, because intervention does happens to &quot;too big to fail&quot; company. In worst case, government hold too much &quot;interest&quot; in big company that might issue bonds(AKA print money) to bails out the entity, as what happens to Asian financial crisis, and USA subprime loan financial crash. &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;IMHO, details real world example falls under TL;DR; category. There is countless global example. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A large company stock can be jack up by speculation. Say a company issues  10 millions stock with &lt;code&gt;$1&lt;/code&gt; face values. If a willing buyer trade 100 stocks with &lt;code&gt;$1.50&lt;/code&gt;, and subsequent buyer keep buying 100 stocks and jack it to &lt;code&gt;$50&lt;/code&gt;, it doesn't mean the company &quot;values&quot; sudden shoot up from &lt;code&gt;$1 x 10 millions = $10 millions&lt;/code&gt;  to &lt;code&gt;$50 x 10 millions($500 millions)&lt;/code&gt;. This WILL NOT create extra &lt;code&gt;$490 millions&lt;/code&gt; to the economy, nor to the money supplies.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Without government money supplies and cheap loan rates, it is impossible to create such speculation. In addition, without increase money supplies, not hot money flow into a country, foreign exchange will always stay in a stabil level.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Example of high stock values and insane inflation &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Zimbabwe stock market compare stock value.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Examples of bubbles crash and NO bailout made, no apparent inflation &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Dot Com bubbles.&lt;/li&gt;&#xA;&lt;li&gt;Enron, Worldcomm scandal. &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Example of bubbles crash. Country bail out cause higher inflation &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Asia pre 2007 economy crisis stock value&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Example of crash and bail out inflation flow to other country. &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;USA QE. Speculator borrow cheap money and speculate outside US. Hot money cause many Asian country company stock shoot up without fundamental. &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="11177" LastEditorUserId="11177" LastEditDate="2016-12-07T09:05:31.190" LastActivityDate="2016-12-07T09:05:31.190" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14548" PostTypeId="1" AcceptedAnswerId="14550" CreationDate="2016-12-06T16:48:31.350" Score="7" ViewCount="19562" Body="&lt;p&gt;What is the difference between Nash equilibrium and Pareto Efficiency. Can you give me an example where Nash equilibrium is not Pareto Optimal?&lt;/p&gt;&#xA;" OwnerUserId="11254" LastEditorUserId="6168" LastEditDate="2016-12-06T18:18:30.623" LastActivityDate="2016-12-06T18:18:30.623" Title="Nash Equilibrium and Pareto efficiency" Tags="&lt;game-theory&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14549" PostTypeId="1" CreationDate="2016-12-06T17:20:54.400" Score="5" ViewCount="470" Body="&lt;p&gt;I am trying to understand Walrasian equilibrium and its connection to fixed points, especially how we can apply Brouwer’s fixed point theorem to the notion of Walrasian equilibrium. I understand the implications of Brouwer’s fixed point theorem, and that conversion of prices to the unit simplex is an admissible transformation such that we know, by the theorem, there must be at least one fixed point. I understand Walrasian equilibrium as a price and consumption vector such that utilities of all households are maximized s.t. budget constraints and markets clear. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I do not understand is the link between the two. I struggle with the intuition as to how fixed points map onto equilibrium prices.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Please excuse me if I am asking a stupid / obvious question. I cannot find an explanation of the intuition of the link anywhere I have looked. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks in advance for your help, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;R. &lt;/p&gt;&#xA;" OwnerUserId="8443" LastActivityDate="2016-12-07T00:30:20.050" Title="How does Brouwer's fixed point theorem relate to Walrasian equilibrium?" Tags="&lt;general-equilibrium&gt;&lt;price&gt;&lt;walrasian&gt;&lt;equilibrium-selection&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14550" PostTypeId="2" ParentId="14548" CreationDate="2016-12-06T18:00:57.813" Score="14" Body="&lt;p&gt;Nash Equilibrium (N.E) is a general solution concept in Game Theory. N.E is a state of game when any player does not want to deviate from the strategy she is playing because she cannot do so profitably. So, no players wants to deviate from the strategy that they are playing given that others don't change their strategy. Thus, it is a mutually enforcing kind of strategy profile. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;'Pareto optimality' is an efficiency concept. So no state will be Pareto Optimal if, at least one of the players can get more payoff without decreasing the payoff of any other player. There are many many examples of Nash Equilibria which are not pareto optimal. The most famous example could be the N.E in prisoner's dilemma. &lt;/p&gt;&#xA;" OwnerUserId="5582" LastActivityDate="2016-12-06T18:00:57.813" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14551" PostTypeId="1" AcceptedAnswerId="14556" CreationDate="2016-12-06T18:10:36.960" Score="5" ViewCount="863" Body="&lt;p&gt;In a standard economics education we learn about production functions, indicating an output as a function of a given input of capital and labour.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An average model looks like this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;(1)&lt;/strong&gt;    $F(L,K)=L^{a}K^b$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When dealing with real data however, we are first exposed to regression models which are additive in nature which look like this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;(2)&lt;/strong&gt;      $y_i={\beta}_0+{\beta}_1x_1+{\beta}_2x_2+...+{\beta}_nx_n$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How do we get a production function that looks like (1) when dealing with real data? &lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="7582" LastEditDate="2017-02-13T06:54:37.870" LastActivityDate="2019-12-19T09:57:20.180" Title="How do we estimate production functions?" Tags="&lt;production-function&gt;&lt;applied-econometrics&gt;" AnswerCount="2" CommentCount="3" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="14552" PostTypeId="2" ParentId="8908" CreationDate="2016-12-06T18:25:32.807" Score="1" Body="&lt;p&gt;Consider a set of consumption bundles $X$, which is convex and let $\succeq$ denote 'at least as good as', then convex preferences may be defined mathematically as follows.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Convex preferences.&lt;/em&gt; For any $x,y,z\in X$ and $\lambda\in[0,1]$ we have that $$x\succeq z\text{ and }y\succeq z\Rightarrow \lambda x+(1-\lambda)y\succeq z.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Informally we may say that convex preferences captures the concept of averages being at least as good as extremes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://web.stanford.edu/~jdlevin/Econ%20202/Choice%20Theory.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Critique 1.&lt;/a&gt; Below is an excerpt from the direct link where the author points out the fact that under certain circumstances, the assumption of convexity may not be adequately assumed as a property or preferences. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;That is, [convex preferences says that] if an agent is indifferent between $x$ and $y$ and has convex preferences, then she will like $x/2+y/2$ at least as much as either $x$ or $y$. Of course, this doesn't always make sense. You might like a beer or wine, but not a mixture&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;However, it depends on the interpretation. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Whether convexity makes sense often depends on the interpretation of the&#xA;  goods space. For example, if the components of $x$ are rates of consumption, then a half-half mixture of beer and wine might mean drinking beer half the time and wine half the time. Convexity of preferences seems more plausible in that interpretation than in the previous one. Similarly, some find convexity easier to rationalize if the &quot;goods&quot; are more highly aggregated – for instance, if the goods are &quot;food&quot; and &quot;clothing,&quot; than if goods are highly specific.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.deirdremccloskey.com/articles/stats/why.php&quot; rel=&quot;nofollow noreferrer&quot;&gt;Critique 2.&lt;/a&gt; The link directs you to McCloskey's critique of economics. She criticizes how economists focus too much on assumptions and mathematical proofs and too little on empirical facts. In this sense, if microeconomics or mathematical economics is to be about general properties of consumer behaviour, then the assumption of convex preferences is not always suitable from a methodological perspective, as &lt;a href=&quot;https://en.wikipedia.org/wiki/Non-convexity_(economics)&quot; rel=&quot;nofollow noreferrer&quot;&gt;non-convexity&lt;/a&gt; may hold in a given economy. Also, following McCloskey, one may say that the assumption of convex preferences, while it may guarantee that certain mathematical propositions are true (i.e., one may deduce them from the assumption of convex preferences and simpler axioms), does not by itself say something about economic behavior. It surely implies certain economic behavior $\mathcal B$, but we cannot from the observation of such economic behavior $\mathcal B$ draw the conclusion that economical agents' preferences are such that they are convex over economical entities like goods. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Critique 3. Instead of assuming convex preferences, one may study the wants and sentiments of individuals,  as Adam Smith does in his &lt;em&gt;Theory of Moral Sentiments&lt;/em&gt; and later in his &lt;em&gt;Wealth of Nations&lt;/em&gt;, or study cognitive biases, like Daniel Kahneman does in his best-selling &lt;em&gt;Thinking, Fast and Slow&lt;/em&gt;. These two authors does not, to my knowledge, directly criticize the concept of convex preferences, but they show how economic analysis performed in another way may lead to other conclusions about the economy. If their conclusions do not agree with conclusions derived from axioms like that of convex preferences, then there is implicit criticism in the sense that there is a mismatch in theoretical conclusions.&lt;/p&gt;&#xA;" OwnerUserId="7582" LastEditorUserId="7582" LastEditDate="2016-12-09T10:06:54.283" LastActivityDate="2016-12-09T10:06:54.283" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14553" PostTypeId="1" AcceptedAnswerId="14557" CreationDate="2016-12-06T19:46:14.090" Score="3" ViewCount="128" Body="&lt;p&gt;Suppose I have a panel data with N units and T time periods.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;For model 1 with only unit dummies:&#xA;$$y_{it} = \text{intercept} + \beta_1 x_{it} + \sum_{j = 2}^{N}\delta_j I\left(i = j\right) + \text{error},$$&#xA;least squares estimation of $\beta_1$ only uses the within-unit across-time variation in $x$.&lt;/li&gt;&#xA;&lt;li&gt;For model 2 with only time dummies:&#xA;$$y_{it} = \text{intercept} + \beta_2 x_{it} + \sum_{k = 2}^{T}\gamma_k I\left(t = k\right) + \text{error},$$&#xA;least squares estimation of $\beta_2$ only uses the within-time across-unit variation in $x$.&lt;/li&gt;&#xA;&lt;li&gt;For model 3 with both unit and time dummies:&#xA;$$y_{it} = \text{intercept} + \beta_3 x_{it} + \sum_{j = 2}^{N}\delta_j I\left(i = j\right) + \sum_{k = 2}^{T}\gamma_k I\left(t = k\right) + \text{error},$$&#xA;least squares estimation of $\beta_3$ apparently does &lt;em&gt;not&lt;/em&gt; use the within-unit within-time variation in $x$, because no such variation exists in the dataset.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;My question is: what exactly is the variation used in model 3?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand that for model 3 we are essentially de-meaning $x$ and $y$ in forms like&#xA;$$\tilde{x}_{it} = \left(x_{it} - \bar{x}_i \right) - \left(\bar{x}_t - \bar x \right),$$&#xA;where $\bar {x} _i$, $\bar {x} _t$, and $\bar {x}$ are within-unit mean, within-time mean, and total mean of $x$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Economists using model 3 often loosely say they &quot;have controlled for unit fixed effects and time fixed effects&quot;, but &quot;controlling for x&quot; usually have the &lt;a href=&quot;https://www.wikiwand.com/en/Ceteris_paribus&quot; rel=&quot;nofollow noreferrer&quot;&gt;ceteris paribus&lt;/a&gt; interpretation, meaning we are comparing within groups with same values of x. See &lt;a href=&quot;https://stats.stackexchange.com/a/78830/44293&quot;&gt;this answer&lt;/a&gt; for a nice presentation. I'm looking for intuitive and verbose interpretations that are more precise than &quot;controlling for unit fixed effects and time fixed effects&quot;.&lt;/p&gt;&#xA;" OwnerUserId="10853" LastEditorUserId="-1" LastEditDate="2017-04-13T12:44:19.590" LastActivityDate="2016-12-11T12:54:58.893" Title="interpretation: linear regressions with both unit dummies and time dummies" Tags="&lt;econometrics&gt;&lt;regression&gt;&lt;paneldata&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14554" PostTypeId="2" ParentId="11933" CreationDate="2016-12-06T20:01:58.743" Score="0" Body="&lt;p&gt;From memory and the version of the Lucas critique presented to me:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &quot;impact&quot; of the business cycle is quantified by imposing certain form and specific value assumptions about various parameters. For instance, form assumptions include the restriction that fluctuations are equal in absolute value whether positive or negative, the utility function is assumed to be of the constant relative risk aversion (CRRA) form, etc. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can write the utility payoffs from two scenarios, one with fluctuations and one without, in terms of utility from consumption. The utility from the case without fluctuations can be re-written as a scalar multiple of the utility from the case with fluctuations. By imposing specific values on parameters, we can back out this multiple. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For instance, Lucas imposes that shocks are +/- 2% of GDP and that the constant which is a feature of the CRRA utility function is =2, and gets a result of 0.9996, meaning individuals will give up 0.4% of income to remove the cycles. Obviously if you change any one of these parameters (e.g. make cycles more extreme) then the results will be different. &lt;/p&gt;&#xA;" OwnerUserId="8443" LastActivityDate="2016-12-06T20:01:58.743" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14555" PostTypeId="2" ParentId="14551" CreationDate="2016-12-06T20:05:32.120" Score="1" Body="&lt;p&gt;As per the previous answer (from EconJohn), the log-linear form of the production function then lends itself to regression analysis.  With the Cobb-Douglas form of a production function (i.e. the example you first cited) you can interpret the coefficients of the log-linear form as being measures of elasticity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;N.B. If your data is heteroskedastic, log-linearizing the production function will produce biased and inconsistent parameter estimates. This is because you are attempting to log-linearize a multiplicative error (mean 1) into an additive error (mean zero), yet the expectation of the mean of a random variable is not the same as the mean of the expectation by Jensen's inequality. &lt;/p&gt;&#xA;" OwnerUserId="11370" LastEditorUserId="8443" LastEditDate="2016-12-08T23:40:31.267" LastActivityDate="2016-12-08T23:40:31.267" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14556" PostTypeId="2" ParentId="14551" CreationDate="2016-12-06T20:52:41.213" Score="7" Body="&lt;p&gt;The following is the basic idea if we are to estimate the parameters by linear regression.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Take the natural log of the production function &lt;span class=&quot;math-container&quot;&gt;$F(L,K)=L^aK^b$&lt;/span&gt;, you will then get &lt;span class=&quot;math-container&quot;&gt;$$\ln(F)=a\ln(L)+b\ln(K).$$&lt;/span&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;For each entity (e.g., firm) &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;, collect data on the production level &lt;span class=&quot;math-container&quot;&gt;$F_i$&lt;/span&gt;, the amount of labour &lt;span class=&quot;math-container&quot;&gt;$L_i$&lt;/span&gt;, and the amount of capital &lt;span class=&quot;math-container&quot;&gt;$K_i$&lt;/span&gt;. Note that measurement issues may arise and that it is important to be explicit about how one is to interpret 'production', 'labour' and 'capital', and how to measure them.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Apply the transformation &lt;span class=&quot;math-container&quot;&gt;$X_i\mapsto \ln(X_i)$&lt;/span&gt; for each variable &lt;span class=&quot;math-container&quot;&gt;$X_i$&lt;/span&gt; for each entity &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; in your dataset. (If there is any &lt;span class=&quot;math-container&quot;&gt;$X_i$&lt;/span&gt; such that &lt;span class=&quot;math-container&quot;&gt;$X_i\leq 0$&lt;/span&gt; then this will not work. You may delete those observations &lt;span class=&quot;math-container&quot;&gt;$X_i$&lt;/span&gt; for which &lt;span class=&quot;math-container&quot;&gt;$X_i\leq 0$&lt;/span&gt;. If it is real data, think about the following question. &quot;Why is &lt;span class=&quot;math-container&quot;&gt;$X_i\leq 0$&lt;/span&gt;? Has the dataset been wrongly registered?&quot;) Economists also apply the transformation &lt;span class=&quot;math-container&quot;&gt;$X_i\mapsto\ln(X_i+\epsilon)$&lt;/span&gt; as an approximation when &lt;span class=&quot;math-container&quot;&gt;$X_i\geq0$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$X_i=0$&lt;/span&gt; for some &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$\epsilon&amp;gt;0$&lt;/span&gt; is some small number.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Now, regress &lt;span class=&quot;math-container&quot;&gt;$\ln(F)$&lt;/span&gt; on &lt;span class=&quot;math-container&quot;&gt;$\ln(L)$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\ln(K)$&lt;/span&gt; using your converted dataset (cf. 3) under the assumption that the intercept term is equal to &lt;span class=&quot;math-container&quot;&gt;$0$&lt;/span&gt;. This gives you estimated values &lt;span class=&quot;math-container&quot;&gt;$\hat{a}$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\hat{b}$&lt;/span&gt; of &lt;span class=&quot;math-container&quot;&gt;$a$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$b$&lt;/span&gt;. Hence, your estimated production function, which is supposed to capture some general tendency regarding production, is &lt;span class=&quot;math-container&quot;&gt;$$\hat{F}(L,K)=L^\hat{a}K^\hat{b}.$$&lt;/span&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;(If the production function is written as &lt;span class=&quot;math-container&quot;&gt;$F(K,L)=AL^aK^b$&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt; captures technology for example, you will get an intercept term &lt;span class=&quot;math-container&quot;&gt;$\ln(A)$&lt;/span&gt;.)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;If we are using &lt;a href=&quot;https://en.wikipedia.org/wiki/Nonlinear_regression&quot; rel=&quot;nofollow noreferrer&quot;&gt;nonlinear regression&lt;/a&gt;, then we take the nonlinear least squares (NLLS) estimate of &lt;span class=&quot;math-container&quot;&gt;$a$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$b$&lt;/span&gt; by solving &lt;span class=&quot;math-container&quot;&gt;$$\min_{a,\, b}\sum_i\big(F_i-L_i^aK_i^b)^2.$$&lt;/span&gt; Numerical computing softwares (which uses algorithms such as the &lt;a href=&quot;https://en.wikipedia.org/wiki/Gauss%E2%80%93Newton_algorithm&quot; rel=&quot;nofollow noreferrer&quot;&gt;Gauss-Newton algorithm&lt;/a&gt;) may assist you when finding the NLLS estimate. &lt;/p&gt;&#xA;" OwnerUserId="7582" LastEditorUserId="7582" LastEditDate="2019-12-19T09:57:20.180" LastActivityDate="2019-12-19T09:57:20.180" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="14557" PostTypeId="2" ParentId="14553" CreationDate="2016-12-06T21:21:07.033" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;what exactly is the variation used in model 3 with both unit and time&#xA;  dummies?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The variation that is being used to identify $\beta_3$ is basically the individual level deviations away from both the individual mean and average across individuals for the year. So to the degree that your variable of interest is varying over time but does not vary in a differential manner across individuals, you will fail to detect its effect. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Economists using model 3 often loosely say they &quot;have controlled for unit fixed effects and time fixed effects&quot;, but &quot;controlling for x&quot; usually have the ceteris paribus interpretation, meaning we are comparing within groups with same values of x. See this answer for a nice presentation. I'm looking for intuitive and verbose interpretations that are more precise than &quot;controlling for unit fixed effects and time fixed effects&quot;.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;To be clear, when we say a unit fixed effect in econometrics, we are referencing any time invariant observed or unobserved determinant of the dependent variable. It's easy to show that all of these are &quot;wiped out&quot; by the individual level demeaning. The individual level demeaning also controls for the average differences in observed and unobserved independent variables across individuals. &lt;strong&gt;Individual fixed effects in the model mean that any source of bias must be time varying&lt;/strong&gt;. Thus, if someone argues that your variable is endogenous on account of some  variable that is constant in your sample, you have already controlled for that by only using variation over time to identify your point estimate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So with the inclusion of these individual fixed effects you can focus on determining time varying covariates that determine your independent variable. Time fixed effects will strip away any changes in variables that are the same for all individuals in a given period of time. For instance, if &quot;individuals&quot; are grouped together in the same state or municipality, and there are some changes in state or municipal policies for all individuals in that year,then the time fixed effects could strip away these effects without a need for measuring them. This only leaves concern over variables that have different time paths within different individuals. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So with both time and panel fixed effects, to identify the effect of your variable of interest, exogeneity concerns aside, that variable of interest must&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;be time varying&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;and&lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;2&quot;&gt;&#xA;&lt;li&gt;have variation in within-individual time paths across individuals (i.e. individual heterogeneity, must be varying at $it$ not just homogeneous across $i$ within $t$.)&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;So we are indeed &quot;controlling for&quot; those time invariant unobserved confounding factors, as well as average differences in observed factors across individuals with panel fixed effects. We are indeed &quot;controlling for&quot; covariates that have common variation across individuals within a given year with time fixed effects.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $y_{it}=\beta_i+\lambda_t+X_{it}\beta+\epsilon_{it}$ be the specification with $i=1\dots N$ and $t=1\dots T$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Initially you do the panel demeaning, which creates the transformed variable &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\overset{..}{y}=(y_{it}-\overline{y_i})=\underbrace{(\lambda_t-\frac{1}{T}\sum_{j=1}^{T}\lambda_j)}_\text{panel demeaned time dummies}+\text{other demeaned terms unrelated to year FE}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This removes the $\beta_i$, along with any other time invariant confounding factors.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then you demean with year FE, doing the transformation $\overset{...}{y}=\overset{..}{y_i}-\overline{y_t}$ where $\overline{y_t}=\frac{1}{N}\sum_{j=1}^{N}y_{jt}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$=\underbrace{(\lambda_t-\frac{1}{T}\sum_{j=1}^{T}\lambda_j)-\frac{1}{N}\sum_{i=1}^{N}(\lambda_t-\frac{1}{T}\sum_{j=1}^{T}\lambda_j)}_\text{want to show this = 0}+\text{other demeaned terms unrelated to year FE}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;.&#xA;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;since $\lambda_t$ is common to all $i$ in a given year, $\sum_{i=1}^{N} \lambda_t=N\lambda_t$ and similarly for $\sum_{i=1}^{N}\frac{1}{T}\sum_{j=1}^{T}\lambda_j=N \frac{1}{T}\sum_{j=1}^{T}\lambda_j$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;.&#xA;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$=(\lambda_t-\frac{1}{T}\sum_{j=1}^{T}\lambda_j)-\frac{1}{N}(N \lambda_t -N \frac{1}{T}\sum_{j=1}^{T}\lambda_j)+\text{other demeaned terms unrelated to year FE}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;.&#xA;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;distribute the $\frac{1}{N}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;.&#xA;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$=\underbrace{(\lambda_t-\frac{1}{T}\sum_{j=1}^{T}\lambda_j)-(\lambda_t-\frac{1}{T}\sum_{j=1}^{T}\lambda_j)}_\text{=0}+\text{other demeaned terms unrelated to year FE}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$=\text{other demeaned terms unrelated to year FE}$&lt;/p&gt;&#xA;" OwnerUserId="2844" LastEditorUserId="2844" LastEditDate="2016-12-07T18:48:25.813" LastActivityDate="2016-12-07T18:48:25.813" CommentCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="14559" PostTypeId="2" ParentId="14549" CreationDate="2016-12-07T00:30:20.050" Score="2" Body="&lt;p&gt;In standard proofs of the existence of Walrasian equilibrium, after one applies the appropriate fixed point theorem (typically Kakutani's, but sometimes Brouwer's), one then shows that the given fixed point is, in fact, a Walrasian equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Depending on the exact construction of the proof, sometimes the fixed point will only give you the equilibrium price vector. However, this will be done so that the implied demands will then clear the market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other proofs, like &lt;a href=&quot;http://web.stanford.edu/~jdlevin/Econ%20202/General%20Equilibrium.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;this one&lt;/a&gt;, the fixed point will give you both the equilibrium price and allocation.&lt;/p&gt;&#xA;" OwnerUserId="8595" LastActivityDate="2016-12-07T00:30:20.050" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14560" PostTypeId="2" ParentId="14531" CreationDate="2016-12-07T00:35:25.090" Score="0" Body="&lt;p&gt;&lt;a href=&quot;https://ideas.repec.org/p/fip/fednsr/65.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;This&lt;/a&gt; might be what you're looking for.&lt;/p&gt;&#xA;" OwnerUserId="8595" LastActivityDate="2016-12-07T00:35:25.090" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14561" PostTypeId="1" CreationDate="2016-12-07T01:30:27.097" Score="1" ViewCount="58" Body="&lt;p&gt;I am learning the way to calculate GDP with incomes. So there is labor income and capital income. One element of the labor income is incomes of the self-employed. And for  Capital income, an element is profit for business. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I not too clear on the definition of the self employed. Don't people who are self-employed also own their &lt;/p&gt;&#xA;" OwnerUserId="10386" LastActivityDate="2017-01-06T11:21:21.307" Title="Profit for business owners vs. incomes of the self employed" Tags="&lt;gdp&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14562" PostTypeId="1" AcceptedAnswerId="14575" CreationDate="2016-12-07T08:04:22.727" Score="10" ViewCount="298" Body="&lt;p&gt;In their seminal paper &lt;em&gt;&lt;a href=&quot;http://www.jstor.org/stable/1807222?seq=1#page_scan_tab_contents&quot; rel=&quot;nofollow noreferrer&quot;&gt;De Gustibus non est Disputandum&lt;/a&gt;&lt;/em&gt;, Stigler and Becker (1977) surveyed four classes of phenomena widely believed to be inconsistent with the stability of tastes: addiction, habitual behavior, advertising, and fashions, and in each case offered an alternative explanation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;All these explanations are based on the assumption that &lt;strong&gt;individual tastes are stable over time&lt;/strong&gt;. They compare tastes to the Rocky Mountains: &quot;both are there, will be there next year, too, and are the same to all men.” &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Question&lt;/strong&gt;: I am wondering if the assumption that individual's tastes do not change over time has been rigorously challenged. And how?&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Note&lt;/em&gt;: I added rigorously because their argument is subtle and very persuasive. For example, the role of experience and addiction can be explained with stable preferences. As a consumer gains experience with a good, it becomes easier to use. Thus the cost of using it goes down as use goes up, resulting in higher marginal profit. As the marginal utility diminishes with usage, equilibrium is reached when the diminishing marginal utility gains match the reduction in cost obtained by increases usage.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Update&lt;/em&gt;: I found a nice related survey on &lt;a href=&quot;http://tuvalu.santafe.edu/~bowles/1998JEL.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Endogenous Preferences&lt;/a&gt; by Samuel Bowles.&lt;/p&gt;&#xA;" OwnerUserId="6168" LastEditorUserId="6168" LastEditDate="2016-12-09T10:38:11.113" LastActivityDate="2016-12-09T10:38:11.113" Title="Has the assumption that individuals' tastes do not change over time been rigorously challenged?" Tags="&lt;microeconomics&gt;&lt;reference-request&gt;&lt;preferences&gt;" AnswerCount="1" CommentCount="10" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="14563" PostTypeId="1" CreationDate="2016-12-07T10:02:51.697" Score="1" ViewCount="748" Body="&lt;p&gt;I need to better understand the concept of negative expenditure in UK public spending. The definition says &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Receipts classified as negative public expenditure receipts are&#xA;  netted off, and hence reduce levels of total public spending. The most&#xA;  common examples are payments for goods and services. However negative&#xA;  PE receipts also include: royalties, income from insurance payments,&#xA;  guarantee fees and income from rent of buildings (but not land).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;More on page 11 of &lt;a href=&quot;https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/226421/PU1548_final.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;this paper&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example in the 2015 UK Budget's Total Managed Expenditure is £765bn, where the HM Treasury spending is -£43bn, because HM Treasury earned more than it spent in that period, and the sum of all other departments is 765+43=£808bn. My question is, what do we say is the &quot;size&quot; of the government budget? The government physically spent more than 765, they just did not financed all of it from tax revenue, that is all. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem becomes much more exposed if we look at one of the state agencies the Agriculture &amp;amp; Horticulture Development Board. It receives only £1.2M from the government budget but then it &quot;earns&quot; another £57.4M from Levies that enters the budget on the spending side as -57.4 and the total expenditures I see are over £66.3M. But in their &lt;a href=&quot;http://www.ahdb.org.uk/publications/documents/20150625HC101AHDBAnnualReportWeb-optimised.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;annual report&lt;/a&gt; they reffer to it as &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The total 2014/15 income was £66.746&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Apparently &lt;strong&gt;&lt;em&gt;Total Income&lt;/em&gt;&lt;/strong&gt; and &lt;strong&gt;&lt;em&gt;Total Managed Expenditure&lt;/em&gt;&lt;/strong&gt; are two very different things. What we say is the &quot;size&quot; of the budget? If we nett off the negative expenditures then the budget of this agency is only £1.2M but that is misleading, isn't it? What is the correct terminology?&lt;/p&gt;&#xA;" OwnerUserId="11379" LastActivityDate="2016-12-08T09:34:30.527" Title="Negative expenditures in public budgets" Tags="&lt;public-economics&gt;&lt;accounting&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14566" PostTypeId="2" ParentId="14561" CreationDate="2016-12-07T10:54:48.383" Score="1" Body="&lt;p&gt;I'm guessing you may be confused why we add both wages of self-employed people who run businesses, and profits of businesses, as they should be the same given that profits of businesses go to their owners.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The important fact is that when we calculate the profit of each business, we deduct wages (even to their owners) from their revenues and the left-over is what we add as profit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, the wages deducted is added back into the GDP via wages of self-employed people.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence, there is no double-counting in the Income Approach to GDP calculations.&lt;/p&gt;&#xA;" OwnerUserId="10069" LastActivityDate="2016-12-07T10:54:48.383" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14568" PostTypeId="1" AcceptedAnswerId="14572" CreationDate="2016-12-07T14:36:47.913" Score="3" ViewCount="1321" Body="&lt;p&gt;Credit spreads are a key economic indicator. They are the difference between yields on corporate and government debt. They are a measure of confidence in the private sector, they provide insight into economic culture.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Where can I find a free and reliable online daily historical data source that indicates how credit spreads are moving by region?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;CDX and iTraxx quotes provide exactly this information but as an individual, you struggle to even pay &lt;a href=&quot;http://www.markit.com/Product/CDX&quot; rel=&quot;nofollow noreferrer&quot;&gt;Markit&lt;/a&gt; to provide them - they generally only have corporate clients.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.quandl.com/search?query=bond%20yield&quot; rel=&quot;nofollow noreferrer&quot;&gt;Quandl.com&lt;/a&gt; has databases of bond yield by credit rating which could be used in conjunction with government interest rates to get an indication of how spreads are moving but the data is not reliable and there is little explanation of what regions/markets the databases cover.&lt;/p&gt;&#xA;" OwnerUserId="5891" LastActivityDate="2016-12-07T16:18:35.480" Title="Free Data Source for Credit Spreads?" Tags="&lt;data-request&gt;&lt;financial-markets&gt;&lt;bonds&gt;&lt;credit&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14569" PostTypeId="1" AcceptedAnswerId="14570" CreationDate="2016-12-07T15:22:44.063" Score="0" ViewCount="119" Body="&lt;p&gt;How do I show that elasticity of substitution is equal to σ from a CES utility function. I have derived the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac{q(\omega)}{q(\omega ')}=\left(\frac{p(\omega)}{p(\omega ')}\right)^{-\sigma}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And then I can use the following to show that the elasticity of substitution is equal to σ:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac{\partial \ln\frac{q(\omega)}{q(\omega ')}}{\partial \ln\frac{p(\omega)}{p(\omega ')}}=-\sigma $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But how do I find: $\partial \ln\frac{q(\omega)}{q(\omega ')}$? What should I differentiate with respect to?&lt;/p&gt;&#xA;" OwnerUserId="11385" LastActivityDate="2016-12-07T15:45:04.653" Title="Show that the elasticity of substitution is σ" Tags="&lt;mathematical-economics&gt;" AnswerCount="2" CommentCount="1" ClosedDate="2016-12-29T09:51:01.560" ContentLicense="CC BY-SA 3.0" />
  <row Id="14570" PostTypeId="2" ParentId="14569" CreationDate="2016-12-07T15:42:48.437" Score="0" Body="&lt;p&gt;You cannot find $\partial \ln\frac{q(\omega)}{q(\omega')}$, it has no well defined meaning here. However, by the first relation you mention, it follows that $$\ln(q(\omega)/q(\omega'))=-\sigma\ln(p(\omega)/p(\omega')).$$ Taking the partial derivative on both sides &lt;em&gt;with respect to&lt;/em&gt; $\ln(p(\omega)/p(\omega'))$ gives $$\frac{\partial \ln\frac{q(\omega)}{q(\omega ')}}{\partial \ln\frac{p(\omega)}{p(\omega ')}}=-\sigma.$$&lt;/p&gt;&#xA;" OwnerUserId="7582" LastActivityDate="2016-12-07T15:42:48.437" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14571" PostTypeId="2" ParentId="14569" CreationDate="2016-12-07T15:45:04.653" Score="0" Body="&lt;p&gt;You might be overthinking this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To make things clearer, try the following substitution. Let $$y=\ln\frac{q(\omega)}{q(\omega^\prime)}$$ and  $$x=\ln\frac{p(\omega)}{p(\omega^\prime)}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first equation you show then becomes $y=-\sigma x $, and all you're looking for is $\frac{\partial y}{\partial x }$.&lt;/p&gt;&#xA;" OwnerUserId="8595" LastActivityDate="2016-12-07T15:45:04.653" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14572" PostTypeId="2" ParentId="14568" CreationDate="2016-12-07T16:18:35.480" Score="4" Body="&lt;p&gt;Yes, there's daily data available on the St. Louis Fed's &lt;a href=&quot;https://fred.stlouisfed.org/categories/32348&quot; rel=&quot;nofollow noreferrer&quot;&gt;FRED&lt;/a&gt;. &lt;/p&gt;&#xA;" OwnerUserId="264" LastActivityDate="2016-12-07T16:18:35.480" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14573" PostTypeId="1" CreationDate="2016-12-07T17:17:45.003" Score="1" ViewCount="76" Body="&lt;p&gt;Let $x$ belongs to $\mathbb{R}_+^n$ and $θ$ belongs to $\mathbb{R}_+^n$ be the vectors of choice variables and parameters. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider the problem max $f(x)$ for $x$ where $f:\mathbb{R}_+^n \rightarrow \mathbb{R}_+$ such that $(x,θ)$ belongs to a subset $S$ of $\mathbb{R}_+^{n+k}$, if $S$ is convex and $f(x)$ is concave then the value of function of the problem $φ(θ)$ is a concave function. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have this proof.the question is since $S$ is a convex set $(\bar{X}, \bar{Θ})=[λ'x+(1-λ)x'',λθ'+(1-λ)θ'']$ belongs to $S$ for all $λ$ belongs $[0,1]$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can I prove that $φ$ function is concave?&lt;/p&gt;&#xA;" OwnerUserId="11389" LastEditorUserId="6773" LastEditDate="2016-12-08T08:56:44.420" LastActivityDate="2016-12-08T08:56:44.420" Title="if you have convex set how can i prove that the function is concave" Tags="&lt;microeconomics&gt;" AnswerCount="0" CommentCount="1" FavoriteCount="1" ClosedDate="2017-02-03T21:09:44.630" ContentLicense="CC BY-SA 3.0" />
  <row Id="14574" PostTypeId="1" CreationDate="2016-12-07T17:37:19.810" Score="3" ViewCount="110" Body="&lt;p&gt;I'm interested in a game kind of like the prisoner's dilemma. The important thing about the 2x2 prisoner's dilemma is that it is efficient if all cooperate, but this is not an equilibrium, because both players have a dominant strategy to defect. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have in mind a variant. Suppose $n$ players can choose to cooperate or defect. It is group efficient if all cooperate, but any player would like to defect from that. Further, any coalition of 2 (more generally $k$) players would prefer to defect together. So we could imagine payoffs $u(\text{all defect})=0$, and switching to cooperate increases all individual payoffs by 1, but at a private cost of $2+\epsilon$ (more generally $k+\epsilon&amp;lt;n$). So, it is always better for the group if someone cooperates, but only for a large enough group. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there a name for this kind of thing? Are there any papers or other resources that explore how this differs than the classic prisoner's dilemma?&lt;/p&gt;&#xA;" OwnerUserId="14" LastActivityDate="2016-12-08T08:15:03.253" Title="An $n$-player prisoner's dilemma where a coalition of 2 players is better off defecting" Tags="&lt;reference-request&gt;&lt;game-theory&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14575" PostTypeId="2" ParentId="14562" CreationDate="2016-12-07T18:45:32.050" Score="7" Body="&lt;p&gt;Stigler and Becker's argument is methodological, not philosophical. They do not try to convince us that preferences are indeed identical across individuals and invariant across time as a matter of reality (the &quot;Rocky Mountains&quot; metaphor is an &quot;&lt;em&gt;as if&lt;/em&gt; &quot; approach).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Their point is that any outcome can be rationalized by assuming that &quot;it was preferences that made it so&quot;, since &quot;De Gustibus Non Est Disputandum&quot;, and also they are unobservable.  But then, we could &quot;explain everything&quot; in this way, and so explain nothing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Their goal is to defend in terms of &lt;em&gt;useful modelling&lt;/em&gt; the other extreme: assume immovable preferences and try to find explanations for the observed outcomes based on observable, quantifiable concepts, like prices. I believe the following passage from the first page of the paper summarizes the approach&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;On the traditional view, an explanation of economic phenomena that reaches a difference in tastes between people or times is the terminus&#xA;  of the argument: &lt;strong&gt;the problem is abandoned&lt;/strong&gt; at this point to whoever&#xA;  studies and explains tastes (psychologists? anthropologists?&#xA;  phrenologists'? sociobiologists?). On our preferred interpretation,&#xA;  one never reaches this impasse: the economist continues to search for&#xA;  differences in prices or incomes to explain any differences or changes&#xA;  in behavior. &lt;strong&gt;The choice between these two views of the role of tastes&#xA;  in economic theory must ultimately be made on the basis of their&#xA;  comparative analytical productivities&lt;/strong&gt;.&lt;/em&gt;&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Bold my emphasis.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the question of the OP appears to be mistargeted: people's tastes may very well change over time, and I don't think that Stigler and Becker would deny that. &#xA;The question is, can we arrive at more useful economic models by assuming changing tastes, compared to the models where tastes are fixed (while avoiding the &quot;explain everything and so explain nothing&quot; trap)? But this would be a whole research program, not some rigorous argument in a paper.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2016-12-07T19:28:32.390" LastActivityDate="2016-12-07T19:28:32.390" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14576" PostTypeId="2" ParentId="14574" CreationDate="2016-12-07T21:01:42.863" Score="1" Body="&lt;p&gt;A public goods game is a generalization of the prisoners dilemma that could cover this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a public goods game all players set their individual contribution level $x_i \in [0,\bar{x}]$ where $\bar{x}$ is a given positive parameter. Sometimes instead of an interval there are several discrete options to choose from. Player $i$'s payoff is defined as&#xA;$$&#xA;- x_i + c \cdot \sum_{j = 1}^{n} x_j&#xA;$$&#xA;where $c$ is a parameter such that $\frac{1}{n} &amp;lt; c &amp;lt; 1$. In these games it is individually rational to defect (set $x_i = 0$) but the Pareto optimal outcome is to cooperate (meaning $\forall i: x_i = \bar{x}$).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Seems to me that you could adapt this to your problem by narrowing the range of $c$ to $\frac{1}{n} &amp;lt; c &amp;lt; \frac{1}{2}$. In this case a player would prefer even dual defection to himself having to cooperate. Of course these games do not cover the whole game class you described, by they are part of it, and there is a lot of literature on public goods games, though mostly in behavioral economics.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2016-12-08T08:15:03.253" LastActivityDate="2016-12-08T08:15:03.253" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="14578" PostTypeId="1" CreationDate="2016-12-07T21:38:17.103" Score="3" ViewCount="135" Body="&lt;p&gt;Assume we have $n$ buyers of $|M|=m$ items in a combinatorial auction.&#xA;So as we know, we can use the Vickrey-Clarke-Groves (VCG) algorithm to allocate bundles of items to buyers as best as possible. However, each player $i$ has a value $v_{ij}$ for every single item $j$ and a value $v_i(S)$ for each bundle of items $S \subset M$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is as follows: can we always use the VCG algorithm to find the best solution to this problem, even when the $v_i(S)$ function is non-additive, for example if $v_i(S) = \max\limits_{k \in S} v_{ik}$? (So in this case, player $i$ values a bundle of items as much as its most valued item, no matter how many items are in the bundle)&lt;/p&gt;&#xA;" OwnerUserId="11393" LastEditorUserId="11590" LastEditDate="2017-02-14T02:19:24.710" LastActivityDate="2017-02-14T02:19:24.710" Title="Does the VCG algorithm work for any bundle valuation function?" Tags="&lt;auctions&gt;&lt;mechanism-design&gt;&lt;algorithms&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14583" PostTypeId="2" ParentId="14563" CreationDate="2016-12-08T09:34:30.527" Score="2" Body="&lt;p&gt;There are several issues here, but the three most significant are:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;The National Accounts treatment of the public sector, which is set out in international standards and controlled by the Office for National Statistics.  This is what you might naturally look to if you wanted to compare the size of the UK's public sector with those of other countries, or its impact on GDP or other macroeconomic indicators.  Examples of ONS data include &lt;a href=&quot;https://www.ons.gov.uk/economy/governmentpublicsectorandtaxes&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.ons.gov.uk/economy/governmentpublicsectorandtaxes&lt;/a&gt; and &lt;a href=&quot;https://www.ons.gov.uk/economy/governmentpublicsectorandtaxes/publicspending/datasets/esatable2mainaggregatesofgeneralgovernment&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.ons.gov.uk/economy/governmentpublicsectorandtaxes/publicspending/datasets/esatable2mainaggregatesofgeneralgovernment&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;Her Majesty's Treasury's control of public expenditure for budget management purposes, which includes passing on money voted by Parliament.  The Treasury has a natural tendency to try to minimise this, and so often encourages parts of government to obtain resources in other ways such as levies and fees, and sometimes allows these to be deducted from the control totals it applies in a way not deemed economically meaningful by the Office for National Statistics. &lt;em&gt;Total Managed Expenditure&lt;/em&gt; is part of these control totals.  Sources of information include &lt;a href=&quot;https://www.gov.uk/government/statistics/public-expenditure-statistical-analyses-2016&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.gov.uk/government/statistics/public-expenditure-statistical-analyses-2016&lt;/a&gt; &lt;/li&gt;&#xA;&lt;li&gt;Individual parts of government managing their own budgets, primarily ensuring that money coming in  balances money going out.  This can include receiving money from or giving money to other parts of government, which as internal transfers would not count as public expenditure from an economic point of view, but do matter to an individual body  &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;The Treasury paper you link to is largely trying to describe some of the differences of treatment between (1) and (2), explaining phases in its analyses such as &lt;em&gt;&quot;Receipts treated as negative DEL [departmental expenditure] but revenue in National Accounts&quot;&lt;/em&gt;.  Meanwhile, in the case of the Agriculture and Horticulture Development Board, it gets its money from the industry either in the forms of levies or commercial income and is an example of (3); in this case the Treasury interest is largely in ensuring the board does not become a burden on public funds and that it operates efficiently, while the ONS is interested because it how it is funded (it is similar to a tax as the levies are compulsory, but it is different in that the board uses this money solely to provide a explicit service to the levy payers)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you are looking to measure the size of the UK public sector as a whole, you may find the ONS figures in (1) most useful, though they may not give the detail you can find from (2) or (3)&lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2016-12-08T09:34:30.527" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14587" PostTypeId="1" CreationDate="2016-12-08T18:27:19.973" Score="1" ViewCount="72" Body="&lt;p&gt;I have a great confusion about the fundamental of subsidy . Why government give subsidy when it can also discount the price but it doesn't do so ?&lt;/p&gt;&#xA;" OwnerUserId="11405" LastActivityDate="2016-12-09T22:41:15.773" Title="why subsidy is given why not govt direct discount the prices?" Tags="&lt;subsidies&gt;" AnswerCount="1" CommentCount="1" ClosedDate="2016-12-15T03:53:06.347" ContentLicense="CC BY-SA 3.0" />
  <row Id="14588" PostTypeId="1" CreationDate="2016-12-08T19:05:02.833" Score="3" ViewCount="1396" Body="&lt;p&gt;I saw this chart where CPI for 2003 is 1.84, for 2004, is 1.889. I dont know the base year because its not in the chart. But base year has to have CPI of 1.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we instead use 2003 as base year, is the inflation rate during 2003-2004 period, going to be different?&lt;/p&gt;&#xA;" OwnerUserId="10386" LastActivityDate="2019-04-04T15:14:46.247" Title="Will inflation rate be the same if we use different base year?" Tags="&lt;inflation&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14590" PostTypeId="2" ParentId="14588" CreationDate="2016-12-08T19:49:12.520" Score="4" Body="&lt;p&gt;Not at all.&#xA;Assuming You wanted to calculate the inflation rate from between 2003 to 2004, you only need to know the CPI for the starting and ending dates.  So the CPI index in 2003 is 1.84 and the CPI index is 1.889 in 2004.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The formula is: (end -start)/start&lt;/p&gt;&#xA;&#xA;&lt;p&gt;so we have (1.889-1.84)/1.84 = giving us 0.02663 or a percentage change of 2.663% -This is the inflation rate-.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we moved the base year to 2003 and assigned the CPI of 1, we can use this calculate the CPI in 2004.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(X-1)/1 = 0.02663&#xA;X-1 = 0.02663&#xA;X = 1.02663 * 100 is a CPI for 2004 of 102.663.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Made this table for you to get an idea of how it is calculated based on your example.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/2zqRZ.jpg&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/2zqRZ.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="11406" LastActivityDate="2016-12-08T19:49:12.520" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14591" PostTypeId="1" CreationDate="2016-12-08T21:02:19.650" Score="1" ViewCount="57" Body="&lt;p&gt;I'm reading some note of Eric Sims on extensions to RBCs and he writes «In any balanced growth path, feasibility requires that hours do not grow». The author then explains that this is so, because if it decreased than working hours would eventually decrease to zero, and if they were increasing, then they would reach the max which is 1.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Honestly, I don't get what he means by feasibility here. Is it a mathematical term, or should I read it as plain english?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated&lt;/p&gt;&#xA;" OwnerUserId="118" LastActivityDate="2016-12-08T21:02:19.650" Title="What's an RBC BGP's feasibility?" Tags="&lt;macroeconomics&gt;&lt;rbc&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="14592" PostTypeId="5" CreationDate="2016-12-08T22:14:34.287" Score="0" Body="" OwnerUserId="-1" LastEditorUserId="-1" LastEditDate="2016-12-08T22:14:34.287" LastActivityDate="2016-12-08T22:14:34.287" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14593" PostTypeId="4" CreationDate="2016-12-08T22:14:34.287" Score="0" Body="Real Business Cycle models account for business cycle fluctuations as efficient responses to real economic exogenous changes or shocks" OwnerUserId="8891" LastEditorUserId="8891" LastEditDate="2016-12-09T07:43:00.353" LastActivityDate="2016-12-09T07:43:00.353" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14596" PostTypeId="1" AcceptedAnswerId="14598" CreationDate="2016-12-09T02:09:57.047" Score="0" ViewCount="59" Body="&lt;p&gt;In a economy with an arbitrary number of agents whose preferences all satisfy the usual equilibrium conditions and with each starting with a random starting endownment, are there any two agents with the same income at equilibrium who might envy eachother?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Please notice that not all agents have the same income.&lt;/p&gt;&#xA;" OwnerUserId="5741" LastActivityDate="2016-12-09T14:58:27.350" Title="In a trading economy with many agents, can two agents with the same income envy eachother?" Tags="&lt;microeconomics&gt;&lt;fairness&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="14597" PostTypeId="1" CreationDate="2016-12-09T11:28:23.430" Score="1" ViewCount="135" Body="&lt;p&gt;The Phillips Curve equation is:&#xA;$$\pi_t=\pi_t^e + \beta_1 (\beta_2 Y_t + (1-\beta_2) Z_t) + \varepsilon_t^\pi$$&#xA;where $\pi_t$ is the inflation, $\pi_t^e$ is the expected inflation, $Y_t$ is the output level, $Z_t$ is the real exchange rate, and $\varepsilon_t^\pi$ is a stochastic shock.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a small open economy (semi-structural framework), the impulse response functions to a domestic demand shock are the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/LTzOO.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/LTzOO.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;After the crisis, the Phillips Curve became flatter. My question is, how can one interpret the change in the slope of the Phillips Curve after the crisis?&lt;/p&gt;&#xA;" OwnerUserId="5017" LastEditorUserId="5017" LastEditDate="2017-05-28T12:06:33.117" LastActivityDate="2017-07-28T06:19:52.487" Title="Why did the hybrid Phillips Curve become flatter (as empirical data shows) after the crisis?" Tags="&lt;macroeconomics&gt;&lt;open-economy-macro&gt;&lt;financial-crises&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14598" PostTypeId="2" ParentId="14596" CreationDate="2016-12-09T14:58:27.350" Score="0" Body="&lt;p&gt;Consider a &lt;a href=&quot;http://web.stanford.edu/~jdlevin/Econ%20202/General%20Equilibrium.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;pure exchange economy&lt;/a&gt; with $N\geq2$ consumers, each of whom has &lt;a href=&quot;https://en.wikipedia.org/wiki/Local_nonsatiation&quot; rel=&quot;nofollow noreferrer&quot;&gt;locally non-satiated&lt;/a&gt; preferences. We know from the &lt;a href=&quot;https://en.wikipedia.org/wiki/Fundamental_theorems_of_welfare_economics#Implications_of_the_First_Theorem&quot; rel=&quot;nofollow noreferrer&quot;&gt;First Welfare Theorem&lt;/a&gt; that any &lt;a href=&quot;https://en.wikipedia.org/wiki/Competitive_equilibrium&quot; rel=&quot;nofollow noreferrer&quot;&gt;Walrasian equilibrium&lt;/a&gt; is &lt;a href=&quot;https://en.wikipedia.org/wiki/Pareto_efficiency&quot; rel=&quot;nofollow noreferrer&quot;&gt;Pareto-efficient&lt;/a&gt;. We index consumers by superscripts.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Say that consumer $i$ envies consumer $j$'s allocation if $i$ strictly prefers $j$'s allocation to their own:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ x^j \succ^i x^i $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If these preferences have a utility representation, then this is equivalent to&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ u^i (x^j) &amp;gt; u^i(x^i) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is an easy consequence of the First Welfare Theorem that in any Walrasian equilibrium, no two agents, regardless of income, envy each other's allocations. If they did, this would violate Pareto-efficiency.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Notice, however, that this is &lt;strong&gt;not&lt;/strong&gt; the same as the allocation being &lt;a href=&quot;https://en.wikipedia.org/wiki/Envy-freeness&quot; rel=&quot;nofollow noreferrer&quot;&gt;envy-free&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="8595" LastActivityDate="2016-12-09T14:58:27.350" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14602" PostTypeId="2" ParentId="14587" CreationDate="2016-12-09T22:41:15.773" Score="0" Body="&lt;p&gt;Supposing by &quot;discount the price&quot; you mean set a maximum allowed price that is lower than the current price. &#xA;At the current price supply is equal to demand, when the price drops, there will be less supply and more demand. Then there is more demand than supply and the government doesn't want this because some people don't get what they want. Subsidies solve this problem because the price will drop because a part of the profit isn't paid for by the consumer but by the government. Then supply and demand are equal and the price is lower.&lt;/p&gt;&#xA;" OwnerUserId="11032" LastActivityDate="2016-12-09T22:41:15.773" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14603" PostTypeId="1" CreationDate="2016-12-10T00:59:34.920" Score="4" ViewCount="1698" Body="&lt;p&gt;And if so, to what extent? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, how does the extent of China's subsidies compare internationally?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(I understand this is a broad question but I can imagine that some economists somewhere have come up with some convenient measures or indices for this purpose.)&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastEditorUserId="8481" LastEditDate="2020-05-03T06:40:38.787" LastActivityDate="2020-05-03T06:40:38.787" Title="Does China subsidize its exports?" Tags="&lt;international-trade&gt;&lt;china&gt;&lt;subsidies&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14604" PostTypeId="1" CreationDate="2016-12-10T02:38:36.577" Score="0" ViewCount="54" Body="&lt;p&gt;On my book it says that net interest is &quot;The interest domestic businesses pay minus the interest&#xA;they receive, plus interest earned from foreigners.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But how can businesses receive interest?&lt;/p&gt;&#xA;" OwnerUserId="11329" LastActivityDate="2016-12-10T07:57:37.887" Title="On Net interest" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="3" ClosedDate="2017-02-24T15:10:11.427" ContentLicense="CC BY-SA 3.0" />
  <row Id="14605" PostTypeId="2" ParentId="14604" CreationDate="2016-12-10T07:57:37.887" Score="1" Body="&lt;p&gt;Banks and other financial institutions are businesses.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2016-12-10T07:57:37.887" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14606" PostTypeId="1" AcceptedAnswerId="14607" CreationDate="2016-12-10T14:47:16.453" Score="0" ViewCount="1387" Body="&lt;p&gt;I don't how to put maths in here so using an image:&#xA;&lt;a href=&quot;https://i.stack.imgur.com/GRsOO.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/GRsOO.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/LKHnW.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/LKHnW.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="11312" LastEditorUserId="11312" LastEditDate="2016-12-10T17:13:53.867" LastActivityDate="2016-12-10T18:44:34.737" Title="conditional factor demand functions for capital and labor" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;production-function&gt;" AnswerCount="1" CommentCount="2" ClosedDate="2016-12-31T15:08:12.640" ContentLicense="CC BY-SA 3.0" />
  <row Id="14607" PostTypeId="2" ParentId="14606" CreationDate="2016-12-10T18:44:34.737" Score="0" Body="&lt;p&gt;$$(\frac{r}{w} \frac{1-\alpha}{\alpha})*K$$&#xA;$$\equiv (\frac{r}{w} \frac{1-\alpha}{\alpha})[\frac{y}{a}(\frac{w}{r} \frac{\alpha}{1-\alpha})^{1-\alpha}]$$&#xA;$$\equiv (\frac{r}{w} \frac{1-\alpha}{\alpha})^{\alpha-1+1} \frac{y}{a}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\equiv (\frac{r}{w} \frac{1-\alpha}{\alpha})^{\alpha} \frac{y}{a}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is that what you're looking for?  Just notice that between steps two and three, I inverted the part of K in parentheses and changed the exponent to account for the inversion. &lt;/p&gt;&#xA;" OwnerUserId="1655" LastActivityDate="2016-12-10T18:44:34.737" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14608" PostTypeId="1" CreationDate="2016-12-10T19:23:24.540" Score="1" ViewCount="50" Body="&lt;p&gt;In the RBC/NK literature one has to define a functional form for the utility function of the representative household. What are the most used forms, and why are they used?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated&lt;/p&gt;&#xA;" OwnerUserId="118" LastActivityDate="2016-12-10T19:23:24.540" Title="What are the most used functional forms for utility in RBC literature, and why?" Tags="&lt;macroeconomics&gt;&lt;new-keynesian-economics&gt;&lt;rbc&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14609" PostTypeId="1" CreationDate="2016-12-10T21:08:04.677" Score="5" ViewCount="1467" Body="&lt;p&gt;I don't understand where inflation occurs in a video games. Assuming &quot;free market&quot; ie unlimited new players can enter any universe at will. You will say that for an economy to form, both sides must be willing to trade. This is true, here a player trades working hours for gold (g).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Universe A:&#xA;&lt;li&gt; working for 1 hour (killing rats) rewards 1g.&#xA;&lt;li&gt; a sword can be bought for 10g.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;does inflation occur ?&lt;br&gt;&#xA;Time required to buy a sword will always be the same ~ 10 Hours.&lt;br&gt;&#xA;New players will have to exert the same effort as old players to get a sword in universe A.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Universe B:&#xA;&lt;li&gt; Denizens of universe B can buy swords from universe A for 10g + 4g (transpotation fees).&#xA;&lt;li&gt; working for 1 hour (killing slimes) destroys a sword and rewards 15g.&#xA;&lt;li&gt; slime jars can be produced for 10g.&lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;2&quot;&gt;&#xA;&lt;li&gt;Does inflation occur?&lt;br&gt;&#xA;Both citizens get the same profit for their hourly work = 1g per hour.&lt;br&gt;&#xA;Is this what they call zero sum rule? workers sacrifice 1 hour for 1g.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Universe C:&lt;br&gt;&#xA;&lt;li&gt;Aliens can buy slime jars from Universe B for 10g (teleportation magic).&#xA;&lt;li&gt;Alien have to eat slime jars every hour or die.&#xA;&lt;li&gt;Aliens produce 20g by materializing matter out of thin air.&lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;3&quot;&gt;&#xA;&lt;li&gt;Does inflation occur? &lt;br&gt;&#xA;Aliens get x10 gold per hour for their work. Is this what they call inflation? But humans lack the capacity for such feat, shouldn't alien be paid more?&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Universe D: modify universe C as follows: &lt;br&gt;&#xA;&lt;li&gt;A weather effect blocks teleportation magic. We dont know how long it will last.&#xA;&lt;li&gt;Buying slime jars from B now costs 21g.&lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;4&quot;&gt;&#xA;&lt;li&gt;&lt;p&gt;Does Inflation or Deflation occur?&lt;br&gt;&#xA;aliens now lose money instead gaining. they lose -1g even if they work. Shouldn't they have been paid more in the first place for the risk they took eg dying if they run out slime jars.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Assuming infinite years pass, and the weather condition pattern is 100% known. What should be a fair alien wage? Approximate 0 if averaged out, same as humans (1g) or more ?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Universe E: mmorpg simulation. Assume this world becomes available after 1000 years&lt;br&gt;&#xA;&lt;li&gt;Everyone can switch to this universe by paying 10g.&#xA;&lt;li&gt;Working accumulates experience and increases productivity. Every 10 hours switch to the next level.&#xA;&lt;li&gt;Lv0. Working produces 0g per hour.&#xA;&lt;li&gt;Lv1. Working produces 0.1g per hour.&#xA;&lt;li&gt;Lv2. Working produces 1g per hour.&#xA;&lt;li&gt;Lv3. Working produces 10g per hour.&#xA;&lt;li&gt;Cap. No more levels.&lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;6&quot;&gt;&#xA;&lt;li&gt;Does this cause inflation?&lt;/li&gt;&#xA;&lt;li&gt;What will happen to the rest of the world if introduced.&lt;/li&gt;&#xA;&lt;li&gt;Since the level is capped. This means that inflation also has a maximum cap = new player vs old player money profit for hourly wage.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Universe F: modify universe E as follows:&#xA;&lt;li&gt;a time hole speeds aging: Creatures living in it have a finite lifespan of 1 month.&lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;9&quot;&gt;&#xA;&lt;li&gt;Does this cause inflation?&lt;/li&gt;&#xA;&lt;li&gt;What should be a fair wage? Approximate 0 if averaged out, same as humans (1g) or more ?&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;&lt;p&gt;11. Can other types of economy form in video games? Seems to me that all economies in games are &quot;free markets&quot; with an initial entrance fee. There is no competition. The rewards remain the same for everyone regardless of the amount of workers that enter a universe. This is because in a game goods are produced from thin air. Will markets with competition make sense ? or will new players be harshly punished for arriving to play the game too late?&lt;/p&gt;&#xA;" OwnerUserId="11421" LastActivityDate="2016-12-11T15:21:22.863" Title="Understanding Inflation in a video game" Tags="&lt;inflation&gt;&lt;simulations&gt;&lt;free-trade&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14611" PostTypeId="2" ParentId="14609" CreationDate="2016-12-11T02:06:22.343" Score="1" Body="&lt;p&gt;There are too many questions to play out each situation individually (and not enough information given in each scenario either), but we can answer your underlying question. &lt;strong&gt;What causes inflation within game economies?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Inflation is just sustained price increases. The way inflation increases is by increasing the money supply, or making it easier to borrow money. Most online games I know don't have any proper banking system, and my rough guess is that places don't create informal banking sectors. Assuming that, we are left with just money supply.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Unless the amount of money players gain from killing monsters and doing quests is exactly offset by how much gold is sunk into NPC vendors, then there will be inflation if players are gaining too much gold.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2016-12-11T02:06:22.343" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="14614" PostTypeId="1" AcceptedAnswerId="14623" CreationDate="2016-12-11T07:59:18.903" Score="1" ViewCount="762" Body="&lt;p&gt;It is a tricky problem. Historically, poor control money supply led to inflation. Out of control money supply led to hyperinflation. Central banks seem to do a wonderful job in recent years with modern economies seeing low inflation despite quantitative easing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How do they do it?&lt;/p&gt;&#xA;" OwnerUserId="6172" LastActivityDate="2016-12-11T15:47:13.683" Title="How do central banks regulate the money supply to avoid inflation?" Tags="&lt;monetary-policy&gt;&lt;money-supply&gt;&lt;central-banking&gt;&lt;money&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14616" PostTypeId="2" ParentId="14614" CreationDate="2016-12-11T11:21:24.880" Score="1" Body="&lt;p&gt;First of all you need to understand that in our &lt;a href=&quot;http://www.monetary.org/wp-content/uploads/2016/03/money-creation-in-the-modern-economy.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;fractional reserve&lt;/a&gt; monetary system, bank loans create money and loan repayments destroy money.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you have a period in which the rate of repayments of existing loans exceeds the rate of creation of new loans (like after an asset bubble has burst) then a central bank can do a lot of QE without increasing the money supply. Consider it like trying to fill a bucket with water, when the bucket has a hole in it. So avoiding inflationary growth in the money supply in the current environment is actually quite easy... indeed it is actually quite difficult to cause inflation in these periods as the Japanese have realised since their house price bubble burst in the early 90's.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Historically many countries have placed direct limits on how much money banks were allowed to lend (create) to different sectors of the economy, but laissez faire economists caused these controls to go out of fashion in the 70's and 80's.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For more information, look up the &quot;credit guidance&quot; section in the Encyclopaedia of Central Banking by Rochon and Rossi.&lt;/p&gt;&#xA;" OwnerUserId="5081" LastEditorUserId="5081" LastEditDate="2016-12-11T11:33:46.583" LastActivityDate="2016-12-11T11:33:46.583" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14617" PostTypeId="1" CreationDate="2016-12-11T11:36:00.573" Score="3" ViewCount="528" Body="&lt;p&gt;Why do we tend to use Real GDP Per Capita instead of the real wage? What is the issue of using the real wage instead?&lt;/p&gt;&#xA;" OwnerUserId="11381" LastActivityDate="2017-01-10T16:32:52.630" Title="Are real wages a good measure of economic progress?" Tags="&lt;macroeconomics&gt;&lt;wages&gt;&lt;development-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14618" PostTypeId="2" ParentId="14553" CreationDate="2016-12-11T12:54:58.893" Score="1" Body="&lt;p&gt;Interpretation:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Model 1:&lt;/strong&gt; Within the &lt;em&gt;same unit&lt;/em&gt;, $y_{it}-y_{is}$ is expected to be $(x_{it}-x_{is})\beta_1$. That is, within a unit, between two periods with different $x$, $y$ is expected to differ by the difference in $x$ times $\beta_1$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Model 2:&lt;/strong&gt; In the &lt;em&gt;same period&lt;/em&gt;, $y_{it}-y_{jt}$ is expected to be $(x_{it}-x_{jt})\beta_2$. That is, in a period, between two units with different $x$, $y$ is expected to differ by the difference in $x$ times $\beta_2$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Model 3:&lt;/strong&gt; Within unit $i$, $y_{it}-y_{is}$ is expected to be $(x_{it}-x_{is}) \beta_3 + (\gamma_t - \gamma_s)$, and within unit $j$, $y_{jt}-y_{js}$ is expected to be $(x_{jt}-x_{js})\beta_3 + (\gamma_t - \gamma_s)$. So if $x_{it}-x_{is} = x_{jt}-x_{js}$, then the expected differences in $y$ are the same for both units, and $(y_{it}-y_{is})-(y_{jt}-y_{js})$ is expected to be $[ (x_{it}-x_{is}) - (x_{jt}-x_{js})] \beta_3$. How can I interpret this math verbosely? Let me try, though I'm not sure I will succeed. Suppose that unit $i$'s $x$ differs by 1 across two periods, so does unit $j$'s $x$ across the same two periods. Then those two units' $y$ values are expected to differ across the two periods by the same amount. If the two units have different differences in $x$ over the two periods, then the expected differences in $y$ differ by $\beta_3$ times the difference in the differences in $x$. Yes, this is like DID (difference-in-differences).&lt;/p&gt;&#xA;" OwnerUserId="10775" LastActivityDate="2016-12-11T12:54:58.893" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="14619" PostTypeId="1" AcceptedAnswerId="14620" CreationDate="2016-12-11T13:30:37.513" Score="0" ViewCount="64" Body="&lt;p&gt;Does the general price level show the aggregate of all goods &amp;amp; services demanded or supplied at a certain price or does it show something else entirely?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My knowledge of economics is still very much in its infancy, so only plain language in answers please!&lt;/p&gt;&#xA;" OwnerUserId="11427" LastActivityDate="2016-12-12T20:16:49.713" Title="Question about simple SRAS and AD curve" Tags="&lt;macroeconomics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14620" PostTypeId="2" ParentId="14619" CreationDate="2016-12-11T15:06:23.230" Score="0" Body="&lt;p&gt;General price level is defined by the price that you pay for a basket of goods. This basket of goods is decided on the basis of general consumption patterns in the economy and includes a number of sectors (with a number of items) like food, transport, medical care, etc. Such baskets can be defined differently to arrive at different measures of general price levels such as the one faced by end consumers or wholesale buyers. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a nutshell, it gives an idea of how the prices in the economy are moving. So, price of a good A might increase while price of good B might decrease but it may so happen that the general price level may increase or decrease depending upon the defined basket and the weights assigned to the items in basket. &lt;/p&gt;&#xA;" OwnerUserId="5582" LastActivityDate="2016-12-11T15:06:23.230" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14621" PostTypeId="2" ParentId="14609" CreationDate="2016-12-11T15:21:22.863" Score="3" Body="&lt;p&gt;You seem to think of a game where objects are obtained at a fixed rate by farming. Fix supply of work for a certain object (bc. Only a few people know where to find things to farm or are high enough level or have the right profession) and increase demand (new players coming in or more players buying in game currency for real money) then prices for the object will soar over time, people producing the object will find it easier to sell it, so much so that they will increase the price until people stop buying it. This will inflate the price of the object. Whether this will last over longer period of time then depends on many factors : ability of supply to adjust (e.g. How much are player willing to switch to farming that object?), rate of new player characters coming in, their propensity to buy the object etc. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are  many other ways. One example I could think of: as a player on a WoW private server with moderate population I would routinely buy all objects from the auction house that I thought of as undervalued and put them back in auction at higher prices. This allowed me to gain arbitrage profit from less careful players and also to craft and sell the same object at higher prices. &lt;/p&gt;&#xA;" OwnerUserId="6023" LastActivityDate="2016-12-11T15:21:22.863" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="14622" PostTypeId="2" ParentId="14617" CreationDate="2016-12-11T15:41:10.167" Score="2" Body="&lt;p&gt;Thee are several issues including what happens about incomes that are not wages, but the main one is &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;Not everybody earns a wage&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This is an issue for the self-employed (especially in agricultural subsistence economies), but it is also an issue in economies with large numbers of dependants, especially the very young or the very old  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It also raises the issue of the employment of women: increasing the proportion of women working will tend to boost total GDP and GDP per capita even though it can in some circumstances reduce average wages if the women entering the job market earn less than men already there&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are also cyclical issues: there have been recessions where unemployment has increased substantially but wages of those still working have been less immediately affected; there have been other recessions where the reverse pattern has predominated.  In both cases GDP per capita has fallen and the economy is obviously weaker than it was before the recession&lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2016-12-11T15:41:10.167" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14623" PostTypeId="2" ParentId="14614" CreationDate="2016-12-11T15:47:13.683" Score="2" Body="&lt;p&gt;The answer provided by Mick is pretty good, but I'll put my own spin on this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;1st: What is inflation?&lt;/strong&gt;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Roughly speaking it is when the ratio of money to the things money buys increases.  A bumper food crop can reduce inflation.  Crop failure can increase it.  But certainly the most volatile component of inflation is the supply of money itself.  Economists love to exaggerate the importance of the former (productivity) to cover-up the mess they are making with the latter (money supply).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;2nd: What is the supply of money?&lt;/strong&gt;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A difficult answer, as money is whatever we accept.  But the most common forms of money however are classified into large aggregates by economists. &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;MB: Aka the monetary base in the USA (all money created by the&#xA;government...coins, dollar bills, us notes fed deposits)&lt;/li&gt;&#xA;&lt;li&gt;M1: Bank demand depots (promises of MB) plus cash outside of the banking system&lt;/li&gt;&#xA;&lt;li&gt;M2: M1 + interest bearing deposits and other checking substitutes&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Because private banks can get away with promising more money then they have...and we accept this...then banks actually create money.  And because the higher aggregates like M2 are much larger than MB, it is plain to see that banks are more important variables to the money supply equation and the supply of government money (aka MB).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;3rd: How does the Fed regulate the money supply?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is confusing because the Fed directly dictates the amount of base money in the economy, but also indirectly dictates how much bank money is in an economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The primary means by which MB changes include discount loans to banks, buying and selling repos from big banks, and special bailouts.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The primary means by which the Fed controls the supply of bank money is through the open market.  The idea is if the banks have more base money, they will be able to pyramid more deposits on top of that, and vice versa.  To facilitate this the Fed will buy repos from a primary dealer (&quot;special banks&quot;) with fabricated money.  The primary dealer than resells the new reserves to lesser banks which then allows them to create more bank money.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Historically, controlling the supply of bank deposits through a reserve ratio was a technique used (and also capital requirements), but these techniques are not considered fashionable among entrenched interests.   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Has the Fed been doing a good job?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is a complicated question.  QE did not create massive inflation because the banking sector was in collapse and a large amount of bank deposits had been destroyed (meaning we had less money).  Whether private for-profit interests should have had privileged access to government resources is a very good question.  Certainly the problem of 2008 was created by the banks themselves. Simply put, they made promises to depositors and creditors they couldn't keep.  Banks operate by mismatching short term/low yield debt to long term/high yield debt.  This is a very profitable but risky practice in which banks are not held proportionately responsible when things go wrong.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Classifying inflation is also very tricky because of international trade.  The dollar is a popular currency overseas, so foreigners help sponge up the damage from inflation.  Trade also obfuscates inflation. If you double say the number of dollars, not all prices will increase proportionately.  International commodities can be brought in multiple currencies, whereas local products (like healthcare and college education) can't and can only be purchased with dollars so they increase much more rapidly.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a fascinating look at the politics of CPI/inflation, checkout: &lt;a href=&quot;http://www.shadowstats.com/article/no-438-public-comment-on-inflation-measurement&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.shadowstats.com/article/no-438-public-comment-on-inflation-measurement&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The most paramount question unasked is if the Fed is seeding the conditions by which another future crisis will happen, to which I fear the answer is yes.&lt;/p&gt;&#xA;" OwnerUserId="6479" LastActivityDate="2016-12-11T15:47:13.683" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="14624" PostTypeId="1" CreationDate="2016-12-11T15:50:52.430" Score="1" ViewCount="69" Body="&lt;p&gt;Does inflation rate during the years comes from the the proportional difference of current amount of currency and amount of currency 1 year ago.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I mean lets suppose in 2000 there were 1 million dollars in flow and in 2001 100k were added into the flow, so the inflation rate is 11%?&lt;/p&gt;&#xA;" OwnerUserId="11429" LastEditorUserId="44" LastEditDate="2016-12-13T11:54:09.317" LastActivityDate="2016-12-14T11:03:32.763" Title="Does the inflation rate reflect only the change in quantity of money?" Tags="&lt;inflation&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14625" PostTypeId="1" AcceptedAnswerId="26445" CreationDate="2016-12-11T16:12:47.860" Score="3" ViewCount="14974" Body="&lt;p&gt;Cited from Wikipedia, we know:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Gross private domestic investment&lt;/strong&gt; is the measure of physical investment used in computing GDP in the measurement of nations' economic activity. This is an important component of GDP because it provides an indicator of the future productive capacity of the economy. It includes replacement purchases plus net additions to capital assets plus investments in inventories.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Gross fixed capital formation (GFCF)&lt;/strong&gt; is a macroeconomic concept used in official national accounts. GFCF is a component of the expenditure on gross domestic product (GDP), and thus shows something about how much of the new value added in the economy is invested rather than consumed. GFCF is not a measure of total investment, because only the value of net additions to fixed assets is measured, and all kinds of financial assets are excluded, as well as stocks of inventories and other operating costs (the latter included in intermediate consumption).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I wanna study the relationship between &lt;strong&gt;Effective federal funds rate&lt;/strong&gt; and &lt;strong&gt;investment&lt;/strong&gt;, in particular, whether there is a linear relationship between the annual percent change of these two quantities, which one should I choose to estimate the &lt;strong&gt;&lt;em&gt;investment&lt;/em&gt;&lt;/strong&gt;? Thanks.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Data source: &lt;a href=&quot;https://fred.stlouisfed.org/series/USAGFCFQDSMEI&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://fred.stlouisfed.org/series/USAGFCFQDSMEI&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://fred.stlouisfed.org/series/GPDI&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://fred.stlouisfed.org/series/GPDI&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="10658" LastActivityDate="2019-01-16T08:20:31.940" Title="What's the difference between gross fixed capital formation and gross private domestic investment?" Tags="&lt;gdp&gt;&lt;interest-rate&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14626" PostTypeId="2" ParentId="14624" CreationDate="2016-12-11T16:15:14.913" Score="2" Body="&lt;p&gt;The growth of the amount of money in the economy is just one factor that can affect inflation. Other factors include:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;changes in a nations productivity&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;changes in the exchange rate with other countries&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;changes in the velocity of money&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;changes in what fraction of financial exchanges are counted in inflation incidences&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Given all these additional factors, its no surprise to find that in the short term the money supply does not correlate brilliantly with inflation... but in the long term the correlation is definitely there - i.e. if the money supply grows by a factor of ten over many years, then prices would probably grow by a similar factor. Milton Friedman won his Nobel prize for his work highlighting the long term correlation.&lt;/p&gt;&#xA;" OwnerUserId="5081" LastEditorUserId="5081" LastEditDate="2016-12-13T09:31:56.737" LastActivityDate="2016-12-13T09:31:56.737" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14627" PostTypeId="1" CreationDate="2016-12-11T17:26:51.420" Score="3" ViewCount="1361" Body="&lt;p&gt;In the basic Ramsey model with technological growth, assuming that the economy is in a steady state, how would a sudden decrease in the population growth rate $n$ impact the steady states value of consumption and capital?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I obtain the following dynamics for the model:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\dot{k} = f(k) - c - (\delta + n + g)k$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac{\dot{c}}{c} = \frac{1}{\theta}[f'(k) - \delta - \rho -\theta g] $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $\delta$ is the depreciation rate, $g$ the rate of technical progress, $\theta$ the risk aversion factor, $\rho$ the discout factor, $k$ the capital per effective worker, $f(k)$ the production per effective worker, $c$ the consumption per effective worker and $ f(k) = k^\alpha $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The steady state values, ($\dot{k}=0, \dot{c}=0$):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\hat{c} = \hat{k}^\alpha - (\delta + n + g)\hat{k}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\hat{k} = \left( \frac{\delta + \rho + \theta g}{\alpha} \right)^{\frac{1}{1-\alpha}}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I believe that there would be a sudden increase in the steady state consumption that would persist in the long run and no change in the capital. Is it right?&lt;/p&gt;&#xA;" OwnerUserId="11431" LastEditorUserId="11431" LastEditDate="2016-12-12T14:30:13.857" LastActivityDate="2016-12-14T12:50:12.617" Title="Effect in the Ramsey model of a decrease in population growth" Tags="&lt;macroeconomics&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14628" PostTypeId="1" AcceptedAnswerId="14656" CreationDate="2016-12-11T18:37:19.250" Score="2" ViewCount="577" Body="&lt;p&gt;Its my first time on economics xchange. I am a student of M.Phil. Economics 1st semester. I am writing a term paper and I need some data.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am looking for money supply M0 and M1 data for top 50 countries (preferably in USD) for the year 2000. My university has a subscription of &lt;a href=&quot;http://www.tradingeconomics.com/&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.tradingeconomics.com/&lt;/a&gt;. But that is only accessible in the university's library.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am back home for vacations. So I wanted to ask if anyone knows of a resource where this might be available for students free or at a low cost. Or if someone of you can provide this data. Thanks.&lt;/p&gt;&#xA;" OwnerUserId="11432" LastEditorUserId="1601" LastEditDate="2016-12-11T19:46:15.777" LastActivityDate="2016-12-13T16:55:47.350" Title="Money supply M0 and M1 data for students" Tags="&lt;data-request&gt;&lt;money-supply&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14629" PostTypeId="1" CreationDate="2016-12-11T22:51:43.500" Score="0" ViewCount="74" Body="&lt;p&gt;1st definition from businessdictionary.com:&#xA;Network of commercial organizations (such as manufacturers, producers, wholesalers, retailers, and buyers) who generate, distribute, and purchase goods and services. See also financial institutions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2nd definition from econlib.org:&#xA;1. Specific agencies or foundations, both government and private, devoted to collecting or studying economic data, or commissioned with the job of supplying a good or service that is important to the economy of a country. The Internal Revenue Service (the IRS—the government tax-collection agency), the U.S. Federal Reserve (the government producer of money), the National Bureau of Economic Research (a private research agency) are all examples of economic institutions.&#xA;2. Well-established arrangements and structures that are part of the culture or society, e.g., competitive markets, the banking system, kids' allowances, customary tipping, and a system of property rights are examples of economic institutions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which one is correct? Also, on wikipedia it says businesses are a part of institutions. &lt;a href=&quot;https://en.wikipedia.org/wiki/Institution&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://en.wikipedia.org/wiki/Institution&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="11329" LastEditorUserId="11329" LastEditDate="2016-12-11T22:59:22.570" LastActivityDate="2017-01-11T00:45:07.953" Title="Are businesses included in economic institutions?" Tags="&lt;macroeconomics&gt;&lt;institutions&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14630" PostTypeId="2" ParentId="14629" CreationDate="2016-12-11T23:57:25.227" Score="1" Body="&lt;p&gt;Unfortunately, economists don't have a standard, universally-accepted definition of what an 'institution' is.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence, depending on what you're trying to study and whom you ask, businesses may or may not be an institution. So, in a way, both definitions are correct.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you're interested in different conceptual approaches to institutions, Avner Greif has written an interesting &lt;a href=&quot;http://web.stanford.edu/~avner/Greif_Papers/2011%20rules%20or%20eq.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;survey&lt;/a&gt; on it, with plenty of references that might be worth looking at.&lt;/p&gt;&#xA;" OwnerUserId="8595" LastActivityDate="2016-12-11T23:57:25.227" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14631" PostTypeId="2" ParentId="14627" CreationDate="2016-12-12T00:06:54.337" Score="3" Body="&lt;p&gt;Let $\left(\hat{c},\hat{k}\right)$ and $\left(\tilde{c},\tilde{k}\right)$ be the old and new steady-state levels of $c$ and $k$ respectively.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You make the correct observation that $\tilde{k}=\hat{k}$ and $\tilde{c}&amp;gt;\hat{c}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, starting from the steady-state $\left(\hat{c},\hat{k}\right)$, and experiencing an unexpected negative shock to the population growth rate $n$, it is easy to see from the equations determining equilibrium dynamics that the economy does not instantaneously transition to the new steady-state $\left(\tilde{c},\tilde{k}\right)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It would be a good exercise for you to work out what the qualitative features of the transition path from $\left(\hat{c},\hat{k}\right)$ to $\left(\tilde{c},\tilde{k}\right)$ look like after the population growth shock.&lt;/p&gt;&#xA;" OwnerUserId="8595" LastEditorUserId="8595" LastEditDate="2016-12-12T02:51:44.850" LastActivityDate="2016-12-12T02:51:44.850" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="14632" PostTypeId="1" CreationDate="2016-12-12T01:17:27.283" Score="2" ViewCount="152" Body="&lt;p&gt;Would anyone know how to find out the value of the Russian ruble in the year 1825, in today's (2016) US dollars?&lt;/p&gt;&#xA;" OwnerUserId="11435" LastEditorUserId="8481" LastEditDate="2020-05-11T16:27:06.727" LastActivityDate="2020-05-11T16:27:06.727" Title="Value of the ruble in year 1825" Tags="&lt;currency&gt;&lt;data-request&gt;&lt;russia&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="14633" PostTypeId="2" ParentId="14603" CreationDate="2016-12-12T03:09:12.870" Score="5" Body="&lt;p&gt;World Trade Organization (WTO) rules prohibit export subsidies and China joined the WTO almost 15 years ago (in December 2001). As a condition of membership, China had to eliminate export subsidies in the late 90s. So, strictly speaking, China can't subsidize its exports. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, Dani Rodrik considers that China subsidizes them indirectly through the exchange rate by maintaining an undervalued currency (&lt;a href=&quot;https://www.sss.ias.edu/files/pdfs/Rodrik/Research/Growth-after-the-crisis.pdf&quot; rel=&quot;noreferrer&quot;&gt;here&lt;/a&gt; and &lt;a href=&quot;https://dash.harvard.edu/bitstream/handle/1/5341587/Rodrik_MakingRoom.pdf?sequence=1&quot; rel=&quot;noreferrer&quot;&gt;here&lt;/a&gt;). Rodrik adds two interesting thoughts. First, the undervalued currency boosts China's growth and this, in turn, is good for the world's recovery and the alleviation of poverty. Second, China could maintain its growth without trade imbalances if it could introduce industrial subsidies to offset a rising yuan. So, it be would better to subsidise tradables directly than to subsidise them indirectly through the exchange rate.&lt;/p&gt;&#xA;" OwnerUserId="6168" LastActivityDate="2016-12-12T03:09:12.870" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14634" PostTypeId="2" ParentId="14239" CreationDate="2016-12-12T03:25:53.190" Score="1" Body="&lt;p&gt;Of course there are differences.  Option contracts are like certificates of deposit and not like stocks or bonds.  They are only created when another party agrees to create them, which in practice requires a market maker.  The market maker, being a profit seeking firm, will require a bid-ask spread.  This spread guarantees the laws of probability hold because it fulfills the requirements of de Finetti's Coherence Principle.  The coherence principle is a weaker claim than the no arbitrage principle.  The coherence principle implies that the bookie cannot be gamed, but the players can be gamed by the bookie.  The no arbitrage is one directional.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you assume no market maker, then you violate the most basic principles of economics.  It may make for simpler math, but there is no universe in which it would be a valid model.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;See &lt;a href=&quot;https://ssrn.com/abstract=2653255&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://ssrn.com/abstract=2653255&lt;/a&gt; for a discussion of this.&lt;/p&gt;&#xA;" OwnerUserId="11321" LastActivityDate="2016-12-12T03:25:53.190" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14638" PostTypeId="1" CreationDate="2016-12-12T13:17:32.493" Score="1" ViewCount="82" Body="&lt;p&gt;In the class notes of Eric Sims on RBC and New Keynesian models, &lt;a href=&quot;http://www3.nd.edu/~esims1/grad_macro_16.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;in his site&lt;/a&gt;,  we get to see several graphs with the impulse response functions (IRF) of real variables such as output, labour hours, consumption, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One thing, I don't get is why for the basic RBC (and some extensions) whenever we get a positive tech shock, the labour hours($N_t$) increases, but for the New Keynesian models $N_t$ decreases... Why is that?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="118" LastActivityDate="2016-12-12T13:17:32.493" Title="Technological shocks and Labour supply in RBC and NK models" Tags="&lt;macroeconomics&gt;&lt;new-keynesian-economics&gt;&lt;rbc&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14639" PostTypeId="1" CreationDate="2016-12-12T14:55:50.680" Score="0" ViewCount="47202" Body="&lt;p&gt;The utility function of the consumer is $5x^{0.5}y^{0.5}$  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The income of the consumer is $5000$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The price of good $x$ is $1,000$ and the price of good $y$ is $500$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Determine the optimal consumption bundle. &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Using the formula $\frac{MU_x}{P_x}=\frac{MU_y}{P_y}$ (1) I have derived the functions:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$MU_x = 2.5x^{-0.5}y^{0.5}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$MU_y= 2.5x^{0.5}y^{-0.5}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Substituting them into (1) gives:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac{2.5x^{-0.5}y^{0.5}}{1000} = \frac{2.5x^{0.5}y^-{0.5}}{500}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm not sure where to go from here?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you in advance&lt;/p&gt;&#xA;" OwnerUserId="11443" LastEditorUserId="6773" LastEditDate="2016-12-12T22:01:36.307" LastActivityDate="2017-10-20T19:07:44.407" Title="Determining optimal consumption bundle" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;&lt;self-study&gt;" AnswerCount="2" CommentCount="1" ClosedDate="2017-10-22T20:48:29.480" ContentLicense="CC BY-SA 3.0" />
  <row Id="14641" PostTypeId="2" ParentId="14510" CreationDate="2016-12-12T15:59:58.260" Score="1" Body="&lt;p&gt;Just found this - answer is &quot;the rich&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.theguardian.com/business/2012/aug/23/britains-richest-gained-quantative-easing-bank&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.theguardian.com/business/2012/aug/23/britains-richest-gained-quantative-easing-bank&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="5081" LastActivityDate="2016-12-12T15:59:58.260" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14643" PostTypeId="1" AcceptedAnswerId="14646" CreationDate="2016-12-12T16:35:52.213" Score="2" ViewCount="52" Body="&lt;p&gt;Suppose we want to estimate&#xA;\begin{equation} y = \alpha_0 + x_1 \beta + c'\gamma + \varepsilon&#xA;\end{equation}&#xA;where $\beta$ is the variable of interest and $c$ is a vector of controls. We suspect $E[x\varepsilon]\neq0$ but we have an instrument $z$ such that $E[z\varepsilon]=0.$ My question is - as long as IV is valid - should we care that there could be an endogenous control $c_1$ such that $E[c_1\varepsilon]\neq0$? Why or why not? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My hunch is that it doesn't because as long as IV is valid (it satisfies inclusion-exclusion principle) the correlation between controls and unobservables should not lead to the inconsistency of the estimate of $\beta$.&lt;/p&gt;&#xA;" OwnerUserId="5011" LastActivityDate="2016-12-12T17:25:38.273" Title="General question about IV" Tags="&lt;econometrics&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="14644" PostTypeId="1" AcceptedAnswerId="14653" CreationDate="2016-12-12T16:48:52.387" Score="0" ViewCount="40" Body="&lt;p&gt;I have a small problem, I have a situation where we have a perfectly inelastic offer and a normal demand, then there is a tax that is paid by the supplier who supports the totality of the charges ? Is it not the buyer ? Since the supplier can just lower his production ? I need some explanation om this thanks and sorry for my bad english.&lt;/p&gt;&#xA;" OwnerUserId="2797" LastActivityDate="2016-12-12T20:31:07.057" Title="Inelastic offer, tax paid by seller, who supports the charges" Tags="&lt;microeconomics&gt;&lt;elasticity&gt;&lt;taxation&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14645" PostTypeId="2" ParentId="13015" CreationDate="2016-12-12T17:17:38.177" Score="8" Body="&lt;p&gt;The Fed controls the &lt;strong&gt;nominal money supply&lt;/strong&gt; as they are the only ones who can add or remove money from the economy by printing it. &lt;strong&gt;Real money supply&lt;/strong&gt; is only affected by increases or decreases in inflation and is fixed assuming inflation is 0. In the &lt;strong&gt;IS-LM model&lt;/strong&gt; which is what I assume you are referring to it is assumed that inflation is fixed or that the fed will maintain the real money supply at a given point by changing the nominal money supply for given price levels.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Graphically money supply can be shown like so:&#xA;&lt;a href=&quot;https://i.stack.imgur.com/2nADo.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/2nADo.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The equilibrium between money supply (which is set by the fed) and money demand (which is set by economic factors) generates the interest rate for the economy at a given time. The fed thus has power to affect the interest rate by increase or decrease the real money supply in order to maintain an interest rate. Given that the fed has complete control over the interest rate under this model it is often assumed that LM is horizontal due to the fact that the fed can set whatever rate they choose regardless of economic factors.&lt;/p&gt;&#xA;" OwnerUserId="10245" LastActivityDate="2016-12-12T17:17:38.177" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14646" PostTypeId="2" ParentId="14643" CreationDate="2016-12-12T17:25:38.273" Score="3" Body="&lt;p&gt;In general, if $c_1$ is endogenous, you need instruments for $c_1$ as well.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Example: Even when $x_1$ is exogenous, if $c_1$ is endogenous and $x_1$ and $c_1$ are correlated, then OLS (which is the IV estimator using $x_1$ as IV for $x_1$) is generally inconsistent.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Exceptions exist. For example, when exactly identified, if $(Ezc') (Ecc')^{-1} (Ecu)=0$, then your IV estimator is consistent, I guess. (Can derive this using standard technique involving the law of large numbers.)&lt;/p&gt;&#xA;" OwnerUserId="10775" LastActivityDate="2016-12-12T17:25:38.273" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14647" PostTypeId="2" ParentId="14644" CreationDate="2016-12-12T17:35:29.417" Score="-1" Body="&lt;p&gt;With perfectly inelastic demand, the consumer will pay the entire tax.  The supplier will not be adversely impacted at all.  He'll sell the same amount but at a price boosted by the amount of the tax.&lt;/p&gt;&#xA;" OwnerUserId="11446" LastActivityDate="2016-12-12T17:35:29.417" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14650" PostTypeId="1" CreationDate="2016-12-12T17:48:32.600" Score="0" ViewCount="373" Body="&lt;p&gt;Is it possible to have an inferior good under the assumption of a utility function which is strictly monotonically increasing and strictly quasiconvex?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I do not think so, but I could not find a formal proof.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;*My underlying idea is that whit an inferior good, there exist a point where the utility consuming less of one good is better and then its derivative negative at that point, moreove, I think that this behaviour would break the concavity shape.&lt;/p&gt;&#xA;" OwnerUserId="11241" LastEditorUserId="11241" LastEditDate="2016-12-12T21:52:22.070" LastActivityDate="2017-02-12T00:16:59.063" Title="Inferior goods, monotonic utility and strict concavity" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;" AnswerCount="1" CommentCount="4" ClosedDate="2017-02-22T17:29:53.050" ContentLicense="CC BY-SA 3.0" />
  <row Id="14652" PostTypeId="2" ParentId="14619" CreationDate="2016-12-12T20:16:49.713" Score="0" Body="&lt;p&gt;There are two ways to measure inflation within an economy. The Consumer Price Index, and the GDP deflator. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Consumer price index measures the &lt;strong&gt;value of a basket of goods across multiple years&lt;/strong&gt; with the base year basket of goods being valued at 100 and another year being valued at the percentage increase of the total basket of goods from the base year. So if a basket of goods cost &lt;code&gt;$10&lt;/code&gt; in 2009 (The US current base year) and &lt;code&gt;$11&lt;/code&gt; in 2016 the CPI for 2009 would be 100 and the CPI for 2016 would be 110.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The GDP deflator is calculated by calculating &lt;strong&gt;(Nominal GDP / Real GDP)*100&lt;/strong&gt;. Where nominal GDP is simply the total value of goods produced in an economy in a given year and real GDP is the value of those goods produced in an economy in a given year at the price level of a base year (also 2009 in the US).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These methods give different values. CPI is a better measure for how inflation effects consumers assuming the bundle basket of goods is what is assumed the average consumer consumes and GDP deflator is a better measure of how inflation affects the overall economy and industry since it applies to all goods that are produced and not a somewhat arbitrary bundle basket of goods.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Despite the differences they both are highly correlated with eachother and provide a decent measure of inflation over time as you can see by this graph:&lt;a href=&quot;https://i.stack.imgur.com/JsRIq.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/JsRIq.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="10245" LastActivityDate="2016-12-12T20:16:49.713" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14653" PostTypeId="2" ParentId="14644" CreationDate="2016-12-12T20:31:07.057" Score="2" Body="&lt;p&gt;If &quot;supply is perfectly inelastic&quot; it cannot be the case that the supplier can &quot;just lower his production&quot;. The point of &quot;perfectly inelastic supply&quot;, is exactly to represent the case, where the supplier will offer a specific quantity &lt;em&gt;at whatever price&lt;/em&gt;, even zero.  The classic case here is a good that is it deteriorates quickly in terms of quality or even consumption safety (say fresh foods).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The equilibrium price is then determined by demand. If the state appears and wants to take a chunk out of the price by imposing a tax, the tax will fully burden the supplier.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course this is the static approach. In a dynamic setting, such a situation may for example create incentives for an unofficial market, where the supplier tries to hide sales from the state in order to reduce the tax burden.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2016-12-12T20:31:07.057" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="14654" PostTypeId="1" CreationDate="2016-12-12T20:36:17.750" Score="1" ViewCount="42" Body="&lt;p&gt;I'm looking for current references on the estimates of price rigidity, and the dichotomy that seems to exist between the micro and macro estimates.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, for labour supply elasticities there's a 'recent' review by Chetty, et al, from 2011. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm looking for something similar for the new keynesian modelling. I've found the Bils and Klenow (2004), but I would like something more recent.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="118" LastActivityDate="2016-12-12T20:36:17.750" Title="Micro/Macro estimates on Price rigidity(calvo parameter)" Tags="&lt;macroeconomics&gt;&lt;new-keynesian-economics&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="14656" PostTypeId="2" ParentId="14628" CreationDate="2016-12-12T21:44:47.667" Score="1" Body="&lt;p&gt;Well, I didn't give up. Found these resources. They are free/cheap for data.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;For trade maps (between countries)&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.trademap.org/Index.aspx&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.trademap.org/Index.aspx&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;This site is amazing. With more than 1k topics, you can almost get data for any topic by country/year. You can view the data on screen for free. But exporting the data would require a membership (currently at $29/month)&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://knoema.com/atlas/topics/Economy&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://knoema.com/atlas/topics/Economy&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;This site also has an amazing database and covers a wide variety of topics. But I was unable to find data for M0 and M1&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://databank.worldbank.org/data/reports.aspx?source=world-development-indicators#s_i&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://databank.worldbank.org/data/reports.aspx?source=world-development-indicators#s_i&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;An easy to use currency converter with the ability to find exchange rates back to January, 1990&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.oanda.com/currency/converter/&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.oanda.com/currency/converter/&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;I hope this helps somebody.&lt;/p&gt;&#xA;" OwnerUserId="11432" LastActivityDate="2016-12-12T21:44:47.667" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14657" PostTypeId="1" CreationDate="2016-12-12T22:49:56.160" Score="2" ViewCount="42" Body="&lt;p&gt;I was reading &lt;a href=&quot;http://pages.stern.nyu.edu/~xgabaix/papers/pl-jep.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;this article&lt;/a&gt; on power laws in economics. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you look at figure.5 on page 11, you come across an interesting note.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Notes: Left panel: The CEO compensation is the ex ante one, including Black–Scholes value of options&#xA;  granted. The slope is about 1/3, &lt;strong&gt;&lt;em&gt;a reflection of Roberts’s law: $Pay $~$Size^b$&lt;/em&gt;&lt;/strong&gt;&#xA;   with b ≃ 1/3. Right panel: The&#xA;  pay–performance sensitivity (PPS) is the Jensen–Murphy measure: by how many dollars does the CEO&#xA;  wealth change, for a given dollar change in firm value. The slope is about −2/3, so that PPS ~ Sizeb−1&#xA;   with&#xA;  b ≃ 1/3. The congruence between the scalings is predicted by the Edmans, Gabaix, Landier (2009) model.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I found the source of such a law on the works cited page:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Roberts, David R. 1956. “A General Theory&#xA;  of Executive Compensation Based on Statistically&#xA;  Tested Propositions.” Quarterly Journal of Economics&#xA;  70(2): 270–94.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;However I am yet to find an open source document which explains the derivation of such a law.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If anyone knows of a source Id appreciate it.&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="8815" LastEditDate="2016-12-12T23:29:23.127" LastActivityDate="2016-12-12T23:29:23.127" Title="Papers explaining Roberts's law" Tags="&lt;reference-request&gt;&lt;research&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14660" PostTypeId="2" ParentId="11506" CreationDate="2016-12-13T01:23:00.573" Score="3" Body="&lt;p&gt;This is from the end of the first chapter in the book &lt;em&gt;Public Finance in Canada 4th edition&lt;/em&gt; by Harvy Rosen.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This book is  a primer for welfare economics. The book states gives a list of:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Journal of Public Economics&lt;/li&gt;&#xA;&lt;li&gt;Canadian Tax Journal&lt;/li&gt;&#xA;&lt;li&gt;National Tax Journal&lt;/li&gt;&#xA;&lt;li&gt;Public Finance&lt;/li&gt;&#xA;&lt;li&gt;Public Finance Quarterly&lt;/li&gt;&#xA;&lt;li&gt;International Tax and Public Finance&lt;/li&gt;&#xA;&lt;li&gt;Journal of Public Economic Theory&lt;/li&gt;&#xA;&lt;li&gt;Economics of Governance&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Also remember most general interest economic journals also publish articles that deal with welfare economics/public finance issues.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope this list helps&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="8815" LastEditDate="2016-12-13T03:23:13.983" LastActivityDate="2016-12-13T03:23:13.983" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14661" PostTypeId="1" CreationDate="2016-12-13T08:44:53.913" Score="2" ViewCount="464" Body="&lt;p&gt;I read that normative theories such as social welfare and game theory have as tasks computing the peoples' (average) &lt;em&gt;utility function&lt;/em&gt; in the first case, and the &lt;em&gt;characteristic function&lt;/em&gt; in cooperative games with transferable utility. Moreover, in game theory the characteristic function constitutes &quot;the game&quot; itself.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I appreciate very much any gentle intuitive explanation of the difference between these two concepts.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Edited: Thanks for the comment; the question is edited)&lt;/p&gt;&#xA;" OwnerUserId="11452" LastEditorUserId="11452" LastEditDate="2016-12-13T08:51:11.203" LastActivityDate="2016-12-13T08:51:11.203" Title="What is the difference between utility function and characteristic function" Tags="&lt;game-theory&gt;&lt;utility&gt;&lt;social-welfare&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14662" PostTypeId="2" ParentId="14529" CreationDate="2016-12-13T13:36:21.977" Score="1" Body="&lt;p&gt;In the strict classical Hotelling model, it is impossible to have an equilibrium with 3 agents over the segment (deviation is always profitable). Some modification have been done to keep the transportation costs+inelastic demand with $n$ firms (with multiple segments and a common point, like a flake).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By the way, d'Aspremont et al. modified the cost function to reach &quot;their&quot; equilibrium.&lt;/p&gt;&#xA;" OwnerUserId="4415" LastEditorUserId="4415" LastEditDate="2016-12-13T22:15:54.110" LastActivityDate="2016-12-13T22:15:54.110" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="14663" PostTypeId="1" CreationDate="2016-12-13T14:14:27.133" Score="4" ViewCount="55" Body="&lt;p&gt;Is there any comprehensive survey on potential games and their usage in game theory?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Potential games seminal paper is by &lt;a href=&quot;http://www.math.tau.ac.il/~mansour/sem-game-02-03/monderer-potential-96.pdf&quot; rel=&quot;noreferrer&quot;&gt;Monderer and Shapley&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I could find &lt;a href=&quot;https://www.google.co.uk/url?sa=t&amp;amp;rct=j&amp;amp;q=&amp;amp;esrc=s&amp;amp;source=web&amp;amp;cd=3&amp;amp;ved=0ahUKEwi1nLeKq_HQAhXJA8AKHVl-DzIQFggyMAI&amp;amp;url=http%3A%2F%2Fwww.springer.com%2Fcda%2Fcontent%2Fdocument%2Fcda_downloaddocument%2F9783319308678-c1.pdf%3FSGWID%3D0-0-45-1566179-p179884998&amp;amp;usg=AFQjCNHXyLKOE48oCVPs9NKHo7reGy14jA&amp;amp;sig2=GQyMTzcY6WetSC9zgJklBg&amp;amp;cad=rja&quot; rel=&quot;noreferrer&quot;&gt;this chapter of a book online&lt;/a&gt;, but I am not sure from which book it is coming from.&lt;/p&gt;&#xA;" OwnerUserId="6023" LastEditorUserId="6023" LastEditDate="2016-12-13T15:06:57.490" LastActivityDate="2017-01-31T01:26:09.727" Title="Literature on potential games" Tags="&lt;reference-request&gt;&lt;game-theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14664" PostTypeId="2" ParentId="14529" CreationDate="2016-12-13T14:21:20.840" Score="2" Body="&lt;p&gt;Here is a link to &lt;a href=&quot;http://www.stern.nyu.edu/networks/phdcourse/Schmalensee%20_Entry_deterrence.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Schmalansee's classic paper&lt;/a&gt;.  Use SSRI to look forward in time from this paper.  Useful search terms in Econlit or Google Scholar would be &quot;crowding the product space&quot; or &quot;product space congestion.&quot;&lt;/p&gt;&#xA;" OwnerUserId="2843" LastActivityDate="2016-12-13T14:21:20.840" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14665" PostTypeId="2" ParentId="14639" CreationDate="2016-12-13T15:39:54.887" Score="1" Body="&lt;p&gt;I will only provide a general outline here since this is clearly a homework question. &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;You know that you should have, at an optimal point, that the marginal utility of each of your two goods is equal and so you can use: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$MU_x=MU_y$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You also have a budget constraint, yes? something like: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$x+y=P_x(initial endowment of x) + P_y(initial endowment of y) + Income$$&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Now you have enough equations to solve, I think. Isolate either x or y using your budget constraint. To be concrete here, I will assume you isolate x. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Take this representation of x and plug it in for x where you've equated your marginal utilities. This should allow you to solve for y in terms of exogenous factors. Take this representation of y and plug it back into $MU_x$. This gives both x and y in terms of exogenous factors. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, all you are doing is equating marginal utilities and also using the budget constraint to express the optimal bundle (optimal amounts of goods x,y) in terms of exogenous factors. &lt;/p&gt;&#xA;" OwnerUserId="1655" LastActivityDate="2016-12-13T15:39:54.887" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14666" PostTypeId="2" ParentId="14628" CreationDate="2016-12-13T16:55:47.350" Score="2" Body="&lt;p&gt;I think one of the best websites for this rather general economic data is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://fred.stlouisfed.org/&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://fred.stlouisfed.org/&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the first look I found money supply data for many countries. Additionally, you can check the websites of national central banks, which usually have comprehensive data, especially on monetary time series.&lt;/p&gt;&#xA;" OwnerUserId="8630" LastActivityDate="2016-12-13T16:55:47.350" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14668" PostTypeId="1" CreationDate="2016-12-13T17:43:12.520" Score="3" ViewCount="466" Body="&lt;p&gt;Suppose we have a very elastic supply curve and a very inelastic demand curve. Further suppose there is a decrease in input prices which shifts the supply curve outward. By taking an extreme representation (vertical demand curve and horizontal supply curve), I can see that it will be mainly price that is affected: the equilibrium price decreases while equilibrium quantity hardly changes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How can I show this more intuitively or mathematically?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit: Just thought about this. I don't think the elasticity of the supply curve matters. Only the elasticity of the curve that isn't shifting does. Is this the answer?&lt;/p&gt;&#xA;" OwnerUserId="5936" LastEditorUserId="5936" LastEditDate="2016-12-13T17:56:03.430" LastActivityDate="2017-08-06T16:48:37.433" Title="Very elastic supply + very inelastic demand" Tags="&lt;supply-and-demand&gt;&lt;elasticity&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14669" PostTypeId="1" AcceptedAnswerId="14684" CreationDate="2016-12-13T22:04:11.777" Score="4" ViewCount="109" Body="&lt;p&gt;The WTO explicitly prohibits subsidies on export goods to prevent dumping and market distortion but the United States spends &lt;code&gt;$2.4&lt;/code&gt; Billion annually on corn subsidies and has a trade surplus of &lt;code&gt;$19.5&lt;/code&gt; billion in agricultural goods. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;How does this subsidy not constitute dumping under the WTO guidelines?&lt;/p&gt;&#xA;" OwnerUserId="10245" LastActivityDate="2016-12-14T15:05:06.823" Title="How does the U.S agriculture subsidy not constitute export subsidies under the WTO?" Tags="&lt;subsidies&gt;&lt;international-trade&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14671" PostTypeId="1" CreationDate="2016-12-13T22:38:55.190" Score="3" ViewCount="76" Body="&lt;p&gt;I discovered recently that there are 3 main price indicators for crude oil (used by the IMF): &lt;em&gt;WTI&lt;/em&gt;, &lt;em&gt;Dubaï&lt;/em&gt;, and &lt;em&gt;UK Brent&lt;/em&gt;. If I understand correctly, each place trades some specific kind of oil (with more or less sulfur among other), which is related to the production place.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there some stylized facts, or a precise matrix available, which relate the production place and the price index?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My first guess was OPEC production $\Rightarrow$ &lt;em&gt;Dubai&lt;/em&gt; and US production $\Rightarrow$ &lt;em&gt;WTI&lt;/em&gt; but I'm not sure regarding the &lt;em&gt;UK Brent&lt;/em&gt;...&lt;/p&gt;&#xA;" OwnerUserId="4415" LastEditorUserId="2776" LastEditDate="2017-09-22T08:50:33.193" LastActivityDate="2017-09-22T08:50:33.193" Title="Crude oil benchmarks and production places" Tags="&lt;international-trade&gt;&lt;oil&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14672" PostTypeId="1" CreationDate="2016-12-13T22:54:12.613" Score="0" ViewCount="108" Body="&lt;p&gt;How can countries afford to run budget deficits for decades on end and not become overburdened by interest payments on those debts?&lt;/p&gt;&#xA;" OwnerUserId="11457" LastActivityDate="2016-12-14T10:56:11.007" Title="How can governments seemingly run permanent budget deficits?" Tags="&lt;fiscal-policy&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14673" PostTypeId="2" ParentId="14650" CreationDate="2016-12-13T23:13:25.853" Score="1" Body="&lt;p&gt;I could not add images in the comments, therefore I used this method.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think that the convexity definition does not hold for the function, since there are pairs of points that when they are conected, produce a segment which are out of the set. Because of it, the set is not convex.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here there is an example of such situation with this function, which does not show a convex set:&#xA;&lt;a href=&quot;https://i.stack.imgur.com/r6pel.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/r6pel.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="11241" LastActivityDate="2016-12-13T23:13:25.853" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14674" PostTypeId="2" ParentId="14672" CreationDate="2016-12-14T00:06:18.933" Score="1" Body="&lt;p&gt;Because they have low interest rates and growing tax revenue.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As long as your income is growing faster than your debt, you can keep borrowing.&lt;/p&gt;&#xA;" OwnerUserId="1448" LastActivityDate="2016-12-14T00:06:18.933" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14680" PostTypeId="2" ParentId="14672" CreationDate="2016-12-14T09:52:40.710" Score="-1" Body="&lt;p&gt;Simple : inflation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The model of create deficit budget to enact infrastructure to increase production that lead to higher tax collection to offset the deficit doesn't hold. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Because there is no guarantee of return (no mater how long the term are). There is government that enacting infrastructure/spending on the wrong place. Corruption, grafting are norm in all government institution. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;By slowly supply more money into the system, it will dilute the value of interest served.  And this the reason of why some country bonds are deems &quot;junks&quot;, due to the inflation factor.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the production able to absorb the additional money(where people buy goods and services instead of hoarding it), then you will not see goods price increase. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;Income growth&quot; are ambiguous term. It is relative to inflation level. Imagine a country print trillions of notes and give them 10,000 to every of them, does this denote &quot;income growth&quot; or worst &quot;GDP growth&quot; ?(also imagine this money are given to cronies)&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;One of the cheeky but &quot;morally correct&quot; inflation are once play by Japan bureaucrat during the first few year after GHQ occupation (1945-49). Where the government run a huge deficit due to fix payment to thousands of high ranking feudal class family. Since civilian doesn't hold much wealth, bureaucrat purposely create a superinflation.&lt;br&gt;&#xA;Let me elaborate how : (all number are not actual historical figures)&#xA;Before the super inflation, the bureaucrat need to pay 360 millions yens(say 1 US dollar = 360 yen). After enacting the super inflation, it devalue the money (say 1 US dollar = 360,000 yen). So the 360 mil yens suddenly become the original 1/1000. So the deficit government only need to enact 1/1000, deficit fixed. Since post WW2 Japan doesn't have much cast on hand, they will collect wages according to inflation adjustment, thus they are not affected by the problem at all. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is a NOT repeatable method. Not unless you countries are raze to a flat land to play such card. Since people in most country today held significant number of cash today. This method will destroy the trust on cash, also it will destroy the foreign trade value of your currency.  During 1945-49, Japan doesn't have much trade with any country.&lt;/p&gt;&#xA;" OwnerUserId="11177" LastEditorUserId="11177" LastEditDate="2016-12-14T10:56:11.007" LastActivityDate="2016-12-14T10:56:11.007" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="14683" PostTypeId="1" AcceptedAnswerId="14823" CreationDate="2016-12-14T11:30:59.763" Score="1" ViewCount="171" Body="&lt;p&gt;I'm still kind of new to these things and some countries seem to be forbiding sharing more about hedge funds to casual people (at least what I understood from it), but anyway:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is/was the largest hedge fund in the world and how big influence it had on economy (of any country):&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;during its existence&lt;/li&gt;&#xA;&lt;li&gt;at its highest peaks&lt;/li&gt;&#xA;&lt;li&gt;when it started to fall down?&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Asking just of pure curiosity as a person needs quite large amount of money to at least enter such fund, which I guess will cause some change in the economy, right?&lt;/p&gt;&#xA;" OwnerUserId="8236" LastActivityDate="2016-12-28T13:41:57.883" Title="Impact of hedge funds on economy" Tags="&lt;inflation&gt;&lt;interest-rate&gt;&lt;investment&gt;&lt;money&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14684" PostTypeId="2" ParentId="14669" CreationDate="2016-12-14T12:00:10.787" Score="3" Body="&lt;p&gt;Certain types of agricultural subsidies are permitted under the WTO's &lt;a href=&quot;https://www.wto.org/english/tratop_e/agric_e/agboxes_e.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;Green Box&lt;/a&gt;. These include direct income support for farmers, and environmental and regional development programmes. However the rules state that, to qualify, such subsidies must be no more than minimally trade-distorting.  Whether such subsidies (in the US and other countries) actually meet that requirement is a matter of controversy, as discussed in this &lt;a href=&quot;http://www.ictsd.org/downloads/2012/02/agricultural-subsidies-in-the-wto-green-box-ensuring-coherence-with-sustainable-development-goals.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;ICTSD Information Note&lt;/a&gt; which also shows (in Figure 1) the very high Green Box proportion of US subsidies.  &lt;/p&gt;&#xA;" OwnerUserId="1417" LastActivityDate="2016-12-14T12:00:10.787" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14685" PostTypeId="2" ParentId="14627" CreationDate="2016-12-14T12:02:07.737" Score="2" Body="&lt;p&gt;You can find easily the effect of a decrease by making a comparative static analysis. First, I just write the steady state value of $k$. (Note that you have made a little mistake in your calculation for $k^{SS}$ and in your Euler equation for technical progress, there is no  $\theta$ in front of $g$.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$k^{SS}=\left(\frac{\alpha}{\rho+n+\delta+g}\right)^{\frac{1}{1-\alpha}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;After, I plug into the steady state level of consumption and I find ;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\left(\frac{\alpha}{\rho+n+\delta+g}\right)^{\frac{\alpha}{1-\alpha}}-n\left(\frac{\alpha}{\rho+n+\delta+g}\right)^{\frac{1}{1-\alpha}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, you can easily find the effect of a decrease in population growth by differentiating $k^{SS}$ abd $c^{SS}$ with respect to $n$ and find the effect. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The effect of an increase in $n$ will surely decrease the steady state level of capital but this effect is ambiguous for consumption at steady state. &lt;/p&gt;&#xA;" OwnerUserId="2938" LastEditorUserId="2938" LastEditDate="2016-12-14T12:50:12.617" LastActivityDate="2016-12-14T12:50:12.617" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="14687" PostTypeId="1" CreationDate="2016-12-14T14:03:24.930" Score="-1" ViewCount="192" Body="&lt;p&gt;I'm trying to get a grasp on how exactly inflation works.  What I've read so far seems to be contradictory.  In some articles I've read that government spending is always(?) inflationary, and in others I've read that as long as the money supply roughly matches the productivity of the economy, then money supply won't be inflationary.  Could someone explain using the following example what the inflationary effects would be and what is causing them?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's say we have a 1 trillion dollar economy.  All else being equal:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Example A - The government borrows 50bn and uses it to build productive infrastructure.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Example B - The government borrows 50bn and divides it evenly between every person's bank account (and assume that most people spend most of it in country).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Cheers.&lt;/p&gt;&#xA;" OwnerUserId="11468" LastEditorUserId="5081" LastEditDate="2016-12-18T11:03:18.393" LastActivityDate="2017-03-18T19:15:19.403" Title="Explain inflation to an economic novice" Tags="&lt;inflation&gt;&lt;gdp&gt;" AnswerCount="3" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="14688" PostTypeId="2" ParentId="14669" CreationDate="2016-12-14T15:05:06.823" Score="0" Body="&lt;p&gt;This is a sociology issues than WTO may solved. It is impossible to level the trade playing ground in culture, especially with the ambigous term such as &quot;minimally trade-distorting&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;E.g.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Machinery, fertilizer mostly produce in rich nations, thus make it&#xA;cheaper, even without subsidies.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Corporation from rich country may take a localised diversified animal/crops genes , then charged the research outcome back on the poor country without compensation on the origin.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Agricultural Research grants from government is also a form of subsidies. Should the research lead to a lead on overall production. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;crops gene that &quot;borrow&quot; from poor country that do diversified crop planting rarely compensated.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.wto.org/english/thewto_e/whatis_e/tif_e/agrm3_e.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;Details of WTO agriculture agreement are available in this link&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="11177" LastActivityDate="2016-12-14T15:05:06.823" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14689" PostTypeId="2" ParentId="14687" CreationDate="2016-12-14T16:17:28.530" Score="0" Body="&lt;p&gt;Inflation is a monetary phenomenon. Your first example involves only fiscal policy. Fiscal policy by itself does not affect inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's assume we have a closed economy, where nobody can borrow or lend. Money circulates in it. If there is not any monetary policy, the money supply will remain still, therefore a specific amount of money is going to circulate. We cannot borrow/lend as a society to buy more/less, so &lt;strong&gt;demand pull inflation&lt;/strong&gt; cannot occur. Also, the wages cannot rise in total, therefore the costs of production remain still. In other words, &lt;strong&gt;cost-push inflation&lt;/strong&gt; will not occur either.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, there is a problem on that. How do we measure inflation in first place? We create a basket of goods that represents the society and according to this we measure the price changes. What if that citizens change preferences? Therefore, even in this case there would be inflation, caused by statistical error.&lt;/p&gt;&#xA;" OwnerUserId="11470" LastActivityDate="2016-12-14T16:17:28.530" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="14690" PostTypeId="2" ParentId="14425" CreationDate="2016-12-14T22:16:33.790" Score="0" Body="&lt;p&gt;Your question is not that clear. So let me elaborate an answer on what I have understood from your question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that for the Solow model, when technological change increases, it is the &quot;per capita&quot; capital which decreases. This one is normal because you should give much more capital to your workers, as they are more productive (here the technical progress increases the productivity of workers.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't understand in which context $\frac{K}{AL}$ increases supply of innovations. What spurs innovation in Schumpeterian type growth models is the labor allocation in R&amp;amp;D (or spendings in R&amp;amp;D). This increases the creative destruction rate in the economy. For example, in this case, a decrease in labor $L$ can be consiidered as an increase in labor allocation in R&amp;amp;D.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or another possible interpretation that I can make is the following one. There exists a stock effect in Schumpeterian models. This means that if your knowledge stock $A$ is high enough, it would be difficult to make new innovations. (See Acemoglu 2009, chapter 14)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, in this case a higher $\frac{K}{AL}$ implies more innovation. &lt;/p&gt;&#xA;" OwnerUserId="2938" LastActivityDate="2016-12-14T22:16:33.790" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14694" PostTypeId="1" AcceptedAnswerId="17898" CreationDate="2016-12-15T04:45:01.043" Score="7" ViewCount="103" Body="&lt;p&gt;I posted &lt;a href=&quot;https://economics.stackexchange.com/questions/14657/papers-explaining-robertss-law&quot;&gt;here&lt;/a&gt; regarding sources for Roberts's Law.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this &lt;a href=&quot;http://pages.stern.nyu.edu/~xgabaix/papers/pl-jep.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;paper&lt;/a&gt; it gives a clear qualification of what Roberts's law is. (Page 9, ...Cross-sectional prediction..)&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;..In a given year, the compensation of a CEO is proportional to the size of the firm to the power of 1/3, S(n)1/3, an empirical relationship sometimes called Roberts’ (1956) law.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This gives us the following formula:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$ Pay$~$Size^b$ with $b ≃ 1/3. $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I could not find much info on how to calculate firm size so I dug around and found another paper titled &quot;&lt;a href=&quot;http://faculty.chicagobooth.edu/finance/papers/size.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;What Determines Firm Size?&#xA;&lt;/a&gt;&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I found that there was an equation given and explained on page 10.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The average firm&#xA;  size in each size bin is first calculated by dividing the number of employees by the number of&#xA;  firms. The average size for the entire sector is then calculated as the weighted sum of these bin&#xA;  averages, using as weights the proportion of the total sectoral employment in that bin. This&#xA;  produces a “employee-weighted” average of firm size.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&lt;strong&gt;Employee Weighted Average Number of Employees =&lt;/strong&gt;$${\sum_{bin=1}^n}(\frac{N^{Emp}_{bin}}{N^{Emp}_{Sector}})(\frac{N^{Emp}_{bin}}{N^{Firm}_{bin}})$$&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Emp&#xA;  bin is the total number of employees in a bin, N&#xA;  Emp&#xA;  Sector is the total number of employees&#xA;  in the sector, and NFirms&#xA;  bin is the total number of firms in a bin. In contrast to the firm-weighted&#xA;  simple average, the employee-weighted average emphasizes the larger firms; note the squaring&#xA;  of bin employment in the numerator.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Robert's law is now:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Pay={\sum_{bin=1}^n}\left[\left(\frac{N^{Emp}_{bin}}{N^{Emp}_{Sector}})(\frac{N^{Emp}_{bin}}{N^{Firm}_{bin}}\right)\right]^{b}$$&#xA;Now I am aware I'm kinda just copying and pasting and my research may be incorrect. But i'd like some data to test Roberts's law.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where can I find data on CEO pay and company information?&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="2776" LastEditDate="2017-08-18T16:33:08.647" LastActivityDate="2017-08-18T16:33:08.647" Title="Testing Roberts's Law: data request on CEO pay and company characteristics" Tags="&lt;reference-request&gt;&lt;labor-economics&gt;&lt;data-request&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="14695" PostTypeId="1" CreationDate="2016-12-15T05:43:50.050" Score="0" ViewCount="236" Body="&lt;p&gt;If I traveled around the world, to collectors shops, finding a specific Coin (or other collectible object) something that had a standard value as well (such as a gold coin) and broke it (later melted it) in-front of the shop keeper, so it became known that I had destroyed 1 of the copies of this rare coin/object, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Could I measure the increase of the wealth of the coin to determine IF and WHEN such coins would become 'priceless' so that the final sale of one of the last coin/objects would pay for all costs (purchase &amp;amp; travel to acquire)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit for less ambiguity: What Economic parameters would be worth researching to determine the viability of such an endevour? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;[Not 100% sure this is Economics, feel free to bump it to a different group, but I couldn't find anything more pertinent than economics]&lt;/p&gt;&#xA;" OwnerUserId="11474" LastEditorUserId="11474" LastEditDate="2016-12-15T23:26:26.447" LastActivityDate="2016-12-16T07:39:48.523" Title="Worth of collectables - predatory pricing" Tags="&lt;supply-and-demand&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="14696" PostTypeId="1" CreationDate="2016-12-15T06:24:27.680" Score="1" ViewCount="41" Body="&lt;p&gt;Has any work been done on market allocations where market participants have utility functions that depend on other players' allocations?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, suppose I have a general equilibrium model with three players 1, 2, and 3, and three goods A, B, and C. Suppose player 1's utility depends on the relative utility of players 2 and 3, say with u1 = f(a1, b1, c1) + u2(a2, b2, c2) - u3(a3, b3, c3), where ai is the number of As that player i is allocated. For particular starting allocation, player 1 may block three-cycles of trades that give him more of every good, if those trades decrease u2(a2, b2, c3) - u3(a3, b3, c3).&lt;/p&gt;&#xA;" OwnerUserId="6556" LastActivityDate="2016-12-15T06:24:27.680" Title="General equilibrium allocation with &quot;altriustic&quot; utilities" Tags="&lt;utility&gt;&lt;general-equilibrium&gt;" AnswerCount="0" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14697" PostTypeId="1" AcceptedAnswerId="14698" CreationDate="2016-12-15T09:49:49.613" Score="5" ViewCount="2934" Body="&lt;p&gt;Most articles describe QE as purchasing government securities on the market.  I thought that was what ordinary day to day operations of the central bank were in their efforts to maintain a target interest rate.  So if they aren't buying government securities day to day, what is it they do to manage the bank lending rate?&lt;/p&gt;&#xA;" OwnerUserId="11468" LastActivityDate="2020-05-08T15:08:53.830" Title="What's the difference between Quantitative Easing and regular central bank operations?" Tags="&lt;government-debt&gt;&lt;quantitative-easing&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14698" PostTypeId="2" ParentId="14697" CreationDate="2016-12-15T12:12:31.743" Score="1" Body="&lt;p&gt;In usual open market operations, the central bank will create money, use this money to buy short term Treasury securities from maybe banks, individuals, institutions in the open market. This creates more demand for these securities. Hence their price goes up and yield goes down. This newly generated money goes into the banking system. With more money, banks have more cash and have more reserves. With more reserves banks may be more willing to lend to each other and to individuals also. This lowers the short term inter banking interest rate. This way, there is more money in the system and there is a downward pressure on rates. With short term Treasuries, central bank is less exposed to the interest rate risk. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In quantitative easing (QE), both the purpose and the mechanism are different. First of all, QE usually will be performed in a situation which is not 'typical' money supply shortage or economic activity slowdown. This will either happen in a crisis where aggressive boost is required or when central bank has run out of its primary weapons. Maybe it already lowered interest rates to zero.   The central bank in these situations might buy securities of different kinds which can be long term treasuries, private securities, securities in a particular area of market which, the central bank thinks, needs to be revived. This certainly will not just increase money into the system, but further lower the yield and ease out specific markets such as mortgage based securities by reducing the risk spread. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;One other criterion is the size of the increase in balance sheet of central bank. In QE there is usually a much larger change in the balance sheet of central bank. Also, as there are different kinds of securities (including long term securities) in the assets of central bank which are not necessarily treasuries or highly rated securities, the central bank itself is exposed to more risk. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ben Bernanke said in 2009 that, the QE they exercised was not pure QE but credit easing, because in pure QE, the central bank will not discriminate between what securities it is buying. However, according to him, Fed did target few specific markets. Targeting few specific markets is more like credit easing and not pure QE. &lt;/p&gt;&#xA;" OwnerUserId="5582" LastEditorUserId="27" LastEditDate="2020-05-08T15:08:53.830" LastActivityDate="2020-05-08T15:08:53.830" CommentCount="8" ContentLicense="CC BY-SA 4.0" />
  <row Id="14699" PostTypeId="2" ParentId="14687" CreationDate="2016-12-15T14:16:52.480" Score="0" Body="&lt;p&gt;The simple answer to your question is that inflation happens when the money supply outpaces the productive capacity of the economy.  What's more, government borrowing does not increase the money supply in and of itself.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, let's recall that inflation happens when there is an &lt;em&gt;undersupply&lt;/em&gt; of goods relative to the amount of money in circulation---or when there is an &lt;em&gt;oversupply&lt;/em&gt; of money relative to the quantity of goods available for sale.  Increasing the money supply may lead to inflation &lt;em&gt;depending upon the level of output&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As I wrote above, if a government borrows an additional dollar from the public markets, no new money has been created.  For example, the US Treasury coordinates Treasury bill, note, and bond auctions to ensure that the government has available to it funds to meet its ongoing expenses.  Certain banks called &lt;em&gt;primary dealers&lt;/em&gt; must submit bids for those Treasuries, hence those bonds are always bought, no matter market conditions.  What's more, those primary dealers buy those bonds with customer deposits, the savings of institutions and households.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Fed and other central banks can make minor adjustments to the size of the money stock by influencing money creation among private banks.  I urge you to read about the &lt;em&gt;money multiplier&lt;/em&gt; to get a better handle on how central banks change policy to influence money creation among those private banks.  You'll want to read about M0 and M2, and you will want to read carefully how M0 expands into M2 as banks make new loans to businesses and households.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I should stress that central banks are highly data dependent and respond to figures that not only indicate current GDP growth, but projected growth.  They do not influence money creation proactively.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's think carefully about a couple of different scenarios so that we see your examples in action.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Example A&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Imagine your government borrows $50bn to build new roads.  When there is high unemployment and low utilization---demand for cement, rebar, trucks is low---building roads will likely not be inflationary.  If the construction sector is at full employment, however, orders to build roads will drive up wage costs.  Likewise, if private and public developers compete for cement, additional plans to build roads will likely bid up the value of cement.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Example B&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Imagine the government borrows $50bn to insert into everyone's bank accounts.  The answer depends upon whether that money will be spent immediately.  If it will, then yes, consumers will likely bid up the value of goods with their new money, hence such government action will lead to inflation.  If, however, that money will not be spent, then the government has done nothing but engaged in an accounting transaction.  Imagine that everyone took their share and paid down mortgage debt.  What has happened but that the government replaced private sector mortgage debt with public debt?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lastly, there are those that would like you to believe that &quot;inflation is everywhere and always a monetary phenomenon.&quot;  That line comes from Friedman, and should be interpreted loosely.  If you were to look at M0 in the US from 2008 onward, you would be shocked by its growth.  However inflation has been extraordinarily subdued since the crisis.  Look at M2 however, and it becomes clear that despite extraordinary Fed action, the supply of broad money has not grown.  That's why inflation has remained low.  How you measure money matters.&lt;/p&gt;&#xA;" OwnerUserId="11250" LastEditorUserId="11250" LastEditDate="2016-12-16T14:49:05.913" LastActivityDate="2016-12-16T14:49:05.913" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="14700" PostTypeId="2" ParentId="13780" CreationDate="2016-12-15T19:37:20.513" Score="0" Body="&lt;p&gt;In the steady state by definition the growth rate of capital is equal to the growth rate of technology (gA) plus the growth rate of labor force (gN). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the steady state, investment (s*F(K/AN)) is equal to depreciation of capital (d), growth rate of technology, and growth rate of labor force so that capital per effective worker (K/AN) is held constant. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since you're asking the overall level of capital it will be increasing at the same growth rate of technology plus the growth rate of labor force.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In steady state: s*F(K/AN) = ((gA + gN + d)K)/AN.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The depreciation (d) will offset everything but the growth of labor and technology.&lt;/p&gt;&#xA;" OwnerUserId="10245" LastActivityDate="2016-12-15T19:37:20.513" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14701" PostTypeId="2" ParentId="6454" CreationDate="2016-12-15T19:57:28.167" Score="3" Body="&lt;p&gt;There actually is empirical evidence that raising the minimum wage raises a range of wages that are close to, but above the minimum wage.  The effect begins to fade as you go up the wage scale, so that could be viewed as &quot;wage compression&quot; or it could be viewed as reducing income inequality.  &lt;a href=&quot;http://laborcenter.berkeley.edu/local-minimum-wage-laws-impacts-on-workers-families-and-businesses/&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://laborcenter.berkeley.edu/local-minimum-wage-laws-impacts-on-workers-families-and-businesses/&lt;/a&gt; &lt;/p&gt;&#xA;" OwnerUserId="11134" LastActivityDate="2016-12-15T19:57:28.167" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14702" PostTypeId="1" CreationDate="2016-12-16T00:10:53.610" Score="2" ViewCount="55" Body="&lt;p&gt;The title is the question. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the press conference &lt;a href=&quot;https://www.youtube.com/watch?v=mMuuLoMPXTc&quot; rel=&quot;nofollow noreferrer&quot;&gt;held yesterday&lt;/a&gt;, the Chair referenced &quot;unemployment&quot; 18 times, relative to &quot;participation&quot; 3 times.  If the labor participation is at the &lt;a href=&quot;https://politics.stackexchange.com/questions/12309/has-the-way-unemployment-is-measured-changed-in-the-last-8-years&quot;&gt;lowest since the 70's&lt;/a&gt;, is it delusional to buy into the seemingly marketed strength of the U.S. economy?&lt;/p&gt;&#xA;" OwnerUserId="8293" LastEditorUserId="-1" LastEditDate="2017-04-13T12:54:44.007" LastActivityDate="2017-05-15T03:20:22.410" Title="Why does the Federal Reserve seem to hold so much weight on the unemployment rate, relative to labor participation?" Tags="&lt;labor-economics&gt;&lt;interest-rate&gt;&lt;federal-reserve&gt;&lt;unemployment&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14703" PostTypeId="2" ParentId="14702" CreationDate="2016-12-16T00:45:27.147" Score="1" Body="&lt;p&gt;As mentioned in the press conference, other data is taken into consideration, such as the &lt;a href=&quot;http://data.bls.gov/pdq/SurveyOutputServlet&quot; rel=&quot;nofollow noreferrer&quot;&gt;Employment - Population Ratio&lt;/a&gt;, especially when filtered/line series graphed to detail trends in demographics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://qz.com/286213/the-chart-obama-haters-love-most-and-the-truth-behind-it/&quot; rel=&quot;nofollow noreferrer&quot;&gt;This blog post&lt;/a&gt; provides a bit more insight on the data. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems relatively, the U.S. is climbing to employment-pop levels we haven't seen since the mid 80's, which seems to suggest the outlook isn't as terrible as initially thought.  &lt;/p&gt;&#xA;" OwnerUserId="8293" LastEditorUserId="8293" LastEditDate="2016-12-16T00:52:35.113" LastActivityDate="2016-12-16T00:52:35.113" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14706" PostTypeId="2" ParentId="14695" CreationDate="2016-12-16T07:39:48.523" Score="3" Body="&lt;p&gt;The way you describe this object (I will call it a coin) it exists in some finite quantity with no reasonable substitute and no new coins can be made. Suppose before you go on the proposed endeavor the world starts with a Pareto efficient allocation of these coins. Additionally, assume the act of destroying a coin has no impact on how much other owning these coins value their collection. This implies a few things:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Each individual who has a coin values the last coin in their collection more than anyone who does not have a coin, otherwise it would be Pareto-improving for someone with a coin to sell it to someone with a higher valuation.&lt;/li&gt;&#xA;&lt;li&gt;The market-clearing price of coins is the lowest valuation of anyone who owns a coin.&lt;/li&gt;&#xA;&lt;li&gt;Every individual values their first or an additional coin at something equal to or less than the market clearing price, otherwise they would purchase the coin.&lt;/li&gt;&#xA;&lt;li&gt;You will never pay less than the market-clearing price for a coin, otherwise someone with a higher valuation would have bought it already.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;These facts imply that you can never make money in your endeavor. When you buy a coin you will pay a price equal to the lowest valuation of anyone that already has a coin. But after destroying the coin you haven’t changed the price because the marginal buyer is still the same and has the same valuation.  You can repeat the process and pay a higher price for the next coin, but you still haven’t changed the valuation of the marginal buyer, so the market-clearing price will not change.&#xA;This conclusion relies on two assumptions, which may not be true in the real world. If the initial allocation isn’t Pareto efficient, you could make more money simply acting as a broker, buying coins from people with low valuations and selling them to people with higher valuations (since the coins are clearly less valuable after you destroy them). This could even pay for your travel.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It’s more complicated if valuations are impacted by your act of destroying the coins.  In this case, you could make money, but it would be difficult to determine ahead of time.  As a buyer/destroyer of coins you can observe the total number of coins, the number of people who own them, and the market-clearing price of coins. That price tells you nothing of how the preferences of people with valuations higher than the market-clearing price change with each coin you destroy.  For example, if you destroy a coin and the market-clearing price goes up by $100 it may be that everyone increased their valuations or only the marginal buyers increased their valuation. Predicting how prices would change after each coin destruction given what you observe would require assuming the highest-valuation buyers behave similarly to the marginal buyers, which can be a stretch.&lt;/p&gt;&#xA;" OwnerUserId="11482" LastActivityDate="2016-12-16T07:39:48.523" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14707" PostTypeId="2" ParentId="6454" CreationDate="2016-12-16T14:40:55.120" Score="2" Body="&lt;p&gt;&lt;a href=&quot;http://ftp.iza.org/dp9149.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Dube et. al.&lt;/a&gt; have a recent paper that documents this fact in payroll data from a US retailer. Another paper looking at this but with a less clear answer is &lt;a href=&quot;https://www.aeaweb.org/articles?id=10.1257/app.20140073&quot; rel=&quot;nofollow noreferrer&quot;&gt;Autor et. al. 2016.&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="11216" LastEditorUserId="1601" LastEditDate="2016-12-17T08:34:08.443" LastActivityDate="2016-12-17T08:34:08.443" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14708" PostTypeId="1" AcceptedAnswerId="14715" CreationDate="2016-12-16T15:47:19.713" Score="4" ViewCount="72" Body="&lt;p&gt;I would like to replicate the results as in Swanson and Williams (AER 2014): &amp;quot;Measuring the Effect of the Zero Lower Bound on Medium- and Longer-Term Interest Rates&amp;quot;&#xA;&lt;a href=&quot;https://www.aeaweb.org/articles?id=10.1257/aer.104.10.3154&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.aeaweb.org/articles?id=10.1257/aer.104.10.3154&lt;/a&gt;.&lt;/p&gt;&#xA;&lt;p&gt;However, I don't understand their specification for equation (9) (p. 11)&#xA;&lt;span class=&quot;math-container&quot;&gt;$\Delta y_{t} = \gamma^{\tau_{i}}+ \delta^{\tau_{i}}\boldsymbol \beta \boldsymbol X_{t}+\varepsilon_{t}$&lt;/span&gt; in the paper. &amp;quot;Where &lt;span class=&quot;math-container&quot;&gt;$\gamma^{\tau_{i}}$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$ \delta^{\tau_{i}}$&lt;/span&gt; are scalars that are allowed to take on different&#xA;values in each calendar year &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;&amp;quot;. &lt;span class=&quot;math-container&quot;&gt;$t$&lt;/span&gt; indexex days and &lt;span class=&quot;math-container&quot;&gt;$\Delta y_{t}$&lt;/span&gt; is the chagne in yield, &lt;span class=&quot;math-container&quot;&gt;$\boldsymbol X_{t}$&lt;/span&gt; is a set of macroeconomin data surprise. They wrote&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;&amp;quot;We normalize the &lt;span class=&quot;math-container&quot;&gt;$\delta^{\tau_{i}}$&lt;/span&gt; so that they have an average value of unity from 1990–2000, ...&amp;quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;What chould they mean that the coefficients have an average value of one? Could it mean simply set &lt;span class=&quot;math-container&quot;&gt;$\delta^{\tau_{1990}} = 1$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$\delta^{\tau_{1991}} = 1$&lt;/span&gt; ... &lt;span class=&quot;math-container&quot;&gt;$\delta^{\tau_{2000}} = 1$&lt;/span&gt;?&lt;/p&gt;&#xA;&lt;p&gt;They have also posted their MATLAB code on the (bottom of the) website. But I still don't fully understand the specification. Would be nice if someone can help me out here.&lt;/p&gt;&#xA;" OwnerUserId="11485" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2016-12-17T14:48:01.850" Title="Swanson and Williams (2014): restricting based period response to one" Tags="&lt;macroeconomics&gt;&lt;econometrics&gt;&lt;statistics&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="14710" PostTypeId="1" CreationDate="2016-12-16T22:17:07.390" Score="1" ViewCount="51" Body="&lt;p&gt;Starting with reading Robert Heinlein's Beyond This Horizon many years ago, I've run across the &quot;social credit&quot; schemes. Most recently, it appears to hve shown up again in the ideas on &lt;a href=&quot;http://positivemoney.org/&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://positivemoney.org/&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, while I've read a lot of economics, I am by no means an economist; on the other hand, I'm reasonably mathematically sophisticated. Looking at these schemes, they appear mathematically plausible, although how we could get there from here much less so.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But I've done a little searching and haven't found much criticism of these schemes from mainstream economists; in fact, I haven't found much discussion at all.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How would mainstream economics address these ideas?&lt;/p&gt;&#xA;" OwnerUserId="11488" LastActivityDate="2016-12-16T22:17:07.390" Title="&quot;Social Credit&quot; and &quot;Positive Money&quot; schemes: what are the economic critiques?" Tags="&lt;macroeconomics&gt;&lt;monetary-policy&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="14714" PostTypeId="2" ParentId="13810" CreationDate="2016-12-17T13:29:02.843" Score="0" Body="&lt;p&gt;It might be too late, but I think this user written command is what you need:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://scorreia.com/software/reghdfe/&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://scorreia.com/software/reghdfe/&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It supports multiple fixed effects and multi-way clustering.&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;ssc install reghdfe&#xA;reghdfe y x, absorb(fe1 fe2) vce(cluster cl1 cl2)&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;" OwnerUserId="5331" LastEditorUserId="5331" LastEditDate="2016-12-18T09:43:45.313" LastActivityDate="2016-12-18T09:43:45.313" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14715" PostTypeId="2" ParentId="14708" CreationDate="2016-12-17T13:37:39.667" Score="2" Body="&lt;p&gt;I'm no empiricist (surprise), but skimming through the paper, I'm pretty sure that just means that the $\delta^{\tau_i}$'s are chosen so that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{1}{11}\sum_{i=1990}^{2000} \delta^{\tau_i} = 1 $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;as I stated in a comment above. This assumption is necessary in order to separately identify (estimate) $\delta^{\tau_i}$ and $\mathbf{\beta}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Without this assumption, all you are able to estimate is $\delta^{\tau_i}\mathbf{\beta}$, so you need additional assumptions to solve for the two factors separately.&lt;/p&gt;&#xA;" OwnerUserId="8595" LastActivityDate="2016-12-17T13:37:39.667" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14716" PostTypeId="2" ParentId="13599" CreationDate="2016-12-17T14:57:32.827" Score="2" Body="&lt;p&gt;There is no contradiction in two approaches. &#xA;Baum-Snow (2007) looks at the effect of the Interstate Highway construction on those MSAs which happened to lie on its way. The randomness comes from the fact that when the plan for the Interstate Highway project was considered, the aim was to connect distant areas. Through which MSAs the highway would go was more or less random (at least this is what the author claims). Thus, some MSAs received treatment by lying on the way whereas other didn't. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Donaldson (2012) uses planned railway routes that were NOT implemented for a placebo test. The concern which Donaldson addresses is that there could exist some unobservable economic factors (different economic development, agricultural income etc) affecting the decision about where to construct the railway. To overcome this, the key assumption he uses is that, on the stage of planning, the several proposed routes were equally desirable from the strategic point of few, but some of them were more costly to build, hence these routes were dropped at some stages of construction. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, if we saw an effect on income in areas where railroads were planned but never built compared to areas where railroads were not even planned, this would suggest that railways are probably not the reason to explain main findings in the paper, but rather the selection of more developed areas into treatment (receiving or at least planning to receive railroads) was in place. However, such placebo test shows that areas that were initially selected into construction of railway, but due to technical reasons didn't receive the railways - have no significant income effect. Hence, the selection is argued to be not an issue in Donaldson's identification. &lt;/p&gt;&#xA;" OwnerUserId="5331" LastActivityDate="2016-12-17T14:57:32.827" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14717" PostTypeId="1" AcceptedAnswerId="14762" CreationDate="2016-12-17T16:52:48.013" Score="0" ViewCount="4897" Body="&lt;p&gt;I need to some data for Pakistan's monetary base. Searching through the website of State Bank of Pakistan (SBP), I found the following pdf on &lt;a href=&quot;http://www.sbp.org.pk/departments/stats/PakEconomy_HandBook/Chap-4.1.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Monetary Statistics&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I wanted to ask that can I calculate monetary base from the given values.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Following is a list of values given in pdf in case pdf is not opening for you.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Currency in Circulation&lt;/li&gt;&#xA;&lt;li&gt;Other Deposits with SBP&lt;/li&gt;&#xA;&lt;li&gt;Currency in Tills of Scheduled Banks&lt;/li&gt;&#xA;&lt;li&gt;Banks' Deposits with SBP&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Regards&lt;/p&gt;&#xA;" OwnerUserId="11432" LastActivityDate="2016-12-24T20:19:28.543" Title="Calculating monetary base from given data" Tags="&lt;monetary-policy&gt;&lt;data-request&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14719" PostTypeId="2" ParentId="13957" CreationDate="2016-12-17T20:05:26.367" Score="0" Body="&lt;p&gt;You seem to be concerned with two separate concepts here.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your graphs show the &lt;strong&gt;incidence&lt;/strong&gt; of the tax, or the changes in producer and consumer surplus in the face of the tax. A second and distinct issue is &lt;strong&gt;pass-through&lt;/strong&gt; of the tax. This is the portion of the tax, measured as the difference between price and marginal cost, that is paid by end consumers.  In perfectly competitive markets (like you have drawn here) pass-through will always be 100%, the difference between the price paid by consumers and marginal cost will always equal the amount of the tax. This is not the case if, for example, suppliers have market power. Pass-through of a tax by a monopoly producer may be less than or greater than 100% depending on the shape of the demand curve.&lt;/p&gt;&#xA;" OwnerUserId="11482" LastActivityDate="2016-12-17T20:05:26.367" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14720" PostTypeId="2" ParentId="12621" CreationDate="2016-12-17T20:16:36.290" Score="1" Body="&lt;p&gt;The questions of what the real DGP is and how you interpret the coefficients of the model you estimate are entirely unrelated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(1) For your first model $\frac{\partial w}{\partial x} = \beta$. The interpretation is that the predicted w will increase by $\beta$ units of whatever unit w is in when you increase x by 1 unit of whatever unit x is in.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(2) For your second model $\frac{\partial w}{\partial x}\frac{x}{w} = \beta$. That means $\beta$ is an elasticity and if you increase x by 1%, then the w predicted by your model will increase by $\beta$%. Since proportional increases are independent of units, you may say that your model/coefficient is dimensionless, but I think the term you are looking for is elasticity.&lt;/p&gt;&#xA;" OwnerUserId="11216" LastActivityDate="2016-12-17T20:16:36.290" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14722" PostTypeId="5" CreationDate="2016-12-18T02:22:11.920" Score="0" Body="" OwnerUserId="-1" LastEditorUserId="-1" LastEditDate="2016-12-18T02:22:11.920" LastActivityDate="2016-12-18T02:22:11.920" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14723" PostTypeId="4" CreationDate="2016-12-18T02:22:11.920" Score="0" Body=" a term used for studying production and trade, and their relations with law, custom, and government, as well as with the distribution of national income and wealth. " OwnerUserId="8815" LastEditorUserId="8815" LastEditDate="2016-12-21T03:19:17.223" LastActivityDate="2016-12-21T03:19:17.223" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14728" PostTypeId="1" CreationDate="2016-12-18T16:18:15.957" Score="-2" ViewCount="138" Body="&lt;p&gt;I don't get the definition of subgame perfect Nash equilbrium. A subgame does &lt;strong&gt;not&lt;/strong&gt; include the entire game which begins at the very first choice made by some player. A subgame perfect nash equilibrium is a nash equilibrium in every subgame. Since we just said that a subgame never equals the entire game, this implies that a subgame perfect nash equilibrium is not even a nash equilibrium for the entire game .... what??!&lt;/p&gt;&#xA;" OwnerUserId="11505" LastActivityDate="2016-12-19T12:18:01.680" Title="Sub-game perfect nash equilibrium: why is the first choice not included?" Tags="&lt;game-theory&gt;" AnswerCount="1" CommentCount="2" ClosedDate="2016-12-20T06:17:31.930" ContentLicense="CC BY-SA 3.0" />
  <row Id="14730" PostTypeId="1" CreationDate="2016-12-18T17:03:45.417" Score="5" ViewCount="1473" Body="&lt;p&gt;Intro texts normally explain that insurance firms (casinos, etc.) &quot;work&quot; by diversifying risk from many clients. Unsaid, then, seems to be that risk is bad for both firm and client.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But why should a firm even &lt;em&gt;need&lt;/em&gt; such diversification, if they merely seek to maximize profits? Likewise why would a firm ever itself be a purchaser of insurance, or spend resources trying to &quot;manage&quot; risk? This seems to be a rather deep oddity in the basic picture we're taught from square one.&lt;/p&gt;&#xA;" OwnerUserId="11507" LastActivityDate="2016-12-20T13:26:52.853" Title="Why are firms taken to be profit-maximizing? Shouldn't that make them risk-neutral?" Tags="&lt;microeconomics&gt;&lt;profit-maximization&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14731" PostTypeId="2" ParentId="14730" CreationDate="2016-12-18T17:46:56.053" Score="5" Body="&lt;p&gt;Firms maximize profit, not &lt;em&gt;expected&lt;/em&gt; profit. If they want to take a lower guaranteed value than the expected value because they are risk averse, then they're still maximizing profit based on their preferences and/or constraints. You're right that they wouldn't be maximizing expected profit. Profit could also have diminishing marginal returns.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;To add a little more to my answer, given the bar has been raised [:^)], I'd like to give a short example from &lt;em&gt;Mas-Colell, Whintson, and Greene's&lt;/em&gt; book, that I think might be helpful.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Imagine a risk neutral firm that maximizes expected profit, no matter how risky the expectation is. Is this the same as maximizing profit? If the firm's &quot;preference&quot; is risk-neutral, surely it seems to be the case. Let us suppose there is uncertainty in prices, and production occurs after resolving that uncertainty.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Say the firm has two scenarios they can take:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Prices are uncertain.&lt;/li&gt;&#xA;&lt;li&gt;Prices are equal to the expected price vector.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;A firm maximizing expected profit will actually prefer the first scenario to the second.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Say $\pi(\cdot)$ is the profit function and $F(\cdot)$ is the distribution function for the prices. Since $\pi(\cdot)$ is convex in price, by Jensen's inequality:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\int \pi(p) \ \text{d}F(p) \geq \pi\left(\int p \ \text{d}F(p)\right)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But the left hand side is expected profit from uncertain prices, and the right hand side is the profit under expected prices.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So you can reflect on whether this is how firms really behave. If a firm was faced with the possibility of selling their portfolio for 1 billion dollars, or losing 1 billion dollars, based on a coin flip, would they go through with this bet? Or would they sell off the portfolio for 0 dollars?&lt;/p&gt;&#xA;" OwnerUserId="4251" LastEditorUserId="4251" LastEditDate="2016-12-18T22:40:39.377" LastActivityDate="2016-12-18T22:40:39.377" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="14732" PostTypeId="2" ParentId="14730" CreationDate="2016-12-18T18:53:29.273" Score="7" Body="&lt;p&gt;&lt;strong&gt;Why would a [risk-neutral] firm need to diversify if all it wanted to do was maximise profit?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose there is a &lt;em&gt;risk-neutral&lt;/em&gt; firm that has two strategies it could follow: risky and safe. The safe strategy (e.g. holding a diversified portfolio) yields a profit of $1$ every year forever. The risky strategy (e.g. not diversifying) yields a payoff of $2$ with (independent) probability $x$ each year. With probability $1-x$ a risk-taking firm goes bankrupt and earns no more money ever again. The firm discounts the future at rate $\delta$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The lifetime profit of the safe strategy is&#xA;$$\sum_{t=0}^\infty\delta^t=\frac{1}{1-\delta}.$$&#xA;The lifetime profit from the risky strategy&#xA;$$\sum_{t=0}^\infty 2x^t\delta^t=\frac{2}{1-x\delta}.$$&#xA;The safe strategy yields a higher lifetime profit if&#xA;$$x&amp;lt;\frac{2\delta-1}{\delta}\iff \delta&amp;gt;\frac{1}{2-x}.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In words, even though&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;the firm is risk-neutral and&lt;/li&gt;&#xA;&lt;li&gt;the one-shot profit from the risky option (e.g. not diversifying) is higher,&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;the long-run profit from the safe option (e.g. diversification) can be greater over the lifetime of the firm.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this example, the safe option maximises lifetime profit when (a) the probability of risky option leading to bankruptcy (and hence the loss of all future profit) is high or (b) the firm values the future highly relative to the present.&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2016-12-20T13:26:52.853" LastActivityDate="2016-12-20T13:26:52.853" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="14734" PostTypeId="1" AcceptedAnswerId="15669" CreationDate="2016-12-18T21:59:00.507" Score="4" ViewCount="68" Body="&lt;p&gt;I've noticed that economists have been very accurate when it comes to predicting unemployment rates.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Most of their predictions usually fall within a 0.2% difference between their forecasts and the actual unemployment rate or are dead on what the employment rate is. I've looked at this site for information on the forecast vs the actual unemployment rate recently, which prompted me to ask this question.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://www.tradingeconomics.com/canada/unemployment-rate&quot; rel=&quot;noreferrer&quot;&gt;http://www.tradingeconomics.com/canada/unemployment-rate&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://www.tradingeconomics.com/brazil/unemployment-rate&quot; rel=&quot;noreferrer&quot;&gt;http://www.tradingeconomics.com/brazil/unemployment-rate&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://www.tradingeconomics.com/italy/unemployment-rate&quot; rel=&quot;noreferrer&quot;&gt;http://www.tradingeconomics.com/italy/unemployment-rate&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Im aware of Okun's law and the cross country differences in terms of the measure of its coefficient. (see: &lt;a href=&quot;http://unassumingeconomist.com/wp-content/uploads/2016/08/cross-country-evidence-on-okun-sep-2016-paris-workshop-draft-with-tables-and-charts.pdf&quot; rel=&quot;noreferrer&quot;&gt;http://unassumingeconomist.com/wp-content/uploads/2016/08/cross-country-evidence-on-okun-sep-2016-paris-workshop-draft-with-tables-and-charts.pdf&lt;/a&gt;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But I am generally unaware of forecasting methods used by economists to predict unemployment rates.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What are some basic formulas or models used to forecast unemployment rates? Is there a pdf book anyone can recommend?&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="8815" LastEditDate="2016-12-18T22:20:30.800" LastActivityDate="2017-03-06T18:13:15.463" Title="Tools for Forcasting Unemployment Rate" Tags="&lt;reference-request&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14737" PostTypeId="1" AcceptedAnswerId="14769" CreationDate="2016-12-19T09:50:19.907" Score="1" ViewCount="184" Body="&lt;p&gt;In a New Keynesian model, under the assumption of sticky prices, we need to express the monetary policy through an equation in order to close the model made of New-Keynesian Phillips curve and dynamic IS curve. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've read that an easy choice is to use the so called &lt;strong&gt;Taylor rule&lt;/strong&gt;, which express the interest rate as a function of inflation (and possibly a random component). But, I've read that it is a suboptimal choice because it is something exogenous, whereas if we endogenously compute the optimal monetary policy we can reach a better result. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is why using a Taylor rule when we know it is not optimal to do that?&lt;/p&gt;&#xA;" OwnerUserId="6773" LastActivityDate="2016-12-22T09:58:42.007" Title="Taylor rule and optimal monetary policy" Tags="&lt;macroeconomics&gt;&lt;new-keynesian-economics&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="14738" PostTypeId="1" CreationDate="2016-12-19T10:24:28.913" Score="2" ViewCount="84" Body="&lt;p&gt;My book defines player $i$s 'belief' about player $j$s type as $p_i(t_j)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It then goes on to say that if $t_j$ is presumed to be uniformly distributed on $[0,x]$, then $p_i(t_j) = 1/x$ for all $t_j$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That makes no sense to me. What do they mean by $1/x$? So if $x = 1$, then $p_i(t_j = 2) = 1$? Even though $2 \notin T_j$??&lt;/p&gt;&#xA;" OwnerUserId="11515" LastActivityDate="2016-12-19T11:28:07.203" Title="What's a &quot;belief&quot; in Bayesian games?" Tags="&lt;game-theory&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14739" PostTypeId="1" CreationDate="2016-12-19T10:27:39.150" Score="1" ViewCount="429" Body="&lt;p&gt;I understand that you find the interior solutions for the pareto efficient set with Lagrange (Maximizing the utility with the endowment constraints and holding the other player's utility fixed)&#xA;How do I proceed with finding corner solutions with this method?&#xA;Or in general how do I find corner solutions mathematically (without looking at the graph)?&lt;/p&gt;&#xA;" OwnerUserId="11465" LastEditorUserId="1601" LastEditDate="2016-12-19T11:48:29.090" LastActivityDate="2016-12-19T11:48:29.090" Title="Pareto optimality with Lagrange" Tags="&lt;pareto-efficiency&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="14740" PostTypeId="2" ParentId="14738" CreationDate="2016-12-19T11:28:07.203" Score="5" Body="&lt;p&gt;$p_i (t_j) $ is the PDF of $i$'s belief over $j$'s types.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Recall that if $t_j$ is uniformly distributed on $[0,x]$, then the probability that $t_j \in [a,b]$, where $0 \leq a \leq b \leq x$ is given by&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \Pr ( a \leq t_j \leq b) = \int_a^b p_i (t_j) d t_j $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In particular,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \Pr (t_j = a) = 0 $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;for any $a$.&lt;/p&gt;&#xA;" OwnerUserId="8595" LastActivityDate="2016-12-19T11:28:07.203" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14741" PostTypeId="2" ParentId="14728" CreationDate="2016-12-19T12:18:01.680" Score="3" Body="&lt;p&gt;Your trouble of understanding is caused by the assumption in the second sentence:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;A subgame does &lt;em&gt;not&lt;/em&gt; include the entire game which begins at the very first choice made by some player.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;This is not true.&lt;/strong&gt; A subset of a game can be any subset of nodes that (1) starts with a single initial node, (2) includes all subsequent nodes and (3) makes sure that the information set of any node in the subgame are completely included in the subgame.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since the actual game does meet all three conditions it is a subgame of itself.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This being clarified, the definition of the Subgame Perfect Equilibrium (SPE) does make sense. An SPE must be a Nash Equilibrium (NE) in any subgame, including the whole game. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note, that it then logically follows that every SPE is a NE (but not vice versa). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Also, for further reference: The set of subgames excluding the complete is called the set of proper subgames. Note, that the definition of the SPE only refers to subgames without specifying that they have to be proper ones.)&lt;/p&gt;&#xA;" OwnerUserId="11518" LastActivityDate="2016-12-19T12:18:01.680" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14744" PostTypeId="2" ParentId="14730" CreationDate="2016-12-19T17:22:07.430" Score="3" Body="&lt;p&gt;There are really three reasons why a risk neutral firm would buy insurance.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One is that the insurance market is under estimating the riskiness of an insurance product.  In other words a firm might believe they have a 10% chance of losing \$1m but there are insurance companies willing to wear that risk for less than $100k.  This can happen if insurance products are broadly defined and there's some specific niche firm whose risk of loss is higher than the broadly defined product.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The second is when the loss associated with an event is more than the business can pay.  Rather than equations for this let's look at a simple everyday example.  An electrician will have liability insurance because if they manage to burn someone's house down, odds are they simply do not have the funds or financing to cover a new house.  That is to say, burning a house down isn't -300000 it's bankruptcy.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There's a third reason which balances out the short comings of the second.  Of course some firms might decide that maximizing profits until bankruptcy is the correct course of action because the person running the firm isn't harmed when the firm is bankrupted.  This is an agency problem but to counteract these decisions many people when they hire a service will only do so on the condition that that firm is insured.  &lt;/p&gt;&#xA;" OwnerUserId="5947" LastActivityDate="2016-12-19T17:22:07.430" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14745" PostTypeId="2" ParentId="13116" CreationDate="2016-12-19T17:34:38.157" Score="1" Body="&lt;p&gt;This is an interesting result, not a bad result. If there are no regressors other than time dummies, then I think OLS = RE = FE. (I've done a few experiments with &lt;code&gt;reg y i.year&lt;/code&gt;, &lt;code&gt;xtreg y i.year, fe&lt;/code&gt;, and &lt;code&gt;xtreg y i.year, re&lt;/code&gt;, but I have not proved.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If $X_{it}$ have trends and are correlated with fixed effects, anything can happen. For example, run the following Stata script (copy &amp;amp; paste):&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;set more off&#xA;clear all&#xA;local n 100&#xA;local T 5&#xA;set seed 1&#xA;set obs `=`n'*`T''&#xA;gen id = floor((_n-1)/`T')+1&#xA;by id, sort: gen year = _n&#xA;xtset id year&#xA;tempvar a0&#xA;gen `a0' = rnormal() if year==1&#xA;by id: egen a = mean(`a0')&#xA;gen x = a-year+rnormal()&#xA;gen y = a+x-0.2*year+rnormal()&#xA;drop a&#xA;* So far x and y have been generated.&#xA;xtreg y x year, fe&#xA;est store fe&#xA;xtreg y x year, re&#xA;hausman fe ., sigma&#xA;set more on&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;You will see that FE gives a negative trend, RE gives a positive trend, and the Hausman test is very significant. (Above I included a linear trend for simplicity. The results are similar when &lt;code&gt;i.year&lt;/code&gt; is used instead.) &lt;strong&gt;I think it is trends in X and the presence of fixed effects.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;. set more off&#xA;&#xA;. clear all&#xA;&#xA;. local n 100&#xA;&#xA;. local T 5&#xA;&#xA;. set seed 1&#xA;&#xA;. set obs `=`n'*`T''&#xA;number of observations (_N) was 0, now 500&#xA;&#xA;. gen id = floor((_n-1)/`T')+1&#xA;&#xA;. by id, sort: gen year = _n&#xA;&#xA;. xtset id year&#xA;       panel variable:  id (strongly balanced)&#xA;        time variable:  year, 1 to 5&#xA;                delta:  1 unit&#xA;&#xA;. tempvar a0&#xA;&#xA;. gen `a0' = rnormal() if year==1&#xA;(400 missing values generated)&#xA;&#xA;. by id: egen a = mean(`a0')&#xA;&#xA;. gen x = a-year+rnormal()&#xA;&#xA;. gen y = a+x-0.2*year+rnormal()&#xA;&#xA;. drop a&#xA;&#xA;. * So far x and y have been generated.&#xA;&#xA;. xtreg y x year, fe&#xA;&#xA;Fixed-effects (within) regression               Number of obs     =        500&#xA;Group variable: id                              Number of groups  =        100&#xA;&#xA;R-sq:                                           Obs per group:&#xA;     within  = 0.8276                                         min =          5&#xA;     between = 0.9353                                         avg =        5.0&#xA;     overall = 0.8066                                         max =          5&#xA;&#xA;                                                F(2,398)          =     955.57&#xA;corr(u_i, Xb)  = 0.4473                         Prob &amp;gt; F          =     0.0000&#xA;&#xA;------------------------------------------------------------------------------&#xA;           y |      Coef.   Std. Err.      t    P&amp;gt;|t|     [95% Conf. Interval]&#xA;-------------+----------------------------------------------------------------&#xA;           x |   .9803594   .0483021    20.30   0.000     .8854004    1.075318&#xA;        year |  -.2207004   .0568937    -3.88   0.000    -.3325502   -.1088506&#xA;       _cons |   .1019471   .1021303     1.00   0.319    -.0988351    .3027294&#xA;-------------+----------------------------------------------------------------&#xA;     sigma_u |  1.1387103&#xA;     sigma_e |  .97339535&#xA;         rho |  .57779363   (fraction of variance due to u_i)&#xA;------------------------------------------------------------------------------&#xA;F test that all u_i=0: F(99, 398) = 3.61                     Prob &amp;gt; F = 0.0000&#xA;&#xA;. est store fe&#xA;&#xA;. xtreg y x year, re&#xA;&#xA;Random-effects GLS regression                   Number of obs     =        500&#xA;Group variable: id                              Number of groups  =        100&#xA;&#xA;R-sq:                                           Obs per group:&#xA;     within  = 0.8066                                         min =          5&#xA;     between = 0.9353                                         avg =        5.0&#xA;     overall = 0.8436                                         max =          5&#xA;&#xA;                                                Wald chi2(2)      =    2432.08&#xA;corr(u_i, X)   = 0 (assumed)                    Prob &amp;gt; chi2       =     0.0000&#xA;&#xA;------------------------------------------------------------------------------&#xA;           y |      Coef.   Std. Err.      z    P&amp;gt;|z|     [95% Conf. Interval]&#xA;-------------+----------------------------------------------------------------&#xA;           x |    1.40149   .0391177    35.83   0.000      1.32482    1.478159&#xA;        year |    .196468   .0523296     3.75   0.000     .0939039     .299032&#xA;       _cons |   .1267828    .123712     1.02   0.305    -.1156882    .3692539&#xA;-------------+----------------------------------------------------------------&#xA;     sigma_u |   .3602397&#xA;     sigma_e |  .97339535&#xA;         rho |  .12046423   (fraction of variance due to u_i)&#xA;------------------------------------------------------------------------------&#xA;&#xA;. hausman fe ., sigma&#xA;&#xA;Note: the rank of the differenced variance matrix (1) does not equal the number&#xA;        of coefficients being tested (2); be sure this is what you expect, or&#xA;        there may be problems computing the test.  Examine the output of your&#xA;        estimators for anything unexpected and possibly consider scaling your&#xA;        variables so that the coefficients are on a similar scale.&#xA;&#xA;                 ---- Coefficients ----&#xA;             |      (b)          (B)            (b-B)     sqrt(diag(V_b-V_B))&#xA;             |       fe           .          Difference          S.E.&#xA;-------------+----------------------------------------------------------------&#xA;           x |    .9803594      1.40149       -.4211302        .0389278&#xA;        year |   -.2207004      .196468       -.4171684        .0385616&#xA;------------------------------------------------------------------------------&#xA;                           b = consistent under Ho and Ha; obtained from xtreg&#xA;            B = inconsistent under Ha, efficient under Ho; obtained from xtreg&#xA;&#xA;    Test:  Ho:  difference in coefficients not systematic&#xA;&#xA;                  chi2(1) = (b-B)'[(V_b-V_B)^(-1)](b-B)&#xA;                          =      117.03&#xA;                Prob&amp;gt;chi2 =      0.0000&#xA;&#xA;. set more on&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;" OwnerUserId="10775" LastActivityDate="2016-12-19T17:34:38.157" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14746" PostTypeId="1" AcceptedAnswerId="16323" CreationDate="2016-12-19T20:00:18.230" Score="4" ViewCount="153" Body="&lt;p&gt;Gentrification is, roughly speaking, the displacement or exclusion of poor people from areas with improved amenities due to higher rents and costs of living. The question I have is whether better educational facilities can have a dual effect. That is, if better schooling is an amenity for an area, but raises the wages of poor people by improving the rate of return on education, then will gentrification occur or not?&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;I've been struggling to find good literature on this topic. A few examples of papers I've found (Chicago citations):&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Guerrieri, Veronica, Daniel Hartley, and Erik Hurst. &quot;&lt;strong&gt;&lt;a href=&quot;http://www.cbpp.illinois.edu/pdf/hurst_paper.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Endogenous gentrification and housing price dynamics&lt;/a&gt;&lt;/strong&gt;.&quot; Journal of Public Economics 100 (2013): 45-60.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;This paper talks about separating changes in housing prices as changes in housing demand shocks and gentrification. Education or labor demand is not the major point of endogeneity addressed here.&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Baum-Snow, Nathaniel, and Daniel Hartley. &quot;&lt;strong&gt;&lt;a href=&quot;http://econ.as.nyu.edu/docs/IO/41374/baumsnow_hartley_gentrification_20150930.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Gentrification and Changes in the Spatial Structure of Labor Demand&lt;/a&gt;&lt;/strong&gt;.&quot; (2015).&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;This paper creates a model for spatial labor demand changes to better describe the nature of gentrification. Their paper would be very helpful, but it is unfinished.&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Edlund, Lena, Cecilia Machado, and Maria Micaela Sviatschi. &lt;strong&gt;&lt;a href=&quot;http://ftp.iza.org/dp9502.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Bright minds, big rent: gentrification and the rising returns to skill&lt;/a&gt;&lt;/strong&gt;. No. w21729. National Bureau of Economic Research, 2015.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;This paper probably gets closest to what I'm looking for, focusing on returns to skill and gentrification. It doesn't exactly focus on education specifically, and though it controls for distance from city center, it doesn't control for things like quality of transportation services (as they admit).&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;My question is whether or not there is any literature that is related to the topic I am interested in, or if there isn't any, what previous literature may be relevant to look at during a review of the literature.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastEditorUserId="4816" LastEditDate="2019-05-12T21:53:39.873" LastActivityDate="2019-05-12T21:53:39.873" Title="Endogenous Gentrification and Rates of Return to Education" Tags="&lt;reference-request&gt;&lt;labor-economics&gt;&lt;urban-economics&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="14747" PostTypeId="2" ParentId="11647" CreationDate="2016-12-19T20:42:23.220" Score="1" Body="&lt;p&gt;You count the depreciation of all goods.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lets imagine a hypothetical scenario where you buy a capital good of a tractor. The tractor will cost &lt;code&gt;$100&lt;/code&gt; and last 10 years. On the tenth year you know that the tractor will explode and be completely worthless and useless meaning you'll have to buy a new tractor for &lt;code&gt;$100&lt;/code&gt;. Under GAAP accounting you don't record that the tractor suddenly became worthless on the 10th year. Instead you estimate in the beginning the overall lifetime of the tractor and divide that by the cost of the tractor. Thus, the tractor will depreciate by &lt;code&gt;$10&lt;/code&gt; every year. You do this because it is a better indication of the value of the asset(capital good) you have left of the tractor despite the fact that the tractor may work perfectly fine for all 10 of those years.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The same is true for capital goods. You simply take the expected working life of the capital and depreciate it by its original cost every year from then on. Taken in the aggregate across all capital goods you must have equal level of investment into capital as you have depreciation in order to maintain a certain level of capital in the steady state.&lt;/p&gt;&#xA;" OwnerUserId="10245" LastActivityDate="2016-12-19T20:42:23.220" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14748" PostTypeId="2" ParentId="14513" CreationDate="2016-12-20T09:29:12.593" Score="0" Body="&lt;p&gt;Your accountant could make clear the difference between financial accounts and tax accounts.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can do whatever you like, within the general remit of GAAPs, in your financial accounts and so you can expense the assets in the year of acquisition if you so wish.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;... But the tax-man will not allow the depreciation expense in the tax accounts, and instead allows for the deduction of a 'capital allowance', which is calculated according to rules that the tax-man lays down.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The capital allowance (and depreciation expense) has nothing to do with recognising the drop in value of the asset over its life, rather it is to do with allocating the money spent on a longer-than-one-year life of an asset used in a business on a reasonable basis over the estimated useful life of that asset.  Granted, it causes minimal book 'profit' or 'loss' on subsequent disposal of such an asset if the magnitude of the capital allowance and depreciation expense does roughly equal the loss in value of the asset, but if there is no intention to dispose of the asset, it does not matter.  So, most governments (tax-men) allow either a reducing balance percentage of the original cost of the asset, or a fixed annual percentage of the original cost as the capital allowance.  For example if an asset cost 12,000 dollars and the capital allowance is to be calculated as a fixed percentage of 20 percent. of the original cost (implying a useful life of 5 years) then the annual capital allowance in the tax accounts would be 2,400 dollars.  If the capital allowance is to be calculated as 25 percent. of the remaining balance of the cost of the asset, then in the first year the capital allowance would be 0.25x12,000 = 3,000 dollars, and in the second year the capital allowance would be 0.25x(12,000 - 3,000) = 2,250 dollars.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a small business, it is best to keep the depreciation expense the same as the capital allowance that the tax-man determines.  This is to avoid any difference in the calculation of the financial accounting profit and the tax accounting profit, which gives rise to horrible accounting entries called deferred tax.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Whatever method you choose in your financial accounts, the amount of tax you pay is dependent on the figures in your tax accounts, which as far as allocating the cost of assets used in the business is concerned, is under the control of the tax-man ... and so your cash flow is no different.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, the tax-man usually allows the pooling of assets that are similar and so the accounting for the capital allowance is not too complicated.  Examples would include 'all office furniture', 'all IT equipment', 'all plant &amp;amp; machinery', 'all non-commercial vehicles', etc.  ... Ask your accountant !&lt;/p&gt;&#xA;" OwnerUserId="11526" LastActivityDate="2016-12-20T09:29:12.593" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14750" PostTypeId="1" AcceptedAnswerId="14753" CreationDate="2016-12-20T21:16:03.540" Score="3" ViewCount="1982" Body="&lt;p&gt;If $u(x)=\frac{x^{1-\mu}}{1-\mu}$, then the elasticity defined as $\frac{\partial u}{\partial x}\frac{x}{u}=1-\mu$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, when we define $u(x)=\frac{x^{1-\mu}-1}{1-\mu}$ (usual def. for isoelastic utility), we have $\frac{\partial u}{\partial x}\frac{x}{u}=(1-\mu)\frac{x^{1-\mu}}{x^{1-\mu}-1}$. And this doesn't seem to give a constant elasticity. So, why do we call this utility isoelastic?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="118" LastActivityDate="2016-12-21T01:11:12.810" Title="Why the name for isoelastic utility?" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14751" PostTypeId="1" CreationDate="2016-12-20T22:15:09.700" Score="1" ViewCount="24" Body="&lt;p&gt;I am speaking only from an observational point of view and don't have any experimental data to back-up my observations so feel free to correct me. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Why does the US appear to have a market that does not follow basic rules of Price and Demand?&lt;/strong&gt; Higher priced products are automatically considered of better quality. And this excludes products that provide a status quo, like iPhones and designers clothing. Things that we do not even have to advertise about their brand to our friends such a basic goods, like furniture, beds, tooth brush etc. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have observed that products above medium priced are doing better financially than lower priced products that offer the same quality of product. Hence it is difficult for a competitor to just launch a cheaper same product and do well in the market. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My personal hypothesis:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lack of knowledge from the public, lack of skepticism, and deceiving marketing strategies from the manufacturers&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also the public in the US is highly less likely to research a purchase, and opt for a medium priced product. In addition to that, the economy does well and people feel like their time is worth more than their money&lt;/p&gt;&#xA;" OwnerUserId="11533" LastEditorUserId="11533" LastEditDate="2016-12-21T15:30:19.140" LastActivityDate="2016-12-21T15:30:19.140" Title="Why does the US have such low price flexibility?" Tags="&lt;macroeconomics&gt;&lt;elasticity&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14752" PostTypeId="1" CreationDate="2016-12-21T00:49:35.750" Score="0" ViewCount="131" Body="&lt;p&gt;In the Bellman for the search model, how is the present discounted value of future income equal to $\frac{w}{1-\beta}$? Sounds like a basic question but I just can't comprehend the math in my head, because for present value I tend to compare it with NPV and think $1-\beta$ should be raised to the power of something. If someone could show the math in the McCall model's bellman.&lt;/p&gt;&#xA;" OwnerUserId="11535" LastEditorUserId="11590" LastEditDate="2017-01-23T14:56:08.210" LastActivityDate="2017-01-23T14:56:08.210" Title="McCall Search Model: Present value of lifetime income" Tags="&lt;macroeconomics&gt;&lt;search-and-matching&gt;&lt;discount-rate&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14753" PostTypeId="2" ParentId="14750" CreationDate="2016-12-21T01:04:43.407" Score="2" Body="&lt;p&gt;Iso-elastic utility is defined as a function $U(w)$ where for all $k \gt 0$ you have $$U(kw)=f(k)U(w)+g(k)$$ for some functions $f(k)$ and $g(k)$ independent of $w$, i.e. an affine transformation of the original utility function&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is &lt;em&gt;iso-&lt;/em&gt; because this kind of utility function leads to identical (or at least proportionate) decisions: it means that the optimal risk/reward behaviour at given level of wealth $w$ is also optimal for another level of wealth $kw$ if you multiply all the original investments by $k$.  For example, if at some wealth level you would put a third of it into a particular risky investment and two-thirds into a particular safe investment, then with an iso-elastic utility function you would do the same with at any wealth level   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Both your formulations are iso-elastic in this sense, since they only differ by a constant $\frac{1}{1-\mu}$ and so lead to identical distribution decisions.  The difference between them is that the first has $u(0)=0$ and $u(1)=\frac{1}{1-\mu}$ while the second has $u(1)=0$, and since that difference has no real-life implications it might be unreasonable to claim the two utility functions had different properties  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Those who use the second formulation often associate it with a logarithmic utility function as the limit function as $\mu \to 1$.  This limit cannot be done without subtracting the $\frac{1}{1-\mu}$ (no longer a constant, since $\mu$ is changing), so they take the second formulation for arithmetical convenience&lt;/p&gt;&#xA;" OwnerUserId="8891" LastEditorUserId="8891" LastEditDate="2016-12-21T01:11:12.810" LastActivityDate="2016-12-21T01:11:12.810" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="14754" PostTypeId="1" CreationDate="2016-12-21T05:02:33.927" Score="1" ViewCount="68" Body="&lt;p&gt;As the world knows plenty of manufacturing jobs shifted from various countries to China. This macroeconomic trend of consolidating manufacturing jobs in China has been going on for past 30 years. Please help me understand given that so many jobs have been moved out of countries like US, why there has not been significant reduction in the demand and spending of the people in these countries. As per my understanding if people start loosing their job, they start spending less and less eventually slowing down entire economy of a country. How are countries still not affected by such a massive out flux of jobs?   &lt;/p&gt;&#xA;" OwnerUserId="11537" LastEditorUserId="1601" LastEditDate="2016-12-21T07:16:58.557" LastActivityDate="2016-12-21T07:16:58.557" Title="Understanding the complex relationship between macro and micro economic factor: Job shift" Tags="&lt;unemployment&gt;&lt;open-economy-macro&gt;&lt;usa&gt;&lt;china&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14755" PostTypeId="1" CreationDate="2016-12-21T07:36:00.280" Score="1" ViewCount="340" Body="&lt;p&gt;Q1) How does the burden of an external public debt differ from that of an internal public debt?&#xA;Q2) Are there sny conditions under which neither external  nor internal debt is a burden to a nation?&lt;/p&gt;&#xA;" OwnerUserId="11538" LastActivityDate="2016-12-21T10:49:25.983" Title="Burden of debt; Internal or external financing?" Tags="&lt;government-debt&gt;" AnswerCount="1" CommentCount="0" ClosedDate="2017-01-12T13:41:01.747" ContentLicense="CC BY-SA 3.0" />
  <row Id="14756" PostTypeId="1" AcceptedAnswerId="14759" CreationDate="2016-12-21T07:56:06.623" Score="0" ViewCount="313" Body="&lt;p&gt;When we are saving from our income then we don't consume as mush as we earn. So the GDP should decrease as well as the income but this does not happen. Why?&lt;/p&gt;&#xA;" OwnerUserId="11539" LastActivityDate="2016-12-21T14:58:52.703" Title="Why the GDP does not decrease even when we are saving from our income?" Tags="&lt;gdp&gt;&lt;investment&gt;&lt;consumption&gt;&lt;saving&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="14757" PostTypeId="2" ParentId="14752" CreationDate="2016-12-21T08:53:51.113" Score="2" Body="&lt;p&gt;In the version of the McCall search model I'm familiar with, once you accept an offer of wage $w$, you receive that wage $w$ in every period starting from the period of acceptance. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence, from the perspective of the current period, your utility from accepting that offer is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ w + \beta w + \beta^2 w + \cdots =\frac{w}{1-\beta} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In case this equality isn't familiar, recall that the LHS is simply a &lt;a href=&quot;https://en.wikipedia.org/wiki/Geometric_series&quot; rel=&quot;nofollow noreferrer&quot;&gt;geometric series&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="8595" LastActivityDate="2016-12-21T08:53:51.113" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14758" PostTypeId="2" ParentId="14755" CreationDate="2016-12-21T09:12:02.287" Score="0" Body="&lt;p&gt;Q1 : If you define external debt as &quot;forex debt&quot; context. &#xA;If the debt repayment amount for every period are greater than a country import/export amount, then it will influence the exchange rate.  Subsequently affect goods price. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For internal debt (e.g. money borrow within the country, using various financial tools or creative derivative ). &#xA;On positive side, if the debt spending bring in long term production or/and cost saving benefit, it will be reduce the debt burden, increase income. As it suppose to get the debt payoff from the positive benefit. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;On negative side, internal debt can be wasted, or lead to speculative activities. In such case, the problem can be many folds, depends on the magnitude of of the debt. For &quot;smaller scale&quot;, creditor or so call &quot;investor&quot; lost their money. E.g. Enron, Worldcomm scandal.&lt;br&gt;&#xA;For the worst snowball case, the effect is much dire and difficult to assess. E.g. the worst private sector debt, you can check out example of subprime mortgage crisis. For country level, you can check out the Greek government-debt crisis.   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Q2 : Under perfect world production context (no production of unwanted goods, goods/finance speculation/corruption), as long as the production income are more than the debt, there will be no ill effect from borrowing.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note : In each economic question, context is always required, no matter how you apply famous/infamous economist that apply math formula. Because human society keep adapting and exploiting the system.  &lt;/p&gt;&#xA;" OwnerUserId="11177" LastEditorUserId="11177" LastEditDate="2016-12-21T10:49:25.983" LastActivityDate="2016-12-21T10:49:25.983" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14759" PostTypeId="2" ParentId="14756" CreationDate="2016-12-21T14:58:52.703" Score="1" Body="&lt;p&gt;&quot;GDP&quot; stands for &quot;Gross Domestic &lt;em&gt;Product&lt;/em&gt;&quot;. It measures the &lt;em&gt;income generated&lt;/em&gt;, prior to any consumption-saving allocation. In other words, to be able to save you must first generate product/income and then decide to save. So savings does not affect the level of the already created income, since it is a part of it. The archetypal closed economy with no borrowing is characteriazed by the identity&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Y = GDP = C + I = C + S$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When we look the matter from an expenditure approach, we essentially consider the different &lt;em&gt;uses&lt;/em&gt; of income (and in that sense the use of the term &quot;expenditure&quot; may be a bit misleading). And savings &lt;em&gt;is also a way to use your income&lt;/em&gt; (where &quot;use&quot; has a broader meanign than &quot;spend&quot;).&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2016-12-21T14:58:52.703" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="14760" PostTypeId="1" AcceptedAnswerId="14782" CreationDate="2016-12-21T15:44:39.633" Score="6" ViewCount="306" Body="&lt;p&gt;Media loves to create a technophobia frenzy for automation and robots. &lt;strong&gt;Would REALLY automation in manufacturing cause the economy to collapse?&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Taking an extreme case that is impossible to happen even in the far future due to technical challenges, but consider that &lt;strong&gt;EVERY&lt;/strong&gt; job is replaced by robots. Manufacturing of a product from start to finish would be done by robots and no work from humans necessary. This product would essentially be for FREE. &lt;strong&gt;Shouldn't this the ultimate goal of an economy?&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ignoring this dystopia society, even if automation replaces some of the more redundant jobs, like taxi drivers, truck drivers etc. &lt;strong&gt;Wouldn't that allow for reassignment of human resources to more important tasks and help the economy grow?&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think the situation is similar to the introduction of steam machines and the fear people had about them replacing men. While in reality they didn't replace them, they re-assigned them to positions that required more skill and knowledge (Such as machine mechanic etc)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't see any way that automation in manufacturing is a bad thing. Our society is more data and knowledge focused and I think the ones that are afraid are the ones incapable of expanding their knowledge, learning a new skill or adopting to the changes. &lt;strong&gt;But should we stunt the growth of our society due to few lazy, unskilled people and literally wait until they die to introduce progress?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I believe that any human in order to survive will adopt and the people mentioned above are no exception. &lt;/p&gt;&#xA;" OwnerUserId="11533" LastActivityDate="2019-01-05T22:22:40.253" Title="Is manufacturing automation really a bad thing for the economy?" Tags="&lt;macroeconomics&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14761" PostTypeId="1" AcceptedAnswerId="14778" CreationDate="2016-12-21T18:16:12.510" Score="8" ViewCount="7123" Body="&lt;p&gt;I am trying to pin down the difference between risk, uncertainty and ambiguity. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As I understand, when behavioral economists talk about choice under uncertainty, they mean choice when agents face risk (known probability distribution over a range of outcomes) versus ambiguity (unknown probability distribution). So uncertainty is a blanket concept that can be broken down into risk and ambiguity. See for example &lt;a href=&quot;http://link.springer.com/article/10.1007/s10640-014-9796-6&quot; rel=&quot;noreferrer&quot;&gt;Dannenberg et al (2014)&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I also understand there is a debate on the meaning of these terms going back to Knight (1921) and Ellsberg (1961). Are there any competing definitions to the one above?&lt;/p&gt;&#xA;" OwnerUserId="4082" LastEditorUserId="4082" LastEditDate="2016-12-22T16:31:06.257" LastActivityDate="2017-01-19T09:48:40.977" Title="What is the difference between risk, uncertainty and ambiguity" Tags="&lt;behavioral-economics&gt;" AnswerCount="5" CommentCount="2" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="14762" PostTypeId="2" ParentId="14717" CreationDate="2016-12-21T18:18:52.180" Score="0" Body="&lt;p&gt;Looking into monetary base definition:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Monetary base is the total amount of a currency that is either circulated in the hands of the public or in the commercial bank deposits held in the central bank's reserves.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So this means that M0 is actually the monetary base. So I really don't have to calculate anything.&lt;/p&gt;&#xA;" OwnerUserId="11432" LastEditorUserId="11432" LastEditDate="2016-12-24T20:19:28.543" LastActivityDate="2016-12-24T20:19:28.543" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14763" PostTypeId="1" CreationDate="2016-12-21T20:26:00.757" Score="2" ViewCount="107" Body="&lt;p&gt;Banks have higher interest rate for debts than deposits to make money but does the U.S. treasury have the same interest rate for loans and deposits? &lt;/p&gt;&#xA;" OwnerUserId="11544" LastActivityDate="2017-04-22T18:50:29.673" Title="Federal Reserve Interest" Tags="&lt;interest-rate&gt;&lt;federal-reserve&gt;&lt;bonds&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="14764" PostTypeId="1" CreationDate="2016-12-21T22:56:27.533" Score="-1" ViewCount="332" Body="&lt;p&gt;I am given the following utility function:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$u(x_{1}, x_{2})=x_{1}^2x_{2}$ where $x_{1}$ represents leisure and $x_{2}$ represents consumption.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am also given the budget constraint with the price of $x_{2}$ normalized to 1:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$w(T-x_{1})=x_{2}$ where $w$ is the wage and $T$ is the number of hours available to the agent.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am asked to derive Marshallian Demands. How am I supposed to interpret this problem? Should I consider $w$ the price of $x_{1}$ since it is the opportunity cost of leisure? If so, then the agent is constrained by both, time and wage. I'm not sure how to go about it.&lt;/p&gt;&#xA;" OwnerUserId="5936" LastActivityDate="2016-12-31T15:02:37.357" Title="Budget constraint with leisure and consumption" Tags="&lt;microeconomics&gt;&lt;utility&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14765" PostTypeId="1" AcceptedAnswerId="14766" CreationDate="2016-12-22T00:05:40.037" Score="0" ViewCount="298" Body="&lt;p&gt;I don’t understand, from an intuitive point of view, the CES aggregator in the context of a New Keynsian DSGE model. I understand that the consumption index Ct is the sum of all consumption goods and we conceive of a continuum of goods over the interval (0,1) and, as such, have;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/oQFcZ.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/oQFcZ.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand that we are making assumptions here about the imperfect substitutability of goods and that this is what gives firms market power in the monopolistic setting of the DSGE models in question. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I do not understand is the intuition of how levels of consumption of all different goods maps onto the expression for Ct above. How can we represent this using an integral over a range? I do not understand the intuition, and nowhere seems to provide a decent explanation. I would be very grateful if one of you could possibly explain it to me? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Many thanks in advance. &lt;/p&gt;&#xA;" OwnerUserId="8443" LastActivityDate="2016-12-22T06:36:23.047" Title="Intuition for the CES consumption index in New-Keynesian DSGE models" Tags="&lt;monetary-policy&gt;&lt;elasticity&gt;&lt;consumption&gt;&lt;new-keynesian-economics&gt;&lt;dsge&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14766" PostTypeId="2" ParentId="14765" CreationDate="2016-12-22T06:36:23.047" Score="6" Body="&lt;p&gt;Heuristically, you can think of the integral as just a sum:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \bar{C} = \left( \sum_{i=1}^n C_i^{1-\frac{1}{\epsilon}} \right)^{\frac{\epsilon}{\epsilon - 1}} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $\bar{C}$ is an index of aggregate consumption, and utility is given by $u \left( \bar{C} \right)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's easy to check that the marginal rate of substitution between goods $j$ and $k$ is given by&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \text{MRS}_{jk} = \left( \frac{C_j}{C_k} \right)^{-\frac{1}{\epsilon}} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which means that the (absolute value of the) &lt;a href=&quot;https://en.wikipedia.org/wiki/Elasticity_of_substitution&quot; rel=&quot;noreferrer&quot;&gt;elasticity of substitution&lt;/a&gt; is $\epsilon$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With a continuum of goods, the analogue of summation is integration, and you can (loosely) think of the MRS between goods $j$ and $k$ as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \left( \frac{C_t (j)}{C_t (k)} \right)^{- \frac{1}{\epsilon}} $$&lt;/p&gt;&#xA;" OwnerUserId="8595" LastActivityDate="2016-12-22T06:36:23.047" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14767" PostTypeId="2" ParentId="14764" CreationDate="2016-12-22T06:40:45.543" Score="1" Body="&lt;p&gt;The utility function is Cobb-Douglas, so we know that the Marshallian demand when the consumer faces the prices $\left(p_1,p_2\right)$ and has money $m$ is given by&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ x\left(p_1,p_2,m\right) = \left( \frac{2}{3} \frac{m}{p_1} , \frac{1}{3} \frac{m}{p_2} \right) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You should be able to derive the Marshallian demand for your problem by noticing what $p_1$, $p_2$, and $m$ are in your problem.&lt;/p&gt;&#xA;" OwnerUserId="8595" LastActivityDate="2016-12-22T06:40:45.543" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14768" PostTypeId="1" CreationDate="2016-12-22T09:29:48.430" Score="3" ViewCount="130" Body="&lt;p&gt;According to legend anyway (ie Aristotle's account), Thales was a business man of his time! On the motive Thales had for attaining material possession, Aristotle held that Thales was only out to prove the relevance of philosophy in acquiring wealth - not wealth for its own sake. Regarding the means of his acquisitions, Thales is credited with the creation of both futures and options. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;We've come a long way since Thales, for the games that both people and organizations play for financial gain today are studied in detail. Today, such a study requires rigor. The spirit of such an approach would, on paper anyway, seem to run counter to Thales' detachment towards money. After all, why go through the tedious process of innovative profit unless you're out to prove a point, like Thales supposedly was? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Along these lines has there been anyone since then that has, none the less, had such an openly negative view of wealth on a personal level, yet introduced new concepts in business and economics?    &lt;/p&gt;&#xA;" OwnerUserId="4757" LastEditorUserId="4757" LastEditDate="2017-03-30T10:39:12.117" LastActivityDate="2017-03-30T10:39:12.117" Title="Has there been anyone since the philosopher Thales that has held an extremely detached view of money, and also found innovative ways to profit?" Tags="&lt;history&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="14769" PostTypeId="2" ParentId="14737" CreationDate="2016-12-22T09:58:42.007" Score="2" Body="&lt;p&gt;I'm not sure I fully understand what you mean by computing it endogenously? The nominal interest rate would be endogenous in the NK framework because the output gap and inflation are endogenous. There'd be feedback between nominal interest rates and inflation, which both feed into each other for example. So in that sense I'd consider the approximation of interest rate policy using a Taylor rule as entailing that interest rate policy WAS endogenous wrt. the output gap and inflation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for why we'd use the Taylor rule as opposed to some more complex but accurate approximation for interest rate policy... well I can only suppose that the Taylor rule is a sufficiently good approximation such that the marginal benefit of adding more complexity / accuracy is minimal and perhaps less than the computational cost of doing so. There comes a point where you start to prioritize parsimony more and more. Perhaps this is the motivation. &lt;/p&gt;&#xA;" OwnerUserId="8443" LastActivityDate="2016-12-22T09:58:42.007" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="14770" PostTypeId="2" ParentId="14761" CreationDate="2016-12-22T11:22:00.457" Score="-3" Body="&lt;p&gt;Let's talk about layman terms. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ambiguity is lack of explicit context. A cook are are given flours, eggs, sugar, salt, spices. If you ask the cook to &quot;make food out of it&quot;, this is ambiguity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Uncertainty is random outcomes cause by ambiguous instruction/direction. &#xA;E.g.  Use above ambiguous instruction, the results can be a pasta, cakes, biscuit, charcoal, etc.  The outcome is &quot;uncertain&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Risk is all possible tangible accessible &quot;bad&quot; outcome/events by probabilities associate to specific activities, depends on context.&lt;br&gt;&#xA;E.g. When you lies the flat ground, your chances of falling is low.  But, that doesn't mean you can't fall : what if the earth below you break apart due to earthquake.  (winks) &lt;/p&gt;&#xA;" OwnerUserId="11177" LastEditorUserId="11177" LastEditDate="2016-12-22T16:07:39.893" LastActivityDate="2016-12-22T16:07:39.893" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="14771" PostTypeId="2" ParentId="14763" CreationDate="2016-12-22T11:50:45.693" Score="0" Body="&lt;p&gt;The detail answer for your question is all here : &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Federal_funds_rate&quot; rel=&quot;nofollow noreferrer&quot;&gt;Federal funds rates&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="11177" LastActivityDate="2016-12-22T11:50:45.693" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14772" PostTypeId="1" CreationDate="2016-12-22T13:34:57.280" Score="1" ViewCount="4945" Body="&lt;p&gt;I know that cash is a financial asset and securities are defined as tradable financial assets, so cash is a security, right?&#xA;&lt;br&gt;Another thing I'm wondering is that whether cash/banknote is a debt instrument or not. &lt;a href=&quot;https://en.wikipedia.org/wiki/Security_(finance)&quot; rel=&quot;nofollow noreferrer&quot;&gt;On wikipedia&lt;/a&gt; it is defined as one of a debt securities. &lt;/p&gt;&#xA;" OwnerUserId="11329" LastEditorUserId="1601" LastEditDate="2016-12-24T09:55:32.403" LastActivityDate="2017-02-22T21:16:20.807" Title="Is cash(currency) a security and a debt instrument?" Tags="&lt;financial-economics&gt;&lt;definition&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14773" PostTypeId="1" AcceptedAnswerId="14885" CreationDate="2016-12-22T15:24:07.880" Score="1" ViewCount="295" Body="&lt;p&gt;I am working in a New Keynesian context so that the Phillips curve is usually specified as follows &#xA;\begin{gather}&#xA;\pi_t=\beta E_t\pi_{t+1}+\kappa x_t&#xA;\end{gather}&#xA;where $\beta$ is the discount factor, $\kappa$ is the slope of the curve depending negatively on the degree of price stickiness in the economy and $x_t=y_t-y^N_t$, with $y^N_t$ is the natural (potential) level of output&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is driving me crazy is if this curve, specified as above, still make sense when we assume prices are fully flexible. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would say no, because in a flexible price context, the output gap would be zero and the firms would optimize in a static fashion (no need of taking into account expectations of future inflation). But, I have no idea about how to &quot;transform&quot; the model in this direction.&lt;/p&gt;&#xA;" OwnerUserId="6773" LastActivityDate="2017-01-03T13:27:40.277" Title="Phillips curve and flexible prices" Tags="&lt;macroeconomics&gt;&lt;new-keynesian-economics&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="14774" PostTypeId="1" AcceptedAnswerId="14776" CreationDate="2016-12-22T16:22:41.580" Score="2" ViewCount="851" Body="&lt;p&gt;Often in macro pure exchange economy models (sequential trading), authors make the initial period good price $P_0=1$ asserting this set-up is to make the consumption at period $0$ the numeraire.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But I don't see any detailed explanation or justification for doing this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Just to add some background story:&lt;br&gt;&#xA;The usual set-up is that agents are endowed with some units of goods, say oranges. So the unit of their consumptions is oranges. $P_t$ often the price, at $t=0$, of an orange consumption promised for delivery in period $t$. Why make $P_0=1$?&lt;/p&gt;&#xA;" OwnerUserId="8560" LastActivityDate="2021-03-14T09:38:31.767" Title="Why Need a Numeraire Good in Dynamic Analysis" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14775" PostTypeId="1" CreationDate="2016-12-22T17:19:54.067" Score="1" ViewCount="22" Body="&lt;p&gt;In the &lt;a href=&quot;https://en.wikipedia.org/wiki/Annuity&quot; rel=&quot;nofollow noreferrer&quot;&gt;Wikipedia article on annuity&lt;/a&gt;, different formulas are given, and their difference is due to whether the first payment is made in the first period or not, whether we compute the present or future value, whether the annuity is a perpetuity or not, etc. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In macroeconomics, e.g. page 8 &lt;a href=&quot;http://www.sfu.ca/~kkasa/econ280_5.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;, I often recognize something of the following terminology: &quot;If the interest rate is $r$, then the annuity of $x$ (which may be initial wealth) is $\frac{r}{1+r}x$.&quot; Now, the problem is that I do not understand why we would say that the annuity of $x$ is $\frac{r}{1+r}x$ in any sense given in the article on Wikipedia. What am I missing here? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let me mention some examples.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;If the interest rate is $r$, then the present value of an annuity-immediate for $n$ periods with &quot;rent&quot; $x$ is $x\frac{1-(1+r)^{-n}}{r}$. If $n=1$ here, then we have $x\frac{1}{1+r}$ (I pick $n=1$ to somehow get the expression $\frac{r}{1+r}x$).&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;For the future value way of writing an annuity-immediate, we have $x\frac{(1+r)^{n}-1}{r}$ which is $x$ for $n=1$.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;For an annuity-due, we have the former expressions in 1 and 2 multiplied by $(1+r)$. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;For a perpetuity I get $x\frac{1}{r}$ for first payment in second period.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;For a perpetuity I get $x\frac{1+r}{r}$ for first payment in first period.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;So, in no case do I get $\frac{r}{1+r}x$. I feel there is something I am missing in my understanding of the concept of an annuity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Looking at 5, I &lt;em&gt;think&lt;/em&gt; that they mean by the &quot;annuity value of $x$&quot; the annuity value of some present value $x$. So in 5, the present value is $x=y\frac{1+r}{r}$ for some other rent $y$, and thus the annuity value of $x$ is $y=\frac{r}{1+r}x$?&lt;/p&gt;&#xA;" OwnerUserId="7582" LastEditorUserId="7582" LastEditDate="2016-12-22T21:10:31.937" LastActivityDate="2016-12-22T21:10:31.937" Title="Regarding the word &quot;annuity&quot;" Tags="&lt;mathematical-economics&gt;&lt;financial-economics&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14776" PostTypeId="2" ParentId="14774" CreationDate="2016-12-22T18:22:10.590" Score="4" Body="&lt;p&gt;Is there any reason not to make &lt;span class=&quot;math-container&quot;&gt;$P_0 = 1$&lt;/span&gt;?&lt;/p&gt;&#xA;&lt;p&gt;In microeconomics (which your problem seems to be about, rather than macro) consumer's demand is homogeneous of degree zero in prices &amp;amp; income. That is if all parameters measured in money change by the same ratio (say they are all multiplied by 10) consumer decisions are unchanged. The root of this is that what usually matters is the price ratio between two goods. But&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\frac{p_1}{p_2} = \frac{r \cdot p_1}{r \cdot p_2}&#xA;$$&lt;/span&gt;&#xA;for all &lt;span class=&quot;math-container&quot;&gt;$r &amp;gt; 0$&lt;/span&gt;, so any proportional price change does not change the price ratio between two goods.&lt;/p&gt;&#xA;&lt;p&gt;As a result of this, we are usually left with a degree of freedom when solving these models. To do away with it and simplify equations it is best to just arbitrarily select a good and appoint it numeraire.&lt;/p&gt;&#xA;&lt;p&gt;In macroeconomics you have similar issues if you assume the &lt;a href=&quot;https://en.wikipedia.org/wiki/Neutrality_of_money&quot; rel=&quot;nofollow noreferrer&quot;&gt;neutrality of money&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2021-03-14T09:38:31.767" LastActivityDate="2021-03-14T09:38:31.767" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="14777" PostTypeId="2" ParentId="2954" CreationDate="2016-12-22T19:10:47.770" Score="0" Body="&lt;p&gt;Forward variance is a valid measure of risk for fixed coupon and zero coupon bonds, but it is not at all a measure of risk for stocks, or antiques for that matter.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Variance is a property of a distribution, like noses are a property of most vertebrates.  You would not expect to see a nose on a tree.  Not all distributions have a variance, just as not all living things have noses.  Returns for equity securities cannot have a variance.  For an extended discussion, see &lt;a href=&quot;https://ssrn.com/abstract=2828744&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://ssrn.com/abstract=2828744&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In order to understand why, it is first important to note that returns on stocks are not data.  The prices involved are data, but returns are not data, but rather the transformation of data, in particular and buy and a sell price.  To understand the distribution of returns, we must first understand the distribution of prices, which returns are a transformation of.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The distribution of prices would be determined by the rules that govern how those prices are created.  See the above paper for a discussion of different rules.  Taking a Markowitzian view of the world for a moment, with infinite liquidity and hence no bid or ask price, no bankruptcy and no forced mergers, with many buyers and many sellers in equilibrium, then at any static moment, prices will be normally distributed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reason is that stocks are sold in a double auction, with buyers competing against other potential buyers and the same with potential sellers.  Since we are assuming the market is in equilibrium, not a mandatory assumption actually, there is no winners' curse and hence the only rational behavior is to bid your expectation.  The book of orders will be a book of expectations and as we are assuming &quot;many&quot; the distribution will converge to normality.  This implies that the &quot;shocks&quot; are appraisal errors, in Markowitz's world, by the counterparty because we are price takers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The most basic equation of the CAPM, from which Black-Scholes and other option models are explicitly or implicitly derived, is $$\tilde{w}=R\bar{w}+\epsilon.$$  As Gauss pointed out, this is not a solvable problem, instead we must solve this at the limit, so assuming this process is repeated, we can discuss $$w_{t+1}=Rw_t+\epsilon_{t+1}.$$  If we assume $wealth=price\times{quantity}$ and without loss of generality assume $quantity=1$ at all points in time, then we can reduce this to a problem of prices such that $$p_{t+1}=Rp_t+\varepsilon_{t+1},$$ where $\epsilon$ is centered on zero with a finite variance greater than zero.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$R$ is the reward for investing with returns being the reward minus one.  We are going to discuss the reward because the return is just a shifted variable and to discuss one is to discuss the other.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we think of a realized reward at time $t$ as being $$r_t=\frac{p_{t+1}}{p_t}$$ then we are discussing a function that is a ratio for its distribution.  The question is what is that distribution.  If we add the assumption that the errors are independent, again see the above paper if you do not want to assume that or if you want to include bankruptcy, mergers or liquidity, and we assume they are in equilibrium so they are centered on (0,0) for the error component, then that distribution is well known and solved.  It is $$\frac{1}{\pi}\frac{\sigma}{\sigma^2+(r_t-R)^2}.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Under the assumptions of a Markowitzian word, the distribution of rewards or returns has only a zeroth moment, that is it can have no expectation.  Because of this, and because $R&amp;gt;1$, you can show that there does not exist an admissible non-Bayesian solution, so any Frequentist method, including the derivation of the CAPM or Black-Scholes, is an inadmissible solution to the problem UNLESS all parameters are truly known with perfect certainty.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is not quite to the level where one would write quod erat demonstrandum as it lacks the rigor in this post, but look up the paper.  Variance is not a property of stock returns.  While you can invoke a process such as $$s^2=\frac{\sum_{i=1}^n(x_i-\bar{x})^2}{n-1}$$ as an algorithm, since $\bar{x}\perp\mu$ this algorithm only generates a random number.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The closest Frequentist solution is the semi-interquartile range, but due to truncation by not allowing negative prices, underestimates variability by four percent over the population of annual returns in the CRSP universe for one year returns from 1925-2013.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For other assets, such as antiques sold at Sotheby's, there is still no variance, but the distribution is instead the ratio of two Gumbel distributions.  You can see this, in the paper, by doing the trigonometric transformation instead of the ratio transformation.  All solutions must have $\tan^{-1}(x)$ for some form of $x$ in it, which is the cdf of the Cauchy distribution, guaranteeing that, except for certain fixed payout instruments, no variance exists at all in finance or macroeconomics or any other model with capital in it.  Other assets have other distributions.  Learn the rules in the environment and you can derive the distribution(s).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your alternative measure of risk is the spread on the Bayesian &lt;em&gt;predictive&lt;/em&gt; distribution.  It also has the nice property of coherence, so fair bets can be placed on it.&lt;/p&gt;&#xA;" OwnerUserId="11321" LastActivityDate="2016-12-22T19:10:47.770" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14778" PostTypeId="2" ParentId="14761" CreationDate="2016-12-22T19:56:51.943" Score="10" Body="&lt;p&gt;Here is a decision-theoretic formalization of your definitions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The usual framework to talk about objective risk is the situation where a decision-maker expresses preferences over objective lotteries. Formally, if $X$ is a prize space, objective lotteries are defined as elements of the space $\Delta(X)$ of probability distributions (usually with finite support) over $X$. For instance, the decision-maker might be asked to form preferences between the lottery that offers her/him an apple with probability 0.3 and an orange with probability 0.7, and the lottery that offers her/him an apple with probability 0.5 and an orange with probability 0.5. The standard result in that area (von Neumann-Morgenstern theorem) delivers a representation that identifies the agent's attitude towards objective risk (her/his utility function), while the probabilities are given as a primitive of the model.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The usual framework to talk about ambiguity is the situation where a decision-maker expresses preferences over uncertain acts. Formally, if $X$ is a prize space and $S$ is a state space, acts are mappings $f:S \rightarrow X$ from $S$ to $X$. For instance, the decision-maker might be asked to form preferences between the act that offers her/him an apple if Novak Djokovic wins the 2017 Australian Open and an orange otherwise, and the lottery that offers her/him an apple if Andy Murray wins the 2017 Australian Open and an orange otherwise. The standard result in that area (von Neumann-Morgenstern theorem) delivers a representation that identifies both the agent's probabilistic beliefs regarding the states and her/his attitude towards risk (her/his utility function).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is a third widely used concept, usually called Anscombe-Aumann acts or horse races, which associates both objective lotteries and uncertain acts. Formally, given a prize space $X$, an Anscombe-Aumann act is a mapping $f:S \rightarrow \Delta(X)$ that associates an objective lottery to any state in $S$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Notice that the definitions of objective risk and ambiguity are to some extent subjective. The fact that risk is called &quot;objective&quot; relies very much on the assumption that the decision-maker agrees with the underlying probability model. For instance, if you observe the outcome of a coin toss, you might believe that heads happen with an objective probability of 0.5. It is implicitly imposed in the theory that the decision-maker agrees with this statement.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regarding ambiguity, you might yourself believe that the act &quot;receive an apple if Novak Djokovic wins the 2017 Australian Open&quot; is very ambiguous because you have no idea on how to compute a subjective probability for this event. That said, another decision-maker might very confidently believe that Djokovic has a 74% chance of winning the tournament, in which case she/he does not perceive this act as ambiguous at all. Ambiguity is a subjective notion, which is given by people's preferences and behavior and not by the choice situation itself.&lt;/p&gt;&#xA;" OwnerUserId="4667" LastActivityDate="2016-12-22T19:56:51.943" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14779" PostTypeId="1" CreationDate="2016-12-22T20:42:27.903" Score="0" ViewCount="136" Body="&lt;p&gt;In an analysis e.g. OLS regression which measure would you look at?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$R^2$, $adjusted-R^2$ or $p-value$?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How would you consider a regression with p-values &gt;0.15 but with an $R^2$ of 40%?&#xA;In general in economics, what have you seen?&lt;/p&gt;&#xA;" OwnerUserId="11554" LastEditorUserId="6773" LastEditDate="2016-12-23T15:41:48.917" LastActivityDate="2016-12-23T18:19:48.130" Title="Which measure to check in analysis (p-values or $R^2$)?" Tags="&lt;microeconomics&gt;&lt;econometrics&gt;" AnswerCount="5" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14780" PostTypeId="1" CreationDate="2016-12-22T21:00:37.917" Score="1" ViewCount="55" Body="&lt;p&gt;In our country we have 25% personal income tax on labour, 15% corporate tax on corporations and 10% personal income tax on income from capital (e.g. dividends). Pundits in our country are saying that we have flat tax rate across all types of income, because - they are saying - 15% corporate tax and 10% capital income tax amounts to the 25% tax on the income from the capital. Are their analysis correct?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This question leads to the following question - does return in capital (after taxes) depneds on the corporate tax rate? What empirical analysis and models are saying about this? From the one hand - it seems that corporate tax have impact on the gains after corporate tax from the other hand - maybe free market reprices the capital in such manner that the return on capital (after corporate tax) does not depend on the corporate tax rate?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does the tax system of our country is just, normal, appropriate and similar to for the developed Western democracy country?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I feel that to speak about flat (equal) taxation we should have 25% tax on all the types of income and we should not take into account the corporate tax when considering personal income tax. How this analysis proceeds in Western democracies?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or should we speak about price/earning share ratio as the most sensible measure of return on capital - does this ratio depend on the corporate tax?&lt;/p&gt;&#xA;" OwnerUserId="5373" LastEditorUserId="5373" LastEditDate="2016-12-22T21:07:30.303" LastActivityDate="2016-12-22T22:20:28.927" Title="Is corporate tax an argument in equal income tax (from labour and capital) debate and does the return on capital depend on rate of the corporate tax?" Tags="&lt;taxation&gt;&lt;corporate-finance&gt;&lt;optimal-taxation&gt;&lt;fairness&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14781" PostTypeId="2" ParentId="14780" CreationDate="2016-12-22T22:20:28.927" Score="1" Body="&lt;p&gt;There are too many questions in your post, and I advise to edit out most of them, especially those that are not answerable (like &quot;is the system just&quot; etc).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For just the first question the answer is &lt;em&gt;No&lt;/em&gt;, you don't have the same tax rate on income from labor and from capital.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $\pi$ be profits before tax, $\tau_{\pi}$ the tax rate on profits, $\tau_d$ that tax rate on dividends. Then capital owners will receive (as a percentage of profits)  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$(1-\tau_d)(1-\tau_{\pi}) =  1-\tau_d-\tau_{\pi}+\tau_d\tau_{\pi}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;since the dividend tax is applied to profits &lt;em&gt;after&lt;/em&gt; tax. So the total tax rate on capital is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\tau_c = \tau_d+\tau_{\pi}-\tau_d\tau_{\pi}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In your case $\tau_d\tau_{\pi} = 0.10\times 0.15 = 0.015$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So $\tau_c = 0.235$ while tax on labor income is $0.25$. This, in general, is not considered a negligible difference.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2016-12-22T22:20:28.927" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="14782" PostTypeId="2" ParentId="14760" CreationDate="2016-12-22T22:59:57.177" Score="5" Body="&lt;p&gt;As an answer let me offer a paradox that goes in your direction and is related to automation and the future of jobs: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Despite a century of creating machines to do our work for us, the&#xA;  proportion of adults in the US with a job has consistently gone up for&#xA;  the past 125 years. Why hasn't human labor become redundant and our&#xA;  skills obsolete? In this talk about the future of work, economist&#xA;  David Autor addresses the question of why there are still so many jobs&#xA;  and comes up with a surprising, hopeful answer.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.ted.com/talks/david_autor_why_are_there_still_so_many_jobs&quot; rel=&quot;nofollow noreferrer&quot;&gt;Here&lt;/a&gt; is David Autor's TEDx &lt;strong&gt;Why are there still so many jobs?&lt;/strong&gt; and I will have added &lt;strong&gt;[despite automation]&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Autor's answer is that technology magnifies the importance of our expertise and creativity and since we never get enough the wealth and the time saved by automation boost our endless inventiveness. So, automation will &lt;strong&gt;NOT&lt;/strong&gt; replace &lt;strong&gt;EVERY&lt;/strong&gt; job by robots. There's always new work to do.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The challenge that this automation phenomenon creates, what economists call &lt;strong&gt;job polarization&lt;/strong&gt;, is that it knocks out rungs in the economic ladder, and shrinks the size of the middle class. The share of employment in occupations in the middle of the skill distribution has declined rapidly in the US and Europe. At the same time the share of employment at the upper and lower ends of the occupational skill distribution has increased substantially. A compelling explanation of this job polarization is that middle-skilled manufacturing and clerical occupations are characterized by a high intensity of procedural, rule-based activities which they call &quot;routine tasks&quot;, which can relatively easily be coded into computer programs (see &lt;a href=&quot;http://economics.mit.edu/files/11618&quot; rel=&quot;nofollow noreferrer&quot;&gt;Autor, Levy, and Murnane, QJE, 2003&lt;/a&gt;).&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Update&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Daron Acemoglu and Pascual Restrepo have new working papers tackling this important question.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://economics.mit.edu/files/15254&quot; rel=&quot;nofollow noreferrer&quot;&gt;Robots and Jobs: Evidence from US Labor Markets&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://economics.mit.edu/files/16338&quot; rel=&quot;nofollow noreferrer&quot;&gt;Automation and New Tasks: The Implications of the Task Content of&lt;br&gt;&#xA;Technology for Labor Demand&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://economics.mit.edu/files/16415&quot; rel=&quot;nofollow noreferrer&quot;&gt;Demographics and Automation&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Abstract of Automation and New Tasks: The Implications of the Task Content of&lt;br&gt;&#xA;   Technology for Labor Demand  [emphasis mine]&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;We present a framework for understanding the effects of automation and&#xA;  other types of technological changes on labor demand, and use it for&#xA;  interpreting changes in US employment over the recent past. Automation&#xA;  enables capital to replace labor in tasks it was previously engaged&#xA;  in. Because of the &lt;strong&gt;displacement effect&lt;/strong&gt; it generates, automation is&#xA;  qualitatively different from factor-augmenting  technological changes;&#xA;  it always reduces the labor share in value added (of an industry or&#xA;  economy) and may also reduce employment and wages even as it raises&#xA;  productivity. The effects of automation are &lt;strong&gt;counterbalanced by the&#xA;  creation of new tasks&lt;/strong&gt; in which labor has a comparative advantage,&#xA;  which generates a reinstatement effect raising the labor share and&#xA;  labor demand by expanding the set of tasks allocated to labor. We show&#xA;  how the role of changes in the task content of production—due to&#xA;  automation and new tasks—can be inferred from industry- level data.&#xA;  Our empirical exercise suggests that the slower growth of employment&#xA;  over the last three decades is accounted for by an acceleration in the&#xA;  displacement effect, especially in manufacturing, a weaker&#xA;  reinstatement effect, and slower growth of productivity than in&#xA;  previous decades.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="6168" LastEditorUserId="6168" LastEditDate="2019-01-05T22:22:40.253" LastActivityDate="2019-01-05T22:22:40.253" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="14783" PostTypeId="1" CreationDate="2016-12-22T23:15:04.333" Score="2" ViewCount="35" Body="&lt;p&gt;If the fdic insures money in each account for a bank, and that bank goes under. Won't that mean the fdic will have to borrow more money from the fed and thus lead to substantial inflation? &lt;/p&gt;&#xA;" OwnerUserId="11556" LastEditorUserId="11556" LastEditDate="2016-12-23T14:16:19.193" LastActivityDate="2017-01-23T19:46:44.207" Title="Does the FDIC's insurance of your money in your bank account cause inflation of the bank were to go under?" Tags="&lt;inflation&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14784" PostTypeId="1" CreationDate="2016-12-22T23:38:44.850" Score="3" ViewCount="97" Body="&lt;p&gt;I'm using a transformation function $F(\cdot)$ to describe a production set $y = (x, z, L, K)$, where $x$ and $z$ are private goods denoted by positive numbers, $L$ is labour input, $K$ is capital input and both are denoted by negative numbers. Here I'm just following Mas-Colell (1995), page 128, but changing the labels of the variables in the production set.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this case, if $F(y) = 0$, I think I can claim that the marginal rate of transformation (MRT) of good $x$ for good $z$ is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;MRT_{xz} = \frac{\partial F / \partial x}{\partial F / \partial z}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and also that the marginal rate of technical substitution (MRTS) of labour ($L$) for capital ($K$) is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;MRTS_{LK} = \frac{\partial F / \partial L}{\partial F / \partial K} &#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this same setting, can I also claim that the marginal product of labour ($L$) with respect to the private good $x$ is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;MP_L = \frac{\partial F / \partial L}{\partial F / \partial x}&#xA;$$&lt;/p&gt;&#xA;" OwnerUserId="11555" LastEditorUserId="2776" LastEditDate="2017-03-15T13:28:17.323" LastActivityDate="2017-03-15T13:28:17.323" Title="Is it possible to derive the marginal product of an input using a transformation function?" Tags="&lt;microeconomics&gt;&lt;production-function&gt;&lt;producer-theory&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14785" PostTypeId="2" ParentId="14772" CreationDate="2016-12-23T00:38:33.610" Score="2" Body="&lt;p&gt;I don't think cash could be described as a security... one of the characteristics of securities is that they have imperfect (if very high) liquidity and provide a return (be it fixed or variable). Cash is the definition of liquid and inherently provides no return - you could earn interest on cash by depositing it in a bank but then you are creating a debt obligation in effect - the cash inherently, as in cash in a physical safe, generates zero return nominal by definition. You could think of cash as a debt security where a debt is theoretically placed on the issuer. But: in practice the debt is impossible to pay. You cannot bring a bill into the fed and demand they honour it. So I suppose it would be a debt security in the theoretical sense but it lacks almost all properties of debt securities:&#xA;cannot be repaid in practice, never intended to be repaid, perfectly liquid etc, and it has a value that cannot be expressed in terms of anything but itself. &lt;/p&gt;&#xA;" OwnerUserId="8443" LastActivityDate="2016-12-23T00:38:33.610" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14786" PostTypeId="2" ParentId="14779" CreationDate="2016-12-23T02:25:04.033" Score="5" Body="&lt;p&gt;R-squareds and p-values give different information. For example, suppose that you regress birth weight on mother's smoking. The p-value tells us whether the association is indeed nonzero (in the statistical sense), and the R-squared tells us how much of variation in birth weight is explained by mother's smoking. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;p-value &gt; .15 and R-squared 40% would mean that (1) we can't say that the association is nonzero (2) but the explanatory power for the given sample is quite large. The two neither reinforce each other nor are contradictory. &lt;/p&gt;&#xA;" OwnerUserId="10775" LastEditorUserId="10775" LastEditDate="2016-12-23T02:30:15.707" LastActivityDate="2016-12-23T02:30:15.707" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="14788" PostTypeId="2" ParentId="14761" CreationDate="2016-12-23T04:17:49.927" Score="3" Body="&lt;p&gt;Oliv i think that what you are referring to in this paragrapgh: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The usual framework to talk about ambiguity is the situation where a decision-maker expresses preferences over uncertain acts. Formally, if is a prize space and  is a state space, acts are mappings  from  to . For instance, the decision-maker might be asked to form preferences between the act that offers her/him an apple if Novak Djokovic wins the 2017 Australian Open and an orange otherwise, and the lottery that offers her/him an apple if Andy Murray wins the 2017 Australian Open and an orange otherwise. The standard result in that area (von Neumann-Morgenstern theorem) delivers a representation that identifies both the agent's probabilistic beliefs regarding the states and her/his attitude towards risk (her/his utility function).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Is the &lt;em&gt;pure subjective&lt;/em&gt; world of Savage, as presented in Savage &quot;Foundations of Statistics&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My interpretation of the terms are:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Risk&lt;/strong&gt;: decision making with &lt;em&gt;given/objective&lt;/em&gt; probabilities. Notice that the two terms arent equal. Im not going to expand on this because it is not the topic under discussion, but &lt;em&gt;given probabilities&lt;/em&gt; $\Rightarrow$ &lt;em&gt;objective probabilities&lt;/em&gt;. The reference for this is Gilboa &quot;Theory of Decision Under Uncertainty&quot;. This means that the primitives in the problem are both probabilities and preferences. The standard model is VnM's Expected Utility.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Uncertainty&lt;/strong&gt;: decision making with &lt;em&gt;subjective probabilities&lt;/em&gt;. This means that given an event, two people might have different probabilistic beliefs over it, where none can convince the other of the superiority of their own probabilistic assessment. In this case the primitive of the decision problems is only the preference relation (beliefs are derived from it). The standard model is Savages &lt;em&gt;Subjective Expected Utility&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Mixture of both&lt;/strong&gt;: here is where Anscombe Aumann enters the scene. They axiomatize a preference functional where both &lt;em&gt;subjective&lt;/em&gt; and &lt;em&gt;objective&lt;/em&gt; probabilities are present. In their representation  the decision maker takes a double expectation (over lotteries and over states of the world) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Ambiguity&lt;/strong&gt;: now, ambiguous scenarios are the ones where the decision maker does not hace sufficient information to be completely sure that his (unique) belief is the correct one. Quoting Cerreia Vioglio et.al &quot;Ambiguity and Robust Statiatics&quot;, &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Ambiguity refers to the case in which a DM does not have sufficient information to quantify through a single probability distribution the stochastic nature of the problem he is facing&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Thus, a natural way to model ambiguity is through &lt;em&gt;sets of priors&lt;/em&gt;, where de DM is not forced to say &quot;the probability of event E is x%&quot; (as in savage world), an cam say &quot;the probability of event E is between $[ x\%, y\%]$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Notice that by definition, ambiguity scenarios need to have subjective frameworks thus the natural way to model in this case is by having preferences over Savage acts $f:S \rightarrow X$ or Anscombe Aumann acts $f:S \rightarrow \Delta (X)$&lt;/p&gt;&#xA;" OwnerUserId="10166" LastActivityDate="2016-12-23T04:17:49.927" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="14789" PostTypeId="1" CreationDate="2016-12-23T04:35:24.630" Score="2" ViewCount="152" Body="&lt;p&gt;It is fiscal policy to keep inflation at between 1-2% (in New Zealand at least) &#xA;Various tools are used to keep inflation in this range.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's say the average inflation rate is 1.25%&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What would happen if a small country (this probably would not work if the US tried it) printed* enough money to push inflation to 2%. Then put that money into a global index fund (and gold as a hedge).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This fund would be earmarked for superannuation, Universal Basic Income (UBI),  'a rainy day', quantative easing during a depression, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In say 50 years the fund could become quite substantial. It could then be used to offset (all?)taxes with the fund's dividends. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;What is the obvious flaw in this plan of printing money to finance a long term government fund?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;*Not literally print, but you know what I mean.&lt;/p&gt;&#xA;" OwnerUserId="11558" LastEditorUserId="11558" LastEditDate="2017-06-22T00:47:41.133" LastActivityDate="2021-04-21T18:11:31.073" Title="Printing money to put into a Superannuation or UBI fund" Tags="&lt;monetary-policy&gt;&lt;inflation&gt;&lt;political-economy&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14790" PostTypeId="2" ParentId="4686" CreationDate="2016-12-23T04:47:09.547" Score="-2" Body="&lt;p&gt;&lt;a href=&quot;https://www.youtube.com/watch?v=H7QlOTi86Nk&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.youtube.com/watch?v=H7QlOTi86Nk&lt;/a&gt; The best answer gives Patrick Wood: Technocracy Rising &lt;/p&gt;&#xA;" OwnerUserId="11559" LastActivityDate="2016-12-23T04:47:09.547" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14792" PostTypeId="2" ParentId="14779" CreationDate="2016-12-23T08:53:13.743" Score="3" Body="&lt;p&gt;If you are running a regression analysis I would say you should look first at p-values to check if the explanatory variables you added make sense. I mean if you have a hypothesis about a relationship among two variables and you find the explanatory one not significant (large p-value) I would check for possible mistakes or alternative explanations. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It makes sense to have a look at $R^2$ if you are comparing two different specification, it does not really make sense looking at it alone.&#xA;I have seen many papers, have a look at &lt;a href=&quot;http://scholar.harvard.edu/files/nunn/files/nunn_wantchekon_aer_2011.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Nunn, Wantcheckon, (2011)&lt;/a&gt; as an example, which have been published on top journals (AER in this case) even with $R^2$ around 16%, not really an high value. &lt;/p&gt;&#xA;" OwnerUserId="6773" LastActivityDate="2016-12-23T08:53:13.743" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="14793" PostTypeId="1" CreationDate="2016-12-23T13:47:57.917" Score="4" ViewCount="117" Body="&lt;p&gt;As a PhD student I made a few connections over the course of time with professors from around Europe (had brief chats with them at conferences, invited them at conferences, etc..). Some explicitly said, send me your paper once it is ready, other haven't.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is it common in Economics to send your paper, without an explicit invitation, asking for feedback (assuming the speaker to be in the relevant field)? Or should one wait or look for a chance to present it in a seminar?&lt;/p&gt;&#xA;" OwnerUserId="6023" LastActivityDate="2018-01-13T01:36:44.783" Title="Sending your paper around in Economics" Tags="&lt;soft-question&gt;" AnswerCount="2" CommentCount="3" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="14795" PostTypeId="2" ParentId="14793" CreationDate="2016-12-23T15:34:05.383" Score="4" Body="&lt;p&gt;&lt;em&gt;Is it common in Economics to send your paper, without an explicit invitation, asking for feedback (assuming the speaker to be in the relevant field)?&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am not sure this is common in Econ but I have definitely done it! Note that you increase the probability of getting feedback if &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;you know or met the author, &lt;/li&gt;&#xA;&lt;li&gt;he/she asked you to send your paper,&lt;/li&gt;&#xA;&lt;li&gt;you cite their work.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Or should one wait or look for a chance to present it in a seminar?&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is probably your best chance to get feedback given that profs are very busy. A bunch of universities and associations organize PhD seminars, workshops, conferences or poster sessions. Look at &lt;a href=&quot;https://inomics.com/&quot; rel=&quot;nofollow noreferrer&quot;&gt;inomics&lt;/a&gt;. You may also contact profs with the intention to present your work in their seminars.&lt;/p&gt;&#xA;" OwnerUserId="6168" LastActivityDate="2016-12-23T15:34:05.383" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14796" PostTypeId="2" ParentId="14779" CreationDate="2016-12-23T17:45:33.313" Score="1" Body="&lt;p&gt;Well, adjusted R2 has more merit than R2. R2 will always rise (or at least stay the same) as you add more variables (even if the variables are not statistically significant). Thus in theory you could achieve a very high R2 by just bunging a load of nonsense variables into your regression. Adjusted R2 compensates for this by adjusting the R2 by a penalization factor that increases as the number of variables rise - hence adding a new variable will always raise r2 but will raise adjusted r2 only based on its explanatory power. Information criteria such as the Bayesian information criterion (also called Schwarz criterion) or Akike information criterion can be used to choose between competing models. Intuitively, they measure explanatory power but penalize for &quot;bigger&quot; models which are more prone to overfitting and other problems. The BIC penalizes additional parameters more heavilly than the AIC, for example. You would prefer the model which minimizes the information criterion score. Note that, unlike R2, the values of information criteria are not inherently very meaningful - you cannot say &quot;this is a good model because it has a BIC of -50&quot;, but you can use them to choose between. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What matters more than either P values or measures of goodness of fit is that the model is theoretically sensible and that the Gauss-Markov assumptions hold. This is what makes a &quot;good&quot; model - ability to explain a high proportion of the variance is the icing on the cake, nothing more. If I regress rainfall in the UK on US GDP for instance, I will get a P-value of close to zero and an R2 of above 0.95 - yet obviously there is no genuine economic relationship here. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So a sensible model with solid theoretical foundations which satisfies the OLS assumptions is a good model even if its explanatory power is limited. Conversely a model with high r2 / low p values which doesn't satisfy econometric assumptions or lacks theoretical credibility can never be a &quot;good&quot; model.  &lt;/p&gt;&#xA;" OwnerUserId="8443" LastActivityDate="2016-12-23T17:45:33.313" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14797" PostTypeId="2" ParentId="14779" CreationDate="2016-12-23T17:50:14.347" Score="0" Body="&lt;p&gt;If you want to forecast it is common practice to split your sample up into two parts - the &quot;estimation sample&quot; and the &quot;forecast sample&quot;. The estimation sample is used to, you guessed it, estimate your model, which you then use to forecast the data for which you already have true values contained in your forecast sample. You then compare your forecast predictions to known data and to those of other forecasts. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can do this using r2 or adjusted r2 over the forecast sample. We also commonly use measures like means squared error, mean absolute percentage error, Theil's U, etc. etc.  &lt;/p&gt;&#xA;" OwnerUserId="8443" LastActivityDate="2016-12-23T17:50:14.347" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14798" PostTypeId="2" ParentId="14779" CreationDate="2016-12-23T18:19:48.130" Score="3" Body="&lt;p&gt;There is in fact a theoretical answer to this and it may be of importance to you in the long run.  There are three main schools of statistical thought and several minor schools.  The three are, in the order of discovery, the Bayesian, the Likelihoodist and the Frequentist.  The differences matter because they can provide different answers using the exact same data and running the same formula.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From the language of your posting, you are not using the Bayesian methodology.  Bayesian methods do not have a null hypothesis, so they cannot have a p-value.  Rather than compute a probability that the null is as extreme or more extreme than you would expect if the null is true, Bayesian methods compute the positive probability that each separate hypothesis is true.  It does not falsify a null, it assigns a positive probability to each competing possible hypothesis.  It does not limit itself to two hypothesis, though you can have two.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The second is the Likelihoodist model and this is where the language in your posting seems to go.  The likelihoodist model has p-values, but no cut-off value, $\alpha$, while the Frequentist school as a cut-off value $\alpha$, but there is no such thing as a p-value.  Both schools are part of a broader scheme called the null hypothesis method.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the null hypothesis method, you choose a null and grant 100%  probability that it is true, ex ante.  Statistics is a branch of rhetoric and not a branch of mathematics.  Like physics, it uses mathematics intensively, but it is not part of the field of mathematics.  Rather, it is about how to decide arguments.  The ordinary null used in statistics is the &quot;no effect&quot; hypothesis.  That is you argue that all $\beta=0$, that is the independent variables have no effect at all on the dependent variable.  If you falsify it, then you are arguing that it does have an effect and the null is falsified.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the case of the Likelihoodist school, there is no magical cut-off value for the p-value.  You just report it.  It is the weight of the evidence against the null.  A p-value of less than .15 leaves a lot of room for chance, but if you are okay with that level, then it is significant &lt;em&gt;to you&lt;/em&gt;.  This is an either-or discussion.  It either is good enough, or it is not good enough.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you believe it is good enough, then you use the values of the OLS equation because they are the most probable value based on your data.  From that point onward, the adjusted $R^2$ gives the best measure of the amount of variability that your model provides.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you do not believe that a  p-value is good enough, then you are faced with a peculiar problem.  You need to throw away your OLS equation, according to theory.  If the null is not falsified then no new information exists and you ignore your results.  It is as if you had never performed the analysis in the first place.  The Likelihoodist school is epistemological, that is it is a knowledge seeking tool.  If the p-value is not adequate for your purposes, then there is no added knowledge and you need to spend your life looking at something else rather than waste your time on this topic.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand, if you use the Frequentist school, the results have a different interpretation.  In the Frequentist school, the OLS equations are not the maximum likelihood estimator(MLE) as they are with Likelihoodists, but instead the equations are the minimum variance unbiased estimators(MVUE).  It happens to work out nicely that the two schools have the same answers for the simple problems, such as regression.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Frequentist school is behavioral.  It tells you how to behave.  For example, if you were doing quality assurance on batches coming out of a factory and you got results indicating poor quality, falsifying the null of good quality, then you destroy the batch, otherwise you accept the batch.  You do not know the batch is bad just because it tests bad.  You do not know if a batch is good, just because it tests good.  This is not about knowledge, it is about how you should behave.  Do you destroy the batch when you reject the null and accept the batch when you accept the null?  Yes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In order to create this, before you collect the data, you set a value called $\alpha$, which is your cut-off.  This value is set with respect to both the importance of false positives and the importance of false negatives.  If the test statistic is in the rejection region, then you &lt;em&gt;behave&lt;/em&gt; as if the OLS parameters were the true parameters.  The adjusted $R^2$ then provides the degree of variability explained by the model.  If the test statistic is in the acceptance region, then you have accepted the null.  The null was that all $\beta=0$, so you are obligated to behave as if there was no relationship between any of the independent variables and the dependent variable and the $R^2$ doesn't matter because it is the the $R^2$ of a model that you are not using.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is difficult to determine what is going on with your model using null hypothesis methods.  It could be spurious correlations  that explain a lot of the variability of your sample, but not the variability that you would find out of sample.  It could be that the effects are close to zero, but not zero, but the effect size is too small for it to be clearly significant.  That is to say, your sample lacks the power to detect the effect.  The problem with null hypothesis methods, in general, is that there is no way to distinguish a null that is truly false from one where the result was due to a weird sample.  It is impossible to distinguish truth and chance effects.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you have a professor around that uses Bayesian methods, and they are uncommon in economics, you could have them run it as a Bayesian model.  Bayesian hypotheses are combinatoric, so that if you have three regressors, $x_1, x_2, x_3$, the researcher has to run all possible combinations of dependent variables and test each submodel for the probability that it is the true model.  This may help distinguish between the various parts and the things that can go wrong with MLE and MVUE models such as multicolinearity, small effects and so forth.&lt;/p&gt;&#xA;" OwnerUserId="11321" LastActivityDate="2016-12-23T18:19:48.130" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14799" PostTypeId="1" CreationDate="2016-12-23T21:13:03.767" Score="7" ViewCount="301" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Question Moved from Money StackExchange:&#xA;  &lt;a href=&quot;https://money.stackexchange.com/questions/74002/do-stock-markets-price-in-existential-risk-i-e-global-nuclear-war&quot;&gt;https://money.stackexchange.com/questions/74002/do-stock-markets-price-in-existential-risk-i-e-global-nuclear-war&lt;/a&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Q: Do stock markets price in existential risk?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &lt;a href=&quot;https://en.wikipedia.org/wiki/Cuban_Missile_Crisis&quot; rel=&quot;nofollow noreferrer&quot;&gt;Cuban Missile Crisis&lt;/a&gt; in November 1962 is an example of coming to the brink of global nuclear war, and while the markets were down until its resolution, the index price did not seem to reflect anything resembling &quot;imminent end of the world&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/wx3TU.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/wx3TU.png&quot; alt=&quot;Dow Jones Stock Market Cuban Missile Crisis&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;More recently, &lt;a href=&quot;http://tass.com/defense/921420&quot; rel=&quot;nofollow noreferrer&quot;&gt;Putin's declaration to escalate nuclear weapon systems development&lt;/a&gt;, &lt;a href=&quot;http://www.nytimes.com/interactive/2016/12/22/world/americas/trump-nuclear-tweet.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Trump's comments on expanding nuclear capabilities&lt;/a&gt;, and &lt;a href=&quot;http://www.independent.co.uk/news/world/americas/donald-trump-nuclear-expansion-tweet-noam-chomsky-weapons-arsenal-twitter-a7491921.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Noam Chomsky declaring the exchange &quot;very frightening&quot;&lt;/a&gt; suggests that we're in a period of elevated nuclear war risk.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, the US stock markets are at their historical highs. How can this be resolved? I can think of two possibilities:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;strong&gt;Markets accurately reflect the risk.&lt;/strong&gt; Cuban crisis was a real, but small risk, thus the market dip. Today, the risk is nearly zero, thus the markets are not down.&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;Markets ignore existential risk.&lt;/strong&gt; Rational investors expect a return on investment, but if the investors believe an event would kill them and their estate, the loss due to that event is irrelevant. Thus the risk of existential, planet destroying events, does not correlate with the stock market prices.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Is this true, can stock market price be trusted to reliably reflect existential risk?&lt;/p&gt;&#xA;" OwnerUserId="11566" LastEditorUserId="-1" LastEditDate="2017-04-13T12:25:31.177" LastActivityDate="2017-04-14T13:54:38.417" Title="Do stock markets price in existential risk (i.e. global nuclear war)?" Tags="&lt;macroeconomics&gt;&lt;finance&gt;&lt;stock-market&gt;&lt;risk&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="14800" PostTypeId="1" CreationDate="2016-12-24T00:23:42.727" Score="3" ViewCount="131" Body="&lt;p&gt;Rising interest rates means the cost of borrowing USD goes up. A stronger USD means USD becomes more expensive. Wouldn't that naturally follows that the cost of borrowing USD goes up since each dollar becomes more expensive?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does strong USD achieve the same effect as rising interest rates? If yes, is it logical to conclude that the Fed would put off raising interest rates if the dollar rises too much?&lt;/p&gt;&#xA;" OwnerUserId="6172" LastActivityDate="2017-01-21T13:09:16.990" Title="Does a strong dollar achieve the same tightening effect on the economy as rising interest rates?" Tags="&lt;currency&gt;&lt;interest-rate&gt;&lt;central-banking&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14804" PostTypeId="2" ParentId="14783" CreationDate="2016-12-24T19:37:57.490" Score="1" Body="&lt;p&gt;No, for three reasons. First, FDIC bailouts are funded via the guarantee fund, which is a pre-funded insurance fund that has never required an injection of cash. Second, if such an injection were to occur, it would happen through an appropriation from Congress, which would be implemented via a debt issuance from the Treasury— the Fed has zero authority to bail out the FDIC guarantee fund. Third, bank failures actually tend to involve a net contraction of the money supply, as distressed banks are less able to engage in new credit extension. &lt;/p&gt;&#xA;" OwnerUserId="264" LastActivityDate="2016-12-24T19:37:57.490" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14807" PostTypeId="1" CreationDate="2016-12-25T17:07:55.550" Score="1" ViewCount="430" Body="&lt;p&gt;I am aware of the conventional reasons: demand push inflation due to much higher oil prices, and a continuation of a mild recession.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Looking for a clearer explanation than I have been able to find, especially wrt monetary policy (IE, printing money)&lt;/p&gt;&#xA;" OwnerUserId="11575" LastActivityDate="2017-01-27T11:02:37.083" Title="What caused the stagflation in the early 1970s USA?" Tags="&lt;inflation&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14809" PostTypeId="2" ParentId="5548" CreationDate="2016-12-25T18:14:20.320" Score="1" Body="&lt;p&gt;The paper is a couple of years old by now, but I believe the first people to look seriously at the issues you're thinking of are &lt;a href=&quot;https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2394319&quot; rel=&quot;nofollow noreferrer&quot;&gt;Akbarpour, et al.&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It might be useful to look at that paper and the handful of others that cite it. The paper was originally called 'Dynamic Matching Market Design', so it may have more citations under that name.&lt;/p&gt;&#xA;" OwnerUserId="8595" LastActivityDate="2016-12-25T18:14:20.320" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14810" PostTypeId="1" AcceptedAnswerId="14825" CreationDate="2016-12-25T20:45:45.647" Score="8" ViewCount="652" Body="&lt;p&gt;I just noticed a very interesting fact. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;GDP of the United States: $18.5B&lt;/p&gt;&#xA;&#xA;&lt;p&gt;GDP of China: $11.4B &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we look at national wealth... &lt;/p&gt;&#xA;&#xA;&lt;p&gt;GNW of the United States: $84.8B&lt;/p&gt;&#xA;&#xA;&lt;p&gt;GNW of China: $24.1B&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The margin of the GNW is 8.5 times higher of that of the GDP! Why is GDP so paraded and why do we never hear about national wealth? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sources: &lt;a href=&quot;https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)&quot; rel=&quot;noreferrer&quot;&gt;https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)&lt;/a&gt;, &lt;a href=&quot;https://en.wikipedia.org/wiki/National_wealth&quot; rel=&quot;noreferrer&quot;&gt;https://en.wikipedia.org/wiki/National_wealth&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="8930" LastActivityDate="2016-12-29T02:15:33.270" Title="Why doesn't anyone talk about GNW (Gross National Wealth)?" Tags="&lt;gdp&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="14812" PostTypeId="1" AcceptedAnswerId="14824" CreationDate="2016-12-26T17:45:10.227" Score="5" ViewCount="191" Body="&lt;p&gt;I want to model an interaction between a government and its citizens using the game theory extensive form, but I want to express the posibility that the citizens don't act as a unique agent. For example, government imposes a new tax, some of the citizens pay it without problems, but others don't do it because socioeconomical problems. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Obviously, both situations can happen at the same time so in the extensive form there wouldn't be a unique selected leaf node. ¿Does this mean that I can't use extensive form in this case?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm looking for an example in the game theory literature, but I can't find anything.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you&lt;/p&gt;&#xA;" OwnerUserId="11585" LastActivityDate="2019-02-18T21:12:13.330" Title="Extensive form of multiplayer games" Tags="&lt;game-theory&gt;&lt;extensive-games&gt;" AnswerCount="4" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14814" PostTypeId="2" ParentId="10713" CreationDate="2016-12-26T22:30:20.847" Score="4" Body="&lt;p&gt;A basic sketch is like this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose the interest rate in the US is 3% and the interest rate in the UK is 3%. But then the rate in the UK increases to 4%. How will people respond to this?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lots of the people with money sitting in American banks are going to want to withdraw their money and deposit in a British bank (where they are paid a higher interest rate) instead.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In order to do this, they need to convert their dollars into pounds that the British bank will accept. Since they are selling dollars and buying pounds, the supply of the former and the demand for the latter increases, which is why the value of the pound relative to the dollar increases (the exchange rate is determined by supply and demand just like an ordinary price).&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2016-12-26T22:30:20.847" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14816" PostTypeId="1" CreationDate="2016-12-27T05:21:40.813" Score="5" ViewCount="300" Body="&lt;p&gt;I have a question regarding the uniqueness of preference functionals under risky and dynamic settings. Two well known models to represent preferences for both settings are the Expected Utility Model and the Discounted Time-Separable Utility respectively. Formally&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Risk:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$V(f)=\sum_{\forall s \in S} p(s) u(f(s))$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where $S$ is the set of states and $p(s)$ is the probability of state $s$, and $u(\cdot)$ a cardinal utility function.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Dynamics:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$W(c)=\sum_{t=0}^{T} \mathcal{D}(t) v(c_t)$$&#xA;Where $\mathcal{D}(t)$ is a discount factor and $v(\cdot)$ is a cardinal utility function.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We know that both $u(\cdot)$ and $v(\cdot)$ are &lt;em&gt;cardinal&lt;/em&gt; utility functions, and I understand why. But while every representation theorem of this sort of preferences mention the &lt;em&gt;uniqueness&lt;/em&gt; of the functions $u(\cdot)$ and $v(\cdot)$(i.e &lt;em&gt;unique up to positive affine transformations&lt;/em&gt;), they are silent about the uniqueness of $V(\cdot)$ and $W(\cdot)$. My question is: &lt;em&gt;are the functions $V(\cdot)$ and $W(\cdot)$ ordinal or cardinal?&lt;/em&gt; .&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My intuition tells me that they should be ordinal, as they only rank objects of choice and the attitudes towards risk and time are captured respectively by the function $u(\cdot)$ in the case of risk, and the &lt;em&gt;preference for consumption smoothing&lt;/em&gt; is given by the function $v(\cdot)$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example if $V(f)&amp;gt;V(g)$ then, it should also be that for every increasing function $H(\cdot)$, $H(V(f))&amp;gt;H(V(g))$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Nevertheless by the linearity of the Expected Utility Functional, i.e,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$h\Bigg(\sum_{\forall s \in S} p(s) u(f(s)\Bigg)=\sum_{\forall s \in S} p(s) h\big( u(f(s)\big)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;[So if this is correct, $h(\cdot)$ should be affine, making $V(f)$ &lt;em&gt;cardinal&lt;/em&gt;. ]&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I suspect that my intuition might be wrong (same applies to the dynamic setting), so I was wondering if you guys could help me clarify this question. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you very much! &lt;/p&gt;&#xA;" OwnerUserId="10166" LastEditorUserId="10166" LastEditDate="2016-12-27T06:06:03.907" LastActivityDate="2016-12-27T06:06:03.907" Title="On the uniqueness of utility functions for both risk and time" Tags="&lt;mathematical-economics&gt;&lt;expected-utility&gt;" AnswerCount="0" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="14817" PostTypeId="2" ParentId="14812" CreationDate="2016-12-27T06:33:27.843" Score="1" Body="&lt;p&gt;There are several examples in the literature. In the extensive game form, you can express that two different players move simultaneously by letting them move sequentially, but the later players do not observe what the previous player did. Strategically, it is equivalent whether the player move at the same time or whether one player moves first and the other player moves second without knowing what the first players did.&lt;/p&gt;&#xA;&lt;p&gt;As an example, see the extensive game form of the prisoners' dilemma:&#xA;&lt;a href=&quot;https://i.stack.imgur.com/7Jjq9.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/7Jjq9.jpg&quot; alt=&quot;&quot; /&gt;&lt;/a&gt;&lt;br /&gt;&#xA;&lt;sub&gt;(source: &lt;a href=&quot;http://images.slideplayer.com/13/3962169/slides/slide_14.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;slideplayer.com&lt;/a&gt;)&lt;/sub&gt;&lt;/p&gt;&#xA;&lt;p&gt;Prisoner A goes first, when prisoner B moves second the information set signifies that B did not observe what A did.&#xA;I googled the picture: &lt;a href=&quot;http://slideplayer.com/slide/3962169/&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://slideplayer.com/slide/3962169/&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="11590" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2019-02-18T21:12:13.330" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="14820" PostTypeId="2" ParentId="14812" CreationDate="2016-12-28T10:06:10.343" Score="0" Body="&lt;p&gt;Yes, I think you can do that but that is going to make the tree very ugly. Say there are 4 players. P1 is government and P2, P3 and P4 are the population. Now first let P1 make a decision. Then let P2 make a decision under uncertainty using an equivalence class to make it simultaneous and then P3 and P4 in the same fashion. This will be an explicit way of doing so if you want to model a simultaneous move game. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can also assume government to be P1 and the population as P2 which contains the three individuals. With this you will have to make all combinations of the state of P2 according to their action sets. For example, one state could be when one out of the three individuals accepts the tax law and the other two reject it. &lt;/p&gt;&#xA;" OwnerUserId="5582" LastActivityDate="2016-12-28T10:06:10.343" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14821" PostTypeId="2" ParentId="14807" CreationDate="2016-12-28T10:27:36.127" Score="1" Body="&lt;p&gt;The 19702-73 inflation was a supply side shock, a negative supply shock to be specific. Because of the high oil prices, production cost of almost every rose sharply. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since, this was the first time that such a shock was seen at such large scale it was mostly misunderstood and traditional short term policy tools i.e. easy monetary policy and fiscal stimulus were deployed. What had actually happened was since oil is such an essential part of production, not just the short term but the long term output or the potential output itself was affected and should have been revised. Because of the incorrect diagnosis and policy response, inflation got embedded into the long term expectations and hence it just went into a spiral. &lt;/p&gt;&#xA;" OwnerUserId="5582" LastActivityDate="2016-12-28T10:27:36.127" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14822" PostTypeId="2" ParentId="10713" CreationDate="2016-12-28T12:52:36.430" Score="0" Body="&lt;p&gt;Higher interest rates could mean:&#xA;1) More risk of default by government&#xA;2) More risk of currency depreciation/devaluation&#xA;3) Arbitrage opportunity&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assuming no arbitrage of course, higher interest rates due to credit risk would increase diversification opportunities to foreign investors seeking risky assets, due to correlation influences on portfolio. This will hence increase the attraction of these assets to a wider investor pool. &lt;/p&gt;&#xA;" OwnerUserId="11598" LastActivityDate="2016-12-28T12:52:36.430" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14823" PostTypeId="2" ParentId="14683" CreationDate="2016-12-28T13:41:57.883" Score="2" Body="&lt;p&gt;To answer the specific question, I believe the largest hf in the world is Bridgewater (assets under management of around 120bn USD). Assets of around 500m USD would be considered average and north of 1bn usd large. Bridgewater is an outlier. I do not know if one larger has ever existed but I doubt it. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As to what effects they have on the economy well, funds can serve as catalysts for economic events (e.g. Soros' fund and others catalysing the UK exit from the ERM). They serve as vehicles for pooling and allocating capital and so act as intermediaries between those who wish to lend (investors in the hedge fund) and those who wish to borrow (firms issuing bonds etc. which the hf buys). This function only applies when the hedge fund is making a primary investment though - when it is buying something in the secondary market rather than a first issuance funds do not have this role. They largely determine things like commodity prices, exchange rates through the bulk of money they control together, although no hedge fund is large enough to control these markets directly.  &lt;/p&gt;&#xA;" OwnerUserId="8443" LastActivityDate="2016-12-28T13:41:57.883" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14824" PostTypeId="2" ParentId="14812" CreationDate="2016-12-28T13:45:06.517" Score="2" Body="&lt;p&gt;There is &lt;strong&gt;no possibility&lt;/strong&gt; to model a &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;single&quot; player [that] can simultaneously choose different options.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Neither in the normal nor in the extensive game form. Different types of a player can be only be used if they are mutually exclusive. So suppose the citizens (one player!) can either be poor or rich and this may affect their pay-offs and thus actions. There is no possibility for the citizens to be poor and rich at the same time (while represented by the same player).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your only option is to follow Sub-Optimal's solution and model different types of citizens as different players.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As Bayesian pointed out, you can then model simultaneous decisions by citizen 1, 2 and so forth by setting their information sets accordingly.&lt;/p&gt;&#xA;" OwnerUserId="11518" LastActivityDate="2016-12-28T13:45:06.517" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14825" PostTypeId="2" ParentId="14810" CreationDate="2016-12-28T16:17:54.447" Score="5" Body="&lt;p&gt;Historically, the distinction between GDP and GNW goes back (at least) to Adam Smith. Before Smith, it was quite common to measure a country's economic power by its wealth. For example, this was very characteristic of the &lt;strong&gt;Mercantilistic school&lt;/strong&gt; in the 17th century. Following the motto &quot;you are what you have&quot;, mercantilists suggested that countries should try to accumulate as much wealth (for them: gold) as possible. This was to be achieved by a combination of an export oriented economy and political measures to limit imports such as tariffs. Selling goods abroad and keeping one's currency (again, gold) they hoped would result in having more money and thus being more wealthy. This idea is reasonable for the middleages where the difference between having and not having money can decide about which country is able to hire more mercenaries and has the potential to decide wars.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For more modern societies a country's wealth (read assets) becomes less important.  &lt;strong&gt;Adam Smith&lt;/strong&gt; was the first to realize that the &quot;Wealth of Nations&quot; is not so much about how much money they have but rather about how much economic welfare they can generate. This is measured in the number of goods and services produced in a given year, nowadays known as GDP. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;From today's perspective, why do we use GDP rather than GNW:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Actual production is much more important to determine a country's productivity than its wealth&lt;/li&gt;&#xA;&lt;li&gt;Accumulated wealth (GNP) measures past wealth while this years production of goods and services (GDP) is a good indicator of future wealth&lt;/li&gt;&#xA;&lt;li&gt;There is probably also some path dependency. Given that hardly anyone ever hears about GNP, I agree with you that (despite all arguments against it) GNP is slightly underrated.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="11518" LastEditorUserId="11518" LastEditDate="2016-12-29T02:15:33.270" LastActivityDate="2016-12-29T02:15:33.270" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14827" PostTypeId="1" CreationDate="2016-12-28T22:29:46.490" Score="2" ViewCount="22" Body="&lt;p&gt;Is there a reliable estimate of what proportion of adults in a given country are in debt at a given time? With &quot;debt&quot; covering student debt, debt secured by mortgages on property, credit card debt, etc.?&lt;/p&gt;&#xA;" OwnerDisplayName="user11602" LastActivityDate="2016-12-28T22:29:46.490" Title="Is there a reliable estimate of what proportion of adults in a country are in debt at a given time?" Tags="&lt;debt&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14829" PostTypeId="2" ParentId="14812" CreationDate="2016-12-28T23:13:52.050" Score="1" Body="&lt;p&gt;I am adding a new answer to make a different point. I am still not sure what exactly you want to do. You have not formally accepted one of the answers, so here I go.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let me take your example of a government setting a tax. &#xA;First the government sets a tax $t$. Then, there is a continuum of citizens of measure 1. Each citizen has a type $\theta$ and these types are distributed according to some cdf $F$. Let this type be a reduced form way to model the &quot;socioeconomic problems &quot; you mentioned. Let there be a function $\tau$ that maps each tax $t$ into a type $\tau(t)= \theta'$ that represents the cutoff type that can barely manage to pay the tax and all lower types cannot do it due to &quot;socioeconomic problems&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can easily draw the corresponding game tree with one node representing the population. However,  the citizens are not strategic players here.&lt;/p&gt;&#xA;" OwnerUserId="11590" LastEditorUserId="11590" LastEditDate="2016-12-28T23:28:14.817" LastActivityDate="2016-12-28T23:28:14.817" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14832" PostTypeId="1" AcceptedAnswerId="14835" CreationDate="2016-12-29T04:52:31.223" Score="1" ViewCount="404" Body="&lt;p&gt;I have started studying producer theory on my own and there are some confusions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We know that a production plan is $y=(y_{1},y_{2},y_{3}....y_{L})$ where $ y_{i} $ is an output if its greater than $0$ and input if it's less than $0$. The production set $Y$ is such that any $y \in Y$. The vector $y$ is also called a netput vector.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;1&lt;/strong&gt;. Take free-disposal: if $y \in Y$ and $y^{1} \leq y$&#xA;, then $y^{1} \in Y$. How are we comparing the vectors $y^{1}$ and $y$ here? Are we taking the cartesian length(norm) of both vectors and comparing? (or does it mean that each component of $y^{1}$ is smaller than the corresponding components in $y$) ? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;2&lt;/strong&gt;.Non-increasing returns to scale is given by:if $\forall y\in Y \implies ay\in Y$ for $a\in[0,1]$, then $Y$ shows non-increasing returns to scale.This  would mean that vectors smaller than $y$ are also in $Y$. The way I knew it, decreasing returns to scale means output changes less than proportionately to change in inputs. How does these two ideas relate?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;3&lt;/strong&gt;.What is the difference between the transformation frontier and an isoquant? I am having a hard time vizualizing them. What would the frontier and isoquant look like if we draw $Y\in R^{3}$ using level curves for outputs and the two axes for the two inputs?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I hope I explained my questions clearly.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks&lt;/p&gt;&#xA;" OwnerUserId="7710" LastActivityDate="2016-12-29T10:16:16.873" Title="Some doubts about netput vectors" Tags="&lt;production-function&gt;&lt;producer-theory&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14834" PostTypeId="1" AcceptedAnswerId="14884" CreationDate="2016-12-29T10:01:00.007" Score="2" ViewCount="684" Body="&lt;p&gt;I am a bit confused about the concept of natural real interest rate. I've read that it is the level of real interest rate consistent with the output being at its potential or natural level and with the inflation being static. Is that true?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Furthermore, I do not understand how natural real interest rate is able to affect output and natural level of output (then, the output gap) in the usual New Keynesian framework. I mean the dynamic is curve is defined as&#xA;\begin{gather}&#xA;x_t=E_t\{x_{t+1}\}-\frac{1}{\sigma}\{i_t-E_t\{\pi_{t+1}\}-r^n_{t}\}&#xA;\end{gather}&#xA;where $x_t=y_t-y^n_t$, i.e. the output gap and $r^n_{t}$ is the natural real interest rate. ($\frac{1}{\sigma}$ comes from a CRRA household utility with elasticity $\sigma$).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus it seems that an increase in the natural real interest rate leads to an increase in current output gap, but how is this true? Does it mean that natural level of output increases more than output?&lt;/p&gt;&#xA;" OwnerUserId="6773" LastActivityDate="2017-01-07T19:21:48.003" Title="Natural real interest rate and output gap" Tags="&lt;macroeconomics&gt;&lt;new-keynesian-economics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14835" PostTypeId="2" ParentId="14832" CreationDate="2016-12-29T10:16:16.873" Score="2" Body="&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;We say that $x \le y$ when $x_i \le y_i$ for each $i=1,\ldots,n$.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;If the production set can be represented by a production function $F$, and $F$ is homogeneous of degree $r &amp;lt; 1$ ($F(\lambda x) = \lambda^r F(x)$ for $\lambda &amp;gt;0$), then the production set satisfies the non-increasing returns to scale property you state. Moreover, if $F(0)=0$, and $F$ is concave, the production set also satisfies non-increasing returns to scale. Hence, you can think of the definition as a generalisation of the intuitive understanding you have.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;An isoquant takes the output level as given and specifies all the input combinations that give you exactly the given level of output. The transformation frontier is the frontier of the production possibilities set. The production possibilities set takes the inputs as given and specifies all the output combinations that are possible for the given inputs. You can think of the transformation frontier as the output bundles that are not wasteful (i.e. efficient).&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="8595" LastActivityDate="2016-12-29T10:16:16.873" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14837" PostTypeId="1" CreationDate="2016-12-29T15:49:15.940" Score="1" ViewCount="35" Body="&lt;p&gt;There is always debate that increasing minimum salary will pour in more money into the budget &lt;a href=&quot;https://economics.stackexchange.com/questions/429/what-is-the-economic-purpose-of-increasing-the-minimum-wage#answer-515&quot;&gt;as those who get minimum salary will spend them immediately&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The counter argument is that increasing minimum salary will increase unemployment and it will bring all the downsides (sitting on benefits, less spending, crime,...) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I was wondering is there established 'elasticity' between unemployment to GDP e.g 1% raise in unemployment would reduce GDP growth by X%? I am sure it will differ from country to country and also change from 10% to 9% and from 2% to one will not be the same, still there should be some ratio or formula with wide margin?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;How much does rise of one percent in unemployment affect GBP?&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="6891" LastEditorUserId="6891" LastEditDate="2018-02-16T04:49:34.883" LastActivityDate="2018-02-16T04:49:34.883" Title="How much does one percent of unemployment 'cost'? (Unemployment elasticity)" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;&lt;elasticity&gt;&lt;unemployment&gt;&lt;minimum-wage&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14840" PostTypeId="2" ParentId="10145" CreationDate="2016-12-29T18:59:23.033" Score="0" Body="&lt;p&gt;The Belleflamme-Peitz book on markets and strategies (already suggested above) is a good broad starter on IO. This book can be used for advanced undergrads. Masters students and MBA students - so it is perfectly fine for someone with your background. The MWG only makes sense if you want to do your PhD in Economics or if you insist on rigor.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For your particular case, I see no reason not to go to &#xA;&lt;a href=&quot;http://www.springer.com/de/book/9781402077012&quot; rel=&quot;nofollow noreferrer&quot;&gt;Talluri &amp;amp; van Ryzin&lt;/a&gt; directly. &#xA;The book is easy to read and it will directly address your questions.&lt;/p&gt;&#xA;" OwnerUserId="11590" LastActivityDate="2016-12-29T18:59:23.033" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14841" PostTypeId="2" ParentId="12801" CreationDate="2016-12-29T20:24:10.603" Score="1" Body="&lt;p&gt;In fact, in growth models, people usually assume that there exists a one generic good for which the price is equal to one and not an infinite number of goods. Then, it is possible to set the price equal to one. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can look at Acemoglu's Introduction to Modern Economic Growth textbook. In this book, you can see in a decentralized economy (where there are different sectors, final good producer, intermediate good producer etc.) you can see that the price of the final good is normalized to one and there exists a price $p$ for the intermediate good. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, to sum up, in simple canonical solow model with only one sector, there exists a one generic good and for more complicated growth models (endogenous growth models), where there are different sectors, there are different goods, then this implies different prices.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope that is a clear answer for you !&lt;/p&gt;&#xA;" OwnerUserId="2938" LastActivityDate="2016-12-29T20:24:10.603" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14843" PostTypeId="1" CreationDate="2016-12-29T22:04:14.243" Score="1" ViewCount="190" Body="&lt;p&gt;When regarding the CPI, why is the selection of G&amp;amp;S within it always favorable to what it has been for years? I ask because some economists and businessmen have seemed to find goods and services that have proved the CPI and inflation cohesion wrong. Are they fishing to deeply to find G&amp;amp;S that is to abstract? Or is that they are opening a larger topic of discussion that no one wants to believe?&lt;/p&gt;&#xA;" OwnerUserId="11618" LastActivityDate="2017-02-02T16:03:40.303" Title="Is the CPI accurate?" Tags="&lt;macroeconomics&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14845" PostTypeId="2" ParentId="95" CreationDate="2016-12-29T23:37:36.033" Score="2" Body="&lt;p&gt;Let me mention another quite well-known one: The calibration theorem by &lt;a href=&quot;http://onlinelibrary.wiley.com/doi/10.1111/1468-0262.00158/abstract&quot; rel=&quot;nofollow noreferrer&quot;&gt;Rabin (2000)&lt;/a&gt; and &lt;a href=&quot;http://www.jstor.org/stable/2696549&quot; rel=&quot;nofollow noreferrer&quot;&gt;Rabin and Thaler (2002)&lt;/a&gt;. The idea is that over small stakes individuals must be essentially risk-averse, but in reality they are not. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Only assuming a weakly concave and strictly increasing utility function, Rabin shows that risk aversion on small stakes implies obviously unrealistic risk aversion over large stakes. In other words, under expected-utility theory, a resistance to accept small stake gambles with positive expected value leads to absurd conclusions about individuals' behavior in large stake gambles. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, an individual rejecting a coin flip with a gain of USD 125 and a loss of USD 100 would not accept a gain USD $\infty$ and lose USD 600 gamble.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The papers are worth reading, but keep in mind the rebuttals, e.g., by Cox and Sadiraj (2006) or Palacios-Huerta and Serrano (2006).&lt;/p&gt;&#xA;" OwnerUserId="11590" LastActivityDate="2016-12-29T23:37:36.033" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14846" PostTypeId="1" CreationDate="2016-12-30T03:31:41.300" Score="1" ViewCount="42" Body="&lt;p&gt;In an economy with a bank-based financial system (little or no stock market activity allowed), I think I've got this much down:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The banks lend to businesses, who then make products and services. The businesses pay their suppliers according to the market rate. In other words, the businesses share their piece of the pie with suppliers according to how valuable they think the supplier is to them. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, I'm not quite sure how the banks determine how much the businesses should get for their efforts. I am assuming that the banks don't compete among themselves to sell loans to the businesses. The dividing of the pie between the banks and businesses in this case seems rather arbitrary. I know the banks simply expect an interest on their loan money, but it seems like the fixing of the interest rate seems arbitrary. Is it based on perceived risk of the industry in which the business operates? How would this risk be calculated for emerging industries, where there is little or no information?&lt;/p&gt;&#xA;" OwnerUserId="5591" LastActivityDate="2017-01-01T18:11:15.937" Title="In a bank-based economy, how do banks determine how to split the economic pie with the businesses?" Tags="&lt;banking&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14848" PostTypeId="2" ParentId="14843" CreationDate="2016-12-30T09:03:27.390" Score="1" Body="&lt;p&gt;Price measurement in most national and international agencies is based on the “statistical approach” to price indexes developed by Dutot (1738), Carli (1764), and Jevons (1865). The methodologies developed in these papers form the foundation of 98% of all consumer price indexes generated by government statistical agencies (Stoevska, 2008). Following this approach, statistical agencies are more likely to select a good for inclusion in the sample with a past high sales share. Because agencies typically choose products based on their historic sales shares, this explains why &quot;&lt;strong&gt;&lt;em&gt;the selection of G&amp;amp;S within the CPI is always favorable to what it has been for years&lt;/em&gt;&lt;/strong&gt;&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Economic theory has largely rejected the &quot;statistical approach&quot; to price measurement in favor of the &quot;economic approach,&quot; which asserts that all price indexes should be derived from consumer theory and correspond to the unit expenditure function. See Redding and Weinstein's paper &quot;&lt;a href=&quot;http://www.columbia.edu/~dew35/Papers/Estimating-Demand-and-Welfare.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;A Unified Approach to Estimating Demand and Welfare&lt;/a&gt;&quot;, they provide the argument and the above  references.&lt;/p&gt;&#xA;" OwnerUserId="6168" LastEditorUserId="6168" LastEditDate="2017-01-03T08:16:00.570" LastActivityDate="2017-01-03T08:16:00.570" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14849" PostTypeId="1" CreationDate="2016-12-30T09:57:30.753" Score="1" ViewCount="60" Body="&lt;p&gt;&lt;strong&gt;Preamble:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Today the rate of EUR is &lt;strong&gt;&lt;em&gt;82.09&lt;/em&gt;&lt;/strong&gt; in BDT ( Bangladeshi Currency) and two hours later it's &lt;strong&gt;&lt;em&gt;82.50&lt;/em&gt;&lt;/strong&gt; ( I hope, it's increasing). But why does this fluctuation just keeps happening? Looks like the rate changes every seconds..&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Question:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;What's the equation to calcualte currency fluctuation?&lt;/li&gt;&#xA;&lt;li&gt;How can someone forecast the fluctuation and direction of fluctuation (upward or downward)&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Please consider to have mercy before you lash me out for asking silly qoestion. I'm a newbie :)&lt;/p&gt;&#xA;" OwnerUserId="11621" LastEditorUserId="11621" LastEditDate="2016-12-30T11:25:47.700" LastActivityDate="2016-12-30T11:25:47.700" Title="What's the equation of currency fluctuation?" Tags="&lt;mathematical-economics&gt;&lt;currency&gt;&lt;international-economics&gt;&lt;currency-exchange&gt;&lt;foreign-exchange&gt;" AnswerCount="0" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="14850" PostTypeId="1" CreationDate="2016-12-30T10:33:08.113" Score="2" ViewCount="61" Body="&lt;p&gt;So, I was pondering the weakness of the UK economy (I am British) and its lagging productivity performance.  I was thinking that capital deployed per worker would be an explanatory variable.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Looking at figures from www.tradingeconomics.com: Gross Fixed Capital Formation data : &lt;a href=&quot;http://www.tradingeconomics.com/germany/gross-fixed-capital-formation&quot; rel=&quot;nofollow noreferrer&quot; title=&quot;Germany Gross Fixed Capital Formation&quot;&gt;Germany&lt;/a&gt;&#xA;|&lt;a href=&quot;http://www.tradingeconomics.com/united-kingdom/gross-fixed-capital-formation&quot; rel=&quot;nofollow noreferrer&quot; title=&quot;United Kingdom Gross Fixed Capital Formation&quot;&gt;United Kingdom&lt;/a&gt;|&lt;a href=&quot;http://www.tradingeconomics.com/france/gross-fixed-capital-formation&quot; rel=&quot;nofollow noreferrer&quot; title=&quot;France Gross Fixed Capital Formation&quot;&gt;France&lt;/a&gt;|&lt;a href=&quot;http://www.tradingeconomics.com/united-states/gross-fixed-capital-formation&quot; rel=&quot;nofollow noreferrer&quot; title=&quot;United States Gross Fixed Capital Formation&quot;&gt;United States&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Dividing through by population (proxy for working population) I get the following per capita figures&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;UK       $1,506.79 &#xA;Germany	 $1,860.17 &#xA;France   $1,858.21 &#xA;USA      $8,715.27 &#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;If the Sterling/dollar exchange before Brexit were used then the three European economies are very close to each at $1800.  But the key standout is the USA figure its miles ahead.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So I am now wondering why is United States Gross Capital Formation per capita so far ahead of the big 3 European economies?&lt;/p&gt;&#xA;" OwnerUserId="11622" LastActivityDate="2016-12-30T10:33:08.113" Title="Why is United States Gross Capital Formation per capita so far ahead of the big 3 European economies?" Tags="&lt;usa&gt;&lt;capital-structure&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="14851" PostTypeId="1" CreationDate="2016-12-31T00:19:26.367" Score="2" ViewCount="43" Body="&lt;p&gt;Does anyone know of some papers that look at how risk preferences affect demand for information (or related topics about the connection between risk and Information)? I took an information economics class a while ago and misplaced the syllabus.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can remember that some classical models predicted that higher risk aversion leads to lower consumption for information. My professor remarked that this seemed pretty counter-intuitive, and might be a result of a fundamental mis-specification in modeling information. Thoughts? I'd also be interested in experiments that look at this problem empirically. Thanks!&lt;/p&gt;&#xA;" OwnerUserId="11625" LastEditorUserId="-1" LastEditDate="2017-01-01T19:25:56.477" LastActivityDate="2017-01-01T19:25:56.477" Title="Risk and Information" Tags="&lt;reference-request&gt;&lt;information&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14852" PostTypeId="1" AcceptedAnswerId="14861" CreationDate="2016-12-31T02:49:50.530" Score="0" ViewCount="341" Body="&lt;p&gt;Are there any countries in which banks do not need to follow any special regulation other than the regular business regulations. If not, are there any countries that come close?&#xA;For more information &lt;a href=&quot;https://en.wikipedia.org/wiki/Free_banking?wprov=sfla1&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://en.wikipedia.org/wiki/Free_banking?wprov=sfla1&lt;/a&gt; .&lt;/p&gt;&#xA;" OwnerUserId="11032" LastEditorUserId="11032" LastEditDate="2016-12-31T12:16:54.737" LastActivityDate="2016-12-31T19:21:13.127" Title="Are there countries with free banking?" Tags="&lt;banking&gt;&lt;central-banking&gt;&lt;free-trade&gt;&lt;national-bank&gt;" AnswerCount="1" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="14854" PostTypeId="2" ParentId="14851" CreationDate="2016-12-31T05:26:03.717" Score="3" Body="&lt;p&gt;The classic paper on preferences over the timing of information revelation is &lt;a href=&quot;http://www.jstor.org/stable/1913656&quot; rel=&quot;nofollow noreferrer&quot;&gt;Kreps and Porteus (1978)&lt;/a&gt;. This seems to capture at least a little, if not most, of what you seem to be describing, so you should definitely have a look.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://nrs.harvard.edu/urn-3:HUL.InstRepos:12967691&quot; rel=&quot;nofollow noreferrer&quot;&gt;Strzalecki&lt;/a&gt; also has a nice paper connecting Kreps-Porteus to the various modern approaches to preferences under ambiguity.&lt;/p&gt;&#xA;" OwnerUserId="8595" LastActivityDate="2016-12-31T05:26:03.717" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14856" PostTypeId="2" ParentId="132" CreationDate="2016-12-31T07:41:41.660" Score="0" Body="&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Herbert_A._Simon&quot; rel=&quot;nofollow noreferrer&quot;&gt;Herbert A. Simon&lt;/a&gt; coined the terms bounded rationality and satisficing. The connection between these concepts is that, since our cognitive aparatus has real-world bounds in terms of what can achieve (e.g. cognitive processing, memory, time, etc) people are often do not able to optimize. Hence they often satisfy with a sufficient good outcome (i.e. &quot;satisfice&quot;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The theory of expected utility still holds but people, instead of trying to maximize it, try to achieve at least a sufficient good level (threshold, aspiration level) in terms of expected utility.&#xA;Hence, the first course of action that people find which is able to satisfy (be greater than) that utility level is then chosen to be applied.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Goal_programming&quot; rel=&quot;nofollow noreferrer&quot;&gt;Goal-programming&lt;/a&gt; is one of the existing decision-theory methods which is based on Simon's underlying principle.&lt;/p&gt;&#xA;" OwnerUserId="11627" LastEditorUserId="11627" LastEditDate="2017-01-16T21:35:21.970" LastActivityDate="2017-01-16T21:35:21.970" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="14857" PostTypeId="2" ParentId="481" CreationDate="2016-12-31T07:52:38.960" Score="3" Body="&lt;p&gt;One additional reason to Steven's, Sylvain's and Foobar's:&#xA;Since you &quot;pay&quot; in advance you are more willing to actually use it. You will tend not to ask for reimbursement and give away the last tokens in exchange for additional amusement which you would not consider if you had to buy additional tokens to enjoy it.&lt;/p&gt;&#xA;" OwnerUserId="11627" LastActivityDate="2016-12-31T07:52:38.960" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14859" PostTypeId="2" ParentId="14764" CreationDate="2016-12-31T15:02:37.357" Score="1" Body="&lt;p&gt;This is a problem that has also an inequality constraint, alongside the budget constraint that is here given as an equality. For simplicity, substitute the equality constraint into the utility function and form a Lagrangian&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Lambda = u(x_1,x_2(x_1)) + \lambda(T-x_1),\;\; \lambda \geq 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $\lambda$ is a Karush-Kuhn-Tucker multiplier. Then maximize with respect to $x_1$.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2016-12-31T15:02:37.357" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14860" PostTypeId="1" AcceptedAnswerId="15493" CreationDate="2016-12-31T16:25:25.013" Score="3" ViewCount="876" Body="&lt;p&gt;In his &lt;a href=&quot;http://college.holycross.edu/eej/Volume4/V4N3_4P153_159.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;1978 paper&lt;/a&gt; introducing the Tobin tax Tobin states that :&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;As a technical matter, we know that a rational expectations&#xA;  equilibrium on markets of this kind is a saddle point. That is, there&#xA;  is only a singular path that leads from disequilibrium to equilibrium.&#xA;  If the markets are not on that path, or if they don't jump to it from&#xA;  wherever they are, they can follow any of a number of paths that lead&#xA;  away from equilibrium - paths along which, nonetheless, expectations&#xA;  are on the average fulfilled.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;He seems to consider this result as common knowledge among the economists and gives no reference. To which result or paper is he referring ? Do you have an idea of what he means with &quot;markets of this kind&quot; ?&lt;/p&gt;&#xA;" OwnerUserId="11629" LastEditorUserId="11629" LastEditDate="2017-01-07T00:45:39.170" LastActivityDate="2017-02-22T02:28:58.600" Title="Saddle path equilibrium on financial market with rational expectations" Tags="&lt;reference-request&gt;&lt;financial-markets&gt;&lt;dynamic-optimization&gt;&lt;rational-expectations&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14861" PostTypeId="2" ParentId="14852" CreationDate="2016-12-31T19:21:13.127" Score="3" Body="&lt;p&gt;I'm going to stick my neck out and say that the answer is no, not because I have a specific reference (people tend not to publish papers stating that something doesn't exist) but monetary systems has been a keen interest of mine for the past decade and if free banking was currently being practised somewhere I would almost certainly know about it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It has however been practised historically, perhaps most notably in Scotland 1716 - 1845.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can find many proponents of free banking in the &lt;a href=&quot;https://en.wikipedia.org/wiki/Austrian_School&quot; rel=&quot;nofollow noreferrer&quot;&gt;Austrian School of economics&lt;/a&gt;, for example George Selgin.&lt;/p&gt;&#xA;" OwnerUserId="5081" LastActivityDate="2016-12-31T19:21:13.127" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14862" PostTypeId="2" ParentId="14025" CreationDate="2017-01-01T14:32:03.083" Score="2" Body="&lt;p&gt;(1) What value an item has to you depends on your preferences, not scarcity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(2) The market clearing price of an item will depend on the preferences of market participants and the supply schedule (&quot;scarcity&quot;) of the item.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The way you seem to be thinking about value is very &quot;non-economic&quot;, if that's a word.&lt;/p&gt;&#xA;" OwnerUserId="11216" LastEditorUserId="11216" LastEditDate="2017-01-03T11:01:45.773" LastActivityDate="2017-01-03T11:01:45.773" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14864" PostTypeId="2" ParentId="14846" CreationDate="2017-01-01T18:11:15.937" Score="1" Body="&lt;p&gt;I would say that if you assume away competition among banks, then the interest rate would be equal to the rate of profit in the industry or firm considered. If there is only one bank in a position of monopoly as a supplier of loans, then it will set the highest possible rate of interest, and that is the rate of profit : firms can not pay higher interest without bankruptcy. Then of course you can argue that there is a decreasing marginal efficiency of &quot;capital&quot;, therefore the rate of profit would depend on how much money firms borrow from our single bank, and things would be more complicated. But I think it might still be a good approximation for practical cases. And if there is no available experience on a new industry, then our bank has to guess about the future rate of profit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you assume perfect competition among banks, then the question is about the lowest possible interest rate, and that would depend on risk of default : banks have to gain some profits on most loans to compensate for the defaults. Again if you don't know about risk you have to estimate it.&lt;/p&gt;&#xA;" OwnerUserId="11629" LastActivityDate="2017-01-01T18:11:15.937" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14866" PostTypeId="2" ParentId="14799" CreationDate="2017-01-02T02:02:41.137" Score="1" Body="&lt;p&gt;I don't have anything to say on the empirical side.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the theoretical side, I think that is an interesting question, even in a standard framework with &quot;rational&quot; agents. The possibility of the end of the world reduces the expected stream of income from assets (e.g. a share of a firm) because maybe the firm will not be there any more to distribute dividends.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Maybe &lt;em&gt;you&lt;/em&gt; will not be there (that's the existential risk). About this the prediction of the standard microeconomic theory is the same as in the science fiction movies : your preference for present should rise, the 'natural' interest rate and the actualization rate with it. (If you fear to be dead tomorrow, you will not lend your money today... unless for a very high interest rate.) That means the value of future income falls and you want to consume everything now.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So both effects go in the same direction and &quot;standard&quot; prediction would be that the stock prices should fall.&lt;/p&gt;&#xA;" OwnerUserId="11629" LastActivityDate="2017-01-02T02:02:41.137" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14867" PostTypeId="1" AcceptedAnswerId="14879" CreationDate="2017-01-02T02:58:13.983" Score="4" ViewCount="2923" Body="&lt;p&gt;What is the difference between double auction and continuous double auction?  Sometimes I feel that they were types of two-sided auction but sometimes I feel as if they were two separate concepts. &lt;/p&gt;&#xA;" OwnerUserId="6488" LastEditorDisplayName="user4169" LastEditDate="2017-04-16T16:48:43.697" LastActivityDate="2017-04-16T16:48:43.697" Title="Difference between double auction and continuous double auction?" Tags="&lt;finance&gt;&lt;financial-economics&gt;&lt;financial-markets&gt;&lt;auctions&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14869" PostTypeId="1" AcceptedAnswerId="14882" CreationDate="2017-01-02T12:32:32.710" Score="0" ViewCount="164" Body="&lt;p&gt;Is it possible to make a trillion dollar invention or exploration? I mean an invention or exploration that will be valued at trillion dollars. &lt;/p&gt;&#xA;" OwnerUserId="11638" LastActivityDate="2017-02-17T16:16:44.333" Title="A trillion dollar invention" Tags="&lt;financial-economics&gt;" AnswerCount="3" CommentCount="0" ClosedDate="2017-01-17T20:55:21.127" ContentLicense="CC BY-SA 3.0" />
  <row Id="14870" PostTypeId="2" ParentId="14869" CreationDate="2017-01-02T14:08:53.720" Score="4" Body="&lt;p&gt;Sure, because dollars are nominal goods. Perhaps a ticket to Star Wars Episode CXVIII will cost one trillion dollars. If you meant today, without huge changes in the price level:&#xA;&lt;br&gt; Yes, there is way more than one trillion dollars of wealth in the world. Depending on the laws of physics and psychology there is probably something you would be able to market for this amount. (Private luxury homes in other dimensions.) Coming up with it is another question, but there is no law of economics that makes this impossible.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2017-01-03T07:46:16.830" LastActivityDate="2017-01-03T07:46:16.830" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14872" PostTypeId="1" AcceptedAnswerId="14876" CreationDate="2017-01-02T14:45:49.470" Score="6" ViewCount="3427" Body="&lt;p&gt;I'm reading the book &quot;Economics of natural ressources and the environment&quot; written by D. Pearce and R. Turner. They explain that the competitive equilibrium is not a Pareto optimum in case of (positive or negative) externalities. The example they use is a firm that has an activity Q and this activity creates some pollution. They illustrate it in figure 4.1 (figure below). MNPB stands for &quot;marginal net private benefits&quot; and MEC &quot;marginal external cost&quot;. MEC is thus the extra damage done by pollution arising from the activity measured by Q.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The firm will try to maximize its benefit, i.e. reach an activity of Q$^\pi$. Q$^*$ is the level of activity to have a social optimum. I understand the reasoning so far.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I do not understand is why Q$^\pi$ is not Pareto optimum. If we had to reach Q$^*$ from Q$^\pi$, the firm would loose some of its utility so Q$^\pi$ should be Pareto optimal.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I feel like I do not understand the exact meaning behind the notion of the Pareto optimality.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/B7riS.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/B7riS.jpg&quot; alt=&quot;hello&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Source of image: &quot;Economics of natural ressources and the environment&quot;, D. Pearce and R. Turner, Harvester, New York, 1990.&lt;/p&gt;&#xA;" OwnerUserId="11639" LastEditorUserId="8815" LastEditDate="2017-01-03T08:50:50.943" LastActivityDate="2017-01-03T08:50:50.943" Title="Pareto optimality with externalities" Tags="&lt;microeconomics&gt;&lt;pareto-efficiency&gt;&lt;welfare-economics&gt;&lt;externalities&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="14873" PostTypeId="1" CreationDate="2017-01-02T14:49:20.253" Score="0" ViewCount="1878" Body="&lt;p&gt;In the &lt;a href=&quot;https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/220541/green_book_complete.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Green Book&lt;/a&gt; (page 97) it is stated &quot;the elasticity of marginal utility of consumption (μ) with respect to utility&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is it? Is it an error ? I always heard of the elasticity of the marginal utility with respect to consumption... &lt;/p&gt;&#xA;" OwnerUserId="10376" LastEditorUserId="10376" LastEditDate="2017-01-02T16:10:46.003" LastActivityDate="2017-01-02T16:10:46.003" Title="&quot;Elasticity of marginal utility of consumption ( μ ) with respect to utility.&quot; (Green Book quote)?" Tags="&lt;utility&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14874" PostTypeId="2" ParentId="14873" CreationDate="2017-01-02T15:12:19.727" Score="2" Body="&lt;p&gt;Mere googling leads me to find a bunch of references about &lt;strong&gt;elasticity of marginal utility&lt;/strong&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://economics.mit.edu/files/7340&quot; rel=&quot;nofollow noreferrer&quot;&gt;Here&lt;/a&gt; Professor Acemoglu defines the elasticity of marginal utility as the inverse of the intertemporal elasticity of substitution (pagg. 17-18).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.quora.com/What-does-the-elasticity-of-marginal-utility-of-consumption-with-respect-to-utility-mean&quot; rel=&quot;nofollow noreferrer&quot;&gt;Here&lt;/a&gt; you can find a question analogous to yours together with an answer explained in an easier way than Acemoglu's lecture. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you are interested in something more empirical, have a look &lt;a href=&quot;http://onlinelibrary.wiley.com/doi/10.1111/j.1475-5890.2005.00010.x/full&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;: it is a paper by David Evans about the empirical estimation of elasticity of marginal utility in OECD countries.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope this is enough. If you have other questions, please ask&lt;/p&gt;&#xA;" OwnerUserId="6773" LastActivityDate="2017-01-02T15:12:19.727" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="14875" PostTypeId="2" ParentId="14872" CreationDate="2017-01-02T15:20:32.457" Score="1" Body="&lt;p&gt;This graph shows that the private sector will always be better of as $Q$ increases (but with a decreasing rate). Thus the question is up to which point the increase of $Q$ will not negatively affect the society. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Recall also that &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Pareto improvement is defined to be a change to a different allocation&#xA;  that makes at least one individual better off without making any other&#xA;  individual worse off, given a certain initial allocation of goods&#xA;  among a set of individuals.An allocation is defined as &quot;Pareto&#xA;  efficient&quot; or &quot;Pareto optimal&quot; when no further Pareto improvements can&#xA;  be made.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;That means that for any $Q$ in $(0,Q^*]$, private sector is better off and also society is better off since $MNPV&amp;gt;MEC$. However, for any $Q$ in $(Q^*,Q^π]$, the private sector improve its well-being but society is getting worst (since $MNPV&amp;lt;MEC$). That means that the point $Q^*$ is the pareto optimum&lt;/p&gt;&#xA;" OwnerUserId="6520" LastEditorUserId="6520" LastEditDate="2017-01-02T17:49:54.227" LastActivityDate="2017-01-02T17:49:54.227" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14876" PostTypeId="2" ParentId="14872" CreationDate="2017-01-02T18:42:40.127" Score="5" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;I feel like I do not understand the exact meaning behind the notion of&#xA;  the Pareto optimality.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It's not you.  There are different senses of the phrase &quot;Pareto Optimal,&quot; and you have to figure out from context which one is being used.  The dictionary definition of Pareto Optimal is something like &quot;An allocation from which any feasible change which makes any agent better off makes at least one agent worse off.&quot;  The word to keep your eye on is &quot;feasible.&quot;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In particular, it makes a big difference whether or not you consider side-payments feasible.  In your example, if it is impossible to make side payments from &quot;society&quot; (i.e. whomever is harmed externally by the production of the good) to the producer, then $Q^\pi$ is Pareto Optimal.  Of course, with no side payments, every point between $0$ and $Q^\pi$ is Pareto Optimal.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Almost always, however, we implicitly assume that side payments are possible.   In that case, the point $Q^\pi$ is not optimal.  Why not?  Well, we could move from $Q^\pi$ to $Q^*$.  This would make the producer worse off by $C$ and &quot;society&quot; better off by $C+D$.  Now, if it is feasible to make &quot;society&quot; pay the producer some amount between $C$ and $C+D$, then we can say that moving from $Q^\pi$ to $Q^*$ while compensating the producer at least $C$ at the expense of &quot;society&quot; makes everyone better off.  The fact that you can move off of $Q^\pi$ while making everyone better off means that $Q^\pi$ is not optimal.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This actually leads into a common criticism of Pareto Optimality.  Normally, we just assume side payments are feasible.  In fact, you get so habituated to making the assumption that it becomes invisible to you.  So, you start to think (for example) that &quot;free trade is Pareto Optimal&quot; is a good argument for free trade.  And that's untrue.  The necessary side-payments are probably not feasible and are not actually made in practice.&lt;/p&gt;&#xA;" OwnerUserId="2843" LastActivityDate="2017-01-02T18:42:40.127" CommentCount="13" ContentLicense="CC BY-SA 3.0" />
  <row Id="14877" PostTypeId="2" ParentId="13991" CreationDate="2017-01-02T19:57:10.020" Score="0" Body="&lt;p&gt;The second discrepancy is most likely a coverage/sampling issue.  Actually, as I think about it, this may explain the first discrepancy as well.  The OES is a survey of establishments (i.e. businesses).  After a little googling, it seems that the &lt;a href=&quot;http://siccode.com/en/naicscodes/711211/sports-teams-and-clubs&quot; rel=&quot;nofollow noreferrer&quot;&gt;NAICS code for professional sports teams is 711211.&lt;/a&gt;  There are 1000 of these in the US.  The 4 major sports are, what, like 120?  OES samples 1 in 6 establishments over 3 years but weights probability of being sampled  according to number of employees, so it's plausible that 0 or 1 major league sports teams make it into the sample.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Again to the coverage issue, I'm curious that there are only 12K professional sportsmen in the US. That seems too low.  Also, 767 players does not seem like enough for the NHL.  The active roster for each game is 20 players per team.  In addition, there are normally several &quot;healthy scratches&quot; whom I think get paid.  There are 30 teams.  So, just considering a single game, there are over 650 guys getting paid.  There is a lot of movement between NHL and minors in a year, so I doubt there are only 767 guys getting paid by the NHL in a single year.   It has to be more.  Maybe your source considers guys who play most of their games in the minors to be non-NHL?  Maybe it ignores all the guys making league minimum?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Yet another coverage issue you might worry about is whether and which sportsmen are considered employees and which are considered business-for-self.  I assume professional tennis players, for example, are self-employed.  OES does not cover the self-employed, and I don't really know which professional sportsmen are technically self-employed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ignoring the sampling/coverage issue, the first discrepancy is very likely due to top-coding.  In &lt;a href=&quot;https://www.bls.gov/respondents/oes/pdf/forms/uuuuuu_fillable.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;the OES survey instrument&lt;/a&gt;, wage data are collected in ranges.  There is a top range.  In the (slightly outdated) form I linked above, the top range is \$208K and above annual salary.  BLS fills in an average salary for that top range, but the average salary is calculated using a different survey (the NCS), and the average-over-the-topcode is for the entire employed population.  This is going to give you a much too low average-over-the-topcode for professional sportsmen.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You mention that you don't think this is the explanation because the 75th %ile is only $89K.  For baseball and hockey (at least), there are a lot of minor league players.  There are a bunch in soccer, too.  There are goofy professional sports, too: lacrosse, roller hockey, semi-pro football, etc.  These are included, I assume, in the BLS numbers.  Especially in the lower rungs of competition, salaries are very low.  So, 1) there are a lot more professional sportsmen than you might initially think, and 2) most of them make small salaries.  So, 89K is not surprisingly low for the 75th %ile IMHO.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another problem relative to MLB and NHL is how players who move back and forth from minor to major leagues (and among different tiers of minor leagues) are treated.  In the NHL, these players are typically paid a pro-rata share of their minor league salary or the NHL minimum salary depending on how many games they play in each level.  MLB I don't know.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Anyway, the OES is definitely not designed to capture boutique occupations like NFL player, and it is not surprising that it does a poor job of it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, don't be afraid to call up the BLS, ask to speak with someone who works on the OES, and ask them your questions.  You might get lucky.  &lt;/p&gt;&#xA;" OwnerUserId="2843" LastActivityDate="2017-01-02T19:57:10.020" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14879" PostTypeId="2" ParentId="14867" CreationDate="2017-01-03T00:15:47.447" Score="3" Body="&lt;p&gt;So, if a distinction is made, as continuous double auctions are usually just called double auctions, then the difference has to do with frequency.  It is easier to have an example.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The New York Stock Exchange is an example of a continuous double auction.  Within its trading hours, you can bid in either direction as much or as often as you want and so can everyone else.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The best example of an ordinary double auction was the Arizona Stock Exchange which closed in 2001.  It only permitted two bids per day, at the open of US trading and at the close.  It sought to solve an institutional liquidity problem.  Certain types of institutions are at risk if they cannot clear their orders at or as near to as possible a particular moment in time.  Mutual funds, for example, usually only have one valuation per day and if there need to be a lot of transactions from redemption or purchase activity, then the least risk is to have the trade near that time.  Most are at the open or close.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Arizona exchange found the single price that cleared the largest number of trades.  You paid a fee to participate.  There was no bid-ask spread.  So possibly hundreds of customers would place their limit orders at the same time as buyers or sellers.  What they did in practice was create single supply curve and a single demand curve and the price paid/received was the intersection of the two curves. &lt;/p&gt;&#xA;" OwnerUserId="11321" LastActivityDate="2017-01-03T00:15:47.447" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14880" PostTypeId="1" AcceptedAnswerId="14881" CreationDate="2017-01-03T05:42:32.857" Score="3" ViewCount="89" Body="&lt;p&gt;I've been having difficulty finding some research on indifference curves/utility functions and methods in constructing them in an applied manner. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does anyone have any papers or pdf books to recommend?&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2017-01-03T20:47:21.927" Title="Research on the existence of utility functions?" Tags="&lt;reference-request&gt;&lt;utility&gt;&lt;consumer-theory&gt;" AnswerCount="1" CommentCount="8" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14881" PostTypeId="2" ParentId="14880" CreationDate="2017-01-03T07:45:21.417" Score="3" Body="&lt;p&gt;The most famous one is probably Afriat's 1967 paper titled &lt;a href=&quot;http://crem.univ-rennes1.fr/Documents/Docs_Divers/2014-2015/GL_14-09-19_S.%20Afriat.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;&quot;The construction of a utility function from demand data&quot;&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can also find the basic idea in Hal Varian's Intermediate Microeconomics: Revealed Preferences Chapter or you can read the generalized version of the theorem in the paper.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="8815" LastEditDate="2017-01-03T20:47:21.927" LastActivityDate="2017-01-03T20:47:21.927" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="14882" PostTypeId="2" ParentId="14869" CreationDate="2017-01-03T09:06:59.080" Score="3" Body="&lt;p&gt;A trillion dollars is nominal, there's no indication of when this invention is going to be worth a trillion dollars. Maybe in 100 years, this question would be worth a trillion dollars, but a Coke would cost a trillion trillion dollars.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But, to understand your point - you're asking if there's an invention that could make a trillion dollars in a short-term basis - and the answer is unlikely. The wheel is probably a trillion trillion dollar invention. The car, the telephone, synthetic fertilisers, so many things could be worth trillions, counting from the time they were invented - 50-100 years ago. But did one person make a trillion dollars from it? No. The richest inventor  (re: &lt;a href=&quot;http://www.forbes.com/2008/03/05/amazon-dyson-billionaire-ent-billionaires08-cx_pm_0306billionaireinventors.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.forbes.com/2008/03/05/amazon-dyson-billionaire-ent-billionaires08-cx_pm_0306billionaireinventors.html&lt;/a&gt;) invented Nutella, and is worth USD 11 bil now. Nutella itself is probably worth 10s of billions of dollars as a product/investment. So... no its improbable that in the short term any invention would be worth or make you a trillion dollars.&lt;/p&gt;&#xA;" OwnerUserId="11648" LastActivityDate="2017-01-03T09:06:59.080" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14883" PostTypeId="1" CreationDate="2017-01-03T10:00:20.543" Score="4" ViewCount="168" Body="&lt;p&gt;The London property market has seen a sharp increase in the average house price. If we go back to the 70's the average UK and average London price were almost the same, however since than the gap has increased quite dramatically. The average property in London is +£400k, whereas in the UK this is almost half.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How long prices will increase till the bubble will burst? Some say property prices tend to double every 8 years, if that's the case then in few years time the average price will be £800k, however this is not a fair balance compared to the average salary in London. My question whether the world has seen a similar property boom like in London (throughout history) where there is an imbalance of property prices &amp;amp; income, prices shooting up to such an extend that they become unattractive/ unaffordable? If so it would be nice if you could provide some reference as I am interested to study this into more detail and understand what the effects were of such highly priced market and how the economy responded?&lt;/p&gt;&#xA;" OwnerUserId="11649" LastEditorUserId="6168" LastEditDate="2017-01-03T10:06:27.557" LastActivityDate="2020-12-01T11:30:13.100" Title="Did a similar property boom take place in another country or throughout history like we have seen in London? If so how did it effect the economy?" Tags="&lt;reference-request&gt;&lt;inflation&gt;&lt;housing&gt;&lt;property&gt;&lt;economic-bubble&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="14884" PostTypeId="2" ParentId="14834" CreationDate="2017-01-03T12:59:27.060" Score="2" Body="&lt;p&gt;Regarding you first question, the answer is 'yes', at least in your model. For if the real interest rate, $r_t=i_t-E_t\pi_{t+1}$, is equal to its natural level $r^n_t$, then in your model $x_t=E_tx_{t+1}$ and $x_t=0$ for all $t$ is a solution which is &lt;em&gt;consistent&lt;/em&gt; with the dynamic equation. (Note that other solutions are consistent with the dynamic equation in the case $r_t=r^n_t$ for all $t$, such as $x_t=1$ for all $t$.) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;According to my experience, the natural level of real interest rate is usually defined as the level of real interest consistent with output being at its 'natural', 'long-run', 'equilibrium' or 'potential' level, given stable inflation, absence of shocks to demand, etc. I.e., natural real interest rate, $r^n_t$, is such that whenever $r^t=r^n_t$ and certain stability/regularity conditions are fulfilled, then $x_t=0$. &lt;a href=&quot;http://www.frbsf.org/economic-research/publications/economic-letter/2003/october/the-natural-rate-of-interest/#subhead1&quot; rel=&quot;nofollow noreferrer&quot;&gt;Read a FRBSF Economic Letter for more information.&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;We may also view the natural level of real interest rate as the real interest rate at which the output gap $x_t$ is following its trend $E_tx_{t+1}$, i.e. $x_t=E_tx_{t+1}$. This definition is similar to the one given by &lt;a href=&quot;https://en.wikipedia.org/wiki/Knut_Wicksell&quot; rel=&quot;nofollow noreferrer&quot;&gt;Knut Wicksell&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regarding your two last questions, I may say the following. In your model, a &lt;em&gt;ceteris paribus&lt;/em&gt; increase in $r^n_t$ increases $x_t$ by $\frac{1}{\sigma}$. (Just take the partial derivative with respect to &#xA; $r^n_t$ on both sides in the dynamic equation, holding everything else constant.) This means that either output, $y_t$, is increasing, or the natural level of output, $y^n_t$, is increasing. However, if such &lt;em&gt;ceteris paribus&lt;/em&gt; changes cannot be made, then taking the partial derivative holding all else constant is not meaningful. Indeed, in new keynesian models, the natural real interest rate is often a function of $y^n_t$, and in such cases we cannot increase the natural real interest rate without affecting the natural level of output. One such case is when $r^n_t=\rho+\sigma(E_ty^n_{t+1}-y^n_t).$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;More concrete examples may be provided, I will see if I can find some.&lt;/p&gt;&#xA;" OwnerUserId="7582" LastEditorUserId="7582" LastEditDate="2017-01-03T13:37:48.633" LastActivityDate="2017-01-03T13:37:48.633" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14885" PostTypeId="2" ParentId="14773" CreationDate="2017-01-03T13:27:40.277" Score="2" Body="&lt;p&gt;The New Keynesian Philips Curve (NKPC) may be derived using &lt;a href=&quot;https://en.wikipedia.org/wiki/Calvo_(staggered)_contracts&quot; rel=&quot;nofollow noreferrer&quot;&gt;price settings frictions introduced by Guillermo Calvo&lt;/a&gt;. The NKPC can under such conditions be written as you write it, i.e. $$\pi_t=\beta E_t\pi_{t+1}+\kappa x_t,$$ and where $\kappa=0$ if no firm change their prices, and $\kappa=\infty$ if all firms change their prices.  (Technical note: Here I allow myself to work with the extended real line, viewing $\pm\infty$ as entities and not concepts.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The background given above, then, does not seem to say anything about the output gap $x_t$. If $\kappa=0$, then inflation follow its trend, i.e. $$\pi_t=\beta E_t\pi_{t+1},$$ and if $\kappa=\infty$ then $\pi_t=\infty$ (given that the expected inflation is bounded below).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This, at least, answer your first question: If fully flexible price setting is interpreted as the case when all firms change their prices, then $\pi_t=\infty$, which is understandable, but not realistic. What we may say, though, is the more firms there are who change their prices, the closer to hyperinflation we are.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To me it seems that we can not from the NKPC alone say whether the output gap will be zero if $\kappa=\infty$. Often we have to supplement the NKPC with the DIS $$x_t=E_tx_{t+1}-\frac{1}{\sigma}(r_t-r^n_t),$$ where $r_t$ is the real interest rate and $r^n_t$ is its natural level, and add some additional information on whether we have random shocks in e.g. the output gap. &lt;/p&gt;&#xA;" OwnerUserId="7582" LastActivityDate="2017-01-03T13:27:40.277" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14887" PostTypeId="2" ParentId="14869" CreationDate="2017-01-03T14:31:54.017" Score="-1" Body="&lt;p&gt;There is no such things. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;All human invention are incremental.&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Otherwise, there will be endless backtrack argument of invention, i.e. AI , computing, C programming,  First computing program, first computer,  printing press, paper. All this invention/progress added up will cost more than trillions. &lt;/p&gt;&#xA;" OwnerUserId="11177" LastEditorUserId="11177" LastEditDate="2017-02-17T16:16:44.333" LastActivityDate="2017-02-17T16:16:44.333" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14888" PostTypeId="2" ParentId="14843" CreationDate="2017-01-03T15:32:58.030" Score="0" Body="&lt;p&gt;Is CPI accurate relative to... what? If you are asking whether CPI is accurate as a measure of the true cost of living, the answer is no. One reason for this is that the CPI is computed using a weighted Laspeyres index of prices of different goods and services, weighted by their share in consumption. Prices are continually updated but weights are not, and hence the headline CPI index neglects substitution effects. Let me present a highly simplified example; two goods in the economy, apples and oranges, both consumed equally (weights 0.5 / 0.5). At the start, the price index computed using CPI methodology will be 100. Now the price of apples rises 10% and the price of oranges stays the same. As a result, people substitute out of apples and into oranges - so apples' share of consumption falls from 50% to 25%. The consumer price index would now stand at 105, implying a 5% increase in the cost of living. However, the true increase in the cost of living is 2.5% - CPI has overstated inflation in the cost of living through failing to take account of substitution. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Most countries reset their CPI weights yearly. Some, e.g. Japan I believe, reset once every decade only. Obviously the less frequently you reset your weights, the worse CPI will be as an accurate measure of the cost of living. &lt;/p&gt;&#xA;" OwnerUserId="8443" LastActivityDate="2017-01-03T15:32:58.030" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14889" PostTypeId="1" CreationDate="2017-01-03T16:15:47.080" Score="2" ViewCount="57" Body="&lt;p&gt;My question seems to be a basic one and there should be a rather well-known reference in the (IO or labor) search literature.&#xA;I will upvote (and comment on) any relevant answer and I will accept an answer pointing to a reference addressing exactly the model below.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the simplest case, consider the following model:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are 2 sellers ($j \in \{1,2\}$) and each seller offers a single good.&#xA;In stage 1, both sellers set an individual price $p_j$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are 2 buyers ($i \in \{1,2\}$) who are privately informed about their valuation $v_i$ which is an iid draw from some distribution $F$.&#xA;In stage 2, buyers observe the prices and decide which seller (if any) they want to visit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Buyers have single-unit demand. Buyer $i$'s payoff is $v_i - p_j$ if they got a good and zero if they got rationed or did not visit any seller. Sellers do not have opportunity costs (and cannot produce additional goods), so their payoff is $p_j$ if they trade.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A guess for a reasonable equilibrium candidate: In equilibrium, both sellers post the same price $p_1=p_2=p$, buyers with $v_i&amp;lt;p$ abstain from buying and high-value buyers ($v_i\geq p$) randomize equally over both sellers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To evaluate deviations, it matters what happens when. say, $p_1 &amp;gt; p_2$.&#xA;Of course this depends on the rationing function, i.e., what happens when two buyers show up at the same seller. Fixing a certain form of rationing (random rationing, efficient rationing, introducing an underlying model in which sellers have additional preferences over customers, etc), one can express the expected utility from visiting each seller in a reduced form and solve. Now I guess my question is: How is this done in the literature (which I find interesting, but don't know much of)? I am happy about references and suggestions and I will provide some myself.&lt;/p&gt;&#xA;" OwnerUserId="11590" LastActivityDate="2017-02-02T17:06:33.113" Title="Directed search with privately informed buyers and capacities" Tags="&lt;microeconomics&gt;&lt;reference-request&gt;&lt;labor-economics&gt;&lt;industrial-organisation&gt;&lt;search-and-matching&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14890" PostTypeId="2" ParentId="14889" CreationDate="2017-01-03T16:15:47.080" Score="3" Body="&lt;p&gt;I am aware of classic models such as &lt;a href=&quot;https://www.jstor.org/stable/3003636&quot; rel=&quot;nofollow noreferrer&quot;&gt;Kreps &amp;amp; Scheinkman (1983)&lt;/a&gt;. I am also aware of &lt;a href=&quot;http://www.jstor.org/stable/10.1086/322835&quot; rel=&quot;nofollow noreferrer&quot;&gt;Burdett, Shi &amp;amp; Wright (2001)&lt;/a&gt;, but note that their buyers are ex-post symmetric as both of them have value $v_i=v=1$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am also aware of the literature on competing auctioneers, e.g., &lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/S002205319792278X&quot; rel=&quot;nofollow noreferrer&quot;&gt;Peters &amp;amp; Severinov (1997)&lt;/a&gt; and &lt;a href=&quot;http://onlinelibrary.wiley.com/doi/10.3982/TE538/abstract&quot; rel=&quot;nofollow noreferrer&quot;&gt;Virag (2010)&lt;/a&gt;. The buyers' equilibrium selection strategy in such models is quite cool: If sellers post second-price auctions with reserve prices $r_1&amp;gt;r_2$, buyers of value $v&amp;lt;r_2$ abstain from buying, buyers of value $v \in [r_2,x]$ visit low-price seller 2 with certainty and buyers of value $v&amp;gt;x$ visit each seller with probability $1/2$. One can solve for this cutoff value $x&amp;gt;r_1$. Under a condition on the lower bound of $F$, there is indeed an equilibrium in which both sellers set the same reserve price (which is below the lowest possible buyer value).&#xA;Knowing this, one can write down an underlying wasteful costly rationing process that essentially replicates the buyers' selection equilibrium above. However, I find this a little far fetched.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any other approaches? As I said, this is not my literature - I just find the problem too basic to be neglected.&lt;/p&gt;&#xA;" OwnerUserId="11590" LastActivityDate="2017-01-03T16:15:47.080" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14891" PostTypeId="1" CreationDate="2017-01-03T18:04:45.113" Score="5" ViewCount="4626" Body="&lt;p&gt;Assuming natural resources are not a limiting factor, can a country's economy keep growing if the country's population is not growing? What about the global population?&lt;/p&gt;&#xA;" OwnerUserId="4006" LastEditorUserId="8815" LastEditDate="2018-01-12T17:53:42.480" LastActivityDate="2018-01-21T18:28:16.457" Title="Can an economy grow without its population growing?" Tags="&lt;economic-growth&gt;&lt;population-economics&gt;" AnswerCount="6" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14892" PostTypeId="1" AcceptedAnswerId="15024" CreationDate="2017-01-03T18:18:07.243" Score="4" ViewCount="283" Body="&lt;p&gt;I have a basic Idea on how to construct indifference curves such that we must use two goods and then ask for pairs of bundles which are preference indifferent.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When doing applied research on estimating a consumers demand for a given bundle of goods, (which is probably done by survey as far as I'm concerned) what are the main questions we are seeking to answer in order that the data will work out nicely when using such a framework? How should such questions be worded on a survey?&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="11627" LastEditDate="2017-01-16T11:39:16.903" LastActivityDate="2017-01-16T11:39:16.903" Title="Research Design: Indifference curves and budget lines" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;&lt;preferences&gt;&lt;value&gt;&lt;research&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14893" PostTypeId="2" ParentId="14891" CreationDate="2017-01-03T18:33:59.983" Score="3" Body="&lt;p&gt;In short, the answer is yes.&lt;/p&gt;&#xA;&lt;p&gt;I gave an answer to &lt;a href=&quot;https://economics.stackexchange.com/questions/13955/does-economic-growth-always-implies-investments-in-infrastructure/13963#13963&quot;&gt;this question&lt;/a&gt; that should explain the intuition behind such an answer. It primarily comes from understanding what the GDP equation is.&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;&lt;strong&gt;In economics, we commonly use the formula for&lt;a href=&quot;http://www.investopedia.com/terms/g/gdp.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt; GDP&lt;/a&gt; as a Indicator of &amp;quot;economic growth&amp;quot;&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;p&gt;The GDP formula is: &lt;strong&gt;GDP=C+G+I+NX&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;p&gt;Where &lt;strong&gt;C&lt;/strong&gt; is equal to all private consumption, or consumer spending, in a nation's economy, &lt;strong&gt;G&lt;/strong&gt; is the sum of government spending, &lt;strong&gt;I&lt;/strong&gt; is the sum of all the country's investment, including businesses capital expenditures and &lt;strong&gt;NX&lt;/strong&gt; is the nation's total net exports, calculated as total exports minus total imports (&lt;strong&gt;NX = Exports - Imports&lt;/strong&gt;)...&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;So if there is no population growth we can still see economic growth in terms of investment, goverment expenditure and a nations net exports.&lt;/p&gt;&#xA;&lt;p&gt;Hope this helps.&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2018-01-12T17:52:34.077" CommentCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="14894" PostTypeId="2" ParentId="14891" CreationDate="2017-01-03T18:56:47.010" Score="1" Body="&lt;p&gt;I would rather say no. In an endogenous growth model (like Schumpeterian model), you can have a constant population with a sustained growth rate at long term. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;An example : &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://art-dev.cnrs.fr/membres/IMG/pdf/Ricci_ERE_2007.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://art-dev.cnrs.fr/membres/IMG/pdf/Ricci_ERE_2007.pdf&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="2938" LastActivityDate="2017-01-03T18:56:47.010" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14895" PostTypeId="2" ParentId="14891" CreationDate="2017-01-03T19:44:30.567" Score="6" Body="&lt;p&gt;Yes, there can be economic growth without population growth.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a reminder: gross domestic product (GDP) is the total value of all of the goods and services produced within an economy over a period of time (usually a year). GDP growth is simply the tendency for the GDP to increase over time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Roughly speaking, there are two ways for GDP to increase. The first is for each worker to keep producing the same stuff, but to increase the number of workers (i.e. population growth). But the second is to keep the population the same and increase the amount produced by each worker. This increase in productivity might happen because&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;workers become intrinsically more productive (i.e. through education)&lt;/li&gt;&#xA;&lt;li&gt;workers have better tools to work with (e.g. through technological progress).&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;If you live in a subsistence society in which people tend the fields by hand and produce 100 bushels of grain per year and then someone invents a combine harvester that allows them to produce 500 bushels per year then the output of the economy will increase even if the population stays the same.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2017-01-03T19:44:30.567" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="14896" PostTypeId="2" ParentId="14891" CreationDate="2017-01-03T19:47:54.167" Score="3" Body="&lt;p&gt;It is possible for a country to have economic growth without population growth.  Three sources of economic growth are:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Accumulation of productive capital, enabling a labour force of the&#xA;same size and the same average skill level, using the same&#xA;technology, to produce more output;&lt;/li&gt;&#xA;&lt;li&gt;Improved education to raise the average skill level of labour;&lt;/li&gt;&#xA;&lt;li&gt;Improved technology.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;(These sources are not entirely independent, since the application of new technology often requires new types of capital equipment and new skills.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The absence of population growth does not prevent any of the above, since it does not limit the proportion of current output a country chooses to devote to capital investment, education and technological innovation.&lt;/p&gt;&#xA;" OwnerUserId="1417" LastEditorUserId="1417" LastEditDate="2017-01-03T19:51:36.203" LastActivityDate="2017-01-03T19:51:36.203" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="14897" PostTypeId="1" CreationDate="2017-01-04T02:53:28.417" Score="2" ViewCount="581" Body="&lt;p&gt;I'm thinking the case of Argentina. In 2016, prices raised about 40% but according to the central bank of Argentina, money supply grew only 30%. Is this going to have an effect in 2017?&#xA;What could we expect to happen in general when money supply grows slower than inflation for a given period?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you in advance.&lt;/p&gt;&#xA;" OwnerUserId="11662" LastActivityDate="2019-05-02T11:28:45.460" Title="What happens if money supply grows more slowly than inflation?" Tags="&lt;inflation&gt;&lt;economic-growth&gt;&lt;money-supply&gt;" AnswerCount="2" CommentCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="14898" PostTypeId="1" CreationDate="2017-01-04T04:10:52.847" Score="2" ViewCount="34" Body="&lt;p&gt;My question regards how currency denominations might artificially affect prices. For example, a baseball game that determines a good pricing scheme for parking would be charging 7 dollars per person. But, due to the difficulty of exchanging change with everyone, may decide to instead charge 10 dollars for the convienence. I am wondering if there has been any research done in this area, and if anyone can point me in the right direction. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Specifically, I am looking at how cash denominations alter prices for convienence on the transaction.&lt;/p&gt;&#xA;" OwnerUserId="11663" LastEditorUserId="1601" LastEditDate="2017-01-04T07:56:32.237" LastActivityDate="2017-02-03T12:29:38.737" Title="Currency Denominations Affecting Prices" Tags="&lt;reference-request&gt;&lt;currency&gt;&lt;price-theory&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14900" PostTypeId="1" AcceptedAnswerId="14914" CreationDate="2017-01-04T10:53:12.440" Score="3" ViewCount="5327" Body="&lt;p&gt;The diagram from the Varian textbook shows that the SRAC curve is tangent to the LRAC curve at a point which is not the bottom of the SRAC curve. It would be really helpful if someone could explain this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/4lQBF.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/4lQBF.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="11655" LastActivityDate="2017-01-05T12:52:37.383" Title="Why is the short run average cost curve not a tangent to the long run average cost curve at the lowest point on the short run average cost curve?" Tags="&lt;microeconomics&gt;&lt;cost&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14901" PostTypeId="1" AcceptedAnswerId="14905" CreationDate="2017-01-04T11:22:54.040" Score="0" ViewCount="71" Body="&lt;p&gt;A common calibration for depreciation rates within RBC models is to assume 10% depreciation rate (based on NIPA stats, for instance). This implies a half-life of about 6.5 years. But this estimate seems a little low for advanced economies where capital is often in the form of computerized technology etc, which would seem to depreciate at a much faster rate (say 25% pa, implying a half-life of more like 2.5 yrs). Further, with technological advance you have the problem of obsolescence - the useful life of a capital good may end long before it depreciates away fully using the 10% pa rate. There is an element of unpredictability around obsolescence as well.   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;How can this be accounted for within RBC and DSGE models? Would obsolescence pose a problem for calibrating a model assuming delta is approx. 10%? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks in advance, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;R. &lt;/p&gt;&#xA;" OwnerUserId="8443" LastActivityDate="2017-01-04T18:32:07.643" Title="Depreciation vs. obsolescence in RBC and New Keynesian DSGE models" Tags="&lt;dsge&gt;&lt;rbc&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14904" PostTypeId="1" AcceptedAnswerId="14907" CreationDate="2017-01-04T17:25:36.267" Score="0" ViewCount="792" Body="&lt;p&gt;Whom would you consider to be the father of &lt;strong&gt;rational choice theory&lt;/strong&gt;?&#xA;My suggestions that would qualify for major publications:&#xA;Arrow (1959), Economica&#xA;Homans (1961)&#xA;Becker (1976)&#xA;Sugden (1991), Economic Journal &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Plus, would you agree that &lt;strong&gt;inter-temporal choice theory&lt;/strong&gt; was derived from rational choice theory? Or vice versa?&lt;/p&gt;&#xA;" OwnerUserId="11667" LastActivityDate="2017-01-04T23:11:09.047" Title="Whom would you consider to be the father of rational choice theory?" Tags="&lt;choice-theory&gt;" AnswerCount="2" CommentCount="1" ClosedDate="2017-01-12T13:39:58.260" ContentLicense="CC BY-SA 3.0" />
  <row Id="14905" PostTypeId="2" ParentId="14901" CreationDate="2017-01-04T18:32:07.643" Score="2" Body="&lt;p&gt;On the empirical side, there might be answers for you in the national accounts. I only know about the french case : the french statistical institute (INSEE) has different depreciation data for different types of capital (e.g. buildings, machines, patents) and for different sectors. These data are supposed to reflect both physical depreciation and &quot;normal obsolescence&quot;. The only reference I can give you is in french : Jean-François Baron, &quot;Les comptes de patrimoine et de variation de patrimoine, base 2000&quot;, INSEE, 2008, &lt;a href=&quot;http://www.insee.fr/fr/indicateurs/cnat_annu/base_2000/documentation/methodologie/nb10.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.insee.fr/fr/indicateurs/cnat_annu/base_2000/documentation/methodologie/nb10.pdf&lt;/a&gt; , but I suspect you can find similar data in other national accounts.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the theoretical side, if I understand you, you mean that a capital good can become economically obsolete before it is physically out of use. I see three possible reasons (possibly overlapping) for this :&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;the price of inputs (e.g. the wage rate) rises so that this capital good is not profitable any more&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;the price of output falls but not the price of inputs, so that it is not profitable&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;production is demand constrained &lt;em&gt;and&lt;/em&gt; there other more productive (&quot;new&quot;) capital goods available, so that our capital good will remain idle (although it could be profitable if there were a higher demand)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;To account for this problem, you have to drop the representation of capital as a single homogeneous magnitude (the number &quot;K&quot;) and have different capital goods with different properties (productivity and input requirements). This is called a &quot;vintage capital&quot; model. I don't know if this has been done in an RBC or DSGE framework, but a quite complete neoclassical paper dealing with these issues is :&#xA;Solow, Yaari, Tobin, Weiszäcker (1966), &quot;Neoclassical growth with fixed factor proportions&quot; &#xA;&lt;a href=&quot;http://sites-final.uclouvain.be/econ/DW/DOCTORALWS2004/bruno/vintage/solow%20yaari%20tobin.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://sites-final.uclouvain.be/econ/DW/DOCTORALWS2004/bruno/vintage/solow%20yaari%20tobin.pdf&lt;/a&gt; &lt;/p&gt;&#xA;" OwnerUserId="11629" LastActivityDate="2017-01-04T18:32:07.643" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14906" PostTypeId="2" ParentId="14904" CreationDate="2017-01-04T19:44:13.217" Score="0" Body="&lt;p&gt;I suggest &lt;a href=&quot;https://en.m.wikipedia.org/wiki/Von_Neumann%E2%80%93Morgenstern_utility_theorem&quot; rel=&quot;nofollow noreferrer&quot;&gt;John von Neumann and Oskar Morgenstern&lt;/a&gt; as obvious candidates - for the fundation of expected utility. Read the Wikipedia page and the references therein as a start. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT: I think with vNM it got serious, but you can go back even further. The earliest reference that comes to my mind would be Jevons' book &quot;A General Mathematical Theory of Political Economy&quot; from 1862.&lt;/p&gt;&#xA;" OwnerUserId="11590" LastEditorUserId="11590" LastEditDate="2017-01-04T20:29:28.423" LastActivityDate="2017-01-04T20:29:28.423" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14907" PostTypeId="2" ParentId="14904" CreationDate="2017-01-04T23:11:09.047" Score="2" Body="&lt;p&gt;The answer is &lt;strong&gt;there is no single father of rational choice theory&lt;/strong&gt;. The reason is that rational choice theory is not so much a theory but rather a coherent framework (others would call it a paradigm) resting on the key foundations of methodological individualism and instrumental rationality / self interest.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Both of these aspects played important roles in the marginal revolution in the late 19th century. Important names here are, of course, &lt;em&gt;Walras&lt;/em&gt;, &lt;em&gt;Jevons&lt;/em&gt;, &lt;em&gt;Menger&lt;/em&gt; and &lt;em&gt;Marshall&lt;/em&gt; although none of them can be regarded single father of Economics in the modern sense.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some decades later, &lt;em&gt;Robbins&lt;/em&gt; (1932, p. 15) famously defined Economics as&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This definition nicely summarizes much of the framework rational choice theory is embedded in. It contains instrumental rationality, in so far as that humans have goals (denoted as preferences) but only limited resources (constraints) and they choose so as to maximize their utility. It also hints at methodological individualism because it places human behaviour at the center of its investigation. Note, however, that Robbins again only summarized a research paradigm that was already well developed. (He says so himself on the same page.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Still, I guess it is fair to say that rational choice theory as we know it today took off after WW2. Here different names come to mind, depending on which focus you want to have. &lt;em&gt;Arrow/Debreu&lt;/em&gt; for general equilibrium theory, von &lt;em&gt;Neumann/Morgenstern&lt;/em&gt; if you want to stress expected utility (and game theory). A bit later, &lt;em&gt;Becker&lt;/em&gt; is a good choice if you want to stress that rational choice theory is an approach that is driven by its methodology (rational behavior, methodological individualism) and need not investigate an economic topic at all. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But yeah, asking for a single father of rational choice theory would really stress things a bit too far.&lt;/p&gt;&#xA;" OwnerUserId="11518" LastActivityDate="2017-01-04T23:11:09.047" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14908" PostTypeId="1" CreationDate="2017-01-05T04:02:45.223" Score="1" ViewCount="409" Body="&lt;p&gt;I was &lt;a href=&quot;https://www.youtube.com/watch?v=XNu5ppFZbHo&quot; rel=&quot;nofollow noreferrer&quot;&gt;watching a video&lt;/a&gt; about how money gets its value.  They say the answer has to do with how much money is in circulation.  But how does one find out how much money there is in circulation as set by the Fed?  &lt;/p&gt;&#xA;" OwnerUserId="7269" OwnerDisplayName="leeand00" LastEditorUserId="2736" LastEditDate="2017-01-05T09:32:08.200" LastActivityDate="2017-01-05T10:55:50.970" Title="How do you find out how much money is in circulation?" Tags="&lt;money&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14911" PostTypeId="2" ParentId="14897" CreationDate="2017-01-05T10:14:55.487" Score="-1" Body="&lt;p&gt;It could just be a sign of house price deflation, or at least house prices rising but not keeping up with inflation. Here's my reasoning...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assuming you already know that under fractional reserve banking new loans increase the money supply and the repayment of existing loans decreases the money supply... the bulk of loans/repayments are in connection with house buying, so the growth or shrinkage of the money supply will often reflect the enthusiasm for house purchasing. The price of houses is not reflected properly in most inflation measures, so deflation of house prices does not show up in inflation figures.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The opposite was going on in the UK in the run up to the crash of 2007/8. For many years there was rapid growth in the money supply (10% ish) while inflation was more like 2-3%.&lt;/p&gt;&#xA;" OwnerUserId="5081" LastEditorUserId="5081" LastEditDate="2019-05-02T11:28:45.460" LastActivityDate="2019-05-02T11:28:45.460" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="14912" PostTypeId="2" ParentId="14908" CreationDate="2017-01-05T10:55:50.970" Score="3" Body="&lt;p&gt;The video gives the impression that the Fed &quot;sets&quot; the money supply. However this is not true at all. Surprisingly the money supply is mostly determined by private banks and the amount of lending that they do. The Fed then has some things it can do to &lt;em&gt;influence&lt;/em&gt; the money supply. It's a system called &lt;a href=&quot;http://www.monetary.org/wp-content/uploads/2016/03/money-creation-in-the-modern-economy.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;fractional reserve banking&lt;/a&gt; and its very hard to get your head round. For a less technical explanation, watch &lt;a href=&quot;https://www.youtube.com/watch?v=CI5CFQXJxcA&quot; rel=&quot;nofollow noreferrer&quot;&gt;this&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You will learn that there is more than one possible definition of &quot;the money supply&quot; (M1, M2 etc). The amount of each can be found at the &lt;a href=&quot;https://fred.stlouisfed.org/&quot; rel=&quot;nofollow noreferrer&quot;&gt;St Lois Fed website&lt;/a&gt; - try doing a search for &quot;money&quot;.&lt;/p&gt;&#xA;" OwnerUserId="5081" LastActivityDate="2017-01-05T10:55:50.970" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14913" PostTypeId="1" CreationDate="2017-01-05T11:58:06.963" Score="2" ViewCount="437" Body="&lt;p&gt;We have the rule 'If the marginal is less than the average, then the average declines'.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So if our production function for an input x and output y is concave, does that mean that MP must be diminishing given AP is diminishing?&lt;/p&gt;&#xA;" OwnerUserId="11381" LastActivityDate="2017-02-06T20:14:59.297" Title="Does the marginal product need to be diminishing to have a diminishing average product?" Tags="&lt;production-function&gt;" AnswerCount="3" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="14914" PostTypeId="2" ParentId="14900" CreationDate="2017-01-05T12:10:45.263" Score="3" Body="&lt;p&gt;The diagram is fine as an illustration of a possible relation between the long run average cost curve and &lt;em&gt;one particular&lt;/em&gt; short run average cost curve.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Long run in the context of a firm's cost functions means that all inputs are free to vary, so it makes sense to refer to &lt;em&gt;the&lt;/em&gt; long run cost curve.  Short run means that one or more inputs (eg capital equipment) are fixed.  Since these inputs could be fixed at different levels, there are many different short run cost curves. The long run cost curve is the &lt;em&gt;envelope&lt;/em&gt; of these curves. Unless it has been specified at what level they are considered fixed (which could implicitly be whatever is their current level), it makes no sense to refer to &lt;em&gt;the&lt;/em&gt; short run average cost curve.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In most cases, the minimum point of a short run cost curve will be above the long run cost curve.  This should not be surprising: it just means that, for the relevant output, it's possible to obtain lower costs if all inputs are free to vary than if only some are free to vary.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There will however be one short run cost curve corresponding to the levels of fixed inputs at which the long run cost curve is at its minimum.  The lowest point of that particular short run cost curve &lt;em&gt;will&lt;/em&gt; be tangent to the long run cost curve (and incidentally the short and long run marginal cost curves will also pass through the same point).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A diagram showing multiple short run average cost curves, with one having its lowest point tangent to the lowest point of the long run cost curve may be found in Nicholson W (9th edn 2005) &lt;em&gt;Microeconomic Theory&lt;/em&gt;.  For an online source see &lt;a href=&quot;http://www.policonomics.com/long-run-cost-analysis/&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="1417" LastEditorUserId="1417" LastEditDate="2017-01-05T12:52:37.383" LastActivityDate="2017-01-05T12:52:37.383" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="14915" PostTypeId="2" ParentId="11890" CreationDate="2017-01-05T13:20:18.233" Score="0" Body="&lt;p&gt;Since no countries have introduced a guaranteed basic income on a big enough scale to evaluate it's impact on inflation, there is no evidence to answer your answer directly.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, there is quite some evidence that minimum wage hikes increase the prices of firms that pay minimum wages. See Aaronson et al 2008 for an example (&lt;a href=&quot;http://jhr.uwpress.org/content/43/3/688.refs&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://jhr.uwpress.org/content/43/3/688.refs&lt;/a&gt;). If you see a guaranteed basic income as an implicit wage floor---nobody would work for less than the basic income---then we should expect that the basic income increases prices.&lt;/p&gt;&#xA;" OwnerUserId="11216" LastActivityDate="2017-01-05T13:20:18.233" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14918" PostTypeId="1" CreationDate="2017-01-05T17:02:11.550" Score="2" ViewCount="3617" Body="&lt;p&gt;I was &lt;a href=&quot;http://This%20being%20the%20%22Quant%22itative%20Finance%20stackexchange,%20I%20thought%20it%20would%20be%20a%20good%20place%20to%20ask.&quot; rel=&quot;nofollow noreferrer&quot;&gt;watching a video&lt;/a&gt; about what gives money its value, and they say it's the total number of bills in circulation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Federal Reserve can print or remove money from circulation. But if somebody owns that money, they can't just take that money away right?  So how do they take money out of circulation?  Is there a limit on how much they can take out?&lt;/p&gt;&#xA;" OwnerUserId="7269" LastActivityDate="2017-01-07T20:33:49.863" Title="How does the Federal Reserve remove money from circulation?" Tags="&lt;federal-reserve&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="14919" PostTypeId="2" ParentId="14913" CreationDate="2017-01-05T17:12:46.373" Score="2" Body="&lt;p&gt;Taking @Henry's comment because he is too lazy to type it in as answer:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As long as $f$ is twice differentiable (which is likely if $MP(x)$ exists) just the fact that $f(x)$ is concave implies $\dfrac{d^2f(x)}{dx^2} &amp;lt; 0$. This is also the first differentiate of $MP(x)$, thus it is diminishing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So all you need is concavity. The 'rule' you refer to has different implications.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2017-02-06T09:07:17.890" LastActivityDate="2017-02-06T09:07:17.890" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="14920" PostTypeId="1" CreationDate="2017-01-05T17:34:18.043" Score="-1" ViewCount="1218" Body="&lt;p&gt;whatis the differences between cobb-Douglass and leontief production technology&lt;/p&gt;&#xA;" OwnerUserId="11682" LastActivityDate="2017-01-05T20:36:25.823" Title="the difference between cobb-Douglass and leontief production technology" Tags="&lt;production-function&gt;" AnswerCount="1" CommentCount="0" ClosedDate="2017-01-08T18:36:59.203" ContentLicense="CC BY-SA 3.0" />
  <row Id="14922" PostTypeId="2" ParentId="14920" CreationDate="2017-01-05T20:36:25.823" Score="1" Body="&lt;p&gt;What do you mean by &quot;what is the difference&quot;? Please clarify. These are just different production functions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose there are two different inputs $A$ and $B$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Cobb-Douglas production function is given by&#xA;$$A^\alpha B^\beta.$$&#xA;You may think of $A$ and $B$ as capital and labor.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Leontief production function is given by&#xA;$$\min \{ A, B\}.$$&#xA;You may think of $A$ and $B$ as number of left and right shoes. If you have 7 left shoes and 3 right shoes, you have 3 pairs of shoes. Or let $A$ be &quot;number of wheels divided by four and rounded down&quot; and let $B$ be &quot;number of car bodies&quot; such that you can produce 5 cars with 7 car bodies and 21 wheels.&lt;/p&gt;&#xA;" OwnerUserId="11590" LastActivityDate="2017-01-05T20:36:25.823" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="14923" PostTypeId="2" ParentId="13798" CreationDate="2017-01-05T21:43:39.690" Score="2" Body="&lt;p&gt;There are four categories of approximations used in economics.  Unfortunately, none of them are economic approximations, but rather mathematical or statistical approximations.  As such, they do not appear in the economic literature, so much so as in the mathematical literature.  You are not seeing in the economic literature because students should be exposed to the content by mathematicians.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The difficulty comes from the type of math used in economics.  There are two ways you could look at calculus.  One is that it is the study of change.  The other is that it is the study of approximations.  All of calculus is a set of approximations, though if you will mentally agree that $\lim_{n\to\infty}\frac{1}{n}=0$ then you can get &quot;exact&quot; answers.  Imagine, however, that the smallest unit is a penny, then you cannot go to zero and now you have an approximation if a penny is the smallest possible size.  The question economists have to answer within the profession is whether or not the difference has a large enough impact to matter.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is rare in economics for anything to be anything except an approximation.  There are some categories though to these approximations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first category can be thought of as either equilibrium approximations or local approximations.  Mathematicians would use the phrase &quot;local approximations.&quot;  The main one of these is the Taylor expansion, though there are others.  In classes, I have to be very careful when I teach undergraduates because they often substitute their own mental approximations for the actual ones in work.  While it is wonderful that they are trying to work problems through from first principles, its usually the ones who didn't study the answer in the book and who are panicking.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The second one can be thought of as functional approximations.  The actual functions in the real world are discrete and usually created by the separate functions of many different firms.  While there are certain mathematical properties created by the topology of the problem.  We know that certain types of problems are forced to have a certain general form, but the specific form will be unique to the real world problem.  As an example, a taxi company needs one driver per cab.  If you add cabs but no drivers then no revenue gain is created.  Likewise, if you add cab drivers but no cabs, you get not revenue gains.  Indeed, in both cases you can take losses from paying the cabies and the costs for the cabs such as insurance.  So the production function, which is a Leontief production function is assumed to be present almost all the time, ignoring cabbies who quit, or wrecked cabs resulting in a temporary mismatch between workers and cabbies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is also the issue that utility functions are ordinal and any function that preserves preference ordering is equally valid.  This is not an approximation so much as an arbitrary choice for convenience.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The third category could be thought of as model approximations.  For example, using game theory, is an arbitrary choice as a way to model something.  The use of a general equilibrium method versus a model that is sub-game perfect will create different approximations in the end.  Of course the goal is for empiricism to judge between the modeling methods, but for your purposes they should both be thought of as approximations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, all of statistics is a form of approximation.  The danger is to believe statistical models and all economic models are statistical models.  They can be excellent or poor.  Statistical significance is not enough, it needs economic significance, that is &quot;what is the effect size.&quot;  Likewise, how sensitive is the statistical model to the data and to reality.  You can easily create a statistical model that is not at all robust.  That will make your approximations very fragile.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There isn't a list.  The most common are Taylor expansions, finding the slope, $\hat{\beta}$ in models as an approximation of the derivative, and production functions.  The best way to tell you are dealing with an approximation will always be seeing $\Delta$ in a problem.  If you see $\Delta$ then you are dealing with an approximation of $\mathrm{d}$.  Although $\mathrm{d}x$ is really an approximation of $\Delta{x}$, economics always solving inverse problems so in economic practice $\Delta{x}$ is an approximation of $\mathrm{d}x$.&lt;/p&gt;&#xA;" OwnerUserId="11321" LastActivityDate="2017-01-05T21:43:39.690" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="14924" PostTypeId="1" CreationDate="2017-01-06T04:11:40.763" Score="1" ViewCount="406" Body="&lt;p&gt;If I wanted to test, for example, if consumption growth and credit growth are jointly determined, and therefore justifying the use of instrumental variables, how would I go about this? Would running a Hausman test work?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For instance if I assumed the structural equations&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;        Consumption= a + b * income+ c * Credit + e&#xA;&#xA;        Credit growth= d + f * income + g * consumption + ... + v&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;How could a Hausman test be used?&lt;/p&gt;&#xA;" OwnerUserId="11687" LastEditorUserId="1601" LastEditDate="2017-01-06T07:03:13.747" LastActivityDate="2017-01-06T07:03:13.747" Title="How to test if variables are jointly determined?" Tags="&lt;econometrics&gt;&lt;instrumental-variable&gt;&lt;endogeneity&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14925" PostTypeId="1" CreationDate="2017-01-06T10:49:08.957" Score="0" ViewCount="36" Body="&lt;p&gt;Suppose I have a series of debt as % of GDP.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By computing returns on this serie e.g.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;debt as % of GDP in year 1 is 50% in year 2 is 60%&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I compute $(60\%-50\%)/50\%$ can I interpret this measure as a sort of deficit for year 1-2? Hence, deficit for this period is 20%. Or shall it rather be the difference $10\%$?&lt;/p&gt;&#xA;" OwnerUserId="11688" LastActivityDate="2017-01-12T14:54:20.463" Title="Deficit: can be seen as a return?" Tags="&lt;debt&gt;&lt;government-debt&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="14926" PostTypeId="2" ParentId="14913" CreationDate="2017-01-06T13:43:55.540" Score="1" Body="&lt;p&gt;I am a little confused by the phrasing of the question, but I'll take it to mean this: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Does diminishing average product imply that marginal product is also decreasing?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It is easy to show, as the OP acknowledges, that (under differentiability assumptions) that the average product of an input is decreasing in that input if and only if the marginal product of the said input is below the average product.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It turns out that this is essentially all you can say about the implications of diminishing average product on marginal product, as Ubiquitous shows in a separate answer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I want to offer an alternative, simpler (albeit somewhat extreme) counter-example.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider a production function $F$ whose marginal product for input $x$ is $0$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \text{MP}_x = \frac{\partial F}{\partial x} = 0 $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is easy to see that as long as $F &amp;gt; 0$, $\text{AP}_x$ is decreasing in $x$. Hence it is possible to have a production function that exhibits diminishing average product but a non-decreasing marginal product.&lt;/p&gt;&#xA;" OwnerUserId="8595" LastEditorUserId="8595" LastEditDate="2017-02-06T20:14:59.297" LastActivityDate="2017-02-06T20:14:59.297" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14927" PostTypeId="2" ParentId="14918" CreationDate="2017-01-06T13:50:29.433" Score="4" Body="&lt;p&gt;One of the Federal Reserve's (the Fed) primary policy tools is the Federal Open Market Committee (FOMC). Through open market operations the Fed can buy or sell securities on a secondary market. By buying securities they bring new money into circulation, by selling securities they take money out of circulation. &#xA;Thus the Fed has a direct influence on the so called monetary base (M0, consisting of currency in circulation and reserves held by banks at the Fed).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is true that the Fed cannot take the $-bills out of your pocket, but they don't have to. The Fed trades in securities, and every security has a price. Hence, if the Fed wants to take money out of circulation they &quot;buy&quot; dollars, by selling securities. At the market price there will by definition be people who are willing to give their money to the Fed in return for securities.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The value of money is determined by numerous factors beyond the monetary base (e.g. the money supply M1,M2,M3..., exchange rates) and is a concept harder to grasp, because value can be defined in various ways (as opposed to the &quot;price&quot; of money). But I think that goes beyond your question.&lt;/p&gt;&#xA;" OwnerUserId="11660" LastEditorUserId="264" LastEditDate="2017-01-07T20:33:49.863" LastActivityDate="2017-01-07T20:33:49.863" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14928" PostTypeId="1" AcceptedAnswerId="14993" CreationDate="2017-01-06T14:49:13.910" Score="6" ViewCount="119" Body="&lt;p&gt;When a city like Seattle raises the minimum wage to 15/hr, how does it affect the labor market in adjacent cities? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are there examples, studies or accepted practices to address: Difficulty staffing entry level positions when labor pool can work across the street for several dollars/hr more? &lt;/p&gt;&#xA;" OwnerUserId="11690" LastEditorUserId="1601" LastEditDate="2017-01-06T15:43:52.770" LastActivityDate="2017-01-13T05:21:57.760" Title="Minimum Wage effects on Adjacent Cities" Tags="&lt;labor-economics&gt;&lt;unemployment&gt;&lt;wages&gt;&lt;minimum-wage&gt;&lt;labor-cost&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14929" PostTypeId="2" ParentId="14928" CreationDate="2017-01-06T15:10:16.480" Score="8" Body="&lt;p&gt;A very famous study in this direction is &lt;a href=&quot;https://www.jstor.org/stable/2118030&quot; rel=&quot;noreferrer&quot;&gt;Card and Krueger (1994)&lt;/a&gt;.&#xA;They look an increase in the minimum wage in New Jersey in 1992. While New Jersey raised the minimum wage from USD 4.25/h to USD 5.05/h, the minimum wages remained at $4.25 in adjacent Pennsylvania.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You should have a look at the subsequent research.&lt;/p&gt;&#xA;" OwnerUserId="11590" LastActivityDate="2017-01-06T15:10:16.480" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="14930" PostTypeId="1" CreationDate="2017-01-06T15:44:39.503" Score="4" ViewCount="75" Body="&lt;p&gt;I'm looking for a relatively recent survey on the state of the art for mathematical general equilibrium. I'm especially interested in questions of uniqueness, stability and dynamics. (I'm planing on giving a talk on general equilibrium at the level of Jehle and Reny to some mathematicians who have no economics background, and I'd like to be as up to date as possible.)&lt;/p&gt;&#xA;" OwnerUserId="11691" LastEditorUserId="1601" LastEditDate="2017-01-06T19:27:48.123" LastActivityDate="2017-01-06T19:27:48.123" Title="References on mathematically rigorous general equilibrium theories" Tags="&lt;reference-request&gt;&lt;mathematical-economics&gt;&lt;general-equilibrium&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="14931" PostTypeId="2" ParentId="11933" CreationDate="2017-01-06T16:38:30.940" Score="0" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;from which it may be concluded that business cycle fluctuations are not very harmful for welfare(?), economic growth(?) etc.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Only welfare. That fluctuations don't harm growth seems to be an assumption, not a result, of the analysis you are mentioning. This presupposes that the long-run path of the economy is driven by autonomous supply-side factors and is independent of the short-run fluctuations. So people will lose their jobs one day but get them back the other day, with equal probability. There is no serious crisis in that framework.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The permanent effect of the cycle in the long run is called hysteresis. I suspect that the more hysteresis you have, the weaker Lucas' result becomes.&lt;/p&gt;&#xA;" OwnerUserId="11629" LastEditorUserId="2776" LastEditDate="2017-08-08T06:44:35.637" LastActivityDate="2017-08-08T06:44:35.637" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14932" PostTypeId="2" ParentId="11933" CreationDate="2017-01-06T17:45:20.900" Score="3" Body="&lt;p&gt;The Lucas model does not address at all the points that you address of people losing jobs, as it utilizes just one agent that simply has a perfectly steady (perhaps growing at a constant rate) consumption path. A model with heterogeneous agents where they have the possibility of losing their jobs and having some periods with, supposedly, very low consumption, would give a much higher cost of business cycles.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Further, &lt;a href=&quot;http://www.tomsargent.com/research/bhs_2008_final.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;in a paper using robust preferences Sargent and some coauthors&lt;/a&gt; find that if the agent has fear that his model of where income fluctuations are drawn from is misspecified, the costs of business cycles are much higher.&lt;/p&gt;&#xA;" OwnerUserId="11692" LastEditorUserId="11692" LastEditDate="2017-08-07T20:45:02.130" LastActivityDate="2017-08-07T20:45:02.130" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14933" PostTypeId="2" ParentId="14860" CreationDate="2017-01-06T19:10:24.487" Score="1" Body="&lt;p&gt;In fact, saddle path equilibrium is one of the most common equilibrium in canonical growth models, mainly in dynamic optimization problems. It is possible that he makes a reference to a decentralized equilibrium without cycles around steady state. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Otherwise, if there are cycles around a steady-state equilibrium. It means that there are oscillations (see indeterminacy and bifurcation issues for technical details), which means that your equilibrium is not a saddle path. (I skip the mathematical details for those technical terms, which is beyond the scoop of your question.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In which situation, you don't have a saddle path equilibrium and some cycles around steady state ? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A decentralized market economy with externalities which are not taken into account by agents in the market can show indeterminate equilibrium. I think he makes reference to this kind of economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A very good and illustrative paper to respond to your question is &lt;a href=&quot;http://128.97.206.178/NewWeb/PdfFiles/indeterminacy%20and%20ir.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Benhabib and Farmer (1994)&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I quote one of their sentences from introduction. Then, you can look at references cited ;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;...Previous work on indeterminate equilibria has shown that stable steady states are associated with rational expectations models in which there exists a continuum of self-fulfilling belief-driven equilibria each of which is stationnary...&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope it answers to your question.&lt;/p&gt;&#xA;" OwnerUserId="2938" LastActivityDate="2017-01-06T19:10:24.487" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="14934" PostTypeId="1" AcceptedAnswerId="14935" CreationDate="2017-01-06T20:38:18.233" Score="0" ViewCount="544" Body="&lt;p&gt;What is the difference between Net Present value and present discounted value when periods are given in infinity $\infty$ . Both are then equal to $\frac M r$? &lt;/p&gt;&#xA;" OwnerUserId="11603" LastEditorUserId="44" LastEditDate="2017-01-07T09:07:29.223" LastActivityDate="2017-01-07T09:07:29.223" Title="Difference between NPV and PDV" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14935" PostTypeId="2" ParentId="14934" CreationDate="2017-01-06T20:51:28.047" Score="2" Body="&lt;p&gt;NPV and PDV are two different names for the same concept. If you were to receive M every year and the discount factor is $\delta$ then NPV = PDV = $\sum_{i=0}^{\infty}\delta^i M= \frac{M}{1-\delta}$.&lt;/p&gt;&#xA;" OwnerUserId="11693" LastActivityDate="2017-01-06T20:51:28.047" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14936" PostTypeId="1" CreationDate="2017-01-07T12:39:26.327" Score="0" ViewCount="148" Body="&lt;p&gt;Well, I got basically a question about economics of our world, I hope I'm wrong in my assumptions, because it's pretty ugly and I'm really hope it's more about me being wrong than it's actually the truth. So...:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What does inflation actually means when we talk about savings? For example, If Joe works his ass off and makes some savings in US dollars and puts them in the bank. So say Joe's savings are about \$100,000 and he decides to transfer them to his kid's bank account so when his kid grows up his kid could take the money. But, as I understand it, this \$100,000 won't be the same \$100,000 in about 20 years, when Joe's kid has grown up and wants to take the money. Instead he would get much less than \$100,000, because each year the inflation will eat out by at least 1.5% (avg. for my opinion for Western countries) of this money. Is this really how it is?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't know what tags to put, if you may, please help with this too.&lt;/p&gt;&#xA;" OwnerUserId="11698" LastEditorUserId="264" LastEditDate="2017-01-07T20:39:19.333" LastActivityDate="2017-01-07T20:56:03.527" Title="How does inflation affect the value of savings?" Tags="&lt;inflation&gt;&lt;interest-rate&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="14937" PostTypeId="1" AcceptedAnswerId="14938" CreationDate="2017-01-07T13:23:38.363" Score="1" ViewCount="3113" Body="&lt;p&gt;I'm not an economist. I'm looking to exchange my CAD to EUR. I watched the rates on a exchange office, and I found something strange:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;We buy:                   We sell:&#xA;1 EUR = 1,4946 CAD (1)    1 EUR = 1,3280 CAD (2)&#xA;1 CAD = 0,6691 EUR (3)    1 CAD = 0,7530 EUR (4)&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;How can there be 4 different rates? I understand why CAD -&gt; EUR is different of EUR -&gt; CAD with the supply and demand. When the exchange office buys 1 CAD, it sells EUR too. I supposed it was to make things easier, so I checked it:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;1 EUR = 1,3280 CAD (2)&#xA;=&amp;gt; 1,3280 CAD = 1 EUR&#xA;&#xA;1 CAD = 0,6691 EUR (3)&#xA;1,3280 * 1 CAD = 1,3280 * 0,6691 EUR&#xA;=&amp;gt; 1,3280 CAD = 0.8886 EUR&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Here, we found that it's indeed, more interesting for the customer to accept a sell than buying (from the office point of view for the words buy/sell).&#xA;But is the difference, normal? And why?&lt;/p&gt;&#xA;" OwnerUserId="11699" LastActivityDate="2017-01-08T01:23:01.600" Title="Is there a difference between buying a currency and selling the currency to be converted to?" Tags="&lt;exchange-rates&gt;&lt;currency-exchange&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14938" PostTypeId="2" ParentId="14937" CreationDate="2017-01-07T13:53:19.713" Score="3" Body="&lt;p&gt;Buy and sell rates are different because the currency vendor wants to make a profit and is also taking some risk with the exchange. It is possible that she cannot unload all the CADs they buy from you immediately and then perhaps in the future they will depreciate. (Perhaps they will appreciate. It is uncertain, hence there is risk.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The same applies to buying and selling euros.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Usually there is some middle rate $x$ EUR/CAD. The vendor will deviate 1-2% from this in the direction favorable to her, depending on the direction of the deal (buying EURs with CAD or the other way around). You can look up something close the middle rate on &lt;a href=&quot;http://xe.com&quot; rel=&quot;nofollow noreferrer&quot;&gt;XE&lt;/a&gt;. Currently this is about 1.394 CAD/EUR. Your vendor seems to sell at a premium that seems higher than normal to me, so perhaps see if you can find another currency merchant.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2017-01-07T13:53:19.713" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14940" PostTypeId="2" ParentId="14146" CreationDate="2017-01-07T16:35:31.893" Score="1" Body="&lt;p&gt;There is a demand for debt and a supply of debt. The demand for debt is determined by the extent of profitable investment opportunities that are around. The supply of debt is essentially people's saving multiplied by a factor depending on how much risk financial institutions are willing to carry.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose we live in a world where there are no clearly profitable investment opportunities, but many projects which return the same money you put in on average. So nobody would take on debt at positive interest rates. However, even a a zero interest rate, people would still want to save money, for example to insure against bad times, or for retirement. So there's an equilibrium in which the interest rate is zero, but people still borrow and lend.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another possibility is that people just expect deflation, so a zero nominal interest rate still goes along with positive real returns on your investment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is not clear to me what you mean by sustainable, but clearly such situations can arise, albeit rarely. Japan has nominal rates close to zero for a long time now.&lt;/p&gt;&#xA;" OwnerUserId="11216" LastEditorUserId="11216" LastEditDate="2017-01-07T17:10:32.170" LastActivityDate="2017-01-07T17:10:32.170" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14941" PostTypeId="2" ParentId="107" CreationDate="2017-01-07T16:38:43.903" Score="0" Body="&lt;p&gt;It seems important to pay attention to data, not just theory.  In particular, the entire size effect, represented by SMB in the FF3FM, occurs in January.  This has been known for decades (e.g., Keim 1983) and has continued.  There is also a substantial January effect in value, represented by HML.  This is inconsistent with APT, ICAPM, production-based or consumption-based asset pricing, etc.  The FF3FM is best viewed as controlling for some existing anomalies, robustness tests, etc., but it is plainly not how the world trades off any notion of traditional risk and expected return and no amount of investigation or study can make it so.  Move on.&lt;/p&gt;&#xA;" OwnerUserId="11703" LastActivityDate="2017-01-07T16:38:43.903" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14942" PostTypeId="2" ParentId="14834" CreationDate="2017-01-07T19:21:48.003" Score="1" Body="&lt;p&gt;Quoting from &lt;a href=&quot;https://mises.org/files/interest-and-prices2pdf/download?token=QHbdcXnR&quot; rel=&quot;nofollow noreferrer&quot;&gt;K. Wicksell's &lt;strong&gt;&quot;Interest and Prices&quot;&lt;/strong&gt; (1898), ch. 8 p. 102&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;There is a certain rate of interest on loans which is neutral in&#xA;  respect to commodity prices, and tends neither to raise nor to lower&#xA;  them. This is necessarily the same as the rate of interest which would&#xA;  be determined by supply and demand if no use were made of money and&#xA;  all lending were effected in the form of real capital goods. It comes&#xA;  to much the same thing to describe it as the current value of the&#xA;  &lt;strong&gt;natural rate of interest on capital&lt;/strong&gt;.&quot;&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So the &quot;natural rate of interest&quot; is that level &lt;strong&gt;compatible with zero inflation&lt;/strong&gt; (or deflation). But at the same time, always according to the inventor of the concept (p. 106), the natural rate of interest &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;depends on the efficiency of production, on the available amount of fixed and liquid capital, on the supply of labour and land, in short&#xA;  on all the thousand and one things which determine the current&#xA;  economic position of a community...&quot;&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;...and I would say he is right. This leads us to the more broader characterization, that the natural rate of interest is compatible with output being at its natural level also. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, re-arrange and use the Fisher equation to get the interest rate gap,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$E_t(x_{t+1}) - x_t = \frac{1}{\sigma}(r_t-r^n_{t})$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;with $x_t = y_t - y^n_t$. Given the discussion above, if the actual real interest rate $r_t$ is equal to $r^n_t$ (so zero interest rate gap), we also have $x_t = 0$ and so also $E_t(x_{t+1})=0$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume that the interest rate gap is negative, $r_t &amp;lt; r^n_t$. Then the output gap is expected to be smaller next period. Etc. Such is the analysis that makes sense here, rather than considering &quot;stand alone&quot; changes in the natural interest rate (because such changes are never &quot;stand-alone&quot;, since the natural level is not a decision variable of any economic agent).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;¨&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2017-01-07T19:21:48.003" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14944" PostTypeId="1" CreationDate="2017-01-07T20:42:17.190" Score="4" ViewCount="52" Body="&lt;p&gt;A typical commission on a typical stock trade these days is $8. I don't understood how it can cost this much. It looks like the entire process is happening in software, electronically, and so the actual cost to the parties that supply this service should be near zero. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So I'm wondering, where does that money go? Is someone making a profit? Are they protecting that profit with exclusive dealing, collusion, or some other anti-competitive practice?&lt;/p&gt;&#xA;" OwnerUserId="11706" LastEditorUserId="11706" LastEditDate="2017-01-08T03:23:32.563" LastActivityDate="2017-01-09T19:29:58.433" Title="Are stock trade commissions evidence of anti-competitive practice?" Tags="&lt;stock-market&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14945" PostTypeId="2" ParentId="14936" CreationDate="2017-01-07T20:56:03.527" Score="2" Body="&lt;p&gt;It's not so grim: interest rates on savings tend to be higher than inflation, because lenders factor in expected inflation and won't lend unless they're compensated for the risks they face and the fact that they can't use the money in the meantime. So while Joe isn't likely to be lending directly, by saving money in a bank, he's lending money to the bank that the bank will then lend to others, and all Joe needs to do is make sure that his money is in an account that will pay him a decent rate of return (i.e., one that is higher than inflation).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If Joe put \$100,000 in a mattress or in a bank account that pays a 0% rate, then yes, in 20 years if inflation has risen by 1.5% annually, then the money will only be worth about \$74,000 in today's dollars. But if he saves the money in an account that pays a higher interest rate than inflation (or buys a financial instrument like TIPS, a type of government bond that pays an inflation-adjusted return), his kids will have an amount of money equal to more than \$100,000 in today's dollars.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The yield to maturity on a TIPS bond maturing in 2040 is &lt;a href=&quot;http://www.wsj.com/mdc/public/page/2_3020-tips.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;currently&lt;/a&gt; about 0.9%, which isn't very high, but that's a nearly risk-free investment that is protected against inflation. If Joe bought one of these, his kids would have about \$100,900 in today's dollars. If he instead took on a certain amount of risk, his kids could have potentially much more.&lt;/p&gt;&#xA;" OwnerUserId="264" LastActivityDate="2017-01-07T20:56:03.527" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14946" PostTypeId="2" ParentId="14937" CreationDate="2017-01-08T01:23:01.600" Score="0" Body="&lt;p&gt;There are in fact two rates (subject to minor rounding), each expressed two different ways (a rate and its reciprocal), presumably to help different people who think different ways.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose you wanted to buy $1000$ Euros with Canadian dollars. The calculation is either $1000\times 1.4946 = 1494.60$ or $\dfrac{1000}{0.6691}=1494.54$ - the same within six cents&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Similarly if you want to sell $1000$ Euros for Canadian dollars. The calculation is either $1000\times 1.3280 = 1328.00$ or $\dfrac{1000}{0.7530}=1328.02$ - the same within a couple of cents&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The gap between the rates in the two directions (a gap of over $160$ dollars for $1000$ Euros) is much more than the handful of cents when using a particular rate or its reciprocal  &lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2017-01-08T01:23:01.600" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14947" PostTypeId="1" CreationDate="2017-01-08T08:10:26.603" Score="2" ViewCount="16060" Body="&lt;p&gt;What I understand is that an increase in the money supply brings about a fall in interest rate as there is more money available, the price of money will be cheaper. But some theory such as liquidity effect posits that increase in money supply will increase in interest rate. Is that they view the problem differently or the two situations are different?&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;Money growth also affects interest rates and prices and those in turn will&#xA;  influence stock prices. Assuming that money demand remains constant, increase in money supply raises interest rates thereby increasing the opportunity cost of holding cash as well as stocks. Lured by higher interest earnings, people are likely to convert their cash and stock holdings to interest-bearing deposits and securities with obvious implications for stock prices. Since the rate of inflation is positively related to money growth, an increase in money supply may lower the demand for stocks and assets (as real value of such assets decline due to inflation) resulting in higher discount rates (as banks become more cautious in its lending) and lower stock prices. The rising interest rates and inflation will also adversely affect corporate profits (earnings) leading to lower stock returns (both actual and expected) and thereby making stock possession (as well as new purchase) less attractive.&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The above is quoted from an article. It mention that increase in money supply raises interest rates thereby increasing the opportunity cost of holding cash as well as stocks. I don't understand how increasing in money supply would increase interest rate. Could you explain?&lt;/p&gt;&#xA;" OwnerUserId="11503" LastEditorUserId="2776" LastEditDate="2017-02-07T21:57:14.143" LastActivityDate="2020-03-25T22:22:49.617" Title="Does an increase in the money supply increase or decrease interest rates?" Tags="&lt;monetary-policy&gt;&lt;interest-rate&gt;&lt;money-supply&gt;&lt;money&gt;" AnswerCount="4" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14948" PostTypeId="2" ParentId="14947" CreationDate="2017-01-08T11:13:03.700" Score="1" Body="&lt;p&gt;(1) In IS-LM type models an exogenous increase in the money supply will decrease the interest rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(2) IS-LM macro is like 1000 years old. Today central banks set the interest rate and the supply of cash provided by banks is largely endogenous. Most people would still agree that lower interest rates increase the supply of money, all else equal.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(3) These are theoretical predictions. Ultimately it is of course an empirical question that can only be answered with data.&lt;/p&gt;&#xA;" OwnerUserId="11216" LastActivityDate="2017-01-08T11:13:03.700" CommentCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="14949" PostTypeId="2" ParentId="14944" CreationDate="2017-01-08T11:19:22.447" Score="2" Body="&lt;p&gt;The money goes to banks/brokers. In fact most of the revenue in the financial sector comes from fees like that.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is to compensate the bank/broker from taking the risk of carrying the opposite position on their books for a while, and the labor put into actually trading for you. A part of it is probably also profit. Since there are large entry costs, one would expect the financial sector to earn  profits.&lt;/p&gt;&#xA;" OwnerUserId="11216" LastEditorUserId="11216" LastEditDate="2017-01-09T19:29:58.433" LastActivityDate="2017-01-09T19:29:58.433" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="14951" PostTypeId="1" CreationDate="2017-01-08T16:58:45.647" Score="1" ViewCount="1197" Body="&lt;p&gt;In a 2-person economy, the owner of a firm pays 20% of the total output to the worker.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is the Gini coefficient in this economy?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The answer is supposed to be 3/5 but I end up getting 3/10 instead.&lt;/p&gt;&#xA;" OwnerUserId="11381" LastActivityDate="2017-02-22T12:04:08.693" Title="Determining the Gini Coefficient in a 2 person economy" Tags="&lt;inequality&gt;" AnswerCount="2" CommentCount="0" ClosedDate="2017-02-27T00:28:05.360" ContentLicense="CC BY-SA 3.0" />
  <row Id="14952" PostTypeId="1" CreationDate="2017-01-08T18:27:21.787" Score="1" ViewCount="63" Body="&lt;p&gt;I was solving a business case I had at school where i just needed to compute the cashflows (CF). Once I have done so I wanted to check that my calculations are all good by verifying that the following equation is true: CF(Operating) + CF(Investing) + CF(Financing) = Cash variation The issue is when I perform this calculation the sum of my cash flows gives me: Cash Variation + Net income&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now I got really confused and verified back all my calculations which seemed all correct (i mean i am simply applying the formulas as they are). So what I did is I started over from the Balance Sheet equation in order to better grasp the dynamics of all this in my head and there I got a surprise:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Balance sheet equation: Fixed Assets (FA) + Receivables(R) + Inventory (Inv) + Cash = Equity (Eq) + Debt-Long Term (DLT) + Debt-MidTerm(DMT) + Supplier (S)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then by moving things around I get: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;-(R + Inv - S) + FA + (Eq + DLT + DMT) = Cash&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given (R + Inv - S) = WCR and if I introduce the Deltas D with last year at this point the equation becomes:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;-D(WCR) + D(FA) + D(Eq + DLT + DMT) = D(Cash)&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;=&gt; &lt;strong&gt;-D(WCR) + CF(Investing) + CF(Financing) = D(Cash)&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now to get my operating cash flow I must compute: Net Income - D(WCR) so If I add the net income on the left it must add to the right so I get:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;(Net Income + Deprec/Ammort)&lt;/strong&gt; - D(WCR) + CF(Investing) + CF(Financing) = D(Cash) + &lt;strong&gt;(Net Income + Deprec/Ammort)&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;=&gt; CF(Operating) + CF(Investing) + CF(Financing) = D(cash) + &lt;strong&gt;Net income + DAM&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What am I doing wrong ? There must be something I am completely missing because mathematically the equation CF(Operating) + CF(Investing) + CF(Financing) = Cash variation cannot be possible&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you so so so much for any assistance&lt;/p&gt;&#xA;" OwnerUserId="11709" LastEditorUserId="61" LastEditDate="2017-01-09T16:17:47.577" LastActivityDate="2017-01-09T16:17:47.577" Title="Confusion about Balance sheet equation and sum of the cashflows" Tags="&lt;finance&gt;&lt;corporate-finance&gt;&lt;accounting&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="14955" PostTypeId="2" ParentId="14951" CreationDate="2017-01-08T22:03:30.887" Score="1" Body="&lt;p&gt;The Gini coefficient is defined as the normalized Gini index.&#xA;If $G$ is the Gini index, $0 \leq G \leq \frac{n-1}{n}$.&#xA;The Gini coefficient $G^* = \frac{n}{n-1} G$ is a normalization such that $0\leq G^* \leq 1$. That way you can easier compare different populations with different $n$.&#xA;In your example it should be that $G= 3/10$ and then $G^*=6/10=3/5$.&lt;/p&gt;&#xA;" OwnerUserId="11590" LastActivityDate="2017-01-08T22:03:30.887" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="14959" PostTypeId="2" ParentId="13844" CreationDate="2017-01-09T10:56:08.997" Score="1" Body="&lt;p&gt;China is a an exceptional case.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;China is the world biggest manufacturing hub. This mean all the upstream and downstream material can be found there. Any other country attempt to &quot;race to the bottom&quot; can hardly compete with such resources and cost advantages. &lt;/li&gt;&#xA;&lt;li&gt;Manufacture in China is also undergo automation &lt;/li&gt;&#xA;&lt;li&gt;There is massive number of China higher education graduate&lt;/li&gt;&#xA;&lt;li&gt;A huge domestic market&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;OTH, Germany is yet another exceptional. &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Manufacturing and support consumption mentality is part of Germany industrialisation culture.  There is always incentive for Germans to source reasonable price material locally (kind of corporation synergy) than all out for the  cheapest quote.  &lt;/li&gt;&#xA;&lt;li&gt;Unlike others country (although it is Germans that &quot;invent&quot; the modern university structure), Germany also enact technical school and technical university.&lt;/li&gt;&#xA;&lt;li&gt;There is reputable consumer association (e.g. Stiftung Warentest) and quality assurance test entities (e.g. TuV) that keep track of consumer product quality. &lt;/li&gt;&#xA;&lt;li&gt;Germany export lots of manufacturing machinery. &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Perhaps you will like to checkout UK manufacturing GDP (1996 17% , 2016 10%). Contradict to many understanding, Germany industry regulation and minimum wages are not least stringent than UK. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is the world bank &lt;a href=&quot;http://data.worldbank.org/indicator/NV.IND.MANF.ZS&quot; rel=&quot;nofollow noreferrer&quot;&gt;manufacturing vs GDP trends&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In fact, it is impossible to assess sustainability of  &quot;success manufacturing country&quot;.  All the above factors are only simple reference. All the country socio-political will tell you contradict stories, all the success failure &quot;economy paper reference&quot; are mostly hindsight bias, as long as they are within 50 years time range. &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Anyway, this is a not a answer for &quot;success factor&quot;, merely &quot;possible factor&quot;. Currently, there is not a single economist ideology able to bring a conclusive proven model. Most of the factors mentioned are not replicable due to variable in those details. &lt;/p&gt;&#xA;" OwnerUserId="11177" LastEditorUserId="11177" LastEditDate="2017-01-09T16:16:36.110" LastActivityDate="2017-01-09T16:16:36.110" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="14960" PostTypeId="1" AcceptedAnswerId="14961" CreationDate="2017-01-09T13:27:02.363" Score="0" ViewCount="564" Body="&lt;p&gt;The question is as below&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/Iki8I.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Iki8I.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The answer is A. I understand why it is A, but do not understand why it isn't C. Doesn't the point where the consumption line and 45 degrees line intersect represents the equilibrium income level?&lt;/p&gt;&#xA;" OwnerUserId="6782" LastActivityDate="2017-01-09T18:13:57.567" Title="Why is the consumption line and 45degree line's intersection not the equilibrium income level?" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;&lt;keynesian-economics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14961" PostTypeId="2" ParentId="14960" CreationDate="2017-01-09T14:06:48.807" Score="2" Body="&lt;p&gt;For most people consumption does not equal income. Many consume less (they save) and others consume more (they take on debt) than they earn. In an economy with financial markets and heterogeneous consumers, discounted lifetime income should equal discounted lifetime consumption, but there is no reason why consumption should equal income at every point in time.&lt;/p&gt;&#xA;" OwnerUserId="11216" LastEditorUserId="11216" LastEditDate="2017-01-09T18:13:57.567" LastActivityDate="2017-01-09T18:13:57.567" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14962" PostTypeId="1" AcceptedAnswerId="14997" CreationDate="2017-01-09T14:19:57.363" Score="4" ViewCount="508" Body="&lt;p&gt;I am now studying the Spence's job market model using both signaling and screening. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It turns out that, when a worker's reservation value = 0 (she can get 0 if she does not get employed), then both pooling and separating equilibria always exist in signaling. However, in screening, pooling equilibrium does not exist, and the range for separating is also narrower than in signaling.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why is that so? Does it have anything to do with the refinements such as intuition criterion?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is it true that screening will always be stricter than signaling?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Sorry for being verbose - still quite new to this area and do not know how to describe the problem easily.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Reference: The question is discussed in the 13th chapter of MWG's textbook.) &lt;/p&gt;&#xA;" OwnerUserId="11719" LastEditorUserId="11590" LastEditDate="2019-05-19T16:56:20.540" LastActivityDate="2019-05-19T16:56:20.540" Title="Equilibria in Signaling and Screening" Tags="&lt;game-theory&gt;&lt;asymmetric-information&gt;&lt;signaling&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14966" PostTypeId="1" CreationDate="2017-01-10T08:20:54.167" Score="7" ViewCount="6920" Body="&lt;p&gt;For my birthday, I wanted a cookbook. So I went to Barnes and Noble and selected it: $40. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Before I got the register I checked it on Amazon: $20. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I started price matching every single cookbook I was interested in and collectively, i could save 60% on Amazon. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So why doesn't B&amp;amp;N just lower their prices already? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Doesn't it make sense to sell 10 products at 0.50 cents each than to not sell 10 products at 1.00 dollar? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Isn't that how that guy who owns all those Family Dollar stores is able to bank? He makes a nickel to a dime for every product he sells but sells many products that he is now banking it? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;USNews stated in an article that B&amp;amp;N themselves stated that their prices are so high because they wanna provide for income for their authors and prevent Amazon from becoming a monopoly. Pardon my French, But that sounds like bologna! &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Furthermore, they don't price match. Not even with their own online website. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is B&amp;amp;N slowly slitting its own wrists? Are these stubborn CEOs who just don't want to face reality? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or is there some economic strategy here? Like they're waiting out something? &lt;/p&gt;&#xA;" OwnerUserId="11728" LastActivityDate="2021-05-01T21:06:35.023" Title="Why doesn't Barnes and Noble just lower its prices?" Tags="&lt;pricing&gt;" AnswerCount="4" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14967" PostTypeId="1" AcceptedAnswerId="14968" CreationDate="2017-01-10T12:52:50.837" Score="2" ViewCount="111" Body="&lt;p&gt;According to the World Bank, Argentina has 3.63% or people living in poverty. As a subjective assessment of someone living there, this is completely ridiculous. Rates measured by Argentine government and Argentine private institutions set it around 32% to 34%, and they are widely accepted as representative figures of Argentina's today reality. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As far as I understand, the definition used by the World Bank to define a person as poor says someone is poor when he earns less than US\$ 3.1 a day. That makes US\$ 90.30 dollars a month. Now I understand that the living costs are different in different countries, but how could they reach a figure of US\$ 90.30 a month to cover basic needs? How can a person with US\$ 90.30 dollars a month cover basic needs anywhere?&lt;/p&gt;&#xA;" OwnerUserId="8165" LastEditorUserId="2776" LastEditDate="2017-09-09T10:10:06.900" LastActivityDate="2017-09-09T11:22:49.317" Title="Is poverty rightly measured internationally?" Tags="&lt;poverty&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="14968" PostTypeId="2" ParentId="14967" CreationDate="2017-01-10T13:28:00.037" Score="4" Body="&lt;p&gt;This measure of poverty depends on your definition of basic needs and local prices. Argentina is a good example for how local prices matter. It is widely accepted that official price and inflation statistics published by the Argentinian government are cooked and inflation rates in the last few years are have been substantially bigger than official numbers suggest. I assume that the world bank has to rely on those statistics and it is therefore likely that its  estimates of poverty in Argentina are too low, simply because the price level adjustment is not done with good data.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Alberto Cavallo has a nice paper showing the discrepancies of official statistics with other measures of Inflation in Argentina, &lt;a href=&quot;http://www.mit.edu/~afc/papers/Cavallo-Argentina-JME.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;see here&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Living on 90$ a month is obviously not nice, but around the world many people do. This measure is intended to document the extent of  extreme poverty in developing countries, i.e. the circumstances where you are literally close to starving. Many more developed countries use a much higher poverty line in their domestic statistics. The world bank as an international body publishes statistics on development that are internationally comparable, and hence uses the same threshold for each country.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The World Bank's extreme poverty line used to be much lower - I believe it started out at 1$ per day around 1990. You can read up on the intention of publishing such a statistic, and how the threshold is chosen &lt;a href=&quot;http://blogs.worldbank.org/developmenttalk/international-poverty-line-has-just-been-raised-190-day-global-poverty-basically-unchanged-how-even&quot; rel=&quot;nofollow noreferrer&quot;&gt;in this interesting blog post by a World Bank economist&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="11216" LastEditorUserId="11216" LastEditDate="2017-01-10T13:56:37.823" LastActivityDate="2017-01-10T13:56:37.823" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14971" PostTypeId="2" ParentId="14966" CreationDate="2017-01-10T16:17:01.230" Score="13" Body="&lt;p&gt;Kling's maxim: &lt;a href=&quot;http://econlog.econlib.org/archives/2009/11/price_discrimin_2.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Price Discrimination Explains Everything&lt;/a&gt;&lt;/p&gt;&#xA;&lt;p&gt;Who are the sorts of people that purchase at Barnes &amp;amp; Noble? Less price elastic buyers, like those that are purchasing a gift, those less comfortable with buying online, those that value in store recommendations and assistance, and those that just like the in store experience. Barnes &amp;amp; Noble wants to maximize profits, not maximize revenue. Selling to more price sensitive buyers like you means also lowering prices for less price sensitive buyers.&lt;/p&gt;&#xA;&lt;p&gt;Say the cookbook costs Barnes &amp;amp; Noble \$15 to buy. If they set the price at \$20 they make \$10 of profit selling one copy to you and one copy to the price inelastic buyer. If they set the price at \$40 they make \$25 in profit selling just one copy to the price inelastic buyer.&lt;/p&gt;&#xA;&lt;p&gt;In summary: &lt;strong&gt;Barnes &amp;amp; Noble targets buyers willing to pay high prices and lowering prices means making so much less per unit sold that they cannot make up the lost profits on higher quantities&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2021-05-01T21:06:35.023" LastActivityDate="2021-05-01T21:06:35.023" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="14972" PostTypeId="1" CreationDate="2017-01-10T17:11:27.093" Score="-1" ViewCount="47" Body="&lt;p&gt;Labour unions are pushing for wage increase but what is maximal theoretically possible wage increase here and now - without restructuring production, processes and without introduction of new technologies? As far as I can imagine then the decrease of dividend (profit) is the only possible source of wage increase. So - how much wages (in percentage terms) can theoretically be increased if profit is reduced to 0% from invested capital?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On can start the calculations with estimating the average wage share in the expenses of average company and go on...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course - another source of increase of lowest wages is the redistribution of the wages, lowering highest wages in enterprise and there can be great opportunities.&lt;/p&gt;&#xA;" OwnerUserId="5373" LastActivityDate="2017-01-10T23:41:38.110" Title="What is the maximal theoretically possible wage increase here and now (ceteris paribus)?" Tags="&lt;microeconomics&gt;&lt;labor-economics&gt;&lt;wages&gt;&lt;labor-cost&gt;" AnswerCount="1" CommentCount="6" ClosedDate="2017-01-18T06:34:01.653" ContentLicense="CC BY-SA 3.0" />
  <row Id="14973" PostTypeId="1" CreationDate="2017-01-10T14:03:12.203" Score="2" ViewCount="52" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;In November 1968, large inflows of foreign currency into the Bundesbank prompted Germany to enact a &quot;pseudo - revaluation&quot; with a special tax on exports and tax allowance on imports.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Source: &lt;a href=&quot;https://pdfs.semanticscholar.org/e5af/e08bcfb3dc6172a431fac4bf413b638e0f83.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;German Monetary History&#xA;in the Second Half of the&#xA;Twentieth Century&lt;/a&gt;, pg 44.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Could anyone explain why the mark finally revalued?  What was the mechanism?&lt;/p&gt;&#xA;" OwnerUserId="11839" OwnerDisplayName="johnniem" LastEditorUserId="8481" LastEditDate="2020-05-03T14:48:47.590" LastActivityDate="2020-05-03T14:48:47.590" Title="Reasons and mechanisms of Deutsch Mark revaluation in 1968" Tags="&lt;foreign-exchange&gt;&lt;germany&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="14975" PostTypeId="2" ParentId="14972" CreationDate="2017-01-10T23:41:38.110" Score="2" Body="&lt;p&gt;As others have noted, your &quot;ceteris paribus&quot; is not very well defined.&#xA;If you only want to redistribute &quot;here and now&quot; all the profits to the workers, then you can use the &quot;Kaldor fact&quot; that the wage share is usually around 60-70% of GDP and thus profit share around 30-40%. This means that profit represents something like 40-60% of wages, if this is the figure you are looking for ?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can of course find a more accurate figure concerning the country or sector you are interested in the national accounts.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand that you exclude price increase if you are interested in the &lt;em&gt;real&lt;/em&gt; wage at the &lt;em&gt;aggregate level&lt;/em&gt; (and probably in a closed economy).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Like Tobias, I think that the really interesting question is : what would be the short run, medium run and long run effects of such a &quot;policy&quot; ? In the short run it could maybe boost GDP through higher consumption demand. But sooner or later it seems unavoidable that you would meet insufficient investment (no one would invest to get zero profit back) and thus insufficient capital, except if you raise taxes and socialize investment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Maybe you should have a look at the economic history of Yugoslavia, where workers were supposed to control the firms.&lt;/p&gt;&#xA;" OwnerUserId="11629" LastActivityDate="2017-01-10T23:41:38.110" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14978" PostTypeId="2" ParentId="14966" CreationDate="2017-01-11T13:29:08.047" Score="0" Body="&lt;p&gt;First, it is about price discrimination, it can mean many things, e.g. consumer not comparing the price , conveniences, branding, logistic capabilities, etc.  Additional marketing is to promote the perception of price discrimination. Depends on the contracts,  author may or may not get additional royalties from additional books sold. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Second, Amazon business model are more than selling stuff. E.g it is also collecting and selling logistics data,  cutting deals on delivery charges, rearranging supplies deals, etc, by skimming huge amount of data and apply correct strategy, they can still making profit than doing the conventional &quot;price differences&quot; sales. &lt;/p&gt;&#xA;" OwnerUserId="11177" LastActivityDate="2017-01-11T13:29:08.047" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14981" PostTypeId="2" ParentId="14966" CreationDate="2017-01-11T18:50:24.567" Score="4" Body="&lt;p&gt;Answer above assumes every buyer gets the same price on a given product. Amazon doesn't work that way. You price check over time, and Amazon isn't stable. Hard to do that in a store. Amazon also knows when I go back to buy and many products have a higher price when I return. If I don't buy at that higher price, it magically drops a week later. And I get an email reminding me of the price cut (back to the original offering price). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A physical store can't do dynamic market pricing like that. &lt;/p&gt;&#xA;" OwnerUserId="10441" LastActivityDate="2017-01-11T18:50:24.567" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14986" PostTypeId="2" ParentId="14925" CreationDate="2017-01-12T14:08:08.397" Score="2" Body="&lt;p&gt;None of these. Your measure is very different from the deficit. But, more generally, if this is all you know, you can't calculate it. You would also have to know GDP or the debt. Here is an example to show that it does not work:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;+------+------+---------+------+-------------+--------------+&#xA;| YEAR |  GDP | Deficit | Debt | Debt to GDP | Your Measure |&#xA;+------+------+---------+------+-------------+--------------+&#xA;| 2011 |  100 |      10 |   10 | 10%         |              |&#xA;| 2012 |  110 |      12 |   22 | 20%         |            1 |&#xA;| 2013 |  120 |      14 |   36 | 30%         |          0.5 |&#xA;+------+------+---------+------+-------------+--------------+&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;" OwnerUserId="69" LastEditorUserId="11177" LastEditDate="2017-01-12T14:54:20.463" LastActivityDate="2017-01-12T14:54:20.463" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14987" PostTypeId="2" ParentId="14925" CreationDate="2017-01-12T14:37:20.123" Score="1" Body="&lt;p&gt;What you trying to say is similar to this &lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;X earn $10,000 , bank loan of $5,000,  thus debt to earning = 50% &#xA;Y earn $100,000 , bank loan of $50,000, thus debt to earning = 50% &#xA;because the debt to earning ratio is both 50%, so X = Y . &#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;THIS IS INCORRECT.  Even the debt ratio is same as 50%, you CANNOT make a direct equation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You cannot make it right by playing with this kind of ratio, e.g. &lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;Year 1 , GDP 1000 , deficit 500, debt to GDP ratio = 50% &#xA;Year 2 , GDP 2000 , deficit 1200, debt to GDP ratio = 60%&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Both base value are different, so you cannot put them inside any equation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Nevertheless, this is a common problem of people who practice economy attempt to apply mathematics rules.&lt;/p&gt;&#xA;" OwnerUserId="11177" LastEditorUserId="11177" LastEditDate="2017-01-12T14:50:32.490" LastActivityDate="2017-01-12T14:50:32.490" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14989" PostTypeId="1" AcceptedAnswerId="16114" CreationDate="2017-01-12T16:08:08.287" Score="2" ViewCount="116" Body="&lt;p&gt;I am going to write an essay about Hayek's views on economic and political (individual) liberty. I am trying to find books to develop a positive discussion on the topic, but I do not know where to search. I started with J.S. Mill's &quot;on Liberty&quot; and Hobbes' &quot;Leviathan&quot;, but I cannot find where Locke discuss subjects such as individualism. Also, I was thinking about reading anarchist idea on the topic as an opposing view. Is there any good reading I've missed so far?&lt;/p&gt;&#xA;" OwnerUserId="11470" LastEditorUserId="1601" LastEditDate="2019-04-21T08:31:34.860" LastActivityDate="2019-04-21T08:31:34.860" Title="Hayek influenced by?" Tags="&lt;political-economy&gt;" AnswerCount="1" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="14991" PostTypeId="1" CreationDate="2017-01-12T16:42:17.310" Score="0" ViewCount="284" Body="&lt;p&gt;How to log linearize an equation that has a conditional expectation? Any reference or example would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="11751" LastActivityDate="2017-01-12T16:57:17.770" Title="Log linearization and Conditional Expectation" Tags="&lt;macroeconomics&gt;&lt;mathematical-economics&gt;&lt;statistics&gt;" AnswerCount="1" CommentCount="0" ClosedDate="2017-02-05T07:44:04.247" ContentLicense="CC BY-SA 3.0" />
  <row Id="14992" PostTypeId="2" ParentId="14991" CreationDate="2017-01-12T16:57:17.770" Score="0" Body="&lt;p&gt;You need to remember two properties of derivatives and expectations. Everything else stays the same.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;$E(f(x))$ is not equal to $f(E(x))$ unless f is linear.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;$\partial E(f(x)) / \partial x$  is equal to $E(\partial f(x) / \partial x)$.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Also remember that as a result, linearizing models with uncertainty reduces them to their certainty equivalent version. This may or may not matter for what you are doing.&lt;/p&gt;&#xA;" OwnerUserId="11216" LastActivityDate="2017-01-12T16:57:17.770" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="14993" PostTypeId="2" ParentId="14928" CreationDate="2017-01-12T18:27:31.990" Score="3" Body="&lt;p&gt;You should look at this county pairing methodology used by Dube, Lester and Reich (2010). &lt;a href=&quot;http://escholarship.org/uc/item/86w5m90m&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://escholarship.org/uc/item/86w5m90m&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;The abstract&lt;/strong&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;We use policy discontinuities at state borders to identify the effects of minimum wages on earnings&#xA;  and employment in restaurants and other low-wage sectors. Our approach generalizes the case&#xA;  study method by considering all local differences in minimum wage policies between 1990 and&#xA;  2006. We compare all contiguous county pairs in the U.S. that straddle a state border and find&#xA;  no adverse employment effects. We show that traditional approaches that do not account for&#xA;  local economic conditions tend to produce spurious negative effects due to spatial heterogeneities&#xA;  in employment trends that are unrelated to minimum wage changes.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="11134" LastEditorUserId="40" LastEditDate="2017-01-13T05:21:57.760" LastActivityDate="2017-01-13T05:21:57.760" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="14997" PostTypeId="2" ParentId="14962" CreationDate="2017-01-13T19:58:21.167" Score="2" Body="&lt;p&gt;The difference between signaling and screening stems from the fundamental difference in bargaining power- who offers the contract for which her utility is the highest. While in screening the uniformed party proposes the contracts, in signaling it is the informed party.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For your general conjecture, I refer to &lt;a href=&quot;http://www.nber.org/papers/t0093&quot; rel=&quot;nofollow noreferrer&quot;&gt;Stiglitz and Weiss (1990): &quot;Sorting Out the Differences Between Signaling and Screening Models&quot;&lt;/a&gt;: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;However, if the indifference carves of the informed agents satisfy what roughly would amount to a single crossing property in two dimensions, and some technical conditions hold, then all contacts in the screening game break even, and the set of outcomes of the screening game is a subset of the outcomes of the corresponding signaling game. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It has nothing to do with refinements such as the intuitive criterion, divinity and so on. These refinements are useful to &quot;refine away unreasonable equilibria&quot;. Here, the issue is that the set of PBE is potentially quite rich while some equilibria rely on &quot;unreasonable beliefs&quot;. The refinements formalize which of those beliefs are &quot;unreasonable&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you are interested, you can also look at settings that combine signaling and screening. This is the literature on informed principals, initiated by &lt;a href=&quot;http://www.jstor.org/stable/10.2307/1912116&quot; rel=&quot;nofollow noreferrer&quot;&gt;Myerson&lt;/a&gt; and Maskin &amp;amp; Tirole (&lt;a href=&quot;http://www.jstor.org/stable/10.2307/2938208&quot; rel=&quot;nofollow noreferrer&quot;&gt;1990&lt;/a&gt;, &lt;a href=&quot;http://www.jstor.org/stable/10.2307/2951674&quot; rel=&quot;nofollow noreferrer&quot;&gt;1992&lt;/a&gt;). The informed principal first offers a contract to screen the agent while the contract proposal itself may reveal private information of the principal.&lt;/p&gt;&#xA;" OwnerUserId="11590" LastActivityDate="2017-01-13T19:58:21.167" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="14999" PostTypeId="1" CreationDate="2017-01-14T01:04:02.653" Score="1" ViewCount="147" Body="&lt;p&gt;I'm reading chapter three of International Economics by Paul Krugman et al. I have two questions that are somewhat related.&lt;/p&gt;&#xA;&lt;p&gt;&lt;strong&gt;Question 1:&lt;/strong&gt; Let &lt;span class=&quot;math-container&quot;&gt;$P_{c}$&lt;/span&gt; = price of cheese, &lt;span class=&quot;math-container&quot;&gt;$P_{w}$&lt;/span&gt; = price of wine, &lt;span class=&quot;math-container&quot;&gt;$a_{Lc}$&lt;/span&gt; = unit labor requirement to produce cheese, &lt;span class=&quot;math-container&quot;&gt;$a_{Lw}$&lt;/span&gt; = unit labor requirement to produce wine.&lt;/p&gt;&#xA;&lt;p&gt;How does &lt;span class=&quot;math-container&quot;&gt;$\dfrac{P_{c}}{P_{w}}=\dfrac{a_{Lc}}{a_{Lw}}$&lt;/span&gt; produce the flat portion of the world relative supply curve? I know the textbook says it is because the home country is willing to produce either good. Still, how does that translate to a flat portion of the world relative supply curve?&lt;/p&gt;&#xA;&lt;p&gt;&lt;strong&gt;Question 2:&lt;/strong&gt; Also, in chapter three Krugman talks about how to determine patterns of trade by looking at relative productivities. Take the variable definitions I gave in question one and let &lt;span class=&quot;math-container&quot;&gt;$a^{*}_{Lc}$&lt;/span&gt; = unit labor requirement to produce cheese in the foreign nation and &lt;span class=&quot;math-container&quot;&gt;$a^{*}_{Lw}$&lt;/span&gt; = unit labor requirement to produce wine in the foreign nation. Krugman says that one should order the goods &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; to &lt;span class=&quot;math-container&quot;&gt;$N$&lt;/span&gt; so that the lower the number &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;, the lower the ratio &lt;span class=&quot;math-container&quot;&gt;$\dfrac{a_{Li}}{a^{*}_{Li}}$&lt;/span&gt;. That is, we order the goods in such a way that&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\dfrac{a_{L1}}{a^{*}_{L1}} &amp;lt; \dfrac{a_{L2}}{a^{*}_{L2}} &amp;lt; \cdots &amp;lt; \dfrac{a_{LN}}{a^{*}_{LN}}$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;He says that the relative wage &lt;span class=&quot;math-container&quot;&gt;$\dfrac{w}{w^{*}}$&lt;/span&gt; fits somewhere in that chain of &lt;span class=&quot;math-container&quot;&gt;$\dfrac{a_{Li}}{a^{*}_{Li}}$&lt;/span&gt;'s. He says that any goods left of the relative wage will be produced at home and any goods to the right of the relative wage will be produced in the foreign nation. But then he says something that I think contradicts what he has already laid out. He says that a good will be produced at home if &lt;span class=&quot;math-container&quot;&gt;$\dfrac{a^{*}_{Li}}{a_{Li}} &amp;gt; \dfrac{w}{w^{*}}$&lt;/span&gt;. It seems that these two rules can contradict each other right? Is this a typo or is there something that I'm not understanding?&lt;/p&gt;&#xA;" OwnerUserId="11760" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2017-06-14T07:29:23.317" Title="Ricardian Model: Trade pattern rules (ch. 3 Krugman's book)" Tags="&lt;international-trade&gt;&lt;international-economics&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15000" PostTypeId="1" AcceptedAnswerId="15171" CreationDate="2017-01-14T03:01:15.180" Score="6" ViewCount="605" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Consider an agent with the expected utility function $U(L) = \sum_{s=1}^{S}\pi_s U(Y_s)$ over the lottery $L = (Y_s, \pi_s)$ where $\pi_s$ is the probability of state $s$, $Y_s$ are state $s$ payoffs, and $U(y_s) = -\frac{1}{2}(\alpha - Y_s)^2$ for $Y_s &amp;lt; \alpha$ is the utility index&#xA;  over payoffs. Show that this agent's expected utility depends upon only&#xA;  the mean and variance of the state-contingent payoffs.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I do not really understand what the question is asking of me to show. Any suggestions or comments are greatly appreciated. Specifically, is the question asking me to find $$E[U(s_s)]$$ and $$Var[U(Y_s)]$$ if so how do we do that when we don't really have any defined distribution for $Y_s$? Also what does even mean that the mean the agent's expected utility depends upon only the mean and variance of the state-contingent payoffs. Does not make sense to me, I do not have much of an economics background as a graduate student in Applied Mathematics. &lt;/p&gt;&#xA;" OwnerUserId="11762" LastEditorUserId="4251" LastEditDate="2017-08-14T16:14:03.553" LastActivityDate="2017-08-14T16:14:03.553" Title="An agent's expected utility depends only on mean and variance" Tags="&lt;microeconomics&gt;&lt;financial-economics&gt;&lt;expected-utility&gt;" AnswerCount="3" CommentCount="2" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="15002" PostTypeId="2" ParentId="15000" CreationDate="2017-01-14T04:32:55.290" Score="9" Body="&lt;p&gt;&lt;strong&gt;In order to understand this problem, I will work through the generic case.&lt;/strong&gt; Say that a user had generalized quadratic (Bernoulli) utility, similar to your problem:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$u(x) = \beta x^2 + \gamma x$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and suppose that there is a distribution for the outcome of $x$, denoted $F(x)$. Thus, utility over this distribution is equal to&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\begin{align}&#xA;\int u(x) \text{d}F(x) &amp;amp; = \int (\beta x^2 + \gamma x) \text{d}F(x) \\&#xA;&amp;amp; = \beta \int x^2 \text{d}F(x) + \gamma \int x \text{d}F(x) \\&#xA;&amp;amp; = \beta \int x^2 \text{d}F(x) + \left[ - \beta \left(\int x \text{d}F(x)\right)^2 + \beta \left(\int x \text{d}F(x)\right)^2 \right] + \gamma \int x \text{d}F(x) \\&#xA;&amp;amp; = \left[\beta \int x^2 \text{d}F(x) - \beta \left(\int x \text{d}F(x)\right)^2 \right] + \beta \left(\int x \text{d}F(x)\right)^2  + \gamma \int x \text{d}F(x) \\&#xA;&amp;amp; = \beta\cdot(\text{variance of F(x)}) + \beta\cdot(\text{mean of F(x)})^2 + \gamma \cdot (\text{mean of F(x)})&#xA;\end{align}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So utility is determined by the mean and variance of the payoff distribution. If you understand the above work, then it should be easy to do the specific case you have given us. Try it for yourself.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Considering your specific case:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U(Y_s) = -\frac{1}{2}(\alpha - Y_s)^2$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;implies&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U(L) = \sum_{s=1}^{S}\pi_s (-\frac{1}{2}(\alpha - Y_s)^2)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can technically work with either finding $\int U(L) \text{d}L$ or $\int U(Y_s) \text{d}L$. Best of luck with your work.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Edit:&lt;/strong&gt; Working in the discrete case will mean using expected values may prove helpful.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastEditorUserId="4251" LastEditDate="2017-01-14T19:36:11.037" LastActivityDate="2017-01-14T19:36:11.037" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15004" PostTypeId="2" ParentId="15000" CreationDate="2017-01-14T12:18:42.290" Score="2" Body="&lt;p&gt;I think this may not always be true as stated &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You say &quot;$U(y_s) = -\frac{1}{2}(\alpha - Y_s)^2$ for $Y_s &amp;lt; \alpha$&quot; so presumably $U(y_s) = 0$ for $y_s \ge \alpha$ to avoid utilities decreasing as large prizes increase&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose as an example $\alpha=50$ and there are two different lotteries:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;In the first, the possible outcomes are a payoff of $0$ with probability $\frac12$ or a payoff of $30$ with probability $\frac12$  &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;This has a mean of $ 0\times \frac12   + 30\times \frac12=15$ and a variance of $225$  &lt;/li&gt;&#xA;&lt;li&gt;The expected utility is  $ -\frac{1}{2}(50 - 0)^2\times \frac12   -\frac{1}{2}(50 - 30)^2\times \frac12 = -725$&lt;/li&gt;&#xA;&lt;/ul&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;In the second, the possible outcomes are a payoff of $10$ with probability $\frac9{10}$ or a payoff of $60$ with probability $\frac1{10}$  &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;This also has a mean of $10\times \frac9{10}   + 60\times \frac1{10}=15$ and a variance of $225$  &lt;/li&gt;&#xA;&lt;li&gt;The expected utility is  $ -\frac{1}{2}(50 - 10)^2\times \frac9{10}   +0\times \frac1{10} = -720$ which is different&lt;/li&gt;&#xA;&lt;/ul&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2017-01-14T12:18:42.290" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="15005" PostTypeId="1" AcceptedAnswerId="15007" CreationDate="2017-01-14T13:02:37.790" Score="1" ViewCount="58" Body="&lt;p&gt;Under which condition, will it be the same whether you choose to use revenue maximization or to increase contribution margins? In what industry is this possible? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In my thought process, I was thinking that before above condition can be true, the industry/company will need to have no variable costs, only fixed costs - but I am unsure.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can anyone help me answer above since I can't seem to wrap my head around it.&lt;/p&gt;&#xA;" OwnerUserId="11766" LastActivityDate="2017-02-13T21:06:14.460" Title="Revenue maximization same as increase contribution margins?" Tags="&lt;microeconomics&gt;&lt;econometrics&gt;&lt;labor-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15006" PostTypeId="1" AcceptedAnswerId="15008" CreationDate="2017-01-14T20:21:47.423" Score="0" ViewCount="2776" Body="&lt;p&gt;I know this is rather easy but I do not have any example or material to really work from that I could find online.&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Consider an agent with a utility index over wealth given by &lt;span class=&quot;math-container&quot;&gt;$$v(w) = \frac{w^{1 - \gamma} - 1}{1 - \gamma}, \gamma &amp;gt; 0$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;Say the agent has &lt;span class=&quot;math-container&quot;&gt;$10$&lt;/span&gt; dollars in wealth and also owns a lottery that pays &lt;span class=&quot;math-container&quot;&gt;$0$&lt;/span&gt; dollars with probability &lt;span class=&quot;math-container&quot;&gt;$2/3$&lt;/span&gt; and pays &lt;span class=&quot;math-container&quot;&gt;$12$&lt;/span&gt; with probability &lt;span class=&quot;math-container&quot;&gt;$1/3$&lt;/span&gt;. What is the certainty equivalent value and risk compensation of this lottery to an agent with risk aversion parameter &lt;span class=&quot;math-container&quot;&gt;$\gamma = 2$&lt;/span&gt;?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;So for &lt;span class=&quot;math-container&quot;&gt;$\gamma = 2$&lt;/span&gt;, we have &lt;span class=&quot;math-container&quot;&gt;$$v(w) = \frac{w-1}{w}$$&lt;/span&gt; so the expectd value of the lottery is &lt;span class=&quot;math-container&quot;&gt;$4$&lt;/span&gt; dollars. My question is how do we calculate the Certainty equivalent and risk premium. I could not find a good example anywhere. It seems like we get at undefined part in the equation when we calculate &lt;span class=&quot;math-container&quot;&gt;$E[v(L)]$&lt;/span&gt; where &lt;span class=&quot;math-container&quot;&gt;$L$&lt;/span&gt; is the lottery, thus I don't see how we can find the Certainty equivalent...&lt;/p&gt;&#xA;" OwnerUserId="11762" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2017-01-14T23:14:01.110" Title="Certainty equivalent and risk aversion parameter given utility function" Tags="&lt;financial-economics&gt;&lt;expected-utility&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15007" PostTypeId="2" ParentId="15005" CreationDate="2017-01-14T20:22:33.097" Score="1" Body="&lt;p&gt;If &quot;contribution margin&quot; is price minus variable cost per unit, and &quot;revenue&quot; is price times units sold then, even with zero variable costs, optimising &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;maximum contribution margin &lt;/li&gt;&#xA;&lt;li&gt;maximum revenue &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;will typically be at different points&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assuming the demand curve of quantity and price is downward sloping, the contribution margin will fall as quantity increases, so the maximum contribution margin will at the maximum price, typically for minimal quantities.  If instead the demand curve is upward sloping initially and then downward sloping, then without variable costs the contribution margin will be maximised at the highest possible price&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Meanwhile total revenue is usually not maximised for minimal quantities as at that point revenue will also be minimal. Instead it will be maximised when marginal revenue is zero (when the increasing revenue for marginal additional quantities exactly offsets reducing revenue from reduced prices), which with a smooth demand curve will typically be at a higher quantity and lower price than the maximum price point    &lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2017-01-14T20:22:33.097" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15008" PostTypeId="2" ParentId="15006" CreationDate="2017-01-14T22:06:16.817" Score="1" Body="&lt;p&gt;For the certainty equivalent and the &quot;risk compensation&quot; (which I am interpreting as probability premium because it's the only thing that intuitively makes sense in this context to me; feel free to correct me), think more intuitively about the concepts. The certainty equivalent is the amount of cold hard cash you'd be indifferent to taking in lieu of the uncertain outcome.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the good outcome with $\frac{1}{3}$ probability, you'd end up with a wealth of $10 + 12$, and in the the bad state with probability $\frac{2}{3}$ where the lottery does not give you anything, you still end up with wealth of $10$. Thus, we are looking for wealth that I will denote $w^c$ where&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$v(w_c) = \mathbb{E}(v(w)) \implies \frac{w_c - 1}{w_c} = \left(\frac{22-1}{22}\right)\cdot \frac{1}{3} + \left(\frac{10-1}{10}\right) \cdot \frac{2}{3}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Solve for $w_c$ and that will be the certainty equivalent. You'll notice that trying to solve this out, we get:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{w_c - 1}{w_c} = \frac{101}{110}$$&#xA;$$\implies \boxed{w_c = \frac{110}{9} \approx 12.2}$$&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;As for probability premium, it is the shift in probability towards the better lottery outcome that would be needed to make the expected utility of the new lottery equal to the utility of the expected value of the old lottery.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\mathbb{E}_{\text{new}}(v(w)) = v(\mathbb{E}_{\text{old}}(w))$$&#xA;$$\implies \left(\frac{1}{3} + \pi\right) \cdot \left(\frac{22-1}{22}\right) + \left(\frac{2}{3} - \pi\right) \cdot \left(\frac{10-1}{10}\right) = \left(\frac{22 \cdot \frac{1}{3} + 10 \cdot \frac{2}{3} -1}{22 \cdot \frac{1}{3} + 10 \cdot \frac{2}{3}}\right)$$&#xA;$$\implies \frac{101}{110} + \frac{6}{110} \pi = \frac{13}{14}$$&#xA;$$\implies \pi = \frac{8}{770} \approx 0.01$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(assuming I calculated my fractions correctly)&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Edit:&lt;/strong&gt; I see that the question was asking for a risk premium, not probability premium. Notice that the expected wealth due to the lottery is 14, but the certainty equivalent is 12.222...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The difference between the two is the risk premium.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastEditorUserId="4251" LastEditDate="2017-01-14T23:14:01.110" LastActivityDate="2017-01-14T23:14:01.110" CommentCount="10" ContentLicense="CC BY-SA 3.0" />
  <row Id="15012" PostTypeId="1" AcceptedAnswerId="16415" CreationDate="2017-01-15T13:44:45.550" Score="3" ViewCount="754" Body="&lt;p&gt;I am currently reading &lt;a href=&quot;https://pdfs.semanticscholar.org/f3d0/574627d15fe55315fb81537a351545bb84c7.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Alvarez, Lucas, Weber (2001)&lt;/a&gt; where the authors argue that changes in money supply is more important for affecting inflation, than changes in the interest rate. However, I am confused about this part:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;To be useful in thinking about the role of interest rates and open market operations&#xA;  in the control of inflation, a model of monetary equilibrium needs to deal with&#xA;  the fact that most coherent monetary theories &lt;strong&gt;do not have anything like a downward&#xA;  sloping demand for nominal bonds: With a complete set of financial markets, it is&#xA;  just not true that when the government buys bonds, the price of bonds increases&lt;/strong&gt;. We&#xA;  may believe that such a “liquidity effect” occurs in reality (though it is hard to see&#xA;  it in the data) and may regard it as a deficiency that so much of monetary theory&#xA;  ignores it, but the fact remains that one cannot take take a Sidrauski (1967), Brock&#xA;  (1974), or Lucas and Stokey (1987) model off the shelf and use it to think about&#xA;  increases in money reducing interest rates.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;How come when the government purchases bonds, the price of said bond doesn't increase? The authors argue that with an unsegmented market, this does will not happen (i.e there will be no liquidity effect). However, when markets are segmented there is a liquidity effect. The market is segmented in to two groups, traders (have access to the bond market and goods market) and non-traders (only trade in the goods market).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;They do develop a model and I more or less understand the mathematics behind it. They show the phenomenon mentioned above using their model. However, I don't quite understand the intuition behind it. Why is there no liquidity effect when markets are unsegmented? Why don't bond prices rise with government purchases?&lt;/p&gt;&#xA;" OwnerUserId="11767" LastEditorUserId="2776" LastEditDate="2017-04-22T15:31:24.140" LastActivityDate="2017-04-22T15:31:24.140" Title="Interest rates, inflation and liquidity effect" Tags="&lt;inflation&gt;&lt;interest-rate&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15014" PostTypeId="1" AcceptedAnswerId="15022" CreationDate="2017-01-15T16:39:23.057" Score="-2" ViewCount="50" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Say you have the expected utility index $U(Y ) = \sqrt{Y}$ and an initial&#xA;  wealth $Y = 10$. Consider the lottery with a payoff of $10$ with probability $\pi\in (0,1)$ and a payoff of $5$ with probability $1-\pi$ Note: Derive general expressions in $\pi$ and then use $\pi = 0.5$ to get specific answers.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;If you own this lottery, what is the minimum price and maximum price you would be willing to sell it for?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I am not sure how to proceed any suggestions are greatly appreciated&lt;/p&gt;&#xA;" OwnerUserId="11762" LastActivityDate="2017-01-16T00:27:47.933" Title="Finding the minimum and maxium price given utility index" Tags="&lt;utility&gt;&lt;financial-economics&gt;" AnswerCount="1" CommentCount="0" ClosedDate="2017-02-03T20:00:25.797" ContentLicense="CC BY-SA 3.0" />
  <row Id="15017" PostTypeId="1" CreationDate="2017-01-15T18:39:46.937" Score="-1" ViewCount="4318" Body="&lt;p&gt;How do you determine this for the production function $f(k,l) = k^{1.4}l^{0.5}$ ?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So far, I have found the marginal product of both labour and capital however, the marginal product of labour is diminishing but the marginal product of capital is rising. Therefore, how do I determine the overall effect? Does this function display diminishing or increasing returns to scale?&lt;/p&gt;&#xA;" OwnerUserId="11775" LastEditorUserId="2776" LastEditDate="2017-02-21T20:39:34.673" LastActivityDate="2018-11-14T17:38:51.427" Title="How do you determine if the production function has decreasing returns to scale?" Tags="&lt;microeconomics&gt;&lt;production-function&gt;" AnswerCount="2" CommentCount="5" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15019" PostTypeId="2" ParentId="15017" CreationDate="2017-01-15T22:59:06.650" Score="2" Body="&lt;p&gt;Note that your production function has the functional form of a Cobb-Douglas. These types of functions have some interesting properties. One of them is that the power of each input is simply its elasticity. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words, $ε_k=1.4$ and $ε_l=0.5$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In order to see whether $f$ has diminishing or increasing returns you need -as @denesp pointed to me- to see $f(tk,tl)\gtrless tf(k,l)$, where $t&amp;gt;1$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One property of a Cobb-Douglas production function is that, $f(tk,tl)=t^{ε_l+ε_k}f(k,l)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, when you have a C-D production function you can conclude about its productivity by summing its inputs elasticities. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In your case, you have an increasing returns Cobb-Douglas production function if $ε_l+ε_k&amp;gt; 1$, and you have a diminishing returns C-D production function if $ε_l+ε_k&amp;lt; 1$ &lt;/p&gt;&#xA;" OwnerUserId="6520" LastEditorUserId="6520" LastEditDate="2017-01-16T00:50:10.690" LastActivityDate="2017-01-16T00:50:10.690" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15020" PostTypeId="1" CreationDate="2017-01-15T23:53:47.293" Score="-1" ViewCount="48" Body="&lt;p&gt;In R I have used &lt;code&gt;lm()&lt;/code&gt;to fit a model. Then I use the &lt;code&gt;confint()&lt;/code&gt; function to learn more about the slope. How to I understand the following result? Is the following conclusion true:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;With 95% probability the slope is between 1232.44 and 1259.912?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;&amp;gt; confint(fit1)&#xA;              2.5 %    97.5 %&#xA;(Intercept) 14161.38 14649.096&#xA;car.sales     1232.44  1259.912&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;" OwnerUserId="11782" LastActivityDate="2017-01-16T07:53:30.923" Title="Statistics: Understanding confidence interval" Tags="&lt;statistics&gt;&lt;regression&gt;&lt;r&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ClosedDate="2017-01-17T20:55:35.843" ContentLicense="CC BY-SA 3.0" />
  <row Id="15021" PostTypeId="1" AcceptedAnswerId="15029" CreationDate="2017-01-16T00:12:31.420" Score="3" ViewCount="10604" Body="&lt;p&gt;&lt;a href=&quot;http://www.wsj.com/articles/real-rates-show-real-concerns-over-trump-economic-rebound-1484481602&quot; rel=&quot;nofollow noreferrer&quot;&gt;The Wall Street Journal claims that:&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Some are concerned over the likelihood of the U.S. adopting trade&#xA;  tariffs on imports from China. This policy option would risk&#xA;  retaliatory measures and hurt U.S. exports, a blow to growth momentum,&#xA;  while making imports more expensive in the U.S., &lt;strong&gt;fueling inflation&#xA;  pressure.&lt;/strong&gt; (emphasis added)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://onlinelibrary.wiley.com/doi/10.1111/1467-9396.00286/pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;An academic article also says that the relationship is universally agreed upon by economists (gated link): &lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;If there is one idea on which all orthodox economists concur, it is&#xA;  that tariffs raise prices, that protectionism, without exception, is&#xA;  inflationary. Professor Samuelson, for instance, argues that tariffs&#xA;  reduce labor productivity and enhance “the cost of living” (1976, p.&#xA;  694). In the words of Coughlin et al., “protectionist policies&#xA;  increase prices” (1991, p. 25). According to the 1992 Economic Report&#xA;  of the President, “Trade barriers not only raise the prices of&#xA;  imported goods to consumers but also the prices of domestically&#xA;  produced goods” (p. 196).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I understand that tariffs reduce labor productivity by disallowing countries to produce in accordance with their comparative advantage. However, how does this lead to inflation? Is it because a decrease in goods produced plus the amount of money kept the same leads to inflation?&lt;/p&gt;&#xA;" OwnerUserId="2819" LastActivityDate="2018-03-03T22:40:11.930" Title="How does tariff increase inflation?" Tags="&lt;macroeconomics&gt;&lt;inflation&gt;&lt;tariffs&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15022" PostTypeId="2" ParentId="15014" CreationDate="2017-01-16T00:27:47.933" Score="1" Body="&lt;p&gt;Not a big fan of solving homework questions, but here is a hint:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose you are selling the lottery for price $P$. Then your wealth would be $Y'=10+P$. You are looking for the minimum price $P$ such that &#xA;$$U(10+P)  \geq \pi U(10+10)+(1-\pi)U(10+5).$$&lt;/p&gt;&#xA;" OwnerUserId="11590" LastActivityDate="2017-01-16T00:27:47.933" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15024" PostTypeId="2" ParentId="14892" CreationDate="2017-01-16T02:15:54.377" Score="1" Body="&lt;p&gt;In order to derive a preference indifference curve between different quantities of two goods, one possible questioning protocol would consist in:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;First choosing any arbitrary combination of quantities for the bundle of goods (e.g. 20 units of A and 5 units of B);&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Then choosing any arbitrary quantity of one of the goods (e.g. 15 units of good A);&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Asking the consumer whether he (or she) is willing to exchange the first bundle of goods (20 of A and 5 of B) by a bundle of goods comprising 15 units of A (or any other quantity as specified in the previous paragraph) and 10 units of B (or any other quantity provided that is greater than 5);&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;If the consumer chooses the first bundle then the previous question should be asked again provided that that the previous 10 units of B be replaced by a greater quantity (e.g. 15 units of B); otherwise, if the consumer chooses the second bundle then the question of the previous paragraph should be asked again provided that that the previous 10 units of B be replaced by a smaller quantity (e.g. 8 units of B);&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;When the consumer considers that he (or she) is indifferent between two bundles, it means that the two bundles are indifferent and therefore the corresponding points should lie over the same indifference curve.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Following the previous procedure for a significant set of other combinations of quantities (bundles) would allow to draw the corresponding indifference curve(s).&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="11627" LastActivityDate="2017-01-16T02:15:54.377" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15025" PostTypeId="2" ParentId="8846" CreationDate="2017-01-16T03:23:05.827" Score="2" Body="&lt;p&gt;&lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0521438837&quot; rel=&quot;nofollow noreferrer&quot;&gt;Decisions with Multiple Objectives: Preferences and Value Tradeoffs&lt;/a&gt;&#xA;by Ralph L Keeney&lt;/p&gt;&#xA;" OwnerUserId="11627" LastActivityDate="2017-01-16T03:23:05.827" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15026" PostTypeId="1" AcceptedAnswerId="15059" CreationDate="2017-01-16T06:19:13.750" Score="3" ViewCount="79" Body="&lt;p&gt;Please bear with me as I know little about general Economics, and I'm sure I am massively oversimplifying what I am trying to describe.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm looking for a term to describe what happens when an economy starts from a new place with sufficient resources, leading to rapid growth.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I feel like I notice a pattern when I learn about large economic changes:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;New place is discovered or old place is destroyed&lt;/li&gt;&#xA;&lt;li&gt;Things are built/rebuilt, government changes, technology is applied to resources&lt;/li&gt;&#xA;&lt;li&gt;New place overtakes all of the old, prosperous, stable places around it&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;I think some factors might be:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Every country fights political, economic, cultural, and regulatory inertia even though it may be relatively advanced or well-off.&lt;/li&gt;&#xA;&lt;li&gt;When forced to start over or start fresh, people must consider each new piece of the system as it is created intentionally, instead of following or fighting what is already in place.&lt;/li&gt;&#xA;&lt;li&gt;The rules and policies of a lasting economy were created long ago and may no longer match with the current state of technology, leading to stagnancy.  Whereas after a large change the new rules can be made to fit the times.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Some examples I can think of are:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;After World War 2, USA installed democracy in Japan, dismantled monopolies, and built schools.  Japan started over from very little, worked hard, and their economy exploded.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Europe brought technology to the vast natural resources of North America, made a new government, and well, here we are.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The city of Seattle was completely destroyed in a fire.  So they fixed their lasting sewer problem, made the roads wider and properly irrigated, built everything sturdy and fire-resistant, and the economy boomed.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Recent examples might be Singapore, Hong Kong, Shenzhen, Songdo.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Is there a term for this or common way to describe it?&lt;/p&gt;&#xA;" OwnerUserId="11784" LastActivityDate="2017-01-19T13:20:58.253" Title="Term for rapid economic growth when starting over or in a new place" Tags="&lt;macroeconomics&gt;&lt;economic-growth&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15027" PostTypeId="2" ParentId="14892" CreationDate="2017-01-16T07:40:43.093" Score="1" Body="&lt;p&gt;One of the main approaches in the literature is based on offering a consumer a choice between sets of bundles and then using a &lt;em&gt;revealed preference theory&lt;/em&gt; framework to infer what kind of utility and demand functions (if any) are consistent with the observed choice behavior.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, suppose that we one data observe a consumer able to buy any of bundles $\{A,B,C,D,\ldots\}$. From this set, he chooses $A$. Applying the Generalized Axiom of Revealed Preference, we can place some restrictions on the preferences that could generate this choice. For example, in the below figure the choice of $A$ from the set $\{A,B,C,D,E,F\}$ is consistent with the blue and green preferences, but not the red or orange ones.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/xRtDF.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/xRtDF.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that this approach works with observational as well as survey data. It has the advantage that much work has been done to understand exactly what can and cannot be inferred from a set of observed data—culminating in Afriat's theorem. A fairly neat introduction to this literature was written by the inimitable Hal Varian: &quot;&lt;a href=&quot;http://people.ischool.berkeley.edu/~hal/Papers/2005/revpref.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Revealed Preference&lt;/a&gt;&quot;.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2017-01-16T07:40:43.093" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15028" PostTypeId="2" ParentId="15020" CreationDate="2017-01-16T07:53:30.923" Score="1" Body="&lt;p&gt;Unfortunately not, as in frequentist statistics the true slope is not a random variable.  This leads to a bit of a mouthful as the conclusion&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What you could say is that if your assumptions are correct (such as a linear relationship with random errors) and you repeated the exercise with new sample data and new regressions, $95\%$ of the confidence intervals you would generate for the slope would contain the true value&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So you have one interval from a procedure which generates correct intervals $95\%$ of the time &lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2017-01-16T07:53:30.923" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15029" PostTypeId="2" ParentId="15021" CreationDate="2017-01-16T08:01:31.770" Score="7" Body="&lt;p&gt;Foreign produced goods will see price increases directly as a result of the tariff, which adds to the prices of these goods.  The full tariff may not be passed through, as these higher prices will reduce demand, changing the supply/demand balance&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Domestically produced goods will usually see price increases indirectly as a result of the tariff, as demand for these domestically produced goods will increase as a result of the weaker competition from foreign produced goods, assuming an upward sloping supply curve&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your quotes translate these likely price effects from tariffs into &quot;inflation pressure&quot;  &lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2017-01-16T08:01:31.770" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="15030" PostTypeId="1" CreationDate="2017-01-16T14:20:24.030" Score="3" ViewCount="60" Body="&lt;p&gt;I wonder how to formulate how that multiple factors (for instance an announcement of Central Bank A, B and C) may influence a variable. For example, consider the following formula:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Delta I^n_t = f (A_t, B_t, C_t)$$ where $I^n_t$ refers to the interest rate of a security with maturity $n$ at time $t$ and $A_t, B_t, C_t$ refer to announcements of central bank A, B and C on time $t$ respectively. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The above formula indicates that changes in variable $I$ are a function of the announcements of the central banks'. However, how can one introduce this equation? Let me show what my concerns are by the following sentences:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Changes in $I$ may be due to announcements of Central bank A. However,&#xA;  announcements of central bank B and C may also influence &lt;strong&gt;$I$&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;My concern is the last part of the sentence, &quot;influence &lt;strong&gt;$I$&lt;/strong&gt;&quot;. Should this indeed be: &quot;influence &lt;strong&gt;$I$&lt;/strong&gt;&quot; or should it be &quot;influence &lt;strong&gt;$\Delta I$&lt;/strong&gt;&quot;? I doubt about this because when the announcements influence $I$ then this should automatically lead to a change in $I$ right?. On the other hand, it is not in line with my equation above. Furthermore, isn't it the case that when some factor influences the changes in some variable, that this variable actually influences the speed of changes in this variable (like a second derivative)?&lt;/p&gt;&#xA;" OwnerUserId="11786" LastEditorUserId="2776" LastEditDate="2017-10-14T09:13:47.813" LastActivityDate="2017-10-14T09:14:20.590" Title="How to formulate that a factor may influence a variable or the changes in that variable?" Tags="&lt;mathematical-economics&gt;&lt;monetary-policy&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15031" PostTypeId="1" CreationDate="2017-01-16T14:37:43.700" Score="2" ViewCount="63" Body="&lt;p&gt;Who created the supply and demand model in economics or when was it first used? &lt;/p&gt;&#xA;" OwnerUserId="11787" LastActivityDate="2017-01-19T08:49:08.160" Title="When was the supply and demand model first used?" Tags="&lt;supply-and-demand&gt;&lt;history&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15032" PostTypeId="2" ParentId="15030" CreationDate="2017-01-16T14:54:05.210" Score="1" Body="&lt;p&gt;&quot;may also influence $\Delta I$&quot; seems better to me. Of course for all $s \geq t$ the value of $I_s$ is also influenced by $A_t, B_t, C_t$, but this is an indirect effect. One could say it is fully encoded in $I_{t+1}$.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="2776" LastEditDate="2017-10-14T09:14:20.590" LastActivityDate="2017-10-14T09:14:20.590" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15033" PostTypeId="1" AcceptedAnswerId="15052" CreationDate="2017-01-16T15:37:32.423" Score="0" ViewCount="69" Body="&lt;p&gt;I'm aware of the concept of the multiplier effect, and when I think about it, shouldn't it be possible that government spending on unemployment benefits create a multiplier effect?&lt;/p&gt;&#xA;" OwnerUserId="6782" LastActivityDate="2017-01-18T10:19:29.363" Title="Are unemployment benefits considered to be an investment that may lead to a multiplier effect?" Tags="&lt;investment&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15034" PostTypeId="1" AcceptedAnswerId="15049" CreationDate="2017-01-16T19:49:25.633" Score="1" ViewCount="68" Body="&lt;p&gt;Usually when fitting a logit or probit model to data, one has a dependent binary outcome variable (say, university attendance = [0, 1]) and the usual set of independent variables (for the sake of it, say, parent income, gender and some measure of ability). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In my case, things are a bit different. To stay within the example, for my main data set I do not know whether people attended university. The only aspects I have information about are parent income, gender and other independent variables. However, I was able to obtain data on university attendance for a random subset of the data. Using this subset I fitted a logistic model, obtaining coefficients for all independent variables.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How can I use these coefficients to predict the probability of university attendance for everyone else?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;[Please note that the education example is only made to simplify things.]&lt;/p&gt;&#xA;" OwnerUserId="11518" LastActivityDate="2017-02-16T22:24:54.177" Title="Using a Logit model to predict unknown outcome" Tags="&lt;econometrics&gt;&lt;micro-data&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="15035" PostTypeId="1" CreationDate="2017-01-16T19:52:50.970" Score="-2" ViewCount="551" Body="&lt;p&gt;After reading the on-topic text, I think this question fits here. If it doesn't please tell me.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I was recently wondering if checking my coins for rare coins would make any sense or just waste my time. I live in Europe, so naturally my question is about Eurocoins. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I googled it and found out that some coins are worth 100-1000 or more Euros. But obviously those a rare. My question is, how rare? How many coins do I have to turn to get one that's worth 100+ Euros? And whats the medium value for that coin?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'd am totally okay with a reasonable estimate, but I'm having trouble doing it myself as I don't know where to get the numbers for the rare coins.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Edit:&#xA;I disagree with the reasoning that this is not worth it because nobody is doing it (not the conclusion, but the reasoning). If every 100000th. coin were worth 1k  and somebody could turn a coin a second that would be roughly 31 million coins a year equaling 1 cent per coin and therefore 310k euros. Paying three guys to take shifts doing this would leave all of them 100k minus the logistics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course, I wouldn't expect this to work and flooding the market with rare coins would decrease the value, but if I check my coins every now and then while being bored on a train or sth, I might get 1k a year. Or rather 5 cent? That's what I'm interested in. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's a rather academic question, I'm not saying I would spend time flipping coins, but I'd like to know anyways. And I don't know how to figure out the expected value for a million coins.&lt;/p&gt;&#xA;" OwnerUserId="11789" LastEditorUserId="11789" LastEditDate="2017-01-17T10:43:03.970" LastActivityDate="2017-01-17T10:43:03.970" Title="How many rare Euro coins are there?" Tags="&lt;data-request&gt;" AnswerCount="1" CommentCount="3" ClosedDate="2017-01-17T22:55:38.897" ContentLicense="CC BY-SA 3.0" />
  <row Id="15036" PostTypeId="1" CreationDate="2017-01-16T20:27:46.390" Score="2" ViewCount="191" Body="&lt;p&gt;According to neoclassical economics, subsidies are a solution to correct for the existence of externalities in consumption or production. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is the &lt;strong&gt;economic&lt;/strong&gt; rationale/justification for such subsidies in the EU? Which are the externalities subsidies are correcting for? Or are subsidies justified by other motives, e.g. political?&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="44" LastEditDate="2017-01-17T15:07:25.690" LastActivityDate="2017-01-18T13:13:52.807" Title="Why does the European Union give subsidies to farmers?" Tags="&lt;externalities&gt;&lt;agriculture&gt;&lt;subsidies&gt;&lt;eu&gt;" AnswerCount="2" CommentCount="4" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="15037" PostTypeId="1" CreationDate="2017-01-17T06:15:48.983" Score="3" ViewCount="137" Body="&lt;p&gt;Why is it true, in theory, that border adjustments are exactly offset by currency appreciation? I've read the colloquial explanations online, but am looking for something more rigorous. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, &lt;a href=&quot;http://taxfoundation.org/blog/exchange-rates-and-border-adjustment&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://taxfoundation.org/blog/exchange-rates-and-border-adjustment&lt;/a&gt; says that &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Standard economic theory states that a border adjustment ends up in a wash for both exporters and importers because prices adjust to leave the trade balance unchanged. Specifically, the value of the domestic currency adjusts upward. Standard supply and demand shows why both the import tax and the export exemption work together to push the value of the domestic currency up.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="11793" LastEditorUserId="11793" LastEditDate="2017-01-24T07:59:02.467" LastActivityDate="2017-05-31T14:55:03.150" Title="What is the proof for why border adjustments are exactly offset in theory by currency appreciation?" Tags="&lt;international-trade&gt;&lt;exchange-rates&gt;&lt;balance-of-trade&gt;&lt;tariffs&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15038" PostTypeId="2" ParentId="15035" CreationDate="2017-01-17T09:25:37.240" Score="1" Body="&lt;p&gt;I think it's possible to answer your question of whether it is worth your time looking for above face value euro coins using economic principles.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $1+x$ be the fraction of face value that each euro coin is worth. Every coin is worth at least face value, but some (the 'rare' ones) are worth more, so $x&amp;gt;0$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This means that a millionaire could buy €1m worth of euro coins and get €x million of &lt;em&gt;free&lt;/em&gt; money. The only substantial cost of this scheme would be paying someone minimum wage to sit and look through all of the coins to find the rare ones. The fact that nobody is doing this suggests that such coins occur with sufficient rarity that it is not economical to check coins at minimum wage. The implication is therefore that if you were to check your own coins, you would be &quot;earning&quot; money at a slower rate than if you were to instead spend your time on even the most menial of tasks.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2017-01-17T09:25:37.240" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15039" PostTypeId="2" ParentId="14761" CreationDate="2017-01-17T10:23:08.597" Score="5" Body="&lt;p&gt;So far you have got no answer to your last question, about Knight and others' view on risk and uncertainty. In fact, there is quite a radical distinction between the view of uncertainty in Knight (and Keynes) and that presented in Oliv's answer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In brief, &lt;a href=&quot;http://www.econlib.org/library/Knight/knRUP.html&quot; rel=&quot;noreferrer&quot;&gt;according to Knight (1921)&lt;/a&gt; &lt;strong&gt;risk&lt;/strong&gt; refers to situations where the classification of states, events or alternatives is objective and known, and their probabilities can be objectively determined. For example, in the context of a house insurance policy, events could be &quot;house burns down&quot; or &quot;house doesn't burn down&quot;, which probabilities can more or less be asserted objectively, based on house/environment/individual characteristics. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Conversely, for Knight &lt;strong&gt;uncertainty&lt;/strong&gt; arises from &quot;the impossibility of exhaustive classification of states&quot; (&lt;a href=&quot;http://web.uconn.edu/ciom/Knight%20Econ%20Inquiry%201993.pdf&quot; rel=&quot;noreferrer&quot;&gt;Langlois and Cosgel 1993&lt;/a&gt;, p.459). Thus, &lt;strong&gt;regardless of whether probabilities of events are objective or subjective&lt;/strong&gt;, nature/economy can be so complex that all possible states are simply not known. As such, any &lt;strong&gt;categorisation of events&lt;/strong&gt; used to predict the future is based on &lt;strong&gt;intution and judgment&lt;/strong&gt;, thereby being subjective.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This view of uncertainty is shared by Keynes, and it is essential in his theorizing of the &quot;animal spirits&quot;. Precisely because the future is unknown - not only in the probability of events but also on the range of events that could happen, expectations in investment decisions is not just a matter of mathematical calculation. As Keynes said, decisions to invest are taken&#xA;“as a result of animal spirits – of a spontaneous urge to action rather than inaction, and &lt;em&gt;not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities&lt;/em&gt;” (Keynes 2008 [1936]: 144, emphasis is mine). Interestingly, the approach highlighted in &lt;em&gt;italics&lt;/em&gt; is what Oliv describes in his answer, and the foundation of much of neoclassical investment theory under uncertainty.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Among Post-Keynesian circles, this uncertainty is called &quot;radical, fundamental, or ontological uncertainty&quot;, in contrast with the neoclassical view of uncertainty described in Oliv's answer, which is sometimes called &quot;epistemological uncertainty&quot;. For example, see &lt;a href=&quot;http://socialdemocracy21stcentury.blogspot.co.uk/2010/12/risk-and-uncertainty-in-post-keynesian.html&quot; rel=&quot;noreferrer&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, regarding ambiguity, to my knowledge that concept is not used in the early literature on this matter. &lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-01-17T10:23:08.597" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15040" PostTypeId="2" ParentId="10993" CreationDate="2017-01-17T12:45:21.207" Score="3" Body="&lt;p&gt;Signaling games (games in which an informed &quot;sender&quot; moves first and an uninformed &quot;receiver&quot; second) typically have a plethora of Perfect Bayesian Equilibria which is not really appealing in terms of predictive power.&#xA;However, as you already said, some equilibria may be &quot;unreasonable&quot;. Refinements serve the purpose to formalize which of these equilibria are unreasonable. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sequential Equilibrium is not really helpful in eliminating the equilibrium multiplicity, because the multiplicity of equilibria stems from the fact that PBE allows off-path beliefs to be &quot;crazy&quot;. That is, we can support many equilibria by assigning &quot;crazy&quot; beliefs when a signal is sent that was not supposed to be sent on equilibrium path. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I take the fact that you ask about divinity as a signal that you dug deeper into signaling so that you know the Spence model and the Beer-Quiche game. Otherwise, look up these examples as they are helpful to illustrate the issue. I provide references below. Back to said issue: For example, we can support a no-education pooling equilibrium in a standard two-type unproductive-costly-education Spence model by imposing that a receiver does not update her beliefs when she observes education - we can even say that education signals a low type, because positive education is an off-path message. As another example, in the Beer-Quiche game, you can support a quiche pooling (sequential) equilibrium where the off-path message (drinking beer) is interpreted as wimpy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To understand why divinity is helpful, you should understand another refinement first.&#xA;Perhaps the most widely used refinement is Cho &amp;amp; Kreps (1987) &quot;Intuitive Criterion&quot;(IC). In a standard two-type Spence signaling model, IC eliminates all but one equilibrium, the least-cost separating one (Riley outcome). Very sloppily saying, IC labels off-path beliefs as &quot;unreasonable&quot; if one type can say: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;I am going to send this out-of equilibrium message $m$ for which you&#xA;  may have a weird belief. I do this to signal that my type is $x$&#xA;  although you may believe I am some type $y$. However, notice that if I&#xA;  were such a type $y$, I would be better off by staying on equilibrium&#xA;  path &lt;strong&gt;regardless of what you infer&lt;/strong&gt; from $m$. Also notice that as a type $x$ I am better off by sending $m$&#xA;  &lt;strong&gt;IF this speech convinces you&lt;/strong&gt; that I am really $x$.&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Now this is a relatively simple idea to eliminate weird beliefs. Thing is that it does not always work. For example, we can add a third type to the standard Spence model. Now IC does not solve our multiplicity problem. You can verify (or read in one of the references) that IC does not eliminate hybrid equilibria in which the high types send a separating signal while for some education levels low types and medium types are pooled. &#xA;The issue here is that possibly more than just one type may benefit from credibly announcing a speech as above. A belief that all such types are equally likely to do this deviation satisfies the IC. However, it might be that some types are more likely to deviate to this off-path message.&#xA;Now, enter divinity, an even more powerful refinement.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;More powerful&quot; refinement means that it has even stricter restrictions on off-path beliefs. The D1-criterion restricts the off-path belief upon observing an out-of-equilibrium message to be a point belief with all mass on the type who is most likely to make this deviation: Intuitively, after receiving&#xA;message $m$, there are more best responses of the receiver that improve the equilibrium utility of type $x_1$ compared to $x_2$. D1 says Receiver should infer that she deals with a type $x_1$ and put weight zero on type $x_2$. Note that in the two-types Spence model, both criteria coincide. In contrast, in the three-types model D1 eliminates all but the least-cost-separating equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;D2 is even stricter than D1: It requires the posterior to put weight zero&#xA;on a type $x$ upon observing $m$ if for every best response of the Receiver that causes type $x$ to deviate there is some other type $x'$ that strictly benefits from the deviation. Divinity and Universal divinity (after Banks&amp;amp;Sobel 1988) are based on D1 and D2. Divinity weakens D1: Receiver does not have to put belief mass zero on type $x_2$, but his posterior must not increase the likelihood ratio of $x_2$ to $x_1$. Universal divinity is stronger than D2 in that it applies D2 iteratively.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a more formal treatment, read the original papers. &lt;a href=&quot;http://cramton.umd.edu/econ703/note5-signaling.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;A good summary is provided by Peter Camton.&lt;/a&gt; He also discusses the Beer-Quiche-game and in addition covers cheap talk games and the corresponding refinement, neologism-proofness. &lt;a href=&quot;http://faculty.ses.wsu.edu/Munoz/Research/Intuitive_and_D1_Criterion.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;This&lt;/a&gt; guide on refinements may also help (they discuss the 3-types Spence model I refer to).&#xA;To stay within the community, see the answers to &lt;a href=&quot;https://economics.stackexchange.com/questions/225/how-to-intuitively-understand-the-intuitive-criterion?rq=1&quot;&gt;this well-received question&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="11590" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2017-01-17T12:45:21.207" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15041" PostTypeId="2" ParentId="15036" CreationDate="2017-01-17T12:55:34.013" Score="2" Body="&lt;p&gt;Markets are extremely poor at pricing events that have very low probability and catastrophic impacts. In part because we're very bad at estimating low-probability events: by definition, they're rare. And in part because the catastrophic impacts fall on pretty much all the population, so any single purchase has very widely-spread potential negative externalities.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And there are strongly asymmetric risks here - if civilisation collapses, it can take centuries to rebuild it. If one country falls under the control of another, it becomes extremely expensive and messy to reverse this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As such, societies decide - in order to avoid those catastrophic impacts - to pay a kind of insurance premium. A high risk of some market distortion is an acceptable premium to pay, in order to avoid catastrophic loss.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Food is probably the most obvious market where a dramatic loss of supply could lead to catastrophic failure. (the carbon market is another) By subsidising farmers, we ensure the continuity of the domestic supply of food: this helps ensure the availability of food locally, so the population gets fed; and reduces the strategic international risks that would arise from high imports of essential foods.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2017-01-17T12:55:34.013" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15043" PostTypeId="1" CreationDate="2017-01-17T17:21:12.967" Score="1" ViewCount="70" Body="&lt;p&gt;It has always been fascinating to me why, out of so many other options, the society has developed in this way. So I was searching for resources which explain what chain of events-and why- from beginning of the civilization proceeded what we have today. Unfortunately, what I have found are either very specific or very technical. I hope you could help me.&lt;/p&gt;&#xA;" OwnerUserId="11797" LastActivityDate="2020-04-06T02:01:30.150" Title="What are some good books, explaining why the society and economy developed like it is through the history?" Tags="&lt;macroeconomics&gt;&lt;history&gt;&lt;development&gt;" AnswerCount="1" CommentCount="4" ClosedDate="2020-04-20T19:28:44.697" ContentLicense="CC BY-SA 3.0" />
  <row Id="15045" PostTypeId="2" ParentId="14687" CreationDate="2017-01-17T18:01:42.260" Score="0" Body="&lt;p&gt;In addition to what CAMELS says, it's not just the money supply but the product of money supply and money velocity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To make matters even more complicated, the wider measures of money like M2 can either be interpreted as just `more money' or as implicit multipliers on the narrower measures.  (In the end, it doesn't make too much of a difference with definition you use, as long as you don't confuse yourself or others about reality.)&lt;/p&gt;&#xA;" OwnerUserId="11798" LastActivityDate="2017-01-17T18:01:42.260" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15047" PostTypeId="1" CreationDate="2017-01-17T20:12:33.890" Score="3" ViewCount="324" Body="&lt;p&gt;I am reading through &lt;a href=&quot;http://www.nber.org/papers/w6400&quot; rel=&quot;nofollow noreferrer&quot;&gt;&quot;Monetary Policy Shocks: What Have we Learned and to What End?&quot;&lt;/a&gt; and am hoping someone here can offer a bit of clarity about a claim made within about how measurement error in data used by policy makers can lead to a violation of the recursiveness assumption: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For reference, equation (2.1): $S_t = f(\Omega_t) +\sigma_s \epsilon_t^s$ where $f()$ is a feedback rule that maps the information set, gamma, into action taken (systematic component of movements in the policy instrument) by the policy maker and $\sigma_s \epsilon_t^s$ represents an exogenous monetary policy shock.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The authors give this definition for the recursiveness assumption: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/slY1l.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/slY1l.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, they lay out a simple enough equation for the monetary policy instrument that incorporates a feedback rule and allows for some type of exogenous monetary policy shock: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/nHYYp.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/nHYYp.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, what I want to sort out is why the different states for the parameters within, given the assumption of classical measurement error, do/do not cause a violation of the recursiveness assumption:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/LHjCu.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/LHjCu.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="1655" LastEditorUserId="1601" LastEditDate="2017-01-17T20:14:26.467" LastActivityDate="2017-01-17T20:14:26.467" Title="Recursive assumption - Identifying exogenous monetary policy shocks" Tags="&lt;macroeconomics&gt;&lt;econometrics&gt;&lt;monetary-policy&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15048" PostTypeId="2" ParentId="15043" CreationDate="2017-01-17T22:04:26.150" Score="1" Body="&lt;p&gt;I recommend Jared Diamond's &lt;em&gt;Guns, Germs and Steel&lt;/em&gt;, for this topic. I don't know what you mean by &quot;the society.&quot; Diamond makes it clear that there are many different societies around the world, progressing at different rates. To answer your question about why we have what we have today and why individual societies developed in the direction they did: some technologies are inevitable, such as farming, writing and mettalurgy. What differs is that a few societies developed these technologies much earlier than others. Diamond lays out the reasons why; differences in intelligence across races is not a reason but the geology and biogeography of people's habitats are ultimate causual factors. These ultimate factors lead to more proximate factors such as animal and plant domestication, leading to denser and more sedentary populations with more complex political organization. Technological development led to further economic development, with most technology arising from it being spread from other societies&amp;mdash;and that transmission depends again on geography. Eurasia had the advantage of an east-west axis that made transfer of domestic food and animal species easier (along the same lines of latitude and hence similar climes), and thus the technology which accompanies more sedentary societies. More isolated societies such as Australia did not benefit from the spread of technology, and hence remained a hunting-gathering society until European conquest.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;His book is entertaining and interesting to read. I've learnt facts and a perspective of the differences amongst races that I couldn't do without.&lt;/p&gt;&#xA;" OwnerUserId="175" LastEditorUserId="175" LastEditDate="2017-01-23T19:47:27.393" LastActivityDate="2017-01-23T19:47:27.393" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="15049" PostTypeId="2" ParentId="15034" CreationDate="2017-01-17T22:07:31.203" Score="3" Body="&lt;p&gt;If I understood you correctly, $\Lambda(x_i'\hat\beta)$, where $\Lambda(x) = e^x / (1+e^x)$. You can use &lt;code&gt;predict&lt;/code&gt; in both R and Stata. Try in Stata:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;clear all&#xA;*** Generate data&#xA;set obs 10&#xA;set seed 1&#xA;gen x = rnormal()&#xA;gen y = 1+x+rnormal() &amp;gt; 0&#xA;replace y = . in 7/10&#xA;list&#xA;*** Estimate&#xA;logit y x&#xA;*** Predict&#xA;predict phat, p&#xA;list&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;For clarification, I presumed that your outcome variable is in $\{0,1 \}$ (not in $[0,1]$). You observe $y_i$ for some $i$ but not for all, you fitted a logit regression, and then you want to predict the probability for every $i$. Please let me know if I misinterpreted your question.&lt;/p&gt;&#xA;" OwnerUserId="10775" LastEditorUserId="10775" LastEditDate="2017-01-17T22:15:50.040" LastActivityDate="2017-01-17T22:15:50.040" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15050" PostTypeId="1" CreationDate="2017-01-17T22:39:05.600" Score="4" ViewCount="98" Body="&lt;p&gt;Apple have recently announced an increase in app store prices, ostensibly due to the weakening of the pound following the Brexit vote and its fallout.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why has apple done this when the marginal cost of production of an (already developed) app is zero? Will this not reduce income for these apps?&lt;/p&gt;&#xA;" OwnerUserId="4945" LastActivityDate="2017-02-28T19:39:20.607" Title="Why has Apple increased app store prices in the UK?" Tags="&lt;pricing&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15051" PostTypeId="1" CreationDate="2017-01-18T02:20:30.973" Score="-1" ViewCount="65" Body="&lt;p&gt;I was arguing with a friend the other day about increasing the minimum wage to \$15 per hour,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Looking over this article&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://fortune.com/2015/04/13/who-makes-15-per-hour/&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://fortune.com/2015/04/13/who-makes-15-per-hour/&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Mostly the charts you can see that most workers in the retail, food service, cashiers, make less than \$15 per hour&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So if took 3,131,390 food service workers, say they make anywhere between \$8 and \$14 giving you a mean of \$11 per hour, that gives you and average of \$34,445,209 for every person per hour. Bump all of them to 15 per hour, \$46,970,850 for every person per hour giving you a difference of \$12,525,641 that the food service industry would have to pay per hour for every person more.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.statista.com/statistics/244616/number-of-qsr-fsr-chain-independent-restaurants-in-the-us/&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.statista.com/statistics/244616/number-of-qsr-fsr-chain-independent-restaurants-in-the-us/&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you 3,131,390 food service workers and 624301 restaurants in the United States that would give you an average of 5 workers per restaurant once again \$11 to \$15 5 * \$11 = \$55 per hour 5 * \$15 = \$75 per hour, difference of \$20 per hour to keep the cooks cooking.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So my questions:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Would the restaurants have to increase prices to maintain the same amount of cash flow?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Would the restaurants have to let people go in order to keep the same cash flow?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Would restaurants be expected to eat the increase?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also would it be incorrect to say that if the same theory applies true to the food service industry would it be the same for retail specifically brick and mortar?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have also heard that increasing the minimum wage would encourage people to get off assistance and get jobs, would there be any jobs for them get? Would we as a whole then have to pay less taxes? How could we benefit from more people getting off assistance?&lt;/p&gt;&#xA;" OwnerUserId="11799" LastActivityDate="2017-01-18T11:16:34.970" Title="Could 15 dollars per hour minimum wage hurt the economy?" Tags="&lt;minimum-wage&gt;" AnswerCount="1" CommentCount="2" ClosedDate="2017-01-31T20:07:39.400" ContentLicense="CC BY-SA 3.0" />
  <row Id="15052" PostTypeId="2" ParentId="15033" CreationDate="2017-01-18T10:19:29.363" Score="0" Body="&lt;p&gt;With monetary offset by the central bank the fiscal multiplier is approximately zero for any government spending.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;See eg &lt;a href=&quot;https://www.mercatus.org/publication/why-fiscal-multiplier-roughly-zero-0&quot; rel=&quot;nofollow noreferrer&quot;&gt;Why the Fiscal Multiplier is Roughly Zero&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Basically, if any government spending pushes up inflation (or a similar measure targeted by the central bank) the central bank will 'print less money', eg by increasing interest rates.  If government austerity were to suppress total spending and thus inflation, the central bank 'prints more money', eg by lowering interest rates or doing more QE.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can see that happening eg with the American fiscal cliff---the US federal deficit was cut in half, and pundits forecast the end-of-the-world, but if anything job growth accelerated.  Similarly, we can already see that Trumps promised extra spending just leads to the FED raising rates.  Inflation expectations both from the Feds forecasts and implied by spreads of inflation indexed treasury bonds over convention treasury bonds both stay relatively flat at 2%.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Under a gold standard or a central bank regime that targets things other than inflation or aggregate spending, government expenditures can have a non-zero fiscal multiplier.&lt;/p&gt;&#xA;" OwnerUserId="11798" LastActivityDate="2017-01-18T10:19:29.363" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="15053" PostTypeId="2" ParentId="15051" CreationDate="2017-01-18T11:16:34.970" Score="0" Body="&lt;p&gt;To answer but one point: most restaurants barely break even---that's because it's a business with low barriers to entry and any sustained increase in sales at a location will be soaked up by their landlord.  So definitely not the third: restaurants can't eat the increase.  Restaurants' landlords might do---it depends on whether non-restaurant businesses would outbid the now less profitable restaurants for rent or not.  (Most likely, we'll see less business overall for restaurants: people will eat out less.  Hence, damage to the economy.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a more general point: places that employ minimum wage workers also mostly sell to the poor.  Think McDonald's vs eg a fancy restaurant with a well-paid famous chef.  It seems weird to me to make these mostly poor customers of these businesses pay for other poor people's welfare; as opposed to the general public via a progressive tax system that makes rich people pay more taxes.&lt;/p&gt;&#xA;" OwnerUserId="11798" LastActivityDate="2017-01-18T11:16:34.970" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15054" PostTypeId="2" ParentId="14220" CreationDate="2017-01-18T11:19:39.050" Score="1" Body="&lt;p&gt;In addition to what Jeremy and Kitsune said:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Henry George's &lt;a href=&quot;https://www.goodreads.com/book/show/552175.Progress_and_Poverty&quot; rel=&quot;nofollow noreferrer&quot;&gt;Progress and Poverty&lt;/a&gt; looked at this problem of poverty amidst plenty more than hundred years ago.&lt;/p&gt;&#xA;" OwnerUserId="11798" LastActivityDate="2017-01-18T11:19:39.050" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15055" PostTypeId="1" CreationDate="2017-01-18T12:16:12.697" Score="-1" ViewCount="156" Body="&lt;p&gt;Assume the utility function is $u(x,y,z)=y*min[x,z]$. The prices of all three goods are equal. The agent has an amount $M$ to spend on the goods. He has to choose one of the following schemes:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A) Get $1$ unit of $z$ with $1$ unit of $x$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;B) Get $1$ unit of $z$ with $1$ unit of $y$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;C) Get $1/2$ units of $x$ and $1/2$ units of $z$ with $1$ unit of $y$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Correct Answer is C).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know that in the optimal bundle $x^*$=$z^*$. I can intuitively tell that scheme &lt;em&gt;C)&lt;/em&gt; is the utility maximizing scheme, but am unable to prove it algebraically. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I tried writing out the budget equations, which come out to be the same for scheme C) and B). Any tips on how to solve this will be appreciated!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;(Source: Delhi School of Economics, Entrance Exam 2016.)&lt;/em&gt;&lt;/p&gt;&#xA;" OwnerUserId="8153" LastActivityDate="2017-01-18T14:20:41.270" Title="Utility Maximization" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;" AnswerCount="1" CommentCount="1" ClosedDate="2017-01-23T15:00:01.010" ContentLicense="CC BY-SA 3.0" />
  <row Id="15056" PostTypeId="2" ParentId="15036" CreationDate="2017-01-18T13:13:52.807" Score="2" Body="&lt;p&gt;The governments want to ensure that there is enough food for their people even if international food trade breaks down (for example due to trade war, war, or famine).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A secondary objective is that they want low food prices to make food affordable to people with low/medium income. Politicians that drive up food prices for the masses are less likely to get reelected.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally there is the effect on the outside world. This has not been of high concern, but in recent years the issue has been raised by various groups that promote equal rights for developing countries.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;But, without subsidies, would there not be enough farming? &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Less would be produced in the EU, more would be imported. So the decrease in the EU production would picked up by other countries.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Or is it that prices would be too high? &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;That is the second concern. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;what would that land be used for? &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Some land would be used for crops that are less labor-intensive. Land that isn't appropriate for such crops would be disused. Example: grape vineyards situated on steep hills could be disused or become grazing for sheep/goats.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Is not protectionism a cheaper approach? &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It probably would be. It would not meet the objectives, though.&#xA;With protectionism, the prices will drop sharply as soon as there is a surplus in production. With a surplus, the EU price will equal the world market price. With a shortage, the EU price will equal world market price + trade tariffs. For subsidies there is no such sharp drop at the equilibrium point. Thus, the EU food production will be lower under protectionism than under subsidies.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;I think the proper counter-factual needs to be accounted for. All that money could have been used for something else. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It is clear that the cost (=price + subsidy) of food is increased. By a fairly large amount. Some of that money is being spent for political reasons, because some of the products that receive subsidies aren't really vital to avoid starvation or malnutrition.&lt;/p&gt;&#xA;" OwnerUserId="11805" LastActivityDate="2017-01-18T13:13:52.807" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15057" PostTypeId="2" ParentId="15055" CreationDate="2017-01-18T14:20:41.270" Score="1" Body="&lt;p&gt;The following assumes that the agent starts with no inventory.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you can only choose a single scheme, then &lt;code&gt;y&lt;/code&gt; would be &lt;code&gt;0&lt;/code&gt; for the first scheme and &lt;code&gt;min[x,z]&lt;/code&gt; would be &lt;code&gt;0&lt;/code&gt; for the second scheme. And hence &lt;code&gt;u&lt;/code&gt; would also be &lt;code&gt;0&lt;/code&gt; for either of the first two schemes. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the third scheme, both &lt;code&gt;y&lt;/code&gt; and &lt;code&gt;min[x,z]&lt;/code&gt; would be &lt;code&gt;&amp;gt;0&lt;/code&gt; and hence &lt;code&gt;u&lt;/code&gt; would also be &lt;code&gt;&amp;gt;0&lt;/code&gt;.&lt;/p&gt;&#xA;" OwnerUserId="11805" LastActivityDate="2017-01-18T14:20:41.270" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15058" PostTypeId="1" CreationDate="2017-01-18T15:17:58.710" Score="1" ViewCount="1010" Body="&lt;p&gt;I’m not sure if this is typically done, but suppose my data point is in 2013 JPY and I want to express in 2016 USD. Do I apply CPI to express data in 2016 JPY, and then apply exchange rate to 2016 USD? Or do I apply exchange rate to obtain 2013 USD first, then apply CPI to bring forward to 2016 USD? Or is this all redundant? &lt;/p&gt;&#xA;" OwnerUserId="11809" LastActivityDate="2017-06-20T11:18:00.137" Title="How should I adjust data for both inflation and foreign exchange rate?" Tags="&lt;macroeconomics&gt;&lt;inflation&gt;&lt;exchange-rates&gt;&lt;foreign-exchange&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="15059" PostTypeId="2" ParentId="15026" CreationDate="2017-01-18T16:44:06.403" Score="2" Body="&lt;p&gt;With a bit of humor, you could use the &lt;a href=&quot;https://en.wikipedia.org/wiki/Joseph_Schumpeter&quot; rel=&quot;nofollow noreferrer&quot;&gt;Schumpeterian&lt;/a&gt; term &quot;&lt;a href=&quot;https://en.wikipedia.org/wiki/Creative_destruction&quot; rel=&quot;nofollow noreferrer&quot;&gt;creative destruction&lt;/a&gt;&quot; -the humor relates to the fact that Schumpeter used the term to describe an inherent structural feature of capitalism, not historical/natural accidents/disasters.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Apart from that tongue-in-cheek proposal, I am not aware of a compact term to express what you describe. A common way could be a &quot;vintage theory of capital&quot; approach, where it is recognized that &quot;old and new&quot; capital coexists with different levels of technology embodied in it, and so in a sense &quot;averaging&quot; the actual technological/efficiency level used in the economy. Then what you describe amounts to an abrupt loss of &quot;old&quot; capital which may lower the output level &lt;em&gt;but&lt;/em&gt; creates a positive discontinuity in the actual average technology level used in the economy, creating abrupt and higer growth rates. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can broaden the concept of capital to also include &quot;human capital&quot; and maybe also &quot;institutional capital&quot; (and so &quot;technology&quot; will then refer also to &quot;knowhow/experience&quot; and &quot;transactional technology&quot; as well). &lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2017-01-19T13:20:58.253" LastActivityDate="2017-01-19T13:20:58.253" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15062" PostTypeId="1" CreationDate="2017-01-18T18:40:02.127" Score="4" ViewCount="338" Body="&lt;p&gt;I am studying game theory, but I feel like I do not understand mixed-strategy equilibrium all that much. Yes, I know how to find them in 2x2 cases, and in some 3xn (n &amp;lt;= 2) cases as well where the normal form has been artificially constructed to make finding the mixed strategies very easily (e.g., one of the actions can conveniently be ignored because it's dominated).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But if I were to write down an nxn matrix right now, n &gt;= 3, I wouldn't be able to solve for it's mixed strategies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So I am looking for a really good really rigorous really thorough reference to understand mixed strategy equilibria. Any recommendations?&lt;/p&gt;&#xA;" OwnerUserId="11813" LastActivityDate="2017-01-31T01:29:59.460" Title="What's the best reference for rigorous study of mixed-strategy nash equilibrium?" Tags="&lt;reference-request&gt;&lt;game-theory&gt;" AnswerCount="4" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15063" PostTypeId="2" ParentId="15062" CreationDate="2017-01-18T19:06:05.240" Score="2" Body="&lt;p&gt;I like Osborne &quot;An Introduction to Game Theory&quot; and Gibbons &quot;Game Theory for Applied Economists&quot; as textbooks. In any case, once you understand the concept, finding mixed equilibria boils down to solving a bunch of linear equations, it's just algebra.&lt;/p&gt;&#xA;" OwnerUserId="11216" LastEditorUserId="11216" LastEditDate="2017-01-18T19:26:43.837" LastActivityDate="2017-01-18T19:26:43.837" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15064" PostTypeId="2" ParentId="13720" CreationDate="2017-01-18T19:19:11.077" Score="3" Body="&lt;p&gt;The underlying reason are probably differences in labor productivity. Assuming decreasing marginal productivity of labor, the real question is why migration flows do not equate labor productivity and wages as would be predicted by simple GE models.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can think of several factors:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Moving is costly&lt;/li&gt;&#xA;&lt;li&gt;Czech people in Germany are not as productive as Germans in Germany, because they don't speak German. &lt;/li&gt;&#xA;&lt;li&gt;People prefer to&#xA;live in their home country even if that means earning lower wages.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;That being said, I guess that wages in the Czech Republic have been growing much faster than in Switzerland or Germany and the gap is indeed closing slowly.&lt;/p&gt;&#xA;" OwnerUserId="11216" LastActivityDate="2017-01-18T19:19:11.077" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15065" PostTypeId="2" ParentId="15062" CreationDate="2017-01-18T19:24:47.053" Score="4" Body="&lt;p&gt;The book by Gibbons that Tobias mentions is titled &quot;A Primer in Game Theory&quot; in Europe. It is excellent, especially in its coverage of more advanced games of imperfect/incomplete information. But it is quite concise in its treatment of games of complete information like the ones you are studying. The book by Osborne might therefore be a better choice. Both of these books are aimed at the introductory graduate level and are therefore quite rigorous.*&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, I feel compelled to say that it sounds like you are taking a first course in game theory, so I would be inclined to suggest also the book &quot;Strategies and Games: Theory and Practice&quot; bu Dutta. It is more verbose, but I think also provides a more gentle introduction to topics like Nash equilibrium and mixed strategies. Game theory, like much of economics is often best learnt by first obtaining a firm grasp of the intuition, and later supplementing it with sufficient rigor.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;(*) There is also &quot;Game Thoery&quot; by Fudenberg and Tirole, which is less of a textbook and more of a reference. But it is, perhaps, even more rigorous as a result.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2017-01-18T19:24:47.053" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15066" PostTypeId="1" CreationDate="2017-01-19T01:51:56.767" Score="2" ViewCount="124" Body="&lt;p&gt;In this paper, they are using Canadian debit card dataset. I am not sure where to get such a dataset.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.cirano.qc.ca/pdf/publication/2009s-23.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.cirano.qc.ca/pdf/publication/2009s-23.pdf&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My broad question is what kind of indicator can I use that indicates real-time economic activity &lt;strong&gt;of the people&lt;/strong&gt;? Something that indicates how much people are buying on an hourly basis for an example. I am willing to look at unconventional datasets or willing to scrape information from scratch.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I thought about using Amazon review timestamps for example, but I know want to when people are buying something. Specially over the United States or smaller.&lt;/p&gt;&#xA;" OwnerUserId="11816" LastActivityDate="2017-01-19T08:51:37.417" Title="Where can I find real-time indicators of economic activity?" Tags="&lt;econometrics&gt;&lt;data-request&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15067" PostTypeId="2" ParentId="15031" CreationDate="2017-01-19T08:23:11.303" Score="1" Body="&lt;p&gt;The Wikipedia page about the &lt;a href=&quot;https://en.wikipedia.org/wiki/Supply_and_demand&quot; rel=&quot;nofollow noreferrer&quot;&gt;supply and demand model&lt;/a&gt; has a &lt;a href=&quot;https://en.wikipedia.org/wiki/Supply_and_demand#History&quot; rel=&quot;nofollow noreferrer&quot;&gt;History&lt;/a&gt; section. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;According to &lt;a href=&quot;http://onlinelibrary.wiley.com/doi/10.1002/9780470999059.ch3/summary&quot; rel=&quot;nofollow noreferrer&quot;&gt;Hamid S. Hosseini&lt;/a&gt;, the power of supply and demand was understood to some extent by several early Muslim scholars, such as fourteenth-century Syrian scholar &lt;a href=&quot;https://en.wikipedia.org/wiki/Ibn_Taymiyyah&quot; rel=&quot;nofollow noreferrer&quot;&gt;Ibn Taymiyyah&lt;/a&gt;, who wrote: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;If desire for goods increases while its availability decreases, its&#xA;  price rises. On the other hand, if availability of the good increases&#xA;  and the desire for it decreases, the price comes down.&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Antoine_Augustin_Cournot&quot; rel=&quot;nofollow noreferrer&quot;&gt;Antoine Augustin Cournot&lt;/a&gt; first developed a &lt;strong&gt;mathematical model of supply and demand&lt;/strong&gt; in his 1838 Researches into the Mathematical Principles of Wealth, including diagrams. However, &lt;a href=&quot;http://la.utexas.edu/users/hcleaver/368/368LockeSomeConsiderationsAlltable.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;John Locke (1691)&lt;/a&gt;, Adam Smith (1776) and David Ricardo (1817) also used this model.&lt;/p&gt;&#xA;" OwnerUserId="6168" LastEditorUserId="1601" LastEditDate="2017-01-19T08:49:08.160" LastActivityDate="2017-01-19T08:49:08.160" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15068" PostTypeId="2" ParentId="15066" CreationDate="2017-01-19T08:45:00.043" Score="1" Body="&lt;p&gt;The projects developed by &lt;a href=&quot;http://www.mit.edu/~afc/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Alberto Cavallo&lt;/a&gt; and &lt;a href=&quot;http://web.mit.edu/rigobon/www/Robertos_Web_Page/Main.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Roberto Rigobon&lt;/a&gt; could be a source of inspiation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Billion Prices Project is an academic initiative that uses prices collected from hundreds of online retailers around the world on a &lt;strong&gt;daily basis&lt;/strong&gt; to conduct economic research. &lt;a href=&quot;http://bpp.mit.edu/&quot; rel=&quot;nofollow noreferrer&quot;&gt;This page&lt;/a&gt; shows their most recent research leveraging high-frequency price data, as well as the US daily inflation index (updated monthly).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here are the &lt;a href=&quot;http://bpp.mit.edu/datasets/&quot; rel=&quot;nofollow noreferrer&quot;&gt;datasets&lt;/a&gt; on Online Micro Price Data, Global Retailers Data...&lt;/p&gt;&#xA;" OwnerUserId="6168" LastEditorUserId="1601" LastEditDate="2017-01-19T08:51:37.417" LastActivityDate="2017-01-19T08:51:37.417" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="15069" PostTypeId="2" ParentId="14761" CreationDate="2017-01-19T09:48:40.977" Score="0" Body="&lt;ul&gt;&#xA;&lt;li&gt;&lt;strong&gt;Risk&lt;/strong&gt; - the probability of being exposed to a loss or damage&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;Uncertainty&lt;/strong&gt; - the state of being unsure of something&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;Ambiguity&lt;/strong&gt; - unclearness by virtue of having more than one meaning&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="8966" LastActivityDate="2017-01-19T09:48:40.977" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15071" PostTypeId="1" AcceptedAnswerId="15073" CreationDate="2017-01-19T13:22:57.600" Score="0" ViewCount="94" Body="&lt;p&gt;I've recently found this web page, listing the average P/E Ratios of main stock markets:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://www.zutosmoney.com/&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.zutosmoney.com/&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Here I reproduce just a small extract:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;INDEX - Country - Trailing PER - Forward PER&lt;/li&gt;&#xA;&lt;li&gt;CAC40 - France - 24.3 - 13.2&lt;/li&gt;&#xA;&lt;li&gt;IBEX35 - Spain - 21.4 - 12.7&lt;/li&gt;&#xA;&lt;li&gt;NASDAQ - US - 34.5 - 18&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I've noticed two things:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Most trailing P/E ratios are quite high: I understand that 'normal' values should be in the range of 16 - 20.&lt;/li&gt;&#xA;&lt;li&gt;There is a very big difference between trailing P/R and forward P/R. I understand that trailing is calculated using the actual earnings of past year, and forward is calculated with the companies' annual forecasts. &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Am I right concluding that:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Stock markets are &lt;em&gt;probably&lt;/em&gt; over-evaluated, considering the earnings in 2016?&lt;/li&gt;&#xA;&lt;li&gt;Stock markets are &lt;em&gt;possibly&lt;/em&gt; over-optimistic regarding the earnings in 2017?&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;[Edit: I've corrected my conclusions after answer from Klas Lindbäck, to avoid expressing too strongly my personal concerns about the earnings of companies in 2017]&lt;/p&gt;&#xA;" OwnerUserId="11821" LastEditorUserId="11821" LastEditDate="2017-01-19T15:28:40.313" LastActivityDate="2017-01-19T15:28:40.313" Title="How can trailing and forward P/E ratio of main stock markets show such huge difference" Tags="&lt;macroeconomics&gt;&lt;stock-market&gt;&lt;applied-econometrics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15073" PostTypeId="2" ParentId="15071" CreationDate="2017-01-19T14:47:40.167" Score="1" Body="&lt;blockquote&gt;&#xA;&lt;p&gt;Am I right concluding that:&lt;/p&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Stock markets are probably over-evaluated, considering the earnings in 2016?&lt;/li&gt;&#xA;&lt;li&gt;Stock markets are over-optimistic regarding the earnings in 2017?&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;No, you cannot draw that conclusion a priori. You can conclude that the market expects a big increase in profits in 2017. You can have an &lt;em&gt;opinion&lt;/em&gt; about whether the market is over-optimistic, but unless you got divine insight, or have better models than they do, you cannot conclude that their forecast is wrong. Remember that the market is a collection of people with access to roughly the same information that you have access to.&lt;/p&gt;&#xA;" OwnerUserId="11805" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2017-01-19T14:47:40.167" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="15075" PostTypeId="2" ParentId="15062" CreationDate="2017-01-19T17:19:17.597" Score="2" Body="&lt;p&gt;If your main focus is on equilibria in two-player strategic-form (i.e., bimatrix) games, then I would recommend the following:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;B. von Stengel (2007), Equilibrium computation for two-player games in strategic and extensive form. Chapter 3, &lt;em&gt;Algorithmic Game Theory&lt;/em&gt;, eds. N. Nisan, T. Roughgarden, E. Tardos, and V. Vazirani, Cambridge Univ. Press, Cambridge, 53-78. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;B. von Stengel (2002), Computing equilibria for two-person games. Chapter 45, &lt;em&gt;Handbook of Game Theory&lt;/em&gt;, Vol. 3, eds. R. J. Aumann and S. Hart, North-Holland, Amsterdam, 1723-1759. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;D. Avis, G. Rosenberg, R. Savani, and B. von Stengel (2010), Enumeration of Nash equilibria for two-player games. &lt;em&gt;Economic Theory&lt;/em&gt; 42, 9-37. doi:10.1007/s00199-009-0449-x &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;All available as PDFs from &lt;a href=&quot;http://www.maths.lse.ac.uk/personal/stengel/bvs-publ.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.maths.lse.ac.uk/personal/stengel/bvs-publ.html&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="2926" LastEditorUserId="2926" LastEditDate="2017-01-19T23:36:19.830" LastActivityDate="2017-01-19T23:36:19.830" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15076" PostTypeId="1" CreationDate="2017-01-19T21:47:06.913" Score="1" ViewCount="125" Body="&lt;p&gt;I am an undergrad trying to learn the basics of NK models (on my own) and I am having some difficulties understanding the derivation of certain equations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So we have the representative household seeking to maximize $E_{0}\sum _{0}^{\infty}\beta^{t}U(C_{t}, N_{t}; Z_{t})$ subject to $P_{t}C_{t} + Q_{t}B_{t} \leq B_{t-1} + W_{t}N_{t} + D_{t}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where $B_{t}$ is the amount of one-period nominally riskless bonds, maturing in period $t+1$ and $Q_{t}$ is the value of said bond.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am able to derive the optimal consumption-work hour pair by finding the total derivative of the utility function subject to the budget constraint in $C_{t},N_{t}$ space. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, next the authors wants to examine the effects of reallocating consumption between period $t$ and $t+1$ on expected utility (holding all else equal). He shows this is;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$U_{c,t}dC_{t} + \beta E_{t}[U_{c,t+1}dC_{t+1}] = 0$  (1)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;for any pair $(dC_{t},dC_{t+1}$) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;satisfying $P_{t+1}dC_{t+1}= -\frac{P_{t}}{Q_{t}}dC_{t}$ (2)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I kind of understand where equation (1) is coming from (although if someone could derive this mathematically I would be very grateful). But equation (2) I don't understand at all. Is this some sort of budget constraint on consumption?I have tried finding the total differential of the budget while considering changes in $C_{t}$ and  $B_{t}$. $B_{t}$, because I assume since we're considering consumption between two periods, savings is going to matter. However, because it is consumption between two periods and the budget constraint in just for a given period, I am becoming confused. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I was hoping someone could explain how to think about this intuitively and the mathematical derivation behind it. &lt;/p&gt;&#xA;" OwnerUserId="11767" LastEditorUserId="8815" LastEditDate="2017-04-10T14:34:59.213" LastActivityDate="2017-04-10T14:34:59.213" Title="Consumer's maximization problem" Tags="&lt;utility&gt;&lt;self-study&gt;&lt;consumption&gt;&lt;new-keynesian-economics&gt;" AnswerCount="0" CommentCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="15079" PostTypeId="1" AcceptedAnswerId="15080" CreationDate="2017-01-20T12:18:27.433" Score="0" ViewCount="56" Body="&lt;p&gt;This is a question I encountered during my undergraduate studies in Industrial Economics. So the question goes like this:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Consider two identical firms with constant marginal cost $c$ which&#xA;  compete in quantities in each of an infinite number of periods. The&#xA;  quantities chosen are observed by both firms before the next play&#xA;  begins. Inverse demand is given by $p = 1 – q_{1} – q_{2}$. The firms use&#xA;  ‘trigger strategies’ and they revert to static Cournot behaviour if&#xA;  cooperation breaks down.&lt;/p&gt;&#xA;  &#xA;  &lt;ol&gt;&#xA;  &lt;li&gt;What is the lowest value of the discount factor $\delta$ such that the&#xA;  firms can sustain the monopoly output level?&lt;/li&gt;&#xA;  &lt;/ol&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This part I can answer and the value of $\delta$ needed to sustain the monopoly output level turns out to be $\frac{9}{17}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now onto the second part of the question:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;ol start=&quot;2&quot;&gt;&#xA;  &lt;li&gt;Suppose $\delta$ is too small to sustain the monopoly output. In&#xA;  particular, suppose $\delta = \frac{1}{2}$. What is the most profitable subgameperfect&#xA;  equilibrium that can be sustained using trigger strategies?&#xA;  (Assume $c = 0$ for simplicity.)&lt;/li&gt;&#xA;  &lt;/ol&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So my line of thinking for this is, to sustain collusion the profit from colluding has to exceed the profit from defecting one period plus the punishment profit in subsequent periods.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\pi^{C}\frac{1}{(1-\delta)} \geq \pi^{D} + \pi^{P}\frac{\delta}{(1-\delta)} \tag{1}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Having from secion 1 of the question:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\pi^{C} = \frac{(1-c)^2}{8},\quad \pi^{D} = \frac{9(1-c)^2}{64},\quad \pi^{P} = \frac{(1-c)^2}{9} \tag{2}&#xA;$$&#xA;Take into account that $\pi^{C}$ is the profit each firm obtains if they collude, i.e. monopoly profit divided by 2.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, to me section 2 of the question is asking about $\pi^{C}$ (in condition $(1)$) when $\delta=\frac{1}{2}$. I know $\pi^P$ remains the same since it is the Cournot profit but I guess $\pi^D$ changes because it was calculated assuming the other firm would produce the monopoly level of output and this is not the case anymore since $\delta$ is lower than what is needed to maintain that level of output.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can see I am a bit confused. Can anyone help me?&lt;/p&gt;&#xA;" OwnerUserId="5119" LastEditorUserId="11590" LastEditDate="2017-01-21T16:34:55.003" LastActivityDate="2017-01-21T16:34:55.003" Title="Maximum level of profit attainable when discount factor is too low" Tags="&lt;industrial-organisation&gt;&lt;repeated-games&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15080" PostTypeId="2" ParentId="15079" CreationDate="2017-01-20T12:39:11.063" Score="1" Body="&lt;p&gt;I do not want to do all the algebra, but I give you a hint.&#xA;You are correct: You are asked about $\pi^C$ in your Condition (1) and you are also right that $\pi^D$ changes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In your parameter setting with $c=0$: &#xA;$$\pi^C := \pi (q^C, q^C) = (1- 2 q^C) q^C,$$&#xA;where $q^C$ is the quantity they coordinate on.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then $\pi^D$ is the profit from best-responding to $q^C$ with some $q^D$:&#xA;$$ \pi^D := \pi (q^D, q^C) = (1- q^C-q^D)q^D,$$&#xA;i.e., $q^D = \arg max \quad \pi^D$. Now you solve $q^D$ as a function of $q^C$ and plug that into $\pi^D$. Having Condition (1) hold with equality gives you some $q^C$ that you can plug into $\pi^C$ again.&lt;/p&gt;&#xA;" OwnerUserId="11590" LastActivityDate="2017-01-20T12:39:11.063" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="15081" PostTypeId="1" CreationDate="2017-01-20T15:34:53.010" Score="3" ViewCount="241" Body="&lt;p&gt;I'm currently setting up a model using data from the game &quot;Hearthstone&quot;. Those familiar with the game know that it can (for the most part) be described as a zero-sum game, where players choose a deck before being randomly matched against another player. These decks have over-all winrates against all players, as well as winrates for each specific matchup (Deck A vs Deck B).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's assume there are only 5 decks that can be played (there are a lot more). We could then form a 5x5 expected payoff matrix for each matchup using the respective winrates of all decks.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is this: how would the probability of encountering a certain deck factor in? We could technically calculate an optimal strategy from the payoff matrix, but it doesn't seem like that takes into account the likelihood of encountering a certain deck more than another.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At first I thought it could be a type of signaling game, where the matchmaking process was a &quot;type&quot; drawn randomly, but that isn't the case here, since the players are making their decisions before this occurs. &lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Edit&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;I should have specified. I mention MSNE since I'm trying to see if you can better your chances of winning statistically by playing a number decks in a number of sequential games, rather than just choosing one deck and sticking with it.&lt;/p&gt;&#xA;" OwnerUserId="11834" LastEditorUserId="11834" LastEditDate="2017-01-20T16:15:53.583" LastActivityDate="2017-01-21T13:10:36.180" Title="MSNE and the probability of encountering each payoff" Tags="&lt;game-theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15082" PostTypeId="1" AcceptedAnswerId="15083" CreationDate="2017-01-20T16:46:24.357" Score="5" ViewCount="14546" Body="&lt;p&gt;From Prof. Stiglitz' Vanity Fair &lt;a href=&quot;http://www.vanityfair.com/news/2016/12/a-nobel-laureate-explains-how-trump-could-nuke-the-economy&quot; rel=&quot;noreferrer&quot;&gt;article&lt;/a&gt;:  &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;How, one might ask, is this possible, given Trump’s rhetoric, his&#xA;  determination to move against China with a 45 percent tariff? There’s&#xA;  a global macroeconomic variable that Trump left out of his calculus,&#xA;  and that’s America’s exchange rate—not just with China, but with the&#xA;  entire world. If America’s exchange rate increases, our exports become&#xA;  more expensive, and imports become cheaper.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;He doesn't explicitly say that tariffs tend to increase a country's exchange rate. He leaves it as a standalone conditional. If it's simply a conditional, he could mean that there's a nonzero chance that the Dollar's value will increase independently. However, I felt like maybe he infers some causality. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I feel like a tariff would change the trade balance such that the US will import less, while exports are fixed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Do import tariffs tend to increase a country's exchange rate? If so, why?&lt;/p&gt;&#xA;" OwnerUserId="11831" LastEditorUserId="1601" LastEditDate="2017-01-20T16:56:06.920" LastActivityDate="2018-04-03T12:28:03.203" Title="Do import tariffs tend to increase a country's exchange rate (if so, why)?" Tags="&lt;macroeconomics&gt;&lt;international-trade&gt;&lt;exchange-rates&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15083" PostTypeId="2" ParentId="15082" CreationDate="2017-01-20T17:04:18.817" Score="4" Body="&lt;p&gt;Suppose that there is no 45 percent tariff and the market is in some kind of equilibrium. That is the demand for yuans equals the supply of yuans at the current exchange rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now assume Trump does impose a 45 percent tariff. This makes imported Chinese goods in the US more expensive for the American consumer. As a result the consumers will buy fewer Chinese import goods. So far they paid for these goods with dollars and the corporation importing the goods used those dollars to buy yuans and pay for the goods. As a result of the decreased import demand the corporation will want less goods and hence it will buy fewer yuans. &lt;strong&gt;Thus decreasing the demand for yuans.&lt;/strong&gt; The currency exchange market is similar to other markets: If at a price (in this instance this is the USD/CNY exchange rate) the supply outstrips demand the price will decrease. This means that the dollar becomes 'stronger', you will have to pay more yuans to get a dollar.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a result exports do become somewhat more expensive (in yuans) and imports do become somewhat cheaper (in dollars) until an equilibrium is reached on both the currency and the good markets.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2017-01-20T19:28:09.683" LastActivityDate="2017-01-20T19:28:09.683" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15084" PostTypeId="1" AcceptedAnswerId="15086" CreationDate="2017-01-20T17:17:08.353" Score="1" ViewCount="212" Body="&lt;p&gt;Monetary Policy, Inflation,&#xA;and the Business Cycle, &#xA;Jordi Gali,&#xA;Page 45&#xA;&lt;a href=&quot;http://elib.peaceland.edu.ng:8383/greenstone3/sites/localsite/collect/peacelan/index/assoc/HASH0139.dir/doc.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://elib.peaceland.edu.ng:8383/greenstone3/sites/localsite/collect/peacelan/index/assoc/HASH0139.dir/doc.pdf&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How does &quot;ψ &quot; convert to &quot;MC&quot;?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can say Drago Bergholt solutions for Gali&#xA;&lt;a href=&quot;http://bergholt.weebly.com/uploads/1/1/8/4/11843961/the_basic_new_keynesian_model_-_drago_bergholt.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://bergholt.weebly.com/uploads/1/1/8/4/11843961/the_basic_new_keynesian_model_-_drago_bergholt.pdf&lt;/a&gt;&#xA;but Drago also didn't explain this change. (page 13 )&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sincerely&lt;/p&gt;&#xA;" OwnerUserId="11836" LastEditorUserId="11216" LastEditDate="2017-01-21T13:28:17.443" LastActivityDate="2017-01-21T13:28:17.443" Title="Jordi Gali optimal price setting" Tags="&lt;macroeconomics&gt;&lt;new-keynesian-economics&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15085" PostTypeId="1" AcceptedAnswerId="15187" CreationDate="2017-01-21T03:27:38.857" Score="0" ViewCount="77" Body="&lt;p&gt;As far as my knowledge goes, a &quot;collateralized debt obligation&quot; (CDO) restructures existing bonds into &quot;layers&quot; of debt whereby each layer has similar kinds of bonds with similar kinds of features in it. So, for example, the lowest layer could be the riskiest layers where borrowers are expected to default the most and the uppermost layer would be one where borrowers with relatively higher credit scores would be placed. These are then sold forward to willing investors. These CDO's can be further restructured into a synthetic CDO but lets not get into that. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So now, a &quot;credit default swap&quot; (CDS) could be placed against a CDO thereby insuring against a loan default. So, for example, if a collective bunch of loans in the bottom most layer go bad within the stipulated time, then the insurer (bank) would be forced to pay back to the insuree (any third party).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, lets take the scenario of a hospital with cancer patients from Stage 0 to 5. A third party comes up to the hospital and asks the hospital to restructure the cancer patients files into &quot;tranches&quot; such that Stage 5 patients would be at the bottom most layer and Stage 0 at the top. He would then like to buy an insurance against the bottom most layer for a period of 1 month. So, if the insured layer goes bad in that month (which basically means a certain number of people in that layer die), the hospital would have to pay him back 50X the premium amount. The hospital could even create a separate financial subsidiary to carry out the above task.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course, this is completely unethical and really sad. My question is: What stops this from happening? Why is it seemingly okay to do this on a housing loan but not medical patients?&lt;/p&gt;&#xA;" OwnerUserId="11838" LastEditorUserId="264" LastEditDate="2017-01-26T15:43:46.007" LastActivityDate="2017-01-27T16:36:48.867" Title="CDO &amp; CDS on medical patients" Tags="&lt;bonds&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15086" PostTypeId="2" ParentId="15084" CreationDate="2017-01-21T08:14:13.253" Score="1" Body="&lt;p&gt;The third line of p.45 denotes: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$MC_{t+k|t}=\psi_{t+k|t}/P_{t+k}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;but this is probably not the answer you are looking for.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Going from eq. (9) to (10), multipliy the right-hand side by $\frac{P_{t+k}}{P_{t+k}}=1$ (you can always multiply by one), the numerator goes into $\Pi_{t-1,t+k}$ (together with $P_{t-1}$), the denominator goes into $MC_{t+k|t}=\psi_{t+k|t}/P_{t+k}$.&lt;/p&gt;&#xA;" OwnerUserId="8630" LastActivityDate="2017-01-21T08:14:13.253" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15087" PostTypeId="2" ParentId="15058" CreationDate="2017-01-21T08:34:52.617" Score="1" Body="&lt;p&gt;NO, it is not redundant. Controlling for nominal effects gives you a better picture, and makes more sense on a theoretical level. To transform assets into USD use&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\textit{asset}_{USD}=\frac{s_t P_{t,JPY}}{P_{t,USD}} \textit{asset}_{JPY}$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;where the fraction is the real exchange rate, $P_t$ is the respective price level and $s_t$ the nominal exchange rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Alternatively, you can work with differences&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\Delta rer =\frac{\Delta s_t \pi_{t,JPY}}{\pi_{t,USD}}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that the real exchange rate is far from perfect, but it is common practice in macroeconomics. Also, it does not matter which transformation you do first, as its purely multiplicative.&lt;/p&gt;&#xA;" OwnerUserId="8630" LastActivityDate="2017-01-21T08:34:52.617" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15088" PostTypeId="2" ParentId="14800" CreationDate="2017-01-21T09:08:36.187" Score="2" Body="&lt;p&gt;&lt;em&gt;ceteris paribus&lt;/em&gt;, you are absolutely right. The price for international borrowing and lending is determined by both the interest and exchange rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Three remarks:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Above; I wrote &lt;em&gt;ceteris paribus&lt;/em&gt;, meaning nothing else changes. In reality, however, both (long-term) interest rates and exchange rates are heavily impacted by expectations on how the economy is going to evolve.&lt;/li&gt;&#xA;&lt;li&gt;Note that the exchange rate only impacts international transactions, on both financial and goods markets, whereas the interest rate impacts all borrowing and lending. The impact of a change in the exchange rate is therefore mainly a quantitative question. Without going into too much detail, the effect is likely going to be a lot bigger for a small open economy, compared to the US.&lt;/li&gt;&#xA;&lt;li&gt;Usually, causation is assumed to go the other way. That is, the Federal reserve sets interest rates (arguably on the backdrop of domestic economic conditions), and then the exchange rate reacts on changes in interest rates. However, this is conventional wisdom, not an economic fact.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="8630" LastEditorUserId="6168" LastEditDate="2017-01-21T13:09:16.990" LastActivityDate="2017-01-21T13:09:16.990" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15090" PostTypeId="1" AcceptedAnswerId="15091" CreationDate="2017-01-21T12:23:37.893" Score="1" ViewCount="259" Body="&lt;p&gt;If an indifference curve shows quantities where a consumer's utility from consuming two goods are equal, then why are there infinitely many indifference curves? From the diagram, you can have Q1,Q2 on IC1, but then you'd have Q1,Q3 on the other indifference curve, wouldn't that mean the consumer would receive the same utility from consuming Q1 and Q2 as well as if he had consumed Q1 and Q3, i.e. for a given Q1, the consumption of Q2 gives the same amount of utility as Q3? Shouldn't this mean that the indifference curve should be unique?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/8xUcn.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/8xUcn.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="6782" LastActivityDate="2017-01-21T12:46:50.540" Title="Why are there infinitely many indifference curves?" Tags="&lt;measuring-utility&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="15091" PostTypeId="2" ParentId="15090" CreationDate="2017-01-21T12:46:50.540" Score="2" Body="&lt;p&gt;Utility is constant for all points $(q_B,q_A)$ on an indifference curve. So there is a number $u_1$ such that &#xA;$$&#xA;\forall (q_B,q_A) \in IC_1: \ U(q_B,q_A) = u_1.&#xA;$$&#xA;Similarly there is a number $u_2$, such that&#xA;$$&#xA;\forall (q_B,q_A) \in IC_2: \ U(q_B,q_A) = u_2.&#xA;$$&#xA;If $IC_1 \neq IC_2$ then $u_1 \neq u_2$.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2017-01-21T12:46:50.540" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15092" PostTypeId="2" ParentId="15081" CreationDate="2017-01-21T13:10:36.180" Score="3" Body="&lt;p&gt;Denoting your five decks by $d_1, d_2,...,d_5$, you will get a $5 \times 5$ matrix&#xA;$$&#xA;\begin{array}{|c|c|c|c|c|}&#xA;\hline&#xA;a_{11} &amp;amp; a_{12} &amp;amp; a_{13} &amp;amp; a_{14} &amp;amp; a_{15} \\&#xA;\hline&#xA;a_{21} &amp;amp; a_{22} &amp;amp; a_{23} &amp;amp; a_{24} &amp;amp; a_{25} \\&#xA;\hline&#xA;a_{31} &amp;amp; a_{32} &amp;amp; a_{33} &amp;amp; a_{34} &amp;amp; a_{35} \\&#xA;\hline&#xA;a_{41} &amp;amp; a_{42} &amp;amp; a_{43} &amp;amp; a_{44} &amp;amp; a_{45} \\&#xA;\hline&#xA;a_{51} &amp;amp; a_{52} &amp;amp; a_{53} &amp;amp; a_{54} &amp;amp; a_{55} \\&#xA;\hline&#xA;\end{array}&#xA;$$&#xA;where $a_{ij}$ denotes the the expected payoff of deck $i$ against deck $j$. I am guessing this is actually the probability of deck $i$ beating deck $j$ but I am not familiar with Heartstone or your exact intentions. If it is in fact a probability then the payoff of deck $j$ against deck $i$ is $a_{ji} = 1-a_{ij}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which desk yields the highest expected payoff?&#xA;&lt;br&gt; There is no answer this question without some assumptions about your opponent. E.g. in rock-paper-scissors there is no best move unless you specify what your opponent will do. If your opponent plays $d_j$ with probability $p_j$ then your expected payoff for playing $d_i$ is&#xA;$$&#xA;\sum_{j=1}^5 p_j \cdot a_{ij}.&#xA;$$&#xA;Whichever $i$ (or $i$'s) maximize this is (are) the best deck(s) to play.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How does one derive the probabilites $p_j$?&#xA;&lt;br&gt; There is no clear answer to this. You can use the concept of Nash-equilibrium to calculate mutual best responses. Or you could rely on experience by calculating the actual frequency of opponents playing $d_j$.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2017-01-21T13:10:36.180" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15095" PostTypeId="1" AcceptedAnswerId="15097" CreationDate="2017-01-21T14:37:33.663" Score="2" ViewCount="763" Body="&lt;p&gt;I am trying to log-linearize the Euler consumption equation in Gali's book. He says:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;A log-linear approximation of $Q_{t}= \beta E_{t}[(\frac{C_{t+1}}{C_{t}})^{-\sigma}(\frac{Z_{t+1}}{Z_{t}})(\frac{P_{t}}{P_{t+1}})]$ (1)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I spent all of last night trying to learn log-linearization so this might be why my answer isn't correct but here is my attempt:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I re-write $Q_{t}=\frac{1}{1+i_{t}}$ and thus (1) becomes:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$1= \beta E_{t}[(1+i_{t})(\frac{C_{t+1}}{C_{t}})^{-\sigma}(\frac{Z_{t+1}}{Z_{t}})(\frac{P_{t}}{P_{t+1}})]$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Taking logs of both sides (I'm assuming I can ignore the expectation operator, although I'm not really sure why):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$0=ln(\beta) + ln(1+i_{t})- \sigma[ln(c_{t+1}) - ln(c_{t})] + ln(z_{t+1}) - ln(z_{t}) + ln(P_{t}) - ln(P_{t+1})]$ (2)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Approximating around the steady state values:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$0=ln(\beta) + ln(1+i^{*})+(\frac{1}{1+i^{*}})(i_{t}-i^{*})- \sigma[ln(c^{*})+(\frac{1}{c^{*}})(c_{t+1}-c^{*}) - ln(c^{*}) - (\frac{1}{c^{*}})(c_{t}-c^{*})] + ln(z^{*}) + (\frac{1}{z^{*}})(z_{t+1}-z^{*}) - ln(z^{*}) - (\frac{1}{z^{*}})(z_{t}-z^{*})+ ln(P^{*}) + (\frac{1}{P^{*}})(P_{t}-P^{*}) - ln(P^{*}) - (\frac{1}{P^{*}})(P_{t+1}-P^{*})$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That was quite messy but hopefully you see what I am doing, a simple first order approximation around the steady state. Next I used equation (2) to cancel some terms. I was left with:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$(\frac{1}{1+i^{*}})(i_{t}-i^{*})- \sigma(\frac{1}{c^{*}})(c_{t+1}-c^{*}) +  \sigma(\frac{1}{c^{*}})(c_{t}-c^{*}) + (\frac{1}{z^{*}})(z_{t+1}-z^{*}) - (\frac{1}{z^{*}})(z_{t}-z^{*})  + (\frac{1}{P^{*}})(P_{t}-P^{*}) -  (\frac{1}{P^{*}})(P_{t+1}-P^{*}) = 0$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Re-writing in terms of deviations from steady state:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\tilde i_{t} - \sigma \tilde c_{t+1} + \sigma \tilde c_{t} + \tilde z_{t+1} - \tilde z_{t} + \tilde p_{t} -  \tilde p_{t+1} = 0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can re-arrange this in terms of $\tilde c_{t}$ and put in expectation operators but my answer does not match with Gali's. He says:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;$c_{t} = E[c_{t+1}] + \frac{1}{\sigma}(i_{t} - E_{t}[\pi_{t+1}] - \rho) + \frac{1}{\sigma}(1-\rho _{z})z_{t} $&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;First of all, I don't understand where $\rho$ came from since it is not in (1). Furthermore, am I making a mistake in my linear approximation? Should I not have used (2) to cancel terms?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I just learned log-linearization so my method might be quite naive. I simply &quot;logged&quot; both sides, used first order Taylor approximation around steady state, cancelled terms from the &quot;logging&quot; step and solved for consumption.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any assistance is greatly appreciated!&lt;/p&gt;&#xA;" OwnerUserId="11767" LastActivityDate="2017-08-17T01:41:14.697" Title="Log-linearisation Euler Consumption Equation" Tags="&lt;consumption&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15096" PostTypeId="2" ParentId="11843" CreationDate="2017-01-21T16:27:51.667" Score="1" Body="&lt;p&gt;Moral hazard models feature agents' hidden actions (or these actions are not contractible). For example, a manager's contract cannot determine a wage contingent on the manager's effort, only contingent on other observable outcomes such as &quot;success&quot; / &quot;no success&quot; of a project.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The next two classes of models assume that actions are observable/contractible, but entail different costs to different unobservable types.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In screening models, a principal offers a contract to a privately informed agent. It is not an action, but an inherent type which is not known. For example, a seller does not know a buyer's willingness to pay. Taking the manager example, the principal would offer different contracts for different &quot;manager types&quot; (e.g., &quot;motivated+productive&quot; / &quot;not motivated+unproductive&quot;) in which the &quot;effort level&quot; is already set (and by assumption is observable and contractible such as &quot;hours worked&quot;). Then manager types could self-select into the different contracts as working hours are less troublesome for the 'motivated type'.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another interesting class of models are signaling models. Here the informed party moves first and offers the contract. Taking the same example, motivated managers would offer to work longer for a higher wage which they deserve as they are more productive. The unmotivated manager would love to pocket the higher wage, but the longer hours are too costly for him - so he would not offer such a contract.&lt;/p&gt;&#xA;" OwnerUserId="11590" LastActivityDate="2017-01-21T16:27:51.667" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15097" PostTypeId="2" ParentId="15095" CreationDate="2017-01-21T17:27:57.617" Score="2" Body="&lt;p&gt;To simplify matters, let's call the right-hand side of your starting equation $X_t$ Then, I start just like you did with&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$1 = X_t$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The difference between your solution and Gali's is that you took the Taylor expansion around&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\log(1)=0=log(X_t)$  which implies that also the steady state equals 0, so we can simply subtract it to get log-differences,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;whereas Gali used&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$1 = \exp(\log(X_t))$ with steady state $1=\exp(\log(X^*))$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's define $x_t=\log(X_t)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By definition of the Taylor expansion this gives&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$T(1) = \exp(x^*)+\exp(x^*)(x_t-x^*)$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that the exponential function is identical to its derivative. We know that $\exp(x^*)=1$ from above, so we can simplify to &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$T(1)=1+(x_t-x^*)$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;At this point, you are correct that the $\rho$ cancel out. Instead of defining $\hat{x}_t=x_t-x^*$ but Gali chooses to replace $\rho=\pi +\sigma \gamma-i$, which is the steady state condition, which is why $\rho$ stays on the paper. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note, however, that the &quot;approximation error&quot; from taking log differences instead of Gali's approach is tiny, i.e. for $\beta=0.99$ it is only $-\log(0.99)\approx 0.01$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Have a look at appendix 2.1 of Gali's book! It is quite complicated, but together with this post, I hope you get it!&lt;/p&gt;&#xA;" OwnerUserId="8630" LastActivityDate="2017-01-21T17:27:57.617" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15098" PostTypeId="1" AcceptedAnswerId="15220" CreationDate="2017-01-21T18:34:39.803" Score="7" ViewCount="267" Body="&lt;p&gt;Would it reduce the budget of some €133bn by the gross amount after the rebate but before any spending from the EU into the UK (€17bn, about 12.5% according to Table 6, Page 11 of &lt;a href=&quot;http://eur-lex.europa.eu/budget/data/DB/2017/en/GenRev.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;the 2017 draft budget&lt;/a&gt;) or by the net amount, which is some lower figure, (perhaps 6% ?) of the budget?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assuming no changes due to other countries contributing more, etc. as a result of the UK leaving. It's purely about discerning what proportion of the budget is contributed by the UK's contribution, not what the actual change to the budget will be.&lt;/p&gt;&#xA;" OwnerUserId="11844" LastEditorUserId="11844" LastEditDate="2017-01-29T11:01:02.333" LastActivityDate="2017-01-31T09:36:07.330" Title="How much would the EU budget reduce by after Brexit?" Tags="&lt;eu&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15099" PostTypeId="1" AcceptedAnswerId="15110" CreationDate="2017-01-21T18:54:03.670" Score="0" ViewCount="310" Body="&lt;p&gt;Derivation euler equation in gali book, I don't understand &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot; β &quot; transformation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Jordi Gali book, page 42&#xA;&lt;a href=&quot;https://i.stack.imgur.com/PYceI.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/PYceI.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is no explanation gali book&lt;/p&gt;&#xA;&#xA;&lt;p&gt;the notes which are prepared by Drago Bergholt (Page 6)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;explain FOC for &quot;Ct&quot;  (2.13)&#xA;and&#xA;(2.18) explain Euler equation&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Writer uses FOC for &quot;Ct&quot; and FOC for &quot;Ct+1&quot; to form euler.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/v70QA.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/v70QA.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/XzvjP.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/XzvjP.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/2MGhp.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/2MGhp.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and I expect to different &quot; β &quot; for &quot;Ct&quot;  and for &quot;Ct+1&quot; in (2.18)&#xA;But there is only one &quot; β &quot; in (2.18)&#xA;&lt;a href=&quot;https://i.stack.imgur.com/8K5KG.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/8K5KG.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is assumption of &quot;In the baseline calibrations of the model’s preference parameters it is assumed β = 0.99&quot; and&#xA;for this (0.99) need to βt+1 is less than βt. Is it possible ?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sincerely&lt;/p&gt;&#xA;" OwnerUserId="11836" LastEditorUserId="11836" LastEditDate="2017-01-22T18:51:23.383" LastActivityDate="2017-01-23T08:29:29.043" Title="Jordi Gali Euler Equation Beta" Tags="&lt;macroeconomics&gt;&lt;new-keynesian-economics&gt;" AnswerCount="1" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="15100" PostTypeId="1" CreationDate="2017-01-21T19:28:51.597" Score="2" ViewCount="73" Body="&lt;p&gt;Let there be a unit measure of inputs. Define by $C_i = \left[\int_0^i c(i)^{1-\alpha}\right]^\frac{1}{1-\alpha}$ a cost index of using up to $i$ as input. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I discretize $c(i)$ by $c_0, \dots c_i, \dots c_I$. Let for example $c_i = 1 \,\forall i$, and $\alpha = 0.5$. Let $I = 5$. To approximate the integral, I simply sum up terms and divide by $I$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then we have $C_1 = (\frac{2}{5}\sqrt 1)^2$, $C_2 = (\frac{3}{5}\sqrt 1)^2$ etc. So this is an increasing sequence, and $C_1 = 4/25=0.16$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now I need the corner case, $C_0$. $C_0$ only uses $c(0)$ as input, so I'd think that &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ C_0 = (c(0)^{1-\alpha})^\frac{1}{1-\alpha} = 1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But that clearly can't be the limit of the discretized sequence, since $\lim\limits_{i\to 0} C_i \to 0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, as the variety of inputs decreases, the cost index decreases - until you only have one variety, and then it explodes? Could someone please shed some light on this?&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2017-01-21T21:19:14.530" LastActivityDate="2017-01-22T10:23:46.727" Title="Limit of this sequence // broadness of inputs" Tags="&lt;mathematical-economics&gt;&lt;industrial-organisation&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15101" PostTypeId="2" ParentId="13720" CreationDate="2017-01-21T19:59:29.010" Score="3" Body="&lt;p&gt;As Tobias said, wages in general only adjust in neighboring regions if people move between the regions until expected utility (of working in either region) equalizes. If there is a (fixed) cost of moving, people will not move until move until expected utility equalizes, but until the difference in expected utilities from moving in either region is equal to the utility cost of moving. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the extreme, if some people just cannot move due to regulations, cost of moving would be infinite, and you could sustain any difference in expected utility.&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Differences between wages and productivity&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;Why do I keep saying expected utility instead of wages? That is because wages in general reflect more than just productivity. They also contain &lt;em&gt;compensating differentials&lt;/em&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;That is, jobs have different non-monetary benefits (happiness you gain besides wages). To get a worker to do a job that is really not fun to do, you'd have to pay him more than for a different job. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is a general concept. You have to compensate workers for working longer hours, under more strict bosses, having a more frictional labor market or higher unemployment risk, lower non-salary compensations, higher costs of living.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some of these factors (and potentially many more) may speak towards German companies having to compensate their workers more - especially the cost of living.&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;This does not deny potential productivity differences&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;However, at the same time, you could really think that in a structured well-disciplined and efficient country such as Germany, companies get more out of their workers than elsewhere - meaning that their workers are more productive. Since it's not easy to measure productivity and it's causes at the firm level, I'm not sure whether this question has been addressed empirically.&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2017-01-21T19:59:29.010" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15103" PostTypeId="1" AcceptedAnswerId="15173" CreationDate="2017-01-21T20:30:17.967" Score="5" ViewCount="381" Body="&lt;p&gt;I am attempting a (very) basic analysis of smuggling from one economy to the other (Venezuela to Colombia) - arising from price ceilings &lt;em&gt;ceteris paribus&lt;/em&gt;. e1 are the equilibria without intervention (price controls), e2 are the equilibria after price ceilings, and e3 show what I assume the markets would look like if Venezuelans supplied Colombia (by smuggling) where the Venezuelans' profit = &lt;/p&gt;&#xA;&#xA;&lt;p&gt;[Colombia p-hat - cost of smuggling - Venezuela p-hat]&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The supply curve for Colombia becomes the sum of the Venezuelan and Colombian supply curves above the [Venezuelan price ceiling + cost of smuggling], while there is a movement &lt;em&gt;along&lt;/em&gt; the Venezuelan supply curve to the point of [Colombian price ceiling - cost of smuggling].&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this correct?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks!&#xA;&lt;a href=&quot;https://i.stack.imgur.com/93oyL.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/93oyL.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&#xA;&lt;a href=&quot;https://i.stack.imgur.com/g6kOP.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/g6kOP.png&quot; alt=&quot;S-D Graph&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="11557" LastEditorUserId="11557" LastEditDate="2017-01-23T22:38:45.907" LastActivityDate="2017-01-26T07:13:57.753" Title="Supply/Demand of Smuggling" Tags="&lt;supply-and-demand&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="15104" PostTypeId="2" ParentId="9161" CreationDate="2017-01-21T20:41:26.293" Score="2" Body="&lt;p&gt;Disclaimer: I only have a slight clue about repeated games and I have virtually no clue about coding (except the compulsory stuff I had to do in grad school).&#xA;That being said, consider this stream of consciousness as how I would approach this problem (if I knew how to code). I am not sure this actually works, maybe someone could support this answer with a diagram (that may suggest, it does not work, see comment in the end). As you see, I cannot provide a reference. Take it for what it's worth and please tell me if my idea fails. I am interested. I am mainly replying such that this question gets attention again.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You are interested in a strategy that yields a ($\delta$-weighted) average payoff of 4 for both players in the infinitely repeated game. I construct a finite sequence of strategy profiles for the stage game that yields a payoff arbitrarily close to 4 for both players by alternating between the (3,5) and the (5,3). This sequence can then be repeated infinitely often.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $\Pi^i_t$ be player $i$'s ($\delta$-weighted) average payoff of the (to be constructed) sequence at step $t$. Let $NPV_t$ be the net present value of the sequence's payoff of player $i$ at iteration $t$ such that:&#xA;$$ \Pi_t^i = NPV_t^i \frac{1-\delta}{1-\delta^{t+1}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Start with $\Pi^1_0 = NPV^1_0 =5$ and $\Pi^2_0=NPV^2_0 =3$ (so start with (5,3) outcome).&#xA;At each point in the iteration, we have $\Delta_t = |\Pi^1_t - 4| = |\Pi^2_t -4|$. Then there is some vector $s$ that tracks whether the (3,5) or the (5,3) outcome is played. It is a sequence of $i$s and $j$s indicating who got the 5 payoff. So start with $s_0 = 1$ (so by the later construction $s_1 = (1, 2)$)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Take some $\delta$ as given and take some $\varepsilon &amp;gt;0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now comes the coding part that intuitively should work:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Start with $t=0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If $\Delta_t &amp;gt; \varepsilon$, continue.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If $\Pi^i_t &amp;gt; 4$: Set $NPV^i_{t+1} = NPV^i_{t} +3 \delta^t$ and $NPV^j_{t+1} = NPV^j_{t} +5 \delta^t$.&#xA;$s_{t+1} = s_t$ with an additional entry $i$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Once $\Delta_t \leq \varepsilon$, stop and set $T$ equal to the current $t$.&#xA;Infinite repetition of this sequence yields of course average payoff $\Pi^i_T$ for all players, because the the (weighted) average is&#xA;$$\Pi^i = (1-\delta) NPV^i = (1-\delta) NPV_T \frac{1}{1-\delta^{T+1}}=\Pi^i_T.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that the payoffs $\Pi_t$ may NOT converge to 4. Since I do not program I did this manually for some iterations for $\delta =0.9$. $\Delta$ jumps around. But the jumps seem to become smaller.&#xA;Here I list the payoffs $\Delta$ following this procedure for $t\in \{1,\dots,12\}$. Every time $\Delta$ jumps up is boldface, see that the boldface sequence seems to decrease.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1: 0.05263&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2: &lt;strong&gt;0.26199&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;3: 0.00552&lt;/p&gt;&#xA;&#xA;&lt;p&gt;4: &lt;strong&gt;0.15558&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;5: 0.00995&lt;/p&gt;&#xA;&#xA;&lt;p&gt;6: &lt;strong&gt;0.09293&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;7: 0.00115&lt;/p&gt;&#xA;&#xA;&lt;p&gt;8: &lt;strong&gt;0.0692&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;9: 0.00561&lt;/p&gt;&#xA;&#xA;&lt;p&gt;10: &lt;strong&gt;0.04549&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;11: 0.00023&lt;/p&gt;&#xA;&#xA;&lt;p&gt;12: &lt;strong&gt;0.03765&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;13: 0.00345&lt;/p&gt;&#xA;" OwnerUserId="11590" LastEditorUserId="11590" LastEditDate="2017-01-21T21:42:29.167" LastActivityDate="2017-01-21T21:42:29.167" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15105" PostTypeId="2" ParentId="15100" CreationDate="2017-01-21T21:44:24.850" Score="4" Body="&lt;p&gt;I think the appropriate discretisation should be something like&#xA;$$C_i=\left[\int_0^i\!c(i)^{1-\alpha}\,di\right]^{\frac{1}{1-\alpha}}=\lim_{I\rightarrow\infty}\left[\sum_{j=0}^{(I-1)i}\frac{1}{I}c\left(\frac{j}{I}\right)^{1-\alpha}\right]^{\frac{1}{1-\alpha}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The below figure illustrates where each term of the sum comes from (for the case of $I=5$)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/ACS9k.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/ACS9k.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(The reason the sum goes up to $(I-1)i$ is that we start counting from $j=0$ and want to have $I$ bins in total.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In your example with $c(i)=1$ and $\alpha=1/2$, this would yield&#xA;$$\left[\sum_{j=0}^{(I-1) i}\frac{1}{I}\sqrt{1}\right]^2=\left[I i\frac{1}{I}\sqrt{1}\right]^2=i^2.$$&#xA;We can compare this to the true value of $C$: $(\int_0^i\!\sqrt{1}di)^2=i^2$. Thus, this particular example is special because the discrete approximation gives an exact expression for the integral even without taking the limit. The reason for this is that $c(i)=1$ is a constant function so a rectangular approximation of the areas beneath it is perfect for any number/size of Rieman rectangles.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But suppose we take $c(i)=i^2$. We then have $(\int_0^i\!\sqrt{i^2}di)^2=i^4/4$ and $$\left[\sum_{j=0}^{(I-1) i}\frac{1}{I}\sqrt{\frac{j^2}{I^2}}\right]^2=\frac{(I-1)^2 i^2 (1-i+I i)^2}{4 I^4}.$$&#xA;In the limit this approximation converges on the true value: $$\lim_{I\rightarrow\infty}\frac{(I-1)^2 i^2 (1-i+I i)^2}{4 I^4}=\frac{i^4}{4},$$&#xA;but for finite $I$ the approximation is imperfect.&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2017-01-22T10:23:46.727" LastActivityDate="2017-01-22T10:23:46.727" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="15106" PostTypeId="2" ParentId="9161" CreationDate="2017-01-21T22:41:16.667" Score="2" Body="&lt;p&gt;I am going to construct pure strategies, taking average payoffs so far as a state variable, that achieve the payoffs $(4,4)$ in the infinitely repeated game.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Call the row player's actions $T$, $M$, and $B$ for Top, Middle and Bottom respectively. Similarly, call the column player's actions $L$, $C$, and $R$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Define&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$v_i^t = \frac{1 - \delta}{1 - \delta^t} \sum_{k = 0}^{t-1} \delta^k u_i (a^k)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;for $t \geq 1$, where $a^t$ is the realised action profile in stage $t$. Clearly, $v_i^t$ is the average realised payoff for player $i$ from all periods preceding $t$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, define the strategies inductively:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ a^0 = (T,L) $$&#xA;$$ a^1 = (M,C) $$&#xA;$$ \vdots $$&#xA;$$ a^t = \begin{cases} &#xA;      (T,L) &amp;amp; \text{if }v_1^t \ge v_2^t \\&#xA;      (M,C) &amp;amp; \text{if }v_1^t &amp;lt; v_2^t&#xA;   \end{cases} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is straightforward to show that $v_i^t$ converges (bounded monotonic sequences converge), and that $v_i^t \to 4$. (Suppose not, and then consider the resulting actions for large $t$.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is also easy to see that these strategies form a subgame perfect equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for your more general question, as to what conditions guarantee that a given payoff vector can be supported by some equilibrium in pure strategies:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I want to say that all equilibrium payoffs can be supported with pure strategies by a construction similar to the one given above -- at least, in repeated games of complete information with perfect monitoring(*). However, I will admit to not having thought about this very carefully, nor have I seen this result formally stated anywhere, so &lt;em&gt;caveat emptor&lt;/em&gt;, I suppose? At the very least, you should be able to support any payoff that lies in the convex hull of the stage game pure strategy NE.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(*) Abreu, Pearce and Stachetti's bang-bang result should extend this, under some conditions, to the case of imperfect public monitoring.&lt;/p&gt;&#xA;" OwnerUserId="8595" LastEditorUserId="8595" LastEditDate="2017-01-22T19:23:47.287" LastActivityDate="2017-01-22T19:23:47.287" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15107" PostTypeId="1" CreationDate="2017-01-22T00:08:36.263" Score="1" ViewCount="1065" Body="&lt;p&gt;I was wondering whether these are contrary as one effectively says production becomes cheaper as production increases. To increase production you may need to upgrade from a standard machine to high capacity (like if a seemstress wanted to go from making friends clothes to a small buisness) which would cost alot more to produce more (diminishing returns). I know they are uneven but I'm I going wrong somewhere? Is diminishing returns an advantage of smaller buisnesses?&lt;/p&gt;&#xA;" OwnerUserId="11840" LastActivityDate="2017-01-22T01:43:49.223" Title="Diminishing returns and economies of scale" Tags="&lt;economies-of-scale&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15108" PostTypeId="2" ParentId="15107" CreationDate="2017-01-22T01:43:49.223" Score="4" Body="&lt;p&gt;In production with more than one input, &quot;diminishing returns&quot; refers to what happens when we increase one input while keeping all the rest constant. &quot;Economies of scale&quot; is a more informal term for &quot;increasing returns to scale&quot; and so relates to what happens when we increase all inputs by the same proportion (while, and this is important, we keep the technology unchanged).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Perhaps it could help you to revisit your example based on the above standard definitions of these concepts.  &lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2017-01-22T01:43:49.223" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="15109" PostTypeId="1" CreationDate="2017-01-22T02:51:22.037" Score="3" ViewCount="68" Body="&lt;p&gt;The &lt;a href=&quot;https://drive.google.com/open?id=0B6d27XgslBsBZjU5UDE3S0g1MzA&quot; rel=&quot;nofollow noreferrer&quot;&gt;Dec 1996 Boskin report&lt;/a&gt; (&lt;a href=&quot;http://web.stanford.edu/~boskin/Publications/CpiCommission.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;May 1997 AER summary&lt;/a&gt;)&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;concluded that the change in the Consumer Price Index (CPI) overstates the change in the cost of living by about 1.1 percentage points per year (the range of plausible values is 0.8-1.6 percentage points) (1997, p. 78).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Breakdown (1997, p. 80):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/wAZNTm.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/wAZNTm.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question: &lt;strong&gt;What, if any, are some more recent and similarly-&quot;authoritative&quot; estimates of CPI bias?&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastEditorUserId="1601" LastEditDate="2017-01-22T08:27:30.197" LastActivityDate="2017-01-22T19:46:19.630" Title="Recent estimates of CPI bias?" Tags="&lt;reference-request&gt;&lt;inflation&gt;&lt;usa&gt;&lt;price&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15110" PostTypeId="2" ParentId="15099" CreationDate="2017-01-22T11:05:39.327" Score="1" Body="&lt;p&gt;There is no trick in that Euler equation. In the New Keynesian model, the Euler equation for consumption is derived from the first order condition for $B_t$, the bond holding. You have to pay attention to the fact that bonds appear in the budget constraint at two moments in time $t$ and $t+1$. Thus you have to compute the foc as&#xA;\begin{gather}&#xA;B_t:\beta^t\lambda_tQ_t-\beta^{t+1}\lambda_{t+1}=0&#xA;\end{gather}&#xA;Then substituting $\lambda$ using the foc for $C_t$ and simplifying the betas, you obtain&#xA;\begin{gather}&#xA;Q_t=\beta E_t\{\frac{U_{c_{t+1}}}{U_{c_t}}\frac{P_t}{P_{t+1}}\}=0&#xA;\end{gather}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;EDIT&lt;/strong&gt;: In the NK model, household maximizes its utility function choosing $C_t$, $N_t$ and $B_t$. Thus, you have to compute the FOC for these three variables, i.e.&#xA;\begin{align}&#xA;B_t:&amp;amp;\beta^t\lambda_tQ_t-\beta^{t+1}E_t\{\lambda_{t+1}\}=0 \\&#xA;C_t:&amp;amp;\beta^tU_{c,t}-\lambda_tP_t=0 \\&#xA;N_t:&amp;amp;\beta^tU_{n,t}-\lambda_tW_t=0&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In order to compute the consumption Euler equation, you need to substitute $\lambda_t$ from the $C_t$ foc into the $B_t$ foc. Then rearranging and simplifying $\beta$ as $\beta^{t+1}/\beta^t=\beta$ you get the equation you wrote above. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You get only one $\beta$ because it is constant over time, it is not index by $t$ as the other variables, it is a constant. Thus whatever time is $C$, you will have the same $\beta$. I think it is well explained in Gali too.&lt;/p&gt;&#xA;" OwnerUserId="6773" LastEditorUserId="6773" LastEditDate="2017-01-23T08:29:29.043" LastActivityDate="2017-01-23T08:29:29.043" CommentCount="12" ContentLicense="CC BY-SA 3.0" />
  <row Id="15111" PostTypeId="2" ParentId="15109" CreationDate="2017-01-22T11:29:44.170" Score="1" Body="&lt;p&gt;Redding and Weinstein in their paper &quot;&lt;a href=&quot;http://www.columbia.edu/~dew35/Papers/Estimating-Demand-and-Welfare.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;A Unified Approach to Estimating Demand and Welfare&lt;/a&gt;&quot; develop a unified price index that nests all existing major price indexes. Existing price indexes can be thought of as arising from the imposition of parameter restrictions on their unified index. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Their examination with barcode data suggests that standard methods of measuring welfare overstate cost of living increases by ignoring new products and demand shifts. However, contrary to the Boskin report, they do not put an overall number on the bias.&lt;/p&gt;&#xA;" OwnerUserId="6168" LastActivityDate="2017-01-22T11:29:44.170" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15112" PostTypeId="1" CreationDate="2017-01-22T15:16:40.630" Score="0" ViewCount="26" Body="&lt;p&gt;I am looking for resources that give a self-contained introduction to vector autoregression. To be a bit more specific, I am interested in VAR models and their application to isolating and investigating monetary policy shocks. &lt;/p&gt;&#xA;" OwnerUserId="1655" LastActivityDate="2017-01-22T15:16:40.630" Title="Vector Autoregression - Resource request" Tags="&lt;macroeconomics&gt;&lt;econometrics&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="15113" PostTypeId="1" CreationDate="2017-01-22T16:19:26.050" Score="2" ViewCount="32" Body="&lt;p&gt;For example, does any government (or academic) have a mapping from industry to sector. For example, mining is primary industry, and retail is tertiary, and so on...&lt;/p&gt;&#xA;" OwnerUserId="11850" LastActivityDate="2017-01-22T16:19:26.050" Title="Is there a standard way of classifying industries into primary, secondary, and tertiary?" Tags="&lt;industrial-organisation&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15114" PostTypeId="2" ParentId="14763" CreationDate="2017-01-22T17:02:24.210" Score="1" Body="&lt;p&gt;&lt;strong&gt;Not my field but I think this is a basic overview. If there are mistakes, please let me know and I can edit.&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The monetary authority in the U.S. uses open-market purchases to manipulate a chosen policy instrument in an effort to effect macroeconomic aggregates. There is a general consensus now that the Fed's instrument is the effective federal funds rate, which is the weighted average of the rates at which banking institutions loan money to one another. So, monetary authorities use open market purchases in an effort to make this weighted average (the 'effective' rate) match their target rate. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is another rate that matters here - the discount rate. The discount rate is the cost that banking institutions face to borrow funds from the Fed's discount window (which is a separate instrument of monetary policy). And note that the discount rate is distinctly different from the FFR. This rate, historically, trends slightly higher than the FFR. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The two rates above effectively allow the Fed to control the cost at which banks can borrow money. The first rate governs the cost of borrowing from other banking institutions. The second rate governs the cost of borrowing (for banks) from the Fed. &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;If I understand you correctly, you are also curious about the interest paid on deposits held by the Fed. That is, the interest that banking institutions earn on deposits with the Fed. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Fed pays interest both on required reserves and on excess reserves. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Interest on Required Reserves (IORR) - this rate is set by the board and is intended to offset the implicit tax that required reserves imposed on banks. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Excess Reserves - The Fed began paying interest on excess reserves in 2008. According to Bernanke, this rate is another tool of policy that allows the Fed to set a floor on the overnight rate (synonymous with FFR). &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Sources that will allow you to gain more depth: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Excess_reserves#In_the_United_States_.282008-.29&quot; rel=&quot;nofollow noreferrer&quot;&gt;excess reserves&lt;/a&gt;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Discount_window&quot; rel=&quot;nofollow noreferrer&quot;&gt;discount window/discount rate&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Federal_funds_rate&quot; rel=&quot;nofollow noreferrer&quot;&gt;federal funds rate&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Open_market_operation&quot; rel=&quot;nofollow noreferrer&quot;&gt;open market operations&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="1655" LastActivityDate="2017-01-22T17:02:24.210" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="15115" PostTypeId="1" CreationDate="2017-01-22T19:36:55.650" Score="0" ViewCount="276" Body="&lt;p&gt;In a recent book I read the author mentioned the terminal condition: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\mathop {\lim }\limits_{t \to T} V(S,t) = \max \left\{ {X - S,0} \right\}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is intuitive to understand. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, the author defines: $$\tau  \equiv T - t$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With this, the terminal condition above can be simplified to:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\mathop {\lim }\limits_{\tau  \to 0} V(S,\tau) = 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is not so intuitive. How can the value of the option be equal to zero in this case?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(note: in the space)   $${\Sigma _1} = \left\{ {(S,\tau )|B(\tau ) \le S &amp;lt;  + \infty ,0 \le \tau  \le T} \right\}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Notations: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$X$ = exercise price &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$S$ = underlying stock price&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$T$ = time to maturity&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$t$ = time to today&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$B(\tau)$ = optimal exercise boundary&lt;/p&gt;&#xA;" OwnerUserId="10699" LastEditorUserId="2776" LastEditDate="2017-01-30T13:59:27.770" LastActivityDate="2017-05-01T23:46:58.497" Title="Terminal Condition for American Put Option" Tags="&lt;asset-pricing&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="15116" PostTypeId="2" ParentId="15109" CreationDate="2017-01-22T19:46:19.630" Score="0" Body="&lt;p&gt;There are two ways to see the CPI:&#xA; (1) A measure of price changes for a weighted basket of consumer goods&#xA; (2) A measure of the change in cost of obtaining a fixed level of utility (cost-of-living)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you interpret it as the second one, then there are a number of crucial structural assumptions you need to make, mostly concerning the importance of substitution effects. Also, you may still mismeasure cost-of-living for different demographic groups. Here is an interesting recent paper on this topic. &lt;a href=&quot;http://scholar.harvard.edu/xavier/publications/unequal-gains-product-innovations-evidence-us-retail-sector&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://scholar.harvard.edu/xavier/publications/unequal-gains-product-innovations-evidence-us-retail-sector&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My preferred interpretation of the CPI is the first one. The CPI is a very simple aggregate statistic and this is why it is useful. Of course it does not correctly capture the evolution of cost-of-living for every demographic and under every assumption, but this is an unreasonable requirement for a single index.&lt;/p&gt;&#xA;" OwnerUserId="11216" LastActivityDate="2017-01-22T19:46:19.630" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="15117" PostTypeId="1" CreationDate="2017-01-22T20:52:42.877" Score="0" ViewCount="60" Body="&lt;p&gt;I don't understand how petro states can have crazy low gasoline prices without smugglers exporting the gasoline and selling it elsewhere.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, in Venezuela the domestic price of gasoline is about 5 cents per gallon (compared to the current US retail price of around $2.10 per gallon). In other words, the US retail price is about 40 times the Venezuelan price. That is a pretty big incentive for a smuggler. There are other countries which have similar subsidized prices.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How does Venezuela prevent smugglers from just loading up trucks with gasoline and exporting it? They don't even have to ship it out of Venezuela. They could truck it across the border into one of the neighboring countries and sell it there or export it from the neighbor. Venezuela must have some mechanism for controlling who is receiving the cheap gas and preventing them from exporting it, what is it?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a second question along the same lines, how do they prevent people from converting the oil into a different product and then exporting that product. So, for example, oil can be converted into polypropylene pellets. A person could take the (virtually) free oil, convert it into polypropylene and then export the polypropylene. How do they prevent this from happening?&lt;/p&gt;&#xA;" OwnerUserId="1448" LastActivityDate="2017-01-23T00:05:55.353" Title="How are petro states able to maintain gasoline subsidies without black market export smuggling?" Tags="&lt;international-trade&gt;&lt;oil&gt;&lt;subsidies&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="15118" PostTypeId="2" ParentId="15117" CreationDate="2017-01-22T23:42:05.193" Score="2" Body="&lt;p&gt;There has been rampant smuggling from Venezuela to Colombia - see links below. This is the basis for &lt;a href=&quot;https://economics.stackexchange.com/questions/15103/supply-demand-of-smuggling&quot;&gt;my question&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.wsj.com/video/colombia-black-market-gas-trade-/BC14C5B7-69A0-4A0E-84B2-5377A7FDF79B.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.wsj.com/video/colombia-black-market-gas-trade-/BC14C5B7-69A0-4A0E-84B2-5377A7FDF79B.html&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.wsj.com/articles/venezuela-pays-price-for-smuggling-1402271308&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.wsj.com/articles/venezuela-pays-price-for-smuggling-1402271308&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.wsj.com/articles/venezuela-to-reopen-colombia-border-1470962864&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.wsj.com/articles/venezuela-to-reopen-colombia-border-1470962864&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="11557" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2017-01-23T00:05:55.353" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15120" PostTypeId="1" CreationDate="2017-01-23T06:04:46.367" Score="-3" ViewCount="1033" Body="&lt;p&gt;. In 2012, the imaginary nation of Platland had a population of 10,000 and real&#xA;GDP of 42,000,000. During the year its real GDP per person grew by about&#xA;1.94%. Which of the following sets of growth rates is consistent with this growth&#xA;in real GDP per person?&#xA;a. 3% population growth and 4% real GDP growth&#xA;b. 3% population growth and 5% real GDP growth&#xA;c. 6% population growth and 4% real GDP growth&#xA;d. 6% population growth and 5% real GDP growth&lt;/p&gt;&#xA;" OwnerUserId="11854" LastActivityDate="2017-01-23T11:29:09.840" Title="Help please, I cant work out this equation" Tags="&lt;gdp&gt;" AnswerCount="1" CommentCount="0" ClosedDate="2017-01-23T14:59:11.533" ContentLicense="CC BY-SA 3.0" />
  <row Id="15121" PostTypeId="1" AcceptedAnswerId="15161" CreationDate="2017-01-23T06:14:51.543" Score="3" ViewCount="6356" Body="&lt;p&gt;I have seen sources that claim high interest rates increase the velocity of money circulation, but haven't really seen any concrete explanation for this. This is how I think it works: High interest rates -&gt; high opportunity cost of holding money -&gt; Demand for money decreases -&gt; people dont want to hold money and will spend it -&gt; higher velocity of income.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand,wouldn't a high interest rate make saving more attractive and thus reducing the velocity of income circulation?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT: Sources that apparently claim this are referred to below:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This source does not explicitly state the relationship but somewhat explains the causes: &lt;a href=&quot;http://thismatter.com/money/banking/money-demand-money-velocity.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://thismatter.com/money/banking/money-demand-money-velocity.htm&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A wikipedia page that seems reasonably credible states this relationship, but I am unable to fully understand their explanation:&#xA;&lt;a href=&quot;https://en.wikipedia.org/wiki/Velocity_of_money&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://en.wikipedia.org/wiki/Velocity_of_money&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This exam question from Cambridge International Examinations that explicitly states the relationship (the correct answer is D)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/j9Wal.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/j9Wal.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="6782" LastEditorUserId="6782" LastEditDate="2017-01-23T14:50:04.530" LastActivityDate="2021-02-05T15:06:23.927" Title="Why does a decrease in interest rate reduces the velocity of money circulation?" Tags="&lt;interest-rate&gt;&lt;money&gt;" AnswerCount="4" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15122" PostTypeId="1" CreationDate="2017-01-23T09:25:56.797" Score="2" ViewCount="35" Body="&lt;p&gt;In November last year the unofficial currency exchange rate in Venezuela skyrocketed. It was only one month later that the government was able to slow the increase rate to “normal” values. The government alleged that some mafias where smuggling the Venezuelan money out of the country across the border, which doesn’t even make sense, since the biggest banknote in Venezuela was worth only about 5 cents of a dollar at most in the unofficial currency exchange market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is the unofficial exchange rate tracked by a third party web site:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/W8f0M.gif&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/W8f0M.gif&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="5976" LastActivityDate="2017-01-23T09:25:56.797" Title="What could cause the spike in the Venezuelan unofficial currency exchange?" Tags="&lt;inflation&gt;&lt;exchange-rates&gt;&lt;black-market&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15123" PostTypeId="2" ParentId="11192" CreationDate="2017-01-23T09:32:02.007" Score="4" Body="&lt;p&gt;You can re write $u(x, y)$ as&#xA;\begin{eqnarray*} u(x, y) = \begin{cases} ax + y &amp;amp; \text{ if } x &amp;gt; y\\ ay + x &amp;amp; \text{ if } x \leq y\end{cases} \end{eqnarray*} &lt;/p&gt;&#xA;&#xA;&lt;p&gt;When one plot the indifference curves, this is how they will look:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/42Bz5.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/42Bz5.png&quot; alt=&quot;Indifference Curves&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here $\mu_1 &amp;gt; \mu_2 &amp;gt; \mu_3$.&lt;/p&gt;&#xA;" OwnerUserId="11824" LastActivityDate="2017-01-23T09:32:02.007" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15124" PostTypeId="2" ParentId="14951" CreationDate="2017-01-23T11:16:50.150" Score="2" Body="&lt;p&gt;Gini Coefficient is the ratio of the area that lies between the 45 degree line (line of equality) and the Lorenz curve, and the area below the line of equality. Given the data in the problem Lorenz curve connects points $(0, 0)$, $(50, 20)$ and $(100, 100)$ in the graph. To find the Gini coefficient, we find the area between the line of equality and the Lorenz curve and divide it by the area of the triangular region that lies below the line of equality. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Gini coefficient $\displaystyle = 1 - \frac{\color{blue}{0.5\times 50 \times 20} + \color{red}{(100 - 50) \times 20} + \color{gray}{0.5\times (100-50) \times (100-20)}}{0.5\times 100 \times 100} = 0.3$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is the graph:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/K3cX5.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/K3cX5.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="11824" LastEditorUserId="11824" LastEditDate="2017-01-23T11:44:41.953" LastActivityDate="2017-01-23T11:44:41.953" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15125" PostTypeId="2" ParentId="15120" CreationDate="2017-01-23T11:29:09.840" Score="1" Body="&lt;p&gt;$$\ GDP\;Per\;Capita = \frac{GDP}{Population} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From this, we know that any growth in GDP Per Capita can be described as follows:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\ \frac{\Delta GDP}{\Delta Population} \times 100\% = GDP\;Per\;Capita\;Growth\;\%$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, in case &lt;strong&gt;B&lt;/strong&gt; : &#xA;3% Population Growth and 5% Real GDP Growth:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\  GDP\;Per\;Capita\;Growth\;\% = \frac{1.05}{1.03} \times 100\% = 101.94\%$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which, thus, has a growth of 1.94% and is the answer to your example.&lt;/p&gt;&#xA;" OwnerUserId="11855" LastActivityDate="2017-01-23T11:29:09.840" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15129" PostTypeId="1" AcceptedAnswerId="15151" CreationDate="2017-01-23T14:03:57.417" Score="0" ViewCount="149" Body="&lt;p&gt;Jordi Gali defined price, marginal cost and mark up relationship as &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/nu2FH.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/nu2FH.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Drago Bergholt tried to reach gali's representation from firm maximization problem.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think that there is error in derivation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can you help me correcting derivation process and obtaining gali's representation ?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/CXfCu.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/CXfCu.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, is there any derivation error below (last part) ?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/4UGVp.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/4UGVp.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;is this part ?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/LhuQo.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/LhuQo.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here, in the left side need to be &quot;-&quot; negative  ?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/vI9jH.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/vI9jH.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Continue....&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/O7nlN.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/O7nlN.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Nt and Nit are different?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/9wOjm.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/9wOjm.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="11836" LastEditorUserId="11836" LastEditDate="2017-01-24T11:30:09.433" LastActivityDate="2017-01-24T14:35:30.837" Title="Jordi Gali Markup Marginal Cost Relation" Tags="&lt;macroeconomics&gt;&lt;new-keynesian-economics&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="15130" PostTypeId="1" AcceptedAnswerId="15140" CreationDate="2017-01-23T14:44:57.643" Score="0" ViewCount="19956" Body="&lt;p&gt;My interpretation of the condition $P=MC$ is that a firm's cost of producing one additional good should be equal to the firm's price. This means that the next item a the firm produces won't yield any profit to the firm.&#xA;What's the point of producing this additional unit? Do you have a hands-on explanation?&lt;/p&gt;&#xA;" OwnerUserId="11859" LastEditorUserId="11590" LastEditDate="2017-01-24T02:11:01.353" LastActivityDate="2017-01-28T12:11:49.153" Title="Why should marginal cost be equal to the price an item is sold at?" Tags="&lt;microeconomics&gt;" AnswerCount="5" CommentCount="3" FavoriteCount="0" ClosedDate="2017-02-03T19:57:46.357" ContentLicense="CC BY-SA 3.0" />
  <row Id="15131" PostTypeId="1" CreationDate="2017-01-23T14:46:04.267" Score="1" ViewCount="89" Body="&lt;p&gt;Which measure should I use to evaluate the returns generated with a trading strategy based on announcements of macro-economic news on forex markets.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I thought about the Sharpe-ratio, however I do not think I would be able to gather enough data to compute a significant standard deviation, as the period I am supposed to study starts with the finanical crisis in '07-'08.&lt;/p&gt;&#xA;" OwnerUserId="11860" LastActivityDate="2017-01-23T14:46:04.267" Title="Evaluating the return of a trading strategy on forex markets" Tags="&lt;econometrics&gt;&lt;financial-economics&gt;&lt;investment&gt;&lt;foreign-exchange&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15133" PostTypeId="2" ParentId="15130" CreationDate="2017-01-23T15:00:25.063" Score="1" Body="&lt;p&gt;If you take the price of a product as given, which is fairly conventional assumption, the profit for the next product you sell is equal to that price minus your marginal cost of producing and delivering that product to the consumer.&#xA;Ofcourse you do not want to make a loss by selling a product, so you will only sell products as long as your marginal cost is lower than the price. Or, untill they are equal.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that this is not a sufficient condition, an agent will only produce if this given price is higher than its average costs.&lt;/p&gt;&#xA;" OwnerUserId="11860" LastActivityDate="2017-01-23T15:00:25.063" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="15134" PostTypeId="1" AcceptedAnswerId="15139" CreationDate="2017-01-23T15:38:48.333" Score="-1" ViewCount="392" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Use the utility index $U(x) = x$ to prove that if the distribution of $F$ first-order stochastically dominates distribution $G$, then the mean of $x$ under $G$ cannot exceed the mean of $x$ under $F$.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Attempted proof - Suppose the $F$ is first-order stochastically dominates $G$ then $$F(x) \leq G(x) \ \ \forall x$$ Since the expectation preserves linearity then it follows that $$\mathbb{E}\left[F(x)\right] \leq \mathbb{E}\left[G(x)\right] \ \ \forall x$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am not sure if this is correct or rigorous enough. Any suggestions are greatly appreciated. &lt;/p&gt;&#xA;" OwnerUserId="11762" LastActivityDate="2017-01-23T17:56:19.780" Title="Implication of first-order stochastic dominance" Tags="&lt;utility&gt;&lt;financial-economics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15135" PostTypeId="1" CreationDate="2017-01-23T15:50:33.127" Score="-1" ViewCount="77" Body="&lt;p&gt;interest rate in Talor rule is considered as endogenous or exogenous? Similarly there are some fiscal policy rules in assuming fiscal instrumens like government expenditure and distortionary taxes  react to debt and GDP. While specifying this in DSGE government expenditure and taxes are considered as endogenous or exogenous?&lt;/p&gt;&#xA;" OwnerUserId="11862" LastEditorUserId="6773" LastEditDate="2017-01-24T02:11:03.907" LastActivityDate="2017-01-24T22:10:12.007" Title="New-Keynesian-Economics" Tags="&lt;macroeconomics&gt;&lt;new-keynesian-economics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15136" PostTypeId="1" AcceptedAnswerId="15142" CreationDate="2017-01-23T16:01:33.613" Score="1" ViewCount="603" Body="&lt;p&gt;In Hal Varian's Book &quot;Microeconomic analysis&quot; on page 35 he gives the following description of a profit maximising firm.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;...If the firm is maximising profits, then the&#xA;  observed net output choice at price pt must have a level of profit at least as&#xA;  great as the profit at any other net output the firm could have chosen. We&#xA;  don't know all the other choices that are feasible in this situation, but we&#xA;  do know some of them-namely, the other choices $y^s$ for $s = 1,. . . , T$ that&#xA;  we have observed. Hence, a necessary condition for profit maximisation is&#xA;  that&#xA;  $$p^ty^t\ge p^ty^s$$&#xA;  for all $t$ and $s=1,...,T$ &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;We will refer to this condition as the &lt;strong&gt;Weak Axiom of Profit Maximisation&#xA;  (WAPM)&lt;/strong&gt;.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In the case of a firm which has a production function with one input and one output where $p=w$, such that $p$ is the price the output is sold and $w$ is the price of the input across all &lt;a href=&quot;http://www.oxfordreference.com/view/10.1093/oi/authority.20110803100348928&quot; rel=&quot;nofollow noreferrer&quot;&gt;production possibilities sets&lt;/a&gt;. Can such a firm be called profit maximising at any level of output?&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="8815" LastEditDate="2017-01-23T17:57:30.003" LastActivityDate="2017-01-23T19:37:55.690" Title="WAPM and CRS across all production plans" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="15138" PostTypeId="1" CreationDate="2017-01-23T17:12:40.180" Score="0" ViewCount="45" Body="&lt;p&gt;This statistic from Oxfam, an anti-poverty consortium, has been reported in prominent media outlets (&lt;a href=&quot;https://www.nytimes.com/2017/01/16/world/eight-richest-wealth-oxfam.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;example&lt;/a&gt;). Other articles dispute this statistic as misleading due to flimsy assumptions about debt (&lt;a href=&quot;http://fusion.net/story/380433/oxfams-davos-wealth-inequality-wrong-misleading/&quot; rel=&quot;nofollow noreferrer&quot;&gt;example&lt;/a&gt;)&lt;/p&gt;&#xA;" OwnerUserId="89" LastActivityDate="2017-01-23T17:12:40.180" Title="Is it true that the eight richest men have more wealth than the bottom 50% of world population?" Tags="&lt;debt&gt;&lt;inequality&gt;" AnswerCount="0" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15139" PostTypeId="2" ParentId="15134" CreationDate="2017-01-23T17:56:19.780" Score="4" Body="&lt;p&gt;We are given two CDFs $F$ and $G$, such that $F$ FOSD $G$ i.e. $F(x) \leq G(x)$ $\forall x$. Consider the random variables $X\sim F$ and $Y\sim G$. Also, suppose $X$ and $Y$ take non-negative values.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We want to show that $\mathbb{E}(X) \geq \mathbb{E}(Y)$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is the intuition: $F(x) \leq G(x)$ $\forall x$ means that the probability that the random variable $X$ take values smaller than $x$ is smaller than the probability that $Y$ take values smaller than $x$, and this is true for every $x$. Therefore, $X$ take higher values than $x$ more often than $Y$ takes indicating that $X$ will have the higher mean than $Y$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is the proof:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{eqnarray*}  &amp;amp; F(x)  \leq  G(x) \ \ \ \forall x \\&#xA;\rightarrow  &amp;amp; 1 - F(x)  \geq  1- G(x) \ \ \ \forall x \\  \rightarrow  &amp;amp; \int_{0}^{\infty}1 - F(x) dx \geq  \int_{0}^{\infty} 1- G(x)dx \\  \rightarrow  &amp;amp; \int_{0}^{\infty}\Pr(X&amp;gt; x) dx \geq  \int_{0}^{\infty} \Pr(Y&amp;gt; x)dx \\  \rightarrow  &amp;amp; \int_{0}^{\infty} \int_{x}^{\infty}f_X(a) da dx \geq  \int_{0}^{\infty} \int_{x}^{\infty}f_Y(a) da dx \\  \rightarrow  &amp;amp; \int_{0}^{\infty} \int_{0}^{a}f_X(a) dx da \geq  \int_{0}^{\infty} \int_{0}^{a}f_Y(a) dx da \\  \rightarrow  &amp;amp; \int_{0}^{\infty}  \int_{0}^{a} dx \ f_X(a) \ da \geq  \int_{0}^{\infty} \int_{0}^{a} dx \ f_Y(a) \ da \\  \rightarrow  &amp;amp; \int_{0}^{\infty}  a \ f_X(a) \ da \geq  \int_{0}^{\infty} a \ f_Y(a) \ da  \\  \rightarrow  &amp;amp; \mathbb{E}(X) \geq \mathbb{E}(Y) \ \end{eqnarray*}&lt;/p&gt;&#xA;" OwnerUserId="11824" LastActivityDate="2017-01-23T17:56:19.780" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15140" PostTypeId="2" ParentId="15130" CreationDate="2017-01-23T18:55:09.863" Score="2" Body="&lt;p&gt;You should keep in mind that the definition of profit in economics is not the same as in accounting. In particular, economists always deduct opportunity cost from accounting profits, and the price = MC formula has to be interpreted in this way.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, let's say you are a self-employed web-developer and you may make a profit in an accounting sense. Economists will subtract from this accounting profit the opportunity cost of not working elsewhere. Looking at it this way, the profit of a self-employed web-developer is just a wage he pays to himself.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The same is true for larger firms. Those firms usually pay out accounting profits to their shareholders. Economists would interpret this as the cost of using the equity capital provided by owners.&lt;/p&gt;&#xA;" OwnerUserId="11216" LastActivityDate="2017-01-23T18:55:09.863" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15142" PostTypeId="2" ParentId="15136" CreationDate="2017-01-23T19:37:55.690" Score="1" Body="&lt;p&gt;Sure it can, because the maximal profit is 0, and that level is attained at all output levels.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A similar problem is a profit maximizing firm with constant returns to scale. If such a firm has a maximal profit it can attain then that profit level is 0. If the maximal profit level was something else, it could be increased by doubling or halving production.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2017-01-23T19:37:55.690" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15143" PostTypeId="2" ParentId="14772" CreationDate="2017-01-23T20:17:54.933" Score="2" Body="&lt;p&gt;I'm not a lawyer, but my understanding is, as a matter of US law, cash is not a security because it is explicitly exempted under &lt;a href=&quot;http://white-summers.com/wp-content/uploads/2013/05/SECURITIES-LAW-4-23-13-v.1.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;The Securities Exchange Act of 1934&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The term ‘‘security’’ means any note, stock, treasury stock, security&#xA;  future, security-based swap, bond, debenture, certificate of interest&#xA;  or participation in any profit-sharing agreement or in any oil, gas,&#xA;  or other mineral royalty or lease, any collateral-trust certificate,&#xA;  preorganization certificate or subscription, transferable share,&#xA;  investment contract, voting-trust certificate, certificate of deposit&#xA;  for a security, any put, call, straddle, option, or privilege on any&#xA;  security, certificate of deposit, or group or index of securities&#xA;  (including any interest therein or based on the value thereof), or any&#xA;  put, call, straddle, option, or privilege entered into on a national&#xA;  securities exchange relating to foreign currency, or in general, any&#xA;  instrument commonly known as a ‘‘security’’; or any certificate of&#xA;  interest or participation in, temporary or interim certificate for,&#xA;  receipt for, or warrant or right to subscribe to or purchase, any of&#xA;  the foregoing; &lt;strong&gt;but shall not include currency or any note, draft,&#xA;  bill of exchange, or banker’s acceptance which has a maturity at the&#xA;  time of issuance of not exceeding nine months, exclusive of days of&#xA;  grace, or any renewal thereof the maturity of which is likewise&#xA;  limited&lt;/strong&gt;.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;SECURITIES EXCHANGE ACT OF 1934, Section 3, Part 10&lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2017-01-23T20:17:54.933" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15144" PostTypeId="1" AcceptedAnswerId="15166" CreationDate="2017-01-23T22:38:21.380" Score="3" ViewCount="152" Body="&lt;p&gt;More precisely, is there any practical way to operate a free market so that external costs, namely negative social and environmental impacts, become naturally (intrinsically) covered (paid for or mitigated) by the market itself?&lt;/p&gt;&#xA;&lt;p&gt;History suggests that capitalism inherently incentives production processes which externalize as much of the cost of production as possible.&lt;/p&gt;&#xA;&lt;p&gt;This economic tendency to externalize costs wasn't a big problem in a world of seemingly infinite resources. More recently, however, globalization appears to both intensify and conceal the externalization tendency, as large international corporations seek to increase profits and/or stockholder earnings through any available means, including unethical and/or illegal means which remain concealed by the sheer size and complexity of the global marketplace.&lt;/p&gt;&#xA;&lt;p&gt;[The next two paragraphs are probably not necessary for the question, and may be inflammatory.]&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;But the damage being done by externalized costs is also global, and is apparent to us all. We call them &amp;quot;wicked problems&amp;quot;. We are becoming like the laboratory rats that, under conditions of severe crowding, go crazy and start eating their young. For all of its incredible efficiency and historical success -- creating a huge increase in global wealth -- free market capitalism in its current form is like a cancer, sacrificing the host in its pursuit of unlimited growth, both environmentally (e.g. global warming) and socially (e.g. the middle class shrinks while the financial sector expands).&lt;/p&gt;&#xA;&lt;p&gt;There is hope, and there is still time. Perhaps all that is needed is a tweak to our economic system. At the local level externalized costs can be identified, controlled and mitigated by government regulation. But at the national level, regulatory mechanisms are expensive and inefficient, and regulators will always be playing catch up to corporate ingenuity. The regulatory challenge is even greater at the global level.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;It would be far more efficient and sustainable if the tendency to externalize costs were managed by market mechanisms that, ideally, were &lt;em&gt;built into&lt;/em&gt; the economic system, rather than imposed from the outside.&lt;/p&gt;&#xA;" OwnerUserId="11864" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2018-07-15T21:29:36.653" Title="How can a free market be operated in a way that significant social and environmental costs are intrinsically covered?" Tags="&lt;economic-growth&gt;&lt;externalities&gt;&lt;regulation&gt;" AnswerCount="2" CommentCount="5" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="15145" PostTypeId="1" CreationDate="2017-01-24T03:12:45.960" Score="2" ViewCount="121" Body="&lt;p&gt;I've explored a number of different articles and some say it's good because american consumers/business aren't impacted by the tarrifs, however some other sources say we barely export anything to the counteries part of the TPP and hence we're giving them too much benefit for nothing.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have found plenty of sources saying it's 'good' or 'bad' and they cite numbers such as '50000' added jobs, 5% increase in gdp, etc but there is no actual discussion of how they came up with these estimates.  &lt;/p&gt;&#xA;" OwnerUserId="11865" LastEditorUserId="11865" LastEditDate="2017-01-24T03:25:53.070" LastActivityDate="2017-01-24T06:48:31.533" Title="Is the Trans Pacific Partnership good or bad for the U.S?" Tags="&lt;macroeconomics&gt;&lt;international-trade&gt;&lt;free-trade&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15146" PostTypeId="2" ParentId="11033" CreationDate="2017-01-24T04:11:34.263" Score="3" Body="&lt;p&gt;I don't think it is true in a standard pure exchange economy the question is referring to. Consider the following counterexample:&#xA;Suppose &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$I  = \{1,2\}$ and $u_1(x_1, m_1) = \sqrt{x_1} + m_1$ and $u_2(x_2, m_2) = \sqrt{x_2} + m_2$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;and let the set of feasible allocations be &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\{((x_1, m_1), (x_2, m_2))\in\mathbb{R}^2_+\times\mathbb{R}^2_+: x_1+x_2 = 2, m_1+m_2 = 2 \}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Notice that the allocation $a_1 = ((x_1, m_1), (x_2, m_2)) = ((2,2),(0,0))$ is Pareto efficient, but does not maximize the sum of utilities. The reason is that allocation $a_2 = ((1,1),(1,1))$ yields the higher sum.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$u_1(2,2) + u_2(0,0) = \sqrt{2} + 2 &amp;lt; 2 + 2 = u_1(1,1) + u_2(1,1)$. &lt;/p&gt;&#xA;" OwnerUserId="11824" LastActivityDate="2017-01-24T04:11:34.263" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15147" PostTypeId="2" ParentId="15145" CreationDate="2017-01-24T06:48:31.533" Score="4" Body="&lt;ol&gt;&#xA;&lt;li&gt;These estimates are almost certainly bs.&lt;/li&gt;&#xA;&lt;li&gt;The TPP would benefit consumers because easier imports may make consumer goods cheaper directly and through more competition on product markets.&lt;/li&gt;&#xA;&lt;li&gt;The TPP would hurt some workers, because increased import&#xA;competition would force some American companies out of business.&lt;/li&gt;&#xA;&lt;li&gt;The TPP would benefit other workers, because their companies would&#xA;export to Asia and grow.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;I think economists consensus is that on average and in the medium run, free trade will benefit people in both countries. However, it has also become pretty clear that free trade hurts some people quite badly in the short run because they'll lose their jobs and possibly won't find new ones. It has also become pretty clear, that even though in theory you could put policies in place that help people and places that are hurt by trade at the expense of those who benefit from it, this is almost never done in practice. If you are for more or less free trade depends largely on what weights you apply to this trade-off.&lt;/p&gt;&#xA;" OwnerUserId="11216" LastActivityDate="2017-01-24T06:48:31.533" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15148" PostTypeId="1" CreationDate="2017-01-24T08:04:33.770" Score="0" ViewCount="1224" Body="&lt;p&gt;If I have a sum utility function like this $U(y) = \sum_{j=1}^J u(y_j)$ where $u$ is convex.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there then a way to find walrasian demand for such a function without using calculus or do you need to use lagrange to solve for j,...,J?&lt;/p&gt;&#xA;" OwnerDisplayName="user11861" LastEditorUserId="1601" LastEditDate="2017-01-24T08:53:59.573" LastActivityDate="2017-01-24T12:28:35.747" Title="Finding a walrasian demand function" Tags="&lt;utility&gt;&lt;walrasian&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15149" PostTypeId="2" ParentId="11791" CreationDate="2017-01-24T08:16:06.590" Score="3" Body="&lt;p&gt;Since demand equals supply holds for every price $p$, this simply means that every $p$ is an equilibrium price. However, the equilibrium allocation that $p$ supports varies with $p$. To be precise, price $p$ supports the allocation in which 1 consumes $\left(\frac{1+3p}{1+p}, \frac{1+3p}{1+p}\right)$ and 2 consumes $\left(\frac{3+p}{1+p}, \frac{3+p}{1+p}\right)$.&lt;/p&gt;&#xA;" OwnerUserId="11824" LastActivityDate="2017-01-24T08:16:06.590" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15150" PostTypeId="2" ParentId="15148" CreationDate="2017-01-24T08:33:57.357" Score="5" Body="&lt;p&gt;Given that the utility maximization problem is:&#xA;\begin{eqnarray*} \max_{\{y_j \geq 0 : 1\leq j\leq J\}} &amp;amp;&amp;amp; \sum_{j=1}^{J} u(y_j) \\ \text{s.t.} &amp;amp;&amp;amp; \sum_{j=1}^{J} p_jy_j \leq m\end{eqnarray*}&#xA;where $p_j &amp;gt; 0$ for every $j$, and $m &amp;gt; 0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If $u$ is convex and strictly increasing, then in optimum consumer will always spend all his money on the cheapest good. That is, buying $\frac{m}{p_1}$ units of commodity 1 when $p_1 \leq \min_j p_j$ will be utility maximizing for the consumer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Here is the proof&lt;/strong&gt;: First of all note that in optimum consumer will never spend less than his income because his utility is increasing. So, we are left with bundles on which he spends all his income. Now any consumption bundle that costs exactly equal to his income can be written as the convex combination of the bundles of the type in which the consumer spends all his money on a single good.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, in a two commodity case: Any $(y_1, y_2)$ on the budget line can be written as the convex combination of $\left(\frac{m}{p_1}, 0\right)$ and $\left(0,\frac{m}{p_2}\right)$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since, $u$ is convex, and the sum of convex functions is convex, so we also know that the utility $U$ is convex. By convexity of $U$, utility at the convex combination of the bundles of the type in which the consumer spends all his money on a single good is less than or equal to the convex combination of the utilities at those bundles, and that is in turn less than or equal to the maximum of the utilities at those bundles. This shows that the consumer can never lose by changing his choice to the bundle where he buys the cheapest bundle. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example: In the two commodity case, we can write any bundle any bundle $(y_1, y_2)$ on the budget line as $\lambda\left(\frac{m}{p_1}, 0\right)+(1-\lambda)\left(0,\frac{m}{p_2}\right)$ where $0 \leq \lambda \leq 1$. Therefore, by convexity of $U$,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{eqnarray*} U(y_1, y_2) = U\left(\lambda\left(\frac{m}{p_1}, 0\right)+(1-\lambda)\left(0,\frac{m}{p_2}\right)\right) &amp;amp; \leq &amp;amp; \lambda U\left(\frac{m}{p_1}, 0\right)+(1-\lambda)U\left(0,\frac{m}{p_2}\right) \\ &amp;amp; \leq &amp;amp; \max\left( U\left(\frac{m}{p_1}, 0\right),U\left(0,\frac{m}{p_2}\right)\right)\end{eqnarray*} &#xA;This implies that the utility is maximum at either $\left(\frac{m}{p_1}, 0\right)$ or $\left(0,\frac{m}{p_2}\right)$. Given that $U(y_1, y_2) = u(y_1)+u(y_2)$, it follows that it is maximum when one consumes the cheaper one.&lt;/p&gt;&#xA;" OwnerUserId="11824" LastEditorUserId="11824" LastEditDate="2017-01-24T12:28:35.747" LastActivityDate="2017-01-24T12:28:35.747" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15151" PostTypeId="2" ParentId="15129" CreationDate="2017-01-24T08:49:59.770" Score="0" Body="&lt;p&gt;The problem is the maximization of profit of a firm that produces a differentiated good $i$ using labor $N_i$ as unique input, under the demand function of the consumers (or final goods producers) and the production function.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first three steps are computed by substituting the two constraints and the market clearing condition for goods market $Y_t=C_t$ into the objective function in order to have a free maximization problem in one unknown, $P_{it}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The FOC for $P_{it}$ is right and the same is true for the next step, where the left hand side is positive because he has divided for $-(1-\epsilon)$, i.e. $(\epsilon-1)$ that you see at the denominator of $\epsilon$. The highlighted part is correct too: this is the derivative of the function nested in the square brackets; he added $\frac{1}{P_t}$ because he kept $\frac{P_{it}}{P_t}$ all elevated at $-\epsilon-1$, this means that $P_t^{-1}$ and $P_t$ goes away. You could also have written&#xA;\begin{gather}&#xA;\epsilon\frac{\frac{P_{it}^{-\epsilon-1}}{P_t^{-\epsilon}}C_t}{A_t}=\epsilon\frac{\big(\frac{P_{it}}{P_t}\big)^{-\epsilon-1}C_t}{A_t}\frac{1}{P_t}&#xA;\end{gather}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;After the &quot;Continue...&quot;, he just sum the two expressions in square brackets because they are exponentials with the same base and in the second step he notice that &#xA;\begin{gather}&#xA;\bigg[\frac{\frac{P_{it}}{P_t}^{-\epsilon}C_t}{A_t}\bigg]^{\frac{1}{1-\alpha}}=N_t&#xA;\end{gather}&#xA;using again the demand for $Y_{it}$, $Y_t=C_t$ and the production function. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The last step is a rearrangement of the previous one (simple algebra) and it is still the FOC for $P_{it}$. If you rearrange it as in Gali, you obtain the optimal pricing condition for the monopolistic firm in flexible price setting.&lt;/p&gt;&#xA;" OwnerUserId="6773" LastEditorUserId="6773" LastEditDate="2017-01-24T14:35:30.837" LastActivityDate="2017-01-24T14:35:30.837" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="15152" PostTypeId="1" CreationDate="2017-01-24T10:56:40.957" Score="-2" ViewCount="88" Body="&lt;p&gt;Suppose there were no taxes (which only makes things more complicated) and suppose I ask ten people if they want to get money by cleaning up houses for 8 euros per hour. They agree. Now I on my turn ask the people where they work 15 euros for cleaning their houses. This is basically the same as saying (after some initial searching for clients) that I get money while doing nothing. So isn't making a profit an unfair (in the sense that I, the mediator, has to do relatively less work, and make more money; I was always taught at school every child should get the same piece of the cake) way to make money? After all the people whom I asked, théy do all the hard work, while I do (compared to them) very little. The same can be said for very big corporates. &lt;/p&gt;&#xA;" OwnerUserId="8103" LastEditorUserId="8103" LastEditDate="2017-01-24T16:50:38.810" LastActivityDate="2017-01-24T16:50:38.810" Title="The difference between making money by profit and by earning it" Tags="&lt;profits&gt;" AnswerCount="1" CommentCount="3" ClosedDate="2017-02-06T23:44:28.983" ContentLicense="CC BY-SA 3.0" />
  <row Id="15155" PostTypeId="2" ParentId="15152" CreationDate="2017-01-24T14:46:51.123" Score="3" Body="&lt;p&gt;How come they accepted the 8 euro offer if they could have gone to the people who pay 15 euros as well? Could it be that matching the suppliers and the customers has same value? If what you are doing is truly trivial you will get nothing. If what you are doing is not trivial but relatively easy then you will soon have a competitior who is offering 10 euros to steal your workforce. And competition should eventually price the value of your activities.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course the real world is more complicated, but in your example the work of the matchmaker has value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In response to the edit:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;the mediator, has to do relatively less work, and make more money&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;If this is the case the cleaners obviously do not need the mediator and will not accept his sub 15 euro offer.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2017-01-24T16:34:23.447" LastActivityDate="2017-01-24T16:34:23.447" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15157" PostTypeId="1" AcceptedAnswerId="15159" CreationDate="2017-01-24T18:43:48.813" Score="3" ViewCount="4006" Body="&lt;p&gt;I was talking with a friend of mine the other day about Trump putting the 35% tax on all overseas manufacturing. Couldn't this hurt those countries that have plants where US manufacturing comes from? I think, and correct me if I'm wrong, the tax is to encourage businesses to bring their manufacturing back to the US?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm not sure how accurate &lt;a href=&quot;http://www.davemanuel.com/us-national-debt-clock.php&quot; rel=&quot;nofollow noreferrer&quot;&gt;this site&lt;/a&gt; is but here is the Top 10 of countries the USA owes money to:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;China, Mainland, $1244.0 billion dollars&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Japan, $1133.2 billion dollars&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;All Other, $416.0 billion dollars&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Cayman Islands, $260.2 billion dollars&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Ireland, $259.8 billion dollars&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Brazil, $249.5 billion dollars&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Switzerland, $228.7 billion dollars&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Luxembourg, $221.8 billion dollars&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;United Kingdom, $216.5 billion dollars&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Hong Kong, $192.7 billion dollars&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Looking over &lt;a href=&quot;http://www.itimanufacturing.com/chinese-manufacturing-news/five-companies-overseas-manufacturing/&quot; rel=&quot;nofollow noreferrer&quot;&gt;this link&lt;/a&gt; (which is a little old but I couldn't find anything newer), looks like most of oversea manufacturing by US companies is done in China.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What if China said it wants its money back? Is that possible? &lt;/p&gt;&#xA;" OwnerUserId="11799" LastEditorUserId="8481" LastEditDate="2020-05-03T14:54:42.273" LastActivityDate="2020-05-03T14:54:42.273" Title="What would happen if China called in its debt?" Tags="&lt;macroeconomics&gt;&lt;government-debt&gt;&lt;debt&gt;&lt;bonds&gt;&lt;china&gt;" AnswerCount="2" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15158" PostTypeId="2" ParentId="11033" CreationDate="2017-01-24T21:15:22.500" Score="1" Body="&lt;p&gt;I believe you are referring to the following result: Any PE allocation maximizes $\sum_{i=1}^{I}\phi_{i}(x_{i})$, but it is hard to know precisely since you are not specific about feasibility.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let me be more specific. For each $i\in\{1,\ldots,I\}$, $(x_{i},m_{i})\in\mathbb{R}_{+}\times\mathbb{R}$. An allocation is $a=(x_{i},m_{i})_{i=1}^{I}$. The set of feasible allocations is $F=\{(x_{i},m_{i})_{i=1}^{I}|(x_{i},m_{i})\in\mathbb{R}_{+}\times\mathbb{R}\forall i\in\{1,\ldots,I\},\sum_{i=1}^{I}x_{i}\leq c_{x},\sum_{i=1}^{I}m_{i}\leq c_{m}\}$. Utility of $i\in\{1,\ldots,I\}$ from $a\in F$ is $u_{i}(a)=m_{i}+\phi_{i}(x_{i})$, where $\phi_{i}$ is strictly increasing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Definition of PE allocation is standard: $a\in F$ is PE if $\nexists a'\in F$ such that $u_{i}(a')\geq u_{i}(a)$ for all $i$ and $u_{i}(a')&amp;gt;u_{i}(a)$ for some $i$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now I claim that if $a$ is PE then $a$ is a solution to $\displaystyle\max_{a\in F}\sum_{i=1}^{I}\phi_{i}(x_{i})$, or, making the maximization with respect to $x_{i}$s explicit, $\displaystyle\max_{(x_{i})_{i=1}^{I}\in\mathbb{R}_{+}^{I}}\sum_{i=1}^{I}\phi_{i}(x_{i})$ s.t. $\sum_{i=1}^{I}x_{i}\leq c_{x}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am not going to prove the claim here, but the key idea is simple and is as follows. Suppose $a^{*}$ is PE but does not solve the maximization problem. Then we can find another feasible $a'$ such that $\sum_{i=1}^{I}\phi_{i}(x_{i}')&amp;gt;\sum_{i=1}^{I}\phi_{i}(x_{i}^{*})$. True, in $a'$, relative to $a^{*}$, come agents are worse off, but we can use money, $m_{i}$s, to make them equally well of as under $a^{*}$, and still be left with some money since we increased the sum of utility coming from $x_{i}$s.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another way to say this is that the sum of utility from $a\in F$ is $\sum_{i=1}^{I}m_{i}+\sum_{i=1}^{I}\phi_{i}(x_{i})$. Now any non-wasteful allocation $a\in F$ will have the first term identical.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Yet another way to think about this is that $x_{i}$s determine the size of the pie and money, $m_{i}$s, determine redistribution. By quasi-linearity, decreasing $m_{i}$ by one unit and increasing $m_{j}$ by one unit leaves leaves $m_{i}+m_{j}$ unchanged. This is not true for $x_{i}$ and $x_{j}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This also implies that any $a\in F$ that solves the maximization problem is PE.&lt;/p&gt;&#xA;" OwnerUserId="376" LastEditorUserId="1601" LastEditDate="2017-01-24T21:27:40.743" LastActivityDate="2017-01-24T21:27:40.743" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="15159" PostTypeId="2" ParentId="15157" CreationDate="2017-01-24T21:18:26.830" Score="12" Body="&lt;p&gt;You have to understand how international debt works. These are not loans, but bonds. China buys a US bond for, e.g., 98 USD. This bond is a promise by the US Treasury to pay 100 USD one year from now. China owns a lot of this type of bonds. Once the bond hits maturity, China is paid 100 USD and the thing it typically does with these 100 USD is it buys the same type of bond again. If it decides it no longer wants to hold US debt, it can do one of two things:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, it could decide to sell all its bonds at market prices to someone who's willing to buy them. This would be a terrible idea for the Chinese, since they'll lose a lot of money in this kind of fire sale. Second, it could just stop rolling over the debt and invest its foreign reserves in other kinds of bonds.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In any case what will not happen is that the US suddenly has to pay back all its debt at once. It will become more expensive for the US to refinance its debt, since the demand for treasuries will go down, but this is more of a long run problem. Also, it is not trivial to find an alternative asset market that can absorb an investment of 1200 billion dollars without prices going through the roof.&lt;/p&gt;&#xA;" OwnerUserId="11216" LastEditorUserId="8481" LastEditDate="2020-05-03T14:48:17.780" LastActivityDate="2020-05-03T14:48:17.780" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="15160" PostTypeId="2" ParentId="5385" CreationDate="2017-01-24T21:56:12.353" Score="1" Body="&lt;p&gt;&lt;strong&gt;Competitive General Equilibrium&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The model you sketched is a standard general equilibrium model and hence any competitive equilibrium is Pareto efficient.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The other answer talks about consumers/firms being atomistic. I do not understand this. Standard assumption of the general equilibrium theory is that consumers and firms are price takers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The other answer also talks about partial equilibrium since wages cannot adjust. Again, I do not understand this. Given a competitive equilibrium price vector and allocation, multiplying all prices by a constant produces another equilibrium with the same allocation. In other words, competitive equilibrium pins down only relative prices. Standard simplification, which is without loss of generality, is then to normalize price of one commodity to unity. Here, the normalization applies to price of labour, wage.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How to find the competitive equilibrium? I am afraid there is no other way than to derive Walrasian demands of the consumers and supply of the firms and find prices that clear all the markets, that is, the markets for the two consumption goods and the markets for production inputs.&lt;/p&gt;&#xA;" OwnerUserId="376" LastEditorUserId="43" LastEditDate="2017-01-25T12:16:00.657" LastActivityDate="2017-01-25T12:16:00.657" CommentCount="10" ContentLicense="CC BY-SA 3.0" />
  <row Id="15161" PostTypeId="2" ParentId="15121" CreationDate="2017-01-24T22:02:37.640" Score="4" Body="&lt;p&gt;You are absolutely right. Since higher interest rates increase the opportunity cost, you wan't to get rid of it faster (at the margin).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The core of the argument is that the cost stems not only from the amount of money holdings, but also from the duration. Say you are constrained about the amount of money holdings you need in your daily life, but you can still make sure the money is not idle for too long. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the second part of your question, you are mixing up concepts. The interest rate influences the Consumption/Savings Decision, but it is the same decision problem as in a (model) world without money, i.e. it is a choice between real variables, whereas money velocity is a monetary question.&lt;/p&gt;&#xA;" OwnerUserId="8630" LastActivityDate="2017-01-24T22:02:37.640" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15162" PostTypeId="2" ParentId="15135" CreationDate="2017-01-24T22:10:12.007" Score="0" Body="&lt;p&gt;The Taylor rule links the interest rate to other variables (usually inflation), which are determined by the model (hence, endogenous). Therfore, it is endogenous. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Similarly government expenditure. If it is pinned down (partially) by factors determined in the model, it is endogenous. &lt;/p&gt;&#xA;" OwnerUserId="8630" LastActivityDate="2017-01-24T22:10:12.007" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15163" PostTypeId="1" CreationDate="2017-01-25T00:31:19.327" Score="0" ViewCount="129" Body="&lt;p&gt;Let me begin by saying I know nothing about economics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the past couple of days I've been listening to some lectures by Milton Friedman. They are of non-technical nature. In one of them he makes an argument which I have understood approximately as follows:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Having a minimum wage law is harmful to workers who compete for low paying jobs and are relatively less skillful because it deprives them of their &quot;only weapon&quot; - working for less.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Do minimum wage laws increase unemployment? Is there any information enabling this comparison?&lt;/li&gt;&#xA;&lt;li&gt;Are there purely economic arguments, or empirical evidence, favoring minimum wage laws? Have they in any sense improved the economy?&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="11879" LastActivityDate="2017-01-25T01:29:46.127" Title="Do minimum wage laws bring more bad than good?" Tags="&lt;wages&gt;&lt;minimum-wage&gt;" AnswerCount="1" CommentCount="2" ClosedDate="2017-01-31T22:07:16.170" ContentLicense="CC BY-SA 3.0" />
  <row Id="15164" PostTypeId="2" ParentId="15163" CreationDate="2017-01-25T01:29:46.127" Score="-1" Body="&lt;p&gt;There is ample evidence that increases in the minimum wage in the magnitudes that we've seen in the last 20-30 years have caused no or very small decreases of low-skilled employment. In that sense, the predictions of competitive labor market models like the one Friedman probably had in mind are clearly wrong.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A classic reference here is Card and Kruger 1993 (&lt;a href=&quot;http://davidcard.berkeley.edu/papers/njmin-aer.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://davidcard.berkeley.edu/papers/njmin-aer.pdf&lt;/a&gt;). A more recent contribution is Allegretto et. al. (&lt;a href=&quot;http://ftp.iza.org/dp7638.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://ftp.iza.org/dp7638.pdf&lt;/a&gt;). There are many more.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some recent minimum wage increases have been much bigger than the ones discussed in these papers (for example the 15$ minimum wage in California) and the effects of these increases may be more substantial.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The argument for minimum wages is mostly about redistribution, and modest minimum wages probably achieve this goal.&lt;/p&gt;&#xA;" OwnerUserId="11216" LastActivityDate="2017-01-25T01:29:46.127" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15165" PostTypeId="2" ParentId="5385" CreationDate="2017-01-25T01:47:59.147" Score="5" Body="&lt;p&gt;&lt;strong&gt;Competitive equilibrium&lt;/strong&gt; is the price vector $(p_x, p_y, w =1, r)$ such that it solves the following system of equations:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Demand for $X$  = Supply of $X$&lt;/li&gt;&#xA;&lt;li&gt;Demand for $Y$ = Supply of $Y$&lt;/li&gt;&#xA;&lt;li&gt;Demand for $L$ = Supply of $L$&lt;/li&gt;&#xA;&lt;li&gt;Demand for $K$ = Supply of $K$&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;where these demands and supplies are either exogenously given or are derived by solving utility maximization problem of the consumers, and profit maximization problem of the firm in a standard way.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Method 1&lt;/strong&gt;: One way to solve the posted problem is to find these demands and supplies and solve the resulting system of equations. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Method 2&lt;/strong&gt;: Another way is to use first welfare theorem. First welfare theorem says that if the utilities are increasing then competitive equilibrium is Pareto efficient. In the posted problem, both the consumers have increasing utility function. So, we can use it to determine the competitive equilibrium prices. Equilibrium prices and allocation satisfy the following:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Efficiency in production: MRTS$^X_{L,K}$ = MRTS$^Y_{L,K}$ = $\frac{w}{r}$. Use this to derive Production Possibility Frontier (PPF).&lt;/li&gt;&#xA;&lt;li&gt;Efficiency in consumption: MRS$^A_{X,Y}$ = MRS$^B_{X,Y}$ = MRT$_{X,Y}$ = $\frac{p_X}{p_Y}$.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Solution&lt;/strong&gt; (using method 2): Given the data in question, we see that both the production functions exhibit constant returns to scale and the PPF will be of the form $4x + y =$  constant. Therefore, the price ratio $\frac{p_x}{p_y}$ in equilibrium will be 4 regardless of the initial endowments. This will be true as long as both the inputs $L$ and $K$ are available in positive quantities. Equilibrium can be fully determined once the details about endowments are specified. To find $\frac{w}{r}$ ratio we need to know the total endowment of labor and capital in the economy, and to find the absolute prices of $X$ and $Y$ given $w = 1$ we need the data on how much of the total endowment of labor and capital belongs to each consumer.&lt;/p&gt;&#xA;" OwnerUserId="11824" LastEditorUserId="11824" LastEditDate="2017-01-25T10:11:55.740" LastActivityDate="2017-01-25T10:11:55.740" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15166" PostTypeId="2" ParentId="15144" CreationDate="2017-01-25T08:40:44.423" Score="4" Body="&lt;p&gt;As far as we can tell, no, there is no way to do it using only a free market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Coase postulated that within a free market, agents would negotiate private contracts to internalise the externalities.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In reality, this didn't happen. It turned out that humans aren't perfectly informed hyper-rational beings. And as Coase himself had inferred, the transaction costs are typically too high.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are well-documented ways in which markets have been adjusted for externalities: sometimes taxes or subsidies are sufficient; other times, prescription or proscription has been necessary.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are even well-documented ways in which the commons have been protected, meaning that the destruction of them is no inevitable tragedy: Elinor Ostrom won the Nobel Economics Prize for her work showing how empowered stewardship by a group of custodians had repeatedly protected the custodians' commons.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the relative efficiency of market mechanism versus planned mechanism is nowhere near clear enough to claim that &quot;It would be far more efficient and sustainable if the tendency to externalize costs were managed by market mechanisms ... &quot;. Each of the alternatives has inherent inefficiences: planned mechanisms have dead-weight costs. market-mechanisms have transaction costs and failures due to imperfect information and bounded rationality. There's a lot of evidence, particularly when it comes to the wicked problems you describe, that the market inefficiencies are far worse than the planning inefficiencies.&lt;/p&gt;&#xA;" OwnerUserId="44" LastEditorUserId="44" LastEditDate="2017-01-25T09:20:05.950" LastActivityDate="2017-01-25T09:20:05.950" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="15167" PostTypeId="2" ParentId="12693" CreationDate="2017-01-25T09:44:11.870" Score="1" Body="&lt;ol&gt;&#xA;&lt;li&gt;In shifting the$\ AD_1 \rightarrow AD$ curves to achieve long run equilibrium, Real GDP will have to increase by 200 billion. Refer to the diagram below, (in purple).&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/g5c4y.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/g5c4y.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;2&quot;&gt;&#xA;&lt;li&gt;$\ MPC = 0.75 \rightarrow MPS = 0.25$&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;In this 3 sector closed-economy model, the multiplier can be calculated using : &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\ K = \frac{1}{MPS+MPT} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assuming MPT (Marginal Propensity to Tax) = 0, then $\ K = \frac{1}{MPS} = \frac{1}{0.25} = 4 $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\ \Delta Y=K\Delta (AE) $, considering only government expenditure, then&#xA;$\ \Delta Y=K\Delta G $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Substituting the values, $\ 200B = 4G \rightarrow G = 50 $&lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;3&quot;&gt;&#xA;&lt;li&gt;If currently, the $\ AD $ component is $\ AD = 400B $ at $\ MPC = 0.75 $, then we can calculate the original income, $\ Y = (0.75)^{-1} \times AD = (0.75)^{-1} \times 400Bil = 533.33Bil $&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Now using this value of $\ Y $, we can calculate the new $\ AD $ component at $\ MPC = 0.6 $, which is $\ AD_{new} = 0.6 \times 533.33Bil = 320Bil $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence, using the same approach as in &lt;strong&gt;Part 1&lt;/strong&gt;, the lime-green line is $\ AD_{new} $, the purple section represents $\Delta AD, $ which, as in &lt;strong&gt;Part 2&lt;/strong&gt;, with a new multiplier of $\ K $ calculated using the new $\ MPS = 0.4 $, and substituting those values into $\ \Delta Y=K\Delta G $ will result in your new government expenditure.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/V6jfJ.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/V6jfJ.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="11855" LastEditorUserId="11855" LastEditDate="2017-01-25T10:11:35.253" LastActivityDate="2017-01-25T10:11:35.253" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15168" PostTypeId="1" CreationDate="2017-01-25T14:19:02.347" Score="4" ViewCount="1060" Body="&lt;p&gt;Do contemporary Marxist economists still apply the labor theory of value when analysing economic phenomena? Or do they e.g. acknowledge that value (and utility) is subjective as is common knowledge in modern economics?&lt;/p&gt;&#xA;" OwnerUserId="11627" LastEditorUserId="7582" LastEditDate="2017-01-28T14:45:34.750" LastActivityDate="2018-07-27T15:52:23.097" Title="Do contemporary Marxist economists still deny the utility/value theory which underpins classical economics?" Tags="&lt;utility&gt;&lt;value&gt;&lt;theory&gt;&lt;marxism&gt;&lt;classical-economics&gt;" AnswerCount="2" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15169" PostTypeId="1" CreationDate="2017-01-25T15:09:43.360" Score="3" ViewCount="23787" Body="&lt;p&gt;I was reading the ISO 10962 (the 2015 version) which classifies financial instruments.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the Collective Invesment Vehicle (CIVs) they separe them in:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Standard Funds&lt;/li&gt;&#xA;&lt;li&gt;Hedge Funds&lt;/li&gt;&#xA;&lt;li&gt;REIT&lt;/li&gt;&#xA;&lt;li&gt;ETF&lt;/li&gt;&#xA;&lt;li&gt;Pension Funds&lt;/li&gt;&#xA;&lt;li&gt;Fund of Funds&lt;/li&gt;&#xA;&lt;li&gt;Private Equity Fund&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;In the fourth attribute of each one of that CIVs is &quot;Security type and investors restrictions&quot; and the possible values are:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Shares &lt;/li&gt;&#xA;&lt;li&gt;Units&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Question: What is the difference between both?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.investopedia.com/terms/m/mutualfund.asp#ixzz4WnKJRDeI&quot; rel=&quot;nofollow noreferrer&quot;&gt;Investopedia&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Mutual fund &lt;strong&gt;units, or shares&lt;/strong&gt;, can typically be purchased or redeemed as needed at the fund's current net asset value (NAV) per share, which is sometimes expressed as NAVPS. A fund's NAV is derived by dividing the total value of the securities in the portfolio by the total amount of shares outstanding.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Investment_fund#Open-end_fund&quot; rel=&quot;nofollow noreferrer&quot;&gt;Open-end fund (wiki)&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An open-end fund is equitably divided into &lt;strong&gt;shares&lt;/strong&gt; which vary in price in direct proportion to the variation in value of the fund's net asset value. Each time money is invested, new &lt;strong&gt;shares&lt;/strong&gt; or &lt;strong&gt;units&lt;/strong&gt; are created to match the prevailing share price; each time shares are redeemed, the assets sold match the prevailing share price. In this way there is no supply or demand created for shares and they remain a direct reflection of the underlying assets.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Investment_fund#Unit_or_share_class&quot; rel=&quot;nofollow noreferrer&quot;&gt;Unit or share class (wiki)&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Many collective investment vehicles split the fund into multiple classes of &lt;strong&gt;shares&lt;/strong&gt; or &lt;strong&gt;units&lt;/strong&gt;. The underlying assets of each class are effectively pooled for the purposes of investment management, but classes typically differ in the fees and expenses paid out of the fund's assets.&lt;/p&gt;&#xA;" OwnerUserId="8709" LastEditorUserId="8709" LastEditDate="2017-01-25T17:25:20.777" LastActivityDate="2017-08-25T10:03:26.603" Title="Difference between Unit and Share?" Tags="&lt;financial-markets&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15170" PostTypeId="2" ParentId="15169" CreationDate="2017-01-25T16:24:41.377" Score="3" Body="&lt;p&gt;A &lt;strong&gt;share&lt;/strong&gt; or stock is part of an individual company. &lt;strong&gt;Unit&lt;/strong&gt; (Trusts) are a collection of different (and usually related) shares.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, I am currently investing in a Singapore Equity Fund. And this is known as a Unit Trust. And within the Singapore Equity Fund, my investment is made up of different company shares, e.g. the local bank shares, telecommunication company and some other companies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And these Unit Trusts are usually managed by a Fund Manager who belong to a Fund Management Company (or known as Fund House). And there are many different Fund Management Companies in Singapore with their own expertise and knowledge.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Source: &lt;a href=&quot;http://haveyouplanned.com/the-differences-and-similarities-between-stocks-and-unit-trusts/&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="6773" LastActivityDate="2017-01-25T16:24:41.377" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15171" PostTypeId="2" ParentId="15000" CreationDate="2017-01-25T16:30:51.123" Score="8" Body="&lt;p&gt;\begin{eqnarray*} \displaystyle U(L) &amp;amp; = &amp;amp;\sum_{s=1}^{S}\pi_s U(Y_s) = \sum_{s=1}^{S} \left(-\frac{1}{2}\pi_s(\alpha - Y_s)^2\right) = -\frac{1}{2}\sum_{s=1}^{S} \left(\pi_s(\alpha^2 + Y_s^2-2\alpha Y_s)\right) \\ &amp;amp;=&amp;amp; -\frac{1}{2}\left(\alpha^2\sum_{s=1}^{S} \pi_s + \sum_{s=1}^{S} \pi_sY_s^2-2\alpha \sum_{s=1}^{S} \pi_sY_s\right) = -\frac{1}{2}\left(\alpha^2 + \mathbb{E}(L^2)-2\alpha \mathbb{E}(L)\right) \\ &amp;amp;=&amp;amp; -\frac{1}{2}\left(\alpha^2 + \mathbb{E}(L^2) - (\mathbb{E}(L))^2 + (\mathbb{E}(L))^2 -2\alpha \mathbb{E}(L)\right) \\ &amp;amp;=&amp;amp; -\frac{1}{2}\left(\alpha^2 + \mathbb{V}(L)  + (\mathbb{E}(L))^2 -2\alpha \mathbb{E}(L)\right) \end{eqnarray*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So utility from the lottery only depends on expected value - $\mathbb{E}(L)$ and variance - $\mathbb{V}(L)$ of the state-contingent payoffs.&lt;/p&gt;&#xA;" OwnerUserId="11824" LastEditorUserId="11824" LastEditDate="2017-01-25T16:36:59.380" LastActivityDate="2017-01-25T16:36:59.380" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15172" PostTypeId="1" AcceptedAnswerId="15203" CreationDate="2017-01-25T16:52:23.213" Score="4" ViewCount="227" Body="&lt;p&gt;On the Wall Street Journal Op-Ed page (&lt;a href=&quot;http://www.wsj.com/articles/trumps-real-trade-problem-is-money-1485302886&quot; rel=&quot;nofollow noreferrer&quot;&gt;Trump’s Real Trade Problem Is Money&lt;/a&gt;  ), &lt;a href=&quot;https://eppc.org/author/john_mueller/&quot; rel=&quot;nofollow noreferrer&quot;&gt;John D. Mueller&lt;/a&gt; discusses the gold standard and claims something that I've either never heard before, don't understand, or both. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Many economists wrongly assume that total world net exports must equal&#xA;  zero, but in fact countries participating in the international gold&#xA;  standard had combined net exports equal to the total increase in world&#xA;  gold reserves (which in turn approximated world gold exports). As a&#xA;  result, world monetary policy was countercyclical: When the prices of&#xA;  other goods fell, the profitability of gold mining rose.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;First, I thought it was tautological that global net exports had to be zero. Is Mueller's claim correct? Does it turn on a technicality of the definition of net exports? Please help me understand his position. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Second, is it accurate to characterize gold standard monetary policy as counter-cyclical?  My understanding is that recessions in the gold standard era were marked by deflation where as in the fiat currency era recessions are merely dis-inflationary. If so, is it fair to call the gold standard substantially less counter-cyclical than fiat currency systems? &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2017-01-25T19:15:29.453" LastActivityDate="2017-01-27T14:41:26.563" Title="Must total world net exports be zero?" Tags="&lt;monetary-policy&gt;&lt;international-trade&gt;&lt;balance-of-trade&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="15173" PostTypeId="2" ParentId="15103" CreationDate="2017-01-25T17:14:03.780" Score="4" Body="&lt;p&gt;You can consider a single competitive firm model with quadratic cost function say $c(y) = \frac{y^2}{2}$. This firm is in Venezuela. Let $\hat{p}_c$ and $\hat{p}_v$ be price ceilings in Colombia and Venezuela respectively. Also, $\hat{p}_c &amp;gt; \hat{p}_v$ indicating the opportunity to smuggle. Also, assume demands are sufficiently high so that the ceilings are binding. Consider competitive suppliers' problem without smuggling:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{eqnarray*} \displaystyle\max_{y\geq 0} &amp;amp;&amp;amp; p_vy - \frac{y^2}{2}\end{eqnarray*}&#xA;Solving it, we get the supply curve as $y = p_v$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given that the price in Venezuela is $\hat{p}_v$, equilibrium quantity in this case will be $y^* = \hat{p}_v$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With an option to smuggle with the additional cost say $c(z) = \frac{z^2}{2}$, the profit maximization problem is:&#xA;\begin{eqnarray*} \displaystyle\max_{y\geq 0, z \geq 0} &amp;amp;&amp;amp; p_vy + p_cz - \frac{(y + z)^2}{2} - \frac{z^2}{2}\end{eqnarray*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This gives us the new domestic supply function as:&#xA;$y = 2p_v - p_c$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and the quantity smuggled as&#xA;$z = p_c - p_v$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, equilibrium quantity sold in Venezuela has fallen to&#xA;$y^{**} = 2\hat{p}_v - \hat{p}_c$ and the quantity smuggled is equal to $z^{**} = \hat{p}_c - \hat{p}_v$.&lt;/p&gt;&#xA;" OwnerUserId="11824" LastEditorUserId="11824" LastEditDate="2017-01-26T07:13:57.753" LastActivityDate="2017-01-26T07:13:57.753" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="15174" PostTypeId="1" AcceptedAnswerId="15175" CreationDate="2017-01-25T23:26:02.990" Score="4" ViewCount="1912" Body="&lt;p&gt;I have recently started studying dynamic optimization. I cannot quite wrap my head around the fact that the value function of the Bellman equation is a fixed point of a contraction mapping.&#xA;As far my understanding is rather naive: if the problem is finite, say:&#xA;$$\sum_{t=0}^T \beta^tu(c_t)$$&#xA;we construct the Bellman equation from the end, as if we knew the maximum possible value of the sequence in advance. Starting from the last period $T$, we just repeat the maximization by adding an optimal term reflecting current period utility $u(c_t)$, until we arrive to the period $0$. From here I can clearly see how contraction mapping works.&#xA;But the infinite case is not so easy for me to comprehend: I can only suppose, that, by iteration of the Bellman operator $(Bv)(x)$, we perform a &quot;calibration&quot; of the policy function until we find the value function (i.e. the maximum possible utility given our transversality conditions) $(Bv)(x)=v(x)$. Am I, at least, thinking in the right direction, or this idea should be understood in a different way?&#xA;Thank you in advance.&#xA;(Also, this is my first question on .stackexchange ever, and if there are any issues with presentation of my question, please, let me know)&lt;/p&gt;&#xA;" OwnerUserId="11890" LastEditorUserId="11890" LastEditDate="2017-01-26T00:25:30.147" LastActivityDate="2017-01-28T02:30:44.107" Title="Solution to the Bellman equation is a fixed point" Tags="&lt;dynamic-programming&gt;&lt;bellman-equations&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="15175" PostTypeId="2" ParentId="15174" CreationDate="2017-01-26T00:33:38.763" Score="1" Body="&lt;p&gt;I am by no means an expert on this, but maybe this helps. Here is a simple example for a bellman equation&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$V(y) = \max_x u(x,y) + \beta V(y')$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$s.t. \, y' = f(x,y)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is a functional equation in an unknown function V. A solution to this problem is a function V that satisfies the equation above. If you look at the equation, it's pretty clear that the solution has to be a fixed point of the operator on the RHS of the bellman equation: if you take the correct V and an arbitrary y and calculate&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\max_x u(x,y) + \beta V(y')$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$s.t. \, y' = f(x,y)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;you will get $V(y)$. The operator that is the RHS of the Bellman equation operates on functions, and the solution is a fixed point in some space of functions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's a different question whether this fixed point exists and how to find it. Here, you appeal to the contraction mapping theorem: under typical assumptions on u and provided $\beta&amp;lt;1$, the maximization step above is a contraction mapping for any guess of V. This means that there exists a unique fixed point V, and you can find it by successive iteration.&lt;/p&gt;&#xA;" OwnerUserId="11216" LastEditorUserId="11216" LastEditDate="2017-01-28T02:30:44.107" LastActivityDate="2017-01-28T02:30:44.107" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="15179" PostTypeId="2" ParentId="9005" CreationDate="2017-01-26T08:40:15.593" Score="1" Body="&lt;p&gt;Here is an example of the economy in which consumers have identical - increasing,  convex and quasi linear utility functions, but consists of PE allocations that satisfy $y_A\neq y_B$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$u_A(x_A, y_A) = x_A + \log y_A$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$u_B(x_B, y_B) = x_B + \log y_B$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Feasibility requirement is $x_A + x_B = 1$ and $y_A + y_B = 1$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Allocation in which A consumes everything and B consumes nothing: $(x_A, y_A) = (1,1)$ and $(x_B, y_B) = (0,0)$ is Pareto efficient, but $y_A \neq y_B$.&lt;/p&gt;&#xA;" OwnerUserId="11824" LastActivityDate="2017-01-26T08:40:15.593" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="15181" PostTypeId="1" AcceptedAnswerId="15182" CreationDate="2017-01-26T09:03:31.697" Score="1" ViewCount="914" Body="&lt;p&gt;≳ is a preference ordering if it is reflexive , transitive and complete.&#xA;In Mathematics relations are said to be in a equivalence relation if they are &#xA;reflexive, symmetric and transitive.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can we call preference ordering a equivalence relation?&#xA;And if so what is the significance of preference relation being a equivalence relation in further studies of microeconomics.?&lt;/p&gt;&#xA;" OwnerUserId="11254" LastActivityDate="2017-01-26T10:19:37.560" Title="Preference ordering relation" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;preferences&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15182" PostTypeId="2" ParentId="15181" CreationDate="2017-01-26T10:19:37.560" Score="4" Body="&lt;p&gt;No reflexivity, transitivity and completeness does not imply symmetry. For example: Consider the preference relation $\succsim$ over $\mathbb{R}^2_+$ defined as:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;$(x,y)\succsim (x',y')$ if and only if $xy \geq x'y'$&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Such preferences have a utility representation $u(x, y) = xy$, and therefore they are reflexive, transitive and complete. However, these are not symmetric because $(1,2)\succsim (1,1)$ but $(1,1)\not\succsim (1,2)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But we can define the indifference relation $\sim$ from the weak preference relation $\succsim$ in this way:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;$(x,y)\sim (x',y')$ if and only if [$(x,y)\succsim (x',y')$ and $(x',y')\succsim (x,y)$] &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It can be easily shown that the indifference relation derived from the reflexive, transitive and complete weak preference relation in the way described above will be an equivalence relation. It is important because this relation partitions the entire commodity space into indifference classes, where two consumption vectors belong to a class if and only if the individual is indifferent between the two. These classes are also known as indifference curves. This further helps in solving related problems.&lt;/p&gt;&#xA;" OwnerUserId="11824" LastActivityDate="2017-01-26T10:19:37.560" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15184" PostTypeId="1" AcceptedAnswerId="15191" CreationDate="2017-01-26T11:30:19.650" Score="2" ViewCount="273" Body="&lt;p&gt;I am trying to model Foreign Direct Investment (FDI) flows and am facing several issues;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is the well-known condition that under heteroskedasticity log-linearized OLS models are biased and inconsistent. &lt;a href=&quot;http://personal.lse.ac.uk/tenreyro/jensen08k.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Santos-Silva and Tenreyro (2006)&lt;/a&gt; suggest using Poisson pseudo-maximum-likelihood (PPML) to overcome this, and subsequently PPML, negative binomial and Poisson modeling became commonplace in the literature, but...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;... FDI flows are often negative (divestment), which cannot be accommodated by count data models or PPML. Negative flows are economically meaningful and therefore cannot just be dropped without loss of consistency. An alternative is to use stocks rather than flows, but this does not seem to fit very well with the theory of gravity equations which seem to me to inherently deal with flow concepts. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can anyone suggest an appropriate estimator? I have heard the suggestion of multinomial logit (where dep.var. is share of global FDI flows) but this would also seem to falter in the case of a negative flow.&lt;/p&gt;&#xA;" OwnerUserId="8443" LastEditorUserId="6168" LastEditDate="2017-01-26T21:12:28.197" LastActivityDate="2017-01-26T21:53:09.060" Title="Appropriate estimator for FDI &quot;gravity&quot; model" Tags="&lt;econometrics&gt;&lt;investment&gt;&lt;regression&gt;&lt;open-economy-macro&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15186" PostTypeId="2" ParentId="12861" CreationDate="2017-01-26T12:16:28.747" Score="2" Body="&lt;p&gt;Suppose random variable $X\sim F$. &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Certainty equivalent of the lottery $X$ is the constant $c$ that solves: &#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;$u(c) = \mathbb{E}(u(X))$&lt;/p&gt;&#xA;&lt;/blockquote&gt;&lt;/li&gt;&#xA;&lt;li&gt;Because $u(x) = \min(\sqrt{x}, \sqrt{M})$ is concave, by Jensen's inequality:&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;$u(c) = \mathbb{E}(u(X)) \leq u(\mathbb{E}(X)) $&lt;/p&gt;&#xA;&lt;/blockquote&gt;&lt;/li&gt;&#xA;&lt;li&gt;Agent is risk averse because $u$ is concave.&lt;/li&gt;&#xA;&lt;li&gt;If agent prefers lottery $X\sim F$ to lottery $Y\sim G$, it is not necessary that $F$ FOSD $G$. Consider the following two lotteries:&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;$X = \frac{M}{2}$ with probability 1.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;$Y = M$ with probability $\frac{1}{2}$ and $Y = 0$ with probability $\frac{1}{2}$. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Since $u$ is concave, lottery $X$ is preferred over lottery $Y$. This because $X$ gives the expected value of the lottery $Y$ with probability 1. Also, $F$ does not FOSD $G$ because $F\left(\frac{M}{2}\right) = 1 &amp;gt; \frac{1}{2} = G\left(\frac{M}{2}\right) $.&lt;/p&gt;&#xA;" OwnerUserId="11824" LastActivityDate="2017-01-26T12:16:28.747" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15187" PostTypeId="2" ParentId="15085" CreationDate="2017-01-26T13:29:53.427" Score="1" Body="&lt;p&gt;In the United Kingdom, your death bonds would be prohibited by the Life Assurance Act 1774, which still says in its entirety:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Whereas it hath been found by experience that the making insurances on lives or other events wherein the assured shall have no interest hath introduced a mischievous kind of gaming: &lt;/p&gt;&#xA;  &#xA;  &lt;ol&gt;&#xA;  &lt;li&gt;From and after the passing of this Act no insurance shall be made by any person or persons, bodies politick or corporate, on the life or lives of any person, or persons, or on any other event or events whatsoever, wherein the person or persons for whose use, benefit, or on whose account such policy or policies shall be made, shall have no interest, or by way of gaming or wagering; and every assurance made contrary to the true intent and meaning hereof shall be null and void to all intents and purposes whatsoever. &lt;/li&gt;&#xA;  &lt;li&gt;And it shall not be lawful to make any policy or policies on the life or lives of any person or persons, or other event or events, without inserting in such policy or policies the person or persons name or names interested therein, or for whose use, benefit, or on whose account such policy is so made or underwrote. &lt;/li&gt;&#xA;  &lt;li&gt;And in all cases where the insured hath interest in such life or lives, event or events, no greater sum shall be recovered or received from the insurer or insurers than the amount of value of the interest of the insured in such life or lives, or other event or events. &lt;/li&gt;&#xA;  &lt;li&gt;Provided always, that nothing herein contained shall extend or be construed to extend to insurances bona fide made by any person or persons on ships, goods, or merchandises, but every such insurance shall be as valid and effectual in the law as if this Act had not been made. &lt;/li&gt;&#xA;  &lt;/ol&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;and there are similar laws in other places.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There were two bases for this prohibition and regulation:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;it amounted to a particularly distasteful form of gambling on people's deaths&lt;/li&gt;&#xA;&lt;li&gt;it was dangerous for an individual to be more valuable dead than alive to another individual; insurance should solely be about compensating for losses&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Housing loans are not as distasteful as human death, and there is no suggestion that purchasers of Credit Default Swaps could have acted in a similar way to murderers, though the reference in section 3 to &lt;em&gt;events&lt;/em&gt; might also apply to their use for speculation&lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2017-01-26T13:29:53.427" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15191" PostTypeId="2" ParentId="15184" CreationDate="2017-01-26T21:53:09.060" Score="0" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;An alternative is to use stocks rather than flows, but this does not&#xA;  seem to fit very well with the theory of gravity equations which seem&#xA;  to me to inherently deal with flow concepts.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Using stocks rather than flows and avoiding the disinvestment issue is a good alternative. Gravity equations have been shown to do a good job fitting &lt;strong&gt;stocks of FDI&lt;/strong&gt; (see the Handbook of International Economics, &lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/B9780444543141000033&quot; rel=&quot;nofollow noreferrer&quot;&gt;Gravity Equations: Workhorse, Toolkit, and Cookbook&lt;/a&gt;, page 149). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/S0022199607000815&quot; rel=&quot;nofollow noreferrer&quot;&gt;This paper&lt;/a&gt; considers a model in which FDI takes the form of acquisitions. Using the discrete choice framework in a way that resembles &lt;a href=&quot;http://www.princeton.edu/~erossi/courses_files/EKn.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Eaton and Kortum (2002)&lt;/a&gt;, the authors develop a gravity equation for FDI which fits the data well. &lt;a href=&quot;http://onlinelibrary.wiley.com/doi/10.1111/j.1467-9442.2011.01656.x/full&quot; rel=&quot;nofollow noreferrer&quot;&gt;This paper&lt;/a&gt; extends the model to greenfield investment by imagining that instead of bidding for assets, each corporation selects the best &quot;investment project&quot; across all host countries.&lt;/p&gt;&#xA;" OwnerUserId="6168" LastActivityDate="2017-01-26T21:53:09.060" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15193" PostTypeId="1" CreationDate="2017-01-27T02:59:58.990" Score="3" ViewCount="915" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/Ctw9W.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Ctw9W.png&quot; alt=&quot;Basic Supply/Demand Graph&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can someone please explain these things?  They show up all over the place and it seems people can't be bothered with documenting the labels.  Is this showing f(L) = W?  Is it showing f(W) = L?  If so, what's up with the labels (D) and (S) on the curve?  Is something else going on?  What's the dependent variable?  Are we trying to describe f(x,y) = S with a 2D graph?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Confused.&lt;/p&gt;&#xA;" OwnerUserId="11900" LastActivityDate="2017-01-31T16:45:01.040" Title="Explain Basic Supply Demand Graph" Tags="&lt;supply-and-demand&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15194" PostTypeId="2" ParentId="13935" CreationDate="2017-01-27T03:07:21.790" Score="4" Body="&lt;p&gt;While principles level textbooks do usually assume that MC is constant for the monopolist for simplicity, by no means does it &lt;em&gt;have&lt;/em&gt; to be constant. It may indeed be upward-sloping. Also, both the long-run and short-run marginal cost curves may be horizontal and/or curved, depending on the technology in use.&lt;/p&gt;&#xA;&lt;p&gt;An upward-sloping MC curve will affect the distribution of Consumer Surplus, Producer Surplus and Dead-weight Loss.&lt;/p&gt;&#xA;&lt;p&gt;The monopolist being a price-maker is &lt;em&gt;sometimes&lt;/em&gt; due to the production technology (and hence the cost structure) it faces but &lt;em&gt;always&lt;/em&gt; due to the lack of (real or the threat of) competition.&lt;/p&gt;&#xA;" OwnerUserId="11901" LastEditorUserId="11901" LastEditDate="2021-02-02T17:15:09.553" LastActivityDate="2021-02-02T17:15:09.553" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="15195" PostTypeId="2" ParentId="12424" CreationDate="2017-01-27T03:24:38.580" Score="-2" Body="&lt;p&gt;Banks do not make loans using deposits from their customers. So there is never a risk of running out of money to lend. Banks create money when loans are made, and the money is destroyed when the loan principal is repaid.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The only real limit to the amount of loans banks can make is their appetite for the risk that the loan will not be repaid, and mandated &lt;a href=&quot;https://en.wikipedia.org/wiki/Capital_requirement&quot; rel=&quot;nofollow noreferrer&quot;&gt;capital requirements&lt;/a&gt;. Customer deposits are not involved, and neither is any of the banks own profits.&lt;/p&gt;&#xA;" OwnerUserId="11902" LastEditorUserId="11902" LastEditDate="2017-01-30T04:27:33.763" LastActivityDate="2017-01-30T04:27:33.763" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15196" PostTypeId="1" CreationDate="2017-01-27T07:54:15.853" Score="0" ViewCount="46" Body="&lt;p&gt;I am wondering what happens to the value of the coin in a country with an housing crisis. Take the USA as an example: They had a housing crisis and I wonder how it effected the value of the dollar and why?&#xA;In addition to this particular example, &lt;strong&gt;are there any general effects on a currency that are observed in countries in which a real estate bubble burst&lt;/strong&gt;?&lt;/p&gt;&#xA;" OwnerUserId="11906" LastEditorUserId="11906" LastEditDate="2017-01-28T11:29:06.933" LastActivityDate="2017-01-28T11:29:06.933" Title="What happend to the dollar value in the time of the housing crisis" Tags="&lt;macroeconomics&gt;&lt;inflation&gt;&lt;housing&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15198" PostTypeId="2" ParentId="15193" CreationDate="2017-01-27T09:25:31.643" Score="1" Body="&lt;p&gt;Assuming that $W$ is wage and $L$ is labor, I would say this is a labor supply-demand graph. TD stand for demand and S for supply. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The graph shows a positive shift in labor supply, i.e. labor offered by workers, leading to an increase in $L$ and a decrease of $W$ due to the excess of supply. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The shift in labor supply can be caused by a variety of shocks as a preference shock which values more labor, a change in non-labor income, etc (look &lt;a href=&quot;http://2012books.lardbucket.org/books/economics-principles-v1.1/s15-02-the-supply-of-labor.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; for explanations)&lt;/p&gt;&#xA;" OwnerUserId="6773" LastActivityDate="2017-01-27T09:25:31.643" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15199" PostTypeId="1" CreationDate="2017-01-27T09:37:19.770" Score="2" ViewCount="182" Body="&lt;p&gt;An economy is made up of two people. The utility functions are&#xA;$$u_1(x_{11},x_{12}) = x_{11}x_{12}$$ &#xA;$$u_2(x_{21},x_{22}) = 2x_{21} + 2x_{22} −x_{11}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The initial endowments are $ω_1 = (1,0)$ and $ω_2 = (0,1)$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(a) Calculate a competitive equilibrium. Draw an Edgeworth box diagram to illustrate your answer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(b) Find the locus of interior Pareto optimal points. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(c) Calculate prices $p_1$ and $p_2$, a per unit subsidy $s$ or tax $t$, and lump sum cash transfers $T_1$ and $T_2$ to bring the economy to the allocation $x_1 = (\frac{1}{3} , \frac{1}{2} )$, $x_2 = (\frac{2}{3} , \frac{1}{2})$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am having trouble with the 3rd part. Here is how I tried doing it:&#xA;It can be seen from utility that increased consumption of $x_1$ by 1st consumer results in less utility of 2nd consumer. So, I charged a tax $t$ on consumption of good 1 by 1st consumer and gave a lump sum payment $T$ to compensate for it.&#xA;So the budget constraint became &#xA;$(P_1+t)x_{11} + x_{12} = p_1+ T_1$ (normalising $p_2=1$)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;After maximizing the utility I got two equations with three variables $p_1$, $T_1$ and $t$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{1}{3}P+T_1-\frac{2t}{3} =0 $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$P_1 + T_1 = 1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, since it's given that for consumer 2 the two goods are demanded in positive quantities so it must mean that $p_1=1$.&#xA;( $p_2 =1$)&#xA;Incorporating it into the first two equations I got $T_1=0$ and $t=\frac{1}{2}$ and then using 2nd's BL I got $T_2= -\frac{1}{6}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, a negative transfer for cons. 2 seems a bit absurd. So, could someone please tell me where I could be going wrong.&lt;/p&gt;&#xA;" OwnerUserId="11893" LastEditorUserId="2776" LastEditDate="2017-02-09T11:12:03.913" LastActivityDate="2017-02-09T11:12:03.913" Title="Competitive prices, tax and lump sum cash transfer in case of externalities" Tags="&lt;microeconomics&gt;&lt;competitive-equilibrium&gt;&lt;externalities&gt;" AnswerCount="0" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="15200" PostTypeId="2" ParentId="15193" CreationDate="2017-01-27T10:20:11.363" Score="0" Body="&lt;p&gt;I will write under the assumption that $W$ is the wage paid for each unit of labour, $L$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The blue curve labelled $D$ is the demand curve which shows, for any wage, how much labour employers want to hire. That is, the blue curve shows $L=D(W)$. The reason that $L$ is taken as the dependent variable is that these kinds of figures are usually drawn for perfectly competitive markets. The defining feature of a &lt;a href=&quot;https://en.wikipedia.org/wiki/Perfect_competition&quot; rel=&quot;nofollow noreferrer&quot;&gt;perfectly competitive&lt;/a&gt; market is that the participants take the price (i.e. the wage) as given and choose the quantity to buy or sell accordingly.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The red curve labelled $S1$ is a supply curve that shows, for any wage, how many units of labour are workers willing to supply: $L=S(W)$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The hypothesis of the perfectly competitive model is that an equilibrium will arise where the quantity that workers supply and the quantity that employers demand are equal. This happens where the supply and demand curves cross, and thus pins down an equilibrium $W$ and $L$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If something happens to increase the supply of labour (e.g. mass immigration) then the supply curve shifts right (e.g. to S2) reflecting the fact that more $L$ is supplied at any wage. We then get a new equilibrium at the new intersection between $S$ and $D$. The prediction of the model is that this new equilibrium has a lower wage, and a higher quantity of labour employed.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Now, back to the question of &quot;what is the dependent variable?&quot; I have said that from the perspective of each individual (employer or worker), the dependent variable is $L$ because the wage is taken as given. But from the perspective of the market as a whole, economists often take the price, $W$, as the dependent variable. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The way Alfred Marshall (who pioneered this analysis) thought about it is this: each morning some sellers show up at the market with a quantity of goods to sell, while customers show up wanting to buy. If, today, few sellers show up with few items for sale, and if there are many buyers, then the sellers will collectively see an opportunity to set a high price. If, on the other hand, there are many sellers and few buyers then the sellers will compete with each other and the price will be low.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this story, it is quantity that determines price, and this is why, much to the consternation of new economists, price is on the vertical axis.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But this is just a story, and the convention an accident of history. One can equally tell a consistent story in which sellers see the day's price and then decide whether it is worth going to the market or not (i.e., a story in which quantity is the dependent variable). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Neither of these two perspectives is more right than the other, and, at the the level of the market as a whole, one cannot definitively say in general that price or quantity is the dependent variable.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2017-01-27T10:20:11.363" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15201" PostTypeId="2" ParentId="15196" CreationDate="2017-01-27T10:55:23.357" Score="1" Body="&lt;p&gt;It is not immediately obvious precisely when the recent US housing crisis took place: prices started declining in 2006 (&lt;a href=&quot;https://fred.stlouisfed.org/graph/?g=cvjE&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://fred.stlouisfed.org/graph/?g=cvjE&lt;/a&gt;) causing disruption in the financial markets in 2007. The peak of the crisis was possibly in September 2008 when Lehman Brothers failed and the mortgage securitizing enterprises Fannie Mae and Freddie Mac were taken over by the federal government.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/GUuSj.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/GUuSj.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;US consumer prices fell slightly in the second half of 2008  (&lt;a href=&quot;https://fred.stlouisfed.org/graph/?g=cvjm&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://fred.stlouisfed.org/graph/?g=cvjm&lt;/a&gt;) while it was rising both before and after that period, so you might say money became slightly more valuable in terms of goods and services&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/7b6uX.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/7b6uX.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the same period, the value of the US dollar rose against other currencies (&lt;a href=&quot;https://fred.stlouisfed.org/series/TWEXB&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://fred.stlouisfed.org/series/TWEXB&lt;/a&gt;), typically described as a flight to safety by worried investors during the worldwide financial crisis &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/FTBHH.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/FTBHH.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is no particular reason to believe exactly the same things would happen in other housing crises or in other countries, but it is reasonable to expect a housing crisis to reduce consumption (the construction sector shrinks while others feel poorer) possibly leading to a recession and perhaps lower inflation. &lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2017-01-27T10:55:23.357" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15202" PostTypeId="2" ParentId="13209" CreationDate="2017-01-27T13:30:11.477" Score="2" Body="&lt;p&gt;We solve the utility maximization problem of the individual whose utility function is $u(c, l) = c - \frac{l^{1+\gamma}}{1+\gamma}$ to get the supply function. The problem can be written as:&#xA;\begin{eqnarray*} \max_{c,l} &amp;amp; &amp;amp; c - \frac{l^{1+\gamma}}{1+\gamma} \\ \text{s.t.} &amp;amp;&amp;amp; c \leq wl\end{eqnarray*}&#xA;In this problem, we are assuming that the only source of income of the consumer is his wage income. When we solve the problem we get the labor supply function as:&#xA;\begin{eqnarray*} l(w) = w^{1/\gamma}\end{eqnarray*}&#xA;The elasticity of labor supply curve is this case is constant and equal to $\frac{1}{\gamma}$. Supply will be elastic if $0 &amp;lt; \gamma &amp;lt; 1$ and inelastic if $\gamma &amp;gt; 1$.&lt;/p&gt;&#xA;" OwnerUserId="11824" LastEditorUserId="11824" LastEditDate="2017-01-27T14:19:29.157" LastActivityDate="2017-01-27T14:19:29.157" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15203" PostTypeId="2" ParentId="15172" CreationDate="2017-01-27T14:41:26.563" Score="3" Body="&lt;p&gt;That depends on your model of the world, and on how you define &quot;goods and services&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a gold standard world, you essentially exchange goods and services with gold. Gold mining is therefore simply an expansion of the money supply. Adding gold to both the nominal and real side of the economy seems to me like today adding money as a good to GDP. If you do this, you get a positive trade balance. It makes a lot of sense to seperate monetary gold, which is on the monetary side, and commodity gold, on the goods side, as Henry mentioned in the comments.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In my opinion, it does not make sense to count gold twice. It seems reasonable to seperate the monetary and real side of the world, which then would yield a balanced world trade.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To the second question: I am no expert on gold mining, but I could imagine that it is not possible to &quot;drive up&quot; gold production in a recession. What is true is that a (nearly) constant money/gold supply leads to inflation being counter cyclical.&lt;/p&gt;&#xA;" OwnerUserId="8630" LastActivityDate="2017-01-27T14:41:26.563" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15204" PostTypeId="2" ParentId="15085" CreationDate="2017-01-27T16:36:48.867" Score="0" Body="&lt;p&gt;The description of a &quot;CDO&quot; that you lay out as the premise of your question is not accurate. A CDO should be thought of in terms of credit tranching, which is as you describe where more 'senior' bonds are higher up the food chain in terms of NOT taking losses until the tranches below are completely wiped out. However, this is achieved not so much by segregating the underlying risk into safe and less safe groups but by assuming that the risks are largely uncorrelated. If they are (and that is a rebuttable presumption) then safer tranches can be created and the extent of the tranching will depend on the underlying correlation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Imagine a situation where the correlation between risks was 1.0 - either no one defaulted, or they all defaulted. In this case, no CDO could be (or I should say) should be created since there are states of the world with a high enough probability where the entire notional could be wiped out. This was essentially what happened when Wall Street packaged junior and mezzanine securities from subprime RMBS and created CDOs backed by them. Once defaults on the loans backing the RMBS increased rose high enough, the RMBS tranches acted as one - they were perfectly correlated, leading to massive losses for the  holders of the CDO seniors.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There, in a nutshell, is what the subprime crisis was all about!&lt;/p&gt;&#xA;" OwnerUserId="11155" LastActivityDate="2017-01-27T16:36:48.867" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15206" PostTypeId="1" CreationDate="2017-01-27T18:20:12.280" Score="2" ViewCount="376" Body="&lt;p&gt;I remember doing these in High School.It was a 2x2 square, where you could work out the math to show that countries were better off focusing on their efficiency/competitive advantage, and that free trade made both better off.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Not looking for an analysis of if the logic is right or wrong or whatnot, just what is the name of the square (assuming it has one)&lt;/p&gt;&#xA;" OwnerUserId="7100" LastActivityDate="2017-01-27T20:31:43.483" Title="What is the name of the economics free trade &quot;punnett square&quot;" Tags="&lt;international-trade&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15207" PostTypeId="2" ParentId="15206" CreationDate="2017-01-27T20:15:16.390" Score="1" Body="&lt;p&gt;I think you are referring to &lt;a href=&quot;https://en.wikipedia.org/wiki/Comparative_advantage#Ricardo.27s_example&quot; rel=&quot;nofollow noreferrer&quot;&gt;Ricardo's model of comparative advantage&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2017-01-27T20:15:16.390" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15208" PostTypeId="2" ParentId="15206" CreationDate="2017-01-27T20:17:20.647" Score="3" Body="&lt;p&gt;Perhaps you mean an &lt;a href=&quot;https://en.wikipedia.org/wiki/Edgeworth_box&quot; rel=&quot;nofollow noreferrer&quot;&gt;Edgeworth box&lt;/a&gt;?&#xA;Here is an example demonstrating Ricardo's theory of comparative advantage using an Edgeworth box:&#xA;&lt;a href=&quot;https://i.stack.imgur.com/WWT2M.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/WWT2M.jpg&quot; alt=&quot;richardo edgeworth&quot;&gt;&lt;/a&gt;&#xA;Source: &lt;a href=&quot;http://www.policonomics.com/ricardian-trade-theory/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Policonomics&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This shows that through trade both Portugal and England can have more wine and more cloth after opening up trade between the countries. It also shows that even if Portugal is more productive than England at producing both commodities then trade is still improving (that is what makes it comparative and not absolute advantage). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Alternatively, perhaps you mean a 2x2 table like this which shows the labor needed to produce each good:&#xA;&lt;a href=&quot;https://i.stack.imgur.com/edm2v.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/edm2v.png&quot; alt=&quot;table pic&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Source: &lt;a href=&quot;http://kalyan-city.blogspot.com/2011/02/ricardos-theory-of-comparative.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;KALYAN CITY LIFE&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To my knowledge this table has no special name. &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2017-01-27T20:31:43.483" LastActivityDate="2017-01-27T20:31:43.483" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15209" PostTypeId="2" ParentId="95" CreationDate="2017-01-27T21:28:21.933" Score="2" Body="&lt;p&gt;Picking up &lt;a href=&quot;https://economics.stackexchange.com/a/5145/11590&quot;&gt;my comment under this answer&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One striking issue relevant to decisions not captured by expected utility is the framing effect discussed by &lt;a href=&quot;http://psych.hanover.edu/classes/cognition/papers/tversky81.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Tversky and Kahneman (1981)&lt;/a&gt; and others.&#xA;In their experimental study, they let two different (but with the same characteristics) groups choose between two options. Both groups actually face the same choices, but the wording is different. One group chooses between A and B, and one group between C and D. It is always one safe and one risky choice. While 72 percent picked the save option A vs B, 78 percent picked the risky option D vs C, although in expected-utility terms $A=C$ and $B=D$. So this observation is not compatible with expected utility.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A disease is expected to kill 600 people if no action is taken.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You have two options (program $A$ and $B$) to fight the disease:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If $A$ is adopted, 200 people will be saved.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If $B$ is adopted, all 600 are saved with probability 1/3 and with probability 2/3 no people are saved.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another group of people faced the choice between program $C$ and $D$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If $C$ is adopted, 400 people will die.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If $D$ is adopted, nobody dies with probability 1/3 and with probability 2/3 all people die.&lt;/p&gt;&#xA;" OwnerUserId="11590" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2017-01-27T21:28:21.933" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15211" PostTypeId="2" ParentId="15130" CreationDate="2017-01-28T04:06:17.167" Score="0" Body="&lt;p&gt;The condition &lt;em&gt;P=MC&lt;/em&gt; refers to the price corresponding to the maximum quantity of a commodity produced/supplied by a producer-supplier that is earning profits of net-zero or more and is not price-setting.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your question is &quot;if the price of commodity &lt;em&gt;X&lt;/em&gt; equals the marginal cost of producing &lt;em&gt;X&lt;/em&gt; then why produce more &lt;em&gt;X&lt;/em&gt;?&quot; The answer is that it is not rational to produce more &lt;em&gt;X&lt;/em&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The condition &lt;em&gt;P=MC&lt;/em&gt; refers to the greatest price a profit-maximzing producer can set for what it produces if that producer faces a perfectly competitive market, because producers/suppliers cannot price-set in a perfectly competitive market but will not produce for profits less than net-zero. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assuming no price-setting: &lt;em&gt;ceteris paribus&lt;/em&gt;, if firms &lt;strong&gt;A&lt;/strong&gt; and &lt;strong&gt;B&lt;/strong&gt; have the same marginal cost and enjoy the same profit but &lt;strong&gt;A&lt;/strong&gt; faces a perfectly competitive market and &lt;strong&gt;B&lt;/strong&gt; is a monopoly then &lt;strong&gt;B&lt;/strong&gt; produces less than &lt;strong&gt;A&lt;/strong&gt;, which increases the price of the commodity it produces.&lt;/p&gt;&#xA;" OwnerUserId="11912" LastActivityDate="2017-01-28T04:06:17.167" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15212" PostTypeId="1" CreationDate="2017-01-28T06:06:09.150" Score="0" ViewCount="744" Body="&lt;p&gt;When determining equilibrium, we take consumption equal to C= ¢ + c' y where ¢ is the autonomous consumption or minimum consumption that would take place even in absence of income.&#xA;What could be the consequences on equilibrium income if the autonomous consumption ¢ was negative?&lt;/p&gt;&#xA;" OwnerUserId="11893" LastActivityDate="2017-08-26T18:16:13.100" Title="Simple Keynesian model of income determination" Tags="&lt;macroeconomics&gt;&lt;keynesian-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15213" PostTypeId="1" AcceptedAnswerId="15246" CreationDate="2017-01-28T06:41:56.477" Score="3" ViewCount="206" Body="&lt;p&gt;Reading Hayek and von Mises I found a bunch of strong arguments against interventionism beyond economics (philosophical and ethical aspects). The technical difference between Classical and Keynesian economics is obvious, but is there any Keynesian text about ethics (individual freedom, wealth redistribution, social justice, and how to deal with inflation injustice among different groups)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;P.S. This question includes New-Keynesian economists.&lt;/p&gt;&#xA;" OwnerUserId="11470" LastEditorUserId="2776" LastEditDate="2017-01-30T08:08:05.627" LastActivityDate="2017-01-30T19:52:27.210" Title="Keynesian Ethics" Tags="&lt;reference-request&gt;&lt;political-economy&gt;&lt;new-keynesian-economics&gt;&lt;keynesian-economics&gt;&lt;classical-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15214" PostTypeId="2" ParentId="12867" CreationDate="2017-01-28T07:21:43.923" Score="0" Body="&lt;p&gt;If a manufacturer/retailer is unethical then there is a disturbance in the market. Let's assume he tax evades by excluding VAT for his best customers. If he does so he can increase his profit more than the rate of VAT because the state observes he sells less, so he will contribute less in taxes (assuming progressive tax rates). Also, he is able to have prices under the market equilibrium.&#xA;Having an illegal comparative advantage like this over his competitors, the opportunity cost of being more competitive reduces over let's say finding an even better accountant to hide the fact he tax evades.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The long story short, this assymetry redistributes wealth from healthy investors/retailers to malinvestors.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Back to your question, my suggestions may seem a bit awkward.&#xA;Read utilitirianism by Stuart Mill and Bentham and psychological egoism. Under this concept you will find out that a state ought to regulate in a way to minimize the utility of being unethical (or max the utility of being ethical), because let's face it:&#xA;Economic agents tend to be unethical in order to max their personal utility and there's not such a thing as collective utility notion in western civilization.&lt;/p&gt;&#xA;" OwnerUserId="11470" LastActivityDate="2017-01-28T07:21:43.923" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15215" PostTypeId="2" ParentId="15212" CreationDate="2017-01-28T08:48:40.790" Score="1" Body="&lt;p&gt;I cannot see any way to have negative autonomous consumption. I believe autonomous consumption's extreme is zero if there's a kind of superheroes who don't need water, electricity and food to live and they save everything they earn. But in a case like this, there's  no reason for having aggregate supply at all as nobody will buy the goods in first place.&lt;/p&gt;&#xA;" OwnerUserId="11470" LastActivityDate="2017-01-28T08:48:40.790" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="15216" PostTypeId="2" ParentId="15130" CreationDate="2017-01-28T11:14:38.687" Score="0" Body="&lt;p&gt;Suppose you produce a quantity $q$ where $p&amp;gt;MC$. This means that if you were to increase your quantity to $q+dq$ then your revenue would increase by $p\cdot dq$ and your costs would increase by $MC\cdot dq$. Since $$p&amp;gt;MC\implies p\cdot dq&amp;gt;MC\cdot dq$$&#xA;the result is an increase in your profit, so quantity $q$ can't have been optimal.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Likewise, suppose you produce a quantity $q$ where $p&amp;lt;MC$. This means that if you were to decrease your quantity to $q-dq$ then your revenue would fall by $p\cdot dq$ and your costs would fall by $MC\cdot dq$. Since $$p&amp;lt;MC\implies p\cdot dq&amp;lt;MC\cdot dq$$&#xA;the result is an increase in your profit, so quantity $q$ can't have been optimal.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Thus we see that producing at any point where $p\neq MC$ is not optimal.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When we produce where $p=MC$ this argument breaks. An increase in quantity causes profit to change by $(p-MC)dq=0$ so I can't do any better by making a small change to quantity. This is a necessary condition for the current quantity to be optimal.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2017-01-28T11:14:38.687" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15217" PostTypeId="2" ParentId="15130" CreationDate="2017-01-28T12:06:16.730" Score="0" Body="&lt;p&gt;You can think about it as follows:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$p$ (the price) reflects consumers' demand for that good, whereas $MC$ reflects producer's supply for that product &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If $p&amp;gt;MC$ it means that consumers demand more for that good, so the producer has an incentive to increase the supply. On the other hand, if $p&amp;lt;MC$ it means that producer produces more product than consumers demand. Since the production of the good is costly, the producer has an incentive to decrease the supply.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At $p=MC$, neither consumers nor the firms have an incentive to demand (produce) an additional unit of the product, and hence the quantity of the good that satisfies the condition $p=MC$ is said to be optimal.&lt;/p&gt;&#xA;" OwnerUserId="6520" LastEditorUserId="6520" LastEditDate="2017-01-28T12:11:49.153" LastActivityDate="2017-01-28T12:11:49.153" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15218" PostTypeId="1" CreationDate="2017-01-28T13:58:12.250" Score="1" ViewCount="151" Body="&lt;p&gt;Suppose I run a regression discontinuity design (RDD) for two different samples - say, separately for regions A and B of the same country. I get RDD estimates that are statistically significant in each separate test. Now, I would like to show that these estimates are indeed different from each other. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is the most appropriate way of showing that the RDD coefficients of the two regions are indeed different? &#xA;Is it sufficient to just take the difference in the estimates of the two samples and use some appropriate standard error - in this case, which one should I choose?   &lt;/p&gt;&#xA;" OwnerUserId="11915" LastActivityDate="2017-01-28T13:58:12.250" Title="Difference in Regression Discontinuity Estimates" Tags="&lt;econometrics&gt;&lt;statistics&gt;&lt;applied-econometrics&gt;&lt;regression&gt;&lt;causality&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15219" PostTypeId="1" CreationDate="2017-01-28T16:05:34.520" Score="0" ViewCount="36" Body="&lt;p&gt;I was looking at the deficit for different countries &#xA;&lt;a href=&quot;http://appsso.eurostat.ec.europa.eu/nui/show.do?dataset=gov_10q_ggnfa&amp;amp;lang=en&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://appsso.eurostat.ec.europa.eu/nui/show.do?dataset=gov_10q_ggnfa&amp;amp;lang=en&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How shall they be read?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For instance Greece had a -15% in Q4 of 2015 and +0.5% in Q2 of 2016.&#xA;Does this datum refer only in that specific period? I mean in Q4 of 2015 Greece had a 15% unbalance, but this is not on annual basis. &#xA;If we want the yearly data we shall sum up the 4 quarters?&#xA;Following this path in the entire 2015 Greece had a total annual deficit of 30%? Isn't it too high?&lt;/p&gt;&#xA;" OwnerUserId="11688" LastActivityDate="2017-04-29T00:51:31.107" Title="Help in interpreting data - Deficit" Tags="&lt;data-request&gt;&lt;government-debt&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15220" PostTypeId="2" ParentId="15098" CreationDate="2017-01-28T16:35:31.340" Score="7" Body="&lt;p&gt;&lt;strong&gt;Part A: how much does the UK contributes to the EU Budget&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This depends on whether you use fiscal year or calendar year estimates. The figures for the 2015/2016 fiscal year are &lt;a href=&quot;http://researchbriefings.parliament.uk/ResearchBriefing/Summary/CBP-7886&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;. The key is the following graph:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/DixEJ.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/DixEJ.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The calendar year estimates are &lt;a href=&quot;https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/483344/EU_finances_2015_final_web_09122015.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;. The following Table summarizes the data:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/nma45.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/nma45.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Naturally, &lt;strong&gt;the net contribution is what matters&lt;/strong&gt; for analysis the case of &quot;EU budget without UK&quot;. However, as both report point out, the UK receives other contribution, which come from an &quot;allocation of funds via competition&quot;. Think of the EU having a fund for, say, improvement in infrastructure. Countries apply to this fund, and some countries get it. Well, as the first report says, the UK got £1bn extra through that mechanism in the 2015/16 year. Should this be counted as part of the exercise? Probably not, because those extra funds would have been allocated to another country anyway. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, given that the total budget of the EU in 2015 was €141,280 million, and taking an &lt;a href=&quot;https://www.statista.com/statistics/412806/euro-to-gbp-average-annual-exchange-rate/&quot; rel=&quot;nofollow noreferrer&quot;&gt;average EUR/GBP&lt;/a&gt; of 0.73, the percentage of contribution of UK to EU budget in 2015 was:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{8,473}{141,280 \times 0.73} = 8.2\% $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regarding &lt;strong&gt;2017&lt;/strong&gt;, table in page 11 shows only the &lt;strong&gt;gross payments&lt;/strong&gt;, including the rebate, but not the public rector receipts. As such, the effective contribution of the UK is not going to be 12.5% as the document notes, but lower. Given historical levels of receipts, you could estimate that the contribution of the UK to the EU budget would be perhaps around 9%. In any case, as far as I know, this cannot be known &lt;em&gt;ex-ante&lt;/em&gt;, reason why it is not included in the official budget document.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Part B: how would the EU budget change after Brexit&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since this relates to a future event, it is impossible to tell. This is for several reasons:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Budget are negotiated annually among all members, and contributions vary accordingly. As such, if countries expect less revenues, they might either lower expenditures, &lt;strong&gt;or&lt;/strong&gt; increase demand for contributions to other countries. For instance, immediately after the Brexit vote, speculation arose that &lt;a href=&quot;http://www.telegraph.co.uk/news/2016/06/24/germanys-contribution-to-eu-annual-budget-could-rise-by-2bn-afte/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Germany would cover any hole left by the UK&lt;/a&gt;.&lt;/li&gt;&#xA;&lt;li&gt;An important component of budget (31% in 2014) does not come from individual countries contributions. As such, how these evolve affects particularly how much countries contribute.&lt;/li&gt;&#xA;&lt;li&gt;Brexit might induce an adjustment on the so-called &lt;a href=&quot;https://en.wikipedia.org/wiki/Budget_of_the_European_Union#Correction_mechanisms&quot; rel=&quot;nofollow noreferrer&quot;&gt;correction mechanisms&lt;/a&gt;.&lt;/li&gt;&#xA;&lt;li&gt;Countries contribution vary over time depending on many national circumstances, including the size of their economy, which then depends on economic growth, uneven across the EU.&lt;/li&gt;&#xA;&lt;li&gt;The UK is expected to pay the EU before it leaves, known as a &quot;divorce&quot; or &quot;exit&quot; bill, which depends on the outcome of negotiations. &lt;/li&gt;&#xA;&lt;li&gt;It depends on what deal the UK and EU have after Brexit. A Norway style of deal means the UK would have to pay to the EU.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;In conclusion, it is simply impossible to tell. The calculations you make are a simple &lt;em&gt;ceteris paribus&lt;/em&gt; exercise of removing the UK from the _current EU budget. That might be illustrative, but given the huge uncertainty on the issue, it's probably a rather brute calculation. &lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-01-31T09:36:07.330" LastActivityDate="2017-01-31T09:36:07.330" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="15221" PostTypeId="1" CreationDate="2017-01-28T16:46:29.923" Score="6" ViewCount="7740" Body="&lt;p&gt;It is well-known that transfer payments are not counted in GDP (e.g. &lt;a href=&quot;https://en.wikipedia.org/wiki/Gross_domestic_product#Components_of_GDP_by_expenditure&quot; rel=&quot;noreferrer&quot;&gt;wikipedia 1&lt;/a&gt; and &lt;a href=&quot;https://en.wikipedia.org/wiki/Transfer_payment&quot; rel=&quot;noreferrer&quot;&gt;wikipedia 2&lt;/a&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For instance, exercise 2.c in Chapter 2 of Jones book's &lt;em&gt;Macroeconomics&lt;/em&gt; ask to calculate how much GDP changes if:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;During a recession, the government raises unemployment benefits by $100 million. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The official solution says:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;No impact. This is a government transfer payment, not a government purchase of a good or service.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;But, &lt;strong&gt;what if that transfer is spend in goods?&lt;/strong&gt; Would that not increase C? What if just a portion of the transfer is used to buy goods?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In fact, an &lt;a href=&quot;http://www.businessinsider.com/we-can-thank-transfer-payments-for-gdp-recovery-2010-12?IR=T&quot; rel=&quot;noreferrer&quot;&gt;article&lt;/a&gt; from Business Insider states the following:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;While transfer payments are not included in GDP, they are largely put in the hands of those who spend most of the money immediately. Therefore, transfer payments show up in GDP as increased personal consumption.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I am puzzled. &lt;strong&gt;Why transfer payments do not increase GDP?&lt;/strong&gt; I would have thought that it depends on whether that money is spent. Also, is this completely independent on where that money comes from? What if it comes from borrowing abroad, or nationally, or from taxes?&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="1417" LastEditDate="2017-01-29T11:37:42.420" LastActivityDate="2020-06-25T16:47:36.520" Title="Why are &quot;transfer payments&quot; not part of GDP?" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;&lt;government&gt;" AnswerCount="4" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15222" PostTypeId="2" ParentId="12198" CreationDate="2017-01-28T17:19:27.957" Score="2" Body="&lt;p&gt;Your intuition is entirely correct. Inflation is calculated based on a &quot;standard basket&quot;, whereas real baskets vary among different consumers. As such, the incidence of changes in prices affect consumers differently. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A good treatment of the issue is &lt;a href=&quot;https://www.ifs.org.uk/docs/oxbridge09_odea.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;this piece&lt;/a&gt; by the IFS, UK. Basically, distributional effects of inflation would not exists if:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;households buy the same&lt;/li&gt;&#xA;&lt;li&gt;price of all items change equally&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;As you can imagine, both are not true. The report calculates then the rate of inflation faced by different households, taking Sept of 2008 as example, leading to the following result:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/1DoDx.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/1DoDx.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is, &lt;strong&gt;inflation can be very different across households.&lt;/strong&gt; Check the document for more details and insights.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, an example of a theoretical treatment (aka model) is &lt;a href=&quot;https://ideas.repec.org/a/eee/moneco/v49y2002i4p761-795.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;. The authors model a monetary economy where the cost of credit is a non-linear function of income, such that the rich have a lower cost per unit of credit. This means that rich buy their consumption with a greater proportion of credit than cash, compared with the poor. Then, as inflation is basically a tax on cash, this means the same inflation affects the rich and poor differently. In fact, inflation is regressive. This is a well-known fact in political discussions (e.g. &lt;a href=&quot;https://www.cato-unbound.org/2013/12/02/jerry-l-jordan/inflation-regressive-tax&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;).&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-01-28T17:19:27.957" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15223" PostTypeId="2" ParentId="15221" CreationDate="2017-01-28T17:39:32.980" Score="1" Body="&lt;p&gt;I believe that the author's answer is clear. GDP is the total product produced in a country. By increasing the unemployment benefits, the government does not increase the product.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you think GDP as the total income of a country, then a transfer payment means that the government pay you back what you have already pay with taxes. In other words, the total government earnings by taxation are 100 million, which they go back to people as an unemployment benefit.&lt;/p&gt;&#xA;" OwnerUserId="6520" LastActivityDate="2017-01-28T17:39:32.980" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="15224" PostTypeId="2" ParentId="15219" CreationDate="2017-01-28T23:46:35.457" Score="1" Body="&lt;p&gt;It is the difference between total general government revenue and total general government expenditure defined in the National Accounts system.  You can find some sort of explanation at &lt;a href=&quot;http://ec.europa.eu/eurostat/statistics-explained/index.php/Government_finance_statistics_-_quarterly_data#Government_revenue_and_expenditure&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://ec.europa.eu/eurostat/statistics-explained/index.php/Government_finance_statistics_-_quarterly_data#Government_revenue_and_expenditure&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For Greece, Eurostat's underlying figures look like this &lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;UNIT    NA_ITEM/TIME            2015Q1  2015Q2  2015Q3  2015Q4  2016Q1  2016Q2  2016Q3&#xA;M euro  Total GGov revenue      16,945  19,711  19,970  27,484  18,430  20,598  23,780&#xA;M euro  Total GGov expenditure  20,925  21,336  20,796  34,290  20,222  20,368  20,982&#xA;M euro  Net lend(+)/borrow(-)   -3,980  -1,625    -826  -6,806  -1,792     230   2,798&#xA;% GDP   Total GGov revenue        42.0    44.5    43.3    61.3    46.2    46.3    50.9&#xA;% GDP   Total GGov expenditure    51.8    48.1    45.1    76.5    50.7    45.8    44.9&#xA;% GDP   Net lend(+)/borrow(-)     -9.9    -3.7    -1.8   -15.2    -4.5     0.5     6.0&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;The percentages are of quarterly GDP.  If you wanted exact annual percentages then you should add up the four quarterly figures in Euros and divide by the sum of the four quarterly figures for GDP in Euros (from a different Eurostat table), but you will get a close approximation if you take the average of the four quarterly percentages.  So for Greece it might represent a government deficit of around 7.7% in 2015 &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Be aware that the numbers are not seasonally adjusted: it looks as if a lot of Greek government revenue and expenditure comes in Q4. &lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2017-01-28T23:46:35.457" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="15225" PostTypeId="1" AcceptedAnswerId="16251" CreationDate="2017-01-29T00:55:50.750" Score="1" ViewCount="408" Body="&lt;p&gt;President Trump has proposed a 20% tariff on some Mexican imports to the US. Is there a good way to estimate the incidence of this proposal between the Mexican producers and American consumers, as well as the deadweight losses? Perhaps some analyses have already been done?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know it's hard since there are no real details on the proposal.&lt;/p&gt;&#xA;" OwnerUserId="4834" LastActivityDate="2017-04-13T13:16:35.500" Title="How can we estimate the tax incidence from a 20% tariff on Mexican goods?" Tags="&lt;macroeconomics&gt;&lt;international-trade&gt;&lt;taxation&gt;&lt;tariffs&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15226" PostTypeId="2" ParentId="15221" CreationDate="2017-01-29T11:37:01.003" Score="4" Body="&lt;p&gt;The question:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;How much would GDP change if during a recession the government raises unemployment benefits by $100 million?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;can be understood in more than one way. There is the pure accounting question which could be formulated more precisely (albeit in terms of a rather unrealistic scenario) as follows:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Suppose, in a certain period, the economic activities and transactions of two countries in recession A and B are exactly the same, except that in A the government pays $100 million more in unemployment benefits than in B. How much does GDP differ between A and B?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The answer to this question, which is presumably what Jones means, is that GDP is the same in both countries, because transfer payments are not a component of GDP. Why not? Because although they are expenditure by the government and income to the recipients, they are not directly associated with any element of production or output. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then there is the question about economic effects:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Suppose, during a recession, the government raises unemployment benefits by $100 million.  What would be the likely economic effects, and how would GDP change as a result?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The answer to this question will depend on circumstances, and so it is entirely proper here to raise further questions including how the $100 million is funded and how it will be used.  It's a reasonable assumption that the propensity to spend of benefit recipients will be high.  If the funding were from increased taxation of people on middle and high incomes who have a somewhat lower propensity to spend, then the net effect would be an increase in aggregate demand, perhaps with a multiplier effect, so GDP would probably increase. (I say 'perhaps' and 'probably' because there could be further complications, eg spending on imports.) If the funding were via government borrowing, then there would potentially be direct effects on both demand and interest rates, and it would be quite challenging (and need further information) to identify all the indirect effects including the effect on GDP. &lt;/p&gt;&#xA;" OwnerUserId="1417" LastEditorUserId="1417" LastEditDate="2017-01-29T13:47:21.267" LastActivityDate="2017-01-29T13:47:21.267" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="15227" PostTypeId="1" CreationDate="2017-01-29T12:04:12.870" Score="2" ViewCount="695" Body="&lt;p&gt;I'm trying to derive the solution to a final producer with unit elasticity of substitution and a continuum of inputs (of measure $x$).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;She minimizes input costs, given an output of $q$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \min_{\{y(i)\}_i, 0 \leq i \leq x} \int_0^x p(i)y(i) di + \lambda\left[ \log q - \log A + \int_0^x \log y(i) di \right] $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Combining two FOCs over $y(i)$ and $y(j)$, the shadow price drops out:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ y(i) = p(j) \frac{y(j)}{p(i)} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Multiply with $w(i)$ and integrate, to get total labor cost on the left-hand-side:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\underbrace{\int_0^x p(i)y(i)}_{C(x)} = p(j) y(j) x$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Taking logs: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\log y(j) = \log(C(x)) - \log p(j) - \log x \tag 1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Plugging back into the production frontier:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \log q = \log A(x) + \log(C(x)) - \log x -  \underbrace{\int_0^x  \log p(i)  di}_{\equiv P(x)}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where I denote the price index as $P(x)$. Plugging back (1):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \log q = \log A(x) + \log y(j) + \log p(j)  - P(x)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;or, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ q = \frac{A(x)y(j)p(j)}{P(x)} \\&#xA;y(j) = \frac{P(x)}{p(j)}\frac{q}{A(x)}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, demand for each variety increases in total output $q$, decreases in productivity, and increases in the relative costs of variety $j$ compared to the total price index $P(x)$. This all appears to make sense.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, Acemoglu gets for $x=1$, and $A(1) = 1$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ y(j) = \frac{q}{p(j)}$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;that is, the price index does not appear in his equation, which you can find in &lt;a href=&quot;http://economics.mit.edu/files/6977&quot; rel=&quot;nofollow noreferrer&quot;&gt;his slides&lt;/a&gt;, slide. What am I missing?&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2017-01-29T12:04:12.870" Title="Cobb-Douglas production function with continuum of goods" Tags="&lt;macroeconomics&gt;&lt;industrial-organisation&gt;&lt;monopolistic-competition&gt;" AnswerCount="0" CommentCount="5" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15228" PostTypeId="2" ParentId="15115" CreationDate="2017-01-29T13:22:56.257" Score="0" Body="&lt;p&gt;$T$ is fixed so $\tau \to 0$ if and only if $t \to T$. Hence, it must be the case that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \lim_{\tau \to 0} V(S,\tau) = \max \{ X-S,0 \} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, when $(S,\tau) \in \Sigma_1$, it is optimal not to exercise the option. This means that as $\tau \to 0$, it must be the case that $X \le S$. Otherwise, you would not be in $\Sigma_1$.&lt;/p&gt;&#xA;" OwnerUserId="8595" LastActivityDate="2017-01-29T13:22:56.257" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15229" PostTypeId="1" AcceptedAnswerId="15232" CreationDate="2017-01-29T13:25:05.720" Score="7" ViewCount="169" Body="&lt;p&gt;That Mexicans workers get paid less US workers is a dynamic which motivates the moving of production to Mexico.  This idea can be abstracted to Developed Markets (DM) labor and Emerging Markets (EM) labor.  This is driving many recent political upsets.  &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Do the proponents of free globalised trade expect the price of labor to converge?  &lt;/li&gt;&#xA;&lt;li&gt;Is there evidence of convergence?&lt;/li&gt;&#xA;&lt;li&gt;When will meaningful convergence arrive (example metric EM labor being paid no less than half DM labor)?&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;So folding in some feedback from commenters about 'why should they?'.  Isn't this case analogous to supernormal profits being competed away?  &lt;/p&gt;&#xA;" OwnerUserId="11622" LastEditorUserId="11622" LastEditDate="2017-01-29T17:02:08.737" LastActivityDate="2017-04-04T11:43:34.473" Title="Why don't prices of USA labor and Mexican labor equalise?" Tags="&lt;labor-economics&gt;&lt;international-trade&gt;&lt;free-trade&gt;&lt;labor-cost&gt;" AnswerCount="3" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15230" PostTypeId="2" ParentId="12867" CreationDate="2017-01-29T16:35:15.117" Score="1" Body="&lt;p&gt;You ask:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Is there any economic value contributed by humanities faculty?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;A response from &lt;strong&gt;Neo-classical economics&lt;/strong&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If there are for-profit companies hiring graduates from these faculties, then yes, they do produce value. The sum of their wages is their contribution in terms of value-added to GDP.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Same applies to economists. If they are hired by companies, then their production is valuable. &lt;strong&gt;I see no particular difference between economists and any other degree&lt;/strong&gt;, and I do not see why you make such an a-priori distinction, other than an implicit view of economists as superior (widespread in the field, btw).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, the argument about the value of graduates that is allocated to non-profit organisations, including the state, universities, NGOs, and etc, goes exactly in the same way. Consider Greenpeace. If donors of Greenpeace consider it's activity as valuable, and Greenpeace wants to hire economists and artists, then their production has value, because some people benefit from Greenpeace activities. As such, there is no reason why you would not value the contribution of all these careers. &lt;strong&gt;Again, the argument applies to both economists and non-economists&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The only situation where you could argue that there is no value produced is when a degree is producing graduates which are then hired to run those same degrees, in a perpetual circle. I am afraid that economics is just as likely to suffer from this than any other discipline. &lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-01-30T11:38:10.677" LastActivityDate="2017-01-30T11:38:10.677" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15232" PostTypeId="2" ParentId="15229" CreationDate="2017-01-29T22:40:04.090" Score="6" Body="&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;The underlying reason for persistent wage differences is probably that Mexican workers are less productive than American workers.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;It is sufficient that workers in some tradeable sectors are more productive to have persistent wage differences in all sectors. (a good explanation of this effect can be found here: &lt;a href=&quot;https://en.wikipedia.org/wiki/Balassa%E2%80%93Samuelson_effect#The_effect_in_more_detail&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://en.wikipedia.org/wiki/Balassa%E2%80%93Samuelson_effect#The_effect_in_more_detail&lt;/a&gt;)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;One would expect that unit labor cost in tradeable sectors converges, not necessarily wages.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Here is a graph that suggests this has already happened: &lt;a href=&quot;https://fred.stlouisfed.org/series/CCRETT02MXA661N&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://fred.stlouisfed.org/series/CCRETT02MXA661N&lt;/a&gt;, for an explanation of real effective exchange rates see here: &lt;a href=&quot;https://en.wikipedia.org/wiki/Effective_exchange_rate&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://en.wikipedia.org/wiki/Effective_exchange_rate&lt;/a&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="11216" LastEditorUserId="11216" LastEditDate="2017-04-04T11:43:34.473" LastActivityDate="2017-04-04T11:43:34.473" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15235" PostTypeId="2" ParentId="13076" CreationDate="2017-01-30T07:59:00.443" Score="0" Body="&lt;p&gt;It depends, if the retailer pays for the Coke, then it will count as the GDP, but if he doesn't pay for it, there are no economic profits, therefore it would not count &lt;/p&gt;&#xA;" OwnerUserId="11928" LastActivityDate="2017-01-30T07:59:00.443" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15236" PostTypeId="1" CreationDate="2017-01-30T08:31:10.900" Score="1" ViewCount="31" Body="&lt;p&gt;How wealth, assets or capital (measured in terms of revenues, assets, equity, etc.) is distributed among the various types of organizations (e.g. State, public companies, private conpanies, individuals) existing in an economy?&lt;/p&gt;&#xA;" OwnerUserId="11627" LastActivityDate="2017-01-31T17:45:09.057" Title="How are assets distributed by types of organisations?" Tags="&lt;macroeconomics&gt;&lt;money&gt;&lt;firm&gt;&lt;capital-structure&gt;&lt;asset-prices&gt;" AnswerCount="1" CommentCount="6" ClosedDate="2017-02-08T16:29:39.850" ContentLicense="CC BY-SA 3.0" />
  <row Id="15238" PostTypeId="2" ParentId="13076" CreationDate="2017-01-30T11:58:46.450" Score="3" Body="&lt;p&gt;Good question, which goes into the heart of the definition of GDP. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The answer is that some of the value of the drink is accounted irrespective of what the seller does with the drink. Recall that GDP accounts for the &lt;strong&gt;value added&lt;/strong&gt; of final goods, value which is &quot;added&quot; &lt;strong&gt;at each stage of production&lt;/strong&gt; (and equivalent to the final price of the good). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As such, when the retailer buys the can of coke from the wholesaler or producer, a &lt;strong&gt;portion of the total value has already been recorded in GDP&lt;/strong&gt;. It is only the value added by the retailer which is not counted if the seller drinks the coke.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Naturally, &lt;strong&gt;this is true only if the seller does not sell the coke to herself&lt;/strong&gt;. Otherwise it makes no difference at all.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-01-30T11:58:46.450" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15239" PostTypeId="1" AcceptedAnswerId="15251" CreationDate="2017-01-30T13:31:19.120" Score="1" ViewCount="305" Body="&lt;p&gt;What is the difference between the LMSR (logarithmic market scoring rule) and the Liquidity-Sensitive LMSR (LS-LMSR) and what would cause prediction markets like &lt;a href=&quot;https://area51.stackexchange.com/proposals/106367/augur&quot;&gt;Augur&lt;/a&gt; to focus on the later model?&lt;/p&gt;&#xA;" OwnerUserId="11933" LastEditorUserId="11933" LastEditDate="2017-01-30T13:54:10.390" LastActivityDate="2017-01-31T20:27:16.930" Title="Difference between LMSR and Liquidity-Sensitive LMSR" Tags="&lt;markets&gt;&lt;theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15240" PostTypeId="1" CreationDate="2017-01-30T15:28:37.133" Score="1" ViewCount="697" Body="&lt;p&gt;On &lt;a href=&quot;https://www.treasurydirect.gov/NP/debt/rss&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.treasurydirect.gov/NP/debt/rss&lt;/a&gt;, we have three numbers:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;Debt Held by the Public: $14,387,199,090,397.24&#xA;Intragovernmental Holdings: $5,552,709,700,473.24&#xA;Total Public Debt Outstanding: $19,939,908,790,870.48&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;It seems the latter number is often considered the U.S. national debt. What is the difference between the Debt Held by the Public and the Total Public Debt Outstanding? &lt;/p&gt;&#xA;" OwnerUserId="11934" LastActivityDate="2017-01-30T18:12:54.397" Title="Difference between &quot;Debt Held by the Public&quot; and &quot;Total Public Debt Outstanding&quot;?" Tags="&lt;government-debt&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15241" PostTypeId="1" CreationDate="2017-01-30T16:30:31.930" Score="1" ViewCount="75" Body="&lt;p&gt;Assume that the United States decided to hold more yuan in the federal reserve. Which processes does that involve? I assume there is some sort of electronic exchange between the two central banks where dollars are exchanged for yuan. What happens physically? I assume that the Fed will only need to hold a portion (say, 10%) of the reserves as currency, and the other 90% will be just based on the credibility of the bank. Does that mean that the currency worth 10% of the exchange needs to be loaded in a special plane and flown from China to the US and vice versa? How often do those sorts of plane trips happen?&lt;/p&gt;&#xA;" OwnerUserId="175" LastActivityDate="2017-01-30T20:05:28.910" Title="What physically happens when foreign currency reserves change?" Tags="&lt;central-banking&gt;&lt;federal-reserve&gt;&lt;foreign-exchange&gt;&lt;reserve-requirement-ratio&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15242" PostTypeId="2" ParentId="15225" CreationDate="2017-01-30T17:22:44.493" Score="3" Body="&lt;p&gt;Due to the tariff, the supply of any product being imported from Mexico to the U.S will shift back. This would mean that prices of goods will increase in the U.S itself and most of the tariff will eventually be paid by U.S citizens who buy the goods. As the price increases, consumer surplus decreases and the market will not be at equilibrium, therefore a deadweight loss will be present.If the selling price of a product is 10.5$.The new selling price is 12. There will also be a deadweight loss as the society will not receive the quantity it demands. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/5N0mN.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/5N0mN.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="11936" LastEditorUserId="11936" LastEditDate="2017-01-31T18:36:41.610" LastActivityDate="2017-01-31T18:36:41.610" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="15243" PostTypeId="1" CreationDate="2017-01-30T17:36:39.037" Score="0" ViewCount="50" Body="&lt;p&gt;&quot;a share that has fallen by 95 per cent has fallen by half since it has fallen by 90 per cent&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can you explain the logic behind that? &lt;/p&gt;&#xA;" OwnerUserId="11937" LastActivityDate="2017-01-30T18:38:04.327" Title="I do not quite get a phrase that I read in the Financial Times today." Tags="&lt;stock-market&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15244" PostTypeId="2" ParentId="15240" CreationDate="2017-01-30T18:12:54.397" Score="1" Body="&lt;p&gt;The difference are the intragovernmental holdings, which consist of  treasuries that are owned by government agencies and are thus not counted as government debt - it's a debt that the government owes to itself.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From Wikipedia (&lt;a href=&quot;https://en.wikipedia.org/wiki/Intragovernmental_holdings&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://en.wikipedia.org/wiki/Intragovernmental_holdings&lt;/a&gt;):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In the United States, intragovernmental holdings are primarily&#xA;  composed of the Medicare Trust Fund, the Social Security Trust Fund,&#xA;  and Federal Financing Bank securities. A small amount of marketable&#xA;  securities are held by government accounts.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="11216" LastActivityDate="2017-01-30T18:12:54.397" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15245" PostTypeId="2" ParentId="15243" CreationDate="2017-01-30T18:38:04.327" Score="5" Body="&lt;p&gt;When the share price has fallen 90% from some price P, the current price is P $\cdot$ 10%.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When it has fallen 95% from some price P, the current price is P $\cdot$ 5%..&lt;/p&gt;&#xA;&#xA;&lt;p&gt;P $\cdot$ 5% is half of P $\cdot$ 10%.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As the share price falls from P, it will first pass through P $\cdot$ 10% before reaching P $\cdot$ 5%. So if we obsere the time period from when the price was P until it was P $\cdot$ 5%, it has hallen 95%. But if we observe the time period from when the price was P $\cdot$ 10% until it was P $\cdot$ 5% the share price has fallen by half.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2017-01-30T18:38:04.327" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15246" PostTypeId="2" ParentId="15213" CreationDate="2017-01-30T19:52:27.210" Score="2" Body="&lt;p&gt;If you enjoy ethical and philosophical aspects, you should look into international aid and intervention. Check out &quot;Adaptive Preferences and Women's Empowerment&quot; by Khader and work by Nussbaum in regards to social justice. These are some great texts coming off of reading Hayek.&#xA;If you aren't familiar with the concept of adaptive preferences, it is the idea that preferences may adapt to circumstances of deprivation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Other readings I suggest: Creating Capabilities by Nussbaum and Robust Political Economy by Pennington.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Coming back to your question on Keynesian texts, you have to start with &quot;The General Theory of Employment, Interest, and Money&quot;, it spends quite a bit of time trying to prove the soundness of the inflationism and labor unionism components of contemporary economic policies. Written in the midst of the great depression and the New Deal by FDR it seemed to be the correct approach for the time.&lt;/p&gt;&#xA;" OwnerUserId="11406" LastActivityDate="2017-01-30T19:52:27.210" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15247" PostTypeId="2" ParentId="15241" CreationDate="2017-01-30T20:05:28.910" Score="2" Body="&lt;p&gt;Typically foreign reserves will just be assets denominated in a foreign currency, most importantly government debt. Another popular reserve asset are IMF special drawing rights, which are convertible into currencies of member countries. I don't think there is any amount of physical cash currency in international reserves. You can see the makeup of US reserves here: &lt;a href=&quot;https://www.treasury.gov/resource-center/data-chart-center/IR-Position/Pages/12302016.aspx&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.treasury.gov/resource-center/data-chart-center/IR-Position/Pages/12302016.aspx&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the US treasury would decide to increase it's Yuan holdings, it will just buy bonds that pay are traded and denominated in Yuan.&lt;/p&gt;&#xA;" OwnerUserId="11216" LastActivityDate="2017-01-30T20:05:28.910" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15251" PostTypeId="2" ParentId="15239" CreationDate="2017-01-30T22:43:47.823" Score="2" Body="&lt;p&gt;The LMSR has a number of parameters which governs its function, but the LS-LMSR focuses, in particular, on the sensitivity function, AKA parameter b. This parameter determines how sensitive the market maker is to incoming orders. The higher the value, the less sensitive the market maker is, and the slower the price will change, because it requires more liquidity to increment the price. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's up to market operators to set b appropriately, taking into account the amount of liquidity that's expected. However, this can be difficult to manage, as traders enter and leave the market. LS-LMSR outlines a programatic way to dynamically asses conditions and change the LS-LMSR accordingly, setting the value higher as the market thickens, and vice versa. Parameter b can be changed by the operator whenever the need arises, but LS-LMSR alleviates some of that management burden. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It probably would be a good idea for &lt;a href=&quot;https://augur.net/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Augur&lt;/a&gt; and &lt;a href=&quot;https://gnosis.pm/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Gnosis&lt;/a&gt; to implement a dynamic way to manage liquidity, since relying on manual edits impedes scaling to large numbers of markets. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The LS-LMSR also describes a way to run the market maker at a profit. In many instances, operating at a loss isn't such a bad thing, at least to a pre-determined degree, since the initial liquidity is what attracts traders to enter the market. As with b, you can also edit this in time and bound losses to your liking (LMSR already supports this), but this paper provides a way to run profitably, or at least break-even. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for whether to implement, this is a business model question. Exchanges will have to weigh the cost/benefit of sacrificing some money upfront to get participants to trade, with the desire to generate transaction revenue as the market intermediary. Both approaches are valid, but dependent what outcome you're trying to achieve.&lt;/p&gt;&#xA;" OwnerUserId="11941" LastEditorUserId="11941" LastEditDate="2017-01-31T20:27:16.930" LastActivityDate="2017-01-31T20:27:16.930" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15252" PostTypeId="2" ParentId="14663" CreationDate="2017-01-31T01:26:09.727" Score="1" Body="&lt;p&gt;Your link contains chapter 2 of the following book: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Potential Game Theory - Applications in Radio Resource Allocation&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Authors: Quang Duy Lã, Yong Huat Chew, Boon-Hee Soong &#xA;ISBN: 978-3-319-30867-8 (Print) 978-3-319-30869-2 (Online) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Perhaps Jason R. Marden * , Jeff S. Shamma , &quot;Game Theory and Distributed Control&quot;, Chapter 16 in &quot;Handbook of game theory&quot;, Volume 4, 2015 could helpful as well.&lt;/p&gt;&#xA;" OwnerUserId="11946" LastActivityDate="2017-01-31T01:26:09.727" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15253" PostTypeId="2" ParentId="15062" CreationDate="2017-01-31T01:29:59.460" Score="0" Body="&lt;p&gt;I found this book to be very useful, especially understanding mixed-strategy equilibrium:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Peters, H. (2015). Game theory: a multi-leveled approach (2. Aufl.). Berlin ; Heidelberg [u.a.]: Springer.&lt;/p&gt;&#xA;" OwnerUserId="11946" LastActivityDate="2017-01-31T01:29:59.460" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15254" PostTypeId="1" CreationDate="2017-01-31T04:06:34.100" Score="1" ViewCount="419" Body="&lt;p&gt;In Australia at the moment there is a move to lower the top corporate tax rate from 30% to 25% or thereabouts. The reasoning is that the benefits from investment will outweigh the cost to the budget.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are claims either way e.g. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Malcom Turnbull (Current Australian Prime Minister)&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Malcolm Turnbull has recommitted to his government’s $48.7 billion tax cut for business over the coming decade, amid growing anxiety in corporate Australia over whether he might scale back the plan.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The Prime Minister told a business audience in Sydney the enterprise&#xA;  tax plan remained “so important” because of the fall in global growth,&#xA;  emphasising the need for ways to boost investment.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.theaustralian.com.au/business/turnbull-recommits-to-487bn-corporate-tax-cut/news-story/df2f1e43a756cf5654d59704c3cdb537&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.theaustralian.com.au/business/turnbull-recommits-to-487bn-corporate-tax-cut/news-story/df2f1e43a756cf5654d59704c3cdb537&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;The Australia Institute&lt;/strong&gt; claims:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Dear Scott Morrison, lowering the company tax rate doesn't increase foreign investment.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;In fact, when company tax rates rose in the 1980s to 49% there was a&#xA;  rise, not a drop, in investment.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/pqN97.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/pqN97.png&quot; alt=&quot;The Australia institute&amp;#39;s calim&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.tai.org.au/content/about&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.tai.org.au/content/about&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So which way is it? Does the benefit of the tax reduction outweigh the cost of the revenue loss or is it the other way around? Does it depend on other factors? Are there other benefits that may not exactly be investment, like moving offices?&lt;/p&gt;&#xA;" OwnerUserId="7946" OwnerDisplayName="user1605665" LastEditorUserId="4868" LastEditDate="2017-01-31T18:02:38.083" LastActivityDate="2017-01-31T18:02:38.083" Title="Does lowering corporate tax rates increase investment or provide some other benefit to a nation?" Tags="&lt;taxation&gt;" AnswerCount="2" CommentCount="4" ClosedDate="2017-09-23T22:10:26.290" ContentLicense="CC BY-SA 3.0" />
  <row Id="15256" PostTypeId="1" AcceptedAnswerId="15269" CreationDate="2017-01-31T08:45:01.803" Score="0" ViewCount="33" Body="&lt;p&gt;This a really basic one and logic says: Yes given enough iterations.&#xA;But I am looking for validation&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Situation: There is a 7% probability of expenses of 1000 occurring. I have a tool that then applied to the process has a 95% probability to reduce the chance of expenses occurring by 58-78% (mean at 60%). &#xA;How do I calculate savings?&lt;/p&gt;&#xA;" OwnerUserId="11951" LastEditorUserId="11951" LastEditDate="2017-01-31T11:41:06.573" LastActivityDate="2017-01-31T16:26:51.473" Title="Is lowered probability of spending equals savings?" Tags="&lt;finance&gt;&lt;probability&gt;&lt;saving&gt;" AnswerCount="1" CommentCount="2" ClosedDate="2017-02-08T16:29:52.743" ContentLicense="CC BY-SA 3.0" />
  <row Id="15257" PostTypeId="2" ParentId="13543" CreationDate="2017-01-31T09:53:10.687" Score="1" Body="&lt;p&gt;Check &lt;a href=&quot;https://www.postkeynesian.net/downloads/kingston13/JW110713.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;these slides&lt;/a&gt;, which includes a fairly introductory analysis to the LTV, including some trivial examples and calculations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another introduction can be found &lt;a href=&quot;http://www.marxist.com/marx-marxist-labour-theory-value.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; (part one) and &lt;a href=&quot;http://www.marxist.com/marx-marxist-labour-theory-value2.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; (part two).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Yet, &lt;a href=&quot;http://www.jstor.org/stable/29790106&quot; rel=&quot;nofollow noreferrer&quot;&gt;this&lt;/a&gt; is the best I am aware of. It is an attempt to explain the theory to &quot;undergraduates&quot; using a simple example. Worth reading!&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-01-31T09:53:10.687" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15258" PostTypeId="2" ParentId="15254" CreationDate="2017-01-31T09:55:00.080" Score="4" Body="&lt;p&gt;Foreign Investment is not all about taxation. It depends a lot on qualitative factors, such as unionization, regulations, stability, work ethics etc. For example, there are high taxes in Scandinavian Countries, but a potential investor knows that he will acquire high skilled labor and the regulations will not change out of blue i.e. he is able to do a long run plan. Is he able to do the same in Yemen, even if it provides 0% taxation?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, there's not such a thing &quot;today I decrease taxation&quot;, therefore &quot;tomorrow Investment will increase&quot;. Corporations plan for today, tomorrow and the day after. Perhaps Investment will increase the day after or even later.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, there's another problem. Nowadays we talk about taxation without realizing the real purpose of it. In theory, we pay taxes in order to obtain public goods and services, such as national security, railroads etc. Was that 30% tax make sense with the services provided by Au?&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In fact, when company tax rates rose in the 1980s to 49% there was a&#xA;  rise, not a drop, in investment.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Well, Australians back in 1980s happened to have comparative advantage against a bunch of other countries (English speakers, Anglo Saxon work ethics, it was far from USSR, therefore it was relatively stable, plentiful resources and raw materials).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The long story short, taxation is a necessary but not a sufficient variable in foreign investment.&lt;/p&gt;&#xA;" OwnerUserId="11470" LastActivityDate="2017-01-31T09:55:00.080" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15259" PostTypeId="1" AcceptedAnswerId="15265" CreationDate="2017-01-31T13:39:32.437" Score="1" ViewCount="54" Body="&lt;p&gt;A textbook, when explaining the effects of higher interest rates, claims that:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The initial equilibrium is with real output at $Y_0$,the price level&#xA;  at $P_0$ and the rate of interest $r_0$. An increase in the rate of&#xA;  interest to $r_1$ will need to be balanced by a decrease in money&#xA;  supply to maintain money-market equilibrium.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The illustration below accompanies the claim.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/STkJA.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/STkJA.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How/why does the money supply shift leftwards to accommodate a return to &quot;money-market equilibrium&quot;, and what is such an equilibrium to begin with? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Additionally, is this shift automatic or is it one where the government must intervene?&lt;/p&gt;&#xA;" OwnerUserId="6782" LastActivityDate="2017-01-31T16:13:08.817" Title="Elucidation needed on textbook's description of the effect of increased Interest rates on the money supply curve?" Tags="&lt;interest-rate&gt;&lt;money-supply&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15260" PostTypeId="2" ParentId="15254" CreationDate="2017-01-31T14:01:09.340" Score="6" Body="&lt;p&gt;Cutting corporate taxes is one of the tools of the Trickle-Down Economics (TDE) school  of managing economic growth. In a &lt;a href=&quot;http://www.nytimes.com/2007/04/12/business/12scene.html&quot;&gt;&lt;em&gt;New York Times&lt;/em&gt; article&lt;/a&gt; in 2012, economist Robert Frank of the Johnson School of Management at Cornell University summarized the findings of years of research about the effectiveness of applications of this theory.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In his article, he discussed taxes on individuals, rather than on corporations, and there are substantial differences, but I believe the mechanics of the behaviors of these two economic subsystems are the same with respect to drag effects, such as taxation. They are linked in that tax reduction on individuals was expected to spur increased demand for consumer goods and services, which in turn was expected to promote industrial expansion to meet the growth in demand.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In short, he states (and cites research to support the view) that this theory has never been demonstrated to work. In fact, it may be counterproductive in the case of individuals, who tended to save the additional wealth acquired through reduced taxation in tax havens, which have negative effects on growth.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Corporations tend to view taxes in one of two ways, depending on their economic context, their corporate strategy, and their resources.  When they are short of investment funding, reductions in taxation &lt;em&gt;can&lt;/em&gt; lead to an increase in their investment if their strategy dictates that, and their economic context allows it. If they are not short of investment funding, reducing their taxes will normally have little effect on capacity; their capital investment strategy is already adequately funded.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, most middle-to-large size companies view their treasury function's capacity to raise capital through floating stock or taking on debt as the primary source of funding for investments.  They may consider a tax rate reduction as a windfall in the short term, and use it to buy back stock or lower debt.  In the longer term, they may issue or increase the size of dividends, or acquire another company, rather than increasing net capacity. In this case, the shareholders receive that portion of the tax cut, and the mainline TDE effects on individuals come into play. As John Kenneth Galbraith and others have demonstrated, these capital gains for individuals do not lead to increased individual spending. As a result, there is little to no effect on capital investment, since there is no substantial increase in demand to meet.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;As long as their economic context warrants it&lt;/em&gt;, smaller businesses that do not normally use a treasury function take on debt or issue stock may choose to use a tax reduction to fund expansion, reduce debt, distribute the increase in net income as profits to their owners, or retain it as capital. So, even in this case, an increase in capital investment is only &lt;em&gt;one&lt;/em&gt; of the possible outcomes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a company's economic context to warrant expansion, the company must:&#xA;a) anticipate an increase in demand, or be already faced with unsatisfied demand, or both;&#xA;b) have the means to manage expansion, or be able to acquire them;&#xA;c) be able to compete effectively against current competitors and potential market entrants;&#xA;d) be sufficiently free from higher-priority obligations to other parties that could consume the additional net income or capital raised, such as corporate debt payments, obligations to improve / repair operations for regulatory reasons, liabilities from litigation and product warranty repairs, etc.;&#xA;e) have at least one viable channel of investment in capacity to deliver products or services, either through introducing new ones or expanding the delivery of existing ones&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It should be noted that this is not just a theoretical discussion; the consequences of using this theory are &lt;em&gt;staggering&lt;/em&gt;. David Stockman, Director of the Office of Management and Budget under President Reagan from 1981 to 1985, was a staunch advocate of TDE theory. The theory was repackaged and rebranded as &quot;Supply-Side Economics&quot; to avoid the stigma associated with the name of TDE. However, Stockman observed the national debt increase from &lt;em&gt;908 billion dollars&lt;/em&gt; in the last year of the Carter Administration to &lt;em&gt;2.1 trillion dollars&lt;/em&gt; (a 130% increase) by 1986. Clearly, the fiscal side effects on the government were unsustainable. He resigned in 1985, and became a vocal opponent of TDE. In December 1981, years before the negative effects became widely known, the Atlantic Monthly published an interview with Stockman himself, &lt;em&gt;&quot;The Education of David Stockman&quot;&lt;/em&gt;, which was highly critical of the strategy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can find other references to research criticizing the effectiveness of Trickle-Down Economics &lt;a href=&quot;https://en.wikipedia.org/wiki/Trickle-down_economics#Criticisms&quot;&gt;&lt;em&gt;here&lt;/em&gt;&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="11954" LastActivityDate="2017-01-31T14:01:09.340" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15261" PostTypeId="1" CreationDate="2017-01-31T14:18:53.103" Score="1" ViewCount="35" Body="&lt;p&gt;Suppose the government of a country issues a bond. A certain bank buys that bond: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;The bank loaned a certain sum of money to the government.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The government has to pay interest every x intervals of time and the face price at the maturity date to the bank.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;What if the bank sells that same bond that it bought to the public. What happens then? If I buy the bond:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;I give a sum of money to the bank &lt;/li&gt;&#xA;&lt;li&gt;The bank now has to pay me interest and the face price at the maturity date? &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;What happens to the government in the equation?&lt;/p&gt;&#xA;" OwnerUserId="5936" LastActivityDate="2017-01-31T16:19:58.550" Title="Buying/selling bonds more than once" Tags="&lt;financial-economics&gt;&lt;bonds&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15262" PostTypeId="1" AcceptedAnswerId="15311" CreationDate="2017-01-31T14:36:18.017" Score="0" ViewCount="198" Body="&lt;p&gt;I am trying to learn the meaning of Terms of Trade, but I'm confused.&#xA;From the wikipedia article, it says that TOT is the ratio of the value of exports over imports,&#xA;and since for the other country these are reversed the TOT of the other country is the inverse,&#xA;but I don't understand how that works.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose country X with currency symbol \$ trades with country Y with currency symbol ¥.&#xA;(I am using an exchange rate of \$1 = ¥5, but it is not relevant.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We consider two commodities, A and B.  Companies buy inputs and sell output either buying wholesale and selling retail,&#xA;or buying inputs to industry and selling the product of that industry.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Input A can be bought in Y at ¥10.  Since in X it costs \$2.20 to buy it, company XA buys 3 million units from the market in Y.&#xA;Conversely B can be bought in X at $2, but it costs ¥12 in Y, so company YB buys 3 million units from the market in X.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since country X exports 3M units of A, which in X are valued at \$2.20, the value of its exports is \$6.6M.&#xA;Since it imports 3M units of B valued at \$2, the value of its imports is $6M and 1.1 is its TOT.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Country Y exports 3M units of B valued at ¥12, imports 3M units of A valued at ¥10 for 1.2 as its TOT.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't understand why TOT should be reciprocal when they are 1.1 and 1.2.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT: Maybe I am doing it wrong.  What is the meaning of &quot;value&quot; as in the value of exports and value of imports.  I assumed it is the cost if someone bought it locally.&lt;/p&gt;&#xA;" OwnerUserId="11956" LastEditorUserId="11956" LastEditDate="2017-02-04T13:51:45.817" LastActivityDate="2017-03-06T14:52:55.790" Title="Are Terms of Trade reciprocal?" Tags="&lt;macroeconomics&gt;&lt;international-trade&gt;&lt;international-economics&gt;" AnswerCount="1" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15263" PostTypeId="2" ParentId="15261" CreationDate="2017-01-31T15:01:36.977" Score="1" Body="&lt;p&gt;If the bank sells me the bond they bought from a municipality, I am now simply entitled to the bond's remaining cash flows from the municipality. The price I pay for the bond from the bank is equivalent to the discounted present value of all remaining cash flows.&lt;/p&gt;&#xA;" OwnerUserId="4938" LastEditorUserId="4938" LastEditDate="2017-01-31T16:19:58.550" LastActivityDate="2017-01-31T16:19:58.550" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15265" PostTypeId="2" ParentId="15259" CreationDate="2017-01-31T16:13:08.817" Score="1" Body="&lt;p&gt;The graph is a little misleading. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Imagine the interest rates increase without $MS$ shifting to $MS1$. Here the demand for money is less than the supply, so there is a surplus. If the MS does not shift, eventually the interest rate will fall again until the shortage is no longer (we are back in equilibrium). If the Fed wants to maintain the higher interest rate, $r_1$, it also must shift $MS$ to $MS1$.&lt;/p&gt;&#xA;" OwnerUserId="4938" LastActivityDate="2017-01-31T16:13:08.817" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="15267" PostTypeId="2" ParentId="15229" CreationDate="2017-01-31T16:17:58.537" Score="0" Body="&lt;p&gt;Simply, workers in the US can find a job which pays more.  They may have to find a different job, and that may require retaining and starting over at entry level.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is also some convergence of the labor market.  As demand for the cheaper Mexican labor goes up, so do their wages.  However, the convergence will not be complete and equalize wages as long as workers in the US have access to better paying jobs that Mexican workers do not.&lt;/p&gt;&#xA;" OwnerUserId="11956" LastActivityDate="2017-01-31T16:17:58.537" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15269" PostTypeId="2" ParentId="15256" CreationDate="2017-01-31T16:26:51.473" Score="0" Body="&lt;p&gt;Not going into Risk-Adverse case as this is sensitive to how we define the Government's utility function&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\mathbb{E}[xpnse] = 0.05*(0.07*1000)+0.95*(0.6*(0.07*1000))$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Follows from Law of Large Numbers&lt;/p&gt;&#xA;" OwnerUserId="4938" LastActivityDate="2017-01-31T16:26:51.473" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15270" PostTypeId="2" ParentId="15229" CreationDate="2017-01-31T16:36:22.960" Score="0" Body="&lt;p&gt;Its my opinion that over the next several decades you will see wage equalization first in sectors that do not have brick and mortar storefronts to interact with their customers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From that we should see:&#xA;-Shrinking inequality globally&#xA;-Reduction in labor discrimination and increased focus on skill based assessment.&#xA;-Reduction in the wage rates for medium-skilled workers (that is non-specialized workers) in developed countries. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;We are seeing that labor components across countries are becoming increasingly freely traded. Alongside this we are seeing transaction costs of labor fall dramatically, labor now is easily searchable and the price for payment processing can be as low as 1%.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Makes you wonder just how fruitful these nationalist movements around the world will be in the coming years without shutting down the internet completely.&lt;/p&gt;&#xA;" OwnerUserId="11406" LastActivityDate="2017-01-31T16:36:22.960" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="15271" PostTypeId="2" ParentId="15193" CreationDate="2017-01-31T16:45:01.040" Score="0" Body="&lt;p&gt;This is a classic supply and demand chart.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The horizontal axis (x axis) is quantity, and the vertical axis (y axis) is price.&#xA;In a labor market, the vertical unit price would be wages, and the quantity would be quantity of labor.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Quantity is function of Price, but economists like representing price vertically.&#xA;(Veblen described curves where the same quantity could trade at more than one price.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The D curve is demand.  As price goes up, there is less demand (disregarding Veblen).&#xA;That is, as the price rises, there are still buys who will buy at that price,&#xA;but some will not, so there is a lower quantity that can be traded.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The S1 and S2 curves are supply.  As the price goes down, some suppliers will not what to supply the commodity.&#xA;This is a little bit of a question in the labor market.  Do fewer people want a job if wages are low?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The price and quantity that is actually traded tends to be the equilibrium at the intersection of supply and demand.&#xA;If the price is higher or lower, it will tend toward the equilibrium.&#xA;I won't explain here, but we will see an example with the shift from the S1 to S2 curves.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The arrow showing a shift from the S1 to the S2 curve represents a change in supply.&#xA;There is now a greater quantity of supply at the same price, or the same quantity at a much lower price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose when the supply curve was S1 trading happened at the equilibrium.&#xA;Now at that price, there are more suppliers willing to supply the commodity.&#xA;They are also willing to supply at a lower price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are some buyers who would not buy at the old price, but will buy if the price were lower.&#xA;The extra suppliers are willing to take the lower price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the price decreases as a greater amount is supplied.&#xA;This continues until the price lowers so much that there are no additional suppliers,&#xA;which happens at the intersection of D and S2.&lt;/p&gt;&#xA;" OwnerUserId="11956" LastActivityDate="2017-01-31T16:45:01.040" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15272" PostTypeId="2" ParentId="15236" CreationDate="2017-01-31T17:45:09.057" Score="3" Body="&lt;p&gt;The &lt;a href=&quot;https://www.federalreserve.gov/releases/z1/current/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Flow of Funds&lt;/a&gt; (Financial Accounts of the United States) should have what you need. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, table  &lt;a href=&quot;https://www.federalreserve.gov/apps/fof/DisplayTable.aspx?t=b.1&quot; rel=&quot;nofollow noreferrer&quot;&gt;B.1 Net National Wealth Table Description Table&lt;/a&gt; (Billions of dollars; amounts outstanding end of period, not seasonally adjusted) might be very close to what you want. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/9CniA.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/9CniA.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2017-01-31T17:45:09.057" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15273" PostTypeId="1" CreationDate="2017-01-31T18:30:08.190" Score="-1" ViewCount="96" Body="&lt;p&gt;Usually for CAPM we have:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$E(R_i)-\gamma=\frac{cov(R_i,R_m)}{var(R_m)}\times E(R_m-\gamma)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We know that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\beta=\frac{cov(R_i,R_m)}{var(R_m)}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When can we replace $\beta$ with $\left(\frac{E(R_iR_m)}{E(R_m)}\right)^2$ ?&lt;/p&gt;&#xA;" OwnerUserId="6179" LastEditorUserId="2776" LastEditDate="2017-02-08T16:13:02.903" LastActivityDate="2017-02-08T16:13:02.903" Title="Capital Asset Pricing Model Variation" Tags="&lt;asset-pricing&gt;" AnswerCount="1" CommentCount="0" ClosedDate="2017-02-11T03:13:46.577" ContentLicense="CC BY-SA 3.0" />
  <row Id="15274" PostTypeId="1" CreationDate="2017-01-31T19:18:45.083" Score="0" ViewCount="28" Body="&lt;p&gt;Recently Microsoft floated a \$17 billion bond to finance the purchase of LinkedIn (remind me to delete my account).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some might wonder why a company with nearly \$100 billion in cash would need to borrow \$17 billion. The reason is that nearly all of that $100 billion they have is in bank accounts in other countries. If they were to repatriate that money to buy LinkedIn, then they would potentially have to pay corporate taxes on it. So, it is actually cheaper for them to borrow the money domestically than repatriate foreign held funds.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This brings us to the question: &lt;strong&gt;what can they do with the foreign cash?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One obvious answer is to buy foreign companies. Is that the only use?&lt;/p&gt;&#xA;" OwnerUserId="1448" LastActivityDate="2017-01-31T19:18:45.083" Title="Corporate use of offshore cash" Tags="&lt;corporate-finance&gt;&lt;capital&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="15276" PostTypeId="2" ParentId="5581" CreationDate="2017-01-31T20:11:04.470" Score="1" Body="&lt;p&gt;The field that considers settings like the one you propose is called &lt;a href=&quot;https://en.wikipedia.org/wiki/Revenue_management&quot; rel=&quot;nofollow noreferrer&quot;&gt;revenue (or yield) management&lt;/a&gt;. Since the airline deregulation act (1978), this field has become more and more important - also for other industries. Check Chapter 4.5 &quot;Substitutable Capacity&quot; in &lt;a href=&quot;http://www.springer.com/de/book/9781402077012&quot; rel=&quot;nofollow noreferrer&quot;&gt;Talluri and van Ryzin&lt;/a&gt; for input on your problem.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What exactly happens in equilibrium depends on the setup. Are there more than 200 consumers? Do they arrive over time or are they present from the beginning? Do all consumers have the same valuations? Are consumers strategic? Myopic? There are many details that potentially drive the model.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that the Coase conjecture relies on the assumption that the good is not scarce (less than 200 consumers or additional airplane seats can be produced). If that is what you have in mind, consider &lt;a href=&quot;https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2745961&quot; rel=&quot;nofollow noreferrer&quot;&gt;this&lt;/a&gt; (recent and unpublished, but interesting) paper.&lt;/p&gt;&#xA;" OwnerUserId="11590" LastActivityDate="2017-01-31T20:11:04.470" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15280" PostTypeId="1" CreationDate="2017-02-01T09:58:20.147" Score="3" ViewCount="78" Body="&lt;p&gt;I would like to know if there exist a database where Value at risk of commercial banks are.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Beyond that if there is a connection between the rating from agency (as S&amp;amp;P, Fitch etc..) and the VaR of banks. And where I can find references of that.&lt;/p&gt;&#xA;" OwnerUserId="10160" LastEditorUserId="1601" LastEditDate="2017-02-01T10:31:09.340" LastActivityDate="2017-03-31T15:31:58.280" Title="VaR and rating for commercial banks" Tags="&lt;reference-request&gt;&lt;data-request&gt;&lt;banking&gt;&lt;risk&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15281" PostTypeId="1" AcceptedAnswerId="15289" CreationDate="2017-02-01T14:03:09.957" Score="2" ViewCount="68" Body="&lt;p&gt;Big cities in developing countries often have streets or quarters that specialize in selling a particular type of good like: books, musical instruments; or giving a specialized service like: haircuts, selling coffee. A prominent example would be the capitals like Hanoi or Bangkok.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This almost never happens in cities in developed countries. Barcelona, Spain for example has its services, shops and even supermarkets distributed uniformly along its blocks.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;How to explain it in simple terms?&lt;/li&gt;&#xA;&lt;li&gt;Is there any economic model that could effectively describe and explain the phenomenon?&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="11967" LastEditorUserId="11967" LastEditDate="2017-02-01T14:54:16.160" LastActivityDate="2017-02-01T22:48:15.663" Title="The underlying force for creating specialized areas in the cities of developing economies" Tags="&lt;development-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15282" PostTypeId="1" CreationDate="2017-02-01T14:20:57.497" Score="1" ViewCount="140" Body="&lt;p&gt;The Socialist candidate for the upcoming presidential elections Benoit Hamon says he wants to roll out the Universal Basic Income in France, to be paid by &quot;taxing the wealth created by robots&quot; (for example, news &lt;a href=&quot;http://www.bbc.co.uk/news/world-europe-38723219&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;How do you tax the wealth created by robots?&lt;/strong&gt; What is so special about this policy? Is it not just a higher tax on capital? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(The answer I am looking for is like someone providing a briefing to Hamon on how to implement this policy. I am expecting &lt;strong&gt;concrete ideas&lt;/strong&gt;. Some analysis of why the implementation would work or not are valuable.)&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-02-01T17:51:21.910" Title="How to tax the robots?" Tags="&lt;taxation&gt;&lt;wealth&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15283" PostTypeId="2" ParentId="15282" CreationDate="2017-02-01T16:15:09.773" Score="0" Body="&lt;p&gt;I don't believe you could successfully place a tax on robots without undermining the robotic innovation that has been driving growth across the world as well as completely undermining their sole end goal of being cheap and abundant.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand the need for a shift in the distribution of wealth in nations. A Brookings Institute report on technological innovation from 2015 I believe stated that within a generation at current trends, it is possible that at any given time a quarter of middle aged men will be out of work.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With these factors in mind, I think the most appropriate taxation to avoid stifling technological innovation is to use the tried and true taxation on a company's profits. &lt;/p&gt;&#xA;" OwnerUserId="11406" LastActivityDate="2017-02-01T16:15:09.773" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="15284" PostTypeId="2" ParentId="15282" CreationDate="2017-02-01T16:40:10.523" Score="0" Body="&lt;p&gt;It could be a higher tax on profits for companies that use robots. A higher tax on capital purchases of robots. A sales tax on goods produced by robots. A turnover tax proportional to the amount of a company's asset value that consists of robots. A tax on redundancies, for companies that replace people with robots.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any of these could be combined with border adjustments.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2017-02-01T16:40:10.523" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="15285" PostTypeId="2" ParentId="15282" CreationDate="2017-02-01T17:51:21.910" Score="4" Body="&lt;p&gt;Robot taxation is a bit like corporate income taxation. Like corporations, robots don't pay taxes, people pay taxes. In the words of Herb Stein:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;I remember that in addressing the issue in the 1980s, the late Herb&#xA;Stein said that it's as if people think that if the government imposed&#xA;a tax on cows, the tax would be paid by the cows.&#xA;&lt;a href=&quot;http://econlog.econlib.org/archives/2011/08/are_taxes_on_co.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Are Taxes on Corporations Taxes on People? by David Henderson&lt;/a&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;There really are only three entities to tax. You can tax the people who own the robots, you can tax the people who buy what the robots make, or you can tax the income of people who work with robots. If you try to tax the robots directly, you'll end up with an effective combination of these other taxes.&lt;/p&gt;&#xA;&lt;p&gt;In general, it is thought that the providers of capital are unlikely to bear very much of the incidence of taxation. Instead, it is thought that generally expected capital returns will adjust to keep the expected returns similar before and after the tax. This happens because capital is mobile. If the US tries to tax capital heavily investors can invest elsewhere, and will do so until after tax rates of return are equated. Robots are just another sort of capital, suggesting that it will be as difficult to tax them as any other sort of capital.&lt;/p&gt;&#xA;&lt;p&gt;Taxing the buyers of robot produced goods is also problematic. As long as consumers can purchase imports without a special robot tariff then robotic produced imports will force domestic produced goods with a robotic tax to have a lower prices to leave consumers indifferent. Or they may not produce at all. Either way, consumers likely won't bear the burden.&lt;/p&gt;&#xA;&lt;p&gt;Which leaves labor, the relatively immobile factor of production, to bear the burden.&lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2017-02-01T17:51:21.910" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15286" PostTypeId="2" ParentId="15280" CreationDate="2017-02-01T18:19:18.330" Score="1" Body="&lt;p&gt;My understanding is that all the advanced approaches banks disclose their quarterly VaR as part of their Basel II.5 Market Risk Disclosures. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't know of any databases of this data but you can download it yourself. Examples:&#xA;&lt;a href=&quot;http://www.citigroup.com/citi/investor/data/b25d140331.pdf?ieNocache=32&quot; rel=&quot;nofollow noreferrer&quot;&gt;Citibank&lt;/a&gt;&#xA;&lt;a href=&quot;http://www.citigroup.com/citi/investor/data/b25d140331.pdf?ieNocache=32&quot; rel=&quot;nofollow noreferrer&quot;&gt;JP Morgan&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Those banks disclose daily but some (&lt;a href=&quot;https://s3.amazonaws.com/filecache.drivetheweb.com/mr5ir_bbt/380/download/BBT+BaselII5+Market+Risk+Disclosure+033116.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;BB&amp;amp;T&lt;/a&gt;) instead disclose quarterly. &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2017-02-01T18:19:18.330" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15287" PostTypeId="1" AcceptedAnswerId="15288" CreationDate="2017-02-01T20:46:57.273" Score="1" ViewCount="87" Body="&lt;p&gt;I am giving my first steps on microeconomics and I can't fully understand why by applying a &lt;strong&gt;per unit subsidy&lt;/strong&gt;, the supply curve is shifted by a fixed amount. In wikipedia's words:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Marginal subsidies on production will shift the supply curve to the right until the vertical distance between the two supply curves is equal to the &lt;strong&gt;per unit subsidy&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;But let's say that my supply curve is given by &#xA;$$ Q_s = -200 +3 \cdot P $$ &#xA;If a &lt;strong&gt;per unit&lt;/strong&gt; subsidy is applied, the new supply curve is now given by:&#xA;$$ Q_s = -200 +3 \cdot (P+50) $$ &#xA;But if the unit of the subsidy is $[\frac{\$}{units}] $ the units of the equation don't match: &#xA;$$ Q_s [units] = -200[units] +3[\frac{units}{\$}] \cdot (P[\$]+50[\frac{\$}{units}]) $$ &#xA;So shouldn't a &lt;strong&gt;per unit&lt;/strong&gt; subsidy change the slope of the supply curve rather than shifting it?&lt;/p&gt;&#xA;" OwnerUserId="11973" LastActivityDate="2017-02-01T20:55:45.253" Title="Regarding the units of the shift produced by subsidies on supply curve" Tags="&lt;microeconomics&gt;&lt;supply-and-demand&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15288" PostTypeId="2" ParentId="15287" CreationDate="2017-02-01T20:55:45.253" Score="-3" Body="&lt;p&gt;The confusion stems from the fact that the price is also a $\frac{\$}{units}$&lt;/p&gt;&#xA;" OwnerUserId="11974" LastActivityDate="2017-02-01T20:55:45.253" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15289" PostTypeId="2" ParentId="15281" CreationDate="2017-02-01T22:40:08.093" Score="1" Body="&lt;p&gt;This is an interesting observation that has produced a lot of theoretical and empirical research in industrial organization. In fact this phenomenon also occurs in developed economies, for example with gas stations. It is also not limited to location, the broader questions being why competitors in many markets tend to produce very similar products when they could also choose to differentiate themselves more strongly. A special case of the question is also often applied to politics, where the question is why different parties tend to be very similar to each other (most of the time).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Most simple explanations are based on an old and simple game theoretic model by Harold Hotelling called the Hotelling model or linear city model. Applied to politics, this model is behind the predictions of the median voter theorem.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can find a very good explanation of the reasoning behind the model in the links below:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://mindyourdecisions.com/blog/2008/03/25/game-theory-tuesdays-hotelling%E2%80%99s-game-or-why-gas-stations-have-competitors-nearby/&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://mindyourdecisions.com/blog/2008/03/25/game-theory-tuesdays-hotelling%E2%80%99s-game-or-why-gas-stations-have-competitors-nearby/&lt;/a&gt;&#xA;&lt;a href=&quot;https://en.wikipedia.org/wiki/Location_model#Hotelling.27s_Location_Model&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://en.wikipedia.org/wiki/Location_model#Hotelling.27s_Location_Model&lt;/a&gt;&#xA;&lt;a href=&quot;https://en.wikipedia.org/wiki/Hotelling&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://en.wikipedia.org/wiki/Hotelling&lt;/a&gt;'s_law&lt;/p&gt;&#xA;" OwnerUserId="11216" LastEditorUserId="11216" LastEditDate="2017-02-01T22:48:15.663" LastActivityDate="2017-02-01T22:48:15.663" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15290" PostTypeId="1" AcceptedAnswerId="15299" CreationDate="2017-02-01T22:49:00.097" Score="9" ViewCount="11085" Body="&lt;p&gt;In the neo-classical growth model there is the following transversality condition: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\lim_{t\rightarrow\infty}\beta^{t}u'(c_{t})k_{t+1}= 0,$$ &#xA;where $k_{t+1}$ is the capital at period $t$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My questions are: &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;How we derive this condition? &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Why do we require this, if we want to rule out paths with no debt accumulation?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Why are the Lagrange multipliers $\beta^{t}u'(c_{t}) = \beta^{t}\lambda_{t}$&#xA;the present discounted value of the capital? &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="11977" LastEditorUserId="2776" LastEditDate="2017-08-22T05:55:51.357" LastActivityDate="2017-08-22T05:55:51.357" Title="Transversality Condition in neoclassical growth model" Tags="&lt;economic-growth&gt;&lt;dynamic-optimization&gt;" AnswerCount="2" CommentCount="4" FavoriteCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="15291" PostTypeId="1" CreationDate="2017-02-02T02:00:55.340" Score="0" ViewCount="51" Body="&lt;p&gt;I'm doing my dissertation at the moment and for it, I need high-resolution market data. The only problem is I'm a student and haven't got much money. A lot of sites I have seen want monthly subscriptions or big upfront fees, I do not have this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What's the cheapest way I can get 6/3 months of Tesla market data at say 1-second resolution? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks.&lt;/p&gt;&#xA;" OwnerUserId="11979" LastActivityDate="2017-02-02T14:25:42.070" Title="Find high resolution market data for a single ticker?" Tags="&lt;data-request&gt;&lt;stock-market&gt;&lt;financial-markets&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="15292" PostTypeId="1" CreationDate="2017-02-02T11:24:16.220" Score="1" ViewCount="367" Body="&lt;p&gt;Suppose we have a Solow model:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;Y(t)=C(t)+I(t)&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;I(t)=sY(t)&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\dot K=I(t)-δK(t)&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With a given Cobb-Douglas:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;Y(t)=Z(t)K^aL^{1-a}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;y(t)=Y(t)/L(t)&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;k(t)=K(t)/L(t)&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;y=Zk^a&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We also know these:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;L=L(t), \dot L/L=n&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;Z=Z(t), \dot Z/Z=g&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore we have:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;L(t)=L(0)e^{nt}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;Z(t)=Z(0)e^{gt}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We get to this point:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\dot k=sZk^a-(n+δ)k&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the steady state:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;k=k^*&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;k^*=\left(\frac{sZ}{n+δ}\right)^{1/(1-a)}&#xA;$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question has to do with the time dimension in Z. Time enters the final expression if we substitute Z with what we found above, but I'm not sure what to make of this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;k^*=\left[\frac{sZ(0)e^{gt}}{n+δ}\right]^{1/(1-a)}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Surely there's something this neophyte is mixing up. I thought that in a steady state capital per worker remains the same.&lt;/p&gt;&#xA;" OwnerUserId="11983" LastEditorUserId="2776" LastEditDate="2017-08-02T13:05:22.203" LastActivityDate="2017-09-19T12:20:45.693" Title="Solow model, time and steady state" Tags="&lt;macroeconomics&gt;&lt;steady-state&gt;&lt;continuous-time&gt;&lt;solow&gt;&lt;capital&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15293" PostTypeId="2" ParentId="15291" CreationDate="2017-02-02T12:14:22.550" Score="2" Body="&lt;p&gt;Many universities have access through WRDS to &lt;a href=&quot;http://www.whartonwrds.com/datasets/nyse-taq/&quot; rel=&quot;nofollow noreferrer&quot;&gt;the NYSE Trade and Quot&lt;/a&gt;e (TAQ) data. Despite the name, TAQ has &quot; intraday transactions data (trades and quotes) for all securities listed on the New York Stock Exchange (NYSE) and American Stock Exchange (AMEX), as well as Nasdaq National Market System (NMS) and SmallCap issues.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://blog.quandl.com/quandl-launches-intraday-data-2&quot; rel=&quot;nofollow noreferrer&quot;&gt;Quandl has intraday data, but only at a minute level frequency&lt;/a&gt;. Tesla is a member of the &lt;a href=&quot;http://www.nasdaq.com/markets/indices/nasdaq-100.aspx&quot; rel=&quot;nofollow noreferrer&quot;&gt;NASDAQ 100&lt;/a&gt; and so is one of the minute by minute firms available through Quandl via AlgoSeek. The pricing for an individual user for the whole year is \$800 (as of 2/2/17).  &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2017-02-02T14:25:42.070" LastActivityDate="2017-02-02T14:25:42.070" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15294" PostTypeId="2" ParentId="13634" CreationDate="2017-02-02T13:14:11.533" Score="-2" Body="&lt;p&gt;I am no expert, however I've known those countries, I think the difference relies somewhere on the fact that Argentina and Chile 5-10 years ago was nowhere compared to Spain or Portugal, they have sort of a sustained growth with some years even been of &quot;negative growth&quot; , however , Chile and Argentina owe their success to recent achievements and the expantion of tourism, this is clearly reflected on what their currencies were worth 10 years ago and now&lt;/p&gt;&#xA;" OwnerUserId="11987" LastActivityDate="2017-02-02T13:14:11.533" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15295" PostTypeId="2" ParentId="15292" CreationDate="2017-02-02T13:37:14.647" Score="2" Body="&lt;p&gt;In the model with technological progress the &lt;em&gt;capital per effective worker remains constant&lt;/em&gt;, implies that capital per worker grows at the rate of exogenous rate of technological progress. See Barro and Martin book, Chapter 1.&lt;/p&gt;&#xA;" OwnerUserId="11955" LastActivityDate="2017-02-02T13:37:14.647" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15296" PostTypeId="2" ParentId="13634" CreationDate="2017-02-02T16:17:12.887" Score="3" Body="&lt;p&gt;&lt;strong&gt;All country classifications are conventions&lt;/strong&gt;, which depend on the rule used by the particular institution. There is no hard (ontological) rule on any classification. There is no even consensus on the definition of categories. Advanced/rich/developed/industrialized economies are sometimes used interchangeably, but who is in each of them depend on who is talking. Let see an example:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;International Labor Organisation (ILO)&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/GVN0v.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/GVN0v.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(I had to cut it because it is too long. See the full list in page 67 of &lt;a href=&quot;http://www.ilo.org/global/research/global-reports/weso/2016/WCMS_443480/lang--en/index.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;this report&lt;/a&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Citigroup&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/gJONa.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/gJONa.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Report &lt;a href=&quot;https://www.citivelocity.com/citigps/ReportSeries.action?recordId=26&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Conclusion&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As you can see, ILO puts Czech Republic, Greece, Argentina, and Chile as &lt;strong&gt;developed&lt;/strong&gt; countries, whereas Citi puts them as &lt;strong&gt;emerging&lt;/strong&gt; countries (Argentina as emerging can be seen in other reports). (ILO even distinguishes between emerging and developing).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This shows that &lt;strong&gt;there is no hard-coded rule about classification of countries&lt;/strong&gt;. It all depends on the institution.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-02-02T16:17:12.887" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15297" PostTypeId="1" CreationDate="2017-02-02T19:59:56.137" Score="2" ViewCount="130" Body="&lt;p&gt;As part of my undergraduate studies in Industrial Economics, I am trying to solve the following question:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Two price-setting firms are competing in a market for a homogeneous product. There are 10,000 people in the population, each of whom is willing to pay at most 10 for one unit of the good. Initially, both firms have a marginal cost of 5. Assume that the firms are not capacity constrained and cannot collude. What is the equilibrium in this market and what are the firms’ profits?&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Suppose now that a new technology becomes available that lowers the marginal cost to 3. The cost to a firm of purchasing this technology is 10,000. The firms must now simultaneously decide whether to adopt the new technology or not, and following this decision, they simultaneously set prices. Each firm can observe whether its rival acquired the new technology or not before setting its price. What is (are) the equilibrium (equilibria) in the market now?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I am struggling with both parts of the question but I think I got the answer to the first part more or less correct. It comes down to a Bertrand equilibrium where both firms get a fraction of the total market share, charge price equal to marginal cost (i.e. 5) and make 0 profit. Thoughts?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now the second part is more tricky since the per unit cost will depend on the total output of the firm so it can spread the 10,000 investment over the number of units manufactured. Some loose thoughts:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;I can see that if both firms decide to invest in the cost reduction technology and they split the market in equal parts, i.e. each produce 5,000 units, then they will need to charge 5 to not incur loses, i.e. there is no point in investing.&lt;/li&gt;&#xA;&lt;li&gt;I also get that if a firm were to supply all the market, its average cost would be 4.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The above two points make me think that the possible equilibria are:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Both firms invest in the cost reduction technology and upon seeing that the other firm has also invested, decide to split the market into equal parts so as not to incur losses.&lt;/li&gt;&#xA;&lt;li&gt;One firm decides to invest and the other doesn't, upon seeing that the other has invested, the non-investing firms decides to not compete since it knows the other firm will supply all the market at a cost slightly below its own marginal cost of 5. The investing firm supplies all the market and makes monopoly profit.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Option 2 doesn't look like a Nash equilibrium to me since both firms know they can get monopoly profit if they invest and the other doesn't and 0 profit if they both invest and split the market so they both decide to invest and the only Nash equilibrium is option 1.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Do I make any sense? Help appreciated.&lt;/p&gt;&#xA;" OwnerUserId="5119" LastEditorUserId="5119" LastEditDate="2017-02-02T20:31:28.537" LastActivityDate="2017-02-03T20:02:55.463" Title="Price setting firms with cost reduction technology" Tags="&lt;industrial-organisation&gt;&lt;dynamic-games&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15298" PostTypeId="2" ParentId="15290" CreationDate="2017-02-02T20:06:35.533" Score="6" Body="&lt;p&gt;In my opinion, the best derivation is by logic. Think about it this way: If the only thing we are telling the household is to maximize its utility, optimal behaviour would then be just making infinite debt and consume infinitely. This is no sensible solution. We therefore need another optimality condition. This should answer question 2.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a finite horizon setting, feasibility would be achieved by debt having to be repayed by the last period. This is not possible in a infinite horizon setting. However, &quot;ruling out debt accumulation&quot;, as you suggest, is too strict a condition (The transversality condition allows for debt!). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To answer question 3, let us look at the term $\beta^t \lambda_t k_{t+1}$. It stands for the (marginal) utility gain (in present-value utils) of shifting $k_{t+1}$ units of capital to period t and consuming them. If this utility gain were positive at infinity, we could increase overall utility by consuming more at &quot;period infinity&quot;, hence our capital path would not be optimal.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To question 1: To derive this condition, you can either make the logical argument I just made, showing that without the transversality condition holding, the capital path is not optimal, or, for a mathematical proof, you can check out, for example, &lt;a href=&quot;https://www.sas.upenn.edu/~vr0j/702-16/newmanu.pdf&quot; rel=&quot;noreferrer&quot; title=&quot;Per Krusell&amp;#39;s notes&quot;&gt;Per Krusell's Notes&lt;/a&gt; (although it is rather hard to grasp)&lt;/p&gt;&#xA;" OwnerUserId="8630" LastActivityDate="2017-02-02T20:06:35.533" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15299" PostTypeId="2" ParentId="15290" CreationDate="2017-02-02T21:32:50.367" Score="13" Body="&lt;p&gt;The transversality condition may be more easily understood if we start from a problem with finite horizon.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the standard version, our objective is to &#xA;$$ &#xA;\max_{\{c_t,k_{t+1}\}_{t=0}^T} \sum_{t=0}^T\beta^t u(c_t)&#xA;$$&#xA;subject to &#xA;$$&#xA;\begin{aligned}&#xA;f(k_t)-c_t-k_{t+1}&amp;amp;\ge0,\quad t=0,\dots,T &amp;amp;&amp;amp;\text{(resource/budget constraint)}\\&#xA;c_t,k_{t+1}&amp;amp;\ge0,\quad t=0,\dots,T &amp;amp;&amp;amp;\text{(non-negativity constraint)}&#xA;\end{aligned}&#xA;$$&#xA;with $k_0$ given. The associated Lagrangian (with multipliers $\lambda_t$, $\mu_t$, and $\omega_t$) is &#xA;$$&#xA;\max_{\{c_t,k_{t+1},\lambda_t,\mu_t,\omega_t\}_{t=0}^T}&#xA;\sum_{t=0}^T \beta^tu(c_t)+\lambda_t(f(k_t)-c_t-k_{t+1})+\mu_tc_t+\omega_tk_{t+1}&#xA;$$&#xA;The FOCs are &#xA;$$&#xA;\begin{align}&#xA;c_t:&amp;amp;&amp;amp; \beta^tu'(c_t)-\lambda_t+\mu_t&amp;amp;=0,\quad t=0,\dots,T \\&#xA;k_{t+1}:&amp;amp;&amp;amp; -\lambda_t+\lambda_{t+1}f'(k_{t+1})+\omega_t&amp;amp;=0,\quad t=0,\dots,T-1 \\&#xA;k_{T+1}:&amp;amp;&amp;amp; -\lambda_T+\omega_T&amp;amp;=0,\quad T+1 \tag{1}&#xA;\end{align}&#xA;$$ &#xA;with the Kuhn-Tucker complementary slackness conditions: for $t=0,\dots,T$,&#xA;$$&#xA;\begin{align}&#xA;\lambda_t(f(k_t)-c_t-k_{t+1})&amp;amp;=0 &amp;amp; \lambda_t&amp;amp;\ge0 \\&#xA;\mu_tc_t&amp;amp;=0 &amp;amp; \mu_t&amp;amp;\ge0\\&#xA;\omega_tk_{t+1}&amp;amp;=0&amp;amp;\omega_t&amp;amp;\ge0\tag{2}&#xA;\end{align}&#xA;$$&#xA;Since resource constraint must be binding in all periods, i.e. $\lambda_t&amp;gt;0$ for all $t$, it follows that at the last period $T$, $\omega_T=\lambda_T&amp;gt;0$, which in turn implies $k_{T+1}=0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Usually we assume $c_t&amp;gt;0$ for all $t$ (the Inada condition), and this implies $\mu_t=0$ for all $t$. So the consumption FOC becomes&#xA;$$&#xA;\beta^tu'(c_t)=\lambda_t \tag{3}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Looking at conditions $(1)$ $(2)$ and $(3)$ in the last period $T$, we get&#xA;$$\beta^Tu'(c_T)k_{T+1}=0$$&#xA;Extending this to the infinite horizon, we get the transversality condition&#xA;$$\lim_{T\to\infty}\beta^Tu'(c_T)k_{T+1}=0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The intuition of the transversality condition is partly that &quot;there is no savings in the last period&quot;. But as there is no &quot;last period&quot; in an infinite horizon environment, we take the limit as time goes to infinity.&lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2017-02-02T21:32:50.367" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15300" PostTypeId="1" AcceptedAnswerId="15310" CreationDate="2017-02-02T22:32:38.880" Score="2" ViewCount="39" Body="&lt;p&gt;Consider the following cost function:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$c(e_1, e_2) = (\beta_1e_1 + \beta_2e_2)^2$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The value function is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$v = v_0 - [l_1(1-e_1) + l_2(1-e_2)]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How do I compute the optimum efforts $e_1$ and $e_2$, with $e_{i} \in [0,1]$ ? I seem to be ending up in an inconsistency. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I look at $v - c = v_0 - [l_1(1-e_1) + l_2(1-e_2)] -  (\beta_1e_1 + \beta_2e_2)^2$, and then I take the partial derivative with respect to $e_1$ and $e_2$ respectively, I obtain:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\beta_1e_1^* + \beta_2e_2^* = \dfrac{l_1}{2\beta_1} = \dfrac{l_2}{2\beta_2}$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What am I missing? Does the inconsistency simply mean that the optimal efforts are corner points?&lt;/p&gt;&#xA;" OwnerUserId="7881" LastEditorUserId="2776" LastEditDate="2017-02-03T20:28:07.333" LastActivityDate="2017-02-03T20:28:07.333" Title="Computing optimum efforts" Tags="&lt;optimization&gt;&lt;nash-equilibrium&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15301" PostTypeId="2" ParentId="15297" CreationDate="2017-02-02T22:58:23.087" Score="1" Body="&lt;p&gt;Your reasoning for the 1st part is correct.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The 2nd part is a 2-period game. You should try to solve it by backward induction. First you go through all the 2nd period subgames. Then you can use the payoffs of the subgames and write up the investment decision subgame as a bimatrix game. However, the question is poorly written and as stated  this game has no Nash equilibria in pure continous strategies. Let's go through the reasoning as to why.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, let's find the NE for all possible cases in the 2nd period.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Both firms have adopted the technology and have marginal cost 3. They will engage in a Bertrand game, set their prices to 3 and make 0 profit.&lt;/li&gt;&#xA;&lt;li&gt;No firm has invested, both charge a price of 5 and make zero profit.&lt;/li&gt;&#xA;&lt;li&gt;Now on to tricky case. What if one firm 1 has invested and firm 2 hasn't? It is crucial to know how firms split the market if they both charge the same price in this case. Since this is not given in the question, it is not really possible give a definite answer. I will go through two cases.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;First, let's assume there's a 50:50 split with identical prices. Any equilibrium price above 5 can be ruled out by the usual Bertrand game argeuments. Firm 2 will never charge a price below 5, since it will make a loss. Firm 1 will never charge a price below 5, because given $p_2 \geq 5$ it could always increase it's profits by raising the price. So really the only candidate for an equilibrium is that both firms charge 5. However, if we assume a 50:50 split in this case, then firm 1 could increase it's profit by slightly decreasing the price and gaining the whole market. As a result, there is no equilibrium in this subgame, and hence no equilibrium for the overall game.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Second, let's assume arbitrarily that if both firms charge the same price, then all customers will buy from firm 1. In this case $p_1 = p_2 = 5$ is a Nash equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You could then go on to find the NE of the whole game for different assumptions on the payoff split.&lt;/p&gt;&#xA;" OwnerUserId="11216" LastEditorUserId="11216" LastEditDate="2017-02-03T20:02:55.463" LastActivityDate="2017-02-03T20:02:55.463" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="15302" PostTypeId="2" ParentId="13611" CreationDate="2017-02-02T23:39:15.650" Score="1" Body="&lt;p&gt;First of all, you have to find yourself a research question. Then, your research question would give you the clue to use either theoretical or an empirical framework.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To be precise, I give an example. If you try to find out in which cases, pollution tax could discourage or encourage economic growh ? What are the main mechanisms that allow a higher/lower growth with a pollution tax ? In this case, probably you should use a theoretical model (mainly an endogenous growth model)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the contrary, if you would like to &quot;measure&quot; the effect of pollution tax on growth, you could make an empirical analysis. Maybe a VAR (vector autoregressive) or a cointegration model.&lt;/p&gt;&#xA;" OwnerUserId="2938" LastActivityDate="2017-02-02T23:39:15.650" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15303" PostTypeId="2" ParentId="10572" CreationDate="2017-02-03T09:01:56.173" Score="1" Body="&lt;p&gt;Consider an increase in $A$. This is, for the same number of hours, output of production is larger. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &lt;strong&gt;income effect&lt;/strong&gt; is such that the individual redistributes resources toward the activity which became more productive. This is, the individual decides to &lt;strong&gt;work longer&lt;/strong&gt; (a fall in leisure $l$). This is because the $MPL$ increased in that activity, and so the return of that activity increases. Recall that, because of the &quot;First welfare theorem&quot;, the equilibrium in a centralised economy (like Robinson's) is the same than in a decentralised (i.e. market) economy. As such, implicitly, you can think of Robinson paying himself a wage. As $MPL$ increases, &lt;em&gt;ceteris paribus&lt;/em&gt;, the equilibrium wage increases, and therefore he works more.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &lt;strong&gt;substitution effect&lt;/strong&gt; is such that the individual redistributes part of the windfall of greater productivity toward other activities which provide him utility (in this case, leisure). Since the optimisation of utility is a process involving &quot;relative quantities&quot;, whenever each component faces decreasing marginal utility, the individual will benefit from &quot;restoring the balance&quot; by substituting resources (labour) away from the improved activity (production) towards that which did not improved (leisure).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Notice that the substitution effect depends on the nature of the utility function. If the marginal utility of their components are constant (for example, in $U = C + l$), then there is no substitution effect.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is an example of a utility function and production function where the two effects cancel-out:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U= log C - 2L^2$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$C=Y=AL^\alpha$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $L$ is labour.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can easily show that the optimal hours supplied is $L^*=\frac{\sqrt\alpha}{2}$, which is independent of $A$. In other words, the income and substitution effect balance out.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-02-03T09:01:56.173" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15304" PostTypeId="1" AcceptedAnswerId="15312" CreationDate="2017-02-03T09:26:04.693" Score="2" ViewCount="552" Body="&lt;p&gt;I am dealing with a constrained optimization problem found in Tirole's &lt;em&gt;Theory of corporate finance&lt;/em&gt;. My question is not related to the details of this model, but just to provide some context, we are solving for the optimal contract to secure outside financing in a setting with costly state verification. $y(\hat{R})$ is the probability of no audit when income $\hat{R}$ is reported. Audits cost $K$ to the lender. $w_0(\hat{R},R)$ is the reward for the borrower in case of no audit, and $w_1(\hat{R},R)$ in case of audit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The objective function is:&#xA;$$\max\limits_{y(\cdot),w_0(\cdot,\cdot),w_1(\cdot,\cdot)}\left\{\int_0^\infty w(R)p(R)dR\right\}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is subject to the incentive constraint for the borrower to report the true income $R$:&#xA;$$w(R)=\max\limits_{\hat{R}}\{y(\hat{R})w_0(\hat{R},R)+(1-y(\hat{R}))w_1(\hat{R},R)\}$$&#xA;and to the break-even constraint for lenders who provide $I-A$ to the entrapreneur.&#xA;$$\int_0^\infty[R-w(R)-[1-y(R)]K]p(R)dR\geq I-A$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question relates to the following.&#xA;The author argues that, since the second constraint binds at equilibrium, &lt;em&gt;it can be added to the objective function&lt;/em&gt;. The problem is then equivalent to minimizing the expected audit costs:&#xA;$$K\left[\int_0^\infty[1-y(R)]p(R)dR\right]$$&#xA;&lt;em&gt;subject to the two above constraints&lt;/em&gt;.&#xA;I don't understand why we could add the binding constraint to the objective function and find an equivalent problem subject to the same constraints.&#xA;Is there a general optimization principle that I missed along the way?&#xA;Thanks!&lt;/p&gt;&#xA;" OwnerUserId="12001" LastActivityDate="2017-02-03T18:56:35.700" Title="Adding a non-binding constraint to the objective function" Tags="&lt;microeconomics&gt;&lt;optimization&gt;&lt;corporate-finance&gt;&lt;contract-theory&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15306" PostTypeId="1" AcceptedAnswerId="15309" CreationDate="2017-02-03T16:05:51.147" Score="1" ViewCount="65" Body="&lt;p&gt;Looking through Canada's culture section on wikipedia, it's described as having: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Government policies such as publicly funded health care, higher taxation to redistribute wealth, the outlawing of capital punishment, strong efforts to eliminate poverty... &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;However, looking into taxation in Canada their income tax of 31.6% (if single with no children) and their corporation tax seems fairly lower then, for example, the higher rate of tax in the UK (45%).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why is Canada regarded to have policy in high taxation to redistribute wealth when their taxation actually appears to be fairly low?&lt;/p&gt;&#xA;" OwnerUserId="12004" LastEditorUserId="2776" LastEditDate="2017-02-03T17:42:03.347" LastActivityDate="2017-02-03T17:42:03.347" Title="Is Canada a country of high taxation in international comparison?" Tags="&lt;taxation&gt;&lt;canada&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15307" PostTypeId="2" ParentId="15297" CreationDate="2017-02-03T16:45:34.420" Score="0" Body="&lt;p&gt;Your answer to part one is correct. You should respond to the second part in the context of game theory by analyzing possible outcomes for each participants' choice of action.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Possible outcome #1&lt;/strong&gt;: Both firms adopt the new technology. Both companies will incur a loss of 10,000 (cost of adopting ew technology). Equilibrium price is 3&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Possible outcome #2&lt;/strong&gt;: Only Company A  adopts new technology: In this case, company A will maximize its profit by charging a price that infinitly approaches 5 but never reaches actaully reaches it which can be demonstrated by     &lt;img src=&quot;https://latex.codecogs.com/gif.latex?%5Clim_%7Bn%5Crightarrow&amp;space;5%7D&amp;space;(n)&amp;space;=5&quot; title=&quot;\lim_{n\rightarrow 5} (n) =5&quot; /&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus Company A has  a price &quot;indefinitely approaching&quot; 5. A market share of 100% of population i.e., 10000, a cost per product of 3 and new technology cost of 10000. Thus profit is &lt;img src=&quot;https://latex.codecogs.com/gif.latex?(5-3)%5Ctimes&amp;space;10000-10000&amp;space;=&amp;space;10000&quot; title=&quot;(5-3)\times 10000-10000 = 10000&quot; /&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Company B will have 0 gain and 0 output&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Possible outcome #3&lt;/strong&gt;: Only company B adopts new technology: Reverse outcome #2&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Possible outcome #4&lt;/strong&gt;: Neither company utilizes new technology: Same as answer to part one.&lt;/p&gt;&#xA;" OwnerUserId="5048" LastEditorUserId="-1" LastEditDate="2017-03-10T09:42:49.877" LastActivityDate="2017-02-03T18:38:28.053" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="15309" PostTypeId="2" ParentId="15306" CreationDate="2017-02-03T17:31:12.043" Score="5" Body="&lt;p&gt;Because &lt;strong&gt;they are high in comparison&lt;/strong&gt;. Take a look at the data from the OECD &lt;a href=&quot;http://stats.oecd.org/index.aspx?DataSetCode=TABLE_I7#&quot;&gt;here&lt;/a&gt;, for 2015. I have plotted them below:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/tEXGY.png&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/tEXGY.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(The red is the personal income tax set by law, and the blue is the one adding tax credits, as far as I understand).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As you can see, rates in Canada are quite high in comparison with other OECD countries like Estonia or Poland, and also higher than the UK.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, in international comparison, Canada is quite good in &lt;strong&gt;redistributing income&lt;/strong&gt;. You can see that by comparing the Gini index before and after taxation:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/b9wrb.png&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/b9wrb.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Property taxes&lt;/strong&gt; are quite high too:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/RsuqB.png&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/RsuqB.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The final evidence comes from this &lt;strong&gt;index of progressivity&lt;/strong&gt; of both personal income tax and social security:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/H4nk9.png&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/H4nk9.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Conclusion&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Canada is quite a progressive country in terms of taxation, redistribution quite a lot, and lowering market inequality considerably. Even more, it seems to be better than the UK in almost every comparison.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Source:&lt;/strong&gt; &lt;a href=&quot;https://www.oecd.org/eco/public-finance/TacklingincomeinequalityTheroleoftaxesandtransfers.pdf&quot;&gt;OECD (2012)&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-02-03T17:31:12.043" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15310" PostTypeId="2" ParentId="15300" CreationDate="2017-02-03T18:08:34.723" Score="4" Body="&lt;p&gt;You are right. The problem here is a corner solution.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let us define the optimal combination $X^* = \beta_1e_1^* + \beta_2e_2^*$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first derivative gives you &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$X^* = \dfrac{l_1}{2\beta_1} $$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;whereas the second gives you&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$X^* = \dfrac{l_2}{2\beta_2}$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;They can only be true &quot;by chance&quot;. This is, &lt;strong&gt;the existence of an interior solution cannot be assured for every possible parameterisation allowed by the parameter space.&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Actually, if you take a look at the two functions, this is clear. The cost function generate &lt;strong&gt;linear&lt;/strong&gt; isoquants. You can check this &lt;a href=&quot;https://www.wolframalpha.com/input/?i=plot+(x%2By)%5E2%3D5&quot;&gt;here&lt;/a&gt;. This is because the cost function is equivalent to $c = X^2$ and $X$ is a linear combination of both $e_1$ and $e_2$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Similarly, the value function also gives &lt;strong&gt;linear&lt;/strong&gt; isoquants. This is because the function has the form $e_1 = a + be_2$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, the most likely case is that the isoquants will join in a corner. The interior solution happens just by chance. Notice that when this is the case, &lt;strong&gt;any interior solution is optimal!&lt;/strong&gt; The equilibrium set is then infinite.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-02-03T18:08:34.723" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15311" PostTypeId="2" ParentId="15262" CreationDate="2017-02-03T18:20:18.183" Score="1" Body="&lt;p&gt;Terms of trade is a measure of &lt;strong&gt;relative prices&lt;/strong&gt;, and prices only. There are no quantities involved. As a &lt;a href=&quot;http://fordschool.umich.edu/rsie/workingpapers/Papers651-675/r651.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;recent review paper&lt;/a&gt; puts it:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;&quot;with exceptions that I will note below, most trade economists have defined a country’s terms of trade as the price of its exports divided by the price of &#xA;its imports, $p_X/p_M$&quot; (p.2).&lt;/em&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, by definition, &lt;strong&gt;in a two country model&lt;/strong&gt;, they are reciprocal. In a model with more countries, there can be differences, as some countries could import or export different goods. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Actually, I don't know which Wikipedia you are looking at, but in the &lt;a href=&quot;https://en.wikipedia.org/wiki/Terms_of_trade&quot; rel=&quot;nofollow noreferrer&quot;&gt;English version&lt;/a&gt;, the first line states:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;&quot;Terms of trade (TOT) refers to the relative price of exports in terms of imports and is defined as the ratio of export prices to import prices.&quot;&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;For future reference, Wikipedia is an unreliable source. If you are in an educational institution, it is likely you have access to the &lt;a href=&quot;http://www.dictionaryofeconomics.com/dictionary&quot; rel=&quot;nofollow noreferrer&quot;&gt;New Palgrave Dictionary of Economics&lt;/a&gt; (the terms of trade article is &lt;a href=&quot;http://www.dictionaryofeconomics.com/article?id=pde2008_T000044&amp;amp;edition=current&amp;amp;q=terms%20of%20trade&amp;amp;topicid=&amp;amp;result_number=2&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;). If not, you can google &quot;terms of trade pdf&quot; and hopefully get the slides of a generous professor who is sharing his/her knowledge with the world.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-02-03T18:25:51.727" LastActivityDate="2017-02-03T18:25:51.727" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="15312" PostTypeId="2" ParentId="15304" CreationDate="2017-02-03T18:56:35.700" Score="3" Body="&lt;p&gt;To illustrate what Tirole has done, let's consider a simpler environment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider a utility maximisation problem over two goods, $x$ and $y$. The consumer has utility function $u(x,y) = f(x) + y$, where $f$ is strictly increasing and strictly concave. The consumer's problem is thus&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \begin{align}&#xA;\max_{x,y} &amp;amp;\quad f(x) + y \\&#xA;\text{s.t.} &amp;amp;\quad p_x x + p_y y \le m&#xA;\end{align} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given the conditions on $f$, we know that the budget constraint must bind. That is to say that in any solution to the above maximisation problem, it must be the case that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ p_x x +p_y y = m $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can rearrange the above equality to&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ y = \frac{m - p_x x}{p_y} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can thus incorporate this fact into our objective function and use the expression derived above for $y$ to replace it. Thus, our optimisation problem now becomes&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \max_x \quad f(x) +  \frac{m - p_x x}{p_y}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which, in a way, is a simpler problem, given that I now no longer have to worry about the Kuhn-Tucker conditions. The second-order conditions are also now much easier to verify.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Tirole does something similar to this. He uses the fact that a constraint is binding to simplify the objective function by expressing the objective in terms of the binding constraint.&lt;/p&gt;&#xA;" OwnerUserId="8595" LastActivityDate="2017-02-03T18:56:35.700" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15313" PostTypeId="1" CreationDate="2017-02-03T19:16:16.600" Score="1" ViewCount="143" Body="&lt;p&gt;In the new age of Alternate Facts, one might argue that many actors personally benefit hugely from lying, at the expense of other sectors of society.&#xA;Economically speaking you might argue that this is a form of moral hazard -- the actors bear relatively small risks to themselves, receive benefits and may impose great costs or risks to others.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some examples:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;A politician may willfully lie to the public about intelligence facts concerning a country's weapons of mass destruction and receive increased political capital at the  expense of her country's cost of entering into an unnecessary war.&lt;/li&gt;&#xA;&lt;li&gt;A populist news agency may willfully may lie about immigration or terrorism facts and receive increased circulation and advertising revenue at the expense of increased civil unrest, or in extreme cases contribute in driving a country into war justified by falsehoods.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Small risks to themselves, but great outsourced costs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think we can agree that, in general, lies are a generally 'a bad thing' that it would be wise to disincentivize them in many arenas (politics, science and academia, law, news media).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At the same time free speech seems like 'a good thing' that it would be unwise to curtail or disincentivize.&#xA;What, if any, incentives could be introduced to reduce lying without seriously curtailing free speech?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;-- &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Legal systems (which are ideally a forum of free discourse in pursuit of the truth) disincentivize lies by imposing jail-time costs to people who make false statement.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Science (which depends heavily on free discourse) disincentivizes lying firstly by peer-review processes (which ideally would cause a liar to waste their time when submitting falsehoods for publication), and where this fails, by retracting published falsehoods, public shaming and loss of employment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Yet in politics and media specifically, we rarely see costs incurred for distributing objective falsehoods. Can incentives be introduced in these arenas without seriously limiting the beneficial aspects of free speech to society?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the purposes of this discussion, its probably good to focus of lying as &quot;willfully making statements that the actor objectively (and provably) knows to be false&quot;, and leave the discussion on statements of opinion for another day.&lt;/p&gt;&#xA;" OwnerUserId="4991" LastEditorUserId="4991" LastEditDate="2017-02-06T20:56:57.573" LastActivityDate="2017-02-06T20:56:57.573" Title="Can lying be disincentivized without serious curtailments of free speech?" Tags="&lt;behavioral-economics&gt;&lt;asymmetric-information&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="15317" PostTypeId="1" CreationDate="2017-02-04T00:30:24.317" Score="6" ViewCount="268" Body="&lt;p&gt;'m a junior economics major and lately I've been in a sort of crisis because I feel like I'm not sure what economic ideas I believe in anymore. Don't get me wrong, I love reading anything that has to do with the subject. Thing is, I just feel like, for somebody as skeptical as me, it's tough to remain convinced of anything I learn. I used to blindly agree to mainstream econ when I first started studying this, but then I was introduced to different schools like Marxism, the Austrian School, New Keynesianism etc. and it made me realize things are not as simple as I supposed they were. Now, however, I feel like I don't have the tools to discern what is good and bad economics. Sure, I know marxist theory or austrian theory are not exempt of criticisms, but neither is orthodox economics. And what's worse is that I feel I'm not capable of criticising them on my own: I always depend on somebody else's analysis of the state of modern economics, his/her interpretation of Marx and Von Mises, etc etc.; so I don't know how much to trust their opinions either.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And I look around me and it seems as if everybody I study with just CHOOSES what to believe in (Austrian/Keynesian/New Classical/etc) instead of deeply analyzing all theories and accepting what seems to be the most rational school of thought for them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So in summary, what is there to do for me? It's like there's a counterpoint for every argument and I'm not capable of sorting out on my own which is more reasonable. Is there anything I could read to find out what different methodologies each school of thought uses, where exactly do they differ and how scientifically valid are their theories?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm not sure if I'm asking for too much, but I'd honestly appreciate any kind of response. &lt;/p&gt;&#xA;" OwnerUserId="12012" LastActivityDate="2019-07-20T16:20:52.030" Title="How to make sense of so many conflicting theories and ideas in the field with an open mind? Is every school of economic thought as valid as the rest?" Tags="&lt;history-economic-thought&gt;&lt;marxism&gt;&lt;austrian&gt;" AnswerCount="4" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15318" PostTypeId="2" ParentId="15317" CreationDate="2017-02-04T03:44:16.467" Score="3" Body="&lt;p&gt;This is how I view it. At the very core of economics, is each and every human on this earth making decisions he or her thinks are in his or hers best interest. In real life, we do not calculate utility before making a decision or compute any expected values; we do what feels right at the moment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Taking the cross-section of human decisions, economists try to make sense of it all, and ultimately deduce some theory that resembles a law of physics to shed light some basic insight into the human condition.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is a mighty hard task; near impossible. Its amazing to me we've made any progress at all, yet here we are.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a field of knowledge, economics will never explain the world perfectly in whole, because the nature of what we study is far from perfect and certainly stochastic. There will never be a &lt;em&gt;unified&lt;/em&gt; theory of economics, but that does not mean the small pieces of insight each economics paper tries to uncover is trash. It is still valuable to use what the data can tell us, to the best of our ability, to guide our future decisions, and analyze the decisions we've made in the past. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If anything, its interesting as hell. &lt;/p&gt;&#xA;" OwnerUserId="4938" LastActivityDate="2017-02-04T03:44:16.467" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15319" PostTypeId="2" ParentId="15317" CreationDate="2017-02-04T06:38:11.490" Score="2" Body="&lt;p&gt;You've asked a rather broad question. In a way, what you've asked, is &amp;quot;how do we learn?&amp;quot;&lt;/p&gt;&#xA;&lt;h3&gt;more than one tool for the job&lt;/h3&gt;&#xA;&lt;p&gt;Do you believe in circular saws? Do you believe in handsaws? How can you believe in both, when they both claim to do the same job, but are completely different things?&lt;/p&gt;&#xA;&lt;h3&gt;how not to pick an economic philosophy&lt;/h3&gt;&#xA;&lt;p&gt;At our worst, we humans pick an economic philosophy based on whatever suits our prejudices. So, for example, some people love Hayek, because he gives them a pseudo-intellectual justification for being selfish pricks. Some people love Hayek, because he offers an internally-consistent logic and offers the (false) hope of being able to ignore all the complexity in the real world in favour of some simple rules. Others love Marx or Friedman or some other icon for equally bad reasons.&lt;/p&gt;&#xA;&lt;h3&gt;the thing that makes it dismal, is what makes it so interesting&lt;/h3&gt;&#xA;&lt;p&gt;Economics done well can be a science. It's a pretty dismal science, and one reason for it being dismal, is that we rarely get chance to carry out controlled experiments in lab conditions; and even when we do, we know that the very fact that they've been carried out in lab conditions is very distorting, so we only learn something distorted about the real world. Another reason it's so dismal is that whenever we do empirical observations of the real world, the observations are very distorted, the effects we observe may only be weakly linked to what we think are causes, and there can be quite a time lag in between, during which lots of other things happen that might interfere with the result.&lt;/p&gt;&#xA;&lt;h3&gt;more than one tool for the job (reprise)&lt;/h3&gt;&#xA;&lt;p&gt;Another analogy. Something unknown is concealed inside a black box. Over time, we manage to implant some lenses in the fabric of the box, so that we can see what's inside, through each lens. Each lens is heavily distorting, and dirty, as well as looking in from a different angle. The inside of the box look completely different through each lens. Is one lens right and all other lenses wrong? How can we make sense of it all? The Austrian School is one lens; the neo-classical another; and so on.&lt;/p&gt;&#xA;&lt;p&gt;Here's an analogy that &lt;a href=&quot;http://www.badscience.net/2017/02/how-many-epidemiologists-does-it-take-to-change-a-lightbulb/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Ben Goldacre wrote recently&lt;/a&gt;, for epidemiology; and it can be equally true of empirical economics:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;We’ve found 12,000 switches hidden around the house. Some of them turn this lightbulb on, some of them don’t; some of them only work sometimes; and some of them work sometimes, but twenty years after you flick them. Some of the switches only work, sometimes, twenty years later, if one of the other switches is flicked too (and at the right time). In any case the wiring’s rusty, everything’s completely different in the house next door, and by the way there are lots of people selling spare bulbs who tell lies about houses, switches, and fingers.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;h3&gt;we are are the best economists we can be, when we are the most scientific we can be&lt;/h3&gt;&#xA;&lt;p&gt;So, how do we learn, in economics? How do we weigh up these different paradigms? One way of looking at it, is to take the view that the process of science is of collecting observations, and building useful models out of them; and that that should be Economics' process too. In which case, we need some test(s) of what makes a model useful. So far, the best we can do, is to ask - which models enable us to make better decisions? And that largely means the same thing as: which models give us better predictions about the relative benefits of two or more different courses of action?&lt;/p&gt;&#xA;&lt;h3&gt;no shame - Bayes all the way&lt;/h3&gt;&#xA;&lt;p&gt;I'm a Bayesian. I make no bones about it. It's not an economic paradigm. It's a meta-paradigm - it gives us a way of choosing the right paradigm for the task at hand; it's based on &lt;a href=&quot;http://www.bayesianphilosophy.com/e-t-jaynes-the-book/&quot; rel=&quot;nofollow noreferrer&quot;&gt;ruthlessly rigorous mathematics&lt;/a&gt;; and it does seem to work rather well. The process is to constantly update our beliefs, based on available information. And to devise experiments that will give us the most new information to enable that updating process to happen.&lt;/p&gt;&#xA;" OwnerUserId="44" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2017-02-04T06:38:11.490" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="15320" PostTypeId="1" CreationDate="2017-02-04T06:47:40.573" Score="0" ViewCount="26" Body="&lt;p&gt;Please refer to the two images posted at this link: &lt;a href=&quot;https://imgur.com/a/si3ko&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://imgur.com/a/si3ko&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Referring to Page 2, I'm not quite sure what the author is trying to say regarding the two bracketed portions. Considering the first bracketed portion, when the author says &quot;purchased less than Q0&quot;, is the author still referring to a point on the demand schedule line? Also referring to the first bracketed portion, how do we know the consumer &quot;value additional consumption more than its cost to her&quot;, and thus purchase more? How do I represent all these graphically?&lt;/p&gt;&#xA;" OwnerUserId="11353" LastActivityDate="2017-02-04T09:11:56.877" Title="Question regarding demand schedule and equilibrium consumption" Tags="&lt;microeconomics&gt;&lt;general-equilibrium&gt;" AnswerCount="1" CommentCount="0" ClosedDate="2017-02-06T23:42:39.877" ContentLicense="CC BY-SA 3.0" />
  <row Id="15321" PostTypeId="2" ParentId="3130" CreationDate="2017-02-04T06:55:23.697" Score="2" Body="&lt;h1&gt;Short Answer&lt;/h1&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Can a central bank simply by fiat change its holdings of its own currency, and then use this new money in any way they please? &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Theoretically it can, if you don't mind destroying credibility and the economy in the process. In modern economies there are regulations in place that make this impossible. So no.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Do they later have to &quot;pay back&quot; this money to balance the books, or can they simply forget about it?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;If they keep &quot;printing&quot; new money and keep paying back old money in perpetual, the net effect is not having to pay back. So the US government can afford US\$19T of debt. But technically they have to pay back. See long answer below.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Or more concretely: if the ECB buys bonds with newly created electronic money, and these bonds later default, would that be a problem for the ECB or could they laugh it off?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;ECB can laugh it off, but Draghi can't, and certainly Eurozone can't either.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;h1&gt;Long Answer&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;First you have to look into the process of money creation. Let's say you provide an ounce of gold bar (asset) to the Fed, in exchange the Fed will pay you an equivalent sum for your gold,  the current market price, say US\$35. The gold is now in the Fed's reserve (it is called Federal &lt;strong&gt;Reserve&lt;/strong&gt; for a reason). Archaically, you can redeem your gold bar with US\$35.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, note that debt instruments (&lt;em&gt;i.e.&lt;/em&gt; bonds) are also assets. Therefore the government can issue short-term bonds to the Fed that the Fed will put in its reserve, and hand the cash to the government. The book is still balanced because the bonds in reserve are now &quot;disabled&quot;, just like you cannot use your gold bar anymore when it's in reserve. But there will be more liquid cash in the market, cash that can be used to do other things, such as investment. When the bonds mature, the process is reversed. Furthermore, the interest (profit) earned from the government bonds will also be remitted back to the government, so the book is still balanced even when interest is taken into consideration.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Quantitative easing is similar. In addition to government bonds, the central bank is now allowed to buy a set quantity of financial instruments that it normally wouldn't have access to, in the same exchange mechanism as stated above. QE allows central banks to (directly) influence interest yield of other instruments, in addition to the usual interbank interest rate which is already close to zero. A lower interest rate makes investment more attractive, which drives the economy. Now that there is more cash in circulation, exchange rate falls, which makes foreign direct investment attractive because US assets cost less in foreign currencies's perspective.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, what if the bonds default? Let's suppose there are US\$100 out in circulation, backed by US\$100-equivalent of reserves. If US\$20 of the bonds default, the value of the US currency in circulation will drop in value accordingly in terms of exchange rate. &lt;em&gt;i.e.&lt;/em&gt; nominally the dollar notes still say US\$100, but the actual purchasing power will drop to only US\$80.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose that initially US\$20 of reserve is in bond and US\$80 is in gold. When you reason further, had it been a fixed exchange rate system, once the bonds default, if the owners of the US\$40 of gold rush to redeem their gold at a fixed rate, the reserve will now be worth US\$40. The remaining US\$60 in circulation will now have only \$40/\$60 (= 2/3) of its initial purchasing power (compare with 80% purchasing power right after the default). If all US\$80 of gold reserves is redeemed, the remaining US\$20 in the market will worth US\$0. This is one of the reasons why fixed exchange rate won't work: Once there has been a default and people rush to redeem the reserves, hyperinflation follows.)&lt;/p&gt;&#xA;" OwnerUserId="12013" LastEditorUserId="4020" LastEditDate="2020-05-11T05:51:09.793" LastActivityDate="2020-05-11T05:51:09.793" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="15322" PostTypeId="1" CreationDate="2017-02-04T07:34:03.173" Score="0" ViewCount="119" Body="&lt;p&gt;Referring to this answer (&lt;a href=&quot;https://economics.stackexchange.com/a/15321/12013&quot;&gt;https://economics.stackexchange.com/a/15321/12013&lt;/a&gt;) for the technical process of money creation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;How do central banks create the money to pay interest on its reserves (assuming positive interest rate)?&lt;/strong&gt; I don't see the process being backed by any asset. And if the money is fiat-ly created with no asset backing, would raising interest rate not have the opposite effect of &lt;em&gt;driving&lt;/em&gt; inflation and &lt;em&gt;devaluing&lt;/em&gt; the currency (rather than slowing inflation and appreciation)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Yes I am aware of the PQ=MV formula of conventional central bank wisdom, that raising interest rate has the effect of restricting money supply and slowing inflation. &lt;strong&gt;I would like to know if the factor mentioned above exists, and if yes, when will each factor/force dominate net inflation and exchange rate.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since there are many types of interests, the answer can be limited to &lt;a href=&quot;https://en.wikipedia.org/wiki/Excess_reserves&quot; rel=&quot;nofollow noreferrer&quot;&gt;IOER&lt;/a&gt; or &lt;a href=&quot;https://en.wikipedia.org/wiki/Emergency_Economic_Stabilization_Act_of_2008#Interest_on_bank_deposits_held_by_the_Federal_Reserve&quot; rel=&quot;nofollow noreferrer&quot;&gt;this&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="12013" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2017-04-18T19:24:35.570" Title="How do central banks create money to pay interest on reserves" Tags="&lt;monetary-policy&gt;&lt;interest-rate&gt;&lt;central-banking&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15323" PostTypeId="2" ParentId="15320" CreationDate="2017-02-04T09:11:56.877" Score="1" Body="&lt;p&gt;Yes, he is referring to a movement along the demand line. If the individual purchases less than $Q_0$, than the demand line would be higher than the price for quantities for $Q_0$, this means that the individual values consumption more than its cost (its price). Graphically, you just need to show that for a quantity less than $Q_0$, the demand line is higher than the price, i.e. the individual values consumption more than its cost.&lt;/p&gt;&#xA;" OwnerUserId="6773" LastActivityDate="2017-02-04T09:11:56.877" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15326" PostTypeId="1" CreationDate="2017-02-04T13:54:32.037" Score="2" ViewCount="171" Body="&lt;p&gt;I am an economist interested in looking at panel data on mothers, their husbands and their grandparents to determine the effect of the economic shock of the recession on their self-reported health outcomes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Initially I had planned to fit fixed-effect models in order to control for fixed individual differences.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, thinking on this further, as my analysis will consider the effects of economic shocks on health outcomes of all adults in this dataset at baseline and then ten years later, I wonder if family should be included as a random factor in order to account for potential correlations between related individuals. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, should the analyses be undertaken using a linear mixed model? Any insights you could provide on this would be great!&lt;/p&gt;&#xA;" OwnerUserId="12016" LastEditorUserId="2776" LastEditDate="2017-02-04T18:51:13.097" LastActivityDate="2017-02-04T18:51:13.097" Title="Fixed vs Random effects in panel data" Tags="&lt;econometrics&gt;&lt;paneldata&gt;&lt;fixed-effects&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="15327" PostTypeId="1" CreationDate="2017-02-04T19:25:53.180" Score="1" ViewCount="93" Body="&lt;p&gt;&lt;em&gt;Diclaimer: This is not a homework question. Every word of it was written originally by me.&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Hypothetical Scenario&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;Alice is shopping for groceries and thinks the current price of bananas at &lt;code&gt;$&lt;/code&gt;0.79/lb is a little too high for her budget. Alice calls Bob, her local legislator, and asks Bob to sponsor a bill that regulates the price of bananas to cost no more than $0.50/lb in the grocery store so Alice can afford to buy them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Bob thinks this is a great idea because it will help more people (especially the poor and those on a fixed income) afford to buy more bananas — a very nutritious food.&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Question&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;Is this bill to regulate the price of bananas really a good idea? What would be the impact of such a law if it were to pass?&lt;/p&gt;&#xA;" OwnerUserId="8719" LastEditorUserId="8719" LastEditDate="2017-02-04T20:11:16.640" LastActivityDate="2019-02-20T16:30:16.127" Title="Should the government regulate the price of bananas?" Tags="&lt;pricing&gt;&lt;regulation&gt;" AnswerCount="1" CommentCount="8" ClosedDate="2017-02-08T16:30:26.173" ContentLicense="CC BY-SA 3.0" />
  <row Id="15328" PostTypeId="2" ParentId="13678" CreationDate="2017-02-04T19:41:03.040" Score="2" Body="&lt;p&gt;I am not exactly sure what you mean by &quot;block price&quot; and I don't know the bucket buddy. However, I feel like you are talking about what microeconomists term &lt;strong&gt;bundling&lt;/strong&gt;, the practice of selling two (or more) different goods together in one package.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Interestingly, bundling can be profitable even without any production-cost related efficiency arguments. It can serve as a tool to sort consumer types and thus can be used to price-discriminate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The classical paper on bundling by a monopolist is &lt;a href=&quot;https://www.jstor.org/stable/2937852&quot; rel=&quot;nofollow noreferrer&quot;&gt;McAfee, McMillan and Whinston (1989)&lt;/a&gt;. For an introductory treatment of the topic read, e.g., &lt;a href=&quot;http://www.cambridge.org/catalogue/catalogue.asp?isbn=9780521862998&quot; rel=&quot;nofollow noreferrer&quot;&gt;Belleflamme and Peitz, Chapter 11&lt;/a&gt; - or the corresponding chapter of basically any other textbook on industrial organization or microeconomics.&lt;/p&gt;&#xA;" OwnerUserId="11590" LastActivityDate="2017-02-04T19:41:03.040" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15329" PostTypeId="1" CreationDate="2017-02-04T21:38:09.370" Score="1" ViewCount="24" Body="&lt;p&gt;I was trawling the web and happened upon this graph: &lt;a href=&quot;https://fred.stlouisfed.org/series/DTWEXM&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://fred.stlouisfed.org/series/DTWEXM&lt;/a&gt; . The value of the trade-weighted US dollar was going steady until 2014-2015, rose rapidly, then it sort of steadied out again.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can't recall anything particularly newsworthy in 2014-2015 (though I have a poor track record of paying attention).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What caused the 2014-2015 rise? Which countries did it happen to?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;sup&gt;(according to the caption the countries considered in the weighting are the Euro Area, Canada, Japan, United Kingdom, Switzerland, Australia, and Sweden)&lt;/sup&gt;&lt;/p&gt;&#xA;" OwnerUserId="12021" LastActivityDate="2017-02-04T21:38:09.370" Title="Why was there a sudden rise in trade-weighted US dollar value in 2014-2015?" Tags="&lt;currency&gt;&lt;united-states&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15331" PostTypeId="1" AcceptedAnswerId="15348" CreationDate="2017-02-05T06:23:38.763" Score="5" ViewCount="2096" Body="&lt;p&gt;Suppose an economic agent’s life is divided into two periods, the&#xA;first period constitutes her youth and the second her old age. There&#xA;is a single consumption good, C, available in both periods. The&#xA;agent’s utility function is given by&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U(C_{1},C_{2}) = \frac{C_{1}^{1-\theta }-1}{1-\theta }+\frac{1}{1+\rho}\frac{C_{2}^{1-\theta }-1}{1-\theta }$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;with $0&amp;lt;θ &amp;lt; 1,ρ &amp;gt; 0$, and where the first term represents utility from consumption during youth. The second term represents discounted utility from consumption in old age, $1/(1+ ρ )$ being the discount factor.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;During the period, the agent has a unit of labour which she supplies&#xA;inelastically for a wage rate $w$ . Any savings (i.e., income minus&#xA;consumption during the first period) earns a rate of interest $r$,&#xA;the proceeds from which are available in old age in units of the only&#xA;consumption good available in the economy. Denote savings by $s$. The&#xA;agent maximizes utility subjects to her budget constraint.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$i)$ Show that $θ$ represents the elasticity of marginal utility with&#xA;respect to consumption in each period.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$ii)$ Write down the agent’s optimization problem, i.e., her problem&#xA;of maximizing utility subject to the budget constraint.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$iii)$ Find an expression for s as a function of $w$ and $r$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$(iv)$ How does s change in response to a change in $r$? In&#xA;particular, show that this change depends on whether $θ$ exceeds or&#xA;falls short of unity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$(v)$ Give an intuitive explanation of your finding in $(iv)$&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;I am not being able to solve this problem. I proved the first part $i$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$C_{2}= (w-C_{1})(1+r)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, $ii)$ Optimization Problem = &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{C_{1}^{1-\theta }-1}{1-\theta }+\frac{1}{1+\rho}\frac{C_{2}^{1-\theta }-1}{1-\theta }+\lambda (w-C_{1}-(w-C_{1})(1+r))$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$iii) s=w-C_{1}$ How do we express this int terms of $w$ and $r$?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help with this sum will be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="11758" LastEditorUserId="1601" LastEditDate="2017-02-05T13:58:44.370" LastActivityDate="2017-02-06T12:39:22.960" Title="Intertemporal Utility Maximization" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15334" PostTypeId="1" CreationDate="2017-02-05T14:36:22.100" Score="1" ViewCount="25" Body="&lt;p&gt;I'm trying to reproduce Gertler-Karádi (2013) model. How far-fetched is the thought to use the amount of corporate bond as an input of production?&#xA;&lt;a href=&quot;https://i.stack.imgur.com/Cr77W.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Cr77W.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&#xA;Thank you in advance.&lt;/p&gt;&#xA;" OwnerUserId="5017" LastEditorUserId="5017" LastEditDate="2017-02-05T15:11:55.190" LastActivityDate="2017-02-05T15:11:55.190" Title="Is it possible to proxy producers' capital with corporate bond in a macro model?" Tags="&lt;macroeconomics&gt;&lt;financial-economics&gt;&lt;new-keynesian-economics&gt;" AnswerCount="0" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="15335" PostTypeId="1" AcceptedAnswerId="15349" CreationDate="2017-02-05T17:02:44.877" Score="4" ViewCount="1492" Body="&lt;p&gt;Consider the following question:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/folLf.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/folLf.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, assume the standard function for production:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Y_t = A_t K^\alpha_tL^{1-\alpha}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $L$ is fixed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, the growth rate of output is: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$g_Y \approx g_A + \alpha g_K $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Case without technological change&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the standard Solow model with constant $A$, $g_A=0$. In the steady state, $sY=dK$ (investment equal depreciation), and $g_Y = g_K = 0$, consistent with the above equation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Case with exogenous technological change&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here, $g_A=2\%$ (as per the question). But then, there is clearly no steady state, as the marginal product of capital is permanently increasing, thereby expanding capital. In the standard diagram, this means a shift of the function $sY_t$ upwards every period, meaning an ever increasing &quot;steady state&quot;, which is never achieved. &lt;strong&gt;Hence, to me the question does not make sense.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, here is the official answer:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/z3U0q.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/z3U0q.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, to me this answer is wrong. How can $Y$, $A$, and $K$ growth at the same rate? The equation of growth written above denies this! &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Is the question and/or answer wrong? Am I missing something? Am I wrong?&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="11406" LastEditDate="2017-02-09T15:59:18.487" LastActivityDate="2017-02-15T20:40:24.260" Title="Steady state Solow model with exogenous technological change" Tags="&lt;macroeconomics&gt;&lt;economic-growth&gt;&lt;solow&gt;" AnswerCount="2" CommentCount="5" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="15336" PostTypeId="2" ParentId="15313" CreationDate="2017-02-05T19:25:43.257" Score="4" Body="&lt;p&gt;If free speech is narrowly defined to only include true claims, true and false claims can be perfectly distinguished, the harm of false claims perfectly measured, and all claims are either true or false, then false claims are really no different than other forms of pollution. A standard pigovian tax should internalize the externalities and encourage the socially optimal level of truth telling. The social planner just has to tax each lie enough to discourage the social harm it does.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, I maintain that in practice all of these assumptions are false. All experience seems to show that using the legal system to purge public discourse of lies leads to concentrating enormous power in those who make the lie / truth determination and that they will use that power in a way that is often inconsistent with objective truth And, when there is no objective truth there will still be those who would use the legal system to control public discourse in the name of protecting it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In addition, the real world's imperfect legal processes are expensive and painful to participate in. That means that many true things that may be confused with lies will not be said, and that will further restrict freedom of speech.&lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2017-02-05T19:25:43.257" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="15338" PostTypeId="2" ParentId="15327" CreationDate="2017-02-05T20:02:07.683" Score="3" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/9zjfJ.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/9zjfJ.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;br&gt;&#xA;&lt;sub&gt;(source: &lt;a href=&quot;http://www.dineshbakshi.com/images/economics_diagrams/price-control-1.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;dineshbakshi.com&lt;/a&gt;)&lt;/sub&gt;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As you can see in the graph, price controls policies create excess demand, therefore you will end up with shortage or you will import more bananas.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm not a banana expert, but I assume bananas are pretty inelastic. Also, banana supply is inelastic in the short run (they have already planted bananas), therefore the excess demand will be less than the graph shows.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Whatever the case, price control policies generate deadweight loss and it depends on the elasticities who loses more (consumer vs supplier). This market is no longer efficient and that impacts the welfare negatively.&lt;/p&gt;&#xA;" OwnerUserId="11470" LastEditorUserId="4816" LastEditDate="2019-02-20T16:30:16.127" LastActivityDate="2019-02-20T16:30:16.127" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="15340" PostTypeId="1" CreationDate="2017-02-05T22:46:00.893" Score="0" ViewCount="153" Body="&lt;p&gt;Why is in flation preferable to deflation?&#xA;I appreciate this is largely due to the fact that deflation causes a large decrease in demand as people continually wait for prices to decrease, but if anyone has finer points I would be grateful. &lt;/p&gt;&#xA;" OwnerUserId="12027" LastActivityDate="2017-02-06T02:27:10.097" Title="Inflation vs Deflation" Tags="&lt;inflation&gt;&lt;deflation&gt;" AnswerCount="1" CommentCount="2" ClosedDate="2017-02-07T21:27:47.453" ContentLicense="CC BY-SA 3.0" />
  <row Id="15341" PostTypeId="2" ParentId="15340" CreationDate="2017-02-06T02:27:10.097" Score="0" Body="&lt;p&gt;I wouldn't necessarily agree that inflation is universally preferable to deflation. Each has positive and negative consequences. Inflation hurts savers, deflation hurts current consumers. A little inflation (let's say, 2% per year) is useful -- if nothing else, it helps deal with wage stickiness. Deflation, on the other hand, would be a godsend for a country like Venezuela where prices have been growing incessantly. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is all to say that there isn't a single rule for inflation vs deflation. The broader economic context is critical.   &lt;/p&gt;&#xA;" OwnerUserId="12028" LastActivityDate="2017-02-06T02:27:10.097" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15342" PostTypeId="2" ParentId="14913" CreationDate="2017-02-06T08:16:44.223" Score="3" Body="&lt;p&gt;Suppose the total product is given by $f(x)$. Thus, the average product is $$AP(x)=\frac{f(x)}{x}.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Differentiating:&#xA;$$AP'(x)=\frac{x f'(x)-f(x)}{x^2},$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which has the same sign as $x f'(x)-f(x)$. This is definitely negative if $f''(x)&amp;lt;0$ (i.e., if $f$ is concave).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But it can also be negative, even if $f$ is locally convex. Take a look at this figure:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/uJf4i.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/uJf4i.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At the point marked with a blue disc: the slope of the red line is $f'(x)$. The slope of the black line is $f(x)/x$. We can see geometrically that $f(x)/x&amp;gt;f'(x)$, or (after rearranging) that $f'(x)x&amp;lt;f(x)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, at the point indicated by the blue disc we know that $AP'(x)&amp;lt;0$. But at this point we can also see in the figure that $f''(x)&amp;gt;0,$ implying that the marginal product is increasing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since we have a counter-example, &lt;strong&gt;we conclude that a decreasing marginal product is not a necessary condition for a decreasing average product&lt;/strong&gt;.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2017-02-06T08:16:44.223" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15343" PostTypeId="1" CreationDate="2017-02-06T11:16:11.847" Score="0" ViewCount="278" Body="&lt;p&gt;Assume that a and b (b is greater than a) indicate the quantity of supply on a linearly increasing supply curve. How can be the area formed by those two points under the supply curve interpreted? The interpretation should be made independent of a demand curve. That means no equilibrium price and producer surplus to account for. Could that be the difference between production costs for the given range of quantity? &lt;/p&gt;&#xA;" OwnerUserId="12029" LastEditorUserId="12029" LastEditDate="2017-02-06T14:20:54.373" LastActivityDate="2017-02-06T14:20:54.373" Title="What does the area defined by two different values for quantity under a supply curve represent?" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="15345" PostTypeId="2" ParentId="15343" CreationDate="2017-02-06T12:00:22.913" Score="1" Body="&lt;p&gt;Your intuition is right, but you are not accounting for fixed costs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The supply curve is the part of the marginal cost curve above its intersection with the average variable cost curve. Marginal costs are defined as the derivative of the cost function (or the variable cost function as the derivative of fixed cost is zero).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To get the area you integrate. That is, you get back the variable cost.&#xA;So the area below the supply curve between $a$ and $b$ is the difference of the variable costs.&lt;/p&gt;&#xA;" OwnerUserId="11590" LastActivityDate="2017-02-06T12:00:22.913" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="15346" PostTypeId="1" AcceptedAnswerId="15347" CreationDate="2017-02-06T12:10:10.570" Score="16" ViewCount="8412" Body="&lt;p&gt;There are many ways to draw a sequential game 'by hand'. By drawing the game I mean this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/Tuwxk.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Tuwxk.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Displaying players' decision points, available actions and payoffs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there any way I can do this in R or a similar high level programming language? To be precise: I do not want to plot geometric equations, I want to define a structure (players, points, connections, payoffs) and have the program plot it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am currently browsing the 'igraph' package but I am having some difficulty labeling so I am wondering if there is a better way.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2017-02-06T21:15:45.037" LastActivityDate="2019-12-01T04:07:44.217" Title="Visualization tools for game theory: Game trees" Tags="&lt;game-theory&gt;&lt;r&gt;" AnswerCount="5" CommentCount="1" FavoriteCount="9" ContentLicense="CC BY-SA 3.0" />
  <row Id="15347" PostTypeId="2" ParentId="15346" CreationDate="2017-02-06T12:17:06.067" Score="7" Body="&lt;p&gt;Mathematica has a graph building and drawing capability.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, if you built the graph in Mathematica, then you could plot it using settings of your choosing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In Mathematica, you might use the TreeGraph as way to build the graph, and &lt;a href=&quot;http://reference.wolfram.com/language/ref/TreePlot.html&quot;&gt;TreePlot&lt;/a&gt; as a way to plot it. For example, the following code generates a tree with the nodes labeled by coordinate and has a similar format to what you want:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;TreePlot[{1 -&amp;gt; 4, 1 -&amp;gt; 1, 1 -&amp;gt; 5, 2 -&amp;gt; 4, 3 -&amp;gt; 6, 3 -&amp;gt; 9, 4 -&amp;gt; 8, &#xA;  4 -&amp;gt; 10, 6 -&amp;gt; 7, 8 -&amp;gt; 9}, &#xA; EdgeRenderingFunction -&amp;gt; ({If[First[#2] === Last[#2], Red, Black], &#xA;     Arrow[#1, .1], &#xA;     Text[#2, LineScaledCoordinate[#1, .5], Background -&amp;gt; White]} &amp;amp;), &#xA; VertexLabeling -&amp;gt; True]&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/39tLom.png&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/39tLom.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, note that there are graphical packages like TikZ in Tex which have very powerful graph drawing capability. TikZ is mostly used in unix environments, though, and will not store data structures or do calculations like Mathematica. It is purely a graphical drawing capability.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The graph you have used as an illustration has the font typically used in TeX, so it was probably produced with TikZ or another TeX package. If you want a Mathematica equation to look like that you can use the TraditionalForm function, or explicitly specify the Computer Modern font.&lt;/p&gt;&#xA;" OwnerUserId="1448" LastEditorUserId="1448" LastEditDate="2017-02-06T12:34:04.373" LastActivityDate="2017-02-06T12:34:04.373" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15348" PostTypeId="2" ParentId="15331" CreationDate="2017-02-06T12:21:15.267" Score="5" Body="&lt;p&gt;What you have is basically the Fisher Two-Period Optimization Problem. &lt;a href=&quot;http://www.econ2.jhu.edu/people/ccarroll/public/LectureNotes/Consumption/2PeriodLCModel/&quot; rel=&quot;noreferrer&quot;&gt;(Fisher)&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For iii)&#xA;You first need to find the Euler equation, which tells you how to optimally trade off first-period and second-period consumption.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For starters, your optimization problem is set up incorrectly: &#xA;$$\frac{C_{1}^{1-\theta }-1}{1-\theta }+\frac{1}{1+\rho}\frac{C_{2}^{1-\theta }-1}{1-\theta }+\lambda (w-C_{1}-\frac{C_{2}}{1+r})$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You find the Euler equation by deriving and equating the first-order conditions of both consumption terms.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{1}{1+r} C_{1}^{-\theta }= \frac{1}{1+\rho}C_{2}^{-\theta }$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then just solve for $C_{1}$, substitute $C_{2}=s(1+r)$, and plug into $s=w-C_{1}$, which gives:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;s=w-(1+r)^{\frac{\theta-1}{\theta}}(1+\rho)^{\frac{1}{\theta}}s \\&#xA;s=\frac{w}{1+(1+r)^{\frac{\theta-1}{\theta}}(1+\rho)^{\frac{1}{\theta}}}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The derivative, giving the response to a change in $r$, is:&#xA;$$&#xA;\frac{\partial s}{\partial r}= -\frac{(\theta -1) w ( 1+\rho)^{1/\theta } (1+r)^{1/\theta }}{\theta  \left((\rho +1)^{1/\theta }+r (\rho +1)^{1/\theta }+(r+1)^{1/\theta }\right)^2}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The derivative for $0&amp;lt;\theta&amp;lt;1$ is positive, indicating that a higher return on saving will lead to an increase in the amount saved. Preference for first period consumption is still low enough, so that the consumer is willing to save more to consume it later. Here the substitution effect dominates the income effect.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When $\theta&amp;gt;1$, the derivative is negative, meaning that preference for first period consumption is so high that the consumer is willing to lower savings for current period consumption. Here the income effect dominates the substitution effect.&lt;/p&gt;&#xA;" OwnerUserId="11931" LastEditorUserId="11931" LastEditDate="2017-02-06T12:39:22.960" LastActivityDate="2017-02-06T12:39:22.960" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15349" PostTypeId="2" ParentId="15335" CreationDate="2017-02-06T17:37:13.910" Score="2" Body="&lt;p&gt;To simplistically answer your question, use the following:&#xA;$Y = K^\alpha (AL)^{1 - \alpha}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;em&gt;In order to prove all three can be equal:&lt;/em&gt;&lt;/strong&gt;&#xA;We will assume that technological progress is labor augmenting (Harrod Neutral) or &quot;labor saving&quot;, while holding the following true:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Returns to capital are roughly constant over time.&lt;/li&gt;&#xA;&lt;li&gt;Capital share of income is roughly constant over time.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The Harrod Neutral is associated with a capital-output ratio that is constant (K/Y) in our &quot;steady state&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Capital Accumulation&lt;/em&gt;&#xA;In the basic Solow model, (1).&#xA;$$ \frac{\dot{k}}{k} \equiv s\frac{y}{k}-(d+n)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For growth rate per capita capital to be constant, y/k = Y/K must also be constant. (Characteristic of the Harrod Neutral)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;We Need To Define The Balanced Growth Path With Technological Progress&lt;/em&gt;&#xA;Taking the original production equation:&#xA;$Y = K^\alpha (AL)^{1 - \alpha}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and dividing by AL (number of effective labor units) we are given our production function representing effective labor.&#xA;$$ \tilde{y} \equiv \tilde{k}^\alpha$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Doing The Same For Capital Accumulation&lt;/em&gt;&#xA;Follow steps below:&#xA;$$\frac{\tilde{\dot{k}}}{k} = \frac{dln(k/AL)}{dt}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{dlnK}{dt} - \frac{dlnA}{dt} - \frac{dlnL}{dt} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\dot{K}}{K} - \frac{\dot{A}}{A} - \frac{\dot{L}}{L} = \frac{\dot{K}}{K} - g - n$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;then using this to finding our Capital Accumulation equation below:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\dot{K}}{K} = S \frac{{Y}}{K} - d$$&#xA;$$\frac{\tilde{\dot{k}}}{\tilde{k}} = s\frac{Y}{K} - d - g - n$$&#xA;And, $$\frac{Y}{K} = \frac{Y}{AL} \frac{AL}{K} = \frac{\tilde{y}}{\tilde{k}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, &#xA;$$\frac{\tilde{\dot{k}}}{\tilde{k}} = s\frac{\tilde{y}}{\tilde{k}} - d - g - n$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\tilde{\dot{k}} = s \tilde{y} - (d+g+n)\tilde{k}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, combining our production function with capital accumulation we get an equation (6) that represents the Solow model with tech changes.&#xA;$$\tilde{\dot{k}} = s \tilde{k^\alpha} - (d+g+n)\tilde{k}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So our steady state is when (7) is true.&#xA;$$\tilde{\dot{k}^*} = 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we set this to be true for our steady state (denoted by *) levels of capital and output per effective labor. (8 and 9)&#xA;8: $$\tilde{k^*} = [\frac{s}{d+n+g}]^\frac{1}{1-\alpha}$$&#xA;9: $$\tilde{y^*} = [\frac{s}{d+n+g}]^\frac{\alpha}{1-\alpha}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the steady state: (10)&#xA;Capital (and income) per capita grow at the rate of exogenous technological growth.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\tilde{k} = K/AL$$&#xA;$$k = K/L$$ &#xA;$$k = A\tilde{k}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\tilde{k} = \tilde{k}^* = [\frac{s}{d+n+g}]^\frac{1}{1-\alpha}$$&#xA;$$k(t) = A(t)\tilde{k}^*$$&#xA;$$lnk(t) = lnA(t) + ln\tilde{k}^*$$&#xA;$$\frac{\dot{k}}{k} = \frac{\dot{A}}{A}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you graph out&#xA;$$\tilde{\dot{k}} = s \tilde{k^\alpha} - (d+g+n)\tilde{k}$$&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Any savings rate changes, s, change the savings curve and therefore change $$\tilde{k^*}$$&lt;/li&gt;&#xA;&lt;li&gt;Population or depreciation changes, n and d respectively, rotates the straight line, (d+g+n)k.&#xA;&lt;strong&gt;&lt;em&gt;Changes in these affect the growth rate of per capita capital and per capita income only outside the steady-state.&lt;/em&gt;&lt;/strong&gt;&lt;/li&gt;&#xA;&lt;li&gt;exo-tech growth changes the graph sort of like n and d by changing the level of $$\tilde{k^*}$$&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;This exo-tech growth changes the growth rate of per capita capital and per capita income in the steady state (along balanced growth paths).&lt;/p&gt;&#xA;" OwnerUserId="11406" LastEditorUserId="2776" LastEditDate="2017-02-15T20:40:24.260" LastActivityDate="2017-02-15T20:40:24.260" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15352" PostTypeId="2" ParentId="15346" CreationDate="2017-02-06T19:57:45.677" Score="10" Body="&lt;h1&gt;LaTeX with &lt;code&gt;forest&lt;/code&gt;&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;The &lt;a href=&quot;http://muug.ca/mirror/ctan/graphics/pgf/contrib/forest/forest-doc.pdf&quot; rel=&quot;noreferrer&quot;&gt;&lt;code&gt;forest&lt;/code&gt;&lt;/a&gt; package of LaTeX allows you to draw game trees with pretty simple syntax. After copying a pre-set template into the LaTeX preamble, one can build up the game tree using a nested &lt;code&gt;[]&lt;/code&gt; syntax, then the program takes care of node placement/spacing/etc. &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;pros: customizability (you can annotate the game tree in any way you want) and font/style consistency &lt;/li&gt;&#xA;&lt;li&gt;cons: inputting the game tree elements (player/action names, payoffs, info sets) is still somewhat manual, especially if the tree is large; and a somewhat steep learning curve if you're not already familiar with the TikZ package &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Here's an example from the &lt;code&gt;forest&lt;/code&gt; manual (&quot;Decision tree&quot; in Section 5.1): &lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;\begin{forest} &#xA;decision tree&#xA;[N,plain content&#xA;  [I;{p_1=0.5},plain content,elo={yshift=4pt}&#xA;    [{5,1};a]&#xA;    [II;b,plain content&#xA;      [{1,2};m]&#xA;      [{2,3};n]&#xA;    ]&#xA;  ]&#xA;  [II;{p_2=0.5},plain content,elo={yshift=4pt}&#xA;    [;c&#xA;      [{1,0};z]&#xA;      [{2,2};t]&#xA;    ]&#xA;    [;d&#xA;      [{3,1};z]&#xA;      [{0,0};t]&#xA;    ]&#xA;  ]{\draw[dashed](!1.anchor)--(!2.anchor) node[pos=0.5,above]{I};}&#xA;]&#xA;\end{forest}&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/IDozq.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/IDozq.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;h1&gt;Game Theory Explorer&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;The &lt;a href=&quot;http://gte.csc.liv.ac.uk/index/&quot; rel=&quot;noreferrer&quot;&gt;game theory explorer&lt;/a&gt; is developed by a few people at LSE. It allows users to input matrix-form games or build extensive form games through a GUI. It also seems capable of converting between normal and extensive form games. Additionally, the software comes with a solver that looks for Nash equilibria of the inputted game. &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;pros: GUI; solver; no need for local installation; (limited) customizability&lt;/li&gt;&#xA;&lt;li&gt;cons: no support for annotation; font/style inconsistency with rest of document&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Screenshots: &#xA;&lt;a href=&quot;https://i.stack.imgur.com/odWI7.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/odWI7.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/x3yRV.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/x3yRV.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2017-02-06T19:57:45.677" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15353" PostTypeId="1" CreationDate="2017-02-06T20:11:44.740" Score="2" ViewCount="310" Body="&lt;p&gt;In class we discussed Fisher Separation which states that the investment decision is independent of the financing decision. The optimality conditions are that MRS = MRT = (1+i) (i = interest rate). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The professor stated that for negative interest rates MRS becomes negative and investors now prefer less to more instead of more to less. Further he argued that investors will reduce production to zero. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, from the optimality condition I would say that the MRS is only &amp;lt;1 (and not &amp;lt;0) for negative interest rates. Thus, the capital market line becomes flatter, the optimal amount of production increases and the relative amount of consumption in t=0 compared to consumption in t=1 increases. I agree with the statement that it is optimal to realize projects with negative returns (=destroy value), however they all have a positive NPV (less negative return than the negative interest rate). Might it even be the case that overall utility increases as we are now able to realize &quot;more&quot; projects (investments increased)? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What am I missing to come up with his statements?&#xA; &lt;a href=&quot;https://i.stack.imgur.com/ZMfCb.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/ZMfCb.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="12037" LastEditorUserId="12037" LastEditDate="2017-02-06T22:18:15.330" LastActivityDate="2017-02-06T22:18:15.330" Title="Fisher Separation with negative interest rate" Tags="&lt;mathematical-economics&gt;&lt;utility&gt;&lt;interest-rate&gt;&lt;production-function&gt;&lt;consumption&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15354" PostTypeId="1" CreationDate="2017-02-06T21:32:09.123" Score="5" ViewCount="195" Body="&lt;p&gt;I'm working on a game theory problem.I'm having trouble understanding what the mixed strategy nash equilibrium is exactly in this game.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The game is :Two players have to choose how distribute a piece of land ($size = 1$). Each player (1, 2) send his decision $x_i \in{[0, 1]}$ to an external agent.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If $x_1 +x_2 \leq 1$, each player gain a land portion equal to $x_i +\frac{1-x_1-x_2}{2}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If $x_1+x_2 &amp;gt; 1$, they end up with nothing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first part of the problem is to solve the game in pure strategies. I figured out that the answer of this part is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Player 1 should pick $1- x_2$, any higher and he gets 0. The game is symmetric so the same hold from player2's perspective. The optimal strategy is the intersection of these two functions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The second part is to solve the game in mixed strategies (if exist). But I don't know how to aproach this part. &lt;/p&gt;&#xA;" OwnerUserId="12025" LastActivityDate="2017-02-07T06:59:51.140" Title="Mixed strategies: Nash equilibrium" Tags="&lt;game-theory&gt;&lt;nash-equilibrium&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15357" PostTypeId="2" ParentId="15354" CreationDate="2017-02-07T06:59:51.140" Score="2" Body="&lt;p&gt;&lt;strong&gt;Hint 1:&lt;/strong&gt; Suppose a mixed strategy NE $(\sigma_1,\sigma_2)$ exists, where $\sigma_i$ is a distribution over $[0,1]$. By the property of MSNE, &#xA;$$u_i(x_i,\sigma_j)=u_i(x_i',\sigma_j)$$ &#xA;for all pure strategies $x_i,x_i'$ in the support of $\sigma_i$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Hint 2:&lt;/strong&gt; Note that a segment of $u_i$ is linear in strategies, and thus &#xA;$$&#xA;x_i+\frac12(1-x_i-\mathbb E[x_j])=x_i'+\frac12(1-x_i'-\mathbb E[x_j])&#xA;$$&lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2017-02-07T06:59:51.140" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="15358" PostTypeId="2" ParentId="10611" CreationDate="2017-02-07T08:43:00.427" Score="-1" Body="&lt;p&gt;As colossus pointed out, technology advance is not associated with Unemployment. Malthus argued upon scarcity, but he has been proved wrong. As you hold an undergraduate economics degree, you might already know that economics &quot;best friend&quot; is history.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There's no reason to talk about a future technology boom, as we have already experienced it. There's not any similar technology boom in history from that of 20th-21th century. Not even close. Also, Marx has been proved wrong on this subject. Austrians have worked extensively against Marxist Theory (most notably F.A. Hayek and L. von Mises).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;About the political tendencies and the left. After WW2, Greece and Korea suffered a civil war between communists and non-communists. Koreas' split is well known, but people do not know much about Greece. In Greece the communists lost, but the implications were tremendous. Left parties (socialists) abused communist ideals and they deindustrialised the economy. Also, they created class conflicts and massive statism was in favor. They created an economy full of rigidities and inefficiency. They gave tremendous power to unions and they abolished any concept entrepreneurship. Some Greek quick facts:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Greece extracts top quality olive oil, better than Italy (except Sicily) &amp;amp; Spain but it cannot export since there is no factory to put it in bottles.&lt;/li&gt;&#xA;&lt;li&gt;The only industry that operates properly is commercial shipping (1st in the world), because it has nothing to do with Greece as the most shipping companies are off-shore.&lt;/li&gt;&#xA;&lt;li&gt;1/10 of population (NOT labor force) works in the state&lt;/li&gt;&#xA;&lt;li&gt;Specialized young people work as delivery boys etc because there are no industries to give them work.&lt;/li&gt;&#xA;&lt;li&gt;Unions have the right to blockade or use violence anytime they want&lt;/li&gt;&#xA;&lt;li&gt;Greece's GDP before crisis was that high due to consumption (i.e. AE) and there was not any Investment.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Conclusion&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are the left parties the right way to go in first place? Democracy by its nature gives more power to lower classes than upper ones. What will happen if there is a party that is willing to redistribute blindly just to keep happy only the lower classes? We all know that upper classes have more political influence than lowers, but if a party achieves to keep happy the lower classes then they will vote them again and again. Therefore, here's a spiral where the government manipulates the masses to vote them, the investors will leave as they will not afford to lose money, and competitiveness will fall.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://mises.org/sites/default/files/Road%20to%20serfdom.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;F.A. Hayek, Road to Serfom&lt;/a&gt;: Hayek's Nobel awarded extensive&#xA;work against interventionism and socialism.&lt;/li&gt;&#xA;&lt;li&gt;Mises, Ludwig Von. Economic Policy, Thoughts for Today and Tomorrow.&#xA;South Bend, IN: Regnery/Gateway, 1979 (Socialism Chapter)&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://www.nber.org/papers/w6811.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Representation of Malthusian fallacy&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="11470" LastEditorUserId="11470" LastEditDate="2017-02-07T09:59:10.987" LastActivityDate="2017-02-07T09:59:10.987" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="15359" PostTypeId="2" ParentId="15273" CreationDate="2017-02-07T11:14:35.997" Score="2" Body="&lt;p&gt;To be honest I don't quite understand the question, but it's here for a week so I'll give a short explanation of CAPM. The CAPM is an attempt to explain the risk and return on an asset i.e. it is a risk/return analysis. I don't understand why do we need to transform beta in first place.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The CAPM Formula is the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$E(R_i)=r_f+β_i[E(R_m)-r_f]$ $(1)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;or&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$(R_{it}-R_{ft})=α_i+β_i(R_{mt}-R_{ft})+ε_i$ $(2)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where,&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;$E(R_i)$ is an asset $i$ expected return,&lt;/li&gt;&#xA;&lt;li&gt;$r_f$ is the rate on a risk-free asset,&lt;/li&gt;&#xA;&lt;li&gt;$E(R_m)$ is the expected return on the market index (benchmark),&lt;/li&gt;&#xA;&lt;li&gt;$β_i$ is the estimate of risk for asset $i$.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;As you may already know, we can either regress the $(2)$ if we are interested on both $α_i$ and $β_i$ or alternatively we just use the formula $β_i=Cov(R_i,R_m)/Var(R_m)$, because $α$ should be close to zero (transaction costs).&lt;/p&gt;&#xA;" OwnerUserId="11470" LastActivityDate="2017-02-07T11:14:35.997" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15361" PostTypeId="1" CreationDate="2017-02-07T11:32:38.890" Score="3" ViewCount="5792" Body="&lt;blockquote&gt;&#xA;&lt;p&gt;Consider the Solow model (without technology):&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$Y = F(K, L) = K^\alpha L^{(1-\alpha)}$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;What's the economic interpretation of &lt;span class=&quot;math-container&quot;&gt;$\alpha$&lt;/span&gt;? Prove and argue the result.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;I see it as a share that goes into capital and &lt;span class=&quot;math-container&quot;&gt;$1-\alpha$&lt;/span&gt; is the share that goes into labour, but how do I prove this mathematically?&lt;/p&gt;&#xA;" OwnerUserId="12046" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2017-09-23T20:20:12.720" Title="Alpha interpretation in Solow growth model" Tags="&lt;mathematical-economics&gt;&lt;economic-growth&gt;&lt;solow&gt;" AnswerCount="3" CommentCount="1" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="15362" PostTypeId="1" AcceptedAnswerId="15371" CreationDate="2017-02-07T11:41:02.540" Score="0" ViewCount="374" Body="&lt;p&gt;The price of plastic bags in Scotland has been increased from free to 0.05 pounds sterling. How would I represent the negative externality decrease using a diagram in such a situation?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is what I have so far. I'm not sure that it is correct.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/8djcI.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/8djcI.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="12045" LastActivityDate="2017-02-07T18:10:48.943" Title="What would a negative externality diagram look like if the initial price is equal to 0 and then increased with tax?" Tags="&lt;externalities&gt;&lt;market-failure&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15363" PostTypeId="2" ParentId="15361" CreationDate="2017-02-07T11:54:47.573" Score="6" Body="&lt;p&gt;I don't quite understand what you mean by &quot;share that goes into capital&quot;, but the common interpretation is that $\alpha$ is the share of income/output spent on capital.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can show that the following way:&#xA;Since the factors will be compensated according to their marginal products, under the assumption of competitive markets, we have (for capital): &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\frac{\partial Y}{\partial K}= \alpha K^{\alpha-1}L^{1-\alpha}=\frac{r}{p},&#xA;$$&#xA;where $\frac{r}{p}$ is the real rent.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the amount of income spent on capital is equal to price times quantity, which in this case is,&#xA;$$&#xA;\frac{\partial Y}{\partial K}\frac{K}{Y}= \alpha K^{\alpha-1}L^{1-\alpha}\frac{K}{K^{\alpha}L^{1-\alpha}} \\&#xA;\frac{\partial Y}{\partial K}\frac{K}{Y}= \alpha&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Click &lt;a href=&quot;http://srabbani.com/cobb_douglas.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; for more detail.&lt;/p&gt;&#xA;" OwnerUserId="11931" LastEditorUserId="11931" LastEditDate="2017-02-07T14:11:32.167" LastActivityDate="2017-02-07T14:11:32.167" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="15364" PostTypeId="1" AcceptedAnswerId="15365" CreationDate="2017-02-07T13:35:15.347" Score="-2" ViewCount="58" Body="&lt;p&gt;Find the marginal profit of a firm with a profit function:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$P(q) = -192q + 88q^2 - 16q^3$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I got&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{dP}{dq} = -192 + 176q - 48q^2$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, the solution reads &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{dP}{dq}= -4(q-2)(q-4)(q-6)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this a typo, or am I missing something?&lt;/p&gt;&#xA;" OwnerUserId="12048" LastEditorUserId="2776" LastEditDate="2017-02-07T21:56:59.670" LastActivityDate="2017-02-07T21:56:59.670" Title="Marginal Profit Derivation" Tags="&lt;microeconomics&gt;&lt;marginal&gt;" AnswerCount="1" CommentCount="0" ClosedDate="2017-02-10T17:30:36.160" ContentLicense="CC BY-SA 3.0" />
  <row Id="15365" PostTypeId="2" ParentId="15364" CreationDate="2017-02-07T14:03:24.900" Score="3" Body="&lt;p&gt;The marginal profit you calculate is correct.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can rearrange the solution of the problem you are given. This is equivalent to&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{dP}{dq} = 192 -176q + 48q^2 -4q^3$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This derivative has as &lt;em&gt;primitive function&lt;/em&gt; the following profit function:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$P(q) = c + 192q -88q^2 + 16q^3 - q^4$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $c$ is a constant (e.g. $c=0$).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is clearly different from the original profit function in your problem. In consequence, &lt;strong&gt;either the profit function or the solution is wrong.&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-02-07T14:42:14.767" LastActivityDate="2017-02-07T14:42:14.767" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15368" PostTypeId="2" ParentId="15317" CreationDate="2017-02-07T15:51:40.367" Score="0" Body="&lt;p&gt;&quot;Is there anything I could read to find out what different methodologies each school of thought uses, where exactly do they differ and how scientifically valid are their theories ?&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;About Marx :&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;I heard the first and best critique of his theory is from the Austrian Böhm-Bawerk, &quot;Karl Marx and the close of his system&quot; (1896, in english here : &lt;a href=&quot;https://archive.org/details/karlmarxandclos00macdgoog&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://archive.org/details/karlmarxandclos00macdgoog&lt;/a&gt;)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Joan Robinson, 'An essay on marxian economics' (1942, &lt;a href=&quot;http://digamo.free.fr/robimarx.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://digamo.free.fr/robimarx.pdf&lt;/a&gt;) compares Das Kapital, the neoclassical economics of her time and keynesianism. It is quite clear but does not give definitive answers.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;About the debates in macro between Post-keynesian and neoclassicals : &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;the models produced on each &quot;side&quot; are very aggregate models, and that means that they can hardly be interpreted as more than &quot;parables&quot;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;you can have a look about the debates on Keynes' concept of &quot;underemployment equilibrium&quot; : Modigliani, Patinkin, Clower, Leijonhufvud. The outcome seems to be that this concept is dubious and that one has to choose between underunemployment in disequilibrium and &quot;full-employment&quot; equilibrium.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;About method in general :&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;I think you should always be looking for &quot;microfoundations&quot;. That does &lt;em&gt;not&lt;/em&gt; mean that the economy has to behave like a &quot;representative agent&quot;. It means that whatever aggregate behavior you're talking about, you should be able to explain how it comes from the interactions of the behavior of groups and individuals. This does &lt;em&gt;not&lt;/em&gt; mean writing the decision as the outcome of maximization under constraint, but you should be able to explain this behavior in some reasonable way. If you can not do this (and often it is not easy) about an aggregate behavior, then just say you observed it and don't pretend you explained it.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Be careful about the equilibrium assumption. It is not implied by the other traditional assumptions of standard theory. It is a very strong assumption with not much to support it, except that we need &quot;equilibrium equations&quot; to solve the models.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;But even if you assume equilibrium, the general equilibrium model will not tell you much. Cf Sonnenschein theorem. So be careful about aggregation too.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;P.S. I gave the references which I think are the best ones, but probably not the easiest ones.&#xA;P.P.S. I have nothing specific to say about Austrians, sorry.&lt;/p&gt;&#xA;" OwnerUserId="11629" LastActivityDate="2017-02-07T15:51:40.367" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15370" PostTypeId="2" ParentId="15221" CreationDate="2017-02-07T17:52:27.633" Score="5" Body="&lt;p&gt;Transfer payments aren't included in GDP to prevent double-counting. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reason the author's question is troubling you is because the answer externalizes everything that happens after the payment has been made (which is when the money from that payment DOES get factored into GDP, see below). I assume it does this to reinforce that transfer payments aren't counted in GDP, but you are right to question what's going on here. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;That \$100 million is transferred from the government to consumers, who will presumably spend a good portion (say, \$98 million) of those funds on goods and services, at which point those funds would be added to GDP. If we had included the transfer funds in GDP, the change reflected would be \$198 million instead of the more accurate \$98 million.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can also have an example on a much smaller scale: &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;You give your child \$5 to buy a burger; none of that is added to GDP. &lt;/li&gt;&#xA;&lt;li&gt;Your child spends \$4.75 on the burger; \$4.75 is added to GDP. &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="12054" LastActivityDate="2017-02-07T17:52:27.633" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15371" PostTypeId="2" ParentId="15362" CreationDate="2017-02-07T18:10:48.943" Score="0" Body="&lt;p&gt;Prior to the tax, the marginal private cost is zero (so the MPC curve is a horizontal line along the x axis).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The individual chooses to consume where marginal private benefit is equal to marginal private cost (i.e., where the MPB curve crosses the x axis).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A tax of 0.05 implies that the marginal private cost (i.e. the cost per unit consumed) is now 0.05. This means that we get a new MPC curve that is a horizontal line at p=0.05. The new privately optimal consumption occurs where this new MPC curve intersects the MPB curve, which results in a lower quantity consumed.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2017-02-07T18:10:48.943" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15373" PostTypeId="1" CreationDate="2017-02-07T22:33:11.143" Score="6" ViewCount="100" Body="&lt;p&gt;Does anyone knows who are the leading economists in the field of elderly and intergenerational transfers?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'd like to know what are the current topics they are working on.&lt;/p&gt;&#xA;" OwnerUserId="12057" LastEditorUserId="2776" LastEditDate="2017-08-23T11:54:47.310" LastActivityDate="2017-08-23T11:54:47.310" Title="Economists studying the eldery and intergenerational transfers" Tags="&lt;microeconomics&gt;&lt;econometrics&gt;&lt;reference-request&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15374" PostTypeId="2" ParentId="15361" CreationDate="2017-02-07T23:45:04.087" Score="3" Body="&lt;p&gt;Following Yorgos's alternative interpretation, (about $\alpha$ which shows the percentage change of $Y$ at $1\%$ change in $K$), one intuition may also be to log-linearize your production function. As follows&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\ln Y = \alpha \ln K + (1-\alpha) \ln L$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then recalling that log may be used to compute continuous variations, you could substitute, e.g $K$ for $\exp(\Delta^K_{t+dt}) = \frac{K_{t+dt}}{K_t}$, idem for $Y$ and $L$. This makes obvious, in an econometric framework for example, the &quot;elasticity nature&quot; of $\alpha$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\Delta^Y_{t+dt} = \alpha \Delta^K_{t+dt} + (1-\alpha) \Delta^L_{t+dt}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Evaluated at $\Delta^L_{t+dt} = 0$, we get $\alpha = \frac{\Delta^Y_{t+dt}}{\Delta^K_{t+dt}}$&lt;/p&gt;&#xA;" OwnerUserId="10247" LastEditorUserId="10247" LastEditDate="2017-02-07T23:57:34.697" LastActivityDate="2017-02-07T23:57:34.697" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15375" PostTypeId="2" ParentId="15373" CreationDate="2017-02-08T00:57:40.167" Score="6" Body="&lt;p&gt;As far as intergenerational transfers are concerned, I would suggest you start with Wojciech Kopczuk:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Kopczuk, Wojciech. &quot;Taxation of Intergenerational Transfers and Wealth.&quot; Handbook of Public Economics 5 (2013): 329.&lt;/em&gt;&lt;/p&gt;&#xA;" OwnerUserId="11931" LastActivityDate="2017-02-08T00:57:40.167" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15376" PostTypeId="1" AcceptedAnswerId="15378" CreationDate="2017-02-08T02:50:02.260" Score="2" ViewCount="777" Body="&lt;p&gt;It is possible to have a monotonic transformation on this type of utility function, but what about $a$ and $b$? Usually a function with perfect complements is $U(x_1, x_2) = \min \{a x_1, b x_2 \}$&lt;/p&gt;&#xA;" OwnerUserId="12058" LastEditorUserId="4251" LastEditDate="2017-02-08T04:15:31.030" LastActivityDate="2017-02-08T06:13:25.127" Title="Let the utility function $U = a + b \min\{x,y\}$. Are $x$ and $y$ perfect complements?" Tags="&lt;microeconomics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15377" PostTypeId="2" ParentId="15376" CreationDate="2017-02-08T04:14:13.550" Score="0" Body="&lt;p&gt;I do not understand your query about &quot;what about $a$ and $b$?&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The answer to your question at large is yes. Utility functions represent the same preferences when monotonically transformed. That is,&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;If $u(x)$ represents $\succcurlyeq$ on $X$, for $x \in X$, then for any strictly increasing function $f: \mathbb{R} \rightarrow \mathbb{R}$, then the function $v(x) = f(u(x))$ also represents $\succcurlyeq$.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;You can try generalizing this result for more dimensions or whatever. It should be easy to apply this result to your utility function in question.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastEditorUserId="4251" LastEditDate="2017-02-08T06:13:25.127" LastActivityDate="2017-02-08T06:13:25.127" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15378" PostTypeId="2" ParentId="15376" CreationDate="2017-02-08T06:11:33.163" Score="3" Body="&lt;p&gt;Consider a typical car, which is made of one car-body (for lack of a better word) and four tires. Let $x_1$ denote the number of car-bodies and $x_2$ denote the number of tires. Most consumers would prefer cars in the form of one car-body with four tires, and not in any other combinations. So we may represent their preference as &#xA;$$U(x_1,x_2)=\min\{4x_1,x_2\}.\tag{1}$$&#xA;Thus two cars are preferred to one car can be expressed as &#xA;$$&#xA;(2,8)\succ(1,4)\quad\Leftrightarrow\quad U(2,8)=8&amp;gt;4=U(1,4). \tag{2}&#xA;$$&#xA;One car with two extra tires does not increase one's utility:&#xA;$$&#xA;(1,4)\sim(1,6)\quad\Leftrightarrow\quad U(1,4)=4=4=U(1,6).  \tag{3}&#xA;$$&#xA;Equation $(1)$ is the utility function associated with a perfect complement preference. In particular, it is a special case of the general form $\min\{ax_1,bx_2\}$ where $a=4$ and $b=1$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's now apply an affine positive transformation to $U(x_1,x_2)$. To avoid notational confusion, let's use $\alpha\in\mathbb R$ and $\beta&amp;gt;0$ as the parameters:&#xA;$$&#xA;V(x_1,x_2)=\alpha+\beta U(x_1,x_2).&#xA;$$&#xA;For concreteness, suppose $\alpha=1$ and $\beta=0.5$. And we can verify that the preference illustrated in $(2)$ and $(3)$ is preserved:&#xA;$$&#xA;(2,8)\succ(1,4)\quad\Leftrightarrow\quad V(2,8)=5&amp;gt;3=V(1,4). &#xA;$$&#xA;$$&#xA;(1,4)\sim(1,6)\quad\Leftrightarrow\quad V(1,4)=3=3=V(1,6).  &#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, while $\min\{ax_1,bx_2\}$ represents some perfect complement preference, its monotonic transformation, $\alpha+\beta\min\{ax_1,bx_2\}$, also represents the same preference.&lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2017-02-08T06:11:33.163" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15381" PostTypeId="2" ParentId="15373" CreationDate="2017-02-08T10:07:49.937" Score="6" Body="&lt;p&gt;A few suggestions. &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;There is a rather old &lt;a href=&quot;http://www.sciencedirect.com/science/handbooks/1574003X/1/part/PA&quot;&gt;Handbook of Population and Family Economics&lt;/a&gt;, edited in 1997. But it is certainly a good introduction. There are several chapters which might be of interest. For instance, Chapter 11, named &quot;&lt;em&gt;Mortality and morbidity among adults and the elderly&lt;/em&gt;&quot;, or Chapters 16 and 17 about aging.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;A very recent (Nov 2016) &lt;a href=&quot;https://www.elsevier.com/books/handbook-of-the-economics-of-population-aging/piggott/978-0-444-53842-0&quot;&gt;Handbook of the Economics of Population Aging&lt;/a&gt;, which also includes chapters on aging, intergenerational issues, longevity, pensions. For instance, Chapter 8 about &lt;em&gt;&quot;Insurance Markets for the Elderly&quot;&lt;/em&gt;.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;You can look up latest papers on any topic by using &lt;a href=&quot;https://en.wikipedia.org/wiki/JEL_classification_codes&quot;&gt;JEL codes&lt;/a&gt;. In your case, take a look at J14, J26, J62. To look up working papers and published papers, use the IDEAS service. For instance, &lt;a href=&quot;https://ideas.repec.org/j/J14.html&quot;&gt;J14 papers here&lt;/a&gt;. You can see around tenth in the list there is &lt;a href=&quot;https://ideas.repec.org/p/pra/mprapa/75704.html&quot;&gt;this paper&lt;/a&gt;, called &lt;em&gt;Subsidy Policy and Elderly Labor&lt;/em&gt;, released the 21st of December of 2016. &lt;strong&gt;You cannot beat IDEAS repository!&lt;/strong&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Finally, if you want to be updated with the latest research, subscribe to weekly emails of your topic of interest using the New Economics Papers tool of IDEAS. Find it &lt;a href=&quot;https://ideas.repec.org/n/&quot;&gt;here&lt;/a&gt;. You would be probably interested in &lt;a href=&quot;https://ideas.repec.org/n/nep-dem/&quot;&gt;NEP-DEM&lt;/a&gt;.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-02-08T10:07:49.937" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15382" PostTypeId="2" ParentId="4610" CreationDate="2017-02-08T10:40:12.440" Score="1" Body="&lt;p&gt;In my experience the ratio of nominals is far more common than the ratio of reals. Nominals are useful when the topic is &lt;em&gt;current&lt;/em&gt; spending. Reals are useful when the topic is &lt;em&gt;growth&lt;/em&gt; apart from changes in the value of money.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;GDP is the sum of &lt;strong&gt;one year's&lt;/strong&gt; final spending. Given annual data for GDP and prices, there is only one year's price level embedded in any one year's GDP number.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Debt is the accumulation of borrowing (less repayment) over &lt;strong&gt;many years&lt;/strong&gt;. So the price levels of many years come into play even when only one year's nominal debt is converted to a real (inflation-adjusted) number.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Because many years' price levels are embedded in one year's debt, &lt;a href=&quot;http://newarthurianeconomics.blogspot.com/2016/12/a-new-real-debt-calculation.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;the calculation of real debt&lt;/a&gt; is not the same as the calculation of real GDP. Because the calculations differ, the ratio of reals is not identical to the ratio of nominals.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;People often assume that the calculation used for real GDP can also be used for real debt. Using the same calculation gives a ratio of reals that is identical to the ratio of nominals. When the topic is current value (&quot;how much is it now&quot;) no harm is done by this mistake. But when the topic is growth (&quot;how much &lt;em&gt;bigger&lt;/em&gt; is it now&quot;) the wrong calculation gives incorrect information (&quot;&lt;a href=&quot;http://econperspectives.blogspot.com/2009/05/us-public-debt-has-increased.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;The public debt remained fairly constant from the late 1940s through 1981&lt;/a&gt;&quot;) and may lead to serious or fatal errors in policy.&lt;/p&gt;&#xA;" OwnerUserId="12060" LastActivityDate="2017-02-08T10:40:12.440" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15383" PostTypeId="2" ParentId="15335" CreationDate="2017-02-08T12:17:15.287" Score="0" Body="&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;&quot; But then, there is clearly no steady state&quot;. How do you define steady state ? In this context I think it refers to balanced growth equilibrium. See &lt;a href=&quot;https://economics.stackexchange.com/questions/10115/solow-model-steady-state-v-balanced-growth-path?rq=1&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Yes there is a contradiction. Maybe $Y = K^\alpha (AL)^{1 - \alpha}$ ? This would mean $A$ is some measure of the efficiency of labor.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="11629" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2017-02-08T12:17:15.287" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15384" PostTypeId="1" AcceptedAnswerId="15386" CreationDate="2017-02-08T13:34:30.413" Score="-2" ViewCount="721" Body="&lt;p&gt;The following table, which is part of a wider question, apparently shows constant returns to scale. My calculations do not seem to show that constant returns to scale occurs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/nllx6.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/nllx6.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The correct answer is B.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can find at least 2 sources claiming that returns to scale occurs when a same change in inputs results in the same quantity change in output&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Wikipedia:  &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;If output increases by that same proportional change as all inputs&#xA;  change then there are constant returns to scale (CRS).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;EconomicsHelp.org:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Constant returns to scale occurs when increasing the number of inputs&#xA;  leads to an equivalent increase in the output.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="6782" LastEditorUserId="2776" LastEditDate="2017-02-08T19:59:54.383" LastActivityDate="2017-02-08T19:59:54.383" Title="Does this table show constant returns to scale?" Tags="&lt;economies-of-scale&gt;" AnswerCount="1" CommentCount="1" ClosedDate="2017-02-08T20:23:17.890" ContentLicense="CC BY-SA 3.0" />
  <row Id="15386" PostTypeId="2" ParentId="15384" CreationDate="2017-02-08T14:06:29.887" Score="0" Body="&lt;p&gt;You can only judge returns to scale by a &lt;strong&gt;simultaneous&lt;/strong&gt; change in all inputs. Thus, in this case, if you want to test returns to scale, you have to use one of the first three rows &lt;strong&gt;and the last row&lt;/strong&gt; as references. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, by the definition of returns to scale, you can see that &lt;strong&gt;doubling the factors&lt;/strong&gt; (this is, a move from top row to bottom row) &lt;strong&gt;doubles the output&lt;/strong&gt;. Therefore, it must be the case that there are constant returns to scale. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The other two rows only show that labour is productive. This is, that it's marginal product is positive.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-02-08T14:06:29.887" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="15387" PostTypeId="1" AcceptedAnswerId="15388" CreationDate="2017-02-08T14:08:11.650" Score="4" ViewCount="271" Body="&lt;p&gt;The graph below refers to &quot;Consumer Loans: Credit Cards and Other Revolving Plans, All Commercial Banks&quot;, from &lt;a href=&quot;https://fred.stlouisfed.org/series/CCLACBW027SBOG&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/7BPMj.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/7BPMj.png&quot; alt=&quot;FRED Series CCLACBW027SBOG&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What happened in March 2010? The data come from the balance sheets of commercial banks in the US. Did an entity that was previously not a commercial bank somehow change status?&lt;/p&gt;&#xA;" OwnerUserId="12063" LastEditorUserId="2776" LastEditDate="2017-08-23T11:53:57.417" LastActivityDate="2017-08-23T11:53:57.417" Title="Why did the stock of consumer loans held by commercial banks jump in March 2010?" Tags="&lt;banking&gt;&lt;consumer-credit&gt;&lt;credit&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15388" PostTypeId="2" ParentId="15387" CreationDate="2017-02-08T14:20:58.050" Score="5" Body="&lt;p&gt;Because of a change in regulation about how different accounts are to be recorded. That change was stated in the &lt;a href=&quot;http://www.fasb.org/cs/ContentServer?pagename=FASB%2FPronouncement_C%2FSummaryPage&amp;amp;cid=1176156241369&quot; rel=&quot;nofollow noreferrer&quot;&gt;Financial Accounting Statements No. 166&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you look into Notes on Data relating the &quot;Assets and Liabilities of Commercial Banks in the United States - H.8&quot;, you find the &lt;a href=&quot;https://www.federalreserve.gov/releases/H8/h8notes.htm#notes_20100409&quot; rel=&quot;nofollow noreferrer&quot;&gt;following statement&lt;/a&gt; from April 9, 2010:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;As of the week ending March 31, 2010, domestically chartered banks and foreign-related institutions had consolidated onto their balance sheets the following assets and liabilities of off-balance-sheet vehicles, owing to the adoption of FASB's Financial Accounting Statements No. 166 (FAS 166), &quot;Accounting for Transfers of Financial Assets,&quot; and No. 167 (FAS 167), &quot;Amendments to FASB Interpretation No. 46(R).&quot; Domestically chartered commercial banks consolidated \$363.4 billion in assets and liabilities. The major asset items affected were: other securities, mortgage-backed securities, -\$6.4; other securities, non-MBS, -\$23.5; commercial and industrial loans, \$19.1; real estate loans, revolving home equity loans, \$5.5; real estate loans, closed-end residential loans, \$20.9; real estate loans, commercial real estate loans, \$1.2; &lt;strong&gt;consumer loans, credit cards and other revolving plans, \$321.9&lt;/strong&gt;; consumer loans, other consumer loans, \$24.6; other loans and leases, all other loans and leases, \$46.1; allowance for loan and lease losses, \$36.4; cash assets, \$4.1; trading assets, other trading assets, -\$1.7; and other asset items, -\$11.9. The major liability items affected were: borrowings, borrowings from banks in the U.S., \$2.6; borrowings, borrowings from others, \$379.8; and other liability items, -\$1.6. The residual (assets less liabilities) decreased \$17.4. The major memoranda items affected were: securitized consumer loans, securitized credit cards and other revolving plans, -\$322.7; securitized consumer loans, other securitized consumer loans, -\$24.5; and securitized real estate loans, -\$23.9. Foreign-related institutions consolidated \$20.7 billion in assets and liabilities. The major asset items affected were: other securities, non-MBS, \$1.1; commercial and industrial loans, \$0.7; and other loans and leases, \$18.9. The major liability items affected were: deposits, other deposits, \$0.5; borrowings, borrowings from others, \$21.0; net due to related foreign offices, -\$12.0; and other liabilities, \$11.2.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I highlighted the one corresponding to the graph you show. The magnitude of the jump precisely matches the amount the statement above mentions.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-02-08T15:51:24.943" LastActivityDate="2017-02-08T15:51:24.943" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15391" PostTypeId="2" ParentId="10710" CreationDate="2017-02-08T17:05:39.357" Score="2" Body="&lt;p&gt;A &quot;part&quot; of an extensive form game that is not a proper subgame because it does not start at a single node but an entire information set would be called &quot;continuation game&quot;. This terminology is fairly standard (Perfect Bayesian Equilibrium).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, I think what you are after is a &lt;a href=&quot;https://en.wikipedia.org/wiki/Stochastic_game&quot; rel=&quot;nofollow noreferrer&quot;&gt;stochastic game&lt;/a&gt; which consists of several states. Each state corresponds to a different game. In your example there would be two states: One state for each player $i\in\{1,2\}$ being the Stackelberg leader. Then you also need a transition process that maps the period-1 state and the period-1 action profile into a probability distribution over period-2 states. You then find equilibria for all state games in period 2 and proceed to solve for equilibria in period 1 with the corresponding (probability-weighted sum of) continuation payoffs.&lt;/p&gt;&#xA;" OwnerUserId="11590" LastActivityDate="2017-02-08T17:05:39.357" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15392" PostTypeId="1" AcceptedAnswerId="16215" CreationDate="2017-02-08T19:50:51.290" Score="3" ViewCount="180" Body="&lt;p&gt;I've recently encountered the term &quot;loss leader&quot; for items. The definition is pricing an item at a discount for the purpose of increasing overall revenues. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;One example is Sony selling the PS4 at a loss in order to take more market share, which gain more profits via game sales.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another example is grocery stores selling items on sale so that customers have a reason to visit the store, and then hopefully buy other items.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is: can this definition be extended to businesses that deal with data? For example, selling an online service at a discount to customers for the purpose of collecting data, and then selling that data to marketing firms for a profit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is that also an example of a loss-leader item? Or is there a more accurate example?&lt;/p&gt;&#xA;" OwnerUserId="12066" LastActivityDate="2017-04-11T09:46:44.147" Title="Loss leader item definition" Tags="&lt;marketing&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15393" PostTypeId="2" ParentId="10611" CreationDate="2017-02-08T20:29:11.957" Score="2" Body="&lt;p&gt;A related question is in asking when (if ever) will we be post scarcity. The paper &lt;a href=&quot;https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2658259&quot; rel=&quot;nofollow noreferrer&quot;&gt;Are We Approaching an Economic Singularity? Information Technology and the Future of Economic Growth&lt;/a&gt; by &lt;a href=&quot;http://www.econ.yale.edu/~nordhaus/homepage/&quot; rel=&quot;nofollow noreferrer&quot;&gt;William D. Nordhaus&lt;/a&gt; should be of use.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Abstract:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;What are the prospects for long-run economic growth?, the present&#xA;  study looks at a more recently launched hypothesis, which I label&#xA;  Singularity. The idea here is that rapid growth in computation and&#xA;  artificial intelligence will cross some boundary or Singularity after&#xA;  which economic growth will accelerate sharply as an ever-accelerating&#xA;  pace of improvements cascade through the economy. The paper develops a&#xA;  growth model that features Singularity and presents several tests of&#xA;  whether we are rapidly approaching Singularity. The key question for&#xA;  Singularity is the substitutability between information and&#xA;  conventional inputs. &lt;strong&gt;The tests suggest that the Singularity is not&#xA;  near.&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;(emphasis mine)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another possibility is to consider those sectors, like digital media, where we are already post-scarcity, in that marginal costs are zero or very near to it. I recommend Carl Shapiro and &lt;a href=&quot;http://people.ischool.berkeley.edu/~hal/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Hal Varian&lt;/a&gt;'s &lt;a href=&quot;http://www.goodreads.com/book/show/323068.Information_Rules&quot; rel=&quot;nofollow noreferrer&quot;&gt;Information Rules&lt;/a&gt; for an accessible and interesting discussion of the economic issues that arise in this setting. &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2017-02-08T20:29:11.957" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15394" PostTypeId="2" ParentId="10611" CreationDate="2017-02-08T22:12:01.173" Score="0" Body="&lt;p&gt;Joel Mokyr has a nice essay on this, also contains lot's of interesting citations &lt;a href=&quot;https://sites.northwestern.edu/jmokyr/files/2016/06/The-History-of-Techn-Anxiety-and-the-Future-of-Econ-Growth-Is-This-Time-Different-1rlbgzi.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://sites.northwestern.edu/jmokyr/files/2016/06/The-History-of-Techn-Anxiety-and-the-Future-of-Econ-Growth-Is-This-Time-Different-1rlbgzi.pdf&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Some friends and I have been discussing, speculatively, what might&#xA;  happen in the future after technology/increased automation greatly&#xA;  reduces the need for human labor.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;If this is your definition of &quot;post-scarcity economics&quot; then you need not look very far though. Over the last 150 years, technology has greatly reduced the need for human labor required for production of an 1850s consumption basket. Indeed people had that same debate in the 19th century (see Luddites), then again in the 1930s (see Keynes' famous essay on Economic Possibilities for our Grandchildren) and again today. Of course stuff is still as scarce as ever, and society is qualitatively organized much as it was 100 years ago, except that of course everybody is much better off.&lt;/p&gt;&#xA;" OwnerUserId="11216" LastActivityDate="2017-02-08T22:12:01.173" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15395" PostTypeId="2" ParentId="15392" CreationDate="2017-02-09T01:25:11.740" Score="0" Body="&lt;p&gt;The most famous example of a loss leader is razors. &lt;a href=&quot;http://lemelson.mit.edu/resources/king-gillette&quot; rel=&quot;nofollow noreferrer&quot;&gt;King Gillette invented the safety razor&lt;/a&gt; and supposedly popularized the loss-leader model. &lt;a href=&quot;https://en.wikipedia.org/wiki/Freebie_marketing&quot; rel=&quot;nofollow noreferrer&quot;&gt;He supposedly said &quot;Give 'em the razor; sell 'em the blades&quot;&lt;/a&gt;. That said, &lt;a href=&quot;http://www.law.uchicago.edu/files/file/532-rcp-razors.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;that history is in dispute&lt;/a&gt;. &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2017-02-09T01:25:11.740" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="15398" PostTypeId="2" ParentId="471" CreationDate="2017-02-09T14:17:28.727" Score="1" Body="&lt;p&gt;The &lt;a href=&quot;http://economics.mit.edu/faculty/acemoglu/courses&quot; rel=&quot;nofollow noreferrer&quot;&gt;notes&lt;/a&gt; by Acemoglu are quite useful too.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are whole sections on Labor Economics, but also a lot of scattered material throughout the rest of the topics, particularly related with technological change and growth. That is particularly relevant with the Macro-Labour component of your question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To single out one relevant topic which is not in the references in other answers, consider &lt;a href=&quot;http://economics.mit.edu/files/12573&quot; rel=&quot;nofollow noreferrer&quot;&gt;these&lt;/a&gt; notes on &quot;Labor coercion&quot; (slavery, serfdom).&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-02-09T14:17:28.727" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15401" PostTypeId="1" CreationDate="2017-02-10T02:12:41.107" Score="-1" ViewCount="347" Body="&lt;p&gt;A consumer wants to maximize his utility function $U(X_1,X_2)=Min(X_1,X_2)$. The price of $X_1$ is 2 and the price of $X_2$ is 4 and his income is 40. Setup the utility maximization problem and solve for $(X_1,X_2)$.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;My attempt&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;$U(X_1,X_2)=MIN(X_1,X_2)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;s.t $2X_1+4X_2=40$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$MRS= \frac{MU_{x2}}{MU_{x1}}=\frac{P2}{P1}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know that $P_2=4$ and $P_1=2$ but I am not sure where to get the partial derivatives for $MU_{x2}$ and $MU_{x1}$.&lt;/p&gt;&#xA;" OwnerUserId="12076" LastActivityDate="2017-02-10T02:31:03.760" Title="Setup and solve utility maximization" Tags="&lt;macroeconomics&gt;&lt;utility&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15402" PostTypeId="2" ParentId="15401" CreationDate="2017-02-10T02:31:03.760" Score="2" Body="&lt;p&gt;The MRS = price ratio condition works only if the utility function is differentiable, and the solution is interior (the consumer consumes strictly positive amounts of all goods).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Instead of trying to find the MRS, consider the optimality condition to be $X_1 = X_2$, along with the budget constraint. Think of the equality I just gave as replacing the condition on the MRS.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To see where the above mentioned equality comes from, consider the case where it is not satisfied, and convince yourself that there must be a way to reallocate consumption in a way that strictly increases utility.&lt;/p&gt;&#xA;" OwnerUserId="8595" LastActivityDate="2017-02-10T02:31:03.760" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15403" PostTypeId="1" CreationDate="2017-02-10T08:22:17.267" Score="3" ViewCount="691" Body="&lt;p&gt;It is given that economy is at equilibrium at $ Y_0 $ = 1000. If Government undertakes a fiscal change so that tax rate $t$, increases by 0.05 and government spending increases by 50, will the budget surplus go up or down?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I tried doing it this way:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Y = C( Y - tY ) + I + G$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Differentiating the above equation I got&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$dy = \frac{di+ dg - c'y dt}{1- c'(1-t) }$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where $c'$ is mpc, $t$ is tax rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$BS = ty-G- TR$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$dBS = tdy +ydt-dg-dtr$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, $Y=1000, dt = 0.05, DG= 50$. Plugging these first into $dy$ and then using $dy$ in $dBS$, I got the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$dBS = \frac{50t(1-c') }{(1-c'(1-t) }$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore the budget surplus goes up.&#xA;Is my method correct? Also, what could be the economic intuition behind this?&#xA;This is not a homework assignment. I am currently preparing for an upcoming entrance exam and was trying out a few back questions from dfs for conceptual clarity.&lt;/p&gt;&#xA;" OwnerUserId="11893" LastEditorUserId="2776" LastEditDate="2017-02-10T09:08:35.630" LastActivityDate="2019-05-07T11:02:55.573" Title="Simple Keynesian model" Tags="&lt;macroeconomics&gt;&lt;keynesian-economics&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15405" PostTypeId="2" ParentId="4944" CreationDate="2017-02-10T12:58:50.107" Score="2" Body="&lt;p&gt;There are many ways of calculating public sector finances.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One approach is similar to corporate accounting and the UK Treasury publishes &lt;a href=&quot;https://www.gov.uk/government/collections/whole-of-government-accounts&quot; rel=&quot;nofollow noreferrer&quot;&gt;Whole of Government Accounts&lt;/a&gt;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Those are different in construction to the &lt;a href=&quot;https://www.ons.gov.uk/economy/governmentpublicsectorandtaxes/publicsectorfinance&quot; rel=&quot;nofollow noreferrer&quot;&gt;Public Sector Finances statistics&lt;/a&gt; published by the Office for National Statistics, who follow international National Accounts methodology  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In respect of your question of what happens when these bonds mature and are in effect rolled over, does not lead to a difference in treatment: in both cases the repayment is not treated as government expenditure but of finance, and if the new bonds cover the same amount as the old bonds then in effect nothing changes and Government debt stays the same.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The translation from expenditure and revenue to borrowing and changes in debt is not simple.  The ONS produced an &lt;a href=&quot;http://visual.ons.gov.uk/the-debt-and-deficit-of-the-uk-public-sector-explained/&quot; rel=&quot;nofollow noreferrer&quot;&gt;explanatory article&lt;/a&gt;. Separately the ONS published this diagram as part of &lt;a href=&quot;https://www.ons.gov.uk/economy/governmentpublicsectorandtaxes/publicsectorfinance/bulletins/publicsectorfinances/march2016&quot; rel=&quot;nofollow noreferrer&quot;&gt;a bulletin last year&lt;/a&gt; which illustrates some of the calculations they did for the 2015/16 financial year:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/6qbG3.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/6qbG3.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt; &lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2017-02-10T12:58:50.107" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15406" PostTypeId="1" AcceptedAnswerId="15413" CreationDate="2017-02-10T14:34:15.657" Score="6" ViewCount="607" Body="&lt;p&gt;I am looking for the formal definition of 'perfect information' in game theory.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Please direct me to a book or preferably an online paper where I can find it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On a related note:&lt;br&gt;&#xA;The &lt;a href=&quot;https://en.wikipedia.org/wiki/Perfect_information&quot;&gt;Wikipedia page for the term&lt;/a&gt; is not very useful. It only offers an informal definition:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In game theory, an extensive-form game has perfect information if each player, when making any decision, is perfectly informed of all the events that have previously occurred&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Given this definition the simultaneous move examples seem strange. The games mentioned (e.g. iterated prisoner's dilemma) could easily be altered to have sequential moves where the second mover is simply not aware of the first move. This game would have the same extensive form but would no longer fit the informal definition.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2017-02-10T19:06:14.040" Title="Formal definition of perfect information" Tags="&lt;reference-request&gt;&lt;game-theory&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15407" PostTypeId="1" CreationDate="2017-02-10T15:13:06.547" Score="5" ViewCount="1078" Body="&lt;p&gt;Sorry if this is a birds and the bees type question.  Where does capital come from?  And I am not talking human capital (which to my mind is skills basically).  I suppose I'm taking about financial capital.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, I think one can create personal capital by choosing not to consume, i.e. save.  Also I think retained profits are another (and I was wondering perhaps the ultimate) source of capital.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we look at the capital structure of a company then bank loans, corporate bonds and equity capital are all invested, retained profits are internally generated capital.  External corporate capital, to my mind, comes from household savings.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know there is the external sector but can we simplify the problem by excluding this?  Let us consider the closed economy only.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I suppose I'm asking for a theory of capital.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know Marxists have a view and they are welcome to give an updated view (please no re-hash of nineteenth century economic theory, bring it up to date please).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I also think that the Austrian school is critical of Keynesians because the former says the latter have no theory of capital.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Need illuminating in the capitalism facts of life.   Thanks.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I wish there was a tag 'meta-economics' or 'philosophy of economics' to describe this question.&lt;/p&gt;&#xA;" OwnerUserId="11622" LastEditorUserId="2776" LastEditDate="2017-02-24T07:52:32.090" LastActivityDate="2018-11-15T17:05:42.403" Title="Where does capital come from?" Tags="&lt;keynesian-economics&gt;&lt;marxism&gt;&lt;austrian&gt;&lt;capital&gt;&lt;philosophy-of-economics&gt;" AnswerCount="5" CommentCount="4" FavoriteCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="15408" PostTypeId="2" ParentId="15406" CreationDate="2017-02-10T15:17:44.703" Score="5" Body="&lt;p&gt;A simultaneous-move game is not a game of perfect information. It is a game of imperfect information.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let me quote &lt;a href=&quot;http://www.pearsoned.co.uk/bookshop/detail.asp?item=100000000011207&quot; rel=&quot;nofollow noreferrer&quot;&gt;Gibbons&lt;/a&gt; (Chapter 2, p.58).&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The key features of a dynamic game of &lt;strong&gt;complete and perfect information&lt;/strong&gt; are&#xA;  that &#xA;   (i) the moves occur in sequence, &#xA;   (ii) all previous moves are observed before the next move is chosen, and &#xA;   (iii) the players' payoffs from each feasible combination of moves are common knowledge.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Picking up the discussion in the comments, let me again quote Gibbons, p.122, Footnote 19:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;This characterization of perfect and imperfect information in terms of singleton&#xA;  and nonsingleton information sets is restricted to games of complete information&#xA;  because, as we will see in Chapter 4, the extensive-form representation of&#xA;  a game with perfect but incomplete information has a nonsingleton information&#xA;  set. In this chapter, however, we restrict attention to complete information.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="11590" LastEditorUserId="11590" LastEditDate="2017-02-10T16:02:45.417" LastActivityDate="2017-02-10T16:02:45.417" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="15410" PostTypeId="2" ParentId="6941" CreationDate="2017-02-10T17:39:44.723" Score="1" Body="&lt;p&gt;This question has a historical predecessor in my opinion. My answer will be inspired by Gresham's Law: bad money replaces the good.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Obviously people aren't going to go around calculating the discounted value of money based on the time until expiration. Even with an expiration date, there is still going to be a face value of money, and that's going to be important.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider in old times with gold. If you have two types of gold coins in circulation, one with more gold and one with less gold, and these two types of coins have the same face value, then people will want to keep the coins with more gold content and circulate the coins with less gold in them. Hence, &quot;bad&quot; money drives out the &quot;good&quot;. The good coins could be melted down (illegally) or hoarded.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The same thing would happen in modern times if you had money expire. People would circulate the bad money (close to expiring) and good money would leave (perhaps through international trade to countries that are not held to the same legal tender laws as the domestic currency's country).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Today, money that is too worn out or dirty is naturally destroyed by the government or disappears, and the government reprints money to replenish the base in response. I imagine the same would happen if currency had an expiration date.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2017-02-10T17:39:44.723" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="15413" PostTypeId="2" ParentId="15406" CreationDate="2017-02-10T18:49:25.697" Score="5" Body="&lt;h1&gt;Osborne and Rubinstein (1994)&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;Osborne and Rubinstein's textbook &lt;a href=&quot;http://gametheory.tau.ac.il/arielDocs/&quot;&gt;&lt;em&gt;A Course in Game Theory&lt;/em&gt;&lt;/a&gt; defines (extensive) games with perfect information in three versions.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Basic version (Def. 89.1): perfect information is the same as requiring information sets be singletons (though they don't put it this way). In the author's language, perfect information is modeled as a player function $P:H\to N$, mapping each non-terminal history $h\in H$ of previous moves to a single member in the set of players $N$. A history here is $h=(a^k)_{k=1,\dots,K}$, where $a^k$ is the action taken by the player who moves in the $k$th round, and $K$ is possibly infinite.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Extended version 1 (&lt;strong&gt;perfect information with chance-moves&lt;/strong&gt;, Sect. 6.3.1): perfect information (for players) here is basically the same as before, be the definition incorporates uncertainty in the game due to chances&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Extended version 2 (&lt;strong&gt;perfect information and simultaneous moves&lt;/strong&gt;, Sect. 6.3.2): perfect information here is modeled as a player function $P$ mapping each non-terminal history to a &lt;strong&gt;set&lt;/strong&gt; of players, where &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;[a] history in such a game is a sequence of vectors; the components of&#xA;  each vector $a^k$ are the actions taken by the players whose turn it&#xA;  is to move after the history $(a^\ell)_{\ell=1}^{k-1}$. The set of&#xA;  actions among which each player $i \in P(h)$ can choose after the&#xA;  history $h$ is $A_i(h)$; the interpretation is that the choices of the&#xA;  players in $P(h)$ are made simultaneously.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;h1&gt;Myerson (1991)&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;Myerson's &lt;a href=&quot;https://books.google.ca/books/about/Game_Theory.html?id=1w5PAAAAMAAJ&amp;amp;redir_esc=y&quot;&gt;&lt;em&gt;Game Theory: Analysis of Conflict&lt;/em&gt;&lt;/a&gt; similarly defines (on page 185) an extensive form game with perfect information as information sets being singletons &lt;em&gt;within each information state&lt;/em&gt;. &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;h1&gt;Fudenberg and Tirole (1991)&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;Fudenberg and Tirole's &lt;a href=&quot;https://mitpress.mit.edu/books/game-theory&quot;&gt;&lt;em&gt;Game Theory&lt;/em&gt;&lt;/a&gt; textbook defines perfect information informally (on page 72) as follows &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;We say that multi-stage game has &lt;em&gt;perfect information&lt;/em&gt; if, for every stage $k$ and history $h^k$, exactly one player has a nontrivial choice set --- a choice set with more than one element --- and all the others have the one-element choice set &quot;do nothing.&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="42" LastEditorUserId="42" LastEditDate="2017-02-10T19:06:14.040" LastActivityDate="2017-02-10T19:06:14.040" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15414" PostTypeId="1" CreationDate="2017-02-10T20:16:55.373" Score="9" ViewCount="365" Body="&lt;p&gt;Consider the following setting:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Profit maximizing firms with production functions $\Pi(w,L)$, where $w$ is the wage and $L$ is employment. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Unions who want to maximize the expected utility of their representative union members. To explicate, let $v(c)$ be the indirect utility function of a union member, where $c$ is consumption. If the union member is employed, he or she gets the wage $c=w$. Otherwise, he or she gets unemployment benefits $c=b$. Then the expected utility of a representative member is $$\nu(w)=lv(w)+(1-l)v(b)$$ where $l=\min(1,L/N)$ and where $N$ is the total amount of union members. (Note: In these problems, one usually assumes $L\leq N$ so that $l=L/N$.)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Firms and unions bargain over the wage $w$; i.e., this is a collective bargaining problem. The collective bargaining problem is modelled as the maximization of the Nash bargaining product w.r.t. $w$ (see below).&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Now, consider two outcomes of the bargaining process:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Unions and firms &lt;em&gt;agrees&lt;/em&gt; on some wage $w$. In this case, the expected utility of a representative member is $\nu(w)$. The profits to the firm are $\Pi(w,L)$.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Unions and firms &lt;em&gt;do not agree&lt;/em&gt; on any wage $w$. In this case, the expected utility to union members is $v(b)$ and profits to the firm is $0$.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;In the right-to-manage model the collective bargaining is modelled as a symmetric Nash bargaining solution with $\gamma$ as the relative bargaining strength of the union, &lt;em&gt;given&lt;/em&gt; that the firm maximizes its profits with respect to employment. I.e., it is the solution to $$\max_w\Omega(w)$$  such that $$\frac{\partial \Pi(w,L)}{\partial L}=0,$$ where $\Omega(w)=\big(\nu(w)-v(b)\big)^{\gamma}\Pi(w,L)^{1-\gamma}$ is the &lt;em&gt;Nash bargaining product&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, when reading about this scenario/optimization problem I see two cases in the academic literature: The first one is called &lt;strong&gt;local (or firm-level) wage bargaining&lt;/strong&gt; and the other is called &lt;strong&gt;central (or national) wage bargaining&lt;/strong&gt;. Even though I have read about them, I do not understand the &lt;em&gt;mathematical&lt;/em&gt; difference between them. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;So, what is the fundamental, mathematical difference between &lt;em&gt;local (or firm-level) wage bargaining&lt;/em&gt; and &lt;em&gt;central (or national) wage bargaining&lt;/em&gt; given that we apply the right-to-manage model (i.e., we let firms determine employment unilaterally)? How do I model the two situations?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;My guesses and thoughts so far (this will be updated as time goes by):&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Local wage bargaining is at the firm level. Central wage bargaining is not at the firm level; instead, the firms are organised into an national employers' federation.&lt;/li&gt;&#xA;&lt;li&gt;In central wage bargaining, the firms takes the collective bargaining problem as an exogenous event. This would then mean that when they maximize their profits, they do not take into account the agreed on wage. However, in local wage bargaining, firms take the wage into account, meaning that when they maximize their profit, they take into account that the wage is a function of employment $w=w(L)$. Even though some authors seems to think about it this way, I do not understand &lt;em&gt;why&lt;/em&gt;. Maybe it has to do with firms somewhow regarding the wage as exogenous and independent of their &lt;em&gt;own&lt;/em&gt; investment decisions since they do not directly engage in the barganing process, but only indirectly through the employers' federation (?).&lt;/li&gt;&#xA;&lt;li&gt;One idea I had was that under central wage bargaining, employment is fixed during the bargaining process, while in local wage bargaining, employment is a function of the wage $w$. This difference would reflect the fact that firms view the wage agreed on as exogenous when wage bargaining is centralised. According to this idea, local wage bargaining would be modelled as $\max_{w}\Omega(w)$ given that $L=L(w)$ is the solution to $\max_w\Pi(w,L)$; and central wage bargaining would be modelled as $\max_w\Omega(w)$ holding $L$ fixed, and the firms chooses $L$ so that it is the solution to $\max_L\Pi(w^*,L)$, where $w^*$ is the centrally determined wage.&lt;/li&gt;&#xA;&lt;li&gt;The &lt;em&gt;timing of events&lt;/em&gt; is a bit unclear in the articles I have read about local and central wage bargaining. But it seems to be this: &lt;em&gt;Firstly&lt;/em&gt;, the wage is determined through wage bargaining. &lt;em&gt;Secondly&lt;/em&gt;, production takes place as firms solve their profit maximization problem. However, since the model is solved by backwards induction, one often begins by solving the profit maximization problem before finding the Nash bargaining solutions.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Examples of articles related to my question:&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Hoel, Michael. &quot;Local versus central wage bargaining with endogenous investments.&quot; The Scandinavian Journal of Economics (1990): 453-469.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Holden, Steinar. &quot;Local and central wage bargaining.&quot; The Scandinavian Journal of Economics 90.1 (1988): 93-99.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Holmlund, Bertil. &quot;Centralized wage setting, wage drift and stabilization policies under trade unionism.&quot; Oxford Economic Papers 38.2 (1986): 243-258.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="7582" LastEditorUserId="7582" LastEditDate="2017-02-12T22:25:10.337" LastActivityDate="2017-02-12T22:25:10.337" Title="Local and Central Wage Bargaining: What Is the Difference?" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;labor-economics&gt;" AnswerCount="0" CommentCount="2" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="15416" PostTypeId="1" CreationDate="2017-02-11T10:31:55.623" Score="3" ViewCount="131" Body="&lt;p&gt;Are there non monotonic preferences that are strictly convex and continues but the second welfare theorem does not hold for them?&lt;/p&gt;&#xA;" OwnerUserId="11977" LastEditorUserId="1601" LastEditDate="2017-02-11T10:56:33.177" LastActivityDate="2017-02-11T10:56:33.177" Title="The second welfare theorem without monotonicity" Tags="&lt;microeconomics&gt;&lt;general-equilibrium&gt;&lt;welfare&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15417" PostTypeId="2" ParentId="13471" CreationDate="2017-02-11T11:21:14.697" Score="1" Body="&lt;p&gt;Expanding on @VCG's comment, which pretty much answered the question:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can model this by adding a simultanous first move (to sign or not to sign) for both players. If they both choose to sign the contract, a predesignated outcome &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt; is realized and they get the corresponding payoffs. If they do not both sign, the original game is played.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Whether they will sign the contract or not will depend on their beliefs about what payoff they could expect in equilibrium. If a player's expected payoff from the original game is larger than what they would get in &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt; they will not sign.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(There are similar considerations in Aumann's correlated equilibrium, though there is no enforcable contract there.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An example for when you would not sign the enforcable contract:&lt;br&gt;&#xA;Consider a game of chicken with the payoffs&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/ybruF.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/ybruF.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;.&#xA;&lt;br&gt;(Source: &lt;a href=&quot;https://en.wikipedia.org/wiki/Chicken_(game)#Correlated_equilibrium_and_Chicken&quot; rel=&quot;nofollow noreferrer&quot;&gt;Wikipedia&lt;/a&gt;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose players could sign a contract forcing them to chose the &quot;Chicken&quot; strategy. A player will not do so if for some reason she expects that the other player will play chicken anyway, allowing her to collect a payoff of 7. In fact, using forward induction not signing may serve as a signal: The only reason he would not sign the contract is because she expects to win a larger than 6 payoff. The only way she can do this is by playing &quot;Dare&quot;. Thus if the other player was willing to sign the contract, she has effectively signaled that she intends to play &quot;Dare&quot; by not signing the contract. Unfortunately according to the logic of forward induction the other player will also not sign.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2020-04-05T20:33:51.037" LastActivityDate="2020-04-05T20:33:51.037" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="15418" PostTypeId="1" CreationDate="2017-02-11T12:35:02.753" Score="3" ViewCount="26" Body="&lt;p&gt;In Blanchard, the LM curve equation is represented in the following manner:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{M}{P} = L(y,r) $$&#xA;Whereas in Branson it is given as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{M}{P} = L(r) + k(y) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;L(r) is speculative demand for money and k(y) is transactions demand.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How are both the representations appropriate? Can we do this for any two(or more) variable functions?&lt;/p&gt;&#xA;" OwnerUserId="11893" LastActivityDate="2017-02-11T13:18:51.920" Title="Difference between representation of LM function in different textbooks" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15419" PostTypeId="2" ParentId="15418" CreationDate="2017-02-11T13:07:07.357" Score="3" Body="&lt;p&gt;The function $L(y,r)$ is a placeholder for &lt;strong&gt;any&lt;/strong&gt; rule that says&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;give me a $y$ and and an $r$, and I will spit-out a value for $L$.&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;For example, we could have &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;$L(y,r)\equiv y+r$;&lt;/li&gt;&#xA;&lt;li&gt;$L(y,r)\equiv y + \cos(y)+\sin(r)$;&lt;/li&gt;&#xA;&lt;li&gt;$L(y,r)\equiv y \ln (r)$;&lt;/li&gt;&#xA;&lt;li&gt;$L(y,r)\equiv yr$;&lt;/li&gt;&#xA;&lt;li&gt;etc.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;$L(r)+k(y)$ imposes an additional restriction. We con no longer pick any rule. Now we are only allowed to use rules where any terms involving $r$ are separated from those involving $y$ by a $+$. we call such function &quot;additively separable&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, in the Branson formulation encompasses rules such as 1 and 2 above, but not 3 and 4 (because the latter two are not additively separable).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This additional restriction means the Blanchard function is a &lt;em&gt;more general&lt;/em&gt; formulation than that in Branson.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;If we have a result that we know to be true for any function $f(x_1,\ldots,x_n)$ then we automatically know it must be true for additively separable functions of the form $f_1(x_1)+\ldots+f_n(x_n)$ (because the additively separable form is just a less general subcase of the more general form $f(\cdot)$).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But the same is not true in reverse. A result that we know holds for additively separable functions $f_1(x_1)+\ldots+f_n(x_n)$ need not hold for more general functions $f(x_1,\ldots,x_n)$.&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="1601" LastEditDate="2017-02-11T13:18:51.920" LastActivityDate="2017-02-11T13:18:51.920" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15420" PostTypeId="1" CreationDate="2017-02-11T16:03:52.533" Score="3" ViewCount="2167" Body="&lt;p&gt;If I have observations of $y_{i}$ and $x_{i}$ which are i.i.d. I also have OLS assumptions such as $E(\epsilon_{i} \mid X_{i})= 0$, my qustion is:&#xA;If I project $y_{i}$ onto a constant $\mu$, that is, we have model&#xA;$y_{i} = \mu + \epsilon_{i}$. Does finding the OLS estimator $\hat\mu$ has anything to do with $x_{i}$? Because in my opinions, $x_{i}$ never emerges.&#xA;Thanks~&lt;/p&gt;&#xA;" OwnerUserId="10417" LastActivityDate="2017-02-13T09:33:20.507" Title="Regression on a constant" Tags="&lt;econometrics&gt;&lt;regression&gt;" AnswerCount="2" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="15422" PostTypeId="2" ParentId="15420" CreationDate="2017-02-11T17:20:49.107" Score="5" Body="&lt;p&gt;So basically the question is: &lt;br&gt;&#xA;If I know the average ($\hat{\mu}$) of the daily temperatures ($y_i$) of last year, does that tell me anything about how many people were born ($x_i$) each day?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Unsurprisingly the answer is no.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The most you can get is the average of the $x_i$ series if you have the parameters of an unbiased regression between $x_i$ and $y_i$.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2017-02-11T17:20:49.107" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="15424" PostTypeId="1" CreationDate="2017-02-12T14:55:48.700" Score="2" ViewCount="66" Body="&lt;p&gt;The Economist on 12.11.2016 number (first number after getting US election results) wrote: &lt;em&gt;&quot;&lt;strong&gt;In real terms median male earnings are still lower than they were in the 1970s.&lt;/strong&gt; In the past 50 years, barring the expansion of the 1990s, middle-ranking households have taken longer to claw back lost income with each recessions. Social mobility is too low to hold out the promise of something better. The resulting loss of self-respect is not neutralised by a few quarters or rising wages&quot;&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Are there economic data that supports the thesis &quot;more than 50% of the lowest income society today lives worse than 50 years ago&quot;?&lt;/strong&gt; Of course - I have temptation to ask the following as well: and if yes - then what are the reasons of such failure of economic development and what economists suggest to do about this? But I will leave those two questions for other posts if the thesis will be true.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My intuition is that this thesis can be true. It is true, that computers, smart phones and other electronics are more available today but if we factor all the costs of living - starting from the bloated housing and real estate prices, increased cost of medicine and tuition fee then the result can be true - lowest income part of the society is living worse than 50 years ago when lasers, semiconductor technologies and lot of other technologies were nascent only.&lt;/p&gt;&#xA;" OwnerUserId="5373" LastEditorUserId="1601" LastEditDate="2017-02-12T15:59:04.447" LastActivityDate="2017-02-12T16:44:32.343" Title="Is there proof that today more than 50% of the lowest income society lives worse than 50 years ago" Tags="&lt;inequality&gt;&lt;development-economics&gt;&lt;poverty&gt;&lt;technology&gt;" AnswerCount="0" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15428" PostTypeId="1" AcceptedAnswerId="15430" CreationDate="2017-02-12T20:39:48.440" Score="6" ViewCount="873" Body="&lt;p&gt;I'm having trouble showing Roy's identity for the following Stone-Geary utility function:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U(x)=\prod_{i=1}^n\left(x_i-\gamma_i\right)^{\beta_i}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $\sum \beta_i=1$ and $\gamma_i$ is the minimal consumption of $x_i$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I showed that the Marshallian demand (which I confirmed using multiple sources) is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$x_i=\gamma_i+\frac{\beta_i\left(I-\sum_{j=1}^np_j\gamma_j\right)}{p_i}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, the indirect utility function is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$V(x)=\prod_{i=1}^n\left(\frac{\beta_i \left(I-\sum_{j=1}^np_j\gamma_j \right)}{p_i} \right)^{\beta_i}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I applied a monotone transformation to simplify the indirect utility function:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$W(x)=\sum_{i=1}^n\beta_i\left(\left(\ln(\beta_i)+\ln \left(I-\sum_{j=1}^np_j\gamma_j \right)\right)-\ln(p_i)\right)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\delta W}{\delta p_i}=\frac{-\beta_i\gamma_i}{I-\sum_{j=1}^np_j\gamma_j}-\frac{\beta_i}{p_i}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\delta W}{\delta I}=\frac{\beta_i}{I-\sum_{j=1}^np_j\gamma_j}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$-\frac{\delta W / \delta p_i}{\delta W / \delta I}=\gamma_i+\frac{I-\sum_{j=1}^np_j\gamma_j}{p_i}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Basically, as you can see, something doesn't add up: the $\beta_i$ is missing from the numerator. Thus, Roy's inequality is not verified. Where did I mess up?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Note: I've also tried without the transformation. This is a much more tedious process but it yielded the same answer; the $\beta_i$ was still missing)&lt;/p&gt;&#xA;" OwnerUserId="11945" LastEditorUserId="11945" LastEditDate="2017-02-12T23:49:29.473" LastActivityDate="2017-02-12T23:58:11.300" Title="Roy's identities for Stone-Geary utility functions" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="15429" PostTypeId="2" ParentId="15420" CreationDate="2017-02-12T21:15:09.560" Score="2" Body="&lt;p&gt;I don't think it will have anything to do with $x_i$. Here is my thought:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given your setup, in order to find $\hat{\mu}$, we regress $y$ on an $n\times1$ vector of ones, $\begin{bmatrix}1\\1\\ \vdots \\1\end{bmatrix}$ ,which we shall call $\iota$ (&lt;em&gt;iota&lt;/em&gt;). Then we will have $\hat{\mu}=(\iota'\iota)^{-1}\iota'y=\frac{1}{n}\iota'y=\bar{y}$. So $x$ doesn't play a role here.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note the projection matrix $P_{\iota} = \iota(\iota'\iota)^{-1}\iota'=\frac{1}{n}\iota\iota'$, and $P_{\iota}y=\bar{y}$.&lt;/p&gt;&#xA;" OwnerUserId="12096" LastEditorUserId="2776" LastEditDate="2017-02-13T09:33:20.507" LastActivityDate="2017-02-13T09:33:20.507" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15430" PostTypeId="2" ParentId="15428" CreationDate="2017-02-12T23:51:08.270" Score="7" Body="&lt;p&gt;Monir is correct to point out in the comments that $\ln$ is not a linear transformation. It is an increasing transformation, however, and so should not matter as long as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \sum_{i=1}^n p_i \gamma_i &amp;lt; I$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In any case, your mistake is in the derivatives you find. Here are the correct expressions:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\partial W}{\partial p_i} = -\gamma_i \sum_{j=1}^n \frac{\beta_j}{I - \sum_{k=1}^n p_k \gamma_k} - \frac{\beta_i}{p_i} = -\frac{\gamma_i}{I - \sum_{j=1}^n p_j \gamma_j} - \frac{\beta_i}{p_i} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{\partial W}{\partial I} = \sum_{j=1}^n \frac{\beta_j}{I - \sum_{k=1}^n p_k \gamma_k} = \frac{1}{I - \sum_{j=1}^n p_j \gamma_j} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Roy's identity then gives you the Marshallian demand you've initially, and correctly, derived.&lt;/p&gt;&#xA;" OwnerUserId="8595" LastEditorUserId="8595" LastEditDate="2017-02-12T23:58:11.300" LastActivityDate="2017-02-12T23:58:11.300" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15432" PostTypeId="1" CreationDate="2017-02-13T05:34:50.073" Score="5" ViewCount="1995" Body="&lt;p&gt;Assuming Car Motors in Tiny Country has 1m USD and it spends it on workers and suppliers to produce 1m USD worth of cars (cost) for export at 2m USD (1m USD profit).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A tsunami hits and drags all the cars under the ocean rendering them worthless.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assuming the workers and suppliers spent 500k USD (of the 1m USD from Car Motors) to produce the car and hid the other 500k USD under their pillows.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Will the GDP of Tiny Country be zero? 500k USD? or 1m USD?&lt;/p&gt;&#xA;" OwnerUserId="12099" LastActivityDate="2017-02-15T20:08:23.427" Title="Do unsold goods still make it into the GDP?" Tags="&lt;gdp&gt;" AnswerCount="3" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15433" PostTypeId="1" AcceptedAnswerId="15434" CreationDate="2017-02-13T10:16:55.657" Score="2" ViewCount="475" Body="&lt;p&gt;I know that one can use backward induction to find one particular subgame perfect NE. And I know that wherever possible one can represent the game in normalform and then find all NE.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But is there a systematic way of finding all extensive form specific subtypes of NE, like sequential or weak perfect Bayesian equilibria? What about the rest of the subgame perfect equilibria that can't be found by backward induction?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Do I always have to guess and proof that it really is the kind of equilibrium I think it is?&lt;/p&gt;&#xA;" OwnerUserId="12100" LastEditorUserId="12100" LastEditDate="2017-02-13T12:35:01.717" LastActivityDate="2017-02-13T12:35:01.717" Title="Is there a systematic approach to find equilibria in sequential games?" Tags="&lt;game-theory&gt;&lt;nash-equilibrium&gt;&lt;algorithms&gt;" AnswerCount="1" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="15434" PostTypeId="2" ParentId="15433" CreationDate="2017-02-13T11:15:27.650" Score="1" Body="&lt;p&gt;You can first find all NE. Then you check which ones are subgame-perfect. Then you proceed and check for which of the NE you can find beliefs that are consistent with the definition of PBE. You can go on and refine the set of equilibria further by kicking out all equilibria that do not satisfy the additional requirements of your stricter equilibrium concept.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If by &quot;backward induction&quot; you mean solving the game backwards subgame-by-subgame, then by definition you find all the SPNE (= all NE in which the equilibrium strategy profile also constitutes NE in all subgames).&lt;/p&gt;&#xA;" OwnerUserId="11590" LastActivityDate="2017-02-13T11:15:27.650" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="15435" PostTypeId="2" ParentId="13796" CreationDate="2017-02-13T12:52:01.323" Score="4" Body="&lt;p&gt;First of all, the general form of the problem you got there is extremely demanding. In multidimensional screening problems, analytically often all hell breaks loose in a sense that it is just not tractable. One way out might be this recent approach by Gabriel Carrol: &lt;a href=&quot;http://web.stanford.edu/~gdc/marginalrobust.pdf&quot; rel=&quot;noreferrer&quot;&gt;Robustness and Separation in Multidimensional Screening&lt;/a&gt; (also provides an introduction that hints at the intractibility of the problem).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Coming back to your question: $(2)$ does not imply $(1)$, because&#xA;$(2)$ only depends on $f$ and you can add a transfer rule that is not IC.&#xA;As a counterexample, consider a single good, $m=1$.&#xA;Take some strictly IC mechanism, $(f, p)$ and consider two types, $t$ and $t'$. So, $(1)$ is&#xA;$$U(t):= f(t)t - p(t) &amp;gt; f(t')t - p(t')\\&#xA;U(t'):= f(t')t' - p(t')&amp;gt; f(t)t' - p(t)$$&#xA;and by construction $(2)$ holds as well.&#xA;Let $t'&amp;gt;t$ and a lager allocation probability $f(t') &amp;gt; f(t)$ is accompanied by a larger expected transfer, $p(t') &amp;gt; p(t)$ - otherwise $t$ would love to fake being $t'$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, construct $\widetilde{f}(s) = f(s)$ for all $s\in T$ and let $\widetilde p (t)= p(t')$ and $\widetilde p (t')= p(t)$. Since $(2)$ only depends on the allocation function $f$ and these functions are the same in both mechanisms, $(2)$ holds for $(\widetilde{f}, \widetilde{p})$.&#xA;Obviously, $(1)$ is violated for the reason named above: &#xA;$$\widetilde f (t') t - \widetilde p(t') &amp;gt; \widetilde f (t) t - \widetilde p(t).$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To address your other problem (in your comment), use the integral formulation of expected utility.&#xA;Rewriting $(1)$ yields,&#xA;$$f( t)(t-t'))\geq  U(t) - U(t') \geq f (t' )(t-t')$$&#xA;implying that $U$ is Lipschitz continuous, implying $U$ is differentiable a.e., and equals the integral over its derivative:&#xA;$$U (t) = U(\underline t) + \int_{\underline t}^t f(s) ds$$&#xA;where $\underline t$ is the lowest possible type.&#xA;Then, you rewrite,&#xA;$$f (t) t - p(t) = U(\underline t) + \int_{\underline t}^t f(s) ds \\&#xA;f (t) t  - U(\underline t) - \int_{\underline t}^t f(s) ds = p(t).$$&#xA;Suppose $\underline t=0$, then&#xA;$$p(t) = p(0) + f(t)t - \int_{0}^t f(s) ds.$$&#xA;This implies the revenue equivalence theorem: If two auctions have the same allocation rule, payment functions (and thus revenue) can only differ by a constant. The same trick works for multi-unit auctions with multi-unit demand, see, e.g., &lt;a href=&quot;http://www.sciencedirect.com/science/book/9780123745071&quot; rel=&quot;noreferrer&quot;&gt;Krishna&lt;/a&gt;, Ch 14.&lt;/p&gt;&#xA;" OwnerUserId="11590" LastActivityDate="2017-02-13T12:52:01.323" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15437" PostTypeId="2" ParentId="15432" CreationDate="2017-02-13T16:35:51.667" Score="1" Body="&lt;p&gt;2.5 m. Because GDP calculates the final price of Factory goods produced,consumption- which the workers and suppliers spent their cash, and a few other components.&lt;/p&gt;&#xA;" OwnerUserId="12104" LastActivityDate="2017-02-13T16:35:51.667" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15438" PostTypeId="2" ParentId="15432" CreationDate="2017-02-13T17:37:50.830" Score="1" Body="&lt;p&gt;USD 2.5m, I would agree with that conditionally.&lt;br&gt;&#xA;2m worth of final goods were produced. The workers did not spend the 500k they saved.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;BUT: you wrote that the suppliers spent the money to produce the car. Depending on the interpretation of the question, the GDP can be different.&#xA;Since it says explicitly &quot;to produce the cars&quot;, those 500k would be intermediate goods that do not enter. There was no consumption.&#xA;Thus my final answer would be &lt;strong&gt;USD 2m&lt;/strong&gt; (only the cars)!&lt;/p&gt;&#xA;" OwnerUserId="4087" LastActivityDate="2017-02-13T17:37:50.830" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15439" PostTypeId="1" CreationDate="2017-02-13T19:17:00.823" Score="-1" ViewCount="174" Body="&lt;p&gt;If the price of a good or service rises, the demand for that product will always fall? Apart from Giffen goods and luxury are there any other cases and what economic analysis supports or argues with this statement.&lt;/p&gt;&#xA;" OwnerUserId="12027" LastActivityDate="2017-02-13T19:26:25.993" Title="If the price of a good rises, will the demand always fall?" Tags="&lt;supply-and-demand&gt;&lt;giffen-goods&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15440" PostTypeId="2" ParentId="15439" CreationDate="2017-02-13T19:26:25.993" Score="1" Body="&lt;p&gt;There's also goods for which there is inelastic demand, that is, the demand doesn't change regardless of price. These are things that are essential and cannot be replaced with anything similar, for example, medication for which there is no generic alternative. This is one of the reasons why prescription drug pricing is such a contentious topic - just about everyone who needs a life-saving medication will buy it regardless of price, so the &quot;right&quot; price for it is difficult to determine, and ultimately takes more into account than the supply/demand curve.&lt;/p&gt;&#xA;" OwnerUserId="7030" LastActivityDate="2017-02-13T19:26:25.993" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15442" PostTypeId="2" ParentId="14578" CreationDate="2017-02-13T21:21:32.087" Score="1" Body="&lt;p&gt;In theory, the answer is yes.&#xA;In practice, the answer is no, because it is computationally intractable. &#xA;My take-away from talking to computer scientists was that determining a winner and computing the transfers are NP-hard problems. See, e.g., &lt;a href=&quot;https://people.cs.pitt.edu/~kirk/CS1699Fall2014/VCG-LOS.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;this write-up by Kirk Pruhs.&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="11590" LastActivityDate="2017-02-13T21:21:32.087" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15443" PostTypeId="1" AcceptedAnswerId="15448" CreationDate="2017-02-13T21:30:39.077" Score="1" ViewCount="96" Body="&lt;p&gt;Say that I want to estimate a growth regression basically similar to the Augmented Solow Model one, except my dependent variable is not Y/L, but it's the average GDP growth over a 3-year period. As my independent variables, I'd take GDP at the beginning of the period and then average values of savings rate, human capital, etc... over the period. However, I've seen it done taking savings rate and such values for the last year of the period. So, it turns out something lie:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Avg Growth 2010-2012 = GDP 2010 + Sav Rate 2012 + Hum K 2012 etc...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When I estimate it, the coefficients are correct and significant, however I cannot understand if it's right. I'd understand taking all independent variables in first year values, or taking the rates as averages over the period, but I can't see why it would be correct to base the growth of the period over the last year's value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can somebody shed some light on this please? Could it just be a mistake?&lt;/p&gt;&#xA;" OwnerUserId="12109" LastActivityDate="2017-02-14T18:38:01.670" Title="Growth regressions over 3-year periods; regressors in average or year values?" Tags="&lt;economic-growth&gt;&lt;solow&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15448" PostTypeId="2" ParentId="15443" CreationDate="2017-02-14T09:57:02.537" Score="0" Body="&lt;p&gt;I have never seen any &quot;serious&quot; (i.e. peer-reviewed) study defining independent variables as the end of the period under consideration (if you could provide some link to the ones you are referring to, it would be helpful). Normally, they are used as the average over the period or at the initial year. For instance, in the big field of finance and growth, that is the common approach. Thorsten Beck - among the most renown researchers in this field - &lt;a href=&quot;http://siteresources.worldbank.org/DEC/Resources/The_Econometircs_of_Finance_and_Growth.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;says it himself&lt;/a&gt; (bottom half of page 2). There are many examples of this in other fields too. For instance, when estimating &lt;a href=&quot;https://www.jstor.org/stable/40216078?seq=1#page_scan_tab_contents&quot; rel=&quot;nofollow noreferrer&quot;&gt;inequality on growth&lt;/a&gt; (top of page 282), or the &lt;a href=&quot;http://ihome.ust.hk/~dxie/Econ5120/Sala-i-Martin%204%20million%20regressions.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;famous paper&lt;/a&gt; by Xala-i-Martin, where he run 4 million growth regressions. Look in page 7 and 8, in sections &quot;Data&quot; and &quot;Choosing the Fixed Variables&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, why not to use final period variables? Because of &lt;strong&gt;reverse causality&lt;/strong&gt; concerns. An economy which grows fast &lt;em&gt;over a given period&lt;/em&gt; might end up with a higher savings rate and human capital level &lt;em&gt;at the end of the period&lt;/em&gt;. As such, the order of causality is in fact the opposite at the one your equation is assuming (even though the sign coming from estimations &lt;em&gt;might&lt;/em&gt; be the same!), leading to &lt;strong&gt;endogeneity&lt;/strong&gt; and therefore to inconsistent estimates. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Even the use of average period variables is subject to some controversy. As Xala-i-Martin puts it in the aforementioned paper (page 8):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;I reluctantly use some variables of this sort (the average savings or investment rate and the DeLong and Summers measures of equipment and non-equipment investment are examples in this category). The reason for being reluctant to the inclusion of such variables is that these may be “more endogenous” than the variables measured at the beginning of the period. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;To conclude, using &lt;em&gt;end of period&lt;/em&gt; variables is a very risky practice, and in my view very hard to justify theoretically and empirically. Even more, it seems &lt;strong&gt;unnecessary&lt;/strong&gt;. Why not use beginning of period? Or average? &lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-02-14T18:38:01.670" LastActivityDate="2017-02-14T18:38:01.670" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15449" PostTypeId="2" ParentId="12937" CreationDate="2017-02-14T11:10:43.713" Score="2" Body="&lt;p&gt;&lt;a href=&quot;http://onlinelibrary.wiley.com/doi/10.1111/ecoj.12138/abstract;jsessionid=2C4AB3FAF5676E0DB53550EC36BFC32D.f03t04&quot; rel=&quot;nofollow noreferrer&quot;&gt;Blundell, et. al (2014)&lt;/a&gt; offer an explanation. According to them, &lt;strong&gt;the UK economy experienced a positive labour supply shock&lt;/strong&gt; over that period.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, they present the facts in a very intuitive fashion (graph taken from the &lt;a href=&quot;https://www.ifs.org.uk/wps/wp201311.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;working paper version&lt;/a&gt;):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/6CgSx.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/6CgSx.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;They argue that the supply shock was due to two factors:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;changes in welfare policies that made work more attractive and tightened job-search conditions attached to the receipt of unemployment insurance beneﬁts&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;an increase in statutory pension age for women that strengthened their labor force attachment&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;I don't want to infringe copyrights so I won't include more figures, but look at Figure 14 (showing an increase in employment of older workers after the Great Recession), and Figure 15 and 16 (showing an increase in employment participation of Lone Mothers). As the authors state:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;The age limit for youngest child was set at twelve in November 2008 for all new claimants of Income Support and was lowered to ten in October 2009, seven in October 2010 and five in October 2011.&quot; (p. 392)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;That is an example of a policy fostering employment participation and a positive supply shock.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-02-14T11:10:43.713" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15450" PostTypeId="1" AcceptedAnswerId="16371" CreationDate="2017-02-14T14:20:56.343" Score="2" ViewCount="203" Body="&lt;p&gt;I am trying to understand the Fiscal Theory of Price Level (FTPL) and how it explains inflation. I've been reading several papers by Eric Leeper and I am slightly confused about some of his claims. For example in &lt;a href=&quot;http://www.bis.org/publ/work364.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;this paper&lt;/a&gt; he argues:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Suppose that higher deficits do not create higher expected surpluses and that central&#xA;  banks either peg short-term nominal interest rates or raise them only weakly with inflation.&#xA;  Because a tax cut today does not portend future tax hikes, individuals initially perceive the&#xA;  increase in nominal debt to be an increase in their real wealth. They try to convert higher&#xA;  wealth into consumption goods, raising aggregate demand. Rising demand brings with it&#xA;  rising prices, which continue to rise until real wealth falls back to its pre-tax-cut level and&#xA;  individuals are content with their original consumption plans.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I understand that he is explaining 'non-Ricardian' policies. However, if the government increases its deficit by issuing bonds, would that not decrease AD in the period the bonds are sold? Say that the government increases its deficit in period $t$ by selling bonds. Private agents buy these bonds and thus give up consumption goods. So in period $t$, should AD not decrease? And when the bond matures and the agents receive their payoff, they will spend it as long as the government is credible enough in not raising taxes. I might be overcomplicating things about this is just a thought I have had. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And lastly;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;By preventing nominal interest&#xA;  rates from rising sharply with inflation, monetary policy prevents debt service from growing&#xA;  too rapidly, which stabilizes the value of government bonds.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I understand the reasoning that keeping interest rates stable will stabilize the debt servicing. However, suppose that interest rates rose. If the interest  rate is higher than the growth rate of the economy, the government will have to monetise its debt in order to pay the interest component, this will obviously be inflationary. Or, they can issue more debt. If they choose the roll over on the debt (i.e paying the interest by issuing even more debt), will this be inflationary or deflationary? Using the same reasoning as above, I would think this is deflationary because by selling bonds to private agents, they have to give up consumption goods, thus reducing AD.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm trying to understand the intuition behind fiscal and monetary authority interaction. So if my questions can be answered by academic literature, I would gladly give it a read. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks in advance!&lt;/p&gt;&#xA;" OwnerUserId="11767" LastEditorUserId="2776" LastEditDate="2017-02-14T15:55:03.340" LastActivityDate="2017-04-21T13:12:36.773" Title="Government debt and Fiscal Theory of Price Level" Tags="&lt;inflation&gt;&lt;government-debt&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15451" PostTypeId="2" ParentId="6970" CreationDate="2017-02-14T16:09:14.290" Score="3" Body="&lt;p&gt;Fractional reserves banking is at least as old as the 1400's:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;A balance sheet from the London branch of the Medici Bank, dated&#xA;  November 12, 1477, shows that a significant number of the bank’s debts&#xA;  corresponded to demand deposits. Raymond de Roover himself estimates&#xA;  that at one point, the bank’s primary reserves were down to 50 percent&#xA;  of total demand liabilities. 60 If we apply the standard criterion&#xA;  used by A.P. Usher, this implies a credit expansion ratio of twice the&#xA;  demand deposits received by the bank. There is evidence, however, that&#xA;  this ratio gradually worsened over the bank’s life-span, especially&#xA;  after 1464, a year that marked the beginning of growing difficulties&#xA;  for the bank. The roots of the general economic and bank crisis that&#xA;  ruined the Medici Bank resemble those Carlo M. Cipolla identifies in&#xA;  his study of fourteenth-century Florence. As a matter of fact, credit&#xA;  expansion resulting from bankers’ misappropriation of demand deposits&#xA;  gave rise to an artificial boom fed by the increase in the money&#xA;  supply and its seemingly “beneficial” short-term effects.&#xA;  Nevertheless, since this process sprang from an increase in the money&#xA;  supply, namely credit unbacked by growth in real savings...&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Page 73-74 of &lt;a href=&quot;https://mises.org/system/tdf/Money_Bank_Credit_and_Economic_Cycles_De%20Soto.pdf?file=1&amp;amp;type=document&quot; rel=&quot;nofollow noreferrer&quot;&gt;Money, Bank Credit, and Economic Cycles Jesus Huerta de Soto&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &lt;a href=&quot;https://en.wikipedia.org/wiki/Scali_(bank)#&quot; rel=&quot;nofollow noreferrer&quot;&gt;Wikipedia page on Scali Bank&lt;/a&gt; claims that the Austrian school or at least Soto believes that fractional reserve banking did in Scali bank in the 1300's but I couldn't find evidence for the claim in the citation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Currency#History&quot; rel=&quot;nofollow noreferrer&quot;&gt;Middle eastern banks were offering transaction accounts and loans in the  7th–12th centuries&lt;/a&gt; and this makes it likely that fractional reserve banking was occurring there as well. &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2017-02-14T16:09:14.290" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15454" PostTypeId="1" CreationDate="2017-02-14T20:14:12.897" Score="2" ViewCount="61" Body="&lt;p&gt;I have data on &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;purchases &lt;/li&gt;&#xA;&lt;li&gt;gross prices&lt;/li&gt;&#xA;&lt;li&gt;discounts (like coupons)&lt;/li&gt;&#xA;&lt;li&gt;net prices (i.e. gross price - discounts)&lt;/li&gt;&#xA;&lt;li&gt;number of leads (potential customers at any given time)&lt;/li&gt;&#xA;&lt;li&gt;conversion rates (# purchases / # leads) over time&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;A business wants to know how price elastic its consumers are and to use this information in part to set their net price by changing either gross price and/or discounts.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem is that there's some endogeneity (or recursion) in the system -  when the business predicted higher conversion rates it raised prices. The business also varied the discount levels based on the conversion rates and gross price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;While the business is clearly selling a normal good, the endogeneity/recursion makes it looks like higher prices are associated with more sales and higher conversion rates. I need to disentangle these effects. Perhaps there's some great IV I'm not thinking of, but barring that, is there any other strategy to address this situation?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can think of this as a single good case (I can add complexity later, but based on my subject matter knowledge it would be safe to ignore other goods and cross-price effects, etc).&lt;/p&gt;&#xA;" OwnerUserId="3998" LastEditorUserId="1601" LastEditDate="2017-02-14T20:21:07.570" LastActivityDate="2017-02-14T20:21:07.570" Title="Addressing endogenity in price elasticity and the Promotion Optimization Problem" Tags="&lt;microeconomics&gt;&lt;econometrics&gt;&lt;elasticity&gt;&lt;price&gt;&lt;endogeneity&gt;" AnswerCount="0" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15455" PostTypeId="1" AcceptedAnswerId="15456" CreationDate="2017-02-14T20:25:07.397" Score="4" ViewCount="400" Body="&lt;p&gt;&lt;a href=&quot;https://www.accenture.com/ro-en/_acnmedia/PDF-33/Accenture-Why-AI-is-the-Future-of-Growth.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Accenture research&lt;/a&gt; defines Artificial Intelligence as completely new production factor along labour and capital. Is such notion acceptable by economists?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As far as I understand then every asset of AI - patented algorithms and software, proprietary knowledge bases and data bases - has its owner and therefore those assets can be considered simply as some form of capital and one should not make special conclusions about AI.&lt;/p&gt;&#xA;" OwnerUserId="5373" LastEditorUserId="2776" LastEditDate="2017-08-11T06:43:30.647" LastActivityDate="2017-08-11T06:43:30.647" Title="Is Artificial Intelligence a completely new (and underestimated) production factor?" Tags="&lt;production-function&gt;&lt;technology&gt;&lt;capital&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15456" PostTypeId="2" ParentId="15455" CreationDate="2017-02-14T20:59:39.367" Score="5" Body="&lt;p&gt;My guess is that it is not a new factor of production, but simply a type of total factor productivity. This is because:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;factors of production are a stock&lt;/strong&gt;, which produce services. What is the stock of AI? The stock of labour is easy to calculate. The stock of capital is more complex, but at least all capital goods (even robots) have a market price. As such, the heterogenous capital in an economy can be converted into a unique variable, via prices. Does different AI components have prices? I don't think so.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;factors of production are rival goods&lt;/strong&gt;. A machine cannot be used simultaneously by the same firm. Same for workers. Instead, AI are knowledge, codes, algorithms, which are non-rival.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;AI is produced by labour&lt;/strong&gt;. As such, from a endogenous growth perspective (&lt;em&gt;a lá&lt;/em&gt; Romer), resources need to be invested in order to augment the level of AI in the economy.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;factors of production get paid&lt;/strong&gt;. How do you pay an algorithm? Even more, &lt;strong&gt;why&lt;/strong&gt; would you pay an algorithm at all?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Therefore, if I were to model AI, I would do so as part of TFP, and not as a new factor of production. In my view, the report is highlighting is that AI is a different and new component of TFP, one which could revitalise growth.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-02-14T20:59:39.367" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15461" PostTypeId="2" ParentId="15432" CreationDate="2017-02-15T19:59:36.910" Score="0" Body="&lt;p&gt;GDP is equal to the Wages + Profits at every stage of production.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Stage 1: Unnamed company sells 1M as profit in car parts to Car Motors (If the goods are imported then that 1M does not factor in, also assuming it was pure profit)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Stage 2: Car Motors Turns the car parts into cars&#xA;500K is given out as wages to workers&#xA;1M is made in profit for the company.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Total GDP gain: 2.5 M.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If a tsunami destroys all the cars it means that the cars cannot be sold and the profit for the company is $0.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus GDP gain is 500K in wages paid out to workers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit:&#xA;The reason you are getting conflicting answers is due to a lack of information.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;GDP = Investment (I) + Government Spending (G) + Consumption (C) + Exports (EX) - Imports (IM)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is always assumed that Investment = Savings (Look up the IS relation). So if the workers were savings all of their earnings I = 500K and if they spent it all in the economy C = 500K. Either way you have 500K in GDP gain from wages. Since the cars are being exported EX = 2,000,000 for a total of 2.5M assuming the export occurs. If it doesn't then only the wages are counted. &lt;/p&gt;&#xA;" OwnerUserId="10245" LastEditorUserId="10245" LastEditDate="2017-02-15T20:08:23.427" LastActivityDate="2017-02-15T20:08:23.427" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15464" PostTypeId="1" CreationDate="2017-02-16T00:27:56.907" Score="2" ViewCount="667" Body="&lt;p&gt;Given any bilateral zero-sum game G, show that strategy proﬁle σ is a Nash equilibrium for G if, and only if, it is a Nash equilibrium for the constant-sum game G' obtained from G by adding any ﬁxed amount &quot;d&quot; to the payoffs of both players. Is the conclusion affected if the ﬁxed amount, call it now $d_i$ for each i = 1 , 2 , differs between the two players?&lt;/p&gt;&#xA;" OwnerUserId="12025" LastActivityDate="2017-05-27T06:42:44.207" Title="Zero sum game, constant sum game" Tags="&lt;game-theory&gt;&lt;nash-equilibrium&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15465" PostTypeId="2" ParentId="15464" CreationDate="2017-02-16T00:47:09.063" Score="3" Body="&lt;p&gt;Let me borrow from my answer &lt;a href=&quot;https://math.stackexchange.com/questions/2146263/zero-sum-games-constant-sum-game/2146433#2146433&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The short answer is that adding constants values, even ones that differ across players, will not change the set of Nash equilibria.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is easy to see from the definition of Nash equilibrium. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $u_i$ represent player $i$'s payoffs as a function of all the players' strategies. A strategy profile $\sigma= (\sigma_i , \sigma_{-i})$, where $\sigma_i$ is $i$'s strategy, and $\sigma_{-i}$ is a vector of all the other players' strategies, is a Nash equilibrium if, for each player $i$,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ u_i (\sigma_i , \sigma_{-i}) \ge u_i (\sigma_i^\prime ,\sigma_{-i}) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;for any other strategy $\sigma_i^\prime$ of player $i$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $v_i = u_i + d_i$, for each $i$, and let $\sigma$ be a Nash equilibrium strategy profile under $u_i$. Since adding a constant to both sides will preserve the inequality above, it must also be the case that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ v_i (\sigma_i , \sigma_{-i}) \ge v_i (\sigma_i^\prime ,\sigma_{-i}) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;for all $i$ and $\sigma_i^\prime$, so $\sigma$ is a Nash equilibrium strategy profile under the modified set of payoff functions as well.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In fact, it is a standard assumption in game theory that payoff functions represent preferences that satisfy the &lt;a href=&quot;https://en.wikipedia.org/wiki/Von_Neumann%E2%80%93Morgenstern_utility_theorem&quot; rel=&quot;nofollow noreferrer&quot;&gt;von Neumann-Morgenstern axioms&lt;/a&gt;. This implies that preference orderings are preserved by affine transformations of utility functions. (In this context, an affine transformation is just multiplication by a positive number and adding arbitrary constants to payoff functions.)&lt;/p&gt;&#xA;" OwnerUserId="8595" LastEditorUserId="-1" LastEditDate="2017-04-13T12:19:37.213" LastActivityDate="2017-02-16T00:47:09.063" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15466" PostTypeId="2" ParentId="15464" CreationDate="2017-02-16T02:51:34.590" Score="5" Body="&lt;p&gt;Suppose $(\sigma_1^*, \sigma_2^*)$ is the Nash Equilibrium of the game $G$ consisting of players $\{1,2\}$ having strategy sets $A_1$ and $A_2$ and the payoff functions $u_1:A_1\times A_2 \rightarrow \mathbb{R}$ and $u_2:A_1\times A_2 \rightarrow \mathbb{R}$. Consider the game $G'$ in which everything else is same as $G$ except that the payoff functions are $v_1:A_1\times A_2 \rightarrow \mathbb{R}$ and $v_2:A_1\times A_2 \rightarrow \mathbb{R}$ defined as: $v_1(a_1, a_2) = u_1(a_1, a_2) + d_1$ and $v_2(a_1, a_2) = u_2(a_1, a_2) + d_2$. We will now show that $(\sigma_1^*, \sigma_2^*)$ is also the Nash Equilibrium of $G'$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since $(\sigma_1^*, \sigma_2^*)$ is the Nash Equilibrium of $G$, &#xA;\begin{eqnarray*} \mathbb{E}(u_1(\sigma_1^*, \sigma_2^*)) \geq  \mathbb{E}(u_1(\sigma_1, \sigma_2^*)) &amp;amp; &amp;amp; \forall \sigma_1 \in \Delta (A_1) \\ \mathbb{E}(u_2(\sigma_1^*, \sigma_2^*)) \geq  \mathbb{E}(u_2(\sigma_1^*, \sigma_2)) &amp;amp; &amp;amp; \forall \sigma_2 \in \Delta (A_2) \end{eqnarray*} &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The above can also be rewritten as&#xA;\begin{eqnarray*} \mathbb{E}(u_1(\sigma_1^*, \sigma_2^*)) + d_1 \geq  \mathbb{E}(u_1(\sigma_1, \sigma_2^*)) + d_1 &amp;amp; &amp;amp; \forall \sigma_1 \in \Delta (A_1) \\ \mathbb{E}(u_2(\sigma_1^*, \sigma_2^*)) + d_2 \geq  \mathbb{E}(u_2(\sigma_1^*, \sigma_2)) + d_2 &amp;amp; &amp;amp; \forall \sigma_2 \in \Delta (A_2) \end{eqnarray*} &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Because $d_1$ and $d_2$ are constants, we can take them inside the expectation and rewrite the above inequalities as:&#xA;\begin{eqnarray*} \mathbb{E}(u_1(\sigma_1^*, \sigma_2^*) + d_1) \geq  \mathbb{E}(u_1(\sigma_1, \sigma_2^*) + d_1) &amp;amp; &amp;amp; \forall \sigma_1 \in \Delta (A_1) \\ \mathbb{E}(u_2(\sigma_1^*, \sigma_2^*) + d_2) \geq  \mathbb{E}(u_2(\sigma_1^*, \sigma_2) + d_2) &amp;amp; &amp;amp; \forall \sigma_2 \in \Delta (A_2) \end{eqnarray*} &lt;/p&gt;&#xA;&#xA;&lt;p&gt;By definition of $v_1$ and $v_2$,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{eqnarray*} \mathbb{E}(v_1(\sigma_1^*, \sigma_2^*)) \geq  \mathbb{E}(v_1(\sigma_1, \sigma_2^*)) &amp;amp; &amp;amp; \forall \sigma_1 \in \Delta (A_1) \\ \mathbb{E}(v_2(\sigma_1^*, \sigma_2^*)) \geq  \mathbb{E}(v_2(\sigma_1^*, \sigma_2)) &amp;amp; &amp;amp; \forall \sigma_2 \in \Delta (A_2) \end{eqnarray*} &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, $(\sigma_1^*, \sigma_2^*)$ is also the Nash Equilibrium of $G'$.&lt;/p&gt;&#xA;" OwnerUserId="11824" LastActivityDate="2017-02-16T02:51:34.590" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15467" PostTypeId="1" CreationDate="2017-02-16T03:09:17.860" Score="4" ViewCount="955" Body="&lt;p&gt;From Mises' &lt;em&gt;Human Action&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Human action is purposeful behavior. Or we may say: Action is will put into operation and transformed into an agency, is aiming at ends and goals, is the ego's meaningful response to stimuli and to the conditions of its environment, is a person's conscious adjustment to the state of the universe that determines his life.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Are there any criticisms of this axiom as not being a complete description? By complete, I mean not that it describes all aspects of human behavior or fully explores it, rather I am asking whether or not it fully expounds some first cause of human action from which we can deduce answers to other questions about human economic behavior?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;em&gt;This question is not about whether or not the corollaries deduced from this axiom are true, simply: Is this description sufficient to allow us to, from it, describe corollaries of human behavior?&lt;/em&gt;&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="12132" LastActivityDate="2018-02-24T02:05:34.417" Title="What are the known refutations of Mises' Axiom of Human Action?" Tags="&lt;austrian&gt;" AnswerCount="5" CommentCount="3" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="15468" PostTypeId="2" ParentId="15467" CreationDate="2017-02-16T04:13:20.040" Score="-2" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Is this description sufficient to allow us to, from it, describe corollaries of human behavior?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Short answer: no.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Slightly longer answer: It sounds like it's written by someone with no self-insight who was unaware that humans are just mammals with slightly-enhanced intelligence. Do you really need it refuting? Do you sincerely believe that all &lt;em&gt;your&lt;/em&gt; actions are meaningful expressions of conscious will? Did that start at a particular age? Was a switch flipped in your brain on your 18&lt;sup&gt;th&lt;/sup&gt; (or 21&lt;sup&gt;st&lt;/sup&gt; or 25&lt;sup&gt;th&lt;/sup&gt; or 40&lt;sup&gt;th&lt;/sup&gt;) birthday, causing you to become a rational agent despite all that had gone before?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The full answer is contained in a whole field of science on this subject - psychology. Indeed, many good universities have whole libraries dedicated to it And that's a bit too long for here. As you're interested, then you could start with behavioural economics - there are plenty of books on that alone.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here's &lt;a href=&quot;http://www.personal.kent.edu/~rmuhamma/Philosophy/RBwritings/outIntellectRubbish.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;Bertrand Russell for starters&lt;/a&gt; - philosophy rather than economics, so let the etymology of the word &quot;philosophy&quot; guide you:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Man is a credulous animal, and must believe &lt;em&gt;something&lt;/em&gt;; in the absence of good grounds for belief, he will be satisfied with bad ones.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Economics is still recuperating from the shock of the irrational. Some try to extend the rational-agent framework, for example with penalties for partial information, and so on, to rationalise, &lt;em&gt;post-hoc&lt;/em&gt;, observed sub-optimal actions (such post-hoc rationalisation being a very common manifestation of human irrationality). A confidence-tricksters' tools still out-perform these extended models.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There's a lot of very good empirical work going on in behavioural economics. One could choose to axiomatically ignore it, but that would be to hold a pre-judged belief as superior to any and all empirical evidence. That doesn't seem very rational to me.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2017-02-16T04:13:20.040" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="15469" PostTypeId="2" ParentId="15467" CreationDate="2017-02-16T04:20:31.890" Score="1" Body="&lt;p&gt;It doesn't allow for a full description of people's behavior and Mises says as much in Human Action. Data is needed as well. The Action Axiom simply states that people will select the best known means to achieve their preferred goal.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To specifically describe the particular action of time and place, then, we need to know the individual's goals and the means perceived as available, with measures of expected effectiveness.&lt;/p&gt;&#xA;" OwnerUserId="5781" LastActivityDate="2017-02-16T04:20:31.890" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15470" PostTypeId="2" ParentId="15464" CreationDate="2017-02-16T05:57:42.313" Score="3" Body="&lt;p&gt;Other answers took the game theoretic approach, I will take the utility approach. Adding a real number $d_i$ to all payoffs of a player is an affine transformation of said payoffs. This does not change the player's preferences even when dealing with expected payoffs. Thus the desirability of outcomes is unchanged from the player's perspective hence best responses remain the same.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2017-05-27T06:42:44.207" LastActivityDate="2017-05-27T06:42:44.207" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15471" PostTypeId="1" CreationDate="2017-02-16T10:55:04.410" Score="2" ViewCount="709" Body="&lt;p&gt;Consider the following cases:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;One machine (capital) is used by multiple producers within one year. For instance, farmers renting tractors from the same company. In this case, in terms of GDP, there is one unit of capital which was used to produce value added by many producers.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;One worker (labour) which have two jobs. For instance, in a factory during the day, and as a Uber driver during the night. In this case, in terms of GDP, there is one unit of labour, used to produce value added in different goods/services.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The common feature is that the same factor of production (&lt;strong&gt;stock&lt;/strong&gt;) is employed in more than one activity over a given period (&lt;strong&gt;flow&lt;/strong&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Is the measurement of capital and labour used in the standard &quot;determinants of growth&quot; studies based on the stock or flow approach?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words, are capital and labour measured in terms of the &lt;strong&gt;flow of services&lt;/strong&gt; that these factors produce, or in terms of the &lt;strong&gt;stock of factors&lt;/strong&gt; available in an economy over time? It is clear to me that the latter approach is plagued with problems, and the former is clearly more accurate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My experience is that the use of stock is more common.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-09-20T16:05:13.497" LastActivityDate="2021-05-10T23:05:45.567" Title="In GDP growth studies, are factors of production measured as stock or flows?" Tags="&lt;reference-request&gt;&lt;labor-economics&gt;&lt;economic-growth&gt;&lt;capital&gt;" AnswerCount="5" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15472" PostTypeId="1" AcceptedAnswerId="15474" CreationDate="2017-02-16T12:58:22.527" Score="2" ViewCount="107" Body="&lt;p&gt;I've seen videos where Prof. Stiglitz mentions CEO compensation associated with rent-seeking: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://youtu.be/b7wIw1VNjSk?t=29m58s&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://youtu.be/b7wIw1VNjSk?t=29m58s&lt;/a&gt;&lt;br&gt;&#xA;&lt;a href=&quot;https://youtu.be/heOVJM2JZxI?t=41m28s&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://youtu.be/heOVJM2JZxI?t=41m28s&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I looked on the web and saw a story about how government subsidies meant for workers are absorbed by the executives and that the company's lobbyists are seeking these rents. However, I don't understand how exactly that's done. What are some examples?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I also remember seeing an interview with either him or Prof. Krugman where they mentioned that CEO's are able to &lt;strong&gt;exploit the structure of corporate governance&lt;/strong&gt; (using the board of directors) to artificially increase their compensation. How exactly is this done if it does occur?&lt;/p&gt;&#xA;" OwnerUserId="11831" LastEditorUserId="11831" LastEditDate="2017-02-16T13:05:23.550" LastActivityDate="2017-02-16T18:50:42.243" Title="In what way specifically are US CEO's able to engage in rent-seeking and exploit corporate governance to increase compensation?" Tags="&lt;inequality&gt;&lt;political-economy&gt;&lt;corporate-governance&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15473" PostTypeId="2" ParentId="9916" CreationDate="2017-02-16T13:03:03.820" Score="2" Body="&lt;p&gt;Suppose there are two families: Family U has $n_u$ members, and family V has $n_v$ members. Utility function of member $i$ of family U is:&#xA;\begin{eqnarray*} u_i(x_u, y_u) = a_ix_u + y_u \end{eqnarray*}&#xA;where all $a_i$s are positive for all $i\in\{1,2,\ldots, n_u\}$,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and utility function of member $j$ of family V is:&#xA;\begin{eqnarray*} v_j(x_v, y_v) = b_jx_v + y_v \end{eqnarray*}&#xA;where all $b_j$s are positive for all $j\in\{1,2,\ldots, n_v\}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, suppose $\min_i a_i \geq \max_j b_j$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose the total endowment vector of $X$ and $Y$ is $(\omega_X, \omega_Y)$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For any $\theta \in [\max_j b_j, \min_i a_i]$, define $m :=  \displaystyle\frac{\theta\omega_X}{2} + \frac{\omega_Y}{2} $.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Check that if $\displaystyle\frac{m}{\theta} \leq \omega_X$, then $\displaystyle (x_u, y_u) = \left(\frac{m}{\theta}, 0\right)$ and $\displaystyle (x_v, y_v) = \left(\omega_X - \frac{m}{\theta}, \omega_Y\right)$ is Pareto efficient envy free allocation, and on the other hand if $\displaystyle\frac{m}{\theta} &amp;gt; \omega_X$, then $\displaystyle (x_u, y_u) = \left(\omega_X, m-\theta\omega_X\right)$ and $\displaystyle (x_v, y_v) = \left(0, m\right)$ is Pareto efficient envy free allocation.&lt;/p&gt;&#xA;" OwnerUserId="11824" LastActivityDate="2017-02-16T13:03:03.820" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="15474" PostTypeId="2" ParentId="15472" CreationDate="2017-02-16T13:52:08.560" Score="2" Body="&lt;p&gt;Pre-Sarbanes-Oxley it was common for CEOs to nominate the members of the board of directors of their firms. A sub-committee of the board would determine the CEO's compensation, so a CEO could choose people loyal to him (even employees working under the CEO) for the board and those people could boost his compensation. And if they did not do so, he might also ensure that board members that failed to boost his pay did not serve renewed terms. In addition, they could potentially ensure that even when performance was poor that the compensation was high. Sarbanes-Oxley, along with changes from the major US stock exchanges, required independent nominating and compensation committees for boards of directors. It is generally seen in the literature that these rule changes curtailed this practice. However, some dispute that this was ever an economically important channel for self-dealing. &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2017-02-16T18:50:42.243" LastActivityDate="2017-02-16T18:50:42.243" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15475" PostTypeId="2" ParentId="12418" CreationDate="2017-02-16T15:33:51.477" Score="1" Body="&lt;p&gt;Another counter example: $u_1(x_1, y_1) = 2x_1+y_1$ and $u_2(x_2, y_2)= x_2+2y_2$. Suppose the total endowment of $X$ and $Y$ in the economy is $(1,1)$. Consider the following two allocations:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;$(x_1, y_1) = (1,1)$ and $(x_2, y_2) = (0,0)$&lt;/li&gt;&#xA;&lt;li&gt;$(x_1', y_1') = (0,0)$ and $(x_2', y_2') = (1,1)$&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Both these allocations are efficient. However, their convex combination allocation $(x_1'', y_1'') = (0.5,0.5)$ and $(x_2'', y_2'') = (0.5,0.5)$ is not efficient because allocation $(x_1''', y_1''') = (1,0)$ and $(x_2''', y_2''') = (0,1)$ is better for both.&lt;/p&gt;&#xA;" OwnerUserId="11824" LastActivityDate="2017-02-16T15:33:51.477" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15476" PostTypeId="1" CreationDate="2017-02-16T15:33:55.663" Score="2" ViewCount="627" Body="&lt;p&gt;I want to calculte risk-premiums in order to assess how much risk-averse customers would be willing to pay for an insurance against an uncertain loss modeled by a random variable $X$. How would a risk-premium be calculated, if $X$ does not follow a normal distribution? My reading of the literature is as follows: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) Expected utility theory: Assumes CARA (CRRA) like utility functions with well behaved properties that are more or less agreed to model the behavior of rational risk-averse decision makers by satisfying certain axioms. The risk-aversion of decision makers can be modelled by Arrow-Pratt with $\alpha=R(X)=-\frac{u''(x)}{u'(x)}$. Using Arrow Pratt, one can calculate a risk-premium $\pi$ if $X$ is normally distributed such that $\pi(X)=\frac{\alpha}{2}\sigma^2(X)$ which derives from the formula of the certainty equivalent. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) Downside risk measures from finance: Since losses (or returns) may not be normally distributed, finance has developed other measures to capture the concept of risk. One of these measures is the semi-variance as a special case of lower partial moments, which is very similar to the idea of mean-variance principle as outlined above: $SV=E((max[0,E(X)-X])^2)$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now the problem is as follows: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Aiming to calculate a risk-premium I can either follow utility theory. If $X$ is normally distributed we get a well contained formula to calculate the risk-premium $\pi(X)$. If not, then what? Would the certainty equivalent be calculated based on numerical integrat? If so, how would this look like for an arbitrary distribution of $X$?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand, I could follow a down-side risk measure approach: Given that I use semi-variance as a concept to measure risk, how could you account for the risk-aversion of customer in order to derive a risk-premium? I would just weight the semi variance with a factor $\tau^{~}SV$ (with $\tau$ being some kind of a proxy for risk-aversion) this wouldn't do the trick, would it? Essentially it would probabily not satisfy the expected utility axioms such as CARA or CRRA do correct?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How to approach this problem then? Are there any alternative strategies that I have overlooked?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;**Addition after update &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now I have also found this &lt;a href=&quot;https://economics.stackexchange.com/questions/9032/risk-premium-in-the-expected-utility-theory&quot;&gt;post&lt;/a&gt; on the matter which would give a solution to my problem - as far as I understand - since it allows $X$ to have a non-zero expected value? This is due to the fact that the taylor approximation is - as it says - only an approximation of the risk premium with regard to various moments of the given distribution $X$. This also explains why the risk-premium can be correctly calculated for the normal distribution which is completely defined trough first and second moment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This brings me to my last question: Considering the risk premium for non-zero expected values this would according to the post listed above also be approximated by the formula $\pi \approx \frac{1}{2}R(w)\sigma^{2}_X$? And the approxmation error for non-normal distributions is then depending on the question how well first and second moment capture the true nature of a distribution?&lt;/p&gt;&#xA;" OwnerUserId="12134" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2017-02-17T21:31:06.640" Title="Certainty Equivalents and Risk Premiums in Expected Utility Theory for Asymmetric Distributions" Tags="&lt;expected-utility&gt;&lt;risk&gt;&lt;risk-aversion&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15477" PostTypeId="2" ParentId="12317" CreationDate="2017-02-16T19:35:46.680" Score="2" Body="&lt;p&gt;The definition of the expenditure measure of GDP is:&#xA;$$GDP_{EXP} \equiv C + I_g + G + X_n$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The definition of the expenditure income measure of GDP is:&#xA;$$GDP_{income} \equiv I_n - I_f - C_c$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As I understand it, $s$ is not part of it. $s$ is defined as the difference between the two measures:&#xA;$$s \equiv GDP_{EXP} - GDP_{income}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Apparently it is also possible to define it with the RIPSAW approach:&#xA;$$GDP_{income} \equiv R + I + P + S + A + W$$&#xA;R = rents, I = interests, P = profits, SA = statistical adjustments (corporate income taxes, dividends, undistributed corporate profits, and W = wages.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And yes, it is useful to calculate GDP with multiple methods. Among other things, it reduces noise in GDP estimates:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Two often-divergent U.S. GDP estimates are available, a widely-used&#xA;  expenditure-side version $GDP_E$ , and a much less widely-used&#xA;  income-side version $GDP_I$ . We propose and explore a “forecast&#xA;  combination” approach to combining them. We then put the theory to&#xA;  work, producing a superior combined estimate of GDP growth for the&#xA;  U.S., $GDP_C$ . We compare $GDP_C$ to $GDP_E$ and $GDP_I$ , with particular&#xA;  attention to behavior over the business cycle. We discuss several&#xA;  variations and extensions&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://link.springer.com/chapter/10.1007/978-1-4614-1653-1_1&quot; rel=&quot;nofollow noreferrer&quot;&gt;Improving U.S. GDP Measurement: A Forecast Combination Perspective&lt;/a&gt; Aruoba, Diebold, Nalewaik, Schorfheide, and Song (2012, &lt;a href=&quot;https://www.aeaweb.org/conference/2013/retrieve.php?pdfid=435&quot; rel=&quot;nofollow noreferrer&quot;&gt;ungated here&lt;/a&gt;)&lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2017-02-16T19:35:46.680" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15479" PostTypeId="1" AcceptedAnswerId="15486" CreationDate="2017-02-17T08:17:29.390" Score="2" ViewCount="335" Body="&lt;p&gt;Economists say that deflation leads people to postpone their consumption because it increases the value of their money and gives them the ability to consume more in the future. But if a consumer saves his money in a bank with a positive interest rate, the value of the money also increases.&#xA;Let's assume we have two situations:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;We have 5 % deflation. The consumer has 1000 dollars. If he postpones his consumption for a year, the real value of 1000 dollars will be &lt;span class=&quot;math-container&quot;&gt;$\frac{1000}{0,99}\doteq1010$&lt;/span&gt;.&lt;/li&gt;&#xA;&lt;li&gt;Now we have a 5 % nominal interest rate. If I put 1000 dollars into a bank, I will have 1050 after one year. Let's assume that we have 3,9 % inflation. Then the future value of my money in today prices is again &lt;span class=&quot;math-container&quot;&gt;$\frac{1050}{1,039}\doteq1010$&lt;/span&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;So why is the deflation considered to be such a big danger for an economy?&lt;/p&gt;&#xA;" OwnerUserId="10492" LastEditorUserId="19689" LastEditDate="2018-10-08T17:46:36.043" LastActivityDate="2018-10-08T17:46:36.043" Title="Deflation and positive real interest rate" Tags="&lt;macroeconomics&gt;&lt;inflation&gt;&lt;deflation&gt;" AnswerCount="1" CommentCount="2" ClosedDate="2017-03-10T08:00:00.387" ContentLicense="CC BY-SA 4.0" />
  <row Id="15480" PostTypeId="1" CreationDate="2017-02-17T10:55:44.117" Score="0" ViewCount="94" Body="&lt;p&gt;I understand how changes in interest rates affect the demand for currency (i.e. foreign exchange), but was wondering whether there is also an effect on its supply. I am hypothesising the following: high interest rates -&gt; lower MPC -&gt; people spend less on imports -&gt; will supply fewer domestic currency in exchange for foreign currency -&gt; reduces supply of currency in the FX market. Does such a hypothesis sound at all credible? Is there another way in which the interest rates can affect the supply of a currency?&lt;/p&gt;&#xA;" OwnerUserId="6782" LastActivityDate="2017-04-23T21:44:53.837" Title="Do changes in the interest rates affect the supply of currency?" Tags="&lt;interest-rate&gt;&lt;foreign-exchange&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="15481" PostTypeId="1" CreationDate="2017-02-17T16:03:23.813" Score="3" ViewCount="596" Body="&lt;p&gt;I'm not very familiar with behavioral economics, but as a recommendation of a teacher I'm reading &quot;A Behavioral New Keynesian Model&quot; by Xavier Gabaix. There's a part that I don't understand, here it goes:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/0Yt75.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/0Yt75.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And the footnote says:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In particular I use the objective (not subjective) expectations. Also, I do not include thinking costs in the welfare. One reason is that thinking costs are very hard to measure (revealed preference arguments apply only if attention is exactly optimally set, something which is controversial). In the terminology of Farhi and Gabaix (2015), we are in the “no attention in welfare” case.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;What does he mean with &quot;This is as in much of behavioral economics, which views behavioral agents as using heuristics, but experience utility from consumption and leisure like rational agents&quot;? Which author says that behavioral agents has utility like rational agents?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks in advance.&lt;/p&gt;&#xA;" OwnerUserId="12129" LastActivityDate="2017-02-17T17:05:49.483" Title="Behavioral economics and utility function" Tags="&lt;behavioral-economics&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15482" PostTypeId="2" ParentId="15481" CreationDate="2017-02-17T17:05:49.483" Score="1" Body="&lt;p&gt;I don't know the paper, but I can make a general point.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In behavioral economics, agents do not arrive at their optimal choice by maximizing a standard expected utility function. They may maximize some function with other characteristics or, alternatively, they use heuristics to make choices. That is, they may end up with a choice that is not optimal in terms of &quot;objective&quot; expected utility. This paper uses this objective expected utility as welfare criterion - with the true probabilities and true outcomes, not the perceived probability weights or perceived outcomes that led to the choice of the agent. The argument behind this approach is that although the agent makes choices according to a perceived world, he experiences utility in the true world. Therefore, instead of using the expected utility perceived when making the choice as a welfare measure, it makes sense to use the &quot;objective&quot; expectation of the objectively experienced utility.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I interpret the footnote without having read the paper: The agent uses subjective probability weights to make choices and incurs 'thinking costs'. The welfare measure ignores these thinking costs.&lt;/p&gt;&#xA;" OwnerUserId="11590" LastActivityDate="2017-02-17T17:05:49.483" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15483" PostTypeId="1" CreationDate="2017-02-17T21:45:41.593" Score="1" ViewCount="199" Body="&lt;p&gt;In an infinite-period alternating offer bargaining game if we suppose the discount factor is $\delta=1/2$, and the increment is $0.01$, what will be the subgame perfect Nash Equilibria?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems that the &quot;proposer proposes $0.66$ and responder accepts&quot; will be a subgame perfect Nash Equilibrium, but are there any other equilibria? How about the case when the proposer offers $0.67$? &lt;/p&gt;&#xA;" OwnerUserId="2801" LastEditorUserId="2776" LastEditDate="2017-02-18T11:35:07.597" LastActivityDate="2017-02-18T11:35:07.597" Title="Alternating offer bargaining game" Tags="&lt;microeconomics&gt;&lt;game-theory&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15484" PostTypeId="1" CreationDate="2017-02-17T22:12:57.310" Score="1" ViewCount="61" Body="&lt;p&gt;This is a basic economics question about scarcity in relation to free goods. The hypothetical question is that if iTunes decided to have free streaming for all their songs, would there still be scarcity for songs and would the incentives change?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm fairly new to these definitions and principles as it is economics 101. My understanding leads me to believe that songs remain scarce, as not all consumers have access to computer and as such to iTunes, and the incentives do change, as more people seeking free tunes will buy computers for the additional factor of the unlimited, free streaming.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Am I correct?&lt;/p&gt;&#xA;" OwnerUserId="12144" LastEditorUserId="2776" LastEditDate="2017-02-18T11:34:42.550" LastActivityDate="2017-02-18T17:17:55.893" Title="Scarcity in Relation to Free Goods" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15485" PostTypeId="2" ParentId="15483" CreationDate="2017-02-18T02:41:39.307" Score="3" Body="&lt;p&gt;Consider the following strategies. In any period a player makes an offer, they offer a share of $0.33$ to the other player, keeping $0.67$ for themselves. In any period a player accepts or rejects an offer, they accept any offer that gives them at least a share of $0.33$ and rejects anything worse.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Clearly, the outcome of these strategies will lead to the immediate acceptance of the offer. All that remains is to check that these strategies form an equilibrium. We do so by appealing to the &lt;a href=&quot;https://en.wikipedia.org/wiki/One-shot_deviation_principle&quot; rel=&quot;nofollow noreferrer&quot;&gt;one-shot deviation principle&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider the perspective of a player deciding to accept or reject. They will not want to deviate from the prescribed strategies only if&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ 0.33 \ge 0.67 \delta \iff \delta \le \frac{33}{67} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, this violates the assumption that $\delta = \frac{1}{2}$. Thus, the given strategies cannot form an equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For characterising other equilibria, see &lt;a href=&quot;https://pure.uvt.nl/portal/files/662572/27157_14207.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;van Damme, Selten and Winter (1990)&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="8595" LastActivityDate="2017-02-18T02:41:39.307" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="15486" PostTypeId="2" ParentId="15479" CreationDate="2017-02-18T13:21:10.983" Score="0" Body="&lt;p&gt;Deflation means decreasing prices, but with the rigidity of wages (although this depends on the country in which you are), it means &lt;i&gt;(i)&lt;/i&gt; higher unemployment rates or/and &lt;i&gt;(ii)&lt;/i&gt; lower profits.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;i&gt;(i)&lt;/i&gt; higher unemployment means less consumption and thus more deflation which drives the economy into a vicious circle.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;i&gt;(ii)&lt;/i&gt; lower profits means lower investment in production capacity or R&amp;amp;D, etc... and also lower dividends, which to me is more desirable than &lt;i&gt;(i)&lt;/i&gt;. Since the majority of people are less exposed to variation in capital income than in wages, but this is political.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this framework, if the central bank plays its counter-cyclical role, key rates should decrease to discourage savings, conditionally to the fact that those are not already too close from 0.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But I would say that in reality, many other determinants must be taken into account. Actually the trajectory of your economic system with its inertia, etc... &lt;i&gt;e.g.&lt;/i&gt;: the fact that this deflation is imported or not;  the fact that the forecasted rentability of investments in alternative production capacities are conditional to high (or at least stable) prices so as to be competitive (example of renewable energies VS a decreasing fuel price); the shareholding structure of the economy under question, etc... Thus it may not be &lt;i&gt;dangerous&lt;/i&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You cannot figure out &lt;i&gt;why the deflation is considered to be such a big dangerous for the economy&lt;/i&gt; with the (partial equilibrium) numerical example you give.&lt;/p&gt;&#xA;" OwnerUserId="10247" LastEditorUserId="10247" LastEditDate="2018-10-08T09:49:37.697" LastActivityDate="2018-10-08T09:49:37.697" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="15487" PostTypeId="2" ParentId="15471" CreationDate="2017-02-18T14:31:38.313" Score="0" Body="&lt;p&gt;In Nicholas Stern (1991)'s &lt;a href=&quot;http://www.jstor.org/stable/2233847?origin=JSTOR-pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;The Determinants of Growth&lt;/a&gt; first equation (I a), without preconceived ideas, one reads&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac{\dot{K}}{K} &#xA;= \frac{d K}{d t} \frac{1}{K}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which means explicitly (in discret values)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$= \frac{K_{t+dt}-K_{t}}{dt} \frac{1}{K_{t}}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If $t$ is in years, and that we are interested in the variation of $K$ over $1$ year (&lt;i&gt;i.e.&lt;/i&gt; $dt=1$), one obtains&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$= -1 +\frac{K_{t+1}}{K_{t}}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Even if the above equality could represent either the variation of a stock or the variation of a flow, the story behind this is about stocks. To summarize&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;$K_{t}$ is the stock of capital in the economy at year $t$&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;$dK = K_{t+dt}-K_{t}$ is a flow of capital occuring at year $t$, differently put an &lt;b&gt;investment&lt;/b&gt; in capital.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;$\dot{K}=\frac{d K}{d t}$ is the &lt;b&gt;absolute dynamic&lt;/b&gt; of investments in capital in economy $\forall t$&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;$\frac{\dot{K}}{K}$ is the &lt;b&gt;relative dynamic&lt;/b&gt; of investments in capital in economy $\forall t$&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Depending on the object you are looking at, it can be both measured in flow or in stock. To know with what you are dealing with, you must understand the story behind equations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To the practice side of the issue, you cannot make realistic analogy between Solow's capital and, say, tractors. The &lt;b&gt;least abusive&lt;/b&gt; perception of $K$ would be cumulated flows of investment in terms of money since, for example in micro-based CGE modelling, it is conceived as representative of the shareholding structure of the economy, and is thus linked to income formation via dividends (see the zero profit condition). In this non-realistic framework, although non-abusively linked to the everyday-life object, $L$ is very similar to $K$, is a self owned stock, and gives right to wages, that are flow objects, as dividends are. Still on the practice side of the issue, the difference between $L$ and labor force is the fact that the former is effectively employed, while the latter is not. Put differently, the link between the two is the labor market, $L$ is a demand, while labor force is a supply, and both form jointly a labor market whose equilibrium is reached via deflation/inflation of wages.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, to my knowledge, the fact that &lt;i&gt; the same factor of production (stock) is employed in more than one activity over a given period (flow).&lt;/i&gt; is not really a neoclassic native notion, I would say, once again when one refers to CGE modelling, because of the capital market clearing condition. It is more a monetary-macro-financial object, and is, &lt;i&gt;e.g.&lt;/i&gt; all what debt is about when dealing with capital. However I do not see any analogy with $L$ in this case.&lt;/p&gt;&#xA;" OwnerUserId="10247" LastEditorUserId="10247" LastEditDate="2017-02-19T08:57:57.137" LastActivityDate="2017-02-19T08:57:57.137" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="15491" PostTypeId="2" ParentId="15484" CreationDate="2017-02-18T17:17:55.893" Score="-2" Body="&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;No, all would be the same. Except that its will monetize the android and iOS networks to make money that way.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Like youtube's model, this is how iTunes might operate&lt;/li&gt;&#xA;&lt;/ul&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="12148" LastActivityDate="2017-02-18T17:17:55.893" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15493" PostTypeId="2" ParentId="14860" CreationDate="2017-02-19T02:40:21.607" Score="2" Body="&lt;p&gt;Suppose you have a dynamic system &#xA;$$ x_{t+1} = Ax_{t} $$&#xA;with a stationary point (or steady state as used in growth or RBC literature), say, $x^*$, i.e. $x^{*} = Ax^{*}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, consider the following question. Starting from an initial value $x_0$, how many paths are there leading to the stationary point $x^*$? If there is an unique path going from $x_{0}$ to $x^{*}$, then your model is well behaved in the sense that you can track the vector of variables, $x_t$, along the transition without worrying which path you are actually on. This is the saddle-path stability case that you are referring to. On the other hand, if the answer is not affirmative, it means that you have at least two routes from $x_0$ to $x^{*}$. There is another case: no matter where you start from you eventually end up at the stationary point $x^{*}$, in which case your model is said to be indeterminate. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So you can think of saddle-path stability as a desirable feature that you would like that your model to manifest in order to analyze the problem at hand. For example, standard RBC models all posses this property. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are some mathematical conditions that ensure the saddle-path stability. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the details and more, check out the section 7.8 (The q-Theory Investment and Saddle-Path Stability) in Introduction to Modern Economic Growth (Acemoglu, 2009).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/d04hZ.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/d04hZ.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ok, I'll try to explain intuitively for the Ramsey model (but it's not rigorous). Suppose that from the first order conditions, you can conclude that the equilibrium is unique and furthermore you can express consumption as a function of capital stock, that is $c_{t} = g(k_t)$, for some (smooth) function $g$. If that is the case, for a given initial capital stock $k_0$, you know how the economy is going to evolve. That is, if we denote the vector of variables by $x_t = (c_t, k_t)$, you know $\{ x_{t}\}_{t=0}^{\infty}$; because &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$t=0: \quad$ $k_0$ is given, and $c_0 = g(k_0)$, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$t=1: \quad$ $k_1 = (1-\delta)k_0 + f(k_0) - c_0$, and $c_1 = g(k_1)$, &#xA;(here $f$ is the production function and $\delta$ is depreciation)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\vdots $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$t=\tau: \quad$ $k_{\tau} = (1-\delta)k_{\tau -1} + f(k_{\tau -1}) - c_{\tau -1}$, and $c_{\tau} = g(k_{\tau})$, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;so on .... &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, suppose the economy loses some of its capital stock for some reason while it was on $x^*=(k^*, c^*)$ and the new capital stock is, say, $k_{\tau}$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where will the economy be with this new capital stock? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Well, we have just claimed that there is a corresponding consumption $c_{\tau}=g(k_{\tau})$, and therefore the economy will jump to the point $x_{\tau}=(k_{\tau}, c_{\tau})$ on impact the shock and then move toward back to steady state $x^*$. You can think of $x_{\tau}$ as the red point in the figure. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, a few remarks on the intuition behind the mathematical conditions ensuring saddle-path stability. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) Note that, in the model we have actually two  variables $c_t$ and $k_t$, but we have assumed  that one of them can be  expressed in terms of the other, so the number of free variables is reduced to one, which is $k_t$ here. Basically, in order to be able to do this, you want to have a smooth curve mapping capital stock to consumption, i.e. $g: \mathcal{R} \to \mathcal{R}$ is a smooth curve (1-dimensional manifold). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) Once the economy is at $x_{1}$ after the shock, you want it go back to $x^*$ and this is related to the number of eigenvalues that are less than one in absolute value.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For precise statements (in a general environment) see Acemoglu as I mentioned before.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regarding rational expectations(RE): it is a solution concept and RE alone does not imply saddle-path stability. &lt;/p&gt;&#xA;" OwnerUserId="12152" LastEditorUserId="12152" LastEditDate="2017-02-22T02:28:58.600" LastActivityDate="2017-02-22T02:28:58.600" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="15495" PostTypeId="1" CreationDate="2017-02-19T17:26:14.323" Score="1" ViewCount="93" Body="&lt;p&gt;My (admittedly very limited) understanding is that free trade is seen by most academics and legislatures in the West as an ideal to strive for.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The theory is that if a man in China can manufacture a ceramic cup cheaper than a man in Stoke-on-Trent then the UK government should not protect the Stoke man from the competition. In any way (AFAICT).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reasoning being that the UK buyers of ceramic cups will benefit from the lower cost of the good from China and presumably that the market remains more efficient.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The societal costs of this approach can be huge. For example, unemployment, lower wages and all the pathologies that are concomitant.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So UK citizens get cheaper ceramic goods on the one hand, but in a socialist system they have to pay for this privilege with the other via taxation to support entitlements and governmental support to mitigate the aforementioned societal effects.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Furthermore the cost of production is often only loosely related to the selling price. So for example hypothetically it is possible that, say, a large UK company, say Debenhams will source ceramic cups from China, but retain the price differential as profit for distribution amongst board members. Thereby making this a redistributively regressive policy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why have Western governments pursued so aggressively this free market model between countries with wildly different economies and laws (cf environmental) without appearing to take into account the &quot;price&quot; that has to be paid for this &quot;market efficiency&quot;?&lt;/p&gt;&#xA;" OwnerUserId="5505" LastEditorUserId="5505" LastEditDate="2017-02-20T09:19:07.993" LastActivityDate="2017-02-20T09:19:07.993" Title="Are academics and policy makers confident that the benefits of free trade outweigh the downsides?" Tags="&lt;free-trade&gt;" AnswerCount="0" CommentCount="5" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15498" PostTypeId="1" CreationDate="2017-02-19T18:30:18.633" Score="7" ViewCount="142" Body="&lt;p&gt;&lt;em&gt;Update.&lt;/em&gt; Cross posted at &lt;a href=&quot;https://stats.stackexchange.com/questions/262864/uniform-bounds-on-rate-of-merging-for-bayesian-learners&quot;&gt;Cross Validated&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a well-known paper, Blackwell &amp;amp; Dubins (1962) show that the posterior probabilities of two Bayesian agents, whose priors agree on events of measure $0$, will become arbitrarily close to each other under an increasing stream of information.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Mathematically, the result is as follows. Let $(\Omega, \mathcal{F}, \{\mathcal{F}_n\}, Q)$ be a filtered probability space with $\mathcal{F}_n \uparrow \mathcal{F}$. Let $P$ be a probability on $(\Omega, \mathcal{F})$ with $Q \ll P$. Then, &#xA;$$d(P^n, Q^n): = \sup_{A \in \mathcal{F}}|P(A \mid \mathcal{F}_n) - Q(A \mid \mathcal{F}_n)| \to 0 \text{ a.s. $Q$ as } n \to \infty.$$&#xA;We say that $P$ and $Q$ &lt;em&gt;strongly merge&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a more recent and also very influential paper, Kalai &amp;amp; Lehrer (1994) introduce the notion of &lt;em&gt;weak merging&lt;/em&gt;. The definition is as above, except the $\sup$ is taken over finite horizon events; tail events are ignored:&#xA;$$w(P^n, Q^n) : = \sup_{A \in \mathcal{F}_{n+1}}|P(A \mid \mathcal{F}_n) - Q(A \mid \mathcal{F}_n)| \to 0 \text{ a.s. $Q$ as } n \to \infty.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For weak merging it is possible to find uniform bounds on the rate of convergence (Fudenberg &amp;amp; Levine, 1992; Sorin, 1999). I am wondering if there are any results in this direction for strong merging.&lt;/p&gt;&#xA;" OwnerDisplayName="user12162" LastEditorUserId="-1" LastEditDate="2017-04-13T12:44:19.590" LastActivityDate="2021-05-14T07:03:25.103" Title="Uniform bounds on rate of merging for Bayesian learners" Tags="&lt;reference-request&gt;&lt;mathematical-economics&gt;&lt;game-theory&gt;&lt;bayesian-game&gt;" AnswerCount="1" CommentCount="4" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="15499" PostTypeId="1" AcceptedAnswerId="15517" CreationDate="2017-02-19T20:46:54.523" Score="0" ViewCount="1007" Body="&lt;p&gt;I'm taking an intro macro course, and my calculus is pretty rusty.  I'm going through some lectures notes right now where they derive the growth rate of capital in the Solow model like so:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/4jOGj.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/4jOGj.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm wondering what the process is for getting to the very first step where they take the derivative with respect to time.  Generally, are there good resources for learning how to do this, as I imagine I'll be doing it a lot?&lt;/p&gt;&#xA;" OwnerUserId="12165" LastActivityDate="2017-02-22T02:17:57.257" Title="Taking the derivative of capital per effective unit of labor in the Solow model" Tags="&lt;macroeconomics&gt;&lt;solow&gt;" AnswerCount="1" CommentCount="4" ClosedDate="2017-02-27T13:05:46.513" ContentLicense="CC BY-SA 3.0" />
  <row Id="15500" PostTypeId="2" ParentId="15455" CreationDate="2017-02-19T21:44:56.013" Score="1" Body="&lt;p&gt;I read through the resource the OP linked to. The authors argue the case for &quot;AI as a new factor of production&quot; as follows:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;But what if AI has the potential to be not just another driver of TFP, but an entirely new factor of production? How can this be? The&#xA;  key is to see AI as a capital-labor hybrid. AI can replicate labor&#xA;  activities at much greater scale and speed, and to even perform some&#xA;  tasks beyond the capabilities of humans. Not to mention that in some&#xA;  areas it has the ability to learn faster than humans, if not yet as&#xA;  deeply. For example, by using virtual assistants, 1,000 legal&#xA;  documents can be reviewed in a matter of days instead of taking three&#xA;  people six months to complete. Similarly, AI can take the form of&#xA;  physical capital such as robots and intelligent machines. And unlike&#xA;  conventional capital, such as machines and buildings, it can actually&#xA;  improve over time, thanks to its self-learning capabilities.&quot;&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Moreover, they say that they have quantified &lt;em&gt;both&lt;/em&gt; approaches: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;As Figure 6 shows, the first scenario is business-as-usual, assuming no AI effect. The second indicates the traditional view of AI as a TFP&#xA;  enhancer where it has a limited impact on growth. The third scenario&#xA;  shows what happens when AI can act as a new factor of production—there&#xA;  is a transformative effect on growth.&quot;&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So the critical issue here is &lt;em&gt;how&lt;/em&gt; do they model &quot;AI as a new factor of production&quot; contrasted to &quot;AI as a TFP enhancer&quot;, in order to get this dramatic difference in effects on growth.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;They provide some related information in the Appendix of this white paper, for example&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;We began with a modified growth model developed by Robin Hanson, professor of economics at George Mason University, Virginia, United&#xA;  States. We looked at the additional increase in growth that would&#xA;  occur as a result of AI by contrasting it with the baseline growth&#xA;  rate. In our model, we defined labor as a continuum of tasks that can&#xA;  either be performed by a human or artificial intelligence—not work&#xA;  solely done by humans. The intent was to introduce intelligent systems&#xA;  as an additional workforce capable of handling activities that require&#xA;  an advanced level of cognitive agility.&quot;&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;but I would want to see much more in terms of the mechanics of economic modelling they applied.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2017-02-19T21:44:56.013" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15501" PostTypeId="1" CreationDate="2017-02-19T21:45:24.637" Score="3" ViewCount="96" Body="&lt;p&gt;Suppose we are using GMM to estimate the model $y=m(x;\theta_0)+u$ (for some function $m$ and $\theta_0 \in\mathbb{R^p}$)  and we are using the moment condition: $\mathbb{E}[g(\theta_0)]=0$ where $g:\mathbb{R^p}\rightarrow\mathbb{R^p}$ so the model is just identified. My question is how do we know that our estimator $\hat\theta$ is not dependent on the weight matrix? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks!&lt;/p&gt;&#xA;" OwnerUserId="11977" LastEditorUserId="264" LastEditDate="2017-02-20T16:24:22.063" LastActivityDate="2017-10-13T14:58:07.353" Title="GMM - when a model is identified" Tags="&lt;econometrics&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="15504" PostTypeId="2" ParentId="15407" CreationDate="2017-02-20T00:01:36.277" Score="5" Body="&lt;p&gt;Material capital is any durable good that is used as a factor of production and, by virtue of being durable, it is gradually consumed in production over a maximum possible duration of a length that is determined by (i) how much a unit of capital is used and (ii) the depreciation rate of a unit of capital. Capital forms by labor and savings (which is in accordance with the labor theory of value) and/or capital forms by chance (which is in accordance with the marginal theory of value). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Imagine, for example, a solitary person that is stranded on a tropical island. To stay alive, that person must eat and, on the particular island, imagine that virtually every bit of edible biomass is a coconut. In order to be able to consume any coconuts, coconuts must be produced. Without any tools, this person must climb a palm tree to obtain a coconut and, once back on the ground, then must find a way to crack it open. If the person has obtained enough coconuts to last long enough for the person to take a day off from climbing trees then the person, by virtue of their coconut savings, can afford to leisure. Yet, perhaps the person decides not to leisure and, rather, decides to produce tools (i.e. to labor) to make coconut production easier. Perhaps the person fashions a pole out of bamboo to knock coconuts from the tree so that the person doesn't have to keep climbing trees, which reduces the amount of work required to produce coconuts and, therein, makes coconut production that much more productive by virtue of the bamboo tool, which is a form of material capital (as it can be used repeatedly to produce coconuts, which cannot be used repeatedly). As Abraham Lincoln (1861) once said, &quot;Labor is prior to, and independent of, capital. Capital is only the fruit of labor, and could never have existed if labor had not first existed.&quot; Yet, capital also forms by chance. To break open the coconuts, the person might use a rock and, perhaps, if there were no rocks on the island that could be used to crack open coconuts then, thanks to misfortune, the person might starve.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Capital cannot be discussed without also discussing tools and technology; they are inseparable. A tool is when capital and a technology coalesce. For example, a makeshift wooden spear is a hunting tool. It is a coalescence of wooden material (capital) and a hunting technology. The wooden object of which the spear is made is material capital, which depreciates at a rate at which the wooden material’s maximum strength decreases. Knowledge about how a wooden object can be used as a spear is a hunting technology. Such technical knowhow is cognitively embodied (in some form or another) in the living body of the tool user, and it is expressed in the body’s behavior, which is behavior that determines how the material object is used (and effectively renders it a tool). This theory has support in the life sciences. (Alfred Marshall [1922] once wrote, “Economics [is] biology broadly interpreted.”)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The phenotype of an organism extends beyond the individual organism, as expressions of an individuated organism’s genes are not contained within that individual organism. Gene expression can be manifest in the behavior of its kith and even in the behavior of another species entirely. “Genes in orchids express themselves phenotypically [as] changes in bee behavior, which result in [a] transference of pollen grains containing those same genes” (Dawkins 1984). The extended phenotype of any individuated organism is the gene expression that extends beyond the embodied physiology of that individual, and it is “less purely biochemical than . . . the conventional local phenotype” (Dawkins 1984).  Among the many kinds of phenomena that can be considered to be of an extended phenotype are artifacts like fabricated shelters and tools. “Caddis larvae live in houses which they themselves build out of stones [or] other material. The form of the house is determined by the behavior of the builder, which is presumably influenced by the builder’s genes” (Dawkins 1984). The genome of a builder is the energetic scaffolding of the behavior of the builder (Hoffmeyer 2014), and such behavior, which is gene expression, determines the form of what the builder builds. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The coalescence of capital and a technology as a tool is a process of semiosis.  A tool is a sign of capital signifying a technology, which is a notion that comes to be more clear in reference to Ferdinand de Saussure’s semiological conception of the (dyadic) sign. The makeshift wooden spear is a sign of capital signifying a technology. The wooden spear is a hunting tool, and a tool is a sign. The wood of which the spear is made is material capital, and capital is a signifier. The knowledge about how the wooden object can be used as a spear is a hunting technology, and a technology is a signified. The wooden spear, which is a hunting tool, is a sign of wooden material capital signifying a hunting technology, and the arbitrariness of the signifier speaks to the old adage that anything can be used as a weapon. Tools are to technology are to capital as signs are to signifieds are to signifiers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Returning to the topic of capital, material capital extends from human capital (e.g. knowledge, skills, &amp;amp; innovation) and financial capital extends from material capital. Financial capital is part of financial infrastructure, which is a tool by which other tools (and material capital commodities) can be obtained by supplying one's saved income (or positive profit in production) rather than one's labor. Human capital is phenotypic, which means there is a genetic component. As Ronald A. Fisher once wrote, &quot;In organisms of all kinds the young are launched upon their careers endowed with a certain amount of biological capital derived from their parents.&quot; (Fisher 1930). Fisher considered the inheriting of household wealth by offspring from their parents to be an extension of a more generalized inheritance process stemming from the inheriting of genes by the offspring from the parents, which is a notion that foreshadowed the Dawkinsian theory of the extended phenotype. Fisher was a protégé of the political economist Leonard Darwin, a son of Charles Robert Darwin. Charles Robert Darwin notably employed the Malthusian population principle from classical political economics (see Malthus 1798) as the architecture for designing his theory of natural selection (see C. Darwin 1860) and, as Karl Marx (1867) once remarked, &quot;Darwin has interested us in the history of nature's technology, i.e., in the formation of the organs [that] serve as instruments of production for sustaining life.&quot; Indeed, Charles Robert Darwin's grandfather, Erasmus Darwin, had written of an &quot;Economy of Vegetation&quot; (1791) and, prior to that, Carolus Linnaeus described all life as an &quot;Economy of Nature&quot; (1749). Indeed, &quot;The ultimate subject matter of biology and economics is&#xA;&lt;em&gt;one&lt;/em&gt;, viz., &lt;em&gt;the life process&lt;/em&gt;&quot; (Daly 1968).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;NOTE: In answering this question, I've borrowed heavily from two draft works of mine that are on my Academia.edu page (i.e. I have not plagiarized whatsoever): &lt;a href=&quot;https://independent.academia.edu/AaronHRubin&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://independent.academia.edu/AaronHRubin&lt;/a&gt;&#xA;The following two links are to the two works of mine from which I'd borrowed:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.academia.edu/28416634/A_Brief_Historical_Survey_of_Economic_Thought_and_the_Life_Sciences&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.academia.edu/28416634/A_Brief_Historical_Survey_of_Economic_Thought_and_the_Life_Sciences&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.academia.edu/29823064/LifeEconomyEnergyandSemiosis_-_working_paper.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.academia.edu/29823064/LifeEconomyEnergyandSemiosis_-_working_paper.pdf&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="11912" LastEditorUserId="11912" LastEditDate="2017-02-24T21:12:08.850" LastActivityDate="2017-02-24T21:12:08.850" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="15505" PostTypeId="2" ParentId="15498" CreationDate="2017-02-20T03:02:50.550" Score="0" Body="&lt;p&gt;This paper by &lt;a href=&quot;http://economics.mit.edu/files/11354&quot; rel=&quot;nofollow noreferrer&quot;&gt;Acemoglu, Chernozhukov and Yildiz (2016)&lt;/a&gt; and the references therein may be of interest. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The results they derive are in a much more limited environment, but I think they still gesture toward the direction you're looking. Otherwise, their literature review should also prove useful.&lt;/p&gt;&#xA;" OwnerUserId="8595" LastActivityDate="2017-02-20T03:02:50.550" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="15506" PostTypeId="1" CreationDate="2017-02-20T13:31:06.260" Score="1" ViewCount="122" Body="&lt;p&gt;I can't find the source, either on the the ECB homepage or any other internet source to verify why German bonds are used as a reference point in the eurozone when talking about risk spreads for other European bonds. &lt;/p&gt;&#xA;" OwnerUserId="12172" LastEditorUserId="8481" LastEditDate="2020-05-03T14:47:47.007" LastActivityDate="2020-05-03T14:47:47.007" Title="Why are German bonds used as the reference for the calculation of Eurozone bond spreads?" Tags="&lt;government-debt&gt;&lt;bonds&gt;&lt;euro-area&gt;&lt;germany&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15507" PostTypeId="2" ParentId="15506" CreationDate="2017-02-20T13:56:42.827" Score="3" Body="&lt;p&gt;&lt;i&gt;German bonds placed as a reference in the eurozone&lt;/i&gt; is a form of tacit understanding and i don't think you will find official conventions about this. This practice comes from market Finance pricing technics, as the &lt;a href=&quot;https://en.wikipedia.org/wiki/Capital_asset_pricing_model&quot; rel=&quot;nofollow noreferrer&quot;&gt;CAPM&lt;/a&gt;, which use a risk (-free-rate) referential to price different kind of assets. Given the higly positive trade balance of Germany, the stability of its revenue base, etc... the country is seen by financing markets as higly creditworthy, &lt;i&gt;i.e.&lt;/i&gt; viewed as the &quot;most risk-free&quot; of the eurozone.&lt;/p&gt;&#xA;" OwnerUserId="10247" LastActivityDate="2017-02-20T13:56:42.827" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15508" PostTypeId="1" CreationDate="2017-02-20T17:01:11.223" Score="1" ViewCount="137" Body="&lt;p&gt;How does one maximize the utility given some budget restriction, an arbitrary number of different goods (with varying utility and prices) and the added condition that exactly X number of items must be bought?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I guess this must be done algorithmically, but I have no idea how.&lt;/p&gt;&#xA;" OwnerUserId="12175" LastActivityDate="2017-02-21T00:39:49.323" Title="Maximize utility given an arbitrary number of goods and the condition that exactly X number of items must be bought" Tags="&lt;utility&gt;" AnswerCount="3" CommentCount="5" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15509" PostTypeId="1" AcceptedAnswerId="15511" CreationDate="2017-02-20T17:50:57.700" Score="5" ViewCount="577" Body="&lt;p&gt;The aimed-for outcome of the protectionist could be said to be the shielding of domestic markets from competition with an &quot;unfair&quot; advantage. For example, an emerging economy might have non-existent workers' rights enabling lower production cost.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, discussions surrounding naive protectionist policies typically descend into &quot;define a biscuit&quot; type arguments. In short: the difficulty in defining the boundaries of tariffs quickly turns arguments to farce.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But there must be other, better ways to achieve the desired outcome. I have read that in the early 2000s Germany &quot;protected&quot; its intra-EU car sales by ensuring EU emissions regulations were closely aligned with the emissions of their own diesel engine technology making market entry by (for example) American cars with big petrol engines more difficult. Whether this is apochryphal or not, the point remains.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Do free-trade economies typically endeavour to protect themselves in ANY way, or does &quot;free mean free&quot; in the minds of these legislatures?&lt;/p&gt;&#xA;" OwnerUserId="5505" LastActivityDate="2017-02-21T11:51:21.570" Title="Do free-trade economies typically offer any protection for domestic markets?" Tags="&lt;free-trade&gt;" AnswerCount="4" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="15510" PostTypeId="2" ParentId="15509" CreationDate="2017-02-20T18:18:48.830" Score="2" Body="&lt;p&gt;I am not sure what you mean by 'free-trade economies', but yes, most countries/trade areas championing the free market do impose all sorts of tariffs. You can read about it on the World Trade Organizations homepage.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.wto.org/english/tratop_e/tariffs_e/tariffs_e.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.wto.org/english/tratop_e/tariffs_e/tariffs_e.htm&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As you pointed out there are all sorts of other tools such as defining specifications for a product that foreign rivals would find difficult to meet in the short term. I would argue that this is frequently difficult to spot as it usually takes the guise of environmental or consumer protection.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2017-02-20T20:41:03.633" LastActivityDate="2017-02-20T20:41:03.633" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15511" PostTypeId="2" ParentId="15509" CreationDate="2017-02-20T18:51:22.927" Score="5" Body="&lt;p&gt;I think the (or at least, a) relevant concept is that of &lt;strong&gt;non-tariff barriers to trade&lt;/strong&gt;. Wikipedia &lt;a href=&quot;https://en.wikipedia.org/wiki/Non-tariff_barriers_to_trade&quot; rel=&quot;noreferrer&quot;&gt;has a nice summary&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let me quote a couple of sections from the article:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Non-tariff barriers to trade (NTBs) or sometimes called &quot;Non-Tariff Measures (NTMs)&quot; are trade barriers that restrict imports or exports of goods or services through mechanisms other than the simple imposition of tariffs. The SADC says, &quot;a Non-Tariff Barrier is any obstacle to international trade that is not an import or export duty. They may take the form of import quotas, subsidies, customs delays, technical barriers, or other systems preventing or impeding trade.&quot; According to the World Trade Organisation, non-tariff barriers to trade include import licensing, rules for valuation of goods at customs, pre-shipment inspections, rules of origin ('made in'), and trade prepared investment measures.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;-&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;According to statements made at United Nations Conference on Trade and Development (UNCTAD, 2005), the use of NTBs, based on the amount and control of price levels has decreased significantly from 45% in 1994 to 15% in 2004, while use of other NTBs increased from 55% in 1994 to 85% in 2004. [...] The need to protect sensitive to import industries, as well as a wide range of trade restrictions, available to the governments of industrialized countries, forcing them to resort to use the NTB, and putting serious obstacles to international trade and world economic growth. Thus, NTBs can be referred as a new of protection which has replaced tariffs as an old form of protection.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So regulatory and similar barriers to trade have become widespread—often as a way to circumvent restrictions on protectionism. &lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2017-02-20T18:51:22.927" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15512" PostTypeId="2" ParentId="15506" CreationDate="2017-02-20T21:31:59.427" Score="0" Body="&lt;ul&gt;&#xA;&lt;li&gt;Germany is the largest Eurozone economy. &lt;/li&gt;&#xA;&lt;li&gt;Most of the time German government bonds has lower interest rates than other large economies such as France or Italy or Spain.  &lt;/li&gt;&#xA;&lt;li&gt;Germany has a liquid bond market, facilitating its use as a benchmark.  &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2017-02-20T21:31:59.427" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15513" PostTypeId="2" ParentId="15508" CreationDate="2017-02-20T22:23:22.427" Score="1" Body="&lt;p&gt;Your problem is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\max U(z_1,...,z_n) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$s.t. \sum p_iz_i \leq I$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;and&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$s.t. \sum z_i = X, \;\;\;  z_i\in N$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So you have an additional linear constraint, &lt;em&gt;but also&lt;/em&gt;, as noted in a comment, the $z_i\in N$ constraint makes this an optimization problem where the decision variables are discrete (specifically integers), meaning that, formally speaking, you don't get to have derivatives.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In practice, many discrete optimization problems are attacked by &quot;pretending&quot; that we can calculate derivatives, (so form the Lagrangian with the two constraints, obtain Karush-Kuhn-Tucker conditions, etc),  obtain the maximizer vector in this way, and then check what happens as we round up or down its elements so that they become integers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You also need to check the budget constraint is not violated by these roundings, and allow only those combinations that don't. Here the budget constraint as inequality is important because the permissible maximizer vector of $z_i$'s most likely won't fully exhaust the budget.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;See &lt;a href=&quot;https://en.wikipedia.org/wiki/Integer_programming&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;  for some introductory bits on Integer Programming.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2017-02-20T22:40:42.097" LastActivityDate="2017-02-20T22:40:42.097" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15514" PostTypeId="2" ParentId="15508" CreationDate="2017-02-20T22:27:43.883" Score="0" Body="&lt;p&gt;Dennis - as it stands, your question is not always possible to answer. At least, not in the way that I think is of interest to you. Specifically, restricting a consumer's choices to some finite, arbitrary set of choices, endowing that agent with some amount of wealth and then necessitating that the consumer purchase a certain amount of goods is not always feasible whenever those goods are discretized.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose some agent $i$ has wealth $w$ and faces choices between goods in the set&lt;br&gt;&#xA;$G \equiv$   {$g_1,...,g_n$} where we assume that we can innumerate over prices s.t. $p_{g1}&amp;lt;p_{g2}&amp;lt;...&amp;lt;p_{gn}$. If we suppose $w&amp;lt;p_{g1}$, then we can't satisfy any type of requirement that this agent must purchase some minimum amount of goods, whether we define the minimum over types or amounts of goods. This is just the most simple example of which I can think to illustrate a point. You could also think in terms of needing to fulfill some minimum requirement of $n$ goods. Further, we could have that agent $i$ faces $w-p(n-1)$&#xA;&#xA;&lt;p&gt;The only 'maximum' agent $i$ can achieve is $U(w)$ since this agent cannot participate in this market. &lt;/p&gt;&#xA;" OwnerUserId="1655" LastActivityDate="2017-02-20T22:27:43.883" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15515" PostTypeId="2" ParentId="15509" CreationDate="2017-02-20T23:25:01.350" Score="2" Body="&lt;p&gt;The only protection that sincere free trade offers is the increased competivity forced by the &quot;natural selection&quot; against foreign competitors.&#xA;Protected economies tend to accumulate competitive disadvantages, which in the long run, may overcome the barriers to trade.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Inserting distortions on the economy is like blocking the natural course of water. Market forces just accumulate until they grow beyond the point were they destroy the barriers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But opening markets does not mean that anybody will collect the benefits. Free trade produces creative destruction of unfit competitors, so they use their influence to distort the market on his favor, with uncompetitive practices, and pressuring governments to introduce distortions favorale to themselves.&lt;/p&gt;&#xA;" OwnerUserId="12179" LastActivityDate="2017-02-20T23:25:01.350" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15516" PostTypeId="2" ParentId="15508" CreationDate="2017-02-21T00:39:49.323" Score="4" Body="&lt;p&gt;Utility maximization problem is &#xA;\begin{eqnarray*} \max_{x_1, x_2, \ldots, x_n} &amp;amp;&amp;amp; u(x_1, x_2, \ldots, x_n) \\ \text{s.t.} &amp;amp;&amp;amp; \sum_{i=1}^n p_ix_i \leq M \\ &amp;amp;&amp;amp; \sum_{i=1}^n x_i = X \\ &amp;amp;&amp;amp; x_i\in\mathbb{Z}_+ \ \ \forall i\in\{1,2,\ldots, n\} \end{eqnarray*} &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we ignore the budget constraint, the equation $\sum\limits_{i=1}^n x_i = X$ has ${X+n-1\choose n-1}$ solutions. List them, sort them from high to low by utility, and then identify the highest one in the sorted list that also satisfy the budget constraint. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If $u$ is strictly increasing, differentiable and quasi-concave on $\mathbb{R}_+^n$, then one can solve the utility maximization problem in the usual way by ignoring the $\sum_{i=1}^n x_i = X$ constraint, and then inspect the integral solutions of $\sum_{i=1}^n x_i = X$ that surrounds the solution of the utility maximization problem, and choose the best amongst them to get the final solution.&lt;/p&gt;&#xA;" OwnerUserId="11824" LastActivityDate="2017-02-21T00:39:49.323" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15517" PostTypeId="2" ParentId="15499" CreationDate="2017-02-21T01:42:26.550" Score="1" Body="&lt;p&gt;I've tried to &quot;fill the blanks&quot;, hope this helps.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\tilde{k} = \frac{K}{AL}$$&#xA;$$\frac{d[\tilde{k}]}{dt} = \frac{d}{dt}\left[\frac{K}{AL} \right] \quad (1)$$ &#xA;Now we use the quocient rule: to differentiate $f(x) = \frac{g(x)}{h{x}}$ (for $h(x) \neq 0$) we can apply the formula $f'(x) = \frac{h(x)g'(x) - g(x)h'(x)}{[h(x)]^2}$. In your problem, $f(x) = \dot{k}$, $g(x) = K$ and $h(x) = AL$, but instead $x$, you have $t$. So, applying the rule in (1), we have:&#xA;$$\frac{d[\tilde{k}]}{dt} = \frac{AL\left(\frac{d[K]}{dt}\right) - K\left(\frac{d[AL]}{dt}\right)}{(AL)^2} \quad (2)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The second term in the numerator has the derivative of a product ($AL$), so we need again to use the appropriate rule: $(f(x)\cdot g(x))' = f'(x)\cdot g(x) + f(x)\cdot g'(x)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, using the rule in (2) we have:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{d[\tilde{k}]}{dt} = \frac{AL\left(\frac{d[K]}{dt}\right) - K\left(L\frac{d[A]}{dt}+A\frac{d[L]}{dt}\right)}{(AL)^2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now we re-write using dot notation - $\dot{x} \equiv \frac{d[x]}{dt}$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\dot{\tilde{k}} = \frac{AL\dot{K} - K(L\dot{A}+A\dot{L})}{(AL)^2} \quad = \frac{AL\dot{K}}{(AL)^2}-\frac{KL\dot{A}}{(AL)^2}-\frac{KA\dot{L}}{(AL)^2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since $\frac{\dot{A}}{A} = g$ and $\frac{\dot{L}}{L} = n$, we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\dot{\tilde{k}} = \frac{\dot{K}}{AL} - Kg -  Kn = \frac{\dot{K}}{AL} -K(n+g)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;ps: I'm not sure why your textbook is using dot notation over $\tilde{k}$ before taking the derivative.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm adding an alternative way to achieve the same result. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Starting with $\tilde{k} = \frac{K}{AL}$, you can rewrite as $K = \tilde{k}AL$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, take log on both sides and remember that $log(ab) = log(a) + log(b)$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$log(K) = log(\tilde{k}AL) = log(\tilde{k}) + log(A) + log(L) \quad (1)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now we are going to take the derivative (in t), using the log rule: if $f(x) = log(x)$, then $f'(x) = \frac{1}{x}$. But now we have to use the chain rule, because all variables are in reality functions of $t$. The chain rule is: if z depends on y and y depends on t, then z depends on t: $\frac{dz}{dt} = \frac{dz}{dy}\frac{dy}{dt}$. Using $log(K)$ as example, we have: $\frac{d}{dt}[log(K)] = \frac{d}{dK}[log(K)]\cdot \frac{d}{dt}[K]$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(1) then became:&#xA;$$\frac{d}{dt}[log(K)] =  \frac{d}{dt}[log(\tilde{k})] + \frac{d}{dt}[log(A)] + \frac{d}{dt}[log(L)]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which is...&#xA;$$\frac{d}{dK}[log(K)]\cdot \frac{d}{dt}[K] =  \frac{d}{d\tilde{k}}[log(\tilde{k})]\cdot\frac{d}{dt}[\tilde{k}] + \frac{d}{dA}[log(A)]\cdot\frac{d}{dt}[A] + \frac{d}{dL}[log(L)]\cdot\frac{d}{dt}[L]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now we substitute all derivatives of logs and use dot notation:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{1}{K}\dot{K} = \frac{1}{\tilde{k}}\dot{\tilde{k}} + \frac{1}{A}\dot{A} + \frac{1}{L}\dot{L} = \frac{\dot{\tilde{k}}}{\tilde{k}} + g + n$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the SS we have $\frac{\dot{\tilde{k}}}{\tilde{k}} = 0$, so:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\dot{K}}{K} = g + n$$&lt;/p&gt;&#xA;" OwnerUserId="12183" LastEditorUserId="12183" LastEditDate="2017-02-22T02:17:57.257" LastActivityDate="2017-02-22T02:17:57.257" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="15519" PostTypeId="2" ParentId="15471" CreationDate="2017-02-21T10:16:47.357" Score="0" Body="&lt;p&gt;To add to Tnerual's answer, even when natural resources are added typically stocks are used, at least in theoretical work. The flow of the used up resource is converted to a stock variable by assuming a fixed percentage of depletion each year (see for example Nordhaus Lethal model of 1992 &lt;a href=&quot;https://www.brookings.edu/wp-content/uploads/1992/06/1992b_bpea_nordhaus_stavins_weitzman.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;)&lt;/p&gt;&#xA;" OwnerUserId="12186" LastActivityDate="2017-02-21T10:16:47.357" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15520" PostTypeId="1" CreationDate="2017-02-21T11:11:26.330" Score="-1" ViewCount="97" Body="&lt;p&gt;I want to know if I have data of house prices of an area in time, what mathematical function will best fit it's graph?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or in other word, what function I could use that in time $t$, $f(t)$ will be a good estimate for house price?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is it like $f(t) = at + b$, or $f(t) = at^2 + bt + c$, or $f(t) = a\ln(t) + b$, or $f(t) = a\exp(t) + b$ or ...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know it depends on many things, but please consider that I just want to get a estimate a regression, and coefficients like $a$, $b$, $c$, ... can be found with analyzing some big data of house prices in past few years.&lt;/p&gt;&#xA;" OwnerUserId="12188" LastEditorUserId="10247" LastEditDate="2017-02-21T13:25:46.293" LastActivityDate="2017-02-21T14:41:32.397" Title="what mathematical function we can use to show house price changes in time?" Tags="&lt;mathematical-economics&gt;&lt;regression&gt;&lt;housing&gt;&lt;reduced-form-estimation&gt;" AnswerCount="2" CommentCount="3" ClosedDate="2017-02-22T16:21:44.637" ContentLicense="CC BY-SA 3.0" />
  <row Id="15521" PostTypeId="2" ParentId="15509" CreationDate="2017-02-21T11:30:25.823" Score="1" Body="&lt;p&gt;In addition to points made in other answers, the costs of transporting goods over long distances can act as a form of protection against imports. How significant they are depends to a considerable extent on the value-to-weight ratio of the goods: the lower the ratio the greater the addition to the total cost of imports.  Also relevant is whether the goods are perishable and so require extra costs of preservation (eg refrigeration of meat). The quality of transport infrastructure is also a factor, and improvements may reduce transport costs but will not eliminate them altogether. Thus transport costs are a natural barrier to trade, which can be added to by poor infrastructure in either the exporting or the importing country.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As an example, &lt;a href=&quot;http://www.nottingham.ac.uk/credit/documents/papers/06-11.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;this study by Kiringai (2006)&lt;/a&gt; found that transport costs added significantly to the costs of some exports from Kenya (see especially p 12).&lt;/p&gt;&#xA;" OwnerUserId="1417" LastEditorUserId="1417" LastEditDate="2017-02-21T11:51:21.570" LastActivityDate="2017-02-21T11:51:21.570" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15522" PostTypeId="1" AcceptedAnswerId="15530" CreationDate="2017-02-21T13:21:37.840" Score="4" ViewCount="869" Body="&lt;p&gt;Background:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In 1932, in the midst of the Great Depression, the small town of Wörgl in Austria successfully experimented with its own local currency (in the form of a stamp scrip) ...  They not only re-paved the streets and rebuilt the water system and all of the other projects on Mayor Unterguggenberger’s long list, they even built new houses, a ski jump and a bridge ... every one of the schillings in stamp scrip created between 12 and 14 times more employment than the normal schillings circulating in parallel. &lt;a href=&quot;http://www.lietaer.com/2010/03/the-worgl-experiment/&quot; rel=&quot;noreferrer&quot;&gt;(Source)&lt;/a&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I would like to understand better what made the currency successful. The article offers this short explanation:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Because a stamp needed to be applied each month (at 1% of face value), everybody who was paid with the stamp scrip made sure he or she was spending it quickly, automatically providing work for others. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;What does it mean to &quot;apply a stamp each month&quot;? Does the scrip lose 1% of its face value every month? Is that the incentive for spending? Isn't that economically the equivalent of a normal currency with high inflation? Why was this experiment so successful, and if it truely was, why haven't we seen more experiments like it?&lt;/p&gt;&#xA;" OwnerUserId="12192" LastActivityDate="2017-02-21T18:37:37.527" Title="What made The Wörgl Experiment successful?" Tags="&lt;currency&gt;&lt;experimental-economics&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15523" PostTypeId="2" ParentId="15520" CreationDate="2017-02-21T14:11:06.753" Score="1" Body="&lt;p&gt;There is no such function. The reason is that time itself is not really driving house prices at all.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Time can be used as a proxy: An older house is more likely to be designed in a way that was modern at the time of construction and has outdated technical standards (heating etc.), which influences the price; Usually economies face inflation, so the nominal price at the time of purchase is likely to be lower; An older house is more likely to cost more in terms of renovation; An older house may have been build in a location that by now turned out to be great resulting in a value increase, but it could have gone the other way too;&#xA;and so on. The relationship between time and value depends on the underlying characteristics of the house. To estimate the evolution of your house price you need to give much more information.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To illustrate, consider two houses build at the same time. House A is small, House B is huge. House A in Aleppo, House B is in cental Tokyo. I think you see the point. Just considering time does not seem to be a smart idea to determine the value of a house.&lt;/p&gt;&#xA;" OwnerUserId="11590" LastActivityDate="2017-02-21T14:11:06.753" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15524" PostTypeId="1" CreationDate="2017-02-21T14:38:03.090" Score="-1" ViewCount="1072" Body="&lt;p&gt;Does profit maximisation always imply cost minimisation ? And &#xA;Does cost minimization always imply profit maximisation ?&#xA;Can we prove both the results ??&lt;/p&gt;&#xA;" OwnerUserId="11254" LastActivityDate="2017-02-21T15:04:57.943" Title="Profit maximisation and cost minimization" Tags="&lt;microeconomics&gt;&lt;profit-maximization&gt;" AnswerCount="1" CommentCount="1" ClosedDate="2017-02-22T09:07:21.563" ContentLicense="CC BY-SA 3.0" />
  <row Id="15525" PostTypeId="2" ParentId="15520" CreationDate="2017-02-21T14:41:32.397" Score="0" Body="&lt;p&gt;This is not an answer, just to complement @Bayesian reply. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;All variables that will affect the housing price &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Money supply&lt;/li&gt;&#xA;&lt;li&gt;housing supply&lt;/li&gt;&#xA;&lt;li&gt;housing demands&lt;/li&gt;&#xA;&lt;li&gt;house type&lt;/li&gt;&#xA;&lt;li&gt;location&lt;/li&gt;&#xA;&lt;li&gt;Property related policies(Taxes, regulation, incentive,etc)&lt;/li&gt;&#xA;&lt;li&gt;Employment rates&lt;/li&gt;&#xA;&lt;li&gt;Salaries&lt;/li&gt;&#xA;&lt;li&gt;Bank interest rates&lt;/li&gt;&#xA;&lt;li&gt;household debts&lt;/li&gt;&#xA;&lt;li&gt;Innovations&lt;/li&gt;&#xA;&lt;li&gt;human sentiments &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Ironically, what drive above is the flow of &quot;time&quot;. But time itself has little effect to the value of the house. TIMING will cause various incidents that cause variance in housing price, e.g. financial crisis. &lt;/p&gt;&#xA;" OwnerUserId="11177" LastActivityDate="2017-02-21T14:41:32.397" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15526" PostTypeId="2" ParentId="15524" CreationDate="2017-02-21T15:04:57.943" Score="1" Body="&lt;p&gt;There is no direct relationship between profit maximisation and cost reduction. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A monopoly can set the profit as high when there is no competition, with little caring of the cost.  In addition, policies incentive may even prevent cost reduction. Product obsolescence will also make cost reduction meaningless. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, capital and forecast will affect the desire of cost reduction. &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Take vinyl record for example, there is little incentive to perform further cost reduction, as the market is niche and there is risk when  &quot;vinyl record fashion&quot; subside.&lt;/li&gt;&#xA;&lt;li&gt;For luxury industry, it is the niche items that drive the demands. Again, cost reduction will hurts the industries. &lt;/li&gt;&#xA;&lt;li&gt;The EpiPen price scandal show that rent seeker can make profit without cost reduction. Again, it is a capitalist dilemma to invest capital to bring down the cost of such product.. &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="11177" LastActivityDate="2017-02-21T15:04:57.943" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15527" PostTypeId="2" ParentId="15522" CreationDate="2017-02-21T16:09:17.147" Score="2" Body="&lt;p&gt;From &lt;a href=&quot;https://de.wikipedia.org/wiki/W%C3%B6rgl#W.C3.B6rgler_Schwundgeld_.28Freigeld.29&quot; rel=&quot;nofollow noreferrer&quot;&gt;German Wikipedia&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Monatlich musste eine Marke zu einem Prozent des Nennwertes der Note gekauft und in ein dafür vorgesehenes Feld auf der Vorderseite des Geldscheins geklebt werden, um ihn gültig zu erhalten.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Which means a stamp had to bought each month at 1% of the face value of the scrip and pasted on the back of the scrip to make it valid.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You are correct to point out that this incentivizes spending just like an inflationary environment.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2017-02-21T16:09:17.147" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15528" PostTypeId="1" CreationDate="2017-02-21T16:31:45.113" Score="2" ViewCount="797" Body="&lt;p&gt;I'm currently reviewing my prof's slides in preparation for an exam. In one of them, he talks about Euler's Homogenous Function Theorem: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Let $f(x_1, x_2, ..., x_n)$ be a function homogenous in degree $\rho$. &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;$$\rho f(x)=\sum_{i=1}^n x_if_i(x)$$&#xA;  Where $f_i(x)$ is the partial derivative with respect to $x_i$&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In the next slide, the following consequence is stated (the slides clearly state that the result is obtained by applying Euler's theorem to Marshallian demand):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;$$\sum_{j=1}^n e_{i,p_j}+e_{i,I}=0$$&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I assume that this is a case where the function is homogenous in degree 0, as the same slide states that, if a demand function is homogenous in degree 0, then there is no monetary illusion. However, I have no idea how this result was derived using Euler's theorem.&lt;/p&gt;&#xA;" OwnerUserId="11945" LastActivityDate="2018-05-04T12:19:07.400" Title="Euler's Homogenous Function Theorem with elasticity" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;" AnswerCount="0" CommentCount="3" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15530" PostTypeId="2" ParentId="15522" CreationDate="2017-02-21T18:37:37.527" Score="3" Body="&lt;p&gt;It was successful because it combined three things at the same time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Firstly, it increased available currency at a time when currency was scarce for any but the rich - so everyone was more solvent.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Secondly, it had a negative interest rate, so the encouragement was to spend quickly.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And thirdly, it was a local initiative, and belonged to the town, at a time that was particularly introspective - isolationist, even.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2017-02-21T18:37:37.527" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15531" PostTypeId="2" ParentId="14019" CreationDate="2017-02-21T19:03:46.563" Score="2" Body="&lt;p&gt;Consider the risk free steady state. In that situation the Euler equation becomes:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \left(\frac{C_{t+1}-b \overline{C_{t}}}{C_t-b \overline{C_{t-1}}}\right)^{-\sigma}=\frac{1}{\beta \cdot (1+r)}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which implies&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \Rightarrow  \ln[C_{t+1}-b \overline{C_{t}}] -\ln[C_t-b \overline{C_{t-1}}] = \frac{\ln[\beta] + \ln[1+r]}{\sigma}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume that in the non-stochastic setting that growth is constant of the form:&#xA;$$ C_{t+1} = \gamma \cdot C_{t}$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that by definition&#xA;$$ \overline{C_{t}} \equiv \frac{1}{t}\sum^t_{\tau=1} C_{\tau}$$&#xA;Under a constant growth rate&#xA;$$ \Rightarrow \overline{C_{t}}=\frac{1}{t}\sum^t_{\tau=1} \gamma^{\tau-t}C_{t} = \frac{C_t}{t} (1+\frac{1}{\gamma-1}) = \frac{C_t}{t} (\frac{\gamma}{\gamma-1})$$&#xA;$$ \Rightarrow \overline{C_{t+1}}= \frac{C_{t+1}}{t} (\frac{\gamma}{\gamma-1}) = \gamma \frac{C_{t}}{t} (\frac{\gamma}{\gamma-1}) = \gamma \overline{C_{t}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \Rightarrow  \frac{\ln[\beta] + \ln[1+r]}{\sigma} = \ln[C_{t+1}-b \overline{C_{t}}] -\ln[C_t-b \overline{C_{t-1}}] $$&#xA;$$ = \ln[\gamma C_{t}-b \gamma \overline{C_{t-1}}] -\ln[C_t-b \overline{C_{t-1}}] = \ln[\gamma]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore the one period growth rate in consumption ($\gamma$) in the non-stochastic model is $$ \gamma = e^{\frac{\ln[\beta] + \ln[1+r]}{\sigma}}  = [\beta(1+r)]^\sigma$$&lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2017-02-21T19:03:46.563" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15532" PostTypeId="1" AcceptedAnswerId="15533" CreationDate="2017-02-21T19:16:01.427" Score="3" ViewCount="1292" Body="&lt;p&gt;Okay consider a game $G$ if a strategy $s_i$ has the following property we call $s_i$ the strictly dominant strategy&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$u_i(s_i,s_{-i})&amp;gt;u_i(s_i',s_{-i}) \\ \forall s_{-i} \ \forall s_i' \epsilon S'_i$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where $s_{i}$ indicates the strategies of players other then $i$ in the game and $S'_i$ is the set for strategies of player $i$ except the specific strategy $s_i$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now let's look at the definition of a weakly dominant strategy&lt;/p&gt;&#xA;&#xA;&lt;p&gt;if a strategy $s_i$ has the following property we call $s_i$ the weakly dominant strategy&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$u_i(s_i,s_{-i})≥u_i(s_i',s_{-i}) \\ \forall s_{-i} \ \forall s_i' \epsilon S'_i \ and \\ \exists s_i' \epsilon S'_i \ such \ that: \ u_i(s_i,s_{-i})&amp;gt;u_i(s_i',s_{-i})$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Okay I believe from these two definitions we can derive that any strictly dominant strategy $s_i$ is also a weakly dominant strategy&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Definition of strict dominance solvable is as follows :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A strict dominance solvable game is a game where the equilibrium outcome is strict dominance equilibrium.&#xA;A weakly dominance solvable games is a game where the equilibrium outcome is weakly dominance equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So It seems like then a strictly dominance solvable game is always a weakly dominance solvable game. Am I wrong?&lt;/p&gt;&#xA;" OwnerUserId="10922" LastEditorUserId="10922" LastEditDate="2017-02-21T19:22:13.927" LastActivityDate="2017-02-21T19:40:31.050" Title="Are strict dominance solvable games weakly dominance solvable?" Tags="&lt;microeconomics&gt;&lt;game-theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15533" PostTypeId="2" ParentId="15532" CreationDate="2017-02-21T19:33:04.177" Score="1" Body="&lt;p&gt;You're right. Let $s^*=(s_1^*,\dots,s_N^*)$ be the equilibrium of a strictly dominance solvable game. Then by definition, &#xA;$$&#xA;u_i(s_i^*,s_{-i})&amp;gt;u_i(s_i,s_{-i})&#xA;$$&#xA;for all $i$, all $s_i\ne s_i^*$ and all $s_{-i}$. This implies that &#xA;$$&#xA;u_i(s_i^*,s_{-i})\ge u_i(s_i,s_{-i})&#xA;$$&#xA;for all $i$, all $s_i\ne s_i^*$, all $s_{-i}$ and with strict inequality for at least some $s_i$ (in fact, for all $s_i\ne s_i^*$). This makes $s^*$ an equilibrium satisfying the weak dominance solvability criterion.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Your quoted definition of &lt;em&gt;strict/weak dominance solvability&lt;/em&gt; makes me a little uncomfortable though. I'd say &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;A game is strict (or weak) dominance solvable if the process of iteratively removing strictly (or weakly) dominated strategies leads to a unique outcome (i.e. only one strategy for each player survives).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="42" LastEditorUserId="42" LastEditDate="2017-02-21T19:40:31.050" LastActivityDate="2017-02-21T19:40:31.050" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="15534" PostTypeId="2" ParentId="9040" CreationDate="2017-02-21T20:35:25.603" Score="1" Body="&lt;p&gt;Consider the standard IS-MP model with horizontal MP. According to (c), the IS remains in the original level. Therefore, the fall in the real interest rate $R_t$ leads to an increase in the output gap $\tilde{Y}_t$. This happens because the opportunity cost of investing is lower. As such, for an unchanged marginal return to capital $r$, investment increases, leading to a deviation of &lt;em&gt;actual&lt;/em&gt; output from &lt;em&gt;potential&lt;/em&gt; output, and therefore to a positive short-term output gap $\tilde{Y}_t$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the IS-MP-PC model, inflation follows a simplified Phillips Curve, which is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Delta \pi_t = v\tilde{Y}_t + \bar{o}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(notation borrowed from Jones, Macroeconomics, 3rd edition).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, in the absence of a cost-push (or supply) shock ($\bar{o}$), deviations in inflation from the target are given by the positive output gap $\tilde{Y}_t$. In consequence, inflation increases.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't really get your second question (is this preventable?). Clearly, a first best is for central banks to correct their models in order to avoid mistakes. This is of course difficult. It requires to identify potential output and to distinguish between aggregate supply and aggregate demand shocks. Not an easy task. &lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-02-21T20:35:25.603" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15538" PostTypeId="1" AcceptedAnswerId="15542" CreationDate="2017-02-22T09:35:54.057" Score="4" ViewCount="590" Body="&lt;p&gt;I am not able to visualize this indifference curve. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I consume only two goods: sugar and milk. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I will prefer a bundle X of sugar and milk over a bundle Y only if $x_{sugar} &amp;gt; y_{sugar}$, and $x_{milk} &amp;gt; y_{milk}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If $Y_{sugar} &amp;gt; x_{sugar}$ and $y_{milk} &amp;gt; x_{milk}$, then I prefer Y bundle over X.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If neither case is true, I am indifferent between the two bundles.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How do I plot this on a graph? I need to solve a question, and I believe being able to draw a graph will be helpful!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is how I visualize it. Is this representation correct? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/5WrRs.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/5WrRs.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="12101" LastEditorUserId="12101" LastEditDate="2017-02-22T15:37:57.270" LastActivityDate="2017-02-28T10:14:28.540" Title="How do I represent this indifference curve graphically?" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;&lt;preferences&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15539" PostTypeId="2" ParentId="13849" CreationDate="2017-02-22T12:02:50.737" Score="2" Body="&lt;p&gt;In effect, the desired real interest rate $R_t$ is &lt;strong&gt;chosen&lt;/strong&gt; by the government (via changes in the nominal interest rate). But it is chosen based in the Taylor rule. The &quot;standard&quot; IS-MP-PC model (as in Jones's &lt;em&gt;Macroeconomics&lt;/em&gt; textbook), is as follows:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;IS&lt;/strong&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\tilde{Y}_t = \bar{a} - \bar{b}\left(R_t - \bar{r}\right)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;PC&lt;/strong&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Delta \pi_t = \bar{v}\tilde{Y}_t + \bar{o}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;MP&lt;/strong&gt; (Taylor rule):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$R_t = \bar{r} + \bar{m}(\pi_t - \bar{\pi})$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the latter equation, the central bank/government choses $R_t$ according to deviations in inflation from the target. As inflation increases, the real interest rate increases. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, according to the Phillips Curve, inflation responds &lt;strong&gt;positively&lt;/strong&gt; to demand shocks ($\tilde{Y}_t$). In consequence, the real interest rate responds positively to $\tilde{Y}_t$. This is why, in the IS-MP diagram (with axis $R_t$ and $\tilde{Y}_t$), the MP has a positive slope.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-02-22T12:25:26.073" LastActivityDate="2017-02-22T12:25:26.073" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15540" PostTypeId="2" ParentId="13848" CreationDate="2017-02-22T12:36:59.630" Score="1" Body="&lt;p&gt;You ask about the &lt;strong&gt;MP&lt;/strong&gt; curve. Let start with the IS:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\tilde{Y}_t = \bar{a} - \bar{b}\left(R_t - \bar{r}\right)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your simplified Taylor rule is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$R^{CB}_t = \bar{r} + \bar{n}\tilde{Y}_t $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And the &lt;em&gt;effective&lt;/em&gt; real interest rate is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$R_t = R^{CB}_t + \bar{p} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, the MP is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$R_t = \bar{r} + \bar{p} + \bar{n}\tilde{Y}_t $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is upward sloping, because $\bar{n}&amp;gt;0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Notice that the investment decision by firms depend on the difference between the &lt;em&gt;effective&lt;/em&gt; real interest rate and the marginal product of capital $\bar{r}$. Thus, the MP curve has to be written in terms of $R_t$ and not in terms of $R^{CB}_t$).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This result holds even before we mention the nominal interest rate. Since the relationship between real and nominal interest rate is linear and &lt;strong&gt;positive&lt;/strong&gt;, the Taylor rule in terms of the nominal interest rate is also upward slopping. But that is not the MP, and it is not what you seem to be asking.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-02-22T12:36:59.630" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15541" PostTypeId="1" AcceptedAnswerId="15613" CreationDate="2017-02-22T13:50:03.120" Score="1" ViewCount="642" Body="&lt;p&gt;My understanding is as follows:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Normal Goods: Income and Substitution effects are both positive.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Inferior Goods: Income effect negative, substitution effect positive. Substitution effect outweighs income effect and so although when the price of an inferior good F decreases (real income increases) and leads to an increase in the quantity of F consumed, this increase is small relative to the decrease in its price due to the substitution effect's magnitude being bigger than that of the income effect.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Giffen Goods:Income effect negative, substitution effect positive. Unlike inferior goods, income effect outweighs the substitution effect.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Please verify whether my understanding, as described above, is accurate. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Additionally, is it correct to assert that the positivity/negativity of the substitution/income effect of a change in price of a good remains the same regardless of whether said good's price increases or a decreases, e.g. regardless of whether the price of a normal good N increases or decreases, its income and substitution effect will always be 'positive'?&lt;/p&gt;&#xA;" OwnerUserId="6782" LastActivityDate="2017-03-02T19:49:12.133" Title="Verification of understanding of the substitution and income effect of normal, inferior and Giffen goods?" Tags="&lt;consumer-theory&gt;&lt;giffen-goods&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15542" PostTypeId="2" ParentId="15538" CreationDate="2017-02-22T16:18:05.833" Score="7" Body="&lt;p&gt;The problem is that there are no indifference &quot;curves&quot; but indifference &quot;areas&quot;. Consider the following graph:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/07Mxd.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/07Mxd.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a reference bundle $A$ (equivalent to $\{2,3\}$), the gray regions indicate the areas of indifference, based on your definition of preferences (the black lines are part of the indifference areas).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, by selecting &lt;strong&gt;any&lt;/strong&gt; bundle, you can find the indifference &quot;areas&quot; by plotting the vertical and horizontal lines across that point. Areas to the North-West and South-East will always be the indifference &quot;areas&quot;.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;For reference, this is the &lt;code&gt;R&lt;/code&gt; code to generate the graph:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;remove(list = ls())&#xA;&#xA;a=2&#xA;b=3&#xA;&#xA;plot(c(0,5), c(0,5), type = &quot;n&quot;, xlab = &quot;Sugar&quot;, ylab = &quot;Milk&quot;, xaxs=&quot;i&quot;, yaxs=&quot;i&quot;)&#xA;rect(0, b, a, 5, border = NA, col = &quot;grey60&quot;)&#xA;rect(a, 0, 5, b, border = NA, col = &quot;grey60&quot;)&#xA;abline(h = b, col = 1, lwd = 2)&#xA;abline(v=a, col = 1, lwd = 2)&#xA;points(a, b, type=&quot;p&quot;, pch=19, col=&quot;black&quot;, bg=NA, cex=2)&#xA;text(1, 4, &quot;Indifferent&quot;,cex = 1.3)&#xA;text(3.5, 1.5, &quot;Indifferent&quot;,cex = 1.3)&#xA;text(1, 1.5, &quot;Worse off&quot;,cex = 1.3)&#xA;text(3.5, 4, &quot;Better off&quot;,cex = 1.3)&#xA;text(2.2, 3.3, &quot;A&quot;,cex = 1.3)&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-02-28T10:14:28.540" LastActivityDate="2017-02-28T10:14:28.540" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="15544" PostTypeId="2" ParentId="12810" CreationDate="2017-02-22T22:25:36.740" Score="1" Body="&lt;p&gt;In general, a steady state in discrete time is that the first difference is zero at some $t=t_0$, and that it remains so: $$y_t-y_{t-1}=x_t-x_{t-1}=0$$ for all $t\geq t_0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence, in a steady state, $y_t$ and $x_t$ are constant at some values $y$ and $x$. Thus, $y=\beta(y+\gamma z)$, which implies $$y=\frac{\beta\gamma z}{1-\beta},$$ and $x=\rho x+y$, which implies $$x=\frac{y}{1-\rho}=\frac{\beta\gamma z}{(1-\rho)(1-\beta)}.$$&lt;/p&gt;&#xA;" OwnerUserId="7582" LastEditorUserId="7582" LastEditDate="2017-02-23T07:43:23.933" LastActivityDate="2017-02-23T07:43:23.933" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15545" PostTypeId="1" AcceptedAnswerId="15552" CreationDate="2017-02-23T01:52:35.330" Score="1" ViewCount="250" Body="&lt;p&gt;I use data (adv. labor and wage) through a nonlinear model to recover the unobserved data (use fsolve in Matlab to solve this system of equations) and run a regression of labor (or wage) on these unobserved data and other observed data. The regression equation that I run is the reduced form of the nonlinear model. Is this a problem?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Two eigenfuctions:&#xA;$\lambda AX = X$ and $\lambda BY = Y$, A and B are given, L and W are the elements in A and B. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I use matlab to solve it for x and y.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can get the regression equation $L = ax + by + cz + \epsilon$ from these two eigenfunctions.&lt;/p&gt;&#xA;" OwnerUserId="6255" LastEditorUserId="6255" LastEditDate="2017-02-24T01:57:41.070" LastActivityDate="2017-02-24T15:59:09.157" Title="Problem of generated regressors" Tags="&lt;econometrics&gt;&lt;regression&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="0" ClosedDate="2017-02-23T23:48:22.427" ContentLicense="CC BY-SA 3.0" />
  <row Id="15546" PostTypeId="1" AcceptedAnswerId="15547" CreationDate="2017-02-23T04:16:13.053" Score="2" ViewCount="112" Body="&lt;p&gt;&lt;strong&gt;Disclaimer: I do not have a formal education in economics&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is the idea of my hypothetical policy: graduated over a period, say about 10 years or longer, the income tax is phased out and a carbon tax is implemented, such that the revenue lost from the income tax is gained by the carbon tax.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Possible strengths:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Increased consumption&lt;/li&gt;&#xA;&lt;li&gt;Increased incentive for the public to invest in renewable energy&lt;/li&gt;&#xA;&lt;li&gt;Increasing the weight of the penalty of wasted fuel.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Possible weaknesses&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Reduction of the tax base&lt;/li&gt;&#xA;&lt;li&gt;Unequal tax burden on oil companies, and those that rely heavily on oil&lt;/li&gt;&#xA;&lt;li&gt;The potential that the graduated increase in carbon tax and decrease in income tax will not be fulfilled (non-cooperation).&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Are there any weaknesses, that I, in my limited economic understanding, have overlooked?&lt;/p&gt;&#xA;" OwnerUserId="12208" LastEditorUserId="108" LastEditDate="2017-02-23T10:00:26.113" LastActivityDate="2017-02-27T12:18:27.850" Title="Are there any drawbacks to a hypothetical climate policy?- Carbon tax for reducing Income tax" Tags="&lt;taxation&gt;&lt;energy-economics&gt;&lt;climate-change&gt;&lt;pigouvian-taxes&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15547" PostTypeId="2" ParentId="15546" CreationDate="2017-02-23T09:58:26.743" Score="3" Body="&lt;p&gt;Prominent economist Greg Mankiw has been a prominent advocate of the kind of change you describe (he invites people to join &quot;The Pigou Club&quot;, named for Arthur Pigou who first proposed these kinds of corrective taxes).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can find a nice, non-technical summary of his arguments &lt;a href=&quot;http://scholar.harvard.edu/files/mankiw/files/smart_taxes.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;. In particular, Makiw deals with some of the weaknesses you identify above and argues that they shouldn't be too much cause for concern.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Wikipedia has an article that lists other prominent economists who have jooined the Pigou Club by publicly advocating for a shift towards carbon or similar taxes (including links to many articles where the issue is disccused. It is &lt;a href=&quot;https://en.wikipedia.org/wiki/Pigou_Club&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2017-02-23T09:58:26.743" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15548" PostTypeId="1" CreationDate="2017-02-23T17:22:35.247" Score="1" ViewCount="32" Body="&lt;p&gt;I am trying to do an analysis of the oil industry, and while doing research I came across the following chart that has one of the factors I want to include: Investment Phase vs Exploitation Phase&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/S1imp.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/S1imp.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The creators cite the US Energy Information Agency, so at least I know where to find the data. However, what I'm not sure is how do the creators of the graph 'know' where the investment phase begins and ends. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My question is:&lt;/strong&gt; How do we know when the industry is in an investment phase? Are we to simply eyeball the graph? Or is there some kind of criterion or statistical heuristic? Perhaps another variable's data is needed?&lt;/p&gt;&#xA;" OwnerUserId="12212" LastEditorUserId="2776" LastEditDate="2017-02-23T17:43:18.993" LastActivityDate="2017-02-23T17:43:18.993" Title="How do We Determine the Start or End of Investment Phase for the Oil Industry" Tags="&lt;macroeconomics&gt;&lt;mathematical-economics&gt;" AnswerCount="0" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="15549" PostTypeId="1" CreationDate="2017-02-23T19:55:53.180" Score="4" ViewCount="112" Body="&lt;p&gt;I have a question about models of repeated principal-agent models.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is this famous piece by Bengt Holmstrom: Moral hazard and observability, 1979, &lt;em&gt;The Bell Journal of Economics&lt;/em&gt;.&#xA;It presents the classical principal-agent model with moral hazard. Papers by Rogerson (ECTA 1985) or Spear and Srivastava (REStud 1987) extend his model to a repeated game.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The principal must choose an incentive-compatible contract. The agent has to choose an action $a$. The agent produces a random quantity $x$ from the distribution $f(x,a)$. The principal does not observe $a$ but it observes $x$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is the following. In these models (and many other papers in this literature), the distribution $f$ is publicly known. Do there exist some results/articles assuming that $f$ is unobserved by the principal (or the agent). Instead, the principal may have a prior belief and update it over time as the game is repeated for instance.&lt;/p&gt;&#xA;" OwnerUserId="4094" LastActivityDate="2017-02-23T19:55:53.180" Title="Principal's beliefs in a repeated moral hazard problem" Tags="&lt;reference-request&gt;&lt;principal-agent&gt;" AnswerCount="0" CommentCount="1" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="15550" PostTypeId="1" CreationDate="2017-02-23T21:07:39.840" Score="0" ViewCount="221" Body="&lt;p&gt;&lt;br&gt; I am supposed to determine if shocking either the income or preferences would &lt;strong&gt;certainly&lt;/strong&gt; change the optimum solution in case of a corner solution?&lt;/p&gt;&#xA;" OwnerUserId="12101" LastEditorUserId="12101" LastEditDate="2017-02-26T19:18:49.457" LastActivityDate="2017-02-26T19:18:49.457" Title="Effects of shocking budget or indifference curves on optimum point?" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15551" PostTypeId="1" CreationDate="2017-02-23T21:25:03.713" Score="0" ViewCount="73" Body="&lt;p&gt;I'm a bachelor student writing a paper on the effects of China's one child policy on future GDP. My professor told me to use growth models. However, I'm unsure which growth model I need to use for this kind of research. I'm only familiar with the Solow model and two-sector models that expands on the Solow model by introducing an R&amp;amp;D sector (I've seen these in their most basic form in one of my classes). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since a major effect of the policy is a decreasing workforce, I think that technological progress (knowledge accumulation) and population growth are important, but a lot of models seem to hold population growth constant?&lt;/p&gt;&#xA;" OwnerUserId="12214" LastEditorUserId="2776" LastEditDate="2017-02-24T07:44:13.803" LastActivityDate="2017-02-24T16:51:36.877" Title="Decreasing labor force and GDP" Tags="&lt;macroeconomics&gt;&lt;economic-growth&gt;&lt;endogenous-growth&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15552" PostTypeId="2" ParentId="15545" CreationDate="2017-02-23T22:16:46.807" Score="3" Body="&lt;p&gt;Edit1: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Based on the additional information you provided I still believe that my recommendations are valid and that you should analyze your missing data, and attempt to fill it before using a regression to create imputed values. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you believe the following assumptions about your imputation regression and data analysis to be true, then you are probably in good shape:&#xA;1. The specification is correct and based on economic theory in the literature.&#xA;2. You correctly identified your missing data as MCAR or MAR. &#xA;3. You correctly ran your regression in matlab. (Note: I use SAS and Stata so I'm not able to provide specific advice on how to do your regression.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Original Answer:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you are using a regression to fill data gaps in another regression you may want to take a step back. By using estimated values alongside actual values you may run into problems when you try to interpret results. Imputation via regression does not store any way to analyze the precision or accuracy of your imputed values. Your final model may be over identified in that your final regression will not account for the uncertainty in the imputed values. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Data gaps - which it sounds like you are dealing with - are a thorn in the side of econometric analysis. When dealing with data that has significant gaps in it, it is very important to ask why these gaps exist. If it is because of bad data collection on the part of something or someone you can influence, you should call that person or company to find out why there is a gap in their data. Chances are that they either know and have a solution, or had no idea and need to find a solution. Of course sometimes they may not be supporting the data set anymore, or in a rare subset of cases simply don't care that their data is bad.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For those times when you absolutely cannot fill data gaps you have several options. One, which is sometimes advisable if you have significant resources at your disposal (ex. a Fortune 500 company) you can collect the data yourself and make a dataset that works for your specific needs (or pay someone to do it for you). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you can't fill the gaps, and you can't collect the data yourself, you are stuck with a set of lesser options. The first step is to indent oft the nature of your missing data.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;MCAR - Missing Completely At Random&#xA;If X is your variable of interest, and contains missing data, and the reason that the data is missing is independent of the non-missing data and independent of other data in the dataset, then your missing data is MCAR. &#xA;MCAR data is pretty harmless, and is common in big datasets. If it comprises less than 5% of your data, you can usually just delete the observations. If it is greater than 5% you will probably want to use imputation (more on this below) to fill the gaps. So if your data were MCAR, your strategy of using regression imputation is actually applicable. However, you should be aware that regression imputation isn't a sure fire strategy. As I mentioned above it can lead to over identification.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;MAR - Missing At Random&#xA;The difference here is that the reason the data are missing is independent with the other data in the variable of interest but may depend on other data in other variables.&#xA;For MAR data you should use multiple imputation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;NON-IGNORABLE DATA&#xA;This type of missing data isn't missing at all. For example, say you want to find out if your son is dating a girl at school. So you give him a questionnaire. It asks: &quot;Are you dating a girl at school?&quot; He leaves the question blank. That would tell me: Yes he may be dating a girl at school. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For non ignorable data, the reason they are missing is dependent on the othe data in the variable. In our scenario, my son's non response was actually a form of implied response. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Non ignorable data should not be imputed nor should they be ignored. Every effort should be made to fill them. If you still cannot fill them you should consider switching data sets or, if that is not feasible, at least make detailed note of these missing data in your research.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;IMPUTATION TECHNIQUES&#xA;For more details on imputation techniques, I recommend consulting your statistical package's documentation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;BASIC IMPUTATION METHODS(for MCAR only):&#xA;Hot decking - This is essentially just swapping in a randomly selected similar value from the non-missing data. I don't recommend this technique. It can lead to false conclusions and is statistically unsound.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Mean substitution - Replace missing values with the mean of the non missing data. This is better than hot decking but not by all that much. It is however an option if you just need an early idea of what your model results might be (ex. for informal paper proposals to colleagues).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regression imputation - This is basically what you did. It has issues with overidentification but is not all that bad in the scheme of things assuming you are using a good model for these estimates.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Multiple Imputation (best option for MAR) - The most rigorous form of imputation requires that you draw your imputations from many datasets, using a particular procedure such as the one from Donald Rubin's An Overview of Multiple Imputation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Many statistics packages have imputation methods programmed in already as they are quite technical to set up.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Overall, you have to balance your amount of missing data, type of missing data, time constraints, and need for highly accurate results, and make a decision on what you want to do. As in the rest of economics, this decision is a trade off.&lt;/p&gt;&#xA;" OwnerUserId="12039" LastEditorUserId="12039" LastEditDate="2017-02-24T15:59:09.157" LastActivityDate="2017-02-24T15:59:09.157" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15553" PostTypeId="2" ParentId="15550" CreationDate="2017-02-23T22:39:50.967" Score="2" Body="&lt;p&gt;I'm not sure what you mean by &quot;shocking the preferences&quot;. But it's very easy to find an example in which the optimal solution is still at the corner after a (small) positive income shock. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose $u(x,y)=\sqrt x+y$, $p_x=p_y=1$, and income is $m=0.1$. Performing utility maximization subject to budget constraint, we get &#xA;$$&#xA;x^*=m,\qquad y^*=0.&#xA;$$&#xA;Now give income a positive shock: $m'=m+\delta$. As long as $\delta\le0.15$, the optimal solution is still going to be a corner solution: spend all the income on  $x$ and zero on $y$. &lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2017-02-23T22:39:50.967" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="15554" PostTypeId="2" ParentId="5694" CreationDate="2017-02-24T01:04:27.390" Score="4" Body="&lt;p&gt;Convex analysis shows up all over the place in economics, and not just in decision theory. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Explicit references to Rockafellar or equivalents show up quite often in theory papers, from the classic &lt;a href=&quot;http://www.jstor.org/stable/3689266?origin=JSTOR-pdf&amp;amp;seq=1#page_scan_tab_contents&quot; rel=&quot;noreferrer&quot;&gt;Myerson (1981)&lt;/a&gt; to, say, &lt;a href=&quot;http://campuspress.yale.edu/dirkbergemann/files/2010/11/limits.pdf&quot; rel=&quot;noreferrer&quot;&gt;Bergemann, Brooks and Morris (2015)&lt;/a&gt;, or &lt;a href=&quot;http://www.laurentmathevet.com/wp-content/uploads/2017/02/MPT.pdf&quot; rel=&quot;noreferrer&quot;&gt;Mathevet, Perego and Taneva (2017)&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://arxiv.org/abs/1409.4150&quot; rel=&quot;noreferrer&quot;&gt;Daskalakis, Deckelbaum and Tzamos (2016)&lt;/a&gt; also use Fenchel-Rockafellar duality to make headway on analysing the problem of a monopolist with multiple goods, which has been a long-standing open problem in economics.&lt;/p&gt;&#xA;" OwnerUserId="8595" LastActivityDate="2017-02-24T01:04:27.390" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15555" PostTypeId="2" ParentId="15551" CreationDate="2017-02-24T09:09:23.550" Score="1" Body="&lt;p&gt;An obvious way to approach this would be to compare projections based on a China without the one child policy (pre 1979 pop growth rates) and on a China with the one child policy (post 1979 pop growth rates). Pop growth rates are constant but different in the two cases.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2017-02-24T09:09:23.550" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15557" PostTypeId="1" CreationDate="2017-02-24T12:18:43.283" Score="0" ViewCount="66" Body="&lt;p&gt;Say I have an augmented growth regression, where my Y is GDP growth, and my Xs are the classical MRW variables, + international aid + corruption + the interaction term between the two.&lt;br&gt;&#xA;Basically, I'm interested in seeing if lower corruption increases the effectiveness of international aid, which means I'd like to see a positive sign on my interaction term.&lt;br&gt;&#xA;However, I also think I should see a negative sign on corruption, as the higher corruption, the lower should growth be.&lt;br&gt;&#xA;Now, my questions:&lt;br&gt;&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Is this possible as I describe it? Can I see a negative component but a positive interaction term? In which case, how should I interpret it?&lt;br&gt;&lt;/li&gt;&#xA;&lt;li&gt;Or is there a reason the coefficient on corruption should be positive, and still indicate that higher &quot;institutional quality&quot; has a positive impact on growth by itself and also in interaction with aid?&lt;br&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="12109" LastEditorUserId="2776" LastEditDate="2017-02-24T12:23:11.207" LastActivityDate="2017-06-26T15:54:25.983" Title="Positive interaction term with one negative component?" Tags="&lt;economic-growth&gt;&lt;regression&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15558" PostTypeId="1" CreationDate="2017-02-24T14:33:40.940" Score="14" ViewCount="8333" Body="&lt;p&gt;Somewhat related to the most recent US elections, I've been researching the whole &quot;white working class&quot; situation, and one strange anomaly has popped up.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When one looks at a graph of productivity (for the US) vs real wages, there is a marked &quot;disturbance in the force&quot; around 1974.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/iCTuo.jpg&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/iCTuo.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(&lt;strong&gt;11/18/18 note:&lt;/strong&gt; A nearly identical graph appears in &lt;em&gt;Scientific American&lt;/em&gt;, Nov 2018, p 61, in an article titled &quot;A Rigged Economy&quot;.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there any agreement among economists as to what caused wage growth to plateau like this?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Update:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I studied the article that &lt;em&gt;luchonacho&lt;/em&gt; suggested, by &lt;a href=&quot;http://www.epi.org/publication/understanding-the-historic-divergence-between-productivity-and-a-typical-workers-pay-why-it-matters-and-why-its-real/&quot; rel=&quot;noreferrer&quot;&gt;Bivens &amp;amp; Mishel (2015)&lt;/a&gt;, and found it interesting, but it didn't directly address my question.  The article was basically a justification for the numbers presented in the above graph and similar presentations, in particular arguing against skeptics that the productivity numbers were real -- that productivity hadn't leveled off with wages.  I'm not able to evaluate these arguments to any significant degree, but at least on the face of it their justification seems sound.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, that article pointed me to an earlier article by &lt;a href=&quot;http://www.epi.org/publication/raising-americas-pay/&quot; rel=&quot;noreferrer&quot;&gt;Bivens, et al (2014)&lt;/a&gt; which &lt;em&gt;does&lt;/em&gt; attempt to identify the factors that caused the change of trajectory of productivity.  I'm still evaluating this article, but it can be noted that:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;This was during the Nixon administration&lt;/li&gt;&#xA;&lt;li&gt;This was during a period of fairly serious &quot;stagflation&quot;&lt;/li&gt;&#xA;&lt;li&gt;Nixon ordered his wage/price freeze in August of 1971&lt;/li&gt;&#xA;&lt;li&gt;The Arab oil embargo began in 1973&lt;/li&gt;&#xA;&lt;li&gt;The US went off the gold standard in 1971&lt;/li&gt;&#xA;&lt;li&gt;The US trade balance went negative in 1972 and has remained mostly negative ever since&lt;/li&gt;&#xA;&lt;li&gt;Union membership, which had been declining since the 50s, began a steeper slide in the 70s&lt;/li&gt;&#xA;&lt;li&gt;OSHA was founded in 1971&lt;/li&gt;&#xA;&lt;li&gt;And, of course, the CEO-to-worker compensation ratio climbed slowly but steadily through the 70s (after being relatively flat for the entire postwar period), then accelerated rapidly in the late 80s&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Which of these factors (or several other ones too &quot;minor&quot; to mention here) is relevant to my question is hard to guess at this point.  The issue is confused by the fact that, though the &quot;knee&quot; in the curve appears to be 1973, that was a period of significant economic turmoil (probably the worst since WWII and before the Bush-era difficulties), so it's not unexpected that the lines would &quot;jiggle&quot; a bit, and thus it's hard to place a date on the actual change of the nature of the economy that caused this phenomenon.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I will continue investigating, and I would appreciate any (constructive ;) ) input.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Further update&lt;/strong&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finished a first review of the Bivens (2014) article, and it didn't have anything real solid to offer.  Several contributing factors were mentioned, but most didn't kick in until the 80s, or later, and the general drift of the article was to propose &quot;fixes&quot; to current conditions rather than explain the triggers that caused the phenomenon in the first place.  The one factor that might have applied early is private sector union membership, as it took a nose-dive in the early 70s.  (This was made up, in part, by a rise in public sector membership.)  And some argument can be made that tax policies had some part in things, though the evidence for this is weak.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, while reviewing the article I went off on a few tangents, exploring statistics that the article did not directly address.  I (a bit to my surprise) found some seeming correlations between the &quot;real wage&quot; fall off and the growth of money supply, the negative balance of payments, and the rise in national debt, all of which changed course in the early 70s, resulting in permanent deviations from historical patterns.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems strange to me that this apparent correlation is not (so far as I know) widely discussed, as one would think that &quot;budget hawks&quot; would zero in on any apparent connection between these factors and wage levels.  (Of course, they might not have noticed, as the same factors appear to be making CEOs quite wealthy.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One thing I haven't found, but which I suspect, is that some changes in the rules for corporate governance may have been a factor.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Still searching.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Tentative conclusion:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In 1971 President Nixon supposedly said &quot;I am now a Keynesian in economics&quot;, after Milton Friedman had previously stated &quot;We are all Keynesians now&quot;.  The main issue at play here was the idea of intentionally running a federal budget deficit to &quot;spur&quot; the economy.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is no single event to point to, but over about 10 years, from 1970 to 1980 tax rates were lowered significantly for some segments of the population -- basically the 1%ers and corporations, and large amounts of Treasury bonds were issued to make up the resulting deficits.  (Prior to Nixon's pronouncement Republicans, in particular, were deficit hawks, but the change in viewpoint gave them &quot;permission&quot; to lower taxes without cutting spending, and similarly allowed Democrats to raise spending without raising taxes.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The result is that the federal budget has been (with the exception of 1998-2001) running (ever increasing) deficits.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/U9c99.gif&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/U9c99.gif&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And, close as my Ouija board can decipher, this has the effect of drawing in a lot of foreign investment which, oddly, upsets the balance of trade in the wrong direction (the balance of trade has been negative since about 1975).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/UTa9q.jpg&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/UTa9q.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This imbalance is commonly blamed on &quot;free trade policy&quot;, but basic economics argues against this -- especially with &quot;free trade&quot; the value of the dollar should self-adjust to the point where exports and imports balance.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of note is the fact that about 31% of the federal debt is held by offshore entities, and (using slightly stale numbers, and assuming that the ratio is relatively steady over time) that amounts to about \$370B of the annual deficit, as compared to the roughly \$500B trade imbalance.  So one can argue that deficit spending accounts for the lion's share of the trade imbalance.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And an important point is that the top income tax bracket (the one that had tax rates reduced from 70% to 35% between 1981 and 1988) accounts for (rather roughly calculated) about \$500B in tax revenue, and presumably would produce much more (let's say another $300B) if taxed at the pre-1981 rate.  (And, to the extent that this increased revenue did not materialize, it's likely that the incredible expansion of the CEO/worker pay ratio would be reversed, as companies judged it more useful to put the money somewhere other than into more taxes.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So my conclusion is that a &quot;Keynesian&quot; tax policy (accompanied by an ever-stronger tendency to under-tax the rich) is what is mostly responsible for the plateauing of real wages, and restoring pre-1981 upper bracket tax rates would likely alleviate much of the problem.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What say you?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(I'll note that I also suspect a change in corporate governance somehow fits in here, but I haven't researched that very much yet.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Update 5 June 2017&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My wife, knowing I'd been interested in this topic, jotted down a reference she'd heard on the radio for a book called &lt;strong&gt;&lt;em&gt;The CEO Pay Machine&lt;/em&gt;&lt;/strong&gt;, by Steven Clifford.  Though I've not attempted to verify any of his assertions the book is published by Penguin/Blue Rider, so I assume it's reasonably honest and accurate.  (It also has some pretty good end notes and a decent index.  However, Clifford's writing style is rather plodding and not well-organized.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Anyway, Clifford claims that, ca 1980, corporate boards were in effect sold a new bill of goods by Michael Jensen and Milton Rock.  These guys put forward a philosophy of corporate management which emphasized giving CEOs &quot;incentives&quot; of various types, vs a simple salary and straight-forward stock options.  They also promoted the idea of comparing CEOs to their peers, in terms of pay, and targeting some Nth percentile of their peer group pay.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These proposals seemed innocent enough, and many corporate boards picked them up (also accounting firms and various consultant groups, as they saw that they could profit from assisting in their implementation).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In theory &quot;pay for performance&quot; seemed good, but it quickly got out of hand.  Obviously, when calculating CEO base pay for your company, you don't target the 50th percentile of &quot;peers&quot; but go for 60, 75, even 90, because clearly you expect your CEO to be exceptional.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Consider, for a minute, what it means if you have a bunch of companies in a &quot;peer group&quot; and, each time CEO pay comes up for a vote in one of the companies, they award the 70th percentile of the group.  It's a spiral, and not a downward one.)  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And various stock bonus schemes strongly encouraged CEOs to play games to manipulate stock prices.  Plus, as it turned out, boards were really lousy at withholding bonuses when they weren't really earned.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, in 1993, Clinton and the Democratic Congress pushed through a tax increase bill that had one tiny loophole -- stock options for CEOs would be exempted from corporate taxes.  This resulted in an explosion of stock option awards, and overall CEO pay jumped from 100x the average worker to 300x almost overnight.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This seems to fairly completely account for the effects seen, in terms of escalating CEO pay and a portion of the lost &quot;working class&quot; jobs/wages.  Unfortunately, the way out of this quagmire is not obvious.  Clifford offers some suggestions, but getting anything through (CEO-owned) Congress will be difficult, to say the least.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Update 30 May 2018&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;The New Yorker&lt;/em&gt; published, in it's May 14, 2018 issue, a review of the book &lt;em&gt;Can Democracy Survive Global Capitalism&lt;/em&gt; (Norton) by Robert Kuttner.  (The review is written by Caleb Crain.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As is the case for many articles in that magazine, the review borders on impenetrable, but it does discuss factors surrounding my issue at considerable length.  Based on the review, the book glorifies the economic system, both US and international, that existed after the Bretton Woods agreement (1944), and &#xA;prior to 1973.  According to Kuttner, 1973 marked &quot;the end of the postwar social contract.&quot;  To quote Crain, &quot;Politicians began snipping away restraints on investors and financiers, and the economy returned to spasming and sputtering.  Between 1973 and 1992, per-capita income growth in the developed world fell to half of what it had been between 1950 and 1973.&quot;  Income inequality increased, the median real income of &quot;working class&quot; Americans fell.  And, significantly, &quot;faith in democracy slipped.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Kuttner/Crain discuss a number of things that went on beginning around 1973 (including the fallout of the Arab oil embargo), but, from the philosophical standpoint they hang the economic turn-about on the return of &lt;em&gt;laissez-faire&lt;/em&gt; philosophy to the political sphere.  Eg, in January, 1974, the US removed the constraints on sending capital abroad, and in 1978 the Supreme Court overturned most state laws against usury.  A litany of effects basically gutted Keynesianism as it had previously existed, and the US economy (and the world's) lost its balance.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(I'll note that this point of view is about 180 degrees different from the Nixon/Friedman &quot;We are all Keynesians&quot; view.  I gather Kuttner regards the Nixon/Friedman postures as false.)&lt;/p&gt;&#xA;" OwnerUserId="12218" LastEditorUserId="12218" LastEditDate="2018-11-09T02:10:39.373" LastActivityDate="2019-02-12T06:28:42.337" Title="Productivity vs real earnings in the US -- what happened ca 1974?" Tags="&lt;productivity&gt;&lt;wages&gt;" AnswerCount="5" CommentCount="16" FavoriteCount="9" ContentLicense="CC BY-SA 4.0" />
  <row Id="15559" PostTypeId="2" ParentId="15557" CreationDate="2017-02-24T14:53:22.330" Score="1" Body="&lt;p&gt;Ignore the other variables. Let $g$ be growth, $C$ corruption and $A$ aid. You look at&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$g = \alpha C + \beta A + \gamma A\cdot C$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You ask, &quot;does &lt;em&gt;lower&lt;/em&gt; corruption increases the effectiveness of foreign aid?&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For this you have indeed to examine the cross-partial derivative&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\partial g}{\partial A\partial C} = \gamma$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is &quot;how growth is affected at the margin by Aid, if corruption changes&quot;... So if &lt;em&gt;lower&lt;/em&gt; corruption increases the effectiveness of Aid, $\gamma$ should be &lt;em&gt;negative&lt;/em&gt;, not positive...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;...&lt;em&gt;if&lt;/em&gt; your corruption index is mapped as &quot;the higher the value of $C$ the higher the corruption&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If your &quot;corruption index&quot; is mapped in reverse (and so in reality it measures &quot;non-corruption&quot;), the anticipated sign reverses also.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="69" LastEditDate="2017-03-28T14:38:36.650" LastActivityDate="2017-03-28T14:38:36.650" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15560" PostTypeId="1" AcceptedAnswerId="15569" CreationDate="2017-02-24T15:08:16.950" Score="3" ViewCount="160" Body="&lt;p&gt;I think about a dynamic problem where social planner maximizes the following utility ;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\underset{c\left(t\right)}{max}\int_{0}^{\infty}u\left(c\left(t\right)\right)e^{-\rho t}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;subject to two constraints&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\dot{K}\left(t\right)=AK\left(t\right)-c\left(t\right)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\dot{S}\left(t\right)=\left(1-S\left(t\right)\right)S\left(t\right)-\gamma AK\left(t\right)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $S(t)$ and $K(t)$ hold for natural capital (seas, lakes, forests etc.) and physical capital respectively. $c(t)$ represents consumption.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this $AK$ model, physical capital generates some wastes which are harmful to natural resource stock with a constant parameter $\gamma$. &#xA;This feature is close to &lt;a href=&quot;https://ideas.repec.org/a/eee/dyncon/v28y2004i6p1149-1157.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Wirl (2004)&lt;/a&gt; in environmental economics literature. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Hamiltonian of the problem is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\mathcal{H}=u\left(c\left(t\right)\right)+\lambda\left(t\right)\left(AK\left(t\right)-c\left(t\right)\right)+\mu\left(t\right)\left(\left(1-S\left(t\right)\right)S\left(t\right)-\gamma AK\left(t\right)\right)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\lambda$ and $\mu$ are co-state variables for physical and natural capital.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Dynamics of co-state variables are &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\dot{\lambda}=\rho\lambda+\mu\gamma A-\lambda A$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\dot{\mu}=\rho\mu-\mu\left(1-2S\right)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In fact, in this model, it is easy to remark that natural capital don't have any &lt;strong&gt;&lt;em&gt;amenity value&lt;/em&gt;&lt;/strong&gt; don't provide any positive utility and it is just like a &quot;sink&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As the social planner just takes into account the negative effect of capital accumulation (it creates wastes), I think natural capital enters in this model as a &quot;cost&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, is it possible to say that $\mu$ could take a negative value as natural capital represents a cost for capital accumulation ? &lt;/p&gt;&#xA;" OwnerUserId="2938" LastEditorUserId="2938" LastEditDate="2017-02-24T19:42:23.767" LastActivityDate="2017-02-25T14:59:52.787" Title="Dynamic Optimization : Resource Stock as a Sink" Tags="&lt;environmental-economics&gt;&lt;economic-growth&gt;&lt;dynamic-optimization&gt;" AnswerCount="1" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15561" PostTypeId="2" ParentId="15558" CreationDate="2017-02-24T15:49:21.887" Score="5" Body="&lt;p&gt;Here is one explanation, albeit focusing on the wider economy, and comparing &lt;em&gt;median wages&lt;/em&gt;. Still the method applies:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/G7aEY.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/G7aEY.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is taken from &lt;a href=&quot;http://www.epi.org/publication/understanding-the-historic-divergence-between-productivity-and-a-typical-workers-pay-why-it-matters-and-why-its-real/&quot; rel=&quot;noreferrer&quot;&gt;Bivens and Mishel (2015)&lt;/a&gt;. In essence, they &lt;em&gt;decompose&lt;/em&gt; labour productivity into its different components (see technical appendix, page 25). These components are three:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Labour share: how much of total product (they use Net Domestic Product, NDP) is paid to workers&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Terms of trade: discrepancies between NDP deflator and CPI. Recall real wages are deflated with CPI, whereas GDP price index include other stuff like price of investment, terms of trade, etc. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Inequality of pay: a rough measure of the difference between mean and median pay. If wages are equally distributed, these two are equivalent.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;If you are interested on &lt;em&gt;mean&lt;/em&gt; wages, then the third component does not apply. The other two do. Thus, a lot of the problem is due to prices issues. As the authors note:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;That is, workers have suffered worsening terms of trade, in which the prices of things they buy (i.e., consumer goods and services) have risen faster than the prices of items they produce (consumer goods but also capital goods). Thus, if workers consumed investment goods such as machine tools as well as groceries, their real wage growth would have been better and more in line with productivity growth. We sometimes refer to this terms-of-trade wedge as the difference between “consumer” and “producer” price trends. (p.6)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-02-24T15:49:21.887" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="15562" PostTypeId="2" ParentId="12949" CreationDate="2017-02-24T16:42:49.067" Score="1" Body="&lt;p&gt;luchonacho's answer is good to keep in mind but it doesn't mean you can't do what you are proposing, only that you should have a good reason for doing so. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since you are only using your estimated variable in case 1 and case 2 I'm going to focus on those.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In both case 1 and case 2 you are estimating a simple linear regression with X as the regressor and y as the dependent variable. This implies that you believe X and Y are related in a strictly linear sense. So your beta hat is telling you the slope of the line between X and Y. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You then raise h to a power of beta hat. I assume h is another variable. Essentially this is just a transformation of h. You are raising every single value stored in h to a power of beta hat. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If that's what you want to do it seems to be a valid way to do it but I'm struggling to interpret what z would mean without knowing how your variables are related. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm also struggling to see why you need to do the transformation in the first place. With a few details on how the variables are related, or perhaps a link to the some of the literature your work is citing I might be able to be of more assistance. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As it stands right now, I would say that your regressions using the variable z are meaningless economically and have significant statistical issues as well. I strongly recommend taking a step back and thinking about your specifications again. &lt;/p&gt;&#xA;" OwnerUserId="12039" LastActivityDate="2017-02-24T16:42:49.067" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15563" PostTypeId="2" ParentId="15551" CreationDate="2017-02-24T16:51:36.877" Score="1" Body="&lt;p&gt;When people talk about growth models, they usually mean some adaptation of the Solow model. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is a pretty ambitious task to take on this project as an undergraduate if you plan to estimate a growth model (it is ambitious for some PhDs). I would recommend looking at the one child policy using a non-econometric approach, and perhaps make reference to literature that ran a growth model that included some mention of the years or policy in question. &lt;/p&gt;&#xA;" OwnerUserId="12039" LastActivityDate="2017-02-24T16:51:36.877" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15564" PostTypeId="1" CreationDate="2017-02-24T18:24:09.670" Score="7" ViewCount="190" Body="&lt;p&gt;It is well documented that women in now developed countries &lt;strong&gt;entered the labour market all thoughout the 20th century&lt;/strong&gt;. As such, female labour participation have consistently increased. For example, this is a table from &lt;a href=&quot;https://dash.harvard.edu/bitstream/handle/1/2643657/Goldin_FemaleLabor.pdf?sequence=4&quot; rel=&quot;noreferrer&quot;&gt;Godin (1977)&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/nHSPf.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/nHSPf.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is a graph from a more  recent &lt;a href=&quot;http://equitablegrowth.org/research-analysis/declining-labor-force-participation-rate-causes-consequences-path-forward/&quot; rel=&quot;noreferrer&quot;&gt;report&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/X5uOP.jpg&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/X5uOP.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, I have the impression that the feudal, or pre-capitalist societies, which were mainly agrarian and textile based, relied heavily on female labour. We can probably all picture housewives working in the field or sawing textiles.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, the question is, &lt;strong&gt;when and why women left the labour market?&lt;/strong&gt; Is this because of a transition from feudalism toward a capitalistic mode of production? Or the shift from agriculture to industry?&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="1417" LastEditDate="2017-02-25T12:45:43.510" LastActivityDate="2020-08-06T11:02:42.453" Title="When and why women left the labour market?" Tags="&lt;labor-economics&gt;&lt;development-economics&gt;&lt;history&gt;" AnswerCount="3" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15566" PostTypeId="1" CreationDate="2017-02-24T22:10:38.643" Score="5" ViewCount="165" Body="&lt;p&gt;I'm not an economist, but rather an applied mathematician working in control theory. I've recently been watching Berkeley's intro to econ course in a personal project to better understand economics and finance. The first few lectures are on linear supply-demand curves and how they create price equilibria. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To wit, suppose $\sigma(p)$ and $\delta(p)$ and the quantity supplied and demanded at price $p$ resp. Then the assumption of linearity implies&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \sigma(p) = S_\sigma p+\sigma_0,\ \ \delta(p) = -S_\delta p+\delta_0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(this is my notation). The numbers $S_{\sigma,\delta}$, $\delta_0,\sigma_0$ are presumed positive and correspond to the slope (what I believe is called &quot;elasticity&quot; in econ jargon) and the intercepts, which I've interpreted as the amount supplied and demanded at $p = 0$ (e.g. how much people are willing to supply or would demand if the good were free). Clearly we assume $p \geq 0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The equilibrium is met when supply and demand are equal--$\delta = \sigma$--and give the equilibrium price&#xA;$$&#xA;p_e = \frac{\delta_0-\sigma_0}{S_\delta+S_\sigma}.&#xA;$$   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This much is trivial to a real economist. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Now to the interesting part:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Through the lecturer explaining how an out of equilibrium price eventually comes to equilibirium, I recognized the basic idea of feedback at work: the change in price is forced by the &lt;em&gt;signed difference&lt;/em&gt; between supply and demand. I propose this is modeled by the equation&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\dot{p} = k(\delta-\sigma),&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;or exactly a feedback control law ($P$-controller) with feedback gain $k$. Furthermore, since we assume the supply and demand curves are linear,   the entire equation is now a linear differential equation&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\dot{p} = k(\delta_0-\sigma_0)-k(S_\delta+S_\sigma)p.&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The equilibrium occurs when $\dot{p} = 0$ and is &lt;em&gt;identical&lt;/em&gt; to that obtained using the graphical method. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But wait--there's more! Since we now have a differential equation, we can get a time-domain solution:&#xA;$$&#xA;p(t) = e^{-t/\tau}p_i+p_e(1-e^{-t/\tau})&#xA;$$&#xA;Here $p_i$ is the initial (out-of-equilibrium) price, $\tau = \frac{1}{k(S_\delta+S_\sigma)}$, and $p_e$ is the equilibrium price. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This implies that not only can we predict what equilibrium prices will be,  but we can also, subject to understanding $k$, predict the amount of time it will take to settle into the equilibrium. In fact, the form of this equation means that equilibrium is asmyptotic ($p_e = p(t= \infty)$) and percentages--63%, 86%, 95%, etc. for $t/\tau = 1,2,3,$ etc.--of equilibrium will be obtained. $t/\tau = 6$ is a good approximation of actual equilibrium (99.8%), so we gain the ability to state &lt;em&gt;how long&lt;/em&gt; it will take for a price initially at $p_i$ to settle to $p_e$ (call this $t_e$, the &quot;equilibirum time&quot;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;t_e \approx \frac{6}{k(S_\delta+S_\sigma)}.&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Thoughts on $k$&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So what is $k$ really? The short answer is I don't know. Mathematically it is a feedback gain, but that's not really so helpful. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It has the units of price/(quantity$\cdot$time), so I have pulled it into two factors $k = f_t/S_X$. I suppose $f_t$ to be the frequency at which transactions are made of the good. It makes sense that a less often traded good will reach equilibrium more slowly than a more often traded good. $S_X$ has the units of $S_{\delta,\sigma}$ but I have no good interpretation.  I've considered that we might have $S_X \approx S_\delta + S_\sigma$ to produce $\tau \approx 1/f_t$ but haven't got much farther than this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;The Bottom Line&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think I've found an interesting interpretation of supply-demand dynamics in terms of control theoretic principles, namely proportional feedback. Unfortunately I am so unknowledgeable in econ that I'm unable to know whether or not this is a fruitful line of inquiry which I should pursue, or whether I have just reconstructed a longstanding theory. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can anyone help provide some context?&lt;/p&gt;&#xA;" OwnerUserId="12219" LastActivityDate="2017-03-13T13:09:40.207" Title="Can Linear Supply-Demand Equilibria Be Understood as a Feedback-Control Process?" Tags="&lt;supply-and-demand&gt;&lt;elasticity&gt;&lt;price&gt;" AnswerCount="2" CommentCount="8" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15569" PostTypeId="2" ParentId="15560" CreationDate="2017-02-25T14:59:52.787" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;Then, is it possible to say that $\mu$ could take a negative value as natural capital represents a cost for capital accumulation ?&quot;&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;No. $\mu$ can be thought of as the shadow price of natural resources. Being a &quot;price&quot;, it has to be non-negative.&#xA;Note that if we set $\mu=0$ the problem reverts back to the standard model, which has an intuitive explanation: if &quot;we don't care&quot; about natural resources, their &quot;price&quot; is zero.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To see this from another route, for the standard CRRA utility function&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$u(c) = \frac {c^{1-\theta}-1}{1-\theta}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;we would get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\dot c}{c} = \frac{1}{\theta}[A-\rho] - \frac{1}{\theta}\frac{\mu}{\lambda}\gamma A$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So if $\mu &amp;lt;0$ we would obtain a &lt;em&gt;higher&lt;/em&gt; consumption growth rate, which doesn't sound very plausible if by  $\mu &amp;lt;0$ we would want to express that &quot;we care&quot; about natural resources and so we would &lt;em&gt;lower&lt;/em&gt; capital accumulation that hurts them, and consequently &lt;em&gt;lower&lt;/em&gt; the consumption growth rate.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2017-02-25T14:59:52.787" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15571" PostTypeId="1" CreationDate="2017-02-25T16:24:29.460" Score="1" ViewCount="496" Body="&lt;p&gt;In my Advanced Macro script, the professor says take TSA1 of the following equation:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$(1+g)(1+n)k_{t+1} = sk^\alpha_{t+1} + (1-\delta)k_t$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $g$ is technological progress, $n$ population growth, $k$ capital per effective labour (AL). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the class we work with discrete time. The results don't seem to make sense to me - could anyone guide me how to take the TSA in this particular case?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The $k_{t+1}$ means subscript and thus capital per AL at time $t+1$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT: TSA around the steady state.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Many thanks!&lt;/p&gt;&#xA;" OwnerUserId="12228" LastEditorUserId="8595" LastEditDate="2017-02-25T16:33:59.863" LastActivityDate="2017-02-25T17:03:27.480" Title="Taylor Series Approximation around steady state in Solow" Tags="&lt;macroeconomics&gt;&lt;steady-state&gt;&lt;solow&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15572" PostTypeId="2" ParentId="15571" CreationDate="2017-02-25T17:03:27.480" Score="2" Body="&lt;p&gt;The steady-state value $k^*$ must be a fixed point :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$(1+g)(1+n)k^* = s(k^*)^{\alpha} +(1 - \delta) k^*$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Taking the difference between this equation and the dynamic one :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$(1+g)(1+n)(k_{t+1} - k^*) = s((k_{t+1})^{\alpha} - (k^*)^{\alpha}) +(1 - \delta) (k_t - k^*)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now if you denote by $d_t = k_t - k^*$ the distance to steady-state, this gives :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$(1+g)(1+n)d_{t+1} = s((k_{t+1})^{\alpha} - (k^*)^{\alpha}) +(1 - \delta) d_t$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$(k_{t+1})^{\alpha} = (k^* + d_{t+1})^\alpha = (k^*)^\alpha + \alpha d_{t+1} (k^*)^{\alpha - 1} + o (d_{t+1})$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Here was the Taylor development.) So that finally, this equality holds approximately around steady state ($d_t$ small):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$(1+g)(1+n)d_{t+1} = \alpha s (k^*)^{\alpha - 1} d_{t+1} +(1 - \delta) d_t$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From the steady state condition you can also compute (assuming that $ng &amp;lt;&amp;lt; n+g$):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$(k^*)^{\alpha -1} = \frac{n+g+\delta}{s}$&lt;/p&gt;&#xA;" OwnerUserId="11629" LastActivityDate="2017-02-25T17:03:27.480" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15574" PostTypeId="1" CreationDate="2017-02-25T21:02:08.110" Score="1" ViewCount="1751" Body="&lt;p&gt;Can a firm have a negative turnover during a period of time? I'm asking this because I couldn't find any details on the web.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am working with a data table that holds a lot of firms and their turnovers for each month. Some of them have negative turnover for one or more of the months.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is that possible? How does a negative turnover work? How does it appear in the first place?&lt;/p&gt;&#xA;" OwnerUserId="12231" LastEditorUserId="1601" LastEditDate="2017-02-26T07:48:56.507" LastActivityDate="2017-04-27T09:07:14.373" Title="Can a firm have a negative turnover during a period of time?" Tags="&lt;accounting&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="15575" PostTypeId="2" ParentId="15574" CreationDate="2017-02-25T21:34:20.360" Score="1" Body="&lt;p&gt;By issuing credit notes in the period higher in value than the invoices of the period. Typically, such credit notes correct mistakes or award overall discounts related to past periods, so they mess data up.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2017-02-25T21:34:20.360" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15576" PostTypeId="2" ParentId="15574" CreationDate="2017-02-25T23:14:52.270" Score="3" Body="&lt;p&gt;One possible circumstance relates to firms undertaking long term contracts (eg for building or engineering work). Where a contract is uncompleted at the end of a period, the firm may (depending on its accounting policies) include in its turnover an amount reflecting its assessment of the work in progress.  Sometimes unforeseen difficulties in completing a contract will subsequently come to light, and it may become necessary to include an offsetting reduction within turnover for the next period. If the contract is a large proportion of the firm's activity, then this could result in overall turnover for that period being negative.&lt;/p&gt;&#xA;" OwnerUserId="1417" LastActivityDate="2017-02-25T23:14:52.270" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15579" PostTypeId="1" CreationDate="2017-02-26T08:57:41.003" Score="1" ViewCount="178" Body="&lt;p&gt;I was wondering if anybody knows how input distance functions (IDF) and output distance functions (ODF) relate to each other. One of the advantages of distance functions over cost and revenue functions is that they don't require the assumption of cost-minimizing or revenue-maximizing behavior. Thus, I thought the estimated coefficients - and thus measures like economies of scale - of IDFs and ODFs should be similar. However in my empirical example, I obtain unreasonably high economies of scale for the IDF (about 3.2) and quite reasonable scale economies for the ODF (about 1.25). Can anybody think of an explanation for this?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you very much in advance, every hint or thought will be highly appreciated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Stefan&lt;/p&gt;&#xA;" OwnerUserId="12236" LastActivityDate="2017-02-26T08:57:41.003" Title="Relationship Input Distance Function and Output Distance Function" Tags="&lt;production-function&gt;&lt;regression&gt;&lt;input-output&gt;&lt;economies-of-scale&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15581" PostTypeId="1" CreationDate="2017-02-26T21:20:25.160" Score="1" ViewCount="86" Body="&lt;p&gt;For example, if the consumption of goods with negative externalities of consumption were reduced to the socially optimum amount, thus eliminating the social welfare loss, would that directly cause economic growth?&lt;/p&gt;&#xA;" OwnerUserId="12242" LastActivityDate="2017-02-27T21:23:04.173" Title="Does a social welfare gain cause economic growth?" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;" AnswerCount="0" CommentCount="5" ClosedDate="2017-02-28T20:18:31.827" ContentLicense="CC BY-SA 3.0" />
  <row Id="15582" PostTypeId="2" ParentId="12235" CreationDate="2017-02-26T23:24:58.167" Score="2" Body="&lt;p&gt;I don't think it is true in a standard public good economy the question is referring to. Consider the following counterexample:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose $I  = \{1,2\}$ and utility of the individual $i$ depends on his consumption of public good $(G)$ and private good $x_i$: $u_1(G, x_1) = 2\sqrt{G} + x_1$ and $u_2(G, x_2) = 2\sqrt{G} + x_2$, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, the CRS technology used for production of public good uses private good as input:&#xA;$G = f(x_0) = x_0$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the society has only 4 units of private good in the beginning, then the set of feasible allocations can be written as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\{(G, x_1, x_2)\in\mathbb{R}^3_+: G+x_1+x_2 = 4\}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Notice that the allocation $a_1 = (G, x_1, x_2) = (1,3,0)$ is Pareto efficient, but does not maximize the sum of utilities. The reason is that allocation $a_2 = (G, x_1, x_2) = (4,0,0)$ yields the higher sum.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\color{blue}{u_1(1,3) + u_2(1,0)} = 5+2 =7 \color{blue}{&amp;lt;} 8 = 4 + 4 = \color{blue}{u_1(4,0) + u_2(4,0)}$. &lt;/p&gt;&#xA;" OwnerUserId="11824" LastActivityDate="2017-02-26T23:24:58.167" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="15583" PostTypeId="1" AcceptedAnswerId="16308" CreationDate="2017-02-27T07:11:47.760" Score="0" ViewCount="105" Body="&lt;p&gt;I was reading this Fortune article (&lt;a href=&quot;http://fortune.com/2016/11/14/donald-trump-victory-dollar-inflation/&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://fortune.com/2016/11/14/donald-trump-victory-dollar-inflation/&lt;/a&gt;) and came across this confusing quote:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;'Clearly the market has settled on a 'buy dollar' theme on the basis there will be a debt-fueled U.S. fiscal binge that will push up inflation,' TD Securities European Head of Currency Strategy Ned Rumpeltin said. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;and the start of the article says that &quot;the risk of faster inflation and wider budget deficits...sent Treasury and other benchmark global yields shooting higher.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why would this be the case? Shouldn't it be the opposite (higher inflation--&gt;less valuable dollar)? Or are markets anticipating the Fed to more aggressively raise the interest rate?&lt;/p&gt;&#xA;" OwnerUserId="12248" LastActivityDate="2017-04-19T05:55:06.397" Title="Why would increased inflation increase the value of the dollar and bond yields?" Tags="&lt;inflation&gt;&lt;federal-reserve&gt;&lt;bonds&gt;&lt;foreign-exchange&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15584" PostTypeId="1" CreationDate="2017-02-27T11:38:52.687" Score="1" ViewCount="19" Body="&lt;p&gt;I have a data set (about 60 observations for each variable) for monthly operating income for a Japanese company denoted in EUR, USD, and JPY, and their respective currencies. I believe there is linear relationship between the currencies and the respective operating income denoted in the currencies. However, the first differences in operating income and currencies are random.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is the best way to forecast the exposure of the future short-term month's operating income?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have translated the foreign income to JPY and added them together with their domestic operating income, and then use moving average, weighted moving average and trend line to forecast the next month (into the future).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have also used the first differences/increments of the operating incomes and their respective currencies to make them stationary, and to find the regression and coefficient. However, I don't know how to use the results to forecast.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are there any other models that produce better outcomes for this fairly limited sample set?&lt;/p&gt;&#xA;" OwnerUserId="11116" LastEditorUserId="11116" LastEditDate="2017-02-27T11:51:41.470" LastActivityDate="2017-02-27T17:18:05.180" Title="Forecasting future currency exposures" Tags="&lt;currency&gt;&lt;finance&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15586" PostTypeId="2" ParentId="15546" CreationDate="2017-02-27T12:18:27.850" Score="2" Body="&lt;p&gt;I think it's broadly a good idea; but as you've asked specifically for the downsides, here you are:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Having a steadily increasing carbon tax can actually accelerate the rate of investment in fossil fuel extraction, thus strengthening that lobby. That's because, with forward visibility of higher future carbon prices, it's better to extract now than in a decade's time.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Having a constantly-changing tax basis adds uncertainty and administrative complexity.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Tax revenue would decrease as greenhouse-gas emissions decline, depleting the public purse.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;It adds delay. We need rapid action &lt;strong&gt;now&lt;/strong&gt;, so there's no good reason to wait a decade before a carbon tax goes into full effect.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="44" LastActivityDate="2017-02-27T12:18:27.850" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15587" PostTypeId="1" AcceptedAnswerId="15588" CreationDate="2017-02-27T13:16:24.860" Score="0" ViewCount="64" Body="&lt;p&gt;While looking at debt to GDP ratio of various countries, I had difficulty with different figures on different websites.&#xA;Look at this which shows China's debt to GDP ratio as 43.9%:&#xA;&lt;a href=&quot;http://www.tradingeconomics.com/china/government-debt-to-gdp&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.tradingeconomics.com/china/government-debt-to-gdp&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then there are many other links which show China's debt as 250% of GDP.&#xA;&lt;a href=&quot;https://www.theguardian.com/business/2016/jun/16/chinas-debt-is-250-of-gdp-and-could-be-fatal-says-government-expert&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.theguardian.com/business/2016/jun/16/chinas-debt-is-250-of-gdp-and-could-be-fatal-says-government-expert&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What am I missing here?&lt;/p&gt;&#xA;" OwnerUserId="12255" LastActivityDate="2019-09-07T04:28:12.580" Title="Confusion regarding debt to GDP ratio" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;&lt;government-debt&gt;&lt;china&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15588" PostTypeId="2" ParentId="15587" CreationDate="2017-02-27T13:19:03.673" Score="2" Body="&lt;p&gt;The answer is in the the first line and title of the articles. Not all debt is government debt. One calculation also includes household and corporate debt.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2017-02-27T13:33:15.827" LastActivityDate="2017-02-27T13:33:15.827" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15592" PostTypeId="2" ParentId="15584" CreationDate="2017-02-27T17:18:05.180" Score="2" Body="&lt;p&gt;I believe that you may be looking at a spurious relationship. You are looking at the same data transformed by a scaling factor (the currency) and regressing it on itself. Of course they will be related. If they weren't scaled, they would be perfectly co-linear. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What you really want to know is if there is an effect of changes in the relative value of Yen to USD or Euros on the operating income of the company. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You should start by visualizing this relationship by graphing it. Graph the relative value of Yen in your time series, then graph operating income in your time series. Do they move together? Look for structural breaks. For instance, they may have only begun to move together in the last year, that can really mess up an econometric model if you don't account for it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;After you have finished analyzing it graphically, I suggest reading up on co-integration and the Engle-Granger method. Some literature that are good places to start are: Stock and Watson(1988), and Engle and Granger(1987). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This part of time series econometrics enables you to work with variables that are NOT STATIONARY. One problem with first-differencing such as you mentioned in your question, is that it throws away the very relationship you want to know about. The Engle Granger method enables you to analyze the relationships that matter economically, and is still statistically sound.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The world of time-series economics is a lot of fun, but make sure you stay grounded in the economics behind your data. Don't ignore the little things in your data, they may be the most meaningful. Don't be surprised if the relationship you thought was important actually is not important. That tells you just as much as if it is!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There's so much to talk about with the fascinating area you are delving into but I hope this can be of interest to you. &lt;/p&gt;&#xA;" OwnerUserId="12039" LastActivityDate="2017-02-27T17:18:05.180" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15595" PostTypeId="1" AcceptedAnswerId="22152" CreationDate="2017-02-28T02:22:56.683" Score="2" ViewCount="115" Body="&lt;p&gt;I am interested in the cases where a decision maker possesses a multiattribute utility function ($u$) of the form:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$u(x) = \sum\limits_{i=1}^{n} u_i(x)$, with $x=(x_1, \ldots, x_m)$, and where $u_{i \in [1, n]}$ is a multiattribute nonlinear utility function.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In particular, what is their relevance in microeconomics, utility theory, and decision-making in general? Are there any examples or references?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks.&lt;/p&gt;&#xA;" OwnerUserId="12263" LastEditorUserId="12263" LastEditDate="2017-03-03T05:11:13.733" LastActivityDate="2018-05-25T20:54:37.270" Title="Additive multiattribute nonlinear utility functions" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;preferences&gt;&lt;decision-theory&gt;&lt;expected-utility&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="15596" PostTypeId="1" CreationDate="2017-02-28T02:25:13.717" Score="4" ViewCount="221" Body="&lt;p&gt;Take a specific example: Japan.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the last several years, the central bank of Japan has eased monetary supply for many trillions of dollars, but the CPI decreased in 2016.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question: is there any negative effect for Japan to ease so much money?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My logic: 'printing' money have an inflationary effect, so if you print too much money, the CPI will rise high and that is simply bad. However, since the CPI is decreasing even though Japan eased so much money, I wonder there should be no problem for 'printing' even more so long as the CPI does not rise?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But the result of my logic sounds ridiculous. I believe the productivity determines the wealth of a country, but from my logic, if you can 'print' money without inflation, you will be rich too.&lt;/p&gt;&#xA;" OwnerUserId="12262" LastActivityDate="2017-03-02T12:51:22.890" Title="During deflation, is there any risk on 'printing' money?" Tags="&lt;quantitative-easing&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="15597" PostTypeId="1" AcceptedAnswerId="15600" CreationDate="2017-02-28T06:53:40.667" Score="2" ViewCount="440" Body="&lt;p&gt;So we all know Amazon is following the path of Netflix regarding tv shows and movies. Both firms are increasing production of film, and now have their own productions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we were to categorize this type of competition, would it more closely resemble Hotelling's Model or Cournot?&lt;/p&gt;&#xA;" OwnerUserId="8021" LastActivityDate="2017-02-28T15:52:45.197" Title="Amazon vs Netflix, closely resembles which type of competition?" Tags="&lt;microeconomics&gt;&lt;game-theory&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15599" PostTypeId="2" ParentId="3027" CreationDate="2017-02-28T14:26:51.110" Score="5" Body="&lt;p&gt;Set of Pareto Efficient Allocations consists of feasible allocations $((x_J, y_J), (x_D, y_D))$ satisfying $y_J=\displaystyle\frac{x_J}{2}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/G6kLo.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/G6kLo.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Competitive Equilibrium is the price $(p_x, p_y=1)$ satisfying the following conditions:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Budget Requirement: $p_xx_J+ y_J = 2p_x + 2$ and $p_xx_D+ y_D = 4p_x + 1$&lt;/li&gt;&#xA;&lt;li&gt;Equilibrium Conditions: $\displaystyle\frac{2y_J}{x_J} = p_x$ and $y_D=\displaystyle\frac{x_D}{2}$&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Solving the system of equations we get equilibrium price vector as:&#xA;$(p_x, p_y) = (1,1)$&#xA;and the equilibrium allocation is&#xA;$((x_J, y_J), (x_D, y_D)) = \displaystyle \left(\left(\frac{8}{3}, \frac{4}{3}\right), \left(\frac{10}{3}, \frac{5}{3}\right)\right)$&#xA;&lt;a href=&quot;https://i.stack.imgur.com/WAOq4.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/WAOq4.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="11824" LastActivityDate="2017-02-28T14:26:51.110" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15600" PostTypeId="2" ParentId="15597" CreationDate="2017-02-28T14:41:26.450" Score="3" Body="&lt;p&gt;It certainly isn't a Cournot scenario. That would require homogeneous products. In fact there's a ton of differentiation between the two products (Amazon prime and Netflix). They have different TV shows, different movies, different documentaries. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would argue that it is this differentiation that allows them to charge different prices. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hotelling's law is much more applicable. However I would argue that they do not maintain minimum differentiation. Yes they may share similarities in their web presence, and they may have adopted the strategy of producing content in house; but they also are so different that it is hard to say they are copying each other on almost everything.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Amazon prime offers reduced price shipping, music streaming, and reduced prices on some items on Amazon. Netflix has none of those things. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;That said, Netflix includes hard copies of DVDs as rentals included in their subscription, whereas you would have to buy the DVDs on Amazon. So even though some of their business is similar or matching, they mostly represent differentiated products.&lt;/p&gt;&#xA;" OwnerUserId="12039" LastActivityDate="2017-02-28T14:41:26.450" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="15601" PostTypeId="2" ParentId="6191" CreationDate="2017-02-28T14:59:27.067" Score="1" Body="&lt;p&gt;Equilibrium price vector $(p_x, p_y=1)$ and allocation $((x_A, y_A), (x_B, y_B))$ satisfy the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Optimality Conditions (Allocation must solve the utility maximization problem of the two consumers, i.e. it must lie on the demand functions)&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;$(x_A, y_A) = \left(\frac{100p_x + 100}{p_x + 1}, \frac{100p_x +&#xA;   100}{p_x+1}\right) = (100, 100)$ &lt;/li&gt;&#xA;&lt;li&gt;$(x_B, y_B) = \begin{cases} \left(\frac{50p_x}{p_x}, 0\right)  = (50,0) &amp;amp; \text{if } p_x \leq 1  \\ \left(0, 50p_x\right) &amp;amp; \text{if } p_x &amp;gt; 1 \end{cases} $&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Feasibility Conditions&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;$x_A + x_B = 150$&lt;/li&gt;&#xA;&lt;li&gt;$y_A + y_B = 100$&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Clearly, any price vector $(p_x, p_y)$ satisfying $p_x \leq 1$ and $p_y = 1$, and the allocation $((x_A, y_A), (x_B, y_B)) = ((100, 100), (50, 0))$ is the equilibrium.&lt;/p&gt;&#xA;" OwnerUserId="11824" LastActivityDate="2017-02-28T14:59:27.067" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="15602" PostTypeId="2" ParentId="15596" CreationDate="2017-02-28T15:49:59.127" Score="4" Body="&lt;p&gt;You should be confused by Japan's version of QE. No one knows the long term implications, it has never been done before. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't know that much about Japan's QE other than the monthly totals, but the concept behind QE is simple.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Normally, when a central bank wants to stimulate economic activity, they will do so by reducing the returns on saving and therefore incentivize consumption. To do this, they need to lower market interest rates.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the past, they usually did so by controlling the rate at which banks lend to each other, or to the central bank. In the US, this is the Federal Funds Rate. But what happens when you have reached the zero lower bound of the central bank's rate and you need to further influence market rates. In the case of the US and Japan, the answer, in part, was to have the central bank buy debt. But it was not just a small amount like they normally would to change their rate, QE saw the central banks buying huge amounts of debt. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This debt purchasing was designed to serve a singular purpose: drive down long term interest rates. Why would this be helpful? Well with low short term rates, the market for interbank lending would be very liquid, and would not risk the so called &quot;crunch&quot; of credit that occurred during the recession of 07-08. But that was done almost immediately as the crisis revealed itself. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;When QE kicked in in earnest, long term rates did begin to go down, but it did not have the immediate effect that central banks thought it would. Unlike short term lending, the long term market is much more slow to adjust to changes in prices, and to some extent the Fed got around that issue in the US by providing forward guidance on their plan to continue QE &quot;For an extended period of time&quot;. Even now in the US, QE rolls on, but under the guise of reinvesting the proceeds of original QE assets into even longer term securities.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But Japan started QE earlier! They practically invented it! Why didn't they recover as quickly as the US? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Well they kind of did. In 2010 they posted 4.2%gdp growth after -5.4 the year before. Unfortunately they didn't maintain it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reality is that most highly developed countries, (US, Germany, Japan, ect.) are in a period of stable but slow growth. In fact this is the norm in history. It was only the massive upheavals of the 20th century that allowed for massive GDP growth in developed countries. I think it is unreasonable to expect an average of 4% GDP growth in developed countries in the current epoch. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But we've also seen a positive side effect of more sedate GDP growth: lower inflation. There are plenty of theories as to why inflation is lower in developed countries than it has ever traditionally been. I like parts of all of them. One is that globalization and fewer barriers to international trade has lowered prices of goods and services globally by increasing efficiency.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another theory is that the strategies of central banks are more effective at maintaining low inflation than they are at bringing down high inflation. In particular, inflation targeting regimes, such as the one currently employed by the Fed, seem to be effective at maintaining well anchored market expectations, and help to reduce market shocks. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As to whether a country can become richer by printing money without inflation the answer is: kind of...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is interest rate risk to QE. If rates go up, QE loses money for the central bank. But since the central bank controls interest rates, they don't really have to worry about it. The Fed will make money on QE, and the BOJ will probably make money on their QE (although they bought non-government assets in addition to government, so I'm not as sure about those). Does making money on QE make the country richer? Not really. But does lowering the yields on government bonds make a country relatively richer? Yes. With cheaper government debt, the government is more able to conduct expansionary fiscal policy without having to worry about too much interest. In the case of QE it is even better because your own central bank owns the securities so you practically are performing seigniorage! &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course this assumes that the government then uses this money to improve the production of the country, but if you throw enough money at it, it can't help but make your country richer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, the final question is: what happens in the long term as a result of QE? Is there a risk of inflation as QE securities mature? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've thought about that question a lot in the last few years, and I think that in the case of the US there is limited risk of inflation from maturing securities. The fed can roll them off at a very slow rate, and by tapering the reinvestment of the securities, they can ensure a slow, gradual decrease in the size of their balance sheet, and low inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In Japan the issue of the types of securities is more of an issue. The US only did QE through government backed securities and mortgage backed securities (to a lesser extent) and both are flexible with their maturity schedules. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have not looked at the maturity schedules of the BOJ's QE securities, but I hope that they have the same flexibility to reinvest at least some of the proceeds of maturing securities. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regardless, monetary policy has certainly entered a new era of complexity, and there are risks to the new strategies in terms of accurately communicating the intentions of the central bank in a timely manner. The biggest risk of inflation isn't anything financial, it is the risk of the wrong signals being sent to the markets of the world by the communications of central banks.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'll try to add citations at a later date (I have several which I was thinking of as I wrote this answer). &lt;/p&gt;&#xA;" OwnerUserId="12039" LastActivityDate="2017-02-28T15:49:59.127" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15603" PostTypeId="2" ParentId="15597" CreationDate="2017-02-28T15:52:45.197" Score="1" Body="&lt;p&gt;Amazon cloud platform(AWS) is Amazon real cash cow, publishing contents is anything but just leveraging its advantages on cloud usage and contents distribution. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand, Netflix started as content publisher and online contents streaming. Bare in mind that, Netflix is using AWS as its digital distribution backbone. It is Amazon competitive pricing that cause Netflix decide to move their distribution channel over there. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Overall, this is way out of the league of both economy model you just mentioned, because corporate-competitive co-exist.  &lt;/p&gt;&#xA;" OwnerUserId="11177" LastActivityDate="2017-02-28T15:52:45.197" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15604" PostTypeId="1" CreationDate="2017-02-28T16:24:44.217" Score="1" ViewCount="976" Body="&lt;p&gt;Does anyone of you could recommend me some good Macroeconomics and Microeconomics books based on your personal experience. I am an engineer and I do not have a background in Economics. I am planning to apply for a graduate school in Economics (MA if I am not qualified for a PhD as I already have a MSc in Engineering). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What would be the best way for me to learn some principles of economics and not to struggle if I get accepted into a graduate program while other graduate students have lots of experience and/or background in Economics? I just want to be on the same level with them at least during classes and be able to understand what is being given or taught. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have looked it up on the internet, but people suggested all kind of books, but mostly intermediate and/or for those who already have background either in Economics or business related subjects.  The future graduate programs want me to have a background in Microeconomics , Macroeconomics, and Econometrics at least...&lt;/p&gt;&#xA;" OwnerUserId="12106" LastEditorUserId="108" LastEditDate="2017-04-09T07:40:34.307" LastActivityDate="2017-04-09T07:40:34.307" Title="Best micro/macroeconomics books" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;econometrics&gt;&lt;self-study&gt;" AnswerCount="1" CommentCount="2" ClosedDate="2017-02-28T20:43:04.560" ContentLicense="CC BY-SA 3.0" />
  <row Id="15605" PostTypeId="2" ParentId="15604" CreationDate="2017-02-28T16:43:07.760" Score="1" Body="&lt;p&gt;Although this question will be flagged and closed I assume, I would recommend getting a variety of texts. Mankiw has a good intermediate macro book, that can get you from zero to a foundation, however his introductory book isn't as good.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For econometrics, Woolridge gives a good bang for your buck, but I like Gujarati's basic econometrics as well. For time series, Enders' &quot;Applied econometric time series&quot; is my bible.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For micro I'm not as sure, I didn't have any great experiences with introductory texts. I can't really give a good opinion on the intermediate level either, as I've only used Varian's. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Once you get an idea of the concepts the best thing to do is to delve right into academic journals, so that you can start learning how to read them. Just that skill will help you be able to catch up fast.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I assume you're already strong in linear algebra and your other math, and some of your engineering will carry over to economics, especially your ability to think about minimizing and maximizing. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Good luck!&lt;/p&gt;&#xA;" OwnerUserId="12039" LastActivityDate="2017-02-28T16:43:07.760" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15606" PostTypeId="2" ParentId="15050" CreationDate="2017-02-28T19:06:19.120" Score="1" Body="&lt;p&gt;Since payments to app developers are denominated in USD it does make sense to raise prices. The pound sterling has decreased in value relative to the USD by about 30 percent since May 2014, which I'm selecting as the arbitrary peak for comparison. So if they kept the same prices as before the recent slide, an app would make about 30% less relative to 2014. Even relative to Jan of 2016, the app would make about 14% less in USD. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As I'm involved with a few IT projects I can tell you that the marginal cost of production is never zero for a &quot;finished product&quot;. In technology there is no such thing as a finished product. You can't put it in a box and deliver it and then say to the customer that it's their problem now (well you could but it wouldn't keep you in business very long).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think it is perfectly reasonable to adjust app prices to reflect what appears to be a new normal exchange rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit 1: &#xA;On the marginal cost of an Apple Store app:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question states that the cost of one additional sale is zero for an app. I disagreed in my above answer, but much too strongly and incorrectly.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The marginal cost of some apps is equal to or close to zero. Usually, these apps take the following pricing structure: a free version with advertising, and a paid version. Then there is another class of apps that benefit so strongly from economies of scale and maturity that their MC is near zero (Facebook, Spotify, ect.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;They do make up the vast majority of apps. This means that for all intents and purposes, the marginal cost of an app is zero.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But I would argue that some apps with small but enthusiastic user bases likely do have some marginal costs and set their prices near zero anyways because of consumer expectations. Each user generates bug reports, which generates cost, and small development teams are disproportionately affected by this situation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is one reason why pricing software is so difficult.&lt;/p&gt;&#xA;" OwnerUserId="12039" LastEditorUserId="12039" LastEditDate="2017-02-28T19:39:20.607" LastActivityDate="2017-02-28T19:39:20.607" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15608" PostTypeId="1" CreationDate="2017-02-28T19:15:59.090" Score="4" ViewCount="83" Body="&lt;p&gt;Yanis Varoufakis (Ιωάννης Βαρουφάκης) proposes to fund a universal basic income (UBI) using &lt;a href=&quot;https://www.project-syndicate.org/commentary/basic-income-funded-by-capital-income-by-yanis-varoufakis-2016-10&quot; rel=&quot;nofollow noreferrer&quot;&gt;dividends from a commons capital depository&lt;/a&gt;, essentially  channeling a percentage of shares issued at an initial public offering (IPO) into a depository.  He argues that &lt;a href=&quot;https://www.project-syndicate.org/commentary/bill-gates-tax-on-robots-by-yanis-varoufakis-2017-02&quot; rel=&quot;nofollow noreferrer&quot;&gt;taxing robots is difficult in practice&lt;/a&gt;, that funding UBI through income tax is untenable, and taxing capital/wealth is difficult in practice.  Rather, he proposes (see &lt;a href=&quot;https://www.project-syndicate.org/commentary/basic-income-funded-by-capital-income-by-yanis-varoufakis-2016-10&quot; rel=&quot;nofollow noreferrer&quot;&gt;full article&lt;/a&gt; for context; emphasis mine):&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;So how should society be compensated? Taxation is the wrong answer. Corporations pay taxes in exchange for services the state provides them, not for capital injections that must yield dividends. There is thus a strong case that the commons have a right to a share of the capital stock, and associated dividends, reflecting society’s investment in corporations’ capital. And, because it is impossible to calculate the size of state and social capital crystalized in any firm, we can decide how much of its capital stock the public should own only by means of a political mechanism.&lt;/p&gt;&#xA;&lt;p&gt;A simple policy would be to enact &lt;strong&gt;legislation requiring that a percentage of capital stock (shares) from every initial public offering (IPO) be channeled into a Commons Capital Depository, with the associated dividends funding a universal basic dividend (UBD)&lt;/strong&gt;. This UBD should, and can be, entirely independent of welfare payments, unemployment insurance, and so forth, thus ameliorating the concern that it would replace the welfare state, which embodies the concept of reciprocity between waged workers and the unemployed.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Has anything like his proposed commons capital depository ever been tried in practice?  Although he proposes it in the context of UBI, as a form of/alternative for taxation it could be introduced independently.&lt;/p&gt;&#xA;&lt;p&gt;Is there any historical precedent for such a model?  Are there any economic studies into what the effects would be to shift government revenue from one based on income or capital gains tax, to one such as proposed by Varoufakis?&lt;/p&gt;&#xA;" OwnerUserId="332" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2017-09-09T16:34:16.663" Title="Economic effects of a Commons Capital Depository" Tags="&lt;macroeconomics&gt;&lt;taxation&gt;&lt;fiscal-policy&gt;&lt;basic-income&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15612" PostTypeId="1" AcceptedAnswerId="41260" CreationDate="2017-03-01T14:22:20.767" Score="3" ViewCount="99" Body="&lt;p&gt;Phillips designed a hydraulic computer to model the UK economy in 1949; 12-14 copies were built. What model did it compute with? How have modern models of the UK built on that work?&lt;/p&gt;&#xA;" OwnerUserId="10991" LastActivityDate="2020-12-02T15:47:10.137" Title="What model did the MONIAC use?" Tags="&lt;macroeconomics&gt;&lt;mathematical-economics&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15613" PostTypeId="2" ParentId="15541" CreationDate="2017-03-01T17:42:47.037" Score="2" Body="&lt;p&gt;[Edited: I think that &lt;em&gt;Theoretical Economist&lt;/em&gt; is right in highlighting that I'm perpetuating the confusion between the mathematical formalism, and one way of getting to the intuitive understanding. It also comes down to language referring to the &lt;em&gt;slope&lt;/em&gt; of the curve versus effects that are positive or negative depending on moving up or down that negatively-sloped curve. So I clarified the table and text consistently against a price rise and Slutsky.]&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think your intuition is correct, but the derivatives have slopes in the other direction in Slutsky's equation. And it's Slutsky's equation that's ultimately given us this theoretical framework, so let's stick with that here ;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To be clearer, let's discuss for a Price RISE:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;Normal Good:   Demand- = Substitution-- Income-  [Same direction]&#xA;&#xA;Inferior Good: Demand- = Substitution-- Income+  [S &amp;gt; I]&#xA;&#xA;Giffen Good:   Demand+ = Substitution-- Income++ [I &amp;gt; S, weirdly]&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;I start my understanding of this with the demand curve. Under the “usual” laws of supply and demand, the demand-curve is backward-sloping, so as the price rises, we demand &lt;em&gt;less&lt;/em&gt; of it. This is the Ecos101 curve we're familiar with; and it applies both to normal and inferior goods. But for Giffen goods, the demand curve has a &lt;em&gt;positive&lt;/em&gt; slope... As the price rises, we actually demand &lt;em&gt;more&lt;/em&gt; of it. Usually, examples of luxury goods are given as Giffen goods. The argument runs that as price is an indicator of quality and wealth of the purchaser, people actually by more of these goods as the price rises. The actual empirical evidence for the existence of Giffen goods in the real world, though, is slim and hotly debated... Sorry Apple!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So we understand the demand curves are backwards for normal/inferior, but upwards for Giffens. Why?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It was Slutsky who best disentangled demand curves as comprising an &lt;em&gt;income&lt;/em&gt; effect and a &lt;em&gt;substitution&lt;/em&gt; effect through a synthesis Marshall and Hicks' respective demand curves. (These are the uncompensated and compensated curves per the comments below.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Per Slutsky's equation, &lt;em&gt;Theoretical Economist&lt;/em&gt; is correct: The substitution effect can only ever be negative / downward-sloping. That leaves only the income effect to explain the differences between the three types of goods.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The link is that as the price of a good rises, in effect income falls. For normal goods, as effective income falls, we demand &lt;em&gt;less&lt;/em&gt; of the good. For inferior goods, as income falls, we demand &lt;em&gt;more&lt;/em&gt; of the good. Typical examples of inferior goods include staple foods. The idea is that as we get poorer, we cannot afford “rich” foods like meats, exotic fruits, chocolate, and so on; but must &quot;downgrade&quot; to cheaper foods.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Giffen is where things can get counter-intuitive. As the price of a Giffen good rises, even though effectively our income falls, we demand the good &lt;em&gt;so much more&lt;/em&gt; that it outweighs the (always-negatively-sloped) substitution effect to yield the total positive demand.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I hope that's both more formal and clearer to understand.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Regarding your final question, the intuitive understanding around the increase/decrease in substitutions based on price rises/falls can be confusing against the fact that the &lt;strong&gt;slope&lt;/strong&gt; of the substitution term in Slutsky is always negative.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From a mathematical perspective, the slope of substitution is always negative, but we can move &quot;up&quot; or &quot;down&quot; that curve to produce &quot;positive&quot; or &quot;negative&quot; changes... More or less substitution of a good.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the second part of your question about the constancy of these effects; goods can apparently change between being normal/inferior. So if we do as we typically do in economics classes and draw out demand curves and indifference curves as straight lines, it holds.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But in reality, we know that demand curves are not immutable, straight lines, but can (a) curve and (b) change under exogenous variables. Think of the example of an asset bubble. For a while, the asset may actually look like a Giffen good: The price rises, people demand more as they jump on the bandwagon. Suddenly, the bubble bursts, and that asset is “demoted” to being a normal good (just as everyone’s income is decreasing... oops!)&lt;/p&gt;&#xA;" OwnerUserId="12282" LastEditorUserId="12282" LastEditDate="2017-03-02T19:49:12.133" LastActivityDate="2017-03-02T19:49:12.133" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="15614" PostTypeId="2" ParentId="5335" CreationDate="2017-03-01T18:24:35.337" Score="1" Body="&lt;p&gt;If the opposite were true and the government proposes spending $1 trillion on infrastructure spending we will see a shift outward of the demand curve and rates will tick upward to a new equilibrium point. The crowding out occurs when we have movement along the demand curve (from the old interest rate --&gt; new demand curve intersection up to the new intersection of the S and D curve).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/FvECJ.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/FvECJ.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt; &#xA;With a decrease in government spending your demand curve for the loan-able funds market will shift inward and push the interest rate lower. When a fall in the interest rate leads to higher investment spending, the resulting increase in real GDP generates exactly enough additional savings to match the rise in investment spending. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is somewhat agreed upon that contractionary fiscal policy leads to a surplus and the government can act as a creditor rather than a debtor. It will also leave more money for private investments for people such as small borrowers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(There are some economists that believe that under the right circumstances that expansionary government policies may produce crowing in instead of crowding out. Keynesian economists may suggest that if the policy is strong enough to change the economic climate then businesses may find it profitable to add capacity -induced investment- which works to counteract and possibly out weigh the crowding out effect.)&lt;/p&gt;&#xA;" OwnerUserId="11406" LastEditorUserId="11406" LastEditDate="2017-03-01T18:55:13.200" LastActivityDate="2017-03-01T18:55:13.200" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15617" PostTypeId="1" AcceptedAnswerId="15619" CreationDate="2017-03-02T00:26:44.057" Score="1" ViewCount="34" Body="&lt;p&gt;For example, say a person has turned down an offer for a competing position with another company. That person now has an increased sense of attachment to their current position with the logic &quot;I turned down that offer, I must really like my current job&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This sometimes looks a little like sunk cost &quot;I just watched the first 9 out of 10 seasons of this television show. I must really like it, so I'll watch the 10th&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What's the name of this economic concept? Is this maybe a psychology concept instead?&lt;/p&gt;&#xA;" OwnerUserId="12287" LastActivityDate="2017-03-02T01:44:06.330" Title="Economic concept where turning something down heightens emotional attachment" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="15618" PostTypeId="1" CreationDate="2017-03-02T00:47:23.153" Score="2" ViewCount="200" Body="&lt;p&gt;I earn a salary, but, like many American workers, I don't spend all of it -- I stash away some in the bank. This is a good thing, since I can one day retire (stop producing), and still live comfortably.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose everyone succeeded in this goal. Could such a thing be possible? &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Reason for no: everyone can't save money at the same time, because money is only obtained by taking it from someone else. And printing money into the economy inflates it such that it doesn't actually bring inherent value. &lt;/p&gt;&#xA;" OwnerUserId="12288" LastActivityDate="2017-04-04T14:04:49.027" Title="Can everyone in an economy profit?" Tags="&lt;money-supply&gt;&lt;money&gt;&lt;quantity-theory-of-money&gt;" AnswerCount="3" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15619" PostTypeId="2" ParentId="15617" CreationDate="2017-03-02T01:44:06.330" Score="2" Body="&lt;p&gt;It's called &lt;strong&gt;reference-dependent preference&lt;/strong&gt;, a notion belonging to the intersection of economics, psychology, and neuroscience. Here is &lt;a href=&quot;http://www.neuroeconomics.org/documents/Koszegi_Workshop2010.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;a set of brief introductory slides on the concept&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2017-03-02T01:44:06.330" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15620" PostTypeId="2" ParentId="15596" CreationDate="2017-03-02T09:28:27.020" Score="1" Body="&lt;p&gt;The first thing you must know in order to understand the situation is that under a &lt;a href=&quot;http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;fractional reserve monetary system&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Bank loans create money&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;The repayment of bank loans destroy money&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the up phase of a house price bubble, millions of people are borrowing like crazy to get on the property ladder, whilst after the bubble bursts, the enthusiasm for borrowing suddenly collapses. However, the high rate* of repaying all these mortgages will continue for years or decades to come. This means that if the central bank did nothing the money supply would start shrinking dramatically. QE is an attempt to counteract this fall in the money supply. If the rate* of money creation via QE is too slow then it is &lt;a href=&quot;https://www.publications.parliament.uk/pa/cm201012/cmselect/cmtreasy/1576/11102502.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;perfectly possible for the money supply to fall &lt;em&gt;despite&lt;/em&gt; QE&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(*The word &quot;rate&quot; here, means rate of flow, not the interest rate.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The idea that there is a &quot;risk&quot; of QE mainly comes from people who believe the &quot;money multiplier theory&quot; of the money supply, where an increase in base money automatically leads to an even bigger increase in the broad money supply. This theory is completely false despite being in many textbooks, as was confirmed by the Bank of England &lt;a href=&quot;http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This does not mean that there are no downsides to QE. QE does tend to artificially push up the price of various assets which may not be a good thing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;EDIT:&lt;/strong&gt; &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0765610493&quot; rel=&quot;nofollow noreferrer&quot;&gt;This book&lt;/a&gt; is probably the most authoritative book in English about the behaviour of the Japanese central bank around the time of their property bubble. It's actually written by the guy that invented the phrase &quot;quantitative easing&quot;.&lt;/p&gt;&#xA;" OwnerUserId="5081" LastEditorUserId="5081" LastEditDate="2017-03-02T12:51:22.890" LastActivityDate="2017-03-02T12:51:22.890" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15623" PostTypeId="1" CreationDate="2017-03-02T15:50:27.880" Score="0" ViewCount="186" Body="&lt;p&gt;Is there a formal definition or measure of wealth that captures the notion that with improving technology &quot;life gets better&quot;? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A stupid example of what I mean would be the invention of the iPhone. I know that with the iPhone new markets were and new profit possibilities were created and in that sense the economy got richer. That effect could be measured by let's say the GDP. &#xA;But apart from that I can now watch Netflix on the bus or text people everytime, everywhere. So personally my life got a whole lot more pleasant. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also is there an accepted connection between innovation and &quot;wealth&quot; in the sense that I described above?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Cheers,&#xA;FL&lt;/p&gt;&#xA;" OwnerUserId="12100" LastActivityDate="2017-03-03T08:48:08.340" Title="Meaning of innovation in the wealth creation process" Tags="&lt;innovation&gt;&lt;wealth&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15624" PostTypeId="1" CreationDate="2017-03-02T16:42:03.153" Score="2" ViewCount="233" Body="&lt;p&gt;Suppose an agent is choosing how much $x$ to consume and $p_x=200$. If the agent's marginal private benefit is $MPB(x)=300/x$ and $x$ takes only integer values, then he will choose to purchase just one unit of $x$. But suppose his consumption of $x$ yields a positive externality such that the marginal external benefit is $MEB(x)=2700/x$ (essentially there are nine other people similar to the agent who benefit as much from the agent's consumption as the agent does). Then the social optimum is where the marginal social benefit equates with the marginal social cost ($p_x$):&#xA;$$MSB(x)=MPB(x)+MEB(x)=\frac{3000}{x} = 200 \Longrightarrow x^* = 15$$&#xA;If I were to ask what the appropriate Pigouvian subsidy was to implement this societally optimal outcome, I can envisage two possible answers:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Set the marginal subsidy equal to the marginal external benefit: $MS(x)=\frac{2700}{x}$. Note that, in this case, the government would end up paying the agent $\sum_{x=1}^{15}\frac{2700}{x} \approx 8959$ in subsidies, which is substantially more than the agent's outlay ($200 \cdot 15 = 3000$).&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Set the marginal subsidy equal to the marginal external benefit evaluated at the optimal output: $MS(x)=MEB(15)=2700/15=180$. Total subsidy is $180 \cdot 15 = 2700$.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Set the marginal subsidy as low as possible to get him to purchase each unit up to 15: $MS(1)=0$. $MS(x) = 200 - \frac{300}{x}$ for $2 \leq x \leq 15$. Total subsidy is $\sum_{x=2}^{15} 200 - 300/x \approx 2105$. I suppose here I could even tax the first unit to bring the total net subsidy down further!&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Are all of these correct? Is any of them a better answer than the other two?&lt;/p&gt;&#xA;" OwnerUserId="48" LastEditorUserId="48" LastEditDate="2017-03-02T16:53:45.603" LastActivityDate="2017-03-02T16:53:45.603" Title="Pigouvian subsidies for non-linear marginal external benefits" Tags="&lt;public-economics&gt;&lt;externalities&gt;&lt;public-goods&gt;&lt;pigouvian-taxes&gt;" AnswerCount="0" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="15627" PostTypeId="1" AcceptedAnswerId="15656" CreationDate="2017-03-03T00:47:24.810" Score="4" ViewCount="228" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Consider a two period, single good, $2$ agent model. Time beings in perios $0$ in a known state (state $0$) but in period $1$ the world may find itself in any one of two states $s = 1,2$ with probabilities $\pi_s = 1/2$ for each state. Both of the consumers agree on the probabilities.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Each consumer as a constant relative risk aversion utility function with utility index $u^{i}(c_{s}^{i}) = \frac{(c^{i}_{s})^{1-\gamma^i}-1}{1-\gamma^i}$, $i = A,B$. Specifically, we assume that $\gamma^{A} &amp;gt; 0$ and $\gamma^{B} = 0$.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;In addition to the consumption good there are $J=2$ financial securities with period $1$ payoffs $D$ (a $J\times S$ matrix) given by $$D = \begin{pmatrix}&#xA;1 &amp;amp; 0\\&#xA;-1 &amp;amp; 4\\&#xA;\end{pmatrix}$$&#xA;  Thus, the first security pays off $1$ in both states and the second security pays off $-1$ in state $1$ and $4$ in state $2$. There is a spot market for these securities in period $0$ at prices $p_j &amp;gt; 0$. Each security is in zero net supply so that if one consumer is a buyer then the other consumer must be the seller. There are no short-sell constraints on the securities. &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Consumers have no period zero endowment and do not consume in the first period so that $e_0^{i} = c_{0}^{i} = 0$, $i = A,B$.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The consumers are not allowed to short-sell the consumption good. I.e., we impost the restriction that $c_{s}^{i}\geq 0$,$\forall i = A,B$ and $s = 1,2$. There is no production in this economy so each agent is exogenously endowed with period $1$ endowments of: $e^{A} = (6,2)$ and $e^{B} = (6,6)$ in states $s = 1$, and $2$, for each agent respectively.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;a.) Carefully write out the second consumer's maximization problem including the relevant budget constraints. Let $\lambda_{s}^{B}$ be the Lagrange multipliers on the budget constraints. Carefully write out the first-order conditions for this consumer including the inequality and complementary slackness conditions.  &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;b.) Solve for the contract curve for this economy.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;c.) Verify that the Arrow security prices for this economy are $q_1 = q_2$ and that the optimal allocation of goods is $c^{A} = (4,4)$ and $c^{B} = (8,4)$.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;d.) Find the consumers' security portfolios $\theta^{A}$ and $\theta^{B}$.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;e.) Normalize the Arrow security prices so that $q_1 = q_2$ and find the security prices $p_1$ and $p_2$.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Solution a.) The utility maximization problem for $B$ is \begin{align*}&#xA;\max_{c^{B},\theta}\mathbb{E}\left[u(c^{B})\right] = \frac{1}{2}(c_1^{B} - 1) + \frac{1}{2}(c_2^{B} - 1) \ \ \text{s.t.} \ \ &amp;amp;p_1\theta_{1}^{B} + p_2\theta_{2}^{B} = 0, s = 0\\&#xA;&amp;amp;c_1^{B}\leq 6 + \theta_{1}^{B} - \theta_{2}^{B}, s = 1\\&#xA;&amp;amp;c_{2}^{B}\leq 6 + \theta_{1}^{B} + 4\theta_{2}^{B}, s =2; c_1^{B}\geq 0, c_2^{B}\geq 0&#xA;\end{align*}&#xA;We have the Lagrangian, $$\mathcal{L}(c^{B},\theta^{B},\lambda^{B}) = \frac{1}{2}(c_1^{B} - 1) + \frac{1}{2}(c_2^{B} - 1) + \lambda_{0}^{B}(0- p_1 \theta_1^{B} - p_2 \theta_2^{B}) + \lambda_{1}^{B}(6 + \theta_1^{B} - \theta_2^{B} - c_1^{B}) + \lambda_2^{B}(6 + \theta_{1}^{B} + 4\theta_2^{B} - c_2^{B})$$&#xA;The First-order conditions are:&#xA;\begin{align*}&#xA;&amp;amp;\lambda_{0}^{B}: p_1\theta_1^{B} + p_2 \theta_{2}^{B} = 0; \lambda_{0}^{B}\geq 0\\&#xA;&amp;amp;\lambda_1^{B}: c_1^{B}\leq 6 + \theta_1^{B} - \theta_2^{B};\lambda_1^{B}\geq 0, \lambda_1^{B}(6+\theta_1^{B} - \theta_2^{B} - c_1^{B}) = 0\\&#xA;&amp;amp;\lambda_2^{B}: c_2{B} \leq 6+\theta_{1}^{B} + 4\theta_2^{B}, \lambda_2^{B}\geq 0, \lambda_2^{B}(6+\theta_{1}^{B} + 4\theta_2^{B} - c_2^{B}) = 0\\&#xA;&amp;amp;c_1^{B}: \frac{1}{2}-\lambda_1^{B}\leq 0; c_1^{B}\geq 0, c_1^{B}\left(\frac{1}{2} - \lambda_{1}^{B}\right) = 0\\&#xA;&amp;amp;c_2^{B}: \frac{1}{2}-\lambda_2^{B}\leq 0; c_2^{B}\geq 0, c_2^{B}\left(\frac{1}{2} - \lambda_{2}^{B}\right) = 0\\&#xA;&amp;amp;\theta_1^{B}: - \lambda_0^{B}p_1 + \lambda_1^{B} + \lambda_2^{B} = 0\\&#xA;&amp;amp;\theta_2^{B}: - \lambda_0^{B}p_2 - \lambda_1^{B} + 4\lambda_2^{B} = 0&#xA;\end{align*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Solution b.) We have $$c_1^{A} + c_2^{B} = 12 \ \ \text{and} \ \ c_2^{A} + c_2^{B} = 8$$&#xA;We want to find the set of pareto optimal points (contact curve). We are looking for $$MRS^{A} = MRS^{B}$$&#xA;Note that $u^{i} = \pi_1 u(c_1^{i}) + \pi_2 u(c_2^{i})$ Thus, $$MRS^{i} = \frac{\pi_1 u^{i \prime}(c_1^{i})}{\pi_2 u^{i\prime}(c_2^{i})}$$&#xA;$$MRS^{A} = \left(\frac{c_1^{A}}{c_2^{A}}\right)^{-\gamma_A} = 1 = MRS^{B}$$ $c_1^{A} = c_2^{A}$ is the equation of the contract curve.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Attempted solution c.) This is where I am stuck, I know that we have to solve for the Planner's problem: $$\mathcal{L} = \sum_{i=A,B} \eta^{i}u^{i}(c_1^{i}) + \lambda_1\left(\sum_{i}e_1^{i} - \sum_{i}c_1^{i}\right) + \lambda_2\left(\sum_{i}e_2^{i} - \sum_{i}c_2^{i}\right)$$&#xA;but I am not sure how to proceed any further. Any suggestions would be greatly appreciated. This is my first time solving a planners problem and I am a Mathematics grad student so do not have much exposure to economics.  &lt;/p&gt;&#xA;" OwnerUserId="11762" LastActivityDate="2017-03-05T16:15:53.440" Title="Arrow-Debreu Pricing, Planner's Problem" Tags="&lt;mathematical-economics&gt;&lt;financial-economics&gt;" AnswerCount="1" CommentCount="12" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="15628" PostTypeId="2" ParentId="15618" CreationDate="2017-03-03T01:17:43.520" Score="1" Body="&lt;p&gt;I think the best way to answer you is to build a simple model. That's usually what economists do to answer such questions. I hope it will be useful.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume there is only one good in the economy, the 'consumption good', that people are all of the same generation or the same age and that one lives only for two periods (youth, and old age).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then the answer to your question depends on the durability of this consumption good. How long can it remain useful to consumption after being produced ? Or, to think as an economist, is it expensive to keep the good useful ?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If it can for no cost remain useful for more than one period, then it can be rational for all workers to save simultaneously half of the monetary wage they receive as a compensation for their labor in period 1. Then at the end of period 1 firms will sell only half of the output produced by the workers. They will store the rest of it (we have assumed that this storage does not cost much). Then this stock of the consumption good will be available in period 2 and will be sold to the workers, who will buy it with their monetary savings. So the story is exactly the same as it would have been without money, if workers would have stored directly the commodities they produced.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the consumption good is not durable, or is expensive to store, then this scheme is not possible. In reality, of course, many commodities of first necessity are not durable (goods but also services), and many durable goods are expensive to store. But that's not so much of a problem because we live in a world where generations do overlap, so the young produce for the old. When there is a demographic disequilibrium inside an aging country, then it should be able to trade with a 'younger' country, provided it has accumulated enough 'savings', i.e. valuable durable assets.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Edit&lt;/strong&gt;. So far I only answered the question : is it possible for &lt;em&gt;every one&lt;/em&gt; to live without working at the same time ? But the number of active workers can &lt;em&gt;decrease&lt;/em&gt; with time if savings are used to invest in capital goods which make labor more productive.&lt;/p&gt;&#xA;" OwnerUserId="11629" LastEditorUserId="11629" LastEditDate="2017-03-03T14:55:43.470" LastActivityDate="2017-03-03T14:55:43.470" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15629" PostTypeId="2" ParentId="15618" CreationDate="2017-03-03T02:25:02.813" Score="1" Body="&lt;p&gt;&quot;If everyone can profit&quot; could be taken by if everyone has access to a chance to gain something from an investment. &#xA;This investment can be of one's own labor (e.g. harvesting crops, transforming goods, or being employed) or of one's wealth (giving your capitals in exchange for interest).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the limit: &lt;strong&gt;yes, everyone can profit, since everyone has a chance to gain from an investment of it's own time&lt;/strong&gt; - with or without society. You can be in a lonely island and profit from investing your time looking for fruits to eat. This profit might be bigger or smaller, but it will always be there. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The key question would then be the equality of these profits in society - not everyone has access to the same chances = not everyone gets the same profits.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since you connected the question with money theory and inflation, your ability to profit will be balanced with growth and inflation rates, to make sure that the money reflects the real economy capacity. If you country discovers magic beans and everyone becomes rich, the goods in economy wont be able to satisfy the increase in wealth, so inflation will adjust the prices to your &quot;new wealth&quot;, to match the supply of goods. Which leads us to the conclusion that more money for everyone would not solve inequality, would just create inflation.&lt;/p&gt;&#xA;" OwnerUserId="12304" LastActivityDate="2017-03-03T02:25:02.813" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15630" PostTypeId="2" ParentId="13396" CreationDate="2017-03-03T04:55:04.670" Score="0" Body="&lt;p&gt;The effect of the Fed's (nominal) policy rate depends on the &lt;em&gt;real interest rate&lt;/em&gt;, which is the difference between the nominal interest rate and the &lt;em&gt;expected&lt;/em&gt; inflation, as you noted from the Fisher equation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, suppose the Fed's policy rate is set at 8%. On one hand, suppose that people expect prices to rise at 1%, then the real interest rate is 7%. This implies a very tight monetary policy. On the other hand, if expected inflation is very high at 7%, then the policy rate at 8% is quite accommodative. This is why monetary policy rules have to account for inflation expectation.&lt;/p&gt;&#xA;" OwnerUserId="5145" LastActivityDate="2017-03-03T04:55:04.670" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15631" PostTypeId="1" AcceptedAnswerId="15639" CreationDate="2017-03-03T06:22:29.947" Score="1" ViewCount="160" Body="&lt;p&gt;Given a Utility function $U(c,l) = c - \frac{1}{2}l^2$ , where $c$ is the consumption and $l$ is the number of hours of labour. Let $L$ be the maximum amount of labor, so the amount of leisure is $L - l$. The wage rate is $w$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume a linear tax rate $r$, where $0 &amp;lt; r &amp;lt; 1$. Also, there is a fixed transfer of $R &amp;gt; 0$ to every individual that is irrespective of labor supply choice. Solve for labor supply l that maximises utility.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My solution: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$c = (1-r)wl + R$ therefore we maximise $U(l) = (1-r)wl + R - \frac{1}{2}l^2$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Differentiating $U$ w.r.t $l$ we get $(1-r)w - l = 0$; therefore $l = (1-r)w$. So this shows that $R$ has no relation to $l$. However, it should make a difference due to the income effect, so I'm not sure what I'm doing wrong :/&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks!&lt;/p&gt;&#xA;" OwnerUserId="12310" LastEditorUserId="5145" LastEditDate="2017-03-03T08:27:09.950" LastActivityDate="2017-03-03T18:43:12.620" Title="Effect of changing Non Labor Income on Consumption-Leisure problem" Tags="&lt;labor-economics&gt;&lt;public-economics&gt;&lt;consumption&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="15632" PostTypeId="2" ParentId="15623" CreationDate="2017-03-03T08:48:08.340" Score="1" Body="&lt;p&gt;The extra benefit to you, beyond what you pay for your iPhone and for your Netflix subscription, is called &lt;strong&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Economic_surplus&quot; rel=&quot;nofollow noreferrer&quot;&gt;consumer surplus&lt;/a&gt;&lt;/strong&gt; and in theory this could be aggregated across all consumers who take advantage of this innovation&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is difficult to measure:  again in theory it could be done by judging how much more individuals would be willing to pay until they were indifferent between purchasing or not purchasing&lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2017-03-03T08:48:08.340" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="15633" PostTypeId="1" AcceptedAnswerId="15634" CreationDate="2017-03-03T14:07:59.210" Score="0" ViewCount="55" Body="&lt;p&gt;A house is built and sold to a family as their primary residence for £1000 in 2000. The purchase price is included in GDP for 2000. In 2001 the house is sold for £2500. The seller pays solicitors' and agents' fees of £200. This is included in services part of GDP for 2001. He pockets £300 profit on the sale. Is this profit part of GDP?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think not, but can find no authoritative answer. &lt;/p&gt;&#xA;" OwnerUserId="10736" LastActivityDate="2017-03-03T14:53:35.947" Title="UK GDP accounts for profits on sale of home" Tags="&lt;gdp&gt;&lt;national-accounts&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15634" PostTypeId="2" ParentId="15633" CreationDate="2017-03-03T14:53:35.947" Score="0" Body="&lt;p&gt;The $£2000$ appears in GDP in 2000, as production (less intermediate goods consumed) and as value added (the wages of the builders and profit of the developer) and as expenditure (capital formation or investment by the original buyer).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The $£2500$ actually does appear twice in 2001, once positively (by the new buyer) and once negatively (by the seller), as fixed capital formation in the expenditure measure of GDP.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So in aggregate this cancels out and does not add to GDP in 2001 (correctly so, as no value has been added in 2001 - equivalently there has been no production in 2001), but might appear in more detailed elements of the national accounts, for example if the new buyer was an individual while the seller was part of government.&lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2017-03-03T14:53:35.947" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15635" PostTypeId="1" AcceptedAnswerId="16074" CreationDate="2017-03-03T15:06:18.577" Score="3" ViewCount="260" Body="&lt;p&gt;I was writing some notes about the last economic and financial crisis and I noticed that all these recent crisis start with a housing bubble. Beside the 2007-08 US's one, also Japanese crisis in the beginning of the 90s and Spain's crisis, just to cite a couple of them, all have started by housing price boosting. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why are all recent crisis starting with a housing bubble? Is something related to modern economies or just a coincidence?&lt;/p&gt;&#xA;" OwnerUserId="6773" LastEditorUserId="2776" LastEditDate="2017-05-26T09:37:12.983" LastActivityDate="2018-11-12T07:05:44.567" Title="Why recent crises all started with a housing bubble?" Tags="&lt;macroeconomics&gt;&lt;financial-crises&gt;&lt;economic-bubble&gt;" AnswerCount="5" CommentCount="7" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15636" PostTypeId="2" ParentId="15635" CreationDate="2017-03-03T16:12:33.623" Score="0" Body="&lt;p&gt;Bubbles occur in every market. Along with the housing bubble in the United States we also faced the &quot;Alpaca bubble&quot; in 2010: &lt;a href=&quot;https://priceonomics.com/when-the-great-alpaca-bubble-burst/&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://priceonomics.com/when-the-great-alpaca-bubble-burst/&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Over speculation in an unfortunately common phenomena and property due to its need to raise a large amount of upfront capital to construct buildings often faces periods of over speculation followed by a rapid return to fair market value (bubble bursting). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;2008 was a particularly bad example of this but by no means the only example of over speculation in the housing market. The examples you mentioned were also due to over speculation in the housing market. I would disagree with your claim that most modern crisis (whatever that means) are due to the housing market as this simply isn't true.&lt;/p&gt;&#xA;" OwnerUserId="10245" LastActivityDate="2017-03-03T16:12:33.623" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15637" PostTypeId="2" ParentId="15635" CreationDate="2017-03-03T16:56:00.897" Score="0" Body="&lt;p&gt;Prolonged or long economic crises have generally been preceded by bubbles. Bubbles are generally induced by innovations in the market. Also, bubbles aren't new and certainly not modern occurrences. You can find plenty of cases of bubbles leading to long economic contractions: Tulip mania in Holland (1634-1637), South Sea Bubble in the UK (1711), Florida real estate craze of 1926 etc. &lt;/p&gt;&#xA;" OwnerUserId="6009" LastEditorUserId="6009" LastEditDate="2017-03-03T18:32:00.807" LastActivityDate="2017-03-03T18:32:00.807" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="15638" PostTypeId="1" CreationDate="2017-03-03T17:00:08.013" Score="0" ViewCount="78" Body="&lt;p&gt;I've done some google search for good, reader friendly albeit technical, books on technological progress/change and economic growth. However, I've not found what I want. If you are using or have heard about a title on the above topics, do please list them below in your post.&lt;/p&gt;&#xA;" OwnerUserId="6009" LastActivityDate="2017-03-06T09:13:30.530" Title="Books on Technological Progress and Growth" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;economic-growth&gt;&lt;endogenous-growth&gt;&lt;directed-technical-change&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15639" PostTypeId="2" ParentId="15631" CreationDate="2017-03-03T18:43:12.620" Score="3" Body="&lt;p&gt;This has to do with the form of the utility function. Assume instead that,say, we had&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U(c,l) = c^{1/2} - \frac{1}{2}l^2$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does now $R$ affect the labor-supplied decision?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Solve it and explore. Check also the link offered in a comment to your question.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2017-03-03T18:43:12.620" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15640" PostTypeId="1" AcceptedAnswerId="15641" CreationDate="2017-03-03T19:41:54.897" Score="3" ViewCount="1475" Body="&lt;p&gt;Please kindly instruct me on solving the following in a general equilibrium framework with standard budget constraint,&#xA;$$ u^{1}\left ( x  \right )= max\left [ \frac{x_{1}}{10}, \frac{x_{2}}{10}\right ]+ min\left [ x_{1},x_{2} \right ] $$&#xA;, with $e^{1} = (10,10)$&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;What would this consumer demand at prices $p = (\frac{3}{4}; \frac{1}{4})$?&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Given the other two consumer utilities&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$u^{2}\left ( x  \right )= x_{1}^{\frac{2}{5}}x_{2}^{\frac{3}{5}} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$u^{3}\left ( x  \right )= x_{1}^{\frac{3}{5}}x_{2}^{\frac{2}{5}}$$&#xA;, with $e^{2} = (4,6)$ , $e^{3} = (4,4)$ &lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;2&quot;&gt;&#xA;&lt;li&gt;Find one Walrasian equilibrium (and determine both equilibrium prices and the equilibrium allocation).&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;I have completely no idea how to start with it...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you!&lt;/p&gt;&#xA;" OwnerUserId="12319" LastActivityDate="2017-03-04T14:02:35.950" Title="General equilibrium regarding on U= max(ax,ay) + min(x,y)" Tags="&lt;utility&gt;&lt;general-equilibrium&gt;" AnswerCount="1" CommentCount="3" ClosedDate="2017-03-06T22:24:24.707" ContentLicense="CC BY-SA 3.0" />
  <row Id="15641" PostTypeId="2" ParentId="15640" CreationDate="2017-03-04T03:12:07.313" Score="2" Body="&lt;p&gt;Let us name three consumers A, B and C, and two goods X and Y. Equilibrium price vector $(p_x, p_y=1)$ and allocation $((x_A, y_A), (x_B, y_B), (x_C, y_C))$ satisfy the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Optimality Conditions (Allocation must solve the utility maximization problem of the three consumers, i.e. it must lie on the demand functions)&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;$(x_A, y_A) = \begin{cases} \left(\frac{10p_x+10}{p_x}, 0\right)  &amp;amp; \text{if } p_x \leq \frac{1}{10}  \\ \left(10,10\right) &amp;amp; \text{if } \frac{1}{10} \leq p_x \leq  10 \\ \left(0, 10p_x+10\right) &amp;amp; \text{if } p_x \geq 10\end{cases} $&lt;/li&gt;&#xA;&lt;li&gt;$(x_B, y_B) = \left(\frac{2(4p_x + 6)}{5p_x}, \frac{3(4p_x + 6)}{5}\right)$ &lt;/li&gt;&#xA;&lt;li&gt;$(x_C, y_C) = \left(\frac{3(4p_x + 4)}{5p_x}, \frac{2(4p_x + 4)}{5}\right)$&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Feasibility Conditions&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;$x_A + x_B + x_C = 18$&lt;/li&gt;&#xA;&lt;li&gt;$y_A + y_B + y_C = 20$&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Solving the above gives price vector $(p_x, p_y) = (1.2, 1)$ that supports the allocation $((x_A, y_A), (x_B, y_B), (x_C, y_C)) = ((10, 10), (3.6, 6.48), (4.4,3.52))$ in equilibrium.&lt;/p&gt;&#xA;" OwnerUserId="11824" LastEditorUserId="11824" LastEditDate="2017-03-04T14:02:35.950" LastActivityDate="2017-03-04T14:02:35.950" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15644" PostTypeId="1" AcceptedAnswerId="15659" CreationDate="2017-03-04T12:08:24.740" Score="1" ViewCount="74" Body="&lt;p&gt;When the Federal Reserve is issuing money, they are only printing cash money (coins and banknotes)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If not, then what other types of money they are issuing?&lt;/p&gt;&#xA;" OwnerUserId="5161" LastEditorUserId="5161" LastEditDate="2017-03-04T14:00:44.497" LastActivityDate="2017-03-05T21:21:17.487" Title="The Federal Reserve is only issuing cash money?" Tags="&lt;federal-reserve&gt;&lt;money&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15645" PostTypeId="1" CreationDate="2017-03-04T15:23:24.847" Score="1" ViewCount="179" Body="&lt;p&gt;My teacher mentioned off-hand that the first Von Neumann Morgenstern axiom of completeness is not actually necessary to prove the Expected Utility Property, and that the axiom of completeness is in fact implied by the axioms of continuity and transitivity. I don't see why this is. &lt;/p&gt;&#xA;" OwnerUserId="12323" LastActivityDate="2017-03-04T21:09:13.180" Title="How can the VNM completeness axiom be derived from the transitivity and continuity axioms?" Tags="&lt;expected-utility&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15646" PostTypeId="2" ParentId="15645" CreationDate="2017-03-04T20:39:00.153" Score="2" Body="&lt;p&gt;I think I just found a counterexample to your teacher's claim.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose completeness &lt;em&gt;is violated completely&lt;/em&gt; (sorry for the pun): $L\not\succsim L'$ and $L'\not\succsim L$ for any $L,L'\in\mathcal L$, i.e. no two lotteries are comparable. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then I claim that transitivity and continuity are both satisfied vacuously. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Transitivity&lt;/strong&gt;: $L\succsim L'$ and $L'\succsim L''$ imply $L\succsim L''$ for any $L,L',L''\in\mathcal L$. But since no two lotteries are comparable by $\succsim$, the antecedent is always false, and so transitivity is always satisfied. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Continuity&lt;/strong&gt;: for any $L,L',L''\in\mathcal L$, the sets $\{\alpha\in[0,1]:\alpha L+(1-\alpha)L'\succsim L''\}$ and $\{\alpha\in[0,1]:L''\succsim\alpha L+(1-\alpha)L'\}$ are both closed. Again, since no two lotteries are comparable, both sets are empty and therefore closed. Hence, continuity is satisfied in a vacuous sense.&lt;/p&gt;&#xA;" OwnerUserId="42" LastEditorUserId="42" LastEditDate="2017-03-04T21:09:13.180" LastActivityDate="2017-03-04T21:09:13.180" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15647" PostTypeId="1" AcceptedAnswerId="16948" CreationDate="2017-03-04T20:53:36.947" Score="2" ViewCount="197" Body="&lt;p&gt;The thing is that I am writing a scholarship essay and one of the questions asks me to list my career goals and suggests as to how would the college where I am applying for the scholarship to would help me achieve these career goals. So my career goal is that I want to pursue research in Economics and publish papers. But I want to connect with the fact that I am very much interested in Mathematics and also participate in a lot of community service projects. I, therefore, want to write about an area of Economics something like Econometrics or Quantitative Finance which bears a strong relation to above-mentioned themes because then I will be able to elaborate on how the college offers a strong program in these areas and that this would, in turn, would help me succeed in my career. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;PS. (1) I don't want to hint that I intend to make lots of money. So may be Quant is out. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;PS. (2) A list of courses can be viewed on this link (&lt;a href=&quot;http://www.lse.ac.uk/resources/calendar/programmeRegulations/undergraduate/BScEconomics.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.lse.ac.uk/resources/calendar/programmeRegulations/undergraduate/BScEconomics.htm&lt;/a&gt;). &lt;/p&gt;&#xA;" OwnerUserId="6565" LastActivityDate="2017-05-28T08:20:26.367" Title="Which area of Economics involves heavy mathematics and also appears to be directly helping the people?" Tags="&lt;soft-question&gt;" AnswerCount="3" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15648" PostTypeId="1" CreationDate="2017-03-04T20:57:43.183" Score="0" ViewCount="187" Body="&lt;p&gt;A person with a current wealth of 100,000 who faces the prospect of a 25% chance of losing his or her 20,000 automobile through theft during the next year. Since there is no upside to this event and E(gain) = 0.25*(-20000) + 0.75*0 = -5000&#xA;This would mean we all take insurance against unfair bets in life. Is this conclusion correct?&lt;/p&gt;&#xA;" OwnerUserId="12325" LastActivityDate="2017-03-06T09:08:18.060" Title="Is car accident/theft a fair bet?" Tags="&lt;microeconomics&gt;&lt;risk-aversion&gt;&lt;uncertainty&gt;" AnswerCount="1" CommentCount="2" ClosedDate="2017-03-08T05:20:35.173" ContentLicense="CC BY-SA 3.0" />
  <row Id="15649" PostTypeId="1" CreationDate="2017-03-04T22:45:01.420" Score="1" ViewCount="317" Body="&lt;p&gt;I'm trying to find the uncompensated demand function. How would you do that, when I have the following utility function $u(x_1,x_2)=x_1-x_2$, and the budget constraint $p_1\cdot x_1+p_2\cdot x_2=p_1\cdot e_1+p_2\cdot e_2$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've found the following.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\max\ u(x_1,x_2)=x_1-x_2 \ s.t. \ p_1(x_1-e_1)+p_2(x_2-e_2)=0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With use of substitutions I must maximize the following expression&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\max\ u(x_1,x_2)=x_1-\frac{p_1(e_1-x_1)+p_2e_2}{p_2}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I find the f.o.c.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac{\partial u}{\partial x_1}=1+\frac{p_1}{p_2}=0$&lt;/p&gt;&#xA;" OwnerUserId="10511" LastEditorUserId="1601" LastEditDate="2017-03-05T05:57:27.283" LastActivityDate="2020-04-01T18:46:55.137" Title="How to derive the demand function of $U(x_1,x_2)=x_1-x_2$" Tags="&lt;utility&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15650" PostTypeId="2" ParentId="15647" CreationDate="2017-03-05T01:06:22.383" Score="2" Body="&lt;p&gt;The New England kidney exchange program cofounded by Alvin Roth, based on the theory of stable matching, has enabled hundreds of patients awaiting kidney transplantation to receive kidney donations that they would otherwise unlikely to get. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The theoretical underpinning of this program is indeed heavily mathematical, and the program indeed helped a lot of people (&quot;helped&quot; here is really an understatement, it &lt;em&gt;saved people's lives&lt;/em&gt;). So I'd say the field of &lt;strong&gt;market/mechanism design&lt;/strong&gt; is an example satisfying your criteria. &lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2017-03-05T01:06:22.383" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="15651" PostTypeId="1" AcceptedAnswerId="16953" CreationDate="2017-03-05T05:45:34.080" Score="0" ViewCount="183" Body="&lt;p&gt;So, I've been following bitcoin for a number of years now and I decided to look at how it plays with the dollar and the Chinese yuan. I'm wondering if someone can help me interpret the graph below. I have some background in physics but not much in economics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/2jkel.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/2jkel.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So I understand that the green line (&quot;USD/CNY&quot;) is the value of the dollar compared to the yuan in the global foreign exchange market. When it goes up, that means the value of the dollar has gone up for those buying with yuan.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The purple line is &quot;BTC/CNY&quot; divided by &quot;BTC/USD&quot;, and here's where I'm interested in your help. I have a couple thoughts:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;The lines both have the same units&lt;/li&gt;&#xA;&lt;li&gt;The purple line represents the same thing as the green line EXCEPT that it's mediated by the bitcoin market instead of the global forex market&lt;/li&gt;&#xA;&lt;li&gt;The purple line compares the value of bitcoin for buyers with yuan to the value of bitcoin for buyers with dollars; When the purple line is above the green line, bitcoin has a higher value to buyers with yuan than buyers with dollars.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Are those reasonable interpretations? Thanks in advance!&lt;/p&gt;&#xA;" OwnerUserId="12328" LastEditorUserId="12328" LastEditDate="2017-05-28T01:45:36.603" LastActivityDate="2017-05-28T01:45:36.603" Title="How should I interpret (BTC/CNY) / (BTC/USD)?" Tags="&lt;bitcoin&gt;" AnswerCount="2" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15652" PostTypeId="1" AcceptedAnswerId="15654" CreationDate="2017-03-05T09:18:10.177" Score="0" ViewCount="43" Body="&lt;p&gt;After seeing some lectures on Youtube, I came to learn about a few, namely, Game Theory and Microeconomics, but I am not sure whether this is all that is needed. Please do add as many courses as possible or refer to the courses that should be taken from the following list: &lt;a href=&quot;http://www.lse.ac.uk/resources/calendar/programmeRegulations/undergraduate/BScEconomics.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.lse.ac.uk/resources/calendar/programmeRegulations/undergraduate/BScEconomics.htm&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="6565" LastActivityDate="2017-03-05T09:35:23.183" Title="What prerequisite courses do I need in order to specialize in Mechanism/Market design theory?" Tags="&lt;soft-question&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15653" PostTypeId="2" ParentId="15649" CreationDate="2017-03-05T09:30:12.300" Score="4" Body="&lt;p&gt;Some economics problems are deisgned to help us practice the basic tools (e.g., optimisation) of the trade. Others are designed to force us to think about the mechanics of a problem to help us understand the underlying economics better.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This problem falls into the latter category, so I recommend you give up on trying to usual calculus (which is premised on finding some sort of indifference curve tangent) and play around with the problem to figure out why this approach isn't working.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;A consumer with $u=x_1-x_2$ is indifferent between the bundles $(4,3)$ and $(3,2)$. We can plot these and other indifference budles to draw an indifference curve:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/7kVlZ.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/7kVlZ.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Likewise, the consumer is indifferent between $(4,4)$ and $(5,5)$ and we can, in this fashion, get an indifference map:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/yxLxT.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/yxLxT.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From inspection of the utility function we know that the consumer is better off with more $x_1$ and less $x_2$, so utility increases in the direction indicated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now we can pick an endowment vector (e.g,. $(2,4)$) and a relative price (e.g. $-p_1/p_2=-1$) and plot the price line:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/4SsjE.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/4SsjE.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The consumer can trade from their endowment to any point along this line. By inspection, you should be able to figure out what the demand vector $\mathbf{x}=(x_1,x_2)$ will be. &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Addendum: once you figure out what is going on here, your condition $$\frac{\partial u}{\partial x_1}=1+p_1/p_2$$&#xA;should make a bit more sense to you.&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2017-03-05T09:36:24.090" LastActivityDate="2017-03-05T09:36:24.090" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="15654" PostTypeId="2" ParentId="15652" CreationDate="2017-03-05T09:35:23.183" Score="3" Body="&lt;p&gt;The list you posted was for an undergraduate degree in economics. Mechaism design usually won't come up in any serious way until graduate school. Until then, my advice is to take as much as the following as possible: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;microeconomic theory, &lt;/li&gt;&#xA;&lt;li&gt;game theory (often covered within microeconomic theory), &lt;/li&gt;&#xA;&lt;li&gt;mathematical methods/optimisation.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Mechanism design falls under the rubric of microeconomics theory, which at the advanced (i.e. postgraduate) level is highly technical. So achieving a high degree of mathematical sophistication in addition to a solid grounding in microeconomic theory is probably the best strategy.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2017-03-05T09:35:23.183" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15656" PostTypeId="2" ParentId="15627" CreationDate="2017-03-05T16:15:53.440" Score="2" Body="&lt;p&gt;After many emails, my professor conceded to posting a solution to this problem, the funny thing is that he does not use the confusing $\mathcal{L}$ equation he wrote previously in class.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Solution c.) We have the Planner's problem $$\max_{c^{A},c^{B}}\{\mathbb{E}[u^{A}(c^{A})] + \eta \mathbb{E}[u^{B}(c^{B})]$$ such that the resource constraints &#xA;\begin{align*}&#xA;c_1^{A} + c_1^{B} &amp;amp;= e_1^{A}+e_1^{B} = 12\\&#xA;c_2^{A} + c_2^{B} &amp;amp;= e_2^{A} + e_2^{B} = 8&#xA;\end{align*}&#xA;$\eta$ is the Negishi weights - which we will deal with later. Thus we have,&#xA;$$\max_{c_1^{A},c_2^{A}}\{\left[ \frac{1}{2}\frac{(c_1^{A})^{1- \gamma^{A} -1}}{1 - \gamma^{A}} + \frac{1}{2}\frac{(c_2^{A})^{1 - \gamma^A}-1}{1-\gamma^{A}}\right] + \eta\left[\frac{1}{2}((12-c_1^{A})-1) + \frac{1}{2}((8- c_2^{A}) - 1)\right]\}$$&#xA;We have the FOC: &#xA;\begin{align*}&#xA;&amp;amp;c_1^{A}: \frac{1}{2}(1 - \gamma^{A})(c_1^{A})^{-\gamma^{A}} - \frac{1}{2}\eta = 0\\&#xA;&amp;amp;c_2^{A}: \frac{1}{2}(1 - \gamma^{A})(c_2^{A})^{-\gamma^{A}} - \frac{1}{2}\eta = 0\\&#xA;\end{align*}&#xA;We see that $c_1^{A} = c_2^{A}$. In order to solve the problem for $\eta$, the solution must also satisfy the &quot;lifetime budget constraint&quot; of each agent. Since there are only $2$ agents, it is sufficient to solve the problem for just $1$ agent:&#xA;$$\Rightarrow \sum_{s=1}^{2}u^{i\prime}(c_s^{i})c_s^{i} = \sum_{s}u^{i\prime}(c_{s}^{i})e_{s}^{i} , \  i = A , B$$&#xA;The first sum is the marginal value of consumption and the second sum is the marginal value of endowments. The lifetime budget constraints implies for $A: u^{A\prime}(c_1^{A})c_1^{A} + u^{A\prime}(c_2^{A}) = u^{\prime}(c_1^{A})e_1^{A} + u^{\prime}(c_2^{A})e_2^{A}$ but since $c_1^{A} = c_2^{A}$, $u^{A\prime}(c_1^{A}) = u^{A\prime}(c_2^{A})$. So we get $$c_1^{A} + c_2^{A} = e_1^{A} + e_2^{A} = 8 \Rightarrow c_1^{A} = c_2^{A} = 4 \Rightarrow c_1^{B} = 12 - c_1^{A} = 8 \ \text{and} \ c_2^{B} = 8 - c_1^{A} = 4$$&#xA;Note from the FOC's, we have $$\eta = (1-\gamma^{A})(c_1^{A})^{-\gamma^{A}})$$ So if we specify $\gamma^{A}$, we could solve for the specific value of $\eta$. In our example we don't need to do this since $\gamma^{B} = 0$ is a degenerate case.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Solution d.) From the FOC's in part (a) we have &#xA;\begin{align*}&#xA;6 + \theta_1^{B} - \theta_2^{B} &amp;amp;= c_1^{B} = 8\\&#xA;6 + \theta_1^{B} + 4\theta_2^{B} = c_2^{B} = 4&#xA;\end{align*}&#xA;Thus we have $\theta_1^{B} = 6/5$ and $\theta_2^{B} = -4/5$. Since $\theta_{s}^{A} + \theta_{s}^{B} = 0$, $s= 1,2$ (zero net supply) We get $$\theta_1^{A} = -6/5 \ \text{and} \ \theta_2^{A} = -4/5$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Solution e.) We know that $$p = Dq \Rightarrow \begin{pmatrix}&#xA;p_1\\&#xA;p_2&#xA;\end{pmatrix} = \begin{pmatrix} &#xA;1 &amp;amp; 1\\&#xA;-1 &amp;amp; 4\\&#xA;\end{pmatrix}\begin{pmatrix}&#xA;q_1\\&#xA;q_2&#xA;\end{pmatrix}$$&#xA;Then &#xA;\begin{align*}&#xA;p_1 &amp;amp;= q_1 + q_2\\&#xA;p_2 &amp;amp;= -q_1 + 4q_2&#xA;\end{align*}&#xA;We know that $q_1 = q_2$ but we do not know the sum because there was no period zero consumption in this model from which to price the bond. Let's choose $q_1 + q_2 = 1$ then $q_1 = q_2 = 1/2$ so $p_1 = 1$ and $p_2 = 3/2$. &lt;/p&gt;&#xA;" OwnerUserId="11762" LastActivityDate="2017-03-05T16:15:53.440" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15657" PostTypeId="2" ParentId="8491" CreationDate="2017-03-05T16:52:14.047" Score="2" Body="&lt;p&gt;The first scholar to model the intuition behind the political business cycle is William Nordhaus in a REStud article (1975).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Nordhaus (1975) is thus widely believed to be the seminal article in the literature: &lt;a href=&quot;https://www.jstor.org/stable/2296528?seq=1#page_scan_tab_contents&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.jstor.org/stable/2296528?seq=1#page_scan_tab_contents&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="12330" LastActivityDate="2017-03-05T16:52:14.047" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15658" PostTypeId="2" ParentId="15648" CreationDate="2017-03-05T16:54:32.493" Score="2" Body="&lt;p&gt;You are confused about how insurance works, and thereby why people take insurance. When someone buys insurance against a certain even, s/he has to pay a fee (called a &quot;premium&quot;), which entitles the person to be compensated for the loss in case the negative event happens. Unexpectedly, insurance comes in many ways. For instance, the compensation can be of the total loss (in your example, 20,000), or could be partial. The size of the premium usually reflects this difference.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, in the example you give, what you have calculated is simply &lt;strong&gt;the expected value of no taking insurance&lt;/strong&gt;, because (i) there is no premium, and (ii) if the bad event happens, the car owner losses the full amount. Naturally, no taking insurance against a &lt;strong&gt;negative event&lt;/strong&gt; will always give you a negative expected value (your &quot;unfair bet&quot; conclusion), as long as that event has positive probability. That is precisely the reason why individuals are &lt;strong&gt;willing to pay&lt;/strong&gt; for insurance. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;How much is the person willing to pay? This depends on the preferences of the individual. For example, consider someone who is &lt;strong&gt;risk neutral&lt;/strong&gt; (i.e. that is indifferent between uncertainty and certainty, if the expected value of the former is the same as that of the latter). In this case, the person is willing to pay no more than 5,000 for an insurance which fully cover the cost of the car loss. For any premium below 5,000 the individual would take the insurance. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The case is different for &lt;strong&gt;risk lover&lt;/strong&gt; individuals, who would prefer an uncertain situation (no insurance) rather than a certain one (insurance). This individual &lt;strong&gt;would not&lt;/strong&gt; be willing to pay more than 5,000 to get insured. Conversely, a &lt;strong&gt;risk averse&lt;/strong&gt; is willing to pay more than 5,000, because s/he dislikes uncertainty.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For reference, see the entry on &lt;a href=&quot;https://en.wikipedia.org/wiki/Insurance&quot; rel=&quot;nofollow noreferrer&quot;&gt;Wikipedia&lt;/a&gt;. See &lt;a href=&quot;http://www.math.hkbu.edu.hk/~hpeng/stat3820/Chapter_3.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;this pdf&lt;/a&gt; for a treatment from Economics.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-03-06T09:08:18.060" LastActivityDate="2017-03-06T09:08:18.060" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15659" PostTypeId="2" ParentId="15644" CreationDate="2017-03-05T21:21:17.487" Score="1" Body="&lt;p&gt;Deposits at the Federal Reserve largely count as money, at least as far as the depositing commercial banks are concerned. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Apparently on March 1 2016, the Federal Reserve Banks' liabilities included $\$1475$ billion of Federal Reserve notes, net of F.R. Bank holdings, and $\$2530$ billion of deposits, together with $\$412$ billion of other liabilities. See the second part of table 5 of &lt;a href=&quot;https://www.federalreserve.gov/releases/h41/current/&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.federalreserve.gov/releases/h41/current/&lt;/a&gt; for more details&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Coins are not issued by the Federal Reserve, but by the United States Mint&lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2017-03-05T21:21:17.487" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="15660" PostTypeId="1" AcceptedAnswerId="15662" CreationDate="2017-03-06T03:48:05.173" Score="3" ViewCount="816" Body="&lt;p&gt;One of the biggest political debates regards the best type of economic system, which usually boils down to capitalism vs socialism.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are there other kinds of economic systems, aside from more &quot;primitive&quot; kinds, like barter?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To put my question in perspective, I think of economic systems as a continuum that looks something like this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;communism | socialism | &quot;mixed economy&quot; | capitalism | &quot;free market capitalism&quot; (anything goes, rampant corruption and inequality)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So &quot;mixed economy&quot; would be a combination of socialism and capitalism, rather than a distinct economic system.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But that's just my opinion. There may be views that are radically different than mine&lt;/p&gt;&#xA;" OwnerUserId="12333" LastEditorUserId="1601" LastEditDate="2017-03-06T06:23:44.923" LastActivityDate="2017-03-23T12:03:32.850" Title="How many major economic systems are there?" Tags="&lt;political-economy&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="15661" PostTypeId="2" ParentId="15638" CreationDate="2017-03-06T04:02:08.447" Score="2" Body="&lt;p&gt;I'd recommend &lt;a href=&quot;http://bayanbox.ir/view/5531236431167536065/advanced-macroeconomics.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;ADVANCED&#xA;MACROECONOMICS&#xA;Fourth Edition&lt;/a&gt; by David Romer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Its a textbook for advanced macroeconomics, however it covers the topics in a very precise way. Id recommend reading chapters 1  in order to review the basic Solow model and then chapter 3 to see how the model changes when accounting for human capital and endogenous technological growth.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope this helps.&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2017-03-06T04:02:08.447" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15662" PostTypeId="2" ParentId="15660" CreationDate="2017-03-06T04:13:50.123" Score="5" Body="&lt;p&gt;Wikipedia has a comprehensive list of &lt;a href=&quot;https://en.wikipedia.org/wiki/Economic_system&quot; rel=&quot;noreferrer&quot;&gt; economic systems&lt;/a&gt;.&lt;/p&gt;&#xA;&lt;p&gt;If you want to start thinking about number major economic systems that exist I recomend looking at the section on an economy's &lt;a href=&quot;https://en.wikipedia.org/wiki/Economic_system#Allocation_mechanism&quot; rel=&quot;noreferrer&quot;&gt; allocation mechanism&lt;/a&gt;.&lt;/p&gt;&#xA;&lt;p&gt;In particular, Wikipedia lists the following kinds of system:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;The basic and general economic systems segmented by allocation are:&lt;/p&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Market economy (&amp;quot;hands off&amp;quot; systems, such as laissez-faire capitalism)&lt;/li&gt;&#xA;&lt;li&gt;Mixed economy (a hybrid that blends some aspects of both market and planned economies)&lt;/li&gt;&#xA;&lt;li&gt;Planned economy (&amp;quot;hands on&amp;quot; systems, such as state socialism, also known as &amp;quot;command economy&amp;quot; when referring to the Soviet model)&lt;/li&gt;&#xA;&lt;li&gt;Traditional economy (a generic term for older economic systems)&lt;/li&gt;&#xA;&lt;li&gt;Participatory economics (a system where the production and distribution of goods is guided by public participation)&lt;/li&gt;&#xA;&lt;li&gt;Gift economy (where an exchange is made without any explicit agreement for immediate or future rewards)&lt;/li&gt;&#xA;&lt;li&gt;Barter economy (where goods and services are directly exchanged for other goods or services)&lt;/li&gt;&#xA;&lt;li&gt;Post-scarcity economy (a hypothetical form where resources aren't scarce, such as Marx's concept of a Communist society)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2017-03-23T12:03:32.850" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="15663" PostTypeId="1" CreationDate="2017-03-06T05:32:30.597" Score="2" ViewCount="46" Body="&lt;p&gt;Bill Gates and European countries have shown favor for consumption/VAT taxes. The arguments given by proponents are often something along the lines that &quot;we know how to tax certain items more than others in a way that has the least negative impact on the economy but still maintains the necessary amount of revenue&quot;. But this seems to me more of something an accountant would say rather than an economist. For example, the U.S. might have placed a higher consumption tax on metal washboards in the 20's than shampoos. (A sudden drop in washboard manufacturing causes structural unemployment). Then the electronic washer comes in making the revenue collected from washboards decrease rapidly. In other words, the value of an item often changes over time. How does the government respond to the loss in revenue in a timely manner? I couldn't find research on this so I feel like I am missing some assumptions. &lt;/p&gt;&#xA;" OwnerUserId="12337" LastEditorUserId="12338" LastEditDate="2017-03-06T22:22:53.367" LastActivityDate="2017-03-06T22:22:53.367" Title="The effect of structural unemployment on revenue from value added tax" Tags="&lt;taxation&gt;&lt;consumption&gt;&lt;optimal-taxation&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15664" PostTypeId="2" ParentId="15638" CreationDate="2017-03-06T09:13:30.530" Score="2" Body="&lt;p&gt;Daron Acemoglu's comprehensive book &quot;&lt;a href=&quot;http://press.princeton.edu/titles/8764.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Introduction to Modern Economic Growth&lt;/a&gt;&quot; is a very good source of models and analysis related to technological change and growth. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is a copy of an earlier manuscript that he distributed online &lt;a href=&quot;http://www.ppge.ufrgs.br/giacomo/arquivos/eco02237/acemoglu-2007.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-03-06T09:13:30.530" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15665" PostTypeId="1" CreationDate="2017-03-06T14:41:33.583" Score="2" ViewCount="147" Body="&lt;p&gt;Two alternative approaches to compute a market equilibrium (in static analysis) are either to minimize the differences (either using abs() or a quadratic diff) between supply-demand quantities and prices in a given market or maximise the total surplus.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which are the advantages of these two approaches and when to prefer one over the other?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I noticed that many partial equilibrium models (e.g. &lt;a href=&quot;http://www.efi.int/files/attachments/publications/ir_15.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;1&lt;/a&gt;, &lt;a href=&quot;https://books.google.fr/books?id=7jnmbKHgQH4C&amp;amp;pg=PA9&amp;amp;lpg=PA9&amp;amp;dq=buongiorno+forest+partial+equilibrium+model&amp;amp;source=bl&amp;amp;ots=9VYhnQPRRV&amp;amp;sig=L8Ce1RzJLz6w9AW2q0ct3iMkIDw&amp;amp;hl=it&amp;amp;sa=X&amp;amp;ved=0ahUKEwil356LlsLSAhVB2hQKHTbLDgwQ6AEIODAD#v=onepage&amp;amp;q=buongiorno%20forest%20partial%20equilibrium%20model&amp;amp;f=false&quot; rel=&quot;nofollow noreferrer&quot;&gt;2 (p 42)&lt;/a&gt;) use the max surplus method, but I wonder why.&lt;/p&gt;&#xA;" OwnerUserId="10376" LastEditorUserId="10376" LastEditDate="2017-03-06T15:22:27.523" LastActivityDate="2017-04-06T01:53:43.573" Title="When to prefer maximisation of surplus and when instead to prefer minimising differences in price and q to find market equilibrium?" Tags="&lt;markets&gt;&lt;competitive-equilibrium&gt;&lt;surplus&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15668" PostTypeId="1" CreationDate="2017-03-06T15:53:49.783" Score="2" ViewCount="431" Body="&lt;p&gt;I am studying DSGE models and try to solve exercise 2.2 from Gali's (2008) book. In short, consider the simple classical economy where the following approximate equilibrium conditions must be satisfied: &#xA;$$y_t = E_t\{y_{t+1}\} - \frac{1}{\sigma}(i_t - E_t\{\pi_{t+1}\} - \rho)$$&#xA;and&#xA;$$r_t = i_t - E_t\{\pi_{t+1}\}$$&#xA;and $y_t$ and $r_t$ determined independently of monetary policy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Derive an interest rate rule that guarantees full stabilization of inflation (i.e. $\pi_t = \pi^* \;\; \forall t$). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I thought of the simple rule like $i_t = \phi\pi_t$. It is possible to show (using forward iteration) that in this case &#xA;$$\pi_t = \sum_{i=0}^{\infty}\frac{1}{\phi^{i+1}}E_t\{r_{t+i}\}$$&#xA;and letting $\phi \to \infty$ inflation goes to zero. However, I think that this not what was meant by the author. Any help appreciated. &lt;/p&gt;&#xA;" OwnerUserId="12346" LastActivityDate="2020-02-26T15:07:04.920" Title="Interest rate rule in monetary DSGE model" Tags="&lt;macroeconomics&gt;&lt;self-study&gt;&lt;dsge&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15669" PostTypeId="2" ParentId="14734" CreationDate="2017-03-06T18:13:15.463" Score="4" Body="&lt;p&gt;I think one might use either vector auto-regression or perhaps factor-augmented vector auto-regression to make such predictions. The later will allow an economist to condition on hundreds of time series to predict future unemployment values without encountering the degrees-of-freedom issues that plague VAR whenever VAR attempts to condition on larger information sets. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is a paper detailing Kalman filtering and VAR for predicting unemployment: &#xA;&lt;a href=&quot;https://www.degruyter.com/downloadpdf/j/ngoe.2015.61.issue-3/ngoe-2015-0009/ngoe-2015-0009.pdf&quot; rel=&quot;noreferrer&quot;&gt;https://www.degruyter.com/downloadpdf/j/ngoe.2015.61.issue-3/ngoe-2015-0009/ngoe-2015-0009.pdf&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;TLDR: VAR does better than does KF. This is for Romania's economy, FYI. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is another paper detailing the use of VAR to forecast unemployment: &#xA;&lt;a href=&quot;https://www.brookings.edu/wp-content/uploads/2012/09/2012b_barnichon.pdf&quot; rel=&quot;noreferrer&quot;&gt;https://www.brookings.edu/wp-content/uploads/2012/09/2012b_barnichon.pdf&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is the seminal paper that introduced FAVAR:&#xA;&lt;a href=&quot;http://faculty.wcas.northwestern.edu/~lchrist/finc520/QJE.pdf&quot; rel=&quot;noreferrer&quot;&gt;http://faculty.wcas.northwestern.edu/~lchrist/finc520/QJE.pdf&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Wiki for VAR: &#xA;&lt;a href=&quot;https://en.wikipedia.org/wiki/Vector_autoregression&quot; rel=&quot;noreferrer&quot;&gt;https://en.wikipedia.org/wiki/Vector_autoregression&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;within the wiki, you will find a link to the seminal paper by Sims that introduces the VAR methodology to economics. Fair warning: this paper is dense:&#xA;&lt;a href=&quot;http://www.ekonometria.wne.uw.edu.pl/uploads/Main/macroeconomics_and_reality.pdf&quot; rel=&quot;noreferrer&quot;&gt;http://www.ekonometria.wne.uw.edu.pl/uploads/Main/macroeconomics_and_reality.pdf&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="1655" LastActivityDate="2017-03-06T18:13:15.463" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15670" PostTypeId="1" CreationDate="2017-03-06T21:00:12.907" Score="2" ViewCount="50" Body="&lt;p&gt;When migrant workers arrive in a country, how do they facilitate specialisation? Is it by freeing up workers from jobs they do not want to do?&lt;/p&gt;&#xA;" OwnerUserId="12229" LastEditorUserId="2776" LastEditDate="2017-03-07T08:59:42.147" LastActivityDate="2017-03-08T17:18:35.883" Title="How does migration facilitate specialisation?" Tags="&lt;macroeconomics&gt;&lt;migration&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15673" PostTypeId="2" ParentId="15665" CreationDate="2017-03-07T01:05:48.003" Score="1" Body="&lt;p&gt;Market Equilibrium occurs when the difference between demand and supply is minimized. Equilibrium price and quantity is determined by solving this problem.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Surplus Maximization (or efficiency) is a property that we would want equilibrium to have. First Welfare Theorem says that in competitive markets (in the absence of externalities) market equilibrium is surplus maximizing. In standard demand-supply framework, solving for equilibrium and efficiency yields identical outcomes, and that is why these methods are used interchangeably.&lt;/p&gt;&#xA;" OwnerUserId="11824" LastEditorUserId="11824" LastEditDate="2017-03-07T01:23:08.740" LastActivityDate="2017-03-07T01:23:08.740" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="15678" PostTypeId="2" ParentId="15670" CreationDate="2017-03-07T15:43:38.707" Score="1" Body="&lt;ol&gt;&#xA;&lt;li&gt;Workers may have different skills. If immigrant workers are good at farming then domestic workers can shift into non-farming activities.&lt;/li&gt;&#xA;&lt;li&gt;Workers increase the total population and larger populations can sustain greater specialization. For example, with enough people we can have an &lt;a href=&quot;http://www.artisanalpencilsharpening.com/&quot; rel=&quot;nofollow noreferrer&quot;&gt;artisanal pencil sharpener&lt;/a&gt; and &lt;a href=&quot;https://en.wikipedia.org/wiki/Will_Shortz&quot; rel=&quot;nofollow noreferrer&quot;&gt;professional crossword puzzle maker&lt;/a&gt; but a smaller population couldn't sustain that as a career. &lt;/li&gt;&#xA;&lt;li&gt;Migrants tastes may differ from domestics and domestics may develop businesses to address these tastes. For example, bidets are not common in the United States but Kohler, an American toilet manufacturer, is happy to have its workers make them for immigrants that enjoy them. &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2017-03-08T17:18:35.883" LastActivityDate="2017-03-08T17:18:35.883" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15679" PostTypeId="1" CreationDate="2017-03-07T15:58:12.500" Score="5" ViewCount="321" Body="&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Stock-Flow_consistent_model&quot; rel=&quot;noreferrer&quot;&gt;Stock-Flow Consistent&lt;/a&gt; (SFC) models are becoming more popular among heterodox economists (particularly in the Post-Keynesian school of thought). But I fail to see the relevance of this approach. The main addition seems to be the &quot;construction&quot; of the &quot;Flow of Funds&quot; table. But is that really necessary? Whenever an economist is doing a model, careful attention must be presented to including relevant sectors, and trying not to have &quot;inflows/outflows&quot; which are not explained in the system.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is so special/new about SFC models? Are not most of mainstream models SFC? Even more, what if a model is not SFC, but is a better predictor/more realistic than one with SFC? &lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-05-15T17:49:09.873" Title="Stock-Flow Consistent models" Tags="&lt;macroeconomics&gt;&lt;economic-methodology&gt;&lt;schools-of-thought&gt;" AnswerCount="1" CommentCount="4" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="15680" PostTypeId="2" ParentId="13504" CreationDate="2017-03-07T18:24:12.967" Score="2" Body="&lt;p&gt;It's a direct result of how monetary policy is normally conducted. In normal-times monetary policy, the Fed will increase its target rate (the Fed Funds rate) by selling Treasuries to dealers, who will pay for them by withdrawing deposits they hold at banks. The cash that formed these deposits can therefore no longer be held as excess reserves at the Fed, which decreases the supply of funds in the Fed Funds market, increasing the price of borrowing funds (i.e., the Fed Funds rate). The reduction in bank reserves is actually the mechanism by which rates are increased; the sale of bonds is just a way of reducing reserves.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here's &lt;a href=&quot;https://www.brookings.edu/blog/up-front/2015/04/10/the-hutchins-center-explains-how-the-fed-will-raise-interest-rates/&quot; rel=&quot;nofollow noreferrer&quot;&gt;a reference&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="264" LastActivityDate="2017-03-07T18:24:12.967" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="15681" PostTypeId="1" CreationDate="2017-03-07T20:42:07.207" Score="0" ViewCount="1438" Body="&lt;p&gt;In my economics class, we learned that in the short run, there are three stages of marginal returns: increasing, decreasing, and negative.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a firm adds the first few units of labor, specialization allows for increasing marginal returns (Stage 1).  This makes sense to me.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As one adds more units of labor, marginal returns decrease due to limited capital (Stage 2).  This also makes sense to me.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, in Stage 3, there are negative marginal returns (total product decreases).  How is this possible?  In practice, the firm would lay off the final worker(s), and the firm would never reach Stage 3 unless management was totally incompetent.  However, by the theory of specialization that causes Stage 1, if, say, a factory could produce 30 items with 6 workers but could only produce 27 items with 7 workers, it seems as though the factory, assuming it kept 7 workers on its payroll, would simply have one worker &quot;specialize&quot; in sitting outside, letting the other 6 workers operate independently of the one sitting outside and thus produce 30 items.  By that argument, if the firm kept hiring more workers, it could have those newly hired workers sit outside, so that total product would remain constant and marginal product would never be negative.  Where am I going wrong?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks!&lt;/p&gt;&#xA;" OwnerUserId="12360" LastActivityDate="2017-03-08T14:28:14.257" Title="Negative Marginal Returns" Tags="&lt;microeconomics&gt;&lt;marginal&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15682" PostTypeId="2" ParentId="15681" CreationDate="2017-03-07T20:51:10.857" Score="1" Body="&lt;p&gt;I don't understand your problem: negative marginals returns are a &lt;em&gt;feasible&lt;/em&gt; situation. The fact that a rational optimizing firm won't let itself reach such a stage is another matter.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2017-03-07T20:51:10.857" CommentCount="9" ContentLicense="CC BY-SA 3.0" />
  <row Id="15683" PostTypeId="1" AcceptedAnswerId="15686" CreationDate="2017-03-07T23:21:16.380" Score="1" ViewCount="5824" Body="&lt;p&gt;One of the first assumption is that the demand function is homogeneous of degree zero. The reason and the proof is easy. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It should also be easy why this implies we can normalize the price of one good to 1, but I cannot see exactly what's going on.&#xA;A counterexample would be of great help i.e. a function with homogeneity different from zero showing that the normalization is not possible/leads to wrong conclusions.&lt;/p&gt;&#xA;" OwnerUserId="6737" LastActivityDate="2017-03-08T02:33:25.737" Title="Homogeneity of degree zero and normalization" Tags="&lt;microeconomics&gt;&lt;self-study&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15684" PostTypeId="2" ParentId="11885" CreationDate="2017-03-08T01:22:10.220" Score="2" Body="&lt;p&gt;According to Bernanke himself, interest paid on reserves in excess of the penalty free upper bound are used as an additional tool with which the Fed can place a floor on the federal funds rate.The logic here is that banks have no incentive to lend in the overnight market at rates lower than this interest rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This link has some links to info on the topic. It's an old answer that got little attention and so here is my chance to get some use out of it :) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://economics.stackexchange.com/questions/14763/federal-reserve-interest/15114#15114&quot;&gt;Federal Reserve Interest&lt;/a&gt; &lt;/p&gt;&#xA;" OwnerUserId="1655" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2017-03-08T01:22:10.220" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15685" PostTypeId="1" CreationDate="2017-03-08T01:30:26.300" Score="1" ViewCount="105" Body="&lt;p&gt;Suppose you have a sausage maker. He buys batches of ground meat, then makes and sells sausages. Suppose each batch of ground meat makes N sausages, and each batch has specific level of quality that dictates the price of the sausage, so each batch of sausages is priced differently. Let's also assume there isn't any shortage of ground meat so the sausage maker can always make more sausage.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The sausages are also priced dynamically in that the price you pay per sausage decreases as you increase the size of your order (i.e. buy 1 for \$2 and 3 for \$5).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's also assume that consumers have perfect information about the quality of the sausage. The sausage maker doesn't know the best way to price the sausage based on the quality, so the sausage maker wants to evaluate the performance of each batch of ground meat to try to model the consumer's demand as a function of quality. What would be the best metric?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Naively one could look at the lifetime value of the batch (i.e. how much total revenue was generated from sales from this batch). But this seems wrong, because it fails to take into account the time it took to sell it, and it rewards batches that consumers buy less of in bulk because the price per unit is higher (when in reality consumers buying more of a batch in bulk is an indication of high quality).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So revenue per day (or some time period) seems like the next logical metric, but this also seems naive. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am certain that this sort of problem is in the Economic literature, but I am not familiar enough to find it. Any guidance would be greatly appreciated.&lt;/p&gt;&#xA;" OwnerUserId="12361" LastEditorUserId="2776" LastEditDate="2017-06-13T22:21:39.213" LastActivityDate="2017-06-13T22:21:39.213" Title="Metric for evaluating sales with dynamic pricing" Tags="&lt;microeconomics&gt;&lt;asset-pricing&gt;&lt;pricing&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15686" PostTypeId="2" ParentId="15683" CreationDate="2017-03-08T02:14:17.577" Score="2" Body="&lt;p&gt;Demand $x(p, m)$ is the solution to the utility maximization problem:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\max\limits_{x\in\mathbb{R}^n_+} \ \ u(x) \\ \text{s.t.} \ \  p\cdot x \leq m$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $p\in\mathbb{R}^n_{++}$ is price vector, and $m$ is the income.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When we multiply both sides of the constraint in problem above by $\lambda &amp;gt; 0$, and look at the revised problem we get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\max\limits_{x\in\mathbb{R}^n_+} \ \ u(x) \\ \text{s.t.} \ \  \lambda p\cdot x \leq \lambda m$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since this operation does not affect the constraint, the solution remains unaffected i.e. demand satisfy $x(\lambda p, \lambda m) = x(p,  m) $ which shows that demand is homogeneous of degree 0 in $(p, m)$. So, this is always true for demand function. Given that $p_1 &amp;gt; 0$, we can take $\lambda  = \frac{1}{p_1}$, and find $x\left(\frac{p}{p_1}, \frac{m}{p_1}\right)$ to get $x(p, m)$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is helpful to note that for any function $f(p)$ that is homogeneous of degree $k &amp;gt; 0$, it is the case that $f(\lambda p) = \lambda^k f(p) \neq f(p)$ for $\lambda \neq 1$.&lt;/p&gt;&#xA;" OwnerUserId="11824" LastEditorUserId="11824" LastEditDate="2017-03-08T02:33:25.737" LastActivityDate="2017-03-08T02:33:25.737" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="15687" PostTypeId="1" CreationDate="2017-03-08T07:46:06.590" Score="1" ViewCount="58" Body="&lt;p&gt;I find this topic confusing, because there are so many figures out there from seemingly credible sources. You hear politicians using figures to either attack current policy or defend it. Many people disagree with the governments own figures.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So I would like to know, without any of the politics, what is the actual, or closest to actual figure of how much money is lost through corporate tax evasion and avoidance in the UK? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Please cite sources and if you can; reasons why the figure you provide is correct or as close to correct as possible.&lt;/p&gt;&#xA;" OwnerUserId="12363" LastActivityDate="2017-03-08T07:46:06.590" Title="What is the actual amount of money lost to corporate tax evasion and avoidance in the UK?" Tags="&lt;taxation&gt;" AnswerCount="0" CommentCount="1" ClosedDate="2017-03-13T20:30:20.540" ContentLicense="CC BY-SA 3.0" />
  <row Id="15688" PostTypeId="1" CreationDate="2017-03-08T09:40:29.270" Score="10" ViewCount="5345" Body="&lt;p&gt;It would be great to have a &lt;strong&gt;brief but comprehensive list&lt;/strong&gt; of current (e.g. Austrian) and defunct (e.g Mercantilism) &lt;strong&gt;schools of thought in Economics&lt;/strong&gt;. I think an ideal answer would include:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;the &lt;strong&gt;defining features of the school&lt;/strong&gt;, which enable it to differentiate it with the rest. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;major &lt;strong&gt;authors/writers&lt;/strong&gt; behind the school.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;key &lt;strong&gt;papers/books/textbooks&lt;/strong&gt; presenting/defending the ideas of the school of thought.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Note:&lt;/em&gt; To order the discussion and avoid very lengthy answers, I suggest we have &lt;strong&gt;one school of thought per answer&lt;/strong&gt; (like they do in other forums, like &lt;a href=&quot;https://tex.stackexchange.com/questions/339/latex-editors-ides?noredirect=1&amp;amp;lq=1&quot;&gt;TeX&lt;/a&gt;).&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-07-19T11:09:23.160" LastActivityDate="2017-09-28T05:16:22.180" Title="Which are the different Schools of Economic Thought?" Tags="&lt;economic-methodology&gt;&lt;schools-of-thought&gt;&lt;philosophy-of-economics&gt;" AnswerCount="6" CommentCount="4" FavoriteCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="15689" PostTypeId="1" CreationDate="2017-03-08T09:49:56.973" Score="-1" ViewCount="1546" Body="&lt;p&gt;Can someone please tell me how or why the curve shifts outward.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the textbook, I was given that:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;But if we cut production of mobile phones to 3 million this year, we can produce 2 mobile phone factories at point K.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;Then next year, our PPF shifts outward because we have more capital&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I might be wrong here, but is it saying that because we reduced production of mobile phones, we can use the spare $$$, to invest in capital resources to speed up/increase the production of mobile phones next year?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If so, then why is it talking about 2 mobile phones at point K if we reduce production cost to 3 million. Is this related to the outward shift?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, why is the curve asymmetric?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be greatly appreciated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/fpmRf.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/fpmRf.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="12364" LastActivityDate="2019-05-16T13:26:32.300" Title="Quick Question on Production Possibilities Frontier Curve" Tags="&lt;supply-and-demand&gt;&lt;preferences&gt;&lt;production-function&gt;&lt;demographics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15690" PostTypeId="2" ParentId="10625" CreationDate="2017-03-08T11:13:43.663" Score="5" Body="&lt;p&gt;You could see it as a coordination game and an example of a rational bubble. Because everybody knows that people start buying gold and the price goes up when the economy tanks, it is actually a good strategy to do just that. Similar things happen for example with the Swiss Franc.&lt;/p&gt;&#xA;&lt;p&gt;The idea that the stock of gold is fixed and hence its price is stable, is empirically just plain wrong.&lt;/p&gt;&#xA;&lt;p&gt;First, gold production varies with production cost and the demand for gold, just as in other industries. It is also dominated by a couple of countries and big mining companies with tons of market power.&lt;/p&gt;&#xA;&lt;p&gt;Second, the price of gold is highly volatile, just as other commodities. The standard deviation of gold prices is much higher compared to for example Treasuries or G7 countries' equity indices.&lt;/p&gt;&#xA;" OwnerUserId="11216" LastEditorUserId="4020" LastEditDate="2020-07-06T13:03:49.043" LastActivityDate="2020-07-06T13:03:49.043" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="15692" PostTypeId="2" ParentId="9767" CreationDate="2017-03-08T15:23:38.793" Score="-3" Body="&lt;p&gt;I believe that inflation is only caused by an increase in the money supply due to a dilution of the currency.&#xA;All other causes mentioned above tend to be simple short-term market fluctuations that will eventually &quot;smooth out&quot;.&#xA;We are told that 2% or 3% inflation is a good thing but 3% inflation is basically a 3% tax on all outstanding currency including petro dollars, eurodollars, drug money, dollars in mattresses, and you name it.&#xA;The more inflation, the less the government is required to pay when reimbursing T-bills.&#xA;The beauty of gold and crypto currency is that they can only be diluted slightly, thus any increase in value is not really an increase in value but a decrease in the value of the dollar.&lt;/p&gt;&#xA;" OwnerUserId="12344" LastActivityDate="2017-03-08T15:23:38.793" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15693" PostTypeId="1" AcceptedAnswerId="15694" CreationDate="2017-03-08T16:06:52.513" Score="1" ViewCount="5039" Body="&lt;blockquote&gt;&#xA;&lt;p&gt;Given &lt;span class=&quot;math-container&quot;&gt;$u(x_1,x_2)=4x_1+14x_2$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$m=\frac{1}{2}x_1+\frac{3}{2}x_2$&lt;/span&gt;, I shall choose the optimal decision among:&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$a)(2m,\frac{2m}{3})$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$b)(2m,0)$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$c)(\frac{m}{2},0)$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$d)(0,\frac{2m}{3})$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;The correct answer is &lt;span class=&quot;math-container&quot;&gt;$(d)$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;But not sure how to find this, what I did:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$m=\frac{1}{2}x_1+\frac{3}{2}x_2 \Leftrightarrow x_2=\frac{2m}{3}-\frac{1}{3}x_1 $$&lt;/span&gt;&#xA;And the marginal rate of substitution is &lt;span class=&quot;math-container&quot;&gt;$-\frac{2}{7}$&lt;/span&gt;,so we have :&lt;/p&gt;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/n8o0G.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/n8o0G.png&quot; alt=&quot;enter image description here&quot; /&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&lt;p&gt;Obviously &lt;span class=&quot;math-container&quot;&gt;$a)$&lt;/span&gt; isn't the right one and &lt;span class=&quot;math-container&quot;&gt;$c)$&lt;/span&gt; doesn't seem to be the best one... but really don't know 'how to think', some explaination would be great.&#xA;Thanks in advance&lt;/p&gt;&#xA;" OwnerUserId="12367" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2019-10-24T12:31:14.487" Title="Optimal decision for perfect substitutes utility function ?" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;" AnswerCount="3" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15694" PostTypeId="2" ParentId="15693" CreationDate="2017-03-08T16:59:10.837" Score="0" Body="&lt;p&gt;Answer a is not possible since it reduces to &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$m = \frac{1}{2} 2m +  \frac{3}{2}\frac{2m}{3} = 2m$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which has no sense. Idem for answer c, $m\neq\frac{1}{4}m$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Remains answers b or d.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For answer b, we have &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$u(2m,0)=8m$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and for answer d,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$u(0,\frac{2m}{3}) = \frac{28}{3}m = (9+\frac{1}{3})m$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As you can see, $ (9+\frac{1}{3}) &amp;gt; 8$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the general case, to find the maximum of your utility function given a monetary constrain, you can formalize and maximize the following &lt;a href=&quot;https://en.wikipedia.org/wiki/Lagrange_multiplier&quot; rel=&quot;nofollow noreferrer&quot;&gt;Lagrangian&lt;/a&gt; function&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$L(x_1,x_2,\lambda)=u(x_1,x_2)+\lambda(m-p_1 x_1 - p_2 x_2)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $p_1$ and $p_2$ are prices. In your case, those are $\frac{1}{2}$ and $\frac{3}{2}$ respectively.&lt;/p&gt;&#xA;&#xA;&lt;h3&gt; Suite &lt;/h3&gt;&#xA;&#xA;&lt;p&gt;As usual, &lt;strong&gt;&lt;em&gt;the story behind equations is of first importance&lt;/em&gt;&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Remember that $x_1$ and $x_2$ are two perfect substitutes. This means that the individual will spend all her income either in $x_1$ or in $x_2$, and will chose the good which provides her with the highest utility. And this is actually the story that the use of the Lagrangian function tells you. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As you mentioned in your comment below, you get &lt;em&gt;first order conditions which seem to be contradictory. But they are not&lt;/em&gt;. Indeed, the two goods will never be bought simultaneously. Which means that you will get either $\lambda = 8$ or $\lambda = \frac{28}{3}$ in a &lt;em&gt;mutually exclusive&lt;/em&gt; manner.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Recall what $\lambda$ is : it is a shadow price. In other words, it expresses how much your objective function, $u(x_1,x_2)$, will increase, if your constrain, $m$, increases by $1$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, if $m$ increases by $1$, and the individual spends all her income in $x_1$, $u$ will increase by $8$.&#xA;If she spends all her income in $x_2$, $u$ will increase by $\frac{28}{3}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which good will the individual chose ?&lt;/p&gt;&#xA;" OwnerUserId="10247" LastEditorUserId="10247" LastEditDate="2017-11-17T22:16:10.487" LastActivityDate="2017-11-17T22:16:10.487" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="15696" PostTypeId="2" ParentId="11381" CreationDate="2017-03-08T21:52:13.470" Score="3" Body="&lt;p&gt;The Euler Equation typically refers to the interior optimal choice between consumption today and tomorrow (or some similar intertemporal choice).  That is, it equalizes the marginal utility of consuming a unit today vs saving that unit in order to consume tomorrow.  This yields the first equation you listed (where $\beta=\frac{1}{1+\rho}$):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;u'(C_{t}) = \frac{1+r}{1+\rho}u'(C_{t+1})&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have always referred to the second equation you describe as the &quot;New Keynesian IS Curve&quot; as in Gali's textbook and several NK model papers.  But it does come from  the same intertemporal consumption choice Euler Equation.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Based on the equation you've provided, my guess is the model assumes a few things:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;CRRA utility of the form:  $ u(C) = \frac{C^{1-\sigma}}{(1-\sigma)}$&lt;/li&gt;&#xA;&lt;li&gt;No capital investment such that $ Y_{t} = C_{t} $&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Using these assumptions, the Fisher Equation ($ r_{t} = i_{t} - E_{t}[\pi_{t+1}] $), and the Euler Equation you gave above, you would arrive at what you're calling the NK Model's Euler Equation. (Note that your second equation is also probably in log terms)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At the end of the day, the two are the same thing: The first order condition that is making consumption equivalent to saving in terms of utility.  The latter version just tacks on additional features of the NK model to arrive at an equation that's useful for describing aggregate dynamics (along with the Phillips Curve and a monetary rule).&lt;/p&gt;&#xA;" OwnerUserId="12370" LastActivityDate="2017-03-08T21:52:13.470" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15697" PostTypeId="2" ParentId="15693" CreationDate="2017-03-09T00:14:35.440" Score="2" Body="&lt;p&gt;Utility maximization problem is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\max\limits_{(x_1, x_2)\in\mathbb{R}^2_+} 4x_1 + 14x_2 \\ \text{s.t.} \ \ m = \frac{1}{2}x_1 + \frac{3}{2}x_2$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This problem can be converted into an optimization problem involving just one variable $x_1$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\max\limits_{x_1} 4x_1 + 14\left[\frac{2}{3}\left(m - \frac{1}{2}x_1\right)\right] \\ \text{s.t.} \ \ 0 \leq x_1 \leq 2m$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Differentiating the objective $4x_1 + 14\left[\frac{2}{3}\left(m - \frac{1}{2}x_1\right)\right]$ with respect to $x_1$, we get $\left(4- \frac{14}{3}\right) = \frac{-2}{3} &amp;lt; 0$. So we observe that the objective is decreasing in $x_1$. Therefore optimal choice must be the smallest $x_1$ we can have i.e. $x_1 = 0$ and hence $x_2 = \frac{2m}{3}$.&lt;/p&gt;&#xA;" OwnerUserId="11824" LastActivityDate="2017-03-09T00:14:35.440" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15698" PostTypeId="1" AcceptedAnswerId="15722" CreationDate="2017-03-09T01:30:22.527" Score="2" ViewCount="137" Body="&lt;p&gt;The economy grows for multiple reasons, but one is the multiplier effect due to fractional reserve banking.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When there is a crash, is that artificially created money essentially destroyed, resetting the economy to how much money is &quot;really&quot; in the system?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sorry, I know this may be phrased informally but my knowledge of economics is limited. I just know that a crash is regarded as an economic &quot;reset&quot;, while &quot;multiplying&quot; money is artificial and depends on the market's confidence.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(originally posted here, I hope at least one of these forums is the correct place: &lt;a href=&quot;https://money.stackexchange.com/questions/77099/is-a-market-crash-the-undoing-of-the-multiplier-effect&quot;&gt;https://money.stackexchange.com/questions/77099/is-a-market-crash-the-undoing-of-the-multiplier-effect&lt;/a&gt;)&lt;/p&gt;&#xA;" OwnerUserId="6814" LastEditorUserId="-1" LastEditDate="2017-04-13T12:25:31.177" LastActivityDate="2017-03-11T18:07:18.067" Title="Does a stock market crash &quot;undo” the multiplier effect's money creation?" Tags="&lt;financial-markets&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="15699" PostTypeId="1" AcceptedAnswerId="15704" CreationDate="2017-03-09T12:00:33.290" Score="0" ViewCount="680" Body="&lt;p&gt;The Wikipedia article does not include it nor exclude it.&lt;/p&gt;&#xA;" OwnerUserId="12375" LastActivityDate="2017-03-10T00:56:30.240" Title="Are government income and government employee wages counted in GDP? (income approach)" Tags="&lt;gdp&gt;&lt;government&gt;" AnswerCount="1" CommentCount="3" ClosedDate="2017-03-12T13:57:11.087" ContentLicense="CC BY-SA 3.0" />
  <row Id="15700" PostTypeId="1" AcceptedAnswerId="15764" CreationDate="2017-03-09T14:41:50.353" Score="1" ViewCount="1358" Body="&lt;p&gt;Given a balanced two-period panel data, with lets say 1000 observations on 500 individuals.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When you estimate a pooled OLS regression and first-differences regression is there a standard in the economics literature on how you should report number of observations. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems most natural for me to report 500 observations in the case of first-differences.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This might seem trivial. But better follow any standard if it exists.&lt;/p&gt;&#xA;" OwnerUserId="4193" LastActivityDate="2017-03-15T13:10:39.430" Title="Number of observations in different panel data regressions" Tags="&lt;econometrics&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15702" PostTypeId="2" ParentId="13312" CreationDate="2017-03-09T20:58:46.607" Score="-2" Body="&lt;p&gt;Here is the narrative that I've arrived at:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) Banks &quot;create&quot; money by lending recursively. This is called the &quot;Multiplier Effect&quot; which is a consequence of the &quot;Fractional Reserve Banking System&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/iCzj6.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/iCzj6.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This artificial money can only exist if we assume that all lenders will pay back their loans.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) When there is an economic recession the public stop spending as much (why this happens is another discussion), so borrowers stop getting revenue and default on their loans. The asset (a debt security) issued by the lending bank is now worthless and written off. There is a domino effect in that if that lending bank's assets decrease, the entity that this lending bank itself borrowed from also loses assets. The money that remains is equal to the &quot;real&quot; assets in the system (used to be gold) and this is why the economy is said to &quot;reset&quot; during a recession.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This begs the question of why allow a fractional reserve banking system instead of insisting on a full-reserve banking system. I would guess that it just makes for a very limited economy, even if it results in less spectacular market crashes. Apparently no country in the world sticks to a full reserve banking system.&lt;/p&gt;&#xA;" OwnerUserId="6814" LastEditorUserId="6814" LastEditDate="2017-03-09T22:07:31.463" LastActivityDate="2017-03-09T22:07:31.463" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="15703" PostTypeId="2" ParentId="15700" CreationDate="2017-03-09T22:54:55.683" Score="2" Body="&lt;p&gt;It is conventional to report both the total number of &lt;strong&gt;observations&lt;/strong&gt; (1000 in your case) and the number of &lt;strong&gt;groups&lt;/strong&gt; (500 in your case). If you want or are allowed to report only one number as the number of &lt;strong&gt;observations&lt;/strong&gt;, it is suitable to report 1000 for POLS because POLS doesn't mind the fact that it is a panel data set. For FD, it is slightly confusing to me to say that the number of observations is 500. I would probably ask again of the writer what 500 means.&lt;/p&gt;&#xA;" OwnerUserId="10775" LastActivityDate="2017-03-09T22:54:55.683" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15704" PostTypeId="2" ParentId="15699" CreationDate="2017-03-10T00:56:30.240" Score="2" Body="&lt;p&gt;The wages of government workers are counted as wages of individuals in the income measure of GDP. If the Government trades, then surpluses or profits of these activities are counted as income in the income measure of GDP.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If GDP is being measured at market prices then some indirect taxes (on production or on imports, less any subsidies) are also taken into account; other taxes such as income taxes are not   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Meanwhile Government payments of wages in its non-trading activities are counted as government consumption in the expenditure measure of GDP and this amount also counts as Government production in the the production measure of GDP&lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2017-03-10T00:56:30.240" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15705" PostTypeId="1" CreationDate="2017-03-10T02:57:07.463" Score="2" ViewCount="178" Body="&lt;p&gt;So preferences are defined as $u(c_0)+Ev(c_1)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Both utility functions are strictly increasing, concave, and twice differentiable. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand in the setting of $u(c_0)+Eu(c_1)$ when $u(c_0)$ is quadratic that it will induce no precautionary savings. (that is the two periods share the same functional form)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, my problem is that the explicit function of $u(c_0)$ is not given in my case, only that $v(c_1)$ is quadratic. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;How do I assess the first period utility function? &lt;/p&gt;&#xA;" OwnerUserId="12383" LastEditorUserId="42" LastEditDate="2017-03-10T04:05:24.407" LastActivityDate="2017-03-10T21:13:58.090" Title="Precautionary Savings Two-Period model with a second period quadratic utility function" Tags="&lt;microeconomics&gt;&lt;consumption&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15706" PostTypeId="2" ParentId="15705" CreationDate="2017-03-10T15:38:20.373" Score="3" Body="&lt;p&gt;The two papers that explored first savings under uncertainty in a two-period setting are&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;a href=&quot;http://www.jstor.org/stable/1879518&quot; rel=&quot;nofollow noreferrer&quot;&gt;Leland, H. E. (1968). Saving and uncertainty: The precautionary demand for saving. The Quarterly Journal of Economics, 82(3), 465-473.&lt;/a&gt;&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;a href=&quot;http://www.jstor.org/stable/2296725&quot; rel=&quot;nofollow noreferrer&quot;&gt;Sandmo, A. (1970). The effect of uncertainty on saving decisions. The Review of Economic Studies, 37(3), 353-360.&lt;/a&gt;&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;They both deal with a general two period utility function $U(c_0,c_1)$ not necessarily additive. But both remark the following related to such a case:&#xA;The condition for precautionary savings depends on third cross partial derivatives, as well as on the third own derivative &lt;em&gt;with respect to future consumption only&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;If&lt;/em&gt; the utility function is additive $U=u(c_0)+Ev(c_1)$, then cross-partials are zero, so the result hinges only on the third own derivative for the second-period consumption.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It follows that with an additive over time utility function, it suffices that the second-period utility is quadratic (so third own derivative is zero), in order to &lt;em&gt;not&lt;/em&gt; get precautionary savings, irrespective of the form of the first-period utility.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2017-03-10T21:13:58.090" LastActivityDate="2017-03-10T21:13:58.090" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="15709" PostTypeId="1" CreationDate="2017-03-10T21:29:57.687" Score="2" ViewCount="40" Body="&lt;p&gt;I understand that the Federal Reserve is issuing money in the form of deposits. Those deposits &lt;a href=&quot;https://economics.stackexchange.com/questions/15644/the-federal-reserve-is-only-issuing-cash-money/15659?noredirect=1#comment24405_15659&quot;&gt;&quot;are not cash but they are money: they can be used for payment (at which point they become somebody else's deposit) and they can be converted into cash on demand&quot;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And then, my question is: when the history of the USA the authorities (government or FED or something else) issued such deposits instead of cash, for the first time? I have the same question for Europe.&lt;/p&gt;&#xA;" OwnerUserId="5161" LastEditorUserId="5161" LastEditDate="2017-08-15T08:20:18.860" LastActivityDate="2017-08-15T08:20:18.860" Title="When in the history the governments issued non-cash money first?" Tags="&lt;money-supply&gt;&lt;history&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15711" PostTypeId="2" ParentId="35" CreationDate="2017-03-11T01:41:37.537" Score="9" Body="&lt;p&gt;A bit late to the game, but I'm surprised no one has named the equation to calculate OLS estimates:&#xA;$$&#xA;\hat\beta=(X'X)^{-1}X'y&#xA;$$&lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2017-03-11T01:41:37.537" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15712" PostTypeId="1" AcceptedAnswerId="15717" CreationDate="2017-03-11T02:39:56.470" Score="2" ViewCount="61" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;For complete markets, the security market equilibrium is the same as the contingent commodity equilibrium but with far fewer spot markets.&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I wrote this down in my notes today on what my professor said but I don't really understand why this is the case. This may be the wrong way of posing a question but I thought this was rather interesting. Any suggestions on the matter are greatly appreciated.&lt;/p&gt;&#xA;" OwnerUserId="11762" LastEditorUserId="264" LastEditDate="2017-03-12T15:36:58.070" LastActivityDate="2017-03-12T15:36:58.070" Title="Complete markets: security market equlibrium same as contingent commodity equilibrium?" Tags="&lt;financial-economics&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15713" PostTypeId="1" CreationDate="2017-03-11T03:13:57.260" Score="2" ViewCount="49" Body="&lt;p&gt;I'm studying the Lab Equipment Model (Barro-Sala-i-Martin, Chapter 6). I'm having trouble when trying to prove that every variables grows at the same rate as consumption. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I was able to prove that $\dot{C}/C = g_{c}$, which is constant. Also, I have that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$b \dot{N} = Y - X - C$ where $b$ is a parameter,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$Y/N$ is a constant related to the interest rate and&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$X = a^{2}Y$, where $a$ is a parameter from the production function.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From the second and third equations above, it's clear that $Y,X$ and $N$ grow at the same rate. However, it's not clear that this rate should be $g_{c}$ or even constant at all. I'm trying to use the first equation to show it, but I couldn't do it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The book forgoes this proof. It says that it's quite similar to the AK model since there's no transitional dynamics. Is there a simple way to show this result? I think it should follow from a simple manipulation of the first equation. Any ideas? thanks a lot in advance!&lt;/p&gt;&#xA;" OwnerUserId="7033" LastActivityDate="2017-07-14T02:18:22.170" Title="How to prove that GDP grows at the same rate as consumption on Lab Equipment Model?" Tags="&lt;macroeconomics&gt;&lt;economic-growth&gt;&lt;consumption&gt;&lt;endogenous-growth&gt;&lt;proof-reference&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="15714" PostTypeId="2" ParentId="10625" CreationDate="2017-03-11T04:07:37.363" Score="1" Body="&lt;p&gt;There is empirical research that the price of gold is linked to the planetary level of combat.  A large amount of wealth can be transferred into a small mass making it easy to transport.  Because the planetary supply of gold is approximately fixed and very small, it reacts sharply to demand shocks.  Gold functions as an alternative currency.  It is a good medium for it because it has limited industrial value.  In essence, because it is useless for most purposes, other than jewelry it is a good choice.  Jewelry makes gold even more valuable and makes it easy for people to wear their wealth as is common in third world countries.  Coins and bricks really are inconvenient particularly when fleeing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The secondary use is between nations to settle debts.  It still happens, rarely, but it still happens.  Although the gold standard is gone, gold is still something that can be exchanged.  It doesn't require physical transport as long as you trust the central bank that is storing your gold.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Gold seems to have supplanted other monies, such as salt or wheat because it is useless.  Your question could equally be asked about Yap money, which is still in use or wampum.  You can find more on stone money at &lt;a href=&quot;http://www.npr.org/sections/money/2011/02/15/131934618/the-island-of-stone-money&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.npr.org/sections/money/2011/02/15/131934618/the-island-of-stone-money&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="11321" LastActivityDate="2017-03-11T04:07:37.363" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15717" PostTypeId="2" ParentId="15712" CreationDate="2017-03-11T06:50:21.510" Score="2" Body="&lt;p&gt;You seem to be looking for information on the &lt;a href=&quot;https://en.wikipedia.org/wiki/Radner_equilibrium&quot; rel=&quot;nofollow noreferrer&quot;&gt;Radner equilibrium&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Radner equilibrium is an economic concept defined by economist Roy Radner in the context of general equilibrium. The concept is an extension of the Arrow–Debreu equilibrium and the base for the first consistent incomplete markets framework.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Further reading: &lt;br&gt;&#xA;Jstor: &lt;a href=&quot;https://www.jstor.org/stable/1909407?seq=1#page_scan_tab_contents&quot; rel=&quot;nofollow noreferrer&quot;&gt;Existence of Equilibrium of Plans, Prices, and Price Expectations in a Sequence of Markets&lt;/a&gt; &lt;br&gt;&#xA;Handbook of Mathematical Economics: &lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/S1573438282020153&quot; rel=&quot;nofollow noreferrer&quot;&gt;Chapter 20&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2017-03-11T06:50:21.510" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15718" PostTypeId="1" AcceptedAnswerId="15720" CreationDate="2017-03-11T12:00:37.237" Score="1" ViewCount="2488" Body="&lt;p&gt;Can you tell/ describe me what the phrase &lt;em&gt;'one dollar, one vote'&lt;/em&gt; means? But you have to use basic English or kid's English. :-)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I found the phrase in one economics book (Introduction to Economics by Stephen L. Slavin, page 4, 1989) and I do not know what it means. I am from eastern Europe. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks for help.&lt;/p&gt;&#xA;" OwnerUserId="12324" LastActivityDate="2020-10-08T15:14:12.817" Title="What does 'one dollar, one vote' mean?" Tags="&lt;international-economics&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15719" PostTypeId="1" CreationDate="2017-03-11T16:22:46.427" Score="2" ViewCount="1245" Body="&lt;p&gt;Hello I'm working through &lt;strong&gt;Microeconomic Theory : Basic Principles and Extensions&lt;/strong&gt; of Nicholson and Snyder 10e, for an exam and I fail to get how to answer this question (p.517) :&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;A specific tax is a fixed amount per unit of output. If the tax rate&#xA;  is t per unit, total tax collections are tQ . Show that the imposition&#xA;  of a specific tax on a monopoly will reduce output more (and increase&#xA;  price more) than will the imposition of an ad valorem tax that&#xA;  collects the same tax revenue.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So I state that both tax collects the same (s for specific and a for ad valorem)&#xA;$$q_s^m \times \tau_s =A$$&#xA;$$q_a^m \times p^m_a \times \tau_a=A  $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then I have tried some identities of $q^m$ and $p^m$ but I can't get to the proof. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$q_s^m=\dfrac{C'(q_s^m)+\tau_s-p^m_s}{P'_s} $$&#xA;$$q_a^m=\dfrac{C'(q_a^m)}{(1-\tau_a)P'_a}-\dfrac{p_a^m}{P'_a}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $P'_i$ is the derivative of the inverse demand function at the equilibrium point of the monopolist under the tax type $i$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I tried replacing $\tau$ as $\tau_s=\dfrac{q_a^m \times p_a^m \times \tau_a }{q_s^m}$ and then replacing it in $q_s^m$ but I get a quadratic form of no use...&lt;/p&gt;&#xA;" OwnerUserId="12388" LastEditorUserId="12388" LastEditDate="2017-03-11T16:51:05.093" LastActivityDate="2018-02-26T04:34:43.577" Title="Monopoly and Taxes (Nicholson Exercise)" Tags="&lt;microeconomics&gt;&lt;taxation&gt;&lt;monopoly&gt;&lt;theory&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15720" PostTypeId="2" ParentId="15718" CreationDate="2017-03-11T17:15:23.717" Score="4" Body="&lt;p&gt;It appears to suggest applying the way shareholders vote in a company to the political setting of democracy: each citizen will have as many votes as his/her monetized wealth. So the rich will have &lt;em&gt;officially&lt;/em&gt; &quot;more say&quot; in what gets decided or who gets elected in public office.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Certainly, the general consensus is that economic power does play a role in affecting political outcomes anyway. This approach would make that an official, institutional rule.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2017-03-11T17:15:23.717" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15722" PostTypeId="2" ParentId="15698" CreationDate="2017-03-11T18:07:18.067" Score="0" Body="&lt;p&gt;All price changes in the stock or commodities markets impact the money supply to the extent it results in a change in margin credit. Do note that the amount of credit itself must change and not the price alone.  A crash only has an impact if it results in net changes in the amount of credit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is a second order effect of a crash and not a first order effect.  It also usually has no material impact on the money supply.  Although a crash may have a large impact on notional concepts of wealth, the effect on the supply of money itself is usually neutralized by the banking system.  It is normal, even in the 1929 crash, to see bankers announce they will keep open the brokerages' lines of credit and stand ready to purchase safe assets such as Treasuries in unlimited quantities from these brokers to hold the money supply roughly constant.  If brokers sold enough treasuries, it could even expand the money supply.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The size of the money stock (M2) is 13.4 trillion dollars.  The total size of all margin credit from all sources is 554 billion dollars.  Although this is four percent of the money supply, which is a lot, you are also forgetting that in a crash margin purchases will begin happening too.  Just as brokerages will be issuing margin calls, other investors smelling blood in the water will be purchasing on margin, though this will be a smaller effect.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Fed normally drops the interest rate to expand the money supply after a crash to compensate for the loss of money created by the reduction in margin credit.  Remember that 554 billion would not be wiped out in a crash, it would just be reduced, at least initially, as brokers required repayment.&lt;/p&gt;&#xA;" OwnerUserId="11321" LastActivityDate="2017-03-11T18:07:18.067" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15724" PostTypeId="1" CreationDate="2017-03-11T23:58:03.013" Score="3" ViewCount="1748" Body="&lt;p&gt;So I understand that each market structure has their own characteristics, and that for instance Perfect Competition involves high competition, and I believe Monopolistic competition slightly less so, oligopoly even less, and monopoly virtually none.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, is a market structure pretty much set in stone? Or does the structure change within a spectrum depending on competition for instance?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;i.e. Would it be right to say that if competition in a market which was an oligopoly has increased and dominative firms have lost some of their market power, then the market is beginning to resemble that of monopolistic competition and less like an oligopoly?&lt;/p&gt;&#xA;" OwnerUserId="10797" LastActivityDate="2017-05-12T02:12:38.333" Title="Are market structures on a spectrum?" Tags="&lt;markets&gt;&lt;competition&gt;&lt;oligopoly&gt;&lt;monopolistic-competition&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15725" PostTypeId="2" ParentId="15724" CreationDate="2017-03-12T01:20:06.587" Score="0" Body="&lt;p&gt;Yeah the argument can be made in that on one end you've got a perfectly competitive structure, especially in the long run, while on the other end you've got a pure monopoly (single firm), and then you've got the two in between in the form of monopolistic competition and oligopoly. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your example could be reasonably justified, as an oligopoly by definition is a structure where a small no. of firms having a big share of the market. Therefore when their share of the market decreases, they will no longer have sufficient market concentration ration to exercise the various oligopolistic actions, such as tacit collusion, upon the market. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the short run, however, it can be argued that the spectrum is less obvious, as even firms in perfectly competitive markets can make short term abnormal profit.&lt;/p&gt;&#xA;" OwnerUserId="6782" LastActivityDate="2017-03-12T01:20:06.587" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15726" PostTypeId="2" ParentId="2954" CreationDate="2017-03-12T09:51:35.200" Score="0" Body="&lt;p&gt;Any meaningful measure of risk should be subjective and forward looking, not some measure of historical returns. Objective risk removes the people from the equation, whilst in essence risk is about how people behave (act and react) in financial markets.  There is no constancy in the social sciences, unlike the physical sciences where a frequentist approach may be valid.    &lt;/p&gt;&#xA;" OwnerUserId="12391" LastActivityDate="2017-03-12T09:51:35.200" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15727" PostTypeId="2" ParentId="15566" CreationDate="2017-03-12T16:32:07.457" Score="2" Body="&lt;p&gt;I think there might be an issue with this as currently constructed: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\delta(p)= \infty$, $\forall P \in \mathbb{R_+}$ and $P_e = \infty =\dot{p},$ $\forall P \in \mathbb{R_+}$ This is because $\delta_0 = \infty $. Further, $\sigma(p) = S_\sigma p+\sigma_0= S_\sigma p$ since $ \sigma_0 = 0$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In words - there should be infinite demand for any normal good whenever P is 0 and there should be zero supply of any good whenever P is 0. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;That said, your intuition here is solid but I do think you're working on reinventing the tatonement wheel. Tatonement, in a nutshell, adjusts prices up when there is excess demand and prices down when there is excess supply. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you are able to do this after watching a few lectures online, then I say keep going. You could make meaningful contributions once you have a better understanding of the field. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;edit: If you'd like to message me privately, I would be more than happy to pass along my graduate school notes/materials to help guide your studies. At minimum, I recommend you followup your current study with some more advanced micro theory courses. &lt;/p&gt;&#xA;" OwnerUserId="1655" LastActivityDate="2017-03-12T16:32:07.457" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15728" PostTypeId="2" ParentId="14947" CreationDate="2017-03-12T16:58:32.240" Score="3" Body="&lt;p&gt;I will frame this in the context of modern monetary policy and for the sake of clarity assume we are discussing the American economy. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) Whenever the Fed wants to bring about some change in the economy, they do so by using one of three tools: open market operations, setting the discount rate, setting reserve requirements. I will only discuss open market operations. The Fed recently introduced two new tools: interest on excess reserves and forward guidance. I include these to be complete. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) The Fed conducts open market operations through its NY branch's buy/sell desk. In simple terms, the Fed can buy/sell securities in the open market. This causes two things: a change in total bank reserves and security yields (by way of shift demand/supply curves, for example). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your question is whether or not it makes sense to think about an increase in the money supply causing an increase in interest rates. Since we want to discuss increasing the money supply, let's assume the Fed is buying securities in the open market. Whenever the Fed buys securities, it buys securities from banks and 'pays' the banks by 'adding excess reserves' to the banks' balances at the Fed. Total reserves in the banking system rises. All else being equal, banks have more money to lend. This increases the available supply of loanable funds. Since we assume demand for loanable funds is unchanged, and since interest rates are the equilibrating force in this market, we should see that interest rates drop (because the supply curve shifts right/up). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You might also want to think in therms of what is happening to security yields. If banks start buying a large amount of securities in an effort increase the money supply, we should see a large increase in demand for securities. Assuming all else equal (in particular, assuming that there is no change in the supply of securities) we should see yields on securities fall (this is equivalent to the purchasing prices of securities rising). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And so we see that the logic, whenever we consider either adjustment mechanism, points toward a fall in interest rates whenever the Fed increases the money supply. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;With this in mind, I think it is reasonable to conclude that the paper you've cited gets it wrong. And as a point of fact, we have witness recently (during QE) that money growth is not necessarily inflationary...as counterintuitive as that might be. &lt;/p&gt;&#xA;" OwnerUserId="1655" LastActivityDate="2017-03-12T16:58:32.240" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15732" PostTypeId="1" CreationDate="2017-03-12T23:04:09.467" Score="3" ViewCount="87" Body="&lt;p&gt;If a company has project A and project B it can decide what is more profitable. The math in this example is straightforward.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If human has activity A and activity B, how can someone calculate what is more efficient from economical standpoint?&#xA;For example, take a taxi or use public transit to get from A and B. If human takes taxi, it will cost him 18 dollars, he or she will spend 20 minutes mostly sitting. If human takes public transit, he or she will spend $2.5, it will take 45 minutes including 10 minutes walking.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How to account &quot;energy&quot;, &quot;motivation&quot;, &quot;missing time&quot;, etc?&lt;/p&gt;&#xA;" OwnerUserId="12402" LastEditorUserId="1417" LastEditDate="2017-03-13T11:55:54.307" LastActivityDate="2017-03-13T11:55:54.307" Title="How to analyze small human activities from the economical standpoint?" Tags="&lt;microeconomics&gt;&lt;opportunity-cost&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15733" PostTypeId="2" ParentId="15724" CreationDate="2017-03-13T01:28:36.877" Score="1" Body="&lt;p&gt;If there were such a spectrum, it would not be one dimensional. For instance, we could compare the competitiveness of markets with &lt;strong&gt;homogeneous products&lt;/strong&gt; in terms of the number of firms in that market, and have the following spectrum:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;monopoly: one firm, no competition&lt;/li&gt;&#xA;&lt;li&gt;(Cournot) oligopoly: $n$ firms ($n&amp;lt;\infty$), imperfect competition &lt;/li&gt;&#xA;&lt;li&gt;perfect competition: infinitely many firms, perfect competition. &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;However, this spectrum only works homogeneous products. When you talk about monopolistic competition, i.e. firms competing with &lt;strong&gt;differentiated products&lt;/strong&gt;, then a new dimension opens up: non-price differences in products. An example would be cell phones with different operating systems (e.g. iOS and Android). A small increase in the number Android-powered phone brands is not necessarily going to reduce the market power of iPhones. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the spectrum of market competitiveness is not as straightforward as you envisioned. While the two extreme cases, perfect competition and monopoly, are pretty clear, things in between are much less so. For example, a 2-firm Cournot market could be more competitive than a 2-firm monopolistically competitive market, if you carefully choose the demand functions for the latter. So at least in the comparison between oligopoly and monopolistic competition things are not as deterministic as you thought.&lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2017-03-13T01:28:36.877" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15739" PostTypeId="2" ParentId="15719" CreationDate="2017-03-13T09:12:59.740" Score="5" Body="&lt;p&gt;First let's look at the specific tax. The profit is&#xA;$$\pi_s=[P(q)-\tau_s]q-C(q).$$&#xA;Differentiating to establish the first-order condition:&#xA;$$P'(q)q+P(q)-\tau_s-C'(q)=0.$$&#xA;If we write $A=\tau_s q$ for the tax revenue then we can rewrite the FOC thus:&#xA;$$P'(q)q+P(q)-C'(q)=\frac{A}{q}.$$&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Now for ad valorem:&#xA;$$\pi_a=(1-\tau_a)P(q)q-C(q)$$&#xA;First-order condition:&#xA;$$(1-\tau_a)[P'(q)q+P(q)]-C'(q)=0.$$&#xA;We have $A=\tau_a q P(q)$, which can can use as follows:&#xA;$$[P'(q)q+P(q)]-\tau_aP'(q)q-\tau_aP(q)-C'(q)=0.$$&#xA;$$[P'(q)q+P(q)]-\frac{A}{P(q)}P'(q)-\frac{A}{q}-C'(q)=0.$$&#xA;$$P'(q)q+P(q)-C'(q)=\frac{A}{q}+\frac{A}{P(q)}P'(q).$$&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Note the the left-hand side of the last line in both sections is the same. Moreover, this expression ($P'(q)q+P(q)-C'(q)$) is the derivative of profits assuming zero tax. If profits are concave then this derivative is decreasing in $q$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can see that, for any value of $q$, the right-hand side is smaller for the ad valorem tax (because it has an extra term that is negative--remember that $P'(q)&amp;lt;0$). Thus, we have something that looks like this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/pA01q.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/pA01q.png&quot; alt=&quot;Intersection at a higher quantity for ad valorem tax&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2017-03-13T09:12:59.740" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15740" PostTypeId="2" ParentId="15732" CreationDate="2017-03-13T11:38:13.730" Score="3" Body="&lt;p&gt;A useful framework for analysing personal activities involving both monetary and time costs is a household production model. A simple example of such a model (adapted from &lt;a href=&quot;http://onlinelibrary.wiley.com/doi/10.1111/ecoj.12157/pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Chiappori &amp;amp; Lewbel (2015)&lt;/a&gt; pp 411-2) is below. Note that a &quot;household&quot; could be one person (the assumption that members of a multi-person household cooperate to maximise their joint utility can be regarded as an optional extra of the model).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The model distinguishes between &lt;em&gt;commodities&lt;/em&gt;, which directly affect utility, and &lt;em&gt;goods&lt;/em&gt;, which affect utility only indirectly.  The taxi ride, for example, would be a good, not a commodity, because it is just a means of getting from A to B. A household is assumed to maximise utility which is a function of commodities:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$max\quad U(Z_1,\dots,Z_m)$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For each commodity there is a production function:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Z_i=f_i(\mathbf{x}_i,T_i)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here $\mathbf{x}$ is a vector of goods and $T$ is time taken by a household member in producing the commodity using the goods. Production here should be understood broadly: it would include, for example, using a combination of public transport and time to &quot;produce&quot; a journey from A to B. Leisure activities such as visiting an entertainment can also be produced in this sense.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The goods used in producing $Z_i$ can be bought at prices $\mathbf{p}_i$, and income can be earned, over any chosen time period, at a wage $w$ (this is a simplification, eg because working hours are often fixed by an employer). Considering a period of, say, a week (and simplifying again by ignoring saving and storage of goods between weeks), the monetary constraint is ($T_w$ is time worked):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Sigma_{i=1}^m \mathbf{p}_i\mathbf{x}_i\leq wT_w$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The time constraint is ($T_{tot}$ is total time available):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$T_w + \Sigma_{i=1}^m T_i \leq T_{tot}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The two constraints can be combined (by substituting for $T_w$) as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Sigma_{i=1}^m \mathbf{p}_i\mathbf{x}_i \leq w[T_{tot} - \Sigma_{i=1}^m T_i]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This formalises the trade-off between money and time: more time used as an input to commodities means less time available for wage-earning work and so less income with which to purchase goods inputs to commodities.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One way to bring personal energy and motivation within the model would be via the value assigned to $T_{tot}$.  Starting from 168 hours in a week, deductions might be made for sleeping time, quiet relaxation, etc to arrive at what might be termed effective time available for activities, with smaller deductions for a more energetic and motivated person.&lt;/p&gt;&#xA;" OwnerUserId="1417" LastActivityDate="2017-03-13T11:38:13.730" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15741" PostTypeId="2" ParentId="15566" CreationDate="2017-03-13T13:09:40.207" Score="2" Body="&lt;p&gt;As Theoretical Economist says in his comments, this process is called Walrasian tatonnement.  &lt;a href=&quot;http://www.umass.edu/preferen/Class%20Material/Readings%20in%20Market%20Dynamics/Uzawa%20REStud%201960.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Here&lt;/a&gt; and &lt;a href=&quot;https://link.springer.com/chapter/10.1007/978-3-642-51645-0_5&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; are two citations in this literature.  Start by reading them and their references, and then use SSCI to go backwards and forwards in the literature.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My (somewhat vague) recollection is that, somewhere in this literature, is a negative result basically saying that tatonnement can't be shown to converge to an equilibrium except under very restrictive assumptions on demand (like no income effects).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is a related literature on the Cobbweb Theorem.  &lt;a href=&quot;http://www.systemdynamics.org/conferences/2015/papers/P1343.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Here&lt;/a&gt; is a recent paper which contains a brief lit review.  You can search in either SSCI or EconLit for Cobbweb Theorem to get into this literature.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The answer to your question, however, is that your insight does not appear to be original.  The question of how price-theoretic markets get to equilibrium is old, and the solution you are proposing (that prices adjust up in markets with excess demand and down in markets with excess supply) has been extensively investigated.&lt;/p&gt;&#xA;" OwnerUserId="2843" LastActivityDate="2017-03-13T13:09:40.207" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15742" PostTypeId="1" AcceptedAnswerId="15743" CreationDate="2017-03-13T17:14:00.183" Score="2" ViewCount="94" Body="&lt;p&gt;How is it possible that Chinese vendors are able to ship a small / light $3 part to a doorstep in the US for free?  When shipping items the opposite way via USPS it is often greater than the cost of the part making it cost infeasible to return.   Is shipping somehow subsidized?&lt;/p&gt;&#xA;" OwnerUserId="10161" LastEditorUserId="8481" LastEditDate="2020-05-03T14:54:14.060" LastActivityDate="2020-05-03T14:54:14.060" Title="How is it possible that shipping of eBay items from China to US is 'free'?" Tags="&lt;international-trade&gt;&lt;china&gt;&lt;subsidies&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15743" PostTypeId="2" ParentId="15742" CreationDate="2017-03-13T18:31:29.987" Score="2" Body="&lt;p&gt;The major reasons that I understand are that:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;s&gt;the Chinese government subsidizes shipping.&lt;/s&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;the US Postal Service, eBay China, and Hong Kong Post office have a trilateral agreement called the ePacket service which roughly speaking, allows shipping of small packages to the US at bulk pricing (instead of at the price for individual sales).&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I don't think it's common for there to be &quot;free&quot; shipping though.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.ft.com/content/4f4d1240-024a-11e6-99cb-83242733f755&quot; rel=&quot;nofollow noreferrer&quot;&gt;I'm retracting the part about China subsidizing exporters.&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="4251" LastEditorUserId="4251" LastEditDate="2017-03-13T19:44:51.537" LastActivityDate="2017-03-13T19:44:51.537" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="15746" PostTypeId="1" AcceptedAnswerId="15761" CreationDate="2017-03-13T21:30:18.280" Score="0" ViewCount="82" Body="&lt;p&gt;We could answer this question theoretically, or give a real-world example of two such countries.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there anything more interesting to say than: that's just something decided by the government? Could geographic location play a role? Is an equal GDP an indication of equal minimum wage, or isn't it?&lt;/p&gt;&#xA;" OwnerUserId="7996" LastActivityDate="2017-03-16T12:07:24.243" Title="How can two countries of roughly the same size, population and GDP have such big differences in minimum wage?" Tags="&lt;gdp&gt;&lt;minimum-wage&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15747" PostTypeId="1" AcceptedAnswerId="15749" CreationDate="2017-03-14T01:58:16.183" Score="2" ViewCount="977" Body="&lt;p&gt;It looks like in a static, simultaneous move game, action is used interchangeably with strategy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But when do they differ, say in a more complicated game structure? I am trying to understand the difference between the two and try to keep in mind that I should, in general, NOT equate these two.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Even when I think about the normal form game, prisoners' dilemma, it is not all clear why in this case, action is equivalent to strategy and many authors choose to use two terms interchangeably.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When criminal is called upon to act, she can either cooperate or defect. But the strategy set is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$S=S_1$x$S_2=\{(U,U),(U,D),(D,U),(D,D)\}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here, how do I see that criminal 1's strategy is equal to her action which is $S_1\{U,D\}$?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And when do these two notions depart from each other?&lt;/p&gt;&#xA;" OwnerUserId="8560" LastEditorUserId="2776" LastEditDate="2017-03-14T09:12:04.780" LastActivityDate="2017-03-14T09:12:04.780" Title="When action and strategy differ in game theory" Tags="&lt;microeconomics&gt;&lt;game-theory&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="15748" PostTypeId="1" CreationDate="2017-03-14T03:10:17.783" Score="1" ViewCount="267" Body="&lt;p&gt;The International Organization for Standards (ISO) has a ISO 4217, which delineates currency codes, country codes, etc. for, well, international currency.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Alongside this, each country is given a three-digit &lt;a href=&quot;https://en.wikipedia.org/wiki/ISO_4217#Currency_numbers&quot; rel=&quot;nofollow noreferrer&quot;&gt;numerical code number&lt;/a&gt;.  I've been trying to figure out what kind of designation process this has, but it appears to be random.  Why is it oddly (mostly) random?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;They appear to somewhat progress alphabetically with new ones added to sometimes newer countries that appeared after the 1973 designations, but not always.  And there are way too many gaps for those countries that may have fallen off the map since then, so to speak.  &lt;strong&gt;What is the meaning of the numerical designation for ISO 427 labels on currency?&lt;/strong&gt;  I find it hard to imagine it is just sloppiness.&lt;/p&gt;&#xA;" OwnerUserId="12413" LastEditorUserId="12413" LastEditDate="2017-03-14T09:36:46.357" LastActivityDate="2017-03-14T09:36:46.357" Title="What do the numbers in the ISO 4217 currency codes mean?" Tags="&lt;currency&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15749" PostTypeId="2" ParentId="15747" CreationDate="2017-03-14T06:24:56.420" Score="3" Body="&lt;p&gt;If you happen to know that the &quot;normal form&quot; is sometimes also referred to as the &lt;em&gt;strategic form&lt;/em&gt;, you'd most likely not be surprised that it doesn't help you distinguish between the notions of action and strategy. The normal form is precisely used to represent strategies (not actions) in a game. To appreciate the difference between strategies and actions, it's probably best to consider another form of game representation: the extensive form.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose 2 players move sequentially, and that Player 2 observes Player 1's choice before making his decision. The scenario can be represented using a game tree as follows: &#xA;&lt;a href=&quot;https://i.stack.imgur.com/LnMpD.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/LnMpD.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here we can call $\{A,B\}$ Player 2's actions (actually the correct jargon here is &lt;em&gt;behavior strategies&lt;/em&gt;, but I sense that this level of nuance is unnecessary at this point). However, they are not his &lt;em&gt;strategies&lt;/em&gt;, for strategies in this case is a &quot;full contingent plan&quot; that specifies an action at each information set the player moves. Since Player 2 moves at two information sets (one after $L$ and the other after $R$), so one of his strategies would be &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;choose &lt;strong&gt;A&lt;/strong&gt; if Player 1 chooses L and choose &lt;strong&gt;A&lt;/strong&gt; if Player 1 chooses R&quot;, or simply denoted as &lt;strong&gt;AA&lt;/strong&gt;.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So, Player 2 has four (pure) strategies: $\{AA, AB, BA, BB\}$. In comparison, since Player 1 only moves at one information set (at the beginning), her actions and strategies are identical: $\{L,R\}$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To represent this game using the normal/strategic form, we'd have &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/Uflbr.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Uflbr.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's not a 2-by-2 game, but 2-by-4, precisely because strategies and actions are not the same. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lastly, a note on Prisoners' Dilemma (PD) and other similar one-shot simultaneous-move games. If you consider the extensive form of PD, you'd see that each player moves at only one information set, and so their set of actions and set of strategies coincide (just like Player 1 in the above example). This is why you can use the two terms interchangeably in those games. &lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2017-03-14T06:24:56.420" CommentCount="11" ContentLicense="CC BY-SA 3.0" />
  <row Id="15751" PostTypeId="2" ParentId="15748" CreationDate="2017-03-14T08:28:31.973" Score="1" Body="&lt;p&gt;From the &lt;a href=&quot;https://www.iso.org/iso-4217-currency-codes.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;ISO homepage&lt;/a&gt; this answer can be found:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;The three-digit numeric code is useful when currency codes need to be understood in countries that do not use Latin scripts and for computerised systems. Where possible the 3 digit numeric code is the same as the numeric country code.&lt;/p&gt;&#xA;&lt;p&gt;For currencies having minor units, ISO 4217:2015 also shows the relationship between the minor unit and the currency itself (i.e. whether it divides into 100 or 1000).&lt;/p&gt;&#xA;&lt;p&gt;ISO 4217:2015 also describes historical codes in List three as well as the codes representing certain funds in List two.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="11806" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2017-03-14T08:28:31.973" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15752" PostTypeId="2" ParentId="15688" CreationDate="2017-03-14T11:53:21.890" Score="5" Body="&lt;p&gt;&lt;strong&gt;Post-Keynesian&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Post-Keynesianism (PK) is based on the criticism of the so called &quot;Keynesianism&quot;, which according to PKs is not loyal to core Keynes ideas. As such, this school of thought aims to be called the &quot;true&quot; Keynesians.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The criticism starts with the workhorse model of Keynesianism, the IS-LM model, developed by Hick in a 1937's article, right after Keynes &lt;em&gt;magnum opus&lt;/em&gt;. According to Minsky (a prominent PK), this is&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;an article which ... misses Keynes’ point completely’ (Minsky, 1969, p. 225)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Later in life Hicks acknowledge this, by stating that his model&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;was Walrasian rather than Keynesian in origin (Hicks, 1981, p. 142)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Given this background, PK has the following core features in its method:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;strong&gt;emphasis on disequilibrium&lt;/strong&gt; rather than equilibrium (as in IS-LM).&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;rejection of rational expectations&lt;/strong&gt;. Agents can make inaccurate estimates of future based on present information without need to be either fully rational or incredibly naive.&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;against microfoundations&lt;/strong&gt;. PKs argue that &quot;emergent properties&quot; of a system, arising from the interaction of individuals, means a system cannot be understood from a simple extrapolation of the properties of a few agents (e.g. representative firm and household).&lt;/li&gt;&#xA;&lt;li&gt;the use of &lt;strong&gt;Leontieff (fixed proportion) production functions&lt;/strong&gt;. PKs reject the marginalist theory, and argue that the latter is empirically inconsistent (e.g. Blinder, 1998).&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;Money is not neutral.&lt;/strong&gt; This is a straightforward Keynesian argument, also present in IS-LM. Modern approaches highlight the crucial role of banks in endogenous money creation, which is not dependent on reserves (e.g. Moore, 1979).&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;Government has an important role in stimulating aggregate demand&lt;/strong&gt;. Also in line with IS-LM, PKs argue that effective demand is what matters for economic activity. Say's law is therefore rejected.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Some early authors of this discipline are Michael Kalecki, Joan Robinson, Nicholas Kaldor, Luigi Pasinetti, and Piero Sraffa. More recent authors include Wynne Godley, Steve Keen, Frederic S. Lee, and Marc Lavoie.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A recent introduction to PK can be found in &lt;a href=&quot;http://www.palgrave.com/us/book/9780230301849&quot; rel=&quot;noreferrer&quot;&gt;Godley and Lavoie (2007)&lt;/a&gt;. There is also a very comprehensive two-volume &lt;a href=&quot;http://www.oxfordhandbooks.com/view/10.1093/oxfordhb/9780195390766.001.0001/oxfordhb-9780195390766&quot; rel=&quot;noreferrer&quot;&gt;Oxford Handbook of Post-Keynesian Economics&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sources: own research, and &lt;a href=&quot;http://onlinelibrary.wiley.com/doi/10.1111/1475-4932.12016/pdf&quot; rel=&quot;noreferrer&quot;&gt;Keen (2013)&lt;/a&gt;. &lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-03-14T11:53:21.890" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15753" PostTypeId="1" CreationDate="2017-03-14T12:18:13.337" Score="0" ViewCount="40" Body="&lt;p&gt;Would switching the selection of board members away from shareholders to employees (subject to bribery controls within campaigns, for salaries and stuff) limit the short-termism that the current corporate world seems to face? &lt;/p&gt;&#xA;" OwnerUserId="7785" LastActivityDate="2017-03-14T14:57:49.180" Title="Democratic elections of board members by employees?" Tags="&lt;corporate-governance&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="15755" PostTypeId="1" AcceptedAnswerId="15760" CreationDate="2017-03-14T14:51:23.077" Score="2" ViewCount="1386" Body="&lt;p&gt;The market for a currency typically has the y axis labelled as (currency1/currency2) where currency1 is the currency in which the demand and supply is for. If this is the case, wouldn't it mean that a vertical movement upwards along the vertical axis mean that the currency is in fact depreciating rather than appreciating? For example, if a point on vertical axis is originally at £3/1USD and a movement upwards along the vertical axis to a point where £5/1USD, does this not mean that the pound has depreciated? I'm curious all of a sudden because I've always been told and analysed the currency market as one where any upwards/downwards movement on the vertical axis represents appreciation/depreciation, but the example I've just given seems to conflict with this. I've also found various sources where a movement upwards along the vertical axis shows an appreciation, such as in the pic below, which is how I've always viewed the market until just now.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/p2C8q.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/p2C8q.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="6782" LastActivityDate="2021-03-02T15:20:41.980" Title="Misleading vertical axis in foreign exchange graphs analyses?" Tags="&lt;foreign-exchange&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15756" PostTypeId="2" ParentId="15753" CreationDate="2017-03-14T14:57:49.180" Score="2" Body="&lt;p&gt;In Sweden, 2 employees are members of the board in companies over 25 employees (by law). So at least here, not all board members are choosen by the shareholders.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One of the reasons many shareholders have stocks, is to influence the long term way the company is run. The main way to do this is by influencing which people are on the board. If big shareholders could not influence this, the cost of new capital into the companies would increase very much. Because with less influence there is a larger risk, and the way you pay for larger risk is by larger return on investments. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So in short, while it seems on the surface that it could limit the &quot;short-termism&quot;, as you call it, it may actually have the opposite effect.&lt;/p&gt;&#xA;" OwnerUserId="11806" LastActivityDate="2017-03-14T14:57:49.180" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="15757" PostTypeId="1" CreationDate="2017-03-14T16:35:01.700" Score="3" ViewCount="392" Body="&lt;p&gt;Throughout the course load of an economics student's undergrad we are exposed to the concept of cardinal utility via utility functions which give us a specific quantifiable number of &quot;utilis&quot; as a result of our inputs which represent consumer goods.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Practically speaking though, what type of data is used here and what methods are employed to accurately measure utility in a cardinal sense? &lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2017-03-14T17:46:28.937" Title="How do we estimate utility functions?" Tags="&lt;consumer-theory&gt;&lt;applied-econometrics&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15758" PostTypeId="2" ParentId="15757" CreationDate="2017-03-14T17:46:28.937" Score="1" Body="&lt;p&gt;One proxy for cardinal utility would be people's willingness to pay (WTP) for a particular product. One can estimate WTP using consumption data (e.g. from Amazon/eBay purchases), or elicit WTP using economic experiments. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another (better?) way to estimate cardinal utility is through methods used in neuroeconomics. For example, one can monitor an individual's dopamine level/active brain regions while she makes decisions. To the extent that the neuro-transmitter/brain activities are associated with bodily (physiological) pleasure, which by the way is what Jeremy Bentham had in mind when he coined the term &quot;util&quot;, we may assert that particular activities/decisions generate a measurable level of utility that is cardinal in the sense that it not only orders choice alternatives from least to most preferred, but also signifies the intensity of preference over each alternative.&lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2017-03-14T17:46:28.937" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15759" PostTypeId="1" CreationDate="2017-03-14T19:58:37.293" Score="3" ViewCount="717" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;For the following problem&#xA;  \begin{equation}\max_{(\tilde{c}_t,\tilde{a}_{t+1+s})}\sum_{s=0}^{\infty}\beta ^su(\tilde{c}_{t+s})\end{equation}&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;s.t. the following restrictions&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;$\begin{equation}&#xA;\begin{split}&#xA;\tilde{c}_t&amp;amp;=(1-\delta )Y_t+a_t-\frac{\tilde{a}_{t+1}}{R_t}\\&#xA;\tilde{c}_{t+1+s}&amp;amp;=(1-\delta )Y_{t+1+s}^{e}+\tilde{a}_{t+1+s}-\frac{\tilde{a}_{t+2+s}}{R_{t+1+s}}, \forall s \geq 0&#xA;\end{split}&#xA;\end{equation}$&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;where:&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;$\tilde{c}_t$: Consumption at time $t$&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;$\tilde{a}_t$: Financial wealth at time $t$&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;$Y_t$: Income at time $t$&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;$R_t$: Nominal interest rate at time $t$&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;$Y_t^e$: Expected income at time $t$&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Consider that $u(\tilde{c}_{t+s})$ is defined by the isoelastic utility function: $u(\tilde{c}_{t+s})=\frac{\tilde{c}_{t+s}^{1-\frac{1}{\sigma}}-1}{1-\frac{1}{\sigma}}$&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Find the optimal policy function for $\tilde{c}_t$.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I don't know how to write the Bellman equation because I have two restrictions. What would be the optimal procedure to solve this problem?&lt;/p&gt;&#xA;" OwnerUserId="12129" LastEditorUserId="2776" LastEditDate="2017-03-15T10:35:36.473" LastActivityDate="2017-05-15T20:30:07.753" Title="Bellman equation for this dynamic programming problem" Tags="&lt;dynamic-programming&gt;&lt;bellman-equations&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15760" PostTypeId="2" ParentId="15755" CreationDate="2017-03-15T11:12:31.643" Score="2" Body="&lt;p&gt;The &lt;a href=&quot;https://en.wikipedia.org/wiki/Currency_pair&quot; rel=&quot;nofollow noreferrer&quot;&gt;convention in finance&lt;/a&gt; is that any &lt;strong&gt;currency pair&lt;/strong&gt; &quot;currency1/currency2&quot; is to be interpreted as the number of units of &lt;em&gt;currency2&lt;/em&gt; needed to &lt;strong&gt;buy&lt;/strong&gt; one unit of &lt;em&gt;currency1&lt;/em&gt;, or alternatively, as the number of &lt;em&gt;currency2&lt;/em&gt; you get from &lt;strong&gt;selling&lt;/strong&gt; one unit of &lt;em&gt;currency1&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For instance, as of &lt;a href=&quot;https://www.poundsterlinglive.com/best-exchange-rates/british-pound-to-us-dollar-exchange-rate-on-2017-03-13&quot; rel=&quot;nofollow noreferrer&quot;&gt;13th of Match of 2017&lt;/a&gt;, the currency pair rate of exchange between the £ and the US $ (GBP/USD) was roughly 1.22. This means that you need 1.22 US dollars to buy £1.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Under this convention, &lt;strong&gt;a fall/increase in the GBP/USD means a depreciation/appreciation of the British Pound with respect to the US Dollar.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, using your example, if the GBP/USD goes up from 3 to 5, then the British Pound appreciates with respect to the US Dollar.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By contrast, the convention in economics is to define the &lt;strong&gt;exchange rate&lt;/strong&gt; as £x/\$1, meaning that you need x British Pounds to buy 1 US Dollar, or that you can sell 1 US Dollar for x British Pounds.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Under this convention, &lt;strong&gt;an increase/fall in £x/\$1 means a depreciation/appreciation of the British Pound with respect to the US Dollar.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words, &lt;strong&gt;the interpretation is exactly the opposite.&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-03-15T11:12:31.643" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="15761" PostTypeId="2" ParentId="15746" CreationDate="2017-03-15T11:39:03.353" Score="1" Body="&lt;p&gt;The minimum wage is usually the outcome of a bargaining process between the government, businesses (via lobby), and the trade unions. As such, a key driver of the final outcome depends on the balance of power. In countries like France and Germany, with strong unions in the former, and wide collective bargaining on the latter, the &lt;a href=&quot;https://en.wikipedia.org/wiki/List_of_minimum_wages_by_country&quot; rel=&quot;nofollow noreferrer&quot;&gt;minimum wage&lt;/a&gt; is relatively high, compared for instance with Poland. Meanwhile, in Poland the minimum wage is roughly two times that of Chile, both roughly equally sized in terms of &lt;a href=&quot;https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)_per_capita&quot; rel=&quot;nofollow noreferrer&quot;&gt;GDP per capita&lt;/a&gt;. How this reflects differences in power is not easy to tell.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Needless is to say that the ideology of the government is also crucial in this respect. Left-wing governments are more keen on raising the minimum wage than right-wing ones.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Additionally, the structure of production and workers' skills varies among countries. This means that some countries could have a lot of workers around the minimum wage, giving more incentives to unions to fight for them, with greater opposition from business. Yet, businesses in a country with few people around the minimum wage are more willing to accept a minimum wage, because it affects less people.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Last but not least, what matters is the &lt;strong&gt;real minimum wage&lt;/strong&gt;. Equally sized countries can have different price levels, because the basket of non-tradable goods might be very different (prices of tradable goods are supposed to equalise in the long run, according to the &lt;a href=&quot;https://en.wikipedia.org/wiki/Law_of_one_price&quot; rel=&quot;nofollow noreferrer&quot;&gt;Law of One Price&lt;/a&gt;).&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="1601" LastEditDate="2017-03-16T12:07:24.243" LastActivityDate="2017-03-16T12:07:24.243" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15762" PostTypeId="1" AcceptedAnswerId="15765" CreationDate="2017-03-15T11:59:02.307" Score="3" ViewCount="4725" Body="&lt;p&gt;Find marginal product of labor of a Leontief production function.  For example,&#xA;$$f(L, K) = min\{\frac{L}{a}, \frac{K}{b}\}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;MY ATTEMPT&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now as I understand it the marginal product of labor, $MP_L$ of this function cannot be found in the &quot;normal&quot; way because this function is not differentiable.  However, by definition, marginal product of labor means the extra output when one puts in an additional unit of labor.  We assume capital stays constant.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Say, we produce originally $q$ units of output.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, if $\frac{L}{a}+\Delta L &amp;lt; \frac{K}{b}$ where we are increasing the quantity of labor, then we are on the vertical portion of the isoquant (Labor on the horizontal axis, Capital on vertical).  Thus, we would increase our output by $q+\Delta L$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If $\frac{L}{a}+\Delta L&amp;gt;\frac{K}{b}$, we would still be producing $q$ units.&lt;/p&gt;&#xA;" OwnerUserId="10629" LastActivityDate="2017-03-17T11:41:19.503" Title="Leontief function marginal product of labor/capital" Tags="&lt;production-function&gt;&lt;leontief&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15764" PostTypeId="2" ParentId="15700" CreationDate="2017-03-15T13:10:39.430" Score="1" Body="&lt;p&gt;It is reasonable to show both observations and number of units of analysis. For instance, take &lt;a href=&quot;http://economics.mit.edu/files/5677&quot; rel=&quot;nofollow noreferrer&quot;&gt;this example&lt;/a&gt; of an article in the American Economic Review:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/6aAAI.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/6aAAI.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is the row &lt;strong&gt;Observations&lt;/strong&gt;, and the row &lt;strong&gt;Countries&lt;/strong&gt;. The latter is the unit of analysis. As the data is a longitudinal panel, there are multiple observations per country. As the panel is unbalanced, the number of observations is generally not a multiple of the number of countries (e.g. for Pooled OLS (column 1), $945/150=6.3$).&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-03-15T13:10:39.430" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15765" PostTypeId="2" ParentId="15762" CreationDate="2017-03-15T13:54:58.490" Score="4" Body="&lt;p&gt;Since you are interested in labour, let's assume for simplicity that the stock of capital is fixed at $\bar{K}$. Then, the optimal choice of capital and labour is given by:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{L^*}{a}=\frac{\bar{K}}{b}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, optimal labour is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$L^* = \frac{a}{b}\bar{K}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The marginal product of labour depends on how &lt;strong&gt;actual labour&lt;/strong&gt; relates to &lt;strong&gt;optimal labour&lt;/strong&gt;:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Case 1: $L = L^*$. In the standard Leontief diagram, with $L$ in the horizontal axis and $K$ in vertical axis, this is any point &lt;strong&gt;on&lt;/strong&gt; the optimal path (which function starts at the origin and has slope $\frac{b}{a}$). In this case, $\dfrac{dQ}{dL}=0$.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Case 2: $L &amp;gt; L^*$. This is when the factors' combination is &lt;strong&gt;below&lt;/strong&gt; the $\frac{b}{a}$ path. In this case, $\dfrac{dQ}{dL}=0$.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Case 3: $L &amp;lt; L^*$. This is when the factors' combination is &lt;strong&gt;above&lt;/strong&gt; the $\frac{b}{a}$ path. The solution here depends on how far $L$ is from $L^*$:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Case 3a: $L^*-L &amp;gt; 1$. This is perhaps the most likely case. Here, the change in labour leaves still with low levels of labour. In this scenario, $MP_L = \dfrac{1}{a}$. This results comes from comparing output before the change in labour: $Q_0=\dfrac{L_0}{a}$ versus after the change: $Q_1=\dfrac{L_0 +\Delta L}{a}$. From here, we conclude that $\dfrac{dQ}{dL}=\dfrac{1}{a}$. Notice that in this case, there is still room for increasing output by increasing labour (i.e. we are still within Case 3).&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Case 3b: $L^*-L = 1$. Here, the change in labour leaves us &lt;strong&gt;on&lt;/strong&gt; the optimal path. The change is just as in Case 3a. The differences is that increasing labour further leaves without increases in output. We are then back to case 1.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Case 3c: $L^*-L &amp;lt; 1$. Here, the change in labour is more than what we actually require. Thus, we move from being in Case 3 to being in Case 2. The change is therefore not $\dfrac{1}{a}$, but equal to $\dfrac{1}{a} \times (L^*-L)$. In other words, the change is proportional to the exact amount of labour input we need to be in the optimal path.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;A graphical example can be seen below:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/g15af.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/g15af.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For any labour equal or above $L_0$, further increases in $L$ does not change $q_0$. However, when we are above the optimal path (meaning $K&amp;gt;\bar{K}$), the extra marginal worker does add to production. You can see that depending on how far this point is from the optimal, the three scenarios of Case 3 arise.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If interested (in my personal quest in favour of Open Economics), here is the R code of the graph:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;plot(c(0,5), c(0,5), type = &quot;n&quot;, xlab = &quot;Labour&quot;, ylab = &quot;Capital&quot;, yaxt='n', xaxt='n', bty='l', mgp=c(1,1,0))&#xA;segments(0, 0, 4.7, 4.7,lwd=2)&#xA;text(4.9, 4.8, expression(frac(b,a)),cex = 1.3)&#xA;points(2, 2, type=&quot;p&quot;, pch=19, col=&quot;black&quot;, bg=NA, cex=1.5)&#xA;segments(2, 2, 2, 5,lwd=2.5)&#xA;segments(2, 2, 4.7, 2,lwd=2.5)&#xA;text(4.9, 2,  expression(q[0]),cex = 1.3)&#xA;text(2.4, 1.75, expression(paste(&quot;(&quot;,L[0],&quot;,&quot;,bar(K),&quot;)&quot;)),cex = 1.3)&#xA;points(3.5, 2, type=&quot;p&quot;, pch=19, col=&quot;black&quot;, bg=NA, cex=1.5)&#xA;text(3.5, 2.3, expression(L&amp;gt;L[0]),cex = 1.3)&#xA;points(2, 3.5, type=&quot;p&quot;, pch=19, col=&quot;black&quot;, bg=NA, cex=1.5)&#xA;text(2.4, 3.5, expression(K&amp;gt;bar(K)),cex = 1.3)&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-03-17T11:41:19.503" LastActivityDate="2017-03-17T11:41:19.503" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="15766" PostTypeId="1" AcceptedAnswerId="15767" CreationDate="2017-03-15T14:23:46.387" Score="3" ViewCount="10622" Body="&lt;p&gt;I'm studying general equilibrium theory, and in the study guide I came across a utility function of the type $U=\max\{x,y\}$, which I'm not that familiar with. I study mainly from two books: Intermediate microeconomics by Varian and Nicholson's Microeconomic Theory and couldn't find any details about the nature of this kind of utility function in either. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My teachers over the semesters have mentioned some details about it as a curious fact, so I know the choice of the consumer is driven by the relative price of the goods, in this case x and y, so he'll choose to consume the cheaper good, and if the relative prices are equal he'll be indifferent towards both. Also I know the indifference curves have the shape of an inverted L.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is not clear to me is how is it related to the Perfect Substitutes utility function since both seem extremely similar to me, but the indifference curves are very different. &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Is the utility function $U=\max\{x,y\}$ a more general case?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;More importantly, when the relative prices are the same, how can we illustrate consumer's choice in that inverted L indifference curve, doesn't it turn linear?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="12430" LastEditorUserId="4193" LastEditDate="2017-03-15T19:30:31.070" LastActivityDate="2017-03-15T19:30:31.070" Title="Relation between linear utility function and U=max{x,y}" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;&lt;preferences&gt;&lt;choice-theory&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15767" PostTypeId="2" ParentId="15766" CreationDate="2017-03-15T15:52:10.123" Score="3" Body="&lt;p&gt;&lt;strong&gt;The optimal choice set for a max function and a perfect substitutes function with equal relative prices share some solutions [i.e, boundary solutions], but in general, the indifference curves, and hence non-boundary solutions, are different.&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;h1&gt;Main Idea&lt;/h1&gt;&#xA;&lt;p&gt;For both a max(x1 x2) and perfect_sub(x1 x2) utility function, the point, say, &lt;code&gt;m/p1&lt;/code&gt; (or &lt;code&gt;m/p2&lt;/code&gt;) would maximize utility. So both utility functions share boundary solutions. But think about the IC of &lt;code&gt;m/p1&lt;/code&gt; for a perf_subs consumer and think about the IC of &lt;code&gt;m/p1&lt;/code&gt; for a max consumer. You see the points that the two consumers think are 'just as good' as that &lt;code&gt;m/p1&lt;/code&gt; point are very different.&lt;/p&gt;&#xA;&lt;p&gt;That is, the same boundary bundle might be a solution to both utility functions, but the other solutions will differ.&lt;/p&gt;&#xA;&lt;h1&gt;Logic&lt;/h1&gt;&#xA;&lt;p&gt;The reason is that U = perfect_subs is a (not-strictly) convex utility function, whereas U = max isn't. That is: the consumer is either indifferent between, or actually prefers, less extreme combinations to more extreme combinations for the former. As for the latter? Well, they just care about the max; they like extreme combinations (e.g, [C = (&lt;code&gt;m/p1, 0&lt;/code&gt;)])&lt;/p&gt;&#xA;&lt;p&gt;That's why for U = perfect_subs with relative prices the same, both A = &lt;code&gt;(100,0)&lt;/code&gt; and B = &lt;code&gt;(ß(x1), (1-ß)x2)&lt;/code&gt; have the same utility. That is,B lies on a straight line IC connecting (100, 0) to (0, 100). Whereas for U = max(x1 x2), B would not be on the same IC as A (unless ß is 0 or 1, in which case, we're back to talking about boundary solutions!)&lt;/p&gt;&#xA;&lt;p&gt;The word, &lt;code&gt;max&lt;/code&gt; is confusing here. Essentially, the perfect_subs (x1 x2) consumer wants to maximize total goods. The max(x1 x2) consumer just cares about maximizing the larger quantity in his {x1, x2} bundle.&lt;/p&gt;&#xA;&lt;h1&gt;Tl;DR&lt;/h1&gt;&#xA;&lt;p&gt;&lt;strong&gt;To be more concrete: If A = &lt;code&gt;(100,0)&lt;/code&gt; and B = &lt;code&gt;(75, 25)&lt;/code&gt;, a perf_subs consumer is indifferent between A and B; a max consumer is not.&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="12431" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2017-03-15T16:13:53.197" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="15768" PostTypeId="1" CreationDate="2017-03-15T16:24:02.087" Score="4" ViewCount="155" Body="&lt;p&gt;The US Congress is currently considering a new healthcare bill, the &lt;a href=&quot;https://en.wikipedia.org/wiki/American_Health_Care_Act&quot; rel=&quot;nofollow noreferrer&quot;&gt;AHCA&lt;/a&gt;, which would replace the existing healthcare bill, the &lt;a href=&quot;https://en.wikipedia.org/wiki/Patient_Protection_and_Affordable_Care_Act&quot; rel=&quot;nofollow noreferrer&quot;&gt;ACA&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One of the major changes is the way each bill encourages people to maintain health insurance coverage:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;ACA existing law: (in general) if you do not have health insurance for part of the year, you pay an additional tax based on how long you were not covered.&lt;/li&gt;&#xA;&lt;li&gt;AHCA proposed law: (in general) if you have a lapse in coverage for more than 63 days, insurance companies are allowed to charge you up to 30% more for 12 months.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I am not an economist, but IMHO, the goal of these provisions should be to both encourage people to obtain coverage if they don't have it, and also discourage people from ending coverage if they do. It seems to me that the current ACA meets both of those goals, however, the proposed AHCA does not encourage people to obtain coverage once they have lapsed for 63 days. In fact, the AHCA appears to discourage people from obtaining coverage once they have lapsed for over 63 days. Of those in the group that have lapsed, those that need the coverage the most (regardless of price) are still going to purchase insurance, so this would increase the density of high cost people in the overall pool, leading to increased premiums for everyone.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is the above analysis correct, and if so, why would this change be proposed? (I find it hard to believe that the economists involved in writing the bill would have simply overlooked this.)&lt;/p&gt;&#xA;" OwnerUserId="6988" LastEditorUserId="4667" LastEditDate="2017-03-25T08:59:57.507" LastActivityDate="2017-07-24T03:07:55.353" Title="Effects of ACA individual mandate vs AHCA surcharge" Tags="&lt;microeconomics&gt;&lt;public-economics&gt;&lt;usa&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15769" PostTypeId="2" ParentId="15766" CreationDate="2017-03-15T16:24:14.363" Score="2" Body="&lt;p&gt;HerrK. was correct in the comments. Sorry for the lapse. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is happening is that $U(x,y)=$max{$x,y$} with $P_x=P_y=P$ causes a consumer to be indifferent between consumption bundles: $(\frac{w}{P},0) \equiv(0,\frac{w}{p})$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Whenever you have unequal prices, say $P_x&amp;lt;P_y$ then the consumer will strictly prefer the cheaper good. Here, this means the consumer prefers the consumption bundle $(x,y) \equiv (\frac{w}{P},0)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Perfect substitute functions are of the form $U(x,y)=aX+bY$,$x,y \in \mathbb{R^2_+}$ . Suppose $P_x=P_y=P$ then the consumer is indifferent between any mixing of the goods $x,y$ that exhausts his wealth $w$ (assuming the divisibility of goods etc.). If instead prices are unequal, the consumer will equate $MRS = \frac{MU_x}{MU_y}$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This can yield corner solutions that are similar to the optimal bundles chosen by the agent facing $U(x,y)=$max{$x,y$}. Specifically, whenever the budget line and indifference curves have different slopes. For example:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/3fhmH.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/3fhmH.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="1655" LastEditorUserId="1655" LastEditDate="2017-03-15T18:10:03.813" LastActivityDate="2017-03-15T18:10:03.813" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15770" PostTypeId="1" CreationDate="2017-03-15T17:30:04.760" Score="0" ViewCount="67" Body="&lt;p&gt;I'm trying to get info on debt service relative to GDP for Morocco. I know these sorts of figures exist for the US, Japan, etc., since a few authors use them, but Trading Economics does not seem to have anything on that and they did a pretty good job of recouping all the available info from the two most reliable sources (central bank and statistics institute).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are you aware of a good proxy for debt service (i.e interest + amortization) for the public/private sectors?&lt;/p&gt;&#xA;" OwnerUserId="12432" LastEditorUserId="2776" LastEditDate="2017-03-16T09:27:11.093" LastActivityDate="2017-03-16T10:38:37.203" Title="Proxy for debt service?" Tags="&lt;debt&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15771" PostTypeId="1" CreationDate="2017-03-15T21:00:35.713" Score="1" ViewCount="95" Body="&lt;p&gt;In a debate concerning long term economic strategy, a representative of a left party was trying to support that privatisation and &lt;em&gt;Small Government&lt;/em&gt; which minimizes its own activities is not a viable direction in a Global Economy, i.e. it will lead to a further &lt;em&gt;loss of sovereignty&lt;/em&gt; in a sense that a country applies its policies mostly via the public sector, which if minimized will have insignificant impact. Then the opponent asked a simple, but intriguing question:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;&quot;Is there an example where a government owned company&lt;sup&gt;1&lt;/sup&gt; has a product that is competitive with a product of a private company?&quot;&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;After a brief research I really couldn't find such example. Is there such an example and if not, what counter argument there could be presented against the above question? &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;sup&gt;1. Without the trivial and most frequent example of a monopoly.&lt;/sup&gt;&lt;/p&gt;&#xA;" OwnerUserId="4374" LastActivityDate="2017-03-15T21:39:37.963" Title="Government Ownership vs Private Ownership" Tags="&lt;competition&gt;&lt;productivity&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15772" PostTypeId="2" ParentId="15771" CreationDate="2017-03-15T21:39:37.963" Score="1" Body="&lt;p&gt;Yes, there are lots. Several state-owned energy companies succeed in international competitive markets, for example.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDF is majority-owned by the French State, and is a successful competitor in energy markets in other countries; e.g. GB electricity retail.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;DONG is majority-owned by the Danish State, and is a successful competitor in energy markets in other countries; e.g. UK offshore windfarm installation.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2017-03-15T21:39:37.963" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15773" PostTypeId="1" CreationDate="2017-03-15T22:29:28.587" Score="4" ViewCount="109" Body="&lt;p&gt;In Greene's Econometric Analysis, 7th edition, page 355, it is written that:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;A long-standing problem in the analysis of production functions has been the inability to separate &lt;strong&gt;economies of scale&lt;/strong&gt; and &lt;strong&gt;technological change&lt;/strong&gt;.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I know what the boldfaced terms refer to but it's not clear to me what is the source of the described &quot;inability to separate.&quot; Can you please illustrate via a simple model, preferably one (adopted) from an article / a book that studies this very issue.&lt;/p&gt;&#xA;" OwnerUserId="5875" LastActivityDate="2017-12-26T19:53:26.660" Title="Economies of scale v.s. technological change" Tags="&lt;economies-of-scale&gt;&lt;identification&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15775" PostTypeId="2" ParentId="15773" CreationDate="2017-03-15T23:29:22.913" Score="4" Body="&lt;p&gt;The problem is to distinguish between changes &lt;em&gt;along&lt;/em&gt; the production function, from $f(K_1, L_1)$ to $f(K_2, L_2)$, and changes &lt;em&gt;of&lt;/em&gt; the production function, from $f(K_1, L_1)$ to $g(K_1, L_1)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A very simple example/model. Imagine that the only input is labor and that this input doubles between t and t+1, but output more than doubles : $L_{t+1} = 2 L_t$, $Y_{t+1} &amp;gt; 2 Y_t$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To interpret this observation you have two alternatives :&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Assume that there is a production function with increasing returns to scale, i.e. $1/Y dY/dL &amp;gt; 1$, so that $Y_t = f(L_t)$ and $Y_{t+1} = f(L_{t+1})$.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Assume that the production function has constant returns to scale, i.e. $Y_t = \alpha L_t$ and $Y_{t+1} = \beta L_{t+1}$, &lt;em&gt;but&lt;/em&gt; technical progress has occurred between periods $t$ and $t+1$, so that $\beta &amp;gt; \alpha$.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Of course any combination of the two explanations above is admissible.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;During the 'Cambridge controversies on capital', this was one the arguments which led the English Keynesians to reject the notion of production function. One famous paper building a growth model without a production function is Kaldor-Mirrles (1962), &lt;a href=&quot;http://www.jstor.org/stable/2295953&quot; rel=&quot;nofollow noreferrer&quot;&gt;A New Model of economic growth&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="11629" LastEditorUserId="11629" LastEditDate="2017-12-24T23:43:00.927" LastActivityDate="2017-12-24T23:43:00.927" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15776" PostTypeId="2" ParentId="15713" CreationDate="2017-03-16T00:08:09.710" Score="1" Body="&lt;p&gt;The household side of this model is pretty standard. Denote $K(t)$ be household's assets at time $t$. Then the transversality condition (which is an optimizing condition, not a constraint), is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\lim_{t \to \infty} [e^{-\rho t}\lambda(t) K(t)] = 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $\lambda(t)$ is the current value multiplier on assets in the Hamiltonian. Given the assumed form of the utility function we have the f.o.c.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\lambda(t) = \frac {1}{c(t)^{\theta}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So we want &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\lim_{t \to \infty} [e^{-\rho t}\frac {1}{c(t)^{\theta}} K(t)] = 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and since in the model we have a constant consumption growth rate, $g_c$ we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$c(t)^{\theta} = c(0)^{\theta}\cdot e^{g_c\theta t}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ignoring inconsequential constants, we require&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\lim_{t \to \infty} [\frac {1}{e^{(\rho+g_c\theta) t}} K(t)] = 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Use the relation between household assets  and the number of goods $N$, the relation between income (from labor and assets) to aggregate output, as well as the expression of aggregate output as a function of $N$, to obtain a first-order linear differential equation in $N$, and proceed  as in pages 208-209 of the book.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2017-03-16T00:08:09.710" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15777" PostTypeId="1" CreationDate="2017-03-16T00:39:34.227" Score="2" ViewCount="164" Body="&lt;p&gt;I am looking at an exchange economy where I have two types of goods and n consumers. Half of the consumers have a utility function given by $U(x)= 5\ln{x} +m $ and the other half of the consumers have a $U(x) = 3\ln{x} + m$. All of the consumers have been given an initial endowment of $20$ of good $x$ and $10$ of good $m$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I need to find what is the maximum amount of good $x$ that the first type of consumers can get at a Pareto Optimal allocation under the constraint $m&amp;gt;0$ for all consumers&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To solve this, I began with creating the following equation: &#xA;\begin{align*}&#xA;\frac{\frac{\partial U_1}{\partial x_1}}{\frac{\partial U_1}{\partial m_1}} &amp;amp;= \frac{\frac{\partial U_2}{\partial x_2}}{\frac{\partial U_2}{\partial m_2}}\\&#xA;\frac{\frac{5}{x_1}}{1} &amp;amp;= \frac{\frac{3}{x_2}}{1}\\&#xA;\frac{5}{x_1} &amp;amp;= \frac{3}{x_2}\\&#xA;\frac{5}{x_1} &amp;amp;= \frac{3}{20-x_1}&#xA;\end{align*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, this approach does not give me the correct solution, nor does it include the initial endowment of $m$. Can someone please help me understand what I am missing?&lt;/p&gt;&#xA;" OwnerUserId="12440" LastActivityDate="2017-03-22T10:27:00.910" Title="Understanding Pareto Optimal" Tags="&lt;microeconomics&gt;&lt;pareto-efficiency&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15778" PostTypeId="1" CreationDate="2017-03-16T01:23:50.067" Score="3" ViewCount="536" Body="&lt;p&gt;More than once, I have heard on the news how the US Federal Reserve would raise interest rates to counter the risk of inflation, even when they indicate that the potential inflation would be caused by &quot;wage pressure&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can understand why the wealthy disapprove of inflation -- it causes the value of their wealth to decrease -- but for the poor, this is not a significant concern.  And if (for example) the price of products are 50% due to labor, doubling the salary of that labor would only increase their cost by 50%, while the workers who were paid that salary could buy twice as many products. Mathematically speaking, then, I would expect prices to asymptotically approach some new value at a rate of e^(-k/t), not spiral into hyperinflation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What am I missing here?  Is inflation due to wage pressure really a bad thing for the general population, or is this a case of the Federal Reserve bowing to the will of those few who would benefit the most?&lt;/p&gt;&#xA;" OwnerUserId="12442" LastEditorUserId="12442" LastEditDate="2017-03-17T00:54:26.930" LastActivityDate="2017-03-19T09:11:03.393" Title="Why is wage-induced inflation a bad thing?" Tags="&lt;inflation&gt;&lt;monetary-policy&gt;" AnswerCount="2" CommentCount="5" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15779" PostTypeId="2" ParentId="15770" CreationDate="2017-03-16T09:40:26.483" Score="1" Body="&lt;p&gt;&lt;strong&gt;There is data available on debt service for Morocco&lt;/strong&gt;. You do not need a proxy. Google is your friend. These are some hits:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://www.tradingeconomics.com/morocco/total-debt-service-percent-of-gni-wb-data.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Trading Economics 1&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://www.tradingeconomics.com/morocco/debt-service-on-external-debt-long-term-tds-us-dollar-wb-data.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Trading Economics 2&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://databank.worldbank.org/data/reports.aspx?source=2&amp;amp;series=DT.TDS.DECT.EX.ZS&amp;amp;country=MAR&quot; rel=&quot;nofollow noreferrer&quot;&gt;World Bank&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://ethiopia.opendataforafrica.org/gwwnvqe/african-union-socio-economic-database?tsId=1119080&quot; rel=&quot;nofollow noreferrer&quot;&gt;Open Data for Africa&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://www.bkam.ma/en/content/view/full/14431&quot; rel=&quot;nofollow noreferrer&quot;&gt;Central Bank of Morocco&lt;/a&gt; (open 2015 pdf, and search &quot;debt service&quot;, and you will get the nominal value).&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-03-16T10:38:37.203" LastActivityDate="2017-03-16T10:38:37.203" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15780" PostTypeId="2" ParentId="15778" CreationDate="2017-03-16T10:21:40.360" Score="2" Body="&lt;p&gt;Wage induced inflation can create inflation spirals, which can lead to hyperinflation. I think everyone agrees hyperinflation is a bad thing for everyone and not just the rich. Furthermore, inflation can be a significant problem for the poor as well.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Such a case of inflation spirals was even threatening post WW2 Germany.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The spiral happens because, if workers demand higher wages that firms cannot pay, then firms may increase prices in order to make up for those losses. This causes inflation, which reduces workers' real wages, so they ask for another wage increase. Firms not in a position to deny or to afford these wages will have to comply and increase prices again. This can go on and on and easily spiral out of control.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In principle it is possible to have higher inflation and higher wage increases. This was the case in Italy before the introduction of the Euro.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However this wage induced inflation also affects non-wage earners, such as those living on welfare benefits, the unemployed living on savings and retirees. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for whether fiscal stimulus is better put in the hands of the poor, this is a different topic related to fiscal policy and unrelated to inflation (i.e. monetary policy).&lt;/p&gt;&#xA;" OwnerUserId="5557" LastEditorUserId="5557" LastEditDate="2017-03-19T09:11:03.393" LastActivityDate="2017-03-19T09:11:03.393" CommentCount="12" ContentLicense="CC BY-SA 3.0" />
  <row Id="15782" PostTypeId="1" CreationDate="2017-03-16T15:15:06.613" Score="2" ViewCount="823" Body="&lt;p&gt;In 1966 Kevin Lancaster proposed a new Economic Theory based on product characteristics instead of product utility. I would like to know the status of this theory nowadays among economists specifically those dedicated to Economic Theory.&#xA;Thank You&lt;/p&gt;&#xA;" OwnerUserId="11371" LastActivityDate="2017-03-16T19:28:16.743" Title="Lancaster's Characteristics Theory" Tags="&lt;utility&gt;&lt;consumer-theory&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15783" PostTypeId="1" CreationDate="2017-03-16T15:24:21.093" Score="0" ViewCount="43" Body="&lt;p&gt;What % of the labour force for an OECD country like the UK (mostly civil service I'm guessing) deals primarily with income redistribution, rather than income generation? Would a simple flat income tax at 40% and a universal basic income have the extra benefit of letting more people enter the value adding economy?&lt;/p&gt;&#xA;" OwnerUserId="7785" LastEditorUserId="7785" LastEditDate="2017-03-17T13:16:52.540" LastActivityDate="2017-03-26T18:01:32.857" Title="Fraction of labour force providing income redistribution services" Tags="&lt;taxation&gt;&lt;welfare-economics&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="15785" PostTypeId="1" AcceptedAnswerId="15798" CreationDate="2017-03-16T19:06:03.577" Score="6" ViewCount="102" Body="&lt;p&gt;Let the set of alternatives be $\left\{a,b,c,d\right\}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let there be $n$ types of voter profiles, each type with a different strict ordering over the set of alternatives.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The number of voters belonging to the profile types need not be the same, let us denote these by $v_1,v_2,...,v_n$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is the minimal number of $n$, for which you can construct the voter profiles in such a way that the &lt;a href=&quot;https://en.wikipedia.org/wiki/Plurality_voting_method&quot; rel=&quot;noreferrer&quot;&gt;plurality rule&lt;/a&gt; (a.k.a. &lt;a href=&quot;https://en.wikipedia.org/wiki/First-past-the-post_voting&quot; rel=&quot;noreferrer&quot;&gt;first-past-the-post&lt;/a&gt;), simple run-off (election with two rounds) rule, &lt;a href=&quot;https://en.wikipedia.org/wiki/Instant-runoff_voting&quot; rel=&quot;noreferrer&quot;&gt;elimination rule&lt;/a&gt; and the &lt;a href=&quot;https://en.wikipedia.org/wiki/Borda_count&quot; rel=&quot;noreferrer&quot;&gt;Borda count&lt;/a&gt; all yield different outcomes? (Assume non-strategic voters. Outcomes should not be ties.)&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;EDIT: &lt;br&gt;&#xA;Plurality rule has one round of voting and whoever has the most votes wins. &lt;br&gt; Example: &lt;a href=&quot;http://www.parliament.uk/about/mps-and-lords/members/electing-mps/&quot; rel=&quot;noreferrer&quot;&gt;United Kingdom parliamentary elections&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The simple run-off rule has two rounds of voting. The two candidates with the most votes in round 1 advance to round 2. In round 2 voters vote for their favourite remaining candidate, and whoever has the most votes wins. &lt;br&gt;Example: French presidential election &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The elimination rule is similar to the run-off rule but has three rounds (number of alternatives minus one). In each round the candidate with the least votes is eliminated (figuratively). Others proceed to the next round. &lt;br&gt; Example: Academy award (Oscar) vote&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Minimalist guesses (&quot;here are some profiles with $n = 4$&quot;) are fine, ideal solution would provide a proof that $n$ is minimal.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2017-03-17T10:18:42.407" LastActivityDate="2017-03-18T18:38:06.847" Title="Minimalist example of voter profiles yielding different outcomes" Tags="&lt;social-choice&gt;" AnswerCount="2" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="15786" PostTypeId="2" ParentId="15782" CreationDate="2017-03-16T19:15:19.407" Score="0" Body="&lt;p&gt;Not really sure what you mean by status. Hopefully not my subjective opinion.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An objective measure could be recent citations. According to Google Scholar his seminal article had 621 citations in articles published in 2016.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://scholar.google.hu/scholar?as_ylo=2016&amp;amp;hl=en&amp;amp;as_sdt=2005&amp;amp;sciodt=0,5&amp;amp;cites=2474203905604306248&amp;amp;scipsc=&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://scholar.google.hu/scholar?as_ylo=2016&amp;amp;hl=en&amp;amp;as_sdt=2005&amp;amp;sciodt=0,5&amp;amp;cites=2474203905604306248&amp;amp;scipsc=&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2017-03-16T19:15:19.407" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15787" PostTypeId="2" ParentId="15782" CreationDate="2017-03-16T19:28:16.743" Score="3" Body="&lt;p&gt;Lancaster initiated what has come to be called &quot;&lt;a href=&quot;https://en.wikipedia.org/wiki/Hedonic_regression&quot; rel=&quot;nofollow noreferrer&quot;&gt;Hedonic Demand Analysis&lt;/a&gt;&quot;, or &quot;Hedonic Price Analysis&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This field of analysis has been rigorously housed in microeconomic theory in the seminal paper&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.jstor.org/stable/1830899&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;strong&gt;Rosen, S. (1974). Hedonic prices and implicit markets: product differentiation in pure competition. Journal of political economy, 82(1), 34-55.&lt;/strong&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It has also entered in a very important way applied economics and policy, since, for example, for many years now USA calculates the official Consumer Price Index using the &quot;Hedonic&quot; framework (mainly in order to accomodate changes in quality). There is, as one can understand, a vast literature on the matter.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2017-03-16T19:28:16.743" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15789" PostTypeId="1" CreationDate="2017-03-16T19:42:15.530" Score="2" ViewCount="212" Body="&lt;p&gt;I am aware of the details of Uncovered Interest Parity, namely that the expected depreciation of a currency vs another one should equal the interest rate differential. I am also aware that empirically it doesn't seem to hold. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, my question is by what mechanism should this parity be achieved? As in, if the currency appreciates, what incentivises traders to push it downwards?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit: One explanation is that after the initial increase in the interest rate differential, investors invested in the relatively higher yielding currency and bid it up. &#xA;This pressured interest rates lower and investors don't invest as much now because the interest differential is less attractive. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't see how that leads to a selling of the currency though. Is it because the drop in the differential induces selling of the currency?&lt;/p&gt;&#xA;" OwnerUserId="6646" LastEditorUserId="6646" LastEditDate="2017-03-18T23:04:51.670" LastActivityDate="2017-03-18T23:04:51.670" Title="Why should UIP hold?" Tags="&lt;finance&gt;&lt;exchange-rates&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="15790" PostTypeId="2" ParentId="15759" CreationDate="2017-03-16T19:56:31.987" Score="3" Body="&lt;p&gt;The &quot;second&quot; constraint appears redundant and it confuses matters. Re-arrange the first one to obtain &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\tilde{a}_{t+1} = \big[\tilde a_t+(1-\delta )Y_t-\tilde{c}_t\big]R_t$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This tells us that wealth in the beginning of next period is fully determined by current-period decisions and known states, without any uncertainty whatsoever: we start with the given wealth at the beginning of the period, our income and the interest rate becomes known, we decide and &quot;set aside&quot; the full amount of consumption (for the whole period, at the beginning of the period), and the rest becomes interest-bearing asset.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why the second constraint, which looks into the future, confuses matters? Because in order to apply Dynamic Programming/Bellman equation, it has to be the case that our optimization problem can be formulated as a &lt;em&gt;recursive&lt;/em&gt; one, meaning that the whole many-periods or even infinite-horizon problem can be broken down to a two-period problem. And we have this condition in the above constraint, we do not need the second one.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If $V(\tilde a_t)$ is the value function, the Bellman equation is then &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$V(\tilde a_t) = \max_{\tilde c_t}\big [u(\tilde c_t) + \beta V(\tilde a_{t+1})\big]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and we must find the policy function $h(\tilde a_t)=\tilde c_t$  that satisfies&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$V(\tilde a_t) = u[h(\tilde a_t)] + \beta V\left[\big(\tilde a_t+(1-\delta )Y_t-h(\tilde a_t)\big)\cdot R_t\right]$$&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2017-03-16T19:56:31.987" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15794" PostTypeId="1" AcceptedAnswerId="15797" CreationDate="2017-03-16T23:25:03.587" Score="1" ViewCount="159" Body="&lt;p&gt;I am currently reading a paper on the influence of hedge fund activism on plant-level productivity. In the appendix the author describes how he decomposes changes in ROA into changes in operating margin and asset turn-over. I am trying to redo the calculation explained by the author but am unable to do so.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The author is calculating the change in operating margin via a increase in TFP using the following formula:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Operating Margin = 1-1/(TFP x price change ratio)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The author calculates 26,6 percentage as the new operating margin but I cannot replicate the calculation. Any help is appreciated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here the part in question:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In Appendix B, we link formally the magnitude of the change in ROA to&#xA;  the change in raw TFP from years  tt  to  t+3t+3 . In particular, we&#xA;  use a modified version of the decomposition in Bosch-Badia (2010), in&#xA;  which ROA is decomposed into TFP, input and output price changes, and&#xA;  asset turnover. Using the “DuPont decomposition” of ROA, we obtain the&#xA;  following relation:  &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;(A2) ROA=Operating margin × Asset turnover,ROA=Operating margin ×&#xA;  Asset turnover,  where ROA is the ratio of earnings before interests&#xA;  and taxes (“operating profits”) to lagged total assets, operating&#xA;  margin is the ratio of operating profits to concurrent sales, and&#xA;  asset turnover is the ratio of sales to lagged assets and, as&#xA;  Bosch-Badia (2010) shows, operating margin = 1–1/(TFP × price change&#xA;  ratio). The price change ratio is the change in output price divided&#xA;  by the change in input price. All price changes are relative to the&#xA;  benchmark year (i.e., year  tt ). In addition, we further make the&#xA;  following two assumptions: (i) The baseline operating margin is 24.7%&#xA;  (see Table 2, Column (1)), and (ii) the price change ratio is equal to&#xA;  one (i.e., input and output prices change by the same magnitude). With&#xA;  these assumptions we can link the change in ROA to the changes in TFP&#xA;  and in asset turnover. First, we estimate the change in TFP using the&#xA;  specification in Table 4, Column (4). Specifically, we narrow the&#xA;  estimation to only manufacturing firms based on Compustat SIC codes&#xA;  and find average productivity gains of 2.6% from years  tt  to  t+3t+3&#xA;  for plants owned by manufacturing target firms. Second, given the&#xA;  baseline operating margin of 24.7%, the increase in TFP of 2.6%&#xA;  translates into an expansion in operating margin by 1.9 percentage&#xA;  points to 26.6%. Third, the magnitude of the change in ROA also&#xA;  depends on the change in firm-level asset turnover, which is driven by&#xA;  reductions in capital at the plants that are not sold, and by&#xA;  divestitures and/or closures of plants. Using Compustat data, we find&#xA;  that for manufacturing target firms asset turnover increases from 1.07&#xA;  to 1.20 on average from years  tt  to  t+3t+3 . Taking the two changes&#xA;  together, the implied ROA increases by 5.5 percentage points from&#xA;  26.4% in year  tt (= 24.7% × 1.07) to 31.9% in year  t+3t+3  (= 26.6% × 1.20).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;And here a &lt;a href=&quot;https://academic.oup.com/rfs/article/28/10/2723/1581066/The-Real-Effects-of-Hedge-Fund-Activism#29466391&quot; rel=&quot;nofollow noreferrer&quot;&gt;direct link&lt;/a&gt; to the paper.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Go to Appendix B.&lt;/p&gt;&#xA;" OwnerUserId="12456" LastEditorUserId="1601" LastEditDate="2017-03-17T08:11:19.627" LastActivityDate="2017-03-18T07:43:51.140" Title="Decomposing Changes in ROA into Changes in Operating Margin and Asset Turnover via Total Factor Productivity (TFP)" Tags="&lt;financial-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15795" PostTypeId="2" ParentId="15778" CreationDate="2017-03-17T07:55:18.040" Score="2" Body="&lt;p&gt;Some of the costs traditionally associated with inflation also continue to hold if the inflation is offset by an increase in average wages:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;It has distributional consequences. You mention that inflation Hurts the wealthy. But it also hurts the prudent poor who are saving for a rainy day or to get a good start in life.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;It induces menu costs: the costs firms incur each time they have to change their prices.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;It induces &quot;shoe leather costs&quot;: people must spend time and effort to avoid the effects of inflation—for example, by more actively managing their wealth to minimise their cash holdings. As inflation becomes higher, this might also involve shopping costs for consumers who have to search more because firms' prices are not increasing in sync.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;It reduces the quality of the price signal. Prices contain important information for those making economic decisions. For example, if it is more costly to mine anthracite than lignite (two forms of coal) then the latter will tend to have a lower price. This low price serves as a signal to the market: &quot;you should switch to using lignite if you can because it is less costly to produce&quot;. This is one of the main ways that markets implement allocative efficiency. But if prices are changing quickly due to inflation it can be hard to tell where a discrepancy in prices is a genuine signal about allocative efficiency, and where it is an artifact of inflation.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;All of these concerns are only severe for relatively high levels of inflation. Lower levels of inflation are actually thought to be somewhat beneficial for the economy (see, e.g., &lt;a href=&quot;https://economics.stackexchange.com/a/6963/108&quot;&gt;Why is modest inflation a good thing?&lt;/a&gt;). For this reason, the central bank typically does not try to eliminate inflation, but rather tries to keep it from growing too large.&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2017-03-17T07:55:18.040" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15797" PostTypeId="2" ParentId="15794" CreationDate="2017-03-17T10:09:09.227" Score="0" Body="&lt;p&gt;The formula for OM is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ OM = 1 - \frac{1}{TFP\times PCR}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the baseline year, you have that Operative Margin (OM) = 0.247. Further, by assumption, price change ratio (PCR) = 1. Then:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$TFP = \frac{1}{1-OM} = \frac{1}{1-0.247}=1.328$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, you are told that the TFP changed by 2.6%. Therefore, the &lt;strong&gt;new&lt;/strong&gt; value for TFP is 1.3625 (equivalent to 1.328 $\times$ 1.026). With this new TFP, and assuming that PCR = 1, you can find the new value for OM:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ OM = 1 - \frac{1}{1.3625\times 1}$$&#xA;$$ OM = 1 - 0.734$$&#xA;$$ OM = 0.266$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There you get the 26.6% result.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-03-18T07:43:51.140" LastActivityDate="2017-03-18T07:43:51.140" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="15798" PostTypeId="2" ParentId="15785" CreationDate="2017-03-17T12:22:06.543" Score="2" Body="&lt;p&gt;This is not mathematically rigorous but I believe the reasoning is correct.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;We assume that the allocation of votes between voter types is such that ties are not allowed, where it matters.&#xA;Also, obviously, the minimal number of voter types cannot be one. So we need at least two voter types.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given absence of ties, in the Plurality system, it must be the case that there exists a pair of first-second candidates, say $\{a,b\}$. Without loss of generality assume that in Plurality, $a$ wins. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, it is certain that $\{a,b\}$ will also be the candidate pair in the second round of Simple Run Off, if it is so for the Plurality regime. To obtain a different outcome here, we need a &lt;em&gt;third&lt;/em&gt; voter type, that will support $b$ even though it was not its first-preference (and a suitable allocation of votes between types). So we conclude that $n_{min} \geq 3$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider now the Elimination system. In the first round the fourth in votes candidate will be eliminated, say $d$. In the second round, we will have three candidates. And voting must be such that the final pair of candidates is &lt;em&gt;not&lt;/em&gt; $\{a,b\}$ (because both have won in the other two systems). So we must eliminate either $b$ or $a$ and so get either $\{a,c\}$ or $\{b,c\}$, and in both cases, $c$ must win. Is this possible with three voter types? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;No. Since voters vote strictly by preference ordering and not strategically, each of the three voter types will vote for its first-preference. Then, with only three voter types, we will necessarily get as a final pair $\{a,b\}$, which we do not want. So we conclude that we need at least a &lt;em&gt;fourth&lt;/em&gt; voter type, so $n_{min} \geq 4$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And indeed, we do not need more than that. Consider&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$v_1:\; \{a,d,c,b\}$$&#xA;$$v_2:\; \{b,d,c,a\}$$&#xA;$$v_3:\; \{c,d,b,a\}$$&#xA;$$v_4:\; \{d,c,b,a\}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;with &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$v_1&amp;gt;v_2&amp;gt;v_3&amp;gt;v_4$$&#xA;$$v_2+v_3&amp;gt; v_1 $$&#xA;$$v_3+v_4&amp;gt; v_2 $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first inequality makes $a$ win Plurality, and gives final pair $\{a,b\}$ in Plurality and Simple Run off. The second inequality is enough to make $b$ win Simple-Run Off.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the Elimination system, due to first inequality $d$ goes out first. Then the third inequality makes $b$ be eliminated second, and we are left with the final pair $\{a,c\}$. Then the second inequality again is enough to make $c$ the winner here ($v_4$ will also vote for $c$).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for the Borda Count, consider $v_1=10, v_2=9, v_3=8, v_4=7$. $d$ will win with $109$ points.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2017-03-18T18:38:06.847" LastActivityDate="2017-03-18T18:38:06.847" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15799" PostTypeId="2" ParentId="15785" CreationDate="2017-03-17T12:44:20.357" Score="3" Body="&lt;p&gt;First, let me state that this is a beautiful problem!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is a proof that $n=4$. To prove that $n \leq 4$, consider the following example:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;$m+4$ voters have preference $a \succ d \succ b \succ c$&lt;/li&gt;&#xA;&lt;li&gt;$m+3$ voters have preference $b \succ d \succ c \succ a$&lt;/li&gt;&#xA;&lt;li&gt;$m+2$ voters have preference $c \succ d \succ b \succ a$&lt;/li&gt;&#xA;&lt;li&gt;$m$ voters have preference $d \succ c \succ a \succ b$&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;where $m \geq 2$. I leave it to you to check that $a$ is selected by the plurality rule, $b$ by the simple run-off, $c$ by the elimination rule and $d$ by the Borda procedure.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, let us prove that $n&amp;gt;3$. The cases $n=1$ and $n=2$ are trivial, so let us assume $n=3$ and write $v_1,v_2,v_3$ for the number of voters in  the three voter profiles. Without loss of generality, let us assume that $v_1 \geq v_2 \geq v_3$, that $a$ is selected by the plurality rule, that $b$ is selected by the run-off election, that $c$ is selected by the elimination rule and that $d$ is selected by the Borda count.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The outcome of the plurality rule shows that $a$ is most preferred by voters of group 1 (since it wins with no ties). If $a$ were also preferred by voters of group 2, $a$ would win the run-off election, which is a contradiction. Thus $a$ is most preferred by voters of group 1, $b$ is most preferred by voters of group 2, and $v_1&amp;gt;v_2 \geq v_3$, the latter inequality being strict if $b$ is not most preferred by voters of group 3. But then it is clear that both $a$ and $b$ survive the first two rounds of the elimination rule, i.e. that $c$ and $d$ are eliminated, which is a contradiction.&lt;/p&gt;&#xA;" OwnerUserId="4667" LastEditorUserId="4667" LastEditDate="2017-03-17T13:29:45.680" LastActivityDate="2017-03-17T13:29:45.680" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15800" PostTypeId="1" CreationDate="2017-03-17T16:26:47.030" Score="1" ViewCount="108" Body="&lt;p&gt;I am running a BEER model (Behavioral Equilibrium Exchange Rate Model) and using VAR/VECM and Johansen method to estimate the equation. For context, I am looking at the XR of Czech crown and the euro.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The equation takes the following form: &#xA;$RER=b_1*TS_1+b_2*TS_2+b_3∗TS_3+b_4∗TS_4$,&#xA;where RER is the real exchange rate (nominal rate adjusted for price levels) and $TS_i$ are the relevant time series determinants.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The goal is to get Behavioral Equilibrium Exchange Rate - a variable/time series that does not appear in the equation. When I run co-integration analysis and use VAR/VECM model, how do I get the BEER time series? In all relevant literature I have read, this step is essentially skipped and results are shown.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Understanding check: the $b_i$ values are given by the co-integration vector? Correct?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;TL;DR&lt;/strong&gt;: How do I get what I am trying to estimate when it doesn't even appear in the equation?&lt;/p&gt;&#xA;" OwnerUserId="12228" LastEditorUserId="2776" LastEditDate="2017-03-17T16:39:10.673" LastActivityDate="2017-03-17T16:39:10.673" Title="VAR/VECM Fitted/Predicted values (BEER model)" Tags="&lt;econometrics&gt;&lt;exchange-rates&gt;&lt;applied-econometrics&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15802" PostTypeId="2" ParentId="15030" CreationDate="2017-03-17T18:11:50.657" Score="0" Body="&lt;p&gt;An alternative representation is the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ I^n_t = I^n_{t-1} + f(A_t, B_t, C_t) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can then iterate using &lt;a href=&quot;https://en.wikipedia.org/wiki/Backward_induction&quot; rel=&quot;nofollow noreferrer&quot;&gt;backward induction&lt;/a&gt;, to get the following expression:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$I^n_t = I^n_0 + \sum_{j=1}^{t}f(A_j, B_j, C_j) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, you can interpret $I^n_t$ as &lt;strong&gt;the accumulated effect of all the historical policy actions of the three central banks, between time 0 and time $t$&lt;/strong&gt;, plus the initial interest rate. Moreover, you could stop at any arbitrary initial period:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$I^n_t = I^n_{t_0} + \sum_{j={t_0}+1}^{t}f(A_j, B_j, C_j) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this case, the value of the interest rate reflects the interest of a given period plus the accumulated effect of all subsequent policy changes of the three central banks.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or even more extreme, you could iterate infinitely, in which case interest rates are simply an infinite accumulation of policy factors:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$I^n_t = \sum_{j=0}^{\infty}f(A_{t-j}, B_{t-j}, C_{t-j}) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Without further information on $f$, nothing much can be said, in particular regarding the stability/convergence of the variable. Yet, as central banks &lt;strong&gt;react to $I$&lt;/strong&gt;, the interest will not diverge, as central banks will attempt to bring it towards &quot;equilibrium&quot; levels.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-03-17T18:21:56.017" LastActivityDate="2017-03-17T18:21:56.017" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="15803" PostTypeId="1" CreationDate="2017-03-17T21:29:12.293" Score="2" ViewCount="281" Body="&lt;p&gt;I was wondering what the links are between price stability and economic growth on the long term.&lt;/p&gt;&#xA;" OwnerUserId="12461" LastEditorUserId="12461" LastEditDate="2017-03-18T08:39:56.947" LastActivityDate="2017-03-18T08:39:56.947" Title="What are the relationships between price stability and long term economic growth?" Tags="&lt;economic-growth&gt;&lt;price-level&gt;&lt;long-run&gt;" AnswerCount="0" CommentCount="1" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="15804" PostTypeId="1" AcceptedAnswerId="15806" CreationDate="2017-03-17T22:18:14.167" Score="3" ViewCount="8073" Body="&lt;p&gt;I have been hearing a lot about this metric in relation to rising fears of a Chinese financial crisis. I am wondering, what exactly does this mean? I am told it refers to the difference between current credit-to-GDP ratios and long-term trends but I don't fully understand what that would mean. What would be a nice little equation for it? I have looked at some charts and I am seeing that the US has a negative Credit-to-GDP gap, how can it be negative? I just want to know what the inputs into calculating that would be so I can understand for myself what these things signify.&#xA;Thanks.&lt;/p&gt;&#xA;" OwnerUserId="12463" LastActivityDate="2019-08-08T17:03:53.163" Title="What is the Credit-to-GDP gap exactly?" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;&lt;credit&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="15806" PostTypeId="2" ParentId="15804" CreationDate="2017-03-18T17:11:14.137" Score="4" Body="&lt;p&gt;The Credit-to-GDP, say  ratio measures the relative size of the outstanding debt of &lt;em&gt;non-financial private sector&lt;/em&gt;, say $D_{p,t}$ with respect to (yearly) Gross Domestic Product, say $Y_t$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\text{Credit-to-GDP ratio} =\frac { D_{p,t}}{Y_t}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that GDP should be measured in &lt;em&gt;nominal&lt;/em&gt; terms here, since so is debt. It is a metric related to how much burden WE have placed on our future from our current decisions and activities.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &quot;Credit-to-GDP&quot; gap is, as the OP notes, &quot;the difference of the Credit-to-GDP ratio from its trend&quot;. How do we extract that? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Look for example at the, informative with data and literature, page of the &lt;strong&gt;&lt;a href=&quot;http://www.bis.org/statistics/c_gaps.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;Bank for International Settlements&lt;/a&gt;&lt;/strong&gt;. If you hit the &quot;data&quot; link, you will see that what they do is&lt;br&gt;&#xA;a) calculate the Credit-to-GDP ratio (per quarter but always using past-12-months GDP in the denominator), and then decompose the obtained time series by using the &lt;strong&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Hodrick%E2%80%93Prescott_filter&quot; rel=&quot;nofollow noreferrer&quot;&gt;HP filter&lt;/a&gt;.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Credit-to-GDP &lt;em&gt;gap&lt;/em&gt; is what it remains if from the actual &quot;Credit-to-GDP ratio&quot; series we subtract the (non-linear) trend as calculated by the HP filter. One can understand why then this &quot;gap&quot; can be negative: we are currently below the trend. Finally note that the Credit-to-GDP gap is also measured in GDP percentage units. But sometimes it may be reported as &lt;em&gt;percentage deviation from the trend&lt;/em&gt; (i.e. &quot;we are 30% above trend&quot; does &lt;em&gt;not&lt;/em&gt; mean that we are &quot;30 percentage points of GDP above trend&quot;). So read carefully any source.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;The question is: why use the &quot;gap&quot; and not the ratio itself?&lt;/strong&gt;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Because we are accepting that the trend likely reflects a &lt;em&gt;sustainable&lt;/em&gt; evolution of the economy over time (sustainable by the very ongoing existence of said economy), while the &quot;gap&quot; reflects short-term tendencies that may not be sustainable and may lead to crises if left unchecked and un-managed. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A higher positive gap means that the private sector borrows at a level that is perhaps &quot;not justified&quot; by the current output-producing abilities of the economy. Banks may tend to experience abnormally high rates of loan defaults etc, which can lead to a banking crisis. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A negative gap supposedly implies that there is a &quot;safe&quot; amount of additional borrowing that could be done currently (for consumption or investment purposes), and we are leaving it &quot;unexploited&quot;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But never read too much on a single metric, economic systems are too complex.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2017-03-20T17:31:12.727" LastActivityDate="2017-03-20T17:31:12.727" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="15807" PostTypeId="2" ParentId="15689" CreationDate="2017-03-18T18:50:51.897" Score="0" Body="&lt;p&gt;I chose not to vote to close this question, because I think it is a good opportunity to showcase how important it is for the OPs to offer &lt;em&gt;comprehensive input&lt;/em&gt; related to their question.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What goes wrong here? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As is and with the input given by OP, the pictured Production Possibility Frontier is &lt;em&gt;totally wrong&lt;/em&gt;. Why? Because it appears to represent a substitution effect between resources/goods, where the one (factories to make mobile phones) is &lt;em&gt;necessary&lt;/em&gt; for the production of the other (mobile phones). So for example the point where the blue line cuts the horizontal axis appears to be saying:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;If we eliminate factories for mobile phones, we can produce 5 million&#xA;  mobile phones&quot;.&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I find hard to believe that the textbook authors are that incompetent, so there must be more to the story -and the OP should provide this additional input, otherwise the question should rightfully be closed.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2017-03-18T18:50:51.897" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="15809" PostTypeId="1" AcceptedAnswerId="15810" CreationDate="2017-03-18T22:32:46.003" Score="1" ViewCount="2083" Body="&lt;p&gt;I am trying to fully understand the process of maximizing a utility function subject to a budget constraint while utilizing the Substitution Method (as opposed to the Lagrangian Method). I am following the work of Henderson and Quandt's &lt;em&gt;Microeconomic Theory&lt;/em&gt; (1956).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My confusion lies with obtaining the total differential of the generalized utility function after substituting in the budget constraint. For example, suppose you have the following utility function:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U=f(q_1,q_2)$$&#xA;Subject to:&#xA;$$y^0=p_1q_1+p_2q_2$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The total differential of this utility function is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$dU=f_{q_1}dq_1+f_{q_2}dq_2$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $f_{q_1}$ and $f_{q_2}$ are the partial derivatives of $U$ with respect to $q_1$ and $q_2$, and $dq_1$ and $dq_2$ are the changes in $q_1$ and $q_2$.  &#xA;&#xA;&lt;p&gt;Substituting the budget constraint into the utility function results in:&#xA;$$U=f(q_1,\frac{y^0-p_1q_1}{p_2})$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am struggling to calculate the total differential of the above function. Would the total differential just be the partial derivative of $U$ with respect to $q_1$ multiplied by the change in $q_1$? Below is my attempt:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U=f(q_1,\frac{y^0}{p_2}-\frac{p_1}{p_2}q_1)$$&#xA;$$dU=f_{q_1}dq_1-\frac{p_1}{p_2}dq_1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The next step in the book (after skipping the above total differential) is:&#xA;$$\frac{dU}{dq_1}=f_1+f_2(-\frac{p_1}{p_2})=0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Obviously, my intermediate calculation is incorrect (probably in multiple ways). Can someone identify and clarify my mistakes in progressing from the substituted utility function to the above equation? I understand that this process is used to equate the marginal rate of substitution to the goods price ratio and I am aware of its interpretation. My question lies simply with the mathematical derivation.&lt;/p&gt;&#xA;" OwnerUserId="5227" LastActivityDate="2017-03-19T02:19:43.517" Title="Total Differential of a Utility Function Subject to a Budget Constraint" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15810" PostTypeId="2" ParentId="15809" CreationDate="2017-03-19T02:19:43.517" Score="2" Body="&lt;p&gt;In the second term of the intermediate calculation we must find the partial derivative of the entire second parameter of the $f$ function.  Hence&#xA;$$dU = \frac{\partial f}{\partial{q_1}}dq_1+\frac{\partial f}{\partial (\frac{y_0-p_1q_1}{p_2})}d(\frac{y_0-p_1q_1}{p_2})$$.  Obviously this is a substitution of $q_2$ into the original total differential derivation you had.  My point is that you tried to do the partial differential of $f$ with respect $q_2$ by assuming that this would equal $$\frac{dq_2}{dq_1}$$ when this may not always be the case.  For the final equation that you have may want to consider the chain rule.  The way you have it, we have defined $$U=f(q_1, q_2)$$ and $$q_2(q_1)=\frac{y_0}{p_2}-\frac{p_1}{p_2}$$  Then according to the chain rule you have $$\frac{dU}{dq_1}=\frac{\partial f}{\partial q_1}\frac{dq_1}{dq_1}+\frac{\partial f}{\partial q_2}\frac{dq_2}{dq_1}$$  Then we evaluate $$\frac{dq_1}{dq_1}=\frac{d}{q_1}q_1=1$$  Then we get $$\frac{dU}{dq_1}=\frac{\partial f}{\partial q_1}+\frac{\partial f}{\partial q_2}\frac{dq_2}{dq_1}$$  Then, $$\frac{dq_2}{dq_1}=-\frac{p_1}{p_2}$$ Finally we end up with $$\frac{dU}{dq_1}=f_1+f_2(-\frac{p_1}{p_2})$$&lt;/p&gt;&#xA;" OwnerUserId="10629" LastActivityDate="2017-03-19T02:19:43.517" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15811" PostTypeId="1" AcceptedAnswerId="15819" CreationDate="2017-03-19T03:20:56.200" Score="0" ViewCount="239" Body="&lt;p&gt;Suppose a Decision Maker (DM) has willingness to pay (WTP) of 100, and her actual elicited willingness to accept (WTA) is 110, can this DM be a standard rational agent? Why or why not?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My thinking is that if the DM is a standard rational agent, then her WTA should also be 100. Is this correct?&lt;/p&gt;&#xA;" OwnerUserId="7292" LastEditorUserId="2776" LastEditDate="2017-03-20T06:54:23.850" LastActivityDate="2017-03-20T06:54:23.850" Title="An example of endowment effect" Tags="&lt;game-theory&gt;&lt;behavioral-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15812" PostTypeId="1" CreationDate="2017-03-19T05:26:36.387" Score="1" ViewCount="652" Body="&lt;p&gt;Suppose that a firm produces a good using capital, skilled labor, and unskilled labor.  Let $K$ denote the amount of capital,$L_1$ unskilled labor, $L_2$ skilled labor. The production function is $f(L_1, L_2, K) = K^2 min\{L_1, L_2^{\frac{1}{3}}\}$. Furthermore, let capital rental rate, $r=200$, unskilled wage rate is $w_1=5$, and skilled wage rate is $w_2=6$.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Find long run cost function.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am unsure as to how to approach this problem given the K^2 term in the function.  Thus, I tried when $K=1$.  However, I would like to know how to approach it for all $K$, where $K$ is a natural number.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My Attempt&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume $K=1$.  Then we have $$f(L_1, L_2, 1) = min\{L_1, L_2^{\frac{1}{3}}\}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From here we can see that in order to minimize cost at a particular level $q$, we have $L_1=L_2^{\frac{1}{3}}=q$ which leads to $$L_1=q$$ $$L_2=q^3$$.  Thus, $$c(q)=200+5q+6q^3$$&lt;/p&gt;&#xA;" OwnerUserId="10629" LastEditorUserId="10629" LastEditDate="2017-03-19T08:26:29.617" LastActivityDate="2017-03-19T19:50:18.423" Title="Derivation long run cost function of three inputs with Leontief-like characteristics" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;production-function&gt;&lt;cost&gt;&lt;leontief&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15814" PostTypeId="1" CreationDate="2017-03-19T08:14:25.347" Score="2" ViewCount="3378" Body="&lt;p&gt;I'm a bit confused about lexicographic preferences and whether they abide by the strict monotonicity axiom.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The definition we were given for strict monotonicity is:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;For any two bundles $x$ and $y$, if $x_i \succsim y_i$ for each good $i$, then $x$ is strictly preferred to $y$&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The preferences are summarized below:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;(1) The bundle that has more of good 1 is better, regardless of the amount of good 2.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;(2) If the amount of good 1 is the same, the bundle that has more of good 2 is better.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I'm confused about part (1), because a bundle can have much more of good 2 but still be preferred if it has a bit more of good 1, e.g. $(2,5)$ is preferred to $(1,100)$, even though it has so much more in it. Surely that can't follow the provided definition of strict monotonicity (or am I really thick)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks!&lt;/p&gt;&#xA;" OwnerUserId="12471" LastEditorUserId="42" LastEditDate="2017-03-19T19:52:02.353" LastActivityDate="2018-12-29T15:47:59.457" Title="Are lexicographic preferences strictly monotonic?" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;consumer-theory&gt;&lt;preferences&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15818" PostTypeId="2" ParentId="15814" CreationDate="2017-03-19T10:48:32.627" Score="3" Body="&lt;p&gt;It seems you are not confused about part (1) because that's exactly what it means.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lexicographic preferences are monotone. Monotonicity means more is better. If I have more of every good in the bundle, then I like that bundle more. This is still true for lexicographic preferences, even though parts of the bundle may not matter. A condition for monotonicity is e.g. that (5,4) is preferred to (3,1). In other words if 5&gt;3 and 4&gt;1 then the first bundle is preferred. This is true for lexicographic preferences.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your definitions of strict monotonicity and lexicographic preferences seem to deviate a bit from conventional definitions though. Here is a proof using your definitions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Proof:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let us compare two bundles with $n$ elements each: $x=(x_1, x_2, ..., x_n)$ and $y=(y_1, y_2, ...,y_n)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is best to start with the if statement when going about proving such claims. The condition and therefore starting point is $x_1&amp;gt;y_1$ and $x_2&amp;gt;y_2$, .... , and $x_n&amp;gt;y_n$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In that case since  $x_1&amp;gt;y_1$ we have according to your preference definition that bundle $x$ is preferred to bundle $y$. Furthermore we have that bundle $y$ is not preferred to bundle $x$. So bundle $x$ is strictly preferred.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence, we have shown that if $x_i$&gt;$y_i$ for each $i$, then $x$ is preferred (because in that case $x_1 &amp;gt; y_1$), which is your definition of monotonicity. The preferences are therefore monotonic.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastEditorUserId="5557" LastEditDate="2017-03-20T09:43:41.567" LastActivityDate="2017-03-20T09:43:41.567" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15819" PostTypeId="2" ParentId="15811" CreationDate="2017-03-19T11:50:55.903" Score="0" Body="&lt;p&gt;Your reasoning is not entirely rigorous, Even for a rational agent there can be a small gap between WTA and WTP due to the wealth effect. However, empirically this effect accounts for a very small fraction of the WTA/WTP gap, which is why other explanations are generally preferred.&lt;/p&gt;&#xA;" OwnerUserId="4667" LastActivityDate="2017-03-19T11:50:55.903" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15821" PostTypeId="2" ParentId="15812" CreationDate="2017-03-19T19:44:11.433" Score="2" Body="&lt;p&gt;Your reasoning that $L_1=L_2^{1/3}$ is valid for any $K$. Indeed if this equality does not hold you can lower the cost by reducing the excess input of either skilled or unskilled labor. Thus you can rewrite the cost minimization problem in two dimensions instead of three&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{equation}&#xA;\min_{K,L_1}{200 K + 5 L_1 + 6 L_1^3}&#xA;\end{equation}&#xA;subject to&#xA;\begin{equation}&#xA;K^2 L_1 = q&#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From the constraint you can replace $L_1$ by $q/K^2$ in the objective function, which becomes a minimization problem with one variable $K$ and a parameter $q$. Solving it will give you the cost function as the value function of the problem.&lt;/p&gt;&#xA;" OwnerUserId="4667" LastEditorUserId="4667" LastEditDate="2017-03-19T19:50:18.423" LastActivityDate="2017-03-19T19:50:18.423" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15823" PostTypeId="1" CreationDate="2017-03-19T22:59:13.143" Score="0" ViewCount="1862" Body="&lt;p&gt;There are 100 units of good 1 and good 2 in a economy. Consumer 1 and consumer 2 have 50 units of each good. &#xA;Consumer 1 only wants good 1 whereas consumer 2 only wants good 2.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note: Neither of these are lexicographic preferences.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Question&lt;/strong&gt;: Find Walrasian equilibria&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is what I have reached:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/0b2Lk.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/0b2Lk.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can someone explain why red lines are WE..and why not F and G?&#xA;And P is Pareto optimal I understand, but is it Walrasian equilibrium as well?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is every Walrasian equilibrium Pareto optimal and every Pareto optimal point Walrasian equilibrium?&lt;/p&gt;&#xA;" OwnerUserId="11254" LastEditorUserId="2776" LastEditDate="2017-04-15T14:13:39.707" LastActivityDate="2017-04-15T14:13:39.707" Title="Pareto optimal and Walrasian equilibrium" Tags="&lt;pareto-efficiency&gt;&lt;walrasian&gt;" AnswerCount="1" CommentCount="0" ClosedDate="2017-03-21T08:50:52.843" ContentLicense="CC BY-SA 3.0" />
  <row Id="15825" PostTypeId="2" ParentId="15823" CreationDate="2017-03-20T02:25:41.663" Score="3" Body="&lt;p&gt;We have two Consumers 1 and 2, and two goods 1 and 2 pure exchange economy. The following utility functions can be used to represent their preferences:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;$u_1(x_{11}, x_{12}) = x_{11}$&lt;/li&gt;&#xA;&lt;li&gt;$u_2(x_{21}, x_{22}) = x_{22}$&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Equilibrium price vector $(p_1, p_2=1)$ and allocation $((x_{11}, x_{12}), (x_{21}, x_{22}))$ satisfy the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Optimality Conditions (Allocation must solve the utility maximization problem of the two consumers, i.e. it must lie on their demand functions)&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;$(x_{11}, x_{12}) = \left(\frac{50p_1 + 50}{p_1}, 0\right) $&lt;/li&gt;&#xA;&lt;li&gt;$(x_{21}, x_{22}) = \left(0, 50p_1 + 50\right)$&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Market Clearing Conditions&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;$x_{11} + x_{21} = 100$&lt;/li&gt;&#xA;&lt;li&gt;$x_{12} + x_{22} = 100$&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Solving the above gives price vector $(p_1, p_2) = (1, 1)$ that supports the allocation $((x_{11}, x_{12}), (x_{21}, x_{22})) = ((100, 0), (0, 100))$ in equilibrium. This allocation is the only competitive equilibrium. It is also the only Pareto efficient allocation in this economy.&lt;/p&gt;&#xA;" OwnerUserId="11824" LastActivityDate="2017-03-20T02:25:41.663" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15828" PostTypeId="1" AcceptedAnswerId="15829" CreationDate="2017-03-20T08:51:10.897" Score="5" ViewCount="230" Body="&lt;p&gt;Despite &lt;a href=&quot;https://en.wikipedia.org/wiki/List_of_countries_by_exports&quot; rel=&quot;nofollow noreferrer&quot;&gt;Germany being the third larger exporter in the world&lt;/a&gt;, I have not once seen German products on online retail sites such as Amazon.com, NewEgg, BestBuy, or any retailer in the US really. Why is this the case? &lt;a href=&quot;http://www.cnbc.com/2016/07/08/amazons-chinese-counterfeit-problem-is-getting-worse.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Amazon in particular is plagued with Chinese counterfeits&lt;/a&gt;, so why haven't market forces led to the appearance of an Amazon alternative, focused on original German (or Japanese) products, for customers that are more quality-sensitive than price-sensitive?&lt;/p&gt;&#xA;" OwnerUserId="12480" LastEditorUserId="12480" LastEditDate="2018-10-13T21:37:19.753" LastActivityDate="2018-10-13T21:37:19.753" Title="If Germany is the largest exporter, why do Chinese products pervade the the US market?" Tags="&lt;markets&gt;&lt;china&gt;&lt;germany&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="15829" PostTypeId="2" ParentId="15828" CreationDate="2017-03-20T13:49:47.017" Score="10" Body="&lt;p&gt;Intermediate and capital goods used in the production of other goods are often very expensive and made by Germany. Think fancy manufacturing equipment in chemicals, semiconductors, and metal fabrication as well as precisely manufactured consumables like processed chemicals and auto-parts. Chinese goods are ubiquitous because they are skewed towards final goods like toys and white goods we consume at in our homes. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This shows the mix of German exports is heavily intermediate and capital good focused:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://richardbrenneman.files.wordpress.com/2016/07/blog-german-exports.png?w=500&amp;amp;h=276&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://richardbrenneman.files.wordpress.com/2016/07/blog-german-exports.png?w=500&amp;amp;h=276&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This shows that China is more consumer goods focused (but the trend towards this as a shrinking fraction of a growing total):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/JQNrx.gif&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/JQNrx.gif&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="1601" LastEditDate="2017-03-20T14:56:04.443" LastActivityDate="2017-03-20T14:56:04.443" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15831" PostTypeId="1" CreationDate="2017-03-20T19:49:54.823" Score="6" ViewCount="432" Body="&lt;p&gt;This might seem like a really simple question, but I am really troubled by it on a macro scale. The money has to come from somewhere. Someone might start up a business that creates things or takes things from the Earth. You could say this is &quot;creating&quot; money, but I argue it isn't, or I am missing something.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is how I see it. In order for that company to work, they have to make a profit which means they have to take more money than they are giving. This is the way all companies work. In the end logically, this money becomes concentrated in a few people. If this is the case, on the broadest level, how is it that standards of living increase? Isn't it inevitable that the rich get richer and the poor get poorer, with money being concentrated in fewer and fewer people over time? And if that is the case, won't capitalism eventually fall apart, with fewer and fewer people being able to purchase goods? If not, how is this corrected? Is there a way the rich can get richer with the poor also getting richer (which means money is magically coming out of thin air)? (The buying power of the poor becomes less as the amount of money they possess lessens; the opposite being true of the rich) (Poor = possessing small monetary volume; rich = large monetary volume)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I also have a similar question with trade deficits. How is it the United States can still grow, despite sending more money out than it takes in? Perhaps the answer to this question will solve the one above.&lt;/p&gt;&#xA;" OwnerUserId="12484" LastEditorUserId="12484" LastEditDate="2017-03-20T20:15:21.780" LastActivityDate="2017-06-22T12:52:53.703" Title="How is money created?" Tags="&lt;macroeconomics&gt;&lt;economic-growth&gt;&lt;inequality&gt;&lt;wealth&gt;" AnswerCount="4" CommentCount="11" FavoriteCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="15832" PostTypeId="1" CreationDate="2017-03-20T20:03:50.990" Score="1" ViewCount="77" Body="&lt;p&gt;I'm trying to understand a concept in microeconomics. So if inflation increases while nominal interest rate stays the same, what are the substitution effects and income effects on borrowers and lenders for current consumption (two time periods: current and later)? I think SE is positive while IE is negative for both. My logic is that since inflation increases while interest rate stays the same, consumption in the future is more costly for both borrowers and lenders. Thus, SE for current consumption increases. As for IE, inflation means that both have less money to spend in total, so both have less real income and thus have a negative IE. I'm not exactly sure of my thinking. Could someone please let me know if I'm right or wrong?&lt;/p&gt;&#xA;" OwnerUserId="12485" LastActivityDate="2017-03-20T20:03:50.990" Title="Increased inflation rate on borrowers and lenders" Tags="&lt;microeconomics&gt;&lt;inflation&gt;&lt;self-study&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15833" PostTypeId="1" AcceptedAnswerId="15893" CreationDate="2017-03-20T21:05:01.767" Score="2" ViewCount="101" Body="&lt;p&gt;In the UK, the FTSE100 is achieving record highs at the same time the currency (GBP) is depreciating rapidly. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The media often correlate the two events by reporting that since the indice is made of 100 multinational companies who trade primarily in foreign currencies; a weak pound allows them to book larger profits after they trade back into the GBP domestically. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, can the FTSE100 decrease at the same time the currency also decreases in value or must the two levers always go in separate directions? &lt;/p&gt;&#xA;" OwnerUserId="12486" LastEditorUserId="6210" LastEditDate="2019-03-25T18:59:48.080" LastActivityDate="2019-03-25T18:59:48.080" Title="Can the major indice of an exporting nation decrease at the same time the currency devalues?" Tags="&lt;currency&gt;&lt;stock-market&gt;" AnswerCount="2" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="15834" PostTypeId="2" ParentId="15831" CreationDate="2017-03-20T21:37:19.350" Score="1" Body="&lt;p&gt;I understand your dilemma. Ill try to solve it simply with an example. I tutor  students every day at a price of 25 dollars per hour. After the lesson, both me and my student are better off than we were before. This is because in my view, the 25 dollars are worth more than the hour i used and in my students view, the knowledge gained from my one hour was worth more than his 25dollars (otherwise, he would not schedule any more lessons). We both leave winners and better off than we were before. He is better off by the amount (value of the knowledge-25 dollars)and i am better off by the amount (25 dollars-value of my hour spent elsewhere). The economy as a whole is better off by the amount ( value of the knowledge gained- value of my hour spent elsewhere) (this value is obviously positive or the transaction would not have taken place). In short, value was created. Notice also how the dollar amount in the economy did not change (25dollars just changed hands), and the economy is not better by some amount of paper money but buy value in other forms.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Realize that for a producer to make a certain profit, some consumer, somewhere, must have also made a certain profit. (These are the principles of consumer and producer surplus and one cannot exist without the other). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, where i think you have gone wrong is in your thoughts about paper money. Say instead, i make 10000 cars out of iron that i mined and processed into steel. Also, 10000 people also each make 1 of various items in the same way (tv's, radio's, cell phones etc...). I will trade each car with each person to acquire each good. In the end, each one of us is better off because they traded their item for one of my cars (which they deemed was more valuable than their item) And I did the same but in the opposite direction. We will obviously agree that i got much richer and my standard of living will be much better than if i only had 10000 cars (or even nothing if i produced nothing), but the point here is that the poor man who only built a single radio is also better off by the amount (His valuation of the car-his valuation of the time he spent building the radio) We all got richer and no one got poorer. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now the generalization: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For Steve jobs to make 1 000 000 000$, 1 00 000 people had to acquire iPads. And everyone is better because of it. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In short, in a free market with nothing but capitalism, there can be no such thing as 'wealth hoarding' because, as I've said repeatedly, for the rich to get richer, the poor have to get richer as well. &lt;/p&gt;&#xA;" OwnerUserId="12487" LastActivityDate="2017-03-20T21:37:19.350" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15835" PostTypeId="1" AcceptedAnswerId="15876" CreationDate="2017-03-20T22:11:39.267" Score="4" ViewCount="66" Body="&lt;p&gt;Company I work at provides software services. After customers sign up, they then can go and order different combinations of services and consume them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We do not expose prices within the flow of them ordering services, however we do provide detailed bills to them outlining costs as well as make all prices available on the separate documentation side that we link to.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Personally I believe it is a bit strange that we do not show prices when they order those services (even though they are just a few a clicks away). My theory is that once we will start showing those prices, it will increase customers trust (because we are transparent) and satisfaction (because it will help them avoid surprises in the bill).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm wondering if there is any research on the subject of price transparency and its effects that can help prove or disprove my assumptions.&lt;/p&gt;&#xA;" OwnerUserId="12488" LastEditorUserId="1601" LastEditDate="2017-03-21T07:33:09.637" LastActivityDate="2017-03-22T20:58:49.373" Title="Effects of price transparency" Tags="&lt;reference-request&gt;&lt;price&gt;" AnswerCount="1" CommentCount="4" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="15837" PostTypeId="1" CreationDate="2017-03-21T05:02:30.493" Score="2" ViewCount="207" Body="&lt;p&gt;How would the welfare analysis of a military draft look? My intuition tells me that it would look similar to a price ceiling below the equilibrium, with the exception that suppliers (civilians) are forced to supply the draft.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So we supply beyond P* x Q* and all the way out to the intersection of the demand curve and P-draft.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we say that consumer surplus is the area above P-draft and below the demand curve, then how would we interpret the area that isn't our typical DWL? The area above P-draft, below the demand curve, and above the supply curve.&lt;/p&gt;&#xA;" OwnerUserId="6856" LastActivityDate="2017-04-03T21:14:49.533" Title="Welfare analysis for a military draft" Tags="&lt;microeconomics&gt;&lt;labor-economics&gt;&lt;government&gt;" AnswerCount="1" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15838" PostTypeId="2" ParentId="11963" CreationDate="2017-03-21T06:21:14.553" Score="1" Body="&lt;p&gt;According to Wikipedia and &lt;a href=&quot;http://www.sef.hku.hk/~wsuen/teaching/micro/dual.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;this notes from HKU&lt;/a&gt;, the indirect utility function is part of consumer theory, and is defined as the maximum utility that can be attained given a consumers' money income, and goods prices.  It reflects both the consumer's preferences and market conditions.  It is a model which helps to understand how consumers optimize their expenditure considering the price of products.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The model considers a consumer who faces a world with only two products with fixed prices and one limited budget, and is represented by a perpendicular axis graph, with each axis representing the quantities of each good, and both axis converging on quantity 0.  A descending diagonal line is then drawn to represent all the possible quantities of good A and good B the consumer could buy by spending his entire budget.   This line is called the goods bundle line, the price of both goods is reflected in the steepness of this line.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another descending line is then drawn called the marginal utility function, this line tends to be concave and not straight, due to the theorem of diminishing marginal benefits.  The line represents all the combinations of quantity of good A and good B that give the consumer the same level of benefit.  In fact you could draw a whole map of concave lines, all parallel to each other, and each would represent the total quantity of good A and B needed to achieve a certain fixed level of &quot;satisfaction&quot; by the consumer.  This map of lines would represent the consumers' absolute &quot;tastes and needs&quot; sort of speak.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The consumer, in consumer theory, will try to select a bundle which combines just the right amount of both products, and will spend the whole entire budget on doing so, in order to obtain the greatest possible benefit in his consumption process.   The decision of how much to spend on each product is represented in the graph by the intersection of the goods bundle line and the one marginal utility function it intersects tangentially with.  Any other products bundle in the goods bundle line will not be as beneficial to the consumer as the one where the goods bundle line tangentially intersects one of the utility functions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is how you can finally build the indirect utility function, by fixing the price for both goods and making the budget a variable.  Now for each level of budget you´d get one single point in the goods bundle line where the benefit is maximized for the consumer, and if you put together all the dots, one representing the optimal goods bundle for each level of budget, you'd construct the indirect utility function.  It is called &quot;indirect&quot; because of its' indirect correlation with the price of goods.  Budget level thus now becomes irrelevant, and what molds the consumers decision making are prices of goods in the market and the consumers' preferences.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So my answer to your first question, &quot;In general terms, how does one go on to select a given functional form.?&quot;, would be that I don´t think the techniques for figuring out a particular utility function, for one or a group of specific individuals, belongs to the economics realm.  Because it would involve practical modeling and not just the economic theories any more. I'd say that question could find a better answer in the finance realm. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My answer to your second question, &quot;Are there a class of utility functions for &#xA; households that are better than others?&quot;, is yes.  Consumer theory describes one utility function for any given person and price level of goods A and B.  But if the price of any of the products in the consumer's bundle changes, the utility function reshapes given the consumers preferences.  Also if the consumers' preferences or needs towards any of this products change, that would result in the reshaping of the utility function.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My answer to your third question, &quot;How does one even judge better, in this context?&quot;, is you can't judge better in reality.  Perception of the benefit for consuming is &lt;strong&gt;subjective&lt;/strong&gt;, and this subjectivity is embedded in a consumers' map of marginal benefit functions, and through it in the resulting utility function. This makes it impossible to quantify and thus to measure.  Making it only possible to estimate.  So people use this theory to understand the phenomena in a general level, like predicting the behavior of entire economies, or a whole segment within them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And for your last question, &quot;Does the selection of a utility function depend on the context and analysis at hand?&quot;, my answer is yes; and I quote from &lt;a href=&quot;https://web.stanford.edu/~jdlevin/Econ%20202/Consumer%20Theory.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;this book&lt;/a&gt;:  -What exactly is a “good”? The answer lies in the eye of the modeler. Depending on the problem to be analyzed, goods might be very specific, like tickets to different world series games, or very aggregated like food and shelter, or consumption and leisure. -&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In any case I strongly suggest you specify if your question is theoretical or practical, in order to get a more accurate answer.&lt;/p&gt;&#xA;" OwnerUserId="12477" LastEditorUserId="12477" LastEditDate="2019-04-19T19:36:37.590" LastActivityDate="2019-04-19T19:36:37.590" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="15840" PostTypeId="1" CreationDate="2017-03-21T12:23:55.843" Score="29" ViewCount="15192" Body="&lt;p&gt;I'm looking for a more general and principled answer and use Scandinavia today only as a sketchy example of the kind of scenario I'm asking about.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I live in Scandinavia where house prices has had an uninterrupted bubble boom during a quarter of a century now. Households are the most indebted in the world. Mostly of course in the form of housing loans. If the housing bubble would burst in Scandinavia as it has done in many other places the recent decade, certainly all banks will immediately be wiped out and millions of Scandinavians will become completely destitute for the rest of their lives with unpayable debts and no property to match it as a deep depression sets in.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some key figures (for Sweden, not the oil country):&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;+7% housing prices on average per year since 23 years, with record increases the last couple of years.&lt;/li&gt;&#xA;&lt;li&gt;0% growth in GDP per capita last 10 years (housing prices doubled anyway).&lt;/li&gt;&#xA;&lt;li&gt;1.2% (positive) CPI-inflation since 10 years.&lt;/li&gt;&#xA;&lt;li&gt;0.8% (positive) consumer housing loan now offered in ads without negotiation (after tax deduction) while central bank interest rates are stuck deep into&#xA;the negative.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Imagine that the government makes a law that forbids anyone to sell any housing at a lower price than what it was last bought for. Thus per definition the house bubble cannot burst, not legally anyway. And everyone is safe, the crash prevented and everyone will keep making millions simply by borrowing more for risk free &quot;investing&quot; in simply owning ones own house, right?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What would the negative consequences be and how would it play out?&lt;/p&gt;&#xA;" OwnerUserId="5071" LastEditorUserId="1601" LastEditDate="2021-05-12T10:52:58.730" LastActivityDate="2021-05-12T10:52:58.730" Title="A law against selling any house cheaper than it was bought for, what consequences would that have?" Tags="&lt;nonexpert&gt;&lt;housing&gt;&lt;law&gt;&lt;economic-bubble&gt;" AnswerCount="10" CommentCount="40" FavoriteCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="15841" PostTypeId="2" ParentId="15840" CreationDate="2017-03-21T12:52:40.900" Score="78" Body="&lt;p&gt;That would be really, really bad.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any house that loses value will be unsellable, and thus virtually worthless.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Most people living in such a house would be prevented from moving. They cannot sell it, since no one wants to buy an overpriced house, and they cannot afford buying another house with their capital already tied up in the current house. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A black market would appear, with people giving money back under the table. &quot;Buy my house for 4M SEK and I'll refund 1M SEK under the table.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can tell you one thing it won't do. It won't stop prices from ever falling. &lt;/p&gt;&#xA;" OwnerUserId="11805" LastActivityDate="2017-03-21T12:52:40.900" CommentCount="22" ContentLicense="CC BY-SA 3.0" />
  <row Id="15842" PostTypeId="1" CreationDate="2017-03-21T16:08:29.193" Score="5" ViewCount="105" Body="&lt;p&gt;&quot;An agent-based model (ABM) is one of a class of computational models for simulating the actions and interactions of autonomous agents (both individual or collective entities such as organizations or groups) with a view to assessing their effects on the system as a whole.&quot; &lt;a href=&quot;https://en.wikipedia.org/wiki/Agent-based_model&quot; rel=&quot;noreferrer&quot;&gt;Wiki&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In game theoretic models, same thing is done- we model individuals and the process of interactions. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;How game theoretic models and analysis is different from ABM? Is the simulation compulsory in ABM?&lt;/p&gt;&#xA;" OwnerUserId="12496" LastActivityDate="2017-03-21T17:34:37.593" Title="How game theoretic models and analysis is different from ABM?" Tags="&lt;game-theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15843" PostTypeId="2" ParentId="15840" CreationDate="2017-03-21T16:09:13.163" Score="12" Body="&lt;p&gt;Mandating a house be sold at last price sold does not mean that people value it at that sticker price. I could mandate that water bottles only be bought for $1,000,000. This does not mean anyone would buy. I'd just be stuck with a bottle that I don't value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Similarly, setting price floors on the housing market would mean many owners will be stuck with homes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's also important to note that the market devaluation of a home only matters to owners that are planning on selling. If I bought a house for \$200k and the market crashes the day after, I still VALUE the house at some amount &gt; \$200k. It does not matter to me that the market price is lower because I still have the exact same home. If anything, permanent home owners should really like the idea of homes being devalued because it means lower property tax liability. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sure, bubble bursts tend to have adverse effects on many other markets. But these are separate issues altogether.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A previous answer has already covered the emerging black market. This also happens in NYC with low-income housing regulations.&lt;/p&gt;&#xA;" OwnerUserId="6856" LastActivityDate="2017-03-21T16:09:13.163" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="15844" PostTypeId="2" ParentId="15840" CreationDate="2017-03-21T16:58:21.527" Score="11" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;If the housing bubble would burst in Scandinavia as it has done in many other places the recent decade, certainly all banks will immediately be wiped out and millions of Scandinavians will become completely destitute for the rest of their lives with unpayable debts and no property to match it as a deep depression sets in.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Firstly, it's not &lt;em&gt;that&lt;/em&gt; bad, provided you have functioning central banks to bridge the banks' credit position.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But consider what normally happens when people are unable to make loan payments: the bank eventually repossesses the house and sells it on. Often for a discount because they're in a hurry to convert it back into capital. Now suppose they're unable to sell it due to price regulation laws, but the market has collapsed. What happens? The bank is stuck. They need capital to make loans, but they have houses instead. They still need bailing out.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Note: if you jack up inflation to double-digit percentage, suddenly the house resale price law becomes less of a problem.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the end, you may end up having to &lt;a href=&quot;http://www.dailymail.co.uk/news/article-2531852/Exorcising-Irelands-ghost-estates-Demolition-begins-housing-projects-built-economic-boom-left-country-300-000-homes.html&quot; rel=&quot;noreferrer&quot;&gt;demolish the houses&lt;/a&gt;. Don't forget that houses, unoccupied, are a wasting asset: they require maintenance. The extreme case of this is probably Detroit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So one extremely likely outcome of your minimum resale price law is that habitable houses get demolished because they cannot be sold at their minimum price.&lt;/p&gt;&#xA;" OwnerUserId="2922" LastActivityDate="2017-03-21T16:58:21.527" CommentCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="15845" PostTypeId="2" ParentId="15842" CreationDate="2017-03-21T17:01:45.883" Score="5" Body="&lt;p&gt;One of the key (and often criticized) assumptions of Game Theory is the rationality of the players/agents and common knowledge thereof. That is the agents will make the best decision for themselves given the information available.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This assumption basically says cognitive costs are negligable. E.g. I can easily tell wether it is optimal for me to buy luggage insurance. In reality I would probably need to look up statistics and make some basic calculations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Agent-based modelling frequently uses heuristic behavioral rules instead of optimization. In some circumstances this rules are not optimal, but very close. A nice example is the &lt;a href=&quot;https://en.wikipedia.org/wiki/Heuristics_and_sports#Gaze_heuristic&quot; rel=&quot;nofollow noreferrer&quot;&gt;gaze heuristic&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The gaze heuristic is used by humans and animals for catching flying objects. It entails the fixation of one's gaze to the object and adjustment of the running speed so that the angle of the gaze remains constant while approaching the object (see the three decision rules in the table above). Empirical evidence shows that experienced ball-catchers use the gaze heuristic and similar heuristics, as do dogs when trying to catch Frisbees.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Similarly in the Solow model one assumes that consumers save a constant portion of their income, without any utility calculations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By simulating models with different behavioral rules one may find a model which is a good approximation of reality or one may find a simple rule which would make near optimal decisions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;While ABM is more flexible, that flexibility is also a problem: There is a myriad of heuristics to chose from, and different heuristics frequently lead to wildly different outcomes.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2017-03-21T17:34:37.593" LastActivityDate="2017-03-21T17:34:37.593" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15846" PostTypeId="2" ParentId="15840" CreationDate="2017-03-21T17:57:22.043" Score="6" Body="&lt;p&gt;There will be a rapid rise in artificial schemes to get round the letter of the law. For example, an agent may charge you 90% of the minimum legal sale price to officially register your house as uninhabitable and obtain a compulsory demolition order for it. A new house built on the same site would not have any previous price history, so it could be sold for say 10% of its true market value, plus a large one-time charge (non-negotiable, of course!) for a &quot;new-building insurance policy&quot; or some such terminology.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Exploiting such loopholes in the law won't necessarily benefit the bulk of the population, but they would benefit the minority with the expertise to create the work-rounds - there will always be &lt;em&gt;some&lt;/em&gt; property owners for whom taking a financial loss is a better option than not being able to sell at all, who can be exploited.&lt;/p&gt;&#xA;" OwnerUserId="8757" LastActivityDate="2017-03-21T17:57:22.043" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="15847" PostTypeId="2" ParentId="15840" CreationDate="2017-03-21T18:00:30.783" Score="29" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;And everyone is safe, the crash prevented and everyone will keep making millions simply by borrowing more for risk free &quot;investing&quot; in simply owning ones own house, right?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It is true, your investment cannot drop in nominal value (not counting inflation,) but &lt;em&gt;it can become totally illiquid&lt;/em&gt;, which is worse in many ways.&#xA;You see, if a stock drops in value by 5%, I can sell and take the 5% loss, freeing and preserving 95% of my capital.&#xA;If a house in your scenario drops in value by even .05%, then I cannot cut my losses.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From a short-term perspective, &lt;em&gt;any loss at all becomes a total loss.&lt;/em&gt;&#xA;From a long-term perspective, &lt;em&gt;any loss is still magnified&lt;/em&gt;, since you can't free your capital for better investments - the opportunity cost is high even if you manage to sell later.&#xA;Either way, the risk of real estate investing would rise dramatically.&#xA;This will increase the cost of home ownership.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course, that's speaking abstractly. &#xA;In reality, houses make up a huge portion of most people's net worth and that's the real danger of illiquidity in the housing market.&#xA;&lt;em&gt;Imagine not being able to move, not being able to refinance, only being able to free yourself of your investment by means of a total loss.&lt;/em&gt;&#xA;That's not going to work for many people. These people will have to rent instead of owning, which will increase demand (and price) for renting.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Once this all settles out, people will no longer consider real estate to be a 'safe' investment, &#xA;although con artists and deceivers may succeed in swindling people for a while.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Tl;Dr&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;The inability to sell a depreciated asset increases the risk of that asset. Increasing risk increases cost, so you'd see home ownership increase in cost as well. That's bad.&lt;/li&gt;&#xA;&lt;li&gt;Renting would become more attractive by comparison to home ownership, so you'd see demand (and price) rise for renting. That would be very bad for low income families.&lt;/li&gt;&#xA;&lt;li&gt;Ironically, this law and its fallout might disabuse people of the notion that real estate is a 'safe' or 'guaranteed' investment. That would be good.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Finally, the only people that I think will truly benefit are the large companies which would be able to handle the risk of home ownership in this scenario, &#xA;because they will have less competition.&lt;/p&gt;&#xA;" OwnerUserId="12499" LastActivityDate="2017-03-21T18:00:30.783" CommentCount="9" ContentLicense="CC BY-SA 3.0" />
  <row Id="15848" PostTypeId="2" ParentId="15840" CreationDate="2017-03-21T18:52:01.957" Score="3" Body="&lt;p&gt;Price is the thing that balances supply and demand, if you fix prices artificially low then you create supply shortages. If you fix them artificially high you create demand shortages.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So people who want/need to sell their houses in an area where demand has dipped would be unable to do so. Even in areas where natural demand had not dipped buying a house would become a much ricker proposition further depressing demand.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I suspect that the net result of all of this is that houses throughout the country would quickly become unsellable. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There would likely be an explosion in the rental market as unsellable houses get rented out instead.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Banks would have to develop new departments to handle renting out the unsellable properties they reposessed &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The government would have to figure out what the heck to do about valuing unsellable houses for inheritance tax purposes and what to do when the remaining assets of the owner were not enough to cover the inheritance tax. &lt;/p&gt;&#xA;" OwnerUserId="6510" LastActivityDate="2017-03-21T18:52:01.957" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="15851" PostTypeId="1" AcceptedAnswerId="35731" CreationDate="2017-03-21T21:47:46.333" Score="3" ViewCount="405" Body="&lt;p&gt;I'm trying to compare the results of Christiano Fitzgerald bandpass filter with wavelets. I'm familiar with wavelet decompositions in general, but I'm rather new with Christiano Fitzgerald (CF).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So far, I have understood that CF is able to decompose the series to trend and cycles and it is also able to decompose the signal in specific time frames as wavelets do. However wavelets operate with a pyramid algorithm where the first level decomposes the signal to mother and father and it finds the 2-4 frequency and the trend. Then, it picks these results and it decomposes them again to find 4-8 and so on.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The documentation of mFilter in R states the following for CF:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Arguments:&lt;/p&gt;&#xA;  &#xA;  &lt;ol&gt;&#xA;  &lt;li&gt;&lt;strong&gt;type&lt;/strong&gt;: the filter type, &quot;&lt;em&gt;asymmetric&lt;/em&gt;&quot;, asymmetric Christiano-Fitzgerald&#xA;  filter (default), &quot;&lt;em&gt;symmetric&lt;/em&gt;&quot;, symmetric Christiano-Fitzgerald&#xA;  filter &quot;&lt;em&gt;fixed&lt;/em&gt;&quot;, fixed length Christiano Fitzgerald filter,&#xA;  &quot;&lt;em&gt;baxter-king&lt;/em&gt;&quot;, Baxter-King fixed length symmetric filter,&#xA;  &quot;&lt;em&gt;trigonometric&lt;/em&gt;&quot;, trigonometric regression filter.&lt;/li&gt;&#xA;  &lt;li&gt;&lt;strong&gt;pl&lt;/strong&gt;: minimum period of oscillation of desired component $(pl&amp;lt;=2)$.&lt;/li&gt;&#xA;  &lt;li&gt;&lt;strong&gt;pu&lt;/strong&gt;: maximum period of oscillation of desired component $(2&amp;lt;=pl&amp;lt;pu&amp;lt;infinity)$.&lt;/li&gt;&#xA;  &lt;li&gt;&lt;strong&gt;root&lt;/strong&gt;: logical, &lt;em&gt;FALSE&lt;/em&gt; if no unit root in time series (default), TRUE if unit root in time series. The root option has no&#xA;  effect if&#xA;  type is &quot;baxter-king&quot; or &quot;trigonometric&quot;.&lt;/li&gt;&#xA;  &lt;li&gt;&lt;strong&gt;drift&lt;/strong&gt;: logical, &lt;em&gt;FALSE&lt;/em&gt; if no drift in time series (default), TRUE if drift in time series.&lt;/li&gt;&#xA;  &lt;li&gt;&lt;strong&gt;nfix&lt;/strong&gt;: sets fixed lead/lag length or order of the filter with &quot;baxter-king&quot; and &quot;fixed&quot;. The nfix option sets the order of the&#xA;  filter by $2*nfix+1$. The default is $nfix=1$.&lt;/li&gt;&#xA;  &lt;li&gt;&lt;strong&gt;theta&lt;/strong&gt;: moving average coefficients for time series model: $x(t) = mu + root*x(t-1) + theta(1)*e(t) + theta(2)*e(t-1) + . . .$ ,&#xA;  where $e(t)$ is a white noise.&lt;/li&gt;&#xA;  &lt;/ol&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Are the arguments &lt;strong&gt;&lt;em&gt;pl&lt;/em&gt;&lt;/strong&gt; and &lt;strong&gt;&lt;em&gt;pu&lt;/em&gt;&lt;/strong&gt; responsible for the level of decomposition? For example, if I pick $pl = 2$ and $pu = 4$, it will go for 2-4 days/weeks etc and if I go for $pl = 32$ and $pu = 64$ it will decomposes for 32-64 days/weeks/months etc or am I missing something?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you in advance&lt;/p&gt;&#xA;" OwnerUserId="11470" LastActivityDate="2020-04-01T08:42:13.413" Title="Christiano Fitzgerald filtering process" Tags="&lt;econometrics&gt;&lt;statistics&gt;&lt;applied-econometrics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15852" PostTypeId="2" ParentId="15564" CreationDate="2017-03-21T22:22:27.553" Score="1" Body="&lt;p&gt;Your impressions are inaccurate. Woman did not participate actively in the formal labor market in the feudal era. Men could provide enough for their families. The participation of women in the labor market came with the feminist revolution which was active in the U.S. between 1848 and 1980.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What you see in the movies is many times just not how it really was. It was unthinkable to let a woman work like a man before the feminist revolution, they couldn't vote either. Some say the feminist revolution was part of a broader set of actions taken to get woman out of the house and into the labor market in order to have a more abundant and cheaper labor supply for the economy.  Also to collect more taxes and have children be educated by the state.  Other actions would have been inflationary pressure.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My answer would be that woman are not leaving the labor market, instead they are entering it, more each year, and is also what you can interpret in those graphs.&lt;/p&gt;&#xA;" OwnerUserId="12477" LastEditorUserId="12477" LastEditDate="2019-04-19T19:23:29.473" LastActivityDate="2019-04-19T19:23:29.473" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="15853" PostTypeId="2" ParentId="15840" CreationDate="2017-03-22T00:13:55.420" Score="-3" Body="&lt;p&gt;One of the worst ideas I have ever heard. All negative consequences, almost no positive ones. ANY attempt by government to restrict prices (whether by floor or ceiling or anything else) ALWAYS has perverse bad effects; it always causes worse problems than the problem it is trying to solve. A free market works best when all members of the market are FREE to decide what price they are willing to pay, or receive, for a particular good. Government sticking its nose into that transaction always makes at least one participant in the transaction worse off, usually both, and the economy as a whole always suffers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's like a politician on campaign promising &quot;I will reduce taxes, increase government spending, and reduce government debt!&quot; That never works, EVER.&lt;/p&gt;&#xA;" OwnerUserId="12509" LastEditorUserId="108" LastEditDate="2017-03-25T17:29:56.177" LastActivityDate="2017-03-25T17:29:56.177" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="15854" PostTypeId="1" CreationDate="2017-03-22T02:34:18.453" Score="3" ViewCount="134" Body="&lt;p&gt;Suppose I have a group of 100 counties. Further suppose that the state decides to allocate a lump sum amount of money to some counties each year to boost spending on education in that county (until, say, 50 of the 100 counties have received money). Suppose my goal is to use a dif-in-dif approach to analyze the effect of the spending increase. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;How would I specify this DID regression? The basic idea is that, for each year, I want to compare educational outcomes in counties that receive increased funding with those that do not. I want to do this so that I eventually get to evaluate the effect for all 50 counties that receive this educational funding boost. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My guess is something like this: I need to specify a typical DID regression with year and county FE s.t. for any given year, a county that receives funding is in the treated group and any county without the funding boost is in the control group. However, the effect of that funding boost means that a county treated in year $t$ ought not be included in the control group in year $t+1$, despite not receiving a funding boost in $t+1$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Am I over complicating this? It doesn't seem to me like specifying a normal DID with year and county FE will quite work.&lt;/p&gt;&#xA;" OwnerUserId="1655" LastEditorUserId="4640" LastEditDate="2017-06-20T03:43:44.473" LastActivityDate="2017-06-20T16:57:03.287" Title="Specifying a Diff-In-Diff with multiple treated groups over multiple years" Tags="&lt;microeconomics&gt;&lt;econometrics&gt;&lt;applied-econometrics&gt;&lt;identification&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15858" PostTypeId="1" CreationDate="2017-03-22T07:11:53.150" Score="4" ViewCount="1242" Body="&lt;p&gt;What are some good books and articles about the &lt;strong&gt;principal-agent&lt;/strong&gt; problem? I'm looking for introductory academic books/articles or &quot;popular-science&quot; kind of ones.&lt;/p&gt;&#xA;" OwnerUserId="12516" LastEditorUserId="8481" LastEditDate="2017-03-25T22:46:18.047" LastActivityDate="2017-03-25T22:46:18.047" Title="What are some good books and articles about the principal-agent problem?" Tags="&lt;reference-request&gt;&lt;principal-agent&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15859" PostTypeId="2" ParentId="15858" CreationDate="2017-03-22T08:13:45.843" Score="5" Body="&lt;p&gt;In my PhD program everyone was using &lt;em&gt;The Theory of Incentives: The Principal-Agent Model&lt;/em&gt; by Jean-Jacques Laffont and David Martimort. It offers a formal and relatively complete treatment without being too technical. I haven't read any other book on the topic, so unfortunately I cannot compare.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you want to avoid any mathematical formalism, a good introductory article and literature review on the topic is &lt;a href=&quot;http://www.isr.umd.edu/~hyongla/TMP/PAPERS/IncentivesPrincipalAgentRelationship.pdf&quot; rel=&quot;noreferrer&quot;&gt;&lt;em&gt;Incentives in Principal-Agent Relationships&lt;/em&gt;&lt;/a&gt; by David E.M. Sappington, in the Journal of Economic Perspectives (1991).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, I would also recommend that you have a look at the Nobel lectures by Hart and Holmström on contractual relationships inside organizations.&lt;/p&gt;&#xA;" OwnerUserId="4667" LastEditorUserId="1601" LastEditDate="2017-03-22T08:26:07.430" LastActivityDate="2017-03-22T08:26:07.430" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15860" PostTypeId="2" ParentId="15858" CreationDate="2017-03-22T09:13:57.240" Score="5" Body="&lt;p&gt;I found &lt;a href=&quot;https://mitpress.mit.edu/books/contract-theory&quot; rel=&quot;noreferrer&quot;&gt;&quot;Contract Theory&quot; by Patrick Bolton and Mathias Dewatripont&lt;/a&gt; to be a very nice and thorough book. It, however, might be too advanced, although you can skip the formalism and just read the intuitions provided. Let me quote how the book is advertised:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The book emphasizes applications rather than general theorems while providing self-contained, intuitive treatment of the simple models analyzed. In this way, it can also serve as a reference for researchers interested in building contract-theoretic models in applied contexts.The book covers all the major topics in contract theory taught in most graduate courses. It begins by discussing such basic ideas in incentive and information theory as screening, signaling, and moral hazard. Subsequent sections treat multilateral contracting with private information or hidden actions, covering auction theory, bilateral trade under private information, and the theory of the internal organization of firms; long-term contracts with private information or hidden actions; and incomplete contracts, the theory of ownership and control, and contracting with externalities. Each chapter ends with a guide to the relevant literature.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="11590" LastActivityDate="2017-03-22T09:13:57.240" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15861" PostTypeId="2" ParentId="15777" CreationDate="2017-03-22T10:27:00.910" Score="1" Body="&lt;p&gt;I see no problem in $m$ being absent from the equation, as it enters additively in the utility function. The partial utility obtained from this good is represented in the 1 that you get in the derivative. This is, the marginal utility obtained from an extra unit of $m$ is independent of the amount the individual consumes of $m$. Additionally, as both type of consumers value the $m$ good equally, the distribution of $m$ is then irrelevant for the optimality of any allocation. Your solution tells you that the relation between the level of consumption of $x_1$ and $x_2$ is that of 5 to 3.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, what you need to do is to allocate the aggregate resources among all consumers such that the proportion holds. If two two type of consumers have in total 40 units of $x$, then the allocation is that of 25 for type one consumers, and 15 for type two consumers.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-03-22T10:27:00.910" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15862" PostTypeId="1" CreationDate="2017-03-22T11:30:35.213" Score="1" ViewCount="39" Body="&lt;p&gt;I guess I should not be asking for technical answers, because I've learned economists are not to predict things like this.  Yet from current data, and this article that reviewed said data: &lt;a href=&quot;http://www.ronpaullibertyreport.com/archives/this-new-bubble-is-even-bigger-than-the-subprime-fiasco&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.ronpaullibertyreport.com/archives/this-new-bubble-is-even-bigger-than-the-subprime-fiasco&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems we are on the verge of a second bubble burst and financial crisis.  President Trump and his cabinet have only done bad things for the lower classes of America.  Defunding public education, making a mess of healthcare, taking is out of the TTP which gives China power in the global economy, and now with the STUDENT LOAN DEBT BUBBLE...it seems in a few years or less, we are going to hit the crash again.  Our economy has not recovered from the last.  I saw the film,&quot;The Big Short&quot; and the world nearly ended in an economic sense in 2007.  If we hit it again, things aren't looking good.  What do you think, from current trends and data?&lt;/p&gt;&#xA;" OwnerUserId="7866" LastActivityDate="2017-03-22T11:30:35.213" Title="Is the American economy on the same path when it had a massive crash in 2007? Is there another bubble coming" Tags="&lt;macroeconomics&gt;&lt;debt&gt;&lt;usa&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15863" PostTypeId="2" ParentId="15840" CreationDate="2017-03-22T12:00:34.837" Score="4" Body="&lt;p&gt;This would be a catastrophically bad idea. The next time the economy turns down, what happens?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Workers who own houses for which they cannot find a buyer at the same price they paid for the house, will be unable to move house. They will therefore be unable to take up employment elsewhere. So you have compounded an economic downturn with an artificial restriction on the local availability of the staff that a company might wish to hire! I can't imagine any other move that might make it &lt;em&gt;harder&lt;/em&gt; to recruit staff as a recession bites and unemployment rises.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Surely, &lt;em&gt;anything&lt;/em&gt; which restricts labour mobility within a nation's borders can only be a bad thing. It should therefore be as easy as possible for someone to sell a house in one location and buy a house in another, as the government can make it. Here in the UK, we have a silly tax on house purchases called stamp duty. One consequence is that it typically costs one 3% of the purchase cost of one's house, to re-locate. Therefore, it is an incentive to stay put, rather than respond to an offer of a better-paid or more desirable job elsewhere. Or, if an employer is desperate to recruit, it will have to somehow compensate its new recruit for that person's tax burden when he moves.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Back to this crazy idea: if one cannot sell one's house because nobody will pay the previous price, and it's illegal to cut the asking price, then the only legal option will be to rent it out instead. So you will create a nation of amateur landlords, mostly handling matters badly because they don't want to be landlords at all. I also imagine that insurance on houses will become several times more expensive, if not completely unobtainable, because there's one obvious way to get one's money out as cash. Insure the house for its previous purchase price / legally mandated minimum &quot;worth&quot;, and then arrange for it to burn down.&lt;/p&gt;&#xA;" OwnerUserId="12520" LastActivityDate="2017-03-22T12:00:34.837" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15864" PostTypeId="1" CreationDate="2017-03-22T12:58:57.170" Score="1" ViewCount="3847" Body="&lt;p&gt;Firstly, my understanding of the interest elasticity of investment (IEI) is that it is the responsiveness of investment to changes in interest rates. As a result, I can think of one reason why the IEI may be affected: when there's a recession, the IEI may be more inelastic because of low business confidence and a negative accelerator effect. However, I believe there are most likely other fundamental factors that affects the IEI as well, which I haven't been able to think of.&lt;/p&gt;&#xA;" OwnerUserId="6782" LastActivityDate="2017-06-21T00:29:54.607" Title="What affects the interest elasticity of investment?" Tags="&lt;interest-rate&gt;&lt;elasticity&gt;&lt;investment&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15865" PostTypeId="1" CreationDate="2017-03-22T13:01:55.607" Score="0" ViewCount="77" Body="&lt;p&gt;I am not an economist, so my question could be stupid for you. &#xA;However, I need to understand how market order works and which variables plays in a trade. &#xA;For example: let us suppose I am a trader and I have at the time t=0 a sum of cash and stocks. &#xA;How do they change?&#xA;Do I need consider intraday and daily trades?&#xA;And what about the spread between bids and asks?&lt;/p&gt;&#xA;" OwnerUserId="12526" LastEditorUserId="2776" LastEditDate="2017-08-23T06:05:18.963" LastActivityDate="2017-08-23T06:05:18.963" Title="Market order's variables" Tags="&lt;finance&gt;&lt;financial-economics&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15866" PostTypeId="1" CreationDate="2017-03-22T13:32:21.300" Score="1" ViewCount="94" Body="&lt;p&gt;In &lt;a href=&quot;https://www.youtube.com/watch?v=VWMmBG3Z4DI&amp;amp;feature=youtu.be&amp;amp;t=2491&quot; rel=&quot;nofollow noreferrer&quot;&gt;a discussion&lt;/a&gt; at the &lt;a href=&quot;http://watson.brown.edu/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Watson Institute for International and Public Affairs&lt;/a&gt; on Nov 9, &lt;a href=&quot;https://en.wikipedia.org/wiki/Mark_Blyth&quot; rel=&quot;nofollow noreferrer&quot;&gt;Mark Blyth&lt;/a&gt;, a political scientist, said that&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;We live in a world where literally 10% of the population could provide super-abundance for everyone.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Despite not being defined by Blyth in that talk, I'm assuming that super-abundance in this means:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;3500 kcal (14.6 MJ) per day in nutritionally complete food&lt;/li&gt;&#xA;&lt;li&gt;100 sq meters of appropriate shelter &lt;/li&gt;&#xA;&lt;li&gt;clothes &lt;/li&gt;&#xA;&lt;li&gt;entertainment (including vacations)&lt;/li&gt;&#xA;&lt;li&gt;healthcare, education, sanitation and everything else related to the first two levels on &lt;a href=&quot;https://en.wikipedia.org/wiki/Maslow&amp;#39;s_hierarchy_of_needs&quot; rel=&quot;nofollow noreferrer&quot;&gt;Maslow's hierarchy of needs&lt;/a&gt; &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Can 10% of the population working full time or the entire working population (I'm assuming that 50% of the population is work capable) working only 20% of the time provide for the entire world ?&lt;/p&gt;&#xA;" OwnerUserId="12528" LastEditorUserId="1601" LastEditDate="2017-03-22T15:47:07.163" LastActivityDate="2017-04-22T01:26:34.700" Title="Can 10% of the population provide super-abundance for the entire world?" Tags="&lt;optimization&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15869" PostTypeId="1" CreationDate="2017-03-22T14:30:49.750" Score="-1" ViewCount="1403" Body="&lt;p&gt;When we refer to &quot;quoted price&quot; of bond, or &quot;clean price&quot;, it is equivalent to refer to his &quot;present value&quot; or &quot;theoretical value&quot;, which corresponds to the price that I invest in the bond? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, for a fixed coupon bond $C_t$, it is given by:&#xA;$$P=\sum_t\frac{C_t}{(1+r)^t}+\frac{VR}{(1+r)^n}$$&#xA;where VR is the nominal value of the bond and r is the rate of yield&lt;/p&gt;&#xA;" OwnerUserId="12482" LastEditorUserId="10247" LastEditDate="2017-03-24T10:48:04.980" LastActivityDate="2017-04-15T13:20:08.677" Title="What is the difference between quoted price and theoretical value of a bond?" Tags="&lt;finance&gt;&lt;financial-economics&gt;&lt;bonds&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15870" PostTypeId="1" CreationDate="2017-03-22T16:26:00.480" Score="-3" ViewCount="1231" Body="&lt;p&gt;Use mathematical analysis to show that the Cobb-Douglas production function is consistent with the law of diminishing returns in the short run. Assume that capital is the variable input. &lt;/p&gt;&#xA;" OwnerUserId="12529" LastActivityDate="2017-03-22T17:41:39.650" Title="Cobb Douglas production function question" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="2" ClosedDate="2017-03-23T10:10:59.653" ContentLicense="CC BY-SA 3.0" />
  <row Id="15871" PostTypeId="2" ParentId="15870" CreationDate="2017-03-22T17:16:28.433" Score="1" Body="&lt;p&gt;I will answer this because it is relatively easy and because I assume future students might be curious about how to show this. However, you really don't deserve for me to just answer your homework question and so I will give an outline rather than a step-by-step answer. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose the following CD production function (I am omitting labor so that you can't just copy the parts of this that I complete): &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U(K) =A K^{\alpha}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To show this production function has diminishing marginal returns we must show: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) That the first derivative of this function is positive&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) That the second derivative of this function is negative &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For an example of 1: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U'() = \alpha AK^{\alpha-1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;this is clearly a positive number and so 1 is satisfied. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, what about 2? When we take the second derivative here, our leading term is now $(\alpha-1)\alpha$ What do we know about alpha? Is our knowledge of alpha enough to know that the second derivative is negative, as desired? &lt;/p&gt;&#xA;" OwnerUserId="1655" LastEditorUserId="1655" LastEditDate="2017-03-22T17:41:39.650" LastActivityDate="2017-03-22T17:41:39.650" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="15872" PostTypeId="1" AcceptedAnswerId="15873" CreationDate="2017-03-22T18:20:37.480" Score="1" ViewCount="1493" Body="&lt;p&gt;Why do economists want Marginal Social Benefit to equal Marginal Social Cost not be greater than?&lt;/p&gt;&#xA;" OwnerUserId="12540" LastActivityDate="2017-03-22T18:43:16.570" Title="Why do we want MSB = MSC not MSB &gt; MSC?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15873" PostTypeId="2" ParentId="15872" CreationDate="2017-03-22T18:43:16.570" Score="4" Body="&lt;p&gt;Remember that the M in MSB standard for marginal. In other words, the marginal social benefit is the &lt;strong&gt;extra&lt;/strong&gt; benefit we would get by increasing the activity by one unit and the marginal social cost is the &lt;strong&gt;extra&lt;/strong&gt; cost we would get by increasing the activity by one unit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose, at the status quo, the MSB is 5 and the MSC is 3 (so MSB &gt; MSC). That means if we increased the activity by one unit we would get 5 units of extra benefit and 3 units of extra cost, so the net change in welfare is $5-3=+2$. Thus, the status quo can't be optimal because we could increase welfare by adding an extra unit of the activity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose, at the status quo, the MSB is 3 and the MSC is 5 (so MSB &amp;lt; MSC). That means if we reduce the activity by one unit we would loose 3 units of benefit but save 5 units of cost, so the net change in welfare is $-3+5=+2$. Thus, the status quo can't be optimal because we could increase welfare by reducing the activity by one unit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Only if MSB=MSC is it the case that we can't increase welfare by either increasing or reducing the activity.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2017-03-22T18:43:16.570" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15874" PostTypeId="1" CreationDate="2017-03-22T19:50:21.190" Score="3" ViewCount="160" Body="&lt;p&gt;The textbook economic case for free trade agreements is that they constitute a Kaldor-Hicks improvement, which that in any given country the winners win more than the losers lose, when the benefits and losses are measured in dollars.  (See &lt;a href=&quot;http://www.thebigquestions.com/2016/06/28/trumponomics/&quot; rel=&quot;nofollow noreferrer&quot;&gt;this blog post&lt;/a&gt; by Steve Landsburg for a proof.)  The reason that it matters that something is a Kaldor-Hicks improvement is that any Kaldor-Hicks improvement can be turned into a Pareto improvement, i.e. a policy that benefits some people and hurts no one, by having the winners pay the losers to compensate for the losses.&lt;/p&gt;&#xA;&lt;p&gt;But the thing is, even though free-trade agreements are often argued for on the basis of this textbook case, once the agreement is passed the Kaldor-Hicks agreement is not actually turned into a Pareto improvement.  This is illustrated well in &lt;a href=&quot;http://gene-callahan.blogspot.com/2016/03/a-dialogue-between-economist-and.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;this dialogue&lt;/a&gt; by Gene Callahan:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Joe: An unemployed steel worker.&lt;/p&gt;&#xA;&lt;p&gt;Thaddeus: An economist holding a chair at Free Market U.&lt;/p&gt;&#xA;&lt;p&gt;Joe: Boy, free trade sure hasn't worked out as promised. Just look at the devastation it has created in the Rust Belt.&lt;/p&gt;&#xA;&lt;p&gt;Thaddeus: I can't imagine what you are talking about: why, I have a very sophisticated model in which it is clear there are always net gains from free trade.&lt;/p&gt;&#xA;&lt;p&gt;Joe: What you mean by &amp;quot;model&amp;quot;?&lt;/p&gt;&#xA;&lt;p&gt;Thaddeus: It is a mathematical abstraction, that leaves out large parts of the real world in order to reach a determinate result.&lt;/p&gt;&#xA;&lt;p&gt;Joe: So if your model leaves out large parts of the real world, how do we know its results apply to the real world?&lt;/p&gt;&#xA;&lt;p&gt;Thaddeus: I did mention that it is a very sophisticated model, didn't I?&lt;/p&gt;&#xA;&lt;p&gt;Joe: OK, let's say I grant that the results of your model do apply to the real world. You said it shows that there are always &amp;quot;net gains&amp;quot; from free trade. That implies that some people gain while others lose. How do you decide that the gains of the gainers are greater the losses of the losers?&lt;/p&gt;&#xA;&lt;p&gt;Thaddeus: We use a compensation principle: if those who gained from some free trade agreement could, in principle, compensate those who lost, so that both sides would now prefer the free trade outcome, then we can conclude that free trade creates net gains.&lt;/p&gt;&#xA;&lt;p&gt;Joe: Can you give me a concrete example of how this works in practice, for instance, in terms of the steel industry?&lt;/p&gt;&#xA;&lt;p&gt;Thaddeus: I am glad you asked, because of course I can! Free trade allowed the steel company you used to work for to shut the plant at which you worked and move that production to China. Certainly, this move devastated the lives of workers in your town, and essentially left the town for dead. But other people benefited, for instance the consumers of goods that contain steel, but especially people like the upper management of the steel company that endows my chair at Free Market University. Let me tell you, those executives are doing really, really well as a result of that plant moving! I've been to a party at the CEO's house, and the upgrades he's been able to commission are just fantastic. I've never seen an infinite pool so sweet. Plus, they have been able to double my speaking fees at their summer seminar series.&lt;/p&gt;&#xA;&lt;p&gt;Joe: I see. So, per your compensation principle, you will be recommending that those executives give up a portion of their gains to help out the town they left in ruins?&lt;/p&gt;&#xA;&lt;p&gt;Thaddeus: I'm sorry, did you miss the part about &amp;quot;the company that endows my chair&amp;quot;? Jeez, do we really have to wonder why low-IQ workers like you are suffering in the great, global economy?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;So my question is, have there been any attempts to turn a free-trade agreement from a Kaldor-Hicks improvement to a Pareto improvement? That is, a policy that taxes the winners in order to compensate the losers.&lt;/p&gt;&#xA;" OwnerUserId="4447" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2017-03-22T20:23:52.220" Title="Have there been any attempts to turn free-trade agreements into Pareto improvements?" Tags="&lt;pareto-efficiency&gt;&lt;free-trade&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15875" PostTypeId="2" ParentId="15874" CreationDate="2017-03-22T20:23:52.220" Score="2" Body="&lt;p&gt;The US has a  &quot;Trade Adjustment Assistance&quot; for (almost) this exact purpose. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Trade Adjustment Assistance (TAA) is a federal program of the United&#xA;  States government to act as a way to reduce the damaging impact of&#xA;  imports felt by certain sectors of the U.S. economy. The current&#xA;  structure features four components of Trade Adjustment Assistance: for&#xA;  workers, firms, farmers, and communities. ...it was proposed by President John F. Kennedy as part of the total package to open up free trade. President Kennedy said: &quot;When considerations of national policy make it desirable to avoid higher tariffs, those injured by that competition should not be required to bear the full brunt of the impact. Rather, the burden of economic adjustment should be borne in part by the Federal Government.&quot;...As a 2012 Report by the Joint Economic Committee states: &quot;TAA needs to remain an integral part of trade policy because it compensates those harmed by import competition without sacrificing the larger demonstrable benefits of trade&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Trade_Adjustment_Assistance&quot; rel=&quot;nofollow noreferrer&quot;&gt;Trade Adjustment Assistance at Wikipedia&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://irpp.org/research-studies/study-no57/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Canada had a program like this into the 1980's&lt;/a&gt;. The comparable EU program is called &lt;a href=&quot;http://ec.europa.eu/social/main.jsp?catId=326&quot; rel=&quot;nofollow noreferrer&quot;&gt;The European Globalisation Adjustment Fund&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2017-03-22T20:23:52.220" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="15876" PostTypeId="2" ParentId="15835" CreationDate="2017-03-22T20:58:49.373" Score="1" Body="&lt;p&gt;I will expand this into an answer since I've had a chance to look at a bit more of the literature on price salience, which I consider to the primary consideration here. That being said, I think there is something to say about the fact that the company might do away with a pricing policy that some subset of potential customers feels is deceptive. This will obviously lead to a more positive perception of the company (from these customer types). Whether or not this positive increase can offset the impact of increased price salience is an open question. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My original comment: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;One must also consider the antithetical effect that price salience has on purchase decisions. It might be the case that people are more likely to tolerate a product's price ex-post than they are ex-ante. There is a robust literature on the effect of salience on elasticities and prices (for example, Finkelstien's tax salience paper). This definitely doesn't settle the matter but it does inform whatever answer you ultimately accept.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Her paper: economics.mit.edu/files/7878&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Other papers to read: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Bordalo and colleagues: &#xA;&lt;a href=&quot;http://scholar.harvard.edu/files/shleifer/files/pdf_1.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://scholar.harvard.edu/files/shleifer/files/pdf_1.pdf&lt;/a&gt;&#xA;This paper looks at consumer choice and characteristic salience of goods. This is a good paper to help build an intuition of what I mean by salience and what it means for a good or a good's characteristics to be salient. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Dias et al: &#xA;&lt;a href=&quot;https://ideas.repec.org/a/taf/jgsmks/v20y2010i2p149-163.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://ideas.repec.org/a/taf/jgsmks/v20y2010i2p149-163.html&lt;/a&gt;&#xA;This is a paper about how price salience impacts consumer perceptions and purchase intentions. I added this paper because I think it hits the nail on the head here. Also, it gives a good review of the literature that is most related to your question. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope this helps. &lt;/p&gt;&#xA;" OwnerUserId="1655" LastActivityDate="2017-03-22T20:58:49.373" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15877" PostTypeId="2" ParentId="15840" CreationDate="2017-03-22T21:02:38.993" Score="7" Body="&lt;p&gt;Bursting bubbles don't destroy actual wealth.  Instead, they &lt;em&gt;stop&lt;/em&gt; destructive processes which convert actual wealth into imaginary wealth.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose it would cost \$120,000 to build a house that's would be worth \$100,000 in non-bubble conditions,but market conditions in a bubble would cause such a house to sell for \$150,000.  Building a house under such conditions would convert \$120,000 of actual wealth into \$100,000 of actual value plus \$50,000 of imaginary wealth.  If the builder manages to sell the house for \$150,000 that will mean the buyer traded \$150,000 of real wealth for \$100,000 of real value and \$50,000 of imaginary wealth.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As long as the bubble lasts, people can keep passing the imaginary wealth around and pretend it's real wealth, but there's no way to turn such imaginary wealth into real wealth.  The act of building the house will have destroyed \$30,000 of real wealth, and no matter how much higher prices might go in the bubble, total net profit among all buyers and sellers (assuming for simplicity nobody does anything with the house except buy and resell it) will be -$30,000.  Any profit anyone might make buying and selling the house will be offset dollar for dollar by a loss by someone else down the line.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;While it may look like bursting bubbles cause people to lose money, the reality is that it's the formation and inflation of bubbles--where it &lt;em&gt;looks&lt;/em&gt; like people are making money--that actually destroy wealth.  As the bubble gets bigger, both the amount of imaginary wealth created and the amount of actual wealth destroyed are prone to increase exponentially.  Although the bubble going may protect some market participants from losses, it can only do so at the by causing other market participants to lose even more.&lt;/p&gt;&#xA;" OwnerUserId="320" LastActivityDate="2017-03-22T21:02:38.993" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="15878" PostTypeId="2" ParentId="15864" CreationDate="2017-03-22T23:20:05.370" Score="1" Body="&lt;p&gt;Demand:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Expected return on investments. If the expected return is much higher than interest rates, then elasticity will be low. When interest rates are close to the expected return elasticity will be high.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Supply:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Money supply. When money is scarce the elasticity will be low. When money is abundant the elasticity will be high.&lt;/p&gt;&#xA;" OwnerUserId="11805" LastActivityDate="2017-03-22T23:20:05.370" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15879" PostTypeId="2" ParentId="15866" CreationDate="2017-03-23T00:45:08.737" Score="2" Body="&lt;p&gt;Listen to the 30 seconds leading up to that claim. To me it is clear that he is talking of factory jobs. And there he is right. The top countries have no trouble producing more than 10 times the per capita consumption of industry goods per worker. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What he is saying is that production of goods is very efficent. He then goes on and mentions Germany and the US. I looked up the numbers of my home country, Sweden. In Sweden, the number of factory workers has decreased by more than a third since 1970, but production is way up. His point is that lack of production capacity isn't the reason why not everyone has a car, tv, washing machine, etc. We have the technology to produce the same material wealth (things, not services) for the entire world using just 10% of the population.&lt;/p&gt;&#xA;" OwnerUserId="11805" LastActivityDate="2017-03-23T00:45:08.737" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="15880" PostTypeId="2" ParentId="3125" CreationDate="2017-03-23T01:49:10.000" Score="0" Body="&lt;pre&gt;&lt;code&gt;Welfare is value minus cost, for every unit sold/bought.&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;In a world where one unit of X good is sold, it would go to the highest bidder. The second unit would go to the second highest bidder and would cost more to produce (marginally) than the last unit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you carry this logic forward, at some point the next unit's &lt;strong&gt;marginal benefit&lt;/strong&gt; (to the consumer) will be equal to the &lt;strong&gt;marginal cost&lt;/strong&gt; (to the producer)**. The last consumer flipped a coin when purchasing since she got the same profit from purchasing and not purchasing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Similarly, the producer also was indifferent between producing and not producing the last unit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What if we supply &lt;strong&gt;ONE MORE&lt;/strong&gt; unit than the equilibrium price? It would mean that the marginal cost &lt;strong&gt;exceeds&lt;/strong&gt; the &lt;strong&gt;marginal benefit&lt;/strong&gt;. The world and the individuals transacting are &lt;strong&gt;worse off&lt;/strong&gt; after this transaction because the costs exceeded the benefit. This is known as &lt;strong&gt;dead weight loss.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Marginal benefit:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;To consumers: benefit is how much they were willing to pay for a good/service&#xA;MINUS what they had to pay/trade-off to obtain it (price). On the margin, this&#xA;is the net benefit of the **next unit** bought.&#xA;&#xA;&#xA;to producers: how much a unit is sold for (price) MINUS what it cost to&#xA;produce. On the margin, this is the benefit of the **next unit** sold.&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Revenue is similar to this except it does &lt;strong&gt;not&lt;/strong&gt; take into account the cost of production. So if my total revenue is \$100 and selling the next unit would get me to \$105 total revenue, my marginal revenue for that unit was \$5. &lt;strong&gt;Regardless of how much the next unit cost to produce.&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="6856" LastActivityDate="2017-03-23T01:49:10.000" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15881" PostTypeId="2" ParentId="12709" CreationDate="2017-03-23T04:10:18.207" Score="2" Body="&lt;p&gt;Economists use optimal control both in microeconomics and in macroeconomics.&#xA;Your question is about economic policy in particular, but policy decisions can be guided both by micro and macro models.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Macroeconomics&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Central banks do use both simple feedback loops (think Taylor rule) and optimal control analysis to guide decisions. There is &lt;a href=&quot;https://www.federalreserve.gov/econresdata/notes/feds-notes/2014/optimal-control-monetary-policy-in-frbus-20141121.html#fn1&quot; rel=&quot;nofollow noreferrer&quot;&gt;this Federal Reserve note&lt;/a&gt; from 2014 with introductory information and some references. It describes FRB/US model, which helps find the optimal path for the federal funds rate to minimize a given loss function.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Microeconomics&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Microeconomic models can also guide policy decisions, for example, there is an active literature on oligopoly from optimal control theory perspective, which historically focused on advertising (e.g. &lt;a href=&quot;https://www.jstor.org/stable/2030250?seq=1#page_scan_tab_contents&quot; rel=&quot;nofollow noreferrer&quot;&gt;this survey from 1977&lt;/a&gt;). These can be used to predict behavior of agents on micro level and motivate policy decisions as well. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Microeconomics even contains a nice extension of optimal control to a setting with multiple decision-makers called &lt;a href=&quot;https://en.wikipedia.org/wiki/Differential_game&quot; rel=&quot;nofollow noreferrer&quot;&gt;differential game theory&lt;/a&gt;, which I will attempt to loosely describe as non-cooperative optimal control. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;These models are further from policy making, but more of &quot;exact science&quot; type. Searching this stackexchange for &quot;optimal control&quot; brings up some relevant results too.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Drawbacks&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Speaking of Taylor rule, John Taylor and John Williams in &lt;a href=&quot;http://www.frbsf.org/economic-research/files/wp10-10bk.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;this 2010 paper&lt;/a&gt; argue against complex rules in favor of simpler ones. They mention the more obvious problems of measurement error and unobservables, which we have to make assumptions about: expectations, learning etc. However, they also state that simpler rules have advantage of working in a wider set of settings in practice:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;One potential shortcoming of the optimal control approach is that it&#xA;  ignores uncertainty about the specification of the model. Although in&#xA;  principle one can incorporate various types of uncertainty to the&#xA;  analysis of optimal policy, in practice computational feasibility&#xA;  limits what can be done. As a result, existing optimal control policy&#xA;  analysis is typically done using a single reference model, which is&#xA;  assumed to be true.&quot; (page 29)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The paper has other references and history of the topic.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the same note by Federal reserve there is also a warning:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;These models are by necessity an abstraction of a much more complex&#xA;  economic reality, and hence the actual strategies followed by the&#xA;  Federal Reserve and other central banks necessarily retain an&#xA;  important judgmental component.&quot; &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="8094" LastActivityDate="2017-03-23T04:10:18.207" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15882" PostTypeId="1" CreationDate="2017-03-23T10:12:54.310" Score="-2" ViewCount="78" Body="&lt;p&gt;How do I optimise this type of problem? &#xA;I have read something about applying the chain rule to find the first order condition but can't imagine how to express it or solve it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can somebody give me a hint?&lt;/p&gt;&#xA;" OwnerUserId="12556" LastEditorUserId="12556" LastEditDate="2017-03-23T18:53:58.950" LastActivityDate="2017-03-23T18:53:58.950" Title="Labor market supply optimization" Tags="&lt;labor-economics&gt;" AnswerCount="1" CommentCount="0" ClosedDate="2017-03-23T19:10:46.667" ContentLicense="CC BY-SA 3.0" />
  <row Id="15883" PostTypeId="2" ParentId="15882" CreationDate="2017-03-23T10:21:41.777" Score="1" Body="&lt;p&gt;As you requested, I will just give you a hint and let you proceed from there.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The agent's choice variable is the number of working hours $w$ that he provides in a day. If he works $w$ hours,&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;he earns $w$ euros and therefore consumes a quantity $Y=w$ of goods (there is no savings in your problem, so all income is spent on consumption).&lt;/li&gt;&#xA;&lt;li&gt;he has $L=24-w$ hours of leisure.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Thus, how can you write the agent's total utility from working $w$ hours?&lt;/p&gt;&#xA;" OwnerUserId="4667" LastActivityDate="2017-03-23T10:21:41.777" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="15885" PostTypeId="1" CreationDate="2017-03-23T12:20:28.110" Score="1" ViewCount="150" Body="&lt;p&gt;We have these following from the first order conditions:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;${U_{LA} \over U_C}  = w_A \to MRS_{C,LA}=w_A$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;${U_{LB} \over U_C} = w_B \to MRS_{C, LB}=w_B$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;${U_{LA} \over U_{LB}} = {w_A \over w_B} \to MRS_{LB, LA} = {wA \over w_B}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$C + w_A L_A + w_B L_B = (w_A + w_B)T + v_A + v_B$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $w_A, w_B$ are wage for person $A$ and $B$ respectively&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$L_A, L_B$ are leisure for person $A$ and $B$ respectively&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$C= C_A+C_B$ (total consumption) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And then it says that from the first three, we can derive the Marshallian demand functions for consumption and leisure:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$C*=C(w_A, w_B, v)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$L_A* = L_A (w_A,w_B, v)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$L_B* = L_B (w_A, w_B, v)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My first question is, what do these mean exactly? What do these actually mean (being a marshallian demand function, how can I do this?), opened up? ($v$ is non-labor income).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then there comes the marshallian labor supply, which probably is connected to the demand functions, they are given as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$h_A * = h_A(w_A,w_B,v) = T - L_A (w_A, w_B, v)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$h_B * = h_B(w_A,w_B,v) = T - L_B (w_A, w_B, v)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These I can interpret as I get the answer to what are marshallian demand functions, as $T =$ time available to do work (but if someone has the time, maybe you could give a little info?)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then there comes a Cobb-Douglas function s.t.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$U=C^\alpha L^\beta_A L^\gamma_B$ with $\alpha + \beta + \gamma = 1$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From these results, can be derived following results for the partial derivatives:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;${d h_i \over d w_i} &amp;gt; 0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;${d h_i \over d w_j} &amp;lt; 0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;${d j_i \over d v} &amp;lt; 0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;with $i, j = A, B$ and $ i \neq j$ and $v_A + v_B = v$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I dont even know what I need to derivate, but I'm supposed to proof the signs of the last derivatives. Everything is marked as in my source text. This is probably very easy, I'm just confused.&lt;/p&gt;&#xA;" OwnerUserId="12046" LastActivityDate="2017-03-23T12:20:28.110" Title="Unitary model with cobb-douglas function" Tags="&lt;cobb-douglas&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="15886" PostTypeId="1" AcceptedAnswerId="15889" CreationDate="2017-03-23T14:11:42.250" Score="2" ViewCount="192" Body="&lt;p&gt;What are the best variables out there to forecast accurately GDP and inflation according to macro literature?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'd like to forecast the next quarter, not the long-run.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some time-series ideas I gathered:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;industry production&lt;/li&gt;&#xA;&lt;li&gt;employment&lt;/li&gt;&#xA;&lt;li&gt;important export-import partners production&lt;/li&gt;&#xA;&lt;li&gt;business confidence indexes (e.g. INSEE)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="5017" LastActivityDate="2017-03-23T15:03:35.850" Title="What are the 'best' variables out there to forecast accurately GDP and inflation according to macro literature?" Tags="&lt;macroeconomics&gt;&lt;time-series&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15887" PostTypeId="1" CreationDate="2017-03-23T14:36:38.460" Score="3" ViewCount="48" Body="&lt;p&gt;&lt;a href=&quot;https://data.oecd.org/hha/household-debt.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;According to OECD figures&lt;/a&gt;, five OECD countries have houshold-debt-to-GDP ratios in excess of 200%:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Denmark  292.0%&lt;/li&gt;&#xA;&lt;li&gt;Netherlands  277.1%&lt;/li&gt;&#xA;&lt;li&gt;Norway   221.8%&lt;/li&gt;&#xA;&lt;li&gt;Australia    211.8%&lt;/li&gt;&#xA;&lt;li&gt;Switzerland  211.2%&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Most of this is in mortgages, so for the sake of the question, assume secured loans.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there any consensus on the macro-economic effects  of very high household-debt-to-GDP ratios?  I imagine such economies should be excessively sensitive to price changes in the housing market?&lt;/p&gt;&#xA;" OwnerUserId="332" LastEditorUserId="332" LastEditDate="2017-11-10T15:41:07.077" LastActivityDate="2017-11-10T15:41:07.077" Title="Economic effects of very large (&gt;200%) household-debt-to-GDP-ratio in advanced economies" Tags="&lt;debt&gt;" AnswerCount="0" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15889" PostTypeId="2" ParentId="15886" CreationDate="2017-03-23T15:03:35.850" Score="1" Body="&lt;p&gt;You likely want to do this in real time which means you want to do a &lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/S0304393208000652&quot; rel=&quot;nofollow noreferrer&quot;&gt;nowcasting&lt;/a&gt;. This is tricky because many economic series are revised, which means you also need &lt;a href=&quot;http://www.mitpressjournals.org/doi/abs/10.1162/003465303322369768&quot; rel=&quot;nofollow noreferrer&quot;&gt;real time data&lt;/a&gt; (what were the figures when released rather than what is known with hindsight). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Atlanta Federal Reserve Bank uses this approach in their &lt;a href=&quot;https://www.frbatlanta.org/cqer/research/gdpnow.aspx?panel=1&quot; rel=&quot;nofollow noreferrer&quot;&gt;GDP Now&lt;/a&gt; product. You should check out their methodology and inputs to get started on your attempt.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The growth rate of real gross domestic product (GDP) measured by the&#xA;  U.S. Bureau of Economic Analysis (BEA) is a key metric of the pace of&#xA;  economic activity. It is one of the four variables included in the&#xA;  economic projections of Federal Reserve Board members and Bank&#xA;  presidents for every other Federal Open Market Committee (FOMC)&#xA;  meeting. As with many economic statistics, GDP estimates are released&#xA;  with a lag whose timing can be important for policymakers. For&#xA;  example, of the four scheduled 2014 release dates of an “advance” (or&#xA;  first) estimate of GDP growth, two are on the second day of a&#xA;  scheduled FOMC meeting with the other two on the day after the&#xA;  meeting. In preparation for FOMC meetings, policymakers have the Fed&#xA;  Board staff projection of this “advance” estimate at their disposal.&#xA;  These projections—available through 2008 at the Philadelphia Fed’s&#xA;  Real Time Data Center—have generally been more accurate than forecasts&#xA;  from simple statistical models. As stated by economists Jon Faust and&#xA;  Jonathan H. Wright in a 2009 paper, “by mirroring key elements of the&#xA;  data construction machinery of the Bureau of Economic Analysis, the&#xA;  Fed staff forms a relatively precise estimate of what BEA will&#xA;  announce for the previous quarter’s GDP even before it is announced.”&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The Atlanta Fed GDPNow model also mimics the methods used by the BEA&#xA;  to estimate real GDP growth. The GDPNow forecast is constructed by&#xA;  aggregating statistical model forecasts of 13 subcomponents that&#xA;  comprise GDP. Other private forecasters use similar approaches to&#xA;  “nowcast” GDP growth. However, these forecasts are not updated more&#xA;  than once a month or quarter, are not publicly available, or do not&#xA;  have forecasts of the subcomponents of GDP that add “color” to the&#xA;  top-line number. The Atlanta Fed GDPNow model fills these three voids.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The BEA’s advance estimates of the subcomponents of GDP use publicly&#xA;  released data from the U.S. Census Bureau, U.S. Bureau of Labor&#xA;  Statistics, and other sources. Much of this data is displayed in the&#xA;  BEA’s Key Source Data and Assumptions table that accompanies the&#xA;  “advance” GDP estimate. GDPNow relates these source data to their&#xA;  corresponding GDP subcomponents using a “bridge equation” approach&#xA;  similar to the one described in a Minneapolis Fed study by Preston J.&#xA;  Miller and Daniel M. Chin. Whenever the monthly source data is not&#xA;  available, the missing values are forecasted using econometric&#xA;  techniques similar to those described in papers by James H. Stock and&#xA;  Mark W. Watson and Domenico Giannone, Lucrezia Reichlin, and David&#xA;  Small. A detailed description of the data sources and methods used in&#xA;  the GDPNow model is provided in an accompanying Atlanta Fed working&#xA;  paper.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;As more monthly source data becomes available, the GDPNow forecast for&#xA;  a particular quarter evolves and generally becomes more accurate. That&#xA;  said, the forecasting error can still be substantial just prior to the&#xA;  “advance” GDP estimate release. It is important to emphasize that the&#xA;  Atlanta Fed GDPNow forecast is a model projection not subject to&#xA;  judgmental adjustments. It is not an official forecast of the Federal&#xA;  Reserve Bank of Atlanta, its president, the Federal Reserve System, or&#xA;  the FOMC.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="69" LastActivityDate="2017-03-23T15:03:35.850" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15890" PostTypeId="2" ParentId="15833" CreationDate="2017-03-23T16:11:48.280" Score="3" Body="&lt;p&gt;Yes, the FTSE 100 can decrease at the same time as the currency. It depends on what is causing the depreciation of the currency or what is affecting the FTSE at the time. It is hard to establish which way the effects are going in real time, however.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose the currency is depreciating due to loose monetary policy. If the Marshall-Lerner condition is fulfilled, this means companies will export more and have more profit. In that case, we could expect the FTSE to go up. On the other hand, if the condition is not fulfilled, exports may actually go down and the FTSE with it. This is the case where the currency depreciation affects the FTSE.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand, the FTSE may affect the currency. If firms are facing a crisis or other problems, the FTSE goes down. This may prompt the central bank to attempt to depreciate the currency or it may prompt investments to flow out of the country, which depreciates the currency. The currency may depreciate for a while, before the monetary policy has any positive effects on the FTSE. The loss of investment will have a direct negative effect on the FTSE, as there is less capital supply and interest rates for firms may go up. Here again both the FTSE and the currency may go down. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There could also be third factors that affect both the FTSE and the currency. Suppose the currency is depreciating because of other  factors, e.g. an increase in uncertainty. This may cause investments to flow out of the U.K. thereby depreciating the currency. Further, that same economic uncertainty and reduction of investment could hurt profits and therefore the FTSE could go down.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Moreover, a simultaneous crisis in the banking industry and a currency crisis is very possible. These are called &quot;twin crises&quot;. See the 1999 Kaminsky and Reinhart paper in the AER for a reference. In that case, the FTSE and the currency can go down simultaneously. Twin crises are more relevant for fixed exchange rate regimes, however, so this possibility may not apply to the U.K. as much as to other countries.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastEditorUserId="5557" LastEditDate="2017-03-23T16:22:59.233" LastActivityDate="2017-03-23T16:22:59.233" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15892" PostTypeId="1" CreationDate="2017-03-23T16:56:18.267" Score="1" ViewCount="13" Body="&lt;p&gt;Is there a framework for determining the limit of what can be borrowed?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, lets say an institution with 1 trillion USD wanted to hold 5 trillion USD in government bonds, would there be a collection of other institutions willing and capable of lending the 4 trillion, is there a way to determine the maximum liquidity of an ecosystem?&lt;/p&gt;&#xA;" OwnerUserId="2798" LastActivityDate="2017-03-23T16:56:18.267" Title="Limitation on what can be borrowed" Tags="&lt;debt&gt;&lt;liquidity&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15893" PostTypeId="2" ParentId="15833" CreationDate="2017-03-23T17:10:07.300" Score="3" Body="&lt;p&gt;Your question, as I understand it, is: can a nation's currency and a nation's stock index decline in value simultaneously. The answer is yes and I think the best way to show this is with an actual example: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In 2013, the US raised its interest rates. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/UrK12.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/UrK12.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;This triggered capital inflows (US) and the analogous capital outflows (emerging market economies). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/usP8e.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/usP8e.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Clearly, currencies from these emerging market economies devalued relative to the USD. So here is part one of your question. Now the crux - what happened to securities values in those nations? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/5evKB.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/5evKB.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and here are the resulting Bond/Equity Fund flows:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/EGPaI.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/EGPaI.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is a bit of a broad answer but your question is a subset of what is contained herein. Yes, the FTSE can decline while the currency decreases in value. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit: To be explicit, I am omitting an overview of theoretical mechanism because I think BB King's answer suffices if one is interested in theory. If one is instead is instead compelled by empirical evidence, I think this answer suffices. Both responses combine into a very solid answer, I think. &lt;/p&gt;&#xA;" OwnerUserId="1655" LastEditorUserId="1655" LastEditDate="2017-03-23T17:22:53.063" LastActivityDate="2017-03-23T17:22:53.063" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="15895" PostTypeId="1" CreationDate="2017-03-23T19:08:57.303" Score="4" ViewCount="131" Body="&lt;p&gt;Hopefully this doesn't get partisan, but I wanted to see where a thought experiment would go where a government stopped collecting taxes and instead fund itself by running businesses (selling products and services) alongside other private businesses out in the free market.&lt;/p&gt;&#xA;" OwnerUserId="12572" LastEditorUserId="12572" LastEditDate="2017-03-24T18:54:45.480" LastActivityDate="2017-04-02T14:35:27.403" Title="A government running like a literal business" Tags="&lt;macroeconomics&gt;" AnswerCount="2" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="15896" PostTypeId="1" CreationDate="2017-03-23T19:10:39.523" Score="4" ViewCount="629" Body="&lt;p&gt;I have read several Labor Economics books, but I am stuck. Is the labor force participation rate related more to the labour supply or to the labour demand? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the labor force participation rate decreases in a year (with respect to the previous year), should we worry that employers are not hiring (i.e., labor demand)? Or, is it due to workers that are not currently interested in work (i.e., homemakers)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Furthermore, from &lt;a href=&quot;https://goo.gl/x7jOhS&quot; rel=&quot;nofollow noreferrer&quot;&gt;this&lt;/a&gt; and &lt;a href=&quot;https://goo.gl/a83rtc&quot; rel=&quot;nofollow noreferrer&quot;&gt;this&lt;/a&gt; online documents it seems that the LFPR (labor force participation rate) is strongly dependent on labor demand from employers (i.e., positive/negative business cycles) rather than from labor supply. For instance, the LFPR dropped strongly during the Great Recession as employers were not willing to hire workers. Any opinion on these problems? &lt;/p&gt;&#xA;" OwnerUserId="10150" LastEditorUserId="2776" LastEditDate="2017-05-25T09:07:01.927" LastActivityDate="2017-07-05T00:43:12.157" Title="Is the labor force participation rate related more to labour supply or to labour demand? Or both?" Tags="&lt;labor-economics&gt;&lt;supply-and-demand&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15897" PostTypeId="2" ParentId="15896" CreationDate="2017-03-23T20:03:18.550" Score="-1" Body="&lt;p&gt;Traditionally, labor force participation is best thought of as a supply-side phenomena. That is, a certain subset of our nation's population is jobless but is jobless by choice. For example, consider a stay-at-home parent. So, we have agents making a decision to not supply labor. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, there is a hint of the demand side at play here. For example, a very weak demand side might discourage workers, thereby compelling the marginal participant to exit the labor force.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, to be explicit: LFP is a supply-side concept. However, there is a mechanism through which demand side forces can factor into LFP. &lt;/p&gt;&#xA;" OwnerUserId="1655" LastEditorUserId="1655" LastEditDate="2017-07-05T00:43:12.157" LastActivityDate="2017-07-05T00:43:12.157" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15898" PostTypeId="1" CreationDate="2017-03-23T23:18:57.137" Score="1" ViewCount="69" Body="&lt;p&gt;Consider a mono-centric city, where all workers earn a wage &lt;span class=&quot;math-container&quot;&gt;$W$&lt;/span&gt; in the centre of the circular city and rent out land &lt;span class=&quot;math-container&quot;&gt;$L$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;p&gt;Rent &lt;span class=&quot;math-container&quot;&gt;$r(d)$&lt;/span&gt; and transport costs &lt;span class=&quot;math-container&quot;&gt;$t(d)$&lt;/span&gt; vary with distance from the centre, &lt;span class=&quot;math-container&quot;&gt;$d$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;p&gt;Utility is constant by the spatial equilibrium assumption:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$U(C, L) = U(W - t(d) - r(d)L, L) = \underline{U}$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Differentiating with respect to &lt;span class=&quot;math-container&quot;&gt;$d$&lt;/span&gt; gives:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$r'(d) = \frac{-t'(d)}{L}$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Two transport technologies are available:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$t(d) = \bar{t}d$&lt;/span&gt; (no fixed cost)&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$t(d) = \underline{t}d + K$&lt;/span&gt; (fixed cost)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Workers will choose the no-fixed-cost technology at &lt;span class=&quot;math-container&quot;&gt;$d &amp;lt; K/(\bar{t}-\underline{t})$&lt;/span&gt; and the fixed cost technology further out.&lt;/p&gt;&#xA;&lt;p&gt;The rent is &lt;span class=&quot;math-container&quot;&gt;$\underline{r}$&lt;/span&gt; at the edge of the city, &lt;span class=&quot;math-container&quot;&gt;$\bar{d}$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;p&gt;What is &lt;span class=&quot;math-container&quot;&gt;$r(d)$&lt;/span&gt;? (For &lt;span class=&quot;math-container&quot;&gt;$d &amp;lt; K/(\bar{t}-\underline{t})$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$d &amp;gt; K/(\bar{t}-\underline{t})$&lt;/span&gt;)&lt;/p&gt;&#xA;" OwnerUserId="12371" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2017-03-23T23:18:57.137" Title="Rent gradient in Alonso-Muth-Mills monocentric city with two transport technologies" Tags="&lt;mathematical-economics&gt;" AnswerCount="0" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="15899" PostTypeId="1" CreationDate="2017-03-24T02:13:39.427" Score="1" ViewCount="18" Body="&lt;p&gt;I have been trying to answer this question but cannot find a suitable dataset or compilation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;When a US investor invests in a non-US project what are typical rates of return he is looking for?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I do realize that these rates will (obviously) vary with the risk of individual projects, sector, project size etc. But is there any dataset that may allow some analysis of this factor?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To provide some context, I was looking at a prospectus for a Asian country manufacturing project that has been pitched to American private investors and offers a 10% post-tax return on investment. Just wanted a ballpark evaluation of whether this would be a reasonable return. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The risk is low to moderate and the sector is specialty chemicals manufacturing. &lt;/p&gt;&#xA;" OwnerUserId="12577" LastActivityDate="2017-03-24T02:13:39.427" Title="Foreign investment with US equity; typical expected rate of return?" Tags="&lt;interest-rate&gt;&lt;investment&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15900" PostTypeId="1" AcceptedAnswerId="16152" CreationDate="2017-03-24T02:45:41.557" Score="6" ViewCount="431" Body="&lt;p&gt;From  &lt;a href=&quot;https://en.wikipedia.org/wiki/Schools_of_economic_thought&quot; rel=&quot;noreferrer&quot;&gt;Wikipedia&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In the history of economic thought, a school of economic thought is a group of economic thinkers who share or shared a common perspective on the way economies work&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Why is it that different economic schools of thought are  still taught in spite of the fact that we now have data to test their ideas and philosophies of the economy and see if they really line up with reality? &lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="4988" LastEditDate="2017-03-30T18:53:37.390" LastActivityDate="2018-02-24T02:31:42.360" Title="Economic schools of thought VS Econometrics" Tags="&lt;econometrics&gt;&lt;history-economic-thought&gt;&lt;economic-methodology&gt;" AnswerCount="4" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15901" PostTypeId="2" ParentId="15865" CreationDate="2017-03-24T03:28:49.713" Score="1" Body="&lt;p&gt;I am a financial economist, so I will attempt to answer what I think you are asking.  A market order isn't one concept, it's many.  Each place that accepts trades operationalizes it differently.  It also depends upon whether it is a small order or a large order.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a small order, the order result will clear at the bid if it is a sell order at the bid and at the ask if it is a buy order.  Only in that case will the outcome be the same everywhere.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a large order, it depends upon where the security trades at and it can depend upon the internal policies of which broker-dealer you use.  For example, if you place a large market order on a stock that trades on the NYSE then what you are actually doing is instructing your broker to go to the floor of the exchange, to a place called the &quot;post,&quot; and continue to bid until you are the high bidder, if buying or the low bidder if selling, until your order is filled.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand, a large market order on the NASDAQ will be filled up to the stated size limit.  After that, it depends upon a number of things.  For example, if there are multiple market makers then decisions to fill or not fill is made by each maker depending on orders they have, their inventory needs and what risks they will take and for what fee structure.  Because a market order essentially says &quot;I will pay any price,&quot; the makers have liberal pricing powers on large market orders.  Also, the processing broker can sometimes cross the order with other orders they have pending from their own customers and so it never really makes it to the market itself, other than for record keeping purposes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Outside of this, there are order crossing services in what have been nicknamed &quot;dark pools,&quot; which are available to the largest financial institutions but not to ordinary traders. Different rules are in use for things other than stocks and for stocks traded in non-US exchanges.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To provide an example, imagine you own $\$1,000$ and also own 100 shares of ABC which is currently trading at 9.90 bid and 10.10 ask.  It trades on the NYSE.  A decision to sell 100 shares at market would increase cash to $\$1,990$ and reduce shares to zero.  Since you may or may not be permitted to short sell the stock depending on your contract with your broker and the availability of shares to borrow, a decision to short sell 100 more shares of ABC would increase cash by the new bid, which for our purposes will be 9.85 per share, for $985 and add one hundred shares on the short side in the margin account.  The cash will also be segregated and held as collateral on the long side of the margin account.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A large market order for a thinly traded stock could take a month or more to fill.  For a &quot;pink sheets&quot; stock it could take years.  For a heavily traded stock, it could take less than a second.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is important to note that the recording of a trade for customer accounting purposes may not match market records.  Consider a person who sold 100 shares of ABC for 9.65 per share.  They record an increase in cash of $965 and a decrease in shares by one hundred shares.  The &quot;tape&quot; may not record it this way if it is part of a large buy order.  In that case, if the weighted average price was 10.10 then the market would see one large order for 10.10 per share, though it may also be the case that nobody actually received that amount of money.  It is also the case that the time of order completion will not match.&lt;/p&gt;&#xA;" OwnerUserId="11321" LastActivityDate="2017-03-24T03:28:49.713" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="15903" PostTypeId="2" ParentId="15896" CreationDate="2017-03-24T04:31:12.800" Score="-1" Body="&lt;p&gt;It's both but if one is &quot;more correct&quot; then it would be labor supply. In an economics sense, just to be clear here, during the Great Recession the labor force PR didn't contract because of &quot;employers were not willing to hire workers&quot; per se. The labor force includes those currently employed &lt;em&gt;and&lt;/em&gt; those not working but are actively looking for work. So it's as unemployed workers become discouraged and stop trying to look for work that the labor force contracted.&#xA;Then on the demand side consider someone receiving a form of govt benefits (food stamps, cash asst., unemployment benefits) for instance. &#xA;If they receive 400USD wk and have the opportunity to work 20hr/wk at 8USD (so 160USD/wk) and are subject to a benefit reduction rate of 100%---meaning that for every 1USD they earn, they lose 1USD in benefits---they aren't likely to take that job as they are basically working for nothing for the first 400USD.    &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would recommend checking out Ehrenberg's &quot;Modern Labor Economics&quot;, chapter titled Labor Supply (it's chap 7 in my edition).&lt;/p&gt;&#xA;" OwnerUserId="12578" LastActivityDate="2017-03-24T04:31:12.800" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15904" PostTypeId="1" CreationDate="2017-03-24T06:38:37.897" Score="3" ViewCount="45" Body="&lt;p&gt;&lt;em&gt;I've wondered about this for many, many, years..... maybe there's an answer (or several answers?) after all.&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As the global economy is set up, one reason a person in the US and EU can afford a nice new \$400 smartphone is because the cost is much lower than \$400. The cost is much lower in part due to mechanisation of the process (assembly line robotics, efficient bulk transport, etc) but largely because the people assembling it (summing down the supply chain) are paid at a rate that equates to considerably less than $400 per device pro-rata. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Put another way, some people's ability to buy expensive items is because (largely for historical reasons) many people in other places live in economies where the average earnings, cost of living, and expectations of things needed to be bought, are a lot less. And put another way again, it's essentially akin to the laws of thermodynamics - a bit like a consequence of some kind of &quot;work being done as a result of non-entropy&quot;; the living standard and expectation of being able to buy such things, in some countries, is a result of differentials between those countries and other countries. (This also would apply to all items that can be transported - food, for example, as well).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But suppose these differentials didn't exist. Suppose the person who mined the copper and gold and rare earths, the person who shipped it, the assembly factory and sellers and other persons involved in its production, were to have wages with the same buying power (on average) as those who buy the devices? Equivalently, suppose everyone on the planet were to have parity of buying power with their wages. Ignore disruptions such as trade barriers, differences in health and age, etc, and any transient effects that will level out over time, for simplicity. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or put it another way, suppose one created a city with a closed economy, and in which all people can afford to buy the same things (same wages).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, your factory worker making iPhones wants to buy an iPhone, and can - because all persons in the supply chain are paid in the same dollars and with the same amount as the end consumers of iPhones for their various works), do we get a situation where everything is inevitably pushed out of price reach (due to resulting inherent inflation)? Does the sum of people's time equating to the sum of people's income (in some sense) mean that the community as a whole can only afford to buy things at cost? Does the ability actually to buy things depend inherently on differences between different people (and groups of people) having higher and lower purchasing power or value of money? What would happen?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So a factory can mechanise, but the persons designing and creating the mechanisation (computers, software, factory robotics) also have wages of identical value, so that might be no solution. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Would the removal of value-of-money differentials, wage differentials, and buying power (and freedom to buy) differentials, kill the ability of an economy to work? If not, what happens?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Sorry if the question is poorly phrased, I don't know how to rigorously define the point I'm asking about)&lt;/p&gt;&#xA;" OwnerUserId="12580" LastEditorUserId="12580" LastEditDate="2017-03-24T06:44:37.353" LastActivityDate="2017-03-24T06:44:37.353" Title="What would be the consequences of universal parity of buying power (wage value) and freedom to buy?" Tags="&lt;macroeconomics&gt;&lt;supply-and-demand&gt;&lt;general-equilibrium&gt;&lt;purchasing-power-partity&gt;" AnswerCount="0" CommentCount="1" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="15907" PostTypeId="2" ParentId="11082" CreationDate="2017-03-24T09:04:51.030" Score="-1" Body="&lt;p&gt;Printing new money instead of collecting taxes means everyone will be effectively giving away the same amount of their savings every year, which is equal to the inflation rate. This will be bad for two reasons:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;it will be impossible to tax people progressively&lt;/strong&gt;, depending on their income. Instead of lowering taxes for poorer people you'll have to support them by giving some of that printed money back. This will result in the same administrative burden you wanted to avoid in the first place.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;you will be taxing money rather than income&lt;/strong&gt;. This will discourage behaviors that the government typically wants to encourage, like saving money for your own house or filling up a retirement account.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="12583" LastEditorUserId="12583" LastEditDate="2017-03-26T17:23:43.617" LastActivityDate="2017-03-26T17:23:43.617" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="15908" PostTypeId="2" ParentId="15895" CreationDate="2017-03-24T09:59:44.780" Score="2" Body="&lt;p&gt;This is an extremely implausible scenario.  The conditions for it to work would be extremely demanding:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;The government would need to run businesses in which it has the&#xA;potential for a sustainable competitive advantage, giving it the&#xA;opportunity of earning profits on an ongoing basis. That might be&#xA;based on a natural resource endowment (cf Saudi Arabia and oil) or&#xA;on a technology which others are, for whatever reason, unable to&#xA;copy. For most countries, such opportunities are limited.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The government would need to run the businesses efficiently, so as&#xA;    to realise those profits. This would be challenging due to:&#xA;    a) political necessities conflicting with efficiency; b)&#xA;    rent-seeking behaviour by managers and workers in the businesses.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The profits realised would need to be sufficient to fund the&#xA;        government's expenditure.  For a typical developed country with high&#xA;        government expenditure on education, health, welfare, defence, etc.,&#xA;        this would require improbably large profits.  To give an idea of scale, &lt;a href=&quot;https://en.wikipedia.org/wiki/Government_spending_in_the_United_Kingdom&quot; rel=&quot;nofollow noreferrer&quot;&gt;UK government spending in 2015/16&lt;/a&gt; was £772 billion. By contrast, the world all-time largest corporate earnings (&lt;a href=&quot;https://en.wikipedia.org/wiki/List_of_largest_corporate_profits_and_losses&quot; rel=&quot;nofollow noreferrer&quot;&gt;Vodafone in 2014&lt;/a&gt;) were less than 10% of that at £59 billion.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="1417" LastEditorUserId="1417" LastEditDate="2017-03-24T14:58:52.100" LastActivityDate="2017-03-24T14:58:52.100" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15909" PostTypeId="1" CreationDate="2017-03-24T10:54:26.477" Score="2" ViewCount="144" Body="&lt;p&gt;I understand that within a single labour market, the wages would be the same between two workers as firms and workers are both wage takers, but what about when there is more than one perfectly competitive labour market: if the labour market for jobs A and B are both perfectly competitive, would the workers in A earn the same as the workers in B, provided that the two jobs are not the same? &lt;/p&gt;&#xA;" OwnerUserId="6782" LastActivityDate="2017-03-24T15:05:33.530" Title="Do wages differ in two perfectly competitive labour markets?" Tags="&lt;labor-economics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15911" PostTypeId="2" ParentId="15909" CreationDate="2017-03-24T12:40:15.343" Score="3" Body="&lt;p&gt;This will typically depend on if people can switch between the two markets. If switching is possible then the marginal worker has to be indifferent between working in market A and market B and this equalizes the wages in the two markets. This also assumes you mean wage rates and not wage bills. Wage bills also depend on hours worked per worker, and that decision need not be equal across industries because of sorting and other reasons. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If people can't switch between markets it can, but doesn't have, to be that wages do not equalize. Consider two workers on two different islands with residents that don't trade or even meet. Even if labor markets on both islands were perfectly competitive, it needn't be that their wage rates were equalized. &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2017-03-24T15:05:33.530" LastActivityDate="2017-03-24T15:05:33.530" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15912" PostTypeId="2" ParentId="15895" CreationDate="2017-03-24T13:43:09.070" Score="1" Body="&lt;p&gt;Large Buisnesses tend to be run by a CEO who serves to make $ for shareholders. This means maximising profits, and generally struggles to make long term investments rather than short term profits. They only care for their employees as needed, I.e. if there was no minimum wage law they would be paid less. No incentive to act ethically other than the law and potential fines and lawsuits which is also arguably weak, as sometimes companies make a calculated decision to break the law because the penalty isnt as large as the amount they would benefit. These and other restrictions that the government imposes on companies would all go away if the government was a business, I.e. it would be above its own laws.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What about \$? Why would this company need to make anything if they can just print \$ when they need to?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The other question is who would own this company - shareholders? Does each citizen get an equal share? That may be similar to a pure democracy - or would it be only the rich? I.e. who would &quot;own&quot; this company and set its direction? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I also found a relevant video that sums these up nicely:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.youtube.com/watch?v=TqN4UYeJwiA&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.youtube.com/watch?v=TqN4UYeJwiA&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="6312" LastEditorUserId="6312" LastEditDate="2017-04-02T14:35:27.403" LastActivityDate="2017-04-02T14:35:27.403" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15914" PostTypeId="2" ParentId="15909" CreationDate="2017-03-24T14:45:36.960" Score="2" Body="&lt;p&gt;Your question can be rephrased as follows:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Are workers with different abilities paid differently in a competitive labour market? In other words, is each worker paid their marginal contribution to total production?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This is perfectly possible.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To see this, assume a continuum of workers, with index $i$, where $\eta_{i}$ denotes the ability of worker $i$. The distribution of ability in this population is given by $G(\eta)$. Since the market is competitive, we can forget about firms, and solve the problem from the social planner perspective (because of the &lt;a href=&quot;https://en.wikipedia.org/wiki/Fundamental_theorems_of_welfare_economics&quot; rel=&quot;nofollow noreferrer&quot;&gt;1st welfare theorem&lt;/a&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For simplicity, assume that labour is the only factor of production. All workers supply the same number of hours. Furthermore, assume that workers' production is given by the sum of their individual contributions, times a technology level parameters, $A$. So, if there are only two workers, with ability $\eta_{a}$ and $\eta_{b}$ respectively, total output is given by $A(\eta_{a}+\eta_{b})$. In the general case, total output is given by:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Y = A \int_{i \in L}^{}\eta_i\,\mathrm{d}i$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Notice that, for simplicity, this production function assumes constant returns to scale)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, let's postulate the &lt;strong&gt;hypothesis&lt;/strong&gt; that workers are paid proportionally to their marginal product. It is clear that this is equivalent to $\eta_{i}$, as not having this worker reduces output by that amount (notice the importance of the assumption of output as the sum of workers' ability). If the &lt;em&gt;wage per unit of ability&lt;/em&gt; is $\omega$, then the real wage of worker $i$ is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$w(i) = \omega\eta_{i}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, under perfect competition (and without capital), all product is paid to workers. This is,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Y = \int_{i \in L}^{}w(i)\,\mathrm{d}i$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Replacing the definition of wages and rearranging leads to:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Y = \omega\int_{i \in L}^{}\eta_{i}\,\mathrm{d}i$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given the production function assumed, this implies:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$A=\omega$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given our assumption of &lt;strong&gt;constant returns to scale&lt;/strong&gt;, this is of course reasonable. The wage per unit of ability must be equal to the technology level (as it is in the case of $Y=AL$). This completes the proof.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Notice the above result is true, irrespective of which is the distribution of ability. Notice further that equal ability ($\eta_{i}=\eta$) means $w(i)=w$, which brings us back to the Econ 101 labour market.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-03-24T14:45:36.960" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15915" PostTypeId="1" AcceptedAnswerId="16005" CreationDate="2017-03-24T15:49:08.073" Score="4" ViewCount="180" Body="&lt;p&gt;I'm looking for the US household distribution of after-tax after-transfers income by household size, at a finer grain than quintiles. CPS has total money income (&lt;a href=&quot;https://www.census.gov/cps/data/incdef.html&quot; rel=&quot;noreferrer&quot;&gt;after-transfer&lt;/a&gt;) in ~$2,500 increments, but  I can't find an after-tax version. Do the full census, BLS, or think tanks estimate this?&lt;/p&gt;&#xA;" OwnerUserId="1650" LastActivityDate="2017-03-30T09:12:11.387" Title="Distribution of US after-tax money income by household size" Tags="&lt;data-request&gt;&lt;cps&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15919" PostTypeId="2" ParentId="3382" CreationDate="2017-03-25T02:13:32.743" Score="3" Body="&lt;p&gt;Accounting (after tax) profits are net of depreciation and of interest paid on loans, or of any capital/equipment actually rented by the firm. So conceptually, they map to &quot;net returns on &lt;em&gt;own&lt;/em&gt; capital&quot;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Not necessarily &quot;equilibrium&quot; or &quot;competitive&quot;, because such characterizations are some steps further down the modelling road, in making assumptions on the market structure and on the goals of economic agents. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It has been a historical habit in economics to use the word &quot;profit&quot; to describe &quot;the existence of returns to capital above the competitive-level&quot; (hence for example &quot;monopolist makes a profit&quot;). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words, Economics uses the word &quot;profit&quot; with a different meaning than the one used in Accounting and in Business, that's all.   &lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2017-03-25T02:13:32.743" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15920" PostTypeId="1" CreationDate="2017-03-25T04:36:39.667" Score="-1" ViewCount="315" Body="&lt;p&gt;I am studying basics of economics. I don't understand why a maximum price should be set below equilibrium price and minimum should be above. shouldn't it be the other way round?&lt;/p&gt;&#xA;" OwnerUserId="12605" LastEditorUserId="4667" LastEditDate="2017-03-25T08:39:49.593" LastActivityDate="2017-09-28T09:43:07.837" Title="price floor and price ceiling" Tags="&lt;microeconomics&gt;&lt;public-economics&gt;&lt;price&gt;" AnswerCount="1" CommentCount="10" ContentLicense="CC BY-SA 3.0" />
  <row Id="15921" PostTypeId="2" ParentId="3382" CreationDate="2017-03-25T11:12:21.027" Score="8" Body="&lt;p&gt;Greg Mankiw's answer:&lt;a href=&quot;https://i.stack.imgur.com/Wss9i.jpg&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Wss9i.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;plus extra characters &lt;/p&gt;&#xA;" OwnerUserId="12599" LastActivityDate="2017-03-25T11:12:21.027" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="15922" PostTypeId="1" CreationDate="2017-03-25T11:40:32.610" Score="0" ViewCount="1019" Body="&lt;p&gt;Assuming &lt;em&gt;ceteris paribus&lt;/em&gt; conditions, rank the following products in order from the most price elastic to the least price elastic. Explain why.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Ice Cream&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Peter’s Chocolate Ice Cream&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Chocolate Ice Cream&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Frozen Desserts&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Desserts &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;For some reason I find this question very subjective.&lt;/p&gt;&#xA;" OwnerUserId="12372" LastEditorUserId="2776" LastEditDate="2017-04-24T14:38:19.213" LastActivityDate="2017-04-26T22:06:41.987" Title="Ranking products according to Price Elasticity Of Demand" Tags="&lt;supply-and-demand&gt;&lt;elasticity&gt;&lt;price&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15923" PostTypeId="2" ParentId="15922" CreationDate="2017-03-25T12:15:03.730" Score="1" Body="&lt;p&gt;The question is not subjective if you accept the assumption that similar products are likely to be substitutes, i.e. if you wanted chocolate ice cream but none was available you are more likely to get vanilla ice cream than pork chops.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The trick is that the groups can be ordered from smaller to larger, e.g. all ice creams are frozen desserts but not all frozen desserts are ice creams. If the price of a whole product group increases it is more difficult to find a cheap substitute than if only one product's price had increased. In this case all other products in the product group would be available as substitutes at their original prices.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Using this assumption you should be able to finish the assignment.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2017-04-26T20:46:48.577" LastActivityDate="2017-04-26T20:46:48.577" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15924" PostTypeId="1" AcceptedAnswerId="15925" CreationDate="2017-03-25T12:27:39.107" Score="0" ViewCount="158" Body="&lt;p&gt;I'm studying Varian's Intermediate Microeconomics, in which the principle of revealed principle is stated as follows (for now we're assuming strictly convex indifference curves):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $(x_1, x_2)$ be the chosen bundle when prices are $(p_1, p_2)$, and let $(y_1, y_2)$ be some other bundle such that $p_1x_1+p_2x_2 \geq p_1y_1+p_2y_2$. Then &lt;strong&gt;if the consumer is choosing the most preferred bundle she can afford&lt;/strong&gt;, we must have $(x_1,x_2) \succ (y_1,y_2)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's further stated that &quot;if the consumer chooses the best bundles she can afford, then the revealed preference implies preference&quot;. I can't get an intuitive grasp on this. Even if a bundle $X$ is chosen to $Y$ $(Y \neq X)$, and even if $X$ &lt;strong&gt;isn't the best affordable bundle&lt;/strong&gt;, shouldn't that at least imply that $X \succ Y$? Because if not, then there must be some example where $Y \succeq X$ and still the consumer chose $X$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there some counterexample in which revealed preference of $X$ does not imply preference, provided that the chosen bundle $X$ isn't the best affordable one?&lt;/p&gt;&#xA;" OwnerUserId="12609" LastActivityDate="2017-03-25T12:46:09.837" Title="Example in which revealed preference doesn't imply preference" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;&lt;preferences&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15925" PostTypeId="2" ParentId="15924" CreationDate="2017-03-25T12:46:09.837" Score="2" Body="&lt;p&gt;The text basically explains that consumer is assumed to be rational. This means the consumer can identify the best bundle and picks that as her choice.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the consumer was unable to identify the bundle that is best for her or was simply choosing randomly rather than based on her preference then her choice would not reveal anything about her preferences.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2017-03-25T12:46:09.837" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="15926" PostTypeId="2" ParentId="15920" CreationDate="2017-03-25T17:00:41.520" Score="2" Body="&lt;p&gt;If the price ceiling is above equilibrium price, then the market would just settle for the equilibrium price, and the price ceiling would have no effect. Same thing for price floors: if the price floor is below equilibrium, then it'd have no effect.&lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2017-03-25T17:00:41.520" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15927" PostTypeId="2" ParentId="15840" CreationDate="2017-03-25T17:12:09.223" Score="1" Body="&lt;p&gt;A point that doesn't yet seem to have been made is that banks and other mortgage lenders would have to stop lending as soon as such a law was proposed, never mind enacted, and that would in itself cause the housing market to collapse. A bank will lend you €320,000 to buy a €400,000 house because they know that if you default on your payments and they have to repossess the house, they can recover the loan value by selling the house, even if they can't get as much as you paid for it. That's why you (usually) have to put down a deposit for a certain percentage of the purchase price, and the bank won't lend you the full amount. If they're not allowed to sell it for less than €400,000, even though they only need to recover €320,000, then they may well be unable to sell it at all and be stuck with both an unpaid loan and an unsellable house. (Yes, I know that Sweden doesn't use the euro, but it's more concise and more widely applicable to use euro as the currency in my example.)&lt;/p&gt;&#xA;" OwnerUserId="12612" LastActivityDate="2017-03-25T17:12:09.223" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15928" PostTypeId="2" ParentId="15858" CreationDate="2017-03-25T17:50:38.113" Score="2" Body="&lt;p&gt;&quot;&lt;a href=&quot;https://mitpress.mit.edu/books/economics-contracts&quot; rel=&quot;nofollow noreferrer&quot;&gt;The Economics of Contracts&lt;/a&gt;&quot; by Bernard Salanié is nice and concise. Like the Bolton and Dewatripont book suggested by Bayesian (and most other books on this topic) it is pitched at a graduate level and certainly does not fall into the &quot;popular science&quot; category.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The theory of contracts grew out of the failure of the general equilibrium model to account for the strategic interactions among agents that arise from informational asymmetries. This popular text, revised and updated throughout for the second edition, serves as a concise and rigorous introduction to the theory of contracts for graduate students and professional economists. The book presents the main models of the theory of contracts, particularly the basic models of adverse selection, signaling, and moral hazard. It emphasizes the methods used to analyze the models, but also includes brief introductions to many of the applications in different fields of economics. The goal is to give readers the tools to understand the basic models and create their own.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="108" LastActivityDate="2017-03-25T17:50:38.113" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15929" PostTypeId="1" CreationDate="2017-03-25T17:50:47.520" Score="0" ViewCount="138" Body="&lt;p&gt;What is the definition of a dollar now without gold backing?  It seems that a dollar is now just an entry in a book somewhere in some bank.  Or it is the federal reserve note?  Or is it both?  I understand the concept of the monetary base.  But what I don't understand is how this works.  If a dollar is in part just an entry in a book, what stops some bank from simply claiming they have an infinite amount of dollars?  Or is there some central registry that claims to keep track of how many dollars each bank has? (This would seem absurd to me.  How then would foreign banks holding US dollars keep track of how many dollars they had?)  If there is no central registry, then how do you prevent people claiming to have dollars on their books?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think explaining what a dollar is would go toward answering these questions.&lt;/p&gt;&#xA;" OwnerUserId="10058" LastEditorUserId="1601" LastEditDate="2017-03-25T18:07:10.930" LastActivityDate="2018-09-25T23:51:21.927" Title="What is a dollar, currently?" Tags="&lt;banking&gt;&lt;money&gt;" AnswerCount="5" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15930" PostTypeId="1" CreationDate="2017-03-25T18:09:18.517" Score="1" ViewCount="75" Body="&lt;p&gt;I see a lot of debate about the right measure to use to determine inflation -- apparently the CPI overstates it, etc. Why not just subtract the GDP growth rate from the money supply growth rate (or to be more accurate, divide 1+R by 1+r)? In the long run, it's supposed to predict inflation perfectly, yes?&lt;/p&gt;&#xA;" OwnerUserId="12613" LastActivityDate="2017-04-24T22:20:30.223" Title="Why not just look at the money supply to calculate inflation?" Tags="&lt;inflation&gt;&lt;money-supply&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15933" PostTypeId="2" ParentId="15930" CreationDate="2017-03-25T20:51:57.673" Score="2" Body="&lt;p&gt;To an extent yes, tracking the money supply is somewhat helpful in determining inflation, but there are other important factors to consider.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Productivity?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Say there was a massive crop failure and the same amount of money.  Food prices (and prices in general) would go up, right?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;What is money?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Do we just count government money (monetary base)?  There are aggregates for that, but if you've accepted a check for services before you know that you also accept bank money which does not have a 1 to 1 relationship with government money.  So you have to include bank money to determine how much money is the economy.  But what types of bank money?  Demand deposits?  M1?  Interest bearing deposits M2?  M3?  This is subjective...but it helps to look at many aggregates.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;What about foreign trade?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you count the money supply do you include say dollars in the USA or dollars abroad as well?  In some cases dollars are used a medium of exchange abroad and don't really come home, so they don't influence domestic prices like domestic dollars do.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;What about foreign exchange&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Currencies compete, and because they are fiat there is always the possibility that one currency (especially a smaller one in a weakened state) will suffer a confidence crisis and crash.  This can influence prices, yet the amount of money in the economy can stay the same.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So truely, you need to look at many factors to figure out inflation.  All that being said though the supply of money is still something very important to keep an eye on.&lt;/p&gt;&#xA;" OwnerUserId="6479" LastActivityDate="2017-03-25T20:51:57.673" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15934" PostTypeId="2" ParentId="15930" CreationDate="2017-03-25T21:34:38.530" Score="0" Body="&lt;p&gt;The quantity theory of money is a theory. For a variable as important as consumer prices, it is clearly desirable to just measure it directly rather than appeal to a theory, even if the theory had some truth to it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Besides that, it is also not at all clear what the right measure of money supply would be.&lt;/p&gt;&#xA;" OwnerUserId="11216" LastActivityDate="2017-03-25T21:34:38.530" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15936" PostTypeId="2" ParentId="15768" CreationDate="2017-03-26T00:29:17.280" Score="-1" Body="&lt;p&gt;Working off of Josh's answer let's do a case study based on a real world example. On Friday, before leaving for a 7 day cruise through the eastern Caribbean, I went to the Dr and got a prescription for Tramadol, a pain reliever to treat an injury. I went to all of the usual suspects, Walgreens, CVS, etc, and found that with my insurance, the cost for 15 50mg pills was 60 dollars. Using the app GoodRX, I was able to reduce this cost to 44 dollars. I decided to pass. Fast forward two days to find me sunning in the Dominican Republic but unable to enjoy myself because of the injury so I found the nearest pharmacy and was able to purchase a blister-pack of 20 50mg pills for 13 US  dollars without a prescription (Tramadol is not regulated like a narcotic as it is in America). These were not knock-offs but the actual meds. How could this be, I wondered. So I asked the pharmacist. He told me that drug manufacturers make all of their profits in America, marking up the same drugs that sell in other countries for reasonable prices to exorbitant prices and then offer modest discounts to insurers, not to mention the profits of the pharmacy. Why can one script be 90 bucks at Walgreens and only 4 bucks at Walmart?  The simple answer is greed and slothfulness. Drug companies and pharmacies rely upon the laziness of Americans and our willingness to get screwed and our eagerness to bitch about problems without the slightest intent on fixing them. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The moral of this story is that when it comes to managing health care costs, one of the major issues is the regulation of pricing. While I am an ardent believer in capitalism, we must limit the margins charged by drug manufacturers and suppliers alike. The government must modify Medicare Part D to include price controls and introduce these same controls into the ACA or we are doomed to ruination. &lt;/p&gt;&#xA;" OwnerUserId="12619" LastActivityDate="2017-03-26T00:29:17.280" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15937" PostTypeId="1" CreationDate="2017-03-26T00:43:04.100" Score="1" ViewCount="402" Body="&lt;p&gt;First, the overview:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With the fractional reserve system, money/credit is primarily created through loans on deposits but the bank is required to maintain their deposits up to a certain amount (roughly 10% I think).  The other primary avenue of money creation is by the Federal Reserve printing money, but there is severe reservations on printing money given past episodes of hyper inflation, though recent events with quantitative easing and large scale asset purchases, the Fed's balance sheet has reached over 4 trillion dollars.  The Fed has stated that any profits accumulated from these assets will be reinvested into new securities when they mature and any additional profit will be deposited into the treasury.&#xA;&lt;br&gt;&lt;br&gt;&#xA;Here is my question:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the federal reserve were to regulate the banking industry so that fractional requirements were raised to something like 50% on all future deposits, that would have an appreciating effect on the dollar since the rate of increase in the supply of dollars needs to keep up with the growth of the economy every year.  If the Fed offsets this appreciation with additional asset purchases by printing money, the Fed's revenue/balance sheet would increase... and over time that excess profit could start to make up the overwhelming portion of the fiscal budget (which could take decades or centuries)...  Historical issues with the central bank funding the budget have always resulted in hyper inflation, but with this work around, where the funding of the budget was not coming from the direct printing of money but from the profits from security purchases as they matured, hyper inflation would be avoided, right?&#xA;&lt;br&gt;&lt;br&gt;&#xA;Please explain why this is a bad idea...  In theory the banking system wouldn't have a noticeable impact since, as additional money is created to offset the increased fractional requirements, that money will be deposited into the banking system (where else would it go) increasing holdings and increasing the money available to be lent out...&#xA;&lt;br&gt;&lt;br&gt;&#xA;This is in essence what the Japanese have been doing with paying off Government debt in order to prevent their currency from appreciating naturally (instead of raising reserve requirements), right?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Response (wasn't allowed to respond at length so I'm making an edit to my original post):&lt;/strong&gt;&lt;br&gt;&#xA;Lending would have &quot;some&quot; reductions, but it wouldn't be as severely impacted as it would if it weren't offset by more asset purchases, purchases that are then deposited into banks, expanding the monetary base which then expands the amount to be lent out...  There's also the argument that, by replacing tax's with the profits from maturing assets, there would be a stimulating effect on GDP, which would cause the dollar to appreciate, which would then require more printing or lending to maintain stable prices... though of course it would take a significant amount of time for profits on maturing assets to become a sizable portion of the fiscal budget, but of course the FED isn't purchasing securities with the idea of maximizing revenue so I'd imagine their rate of return could get a little better if they really tried and this where to become a primary mandate...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm definitely not saying raising the supply of dollars increases their value, the opposite actually...  My argument says raising reserve requirements would reduce the supply of dollars, but printing would offset this reduction, maintaining the equilibrium.  I suppose an implicit assumption I didn't spell out was that the amount of dollars printed would not equal the number of dollars no longer being lent out since fractional banking has the multiplier effect, i.e. today one dollar created by the FED is equivalent to 9~10 dollars lent out in the banking system.&lt;/p&gt;&#xA;" OwnerUserId="12617" LastEditorUserId="12617" LastEditDate="2017-03-27T22:57:01.863" LastActivityDate="2017-08-03T23:24:34.917" Title="Central Banks, Large Scale Asset Purchases and Inflation" Tags="&lt;central-banking&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15938" PostTypeId="2" ParentId="15929" CreationDate="2017-03-26T01:18:39.823" Score="3" Body="&lt;p&gt;A dollar is money which can be used in the United States to purchase goods and services and to repay debts. It can sometimes be used for these purposes in some other parts of the world. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If a bank says it has an unlimited amount of dollars, then it will presumably be willing to lend them to customers, who will then want to spend them. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The bank will then either have to give the customer dollar bills (Federal Reserve Notes which presumably it does not have in unlimited amounts) or be willing to transfer dollars to another bank on the instruction of its customer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The other bank may then expect this to be settled.  Unless there are also flows into the first bank to offset the amount owed, it can only settle with dollar bills (but faces the same issue as before) or by instructing a third bank where it has an account to transfer dollars to the second bank.  This can continue up the chain until an instruction to transfer funds reaches the U.S. Federal Reserve Banks, where the top commercial banks hold their reserve deposits.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Other banks will not be impressed with the first bank simply saying it has unlimited dollars if it does not have accounts with other banks with dollars to support the transfers.  Writing numbers in your own books does not change the numbers in other banks' books.  The constraints that this causes is one of the constraints on lending and so on the creation of money.&lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2017-03-26T01:18:39.823" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15939" PostTypeId="1" AcceptedAnswerId="16299" CreationDate="2017-03-26T01:51:35.193" Score="2" ViewCount="75" Body="&lt;p&gt;I came across the following statement regarding the realized 10-year maturity bond's return over a year: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The realized bond return (H) over a year has two components: the yield income earned over time and the capital gain or loss due to yield changes:&#xA;  $$H_{10} \approx Y_{10}-\text{Duration}_{10} \times \Delta Y_{10}.$$&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I am a complete economics rookie and I'm trying to understand what's going on here from the mathematical point of view, which I'm gonna present here, but my calculations don't seem to add up. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we denote the bond's coupon with $C$, and the bond's time $t=0$ yield to maturity with $y_0$, then the bond's value at time $t=0$ equals:&#xA;$$V_0=\frac{C}{1+y_0}+\frac{C}{(1+y_0)^2}+\dots+\frac{C}{(1+y_0)^9}+\frac{F+C}{(1+y_0)^{10}}.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At time $t=1$, we can express the bond's value as the function of the time $t=1$ yield to maturity $y$, so we have&#xA;$$V_1(y)=\frac{C}{1+y}+\frac{C}{(1+y)^2}+\dots+\frac{C}{(1+y)^8}+\frac{F+C}{(1+y)^{9}}.$$&#xA;Derivative of $V_1$ with respect to $y$ is equal to:&#xA;$$\frac{dV_1}{dy}=-1\cdot\frac{C}{(1+y)^2}-2\cdot\frac{C}{(1+y)^3}-\dots-8 \cdot \frac{C}{(1+y)^9}-9 \cdot\frac{F+C}{(1+y)^{10}} .$$&#xA;Now, we can apply some basic calculus here and state that for $\Delta y$ small &quot;enough&quot;, we have that&#xA;$$ V_1(y_0+\Delta y)\approx V_1(y_0)+\frac{d V_1}{dy}(y_0)\cdot \Delta y. $$&#xA;So now, if we consider the absolute return on our position (buying this bond at time $t=0$, selling it at $t=1$) from the time $t=0$ perspective, under the assumption that the time $t=1$ bond's yield to maturity is $y_1=y_0+\Delta y$, we have that:&#xA;$$\text{AbsReturn} \approx-V_0+\frac{C}{1+y_0}+\frac{V_1(y_0)+\frac{d V_1}{dy}(y_0)\cdot \Delta y}{1+y_0}.$$&#xA;That is - we buy the bond for $V_0$, at the end of the first year we are paid the coupon which discounted value is $\frac{C}{1+y_0}$, and the approximation of the time $t=1$ bond's value taking into the account the YTM change is $V_1(y_0)+\frac{d V_1}{dy}(y_0)\cdot \Delta y$ and we also discount it to time $t=0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, we can simplify the expression for AbsReturn since $-V_0+\frac{C}{1+y_0}+\frac{V_1(y_0)}{1+y_0}=0$ and we get:&#xA;$$ \text{AbsReturn}= \frac{\frac{d V_1}{dy}(y_0)\cdot \Delta y}{1+y_0} ,$$&#xA;which I guess we can also divide with our initial investment of $V_0$ to get the rate of return so we get:&#xA;$$ \text{RateOfReturn}= \frac{\frac{d V_1}{dy}(y_0)\cdot \Delta y}{V_0(1+y_0)} ,$$&#xA;aaand this is where I completely lose it. I can't seem to understand the connection between the original expression and the thing I end up with. What does the term $\text{Duration}_{10}$ in the original formula even stand for - I guess it is the derivation of bond's value with respect to yield - but bond's value at what time: $t=0$ or $t=1$? Does it even make any difference? If it is at time $t=0$, how can we be using linear approximation of that function for approximating bond's value change at time $t=1$? I'm completely puzzled over this. Am I doing something completely wrong in this derivation? I appreciate any insights on this. Thanks!&lt;/p&gt;&#xA;" OwnerUserId="12620" LastEditorUserId="12620" LastEditDate="2017-03-26T02:05:03.053" LastActivityDate="2017-04-15T14:26:11.940" Title="Making mathematical sense of the expression for realized bond return" Tags="&lt;bonds&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15940" PostTypeId="1" CreationDate="2017-03-26T07:26:00.180" Score="4" ViewCount="94" Body="&lt;p&gt;I'm reading &lt;a href=&quot;http://www.kellogg.northwestern.edu/faculty/sapienza/htm/trusting_stock.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Guiso, Sapienza and Zingales: &quot;Trusting the Stock Market&quot;&lt;/a&gt; The Journal of Finance, Vol. 63, No. 6, 2008 and have a question about how they test whether trust is a proxy for risk aversion.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm looking at pg. 2584 where they talk about the Poisson count model estimate where the dependent variable is the number of stocks invested in (measure for diversification). Their mathematical model implies (in section I) that both risk aversion and trust increase diversification--I think I understand that part. My problem is with the regression they run (results shown in Panel A of Table VIII). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The authors claim that because the coefficient on trust is positive and significant it tells us that trust is not a proxy for risk aversion. I understand that this result is consistent with the model, but since &#xA;(i) risk aversion should (theoretically, based on their model) also predict diversification, but&#xA;(ii) the regression doesn't give a significant coefficient on risk aversion, and &#xA;(iii) their measure of risk aversion is &quot;noisy&quot;, i.e. has measurement error, and finally &#xA;(iv) risk aversion and trust are correlated--albeit weakly as shown in Table III Panel C,&#xA;couldn't they trust still be a proxy for risk aversion and with the coefficient estimate for trust being biased??&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I might be missing something basic here... &lt;/p&gt;&#xA;" OwnerUserId="12623" LastEditorUserId="1601" LastEditDate="2017-03-26T10:44:42.433" LastActivityDate="2017-03-26T10:55:54.437" Title="Testing if one regressor is a proxy for another" Tags="&lt;econometrics&gt;&lt;finance&gt;&lt;behavioral-economics&gt;&lt;risk-aversion&gt;&lt;instrumental-variable&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15941" PostTypeId="1" CreationDate="2017-03-26T09:50:52.867" Score="3" ViewCount="400" Body="&lt;p&gt;When can I know that I'm in the presence of measurement errors? i.e., when can I know that I should use a measurement error model(error-in-variables model)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are there any statistical tests for checking that?&lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="69" LastEditDate="2017-03-27T12:18:21.457" LastActivityDate="2018-08-22T08:51:47.203" Title="Detecting the presence of measurement error" Tags="&lt;econometrics&gt;&lt;applied-econometrics&gt;" AnswerCount="3" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="15942" PostTypeId="2" ParentId="15940" CreationDate="2017-03-26T10:55:54.437" Score="1" Body="&lt;p&gt;For the benefit of readers I note that, as the authors write at the bottom of p.2557&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;We define trust as the subjective probability individuals attribute to the possibility of being cheated.&quot;&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So they actually measure &quot;lack of trust&quot; (the higher the value of the variable, the lower the trust), in order to see whether it co-varies positively with risk aversion, and so whether it can be considered a proxy for it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But the correlation shown between &quot;Trust&quot; and Absolute Risk Aversion in the table you mention is $0.017$ which is not just &quot;weak&quot; -it is essentially non-existent, since with a finite number of (observational) data points, correlation even between random variables that are in reality uncorrelated, will not be exactly equal to zero (even with a sample size of $n=1,444$ as theirs).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This alone suffices for the argument that &quot;Trust&quot; cannot be considered a proxy for Risk Aversion, since in order for this to be a valid argument, we need the correlation between the two to be high.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The fact that Risk Aversion appears &quot;statistically insignificant&quot; means that Risk Aversion has no explanatory power on Diversification, but this cannot be attributed to the presence of Trust, since their correlation is so small. &lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2017-03-26T10:55:54.437" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15943" PostTypeId="1" CreationDate="2017-03-26T15:38:37.687" Score="2" ViewCount="100" Body="&lt;p&gt;I am writing about skill-biased technical change, and in particular the 2001 Acemoglu (&lt;a href=&quot;http://economics.mit.edu/files/283&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://economics.mit.edu/files/283&lt;/a&gt;) paper on the topic, in which there is a part I am very stuck on.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the paper he suggests there is a market size effect and a price effect which directs technological change. The price effect directs technological change to areas which are relatively more expensive, and the market size effect to areas which are relatively bigger. The elasticity of substitution between two factors plays an important part, so that a low elasticity between two inputs will result in the price effect dominating, since in this situation scarce factors are relatively more expensive and innovation will intend to economise on this. With a high elasticity, the market size effect dominates, since scarce factors do not have a different relative price, so innovation will make widely used factors more efficient. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;He applies this to skill biased technical change, in which he says one of the reasons the skill premium has increased so much over the past 60 years is because of the influx of skilled workers (i.e. the market size effect is dominating), so that with more skilled workers, innovation is directed at making them more efficient and they enjoy a higher wage. On page 18 under section 4.2 he states that this will happen with no reference to the degree of substituability between skilled and unskilled workers. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is where I am stuck. I am trying to explain the theory, in words like I have above, so that it would read something like this: &lt;em&gt;with a high degree of substitutability, technical change favours the more abundant factor (the market size effect). Skilled and unskilled labour have a high degree of substitutability, so an increase in the supply of skilled workers will direct innovation towards complementing that factor&lt;/em&gt;. But surely skilled and unskilled workers have a low degree of substitution? In which case surely the price effect would dominate? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would greatly appreciate any help on this, I am sure I am making a big error somewhere, since it makes sense for the market effect to dominate here due to the empirical evidence of the increasing wage premium over the years... I also hope what I am asking makes sense. I wouldn't have written such a long question, but I feel it wouldn't have made sense without the context of the theory. &lt;/p&gt;&#xA;" OwnerUserId="12627" LastEditorUserId="1601" LastEditDate="2017-03-26T16:45:45.453" LastActivityDate="2017-03-30T11:02:14.360" Title="Question about skill-biased technical change, Acemoglu" Tags="&lt;labor-economics&gt;&lt;technology&gt;&lt;directed-technical-change&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15944" PostTypeId="1" CreationDate="2017-03-26T17:06:18.043" Score="1" ViewCount="12" Body="&lt;p&gt;I am trying to estimate the impact of a grant on firm survival using the first propensity score matching to create a matched sample of similar organisations along a wide range of observables. Then I am using a cox proportional hazards model to estimate the hazard ratio between those that received and did not receive the grant while controlling for other characteristics which may affect firm survival. The issue is that I have two cohorts: one receiving the grant in the financial year 2012 and the other in 2013. So would it make sense to append these matched samples together and run a cox proportional hazards model to estimate the hazard ratio of interest? Or should I run to models separately?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Many thanks&lt;/p&gt;&#xA;" OwnerUserId="12628" LastActivityDate="2017-03-26T17:06:18.043" Title="Impact on grant on firm survival" Tags="&lt;applied-econometrics&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15945" PostTypeId="2" ParentId="15783" CreationDate="2017-03-26T18:01:32.857" Score="2" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;What % of the labour force for an OECD country like the UK (mostly civil service I'm guessing) deals primarily with income redistribution, rather than income generation?&quot;&lt;/em&gt; &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It seems like you are talking about the  &lt;a href=&quot;https://en.wikipedia.org/wiki/Voluntary_sector&quot; rel=&quot;nofollow noreferrer&quot;&gt; Volunteer sector &lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;in the UK particularly &lt;a href=&quot;https://data.ncvo.org.uk/a/almanac12/how-big-is-the-voluntary-sector-compared-to-the-rest-of-the-economy/#What_is_the_relative_size_of_the_voluntary_sector_workforce&quot; rel=&quot;nofollow noreferrer&quot;&gt; NVCO&lt;/a&gt; reports in its 2012 almanac: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;h1&gt;What is the relative size of the voluntary sector workforce?&lt;/h1&gt; &#xA;  &#xA;  &lt;p&gt;The voluntary sector is a major employer. An estimated 765,000 people work in voluntary sector organisations. &lt;strong&gt;This is 2.7% of UK workforce&lt;/strong&gt;, and compares with 25% who work for public sector employers, and 72% who work for private sector employers. The voluntary sector paid workforce is roughly the same size as the number employed in restaurant and catering in the UK (around 770,000).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;For your second question:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;Would a simple flat income tax at 40% and a universal basic income have the extra benefit of letting more people enter the value adding economy?&quot;&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I see no connection between an income tax and creation of jobs. &lt;a href=&quot;https://en.wikipedia.org/wiki/Labour_economics#Neoclassical_microeconomic_model_.E2.80.94_Supply&quot; rel=&quot;nofollow noreferrer&quot;&gt;Labour supply models&lt;/a&gt; would indicate that we  will see changes in the amount of labour supplied by a given worker in the presence of income taxes and will end up with some deadweight loss.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is not fully explained but a clearer understanding of the effect of income taxes  on welfare will come from reading up on labour economics models.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope this helps.&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2017-03-26T18:01:32.857" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15946" PostTypeId="2" ParentId="15943" CreationDate="2017-03-26T18:16:28.817" Score="1" Body="&lt;p&gt;I won't replicate the model -interested readers should read the link the OP provides. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Acemoglu's argument as to when a high relative supply of skilled labor will lead to skill-biased technological change is laid out in page 13 (below eq. $(18)$), it includes the all-important condition eq. $(19)$ and ends in the middle of page 14. Here the author explains what &lt;em&gt;must&lt;/em&gt; hold in order to observe this phenomenon.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then at the the bottom of page 18 the author writes&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;Moreover, recall that when condition ($19$) is satisfied, equation $(18)$ traces an upward-sloping long-run relative demand curve for&#xA;  skills. Therefore, the induced skill bias of new technologies can be&#xA;  sufficiently pronounced that the skill premium may increase in&#xA;  response to a large increase in the supply of skills.&quot;&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So here, the author simply invokes the necessary theoretical condition obtained previously.&#xA;&lt;strong&gt;So what is this condition?&lt;/strong&gt; It reads&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\sigma &amp;gt; 2- \delta \tag{19}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $\delta$ is an index raging in $[0,1]$ (and serving some purpose) and  $\sigma$ is the elasticity of substitution between skilled and unskilled labor. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So we see that in order to obtain skill-biased technological change together with high relative supply of skilled labor in the model (as appears to be the historical experience), namely, in order for condition $(19)$ to hold, we must have, as a necessary but not sufficient condition $\sigma &amp;gt;1$ according to this model.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, at the bottom of page 9, we see&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\sigma \equiv \varepsilon - (\varepsilon-1)(1-\beta), \;\;\; \beta \in (0,1)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and where $\varepsilon$ is the elasticity of substitution of the two goods that are combined in private consumption (though not directly in the utility function as the author writes somewhere -see eq. $(6)$).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So for our necessary condition $\sigma &amp;gt; 1$ we must have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\sigma &amp;gt; 1 \implies \varepsilon - (\varepsilon-1)(1-\beta) &amp;gt; 1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies (\varepsilon-1) &amp;gt; (\varepsilon-1)(1-\beta)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which will hold &lt;em&gt;iff&lt;/em&gt; $\varepsilon &amp;gt;1$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the real-world rationalization is shifted  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;from &quot;is there high substitutability between skilled and unskilled labor&quot;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;to &lt;strong&gt;&quot;is there high substitutability in final product/consumption between intermediate products made using skilled labor and intermediate products made using unskilled labor&quot;?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;...because &lt;em&gt;if&lt;/em&gt; there is such high substitutability at this &quot;second&quot; stage, then &lt;em&gt;indirectly&lt;/em&gt;, skilled and unskilled labor acquire a high degree of subsitutability, even though looking directly at a single production function, it would appear reasonable that they should not be highly substitutable.&#xA;In other words, here &quot;substitutability&quot; emerges as an even more &lt;em&gt;economic&lt;/em&gt;, rather than mainly an &lt;em&gt;engineering/technical&lt;/em&gt; concept.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I will leave to the OP the task of contemplating further.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;ADDENDUM&lt;/strong&gt;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Responding to a comment by the OP, in the specific model, &quot;intermediate goods&quot; are combined &lt;em&gt;at the consumption level&lt;/em&gt;. In real life of course, in almost all products, skilled and unskilled labor are combined to reach the ready-for-consumption good. For example consumers consume services of a building as a whole, not design services and/or brick-laying services separately.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;One way to rationalize this is by thinking in &lt;em&gt;quality&lt;/em&gt; terms: degree of substitution between buildings made by mediocre craftsmen alone (&quot;unskilled&quot; labor), against buildings made using experienced builders and engineers. Since the substitution degree is a &lt;em&gt;preference&lt;/em&gt; parameter, &lt;em&gt;not&lt;/em&gt; taking into account prices, one could reasonably argue that the degree of substitution between similar products of different quality can be high (again, as a &lt;em&gt;tendency&lt;/em&gt; coming from preferences, the actual consumption decisions will also depend on prices of course).&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2017-03-30T11:02:14.360" LastActivityDate="2017-03-30T11:02:14.360" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="15947" PostTypeId="2" ParentId="15941" CreationDate="2017-03-26T18:36:00.940" Score="1" Body="&lt;p&gt;With observational data, I would say measurement error always exists. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The real issue is &quot;how severe&quot; is the measurement error. Evidently in order to be able to assess the severity, &quot;experimental-like&quot; (or quasi-experimental) data should be available.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For an example, see this paper&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Boyd, D., Lankford, H., Loeb, S., &amp;amp; Wyckoff, J. (2013). Measuring test measurement error: A general approach. Journal of Educational and Behavioral Statistics, 38(6), 629-663.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.nber.org/papers/w18010&quot; rel=&quot;nofollow noreferrer&quot;&gt;here downloadable freely&lt;/a&gt; from its initial NBER version.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;They treat test-scores essentially as a proxy for &quot;student achievement&quot; (knowledge, skills and abilities),  so we are not talking about errors in grading the tests. As the authors write&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;Reliability coefficients based on the test-retest approach using parallel test forms is recognized in the psychometric literature as&#xA;  the gold standard for quantifying measurement error from all sources.&#xA;  Students take alternative, but parallel (i.e., interchangeable), tests&#xA;  on two or more occurrences sufficiently separated in time so as to&#xA;  allow for the “random variation within each individual in health,&#xA;  motivation, mental efficiency, concentration, forgetfulness,&#xA;  carelessness, subjectivity or impulsiveness in response and luck in&#xA;  random guessing” but sufficiently close in time that the knowledge,&#xA;  skills and abilities of individuals taking the tests are unchanged.&quot;&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="61" LastEditorUserId="69" LastEditDate="2017-03-27T12:18:38.387" LastActivityDate="2017-03-27T12:18:38.387" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15948" PostTypeId="1" CreationDate="2017-03-26T18:53:52.460" Score="4" ViewCount="275" Body="&lt;p&gt;I am working with EU-KLEMS data, and I am using TFP growth as a proxy for technological change. However, there are 2 variables for TFP - TFP based on Gross Output and TFP based on Value Added. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand that Value added in this case might be Gross Output-intermediate consumption, but I am not sure whether this is indeed the case, as there is no such explanation in the EU-KLEMS dataset. The two TFP measures move in a similar fashion across industries, but there are indeed some differences - for example, the VA TFP average increases at a much slower rate than the GO TFP. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would be eternally grateful if some clarification could be provided on these two measures. &lt;/p&gt;&#xA;" OwnerUserId="2832" LastActivityDate="2020-06-27T04:09:35.920" Title="Difference between Value-Added TFP and Gross-Output TFP?" Tags="&lt;macroeconomics&gt;&lt;econometrics&gt;&lt;labor-economics&gt;&lt;productivity&gt;&lt;technology&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15949" PostTypeId="1" CreationDate="2017-03-26T19:32:44.607" Score="1" ViewCount="744" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/8j1un.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/8j1un.png&quot; alt=&quot;Kinked Demand Curve&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hello, so in class I learned about the kinked demand curve in oligopoly. Our teacher said that under the sticky price, the demand is inelastic. However, I don't understand how the demand can be inelastic when the marginal revenue is still positive. &lt;/p&gt;&#xA;" OwnerUserId="12632" LastEditorUserId="2776" LastEditDate="2017-03-27T15:15:22.983" LastActivityDate="2017-03-27T15:15:22.983" Title="Oligopoly kinked demand graph doesn't make a sense to me" Tags="&lt;elasticity&gt;&lt;oligopoly&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15951" PostTypeId="2" ParentId="15949" CreationDate="2017-03-27T00:19:14.497" Score="3" Body="&lt;p&gt;As the graph notes, the red segment of the demand curve is &lt;strong&gt;&lt;em&gt;relatively&lt;/em&gt; inelastic&lt;/strong&gt;, meaning that compared to the blue segment, the red segment of demand is relatively insensitive to price changes. This does not mean that price elasticity anywhere on the red segment is less than 1 (which implies inelasticity in the &lt;em&gt;absolute&lt;/em&gt; sense). &lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2017-03-27T00:19:14.497" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15952" PostTypeId="2" ParentId="15937" CreationDate="2017-03-27T01:44:49.393" Score="0" Body="&lt;p&gt;It seems your premise is that by increasing the reserve requirement ratio and the monetary base in tandem we could essentially leave lending as it is and that this would not devalue the dollar, all the while the Fed could massively expand its balance sheet and start making a ton of money for the federal government. Where I see this breaking down is that it seems to ignore the quantitative theory of money, i.e. you're confusing raising the supply of dollars (or the monetary base) with making the dollar worth more, when this would almost surely make the dollar worth less. If M&lt;em&gt;V=P&lt;/em&gt;Q and M increases fivefold (to be consistent with 10% RRR to 50%) then unless your plan gives any reason for velocity falling or GDP rising inflation ought to skyrocket (assuming the money supply rises fivefold).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On your second to last paragraph, if you merely offset the RRR with new money then you've held all the ratios constant and I don't see a rationale for expanded lending.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, your question is contradictory, as you say you avoid printing money to expand the monetary base but you initially purchase trillions of dollars in assets by printing money. Perhaps you could clarify that point.&lt;/p&gt;&#xA;" OwnerUserId="12636" LastActivityDate="2017-03-27T01:44:49.393" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="15953" PostTypeId="1" CreationDate="2017-03-27T09:18:18.497" Score="3" ViewCount="10334" Body="&lt;p&gt;I have monthly IIP data from &lt;strong&gt;1996-2016&lt;/strong&gt;. But the issue is the change of base year. For the year &lt;strong&gt;1996- 2011&lt;/strong&gt; the base year is &lt;strong&gt;1993-94&lt;/strong&gt; and the index is disconnected from Feb 2011. For the year 2005-2016 the base year is &lt;strong&gt;2004-2005&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I intend to use the IIP monthly index from April 1996 - March 2016 but as you can see their exists two set of different index. Can you please help suggest some technique/method so that the entire index is on the same base year of 2004-2005?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For your reference I have attached the data.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit: see the data and the necessary calculation &lt;a href=&quot;https://spaces.hightail.com/space/WRlEc&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="12641" LastEditorUserId="2776" LastEditDate="2017-08-29T10:33:41.443" LastActivityDate="2021-05-16T14:52:41.080" Title="How to handle change in base year of index?" Tags="&lt;base-year&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="15955" PostTypeId="2" ParentId="15941" CreationDate="2017-03-27T12:39:06.467" Score="3" Body="&lt;p&gt;Suppose we observe only $\tilde{x}$ and $\tilde{y}$ which are the true values measured with error:&#xA;$$ \tilde{x} = x + u$$&#xA;$$ \tilde{y} = y + v.$$&#xA;We would like to estimate:&#xA;$$ y = \beta x + \epsilon$$ but all we can really estimate is&#xA;$$\tilde{y} = \hat{\beta} \tilde{x} + \zeta$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, if  y is measured without error ($\tilde{y}=y$) we can use &lt;a href=&quot;http://davegiles.blogspot.ca/2014/11/reverse-regression-follow-up.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;reverse regression&lt;/a&gt; to bound the measurement error in regressions. The regression is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ y = \hat{\beta} \tilde{x} + \epsilon$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You also run the reverse regression&#xA;$$ \tilde{x} = \hat{\frac{1}{\beta}}y  + \hat{\frac{1}{\beta}}\epsilon+ u$$ &#xA;Define the reverse regression beta as $\hat{\beta}_r = \frac{1}{\hat{\frac{1}{\beta}}}$. It turns out that the results from&#xA;the standard regression and from &lt;a href=&quot;http://econ.lse.ac.uk/staff/spischke/ec524/Merr_new.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;the reverse regression will bracket the true&#xA;coeffcient, i.e.&lt;/a&gt; $plim\  \hat{\beta} \leq \beta \leq plim\  \hat{\beta}_r$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This interval is small when the variance of $u$ and $\epsilon$ are small. If one of the two are zero then one of the inequalities hold exactly. Unfortunately, in practice this interval may be large and therefore this approach not very helpful. &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2017-03-27T12:39:06.467" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15956" PostTypeId="2" ParentId="15953" CreationDate="2017-03-27T14:47:53.930" Score="2" Body="&lt;p&gt;You need to &lt;strong&gt;rebase&lt;/strong&gt; the oldest series, using the base from the new series. This is an example of how to do this, with annual data (same for monthly data):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/FeNge.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/FeNge.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, basically, you need to find a period in which both series have an entry, compute the ratio between them, and then transform the old series using the ratio just calculated. This is how you link two series in different base years.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Remarks: you will have &lt;strong&gt;several months&lt;/strong&gt; in which the series have values. If you have reasons to believe that the newest series is better, then I would make sense to take the &lt;strong&gt;earliest month&lt;/strong&gt; in which the two have data (probably January of 2005). Nonetheless, the two series might be in fact different (e.g. sector composition or definitions vary). Compare the rate of &lt;strong&gt;monthly growth&lt;/strong&gt; of both indexes for the months in which both have data (probably January 2005 to Feb 2011). Are they very different? If so, you might try to &lt;em&gt;adjust&lt;/em&gt; the old series. Perhaps, there is a persistent difference, which you can account for when expanding the newest series backwards. See more &lt;a href=&quot;https://www.google.co.uk/url?sa=t&amp;amp;rct=j&amp;amp;q=&amp;amp;esrc=s&amp;amp;source=web&amp;amp;cd=7&amp;amp;ved=0ahUKEwj6lfqi9PbSAhWHI8AKHZkMBscQFghMMAY&amp;amp;url=http%3A%2F%2Fwww.reading.ac.uk%2Fssc%2Fresource-packs%2Fsadc-dvd%2F03%2520Higher%2520Level%2FModule%2520H5%2FModule%2520H5%2520Session%252007%2FModule%2520H5%2520Session%25207.doc&amp;amp;usg=AFQjCNG0YCf0dyG356uztmTdRrYB70XXGA&amp;amp;sig2=z30JduKgWwsWVS6RxZbqxw&amp;amp;cad=rja&quot; rel=&quot;nofollow noreferrer&quot;&gt;in this document&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-03-27T14:47:53.930" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="15958" PostTypeId="1" AcceptedAnswerId="15959" CreationDate="2017-03-27T16:32:40.630" Score="1" ViewCount="66" Body="&lt;p&gt;Let $\succeq $ be a weak order in $\mathbb{R}^n$. If&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;$ x\geq y \Rightarrow x\succeq y$&lt;/li&gt;&#xA;&lt;li&gt;for any $x\succ y\succ z$ there exists a unique $\lambda \in (0,1)$ such that $y\sim \lambda x+(1-\lambda)z$, &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;then there exists a value representation of $\succeq$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Could anyone give me an example where the Value representation theorem(with out uncertainity) in the $n$ dimensional Euclidean space can be applied and a counter example that cannot be applied?&lt;/p&gt;&#xA;" OwnerUserId="12645" LastEditorUserId="12645" LastEditDate="2017-03-27T18:16:12.177" LastActivityDate="2017-03-27T18:17:08.210" Title="Preference relation value representation without uncertainity" Tags="&lt;microeconomics&gt;&lt;preferences&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="15959" PostTypeId="2" ParentId="15958" CreationDate="2017-03-27T18:17:08.210" Score="3" Body="&lt;p&gt;First, consider the preference relation $\succeq$ defined by&#xA;\begin{equation*}&#xA;x \succeq y \text{ if } x_1 + \cdots + x_n \geq y_1+\cdots+y_n&#xA;\end{equation*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This preference relation satisfies your assumptions. Indeed, suppose that $x \succ y \succ z$. You can check that $y \sim \lambda x + (1-\lambda) z$ for a unique $\lambda$ defined by&#xA;\begin{equation*}&#xA;\lambda = \dfrac{y_1+\cdots+y_n-(z_1+\cdots+z_n)}{x_1+\cdots+x_n-(z_1+\cdots+z_n)} &#xA;\end{equation*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And these preferences obviously admit the utility representation $u(x)=x_1+\cdots+x_n$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, consider the lexicographic preference relation $\succeq$ defined (I take $n=2$ for simplicity) by&#xA;\begin{equation*}&#xA;x \succ y \text{ if } (x_1&amp;gt;y_1) \text{ or } (x_1=y_1,x_2&amp;gt;y_2)&#xA;\end{equation*}&#xA;Lexicographic preferences have two important properties:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;$x \sim y$ if and only if $x=y$&lt;/li&gt;&#xA;&lt;li&gt;they have no utility representation&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;If $x=(1,1)$, $y=(0,1)$ and $z=(0,0)$, we have $x \succ y \succ z$. In addition, any $\lambda&amp;gt;0$ is such that $\lambda x + (1-\lambda) z \succ y$. Thus assumption 2. is not valid, and the conclusion of the theorem (existence of a utility representation) is not valid either.&lt;/p&gt;&#xA;" OwnerUserId="4667" LastActivityDate="2017-03-27T18:17:08.210" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="15962" PostTypeId="1" CreationDate="2017-03-28T01:27:44.360" Score="3" ViewCount="256" Body="&lt;p&gt;Some say &quot;housing crash&quot; but I suspect the existing global banking system imploded.  Am I off-base, or ...?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In my experience, &lt;a href=&quot;http://www.cmegroup.com/trading/equity-index/us-index/sandp-500_quotes_globex_options.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;CME S&amp;amp;P futures&lt;/a&gt;, for example, require a performance bond of something less than 10% of the market value of the underlying asset(s) to open a position, i.e. healthy leverage is baked into the product.  As I calculated back then, TARP and TARPII literally provided enough capital to purchase the entire US stock market via futures contracts.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Today, a decade later, the run on global banking seems to continue.  &quot;Buy gold bcs you can't trust governments or banks&quot; commercials come on TV about every 15 minutes. Also, inflation continues to outpace return on bank deposits, i.e. negative real interest rates.  Punishment for holding cash; and we see several Nations outlawing large denominations of cash.  Gold has been repatriated out of NYNY in masse.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Did the global banking system collapse in 2008, or was it simply a housing/mortgage issue?  Lastly, if it did, my understanding is that like 99% of $100 &lt;del&gt;bills&lt;/del&gt; notes are held outside of the USA.  Why didn't the Fed simply declare bankruptcy, void all those notes (and all those complex derivative contracts), and start over with new money?  Why the fake?  The sun's going to come up tomorrow regardless...?&lt;/p&gt;&#xA;" OwnerUserId="12649" OwnerDisplayName="Ron Royston" LastActivityDate="2017-03-30T00:50:20.510" Title="What Happened in 2008?" Tags="&lt;banking&gt;" AnswerCount="3" CommentCount="7" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15963" PostTypeId="2" ParentId="15929" CreationDate="2017-03-28T01:52:48.223" Score="-2" Body="&lt;p&gt;I believe there is a distinction to be made between a dollar note (money) vs capital.  BTW: Dollar bills no longer exist, they're called &quot;Federal Reserve Notes&quot;.  Fractional Reserve Banking concept is key to understanding USD.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Banks make &lt;em&gt;money&lt;/em&gt; by lending long and borrowing short.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's kind of infuriating really to understand how it works.  Banks have &lt;em&gt;capital&lt;/em&gt; requirements which are extremely low.  Good luck finding the documentation - I've searched.  It's something less than like 6% or so.  In other words, when you contractually obligate yourself to a 30 yr mortgage and borrow say 300,000USD for a home,  the bank only has to have 18,000USD in it's account to cut your homebuilder a check for 300K which can immediately be &lt;em&gt;cashed&lt;/em&gt; (money).  The bank never had the money they lent you, yet they collect interest from you monthly on the whole $300k!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In short a &quot;dollar&quot; is a note.  It represents debt - enforcer of work/behavior.&lt;/p&gt;&#xA;" OwnerUserId="12649" LastEditorUserId="12649" LastEditDate="2017-03-28T18:11:26.383" LastActivityDate="2017-03-28T18:11:26.383" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15964" PostTypeId="1" AcceptedAnswerId="15972" CreationDate="2017-03-28T08:28:16.323" Score="1" ViewCount="625" Body="&lt;p&gt;My supply function is $Q = a + bP + u$. My demand function is $Q = c + u$. The error terms $u$ in both equations are mutually i.i.d random variables with a mean of zero and a constant variance. My question is: since the demand curve is a constant, is price an endogenous or exogenous variable?&lt;/p&gt;&#xA;" OwnerUserId="12655" LastEditorUserId="4667" LastEditDate="2017-03-28T08:31:28.227" LastActivityDate="2017-08-23T12:32:13.457" Title="Is price in this situation exogenous or endogenous?" Tags="&lt;econometrics&gt;&lt;statistics&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="15966" PostTypeId="1" CreationDate="2017-03-28T12:24:09.320" Score="1" ViewCount="1604" Body="&lt;p&gt;I was under the impression that in the long run, a larger money supply resulted in lower interest rates. According to the &lt;em&gt;Quantity Theory of Money&lt;/em&gt;, see below figure, an increase in the money supply -&gt; An increase in price levels.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/CVbbM.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/CVbbM.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Increasing price levels == increasing inflation rate.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Fisher Effect:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;According to the &lt;em&gt;Fisher Effect&lt;/em&gt;:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;Nominal Interest Rates = Real Interest Rates + Inflation&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Changes in the money supply should not affect the Real Interest Rate in the long term therefore there is a 1 for 1 increase in Nominal Interest Rates and Inflation in order to maintain the equation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Chart suggests that an Increase in money supply =&gt; Higher prices == Inflation, which i believed meant lower interest rates.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But the &lt;em&gt;Fisher Effect&lt;/em&gt; seems to be suggesting the opposite, hence my confusion.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would appreciate any help in clarifying this, thanks in advance.&lt;/p&gt;&#xA;" OwnerUserId="12657" LastEditorUserId="12657" LastEditDate="2017-03-28T12:29:29.890" LastActivityDate="2017-03-29T19:28:03.240" Title="Fisher Effect vs Quantity Theory of Money and how an increase in the money supply lowers interest rates?" Tags="&lt;inflation&gt;&lt;interest-rate&gt;&lt;money-supply&gt;" AnswerCount="2" CommentCount="5" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15972" PostTypeId="2" ParentId="15964" CreationDate="2017-03-28T17:01:55.537" Score="3" Body="&lt;p&gt;It is &lt;strong&gt;endogenous&lt;/strong&gt;, because a demand shock will affect prices.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To see this more clearly, add another regressor to the demand, for instance, income. It is clear that income is exogenous, as it is not affected by prices or quantities, or shocks. This cannot be said of prices. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is also evident if you write the system as it should have been written in the first place:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ P = \alpha + \beta Q + \epsilon $$&#xA;$$ Q = c \quad \quad \ + \mu$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is a simultaneous equation system, where both $Q$ and $P$ are endogenous. Here you can see more clearly that a demand shock $\mu$ affects prices via $\beta$ (if $\beta=0$, the two equations are independent).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This means that the OLS estimation of $b$ is inconsistent. A consistent estimation can be obtained with 2SLS, using a proper instrument.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-08-23T12:32:13.457" LastActivityDate="2017-08-23T12:32:13.457" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15973" PostTypeId="1" AcceptedAnswerId="15998" CreationDate="2017-03-28T17:27:42.807" Score="2" ViewCount="231" Body="&lt;p&gt;I would like to understand in atomic terms what makes the value of one nation's currency change with regard to another.  Read that, without citing complex terminology but in basic terms.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Obviously, if one nation does QE then it would follow that the value of that currency is devalued by the ratio of &quot;easing&quot; to the existing supply.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But in all other cases, suppose you have nation A and nation B and their currencies are initially 1-to-1.  What would make nation A's currency be worth more than nation B's currency, and what is the rationale behind it?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So for example, nation A becomes more efficient in manufacturing than nation B; but how would that make the currency of nation A worth more?  Efficiency is the only answer that comes to mind, so I appreciate further elaboration and hope this question has educational value.&lt;/p&gt;&#xA;" OwnerUserId="12664" LastActivityDate="2017-03-29T20:29:28.477" Title="what in real terms causes one nations currency to be more valuable than another?" Tags="&lt;currency&gt;&lt;currency-exchange&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15974" PostTypeId="1" CreationDate="2017-03-28T17:52:18.233" Score="1" ViewCount="66" Body="&lt;p&gt;I have &lt;strong&gt;bond yields&lt;/strong&gt; for Indian G-Sec. For short term yields the proxy are (15-91 days) , (92-182 days) , (183-364 days). For long term yields the proxy are 5,10 &amp;amp; 15 years. Data ranges from 1996 - 2016.&#xA;But the yield values for 15 years bonds are unavailable from 1996 to 1999. So in order to have a complete data-set, i need to compute the 15 year bonds yield those 3 years on monthly basis.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Please check the below link for data file.&#xA;&lt;strong&gt;&lt;a href=&quot;https://spaces.hightail.com/space/9wrYy&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://spaces.hightail.com/space/9wrYy&lt;/a&gt;&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="12641" LastActivityDate="2017-03-29T00:27:06.357" Title="How to extrapolate the data?" Tags="&lt;econometrics&gt;&lt;data-request&gt;&lt;statistics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15975" PostTypeId="1" CreationDate="2017-03-28T19:04:16.963" Score="0" ViewCount="4567" Body="&lt;p&gt;I have never studied economics so the question might be very basic one and would need understandable answer: I would like to know the difference between Interest Rate term and Borrowing Rate term? As far as I understand the Borrowing Rate means when some company borrows money from the bank to pay for some internal staff needed to do their work (e.g. manufactury to buy some materials to produce their own products). Then company returns the money to the bank but with little additional fee and this additional fee is Borrowing Rate in % unit. Please confirm if this is correct. Even if it is, I still don't know the DIFFERENCE between Borrowing Rate and Interest Rate.&lt;/p&gt;&#xA;" OwnerUserId="12667" LastEditorUserId="1601" LastEditDate="2017-03-28T19:09:52.937" LastActivityDate="2017-03-28T20:21:03.837" Title="Interest Rate vs. Borrowing Rate - Difference" Tags="&lt;finance&gt;&lt;accounting&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15976" PostTypeId="2" ParentId="15975" CreationDate="2017-03-28T19:14:05.747" Score="1" Body="&lt;p&gt;The Interest Rate is a more general term, and can cover all shorts of financial transactions where one expects by a contractual clause to get their money back plus &quot;a little something&quot; (I am not referring to the expected profit from an investment, where the &quot;little something&quot; is not a contractual obligation).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So you can talk about &quot;the interest rate of a loan&quot; but also of the &quot;interest rate of a deposit in the bank&quot;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Borrowing Rate specifically refers to the Interest Rate that the entity under consideration (a business, a public sector, or an individual) has to accept to pay as this extra little something if they want to borrow funds.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the &quot;borrowing rate&quot; is an &quot;interest rate&quot; - one among many kinds of interest rates.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2017-03-28T20:21:03.837" LastActivityDate="2017-03-28T20:21:03.837" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="15977" PostTypeId="1" AcceptedAnswerId="16008" CreationDate="2017-03-28T19:50:07.560" Score="2" ViewCount="171" Body="&lt;p&gt;In a closed two-factor economy, suppose there is a biased technological improvement that increases the productivity of both factors, but one more than the other. Can this reduce the aggregate returns (and not just the share of returns) to one factor? If so, how is that consistent with the usual rules of factor pricing? Doesn't (or can't) the marginal productivity of both factors rise with their respective total productivity?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, if biased technology improvement can result either in increased payments to both factors (in real terms) or in increase to one and decrease to the other, how might one characterize quantitatively the conditions for (partially) immiserizing technological growth?&lt;/p&gt;&#xA;" OwnerUserId="12668" LastActivityDate="2017-03-31T07:40:41.943" Title="Can an overall improvement in technology make the owners of one factor worse off?" Tags="&lt;economic-growth&gt;&lt;general-equilibrium&gt;&lt;wages&gt;&lt;pricing&gt;&lt;directed-technical-change&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15978" PostTypeId="2" ParentId="4428" CreationDate="2017-03-28T20:01:53.563" Score="-1" Body="&lt;p&gt;I agree to the assumption that soe are inefficient. In most cases these firms leaders are not business people but a chance created for one to be paid. The point that the managers did not invest even a single cent, breeds the I don't care attitude provided Iam paid. Lack of monitoring gives room to employees to be truent. This practice will have negative impact on production of the firm. &lt;/p&gt;&#xA;" OwnerUserId="12669" LastActivityDate="2017-03-28T20:01:53.563" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15979" PostTypeId="2" ParentId="15037" CreationDate="2017-03-28T20:14:00.297" Score="2" Body="&lt;p&gt;Here is a reference by Feldstein, Krugman that is often quoted when discussing the FX neutrality of border tax adjustments: &#xA;&lt;a href=&quot;http://www.nber.org/chapters/c7211.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.nber.org/chapters/c7211.pdf&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another useful reference that takes a somewhat skeptical view and lists more references is &#xA;&lt;a href=&quot;http://voxeu.org/article/exchange-rate-implications-border-tax-adjustment-neutrality&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://voxeu.org/article/exchange-rate-implications-border-tax-adjustment-neutrality&lt;/a&gt;. All models developed or mentioned in these references are non-monetary models, i.e. changes in the exchange rates &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have not digested these references completely yet. However, my understanding of the basic argument is as follows:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In present value terms exports must always equals imports. Changes to taxation may disturb this equilibrium which may then lead to an adjustment of the exchange rate. However, in a world with inelastic labor supply as assumed by Feldstein/Krugman a VAT with border tax adjustments does not have any distortive effects as it changes neither the consumption/savings decision, nor the present value of imports or exports it will not have any real effects. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In principle already from this result one can conclude that border tax adjustments that limit any tax impact on domestic economic agents cannot change any consumption or production decisions as long as the economy is small, labor supply is inelastic and tax revenue is redistributed in a lump sump fashion.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, a more rigorous argument is as follows:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With inelastic labor supply, households have to decide on their consumption and savings. The first order condition resulting from a standard intertemporal optimization model is (following Feldstein, Krugman)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;${U_C}_1/(\delta{U_C}_2)=(1+r)p_1/p_2$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This condition shows that the consumption/savings decision changes only when relative prices or interest rates change. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider now various types of firms underlying Auerbach's border tax adjustments, where we again model the firm as in Feldstein, Krugman:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Exporting firms&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;$maxV=p_X X^1+(1-\tau)(p_D^1 D^1-w^1l^1-p_D^1k^2)+[p_X X^2+(1-\tau)(p_D^2 D^2-w^2l^2)]/(1+r)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;subject to&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$Q^1(l^1)=X^1+D^1$ and $Q^2(l^2;k^2)=X^2+D^2$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where D denotes domestic and X denotes export sales.&#xA;Labor market equilibrium is given by&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\bar L=l^1$  and  $\bar L =l^2$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Equilibrium conditions are in the first period&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$p_D^1=p_X/(1-\tau)$; $w^1=p_X/(1-\tau)Q_l^1(\bar L)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From this follows that in the first period and increase in $\tau$ leads to a proportional increase in $p_D^1$ and $w$. This means essentially that the exchange rate will adjust to neutralize the impact of $\tau$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These conclusions can be shown to hold also in period 2, where there is one additional equilibrium condition $1=Q_k^2(\bar L,k^2)$.&lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;2&quot;&gt;&#xA;&lt;li&gt;Exporting firms importing an intermediate good&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;$$maxV=p_X X^1+(1-\tau)(p_D^1 D^1-w^1l^1-p_D^1k^2)-p_m^1m^1+\frac{p_X X^2+(1-\tau)(p_D^2 D^2-w^2l^2)-p_m^2m}{1+r}$$&#xA;subject to&#xA;$Q^1(l^1;m^1)=X^1+D^1$ and $Q^2(l^2;m^2;k^2)=X^2+D^2.$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Compared to 1. there is one additional equilibrium condition in period 1: $p_m^1/p_X=Q_m^1(l^1;m^1)$ and one in period 2 $p_m^2/p_X=Q_m^2(l^2;m^2;k^2)$.  However, also these addtional equilibrium conditions do not change the overall conclusion that changes in $\tau$ will only impact $p_D$ and $w$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These conclusions also hold in a more general context, for instance, if there are importing firms producing nontradeable goods.&lt;/p&gt;&#xA;" OwnerUserId="7008" LastEditorUserId="7008" LastEditDate="2017-05-31T14:55:03.150" LastActivityDate="2017-05-31T14:55:03.150" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15980" PostTypeId="2" ParentId="15831" CreationDate="2017-03-28T20:42:45.783" Score="-3" Body="&lt;p&gt;Money &lt;strong&gt;is&lt;/strong&gt; created out of thin air. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Almost all countries on the earth have implemented &lt;a href=&quot;https://en.wikipedia.org/wiki/Fractional-reserve_banking&quot; rel=&quot;nofollow noreferrer&quot;&gt;fractional-reserve banking system.&lt;/a&gt; This means that a bank only needs to hold a fraction of the money they lend out. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Example: If you deposit 100 dollars in your bank, the bank may lend out your 100 dollars x 10 times (10% reserve requirement), thus creating 900 dollars &lt;em&gt;out of thin air&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/VJKW9.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/VJKW9.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This system is absolutely genius: When there is a demand for money, money will be created. When wealth is created money is created.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Example: If you build a house with you bare hands, you would create wealth. A bank would now be willing to give you a loan using your house as safety deposit. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Mark Zuckerberg did not take his money from other people. He created a new technology and thus created a demand for money and money was created. Very smart system if you ask me. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The rich are getting richer because having money generates money through interests and investments. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Being poor is expensive. You'll have to pay interests on your mortgage, student debt, your car and so on. &lt;/p&gt;&#xA;" OwnerUserId="12671" LastEditorUserId="12671" LastEditDate="2017-03-28T21:20:08.097" LastActivityDate="2017-03-28T21:20:08.097" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="15981" PostTypeId="1" AcceptedAnswerId="16000" CreationDate="2017-03-28T23:59:28.760" Score="3" ViewCount="1018" Body="&lt;p&gt;Are there certifications or professional designations that are specifically geared for economists? i.e much like the CPA and CA exists for accountants.&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2017-03-29T21:05:11.880" Title="Certifications for economists" Tags="&lt;soft-question&gt;" AnswerCount="2" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="15982" PostTypeId="2" ParentId="15974" CreationDate="2017-03-29T00:27:06.357" Score="1" Body="&lt;p&gt;You are never going to be able to fill in the gaps exactly, so the best approach may depend on what you want to use the data for.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;One reasonable approach might be to use an average offset from the 10-year rate, e.g. adding about $0.3$ to it.  If you did that, then you would get the red data on the chart below, which compares reasonably well with the actual blue data for the 15-year rate, though not perfectly.  So you might use the red line as a proxy for the earlier missing blue data.  This might not be such a good idea if the purpose of your analysis was precisely considering the changing gap between the 10-year and 15-year rates&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/BMHzF.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/BMHzF.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;  &lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2017-03-29T00:27:06.357" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15983" PostTypeId="1" AcceptedAnswerId="16041" CreationDate="2017-03-29T03:23:25.747" Score="4" ViewCount="111" Body="&lt;p&gt;The U.S. has maintained an overall trade deficit for decades, essentially exporting money. For many countries this fund of 'ex-patriated' dollars has been a big tool of trade. Everyone accepts dollars. Convert Samoan clams to dollars to buy Romanian veeblefetzers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Everyone trusts the dollar. Under what circumstances can that change?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've seen and felt the contempt of the world toward the U.S. government since The Great Cheeto took office. He's a wild card. I have some investments in U.S. funds. I'm seriously considering pulling them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm making a point of not buying US products if I can find alternatives.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a tree farmer, I'm looking for alternate suppliers of the pots I use.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If my attitude is common, then US exports fall, the demand for dollars to buy US goods drops, at some point the holders of US debt decide that holding it is a bad idea, and there is a run to get rid of it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this plausible?  Is there a plausible scenario that would cause nations to abandon the U.S. dollar as the reserve/trading currency?&lt;/p&gt;&#xA;" OwnerUserId="12670" LastActivityDate="2017-04-01T18:56:50.433" Title="Are there plausible scenarios for the U.S. dollar to fall out of use as the world's reserve currency?" Tags="&lt;currency&gt;&lt;international-trade&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="15985" PostTypeId="2" ParentId="15981" CreationDate="2017-03-29T06:48:45.627" Score="0" Body="&lt;p&gt;How about BA, BSc, MA, MSc and PhD in economics?&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2017-03-29T06:48:45.627" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="15986" PostTypeId="2" ParentId="15831" CreationDate="2017-03-29T07:39:24.710" Score="3" Body="&lt;p&gt;Re: &quot;You could say this is 'creating' money&quot; - no you couldn't. This would be conflating money and wealth. Wealth can be created without new money being created - indeed wealth was created before money even existed. Conversely money can be created without creating wealth. So they are entirely separate things. A crude analogy: wealth is to money as apples are to numbers. You can count apples using numbers, but growing new apples does not create new numbers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With regard &quot;In the end logically, this money becomes concentrated in a few people.&quot; - not true. People don't earn money in order to collect big piles of it and spend all day counting it. Instead they use it to buy stuff which means that the money circulates through the rest of the economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With regard &quot;How is it the United States can still grow, despite sending more money out than it takes in?&quot;... it doesn't send out more money than in takes in (at least not to any great extent). Foreigners do not accumulate great piles of dollars that they earned from selling American's stuff - instead they use their dollars to buy American assets, like US government bonds.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With regard how money is created, please be aware that this is a controversial area and there is a huge amount of misinformation on this subject. The best document to read that I know of on the subject of money creation is &lt;a href=&quot;http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q102.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;this one published in the Bank of England Quarterly bulletin&lt;/a&gt; in 2014.&lt;/p&gt;&#xA;" OwnerUserId="5081" LastEditorUserId="5081" LastEditDate="2017-03-29T07:53:47.823" LastActivityDate="2017-03-29T07:53:47.823" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15987" PostTypeId="2" ParentId="15962" CreationDate="2017-03-29T09:10:00.080" Score="0" Body="&lt;p&gt;A factor that appears to be often overlooked is what was happening to the price of energy since 2004.  The WTI oil price broke through $40 in 2004 and just kept rising.  Combined with aggressive housing credit offering, the gradual squeeze on energy prices eventually tipped the system.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/NDsBE.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/NDsBE.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;data source: &lt;a href=&quot;http://www.eia.gov/dnav/pet/hist_xls/RCLC1d.xls&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.eia.gov/dnav/pet/hist_xls/RCLC1d.xls&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;additional info: &lt;a href=&quot;https://en.wikipedia.org/wiki/Price_of_oil&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://en.wikipedia.org/wiki/Price_of_oil&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="4544" LastActivityDate="2017-03-29T09:10:00.080" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15988" PostTypeId="2" ParentId="11885" CreationDate="2017-03-29T10:54:24.137" Score="0" Body="&lt;p&gt;The aim of this policy (introduced in 2008) was to &quot;give the Fed better control of the short-term interest rate&quot; via reducing the demand for short-term government bonds by taking out some of the excess cash that banks hold. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a crisis, banks are not lending, and thus the cash they have is poured into many assets, including short term government bonds. This reduces the market short-term nominal interest rate. To control for this, the Fed has to sell some of their T-Bill holdings in order to reduce the money supply. Yet, &lt;strong&gt;the intervention of the Fed are more precise if the amount of cash willing to participate in that market is smaller.&lt;/strong&gt; That is why offering banks an incentive to gain a return by parking part of that cash into US regional Central Banks helps to lower that demand.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Certainly, this policy also helped banks to build up their assets. However this has been a relatively very minor issue, according to a recent inlet in The Economist (March 18th). The graph is below:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/4J7dJ.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/4J7dJ.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is some opposition to this policy though. On the one hand, some say it reduces bank lending. On the other hand, as the graph show, the official forecast for the interest paid on these reserves is likely to increase considerably in the coming years, mainly because the Fed is now increasing the interest rate. Politically, this is a hard-seller, albeit Trump might not be very worried about this. Who knows.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-03-29T10:54:24.137" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15990" PostTypeId="1" CreationDate="2017-03-29T12:28:20.890" Score="1" ViewCount="524" Body="&lt;p&gt;Say I have a structural equation that is forecasting Y. Y is a nominal financial variable that grows with time due to inflation. I have an economic determinant that is a rate and therefore does not increase with time. Is it wise or necessary to deflate Y so that the variables behave the same way? I do not particularly want Y deflated as this regression will be forecasted and this just introduces another hard to forecast variable.&lt;/p&gt;&#xA;" OwnerUserId="12679" LastEditorUserId="2776" LastEditDate="2017-03-29T18:13:53.527" LastActivityDate="2017-03-30T20:13:11.753" Title="Should I deflate a nominal variable when forecasting it?" Tags="&lt;econometrics&gt;&lt;statistics&gt;&lt;applied-econometrics&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="15991" PostTypeId="2" ParentId="15962" CreationDate="2017-03-29T13:16:00.647" Score="1" Body="&lt;p&gt;The main factor was bad loans. Moreover, bad loans were made to look like high grade loans by lying and by gaming the system.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Housing loans were bundled. The big rating firms allowed a small percentage of bad loans even in the highest grade bundles. So bad housing loans were bundled with good loans. The bundle (highest grade) was then put into a new bundle with more bad loans and the new bundle would also get the highest grade. The process was then repeated a number of times until there was a large amount of bad loans in a bundle with the highest grade. The bundle was then sold at a premium, because some of the bad loans had really good interest rates.&#xA;When it was discovered that these highest grade bundle actually contained a large portion of bad loans their value dropped. Some financial institutions were hit so hard that they went insolvent. The US government decided not to bail out of the fairly large players. The result was that all debt of that player became worthless, sending ripples through the banking sector that threatened to bankrupt more banks throughout the world. &#xA;Without intervention from the governments, there would have been a banking collapse.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Meanwhile, some countries in Europe had been lying about their national debt and their budget deficits. When the financial meltdown happened the big banks started to look at other loans that could be lower grade than indicated, and their sights set on the cheating countries.&#xA;Again, the governments (and the EU) had to intervene.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for voiding national debt: FIAT currencies are only as good as the trust people put in it. If the US would default on its national debt (paper money is debt), what would happen to the trust in the new US dollar? Who would dare accept US dollars or lend money to the US in the future if there is a risk that the money will become worthless? &lt;/p&gt;&#xA;" OwnerUserId="11805" LastActivityDate="2017-03-29T13:16:00.647" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="15994" PostTypeId="2" ParentId="15966" CreationDate="2017-03-29T15:54:27.330" Score="1" Body="&lt;p&gt;&lt;em&gt;ceteris paribus&lt;/em&gt; - other things staying the same&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What happens with a changing money supply depends on what other things stay the same in your thought experiment. Possibilities might include: &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;If real interest rates stay the same but you manage to increase the money supply and inflation, then nominal interest rates must rise by definition.  Historically, nominal interest rates have been higher in inflationary periods than in periods of price stability or deflation &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;If nominal interest rates stay the same but you manage to increase the money supply and inflation, then real interest rates must fall by definition.  This is likely to lead to an inflationary spiral as people borrow cheaply in real terms, increasing demand and the money supply further and so pushing prices higher&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;If you force inflation to stay the same but you manage to increase the money supply excessively compared with that inflation, you may need other controls such as price regulation.  This could lead to shortages of goods or an asset price bubble, at which point things other than money become important while interest rates could become less relevant  &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2017-03-29T15:54:27.330" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="15995" PostTypeId="1" CreationDate="2017-03-29T19:13:09.143" Score="2" ViewCount="329" Body="&lt;p&gt;If I have an specific extensive game, with only a finite set of strategies, how can I demonstrate that the game always have a subgame-perfect equilibrium in pure strategies? My first intuition was to show that in every subgame a pure strategy it's a solution to the problem (maybe not unique) and then there is always a pure strategies equilibrium. But I'm not sure. &lt;/p&gt;&#xA;" OwnerUserId="4463" LastEditorUserId="4463" LastEditDate="2017-03-31T15:05:59.700" LastActivityDate="2017-04-01T17:28:19.567" Title="How to demonstrate that a game always have a subgame-perfect equilibrium in pure strategies?" Tags="&lt;game-theory&gt;&lt;nash-equilibrium&gt;&lt;extensive-games&gt;" AnswerCount="1" CommentCount="6" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="15996" PostTypeId="2" ParentId="15966" CreationDate="2017-03-29T19:28:03.240" Score="0" Body="&lt;p&gt;Both the picture posted by the OP, as well as an online tutorial the OP linked to, examine shifts in the supply of money, leaving the money demand unaffected.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(I also note that the picture looks at money demand more as &quot;liquidity demand&quot;, while the on-line tutorial examines &quot;demand for borrowing funds&quot;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Fisher Hypothesis first of all relates to &lt;em&gt;expected&lt;/em&gt; inflation, and compacts movements in both the supply curve as well as in the demand curve, as a result of inflationary expectations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One can &lt;a href=&quot;https://economics.stackexchange.com/a/4660/61&quot;&gt;see also this answer.&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2017-03-29T19:28:03.240" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="15997" PostTypeId="2" ParentId="15962" CreationDate="2017-03-29T20:10:49.880" Score="3" Body="&lt;p&gt;To sum up the 2008 crisis in a few bullets:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Loose lending policies by government and private institution caused regular (and poor) folk to become &lt;strong&gt;real estate speculators&lt;/strong&gt;.&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;Housing prices declined rapidly&lt;/strong&gt;, causing foreclosures.  This caused banks and investors to lose money and put the housing/construction industry on hold, causing unemployment.&lt;/li&gt;&#xA;&lt;li&gt;Many &lt;strong&gt;mortgage-backed securities&lt;/strong&gt; were based on the value of real estate and their risks had not been taken into account by investors, who were unprepared for losses.&lt;/li&gt;&#xA;&lt;li&gt;Financial institutions were &lt;strong&gt;highly levered&lt;/strong&gt; and tightly connected with each other by contracts and &lt;strong&gt;derivatives that lacked transparency&lt;/strong&gt;, causing a crisis of faith in these institutions.&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;Government bailouts&lt;/strong&gt; were reasonably successful in keeping the problem contained but at great cost and setting a questionable precedent.&lt;/li&gt;&#xA;&lt;li&gt;Since then &lt;strong&gt;the financial system has recovered&lt;/strong&gt; and done very well.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The low real interest rates you mention isn't a problem with the banking system, it's a simple problem with too many parties (globally) wanting to save and not enough wanting or being able to borrow.  The latter effect is partly because of government and bank reluctance repeat the same mistakes with loose lending and partly because we don't have a lot of good real investments available to us.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Some say &quot;housing crash&quot; but I suspect the existing global banking system imploded. Am I off-base, or ...?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Yes, you are off base.  The banking system, and financial system in general, temporarily lost a lot of value and suffered from a credit crunch but have since recovered and are doing very well.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;As I calculated back then, TARP and TARPII literally provided enough capital to purchase the entire US stock market via futures contracts.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Posting margin to take a large position in futures contracts is very different from &quot;purchasing&quot; the stock market. I don't understand how this is related to your question, though.  Using bailout funds to speculate on the market seems like an odd idea.  Note that TARP funds were loans, which have been repaid and made the government a tidy profit.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Did the global banking system collapse in 2008, or was it simply a housing/mortgage issue? &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Again, it didn't collapse, but it did suffer.  The housing situation was the precipitating event but there were a number of problems that came to fruition at the same time.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Lastly, if it did, my understanding is that like 99% of $100 bills notes are held outside of the USA. Why didn't the Fed simply declare bankruptcy, void all those notes (and all those complex derivative contracts), and start over with new money? Why the fake? The sun's going to come up tomorrow regardless...?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Why would the fed want to declare bankruptcy? If it tried to void our currency there would be negative global economic and political repercussions the likes of which we have never seen.  I cannot imagine this happening nor why you would think it would be a good thing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there a reason you think voiding derivative contracts would be a good thing?  Those are contracts parties voluntarily engaged in, many of which are necessary to provide stability to both or at least one participant.  During the crisis the fact that big banks were involved in so many derivatives undermined their credit-worthiness because people couldn't be certain how much risk they had.  But that is a very, very far cry from saying that it would be a good idea to void derivatives, or even certain classes of derivatives.&lt;/p&gt;&#xA;" OwnerUserId="12673" LastEditorUserId="12673" LastEditDate="2017-03-30T00:50:20.510" LastActivityDate="2017-03-30T00:50:20.510" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="15998" PostTypeId="2" ParentId="15973" CreationDate="2017-03-29T20:29:28.477" Score="1" Body="&lt;p&gt;Exchange rates are prices.  Just like any other price, they change based on supply and demand.  Country A's currency appreciates relative to B if the citizens of country B want county A's currency.  Why does B want A's currency? Typically for the purpose of buying the goods, services, and investments produced by A.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So what would be some examples of events that would cause A's currency to appreciate relative to B?&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;If A starts producing some goods B wants, or producing them efficiently, then B will want A's currency in order to buy them&lt;/li&gt;&#xA;&lt;li&gt;If A has desirable investments (savings accounts, financial assets, or real assets) and B wants a place to save for the future&lt;/li&gt;&#xA;&lt;li&gt;If A expands their money supply more slowly than B, which reduces the available supply of A's currency relative to B's.&lt;/li&gt;&#xA;&lt;li&gt;If A's currency is useful for some other purpose, like acting as a medium of exchange between B and another country C.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="12673" LastActivityDate="2017-03-29T20:29:28.477" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="15999" PostTypeId="2" ParentId="15929" CreationDate="2017-03-29T20:48:00.333" Score="0" Body="&lt;p&gt;A dollar is a &lt;strong&gt;medium of exchange produced by the federal reserve&lt;/strong&gt; at the federal government's behest.  Like all fiat currency it has no intrinsic value, but is worth something because people agree it is.  This is nothing unusual...currencies with little or no intrinsic value are historically common.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Banks keep track of how many dollars people have given them (whether savers or investors) and what they have paid out, so they always know what their balance is and don't lend money they don't have.  The thing that prevents them from claiming infinite money is the same thing that keeps me from claiming I have a million dollars under my mattress: it's &lt;strong&gt;fraud&lt;/strong&gt;.  If a bank was to lie about its balances, the bank's auditors and regulators would be happy to start throwing those responsible in jail and correcting the mistake.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is exactly one bank that can just change its balances or pay with dollars that it didn't acquire from others: the federal reserve.  When the fed wants to buy something it doesn't have to worry about where the dollars come from: it just makes the dollars up electronically.  This is why the fed can never go bankrupt.  It doesn't have meaningful liabilities.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, &lt;strong&gt;fractional banking&lt;/strong&gt; increases the number of apparent dollars in the &lt;em&gt;aggregate economy&lt;/em&gt; because any time someone deposits in a bank, the dollar is then lent out.  Both the borrower and lender would say they have a dollar.  But of course, this process results in a more-or-less constant multiplier of the apparent dollars, so it's not what causes inflation, nor is it anything strange or evil.&lt;/p&gt;&#xA;" OwnerUserId="12673" LastActivityDate="2017-03-29T20:48:00.333" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16000" PostTypeId="2" ParentId="15981" CreationDate="2017-03-29T21:05:11.880" Score="4" Body="&lt;p&gt;Separate from their academic qualifications, no there are not.  The reason is that certifications generally serve two functions, either to show a legal status or where there are no academic qualifications required to show some learning process has happened that is similar to an academic designation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To provide an example, the MD, the CPA and the PE designations have legal meaning.  Their existence is postulated in state and federal law as necessary to engage in certain forms of practice, though medical doctors at the state level also have additional licensing.  Federal physicians do not always have to have a state license, such a military doctors.  Physicians also have higher level certifications to show skill in a narrow area to convince customers they can be trusted in that narrow area.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Beyond this, some fields are heavily populated with people who have no academic degree and for those narrower certifications are available such as CFA or licensing such as the barber's license.  The barber's license is a strange throwback to when barbers did surgery, we still license barbers but the need is less apparent than it was when it started.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Economists have no legal standing.  There is no field of practice that the legislators of the world have felt necessary to impose additional qualifications for beyond a doctorate.  Indeed, you could have a doctorate in another field and engage in economic research and consulting.  This certainly happens with finance professors, mathematicians, sociologists, psychologists and political scientists.  Psychologists and mathematicians have won the Nobel for economics before.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It also is unlikely there are certifications that would be meaningful.  The simplest way to determine the technical skill of an economist is to read their doctoral dissertation, or masters thesis, and their research body of work.  It is an open source process, so unlike craftsmen whose work is only visible to their prior customers the work of economists is very public and very visible.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of all professions, it should be easier to evaluate an economist than maybe any other.  Certifications would do what?  For whom?&lt;/p&gt;&#xA;" OwnerUserId="11321" LastActivityDate="2017-03-29T21:05:11.880" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16001" PostTypeId="1" AcceptedAnswerId="16003" CreationDate="2017-03-29T23:09:47.873" Score="2" ViewCount="204" Body="&lt;p&gt;How can we prove the following:  if a relation $R$ is a weak order on a set $X$ and $X_\sim$ is finite, then there exist a function $v:X\to \mathbb{N}$, which is a value representation of preference relation $R$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here I know the construction of the function $v$ when the range is the set of real numbers (as $X_\sim$ is countable). But,I am confused  when the range of $v$ is the set of natural numbers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Could anyone please help me?&lt;/p&gt;&#xA;" OwnerUserId="12631" LastActivityDate="2017-03-30T10:06:51.517" Title="Value representation theorem for countable set" Tags="&lt;microeconomics&gt;&lt;preferences&gt;" AnswerCount="2" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="16002" PostTypeId="2" ParentId="5938" CreationDate="2017-03-30T00:37:26.243" Score="2" Body="&lt;p&gt;I have had luck making 3-D plots with R and Plotly:&#xA;&lt;a href=&quot;https://www.youtube.com/watch?v=SBj-M_WyyoM&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.youtube.com/watch?v=SBj-M_WyyoM&lt;/a&gt;&lt;/p&gt;&#xA;&lt;p&gt;Although as others mention, it would be very difficult to visualize 3 goods on a 3-D contour plot (essentially 4 dimensions, 3 goods and utility)&lt;/p&gt;&#xA;" OwnerUserId="12683" LastEditorUserId="31361" LastEditDate="2020-11-25T16:49:38.840" LastActivityDate="2020-11-25T16:49:38.840" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="16003" PostTypeId="2" ParentId="16001" CreationDate="2017-03-30T06:56:04.583" Score="1" Body="&lt;p&gt;I use the usual notation $(\succeq,\succ,\sim)$ instead of $R$. I assume that $X_{\sim}$ in your question is the set of equivalence classes of $\sim$ on $X$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose that the cardinality of $X_{\sim}$ is equal to $n \geq 1$. There exist $x_1\cdots,x_n$ such that $x_1 \prec \cdots \prec x_n$. Define $v(x_1)=1,v(x_2)=2,\cdots,v (x_n)=n$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since $\sim$ has $n$ equivalence classes, for any $y \notin \{x_1,\cdots,x_n\}$ there exists a unique $x \in \{x_1,\cdots,x_n\}$ such that $y \sim x$. Define $v (y)=v(x)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The function $v$ defined on $X$ takes values in $\mathbb{N}$. I leave it to you to check that $v$ is a utility representation of $\succeq $.&lt;/p&gt;&#xA;" OwnerUserId="4667" LastEditorUserId="4667" LastEditDate="2017-03-30T08:42:48.237" LastActivityDate="2017-03-30T08:42:48.237" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16004" PostTypeId="2" ParentId="16001" CreationDate="2017-03-30T08:42:32.767" Score="0" Body="&lt;p&gt;The key is that $X_\sim$ is a finite set. That means that there exists an element $x_i \in X$ for which there is no element $x_j \in X$ where $x_j &amp;lt; x_i$. Thus we can safely map $x_i$ (and all other elements that belong to the same equivalence class) to 0. We can then repeat the process with the remaining elements and map then next equivalence class to 1 and so on.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If $X_\sim$ had not been finite there would have been no guarantee of the existence of a smallest value in $X$.&lt;/p&gt;&#xA;" OwnerUserId="11805" LastEditorUserId="11805" LastEditDate="2017-03-30T10:06:51.517" LastActivityDate="2017-03-30T10:06:51.517" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="16005" PostTypeId="2" ParentId="15915" CreationDate="2017-03-30T09:12:11.387" Score="3" Body="&lt;p&gt;You can find this information &lt;a href=&quot;https://ourworldindata.org/incomes-across-the-distribution/&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;. They provide an overview of their results, together with a link to the data and its description. The data is also available through &lt;a href=&quot;http://www.lisdatacenter.org/resources/other-databases/&quot; rel=&quot;nofollow noreferrer&quot;&gt;LIS&lt;/a&gt; (second item).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Interestingly, this does not only include the US, but also many other OECD countries, in a homogeneous methodology (great for comparisons). Additionally, this is a longitudinal study of each country. In total, &lt;strong&gt;they have data for 27 developed countries between 1978 and 2013&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The data is very comprehensive, and it is &lt;strong&gt;at the decile level&lt;/strong&gt;. It includes:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Entire population, decile cut-offs, equivalised household income&lt;/li&gt;&#xA;&lt;li&gt;Working age population, decile cut-offs, equivalised household income&lt;/li&gt;&#xA;&lt;li&gt;Entire population, decile means, equivalised household income&lt;/li&gt;&#xA;&lt;li&gt;Working age population, decile means, equivalised household income&lt;/li&gt;&#xA;&lt;li&gt;Entire population, decile cut-offs, per capita household income&lt;/li&gt;&#xA;&lt;li&gt;Working age population, decile cut-offs, per capita household income&lt;/li&gt;&#xA;&lt;li&gt;Deflator and PPP&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-03-30T09:12:11.387" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16006" PostTypeId="1" AcceptedAnswerId="16007" CreationDate="2017-03-30T10:24:04.563" Score="-2" ViewCount="134" Body="&lt;p&gt;I want to know the reason why Kahneman and Tversky Decision experiments contradict Neumann-Morgensterns utility theory. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Could anyone please ellaborate this to me? Thanks.&lt;/p&gt;&#xA;" OwnerUserId="12631" LastActivityDate="2017-03-30T14:27:31.953" Title="Kahneman and Tversky Decision experiments contradict Neumann-Morgensterns utility theory" Tags="&lt;decision-theory&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ClosedDate="2017-03-30T14:50:34.717" ContentLicense="CC BY-SA 3.0" />
  <row Id="16007" PostTypeId="2" ParentId="16006" CreationDate="2017-03-30T14:27:31.953" Score="0" Body="&lt;p&gt;I will write out some generalized comments here because I am incredibly interested in the contributions of experimental economics to our understanding of economic man. Further, I am not convinced entirely that this is a homework question. The real thing here is that I think many other people - especially undergrads possibly interested in pursuing graduate school - might find the answer both interesting and compelling. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, here is a brief outline of what could be a more complete answer:&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Foremost, I recommend you think carefully about the axioms of expected utility theory. In particular, think about the independence axiom. As a reminder, the independence axiom is as follows: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assuming that $X,Y,Z \in \mathbb{R}$ are lotteries and $p\in(0,1)$ is a generic probability:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$  X \succ Y, \implies pX + (1-p)Z \succ pY (1-p)Z$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This axiom is most famously contradicted by the &lt;a href=&quot;https://en.wikipedia.org/wiki/Allais_paradox.&quot; rel=&quot;nofollow noreferrer&quot;&gt;Allais Paradox&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Khaneman and Tversky &lt;a href=&quot;http://www.princeton.edu/~kahneman/docs/Publications/prospect_theory.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;introduced Prospect Theory&lt;/a&gt;, which in very basic terms says that humans think differently about losses than they do gains. Further, they point out that people weight small and large gains/losses different when making decisions. They posit that economic man's value function is defined on deviations from a reference point, that this value function is concave for gains and convex for losses, and that this value function is steeper for losses that for gains. Graphically: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/EzKhM.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/EzKhM.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Within that paper linking to prospect theory, you can read about the experiments of K&amp;amp;T. Several of their experiments are demonstrations of the Allais Paradox. And the reason that this contradicts expected utility theory (EUT) is very simple: they are showing that humans systematically violate one of the three axioms of EUT when making economic decisions. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The work of these men was seminal. However, they themselves have updated this original paper by introducing cumulative prospect theory. Other theorists and behavioral economists have noted the inability of prospect theory to explain behavioral regularities observed in the lab. &lt;/p&gt;&#xA;" OwnerUserId="1655" LastActivityDate="2017-03-30T14:27:31.953" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16008" PostTypeId="2" ParentId="15977" CreationDate="2017-03-30T14:35:51.893" Score="3" Body="&lt;p&gt;&lt;strong&gt;1x2 model&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider a mode where production of a single good is given by a constant returns to scale CES production function:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Y=A(\alpha L^\rho +(1-\alpha)K^\rho)^{\frac{1}{\rho}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where the elasticity of substitution between the two factors is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \sigma = \frac{1}{1-\rho} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It can be shown that the marginal product of labour (equal to the real wage in a competitive economy) is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ MP_{L} = A\alpha \left( \frac{Y}{L}\right)^{1-\rho} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To understand the consequences of biased technical change on real wages, we need to look at the three components separately. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For simplicity, let's assume a fixed supply of labour, $\bar{L}$. Now, a technical change that improves productivity of both factors, but more that of capital is such that $A$ increases (the neutral component), and $\alpha$ falls (the bias). On top of this, any increase in productivity (regardless of its bias) will increase $Y$. Yet, labour is fixed. Then, you have that the three determinants of the real wage change. In particular, two are increasing and one is falling. The change in the real wage - and the nature of growth (enriching, immiserizing, neutral) depend on how these play-out. In particular, the greater the bias, the smaller the neutral technical change, and the higher the elasticity of substitution (higher $\rho$), the more likely you will have immiserizing growth. If $\rho = 1$, the third term disappears altogether.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;2x2 model&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can get similar results by having a 2x2 model (2 goods and 2 inputs). For instance, say that capital productivity increases more than labour productivity. Furthermore, say that the elasticity of consumption among the two goods ($Y_{a}$ and $Y_{b}$) is very high. For example,  individuals are willing to consume a lot of the former and little of the latter. If the production of $Y_{a}$ is very intensive on capital, and the technology has a high degree of substitution between capital and labour (so firms could produce by expanding capital and not much expanding labour), then you will end up with a reduction in aggregate demand for labour. This will lead to a fall in the real wage, and an absolute loss of income for workers (i.e. immiserizing growth).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, in the end you can get any type of behaviour depending on:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;technology used in either good, and in particular, the degree of substitution between factors&lt;/li&gt;&#xA;&lt;li&gt;preferences of consumers, and in particular, the degree of substitution between goods&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Think of robots increasing the productivity of capital by much more than that of workers. If consumers are happy to rebalance their consumption bundles toward more robot-produced goods and away from labour-intensive goods, then the wage rate will fall, affecting workers. &lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-03-31T07:40:41.943" LastActivityDate="2017-03-31T07:40:41.943" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16009" PostTypeId="1" CreationDate="2017-03-30T18:15:48.233" Score="1" ViewCount="6513" Body="&lt;p&gt;In a competitive market, is it possible to know the change (increase/decrease) in number of firms in the Long run with a positive shift in demand for increasing costs case?&lt;/p&gt;&#xA;" OwnerUserId="12325" LastActivityDate="2017-04-01T09:20:54.140" Title="Number of firms in Long Run" Tags="&lt;microeconomics&gt;&lt;competitive-equilibrium&gt;&lt;long-run&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16010" PostTypeId="2" ParentId="16009" CreationDate="2017-03-30T18:49:10.967" Score="2" Body="&lt;p&gt;Yes, it is possible. In the long run, firms enter until they break even. Suppose firms are symmetric. Then for each firm the break even condition is that the average costs equal the price. This is because the price is equal to the average revenue. The average revenue is given by $px/x=p$ where $p$ is price and $x$ is quantity. If revenue equals costs on average, then there are no profits left to be made and this is the equilibrium number of firms. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Further, in a competitive market, price equals marginal costs. Hence, the break even condition there is also price equals marginal costs. Alternatively, in this case the condition is Average Costs equal Marginal Costs. From this condition you can find the break even quantity. From there find the break even price, by setting price=marginal costs. Then plug in the break even price and quantity into the demand function to determine how many firms must enter until the market equilibrium price and quantity are equal to the break even price and quantity. The result is the long run equilibrium number of firms.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that the question is only reasonable in the presence of fixed costs. If there are no fixed costs, the long run number of firms is infinite and we have a trivial answer. However, the treatment of this topic in textbooks as well as academic papers alwa assumes the presence of fixed costs.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastEditorUserId="5557" LastEditDate="2017-04-01T09:20:54.140" LastActivityDate="2017-04-01T09:20:54.140" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="16011" PostTypeId="2" ParentId="15900" CreationDate="2017-03-30T19:33:48.363" Score="1" Body="&lt;p&gt;There are a large number of factors that affect the economy, and these factors are all changing at the same time. The issue is correlation does not mean causation. The economy cannot be experimented on where all other factors are held constant, in order to determine what causes what. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To estimate it would require nearly an unlimited number of explanatory variables, which statistics doesn't work if there is more explanatory variables observations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some examples: world events, policy changes(tax, labor), economies of other countries we trade with, federal reserve rate, etc.&lt;/p&gt;&#xA;" OwnerUserId="12691" LastActivityDate="2017-03-30T19:33:48.363" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16012" PostTypeId="1" AcceptedAnswerId="16015" CreationDate="2017-03-30T19:36:16.437" Score="4" ViewCount="812" Body="&lt;p&gt;Consider a firm producing with the following technology:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{equation}&#xA;	Y = AL^{\alpha}K^{\beta}&#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assuming that factors are paid their marginal contribution to output, it can be shown that the optimal factor choice for this firm is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{equation}\label{eq:k-l ratio}&#xA;	\frac{L^*}{K^*} = \frac{\alpha}{\beta}\frac{r}{w}&#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(this comes from finding each factor's payment, and combining them)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, the furthest we can go in terms of characterising the equilibrium in this economy/firm relates to the optimal capital-labour &lt;strong&gt;ratio&lt;/strong&gt;. In effect, nothing can be said about the &lt;strong&gt;level&lt;/strong&gt; of inputs and outputs, $L^*$, $K^*$, or $Y^*$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is not the case if there is just one input. For instance, if $Y=AL^\alpha$, then &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$L^*=\left(\alpha A\frac{p}{w}\right)^{1-\alpha}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reason is not related to the degree of returns to scale, as this is not constrained. It is not related to elasticity of substitution either, as in the case of a CES, it is also the capital-labour ratio which is solved for. Here, the solution is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{L^*}{K^*} = \left(\frac{\alpha}{1-\alpha}\frac{r}{w}\right)^\sigma $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, the question is, &lt;strong&gt;why can we not pin down the &lt;em&gt;level&lt;/em&gt; of optimal inputs and output?&lt;/strong&gt; Is this because we have treated factor prices as exogenous, so we are missing the supply side of each factor market?&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-04-03T19:33:59.010" Title="Why labour, capital, and output levels cannot be pinned down in perfect competition?" Tags="&lt;microeconomics&gt;&lt;production-function&gt;&lt;competitive-equilibrium&gt;" AnswerCount="3" CommentCount="5" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16013" PostTypeId="2" ParentId="16012" CreationDate="2017-03-30T19:58:55.097" Score="0" Body="&lt;p&gt;The optimal level of production is where the demand and supply curves intersect. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The cost of labor and capital make up the supply curve; the cost of production at different levels of output. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But the demand curve is the total number of products people are willing to buy at different price levels. The problem is the demand curve is unobservable. It exists, but it's unknown. A company can't just fluctuate prices all over the place to estimate the demand curve. It'll drive customers away.&lt;/p&gt;&#xA;" OwnerUserId="12691" LastActivityDate="2017-03-30T19:58:55.097" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="16014" PostTypeId="2" ParentId="15990" CreationDate="2017-03-30T20:05:32.713" Score="-1" Body="&lt;p&gt;In macro, the standard approach to forecast variables which are intrinsically nominal like GDP seems to be to separate the forecast. This is, you want to have a model for real GDP and for inflation. The final forecast for nominal GDP is the &quot;combination&quot; of both. This is for instance the standard practice of &lt;a href=&quot;https://www.frbatlanta.org/cqer/research/gdpnow.aspx?panel=1&quot; rel=&quot;nofollow noreferrer&quot;&gt;the Fed (of Atlanta)&lt;/a&gt; and the &lt;a href=&quot;http://www.bankofengland.co.uk/publications/Pages/inflationreport/2017/feb.aspx&quot; rel=&quot;nofollow noreferrer&quot;&gt;Bank of England&lt;/a&gt; (pages 39 to 41).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In your case of a financial variable, you could model the real (deflated) variable, and then, as inflation is given by the economy, just take the official inflation forecast of your country from the central bank. They are the real experts on this so is a safe thing to do in my opinion. Also, the market &lt;strong&gt;expectations&lt;/strong&gt; of inflation, crucial in finance, are very much informed by central bank estimates. This approach gives you a cleaner estimation of your model too. As you say, your determinant is a rate, and thus inflation is just molesting in the left hand side.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-03-30T20:13:11.753" LastActivityDate="2017-03-30T20:13:11.753" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16015" PostTypeId="2" ParentId="16012" CreationDate="2017-03-30T20:47:46.130" Score="7" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Thus, the furthest we can go in terms of characterising the equilibrium in this economy/firm relates to the optimal capital-labour &lt;strong&gt;ratio&lt;/strong&gt;. In effect, nothing can be said about the &lt;strong&gt;level&lt;/strong&gt; of inputs and outputs, $L^*$, $K^*$, or $Y^*$.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I don't think this is true. You combined two equations into one, and thereby lost information. The optimization problem is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{equation}&#xA;	\max_{K,L} p\cdot AL^{\alpha}K^{\beta} - w \cdot L - r \cdot K&#xA;\end{equation}&#xA;Taking derivatives w.r.t. $L$ and $K$ yields two first order conditions and the only two unknowns are $L$ and $K$.&#xA;$$&#xA;\alpha \cdot p\cdot AL^{\alpha-1}K^{\beta} = w&#xA;$$&#xA;$$&#xA;\beta \cdot p\cdot AL^{\alpha}K^{\beta-1} = r.&#xA;$$&#xA;As you noted this implies the cost minimization equation of&#xA;$$&#xA;\frac{L^*}{K^*} = \frac{\alpha}{\beta}\frac{r}{w},&#xA;$$&#xA;but why go that way? You could get&#xA;$$&#xA;L = \left(\frac{r}{\beta \cdot p\cdot A K^{\beta-1}}\right)^{\frac{1}{\alpha}}&#xA;$$&#xA;and plug this into the first equation, yielding&#xA;$$&#xA;\alpha \cdot p\cdot A\left(\frac{r}{\beta \cdot p\cdot A K^{\beta-1}}\right)^{\frac{\alpha-1}{\alpha}}K^{\beta} = w.&#xA;$$&#xA;And then&#xA;$$&#xA;K^{\frac{\alpha\beta - (\alpha-1)(\beta-1)}{\alpha}} =&#xA;K^{\frac{\alpha + \beta - 1}{\alpha}}&#xA;= \frac{w}{\alpha \cdot p\cdot A\left(\frac{r}{\beta \cdot p\cdot A}\right)^{\frac{\alpha-1}{\alpha}}}.&#xA;$$&#xA;Clearly this is not very pretty but it is very solvable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note: I did not go into second order conditions but this is only a maximum if $\alpha + \beta &amp;lt; 1$.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2017-03-31T07:49:54.020" LastActivityDate="2017-03-31T07:49:54.020" CommentCount="12" ContentLicense="CC BY-SA 3.0" />
  <row Id="16021" PostTypeId="1" CreationDate="2017-03-31T07:31:09.387" Score="1" ViewCount="139" Body="&lt;p&gt;Do you know if there exist results for Cournot oligopoly (or duopoly) when the inverse demand is a piecewise continuous?&#xA;Something of this type &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;$P(Q) = \alpha-\beta Q$ (if $0\leq Q&amp;lt;Q'$)  &lt;/li&gt;&#xA;&lt;li&gt;$P(Q) = \gamma-\delta Q$ (if $Q' \leq Q \leq Q_{max}$)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="12699" LastEditorUserId="1601" LastEditDate="2017-03-31T08:23:02.287" LastActivityDate="2017-03-31T18:53:22.623" Title="Cournot model with piecewise inverse demand" Tags="&lt;microeconomics&gt;&lt;industrial-organisation&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16022" PostTypeId="2" ParentId="15280" CreationDate="2017-03-31T08:40:40.713" Score="2" Body="&lt;p&gt;I restrict myself to credit rating for Banks only.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are different solutions, in bold are my preferred one.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;To have just an idea about single banks register a free user account to rating agencies as S&amp;amp;P, Fitch, Moody's and type the bank of interest. Also history in some cases is available. (this solution is just per bank and slow)&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Database &lt;strong&gt;Compuststat&lt;/strong&gt; via Wharton (WRDS subscription), not free. Only S&amp;amp;P historical ratings, but with a complete database after you insert the correct tags of interest. Download via web, or with external software R, Matlab, etc.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Bankscope (new Orbis bank), not free via web or WRDS subscription. Fitch ratings but they are not able to be saved to file due to restrictions (just to that manually). Very user-friednly database and historical data too.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Thomson one banker, not free. A complete overview of ratings can be seen bank for bank with historical view. But it is not possible to get it in batch for historical ratings for all the banks in one shot. Slow but complete.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Other databases can be Datastream (not free and partially historical data ), Bloomberg (current and historical ratings data but one company at time).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are also other database but after some research I managed to get them.&lt;/p&gt;&#xA;" OwnerUserId="10160" LastEditorUserId="69" LastEditDate="2017-03-31T15:31:58.280" LastActivityDate="2017-03-31T15:31:58.280" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16024" PostTypeId="2" ParentId="16012" CreationDate="2017-03-31T18:48:33.867" Score="1" Body="&lt;p&gt;Ok, after several analysis of @denesp's answer, and our subsequent &lt;a href=&quot;http://chat.stackexchange.com/rooms/56346/discussion-between-luchonacho-and-denesp&quot;&gt;chat discussion&lt;/a&gt;, I think I got the answer I was looking for. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As @denesp rightly pointed out, the optimisation problem yields two FOCs. These are:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{equation}&#xA;\frac{w}{p} = \alpha AL^{\alpha-1}K^{\beta}&#xA;\end{equation}&#xA;\begin{equation}&#xA;\frac{r}{p} = \beta AL^{\alpha}K^{\beta-1}&#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can rearrange each of them, to the form $L=f(K)$. These are, respectively:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ L=\left(\frac{\alpha Ap}{w}\right)^{\frac{1}{1-\alpha}}K^{\frac{\beta}{1-\alpha}} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ L=\left(\frac{r}{\beta Ap}\right)^{\frac{1}{\alpha}}K^{\frac{1-\beta}{\alpha}} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, for a given parameterisation (with non-trivial $p&amp;gt;0$), we can plot this functions in the $\{K,L\}$ space. Additionally, we can the &lt;strong&gt;optimal&lt;/strong&gt; capital-labour ratio, which comes from equalising the MRTS to the MRS. As I showed in the question, this &lt;strong&gt;optimal&lt;/strong&gt; relationship is given by:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ L^*=K^*\left(\frac{r}{w}\frac{\alpha}{\beta}\right) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, we can now plot the three aforementioned functions:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/9GCEq.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/9GCEq.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, notice that there is a trivial equilibrium at $K^*=L^*=0$. Second, there is another equilibrium with positive optimal inputs and production. Naturally, this point crosses the optimal capital-labour &lt;strong&gt;ratio&lt;/strong&gt;. Importantly, the  &lt;strong&gt;level&lt;/strong&gt; of capital and labour &lt;strong&gt;can be known&lt;/strong&gt;. For example, capital is given by the formula shown in @denesp's answer.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which equilibrium does the firm choose? As @denesp rightly noticed, the non-trivial equilibrium is preferred only if there are decreasing returns to scale ($\alpha+\beta&amp;lt;1$), as a positive production yield positive profits. This can be confirmed using the SOCs, or calculating optimal profits (see below). In the case of increasing returns to scale ($\alpha+\beta&amp;gt;1$), firms would rather not produce, as any positive level of production yield losses.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Yet, the most interesting case - and that which motivated my question - is that of constant returns to scale. It is easy to see in the graph above that under CRS, &lt;strong&gt;the two labour functions become linear&lt;/strong&gt;. Do they have the same slope than the optimal capital/labour ratio? This depends on whether we are thinking from a partial or general equilibrium approach:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Partial equilibrium: For a exogenous value of $p$, the two lines are likely to have a different slope than the capital/labour ratio. The three lines start from the origin, as shown below:&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/STJIG.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/STJIG.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To find the equilibrium however, the graph is not entirely helpful, because the optimal choice depends on how $p$ compares with the equilibrium price $p^*$, mentioned below. If $p&amp;gt;p^*$, a firm will want to produce infinity, or as high as possible. Conversely, if $p&amp;lt;p^*$, firms will no produce at all as any positive production leads to losses. &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;General equilibrium, or long run: consider the case of price above the equilibrium, $p&amp;gt;p^*$. Because of positive profits, more firms would like to enter the market. As such, an incumbent individual firm has the incentive to charge a lower price. This happens until the price is at the equilibrium $p^*$. This is the endogenous price which, under constant returns to scale, makes all firms indifferent to produce or not. &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Conversely, if the initial price is below the equilibrium, no one produces. Therefore, there is an incentive for firms (consumers) to charge (accept) higher prices. This is until the price becomes $p^*$. Here, there are zero profits. In indifference (as always), we choose the non trivial equilibrium of positive production.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It can be shown that the equilibrium price is given by:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ p^* = A\left(\frac{r}{1-\alpha}\right)^{1-\alpha}\left(\frac{w}{\alpha}\right)^\alpha $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(for example, for $A=w=r=1$ and $\alpha=0.5$, $p^*=2$)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But here is the key element of the answer. At this equilibrium price, the three linear functions shown in the above graph merge. Their slope is the same. &lt;strong&gt;They are indistinguishable.&lt;/strong&gt; This means that, &lt;strong&gt;for the individual firm and in the general equilibrium&lt;/strong&gt;, &lt;strong&gt;any level&lt;/strong&gt; of capital and labour is optimal, as long as their ratio follows the &lt;strong&gt;optimal ratio&lt;/strong&gt; defined earlier. In other words, under CRS, the &lt;strong&gt;level&lt;/strong&gt; of inputs cannot be pinned down, because at any production level profits are zero. In consequence, how much to produce is irrelevant. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Notice that, by introducing the demand for this good, we could find out the &lt;strong&gt;aggregate&lt;/strong&gt; demand for $Y$, which can help us to pin down the *aggregate** input level. Yet, the &lt;strong&gt;firm's&lt;/strong&gt; input and output levels cannot be pinned down. In fact, firm size remains indeterminate. This is not even solved by introducing an arbitrary number of firms, unless assuming firms are identical.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;A note on prices.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the discussion with @denesp, the issue of the price level came up. For risk of misrepresenting @denesp's point, I will only show my conclusion on this. Namely, that &lt;strong&gt;in the general equilibrium&lt;/strong&gt;, the sign of profits depend solely on the nature of returns to scale.   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider the FOCs arising from the original problem. These are reproduced below:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{equation}&#xA;\frac{w}{p} = \alpha AL^{\alpha-1}K^{\beta}&#xA;\end{equation}&#xA;\begin{equation}&#xA;\frac{r}{p} = \beta AL^{\alpha}K^{\beta-1}&#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Without loss of generality, these can be rewritten as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ w=p\alpha \frac{Y}{L} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ r=p\beta \frac{Y}{K} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The cost function is given by&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ C(K,L) = rK + wL $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Replacing the two factor equations in the cost function leads to&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ C(K,L) = p\alpha Y + p\beta Y = pY(\alpha+\beta)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since income of the firm is $pY$, profits are:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \pi(K,L) = pY - pY(\alpha+\beta) = pY\left(1-(\alpha+\beta)\right) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is, the sign (and size) of profits depend on the degree of returns to scale. This is regardless of the &lt;strong&gt;price level&lt;/strong&gt; (as long as it is positive, of course, as expected for a &lt;em&gt;good&lt;/em&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To make the point clearer, the above equation for profits it's true &lt;strong&gt;in the general equilibrium&lt;/strong&gt;. This is because by replacing $w$ and $r$ for the endogenous market values, I am assuming that the factor markets are always in equilibrium.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-04-03T19:33:59.010" LastActivityDate="2017-04-03T19:33:59.010" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="16025" PostTypeId="2" ParentId="16021" CreationDate="2017-03-31T18:53:22.623" Score="1" Body="&lt;p&gt;In the book &lt;a href=&quot;http://link.springer.com/book/10.1007/978-3-540-24792-0&quot; rel=&quot;nofollow noreferrer&quot;&gt;Sushko, I. (Ed.). (2002). Oligopoly dynamics: Models and tools. Springer.&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;there is a chapter,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://link.springer.com/chapter/10.1007/978-3-540-24792-0_5&quot; rel=&quot;nofollow noreferrer&quot;&gt;Puu, T., Gardini, L., &amp;amp; Sushko, I. (2002). Cournot duopoly with kinked demand according to Palander and Wald. (pp. 111-146). &lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where the authors examine in detail a specific numerical example, among other variants.  They arrive at the best response functions and find that there exists two Cournot equilibria, for which, as they write&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;...both equilibria, the Cournot points, are locally stable. They hence coexist with each its proper basin of attraction in the space of&#xA;  initial conditions.&quot;&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The authors are concerned with dynamics, hence the mention of &quot;initial conditions&quot;. If one wanted to turn their conclusions into the static case with just one move to equilibrium, one should consider in which &quot;basin of attraction&quot; does the zero output vector belongs.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2017-03-31T18:53:22.623" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16026" PostTypeId="1" AcceptedAnswerId="16027" CreationDate="2017-03-31T19:04:48.013" Score="0" ViewCount="88" Body="&lt;p&gt;Here is an excerpt from a journal article:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;A solicitor's input decision on a given case can be thought of as a labour supply  decision, with the movement towards standard fees altering the budget constraint  the solicitor faces (Gray et al., 1996). Start with fee-for-service remuneration.  Assume that solicitors derive utility from consumption $(C$) and leisure $(L)$,  $U(C, L), U_i &amp;gt; 0, U_i{_i} &amp;lt; 0, i = C, L$.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here are my two questions: 1. What do $U_i&amp;gt;0$ and $U_i{_i}&amp;lt;0$ mean? Is this the British way of denoting prime and double prime? 2. Assume utility is derived from three variables; the two indicated by the author and a third, say... happiness ($H$). How would this be expressed? I have only seen utility expressed as a function of two factors and I'm curious how more than two are dealt with.  &lt;/p&gt;&#xA;" OwnerUserId="12662" LastEditorUserId="61" LastEditDate="2017-03-31T22:27:57.783" LastActivityDate="2017-03-31T22:28:26.160" Title="Utility Function" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16027" PostTypeId="2" ParentId="16026" CreationDate="2017-03-31T19:31:53.090" Score="2" Body="&lt;blockquote&gt;&#xA;  &lt;ol&gt;&#xA;  &lt;li&gt;What do $U_i&amp;gt;0$ and $U_{ii}&amp;lt;0$ mean? Is this the British way of denoting prime and double prime?&lt;/li&gt;&#xA;  &lt;/ol&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Seems like it. It just indicates the all the first and second derivatives that exsist in this context.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;ol start=&quot;2&quot;&gt;&#xA;  &lt;li&gt;Assume utility is derived from three variables; the two indicated by the author and a third, say... happiness ($H$). How would this be expressed? I have only seen utility expressed as a function of two factors and I'm curious how more than two are dealt with.&lt;/li&gt;&#xA;  &lt;/ol&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The utility function is now $U(C,L,H)$. we still end up with first and second condtions being $U_i&amp;gt;0$ and $U_{ii}&amp;lt;0$ except now $i=C,L,H$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope this helps.&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="61" LastEditDate="2017-03-31T22:28:26.160" LastActivityDate="2017-03-31T22:28:26.160" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16028" PostTypeId="1" CreationDate="2017-03-31T19:55:29.890" Score="1" ViewCount="1409" Body="&lt;p&gt;Assuming all firms have identical cost functions. Now suppose there is an increasing shift in the demand curve. As we all know that for increasing costs case, both average costs (AC) and marginal costs (MC) faced by a typical firm would be higher. The question is, whether the optimal production level of a typical firm remains constant or increases (or decreases! is it possible?) as compared to previous long-run equilibrium position?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words, as both MC and AC curve will shift upward, can one predict with certainty the direction in which optimal production level moves to ensure MC=AC_min? &lt;/p&gt;&#xA;" OwnerUserId="12325" LastActivityDate="2017-03-31T20:09:06.723" Title="Optimal production level for a typical firm in long-run" Tags="&lt;microeconomics&gt;&lt;cost&gt;&lt;competitive-equilibrium&gt;&lt;firm&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16029" PostTypeId="2" ParentId="16028" CreationDate="2017-03-31T20:09:06.723" Score="1" Body="&lt;p&gt;It appears we start at long-run equilibrium point. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The fact that all firms operate at the level where $q^*:MC = \min AC$, means that &lt;em&gt;given&lt;/em&gt; demand $Q^d$ &lt;em&gt;and&lt;/em&gt; the cost structure, what is endogenously determined is &lt;em&gt;the number of firms&lt;/em&gt; $m$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Q^d = mq^* \implies m^* = \frac {Q^d}{q^*}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume that aggregate demand increases. In the &lt;em&gt;microeconomic&lt;/em&gt; setting we are examining things here, the cost/technology structure will not be affected by this change (we do not place bounds and the production inputs available). So in the new equilibrium, &lt;em&gt;each individual firm will produce exactly the same as before&lt;/em&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What will change is the number of firms, which will increase, in order to accommodate the new higher required output.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2017-03-31T20:09:06.723" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="16030" PostTypeId="1" AcceptedAnswerId="16039" CreationDate="2017-04-01T04:43:21.140" Score="1" ViewCount="2806" Body="&lt;p&gt;According to the following question, it seems as though cutting back on government spending increases the money supply (the answer is C).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/ZqnNd.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/ZqnNd.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The only possible explanation I can think of is that in the second fiscal year, the government continues to spend, but this time it spends less while not changing tax revenue (&quot;In the absence of offsetting factors&quot;), hence the MS still grows but the following fiscal year's deficit has reduced.&lt;/p&gt;&#xA;" OwnerUserId="6782" LastActivityDate="2017-04-01T17:51:58.933" Title="How does reducing government spending increase the money supply?" Tags="&lt;money-supply&gt;&lt;government-spending&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16032" PostTypeId="2" ParentId="16030" CreationDate="2017-04-01T08:38:24.747" Score="0" Body="&lt;p&gt;Cutting government expenditures will lead to an increase in national saving. Thus, saving increases in goods market and IS curve decreases in IS-LM model. In long run, money supply will increase to adjust the output level back to full employment output level. Assumption: No change in tax rate. &lt;/p&gt;&#xA;" OwnerUserId="12707" LastActivityDate="2017-04-01T08:38:24.747" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16034" PostTypeId="1" AcceptedAnswerId="16036" CreationDate="2017-04-01T13:51:52.993" Score="5" ViewCount="2654" Body="&lt;p&gt;Often I see both in micro and macro two common terminology :&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Additively separable. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Linear in price or linear in probability. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;I understand exactly as they sound  by looking at the functional form of the object. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But can someone provide why these structures or assumptions are sensible or unreasonable and why they are &quot;convenient&quot; or &quot;useful&quot;? The context can be anything consumer, producer, choice under uncertainty, game theory or GE. But trying to see why it is repeatedly coming up and why it is important or mathematically useful in many parts both in micro and macro. &lt;/p&gt;&#xA;" OwnerUserId="8560" LastActivityDate="2017-04-01T23:36:04.977" Title="Meaning of Additively Separable, Linear in X" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;game-theory&gt;&lt;consumer-theory&gt;&lt;decision-theory&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16035" PostTypeId="2" ParentId="16034" CreationDate="2017-04-01T15:20:09.003" Score="6" Body="&lt;p&gt;A utility function is additively separable if it can be written as:&#xA;$U(x,y) = u(x) + v(y)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Examples:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;*$U(x,y) =ax + by$ is additively separable by inspection.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;*$U(x,y) = ax + bx2 + cy$ is also.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;*$U(x,y) = x^a y^b$ is additively separable, because you can write it as  $U(x,y) = log(x^a)+log(y^b)=alog(x)+b log(y)= u(x) + v(y)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;*$U(x,y) = \frac{xy}{x+y}$ is not additively separable because there's no way to transform it into an independent sub-function of $x, y$. Even if you take logs, you're down to $U = log(x) + log(y) - log(x+y)$ - notice that the third term can't be 'split'. Generally, mixing addition, multiplication and exponentiation will destroy additive separability.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And so we can see, The actual definition of additive separability is: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A function $f(x_1,...,x_n)$ is AS if it can be rewritten as $f(x_1,...,x_n)=f_1(x_1)+...+f_n(x_n)$ &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;The assumption is usually one of mathematical convenience. For example, when utility is additively separable in $x,y$, then the marginal utility of $x$ does not depend on the level of $y$, and vice-versa. And so anything requiring the use of partial derivatives is made easier. Is it a reasonable assumption? Sometimes. For example, if your utility depends on apples and horses, we can probably assume additive separability. If Instead your utility depends on two closely related things, it might be a bad assumption. &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;" OwnerUserId="1655" LastEditorUserId="-1" LastEditDate="2017-04-01T23:36:04.977" LastActivityDate="2017-04-01T23:36:04.977" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16036" PostTypeId="2" ParentId="16034" CreationDate="2017-04-01T15:30:26.523" Score="5" Body="&lt;p&gt;A function is additively separable in its arguments if it has the form&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$f(x,y) = g(x) + h(y)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This means that the cross partials are zero, and so there is no &quot;cross&quot; effect of the one argument over the &lt;em&gt;marginal&lt;/em&gt; effect that the other has on the value of the function. Since marginal effects are at the very heart of Economics (&lt;a href=&quot;https://economics.stackexchange.com/a/49/61&quot;&gt;see here&lt;/a&gt;), assuming additive separability greatly simplifies the analysis. In dynamic problems, where the &lt;em&gt;intertemporal&lt;/em&gt; utility function is assumed to be additively separable, it permits us to transform an infinite horizon problem into a recursive two-period one.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Functions that can be transformed into something additively separable (by usually considering their logarithms), are sometimes called &quot;multiplicatively separable&quot;. The most famous example here is the Cobb-Douglas production function:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Q = K^aL^{1-a} \implies \ln Q = a\ln K + (1-a)\ln L$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for linearity, it is a &lt;em&gt;unique&lt;/em&gt; (structurally) relationship, while non-linear relationships are many, perhaps too many.&#xA;A mathematician once said that &quot;the whole field of Analysis, is essentially the study of linear approximation of non-linear relations&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Again, mathematical tractability is the drive here, supported by the fact that a linearity assumption is a &quot;first-order&quot; approximation to the true relation (see Taylor expansion).&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2017-04-01T17:56:13.830" CommentCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="16037" PostTypeId="1" CreationDate="2017-04-01T17:09:11.173" Score="3" ViewCount="7641" Body="&lt;p&gt;I'm a complete newbie to this foreign exchange stuff and was reading about the impact a country's price levels have on exchange rates. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So from what I understand, the general idea is that inflation leads to a decrease in value of a country's currency (depreciation).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;em&gt;increased prices in goods in a country --&gt; the country's exports will be less competitive --&gt; so demand for the exports fall --&gt; demand for the country's currency falls --&gt; and this leads to depreciation of currency&lt;/em&gt;&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;however, it's also said that:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;em&gt;with a depreciated currency -&gt; imports will be more expensive BUT the country's exports will be cheaper and more competitive --&gt; then won't demand for currency rise instead?&lt;/em&gt;&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If so, doesn't this contradict the first statement? It seriously confuses me. Inflation that leads to depreciation will then lead back to appreciation of the currency again? &#xA;I know I'm probably missing something here, but this just makes no sense from the way I picture it.&lt;/p&gt;&#xA;" OwnerUserId="12712" LastEditorUserId="14660" LastEditDate="2018-04-20T19:34:59.253" LastActivityDate="2018-04-20T19:34:59.253" Title="Confused about relation of inflation to a currency's depreciation?" Tags="&lt;macroeconomics&gt;&lt;inflation&gt;&lt;currency&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="16038" PostTypeId="2" ParentId="15995" CreationDate="2017-04-01T17:28:19.567" Score="-1" Body="&lt;p&gt;You could represent the game in simultaneous form (matrix) to see all possible equilibria. If there is only one, then that's your subgame-perfect Nash equilibrium (since there are no other equilibria). If there are multiple equilibrias in the simultaneous representation, the extensive form allows you to see if some paths would never be reached given the structure of the game.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Essentially, the extensive form &quot;proves&quot; which paths would never be reached through ruling them out. The one path that is reached is your SPNE. An SPNE has a more strict definition. There is really no shortcut around the arithmetic in the extensive form since the definition of SPNE forces you to check for the one viable path.&lt;/p&gt;&#xA;" OwnerUserId="6856" LastActivityDate="2017-04-01T17:28:19.567" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16039" PostTypeId="2" ParentId="16030" CreationDate="2017-04-01T17:51:58.933" Score="1" Body="&lt;p&gt;The government cuts public spending but continues to &quot;run a deficit &lt;em&gt;by borrowing from the central bank&lt;/em&gt;.&quot;&lt;br&gt;&#xA;This is the polite way to say &quot;increase yearly the money supply by an amount equal to the government's deficit&quot;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the money supply will &lt;em&gt;also increase&lt;/em&gt; in the second year, albeit by a smaller amount than before. But increase it will.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2017-04-01T17:51:58.933" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16040" PostTypeId="2" ParentId="16037" CreationDate="2017-04-01T18:24:10.067" Score="1" Body="&lt;p&gt;We need to be clear about what is a &lt;strong&gt;cause&lt;/strong&gt; and what is an &lt;strong&gt;effect&lt;/strong&gt;.  Figure out what changed and why, then follow the results.  Results do not cause causes.  As a general example, think of a demand/supply relation (for anything).  If demand shifts left (reduced demand) and nothing else changes, then the equilibrium price goes down.  That means the good is cheaper, but this cheapness doesn't cause increased demand.  It's the result of decreased demand. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the first statement, prices rose.  Why?  An increase in the domestic money supply, presumably?  If so, then essentially we have changed numeraire.  What used to be a dollar's worth of goods now costs $1.10, both domestically and abroad.  If the numeraire did not change abroad and nothing changed about the economy, then a unit of the foreign currency now buys the same amount of goods but more dollars. That's depreciation of the currency.  &lt;strong&gt;Depreciation is the effect, not a cause.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the second statement, there has been depreciation.  Why?  Because of an increase in the money supply as mentioned above?  If so, then demand for currency will only rise inasmuch as an importer of the same amount of goods will need more dollars, but this numerical increase in demand doesn't translate to making the dollar worth more abroad.  The depreciation is the equilibrium result of the change in the money supply.  &lt;strong&gt;Again, depreciation is the effect.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For depreciation to be a cause, rather than an effect, you would need to provide an economic change that directly affected depreciation.  Depending on what changed economically, there could be lots of possible outcomes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For any economic analysis, start with an equilibrium result, change one economic thing (the cause), then see how the equilibrium changes (the effect).  Then you are done.  &lt;strong&gt;Don't look at how the equilibrium is different from what it was before and treat that as if it was an economic cause.&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="12673" LastActivityDate="2017-04-01T18:24:10.067" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16041" PostTypeId="2" ParentId="15983" CreationDate="2017-04-01T18:47:32.963" Score="4" Body="&lt;p&gt;There are many plausible scenarios in which the dollar ceases to be the de-facto currency. They all have a few things in common. For people to stop using dollars for international trade, there would need to be two circumstances:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;A reduction in trust in the USD (not just in US politicians)&lt;/li&gt;&#xA;&lt;li&gt;A good (better than the USD) alternative currency&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;While political emotions run strong, both in the US and abroad, these emotions do not normally have a large effect on the economy.  There has been no significant change in American business practices, law, monetary policy, or productivity as a result of the change in leadership.  This has been very clear.  You can easily argue that American reputation abroad has been harmed, but that doesn't translate to negative economic repercussions.  Remember, the Soviet Union was using the dollar for international trade during the cold war.  A reduction in trust in the USD would come about if there was significant inflation of the dollar or if the US stopped producing things that people want to buy.  Neither of those appear to be on the horizon.  As the result, there has been no change in the attitude toward the dollar.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At the same time, the best candidate by far for an alternative currency, the Euro, has had significant problems recently.  It doesn't matter if the world thinks very highly of European politicians and dislikes American politicians; they aren't going to switch from dollars to Euros unless they perceive Euros to be a safer and more liquid currency.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Similarly, foreign investors will not withdraw from American investments wholesale unless they perceive a real risk to the investment potential. These types of decisions (on a large scale) are made in a cold, calculating way.  Until something happens that might actually affect the potential of US-based investments, there won't be a large change in demand for them. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Interestingly, when there are shakeups in the US economy (like when treasury securities were downgraded) the result is often the opposite of what you might expect.  There's a general concern about the worldwide economy and then a flight to quality, causing an &lt;em&gt;increase&lt;/em&gt; in demand for relatively safe US securities, including the ones that were the apparent cause of the panic.&lt;/p&gt;&#xA;" OwnerUserId="12673" LastEditorUserId="12673" LastEditDate="2017-04-01T18:56:50.433" LastActivityDate="2017-04-01T18:56:50.433" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16042" PostTypeId="1" AcceptedAnswerId="16045" CreationDate="2017-04-01T19:19:35.510" Score="3" ViewCount="35" Body="&lt;p&gt;I am trying to use VAR for an undergraduate class but keep having degrees-of-freedom issues. I am using quarterly data, have 3o years of data, and have 10 time series. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I want to look at the effects of monetary policy shocks. But we learned that this method produces a price puzzle and that one way to fix the price puzzle is to include commodities prices. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My problem is that this seems like it treats a symptom and not a problem. I thought it might be a better idea to include a broad set of variables instead of just that one. It is justifiable to include lots of information but not justifiable to cherry-pick information, I think. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Anyone know how to include more variables in that set? &lt;/p&gt;&#xA;" OwnerUserId="12713" LastActivityDate="2017-04-01T22:36:48.860" Title="How should one expand the information set in VAR models?" Tags="&lt;macroeconomics&gt;&lt;monetary-policy&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16043" PostTypeId="2" ParentId="16037" CreationDate="2017-04-01T19:26:24.140" Score="3" Body="&lt;p&gt;Your confusion might be mitigated if you thing about these as short- and long-term effects. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;That is, the more immediate effect of inflation is that exports fall, demand for currency falls, and so the value of currency falls. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This causes imports to fall, domestic spending to increase, and foreign demand for domestic goods to increase. That is, exports rise. This increase in exports causes an increase in demand for the home currency and this puts upward pressure on the currency. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The short-term effect of inflation is that we have currency depreciation. The long-term effect is less clear cut, since the depreciation should trigger an increase in foreign demand which should counteract the initial effect of inflation. &lt;/p&gt;&#xA;" OwnerUserId="12713" LastActivityDate="2017-04-01T19:26:24.140" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16044" PostTypeId="2" ParentId="13943" CreationDate="2017-04-01T19:30:56.950" Score="1" Body="&lt;p&gt;Money supplies ebb and flow. And your supposition that a decrease in the money supply is necessarily bad is probably a bit off. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, the Fed might shrink the money supply with contractionary policy in an effort to slow and overheated economy. The shrinking of the money supply was triggered by the fact that the economy was very bullish. And I think this is exactly opposite of your point. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Steadily shrinking is different. For example, steadily shrinking a money supply should put constant upward pressure on a currency's value. This might trigger deflation. The intuition is that consumers, knowing their money is steadily gaining value, have a strong incentive to buy tomorrow rather than today. &lt;/p&gt;&#xA;" OwnerUserId="12713" LastActivityDate="2017-04-01T19:30:56.950" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="16045" PostTypeId="2" ParentId="16042" CreationDate="2017-04-01T19:36:43.153" Score="4" Body="&lt;p&gt;My recommendation is that you read through &lt;a href=&quot;http://faculty.wcas.northwestern.edu/~lchrist/finc520/QJE.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;this paper&lt;/a&gt; from Bernanke, Boivin, and Eliasz. This paper introduced something called factor-augmented VAR. The gist is that you can use principle component analysis to do exactly what you're after. This method allows you to include hundreds of time series in the conditioning information. And FYI, this does allow one to solve the price puzzle with solid economic rationale instead of the ad hoc inclusion of a single time series. &lt;/p&gt;&#xA;" OwnerUserId="1655" LastEditorUserId="1655" LastEditDate="2017-04-01T22:36:48.860" LastActivityDate="2017-04-01T22:36:48.860" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16047" PostTypeId="1" AcceptedAnswerId="16048" CreationDate="2017-04-01T23:16:51.407" Score="2" ViewCount="353" Body="&lt;p&gt;A number of interest functions, such as the accumulation function and the amount functions include an &lt;em&gt;A&lt;/em&gt; (sometimes capitalized, sometimes not).  Could someone tell me what the &lt;em&gt;A&lt;/em&gt; represents?  Here's an example:  &lt;a href=&quot;https://i.stack.imgur.com/a8QMk.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/a8QMk.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;  &lt;/p&gt;&#xA;" OwnerUserId="12715" LastActivityDate="2017-04-02T00:25:03.953" Title="What is the A in the Accumulation and Amount functions for the value of investments?" Tags="&lt;interest-rate&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16048" PostTypeId="2" ParentId="16047" CreationDate="2017-04-01T23:43:06.243" Score="1" Body="&lt;p&gt;Usually one can think of &lt;a href=&quot;https://en.wikipedia.org/wiki/Accumulation_function&quot; rel=&quot;nofollow noreferrer&quot;&gt;$a(t)$&lt;/a&gt; as some form of interest. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, we can normalize some initial investment to 1 so that:&#xA;$$a(0) = 1 $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;letting $k$ denote some initial investment, we can have that the value of $k$ at time $t$ is give by your formula: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$A(t)= ka(t)$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, for example, if you invest k=10, assume an interest rate $i=5$% and compounding interest, then ten periods after you invest your money, $k$ is worth: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$A(10,k) = 10*(1+.05)^{10}$$&lt;/p&gt;&#xA;" OwnerUserId="1655" LastEditorUserId="1655" LastEditDate="2017-04-02T00:25:03.953" LastActivityDate="2017-04-02T00:25:03.953" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="16049" PostTypeId="2" ParentId="4882" CreationDate="2017-04-02T00:09:04.290" Score="1" Body="&lt;p&gt;I think one thing you can think of is this: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assuming such a thing is possible (Fama may cry never here), one might first define a productive investment as an investment in an asset that is undervalued by the market relative to its fundamental value. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The distinction then between this type of investment and a bubble investment is that bubble investments stray far above the fundamental value of an asset. Bubbles are usually made worse than they might have become otherwise whenever trend investors attempt to play bubbles for profit. And it is generally the realization of this fact (that bubbles have pushed securities beyond fundamental valuations)by market participants that crashes the bubble. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://scholar.princeton.edu/sites/default/files/05c_Brunnermeier_Oehmke_Systemic_Risk_website_0.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;This paper on the topic is nice.&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="1655" LastActivityDate="2017-04-02T00:09:04.290" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16051" PostTypeId="1" CreationDate="2017-04-02T02:38:05.530" Score="1" ViewCount="130" Body="&lt;p&gt;In recent months, there has been a lot of talk of a &quot;retail apocalypse&quot;. The increasing purchases on the internet have (supposedly) put pressure on storefront retailers. Payless is declaring bankruptcy and Sears has made public statements that suggest they may be facing bankruptcy shortly.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Nevertheless, luxury retailers like Nordstrom and the Hudson Bay Company, exactly the kind of companies I would expect to be most affected by internet sales cutting into their business, seem to be doing well.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why would this be the case?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that my impression that higher-income consumers are more likely to use is the internet is born out by statistics (&lt;a href=&quot;http://www.pewinternet.org/2010/11/24/use-of-the-internet-in-higher-income-households/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Pew Research report on internet use by income level&lt;/a&gt;.)&lt;/p&gt;&#xA;" OwnerUserId="1448" LastEditorUserId="1448" LastEditDate="2017-04-02T10:52:34.540" LastActivityDate="2018-02-28T23:52:36.000" Title="Why are lower cost retailers going bankrupt but premium chains are not?" Tags="&lt;retail-economics&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="16052" PostTypeId="1" CreationDate="2017-04-02T04:11:15.433" Score="0" ViewCount="827" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/U8kzG.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/U8kzG.png&quot; alt=&quot;third degree price discrimination market&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know that the total MR = MR of student + MR of adult, but wy is it kinked at the top?&lt;/p&gt;&#xA;" OwnerUserId="12716" LastActivityDate="2017-04-04T02:47:38.823" Title="When there is a third degree price discrimination, why is the total MR curve kinked at the top?" Tags="&lt;price-discrimination&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16055" PostTypeId="1" CreationDate="2017-04-02T10:47:59.670" Score="1" ViewCount="550" Body="&lt;p&gt;&lt;a href=&quot;http://www.npc.umich.edu/poverty/&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.npc.umich.edu/poverty/&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.census.gov/data/tables/time-series/demo/income-poverty/historical-poverty-people.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.census.gov/data/tables/time-series/demo/income-poverty/historical-poverty-people.html&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have heard numerous times that the future has gotten better.  Poverty rates are on decline.  Yet, seeing a commercial that 1 in 6 American children are hungry got me thinking.  These sources, and others, have shown poverty in America has gotten much worse over the years.  Due to things like automation, outsourcing, increased taxes due to pay for welfare from the poverty, things will only get worse in terms of these rates.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You should not make predictions in economics.  I understand now.  But, why have we heard so many times things are getting better in these rates and they are not?  More people are hungry.  Places like America, Europe, they are poorer.  Poor may live better, but still not good.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, my specific question is whether the total fraction of the US population that is poor is getting larger and under what definition of poverty. Thanks.&lt;/p&gt;&#xA;" OwnerUserId="7866" LastEditorUserId="7593" LastEditDate="2017-04-03T18:05:13.673" LastActivityDate="2017-04-03T20:30:09.043" Title="Are American poverty rates increasing? What about global poverty rates" Tags="&lt;macroeconomics&gt;&lt;labor-economics&gt;&lt;usa&gt;&lt;poverty&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16057" PostTypeId="1" AcceptedAnswerId="16058" CreationDate="2017-04-02T13:09:51.030" Score="5" ViewCount="124" Body="&lt;p&gt;More specifically, I'm looking for a online database of US economic statistics that is regularly updated. Most of my searches result in older data, that is not particularly useful for what I need it for. I'm needing to make many cross references with it, for instance, comparing the unemployment rate of two cities/regions. &lt;/p&gt;&#xA;" OwnerUserId="12724" LastEditorUserId="1601" LastEditDate="2017-04-02T13:41:58.887" LastActivityDate="2017-04-02T17:54:36.207" Title="What are some helpful online tools (databases, etc..) for economic analysts?" Tags="&lt;data-request&gt;&lt;statistics&gt;&lt;comparative-statics&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="16058" PostTypeId="2" ParentId="16057" CreationDate="2017-04-02T13:39:23.823" Score="4" Body="&lt;p&gt;St. Louis Fed:&#xA;&lt;a href=&quot;https://fred.stlouisfed.org/&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://fred.stlouisfed.org/&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Has very good US data. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am not aware of a database that systematically aggregates city-level data. I recommend state government sites and, for larger cities, city government sites. &lt;/p&gt;&#xA;" OwnerUserId="1655" LastActivityDate="2017-04-02T13:39:23.823" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16060" PostTypeId="1" CreationDate="2017-04-02T15:28:28.087" Score="1" ViewCount="33" Body="&lt;p&gt;My question is about generalization of Tauchen'86 approach to a case of time-varying volatility. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Say, I have a process $$z_{t+1}=\rho z_t+\sigma_t \varepsilon_{t+1}$$ where $\varepsilon\sim \mathcal{N}(0,1)$ and $\sigma_t\in\{\sigma_L,\sigma_H\}$ with $\sigma_L&amp;lt;\sigma_H$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I want to get the nodes and a corresponding transition matrix. Does anyone know how to implement that in Matlab? &lt;/p&gt;&#xA;" OwnerUserId="12726" LastActivityDate="2017-04-02T15:28:28.087" Title="Generalization of Tauchen 1986 approach to a case of time-varying volatility" Tags="&lt;stochastic-processes&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16062" PostTypeId="1" AcceptedAnswerId="16067" CreationDate="2017-04-02T17:22:32.570" Score="1" ViewCount="335" Body="&lt;p&gt;I'm debating between 2 Microeconometric classes at my college, (I realize I'm fortunate to have a choice). One class uses Wooldridge's &quot;Econometric Analysis of Cross Section and Panel Data&quot; the other uses Cameron and Trivedi' book &quot;Microeconometrics: Methods and Applications&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question is, will I learn mostly the same content from both of these book or is one much better than the other? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;P.S. I've been told the class using Wooldridge's book is much harder which is somewhat scary and intriguing at the sametime. Tuition is a lot of money and I don't want to take a class that is more advanced that I can handle then fail/drop. However, I want to be a good economist and be very knowledgeable on all things econometrics.&lt;/p&gt;&#xA;" OwnerUserId="12729" LastActivityDate="2017-04-03T23:11:34.057" Title="Wooldridge's Microeconomics book vs Cameron and Trivedi's textbook" Tags="&lt;microeconomics&gt;&lt;econometrics&gt;&lt;mathematical-economics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16063" PostTypeId="2" ParentId="16057" CreationDate="2017-04-02T17:48:24.780" Score="1" Body="&lt;p&gt;Also check out quandl.com. The data from the Fed and World bank type of organizations is usually free and updated regularly, as with most of the public economic data. There are other more curated types of sources which are &quot;premium&quot; and range in prices. To download data you will need an account but its super easy and free. (just username, email address and password, nothing else. You can even use your linkedin or google account)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are also more data sets being added all the time. With that said, just a suggestion, use the search function if you know what your looking for, if you just use the filters you'll get a return of dozens of pages long. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's my favorite data source for Fed data. Here's a link to the Fred data: &lt;a href=&quot;https://www.quandl.com/data/FRED-Federal-Reserve-Economic-Data&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.quandl.com/data/FRED-Federal-Reserve-Economic-Data&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;While it doesn't look like it at first, the Fred database list above is several 1000's of pages long. A total of 339,641 Fred data sets, all for free! Not to mention other free databases or premium content.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm not paid by quandl.com in anyway, just a big fan of the site and use it as much as I can. &lt;/p&gt;&#xA;" OwnerUserId="12729" LastEditorUserId="12729" LastEditDate="2017-04-02T17:54:36.207" LastActivityDate="2017-04-02T17:54:36.207" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16064" PostTypeId="1" CreationDate="2017-04-02T18:27:16.180" Score="18" ViewCount="527" Body="&lt;p&gt;In economic theory we know that with the use of some calculus, &lt;a href=&quot;https://en.wikipedia.org/wiki/Hotelling%27s_lemma&quot; rel=&quot;noreferrer&quot;&gt;Hotellings Lemma&lt;/a&gt; and &lt;a href=&quot;https://en.wikipedia.org/wiki/Shephard%27s_lemma&quot; rel=&quot;noreferrer&quot;&gt;Sheppards lemma&lt;/a&gt; we can derive a given firms supply function and in term its Profit function.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With data of a given firms costs, can we in fact get an accurate estimate of its profit function and supply function? &lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="8815" LastEditDate="2017-04-21T22:17:59.507" LastActivityDate="2021-05-18T10:23:45.350" Title="How accurate is duality?" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;applied-econometrics&gt;&lt;duality&gt;" AnswerCount="2" CommentCount="3" FavoriteCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="16065" PostTypeId="1" CreationDate="2017-04-02T18:54:25.047" Score="1" ViewCount="113" Body="&lt;p&gt;What effects could the growing use (and abuse) of Decentralized crypto-currency have on the rest of the world economy? For example, one cause for concern is the simplicity of laundering the currency. Is there any comparable event in history that could help forecast what might be in store? Is there even any cause for worry?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I want to get some outside opinions on this thought experiment. &lt;/p&gt;&#xA;" OwnerUserId="12724" LastActivityDate="2017-04-04T15:30:08.970" Title="Effects of Decentralized Currency" Tags="&lt;macroeconomics&gt;&lt;cryptocurrency&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16066" PostTypeId="1" CreationDate="2017-04-02T21:43:41.467" Score="2" ViewCount="139" Body="&lt;p&gt;In an Edgeworth economy with two agents and two goods, Player A has endowment $\left(a,\,0\right)$ and utility $u_{A}\left(x_{1},\,x_{2}\right)=\min\left(\gamma x_{1},\,x_{2}\right)$ in which $\gamma&amp;gt;1$, and Player B has endowment $\left(0,\,b\right)$ and utility $u_{B}\left(x_{1},\,x_{2}\right)=\min\left(x_{1},\,\gamma x_{2}\right)$. When $a=b$, the competitive equilibrium is $$\left(x_{1}^{A},\,x_{2}^{A},\,x_{1}^{B},\,x_{2}^{B}\right)=\left(\frac{a}{1+\gamma},\,\frac{\gamma a}{1+\gamma},\,\frac{\gamma a}{1+\gamma},\,\frac{a}{1+\gamma}\right),\;\frac{p_{2}}{p_{1}}=1,$$ and A's utility at the equilibrium is $\frac{\gamma a}{1+\gamma}=\frac{\gamma b}{1+\gamma}$. However, when $a&amp;gt;b$, the competitive equilibrium becomes $$\left(x_{1}^{A},\,x_{2}^{A},\,x_{1}^{B},\,x_{2}^{B}\right)=\left(\frac{\gamma b-a}{\gamma^{2}-1},\,\frac{\gamma^{2}b-\gamma a}{\gamma^{2}-1},\,\frac{\gamma^{2}a-\gamma b}{\gamma^{2}-1},\,\frac{\gamma a-b}{\gamma^{2}-1}\right)$$ $$\frac{p_{2}}{p_{1}}=\frac{\gamma^{2}a-\gamma b}{\gamma^{2}b-\gamma a},$$ and A's utility at the equilibrium reduces to $\frac{\gamma^{2}b-\gamma a}{\gamma^{2}-1}&amp;lt;\frac{\gamma b}{1+\gamma}$. Is there any &lt;em&gt;intuitive explanation&lt;/em&gt; for this reduction? (I'm not asking for solving the equilibrium because I already solved it.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My proposed explanation is:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Because the supply of the first good increases from b to a, its price&#xA;  decreases, and the price of the second good increases. Therefore&#xA;  Player A must sell more $x_{1}$ to Player B, and Player B can sell&#xA;  less $x_{2}$ to Player A. Since both players have preferences with&#xA;  perfect complementation, the lesser amount of the two goods decides&#xA;  the utility, and Player A having less $x_{2}$ must have less utility.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Is this explanation appropriate?&lt;/p&gt;&#xA;" OwnerUserId="12731" LastEditorUserId="12731" LastEditDate="2017-04-05T01:58:38.900" LastActivityDate="2017-04-06T04:19:49.647" Title="Endowment increases but utility reduces" Tags="&lt;microeconomics&gt;&lt;leontief&gt;&lt;pure-exchange-economy&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16067" PostTypeId="2" ParentId="16062" CreationDate="2017-04-02T21:46:54.400" Score="3" Body="&lt;p&gt;Both books are very good, and they are not competitive but rather complementary. I would say that compared to $CT$, $W$ is a more &quot;traditional&quot; &lt;em&gt;econometrics&lt;/em&gt; book, while $CT$ includes whole chapters in broader underlying statistical issues. At the same time, $CT$  are relatively more concerned with the dirty reality of doing applied econometrics with real-world data sets, and how this feeds back to the theoretical models. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regarding your choice, it matters what each instructor does with each book. Ask them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Learn which chapters are covered in each class and compare, to see if they cover the same subjects or not... there must be a reason why there exist two available classes.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2017-04-03T23:11:34.057" LastActivityDate="2017-04-03T23:11:34.057" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16069" PostTypeId="1" CreationDate="2017-04-03T02:09:48.513" Score="2" ViewCount="36" Body="&lt;p&gt;As I understand it, if the US government runs a deficit then it (for the most part) &quot;pays&quot; for that deficit by &quot;selling&quot; government bonds.  This tends to drive up interest rates somewhat, but also, since the US government is so &quot;trustworthy&quot; as a debtor (and pays fairly attractive rates), it attracts investment from non-US sources.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The net of this is that running a deficit will tend to raise the &quot;value&quot; of the dollar (affect exchange rates) since money coming into the country to buy bonds must ultimately be &quot;bought&quot; with other currencies, and supply/demand dictates that this one-way flow will drive up the dollar and drive down the currencies being exchanged.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question is, is there some way to (very roughly) calculate HOW MUCH the value of the dollar is affected by the deficit and associated bond sales?  This would imply of course having some rough estimate as to what % of bonds are bought by non-US buyers and also some way to estimate how much the money flow implied by these purchases affects exchange rates.  (Plus probably two dozen other factors that I haven't thought of.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;A thought:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Presumably the effect on exchange rates of &quot;exporting&quot; a dollar's worth of government bonds is similar to the effect of exporting an extra dollar's worth of tangible goods in the balance of payments.  So if one knows the effect of balance of payments on exchange rates, and can estimate the the % of bonds &quot;exported&quot;, one would have my answer.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, to get me halfway there, what is the best way to estimate the effect of balance of payments on exchange rates (for the US economy)?  (I should state that, overall, I'm just looking for an order-of-magnitude answer, not anything precise.)&lt;/p&gt;&#xA;" OwnerUserId="12218" LastEditorUserId="12218" LastEditDate="2017-04-05T00:59:12.713" LastActivityDate="2017-04-05T00:59:12.713" Title="Can one calculate how much increasing the US federal debt affects the &quot;value&quot; of the dollar?" Tags="&lt;exchange-rates&gt;&lt;government-debt&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16070" PostTypeId="2" ParentId="10713" CreationDate="2017-04-03T02:17:50.873" Score="2" Body="&lt;p&gt;Suppose two countries. Let's call them A and B. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose, for simplicity, that the exchange rate between these two countries is 1. Further, suppose both countries have the same inflation rate and same nominal interest rate (and thus the same real interest rate).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, suppose that country A, for whatever reason, triggers a contractionary monetary policy. The central bank of country A enacts this policy by selling securities in the open market. These securities sells cause a sharp increase in supply of securities. Given a relatively inelastic demand, this forces securities prices downs and yields up. That is to say - this action causes interest rates to rise. A rising interest rate is considered contractionary because it slows investment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So now we have two countries, A and B, with a 1:1 exchange rate but now country A has a higher real interest rate than does country B. Assume it cost nothing for people in country B to invest in securities in country A.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can reasonably expect people in country B, facing a 1:1 fixed exchange rate and no cost of moving capital, to buy Country A securities. Why? Because the securities in country A are more profitable because they offer a higher yield. That is to say - they are more profitable because of the higher prevailing interest rate in country A. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, contractionary policy in country A raised interest rates (to slow investment). This interest rate hike made securities in country A more profitable than they were before the interest rate hike. This increase in the profitability in the securities of country A induced investments from people in Country B. &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Hopefully that helps.  &lt;/p&gt;&#xA;" OwnerUserId="1655" LastEditorUserId="1655" LastEditDate="2017-04-03T02:27:43.547" LastActivityDate="2017-04-03T02:27:43.547" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16071" PostTypeId="1" CreationDate="2017-04-03T03:24:41.357" Score="1" ViewCount="39" Body="&lt;p&gt;I want to know why in some models the Friedman rule stops being optimal. For example, in some models like MIU or CIA, where usually you don't have leisure, the Friedman rule is optimal. But in other models with bonds (for example) the Friedman rule stops being optimal because it breaks some non arbitrage conditions.&lt;/p&gt;&#xA;" OwnerUserId="10240" LastEditorUserId="2776" LastEditDate="2017-04-04T09:31:20.143" LastActivityDate="2017-04-04T09:31:20.143" Title="Why in some models the Friedman rule is not optimal?" Tags="&lt;monetary-policy&gt;&lt;friedman&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16073" PostTypeId="2" ParentId="16055" CreationDate="2017-04-03T10:40:19.347" Score="1" Body="&lt;p&gt;I am unsure about rates in Europe or the United States. In any case one can debate about how poor &quot;the poor&quot; in Europe and the US really are compared to people that have to survive on a dollar a day (see e.g. Tim Haab on &lt;a href=&quot;http://www.env-econ.net/2015/11/on-income-inequality-ill-formed-thoughts-from-me.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;the difference between inequality and poverty&lt;/a&gt;). That is not to say that these people aren't suffering or hungry, but at least not as hungry as some people in developing countries.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Worldwide at least poverty (defined as the percentage of people surviving at $1.90 per day or less) has significantly fallen over the last decades, accounting to the Worldbank (see: &lt;a href=&quot;http://data.worldbank.org/indicator/SI.POV.DDAY?locations=1W&amp;amp;start=1981&amp;amp;end=2013&amp;amp;view=chart&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;). However, according to the same data, in 2013 we still had 11% of the world's population in extreme poverty&lt;/p&gt;&#xA;" OwnerUserId="12186" LastActivityDate="2017-04-03T10:40:19.347" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16074" PostTypeId="2" ParentId="15635" CreationDate="2017-04-03T14:01:31.493" Score="3" Body="&lt;p&gt;In a fractional reserve monetary system &lt;a href=&quot;http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;loans create money and loan repayments destroy money&lt;/a&gt;. Most bank lending in modern times is for &lt;a href=&quot;https://qz.com/586664/lord-adair-turner-on-the-largely-fictional-world-of-finance/&quot; rel=&quot;nofollow noreferrer&quot;&gt;the purpose of purchasing real estate&lt;/a&gt;. So the amount of money that exists in the economy is closely tied to the enthusiasm for purchasing real estate. You could not really make this kind of statement for any other class of asset - this is why the housing market in particular has such an impact on the economy. During the upswing of a housing bubble the money supply will be growing fast, but when the bubble bursts the money supply will fall (as existing mortgages are repaid) leading to recession. The whole point of QE is to &lt;a href=&quot;https://en.wikipedia.org/wiki/Quantitative_easing&quot; rel=&quot;nofollow noreferrer&quot;&gt;counteract this fall in the money supply&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Confusingly economists use the word &quot;&lt;a href=&quot;https://en.wikipedia.org/wiki/Demand_deposit&quot; rel=&quot;nofollow noreferrer&quot;&gt;credit&lt;/a&gt;&quot; to describe (most of) the money we use in the economy, so many people do not realise that the &quot;credit crunch&quot; was in fact a &quot;money crunch&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Hyman_Minsky&quot; rel=&quot;nofollow noreferrer&quot;&gt;Hyman Minsky&lt;/a&gt; is the most famous economist that would subscribe to these kind of views. You might also want to look up the term &lt;a href=&quot;https://en.wikipedia.org/wiki/Credit_cycle&quot; rel=&quot;nofollow noreferrer&quot;&gt;credit cycle&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By the way, none of these views are mainstream. Mind you the mainstream economists did not see the last crash coming, so you should not really expect them to explain what happened.&lt;/p&gt;&#xA;" OwnerUserId="5081" LastEditorUserId="5081" LastEditDate="2017-05-26T09:11:55.937" LastActivityDate="2017-05-26T09:11:55.937" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16075" PostTypeId="1" CreationDate="2017-04-03T14:34:13.600" Score="1" ViewCount="1456" Body="&lt;p&gt;I came to know about the term seigniorage meaning the difference between the value of money and the cost to produce it. I also read somewhere that many countries use seigniorage as a means of revenue inorder to reduce the requirement of or add to the revenue from taxation. I want to know:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;How much revenue does a country make by printing money? (Information on any country will be appreciated)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;What are the specific laws (in the country mentioned in the answer to Q1 ) that govern the specifics of printing money (like amount, date, period etc.)?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;N.B : Information on any country(or countries) will be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="12733" LastActivityDate="2017-05-05T23:57:49.333" Title="USA seigniorage revenue" Tags="&lt;usa&gt;&lt;profits&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16076" PostTypeId="1" CreationDate="2017-04-03T15:09:21.133" Score="1" ViewCount="179" Body="&lt;p&gt;I am trying to replicate the Fama-French three-factor model. I am having issues in the dataset.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) Using the CRSP/COMPUSTAT merged dataset for firm fundamentals from WRDS, and then dropping data on financial and non-US firms, I have much fewer firms than what FF have in the dataset in French's website. Any suggestions on why this is happening?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) I am unable to obtain data as far back as 1926 from WRDS.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any suggestions would be very helpful.&lt;/p&gt;&#xA;" OwnerUserId="12734" LastEditorUserId="2776" LastEditDate="2017-04-04T09:38:22.710" LastActivityDate="2017-04-04T09:38:22.710" Title="Dataset - Fama French Replication" Tags="&lt;finance&gt;&lt;asset-pricing&gt;&lt;replication&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="16079" PostTypeId="2" ParentId="16055" CreationDate="2017-04-03T20:30:09.043" Score="3" Body="&lt;p&gt;&lt;strong&gt;US&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A snapshot of Poverty for the US is &lt;a href=&quot;https://www.brookings.edu/wp-content/uploads/2016/06/How-Poor-are-Americas-Poorest.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;. The key is Figure 5, which shows alternative measures of poverty, using different data and methods. (see text for details). Basically, they show that there is plenty of variation from alternative criteria, ranging from 0% to 5%. This is likely to be an explanation of why sometimes evidence seem to be contradictory. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the evolution of poverty, see &lt;a href=&quot;http://www.nber.org/papers/w18718.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;this study&lt;/a&gt;. Unfortunately, it stops at 2010, but it is very comprehensive. Figures start in page 53. Basically, poverty has fallen recently, specially when measured in terms of consumption. This could be an indication that before the Great Recession, poorer individuals were living on loans/debt. There is plenty of evidence that consumption inequality is lower than income inequality, because individuals have a desire to &quot;keep up with the Joneses&quot; (the so-called &lt;a href=&quot;https://www0.gsb.columbia.edu/faculty/lhodrick/veblen%20effects.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Veblen Effect&lt;/a&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;World&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is the evolution of World Poverty since 1820:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/DN4cC.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/DN4cC.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is in relative terms (as % of world population):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/BIWR2.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/BIWR2.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is the current (2014) snapshot of poverty around the world:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/rBxXZ.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/rBxXZ.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An amazing analysis of World Poverty, in simple slides, is &lt;a href=&quot;https://ourworldindata.org/slides/world-poverty/#/title-slide&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A careful analysis of existing evidence is found &lt;a href=&quot;https://ourworldindata.org/extreme-poverty/&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-04-03T20:30:09.043" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16080" PostTypeId="2" ParentId="15837" CreationDate="2017-04-03T20:39:38.197" Score="5" Body="&lt;p&gt;An obligatory draft is a tax collected in kind - productive time. Instead of producing in the private sector, citizens of the economy offer their services to the army.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, we should acknowledge that the existence of an army offers some desired public good (or at least that the society implementing the draft thinks so). Is this a utility-enhancing, or a production-enhancing public good?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;a href=&quot;http://www.journals.uchicago.edu/doi/abs/10.1086/260232&quot; rel=&quot;nofollow noreferrer&quot;&gt;Thompson, E. A. (1974). Taxation and national defense. Journal of political economy, 82(4), 755-782.&lt;/a&gt;&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;argued that it is safeguarding property rights of the local population against foreign aggressors, and so it is production-enhancing. Moreover it is subject to &lt;em&gt;congestion&lt;/em&gt;: the larger the output/capital base of the economy, the larger military spending has to be to provide the same degree of security (one can find a mention of the above as well as a related model in Barro's book on growth but only on the 1st edition, p. 160).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here, the tax to fund military expenses is collected in kind, so we could model this situation with the following tweaked Cobb-Douglas production function&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Y = AK^a(N -L_a)^{1-a}\cdot (BL_a/Y)^\gamma \tag{1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $N$ is population/total available productive time, there is no labor-leisure choice, $L_a$ is the time spent in producing security services through the draft. The last term is the indirect contribution of military spending in output (by safeguarding property rights), and it is divided by output in order to reflect the congestion characteristic. It is treated as an externality from the private sector. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But the government/social planner can maximize output for any choices of the private sector regarding investment in physical capital, by maximizing the above production function, after taking into account the externality, i.e. by maximizing&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Y = A^{1/(1+\gamma)}K^{a/(1+\gamma)}(N -L_a)^{(1-a)/(1+\gamma)}\cdot (BL_a)^{\gamma/(1+\gamma)} \tag{2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;with respect to $L_a$. We obtain&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$L_a^* = \frac {\gamma}{1-a+\gamma}N$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;namely, that the &quot;size of the draft&quot; in terms of productive time should be a constant proportion of the population.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem here is that the private sector looks at $(1)$ and &quot;ignores&quot; the last term. So it behaves as though the capital elasticity of output is $a$ while in reality is smaller, $a/(1+\gamma)$ as we see from $(2)$ (this is due to the existence of congestion in the public good).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This means that the private sector will tend to over-invest. In such cases a &lt;em&gt;proportional tax on output&lt;/em&gt; is optimal from a welfare point of view because it would internalize the externality...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;...and this means that it would be better, aside from possible non-economic issues, if instead of an obligatory draft the government applied a proportional tax on output in order to fund military expenses (i.e. have a professional, paid army). In this way it would both provide this desired public good, and internalize the externality, reducing the rate of capital investment down to the optimal level.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Note: obviously the above is a very abstract approach. One could point out that armies need much more than just the labor of their soldiers, in terms of equipment, but even in terms of the subsistence expenses of the soldiers themselves. Then one could model the existence of a tax to fund these, and examine whether it can sustain the output maximizing level of Labor drafted &lt;em&gt;and&lt;/em&gt; be at the optimal level as regards the target of internalizing the externality). &lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2017-04-03T21:14:49.533" LastActivityDate="2017-04-03T21:14:49.533" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="16081" PostTypeId="1" AcceptedAnswerId="17275" CreationDate="2017-04-04T01:51:59.883" Score="2" ViewCount="182" Body="&lt;p&gt;I am wondering if, in theory, the upper quintile (20% of earners in the U.S.)  could pay the annual federal tax bill for all quintiles from their annual income?&#xA;I have been looking at 2013 CBO data &lt;a href=&quot;https://www.cbo.gov/publication/51361&quot; rel=&quot;nofollow noreferrer&quot;&gt; here &lt;/a&gt; that shows quintile income as a percentage of total income and quintile taxes paid as a percentage of total taxes paid. What's necessary is the amount of total income and total federal taxes paid - does anyone know these values?&lt;/p&gt;&#xA;" OwnerUserId="12739" LastEditorUserId="12739" LastEditDate="2017-06-11T22:53:55.867" LastActivityDate="2017-06-22T06:13:21.893" Title="Could the upper quintile pay the annual federal personal income tax for all other quintiles from their annual income?" Tags="&lt;data-request&gt;&lt;taxation&gt;&lt;inequality&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16082" PostTypeId="2" ParentId="16052" CreationDate="2017-04-04T02:47:38.823" Score="3" Body="&lt;p&gt;I believe this is just a horizontal sum. At the very top of your graph, only adult has a part of its curve above 10.25. So when your summing horizontally student =0  Adult = x, This changes once you are below 10.25, then all of a sudden you have student = x  and adult = x. This additional amount from student causes the kink. If pretend student was always =0 then the total on the right would be identical to adult. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I hope this helped. I'm sorry if it's not phrased better. &lt;/p&gt;&#xA;" OwnerUserId="12729" LastActivityDate="2017-04-04T02:47:38.823" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16083" PostTypeId="1" AcceptedAnswerId="16086" CreationDate="2017-04-04T03:56:55.153" Score="3" ViewCount="1778" Body="&lt;p&gt;Suppose there is an economic agent with the utility function $u(x,y)$. A second agent has the utility function $h(g(f(u(x,y))))$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Am I correct in thinking that if $f'(x)&amp;gt;0$, $g'(x)&amp;gt;0$, and $h'(x)&amp;gt;0$, then  $h(g(f(u(x,y))))$ must also be positive and therefore  $h(g(f(u(x,y))))$ is a positive monotonic transformation of $u(x,y)$? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If not, how come?&lt;/p&gt;&#xA;" OwnerUserId="12471" LastEditorUserId="1601" LastEditDate="2017-04-04T06:17:05.640" LastActivityDate="2017-04-04T06:17:05.640" Title="Positive Monotonic Transformations and Nested Functions" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;utility&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16084" PostTypeId="1" CreationDate="2017-04-04T04:36:20.747" Score="7" ViewCount="2686" Body="&lt;p&gt;Assuming one could instantly have access to an loan to cover his recent loss/accident at an affordable interest, would it make sense to pay premium for an insurance plan?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I was thinking that it would make more sense to save the premium money and use it to pay part of a loan to cover the losses if it happens. That way one would save the trouble of paying insurance and never using it and make better use of that money. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But I believe in economics. It wouldn't be such a big thing if it didn't make sense. So, how can one evaluate when it makes sense to pay for insurance or just count on a loan?&lt;/p&gt;&#xA;" OwnerUserId="12740" LastEditorUserId="1601" LastEditDate="2017-04-04T05:42:07.827" LastActivityDate="2017-04-18T17:39:01.630" Title="Would insurance plan be necessary if we had instant access to credit?" Tags="&lt;uncertainty&gt;&lt;credit&gt;" AnswerCount="8" CommentCount="7" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16086" PostTypeId="2" ParentId="16083" CreationDate="2017-04-04T06:06:59.313" Score="4" Body="&lt;p&gt;The value of $h(g(f(u(x,y))$ is not necessarily positive but the transformation $u \rightarrow h \circ g \circ f \circ u$ is indeed a positive monotone transformation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To see this, take any $(x,y,z,w)$. We have the following chain of equivalences:&#xA;\begin{align}&#xA;u(x,y) \geq u(z,w) &amp;amp; \Leftrightarrow f(u(x,y)) \geq f(u(z,w)) \text{ since } f \text{ is increasing} \\&#xA;&amp;amp; \Leftrightarrow g(f(u(x,y)) \geq g(f(u(z,w)) \text{ since } g \text{ is increasing} \\&#xA;&amp;amp; \Leftrightarrow h(g(f(u(x,y))) \geq h(g(f(u(z,w))) \text{ since } h \text{ is increasing}&#xA;\end{align}&#xA;Thus, the transformation $u \rightarrow h \circ g \circ f \circ u$ preserves the ordering, i.e. it is a positive monotone transformation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another way to see it is to assume that all functions are differentiable and notice that&#xA;\begin{equation*}&#xA;\frac{d (h \circ g \circ f )(x)}{dx}= f'(x) g'(f(x)) h'(g(f(x))&#xA;\end{equation*}&#xA;which is positive since $f'&amp;gt;0,g'&amp;gt;0,h'&amp;gt;0$.&lt;/p&gt;&#xA;" OwnerUserId="4667" LastActivityDate="2017-04-04T06:06:59.313" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16087" PostTypeId="2" ParentId="16084" CreationDate="2017-04-04T06:33:02.907" Score="11" Body="&lt;p&gt;I think the best way to answer your question is with a simple example showing why insurance is so prevalent in the economy. Hopefully, it should then be clear that it can still make sense to purchase insurance even if you can take out a loan to &quot;cover the recent loss/accident&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose that there is a 1% chance of a £10,000 loss occurring. For a concrete example, suppose that it is your £10,000 car being stolen and you absolutely need to have a car. Therefore, if your car gets stolen, you have to buy a new car. Further, suppose that you can become fully insured by paying £100. There are two states of nature to consider:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;The car is stolen so you lose £10,000 plus the premium of £100, but the insurance company pays you £10,000. This leaves you with a total loss of £100.&lt;/li&gt;&#xA;&lt;li&gt;The car is not stolen so you pay the premium giving you a total loss of £100.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Now suppose that instead of paying the insurance premium, you put the £100 towards a loan. Once again there are two states of nature to consider:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;The car is stolen so you lose £10,000. Suppose that you do not have the cash to pay for a new £10,000 car up front so you need to take out a loan, say at a generous interest rate of 0%. &lt;strong&gt;After you pay it back, your loss is still £10,000&lt;/strong&gt;. &lt;strong&gt;Notice how the loan is irrelevant to the final loss; the only reason you would take out a loan is if you do not have the cash to pay for a replacement car up front.&lt;/strong&gt;&lt;/li&gt;&#xA;&lt;li&gt;The car is not stolen so you lose nothing.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;The question then is, do you prefer the scenario where you bought full insurance? This depends on your attitudes to risk. If you dislike risk (technically, if you are risk averse), you dislike the fact that if you do not buy insurance, then there is a great amount of uncertainty over the final amount of your loss: it could be a huge £10,000 or it could be nothing. Therefore, you are probably willing accept a relatively small loss of £100 to be rid of this uncertainty. It is generally accepted that most people in the economy are risk averse, hence the prevalence of insurance.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, if you like to gamble (technically, if you are risk loving), then you might be willing to go without insurance in the hope that the loss does not occur and you do not lose anything. In other words, you take the chance that if the loss occurs, you will have to take out a loan to pay for a new car. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;An additional note: As you might expect, if you increase the chance that your car gets stolen, more people will be willing to pay the £100 premium. Similarly, if you keep the chance that your car gets stolen at 1%, more people will be willing to buy insurance if you lower the premium.&lt;/p&gt;&#xA;" OwnerUserId="7797" LastEditorUserId="7377" LastEditDate="2017-04-04T09:39:23.080" LastActivityDate="2017-04-04T09:39:23.080" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="16088" PostTypeId="2" ParentId="16084" CreationDate="2017-04-04T06:37:17.953" Score="12" Body="&lt;p&gt;As Dave Harris' points out in his comment, I assume that your question deals with events that do not compromise the individual's ability to work, which would prevent her from taking on debt.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's take the example of a fire which happens with probability $\pi \in [0,1]$. The damage of a fire equals $D$ dollars, i.e. it costs $D$ dollars to repair the house. If the individual buys full insurance at a price $p$ she ends up with a final wealth equal to $w-p$ in all contingencies since the insurance company covers the damages.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose now that she does not buy any insurance but contracts a loan to cover the damages. In order to repair the house she has to borrow $D$ dollars. This loan costs her $D'$ dollars over her lifetime, taking into account the interest and her time preferences (discounting). She then ends up with final wealth equal to&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;$w$ with probability $1-\pi$&lt;/li&gt;&#xA;&lt;li&gt;$w-D'$ with probability $\pi$&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Thus, the two distributions that she faces are different under these two solutions. If she buys insurance, she completely eliminates the risk of having to pay for the damages. By contrast, if she contracts a loan ex post she still has a large downside risk of $w-D'$ in case of a fire. Under the standard conditions of insurance theory (e.g. risk aversion, actuarially fair insurance prices) it is clear that buying insurance would be strictly preferable.&lt;/p&gt;&#xA;" OwnerUserId="4667" LastActivityDate="2017-04-04T06:37:17.953" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="16089" PostTypeId="1" CreationDate="2017-04-04T07:34:13.670" Score="3" ViewCount="683" Body="&lt;p&gt;We define the change in demand due to income effect as (assume there are 2 goods and the price of only one of them, say $p_1$, changes)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$dx_1^N = x_1(p_1 + dp_1, p_2, m) - x_1(p_1 + dp_1, p_2, m + dm)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The total change in quantity demanded is supposed to be&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$dx_1 = dx_1^S + dx_1^N$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, for the Slutsky equation, we adopt the convention&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$dx_1 = dx_1^S + dx_1^M$, where $dx_1^M = -dx_1^N$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My first question - why exactly do we adopt this convention?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now assuming that we start off with an endowment $(\omega_1, \omega_2)$, the Slutsky equation has to be modified to accommodate the endowment income effect, because a change in price will necessarily lead to a change in income. In the Intermediate Microeconomics book by Varian, the rate of change in demand due to endowment income effect is defined as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac{\partial x_1^M}{\partial m} \frac{\partial m}{\partial p_1}$,&#xA;and so the Slutsky equation becomes (in terms of rate of change w.r.t price)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac{\partial x_1}{\partial p_1} = \frac{\partial x_1^S}{\partial p_1} - \frac{\partial x_1^M}{\partial p_1} + \frac{\partial x_1^M}{\partial m} \frac{\partial m}{\partial p_1}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Why can't we define the endowment income effect as $\frac{\partial x_1^N}{\partial m} \frac{\partial m}{\partial p_1} = - \frac{\partial x_1^M}{\partial m} \frac{\partial m}{\partial p_1}$?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A mathematically rigorous answer would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="12609" LastEditorUserId="12609" LastEditDate="2017-04-04T09:03:17.630" LastActivityDate="2017-04-04T09:03:17.630" Title="Sign of the endowment income effect" Tags="&lt;microeconomics&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16090" PostTypeId="2" ParentId="13611" CreationDate="2017-04-04T09:46:39.707" Score="0" Body="&lt;p&gt;With theory, it is hard to innovate unless you go to the actual knowledge frontier. My suggestion are several, and complementary: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;go to seminars in your faculty about topics that you might be interested on. Although you might not understand everything, you can get some ideas what people is researching on, and the questions and method they use. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Talk to a professor/teacher/PhD student which works in areas of your interest. Ask her/him about what issues people is researching on, and gaps in knowledge they see. They might point you to papers which could inspire you.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Check recent working papers in which people is working on. You can find many &lt;a href=&quot;http://econpapers.repec.org/scripts/nep.pf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;. Yous select your area of interest.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Check recently published papers. Your library should have a place displaying latest journal editions. Alternatively, search them online. &lt;a href=&quot;https://ideas.repec.org/top/top.journals.hindex.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Here&lt;/a&gt; is a list of journals, in a ranking fashion.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Follow &lt;a href=&quot;http://people.ischool.berkeley.edu/~hal/Papers/how.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Hal Varian's suggestion&lt;/a&gt; about writing models.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-04-04T09:46:39.707" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16091" PostTypeId="2" ParentId="16081" CreationDate="2017-04-04T09:55:01.937" Score="3" Body="&lt;p&gt;&lt;a href=&quot;https://www.cbo.gov/sites/default/files/114th-congress-2015-2016/reports/51361-HouseholdIncomeFedTaxes_OneCol.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Here&lt;/a&gt; is the latest report of the Congressional Budget Office on federal taxes by households. The main result you are looking for is this one (page 31):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/LXPQJ.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/LXPQJ.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &quot;Federal Taxes&quot; row shows that the upper quintile tax bill is higher than the tax bill of the other four quintiles combined. (the data are averages but each quintile has same number of households so those numbers are enough to conclude this).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The figure below show this more clearly, in percentage terms:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/5Dho3.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/5Dho3.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Check &lt;a href=&quot;https://www.cbo.gov/about/products/major-recurring-reports#15&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; for older reports.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;PS&lt;/strong&gt;: amazingly, the top quintile gets &lt;strong&gt;more government transfers&lt;/strong&gt; than the poorest quintile, which get the lowest. An entirely regressive system! &lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-04-04T18:24:23.833" LastActivityDate="2017-04-04T18:24:23.833" CommentCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="16092" PostTypeId="1" CreationDate="2017-04-04T10:00:00.183" Score="1" ViewCount="40" Body="&lt;p&gt;How can one compute the CPI All items index given the CPI energy index and the less energy index? I used the relative importance as component weighted value but it isn't true.&lt;/p&gt;&#xA;" OwnerUserId="12744" LastActivityDate="2017-05-05T10:00:50.217" Title="How can one compute the CPI All items index from the component indexes?" Tags="&lt;macroeconomics&gt;&lt;inflation&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="16093" PostTypeId="2" ParentId="16084" CreationDate="2017-04-04T12:54:01.643" Score="4" Body="&lt;p&gt;Not covered by the other answers: You have an accident in your car and it ploughs into a bus-stop severely injuring and permanently incapacitating several people. Not having insurance, you are presented with a demand for £10,000,000(*) to cover ongoing medical costs. How long do you think it would take to pay off this loan?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(*) Figure plucked from air, but think BIG.&lt;/p&gt;&#xA;" OwnerUserId="12747" LastActivityDate="2017-04-04T12:54:01.643" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="16094" PostTypeId="2" ParentId="15618" CreationDate="2017-04-04T14:04:49.027" Score="0" Body="&lt;p&gt;It is perfectly possible. Consider a simple &lt;a href=&quot;https://en.wikipedia.org/wiki/Overlapping_generations_model&quot; rel=&quot;nofollow noreferrer&quot;&gt;Overlapping Generation Model&lt;/a&gt;, with two generations, and young one ($y$), who work and consume, and an old one ($o$), who is retired and only consumes. After consuming, old agent dies, and a new generation is born. Population is constant. The savings interest rate is $r$. Each period, those who work earn an income of $W$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The budget constraint of the young is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ W - C_{y} = S $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $S$ is savings.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The budget constraint of the old is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ C_{o} = S(1+r) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The lifetime budget constraint of an individual is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ C_{y} + \frac{C_{o}}{1+r} = W $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(This is, present value of consumption equals present value of income)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Say the utility of the agent is given by&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ U = C_{y} + C_{o} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, the optimisation problem the &lt;em&gt;young&lt;/em&gt; agent faces when allocating lifetime income into consumption across periods (equivalent of deciding how much to save when young) is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{equation*}&#xA;\begin{aligned}&#xA;&amp;amp; \underset{c_{y},c_{o}}{\text{max}}&#xA;&amp;amp; &amp;amp; U \\&#xA;&amp;amp; \text{subject to}&#xA;&amp;amp; &amp;amp; C_{y} + \frac{C_{o}}{1+r} = W &#xA;\end{aligned}&#xA;\end{equation*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This gives the following optimal consumption levels:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ C^*_{y} = W\left(\frac{r^2+3r+1}{r^2+3r+2}\right) &amp;gt;0 $$&#xA;$$ C^*_{o} = \frac{W}{2+r} &amp;gt;0 $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Conclusion&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You have an infinite-period model with constant population, where both young and old are permanently having positive consumption. The young save to their retirement, which income they consume when old (together with the interest they received for their savings).&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-04-04T14:04:49.027" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16096" PostTypeId="2" ParentId="16084" CreationDate="2017-04-04T15:13:39.243" Score="4" Body="&lt;p&gt;Insurance:  pooled risk.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Loan:  borrowing against future income.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;With insurance, you may face higher premiums if you make a claim.  But you won't pay anything against the claim itself.  With a loan, you are responsible for paying the claim.  You pay some of it with past income (savings) and some with future income (borrowing).  But in the end you pay the whole thing.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Insurance can pay more than your entire future income.  Instead of you paying alone, you and everyone else who bought the insurance pays.  Once the event happens, you can stop paying if you don't mind not being covered.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A loan has to be less than your expected future income.  Otherwise your creditor wouldn't give you the money.  Once the event happens, you start paying.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question basically comes down to how you want to handle risk.  Would you rather pay when you may not need it (insurance)?  Or would you rather wait to pay until you know you need it (loan)?  On average, you'll pay about the same either way.  Each person pays less for insurance, but they pay it more often.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider the following circumstance.  You're twenty-five and expect to live to age seventy-five.  When you are thirty-five, you or one of a thousand other people might have to pay \$100,000.  An insurance company offers to let all thousand of you buy insurance for \$11 a year.  So on one side, you pay \$110 over ten years.  On the other side, you pay \$100,000 over forty years.  Would you rather a guaranteed \$110 or a possible \$100,000?  Assuming an interest/inflation rate of zero.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course, real insurance decisions aren't that well bounded.  But the principle is the same.  You pay a small amount ahead of time to be assured that you won't spend a large amount later.  &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;I was thinking that it would make more sense to save the premium money and use it to pay part of a loan to cover the losses if it happens. That way one would save the trouble of paying insurance and never using it and make better use of that money. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;That would work great if the event was guaranteed to happen to you.  So you have to pay \$100 in ten years, guaranteed.  Or you could pay insurance for ten years.  Say \$11 a year.  Then obviously, you'd be better off saving \$10 a year than buying insurance.  At that level of certainty, there is no risk to offset by pooling.  &lt;/p&gt;&#xA;" OwnerUserId="68" LastActivityDate="2017-04-04T15:13:39.243" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16097" PostTypeId="1" CreationDate="2017-04-04T15:18:57.040" Score="1" ViewCount="27" Body="&lt;p&gt;Can a weaker currency be used to offset supply-side (specifically low productivity of labour) problems of an economy to restore international competitiveness?&lt;/p&gt;&#xA;" OwnerUserId="12752" LastEditorUserId="2776" LastEditDate="2017-04-04T18:38:31.920" LastActivityDate="2017-04-04T18:38:31.920" Title="Can a weaker currency be used to offset lower productivity of labour in an economy?" Tags="&lt;macroeconomics&gt;&lt;currency&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16098" PostTypeId="2" ParentId="14092" CreationDate="2017-04-04T15:25:05.440" Score="0" Body="&lt;p&gt;Milton Friedman would be absolutely shocked by the title of your question. According to his view, Monetarism, and the &lt;a href=&quot;https://en.wikipedia.org/wiki/Quantity_theory_of_money&quot; rel=&quot;nofollow noreferrer&quot;&gt;Quantitative Theory of Money&lt;/a&gt;, &lt;em&gt;inflation is always and everywhere a monetary phenomenon&lt;/em&gt;... But this relation is &lt;strong&gt;positive&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The basic equation is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ QP = MV $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where Q is real output, which in the long run is given by technology and factors of production, P is aggregate prices, M is money base or money supply, and V is the velocity of money. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Taking V constant (not accurate but simple), and Q as given by real factors, then &lt;strong&gt;monetary expansions lead always to inflation&lt;/strong&gt;. This is the opposite to your initial claim. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This story is of course specific to monetarism, and a key foundation of the classical dichotomy. Keynes and Keynesians argue that monetary policy can affect real activity. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regarding your teacher's answer, I think d) is wrong. Consumers and investors care about real interest rate, and not nominal interest rate. As such, GDP should not change. This is consistent with her previous assumption of classical dichotomy in part b).&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-04-04T15:25:05.440" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16099" PostTypeId="2" ParentId="16065" CreationDate="2017-04-04T15:30:08.970" Score="-1" Body="&lt;p&gt;I agree that cryptocurrency can be used to launder illicit gains, but I think this question needs to consider a broader societal context. It is estimated that there is at &lt;a href=&quot;http://www.economist.com/news/leaders/21571873-how-stop-companies-and-people-dodging-tax-delaware-well-grand-cayman-missing-20&quot; rel=&quot;nofollow noreferrer&quot;&gt;least $20 trillion hidden within tax havens&lt;/a&gt; around the world. Much of this is laundered by the very institutions (banks) now claiming that cryptocurrency is a potential space for criminal activity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think a good example of this is China's recent clampdown on Bitcoin within the context of capital outflows. Although it was speculated that Bitcoin trading within China could be used to avoid capital controls, the comparative amount of Bitcoin was a fraction of the overall amount. Bitcoins entire market cap is about USD18 billion, whereas &lt;a href=&quot;https://betterdwelling.com/chinas-capital-outflows-just-reversed-bad-news-for-global-real-estate/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Chinas capital outflows were USD220 billion in 2016&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I suppose my answer is that cryptocurrency will only ever be a cog within a broader illicit machine. Reducing criminal activities like laundering will require systemic and governance changes within our societies, starting tax avoidance and effective regulation on those who are most likely to carry it out - the super rich.  &lt;/p&gt;&#xA;" OwnerUserId="12751" LastActivityDate="2017-04-04T15:30:08.970" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16100" PostTypeId="1" AcceptedAnswerId="41909" CreationDate="2017-04-04T16:26:35.133" Score="11" ViewCount="622" Body="&lt;p&gt;I am reading the paper '&lt;a href=&quot;https://nathanschiff.com/wp-content/uploads/2017/02/Brueckner_Handbook_1987.pdf&quot; rel=&quot;noreferrer&quot;&gt;The Structure of Urban Equilibria&lt;/a&gt;' by Jan Brueckner.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It uses a monocentric city model, where all consumers earn income $y$ at the centre of the city. They buy $q$ housing for a price $p$ at distance $x$ from the centre, incurring transport costs $tx$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consumers have a utility function:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$v(c,q)=v(y - tx - p(\phi)q(\phi),q(\phi))=u$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $\phi=x,y,t,u$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The budget constraint is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$c = y - tx - pq$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/bNUEv.jpg&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/bNUEv.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The tangency condition implies:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac{v_1(y - tx - pq, q)}{v_2(y - tx - pq, q)} = p$   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;where the subscript 1 denotes partial differentiation w.r.t. the first argument etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The paper then discusses how $p$ and $q$ vary with $x, y, t$ and $u$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If $\phi=x,y,t$, we stay on the same indifference curve. I find it relatively straightforward to find $\frac{\partial{p}}{\partial{x}},\frac{\partial{p}}{\partial{y}}$ and $\frac{\partial{p}}{\partial{t}}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If $\eta$ is the slope of the income-compensated demand curve, then $\frac{\partial{q}}{\partial{\phi}} = \eta\frac{\partial{p}}{\partial{\phi}}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now to allow $u$ to vary. The budget constraint swings out to meet a new indifference curve, determining the new $p$ and $q$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can find $\frac{\partial{p}}{\partial{u}}$. Totally differentiate the utility function w.r.t u:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac{d}{du}[v(y - tx - p(\phi)q(\phi),q(\phi))= u] = v_1(-\frac{\partial{p}}{\partial{u}}q-p\frac{\partial{q}}{\partial{u}})+v_2(\frac{\partial{q}}{\partial{u}})=1$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since, by the tangency condition $v_2=pv_1$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$v_1(-\frac{\partial{p}}{\partial{u}}q-p\frac{\partial{q}}{\partial{u}}+p\frac{\partial{q}}{\partial{u}})=v_1(-\frac{\partial{p}}{\partial{u}}q)=1$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So $\frac{\partial{p}}{\partial{u}} = \frac{-1}{qv_1}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The paper then quotes:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac{\partial{q}}{\partial{u}} = [\frac{\partial{p}}{\partial{u}}-\frac{\partial{MRS}}{\partial{c}}\frac{1}{v_1}]\eta$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't know how to derive this. I'm guessing the first term in the square brackets is a substitution effect and the second term is an income effect.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Please help me understand this last expression $\frac{\partial{q}}{\partial{u}} = [\frac{\partial{p}}{\partial{u}}-\frac{\partial{MRS}}{\partial{c}}\frac{1}{v_1}]\eta$ and how to derive it.&lt;/p&gt;&#xA;" OwnerUserId="12371" LastEditorUserId="12371" LastEditDate="2017-06-26T09:16:57.013" LastActivityDate="2021-01-03T02:17:53.523" Title="Calculus and Indifference Curves in an Urban Economics Example" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;consumer-theory&gt;&lt;urban-economics&gt;" AnswerCount="1" CommentCount="5" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16101" PostTypeId="2" ParentId="16051" CreationDate="2017-04-04T18:23:41.877" Score="1" Body="&lt;p&gt;I think your anecdotal evidence is not enough to support your generalisation. In many markets there are just a few big firms (well-known to many), and many small ones (lesser-known). You could imagine a distribution of firm size being left-skewed (like a Chi-Squared or Beta distribution). Actually, this is a table showing the distribution of size by employment for 2014 for the US:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/USaAj.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/USaAj.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Source &lt;a href=&quot;https://www.census.gov/ces/dataproducts/bds/data_firm.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, even if some big companies are closing down, what about the so many other smaller ones? Maybe some of the are also closing down, but this is less salient because they are less known (and less big thus less &quot;important&quot;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, if your claim were to be true, several factor could contribute to it. Most of shoppers in mass-market stores want quality, but also cost-efficiency. Conversely, luxury chains rely particularly on the &lt;strong&gt;value of brands&lt;/strong&gt;. Their shoppers want quality, but also &lt;strong&gt;status&lt;/strong&gt;. Consumers of the former are mainly worried about cost, and therefore &lt;strong&gt;loyalty to brand/stores is more or less inexistent&lt;/strong&gt;. If they can buy cheaper online many would do so. Thus, internet has certainly increased competition for these stores. Conversely, consumers of exclusive shops care about store experience, relations, visibility, things which Amazon cannot give. There might even be an issue of power. You would not spend \$5,000 on a dress buying it online. You would go to the store, where others can see you, and buy it, so other can see your purchasing power.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Greater inequality might be a factor too. Inequality in the US went up since the 1980's. This has been &quot;driven&quot; particularly by a &lt;a href=&quot;http://www.inet.ox.ac.uk/files/WP1.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;stagnation of income for most of households&lt;/a&gt; and a fast increase in top 10 and top 1% income shares. You can imagine that this means great pressure on prices for mass retailers, without an equivalent effect for exclusive retailers. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, big (ergo popular) stores and small (ergo exclusive) stores are &lt;strong&gt;not direct competitors&lt;/strong&gt;. Since brands are precisely a mean of differentiation, many luxury goods face lower competition than mass-market oriented goods (I am sure you can name more brand of cars directly competing with Ford than with Aston Martin). This, together with the status element mentioned earlier, mean that luxury producers (and retailers) are likely to face a &lt;strong&gt;higher price-elasticity of demand&lt;/strong&gt;. Under this setting, they can change &lt;strong&gt;higher markups&lt;/strong&gt; than standard goods producers. This increases the profitability of their business, giving their brand/company &lt;strong&gt;higher life expectancy&lt;/strong&gt;. That is why they are less likely to go bankrupt.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-04-04T18:30:37.463" LastActivityDate="2017-04-04T18:30:37.463" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16104" PostTypeId="2" ParentId="13611" CreationDate="2017-04-04T20:14:10.100" Score="0" Body="&lt;p&gt;If you want to explore and flex your mathematical knowledge, try to derive a model for an environment not usually modeled.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example; try and derive a growth model for your university, and back test it across other universities and their growth&lt;/p&gt;&#xA;" OwnerUserId="12757" LastActivityDate="2017-04-04T20:14:10.100" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16105" PostTypeId="1" CreationDate="2017-04-05T02:07:22.233" Score="5" ViewCount="747" Body="&lt;p&gt;I am curious: what exactly are the problems caused by using representative sampling rather than random sampling whenever creating a subsample of large dataset for nonexperimental analysis. Further, how effective is propensity score matching whenever one wants to create balanced comparison groups for non-experimental analyses?&lt;/p&gt;&#xA;" OwnerUserId="1655" LastEditorUserId="1655" LastEditDate="2017-04-05T03:24:04.937" LastActivityDate="2017-07-24T17:31:12.437" Title="Problems with Representative Sampling" Tags="&lt;econometrics&gt;&lt;applied-econometrics&gt;&lt;randomized-experiment&gt;" AnswerCount="2" CommentCount="7" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="16106" PostTypeId="2" ParentId="16084" CreationDate="2017-04-05T04:33:30.607" Score="2" Body="&lt;p&gt;Brythan comes close with his answer.  The reason that you don't take out a loan is because the lender would have to take the risk on your future income.  When the reason you are taking the loan is for health reasons, the risk of not having enough future income to repay the loan is high.  Most people can't get a loan for a car even when the car is used for collateral.  When you have nothing but your health to secure the loan, the risk to the lender is unrealistic and not likely to be approved.  Insurance works because it is expected that some of the people buying it will never use it or use so little of it to not matter.  The risk to insurance companies decreases for ever person that falls into the low use group.  The best money use to avoid insurance would be to put your premium money into a high yield savings account or other investment and hope for the best.  &lt;/p&gt;&#xA;" OwnerUserId="12763" LastActivityDate="2017-04-05T04:33:30.607" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16107" PostTypeId="2" ParentId="16084" CreationDate="2017-04-05T04:51:13.547" Score="2" Body="&lt;p&gt;I think insurance and loan cover very different problems.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Insurance covers potential losses for a fee. You take insurance to mitigate risk. By accepting a relatively small loss, you do not need to plan or worry about big failures or losses.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand, loans do not protect you from any losses. Loans provide cash when you do not have enough right now. Remember that you still have to pay your loan back (or go bankrupt with all its demerits).&lt;/p&gt;&#xA;" OwnerUserId="12764" LastActivityDate="2017-04-05T04:51:13.547" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16109" PostTypeId="1" AcceptedAnswerId="16125" CreationDate="2017-04-05T06:40:03.677" Score="0" ViewCount="375" Body="&lt;p&gt;I'm trying to solve a utility maximization problem through the Lagrange method. &#xA;The utility function is something like $u(x,y)=x+B(y-a)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, I'm running into problems as x and y do not come up in the First Order Conditions. I was wondering if anyone had an intuitive explanation as for why, and how to get around it?&lt;/p&gt;&#xA;" OwnerUserId="12471" LastEditorUserId="2776" LastEditDate="2017-04-05T08:59:14.953" LastActivityDate="2017-04-05T21:00:54.963" Title="Troubleshooting Utility Maximization with the Lagrange Method" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;choice-theory&gt;" AnswerCount="1" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="16110" PostTypeId="1" CreationDate="2017-04-05T08:20:05.117" Score="5" ViewCount="552" Body="&lt;p&gt;I am wondering how countries are able to force everyone to use its own currency, instead of some external currency (like the U.S. dollar or Bitcoin or cookies or something else not under government control). If businesses and citizens decide that they do not like the national currency (perhaps it is too turbulent or some other reason), and instead decide that they would like to &quot;barter&quot; a third-party currency for goods and services rather than &quot;buying&quot; those goods and services with the national currency, then the country would lose control of its own currency. This does happen at a small scale, where small businesses may accept a cryptocurrency instead of the local currency.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What different methods can a country employ to ensure that it does not lose control of its currency because its citizens switch to an unofficial alternate currency not controlled by the government?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If this situation does occur, how can a government still collect taxes on the exchange of this alternate money for goods and services? If I wanted to pay someone to mow my lawn in cookies instead of currency, the government could not tax this. If every business and citizen began treating cookies as the main form of payment, the government would lose all tax revenue. How can it stop this from happening?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the answer involves creating a law that says &quot;10% of all cookies (or bitcoins or something else) must be given to the government&quot;, then what prevents that currency from swiftly changing its name? Perhaps cookies become brownies, which do not fall under the law. Or bitcoins become a different cryptocurrency, or just change their name. This would become a game of cat-and-mouse between the laws and the currency. It seems like accepting alternate, nontaxable unofficial currencies, would become economically beneficial for both companies and individuals. Yet established governments in the world do not have this problem. How?&lt;/p&gt;&#xA;" OwnerUserId="12766" LastActivityDate="2018-02-08T17:10:14.717" Title="How can a country ensure its national currency is used by its citizens?" Tags="&lt;currency&gt;&lt;taxation&gt;&lt;government&gt;" AnswerCount="3" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16111" PostTypeId="2" ParentId="16092" CreationDate="2017-04-05T09:52:39.147" Score="1" Body="&lt;p&gt;I'm afraid that with the information you state, this is impossible.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Say there are three items in the CPI: housing, food, and energy. Define the weight of each component in total CPI, &lt;strong&gt;weight which can vary over period&lt;/strong&gt;, as $w_{h,t}$, $w_{f,t}$, and $w_{e,t}$ respectively. By definition, they add up to 1. Similarly, define the CPI series of each item as $P_{h,t}$, $P_{f,t}$, and $P_{e,t}$ respectively. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The CPI index for all but energy goods, $P_{hf,t}$ is given by:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ P_{hf,t} \equiv \frac{w_{h,t}}{w_{h,t}+w_{f,t}}P_{h,t} + \frac{w_{f,t}}{w_{h,t}+w_{f,t}}P_{f,t}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Although you know $P_{hf,t}$, you do not know any of the other 4 terms, &lt;strong&gt;for each period&lt;/strong&gt;. As such, this is an undetermined system. In the case of a CPI with $N$ items, the system has $2(N-1)$ unknowns.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If weights are constant, you cannot get much further either. Say that you have $T$ number of periods. Then, you have a system of equations like&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ A_{t} = bX_{t} + cY_{t} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where only $A_{t}$ is known. This is also undetermined. You can only write $X_{t}$ as a function of $Y_{t}$, $b$ and $c$. (and viceversa).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;A second best approach?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You have one option though. You could compute the &lt;strong&gt;&quot;vector distribution&quot; of the all-CPI index&lt;/strong&gt;. To see this, notice that the total price index, $P_{t}$ is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ P_{t} \equiv w_{h,t}P_{h,t} + w_{f,t}P_{f,t} + w_{e,t}P_{e,t} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is equal to&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ P_{t} = (w_{h,t}+w_{f,t})P_{hf,t} + w_{e,t}P_{e,t} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But weights add up to one. Therefore, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ P_{t} = (1-w_{e,t})P_{hf,t} + w_{e,t}P_{e,t} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or better:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ P_{t} = P_{hf,t} + w_{e,t}(P_{e,t}-P_{hf,t}) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, since you know the CPI index for energy-only ($P_{e,t}$) and for all-but-energy ($P_{hf,t}$), you could compute $P_{t}$ for a given assumption on the energy weight on total CPI. You can, for instance, look into other similar countries and see how much this weight is. Or look for related information on this respect. This number cannot be wildly different across countries. So you can still get a rough idea of general CPI.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-04-05T09:52:39.147" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16113" PostTypeId="2" ParentId="16110" CreationDate="2017-04-05T12:59:31.573" Score="3" Body="&lt;p&gt;First of all, please check the properties of money and keep them in mind. Indeed money is a convention, but nobody forces you to use it. For example, prisoners use ciggarettes as a medium of exchange.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But let's assume you are the absolute ruler of a country and you want your people to use your currency. You can either do it by force or you have to give incentives to your citizens.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The most important function of a new currency is to hold its value. If let's say my new currency holds value against yen, dollar or euro, then there's no reason for not using it. It's convenient and stable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How to do this? Via monetary and fiscal policy, using gold standard or by giving it prefix value against another stable currency. For example, a bunch of eastern european countries have a prefixed exchange like Bulgaria (check Bulgarian lev in wikipedia).&lt;/p&gt;&#xA;" OwnerUserId="11470" LastActivityDate="2017-04-05T12:59:31.573" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16114" PostTypeId="2" ParentId="14989" CreationDate="2017-04-05T13:43:56.383" Score="2" Body="&lt;p&gt;Hayek's The Constitution of Liberty is in my opinion the place to start. It has a lot of references to John Stuart Mill (which whom he strongly disagrees, btw), and puts forward his argument on freedom. There is also a very recent (but rather long) analysis of Hayek's book (available online &lt;a href=&quot;http://iea.org.uk/sites/default/files/publications/files/Hayek%27s%20Constitution%20of%20Liberty.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;), which dissects his influences. &lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-04-05T14:13:23.890" LastActivityDate="2017-04-05T14:13:23.890" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16115" PostTypeId="1" AcceptedAnswerId="16117" CreationDate="2017-04-05T14:18:02.803" Score="7" ViewCount="246" Body="&lt;p&gt;I have just joined this Stack Exchange site and I was reading the following question: &lt;a href=&quot;https://economics.stackexchange.com/questions/35/what-are-the-foundational-equations-of-economics&quot;&gt;What are the foundational equations of Economics?&lt;/a&gt;. I have seen a couple of times the following equation in that post:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\mathbb{E}[mR]=1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have a certain idea of what it might mean, but could someone explain its meaning (or at least what do $m$ and $R$ stand for? It is difficult to Google it if I don't know what these 2 quantities are).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, is the expectation $\mathbb{E}[\cdot]$ taken w.r.t to any particular probability measure, or simply with respect to the real world measure?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;PS:&lt;/strong&gt; I apologize if the tags are not well-suited to the question, I have tried to guess what this equation might be related to.&lt;/p&gt;&#xA;" OwnerUserId="12770" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2017-04-06T08:41:59.737" Title="What is the equation $\mathbb{E}[mR]=1$?" Tags="&lt;finance&gt;&lt;financial-economics&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16116" PostTypeId="2" ParentId="16110" CreationDate="2017-04-05T15:18:19.830" Score="1" Body="&lt;p&gt;Legally what you are describing is bartering, i.e: exchanging goods or services for other goods or services. According to the U.S IRS bartering counts as taxable income and must be reported on tax forms for the fair market value of the product as income. (&lt;a href=&quot;https://www.irs.gov/uac/four-things-to-know-about-bartering-1&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.irs.gov/uac/four-things-to-know-about-bartering-1&lt;/a&gt;). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;While in practice some kid mowing his neighbors lawn who gets paid in cookies probably can get away with tax avoidance in the same way that waiters can get away with not reporting their cash tips as income if the entire system shifted over to bartering rather than using USD you better believe the IRS would step up their enforcement.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Basically, it doesn't matter what is being exchanged for goods and services for tax purposes. What matters is the fairmarket value of the exchange. So if I give you 1 bitcoin for doing my taxes then the gov't will tax you the same as if I paid you in the fair market value for bitcoins ($1127.90 at present rates)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Edit: This obviously only applies to the U.S but I imagine most countries have similar regulations to get around this exact loophole)&lt;/p&gt;&#xA;" OwnerUserId="10245" LastActivityDate="2017-04-05T15:18:19.830" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="16117" PostTypeId="2" ParentId="16115" CreationDate="2017-04-05T15:58:28.830" Score="7" Body="&lt;p&gt;This is an important result in financial economics (asset pricing) but not trivial to explain intuitively. I do my best to give you the big picture and get you started on your research. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;R&lt;/strong&gt; is the &lt;strong&gt;return on an asset or portfolio&lt;/strong&gt;.  Any asset or portfolio.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;m&lt;/strong&gt; is the &lt;strong&gt;stochastic discount factor&lt;/strong&gt; or &lt;strong&gt;pricing kernel&lt;/strong&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The expectation here is over &lt;strong&gt;possible states of the world&lt;/strong&gt; given information at time t (m and R are as of t+1).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;These are physical, not risk-neutral, probabilities. In fact, a (positive) stochastic discount factor is what &lt;strong&gt;is used to translate physical to risk-neutral probabilities&lt;/strong&gt;.  In a discrete case, the risk-neutral probability is the risk free rate times the physical probability times the value of the stochastic discount factor in that state.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The stochastic discount factor takes on a different value for each possible state of the world (that's the sense in which it is stochastic).  But it doesn't change for each different asset.  If it exists, a stochastic discount factor can be applied to every asset in the economy and price them all correctly.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Facts about the SDF:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;The existence of such a factor is equivalent to the &lt;strong&gt;law of one price&lt;/strong&gt; holding.  &lt;/li&gt;&#xA;&lt;li&gt;If it is always positive, &lt;strong&gt;there are no arbitrage opportunities in financial markets&lt;/strong&gt;.  &lt;/li&gt;&#xA;&lt;li&gt;If and only if &lt;strong&gt;markets are complete&lt;/strong&gt;, then the stochastic discount factor is unique.&lt;/li&gt;&#xA;&lt;li&gt;The expectation of the SDF is the &lt;strong&gt;risk-free rate&lt;/strong&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;There are a lot of theoretical uses of this relation and important related results---many fundamental results in finance can be interpreted in an SDF context, though many of those results came before development of SDF theory.  For many common utility functions we can derive the form of the SDF for a representative agent theoretically.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm sorry if my answer isn't super accessible.  The equation is simple, but stochastic discount factor theory can be a little opaque.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Resources to consider reading:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://faculty.chicagobooth.edu/john.cochrane/research/papers/cochrane-culp%20asset%20pricing.pdf&quot; rel=&quot;noreferrer&quot;&gt;Cochrane and Culp's chapter in &lt;em&gt;Modern Risk Management: A History&lt;/em&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Asset Pricing and Portfolio Choice Theory&lt;/em&gt;, by Kerry Back&lt;/p&gt;&#xA;" OwnerUserId="12673" LastEditorUserId="12673" LastEditDate="2017-04-05T17:26:43.650" LastActivityDate="2017-04-05T17:26:43.650" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16118" PostTypeId="1" CreationDate="2017-04-05T17:58:53.770" Score="3" ViewCount="454" Body="&lt;p&gt;From Daron Acemoglu's Introduction to Modern Economic Growth, proposition 9.4 is that:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In the overlapping-generations model with two-period lived&#xA;  households, Cobb-Douglas technology and CRRA preferences, there exists a unique steady-state equilibrium with the capital-labor ratio k* given by (9.15) and as long as $\theta \geq 1$, this steady-state equilibrium is globally stable for all k (0) &gt; 0.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;where (9.15) is:&#xA;$$(1+n)[1+\beta^{-\frac{1}{\theta}}(\alpha(k^*)^{\alpha-1})^{\frac{\theta-1}{\theta}}] = (1-\alpha)(k^*)^{\alpha - 1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is why $\theta$ has to be greater than or equal to 1 for the steady-state equilibrium to be globally stable?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As the textbook derives in (9.17):&#xA;$$k(t+1)=\frac{(1-\alpha)k(t)^\alpha}{(1+n)[1+\beta^{-\frac{1}{\theta}}(\alpha k(t+1)^{\alpha-1})^{\frac{\theta-1}{\theta}}]}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can rearrange to get:&#xA;$$\begin{align}&#xA;k(t)&amp;amp;=\big[  \frac{1+n}{1-\alpha}  [k(t+1)+\beta^{-\frac{1}{\theta}}\alpha^{\frac{\theta-1}{\theta}}k(t+1)^{(\alpha-1)(1-\frac{1}{\theta})+1}]   \big]^\frac{1}{\alpha} \text{  .....(1)}&#xA;\end{align} &#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $n = 0.01$, $\alpha = 0.25$, $\beta = 0.75$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If $\theta = 1$, we can plot the graph:&#xA;&lt;a href=&quot;https://i.stack.imgur.com/K6pb1.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/K6pb1.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The blue line is equation (1) where $\theta = 1$  and the red line is 45-degrees line. It can be seen that for all k &gt; 0, k will converge to steady-state k*. The steady-state equilibrium is globally stable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The case is similar for $\theta &amp;gt; 1$, in which the steady-state equilibrium is globally stable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If $\theta &amp;lt; 1$, like $\theta = 0.5$, we can plot the graph similar to:&#xA;&lt;a href=&quot;https://i.stack.imgur.com/oFXRD.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/oFXRD.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The graph is similar to graphs for the case that $\theta \geq 1$. The steady-state equilibrium is still globally stable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can't find a case where $\theta &amp;lt; 1$, but the steady-state equilibrium is not globally stable. It seems that $\frac{1}{\alpha} &amp;gt; 1$ for $\alpha \in (0,1)$ determines the shape of equation (1), making the steady-state equilibrium globally stable. It would be good if someone could show me a counter-example where $\theta &amp;lt; 1$, but the steady-state equilibrium is not globally stable. It would be better if someone could show me how to prove proposition 9.4 formally.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Acknowledgement: The graphs are modified from those generated by Wolframalpha.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Edit (Apr 19, 2017)&lt;/strong&gt;:&#xA;Case $\theta = 0$:&#xA;Note that when the textbook derives (9.17), it implicitly assumes that $\theta \neq 0$ (for derivation of Euler equation for consumption in P.333 of 2009 edition of the textbook). When $\theta = 0$, equation (1) no longer applies. Returning to the utility maximization problem with $\theta = 0$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\text{max } U(t) = c_1(t) + \beta(c_2(t+1)) \text{ such that } c_1(t) + \frac{c_2(t+1)}{R(t+1)} = w(t) \\&#xA;\Leftrightarrow &#xA;\text{max } U(t) = c_1(t) + \beta(w(t) - c_1(t))R(t+1) = c_1(t) (1 - \beta R(t+1)) + \beta R(t+1)w(t) \\ \text{   ...Should treat R(t+1) as given as consumer's own optimization problem}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;s(t) has to be non-negative for $k(t+1) = \frac{s(t)}{1+n}$ and k(t+1) is non-negative.&#xA;$$&#xA;c_1(t)^* = \begin{cases}&#xA;w(t)\text{, for }\beta R(t+1) &amp;lt;1 \\&#xA;[0, w(t)]\text{, for }\beta R(t+1) = 1 \\&#xA;0\text{, for }\beta R(t+1) &amp;gt; 1 \\&#xA;\end{cases}&#xA;$$&#xA;$$&#xA;s(t)^* = \begin{cases}&#xA;0\text{, for }\beta R(t+1) &amp;lt;1 \\&#xA;w(t) - c_1(t)^* \in [0, w(t)]\text{, for }\beta R(t+1) = 1 \\&#xA;w(t)\text{, for }\beta R(t+1) &amp;gt; 1 \\&#xA;\end{cases}&#xA;$$&#xA;For $R(t+1) = f'(k(t+1)) = \alpha k(t+1)^{\alpha - 1}$,&#xA;$$&#xA;k(t+1) = \frac{s(t)}{1+n}  = \begin{cases}&#xA;0\text{, for }\beta R(t+1) &amp;lt;1 \Leftrightarrow  k(t+1) &amp;lt; (\alpha \beta)^{\frac{1}{1 - \alpha}} \\&#xA;\frac{w(t) - c_1(t)}{1+n} \in [0, \frac{w(t)}{1+n}]\text{, for }\beta R(t+1) = 1 \Leftrightarrow  k(t+1) = (\alpha \beta)^{\frac{1}{1 - \alpha}}\\&#xA;\frac{w(t)}{1+n} = \frac{k(t)^\alpha - k(t)\alpha k(t)^{\alpha -1}}{1+n} = \frac{1-\alpha}{1+n}k(t)^\alpha\text{, otherwise} \Leftrightarrow k(t) &amp;gt; [\frac{1+n}{1 - \alpha} (\alpha \beta)^{\frac{1}{1 - \alpha}}]^{\frac{1}{\alpha}} \\&#xA;\end{cases}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Cases:&lt;br&gt;&#xA;Case 1: $\beta R(t+1) &amp;lt; 1 \Leftrightarrow R(t+1) &amp;lt; \frac{1}{\beta}$:&#xA;As the production function $f(k)$ is Cobb-Douglas, it satisfies the Inada condition: $lim_{k(t) \to 0} f'(k(t)) = \infty$. But as $f'(k(t)) = R(t)$, $lim_{k(t) \to 0} R(t) &amp;lt; \infty$ for $R(t) &amp;lt; \frac{1}{\beta} &amp;lt; \infty$ as $\beta \in (0,1)$, violating the Inada condition. This contradiction means this case is impossible.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Case 2: $\beta R(t+1) = 1 \Leftrightarrow \beta \alpha k(t+1)^{\alpha-1} = 1 \Leftrightarrow  k(t+1)^{\alpha-1} = \frac{1}{\alpha \beta} \Leftrightarrow k(t+1)^{1-\alpha} = \alpha \beta$:&#xA;Denote saving rate at t as $\mathcal{S}(t) = \frac{s(t)}{w(t)}$. $k(t+1) = \frac{s(t)}{1+n} = \frac{\mathcal{S}(t)w(t)}{1+n} = \frac{\mathcal{S}(t)(1-\alpha)k(t)^\alpha}{1+n}$. At steady state, $k^* = \frac{\mathcal{S}^*(1-\alpha){k^*}^\alpha}{1+n}$, meaning $\mathcal{S}^* = \frac{1+n}{1-\alpha}{k^*}^{1-\alpha} = \frac{1+n}{1-\alpha} \alpha \beta$. For $\mathcal{S}^* &amp;gt; 1 \Leftrightarrow (1+n)\alpha\beta &amp;gt; 1 - \alpha \Leftrightarrow \beta &amp;gt; \frac{1 - \alpha}{\alpha (1+n)}$, which is possible. As saving rate cannot be larger than 1, this contradiction means this case is impossible.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Case 3: $\beta R(t+1) &amp;gt; 1$:&#xA;This case is possible.&#xA;$$&#xA;k(t+1) = \frac{1-\alpha}{1+n} k(t)^\alpha&#xA;$$&#xA;We can draw the graph:&lt;a href=&quot;https://i.stack.imgur.com/t6Q94.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/t6Q94.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;br&gt;&#xA;The red line is 45-degrees line. The blue line is $k(t+1) = \frac{1-\alpha}{1+n} k(t)^\alpha$ where $0 &amp;lt; \alpha &amp;lt; 1$. For all k(0) &gt; 0, k will converge to steady state $k^* = \frac{1-\alpha}{1+n} {k^*}^\alpha \Leftrightarrow k^* = [\frac{1-\alpha}{1+n}]^{\frac{1}{1-\alpha}}$. The steady-state equilibrium is globally stable.&lt;/p&gt;&#xA;" OwnerUserId="12774" LastEditorUserId="12774" LastEditDate="2017-04-19T01:44:22.173" LastActivityDate="2017-04-19T10:05:21.537" Title="Stability of steady-state equilibrium for overlapping generation model" Tags="&lt;macroeconomics&gt;&lt;economic-growth&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16120" PostTypeId="2" ParentId="16115" CreationDate="2017-04-05T18:46:55.207" Score="0" Body="&lt;p&gt;$Ε(mR) =1$ is a particular version of the general intertemporal long-run equilibrium/steady-state condition/relation&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\text{One-period discount factor}\times \text{Gross Interest rate factor} = 1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$R$ is the Gross interest rate factor $R=1+r$ where $r$ is the real interest rate. The &quot;discount factor&quot; may take different forms depending on the exact formulation of each model. In the simplest case, it is a constant expressing the observed fact that people &lt;em&gt;inherently&lt;/em&gt; prefer the present to the future, and so they &quot;discount&quot; future consumption (note: this is &lt;em&gt;not&lt;/em&gt; a proxy for the existence of uncertainty, discounting of the future exists even in a deterministic setting).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The expected-value operator $E$ is used when the model is stochastic. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a setting of intertemporal maximization of an &lt;a href=&quot;https://economics.stackexchange.com/q/16034/61&quot;&gt;additively separable&lt;/a&gt; utility function, this is the condition for a steady-state equilibrium imposed on the &quot;Euler equation&quot; which in turn emerges as a first-order necessary condition for the recursive optimization problem.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2017-04-05T18:46:55.207" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16121" PostTypeId="1" CreationDate="2017-04-05T18:55:32.567" Score="0" ViewCount="170" Body="&lt;p&gt;I understand how monetary policy can be used to heat up an economy by increasing the money supply, but how can a fiscal policy do so? When the government borrows money to increase spending, it is not as if that money would have just been sitting under somebody's mattress; it would have been loaned to some other entity, whose spending of that money (as far as I know) would cause just as much economic activity as if the government spent it. In addition, the government's demand for money would should raise interest rates and/or strengthen the dollar, which is the opposite of what I generally think of when it comes to an &quot;expansionary&quot; policy. Also, while money could be lent by entities in other countries, that money would just have to flow back out in the form of more imports, so domestic AD shouldn't be affected, no?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The only thing I can think of is that the government can spend 100% of the money that it borrows, whereas if that money went into a bank account, a small portion would not be lent out due to reserve requirements; does that make all the difference?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's been years since I took an econ class, and I know this is 101 stuff, but I can't figure out what I'm missing...&lt;/p&gt;&#xA;" OwnerUserId="12773" LastActivityDate="2017-04-16T01:35:28.593" Title="Since it doesn't change the money supply, how can an &quot;expansionary&quot; fiscal policy alone spur economic growth?" Tags="&lt;macroeconomics&gt;&lt;fiscal-policy&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16122" PostTypeId="2" ParentId="16075" CreationDate="2017-04-05T19:35:07.443" Score="2" Body="&lt;p&gt;In former times, seignorage was a &lt;em&gt;de facto&lt;/em&gt; fee charged by a government authorized mint for converting precious (or semi-precious) metals into &lt;em&gt;de facto&lt;/em&gt; trademarked hard currency.  Typically a mint would charge about a ten percent fee for this service.  Anyone in possession of the hard currency could &quot;redeem&quot; the currency by melting it down back into the original metals, and thereby recover the remainder of the currency's value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In countries that do not rely on hard currency for most daily transactions, seignorage occurs in two stages:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;A government borrows purchasing power, and issues a coin or note in exchange.  The government promises to repay the purchasing power upon return of the coin or note.  An accountant would say that this is the &quot;cash flow&quot; part of the seignorage transaction.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The government defaults on the promise to repay the purchasing power.  This can happen explicitly (like when the U.S. refused to repay silver certificates in silver, or when the U.S. &quot;closed the gold window&quot;) or implicitly via inflation of price levels stated in government notes.  An accountant would say that this is the &quot;revenue&quot; part of the seignorage transaction.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.federalreserve.gov/faqs/currency_12773.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;According to the U.S. Federal Reserve&lt;/a&gt;, about 1.5 trillion (1.5 million million) U.S. dollars were in circulation in 2017.  This amount has been increasing at the rate of about 90 billion (90,000 million) U.S. dollars per year.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the rate of the U.S.' seignorage incremental borrowing per year is about 90 billion dollars per year.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The official U.S. inflation rate has been in the range of 0 to 3 percent per year during the last few years.  If &lt;a href=&quot;http://www.multpl.com/inflation/table&quot; rel=&quot;nofollow noreferrer&quot;&gt;the average is 1.6 percent per year&lt;/a&gt;, then the amount of seignorage revenue (i.e. &lt;em&gt;de facto&lt;/em&gt; default on the purchasing power of U.S. dollar notes in circulation) is about 25 billion (25,000 million) U.S. dollars per year.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In addition, the U.S. Federal Reserve purchased about 4 trillion (4 million million) U.S. dollars worth of mortgages and other securities during and shortly after the 2008 financial crisis.  It &quot;increased the monetary base&quot; when it purchased these securities.  In other words, it used seignorage to provide the electronic money used to purchase these securities.  At an average inflation rate of 1.6 percent per year, this is about 65 billion (65,000 million) U.S. dollars of seignorage revenue per year.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The U.S. Federal Reserve uses its net income from (after being laundered from seignorage revenues into net interest on securities and capital gains on securities sales) to make dividend payments to the United States Treasury.  &lt;a href=&quot;https://www.federalreserve.gov/newsevents/pressreleases/other20140110a.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;From 2010 through 2013&lt;/a&gt;, these dividend payments were about 75 billion (75,000 million) U.S. dollars per year.&lt;/p&gt;&#xA;" OwnerUserId="5266" LastEditorUserId="5266" LastEditDate="2017-04-05T19:57:33.333" LastActivityDate="2017-04-05T19:57:33.333" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16123" PostTypeId="1" CreationDate="2017-04-05T19:54:21.683" Score="0" ViewCount="53" Body="&lt;p&gt;I've been trying to find the work for which Friedman was awarded the Nobel prize in economics. Does anybody know what was he awarded the prize for and where can you read the original paper?&lt;/p&gt;&#xA;" OwnerUserId="12776" LastEditorUserId="2776" LastEditDate="2017-04-06T19:45:04.340" LastActivityDate="2017-04-06T19:45:04.340" Title="Request of references regarding Friedman's Nobel Prize" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16124" PostTypeId="2" ParentId="16123" CreationDate="2017-04-05T20:22:23.500" Score="4" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;The Royal Swedish Academy of Sciences has decided to award the 1976 Prize in Economic Sciences in Memory of Alfred Nobel to Professor Milton Friedman, University of Chicago, Illinois, USA, for his achievements in the fields of consumption analysis, monetary history and theory, and for his demonstration of the complexity of stabilization policy. [...]&#xA;  His major work, A Monetary History of the United States,1867 - 1960, is regarded as one of Friedman's most profound and also most distinguished achievements. Most outstanding is, perhaps, his original and energetically pursued study of the strategic role played by the policy of the Federal Reserve System in sparking off the 1929 crisis, and in deepening and prolonging the depression that followed. The critics agree that this is a monumental scientific work which will long stimulate the re-examination of the course of events during this epoch.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/1976/press.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/1976/press.html&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2017-04-05T20:22:23.500" CommentCount="10" ContentLicense="CC BY-SA 3.0" />
  <row Id="16125" PostTypeId="2" ParentId="16109" CreationDate="2017-04-05T21:00:54.963" Score="1" Body="&lt;p&gt;You needn't use the Lagrange here. And in general, this will be true for additively separable, linear utility functions. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that the marginal rate of substitution between any two goods $i,j$ is a utility function of the form $u(x_1,x_2,...,x_n)=a_1x_1+...+a_nx_n$ will be constant at $MRS_{i,j}=\frac{a_i}{a_j}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A consumer will buy none of a good $x_i$ whenever $\frac{u_i}{p_i}$ is below the maximum such ratio of the $n$ goods. A consumer will exhaust her budget on whichever good has the maximum such ratio. And if all such ratios are equal, the consumer is indifferent between any consumption bundle that exhuats wealth $w$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For your case of two goods, indifference curves are linear. For more than two goods, they are hyperplanes. &lt;/p&gt;&#xA;" OwnerUserId="1655" LastActivityDate="2017-04-05T21:00:54.963" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16126" PostTypeId="2" ParentId="15900" CreationDate="2017-04-05T21:06:45.293" Score="3" Body="&lt;p&gt;I think I can explain the problem as to why the schools persist.  For simplicity we will limit ourselves to the Marxist, Austrian, Neoclassical and Neo Keynsian schools.  I am not sure where to put the Feminist school except under the broad heading of heterodox with Marxists and Austrians as I don't think of it as a school so much as an attitude or direction of thinking.  The same thing would be true for Green economics, it isn't so much a school as a domain.  There are many small groups out there.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For starters, economics is a broad umbrella that prefers dissent and maybe even vocal and extensive dissent.  Part of economics is part of the humanities and part of economics is in the sciences.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Austrian economics as thought through by von Mises argues that there can be no way to measure what they are saying and so they are part of the humanities.  The neoclassical and the neo Keynesian school say any claim that is stated should be measurable and falsifiable, so it is in the sciences.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That said, any serious review of von Mises and related writers would tend to drive one down the path well laid by Leonard Jimmie Savage and his personalistic statistics and in doing so would have a complete empirical methodology.  I believe the branch of the Austrian school that says things cannot be measured simply hasn't read enough statistics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The two primary schools, the modern Keynesian and Classical forms, are empirical and the reason you cannot rule one out is that both are empirically supported even though they are contradictory.  This is similar to the problem between quantum physics and relativistic physics.  They make contradictory assertions.  It is impossible that both are true, except where they don't overlap.  Yet they both work everywhere else.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The best tool for model selection in that it is both disciplined and founded on well understood mathematical principles is Bayesian model selection.  Non-Bayesian methods assume that you know the null model and you assert the model is true.  This works great for binary problems but is terrible for non-binary problems.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we define a model space as indexed on the set $I$, with $i\in{I}$ and a set of models, $M$, so that $\mathcal{M_i}\in{M}$ and with vectors of parameters $\theta_i\in\Theta_i$ in a parameter space $(\theta_i,\mathcal{M}_i)\in\Theta\times{M}$ then we can solve the problem of the best model.  Best in this case being understood as being most probably close to the data generating function.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The probability that a model is the true model, from a set of models and given a data set, $X$, is $$\Pr(\mathcal{M_i}|X)=\int_{\theta_i\in\Theta_i}\frac{\Pr(X|\theta_i;\mathcal{M}_i)\Pr(\theta_i;\mathcal{M}_i)}{\sum_{\mathcal{M}_i\in{M}}\int_{\theta_i\in\Theta_i}\Pr(X|\theta_i;\mathcal{M}_i)\Pr(\theta_i;\mathcal{M}_i)\mathrm{d}\theta_i}\mathrm{d}\theta_i$$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;While this methodology works generally and works especially well on a problem by problem basis it won't answer which school is best since it will provide contradictory solutions across specific problems.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is really needed is a better, overarching explanation of what triggers Keynesian-like effects and what triggers Classical-like effects.  My suspicion is that it is stochastic shocks in the planetary budget constraint compared to where that constraint is expected to be at by the individual actors.&lt;/p&gt;&#xA;" OwnerUserId="11321" LastEditorUserId="11321" LastEditDate="2017-04-06T14:48:44.493" LastActivityDate="2017-04-06T14:48:44.493" CommentCount="10" ContentLicense="CC BY-SA 3.0" />
  <row Id="16127" PostTypeId="2" ParentId="16118" CreationDate="2017-04-05T22:20:21.797" Score="1" Body="&lt;p&gt;In p. 334 of the book (2009 edition), I read:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;Proposition 9.4&lt;/strong&gt; In the overlapping-generations model with two-period lived households, Cobb-Douglas technology and CRRA&#xA;  preferences, there exists a unique steady-state equilibrium with the&#xA;  capital-labor ratio $k^*$ given by (9.15) and &lt;strong&gt;for any $\theta &amp;gt;0$&lt;/strong&gt;&#xA;  this steady-state equilibrium is globally&#xA;  stable for all k (0) &gt; 0.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;...it does not say &quot;...as long as $\theta \geq 1$&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;ADDENDUM :&lt;/strong&gt; The case $\theta =0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The OP elaborated on the case $\theta=0$. So let's attempt to solve this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here, intertemporal utility becomes linear in consumption. Also, we will allow consumption to be zero -assume that there is an exogenous endowment that takes care of the biological needs of the individuals here and cannot be used for any other purpose, so the consumption choice is not about survival. Still, we are interested in economically interesting cases, so we exclude the case $c_2=0$ because this would mean that the capital stock will be zero, and the economy will stop. So we allow only for $c_1=0$. Then, incorporating the equality constraint in the objective function we solve&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\max U = c_1(t) + \beta R(t+1)[w(t)-c_1(t)]\;\;\; s.t.\;\; 0\leq c_1(t) &amp;lt; w(t)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the Lagrangian is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Lambda = c_1(t) + \beta R(t+1)[w(t)-c_1(t)] + \lambda c_1(t)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and the f.o.c. is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$1 - \beta R(t+1) +\lambda \leq 0,\;\;\;\; (1 - \beta R(t+1) +\lambda)\cdot c_1(t) = 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I will ignore issues of second-order conditions for a maximum.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;CASE 1.&lt;/strong&gt; Assume &#xA;$$c_1^*(t) &amp;gt;0 \implies \lambda=0 \implies 1 = \beta R(t+1)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies 1 = \beta ak(t+1)^{a-1} \implies k(t+1) = (a\beta)^{1/(1-a)}$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But this must hold for &lt;em&gt;all&lt;/em&gt; time periods, so it can hold only for a specific value of initial capital endowment and not for all $k(0) &amp;gt;0$. So already, we see that this case does not satisfy the conditions for which Proposition 9.4 is stated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;CASE 2.&lt;/strong&gt; Assume &#xA;$$c_1^*(t) =0 \implies \lambda&amp;gt;0 \implies 1 - \beta R(t+1) +\lambda \leq 0 \implies \beta R(t+1) &amp;gt; 1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies \beta ak(t+1)^{a-1} &amp;gt;1 \implies k(t+1) &amp;lt; (a\beta) ^{1/(1-a)}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here the capital stock must remain below a certain fixed level at all time periods. Again, this imposes constraints on the value of the initial capital stock $k(0)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So in both cases, if a steady-state equilibrium exists, it cannot be &quot;&lt;em&gt;globally&lt;/em&gt; stable, for &lt;em&gt;all&lt;/em&gt; $k(0)&amp;gt;0$&quot;.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2017-04-19T10:05:21.537" LastActivityDate="2017-04-19T10:05:21.537" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="16128" PostTypeId="1" AcceptedAnswerId="16158" CreationDate="2017-04-05T22:53:03.787" Score="3" ViewCount="42" Body="&lt;p&gt;This is a question about educational economics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is a phenomenon when studying countries like the USA and Chile (that have implemented voucher systems) that reducing the friction in a &quot;marketplace&quot; in education (e.g. choosing a school) results in a reduction in equality. It results in stratification of students into schools that match with social class.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems fairly obvious to me that this is a phenomenon that I'm sure has been studied or talked about in economics in a general way - I just don't even know where to look.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm looking for research into the idea that where there is some kind of inelastic good (e.g. health, housing, education) then reducing friction in a market will always have an effect of reducing equality.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Has anybody studied this? Any pointers to literature? Or if I'm just wrong in my observation of this being &quot;fairly obvious&quot; then I'd love to hear it.&lt;/p&gt;&#xA;" OwnerUserId="12777" LastEditorUserId="2776" LastEditDate="2017-04-07T06:56:00.023" LastActivityDate="2017-04-09T07:40:00.763" Title="Is there any work on equality in a market versus friction?" Tags="&lt;reference-request&gt;&lt;elasticity&gt;&lt;education-economics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16129" PostTypeId="2" ParentId="14255" CreationDate="2017-04-05T22:59:41.673" Score="-1" Body="&lt;p&gt;Your question links to the challenges of placing an economic value upon culture.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, what is the &lt;a href=&quot;https://books.google.com.au/books?hl=en&amp;amp;lr=&amp;amp;id=g3H924NyIIUC&amp;amp;oi=fnd&amp;amp;dq=economic%20value%20of%20culture&amp;amp;ots=jr8XdUh2aS&amp;amp;sig=ugcabWCy8eqEQ-xcyyucnfD2UIY&quot; rel=&quot;nofollow noreferrer&quot;&gt;value of art&lt;/a&gt;?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For certain society would be impoverished without art and artists, yet simply creating and showing works is not economic activity - it adds nothing to a GDP.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are all kinds of methods (like the link) that try to put a dollar value on culture - but it's a fundamental challenge.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Universities are not just institutions for teaching people skills to participate in an economy. They are the memory storehouses of our society. And so we teach ethics to lawyers, doctors, nurses, architects, even increasingly to engineers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Teaching history in university should be considered in the same way as teaching ethics. It's hard to put a dollar value on it, but it's pretty obvious to an observer that a world with no knowledge of history is an impoverished world. To my mind the economics are something like vaccination - its a small cost to each individual that makes the collective that much stronger.&lt;/p&gt;&#xA;" OwnerUserId="12777" LastActivityDate="2017-04-05T22:59:41.673" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16130" PostTypeId="2" ParentId="16084" CreationDate="2017-04-06T04:32:05.213" Score="0" Body="&lt;p&gt;Thanks for the contributions. Based on them, I'll give my own interpretation of why I think both have similar outcomes. Considering, of course, that one can still take a debt after the incident.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lets say you are protecting against damage &lt;em&gt;D&lt;/em&gt; that has a probability &lt;em&gt;p&lt;/em&gt; of happening and your current wealth is &lt;em&gt;W&lt;/em&gt;. If the insurer charges you &lt;em&gt;P&lt;/em&gt; for protecting from &lt;em&gt;D&lt;/em&gt;, your wealth will be:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;em&gt;W&lt;/em&gt; - &lt;em&gt;P&lt;/em&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;In this case &lt;em&gt;p&lt;/em&gt; is irrelevant since &lt;em&gt;D&lt;/em&gt; is fully covered. If instead one considers to get a loan &lt;em&gt;D'&lt;/em&gt; to cover &lt;em&gt;D&lt;/em&gt;, then there are two cases:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;em&gt;W&lt;/em&gt;(1 - &lt;em&gt;p&lt;/em&gt;) (no damage happens)&lt;/li&gt;&#xA;&lt;li&gt;(&lt;em&gt;W&lt;/em&gt; - &lt;em&gt;D'&lt;/em&gt;)&lt;em&gt;p&lt;/em&gt; (damage happens)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;In the case the expected value is &lt;em&gt;W&lt;/em&gt;(1 - &lt;em&gt;p&lt;/em&gt;) + (&lt;em&gt;W&lt;/em&gt; - &lt;em&gt;D'&lt;/em&gt;)&lt;em&gt;p&lt;/em&gt; = &lt;em&gt;W&lt;/em&gt; - &lt;em&gt;D'p&lt;/em&gt;. If one eliminates the interest from &lt;em&gt;D'&lt;/em&gt; and insurance profits from &lt;em&gt;P&lt;/em&gt;, both loan and insurance will have the same expected value (&lt;em&gt;D'p&lt;/em&gt; = &lt;em&gt;P&lt;/em&gt; = &lt;em&gt;Dp&lt;/em&gt;). However, since the premium is a upfront payment it also adds a opportunity cost in the equation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the end, both are similar and it is just a matter of pricing (interest vs premium). If both have the same price, it would make sense to give preference to a loan instead of the insurance because of opportunity costs. However, depending on the size of the loan interest might grow larger than the premium, mostly because the chance of default will be higher than the chance of accident.&lt;/p&gt;&#xA;" OwnerUserId="12740" LastActivityDate="2017-04-06T04:32:05.213" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="16131" PostTypeId="2" ParentId="16115" CreationDate="2017-04-06T08:41:59.737" Score="0" Body="&lt;p&gt;Thank you @farnsy for your explanation and references, particularly Cochrane &amp;amp; Culp's $-$ equations $(2)$ and $(3)$ on page 61.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Being more familiar with the technicalities of quantitative finance, I can give the following interpretation of the stochastic discount factor $m_t$ (SDF). Defining the &lt;em&gt;SDF numéraire&lt;/em&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \forall \, t \in [s,T], \ N_t = \frac{u'(C_s)}{\beta \, u'(C_t)}=\frac{1}{m_t}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The price $P_t$ of the claim with payoff $X_T$ at time $T$ can be interpreted as the expectation w.r.t. the real-world probability measure $\mathbb{P}$ of the payoff discounted by the SDF numéraire:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ P_t = \mathbb{E}^{\mathbb{P}}\left[\frac{X_T}{N_T}|\mathcal{F}_t\right]=\mathbb{E}^{\mathbb{P}}\left[m_TX_T|\mathcal{F}_t\right]=\mathbb{E}^{\mathbb{P}}\left[\beta \frac{u'(C_T)}{u'(C_t)}X_T|\mathcal{F}_t\right]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $(\mathcal{F}_t)_{t \geq 0}$ is a filtration, &lt;em&gt;i.e.&lt;/em&gt; represents the information available to the agent at time $t$.&lt;/p&gt;&#xA;" OwnerUserId="12770" LastActivityDate="2017-04-06T08:41:59.737" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16134" PostTypeId="1" AcceptedAnswerId="16135" CreationDate="2017-04-06T13:48:55.153" Score="0" ViewCount="40" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;When the market prices are Rs 5 per apple and Rs 6 per orange a person&#xA;  buys 16 apples and 28 oranges. When the prices are Rs 4.4 per apple&#xA;  and Rs 6.4 per orange ,the person buys 20 apples and 25&#xA;  oranges.Assuming that utility is derived only from apples and&#xA;  oranges,in which situation is the person better off?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;My answer: it can't be said because in the first case the second bundle is not affordable and in the second case the first one is not affordable. Therefore, none is revealed preferred to the other?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this correct? Please help. I'm trying to understand this concept. Thanks so much in advance.&lt;/p&gt;&#xA;" OwnerUserId="11774" LastEditorUserId="4667" LastEditDate="2017-04-06T14:14:47.487" LastActivityDate="2017-04-06T14:14:47.487" Title="Revealed preferance: elementary question" Tags="&lt;utility&gt;&lt;preferences&gt;&lt;self-study&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16135" PostTypeId="2" ParentId="16134" CreationDate="2017-04-06T14:13:38.347" Score="-1" Body="&lt;p&gt;Yes, your reasoning and your conclusion are correct.&lt;/p&gt;&#xA;" OwnerUserId="4667" LastActivityDate="2017-04-06T14:13:38.347" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16136" PostTypeId="1" CreationDate="2017-04-06T15:01:19.673" Score="0" ViewCount="521" Body="&lt;p&gt;I am struggling with something as simple as real exchange rate calculation!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I get the theory: RER = NOM * (P*/P) i.e. nominal exchange rate times price level ratios. Apparently, using CPI (consumer price index) is common practice for P.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have the nominal exchange rate and I have both CPI for country A and country B as index 100=2005.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I don't understand is that in 2005, the nominal rate = real exchange rate. But that makes sense only because of the 2005 index - not in the real world. What am I doing wrong?&lt;/p&gt;&#xA;" OwnerUserId="12228" LastActivityDate="2017-05-06T18:34:52.520" Title="Real Exchange Rates calculation" Tags="&lt;exchange-rates&gt;&lt;price-level&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16137" PostTypeId="5" CreationDate="2017-04-06T17:24:38.753" Score="0" Body="" OwnerUserId="-1" LastEditorUserId="-1" LastEditDate="2017-04-06T17:24:38.753" LastActivityDate="2017-04-06T17:24:38.753" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16138" PostTypeId="4" CreationDate="2017-04-06T17:24:38.753" Score="0" Body="Use for questions primarily related to the stock of money, either narrow money (MB or M0), and broad money (M1, M2, etc). This can also be used in questions related to the creation of money by governments and central banks, including questions related to models with a money market like IS-LM, where the supply is of importance." OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-08-02T12:17:45.793" LastActivityDate="2017-08-02T12:17:45.793" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16139" PostTypeId="5" CreationDate="2017-04-06T17:27:10.443" Score="0" Body="" OwnerUserId="-1" LastEditorUserId="-1" LastEditDate="2017-04-06T17:27:10.443" LastActivityDate="2017-04-06T17:27:10.443" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16140" PostTypeId="4" CreationDate="2017-04-06T17:27:10.443" Score="0" Body="In economics, a public good is a good that is both non-excludable and non-rivalrous in that individuals cannot be effectively excluded from use and where use by one individual does not reduce availability to others." OwnerUserId="8815" LastEditorUserId="8815" LastEditDate="2017-04-06T19:28:42.097" LastActivityDate="2017-04-06T19:28:42.097" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16141" PostTypeId="5" CreationDate="2017-04-06T17:30:03.920" Score="0" Body="" OwnerUserId="-1" LastEditorUserId="-1" LastEditDate="2017-04-06T17:30:03.920" LastActivityDate="2017-04-06T17:30:03.920" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16142" PostTypeId="4" CreationDate="2017-04-06T17:30:03.920" Score="0" Body="International trade theory is a sub-field of economics which analyzes the patterns of international trade, its origins, and its welfare implications." OwnerUserId="8815" LastEditorUserId="8815" LastEditDate="2017-04-06T23:41:38.403" LastActivityDate="2017-04-06T23:41:38.403" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16143" PostTypeId="5" CreationDate="2017-04-06T17:31:40.680" Score="0" Body="&lt;p&gt;Statistics is a branch of mathematics dealing with the collection, analysis, interpretation, presentation, and organization of data. For data requests, use the &lt;a href=&quot;/questions/tagged/data-request&quot; class=&quot;post-tag&quot; title=&quot;show questions tagged &amp;#39;data-request&amp;#39;&quot; rel=&quot;tag&quot;&gt;data-request&lt;/a&gt; tag instead, or consider our sister site &lt;a href=&quot;https://opendata.stackexchange.com/&quot;&gt;Open Data Stack Exchange&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="4816" LastEditorUserId="4816" LastEditDate="2021-02-06T02:00:47.290" LastActivityDate="2021-02-06T02:00:47.290" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="16144" PostTypeId="4" CreationDate="2017-04-06T17:31:40.680" Score="0" Body="Statistics is a branch of mathematics dealing with the collection, analysis, interpretation, presentation, and organization of data. For data requests, use the [data-request] tag instead, or consider our sister site Open Data Stack Exchange." OwnerUserId="8815" LastEditorUserId="4816" LastEditDate="2021-02-06T02:01:02.127" LastActivityDate="2021-02-06T02:01:02.127" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="16146" PostTypeId="2" ParentId="16136" CreationDate="2017-04-06T18:16:44.027" Score="2" Body="&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;you cannot compute real exchange rates based on the data you have. What you can do, and what is often done (not sure what it is good for though) is to use relative PPP to calculate changes in RER using some base year. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The OECD publishes some statistics on P*/P, you could also use that, although I am not sure what methodology they use. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;In practice, you would need the actual prices of a basket of goods to calculate the RER, once you somehow normalize prices within a country you can no longer calculate the RER.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;hence the appeal of stuff like the Big Mac Index.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="11216" LastActivityDate="2017-04-06T18:16:44.027" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16147" PostTypeId="1" CreationDate="2017-04-06T18:31:37.673" Score="-2" ViewCount="123" Body="&lt;p&gt;If people work to get money/gold, and the money/gold is limited, then does that mean it is impossible for everyone in the world be employed?&lt;/p&gt;&#xA;" OwnerUserId="12784" LastEditorUserId="8815" LastEditDate="2017-04-09T03:27:00.723" LastActivityDate="2017-04-09T03:27:00.723" Title="Are there enough jobs for everyone?" Tags="&lt;networks&gt;" AnswerCount="2" CommentCount="0" ClosedDate="2017-04-09T04:01:23.557" ContentLicense="CC BY-SA 3.0" />
  <row Id="16148" PostTypeId="1" CreationDate="2017-04-06T18:46:47.720" Score="1" ViewCount="85" Body="&lt;p&gt;If I have 3 consumers who I want to sell package 1, 2 and 3 to respectively. Meaning consumer 1 I would like to sell package 1 to, consumer 2 I would like to sell package 2 to and so on. The packages consist of the price and quantity of a good (let's say bananas)  (p,q). Consumer 3 has demand D3, consumer 2 D2, and consumer D1, where the reservation prices can be described by the following relationship $v_3&amp;gt;v_2&amp;gt;v_1$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In order for me to price discriminate my profit function needs to comply with some incentive compatibility constraints (I found 6 in total):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$v_3(q_3)-P_3≥v_3(q_2)-P_2$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$v_3(q_3)-P_3≥v_3(q_1)-P_1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$v_2(q_2)-P_2≥v_2(q_3)-P_3$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$v_2(q_2)-P_2≥v_2(q_1)-P_1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$v_1(q_1)-P_1≥v_1(q_3)-P_3$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$v_1(q_1)-P_1 \geq v_1(q_2)-P_2$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where I suppose my profit function is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\pi=P_3+P_2+P_1-c(q_3+q_2+q_1)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where c is the constant marginal cost. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;How do I deduce the optimal prices?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem is I've only seen problems with two types of consumers where the optimal prices were:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$P_1=v_1(q_1)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$P_3=v_1(q_1)+v_3(q_3)-v_3(q_1)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated. If anything is unclear just let me know, since I had a hard time articulating the question. &lt;/p&gt;&#xA;" OwnerUserId="12783" LastEditorUserId="12783" LastEditDate="2017-04-06T19:42:58.487" LastActivityDate="2017-04-06T19:42:58.487" Title="Price discrimination" Tags="&lt;microeconomics&gt;&lt;industrial-organisation&gt;&lt;price-discrimination&gt;" AnswerCount="0" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="16149" PostTypeId="2" ParentId="16147" CreationDate="2017-04-06T19:41:03.653" Score="3" Body="&lt;p&gt;You forgot a key variable in the equation: &lt;strong&gt;prices&lt;/strong&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If there is the same amount of money chasing an increasing number of goods (which happens when more workers are employed in the economy), then prices will fall. This has been formalised in the so called &lt;a href=&quot;https://en.wikipedia.org/wiki/Quantity_theory_of_money&quot; rel=&quot;nofollow noreferrer&quot;&gt;Quantitative Theory of Money&lt;/a&gt;. The key equation is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ MV=PQ$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;M is money, P are prices, Q is production, and V is velocity of money (disregard for the moment). If M is fixed but Q increases, then P falls. That restores the balance.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This idea is very old, and it was set out very nicely by David Hume in &lt;a href=&quot;http://www.econlib.org/library/LFBooks/Hume/hmMPL28.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;&quot;Of the Balance of Trade&quot;&lt;/a&gt;, published in 1752. Here is the key part of the text:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;II.V.9 Suppose four-fifths of all the money in GREAT BRITAIN to be&#xA;  annihilated in one night, and the nation reduced to the same&#xA;  condition, with regard to specie, as in the reigns of the HARRYS and&#xA;  EDWARDS, what would be the consequence? Must not the price of all&#xA;  labour and commodities sink in proportion, and every thing be sold as&#xA;  cheap as they were in those ages? What nation could then dispute with&#xA;  us in any foreign market, or pretend to navigate or to sell&#xA;  manufactures at the same price, which to us would afford sufficient&#xA;  profit? In how little time, therefore, must this bring back the money&#xA;  which we had lost, and raise us to the level of all the neighbouring&#xA;  nations? Where, after we have arrived, we immediately lose the&#xA;  advantage of the cheapness of labour and commodities; and the farther&#xA;  flowing in of money is stopped by our fulness and repletion.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;II.V.10 Again, suppose, that all the money of GREAT BRITAIN were&#xA;  multiplied fivefold in a night, must not the contrary effect follow?&#xA;  Must not all labour and commodities rise to such an exorbitant height,&#xA;  that no neighbouring nations could afford to buy from us; while their&#xA;  commodities, on the other hand, became comparatively so cheap, that,&#xA;  in spite of all the laws which could be formed, they would be run in&#xA;  upon us, and our money flow out; till we fall to a level with&#xA;  foreigners, and lose that great superiority of riches, which had laid&#xA;  us under such disadvantages?&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;II.V.11 Now, it is evident, that the same causes, which would correct&#xA;  these exorbitant inequalities, were they to happen miraculously, must&#xA;  prevent their happening in the common course of nature, and must for&#xA;  ever, in all neighbouring nations, preserve money nearly&#xA;  proportionable to the art and industry of each nation.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-04-06T19:41:03.653" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16150" PostTypeId="1" CreationDate="2017-04-06T20:33:22.160" Score="3" ViewCount="1830" Body="&lt;p&gt;What is the impact of increase/ decrease of reverse repo rate on Monetary Base, Money multiplier and therefore, overall money supply?&lt;/p&gt;&#xA;" OwnerUserId="12325" LastActivityDate="2018-04-11T17:18:59.627" Title="How does reverse repo rate affect money supply?" Tags="&lt;monetary-policy&gt;&lt;money-supply&gt;&lt;central-banking&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="16152" PostTypeId="2" ParentId="15900" CreationDate="2017-04-06T23:58:26.050" Score="3" Body="&lt;p&gt;Actually, many people claim that too few schools of thought are taught.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question is very broad because it encompasses several topics in the methodology of the social sciences and in epistemology. First, we do not know whether we can actually test theories through econometric analysis. Econometric techniques - and in general statistical ones - are based on sets of assumptions which are not necessarily true. In fact, different econometric models and strategies can be applied to the same problem and we do not always know which one is the best. This is the problem of model selection Dave Harris talks about in his answer. Note that model selection problems can arise even within the same theoretical approach, not only between different ones.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Moreover, people are not even sure that we can use empirical data to test theories. These people propose very different arguments, spanning from Hume's skepticism to the Austrians' point that theory always precedes perception, hence distorting any empirical test (this is one of the most important point in the Methodenstreit, that is the debate between the Austrian School and the German Historical School - the first one to make use of statistical data to &quot;test&quot; economic theories). Nonetheless, they basically agree that we only understand the world through more or less structured theories, and we select data and evaluate them in non-random fashion, making useful but aprioristic assumptions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Second, econometrics has flourished during the heyday of Neoclassical Economics, hence it is partly built on this School's assumptions. It is hardly arguable that a methodology built on a certain set of theories can be objectively used to gauge alternative theories.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Third, different schools of thought are not just diverse groups of theories. They are different paradigms - that is different &quot;ways&quot; of looking at the world - and they rest on such different assumptions and explanations that is simply too hard to compare them. Paradigms are better evaluated by their internal consistency, and only after that we can make comparisons. Of course, there is a problem of validation and selection (how do we select a &quot;better&quot; paradigm? Why certain paradigms survive and expand and other collapse and fade?). But that is a problem of epistemology more than econometrics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We would better teach as many paradigms as we think is useful and enhance our understanding of the economy through cross-contamination, always striving for a more convincing explanation, not for an impossible definitive answer.&lt;/p&gt;&#xA;" OwnerUserId="12788" LastEditorUserId="12788" LastEditDate="2017-04-07T00:03:45.303" LastActivityDate="2017-04-07T00:03:45.303" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16154" PostTypeId="1" AcceptedAnswerId="16170" CreationDate="2017-04-07T02:51:00.800" Score="1" ViewCount="265" Body="&lt;p&gt;As a first year macroeconomics student I'm unable to understand if in rudimentary macroeconomic analysis that categorizes goods either as consumer or capital goods, with the latter being defined as &quot;high-value , durable-use producer goods that undergo depreciation with employment in production process&quot;, the assets that a company posseses for use by its employees (like staff fridge) should be considered as a capital good or consumer good.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As in, should the comfort that these facilities extend to labour force be seen as an indirect contribution to the production process or not.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be greatly appreciated!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Apologies if it's a basic question but I just couldn't find an answer elsewhere and exams are approaching.)&lt;/p&gt;&#xA;" OwnerUserId="12790" LastEditorUserId="8815" LastEditDate="2017-04-09T03:42:38.543" LastActivityDate="2017-04-09T03:42:38.543" Title="How to tell the difference between consumer and capital goods" Tags="&lt;macroeconomics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16155" PostTypeId="2" ParentId="16150" CreationDate="2017-04-07T03:25:41.697" Score="-1" Body="&lt;p&gt;Reverse Repo Rate (RRR) is the rate at which the central bank &quot;borrows&quot; money from commercial banks. (In practical terms it refers to the surplus funds that these commercial banks park with the central bank.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This leads to a FALL in the total money supply as it soaks liquidity from the market. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This reduction in total cash flow in economy (which is now lying stagnant at the central bank) implies a weakened monetary base and reduced capability of banks to &quot;create&quot; more money as they are left with little real cash to extend loans upon given the cash reserve ratio requirements.&lt;/p&gt;&#xA;" OwnerUserId="12790" LastActivityDate="2017-04-07T03:25:41.697" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16156" PostTypeId="1" CreationDate="2017-04-07T07:35:27.133" Score="0" ViewCount="104" Body="&lt;p&gt;I was doing an exercise of utility and got confused with a min utility function. endowments can redistribute among individuals. How am i supposed to increase his utility. Can i simply reduce the endowment of this min utility person(or give him extra)? &lt;/p&gt;&#xA;" OwnerUserId="12793" LastEditorUserId="1601" LastEditDate="2017-04-07T21:28:58.843" LastActivityDate="2017-04-07T21:28:58.843" Title="how to raise utility of an individual having min utility function" Tags="&lt;microeconomics&gt;&lt;utility&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16157" PostTypeId="1" CreationDate="2017-04-07T08:25:33.457" Score="0" ViewCount="159" Body="&lt;p&gt;How can the idea of Akerlof's 'lemons' be applied to goods and services markets (that doesn't include second-hand cars)?&lt;/p&gt;&#xA;" OwnerUserId="12752" LastActivityDate="2017-04-12T21:49:39.770" Title="What are some applications of Akerlof's 'lemons' in goods and services markets?" Tags="&lt;microeconomics&gt;&lt;markets&gt;&lt;asymmetric-information&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16158" PostTypeId="2" ParentId="16128" CreationDate="2017-04-07T10:08:40.343" Score="2" Body="&lt;p&gt;The key theoretical work, at least in the area of &lt;strong&gt;education&lt;/strong&gt;, comes from Milton Friedman and his &amp;quot;Theory of School Choice&amp;quot;. Important references are:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Friedman, M. (1962), The Role of Government in Education. In &lt;em&gt;Capitalism and Freedom&lt;/em&gt;. Chicago: University of Chicago Press.&lt;/p&gt;&#xA;&lt;p&gt;Friedman, M. and Friedman, R. (1980). &lt;em&gt;Free to choose&lt;/em&gt;. New York: Harcourt&#xA;Brace Jovanovich.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Check &lt;a href=&quot;http://www.nber.org/chapters/c10083.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; for a not so old review of the literature on School Choice. &lt;a href=&quot;http://digitalcommons.usu.edu/cgi/viewcontent.cgi?article=1378&amp;amp;context=gradreports&quot; rel=&quot;nofollow noreferrer&quot;&gt;Here&lt;/a&gt; is an interesting analysis of the Chilean education system, in the light of Friedman's ideas. Friedman had the idea that competition would increase quality across the whole spectrum of schools:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;the quality of    all    schooling    would    rise    so    much    that    even    the    worst,    while    it    might    be&lt;br /&gt;&#xA;relatively    lower    on    the    scale,    would    be    better    in    absolute    quality”    (Friedman    and    Friedman 1980,    170)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2017-04-07T10:08:40.343" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="16159" PostTypeId="1" CreationDate="2017-04-07T11:11:15.980" Score="2" ViewCount="126" Body="&lt;p&gt;In my first foray into behavioural economics I have encountered two themes;&#xA;- Self-reported subjective wellbeing (SWB) is commonly used as a measure of wellbeing. Survey based SWB measures are frequently used as regressors or dependent variables. &#xA;- Framing effects are also important. How a question or a choice is presented can influence the decisions made, perhaps radically. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore there seems to be an obvious problem with using any particular survey based SWB measure for inference. How do we know that the SWB measure is the result of true SWB and not an artifact from framing? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Even using alternative surveys as a robustness check may not vitiate the problem if the two surveys frame the question similarly. For instance &lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/S0167487015000215&quot; rel=&quot;nofollow noreferrer&quot;&gt;Proto and Rustichini (2015)&lt;/a&gt; use two measures of self-reported life satisfaction where people are asked to state their satisfaction on a scale between 0 or 1 (least satisfied) and 10 or 7 (most satisfied). Both these surveys present the choice fairly similarly. If you flipped things, i.e. made 10 least satisfied and 1 most satisfied, the results could be different. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Do you agree that this presents a problem? I have not seen the issue widely discussed (at least, not in the largely empirical papers I have read). How do behavioural economists address it? &lt;/p&gt;&#xA;" OwnerUserId="8443" LastEditorUserId="2776" LastEditDate="2017-04-07T14:55:12.550" LastActivityDate="2017-04-07T14:55:12.550" Title="Framing effects and the use of subjective wellbeing measures in behavioural" Tags="&lt;econometrics&gt;&lt;behavioral-economics&gt;&lt;welfare&gt;" AnswerCount="0" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="16160" PostTypeId="1" AcceptedAnswerId="16161" CreationDate="2017-04-07T13:42:56.200" Score="0" ViewCount="39" Body="&lt;p&gt;I am interested in key references on the economics of vouchers. In particular I am interested in asking, &quot;Under what conditions are vouchers more or less useful?&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Tangentially related resources of a high quality are also welcome.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The kinds of references which I am looking for:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Papers and books&lt;/li&gt;&#xA;&lt;li&gt;Informal works (eg a YouTube recording of a good talk)&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="5781" LastEditorUserId="8815" LastEditDate="2017-04-07T15:49:23.303" LastActivityDate="2017-04-07T15:49:23.303" Title="References on Economics of Vouchers" Tags="&lt;reference-request&gt;&lt;education-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16161" PostTypeId="2" ParentId="16160" CreationDate="2017-04-07T13:55:41.410" Score="2" Body="&lt;p&gt;An overview of vouchers that is a bit outdated but a good place to start building an understanding of past work:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.nber.org/papers/w7092&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.nber.org/papers/w7092&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;On school vouchers: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.aeaweb.org/articles?id=10.1257/aer.97.3.789&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.aeaweb.org/articles?id=10.1257/aer.97.3.789&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://faculty.smu.edu/millimet/classes/eco7321/papers/rouse.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://faculty.smu.edu/millimet/classes/eco7321/papers/rouse.pdf&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.aeaweb.org/articles?id=10.1257/aer.96.3.847&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.aeaweb.org/articles?id=10.1257/aer.96.3.847&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.aeaweb.org/articles?id=10.1257/aer.90.1.130&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.aeaweb.org/articles?id=10.1257/aer.90.1.130&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://jswinton.gcsu.edu/ECON%203640/Expenditure/voucher%20potential.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://jswinton.gcsu.edu/ECON%203640/Expenditure/voucher%20potential.pdf&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;housing vouchers:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.aeaweb.org/articles?id=10.1257/000282804322970788&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.aeaweb.org/articles?id=10.1257/000282804322970788&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.aeaweb.org/articles?id=10.1257/pol.20130064&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.aeaweb.org/articles?id=10.1257/pol.20130064&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://economics.nd.edu/assets/153486/carr_jillian_jmp.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://economics.nd.edu/assets/153486/carr_jillian_jmp.pdf&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.nber.org/mtopublic/482.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.nber.org/mtopublic/482.pdf&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;^^^ Those are a few of the papers I've read over the last two years involving vouchers. &lt;/p&gt;&#xA;" OwnerUserId="1655" LastActivityDate="2017-04-07T13:55:41.410" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16163" PostTypeId="2" ParentId="16154" CreationDate="2017-04-07T15:38:40.127" Score="0" Body="&lt;p&gt;I would argue that these types of goods should be considered capital because they are increasing employee productivity as a factor of production for knowledge workers. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In classical economics a capital good has these 3 characteristics:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;It can be used in the production of other goods (this is what makes it a factor of production).&lt;/li&gt;&#xA;&lt;li&gt;It is made by humans, in contrast to &quot;land,&quot; which refers to naturally occurring resources such as geographical locations and minerals.&lt;/li&gt;&#xA;&lt;li&gt;It is not used up immediately in the process of production, unlike raw materials or intermediate goods.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;(&lt;a href=&quot;https://simple.wikipedia.org/wiki/Capital_(economics)&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://simple.wikipedia.org/wiki/Capital_(economics)&lt;/a&gt;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An employee fridge clearly fits the second two requirements, as for the first requirement if having an employee fridge raises moral, and thus indirectly increases employee productivity, then I would consider it to be a capital good because it would seem to be a factor of production.&lt;/p&gt;&#xA;" OwnerUserId="10245" LastActivityDate="2017-04-07T15:38:40.127" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="16164" PostTypeId="5" CreationDate="2017-04-07T15:46:34.483" Score="0" Body="" OwnerUserId="-1" LastEditorUserId="-1" LastEditDate="2017-04-07T15:46:34.483" LastActivityDate="2017-04-07T15:46:34.483" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16165" PostTypeId="4" CreationDate="2017-04-07T15:46:34.483" Score="0" Body="" OwnerUserId="-1" LastEditorUserId="-1" LastEditDate="2017-04-07T15:46:34.483" LastActivityDate="2017-04-07T15:46:34.483" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16166" PostTypeId="1" AcceptedAnswerId="16168" CreationDate="2017-04-07T16:27:20.177" Score="3" ViewCount="83" Body="&lt;p&gt;In his seminal paper Arrow (1962) states that information should be distributed without limit if an optimal allocation is to be achieved. &#xA;Quote (p. 614-615):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The cost of transmitting a given body of information is frequently&#xA;  very low. If it were zero, then optimal allocation would obviously&#xA;  call for unlimited distribution of the information without cost. (...)&#xA;  The owner of the information should not extract the economic value&#xA;  which is there, if optimal allocation is to be achieved; but he is a&#xA;  monopolist, to some small extent and will seek to take advantage of&#xA;  this fact.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Quote (p. 616-617):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In the first place, any information obtained, say a new method of&#xA;  production, should, from the welfare point of view, be available free&#xA;  of charge (apart from the cost of transmitting information). This&#xA;  insures optimal utilization of the information but of course provides&#xA;  no incentive for investment in research. In an ideal socialist&#xA;  economy, the reward for invention would be completely separated from&#xA;  any charge to the users of the information. In a free enterprise&#xA;  economy, inventive activity is supported by using the invention&#xA;  to create property rights; precisely to the extent that it is&#xA;  successful, there is an underutilization of the information.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Arrow makes the point that creating a market for information is difficult given the peculiar nature of the commodity information. But if information did not have those special attributes: Couldn't information be &quot;produced&quot; by an organization and sold without welfare loss? Why do property rights lead to suboptimal allocation in the case of information?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Reference:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Kenneth Arrow, 1962.&#xA;&quot;Economic Welfare and the Allocation of Resources for Invention,&quot; NBER Chapters, in: The Rate and Direction of Inventive Activity: Economic and Social Factors, pages 609-626&#xA;National Bureau of Economic Research, Inc.&#xA;url: &lt;a href=&quot;https://ideas.repec.org/h/nbr/nberch/2144.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://ideas.repec.org/h/nbr/nberch/2144.html&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="7834" LastActivityDate="2017-04-07T17:06:28.957" Title="Why does optimal allocation call for unlimited distribution of information?" Tags="&lt;welfare-economics&gt;&lt;welfare&gt;&lt;property&gt;&lt;information&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16167" PostTypeId="2" ParentId="16156" CreationDate="2017-04-07T16:58:31.213" Score="4" Body="&lt;p&gt;Given a utility function of the form $U(a,b)=min\{a,b\}$. Suppose that currently $a&amp;lt;b$. To increase utility, you should allocate more of $a$ to this person until $a=b$ and then increase $a,b$ proportionally. &lt;/p&gt;&#xA;" OwnerUserId="1655" LastEditorUserId="1655" LastEditDate="2017-04-07T17:29:06.523" LastActivityDate="2017-04-07T17:29:06.523" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16168" PostTypeId="2" ParentId="16166" CreationDate="2017-04-07T17:06:28.957" Score="5" Body="&lt;p&gt;Suppose you have a product that you can distribute for constant marginal cost $c$. For every $v\geq0$ assume there are some consumers who value the good at $v$. The net welfare created when someone consumes the good is their value minus the cost of production.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, if we want to maximise the total social surplus (net of costs), we should give the good to every consumer for whom $v-c\geq0$. Since a consumer will &lt;em&gt;choose&lt;/em&gt; to buy the good if the price, $p$, is below their willingness to pay (i.e., if $v-p\geq0$), setting $p=c$ ensures the efficient outcome where exactly the consumers with value greater than marginal cost consume the good.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now suppose we have an information good that can be distributed digitally for zero marginal cost ($c=0$). The above reasoning implies that the socially efficient price is $p=0$! Intuitively, giving you a copy of the good does not cost society anything (because information can be infinitely digitally duplicated), so even if you only get a tiny benefit from consuming it, that benefit will produce a (small but positive) net increase the total social surplus. But the only way to make sure that people who get very small (but positive) value from the good choose to consume it is to give them the good for free.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Arrow's broader point is that this produces a problem: if the price of an information good (e.g. a movie) is zero then firms have no profit incentive to produce movies at all, and then nobody gets any surplus. Eeek! The way society solves this problem is to say &quot;if you make a movie, you get copyright, which means you have the monopoly right to sell that movie&quot;. The profits that come from being a monopolist over the movie are the rewards to the firm for having made it in the first place. But, of course, the monopolist movie studio will set $p\gg0$, so some consumers will not buy it even though they could be served as zero cost and this will increase welfare.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;If you know your Econ 101 then this can be understood through the lens of some textbook models. Remember that in a basic textbook model of a market, the social surplus is the area below the demand curve but above the marginal cost curve. Social surplus is maximised when $p=MC$, which, for information goods, means $p=0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;now think of a texbook monopoly model (where the monopoly comes because you own the copyright or patent): the monopolist will set $p&amp;gt;MC$ and this produces a deadweight loss, which is the inefficiency Arrow refers to.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2017-04-07T17:06:28.957" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="16169" PostTypeId="1" AcceptedAnswerId="16174" CreationDate="2017-04-07T18:22:30.640" Score="0" ViewCount="111" Body="&lt;p&gt;Last night an air strike was launched against Syria of about 60 Tomahawk missiles. &lt;a href=&quot;https://www.thesun.co.uk/news/3277606/tomahawk-cruise-missiles-syria-chemical-attack-trump/&quot; rel=&quot;nofollow noreferrer&quot;&gt;At approximately $832,000 apiece, this airstrike cost the US gov't about 49 million dollars.&lt;/a&gt; Initially, this sounds like a terrible waste of government funds, but I think I might be missing something here. It seems like the creation of Military hardware as sponsored by the government might be similar to Keynesian spending -- Which is traditionally (At least by Keynesianists) understood to help the economy. The fact that WW2 helped to pull the US out of the great depression certainly supports the principle that war is good for the economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That said, is there any reason to believe that governmental use of expendable military hardware won't actually help the economy?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the purposes of this question, I'm not terribly interested on Moral arguments about why boosting the economy by using military hardware may be a bad thing.&lt;/p&gt;&#xA;" OwnerUserId="12799" LastEditorUserId="1601" LastEditDate="2019-02-17T05:30:37.073" LastActivityDate="2019-02-17T05:30:37.073" Title="How does the government launch of Tomahawk missiles against Syria affect the economy and governmental budget?" Tags="&lt;government&gt;&lt;keynesian-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16170" PostTypeId="2" ParentId="16154" CreationDate="2017-04-07T18:37:50.187" Score="2" Body="&lt;p&gt;The only difference between consumer and capital goods is whether or not the good in question is purchased by a firm or a consumer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The practical implications of this is whether or not this expenditure is included in $I$ or $C$ of the GDP equation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.investopedia.com/terms/g/gdp.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;Investopedia&lt;/a&gt; defines $I$ as: &lt;em&gt;&quot;the sum of all the country's investment, including businesses &lt;strong&gt;capital expenditures&lt;/strong&gt;&quot;&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Going into detail on &quot;capital expenditure&quot;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;h1&gt;&lt;a href=&quot;http://www.investopedia.com/terms/c/capitalexpenditure.asp#ixzz4dagzac4j%20&quot; rel=&quot;nofollow noreferrer&quot;&gt;What is 'Capital Expenditure (CAPEX)'&lt;/a&gt;&lt;/h1&gt;&#xA;  &#xA;  &lt;p&gt;Capital expenditure, or CapEx, are funds used by a company to acquire or upgrade physical assets such as property, industrial buildings or equipment. It is often used to undertake new projects or investments by the firm. &lt;strong&gt;This type of outlay is also made by companies to maintain or increase the scope of their operations&lt;/strong&gt;. These expenditures can include everything from repairing a roof to building, to purchasing a piece of equipment, or building a brand new factory.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It would appear that a staff fridge is a capital expenditure based on the above criteria because it contributes to maintaining the firms scope of operations.&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="8815" LastEditDate="2017-04-07T18:55:19.297" LastActivityDate="2017-04-07T18:55:19.297" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16172" PostTypeId="2" ParentId="16147" CreationDate="2017-04-07T21:03:44.170" Score="1" Body="&lt;p&gt;Yes, under normal circumstances there is enough money/resources for this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Usually money always moves from one person to some one else: Your clients pay your company, your company pays your wage, you pay for your car, the car seller pays the manufacturer, they again pay wages, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, during recession or crisis people spend less money, for various reasons. This in turn effects the economy in a way that creates the unemployment/scarcity: You do not pay your car, so the car seller cannot order cars at his manufacturer, the manufacturer cannot pay all wages, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;BUT: You are right with the assumption that it's not possible for all people to &lt;em&gt;be employed&lt;/em&gt;, as there also need to be a fair amount of entrepreneurs to employ those people. However, everyone can have a job (e.g. self employed, employ others)&lt;/p&gt;&#xA;" OwnerUserId="12803" LastActivityDate="2017-04-07T21:03:44.170" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16174" PostTypeId="2" ParentId="16169" CreationDate="2017-04-08T02:29:45.037" Score="1" Body="&lt;p&gt;First, we should remember that the government did not particularly spend any money on the air strike, except for incidental stuff like fuel costs.  It already owned those missiles, which were part of a previous government spending program.  Unlike profit-motive organizations that try to be streamlined, the government buys many things it never uses and doesn't necessarily replace things it does use.  This is particularly true of the military.  The US military has enough stockpile to use incredible force in Syria and still not need to change its future spending.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But anyway, let's talk about your question.  Military is, indeed, an example of stimulus-style spending: a government program that employs people and creates demand across the economy, but which does not generate much in the way of goods and services that we would normally count as wealth.  Engaging in war does increase employment and temporarily increase demand.   To be clear, this should not be confused with helping the economy in the long-term.  The Keynsian argument suggests stimulus spending as a way to smooth out short-term trends, but which must be paid for later.  It's not a way to improve the economy overall.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The wealth of a country is measured by the goods and services it produces (or can buy).  Military spending can jump start an economy full of pessimism or in a bad equilibrium, but it clearly shifts resources and people away from wealth-building and is a long-term economic drag.  Think of military spending as similar to hiring people to break rocks or farm weeds, as was done in earlier periods of our history.  It increases employment and but does not add to the nation's overall wealth.  In fact, you can think of military spending as a transfer payment from the wealthy (who pay most of the taxes) to those who benefit from military spending (weapons manufacturers and associated industries).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As you mention, I'm not saying military spending is good, bad, immoral, or moral.  Just saying economically it's a &lt;strong&gt;short-term stimulus, long term drag&lt;/strong&gt;.&lt;/p&gt;&#xA;" OwnerUserId="12673" LastActivityDate="2017-04-08T02:29:45.037" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16175" PostTypeId="2" ParentId="11088" CreationDate="2017-04-08T08:31:32.427" Score="2" Body="&lt;p&gt;Malaysia's Proton cars (if you want a specific example ), but overall the Malaysia Automobile industry failed. Currently, only the locals drive Malaysian cars.&lt;/p&gt;&#xA;" OwnerUserId="12804" LastActivityDate="2017-04-08T08:31:32.427" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16176" PostTypeId="2" ParentId="16128" CreationDate="2017-04-08T11:00:57.767" Score="1" Body="&lt;p&gt;NBER has a book with papers on the matter, &lt;strong&gt;&lt;a href=&quot;http://papers.nber.org/books/hox03-1&quot; rel=&quot;nofollow noreferrer&quot;&gt;Hoxby, C. M.(ed) (2003). The economics of school choice &lt;/a&gt;&lt;/strong&gt;. Contents:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/k3mly.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/k3mly.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/k9OaL.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/k9OaL.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I also quote here the paragraph-titles in the &lt;strong&gt;Introduction&lt;/strong&gt; (by Hoxby)&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Market Structure Makes the Difference.  &lt;/li&gt;&#xA;&lt;li&gt;It Helps to Call a Spade a Spade.  &lt;/li&gt;&#xA;&lt;li&gt;One Cannot Avoid the Interdependence of School Choice and School Finance, so One Might as Well Enjoy It.  &lt;/li&gt;&#xA;&lt;li&gt;School Choice Is More Interesting to People Who Are Puzzled by the Inefficacy of School Inputs.  &lt;/li&gt;&#xA;&lt;li&gt;You Cannot Predict the Effects of School Choice on Student Sorting Without the Tools of General Equilibrium.  &lt;/li&gt;&#xA;&lt;li&gt;School Choice Will Affect Labor Markets for Educators.  &lt;/li&gt;&#xA;&lt;li&gt;Evidence on School Choice Requires the Latest Methods in Nonexperimental Empirical Analysis.&lt;br&gt;&#xA;8.It Is Important to Know Which Students Are Likely to Be Affected by School Choice.  &lt;/li&gt;&#xA;&lt;li&gt;School Choice Is All about School &lt;em&gt;Supply&lt;/em&gt;.  &lt;/li&gt;&#xA;&lt;li&gt;It Is the &lt;em&gt;Threat&lt;/em&gt; of Competition That Matters&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="61" LastEditorUserId="2776" LastEditDate="2017-04-09T07:40:00.763" LastActivityDate="2017-04-09T07:40:00.763" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16177" PostTypeId="2" ParentId="9591" CreationDate="2017-04-08T12:42:18.880" Score="3" Body="&lt;p&gt;It was also really strange for me at first. I asked from many people who might happen to know the answer. However, they were all not 100% satisfactory. I think, Kenny LJ's answer is 99.5% correct but i feel that it's still missing something. My explanation is to add to his/her answer something i think very very subtle, but hopefully important, one. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Think you have an organization and record the purchase in your balance sheet. You will purchase the good as an asset with an debit entry. Also, you will credit your cash with the same amount. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;When these two entries come to the BOP, the asset will be in CA and the cash will be in FA. Why the money should be recorded in FA? When a country starts to hold a foreign currency /it was well before and independently of your purchase/, it's recorded in BOP as an investment to the foreign country. Now when you pay with the money of the foreign, you stop your investment and make it a physical good. So your stake with the other country doesn't change, but its form. So the balance is not affected in the end. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you work with other examples, it'll become clearer and clearer. Let me give some.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Imagine you export something to a foreign country. How will it be 0 in BOP? An export debits your goods and increases the CA. If you get a foreign currency from your foreign partner for the payment, it'll be credited as investment to the other country as you hold its currency which will credit or decrease the FA. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Imagine you borrow from a foreign country, it'll be an increase in FA as it's a foreign investment to your country. But in which currency will you hold your investment proceedings? You may start holding that country's currency. This will be recorded as your country's other investment to the other country which will be decrease in FA. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you sell above investment money into your country's central bank and your central bank holds it as cash, your country's other investment's increase will be undone which will result in positive FA from the investment /it'll look like the foreign country invested positive amount in net/. But the official reserve account of the country will increase with the same amount which will also make the BOP 0. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I hope it helps. &lt;/p&gt;&#xA;" OwnerUserId="12808" LastEditorUserId="12808" LastEditDate="2018-10-13T11:46:49.787" LastActivityDate="2018-10-13T11:46:49.787" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="16178" PostTypeId="1" AcceptedAnswerId="16179" CreationDate="2017-04-08T16:22:41.070" Score="1" ViewCount="136" Body="&lt;p&gt;I am trying to study the effects of a policy on educational attainment of individuals (years of schooling, primary/secondary school completion, literacy). Since the policy starts in a specific year I decided to use an RDD using birth year as running variable. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem is that my sample is made of 5 different countries in which the policy has been implemented in 5 different years. &#xA;Am I able to pool the effect of the policy across countries?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Because if I build a unique running variable as being 0 for each cutoff year I get individuals born in e.g. 1994 having running variable both 0, -2, +3 depending on the country of origin.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How can I deal with this issue? Should I run a RD for each country alone?&lt;/p&gt;&#xA;" OwnerUserId="6773" LastActivityDate="2017-04-08T17:36:22.803" Title="RDD with multiple cutoffs" Tags="&lt;microeconomics&gt;&lt;regression&gt;&lt;experimental-economics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16179" PostTypeId="2" ParentId="16178" CreationDate="2017-04-08T17:36:22.803" Score="2" Body="&lt;p&gt;This paper:&lt;a href=&quot;https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2712957&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2712957&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is exactly what you need. &lt;/p&gt;&#xA;" OwnerUserId="1655" LastActivityDate="2017-04-08T17:36:22.803" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16180" PostTypeId="2" ParentId="10585" CreationDate="2017-04-08T19:46:46.267" Score="2" Body="&lt;p&gt;Here's a quotation from a paper on &lt;a href=&quot;http://www.princeton.edu/~moll/PDE_macro.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Partial Differential Equations in Macroeconomics&lt;/a&gt;. One of the authors is a &lt;a href=&quot;https://en.wikipedia.org/wiki/Fields_Medal&quot; rel=&quot;nofollow noreferrer&quot;&gt;Fields Medalist&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Macroeconomic models with heterogeneous agents share a common mathematical structure which, in continuous time, can be summarized by a system of coupled nonlinear partial differential equations (PDEs): (i) a Hamilton–Jacobi–Bellman (HJB) equation describing the optimal control problem of a single atomistic individual and (ii) an equation describing the evolution of the distribution of a vector of individual state variables in the population (such as a Fokker–Planck equation, Fisher–KPP equation or Boltzmann equation). While plenty is known about the properties of each type of equation individually, our understanding of the coupled system is much more limited.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The paper obviously isn't about microeconomics (though it does briefly mention some topics in micro as well), but it does talk about genuine open problems in mathematics whose answers have implications in economics.&lt;/p&gt;&#xA;" OwnerUserId="8595" LastEditorUserId="8595" LastEditDate="2017-04-08T20:20:41.473" LastActivityDate="2017-04-08T20:20:41.473" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16181" PostTypeId="1" CreationDate="2017-04-09T06:29:12.150" Score="1" ViewCount="109" Body="&lt;p&gt;​First: for year 0, I do not know why the cash flow = $- 1000 / ( 1 + 0.10)^0 = 909.01$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Second: for year 1, if cash flow = $30,000-5000/(1+0.10)^1 = 25 454 $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How is &quot;Cash Flow&quot; column useful in getting the &quot;Present Value&quot; column? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/Lc6Kj.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Lc6Kj.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="12813" LastEditorUserId="2776" LastEditDate="2017-04-09T08:15:19.653" LastActivityDate="2017-04-09T22:42:10.510" Title="Cash Flow and present value Question" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ClosedDate="2017-04-15T21:22:43.400" ContentLicense="CC BY-SA 3.0" />
  <row Id="16182" PostTypeId="1" CreationDate="2017-04-09T07:40:06.117" Score="1" ViewCount="298" Body="&lt;p&gt;For the following Question&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/770jI.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/770jI.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Answer is &#xA;&lt;a href=&quot;https://i.stack.imgur.com/wb4ZN.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/wb4ZN.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First:&#xA;Scenario 1 : I wonder how the customer pay as whole 12000 dollar after 12 years for a 8525 dollar product if the interest rate = 0%&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think that , there is about 3% interest &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Second:&#xA;What is the criteria upon which the company decide in first scenario to pay 1000$ /year and for the second scenario to pay the full amount?&lt;/p&gt;&#xA;" OwnerUserId="12813" LastEditorUserId="12673" LastEditDate="2017-04-10T02:19:37.150" LastActivityDate="2017-04-10T21:22:21.343" Title="Time Value of Money Question" Tags="&lt;microeconomics&gt;&lt;finance&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16183" PostTypeId="5" CreationDate="2017-04-09T07:53:02.697" Score="0" Body="" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2017-04-09T07:53:02.697" LastActivityDate="2017-04-09T07:53:02.697" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16184" PostTypeId="4" CreationDate="2017-04-09T07:53:02.697" Score="0" Body="Questions about self-studying economics, including curriculum design, study strategies, resources, etc." OwnerUserId="108" LastEditorUserId="108" LastEditDate="2017-04-09T07:53:02.697" LastActivityDate="2017-04-09T07:53:02.697" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16185" PostTypeId="5" CreationDate="2017-04-09T07:55:08.237" Score="0" Body="" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2017-04-09T07:55:08.237" LastActivityDate="2017-04-09T07:55:08.237" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16186" PostTypeId="4" CreationDate="2017-04-09T07:55:08.237" Score="0" Body="A market is an institutional arrangement in which buyers and sellers exchange goods, services, or information in transactions with or without money." OwnerUserId="108" LastEditorUserId="18167" LastEditDate="2018-09-17T02:17:58.390" LastActivityDate="2018-09-17T02:17:58.390" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="16187" PostTypeId="5" CreationDate="2017-04-09T07:58:52.790" Score="0" Body="" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2017-04-09T07:58:52.790" LastActivityDate="2017-04-09T07:58:52.790" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16188" PostTypeId="4" CreationDate="2017-04-09T07:58:52.790" Score="0" Body="The Cobb-Douglas function is a commonly used functional form for a firm's production function or for consumers' utility, with a variety of convenient properties." OwnerUserId="108" LastEditorUserId="108" LastEditDate="2017-04-09T07:58:52.790" LastActivityDate="2017-04-09T07:58:52.790" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16189" PostTypeId="2" ParentId="13233" CreationDate="2017-04-09T08:06:00.373" Score="1" Body="&lt;p&gt;In economics, I have not seen an evaluation of particular skill like the one you mention. However, there is a large literature evaluating the effect of &lt;strong&gt;cognitive&lt;/strong&gt; and &lt;strong&gt;non-cognitive&lt;/strong&gt; (or socio-emotional, as others call it) skills on wages. This is not as fine as you are asking for, but it is clearly a way forward from established approaches like &quot;years of education&quot; or &quot;type of degree&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A very recent reference, and very comprehensive in terms of methods (albeit a rather complex paper) comes from the man himself, Heckman. &lt;a href=&quot;http://www.nber.org/papers/w22291.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Here&lt;/a&gt; is the paper. An important result is here (from page 43):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/aIkUF.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/aIkUF.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Very interestingly, cognitive ability are much more important than socio-emotional ability for contemporaneous wages, &lt;em&gt;ceteris paribus&lt;/em&gt;. However, the next graph (not shown) highlights that for the present value of wages (so, including career progression), socio-economic ability is as important as cognitive ability. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As I said, there are hundreds of papers on this area. &lt;a href=&quot;http://www2.econ.iastate.edu/classes/econ321/orazem/Lindqvist_noncognitive.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Here&lt;/a&gt; is just one other example, comparing cognitive and non-cognitive ability and labour market returns in Sweden. If you google (or search in &lt;a href=&quot;http://econpapers.repec.org/&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://econpapers.repec.org/&lt;/a&gt;) &quot;cognitive non-cognitive ability return wages&quot; or related, you get tons of hits. &lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-04-09T08:06:00.373" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16191" PostTypeId="2" ParentId="16182" CreationDate="2017-04-09T13:57:47.237" Score="1" Body="&lt;p&gt;This is a very poorly written question. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The gist of the question is this: should a company take a lump-sum payment from a customer of \$8,525 or a \$12k payment that is spread uniformly over 12 years. The thing the question wants you to consider between 1a and 1b is that in 1a the company cannot earn interest (which the answer just assumes is compounding) and in 1b the company can earn 7% interest. &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;For the given answer, part 1a is saying that, since the company cannot earn interest on investments, it is better to just take the \$12k. However, one ought to know something about how this company discounts to actually answer this question. That is, one should make this comparison by comparing \$8,525 to the discounted present value of the \$12k, taking into account that the \$12k is received in payments spread uniformly over 12 years. The real answer to this question as written is, ' IT DEPENDS'.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Part 1b is saying that $8,525(1+.07)^{12} \equiv 19,199.93 &amp;gt; 12,000$ and so the company should take the lump-sum payment and invest it. HOWEVER, this is again the wrong way to answer this question. Instead, one should compare &#xA;$8,525(1+.07)^{12}$ with the money the firm will have if it chooses the \$12k and subsequently invests each annual payment. This value is \$19,140.64 &lt;a href=&quot;http://calculator.me/savings/investment.php&quot; rel=&quot;nofollow noreferrer&quot;&gt;(link to calculate)&lt;/a&gt;. The answer here is correct but for the wrong reason. &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Really, this is a very bad question and a very bad answer.&lt;/p&gt;&#xA;" OwnerUserId="1655" LastActivityDate="2017-04-09T13:57:47.237" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16192" PostTypeId="2" ParentId="12535" CreationDate="2017-04-09T15:36:29.607" Score="2" Body="&lt;p&gt;kaggle.com actually has a dataset that fits what you are looking for. The data set is called &lt;a href=&quot;https://www.kaggle.com/theworldbank/education-statistics&quot; rel=&quot;nofollow noreferrer&quot;&gt;&quot;Education Statistics&quot;&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From the preview of the data, it seems like you cant do much with it, however you can rank countries by educational achievement and enrollment as done here &lt;a href=&quot;https://www.kaggle.com/pjoshi15/d/theworldbank/education-statistics/data-exploration-world-education&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;hope this helps&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2017-04-09T15:36:29.607" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16194" PostTypeId="2" ParentId="16182" CreationDate="2017-04-09T21:21:31.867" Score="-1" Body="&lt;p&gt;The question asks you to compare the value of an immediate payment and a series of payments in the future.  In finance, every set of future payments has an immediate payment equivalent, which we get by dividing each future payment by a &lt;strong&gt;discount rate&lt;/strong&gt;.  When this question says &quot;interest rate,&quot; it means &quot;discount rate.&quot;  The two terms are used interchangeably where there is little ambiguity about what is meant.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To answer your first question, it doesn't matter what the true risk-free or risky interest rates are now...that's not part of the question.  It's a hypothetical world in which there is an interest rate of zero.  In that case, future dollars are worth the same as present dollars, so we are comparing the value of \$8,525 with \$12,000.  Clearly the latter is better.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the second question, how do we find the present value (immediate lump sum equivalent) of these payments?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;PV = \frac{1000}{0.07}\left(1-\frac{1}{1.07^{12}}\right) = $7,942.69&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Using the formula for the present value of an annuity.  We could also do it using the direct approach&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;PV = \sum_{i=1}^{12}\frac{1000}{1.07^{i}}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;to get the same result.  We see that \$8,525 &gt; \$7,942.69 so it's better to take the immediate payment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The answers seem like they were hastily and erroneously written--better to ignore them and rely on my solution than to try and figure them out. The question here is a typical and straightforward introductory undergraduate finance question, though, and well worth understanding.&lt;/p&gt;&#xA;" OwnerUserId="12673" LastEditorUserId="12673" LastEditDate="2017-04-09T21:48:19.867" LastActivityDate="2017-04-09T21:48:19.867" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="16195" PostTypeId="2" ParentId="16181" CreationDate="2017-04-09T22:18:42.140" Score="2" Body="&lt;p&gt;The table appears to have a bunch of errors in it.  In particular, the cash flow column seems wrong in every instance.  I don't blame you for having problems understanding.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For your first question, the cash flow in time 0 is wrong.  $1.1^0=1$ as we know.  The &quot;end of year 0&quot; means &quot;right now,&quot; so there should be no discounting at all.  The cash flow should be -100,000, as indicated by the correct value in the present value column.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For your second question, cash flow is discounted at the required rate of return to get the present value.  In this case, presumably&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\frac{25,454.55}{(1+0.1)^1} = 23,140.50&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why does that not equal the present value column?  Because the table was set up by someone who was confused.  The quantity they put in the present value is simply the discounted value of \$30,000 - \$5,000. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\frac{30,000-5,000}{(1+0.1)^1} = 22,727.27&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To me that seems like a reasonable solution to the problem text.  The next period's cash flow should again be (\$30,000-\$5,000) and its present value should be &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\frac{30,000-5,000}{(1+0.1)^2} = 20,661.16&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Anyway, the present value column seems right given the text of the problem.  The &quot;cash flow&quot; column was done by someone who was as confused as you are, if not more so.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Probably you got this already, but to solve the problem you simply take the sum of everything in the present value column.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;-------------- EDIT -------------&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now that I look at it again, I bet they just forgot to put parentheses around the (30000-5000) in each entry.  And left off a few zeros in the first.  Shabby, but not as bad as I was originally thinking.&lt;/p&gt;&#xA;" OwnerUserId="12673" LastEditorUserId="12673" LastEditDate="2017-04-09T22:42:10.510" LastActivityDate="2017-04-09T22:42:10.510" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16198" PostTypeId="2" ParentId="15392" CreationDate="2017-04-10T05:37:26.020" Score="0" Body="&lt;p&gt;Razors for Blades as it's called has been around longer than Gillette made it an unprecedented moneymaker. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can't recall the specific person or time-frame, but before electricity was commonplace; the same concept was used for selling oil. Give them a lamp, they will keep buying oil. This was done back in the 19th century; and they issued out millions of lamps; which in turn created a new market-space in and of itself. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Loss Leaders are used commonly now in marketing to simply:  get people onto online commerce sites like Amazon; or into brick and mortar establishments; typically items which are high demand; and where the establishment has a reasonable assumption in knowing that getting them in the store means they will leave with the loss leader item; but also with a shopping cart full of other highly profitable high markup items. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Think Wal-Mart, offering the newest &quot;Barbie&quot; at Christmas. They sell the Barbie below cost... Cost being 11 USD per unit, Retail Price 26 USD; they will offer the unit for $9.99. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This will; through advertising; bring droves of customers into the store in order to save $16 off the retail price elsewhere. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Big Box Stores like K-Mart; Walmart, etc, know, anyone coming in for the Barbie is going to do a lot of shopping; and not just for Christmas. They lose a few dollars on the loss leader, and reap in profits on all the other items. &lt;/p&gt;&#xA;" OwnerUserId="12823" LastActivityDate="2017-04-10T05:37:26.020" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16199" PostTypeId="1" CreationDate="2017-04-10T06:44:41.610" Score="1" ViewCount="80" Body="&lt;p&gt;In a &lt;a href=&quot;http://www.bbc.co.uk/news/business-39548313&quot; rel=&quot;nofollow noreferrer&quot;&gt;report by the BBC&lt;/a&gt;, it emerged that the Bank of England suggested some banks to lower the Libor, around 2008. The Libor is normally set by commercial banks, and it is directly affecting mortgages and lending rates (more info &lt;a href=&quot;http://www.bbc.co.uk/news/business-19199683&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;). As the BBC Radio 4 commentator said this morning, it is the &quot;rate that really matters&quot;. However, the news is presented as a breach of authority, as it is not the competence of the BoE to manipulate the Libor. And yet, &lt;strong&gt;the BoE wants to affect short term interest rates to affect commercial lending!&lt;/strong&gt; All this is a bit odd.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If this rate is so important, &lt;strong&gt;why is it not the Libor the key tool of monetary policy of the Bank of England?&lt;/strong&gt; Why to bother with an &quot;imperfect&quot; tool like the rate of short term gov. bonds, and not set the Libor, for the whole range of maturities (as banks do), directly? &lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-04-10T06:44:41.610" Title="Why does not the Bank of England set the Libor?" Tags="&lt;monetary-policy&gt;&lt;central-banking&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16200" PostTypeId="1" AcceptedAnswerId="16207" CreationDate="2017-04-10T08:58:36.327" Score="2" ViewCount="2678" Body="&lt;p&gt;In Daron Acemoglu's Introduction to Modern Economic Growth (2009), P.32, it is stated that given assumption of exponential depreciation at the rate $\delta$ and normalization of price of final good to be 1, $r(t) = R(t) - \delta$ where $r(t)$ is interest rate, $R(t)$ is rental price of capital and $\delta$ is depreciation rate. The reason, which I agree, is that:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;A unit of final good can be consumed now or used as capital and rented to firms. In the latter case, a household receives $R(t)$ units of good in the next period as rental price for its savings, but loses $\delta$ units of its capital holdings, since $\delta$ fraction of capital depreciates over time. Thus the household has given up one unit of commodity dated t-1 and receives $1 + r(t) = R(t) + 1-\delta$ units of commodity dated t.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;But, on P.330, when talking about overlapping generations model where $\delta = 0$, it is stated in equation (9.3): $1 + r(t) = R(t)$. Shouldn't it be $r(t) = R(t)$? I cannot find this is a typo like from &lt;a href=&quot;http://www.econ.ku.dk/okocg/VV/VV-2015/Lectures%20and%20lecture%20notes/Errata-to-Acemoglu-book-VV-2015.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.econ.ku.dk/okocg/VV/VV-2015/Lectures%20and%20lecture%20notes/Errata-to-Acemoglu-book-VV-2015.pdf&lt;/a&gt;. Do I miss something? &lt;/p&gt;&#xA;" OwnerUserId="12774" LastActivityDate="2018-11-06T02:47:22.080" Title="Relationship between interest rate and rental price of capital" Tags="&lt;macroeconomics&gt;&lt;economic-growth&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16203" PostTypeId="1" AcceptedAnswerId="16204" CreationDate="2017-04-10T14:24:39.690" Score="2" ViewCount="712" Body="&lt;p&gt;The typical dynamic consumption-saving under certainty model can be written as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\max V(c)=\sum_{t=1}^{T} \beta^{t-1}\; u(c_t) &#xA;$$&#xA;Subject to the intertemporal budget constraint&#xA;$$&#xA;\sum_{t=1}^{T}\frac{y_t}{1+r}=\sum_{t=1}^{T}\frac{c_t}{1+r}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where $T\leq \infty$ (finite or infinite horizon), $\beta \in (0,1)$ is the subjective discount factor, $y_t$ is the individual's income and $c_t$ is the individual's consumption in every time period. Finally, $u(\cdot)$ is the agent's subutility function, with $u^{\prime}&amp;gt;0$ whose concavity is usually related to the agent's &lt;em&gt;preference for consumption smoothing&lt;/em&gt;. The argument is equivalent to the one justifying that an individual will reveal risk aversion iff his utility function over wealth is strictly concave. &#xA;The argument that leads to consumption smoothing is the following:&#xA;The first order condition for the problem is the well known Euler equation&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\frac{u^{\prime}(c_t)}{u^{\prime}(c_{t+1})}=\beta \; (1+r)&#xA;$$ &#xA;It is assumed that $\beta^{-1}=(1+r)$ so that&#xA;$$&#xA;u^{\prime}(c_t)=u^{\prime}(c_{t+1}) \quad \Rightarrow \text{by strict concavity of} \; u \quad c_t=c_{t+1}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have two questions regarding this argument which are somehow related:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;The result of consumption smoothing seems to be independent of the preference for such smoothing: one needs the condition $\beta =(1+r)$ to hold in orther to obtain the result.&lt;/li&gt;&#xA;&lt;li&gt;It seems to me that the implication &#xA;$$&#xA;u^{\prime}(c_t)=u^{\prime}(c_{t+1}) \quad \Rightarrow c_t=c_{t+1}&#xA;$$&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Would still hold for a strictly convex utility function, as one needs a much general condition to the implication to hold, namely that the derivatives of the utility function will be unique for any increasing utility function.. it seems to be that the uniqueness of $u^{\prime}$ (i.e $u^{\prime}(a)=u^{\prime}(b) \quad \Rightarrow a=b$) will hold irrespective of the sign of $u^{\prime \prime}$ provided it is not equal to zero.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If my thinking is correct this would imply that the &lt;em&gt;desire&lt;/em&gt; for smoothing doesn't play any role on what the individual does at the end, as this possibility is open only when $\beta =(1+r)$ holds, and furthermore, it would be optimal to smooth out consumption even to an agent with a strictly convex utility function. &lt;/p&gt;&#xA;" OwnerUserId="10166" LastActivityDate="2017-04-11T13:43:23.830" Title="Preference for consumption smoothing and actual smoothing" Tags="&lt;mathematical-economics&gt;&lt;utility&gt;&lt;consumption&gt;&lt;dynamic-optimization&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16204" PostTypeId="2" ParentId="16203" CreationDate="2017-04-10T14:47:00.130" Score="1" Body="&lt;p&gt;Although it is true that the First order Conditions for a strictly convex utility function will yield the same solution as that of a strictly concave one, &lt;strong&gt;the second order conditions&lt;/strong&gt; are entirely different. Instead of finding a maximum, you are indeed finding a minimum. In other words, FOCs are necessary but not sufficient.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Intuitively&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Intuitively, a strictly convex function means the marginal utility of consumption is &lt;strong&gt;increasing&lt;/strong&gt;. As such, you would like to allocate as much consumption to a given period as possible. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For instance, take $u(c)=c^2$. Although it is still mathematically true that $u(c_{1}) = u(c_{2}) \Rightarrow c_{1} = c_{2}$, allocating one more pound/dollar/etc from, say $C_{2}$ to $C_{1}$ would increase the present value of your lifetime consumption. You can see this below, by comparing the case of consumption smoothing (c) with the average of non-smoothing (shifting consumption from one period to the other). The utility of the former is below that of the latter. Thus, you would rather allocate all your lifetime wealth to a single period.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/h9jzb.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/h9jzb.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(LaTeX/TikZ code of figure for replication &lt;a href=&quot;https://pastebin.ubuntu.com/24354920/&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Mathematically&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Mathematically, let us consider the case of just two period. First period is $x$ and second is $y$. For simplicity, define the budget constraint as $x+y=1$. If you maximize $U(x,y)=x^2+y^2$ subject to $x+y=1$, the FOC alone will give you $x^∗=y^∗=1/2$ (this is, smooth consumption). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, in this case $U^∗=1/2$, which is &lt;strong&gt;smaller&lt;/strong&gt; than simply setting, say $x^∗=1$ and $y^∗=0$ (which gives $U^∗=1$). What is going on? Here, you can show that the SOC is positive, which is not the case of a maximum, but actually, &lt;strong&gt;of a minimum&lt;/strong&gt;. So actually, the &lt;strong&gt;optimisation problem&lt;/strong&gt; (what this exercise truly is) is that of a &lt;strong&gt;minimisation&lt;/strong&gt;. &lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-04-10T16:57:21.770" LastActivityDate="2017-04-10T16:57:21.770" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16205" PostTypeId="1" AcceptedAnswerId="16219" CreationDate="2017-04-10T18:19:30.900" Score="3" ViewCount="104" Body="&lt;p&gt;Looking at many housing markets in major cities around the world today it looks like most (London, New York, Sydney, Beijing, Toronto,...) have become totally detached from the earnings of the local market. This seems unsustainable but I can only think of one chart, see below, of Japanese property that goes into a boom, crashes &lt;strong&gt;and never recovers&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/AOdDf.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/AOdDf.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are there any other episodes in recent history where the price of real estate crashes and never recovers in price?&lt;/p&gt;&#xA;" OwnerUserId="5515" LastEditorUserId="5515" LastEditDate="2017-04-10T18:31:51.300" LastActivityDate="2017-04-11T12:40:37.740" Title="Episodes of Housing Crashes and Never Recovering" Tags="&lt;reference-request&gt;&lt;markets&gt;&lt;financial-crises&gt;&lt;housing&gt;&lt;property&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16207" PostTypeId="2" ParentId="16200" CreationDate="2017-04-10T20:17:37.680" Score="1" Body="&lt;p&gt;The equation is exactly the same,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$r(t) = R(t) - \delta$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, set $\delta =1$ per assumptions, to obtain&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$r(t) = R(t) - 1 \implies 1+r(t) = R(t)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which reasonably continues to say that the accepted rental rate of capital $R(t)$, covers the depreciation rate plus $r(t)$ which is also the &lt;em&gt;net&lt;/em&gt; return to capital.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2017-04-10T20:17:37.680" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16208" PostTypeId="2" ParentId="16182" CreationDate="2017-04-10T21:22:21.343" Score="0" Body="&lt;p&gt;One way to do this is with a table like this (assuming the $1000 has to be paid at the beginning of the year)&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;Year    Starting debt   Payment     After payment   Interest    End-year&#xA;1       8525.00         -1000.00    7525.00         526.75      8051.75&#xA;2       8051.75         -1000.00    7051.75         493.62      7545.37&#xA;3       7545.37         -1000.00    6545.37         458.18      7003.55&#xA;4       7003.55         -1000.00    6003.55         420.25      6423.80&#xA;5       6423.80         -1000.00    5423.80         379.67      5803.46&#xA;6       5803.46         -1000.00    4803.46         336.24      5139.71&#xA;7       5139.71         -1000.00    4139.71         289.78      4429.48&#xA;8       4429.48         -1000.00    3429.48         240.06      3669.55&#xA;9       3669.55         -1000.00    2669.55         186.87      2856.42&#xA;10      2856.42         -1000.00    1856.42         129.95      1986.37&#xA;11      1986.37         -1000.00     986.37          69.05      1055.41&#xA;12      1055.41         -1000.00      55.41           3.88        59.29&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;You can either read this as investing 8525, taking money out to pay the 1000 and then receiving interest of 7% on the remaining balance to leave 59.29 to your credit at the end (so the twelve payments is better), or borrowing 8525 to buy initially while repaying 1000 a year to the bank and facing 7% interest on the outstanding balance leaving a debt of 59.29 owing at the end (so buying initially is worse).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The surprising thing is the final amount is close to zero, and would be virtually zero if the interest rate had been about 6.93%  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the payments of 1000 were at the end of the year, the final figure would have been about 1311.48, meaning the twelve payments of 1000 would be an even better choice  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If, instead of 7%, the interest rate were 0%, the table would end up at -3475, meaning the lump-sum upfront payment would be better&lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2017-04-10T21:22:21.343" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16214" PostTypeId="1" AcceptedAnswerId="16217" CreationDate="2017-04-11T08:19:25.673" Score="3" ViewCount="669" Body="&lt;p&gt;I am trying to understand how the first order conditions for an interior solution of a maximization problem were derived using the &lt;em&gt;substitution&lt;/em&gt; method. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem is:&#xA;$$\max\limits_{x\ge0,y\ge0}P(a-x)+(1-P)(b-y)$$&#xA;subject to&#xA;$$Pf(x)+(1-P)f(y)=c$$&#xA;where: $a,b,c&amp;gt;0$, $P\in (0,1)$, $f:[0,+\infty]\to[0,+\infty]$, increasing and strictly concave over its domain.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can see how this is solved using a lagrangian to find from the first order conditions that $f'(x^*)=f'(y^*)$. Strict concavity of $f$ then implies $x^*=y^*$. But I'm at a loss as to how we can solve it by substituting the constraint in the objective function. Since $f$ is invertible, if $y$ did not appear in the constraint I would find $x$ from the constraint by inverting $f$ and substitute it in the objective function. Doing this here leads to complications that seem unnecessary for this simple problem. There has to be a simpler way that I cannot figure out: what is it? Thanks!&lt;/p&gt;&#xA;" OwnerUserId="12001" LastActivityDate="2017-04-11T16:37:25.840" Title="Solving a maximization problem by substitution when the constraint is in implicit form" Tags="&lt;microeconomics&gt;&lt;optimization&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16215" PostTypeId="2" ParentId="15392" CreationDate="2017-04-11T09:46:44.147" Score="1" Body="&lt;p&gt;&quot;Loss leader&quot; is a term primarily from marketing. It is occasionally used by economists, but not in a formal way because its definition is insufficiently precise. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To see why we have to be careful, it is useful to think about the economic principles underlying the three examples you mentioned. I do this below, but the &lt;strong&gt;;tldr&lt;/strong&gt; version is that the business model for selling data follows a totally different economic logic and even grocery stores vs playstations follows slightly different logic.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;The &lt;strong&gt;grocery store&lt;/strong&gt; example is probably the closest thing to what would commonly be understood as a loss-leader. The reason this strategy works is because consumers face some kind of friction that makes them disproportionately prefer one-stop shopping to visiting many stores (e.g. becoming informed about different stores is costly, switching stores in the middle of a shop is costly, etc.). The fact that consumers don't want to go to many stores means that once they are attracted into a store by a low price, they can be exploited with higher prices on other goods. To reiterate: note that this business model is driven by a feature of consumers' behaviour (search/shopping frictions).&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;The &lt;strong&gt;Playstation&lt;/strong&gt; example follows a slightly different logic, similar to the razord and blades model mentioned by others. The key factors here are: (1) products are &lt;em&gt;complements&lt;/em&gt;—we have two types of good (games consoles and games, or razors and blades) that only work if they are consumed together. (2) products are imperfectly compatible (I can't use Playstation games in an XBox). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, suppose I bought a Playstation and then decided the games were too expensive and I would prefer switch over to XBox. This would require that I buy a new games console, which is expensive—so I will tend to be unwilling to switch to a different platform. This is just like the grocery store example: we have a situation where consumers are unwilling to switch from one supplier to another. Just like that example, firms offer a low introductory price to initially attract consumers, only to later exploit them once they are locked-in.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But note here that the switching frictions are not an intrinsic property of consumer behavior like in the earlier examples, but rather are now driven by the properties of the products themselves (complementarity and incompatibility). We have therefore identified two distinct sets of conditions under which this kind of pricing strategy might be attractive to a firm: either consumers are intrinsically reluctant to switch or they can be made so through design and compatibility choices.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;What about &lt;strong&gt;businesses that offer free services in return for data&lt;/strong&gt;? Here the underlying economic logic is completely different to the other two cases. These are typically examples of so-called two-sided markets. A two-sided market is a market in which a central intermediary (called a &quot;platform&quot;) matches people from two distinct groups. In this particular example the two sides will be consumers and marketing firms, and the job of the platform is to bring the two together so that new value can be unlocked through the exchange of data.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Two-sided platforms typically involve a chicken and egg type problem because in order for the platform to function it is necessary to make sure both groups are on board (a heterosecual dating site that attracts only men won't be very useful!). The usual solution to this problem is that one of the two groups is subsidised (e.g. allowed to join the platform for free or at reduced cost). Once that group joins, the platform becomes more attractive to the other group, who can be charged a higher price. A classic example of this is nightclubs, which would often run &quot;ladies nights&quot; (low price admission for females,) thus ensuring many females enter the club. Once the club is full of females, it becomes much easier for the club owner to charge a high admission fee to men. Similarly, firms like Facebook subsidise consumers (with a free service) to get as many consumers on board as possible, so that the firm is able to extract as much value as possible from the other side of the market (selling data to marketing firms).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that the underlying economic mechanism here is different from the other cases. Those examples were about creating frictions to lock-in consumers, so that &lt;em&gt;those same consumers&lt;/em&gt; could be charged a high price. Two-sided pricing is about offering a low price to one group in order to get them on board so that &lt;em&gt;a totally different group of consumers&lt;/em&gt; can be charged a high price.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Final note: games consoles are also two-sided markets (they serve both gamers and game developers and must get both on board to be successful). So a bit of the two-sided logic applies there too: Playstations are sold below cost to gamers to get lots of gamers onto the platform because this allows Sony to maximise revenues from the royalty fees paid by game developers, as well as revenues from selling games to consumers.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2017-04-11T09:46:44.147" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16217" PostTypeId="2" ParentId="16214" CreationDate="2017-04-11T10:12:25.833" Score="4" Body="&lt;p&gt;Here are two methods. First method: the substitution can be made by inverting $f$. Since $f$ is strictly increasing and continuous, $f^{-1}$ is well-defined. The constraint can therefore be written&#xA;\begin{equation*}&#xA;x = f^{-1}\Big(\dfrac{c-(1-P)f(y)}{P}\Big)&#xA;\end{equation*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The objective becomes&#xA;\begin{equation*}&#xA;\max_{y \geq 0}{P \Big[a-f^{-1}\Big(\dfrac{c-(1-P)f(y)}{P}\Big)\Big]+(1-P) (b-y)}&#xA;\end{equation*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The derivative of this expression with respect to $y$ equals&#xA;\begin{align*}&#xA;&amp;amp; (1-P) f'(y) (f^{-1})^{'}(\dfrac{c-(1-P)f(y)}{P})-(1-P) \\&#xA;= &amp;amp; (1-P) \dfrac{f'(y)}{f^{'} \circ f^{-1}(\dfrac{c-(1-P)f(y)}{P})}-(1-P) \\&#xA;&amp;amp; = (1-P) (\dfrac{f'(y)}{f'(x)}-1)&#xA;\end{align*}&#xA;And thus $f'(y^{*})=f'(x^{*})$ at the optimum.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Second method: since $f$ is invertible, we can do a change in variables and define $w=f(x)$ and $z=f(y)$. The problem then becomes&#xA;\begin{equation*}&#xA;\max_{w \geq 0, z\geq 0}{P(a-f^{-1}(w))+(1-P)(b-f^{-1}(z))}&#xA;\end{equation*}&#xA;subject to &#xA;\begin{equation*}&#xA;P w +(1-P)z=c&#xA;\end{equation*}&#xA;Substituing $w=(c-(1-P)z)/P$ in the problem delivers&#xA;\begin{equation*}&#xA;\max_{z\geq 0}{P(a-f^{-1}(\dfrac{c-(1-P)z}{P})+(1-P)(b-f^{-1}(z))}&#xA;\end{equation*}&#xA;Differentiating with respect to $z$ yields the same solution.&lt;/p&gt;&#xA;" OwnerUserId="4667" LastEditorUserId="4667" LastEditDate="2017-04-11T10:22:18.103" LastActivityDate="2017-04-11T10:22:18.103" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="16218" PostTypeId="2" ParentId="16214" CreationDate="2017-04-11T10:22:44.070" Score="4" Body="&lt;p&gt;Let $g$ be the inverse function of $f$ defined over range of $f$. Notice that $g$ is increasing and strictly convex. We can rewrite the maximization problem as:&#xA;\begin{eqnarray*} \max\limits_{u\geq 0, \ v \geq 0} &amp;amp; P(a - g(u)) + (1-P)(b-g(v)) \\ \text{s.t.} &amp;amp; Pu + (1-P)v = c\end{eqnarray*} &#xA;where $u=f(x)$ and $v = f(y)$.&#xA;Solving above is equivalent to solving&#xA;\begin{eqnarray*} \min\limits_{u\geq 0, \ v \geq 0} &amp;amp; Pg(u) + (1-P)g(v) \\ \text{s.t.} &amp;amp; Pu + (1-P)v = c\end{eqnarray*} &#xA;Now you may substitute $v= \displaystyle\frac{c - Pu}{1-P}$ and rewrite the problem as:&#xA;\begin{eqnarray*} \min\limits_{0\leq u \leq \frac{c}{P} } &amp;amp; Pg(u) + (1-P)g\left(\frac{c - Pu}{1-P}\right) \end{eqnarray*} &#xA;Differentiating with respect to $u$, we get the FOC as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\displaystyle &#xA;Pg'(u) - Pg'\left(\frac{c - Pu}{1-P}\right) = 0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since $g$ is strictly convex, solution is:&#xA;$u = \displaystyle\frac{c - Pu}{1-P}$&#xA;i.e. $u = v = c$. Therefore, at the optimum $x = y$ holds.&lt;/p&gt;&#xA;" OwnerUserId="11824" LastEditorUserId="11824" LastEditDate="2017-04-11T12:12:02.813" LastActivityDate="2017-04-11T12:12:02.813" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16219" PostTypeId="2" ParentId="16205" CreationDate="2017-04-11T12:40:37.740" Score="1" Body="&lt;p&gt;Maybe the case of Germany before and after WWI could provide you an example. See &lt;a href=&quot;https://www.cambridge.org/core/services/aop-cambridge-core/content/view/S0008938900015168&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;. The short story is that there was a big housing shortage before the WWI, which, after the war, which was no solved by the market, because of rent controls, profits controls, and other regulations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The origin of housing shortage and rising prices:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Germany's housing problem originated in the period of rapid industrialization,  population  growth,  and  urban  concentration  between  1870&#xA;  and  1914. Population mushroomed  from  41  million to  67 million,  and&#xA;  by   1910  twenty-six German  cities  boasted populations of  200,000.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This led to:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;high  real  estate  prices, heavy mortgage indebtedness, and high rents&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;State intervention begun:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Systematic government  intervention  in the German housing  market&#xA;  began  during  World  War  I. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Some thought it would stop after the war:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;After  the war,  many  Germans  would  have  been satisfied  to  permit the wartime measures to  expire,  allowing the economy to  return  to  &quot;normal.&quot; With  a return  to  normalcy,  private  enterprise would return to the housing market, eliminating the need for state intervention.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;However, this did not happen:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Plagued by inflation and  a severe capital shortage, the German housing&#xA;  industry  failed  to return to normal. The little capital that was available&#xA;  commanded exorbitant interest  rates;  until the credit crisis of June 1931&#xA;  first mortgage interest rates hovered between  8 and   10.8 %  per cent. ...  Predictably, there was practically no  demand  for new  housing,  and  thus very  little new construction. ...  &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The state capacity to build was also damaged: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;the war  effort  had exhausted  Germany's  capital supply, the loss of her colonies, merchant marine,   and  industrial  investments   in  Alsace-Lorraine  diminished  the nation's  capacity   for  new  capital formation,&#xA;    and   reparations  payments appeared to have first claim  on  any capital formation  the country might manage.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So, albeit not the &lt;em&gt;exact&lt;/em&gt; narrative of a modern housing crises, it might be of help.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-04-11T12:40:37.740" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16221" PostTypeId="2" ParentId="16203" CreationDate="2017-04-11T13:43:23.830" Score="2" Body="&lt;p&gt;The argument relayed in the question as regards consumption smoothing is flawed. Consumption smoothing does not mean consumption equality over periods, but rather, &lt;em&gt;tendency&lt;/em&gt; to avoid corner solutions, or near-corner solutions. So it has nothing to do with whether, in the context of this family of models, $\beta (1+r) =1$ or not (after all, in a more comprehensive model, this condition is the long-run equilibrium one, and it does not hold for the transition towards equilibrium).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consumption smoothing in the intertemporal setting has similarities with &quot;variety in consumption&quot; in a static setting with more than one goods: there, with a concave utility function, we get convex indifference curves and so interior solutions, i.e. a solution where the consumer consumes a mix of goods available, not just one, or very few of them, given the linear budget constraint&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As general equilibrium theorists point out, timing of consumption can be seen as just one more feature of a good, and so, when the same good has a different &quot;consumption time stamp&quot;, &lt;em&gt;it is a different good after all&lt;/em&gt;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, in the basic two-period setting, we have a &lt;em&gt;bivariate&lt;/em&gt; intertemporal utility function&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U(c_1, c_2) = u(c_1) +\beta u(c_2)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To examine its indifference curves we fix the value of the function at $\bar U$ and we examine the second derivative of $c_2$ with respect to $c_1$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$c_2 = u^{-1}\left (\frac 1 {\beta} \cdot \big[\bar U - u(c_1)\big]\right)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies \frac {\text{d} c_2}{\text{d} c_1} = \frac 1 {\beta} \frac {-u'(c_1)}{u'\left (\frac 1 {\beta} \cdot \big[\bar U - u(c_1)\big]\right)}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\text{d}^2 c_2}{\text{d} c^2_1} = \frac 1 {\beta}\frac{-u''(c_1)\cdot u'\left (\frac 1 {\beta}  \big[\bar U - u(c_1)\big]\right) - (1/\beta)u''\left (\frac 1 {\beta} \big[\bar U - u(c_1)\big]\right)\cdot [u'(c_1)]^2}{\left[u'\left (\frac 1 {\beta} \cdot \big[\bar U - u(c_1)\big]\right)\right]^2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the indifference curve to be convex we need this derivative to be positive, and so we need the second derivative of the period-utility function $u$ to be negative, $u''()&amp;lt;0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then with a linear budget constraint with negative slope (say for exogenous endowments per period),&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$c_2 = y_2 +(1+r) (y_1-c_1) = \big[y_2+(1+r)y_1\big] - (1+r)c_1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;we can get the familiar graphical solution of interior tangency at the optimum, which excludes corner solutions we would have obtained if the indifference curve between present and future was concave (and so the period-utility function was convex).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So it is all about the utility function and has nothing to do with the Euler equation taking a specific value.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2017-04-11T13:43:23.830" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16222" PostTypeId="1" CreationDate="2017-04-11T14:28:39.653" Score="4" ViewCount="217" Body="&lt;p&gt;&lt;a href=&quot;http://econpapers.repec.org/article/ucpjpolec/v_3a98_3ay_3a1990_3ai_3a5_3ap_3as71-102.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;Romer (1990)&lt;/a&gt; elaborates the incompatibility of &lt;strong&gt;nonrival&lt;/strong&gt; inputs with constant returns to scale: If a production function depends on rival and nonrival inputs and both inputs are productive, then the production function cannot be constant returns to scale. &#xA;Romer then uses the Euler's Theorem to show that non-constant returns to scale are not compatible with perfect competition. Formally: $$F(A,X)&amp;lt;A \cdot \frac{\partial F(A,X)}{\partial A}+X \cdot \frac{\partial F(A,X)}{\partial X}$$ where $F(A,X)$ is an increasing return production function and $X$ and $A$ are the input factors. Romer: &quot;If all inputs were paid their value marginal product, the firm would suffer losses.&quot; Intuitively, with increasing returns to scale one firm is able to produce every quantitiy at lower costs alone than many firms together. So the economy tends towards monopoly. Romer credits &lt;a href=&quot;http://econpapers.repec.org/bookchap/nbrnberch/2144.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;Arrow (1962)&lt;/a&gt; amongst others with this insight.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What Arrow said though is that in order to have incentive to innovate, inventions must be appropriable, e.g. monopoly right. This leads to textbook &lt;a href=&quot;https://economics.stackexchange.com/questions/16166/why-does-optimal-allocation-call-for-unlimited-distribution-of-information&quot;&gt;welfare loss&lt;/a&gt; through market power. &lt;strong&gt;Nonexcludable&lt;/strong&gt; commodities must be made excludable otherwise nobody has incentives to invent them. Intuitively, if perfect competition would prevail after invention, the inventor would not be able to recoup the positive costs of the invention. So there would never be incentive to invent in the first place.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Both authors show how a property of certain commodities is not compatible with perfect competition. However, Romer uses nonrivalry but Arrow nonexcludability. In Romer's case a technological feature of the production function leads to imperfect competition and in Arrow's case it's an incentive problem, independent of the production function.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How are Romer's and Arrow's insight the same? For me, the consequence might be the same but the reasons leading to imperfect competition are different. I am still not able to grasp the incompatibility of inventions and perfect competition. Why are inventions (R&amp;amp;D) inevitably correlated with imperfect competition?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT: Also, note that Arrow refers to the sector &lt;em&gt;producing&lt;/em&gt; the invention whereas Romer's source of imperfect competition stems from &lt;em&gt;using&lt;/em&gt; the invention (I am not yet familiar with the Romer model to actually confirm that). Furthermore, Romer's problem can be solved by using increasing return production functions but Arrow's incentive problem cannot be solved this way.&lt;/p&gt;&#xA;" OwnerUserId="7834" LastEditorUserId="-1" LastEditDate="2017-04-13T12:51:38.253" LastActivityDate="2017-04-12T12:37:26.783" Title="Why are inventions inevitably correlated with imperfect competition?" Tags="&lt;competition&gt;&lt;innovation&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="16226" PostTypeId="1" CreationDate="2017-04-11T19:56:29.953" Score="2" ViewCount="90" Body="&lt;p&gt;My professor told me that each term of the Black-Scholes formula satisfy the Black-Scholes PDE. I have been trying to work this out for the last week and have been unsuccessful. I correctly showed the first term satisfied it, but I have had difficulty with the second term. My work is below:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We need to show that:&#xA;$$Q=-ke^{-r(T-t)}N\bigg(\frac{log\big(\frac{S}{k}\big)+(r-\delta+\frac{1}{2}\sigma^2)(T-t)}{\sigma\sqrt{T-t}}-\sigma\sqrt{T-t}\bigg)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(where $N(w)$ is a standard normal distribution evaluated at $w$) satisfies the following:&#xA;$$(r-\delta)Q_sS+Q_t+\frac{1}{2}Q_{ss}\sigma^2S^2-rQ=0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where $Q_s,\;Q_{ss}\;and\,Q_t$ are the derivative of Q w.r.t S, the second derivative of Q w.r.t S, and the derivative of Q w.r.t t respectively. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $d_2=\frac{log\big(\frac{S}{k}\big)+(r-\delta+\frac{1}{2}\sigma^2)(T-t)}{\sigma\sqrt{T-t}}-\sigma\sqrt{T-t}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Q_s=\frac{-ke^{-r(T-t)}N'(d_2)}{s\sigma\sqrt{T-t}}$$&#xA;$$Q_{ss}=\frac{-ke^{-r(T-t)}N''(d_2)\big(\frac{1}{s\sigma\sqrt{T-t}}\big)-\sigma\sqrt{T-t}}{S^2\sigma^2(T-t)}$$ &#xA;$$Q_t=-kre^{-r(T-t)}N(d_2)+N'(d2)\bigg(\frac{log\big(\frac{S}{k}\big)}{2\sigma(T-t)^{\frac{3}{2}}}-\frac{r-\delta+\frac{1}{2}\sigma^2+\sigma}{2\sqrt{T-t}}\bigg)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When I plug these derivatives into the Black-Scholes PDE, I cannot get the equality to hold. Can anyone please help?&lt;/p&gt;&#xA;" OwnerUserId="5825" LastEditorUserId="5825" LastEditDate="2017-04-11T23:57:02.960" LastActivityDate="2017-04-11T23:57:02.960" Title="Black-Scholes Formula Satisfies Black-Scholes Equation" Tags="&lt;financial-economics&gt;&lt;black-scholes-model&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16227" PostTypeId="1" AcceptedAnswerId="16232" CreationDate="2017-04-12T00:16:45.027" Score="3" ViewCount="1082" Body="&lt;p&gt;I was wondering about possible of application of integration to economics (other than welfare), more specifically, how might Green's theorem be useful for an economist?&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Let &lt;em&gt;C&lt;/em&gt; be a positively oriented, piecewise smooth, simple closed curve in a plane, and let &lt;em&gt;D&lt;/em&gt; be the region bounded by &lt;em&gt;C&lt;/em&gt; . If &lt;em&gt;G&lt;/em&gt; and &lt;em&gt;H&lt;/em&gt; are functions of &lt;em&gt;(x,y)&lt;/em&gt; defined on an open region containing &lt;em&gt;D&lt;/em&gt; and have continuous partial derivatives there, then&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\oint_C{(G\ dx + H\ dy) = \int\!\!\!\int_D {\left({{\partial H} \over {\partial x}} - {{\partial G} \over {\partial y}}\right)\ dx\ dy} } $$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where the path integral is traversed counterclockwise.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The idea behind this theorem is that if you have a line integral in two dimensions, then Green's theorem can be used to compute the integral: &#xA; Green's theorem transforms the line integral around a simple closed curve &lt;span class=&quot;math-container&quot;&gt;$C$&lt;/span&gt; into a double integral over the plane region &lt;span class=&quot;math-container&quot;&gt;$D$&lt;/span&gt; bounded by &lt;span class=&quot;math-container&quot;&gt;$C$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerUserId="12847" LastEditorUserId="38" LastEditDate="2019-07-10T10:15:47.830" LastActivityDate="2019-07-10T10:15:47.830" Title="Applications to Green's Theorem in Economics?" Tags="&lt;mathematical-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="16228" PostTypeId="1" CreationDate="2017-04-12T02:44:55.420" Score="1" ViewCount="211" Body="&lt;p&gt;I understand that the classification of taxes is on ability-to-pay principle and is partly determined by the demand elasticity of the commodity or service.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That's how I understand income tax is direct, while customs tax is indirect. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But I can't really wrap my head around why corporation tax is also considered a direct tax. Can't the corporations simply raise their prices in order to shift away the incidence of tax burden?&lt;/p&gt;&#xA;" OwnerUserId="12790" LastEditorUserId="2776" LastEditDate="2017-04-12T08:38:51.890" LastActivityDate="2017-08-11T07:27:10.433" Title="Why is corporation tax regarded as a direct tax?" Tags="&lt;macroeconomics&gt;&lt;taxation&gt;" AnswerCount="3" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16229" PostTypeId="1" AcceptedAnswerId="16231" CreationDate="2017-04-12T05:14:22.290" Score="3" ViewCount="975" Body="&lt;p&gt;You're probably familiar with the formula for tax incidence (in a standard Principles framework) from elasticity. Specifically, that the consumer share is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\varepsilon_S}{\varepsilon_S+|\varepsilon_D|}$$&#xA;and the producer share is&#xA;$$\frac{|\varepsilon_D|}{\varepsilon_S+|\varepsilon_D|}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I had always assumed that this was just a byproduct of linear supply/demand and therefore not of much interest, but just now have proven to myself that it's not with a few nonlinear supply/demand forms that also produce this result. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Is there an intuitive reason why the tax incidence takes this particular functional form, or is it just a common mathematical happenstance?&lt;/strong&gt; This isn't the only functional form that satisfies what I think of as the intuitive tenets of the tax incidence solution (consumer + producer shares add to 1, increase in your side's elasticity increases your side's burden). Another form that satisfies this, but is not in fact a calculation of incidence share, is $$\frac{(|\varepsilon_D|/\varepsilon_S)}{(|\varepsilon_D|/\varepsilon_S)+(\varepsilon_S/|\varepsilon_D|)}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I suppose an alternative explanation is that the counterexamples I happened to test this with satisfy some condition necessary to have those be the shares, and it's not actually universal.&lt;/p&gt;&#xA;" OwnerUserId="12848" LastActivityDate="2018-10-16T18:31:41.647" Title="Is there an intuitive explanation for the tax incidence formula from elasticity?" Tags="&lt;microeconomics&gt;&lt;supply-and-demand&gt;&lt;taxation&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16231" PostTypeId="2" ParentId="16229" CreationDate="2017-04-12T06:04:57.850" Score="2" Body="&lt;p&gt;Ah, never mind, got there.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Both supply and demand share the same change in quantity as a result of the tax, so&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Delta Q_S = \Delta Q_D$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The amount by which the quantities changed is the derivative of that quantity wrt price, times the change in price that side experienced&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\partial Q_S}{\partial P_S}\Delta P_S = \frac{\partial Q_D}{\partial P_D}\Delta P_D$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Multiply both sides by the equilibrium P/Q&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\partial Q_S}{\partial P_S}(\frac{P^*}{Q^*})\Delta P_S = \frac{\partial Q_D}{\partial P_D}(\frac{P^*}{Q^*})\Delta P_D$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which of course is the formula for elasticity at the equilibrium&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\varepsilon_S \Delta P_S = \varepsilon_D \Delta P_D$$&#xA;$$\frac{\varepsilon_S}{\varepsilon_D}\Delta P_S = \Delta P_D$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So then the producer's share is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Incidence_S=\frac{P^*-P_S}{T}=\frac{|\Delta P_S|}{|\Delta P_S|+|\Delta P_D|} = \frac{|\Delta P_S|}{|\Delta P_S|+|\frac{\varepsilon_S}{\varepsilon_D}\Delta P_S|}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;the price change cancels out and you get producer's share as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Incidence_S=\frac{1}{1+|\frac{\varepsilon_S}{\varepsilon_D}|}=\frac{|\varepsilon_D|}{|\varepsilon_D|+\varepsilon_S}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So it all comes from the fact that this is the unique formula that produces the price-change ratios that generate identical quantity changes in both sides of the market. Probably not any intuition that can come down to a principles course level but makes a lot more sense than it did before!&lt;/p&gt;&#xA;" OwnerUserId="12848" LastActivityDate="2017-04-12T06:04:57.850" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="16232" PostTypeId="2" ParentId="16227" CreationDate="2017-04-12T08:28:15.303" Score="5" Body="&lt;p&gt;&lt;a href=&quot;http://www.tandfonline.com/doi/pdf/10.1080/1350486X.2010.531588?needAccess=true&quot; rel=&quot;nofollow noreferrer&quot;&gt;Here&lt;/a&gt; and &lt;a href=&quot;http://www.tandfonline.com/doi/abs/10.1080/135048698334673&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; are two application of the theorem to finance.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://ideas.repec.org/p/fth/bereco/176.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Here&lt;/a&gt; is an application to game theory. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/S0047259X0900089X&quot; rel=&quot;nofollow noreferrer&quot;&gt;This&lt;/a&gt; is an application of the theorem to complex Bayesian stuff (potentially useful in econometrics).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, the Green's theorem is used in &lt;a href=&quot;https://en.wikipedia.org/wiki/Bendixson%E2%80%93Dulac_theorem&quot; rel=&quot;nofollow noreferrer&quot;&gt;this proof&lt;/a&gt;, which relates to dynamics system, and therefore could be related to economic models (source of this &lt;a href=&quot;https://matheducators.stackexchange.com/questions/376/applications-of-vector-calculus-to-economics-finance#comment2379_376&quot;&gt;here&lt;/a&gt;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Last but surely not least, &lt;a href=&quot;http://www.springer.com/la/book/9783540073901&quot; rel=&quot;nofollow noreferrer&quot;&gt;this book&lt;/a&gt; might have relevant stuff. At least &lt;a href=&quot;https://books.google.co.uk/books?id=x5_wCAAAQBAJ&amp;amp;pg=PA228&amp;amp;lpg=PA228&amp;amp;dq=green+theorem+use+in+economics&amp;amp;source=bl&amp;amp;ots=Iys4Nq7Qzv&amp;amp;sig=ikQhNoygdMx1C2EwFGAVk2YUuiQ&amp;amp;hl=es-419&amp;amp;sa=X&amp;amp;ved=0ahUKEwjS-q3Mvp7TAhWMCcAKHR8LA1sQ6AEIVTAI#v=onepage&amp;amp;q=green%20theorem%20use%20in%20economics&amp;amp;f=false&quot; rel=&quot;nofollow noreferrer&quot;&gt;Chapter 12&lt;/a&gt; does use it.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="-1" LastEditDate="2017-04-13T12:50:24.493" LastActivityDate="2017-04-12T08:28:15.303" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16233" PostTypeId="1" CreationDate="2017-04-12T09:16:22.863" Score="1" ViewCount="63" Body="&lt;p&gt;Recently I was improving my knowledge of Utility Functions in finances. I stumped upon very nice (yet quite old) article: &quot;&lt;a href=&quot;http://www.norstad.org/finance/util.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;An Introduction to Utility Theory&lt;/a&gt;&quot; by John Norstad (1999).&#xA;What drove my attention was charts in section 4. They represent utility functions of wealth:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;First chart (figure 2): $- \dfrac{10^6}{w^3}$&lt;/li&gt;&#xA;&lt;li&gt;Second chart(figure 3): $-\dfrac{10^{10}}{w^5}$&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;(So basically $-\dfrac{10^{2c}}{w^c}$) with c as chosen constant)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Purely for learning purpose I was trying to recreate his example (by using Excel/R) from section 4 (details on page 7). In same page author stated that expected utility (of 105) will be equal to -0.98. It is also shown under figure 2 in table:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;  Wealth   Utility&#xA; $90   -1.37   Bad outcome&#xA; $100   -1.00   Current wealth&#xA; $105   -0.98   Expected outcome&#xA; $120   -0.58   Good outcome&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;I run test and with those values and for \$105 it does not match. Using $- \frac{10^6}{105^3}$ I get -0.86. What is surprising other stated values are calculated correctly (90, 100, 120). At first I though it is nothing more than some kind of typo, but when I checked the second formula used to draft function in figure 3 the same situation occurred. For table: &lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;Wealth   Utility&#xA; $90   -1.69   Bad outcome&#xA; $100   -1.00   Current wealth&#xA; $105   -1.05   Expected outcome&#xA; $120   -0.40   Good outcome&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;when I put value 105 to formula ($-\frac{10^{10}}{105^5}$) it seems to be incorrect (should be -0.78) while rest of them are right. This quite undermines my typo theory.  Additionally this contradicts further conclusions (page 9 under the chart) made by author. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So my question is: did I overlooked something? Or did I just find a mistake? Or I am the one who is mistaken?&lt;/p&gt;&#xA;" OwnerUserId="12851" LastEditorUserId="1601" LastEditDate="2017-04-12T12:02:22.160" LastActivityDate="2017-04-12T12:02:22.160" Title="Confusions about calculations in Utility Theory Paper" Tags="&lt;utility&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16234" PostTypeId="2" ParentId="16233" CreationDate="2017-04-12T11:23:13.107" Score="2" Body="&lt;p&gt;The notation is a bit confusing but what the author is computing is the &lt;em&gt;expected utility&lt;/em&gt; of the investment, not the utility of the expected outcome.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since the investment results in a wealth of \$120 with probability 0.5 and a wealth of \$90 with probability 0.5, the expected utility equals&#xA;\begin{align*}&#xA;\mathbb{E}U &amp;amp; = 0.5 \times (-\dfrac{10^6}{90^3}) + 0.5 \times (-\dfrac{10^6}{120^3}) \\&#xA;&amp;amp; \sim -0.98 &#xA;\end{align*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Notice that this value is lower than the utility of the expected outcome, which is approximately equal to $-0.86$ as you wrote. This is because the agent is risk-averse and must therefore be compensated for the risk.&lt;/p&gt;&#xA;" OwnerUserId="4667" LastActivityDate="2017-04-12T11:23:13.107" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16236" PostTypeId="1" AcceptedAnswerId="16237" CreationDate="2017-04-12T14:32:47.667" Score="1" ViewCount="2404" Body="&lt;p&gt;For a developing economy, I've seen sources claiming that the capital-output ratio (more commonly known as ICOR) is high (e.g. &lt;a href=&quot;http://ahsankhaneco.blogspot.com/2012/04/basic-major-and-common-characteristics.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; and &lt;a href=&quot;https://www.quora.com/What-is-capital-output-ratio&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;), while other sources claiming that it's low, like below (the answer is A):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/NNUkR.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/NNUkR.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I suppose I can come up with reasons why the ICOR or a developing country might be low: low rate of saving -&gt; little investment on capital -&gt; low returns -&gt; low ICOR. Then again, the ICOR is a ratio, so even if both nominal investment and output are low, there is no guarantee that they're values are therefore low relative to each other, if anything the ICOR can easily be high, as explained in the two sources that claim the ICOR is high for such economies.&lt;/p&gt;&#xA;" OwnerUserId="6782" LastEditorUserId="2776" LastEditDate="2017-04-12T14:35:56.080" LastActivityDate="2017-04-12T14:58:58.400" Title="Is the capital-output ratio in developing countries low or high?" Tags="&lt;development-economics&gt;&lt;input-output&gt;&lt;capital&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="16237" PostTypeId="2" ParentId="16236" CreationDate="2017-04-12T14:58:58.400" Score="1" Body="&lt;p&gt;The key to the answer is good data on Capital. There is a project (&lt;a href=&quot;http://www.worldklems.net/data.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;KLEMS&lt;/a&gt;), which is computing harmonised (i.e. comparable) information on capital, labour, energy, etc for many countries. At the moment it has information mainly on developed countries, but data for more developing countries are coming up. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, this is a calculation of the capital-output ratio for the case of the UK:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/kPcpx.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/kPcpx.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the case of developing countries, here is a figure:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/LgbyI.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/LgbyI.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(source &lt;a href=&quot;http://www.oecd-ilibrary.org/development/economic-outlook-for-southeast-asia-china-and-india-2014/policy-priorities-for-growing-beyond-the-middle-income-trap-in-emerging-asia_saeo-2014-9-en&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems that developing countries might have lower capital-output ratios. However, this is ultimately an empirical question which requires a proper analysis. I suggest you use the KLEMS data to make your own, harmonised study.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-04-12T14:58:58.400" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16238" PostTypeId="1" CreationDate="2017-04-12T15:40:03.557" Score="0" ViewCount="699" Body="&lt;p&gt;Homothetic functions can be defined as follow (&lt;a href=&quot;http://press.princeton.edu/titles/2663.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Green, 1964&lt;/a&gt;, p.49):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;If two figures A and B are &quot;homothetic&quot;, or &quot;similarly placed&quot; with reference to a point P [for example, the origin], then for any two straight lines PQR and PQ'R' through P, cutting A in Q and Q' and B in R and R', the ratios PQ/PR and PQ'/PR' are equal. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Additionally, consider the case where &quot;each set of points, in output of commodity space, at which marginal rates of substitution are constant, is a straight line&quot;. This is, a straight Engel curve.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are these two definitions &lt;strong&gt;equivalent&lt;/strong&gt;, in the sense that each implies the other?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or to put it differently, can we define:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;an homothetic function as a function which yields straight Engle curves? &lt;strong&gt;and&lt;/strong&gt;&lt;/li&gt;&#xA;&lt;li&gt;a function with straight Engle curve as an homothetic function?&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I am a bit confused, because in a text I'm reading both are used at different times, without mention their direct relation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The answer to me seems to be yes. However, Maybe in special cases like when an homothetic function does not start in the origin, or where Engel lines are horizontal, the relation might break. If so, would these be the only exceptions, such that we could conclude that, &lt;em&gt;for most of our purposes&lt;/em&gt;, they are indeed equivalent?&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-04-13T13:02:50.507" Title="Homothetic function versus straight Engle curve" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="9" ContentLicense="CC BY-SA 3.0" />
  <row Id="16240" PostTypeId="1" AcceptedAnswerId="16243" CreationDate="2017-04-12T18:36:51.547" Score="0" ViewCount="130" Body="&lt;p&gt;I am learning about shifts in supply and demand. Things that shift supply include things like improvement in production technologies. But why would a firm want to increase their supply if they are just going to sell more product for less at the new equilibrium ?&lt;/p&gt;&#xA;" OwnerUserId="12859" LastActivityDate="2017-04-13T09:07:25.983" Title="supply demand question beginner" Tags="&lt;supply-and-demand&gt;&lt;general-equilibrium&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16241" PostTypeId="2" ParentId="16157" CreationDate="2017-04-12T21:49:39.770" Score="1" Body="&lt;p&gt;Health insurance. If an insurance company must charge a single premium because they cannot distinguish between low risk and high risk individuals, they will charge a premium based on average risk. As a result the proportion of high risk individuals in the pool of insured individuals increases, whilst the proportion of low risk individuals decreases (healthy individuals are less willing to pay a high price of insurance), which pushes up the average price of premiums, further reduces the proportion of low risk individuals, etc. The market fails.&lt;/p&gt;&#xA;" OwnerUserId="12861" LastActivityDate="2017-04-12T21:49:39.770" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16242" PostTypeId="2" ParentId="16228" CreationDate="2017-04-13T01:13:39.727" Score="0" Body="&lt;p&gt;&quot;Direct tax&quot; is just another term for &quot;Income Tax&quot;. This has historical roots: the concept of tax is that, from each producer the state has the right to take part of its production. This is how tax has been historically conceived in human societies. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Who actually collects the tax and pays it to the government does not enter the classification: for example, in many countries, the income tax of employees are retained (essentially collected) by the employer and paid to the tax authority by him -but this is still correctly classified as a direct tax.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How the entity under taxation reacts to the tax also doesn't matter for the classification, which is seen to be essentially void of behavioral content, even though it is certainly &lt;em&gt;linked&lt;/em&gt; to behavior, since more or less indirect taxes emerged because governments realized that these are more easily collected.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2017-04-13T01:13:39.727" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16243" PostTypeId="2" ParentId="16240" CreationDate="2017-04-13T04:45:51.077" Score="2" Body="&lt;p&gt;The new &quot;equilibrium&quot; would have been at a lower price on the assumption that the firm has full Monopoly over the market (and hence cannot instead just compete with some other firm for a larger share of market demand) and demand remains constant. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Moreover unless you know about the elasticity of demand (how sensitive people's wish to buy is with regards to commodity price) you cannot be certain if selling a significantly larger amount at a slightly smaller price might in totality fetch the producer a larger sum of money.&lt;/p&gt;&#xA;" OwnerUserId="12790" LastActivityDate="2017-04-13T04:45:51.077" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16246" PostTypeId="2" ParentId="15688" CreationDate="2017-04-13T08:30:00.520" Score="3" Body="&lt;p&gt;&lt;strong&gt;Complexity/Evolutionary Economics&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This approach to economics, widely inspired in Evolutionary Biology, is a direct criticism to Neoclassical Economics, as its key postulates indicate. These are:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Economics are open, dynamic, non-linear systems &lt;strong&gt;far from equilibrium&lt;/strong&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Agents have &lt;em&gt;realistic rationality&lt;/em&gt;, as opposed to perfect rationality. This is, they use inductive heuristics or rules of thumb for decision-making; they are subject to error/biases; have finite computing power; and are a constant learning and adaptation process. Information is important.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Agents interaction modeled explicitly, for example, as in &lt;a href=&quot;https://en.wikipedia.org/wiki/Agent-based_model&quot; rel=&quot;nofollow noreferrer&quot;&gt;Agent-Based Models&lt;/a&gt;, or via explicit networks, as opposed through the market only (supply/demand).&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;No sharp distinction between macro and microeconomics. Instead, the focus is on &lt;strong&gt;emergence&lt;/strong&gt;. This is, how macro processes and patterns emerge from micro behaviours and interactions.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;There is an &lt;strong&gt;evolutionary process&lt;/strong&gt; which creates novelty, induces greater order, but also increases complexity. For example, creative destruction of firms and technology follows a natural selection mechanism, where fitter firms/methods survive and reproduce.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Markets are not perfectly efficient at allocation, but are very effective in create wealth (through evolution and natural selection, again). The State can create the institutional conditions for economic evolution. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;According to &lt;a href=&quot;https://hbr.org/product/the-origin-of-wealth-the-radical-remaking-of-economics-and-what-it-means-for-business-and-society/2103-PBK-ENG&quot; rel=&quot;nofollow noreferrer&quot;&gt;Eric Beinhocker&lt;/a&gt;, complexity economics is built upon very old contributions, including Mathus, Darwin, Marshall, Schumpeter, and Hayek, to name a few. It is inspired by Biology (and Evolutionary Biology in particular), but also by physics. There is a discipline related to the latter and many times associated with Complexity ideas, called &lt;a href=&quot;https://en.wikipedia.org/wiki/Econophysics&quot; rel=&quot;nofollow noreferrer&quot;&gt;Econophysics&lt;/a&gt;. In terms of Institutions, the main precursor of this school of thought, and still central today in its development, is the &lt;a href=&quot;https://www.santafe.edu/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Santa Fe Institute&lt;/a&gt;, in the U.S.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-04-13T08:30:00.520" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16248" PostTypeId="2" ParentId="16240" CreationDate="2017-04-13T09:07:25.983" Score="0" Body="&lt;p&gt;A profit maximizing firm will expand output until marginal return (MR) equals marginal costs (MC). Intuitively, if the revenue of an additional sale exceeds the costs of the sale, you should go for it. On the other hand, if the additional costs are higher, you should obviously refrain from making the transaction. Therefore, a firm will optimally expand or reduce output until MR = MC.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So when costs are shifting down (but the price for the products stays the same for the short term), the last unit is being sold with a profit. Therefore you should expand output until marginal costs equal marginal return again. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What you should do: Get a standard textbook and look up the behavior of firms in two cases: Perfect competition and monopoly.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You will see that the tradeoff you were referring to is only relevant for the monopolist. With a lower price he may sell additional units but he will also receive a lower price for all the units he sold beforehand. Why is this only relevant for the monopolist? Hint: The difference between the two cases (monopoly and perfect competition) is that a perfect competitor faces a horizontal demand curve while a monopolist faces a demand curve that is downward sloping (because it is market demand!). You will see that marginal return will differ in the two cases.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is what Harman Deep is referring to: The &quot;downward slopiness&quot; of the demand, i.e. the elasticity of demand, is crucial for the problem at hand.&lt;/p&gt;&#xA;" OwnerUserId="7834" LastActivityDate="2017-04-13T09:07:25.983" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16250" PostTypeId="2" ParentId="16238" CreationDate="2017-04-13T13:02:50.507" Score="1" Body="&lt;p&gt;A general result using indirect utility functions, is that expenditure linear in income (&quot;straight-line&quot; Engel curves) is produced if and only if the indirect utility function has the &lt;a href=&quot;https://en.wikipedia.org/wiki/Gorman_polar_form&quot; rel=&quot;nofollow noreferrer&quot;&gt;&quot;Gorman-polar form&quot;&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The original paper is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;a href=&quot;http://onlinelibrary.wiley.com/doi/10.1111/j.1467-999X.1961.tb00819.x/full&quot; rel=&quot;nofollow noreferrer&quot;&gt;Gorman, W. M. (1961). On a class of preference fields. Metroeconomica, 13(2), 53-56.&lt;/a&gt;&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;...where we read that a linear Engel curve is produced when we have a homothetic utility function (Gorman does not use the word, he writes &quot;homogeneous&quot; and in a footnote, enhances that to &quot;function of a homogeneous function&quot;, which is how a homothetic function is defined).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But the reverse does not hold:&lt;strong&gt;homotheticity is sufficient for linear Engel curves, but not necessary.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, linear Engel curves are also produced by a utility function that reflects &quot;quasi-linear&quot; preferences, $U(x,m) = u(x) + m$, which are not homothetic.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;A homothetic function is properly defined mathematically as follows:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $f(\mathbf x)$ be a homogeneous function of some degree, and let $g$ be a function with non zero derivative. Then $g[f(\mathbf x)]$ is called a homothetic function. In economics, we usually require for the derivative of $g$ to be strictly positive, so that we remain inside economically meaningful territory.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2017-04-13T13:02:50.507" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="16251" PostTypeId="2" ParentId="15225" CreationDate="2017-04-13T13:10:57.153" Score="1" Body="&lt;p&gt;A &lt;a href=&quot;http://www.loyolaandnews.es/loyolaecon/wp-content/uploads/2017/03/Medicion-de-los-efectos-del-aumento-del-20-de-las-tarifas-de-EEUU-sobre-la-economia-mexicana.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;working paper&lt;/a&gt; on this question was just published, albeit the document is in Spanish. The abstract is in English though. The report is solely concerned with &lt;strong&gt;inflation&lt;/strong&gt;. Here is the abstract:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The  goal  of  this  research  is  to  simulate  the  possible  effects  of  the  20%  increase  in  tariffs  on  the Mexican economy. The price model used is based on a general  equilibrium linear model. With this &#xA;  price model, the estimate of the impact of the effects of a US tariff increase of 20% on the Mexican  economy is roughly estimated, simulating this increase on prices in the rest of the world. In this way, it is possible to calculate the effects on consumer prices and welfare represented in this case by the CPI. The main result shows that the impact of the increase of the prices of the rest of the world to the increase of the tariffs in the United States on the CPI is inflationary with an increase of around 4%.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The main (and only) result of interest is shown in &quot;Tabla 1&quot;. It indicates the increase in final prices for different industries. Remarkable are the cases of Manufacturing (&quot;Industrias Manufactureras&quot;, Ṇ̣o 5), with 8.2%, Energy (No 3) with 4.88% and Transport (No 7), with 4.3%. Housing (No 10) and &quot;Corporative services?&quot; (No 12) are the least affected (0.5%).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regarding the methodology, it is based on a price model of the &lt;a href=&quot;https://en.wikipedia.org/wiki/Social_accounting_matrix&quot; rel=&quot;nofollow noreferrer&quot;&gt;Social Accountability Matrix&lt;/a&gt;. To me, it does not seem like a very through exercise, and it is not based on a behavioural, general equilibrium approach, but more of an accounting exercise. Still, it seems to be the only study available at the moment..&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-04-13T13:16:35.500" LastActivityDate="2017-04-13T13:16:35.500" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16252" PostTypeId="1" AcceptedAnswerId="16254" CreationDate="2017-04-13T13:25:09.387" Score="-1" ViewCount="49" Body="&lt;p&gt;In difference equations, the time variable $t$ can only take integer values. Does this imply that the variable $y_t$ must be considered a discrete variable?   &lt;/p&gt;&#xA;" OwnerUserId="12870" LastEditorUserId="4193" LastEditDate="2017-04-13T16:54:02.743" LastActivityDate="2017-04-13T16:54:02.743" Title="Integer values in difference equations" Tags="&lt;econometrics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16254" PostTypeId="2" ParentId="16252" CreationDate="2017-04-13T14:08:25.153" Score="1" Body="&lt;p&gt;No. A continous variable ($y_t$) can be indexed by a discrete variable ($t $).&lt;/p&gt;&#xA;" OwnerUserId="4667" LastActivityDate="2017-04-13T14:08:25.153" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16256" PostTypeId="1" AcceptedAnswerId="16260" CreationDate="2017-04-13T14:31:53.743" Score="2" ViewCount="1624" Body="&lt;p&gt;Let $\succsim$ be a strictly convex and quasilinear preference relation. It's defined over, say, $\mathbb{R}^2_{+}$ and is quasilinear on good 1.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, $U(x_{1},x_{2}) = x_{1} + f(x_{2})$. How to prove that $f$ is a strictly concave function?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm solving problem 15.B.8 from MWG and I can't even understand what the solutions manual did! &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks a lot in advance for any hints and ideas!&lt;/p&gt;&#xA;" OwnerUserId="7033" LastActivityDate="2017-04-13T15:31:23.410" Title="How to prove convexity + quasilinear preferences imply concave utility?" Tags="&lt;microeconomics&gt;&lt;preferences&gt;&lt;proof&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16258" PostTypeId="1" AcceptedAnswerId="16282" CreationDate="2017-04-13T15:16:51.990" Score="2" ViewCount="84" Body="&lt;p&gt;&lt;strong&gt;BACKGROUND&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am involved in finance, but by no means an economist. I've been reading Ben Bernanke's &quot;The Courage to Act&quot; and have become interested in QE1 and QE2. Currently, I am trying to understand the Fed's Balance sheet reduction.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;NOTE: Apologies if some of my assumptions/questions are misguided&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;ASSUMPTIONS&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;QE was a fiscal strategy to lower long-term interest rates&lt;/li&gt;&#xA;&lt;li&gt;Fed bought Treasury securities and Mortgage-backed Securities to reduce long-term interest rates&lt;/li&gt;&#xA;&lt;li&gt;Fed is currently looking to reduce Balance sheet to raise long-term interest rates to pre-recession levels (including short-term interest rates)  &lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.brookings.edu/blog/ben-bernanke/2017/01/26/shrinking-the-feds-balance-sheet/&quot; rel=&quot;nofollow noreferrer&quot;&gt;The Fed is looking to raise short-term interest rates first, then long-term interest rates&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;QUESTION(S)&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;If the Fed raises short-term interest rates, but keeps long-term interest rates low, wouldn't this create an Inverted Yield Curve?&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://www.investopedia.com/terms/i/invertedyieldcurve.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;Aren't Inverted Yield Curves an indicator of recession?&lt;/a&gt;  &lt;/li&gt;&#xA;&lt;li&gt;Why isn't it better to raise on long-term interest rates first, and then raise short-term interest rates? &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="5332" LastActivityDate="2017-04-15T01:10:17.280" Title="Wouldn't reducing Fed Balance Sheet lead to Inverted Yield Curve?" Tags="&lt;macroeconomics&gt;&lt;interest-rate&gt;&lt;federal-reserve&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16259" PostTypeId="1" CreationDate="2017-04-13T15:29:29.467" Score="6" ViewCount="718" Body="&lt;p&gt;We had a question on this site for  &lt;a href=&quot;https://economics.stackexchange.com/questions/35/fundamental-equations-in-economics&quot;&gt;Fundamental equations in economics&lt;/a&gt;. What I'd like to know is what are the most important proofs needed in economics?&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2017-07-15T22:23:30.203" Title="What are the fundamental economic proofs" Tags="&lt;mathematical-economics&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="16260" PostTypeId="2" ParentId="16256" CreationDate="2017-04-13T15:31:23.410" Score="2" Body="&lt;p&gt;Consider any $x_2'$ and $x_2''$ in $\mathbb{R}_+$. Without loss of generality, let $x_2'' &amp;gt; x_2'$. We can choose $x_1'=f(x_2'')-f(x_2') &amp;gt; 0$ so that $U(0,x_2'')=U(x_1',x_2')$. Let $\lambda(x_1',x_2')+(1-\lambda)(0,x_2'')$ be a convex combination of $(x_1',x_2')$, and $(0,x_2'')$. Since $\succsim$ is strictly convex and $U(0,x_2'')=U(x_1',x_2')$,&#xA;        \begin{eqnarray*} &#xA;	&amp;amp;&amp;amp; U(\lambda(x_1',x_2')+(1-\lambda)(0,x_2''))  &amp;gt;  U(x_1',x_2') \\&#xA;	&amp;amp;\Rightarrow &amp;amp; U(\lambda x_1'+(1-\lambda)0,\lambda x_2'+(1-\lambda)x_2'')  &amp;gt;  \lambda U(x_1',x_2')+(1-\lambda)U(0,x_2'')\ldots(\because U(0,x_2'')=U(x_1',x_2')) \\&#xA;	&amp;amp;\Rightarrow &amp;amp;  \lambda x_1'+(1-\lambda)0 + f(\lambda x_2'+(1-\lambda)x_2'') &amp;gt;  \lambda (x_1'+f(x_2'))+(1-\lambda)(0 + f(x_2''))\\&#xA;	 &amp;amp;\Rightarrow &amp;amp;  \lambda x_1'+(1-\lambda)0 + f(\lambda x_2'+(1-\lambda)x_2'') &amp;gt;  \lambda x_1'+(1-\lambda)0 + \lambda f(x_2')+(1-\lambda)f(x_2'') \\&#xA;	 	 &amp;amp;\Rightarrow &amp;amp;  f(\lambda x_2'+(1-\lambda)x_2'') &amp;gt;   \lambda f(x_2')+(1-\lambda)f(x_2'')\end{eqnarray*}&#xA;Therefore, $f(\cdot)$ is strict concave.&lt;/p&gt;&#xA;" OwnerUserId="11824" LastActivityDate="2017-04-13T15:31:23.410" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16262" PostTypeId="1" CreationDate="2017-04-13T15:48:49.967" Score="10" ViewCount="247" Body="&lt;p&gt;Are future dividends the primary value backing  that a stock price will rise? (Let's assume that purchase by a competitor is an unlikely event and discount the value this might have).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems to me that many stocks are worth astonishingly many times more than their dividends pay, or are likely or even pay. In fact, many companies pay no dividends, and we have no expectation that that they will start paying dividends any time soon. Why buy those stocks? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If your expectation is that their value will go up, it must be because someone else will be will to pay more for it later. However let's imagine even if a company becomes phenomenally profitable, dominates over its competition to an extent that it cannot be acquired, and has lots of cash in the bank, if the company pays no dividends (let's assume its legally bound not to pay dividends for some reason, or has never paid dividends in the past or we have little reason to expect it will pay dividends in the future), where is the value in that stock to a future individual investor? &lt;/p&gt;&#xA;" OwnerUserId="4991" LastActivityDate="2021-03-15T20:10:16.053" Title="Is belief in future dividends the only long term value of stock?" Tags="&lt;stock-market&gt;" AnswerCount="8" CommentCount="0" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="16263" PostTypeId="1" CreationDate="2017-04-13T16:56:02.087" Score="1" ViewCount="2481" Body="&lt;p&gt;Suppose there are 2 individuals in a simple exchange economy with utilities $U_{1}= ax_{1} + x_{2}$ and $U_{2}= y_{1}y_{2}$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Endowments are $(x_{1},x_{2})=(4,0)$ and $(y_{1},y_{2})=(1,5)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We are asked the values of $a$ such that the above allocation is pareto optimal.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The answer as given is $MRS_{A} \ge MRS_{B}$ implies pareto optimal. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;How did we arrive here?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;URL for reference: &lt;a href=&quot;http://www.econschool.in/stuff-of-interest/anotherpost/dse-2013-q34&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.econschool.in/stuff-of-interest/anotherpost/dse-2013-q34&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;URL for actual problem: &lt;a href=&quot;http://www.econschool.in/stuff-of-interest/anotherpost/dse-2013-q34&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.econschool.in/stuff-of-interest/anotherpost/dse-2013-q34&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="12874" LastEditorUserId="6629" LastEditDate="2017-04-13T19:37:55.587" LastActivityDate="2017-04-14T07:34:46.123" Title="How do we find pareto optimal points in a 2 goods simple exhange economy?" Tags="&lt;pareto-efficiency&gt;" AnswerCount="2" CommentCount="5" ClosedDate="2017-04-14T11:35:10.557" ContentLicense="CC BY-SA 3.0" />
  <row Id="16264" PostTypeId="1" CreationDate="2017-04-13T17:04:23.170" Score="1" ViewCount="549" Body="&lt;p&gt;I have a large unbalanced panel data with 460 firms and 1259 days. The model I would like to run is below&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;Y_{it} = \beta X_{it} + \alpha Z_{t} + \epsilon_{it}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $Y_{it}$ is stock return, and $Z_{t}$ are Fama French 3 factors, and $X_{it}$ are variables of interest. &lt;br/&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I run Fama Macbeth (FM) and double clustering to correct for the standard error, but two models give inconsistent results,i.e., $\beta$ is significant in one model, and not in the other. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand that Fama-MacBeth technique&#xA;was developed to account for correlation between observations on different firms in the same time point,&#xA;not to account for correlation between observations on the same firm in different time points. Traditionally, it should run cross section regression at each time point, then average estimates along time $T$. But in my case, due to the inclusion of $Z_t$, I have to run time series regression first since otherwise, $Z_{t}$ are not identifiable. In this case, does FM actually correct for correlation between observations on the same firm in different time points? &lt;br/&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;More importantly, does the inconsistent result mean that my results are not robust? Under my case, can I argue one is more appropriate than the other? Can the unbalanced data structure contribute to the inconsistent results?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm using fm and cluster2 command on this page &lt;a href=&quot;http://www.kellogg.northwestern.edu/faculty/petersen/htm/papers/se/se_programming.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;Stata command&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="6858" LastEditorUserId="6858" LastEditDate="2017-04-13T17:09:48.987" LastActivityDate="2017-04-15T17:14:58.197" Title="Fama Macbeth and double clustering presents inconsistent results" Tags="&lt;regression&gt;&lt;paneldata&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16265" PostTypeId="1" CreationDate="2017-04-13T18:16:33.220" Score="0" ViewCount="69" Body="&lt;p&gt;This question comes from someone who suggested brushing my teeth benefits the economy because it reduces demand for dentists, lowering the price. However, when I think more generally of making my own shoes/clothing my decrease in &quot;clothing-services&quot; leads to an increase in demand for the raw materials, in this case fabric. (I am ignoring the time it takes to learn how to make clothing.) Or suppose everyone simultaneously decided restaurants were unhealthy and started cooking at home; the restaurant industry would collapse, but would agriculture stay the same?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is the economy the same, worse, or better when a consumer switches from buying a good to buying the raw materials for that good to manufacture it themselves?&lt;/p&gt;&#xA;" OwnerUserId="12876" LastActivityDate="2017-05-14T09:56:44.977" Title="What is the effect on society of me choosing to make my own shoes, food, or clothing?" Tags="&lt;microeconomics&gt;&lt;supply-and-demand&gt;&lt;social-welfare&gt;" AnswerCount="1" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="16266" PostTypeId="2" ParentId="16263" CreationDate="2017-04-13T19:47:01.210" Score="0" Body="&lt;p&gt;A parateo optimal solution can be found setting&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$MRS_1=MRS_2$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;and then solving for $a$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We know, that $MRS_1=$ $MU_{x_1}\over{MU_{x_2}}$ $=$ $\partial U_1 \over{\partial x_1}$$\div$ $\partial U_1\over\partial x_2$ $=$ $a\over1$ $=a$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and  similarly $MRS_2=$ $MU_{y_1} \over{MU_{y_2}}$ $=$ $y_2\over{y_1}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;now plug in endowment values respectively which gives&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$a= {5\over{1}} \Longrightarrow a=5$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\therefore$ the above allocation is pareto optimal when $a=5$&lt;/p&gt;&#xA;" OwnerUserId="6629" LastActivityDate="2017-04-13T19:47:01.210" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="16270" PostTypeId="2" ParentId="16263" CreationDate="2017-04-14T07:34:46.123" Score="4" Body="&lt;p&gt;The following plot has the answer to your question, observe it carefully:&#xA;&lt;a href=&quot;https://i.stack.imgur.com/7BHQ2.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/7BHQ2.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="11824" LastActivityDate="2017-04-14T07:34:46.123" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16271" PostTypeId="2" ParentId="16265" CreationDate="2017-04-14T09:53:28.583" Score="1" Body="&lt;p&gt;The consequences &quot;on society&quot; of &lt;strong&gt;you&lt;/strong&gt; changing any consumption/production choice you make is zero. Assuming that all the markets you interact with (shoes, clothes, etc) are &lt;strong&gt;competitive&lt;/strong&gt;, your contribution to the demand and supply of a good/service is neglectible. Therefore, market equilibrium (price/quantity) will not change.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The story is of course different if &lt;strong&gt;everyone&lt;/strong&gt;, or a &quot;sizable&quot; amount of people does change their decisions. Demand and supply of goods and services will be altered, just as the supply and demand of all the &lt;a href=&quot;https://en.wikipedia.org/wiki/Derived_demand&quot; rel=&quot;nofollow noreferrer&quot;&gt;inputs&lt;/a&gt; used to produce such goods. Since a lot of goods and services are related in one way or another, either as complements or substitutes, the consequences could be felt accross the whole economy. How far this goes, depend on the number of people changing their actions, and the &lt;a href=&quot;https://en.wikipedia.org/wiki/Cross_elasticity_of_demand&quot; rel=&quot;nofollow noreferrer&quot;&gt;relation&lt;/a&gt; between goods, services and inputs. In short, your actions will have a &lt;a href=&quot;https://en.wikipedia.org/wiki/General_equilibrium_theory&quot; rel=&quot;nofollow noreferrer&quot;&gt;general equilibrium&lt;/a&gt; effect.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-04-14T09:53:28.583" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="16272" PostTypeId="2" ParentId="12669" CreationDate="2017-04-14T10:05:36.373" Score="2" Body="&lt;p&gt;As you say (how did $\sin t$ in the initial problem become $\cos t$?), $\mathbb{Q}$ is a measure under which $W_t$ becomes $\tilde{W}_t - \sin t$, where $\tilde{W}_t$ is a $\mathbb{Q}$-Brownian motion. So Girsanov's theorem would say&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;L_t = E[\frac{ d \mathbb{Q} }{ d \mathbb{P} }|\mathcal{F}_t] = e^{ - \int_0^t \sin s dW_s - \frac{1}{2} \int_0^t \sin^2 s ds}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;is one such measure.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for uniqueness, if we take $\Omega$ to be the canonical path space $C[0, T]$ with $\mathcal{F}$ generated by the cylinder sets. Then the Wiener measure would be unique, simply by the fact that the Brownian law says any two such measures must agree on the cylinder sets and therefore all of $\mathcal{F}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In general, the Girsanov $\mathbb{Q}$ is unique up to the Brownian filtration $\mathcal{F}_{W} \subset \mathcal{F}$, since it is constructed $W$-pathwise.    &lt;/p&gt;&#xA;" OwnerUserId="126" LastActivityDate="2017-04-14T10:05:36.373" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16273" PostTypeId="1" CreationDate="2017-04-14T10:25:57.753" Score="2" ViewCount="46" Body="&lt;p&gt;In France, one of the presidential candidate said that the European Central Bank should purchase the public debts of the country and transform it into a perpetual debt (this is a literal translation, I don't know if there is a specific word for that in English).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since I have very little knowledge about economics and how the ECB works, I find it very unlikely that a bank can just purchase the entire debts of a country.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would like to know if this is really possible and if so, what exactly is a &quot;perpetual debt&quot;?&lt;/p&gt;&#xA;" OwnerUserId="12882" LastEditorUserId="1601" LastEditDate="2017-04-14T23:40:57.743" LastActivityDate="2017-04-18T21:38:59.007" Title="Purchase of the public debts by the ECB" Tags="&lt;central-banking&gt;&lt;debt&gt;&lt;government-debt&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16274" PostTypeId="1" CreationDate="2017-04-14T12:05:11.200" Score="1" ViewCount="360" Body="&lt;p&gt;I'm studying risk aversion and I cannot make a intuitive explain about the utility function which is DARA and CRRA.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;for instance, let's say, $\ln W$, where $W$ stands for one's wealth.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;by the definition of absolute risk aversion, its ABA is ${1}/{W}$&#xA;and it is CRRA since its relative risk aversion is $1$ . &lt;/p&gt;&#xA;&#xA;&lt;p&gt;then here's the start of my confusion. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;first, consider a fair gambling, and two guys who have same utility function as $\ln W$.  By DARA, the one who is richer would not feel much riskier than the poor. So he would not spend as much as the poor guy do for making fix his income, for example by contracting insurance(it means the richer would pay less insurance fee for hedging his risk than the poor guy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;second, what about the aspect of RRA(relative risk aversion)? It is constant. I understood this as,, that the rich man and the poor man's spending in their insurance fee does not depend on their wealth(specifically, does not vary when their wealth increases or decreases) let's say for some risk they would like to pay 3% of their wealth to avoid the certain risk. Then, from here, it is clear that the 3% of wealth of rich man is bigger than the poor man. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words, It looks that the rich man would pay much more money for insurance than the poor man when we see the aspect of RRA. However, DARA says that it is not the case. For me, this does not makes sense. And with a common sense, if a person who is willing to avoid risk would feel less risky when he becomes rich. So DARA looks fine. But the situation with CRRA looks contradiction about one's utility (function). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question should have been shorter..sorry about that. Please leave me a hint to solve this confusion. Thanks. &lt;/p&gt;&#xA;" OwnerDisplayName="user12883" LastEditorUserId="42" LastEditDate="2017-04-14T18:01:43.713" LastActivityDate="2017-04-14T18:01:43.713" Title="How a utility function which is both DARA and CRRA can be explained?" Tags="&lt;expected-utility&gt;&lt;risk&gt;&lt;risk-aversion&gt;" AnswerCount="0" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16276" PostTypeId="2" ParentId="14799" CreationDate="2017-04-14T13:54:38.417" Score="-1" Body="&lt;p&gt;If the Great Depression and the recent Great Recession, economic dislocations in both banking and investment systems, are valid predictors of personal and societal adverse economic consequence from similar future events; one need only predict that the economic confusion caused by a major loss event (from a natural disaster like a massive San Andreas earthquake to a new Korean Peninsula war, with or without nuclear weapons, et al.) would itself cause a major economic downturn lasting about 3 years even with adequate governmental counter stimulus to nearly a decade for a return to full organic economic growth (as these were apparent results in both the Great Depression and Recession). &lt;/p&gt;&#xA;" OwnerUserId="12887" LastActivityDate="2017-04-14T13:54:38.417" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16277" PostTypeId="2" ParentId="1933" CreationDate="2017-04-14T14:23:42.890" Score="1" Body="&lt;p&gt;Usually &lt;em&gt;additive functionals&lt;/em&gt; are defined for (strong) Markov processes with continuous sample paths (diffusions) but I suppose you do have a Markov---AR(1)---time series and $\{ Y_t \}$ is indeed additive. So, in your case,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;X_t = a_0 + a_1 X_{t-1} + W_t,&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and you would like&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{align*}&#xA;Y_t - Y_{t-1} &amp;amp;= r_1 + (M_t - M_{t-1}) + r_2 (X_t - X_{t-1}) \\&#xA;              &amp;amp;= a_0 + W_t + a_1 X_{t-1}.&#xA;\end{align*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If such a decomposition exists, then conditioning on $\sigma(X_1,...X_{t-1})$ gives necessary conditions&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{align*}&#xA;r_1 + r_2 (a_0 + (a_1 -1) X_{t-1}) &amp;amp;= a_0 + a_1 X_{t-1}  \\&#xA;\end{align*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;with solutions&#xA;\begin{align*}&#xA;r_1 = (1-\frac{a_1}{a_1 -1})a_0, \;r_2 = \frac{a_1}{a_1 -1}.&#xA;\end{align*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One can then substitute $(r_1, r_2)$ into &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;a_0 + W_t + a_1 X_{t-1} - r_1 -  r_2 (X_t - X_{t-1})&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and check that it gives a martingale difference sequence $\frac{-1}{a_1 -1} W_t$.&lt;/p&gt;&#xA;" OwnerUserId="126" LastActivityDate="2017-04-14T14:23:42.890" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16278" PostTypeId="2" ParentId="1933" CreationDate="2017-04-14T17:26:05.950" Score="2" Body="&lt;p&gt;Using the given formulas (inserting the expression for the $X$'s in the sum), we arrive at&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Y_t = (1-\beta_0)\alpha_0\cdot t + \beta_0\sum_{j=0}^{t-1}X_j +\sum_{j=1}^{t}W_j $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We do not need a theorem to obtain that, given the description of the problem.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Manipulating, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Y_t= (1-\beta_0)\alpha_0\cdot t  - \beta_0(X_t-X_0) + \beta_0Y_{t}  +\sum_{j=1}^{t}W_j$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies Y_t = \alpha_0t +\frac{1}{1-\beta_0}\sum_{j=1}^{t}W_j-\frac{\beta_0}{1-\beta_0}(X_t-X_0)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and we want to match this with &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Y_t = r_1 t + M_t - r_2 (X_t - X_0)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We immediately get that we must have  $r_1 =  \alpha_0$, $r_2 = \beta_0/(1-\beta_0)$, and &#xA;$$M_t = \frac{1}{1-\beta_0}\sum_{j=1}^{t}W_j$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is $M_t$ as obtained a martingale? We have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$E[M_t\mid \sigma(t-1,t-2,..)] = \\=\frac{1}{1-\beta_0}E[W_t\mid \sigma(t-1,t-2,..)] + \frac{1}{1-\beta_0}\sum_{j=1}^{t-1}W_j$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$= \frac{1}{1-\beta_0}E[W_t\mid \sigma(t-1,t-2,..)] + M_{t-1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So &lt;em&gt;if&lt;/em&gt; $E[W_t\mid \sigma(t-1,t-2,..)] = 0$, namely, if the original disturbance is mean-independent from the past (in a more fancy term, if $\{W_t\}$ is a &quot;Martingale difference&quot;), then $M_t$ is a martingale and we have our mapping.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2017-04-24T11:13:46.950" LastActivityDate="2017-04-24T11:13:46.950" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16279" PostTypeId="2" ParentId="16262" CreationDate="2017-04-14T19:31:43.383" Score="3" Body="&lt;p&gt;A stock is a claim on the profit of a company, along with the voting power to control that company and force it to pay out when you want it to.  The value of every stock is defined by the payments (from the profit of the firm) the holder expects to get at some point.  If the stock pays no dividends, it is because the stockholders have allowed management to plow that profit back into the firm in hopes of greater dividends down the line.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Notice that payments may be in the form of (1) &lt;strong&gt;regular quarterly dividends&lt;/strong&gt;, (2) &lt;strong&gt;special one-time dividends&lt;/strong&gt;, or (3) &lt;strong&gt;stock repurchases&lt;/strong&gt;.  All of these are valid ways of taking the profit of the firm and giving it to the owners.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are there any firms that intend never to pay anything out?  No.  That would be some sort of non-profit organization.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Metaphorically, think of asking the following quetion: &quot;What if there is a bank account you keep putting money in but that will never allow withdrawals?&quot;  The question describes something that is not a bank account.  All accounts eventually pay out, whether to the current owner or to one down the line.  Similarly all profitable firms will eventually pay out the wealth they have accumulated for their owners.  The value of the an ownership claim on the firm (i.e., its stock price) is exactly what people think the future payouts are worth.&lt;/p&gt;&#xA;" OwnerUserId="12673" LastEditorUserId="12673" LastEditDate="2017-04-14T19:40:37.430" LastActivityDate="2017-04-14T19:40:37.430" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16280" PostTypeId="2" ParentId="16262" CreationDate="2017-04-14T20:57:42.193" Score="1" Body="&lt;p&gt;As the previous answerer has stated, stocks represent ownership interests in a particular company. Suppose the company in question doesn't pay any dividends. Will owning the company be of value? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's suppose it's profitable. It will result in the company having positive retained earnings. Eventually, the company will begin to hold a lot of money. It's valuable just to own that company and take its hoard of money. Owners always have an interest in a company's assets.&lt;/p&gt;&#xA;" OwnerUserId="12890" LastActivityDate="2017-04-14T20:57:42.193" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="16281" PostTypeId="2" ParentId="11463" CreationDate="2017-04-14T21:20:19.960" Score="1" Body="&lt;p&gt;You should ask yourself why you want to study economics. You are probably right to drop this major if you intend to pursue a Ph.D. If you hate math, then you will hate studying economic theory. However, many students study economics and go on to become financial analysts and business consultants. Most of them do not even use basic calculus in those jobs. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If your goal is to get an economics degree to prepare yourself for a professional business career, then there is nothing to fear. You will probably have only a few economics courses that will require the use of calculus on assignments and exams. You can probably fill out the rest of your degree with intermediate economics courses (e.g. health care economics, public finance, international trade) that will use very little math. &lt;/p&gt;&#xA;" OwnerUserId="12890" LastActivityDate="2017-04-14T21:20:19.960" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16282" PostTypeId="2" ParentId="16258" CreationDate="2017-04-15T01:10:17.280" Score="1" Body="&lt;p&gt;As a preface to my answers, I want to point out that bond yields are set in the market. We can think of bond yields as being (roughly) the sum of the expected path of short rates over the life of the bond, plus a term premium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;QE may or may not have lowered term premia (which would lower yields), but that is not enough for the Fed to completely set interest rates independent of what bond market participants expect the path of short rates to be.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;The Fed may want to keep bond yields low when raising rates, but bond market participants will not want to own bonds that they expect to lose money on. Therefore, it would be extremely difficult for the Fed to keep bond yields down if they are in the process of raising short rates. As a result, it is difficult for the curve (overnight - bond maturity) to invert when rate hikes are expected.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Yes, inverted yield curves have been historically associated with recessions in the United States. This is an indication that the bond market is pricing future rate cuts. (The curve will have difficulties inverting if short rates are zero, as has been the case in Japan.)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The raising of bond yields is done by people who expect rate hikes, not by a Fed decision. Since the private sector does not exclusively borrow on a short-term basis (for example mortgages), this presumably has an effect on the economy. As a result, it is part of the &quot;transmission mechanism&quot; from the policy rate to the economy, and so it is not really better or worse than raising the short-term rate.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2017-04-15T01:10:17.280" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16283" PostTypeId="2" ParentId="16121" CreationDate="2017-04-15T01:45:59.857" Score="0" Body="&lt;p&gt;If we want to assume that fiscal policy is always effective (see disclaimers below), the logic works as follows.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;The government sends a cheque (&quot;check&quot; in American English) to someone. This creates a new income flow to the recipient.&lt;/li&gt;&#xA;&lt;li&gt;The cheque is cashed, this adds to the money supply, which may also make its way into the government bond market. If 100% of the amount went into the bond market, the cheque is &quot;self-financing.&quot;&lt;/li&gt;&#xA;&lt;li&gt;Meanwhile, the recipient presumably spends at least some of the inflow, which increases economic activity relative to the base line of the government not sending the cheque.&lt;/li&gt;&#xA;&lt;li&gt;Interest rates would only move if the central bank raised the policy rate, or if the fiscal action raised term premia. It is difficult to measure such effects.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The disclaimers:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;The Treasury needs to have an initial cash balance, but this is usually the case. It can restore the cash balance by borrowing from the ultimate holders of the money created by the expenditure. The circular nature of this flow explains how government debt levels have grown in line with the economy.&lt;/li&gt;&#xA;&lt;li&gt;The argument of &quot;Ricardian Equivalence&quot; is that the government is supposed to have to pay back the increased borrowing, and so there is supposed to be a depressive effect on spending. This argument is controversial.&lt;/li&gt;&#xA;&lt;li&gt;Active monetary policy may cancel out the effect of fiscal policy.&lt;/li&gt;&#xA;&lt;li&gt;The nominal income flow can presumably raise nominal GDP, but this does ensure that real GDP rises.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="12891" LastEditorUserId="12891" LastEditDate="2017-04-15T12:40:23.407" LastActivityDate="2017-04-15T12:40:23.407" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="16285" PostTypeId="2" ParentId="16262" CreationDate="2017-04-15T02:05:11.710" Score="2" Body="&lt;p&gt;Control over a company may also be worth something. A money-losing company can be taken over by a competitor, and the combined company may have increased profits as a result of less competition, economies of scale, etc. The money-losing corporation's share price will reflect the possibility of such a take over.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2017-04-15T02:05:11.710" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16286" PostTypeId="2" ParentId="9049" CreationDate="2017-04-15T05:58:17.793" Score="2" Body="&lt;p&gt;Consider another example:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider a pure exchange economy with two goods X and Y and two consumers A and B.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose utility functions are $$u_A(x_A, y_A) = \min(x_A, y_A)$$ and $$u_B(x_B, y_B) = \min(x_B, y_B)$$&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;strong&gt;Scenario 1&lt;/strong&gt;: &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Endowment of A is $$\omega_A = (0, 5)$$ and endowment of B is $$\omega_B = (10, 0)$$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Equilibrium price vector $(p_x, p_y)$ and allocation $((x_A, y_A), (x_B, y_B))$ satisfy the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Optimality Conditions (Allocation must solve the utility maximization problem of the two consumers, i.e. it must lie on the demand functions)&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;$(x_A, y_A) \in \begin{cases} \left\{\left(\frac{5p_y}{p_x + p_y}, \frac{5p_y}{p_x + p_y}\right)\right\} &amp;amp; \text{if } p_x &amp;gt; 0 \text{ and } p_y &amp;gt; 0  \\ \left\{(x,y)\in\mathbb{R}^2_+: x = 0, y\geq 0\right\} &amp;amp; \text{if } p_x &amp;gt; 0 \text{ and } p_y = 0 \\ \left\{(x,y)\in\mathbb{R}^2_+: x \geq  5, y= 5\right\} &amp;amp; \text{if } p_x = 0 \text{ and } p_y &amp;gt; 0 \end{cases} $ &lt;/li&gt;&#xA;&lt;li&gt;$(x_B, y_B) \in \begin{cases} \left\{\left(\frac{10p_x}{p_x + p_y}, \frac{10p_y}{p_x + p_y}\right)\right\} &amp;amp; \text{if } p_x &amp;gt; 0 \text{ and } p_y &amp;gt; 0  \\ \left\{(x,y)\in\mathbb{R}^2_+: x = 10, y\geq 10\right\} &amp;amp; \text{if } p_x &amp;gt; 0 \text{ and } p_y = 0 \\ \left\{(x,y)\in\mathbb{R}^2_+: x \geq  0, y= 0\right\} &amp;amp; \text{if } p_x = 0 \text{ and } p_y &amp;gt; 0 \end{cases} $ &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Feasibility Conditions&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;$x_A + x_B = 10$&lt;/li&gt;&#xA;&lt;li&gt;$y_A + y_B = 5$&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Clearly, any price vector $(p_x, p_y)$ satisfying $p_x = 0$ and $p_y &amp;gt; 0$ supports any of the allocations in the set $\{((x_A, 5), (x_B, 0))| 5 \leq x_A \leq 10, x_A+x_B = 10 \}$ as equilibrium. Utility of B in all these competitive equilibria is 0, and A gets everything.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;strong&gt;Scenario 2&lt;/strong&gt;: &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Suppose B destroys part of his endowment and the revised endowment of A is $$\omega_A = (0, 5)$$ and endowment of B is $$\omega_B = (4, 0)$$ In this new problem, optimality conditions are&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;$(x_A, y_A) \in \begin{cases} \left\{\left(\frac{5p_y}{p_x + p_y}, \frac{5p_y}{p_x + p_y}\right)\right\} &amp;amp; \text{if } p_x &amp;gt; 0 \text{ and } p_y &amp;gt; 0  \\ \left\{(x,y)\in\mathbb{R}^2_+: x = 0, y\geq 0\right\} &amp;amp; \text{if } p_x &amp;gt; 0 \text{ and } p_y = 0 \\ \left\{(x,y)\in\mathbb{R}^2_+: x \geq  5, y= 5\right\} &amp;amp; \text{if } p_x = 0 \text{ and } p_y &amp;gt; 0 \end{cases} $ &lt;/li&gt;&#xA;&lt;li&gt;$(x_B, y_B) \in \begin{cases} \left\{\left(\frac{4p_x}{p_x + p_y}, \frac{4p_y}{p_x + p_y}\right)\right\} &amp;amp; \text{if } p_x &amp;gt; 0 \text{ and } p_y &amp;gt; 0  \\ \left\{(x,y)\in\mathbb{R}^2_+: x = 4, y\geq 4\right\} &amp;amp; \text{if } p_x &amp;gt; 0 \text{ and } p_y = 0 \\ \left\{(x,y)\in\mathbb{R}^2_+: x \geq  0, y= 0\right\} &amp;amp; \text{if } p_x = 0 \text{ and } p_y &amp;gt; 0 \end{cases} $ &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Feasibility Conditions&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;$x_A + x_B = 4$&lt;/li&gt;&#xA;&lt;li&gt;$y_A + y_B = 5$&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Clearly, any price vector $(p_x, p_y)$ satisfying $p_x &amp;gt; 0$ and $p_y = 0$ supports any of the allocations in the set $\{((0, y_A), (4, y_B))| 4 \leq y_B \leq 5, y_A+y_B = 5 \}$ as equilibrium. Now utility of A in all these competitive equilibria is 0, and B gets everything. B's utility has gone up to 4 in comparison to Scenario 1 where his utility was 0. This happened because he destroyed part of his endowment.&lt;/p&gt;&#xA;" OwnerUserId="11824" LastEditorUserId="11824" LastEditDate="2017-04-15T06:09:04.560" LastActivityDate="2017-04-15T06:09:04.560" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16287" PostTypeId="1" CreationDate="2017-04-15T06:07:43.927" Score="3" ViewCount="233" Body="&lt;p&gt;Suppose my optimization problem is stated as follows &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\max\limits_x f(x,t)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$s.t.$   $g(x,t) \leq 0$  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am interested in finding the direction $x^*$ changes with the parameter $t$. Can someone provide me a reference that describes conditions that if satisfied by $f$ and $g$ will let me answer the question of monotonicity of $x^*$ with respect to $t$?&lt;/p&gt;&#xA;" OwnerUserId="7881" LastEditorUserId="7881" LastEditDate="2017-04-15T06:12:49.223" LastActivityDate="2017-04-15T12:44:43.270" Title="Topkis' Theorem" Tags="&lt;optimization&gt;&lt;comparative-statics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16288" PostTypeId="2" ParentId="12452" CreationDate="2017-04-15T06:33:23.140" Score="3" Body="&lt;p&gt;The Slutsky equation links Hicksian and Marshallian demand functions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hicksian demand minimizes the cost necessary to reach a certain utility. In your question, you've labeled this $x_1^s$ (although i'm not familiar with this notation). Because Hicksian demand holds utility constant, it measures the &lt;em&gt;pure substitution effect&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Marshallian demand maximizes utility given a fixed income. In your question, you've labeled this $x_1^m$. Because Marshallian demand holds income constant, price affects Marshallian demand both because a price increase for one good makes the other good more attractive (substitution effect) &lt;em&gt;and&lt;/em&gt; because it decreases the different kinds of good baskets you can buy (income effect).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that, in order to find $x_1^* = 2m/3p_1$ and $x_2^* = m/3p_2$, you maximized utility given a fixed income, by solving $MU_{x_1}/MU_{x_2} = p_1/p_2$ with $m=p_1x_1+p_2x_2$. And so, what you've found and labeled $x_1^*$ and $x_2^*$ are Marshallian demand.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That takes us back to the Slutsky equation&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\partial x_1^s}{\partial p_1} = \frac{\partial x_1^m}{\partial p_1}+x_1\frac{\partial x_1^m}{\partial m}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is this saying? Remember, Hicksian demand is &lt;em&gt;pure substitution effect&lt;/em&gt;. So $\frac{\partial x_1^s}{\partial p_1}$ is the substitution effect. And Marshallian demand includes the substitution effect &lt;em&gt;and&lt;/em&gt; the income effect. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So what this is saying is that the substitution effect ($\frac{\partial x_1^s}{\partial p_1}$) is what you get if you start with the total effect ($\frac{\partial x_1^m}{\partial p_1}$), including income and substitution effects, and then take out the income effect ($x_1\frac{\partial x_1^m}{\partial m}$).[note below]&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So where does that leave you?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can calculate the income effect as $x_1\frac{\partial x_1^m}{\partial m}$. In other words, as the price rises, it rises for every one of the $x_1$ units you're buying, and so the effect on income is the price change (1) times the number of units ($x_1$). And income affects your demand for $x_1$ through $\frac{\partial x_1^m}{\partial m}$, so the income effect is $x_1\frac{\partial x_1^m}{\partial m}$. Since you have Marshallian demand, just take the derivative of $x_1^m$ with respect to $m$ to get $\frac{\partial x_1^m}{\partial m}$, and then multiply by $x_1$ to get the income effect.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can calculate the substitution effect, then, in one of two ways. You can use the Slutsky equation: calculate the total effect $\frac{\partial x_1^m}{\partial p_1}$ by taking the derivative of $x_1^m$ with respect to $p_1$, and then plug that into the Slutsky equation with the income effect to get the substitution effect, $\frac{\partial x_1^s}{\partial p_1}$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or, you can calculate Hicksian demand $x_1^s$ directly by solving $MU_{x_1}/MU_{x_2} = p_1/p_2$ with $U(x_1,x_2) = s$. Then, take the derivative of $x_1^s$ with respect to $p_1$ to get the substitution effect.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;[Note: It might seem weird to &quot;take out&quot; the income effect by &lt;em&gt;adding&lt;/em&gt; it. But remember that the total effect is negative, since a higher $p_1$ leads to less $x_1$. And so adding on a positive income effect (higher income leads to more consumption of normal goods) is indeed &quot;taking out&quot; the income effect.]&lt;/p&gt;&#xA;" OwnerUserId="12848" LastActivityDate="2017-04-15T06:33:23.140" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16289" PostTypeId="2" ParentId="6173" CreationDate="2017-04-15T06:50:18.927" Score="4" Body="&lt;p&gt;Given that $u_A(x_A, y_A) = \sqrt{x_Ay_A}$, $u_B(x_B, y_B) = \sqrt{x_By_B}$ are the utility functions of A and B, and total endowment of X and Y in this pure exchange economy is $\omega_X$ and $\omega_Y$, utility possibility frontier (UPF) is the set of all utility pairs $(\mu_A, \mu_B)$ such that the there exist a Pareto optimal allocation $((x_A, y_A), (x_B, y_B))$ with the property: $\mu_A = u_A(x_A, y_A)$ and $\mu_B = u_B(x_B, y_B)$. So to find UPF, we will use the following conditions:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Optimality:&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;$\displaystyle \frac{y_A}{x_A} =\frac{y_B}{x_B}$ &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Feasibility:&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;$x_A + x_B = \omega_X$ and $y_A + y_B = \omega_Y$&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Utility:&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;$\mu_A = \sqrt{x_Ay_A}$ and $\mu_B = \sqrt{x_By_B}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Solving the above system of equations we get the UPF as:&#xA;$\mu_A + \mu_B = \sqrt{\omega_X\omega_Y}$.&lt;/p&gt;&#xA;" OwnerUserId="11824" LastEditorUserId="11824" LastEditDate="2017-04-15T06:56:23.537" LastActivityDate="2017-04-15T06:56:23.537" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16290" PostTypeId="1" CreationDate="2017-04-15T08:23:50.140" Score="2" ViewCount="80" Body="&lt;p&gt;An economics book has the following example:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the USA, a Big Mac sells for 1 USD, while in Germany it sells for 3 EUR.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &quot;fair&quot; FX relation would therefore be 1 USD = 3 EUR. At the FX market, however, the FX relation is 1 USD = 2 EUR.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The author now concludes that the EUR is undervalued. But I think that's wrong, the EUR is overvalued here, isn't it?&lt;/p&gt;&#xA;" OwnerUserId="12895" LastEditorUserId="2776" LastEditDate="2017-04-15T08:48:11.860" LastActivityDate="2018-02-06T20:05:22.227" Title="PPP / currency evaluation" Tags="&lt;macroeconomics&gt;&lt;purchasing-power-partity&gt;&lt;foreign-exchange&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="16291" PostTypeId="1" CreationDate="2017-04-15T09:46:07.780" Score="2" ViewCount="50" Body="&lt;p&gt;i'm working on a model from the Mortensen textbook: &quot;Wage dispersion why are similar workers paid differently?&quot;. To be precise, i'm working on the model about general capital. In this case, capital is viewed as embodied in the job rather than the match. In other words, when the job is created, investments are made in the equipment any worker needs to be productive in the job.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have resolved the model and make some simulation on Matlab, but I'm stuck when it comes to find the optimal &quot;b&quot; which represent the optimal reservation wage/unemployment benefit. I assume that it could be found with the Welfare function (maximizing output minus costs).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here are some the equation from the model:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$ rJ=f(k)-w-\delta J + \lambda(1-F(w))(V-J) $&#xA;$ rV=\dfrac{\lambda}{v}\dfrac{\delta}{\delta + \lambda(1-F(w))}(J-V)-c-\delta V $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $rJ$ is the expected value of a filled post, $rV$ the expected value of a vacancy, $\delta$ the exogenous destruction rate and $c$ the recruiting cost.&lt;/p&gt;&#xA;" OwnerUserId="12896" LastEditorUserId="2776" LastEditDate="2017-04-15T14:10:31.717" LastActivityDate="2017-04-15T14:10:31.717" Title="Welfare function in General Capital model (Search and Matching)?" Tags="&lt;macroeconomics&gt;&lt;search-and-matching&gt;&lt;capital&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16292" PostTypeId="2" ParentId="12452" CreationDate="2017-04-15T09:47:42.620" Score="4" Body="&lt;p&gt;Utility function $u(x_1, x_2) = x_1^2x_2$.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Q. Derive the demand for $x_1$ and $x_2$ as a function of $p_1$, $p_2$ and $m$.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Here are the demand functions for $x_1$ and $x_2$:&#xA;$$x_1(p_1, p_2, m) = \frac{2m}{3p_1}$$&#xA;$$x_2(p_1, p_2, m) = \frac{m}{3p_2}$$&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Q. Illustrate the equilibrium in a diagram when $p_1=1$, $p_2=1$ and $m=12$.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/TQEay.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/TQEay.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Q. Suppose $p_1$ rises to 3. Calculate the substitution effect and income effect.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;If $p_1$ rises to 3, the new equilibrium choice is $\left(\frac{8}{3}, 4\right)$. To find the Substitution effect and Income effect using Slutsky approach, we will find the equilibrium at new set of prices when the consumer has just enough money to buy the old equilibrium bundle i.e. we will find the demand at prices $(3,1)$ when income is $m' = 3(8) + 1(4) = 28$. Substituting this data in the demand functions, we get the equilibrium choice as: $\left(\frac{56}{9}, \frac{28}{3}\right)$. Here is how the situation looks in graph:&#xA;&lt;a href=&quot;https://i.stack.imgur.com/B95kk.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/B95kk.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Substitution effect = $\displaystyle\frac{56}{9} - 8 = -\frac{16}{9}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Income effect = $\displaystyle\frac{8}{3} - \frac{56}{9} = - \frac{32}{9}$&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Q. Explain your exact results using the appropriate Slutsky equation.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Slutsky equation:&#xA;Change in Demand =  Change in Demand due to substitution effect + Change in Demand due to income effect&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Delta x_1 = \Delta^s x_1 + \Delta^i x_1 = -\frac{16}{9} - \frac{32}{9} &#xA; = -\frac{16}{3}$$&lt;/p&gt;&#xA;" OwnerUserId="11824" LastActivityDate="2017-04-15T09:47:42.620" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16293" PostTypeId="2" ParentId="16287" CreationDate="2017-04-15T11:50:56.650" Score="2" Body="&lt;p&gt;I believe the analysis in  &lt;strong&gt;E. Silberberg's &quot;The Structure of Economics&quot; (2n ed. 1990)&lt;/strong&gt;, is illuminating, chapter 7. The fundamental comparative-statics result (for constrained and unconstrained problems) is (eq. 7-10 of the book)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\partial ^2 f(x^*,t)}{\partial x\partial t} \cdot \frac {\partial x^*}{\partial t} &amp;gt; 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The matter was initially treated in &lt;strong&gt;P. Samuelson's &quot;Foundations of Economic Analysis&quot;.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Topkis%27s_theorem&quot; rel=&quot;nofollow noreferrer&quot;&gt;Topkis's Theorem&lt;/a&gt; is a more abstract mathematical treatment that states the condition required in order to have $\partial x^*/\partial t \geq0$.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2017-04-15T12:44:43.270" LastActivityDate="2017-04-15T12:44:43.270" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16295" PostTypeId="2" ParentId="15869" CreationDate="2017-04-15T13:20:08.677" Score="0" Body="&lt;p&gt;The &quot;clean price&quot; of a bond has a technical meaning. It is the invoice price of a bond (which is what your formula refers to), less the accrued interest. (The invoice price is the total dollar amount you pay when you buy a bond.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The invoice price of a bond is mapped to the yield using the formula you give. Yes, this is equivalent to an internal rate of return. (There may be small technical differences between a bond yield than an internal rate of return; bond yields have a slightly more complex quote convention. Your formula is only an approximation.) It is a &quot;quoted price&quot; if the price comes from some source of market pricing. Most price quotations refer to the clean price; you need to add accrued interest to get the invoice price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This would not normally be called a theoretical price, it is just a straightforward application of a pricing formula.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2017-04-15T13:20:08.677" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16296" PostTypeId="2" ParentId="15583" CreationDate="2017-04-15T13:25:12.820" Score="0" Body="&lt;p&gt;My interpretation of the argument is that real GDP is also supposed to rise, not just inflation. Increased growth makes US dollar assets more attractive, hence drawing portfolio inflows. The rise in inflation is a side-effect of the scenario, and not the cause.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2017-04-15T13:25:12.820" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16297" PostTypeId="2" ParentId="6742" CreationDate="2017-04-15T13:32:30.977" Score="0" Body="&lt;p&gt;The duration of a bond fund changes over time, so how do you define the holding time versus a fixed start date?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Most bond funds track an index. If new long-duration bonds are added to the index and lose money, those losses could be larger than the pull-to-par effect on existing bonds. So yes, it is possible to generate capital losses. (Admittedly, the odds are low of such sequence of events.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And as noted by Ubiquitous, credit losses will reduce returns.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Additional issues:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;The fund will have fees, and execution risks can result in returns below the index.&lt;/li&gt;&#xA;&lt;li&gt;Most bond indices drop bonds when they hit one year to maturity. If the curve is inverted, there could be capital losses that are only recouped after the bond leaves the index. (Once again, a unusual situation.)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="12891" LastEditorUserId="12891" LastEditDate="2017-04-15T14:14:04.913" LastActivityDate="2017-04-15T14:14:04.913" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16298" PostTypeId="2" ParentId="15679" CreationDate="2017-04-15T13:48:37.063" Score="1" Body="&lt;p&gt;Marc Lavoie, page 265 of Post-Keynesian Economics: New Foundations: &quot;In fact, the SFC  approach is perhaps a misnomer, as several other theories relate stocks and flows in a consistent way. The peculiarity of the post-Keynesian SFC aporoach is that its models truly integrate the real and monetary sides.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words, do not focus on the name &quot;stock-flow consistent models,&quot; the (alleged) contributions go beyond stock-flow consistency.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The usefulness of SFC models depends upon your theoretical perspective.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you are already a post-Keynesian economist, SFC models appear to offer a rigourous, standardised framework for setting up economic models. One of the problems facing post-Keynesian approaches is that there are considerable differences of opinion in how to approach economics, and the mathematical models used appear quite different. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The hope was that some of the distinctions might disappear if cast into the same mathematical framework. In practice, there remain considerable differences in the behavioural equations between various post-Keynesian schools of thought, so SFC models have not been able to completely unite the various schools of thought. (The text by Lavoie discusses this at greater length.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you are not post-Keynesian, the usefulness depends upon your views about mainstream macroeconomic models, which I will summarise as dynamic stochastic general equilibrium (DSGE) models here as a shorthand. Please note that there is a massive number of variants of DSGE modelling; my comments here reflect the views of an external observer who is not worried about the distinctions between those models.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Since SFC models have an explicit economic model structure, they are not comparable to unstructured models that are generated by a statistical fitting procedurs.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From a post-Keynesian perspective, DSGE models embed a great many assumptions, pretty much all of which have been criticised. For example, utility maximisation, the production function, rational expectations, general equilibrium, representative households, price determination, and even the distinction between randomness and uncertainty have all come under attack by post-Keynesians. (Since &quot;DSGE models&quot; vary, not all of these assumptions appear in all models. However, it is probably safe to say that almost all &quot;DSGE models&quot; incorporate at least some assumptions that at least some post-Keynesians object to.) SFC models do not embed those assumptions, and so have an advantage if you view those assumptions as incorrect.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, even if you move past the arguments over the assumptions, the tractability of SFC models is an advantage versus pure DSGE models. Standard DSGE models have to make simplifying assumptions in order to remain tractable, such as not having a financial sector. Although certain DSGE models can relax such assumptions, what typically happens is that only some of them can be relaxed at once.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In practice, many central banks have had to use hybrid models, that only incorporate some behavioural equations taken from DSGE theory. Although it might not meet a purist's definition of a &quot;SFC model&quot;, you could easily create such a hybrid model from a SFC model base. From the perspective of applied mathematics, I would be hard-pressed to give a formal mathematical reason why such a model is not a member of an extended family of &quot;SFC models.&quot; (It would not be classified as a DSGE model, as there is no assumption of equilibrium. The behavioural equation is just a bolted on assumption, independent of equilibrium arguments.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, if you insist that macro models must reflect the optimising choices of households, SFC models are not going to help you very much.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastEditorUserId="12891" LastEditDate="2017-05-15T17:49:09.873" LastActivityDate="2017-05-15T17:49:09.873" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="16299" PostTypeId="2" ParentId="15939" CreationDate="2017-04-15T14:26:11.940" Score="1" Body="&lt;p&gt;The approximation given is off at a key point - it is the duration of the bond at 9 years maturity, not the original duration.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The approximation works in two steps.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;If the yield is unchanged over one year, the total return over the year is roughly equal to the starting yield.&lt;/li&gt;&#xA;&lt;li&gt;If the yield changes, we add a capital gain/loss which is equal to the change in yields times the yield sensitivity. This is the modified duration of the bond, at 9 years maturity.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;This approximation ignores the reinvestment of any coupon income, and the convexity effect (the return sensitivity changes slightly as yields change). Also, the bond yield convention is probably different than the convention used for total return. That said, for yield changes under 50 basis points, the approximation is typically pretty good.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2017-04-15T14:26:11.940" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16301" PostTypeId="1" AcceptedAnswerId="16306" CreationDate="2017-04-15T17:04:23.967" Score="1" ViewCount="697" Body="&lt;p&gt;In the book &amp;quot;Macroeconomics&amp;quot; by Olivier Blanchard &amp;amp; David R. Johnson, the following appears:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;In yet other countries, people who have emigrated to the United&#xA;States bring home U.S. dollar bills; or tourists pay some transactions&#xA;in dollars, and the bills stay in the country. This is, for example,&#xA;the case for Mexico or Thailand.&lt;/p&gt;&#xA;&lt;p&gt;The fact that foreigners hold such a high proportion of&#xA;the dollar bills in circulation has two main macroeconomic&#xA;implications. First, &lt;strong&gt;the rest of the world, by being willing&#xA;to hold U.S. currency, is making in effect an interest-free&#xA;loan to the United States of $500 billion&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;By holding US bills of 500 billion, the rest of the world is making the US an interest free loan of $500 billion---could you please explain me how?&lt;/p&gt;&#xA;" OwnerUserId="6486" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2019-04-23T19:46:36.040" Title="How is the rest of the world making the US an interest free loan by holding US currency?" Tags="&lt;macroeconomics&gt;&lt;foreign-exchange&gt;" AnswerCount="3" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16302" PostTypeId="2" ParentId="16264" CreationDate="2017-04-15T17:14:58.197" Score="1" Body="&lt;p&gt;This is a large comment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Fama-MacBeth only corrects for cross-sectional correlation in a panel and suffers from the error-in-variables problem (your $Z_t$, also check &lt;a href=&quot;https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2549578&quot; rel=&quot;nofollow noreferrer&quot;&gt;Chordia, Goyal and Shanken (2015)&lt;/a&gt;). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Depending on the exact nature of your dataset's variables the answer to your questions is &quot;it depends&quot;; please check Goyal (2012), Mitchell (2009) and Ibragimov and Mueller (2010).&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;http://www.hec.unil.ch/agoyal/docs/Survey_FMPM.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Goyal (2012)&lt;/a&gt; accurately explains the F-M procedure (section 2.5). He states that &quot;whether there is a bias in the traditional Fama–MacBeth approach if expected returns vary with time-varying characteristics is still unexplored.&quot;. Moreover, he says that &quot;autocorrelation in returns (negligible at monthly frequency) leads to autocorrelation in risk premium estimates. This is easily accounted for by Newey–&#xA;West type corrections to variance formulas&quot;.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;http://finpko.faculty.ku.edu/myssi/FIN938/Peterson_Estimating%20Std%20Errs%20in%20Finance%20Panel%20Datasets_RFS_2009.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Mitchell (2009)&lt;/a&gt; discusses the SEs in financial panel data and clearly states that we should identify the presence of a firm or time effect to see whether the Fama-MacBeth standard errors are unbiased.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;https://www.princeton.edu/~umueller/tstat.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Ibragimov and Mueller (2010)&lt;/a&gt; &quot;find that as long as year&#xA;coefficient estimators are approximately normal (or scale mixtures&#xA;of normals) and independent, the Fama–MacBeth method&#xA;results in valid inference even for a short panel that is heterogenous&#xA;over time.&quot;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;You might also find &lt;a href=&quot;http://home.uchicago.edu/~lhansen/HandBook-JSW-Oct-14-02.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Jagannathan, Skoulakis and Wang. (2014)&lt;/a&gt; enlightening to make proper arguments on the appropriateness of the methods if your study is asset pricing related; in corporate finance things are more &quot;flexible&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Last, I am far from an expert in this area, but I think the &quot;pre-made&quot; Stata commands are not exhaustive in dealing with variables with different statistical characteristics (e.g. autocorrelated returns).&lt;/p&gt;&#xA;" OwnerUserId="246" LastActivityDate="2017-04-15T17:14:58.197" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16303" PostTypeId="1" CreationDate="2017-04-15T17:45:25.550" Score="-1" ViewCount="535" Body="&lt;p&gt;How will a real exchange rate devaluation affect Balance of Trade, if an economy is a price taker in world markets for both export and import? &lt;/p&gt;&#xA;" OwnerUserId="12325" LastEditorUserId="12325" LastEditDate="2017-04-15T17:47:16.167" LastActivityDate="2019-12-05T03:02:25.290" Title="Balance of Trade - Currency devaluation in a price taker economy" Tags="&lt;international-trade&gt;&lt;balance-of-trade&gt;&lt;currency-exchange&gt;&lt;balance-of-payments&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16304" PostTypeId="2" ParentId="16303" CreationDate="2017-04-15T17:46:55.980" Score="-1" Body="&lt;p&gt;If a country is price-taker then it faces a vertical demand curve at the world price. Now after devaluation, exporters would get more in domestic currency so they will increase exports. The net result is increase in both volume and average price of exports, thus revenue from exports increases. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Similarly, the importers are facing a higher price and even after they reduce their demand world price won’t change. Here it gets tricky, the quantity consumed has fallen but price has risen. Now what happens to spending on imports depend on elasticity of demand curve for imports. However, the maximum percent increase in spending on imports is equal to absolute value of percent change in currency (assuming perfectly inelastic which makes negative quantity effect zero). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the curve is elastic, spending on imports would decline, i.e., percent change is negative. Percent change in export revenue = |percent currency change| + (positive quantity effect). Starting from a balanced trade or a trade surplus, there will be an increment in trade surplus. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, starting from large trade deficits, the answer is indeterminate as even though percent change in imports is always less than exports, but in absolute value it could be more as initially import&gt;&gt;export.&lt;/p&gt;&#xA;" OwnerUserId="12325" LastActivityDate="2017-04-15T17:46:55.980" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16305" PostTypeId="2" ParentId="12758" CreationDate="2017-04-15T23:01:24.930" Score="0" Body="&lt;p&gt;Acquiring a company involves acquiring all of its shares and giving the previous shareholders money, your stock, or other valuable things, like options.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You don't have to acquire all the shares on the &lt;strong&gt;open market&lt;/strong&gt;, though.  You would never be able to persuade every single shareholder to sell their shares.  You just have to get enough that the board of directors (or a majority of shareholders at a shareholder meeting) votes to merge the target company in, converting all existing shares into the cash or shares that you are offering.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the management is willing, you don't have to buy any on the open market.  They just vote to accept your offer to merge their company in and all shareholders receive whatever it is you offered.  If the management is not in favor, you have to buy enough shares that you plus the other investors who are willing have enough influence to make it happen.  This can mean replacing board members or casting direct votes.&lt;/p&gt;&#xA;" OwnerUserId="12673" LastActivityDate="2017-04-15T23:01:24.930" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16306" PostTypeId="2" ParentId="16301" CreationDate="2017-04-15T23:16:39.863" Score="4" Body="&lt;p&gt;Think about what a loan is in terms of purchasing power.  You give a bank your signature on a loan contract and they give you something that will allow you to buy real stuff (houses, cars, whatever).  You enjoy this real stuff for some time. Then at the end you have to give the bank something that will allow them to buy real stuff, only more of it.  I'm calling it &quot;something&quot; instead of &quot;dollars&quot; for a reason I will explain below.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the foreign exchange case, the US gives other countries pieces of paper, which are essentially IOUs.  They give the US either real stuff, which is then enjoyed, or they give the US their currency, which is immediately spent on real stuff.  The US doesn't hoard their currency.  Time passes and at the end they give back the IOU's in exchange for some real stuff.  Only instead of giving back more real stuff than was originally given, the US gives back less (because of inflation).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I called dollars &quot;something&quot; in the loan example and &quot;IOUs&quot; in the macro example because dollars take on a different role in each case.  In the loan, the dollars represent real purchases that are made immediately. In the macro example, the dollars take the place of the loan contract.  They don't buy any real stuff until the end of the transaction.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can think of it another way by ignoring the dollars.  Foreigners give the US electronics and clothes and stuff in exchange for nothing.  After a while the US gives them back food and machines or whatever, only what the US gives back is worth less than the electronics and clothes it was given.  That's a zero interest (or negative interest) loan.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By the way, it's not just foreigners.  Whoever holds currency has given up something valuable (time, materials, land, etc.) in exchange for paper.  As long as that paper is under your mattress, you are not consuming and the paper is becoming worth less than it was.  You've made a negative interest loan.&lt;/p&gt;&#xA;" OwnerUserId="12673" LastActivityDate="2017-04-15T23:16:39.863" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16307" PostTypeId="2" ParentId="16301" CreationDate="2017-04-15T23:33:07.607" Score="2" Body="&lt;p&gt;U.S. federal financial liabilities consist of currency, reserves at the Fed, bonds, and bills. Bonds and bills do not pay interest, currency does not. For reserves at the Fed, excess reserves need to pay the market rate of interest, while paying interest on required reserves is optional. (The Fed switched to paying interest on required reserves in 2008; it did not pay interest on required reserves earlier.) By not exchanging currency for Treasury bills/notes, the amount of interest bearing liabilities of the federal government is reduced.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Things are only slightly more complicated if you split the Federal Reserve away from the rest of the government in analysis. The Fed issues more currency, but in turn buys bonds and bills to balance its balance sheet. This generates extra interest income for the Fed. The extra interest is then paid back to the Treasury.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastEditorUserId="12891" LastEditDate="2017-04-17T15:42:35.437" LastActivityDate="2017-04-17T15:42:35.437" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="16308" PostTypeId="2" ParentId="15583" CreationDate="2017-04-15T23:53:25.500" Score="0" Body="&lt;p&gt;Unless I'm misreading you, your question seems to imply that higher treasury yields are intuitively associated with lower inflation.  they are not.  Higher yields are associated with fear of higher inflation.  Consider the following:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Treasury securities pay out a fixed amount at maturity.  &lt;/li&gt;&#xA;&lt;li&gt;Investors fear inflation between now and when the securities mature because the inflation makes the payout worth less in real terms.&lt;/li&gt;&#xA;&lt;li&gt;Investors will therefore pay less for these securities today.  Prices of the treasury securities therefore fall today.&lt;/li&gt;&#xA;&lt;li&gt;&quot;Falling prices&quot; is the same thing as &quot;increasing yields.&quot;  Heuristically, Yield = Payout/Price -1.  The payout is fixed.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Summary: &lt;strong&gt;The fear of future inflation causes treasury yields to rise today.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Wider deficits also lead to higher yields because the supply of treasuries increases.  This will lower the price of treasuries, which is the same as increasing yields.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, why is the market buying dollars?  The market is anticipating US consumers and government going into debt and driving up interest rates.  In order to take advantage of these higher interest rates, one must have to have dollars to lend. But no, foreigners are not buying dollars because they are anticipating inflation...&lt;strong&gt;they are buying because they anticipate higher (real) interest rates&lt;/strong&gt;.  The inflation will come as a side effect of the anticipated spending spree and foreigners are expecting the inflation to be smaller than the rise in nominal interest rates.&lt;/p&gt;&#xA;" OwnerUserId="12673" LastEditorUserId="12673" LastEditDate="2017-04-16T00:10:16.427" LastActivityDate="2017-04-16T00:10:16.427" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16309" PostTypeId="2" ParentId="6435" CreationDate="2017-04-16T00:04:16.940" Score="1" Body="&lt;p&gt;(This perhaps should be considered a comment.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you have solved the HJB equation, it is sufficient to get the optimal solution. So you  do not &quot;have to be concerned with any other optimality conditions,&quot; which I believe appears to answer your question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It appears that you are concerned about the &quot;necessary&quot; component of the theorem. The necessity side of the statement is as follows: if there is an optimal solution, there must exist a solution to the HJB equation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have not worked with this particular problem, but the answer in general is that we do not expect to have a differentiable function V. Therefore we do not have a solution to the equation as it is stated. Instead, we need to look at generalised derivatives, and convert the HJB equation into an inequality. In which case, you may get a &quot;viscosity solution.&quot; If we extend to use generalised derivatives, it may be possible to prove that a such a solution always exists. Glancing at your proofs, they will not help on the necessity conditions, as you are assuming differentiability.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2017-04-16T00:04:16.940" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16311" PostTypeId="2" ParentId="16121" CreationDate="2017-04-16T00:48:16.247" Score="1" Body="&lt;p&gt;In an open economy, Government might be borrowing money from abroad and so the logic of how that capital might have anyway been employed to a  productive end doesn't work out. (Also sale of forex reserves or taking up loans would depreciate domestic currency leading to increased exports and higher AD).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, money supply itself doesn't determine the pace or level of economic growth. It is the consumption and Saving patterns that spur demand, leading to the virtuous cycle of increased incomes and investment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Provided that the C and S patterns are themselves a function of trust and market expectations (especially during times of economic crisis such as recession or slowdown), government through it's expansionary fiscal policy and the popular credence attached to it, incentivise increased activity and growth.&lt;/p&gt;&#xA;" OwnerUserId="12790" LastActivityDate="2017-04-16T00:48:16.247" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16312" PostTypeId="2" ParentId="16121" CreationDate="2017-04-16T01:35:28.593" Score="0" Body="&lt;p&gt;&lt;strong&gt;Since it doesn't change the money supply, how can an “expansionary” fiscal policy alone spur economic growth?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your short form question assumes that an expansionary fiscal policy does not change money supply, and that simply is not a valid assumption.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Most “expansionary” fiscal policies do change money supply at least in a secular manner.  Let's try a few recent examples. After the great recession the Fed not only lowered the prime interest rate and the Federal overnight lending rate to prime borrowers it was a net purchaser of previously let debt instruments like short term notes and it purchased and allowed banks to sell packages of non-performing loans at par. All of these actions were short term increases in the amount of money available for making new loans or meeting the capital requirements (money required to be held in reserve) aka the money supply. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;When interest rates decrease certain sectors of the economy that rely on loans for operations like utilities and small businesses are less likely to expand when interest rates increase and increase business risk beyond the likely return on the investment goal of the proposed loan.  So lowering interest rates is expansionary because by expanding the supply of low borrowing cost loans to small businesses they are more likely to take new risks and hire new people and buy new supplies and equipment.  This is the most common notion of a secular expansionary fiscal policy. &lt;/p&gt;&#xA;" OwnerUserId="12888" LastActivityDate="2017-04-16T01:35:28.593" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16313" PostTypeId="1" CreationDate="2017-04-16T02:26:30.660" Score="1" ViewCount="83" Body="&lt;p&gt;I'm trying to put together a toy model for immigration ($I$), labor prices ($w$), and a measure of xenophobic/nationalistic sentiment ($A$). What I've come up with so far is the following:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;$$\frac{dI}{dt} = -\alpha \cdot A + \beta \cdot \frac{\frac{dw}{dt}}{w}$$&#xA;The rate of change of immigration is negatively proportional to the level of xenophobia/nationalism ($A$) and positively correlated to the percentage change in price $w$ (as companies will push for higher levels of immigration as wage prices rise, e.g. more H1Bs for expensive tech labor, etc.).&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;$$\frac{\frac{dw}{dt}}{w} = \gamma \cdot g - \epsilon \cdot n - \eta \cdot \frac{\frac{dI}{dt}}{I},\;\; n\equiv \frac{\frac{dN}{dt}}{N}$$&#xA;The percent change in price is proportional to the growth rate of the economy &#xA;($g$) and the rates of increase in the domestic population $n$ and immigration $I$ with $\eta &amp;gt; \epsilon$ since foreign labor is cheaper.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;$\frac{dA}{dt}$ = some function that increases linearly with $I$ up to some level $I_0$ then increases much faster before plateauing. This represents how xenophobia increases much faster after some threshold.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;My questions for you that I was hoping you could help me with:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Do these simple equations make sense to you intuitively/economically? Are there any simple changes I can make to improve them?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Should I be using percent changes (like $\frac{dw}{w}$ in these models as shown above) or is that just going to be painful when I solve for values of $I$ and $w$ and $A$?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Do you have any thoughts on what function might be suitable for $A$? I was thinking of something along the lines of an augmented sigmoid but need something thats less symmetric than that. Would a piece-wise function be difficult to work with?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Thanks!&lt;/p&gt;&#xA;" OwnerUserId="12899" LastEditorUserId="12899" LastEditDate="2017-04-17T14:54:12.753" LastActivityDate="2017-04-17T14:54:12.753" Title="How can I model immigration and xenophobia economically using these equations?" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;labor-economics&gt;&lt;supply-and-demand&gt;&lt;economic-growth&gt;" AnswerCount="0" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="16317" PostTypeId="1" CreationDate="2017-04-16T08:58:50.313" Score="1" ViewCount="41" Body="&lt;p&gt;With growing inequalities and salary gap, left-wing politicians are asking for social reforms in some countries (I am thinking of France). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Social reform include: equal pay for women, maternity leave, increasing minimum wage, higher taxes on multinationals, lowering retirement age, etc. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In all these countries, people are threatening that if these changes come into effect, &quot;the money will leave&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I seem to recall similar threats: Ford threatening to close its plants in the UK after the 1968 strike if the women pay were increased, some French based companies after the 35h-week reform (all worked hours above 35 in a week are considered extra and payed more), and currently politicians in the US when people speak of holidays or maternity leave. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My questions are:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1: is there any historic precedent of these threats to &quot;leave&quot; being actually carried out and&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2: does it even make sens from an economics point of view ? I can understand manufacture going to Asia, but Starbucks, McDonald, and all these companies that &lt;em&gt;have&lt;/em&gt; to stay in France to make profit and, with a clever manipulation, do not pay taxes on the companies in France (impôts sur les sociétés), would they really leave ? Starbucks makes 2 billion benefits in France, so if social reform and it paying taxes would mean it would only make 1 billion benefits, wouldn't that be still worth it ? And even if the benefits are less than that, wouldn't McDonald stay in France, if only to maintain the hegemony (leaving would mean taking the risk of someone taking its place, like Burger King or something, and that would mean losing the monopoly, which I would think is a bad thing for such a company). And even if they do leave, couldn't France just introduce a 5 years tax-free period for any new start-up replacing  them ? It's not getting its taxes anyway, better give it up for 5 years than for ever... no ? Am I being naïve ?&lt;/p&gt;&#xA;" OwnerUserId="12877" LastActivityDate="2017-04-16T12:21:02.137" Title=":History: Industry threatening to leave if social change takes effect" Tags="&lt;taxation&gt;&lt;industrial-organisation&gt;&lt;social-welfare&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16319" PostTypeId="2" ParentId="16317" CreationDate="2017-04-16T12:21:02.137" Score="2" Body="&lt;p&gt;What's going on when a for-profit company makes a threat?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The same thing that is happening when does anything. It is trying to increase its profits, relative to what would happen if it didn't do the thing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this case, it's trying to influence policy to protect its profits. It has decided that issuing the threat gives their profits a better chance than not issuing the threat. That &lt;em&gt;probably&lt;/em&gt; means that they believe that their profits will be lower with the new policy than without it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The thing it's threatening is, in a sense, neither here nor there: the threat itself is the action.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Should the policy that a company opposes, get implemented, then the company then has a choice, to stay or to go, and the decision criterion will be: will them staying result in higher or in lower profits than them staying. That's a completely different issue to the thing they issued the threat over, and the threat doesn't tell us anything useful about it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And companies are often wrong about the impacts of policy anyway.  In summary, treat their statements on policy with a lot of scepticism.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2017-04-16T12:21:02.137" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16320" PostTypeId="2" ParentId="12709" CreationDate="2017-04-16T12:26:48.633" Score="3" Body="&lt;p&gt;A small addendum. Lars Peter Hansen and Thomas J. Sargent wrote the book &quot;Robustness&quot;, which is an attempt to apply robust control to economics. They treated robust control from a game theoretical perspective.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In general, ecomics uses optimal control theory, which was the state of the art in the 1960s. The state of the art in the 1990s control theory (when I last worked in the field) was robust control, which fairly explicitly rejected the optimal control methodology.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Robust control introduced the notion of model error. (The game theoretic approach used by Hansen and Sargent attempts to emulate uncertainty via game theory, but the equivalence between model uncertainty and the game theoretic approach breaks down for nonlinear systems.) Without taking into account the reality that our models are incorrect, optimal control strategies tended to fail. A test pilot was killed by a defective optimal controller, and certification boards barred such controllers from aircraft. This killed optimal control as a strategy for control design.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2017-04-16T12:26:48.633" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="16322" PostTypeId="1" AcceptedAnswerId="16344" CreationDate="2017-04-16T14:14:29.040" Score="5" ViewCount="236" Body="&lt;p&gt;I'm a mathematician who's trying to learn some economics from Cochrane's Asset Pricing book.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't have any background in economics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In chapter 1, he derives the basic pricing equation&#xA;$$ p_t = \mathbb{E}_t \left[ \beta \frac{u'(c_{t+1})}{u'(c_t)} x_{t+1}\right] $$&#xA;as follows:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider the problem of&#xA;$$\max_{\xi} u(c_t) + \mathbb{E}_t \left[ \beta u (c_{t+1}) \right]$$&#xA;where&#xA;$$c_t = e_t - p_t \xi, \qquad c_{t+1} = e_{t+1} + x_{t+1}\xi$$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The pricing equation is the first order condition of this optimisation problem.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In words, you're trying to maximise your utility by buying some number $\xi$ of an asset with a random future payoff $x_{t+1}$ that sells for $p_t$ today. $e_t$ and $e_{t+1}$ are your original consumptions levels.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's weird to me that even though the equation is a formula for $p_t$, both sides of the pricing equation depend on $p_t$. Namely, the denominator&#xA;$u'(c_t) = u'(e_t-p_t \xi) $ is actually a 1-to-1 function of $p_t$. So I feel like the formula tells me how to find $p_t$, given that already know what $p_t$ is.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;The first application Cochrane presents is the risk-free rate.&#xA;Here $x_{t+1} = R^f$ is known at time $t$ and $p_t = 1$. Therefore&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$R^f =  1/\mathbb{E}_t \left[ \beta \frac{u'(c_{t+1})}{u'(c_t)}\right] $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But $c_{t+1} = e_{t+1}+R^f \xi$ so there's no randomness inside the expectation. How can we go on to then assume that consumption growth $c_{t+1}/c_t$ is lognormally distributed, when it appears to be a constant?&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;In next application, the discount factor $m = \beta \frac{u'(c_{t+1})}{u'(c_t)}$ is treated as the same across different assets. But $c_t$ and $c_{t+1}$ are my optimal consumption levels for a given single asset, so I would expect $m$ to vary across assets.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;So my question is, is it possible to reconcile the derivation of the pricing equation with the way it's applied in the examples?&lt;/p&gt;&#xA;" OwnerUserId="12905" LastEditorUserId="12905" LastEditDate="2017-04-16T14:23:18.337" LastActivityDate="2017-04-17T23:14:09.967" Title="Deriving and using the pricing equation" Tags="&lt;finance&gt;&lt;asset-pricing&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16323" PostTypeId="2" ParentId="14746" CreationDate="2017-04-16T14:17:05.943" Score="2" Body="&lt;p&gt;@denesp comment is right to the point as regards the scope of this question. In street-talk &quot;Gentrification&quot; just means &quot;things get more expensive&quot; (&quot;rightly&quot; or &quot;wrongly&quot;, that's another matter). The displacement of poor people will happen, for those who remain poor, where here &quot;poor&quot; is a relative concept &quot;poor enough not to be able to afford the new cost levels&quot;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I believe is interesting here is to ask :&quot;Assume that the amenities of an area increase in value, and so rents and &quot;cost of living&quot; goes up. If this value-increase of amenities is also increasing the productivity/efficiency/earnings of the local population, &lt;em&gt;which effect will dominate&lt;/em&gt;?&quot; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Will the income-increase of local residents be enough to cover the increased costs of living? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Instinctively speaking, I would say &quot;no&quot;, if the productivity-increase comes through education, because the phenomenon of price-increases in such areas happens much faster than the time needed for education to bear income fruits.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2018-12-30T23:12:06.717" LastActivityDate="2018-12-30T23:12:06.717" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="16324" PostTypeId="2" ParentId="11600" CreationDate="2017-04-16T14:51:58.400" Score="3" Body="&lt;p&gt;If the regressors are &lt;strong&gt;strictly&lt;/strong&gt; exogenous to the error term (which is the initial standard assumption made), meaning, if the error &lt;em&gt;vector&lt;/em&gt; is mean-independent of the regressor &lt;em&gt;matrix&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$E(\mathbf u \mid \mathbf X) = \mathbf 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;then consistency follows immediately. Set for convenience $\mathbf \Omega ^{-1/2} \equiv \mathbf C$. Then &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\text{plim}\left(n^{-1} (\mathbf C\mathbf X)'\mathbf u \right)= \text{plim}\left(n^{-1}\mathbf X'\mathbf C'\mathbf u\right)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is a $k \times 1$ matrix. What would a typical element will be, say the first?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The matrix $\mathbf C'\mathbf u$ is a $n\times 1$ vector,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\mathbf C'\mathbf u = \left(\sum_{i=1}^nc_{1i}u_i,..., \sum_{i=1}^nc_{ni}u_i\right)'$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Mutliplied by the first row of $\mathbf X' = (x_{11}\;...\;x_{1n})$ gives&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\left [\mathbf X'\mathbf C'\mathbf u\right]_1 =x_{11}\cdot \sum_{i=1}^nc_{1i}u_i\;+...\;+ x_{1n}\cdot\sum_{i=1}^nc_{ni}u_i$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now strict exogeneity comes into play: it is stronger and so implies that &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$E(\mathbf u \mid \mathbf X) = \mathbf 0 \implies E(x_{1i}u_j)=0\;\;\forall i,j$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the above sum of sums, scaled by $n^{-1}$ will tend to zero asymptotically, since all products in each sum will tend to a zero expected value. This proves consistency.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that strict exogeneity is really needed, for the case where the matrix $\Omega$ is a function of the regressors. In such a case, we would be looking at products of the form&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$x_{1i}\cdot h(\mathbf x) \cdot u_j$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which would &lt;em&gt;still&lt;/em&gt; go to zero in expected value terms, because mean-independence implies orthogonality between the error term and &lt;em&gt;any&lt;/em&gt; function of the regressors.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If $\Omega$ does not depend on the regressors, then we could weaken strict exogeneity to the RHS condition, which is  stronger than &quot;contemporaneous uncorrelatedness&quot;, the latter needed for OLS. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I  leave the case for asymptotic normality to anyone interested.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2017-04-16T14:51:58.400" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="16325" PostTypeId="2" ParentId="11159" CreationDate="2017-04-16T16:44:40.487" Score="3" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Is there a way to proof that, the sum of distances $\int_{0}^{1}&#xA; l_{ji}di$ is minimized if the public good is located at the midpoint of&#xA;  each jurisdiction?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;We are told &quot;there are no externalities&quot; -so each individual enjoys only the public good offered in its own jurisdiction.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But this means that in order to determine the optimal position of the public good in each jurisdiction, we can initially consider a &lt;em&gt;single&lt;/em&gt; jurisdiction. Then for this subset of individuals we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$i \in [A,C] : \int_{A}^{C} l_{ji}di=\int_{A}^{C} |i-w_j|di = \int_{A}^{w_j} (w_j-i)di + \int_{w_j}^{C} (i-w_j)di$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Performing this integration we get &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$i \in [A,C] : \int_{A}^{C} l_{ji}di= w_j^2 - (A+C)w_j+\frac 12 (A^2+C^2)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Minimizing&lt;/em&gt; this gives&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$w^*_j = \frac {A+C}{2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But this is the mid-point of the interval, and $A$ and $C$ where arbitrary except for $A &amp;lt; C$. So we conclude that the public good must be located at the midpoint of each jurisdisction.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Why $\int_{0}^{1} l_{ji}di = \sum_{x=1}^{N_{j}} s_{xj}^{2}/4$?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Using the previous result, we have that &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$i \in [A,C] : \min \int_{A}^{C} l_{ji}di= \left(\frac {A+C}{2}\right)^2  - \frac{(A+C)^2}{2}+\frac 12 (A^2+C^2)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$...\implies i \in [A,C] : \min \int_{A}^{C} l_{ji}di = \frac {(A-C)^2}{4} = \frac {(C-A)^2}{4}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But the numerator is the squared &lt;strong&gt;length&lt;/strong&gt; of this jurisdiction.  We are also told that each public good must be offered in each jurisdiction, and also that all jurisdictions must cover the whole interval, without overlapping (for the $j$-level we are examining). These imply that for the whole unitary interval we get &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\min \int_{0}^{1} l_{ji}di = \sum_{x=1}^{N_{j}} s_{xj}^{2}/4$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So it is the total distance &lt;em&gt;after&lt;/em&gt; optimizing for the location of the public good in each jurisdiction.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally,&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Why the sum of squares is minimized by choosing jurisdictions of equal&#xA;  size, $s_{j} = 1/N_{j}$&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In general notation you want to  $\min \sum_{i=1}^n z^2_i \;\;\;\; s.t. \sum_i^nz_i=1$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Lagrangian is $\Lambda = \sum_{i=1}^n z^2_i -\lambda \left(\sum_i^nz_i-1\right)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and we have $n$ first order conditions $2z_i - \lambda = 0 \implies z_i = 2/\lambda,\;\;\;i=1,...,n$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But this means that  $z_1=z_2=...=z_n=z^*$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The solution must respect the constraint so $ \implies \sum_i^nz_i = nz^*=1\implies z^*=1/n$&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2017-04-16T16:44:40.487" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16326" PostTypeId="1" CreationDate="2017-04-16T17:17:15.623" Score="1" ViewCount="1850" Body="&lt;p&gt;Consider a homogenous goods market with the demand&#xA;function Q = 30 − P, where Q and P denote quantity and price respectively.&#xA;There are two firms playing a price game in the following manner: firm 1&#xA;quotes a price and then firm 2 chooses a price. When they charge the same&#xA;price they share the market equally and otherwise the market demand goes&#xA;to the firm charging lower price. Firm 1 has a capacity constraint at the&#xA;output level 5 units such that upto five units the marginal cost of production&#xA;is Rs 3 per unit of output, however beyond 5 units it cannot produce any&#xA;output. Firm 2 does not have any capacity constraint, it can produce any&#xA;amount with the marginal cost Rs 6. What would be the equilibrium price&#xA;in the market?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm confused, I think we have to put demand=supply firstly, then if the equilibrium price is 6 (the answer), firm 1 will produce 5 goods but firm 2 has no incentive to produce anything. Will the price not be a little greater than 6?&lt;/p&gt;&#xA;" OwnerUserId="12874" LastActivityDate="2017-04-16T22:19:35.107" Title="How do we find a competitive equilibrium price when 2 firms operate with different marginal costs?" Tags="&lt;competition&gt;" AnswerCount="1" CommentCount="5" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16328" PostTypeId="2" ParentId="14060" CreationDate="2017-04-16T18:01:28.127" Score="0" Body="&lt;p&gt;As comments above note, they are regulated and certainly want to be seen as good corporate citizens. Furthermore, although hydro is largely renewable, they do not have infinite power generation capacity. They do not want to run their system near capacity constraints, as that would cause brown outs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, they also have a financial incentive. BC Hydro exports power, and they will be able to charge more for that power than they will get from regulated consumer uses. (Otherwise, why export?) The less consumers use during peak hours, the more peak hour sales they can make.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2017-04-16T18:01:28.127" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16329" PostTypeId="2" ParentId="14526" CreationDate="2017-04-16T19:13:14.553" Score="0" Body="&lt;p&gt;1) Bonds represent the stock of debt outstanding. A deficit is a flow; even if it is balanced in one year, that just means that the stock of debt has not changed in that year. The government would have to run repeated surpluses to eliminate debt outstanding. (Not counting dodges, like having the central bank buy up bonds and replace them with reserves. Quantitative Easing is such a policy.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) Keynesians have argued that loanable funds models are wrong, going back to Keynes himself.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One problem with loanable funds is that it ignores the income flow created by deficit spending. The deficit spending created a cash balance in the private sector, which is then typically reallocated back into bonds. Post-Keynesian Stock-Flow Consistent models, such as model PC from Godley and Lavoie's &quot;Monetary Economics&quot; can be examined to see how the cash flows are analysed from a Keynesian perspective. (These models are well known, and discussion of them can be found on the internet. &lt;a href=&quot;http://sfc-models.net/software/&quot; rel=&quot;nofollow noreferrer&quot;&gt;sfc-models.net&lt;/a&gt; is one source.) Mainstream models can also show no effect of government borrowing on yields, as rates are set by expectations for short rates. However, these models are more complex than model PC.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Japan provides a wonderful empirical example of the limited effect of government debt ratios on bond yields.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2017-04-16T19:13:14.553" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16330" PostTypeId="1" AcceptedAnswerId="16347" CreationDate="2017-04-16T19:13:26.540" Score="0" ViewCount="91" Body="&lt;p&gt;I want to specifically discuss Dallas,TX if possible but a broader answer is still appreciated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ever since Toyota and State Farm moved to Dallas, among others, the housing prices have sky rocketed to unreal proportions. Rent prices are at least $200 more than 2 years ago. Houses are about 40% more expensive from 5 years ago.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;They say that this is great economic growth for DFW but is it really? How do the locals adapt to this economy? No longer are they building houses in the 200s or 100s. Anything in the 100s is 30 years old and minimally updated. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are the incoming employees keeping their California wages, causing this inflation? I know for a fact those who sold their homes come in overbidding for much more because in their perspective the houses are cheap.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But what is going to happen to the locals? Will the companies have to raise wages to keep market? Or are local people buying homes on salaries that cannot afford it and wages not go up and cause a crash?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What usually happens in this scenario?&lt;/p&gt;&#xA;" OwnerUserId="12907" LastActivityDate="2017-04-18T05:59:21.903" Title="Does it affect locals negatively when a new company moves in?" Tags="&lt;economic-bubble&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16332" PostTypeId="1" CreationDate="2017-04-16T20:17:01.493" Score="-2" ViewCount="163" Body="&lt;p&gt;What stops firms increasing prices of goods in the case of an increase of a direct tax such as corporation tax?&lt;/p&gt;&#xA;" OwnerUserId="12752" LastActivityDate="2017-11-19T01:26:40.120" Title="Why can't direct taxes be passed on to the consumer?" Tags="&lt;microeconomics&gt;&lt;taxation&gt;&lt;fiscal-policy&gt;" AnswerCount="2" CommentCount="2" ClosedDate="2017-11-19T02:47:26.853" ContentLicense="CC BY-SA 3.0" />
  <row Id="16335" PostTypeId="2" ParentId="16326" CreationDate="2017-04-16T22:19:35.107" Score="1" Body="&lt;p&gt;Ignoring the previously mentioned possibility that the problem may be written incorrectly: The concept of &quot;residual demand&quot; will be helpful here. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As with any sequential game, it's good to work backwards. From the perspective of firm 2, firm 1 has quoted some price $p_1$, and firm 2 has an opportunity to respond.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Firm 2 knows that if it sets $p_2&amp;lt;p_1$, it will take the whole market, and will face the whole demand curve $Q = 30-p_2$. It can choose the profit-maximizing $p_2$, as long as $p_2&amp;lt;p_1$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Similarly, if it sets $p_2=p_1$, it will share the market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, if it sets $p_2 &amp;gt; p_1$, it will face the &lt;em&gt;residual demand&lt;/em&gt; left over after firm 1 makes its sales. Assuming that $p_1\leq 25$, firm 1 will sell its five units and then not be able to sell any more. The demand &lt;em&gt;left over&lt;/em&gt; for firm 2 to sell to after firm 1 makes its sales will then be $q_2=30-p_2-5$, or $q_2=25-p_2$. Firm 2 can choose its profit-maximizing price given this demand curve.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In each of these cases above, Firm 2 is selecting the profit-maximizing quantity by first setting up profit:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Pi_2 = p_2q_2 - 6q_2 = (p_2-6)q_2$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Plug in the appropriate $q_2$ using the demand functions determined above, then take the derivative with respect to $p_2$ and set the derivative equal to 0, solve for $p_2$. In each case you're constrained by what $p_2$ can be. If you're working with the $Q=30-p_2$ demand function (which you only get if $p_2&amp;lt;p_1$), then if profit-maximizing price is $p_2&amp;gt;p_1$, then you'll actually want to set $p_2$ just a hair underneath $p_1$ (you can just call it $p_2=p_1$ for simplicity). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now you've got the optimal price for Firm 2 to pick &lt;em&gt;given&lt;/em&gt; that it's decided to go for $p_2&amp;lt;p_1$, $p_2=p_1$, or $p_2&amp;gt;p_1$. To figure out which of those three it wants, you'll want to calculate Firm 2's profit under each of those scenarios. These profits should be dependent on $p_1$, since $p_1$ determines the boundaries of what $p_2$ can be while still satisfying $p_2&amp;lt;p_1$, $p_2=p_1$, or $p_2&amp;gt;p_1$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So now Firm 1 knows how Firm 2 will respond to whatever $p_1$ is. And so Firm 1 will set $p_1$ in a way that maximizes Firm 1's profit. This step is a bit easier, since Firm 1 makes nothing under $p_2&amp;lt;p_1$, so it's unlikely that Firm 1 will want to set $p_1$ so that Firm 2 picks $p_2&amp;lt;p_1$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To make this a bit more clear, let's do an example for Firm 2 making their decision.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's say Firm 1 had picked $p_1=10$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If Firm 2 sets $p_2&amp;lt;p_1$, it is dealing with the demand function $$q_2 = 30-p_2$$. So we set up profit&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Pi_2 = (p_2-6)(30-p_2)$$&#xA;$$\frac{\partial \Pi_2}{\partial p_2} = 36 - 2p_2 = 0 \Rightarrow p_2=18$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which is above $p_1=10$. Since profit is strictly increasing in $p_2$ for $p_2&amp;lt;10$, firm 2 will maximize its profit while holding $p_2&amp;lt;p_1$ by setting $p_2=10$ (a hair below 10, really, but let's just say 10). The profit from doing so is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Pi_2 = (10-6)(30-10) = 80$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And, of course, Firm 1 sells nothing and makes a profit of 0. Now if Firm 2 sets $p_2&amp;gt;p_1$, it's dealing with the demand function&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$q_2 = 25 - p_2$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and wants to maximize profit&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Pi_2 = (p_2-6)(25-p_2)$$&#xA;$$\frac{\partial \Pi_2}{\partial p_2} = 31 - 2p_2 = 0 \Rightarrow p_2=15.5$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which is above $p_1=10$, satisfying $p_2&amp;gt;p_1$. This price leads to the profit&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Pi_2 = (15.5-6)(25-15.5)=90.25$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this case, Firm 1 sells their five units and makes a profit of $(10-3)5=35$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You will also want to check the $p_2=p_1$ case once it's clear what that actually leads to.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And so, if Firm 1 sets $p_1=10$, Firm 2 will want to set $p_2=15.5$, since a profit of $90.25$ is better than a profit of $80$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This example is worked out with a specific $p_1$, and this particular $p_1$ makes Firm 2 &lt;em&gt;not&lt;/em&gt; undercut Firm 1. The next step is to find out what the &lt;em&gt;highest&lt;/em&gt; price that Firm 1 can set without getting Firm 2 to prefer undercutting. This will be $p_1$ in equilibrium, and Firm 2's best response to that $p_1$ will be $p_2$ in equilibrium.&lt;/p&gt;&#xA;" OwnerUserId="12848" LastActivityDate="2017-04-16T22:19:35.107" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="16336" PostTypeId="2" ParentId="9049" CreationDate="2017-04-16T23:34:28.660" Score="1" Body="&lt;p&gt;The result that destruction can be beneficial comes from a paper by Robert Aumann and Bezalel Peleg, &lt;a href=&quot;http://www.ma.huji.ac.il/raumann/pdf/A%20Note%20on%20Gale%27s%20Example.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;&quot;A Note on Gale's Example,&quot;&lt;/a&gt; Journal of Mathematical Economics 1 (1974) pp. 209-211.&lt;/p&gt;&#xA;" OwnerUserId="1442" LastActivityDate="2017-04-16T23:34:28.660" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16337" PostTypeId="1" AcceptedAnswerId="16377" CreationDate="2017-04-17T00:18:38.917" Score="0" ViewCount="2664" Body="&lt;p&gt;With the Trump administration, Turkish dictatorship, North Korean nuclear weapons, and general tension around the world, we might think that there is a likelihood of something like a world war happening soon. If this were the case, and someone wished to profit from such a situation, which stock or commodities would be the best short (or invest in)?&lt;/p&gt;&#xA;" OwnerUserId="6150" LastEditorUserId="2776" LastEditDate="2017-04-18T10:19:27.860" LastActivityDate="2017-12-05T15:37:55.583" Title="If there was world war 3, which stocks should I short?" Tags="&lt;stock-market&gt;&lt;commodities&gt;" AnswerCount="2" CommentCount="3" ClosedDate="2017-12-05T18:33:33.540" ContentLicense="CC BY-SA 3.0" />
  <row Id="16338" PostTypeId="1" CreationDate="2017-04-17T06:31:19.447" Score="1" ViewCount="868" Body="&lt;p&gt;I know this is a basic question. Can I get a mathematical proof for &lt;strong&gt;&quot;Any allocation in the core of an economy is also Pareto optimal.&quot;&lt;/strong&gt; I found this statement on some PPT online.&lt;/p&gt;&#xA;" OwnerUserId="12914" LastActivityDate="2017-04-17T06:49:58.507" Title="Pareto Optimality and Core" Tags="&lt;game-theory&gt;&lt;pareto-efficiency&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16339" PostTypeId="2" ParentId="16338" CreationDate="2017-04-17T06:49:58.507" Score="4" Body="&lt;p&gt;An allocation is defined as being a part of the &quot;core&quot; of an economy if there's no coalition of people that &lt;strong&gt;blocks&lt;/strong&gt; the allocation. A coalition will block an allocation if all of its members could be made better off by another allocation (or, more weakly, if at least one of its members could be made better off without others being made worse off).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And so, by definition, for an allocation to be in the core of the economy, there must not be another allocation which any coalition prefers to the given allocation. And since one coalition that could be formed is the &quot;grand coalition&quot; (i.e. everyone in the economy), any allocation in the core must be Pareto optimal, or else the grand coalition would block it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This probably isn't much more involved or mathematical than the PPT you pulled it from, but that's because it's basically true by definition.&lt;/p&gt;&#xA;" OwnerUserId="12848" LastActivityDate="2017-04-17T06:49:58.507" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16341" PostTypeId="2" ParentId="15467" CreationDate="2017-04-17T12:41:38.420" Score="1" Body="&lt;p&gt;As a statement about human behaviour in general, it is a question of philosophy and psychology.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, economics is generally viewed as a study of decision-making, and not generic human behaviour. Since you can always rationalise any economic decision as being &quot;your will,&quot; the statement appears to be true, but has little predictive power. Alternatively, since any decision can be portrayed as reflecting conscious will, it cannot be falsified (following Popper's notion of falsifiability).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As an analogy, you can imagine an &quot;axiom&quot; about oxygen: All humans need access oxygen to take part in transactions. This statement appears to be true, but how does it help us analyse economies on Earth? There's not a lot of information in there that can help us build better models. In other words, most economists try to avoid cluttering arguments with irrelevant yet true statements.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In order for economist to have anything useful to say about Mises' Axiom, it needs to be strengthened so that it has some predictive power. (Certain possible decisions have to be ruled out.) For example, it could be restated to be equivalent to the classical nation of rationality - where it immediately is covered by decades of critiques (as seen in the work on behavioural economics).&lt;/p&gt;&#xA;" OwnerUserId="12891" LastEditorUserId="12891" LastEditDate="2017-04-17T13:26:23.643" LastActivityDate="2017-04-17T13:26:23.643" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16342" PostTypeId="2" ParentId="16332" CreationDate="2017-04-17T18:17:43.287" Score="-2" Body="&lt;p&gt;In case of an indirect tax, there is always an increase in price. Why would the seller want to increase it further beyond the equilibrium point.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, direct taxes theoretically are not meant to be passed on to the consumer since those are performed by indirect taxes. Direct taxes like income tax are specifically meant to tax people's purses.&lt;/p&gt;&#xA;" OwnerUserId="6072" LastActivityDate="2017-04-17T18:17:43.287" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16343" PostTypeId="1" CreationDate="2017-04-17T19:05:36.960" Score="0" ViewCount="266" Body="&lt;p&gt;So I'm taking this finance course and my professor keeps talking about how the 2008 financial crisis was worse than the great depression. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have my doubts so my fellow economists, do you think the 2008 financial crisis was worse than the great depression?&lt;/p&gt;&#xA;" OwnerUserId="12917" LastActivityDate="2017-04-17T22:42:22.783" Title="The Great Depression vs The 2008 Financial Crisis" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="16344" PostTypeId="2" ParentId="16322" CreationDate="2017-04-17T20:16:07.900" Score="4" Body="&lt;p&gt;As regards the &lt;strong&gt;first question&lt;/strong&gt;, the &quot;$p_t=...$&quot; expression is conceptually and qualitatively useful because, at the optimum, it relates price with consumption and expectations. Mathematically it is an implicit function of course, so it is not a &quot;closed-form solution&quot; to &quot;tell us how to find $p_t$&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Cochrane acknowledges this as he writes in p. 6&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;We have stopped short of a complete solution to the model, i.e., an expression with exogenous items on the right-hand side. We relate one&#xA;  endogenous variable, price, to two other endogenous variables,&#xA;  consumption and payoffs. One can continue to solve this model and&#xA;  derive the optimal consumption choice $c_t , c_{t+1}$ in terms of more&#xA;  fundamental givens of the model. In the model I have sketched so far,&#xA;  those givens are the income sequence $e_t , e_{t+1}$ and a specification of&#xA;  the full set of assets that the investor may buy and sell. We will in&#xA;  fact study such fuller solutions below. &lt;strong&gt;However,&lt;/strong&gt;&#xA;   for many purposes &lt;strong&gt;one can stop short of specifying (possibly wrongly) all&#xA;  this extra structure, and obtain very useful predictions about asset prices&#xA;  from (1.2), even though consumption is an endogenous variable.&lt;/strong&gt;&quot;&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Regarding the first example&lt;/strong&gt;, the &quot;no-investment consumption&quot; sequence $\{e_t\}$ is in general considered random, due to factors unmodeled at this introductory level, like an income stream that is affected by exogenous random shocks etc, so the use of the expected value relates to the existence of $e_{t+1}$  in there.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Regarding the second example&lt;/strong&gt;, Cochrane writes p. 7 (my emphasis)&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;In this context, equation (1.4) is obviously a generalization, &lt;strong&gt;and it says something deep: one can incorporate all risk corrections by&#xA;  defining a single stochastic discount factor—the same one for each&#xA;  asset—and putting it inside the expectation.&lt;/strong&gt; $m_{t+1}$ is stochastic&#xA;  or random because it is not known with certainty at time $t$. The&#xA;  correlation between the random components of the common discount&#xA;  factor $m$ and the asset-specific payoff $x_i$ generate asset-specific&#xA;  risk corrections.&quot;&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2017-04-17T23:14:09.967" LastActivityDate="2017-04-17T23:14:09.967" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16345" PostTypeId="2" ParentId="16343" CreationDate="2017-04-17T22:42:22.783" Score="1" Body="&lt;p&gt;2008 was a recession. 1929 was a depression. Simple as that. Unemployment rates did not hit 20% in 2008. People were literally starving in 1929. Big difference.&lt;/p&gt;&#xA;" OwnerUserId="12907" LastActivityDate="2017-04-17T22:42:22.783" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16346" PostTypeId="2" ParentId="16330" CreationDate="2017-04-18T04:07:07.993" Score="2" Body="&lt;p&gt;This is a very unique situation in Dallas/North Texas. This is the absolute worst economic growth possible for locals. Here are two key elements to look into:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Wages are fairly stagnant in DFW. This paired with 40-50% home/rent increases is the first warning sign.&lt;/li&gt;&#xA;&lt;li&gt;Re-assessed tax values - expect numerous foreclosures in the next two years. Many people are purchasing homes without even thinking about the fact that many cities in North Texas have property tax rates of nearly 3%. While mortgage companies are quoting &quot;monthly payments&quot; based on the previous year's taxes paid on those properties (many of which are capped by homestead exemptions and have been for decades), once taxes are reassessed the following year, their payments will spike significantly. Here is an actual example from Sachse, Tx : &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Total monthly payments on a 240k home for the last 6 months of 2016 were 1,536. The family accounted for this in whether or not they could afford this home. Their payment after the new tax appraisal is 1,860 per month. That is a $330 increase that they were unaware of and can no longer afford, as they purchased on the upper end of their budget. Expect to see this across the board, even as those from locations such as California will be paying more than the California state average for monthly house payments. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The average monthly payment in California was 2,542 on a 480,000 mortgage. Their annual property tax on average was 2,500. A 480,000 mortgage in Sachse, Tx with 10% down would currently run you about 3,640 per month with an annual property tax of 14,000. (Sheds a little light on the 'but we don't have a state income tax' argument, and how invalid it truly is. They pay the state income tax in the form of double/triple many other states' property tax.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Beyond this, North Texas has room to expand, significantly. While the heart of Dallas may reach its limit and increase in price exponentially, the suburbs will likely take a large hit in value once construction begins to catch up. The home values are already overheated, and this is, by definition, a housing bubble. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My best guess for when it will pop is around 2018-2019 when we begin to see delinquent payments. Anyone purchasing a home between 2016-2017 in North Texas may be upside down for 5-10 years.&lt;/p&gt;&#xA;" OwnerUserId="12922" LastActivityDate="2017-04-18T04:07:07.993" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="16347" PostTypeId="2" ParentId="16330" CreationDate="2017-04-18T05:49:50.103" Score="1" Body="&lt;p&gt;I can't add a comment as I don't have enough rep, so this is my reply to @LetTheWritersWrite. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;First off, as for a recession: It is believed by many economists that we are beginning a recession right now. We're beyond the 80 month average in expansion periods, we had the first monthly decline in core inflation in 7 years, retail sales #'s have been much lower than expected, average annual growth is being exceeded substantially by debt, 10 year treasury note just broke below 2.2 today, student loan debt along with delinquent payments are rising, housing prices are soaring, and the factors continue to pile on. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The last recession hit Texas very lightly, which should make individuals even more frightened at the hit that may come now that Texas is accelerating at the rate of all other 2008-era boomers. Then there are the Texas specifics: cost of living in North Texas is rising substantially, wages are not growing, Texas now has the 26th lowest unemployment rate (was once 1st), ranks 10th in job growth, North Texas rents are exceeding the national average, and the monthly cost (including property tax) of a home is now far exceeding the national average. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Secondly: Appraisals are already matching the new home values. Those who bought in 2016 are finally feeling some of the pressure of the new valuations. This has led to your next point - many individuals are selling as they were priced out of their home once the new appraisal rate set in. While some are selling just for profit, I know of many more who simply can't afford the payments at the new tax values, and they're having to walk away/rent/downgrade their home.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You have been paying attention where very few have, and that's very important : price drops. It began last year; luxury homes (750k-1m) were seeing price drops of $100-200k. This is always the first sign of a reversal/trouble in the market. Next, DFW saw a drastic slow down in the 500k-750k range, paired with significant price drops. Many 4k-5k square foot homes have sold for under 400k in the past year. Now, we are seeing those in the 300-500k with more price drops. Some dropping as much as 20k per week. This is how every reversal works, it trickles down. As luxury homes fall, it will force lower-priced homes to fall eventually, as different tiered homes can't be in the same price bracket. I have also seen several investors losing money on attempts to 'flip.' Despite the talk, now is the absolute worst time for any investor to buy in Dallas. Even foreclosed properties are selling at market value; I watched a few auctions even go above. After sitting on the market 2 months, they are now attempting to simply break even on the property. I don't know if you have access to the MLS, but I ran a search that may help your research. I took at random 25 properties, between 2,000-2,500 square feet. (I feel this is a healthy sample of the main portion of the used home market.) Of the 25 most recent listings (all within 1 week old) 5 have had price drops already and 5 had contracts fall through (one has now fallen through 4 times. Likely too large of a difference between the appraisal and asking price.) So, in other words, 40% of these listings have shown significant signs of market weakness. That is significant and not common in a healthy market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For now, the 'rush' mentality and 'better buy now' is the only thing keeping the market where it resides. If individuals simply held off a month on average, placing offers lower than the asking prices, you would likely see a 10-15% drop in all prices. I personally agree with the Fitch report, DFW is approximately 14% overvalued right now. So, if you purchase currently, be prepared to lose your entire down payment/all equity you hold for a few years.&lt;/p&gt;&#xA;" OwnerUserId="12924" LastEditorUserId="12924" LastEditDate="2017-04-18T05:59:21.903" LastActivityDate="2017-04-18T05:59:21.903" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16348" PostTypeId="2" ParentId="14509" CreationDate="2017-04-18T07:01:51.217" Score="1" Body="&lt;p&gt;Your figures seem to come from a European Central Bank analysis published in September 2016 for the position at the end of 2015&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Different people get different numbers, but the order of magnitude is probably credible&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But this sort of number has been coming down compared with previous years.  For example &lt;a href=&quot;http://data.worldbank.org/indicator/FB.AST.NPER.ZS?locations=IE&quot; rel=&quot;nofollow noreferrer&quot;&gt;IMF publishes the following graph&lt;/a&gt;   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/cbSGQ.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/cbSGQ.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2017-04-18T07:01:51.217" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16351" PostTypeId="1" CreationDate="2017-04-18T12:19:33.263" Score="1" ViewCount="1138" Body="&lt;p&gt;By privately owned bank, I mean specifically a bank that is not registered as a corporation with publicly tradable shares.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does it ever happen that such banks create money by lending it to their own owners? The owners could simply borrow the money indefinitely, and spend it on luxury goods, keeping the bank in debt until they die, at which point they don't care anymore. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;e.g. if the bank starts out for the first time, and obtains 1 B in cash deposits which it has as reserves, it could have a 10% reserve ratio, and lend 900 B to the owners, which they use to party and buy yachts. The other 100 M they keep as reserves.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assuming a bank run doesn't occur, this can be stable indefinitely.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Does this ever happen? examples? or why not?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;e.g. if it does not happen, is that because it is illegal, or are there incentive reasons intrinsic to banking why it would never happen?&lt;/p&gt;&#xA;" OwnerUserId="11146" LastEditorUserId="11146" LastEditDate="2017-04-18T12:26:12.957" LastActivityDate="2017-04-18T19:51:30.793" Title="Do privately owned banks ever indefinitely lend money to their owners?" Tags="&lt;banking&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16352" PostTypeId="2" ParentId="16351" CreationDate="2017-04-18T13:10:45.247" Score="1" Body="&lt;p&gt;Bank regulations vary by country, but it is a safe bet that they would frown upon having such a concentrated loan portfolio. Furthermore, there are presumably restrictions on lending to related parties, but how that would be defined would definitely vary by jurisdiction.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By doing a quick search on the internet, it was possible to find this FDIC letter about concentration risk. &lt;a href=&quot;https://www.fdic.gov/news/news/financial/2010/fil10018.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Link to FDIC page&lt;/a&gt; On that page is a link to a PDF which indicates that concentration risk is defined as 25% of capital. Unless the owners can get others to buy capital of the bank (which is unlikely if the only business plan of the bank is to lend money to the owners), the owners can only lend themselves back 25% of the money they put in before the regulators shut them down. (And in practice, I doubt that regulators would even let them get close to 25% of capital for related party lending.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From a business perspective, it's not as if deposits can be attracted for free. The bank has to either pay interest for deposits, or else has to offer services (branches, ATMs, lending) which requires employees and cost money. A bank could not survive without having a lending portfolio that is paying a market rate of interest.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, the bank needs equity, provided by the owners. Any sweetheart lending deals the bank offers the owners would reduce the profits on their equity. If the bank does not have a credible business plan, it is not going to attract other investors to supply capital needed for regulatory purposes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Savings and Loan Crisis in the United States offers a lot of examples of the breakdown of the regulation of small banks, but even then, the self-dealing was generally hidden.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastEditorUserId="12891" LastEditDate="2017-04-18T19:51:30.793" LastActivityDate="2017-04-18T19:51:30.793" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="16353" PostTypeId="2" ParentId="6970" CreationDate="2017-04-18T14:19:30.690" Score="3" Body="&lt;p&gt;The argument of W.V. Harris is that it goes back at least to Roman times. For example, the bankers of Ephesus were given 10 years to pay back loans in 85 bc, an action that makes little sense outside of a fractional reserve system. (I am using “fractional reserve lending” loosely; they were no formal reserve requirements. However, the banks were not holding money in safekeeping, similar to a safety deposit box, as that would imply that they could return funds immediately.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;W.V. Harris, &quot;The nature of Roman money&quot;, from &quot;The monetary systems of the Greeks and Romans&quot;, edited by W.V. Harris.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The situation for the Greek &quot;trapeza&quot; was murkier (working from memory). &lt;/p&gt;&#xA;" OwnerUserId="12891" LastEditorUserId="12891" LastEditDate="2018-08-08T01:03:00.527" LastActivityDate="2018-08-08T01:03:00.527" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="16354" PostTypeId="2" ParentId="16351" CreationDate="2017-04-18T17:24:10.890" Score="0" Body="&lt;p&gt;There wouldn't be much point creating a bank that &quot;lends&quot; money to its owners. What is there to gain by doing that? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You seem to suggest that it's possible to create a bank with 100 and somehow get more than that (e.g. 500) as &quot;loans.&quot; That's not possible. Where will you get the extra 400? Banks can not print money. &lt;/p&gt;&#xA;" OwnerUserId="12890" LastActivityDate="2017-04-18T17:24:10.890" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="16355" PostTypeId="2" ParentId="16084" CreationDate="2017-04-18T17:39:01.630" Score="0" Body="&lt;p&gt;It makes sense to pay the premium if that is how much you value certainty over uncertainty. &lt;/p&gt;&#xA;" OwnerUserId="12890" LastActivityDate="2017-04-18T17:39:01.630" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16357" PostTypeId="2" ParentId="15322" CreationDate="2017-04-18T19:24:35.570" Score="3" Body="&lt;p&gt;The payment of interest is straightforward. The central bank is a bank, and pays interests on deposits in exactly the same way as any other bank.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the central bank wants to pay $1 in interest to a depositor, it:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;increases the amount on deposit by \$1 and&lt;/li&gt;&#xA;&lt;li&gt;reduces the central bank's equity by $1.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;That is, it just reshuffles the right hand side of the central bank's balance sheet; the asset side is unchanged. (On the income statement, there is a correpsonding $1 interest expense.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;All the central bank needs to do is ensure that the aggregate interest paid on reserves is less than the aggregate interest received from its lending and bond/bill holdings to prevent equity from going negative.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since 100% of a central bank's assets pay interest, and its currency (dollar bills) do not, keeping the net interest flow positive is not too difficult (in a positive interest rate environment).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You asked what backs the currency. The answer is the taxing power of government. There's a few theoretical justifications for that statement, One is provided by Fiscal Theory of the Price Level (edge of mainstream), and another is referred to as &quot;neo-Chartalism&quot; (post-Keynesian).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for the relationship between inflation and the rate of interest, the answer depends upon which school of economics you follow. Increasing interest rates increases the interest income of the private sector (which should increase effective demand, as you note), which is traded off by the effect on behaviour of the higher rate of interest. The conventional answer is that the behavioural effects dominate; that is, higher interest rates slow the economy and inflation.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2017-04-18T19:24:35.570" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16358" PostTypeId="1" AcceptedAnswerId="16378" CreationDate="2017-04-18T19:56:06.620" Score="1" ViewCount="1962" Body="&lt;p&gt;I've been reading quite a bit about elasticity of demand. There seems to be an argument among texts as to whether elasticity of demand should be represented as negative or as an absolute value. The argument for one method over the other depends on the text, but generally boils down to &quot;because this is how we do it.&quot; I'm looking for a more meaningful discussion about this topic.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What are the pros and cons of using the negative? Of the absolute value?&lt;/p&gt;&#xA;" OwnerUserId="12662" LastActivityDate="2017-04-19T20:33:39.567" Title="Pros and Cons of Elasticity of Demand Represented as an Absolute Value" Tags="&lt;microeconomics&gt;&lt;supply-and-demand&gt;" AnswerCount="1" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="16359" PostTypeId="2" ParentId="16273" CreationDate="2017-04-18T21:38:59.007" Score="1" Body="&lt;p&gt;(The question about perpetual debt was covered by the link to the description of a perpetuity.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are two sides to the &quot;is it really possible&quot;?&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Could a country that controls its central bank (e.g., Canada, Japan, United States) replace its debt with money issued by the central bank?&lt;/li&gt;&#xA;&lt;li&gt;Could the ECB do the same thing?&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;The answer to (1) is that it appears theoretically possible. (In fact, the economic school of thought known as Modern Monetary Theory advocates this.) There is the question of whether this would be a good policy, and the answer to that would be controversial. It should be noted that Quantitative Easing policies of the Federal Reserve and the Bank of Japan involved large purchases of government bonds by the central bank, and there have been no obvious side effects (for example, inflation) yet. These policies represent a step towards the central bank buying up all government debt.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The answer to (2) - could the ECB follow such a policy - is a technical question. The actiona of the ECB are limited by treaties; the usual interpretation of those treaties says that the ECB cannot do this. Certainly, the ECB limited its buying of Greek debt based on its interpretation of the treaties. There would have to be a move to change the treaties that restrict the ECB's actions to allow such a move, which seems like a difficult task.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From the perspective of French policy, the answer to question (2) is more important than (1). &lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2017-04-18T21:38:59.007" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16360" PostTypeId="2" ParentId="14060" CreationDate="2017-04-18T22:42:19.373" Score="0" Body="&lt;p&gt;BC Hydro is controlled by the government. There are two ways the government can be harmed by consumers using too much energy:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) Consumers may complain about high bills. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) The government needs to spend more money on infrastructure to produce more energy. &lt;/p&gt;&#xA;" OwnerUserId="12890" LastActivityDate="2017-04-18T22:42:19.373" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16361" PostTypeId="1" CreationDate="2017-04-19T00:03:32.757" Score="2" ViewCount="380" Body="&lt;p&gt;I'm running a regression on panel data, one time with Fixed Effects and one time with First Differences. The estimators are really different (the FE estimator is statistically significant and the FD isn't). While I'm running the regressions with the Clustered Standard Errors, it affects a lot the S.D of the FD estimator but not the S.D of the FE estimator. When I'm running Wooldridge test for serial correlation I get that there is no serial correlation. My questions: &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Is it possible to be within clustered correlation for the FD model but not for the FE?&lt;/li&gt;&#xA;&lt;li&gt;If there is no serial correlation, is it possible to be a within clustered correlation?&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="11977" LastEditorUserId="2776" LastEditDate="2017-04-19T08:19:00.880" LastActivityDate="2021-03-30T16:01:05.073" Title="Serial correlation and clustered correlation in FE and FD estimators" Tags="&lt;econometrics&gt;&lt;paneldata&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16363" PostTypeId="1" AcceptedAnswerId="16367" CreationDate="2017-04-19T04:50:57.533" Score="1" ViewCount="598" Body="&lt;p&gt;I am attempting to solve the following CES Utility Function problem:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.imgur.com/BbDIVg4.png&quot; alt=&quot;CES Problem&quot;&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, I am running into issues when I get to 3).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For 1) I have $K = \left(\frac{\omega p_1}{p_2}\right)^{\frac{1}{p+1}}$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For 2) I get $X_2^M = \frac{m}{\frac{p_1}{K}+p_2} $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For 3) I find $\lambda^* = (K^\rho + \omega)^{-\frac1p-1} \cdot \omega \cdot p_2^{-1} $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and $v(p_1, p_2, m) = \left(\left(\frac{m}{p_1+Kp_2}\right)^{-\rho} + \omega(\frac{mK}{p_1+Kp_2})^{-\rho}\right)^{-1/\rho}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I then divide $\lambda^*$ by $v(p_1, p_2, m)$, but when I do so I can't seem to fully cancel out $p_1,p_2,m,K$ and $\rho$ which I believe I would have to do to prove that they are proportional. I'm not sure if the issue is with my $\lambda^*$, my $v(p_1,p_2,m)$ or both...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Additionally, for 6) how does one demonstrate homogeneity of a given degree? &lt;/p&gt;&#xA;" OwnerUserId="12936" LastEditorUserId="5061" LastEditDate="2017-04-20T13:57:54.517" LastActivityDate="2017-04-20T13:57:54.517" Title="Help with CES Utility Function exercise" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;&lt;elasticity&gt;&lt;price-theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16364" PostTypeId="2" ParentId="5257" CreationDate="2017-04-19T05:26:11.690" Score="0" Body="&lt;p&gt;You can use the following paper as a sort of 'benchmark' for exchange rate treatment for a fully dollarized economy.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;a href=&quot;http://www.nber.org/papers/w22943&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.nber.org/papers/w22943&lt;/a&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In this case, you are not following the Dominant Currency Paradigm completely, but partially. While you will have complete pass-through of the Dollar to home economy, the other currencies can still follow the old method of treatment. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(will update with more references soon!)&lt;/p&gt;&#xA;" OwnerUserId="10571" LastActivityDate="2017-04-19T05:26:11.690" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16366" PostTypeId="2" ParentId="14060" CreationDate="2017-04-19T05:57:15.567" Score="1" Body="&lt;p&gt;BC Hydro is a a public body: that means it can run for the wider public good, rather than purely as a profit-maximiser.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Pretty much everywhere in the world, electricity markets are dysfunctional. They typically have high negative externalities.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Historically, electricity prices haven't included all the costs of the electricity, which means that electricity has been over-consumed, relative to economically-efficient levels.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Energy-efficiency is, typically, the cheapest (when measured as a whole-system cost) way to provide additional energy services.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Furthermore, there is some evidence that energy-efficiency measures have a lower uptake than would be efficient, due to consumers having insufficient information, and due to them having irrationally high discount rates for future energy-bill savings.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the ads can help to correct these imbalances.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2017-04-19T05:57:15.567" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16367" PostTypeId="2" ParentId="16363" CreationDate="2017-04-19T06:08:19.547" Score="1" Body="&lt;p&gt;For question 3, I'm sure there are simpler solution than mine. I provide this version for your reference.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By definition,&#xA;\begin{align}&#xA;\lambda^* &amp;amp;= \frac{\frac{\partial u}{\partial x_1}(x_1^M)}{p_1} = \frac{\left[(x_1^M)^{-\rho}+ w(x_2^M)^{-\rho}\right]^{-\frac{1}{\rho}-1}(x_1^M)^{-(\rho+1)}}{p_1}\\&#xA;\\&#xA;v(p_1,p_2,m) &amp;amp;= u(x_1^M(p_1,p_2, m), x_2^M(p_1, p_2, m)) \\&#xA;&amp;amp; = \left[(x_1^M)^{-\rho}+ w(x_2^M)^{-\rho}\right]^{-\frac{1}{\rho}}&#xA;\end{align}&#xA;So &#xA;\begin{align}&#xA;\lambda^* &amp;amp;= v(p_1,p_2,m) \frac{1}{p_1\left[(x_1^M)^{-\rho}+ w(x_2^M)^{-\rho}\right](x_1^M)^{\rho+1}}\\&#xA;&amp;amp;= v(p_1,p_2,m) \frac{1}{p_1\left[x_1^M+ w\left(\frac{x_1^M}{x_2^M}\right)^{\rho+1}x_2^M\right]}\\&#xA;&amp;amp; = v(p_1,p_2,m) \frac{1}{p_1\left[x_1^M+ w\left(\frac{1}{\kappa}\right)^{\rho+1}x_2^M\right]}&#xA;\end{align}&#xA;Plug in the expression for $\kappa = \left(\frac{wp_1}{p_2}\right)^{\frac{1}{\rho+1}}$ to the equation above, we have &lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{align}&#xA;p_1\left[x_1^M+ w\left(\frac{1}{\kappa}\right)^{\rho+1}x_2^M\right] &amp;amp;= p_1\left[x_1^M+ w\frac{p_2}{wp_1}x_2^M\right]\\&#xA;&amp;amp; = p_1x_1^M + p_2x_2^M\\&#xA;&amp;amp; = m&#xA;\end{align}&#xA;so $$\lambda^* = \frac{v(p_1,p_2,m)}{m}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To show a function $F(x_1, x_2, ... x_n)$ is homogenous of degree $k$, simply show that $$F(kx_1, kx_2, ...kx_n) = \lambda^kF(x_1, x_2, ... x_n)$$ For $\forall \;\lambda&amp;gt;0$&lt;/p&gt;&#xA;" OwnerUserId="12938" LastActivityDate="2017-04-19T06:08:19.547" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16371" PostTypeId="2" ParentId="15450" CreationDate="2017-04-19T13:57:43.030" Score="2" Body="&lt;p&gt;Question:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;I understand that he is explaining 'non-Ricardian' policies. However,&#xA;  if the government increases its deficit by issuing bonds, would that&#xA;  not decrease AD in the period the bonds are sold? Say that the&#xA;  government increases its deficit in period &lt;em&gt;t&lt;/em&gt; by selling bonds.&#xA;  Private agents buy these bonds and thus give up consumption goods. So&#xA;  in period &lt;em&gt;t&lt;/em&gt;, should AD not decrease?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The act of issuing bonds does not directly affect AD, it only results in a rebalancing of portfolios: the household sector gives up money balances in exchange for government bonds. (If your model implies that spending depends upon money balances, there might be an indirect effect on the economy. In many models, money balances are zero, and so there is no effect. See below.) In any event, the end-of-period money holdings of the household sector depend upon the reaction function of the central bank within the model, and so that reaction function will effectively determine the final household portfolio allocation between money/bonds. (The reaction function is usually specified as a rule for the interest rate, which determines money holdings within the household's money demand function.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The lack of relationship between money balances in macro models and transaction volume is not entirely obvious. The reason is that money balances are meant to represent end-of-period holdings, and transactions clear simultaneously. This means that a household with \$100 income can spemd \$100, and leave a \$0 cash balance at the end of the period. Since it is better to hold bonds/bills if interest rates are positive, the end-of-period money holdings woukd normally end up at zero. It can do this in every period, and so it is continuously transacting, yet measured money balances never appear. This is obviously unrealistic, and so other classes of models introduce reasons for end-of-period money holding. Two typical cases are a cash-in-advance requirement, or money in the utility function. The cash-in-advance requirement is that money holdings have to be at least some percentage of consumption spending (which simulates the reality that most wages are paid at a lower frequency than spending). Money in the utility function creates a demand for money within the optimisation problems, which usually depends upon the rate of interest. The end result is that the model assumptions imply a relationship between money holdings and the economy; change the assumptions, and the relationship changes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Leeper is discussing a tax cut, which can trivially give rise to unchanged consumption (multiplier of 0). The government consumes the same amount as before, and thus runs a higher deficit (which is matched by greater bond issuance). If the household sector consumes the same amount, its savings rises by the amount of the tax cut, which it invests in bonds.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the &quot;multiplier&quot; on the tax cut is positive, it implies that the household consumes more as a result of the tax cut, and so we have greater output. The exact effect depends upon the model you are using.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question asks: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;However, suppose that interest rates rose. If the interest rate is&#xA;  higher than the growth rate of the economy, the government will have&#xA;  to monetise its debt in order to pay the interest component, this will&#xA;  obviously be inflationary.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The quote from Leeper is a discussion of &quot;Regime F.&quot; Within the analysis of the paper, monetising of debt has nothing to do with determination of the price level. The paper, the price level in regime F is given in equation (14), which is described: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;At time &lt;em&gt;t&lt;/em&gt;, the numerator of this expression is predetermined,&#xA;  representing the nominal value of household wealth carried into period&#xA;  &lt;em&gt;t&lt;/em&gt;. The denominator is the expected present value of primary fiscal&#xA;  surpluses from date &lt;em&gt;t&lt;/em&gt; on, which is exogenous.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;That is, the expectation is that future primary surpluses will be used to stabilise the debt level.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastEditorUserId="12891" LastEditDate="2017-04-21T13:12:36.773" LastActivityDate="2017-04-21T13:12:36.773" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16372" PostTypeId="1" AcceptedAnswerId="16375" CreationDate="2017-04-19T16:24:18.217" Score="4" ViewCount="233" Body="&lt;p&gt;The Stone-Gerry production function generally takes a form of:&#xA;$$f(x_{i})=\prod_{i=1}^n(x_{i}-a_{i})^{\gamma_i}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $x_i$ represents all inputs in the model, $a_i$ is a constant representing the initial investment which does not contribute to production and $\gamma_{i}$represent output elasticies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;when running a regression and converting it into a production function (&lt;a href=&quot;https://economics.stackexchange.com/questions/14551/how-do-we-estimate-production-functions&quot;&gt;which was already discussed on the site&lt;/a&gt;) how should our inital regression look when we have constants $a_i$ included?&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="8815" LastEditDate="2018-06-01T19:30:48.470" LastActivityDate="2018-06-01T19:30:48.470" Title="The Econometrics of the Stone Geary Production function" Tags="&lt;production-function&gt;&lt;applied-econometrics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="16373" PostTypeId="1" AcceptedAnswerId="16376" CreationDate="2017-04-19T17:29:15.677" Score="-1" ViewCount="39" Body="&lt;p&gt;Isn't it bad economically for soft regulation on financial instruments like derivatives. &lt;/p&gt;&#xA;" OwnerUserId="12842" LastActivityDate="2017-04-19T20:05:51.490" Title="Can someone explain to me why no new bill exist to regulate financial derivatives yet?" Tags="&lt;financial-economics&gt;&lt;financial-markets&gt;&lt;federal-reserve&gt;" AnswerCount="1" CommentCount="0" ClosedDate="2017-04-20T18:34:15.033" ContentLicense="CC BY-SA 3.0" />
  <row Id="16374" PostTypeId="1" AcceptedAnswerId="16379" CreationDate="2017-04-19T19:01:53.250" Score="2" ViewCount="39" Body="&lt;p&gt;With the advent of cloud computing, data storage and scaling has become extremely cheap when compared to the strictly physical server alternative (which require a dedicated facility and substantial fixed/variable costs). Implicitly, we could view cloud computing as having comparatively big ecological advantages over dedicated servers. From this perspective, companies with server/data center needs will have huge incentives to choose cloud computing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is, is the verdict really this simple? Wouldn't some companies be reluctant to use cloud computing for security / conflict of interest reasons? Instead, might they prefer to be the sole custodians of their data? For example, investment banks, hedge funds, ect?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are there any other compelling reasons that might hold the server / data center industry away from adopting the cloud?&lt;/p&gt;&#xA;" OwnerUserId="12212" LastActivityDate="2017-04-19T20:47:49.127" Title="Disruptions in Server / Data Center Market" Tags="&lt;macroeconomics&gt;&lt;technology&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="16375" PostTypeId="2" ParentId="16372" CreationDate="2017-04-19T19:13:55.583" Score="4" Body="&lt;p&gt;Stone-Geary production functions attempt to reflect the real-world observation that for production to be feasible, there exist minimum thresholds in the quantities of inputs employed. This is not about initial investment but that one cannot use miniscule levels of inputs and obtain &quot;very little&quot; output -for production to even begin, one needs input amounts above a certain threshold, dictated usually by technology. At the aggregate (market or macro level), perhaps this effect practically vanishes, but for firm-level data, this may be an important feature of actual production.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume that we have data for $i=1,...,n$ firms and we postulate the existence of a Stone-Geary production function&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$q_i=f_i(\mathbf x_i;\mathbf a_i) = A\prod_{j=1}^K(x_{ji}-a_{j})^{\gamma_j}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The model is non-linear in the parameters, and It will &lt;em&gt;remain&lt;/em&gt; non-linear in the parameters even if we take the natural logarithms. So one could in principle consider Non-linear Least Squares (NLS) estimation using the above specification without taking logs, but it is advisable to do take logarithms, because it lends a &quot;degree of linearity&quot; in  the model which will only do good  to the NLS estimator and the iterative estimation algorithm that it will be used by the software, since no closed form solution exists. So we specify, for $K$ non-constant regressors,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\ln q_i =\ln A + \gamma_1\ln(x_{1i}-a_{1})+...+\gamma_K\ln(x_{Ki}-a_{K}) +u_i,\;\;\; i=1,...,n$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where we want to estimate the gammas and the alphas plus the constant term... Note that the above specification assumes that the &quot;thresholds&quot; (the alphas) are the same for all firms, per regressor (they are not indexed by $i$). So in all we are estimating $2K+1$ parameters with a cross-sectional sample of size $n$ and we must have $2K+1 &amp;lt; n$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, note that $A$ is the level of of output when all inputs exceed their threshold by one unit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The NLS estimator requires starting values for the coefficients. For the gammas, one could run OLS by setting the alphas equal to zero and use the OLS estimates as starting values. For the alphas, one could start by setting them equal to zero, except if one has some idea about what they could be approximately.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A good thing of such an approach is that the estimated thresholds can be checked for plausibility, using existing knowledge about production processes, which provides a non-statistical test for the validity of the specification.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An open access paper discussing the approach with empirical applications &lt;a href=&quot;http://journals.cambridge.org/article_S1074070815000176&quot; rel=&quot;nofollow noreferrer&quot;&gt;can be found here&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2017-04-20T14:06:08.927" LastActivityDate="2017-04-20T14:06:08.927" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="16376" PostTypeId="2" ParentId="16373" CreationDate="2017-04-19T20:05:51.490" Score="0" Body="&lt;p&gt;The financial bill you're describing exists. It's called the Dodd-Frank act and was enacted after the 08' crisis to further regulate securities which includes derivatives. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.sec.gov/spotlight/dodd-frank/derivatives.shtml&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.sec.gov/spotlight/dodd-frank/derivatives.shtml&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Before the Dodd Frank Act which passed in 2010 the main source of legislation for regulating the financial industry was The Securities Exchange act of 1934 which codified the government regulation on most financial instruments and is still the primary source of financial regulation today. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Securities_Exchange_Act_of_1934&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://en.wikipedia.org/wiki/Securities_Exchange_Act_of_1934&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="10245" LastActivityDate="2017-04-19T20:05:51.490" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16377" PostTypeId="2" ParentId="16337" CreationDate="2017-04-19T20:14:43.770" Score="2" Body="&lt;p&gt;Gold is generally the best option for expected political and economic strife as it generally reacts inversely with the markets. &lt;a href=&quot;http://therealasset.co.uk/war-syria-gold-price/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Here&lt;/a&gt;'s a good article on the connection between war and the value of gold. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another thought would be to buy stock in companies involved in the defense industry. Raytheon, Boeing, Northorp Grumman all jump during wartime due to the anticipation for more demand for weapons production. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;An even safer bet would be to buy stocks in metal production such as steel given that in a wartime economy demand for these goods spikes as production of ships and vehicles will increase for a period of time.&lt;/p&gt;&#xA;" OwnerUserId="10245" LastEditorUserId="2776" LastEditDate="2017-08-18T16:23:43.087" LastActivityDate="2017-08-18T16:23:43.087" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16378" PostTypeId="2" ParentId="16358" CreationDate="2017-04-19T20:33:39.567" Score="1" Body="&lt;p&gt;Elasticity of demand is almost always assumed to be negative. It is assumed that there is an inverse relationship between price and quantity demanded. If you want to buy 2 hamburgers for &lt;code&gt;$5&lt;/code&gt; each you aren't suddenly going to want to buy 3 hamburgers if they now cost &lt;code&gt;$10&lt;/code&gt; each. If this isn't the case it means that consumers aren't rational which blows up 99% of the models economics has to offer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Because the elasticity of demand is always negative it can be assumed that if I say X is the elasticity of demand I mean X is negative because elasticity of demand is always negative. If I say -X is the elasticity of demand you can still assume that it is negative because a) I said it explicitly, and b) it is always true.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At this point it's just a matter of preference and doesn't matter either way, I just wanted to explain why it really doesn't matter since someone who understands what elasticity of demand means will understand that it will always be negative in almost all scenarios.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Personally, I think that explicitly saying that the elasticity of demand is negative is a better choice since I can imagine some fringe scenarios where a product being expensive leads to that product being sold more often, (I think of caviar as an example for these types of products, where consumers buy it precisely because its expensive) but for most economic models the assumption holds.&lt;/p&gt;&#xA;" OwnerUserId="10245" LastActivityDate="2017-04-19T20:33:39.567" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16379" PostTypeId="2" ParentId="16374" CreationDate="2017-04-19T20:47:49.127" Score="2" Body="&lt;p&gt;Institutions like banks for many years now keep  back-up archives of their data in physical locations owned and operated by other legal entities. This is a standard case of outsourcing to specialists a requirement of a business process that is not a directly value-added activity. So the &quot;sole custodian of one's own data&quot; has been proven in the market not to be strong enough against cost-reduction considerations (or against price/value optimization if you wish).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Cloud computing is comparatively still new. The cost incentives to adopt it are indeed very strong. In practice, I believe we will observe, as in the past with other innovations, a certain degree of &lt;em&gt;selectiveness&lt;/em&gt;: as the risks and rewards of cloud-computing will become more well understood (and measured), companies may select certain parts of their activities to keep off the-cloud, while enjoying the cost reductions for all the rest. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This by the way, can be squarely put in the framework of the, dear to us economists, &lt;strong&gt;&lt;em&gt;marginal optimization&lt;/em&gt;&lt;/strong&gt; - it is not a &quot;yes-or-no&quot; decision but a process where each company will adopt the Cloud up to the degree where marginal benefit equals marginal cost.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2017-04-19T20:47:49.127" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="16380" PostTypeId="2" ParentId="16361" CreationDate="2017-04-19T23:52:40.963" Score="0" Body="&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Yes. If the idiosyncratic error is iid, xtreg (FE) with no options (ordinary se) is valid, but the ordinary se for FD, reg d.(y x), is invalid because the differenced error is serially correlated.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Yes, it is. It's cluster-robust, which means OK  regardless of the presence of within-group correlation.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="10775" LastActivityDate="2017-04-19T23:52:40.963" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="16384" PostTypeId="1" AcceptedAnswerId="16386" CreationDate="2017-04-20T07:42:18.110" Score="0" ViewCount="2751" Body="&lt;p&gt;I am using WB (country GDP) data in combination with UN Comtrade (bilateral trade) data. I need to divide bilateral trade by GDP so as to find out which % of a country's GDP comes from bilateral trade. &#xA;The problem is WB has values in constant 2010 USD while UN Comtrade in current USD. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;How can I transform the current USD values in constant 2010 USD values? &lt;/p&gt;&#xA;" OwnerUserId="12954" LastEditorUserId="2776" LastEditDate="2017-04-20T08:40:57.610" LastActivityDate="2017-04-20T08:44:24.297" Title="Converting current to constant USD values for trade data (UN Comtrade)" Tags="&lt;gdp&gt;&lt;value&gt;&lt;deflation&gt;&lt;international-trade&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16385" PostTypeId="1" AcceptedAnswerId="16387" CreationDate="2017-04-20T08:20:22.260" Score="1" ViewCount="54" Body="&lt;p&gt;I'm studying for a test I have this week and a practice question asks whether or not the price elasticity of demand for the demand function $\ q = Ap^{-x} $, where A and x are positive constants depends on the price &lt;strong&gt;p&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've attempted to use the equation, $ \frac{dQ}{dP}*\frac{P}{Q} $ in order to solve the problem and I am getting the result,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$ \epsilon = \frac{-xA}{p^{x+1}}*\frac{p}{q} = \frac{-xA}{p^{x}q}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which would mean that the elasticity does  depend on &lt;strong&gt;p&lt;/strong&gt;, however the answer in my practice exam says that it does not depend on &lt;strong&gt;p&lt;/strong&gt;. Why is that the case/where did I go wrong? &lt;/p&gt;&#xA;" OwnerUserId="12955" LastActivityDate="2017-04-20T08:53:00.557" Title="Does this price elasticity depend on p?" Tags="&lt;elasticity&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16386" PostTypeId="2" ParentId="16384" CreationDate="2017-04-20T08:44:24.297" Score="0" Body="&lt;p&gt;Use the &lt;a href=&quot;http://data.worldbank.org/indicator/FP.CPI.TOTL?locations=US&quot; rel=&quot;nofollow noreferrer&quot;&gt;World Bank data&lt;/a&gt; on US inflation to deflate the UN Comtrade dataset, so that it is also in constant prices.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Select Download, at the right side of the page, and you can get the dataset in csv or other formats.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To deflate the trade data, simply divide the values of bilateral trade by the value of each years CPI index, and then multiply them by the value of CPI in 2010 (the base year, which is 100 in this case). Alternatively, rebase the CPI index, by dividing all values by 100, so that CPI in 2010 is equal to 1. Then, divide the trade data by this new index. Both approaches are equivalent.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-04-20T08:44:24.297" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="16387" PostTypeId="2" ParentId="16385" CreationDate="2017-04-20T08:53:00.557" Score="1" Body="&lt;p&gt;That type of demand is called an &lt;a href=&quot;https://en.wikipedia.org/wiki/Isoelastic_function&quot; rel=&quot;nofollow noreferrer&quot;&gt;Isoelastic demand function&lt;/a&gt;, because the elasticity of demand is constant, so it &lt;strong&gt;does not&lt;/strong&gt; depend on prices.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You have not done any mistake. But you just need to move forward one more step. Notice that at the moment your derivative has both p and q in it. &lt;strong&gt;Try to get rid of q&lt;/strong&gt;. This is, try to have $\epsilon=f(p)$, and not $\epsilon=f(p,q)$. This hint should be enough for you to solve the question.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-04-20T08:53:00.557" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16388" PostTypeId="1" CreationDate="2017-04-20T09:06:21.523" Score="2" ViewCount="27" Body="&lt;p&gt;Many publishers (e.g. MIT Press, Oxford University Press, Harvard Press, Norton, &lt;em&gt;et cetera&lt;/em&gt;) are constantly releasing new economic books. I could subscribe to email alerts for each of them (for example, &lt;a href=&quot;http://mit.us2.list-manage2.com/subscribe?u=7caff40e82d72e9429c33df2a&amp;amp;id=4f766e83e7&quot; rel=&quot;nofollow noreferrer&quot;&gt;MIT&lt;/a&gt;, &lt;a href=&quot;https://global.oup.com/academic/emailpreferences/signin/?cc=cy&amp;amp;lang=en&quot; rel=&quot;nofollow noreferrer&quot;&gt;OUP&lt;/a&gt;, &lt;a href=&quot;http://www.hup.harvard.edu/news/mailing-list.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Harvard&lt;/a&gt;). However, this has two problems:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;I will get a lot of emails.&lt;/li&gt;&#xA;&lt;li&gt;Unless I subscribe to all/most, I will be missing from many other, lesser known, perhaps heterodox publishers.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;I wonder whether there is a single, centralised system which can alert me, say, every month, of the plethora of new economic books published or forthcoming.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know &lt;a href=&quot;https://inomics.com&quot; rel=&quot;nofollow noreferrer&quot;&gt;Inomics&lt;/a&gt; is a good centralised system for conferences and jobs alert, but I am not aware of book alerts. &lt;a href=&quot;http://repec.org/&quot; rel=&quot;nofollow noreferrer&quot;&gt;RePEc&lt;/a&gt; does not seem to provide that service either.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-04-20T09:06:21.523" Title="Is there a centralised subscription system for new and forthcoming economic books?" Tags="&lt;reference-request&gt;&lt;books&gt;" AnswerCount="0" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="16389" PostTypeId="1" CreationDate="2017-04-20T09:27:56.930" Score="0" ViewCount="224" Body="&lt;p&gt;I am a total noob in economics, but I'm trying to understand why do we have inflation. I can see that prices are increasing over time and, by definition, this means inflation. I'm fine with this definition, but I don't understand why we have it everywhere in the world. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Once, someone told me that this is caused by our psychology and that we kind of &quot;get used&quot; to something, and it doesn't have the same value like before, and I was wondering if this is right. Do money depreciate because we give it a less value over time or what is the fundamental reason for inflation? Or is it more complicated than my kindergarten understanding of it? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can imagine that this is a stupid question for most people, but for me, it is very important to understand it at the fundamental level. &lt;/p&gt;&#xA;" OwnerUserId="11287" LastActivityDate="2017-04-21T15:10:58.703" Title="Is human psychology really reflected into inflation?" Tags="&lt;inflation&gt;&lt;money&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16390" PostTypeId="1" CreationDate="2017-04-20T10:23:43.990" Score="1" ViewCount="1385" Body="&lt;p&gt;Since unemployment benefit is a form of government spending, which is a component of aggregate expenditure, then shouldn't unemployment benefits be part of national income measurement?&lt;/p&gt;&#xA;" OwnerUserId="6782" LastActivityDate="2017-04-20T11:34:58.753" Title="Is unemployment benefit part of national income measurement?" Tags="&lt;national-income&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16391" PostTypeId="2" ParentId="16390" CreationDate="2017-04-20T11:34:58.753" Score="2" Body="&lt;p&gt;It is included. It is a transfer payment, so the trick is to ensure that the income flow is only counted one time in the national accounting.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Statistics Canada, National Gross Domestic Product by Income and by Expenditure Accounts &lt;a href=&quot;http://www23.statcan.gc.ca/imdb/p2SV.pl?Function=getSurvey&amp;amp;SDDS=1901&quot; rel=&quot;nofollow noreferrer&quot;&gt;link to description&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The Income and Expenditure Accounts record the distribution and use of&#xA;  income by the six main institutional sectors: households, non-profit&#xA;  institutions serving households, general governments, non-financial&#xA;  corporations, financial corporations and non-residents. These accounts&#xA;  articulate revenues to the sector (including current transfers from&#xA;  other sectors, &lt;strong&gt;such as employment insurance received&lt;/strong&gt;) and current&#xA;  expenditures of the sector (including transfers to other sectors, such&#xA;  as income taxes paid to government).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;(&quot;Employment insurance&quot; is the Canadian equivalent of unemployment insurance.)&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2017-04-20T11:34:58.753" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16393" PostTypeId="1" AcceptedAnswerId="16394" CreationDate="2017-04-20T12:31:33.430" Score="-1" ViewCount="135" Body="&lt;p&gt;I'm studying for a microeconomics midterm and ran across the following question: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A person consumes two goods, X and Y. The consumer's only source of income is given by the quantity of Y equal to ten, which he can sell on the market at the existing price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What would the budget constraint look like? What would it look like if the price of Y increases?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I initially drew the curve with a downward slope until it hits Y=10 on the Y-axis then it becomes vertical down to the X-axis. Can it look like this given that the question doesn't specify how much of X is being consumed?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you in advance. &lt;/p&gt;&#xA;" OwnerUserId="12958" LastActivityDate="2017-04-20T13:24:24.870" Title="Budget constraint when one of the goods can be sold" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16394" PostTypeId="2" ParentId="16393" CreationDate="2017-04-20T13:24:24.870" Score="1" Body="&lt;p&gt;:)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A person is endowed with $(x,y) = (0,10)$ units. Suppose, price of $x$ is $p_x$; price of $y$ is $p_y$ . So, the income of the consumer = $10 p_y$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And the corresponding budget constraint will be: $x p_x + y p_y = 10p_y$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Vertical intercept $(0, y) = (0,10)$ and horizontal intercept $(x, 0) = \left( \displaystyle\frac{10p_y}{p_x}, 0\right)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now suppose &lt;strong&gt;$p_y$ is increased to $p_y'$&lt;/strong&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;New budget line will be : $x p_x + y p_y' = 10p_y'$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Vertical intercept $(x = 0, y) = (0,10)$ which is same as the previous case.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And horizontal intercept $(x, 0) = \left( \displaystyle\frac{10p_y'}{p_x}, 0\right) &amp;gt; \left( \displaystyle\frac{10p_y}{p_x}, 0\right) $ because $p_y' &amp;gt; p_y$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, the new budget line has become flatter with the same vertical intercept.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The graph looks something like this:&#xA;&lt;a href=&quot;https://i.stack.imgur.com/PDun2.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/PDun2.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="11866" LastActivityDate="2017-04-20T13:24:24.870" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16395" PostTypeId="1" CreationDate="2017-04-20T14:13:30.067" Score="0" ViewCount="2184" Body="&lt;p&gt;I understand that Price Elasticity of Demand (PED) measures the percentage change in quantity demanded of a good with respect to a percentage change in its price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, I don't quite understand the intuition behind the formula for PED being:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$e_{{\langle p\rangle }}={\frac  {{\mathrm  {d}}Q/Q}{{\mathrm  {d}}P/P}}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and not simply described by the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$e_{{\langle p\rangle }} = {\frac  {{\mathrm  {d}}Q}{{\mathrm  {d}}P}}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This might be quite an elementary question, but I'm hoping for a bit of clarification. &lt;/p&gt;&#xA;" OwnerUserId="12959" LastActivityDate="2020-12-01T23:59:57.533" Title="Explanation of differential equation for Price Elasticity of Demand" Tags="&lt;supply-and-demand&gt;&lt;elasticity&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16396" PostTypeId="2" ParentId="16395" CreationDate="2017-04-20T18:49:49.213" Score="2" Body="&lt;p&gt;Consider a demand equation,&#xA;$$Q=\alpha\ +\beta\ P$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you were to just use,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$e_{{\langle p\rangle }} = {\frac  {{\mathrm  {d}}Q}{{\mathrm  {d}}P}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then the result is only the differentiation with respect to $P$. This doesn't give you the information that you are looking for because you haven't specified the point at which you are measuring elasticity. To do this the second portion of the equation is necessary. Suppose you want to know the elasticity at $P=\$8$. By plugging $\$8$ into the demand equation you can calculate the quantity demanded at $P=\$8$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Personally, I have to think of this in two parts, (1) the differentiation with respect to $P$ (2) multiplied by the &quot;spot&quot; of the demand curve that I am examining, ${\frac PQ}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$e_{{\langle p\rangle }}={\frac  {{\mathrm  {d}}Q}{{\mathrm  {d}}P}}* {\frac PQ}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;edit&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The number that you calculate is the percent change of a 1% increase in price. For example, if $e=-0.3$, you can say that a 1% increase in price should cause a 0.3% drop in the quantity demanded.&lt;/p&gt;&#xA;" OwnerUserId="12662" LastEditorUserId="12662" LastEditDate="2017-04-20T19:00:17.530" LastActivityDate="2017-04-20T19:00:17.530" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16398" PostTypeId="2" ParentId="16389" CreationDate="2017-04-20T19:39:50.970" Score="2" Body="&lt;p&gt;Economics is, first and foremost, a discipline that tries to understand human behavior, in particular human behavior regarding scarce resources and choices over them. You are correct in doubting a &quot;we kind of get used to it&quot; explanation if you want an economic explanation. While people may give a lot of reasons to why they make prices behave the way they do, empirically they behave as acting upon the laws below.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Inflation has been plaguing humanity since it developed coinage (barter and money-less economies can't have inflation) and many theories have been developed to explain it. Causes at a fundamental level have changed as economic theories came and went, but there's a consensus among most modern economists.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Without going too much into details, money itself is a good, and as such it's influenced by basic laws of supply and demand. If people desire more money to spend on goods, its value will go up (and the price of things in term of money will go down); if people desire less money, its value will go down (and the price of things in terms of money will go up). In the long term, inflation is a purely monetary phenomenon: more/less money around means more/less supply and more/less goods around to spend money on mean more/less money demand. In the short term, other effects dominate, such as:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;If people expect prices to go up, for whatever reasons, they'll mark up prices in a self-fulfilling prophecy. That's why part of a central bank's job is aligning expectations.&lt;/li&gt;&#xA;&lt;li&gt;Certain prices, like wages, don't update frequently (especially if they ought to go down to reach equilibrium). This is one of the main reasons most central banks strive to reach a ~2% inflation rate: instead of getting wages down by increasing unemployment, they lower wages to equilibrium across the board.&lt;/li&gt;&#xA;&lt;li&gt;There can be a spiral were firms raise prices and workers demand higher wages to pay for those prices, and firms need to rise prices to pay for wages...&lt;/li&gt;&#xA;&lt;li&gt;Around Christmas, people buy more. Central banks know this and put more money on the market to account for this extra demand.&lt;/li&gt;&#xA;&lt;li&gt;What constitutes money is a hard question to answer, but in general it depends on how easy it is to buy goods with it. More money that no one spends won't imply more supply. This means you can print all the money you want and have no extra inflation... if you don't spend it.&lt;/li&gt;&#xA;&lt;li&gt;If there's a systemic effect, like higher gas prices or exchange rates, a lot of prices will go up to align with lower purchasing power for a country. This is why central bankers tend to focus on &quot;core&quot; inflation instead of actual inflation.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;You can see that it has a quite complex dynamics, but I hope the above will give you an intuition behind how to think about inflation.&lt;/p&gt;&#xA;" OwnerUserId="7857" LastActivityDate="2017-04-20T19:39:50.970" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="16399" PostTypeId="2" ParentId="15467" CreationDate="2017-04-20T23:21:15.250" Score="1" Body="&lt;p&gt;As with all the others, I would agree &quot;no.&quot;  I am only treating the first sentence as the axiom as the &quot;corollary&quot; implied in the second sentence is actually less clear.  As the axiom I am taking it to be &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Human action is purposeful behavior&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This could almost make it as a game theory axiom.  de Finetti's coherence principle, for example, or Cox's axioms are not in mathematically disciplined language yet they found two entire schools of thought for decision making under uncertainty.  This is in sharp contrast to Leonard Jimmie Savage's first postulate which is &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The relation $\ge$ is a total preorder.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;What makes it a problem is that it confounds distinct things.  First is inaction purposeful?  Is the action &quot;do nothing&quot; an action.  That might seem weird or picky, but I can think of at least one game theoretic situation where that distinction would have profound implications.  There isn't enough here to define what actions mean.  Additionally, how do actions map to and from utilities?  How do we know that the correct ones are the purposeful ones?  Do we have &quot;accidents?&quot;  Are mistakes made?  How are forced actions understood?  For the right price are you willing to be &quot;non-purposeful?&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At a deeper level, it either subsumes preferences so that they cannot be distinguished, or it presumes people lack preferences.  Action is the result of the interaction of changes in the state of the internal and external environment and utility.  Utility, however, is a derived concept from preferences.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That does not make this statement wrong, it makes it a theorem and not an axiom, if you add sufficient additional clarity as to what &quot;purposeful&quot; means.  I think that if you treated this as an axiom, you would run into problems with probability theory and measure theory as well.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Savage derives probability theory and utility theory from preferences.  He does this, in part, because probability and utility cannot be distinguished in de Finetti.  They are not actually different things, which most people find weird or confusing at first, but de Finetti begins with observable behavior and walks backwards into the mind.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The issue is that by not dealing with preferences, you may accidentally end up with a system where decision makers do things that does not match the laws of probability.  Of course that branch of Austrian thinking says you cannot study behavior statistically, which would be consistent with my concern.  If this is your axiom, it may be the case it goes somewhere unfortunate, depending upon what your other axioms look like.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It isn't a primitive, it is a derived statement.&lt;/p&gt;&#xA;" OwnerUserId="11321" LastActivityDate="2017-04-20T23:21:15.250" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16401" PostTypeId="1" AcceptedAnswerId="16406" CreationDate="2017-04-21T06:21:58.747" Score="1" ViewCount="180" Body="&lt;p&gt;I had been searching for the GDP data of China and finally found it &lt;a href=&quot;https://www.frbatlanta.org/cqer/research/china-macroeconomy.aspx?panel=1&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The dataset gives the log real GDP data from 1992 (annual, quarterly and monthly). It doesn't specify the base year of the data, all it says is &#xA;&quot;&lt;em&gt;Implicit price deflator for GDP by value added, 1992Q1-&lt;/em&gt;&quot;, for the GDP deflator. Is there a way to find the base year for the real GDP data?&lt;/p&gt;&#xA;" OwnerUserId="12914" LastEditorUserId="2776" LastEditDate="2017-06-06T09:47:46.350" LastActivityDate="2017-06-06T09:47:46.350" Title="China GDP Data - Base year" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;&lt;china&gt;&lt;base-year&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16402" PostTypeId="1" CreationDate="2017-04-21T07:05:28.183" Score="2" ViewCount="99" Body="&lt;p&gt;The US Census Bureau's survey of income and program participation (SIPP) has, among others, the following variables:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;code&gt;epdtbhn&lt;/code&gt;: Paid job during the reference period&lt;/li&gt;&#xA;&lt;li&gt;&lt;code&gt;ersnowrk&lt;/code&gt;: Main reason for not having a job during the reference period&lt;/li&gt;&#xA;&lt;li&gt;&lt;code&gt;tpmsum*&lt;/code&gt;: Earnings from job received in this month&lt;/li&gt;&#xA;&lt;li&gt;&lt;code&gt;eeno*&lt;/code&gt;:  Across-wave employer index/number Unique job number that will remain the same from wave to wave. &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Now, I'm looking at the following individual from the 2008 wave:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;br ssuid ersnowrk epdjbthn tpmsum*  eeno* if ssuid == &quot;019925011535&quot;&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;In May 2012, that individual was reported as Unable to find work, &lt;code&gt;epdjbthn == No&lt;/code&gt;. &lt;/li&gt;&#xA;&lt;li&gt;In the next month, &lt;code&gt;epdtbhn == Yes&lt;/code&gt;: He/she had a job (consistent with &lt;code&gt;ersnowrk == Not In Universe&lt;/code&gt;). However, all the employment variables (&lt;code&gt;tpmsum*&lt;/code&gt;, &lt;code&gt;eeno*&lt;/code&gt;) are also all &lt;code&gt;not in Universe&lt;/code&gt;. &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;This is clearly inconsistent data. The allocation flag for &lt;code&gt;epdjbthn&lt;/code&gt; says that the data was not imputed. The allocation flag for the employment variables is meaningless (as they are not in universe). Does this mean I can rely on the person to have found an actual job, even if none of the other employment variables are speaking towards it?&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="2776" LastEditDate="2017-08-19T10:36:39.777" LastActivityDate="2017-08-19T10:36:39.777" Title="Employment coding in the SIPP" Tags="&lt;micro-data&gt;" AnswerCount="0" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16403" PostTypeId="5" CreationDate="2017-04-21T07:06:25.997" Score="0" Body="&lt;p&gt;The &lt;a href=&quot;https://www.census.gov/programs-surveys/sipp/about/sipp-introduction-history.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;SIPP&lt;/a&gt; is a set of four-year panels whose strengths is in the longitude. It is designed with labor force status of individuals and evaluation of social programs in mind.&lt;/p&gt;&#xA;" OwnerUserId="43" LastEditorUserId="43" LastEditDate="2017-04-21T07:06:25.997" LastActivityDate="2017-04-21T07:06:25.997" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16404" PostTypeId="4" CreationDate="2017-04-21T07:06:25.997" Score="0" Body="For questions specific to the Survey of Income and Program Participation and its use." OwnerUserId="43" LastEditorUserId="43" LastEditDate="2017-04-21T07:06:25.997" LastActivityDate="2017-04-21T07:06:25.997" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16405" PostTypeId="2" ParentId="5335" CreationDate="2017-04-21T07:24:46.480" Score="0" Body="&lt;p&gt;The &quot;loanable funds market&quot; does not exist - it is a misrepresentation of how banking works. See &lt;a href=&quot;http://www.bankofengland.co.uk/research/Documents/workingpapers/2015/wp529.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;this document&lt;/a&gt; from the Bank of England.&lt;/p&gt;&#xA;" OwnerUserId="5081" LastEditorUserId="2776" LastEditDate="2017-08-19T10:03:08.410" LastActivityDate="2017-08-19T10:03:08.410" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16406" PostTypeId="2" ParentId="16401" CreationDate="2017-04-21T07:59:06.233" Score="1" Body="&lt;p&gt;In &lt;a href=&quot;https://www.frbatlanta.org/-/media/documents/research/publications/wp/2016/07.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;this paper&lt;/a&gt;, page 8, it says&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Quarterly seasonally adjusted nominal GDP and its deflator&#xA;  are constructed by Higgins and Zha (2015).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;That paper can be found &lt;a href=&quot;https://78462f86-a-8b021025-s-sites.googlegroups.com/a/tzha.net/www/articles/ChinaTimeSeries_HZ2.pdf?attachauth=ANoY7crFfZNi20fLtE-gnF4Ypnp8aXbf_rOBho_pqNs1vZvReSyMdPeKbvodC3-kwk4zZW__ViCGZAx16zLtfbjFW_ZYbD4b4BLJPgbIUFOUMrTPabGZGwSYx7vKqbk_oejIaAxxvrMlwQW5i-tuEqmFKBXNExaZj7oGuh4uDXgVPUl2El5luRJ0g85WJfw5fZo49-UCsfyuDGA6zBJagCjYv0b5Nq_y2w%3D%3D&amp;amp;attredirects=0&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; (google did not help to find this paper. I had to look for the personal website of one of the authors, &lt;a href=&quot;http://www.tzha.net/articles#CHINADATA&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This document states in section II.1, Step 1:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Annual&#xA;  real GDP-va –&#xA;  RGDP_va_A&#xA;  – is set to&#xA;  NGDP_va_A&#xA;  in 2008 ...&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This is confirmed later in the next page, when they say:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Except for the base year (chosen to be 2008) ... &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So it seems to be 2008. &lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-04-21T07:59:06.233" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16407" PostTypeId="1" AcceptedAnswerId="16413" CreationDate="2017-04-21T11:06:05.370" Score="3" ViewCount="244" Body="&lt;p&gt;I wanted to verify the relationship between inflation and unemployment empirically, so I took data from the World Bank and used excel to correlate them. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I got a very, very bad correlation between unemployment and inflation (from 1991 to 2016). Am I doing something wrong here?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I took these two sets of indicators: (1) Unemployment, total (modeled ILO estimate) and (2) Inflation, consumer prices. Here are the links: &lt;a href=&quot;http://data.worldbank.org/indicator/SL.UEM.TOTL.ZS&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://data.worldbank.org/indicator/SL.UEM.TOTL.ZS&lt;/a&gt; and &lt;a href=&quot;http://data.worldbank.org/indicator/FP.CPI.TOTL.ZG&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://data.worldbank.org/indicator/FP.CPI.TOTL.ZG&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I downloaded the data from here and I studied the data for the United States of America. Is the low correlation because of the fact that the market needs time to react to unemployment rates? If so how did Phillips study it in the first place?&lt;/p&gt;&#xA;" OwnerUserId="6486" LastEditorUserId="6486" LastEditDate="2017-04-21T13:32:38.503" LastActivityDate="2017-04-22T10:38:47.947" Title="How do I verify Philips curve empirically for recent years?" Tags="&lt;macroeconomics&gt;&lt;inflation&gt;&lt;unemployment&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="16408" PostTypeId="1" AcceptedAnswerId="16414" CreationDate="2017-04-21T12:36:39.743" Score="1" ViewCount="138" Body="&lt;p&gt;In a paper by Eric Leeper he says:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;For example,&#xA;  a contractionary open-market sale of government bonds raises&#xA;  nominal interest rates, including yields on government bonds. If&#xA;  the higher debt service is permitted to flow in to more rapid growth&#xA;  in nominal debt with no prospect of eventually higher taxes –&#xA;  or primary surpluses, more generally – then bond holders will&#xA;  perceive that their wealth has increased and seek to convert that&#xA;  wealth in to purchases of goods. This higher aggregate demand will&#xA;  ultimately raise the price level.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;On a theoretical level I seem to understand what he is saying but I do have some questions regarding the operation from practical perspective.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Say in period $t-1$ I own some government bonds. In period $t$ the central bank performs the contractionary OMO. So they lower the price of government bonds but raise its yield. This will increase the debt service cost for the government and if they decide to fund it by selling more bonds, I will experience a positive wealth effect. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think I'm confused because I don't quite understand the specifics of bond trading. So the bonds that I own in period $t-1$, is their yield flexible? I.e, once the CB performs the OMO and raises yield, will the bonds I already own also receive this new, higher yield? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, in period $t-1$, when I bought the bonds, I paid a certain price. Then the CB starts selling bonds, thus lowering its price while raising yield. The higher debt service cost results in the government issuing more bonds, surely this lowers the bond prices further? So when I eventually sell the bond, I should have lost money? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What am I missing here? &lt;/p&gt;&#xA;" OwnerUserId="11767" LastActivityDate="2017-04-22T12:11:54.217" Title="Wealth effect from OMO" Tags="&lt;macroeconomics&gt;&lt;interest-rate&gt;&lt;central-banking&gt;&lt;bonds&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16409" PostTypeId="1" CreationDate="2017-04-21T13:24:35.533" Score="0" ViewCount="212" Body="&lt;p&gt;The money market diagram showing liquidity preference and money supply intersect at an equilibrium level of interest rate, but what interest rate is it? Is it the base rate (I presume this is the rate at which commercial banks lend out loans to borrowers) or FED Funds Rate/LIBOR? Or does it simply refer to interest rates in general?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/77gvH.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/77gvH.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="6782" LastActivityDate="2017-04-21T17:37:27.507" Title="What is the interest rate that on the vertical axis of money markets?" Tags="&lt;financial-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16412" PostTypeId="2" ParentId="16409" CreationDate="2017-04-21T17:37:27.507" Score="3" Body="&lt;p&gt;The thing to keep in mind is that these diagrams refer to simple teaching economic models. These models do not necessarily reflect the complexity of the real world.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The money market diagram showing liquidity preference and money supply&#xA;  intersect at an equilibrium level of interest rate, but what interest&#xA;  rate is it?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Within the teaching model, there is a portfolio allocation between &quot;money&quot; and some interest-paying instrument (labelled &quot;bonds&quot; or &quot;bills&quot;). The interest rate is the interest rate paid on that hypothetical instrument.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The usual interpretation is that this the short-term &quot;risk-free&quot; rate of interest. (Risk-free implies is that they are assumed to be free of default risk.) In the United States (for example), there are a number of such instruments: Treasury bills/bonds, the fed funds rate (domestic interbank rate), OIS, repo, interest-bearing reserves, etc. These instruments have interest rates that are generally close to each other. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Simplified models that consist of a pair of intersecting lines will not be able to deal with the fact that such instruments have a variety of maturity dates (from overnight to 30 years).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The general assumption when discussing these models is that private sector borrowing rates will remain close to this risk-free curve. The fact that this is not always true is another part of reality they cannot deal with. That said, credit spreads for high quality borrowers tends to be less volatile than the level of the risk-free rate, and so the risk-free rate does roughly capture the general tendency of interest rates.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Is it the base rate (I presume this is the rate at which commercial&#xA;  banks lend out loans to borrowers)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The only &quot;base rate&quot; I can think of is a rate associated with central bank dealings with banks. The prime rate is a benchmark borrowing rate set by banks for dealing with customers. For example, people have loan interest rates that contractually are set at &quot;prime + x%&quot;.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;FED Funds Rate/LIBOR?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;FED Funds represents reserve trading between domestic banks; it is considered a risk-free rate (no credit premium).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;LIBOR is a rate for unsecured lending between international banks (in London). It has a credit risk premium embedded in it.  &lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2017-04-21T17:37:27.507" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16413" PostTypeId="2" ParentId="16407" CreationDate="2017-04-22T09:35:38.443" Score="2" Body="&lt;p&gt;Simple correlation is not a good approach to evaluate the Phillips curve, because you are mixing many periods together. To get a better grasp of what this relationship might have been in the past, use a graphical approach. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I suggest you to do something like this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/LvRaj.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/LvRaj.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So basically, you plot the points, but add a line that connects them temporally. This might give you a better idea of some dynamics. It is clear from that graph that a simple correlation cannot capture the complex dynamics of inflation and unemployment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, this is an animation of the evolution of the Phillip curve for the US:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/N8COS.gif&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/N8COS.gif&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The author identifies three or four PC over 40 years, reflecting different political/economic periods. A simple correlation analysis however would show none.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Source of images: &lt;a href=&quot;https://www.andrew.cmu.edu/course/88-301/phillips/phillips.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-04-22T10:38:47.947" LastActivityDate="2017-04-22T10:38:47.947" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16414" PostTypeId="2" ParentId="16408" CreationDate="2017-04-22T12:11:54.217" Score="2" Body="&lt;p&gt;I've changed order slightly, for ease of explanation.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;I think I'm confused because I don't quite understand the specifics of&#xA;  bond trading. So the bonds that I own in period &lt;em&gt;t−1&lt;/em&gt;, is their yield&#xA;  flexible?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In the real world (and more complex models) certainly - otherwise bond trading would be rather boring.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;During the day, bond traders exchange bonds at various prices, and the yield is essentially the implied internal rate of return (modulo quote convention effects) corresponding to those prices if the bond is held to maturity. That is, if you hold to maturity, you are guaranteed that internal rate of return (IRR)&#xA; - absent default - although total return depends upon coupon reinvestment. Otherwise, your profit/loss depends upon what price you sell at (and coupon income during your holding period).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Dynamic economic models quite often diverge from this reality in two ways.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;All bond trading during a period occurs at one price. Therefore, you cannot have gains/losses during a single accounting period.&lt;/li&gt;&#xA;&lt;li&gt;In many models, &quot;bonds&quot; mature in the next period. (&quot;Bills&quot; would be a better label.) Since there are no intermediate time periods, you cannot suffer a capital loss on bonds in such a period. The only way to have capital gains/losses on bonds is to allow for multi-period maturity bonds (or perpetuals), which complicates the model mathematics.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;I.e, once the CB performs the OMO and raises yield, will the bonds I&#xA;  already own also receive this new, higher yield?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;If you are investing in one period bills, your existing bill matured, and you would invest in a new bill at a higher yield.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you hold multi-period bonds, their projected internal rate of return would rise. However, the effect on your wealth is mixed. The way that bond yield conventions work is that you would receive the running yield of the bond (+), but you would get a capital loss (-) which roughly equals the modified duration of the bond in the next period, times the yield change. For long maturity bonds, the capital losses are typically much larger than the running yield. In other words, you would likely experience a short term capital loss, but that is made up by higher projected returns. After all, if you hold to maturity, you get the initial yield as an IRR.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Say in period &lt;em&gt;t-1&lt;/em&gt; I own some government bonds. In period &lt;em&gt;t&lt;/em&gt; the&#xA;  central bank performs the contractionary OMO. So they lower the price&#xA;  of government bonds but raise its yield. This will increase the debt&#xA;  service cost for the government and if they decide to fund it by&#xA;  selling more bonds, I will experience a &lt;strong&gt;positive wealth effect&lt;/strong&gt;.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Leeper's text is phrased in a somewhat confusing way. It refers to a model of a representative household, who effectively owns all government liabilities. In a world with multiple households, if you bought a long-term bond at &lt;em&gt;t-1&lt;/em&gt;, you could easily have less wealth in period &lt;em&gt;t&lt;/em&gt;; the increased interest could be received by other households who held 1-period bills that matured, and did not have a capital loss.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That is, he is really writing about the household sector, and not individual bond owners.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Also, in period &lt;em&gt;t−1&lt;/em&gt;, when I bought the bonds, I paid a certain&#xA;  price. Then the CB starts selling bonds, thus lowering its price while&#xA;  raising yield. The higher debt service cost results in the government&#xA;  issuing more bonds, surely this lowers the bond prices further [1]? So&#xA;  when I eventually sell the bond, I should have lost money [2]?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Sub-question [2] is covered by the above; your gain/loss depends upon the trade-off between the running yield and the capital loss.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for [1], the effects of supply on bond yields is controversial. In a simplified model where there is no term premium, bond yields depend only upon the expected path of interest rates. If the increased interest payments do not cause the central bank to raise interest rates (over the lifetime of the bond), bond yields are unaffected.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the real world, there presumably is a term premium, which might be affected by the amount of bond issuance. Even so, it is clear that the effect is not that large: we have had plenty of rate hike cycles, and bond yields did not enter a positive feedback loop of ever-rising yields. &lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2017-04-22T12:11:54.217" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="16415" PostTypeId="2" ParentId="15012" CreationDate="2017-04-22T12:38:46.967" Score="2" Body="&lt;p&gt;The reason why supply effects would not occur is the result of market efficiency assumptions: all financial assets have the same expected returns. Within the bond market, that would imply that the &quot;term premium&quot; is zero. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the term premium is zero, then:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;The value of the 1-period &quot;bond&quot; is the result of the central bank reaction function. (The policy rate.)&lt;/li&gt;&#xA;&lt;li&gt;The value of a 2-period bond is determined by the 1-period yield, and the unbiased expectation of the 1-period yield, 1-period forward.&lt;/li&gt;&#xA;&lt;li&gt;(Build up rest of curve similarly.)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;They added market segmentation as a way of allowing bonds to trade away from the predicted ('efficient&quot;) value, that is, allow a non-zero term premium. Once we allow for a non-zero term premium, supply effects can be seen in predicted bond pricing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The term premium interacts with supply as a positive term premium will induce bond investors to increase the holdings of bonds relative to the allocation that would happen if the term premium were zero. That is, changes in the term premium is needed to balance the market. &lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2017-04-22T12:38:46.967" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16416" PostTypeId="1" AcceptedAnswerId="16422" CreationDate="2017-04-22T14:56:19.133" Score="1" ViewCount="261" Body="&lt;p&gt;In order to make an econometric model for explaining the evolution of the US &lt;strong&gt;Real GDP&lt;/strong&gt;, does it make sense (from an economic point of view, not from a statistical one) to include CPI (as a proxy for inflation) among the regressors?&lt;/p&gt;&#xA;" OwnerUserId="12977" LastEditorUserId="2776" LastEditDate="2017-04-23T09:13:50.530" LastActivityDate="2017-04-23T09:42:40.583" Title="Real GDP explanatory variable" Tags="&lt;macroeconomics&gt;&lt;econometrics&gt;&lt;inflation&gt;&lt;gdp&gt;&lt;time-series&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="16418" PostTypeId="1" AcceptedAnswerId="16421" CreationDate="2017-04-22T23:10:51.450" Score="3" ViewCount="693" Body="&lt;p&gt;I have the following question on my problem set:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/YiVkt.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/YiVkt.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's clear to me, since consumer 2 does not care about good 2, that we should give all the economy's endowment of good 2 to consumer 1. In the other hand, both consumers care about good 1.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For item a), I think that in any optimal allocation we should have $x_{2,1} = 1$, since consumer 2 does not care about good 2.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, with this in mind, any allocation that has $x_{1,1} + x_{1,2} = 1$ is Pareto optimal, because we can only make one better hurting the other (assuming we have already exhausted good 2, giving all the economy's endowment to consumer 1). Question: is this reasoning right?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another question: assuming I got it right, I have no idea how to find the vector price for each case.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For item b), the 1st Welfare Theorem needs to hold because there's local non-satiation for both consumers. On the other hand, lexicographic preferences are not convex. So, there's no reason for the 2nd theorem to hold. Is that sound?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks a lot in advance!!&lt;/p&gt;&#xA;" OwnerUserId="7033" LastActivityDate="2017-04-23T02:15:59.480" Title="Question regarding General Equilibrium under non-convexities" Tags="&lt;microeconomics&gt;&lt;general-equilibrium&gt;&lt;welfare&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="16419" PostTypeId="2" ParentId="14317" CreationDate="2017-04-22T23:22:53.617" Score="3" Body="&lt;p&gt;The initial statements about fractional reserve banking are not a question. The simplified example you give does not reflect the complexity of bank lending. The article &quot;Money Creation in the Modern Economy,&quot; by Michael McLeay, Amar Radia and Ryland Thomas of the Bank of England &lt;a href=&quot;http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;link to paper&lt;/a&gt; is one place to start to get a more realistic discussion of money creation.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In practice, in the world and the United States, how many spendable&#xA;  dollars are created for each actual dollar in circulation, M0 to M1?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;For the United States, these data are available at FRED, a service run by the St. Louis Fed. &lt;a href=&quot;https://fred.stlouisfed.org/&quot; rel=&quot;nofollow noreferrer&quot;&gt;link to FRED&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The relationship changes over time; the policy of quantitative easing greatly affected money supply numbers, and the relationship between them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you are interested in multiple countries, you will probably need to track down data from central banks or statistical agencies, or you may be able to find an aggregate source. I am unaware of any free data suppliers that cover money supply data.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2017-04-22T23:22:53.617" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16421" PostTypeId="2" ParentId="16418" CreationDate="2017-04-23T02:02:34.343" Score="3" Body="&lt;p&gt;You are right. Set of Pareto efficient allocations consist of all feasible allocations $((x_{11}, x_{21}), (x_{12}, x_{22}))$ satisfying the property that individual 1 consumes all of good 2 i.e. $x_{21} = 1$ and $x_{22} = 0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Competitive (or Walrasian) equilibrium in such an economy does not exist. At all price vectors $(p_1, p_2)$ satisfying $p_1 &amp;gt; 0$ and $p_2 &amp;gt; 0$, both the consumers will only demand good 1. As a result we will always have excess demand for good 1 and excess supply of good 2. When we consider a price vector $(p_1, p_2)$ of the form $p_1 &amp;gt; 0$ and $p_2 = 0$, then consumer 1 will demand infinite amount of good 2 leading to excess demand for good 2. Therefore, there does not exist a price vector that clears both the markets.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First Welfare Theorem holds because preferences satisfy Local Non Satiation. Second Welfare Theorem does not hold because no matter how we distribute endowments, competitive equilibrium in such an economy does not exist, but efficient allocations exist.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, please note that the lexicographic preferences are convex. &lt;/p&gt;&#xA;" OwnerUserId="11824" LastEditorUserId="11824" LastEditDate="2017-04-23T02:15:59.480" LastActivityDate="2017-04-23T02:15:59.480" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="16422" PostTypeId="2" ParentId="16416" CreationDate="2017-04-23T09:42:40.583" Score="2" Body="&lt;p&gt;You are not very clear on whether your model is uniequational or a system of equations (e.g. a VAR). I will assume the former is your case.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are several approaches to estimating Real GDP. One approach is via estimating a production function (i.e. a &lt;strong&gt;supply side&lt;/strong&gt; approach). Here, you need information on factors of production, like hours worked, education level, physical capital, etc. It would make little sense to use inflation as a regressor in this approach. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;An alternative method is to focus on the &lt;strong&gt;demand side&lt;/strong&gt;, by which you are interested in explaining the determinants of GDP sub-components like consumption, government spending, etc. This approach is in my opinion the most common among specialised institutions like central banks and etc. For example, &lt;a href=&quot;https://www.frbatlanta.org/cqer/research/gdpnow.aspx?panel=1&quot; rel=&quot;nofollow noreferrer&quot;&gt;Atlanta Fed&lt;/a&gt;, &lt;a href=&quot;http://www.oecd.org/eco/outlook/forecastingmethodsandanalyticaltools.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;OECD&lt;/a&gt;, &lt;a href=&quot;https://nimodel.niesr.ac.uk/&quot; rel=&quot;nofollow noreferrer&quot;&gt;NIESR UK&lt;/a&gt;, researchers at the &lt;a href=&quot;http://www.bankofcanada.ca/wp-content/uploads/2010/02/wp06-26.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Bank of Canada&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The latter type of models are normally very complex, and go beyond the one equation system. As such, some of them do include inflation as one of the variables (both as independent and dependent variable), because inflation is expected to affect real wages and thereby consumption (for example, see the documentation of the Atlanta Fed model &lt;a href=&quot;https://www.frbatlanta.org/-/media/documents/research/publications/wp/2014/wp1407.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, if you only have one equation, and are using the demand side approach, I would include inflation as long as other included variables are also nominal (like retail sales). Alternatively, you can redefine every variable as real, and not include inflation. This is a more restrictive scenario though, as you are imposing extra restrictions (which, in fact, you can test).&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-04-23T09:42:40.583" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16423" PostTypeId="2" ParentId="15831" CreationDate="2017-04-23T12:12:06.473" Score="2" Body="&lt;p&gt;The title of this question currently is &quot;How is Money Created?&quot; This question does not appear to reflect the intent of the question, I think it should be &quot;How are profits created?&quot; &quot;Money&quot; has a technical meaning in economics, and the usage in the question does not reflect that technical meaning. (There are other questions on banking and reserves creation on this site that discuss how money is created.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a monetary economy, there is an accounting identity (Kalecki profit equation, from Michal Kalecki) which states:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Gross profits net of taxes = (Gross investment) + (Export surplus) + (Governmental budget deficit) - (Workers' savings) + (Capitalist consumption).&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Taken from &quot;Profits: The Views of Jerome Levy and Michal Kalecki&quot;, by S. Jay Levy, &lt;a href=&quot;http://www.levyinstitute.org/publications/profits&quot; rel=&quot;nofollow noreferrer&quot;&gt;link to Levy Institute web page&lt;/a&gt;.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The accounting identity is simplified relative to the full national accounts, and can be rearranged in various ways. Importantly, an accounting identity is a statement that is true by definition, it is not based on a model that reflects assumptions which may or may not reflect reality.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Under normal circumstances, the economy is growing in nominal terms, and there are large contributions to this equation from gross investment and the budget deficit. Export-led growth countries, like China now, get large contributions from a trade surplus.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your questions:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In order for that company to work, they have to make a profit which&#xA;  means they have to take more money than they are giving.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;As seen above, aggregate profits are driven by various sources of money inflows to the business sector that are not expenses. Importantly, gross investment is a cash outflow that does not directly result in an expense. (Depreciation comes with a lag.) Therefore, firms can run profits without requiring others to have losses. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In the end logically, this money becomes concentrated in a few people.&#xA;  If this is the case, on the broadest level, how is it that standards&#xA;  of living increase?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Investment and new skills (technology) allow for greater output, which is what causes standards of living to increase.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Isn't it inevitable that the rich get richer and the poor get poorer,&#xA;  with money being concentrated in fewer and fewer people over time? And&#xA;  if that is the case, won't capitalism eventually fall apart, with&#xA;  fewer and fewer people being able to purchase goods? If not, how is&#xA;  this corrected?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This was an argument of Thomas Piketty's &quot;Capital.&quot; I cannot hope to answer that debate here.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, the process is not inevitable. The 1920s was a period of increasing inequality in the United States (and elsewhere), but that was reversed by the 1950s. Inequality is a question of political economy.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2017-04-23T12:12:06.473" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16424" PostTypeId="1" AcceptedAnswerId="16668" CreationDate="2017-04-23T12:31:51.167" Score="1" ViewCount="75" Body="&lt;p&gt;In MWG, the authors introduce the consequentialist view of risk by assuming for any risky alternative, only the reduced lottery over final outcome matters to decision maker. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;From philosophical view, how reasonable and unreasonable is this assumption? Can you provide examples where this assumption is in fact reasonable while it isn't?&lt;/p&gt;&#xA;" OwnerUserId="8560" LastActivityDate="2017-05-05T21:25:12.137" Title="Consequentialist View of Risk" Tags="&lt;microeconomics&gt;&lt;risk&gt;&lt;choice-theory&gt;&lt;uncertainty&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16425" PostTypeId="1" CreationDate="2017-04-23T13:06:49.960" Score="2" ViewCount="286" Body="&lt;p&gt;The dynamics of Ramsey-Cass-Koopman growth model is usually summarized in phase diagrams with the 2 equations (conventional symbols apply):&#xA;\begin{align*}&#xA;\frac{\dot c}{c}=&amp;amp;\frac{r-\rho}{\theta}\\&#xA;\\&#xA;\dot k =&amp;amp; f(k) - (n+g+\delta)k&#xA;\end{align*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From these equations you work out the equilibrium and whether it is a saddle path. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However this analysis is static; some of those parameters are time varying (e.g., 1950 population growth isn't the same as in 2017). How can you represent these changes in this essentially &lt;em&gt;static&lt;/em&gt; graphical framework? &lt;/p&gt;&#xA;" OwnerUserId="4285" LastEditorUserId="2776" LastEditDate="2017-05-25T09:05:14.240" LastActivityDate="2017-06-24T10:24:39.093" Title="Phase Diagram - growth model" Tags="&lt;economic-growth&gt;&lt;dynamic-optimization&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="16426" PostTypeId="1" AcceptedAnswerId="16431" CreationDate="2017-04-23T13:16:50.803" Score="2" ViewCount="344" Body="&lt;p&gt;According to MWG Proposition 6.B.2, it illustrates that the expected utility form is preserved only by increasing linear transformation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is the significance of this proposition?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The part I find challenging in connecting the dots is when right after the proof of this proposition, the authors claim that this proposition allows us to interpret meaning in differences of utilities. How are these two exactly connected?&lt;/p&gt;&#xA;" OwnerUserId="8560" LastActivityDate="2017-04-23T17:37:24.460" Title="Inc Linear Transformation of Bernoulli Utility" Tags="&lt;microeconomics&gt;&lt;risk&gt;&lt;choice-theory&gt;&lt;uncertainty&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16428" PostTypeId="1" CreationDate="2017-04-23T16:18:18.100" Score="0" ViewCount="2254" Body="&lt;p&gt;I have a bachelor's degree in Computer Engineering with math courses such as Linear Algebra, Statistics, and Numerical methods.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have about 2 years of experience as an Engineer. Although I'm fond of programming, I find my current work pointless and mechanical.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm wondering if it would be possible for me to switch to a career in economics, preferably doing something that has a direct impact on making people's lives better.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;More importantly, would my current skills as an engineer help in such a career switch? I'm passionate about doing work that could one day have considerable impact.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have found that a lot of universities do accept people from other backgrounds but require them to satisfy econ prerequisites before they can enter. Are these courses offered at community colleges in North America? Or can I take these at a university as a student who is not aiming for a degree?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lastly, do economics ever serve in the private sector. I'm asking this because it seems that a lot of econ jobs would be as advisory roles in government institutions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Apologies for not having the right tags. I couldn't find one for career.&lt;/p&gt;&#xA;" OwnerUserId="12992" LastActivityDate="2017-04-25T07:02:19.147" Title="Career change to economics from software engineering" Tags="&lt;financial-economics&gt;" AnswerCount="1" CommentCount="4" ClosedDate="2017-04-25T07:02:28.867" ContentLicense="CC BY-SA 3.0" />
  <row Id="16429" PostTypeId="2" ParentId="16425" CreationDate="2017-04-23T16:56:30.060" Score="1" Body="&lt;p&gt;In control systems engineering, there was the &quot;Aizerman Conjecture&quot; (the transliteration of Aizerman varies) that argued that a linear time-varying system was stable if the parameters (state matrices) at all times corresponded to stable systems. However, counter-examples were found to this conjecture.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;About the only way to show that a time-varying system is stable (for example) is to find a Lyapunov function that holds at all times. This is generally going to be difficult.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Something like graphical analysis would be technically invalid, as you are violating assumptions that are in place. You are pretty much going to have to derive any results from first principles.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2017-04-23T16:56:30.060" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16431" PostTypeId="2" ParentId="16426" CreationDate="2017-04-23T17:37:24.460" Score="0" Body="&lt;p&gt;This is a subtle topic. &lt;em&gt;Any&lt;/em&gt; strictly increasing transformation will preserve the ordering of lotteries. This is the standard result saying that utility is just an ordinal thing, we really don't care about the &lt;em&gt;level&lt;/em&gt; of it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the other hand, there are representations os someone's preferences that are easier to work with, from the calculations point of view, or improve our understanding of the underlying economics of the problem. One example is when we have quasilinear preferences on good 1 (check MWG, chapter 3 for this example). When this is the case, we have that $U(x_{1},...,x_{I}) = x_{1} + \phi(x_{2},...,x_{I})$. Of course, if we take, say, the exponential of $U$, we will preserve ordering, but not this very useful representation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When it comes to chapter 6 and lotteries come on the stage, the same happens. One's utility over a lottery (think about it as a distribution of consumption over different scenarios) might be a very complicated function. Maybe, the utility you get by holding an umbrella if it starts to rain also depends on the utility you get when your football team wins and you are not at home watching the game. The V.N.M. utility representation is useful exactly because it &lt;em&gt;separates&lt;/em&gt; utilities of different scenarios.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, when you start comparing lotteries, the effect of an increase in the probability of holding an umbrella when it rains in a given lottery is completely isolated from the effect of a higher probability of another scenario. If we keep consumption fixed over scenarios and let only the distribution of probabilities describing what can happen vary, the V.N.M utility form will let us isolate effects of different probabilities over scenarios and express difference of total utility by difference in probabilities over scenarios between two in-comparison lotteries.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reason behind only linear transformations conserve this format is that the V.N.M utility form is linear, by definition, and non-linear transformations of linear functions are not linear. This is somewhat related to Jensen's inequality, from my perspective (that's at least how I &lt;em&gt;intuitively&lt;/em&gt; interpret that).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I hope this helps! &lt;/p&gt;&#xA;" OwnerUserId="7033" LastActivityDate="2017-04-23T17:37:24.460" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16433" PostTypeId="2" ParentId="16428" CreationDate="2017-04-23T19:55:54.130" Score="2" Body="&lt;p&gt;If you are looking for a job with a title &quot;economist,&quot; I doubt that anyone would look at you if you do not have at least an undergraduate degree in economics (in North America, anyway).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, you could end up working for a firm that does economics, or financial research. I had a background in control systems engineering, with summer job experience as a programmer, and then ended up working as a quantitative analyst for fixed income. The programming experience ended up being probably the training that I ended up using the most. However, there is a lot of competition to get a job in finance.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Outside of finance, I believe that there is a lot of work in &quot;big data,&quot; which involves a lot of programming.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You could end up working with economists, but you would probably not be considered an &quot;economist.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You ask:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Lastly, do economics ever serve in the private sector. I'm asking this&#xA;  because it seems that a lot of econ jobs would be as advisory roles in&#xA;  government institutions.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;There's a lot of market economists in finance. A few large corporations still have people with the title &quot;economist,&quot; but my guess is that most people with economics training have a different title when working elsewhere in the private sector. (As noted by denesp, Google famously has someone wih a Chief Economist title.) Public sector jobs are different in that respect.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastEditorUserId="12891" LastEditDate="2017-04-23T21:09:20.023" LastActivityDate="2017-04-23T21:09:20.023" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="16434" PostTypeId="1" CreationDate="2017-04-23T21:32:07.317" Score="3" ViewCount="71" Body="&lt;p&gt;I'm a statistician/machine learning scientist more familiar with molecular bio than economics.  Trying to find out if an issue I perceive in bio modeling also occurs in econometric modeling.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A common task in computational biology is to build a model of some biochemical process from data.  These biochemical processes are always dynamic, i.e. something you might model with an ODE or Kalman filter.  However, there is a bias towards modeling such a process from equilibrium data.  This means, you wait until the process has reached some equilibrium (homeostasis), and you take measurements across subjects/replicates.  This is because for many reasons it is much easier and cheaper to acquire equilibrium data relative to time series data.  Training a model only on equilibrium data is a problem of course if you want the model to be predictive when the system is not at equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I wonder if the same bias happens with econometric models?  Clearly, in terms of statistical methodology, cross-sectional data is typically cheaper and easier to acquire than time-series data.  And I know economists are concerned with modeling equilibria. &#xA; I'm hoping there is a place someone can point me to that talks about this issue in the econometric context, perhaps with an example?&lt;/p&gt;&#xA;" OwnerUserId="12997" LastActivityDate="2017-04-25T09:39:44.503" Title="Looking for discussion on equilibrium vs dynamic models in econometrics" Tags="&lt;econometrics&gt;&lt;time-series&gt;&lt;general-equilibrium&gt;&lt;causality&gt;&lt;difference-equations&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16437" PostTypeId="2" ParentId="11688" CreationDate="2017-04-24T01:25:44.253" Score="1" Body="&lt;p&gt;In a theoretical gold standard where there is a 1:1 correspondence between money and gold, and private sector debt is strictly controlled (so that it does not become a money substitute), the central bank is highly constrained. It would have very limited ability to do much of anything in terms of policy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the real world, various &quot;gold standard&quot; systems generally only featured partial cover of money by gold. (There were various systems over the years; the post-war Bretton Woods system was distinct from the inter-war gold exchange standard.) In this case, so long as the central bank stays away from minimum gold cover requirements, it had freedom of action to operate in the money markets. Assuming other countries remain on the gold standard, the only thing that is fixed is foreign exchange rates (that is, the central bank cannot intervene to raise/lower the value of its currency). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If a country was facing a run on its gold supplies, it lost its freedom of action. It either had to raise rates to attract gold inflows, run austerity policies to reduce demand and hence imports, or break their peg to gold. In the 1930s, countries got knocked off gold one by one, as the policies to maintain the pegs were politically unsustainable.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2017-04-24T01:25:44.253" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16438" PostTypeId="2" ParentId="3129" CreationDate="2017-04-24T01:36:53.340" Score="1" Body="&lt;p&gt;If the Fed paid paid 0% on excess reserves, banks holding excess reserves would immediately try to buy Treasury bills that paid more than the 0% paid by excess reserves. This would drive Treasury bill (and other short-term risk-free rates) to 0%.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Fed pays interest on excess reserves to allow short-term market rates to be near their target (which is now above 0%). &lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2017-04-24T01:36:53.340" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="16439" PostTypeId="1" AcceptedAnswerId="16440" CreationDate="2017-04-24T01:49:00.630" Score="0" ViewCount="841" Body="&lt;h2&gt;                                    |&lt;/h2&gt;&#xA;&#xA;&lt;h2&gt;|     |Adv| ---------|N\A|&lt;/h2&gt;&#xA;&#xA;&lt;h2&gt;Adv| 300,300     | 900,0          |&lt;/h2&gt;&#xA;&#xA;&lt;h2&gt;N\A| 0,900     | 700,700           |&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Player 1= Pepsi&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Player 2= Coke&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A) Solve for the pure strategy Nash equilibrium&lt;/p&gt;&#xA;&#xA;&lt;p&gt;B) Is this game a prisoner's Dilema?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;C) Is there a cooperative equilibrium? If so, what is it?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;D) Does coke have a dominant strategy? Does Pepsi?&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;My Attempt&lt;/h2&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;h2&gt;|     |Adv| ---------|N\A|&lt;/h2&gt;&#xA;&#xA;&lt;h2&gt;Adv| (300),(300)     | (900),0          |&lt;/h2&gt;&#xA;&#xA;&lt;h2&gt;N\A| 0,(900)     | 700,700           |&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;A) Nash Equilibrium: (Adv, Adv)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;B) Not sure how to answer this&lt;/p&gt;&#xA;&#xA;&lt;p&gt;C) Yes. If they both got in contact and made the option to not advertise &lt;/p&gt;&#xA;&#xA;&lt;p&gt;D) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would appreciate some help!&lt;/p&gt;&#xA;" OwnerUserId="12076" LastEditorUserId="12076" LastEditDate="2017-04-24T02:04:39.603" LastActivityDate="2017-04-24T03:20:50.817" Title="Game Theory Question" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;game-theory&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16440" PostTypeId="2" ParentId="16439" CreationDate="2017-04-24T03:20:50.817" Score="2" Body="&lt;p&gt;Here are a couple hints for the two that you haven't answered:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The prisoner's dilemma is characterized by the inability to sustain the Pareto optimal payoff as a Nash Equilibrium due to the existence of a profitable deviation for both players. Each player has a dominant strategy to &quot;Defect&quot; and so the unique Nash Equilibrium is one where both players &quot;Defect&quot;. Does that hold here?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A (possibly mixed) strategy $a$ (weakly) dominates another strategy $b$ for a given player $i$ if player $i$ (weakly) prefers playing $a$ to $b$ for any strategy vector of the other players. In your case, there is just one other player, $j$, and so $i$ simply has to prefer $a$ to $b$ for any strategy played by player $j$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You just need to see if that holds for your two players.&lt;/p&gt;&#xA;" OwnerDisplayName="user11305" LastActivityDate="2017-04-24T03:20:50.817" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16442" PostTypeId="2" ParentId="15221" CreationDate="2017-04-24T07:45:37.870" Score="1" Body="&lt;p&gt;Thank you to everyone for your information on this interesting topic. As stated by many of you, the expenditure, output or income approach is measuring economic activity. Hence, expenditure on goods or services which have been produced represents economic activity. For example, government spending on the construction of new roads. However, when governments make transfer payments, there is no economic activity being produced, so this 'spending' cannot be included directly in AD. As people in the post have well identified, part the transfer payments will form part of Consumption, and there will be an indirect increase on AD. As stated also in the post, we can branch out further, considering the sources of the transfer payments, budget deficits, government bonds, and such areas as crowding out. However, I suggest students to be clear of primary and secondary effects before moving onto the realms of uncertain variables.&lt;/p&gt;&#xA;" OwnerUserId="13001" LastActivityDate="2017-04-24T07:45:37.870" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16443" PostTypeId="2" ParentId="16434" CreationDate="2017-04-24T10:24:47.777" Score="4" Body="&lt;p&gt;Economists (most of them) build their models assuming most of the time &lt;em&gt;stochastic dynamic equilibrium&lt;/em&gt;. So Economics does not contrast &quot;dynamic&quot; with &quot;equilibrium&quot; - it synthesizes them.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is stochastic in the sense that random shocks are acknowledged. It is dynamic in the sense that it may revolve around a deterministic or stochastic trend. And it is an equilibrium because, exactly, it is assumed &quot;chained&quot; -not necessarily to some &lt;em&gt;level&lt;/em&gt; but at least to some trend.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &quot;bias induced&quot; here, the price to pay, is that mainstream economic models are not very good at predicting derailment and crises. On this, perhaps it would be useful to read &lt;a href=&quot;http://www.economist.com/node/14165405&quot; rel=&quot;nofollow noreferrer&quot;&gt;this column article&lt;/a&gt; by well-known economist &lt;a href=&quot;http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/1995/lucas-bio.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Robert Lucas&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2017-04-25T09:39:44.503" LastActivityDate="2017-04-25T09:39:44.503" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16444" PostTypeId="1" CreationDate="2017-04-24T12:28:17.283" Score="2" ViewCount="4849" Body="&lt;p&gt;What's the fastest way (or formulae) of manually calculating Gini Coefficient of equal-sized bin income data?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Example:&#xA;No of individuals in group: 4 4 4 4 4&#xA;Income of each group:       1 2 3 4 5 &#xA;respectively.&lt;/p&gt;&#xA;" OwnerUserId="12325" LastActivityDate="2019-01-10T07:25:32.383" Title="Calculating Gini Coeffecient" Tags="&lt;statistics&gt;&lt;inequality&gt;" AnswerCount="5" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16446" PostTypeId="2" ParentId="16444" CreationDate="2017-04-24T13:44:47.243" Score="1" Body="&lt;p&gt;Below is a picture of how to use excel to calculate the necessary values in order to get the Gini Coeffecient.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/Bzxkv.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Bzxkv.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Once you get the total value, the Gini Coefficient is calculated as $1-\text{total value}$, which in this case is $1-0.733=0.267$ rounded to the nearest thousandth.&lt;/p&gt;&#xA;" OwnerUserId="12662" LastEditorUserId="2776" LastEditDate="2017-07-26T08:29:19.937" LastActivityDate="2017-07-26T08:29:19.937" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="16447" PostTypeId="2" ParentId="16444" CreationDate="2017-04-24T14:22:15.877" Score="-1" Body="&lt;p&gt;A super simple calculator, assuming equally sized bins, is &lt;a href=&quot;http://shlegeris.com/gini&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;. Simply input your data, comma reparated (e.g. 1,2,3,4,5 in your case), and you get the result, together with a nice graph!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This confirms that Gini in your example is 0.267, as the other two people suggested.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/eUUR0.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/eUUR0.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-04-24T14:22:15.877" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16448" PostTypeId="1" AcceptedAnswerId="16473" CreationDate="2017-04-24T14:56:50.293" Score="1" ViewCount="132" Body="&lt;p&gt;With globalisation, wage inequality continues to be a strong issue for many developed nations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I seek to find out here is, why should we even do anything to help the unskilled workers?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From what I understand, having minimum wage laws and various skills training policies are put in place to help the unskilled. However, we should know that unskilled workers generally do not know economics. The main issue they are having is that they know the &quot;poor is getting poorer, while the rich is getting richer.&quot; Given that, they do not understand that unskilled workers are gaining less from trade in comparison to skilled workers, and therefore are not helping themselves to &quot;upgrade&quot; and join the skilled force labour. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know that there are countless manual, unskilled labour required and if the whole labour force is skilled, some would have to be forced into unskilled labour jobs. However when our society can reach that point in time, I assume the the wages of the unskilled labour would have also increased to a point where the wage gap is insignificant enough to draw some of the labour force towards unskilled jobs. But this is only possible if the country is closed off to foreign labour.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a developed country, most of the labour force are already skilled workers. The reason why wages of the unskilled labour have not increased, in my opinion, is due to foreign labour. Labour from emerging markets i.e. China/Myanmar/Phillipines etc. are suppressing the wage growth of the unskilled labour force.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So as long as there are countries with large labour force that are &quot;under-developed&quot;, wouldn't that mean no matter how much you try to help the unskilled workers, the influx of unskilled labour from emerging market eventually wipes those efforts away.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand, if we do nothing to help, the growth of an emerging market eventually catches up to that of a developed nation as growth plateaus progressively. We eventually reach a point in time where there are no longer any &quot;undeveloped&quot; countries. The unskilled foreign labour would much rather work in their respective countries then and the resultant would be more unskilled workers becoming skilled which increases wages for unskilled jobs, pulling wage inequality together.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What am I misunderstanding here?&lt;/p&gt;&#xA;" OwnerUserId="12968" LastEditorUserId="2776" LastEditDate="2017-04-24T15:38:51.980" LastActivityDate="2017-04-26T08:26:20.783" Title="In a context of globalisation and high wage inequality, why should governments help unskilled workers?" Tags="&lt;labor-economics&gt;&lt;inequality&gt;&lt;minimum-wage&gt;" AnswerCount="1" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="16449" PostTypeId="1" CreationDate="2017-04-24T15:00:53.710" Score="1" ViewCount="83" Body="&lt;p&gt;I do not want to put many constraints on the structure of the problem, except by defining a competitive equilibrium as such where firms are price takers in the factor and good(s) market, and, perhaps (?), that firms make no profits.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, is it possible to have something like &quot;competitivistic&quot; competition, where consumers have love for variety and firms produce differentiated goods, yet, instead of monopolistic competition, firms do not charge a markup, because there is free entry, so that firms end up producing at zero profit?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or for example, a model of consumers geographically immobile, and where differentiated transportation costs across regions mean firms need to charge a markup to pay for that cost, and where, again, free entry deter firms from exploiting consumers?&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-04-24T16:32:16.930" Title="Can heterogeneous prices be consistent with competitive equilibrium?" Tags="&lt;competitive-equilibrium&gt;&lt;price&gt;&lt;heterogeneity&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="16450" PostTypeId="2" ParentId="16449" CreationDate="2017-04-24T16:32:16.930" Score="1" Body="&lt;p&gt;As a starting point, you might take a look at Stigler's model of price dispersion. Quoting from a &lt;a href=&quot;http://vita.mcafee.cc/Bin/Pricing/Handout4.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;resource I found online&lt;/a&gt;,&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;George Stigler’s 1961 “The Economics of Information” begins with: &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&quot;One&#xA;  should hardly have to tell academicians that information is a valuable&#xA;  resource: knowledge is power. And yet it occupies a slum dwelling in&#xA;  the town of economics.&quot; &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Stigler documents the existence of price&#xA;  dispersion empirically, and proceeds to sketch various theories that&#xA;  might be applicable to price dispersion. Stigler is careful to&#xA;  distinguish price dispersion, which results from imperfect information&#xA;  on the part of consumers, from price discrimination, which involves&#xA;  distinct prices for different types of consumer preferences&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;There are various reasons that price dispersion might arise. Clearly&#xA;  some consumers must be willing to pay higher prices than others, that&#xA;  is, distinct consumers have distinct reservation prices. (Note that a&#xA;  reserve price – the minimum bid in an auction – is a very different&#xA;  concept.) Differences in reservation prices can arise because of&#xA;  differences in knowledge – some consumers have access to price lists,&#xA;  others don’t – or search costs. If some consumers have lower search&#xA;  costs, then these consumers will search for lower prices.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;You might also check out the Wikipedia articles on &lt;a href=&quot;https://en.wikipedia.org/wiki/Price_dispersion&quot; rel=&quot;nofollow noreferrer&quot;&gt;Price Dispersion&lt;/a&gt; and &lt;a href=&quot;https://en.wikipedia.org/wiki/Search_theory&quot; rel=&quot;nofollow noreferrer&quot;&gt;Search Theory&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="59" LastActivityDate="2017-04-24T16:32:16.930" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16451" PostTypeId="2" ParentId="16444" CreationDate="2017-04-24T16:35:22.720" Score="2" Body="&lt;p&gt;One of the fastest ways to calculate Gini Coefficient for any data set is running the following code:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.codeskulptor.org/#user43_hXQJURbrDGdh56D.py&quot; rel=&quot;nofollow noreferrer&quot;&gt;Gini Coefficient and Lorenz Curve - in Python&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When you will run this code, you will get the Gini Coefficient as 0.266666666667.  Code will also generate the Lorenz curve.&lt;/p&gt;&#xA;" OwnerUserId="11824" LastActivityDate="2017-04-24T16:35:22.720" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="16454" PostTypeId="1" CreationDate="2017-04-24T21:45:02.890" Score="0" ViewCount="41" Body="&lt;p&gt;There are a lot of examples of legal operations with trade balance and capital flows. Nonetheless, I've failed to find a clear explanations of how to interpret illigal (read, criminal) foreign currency (cash) transfers in terms of Balance of payments. Is such operation capital inflow or outflow, and why is it so? How should it be reflected in real Balance of payments, if this illigal transaction is revealed by foreign state authorities?&lt;/p&gt;&#xA;" OwnerUserId="4184" LastActivityDate="2017-04-26T19:37:05.453" Title="How to interpret illigal foreign currency (cash) transfers in terms of Balance of payments" Tags="&lt;balance-of-payments&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="16455" PostTypeId="2" ParentId="15930" CreationDate="2017-04-24T22:20:30.223" Score="1" Body="&lt;p&gt;If it was impossible to observe prices, we would probably see economists looking at the GDP and the supply and velocity of money to try and back out an estimate of what happened with prices.  Essentially, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;P = MV/T&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Unfortunately, each of these variables is observable only with noise and not particularly quickly (For example, what was the dollar value of all transactions this month? Any answer will be a rough estimate).  Moreover, the theory only works in the long run, as you mention.  There are plenty of potentially confounding factors, some of which have been mentioned here, that would mess up the computation and introduce error.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think the short answer is that &lt;strong&gt;it is more accurate, cheaper, and more correct to observe price changes directly&lt;/strong&gt; than to infer them from other, theoretically related, variables.&lt;/p&gt;&#xA;" OwnerUserId="12673" LastActivityDate="2017-04-24T22:20:30.223" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16456" PostTypeId="2" ParentId="15865" CreationDate="2017-04-24T22:36:35.933" Score="1" Body="&lt;p&gt;I see two general questions here:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;How does a market order work?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When you submit a market order, you ask your broker to buy or sell a security right now, at the best available price.  You control the timing but not the execution price.  This is as opposed to a limit order, in which you ask the broker to put out a for-sale (or want-to-buy) notice at a given price.  Your trade will not execute unless someone else agrees to that price.  You control the price with a limit order, but not the timing.  If you demand too good a price, it may not execute at all.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Do I need to control intraday and daily trades?  How about the spread?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you submit a market order, it will execute right away.  It will not stay open overnight or anything.  What you do need to look at is how liquid the stock is.  In other words, how much space is there between the bid (highest price people will buy it for) and ask (lowest price people are selling it for) and how many open (limit) orders there are in each.  A more liquid stock (smaller bid-ask spread and higher volume) means you have to worry less about poor execution when submitting a limit order.  If it is a big stock with lots of trades and sellers/buyers, then a market order is pretty safe.  Otherwise you may want to submit a limit order and wait for the other side of the transaction to come to you.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Worst case scenario is that you submit a market order to buy and no one is selling so you pay a ton (or you submit an order sell and no one is there to buy, so it goes for super cheap).&lt;/p&gt;&#xA;" OwnerUserId="12673" LastActivityDate="2017-04-24T22:36:35.933" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16457" PostTypeId="2" ParentId="16425" CreationDate="2017-04-25T01:19:29.450" Score="0" Body="&lt;p&gt;What time varying-parameters do to a model like this is to make the long-term equilibrium to stop being a specific point in the phase diagram. The zero-change loci shift and move around, and so does their intersection. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A simple thing that you could do, at least from a pedagogical point of view, is to reproduce the effect of &quot;structural breaks&quot; and not smooth time-variation. So for a certain time period, a parameter of the model was fixed at a certain level, but then it jumped to a different level (say depreciation changed because in the past it was more buildings and machinery, now it is more IT, software and intangibles).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Such an abrupt change essentially discretizes a smooth time-variation, and it is an acceptable approximation to it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This means that one draws &lt;em&gt;two&lt;/em&gt; pairs of zero-change loci in the phase diagram, one representing the situation before and one after the structural break. And one shows how the economy behaves by jumping from the one saddle-path to the other.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;See &lt;a href=&quot;https://alecospapadopoulos.wordpress.com/2015/10/31/ramsey-on-the-greek-crisis-and-depression&quot; rel=&quot;nofollow noreferrer&quot;&gt;this blog post of mine&lt;/a&gt; where I implemented this approach to reflect in simple descriptive terms the current depression of the Greek Economy. &lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2017-04-25T01:19:29.450" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16458" PostTypeId="1" CreationDate="2017-04-25T01:54:56.487" Score="1" ViewCount="186" Body="&lt;p&gt;I understand the reason why mixed strategy Nash equilibrium exists. But what are the conditions for the existence of pure strategy Nash equilibrium?&lt;/p&gt;&#xA;" OwnerUserId="13009" LastEditorUserId="42" LastEditDate="2017-04-25T06:26:00.143" LastActivityDate="2017-04-25T13:44:28.010" Title="Existence of pure strategy Nash equilibrium" Tags="&lt;game-theory&gt;&lt;nash-equilibrium&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16459" PostTypeId="1" AcceptedAnswerId="16460" CreationDate="2017-04-25T02:08:44.343" Score="1" ViewCount="96" Body="&lt;p&gt;I was listening to a Bloomberg market update, and the journalist mentioned that the Japanese currency was down as Gold rose. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've heard that investors park their money in Yen. Is the reason the Yen is down because investors are moving their money out of Yen and re-investing in gold?&lt;/p&gt;&#xA;" OwnerUserId="13010" LastEditorUserId="42" LastEditDate="2017-04-25T06:26:43.500" LastActivityDate="2017-04-25T06:26:43.500" Title="Why is Japanese Currency tied to gold?" Tags="&lt;macroeconomics&gt;&lt;currency&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16460" PostTypeId="2" ParentId="16459" CreationDate="2017-04-25T04:34:54.770" Score="1" Body="&lt;p&gt;I am using the answer function as I do not have enough rep. to comment. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Take note that gold, or most of the commodities available for trading, are priced in USD. By saying yen is down because of gold is therefore a rather speculative statement in my opinion.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why I say this is because when the price of gold moves, it should have no effect on the JPY/USD quote. I think the journalist saw that there was a rise in gold prices, as well as appreciating USD/ depreciating JPY which led him to conclude JPY has depreciated in terms of gold prices. But how strongly are the two events correlated should be up to your own research and conclusions.&lt;/p&gt;&#xA;" OwnerUserId="12968" LastActivityDate="2017-04-25T04:34:54.770" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16465" PostTypeId="1" CreationDate="2017-04-25T10:06:29.387" Score="1" ViewCount="553" Body="&lt;p&gt;I've been asked to model a game where two players have an infinite choice of strategies and move simultaneously. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question asks to present the game in game table or extensive form, and to justify that choice. I understand that a game table wouldn't work, given the infinite strategies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand the diagram below to be a game with continuous strategies and sequential moves. Is there any way to adapt it to show simultaneous moves? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/EIXmN.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/EIXmN.jpg&quot; alt=&quot;Sequential game with continuous strategies&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="12471" LastActivityDate="2019-12-03T14:23:38.810" Title="How to visually present a simultaneous game with continuous strategies" Tags="&lt;microeconomics&gt;&lt;game-theory&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16468" PostTypeId="2" ParentId="9406" CreationDate="2017-04-25T11:46:40.587" Score="0" Body="&lt;p&gt;The basic textbook model of economic growth is the Solow growth model. According to this model, economic growth on a per capita basis comes about due to (i) technological progress, and (ii) increasing the quantity of capital per inhabitant. Savings are important for increasing the quantity of capital per inhabitant. So yes, savings are important. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;How important? Well there is some discussion about that in the literature. It's not as important as technological progress it seems.&lt;/p&gt;&#xA;" OwnerUserId="13016" LastActivityDate="2017-04-25T11:46:40.587" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="16469" PostTypeId="2" ParentId="16105" CreationDate="2017-04-25T12:33:38.240" Score="1" Body="&lt;p&gt;To answer your first question: it depends on the subsample that you want to use. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A representative or stratified sample is constructed by dividing the population of interest into non-overlapping subsets, drawing a random sample from each subset, and then computing weights to adjust for the fact that not all elements from the sample had the same probability of being selected from the population. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The advantage of using a representative or stratified sample is that you can use information that you have about the population to construct your sample and so have more reliable estimates of statistics computed for the population of interest. The disadvantage is that the weights that you computed are right for the stratified sample that you constructed but if you want to explore characteristics that differ between the strata then these weights might very well be the wrong weights. Your estimates would be biased and you probably wouldn't be able to adjust for this bias.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for propensity score matching. You can only match on what you can see. You'll still have to deal with the problem of omitted variable bias. It's possible that propensity score matching increases rather than decreases the bias. How effective it is depends on what assumptions you make and on whether these assumptions hold. &lt;/p&gt;&#xA;" OwnerUserId="13016" LastActivityDate="2017-04-25T12:33:38.240" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16470" PostTypeId="2" ParentId="12301" CreationDate="2017-04-25T13:18:55.563" Score="4" Body="&lt;p&gt;We are given the production function $Q = \left(\min(K, L)\right)^\beta$. Cost minimization problem of the producer is defined as finding the labor-capital combination that minimizes the cost of producing at least $y$ units of output given that the price of labor is $w$, and price of capital is $r$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{eqnarray*} \min_{L, K} &amp;amp;&amp;amp; wL + rK \\ \text{s.t.} &amp;amp;&amp;amp; \left(\min(K, L)\right)^\beta \geq y \\  &amp;amp;&amp;amp; K \geq 0, \ L \geq 0 \end{eqnarray*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Solution to this problem (also known as conditional input demand functions) satisfy:&#xA;\begin{eqnarray*} L = K = y^{1/\beta} \end{eqnarray*}&#xA;and the associated (optimal) cost function is therefore,&#xA;\begin{eqnarray*} C(w,r,y) = (w+r)y^{1/\beta} \end{eqnarray*}&lt;/p&gt;&#xA;" OwnerUserId="11824" LastEditorUserId="11824" LastEditDate="2017-04-26T00:28:51.337" LastActivityDate="2017-04-26T00:28:51.337" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16471" PostTypeId="2" ParentId="16458" CreationDate="2017-04-25T13:44:28.010" Score="-2" Body="&lt;p&gt;The most simple example is the example of unlimited periods and Bertrand pricing, in any given period the &quot;pure strategy&quot; (with 2 firms) is to produce 1/2 of monopolist quantity and sell at monopolist price and recieve profits = π(1-d)^t &#xA;Where d is discount value &#xA;t is period&#xA;Any deviation will result in 0 profits every period following the deviation, thus in an infinite period model is not worth it.&lt;/p&gt;&#xA;" OwnerUserId="13018" LastActivityDate="2017-04-25T13:44:28.010" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16472" PostTypeId="2" ParentId="16454" CreationDate="2017-04-25T14:16:44.513" Score="1" Body="&lt;p&gt;This answer starta out with how illegal transactions are normally treated in the national accounts. Transactions that are just attempts to evade currency controls are a special case, discussed later.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the illegal transaction was somehow measured, there would be two entries: the entry for the illegal good/service on the trade account, and the cash flow in the capital account. That is, they are interpreted in the same way as legal activities. Therefore, in response to:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Is such operation capital inflow or outflow&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Currency leaving the country is a capital outflow, and a capital inflow if the currency was coming into the country.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;why is it so?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;To keep the published balance of payments balanced.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem is: how do we measure these flows? In particular, we generally have no idea where non-electronic currency (e.g., $100 dollars bills) is being held.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If illegal activities were disguised as something else (&quot;money laundering&quot;), the cash flows should end up in whatever accounts the activity was disguised to be.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Countries tend to only include illegal transactions in the national accounts if the statisticians believe that they have a way of tracking them. For example, Statistics Canada was able to estimate the extent of tobacco smuggling (to avoid taxes) based on the disruption in other data. The underground economy behaves differently in each country, and so attempts to measure its effects varies across countries.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To what extent illegal transactions are just a measure to evade currency controls (and not for trafficking in illegal goods) they would once again show up in the form that the transaction was registered. One typical way this is done is to adjust invoices in trade, so that the amount of money exchanged is greater than the true value of the goods. This shows up in the national accounts as an excessively large imports/exports (depending on the direction of the flow).&lt;/p&gt;&#xA;" OwnerUserId="12891" LastEditorUserId="12891" LastEditDate="2017-04-26T19:37:05.453" LastActivityDate="2017-04-26T19:37:05.453" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16473" PostTypeId="2" ParentId="16448" CreationDate="2017-04-25T14:28:48.497" Score="2" Body="&lt;p&gt;After the exchange in comments, the OP appears to ask &quot;why government intervention if the market will take care of the situation?&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Well we know that government intervention is advised when markets &quot;fail&quot; or, more accurately, are not characterized, at least to a respectable degree, by the ideal conditions required by theory in order for them to function efficiently.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But I will not discuss what could be the &quot;market failures&quot; in the specific case the OP discusses, and whether government intervention could &lt;em&gt;actually&lt;/em&gt; improve things.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Instead I will give an extra reason why in principle, government intervention may be required: the &lt;em&gt;speed&lt;/em&gt; by which market forces operate. This matters a lot from a socio-political point of view, and it should also matter from a strict economic point of view, because, the slower the pace of adjustment, the longer the period of inefficiencies. So even if market forces will eventually tend to reduce the skills-and-wage gap, it is important &lt;em&gt;how long it will take&lt;/em&gt;. And if it takes, say, decades, government intervention could in principle be argued in favor in order to speed up the process.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2017-04-26T08:26:20.783" LastActivityDate="2017-04-26T08:26:20.783" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16474" PostTypeId="1" CreationDate="2017-04-25T14:56:48.540" Score="1" ViewCount="33" Body="&lt;p&gt;Even though the oil prices have fallen rapidly in the recent years, the cost of petroleum products hasn't gone down in India. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Apart from raising more revenue, what are the other benefits the government derives from such a strategy? &lt;/p&gt;&#xA;" OwnerUserId="9027" LastActivityDate="2017-04-28T15:03:16.473" Title="Falling oil prices but no benefits passed on to the end user; government's strategy" Tags="&lt;taxation&gt;&lt;government&gt;&lt;oil&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16475" PostTypeId="2" ParentId="13128" CreationDate="2017-04-25T16:15:31.223" Score="3" Body="&lt;p&gt;Given the data:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Utility function: $u(x, y) = \sqrt{x} + y$&lt;/li&gt;&#xA;&lt;li&gt;Income: $I &amp;gt; 0$&lt;/li&gt;&#xA;&lt;li&gt;Prices: $p_X &amp;gt; 0$ and $p_Y = 1$&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Utility maximization problem is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{eqnarray*} \max\limits_{x,y} &amp;amp; \ \ \sqrt{x} + y \\ \text{s.t.} &amp;amp; \ \ p_Xx+ y = I \\ \text{and} &amp;amp; \ \ x\geq 0, \ \ y\geq 0 \end{eqnarray*}&#xA;We can substitute $y = I - p_Xx$ in the objective and convert it into a single variable optimization problem:&#xA;\begin{eqnarray*} \max\limits_{x} &amp;amp; \ \ \sqrt{x} + I- p_Xx \\ \text{s.t.} &amp;amp; 0 \leq x \leq \frac{I}{p_X} \end{eqnarray*}&#xA;Differentiating the objective with respect to $x$ yields:&#xA;$\frac{1}{2\sqrt{x}} - p_X$&#xA;which is a decreasing function of $x$. The interpretation of the derivative is that it is the net marginal benefit curve of consuming X. As long as the value of the derivative is positive, it pays to spend more on X. Therefore, the utility maximizing choice will be to spend all the money on X if the net marginal benefit curve is still positive at $x = \frac{I}{p_X}$ i.e. $\frac{1}{2}\sqrt{\frac{p_X}{I}} - p_X&amp;gt;0$ holds, and the equilibrium choice will satisfy the property $\frac{1}{2\sqrt{x}} - p_X = 0$ otherwise.&#xA;So, the demand function for X is:&#xA;$\begin{eqnarray*} x(p_X, p_Y = 1, I) = \begin{cases} \frac{1}{4p_X^2} &amp;amp; \text{if } \frac{1}{2}\sqrt{\frac{p_X}{I}} - p_X\leq 0 \\ \frac{I}{p_X} &amp;amp; \text{if } \frac{1}{2}\sqrt{\frac{p_X}{I}} - p_X&amp;gt;0  \end{cases} \end{eqnarray*}$&lt;/p&gt;&#xA;" OwnerUserId="11824" LastActivityDate="2017-04-25T16:15:31.223" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16476" PostTypeId="1" AcceptedAnswerId="16481" CreationDate="2017-04-25T16:17:30.853" Score="-3" ViewCount="528" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;On a certain island there are only two goods, wheat and milk.The only&#xA;  scarce resource is land. There are 1,000 acres of land. An acre of&#xA;  land will produce either 16 units of milk or 37 units of wheat. Some&#xA;  citizens have lots of land, some have just a little bit. The citizens&#xA;  of the island all have utility functions of the form U(M,W)=MW. At&#xA;  every pareto-optimal allocation,&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;(a) The number of units of milk produced equals the number of units of&#xA;  wheat produced.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;(b) Total milk production is 8,000&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;(c) Every consumer’s marginal rate of substitution between milk and&#xA;  wheat -1.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;(d) None of the above is true at every pareto optimal allocation.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Hello, Is the MRS for everyone =$\frac{\mathrm{d} W}{\mathrm{d} M}=\frac{37}{16}$?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also,What are the Pareto-efficient allocations?&lt;/p&gt;&#xA;" OwnerUserId="13020" LastActivityDate="2017-04-25T18:41:47.647" Title="$U=xy$ for all people in a small island, What are the pareto efficient allocations?" Tags="&lt;pareto-efficiency&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ClosedDate="2017-04-27T08:19:58.580" ContentLicense="CC BY-SA 3.0" />
  <row Id="16477" PostTypeId="1" CreationDate="2017-04-25T16:32:38.287" Score="5" ViewCount="1109" Body="&lt;p&gt;While justifying his decision to sell a one-use textbook to his students, &lt;a href=&quot;https://economics.byu.edu/Documents/Syllabi%20-%20broken/20135%20Kearl%20110-1.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;a BYU econ professor states&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;A word about the Kearl text. I do not receive any royalties and have&#xA;  no economic interest in the text – when you buy the text, not a single&#xA;  penny goes to me. It’s designed to be a “disposable,” one-use text in&#xA;  order to keep the price down. (The used book market actually drives up&#xA;  the price of texts – to see why, think of what would happen to car&#xA;  prices if used car sales were not permitted.)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;How does the used car markets drive up the price of the good? With an used market, the buyer is willing to pay more, knowing that he can resell later. However, without an used market, everyone is forced to buy new cars, raising demand, and thus raising the price of new cars. How to think about these countervailing effects?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Are the used books and used cars market actually analogous like the professor suggests? The professor and his publisher have a monopoly on the new textbook, but no one controls the new car market. Therefore, if people keep reselling text, the publisher will use their monopoly and raise the price of new books to compensate. In contrast, car manufacturers can't do so due to competitive pressure.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="2819" LastEditorUserId="2819" LastEditDate="2017-04-26T15:02:53.333" LastActivityDate="2018-11-23T00:00:07.343" Title="What's the effect of the used car market on car price?" Tags="&lt;supply-and-demand&gt;" AnswerCount="4" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16478" PostTypeId="2" ParentId="16477" CreationDate="2017-04-25T17:58:26.420" Score="1" Body="&lt;p&gt;OP, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;imagine that there are two kinds of people, rich and poor, and no market for used books. Rich people are willing to pay more for new textbooks. Poor people cannot afford to buy new textbooks. In the absence of a market for used books, poor people will not buy textbooks. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Imagine now that there is market for used books. Poor people are now able and willing to pay second hand textbooks. And rich people now have someone to sell the books too once they are done using these books. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A market for second hand textbooks raises the price of textbooks because some people are not able and willing to buy new textbooks but are willing to buy second hand textbooks. In the absence of such a market, they'll spend their income on other goods that they deem more important.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Think of it otherwise this way. In the absence of a market for used textbooks the full value of a textbook is not exploited because some people who would wish to trade with one another cannot trade with one another. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope that this helps.&lt;/p&gt;&#xA;" OwnerUserId="13016" LastActivityDate="2017-04-25T17:58:26.420" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16479" PostTypeId="2" ParentId="16477" CreationDate="2017-04-25T18:20:04.190" Score="1" Body="&lt;p&gt;So, there's a monopoly in place for the production of new books, so the actual price depends on the (inverse demand) price function. The monopolist will maximize profit as such: $\max P(x)*x-C(x)$, for some $x$. Here, $P(.)$ is the price function, $C(.)$ is the cost function, and $x$ is the quantity of goods sold.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thing is, with a used good market, now we have an intertemporal problem. It's up for grabs how the monopolist will compare against the future. We do know that a bigger $x$ in $t_0$ will mean less demand on $t_{1},t_2,...$ . The problem can be something like: $$\max\sum\limits_{t=0}^\infty{\beta^t*(P(x_{t-1},x_t)*x_t-C(x_t))}$$&#xA;$$st.\ x_{t+1}=(1-\rho)x_t,\ x_{-1}=0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here, $\rho$ is the fraction of book in $x_t$ that will be sold as used books in $x_{t+1}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, conclusions: the final price from the editor should be higher. Why? Because if the demand that the editor has to satisfy is smaller (because $x_{t-1}&amp;gt;0$), then they can sell to a higher price, to match the minimum propensity to spend for $x_t$, assuming that the marginal cost allows it. If there's an exponential discount, everyone will update prices based on that, and it's expected that older books have lower price. Note that it's assumed we can build a book with just broken pieces of older books... ah well...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If there wasn't a used good market( $\rho=1$), the editor would have to satisfy a constant demand, and you solve it just for one period (which will stay the same afterwards). The price for new books will be below the one you calculated above.&lt;/p&gt;&#xA;" OwnerUserId="7857" LastEditorUserId="2819" LastEditDate="2017-04-25T19:54:15.907" LastActivityDate="2017-04-25T19:54:15.907" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16480" PostTypeId="1" AcceptedAnswerId="16498" CreationDate="2017-04-25T18:32:50.037" Score="2" ViewCount="65" Body="&lt;p&gt;Model: $y_t = \Phi y_{t-1} + (\mathbb{I_n}-\Phi)\mu + \Sigma \varepsilon_t$&#xA;s.t. $y_t$ is a $(n \times 1)$ vector, and $\varepsilon_t \sim N(\vec{0},\mathbb{I}_n)$. $\mathbb{I}$ is the identity matrix. $\Phi$ and $\Sigma$ are $(n \times n)$ matrices.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider the following MATLAB code.&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;Sigma = eye(2); %sqrtm(Covariance matrix)&#xA;Phi{1} = [0.9,0.12;0,0.9]; %Autoregressive matrix&#xA;mu = [0;0]; %Constant vector&#xA;nTs = 1000; %Length of simulation&#xA;&#xA;%Specify Model&#xA;mdl = varm(2,1); &#xA;mdl.AR = Phi;&#xA;mdl.Constant = mu;&#xA;mdl.Covariance = Sigma^2;&#xA;&#xA;%Simulate Model&#xA;simTs = simulate(mdl,nTs); %Simulate VAR(1) (nTs x 2)&#xA;&#xA;%Estimate Model&#xA;X = simTs(1:end-1,:);&#xA;Y = simTs(2:end,:); &#xA;hatPhi = (X'*X)\(X'*Y)&#xA;&#xA;&amp;gt;&amp;gt; hatPhi =&#xA;       0.8939  -0.0057&#xA;       0.1721   0.8732&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Notice the output is the transpose of the AR matrix supplied. Why is this? I feel dumb, lol.&lt;/p&gt;&#xA;" OwnerUserId="4938" LastEditorUserId="4938" LastEditDate="2017-04-26T13:46:51.527" LastActivityDate="2017-04-26T17:31:41.307" Title="When estimating VAR(1) by OLS, I get transpose of AR matrix. Why?" Tags="&lt;macroeconomics&gt;&lt;econometrics&gt;&lt;time-series&gt;&lt;applied-econometrics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16481" PostTypeId="2" ParentId="16476" CreationDate="2017-04-25T18:41:47.647" Score="0" Body="&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;A Pareto efficient allocation is an allocation for which it is impossible to change the allocation and make someone better off without making someone else worse off.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;In this economy you can produce either 16,000 units of milk or 37,000 units of wheat and you exchange 16 units of milk for 37 units of wheat by changing one acre from producing milk to producing wheat. - 16 / 37 is the slope of the production possibility frontier.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The price of producing one unit of wheat is 1/37th of an acre. The price of producing one unit of milk is 1/16th of an acre. There are a total of 1,000 acres. The problem for the island as a whole is:&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;$\max_{w,m} \quad m\cdot w \quad s.t. \quad 1,000 = \frac{1}{16} m + \frac{1}{37} m$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This can be re-written as the Lagrangian $\Lambda$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\Lambda = m\cdot w + \lambda \left(1,000 - \frac{1}{16} m - \frac{1}{37}w\right)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The First Order Conditions for a maximum are:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$m: w - \frac{1}{16} \cdot \lambda = 0\\$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$w: m - \frac{1}{37} \cdot \lambda = 0\\$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\lambda: 1,000 - \frac{1}{16} m - \frac{1}{37}w = 0\\$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This can be re-written as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$16 w = \lambda$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$37 m = \lambda$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac{16}{37} = \frac{m^*}{w^*}$ (The MRS in equilibrium is therefore not equal to - 1.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Plugging $\frac{16}{37}w^* = m^*$ back into $\lambda:$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$ w^* = 18,500$&#xA;$ m^* = 8,000$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The answer is b.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reason why you can treat each individual problem as the problem of the Island as a whole is because all agents have identical utility function and only the quantity of land differs between them. The problem is therefore identical for all agents. The only difference is the quantity of land that they are constrained to. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope that this helps?&lt;/p&gt;&#xA;" OwnerUserId="13016" LastActivityDate="2017-04-25T18:41:47.647" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16482" PostTypeId="2" ParentId="10503" CreationDate="2017-04-25T18:52:37.353" Score="-2" Body="&lt;p&gt;This is model is known an GARCH(general autoregressive conditional heteroskedasticity) where the AR component of the observable series $\{a_t\}$ is equal to unity. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The likelihood is determined by your model assumptions on the innovation terms $\varepsilon_t$ and $e_t$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you are looking for a canned function to estimate an GARCH see &lt;a href=&quot;https://www.kevinsheppard.com/MFE_Toolbox&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.kevinsheppard.com/MFE_Toolbox&lt;/a&gt;. If you are looking for some more theory on how to form the likelihood see &lt;a href=&quot;http://www.math.elte.hu/probability/markus/AlkmatTS1/ARCH_GARCH_Eload.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.math.elte.hu/probability/markus/AlkmatTS1/ARCH_GARCH_Eload.html&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="4938" LastEditorUserId="4938" LastEditDate="2017-04-25T21:54:43.243" LastActivityDate="2017-04-25T21:54:43.243" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="16483" PostTypeId="1" AcceptedAnswerId="16495" CreationDate="2017-04-25T19:11:36.197" Score="2" ViewCount="167" Body="&lt;p&gt;I've been looking up stuff about bitcoins for some time now and i have two question stuck in my mind:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How is the value of bitcoins so unstable?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And can there be bitcoin inflation?&lt;/p&gt;&#xA;" OwnerUserId="12941" LastActivityDate="2017-04-26T13:12:29.080" Title="What does the value of bitcoins depend on?" Tags="&lt;inflation&gt;&lt;bitcoin&gt;" AnswerCount="2" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16484" PostTypeId="2" ParentId="12301" CreationDate="2017-04-25T19:58:50.533" Score="1" Body="&lt;p&gt;Define $Q=q^b$, where $q=min\{K,L\}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For $b&amp;gt;0$, $Q$ is a monotonic transformation of $q$. As such, the solution for $q$ is equivalent to the solution for $Q$. Simply solve your problem for $q$, and then rework it in terms of $Q$.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-04-25T19:58:50.533" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16485" PostTypeId="2" ParentId="16465" CreationDate="2017-04-25T20:55:19.020" Score="1" Body="&lt;p&gt;You can indicate on the diagram that all the nodes (there is a continuum of them) after player $1$'s action lie in the same &lt;a href=&quot;https://en.wikipedia.org/wiki/Information_set_(game_theory)&quot; rel=&quot;nofollow noreferrer&quot;&gt;information set&lt;/a&gt;. This means that player $2$ cannot distinguish which node they are on following player $1$'s action, making their problem strategically equivalent to one where both players move simultaneously (similarly for player $1$).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The convention for indicating that two nodes lie in the same information set is to connect them by a dotted/dashed line, as in the Wikipedia article linked above.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Alternatively, notice that a table is just a convenient representation for a map from action pairs into payoffs. Is there some other way of writing down this mapping, other than via explicitly writing down all the pairs of actions and their corresponding payoffs explicitly in a table?&lt;/p&gt;&#xA;" OwnerUserId="8595" LastActivityDate="2017-04-25T20:55:19.020" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16487" PostTypeId="1" CreationDate="2017-04-26T01:40:28.793" Score="0" ViewCount="37" Body="&lt;p&gt;From Treasury's Oct'2016 FX policies report:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Switzerland’s economic policy situation is distinctive given its relatively small stock of domestic assets, which limits monetary policy options to address persistent deflation in the context of significant safe haven capital inflows.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;What is the link between stock of domestic assets and monetary policy options?&lt;/p&gt;&#xA;" OwnerUserId="13025" LastEditorUserId="2776" LastEditDate="2017-04-26T08:26:59.213" LastActivityDate="2017-08-24T10:57:12.960" Title="Link between supply of domestic assets and monetary policy" Tags="&lt;macroeconomics&gt;&lt;monetary-policy&gt;&lt;international-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16488" PostTypeId="1" CreationDate="2017-04-26T05:09:08.250" Score="0" ViewCount="2888" Body="&lt;p&gt;If the Price of a commodity is &lt;strong&gt;1 dollar&lt;/strong&gt; and this price is the equilibrium price. At this price, the quantity demanded &amp;amp; supplied is 100(KGs). If government sets the price ceiling of &lt;strong&gt;10 dollars&lt;/strong&gt;, What would be the effects on the market?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My &lt;strong&gt;curve&lt;/strong&gt; for this question is:&#xA;&lt;a href=&quot;https://i.stack.imgur.com/Zrxat.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Zrxat.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="13026" LastActivityDate="2017-04-26T17:39:50.387" Title="Does non-binding price ceiling effect the market?" Tags="&lt;microeconomics&gt;&lt;price-level&gt;" AnswerCount="2" CommentCount="2" ClosedDate="2017-05-18T00:31:58.280" ContentLicense="CC BY-SA 3.0" />
  <row Id="16489" PostTypeId="2" ParentId="16488" CreationDate="2017-04-26T07:26:41.017" Score="-1" Body="&lt;p&gt;No impact at all. Hence the term &quot;non-binding&quot;. &lt;/p&gt;&#xA;" OwnerUserId="13029" LastActivityDate="2017-04-26T07:26:41.017" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16491" PostTypeId="2" ParentId="16487" CreationDate="2017-04-26T08:20:35.890" Score="1" Body="&lt;p&gt;Monetary policy is conducted by the Swiss Central Bank. The Swiss Central Bank has a monopoly over the issue / production of Swiss francs. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The purpose of the Swiss Central Bank is to produce / supply Swiss francs to the Swiss public if the Swiss public wants to hold more Swiss francs and to purchase Swiss francs of the public if the Swiss public wants to hold fewer Swiss francs. If it doesn't bad things will happen but that's outside of the scope of this question.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Swiss Central Bank does this by either purchasing domestic assets with newly created Swiss francs and selling domestic assets for previously created Swiss francs. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reason that the Swiss Central Bank does this by purchasing and selling domestic assets is that it is often not appreciated if one country's government interferes in the economy of another country's government and the Swiss Central Bank is considered to be part of the Swiss State. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem the Swiss Central Bank faces is that the Swiss currency and Swiss domestic assets are considered to be good stores of value by foreigners. The function of a currency is a unit of account, store of value, and a medium of exchange. So the Swiss currency fulfills the second function, store of value, for foreigners. But this leaves fewer Swiss francs for the Swiss public to use as a medium of exchange. And if there are fewer Swiss francs but the demand of the Swiss public is the same, then this results in deflation. Swiss francs become relatively more valuable compared to other goods. The prices of other goods, in terms of Swiss francs drop. At the same time there are fewer domestic assets that can be exchanged for newly created Swiss francs because these have been purchased by foreigners.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is highly simplified, but I hope that this answers your question.&lt;/p&gt;&#xA;" OwnerUserId="13016" LastActivityDate="2017-04-26T08:20:35.890" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16492" PostTypeId="2" ParentId="16477" CreationDate="2017-04-26T08:49:44.490" Score="-1" Body="&lt;p&gt;From what I can understand, in the context of the used books market, lets assume that there is set, finite amount of demand for the books. When there is a used books market, the demand first goes to the used books market and finishes up the supply in that market. The remaining demand then goes to the new books market (the professor/publisher). To compensate for the loss in demand, the publisher would therefore have to raise prices of the new books.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now for the cars market, when there is no used cars market, everyone is indeed forced to buy new cars which raises demand and consequently price. However, you are assuming that cars are a necessity and that the demand transfers 100% from used cars to new cars. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some people maybe only purchasing cars from used cars market because they see the value in the lower price. When there is no longer a used car market, if the price of the new car remains the same, then people would deem that price to be too expensive since they are unable to resell it later on and ultimately choose not to buy at all or opt for alternatives. This actually reduces demand. To capture the market of such consumers, the car companies would ultimately reduce prices to get the market share. This is from the Bertrand competition model point of view.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In actual fact, Bertrand competition are not seen and huge companies work with each other more often then they engage in price wars. Now consider the Cournot competition model where inverse demand for the good is given as P = a - bQ (i.e. law of demand - when the price goes up, demand must go down ceteris paribus.) Since there is no used cars market, then demand for new cars market has gone up, the car companies produce more output (Q has gone up), ceteris paribus, P will come down. Just to reiterate, if there is a used cars market, then total output (Q) would be lower, therefore P will be higher.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that both the Bertrand and Cournot model dictates that prices will go down without a used cars market, just that the Cournot model reflects the actual situation clearer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is just my understanding and I hope it helps! Let me know if I am wrong in anyway! cheers :)&lt;/p&gt;&#xA;" OwnerUserId="12968" LastActivityDate="2017-04-26T08:49:44.490" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16493" PostTypeId="2" ParentId="16483" CreationDate="2017-04-26T09:07:59.320" Score="0" Body="&lt;p&gt;The value of bitcoin is not unstable, the market price of the bitcoin is. It is because BitCoin stocks are very speculative currently. It is an alternative tool to currency but is however yet to be popular with common use. The markets are pricing it in a way they expect it to be the popular tool of currency in the near future or countries making it the legal tender.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Bitcoins can be mined through data mining, it is however like the supply of gold and is finite in nature. To find out more, you should redirect your questions to the BitCoin stack exchange community. Yes, there is one.&lt;/p&gt;&#xA;" OwnerUserId="12968" LastActivityDate="2017-04-26T09:07:59.320" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16495" PostTypeId="2" ParentId="16483" CreationDate="2017-04-26T13:12:29.080" Score="4" Body="&lt;p&gt;The price is unstable because there's a fairly small free float (the quantity available for buying and selling with true currencies) compared to the level of transactions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's a Ponzi scheme, so demand is driven by Bitcoin marketing: it is in immediate financial interest of the holders of Bitcoin to drive up the price by &quot;ramping&quot; it: talking up the market price. The amount of attention that the media gives Bitcoin goes up and down - this affects demand, and that drives the price, as supply is fairly stable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The originators of Bitcoin, and the original hoarders, have most to gain: it was easiest for them to create Bitcoins. It would be rational for them to slowly release their hoard into the market as price goes up.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's also attracted a lot of gullible but evangelical supporters: for them, continuing to hold Bitcoin is a means of validating their beliefs, and even validating the identity they've built for themselves around it. That's why the free float tends to stay low.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2017-04-26T13:12:29.080" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16496" PostTypeId="1" AcceptedAnswerId="16497" CreationDate="2017-04-26T14:13:23.357" Score="1" ViewCount="64" Body="&lt;p&gt;For my thesis I was looking for some help due to the facts of my little knowledge of econometrics. I appreciate any help whether its directly dealing with my question or literature advice. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Basically I would construct the Solow Model with a CES production function including 2 more variables as mentioned human capital and another restricting variable representing a scarce resource such as oil. I would search for Data then for the needed variables and estimate the sigma. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question here is the technical part on how to actually estimate that parameter given the data. What kind of methods are there to get an approximate value and what kind of programs would be potentially useful to get the solutions?&lt;/p&gt;&#xA;" OwnerUserId="13030" LastEditorUserId="2776" LastEditDate="2017-04-26T19:23:46.020" LastActivityDate="2017-04-27T19:41:30.297" Title="How to estimate a constant elasticity of substitution for a country in a solow model including human capital and scarce resources" Tags="&lt;macroeconomics&gt;&lt;economic-growth&gt;&lt;solow&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16497" PostTypeId="2" ParentId="16496" CreationDate="2017-04-26T14:30:34.537" Score="0" Body="&lt;p&gt;macro123,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You might want to have a look at MRW (1992) &lt;a href=&quot;https://academic.oup.com/qje/article-abstract/107/2/407/1838296/A-Contribution-to-the-Empirics-of-Economic-Growth&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://academic.oup.com/qje/article-abstract/107/2/407/1838296/A-Contribution-to-the-Empirics-of-Economic-Growth&lt;/a&gt; and the literature on growth regressions in the handbook of economic growth and the handbook of macroeconomics. In addition, Acemoglu's textbook on economic growth will provide you with some useful references as well as a clear and concise introduction to the topic. Although, I believe that you'll also be a little bit disappointed as you'll find that something close to what you wish to do has already been done. &lt;/p&gt;&#xA;" OwnerUserId="13016" LastActivityDate="2017-04-26T14:30:34.537" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16498" PostTypeId="2" ParentId="16480" CreationDate="2017-04-26T15:38:39.407" Score="2" Body="&lt;p&gt;I see that $n=2$ and $\mathbf \mu = \mathbb0$. &#xA;At single (2-dimensional) observation level, we usually write (ignoring the disturbance vector)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\mathbf y_t = \Phi \mathbf y_{t,-1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where dimensions are for your case $(2 \times 1) = (2 \times 2) \times (2 \times 1)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But notice that the standard regression formulation has the coefficient vector to be &quot;to the right&quot; of the regressor matrix... so in order to be able to apply the standard OLS estimation formulas, we transpose and obtain&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\mathbf y'_t = \mathbf y_{t,-1}'\Phi'$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and at full sample level we get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\mathbf Y' = \mathbf Y_{-1}'\Phi'$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where with $T+1$ 2-dimensional observations available, the dimensions are ($T \times 2$) = $(T \times 2) \times  (2 \times 2)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, when applying the standard OLS formulas as your code does, the estimator estimates &#xA;$\Phi'$, not $\Phi$.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2017-04-26T17:31:41.307" LastActivityDate="2017-04-26T17:31:41.307" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16499" PostTypeId="2" ParentId="16488" CreationDate="2017-04-26T17:39:50.387" Score="1" Body="&lt;p&gt;No there is no impact at all. A price ceiling of &lt;code&gt;$10&lt;/code&gt; means that the price cannot go above &lt;code&gt;$10&lt;/code&gt;. Since the equilibrium price is already below &lt;code&gt;$10&lt;/code&gt; the creation of a price ceiling will not effect anything at all. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is called an ineffective ceiling because it is precisely that, ineffective.&lt;/p&gt;&#xA;" OwnerUserId="10245" LastActivityDate="2017-04-26T17:39:50.387" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="16503" PostTypeId="2" ParentId="16444" CreationDate="2017-04-26T18:32:47.160" Score="6" Body="&lt;p&gt;All of these answers are true but don't provide an easy solution which doesn't use excel/code. Gini can be fairly easily computed by hand too.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Gini coefficient fundamentally shows the shaded region above the lorenz curve in order to get a relative gauge of the distance the lorenz curve is from the line of equality. Fundamentally what this shows is the average distance between incomes. with 1 being the highest possible income and 0 being the lowest.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One way to calculate this is to simply calculate the area between the line of equality and the Lorenz curve.&#xA;&lt;a href=&quot;https://i.stack.imgur.com/iawuF.jpg&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/iawuF.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is clearly pretty difficult to do. Luckily there is an easier method.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Gini is also equal to: (The average variance for all incomes) / (2 * the mean)&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The average variance for all incomes can be calculated by constructing a matrix of all incomes and then calculating the distance between each income.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;For your example:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;  | 1   2   3   4   5&#xA;__|___________________&#xA;1 | 0   1   2   3   4&#xA;2 | 1   0   1   2   3&#xA;3 | 2   1   0   1   2&#xA;4 | 3   2   1   0   1&#xA;5 | 4   3   2   1   0&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Then add up all of the distances within the matrix to get the total variance.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;0 + 1 + 2 + 3 + 4 + 1 + 0 + 1 + 2 + 3 + 2 + 1 + 0 + 1 + 2 + 3 + 2 + 1 + 0 + 1 + 4 + 3 + 2 + 1 + 0 = 40.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Then divide it by the total number of elements within the matrix to get the average variance.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Average Variance = 40 / 25 = 1.6.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Now divide the average variance by the average income times two.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Mean = (1 + 2 + 3 + 4 + 5)/5 = 15/5 = 3&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Mean*2 = 6.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Since the gini is equal to: (The average variance for all incomes) / (2 * the mean):&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Gini = 1.6 / 6 =  .2666&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which is what the other users got through more complicated methods.&lt;/p&gt;&#xA;" OwnerUserId="10245" LastEditorUserId="10245" LastEditDate="2017-04-26T18:42:25.630" LastActivityDate="2017-04-26T18:42:25.630" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16504" PostTypeId="2" ParentId="9406" CreationDate="2017-04-26T19:25:34.137" Score="1" Body="&lt;p&gt;Your intuition is correct. With 0 savings there could be not only no economic growth but no economic activity assuming depreciation exists. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;According to the Harrod-Domar model the growth rate of capital per worker is equal to:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;Growth Rate (g) = Savings Rate (s) / Capital-Output Ratio (k)&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Clearly under this model if the savings rate was 0 the growth rate of capital per worker would be 0.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is because it is assumed that the production function has essentially only two inputs. Labor, and capital. The generic production model that is used with the Cobbs-Douglas model is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;code&gt;Total Output (Y) = f(K,L) = (K^a)(L^(1-a))&lt;/code&gt;, where 0 &amp;lt; a &amp;lt; 1.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;K = the total amount of capital in a country&lt;/p&gt;&#xA;&#xA;&lt;p&gt;L = total amount of labor in a country.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;a in this equation is the emphasis that is placed on either labor or capital.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assuming that this function generically holds if K is equal to 0 that would mean that regardless as to the level of capital total output would equal 0. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, because the growth rate of capital per worker is 0 at a 0 savings rate this means that K is a constant and unchanging. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is where depreciation comes in. Assuming that capital goods depreciate over time the capital stock K will over time be getting smaller. Machines break, etc. In the long run capital stock will shrink to 0 meaning there will no longer be any economic activity at all.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In essence because savings goes to investment which creates capital, without any level of investment we would eventually run out capital as it depreciates leading to an output of 0.&lt;/p&gt;&#xA;" OwnerUserId="10245" LastActivityDate="2017-04-26T19:25:34.137" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="16506" PostTypeId="1" CreationDate="2017-04-26T20:13:20.107" Score="0" ViewCount="24" Body="&lt;p&gt;Where can I find the relevant Office Of National Statistics data on UK exports to Ireland? I want to know if the value of UK exports to Ireland has declined since 2011 and if so, does anyone know why that might be? I understand the reasons that UK market share in Ireland has decreased, but I'm in interested in why the total value may have decreased (or not). Thank you. &lt;/p&gt;&#xA;" OwnerUserId="13035" LastActivityDate="2017-04-28T10:59:28.597" Title="Have UK exports (goods and services) to Ireland declined in value since 2011?" Tags="&lt;macroeconomics&gt;&lt;international-trade&gt;&lt;balance-of-trade&gt;&lt;balance-of-payments&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16509" PostTypeId="2" ParentId="15922" CreationDate="2017-04-26T22:06:41.987" Score="1" Body="&lt;p&gt;It's difficult to answer. Although I think denesp has the right idea, but I think it's also possible for a specific item to be less elastic than its category group in some circumstances. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If a category contains three goods: X, Y, Z. If X and Y are very elastic while Z is relatively inelastic then it's possible for the category to be far more elastic than Z. For instance, although salt could be considered a spice, it's probably far more inelastic than pepper or sugar. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Furthermore, it's also possible that goods within the same category are complements. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Although I think for this particular question, denesp's answer is good enough. &lt;/p&gt;&#xA;" OwnerUserId="12890" LastActivityDate="2017-04-26T22:06:41.987" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16511" PostTypeId="2" ParentId="16506" CreationDate="2017-04-26T23:41:41.557" Score="1" Body="&lt;p&gt;The &lt;a href=&quot;https://www.ons.gov.uk/economy/nationalaccounts/balanceofpayments/datasets/pinkbook&quot; rel=&quot;nofollow noreferrer&quot;&gt;ONS Balance of Payments Pink Book&lt;/a&gt; gives the following figures for UK exports to Ireland (£million).  The figures in Euros would be different, as would Irish reporting of the numbers, but there seems to have been a sharp drop in services exports from 2012 to 2013.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2016 data is due to be published in October 2017, though trade in goods numbers may already be available&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt; £m     Goods Services  Both&#xA;CDID    QDJJ    FYVJ    LGIA&#xA;2011    18223   11475   29698&#xA;2012    17234   11615   28849&#xA;2013    18592    8780   27372&#xA;2014    18104    9288   27392&#xA;2015    16764    9321   26085&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2017-04-26T23:41:41.557" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16512" PostTypeId="2" ParentId="15937" CreationDate="2017-04-27T01:33:40.013" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Here is my question:&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;If the federal reserve were to regulate the banking industry so that&#xA;  fractional requirements were raised to something like 50% on all&#xA;  future deposits, that would have an appreciating effect on the dollar&#xA;  since the rate of increase in the supply of dollars needs to keep up&#xA;  with the growth of the economy every year. If the Fed offsets this&#xA;  appreciation with additional asset purchases by printing money, the&#xA;  Fed's revenue/balance sheet would increase...&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Reserves are essentially a deposit at the Federal Reserve by banks. Banks have a minimum required level of reserves; anything beyond that are excess reserves. As a result of &quot;Quantitative Easing&quot;, American banks already have large amounts of reserves. Raising the reserve requirement would just change the status of the reserves from excess to required, and could easily have little effect on the economy. The precise effects of Quantitative Easing on the economy are debated, but they are certainly not very obvious.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words, a policy very similar to raising required reserves was already tried, and had little observable effect.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One thing to keep in mind that reserve creation is distinct from bank money creation. When a bank extends a loan, it creates an asset (the loan) and a liability (the deposit) simultaneously. This step is done independently of existing reserves, or central bank activity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, this deposit creation creates a need for extra reserve holdings (during the next reserve accounting period). If excess reserves exist in the banking system, the bank can just go out and borrow the reserves from other banks. That is, lend first, get reserves later. If excess reserves do not exist, the central bank has to create some - if it wants the inter-bank rate to remain under control. Otherwise, some banks will fall short of regulatory requirements, and are effectively illiquid, and will be willing to borrow at extremely high rates to meet regulatory requirements. In other words, reserve creation follows deposit (bank money) creation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(In case it is not obvious, once the Federal Reserve creates reserves, about the only way they can be destroyed is by currency (notes and coin) withdrawals, or by net tax payments being transmitted to the Treasury. An individual bank can transfer/lend them to another bank, but this does not change the amount outstanding. Therefore, the Fed was able to force an increase of reserves without raising requirements.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Textbook descriptions of fractional reserve lending tend to be oversimplified. Only some accounts are covered by reserve requirements, and banks have been working techniques to minimise their costs for decades. A lot of &quot;money&quot; is in other money market instruments (&quot;shadow banking&quot;) which are not covered by reserve requirements. Raising reserve requirements has the effect of making regulated banks less competitive versus their shadow banking competitors.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Setting a reserve requirement of 50% (for example) would mean that a bank might have to issue a \$50 bond in order to be able to make a loan of \$100 safely. (It has to finance the massive amount of reserves that are imposed on the asset size of its balance sheet.) It would be borrowing in the bond market in order to leave money on deposit at the central bank at the overnight rate. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Balance sheet assets:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;\$100 loan; and&lt;/li&gt;&#xA;&lt;li&gt;\$50 reserves.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Liabilities:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;\$100 deposit; and&lt;/li&gt;&#xA;&lt;li&gt;\$ 50 bond.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The spread on the \$100 loan would have to be increased to make up for the negative spread on the \$50 in reserves (versus the bond). The banking systems ability to lend would be largely crippled, and firms would be forced to switch to alternative sources of financing. If firms cannot get financing, they cannot invest or hire more people, and that makes capitalists and politicians unhappy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The main economic effect of required reserves is that it is a means of forcing banks to lend to the central bank at a low rate. Until the Fed was given the right to pay interest on reserves in 2008, banks received no interest, and so reserves were an interest-free loan to the government. Even if reserves pay interest, it is at an administered rate set by the central bank (which effectively becomes the short-term risk-free rate). Banks have no choice but to accept that rate of interest, whereas Treasury bill/bond rates are set in auction. (In practice, Treasury bill rates trade close to the policy rate.) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This policy of forcing banks to lend to the government (via the central bank) is often called &quot;financial repression.&quot; This matters more for countries with poorly developed bond markets, but the U.S. Treasury can lock in low rates for a very long time without much difficulty.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;and over time that excess profit could start to make up the&#xA;  overwhelming portion of the fiscal budget (which could take decades or&#xA;  centuries)... Historical issues with the central bank funding the&#xA;  budget have always resulted in hyper inflation, but with this work&#xA;  around, where the funding of the budget was not coming from the direct&#xA;  printing of money but from the profits from security purchases as they&#xA;  matured, hyper inflation would be avoided, right?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;What percentage of bonds are purchased by the central bank is not an issue. The Bank of Japan has been holding large amounts of Japanese Government Bonds for years, and inflation has not budged. The key is that the deficit is very large (working from memory, some cases were 30+% of GDP), and they were often associated with losses of productive capacity. In other words, the big deficits were the problem behind hyperinflation; a central bank buying existing debt is just a reshuffling of government liabilities.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Attempting to run &quot;too large&quot; deficits and trying to use central bank purchases of bonds reserve requirements to control inflation will not work in the long run. The velocity of money would just increase as people move towards shadow banking. If done for a long enough time, people can just switch over to using a foreign currency, which is usually a critical step towards hyperinflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In summary, running a deficit of 1% of GDP and having the central bank buy all the debt (monetising it) is not going to have much of an impact on inflation. (The recent experiments in quantitative easing provide a test case.) Running a deficit of 30% of GDP is probably going to cause serious inflation (unless the country switches over to rationing, such as in World War II), and what the central bank does with its balance sheet is not going to make a big difference.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastEditorUserId="12891" LastEditDate="2017-05-05T21:24:07.877" LastActivityDate="2017-05-05T21:24:07.877" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="16513" PostTypeId="1" CreationDate="2017-04-27T09:05:05.213" Score="1" ViewCount="2027" Body="&lt;p&gt;I run a SaaS and I have the following data from it:&#xA;Number of trials (A), number of subscribers (B), subscribe cost (C) and total revenue (D) for every type of service my SaaS provide.&#xA;If I increase (C) it can reduce (B) and in result I can get less (D).&#xA;So, is there a way to find balanced (C) to maximize (D)?&#xA;Also I think there is some dependency between (A) and (B) that shows subscribers solvency.&lt;/p&gt;&#xA;" OwnerUserId="13040" LastEditorUserId="12662" LastEditDate="2017-04-28T12:55:04.237" LastActivityDate="2017-04-28T12:55:04.237" Title="How to maximize revenue by changing price?" Tags="&lt;elasticity&gt;&lt;price-theory&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16516" PostTypeId="2" ParentId="16513" CreationDate="2017-04-27T16:29:13.193" Score="1" Body="&lt;p&gt;Your question does not provide enough information for me to walk you through the process step-by-step using your information, but hopefully I can point you in the right direction.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You question about Price Elasticity of Demand (usually just called Elasticity of Demand). Elasticity of Demand is used to show how responsive demand is to a change in price. For example, if a $1\%$ increase in price leads to a massive drop in the quantity demanded, say 75%, then we would say that the demand is relatively elastic. If an increase in price does not really cause a drop in the quantity demanded then demand is relatively inelastic. The concept of elasticity of demand translates to your question because $price\ multiplied\ by\ quantity\ equals\ revenue$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You mention that if you increase $(C)$, you reduce $(B)$. Yes, this is (usually) correct because the relationship between price and quantity is negative-- the higher the price, the fewer items sold. As for reducing $(D)$, this depends on the elasticity of demand. For example,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume the price for each subscription is $\$2$. Assume that at a price of $\$2$, you sell $1,000$ subscriptions. This gives you a revenue of $\$2,000$: $$\$2( 1,000)=$2,000$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Elasticity demand can be calculated a few ways, I'm going to use: $$Elascitity\ of\ Demand = {\frac  {{\mathrm  {Percent\ Change\ in\ }}Q}{{\mathrm  {Percent\ Change\ in\ }}P}}$$ Where $Q$ is quantity demanded and $P$ is price. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lets consider the following two examples:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Scenario 1:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume that you increase the subscription price from $\$2$ to $\$3$. Now assume that an increase in price from $\$2$ to $\$3$ decreases the total number of subscriptions sold from $1,000$ to $960$. Notice that the number of subscriptions decreased, but revenue increased from $\$2,000$ to $\$2,880$: $$\$3(960)=$2,880$$ This happened because the demand for subscriptions is considered inelastic. Price by 50% [$(3-2)/2$], and your quantity decreased by 4% [$(960-1000)/1000$]. Since the percent of the price increase increased by more than the quantity demanded decreased, you increased your revenue. Your elasticity of demand in this scenario is, $$\frac {\mathrm -0.04}{\mathrm 0.50}=-0.08$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Scenario 2:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume that you apply the same price increase from $\$2$ to $\$3$ per subscription, but this time the quantity sold drops from $1,000$ to $400$. Your revenue is now, $\$1,200$ $$\$3(400)=$1,200$$ In this case an increase in price caused your revenue to decrease. What happened? In this case subscriptions are considered elastic. The price increased by 50% [$(3-2)/2$], and your subscriptions demanded decreased by 60% [$(960-1000)/1000$].Your elasticity of demand in this scenario is, $$\frac {\mathrm -0.6}{\mathrm 0.50}=-1.5$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To answer your question, you are looking for the place on your demand curve where the % change in price is the same as the percent change in quantity demanded. This is point is called Unit Elastic. In order to calculate this for yourself, you will need to know the relationship between the price of subscriptions and the quantity demanded. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider reading more about elasticity of demand as there are a couple of ways to calculate it. When you do the calculations you will get an elasticity of demand number that ranges from $0$ to $-∞$. (Some people will convert these numbers to absolute value... $0$ to $∞$, means the same thing.) The number you get from calculating your elasticity of demand will tell you what to do with your price. For example, if you get an elasticity of demand number that is greater than $-1$ (or less than $1$ if you use absolute value), then increase your price because revenue should increase. If you get back an elasticity of demand number less than $-1$ (or greater than $1$ if you use absolute value) then decrease your price and your revenue should increase. You want to adjust your price until your elasticity of demand number is $-1$ (or $1$ if you use absolute value). $-1$ is the point of unit elastic.&lt;/p&gt;&#xA;" OwnerUserId="12662" LastEditorUserId="12662" LastEditDate="2017-04-27T18:10:57.430" LastActivityDate="2017-04-27T18:10:57.430" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16517" PostTypeId="1" CreationDate="2017-04-27T17:52:34.220" Score="4" ViewCount="3986" Body="&lt;p&gt;Why is a high government debt/GDP bad? It is frequently mentioned as something bad. Today &lt;a href=&quot;http://www.themoneyillusion.com/?p=32427&quot; rel=&quot;noreferrer&quot;&gt;here&lt;/a&gt;, for example.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I get that when the government spends, real resources like workers or raw materials are used, which is a real cost to society.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I also get that the government needs to tax, because otherwise the increase in money supply in the private sector would be too great. Perhaps the government also need to tax in order to ensure a demand for currency, I don’t know.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But why focus on the debt/GDP ratio? In Sweden, most of the government debt is to the central bank. Why does that matter?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Isn’t it more important to focus on how much the government should increase (or decrease) the money supply? Are these two things equivalent?&lt;/p&gt;&#xA;" OwnerUserId="13048" LastActivityDate="2017-09-04T11:43:48.993" Title="Why is a high government debt/GDP bad?" Tags="&lt;macroeconomics&gt;" AnswerCount="5" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16518" PostTypeId="2" ParentId="16513" CreationDate="2017-04-27T18:21:55.633" Score="0" Body="&lt;p&gt;In Microsoft Excel there is a function named Solver that can give you a very accurate measurement of how to maximize profit with a change in price given the products/service price, number of consumers. You would have to input the these constraints in a changeable column and input the constraints of what you want to maximize, minimize in the solver constraints that are located inside the Solver Parameters option.&lt;/p&gt;&#xA;" OwnerUserId="12842" LastActivityDate="2017-04-27T18:21:55.633" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16519" PostTypeId="2" ParentId="16517" CreationDate="2017-04-27T18:39:50.177" Score="6" Body="&lt;p&gt;Firstly, the use of debt/GDP as the ratio is somewhat arbitrary. One could easily look at debt/government revenue, and it may be a more useful metric. However, the convention to use GDP for scaling these series. (One can argue that GDP represents the full income capacity of the economy for debt service.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For countries that borrow in a foreign currency (or in a currency where they do not directly control the central bank), a high debt ratio indicates a greater risk of default. There is no gurantee that they can their hands on the foreign currency to repay debt. You need to look at other things as well, but it's one common metric.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the country controls the currency it borrows in, it should be able to arrange its affairs to avoid default. (There is no guarantee, however.) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, even if we ignore default risk, the greater the debt level, the greater the interest expense for the government. The exact mechanisms are debated by various schools of thought, but it is reasonably safe to argue that greater interest payments will squeeze out other spending if we want to keep inflation around a target level. There are two ways in which a greater debt load increases interest payments. &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Even if the rate of interest is unchanged, a greater amount of debt implies more interest to pay. This effect holds by definition.&lt;/li&gt;&#xA;&lt;li&gt;A greater debt-to-GDP ratio might increase interest rates. The magnitude of this effect is controversial. The example of Japan in recent decades (high debt ratios, low nominal yields) demonstrates that the effect is not very large, even if it exists.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;There is a school of thought that argues that we need to &quot;pay back&quot; debt in some sense; this is often referred to as the governmental budget constraint. This view can be summarised as: greater debt now means greater future taxes, and people do not like taxes. (This is sometimes called Ricardian Equivalence.) The exact mechanism is controversial. (I have severe doubts about the mathematics behind it, for what that's worth.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the case where the central bank has bought a lot of government debt (quantitative easing), the expectation is that the central bank will eventually reverse that policy. In any event, the central bank needs to pay interest on resserves if it wishes to raise market interest rates to control inflation, and the consolidated government will face a similar interest cost as the case of bill issuance.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, the money supply is related to debt levels; both are forms of government liabilities. In most modelling traditions, people only target a certain anount of money holdings (that earn no interest), and the rest is invested in bonds/bills. Therefore, we only expect money to grow in line with transaction needs, and this level may have little resemblance to total debt levels.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastEditorUserId="12891" LastEditDate="2017-09-04T11:43:48.993" LastActivityDate="2017-09-04T11:43:48.993" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="16520" PostTypeId="1" AcceptedAnswerId="16551" CreationDate="2017-04-27T18:45:44.503" Score="0" ViewCount="319" Body="&lt;p&gt;A liquidity guarantee was what a lot of banks used to insure outside investors payments if an asset in a Conduit defaulted. The way they were doing it was not really dispersing the risk evenly throughout the economy to outside money markets. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can someone explain a liquidity guarantee and the process of how it works economically in more simpler terms ?&lt;/p&gt;&#xA;" OwnerUserId="12842" LastActivityDate="2017-05-28T22:07:48.973" Title="How does a liquidity guarantee for Asset-Backed Commercial Paper used to finance a Conduit work ?" Tags="&lt;financial-economics&gt;&lt;financial-markets&gt;&lt;asset-pricing&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16521" PostTypeId="2" ParentId="16517" CreationDate="2017-04-27T18:53:58.587" Score="0" Body="&lt;p&gt;There is a lot going on in this question:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Debt&lt;/li&gt;&#xA;&lt;li&gt;GDP&lt;/li&gt;&#xA;&lt;li&gt;Government spending&lt;/li&gt;&#xA;&lt;li&gt;Taxes&lt;/li&gt;&#xA;&lt;li&gt;Money supply&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;All of these are good topics for conversation. I'm going to just focus on Debt and GDP.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;GDP is the market value of all the goods and services in a country. The government has the authority to tax and, in a sense, owns this value and could tax at 100% of GDP if it wished. For example, total country has a GDP of $\$100$, a government could tax it's citizens at 100%, meaning the government now has $\$100$ in it's coffers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Note that the above assumption is purely theoretical and is simply trying to put things into perspective.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Debt is the amount that a government owes. Debt and spending are not the same thing. Governments go into debt when they spend more that they have on hand (so to speak). If a government spends $\$500$ over a year and has a budget of $\$1,000$ then the government is said to have a budget surplus (took in through taxes more than it spent). If a government spends $\$5,000$ over a year and has a budget of $\$1,000$ then the government is said to have a budget deficit (took in less than it spent). Money is borrowed to cover these deficits. The sum of all deficits make up the national debt.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A high Debt/GDP is worrisome because the government owes almost as much as it could conceivably tax. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Government debt doesn't translate well to individuals, but here is an example that may put it in context: If you as an individual are valued at $\$1,000$ and you owe $\$50$, this isn't so bad. If you are valued at $\$1,000$ and you owe $\$950$, this is problematic. Just as you become hampered if you have too much debt, so too does the government.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As you dive into this topic you will find that it's pretty nuanced, but this should provide a good, quick overview. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Just quickly on money supply: this affects GDP because a change in the money supply affects interest rates which then affect consumer consumption.&lt;/p&gt;&#xA;" OwnerUserId="12662" LastEditorUserId="12662" LastEditDate="2017-04-28T13:59:02.240" LastActivityDate="2017-04-28T13:59:02.240" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16522" PostTypeId="1" AcceptedAnswerId="16547" CreationDate="2017-04-27T19:33:37.130" Score="2" ViewCount="3826" Body="&lt;p&gt;Im interested in programming a budget line or PPF which is responsive to changes in relative prices, and income effect.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know the equation for the budget line is $$m\geq p_1x_1+p_2x_2$$&#xA;Lets say we have an Income of $m=100$ and prices $p_1=1$ and $p_2=2$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How would I go about programming this into an excel spreadsheet or R?&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="8815" LastEditDate="2017-04-28T18:32:27.830" LastActivityDate="2017-04-28T19:16:50.260" Title="How to create a Budget line in excel or R" Tags="&lt;microeconomics&gt;&lt;software&gt;" AnswerCount="2" CommentCount="6" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16525" PostTypeId="1" AcceptedAnswerId="16546" CreationDate="2017-04-27T21:37:51.963" Score="3" ViewCount="5826" Body="&lt;p&gt;A great deal of time is spent distinguishing the big $U$ (von-Neumann-Morgenstern)v. small $u$ (Bernoulli Utility Function). The v.NM function maps from the space of lotteries to real number as it represents the preference defined on the lottery space while the Bernoulli is defined over sure amounts of money.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why is this distinction so important in the theory of expected utility? Also, what does this distinction enable us to achieve that is important in the expected utility theory? What is the most intuitive way to understand the expected utility theory is constructed in this way?&lt;/p&gt;&#xA;" OwnerUserId="8560" LastActivityDate="2017-04-28T17:53:48.520" Title="von-Neumann-Morgenstern v. Bernoulli Utility Function" Tags="&lt;expected-utility&gt;&lt;risk-aversion&gt;&lt;uncertainty&gt;" AnswerCount="1" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16526" PostTypeId="1" CreationDate="2017-04-27T21:38:38.080" Score="0" ViewCount="55" Body="&lt;p&gt;I am new to investing on the market so I am doing some research and studying. From what I can tell, the purpose of a collar strategy for options trading is to protect your gains you've made on the underlying stock.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you want to protect your gains, why would you not simply buy an OTM put?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is the purpose of writing a covered call in a collar strategy to offset the premium cost of the put?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit: To clarify, why would you write a call to possibly cap your gain and lose your shares if your goal is to protect from loss?&lt;/p&gt;&#xA;" OwnerUserId="13054" LastEditorUserId="2776" LastEditDate="2017-04-28T09:49:53.307" LastActivityDate="2017-04-28T09:49:53.307" Title="Collar strategy for options trading" Tags="&lt;stock-market&gt;&lt;investment&gt;&lt;asset-pricing&gt;" AnswerCount="1" CommentCount="1" ClosedDate="2017-05-12T15:08:28.750" ContentLicense="CC BY-SA 3.0" />
  <row Id="16529" PostTypeId="2" ParentId="16517" CreationDate="2017-04-28T02:59:22.247" Score="2" Body="&lt;p&gt;Here's a little contribution from what I learnt in school: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A large government deficit comes about from $G - T$ where $G$ refers to government spending and $T$ is the taxes that the government collects from its citizens. There are two possible ways to fund the deficit - issue government bonds to the public to get the cash to fund new government purchases, or increase the monetary base. We can then say that &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$G - T = ΔMB + ΔB$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Issuing debt to fund the deficit isn't a problem, but increasing the monetary base can cause inflation and too much of that is bad for the economy. eg. Hyperinflation by excessive money printing. How ΔMB finances the debt is by first, government issues debt to the public and gets new financing, then the central bank buys back these debt from the public using freshly printed money. The net result of ΔB = 0, but ΔMB rises due to more currency in circulation. Money supply thus increases.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So what happens when $G-T$ gets really big? People get worried that the government would not be able to pay back the government debts previously issued and then not buy the newly issued ones. So the government resorts to monetizing the debt by printing money and that leads to bad inflation for the economy. So the question is, why does the U.S. have trillions of debt and can still finance its deficit with government bonds? The answer is because people believe the economy is productive and long-lasting enough to eventually pay back the government bonds. So the cycle goes on.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;About money supply, governments shouldn't target raising or decreasing money supply to influence output of the economy. In the past, it does work using the Quantity Theory of Money where&#xA;$MV=PY$ &#xA;M = money supply,&#xA;V = velocity of money&#xA;P = price level &#xA;and Y = output level.&#xA;If and only if V is constant would M have a direct impact on nominal GDP, PY. But over time, V changes rapidly due to credit cards, changes in financial systems, etc, and V becomes unpredictable. Thus, M doesn't have a strong impact on PY anymore so central banks target interests rates instead to influence consumption and investment patterns.&lt;/p&gt;&#xA;" OwnerUserId="13055" LastActivityDate="2017-04-28T02:59:22.247" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16530" PostTypeId="1" AcceptedAnswerId="16549" CreationDate="2017-04-28T03:44:17.407" Score="-2" ViewCount="260" Body="&lt;p&gt;The motive of my post is in search of some help in order to understand the correct way to find the elasticity of substitution by means of calculating the following function. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$f(K, L)=\frac{K^{2}L^{2}}{K+L} $$&lt;/p&gt;&#xA;" OwnerUserId="13058" LastEditorUserId="2776" LastEditDate="2017-04-28T09:47:21.577" LastActivityDate="2017-04-28T20:21:24.380" Title="How do find elasticity of substitution for this function" Tags="&lt;microeconomics&gt;&lt;elasticity-of-substituion&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16531" PostTypeId="1" AcceptedAnswerId="16537" CreationDate="2017-04-28T03:46:26.010" Score="-2" ViewCount="71" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;It the real rate of interest on borrowing is $5$ percent per annum and&#xA;  housing prices rise at $2$ percent, then according to the neoclassical&#xA;  theory of investment with the price of houses at $100$, the rental for&#xA;  houses (over the year) must be?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The price of property after an year will be $102$ and the person will receive an interest of $5$. Therefore, the rent should be $(102+5)-100=7$? Is this correct?&lt;/p&gt;&#xA;" OwnerUserId="13057" LastEditorUserId="2776" LastEditDate="2017-04-28T10:01:39.960" LastActivityDate="2017-04-28T10:01:39.960" Title="Calculate rental rate in this exercise" Tags="&lt;macroeconomics&gt;&lt;interest-rate&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ClosedDate="2017-05-29T22:09:43.297" ContentLicense="CC BY-SA 3.0" />
  <row Id="16532" PostTypeId="1" CreationDate="2017-04-28T05:45:01.667" Score="3" ViewCount="238" Body="&lt;p&gt;Recently I was reading up on Adam Smith's economic philosophy of competition (i.e self interest) and division of labor.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;While I understand (and agree) with Smith's commentary that free markets and division of labor spur innovation, production, and general well-being of the average individual, it appears that there isn't commentary on wage gaps.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would assume that through specialization (and self interest) some labor is more valuable than others (e.g CEO salary vs factory worker salary). Couple this with competition and I would expect wage gaps to quickly form.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does Adam Smith ever address the issue of self-interest, competition, and division of labor and any potential wage gaps that post risk to a healthy economy?&lt;/p&gt;&#xA;" OwnerUserId="5332" LastEditorUserId="2776" LastEditDate="2017-04-28T09:52:00.297" LastActivityDate="2017-04-28T10:17:55.073" Title="Adam Smith and wage gap?" Tags="&lt;competition&gt;&lt;efficient-markets&gt;&lt;free-trade&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16533" PostTypeId="2" ParentId="16532" CreationDate="2017-04-28T06:07:29.607" Score="-2" Body="&lt;p&gt;I have thought about this issue as well. But through self-interest, don't you think that most people want the best for themselves and therefore, nobody would be willing to be a factory worker in this case?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If everybody strives for the best for themselves (i.e. all are trying to be CEO), the free market then puts upward pressure on &quot;lower-end&quot; jobs' wages pulling the wage gap closer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To say that there would be no wage gaps in an economy is a lie in my opinion. You cannot expect a skilled worker, who at some point in their life, has sacrificed something in order to be skilled, to receive the same amount of wages as an unskilled worker. Wage gaps will always exist, the question is how wide of a gap can the society accept?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I feel like what we are seeing today is the amount of information the internet has provided has managed to help the educated/skilled to gain more knowledge/skills quicker than those who are unskilled and are unwilling to improve which is leading to a wider wage gap. In the free market context, we assume that every man is hardworking and looks to seek the best of himself/herself which is not true realistically. But I would agree to a larger extent that the free market model is the best approach for any person to have a fair chance in getting ahead in life and Milton Friedman's Negative Income Tax can address the issue of people who are just unmotivated naturally.&lt;/p&gt;&#xA;" OwnerUserId="12968" LastEditorUserId="12968" LastEditDate="2017-04-28T06:13:24.940" LastActivityDate="2017-04-28T06:13:24.940" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16534" PostTypeId="2" ParentId="16526" CreationDate="2017-04-28T06:26:56.423" Score="2" Body="&lt;p&gt;A collar strategy is only in part to protect your gains made on the underlying stock. The collar strategy consists of buying protective puts and at the same time writing covered calls.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You are right in saying &quot;If you want to protect your gains, why would you not simply buy an OTM put?&quot;. This is known as the Protective Put and if you simply want to protect your gains, this is the way to do it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When you also write a covered call, you once again got it right that it is usually used to offset the premium costs of the put. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However when you combine the two strategies (creating an equity collar), your view of the market would be that it is moving sideways. I.E. you are expecting the asset prices to not rise above your written call's strike price, and you are protecting your asset prices in case it falls below your put's strike price. And in the meantime, you are still holding on to the asset earning dividends while the covered call is financing the protective put.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On a side note, this question seems to be more in tune with the Quantitative Finance Stack Exchange community.&lt;/p&gt;&#xA;" OwnerUserId="12968" LastActivityDate="2017-04-28T06:26:56.423" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="16535" PostTypeId="1" CreationDate="2017-04-28T09:12:43.957" Score="-3" ViewCount="249" Body="&lt;p&gt;How do you show that the utility function &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U = (X + A)^p (Y + B)^q$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;gives the same result than&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ U= p \log (X+A) + q \log (Y+B) $$&lt;/p&gt;&#xA;" OwnerUserId="13060" LastEditorUserId="2776" LastEditDate="2017-04-28T09:49:15.060" LastActivityDate="2017-04-28T16:11:21.987" Title="Show result is the same with two utility functions" Tags="&lt;utility&gt;" AnswerCount="1" CommentCount="2" ClosedDate="2017-05-02T10:24:28.530" ContentLicense="CC BY-SA 3.0" />
  <row Id="16536" PostTypeId="2" ParentId="16517" CreationDate="2017-04-28T09:40:06.520" Score="3" Body="&lt;p&gt;Ben,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let me dispute the premise of the question. A high debt to GDP ratio cannot be bad by itself. The debt to GDP ratio becomes a bad thing when it is too high. Too much alcohol. Too much ice cream. Too much time spent online. These are all bad things because they are &lt;strong&gt;too&lt;/strong&gt; much. But how do you know that these are too much? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's take alcohol as an example. Too much alcohol can make you do stupid things which you'll later regret. But how much alcohol is too much? When you're with a group of friends and you all drink five or six glasses of beer, and do stupid things together then you're probably having a good time. Drink five or six glasses of beer in the afternoon at the office and you can get fired. This is generally considered a bad thing. The same quantity of alcohol is just right in one situation and too much in another situation because of the consequences. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now you've mentioned some consequences of public debt. The government usually borrows funds to spend it and re-allocate scarce resources. This can be a bad thing, but this can also be a good thing. The United States for example borrowed funds (and compelled its citizens to lend it funds) to fight the Nazi's. This is generally agreed to have been a good thing. The United States also borrowed funds to invade Iraq under George W. Bush. This is something that many individuals considered (ex ante or ex post) to be a bad thing. We can say that when the United States borrowed funds the debt to GDP ratio was high, but it was not too high because the costs were exceeded by the benefits (fewer Nazi's). The resources used could've been used elsewhere but the highest value of those resources was when they were used to decrease the number of Nazi's. Whereas some will argue that when the debt to GDP ratio was increased to invade Iraq, this debt to GDP ratio became &lt;em&gt;too&lt;/em&gt; high. The costs were not exceeded by the benefits. The resources could've been used better elsewhere.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In addition to the costs of re-allocating resources, there are some other costs of public debt. It has to be repaid through taxation and individuals don't like taxation and it distorts incentives. Some others have argued that a public debt can lead to higher inflation because the central bank might monetize it. Others have argued that it means less private investment as people save in terms of government bonds instead of corporate bonds. And this might eventually lead to lower output due to a decrease in the quantity of capital per inhabitant. There are many other potential costs. And these costs depend on the situation. There is not one economic theory of debt to gdp ratio. There are many economic models that are appropriate to make sense of different situations where the debt to gdp ratio might play a role. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Returning to the question why a high debt to GDP ratio is bad, I hope you can see that it isn't. A high debt to GDP ratio is only bad if it is &lt;em&gt;too&lt;/em&gt; high. And you can only know whether it is too high when you compare the costs and the benefits of the debt to GDP ratio and these depend on the circumstances. In addition whether it is good or bad is purely subjective. If you think that the consequences are worth it, then it's not bad. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Next time that you might encounter a situation where someone declares that something is good or bad try making the distinction between what is and what ought to be. A statement that something is bad implies that the situation &lt;em&gt;should&lt;/em&gt; be different and this is premised on a value judgement. You can't arrive at the conclusion that something is bad without a normative premise, a value judgement. The real world consequences of a high public debt to gdp ratio are is up for dispute. We can learn from what we see. But what value you attach to these consequences whether these are good or bad is not up for dispute. It's a preference. Just like chocolate ice cream is better than vanilla is a preference.&lt;/p&gt;&#xA;" OwnerUserId="13016" LastActivityDate="2017-04-28T09:40:06.520" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16537" PostTypeId="2" ParentId="16531" CreationDate="2017-04-28T09:47:26.367" Score="0" Body="&lt;p&gt;No, it's not correct. It's generally assumed that in the absence of risk (which I believe you should ignore in this question), investment in different types of assets should yield the same returns. If I had \$100k I could lend it at 5% earning \$5k of interest after a year. Alternatively I can buy \$100k house now and sell it in a year. If I do that I get the difference in price (\$2k) and rental income. What the rental income must be so that those two types of investment are equally good.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(For easier exposition I assumed that interest rate on borrowings and savings are the same. The logic, however, is exactly the same).&lt;/p&gt;&#xA;" OwnerUserId="11693" LastActivityDate="2017-04-28T09:47:26.367" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="16538" PostTypeId="2" ParentId="16532" CreationDate="2017-04-28T10:05:25.290" Score="3" Body="&lt;p&gt;Yes, Smith addresses these issues in &lt;a href=&quot;http://www.econlib.org/library/Smith/smWN4.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Book 1 Chapter 10 of &lt;em&gt;The Wealth of Nations&lt;/em&gt;&lt;/a&gt;. Firstly, he notes that where two jobs are in almost every respect equivalent, we should expect them to pay the same wage:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;THE whole of the advantages and disadvantages of the different employments of labour and stock must, in the same neighbourhood, be either perfectly equal or continually tending to equality. If in the same neighbourhood, there was any employment evidently either more or less advantageous than the rest, so many people would crowd into it in the one case, and so many would desert it in the other, that its advantages would soon return to the level of other employments. This at least would be the case in a society where things were left to follow their natural course, where there was perfect liberty, and where every man was perfectly free both to choose what occupation he thought proper, and to change it as often as he thought proper. Every man's interest would prompt him to seek the advantageous, and to shun the disadvantageous employment.&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This is related to the observation made by MH.Q: if A and B are two equivalent jobs, but A pays more then everyone would rather work in A than B. This results in a shortage of labour in B and/or an excess of labour in A so that the wages converge by natural market forces and the wage gap disappears.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Most of the rest of the chapter is spent discussing reasons why we might diverge from this ideal of uniform wages. The need to compensate skilled workers for the cost of their education and for the chance that they will not be successful in their chosen profession, for example, are offered as key reasons why wages might differ. I recommend you take a look at the chapter to get a handle on Smith's thinking.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This reasoning still forms part of our understanding of the modern labour market: if the wage premium for a job is not sufficient to compensate a worker for the (opportunity) cost of training to do that job then workers will not become trained and there will be a shortage of labour in the industry. This will drive up prices by natural market forces.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;More generally, we now understand that wage differentials are an important means by which the market informs participants about how they should act. An extremely talented person who could, in principle, tranin to perform any of a large range of difficult jobs has no way to know where society needs his/her talents most. But the market provides this information by providing a mechanism for prices (i.e. wages) to increase in areas where skilled workers are short relative to prices in areas where workers are plentiful. The true beauty of this market mechanism is that is &lt;em&gt;simultaneously&lt;/em&gt; provides information about the needs for workers, and provides the incentives for workers to enter the appropriate industries.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Whatever problems the wage gap might cause in the economy, they must be weighed against the large efficiency gains that come from allocated talent where it is needed most.&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2017-04-28T10:17:55.073" LastActivityDate="2017-04-28T10:17:55.073" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16539" PostTypeId="2" ParentId="11924" CreationDate="2017-04-28T10:35:26.737" Score="0" Body="&lt;p&gt;To maximize profits they could buy 4TN of securities and then keep Fed Funds low for ever.  That would result in extracting interest income from the private sector, which one could argue is a contractionary policy.   Of course this is what they actually did, although they have in fact started raising Fed Funds recently.  &lt;/p&gt;&#xA;" OwnerUserId="13062" LastActivityDate="2017-04-28T10:35:26.737" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16540" PostTypeId="2" ParentId="11924" CreationDate="2017-04-28T10:55:18.297" Score="1" Body="&lt;p&gt;The Fed also conducts discount window borrowing. If pure profit maximising were the goal, they might only provide reserves through the discount window. They might even shake down weaker banks.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If confined to buying only Treasury securities, they would just need to maximise the real rate differential between currency and the nominal rate (plus, shrinking their balance sheet so that they no longer need to pay interest on reserves). The maximum level of the real policy rate that is sustainable depends upon your view of the natural rate of interest. If the belief is that the actual real policy rate cannot greatly depart from a natural rate, we would see little difference in policy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Buying bonds and keeping rates low works to lock in profits once, but the profits will dry up as bonds mature, and are replaced by low-yielding ones.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2017-04-28T10:55:18.297" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16541" PostTypeId="2" ParentId="16506" CreationDate="2017-04-28T10:59:28.597" Score="0" Body="&lt;p&gt;These are values in million &lt;strong&gt;US$&lt;/strong&gt;, from &lt;a href=&quot;https://comtrade.un.org/data/&quot; rel=&quot;nofollow noreferrer&quot;&gt;UN Comtrade&lt;/a&gt; database:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/p2ZPn.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/p2ZPn.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Data of graph is:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;Year    Goods   Services&#xA;1993    10254   -&#xA;1994    10201   -&#xA;1995    12012   -&#xA;1996    13422   -&#xA;1997    15607   -&#xA;1998    16116   -&#xA;1999    17423   -&#xA;2000    19523   4180&#xA;2001    20568   4903&#xA;2002    23928   6861&#xA;2003    21114   9383&#xA;2004    26186   10840&#xA;2005    29982   10965&#xA;2006    32227   12574&#xA;2007    35877   15559&#xA;2008    34916   13744&#xA;2009    24448   12811&#xA;2010    25676   15910&#xA;2011    27988   18496&#xA;2012    25521   18374&#xA;2013    28376   13601&#xA;2014    29319   15628&#xA;2015    25499   -&#xA;2016    23154   -&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Although this is not a primary source (as ONS), they have the potential benefit of being comparable across countries (all in USD). The drawback is that they are not in GBP. This only matter is the GBP/USD has varied considerable over time, which it has:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/xMiTP.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/xMiTP.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can always reconvert them into GBP, using for example &lt;a href=&quot;http://www.macrotrends.net/2549/pound-dollar-exchange-rate-historical-chart&quot; rel=&quot;nofollow noreferrer&quot;&gt;this data&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-04-28T10:59:28.597" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16543" PostTypeId="2" ParentId="16535" CreationDate="2017-04-28T15:07:50.100" Score="2" Body="&lt;p&gt;The &quot;proof&quot; that you're looking for consists of a few steps.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;The second utility function is a log transformation of the first;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Log transformations are order preserving (monotone);&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;This #2 means that the each bundle is ranked the same from most preferred to least preferred;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Since preferences are ordinal and utility functions are representations of ordinal preferences these two utility functions are the same because they represent the same set of preferences. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Hope that this helps.&lt;/p&gt;&#xA;" OwnerUserId="13016" LastEditorUserId="2776" LastEditDate="2017-04-28T16:11:21.987" LastActivityDate="2017-04-28T16:11:21.987" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="16545" PostTypeId="2" ParentId="16522" CreationDate="2017-04-28T16:29:07.370" Score="3" Body="&lt;p&gt;If you want to draw a budget constrain which takes $m$, $p_1$ and $p_2$ as inputs, this is a R code that does it:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;# Clear environment&#xA;remove(list = ls())&#xA;&#xA;# Enter inputs&#xA;m=100&#xA;p1=1&#xA;p2=2&#xA;&#xA;# Create plot&#xA;plot(c(0,(m/p1)*1.1), c(0,(m/p2)*1.1), type = &quot;n&quot;, xlab = expression(x[1]), ylab = expression(x[2]), xaxs=&quot;i&quot;, yaxs=&quot;i&quot;)&#xA;abline(m/p2, -p1/p2, col = 1, lwd = 2)&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;You get:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/9NTH0.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/9NTH0.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The limit of axes adjust accordingly to the parameters, adding a 10% more to each axis crossing point.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-04-28T16:29:07.370" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16546" PostTypeId="2" ParentId="16525" CreationDate="2017-04-28T17:53:48.520" Score="3" Body="&lt;p&gt;Bernoulli utility represents preference over &lt;strong&gt;monetary outcomes&lt;/strong&gt;. In a way, this is no different from the typical utility functions defined over consumption bundles. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;vNM utility, in contrast, represents preference over &lt;strong&gt;lotteries of monetary outcomes&lt;/strong&gt;. Thus, the argument of vNM utility is an object related to, but categorically distinct from, the object that is an argument of Bernoulli utility.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, Bernoulli utility function allows us to compare the utilities from having $\$5$ to having $\$7$, while vNM utility allows us to compare utilities from the lottery $(0.2\otimes\$5,0.8\otimes\$7)$ --- having $\$5$ with $20\%$ and $\$7$ with $80\%$ --- to the lottery $(0.6\otimes\$5,0.4\otimes\$7)$ --- having $\$5$ with $60\%$ and $\$7$ with $40\%$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this sense, the distinction between Bernoulli and vNM utility functions are necessary (as they are applied to different objects) rather than important (since they both represent some kind of preference in the end), as @denesp says in his comment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Moreover, if we only consider degenerate lotteries, i.e. the probabilities are either $0$ or $1$, then vNM and Bernoulli utilities coincide. &#xA;That is, the Bernoulli utility of having $\$5$ is exactly the same as the vNM utility of having $\$5$ with $100\%$. Therefore, distinguishing Bernoulli from vNM utility functions enables us to examine the effects of &lt;em&gt;uncertainty&lt;/em&gt; apart from the mere quantity of &quot;stuff&quot; (be it goods or money). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lastly, defining utility over money also allows us to study people's attitudes towards risk. &lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2017-04-28T17:53:48.520" CommentCount="12" ContentLicense="CC BY-SA 3.0" />
  <row Id="16547" PostTypeId="2" ParentId="16522" CreationDate="2017-04-28T18:50:51.770" Score="4" Body="&lt;p&gt;Another R code that does it...&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;m &amp;lt;- 100&#xA;p &amp;lt;- c(1, 2) &#xA;curve(m/p[2] - p[1]/p[2]*x, from = 0, to = m/p[1], lwd = 2,&#xA;      xlab = expression(x[1]),&#xA;      ylab = expression(x[2]))&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/eQ6K3.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/eQ6K3.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="4193" LastEditorUserId="4193" LastEditDate="2017-04-28T19:16:50.260" LastActivityDate="2017-04-28T19:16:50.260" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16549" PostTypeId="2" ParentId="16530" CreationDate="2017-04-28T19:58:35.687" Score="-2" Body="&lt;p&gt;My guess is that the ''elasticity of substitution'' means something like$$\frac{\%\Delta K}{\% \Delta L}=\mathrm{mrs} \times\frac lk, $$ but that is dependant on what point you are at (i.e. a coordinate $(l, k)$). To get $\mathrm{mrs} $, find $\frac {\mathrm d k} {\mathrm d l} $, and even that is dependent on the value of $f$. &lt;/p&gt;&#xA;" OwnerUserId="175" LastActivityDate="2017-04-28T19:58:35.687" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16550" PostTypeId="2" ParentId="16530" CreationDate="2017-04-28T20:21:24.380" Score="1" Body="&lt;p&gt;Elasticity of subsitution ($\sigma$) can be found by using this formula&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\sigma=\frac{dln(\frac{x_1}{x_2})}{dln(MRS)}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;alternatively you can use:&#xA;$$\sigma=\frac{e(x)f(x)f_1(x)f_2(x)}{x_1x_2|BH|}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $x=x_1,x_2......x_n$ and $e(x)$ is  elasticity of scale. You can use this information to solve your problem.&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2017-04-28T20:21:24.380" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16551" PostTypeId="2" ParentId="16520" CreationDate="2017-04-28T21:23:49.053" Score="0" Body="&lt;p&gt;Unlike what is often assumed the in the realms of theoretical macroeconomics there is not always an infinitely deep market with constant buying and selling. In fact, one of the reasons Investment banks are so important is in the role they play in making markets for buyers and sellers of stocks and financial products of many kinds. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lets think about liquidity in the current context - the liquidity of a, say, firm's shares is determined by the available quantity, indications of interest &amp;amp;C. We could construct a working difenition of liquidity as the difference between bid price and selling price (in the context of a firm's shares although the intuition holds). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In practice, the liquidity guarantee means that an entity involved in the exchange acts as the guarantor for there being bid prices and selling prices, a guaranteed quantity of shares available, and especially ensuring that the discrepancy does not become too great between bid price and selling price. This is of importance for, say, investors, since a smaller spread significantly affects the transaction costs, risks etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is essentially someone (post-financial crisis it has often been the government) guaranteeing that a market will be made (with buying and selling prices in good faith) for a given time period (or indefinitely). It is a form of prevention of stocks becoming illiquid, almost like a form of insurance. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The application of a liquidity guarantee is far from limited to buying/selling shares in a firm of course (although I believe the intuition is the same) - a notable example has been the US government's temporary liquidity guarantee programme which was constructed in the aftermath of the 2008 financial crisis with the purpose of getting banks to begin lending to each other again - the purpose of the programme was &quot;to decrease the cost of bank funding so that bank lending to consumers and businesses will normalize.&quot;  and &quot;to strengthen confidence and encourage liquidity in the banking system by guaranteeing newly issued senior unsecured debt of banks, thrifts, and certain holding company, and by providing full coverage of non-interest bearing deposit transaction accounts, regardless of dollar amount.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Banks who made out liquidity guarantees are essentially insurance salesman and hence are exposed to the downside if things catastrophize. Often this insurance money was being kept in markets that would also be affected by market forces that made the liquidity guarantee they were insuring catastrophize in the first place! (These problems were exacerbated by many other factors including very high effective leverage rates).&lt;/p&gt;&#xA;" OwnerUserId="13051" LastActivityDate="2017-04-28T21:23:49.053" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16552" PostTypeId="1" CreationDate="2017-04-28T23:15:35.290" Score="0" ViewCount="713" Body="&lt;p&gt;What happens if the payoff is the same across strategies? I have some thoughts but I am not sure.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\begin{array}{c|cc}&#xA; &amp;amp;C&amp;amp;D\\&#xA;\hline&#xA;A&amp;amp; 1,1&amp;amp; 1,1\\&#xA;B&amp;amp; 0,1&amp;amp;1,-1&#xA;\end{array}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Dominant strategy&lt;/strong&gt;&#xA;By definition, a player's strategy X is dominant over his other strategies if strategy X is the best strategy regardless of what the other player chooses as his/her strategy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For player 1 (Row), is ‘A’ a dominant strategy for player 1? I'm not so sure here. Yes, A is the best response if player 1 plays C, but both A and B are the best responses to player 1 when he plays D. In this case, should strategy A be considered a dominant strategy for player 1?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Same goes for player 2, if player 1 plays A, then player 2 can respond with either C or D. If player 1 plays B, then player 2 respond with C. Can i say C is a dominant strategy for player 2 then?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Nash Equilibirum&lt;/strong&gt;&#xA;Nash Equilibrium is defined such that no other player can do better by unilatarally change his strategy. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is (A,C) Nash Equilibrium? By definition its Nash Equilibirum since player 1 will not change from A to B since payoff of 0 is not better than 1. player 2 will not change from C to D, since payoff of 1 and not better than 1. (Is this thinking correct?)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is (A,D) Nash Equilibrium? By definition its Nash Equilibrium since player 1 will not change from A to B since payoff of 1 is not better than 1. player 2 will not change from C to D, since payoff of 1 and not better than 1. (Is this thinking correct?)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks.&lt;/p&gt;&#xA;" OwnerUserId="13070" LastEditorUserId="42" LastEditDate="2017-04-29T19:22:59.457" LastActivityDate="2017-04-29T19:22:59.457" Title="Nash Equilibrium and Dominant Pure Strategy when payoffs identical" Tags="&lt;game-theory&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="16553" PostTypeId="1" CreationDate="2017-04-29T00:41:20.797" Score="3" ViewCount="3508" Body="&lt;p&gt;Attempting to solve a practice problem, not sure if I'm heading in the right direction since my solution seems pretty messy. Given the following utility function,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$u(x,y)=min\{x^{1/2},2y\}$, find the Marshallian demands.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My answer:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since Leontief is perfect complements, must be the case that $x^{1/2}=2y$, substituting this into a budget constraint yields the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$p_x \times x + p_y \times y = w$, where w is total income. Taking $x^{1/2}=2y$ and squaring this yields $x=4y^2$. Subbing this into constraint would give:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$p_x \times 4y^2 + p_y \times y = w$, at this point I applied the quadratic formula and got a demand function for y as follows,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$y = \frac{-p_y \pm \sqrt{p_y^2 + 16 p_x w}}{8p_x}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This seems messy to me, I figure I can rule out the minus side of the quadratic seems that would imply y is negative. Even if some confirmation that this is the right approach would be appreciated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks!&lt;/p&gt;&#xA;" OwnerUserId="10957" LastEditorUserId="61" LastEditDate="2017-04-29T11:54:01.363" LastActivityDate="2017-04-29T12:09:56.683" Title="Finding Marshallian demands for Leontief production function with different powers" Tags="&lt;microeconomics&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="16555" PostTypeId="1" AcceptedAnswerId="16557" CreationDate="2017-04-29T04:07:33.727" Score="1" ViewCount="897" Body="&lt;p&gt;It seems an obvious fact (not explained by authors but stated) that when a Central Bank purchases foreign currency (to stabilise its own), the domestic money supply goes up. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems to me that the CB in question would use its domestic currency to buy foreign exchange but I don't see how this increases domestic money supply (I assume domestic money supply to be the amount of domestic currency in circulation in the domestic market). &lt;/p&gt;&#xA;" OwnerUserId="12986" LastEditorUserId="2776" LastEditDate="2017-08-02T12:58:58.123" LastActivityDate="2017-08-02T12:58:58.123" Title="Exchange rate and domestic money supply" Tags="&lt;macroeconomics&gt;&lt;money-supply&gt;&lt;money&gt;&lt;foreign-exchange&gt;&lt;currency-exchange&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16557" PostTypeId="2" ParentId="16555" CreationDate="2017-04-29T07:09:07.333" Score="1" Body="&lt;p&gt;This question can be answered once a few facts are realized.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;The Central Bank has a monopoly on the production of currency;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The Central Bank can purchase foreign currency by using currency it has either already produced but stored in its vault or by producing new units of the currency;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The currency that the Central Bank has produced but stored in its vault or not produced yet are not in circulation;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;By purchasing foreign currency the Central Bank brings its currency in circulation;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;This currency can be brought out of circulation by the Central Bank purchasing this currency with assets such as foreign currency and destroying it afterwards or by anyone else doing exactly the same. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;If we therefore define the domestic money supply as the currency in circulation, then purchases by the Central Bank of foreign currency will bring currency in circulation from either its vault or its press. &lt;/p&gt;&#xA;" OwnerUserId="13016" LastEditorUserId="2776" LastEditDate="2017-08-02T12:58:22.730" LastActivityDate="2017-08-02T12:58:22.730" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16558" PostTypeId="1" CreationDate="2017-04-29T07:28:08.183" Score="13" ViewCount="591" Body="&lt;p&gt;For example, I've never heard of a large lawn-mowing corporation. Phone and computer repairers seem to consist mostly of 1 or two man operations. Wedding planners and photographers seem exclusively to be home businesses. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why is it that certain types of businesses seem never able to grow into a large company? I'm assuming if it were possible, at least some percentage of lucky or savvy businessmen or women would have found great success. &lt;/p&gt;&#xA;" OwnerUserId="13073" LastActivityDate="2017-05-02T02:44:09.320" Title="What is it about certain business types that seem to restrict how much large they can grow?" Tags="&lt;microeconomics&gt;" AnswerCount="4" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16561" PostTypeId="2" ParentId="16558" CreationDate="2017-04-29T08:33:36.080" Score="5" Body="&lt;p&gt;That's a very interesting question and there are multiple potential reasons for this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One reason is that production is simply not efficient at a larger scale. There are diminishing returns to scale: i.e. doubling inputs will result in less than twice the output. This means that two smaller production facilities can be more efficient than one large one.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One way to think about this are kids shoveling snow in winter. Beyond a certain number of kids with shovels they're just going to get in each other's way shoveling the same driveway. Now they could of course split up into two or more groups, these two groups could be one firm or these could be two firms. But what's the rationale for combining these two firms into one? They probably will not economize on any fixed expenses. They need to ring the doorbell, bring their shovels, and ask people whether they wish their driveway to be shoveled. Sure one kid could specialize in negotiating a price and ringing many doorbells and scheduling appointments, but &#xA;the gains from specialization are probably not such that it's worthwhile. It's not how that &quot;industry&quot; works. You ring, you shovel, and you move on. So there is no good reason for combining. The kid ringing and making appointments is an unnecessary overhead. It's better that he shovels too.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another reason are the fixed costs of certain regulations. You're probably familiar with the fact that in some jurisdictions firms above a certain size need to provide certain services to their employees. If you're a small firm, then you will incur that fixed costs all at once if you expand over that threshold. You'll have to get your existing employees those services and the new people. These additional fixed costs might not make it worthwhile to hire extra people unless you can be certain that you can expand your business well beyond that. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A third reason is that many people do not want to expand their businesses. They enjoy the work that they do and the extra income is not worth it. They'd have to spend less time doing the work that they enjoy and more time on administrating the work done by others. Effectively this is a change of employment. So you might as well ask why do some people do work A and not work B?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These are three reasons. The reasoning is the same each time though. The benefits of expanding do not justify the costs of expanding in that particular situation. Given that there are many different situations there will be many different reasons why people choose not to expand their business. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does this answer your question?&lt;/p&gt;&#xA;" OwnerUserId="13016" LastActivityDate="2017-04-29T08:33:36.080" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="16562" PostTypeId="1" CreationDate="2017-04-29T08:59:58.047" Score="0" ViewCount="46" Body="&lt;p&gt;This question is related to the answer to the question&#xA;&lt;a href=&quot;https://economics.stackexchange.com/questions/16555/exchange-rate-and-domestic-money-supply&quot;&gt;exchange rate and domestic money supply&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is said that the 'CB purchases foreign currency on currency market'. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is it possible that some of this purchasing is even done within the domestic market (I would guess not but don't really know)? Or are we assuming that in circulation means within the domestic market and foreign market (again I would guess not)? Or is maybe that we assume/know that when in circulation, our currency will find its way back to our market and this will obviously result in more money in circulation. Maybe I am really thinking about it in the wrong way, and in circulation simply means that there are lenders out there now (foreign or domestic) that have more of our currency and will lend at a low interest rate.&lt;/p&gt;&#xA;" OwnerUserId="12986" LastActivityDate="2017-05-29T10:44:34.723" Title="exchange rate and domestic money supply part II" Tags="&lt;macroeconomics&gt;&lt;money-supply&gt;&lt;currency-exchange&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16563" PostTypeId="2" ParentId="16553" CreationDate="2017-04-29T09:51:24.780" Score="1" Body="&lt;p&gt;As Amit said, your answer is correct. As Toby said, you can rule out negative output. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is no much insight to add as an answer really. However, I was also fairly puzzled that such a simple problem gives a complex answer. As it turns out, you get a linear demand (on income) only if the exponents on both components is the same. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider the more general case:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ U(x,y) = \text{min}\{ax^\alpha,by^\beta\} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Optimality requires (* notation for optimal values omitted)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ ax^\alpha = by^\beta\ $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Replacing one of these in the budget constraint leads to:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ p_x x + p_y \left(\frac{a}{b}\right)^{\frac{1}{\beta}} x^{\frac{\alpha}{\beta}} = w $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here we see that only when $\alpha=\beta$, demand will be linear (on income). In this case:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ x = \frac{w}{p_x + p_y\left(\frac{a}{b}\right)^{\frac{1}{\alpha}}} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://mathoverflow.net/questions/44991/roots-of-polynomial-like-equations-with-irrational-powers&quot;&gt;It seems&lt;/a&gt; an algebraic solution for the general (unrestricted) case cannot be derived, as the polynomial you get might have irrational powers.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-04-29T09:56:50.130" LastActivityDate="2017-04-29T09:56:50.130" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16564" PostTypeId="2" ParentId="16553" CreationDate="2017-04-29T12:09:56.683" Score="1" Body="&lt;p&gt;An interesting exploration here is whether there are conditions under which such a demand function reflects a negative relation between price and quantity demanded. Normalizing $p_x =1$ and keeping income constant we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$y = \frac{-p_y}{8} + {\sqrt{(p_y/8)^2 + \frac14 w}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies \frac {\partial y}{\partial p_y} = -\frac {1}{8}+ \frac 12\cdot\left((p_y/8)^2 + \frac14 w\right)^{-1/2}\cdot \frac {2p_y}{8^2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$= -\frac  18 \cdot \left[ 1- \left((p_y/8)^2 + \frac14 w\right)^{-1/2}\cdot \frac {p_y}{8}\right]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For this derivative to be negative, we want to expression inside the brackets to be positive. So we require&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$1- \left((p_y/8)^2 + \frac14 w\right)^{-1/2}\cdot \frac {p_y}{8} &amp;gt; 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies  1&amp;gt; \left((p_y/8)^2 + \frac14 w\right)^{-1/2}\cdot \frac {p_y}{8} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \implies \left((p_y/8)^2 + \frac14 w\right)^{1/2} &amp;gt; \frac {p_y}{8}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies (p_y/8)^2 + \frac14 w &amp;gt; (p_y/8)^2$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which holds always. So we see that even this &quot;strange looking&quot; utiity function with its &quot;messy&quot; demand functions, reflects always the negative effect of price on quantity demanded.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2017-04-29T12:09:56.683" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16565" PostTypeId="2" ParentId="16558" CreationDate="2017-04-29T14:04:56.297" Score="5" Body="&lt;p&gt;Lawns and snowy drives are not transportable. The further the workers have to travel to work, the lower the profit margin. On the other hand, it is possible to create a big organization with national or international branding and advertising, and economies of scale in purchasing etc, but with a distributed local workforce. One method is to set up a franchise organization, such as Subway, McDonalds, 7-Eleven, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the UK, that business model is used for some apparently &quot;one or two person&quot; businesses like pest control, locksmiths, etc, where advertising at national level (e.g. on internet search engines) leads potential customers to workers who operate in a relatively small geographical area.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For something like computer repairs, the logic works the other way: how much work is the &lt;em&gt;customer&lt;/em&gt; prepared to do, to take the broken device to a repairer? If that involves packaging it securely and using a courier service, are they prepared to take that risk, compared with driving a few miles to a local operation where you can actually talk to the people doing the work?&lt;/p&gt;&#xA;" OwnerUserId="8757" LastActivityDate="2017-04-29T14:04:56.297" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16567" PostTypeId="2" ParentId="16552" CreationDate="2017-04-29T14:59:13.460" Score="1" Body="&lt;p&gt;First, make sure you have a definition of strategy clear. Strategy describes the actions a player chooses conditional on information etc. In your case it's a one-shot game so perhaps the distinction between an action and a strategy is not that important.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In game theory there is the notion of a &quot;weakly&quot; or &quot;strictly&quot; dominant (or equivalently &quot;weakly&quot; or &quot;strictly&quot; dominated) action. Nash equilibrium does not allow for any strictly dominated action to be chosen. It can be, however that a weakly dominated action is chosen. Hence you cannot cross out a whole row or column because an action is weakly dominated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your thinking regarding to NEs is correct. In both AC and AD no player can be strictly better off by changing his/her action conditional on opponent's action being held constant.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, game theory done properly is rigorous enough (at least at undergraduate and graduate level), that there is never grey area. The definitions you gave are not stated mathematically and not 100% correct either, hence they seem a bit vague. &lt;/p&gt;&#xA;" OwnerUserId="11693" LastActivityDate="2017-04-29T14:59:13.460" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16569" PostTypeId="1" AcceptedAnswerId="16590" CreationDate="2017-04-29T16:49:49.190" Score="0" ViewCount="318" Body="&lt;p&gt;GDP calculated using expenditure apporach is like this:&#xA;GDP=C+I+G+(X-M)&#xA;However on this site:&#xA;&lt;a href=&quot;http://www.singstat.gov.sg/statistics/visualising-data/charts/share-of-gdp-by-expenditure&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.singstat.gov.sg/statistics/visualising-data/charts/share-of-gdp-by-expenditure&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The data is avaialable for C, G and net exports, but there are two variables: Gross Fixed Capital Formation and Changes In Inventories. Since there is no 'I' variable, can I assume that the sum of those two variables are equal I?&lt;/p&gt;&#xA;" OwnerUserId="13081" LastActivityDate="2017-05-01T09:52:05.897" Title="GDP in expenditure approach" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;" AnswerCount="1" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16570" PostTypeId="2" ParentId="16558" CreationDate="2017-04-29T18:15:42.503" Score="2" Body="&lt;p&gt;Sometimes it's just that becoming &quot;big&quot; changes the way the business operates so much that it's hard to recognize.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Computer repairs:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To scale up, you need to lower staff training costs and the number of replacement parts you keep in stock. There are 2 ways I know of that this is done:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Become a service provider for a specific brand. Also do the warranty services for them in an entire region. You usually operate under that brand name, not under your own company name.&lt;/li&gt;&#xA;&lt;li&gt;Provide computers and repairs, to businesses. You sell or rent them the PCs, then you do maintenance of the PCs you sold or rented them.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Lawn mowing:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To scale up you provide additional services, until you become a landscaping business.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;The other examples, photographer and wedding planner, are more interesting.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If comes down to employees having a strong incentive to start their own business instead of being employees.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These are professionals in a business where skill and experience matters, but where most of the work is done by the same person who is the primary customer contact. In these professions, a strong personal brand has above average value. If you want the same wedding planner Kate had, you usually don't ask for the company who did her wedding, you ask for the person who did her wedding. This makes it relatively easy for her to quit and start her own business - especially considering that startup costs are very low in this business.&lt;/p&gt;&#xA;" OwnerUserId="13082" LastActivityDate="2017-04-29T18:15:42.503" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16575" PostTypeId="1" CreationDate="2017-04-30T10:14:23.087" Score="0" ViewCount="295" Body="&lt;p&gt;The Forex Reserve of a country remains in the locker of its central bank and does not earn any interest for that country. What are the measures that the central bank of a country can take to overcome this and other related demerits. Further due to this demerit,does a country really have a saturation/limitation level beyond which it is uneconomical to pile up its Forex Reserve? &lt;/p&gt;&#xA;" OwnerUserId="13091" LastEditorUserId="13091" LastEditDate="2017-04-30T12:07:38.760" LastActivityDate="2018-03-29T03:39:37.957" Title="What are the limitations that a country faces in increasing its Forex Reserve?" Tags="&lt;foreign-exchange&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16576" PostTypeId="1" AcceptedAnswerId="16578" CreationDate="2017-04-30T10:45:48.780" Score="3" ViewCount="2010" Body="&lt;p&gt;A one definition is given by :&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Strategy is one of the possible actions of a player&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;But I'm having a trouble. When working with games, We specify a strategy set $S$ and a strategy $s \epsilon S$. For instance consider a typical normal form game, battle of sexes for instance. We have $2$ strategies for each player so the set $S$ has two elements. According to the definition here what would be the actions? What is a &quot;possible action&quot;?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm asking this because in the definition of Bayesian games we are given an Action set instead of a strategy set. Can anyone clear things up to me?&lt;/p&gt;&#xA;" OwnerUserId="10922" LastActivityDate="2017-04-30T13:14:49.330" Title="Game theory - Definition problem - Strategy vs Action" Tags="&lt;microeconomics&gt;&lt;game-theory&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="16577" PostTypeId="2" ParentId="16576" CreationDate="2017-04-30T12:39:53.673" Score="4" Body="&lt;p&gt;The definition &quot;Strategy is one of the possible actions of a player&quot; is very poorly phrased. As you note there is an important distinction between action sets and strategy sets in some games, e.g. sequantial and Bayesian games.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A strategy selects an action in each information set of the player. If there is only one information set, e.g. simultaneous move games, e.g. battle of the sexes, then the action set of that player coincides with her strategy set.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2017-04-30T12:39:53.673" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16578" PostTypeId="2" ParentId="16576" CreationDate="2017-04-30T13:14:49.330" Score="5" Body="&lt;p&gt;I had the same question few weeks ago. I attach the link below that may help you, but here is the approach I took to solidify the difference.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://economics.stackexchange.com/questions/15747/when-action-and-strategy-differ-in-game-theory/15749#15749&quot;&gt;When action and strategy differ in game theory&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Don't associate the distinction between action and strategy with whether the game is in normal form or extensive form or sequential or not. This can cause more confusion. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;When you want to define strategy, always think of &quot;contingency&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Action is a set of possible things you can do when you are called upon to move. For example, suppose you want to sell a used car as dealer. As seller, what is it that you CAN DO when you are &quot;called upon to move&quot;? Simple: offer high price or low price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But you immediately realize things can get complicated if, say, dealer has more information on the car's condition. You might suspect that car behind the dealer is a good used card or lemon. Although you still get to offer high price or low price at the end of the day, as player of the game, you must set a contingency plan when the car is good or lemon.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Harsanyi introduces &quot;nature&quot; to do exactly this. The condition of car is simple: good or lemon. This is described as the state space of the game. Both players, seller and buyer, understand the ex-ante probability distribution over this state space, meaning you and potential buyer know the probability you get good car or lemon. Therefore, as dealer, you would have action space $A_1=\{H,L\}$ indicating offering high or low price. However, your strategy space would be $S_1=\{(H,h),(H,l),(L,h),(L,l)\}$ where first entry of the pair is your action when the car is good and second entry is your action when the car is lemon. It is a game plan laid out for you in every possible scenario.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One good exercise may be to see if you can construct the strategy set for buyer if she doesn't observe the condition (i.e. state) of the car the nature draws.&lt;/p&gt;&#xA;" OwnerUserId="8560" LastActivityDate="2017-04-30T13:14:49.330" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16579" PostTypeId="1" CreationDate="2017-04-30T17:25:46.397" Score="2" ViewCount="1323" Body="&lt;p&gt;GDP per capita can be broken down into 4 smaller components: Labor productivity, Average hours worked, Employment rate and Participation rate as can be deduced from the following formula: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.imgur.com/APUxsh3.png&quot; alt=&quot;pic&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I'd like to ask is if there is a way to accurately measure the change in one component/factor if given the change in other components/factors?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Something akin to this:&#xA;Suppose that everyone in the population of Country A is employed and equally productive.  If the population grows by a%, hours of work fall by b%, and output per hour grows by c%, then output per person, or output per capita increases/decreases by how many percent?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the aforementioned example, I tried to do the following calculation but the result came out wrong.&#xA;$$&#xA;\Delta \text{GDP per capita}=1-(1+c)\times \frac {1-b}{1+a}&#xA;$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a more concrete illustration, let's assign 5,3,4 to a,b,c respectively, I would get &#xA;  $$&#xA;\Delta \text{GDP per capita}=1-(1+0.04)\times \frac {1-0.03}{1+0.05}\approx 0.039&#xA;$$ &#xA;which means GDP per capita decreases approximately 4 percent but the result I got from the book is a 1% increase. I'm quite stuck here ...&lt;/p&gt;&#xA;" OwnerUserId="13096" LastActivityDate="2017-04-30T17:25:46.397" Title="Breaking down components of GDP per capita" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;" AnswerCount="0" CommentCount="9" ContentLicense="CC BY-SA 3.0" />
  <row Id="16580" PostTypeId="1" AcceptedAnswerId="16583" CreationDate="2017-04-30T22:03:37.510" Score="1" ViewCount="53" Body="&lt;p&gt;Let's say the Federal Reserve purchases a \$100 one-year Treasury bill from the market, and puts ~\$100 of cash into the economy. A year later, this T-bill comes due, and the Treasury pays the Fed $100. What happens with this cash? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can imagine a few possibilities:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;The money is immediately reinvested in new securities. Since no new money is created, the monetary base stays constant.&lt;/li&gt;&#xA;&lt;li&gt;The money is destroyed, shrinking the monetary base.&lt;/li&gt;&#xA;&lt;li&gt;The money is transferred to the Treasury as Fed revenue. Since this money (a Fed liability) is no longer backed by a security, the Fed's balance sheet goes into the red.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;This question is motivated by this quote from the Wikipedia page on &lt;a href=&quot;https://en.wikipedia.org/wiki/Monetization#Debt_monetization&quot; rel=&quot;nofollow noreferrer&quot;&gt;Debt Monetization&lt;/a&gt;: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The central bank may purchase government bonds by conducting an open market purchase, i.e. by increasing the monetary base through the money creation process. If government bonds that have come due are held by the central bank, the central bank will return any funds paid to it back to the treasury. Thus, the treasury may &quot;borrow&quot; money without needing to repay it. This process of financing government spending is called &quot;monetizing the debt&quot;.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This seems to imply the third of my listed possibilities, but as mentioned this seems to break the promise that all Fed-issued money is backed by assets.&lt;/p&gt;&#xA;" OwnerUserId="13099" LastEditorUserId="13099" LastEditDate="2017-04-30T22:08:48.147" LastActivityDate="2017-05-01T01:39:11.920" Title="Federal Reserve Securities Coming Due" Tags="&lt;federal-reserve&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16581" PostTypeId="2" ParentId="16580" CreationDate="2017-05-01T01:09:30.400" Score="1" Body="&lt;p&gt;The Treasury has a balance at the Federal Reserve; this balance is not part of the monetary base.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When the \$100 is paid back, the Treasury balance is run down by \$100, and the assets of the Fed (bill holdings) is reduced by $100. The Federal Reserve balance sheet remains in balance, and there is no effect on the monetary base.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2017-05-01T01:09:30.400" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16582" PostTypeId="1" CreationDate="2017-05-01T01:14:20.353" Score="-1" ViewCount="191" Body="&lt;p&gt;Lets say you invest $1billion in a city in recession. The investment will have a multiplier, boosting the value of your investment. Thus if keynesianism was correct there would be an increased incentive to invest during recessions &lt;/p&gt;&#xA;" OwnerUserId="13104" LastActivityDate="2017-05-02T07:17:11.177" Title="Does Keynesianism increase the incentive to invest?" Tags="&lt;keynesian-economics&gt;" AnswerCount="2" CommentCount="2" ClosedDate="2017-05-02T09:20:27.640" ContentLicense="CC BY-SA 3.0" />
  <row Id="16583" PostTypeId="2" ParentId="16580" CreationDate="2017-05-01T01:31:05.117" Score="2" Body="&lt;p&gt;Currently (Apr 2017)  the Fed has a policy of reinvesting the proceeds of maturing securities in new securities, so the first option is true.  However, the Fed is believed to be considering ending this reinvestment policy in the next few months.  In that case, the second option will apply- the Fed's balance sheet will decrease and the overall money supply will decrease (assuming that the Treasury will then issue securities to keep its cash balance unchanged).   Option 3 does not really apply because the maturity of a security held by the Fed is not 'revenue'.  They would just reduce assets (Treasury bond) and l moiabilities (cash balance owed to the Treasury) at the same time.  &lt;/p&gt;&#xA;" OwnerUserId="13062" LastEditorUserId="13062" LastEditDate="2017-05-01T01:39:11.920" LastActivityDate="2017-05-01T01:39:11.920" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16584" PostTypeId="2" ParentId="16582" CreationDate="2017-05-01T02:13:03.877" Score="2" Body="&lt;p&gt;Your question includes a flawed assumption: why would you assume that you'd recapture any significant portion of the additional output? Let's say that the multiplier is .05, so that for your billion dollar investment (let's say the you build a new factory), others in the city increase their total spending by \$50 million. What fraction of that \$50 million do you suppose would be spent on the products produced by your billion-dollar factory?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you're being even halfway realistic, you should assume it's 1% or less— so maybe you'd net an additional half-million dollars on an investment you made in a factory that you built for a billion dollars during a recession... when people are generally purchasing less than usual. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suffice it to say, Keynesianism does not imply that this would be a good investment decision.&lt;/p&gt;&#xA;" OwnerUserId="264" LastEditorUserId="264" LastEditDate="2017-05-01T02:18:48.630" LastActivityDate="2017-05-01T02:18:48.630" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16585" PostTypeId="2" ParentId="16582" CreationDate="2017-05-01T03:26:37.607" Score="3" Body="&lt;p&gt;Yes, the big success of Keynesianism was uncovering that there &lt;strong&gt;is&lt;/strong&gt; an incentive to invest in a demand-led recession, &lt;em&gt;from the perspective of the whole economy&lt;/em&gt;, because of the multiplier.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Just as you say.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, there is no incentive to invest &lt;em&gt;for individual profit-maximising firms&lt;/em&gt;, for exactly the reason dismalscience gives: the investment stimulates &lt;em&gt;general&lt;/em&gt; demand; but (in general) very little demand of that newly-stimulated demand is for the particular good or service being invested in.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is this gap between the sum of preferences of all maximisers of individual utility, and the preferences of the sum of all of those actors, that Keynesian investment fills.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2017-05-01T03:26:37.607" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16587" PostTypeId="1" CreationDate="2017-05-01T07:03:15.840" Score="1" ViewCount="112" Body="&lt;p&gt;So, can it? The supposition is that this has been caused by an increase in domestic residents' marginal propensity to import.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My thought would have been: no, it cannot, but my answer seems too simple for me to believe it (it forms part of an assignment).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the IS-LM-BP model I am considering,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$BOP=NX-NFI=0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where NFI (net foreign investment) depends on the degree of capital mobility and foreign and domestic interest rates, and where NX (net exports) depends on foreign income, domestic income, the exchange rate, and foreigners' and domestic residents' marginal propensity to import.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But  if there is zero perfect mobility, surely $NFI=0$, and, as a result, $NX=0$, too? Indeed, it hardly seems intuitive to me that there could be a current account deficit in this case, since the only way imports could be bought would be by exporting goods--hence meaning $NX=0$.&lt;/p&gt;&#xA;" OwnerUserId="10993" LastActivityDate="2017-05-01T07:03:15.840" Title="Can the current account go into deficit with zero capital mobility?" Tags="&lt;open-economy-macro&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="16588" PostTypeId="1" AcceptedAnswerId="16589" CreationDate="2017-05-01T08:11:13.683" Score="3" ViewCount="544" Body="&lt;p&gt;Consider a $n$-good industry with a representative consumer with utility function for the differentiated goods given by,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$&#xA;U=\left(\sum^n_{i=1}q_i^\beta\right)^\theta&#xA;$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose that the representative consumer is endowed with income $I$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;a. Derive the inverse and direct demands;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My solution: I am writing the lagrange as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$&#xA;L=\left(\sum^n_{i=1}q_i^\beta\right)^\theta+\lambda(I-\sum^n_{i=1}p_iq_i)&#xA;$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;FOC:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$&#xA;\theta \left(\sum^n_{i=1}q_i^\beta\right)^{\theta-1}\beta q_i^{\beta-1}-\lambda p_i=0&#xA;$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the inverse demand function is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$&#xA;p_i=\frac{\theta \left(\sum^n_{i=1}q_i^\beta\right)^{\theta-1}\beta q_i^{\beta-1}}{\lambda}&#xA;$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this right? Because the $\lambda$ seems a little bit strange. If yes, how do I isolate $q_i$, when there is this sum symbol to derive the demand function?&lt;/p&gt;&#xA;" OwnerDisplayName="user12680" LastEditorUserId="2776" LastEditDate="2017-05-01T08:49:04.580" LastActivityDate="2017-05-01T16:18:56.160" Title="Derive demand function from utility function with constant elasticity" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16589" PostTypeId="2" ParentId="16588" CreationDate="2017-05-01T09:01:56.050" Score="4" Body="&lt;p&gt;You stopped a bit too early. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let me re-write the FOC for good $i$ as follows:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \lambda=\frac{\theta \left(\sum^n_{i=1}q_i^\beta\right)^{\theta-1}\beta q_i^{\beta-1}}{p_i}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As this is identical across goods, equalise for good $i$ and good $j$, where, after simplification, you get:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{q_i^{\beta-1}}{p_i} = \frac{q_j^{\beta-1}}{p_j} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;This relation hold for any pair of goods&lt;/strong&gt;. This means you can re-write the demand for any good in terms of $q_i$ and relative prices. Then, you can use the budget constraint to obtain the final demand for good $i$, in terms of income $I$ and all the prices. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hopefully this information is enough for you to move forward and solve the problem.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-05-01T16:18:56.160" LastActivityDate="2017-05-01T16:18:56.160" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16590" PostTypeId="2" ParentId="16569" CreationDate="2017-05-01T09:52:05.897" Score="2" Body="&lt;p&gt;The authoritative source here is the &lt;a href=&quot;https://unstats.un.org/unsd/nationalaccount/sna.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;United Nations System of National Accounts&lt;/a&gt;, SNA.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Change in inventories are indeed part of what we normally call Investment. First, for clarification, the definition of &quot;change in inventories&quot;, taken from page 108 of &lt;a href=&quot;https://unstats.un.org/unsd/nationalaccount/docs/SNA2008.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;SNA, version 2008&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The basic principle underlying the measurement of changes&#xA;  in  inventories  of  finished  goods  is  that  &lt;strong&gt;output  should  be&#xA;  recorded at the time it is produced&lt;/strong&gt; and valued at the same&#xA;  price  &lt;strong&gt;whether  it  is  sold,  otherwise  used  or  entered  into&#xA;  inventories for sale or use later&lt;/strong&gt;. In effect, goods only enter&#xA;  inventories when they are not immediately used&#xA;   for sale or other use in the period they&#xA;   are produced. Similarly, goods are  withdrawn  from  inventories  when  the  demand  for  the&#xA;  goods exceeds the amount produced in a period. &lt;strong&gt;No output&#xA;  is recorded when goods produced previously are withdrawn&#xA;  from  inventories  and  sold&lt;/strong&gt;  or  otherwise  used  unless  a&#xA;  storage activity as described be low in section F takes place. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Second, the components of &quot;Investment&quot; (officially called Gross capital formation), as stated in page 282 of the aforementioned document is:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;There are three types of capital formation to be examined,&#xA;  gross  fixed  capital  formation,&#xA;    changes  in  inventories  and&#xA;  acquisition less disposal of valuables. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This and following pages go about explaining each of them, and how to measure them. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, the document provides a worked example of the table of &quot;uses of output&quot; (the expenditure approach of GDP). Here is a screenshot of a section of that worked example, presented in page 291. You can see that change in inventories are indeed treated as part of &quot;Gross Capital Formation&quot;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/2PSX8.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/2PSX8.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-05-01T09:52:05.897" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16591" PostTypeId="1" AcceptedAnswerId="16592" CreationDate="2017-05-01T12:51:46.003" Score="0" ViewCount="256" Body="&lt;p&gt;I would like to know if I have interpreted the following statement correctly and would be grateful of any help at all.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;The unemployment rate for 16-24 year olds not in full-time education was 12.2%&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I read this as the proportion of economically active 16-24 year olds that are not in full-time education and unemployed is 12.2%.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To clarify I believe it says $$12.2\%=\frac{\text{economically active (full time education and unemployed)}}{\text {economically active (FTE unemployed + FTE employed)}}$$  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this correct?  I have looked online and have only seen the term unemployment rate in terms of the general population.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am not an economist but a maths teacher and require the information to understand material for an upcoming context based exam.  I have no trouble with percentages but need to make sure I have interpreted the economics correctly.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks in advance for any clarifications.&lt;/p&gt;&#xA;" OwnerUserId="13110" LastEditorUserId="13110" LastEditDate="2017-05-01T13:06:09.010" LastActivityDate="2017-05-01T13:28:54.217" Title="Basic question on calculating unemployment rates" Tags="&lt;unemployment&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16592" PostTypeId="2" ParentId="16591" CreationDate="2017-05-01T13:20:38.813" Score="2" Body="&lt;p&gt;No, it's not correct. You are supposed to exclude people in FTE from labour force. Unemployment rate is a proportion of labour force which is unemployed. Labour force is defined as a sum of those employed and those looking for jobs (so it also excludes pensioners, parents on parental leave etc.). In your example the labour force should consist of only the people 16-24 years old.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I.e. $$12.2\% = \frac{\text{unemployed who are 16-24 years old}}{\text{labour force who are 16-24 years old (employed + unemployed)}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit: I added that in this example labour force is restricted to specified age group.&lt;/p&gt;&#xA;" OwnerUserId="11693" LastEditorUserId="11693" LastEditDate="2017-05-01T13:28:54.217" LastActivityDate="2017-05-01T13:28:54.217" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="16593" PostTypeId="1" CreationDate="2017-05-01T18:26:55.227" Score="2" ViewCount="171" Body="&lt;p&gt;Is the dictator game/dilemma studied by game theory or by decision theory? I'm not sure because of the lack of other interactive agents.&lt;/p&gt;&#xA;" OwnerUserId="13113" LastEditorUserId="108" LastEditDate="2017-06-19T19:52:50.683" LastActivityDate="2017-06-19T19:52:50.683" Title="Is the dictator game studied by game theory or by decision theory?" Tags="&lt;game-theory&gt;&lt;decision-theory&gt;" AnswerCount="3" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="16594" PostTypeId="2" ParentId="16593" CreationDate="2017-05-01T19:29:46.103" Score="0" Body="&lt;p&gt;Yes, the game can be studied in game theoretic framework. The working assumption is that the agents are rational and are maximizing utility. It is certainly a game - a sequential one to be precise - solved easily by backwards induction (as with many other games to be honest). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some extension include finitely or infinitely repeated version of this game, a dictator game with incomplete information (about the receiver's preference, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course decision science study variation of this game too. It's a common introductory example for behavioural economics.  &lt;/p&gt;&#xA;" OwnerUserId="11693" LastEditorUserId="1601" LastEditDate="2017-05-01T20:09:33.213" LastActivityDate="2017-05-01T20:09:33.213" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16595" PostTypeId="2" ParentId="16593" CreationDate="2017-05-01T19:53:24.700" Score="2" Body="&lt;p&gt;I would say that the dictator game is of interest to a decision theorist more so than to a game theorist, although the dictator game can be formally modeled in a game theoretic framework. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Decision theory studies how behavior, especially those that deviate from the rational ideal assumed by standard economic theory, can be modeled, as well as the implications of these behavioral models. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Game theory, in contrast, focuses more on the interactive aspect of decisions. The fact that the dictator game can be formalized as a game has more to do with the broad applicability of game theory than the dictator game's intrinsic game theoretic value. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Based on the purpose of your research, you should be looking up references in the behavioral/experimental literature. &lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2017-05-01T19:53:24.700" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16596" PostTypeId="2" ParentId="15115" CreationDate="2017-05-01T23:46:58.497" Score="1" Body="&lt;p&gt;I don't think this boundary condition has anything to do with the optimal exercise price and it should therefore hold for both European and American style options. It is simply a terminal condition which allows us to rewrite the PDE in closed-form.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The relationship you show above in which:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;$\mathop {\lim }\limits_{t \to T} V(S,t) = \max \left\{ {X - S,0} \right\}$&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;$\to$&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;$\mathop {\lim }\limits_{\tau  \to 0} V(S,\tau) = 0$&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;simply means that &lt;strong&gt;&lt;em&gt;the extrinsic value of the option (i.e., the value in excess of $X-S&amp;gt; 0, \forall S&amp;lt;X)$ tends towards $0$ as $t \to T$.&lt;/em&gt;&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Dropping the &quot;$max$&quot; function is simply a restatement of the payoff condition in terms of the Heaviside function. The Heaviside function is essentially equivalent to the maximum function except that it enforces the following boundary at $t=T$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;${\displaystyle V(S,\,\tau)=0\quad \forall \;\;S&amp;lt;X}$,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Though the difference seems subtle, it is important since $V_t$ need not be finite at S = 0, or even defined for that matter, which allows us to more easily perform the substitution of variables required to express the contingent pay-off in terms of the (heat) diffusion equation which is the general solution to the Black-Scholes model.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I hope that the intuition of this boundary condition is clearer from this explanation.&lt;/p&gt;&#xA;" OwnerUserId="13021" LastActivityDate="2017-05-01T23:46:58.497" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16597" PostTypeId="2" ParentId="16558" CreationDate="2017-05-02T02:44:09.320" Score="0" Body="&lt;p&gt;From a Coasian perspective, firms are created when the transaction costs involved in buying certain inputs or hiring certain services from the market are higher than the cost of producing that internally. For example: even though it could hire other firms to do that, a sufficiently large firm might have it's own accounting and legal departments because they can save on a few [million] bucks, even though the main good or service provided by the firm has nothing to do with any of these e.g. Coca-Cola.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The issue with a lawn-mowing company, as I see it, is that it's not worthwhile to produce internally the inputs required for that service. To be able to produce a lawnmower at reasonable cost, you'd have to own a lawnmower factory. And in that case, you'd be better off selling the lawnmowers to people who do lawn-mowing service on their own.&lt;/p&gt;&#xA;" OwnerUserId="5741" LastActivityDate="2017-05-02T02:44:09.320" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16599" PostTypeId="2" ParentId="8331" CreationDate="2017-05-02T08:14:15.357" Score="2" Body="&lt;p&gt;The two charts are consistent in the basic sense that the 2005 values are the same in both, with Croatia about $\$10200$ and Russia about $\$5300$. What happens in other years depends on exchange rates and inflation in the three countries concerned (Croatia, Russia and the United States). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The current USD-based figures are calculated much as you would expect: take the GDP per capita in local currency (kuna in Croatia, rubles in Russia) and covert these to dollars at the exchange rates applying in the different years.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your question would make sense if the constant USD-based figures were calculated by taking the current USD-based figures and deflating them for price changes in the US since 2005. So the Croatian and Russian numbers current USD-based figures would have been deflated by the same ratios, and if they were to meet in a particular year in one series then they would meet in the same year in the other series.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But they were not calculated that way.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Instead the constant USD-based figures were calculated by taking the GDP per capita in local currency each year, and were deflated by price changes locally since 2005 to give GDP per capita in constant local currency units, and then converted to dollars using the 2005 exchange rates. Because exchange rates did not match varying relative local price changes in Croatia and Russia compared with the United States, this produces a different result.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is a way to approach this question to reduce the problem, but that would involve &lt;em&gt;purchasing power parities&lt;/em&gt; (PPP) looking at what money can actually buy in different countries rather than market exchange rates, and the statistical invention of the &lt;em&gt;international dollar&lt;/em&gt; (not an actual currency) to handle price changes year-to-year. It results in different data again and can lead to different rankings between countries (famously, China would appear to be relatively much richer). Here it would suggest Russia having significantly higher GDP per capita than Croatia since 2011 on a PPP basis, the opposite of your second chart due to the the ruble seeming to have been undervalued in the market exchange rates compared with the kuna in terms of what it can apparently buy locally.     &lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2017-05-02T08:14:15.357" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16600" PostTypeId="1" CreationDate="2017-05-02T11:12:23.857" Score="4" ViewCount="401" Body="&lt;p&gt;I'm trying to rework &lt;a href=&quot;http://eml.berkeley.edu/~dromer/papers/MRW_QJE1992.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Mankiw, Romer, Weil (1992)&lt;/a&gt; with fresh data.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From their paper:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;n: workforce growth rate&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;We measure n as the average rate of growth of the working-age population, where working age is defined as 15 to 64.&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;s: rate of savings&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;We measure s as the average share of real investment (including government investment) in real GDP...&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Y/L: output per worker&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;...and Y/L as real GDP in 1985 divided by the working-age population in that year.&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;They also assume...&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;... that g+δ=0.05&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;As for &lt;strong&gt;human capital&lt;/strong&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;We use a proxy for the rate of human-capital accumulation (Sh) that measures approximately the percentage of the working-age population that is in secondary school. We begin with data on the fraction of the eligible population (aged 12 to 17) enrolled in secondary school, which we obtained from the UNESCO yearbook. We then multiply this enrollment rate by the fraction of the working-age population that is of school age (aged 15 to 19).&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Considering the latest version of the Penn World Tables, should I use emp and the corresponding growth rate for n, rgdpo/emp for Y/L, and hc for human capital (Sh)? What about s? I'm a little perplexed as MRW include government investment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Excerpt from the PWT 9.0 legend for convenience.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Real GDP, employment and population levels&lt;/strong&gt;  &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;rgdpe Expenditure-side real GDP at chained PPPs (in mil. 2011US$)&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;rgdpo Output-side real GDP at chained PPPs (in mil. 2011US$)&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;pop   Population (in millions)&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;emp   Number of persons engaged (in millions)&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;avh   Average annual hours worked by persons engaged&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;hc    Human capital index, based on years of schooling and returns to education; see Human capital in PWT9.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Current price GDP, capital and TFP&lt;/strong&gt;  &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;ccon  Real consumption of households and government, at current PPPs (in mil. 2011US$)&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;cda   Real domestic absorption, (real consumption plus investment), at current PPPs (in mil. 2011US$)&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;cgdpe Expenditure-side real GDP at current PPPs (in mil. 2011US$)&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;cgdpo Output-side real GDP at current PPPs (in mil. 2011US$)&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;ck    Capital stock at current PPPs (in mil. 2011US$)&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;ctfp  TFP level at current PPPs (USA=1)&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;cwtfp Welfare-relevant TFP levels at current PPPs (USA=1)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;National accounts-based variables&lt;/strong&gt;   &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;rgdpna    Real GDP at constant 2011 national prices (in mil. 2011US$)&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;rconna    Real consumption at constant 2011 national prices (in mil. 2011US$)&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;rdana Real domestic absorption at constant 2011 national prices (in mil. 2011US$)&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;rkna  Capital stock at constant 2011 national prices (in mil. 2011US$)&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;rtfpna    TFP at constant national prices (2011=1)&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;rwtfpna   Welfare-relevant TFP at constant national prices (2011=1)&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;labsh Share of labour compensation in GDP at current national prices&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;delta Average depreciation rate of the capital stock&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Shares in CGDPo&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;csh_c Share of household consumption at current PPPs&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;csh_i Share of gross capital formation at current PPPs&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;csh_g Share of government consumption at current PPPs&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;csh_x Share of merchandise exports at current PPPs&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;csh_m Share of merchandise imports at current PPPs&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;csh_r Share of residual trade and GDP statistical discrepancy at current PPPs&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="11983" LastEditorUserId="1601" LastEditDate="2017-05-02T19:34:38.587" LastActivityDate="2017-05-06T21:40:38.947" Title="Updating MRW (1992) with PWT 9.0" Tags="&lt;economic-growth&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16602" PostTypeId="2" ParentId="16600" CreationDate="2017-05-02T11:26:59.423" Score="1" Body="&lt;p&gt;Your assumptions seem correct. For savings rate, the consistent definition with MRW would be&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{ccon - cda}{cgdpo} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;code&gt;ccon&lt;/code&gt; is &lt;a href=&quot;https://en.wikipedia.org/wiki/Absorption_(economics)&quot; rel=&quot;nofollow noreferrer&quot;&gt;domestic absortion&lt;/a&gt;, equal to $ C + G+ I$, whereas &lt;code&gt;cda&lt;/code&gt; is $C+G$. Therefore, $I$ is investment, which by definition includes both private and public sector.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-05-06T21:40:38.947" LastActivityDate="2017-05-06T21:40:38.947" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="16603" PostTypeId="1" AcceptedAnswerId="16605" CreationDate="2017-05-02T12:01:30.097" Score="7" ViewCount="228" Body="&lt;p&gt;My estimated model is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\hat \ln(y_t)=9.873-0.472\ln(x_{t2})-0.01x_{t3}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm asked to find a predictive CI at 95% confidence for the mean of $y_0$, when $x_{02}=250$, and $x_{03}=8$. We're to assume that $s^2 x_0(X^TX)^{-1}x_0^T=0.000243952$, where $x_0=(250,8)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have a solution from a previous year, that goes like this:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;I find the CI of the form &#xA;  $\text{CI}(E[ln(y_0)|x_0])=\left[\hat\ln(y_t)-t_{\alpha/2}s_E,\hat \ln(y_t)+t_{\alpha/2}s_E\right]$, where $t$ is&#xA;  the $\alpha/2$ upper-quantile of distribution $t(n-k)$ and&#xA;  $s_E=\sqrt{0.000243952}$. This gives me $[7.1563,7.2175]$.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Then the author does&#xA;  $\text{CI}(E[y_0|x_0])=[e^{7.1563},e^{7.2175}]=[1282.158,1363.077]$.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I disagree with this last step (by Jensen's inequality we'll underestimate). In Wooldridge's Intro to Econometrics, in page 212, he states that if we're sure the error terms are normal, then a consistent estimator is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\hat E[y_0|x_0]=e^{s^2/2}e^{\hat \ln(y_0)}$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, I was thinking of doing &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\text{CI}(E[y_0|x_0])=\left[e^{s^2/2} 1282.158,e^{s^2/2}1363.077 \right] = \left[ 1282.314,1363.243 \right] $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this correct?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, the solution to this exercise states that $\text{CI}(E[y_0|x_0])=[624.020,663.519]$, which is far from either solution I've got.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;P.S: I've also read that the correction should not be used to the CI but only for the point estimation $\hat E[y_0|x_0]$&lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="10247" LastEditDate="2017-05-02T17:51:16.850" LastActivityDate="2017-05-25T02:00:34.793" Title="Predicting $y$ when response variable is $\ln(y)$" Tags="&lt;econometrics&gt;&lt;prediction&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16604" PostTypeId="2" ParentId="16603" CreationDate="2017-05-02T14:17:32.867" Score="1" Body="&lt;p&gt;Use the &lt;a href=&quot;http://www.indiana.edu/~jslsoc/stata/ci_computations/spost_deltaci.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Delta Method&lt;/a&gt;. Say the large samples asymptotic distribution of a &lt;strong&gt;single&lt;/strong&gt; parameter $\beta$ is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \hat{\beta} \xrightarrow{a} N\left(\beta,\frac{Var(\hat{\beta})}{n}\right) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(assuming your estimation is consistent)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Furthermore, you are interested in a function of $\hat{\beta}$, say, $F(\hat{\beta})$. Then, a first order Taylor &lt;em&gt;approximation&lt;/em&gt; of the above leads to the following asymptotic distribution:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ F(\hat{\beta}) \xrightarrow{a} N\left(F(\beta),\left(\frac{\partial F(\hat{\beta})}{\partial \hat{\beta}}\right)^2\frac{Var(\hat{\beta})}{n}\right) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In your case, $F(\hat{\beta})$ is $e^\hat{\beta}$. From here, you can construct the CI as normal. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Source and more details in the linked document.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-05-02T14:17:32.867" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="16605" PostTypeId="2" ParentId="16603" CreationDate="2017-05-02T17:08:15.233" Score="3" Body="&lt;p&gt;You do not find the same answer because of what I suspect to be a typographical error, which would thus be the main reason of your problem: $x_{03}$ would be set to $80$, not $8$. Another possibility, if you keep $x_{03}=8$, is an error in the second estimated coefficient, say, $\hat{\beta}_2 = -0.1$ instead of $-0.01$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Anyway, one of these modifications solves everything and yields the same result as the solution to this exercise.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Considering this change, with $t_{\alpha/2}=1.96476138969835$, one gets&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Method 1&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;$\text{CI}(E[y_0|x_0])=[e^{6.43618291164626},e^{6.49755798189177}]=[624.020307335178,663.519326788772]$&#xA;&lt;strong&gt;(the given solution to this exercise)&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;or &lt;h3&gt;Method 2&lt;/h3&gt;&#xA;(as stated In Wooldridge's Intro to Econometrics, in page 212) if we're sure the error terms are normal (and one is extremely lucky)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\text{CI}(E[y_0|x_0])=\left[e^{s^2/2}624.0203,e^{s^2/2}663.5193 \right] = \left[ 624.0960,663.6002 \right] $$&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;however&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;the &lt;strong&gt;method 2&lt;/strong&gt; is very unlikely to be correct, since as you mention in your question &lt;em&gt;[...] the (underestimation) correction should not be used to the CI but only for the point estimation.&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why ? I would say because of the dependency betweeen the two terms, knowing the expectations of $e^{s^2/2}$ on the one hand and $\hat{y_0}$ on the other hand does not mean one knows the one of $e^{\frac{s^2}{2} + \hat{\ln(y_0)}}$.&lt;/p&gt;&#xA;" OwnerUserId="10247" LastEditorUserId="10247" LastEditDate="2017-05-07T03:37:35.890" LastActivityDate="2017-05-07T03:37:35.890" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16606" PostTypeId="2" ParentId="16575" CreationDate="2017-05-02T21:55:41.367" Score="1" Body="&lt;p&gt;The foreign exchange reserves of a country are normally invested in short-term government bonds in countries with liquid currencies (or trade partners). It is a portfolio of assets, and so the reserves may be diversified. On average, it should earn the risk-free short-term rate of the reserve currencies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The cost to the country holding reserves is that they have to issue currency/bank reserves as the flip side of holding the forex reserves. These excess reserves will need to be drained, and so in some cases needs to issue bonds or bills to do so. In other words, the country needs to pay the domestic interest rate in order to hold the forex reserves; you can think of them borrowing to finance the position. (They could raise reserve requirements, forcing local banks to effectively loan money to the central bank to finance the reserve. This pushes the interest cost onto the domestic banking industry.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since a central bank can create its own currency costlessly, it appears that this might be a good deal. But creating a very large reserve position is effectively a huge bet, and any losses are effectively a cost to the taxpayer. (The Swiss attempt to limit Franc strength versus the euro ultimately failed as the position was not politically viable.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Furthermore, the countries where you hold the reserves may not be amused with the country holding its exchange rate at too low a level. The country may become the target for corrective trade policies if reserves are &quot;too large.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, the reserves are lent to another government. If relations with that country deteriorate, those reserves are at risk of being seized.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2017-05-02T21:55:41.367" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16608" PostTypeId="1" CreationDate="2017-05-02T23:11:51.963" Score="0" ViewCount="62" Body="&lt;p&gt;Understand that I'm a total novice with regard to economics.  Also, while I ultimately have an axe to grind (doesn't everyone?) I'm not trying to do that honing here, I'm simply looking for a sanity check on my &quot;logic&quot; (such as it is).  I don't propose to discuss political implications here.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;President Trump is proposing a &quot;tax reform&quot; package that is roughly estimated (based on two separate sources I found) at about $5T over 10 years.  Let's assume that the cost of this package is not significantly offset by spending cuts (at least not cuts that would exceed proposed spending increases in other programs).  So it's reasonable to assume that basically the entire amount would be borrowed, through Treasury securities and similar instruments.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here it gets a little shaky.  Several sources tell me that &lt;a href=&quot;http://money.cnn.com/2016/05/10/news/economy/us-debt-ownership/&quot; rel=&quot;nofollow noreferrer&quot;&gt;foreign sources own about 1/3rd of the US government debt&lt;/a&gt;.  While it's obviously difficult to predict how much of the new debt would be purchased by whom, it's a reasonable spitball estimate to assume that about a third would be sold overseas, assuming interest rates remain at least as high as they are currently, and barring any significant change in overseas perceptions of the soundness of US securities, or of the US economy in general.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This means that foreign sources must come up with about $1.7T in US currency over ten years, thus removing the ability of that much US currency to purchase goods and services from the US (or benefiting from that much US currency being paid out of the US to buy foreign goods and services).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(The objection will be made that money is, uh, fungible, and so currencies other than US currency can be used to purchase US goods.  But if I spend my US dollars on T-bills then I will have to convert my rubles to dollars if I want to spend more dollars on US goods and services, and that conversion drives up the &quot;cost&quot; of the dollar, making US goods and services less &quot;attractive&quot;.  When it balances out the net-net is to have removed that much US money from the pool of cash available to fund US exports.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The cost to &quot;create&quot; a job in the US seems to be variously estimated at between \$40K and \$100K a year.  (I couldn't find any sources that were clear and explicit enough to be worth referencing, alas.)  (Most such estimates appear to be orientated towards tech sector jobs, and presumably manufacturing jobs would be &quot;cheaper&quot;.)  But let's say that a job &quot;costs&quot; $50K/year -- we are &quot;spitballing&quot;, after all.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, dividing the \$1.7B by \$50K times ten years, I come up with 3.4 million jobs lost for a period of ten years, due to the proposed tax cuts.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where is my &quot;logic&quot; here weakest?  Is my spitball aim terribly off anywhere?  Are there fatal flaws, or is it simply too fuzzy and &quot;out there&quot; to assess without losing your lunch?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Note:&lt;/strong&gt; I'm trying to understand the above (presumed) effect in a vacuum of sorts, without considering any of the counterbalancing benefits of deficit spending and related issues.  Basically, I'm only looking for criticisms of my &quot;math&quot;, and a &quot;but you forgot about ...&quot; answer is only relevant if it somehow modifies or negates that &quot;math&quot;.  Yes, deficit spending has supposed benefits, but I'm not asking about that.&lt;/p&gt;&#xA;" OwnerUserId="12218" LastEditorUserId="12218" LastEditDate="2017-05-05T20:17:54.673" LastActivityDate="2017-05-05T20:17:54.673" Title="Understanding the effects of government deficit on international trade" Tags="&lt;labor-economics&gt;&lt;international-trade&gt;&lt;government-debt&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16609" PostTypeId="2" ParentId="16603" CreationDate="2017-05-03T01:42:51.023" Score="2" Body="&lt;p&gt;Point prediction and CI are different.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For point prediction, we are better off by correcting the bias as much as possible. For CI, what is required from the beginning is that the probability equals $100(1-\alpha)\%$. When $[a,b]$ is the 95% CI for $\ln(y_0)$ for example, $[e^a,e^b]$ is certainly a 95% CI for $y_0$ because $P(a\le \ln X\le b) = P(e^a \le X \le e^b)$. So your $[e^{7.1563}, e^{7.2175}]$ is certainly a valid CI.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But the center of this CI is neither the naive predictor (exp[predictor of $\ln y_0$]) nor the corrected predictor of $y_0$ (a correction factor times the naive predictor) due to Jensen's inequality, but it does not really matter. In some cases (not always), you may be able to change the CI to $[e^{a-p}, e^{b-q}]$ for some $p$ and $q$ so that the probability is still 95% and its center is the bias-corrected predictor, but I don't see the point in it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What you suggested, i.e., $[e^{s^2/2}e^a,e^{s^2/2}e^b]$ is not a 95% CI. To see why, let the correction factor be $h$ (nonrandom and perfectly known, for simplicity), so the bias-corrected predictor is $he^{\theta}$, where $\theta$ is the unbiased predictor of $\ln y_0$ ($\hat\beta_0 + \hat\beta_2 \ln x_2 + \hat\beta_3 x_3$ in your example). This &quot;$h$&quot; can be estimated by $e^{s^2/2}$ for example, but while the latter is random, $h$ is assumed nonrandom in order to make it simple. Let $[a,b]$ be the 95% CI for $\ln y_0$, i.e., $P(a\le \ln y_0\le b)=0.95$. Then,&#xA;$$&#xA;P(he^a \le y_0 \le he^b) = P(\ln h+a \le \ln y_0 \le \ln h+b),&#xA;$$&#xA;which is &lt;em&gt;not&lt;/em&gt; equal to $P(a\le \ln y_0\le b)=0.95$ unless the distribution of $\ln y_0$ is uniform, which is usually not.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;EDIT&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The above is about the CI of $y_0$, not of $E(y|X=x_0)$. The original question is about the CI for $E(y|X=x_0)$. Let $E(y|X=x_0) = h\exp(x_0\beta)$, which is estimated by $\hat{h} \exp(x_0 \hat{\beta})$. In that case, I think the Delta method is a useful option (see luchonacho's answer).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To be rigorous, we need the joint distribution of $\hat{h}$ and $\hat\beta$, or to be precise, the asymptotic distribution of the vector $\sqrt{n}[(\hat\beta-\beta)', \hat{h}-h]'$. Then the limit distribution of $\sqrt{n}[\hat{h} \exp(x_0\hat{\beta}) - h\exp(x_0\beta)]$ is derived using the Delta method and then CI's for $h\exp(x_0\beta)$ can be constructed.&lt;/p&gt;&#xA;" OwnerUserId="10775" LastEditorUserId="10775" LastEditDate="2017-05-25T02:00:34.793" LastActivityDate="2017-05-25T02:00:34.793" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="16610" PostTypeId="1" AcceptedAnswerId="16615" CreationDate="2017-05-03T02:52:31.523" Score="1" ViewCount="166" Body="&lt;p&gt;I am teaching myself basic economics and I'm trying to understand supply and demand. &#xA;Recently, in my country, there was news of a strike by the petroleum suppliers. Expectations of an impending fuel shortage increased demand. (as evidenced by the long queues at petrol stations).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now,by plotting the supply and demand curves, it seems apparent that an increase in demand would lead to an increase in equilibrium price and equilibrium quantity. However, in reality, during this time, none of the petrol stations increased the price of petrol. Is this because of government regulation of prices or due to some other factor? &#xA;Thanks&lt;/p&gt;&#xA;" OwnerUserId="13125" LastActivityDate="2017-05-04T10:03:57.837" Title="increased demand but no increase in price?" Tags="&lt;supply-and-demand&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16612" PostTypeId="1" CreationDate="2017-05-03T06:29:43.767" Score="2" ViewCount="736" Body="&lt;p&gt;I understand most of the reasoning, but don't understand what the actual paradox here is, as I believe there can be up to three potential paradoxes:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;individuals increase savings when they should be spending more to get out of the initial recession&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;an increase in individual saving actually ultimately decreases total savings&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;what benefits an individual (increased saving during a recession) actually makes the overall economy as a whole worse off.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;I'm sure it's one of the three, as they were commonly repeated when I did some research on the internet, but can't quite make out which one it is.&lt;/p&gt;&#xA;" OwnerUserId="6782" LastActivityDate="2017-05-03T18:48:05.100" Title="What is the actual paradox in the Paradox of Thrift?" Tags="&lt;macroeconomics&gt;&lt;saving&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16613" PostTypeId="2" ParentId="16612" CreationDate="2017-05-03T07:53:32.147" Score="3" Body="&lt;p&gt;The &lt;a href=&quot;https://en.wikipedia.org/wiki/Paradox_of_thrift&quot; rel=&quot;nofollow noreferrer&quot;&gt;Wikipedia article&lt;/a&gt; has several different quotations over time, though I would state the claimed paradox as a variant of (2), possibly something like &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;an increase in the &lt;em&gt;rate&lt;/em&gt; of saving can lead to lower total savings&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;perhaps illustrated with a graph something like &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/uhtdX.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/uhtdX.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which suggests that the paradox seems to depend on the the combined relationships between income and savings and between investment and output, together with some macroeconomic tautologies.  If the relationships were different, or if the tautologies did not cause changes in equilibria, there might not be a paradox &lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2017-05-03T07:53:32.147" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="16615" PostTypeId="2" ParentId="16610" CreationDate="2017-05-03T08:39:27.940" Score="3" Body="&lt;p&gt;Such a situation can be explained in the following ways:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;If supply is perfectly elastic (horizontal supply curve), then an increase in demand does not increase the price. It's highly unlikely that supply of petrol here is perfectly elastic. This could be the case under perfect competition with constant marginal costs of petrol. However, typically petrol has increasing marginal costs. Alternatively, it could be the case with constant marginal costs and Bertrand competition (price competition, with few firms) meaning they also set prices equal to marginal costs as in perfect competition.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;There may be costs to increasing the price. So-called menu costs make prices sticky and therefore changes are not as often as we expect. E.g. if you're a restaurant and want to increase prices, you have to reprint all menus, which may not be worth it for a temporary demand increase. However, this is probably not tbe case in your example.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;When setting the price before the shortage was announced, the increase in demand was expected and the price already set accordingly high. Was there an increase in the price (shortly) before the announcement? If not then the next explanation is the only possibility.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Government regulation of the price.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="5557" LastEditorUserId="5557" LastEditDate="2017-05-04T09:51:01.123" LastActivityDate="2017-05-04T09:51:01.123" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="16617" PostTypeId="1" AcceptedAnswerId="16619" CreationDate="2017-05-03T09:10:52.700" Score="1" ViewCount="995" Body="&lt;p&gt;I faced an interview question for a job where interviewer asked me suppose your r square is very low (between 5 to 10%) for a price elasticity model. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;How would you solve this question? Anything that a typical econometrics guy would do?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Edit&lt;/strong&gt;: &lt;em&gt;I have posted &lt;a href=&quot;https://stats.stackexchange.com/questions/277292/data-scientist-interview-question-linear-regression-low-r2-and-what-would-yo&quot;&gt;this&lt;/a&gt; question in &lt;a href=&quot;http://stats.stackexchange.com&quot;&gt;stats.stackexchange.com&lt;/a&gt; forum for understanding this problem from the perspective of model diagnostics and feature engineering&lt;/em&gt;&lt;/p&gt;&#xA;" OwnerUserId="7206" LastEditorUserId="7206" LastEditDate="2017-05-03T13:03:57.937" LastActivityDate="2017-05-03T13:03:57.937" Title="price elasticity: Linear regression low r square" Tags="&lt;elasticity&gt;&lt;regression&gt;&lt;self-study&gt;&lt;price&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="16618" PostTypeId="1" AcceptedAnswerId="16620" CreationDate="2017-05-03T09:14:28.070" Score="1" ViewCount="109" Body="&lt;p&gt;I am reading about the American option and sources got me confused in the part where the American put option is considered on a non-dividend paying asset.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand that the payoff of an American put option at maturity is given by $$\max\left\{K-S(T),0\right\}$$ where $K$ is the exercise price and $S(T)$ is the price of the underlying at maturity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some sources state that considering n-arbitrage, the American put option problem aims to find the option value $$P(S,t)=\sup_\tau EG_\tau$$ where $G_\tau$ is the gain function and E is expectation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In my understanding, the gain function is equivalent to the payoff function, hence $$V(S,t)=\sup_\tau E[max\left\{K-S(\tau),0\right\}]$$ for all stopping times $\tau$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, I also stumbled upon sources that say that $$(S,t)=\sup_\tau E[e^{-r(\tau-t)}\max\left\{K-S,0\right\}]$$ for all stopping times $\tau$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What could be an explanation behind this?&lt;/p&gt;&#xA;" OwnerUserId="13132" LastEditorUserId="13132" LastEditDate="2017-05-03T11:53:01.273" LastActivityDate="2017-05-03T12:36:33.727" Title="expected payoff of an American put option" Tags="&lt;asset-pricing&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16619" PostTypeId="2" ParentId="16617" CreationDate="2017-05-03T10:32:29.863" Score="1" Body="&lt;p&gt;I would raise two issues about the dataset to which the regression line was fitted:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;The range of prices in the dataset.&lt;/strong&gt;  If the datapoints all lie within a very narrow range of prices, then even small variation (whether real or due to measurement error) in the associated quantities can lead to a low coefficient of determination $R^2$.  In terms of the formula:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$R^2 = 1 - \frac{\text{Residual sum of squares}}{\text{Total sum of squares}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;a narrow range of prices tends to result in little of the total sum of squares being explained and most of it being residual, resulting in a low $R^2$.  Note that it is assumed here that the regression takes price as the independent variable and quantity as the dependent variable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;The number of datapoints.&lt;/strong&gt;  If the number is small, then, even within its range of prices, the dataset may happen to be unrepresentative of the distribution of points within the population of interest. This can result in the squared residuals calculated from the dataset being on average either much smaller or much larger than is representative of the population.  Thus it is possible that $R^2$ has been correctly calculated from data which is not representative of the population.&lt;/p&gt;&#xA;" OwnerUserId="1417" LastActivityDate="2017-05-03T10:32:29.863" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="16620" PostTypeId="2" ParentId="16618" CreationDate="2017-05-03T11:08:09.030" Score="1" Body="&lt;p&gt;An explanation behind this could be that, as you mention&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;[...] the payoff of an American put option &lt;i&gt;&lt;strong&gt;at maturity&lt;/strong&gt;&lt;/i&gt; is given by&#xA;  $$\max\left\{K-S(T),0\right\}$$&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;and &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;[...] sources [...] say that $$(S,t)=\sup_\tau E[e^{-r(\tau-t)}\max\left\{K-S(\tau),0\right\}]$$&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Thus the difference between the two appears to be the discounting factor considering how far (in time) we are from the exercising/stopping date (which is the same as the maturity date if $\tau=T$), which implies to compute (continuously) the present value of this futur payoff. If  $(\tau-t \rightarrow0) \land (\tau=T \lor t \rightarrow T)$, both equations become equal.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If one decides (for some reasons) that the option will be exercised at maturity, i.e. $\tau=T$ and that &quot;now&quot;, $t$, is &quot;turning into this futur date $T$&quot;, i.e. $t \rightarrow T$, one gets&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$T-t \rightarrow 0 \implies \sup_T e^{-r(T-t)} \rightarrow 1$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\implies \sup_T E[e^{-r(T-t)}\max\left\{K-S(T),0\right\}]$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\rightarrow  E[\max\left\{K-S(T),0\right\}]\rightarrow\max\left\{K-S(T),0\right\}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where the last above row shows that the expected payoff becomes certain.&lt;/p&gt;&#xA;" OwnerUserId="10247" LastEditorUserId="10247" LastEditDate="2017-05-03T12:36:33.727" LastActivityDate="2017-05-03T12:36:33.727" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="16621" PostTypeId="1" AcceptedAnswerId="16625" CreationDate="2017-05-03T11:24:26.227" Score="1" ViewCount="385" Body="&lt;p&gt;When we are talking about the least squares assumptions, one of the assumpions is that (X,Y) are i.i.d. What bothers me is that if we take an example population and research distributions of age and salaries and lets imagine that distribution of salaries (Y) in the population looks somewhat like chi squared distribution with df=10 and distribution of age (X) resembles exponential distribution. So how can we have an i.i.d. variable when sampling?&lt;/p&gt;&#xA;" OwnerUserId="13134" LastActivityDate="2017-05-03T15:16:53.350" Title="Independent identically distributed" Tags="&lt;econometrics&gt;&lt;statistics&gt;&lt;regression&gt;" AnswerCount="1" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="16622" PostTypeId="1" CreationDate="2017-05-03T11:49:30.337" Score="0" ViewCount="109" Body="&lt;p&gt;What is the relationship of the option value and the pay off to an option?&#xA;What happens if the option value &gt; pay off? or if it is equal to the pay off?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I read that in a put option , the option value is a solution to $$\sup_\tau E[\max\left\{K-S,0\right \}]$$, where $K$ is the exercise price. Does this imply that the possible option values are just 0 or K-S. How important is the option value?&lt;/p&gt;&#xA;" OwnerUserId="13132" LastActivityDate="2017-06-03T11:40:58.673" Title="intuition about option values" Tags="&lt;asset-pricing&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16625" PostTypeId="2" ParentId="16621" CreationDate="2017-05-03T14:49:11.160" Score="3" Body="&lt;p&gt;The &quot;identically - independently distributed&quot; assumption (or any restriction thereof) on a sample, refers to the relation &lt;em&gt;between random variables in different observations&lt;/em&gt;, not between the variables forming the same observation.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So in a multidimensional sample &quot;of size $n$&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\{(y_1, x_{11}, x_{21}),(y_2, x_{12}, x_{22}),...,(y_n, x_{1n}, x_{2n})\}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;the assumption applies between the variables of observation $i$ and all variables in any other observation. So $y_1$ is assumed independent from, say $y_2$, but it is also assumed indepedent from $x_{12}$. Also $x_{11}$ is assumed independent from $x_{12}$ but also from $x_{22}$, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Certainly, $y_i$ is assumed stochastically &lt;strong&gt;dependent&lt;/strong&gt; with $x_{1i}, x_{2i}$, while also $x_{1i}$ and $x_{2i}$ can be stochastically dependent &lt;em&gt;for the same $i$&lt;/em&gt;, i.e. inside each observation.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2017-05-03T15:16:53.350" LastActivityDate="2017-05-03T15:16:53.350" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16626" PostTypeId="1" AcceptedAnswerId="16627" CreationDate="2017-05-03T15:06:32.937" Score="2" ViewCount="50" Body="&lt;p&gt;Does anyone know of a free source for bankruptcy data? I'm specifically interested in the companies' balance sheets before they filed for bankruptcy. &lt;/p&gt;&#xA;" OwnerUserId="12100" LastActivityDate="2017-05-06T22:21:40.427" Title="Free data on bankruptcies" Tags="&lt;data-request&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16627" PostTypeId="2" ParentId="16626" CreationDate="2017-05-03T15:54:19.603" Score="1" Body="&lt;p&gt;There is a private database: &lt;a href=&quot;http://www.bankruptcydata.com/&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.bankruptcydata.com/&lt;/a&gt; which appears to have all bankruptcy filings logged. It has a subscription but appears to offer a free trial. To access public court filings in general which would include bankruptcy filings you'll ned access to PACER which is the government's database for all public court filings although it does require an account and charges a fee for each document (&lt;a href=&quot;https://www.pacer.gov/&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.pacer.gov/&lt;/a&gt;). In general public bankruptcy filings are likely not going to be offered for free publicly given that it appears there is no official government body which gathers this information.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your best bet to find balance sheets before bankruptcy is to look at a company's 10K or 10Q SEC filings which includes balance sheets and other required data for publicly traded companies to report to the SEC quarterly. 10K reports are the year end reports and 10Q reports are quarterly reports. The SEC has a useful database for these reports called EDGAR where you can look them up: &lt;a href=&quot;https://www.sec.gov/edgar/searchedgar/companysearch.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.sec.gov/edgar/searchedgar/companysearch.html&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that the SEC filings only apply to publicly traded companies. Non-publicly traded companies have no requirement to disclose their balance sheets and that information likely isn't available to you.&lt;/p&gt;&#xA;" OwnerUserId="10245" LastEditorUserId="10245" LastEditDate="2017-05-06T22:21:40.427" LastActivityDate="2017-05-06T22:21:40.427" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="16628" PostTypeId="2" ParentId="16612" CreationDate="2017-05-03T16:39:20.473" Score="1" Body="&lt;p&gt;The paradox is that as people attempt to save more, the total amount of savings decreases.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Before I explain how this can be so, we need to understand a couple of things:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First of all, when economists talk about savings in aggregate, they consider the full spectrum from at one end saving a lot, through zero savings (quickly spending exactly what you earn) through to the opposite of saving - which is borrowing. I.e. &quot;borrowing less&quot; can be described as &quot;saving more&quot;. Similarly the process of repaying existing loans will be described by economists as &quot;saving more&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then you need to consider the effects of our &quot;fractional reserve banking&quot; monetary system. In this system &lt;a href=&quot;http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q102.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;loans create money and repaying loans destroys money&lt;/a&gt;. This means that if an economy moves to a state where the rate of repayments of existing loans is greater than the rate of taking out new loans then the money supply will shrink (at least without any QE or similar).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Put these facts together and we can have a situation where we have &quot;more saving&quot; (which to an economist may just mean less borrowing), leading to a shrinking money supply. Given that savings are money - then if there is less money around then our ability to save as much as before, diminishes.&lt;/p&gt;&#xA;" OwnerUserId="5081" LastEditorUserId="5081" LastEditDate="2017-05-03T18:48:05.100" LastActivityDate="2017-05-03T18:48:05.100" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16630" PostTypeId="1" AcceptedAnswerId="21916" CreationDate="2017-05-03T20:35:19.707" Score="2" ViewCount="330" Body="&lt;p&gt;Imagine we have a linear regression model with dependent variable $y$. We find its $R^2_y$. Now, we do another regression, but this time on $\log(y)$, and similarly find its $R^2_{\log(y)}$. Why can't I compare both $R^2$ to see which model is better suited? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Intuitively I would say that the log will decrease the variability, hence any model will improve once we 'add' the log transformation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there another reason? Also is there a way to formalise this intuition?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="118" LastActivityDate="2018-05-09T18:04:58.800" Title="Why can't we use $R^2$ for different dependent variables?" Tags="&lt;econometrics&gt;" AnswerCount="3" CommentCount="9" ContentLicense="CC BY-SA 3.0" />
  <row Id="16631" PostTypeId="2" ParentId="16630" CreationDate="2017-05-03T22:29:16.407" Score="0" Body="&lt;p&gt;In order to think about the intuition it is important to understand how $R^2$ is computed. We can think of the R^2 as the ratio of the estimated variation over the total actual variation of the dependent variable: $R^2=\frac{SSE}{SST}$ or $R^2=1-\frac{SSR}{SST}$ where $SSE$ is the estimated sum of squares, $SSR$ is the residual sum of squares and $SST$ is the total sum of squares. So what the $R^2$ tells us is how much of the variation in the dependent variable that our model captures. However, whenever we change the dependent variable we not only change $SSE$ or $SSR$ but we also change $SST$. This implies that the new $R^2$ is now using a different base of comparison. Thus, it is generally not comparable for different dependent variables due to the fact that SST is different. Does this make sense?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In time series models this is a fairly big concern since modelers often play with the dependent variable by differencing which impacts the $R^2$ and make comparisons invalid even when in some cases it has no actual impact on the residuals. As a result, it is common to use residual based metrics that are invariant to these types of transformations.&lt;/p&gt;&#xA;" OwnerUserId="6844" LastActivityDate="2017-05-03T22:29:16.407" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="16633" PostTypeId="2" ParentId="16622" CreationDate="2017-05-04T07:51:05.077" Score="1" Body="&lt;p&gt;The put option allows you to decide to sell at the exercise price $K$ rather than the market price $S$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So if you exercise the put option, in effect it is worth $K-S$ at that point as you could have sold at the market price.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You will only do that if it is positive. Hence the $\max\left\{K-S,0\right \}$ expression.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you could only exercise at a particular future point in time, the option would now be worth the expected future benefit $\mathbb{E}[\max\left\{K-S,0\right \}]$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But with a so-called American put option you can exercise at any time up to a limit, making the value the highest of the future expectations, leading to an option value now of $$\sup_\tau \mathbb{E}[\max\left\{K-S,0\right \}]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Typically the option value now is higher than the payoff if exercised now of $K-S$.  This difference is called the time value of the option and reflects the benefit from the future payoff being asymmetrical since it cannot be worse than $0$&lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2017-05-04T07:51:05.077" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16634" PostTypeId="2" ParentId="16610" CreationDate="2017-05-04T10:03:57.837" Score="0" Body="&lt;p&gt;I just want to add on to Hot Licks's point in the comments section.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Supply of oil provided by the petrol stations are not real-time. In a way, you could say that they probably have enough to cover for the oil demand for the month. Now assuming there is this increased demand that you observed. The consumers are buying the oil ahead of their needs, probably up to the month's needs, for fear of future price hikes. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now why does this not cause an increase in price? The demand of oil simply had not exceeded the supply enough to cause a price hike. This is where there is a disconnect between theories and practical. You are assuming the petrol stations match their supply to the equilibrium demand at any given point in time, such that the increase in demand as you observed, would create &lt;strong&gt;demand in excess&lt;/strong&gt; of the current supply, resulting in increased prices. Which is not the case in reality since they likely still have the supply to cover the increased demand.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, how do you define increased demand as an individual entity? the only group able to do that should be a legitimate statistical body or the producer themselves. As such, we as individuals are unable to determine if the increased demand are really large increases or just a small insignificant spike.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As this is a supply shock, the increased demand resulting is a one-off type of thing and it does not affect the longer term equilibrium. It would be seem excessive for firms to increase prices based on that. If they did, once the issue is resolved, the price hikes could quickly backfire and cause lower demand. Note that in this case we are talking about oil, the demand would not necessarily go lower, but imagine the backlash from the consumers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But in all, I do agree that government regulation of the oil prices have a hand in this because well, oil is a &quot;sensitive&quot; commodity.&lt;/p&gt;&#xA;" OwnerUserId="12968" LastActivityDate="2017-05-04T10:03:57.837" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16635" PostTypeId="1" CreationDate="2017-05-04T10:27:42.823" Score="0" ViewCount="60" Body="&lt;p&gt;Assume $x_t$ is an unit root process. Write first difference of $x_t$  as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\Delta x_t$ =$\rho$ $\Delta x_{t-1}$+ $\epsilon_t$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where $\epsilon_t$ is a white noise process. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;How can we calculate $ E_t [x_{t+j}]$ when $j \rightarrow \infty$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$a_t$= $x_t$ +$z_t$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\Delta x_t$ =$\rho$ $\Delta x_{t-1}$+ $\epsilon_t$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$ z_t$ =$\rho$ $z_{t-1}$+ $\eta_t$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How can we calculate $ E_t [a_{t+j}]$ when $j \rightarrow \infty$.&lt;/p&gt;&#xA;" OwnerUserId="13148" LastEditorUserId="13148" LastEditDate="2017-05-04T16:03:13.510" LastActivityDate="2017-05-14T03:44:27.813" Title="Expected Value of a Infinite Process" Tags="&lt;econometrics&gt;&lt;applied-econometrics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16636" PostTypeId="2" ParentId="16622" CreationDate="2017-05-04T11:04:39.050" Score="0" Body="&lt;p&gt;By option value, I suppose you mean the price of the options (i.e. The option premium)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The premium you pay for an option, say $10, consists of two parts - Intrinsic value and Time value. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Intrinsic value is simply as you described, the pay off of the option. For a call option, it is the market price - strike price and strike price - market price for a put option. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you have a positive intrinsic value, it means that the option is &quot;in-the-money&quot; aka you are making money now &lt;strong&gt;(K &amp;lt; S)&lt;/strong&gt;. The other two results is that the option is &quot;at-the-money&quot;, where the strike price is exactly the market price, and &quot;out-of-the-money&quot;, where if you exercised the option now you would be making a loss &lt;strong&gt;(S &amp;lt; K)&lt;/strong&gt;. This is intended for call options. The opposite holds true for put options. Note that when you are ITM, intrinsic value is positive. The other two scenarios, your intrinsic value is simply 0 and cannot be negative.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The time value of the option is therefore, in this case, $10 - Intrinsic value. The reason there is a time value is because an investor would pay a premium based on the probability that the option can result in a ITM outcome before expiry.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To calculate the premium of an option, you can use the Black-Scholes model which takes into account Market price, Exercise price, interest rate, term to maturity, volatility as well as probability distribution curve of the underlying asset. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In reality, the importance of the value of options only comes into play when the market price is near the exercise price and that is where most of the volume of options trading is. When you are way in the money, it is highly unlikely that the market will turn that much resulting in a loss. In a way, your returns from the option are guaranteed and therefore requires no attention. Similarly, there is low importance when your options are way out of the money. It is highly unlikely that the market will turn by expiry such that you suddenly become in the money and take positive returns from the option.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thereby lies an area when you are around and at the money where trading heavily takes place, and the importance of the option value comes into play. Financial institutions usually set risk limit values which their traders must not exceed. They usually calculate such risks based on the sensitivity of the value to changes in parameters, &quot;Delta, Gamma, Vega, Theta and Rho&quot;. One example is Delta which measures the sensitivity of the option price relative to changes in the price of the underlying asset.&lt;/p&gt;&#xA;" OwnerUserId="12968" LastActivityDate="2017-05-04T11:04:39.050" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16637" PostTypeId="1" CreationDate="2017-05-04T11:17:42.617" Score="-2" ViewCount="72" Body="&lt;p&gt;When there is an increase in price level, real money supply decreases and raises interest rates.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a similar situation, when money supply decreases, interest rates increases, consumption decreases, demand is reduced and price levels decreases.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In both cases, money supply decreased, yet the price levels have conflicting eventualities, why?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, if you continue down the analysis, it goes a full cycle. Does this mean that inflation is self-defeating since it eventually cancels itself out?&lt;/p&gt;&#xA;" OwnerUserId="12968" LastActivityDate="2017-05-04T21:55:03.103" Title="Causality: Money supply and prices" Tags="&lt;inflation&gt;&lt;money-supply&gt;&lt;price-level&gt;&lt;business-cycles&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="16638" PostTypeId="2" ParentId="16635" CreationDate="2017-05-04T14:06:06.263" Score="1" Body="&lt;p&gt;You are asking about the expected value of the leading term of a sequence. There can be no general answer given the assumptions you make, since for example&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$x_{t+1} = x_{t} + v_{t+1}, \;\;\;E(v_{t+1}) = 0,\;\;\; x_0 \;\; \text{given}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;is a unit root process, and its expected value is equal to $E(x_{t+1})=x_0,\;\;\; \forall t$, while&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$x_{t+1} = a +x_{t} + v_{t+1}, \;\;\;E(v_{t+1}) = 0,\;\;\; x_0 \;\; \text{given}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;is also a unit-root process, but $E(x_{t+1}) = x_0 + a\cdot(t+1)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which is very different compared to the previous case.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2017-05-04T14:06:06.263" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="16642" PostTypeId="2" ParentId="16630" CreationDate="2017-05-04T18:38:15.577" Score="1" Body="&lt;p&gt;$R^2$ measures the fit of the model to the data.  Notice the ordering of that sentence, &quot;model to the data,&quot; and not &quot;the data to the model.&quot;  You want to use $R^2$ as a criterion to select among two possible equations.  The fact that you are posting here also probably means either someone told you that you cannot do that &lt;em&gt;or&lt;/em&gt; you read online that this will not work.  The fact is, it can work, but it does not function well.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Several aspects of how $R^2$ is calculated make it an inadequate criterion.  First, and this is the classical reason, all you have to do to increase $R^2$ is add variables.  If you were predicting the impact of milk substitutes on babies' performance on a physical test and you added in the price of flawless, color D, three carat diamonds as traded in Hong Kong your $R^2$ may go up, but it will not go down.  In addition, your total sum of the squares will change under the transformation you propose.  Because of this, it is not well suited to using an F-test to compare models.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This brings you to the AIC and the BIC.  Philosophically, the AIC and the BIC are algorithmic approximations of the Bayes factor to choose between the two models.  Because you know your data and we do not, you should read a book on model selection, such as &lt;a href=&quot;http://www.springer.com/us/book/9780387953649&quot; rel=&quot;nofollow noreferrer&quot;&gt;this one&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, given the limited information that you did provide, it would appear, at least on the surface, that either the AIC or the BIC would produce equivalent results.  That is because you have only two models and they have an equal number of parameters.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you have not used a Bayesian method before, they reverse the direction of probability.  Instead of assuming a model is true and determining whether or not the data is as extreme or more extreme than some standard, it assumes the data is fixed and not random and that the models are uncertain, and so selects the best parameters and models based on the data.  There is no null hypothesis.  So the AIC or BIC are approximations of odds transformed into an algorithmic rule.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;They differ in two ways.  First, the BIC gives each model equal prior probability of being &quot;true,&quot; while the AIC gives probabilities in proportion to their number of parameters so that complex models are penalized for being complex.  Second, they approximate the likelihood function differently so that the AIC ends up penalizing complex models less than the BIC unless the sample size is large.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reason to use either tool, rather than a full-blown Bayesian method, is that they are faster, they are good approximations in most circumstances to the Bayesian solution, and they are less complex than a Bayesian model selection process.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You cannot formalize the idea of the logarithm reducing volatility and creating &lt;em&gt;nicer&lt;/em&gt; models because it may not do so.  Consider a model whose true form is $y=5x+7$ and you then transform those variables.  A log-linear model would be expected to be a worse model than the untransformed model.  Although using logs would reduce the scale of all variables, $R^2$ is based on the relative scale.  Dividing all variables by two would also reduce variability, but not improve $R^2$ or model selection.&lt;/p&gt;&#xA;" OwnerUserId="11321" LastEditorUserId="2776" LastEditDate="2017-06-05T10:10:04.550" LastActivityDate="2017-06-05T10:10:04.550" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16643" PostTypeId="2" ParentId="16637" CreationDate="2017-05-04T21:55:03.103" Score="0" Body="&lt;p&gt;In both the cases mentioned above you see that decrease in money supply leads to fall in prices. There is no conflict. &lt;/p&gt;&#xA;" OwnerUserId="13148" LastActivityDate="2017-05-04T21:55:03.103" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16646" PostTypeId="1" AcceptedAnswerId="16703" CreationDate="2017-05-05T01:21:23.857" Score="1" ViewCount="236" Body="&lt;p&gt;I am a software developer, and have been studying Bitcoin, Ethereum and blockchain technology over the last 8 months or so. I have read a lot on the Internet about how blockchain technology will revolutionize the supply chain. The content I found was either on:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;websites of tech companies working on this, so I guess they do not want to reveal the details of how exactly their solution works.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;OR&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;2&quot;&gt;&#xA;&lt;li&gt;commerce news sites, written by people not knowledgeable about the technical aspects, describing the benefits of blockchain technology and what it would enable in the supply chain but only at a very high level without any explanation of how those goals would be achieved in the supply chain space.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;I want to understand how exactly people in the business / commerce / economics world see blockchain technology being applied to supply chains to achieve the stated benefits of &quot;eliminating inefficiencies, speed up transactions, enable innovative new business models, transparency, trackability,... on and on, including but not limited to &quot;tracking freshness of produce&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am looking for someone who knows the technology and the domain and can explain how these business goals can be achieved using blockchain technology.&lt;/p&gt;&#xA;" OwnerUserId="13162" LastActivityDate="2017-05-08T18:45:52.773" Title="How exactly can blockchain technology be used to make a supply chain more efficient?" Tags="&lt;software&gt;&lt;technology&gt;&lt;international-trade&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16647" PostTypeId="1" CreationDate="2017-05-05T04:32:48.073" Score="0" ViewCount="206" Body="&lt;p&gt;&lt;strong&gt;Question&lt;/strong&gt;: Your are working for a firm that is a monopoly. It is producing using technology that exhibits obvious decreasing returns to scale. After working with them for a while, a co-worker makes a mistake and accidentally increases the price per unit from \$10 to $11 for a week. You notice that the quantity sold drops by 5%. Management asks you to think about whether any strategic implications can be drawn from this episode. What do you write in your memo in response?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Answer&lt;/strong&gt;: Quantity decreases by 5% while price increased by 10%, so total revenue increases. Since there are no economies of scale, cost decreases as you sell less and does total profit rises. Management should then raise the price.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;I would like to clarify certain things about this answer. Intuitively I understand that if the percent increase in price is greater than the percent decrease in quantity then the firm is making profit. This, however, is not parallel with my understanding of elasticity. We know that a monopolist operates on the elastic portion of demand curve i.e. $|e|&amp;gt;1$ since this is where revenue is positive. Using this methodology for the question above, we should observe an $|e| &amp;gt; 1$. However this is not what we see, rather it is $|e|=|\frac{.05}{.10}|=|0.5|&amp;lt;1$. How come these two explanations are not parallel? &lt;/p&gt;&#xA;" OwnerUserId="13163" LastEditorUserId="2776" LastEditDate="2017-06-05T10:13:19.037" LastActivityDate="2017-06-05T10:13:19.037" Title="Understanding the elasticity of demand for a monopoly" Tags="&lt;microeconomics&gt;&lt;industrial-organisation&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16650" PostTypeId="1" CreationDate="2017-05-05T06:53:57.807" Score="0" ViewCount="63" Body="&lt;p&gt;I've been thinking about this situation lately:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A normal good $x$'s price has become unreasonably high. Would it be a good idea for consumers to boycott (i.e. stop buying) $x$ in order to drive down its price, then continue purchasing at the lower price? Why or why not?&lt;/p&gt;&#xA;" OwnerUserId="13033" LastActivityDate="2017-05-05T15:45:07.727" Title="Driving down the price of a good" Tags="&lt;consumer-theory&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16651" PostTypeId="1" CreationDate="2017-05-05T07:34:01.453" Score="1" ViewCount="200" Body="&lt;p&gt;Only two groups buy the Dripfix, abbreviated as good $D$. Group 1's demand function for the Dripfix is $f_1 (p_D)=300-p_D$, where $p_D$ is the price of Dripfix. Group 2's demand function is $f_2(p_D)=120-p_D$.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;What is each group's &quot;own&quot; price elasticity of demand?&lt;/li&gt;&#xA;&lt;li&gt;What is the equation for the market demand?&lt;/li&gt;&#xA;&lt;li&gt;At what price $p_D$ is the market elasticity $-1$?&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Here is my work so far:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Group 1's price elasticity is $\epsilon_1=-\frac{p_D}{300-p_D}$. Group 2's is $\epsilon_2=-\frac{p_D}{120-p_D}$.&lt;/li&gt;&#xA;&lt;li&gt;The market demand is $420-2p_D$ for $p_D \leq 120$ and $300-p_D$ for $p_D &amp;gt; 120$.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Are these two parts correct so far? If so, how do go about determining the market elasticity when the market demand is made up of two components?&lt;/p&gt;&#xA;" OwnerUserId="13033" LastEditorUserId="8815" LastEditDate="2017-09-03T18:31:49.330" LastActivityDate="2018-05-01T23:15:44.450" Title="Finding &quot;own&quot; price elasticity of demand" Tags="&lt;microeconomics&gt;&lt;elasticity&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16653" PostTypeId="1" AcceptedAnswerId="16654" CreationDate="2017-05-05T10:28:29.423" Score="2" ViewCount="212" Body="&lt;p&gt;&lt;strong&gt;The question:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A price-taking farmer produces a crop with labor L as the only input.&#xA;His production function is:$$F(L) = 10L^{1/2} − 2L$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;He has 4 units of labor&#xA;in his family and he cannot hire labor from the wage labor market. He&#xA;does not face any cost of employing family labor.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;a. Find out his equilibrium level of output.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;b. Suppose that the government imposes an income tax at the rate of&#xA;10 per cent. How does this affect his equilibrium output?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;c. Suppose an alternative production technology given by:&#xA;$$F(L) = 11 L^{1/2} − L −15$$ is available. Will the farmer adopt this&#xA;alternative technology?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My approach:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;a. As the cost is &lt;strong&gt;0&lt;/strong&gt; and the farmer is price taker, he will try to maximize his production, by FOC differentiating &lt;strong&gt;F(L)&lt;/strong&gt; we L=6.25 where function is maximum. But he can employ L=4, hence his equilibrium level of output will be 4 &lt;/p&gt;&#xA;&#xA;&lt;p&gt;b. Profit when he is taxed $$R(P,L)=PF(L)-0.1PF(L)=.9PF(L)$$&#xA;again he will maximize his production and by FOC L=6.25 but he will employ only L=4 because it's his maximum limit for L ,so equilibrium out will not change even after tax.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;c. he will not adopt new technology because if we put L=4 in new production function then F(L)=3 which is less than production from his earlier technology. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is my approach correct for all three parts?  &lt;/p&gt;&#xA;" OwnerUserId="8377" LastEditorUserId="2776" LastEditDate="2017-05-06T08:37:02.447" LastActivityDate="2017-05-06T08:37:02.447" Title="Help with this microeconomics exercise" Tags="&lt;macroeconomics&gt;&lt;production-function&gt;&lt;producer-theory&gt;&lt;profit-maximization&gt;&lt;technology&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16654" PostTypeId="2" ParentId="16653" CreationDate="2017-05-05T11:46:05.813" Score="2" Body="&lt;p&gt;Given the production function&#xA;\begin{eqnarray*} F(L) = 10 \sqrt{L} - 2L \end{eqnarray*} &#xA;marginal product is&#xA;\begin{eqnarray*} F'(L) = \frac{5}{ \sqrt{L}} - 2 \end{eqnarray*} &#xA;Since there is no cost for the family for using its own labor and it cannot hire from outside, family will maximize its production subject to the constraint that it has 4 units of labor. &#xA;\begin{eqnarray*} \max_{L\geq 0} &amp;amp;&amp;amp; 10 \sqrt{L} - 2L \\ \text{s.t.} &amp;amp;&amp;amp; L \leq 4 \end{eqnarray*} &#xA;Given that $F'(L)$ is falling in $L$ and is positive at $L = 4$ $(F'(4) = 0.5)$, family will use all 4 units in optimum. The corresponding output is $10\sqrt{4} - 2(4) = 12$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;With $10\%$ income tax, the objective of the firm will be to maximize total output net of tax which is equal to $0.9 F(L)$. Solution to this problem will stay the same as before because we are just multiplying the objective by a positive constant.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{eqnarray*} \max_{L\geq 0} &amp;amp;&amp;amp; 0.9(10 \sqrt{L} - 2L) \\ \text{s.t.} &amp;amp;&amp;amp; L \leq 4 \end{eqnarray*} &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, the equilibrium output is still $10\sqrt{4} - 2(4) = 12$ out of which 1.2 is paid as taxes and 10.8 is consumed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With new technology the problem is&#xA;\begin{eqnarray*} \max_{L\geq 0} &amp;amp;&amp;amp; 11 \sqrt{L} - L - 15\\ \text{s.t.} &amp;amp;&amp;amp; L \leq 4 \end{eqnarray*} &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The above problem again give $L = 4$ as the solution and the corresponding equilibrium output is $3$ which is way less than what the family had earlier. Therefore, it will not use this technology.&lt;/p&gt;&#xA;" OwnerUserId="11824" LastActivityDate="2017-05-05T11:46:05.813" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16656" PostTypeId="2" ParentId="16647" CreationDate="2017-05-05T13:46:55.337" Score="1" Body="&lt;p&gt;From the sounds of the question, the firm isn't operating at optimal efficiency. As you note, this firm is not on the elastic portion of the demand curve because $|e|=|\frac{.05}{.10}|=|0.5|&amp;lt;1$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As an employee of this firm, you should suggest that they continue to adjust the price until they transition to the elastic portion of the demand curve. Once they do this, the firm should notice that their &lt;strong&gt;marginal&lt;/strong&gt; revenue becomes positive. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think your confusion stems from (1) your ability to think critically and (2) a misunderstanding that its the &lt;strong&gt;marginal&lt;/strong&gt; revenue which monopolies &lt;em&gt;want&lt;/em&gt; to be positive. Questions such as these are usually designed to capture a person's basic understanding of a concept, you pulled together multiple concepts...&quot;too smart for the question.&quot; As for &lt;em&gt;marginal revenue&lt;/em&gt;, this can be negative, but a firm that &lt;em&gt;wants&lt;/em&gt; to maximize profit should adjust their business practices if marginal revenue is negative.&lt;/p&gt;&#xA;" OwnerUserId="12662" LastActivityDate="2017-05-05T13:46:55.337" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16657" PostTypeId="2" ParentId="14897" CreationDate="2017-05-05T15:29:28.547" Score="1" Body="&lt;p&gt;There are three big reasons for this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) It takes time for businesses to price inflation in. As a business owner I am unlikely to raise my prices from &lt;code&gt;$1.0&lt;/code&gt; in year 1 to &lt;code&gt;$1.04&lt;/code&gt; in year 2 to account for 4% increase in the money supply. Instead I am likely to wait until I can justifiably raise the price to &lt;code&gt;$1.25&lt;/code&gt; or some other price that makes more sense for marketing. As a result there will be a lag between inflation and the money supply. In the long run I will choose to price money supply into my prices thus driving inflation but on a yearly basis in the short run businesses will not perfectly price in the money supply.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) Money supply primarily drives inflation in the long term however short term price shocks can significantly affect inflation. For example if the price of oil suddenly drops due to discovery of new shale reserves in the United States that will be reflected in a drop in price levels across the entire country. For any business the cost of production, transportation, etc. has dropped which will be reflected in a drop in the price level (which dictates inflation) despite no change in the money supply. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;3) Economic growth drives deflation even if the monetary base stays the same size. If there is economic growth through an increase in efficiency (i.e new technology) then the value of money will go up. If there is &lt;code&gt;$100&lt;/code&gt; in an economy and the only product within the country is 100 widgets which are produced every year with the past year's 100 widgets being consumed then the price of a widget would be &lt;code&gt;$1&lt;/code&gt;. If suddenly a new type of tech allows us to build widgets for half the cost we could now produce 200 widgets in this economy using the same resources and capital stock. With the same &lt;code&gt;$100&lt;/code&gt; you can now buy 200 widgets or &lt;code&gt;$.5&lt;/code&gt; per widget. Effectively this means that the price level has gone down and that the value of a dollar has gone up. This happens in the real world through increases in technology and is the driving reason for a long run increase in the monetary base for almost all economies. &lt;/p&gt;&#xA;" OwnerUserId="10245" LastEditorUserId="10245" LastEditDate="2017-05-05T15:35:55.707" LastActivityDate="2017-05-05T15:35:55.707" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16658" PostTypeId="2" ParentId="16650" CreationDate="2017-05-05T15:32:26.957" Score="0" Body="&lt;ul&gt;&#xA;&lt;li&gt;Depends what you mean by &quot;good idea.&quot; Who is trying to maximize what?&lt;/li&gt;&#xA;&lt;li&gt;Why is the price at &quot;unreasonable&quot; levels? Maybe you simply mean, &quot;there is a group of consumers who would purchase&quot; this good if its price is 10% lower but would not at the current price.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Jumping off the second point, through the lens of simple supply and demand, a boycott of a group of consumers who are not purchasing the good would not shift demand for the good in.  They are already not buying it.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Maybe you mean the boycott would be bad publicity for the producer of $x$, which leads to a demand shock in, and a lower price.  In the short run this might work, but if the price were already at market level before the boycott, it would return there in the long run. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, back to point 1.  Is it a &quot;good idea&quot; to run a smear campaign to get a temporarily lower price for $x$.? Depends on the opportunity cost of smearing for the smearers.&lt;/p&gt;&#xA;" OwnerUserId="13153" LastActivityDate="2017-05-05T15:32:26.957" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16660" PostTypeId="2" ParentId="16650" CreationDate="2017-05-05T15:45:07.727" Score="1" Body="&lt;p&gt;This is actually an interesting question that I've never really thought of. What you are essentially describing is a monopoly on the side of the consumers to artificially drive down quantity demanded in order to lower prices.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You didn't state many details in your question but I'm assuming that the good in question is inelastic, is subject to competitive pricing, and has it's current price in competitive equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The outcome of consumers collectively refusing to buy a product above a certain price would have the same effect of monopolistic pricing of a firm but in reverse, there would be a shift of some producer surplus into consumer surplus as well as the creation of dead weight loss as some producers are priced out of the market creating shortages. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This could also be empirically the same as the creation of a price ceiling for the good. If collectively consumers refused to buy a product above a certain price then that product would have a price ceiling and producers would produce at that price in accordance with their own supply curve. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for your question about whether it would be a &quot;good idea&quot; that depends on what your definition of a positive outcome is. This type of action would have the effect of transferring some of the producer surplus to the consumers which would benefit the consumers but it would simultaneously lead to less production on the part of the producers due to the lower price creating dead weight loss and shortages. Empirically this would be bad for the aggregate economy as a whole due to the loss of surplus to dead weight loss, however, depending on the producer supply curve this may or may not lead to an aggregate gain in consumer surplus. An inelastic supply curve would lead to a gain in aggregate consumer surplus while a elastic supply curve would lead to a loss. &lt;/p&gt;&#xA;" OwnerUserId="10245" LastActivityDate="2017-05-05T15:45:07.727" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16661" PostTypeId="1" AcceptedAnswerId="16663" CreationDate="2017-05-05T15:58:02.543" Score="2" ViewCount="944" Body="&lt;p&gt;in second priced auctions, the highest bidder wins the auction and pays the price of the second highest bidder. What happens if there's only one bidder? That bidder would have won the auction, but does the winner pay his/her own bid? Or does the winner pay zero, imagining a second bidder with zero value bid?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks&lt;/p&gt;&#xA;" OwnerUserId="13070" LastEditorUserId="118" LastEditDate="2017-05-05T16:50:22.657" LastActivityDate="2017-05-05T20:49:49.633" Title="One bidder in 2nd price auction" Tags="&lt;auctions&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16662" PostTypeId="2" ParentId="16608" CreationDate="2017-05-05T16:12:25.717" Score="1" Body="&lt;p&gt;No, your logic doesn't make a ton of sense. That doesn't mean that the Trump tax cuts are a good thing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Foreign debt isn't the same as a country removing money from the economy. The way the U.S primarily finances debt is through the sale of treasury bonds (T-bills). Essentially an agreement with a private individual (sometimes foreign) that over the course of X time period the debt will be paid back with interest. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is the same as making a loan with your local bank. They give you money, in this case &lt;code&gt;$5 trillion&lt;/code&gt; and after a period of time you pay off the principal loan plus interest payments. The assumption that Trump (and all American presidents since Bill Clinton when we last had a current account surplus) is making is that in the period between making the loan and paying it off the economic stimulus from the tax cuts will outweigh the loan and its payment. The U.S gets extremely favorable terms on its loans with virtually 0 interest rates meaning that the 5 trillion stimulus in decreased taxes may very will increase tax revenue through increased economic activity by more than 5 trillion dollars which is the argument that Trump is making.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Whether or not this occurs depends on where we are on the &lt;a href=&quot;http://www.investopedia.com/terms/l/laffercurve.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;Laffer Curve&lt;/a&gt; which essentially states that at a certain tax rate decreasing taxes will actually increase government revenue by stimulating businesses. Personally I, and many contemporary economists believe that we are not at that point on the Laffer curve and a tax decrease would in the medium run lower output, however clearly Trump disagrees and there is no true consensus among economists as to where we currently fall on the Laffer Curve.&lt;/p&gt;&#xA;" OwnerUserId="10245" LastActivityDate="2017-05-05T16:12:25.717" CommentCount="18" ContentLicense="CC BY-SA 3.0" />
  <row Id="16663" PostTypeId="2" ParentId="16661" CreationDate="2017-05-05T16:19:53.473" Score="2" Body="&lt;p&gt;The purpose of a 2nd price auction (&lt;a href=&quot;https://en.wikipedia.org/wiki/Vickrey_auction&quot; rel=&quot;nofollow noreferrer&quot;&gt;Vickrey Auction&lt;/a&gt;) is to encourage bidders to bid their true maximum willing payment for a good rather than the lowest price they expect will win the auction. The reason for this is because they pay the value of the unknown second bid they don't have to worry about bidding to high because the highest bid will always pay the exact lowest they would have had to pay in order to obtain the product and don't have to worry about overbidding.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a auction to be called an auction there must be multiple bidders. If I know that I am the only bidder I would always just bid &lt;code&gt;$.01&lt;/code&gt; and get everything for free. To prevent this and other types of bidder collusion all auction houses have a minimum starting bid for a product usually determined by the seller. If no one is willing to pay more than the minimum then the product simply wont be sold. Individual rule for vickrey auctions differ depending on the venue but I imagine if only one bid is made then the price would default to the minimum bid set before the auction.&lt;/p&gt;&#xA;" OwnerUserId="10245" LastActivityDate="2017-05-05T16:19:53.473" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16664" PostTypeId="2" ParentId="16651" CreationDate="2017-05-05T20:07:02.990" Score="1" Body="&lt;p&gt;Your work for 1 and 2 is correct.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For 3, look at each segment individually. There are two points which have an elasticity of $-1$, one on each segment.&lt;/p&gt;&#xA;" OwnerUserId="175" LastActivityDate="2017-05-05T20:07:02.990" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16666" PostTypeId="2" ParentId="16661" CreationDate="2017-05-05T20:49:49.633" Score="0" Body="&lt;p&gt;While I wholeheartedly agree with TheSaint321's answer, here is a different take on the question. We could think of a &lt;a href=&quot;https://en.wikipedia.org/wiki/Becker%E2%80%93DeGroot%E2%80%93Marschak_method&quot; rel=&quot;nofollow noreferrer&quot;&gt;Becker DeGroot Marschak&lt;/a&gt; mechanism as a 1 player 2nd price auction. That is, say we want the player to truthfully reveal her value, $v$, of an object. We know the value is between 0 and 10. We could her to report her value $\hat v$, then randomly draw a number, $x$ from a continuous distribution between 0 and 10. If $x &amp;gt; \hat v$, she gets gets nothing. If her $\hat v \geq x$, she gets the object and pays a cost $x$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is pretty easy to show that this is strategically equivalent to a 2nd price auction with 2 players where the 2nd player has a valuation according to the induced distribution. For this reason, it is incentive compatible for the (single, real) player to report her true value. Note however, that is is not an efficient auction, since the player with the highest bid (trivially the only player) does not always get the object. &lt;/p&gt;&#xA;" OwnerUserId="398" LastActivityDate="2017-05-05T20:49:49.633" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16668" PostTypeId="2" ParentId="16424" CreationDate="2017-05-05T21:25:12.137" Score="2" Body="&lt;p&gt;This assumption is usually considered as reasonable from a normative perspective. For instance, consider the following situations:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;in situation A, you face an urn with 5 blue balls and 5 red balls. A ball is selected randomly and you can bet on its color. You receive a monetary prize if your bet is correct.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;in situation B, you face an urn which contains 10 balls that are either blue or red. The number of blue balls has been selected randomly between 0 and 10 according to a uniform distribution. Once the urn is formed (you don't know its content), a ball is selected randomly and you can bet on its color. You receive a monetary prize if your bet is correct.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;In the expected utility theory we usually consider these two situations as equivalent since the probability distribution over the final outcomes (the color of the ball) is the same: there is a 50% chance that a blue ball is selected, and a 50% chance that a red ball is selected. Therefore from a theoretical perspective it is hard to think of any reason why people would strictly prefer one situation to another.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, empirically a substantial fraction of people exhibits a strict preference for the situation A rather than the situation B, for instance in &#xA; &lt;a href=&quot;http://faculty.arts.ubc.ca/yhalevy/ua-rocl.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;this paper&lt;/a&gt;. According to my experience, most researchers are inclined to see this behavior as a mistake that reflects some difficulties with the computations of probabilities. Interestingly, this behavior is associated with ambiguity aversion, which is also sometimes considered as an anomaly. However, this is largely a matter of interpretation and other researchers prefer not to make any normative judgment on this behavior, as a matter of principle, and prefer instead to try to find rational explanations for it. It is for instance sometimes argued that the additional layer of uncertainty which is added in situation B would be a legitimate reason for risk-averse individuals to strictly prefer situation A.&lt;/p&gt;&#xA;" OwnerUserId="4667" LastActivityDate="2017-05-05T21:25:12.137" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16669" PostTypeId="1" CreationDate="2017-05-05T21:45:34.980" Score="1" ViewCount="83" Body="&lt;p&gt;I'd like to read more about the recruiting process of firms. Signalling theory and game theory can be a useful tool to better understand this phenomena.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Applicants, who ask for higher wages, tend to have a higher willingness to work. Then a good strategy is to ask for higher compensation, in order to get the job.&lt;/li&gt;&#xA;&lt;li&gt;There are companies at Job Fairs, which try pretty aggressively to get e-mail addresses / cellphone numbers. Companies with higher reputation don't have to be that active on the job market, applicants will &quot;automatically&quot; gravitate to them.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Maybe the second case is a bit stupid, but I gave you a hint. Do you know any articles on the signalling theory / game theory / asymmetric information of the firms' recruiting process? Thank you in advance.&lt;/p&gt;&#xA;" OwnerUserId="5017" LastActivityDate="2017-05-10T13:24:44.453" Title="Literature request: Any articles on the signalling theory / game theory / asymmetric information of the firms' recruiting process?" Tags="&lt;reference-request&gt;&lt;game-theory&gt;&lt;labor-economics&gt;&lt;asymmetric-information&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="16670" PostTypeId="2" ParentId="16075" CreationDate="2017-05-05T23:57:49.333" Score="0" Body="&lt;p&gt;1) In a modern economy, the &quot;revenue&quot; is just the savings on paying interest on liabilities (like bonds/bills).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The amount saved = (amount of currency in circulation)(interest rate).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since the rate of interest to use is uncertain, the amount of &quot;revenue&quot; is only an approximation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) Currency is created when banks voluntarily exchange reserves for currency to meet customer withdrawals. As such, the amounts printed cannot be controlled. Obviously, the whole monetary system is governed by laws, and money creation is also constrained by laws. Each country has its own specific set of statutes. However, since people have to want to withdraw the money, there is no need to specifically limit money creation. The ultimate limit is the amount of other government liabilities outstanding, which are determined by the budget deficit.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2017-05-05T23:57:49.333" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16673" PostTypeId="1" AcceptedAnswerId="16676" CreationDate="2017-05-06T05:22:10.437" Score="2" ViewCount="67" Body="&lt;p&gt;I'm reading a book that gives three formulas. In all of these formulas:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;$x$ is the amount of money to be received in the future&lt;/li&gt;&#xA;&lt;li&gt;$n$ is the number of years&lt;/li&gt;&#xA;&lt;li&gt;$r$ is the interest rate.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The first is &lt;strong&gt;the present value of a lump sum&lt;/strong&gt;: $PV = x / (1 + r) ^n$. Pretty self explanatory. Suppose I wanted $100$ dollars in $20$ years and could invest money at a $5\%$ rate of return, what amount of money would I have to invest today to have $100$ dollars in $20$ years? $100 / (1.05) ^{20} = 37.69$. Alternatively, if I have $100$ dollars today and it depreciates at the rate of $5\%$ a year for $20$ years, it would be worth $37.69$ dollars in $20$ years.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The second formula is &lt;strong&gt;the formula for the present value of a perpetuity&lt;/strong&gt;: $PV = x / r$ ($x$ is the amount of money to be received at the end of each year forever. So getting $100$ dollars at the end of each year forever would be the same as getting $2000$ dollars today, assuming I can invest that at the rate of $5\%$ per year.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The third formula appears to combine the two: &lt;strong&gt;the formula for the present value of an annuity&lt;/strong&gt;: $PV = (x / r) - ((x / (1 + r) ^ n) / r)$ ($x$ is the amount of money received at the end of each year for $r$ years).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Notice that the left hand side is exactly the formula for the present value of a perpetuity. The right hand side is the present value of a lump sum divided by $r$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm trying to understand the third formula. How would someone derive it? Why do we subtract the present value of a lump sum from the present value of a perpetuity? I understand intuitively that an annuity must have a lower present value than a perpetuity. If $r = 20$, there needs to be some way to indicate that payments stop after $20$ years. I'm just not sure how this is incorporated into this formula.&lt;/p&gt;&#xA;" OwnerUserId="13174" LastEditorUserId="10247" LastEditDate="2017-05-06T21:36:13.083" LastActivityDate="2017-05-06T21:36:13.083" Title="An explanation of the formula for the present value of an annuity" Tags="&lt;investment&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16674" PostTypeId="1" CreationDate="2017-05-06T06:25:45.073" Score="0" ViewCount="902" Body="&lt;p&gt;Consider a sequential game with two players who use the following procedure to share two desirable, identical and indivisible objects. Player 1 proposes an allocation in stage 1 which player 2 either accepts or rejects. In the event of rejection, neither player receives either of the objects and in the event of acceptance the objects are allocated according to the proposal of player 1.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The subgame perfect Nash equilibrium of the game is where player 1 allocates both the objects to himself and player 2 receives nothing. Is there any Nash equilibrium of this game other this?&lt;/p&gt;&#xA;" OwnerUserId="10761" LastActivityDate="2017-06-18T13:46:58.490" Title="Sequential Bargaining" Tags="&lt;game-theory&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="16675" PostTypeId="2" ParentId="16669" CreationDate="2017-05-06T06:52:12.970" Score="1" Body="&lt;p&gt;There is the famous 1973 &lt;a href=&quot;http://www.econ.yale.edu/~dirkb/teach/pdf/spence/1973%20job%20market%20signalling.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;&quot;Job Market Signalling&quot;&lt;/a&gt; paper by Michael Spence.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2017-05-06T06:52:12.970" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16676" PostTypeId="2" ParentId="16673" CreationDate="2017-05-06T10:45:15.787" Score="1" Body="&lt;p&gt;Take your second statement: $\dfrac{x}{r}$ is the present value of a perpetuity paying $x$ starting from now (first payment in year $1$)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now consider the present value of a perpetuity paying $x$ with first payment in year $n+1$.  This is the value in year $n$ of $\dfrac{x}{r}$, discounted back to now so dividing by $(1+r)^n$ to give $\dfrac{x}{(1+r)^n r}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the present value of an annuity paying $x$ for the first $n$ years is the difference between these, namely $\dfrac{x}{r}-\dfrac{x}{(1+r)^n r}$&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;An alternative approach would be to consider the sum of the present values of the $n$ payments $$S= \dfrac{x}{(1+r)} + \dfrac{x}{(1+r)^2} + \cdots + \dfrac{x}{(1+r)^{n}}$$ and you might calculate this using the following to allow cancelation  $$(1+r)S - S = x -  \dfrac{x}{(1+r)^n}$$ which since $(1+r)S-S=rS$ becomes $$S=\dfrac{x}{r}-\dfrac{x}{(1+r)^n r}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It may be worth noting that the second term tends to zero if $n$ increases, so the value or cost of a long-term annuity approaches that of a perpetuity &lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2017-05-06T10:45:15.787" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16680" PostTypeId="1" CreationDate="2017-05-06T20:07:43.073" Score="0" ViewCount="160" Body="&lt;p&gt;Massachusetts has the third highest electricity cost in the US (after Hawaii and Connecticut). Why is this?&lt;/p&gt;&#xA;" OwnerUserId="1448" LastActivityDate="2017-05-08T19:12:28.940" Title="Why are Massachusetts electricity costs so high?" Tags="&lt;price&gt;&lt;united-states&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16681" PostTypeId="1" AcceptedAnswerId="16686" CreationDate="2017-05-07T06:18:10.883" Score="2" ViewCount="179" Body="&lt;p&gt;I am having a difficulty understanding certain things about elasticity and would like to clarify them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I understand.&#xA;Elasticity is the percent change in quantity due to a percent change in price, that is, how does output change due to a change in price. &#xA;A good is inelastic, if there is only 1(or few) producers of this firm, since, there are no perfect substitutes for this good. Which implies that if the price where to increase quantity would not decrease as consumers have no other options.&#xA;On the other hand, a good is elastic, when there are various other firms selling this same good. Thus if there is an increase in price of a good, consumers will chose to purchase from other firms who offer the same product.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, this is where I get really confused.&lt;br&gt;&#xA;The sentence that &quot;monopolists always operate on the elastic portion of their demand curve.&quot; The reason this confuses me, is that I thought if you are a monopoly then your good is inelastic as mentioned above.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The only explanation that I can provide to myself is that there are two levels of elasticity going on here. That is 1. elasticity between monopoly and perfect competition and 2. depending on which one there is another elasticity inside. To further explain what I mean, is if for instance we are dealing with a monopolist, we know that his demand will be inelastic. But not within this inelastic demand there is an elastic and inelastic portion. Am I completely incorrect? Please help me understand this concept. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the assumption that there is one elasticity within the other is incorrect, this is my ultimate question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If monopolists have inelastic demand (since they are the only producer of this good) how can they operate on an elastic portion? &lt;/p&gt;&#xA;" OwnerUserId="13163" LastEditorUserId="2776" LastEditDate="2017-09-13T09:15:53.427" LastActivityDate="2017-09-13T09:15:53.427" Title="Clarification about demand elasticity and monopoly" Tags="&lt;microeconomics&gt;&lt;elasticity&gt;&lt;industrial-organisation&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16683" PostTypeId="1" AcceptedAnswerId="16690" CreationDate="2017-05-07T06:45:27.717" Score="3" ViewCount="332" Body="&lt;p&gt;My understanding is that wage differentials should not exist in a perfect labour market for occupations, but the following exam question seems to imply that this can be the case. A brief marking scheme also implies this.&lt;/p&gt;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/w00Zl.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/w00Zl.png&quot; alt=&quot;enter image description here&quot; /&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&lt;p&gt;and its marking scheme explanation:&lt;/p&gt;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/LMp1u.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/LMp1u.png&quot; alt=&quot;enter image description here&quot; /&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&lt;p&gt;I have always thought that if occupations belonged to a perfect labour market, it would mean that due to the assumptions of perfect mobility and homogeneity of labour, wages will always adjust so that wages are always equal across industries. The marking scheme seems to imply that this does not have to be the case.&lt;/p&gt;&#xA;&lt;p&gt;One possible caveat I suspect would make the question's situation possible would be if the firms do not operate in perfectly competitive product markets, though I am not sure about this, and neither did the marking scheme mention this.&lt;/p&gt;&#xA;" OwnerUserId="6782" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2017-05-08T00:57:55.717" Title="Exam question implies that a perfect labour market can have wage differentials?" Tags="&lt;labor-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16686" PostTypeId="2" ParentId="16681" CreationDate="2017-05-07T16:39:06.437" Score="2" Body="&lt;p&gt;You are correct in saying that there is an elastic portion within the inelastic demand. The concept is much easier explained when using a simple demand curve diagram. From the diagram given below, we can clearly see the varying elasticities in different parts of the curve. You can even try it yourself, using 2 points on each part and comparing the elasticity. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/XuUCX.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/XuUCX.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="12976" LastActivityDate="2017-05-07T16:39:06.437" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="16687" PostTypeId="1" AcceptedAnswerId="16689" CreationDate="2017-05-07T16:56:21.863" Score="0" ViewCount="855" Body="&lt;p&gt;When I was studying the Mundell-Fleming Model, I came across the assumptions :&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;1- Exchange rate expectations are static&lt;/p&gt;&#xA;&lt;p&gt;2- Capital mobility is less than perfect&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;I ended up with the following questions :&lt;/p&gt;&#xA;&lt;p&gt;Q1) Does capital mobility less than perfect implies &lt;span class=&quot;math-container&quot;&gt;$r \ne r^{*}$&lt;/span&gt; where &lt;span class=&quot;math-container&quot;&gt;$r$&lt;/span&gt; is the domestic interest rate and &lt;span class=&quot;math-container&quot;&gt;$r^{*}$&lt;/span&gt; is the foreign interest rate. Or does it mean &lt;span class=&quot;math-container&quot;&gt;$r \neq r^{*} + \delta S^{e}$&lt;/span&gt; Which is the UIRP&lt;/p&gt;&#xA;&lt;p&gt;Q2) What is meant by &amp;quot;exchange rate expectations are static&amp;quot;?&lt;/p&gt;&#xA;" OwnerUserId="10922" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2017-05-07T20:10:47.990" Title="What is meant by &quot;Exchange rate expectations are static&quot; (In the Mundell-Fleming model)" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16688" PostTypeId="2" ParentId="14668" CreationDate="2017-05-07T16:56:52.260" Score="1" Body="&lt;p&gt;I'd say the best option is to draw the graph, with actual values and compare the percentage change in the quantity demanded to the percentage change in price. Then use the PED formula to calculate the elasticity. Since the only thing being considered here is the elasticity of demand, the elasticity of the supply curve is irrelevant.  &lt;/p&gt;&#xA;" OwnerUserId="12976" LastActivityDate="2017-05-07T16:56:52.260" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16689" PostTypeId="2" ParentId="16687" CreationDate="2017-05-07T17:48:25.960" Score="1" Body="&lt;p&gt;The expression &quot;&lt;strong&gt;Static Expectations&lt;/strong&gt;&quot; unfortunately can be found to be used with two different meanings in the economics literature  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;1)&lt;/strong&gt; The one apparently less used but used nevertheless is, for some variable $x$ that needs to be predicted while standing at period $t$ (the superscript $e$ denotes &quot;expectation&quot; in the general meaning of the term, without specifying how it is formed) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$x^e_{t+1 |t} = b,  \;\;\; \forall\, t$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $b$ is some &lt;em&gt;constant&lt;/em&gt;. This reflects the following attitude: agents are oblivious to any information accrual as time passes, they even ignore possible movements in the realized values of $x$, and if asked, they always think that &quot;tomorrow&quot; the value will be $b$ (perhaps a better way to describe such expectations would be &quot;fixed expectations&quot; rather than &quot;static&quot;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;2)&lt;/strong&gt; The other and most widely used meaning of &quot;Static expectations&quot; is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ x^e_{t+k |t} = x_t, k=1,2,...$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;i.e. &quot;what is will continue to be&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the Mundell-Fleming model, the expression is used with this meaning.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(I note that with this meaning, &quot;Static Expectations&quot; &lt;em&gt;coincide&lt;/em&gt; with Rational Expectations when the $x$-variable follows a pure random walk -but again, in Static Expectations we do not specify how we arrive at the value we expect).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given this, &lt;strong&gt;imperfect capital mobility&lt;/strong&gt; would lead to the domestic interest rate being different in equilibrium from the international interest rate in the sense $i \neq i^*$, since the exchange rate is not expected to change. So the Uncovered Interest Rate Parity (in logarithmic terms) $i = i^*+\Delta s^e$ becomes under Static Expectations $i = i^*$, and stops to hold under imperfect capital mobility.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2017-05-07T20:10:47.990" LastActivityDate="2017-05-07T20:10:47.990" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16690" PostTypeId="2" ParentId="16683" CreationDate="2017-05-07T19:36:47.330" Score="5" Body="&lt;p&gt;The question (implicitly) assumes that there are relevant skill differences in the population. As you say, it is true that in a perfect labor market there are no wage differences &lt;strong&gt;if&lt;/strong&gt; workers can move freely across sectors.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If your course defined perfect labor markets as having homogeneity of labor and perfect mobility, then the given answer is wrong. However, typically these two factors are not necessarily a feature of perfect labor markets. That usually just means there is no market power on either side.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As the question asks about the case of different labor supplies, there can be no homogeneity of labor nor perfect mobility. Different labor supply is only possible if not everyone can do each type of work, meaning there are more available workers for certain jobs, thereby implying not all workers have the skills to do all jobs. Hence, to the extent that the question assumes supply differences are possible, it also assumes that workers cannot move freely across sectors. That is the reason wages do not equalize according to the answer.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastEditorUserId="5557" LastEditDate="2017-05-08T00:57:55.717" LastActivityDate="2017-05-08T00:57:55.717" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16692" PostTypeId="1" AcceptedAnswerId="16738" CreationDate="2017-05-08T03:46:46.993" Score="0" ViewCount="296" Body="&lt;p&gt;I am attempting to solve a general equilibrium problem from the textbook Jehle and Reny. However, I am slightly confused if my approach is correct. The question is as follows.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider an exchange economy with one good and two time periods. Two consumers have the following utility functions:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$U_A (x_{A1}, x_{A2}) = \sqrt{x_{A1}} + \sqrt{x_{A2}}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$U_B (x_{B1}, x_{B2}) = \sqrt{x_{B1}} + \sqrt{x_{B2}}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $A1$ corresponds to time period 1 and $A2$ corresponds to time period 2.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Each consumer is endowed with one unit of the good at time period 1, BUT only B is endowed with 1 at time period 2 (A is endowed 0 at time period 2). Note that storage of the good is not possible, but consumers can engage in trade in period 1. Calculate the competitive equilibrium allocations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am not sure if I am overthinking the problem, but since the good is perishable. Will both agents just consume their endowments (e.g., agent 1 consumes 1 in the first period, and agent 2 consumes one in the first and one in the second).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there a scenario where agent 1 would want to sell some of his endowment in period 1 to purchase some in period two? Given his utility function I believe this would be the case, but showing it seems much different than the typical GE problems I have been solving.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks&lt;/p&gt;&#xA;" OwnerUserId="10957" LastActivityDate="2017-05-11T09:21:25.330" Title="General equilibrium - exchange economy with time and perishable goods" Tags="&lt;microeconomics&gt;&lt;general-equilibrium&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16697" PostTypeId="1" CreationDate="2017-05-08T09:03:31.700" Score="2" ViewCount="271" Body="&lt;p&gt;I came across &lt;a href=&quot;https://masterofeconomics.org/2009/11/26/the-second-order-differential-equations-of-dynamic-market-equilibrium/&quot; rel=&quot;nofollow noreferrer&quot;&gt;this&lt;/a&gt; discussion, claiming supply and demand are expressible in terms of its price as $$Q_s=c_1+w_1P+u_1P'+v_1P'',\,Q_d=c_2+w_2P+u_2P'+v_2P''.$$Equating supply to demand for an equilibrium gives an ODE one can solve, but where do these formulae for $Q_s,\,Q_d$ come from?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I apologise if, contrary to the impression the page gives, these equations are not a mainstream model.&lt;/p&gt;&#xA;" OwnerUserId="10991" LastEditorUserId="8481" LastEditDate="2020-05-07T06:15:00.727" LastActivityDate="2020-05-07T06:15:00.727" Title="Dynamic Market Equilibrium: motivation for differential equations" Tags="&lt;macroeconomics&gt;&lt;general-equilibrium&gt;&lt;ode&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16698" PostTypeId="2" ParentId="16697" CreationDate="2017-05-08T09:47:44.177" Score="2" Body="&lt;p&gt;As the link you provided mentions:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;Differential equations can be used to include the dynamic aspects to&#xA;  economics into a mathematical framework which takes into account the&#xA;  volatility present in economics.&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So the author does not derive the differential equations as the result of a theoretical model -the author just wants to obtain the movement through time of &lt;em&gt;equilibrium&lt;/em&gt; price (the author assumes market-clearing), as a second order differential equation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So it is a purely descriptive/forecasting exercise, devoid of any economic theory background. The author obtains the solution, which includes a number of coefficients to be determined, for which the author mentions&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;These values can be estimated using statistics and econometric&#xA;  methods&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Some constraints on the parameters may come from observing the past price process (is it oscillating? around a trend or around an horizontal line? etc), and in the end, the hope is that we may obtain a good predictor for the price movements -again, without basing it on economic theory.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2017-05-08T09:47:44.177" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16699" PostTypeId="1" CreationDate="2017-05-08T11:23:39.843" Score="4" ViewCount="221" Body="&lt;p&gt;What are the &lt;strong&gt;necessary and sufficient&lt;/strong&gt; conditions for an economic system (or mode of production) to be classified as &quot;Capitalism&quot;?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is it markets? Is it for-profit corporations? Is it limited liability companies? Is it workers selling their labour to capitalists/employees? Is it freedom to set up companies? Is it a low degree of government productive activity? Is it a subset of these or other elements? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I imagine the answer would depend on a particular schools of thought, so in principle I would expect different answers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Disclaimer 1&lt;/em&gt;: this question is not requesting &lt;strong&gt;opinions&lt;/strong&gt; about what capitalism is, it is not, it should be, it should be not, but authoritative answers, with proper references.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Disclaimer 2&lt;/em&gt;: for those voting to close this as &lt;em&gt;too-broad&lt;/em&gt;, &lt;a href=&quot;https://economics.meta.stackexchange.com/questions/1694/is-this-question-on-topic&quot;&gt;I asked on meta&lt;/a&gt; whether this question was on-topic, and (albeit not a popular post) it seems people agreed it was.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-08-10T12:24:09.997" LastActivityDate="2017-09-01T08:11:15.750" Title="What are the defining features of Capitalism?" Tags="&lt;reference-request&gt;&lt;capitalism&gt;&lt;schools-of-thought&gt;" AnswerCount="1" CommentCount="8" FavoriteCount="3" ClosedDate="2017-09-01T18:13:03.090" ContentLicense="CC BY-SA 3.0" />
  <row Id="16700" PostTypeId="2" ParentId="16646" CreationDate="2017-05-08T11:50:49.450" Score="0" Body="&lt;p&gt;Here are some extracts from research (some have paywall):&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://www.nber.org/papers/w22952.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;NBER article&lt;/a&gt;:&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;A well functioning market (and economy), relies on robust identity verification as well as on the&#xA;  ability to verify the goods and services being exchanged (e.g.  in terms of their provenance, how&#xA;  they were changed through the supply chain etc.), and the credentials of the parties involved (e.g.&#xA;  degrees on a curriculum vitae, professional licensing status, bad actor status, driving record etc.). ... Current solutions to the identity and credentials verification problem typically rely on insecure&#xA;  secrets and documents (e.g.  social security number,  passwords,  passports,  signatures,  university&#xA;  transcripts etc.)  or public-key encryption and hardware (e.g.  multiple factor authentication, certificates). &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Blockchain technology can reduce this risk by allowing for authentication without&#xA;  disclosure of sensitive information.  The same way a distributed ledger can track the attributes of&#xA;  financial transactions, it can also track changes to an individual’s status and credentials (or firm, good, service).  For example, an individual’s ability to perform (or not) a certain action could be&#xA;  recorded  on  a  blockchain  and  queried  when  needed  by  a  third-party  (e.g.   a  bank  could  verify, after being authorized by a customer, her status in the country or credit history).  Similarly, access to medical records (or parts of them) could be granted,  revoked or ported between providers as&#xA;  needed.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://papers.ssrn.com/sol3/Papers.cfm?abstract_id=2662660&quot; rel=&quot;nofollow noreferrer&quot;&gt;Handbook of Digital Transformations article&lt;/a&gt;:&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In a globalized world, every commodity we consume corresponds to&#xA;  “a journey of &#xA;  people, places and materials” (Steiner, 2015). Yet, the underlying supply chains are often &#xA;  opaque to the end consumer. How do we recreate transparency and new relationships with&#xA;  consumer goods, so as to enable active participation (Williams, 2015), to verify &#xA;  product authenticity and ethical standards? Blockchain technology provides a &#xA;  groundbreaking solution. A shared, consensus - based and immutable ledger helps track the origin an d the transformations undergone in the supply chain. The blockchain will &#xA;  create a formal registry enabling the identification and the tracking of &#xA;  possession of a good throughout the supply chain. &#xA;  One could also resort to connected objects installed in &#xA;  fishing boats, shipping trucks and storage coolers that will keep track of the environmental conditions, such as &#xA;  temperature or location, ensuring that a product was &#xA;  safely handled, complying with health and safety norms. Finally, because the blockchain ensures anonymity; promotions and discounts could be sent to users, without disclosing their personal information. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www2.deloitte.com/content/dam/Deloitte/au/Images/infographics/au-deloitte-technology-bitcoin-blockchain-distributed-ledgers-180416.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Deloitte report&lt;/a&gt; (interesting, about preventing illegal items entering the supply chain):&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Moving a physical, central property registry onto a distributed ledger has the &#xA;  potential to extend access to property registries into underprivileged areas. By &#xA;  reducing the cost and effort required to access the register in remote locations &#xA;  it could help the people living there secure title to their land. This might not be &#xA;  a problem in mature nations with well develop institutions, but the shift has &#xA;  the potential to bring real benefits to jurisdictions where there is sovereign risk. &#xA;  Distributed ownership registers also bring certainty to the ownership of assets that &#xA;  pass through multiple jurisdictions, such as tracking provenance to prevent ‘blood’ &#xA;  diamonds from entering the supply chain.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.etla.fi/wp-content/uploads/ETLA-Working-Papers-38.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;A Finnish research centre report&lt;/a&gt;:&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Another effect potentially resulting from the digital trust and&#xA;   disintermediation trends is the reconfiguration of the balance of power in supply chain networks. Up until the present day, &#xA;  decisions relating to the supply chain of a product have mainly&#xA;   fallen within the domain of &#xA;  companies. Even if customers were able to have some idea of what kinds of raw materials and &#xA;  labour inputs went into the products, they would seldom have any visibility into the division &#xA;  of costs and profits in those supply chains — not to mention any decisive power over such &#xA;  matters. &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Due to the increased visibility into supply chain networks enabled by blockchain technology, &#xA;  customers are able to demand much more detailed information about their products and &#xA;  services.  With  blockchain  applications,  consumers  could  even  specify  minimum  and &#xA;  maximum prices that they are willing to pay for each ingredient&#xA;   and labour input individually &#xA;  and then scan for products that meet their specified criteria. &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Alternatively, taking things one step further, consumers could &#xA;  even utilize smart contracts to &#xA;  customize the entire production &#xA;  process to match their own consumer preferences. In other &#xA;  words, instead of choosing a standard product from a vendor’s catalogue, the consumer could &#xA;  transact with the producers and manufacturers directly. By doing so, the customer could &#xA;  arrange each step in the supply chain to their own liking, using specified raw materials and &#xA;  suppliers for a product produced exactly as the customer wants &#xA;  it. Smart contracts could even &#xA;  allow consumers to automate the &#xA;  optimization of all the parameters, so that if a more optimal &#xA;  contract  for  a  certain  production  phase  is  offered,  it  is  automatically  accepted  and &#xA;  incorporated into the &#xA;  chain of production.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;There is plenty of more research. Check it &lt;a href=&quot;http://econpapers.repec.org/scripts/search.pf?ft=blockchain+supply+&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-05-08T11:50:49.450" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="16701" PostTypeId="1" AcceptedAnswerId="16705" CreationDate="2017-05-08T14:25:59.440" Score="1" ViewCount="1252" Body="&lt;p&gt;My claims are&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1- Backward induction solution is Nash equilibrium solution.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2- Not all Nash equilibria are sequentially rational&lt;/p&gt;&#xA;&#xA;&lt;p&gt;3- All Backward induction solutions are sequentially rational&lt;/p&gt;&#xA;&#xA;&lt;p&gt;4- SPNE solutions are Nash equilibria &lt;/p&gt;&#xA;&#xA;&lt;p&gt;5- SPNE solutions are sequentially rational if game has at least one &#xA;proper sub game. If only has improper sub game then it may not be sequentially rational.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;6- PBE solutions are Nash equilibrium and SPNE&lt;/p&gt;&#xA;&#xA;&lt;p&gt;7- PBE solutions are sequentially rational no matter what.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;8- WPBE solutions are Nash equilibria. And sequentially rational no matter what.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are these true? What do you think? Anything want to add?&lt;/p&gt;&#xA;" OwnerUserId="10922" LastEditorUserId="1601" LastEditDate="2017-05-08T18:24:10.123" LastActivityDate="2017-05-08T21:48:53.947" Title="Relation between Nash equilibrium , subgame perfect equilibrium, backward induction, perfect Bayesian equilibrium" Tags="&lt;game-theory&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16702" PostTypeId="1" CreationDate="2017-05-08T18:30:34.950" Score="3" ViewCount="178" Body="&lt;p&gt;I have a general understanding of game theory, and want to try to apply it to crypto-currency exchanges, which are completely decentralised systems. I come from a finance background so I will define some key terms.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;BID Price:&lt;/strong&gt; Price at which the exchange is willing to buy an asset from you.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;ASK Price:&lt;/strong&gt; Price at which the exchange is willing to sell an asset from you.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;ASK&gt;BID, so as a trader, you will always pay the higher ASK price when buying and will get the lower BID price when selling.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The BID-ASK spread is ASK price minus BID price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider the following autonomous Bitcoin exchanges with the following prices on a certain date:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/Xkwgw.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Xkwgw.png&quot; alt=&quot;Bitcoin Exchanges and Prices&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As you can see each exchange quotes its own price and spread.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a frictionless world, a trader can buy Bitcoins at the cheapest ASK price (in this case exchange B at 1477) and sell the coins on the exchange with the highest BID price (exchange A at a BID price of 1603). This arbitrage opportunity is also &#xA;found on the other exchanges as long as the ASK price paid by the trader is less than the BID price on the other exchange.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now let's say I want to create my own exchange. If I want to eliminate all arbitrage opportunities, I would quote a BID price equal to the lowest BID (exchange B: 1475) and an ASK price equal to the highest ASK (exchange A: 1604). While this eliminates arbitrage on my exchange, it also makes me very uncompetitive given that my spread will equal 129. As such, no one will trade on my exchange. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given that I want to keep my spread competitive, with a goal of minimising arbitrage opportunities. What is the best course of action to take for quoting Bitcoin prices?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is a real case, and the figures in the table are actual Bitcoin\USD prices taken on a particular date for these anonymised exchanges.&lt;/p&gt;&#xA;" OwnerUserId="13194" LastEditorUserId="1601" LastEditDate="2017-05-09T09:39:00.807" LastActivityDate="2017-05-09T09:39:00.807" Title="Optimal pricing for Crypto-Currency Exchanges" Tags="&lt;asset-pricing&gt;&lt;cryptocurrency&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="16703" PostTypeId="2" ParentId="16646" CreationDate="2017-05-08T18:45:52.773" Score="1" Body="&lt;p&gt;I am an economist and I am skeptical that the value will be large, remember that the planet has a 65 trillion dollar economy and so while a billion dollars is a lot of money to me, it isn't a lot of money in the big scheme of things.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the surface, blockchain appears to improve accountability and reduce fraud.  I said on the surface because very few large scale blockchain frauds have happened yet.  Also, the most inefficient components of the world economy usually depend upon graft and those systems are resistant to implementing processes that improve accountability.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I do think that adding blockchain will improve system integrity, but I am wondering how the mafia will get to the outside nodes to degrade the information quality before it enters the process.  Consider a WalMart buys a set of goods numbered X0001 through X0050 and they are physically delivered.  Imagine that the shipping container is surreptitiously intercepted and a general manifest marking X0001 through X0050 as received goes through the process rather than the time consuming manual process of scanning each good.  The blockchain is defeated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now let us imagine that the packaging for each good is given a RFID with a unique encryption.  This is costly.  The mafia hires hackers to break into the system from the source and determine the encryption system itself.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Learning from this, they hire amazing network security, so the mafia hires a janitor to bug the place and steal documents.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Blockchain is nothing more than a distributed information recording system.  It is resistant to system destruction, facilitates verification and validation, and improves accountability &lt;em&gt;but&lt;/em&gt; we have seen very few large scale failures.  Consider this, the Internet is resistant to system destruction, facilitates verification and validation of actors and nearly guarantees signal propagation as long as enough underlying communication systems survive.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Internet's value has been heavily located in porn and cat videos.  Fraud is rampant and it is an open system, largely.  So is blockchain.  Open systems, like public highways, still depend upon policing and monitoring.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Although blockchain is proposing to replace centralized systems, as the Internet did for the postal service and BBS, it isn't clear that it will be of GREAT value for strong centralized systems.  Instead, the gains will probably be in poor centralized systems such as the international wire system.  It is aged, outmoded and outdated and hasn't seen real improvements in my lifetime.  It hasn't changed greatly since its 19th-century antecedents.  The same is true for the ACH system because Congress refuses to allocate the money.  On the other hand, the Swedish or British systems are great.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My guess is that its greatest value will be in exposing graft.  For example, if you could continuously track a container in a port in Ghana, then you could track what workers actually did what work and you would be able to expose clearly the pattern of bribes which speed up or slow down the harbor.  That is, you could if the customs and dock workers use the tools as intended.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Blockchain just decentralizes signal.  It is a human system and it will be implemented as part of greater human systems.  I think roving bandits like hackers and stationary bandits like customs workers haven't had a real chance to attack it yet.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I were working in blockchain, I would be working on the inputs to the system and not the system itself.  The money is still in preventing GIGO.&lt;/p&gt;&#xA;" OwnerUserId="11321" LastActivityDate="2017-05-08T18:45:52.773" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="16704" PostTypeId="2" ParentId="16680" CreationDate="2017-05-08T19:12:28.940" Score="3" Body="&lt;p&gt;To answer this I have to make some guesses because this is not an area of research for me, but having a spouse from there and having spent time there, I think I could make a somewhat educated guess.  Especially because it uses a market system rather than a rate setting system for generation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, Massachusettes has the third highest population density of any state and it is concentrated mostly around Boston.  Like rail, short distances are comparatively costly.  Higher loads in small locations require greater infrastructure costs.  Further, the variability will be harder to control because things that impact east Boston also impact west Boston, while things that impact eastern Montana do not at all impact western Montana.  There is less independence for unplanned events in a small space.  The covariance is high.  A noreaster can be far more damaging, if it is damaging, in a small space.  Repairs are costly.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Boston also has an old system.  While I could be wrong, I wouldn't be surprised if it was aging and depending on the regulation on carrying power, it might not be worth the investment without a regulatory structure that guarantees cost recovery.  Further, Massachusetts is growing and this means plugging costly new infrastructure onto old infrastructure.  As I am guessing, I don't know this, but it wouldn't surprise me that the influx is straining the infrastructure and I wouldn't be surprised if the infrastructure is past its planned life.  Boston was running electric cable cars in the 1880s.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The correct place to place this question would be with civil and electrical engineers.  You will probably find there is a really long history of how the current state of affairs came to be in Massachusettes in general and Boston in particular.  I would be surprised if Boston was not driving your costs.  I have no knowledge about Connecticut's system and if I had to guess for Hawaii it is due to the intrinsic fragility of being on an island with lots of people and no grid to support local emergencies.&lt;/p&gt;&#xA;" OwnerUserId="11321" LastActivityDate="2017-05-08T19:12:28.940" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16705" PostTypeId="2" ParentId="16701" CreationDate="2017-05-08T19:32:41.333" Score="3" Body="&lt;p&gt;1- Backward induction solution is Nash equilibrium solution. &lt;strong&gt;TRUE&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2- Not all Nash equilibria are sequentially rational. &lt;strong&gt;TRUE&lt;/strong&gt;; &lt;em&gt;NE allows for sequentially irrational behavior off equilibrium path.&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;3- All Backward induction solutions are sequentially rational. &lt;strong&gt;TRUE&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;4- SPNE solutions are Nash equilibria. &lt;strong&gt;TRUE&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;5- SPNE solutions are sequentially rational if game has at least one proper sub game. &lt;strong&gt;FALSE&lt;/strong&gt; &lt;em&gt;(Counterexample below: the game has one proper subgame; $(XC,L)$ is an SPNE but involves a sequentially irrational strategy $L$ by player 2).&lt;/em&gt; If only has improper sub game then it may not be sequentially rational. &lt;strong&gt;TRUE&lt;/strong&gt; &lt;em&gt;(Treat the subgame after $X$ as a game of its own.)&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/hNpdo.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/hNpdo.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;6- PBE solutions are Nash equilibrium and SPNE. &lt;strong&gt;UNCERTAIN / TRUE (in most cases)&lt;/strong&gt;; &lt;em&gt;it actually depends on how exactly you define PBE (there are many definitions). See &lt;a href=&quot;http://econweb.ucsd.edu/~jwatson/PAPERS/WatsonPBE.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Watson (2017)&lt;/a&gt; for more details.&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;7- PBE solutions are sequentially rational no matter what. &lt;strong&gt;TRUE&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;8- WPBE solutions are Nash equilibria. And sequentially rational no matter what. &lt;strong&gt;TRUE&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="42" LastEditorUserId="42" LastEditDate="2017-05-08T21:48:53.947" LastActivityDate="2017-05-08T21:48:53.947" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="16707" PostTypeId="2" ParentId="16702" CreationDate="2017-05-08T23:19:53.347" Score="3" Body="&lt;p&gt;You are missing the key element, transfer fees.  If the transfer fees are large enough, then the marginal cost to move between exchanges just needs to stay inside the gross bid-ask spread.  It can probably move outside that spread because there is an additional risk for one who moves between exchanges.  Not all exchanges move back and forth between real world bank accounts equally well, nor do all have equal trading depth.  Additionally, the time value of money between the exchanges is probably sufficient to eat up any arbitrage.  It may be worth giving up arbitrage profits if they are traded for the time value of money profits.  If the arbitrage is small and the cost is great, you can carry a wider bid-ask spread and get away with it as a market maker.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It sounds like you need decision theory and not game theory unless you are considering the behaviors of the other actors as part of the game.  You should start with de Finetti's Coherence Principle.  It is a weaker principle than the &quot;no arbitrage&quot; principle.  In its weakest form, it only states that odds are coherent if a bookie cannot take a sure loss in all states of nature through the clever combination of bets either by a single or by multiple actors.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What makes it weaker is that it never says that no arbitrage opportunity exists, but it would imply that if it did exist, then the market makers would capture all or nearly all the profits.  I would be surprised to find that the exchanges did not profit greatly from the arbitrage opportunities on each other's exchanges.  They are perfectly placed and have deep inventory that they could borrow from their customers.  They probably allow some to go by to get speculators into their markets.  They are profit maximizers.&lt;/p&gt;&#xA;" OwnerUserId="11321" LastActivityDate="2017-05-08T23:19:53.347" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16709" PostTypeId="1" CreationDate="2017-05-09T07:12:47.993" Score="0" ViewCount="372" Body="&lt;p&gt;In product pitches, a timeless line is &quot;this is a $____ industry&quot;, but what does that really mean? Is that how much money the industry typically produces in a year? In a quarter? As some ratio of the annual/quarterly sales or profits? What does it mean?&lt;/p&gt;&#xA;" OwnerUserId="11173" LastActivityDate="2017-05-10T14:49:05.123" Title="What does the value of an industry mean?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16710" PostTypeId="1" CreationDate="2017-05-09T12:43:38.507" Score="4" ViewCount="109" Body="&lt;p&gt;Is the &lt;a href=&quot;http://www.mirror.co.uk/money/calling-118-118-costs-least-10381419&quot; rel=&quot;nofollow noreferrer&quot;&gt;shocking cost of directory enquiry numbers&lt;/a&gt; in the UK a market failure, or the economy working perfectly well?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;EDIT:&lt;/strong&gt; I know that proponents of free markets often like to blame over-regulation or government interference for perceived problems in markets, so I wonder if anyone could point to some regulation that has caused this incredible series of price hikes.&lt;/p&gt;&#xA;" OwnerUserId="5081" LastEditorUserId="2776" LastEditDate="2017-05-10T08:55:41.003" LastActivityDate="2017-08-19T12:52:21.850" Title="Calling 118 118 (UK) - A market failure?" Tags="&lt;market-failure&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16711" PostTypeId="2" ParentId="16710" CreationDate="2017-05-09T13:09:24.333" Score="0" Body="&lt;p&gt;Questions about specific markets in specific countries require targeted applied research to be answered - this is the fine hour for applied microeconomics and industrial economics.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Telecommunications is a regulated market usually -and indeed the link provided by the OP quotes the industry regulator&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;The rising cost of directory enquiry calls to some 118 numbers is very&#xA;  concerning, an industry regulator has said&lt;/em&gt;....&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&lt;em&gt;...Ofcom has said it will announce details of a review of&#xA;  the directory services market soon...&lt;/em&gt;&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&lt;em&gt;..A spokesman for the watchdog said: &quot;Ofcom is very concerned about the&#xA;  rising prices of some 118 numbers, and we are already planning to&#xA;  review this market to ensure prices are transparent and fair to&#xA;  consumers.&quot;&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It appears the regulator is concerned.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2017-05-09T13:09:24.333" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="16713" PostTypeId="1" CreationDate="2017-05-09T18:41:38.507" Score="1" ViewCount="63" Body="&lt;p&gt;The Arthakranti (a NGO working on Economic Reform in India) suggests the proposal of Tax Reform.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the proposal they suggest that All Taxes and Duties of Central ,State and Local body Government except customs or import duties which functions as International Trade Balancer should be withdrawn and replaced with single point Tax deductible at Source.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/1qJRF.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/1qJRF.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The full details &amp;amp; suggestions from the proposal are here:&lt;a href=&quot;http://arthakranti.org/proposal&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://arthakranti.org/proposal&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Key Points from Proposal are here:-&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/y0eBO.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/y0eBO.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&#xA;&lt;a href=&quot;https://i.stack.imgur.com/g5nQe.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/g5nQe.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&#xA;&lt;a href=&quot;https://i.stack.imgur.com/QWb9z.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/QWb9z.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&#xA;&lt;a href=&quot;https://i.stack.imgur.com/cTOx7.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/cTOx7.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&#xA;&lt;a href=&quot;https://i.stack.imgur.com/3SssE.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/3SssE.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Would such Tax System Work and stop Tax evasion?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or since Tax is to be levied on Actual transaction, one can just Note Down (Kind of book keeping of Transactions between Two people) the Transaction between two people (the way it is done in Hawala) and settles the trade between Two people after certain fixed period of Time and pays much less Tax..&lt;/p&gt;&#xA;&#xA;&lt;p&gt;e.g. Let the rate of such Single Point Tax is 2% (as suggested by Arthakranti to be Low)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If 'A' pays Rs. 100 to 'B' And after some time (days), now 'B' pays Rs. 200 to 'A'&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In these transactions if tax is paid after each transaction, the Government would receive total Rs. 6 (Rs. 2 + Rs. 4) in Tax.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But instead actually transaction money each time, if both A &amp;amp; B decides to just note down the amount of money they owe to other &amp;amp; amount they going to receive and decided they will clear their book after six months (Fixed Period agreed by both).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then in this case after Fixed period only transaction that takes place is 'B' pays Rs. 100 to 'A' and in this case the tax paid to government is Rs. 2 (Rs. 4 in Tax is avoided)..&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This system of Book Keeping Transaction can be easily extended from Two people who frequently transact with each other to any Large Scale using Blockchain technology to note down the transactions (without actually making any transactions) and transaction can be settled in such a way that minimum Tax is to be paid to Government. (The same way Akamai Technology deliver content to the user from Nearest Server).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does this model for avoiding Tax would work?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;More precisely, what are the evasion/avoidance rates for similar transaction taxes that have been implemented in other countries (if any country have implemented such tax)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Compared to traditional taxes on income, consumption, profits or wealth, how will Single Transaction Tax will perform in respect to Tax Evasion or in curbing Black Money?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also Does Flat Tax like this would be regressive in nature?&lt;/p&gt;&#xA;" OwnerUserId="13205" LastEditorUserId="13205" LastEditDate="2017-05-10T11:26:20.520" LastActivityDate="2017-05-10T11:26:20.520" Title="The introduction of Single Transaction Tax would help to curb out Tax Evasion &amp; Black Money?" Tags="&lt;taxation&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="16714" PostTypeId="1" CreationDate="2017-05-10T01:53:16.197" Score="1" ViewCount="85" Body="&lt;p&gt;Is there a reasonably well-established scheme for estimating the value of the dollar in international trade, somehow relating it to the &quot;average&quot; of other currencies or to some currency-independent metric?  Something that could be used when researching the relationship between fiscal policies and international trade.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(I would consider using the Euro, but I'd like numbers going back to the 70s, at least, and obviously the Euro doesn't work for that.  In addition, it is perhaps a bit destabilized by, eg, the Greek economic crisis.)&lt;/p&gt;&#xA;" OwnerUserId="12218" LastActivityDate="2017-05-10T02:36:33.330" Title="Is there an accepted metric for &quot;the value of the dollar&quot;?" Tags="&lt;exchange-rates&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16715" PostTypeId="2" ParentId="16714" CreationDate="2017-05-10T02:36:33.330" Score="1" Body="&lt;p&gt;It sounds like you want the &lt;a href=&quot;https://fred.stlouisfed.org/series/DTWEXM&quot; rel=&quot;nofollow noreferrer&quot;&gt;Trade-Weighted Dollar Index&lt;/a&gt;, which is available from 1973 on for major currencies. It's the value of the dollar against a basket of other currencies, weighted by their share of US trade. &lt;/p&gt;&#xA;" OwnerUserId="264" LastActivityDate="2017-05-10T02:36:33.330" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="16716" PostTypeId="1" CreationDate="2017-05-10T05:22:18.420" Score="3" ViewCount="258" Body="&lt;p&gt;I'm reviewing a previous AP Macroeconomics exam and I saw the following question:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The United States and South Korea are trading partners, and the United&#xA;  States has a zero current account balance. Assume now that the&#xA;  inflation rate in the United States decreases relative to the&#xA;  inflation rate in South Korea.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Based on the decrease in the inflation rate in the United States, will United States exports to South Korea&#xA;increase or decrease? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The answer is that US exports to South Korea will increase.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But my intuition says the opposite. If South Korea has high relative inflation, their currency will not be worth as much compared to the U.S. dollar, so it will depreciate. Thus, the South Korean currency cannot buy as much from the U.S. and will thus not be able to import as much, so I would think exports from the U.S. would decrease to South Korea. Why is my intuition wrong?&lt;/p&gt;&#xA;" OwnerUserId="10194" LastActivityDate="2017-05-10T06:09:20.910" Title="Why imports increase if higher relative inflation?" Tags="&lt;macroeconomics&gt;&lt;inflation&gt;&lt;exchange-rates&gt;&lt;foreign-exchange&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16717" PostTypeId="2" ParentId="10625" CreationDate="2017-05-10T05:37:36.137" Score="1" Body="&lt;p&gt;Consider legal tender as a commodity. Gold is usually seen by some of the market as a &lt;strong&gt;substitute&lt;/strong&gt; for a strong currency. If your currency is really strong and can buy lots of cool things, why store your value in gold when there's perfectly good legal tender that can be accepted everywhere? That is why I claim strong currencies and precious metals are substitutes. But for example, if the dollar is weakening compared to other international currencies, some people flock to precious metals and later, when the dollar is very weak, sell off the gold at a better rate for the dollar back, before the dollar strengthens again.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you're a country that likes to export a lot of stuff, you can benefit a lot from a weak currency, since it's relatively cheaper for other nations to buy your goods, so that makes them want to buy from your nation more. If you are a nation that imports a lot of things though, then your economy will suffer, since now everything is relatively expensive. And even with exporters, if international businesses think your currency is going to continue weakening, they may hold off on buying from your country until they can really get a bang for their buck (or whatever local currency they use). If expectations about inflation are imperfect, there may be deflation as a result. Additionally, if you're a country that's in a lot of debt, as most major developed economies are, it is harder to pay off foreign debts with a weak currency.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So a combination of these things means that often we see economies with weak currencies facing hard times, and usually a country with a weak currency got that way because of bad economic fundamentals in the first place (e.g. high inflation, currency devaluation). Since gold is a substitute for strong currencies, it makes sense that the price of gold rises as the currency becomes weaker, which usually happens during a bad economy, and more people want to buy gold.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastEditorUserId="10643" LastEditDate="2017-07-17T18:04:38.550" LastActivityDate="2017-07-17T18:04:38.550" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16718" PostTypeId="1" CreationDate="2017-05-10T05:52:56.943" Score="1" ViewCount="2699" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/tAQcN.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/tAQcN.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The above is taken from &quot;Economics&quot; 8th Edition by John Sloman, a textbook commonly used at the introductory undergraduate level. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would like assistance in understanding the bracketed portion - how a decrease in consumption of alternative goods results in a low increase in total utility and thus a small decrease in marginal utility. Thanks.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You may ignore the following picture, &quot;Figure 2&quot;. It was uploaded to illustrate something in response to a comment.&lt;a href=&quot;https://i.stack.imgur.com/RQesb.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/RQesb.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="11353" LastEditorUserId="11353" LastEditDate="2017-05-11T12:36:11.273" LastActivityDate="2017-05-11T13:24:03.900" Title="Link between elasticity and marginal utility" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;consumer-theory&gt;&lt;elasticity&gt;&lt;marginal&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16719" PostTypeId="2" ParentId="16716" CreationDate="2017-05-10T06:09:20.910" Score="1" Body="&lt;p&gt;At first, U.S. exports increase because US exports become cheaper due to the low inflation rate. Inflation itself only influences the exchange rate indirectly through its effect on supply and demand for currency. That effect goes through trade. For that to happen, trade must first take place and so US exports must first increase. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So at first the exchange rate doesn't adjust at all (no difference in supply/demand of the currencies just yet). US goods become cheaper so they're exported more. As US exports increase the demand for dollars by South Korea increases. This will later on lead to the south korean currency to depreciate and for US exporte to go down again (if the Marshall Lerner condition is fulfilled).&lt;/p&gt;&#xA;" OwnerUserId="5557" LastActivityDate="2017-05-10T06:09:20.910" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="16720" PostTypeId="1" CreationDate="2017-05-10T06:50:47.900" Score="-1" ViewCount="50" Body="&lt;p&gt;If I'm running a randomized control trial, and the regression model I'm looking at is a multinomial logit, what would my specification be? I.e. what would the equation look like? Some dumbed-down detail would be appreciated. Also note, this is for a research proposal so this is like God running an experiment. No constraints of practicality apply &lt;/p&gt;&#xA;" OwnerUserId="8200" LastActivityDate="2017-05-10T08:48:44.613" Title="Multinomial logit with an rct" Tags="&lt;econometrics&gt;" AnswerCount="1" CommentCount="3" ClosedDate="2017-05-12T15:09:09.790" ContentLicense="CC BY-SA 3.0" />
  <row Id="16721" PostTypeId="2" ParentId="16720" CreationDate="2017-05-10T08:48:44.613" Score="1" Body="&lt;p&gt;My recommendation is not to submit a research proposal that contains methodologies you do not understand. Even if someone gave you the &quot;dumbed-down detail&quot;, the devil is in the small details. There is risk you may misinterpret the results or accidentally engage in p-hacking, both of which would be harmful.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2017-05-10T08:48:44.613" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="16722" PostTypeId="2" ParentId="16669" CreationDate="2017-05-10T13:24:44.453" Score="2" Body="&lt;p&gt;It sounds like you have a background in game theory. Here is a Game Theory text available for free through RAND if you (or anyone else) wants a refreasher: &lt;a href=&quot;http://www.rand.org/pubs/commercial_books/CB113-1.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.rand.org/pubs/commercial_books/CB113-1.html&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Below are some articles from which you should be able to draw information. Most are not specific to recruiting, but the underlying theory is certainly applicable. If you continue to be interested in this topic, you will find a great deal of information in the literature on social capital, product value signaling (one article included below), and value signaling as it relates to credentials. Denesp recommended a great paper; plug it into google scholar and see which papers cite that one. Doing this you may find a ton of information.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is a paper published that takes a game theoretic look at the legal profession. It doesn't directly relate to your scenario, but the concepts and framing certainly do (this is on google scholar): Rasmusen, E., Raghav, M., &amp;amp; Ramseyer, M. (2009). Convictions versus conviction rates: the prosecutor's choice. American Law and Economics Review, 11(1), 47-78.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is an article, also available on Google Scholar, that contends with imperfect information: Rothschild, M., &amp;amp; Stiglitz, J. (1976). Equilibrium in competitive insurance markets: An essay on the economics of imperfect information. The quarterly journal of economics, 629-649. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is one specific to Signaling Games: Cho, I. K., &amp;amp; Kreps, D. M. (1987). Signaling games and stable equilibria. The Quarterly Journal of Economics, 102(2), 179-221.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also about signaling: Kirmani, A., &amp;amp; Rao, A. R. (2000). No pain, no gain: A critical review of the literature on signaling unobservable product quality. Journal of marketing, 64(2), 66-79.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Related to employment: Leana, C. R., &amp;amp; Van Buren, H. J. (1999). Organizational social capital and employment practices. Academy of management review, 24(3), 538-555.&lt;/p&gt;&#xA;" OwnerUserId="12662" LastActivityDate="2017-05-10T13:24:44.453" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16723" PostTypeId="1" AcceptedAnswerId="16725" CreationDate="2017-05-10T13:33:58.550" Score="4" ViewCount="144" Body="&lt;p&gt;Is there a mathematical ecuation or some method, which allows you to have the &quot;current dollar value&quot; of an amount dollar from other year, let's say, decades ago? For example, it's said that the Marshall Plan where United States gave 13 billions dollars to Europe is equivalent to $130 billion in current dollar value as of June 2016. &lt;/p&gt;&#xA;" OwnerUserId="8165" LastEditorUserId="8165" LastEditDate="2017-06-22T13:39:47.390" LastActivityDate="2017-06-22T13:39:47.390" Title="How can you know which is the &quot;current dollar value&quot; of a dollar value from another decade?" Tags="&lt;money&gt;&lt;value&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16724" PostTypeId="2" ParentId="16709" CreationDate="2017-05-10T14:49:05.123" Score="1" Body="&lt;p&gt;If I'm understanding your question, this typically means the amount of revenue that an industry generates. Usually, the statement &quot;this is a ____ industry&quot; is labeled. For example, &quot;this is a $1,000,000 a year industry.&quot; Although recognizing how much revenue an industry generates is nice and is helpful, it may not apply to a person looking to break into an industry. It's important to note that profit and revenue are not the same things.&lt;/p&gt;&#xA;" OwnerUserId="12662" LastActivityDate="2017-05-10T14:49:05.123" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16725" PostTypeId="2" ParentId="16723" CreationDate="2017-05-10T15:22:54.710" Score="1" Body="&lt;p&gt;You just use the inflation rate. To go forward in time take the dollar value and multiply it by (1 + inflation)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lets say inflation in 2015 was 2% (i.e. 0.02).Then 100 USD in 2015 are equivalent to 102 USD (=100*1.02) in 2016. Suppose inflation in 2016 was 3%. Then 100$ in 2015 are equivalet to 105.06 USD in 2017 (100*1.02*1.03). Or to go back in time divide by 1+inflation rate. So 100 USD in 2017 are equal to 100/1.03 dollars in 2016.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you have all the inflation rates and keep going, then you can figure the historical amounts out.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastActivityDate="2017-05-10T15:22:54.710" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16726" PostTypeId="2" ParentId="16718" CreationDate="2017-05-10T15:35:49.333" Score="2" Body="&lt;p&gt;We can break this into three parts: (1) price elasticity, (2) substitutes, and (3) marginal utility.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Price elasticity&lt;/em&gt; measures price sensitivity (how much a change in price affects quantity consumed). In the example in the book, the product is elastic, which means that a decrease in price increases consumption proportionally more than the decrease in price. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Substitutes&lt;/em&gt; are any products that can be substituted for another. This is important because a change in price of a product will not only affect it's consumption, but also the consumption of substitute goods. For example, people who want soda have a choice between Coke and Pepsi. Assume that when priced the same, $10$ people by Coke and $10$ people buy Pepsi. The total consumption is $20$. Now, assume that Coke lowers its price while Pepsi keeps the price the same. Some people who once consumed Pepsi will now by Coke, say $5$ people switch to Coke. The total consumption remains the same, $20$, but its distribution is different. It is the case that a drop in price will encourage consumers to purchase Coke who wouldn't normally do so at the initial price. because a price decrease makes the product available to new consumers the total consumption of soda may increase to $25$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Marginal Utility&lt;/em&gt; is the amount by which utility changes with each unit of consumption. The text doesn't seem to say this, but marginal utility is subject to the law of diminishing returns. This means that at a certain point, consuming more of a good makes a person less happy. For example, if I eat 2 cookies, I'm happy. With each cookie I consume, I grow happier in total, however this is happiness increases at a decreasing rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/T3amy.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/T3amy.png&quot; alt=&quot;&quot;&gt;&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Utility is maximized when marginal utility is zero. After this point one loses...experiences disutility.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Essentially, the text is saying that if the price of an elastic good decreases its consumption will increase. The consumption increase comes from (1) &quot;stealing&quot; consumers from other similar products and (2) new consumers that didn't buy the product at the initial price. Since the total consumption increases as did total utility, the increase was small and thus marginal utility decreased. This isn't saying that utility was taken away, its saying the the rate at which utility increased was slower.&lt;/p&gt;&#xA;" OwnerUserId="12662" LastEditorUserId="12662" LastEditDate="2017-05-11T13:24:03.900" LastActivityDate="2017-05-11T13:24:03.900" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="16727" PostTypeId="2" ParentId="16723" CreationDate="2017-05-10T15:48:14.887" Score="1" Body="&lt;p&gt;The best way to track inflation is to look at the CPI of a country. CPI measures the price of a basket of goods across a period of time normalized to 100 (In the US it is currently normalized to 1982).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This means that in 2007 the CPI will be 100. For every other year it shows the difference between the value of a basket of goods as compared to the value in 1982. For example the CPI in the U.S. for June of 2016 was 240. this means that the value of a dollar in 1982 was 2.4x more valuable than the value of a dollar in 1982. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To compare years that are not the base year you simply find the % difference between the two CPIs. So in March 1948 (right before the Marshall Plan began) the CPI was 23.4. You use the % change formula ((new-old)/old) to calculate the % difference between the CPI in 1948 and now. Thus:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;code&gt;(240-23.8)/23.4 = 9.239&lt;/code&gt;&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus the amount of money spent on the Marshall plan is worth 9.239 times now what it would be in 1950. Thus you can just multiply the amount spent on the Marshall Plan by the dollar value today to get:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;code&gt;$13 billion * $9.239 billion = $120.107 billion&lt;/code&gt;&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It says on Wikipedia that the Marshall Plan cost more than &lt;code&gt;$13&lt;/code&gt; billion so to get the &lt;code&gt;$130&lt;/code&gt; billion number the total spent would have been just under &lt;code&gt;$14&lt;/code&gt; billion.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm not sure which year's CPI they're measuring in your statistic to value the money spent on the Marshall plan or the exact methodology used but this gets you a pretty good rough estimate.&lt;/p&gt;&#xA;" OwnerUserId="10245" LastActivityDate="2017-05-10T15:48:14.887" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="16728" PostTypeId="1" CreationDate="2017-05-10T15:50:57.090" Score="5" ViewCount="70" Body="&lt;p&gt;Like what percentage of financial/economical forecast fail? &#xA;Or how often do politicians create bad policies based on wrong forecasts?&lt;/p&gt;&#xA;" OwnerUserId="13214" LastActivityDate="2017-08-30T00:06:50.520" Title="Is there any statistics available on forecasting failures?" Tags="&lt;data-request&gt;&lt;statistics&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="16729" PostTypeId="1" CreationDate="2017-05-10T17:46:56.467" Score="8" ViewCount="853" Body="&lt;p&gt;Excuse the naïve question, but I have a rather limited understanding of economics, and this question has been bothering me since my school economics teacher couldn't answer it satisfactorily many years ago.  It is also a question that is a prerequisite to many others I have.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Is money a conserved quantity, in the same sense as we have conserved quantities in physics (e.g. energy)?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In daily transactions that I have experience with, it obviously is. If I buy something from Joe, and give him \$10, I will have \$10 less and he will have \$10 more.  But the total amount we have together has not changed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does this apply to &lt;em&gt;all&lt;/em&gt; transactions?  If not, when is it violated?  In what situations is money created, and when does it disappear (other than physically destroying paper based money)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This then leads to a closely related question: Where can I find out how much is there of a given currency?  How much USD exists in total, if we combine the dollars owned by everyone in the world?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If this question is considered too basic, I would appreciate suggestion about where a mathematically minded person might read up on this topic.&lt;/p&gt;&#xA;" OwnerUserId="13216" LastActivityDate="2020-09-20T14:38:58.667" Title="Is money a conserved quantity?" Tags="&lt;money&gt;" AnswerCount="6" CommentCount="6" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="16730" PostTypeId="2" ParentId="16729" CreationDate="2017-05-10T18:41:49.890" Score="5" Body="&lt;p&gt;&lt;em&gt;Νominal money&lt;/em&gt; could be seen as a &quot;conserved quantity&quot; in a similar/analogous sense that we have in physics, under some qualifications and restrictions. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I stress that we are talking about the &lt;em&gt;nominal&lt;/em&gt; value of money, which is an indisputable quantity and legal tender (the concept of &quot;real&quot; value is an estimated value and hence subject to disagreements etc.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then if we exclude&lt;br&gt;&#xA;1) The central bank/government with the authority of the law&lt;br&gt;&#xA;2) The commercial banking system as regards Transactions that have to do with taking or repaying loans&lt;br&gt;&#xA;3) Actions that just destroy the physical carrier (say, burn the paper bill)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;...then &lt;em&gt;transactions do not alter the amount of nominal money&lt;/em&gt;, and in that sense, the nominal value/amount of money is conserved.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We exclude 1) because the central bank / government have the power by law to create new money (and destroy existing money, for example &quot;cutting zeros&quot; after a hyperinflation episode).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;We exclude 2) because commercial banks create money under the &quot;fractional reserve banking&quot; system, while money is destroyed whenever a loan is repaid (the part that has to do with the principal, not the interest). The OP should ask a different question if the OP wants to know about that.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We exclude 3) because we can argue that these are not &quot;normal economic transactions&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the system in which nominal money can be considered a &quot;conserved quantity&quot; is a subset of a real world economic system.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2017-05-10T19:24:07.783" LastActivityDate="2017-05-10T19:24:07.783" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="16732" PostTypeId="2" ParentId="16729" CreationDate="2017-05-10T19:48:12.060" Score="1" Body="&lt;p&gt;I guess that, if you have a rather limited understanding of economics, what you need is getting some intuitions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, in this first part, &lt;em&gt;I only deal with commercial banks&lt;/em&gt;. Note however, that only commercial banks &lt;strong&gt;&lt;em&gt;create&lt;/em&gt;&lt;/strong&gt; money while central banks &lt;strong&gt;&lt;em&gt;emit/issue&lt;/em&gt;&lt;/strong&gt; money (more about this difference in the last part). But how does creation of money work, is this creation &lt;em&gt;real in the physical sense&lt;/em&gt; ? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;em&gt;Say I have a bike&lt;/em&gt;&lt;/strong&gt; (money) and because I am not using it, I park it somewhere (commercial bank) someone can borrow it. However, if I need my bike, it must be where I left it. This is what the liquidity risk is about. &lt;strong&gt;In this case my bicycle is a conserved quantity&lt;/strong&gt;, and the &quot;parker&quot; (banker) has a book, in which she writes that she has my bicycle:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;bike1 ............................................ date-infos-etc&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Thus the parker lends my bike and hopes that I am not about to come back to use it. But the borrower will also have to park the bike somewhere, because she will not use it permanently. And she parks it in the same parking. So the parker henceforth has what follows written in her book&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;bike1 ............................................ name1-date1-infos1-etc1&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;bike1'............................................ name2-date2-infos2-etc2&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So the second bike, i.e. bike1' (actually the same as bike1), is &lt;strong&gt;&lt;em&gt;scriptural&lt;/em&gt;&lt;/strong&gt;. Thus quantities are &lt;strong&gt;&lt;em&gt;scripturally not conserved&lt;/em&gt;&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But the effects on economic activities is anything but scriptural: me, I still enjoy the fact of having this bike, in term of solvency and so on. The borrower can use this bike to go faster (leverage effect to increase her income) than before.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When the borrower does not need the bike anymore, she informs the parker, who erases the second line in her book, which &lt;strong&gt;&lt;em&gt;destroys the scruptural bike&lt;/em&gt;&lt;/strong&gt; refered to as bike1'.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus &lt;strong&gt;&lt;em&gt;money is an object whose quantity is conserved, but an object that commercial banks can duplicate/create scripturally until the liquidity risk becomes unbearable, i.e., until the probability that everybody wants to use the scriptural money at the same time becomes to high&lt;/em&gt;&lt;/strong&gt;, which would be equivalent to the so-called bank run.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;h3&gt;Following @Anasta's comments&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;To address the &lt;strong&gt;&lt;em&gt;first&lt;/em&gt;&lt;/strong&gt; comment. Creation of money by commercial banks is what I describe above. Briefly but strictly speaking, emission is the &lt;em&gt;physical increase of money supply&lt;/em&gt; and this is the exclusive prerogative of Central Banks. Creation of money (thus what I am talking about in the first part of my answer), &lt;em&gt;consists of duplicating scripturally&lt;/em&gt; this &lt;em&gt;supplied&lt;/em&gt; money.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To address the &lt;strong&gt;&lt;em&gt;second&lt;/em&gt;&lt;/strong&gt; comment. &lt;strong&gt;In practice&lt;/strong&gt;, the risk of liquidity is (semi-) unobservable, and cannot be managed perfectly. That is why there are standards on banks' &lt;em&gt;minimum capital ratios&lt;/em&gt;: using my &lt;strong&gt;simplifying/intuiting&lt;/strong&gt; example above, this capital ratio would be something like &lt;strong&gt;[&lt;/strong&gt; the amount associated to the first line written in the book &lt;strong&gt;]&lt;/strong&gt; divided by &lt;strong&gt;[&lt;/strong&gt; the total written amount (corresponding to the sum of all amounts reported in the book) &lt;strong&gt;]&lt;/strong&gt;. Also, as just outlined, the first asset (bike) is actually owned by the shareholders of the bank, which subsequently shifts the liquidity risk from the first line to the following lines. &lt;strong&gt;But theoretically&lt;/strong&gt;, the process of scriptural creation can be infinite as soon as the book (above) contains one line (shareholders' equity), used to generate a second one, which could in turn be used to generate a third one, and so on. Indeed the capital ratio can converge asymptotically towards $0$. Theoretically (i.e. if the liquidity risk is perfectly managed) there is &lt;em&gt;no hard constraint&lt;/em&gt;. &lt;strong&gt;Finally on this point&lt;/strong&gt;, the constraint is &lt;em&gt;only regulatory&lt;/em&gt;, and without it, banks would have the right to rush, soon or later, headlong into disaster. And as you mention, this minimum capital ratio is subjectively determined, and we should expect it to be upward pressured as centuries goes by.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To address the &lt;strong&gt;&lt;em&gt;third&lt;/em&gt;&lt;/strong&gt; comment. Printed money is nothing more than the emanation of a record, written somewhere. This is even more visible when you use your credit card: does the amount you type when buying something on internet have any sort of physical representation ? Physically not but scripturally it does. And, actually, if you were &lt;em&gt;under the impression that there is no detectable difference between these two kinds of money (bikes)&lt;/em&gt;, this is because the the &quot;first&quot; bike is also borrowed from someone else.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;h3&gt;To go further&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;But who is the first/primordial lender ? First of all, note that it is impossible to go further without clearing up the prevailing confusion regarding the two following terms: &lt;strong&gt;creation&lt;/strong&gt; versus &lt;strong&gt;emission&lt;/strong&gt;, since expressed as such, the two underlying notions are incompletely rendered for people. Strictly speaking &lt;strong&gt;creation&lt;/strong&gt; in the economical sense means &lt;strong&gt;scriptural creation&lt;/strong&gt; -- and this is the core subject of my answer --, while &lt;strong&gt;emission&lt;/strong&gt; in the economical sense means &lt;strong&gt;&lt;em&gt;ex nihilo&lt;/em&gt;&lt;/strong&gt; &lt;strong&gt;creation of central bank money&lt;/strong&gt; in the common sense. So, as you can see, these two terms are deceptive cognates of their everyday-life usage.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Briefly (&lt;em&gt;and still giving some intuitions&lt;/em&gt;), the first lender, historically, is &lt;strong&gt;&lt;em&gt;a&lt;/em&gt;&lt;/strong&gt; central-bank-like institution. And this institution, when printing money, appears as doing it &lt;em&gt;ex nihilo&lt;/em&gt;. But in reality, these institutions turn human conceptions/psychology/beliefs into value. So saying that this generation of value is done &lt;em&gt;ex nihilo&lt;/em&gt; is not correct strictly thinking.  A (caricatured but not so far from reality) example is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;On the one hand&lt;/em&gt;, assume the existence of a country whose name is Gouzlouk. This nation has no installed capital, no infrastructure, no army, no productive system, no school, no no.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;On the other hand&lt;/em&gt;, assume the existence of a country whose name is ASUK. This nation has a highly capitalized economic system, gold reserves, a powerful army, a highly productive system which produces things that everybody wants, and, specially, a currency that many other nations use as unit of value of their own monetary system. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is obvious that, if Gouzlouk nation prints money from what is said to be &lt;em&gt;nothing&lt;/em&gt;, it will really be &lt;em&gt;nihilo&lt;/em&gt;, since nobody in the world economy will buy what they produce, since they produce nothing, and even if they produce something and sell it in their own currency, nobody will wants to buy their production since they would first have to buy Gouzlouk's currency, which even if almost free, gives access to nothing desirable. &lt;em&gt;A contrario&lt;/em&gt;, if ASUK nation prints money, it won't be &lt;em&gt;ex nihilo&lt;/em&gt; at all ! And given that every nation in the world have their pockets full of ASUK's currency, which gives access to anything you want, they will have no interest to undermine it. Furthermore ASUK's army owns missiles everywhere and the nation is headed by a trigger man.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;a href=&quot;http://truthorial.com/art/picasso-paid-his-restaurant-bills-with-artistic-doodles&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;Pablo Picasso was often found drawing on the paper tablecloths at his favorite restaurants. Restaurateurs would often ask him to leave the drawings instead of paying the bill&lt;/em&gt;&lt;/a&gt;.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Picasso was a central bank of his own.&lt;/p&gt;&#xA;" OwnerUserId="10247" LastEditorUserId="10247" LastEditDate="2017-11-20T20:16:33.287" LastActivityDate="2017-11-20T20:16:33.287" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="16734" PostTypeId="2" ParentId="16723" CreationDate="2017-05-10T22:53:22.510" Score="4" Body="&lt;p&gt;There are quite a few websites which will do a point-to-point calculation for you, if all you want is the comparison of the CPI.  For example, &lt;a href=&quot;https://www.measuringworth.com/uscompare/&quot; rel=&quot;nofollow noreferrer&quot; title=&quot;MeasuringWorth.&quot;&gt;https://www.measuringworth.com/uscompare/&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Saying how much a dollar was &quot;worth&quot; at a past point, however, is not a very precise question unless it's made more specific.  The price of computers, for example, have fallen even as they have become more powerful -- and even as the price level has risen.  It's simply not accurate to say that a five-hundred-sixty-three dollar computer today (of which there are many choices) would have cost only $1 in 1774!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I recommend &lt;a href=&quot;https://www.measuringworth.com/explaining_measures_of_worth.php&quot; rel=&quot;nofollow noreferrer&quot;&gt;this essay&lt;/a&gt; for a lot more detail on the matter.&lt;/p&gt;&#xA;" OwnerUserId="10799" LastEditorUserId="2776" LastEditDate="2017-05-11T08:50:55.767" LastActivityDate="2017-05-11T08:50:55.767" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16737" PostTypeId="1" AcceptedAnswerId="16858" CreationDate="2017-05-11T04:57:49.363" Score="1" ViewCount="244" Body="&lt;p&gt;What will the effect on today's global market if a new source of free unlimited energy was to be discovered?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How badly will it disrupt today's global market and how badly will it affect our currency?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or it will do good to today's economy?&lt;/p&gt;&#xA;" OwnerUserId="13224" LastEditorUserId="2776" LastEditDate="2017-08-19T10:51:08.357" LastActivityDate="2017-08-19T10:51:08.357" Title="How would unlimited free energy affect the global market?" Tags="&lt;macroeconomics&gt;&lt;currency&gt;&lt;economic-growth&gt;" AnswerCount="1" CommentCount="3" ClosedDate="2017-09-01T22:15:52.660" ContentLicense="CC BY-SA 3.0" />
  <row Id="16738" PostTypeId="2" ParentId="16692" CreationDate="2017-05-11T09:21:25.330" Score="1" Body="&lt;p&gt;Of course, note that in general, consumer B is willing to increase her consumption in period 1. it is a matter of simply solving the problem in the regular way. i.e, MRS=p and find the $p$ which &quot;clears&quot; the market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Normalize the price of the current period good to $1$ and let $p$ be the price of the second period good, then the optimum for player $A$ is:&#xA;$\max_{x_{A1},x_{A2}} \sqrt{x_{A1}}+\sqrt{x_{A2}}$ s.t $x_{A1}+px_{A2}\le 1$&#xA;Clearly the constraint is binding and thus the problem becomes:&#xA;$\max_{x_{A1}} \sqrt{x_{A1}}+\sqrt{\frac{1-x_{A1}}{p}}$&#xA;Calculate the first order condition, repeat the process for consumer B etc...&lt;/p&gt;&#xA;" OwnerUserId="13225" LastActivityDate="2017-05-11T09:21:25.330" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16741" PostTypeId="1" CreationDate="2017-05-11T18:43:25.080" Score="2" ViewCount="1432" Body="&lt;p&gt;Adam Smith seems to be saying that the goal of governing is &quot;universal opulence which extends itself to the lowest ranks of the people,&quot; which he appears to think achievable in capitalism with the minimalist government. Clearly, things did not work out the way he thought, prompting Karl Marx, 90 years later, to assert that state-protected capitalism is the legalization of thievery. What are some defenses economists make on behalf of Smith? References appreciated.&lt;/p&gt;&#xA;" OwnerUserId="13234" LastEditorUserId="42" LastEditDate="2017-05-11T18:58:31.793" LastActivityDate="2017-05-29T11:34:31.083" Title="Adam Smith and universal opulence" Tags="&lt;reference-request&gt;&lt;political-economy&gt;" AnswerCount="2" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="16742" PostTypeId="1" CreationDate="2017-05-11T21:31:43.060" Score="1" ViewCount="60" Body="&lt;p&gt;Let's have a hypothetical situation with 3 companies. Company A produces a machine part to certain extreme specifications. Their only client for this product is company B. Company B uses these to build gearing systems for very accurate control of a tool. Company B sells these exclusively to Company C. C makes these into manufacturing machines, which are bought by A because they are the only tool that is capable of building the part for B to the required specification.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is a very simple example, but I think anyone can see how this can be extended to include multiple companies (perhaps even competing ones) where the only reason they exist is because they keep eachother going.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there a term for this in economy? Does this happen in reality? &lt;/p&gt;&#xA;" OwnerUserId="13236" LastActivityDate="2017-05-12T10:09:02.393" Title="Is a self-sustaining &quot;loop&quot; of economy a thing?" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="16743" PostTypeId="2" ParentId="16729" CreationDate="2017-05-12T02:13:02.813" Score="2" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Is money a conserved quantity, in the same sense as we have conserved&#xA;  quantities in physics (e.g. energy)?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It should be noted that &quot;money&quot; has a technical definition in economics. There are different definitions of money supply (often with labels like M0, M1, M2, M3) that include different instruments.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One important component of the money supply is &quot;currency in circulation&quot; (such as dollar bills and coins). As you observed in your question, most transactions in currency will result in the amount of currency being unchanged: when I hand someone a 10 dollar bill, the amount of 10 dollar bills in circulation is unchanged. From the perspective of individuals, we have to do something silly, like light cigars with \$50 bills, to reduce the amount of money in circulation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, the amount of currency in circulation changes. Banks receive currency from the central bank (and distribute it to their clients), and also return currency (such as worn out bills) to the same place. The banks exchange other components of the money supply (as discussed next) to get currency from the central bank.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The next major component of money supply definitions is deposits at banks. (This includes deposits at the central bank, which are called reserves in the United States.) Once again, people can have transactions that shuffle amounts of money between bank accounts, leaving the amount unchanged.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Does this apply to all transactions? If not, when is it violated? In&#xA;  what situations is money created, and when does it disappear (other&#xA;  than physically destroying paper based money)?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Turning to bank deposits, they are created by the act of bank lending. This is discussed in &lt;a href=&quot;http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;this article&lt;/a&gt; from Bank of England researchers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, the amount of (bank) money goes up and down with the amount of loans outstanding, which varies across the cycle.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;This then leads to a closely related question: Where can I find out&#xA;  how much is there of a given currency? How much USD exists in total,&#xA;  if we combine the dollars owned by everyone in the world?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Central banks generally publish statistics with money supply numbers, with the various components.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The St. Louis Federal Reserve has a statistical page called FRED. &lt;a href=&quot;https://fred.stlouisfed.org/tags/series?t=monetary%20aggregates&quot; rel=&quot;nofollow noreferrer&quot;&gt;This is a link to the series for monetary aggregates (over 1000 series!)&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since it may be difficult to browse all of those series, you could look at the H.6 Release &lt;a href=&quot;https://www.federalreserve.gov/RELEASES/h6/Current/default.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;link to latest release&lt;/a&gt;, which lists the components of the money supply, and their values. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;If this question is considered too basic, I would appreciate&#xA;  suggestion about where a mathematically minded person might read up on&#xA;  this topic.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;As you can see, the amount of money changes as a result of some transactions. However, there are some accounting laws that do limit the relationships between monetary values in economies: accounting identities. These relationships are weaker than energy conservation laws, but they do limit what outcomes are possible.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, if we use simplified national accounting, the government deficit during a year will equal the increase in the amount of government-issued money and debt (bonds and bills). This has to hold, as otherwise someone has made an accounting error. (Once again, there are complicating factors in the real world, which will add more terms to the accounting identity.) An interesting accounting identity is the relationship S=I (national savings = national investment); &lt;a href=&quot;https://economics.stackexchange.com/questions/8834/savings-investment-with-private-money-creation&quot;&gt;link to a question related to that identity&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is a non-mainstream school of thought within economics that uses what are called &quot;stock-flow consistent models&quot; (or SFC models), that underline the importance of accounting identities in framing models. I was trained as an applied mathematician, and I found the book &quot;&lt;em&gt;Monetary Economics: An Integrated Approach to Credit, Money, Income, Production, and Wealth&lt;/em&gt;&quot; to be the introduction that best suited my background. There is an excellent treatment of all of these accounting issues.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2017-05-12T02:13:02.813" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16744" PostTypeId="1" CreationDate="2017-05-12T07:42:51.167" Score="3" ViewCount="9791" Body="&lt;p&gt;Derive the consumer’s direct utility function if his indirect utility function has the form&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$v(\boldsymbol{\mathbf{p}},y)=yp_1^\alpha p_2^\beta$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $\beta ,\alpha$ are negative. &lt;/p&gt;&#xA;" OwnerUserId="13239" LastEditorUserId="2776" LastEditDate="2017-05-12T08:31:01.410" LastActivityDate="2017-05-12T08:32:20.557" Title="How to derive utility function from indirect utility in this exercise" Tags="&lt;microeconomics&gt;&lt;utility&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ClosedDate="2017-05-18T00:31:29.930" ContentLicense="CC BY-SA 3.0" />
  <row Id="16745" PostTypeId="2" ParentId="16744" CreationDate="2017-05-12T08:32:20.557" Score="9" Body="&lt;p&gt;Use Roy's identity to find demand functions:&#xA;$$\displaystyle x_1=-\frac{\frac{\partial v}{\partial p_1}}{\frac{\partial v}{\partial y}} =-\frac{\alpha yp_1^{\alpha-1} p_2^\beta}{p_1^\alpha p_2^\beta}=-\frac{\alpha y }{p_1} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\displaystyle x_2=-\frac{\frac{\partial v}{\partial p_2}}{\frac{\partial v}{\partial y}} =-\frac{\beta yp_1^{\alpha} p_2^{\beta-1}}{p_1^\alpha p_2^\beta}=-\frac{\beta y }{p_2} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since $p_1x_1 + p_2x_2 = y$, from the above demand expressions we get $-\alpha -\beta = 1$.&#xA;Demand equations above can also be rewritten as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$x_1^{-\alpha}  = (-\alpha y)^{-\alpha}p_1^\alpha$$&#xA;$$x_2^{-\beta}  = (-\beta y)^{-\beta}p_2^\beta$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Multiplying them we obtain the following:&#xA;$$x_1^{-\alpha}x_2^{-\beta} = (-\alpha y)^{-\alpha}p_1^\alpha (-\beta y)^{-\beta}p_1^\beta = (-\alpha)^{-\alpha}(-\beta)^{-\beta}yp_1^\alpha p_2^\beta $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Comparing it with the indirect utility function, we get the direct utility function as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$u(x_1, x_2) = \frac{x_1^{-\alpha}x_2^{-\beta}}{(-\alpha)^{-\alpha}(-\beta)^{-\beta}}$$&lt;/p&gt;&#xA;" OwnerUserId="11824" LastActivityDate="2017-05-12T08:32:20.557" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16746" PostTypeId="2" ParentId="16742" CreationDate="2017-05-12T10:09:02.393" Score="2" Body="&lt;p&gt;This is &lt;em&gt;not&lt;/em&gt; a &quot;sustainable loop&quot; -you neglect the concept of value-added, created by the use of additional factors of production in each company. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Company $A$ has revenues $p_AQ_A$, with which it must cover all its expenses (including returns to capital).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These are only &lt;em&gt;part&lt;/em&gt; of the costs of company $B$, because it also uses additional capital and labor to build the gearing system. So the revenues of company $B$, that have to cover expenses in order for $B$ to keep going, and given that it has purchased $Q_A$ units from $A$, is $p_BQ_B &amp;gt; p_AQ_A$.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;These in turn, represent only &lt;em&gt;part&lt;/em&gt; of the costs of company $C$. With the same reasoning, we end up with $p_CQ_C &amp;gt; p_BQ_B &amp;gt;p_AQ_A$. Not that the number of machines build by $C$ are the number of machines that $A$ demands in order to produce $Q_A$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Under the described loop, company $A$ must now pay $p_CQ_C$ in order to do its job (plus any other costs for the labor and any additional capital it may be needed). But since $p_CQ_C &amp;gt; p_AQ_A$, this will mean that company $A$ will have losses, even before paying for the other factors of production it needs to hire. Hence, the loop is not sustainable.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A possible (misguided) objection ¨&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;But $p_CQ_C$ represents an investment for company $A$, it is not&#xA;  an operating expense&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Essentially this objection implicitly assumes that with $Q_C$ machines in hand, company $A$ will be able to produce more than $Q_A$ product units. But if this is the case, then after the first purchase, company $A$ won't demand more machines from $C$, hence $C$ won't demand additional gearing systems from $B$, hence $B$ won't demand any additional product units from $A$, and so any remaining productive capacity of the $Q_C$ machines will not be used. &#xA;If this objection does not assume the existence of this additional capacity, then the $Q_C$ machines will fully depreciate in order to produce $Q_A$ product units -and then, there may be initially classified as &quot;investment&quot;, but at the end of the production cycle of $A$ they will be recorded as &quot;depreciation charge&quot;, i.e. a bona fide running expense (which is what they are, since they fully depreciate).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would suggest to study Input-Output models of an economy.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2017-05-12T10:09:02.393" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16747" PostTypeId="2" ParentId="13661" CreationDate="2017-05-12T10:51:04.457" Score="1" Body="&lt;p&gt;The weights are &lt;a href=&quot;https://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1294.pdf?9fcd5fddf87498417164716f2bbee9fd&quot; rel=&quot;nofollow noreferrer&quot;&gt;usually called&lt;/a&gt; &quot;distribution parameters&quot; (top of page 12 of linked document), as they correspond, in the case of a Cobb-Douglas, to each factors share in total output. For example, if the two factors were labour and capital respectively, $(1-\omega)$ would be the labour share, and $\omega$ would be the capital share. Because in the case of a Cobb-Douglas ($\sigma=1$) both specifications are identical, the weights refer to the distribution parameters in both specifications.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To see this, take the second equation. First, define the share of $x_1$ in total output as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \lambda_1 \equiv \frac{w_1x_1}{py} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $\frac{w_1}{p}$ is the real return to factor $x_1$ (e.g. real wage). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Under competitive conditions, the firm(s) employ $x_1$ until its marginal product equal $\frac{w_1}{p}$. This marginal product is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{\partial y}{\partial x_1} = (1-\omega)^{\frac{1}{\sigma}}\left(\frac{y}{x_1}\right)^{\frac{1}{\sigma}} = \frac{w_1}{p} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Combining the later equality with the definition of the factor share, you get that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \lambda_1 = (1-\omega)^{\frac{1}{\sigma}} \left(\frac{y}{x_1}\right)^{\frac{1-\sigma}{\sigma}}  $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the case of a Cobb-Douglas ($\sigma=1$):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \lambda_1 = (1-\omega) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Equivalently, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \lambda_2 = \omega $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which means that $\lambda_1 + \lambda_2 = 1$, in line with the assumption of constant returns to scale, in both specifications.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regarding the difference between the two, according to my calculations, the second specification does not encompass the Leontieff case ($\sigma = 0$). This is because, whereas in the first specification you can solve the limit of $(1-\omega)x_i^{\frac{\sigma-1}{\sigma}}$ when $\sigma \rightarrow 0$ (using the minimum of $x_i$, see equation (23) &lt;a href=&quot;https://www.degruyter.com/downloadpdf/j/jioe.2012.6.issue-1/1935-5041.1037/1935-5041.1037.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;), you cannot do the same for $(1-\omega)^{\frac{1}{\sigma}}x_i^{\frac{\sigma-1}{\sigma}}$, because the first component goes to zero (provided the standard assumption $0&amp;lt;\omega&amp;lt;1$).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, if you want to be as general as possible, I would recommend the first specification. Additionally, whereas the first specification is imo &quot;very common&quot;, the second is not, which would require further justification as to why you choose it. If there is no extra benefit of it, then, by Occam's Razor, the first one is definitely preferred.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-05-12T10:51:04.457" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16749" PostTypeId="2" ParentId="16150" CreationDate="2017-05-12T12:11:41.353" Score="-1" Body="&lt;p&gt;In the US right now we have significant excess reserves due to Quantitative Easing.  Raising the reverse repo rate (which currently is at 0.75pct) would have no effect on the total excess reserves in the system.  However it might discourage the creation of loans by the private banking system (due to higher rates), which will act to restrain the economy.  &lt;/p&gt;&#xA;" OwnerUserId="13062" LastActivityDate="2017-05-12T12:11:41.353" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16750" PostTypeId="2" ParentId="10202" CreationDate="2017-05-12T12:29:19.333" Score="0" Body="&lt;p&gt;Whether or not the instrument is better depends on what outcome you are estimating.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In any case, some instruments that have been used:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;quarter of birth&lt;/li&gt;&#xA;&lt;li&gt;distance to schools&lt;/li&gt;&#xA;&lt;li&gt;parental education&lt;/li&gt;&#xA;&lt;li&gt;spousal education&lt;/li&gt;&#xA;&lt;li&gt;number of siblings&lt;/li&gt;&#xA;&lt;li&gt;availability of library card at young age&lt;/li&gt;&#xA;&lt;li&gt;changes in compulsory schooling laws&lt;/li&gt;&#xA;&lt;li&gt;regional differences in availability of pre-schools&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Twin studies are also popular.&lt;/p&gt;&#xA;" OwnerDisplayName="user13242" LastActivityDate="2017-05-12T12:29:19.333" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16751" PostTypeId="1" CreationDate="2017-05-12T12:42:49.640" Score="0" ViewCount="157" Body="&lt;p&gt;Let $u$ and $v$ be utility functions (not necessarily VNM) representing $\succsim$ on $\mathcal{G}$. Show that $v$ is a positive affine transformation of $u$ if and only if for all gambles $g^1, g^2, g^3$ in $\mathcal{G}$, with no two indifferent, we have:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac{u(g^1)-u(g^2)}{u(g^2)-u(g^3)} =\frac{v(g^1)-v(g^2)}{v(g^2)-v(g^3)}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have tried to figure it out, but I am not sure where to start. Anyone who got a hint for me?&lt;/p&gt;&#xA;" OwnerUserId="13239" LastEditorUserId="2776" LastEditDate="2017-05-13T15:32:29.117" LastActivityDate="2017-05-13T15:32:29.117" Title="Help with a choice under uncertainty exercise" Tags="&lt;microeconomics&gt;&lt;uncertainty&gt;" AnswerCount="2" CommentCount="0" ClosedDate="2017-05-18T00:32:43.553" ContentLicense="CC BY-SA 3.0" />
  <row Id="16752" PostTypeId="2" ParentId="16751" CreationDate="2017-05-12T13:11:19.817" Score="0" Body="&lt;p&gt;Well, the &quot;if&quot; part is certainly straightforward.  Make v = a+bu where b&gt;0.  The a's cancel through subtraction in each numerator and denominator; once this is done, the b's cancel in numerator and denominator.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &quot;only if&quot; part is a little harder.&lt;/p&gt;&#xA;" OwnerUserId="10799" LastActivityDate="2017-05-12T13:11:19.817" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16754" PostTypeId="2" ParentId="11213" CreationDate="2017-05-12T13:19:40.413" Score="1" Body="&lt;p&gt;The market capitalization of a stock is an interesting and frequently-quoted statistic.  It's generated by multiplying the price of a share times the number of shares outstanding.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is important, however, not to be misled by the difference between what the market capitalization measures and what it claims to measure.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's true that shares are currently trading at the share price used.  Only a few of the shares are transacting at that price, however; it's extrapolating from the marginal value of the shares to the average value of the shares.  This would be a fatal mistake in any introductory or intermediate microeconomics class, yet it seems to be common practice in finance.&lt;/p&gt;&#xA;" OwnerUserId="10799" LastActivityDate="2017-05-12T13:19:40.413" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16755" PostTypeId="1" CreationDate="2017-05-12T15:10:02.353" Score="0" ViewCount="234" Body="&lt;p&gt;As far as I know, when people take a loan from a bank, most of the loan value is electronically printed money, i.e. money that did not exist before.&#xA;Is it also what happens with consumer credit cards?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If so, are we not shooting ourselves collectively in the foot by using those cards?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;All this fabricated money, eventually depreciates the value of our hard-earned money.&lt;/p&gt;&#xA;" OwnerUserId="13244" LastActivityDate="2017-05-13T13:34:18.397" Title="Do credit cards create more printed money" Tags="&lt;inflation&gt;&lt;banking&gt;&lt;quantitative-easing&gt;&lt;consumer-credit&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16756" PostTypeId="2" ParentId="16751" CreationDate="2017-05-12T15:21:59.797" Score="2" Body="&lt;p&gt;Suppose $v=\alpha + \beta u$ for $\beta &amp;gt; 0$ i.e. $v$ is a positive affine transformation of $u$, then&#xA;$$ \frac{v(g^1) - v(g^2)}{v(g^2) - v(g^3)} = \frac{\alpha + \beta u(g^1) - \alpha - \beta u(g^2)}{\alpha + \beta u(g^2) - \alpha - \beta u(g^3)}  = \frac{u(g^1) - u(g^2)}{u(g^2) - u(g^3)}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Converse is &lt;strong&gt;not&lt;/strong&gt; true because $v=-u$ also satisfy&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{v(g^1) - v(g^2)}{v(g^2) - v(g^3)}   = \frac{u(g^1) - u(g^2)}{u(g^2) - u(g^3)}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;for all $g_1, g_2, g_3\in\mathcal{G}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Added Later&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By the way, converse is also true. We are given this information that $u$ and $v$ both represent $\succsim$. So, $v=-u$ is not a valid example as they cannot both represent $\succsim$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is the proof of the converse:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Fix any two lotteries $b$ and $w$ such that $u(b) &amp;gt; u(w)$ and consequently, $v(b) &amp;gt; v(w)$. For any lottery $g\in\mathcal{G}$, we know that the following is true&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{v(g) - v(w)}{v(w) - v(b)}   = \frac{u(g) - u(w)}{u(w) - u(b)}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, $$v(g) = v(w) + (v(w) - v(b))\frac{u(g) - u(w)}{u(w) - u(b)} $$&#xA;or equivalently,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{eqnarray*} v(g) &amp;amp; = &amp;amp; v(w)  - \frac{v(w) - v(b)}{u(w) - u(b)}u(w)+ \frac{v(w) - v(b)}{u(w) - u(b)}u(g) \\ &amp;amp; = &amp;amp;  \left(\frac{u(w)v(b) - v(w)u(b)}{u(w) - u(b)}\right)+ \left(\frac{v(w) - v(b)}{u(w) - u(b)}\right)u(g) \end{eqnarray*} &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, $v = \alpha + \beta u$ where $\displaystyle\alpha = \frac{u(w)v(b) - v(w)u(b)}{u(w) - u(b)}$ and $\displaystyle\beta = \frac{v(w) - v(b)}{u(w) - u(b)} &amp;gt; 0$.&lt;/p&gt;&#xA;" OwnerUserId="11824" LastEditorUserId="11824" LastEditDate="2017-05-13T03:36:25.187" LastActivityDate="2017-05-13T03:36:25.187" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16757" PostTypeId="2" ParentId="11213" CreationDate="2017-05-12T15:55:54.013" Score="0" Body="&lt;p&gt;Uber might be just like Amazon. There was a recent Economist issue on Amazon, which, if I understood correctly, concluded that the financial market is expecting Amazon to become a dominant player in several markets in the future. These companies, by operating at the margin or even at net loss, aim to build market share, getting rid of the competition. That is very likely one aim of Uber, namely to displace standard taxis, just like Amazon has been blamed for bankrupting bookshops (e.g. in &lt;a href=&quot;http://www.telegraph.co.uk/technology/amazon/10098626/Amazon-is-destroyer-of-bookshops-says-French-culture-minister.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;France&lt;/a&gt; and the &lt;a href=&quot;http://www.dailymail.co.uk/news/article-2126558/Amazon-destroying-Britains-book-industry-claims-Waterstones-chief.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;UK&lt;/a&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A bubble in valuation is also possible, just like in the &lt;a href=&quot;https://en.wikipedia.org/wiki/Dot-com_bubble#Stock_market_bubble&quot; rel=&quot;nofollow noreferrer&quot;&gt;dot-com bubble&lt;/a&gt;. Some companies reached huge valuations. For example (taken from Wikipedia):&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;inktomi reached a valuation of \$25 billion in March 2000.&lt;/li&gt;&#xA;&lt;li&gt;Lycos was purchased by Telefónica for \$12.5 billion in 2000.&lt;/li&gt;&#xA;&lt;li&gt;Commerce One reached a valuation of \$21 billion in March 9, 2000.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;These valuations are, in perspective, huge. For example, in Q1 of 2000, Boeing &lt;a href=&quot;http://www.wikinvest.com/stock/Boeing_Company_(BA)/Data/Market_Capitalization/2000/Q1&quot; rel=&quot;nofollow noreferrer&quot;&gt;had&lt;/a&gt; a valuation of \$36 billion, whereas Ford &lt;a href=&quot;http://www.wikinvest.com/stock/Ford_Motor_Company_(F)/Data/Market_Capitalization/2000/Q1&quot; rel=&quot;nofollow noreferrer&quot;&gt;had&lt;/a&gt; a market capitalisation of $34 billion.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, Uber could be not only riding passengers around, but also riding a massive bubble.  &lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-05-12T15:55:54.013" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16760" PostTypeId="1" CreationDate="2017-05-12T16:22:42.327" Score="1" ViewCount="95" Body="&lt;p&gt;Has there been a post-mortem on the Saturn pricing model? For those who do not remember, in the 1990s GM sponsored a new car model, the Saturn, which featured &quot;no haggle&quot; pricing. The car would be sold at one fixed price depending on options.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Anecdotal evidence suggests that the pricing strategy was popular with buyers, but did it work for the company from an economics point of view?&lt;/p&gt;&#xA;" OwnerUserId="1448" LastActivityDate="2017-05-12T16:22:42.327" Title="The Saturn pricing model, did it work?" Tags="&lt;pricing&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16761" PostTypeId="1" AcceptedAnswerId="16762" CreationDate="2017-05-12T17:23:59.180" Score="6" ViewCount="215" Body="&lt;p&gt;This is a request for recommendations. I want to learn quantum game theory. Can anyone suggest where to begin with, some reading materials. (I am well versed in Non-Cooperative Game Theory, so you can assume my aptitude.) That would be very helpful. Thank you!&lt;/p&gt;&#xA;" OwnerUserId="10761" LastActivityDate="2017-05-12T18:14:28.310" Title="Quantum Game Theory" Tags="&lt;reference-request&gt;&lt;game-theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16762" PostTypeId="2" ParentId="16761" CreationDate="2017-05-12T18:14:28.310" Score="7" Body="&lt;p&gt;&lt;a href=&quot;https://arxiv.org/pdf/quant-ph/0506219.pdf&quot; rel=&quot;noreferrer&quot;&gt;&lt;strong&gt;An Introduction to Quantum Game Theory&lt;/strong&gt;&lt;/a&gt; by J. Orlin Grabbe. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is also &lt;a href=&quot;https://mathoverflow.net/a/135796&quot;&gt;a related question on MathOverflow&lt;/a&gt;, answered by &lt;a href=&quot;https://economics.stackexchange.com/users/250/steven-landsburg&quot;&gt;Steven Landsburg&lt;/a&gt; (also a member of Econ.SE) that might be of interest to you.&lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2017-05-12T18:14:28.310" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16763" PostTypeId="1" AcceptedAnswerId="16768" CreationDate="2017-05-12T20:27:30.393" Score="3" ViewCount="927" Body="&lt;p&gt;I am reading through McCandless &quot;The ABCs of RBCs&quot; this summer to get a preview of what I need to know for the coming Fall semester. It did not take long to find a statement that I can easily accept but cannot prove. On Page 9 after deriving the steady state condition of $(\delta + n)\bar{k} = \sigma A_0 f(\bar{k})$ in a zero-technological growth regime (where $\delta$ is depreciation and $n$ is growth rate of the labor force), the author says that &quot;the stability of the positive stationary state can be seen from the equation $$ k_{t+1} = g(k_t) = \frac{(1-\delta)k_t + \sigma A_0 f(k_t)}{1+n}$$ Notice that between 0 and the positive $\bar{k}$, the function $g(k_t)$ is above the 45 degree line, so that $k_{t+1}$ is greater than k_t.&quot; He provides a standard-looking Solow model state diagram where I can verify this graphically, but not analytically.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm trying to prove every statement in the book in order to better familiarize myself with the details of macroeconomic theory before diving deeper, but I am absolutely stumped as to how I would prove that $k_{t+1} &amp;gt; k_t$ when $0 &amp;lt; k_t &amp;lt; \bar{k}$ and vice versa. I first tried manipulating the capital motion equation to prove it directly, and I could not reach a proof. The next strategy I have been trying to employ is to differentiate the capital motion equation and prove that its derivative is less than 1 at the steady state point, but it fails:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\frac{\partial k_{t+1}}{\partial k_t} = \frac{(1-\delta) + \sigma A_0 f'(k_t)}{1+n} &amp;gt; \frac{(1-\delta) + \sigma A_0 f'(\bar{k})}{1+n} = \frac{(1-\delta)+(\delta+n)}{1+n} = 1&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does anyone have an alternative strategy I can follow? It's been driving me nuts for two days.&lt;/p&gt;&#xA;" OwnerUserId="13249" LastActivityDate="2017-09-03T14:34:41.333" Title="Basic Solow Growth Model: Stability Proof" Tags="&lt;macroeconomics&gt;&lt;economic-growth&gt;&lt;solow&gt;&lt;proof&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="16764" PostTypeId="1" AcceptedAnswerId="16766" CreationDate="2017-05-12T21:48:41.997" Score="1" ViewCount="40" Body="&lt;p&gt;How can someone measure the expected annual price growth rate for oil?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, where can I find past annual price growth rate for oil values? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="118" LastActivityDate="2017-05-13T01:09:54.047" Title="How to measure expected price growth rate for oil?" Tags="&lt;price&gt;&lt;oil&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16765" PostTypeId="1" CreationDate="2017-05-13T00:30:10.543" Score="-1" ViewCount="852" Body="&lt;p&gt;I have US CPI prices &amp;amp; Canada CPI prices (where US is my base). I am trying to calculate the 'log relative price index'.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Do I log the individual CPI prices first then calculate log Canada CPI/log US CPI or do I calculate the ratio and then log the answer?&lt;/p&gt;&#xA;" OwnerUserId="13250" LastEditorUserId="2776" LastEditDate="2017-05-15T06:40:42.300" LastActivityDate="2019-10-25T11:03:11.167" Title="Log relative price index - calculation question" Tags="&lt;self-study&gt;&lt;price-index&gt;" AnswerCount="2" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="16766" PostTypeId="2" ParentId="16764" CreationDate="2017-05-13T01:09:54.047" Score="1" Body="&lt;p&gt;There is a futures market for crude oil: for example &lt;a href=&quot;http://www.cmegroup.com/trading/energy/crude-oil/light-sweet-crude.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.cmegroup.com/trading/energy/crude-oil/light-sweet-crude.html&lt;/a&gt; gives a price now for May 2018 of US$\$49.54$ compared with a cash price now of US$\$47.82$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The futures price being higher than the cash price is described as &lt;em&gt;contango&lt;/em&gt; and is why there are excess stockpiles of crude oil.  In the past the comparison has sometimes been reversed, described as &lt;em&gt;backwardation&lt;/em&gt; and associated with low stockpiles.  For a graph of this over time, see &lt;a href=&quot;http://marketrealist.com/2017/02/return-backwardation-mean-crude-oil-prices/&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://marketrealist.com/2017/02/return-backwardation-mean-crude-oil-prices/&lt;/a&gt; though the relationship is more complicated than described there&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For historical oil prices the Federal Reserve Bank of St. Louis has several sets of numbers, such as &lt;a href=&quot;https://fred.stlouisfed.org/series/WTISPLC&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://fred.stlouisfed.org/series/WTISPLC&lt;/a&gt; going back to 1946&lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2017-05-13T01:09:54.047" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16767" PostTypeId="1" CreationDate="2017-05-13T05:35:32.423" Score="2" ViewCount="210" Body="&lt;p&gt;I saw a non-degeneracy assumption in Gilboa and Schmeidler's paper (maxmin expected utility with non-unique prior).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The statement is &quot;Not for all $f$ and $g$ in $L$, $f \geq g$&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So can you explain the intuition for this assumption and give some example so that I can understand the &quot;non-degeneracy&quot; property better?&lt;/p&gt;&#xA;" OwnerUserId="2801" LastEditorUserId="2776" LastEditDate="2017-07-05T13:13:28.573" LastActivityDate="2017-07-05T13:13:28.573" Title="What does non degeneracy mean for a preference?" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;preferences&gt;&lt;decision-theory&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="16768" PostTypeId="2" ParentId="16763" CreationDate="2017-05-13T11:27:25.107" Score="3" Body="&lt;p&gt;For stability, we want &#xA;$$\frac{\partial k_{t+1}}{\partial k_t}\Big|_{\bar k} &amp;lt;1 \implies  \frac{(1-\delta) + \sigma A_0 f'(\bar k)}{1+n} &amp;lt;1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \implies f'(\bar k) &amp;lt;  \frac {\delta+n}{\sigma A_0 } = \frac {f(\bar k)}{\bar k}$$   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So we need the marginal product of capital to be smaller than the average product at the steady state. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Equivalently, we need $\bar k f'(\bar k) &amp;lt; f(\bar k) \implies f(\bar k)-\bar k f'(\bar k)&amp;gt;0$. And this holds, doesn't it? Otherwise...&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2017-05-13T11:27:25.107" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16769" PostTypeId="2" ParentId="16755" CreationDate="2017-05-13T13:34:18.397" Score="1" Body="&lt;p&gt;One initial point: you refer to &quot;printed money&quot;, which would normally be restricted to currency in circulation (notes and coins); the parts of the money supply that are electronic are literally not printed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Borrowing on a credit card creates a credit card receivable, which is not normally considered part of most money supply figures. However, if it were part of a securitisation, it might eventually show up as part of the wider money supply aggregates (M3). (The securitisation ends up funded by a money market fund, and money market funds are typically part of &quot;wide&quot; money supply definitions.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are we collectively shooting ourselves in the foot as a result of this fabricated money?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you think the only objective policy is to preserve the value of the currency unit, perhaps. The relationship between money supply growth and inflation is debatable, but it is seems safe to say that extremely rapid borrowing by the non-financial sector is associated with higher inflation.  However, if the objective is to enhance output and employment, not really.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Credit cards are just another form of credit. The growth of modern capitalist economies is associated with credit expansion. It may be possible to have a growing economy without credit growth, but it would be very difficult. Investment could only be funded by profits, and it would be difficult to offset the withdrawal of financial assets from circulation by the savings desires of households. Without credit, the only mechanism to recirculate savings to the business sector is via equity injections. In practice, direct equity investment is not a significant source of funding for the business sector. That is, stopping credit growth chokes off funding for businesses in practice.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words, we can say that society faces a trade-off between monetary stability and growth; the exact nature of that trade-off is somewhat fuzzy.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2017-05-13T13:34:18.397" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16772" PostTypeId="2" ParentId="16765" CreationDate="2017-05-13T18:16:16.983" Score="0" Body="&lt;p&gt;Actually, as @Henry mentions in comments&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;[...] the logarithm of the ratio [...] might make some sort of sense.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;And given that you are using US CPI as base, you are very likely to want the logarithm of the ratio. Why ?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What would you do If I were asking you to compute the growth rate (relative difference) of two aggregates, say, productions (e.g. of cars), denoted by &lt;span class=&quot;math-container&quot;&gt;$Q$&lt;/span&gt;, between two consecutive years &lt;span class=&quot;math-container&quot;&gt;$t$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$t+1$&lt;/span&gt; ? Actually, you would use the following formulae:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$g_{t}^{d} = \frac{Q_{t+1}-Q_{t}}{Q_{t}} = -1 + \frac{Q_{t+1}}{Q_{t}}$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where &lt;span class=&quot;math-container&quot;&gt;$^{d}$&lt;/span&gt; stands for &lt;em&gt;discrete&lt;/em&gt;. Indeed, note that when one computes &lt;span class=&quot;math-container&quot;&gt;$g_{t}^{d}$&lt;/span&gt; like so, there is an implicit assumption. This assumption is that we reasonably suppose our productions to be discrete values. If we were considering those as continuous values (e.g. liters of water), we would actually use an other formulae, as follows&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$g_{t}^{c} = \ln{\left(\frac{Q_{t+1}}{Q_{t}}\right)}$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that &lt;span class=&quot;math-container&quot;&gt;$g_{t} \rightarrow g_{t}^{c}$&lt;/span&gt; when &lt;span class=&quot;math-container&quot;&gt;$Q_{t+1}\rightarrow Q_{t}$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, we just compared two types of production over time, conditioning the formulae that is used to what these productions are (discrete &lt;em&gt;versus&lt;/em&gt; continuous). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;What if I were asking you to compare CPIs over two nations ?&lt;/em&gt;&lt;/p&gt;&#xA;" OwnerUserId="10247" LastEditorUserId="10247" LastEditDate="2019-10-25T11:03:11.167" LastActivityDate="2019-10-25T11:03:11.167" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="16773" PostTypeId="1" CreationDate="2017-05-13T21:32:14.223" Score="1" ViewCount="267" Body="&lt;p&gt;An example to make to question more clear: With the use of nuclear power plants come several risk-costs (the risk of a nuclear disaster). These costs aren't included in the energy price and there is nobody who pays for it. So are they considered as external costs? &lt;/p&gt;&#xA;" OwnerUserId="10913" LastActivityDate="2017-05-14T02:14:33.107" Title="Are risk-costs a form of external costs?" Tags="&lt;risk&gt;&lt;externalities&gt;&lt;energy-economics&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="16774" PostTypeId="1" CreationDate="2017-05-14T00:18:05.720" Score="2" ViewCount="211" Body="&lt;p&gt;&lt;strong&gt;I am not an economist&lt;/strong&gt; but I am trying to track down and understand an economic principal (and/or theory) that I &lt;em&gt;think&lt;/em&gt; is called &quot;transaction frequency&quot; but when I go searching on that term I find only similar phrases so obviously I am in error. Below is the best way I can describe what I am looking for.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is related to what is commonly called in the media &quot;&lt;strong&gt;wealth inequality&lt;/strong&gt;&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I remember about a year ago seeing a video that talked about the economy and how transactions (buy/sell exchanges) help it. Sadly I cannot find that video (and if it used invalid terminology maybe that is a good thing). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What the video presented was that there is a &lt;em&gt;spectrum&lt;/em&gt; of transactions defined by the two variables of &lt;em&gt;transaction size&lt;/em&gt; and &lt;em&gt;transaction frequency&lt;/em&gt;. The video asserted that wealthy individuals (top 20% of the population) tend to make transactions that are large in size but relatively few in the scheme of things (such as multi-million dollar investment buys). Conversely, the video asserted that individuals in the vast majority (80%) of the population mostly make small size transactions in fairly high frequency (i.e.: tens of millions of every day retail &amp;amp; service purchases). Finally the video asserted that it is &lt;em&gt;each&lt;/em&gt; transaction -- no matter what size -- that &quot;&lt;strong&gt;benefits&lt;/strong&gt;&quot; the economy and that this means that more money in more hands causing more transactions is much more beneficial to the economy than the relatively few large investments.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now like I said I am not an economist so I do not know if these assertions are accurate or accepted. I do not even understand exactly &lt;em&gt;how&lt;/em&gt; a transaction &quot;benefits&quot; the economy. However if I am ever to achieve understanding then I need to know what it is I am trying to research and thus this question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you for any information on this matter.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;PS: I have often heard statements like &quot;Each 1 dollar spent generates an additional X.XX dollars in economic activity.&quot; (&lt;em&gt;Is there a name for this concept?&lt;/em&gt;) so perhaps that is what the video was attempting to suggest as the &quot;benefit&quot; of each transaction?&lt;/p&gt;&#xA;" OwnerUserId="6265" LastActivityDate="2018-09-06T16:02:22.693" Title="What is the correct economic term for beneficial &quot;transaction frequency&quot;?" Tags="&lt;inequality&gt;&lt;theory&gt;&lt;definition&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="16775" PostTypeId="2" ParentId="16773" CreationDate="2017-05-14T00:50:49.427" Score="0" Body="&lt;p&gt;In the restaurant business, there is always the possibility and a non-zero probability, that a customer gets poisoned by the food.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Businesses implement various measures to guard against such an incident, from simple cleaning routines and raw food inspection, to sophisticated mquality assurance procedures. These measures absorb productive resources and so are reflected as costs. These costs are eventually included in the price-list of the restaurant. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;On top of that, restaurants purchase insurance policies that will cover the indemnity costs when such a risk is realized. These insurances policies are production costs also, and they are eventually reflected in the price list of the restaurant.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the nuclear power plant business, there is always the possibility and a non-zero probability, that some customers, alongside some employees, will get poisoned by radioactive materials, or even be blown to pieces by the initial explosion. Businesses of the sector implement various measures to guard against such an incident... etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since the OP is asking about contingent costs associated with uncertain events, the concept of &lt;em&gt;externalities&lt;/em&gt; would not be accurate here, since under these concept we classify realized detrimental consequences of production processes that are not, or are difficult to, be priced (natural resource depletion and air pollution being the archetypal examples here).  &lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2017-05-14T00:50:49.427" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16776" PostTypeId="2" ParentId="16773" CreationDate="2017-05-14T02:14:33.107" Score="2" Body="&lt;p&gt;In the particular case of nuclear power plants, yes, the risk cost can be considered as a negative externality.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That's because nuclear power plant operators are explicitly limited by law in their liability for third-party costs in the event of damages to those third parties. The third-party risk they present could run into trillions (\$/€): at Fukushima, the current cost is estimated at \$200bn and rising. But operators' liability is capped at a much much smaller amount: this differs by country, but typically of the order of a few hundred million to a few billion (\$/€). This means that operators do not have to spend as much money as they otherwise would, on reducing those third-party risks.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If nuclear plant operators had to buy &lt;a href=&quot;http://www.laka.org/docu/boeken/pdf/6-01-0-30-34.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;insurance&lt;/a&gt; to cover that entire risk, then it's they would be even more uneconomical than they already are. That is, their cost base would be much higher. The direct third-party damages are not paid by the operator, nor by the consumer; but instead are paid by the taxpayers, in the countries that have to clean up after accidents. So, the Japanese taxpayer has borne a large share of the costs, because Fukushima; previously, the USSR did, because Chernobyl - but in that case, some costs were spread all over the Northern hemisphere, due to widespread distribution of the radioactive material; for example, there were restrictions on farming in polluted areas, vast distances from the plant, for decades afterwards.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, the consequences of the risk are borne as public subsidy. The risk premium itself is not a cost borne directly by anyone: it's an uninsured risk. So, it could be viewed as a negative externality that, if priced in, would move the supply curve.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that if you were to refer to these risks, and their consequences, explicitly as subsidies and negative externalities, then you're probably going to have to provide an accompanying explanation (as I've attempted to do above - hopefully you can be more succinct!), as for much of your audience, it won't be immediately obvious as to why you're using those labels.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2017-05-14T02:14:33.107" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16777" PostTypeId="2" ParentId="16635" CreationDate="2017-05-14T03:44:27.813" Score="0" Body="&lt;p&gt;The question is about conditional expectation (expectation given information at time $t$). You have $z_{t+j} = \rho^j z_t + \sum_{k=0}^{j-1} \rho^k \eta_{t+j-k}$, and thus $E_t(z_{t+j}) = \rho^j z_t \to 0$ as $j\to\infty$ if $|\rho|&amp;lt;1$. The equation for $x_t$ is more complicated, but it can be written as $(x_t - \rho x_{t-1}) = (x_{t-1} - \rho x_{t-2}) + \epsilon_t$. That is, $x_t - \rho x_{t-1}$ is a random walk. When $w_t$ is a random walk $E_t(w_{t+j}) = w_t$. Substituting $w_t = x_t - \rho x_{t-1}$, you have $E_t (x_{t+j} - \rho x_{t+j-1}) = x_t - \rho x_{t-1}$.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Now, if $E_t(x_{t+j})$ converges as $j\to\infty$, then $\lim_{j\to\infty} E_t(x_{t+j}) = \lim_{j\to\infty} E_t (x_{t+j-1})$, and thus&#xA;$$&#xA;\lim_{j\to\infty} E_t(x_{t+j} - \rho x_{t+j-1}) = (1-\rho) \lim_{j\to\infty} E_t(x_{t+j}) = x_t - \rho x_{t-1}.&#xA;$$&#xA;As a result, $\lim_{j\to\infty} E_t(a_{t+j}) = \lim E_t(x_{t+j}) + \lim E_t(z_{t+j}) = \frac{1}{1-\rho} (x_t-\rho x_{t-1}) + 0$.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Above, we &lt;em&gt;assumed&lt;/em&gt; that $E_t(x_{t+j})$ converges as $j\to\infty$. Now we have to show (or check) it. The simplest way would be to write&#xA;$$&#xA;\pmatrix{x_t\\ x_{t-1}} = \pmatrix{1+\rho &amp;amp; -\rho\\ 1 &amp;amp; 0} \pmatrix{x_{t-1}\\ x_{t-2}} + \pmatrix{\epsilon_t\\ 0},&#xA;$$&#xA;that is $W_t = A W_{t-1} + \xi_t$, where $W_t = (x_t, x_{t-1})'$, $\xi_t = (\epsilon_t,0)'$ and $A$ is the $2\times 2$ matrix on the right-hand side. You then have $W_{t+j} = A^j W_t + \sum_{k=0}^{j-1} A^k \xi_{t+j-k}$, from which $E_t (W_{t+j}) = A^j W_t$. Thus, $E_t(x_{t+j})$ converges if $A^j$ converges. The two eigenvalues of $A$ are 1 and $\rho$, which are real and no greater than unity in magnitude. And the associated two eigenvectors are both real (one proportional to $(1,1)'$ and the other to $(\rho,1)'$). These suffice. (Because $A = V\Lambda V^{-1}$, where $\Lambda$ is the diagonal matrix of 1 and $\rho$, and $V$ is the matrix of eigenvectors, we have $A^j = V \Lambda^j V^{-1}$, which converges as $j\to\infty$ because $\Lambda^j$ converges.)&lt;/p&gt;&#xA;" OwnerUserId="10775" LastActivityDate="2017-05-14T03:44:27.813" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16778" PostTypeId="1" AcceptedAnswerId="16780" CreationDate="2017-05-14T05:28:56.910" Score="-1" ViewCount="82" Body="&lt;p&gt;I had a question on how an excise tax per unit of good produced for a producer would affect total revenue for a producer of that good. The graph is that supply is perfectly elastic (horizontal) and the demand is normal or relatively unit elastic (any standard demand curve basically) and a tax is imposed on producer. Does the total revenue increase, decrease or stay the same for the producer and what would happen to producer and consumer surplus (decrease, increase or stay the same)???&lt;/p&gt;&#xA;" OwnerUserId="13258" LastActivityDate="2017-05-14T10:31:13.083" Title="Microeconomic Q on Total Revenue for Producer after Excise Tax" Tags="&lt;microeconomics&gt;&lt;taxation&gt;" AnswerCount="1" CommentCount="2" ClosedDate="2017-05-20T13:08:54.790" ContentLicense="CC BY-SA 3.0" />
  <row Id="16779" PostTypeId="2" ParentId="16774" CreationDate="2017-05-14T07:00:23.150" Score="-1" Body="&lt;p&gt;The only actual question I could glean from this seems to be:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;How do transactions benefit the economy?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In economics, the value of goods and services is their &lt;em&gt;utility&lt;/em&gt;, an abstract measure of how useful they are. The food a restaurant or grocery store sells provides utility by providing nutrition and the pleasure of eating. A car or public transportation provides the utility of ease of movement. A doctor gives the utility of medical care, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In economies with money, money as a medium of exchange provides &lt;em&gt;potential&lt;/em&gt; utility. Your money gives you the ability to perform trades with other people, gaining the utility of their goods and/or services, in exchange for them being able to do the same with someone else later.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Whenever a transaction occurs, the party providing the good or service earns a profit by charging more money than they spent on labor, raw materials, etc. The consumer, meanwhile, gains a sort of utility surplus which is the difference between the amount of money spent and the maximum amount they would be willing to spend.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If a fast food restaurant spends \$2.50 to make a burger that they sell to me for \$5, but which I would be willing to pay a maximum of \$7.50 for, after the transaction the restaurant has \$2.50 more than before they began the process to make the burger, while I have gained an amount of utility I would have been willing to spend \$7.50 to gain having only spent \$5. Both parties are enriched.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Not 100% of transactions are mutually beneficial. Sometimes sellers erroneously set their prices too low to earn a profit, sometimes buyers misjudge the value of something and spend more than they should have, sometimes a party is tricked or coerced into making bad decisions. But the vast majority of them are, which is why they keep happening.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for your P.S., there is the concept of the &lt;em&gt;velocity of money&lt;/em&gt;, essentially the rate that money is exchanged for goods and services. When most transactions are beneficial, the more that occur the better as a general rule. If I have $1 and do nothing with it, no one benefits because money is merely potential utility unless I use it for emergency toilet paper or something. If I spend it, both I and the person I give it to (probably) benefit and when they spend it they and the third party benefit and so on. This is one of the reasons certain individuals support government-mandated transfers of money between different segments of society, arguing that the group the money is taken from doesn't use it enough.&lt;/p&gt;&#xA;" OwnerUserId="2852" LastActivityDate="2017-05-14T07:00:23.150" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="16780" PostTypeId="2" ParentId="16778" CreationDate="2017-05-14T10:31:13.083" Score="1" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/xoawa.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/xoawa.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Supply shifts from S to S1, which leads to price rising from P to P1 and quantity exchanged dropping from Q to Q1. Recall the formula for total revenue TR=Price*Quantity, so in the diagram the initial revenue level is OPBQ, and after the tax is OP1AQ1. The change in revenue will depend on the size of the tax and the size of the decrease in quantity consumed. Producer surplus is zero both before and after the tax, while consumer surplus decreases from CBP to CAP1.&lt;/p&gt;&#xA;" OwnerUserId="6782" LastActivityDate="2017-05-14T10:31:13.083" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16786" PostTypeId="2" ParentId="16765" CreationDate="2017-05-15T07:13:30.410" Score="1" Body="&lt;p&gt;I think you should calculate the log of the ratio of two price series. When googling &quot;log of relative price index&quot;, I did not find many references, but I found three which seem sufficient to me:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Footnote 23 in page 14 in &lt;a href=&quot;https://www.imf.org/external/pubs/ft/wp/2001/wp01194.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;this&lt;/a&gt; IMF research paper states:&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The RPI is defined as the ratio of domestic CPI for a country to trade weighted averages of the CPI's of partner countries.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Table D2 in online appendix of &lt;a href=&quot;https://assets.aeaweb.org/assets/production/articles-attachments/aer/app/10408/20111536_app.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;this&lt;/a&gt; American Economic Review paper, which defines the &quot;Log relative price index&quot; as $\ln(P_i)$, where:&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;$P_i$ [is] the price of good $i$ relative to an aggregate price index. (p.21)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Equation 1 in &lt;a href=&quot;https://www.csae.ox.ac.uk/workingpapers/pdfs/2007-11text.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;this&lt;/a&gt; working paper, which uses the log of the ratio of import prices versus domestic (manufacture) prices.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;On top of this, I think using the ratio of two log prices is also quite counterintuitive. Notice that the following equality is true:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{\ln P_{it}}{\ln P_{jt}} = \log_{P_{jt}}P_{it} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, by defining your log RPI as the ratio of two logs, you actually have a (non-natural) logarithm, where one price index is used as a base. Even more, this base is changing over time. This is not the case when you use the log of a ratio, as both have a common base (normally, $e$).&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-05-15T07:13:30.410" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16787" PostTypeId="2" ParentId="15651" CreationDate="2017-05-15T07:46:05.530" Score="1" Body="&lt;p&gt;Regarding your question before the update:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) Yes, they have the same units (&quot;how many units of CNY you need to buy one USD&quot;, either directly or through a bitcoin intermediary). That is the whole point of arbitrage. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) It seems that &quot;the global forex market&quot;  and &quot;the bitcoin market&quot; seem separate to you. If by the former you mean big investment banks, then maybe you are right, as there seem to be no indication that big investment banks are systematically engaging in Bitcoin trading (at least I found no evidence of it; please correct me if I'm wrong). However, there are tons of bitcoin-oriented banks and brokers doing transactions on currency pairs, and I'm not sure these should not be counted as part of the global forex market. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Having said this, I think the simplest interpretation of the lines is that of a currency pair, and that of the currency pair being arbitraged through bitcoin. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;3) The green line refers to how many units of CNY you need to buy one unit of USD. Or equivalently, how many units of CNY you get for one unit of USD. If the purple line is above (below) the green line, then you can get more (less) units of CNY by (1) selling USD through bitcoin and (2) buying CNY with those bitcoins. This means your interpretation in the update is correct. If you have USD, sell them to BTC, and buy CNY (purple line), and then exchange these directly to USD. As the green line is below the purple one, you need less CNY to buy one USD, which is the same to say that you get more USD for the same amount of CNY.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, there seem to be arbitrage opportunities, at least in a zero transaction cost market. &lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-05-15T07:46:05.530" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16788" PostTypeId="1" CreationDate="2017-05-15T11:37:19.840" Score="1" ViewCount="3653" Body="&lt;p&gt;From what I know, a shift in LRAS is generally caused by a change in maximum productive capacity of an economy, which affects the full-employment output level. Such change in maximum productive capacity would also cause a shift in SRAS.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So does this mean whenever LRAS curve shifts SRAS curve will also shift? If not, are there any examples against this?&lt;/p&gt;&#xA;" OwnerUserId="8228" LastActivityDate="2017-06-20T02:07:49.513" Title="Will SRAS curve definitely shift if LRAS curve shifts?" Tags="&lt;macroeconomics&gt;&lt;general-equilibrium&gt;&lt;productivity&gt;&lt;aggregate-production&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16789" PostTypeId="1" CreationDate="2017-05-15T12:55:26.847" Score="2" ViewCount="71" Body="&lt;p&gt;Most of the world's governments support their professional sports teams, both through direct monetarily contributions and through numerous sports schools for children. One of the main rationales for that support is that victories in international competitions help the country gain 'prestige'. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But what exactly is the practical benefit of this 'prestige'? Does it help the country grow economically by attracting tourists or investment? Or perhaps it's merely a matter of national 'pride', without any monetary gains?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm looking for academic research on this topic or official statements by government institutions. &lt;/p&gt;&#xA;" OwnerUserId="8307" LastEditorUserId="1601" LastEditDate="2017-05-15T21:38:07.060" LastActivityDate="2017-05-15T21:38:07.060" Title="Is it proven that prestige gained from sports victories helps the country economically?" Tags="&lt;reference-request&gt;&lt;sports&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16790" PostTypeId="2" ParentId="4420" CreationDate="2017-05-15T13:41:04.400" Score="2" Body="&lt;p&gt;&lt;a href=&quot;http://ec.europa.eu/competition/state_aid/register/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Here&lt;/a&gt; is a list of banks that received state aid during the financial crisis.&lt;/p&gt;&#xA;" OwnerUserId="13270" LastEditorUserId="2776" LastEditDate="2017-05-16T10:05:07.903" LastActivityDate="2017-05-16T10:05:07.903" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16791" PostTypeId="1" CreationDate="2017-05-15T15:43:22.490" Score="2" ViewCount="43" Body="&lt;p&gt;Studying the model of &lt;a href=&quot;https://www.princeton.edu/pr/pictures/g-k/krugman/krugman-increasing_returns_1991.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Krugman, 1991&lt;/a&gt;: the one in which good varieties are country-specific so that there is trade because in presence of increasing returns, each good is produced in only one country, I find its conclusions a bit counter-intuitive.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The model states that a country will specialize in the production of the good for which it has the larger home market, the so-called &lt;strong&gt;home market effect&lt;/strong&gt;. Thus, a country will the larger home market for a given good will be a net exporter of that good. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, here is my question: let's analyze two European countries, i.e. Germany and Spain. For a given level of transportation costs, Germany will produce more varieties than Spain because it is larger (larger home market). If the EU Commission would propose the creation of a Single Market, i.e. a reduction of trade barriers, that we can interpret as transportation costs going down, will Spain accept?&lt;/p&gt;&#xA;" OwnerUserId="6773" LastActivityDate="2017-05-15T15:43:22.490" Title="Trade pattern in Krugman 1991" Tags="&lt;macroeconomics&gt;&lt;international-trade&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16792" PostTypeId="1" CreationDate="2017-05-15T20:00:09.143" Score="2" ViewCount="79" Body="&lt;p&gt;I am trying to estimate how significant is a difference between two prices.&lt;/p&gt;&#xA;&#xA;&lt;h1&gt;Preface&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;It seems to not be percentage, as price difference of \$0.10 vs \$0.09 wouldn't make me go for the cheaper shop while \$10000 vs \$9000 is a 10% price difference that I care about and would surely choose the shop that is cheaper.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand, the absolute value also is not the key - if two shops offer the same thing for \$0.50 and \$5.50, I'd go for the cheaper shop. If it's a big thing and the price is \$9995 vs \$10000, I'd rather go for the shop that somehow seems better or more respectable...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems to me that the actual significance of price difference for a rational customer would compare the price difference to costs of choosing the cheaper shop - increased risk, decreased prestige, commuting costs to physically choose the other shop etc. But can this be aproximately estimated?&lt;/p&gt;&#xA;&#xA;&lt;h1&gt;Main question&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;Have some researchers worked on quantitavely estimating this? Is there any function that assigns a &quot;signifcant difference&quot; margin to a price? Or directly estimates the significance of the price difference.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand that such significance of difference will probably be dependant on customer and currency, I have no objections to involvement of coefficients etc.&lt;/p&gt;&#xA;&#xA;&lt;h1&gt;My attempt&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;I will display you my attempts at estimating what I'm looking for - it might help to better understand what I'm interested in if my previous explanations were too muddy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By some numerical experiments it seems that the significance of price difference is monotonously dependant (and somewhat proportional) on inverse of logarithm of price. I arrived (experimentally) at such formula that somewhat estimates what change seems acceptable in price:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\text{Acceptable change} = \text{Price} \frac{1}{10 \log( \text{Price})}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From this I can conclude that \$9-\$11 is similar \$10 while similar prices to \$100 are \$95-\$105.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/icOL4.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/icOL4.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="13275" LastEditorUserId="2776" LastEditDate="2017-05-16T10:02:59.980" LastActivityDate="2017-05-16T10:02:59.980" Title="How to estimate signifcance of price difference?" Tags="&lt;value&gt;&lt;price&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16793" PostTypeId="2" ParentId="16789" CreationDate="2017-05-15T21:01:50.903" Score="2" Body="&lt;p&gt;There is research into this topic but it's not proven.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There's too much variability to consider.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Take the '04 Detroit Pistons (it's a City, I know, but the premise scales). In 2004 the Detroit Pistons were underdogs to the Los Angeles Lakers. Economically, LA was in a much better place than Detroit but Detroit scrapped it's way to a victory (and a return to the finals but a loss the next year to the San Antonio Spurs (Go Spurs Go)). Detroit's victory may have led to sales growth in player's jerseys (Richard Hamilton and Ben Wallace for instance) but the sports victory did not save the city from it's demise and subsequent bankruptcy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I believe the economic benefits of professional sports victories are more cosmetic than practical. A real estate agent may have a few more selling points in an economic transaction but the gains are usually temporary as it's hard to have back-to-back victories in professional sports...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Controversially, the theory MAY ACTUALLY apply to collegiate sports and the economic prowess of a university. Ever been to University of Georgia or Alabama? Those walls aren't lined with money from their journalism schools, I can tell you that much.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It'd be hard to prove that professional sports wins tie to economic success given how many other exogenous factors there are to economic success but there's data available to analyze this question (specifically, GDP growth and World Cup/Olympic Cup/World Title Events).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't know if governments are tossing up grant money for this research though.&lt;/p&gt;&#xA;" OwnerUserId="6173" LastActivityDate="2017-05-15T21:01:50.903" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16797" PostTypeId="1" CreationDate="2017-05-16T09:29:52.953" Score="5" ViewCount="634" Body="&lt;p&gt;Why energy and capital are complementary factors of production?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the literature of environmental taxation, it's often argued that energy and capital are complementary factors of production. So for instance if price of energy goes up, so will the price of capital. I am struggling to understand the relationship. &lt;/p&gt;&#xA;" OwnerUserId="13282" LastEditorUserId="2776" LastEditDate="2017-05-16T10:01:02.287" LastActivityDate="2017-08-17T17:56:49.937" Title="Are energy and capital complementary factors of production?" Tags="&lt;macroeconomics&gt;" AnswerCount="4" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16798" PostTypeId="1" CreationDate="2017-05-16T14:49:02.787" Score="1" ViewCount="44" Body="&lt;p&gt;My undergraduate Thesis includes mainly filtering process evaluation. Due to the word limit (low limit), I just realised I have to include more filters than Christiano Fitzgerald (CF) and wavelets.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I consider the following filters:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;hodrick prescott&lt;/li&gt;&#xA;&lt;li&gt;Baxter King&lt;/li&gt;&#xA;&lt;li&gt;Butterworth&lt;/li&gt;&#xA;&lt;li&gt;trigonometric regression&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Since it's an evaluation of filtering processes, I don't really care if a filter is better or worse, rather than the justification. I cannot find any resource which compares directly filters.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Could you explain to me the pros and cons of those filters in comparison with CF? I would appreciate if there is any resource, but it is not mandatory.&lt;/p&gt;&#xA;" OwnerUserId="11470" LastActivityDate="2017-05-16T14:49:02.787" Title="Econometric Filter Evaluation" Tags="&lt;econometrics&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16801" PostTypeId="1" CreationDate="2017-05-16T20:32:08.313" Score="2" ViewCount="174" Body="&lt;p&gt;In Gali chapter 2 we have the following constraint to the classical monetary model&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$P_t C_t + Q_t B_t \leq B_{t-1} + W_t N_t-T_t$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then it seems that this is treated as an equality. Therefore my question is: are we assumig that $\partial U/\partial B_t &amp;gt;0$? So households would achieve the optimun at the equality.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another question is, in general if I have the problem&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$Max E_0 \sum_{t=0}^{\infty}\beta^t U(C_t,N_t)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Should I solve the OP&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$Max \sum_{t=0}^{\infty}\beta^t U(C_t,N_t)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And then take expectation to the relations I obtain by optimizing?. For example if we add the constraint &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$P_t C_t + Q_t B_t \leq B_{t-1} + W_t N_t-T_t$ to the OPs, in the problem without expectation I get $Q_t=\beta \frac{\partial U/\partial C_{t+1}}{\partial U/\partial C_{t}} \frac{P_t}{P_{t+1}}$ and taking $E_t$ I obtain Euler's equation. Is the procedure of solving the problem without expectation and then take expectation correct? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;EDIT:&lt;/strong&gt;&#xA;If it is incorrect to forget the expectation and optimize, then I am confused about this: &lt;a href=&quot;https://economics.stackexchange.com/questions/9559/how-to-relate-real-rate-of-return-on-capital-to-bond-interest-rate-lagrangian&quot;&gt;How to relate real rate of return on capital to bond interest rate: Lagrangian&lt;/a&gt;&#xA;. As there the procedure to solve the problem seems to forget the expectation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Second,&#xA;if I do $\frac{\partial }{\partial C_t}E[U]=E\left[\frac{\partial U}{\partial C_t}\right]$. I obtain $Q_t=\beta\frac{ E_0\left[\partial U/\partial C_{t+1} \right]}{E_0\left[\partial U/\partial C_{t} \right]}\frac{P_t}{P_{t+1}}$ because I can not get rid off $E_0$. Nevertheless this would be equivalent to $Q_t=\beta E_0 \left[\frac{\partial U/\partial C_{t+1} }{\partial U/\partial C_{t} }\right]\frac{P_t}{P_{t+1}}$ if $E_0 \left[ \frac{\partial U/\partial C_{t+1} }{\partial U/\partial C_{t} }\right]=\frac{ E_0\left[\partial U/\partial C_{t+1} \right]}{E_0\left[\partial U/\partial C_{t} \right]}$. Is this because $C_t$ is independent of $C_{t+1}$?.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Third, I realized that if I solve $Max \sum_{t=0}^{\infty}\beta^t E_tU(C_t,N_t)$ s.t the constraint as before and proceed with $\frac{\partial }{\partial C_t}E[U]=E\left[\frac{\partial U}{\partial C_t}\right]$ I obtain the correct Euler's equation. Is this the correct problem to optimize? but what about Gali's propose?&lt;/p&gt;&#xA;" OwnerUserId="13288" LastEditorUserId="13288" LastEditDate="2017-05-17T18:58:55.847" LastActivityDate="2017-05-18T10:19:09.153" Title="Expectations in Gali's classical monetary model" Tags="&lt;macroeconomics&gt;&lt;profit-maximization&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16802" PostTypeId="2" ParentId="16797" CreationDate="2017-05-16T23:02:58.843" Score="0" Body="&lt;p&gt;One explanation I can think of is that it takes energy to create many forms of capital. In order to build a skyscraper (developing real estate capital), it takes energy to mine iron and other minerals, to forge steel and form pieces of the building, to transport those materials, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Not an explanation informed by any studies, just trying to use my intuition.&lt;/p&gt;&#xA;" OwnerUserId="13290" LastActivityDate="2017-05-16T23:02:58.843" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16807" PostTypeId="2" ParentId="16801" CreationDate="2017-05-17T10:22:06.220" Score="3" Body="&lt;p&gt;As for your first question, we are not just assuming $\partial U/\partial B &amp;gt; 0$. We simply assume monotonicity of preferences, which for the model here is a plausible condition. In simple terms this means that &quot;more is better&quot;. Hence, the consumer will always choose to spend all of his budget for current or future consumption, given by $C$ and $B$ respectively. Hence, the constraint holds with equality. In these types of models we pretty much always assume equality of the budget constraint.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for your second question, solving without expectations and then taking the expectation is strictly speaking incorrect. It will give you the correct result here though. What you can do here is to take the derivative in the expectation. For these models that usually works in the non-stochastic setting as here. If you have for example stochastic income with log-normal distributions you would have to be more careful. What you can do then, depending on the case, is solve the expectation before taking the derivative or use the Leibniz Rule.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence for your problem you don't forget the expectation in the first place, which corresponds to $\partial U / \partial C_{t+1}$. Instead for your model you can take $\partial E_0[U] / \partial C_{t+1} = E_0[\partial U / \partial C_{t+1}]$. As you can see, it will yield the same result as simply taking the expectation later on $\partial U / \partial C_{t+1}$. However, that is the wrong way and you'll probably lose points in an exam if you write it down that way.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastEditorUserId="5557" LastEditDate="2017-05-18T10:19:09.153" LastActivityDate="2017-05-18T10:19:09.153" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="16808" PostTypeId="1" AcceptedAnswerId="16818" CreationDate="2017-05-17T10:42:42.957" Score="0" ViewCount="79" Body="&lt;p&gt;In international trading there can be an economy that only exports, but restrict the import to minimum or at all. I cannot recall what the name given to this type of economy.&lt;/p&gt;&#xA;" OwnerUserId="13296" LastEditorUserId="2776" LastEditDate="2017-05-17T12:26:24.910" LastActivityDate="2017-05-18T07:20:58.137" Title="What is the name given to an exporting-only economy?" Tags="&lt;macroeconomics&gt;&lt;international-trade&gt;&lt;markets&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16809" PostTypeId="2" ParentId="16808" CreationDate="2017-05-17T13:56:11.630" Score="0" Body="&lt;p&gt;The existence of such an economy seems hypothetical. The whole point of exports is to gain foreign currency that one can spend on foreign goods - imports. It is possible that an economy has a trade surplus in several years but it is unrealistic that an economy almost never imports anything.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2017-05-17T13:56:11.630" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="16810" PostTypeId="1" CreationDate="2017-05-17T14:15:47.280" Score="2" ViewCount="23" Body="&lt;p&gt;Does higher frequency data have a larger effect on next day crude oil prices than data with lower periodicity?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Looking at demand and supply indicators for crude oil, such as opec / non-opec production, storage and consumption, the frequency at which this data becomes available seems inadequate to explain short term / next day volatility. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Naturally, trading volumes and trade data related to the specific product / derivative plays a role, but can it explain all the volatility in between the relatively slow drip feed of macro information?&lt;/p&gt;&#xA;" OwnerUserId="13300" LastActivityDate="2017-05-17T14:15:47.280" Title="Oil prices and data frequency" Tags="&lt;macroeconomics&gt;&lt;oil&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16814" PostTypeId="2" ParentId="5861" CreationDate="2017-05-18T01:17:57.970" Score="0" Body="&lt;p&gt;Related to your question, most of the CBs target an inflation rate near 2%.&#xA;Laurence Ball argues in his paper that targeting 4% could be better and his arguments are solid in my opinion.&#xA;&lt;a href=&quot;https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2468019&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2468019&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It became in a sense a reserve engineering for your answer but I think the paper will be beneficial to show the relationship between inflation and policymaker's tools and to see undesirability of zero inflation.&lt;/p&gt;&#xA;" OwnerUserId="12387" LastActivityDate="2017-05-18T01:17:57.970" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="16817" PostTypeId="1" CreationDate="2017-05-18T07:18:45.367" Score="2" ViewCount="1872" Body="&lt;p&gt;There are often two ways of interpreting the demand and supply curves.  &lt;/p&gt;&#xA;&#xA;&lt;h2&gt;&lt;strong&gt;The market&lt;/strong&gt;&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;The demand curve consists of all buyers -- some who value the good more than the market price, and some who value it less. For more quantity to be produced, you have to lower the price so that those who value it less will buy. &lt;em&gt;It makes sense that it is downward sloping.&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Similarly the supply curve consists of all producers -- some who can produce the good at a lower cost than the market price, and some who can't. In this case, for more quantity to be produced, you have to raise the price so that those less efficient firms will be motivated to produce. &lt;em&gt;It makes sense that the curve is upward sloping.&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Marginal benefits and costs&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Now we look at the curves in the context of one producer and one consumer. The demand curve of the consumer is downward sloping because of marginal utility. This makes sense to me. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What doesn't make sense to me is that the supply curve is upward sloping because marginal costs increase. Why is it that it costs more to make the next toy than it did the last?&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;If I've had any misconceptions or misunderstandings, please point them out to me. Thank you for the help!&lt;/p&gt;&#xA;" OwnerUserId="6327" LastActivityDate="2017-05-18T11:11:05.037" Title="Why does marginal private cost increase with quantity?" Tags="&lt;microeconomics&gt;&lt;supply-and-demand&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16818" PostTypeId="2" ParentId="16808" CreationDate="2017-05-18T07:20:58.137" Score="1" Body="&lt;p&gt;Is &quot;autarky&quot; the word you're looking for? That's been used to refer to a self-sufficient economy that does not need imports. As others have written, it's an ideological position that chooses to make a country worse off, and doesn't happen in reality, except for short periods in exceptional circumstances.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2017-05-18T07:20:58.137" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="16819" PostTypeId="1" AcceptedAnswerId="16825" CreationDate="2017-05-18T10:31:54.540" Score="1" ViewCount="25" Body="&lt;p&gt;I know of the website for data.gov which provides data but is a publicly available list of taxes paid by publicly own corporations like Apple? If not how do we know how much is paid by them?&lt;/p&gt;&#xA;" OwnerUserId="11979" LastActivityDate="2017-05-18T18:57:59.670" Title="UK: Is there a list published by the government for the amount of tax paid by companies?" Tags="&lt;taxation&gt;&lt;corporate-governance&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16820" PostTypeId="2" ParentId="16817" CreationDate="2017-05-18T11:11:05.037" Score="2" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;What doesn't make sense to me is that the supply curve is upward sloping because marginal costs increase. Why is it that it costs more to make the next toy than it did the last?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The supply curve depicts the short time supply curve. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;If resources are abundant&lt;/strong&gt;, low cost producers can easily increase production by building another factory that is at least as efficient as the exisiting ones.&#xA;However, building a new factory takes time. In the mean time the slack will be met by increased production from higher-cost producers and overtime work, both of which have higher costs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If there is a lasting increase in demand, the most efficient manufacturers will build additional factories that can produce at a low cost and thereby increasing supply, shifting the supply curve to the right.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;If resources are scarce&lt;/strong&gt;, then increasing production will mean that you have to use resources with higher cost. Higher wages for workers, using farm land that yields smaller harvests, mine lower quality ore and so on. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The cost increase can be offset by technological advances or lowering of other factor costs. Take the shale oil industry, where improved drilling technology has greatly increased the production per drilling rig. Also, the factor cost has fallen for labor and drilling services. The combined effect has reduced the cost from ca \$70 per barrel to ca \$40 per barrel. This has allowed US shale oil producers to increase production despite oil prices dropping from \$120 to \$50 per barrel. However, there is no guarantee that this can offset the entire cost increase; increased demand can result in permanently higher prices.&lt;/p&gt;&#xA;" OwnerUserId="11805" LastActivityDate="2017-05-18T11:11:05.037" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16821" PostTypeId="1" AcceptedAnswerId="16826" CreationDate="2017-05-18T13:09:33.757" Score="2" ViewCount="75" Body="&lt;p&gt;I recently posted and have since deleted a question regarding Exercise 2.1 in McCandless's &quot;The ABCs of RBCs.&quot; The exercise involves deriving a first-order difference equation describing aggregate capital motion in a overlapping two-period generations model, and I could not solve it by using the definitions of $w_t$, $w_{t+1}$, and $r_t$ that I am accustomed to. It turns out that the exercise is easy to solve if you use the relationship $r_t = F_K(K(t+1), H(t+1))$ where $K$ and $H$ are aggregate capital and labor, respectively.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reason I had so much difficulty with this exercise is that all of the economic theory I know dictates that $r_t = F_K(K(t), H(t))$, i.e. that today's interest/rental rate should equal &lt;em&gt;today's&lt;/em&gt; marginal product of capital. Even this particular textbook says so a couple pages before the exercise in question. However, using that relationship yields an equation with no analytic solution for $K(t+1)$. If you use $r_t = F_K(K(t+1), H(t+1))$, i.e. that today's interest/rental rate is equal to &lt;em&gt;tomorrow's&lt;/em&gt; marginal product of capital, the problem is solved with just a couple steps of algebra. But you can't just do that, can you?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you need more context, I'm sorry that I deleted my previous question, but I had effectively shown 90% of the solution to the relevant exercise and I know that this site is not meant for giving homework solutions away. I hope someone can enlighten me on this particular stumbling block I've encountered, however.&lt;/p&gt;&#xA;" OwnerUserId="13249" LastEditorUserId="13249" LastEditDate="2017-05-18T13:37:48.857" LastActivityDate="2017-05-18T21:49:48.783" Title="Interest/Rental Rate is today's or tomorrow's MPK?" Tags="&lt;interest-rate&gt;&lt;olg&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="16822" PostTypeId="1" CreationDate="2017-05-18T13:21:20.877" Score="0" ViewCount="107" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Hulk goes to the gym 20 times a month. His income is 1,000 per&#xA;  month and his visits to the gym cost $4 per visit.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Draw Hulk's budget line for visits to the gym and all other goods,&#xA;  show the consumption bundle that maximizes his satisfaction, and&#xA;  draw the indifference curve through that point.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;How do I find the quantity and price for &quot;all other goods&quot;?&lt;/p&gt;&#xA;" OwnerUserId="13305" LastEditorUserId="2776" LastEditDate="2017-05-18T15:27:25.680" LastActivityDate="2017-05-18T15:27:25.680" Title="How to find the points on a budget line?" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="0" ClosedDate="2017-05-21T22:29:11.667" ContentLicense="CC BY-SA 3.0" />
  <row Id="16823" PostTypeId="2" ParentId="16822" CreationDate="2017-05-18T13:24:14.827" Score="1" Body="&lt;p&gt;You generally set the price of &quot;all other goods&quot; to \$1, as &quot;all other goods&quot; is usually measured as &quot;dollars worth of all other goods.&quot; Then the maximum quantity of all other goods is just the available income. Then to find the quantity of other goods Hulk buys, just find out how much money is available after he vists the gym 20 times.&lt;/p&gt;&#xA;" OwnerUserId="13249" LastEditorUserId="13249" LastEditDate="2017-05-18T13:31:06.730" LastActivityDate="2017-05-18T13:31:06.730" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16825" PostTypeId="2" ParentId="16819" CreationDate="2017-05-18T15:46:34.040" Score="2" Body="&lt;p&gt;For publicly own corporations, you can access their financial statements, where they record the amount of taxes paid (e.g. for Apple &lt;a href=&quot;https://www.apple.com/newsroom/pdfs/Q2FY17ConsolidatedFinancialStatements.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;). Notice that &lt;strong&gt;where&lt;/strong&gt; the tax is paid depend on the location of the firm, and whether it is a multinational business. The latter type of firm is particularly problematic, because multinational companies use &lt;a href=&quot;https://en.wikipedia.org/wiki/Transfer_pricing&quot; rel=&quot;nofollow noreferrer&quot;&gt;transfer pricing&lt;/a&gt; methods to optimise (i.e. lower) their tax burden. Therefore, it is difficult to determine where those taxes &lt;strong&gt;should&lt;/strong&gt; be paid. Apple and other multinationals seem to be particularly keen to do this (e.g. &lt;a href=&quot;http://www.investopedia.com/terms/d/double-irish-with-a-dutch-sandwich.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reason that sometimes you see headlines stating that big companies do not pay enough taxes locally is because many of these analysis is done by those with access to detailed information like HRMC or Inland Revenue (e.g. &lt;a href=&quot;http://www.dailymail.co.uk/news/article-2127048/Apple-6bn-UK--paid-10m-tax.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;; NB: excuse the doggy source; could not find a better one).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Outsiders to these institutions can have access to this data only in a anonymous fashion (see data available for UK &lt;a href=&quot;https://www.gov.uk/government/organisations/hm-revenue-customs/about/statistics#business-taxes-statistics&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;), so you won't be able to trace Apple's taxation in the UK with such data (or at least you should not be able to do so).&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-05-18T18:57:59.670" LastActivityDate="2017-05-18T18:57:59.670" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16826" PostTypeId="2" ParentId="16821" CreationDate="2017-05-18T21:40:17.413" Score="1" Body="&lt;p&gt;I found the problem, and now I feel dumb but I suppose I should leave the question up so people can know the potential pitfall and prepare for it better than I did.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem arose from me misreading (and clearly misunderstanding) the equilibrium conditions for the problem, where it states that the interest rate $r_t$ on loans issued today and paid back tomorrow is equal to $\text{rental}_{t+1}$, the rental rate on capital used &lt;em&gt;tomorrow,&lt;/em&gt; which is of course equal to &lt;em&gt;tomorrow's&lt;/em&gt; marginal product of capital. I had my problem set up with $r_t = \text{rental}_{t+1}$, which is incorrect. This means that yes, we should have $r_t = \text{rental}_{t+1} = F_K(K(t+1), H(t+1))$, which makes the exercise a simple algebra problem. I just had my subscripts all messed up!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Here's why&lt;/strong&gt; $r_t = \text{rental}_{t+1}$ &lt;strong&gt;(summarized from text):&lt;/strong&gt; If $r_t &amp;lt; \text{rental}_{t+1}$, then under perfect foresight (an assumption of the basic model in the given chapter), people will attempt to borrow infinitely to capture the profit of $\text{rental}_{t+1} - r_t$, and this condition cannot hold in equilibrium. On the other hand, if $r_t &amp;gt; \text{rental}_{t+1}$, then nobody will want to hold capital until the next term, instead attempting to lend all of their funds out.&lt;/p&gt;&#xA;" OwnerUserId="13249" LastEditorUserId="13249" LastEditDate="2017-05-18T21:49:48.783" LastActivityDate="2017-05-18T21:49:48.783" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16829" PostTypeId="1" AcceptedAnswerId="16837" CreationDate="2017-05-19T07:39:58.413" Score="0" ViewCount="609" Body="&lt;p&gt;What is the difference between say, gross asset and liability positions and net asset and liability positions? I mean these terms in the particular way that Cavallo and Tille use them in their 2006 paper &lt;a href=&quot;https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr237.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;&quot;Could Capital Gains Smooth a Current Account Rebalancing?&quot;&lt;/a&gt; Can they be expressed as an accounting identity? The key factor in this paper is that gross asset positions change but NFA positions are kept constant. This is true by construction, but how? I could understand this if I just understood generally how net and gross positions are different. &lt;/p&gt;&#xA;" OwnerUserId="13311" LastEditorUserId="13311" LastEditDate="2017-05-19T16:24:26.337" LastActivityDate="2017-05-19T23:26:07.953" Title="Net Positions vs Gross Positions as they Relate to the Current Account" Tags="&lt;macroeconomics&gt;&lt;international-economics&gt;&lt;open-economy-macro&gt;&lt;asset-prices&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16831" PostTypeId="1" CreationDate="2017-05-19T09:23:21.667" Score="2" ViewCount="90" Body="&lt;p&gt;If there's a water company worth £4 billion making £500 million a year profit, the government &quot;prints&quot; £4 billion and buys the company, then every year &quot;burns&quot; half the profit and reinvests the other half.  Would this work or create damaging inflation in the economy?&lt;/p&gt;&#xA;" OwnerUserId="5479" LastActivityDate="2017-05-20T14:18:44.477" Title="Print money to buy and nationalise companies" Tags="&lt;inflation&gt;&lt;quantitative-easing&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16833" PostTypeId="1" AcceptedAnswerId="16834" CreationDate="2017-05-19T16:21:37.303" Score="2" ViewCount="32" Body="&lt;p&gt;I'm going to state the problem without much context because it is an issue of the math I'm doing, rather than any specific econ concept. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Condition. I'm trying to prove this.&lt;br&gt;&#xA;$$ V(q_l) - \theta_l*q_l  &amp;gt; V(q_h) - \theta_h*q_h$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given &#xA;$$q_l&amp;gt;q_h$$ &#xA;$$\theta_l &amp;lt; \theta_h  $$&#xA;$$V'() &amp;gt; 0$$ $$ V'' &amp;lt; 0 $$&#xA;$$V'(q_l) = \theta_l $$ &#xA;$$V'(q_h) = \theta_h $$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm trying to use definite integrals to prove this. But I think I'm getting something fundamentally wrong here. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \int_0^{q_i} V'(q)dq = \int_0^{q_i} \theta_i  $$&#xA;$$ V(q_i) - V(0) = \theta_i*q_i$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This gives two equations, one for each $q_l, q_h$. Substracting these two equations from one another. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ V(q_l) - V(q_h) = \theta_l*q_l -\theta_h*q_h $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm definitely doing something wrong here. Any help? &lt;/p&gt;&#xA;" OwnerUserId="4247" LastActivityDate="2017-05-19T17:35:50.893" Title="Issues with an application of definite internal and marginal utilities" Tags="&lt;consumer-surplus&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16834" PostTypeId="2" ParentId="16833" CreationDate="2017-05-19T17:11:45.547" Score="3" Body="&lt;p&gt;The mistake you are making appears to be treating $\theta_i$ as a &lt;em&gt;variable&lt;/em&gt; while in reality it is a specific &lt;em&gt;value&lt;/em&gt; of the derivative.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So &#xA;$$\int_0^{q_i} V'(q)dq = \int_0^{q_i} \theta_i dq \;\;\; i=l,h$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;is wrong, since $V'(q)$ equals $\theta_l$ evaluated at $q_l$ only (and equals $\theta_h$ evaluated at $q_h$ only).&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2017-05-19T17:35:50.893" LastActivityDate="2017-05-19T17:35:50.893" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16835" PostTypeId="2" ParentId="16831" CreationDate="2017-05-19T17:34:27.027" Score="2" Body="&lt;p&gt;This is a transaction where productive assets change hands, it is not a transaction that reflects production. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Moreover assume that the company oparates exactly as before, producing the same output in quantity and quality and with the same prices and with the same costs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then nothing has changed in the economy as regards &lt;em&gt;production&lt;/em&gt; (and so income).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The only difference is that the previous owners of the company now have in their hand 4 billion pounds. What will they do with it?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume they just keep it in the bank. Then under fractional reserve banking, the bank will be able to offer more loans at a total principal value a &lt;em&gt;multiple&lt;/em&gt; of the 4 billion. Will the bank attempt to offer more loans? If it does, will it have to offer lower interest rates to attract willing (and solvent) borrowers? The questions have no ending.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume instead that the owners try to spend the 4 billion by purchasing goods from domestic businesses. Is a 4 billion-increased-demand large enough to push prices up (is supply capacity at its limits and stock low) or suppliers will be happy to accommodate, no problem? The questions have no ending.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume instead that the owners attempt to import goods from another country...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My point is that such questions can in principle be answered only after assumptions as to the state of the economy have been clearly spelled out (i.e. only in the context of a model). Moreover, for a specific case study, the relative size of the transaction compared to the economic system matters. How is a 4-billion increase in government debt perceived by economic agents?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;...and I haven't even touched and the &quot;burning the profits&quot; strategy proposed in the question (and it wouldn't burn it in any case, it would repay its debt to the central bank, which, granted, is the economic equivalent of destroying money).&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2017-05-19T17:34:27.027" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16836" PostTypeId="1" CreationDate="2017-05-19T17:53:10.980" Score="1" ViewCount="38" Body="&lt;p&gt;I've been reading about the Federal Open Market Committee's announcements of monetary policy decisions, specifically the time at which the announcements are made and then how the markets somewhat immediately respond. However, FOMC announcements are a relatively recent thing, as they appear to have only started regularly in ~95 or so (press conferences are even more recent). It seems like from 1996-2013 they made an announcement after the end of every meeting at 2:15, and from 2013-present they changed it to 2:00 for some reason.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What about before 1994/5 though? How did the public learn of the monetary policy changes, and how soon after the FOMC meetings did a majority of people learn what the policy changes, if any, were?&lt;/p&gt;&#xA;" OwnerUserId="13315" LastActivityDate="2017-08-23T07:19:02.693" Title="How and when did the public learn of monetary policy changes before FOMC announcements and press conferences?" Tags="&lt;monetary-policy&gt;&lt;federal-reserve&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16837" PostTypeId="2" ParentId="16829" CreationDate="2017-05-19T23:26:07.953" Score="0" Body="&lt;p&gt;The assets and liabilities are what make up what is called the &lt;em&gt;International Investment Position&lt;/em&gt;, often broken down into three main parts:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;em&gt;Direct investment&lt;/em&gt;: subsidiaries abroad or domestic companies with foreign owners, where their full profits or losses count as overseas income for the balance of payments&lt;/li&gt;&#xA;&lt;li&gt;&lt;em&gt;Portfolio investment&lt;/em&gt;: foreign shares and bonds or domestic shares and bonds owned by foreigners, where the dividends and coupons count as overseas income for the balance of payments&lt;/li&gt;&#xA;&lt;li&gt;&lt;em&gt;Other investment&lt;/em&gt;: including foreign bank accounts and loans, where the interest counts as overseas income for the balance of payments; there are also derivatives and reserves &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;When these are added up, the amounts involved are big league (to channel President Trump).  At the end of 2016 the US had &lt;a href=&quot;https://fred.stlouisfed.org/series/IIPUSASSA&quot; rel=&quot;nofollow noreferrer&quot;&gt;gross assets abroad worth about USD 24 trillion&lt;/a&gt; and &lt;a href=&quot;https://fred.stlouisfed.org/series/IIPUSLIAA&quot; rel=&quot;nofollow noreferrer&quot;&gt;gross liabilities to foreigners worth about USD 32 trillion&lt;/a&gt;, each more than US annual GDP. (The UK gross positions are even more extreme) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The net International Investment Position is simply the difference between gross assets and gross liabilities, so with the US having a &lt;a href=&quot;https://fred.stlouisfed.org/series/IIPUSNETIA&quot; rel=&quot;nofollow noreferrer&quot;&gt;net liability of about USD 8 trillion at the end of 2016&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One might naively think &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;having a persistent current account deficit might lead to steadily widening net liabilities as financial flows need to balanced current account flows &lt;/li&gt;&#xA;&lt;li&gt;having a net liability could lead to a deficit on income flows (if you owe more you might pay more), making the current account deficit difficult to close even if trade in goods and services moved into balance&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;That was not what was observed in the paper and so two rationalisations were offered&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;US assets abroad seemed to be paid a higher rate of return than US liabilities to foreigners for specific reasons&lt;/li&gt;&#xA;&lt;li&gt;US assets overseas had been revalued over time (for reasons such as exchange rate changes or market price changes) so the net position had not exploded&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The rest of the paper speculated that this sort of process could lead to a smoother transition to a current account balance than one might otherwise naively think, especially if accompanied by currency depreciation.  It combined this with some mathification and a toy numerical illustration   &lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2017-05-19T23:26:07.953" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16839" PostTypeId="1" AcceptedAnswerId="16840" CreationDate="2017-05-20T02:12:12.343" Score="-3" ViewCount="152" Body="&lt;p&gt;a. a movement up along the downward sloping demand curve for park visits &lt;/p&gt;&#xA;&#xA;&lt;p&gt;b. a decrease in the demand for park visits &lt;/p&gt;&#xA;&#xA;&lt;p&gt;c. a movement down along the upward sloping supply curve for park visits &lt;/p&gt;&#xA;&#xA;&lt;p&gt;d. an increase in the supply of of park visits&lt;/p&gt;&#xA;" OwnerUserId="13317" LastEditorUserId="2776" LastEditDate="2017-05-20T07:38:07.453" LastActivityDate="2017-05-20T07:38:07.453" Title="Yellowstone National park is now charging higher entrance fees than before.This should result in:" Tags="&lt;supply-and-demand&gt;" AnswerCount="1" CommentCount="0" ClosedDate="2017-05-20T08:32:57.660" ContentLicense="CC BY-SA 3.0" />
  <row Id="16840" PostTypeId="2" ParentId="16839" CreationDate="2017-05-20T06:43:48.060" Score="-3" Body="&lt;p&gt;Remember that a change in price causes a movement along a supply/demand curve.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;B. A decrease in demand generally refers to a shift in the demand curve, not just a change in price&lt;br&gt;&#xA;C. An increase in price is an upward (not downward) movement along a curve&lt;br&gt;&#xA;D. An increase in supply generally refers to a shift in the supply curve, not just a change in price&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;A. A movement up along the downward sloping demand curve, resulting in lower quantity consumed.&lt;/strong&gt;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I hope this helped!&lt;/p&gt;&#xA;" OwnerUserId="13208" LastActivityDate="2017-05-20T06:43:48.060" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="16841" PostTypeId="1" CreationDate="2017-05-20T06:48:14.513" Score="3" ViewCount="66" Body="&lt;p&gt;I'm struggling to find a macroeconomic index which embodies the cost to run an average production plan. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My problem is that I wanted to divide the annual average cost per employee (which I already found to be &lt;code&gt;gross income per capita&lt;/code&gt;) with the cost of running an average asset (e.g rent, energy and other expenses). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Did such an index exists?&lt;/p&gt;&#xA;" OwnerUserId="13319" LastActivityDate="2021-02-06T01:00:06.857" Title="Cost of production plant" Tags="&lt;macroeconomics&gt;&lt;data-request&gt;&lt;paneldata&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16842" PostTypeId="2" ParentId="16710" CreationDate="2017-05-20T07:21:57.960" Score="1" Body="&lt;p&gt;When there was only one telephone service supplier, BT directory enquiries used to be free. If you did not know the number of who you wanted to call, you could not call. Once you got the number from the phone book or directory enquiries, you could make the call and would be charged for it - instant payback for the phone company.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;After the telephone market was opened to competition, BT started charging for directory enquiries eventually reaching 40p per call.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;After de-regulation of directory enquiries in 2003, hundreds of suppliers have sprung up. The cheapest is currently 40p per minute plus your phone provider's Access Charge. The most expensive is £15.98 per call, plus £7.99 per minute after 60 seconds, plus your phone provider's Access Charge.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Prices for a number of 118 services have risen substantially over the years.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;118 118 prices have risen sharply in recent years...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1 July 2015 - £5.74 per call, plus £2.99 per minute after 60 seconds, plus your phone provider's Access Charge.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1 March 2016 - £6.98 per call, plus £3.49 per minute after 60 seconds, plus your phone provider's Access Charge.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1 May 2017 - £8.98 per call, plus £4.49 per minute after 60 seconds, plus your phone provider's Access Charge.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is no surprise that the most well-known services such as 118118 and 118500 are the most heavily advertised.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It should come as no surprise that the most heavily advertised services are among the most expensive. All that advertising has to be paid for somehow.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The cheapest services have no budget for advertising. In order to advertise, they would have to increase their prices.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is needed is a third-party to rate and review all of the suppliers and their services and for this information to be freely available and easily accessible.&lt;/p&gt;&#xA;" OwnerUserId="13320" LastEditorUserId="13320" LastEditDate="2017-05-21T10:57:53.680" LastActivityDate="2017-05-21T10:57:53.680" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16845" PostTypeId="2" ParentId="16831" CreationDate="2017-05-20T14:18:44.477" Score="0" Body="&lt;p&gt;This transaction is akin to Quantitative Easing using utility assets instead of Government bonds.  Thus, the main effect is to drive up the prices of utility companies (and other private sector assets), just as QE drove up the prices of government bonds.   This policy 'works' if the aim is to support the stock market, perhaps reasoning that this would create confidence in the marketplace and spur economic activity.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since the 4bn is removed from the economy over time at the rate of 250mm per annum, I would expect the above effect to be temporary rather than permanent.  &lt;/p&gt;&#xA;" OwnerUserId="13062" LastActivityDate="2017-05-20T14:18:44.477" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16847" PostTypeId="2" ParentId="16788" CreationDate="2017-05-20T15:02:26.370" Score="1" Body="&lt;p&gt;The SRAS also shifts.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;SRAS is normally used in models where the supply side does not adjust immediately to the new conditions in the market, i.e. models with &lt;a href=&quot;https://en.wikipedia.org/wiki/Nominal_rigidity&quot; rel=&quot;nofollow noreferrer&quot;&gt;nominal rigidities&lt;/a&gt;. Examples are: &lt;a href=&quot;http://www.investopedia.com/terms/s/sticky-wage-theory.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;sticky wages&lt;/a&gt;, &lt;a href=&quot;http://www.investopedia.com/terms/p/price_stickiness.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;sticky prices&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Other instances where adjustments in prices or nominal money supply are not immediate and in which money has a real effect are the &lt;a href=&quot;https://en.wikipedia.org/wiki/Lucas_islands_model&quot; rel=&quot;nofollow noreferrer&quot;&gt;Lucas 'misperceptions' or 'islands' model&lt;/a&gt; or &lt;a href=&quot;https://en.wikipedia.org/wiki/Cash-in-advance_constraint&quot; rel=&quot;nofollow noreferrer&quot;&gt;Cash in advance models&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, and to the point of answering your question, all these models coincide that in the long term and when the agents in the economy have had the time to adjust their choice variables and/or information symmetry is restored, the AS is vertical again (LRAS). So, if there has been sufficient time for the long run AS to adjust, by definition of short run, i.e. shorter than the long run, there has been enough time for the SRAS to adjust as well.&lt;/p&gt;&#xA;" OwnerUserId="5119" LastEditorUserId="5119" LastEditDate="2017-05-20T18:23:23.977" LastActivityDate="2017-05-20T18:23:23.977" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16849" PostTypeId="1" AcceptedAnswerId="16850" CreationDate="2017-05-20T19:24:24.490" Score="2" ViewCount="462" Body="&lt;p&gt;I've looked all over the internet but couldn't find a simple answer. My claim is that if none of the players utility functions depend on the messages being sent, then the game is a &lt;strong&gt;cheap talk.&lt;/strong&gt; Consider this :&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Suppose that after you graduate you have two options when applying for a position at a firm: You can either use your undergraduate diploma or pursue graduate studies for two years and receive an MA diploma and send it as part of your application. Your skill level is either High or Low. You learn your skill level but the employer does not know your skill level. The employer only knows that your it is High with probability 1/4. After you learn your type you either apply for the job with your undergraduate diploma or get an MA degree and apply with master’s diploma. Thus you have two possible messages. You already have a BA degree, so its cost is zero. The cost of MA degree is 2 if you are High type and 5 if you are Low type. The employer, observing the message you send but not your type, decides what kind of job to offer you. There are two possible jobs: job1 pays 10 and job2 pays 6. The net payoff of the employer is 10 if you are High type and employed at job1, 5 if you are High type and employed at job2, 0 if you are Low type and employed at job1, and 3 if you are Low type and employed at job2. Is this game a cheap talk game?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;We can clearly see that for the employee the messages (whether choosing a MA or BA degree) will have an effect on her payoffs. Therefore I conclude that the game is not cheap talk. But I'm not sure since this kind of games are characterised under cheap talk games, what makes a game cheap talk? How I can explain whether the game above is a cheap talk or not&lt;/p&gt;&#xA;" OwnerUserId="10922" LastActivityDate="2017-05-20T19:57:17.667" Title="What conditions characterise &quot;cheap-talk&quot; games" Tags="&lt;microeconomics&gt;&lt;game-theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16850" PostTypeId="2" ParentId="16849" CreationDate="2017-05-20T19:45:10.827" Score="1" Body="&lt;p&gt;Your general question is in my opinion far more interesting than the course problem, so I will answer that.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;What conditions characterise “cheap-talk” games?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;As you have noted yourself, the talk needs to be cheap, meaning signals/messages should have no direct effect on the players' utility. Indirect effects are allowed. Even in cheap talk games it is possible that the beliefs of a player are updated by a cheap message, hence his response changes altering the outcome. Simple examples include coordination problems.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;A second necessary condition is that all messages are available to all types. hence there are no type specific message spaces $M_i$, only a shared message space $M$ from which all types of the sender can freely choose their message. Without this, a signal, though costless, could carry information, as certain types are incapable of sending it.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;It's a cheap-talk game, so what?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If these two conditions are met then the game is a cheap-talk game. Why is that important?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let us call a version of the cheap-talk game where we leave out the signal round the simple variant. For any equilibrium of the simple variant there is a payoff equivalent equilibrium of the cheap-talk game. Similarly, for any &#xA;equilibrium of the cheap-talk game there is a payoff equivalent equilibrium of the simple variant. Hence it seems that the ability to signal did not fundamentally alter the set of equilibrium outcomes. The reason for this is that the signal did not carry any information, as it was easily imitable by other types, it was 'cheap'.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2017-05-20T19:57:17.667" LastActivityDate="2017-05-20T19:57:17.667" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="16851" PostTypeId="1" CreationDate="2017-05-20T20:26:46.620" Score="3" ViewCount="241" Body="&lt;p&gt;The Universal Basic Income scenario seems to be one where people are free to cultivate their passions. From what I could gather, the main argument for this to be the best case scenario goes something like, if people are free to choose what they would like to do they would choose something which they are passionate about, which in turn would mean that they will gladly work towards becoming better at it, and create a pleasure-productivity feedback loop.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This seems almost universally accepted, and intuitively right.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is, who would take care of the menial but necessary tasks? (Elders' carers, garbage man, plumbers, cleaners...)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some answer that AI development, will give rise to &quot;unconscious&quot; slave robots who will be able to take care of it. How likely is this?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There seems to also be an idea of the possible emergence of &quot;artisanal&quot; markets, in the sense that even if, for instances, robots are able to function as carers for basic tasks, there would be a premium market for &quot;flesh&quot; carers. And people who would choose to fulfill these roles would be highly remunerated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are there any studies, papers or polls on this topic? &lt;/p&gt;&#xA;" OwnerUserId="13329" LastEditorUserId="1601" LastEditDate="2017-05-24T07:42:13.730" LastActivityDate="2017-05-24T07:42:13.730" Title="Universal Basic Income - Menial Tasks" Tags="&lt;macroeconomics&gt;&lt;reference-request&gt;&lt;welfare-economics&gt;&lt;social-welfare&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16852" PostTypeId="2" ParentId="16788" CreationDate="2017-05-21T01:33:31.733" Score="1" Body="&lt;p&gt;&lt;strong&gt;Short answer:&lt;/strong&gt; Yes, the SRAS curve will shift after the LRAS shifts to return the short-run equilibrium (SRAS/AD) back in line with the long-run equilibrium (LRAS/AD). The reason the SRAS curve doesn't shift immediately with LRAS is that there are so-called &quot;frictions&quot; or &quot;nominal rigidities&quot; such as contracts and information gaps that prevent firms from adjusting supply plans instantly.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Long answer:&lt;/strong&gt; There are two simple &quot;stories&quot; we can tell to explain the dynamics of the elementary AS/AD model: the &quot;inflation gap&quot; story and the &quot;output gap&quot; story. Both of these stories are compatible with each other, so they're usually taught as both occurring at the same time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;em&gt;Inflation gap story&lt;/em&gt;:&lt;/strong&gt; SRAS is modeled as shifting upward when expected price levels increase. We can consider the long-run (expected) equilibrium to occur at the intersection of LRAS and AD, and the short-run (actual) equilibrium to occur at the intersection of SRAS and AD. If you start in a long-run equilibrium where all three curves intersect, but then impose an LRAS shock on the model and shift the curve, then the expected price level and actual short-run price level will differ. This is what we call an &lt;strong&gt;inflation gap.&lt;/strong&gt; As firm owners come to the realization that the supply shock is here to stay, they adjust their production processes to match and the SRAS curve shifts to bring the short-run equilibrium in line with the long-run equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;em&gt;Output gap story&lt;/em&gt;:&lt;/strong&gt; SRAS is also modeled as shifting whenever prices of factors of production change. Thus the &lt;strong&gt;output gap&lt;/strong&gt; generated by the supply shock becomes relevant, with actual short-run output out of line with the long-run sustainable level marked by the LRAS curve. For example, after a positive LRAS shock, the short-run equilibrium will have less output than the long-run sustainable level. The result is an abundance of resources, and the prices of factors of production will fall, causing firms to increase production and shift the SRAS to the right until actual output matches the long-run sustainable level. An opposite story can be told to explain why SRAS shifts left after a negative LRAS shock.&lt;/p&gt;&#xA;" OwnerUserId="13249" LastActivityDate="2017-05-21T01:33:31.733" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16854" PostTypeId="2" ParentId="16851" CreationDate="2017-05-21T15:24:05.333" Score="0" Body="&lt;p&gt;Insofar as technology fails to substitute for all menial tasks, economic theory would dictate that those tasks pay a high enough wage to attract workers, so the wage for those jobs would likely be higher than they are in the absence of a UBI.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The only serious pushes I see for a universal basic income come in response to the threat of technology advancement making many menial jobs obsolete, so this may not be as big a problem as you worry about (assuming a UBI scheme is in fact sustainable at all). In this context, the UBI is pitched as a way to more quickly distribute the &quot;technology dividend&quot; to displaced labor instead of letting it concentrate in the hands of capital owners.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The strongest arguments I've heard for a UBI are based more on positive externalities. Consider how many intelligent people work menial jobs simply because they're the best-paying available. Perhaps if a few dozen hours of their weeks were freed up (for millions of people), they'd be able to engage in intellectual, artistic, or entrepreneurial pursuits with more long-term benefits to economic growth. This result, however, is contingent upon technology advancing fast enough to truly displace labor in the market. If capital equipment doesn't plunge in price to accompany the initial increase in tax costs, this would be a very hard sell.&lt;/p&gt;&#xA;" OwnerUserId="13249" LastActivityDate="2017-05-21T15:24:05.333" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16855" PostTypeId="1" AcceptedAnswerId="16856" CreationDate="2017-05-21T18:59:17.633" Score="1" ViewCount="825" Body="&lt;p&gt;I was looking at the indicator &lt;a href=&quot;http://data.worldbank.org/indicator/DT.DOD.DECT.CD&quot; rel=&quot;nofollow noreferrer&quot;&gt;External debt stocks, total (DOD, current US$)&lt;/a&gt; on the worldbank website and I don't understand what DOD stands for.&lt;/p&gt;&#xA;" OwnerUserId="13335" LastActivityDate="2017-05-21T20:01:13.840" Title="What does DOD stand for in this indicator?" Tags="&lt;debt&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16856" PostTypeId="2" ParentId="16855" CreationDate="2017-05-21T20:01:13.840" Score="1" Body="&lt;p&gt;It stands for &quot;disbursed and outstanding debt&quot;, which is explained &lt;a href=&quot;https://www.imf.org/external/pubs/ft/eds/Eng/Guide/file1.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;, for example.&lt;/p&gt;&#xA;" OwnerUserId="8630" LastActivityDate="2017-05-21T20:01:13.840" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16858" PostTypeId="2" ParentId="16737" CreationDate="2017-05-21T23:34:54.360" Score="2" Body="&lt;p&gt;This would represent an extreme increase in long-run aggregate supply. In the AS/AD framework, this would result in a long-run increase in production growth and a decrease in the inflation rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How &quot;badly&quot; it will disrupt today's global market? You've built an assumption that it's bad into your question, but sure, it will be bad for anyone who has invested in current energy sources. It will be fantastic, however, for anyone involved in literally any other entrepreneurial activity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The only disruption in such a sudden and unexpected technology improvement would be that some financial institutions would find themselves overinvested in the energy sector. Insofar as they cannot handle the financial capital losses, there may be a private debt crisis that pushes politicians to bail them out again (ideally using the increases in tax revenues caused by increased productivity), or to simply declare their debt null and void. This would cause some consternation, but given that people tolerated financial bailouts after the housing crisis (where financial assets were wasted without any obvious social benefits at all), it's unlikely that there would be overwhelming protest in such a scenario.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The negative impacts of such a productivity shock would only be temporary, however. Energy is one of the limiting factors of production, so free energy would cause production to grow as fast as entrepreneurs can find a use for it, which would be very quickly.&lt;/p&gt;&#xA;" OwnerUserId="13249" LastActivityDate="2017-05-21T23:34:54.360" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16859" PostTypeId="1" CreationDate="2017-05-22T00:08:04.723" Score="3" ViewCount="5826" Body="&lt;p&gt;I'm trying to understand how a subsidy on a monopoly would affect the deadweight loss. I know a subsidy shifts the marginal cost curve downwards, creating a new equilibrium price (price decreases) and quantity (quantity increases), but my question is if the deadweight loss is going to be bigger than before the subsidy?&lt;/p&gt;&#xA;" OwnerUserId="12958" LastEditorUserId="2776" LastEditDate="2017-05-22T10:46:29.713" LastActivityDate="2017-05-26T08:52:55.107" Title="Effect of a subsidy on a monopoly" Tags="&lt;monopoly&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16860" PostTypeId="2" ParentId="16262" CreationDate="2017-05-22T05:09:52.593" Score="2" Body="&lt;p&gt;In addition to dividends, a company may return equity to owners. The taxation of returned equity might be favourable over dividends for the owners in some jurisdictions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Controlling owner may try to use his position to his benefit in other ways than as being sold or as being a take over target (see Romanchuks answer). Please, consider private equity and an ownership with majority. The major owner may happily collect funds in the form of equity and has plans (and actions) that are not so nice to other minor owners. These include things like  well paying managerial job or a well paying customer to other business the major owner owns. I think this is an counter-example to firm intentions in fanrsy's answer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some people get value in the form of ESG-matters (environmental, social, governance) by supporting or just being a part of a company whose agenda they believe. Is this slowly increasing tendency (many money managers and investors have considered ESG lately) or just a temporary fashion peak?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Even though the question states that company is not for sale, many stock valuation models consider the value of equity and take into account the residual value of company, for a reason. A company may be sold: there can be a reclaim (or is it redeem?) for the rest of the shares if majority of the owners have already sold their shares. This way the shares will be turned to either money or other shares. This can take place for private and public equity. In this case you should be able to calculate the value of equity (value of assets less debt). A company may be sold in parts, too.&lt;/p&gt;&#xA;" OwnerUserId="8988" LastActivityDate="2017-05-22T05:09:52.593" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16861" PostTypeId="2" ParentId="16262" CreationDate="2017-05-22T08:08:18.080" Score="5" Body="&lt;p&gt;Ultimately, yes, in almost all cases, belief in future dividends is the only long term value of stock.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Buy-backs / stock re-purchases only have value because of that belief in future dividends: a buy-back just means that future dividends will be divided across fewer shares, thus higher dividends per share.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are some corner-case rare exceptions where some of the demand for a stock (and hence some of the market price) may reflect something else, in addition to the discounted value of future dividends; for example:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;I might believe that the company is going to be nationalised, and the State will buy the shares off me at something related to market price.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;I might want to take over the company to achieve returns in other ways: to integrate vertically, horizontally, or laterally - where the goal might be to increase the returns on my current business, rather than getting dividends from the other business. In theory, in a perfect market, those returns ought to be realisable by the takeover target, and available as future dividends, but the market is unlikely to be perfect.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;I might want to take control to achieve ends other than cash returns - for example, I might buy up an exceptionally polluting company and close it down or clean it up in the interests of general well-being.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="44" LastActivityDate="2017-05-22T08:08:18.080" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16862" PostTypeId="1" CreationDate="2017-05-22T08:58:57.120" Score="4" ViewCount="74" Body="&lt;p&gt;This is a long shot! I was wondering if anyone could point me to any behavioral economics or other economics research on perceived value, specifically I'm looking at why some people don't redeem activity gift cards before they expire.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My hypothesis is that time doing something else they choose, is perceived as better used than time doing the activity that the gift card pays for. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For context, some of these gift cards are are worth \$100 - $500 and generally the activity they pay for is chosen by the gift giver who would know about the likes and dislikes of the receiver.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know this is quite general, but I'm working as an analyst in a company that sells gift cards and I would like to have some background research before I look to draw any conclusions from the data, I know that some people use them, some people don't  and I can see some patterns in variables in the two groups, but I'd like to bring some theoretical rigor to the analysis.&lt;/p&gt;&#xA;" OwnerUserId="13340" LastEditorUserId="1601" LastEditDate="2017-05-22T09:47:09.443" LastActivityDate="2019-08-20T18:01:35.130" Title="Looking for behavioral economics research about the redemption of gift cards" Tags="&lt;reference-request&gt;&lt;behavioral-economics&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16863" PostTypeId="2" ParentId="16859" CreationDate="2017-05-22T10:43:56.670" Score="1" Body="&lt;p&gt;The deadweight loss from the monopoly decreases. This is because the deadweight loss comes from the price being too high (higher than the marginal cost), which leads to not enough goods being consumed in equilibrium. Since the subsidy redices the price, the deadweight loss decreases. The subsidy itself does not increase the deadweight loss, because the only thing it does is reduce the price and there are no other effects. One issue may be that additional deadweight loss is caused by the taxes required to finance the subsidy. If these are lump-sum taxes then they do not affect the deadweight loss as they are non-distortionary and do not affect prices.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In fact it is possible to completely remove the deadweight loss with a subsidy. This requires lump sum taxes to be an available tax instrument, so that raising the money for the subsidy doesn't cause deadweight loss itself. This is an old result that goes back to Robinson (1934). However, although she first noticed the result, she did not advocate that this would be a good policy, unless the subsidy was financed by taxing the monopolist's rents. This is because of concerns such a policy would have on income distribution.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastEditorUserId="5557" LastEditDate="2017-05-22T11:07:18.023" LastActivityDate="2017-05-22T11:07:18.023" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16865" PostTypeId="1" CreationDate="2017-05-22T13:11:35.837" Score="1" ViewCount="112" Body="&lt;p&gt;I need verification on my understanding as to whether the following factors affect the demand for money, and if so how they affect it:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Changes in Nominal National Income: will affect the transactions motive for money because changes in this will change the amount of money demanded in the economy as more/less will be demanded to buy more/fewer goods and services (shifts the liquidity preference (LP) schedule). Will have little effect on the precautionary motive if nominal national income increases, but the effect may be greater if nominal national income decreases. Changes in nominal national income may change the demand for government bonds (the main asset in focus of the Keynesian model, I presume) and may therefore change the speculative motive of the demand for money as well.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Changes in the level of inflation: higher inflation may require a higher demand for money.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Changes in the interest rates: results in movements along the liquidity preference curve. The effect is typically stronger on the speculative motive for demanding money.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Changes in overall outlook in the economy: a negative outlook may depress speculative spending which may increase the demand for money.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I believe these are the main reasons, and would like a verification as to whether what I've written is accurate.&lt;/p&gt;&#xA;" OwnerUserId="6782" LastActivityDate="2017-05-24T07:23:52.927" Title="Effects of variables on the demand for money?" Tags="&lt;money&gt;&lt;liquidity&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16866" PostTypeId="1" AcceptedAnswerId="16869" CreationDate="2017-05-22T13:15:45.180" Score="1" ViewCount="40" Body="&lt;p&gt;In &lt;em&gt;When it all began&lt;/em&gt; by &lt;a href=&quot;http://www.sciencedirect.com/science/journal/02649993/6/2&quot; rel=&quot;nofollow noreferrer&quot;&gt;Dhaene and Barten (1989)&lt;/a&gt;, the authors discuss in detail what they claim was the first ever macroeconometric model, Tinbergen's 1936 model of the Netherlands economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some of their summaries of Tinbergen's variables are a bit vague though.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What, for example, is $E$, described as &lt;em&gt;&quot;All other income, when paid out&quot;&lt;/em&gt;?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/uRrSd.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/uRrSd.png&quot; alt=&quot;All other income, when paid out&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="7660" LastActivityDate="2017-05-24T07:16:10.943" Title="What is Tinbergen's &quot;all other income when paid out&quot; measuring?" Tags="&lt;macroeconomics&gt;&lt;econometrics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16868" PostTypeId="2" ParentId="13366" CreationDate="2017-05-22T13:44:53.430" Score="1" Body="&lt;p&gt;The Fed normally only change rates during their regular monetary policy meetings, of which there are 8 per year (roughly six weeks between meetings). Therefore, they cannot change rates every month.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The amount 1/4% comes from interest rate quote conventions; historically they also used 1/8% (12.5 basis points). If they were to go to smaller increments, it would probably be 1/16%.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first reason why they do not announce finer increments is that the Fed Funds rate that they target is a market interbank rate; they do not have complete control over it. The Fed publishes the &quot;effective fed funds rate&quot; in the H.15 report, which is their estimate of where the market is trading; it does not exactly match the target. Therefore, they cannot credibly deliver such small incremental changes to the overnight rate that matters.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The second reason is that such a small increment would probably make the Fed look silly. How do they have enough confidence in their ability to fine tune the economy so that moving the policy rate by 1/16% is now the right level?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Realistically, the current level of interest rates does not matter, so much as they expected path. At 25 bps per meeting, the total change over one year is 2%. That should be enough to match changes in economic conditions. An increment smaller than 1/8% would not be enough to keep up with conditions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for the current situation, it is unusual. Interest rates are very close to 0%, and it is difficult for them to go negative (the &quot;zero lower bound&quot;). Everyone knows that interest rates can only go one way (assuming no negative rates), so it is just a question of timing. This creates a different mood for interest rate watchers than when interest rates can go either way. Fed Reserve officials have been cautious about raising rates, since they have no leeway to cut rates if the economy rolls over. For this reason, they would not have considered any rate hikes until they were certain that rates needed to be well above 0%. (Even when the rate hikes occurred, they have been quite tentative.) Furthermore, if you want by news stories, &quot;everyone&quot; knew that the policy rate was &quot;unsustainably low&quot; every year after 2010. In other words, we need to be careful about what &quot;everyone&quot; knows.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2017-05-22T13:44:53.430" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16869" PostTypeId="2" ParentId="16866" CreationDate="2017-05-22T13:54:54.880" Score="2" Body="&lt;p&gt;Very obscure indeed. If you see his paper in &lt;a href=&quot;https://repub.eur.nl/pub/15944/&quot; rel=&quot;nofollow noreferrer&quot;&gt;English&lt;/a&gt; (published in 1959), you can see the following (page 43):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/HvfaZ.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/HvfaZ.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By checking other variables, you can confirm that the variable letters are equivalent in this and your reference. Then, $E$ stands for &quot;&lt;em&gt;all non-wage income, taken at the moment received, instead of take when earned&lt;/em&gt;&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is a standard differentiation between the time an income has been &lt;a href=&quot;http://www.investopedia.com/terms/a/accruedincome.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;accrued&lt;/a&gt; ($Z$) and when it has actually been received ($E$). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can see more about these definitions later on in the document. In page 49, you find an explanation on how these are calculated (19 is $Z$, 20 is $E$; see table in page 47-48):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/fSsN0.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/fSsN0.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems the author is assuming that income is received one further year &lt;em&gt;after&lt;/em&gt; is is accrued. However, the text seem to me rather obscure. He mentions a &quot;pamphlet regarding this working method which will be published later.&quot; (p.42). You might want to trace that one down.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-05-22T14:00:30.857" LastActivityDate="2017-05-22T14:00:30.857" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16870" PostTypeId="2" ParentId="16851" CreationDate="2017-05-22T15:53:35.480" Score="2" Body="&lt;p&gt;Pretty much by definition, &quot;necessary&quot; jobs have to be filled. Wages would have to be bid up so that the positions get filled. This implies some form of relative price shock, or inflation. If robots can do those taks, great, but the plausibility of that outcome is left as an exercise to the reader.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Universal Basic Income can be viewed as a rebranding of the Negative Income Tax idea that was floating around during the Nixon administration. (Milton Friedman was a supporter.) Studies were done at the time, and the problem with the scheme is the effect on income taxes. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My comments here are my interpretation of some of that analysis. One example is the article &quot;The macroeconomics of a negative income tax&quot; by Hyman Minsky (1969), which was republished in &quot;Ending Poverty: Jobs, Not Welfare&quot; (Minsky). Although Minsky is viewed as a heterodox economist, I believe this particular analysis ends up being similar to the consensus view at the time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In order to hand everyone a non-negligible amount of cash each month, roughly the same amount of taxes will have to be raised. (One could debate about the exact amount of taxes required, but it would presumably be a significant proportion of the transfers, as it would be safe to assume that most of the transfers would be spent. Otherwise, there would be a major inflationary impact from the program.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Unless the ultra-rich are willing to pay a lot more taxes, marginal tax rates would have to be high, starting at low levels of income. This creates a massive incentive to drop out of the formal economy, creating a death spiral for the tax system (or equivalently, an out-of-control inflation).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, the real issue is not the effect of artisanal markets, but rather the global interaction between all low-paying jobs and the tax system. For example, if the marginal tax rate for a minimum wage job is close to 50%, why take that job instead of just engaging in barter or under-the-table jobs, and using the UBI money to cover cash expenses?&lt;/p&gt;&#xA;" OwnerUserId="12891" LastEditorUserId="12891" LastEditDate="2017-05-22T16:14:29.030" LastActivityDate="2017-05-22T16:14:29.030" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16871" PostTypeId="2" ParentId="10341" CreationDate="2017-05-22T16:47:03.497" Score="1" Body="&lt;p&gt;If you want to focus on the real world, we need to realise that the savings equal investment (S=I) is an accounting identity. That is, it always holds, no matter what. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Importantly, it holds on any time frame, which means that every single transaction will obey it. (You would need to imagine an extremely short-term national accounts that reflects just one transaction.) Therefore, there is no conceivable set of transactions that break the accounting identity, assuming that the accounting is done correctly.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The supply/demand relationships in the real world are trickier. Production of goods could exceed &quot;demand&quot;, as the excess ends up in inventories. However, we could pretend that the increase in inventories was planned, and so once again production equals demand. The money supply/demand relationship just tells us that the private sector allocates between &quot;money&quot; and &quot;bonds&quot;, but that appears to be another accounting identity. (I am unsure about that statement, and it may take a few steps to get to that point. Since all financial instruments end up being held by some entity, presumably supply and demand have to match.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words, accounting identies always hold, and that is independent of what any particular model says. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we return the model, &quot;equilibrium&quot; is an assumption/solution technique to find a solution to the systems of equations. That is, within the IS/LM model, the market balance conditions determine the solution. If we change the model, we might get difference conditions to determine the solution.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since a mathematical model is not the same thing as the real world, we should not say that real world behaviour is directly related to the mathematics. That is, it is unclear if it makes sense to ask whether the real world reaches &quot;equilibrium&quot;, without defining what real-world phenemona define &quot;equilibrium.&quot; Instead, the test is whether the mathematical model (whose solution is defined by &quot;equilibrium&quot;) offers useful insight to real world behaviour. &lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2017-05-22T16:47:03.497" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16874" PostTypeId="1" AcceptedAnswerId="16875" CreationDate="2017-05-23T03:48:00.807" Score="1" ViewCount="74" Body="&lt;p&gt;Is there a free lunch or something beneficial but with zero price? Is air in an unpolluted area free lunch? If so, the sentence &quot;there is always a tradeoff between benefit and cost&quot; is not in general true. Is this correct?&lt;/p&gt;&#xA;" OwnerUserId="10298" LastActivityDate="2018-08-23T18:10:00.647" Title="The existence of free lunch" Tags="&lt;price&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16875" PostTypeId="2" ParentId="16874" CreationDate="2017-05-23T08:27:23.763" Score="3" Body="&lt;p&gt;The concept of a free lunch is a philosophical/political phrase (not an axiom or law in economics). &lt;a href=&quot;https://en.wikipedia.org/wiki/There_ain%27t_no_such_thing_as_a_free_lunch&quot; rel=&quot;nofollow noreferrer&quot;&gt;It was popularized by Nobel Prize winning economist Milton Friendman&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The concept depends too largely on how you define &lt;em&gt;free&lt;/em&gt; to make a general statement about the concept. For example, while Oxygen is readily available for your consumption from the atmosphere at a &lt;em&gt;cost&lt;/em&gt; of zero, Friedman argued there was always an opportunity cost involved (you could be breathing ultra-pure oxygen from an oxygen tank to avoid pollutants in the atmosphere that will give you cancer) so technically there is a cost.&lt;/p&gt;&#xA;" OwnerUserId="13347" LastEditorUserId="10298" LastEditDate="2018-08-23T18:10:00.647" LastActivityDate="2018-08-23T18:10:00.647" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="16887" PostTypeId="1" AcceptedAnswerId="16897" CreationDate="2017-05-24T12:24:02.020" Score="1" ViewCount="364" Body="&lt;p&gt;I am a bit unsure about how the &quot;trend growth rate&quot; is &lt;strong&gt;&lt;em&gt;defined&lt;/em&gt;&lt;/strong&gt; in macroeconomics. Is it to correct to say that if a time series $\{y_t\}$ may be decomposed as $$y_t=d_t+c_t,$$ where $d_t$ is a deterministic trend and $c_t$ a cyclical component, then $$(d_{t+1}-d_t)/d_t$$ is the &quot;trend growth rate&quot;, i.e. the growth rate in $y_t$ assuming $c_t=0$? And if it can be decomposed as $$\log(y_t)=d'_t+c'_t,$$ with another trend and cyclical component, then $$[\exp(d'_{t+1})-\exp(d'_t)]/\exp(d'_t)$$ is the &quot;trend growth rate&quot;, i.e. the growth rate in $y_t$ assuming $c'_t=0$?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sometimes I feel that the definition is $(d_{t+1}-d_t)/d_t$ and $(d'_{t+1}-d'_t)/d'_t$ in the two cases, referring to the growth rate in the trend component and not to the growth rate in the dependent variable $y_t$ ignoring the cyclical component (i.e., setting $c_t=0$ for all $t$). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;That is, I interpret &quot;trend growth rate&quot; as the growth rate in $y_t$ ignoring the cyclical component. Is that a correct interpretation?&lt;/p&gt;&#xA;" OwnerUserId="7582" LastEditorUserId="7582" LastEditDate="2017-05-25T15:01:32.413" LastActivityDate="2017-05-25T19:33:48.650" Title="Definition: What Is The &quot;Trend Growth Rate&quot;?" Tags="&lt;macroeconomics&gt;&lt;definition&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16888" PostTypeId="1" AcceptedAnswerId="16903" CreationDate="2017-05-24T12:49:24.277" Score="2" ViewCount="71" Body="&lt;p&gt;I follow some Japanese based websites, and I've read that &quot;Japan population is going to reduce by half in 50 years&quot;. The estimates in &lt;a href=&quot;https://www.washingtonpost.com/news/worldviews/wp/2016/02/26/its-official-japans-population-is-drastically-shrinking/?utm_term=.881079eb9a9e&quot; rel=&quot;nofollow noreferrer&quot;&gt;this article&lt;/a&gt; are more optimistic, according to the graph it seems to estimate around 30 millions lose in population in the same period of time. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, I looked into &lt;a href=&quot;https://en.wikipedia.org/wiki/List_of_countries_by_population_growth_rate.&quot; rel=&quot;nofollow noreferrer&quot;&gt;this chart&lt;/a&gt; in Wikipedia about countries population growths. Some European countries like Spain and Portugal seems to have much worse population growth than Japan. Japan -0.12 , Spain -0.21 , Portugal -0.45 . Then I read &lt;a href=&quot;http://www.ine.es/en/prensa/np870_en.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;this article&lt;/a&gt;, and they say Spain will lose 5.6 millions inhabitants in the following 50 years. This is proportionally a much lower figure than Japan, in spite of it is stated by that Wikipedia article Spain decreased much more than Japan in the period of 2010-2015 . I suppose many factors are taken into account for calculating population growth aside births and deaths such as immigration, emigration, etc. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are there mathematical equations to calculate population growth? How are they predicted?&lt;/p&gt;&#xA;" OwnerUserId="8165" LastEditorUserId="8481" LastEditDate="2020-05-04T13:03:39.720" LastActivityDate="2020-05-04T13:03:39.720" Title="How is population growth predicted?" Tags="&lt;population-economics&gt;&lt;demographics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="16889" PostTypeId="1" AcceptedAnswerId="16901" CreationDate="2017-05-24T13:58:42.087" Score="1" ViewCount="3466" Body="&lt;p&gt;I think there's consensus among economists that a growth in money supply (I'm not thinking in any particular type of money supply) causes inflation (CPI), at least, in the long run.&#xA;What I'm interested in is the exact mechanism for that phenomenon. How &quot;printing more bills&quot; makes the price of, say, milk in the local supermarket raise? How does the people who set prices know that there's more money in circulation than before so it's time for a raise?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you in advance.&lt;/p&gt;&#xA;" OwnerUserId="11662" LastActivityDate="2017-05-24T23:19:31.297" Title="How exactly does money supply causes inflation?" Tags="&lt;inflation&gt;&lt;money-supply&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16891" PostTypeId="1" AcceptedAnswerId="16956" CreationDate="2017-05-24T15:43:43.170" Score="3" ViewCount="69" Body="&lt;p&gt;Let's suppose we have linear regression with dependent variable $ln(y)$. How would one find a prediction interval for  $E(y|X_0)$ ?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we have $PI(E(ln(y)|X_0))$, is there a way to reach $PI(E(y|X_0))$?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="118" LastActivityDate="2017-05-28T09:27:14.977" Title="Prediction Interval for $E(y|X_0)$ when model is in $ln(y)$" Tags="&lt;econometrics&gt;&lt;prediction&gt;" AnswerCount="2" CommentCount="5" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16893" PostTypeId="2" ParentId="16859" CreationDate="2017-05-24T16:38:56.830" Score="0" Body="&lt;p&gt;The deadweight loss of a monopoly is depends on the game changing competition demands, not the monopoly itself.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The essence of the monopoly is always about its &lt;strong&gt;rent seeking&lt;/strong&gt; nature to maximise it profit than investment on cost. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Without a carrot and stick model, subsidy always increase deadweight loss:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Subsidies used for dumping to further corner the market&lt;/li&gt;&#xA;&lt;li&gt;Cause monopoly to reject innovation to reduce production cost, since there is no incentive to do it &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;(update)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is impossible to find example of institutional subsidies on monopoly subsidies that increase supply WITHOUT policy intervention.&lt;br&gt;&#xA;The argument of subsidies increase supplies is mostly bias argument. In fact, subsidies just increase the demands, make the good/services looks cheaper, which in fact has nothing to do with product efficiency. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;e.g. Many countries subsidies on utilities does not make production of electricity, water and gas more efficient.&lt;/p&gt;&#xA;" OwnerUserId="11177" LastEditorUserId="11177" LastEditDate="2017-05-26T08:52:55.107" LastActivityDate="2017-05-26T08:52:55.107" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="16894" PostTypeId="2" ParentId="16891" CreationDate="2017-05-24T17:52:14.683" Score="1" Body="&lt;p&gt;Due to Jensen's inequality, we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$E(\ln y) \leq \ln E(y) \implies \exp\{E(\ln y)\} \leq E(y)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So if one uses $\exp\{E(\ln y)\}$ to construct a confidence interval for $E(y)$, it will be shifted to the left, and it will be of smaller length than it should.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Applying a 2nd-order Taylor expansion of $E(\ln y)$ around $E(y)$ we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$E(\ln y) \approx E\left[ \ln E(y) + \frac{y-E(y)}{E(y)}-\frac 12 \frac {[y-E(y)]^2}{[E(y)]^2}\right]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies E(\ln y) \approx \ln E(y) -\frac 12 \frac {\sigma_y^2}{\mu_y^2} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies \ln E(y) \approx E(\ln y) +\frac 12 \frac {\sigma_y^2}{\mu_y^2} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;the correction being one half the squared &lt;a href=&quot;https://en.wikipedia.org/wiki/Coefficient_of_variation&quot; rel=&quot;nofollow noreferrer&quot;&gt;coefficient of variation&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One can then estimate the correction term by obtaining say Method of Moments  estimators (sample moments) for the variance and the mean of $y$.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2017-05-24T18:06:21.893" LastActivityDate="2017-05-24T18:06:21.893" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="16895" PostTypeId="1" CreationDate="2017-05-24T17:53:47.690" Score="0" ViewCount="703" Body="&lt;p&gt;I have one year sales data of a retail company and lets say I am forecasting the next month sales for the product. I have got the sales using time series in R. Now I want to forecast the price as well. I want to build a model using both the demand and price. My function should be &lt;strong&gt;f(D&lt;em&gt;P)&lt;/strong&gt; where D is demand and P is price. I want to maximize Revenue or Profit where &lt;strong&gt;Revenue=D&lt;/em&gt;P&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As of now, I forecasted sales and did a linear programming on Price itself to get optimal price of a single product. I want my model to be robust but this is chicken - egg theory where demand forecast is dependent on the price and price is dependent on demand. Please help by sharing some theories which would better fit for this or some R models.&lt;/p&gt;&#xA;" OwnerUserId="13360" LastEditorUserId="2776" LastEditDate="2017-05-24T19:18:59.760" LastActivityDate="2021-02-22T03:06:20.643" Title="Price optimization with demand forecast" Tags="&lt;elasticity&gt;&lt;optimization&gt;&lt;price&gt;&lt;dynamic-optimization&gt;&lt;r&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="16896" PostTypeId="1" CreationDate="2017-05-24T19:11:05.523" Score="1" ViewCount="49" Body="&lt;p&gt;I am doing a literature search and wondering if anyone has any good references on something related to the following topic: a one shot public goods game with asymmetric costs and benefits. We can assume a general utility form for all players which is public information, but each player's parameters for the utility function are unique and private information. Furthermore, if the overall contribution does not meet the target, a punishment is shared by all players, not just the players who did not participate.&lt;/p&gt;&#xA;" OwnerUserId="13365" LastEditorUserId="2776" LastEditDate="2017-05-24T19:18:18.407" LastActivityDate="2017-05-24T19:18:18.407" Title="Asymmetric Public Goods Game Reference request" Tags="&lt;reference-request&gt;&lt;public-goods&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16897" PostTypeId="2" ParentId="16887" CreationDate="2017-05-24T19:42:56.633" Score="2" Body="&lt;p&gt;Any time series can be decomposed in four terms:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;trend: the underlying change in the variable if no other factor is present. In the simplest case, think of an upward slopping line. The growth rate of this trend is it's slope. &lt;/li&gt;&#xA;&lt;li&gt;cycle: the cyclical component of the series, defined by ups and downs like a wave, with a certain &quot;frequency&quot; and &quot;amplitude&quot;. Think of this like a wave.&lt;/li&gt;&#xA;&lt;li&gt;seasonal component: usually a within year cycle. The standard textbook example is that of ice cream sales, which pick up in summer. This is different from the longer cycle described above, and perhaps less smooth (e.g. as ice cream sales are low 3/4 of the year)&lt;/li&gt;&#xA;&lt;li&gt;noise: natural randomness due to measurement errors or other unobserved yet minor factors, including shocks (e.g. a very hot weather in a week, increasing ice cream sales)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;For a series $y_t$, this is something like&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ y_t = d_t + c_t + s_t + e_t $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Importantly, all the variables are defined in the same units &lt;strong&gt;by construction&lt;/strong&gt;. E.g. if this is GDP, they are all in value added units (real, nominal, whatever). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A general case of a decomposition is (assume just trend and cycle):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ f(y_t) = d^{'}_{t} + c^{'}_{t} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this case, the trend growth of &lt;strong&gt;$f(y_t)$&lt;/strong&gt; is the growth rate of $d^{'}_t$. But this is &lt;strong&gt;not&lt;/strong&gt; the same as the trend growth rate of $y_t$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider an example. Let us &lt;strong&gt;construct&lt;/strong&gt; a series $y_t$, where $d_t=d_0(1+g)^t$ and $c_t=sin(t)$, and $y_t=d_t+c_t$. This is a trend-cycle decomposition where the growth rate of the trend is $g$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{d_{t+1}-d_t}{d_t} = \frac{d_0(1+g)^{t+1}-d_0(1+g)^t}{d_0(1+g)^t} = \cdots = g $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, transform the process into log, and let us postulate a new decomposition:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \log y_t = D_t + C_t $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $D_t = D_0(1+G)^t$, and $C_t$ is an unknown function. This is by definition correct, but $C_t$ might be an irregular, perhaps not algebraically defined function (like $sin(t)$). In this new case, it is correct, by definition, that the trend growth rate &lt;strong&gt;of the log of $y_t$&lt;/strong&gt; is $G$, computed with the standard formula. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The central question is: can we find a general method to calculate the trend growth rate &lt;strong&gt;of $y_t$&lt;/strong&gt; ($g$) using &lt;strong&gt;only&lt;/strong&gt; some transformation of $D_t$? (as in your attempt using the exponential). In other words, can we use &lt;strong&gt;only&lt;/strong&gt; $D_0(1+G)^t$ to obtain $g$?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Here I highlight the point of why would you ever go down this route, if you can decompose $y_t$ in levels and solve your problem immediately; but anyway, let us continue).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The answer seems to be negative. It is trivial to see that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ e^{D_0(1+G)t} e^{C_t} = d_0(1+g)^t + sin(t) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where you cannot find a direct function between $G$ and $g$ which does not involve the use of $C_t$ and $sin(t)$. In other words, you need to use the information of &lt;strong&gt;both&lt;/strong&gt; decompositions to solve the problem. But this is circular. To make the link between logs and levels, you need to make the decomposition in levels. But if you do the latter, the answer is there already. No need to go further.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, consider the very special case where the series $y_t$ only has a constant growth rate (trend):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ y_t = d_t = d_0(1+g)^t $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \log y_t = D_t = D_0(1+G)^t = \log \left(d_0(1+g)^t\right) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The following formula recovers the original growth rate of $y_t$ in terms of the trend from the series in log:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \dfrac{e^{D_{t+1}} - e^{D_t}}{e^{D_t}} = \frac{d_{t+1} - d_t}{d_t} = \cdots = g $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The result can be generalised to any $f(y_t)$, where the transformation of the growth rate calculation has to be $f^{-1}(\cdot)$.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-05-25T19:33:48.650" LastActivityDate="2017-05-25T19:33:48.650" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="16898" PostTypeId="1" CreationDate="2017-05-24T20:37:25.103" Score="1" ViewCount="257" Body="&lt;p&gt;I'm currently preparing for a first year microeconomics comprehensive exam and have been looking for good resources for a while. Ideally, I was looking for any school site that has a list of (and links to) their old micro comps with solutions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We cover what I'd imagine is a pretty standard course- a half semester each on partial equilibrium, general equilibrium, social choice and game theory; though all that's needed is any overlap between those and whatever the other school's comp covers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Again, sorry if this isn't the right place, but if anyone has any sources off-hand, I'd very much appreciate it!&lt;/p&gt;&#xA;" OwnerUserId="13366" LastEditorUserId="2776" LastEditDate="2017-05-24T21:20:14.850" LastActivityDate="2017-05-24T21:20:14.850" Title="Any Resources for Micro Comprehensive Exams?" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="16899" PostTypeId="2" ParentId="16898" CreationDate="2017-05-24T21:16:07.907" Score="1" Body="&lt;p&gt;I know Harvard posts its past comprehensive exams: &lt;a href=&quot;https://economics.harvard.edu/pages/past-general-exams&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://economics.harvard.edu/pages/past-general-exams&lt;/a&gt;. I imagine many other schools would have such resources available to the public as well. You'd just have to do a little bit of Googling to find out. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, I doubt that any of these past exam questions would have solutions available (and they should not be). You should try the questions on your own. If you're stuck, discuss the issues with your classmates/friends/professors. You're also welcome to ask questions here, but be sure to following our &lt;a href=&quot;https://economics.meta.stackexchange.com/questions/1465/economics-se-policy-on-homework-questions&quot;&gt;policy on homework questions&lt;/a&gt; and the &lt;a href=&quot;https://economics.stackexchange.com/help/on-topic&quot;&gt;general guidelines of this site&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2017-05-24T21:16:07.907" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16900" PostTypeId="2" ParentId="16889" CreationDate="2017-05-24T23:14:08.670" Score="1" Body="&lt;p&gt;When there is more money in circulation, people are going to go out and spend more because they feel &quot;richer&quot; so demand for goods across the board goes up. With the increase in demand, supply side sees that (say milk) is flying off the shelf and they aren't keeping up their stock like they used to, so supply side needs to catch up so they increase prices to stabilize demand with supply. So now you have prices higher with supply and demand in equilibrium once again. &lt;/p&gt;&#xA;" OwnerUserId="13369" LastActivityDate="2017-05-24T23:14:08.670" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16901" PostTypeId="2" ParentId="16889" CreationDate="2017-05-24T23:19:31.297" Score="2" Body="&lt;p&gt;The view that money growth causes inflation may have been a consensus view during the (old) Monetarist era, but it is unclear whether that still holds. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(One somewhat related question here discusses whether inflation can occur without money supply growth - &lt;a href=&quot;https://economics.stackexchange.com/questions/9767/inflation-without-increase-in-money-supply&quot;&gt;link&lt;/a&gt;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As seen in the data around Quantitative Easing, we certainly see deviations between money supply growth and inflation &quot;in the short term.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the &quot;long run&quot; (which is what you asked about), it is unclear what causes what. Other than in Monetarist models (which are arguably no longer consensus), the money supply is determined by a portfolio allocation by the household sector. That is, people hold money instead of interest-bearing bonds for whatever reasons. What policymakers control is the policy rate of interest. Therefore, money growth is an outcome of the policy environment, like the inflation rate. In other words, faster nominal GDP growth (and hence inflation) tends to cause faster money supply growth.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, if we want to assume that policy makers are controlling the money supply, and that money growth indeed causes inflation, modern theories would probably lean on the following two mechanisms.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Money does not just appear; it is a government liability, and the growth of government liabilities implies fiscal deficits. That is, loose fiscal policy raises demand, and causes inflation.&lt;/li&gt;&#xA;&lt;li&gt;Expectations. If people are convinced that money supply growth causes inflation, they will watch the published money supply numbers. (In the United States, money numbers are published weekly, and were followed closely during the early 1980s. Currently, I doubt that 10% of bond traders under the age of 30 know what day of the week money numbers are published on.) They will raise prices based on what they think the money supply is doing now, and what they forecast it will be doing. I am not expert on Market Monetarism (the modern offshoot of &quot;old Monetarism&quot;) but I believe that they emphasise this effect; although they might phrase things differently.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2017-05-24T23:19:31.297" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16902" PostTypeId="2" ParentId="16836" CreationDate="2017-05-24T23:42:26.957" Score="1" Body="&lt;p&gt;The operating procedures for the Federal Reserve have changed drastically over the years. For example, interest rates were pegged during the early post-war era. Later on, the Volcker Fed attempted to target money supply growth, and &quot;Fed Watchers&quot; scoured the money data. (I do not have any references for this earlier history.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Once money supply targeting was abandoned, operating procedures were roughly similar to the situation after 1994. The Dallas Fed has &lt;a href=&quot;https://www.dallasfed.org/research/eclett/2013/el1308.cfm&quot; rel=&quot;nofollow noreferrer&quot;&gt;discussions&lt;/a&gt; of Fed Communications (written by Mark A. wynne) that has a brief summary of this period.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;During that era, reserves paid no interest. The Fed did open market operationa to add/subtract reserves to match the demand for required reserves; the Fed Funds rate is the &quot;price&quot; banks were willing to pay to borrow reserves. If they supplied too much reserves, the Fed Funds reserves would drop towards 0%; supply too little, and banks would pay a lot to meet reserve requirements. The open market desk attempted to estimate the demand for reserves, and calibrate the size of the operations based on the market fed funds rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From the other side, banks could see the operations undertaken by the open market desk. They tried to reverse engineer the Fed's reserve supply function, so that they could tell what the target was (and of course, they could observe the market rate on Fed Funds).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a result, banks roughly could tell what the target was. They would then adjust the prime rate on loans. I believe that &quot;the public&quot; would find out as a result of banks announcing changes to their prime rates, although presumably investors with a particular interest in interest rates would be watching what was happening in the money markets (which would adjust more rapidly).&lt;/p&gt;&#xA;" OwnerUserId="12891" LastEditorUserId="2776" LastEditDate="2017-08-23T07:19:02.693" LastActivityDate="2017-08-23T07:19:02.693" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16903" PostTypeId="2" ParentId="16888" CreationDate="2017-05-25T00:10:25.563" Score="1" Body="&lt;p&gt;It's possible that the stories about drastic drops in Japan refer to working-age population, not the population itself. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is a &lt;a href=&quot;https://www.census.gov/population/www/documentation/twps0038/twps0038.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;link to the U.S. Census methodology.&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have only casually looked at these data over the years, but I would summarise the general idea as follows.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;We already have the current population distribution. We work with the data based on the number of people in each age cohort.&lt;/li&gt;&#xA;&lt;li&gt;We have estimates of life expectancy based on age, and actuaries spend a lot of time working on developing projections. (The defined benefit pension and life insurance industry depend upon such actuarial projections.)&lt;/li&gt;&#xA;&lt;li&gt;We usually have a good idea of the birth rate, based on the characteristics of under-30 population. Even if we miss, it takes a long time for the errors to really add up. (People have to reach puberty before the prediction error compounds.)&lt;/li&gt;&#xA;&lt;li&gt;This covers the existing population; what remains to do is estimate the effect of net migration.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;For the developed countries, the big unknown is typically net immigration. In the euro area, the collapse of economies has often caused a considerable amount of emigration.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Outside of net immigration, the only thing that could cause the projections to off is a massive change in the death rate (or birth mortality). Birth rates tend to be slow-moving; the baby boom after World War II was a response to highly unusual earlier conditions (Great Depression, WWII). Life expectancy is another wild card, but it is unclear how much it will change. &lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2017-05-25T00:10:25.563" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16904" PostTypeId="1" CreationDate="2017-05-25T03:14:57.320" Score="1" ViewCount="659" Body="&lt;p&gt;I may sound stupid to ask this question but pardon me for that. What's the different between Outflow of capital and Flight of capital? I googled about both terms but couldn't find how they differ from each other.&lt;/p&gt;&#xA;&lt;p&gt;Edit : Let me quote the definitions from investopedia.&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;&lt;strong&gt;Capital outflow&lt;/strong&gt; is the movement of assets out of a country. Capital outflow is considered undesirable and results from political or economic instability.&lt;/p&gt;&#xA;&lt;p&gt;&lt;strong&gt;Capital Flight&lt;/strong&gt; is a large-scale exodus of financial assets and capital from a nation due to events such as political or economic instability, currency devaluation or the imposition of capital controls.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;From these two definitions what I can conclude is that Capital flight is a &lt;strong&gt;large scale&lt;/strong&gt;  &lt;em&gt;capital outflow&lt;/em&gt; means these two are same things, the difference is just of the scale.Am I correct or is there any other difference ?&lt;/p&gt;&#xA;" OwnerUserId="13370" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2018-12-06T19:15:24.943" Title="Difference between Outflow of capital and Flight of capital" Tags="&lt;capital&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="16906" PostTypeId="2" ParentId="3382" CreationDate="2017-05-25T09:22:30.413" Score="1" Body="&lt;p&gt;I want to take Alecos' answer, which seems to be more explicit about the issue at hand, and provide a formalisation, which to me provides a better picture of why neoclassical models do not usually allow for accounting profits.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Imagine an economy, where a government had issue a bond which pays interest rate of $r$ &lt;strong&gt;per period&lt;/strong&gt;. There is no inflation, so all is in real terms. There is a capitalist with a pool of capital of \$100. There is also a technology $F(\cdot)$ which is capable to transform labour power and capital services into final goods. Say that workers reservation wage is $w$ &lt;strong&gt;per period&lt;/strong&gt;, exogenous. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Say the capitalist creates a for-profit firm with his capital. This capital (equity, E) is used to buy an equivalent worth of capital machines (K), which for simplicity are assumed to already exist (no need to be produced). In other words, the firm now &lt;strong&gt;owns&lt;/strong&gt; the machines. The balance sheet of the firm is:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;+----------+-------------+&#xA;|  Assets  | Liabilities |&#xA;+----------+-------------+&#xA;| K: 100   | E: 100      |&#xA;+----------+-------------+&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Now, the firm hires workers, to which it pays $w$, and uses its technology $F(\cdot)$ to produce $Y$ goods &lt;strong&gt;within one period&lt;/strong&gt;. These are sold at a unit price $p$. Therefore, &lt;strong&gt;from an accounting point of view&lt;/strong&gt;, the firm's profits &lt;strong&gt;at the end of the period&lt;/strong&gt; are:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \pi_c = pY - wL $$  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, it follows that the rate of return on equity (RoE, or $R$) is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ R \equiv \frac{\pi_c}{K} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Additionally, since the opportunity cost &lt;strong&gt;during the period of production&lt;/strong&gt; of the capitalist was $rE=rK$, &lt;strong&gt;economic profits&lt;/strong&gt; of the firm are:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \pi_e = pY - wL - rK = \pi_c - rK $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Replacing the RoE in the above yields:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \pi_e = RK - rK $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, the firms make positive &lt;strong&gt;economic&lt;/strong&gt; profits whenever the rate of return on equity is higher than the opportunity cost rate (the govt. bond yield).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is expected that in competitive markets/long run, the price of the good will be adjusted so that the RoE equals $r$, where there are no &lt;strong&gt;economic&lt;/strong&gt; profits ($\pi_e=0$). With this conditions, any capitalist is therefore indifferent between buying the government bond and setting up a firm.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-05-25T10:45:33.260" LastActivityDate="2017-05-25T10:45:33.260" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16908" PostTypeId="1" CreationDate="2017-05-25T15:12:53.003" Score="2" ViewCount="1653" Body="&lt;p&gt;In game theories such as Nash Equilibrium, exactly how are each of the players' payoff values for each of their potential strategies created?  In the common 2x2 matrices I've seen in academic papers, the various payoff values seem to just &quot;appear&quot; in the matrices without an explanation of how they were derived / calculated / estimated, whether or not those values have (or need) a confidence level associated with them, etc.  Is it possible, for example to have a range of payoff values rather than a single number for a given player/strategy choice?&lt;/p&gt;&#xA;" OwnerUserId="13376" LastActivityDate="2017-05-26T20:48:55.360" Title="How are payoff values in game theories calculated / estimated?" Tags="&lt;game-theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16910" PostTypeId="1" AcceptedAnswerId="16911" CreationDate="2017-05-25T17:34:39.343" Score="2" ViewCount="297" Body="&lt;p&gt;I was talking to a colleague a few days ago and the following question came up:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why can't we just use projection matrices and the FWL Theorem to &quot;gain&quot; a few degrees of freedom in case of very few observations?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Imagine a case where you want to estimate&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$y_t = \beta_0 + z\beta_1 + x_2\beta_2 + x_3\beta_3 + u_t$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;but unfortunately, you just have 5 observations (extreme example). Luckily, you are just interested in $\beta_1$. Now you could just create some projection matrices in the form &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ M_x = I - x'(x'x)^{-1}x'$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and project off your &quot;unwanted&quot; $x_2$ and $x_3$ (following Davidson and MacKinnon). You would be left with the regression&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$M_x y = M_x  z  \beta_1 + residuals$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $\beta_1$ is numerically the same as in the regression above. But now you are able to estimate just one (beta-)parameter with 5 observations compared to three parameters before. So, obviously, the estimates improve, don't they?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where is our mistake?&lt;/p&gt;&#xA;" OwnerUserId="10974" LastEditorUserId="118" LastEditDate="2017-05-25T18:42:32.180" LastActivityDate="2017-05-25T19:14:28.260" Title="OLS, Frisch-Waugh-Lovell Theorem and few observations" Tags="&lt;econometrics&gt;" AnswerCount="1" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="16911" PostTypeId="2" ParentId="16910" CreationDate="2017-05-25T19:14:28.260" Score="0" Body="&lt;p&gt;We know that $M_X\mathbf{u}= \mathbf{\hat u}$, where $\mathbf{y}=\mathbf{x\beta}+\mathbf{u}$. So even if the error terms are independent, the residuals will not be independent of the other residuals. This is makes the usual assumption of no autocorrelation invalid. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course, if we use a HAC estimator then we can circumvent the existence of autocorrelation. However, the HAC estimators that I know of are just of asymptotic behaviour. So, it wouldn't be useful for a small sample size.&lt;/p&gt;&#xA;" OwnerUserId="118" LastActivityDate="2017-05-25T19:14:28.260" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="16912" PostTypeId="1" AcceptedAnswerId="16920" CreationDate="2017-05-25T20:25:51.293" Score="2" ViewCount="852" Body="&lt;p&gt;So when the government prints more money, then it is said the people will have more money in general and as a result the prices of goods and services will also increase. So in the end, we will end up buying the same amount of goods, but by paying more. So its the concept that the more the things is available the less value it has. &#xA;I do not understand how this works in real life. &#xA;When the government prints more money, how does this extra money end up in the hands of the people, they still are being paid the same amount of salary annually by their employers. The income of people is fixed. &#xA;Secondly, why does the price of the goods increase? If rice is worth 1$ per kilo, then just because people are richer why does the cost of rice increase ?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have recently started studying economics.&lt;/p&gt;&#xA;" OwnerUserId="13380" LastEditorUserId="13380" LastEditDate="2017-05-26T19:12:11.637" LastActivityDate="2017-05-26T19:12:11.637" Title="How does inflation work in real life?" Tags="&lt;macroeconomics&gt;&lt;inflation&gt;" AnswerCount="4" CommentCount="1" FavoriteCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="16913" PostTypeId="1" AcceptedAnswerId="16931" CreationDate="2017-05-25T21:55:14.670" Score="1" ViewCount="150" Body="&lt;p&gt;Many times you hear Economics is a &quot;non zero sum game&quot; &lt;strong&gt;&lt;em&gt;implying&lt;/em&gt;&lt;/strong&gt; that anything that is earnt by one person or group isnt lost by other. This might not be the definition of non zero sum game, but that's how it is used many times. What I believe it happens it's part of what is earnt by a person or group is lost by other and other part isnt. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the other hand, you have &quot;zero sum game&quot;, where everything earnt by someone is lost by other. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there a name for a game where part of what a person or group earns is part of what other person or group loses, and other part of what this first person or group earns isnt part of what other person or group loses? &lt;/p&gt;&#xA;" OwnerUserId="8165" LastActivityDate="2017-05-26T17:17:04.030" Title="What's the name for this type of non zero sum game?" Tags="&lt;game-theory&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="16915" PostTypeId="2" ParentId="16912" CreationDate="2017-05-26T01:20:03.503" Score="0" Body="&lt;p&gt;Very good question. Let me use your rice price as an example. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;At the beginning, rice is worth of 1 dollar/kg when every one in the society holds $10. One kg of rice is worth of 10% of each individual's asset or fortune (1/10=10%)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, the government issues extra $10 to each person in society by printing &quot;free&quot; paper bills. Everyone ends up holding 20 dollars in hand. The 10% worth of rice still holds the same since everyone has the same amount of cash in hand and every one has the same &lt;strong&gt;purchasing power&lt;/strong&gt;. Guess what, now the price of 1kg of rice is 20 dollar * 10% = 2 dollar /kg&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Above is an explanation in &quot;ideal&quot; world. It is true that the &quot;free&quot; printed money do not directly end up in our hands but the amount of currency circulated in the society does increase. Think about this, those with more currency in hand can afford to buy more rice with more money and this just increase the overall demand of rice. From simple micro-economics, higher demand leads to higher price equilibrium, thus, inflated price. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope this helps you understand the concept of inflation. Once again, not all printed money leads to inflation. The growth of society wealth depends, more or less, on inflation. That's why US government's been issuing several rounds of Quantitative Easing (a.k.a printing money) in order to stimulate economy&lt;/p&gt;&#xA;" OwnerUserId="13383" LastEditorUserId="13383" LastEditDate="2017-05-26T03:18:42.897" LastActivityDate="2017-05-26T03:18:42.897" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16916" PostTypeId="1" AcceptedAnswerId="16918" CreationDate="2017-05-26T01:47:27.987" Score="4" ViewCount="472" Body="&lt;p&gt;When reading on Markowitz's portfolio theory, I stumbled across the fact that in a market with two risky assets, if no short selling is not allowed, the variance of a portfolio consisting of the two assets cannot exceed the variances of the risky assets individually. That is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$${\sigma _p}^2 \le \max \{ {\sigma _A}^2,{\sigma _B}^2\} $$&#xA;Where A and B are two different assets.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Could you kindly prove this statement, and possible provide some intuition for why this is the case?&lt;/p&gt;&#xA;" OwnerUserId="12847" LastActivityDate="2017-05-26T15:18:24.187" Title="Prove that variance of a portfolio cannot exceed variance of individual assets" Tags="&lt;mathematical-economics&gt;&lt;finance&gt;&lt;financial-economics&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16917" PostTypeId="2" ParentId="16916" CreationDate="2017-05-26T05:23:28.643" Score="7" Body="&lt;p&gt;Let $P = \alpha A + (1-\alpha) B$ where $A$ and $B$ are returns (random) from the two assets, and $P$ is their portfolio. &#xA;Variance of portfolio $P$ can therefore be written as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{eqnarray*} \sigma^2_P &amp;amp; = &amp;amp; \alpha^2 \sigma^2_A + (1-\alpha)^2 \sigma^2_B + 2\alpha (1-\alpha)\text{Cov}(A, B) \\ &amp;amp; \leq &amp;amp;\alpha^2 \sigma^2_A + (1-\alpha)^2 \sigma^2_B + 2\alpha (1-\alpha)\sigma_A\sigma_B \\ &amp;amp; = &amp;amp;(\alpha\sigma_A + (1-\alpha)\sigma_B)^2 \\ &amp;amp; \leq &amp;amp; (\alpha \max(\sigma_A, \sigma_B) + (1-\alpha)\max(\sigma_A, \sigma_B))^2 \\ &amp;amp; = &amp;amp; \max(\sigma_A^2, \sigma_B^2)\end{eqnarray*}&lt;/p&gt;&#xA;" OwnerUserId="11824" LastActivityDate="2017-05-26T05:23:28.643" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16918" PostTypeId="2" ParentId="16916" CreationDate="2017-05-26T05:51:06.067" Score="5" Body="&lt;p&gt;Let $w$ denote the weight on $A$ so that $1-w$ is the weight on $B$. &#xA;Recall from the properties of variance that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\sigma_p^2 = w^2\sigma_A^2  + 2w(1-w)\sigma_A\sigma_B \rho_{AB}+ (1-w)^2\sigma_B^2$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Without loss of generality, assume $\sigma_A \geq \sigma_B$.  We wish to show that &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$w^2\sigma_A^2  + 2w(1-w)\sigma_A\sigma_B \rho_{AB}+ (1-w)^2\sigma_B^2\leq \sigma_A^2$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\sigma_A^2 = \sigma_A^2 (w + (1-w)) ^2 = \sigma_A^2 w^2 + 2w(1-w)\sigma_A^2 + \sigma_A^2(1-w)^2$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since $\sigma_A \geq \sigma_B$ and $w$, $(1-w)$, and $\sigma_A$ are positive, this means that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\sigma_A^2 \geq \sigma_A^2 w^2 + 2w(1-w)\sigma_A\sigma_B + \sigma_B^2(1-w)^2$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And since the correlation has the property that $-1 \leq \rho_{AB} \leq 1$ and $w$, $(1-w)$, $\sigma_B$ and $\sigma_A$ are all positive, it must be the case that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\sigma_A^2 w^2 + 2w(1-w)\sigma_A\sigma_B + \sigma_B^2(1-w)^2 \geq \sigma_A^2 w^2 + 2w(1-w)\sigma_A\sigma_B\rho_{AB} + \sigma_B^2(1-w)^2$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\sigma_A^2 \geq \sigma_A^2 w^2 + 2w(1-w)\sigma_A\sigma_B\rho_{AB} + \sigma_B^2(1-w)^2$ $\square$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In words, looking at the formula for variance of a convex combination of random variables, the variance is maximized if the correlation between the assets is 1.  In this case, the possible portfolio values as a function of $w$ are a straight line segment between $A$ and $B$, which clearly can't have a variance higher than either.  Now, if the correlation is less than 1, then any combination of the two will be lower than the straight line case.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Intuitively, the returns to assets $A$ and $B$ will partially cancel each other out any time they are not a fixed multiple of each other.  This canceling out behavior reduces the variance of the resulting portfolio.  The worst-case scenario is that the two assets are equal to each other, so the portfolio can never have a higher variance than the component asst with the highest variance.&lt;/p&gt;&#xA;" OwnerUserId="12673" LastEditorUserId="12673" LastEditDate="2017-05-26T15:18:24.187" LastActivityDate="2017-05-26T15:18:24.187" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="16920" PostTypeId="2" ParentId="16912" CreationDate="2017-05-26T06:04:29.590" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;When the government prints more money, then how does this extra money end up in the hands of the people, they still are being paid the same amount of salary annually by their employers. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This is really two questions:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;How does the money get into the economy?&lt;/strong&gt; The US government increases the money supply by having the Fed buy things with dollars that did not previously exist.  Typically they buy financial assets, pushing their price up and putting new money into the hands of the previous owners of those securities (often the US treasury, which means it is injected into the economy in the form of government spending).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;How do individuals get this money if their incomes are fixed?&lt;/strong&gt;  For a given individual, their income may be fixed in the short run.  However, across the economy there are many people whose incomes fluctuate with sales or who are up for raises that depend on sales or profit.  Or who get a higher wage when they change jobs.  As the money supply increases, consumers have more money in hand and spend more money, raising wages for those whose wages can go up using these mechanisms. Your intuition is right about people with truly fixed wages, though: in the short run, they do not participate in the money supply increase.  This is why people on a fixed income (like elderly people living on a pension) hate inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Overall inflation shifts wealth from lenders to debtors and from those with fixed incomes to those with adjustable incomes.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;why does the price of the goods increase?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The price of a good is the equilibrium between the people buying and the people selling.  A change in the money supply does not change how many goods there are to sell but it does change how many dollars the people buying them have.  If people have more money, they will be willing to pay more, so the price goes up. &lt;/p&gt;&#xA;" OwnerUserId="12673" LastEditorUserId="12673" LastEditDate="2017-05-26T06:10:38.517" LastActivityDate="2017-05-26T06:10:38.517" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="16923" PostTypeId="1" CreationDate="2017-05-26T08:22:53.340" Score="0" ViewCount="35" Body="&lt;p&gt;I could not find from where to learn the application of Econometrics on data analysis relating to environmental Kuznets curve. Are there any books or articles which talk about the above?&lt;/p&gt;&#xA;" OwnerUserId="13387" LastEditorUserId="2776" LastEditDate="2017-05-26T09:31:53.167" LastActivityDate="2018-02-08T15:33:20.683" Title="Reference request about econometric analysis of Environmental Kuznets curve" Tags="&lt;econometrics&gt;&lt;reference-request&gt;&lt;environmental-economics&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="16924" PostTypeId="1" AcceptedAnswerId="16925" CreationDate="2017-05-26T10:25:34.357" Score="0" ViewCount="445" Body="&lt;p&gt;As far as I'm aware, in the absence of any changes in the long run aggregate supply LRAS, any changes in the level of aggregate demand AD or short run aggreagete supply SRAS should eventually in the long run see the economy return to full employment, as per monetarist theory. How does the economy return to full employment when there is a change in the SRAS, when, for example, SRAS decreases?&lt;/p&gt;&#xA;" OwnerUserId="6782" LastActivityDate="2018-08-24T13:23:02.100" Title="Why would the economy return to equilibrium at full employment after a supply side shock?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16925" PostTypeId="2" ParentId="16924" CreationDate="2017-05-26T10:48:17.623" Score="0" Body="&lt;p&gt;I guess it depends on the model you are considering, but in the basic AS-AD model it should happen via adjustment in the labour market: if $Y_t &amp;gt; \bar{Y}$, then there will be upward pressure on the nominal wages (employment is higher than equilibrium employment, therefore workers ask for higher wages), to which firms respond by increasing prices, inducing an increase in inflation. As inflation expectations adjust, the SRAS shifts leftward. The adjustment stops when workers' real wage demands are met by firms (which is, when inflation expectations are realised) and output is back at $\bar{Y}$.&lt;/p&gt;&#xA;" OwnerUserId="10481" LastActivityDate="2017-05-26T10:48:17.623" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="16926" PostTypeId="2" ParentId="16912" CreationDate="2017-05-26T15:19:52.393" Score="0" Body="&lt;p&gt;Actual inflation is about chain of effects, depends on the magnitude of money entering the market and how fast it is consumed by goods and services, according to the &lt;strong&gt;price accepted by the market&lt;/strong&gt;, it is not about &lt;strong&gt;affordability&lt;/strong&gt; nor &lt;strong&gt;rationality&lt;/strong&gt; of individual. And &lt;strong&gt;impact&lt;/strong&gt; of inflation is all about essential goods/services/rents price paid by the individual against their saving.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a market with limited choice (i.e. protection policy that curb alternative) and fix demands, suppliers that monopolize the market can increase the price anytime they want to a level that the market accept till they see a sales drop.  The hypes price increase bubble will burst when alternative (cheaper and better due to increase of efficiency on production, or innovation) introduced to gain of share of the profit; or in worst scenario, the people income diminished when all their saving is depleted to acquire the required goods. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any country that suffered significant inflation impact, there is a &lt;strong&gt;significant roles&lt;/strong&gt; play by government protectionism towards its cronies related to particular industries. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is proven by USA Quantitative Easing(QE) begin in year 2008, which sometimes is called &quot;exporting USA inflation to third world country&quot;.  Because US market is pretty open and competitive, there is little for the QE money able to play significant roles on rent seeking speculation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, most third world country run by corrupted government with favourism is a easy target for such price rent seeking. When third world country start increase money supplies to cope for the &quot;inflow hot money&quot;, those countries policies just promote speculation of price than help increase efficiency. &#xA;(p/s: don't expect a neo-libralism &quot;free market&quot; is going to help those 3rd world country with corrupted institution.)&lt;/p&gt;&#xA;" OwnerUserId="11177" LastEditorUserId="11177" LastEditDate="2017-05-26T15:40:41.460" LastActivityDate="2017-05-26T15:40:41.460" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16927" PostTypeId="2" ParentId="16741" CreationDate="2017-05-26T16:50:11.007" Score="1" Body="&lt;p&gt;The irony of Marx's criticism is that Communism is just as, if not more, available to become a &quot;legalization of thievery&quot;, due to the elimination of the &quot;invisible hand&quot; of the market. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To your question, I would point to the Chicago School's consideration of Antitrust government intervention as a defense of the intuitions of Adam Smith, albeit a modification of strict faith in the ability for the &quot;invisible hand&quot; to unrestrictedly manage the fairness of the markets. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Michael S. Jacobs discusses the rise of the Chicago School's antitrust perspective, in his 1995 article in the North Carolina Law Review, &quot;An Essay on Normative Foundations of Antitrust Economics&quot;. For Chicagoans, Antitrust actions are a tool to protect the free market. This is aligned with Adam Smith's concept of economic systems, via the application of the strict guideline that &quot;consumer welfare, narrowly conceived in explicit economic terms, should be the only object of inquiry&quot; in considering antitrust intervention (Jacobs, 1995. e.g. Herbert Hovenkamp, 1985). These tools are only to be used with the strict attention to preserving efficiencies of the market - an allusion to the foundational premises of Smith. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The topic of Antitrust Legislation provides an example of the role of government to intervene in the free market, while respecting the need for it to be enacted in a minimized way. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Additional reference material can be found in the article - it is highly notated. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://scholarship.law.unc.edu/cgi/viewcontent.cgi?article=3637&amp;amp;context=nclr&quot; rel=&quot;nofollow noreferrer&quot;&gt;LINK: &quot;An Essay on Normative Foundations of Antitrust Economics&quot;. Michael S. Jacobs, &lt;em&gt;North Carolina Law Review&lt;/em&gt;, 1995.&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="8206" LastEditorUserId="8206" LastEditDate="2017-05-27T02:11:49.510" LastActivityDate="2017-05-27T02:11:49.510" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16928" PostTypeId="2" ParentId="16913" CreationDate="2017-05-26T16:53:21.597" Score="2" Body="&lt;p&gt;As far as I know the definition is yet to be extended beyond two person games, but you seem to be looking for some notion of antagonism.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A two player game is &lt;em&gt;antagonistic&lt;/em&gt; if given any two outcomes A and B, if player one prefers outcome A then and only then player two prefers outcome B.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Read more &lt;a href=&quot;http://msh.revues.org/2850?file=1&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2017-05-26T16:53:21.597" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16929" PostTypeId="1" CreationDate="2017-05-26T17:03:38.007" Score="1" ViewCount="52" Body="&lt;p&gt;After reading an article on &lt;a href=&quot;https://en.wikipedia.org/wiki/Basic_income&quot; rel=&quot;nofollow noreferrer&quot;&gt;wiki&lt;/a&gt; and watching the Ted &lt;a href=&quot;https://www.ted.com/talks/rutger_bregman_poverty_isn_t_a_lack_of_character_it_s_a_lack_of_cash&quot; rel=&quot;nofollow noreferrer&quot;&gt;video&lt;/a&gt; on basic income system in a society and even M.Zuckerberg &lt;a href=&quot;http://www.cnbc.com/2017/05/25/mark-zuckerberg-calls-for-universal-basic-income-at-harvard-speech.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;talks about it&lt;/a&gt;, nobody really addresses the issue of the workforce availability.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If every person is guaranteed a basic income who is there left to work/be employed? I think only more ambitious people will work. What will motivate the rest of the people? &lt;/p&gt;&#xA;" OwnerUserId="5008" LastActivityDate="2017-05-27T15:34:50.850" Title="How is workforce guaranteed in basic income system?" Tags="&lt;unemployment&gt;&lt;basic-income&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16930" PostTypeId="2" ParentId="16912" CreationDate="2017-05-26T17:06:01.350" Score="0" Body="&lt;p&gt;Your question assumes that it is the government (or perhaps the central bank) that &quot;prints more money&quot; this is mostly untrue. The vast majority of new money in our economy is created by private banks when they make loans (and destroyed when the loans are repaid). This is very surprising to many people including some with degrees in economics! The process is called fractional reserve banking and it is often misunderstood, or described incorrectly. A good explanation is given &lt;a href=&quot;http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Most new money is created in the process of lending for real estate, so any surge in the money supply often has its impact on house prices. I.e. more people being given ever larger loans for buying houses means that house sellers can put ever larger selling prices on their homes. So this is where new money arrives into an economy, into the hands of house sellers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So to part two of your question, why the cost of consumer goods will rise. People's propensity to purchase goods at price X depends on how much money they have. There will always be people just on the verge of buying a product at price X, but that refuse. These people, when armed with just a bit more money, will go ahead and buy a product at price X. This means that when some people have more money than before, a shopkeeper will see that an item is selling faster than before, they will consider raising the price. &lt;/p&gt;&#xA;" OwnerUserId="5081" LastActivityDate="2017-05-26T17:06:01.350" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16931" PostTypeId="2" ParentId="16913" CreationDate="2017-05-26T17:17:04.030" Score="2" Body="&lt;p&gt;A zero-sum game is so named because in it, the &lt;strong&gt;sum&lt;/strong&gt; of the players' payoffs is always &lt;strong&gt;zero&lt;/strong&gt;. Unless you provide a specific payoff structure to the players in the game, it's hard to categorize it. From what you've described, I suggest you look up the term &lt;strong&gt;constant-sum game&lt;/strong&gt; and see if it is something you're looking for. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;An example: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\begin{array}{|r|c|c|}&#xA;\hline &#xA;&amp;amp; X &amp;amp; Y \\\hline&#xA;X&amp;amp;2,-1&amp;amp;-1,2\\\hline&#xA;Y&amp;amp;-1,2&amp;amp;2,-1\\&#xA;\hline&#xA;\end{array}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose the status quo payoff is $0$ for both players. Then in each of the outcomes in the game above, one of the players gets $2$ at the expense of the other player losing $1$. The pair of payoffs in each outcome sums up to the constant $1$, hence the name &lt;em&gt;constant-sum game&lt;/em&gt;. Do notice, however, that this is only a very small subset of the possible games due to the heavy restrictions on the payoffs.&lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2017-05-26T17:17:04.030" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="16932" PostTypeId="2" ParentId="16741" CreationDate="2017-05-26T18:43:35.277" Score="1" Body="&lt;p&gt;This answer has two parts.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) &lt;strong&gt;Why, from a Marxists point of view, a &quot;benevolent social welfare maximizer&quot; government under capitalism is an illusion.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Smith's view of the minimal Government was in line with his &lt;a href=&quot;https://en.wikipedia.org/wiki/Liberalism#Liberal_economic_theory&quot; rel=&quot;nofollow noreferrer&quot;&gt;economic liberalism&lt;/a&gt; ideology. Maximum social welfare was a consequence of the invisible hand guiding self-interested individuals.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For (orthodox) Marxists, such a view was naive, as the state did not represent the labourers and proletarians of the time but rather was an instrument used by the bourgeoisie (politically organised as the &lt;a href=&quot;https://en.wikipedia.org/wiki/Whigs_(British_political_party)&quot; rel=&quot;nofollow noreferrer&quot;&gt;Whigs&lt;/a&gt;) and the aristocracy (the &lt;a href=&quot;https://en.wikipedia.org/wiki/Tory_(British_political_party)&quot; rel=&quot;nofollow noreferrer&quot;&gt;Tories&lt;/a&gt;), competing among themselves, to advance the interests of their class, which was not the direct improvement of the welfare of the lower and larger classes. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In effect, it was not until workers organised themselves, partly inspired by Marxism, that unions, mutuals, cooperatives, and class action emerged as an attempt to gain more social and political rights. The Labour Party of the UK emerged in 1900, amid this context. It was when workers became represented in power that the government became an instrument in favour of their interests.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Furthermore, it was (mainly) after a huge global catastrophe (World War II), that the Welfare States consolidated in Europe, subduing the class struggle for some decades. From the 50's to the 70's it was a golden age for workers, with increasing median wages across societies. Yet, in the background, the &lt;a href=&quot;https://en.wikipedia.org/wiki/Mont_Pelerin_Society&quot; rel=&quot;nofollow noreferrer&quot;&gt;economic liberals and right-wing economists&lt;/a&gt; were already envisioning and slowly orchestrating a different society. With the crisis of keynesianism in the 1970's, they took they chance, and put it into practice with Thatcher and Reagan (and &lt;a href=&quot;https://en.wikipedia.org/wiki/Miracle_of_Chile&quot; rel=&quot;nofollow noreferrer&quot;&gt;Pinochet&lt;/a&gt;), pursuing a policy in favour of capitalists (e.g. lowering taxes), and against workers (e.g. attacking unions); &lt;a href=&quot;https://en.wikipedia.org/wiki/Neoliberalism&quot; rel=&quot;nofollow noreferrer&quot;&gt;neoliberalism&lt;/a&gt; had begun. Globalisation was to further lower the leverage of workers in favour of the global elite, consequences which we can still see today.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From this perspective, any defense made on behalf of Smith is flawed, as the government's interests reflects first and foremost that of the party in power, and not that of the &quot;universal opulence which extends itself to the lowest ranks of the people&quot;. As indicated, workers life chances have improved mainly with left-wing, interventionists governments, and not with minimal ones.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) &lt;strong&gt;How do economists explain that an era of shrinking government and  increasing globalisation (i.e. Smith's economic liberalism, and roughly the political development of the last 30 years) have not contributed toward universal opulence, but have widen inequality?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I want to highlight two issues. First, is technological change. Many have argued that the nature of technological change has benefited some segments of the population. An example of such change is &lt;a href=&quot;http://www.dictionaryofeconomics.com/article?id=pde2008_S000493&quot; rel=&quot;nofollow noreferrer&quot;&gt;skill biased technical change&lt;/a&gt;, or SBTC. This states that new technologies are complementary to high skilled workers, thereby increasing the skill premium and inequality. More recent examples include task-biased technical change, which some argue has lead to &lt;a href=&quot;https://en.wikipedia.org/wiki/Polarization_(economics)&quot; rel=&quot;nofollow noreferrer&quot;&gt;job polarisation&lt;/a&gt;. This contrast with technological change during most of the XX century, which had the consequence of fostering &lt;a href=&quot;http://www.nber.org/papers/w12984&quot; rel=&quot;nofollow noreferrer&quot;&gt;employment in manufacturing and other good paying jobs&lt;/a&gt;. In contrast, new waves of technological change like ICT have induced a great deal of &lt;a href=&quot;http://www.oecd.org/sti/ict-enabledoutsourcingandoffshoring.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;off-shoring&lt;/a&gt;, by reducing trade costs. Thus, many jobs have moved from advanced economies to developing ones like China (albeit evidence is not so clear for all countries, e.g. &lt;a href=&quot;http://ftp.iza.org/dp10469.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Germany&lt;/a&gt;). Finally, how not to mention robots. There is &lt;a href=&quot;http://www.nber.org/papers/w23285&quot; rel=&quot;nofollow noreferrer&quot;&gt;emerging evidence&lt;/a&gt; that robots are reducing employment and wages (with some &lt;a href=&quot;http://www.epi.org/publication/the-zombie-robot-argument-lurches-on-there-is-no-evidence-that-automation-leads-to-joblessness-or-inequality/&quot; rel=&quot;nofollow noreferrer&quot;&gt;dissident&lt;/a&gt; voices though). As firm ownership is unevenly spread among population, such developments are likely to contribute to greater inequality.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Others argue that trade itself is much more complex than what Smith initially thought. Whereas simple Ricardian argument of comparative advantage predict that every partner in trade would benefit, more complex analysis predict differentiated effects within countries. For example, the &lt;a href=&quot;https://en.wikipedia.org/wiki/Stolper%E2%80%93Samuelson_theorem&quot; rel=&quot;nofollow noreferrer&quot;&gt;Stolper-Samuelson theorem&lt;/a&gt; states that, as countries engage in bilateral trade, specialisation into certain goods affect return to factors. In particular, in rich countries, which export goods intensive in capital, and import goods intensive in labour, the relative return of capital with respect to labour increases. In consequences, profits/rents for firm owners increase relative to wages. This leads to higher inequality, as the distribution of factor income and personal income are not identical (rich have more financial capital than the poor).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In effect, globalisation meant a massive extension of the labour market in advanced economies. Think of the inclusion of East Asia as a huge labour shock, where suddenly billions of new workers enter the labour market. Unexpectedly, such a &lt;a href=&quot;http://www.ddorn.net/papers/Autor-Dorn-Hanson-ChinaShock.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;big shock&lt;/a&gt; meant a strong force against real wages growth for workers in rich countries. Evidence shows that this shock meant off-shoring, deindustrialisation, recomposition of employment toward services, either high skill for the few, or low skill for the many. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, as Branko Milanovic has &lt;a href=&quot;http://www.hup.harvard.edu/catalog.php?isbn=9780674737136&quot; rel=&quot;nofollow noreferrer&quot;&gt;recently highlighted&lt;/a&gt;, global inequality (i.e. inequality as if the world were one country) has reduced. His &quot;famous&quot; &lt;a href=&quot;https://www.bloomberg.com/news/articles/2016-06-27/get-ready-to-see-this-globalization-elephant-chart-over-and-over-again&quot; rel=&quot;nofollow noreferrer&quot;&gt;elephant curve&lt;/a&gt; reveals that many people in the developing world have emerged out of poverty, and income of &quot;middle classes&quot; around the world have gone up, at the expenses of workers in advanced economies (consistent with the literature highlighted above). Not &lt;a href=&quot;http://www.resolutionfoundation.org/app/uploads/2016/09/Examining-an-elephant.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;everyone&lt;/a&gt; agrees with this analysis though. See also a &lt;a href=&quot;https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2910603&quot; rel=&quot;nofollow noreferrer&quot;&gt;recent article&lt;/a&gt; by Dani Rodrik comparing trade versus labour-based globalisation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In my view, these are two examples in the literature why minimal government, i.e. the invisible hand, liberalism, and globalisation has not benefited the majority of the population.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-05-29T11:34:31.083" LastActivityDate="2017-05-29T11:34:31.083" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="16933" PostTypeId="2" ParentId="16908" CreationDate="2017-05-26T19:44:58.380" Score="2" Body="&lt;p&gt;Though I'd ask for a bit more clarification which papers you are referring to for a more specific answer, overall the answer depends a bit on what the purpose of the paper/game and payoffs being proposed is.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Papers like &lt;a href=&quot;https://link.springer.com/article/10.1007/BF00131770&quot; rel=&quot;nofollow noreferrer&quot;&gt;Selten's 1978 Chain Store Paradox&lt;/a&gt; use payoffs that are important in their relative magnitude (not their absolute value) as a means of creating a perceived disconnect between Industrial Organization and Game Theory. Similarly, in the classic Prisoner's Dilemma game, the actual values for &quot;fink/tattle&quot; and &quot;mum/don't&quot; aren't as important as the fact that the dominant strategy is for both players to tattle. That payoff can be (0,0) or (-10,-10), so long as that payoff makes tattling the dominant strategy, it works for the game.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One of the larger reasons why &quot;exact&quot; values are given instead of confidence intervals is because of how strategies are calculated. Indifference is the key to defining mixed strategies, which is a much simpler feat if exact values are given.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That being said, there is a variety of games of imperfect information and, perhaps most important for your question, &lt;a href=&quot;http://web.stanford.edu/~jdlevin/Econ%20286/Repeated%20Games%20III.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;games with imperfect monitoring&lt;/a&gt; which do exactly as you suggest- allow payoffs to be dependent on some random variable not observed by one (or more) of the players.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm sorry if that wasn't very direct, or didn't really fully answer your question- please let me know if I can improve the answer. Confidence intervals can be difficult to use because they are so dependent on the statistical results as opposed to the theoretical model. However ranges of values are a relatively common phenomena in certain types of game theory models (for example, see auction theory). Usually it is assumed that players know the relative likelihoods of different payoffs, but even that can be relaxed in certain circumstances.&lt;/p&gt;&#xA;" OwnerUserId="13366" LastEditorUserId="1601" LastEditDate="2017-05-26T20:48:55.360" LastActivityDate="2017-05-26T20:48:55.360" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16935" PostTypeId="2" ParentId="16929" CreationDate="2017-05-26T21:52:43.293" Score="1" Body="&lt;p&gt;The level of the basic income would have to be set at a level that the majority of the population is still willing to work to get more money than the basic amount, so that required work is still done. (The robots are not going to be taking over all the jobs for some time). From the proposals I have seen, it would be near the poverty level in the developed countries.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At that level, I believe there have been enough experiments to validate that most people would want to work to earn more than the minimum. There is a lot of studies showing that many people want to contribute, rather than sit around.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem may be effect on tax system. &lt;a href=&quot;https://economics.stackexchange.com/questions/16851/universal-basic-income-menial-tasks&quot;&gt;This other question on menial tasks seems to be related to your question.&lt;/a&gt; If there is no increased taxation to match the increased transfers, inflation would be quite high, given the size of the program. (This is discussed in my answer on the linked question in more detail.)&lt;/p&gt;&#xA;" OwnerUserId="12891" LastEditorUserId="12891" LastEditDate="2017-05-27T11:31:15.753" LastActivityDate="2017-05-27T11:31:15.753" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="16936" PostTypeId="1" CreationDate="2017-05-27T04:47:15.893" Score="1" ViewCount="96" Body="&lt;p&gt;According to this question below, apparently a reduction in the regional differences in the level of unemployment would shift the short run Phillips curve SRPC leftwards. The answer to the question is A). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I do not see how this could be the case, because &quot;a reduction in the regional differences in the level of unemployment&quot; could mean the regions could either all experience more unemployment, or could all experience less unemployment. I don't see how either scenario would affect the expectation for inflation (in this question it would seem to be a deflationary expectation) to result in a leftwards shift in the SRPC.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/znvds.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/znvds.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="6782" LastActivityDate="2017-05-27T04:47:15.893" Title="Why does a reduction in regional differences in unemployment shift the Phillips curve?" Tags="&lt;inflation&gt;&lt;unemployment&gt;&lt;natural-rate-unemployment&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16937" PostTypeId="1" AcceptedAnswerId="16943" CreationDate="2017-05-27T07:54:45.803" Score="1" ViewCount="68" Body="&lt;p&gt;I was wondering if certain government coupons like food stamps can be considered a form of near cash. I recall my professor saying something like near transfer, but I am unsure if the terms &quot;near transfer&quot; and &quot;near cash&quot; are interchangeable. &lt;/p&gt;&#xA;" OwnerUserId="13393" LastEditorUserId="2776" LastEditDate="2017-05-27T15:35:18.133" LastActivityDate="2017-05-27T15:35:18.133" Title="Are food stamps considered near cash?" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16938" PostTypeId="1" CreationDate="2017-05-27T10:00:39.933" Score="2" ViewCount="73" Body="&lt;p&gt;I read somewhere that in the United States, there are often people from banks on the boards of executives of corporations. Note, I don't mean ex-bankers who now work for that corporation, I mean people who are actually employed by the bank, and who are on the board in their capacity as a representative from the bank. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This surprised me very much, since the board of directors in principle represents the equity-holders, not the debt-holders of corporations. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;How often does this really happen?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Why do banks do this, and why do corporations allow this?&lt;/strong&gt; &lt;/p&gt;&#xA;" OwnerUserId="11146" LastActivityDate="2017-05-31T03:06:49.630" Title="Do banks really have people on the boards of corporations, and why?" Tags="&lt;banking&gt;&lt;corporate-governance&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="16939" PostTypeId="2" ParentId="8598" CreationDate="2017-05-27T10:08:46.407" Score="1" Body="&lt;p&gt;As you mentioned before, $\bar{n}$ is the sensitivity parameter of the interest rate to changes in short run output in a monetary policy rule. What is the relationship of $\bar{m}$ and $\bar{n}$ within the Taylor rule? It heavily depends on the given economic climate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assuming the basic &lt;em&gt;Canonical New Keynesian DSGE Model&lt;/em&gt; the equations of our economy are the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;IS (investment/saving) curve:&#xA;$$   y_t = E_t [y_{t+1}] - \theta r_t +u_t^{y} $$&#xA;AD (aggregate demand) curve:&#xA;$$ \pi_t = \beta E_t [\pi_{t+1}] +\kappa y_t + u_t^{\pi}$$&#xA;Taylor rule:&#xA;$$   r_t = m E_t [\pi_{t+1}] + n E_t [y_{t+1}] +  u_t^{r} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you estimate the Taylor rule empirically with some kind of economic techniques, there should be considered 4 scenarios (shocks) .&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Demand shock ($m, n &amp;gt; 0$)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Supply shock ($m &amp;gt; 0, n &amp;lt; 0$)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Monetary policy shock ($m, n &amp;lt; 0$)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Technology shock ($m &amp;gt; 0, n &amp;lt; 0$)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="5017" LastActivityDate="2017-05-27T10:08:46.407" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16940" PostTypeId="1" CreationDate="2017-05-27T10:16:50.353" Score="1" ViewCount="102" Body="&lt;p&gt;Different assets have different motivations and components for price determination. For example, an equity stock price might be considered to be include the value of underlying company, its potential for future growth, and its value as a store of wealth (kind of like a Yap stone).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The price of a currency would seem to be largely determined by the balance of trade with the country or countries involved. For example, if there is a net interest in buying the products of a country, then its currency will be in demand and the price will decrease, but if the citizens of the country are net buyers of foreign goods, then the price will tend to decrease. Thus, it is self balancing, because as long as the net buying of foreign goods continues, the value of the currency will decline reducing the amount they can buy, until it becomes so low that the country is forced to become a net seller, and the value of the currency begins to increase again.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there an econometric method for valuing currencies that takes such factors into account?&lt;/p&gt;&#xA;" OwnerUserId="1448" LastActivityDate="2017-05-27T13:27:10.597" Title="Econometrics for currency valuation?" Tags="&lt;currency&gt;&lt;asset-pricing&gt;&lt;foreign-exchange&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16941" PostTypeId="2" ParentId="15647" CreationDate="2017-05-27T10:57:45.210" Score="1" Body="&lt;p&gt;To answer your question is very challenging, because 'directly helping the people' is pretty normative. Would you like the creation of 50.000 new workplaces with lowering the corporation taxation? Or how about finding a great financial investment for a nice old lady? Would you prefer large scale policy work or completely changing the life of an individual? Our economic system is so complex, you couldn't do any jobs without helping the society.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Furthermore, economics is all about trade-offs. There are quite few Pareto efficient situations out there in the real life. For example, the Scandinavian societies are the most socially mobile in the world. The redistribution role of the state is super-high, and the job market policies apply wage-compression. Therefore, the income gap between the rich and poor is really small. However, these policies are helping people, but it's unfair to highly-productive and educated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, here are my additional tips. Assuming that you are interested in large scale impact:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;economic model developing (micro and macro). I don't need to emphasize the importance of these fields.&lt;/li&gt;&#xA;&lt;li&gt;transport economics. People travel and commute. More efficient transport networks would improve the life of everybody. Heavy mathematics (graph theory, optimization) and programming, plus economics are needed.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="5017" LastEditorUserId="1601" LastEditDate="2017-05-27T21:40:54.373" LastActivityDate="2017-05-27T21:40:54.373" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16942" PostTypeId="2" ParentId="16940" CreationDate="2017-05-27T13:27:10.597" Score="1" Body="&lt;p&gt;Yes, the earlier answer &lt;a href=&quot;https://economics.stackexchange.com/questions/12928/the-currency-value?rq=1&quot;&gt;about currency value&lt;/a&gt; gives some links, including a link to an &lt;a href=&quot;https://www.imf.org/external/pubs/ft/wp/2007/wp07296.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;IMF publication&lt;/a&gt; that presents models (methods) with some notes on how to calibrate them and further links to literature. There they describe among others also the macroeconomic balance framework that takes into account the internal and external balance at the same time.&lt;/p&gt;&#xA;" OwnerUserId="8988" LastActivityDate="2017-05-27T13:27:10.597" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16943" PostTypeId="2" ParentId="16937" CreationDate="2017-05-27T15:15:28.807" Score="1" Body="&lt;p&gt;It think it depends on:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;the liquidity and value of government coupons: if you could sell them very easily for cash and with little discount, then there is little difference.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;the accessibility/familiarity of the expenditure they are to represent: if they are food coupons to be exchanged in any major supermarket, then beneficiaries could simply using them for their monthly shopping. If they are to be used only in a super-healthy store, not so easily accessible, and valid only to buy children's food, maybe some of the coupons will not be used, or will be resold at a high discount. In that case, they are less like cash, since it is not very rational to destroy cash, or sell cash for less cash.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;The two points are surely connected.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-05-27T15:15:28.807" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16945" PostTypeId="2" ParentId="16929" CreationDate="2017-05-27T15:34:50.850" Score="3" Body="&lt;p&gt;Brian's answer surely hit a major part of the issue - the level of the UBI. Yet, there are other aspects of the problem.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;People like to work. There is a huge amount of sociological literature showing that people derive considerable non-pecuniary benefits from work, or alternative, that lack of work leads to several personal (and social) undesirables (for example, &lt;a href=&quot;http://www.danpink.com/books/drive/&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;, &lt;a href=&quot;http://www.andrewoswald.com/&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;, and &lt;a href=&quot;https://en.wikipedia.org/wiki/When_Work_Disappears&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;). As Voltaire &lt;a href=&quot;http://www.quotationspage.com/quote/2058.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;said&lt;/a&gt;, &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Work keeps at bay three great evils: boredom, vice, and need.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Thus, many people will like to work. This is the &lt;strong&gt;supply side&lt;/strong&gt; of the labour market.&lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;2&quot;&gt;&#xA;&lt;li&gt;Firms will still need workers. Provided capital and robots do not take over all jobs, firms will still require some workers. If the supply of labour across skill levels is not high enough, then either migration will occur (perhaps politically undesirable, but historically favoured by firms), or wages will go up. The latter will induce more people to work. &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;The key is, then, not only the level of UBI, but whether there will be enough jobs. Perhaps there will not be, at least not for the current working week. Maybe Keynes' &lt;a href=&quot;https://en.wikiquote.org/wiki/John_Maynard_Keynes#Economic_Possibilities_for_our_Grandchildren_.281930.29&quot; rel=&quot;nofollow noreferrer&quot;&gt;prediction&lt;/a&gt; of a 15-hour working week might finally become true.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-05-27T15:34:50.850" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16947" PostTypeId="1" CreationDate="2017-05-27T17:25:13.543" Score="4" ViewCount="1584" Body="&lt;p&gt;Currently I am reviewing microeconomic material related to utility maximization due to an upcoming examination. One old exam &lt;strong&gt;question&lt;/strong&gt; asks me the following for which I am not sure whether to use the utility of expected income or the expected utility of the income. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose agent A has the utility function $u(y) = y^a (a &amp;gt; 0)$ and the possibility to study and pay university fees $F$. After studying he may get income $y_1$ with probability $p$ or income $y_2 &amp;lt; y_1$ with probability $1 - p$. If he does not study he will have income $y_3 = 0$. When will the agent start studying and what does it depend on? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My &lt;strong&gt;thoughts&lt;/strong&gt; on this question are as follows. Intuitively, it will highly depend on the fees $F$. On the one hand, the expected income of the agent if he studies is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\mathbb{E}[y_i] = p(y_1 - F) + (1 - p)(y_2 - F) = p(y_1 - y_2) + y_2 - F$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If he does not study the expected income is just $F$, i.e. the saved fees. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the utility of the expected income is just $U(\mathbb{E}[y_i]) = (p(y_1 - y_2) + y_2 - F)^a$ in case he studies or $U(y_3) = F^a$ if he does not. I could just set up an inequality now and say that if &#xA;$$ p(y_1 - y_2) + y_2 &amp;gt; 2F,$$ &#xA;that is, if the expected net income is greater than twice the fees, the agent decides to study. But then I remembered that I might be wrong in looking at the utility of the expected income and that I should rather look into the expected utility. Then, if the agent studies he will have expected utility &#xA;$$ \mathbb{E}[u(y_i)] = p(y_1 - F)^a + (1-p)(y_2 - F)^a = p((y_1 - F)^a - (y_2 - F)^a) + (y_2 - F)^a$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;and, if he does not study, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\mathbb{E}[y_3] = F^a $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Similar to above I now could set up an inequality which is different from the one before. Therefore, I am a bit puzzled as to which utility to use here? The expected utility or the utility of expected income and why? &lt;/p&gt;&#xA;" OwnerUserId="7711" LastActivityDate="2017-06-28T17:16:05.587" Title="Utility of expected income or expected utility of income?" Tags="&lt;microeconomics&gt;&lt;expected-utility&gt;" AnswerCount="3" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="16948" PostTypeId="2" ParentId="15647" CreationDate="2017-05-27T20:50:29.453" Score="3" Body="&lt;p&gt;Some ideas based on the course list:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;Environmental economics&lt;/strong&gt; is doing work to try to understand and mitigate the effects of climate change. Key concepts in this debate, such as common action problems and externalities will feature in EC325 Public Economics.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Game theory is used as a basis for &lt;strong&gt;auction theory&lt;/strong&gt;, which plays a major role in the design of important auctions. Auctions are used, for example, to sell licenses to companies wishing to use the radio spectrum. You can read more about spectrum auctions &lt;a href=&quot;ftp://www.cramton.umd.edu/papers2005-2009/cramton-spectrum-auction-design.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The &lt;strong&gt;market design/matching markets&lt;/strong&gt; idea is a good one with some real practical applications. For a basic intro, take a look at section 20.5 of &lt;a href=&quot;http://www.core-econ.org/ebook/&quot; rel=&quot;nofollow noreferrer&quot;&gt;this free book&lt;/a&gt;. In particular, there is a neat video by Alvin Roth, who won the Nobel prize for work in this area.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;Development economics&lt;/strong&gt; studies the process by which countries do (or don't) escape from poverty and can help us to understand what sorts of policy interventions are likely to be helpful.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Industrial economics (also known as &lt;strong&gt;industrial organisation&lt;/strong&gt;) helps us to understand how competition in markets works (and when it doesn't work). The insights from this field underpin the work of organisations such as the Competition and Markets Authority (the UK's competition regulator) in ensuring that markets deliver good outcomes for consumers. You can read more about competition policy &lt;a href=&quot;https://en.wikipedia.org/wiki/Competition_law&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2017-05-28T08:20:26.367" LastActivityDate="2017-05-28T08:20:26.367" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16949" PostTypeId="1" AcceptedAnswerId="16950" CreationDate="2017-05-27T23:24:44.873" Score="2" ViewCount="527" Body="&lt;p&gt;I have a question about dominated strategy. I understand that dominated strategy is one which is dominated by another strategy. For instance if we have strategy L and H for a single player and if all payoffs of L are lower than that of H then we say L is &quot;dominated&quot; by H.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What if we have a situation where two of L's strategies are lower than that of H's but one of them is the same? e.g. &#xA;$$L: 10, 2, 0 $$&#xA;$$H: 10, 5, 2, $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can see that $5&amp;gt;2$ and $2&amp;gt;0$ but $10=10$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this case, do we say that L is dominated by H? Or all payoffs need to be strictly greater for it to be considered dominated? &lt;/p&gt;&#xA;" OwnerUserId="13163" LastEditorUserId="1601" LastEditDate="2017-05-28T07:35:22.120" LastActivityDate="2017-05-28T07:35:22.120" Title="Dominated Strategy" Tags="&lt;game-theory&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16950" PostTypeId="2" ParentId="16949" CreationDate="2017-05-27T23:36:24.663" Score="2" Body="&lt;p&gt;There are &lt;strong&gt;&lt;em&gt;strictly&lt;/em&gt; dominated strategies&lt;/strong&gt; and &lt;strong&gt;&lt;em&gt;weakly&lt;/em&gt; dominated strategies&lt;/strong&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Strictly dominated strategies&lt;/strong&gt; have payoffs &lt;em&gt;always lower&lt;/em&gt; (i.e. &quot;$&amp;lt;$&quot;) than another strategy that dominates it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Weakly dominated strategies&lt;/strong&gt; have payoffs &lt;em&gt;always no higher&lt;/em&gt; (i.e. &quot;$\le$&quot;) than another strategy that dominates it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You example features $L$ as a weakly (not strictly) dominated strategy.&lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2017-05-27T23:36:24.663" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16952" PostTypeId="1" AcceptedAnswerId="16971" CreationDate="2017-05-28T01:10:18.280" Score="1" ViewCount="350" Body="&lt;p&gt;Two firms can produce either low (L), medium (M) or high (H) quantity. The payoff matrix is given by:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/gKHNw.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/gKHNw.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;What is the outcome of this game if firms play only once?&lt;/li&gt;&#xA;&lt;li&gt;Suppose the game is played for infinite periods and $\delta = 1/2$. Is it possible for firms to collude and choose $(L, L)$? Is it possible for firms to collude and choose $(M, M)$?&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;From the picture we can see that if the firms play once then the outcome is $(H,H)$. However I don't really know how to solve the second part and would really appreciate some help. What I do know in repeated infinite games that may be useful for this problem is the following.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lets take the case of deviating from $(H,H)$ to $(M,M)$ for firm 1. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Equilibrium payoff = $3+3\delta+3\delta^2...=\frac{3}{1-\delta}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Deviation payoff (I think that if firm 1 deviated and played $M$ then firm 2 would play L since they have higher payoff $(10)$ and so we would have)= $5+2\delta+2\delta^2... = 5+\frac{2\delta}{(1-\delta) }  $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where $\delta$ is the interest rate after the first round. I feel that this portion is irrelevant, however, since we are talking about collusion and should consider both firms, instead of just firm 1's strategy. &lt;/p&gt;&#xA;" OwnerUserId="13163" LastEditorUserId="42" LastEditDate="2017-05-29T06:08:00.190" LastActivityDate="2017-05-29T06:08:00.190" Title="Collusion, deviation from equilibrium" Tags="&lt;game-theory&gt;&lt;industrial-organisation&gt;&lt;repeated-games&gt;" AnswerCount="1" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="16953" PostTypeId="2" ParentId="15651" CreationDate="2017-05-28T01:45:11.163" Score="1" Body="&lt;p&gt;I confirmed my understanding by directly comparing to btccny and btcusd. I think gaps between the green and purple lines represent arbitrage opportunities. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/00DDu.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/00DDu.png&quot; alt=&quot;top: comparision of bitcoin value in usa and china&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When the purple line is above the green line, there's a corresponding increase in the value of bitcoin to buyers with yuan relative to buyers with usd. In this situation, theoretically you could buy bitcoin with usd (because it's cheaper), buy yuan with that bitcoin, and then buy usd with that yuan (on forex) and come out ahead.&lt;/p&gt;&#xA;" OwnerUserId="12328" LastActivityDate="2017-05-28T01:45:11.163" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16955" PostTypeId="2" ParentId="16938" CreationDate="2017-05-28T03:01:24.520" Score="6" Body="&lt;p&gt;What you describe is neither unusual nor pernicious, and occurs more commonly at smaller companies when the company has borrowed significantly from a single bank. Larger companies have direct access to capital markets (in addition to stock, they can issue bonds and commercial paper, which are both forms of debt), and are thus less reliant on their relationship with a single bank.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When companies are reliant on a relationship with a bank for access to debt, the bank will often seek a position on the board as a way of monitoring the activity of the company. From the bank's perspective, this is totally reasonable, but to understand why, you first have to understand a tiny bit of industrial organization theory.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a nutshell, firms have what we refer to as &quot;capital structures,&quot; which are a way of allocating risk and return. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;At the top of capital structures is senior debt, which is first in line to be paid, but which receives the lowest (though a fixed and predictable) rate of return. If you hold senior debt, you want the company that issued the debt to take little risk, as you'll be paid the same amount so long as the company remains solvent. If the firm goes into bankruptcy, you'll still be paid first, but your money may be tied up for a time in bankruptcy proceedings, and you face having to reinvest the cash you get back, potentially at a lower rate of return. As a result, you want to avoid unnecessary risk.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At the bottom of capital structures is equity, which is high-risk and high-return. The equity portion gets paid the upside if a firm does well, and it bears the first loss if a firm performs poorly. If a company goes bankrupt, the equity is worthless. Equity investors have a lot of incentive to take on risk, because for each dollar invested, the downside is a maximum of a dollar (this is known as &quot;limited liability&quot;), but the upside is limitless.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In between these two parts of the capital structure, there are all kinds of hybrids of debt and equity, but we can set them aside for simplicity. Most important is that there is a fundamental conflict between debt holders, who want limited risk and who only have control of a firm once it is bankrupt, and equity holders, who favor risk and control the firm in the normal state of the world.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Once you understand this conflict, it's easy to see why a bank would ask for a seat on the board of a company when it holds that company's debt: by having a member on the board, it can ensure ongoing, regular access to the information it needs to be comfortable that the firm isn't taking on too much risk. If it sees that the firm is moving in a direction that it isn't comfortable with, it'll decline to roll over its debt, getting its money back and forcing the firm to find financing elsewhere.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So: is this unusual? No. Directors who don't directly &quot;represent&quot; equity holders aren't at all uncommon. In fact, the majority of directors at large firms in the US are &quot;independent&quot; directors who have no direct relationship to the firm, other than serving on the board. Many non-independent directors are &quot;executive&quot; directors, who are company management— a group that, like creditors, may have incentives that differ from those of shareholders. Other groups, like labor unions, are also sometimes represented on boards. So if in addition to equity holders, outsiders, management, and unions are all represented on boards at times, what is the specific objection to creditors being represented?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's additionally worth noting that the only case where a creditor's vote matters is solely when the other directors are evenly split on an issue. If a particular matter clearly benefits creditors at the expense of equity holders, a significant fraction of equity holders would have to vote against their own interests for this to be the case.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, to your question as to why regulators and corporations allow it. Simply put, regulators have no reason (from a market conduct, safety and soundness, consumer protection, or financial stability perspective— the general scope of regulators' mandates) to object to this sort of arrangement. For a regulator to intervene in this way would interfere with the company's freedom to contract however it chooses. Creditor board members are not a thing that banks do to corporations, who passively allow it; rather, the boards of directors have to vote to add the board member representing the creditor. So if one views positively the judgment of a board composed of equity holders, why should one question the judgment of that board when they vote to add a creditor as a member?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So in summary: banks as board members is a way of monitoring/limiting risk-taking by firms, firms &quot;allow&quot; this because they want to borrow money from the banks, whether it is socially optimal depends on whether firms should be taking more or less risk, and it's more about correcting information asymmetries than about asserting day-to-day control— boards of directors don't tend to have lots of measures passing or failing by a single vote.&lt;/p&gt;&#xA;" OwnerUserId="264" LastEditorUserId="264" LastEditDate="2017-05-31T03:06:49.630" LastActivityDate="2017-05-31T03:06:49.630" CommentCount="9" ContentLicense="CC BY-SA 3.0" />
  <row Id="16956" PostTypeId="2" ParentId="16891" CreationDate="2017-05-28T09:27:14.977" Score="2" Body="&lt;p&gt;I got hold of this &lt;a href=&quot;https://ww2.amstat.org/publications/jse/v13n1/olsson.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;link from Journal of Statistics Education&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Using the notation in it, let $X\sim \log N(\mu,\sigma^2)$, i.e. $Y=\log(X) \sim N(\mu,\sigma^2)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence, $E(X)=E(e^Y)=e^{\mu+\sigma^2/2}$. An estimator for $\log(E(X))$ is $$\bar Y+\frac{S_Y^2}{2}$$. Also, $Var(\hat\log(E(X)))=\frac{\sigma^2}{n}+\frac{\sigma^4}{2(n-1)}$, which gives $$\hat Var(\hat\log(E(X)))=\frac{S_Y^2}{n}+\frac{S_Y^4}{2(n-1)}$$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For large samples, using the CLT, we have $$\frac{\hat \log E(X)-\log E(X)}{\sqrt{\hat Var(\hat\log(E(X)))}}\sim^a N(0,1)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, one possible CI from this perspective is $$CI(E(X))=\left]e^{\bar Y+\frac{S_Y^2}{2}\pm z_{1-\alpha}\sqrt{\frac{S_Y^2}{n}+\frac{S_Y^4}{2(n-1)}}}\right[$$.&#xA;According to the link, this is the Cox method, while the modified Cox method substitutes the standard normal quantile for a $t(n)$ quantile. They simulate more than just the these two intervals. They also simulate the naive approach.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we look at table 5  of the link, we can see that the best method is the modified Cox, since for small samples, and large ones, the covering probability is the most close to the nominal level.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Alecos answer, if I understood correctly, suggests adding a correction term to the naive approach, resulting in $CI(E(X))=\left]e^{\bar Y+\frac{1}{2}\frac{S_X^2}{(\bar X)^2}\pm t_{1-\alpha}\sqrt{\frac{S_Y^2}{n}}}\right[$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've simulated his answer with the following code in Mathematica:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;sim[n_] := Module[{},&#xA;  ct = 1;&#xA;  res = 0;&#xA;  While[ct &amp;lt;= 10000,&#xA;   data = RandomVariate[LogNormalDistribution[5, 1], n];&#xA;   y = Log[data];&#xA;   my = Mean[y];&#xA;   s2y = Variance[y];&#xA;   mx = Mean[data];&#xA;   s2x = Variance[data];&#xA;   qt = Quantile[StudentTDistribution[n], 0.975];&#xA;   If[E^(my + 0.5*s2x/mx^2 - qt*Sqrt[s2y/n]) &amp;lt; E^(5 + 0.5) &amp;lt; &#xA;     E^(my + 0.5*s2x/mx^2 + qt*Sqrt[s2y/n]),&#xA;    res++];&#xA;   ct++;&#xA;   ];&#xA;  res = res/10000.&#xA;  ]&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;The only difference is that I've done 10000 replications whereas the link only does 1000. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Running the code for the same sample sizes of the link, we obtain the following covering probabilities: $${0.8954, 0.8464, 0.7682, 0.7153, 0.6454, 0.4832, 0.3045, 0.073, 0.0068}$$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;AS we can see the correction increases the covering probabilities when compared to the naive method, but it still suffers from the same problem, i.e., the prob. tend to zero as the sample size increases.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;All in all, the best course of action is to use the modified Cox approach.&lt;/p&gt;&#xA;" OwnerUserId="118" LastActivityDate="2017-05-28T09:27:14.977" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16957" PostTypeId="1" CreationDate="2017-05-28T09:31:06.787" Score="4" ViewCount="5800" Body="&lt;p&gt;When the price is such that supply equals demand for e.g. bicycles, everybody who wants to buy a bike at that price gets one, and every bike gets sold. Everybody goes home happy and the marketplace clears. Hence the price at which the supply and demand curves cross is the &lt;strong&gt;Market-Clearing Price&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This isn't enough to make it an &lt;em&gt;equilibrium&lt;/em&gt; price. &quot;Equilibrium&quot; means that if the price is there, it'll stay there. If it's a &lt;em&gt;stable&lt;/em&gt; equilibrium, then even if it starts above or below that price, it'll get &lt;em&gt;pushed towards&lt;/em&gt; it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I feel like I understand why prices starting below the market clearing price, will get pushed up. Of course a firm will raise prices: they can charge more per unit, &lt;em&gt;and&lt;/em&gt; sell more units (assuming a rising supply curve).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you start above market-clearing price, there is a trade-off, because sales are demand-limited (assuming the demand curve is decreasing). Raised prices would mean more revenue per sale, but fewer sales. Lowering the price would mean more sales, but less revenue per sale. &lt;strong&gt;&lt;em&gt;Intro textbooks (e.g. Mankiw) seem to claim that the mere fact of there being a trade-off at all, is sufficient to push prices down, but it doesn't seem like that to me.&lt;/em&gt;&lt;/strong&gt; Whether lowering prices would increase profits depends on the &lt;em&gt;slope&lt;/em&gt; of the demand curve; if it's shallow enough, then the large increase in revenue-per-sale could make up for the small decrease in number of sales.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I'm not wrong then a firm with a monopoly on bicycles would set prices to maximize revenue, i.e. the area of a rectangle whose length is quantity and whose height is price. The corner of this rectangle would lie somewhere on the demand curve, &lt;em&gt;at or above&lt;/em&gt; the market-clearing price. The profit-maximizing price &lt;em&gt;might be one&lt;/em&gt; where there's excess potential supply (bikes you would have been willing to make and sell - presumably you didn't actually bother making them). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I assume that competition is what makes the difference, and somehow forces prices down to (but not below) the market-clearing price, making that the equilibrium for competitive markets. But I don't get how this works, e.g. why underselling won't stop being worth it until there's excess demand.&lt;/p&gt;&#xA;" OwnerUserId="10618" LastEditorUserId="10618" LastEditDate="2017-05-28T09:57:56.430" LastActivityDate="2017-07-04T07:38:16.547" Title="Why is the Market-Clearing Price also an Equilibrium Price?" Tags="&lt;supply-and-demand&gt;&lt;elasticity&gt;&lt;markets&gt;&lt;price&gt;" AnswerCount="3" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16959" PostTypeId="2" ParentId="14597" CreationDate="2017-05-28T12:38:51.510" Score="1" Body="&lt;p&gt;After the Financial crisis of 2007–2008, the inflation's decay became more persistent in many countries. There are several reasons why:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;The output gap went below zero in developed economies, however, the inflation level decayed moderately only.&lt;/li&gt;&#xA;&lt;li&gt;Changes in the structure of employment. The relative rate of highly educated had increased, therefore, the average level of wages raised as well.&lt;/li&gt;&#xA;&lt;li&gt;Fiscal consolidation. The rise of indirect taxation could hold the inflation at extraordinary high level, too.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="5017" LastActivityDate="2017-05-28T12:38:51.510" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16960" PostTypeId="1" AcceptedAnswerId="16963" CreationDate="2017-05-28T13:22:30.177" Score="2" ViewCount="45" Body="&lt;p&gt;I'm curious if there are any studies based on logistics and economics of shutting down the bus/transit system before the general population's working class can go home.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, the small town I live in, yet large enough to have transit, a huge retirement community (might factor in), and some amenities like app-based shopping (but no Lyft type service) has a bus system that will stop at 8:30 within a 3 mile radius of the main hub, 6:30 for farther out east, and about 7:30 for west (basically early). The stores, however, close at 9 or 11, as do most restaurants.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I began to factor in a few things, and have been web-searching to see if there are any studies. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;New workforce (teenagers) probably haven't saved enough for a &quot;good&quot; car, which I would guess encourages an older, more experienced workforce. A commuter can not shop after work (no time) nor can they work until this time. The meaningful fact is these are minimum-wage jobs, meaning that the ones most likely to need the bus after 9 are the ones who work at the stores.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Supply and demand effects, one would assume that younger employees work mornings and mid-day, and the later ones find rides through friends. Thus, the pizza/party and taxi economy thrives, but there is an unfulfilled demand for low-experienced workers in late shifts.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am just proving I have done some thought-searching on this, as the keywords to search for, if a paper exists, tend to get me transit schedules and not studies on such.&lt;/p&gt;&#xA;" OwnerUserId="13402" LastActivityDate="2017-05-28T16:34:49.393" Title="Effects on transit system shutdown based on local workforce end-of-day times?" Tags="&lt;labor-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16961" PostTypeId="1" AcceptedAnswerId="16965" CreationDate="2017-05-28T14:38:06.723" Score="2" ViewCount="59" Body="&lt;p&gt;We often hear in the news of the Fed changing the interest rate. Why do they not commonly alter the reserve ratio?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Won't either be capable of expanding or contracting the money supply?&lt;/p&gt;&#xA;" OwnerUserId="13403" LastActivityDate="2017-05-28T20:46:07.823" Title="Why does the Fed not fiddle with the reserve ratio?" Tags="&lt;reserve-requirement-ratio&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16963" PostTypeId="2" ParentId="16960" CreationDate="2017-05-28T16:34:49.393" Score="1" Body="&lt;p&gt;That's a fascinating idea, and I'd thoroughly suggest additional research into the matter (especially because you might be able to conduct a quasi-experimental analysis using instances of changing public transportation schedules on labor market factors, such as Boston's temporary decision to keep the MBTA rapid transit open later).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As far as your interest in other academic studies, I'd ask for a bit more clarification for a complete answer: what is the outcome variable(s) you are most interested in? Are you thinking about the impacts on the labor market (the distortionary effect on which groups are able to take jobs in the later shifts of retail, for example)? Or are you more interested in the potential for economic growth if hours were extended?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you clarify the above a bit more, I can try to search for more resources. However based on what you've mentioned, there are a few academic studies I found that might be of interest:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.186.2354&amp;amp;rep=rep1&amp;amp;type=pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;This Study by Fan, Guthrie and Levinson&lt;/a&gt; looks at the impact of light rail service on labor market outcomes for various types of workers. They cite two other articles (&lt;a href=&quot;http://escholarship.org/uc/item/3mq0b5j4#page-1&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; and &lt;a href=&quot;https://ideas.repec.org/a/eee/transa/v42y2008i5p833-841.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;) that also look into the impact of public transportation on labor market outcomes for different groups of workers. There are other citations in all three documents that you might find interesting along that dimensions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://conservancy.umn.edu/handle/11299/178988&quot; rel=&quot;nofollow noreferrer&quot;&gt;This article by Guthrie and Fan&lt;/a&gt; Examines the impact of public buses on economic development in the Twin Cities, Minnesota. &lt;a href=&quot;http://www.eesi.org/files/Economic-Impact-Public-Transportation-Investment-APTA.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;This study&lt;/a&gt; is one conducted by the American Public Transportation Association (so I might take some of their findings with a dose of skepticism) and details a variety of the economic impacts public transportation investment can have in the surrounding area.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are a few other studies that are more tangentially related to what seems to be your central question, but still might be interesting. &lt;a href=&quot;http://www.sole-jole.org/16516.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;This article, by Bauernschuster, Hener and Rainer&lt;/a&gt; looks at the impact of public transportation strikes on traffic, health outcomes, pollution, and other factors. The impact on traffic &lt;a href=&quot;http://www.nber.org/papers/w18757&quot; rel=&quot;nofollow noreferrer&quot;&gt;is also examined in this NBER article by Anderson&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It may also be worthwhile (again, not entirely sure what your main research question is on specifically) to look outside some of the normal &quot;econ research channels.&quot; &lt;a href=&quot;https://www.ncbi.nlm.nih.gov/pubmed/22024219&quot; rel=&quot;nofollow noreferrer&quot;&gt;This study in PubMed&lt;/a&gt; looks at the impact of Strikes in London's Underground on bicycle usage.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I hope some of those helped. If I can refine my answer further to better assist, just let me know!!&lt;/p&gt;&#xA;" OwnerUserId="13366" LastActivityDate="2017-05-28T16:34:49.393" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="16965" PostTypeId="2" ParentId="16961" CreationDate="2017-05-28T18:14:13.017" Score="3" Body="&lt;p&gt;The operating procedures the Fed has followed has changed over the years. I will first discuss the situation pre-2008, and then discuss the current situation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Situation 1994-2008. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Fed has an interest rate target, and the amount of excess reserves in the system was typically very small. Under normal circumstances, the Fed controls the amount of reserves in the system with open market operations. If nothing else happens, if the Fed buys \$1 billion in securities, it will create \$1 billion in reserves. (Exceptions include: banks may exchange reserves for notes and coins, and if there was a shortage of reserves, banks would be forced to go to the discount window to borrow to meet reserve requirements.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words, the Fed has to supply whatever reserves are required by the banking system. Banks lend first, then search for reserves later. If there is a shortage in the system, the Fed has to create reserves to meet demand, or else the interbank rate will go above target.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This means that reserves follow lending decisions, and the only influence the Fed has on the level of the money supply is through the moderating effect of interest rates on expectations. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that this explanation is known as &quot;endogenous money&quot;, as opposed to &quot;exogenous money&quot;, and which version is correct is/was a major debate. The endogenous money stance seems to be closer to the modern consensus; Monetarists were the main propenents of exogenous money. I believe that the modern version of &quot;exogenous money&quot; is more complex than the old belief (the central bank directly sets the level of the money supply), and the short-term story ends up being similar to my description above. Unfortunately, undergraduate textbooks tend to push the old exogenous money story.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From this standpoint, changing the reserve ratio will do very little, it just changes the amounts of reserves that the Fed has to create/destroy in order to hit its interest rate target. The reserve ratio has an effect on the competitive position of banks versus non-bank financial firms, and so reserve ratio changes end up having a distorting effect on competition.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The general irrelevance of reserves in monetary policy explains why reserve requirements were abolished in many developed countries, such as Canada.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The current situation features large amounts of excess reserves; changing the reserve ratio would imply no change in policy, as all that happens is that some existing reserve positions are reclassified, with no other effect.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2017-05-28T18:14:13.017" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16966" PostTypeId="1" CreationDate="2017-05-28T19:26:33.700" Score="2" ViewCount="120" Body="&lt;p&gt;I've been playing around with the numbers associated with the traditional comparative advantage problem provided by Ricardo.&#xA;(&lt;a href=&quot;https://en.wikipedia.org/wiki/Comparative_advantage&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://en.wikipedia.org/wiki/Comparative_advantage&lt;/a&gt;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I looked at comparative advantage in my Econ 101 class, but I was surprised to find when reviewing it that it seems like comparative advantage is itself not enough to ensure trade. (I had thought this was sufficient to ensure trade for all optimizing agents.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Am I correct in believing you'd need the utility function for at least one of the countries in the standard comparative advantage example to be convex, with a diminishing marginal rate of substitution (e.g., a Cobb-Douglass function of the form $U(x,y) = (x)^{0.5} (y)^{0.5}$)? Or am I missing something? It seems to me that without diminishing marginal rate of substitution (which isn't a huge assumption, of course), there's no benefit to trade.&lt;/p&gt;&#xA;" OwnerUserId="11880" LastEditorUserId="2776" LastEditDate="2017-06-14T07:22:52.080" LastActivityDate="2017-06-14T07:22:52.080" Title="Is comparative advantage only beneficial with convex utility functions?" Tags="&lt;utility&gt;&lt;international-trade&gt;&lt;comparative-advantage&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="16967" PostTypeId="2" ParentId="16966" CreationDate="2017-05-28T19:46:35.347" Score="1" Body="&lt;p&gt;What traditionally matters is a quasiconcave utility function (that is, the individual/country at least weakly prefers mixing such that all better sets are convex). I assume that's what you're referring to when you describe the Cobb-Douglass example.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Though I believe your comment about the functional form of utility is overall correct. If, for example, the utility function were&#xA;$$&#xA;u(x_{1},x_{2})=\max\{x_{1},x_{2}\}&#xA;$$&#xA;both countries would produce whatever they were more productive in, and neither country would be incentivized to trade.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(But again, I think the key is quasiconcavity of the utility functions, not convexity.)&lt;/p&gt;&#xA;" OwnerUserId="13366" LastEditorUserId="1601" LastEditDate="2017-05-28T20:44:14.060" LastActivityDate="2017-05-28T20:44:14.060" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="16968" PostTypeId="2" ParentId="16961" CreationDate="2017-05-28T20:46:07.823" Score="1" Body="&lt;p&gt;There was a time when they did, but it's a less common tool of monetary policy now. At any rate, altering the minimum reserve ratio at this point would be pointless due to the huge quantities of excess reserves banks have been holding since the 2008 bailouts and subsequent rounds of quantitative easing. The reserve ratio is a relevant tool of monetary policy only if banks are actually at or near that ratio, which few are at this time.&lt;/p&gt;&#xA;" OwnerUserId="13249" LastActivityDate="2017-05-28T20:46:07.823" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16969" PostTypeId="2" ParentId="16957" CreationDate="2017-05-29T00:07:12.627" Score="1" Body="&lt;p&gt;(This is referring both to the initial question and to the comment. I would respond to each individually, but I don't think I have the reputation to address the comment directly.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Paraphrasing a bit from your question, you're right- an equilibrium price is one where no firm has an incentive to deviate in their pricing or production decisions, and demand is perfectly satisfied (again, given the price). While the exact &quot;mechanism&quot; that would push price down might differ depending on what market type you're considering, the common feature will be that there is always a marginal incentive to deviate down to the lower price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In terms of perfect competition- as you mentioned, it can be seen as a race for different firms to undercut their competitors, until they hit the no profit condition. That pushes the market clearing price down to marginal cost, which is the equilibrium price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For monopolists, they're looking to maximize &lt;em&gt;profit,&lt;/em&gt; not necessarily revenue. But, as every firm does, they choose a price &lt;em&gt;p&lt;/em&gt; to satisfy:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;max\{q(p-c)\} = \pi&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;They will choose a price higher than the one found under a perfectly competitive framework; hence why the market clearing price, and equilibrium price, is higher under monopoly than perfect competition.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But if the monopolist were to set a price different from the one that satisfies that maximization problem, they are pricing, as you described, too high. That tells them when to produce more units at a lower price; until their profit maximization price is hit. That becomes the clearing price, and the equilibrium price for a monopolist.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm sorry if that was too repetitive or elementary. You're question is an excellent one, and a somewhat subtle point has to be made. If it wasn't clear, or you'd like it re-framed, let me know!&lt;/p&gt;&#xA;" OwnerUserId="13366" LastActivityDate="2017-05-29T00:07:12.627" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="16971" PostTypeId="2" ParentId="16952" CreationDate="2017-05-29T06:06:30.963" Score="1" Body="&lt;p&gt;Converting my comments into an answer... &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the infinitely repeated game, if the players want to collude on $(L,L)$, then there needs to be an incentive for each to stick to the plan, i.e. a punishment if one of them deviates from playing $L$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As you have figured out, this amounts comparing the discounted payoffs from playing $(L,L)$ with a one-shot deviation of playing $H$ against $L$, and then playing $(H,H)$ forever. &lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2017-05-29T06:06:30.963" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16972" PostTypeId="2" ParentId="16562" CreationDate="2017-05-29T10:44:34.723" Score="1" Body="&lt;p&gt;@Toby comments noted, I will attempt an answer.  First, the FX market is international so you cannot tell whether the foreign currency seller is domestic or foreign. However, if it is a foreign buyer, they will typically reinvest the dollars in either a commercial or financial asset such as a Treasury bond, which could result in the remittance of the dollars back to a domestic holder.   What you know for sure is that the dollars will be deposited in a bank somewhere and will add to the pile of excess reserves currently held by the US banking system.  Hence technically the money supply goes up.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Perhaps the greater question is whether raising the money supply in this way has any effect on the economy.  I would suggest not, since banks already have excess reserves.   Rather, the transmission mechanism for FX intervention is via changes in the exchange rate.   But that could be debatable.  &lt;/p&gt;&#xA;" OwnerUserId="13062" LastActivityDate="2017-05-29T10:44:34.723" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16973" PostTypeId="2" ParentId="16947" CreationDate="2017-05-29T12:10:49.430" Score="0" Body="&lt;p&gt;Let $w$ denote the existing wealth of agent A. Agent has an option to attain higher education by paying $F$ as fees and in return can earn $y_1$ with probability $p$ and $y_2$ with probability $1-p$, where $y_1&amp;gt;y_2$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, the choice is between saying &lt;strong&gt;yes&lt;/strong&gt; or &lt;strong&gt;no&lt;/strong&gt; to higher education.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If he says yes to higher education, his wealth will be $w - F + y_1$ with probability $p$ and $w - F + y_2$ with probability $1-p$.&#xA;If he says no, then his wealth remains at $w$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;He will say yes if his expected utility from higher education is more i.e.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$p(w - F + y_1)^a + (1-p)(w - F + y_2)^{a} &amp;gt; w^a$&lt;/p&gt;&#xA;" OwnerUserId="11824" LastActivityDate="2017-05-29T12:10:49.430" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16975" PostTypeId="2" ParentId="12824" CreationDate="2017-05-29T20:42:40.747" Score="2" Body="&lt;p&gt;I was just trying to understand this myself, and I think I get it now. Let's think of it as two subquestions: &lt;strong&gt;1)&lt;/strong&gt; why should any firm ever make intermediate amounts of any good (as opposed to none, or as much of it as possible)? &lt;strong&gt;2)&lt;/strong&gt; why does the intermediate amount they should make, increase with its price?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So at first I was also confused. Suppose you're selling bicycles. You want to maximize your profit. &lt;em&gt;At any price&lt;/em&gt;, the more bicycles you sell, the more revenue you get from selling bicycles. So shouldn't you always want to make and sell &lt;em&gt;as many&lt;/em&gt; bicycles as you possibly can, &lt;em&gt;no matter&lt;/em&gt; what the price?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For any one particular good (like bicycles): no, you shouldn't.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;em&gt;The first insight&lt;/em&gt;&lt;/strong&gt; is that making bicycles costs money, which you could have used to make and sell something else instead (or which you could have invested).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That's not enough on its own, though - maybe you should just &lt;em&gt;either&lt;/em&gt; make as many bicycles as possible, &lt;em&gt;or&lt;/em&gt; not make any bicycles and instead make as many as possible of whichever other thing is more profitable to make and sell, i.e. has a higher price-to-cost-of-production difference.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;em&gt;The second insight&lt;/em&gt;&lt;/strong&gt; is that the marginal cost of production for a good - how much it costs to make &quot;one more&quot; of it - can &lt;em&gt;change&lt;/em&gt; with how many of the good you've produced. The 10th bicycle you make, might cost more or it might cost less to make, than the first did.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Economists either assume, or argue, that for many goods the marginal cost of production &lt;em&gt;increases&lt;/em&gt; with quantity: it costs more to make the 1000th bicycle, than to make the 100th. It's not all that clear to me why, but let's take it as a given.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;To visualize why&lt;/strong&gt; marginal cost of production might be important, first forget price and revenue and profit, and let's just say that for some reason you want to make as many &quot;units&quot; of stuff as possible. Assume for simplicity that you only know how to make bicycles and tricycles.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It could be that making your first bike is cheaper than making your first trike. But assume, as economists do, that the marginal cost of production increases, for both goods. As you keep making bikes, &lt;em&gt;eventually&lt;/em&gt; there comes a time when instead of making &quot;one more bike&quot;, you find it more economical to switch and start making trikes instead. So if you have a fixed budget, you won't necessarily want to make no bikes at all, &lt;em&gt;or&lt;/em&gt; make as many as possible. You'll make an intermediate number of bikes (as well as an intermediate number of trikes, such that their marginal costs of production are the same).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;You don't actually&lt;/strong&gt; want to maximize the number of goods, you want to maximize profit. Define &lt;strong&gt;&lt;em&gt;marginal&lt;/em&gt; profit&lt;/strong&gt; to be the difference between price, and marginal cost of production. If the price of bikes is fixed, and the marginal cost of production increases with quantity produced, then of course the marginal profit decreases with quantity produced. You want to keep making bikes, until the marginal profit of making &quot;one more bike&quot; is lower than the marginal profit of making a trike instead.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;em&gt;The higher the price of bicycles,&lt;/em&gt;&lt;/strong&gt; the higher the marginal profit for bicycles, at all quantities. Therefore the higher the price of bicycles, the more you can make before the marginal profit decreases to the point where you should stop and make a tricycle instead. Therefore the higher the price of bicycles, the more bicycles you will find it profitable to make.&lt;/p&gt;&#xA;" OwnerUserId="10618" LastEditorUserId="10618" LastEditDate="2017-05-29T20:48:11.463" LastActivityDate="2017-05-29T20:48:11.463" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16977" PostTypeId="1" CreationDate="2017-05-29T22:55:40.350" Score="1" ViewCount="91" Body="&lt;p&gt;How does one really compute inflation? I just now quickly looked up how the real GDP was computed. It is using the base year price to multiply the number of products traded. Is that meaningful? Is a ten year inflation computed on the base of the zeroth year price? The change in demand and supply would have made a huge change in the price when there is no inflation. The Motorola flip cell phone price now must be less than 1/100 of the price when it first came out. Does that mean there is severe deflation? On the other hand, the price for it could explode because it could have become a collector item. What about the price of a quantum computer --- the real one, or just something akin to DWave --- when it comes out? Are we going to compare its price against Von Neumann's Maniac or Allan Turing's Bombe or Intel 40386? This is nonsense and absurd. One rescue I can come up with right now, is we divide a finite time interval into multiple periods and computing recursively. We must assume the inflation speed is faster than the change of the supply and demand in each interval. I do not even know if that makes mathematical sense. Is there a proof of legitimacy for this or any other remedies, at least mathematically?&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;luchonacho has provided some sources below in his answer, particularly hedonic regression, for estimating the inflation. I have expressed my doubt over the efficacy of method. Here I would like to criticize the method further on the technicality.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The hedonic regression does not answer my question for distinguishing the change in supply and demand including that caused by the technological change. It seems the proponents of hedonic regression claim that it could make the distinction. Hedonic regression assumes the price of a good as the linear function of its attributes. Suppose the attributes have not changed over the period under consideration. However, the supply and demand for this good have changed due to, say, technological innovation that either has made the good obsolete or more valued or made useful in completely different ways than before, as well as inflation. Unless one already know extraneous information either on the change in supply and demand or the inflation, there is no way one can distinguish inflation from the change in supply and demand.&lt;/p&gt;&#xA;" OwnerUserId="10298" LastEditorUserId="10298" LastEditDate="2017-06-03T01:59:24.947" LastActivityDate="2017-06-03T01:59:24.947" Title="Real GDP Computation and Justification" Tags="&lt;inflation&gt;&lt;gdp&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16980" PostTypeId="2" ParentId="16977" CreationDate="2017-05-30T11:48:22.603" Score="1" Body="&lt;p&gt;Your criticisms of GDP are valid, and have long been recognised in the literature and by statistical offices. For example, one of the issues your question deals with is &lt;strong&gt;quality changes&lt;/strong&gt;. The case of hardware is particularly visible.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Several agencies do adjust for quality changes. A common method to do so is using &lt;a href=&quot;https://en.wikipedia.org/wiki/Hedonic_regression&quot; rel=&quot;nofollow noreferrer&quot;&gt;hedonic regressions&lt;/a&gt;. The aim here is to obtain a &quot;valuation&quot; of all the different components of an item, like a PC. For example, using these regressions you can get an idea of the value consumers give to memory, graphic card, DVD reader, speed, etc. Then, new products can be adjusted using these values. An example of such regression for computers is &lt;a href=&quot;http://cws.cengage.co.uk/chamberlin_yueh/students/cases/ch01a.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The ONS (which computes GDP for the UK) do attempt to adjust for quality. In fact, they consider &quot;volume&quot; of a product as a combination of both quantity and quality. They differentiate between two methods to evaluate volume. For some homogeneous goods like agricultural grains or energy products, where quality is less relevant, you simply compute the physical volume. Yet, for most of the products, heterogeneity makes such calculation impossible. The quality adjustment then comes from prices. The ONS uses the hedonic regression method for goods with &quot;frequent model changes&quot;, but uses other methodologies too. For example, there is a major challenge in measuring change in quality of public services (like health care and education). For a detailed description on the ONS quality adjustment, check &lt;a href=&quot;https://www.google.co.uk/url?sa=t&amp;amp;rct=j&amp;amp;q=&amp;amp;esrc=s&amp;amp;source=web&amp;amp;cd=1&amp;amp;cad=rja&amp;amp;uact=8&amp;amp;ved=0ahUKEwjNx77-w5fUAhVID8AKHXQCC8wQFggiMAA&amp;amp;url=https%3A%2F%2Fwww.ons.gov.uk%2Fons%2Fguide-method%2Fmethod-quality%2Fspecific%2Feconomy%2Fproductivity-measures%2Fproductivity-handbook%2Fquality-adjustment%2Fchapter-6---quality-adjustment.pdf&amp;amp;usg=AFQjCNE8-xgbH9hyFEcwdnK7Q3R5QF0ElA&amp;amp;sig2=SgYdWFcIKXZ35sjSXt9gxQ&quot; rel=&quot;nofollow noreferrer&quot;&gt;this article&lt;/a&gt;. Check &lt;a href=&quot;https://www.ons.gov.uk/economy/economicoutputandproductivity/publicservicesproductivity/topicspecificmethodology&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; for public productivity measurement.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For other formal references, see &lt;a href=&quot;http://ec.europa.eu/eurostat/web/products-manuals-and-guidelines/-/KS-GQ-14-005&quot; rel=&quot;nofollow noreferrer&quot;&gt;this one&lt;/a&gt;. The latest UN &lt;a href=&quot;https://unstats.un.org/unsd/nationalaccount/docs/SNA2008.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;System of National Accounts&lt;/a&gt;, in which most of countries are based to compute national statistics, also offer some guidance on quality adjustment (section 4, page 361, in particular).&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-05-30T11:48:22.603" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="16981" PostTypeId="1" AcceptedAnswerId="16991" CreationDate="2017-05-30T15:07:14.010" Score="4" ViewCount="164" Body="&lt;p&gt;I am getting some &quot;weird results&quot;. I find that in a CES, with short term fixed capital and elasticity of substitution smaller than one, &lt;strong&gt;it is optimal for firms to hire zero labour, which seems at odd with the idea that the marginal product of labour is always positive&lt;/strong&gt; (except in the extreme case of Leontief, where $\rho = -\infty$).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume a simple CES production function:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Y = A\left( \alpha L^{\rho} + (1-\alpha)K^{\rho} \right)^{\frac{1}{\rho}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume that capital is fixed in the short term, so the firm only optimises over  $L$. Importantly, &lt;strong&gt;the firm must pay the cost of capital anyway&lt;/strong&gt;. Therefore, as long as $p&amp;gt;0$, the firm is always better off by producing something. Thus, the key question is how much labour to hire. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Under competitive markets, optimal labour comes from:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{equation}&#xA;\frac{\partial Y}{\partial L} \equiv \alpha A^{\rho} \left(\frac{Y^*}{L^*}\right)^{1-\rho}  = \left(\frac{w}{p}\right) &#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Importantly, notice that MPL is (i) &lt;strong&gt;always positive&lt;/strong&gt;, (ii) for $\rho&amp;lt;1$ (including negative values) and $L^*=0$, &lt;strong&gt;it is infinity!&lt;/strong&gt;. In other words, whenever there is imperfect substitution of factors, and the wage rate is non-infinity, &lt;strong&gt;you want to produce with some labour&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Replacing output into the above yields a single equation with only one unknown ($L_i^*$), which solution is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ L^* = K \Omega^{\frac{1}{\rho}}  $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \Omega = \left(\dfrac{(1-\alpha)}{\left(\frac{w}{A p \alpha}\right)^{\frac{\rho}{1-\rho}}-\alpha}\right) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, discard the parameterisations where $\Omega&amp;lt;0$. These are corner solutions where $L^*=0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So far so good. Except for some strange result when $\rho&amp;lt;0$. To see this, let us replace optimal labour into the production function. After some rearranging, you get:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ Y^* = AK\left(\alpha\Omega + (1-\alpha)\right)^{\frac{1}{\rho}} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, compare this with the case of zero labour. Let us call this $Y_0$. Here, output is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ Y_0 = AK(1-\alpha)^{\frac{1}{\rho}} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, &lt;strong&gt;we want to know under which parameterisation the firm is better off producing with zero labour&lt;/strong&gt;. Profits with optimal labour and with zero labour are respectively:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \pi = pY^* - rK - wL^* $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \pi_0 = pY_0 - rK $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, the firm will produce with no labour &lt;em&gt;iff&lt;/em&gt; $\pi_0&amp;gt; \pi$, which is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ wL^* &amp;gt; p(Y-Y_0) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, if the labour costs do not compensate for extra profits, the firm will choose $L^*=0$. Here is where the problem arises: &lt;strong&gt;for $\rho&amp;lt;0$, $Y-Y_0$ is always negative!&lt;/strong&gt; Which means firm will produce with zero labour.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To see this, let us find the conditions under which $\Delta Y=Y-Y_0&amp;lt;0$. This is, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ AK\left[\left( \alpha \Omega + (1-\alpha)\right)^{\frac{1}{\rho}} - (1-\alpha)^{\frac{1}{\rho}}  \right] &amp;lt;0 $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \left( \alpha \Omega + (1-\alpha)\right)^{\frac{1}{\rho}} &amp;lt; (1-\alpha)^{\frac{1}{\rho}} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Noting that $\rho&amp;lt;0$ will invert the components, you get:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{1}{\left( \alpha \Omega + (1-\alpha)\right)} &amp;lt; \frac{1}{1-\alpha} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which is clearly true for:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ 0&amp;lt; \alpha\Omega $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, for &quot;normal&quot; parameterisations where $\Omega&amp;gt;0$, we can see that $Y-Y_0&amp;lt;0$ is always true. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have confirmed this in R. The following code produces delta in output = -15:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;rm(list=ls())&#xA;&#xA;rho       &amp;lt;- -0.5&#xA;alpha     &amp;lt;- .6&#xA;A &amp;lt;- 1&#xA;p &amp;lt;- 1&#xA;w &amp;lt;- 0.7&#xA;&#xA;K &amp;lt;- 2.756729&#xA;omega = (1-alpha)/((w/(alpha*A*p))^(rho/(1-rho))-alpha)&#xA;L = K*omega^(1/rho)&#xA;&#xA;ll = alpha*L^rho&#xA;kk = (1-alpha)*K^rho&#xA;tr = (1/rho)&#xA;Y = A*(ll+kk)^tr&#xA;Y0 = A*(kk)^tr&#xA;&#xA;delta_output = Y-Y0&#xA;&#xA;delta_profits = p*(Y-Y0)-w*L&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;if I change $\rho$ to 0.5, you get the desired result (that using labour does increases output).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can also see the plot of delta output &lt;a href=&quot;http://www.wolframalpha.com/input/?i=plot+(0.6*x%5E(-0.5)%2B1)%5E(-2)+-+1%5E(-2)+between+0+and+100&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;. It is clear that the delta output is always negative, and asymptotically zero for $x=\infty$, which is when $L^*=0$.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-05-30T15:56:25.180" LastActivityDate="2017-05-31T21:13:10.050" Title="Is optimal labour zero when (i) capital fixed and (ii) elasticity of substitution less than 1?" Tags="&lt;microeconomics&gt;&lt;elasticity-of-substituion&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16983" PostTypeId="2" ParentId="16957" CreationDate="2017-05-30T16:22:51.957" Score="1" Body="&lt;p&gt;The difference between the competitive and monopolist markets is that the monopolist is not a price taker, he is large enough that when he sets prices and determines his output there is no circumventing his choices (this is the nature of monopoly). This is in contrast to the competitive firm, which is forced to either take market prices or be completely avoided by the market of buyers (or sell for cheaper than others, we would be at a loss).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The demand curve for each individual buyer is fixed, but the curve for the monopolist curve is downward sloping, as compared with a competitive firm's demand curve which is horizontal (this is equivalent to the firm being a price taker).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With regard to your point about profit maximizing prices not clearing the market, it seems that that shouldn't be the case. When the monopolist is making his choices about maximizing profit he is using the demand curve to 1) find his marginal revenue, which must be set equal to marginal cost, and 2) set a price for his good at the output level he chooses. Why would he choose a non-clearing price? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If he chooses too high a price he would be better off producing fewer goods, until he has none left over after his sales in the market (this would be market-clearing). If he chooses too low a price...well it is obvious he shouldn't and wouldn't do that.&lt;/p&gt;&#xA;" OwnerUserId="12636" LastActivityDate="2017-05-30T16:22:51.957" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16987" PostTypeId="1" AcceptedAnswerId="17262" CreationDate="2017-05-30T20:35:33.663" Score="0" ViewCount="47" Body="&lt;p&gt;I am kinda confused about &lt;a href=&quot;https://www.youtube.com/watch?v=sSSa93S4v8M&quot; rel=&quot;nofollow noreferrer&quot;&gt;this&lt;/a&gt; YouTube video. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the LMP with no constraints is the same in both nodes. For me it was the same because I used those offers from node 1 also in node 2 and we chose the highest offer because also those companies who wanted to sell it for 35$ will not say no if you buy it from them for 42 dollars and we do this because it is the easiest way to calculate the price so everyone is happy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now later in the video (from 1:48-2:37 min) the price is different in each node because of the transmission constraint. Why? I mean I still just used the third package with 38$ per MWh because it is cheaper for node 2, why would I still let node 1 pay for that?&lt;/p&gt;&#xA;" OwnerUserId="13431" LastEditorUserId="2776" LastEditDate="2017-05-31T08:56:41.580" LastActivityDate="2017-06-21T09:09:05.590" Title="Locational Marginal Pricing when different prices and when the same?" Tags="&lt;pricing&gt;&lt;energy-economics&gt;&lt;marginal&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16988" PostTypeId="1" CreationDate="2017-05-31T05:05:24.383" Score="0" ViewCount="98" Body="&lt;p&gt;By the current account, the highest debt-to-GDP state in the US is NY, which is around 23%, with most states around 18%. By comparison, Canadian provinces tend to have much higher ratio, with Ontario at around 37% and Quebec over 40%. What accounts for this? Are the Canadian provinces responsible for distributing social benefits that would be under the federal jurisdiction in the US which skews up their %? Or are they just spending more irresponsibly than the US?&lt;/p&gt;&#xA;" OwnerUserId="5463" LastActivityDate="2017-06-01T18:03:03.317" Title="Why are Canadian provinces' debt-to-GDP so much higher than the US?" Tags="&lt;gdp&gt;&lt;usa&gt;&lt;canada&gt;" AnswerCount="1" CommentCount="10" ContentLicense="CC BY-SA 3.0" />
  <row Id="16989" PostTypeId="2" ParentId="16988" CreationDate="2017-05-31T11:34:50.353" Score="3" Body="&lt;p&gt;The Canadian provinces implement most of the welfare state programmes. The role of the Canadian Federal Government is to set out guidelines, and undertake fiscal transfers to allow provinces to stay near national standards. Since they have much larger budgets, they necessarily end up absorbing more of the economic cycle as being an automatic stabliser (i.e. they issue more debt).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are no balanced budget laws for Canadian Provinces. American states generally have balanced budget rules, so debt levels are necessarily low. The states that do not have balanced budget laws are pretty much forced to follow the borrowing norms set by states with balanced budget rules.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, the funding mechanism is different. Canadian city governments do not issue much debt, and there is very little project-based bond issuance. In other words, debt that shows up at the Provincial level ends up being financed otherwise in the United States (and does not show up in State level debt).&lt;/p&gt;&#xA;" OwnerUserId="12891" LastEditorUserId="12891" LastEditDate="2017-06-01T10:52:26.503" LastActivityDate="2017-06-01T10:52:26.503" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="16990" PostTypeId="1" CreationDate="2017-05-31T13:48:39.263" Score="1" ViewCount="61" Body="&lt;p&gt;I have been given an assignment for creating my own currency in economics. I am curious what one should know when doing this.  It doesn't have to be too elaborate but I would like some advice. I know the complicated procedures regarding making sure counterfeiting is hard. But how the currency should be backed, and what it should look like and its form.  Etc... &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know this assignment is very unrealistic because it would require me to somehow put a value on the currency and have it be adopted by a government, however unlikely. Just keep it basic.&lt;/p&gt;&#xA;" OwnerUserId="13436" LastActivityDate="2017-07-30T17:11:20.443" Title="Creating a currency" Tags="&lt;currency&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16991" PostTypeId="2" ParentId="16981" CreationDate="2017-05-31T14:03:39.300" Score="3" Body="&lt;p&gt;Ok, rather embarrassing, but the problem was in the formula for $Y_0$. In effect, for $\rho&amp;gt;0$, it is true that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ Y_{_{L=0}} = AK(1-\alpha)^{\frac{1}{\rho}} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, for the case of $\rho&amp;lt;0$, the limit of $Y$ is zero. The proof is trivial. Rewrite the CES as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ Y = AL\left(\alpha + (1-\alpha)\left(\frac{L}{K}\right)^{-\rho} \right)^{\frac{1}{\rho}} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, it is trivial to see that:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \lim_{L\rightarrow 0} Y = A0 \: \alpha^{\frac{1}{\rho}} = 0 $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With this, we can see that $\Delta Y = Y &amp;gt; 0$. This solves the inconsistency.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;PS: as it turns out, &lt;strong&gt;the marginal product of labour at $L=0$ is not infinity&lt;/strong&gt;. Apparently, the Inada conditions &lt;a href=&quot;http://econpapers.repec.org/article/eeeecolet/v_3a81_3ay_3a2003_3ai_3a3_3ap_3a361-363.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;do not hold&lt;/a&gt; for the CES with $\rho&amp;lt;0. Actually, &lt;strong&gt;the marginal product of labour seem to be zero!&lt;/strong&gt; (check slide 15 &lt;a href=&quot;http://www2.warwick.ac.uk/fac/soc/economics/staff/jchavezcotrado/ec92a_phdmacro/recitation1.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;). This is a major revelation to me.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-05-31T14:03:39.300" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16992" PostTypeId="2" ParentId="16990" CreationDate="2017-05-31T14:11:20.223" Score="1" Body="&lt;p&gt;What about creating a new currency and pegging it to the actual currency of your country (e.g. Euros)? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In order to become credible, you would need to give the public some assurance that you will convert back any of your notes into Euros, whenever some ask you to do so. Maybe signing a contract stating that you back the currency with your life would work, as backing it with your assets might not be enough (unless you are super rich). Government backs their currency simply because they have the monopoly of collecting taxes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some examples in the UK, which are backed by local councils are the &lt;a href=&quot;https://bristolpound.org/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Bristol Pound&lt;/a&gt; and the &lt;a href=&quot;http://www.exeterpound.org.uk/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Exeter Pound&lt;/a&gt;. The key for this to work is, in my view, (i) parity with a local currency (so it does not fluctuate locally and it is easy to adopt), (ii) backed by a state authority, (iii) hard to counterfeit.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-05-31T14:11:20.223" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16993" PostTypeId="2" ParentId="16990" CreationDate="2017-05-31T15:36:23.490" Score="0" Body="&lt;p&gt;In fact, currency doesn't need to be &quot;approved&quot; by any government.  In fact, currency is just a trade medium, in some scenario, it becomes commodities, viable for speculation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A game like &quot;Monopoly&quot; already introduce its own currency. Players mutually agree on the currency &quot;collection&quot; and price on the market.  Just imagine, if the game issue extra $200 to first player, I can assure that nobody going to play the game. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Historically, there is worst market situation, where enclosed society controlled by monopolies may &quot;enslaved to use something like &lt;a href=&quot;https://en.wikipedia.org/wiki/Company_scrip&quot; rel=&quot;nofollow noreferrer&quot;&gt;Company scrip &lt;/a&gt;. &lt;/p&gt;&#xA;" OwnerUserId="11177" LastActivityDate="2017-05-31T15:36:23.490" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16994" PostTypeId="1" CreationDate="2017-05-31T15:45:33.250" Score="0" ViewCount="86" Body="&lt;p&gt;What makes things precious? For example Gold, Silver, Diamonds, etc. Once they were unknown to human being. And now they are the more pricey things.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I guess its just the way these things were marketed into the world, Demand and Supply control makes them pricey, there are a lot of other metals too in the world, which are more expensive then gold, but they are not that much poplar or in demand.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Similarly if we look into brands, Gucci, Armani, Micheal Kors, etc. Once they were unknown, no one knew about them. But now, they are the most expensive brands in the market. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know in brands companies cash their name, that's why they are too pricey. But my concern is what exactly makes things precious and pricey.&lt;/p&gt;&#xA;" OwnerUserId="13391" LastEditorUserId="2776" LastEditDate="2017-06-01T09:49:31.303" LastActivityDate="2017-07-02T19:13:55.303" Title="What gives value to precious, luxury things?" Tags="&lt;self-study&gt;&lt;value&gt;&lt;price&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="16995" PostTypeId="2" ParentId="16994" CreationDate="2017-05-31T16:05:08.890" Score="1" Body="&lt;p&gt;Only a surplus on demands will make things &quot;valuable&quot;.   So it is about the price level accepted by those who demands it, and the demands can be from essential needs to status show-off. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you read Netherland history, you will notice there is a period of non-existence luxury goods, due to the shape of religious culture that forbids show off. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;OTH, there is also terrible rent seeking like monopoly that make essential goods pricey. &lt;/p&gt;&#xA;" OwnerUserId="11177" LastActivityDate="2017-05-31T16:05:08.890" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="16997" PostTypeId="1" AcceptedAnswerId="17004" CreationDate="2017-05-31T16:36:44.563" Score="1" ViewCount="45" Body="&lt;p&gt;Currently I am working out advanced micro problems that deal with household's optimal savings behavior. Although I think I understand the material quite well, I am not sure about the specific detail of the solution of the following (shortened) problem.   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $u: \mathbb{R}_+ \to \mathbb{R}_+, c_i \mapsto c_i^2$ be the (consumption) utility function for the two time periods $i \in \{1,2\}$. Assume that the income $y_2$ is risky with riskiness represented as $\beta$ and $\beta$ being a mean-preserving spread. What can you say about the change in optimal savings if $\beta$ increases? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My &lt;strong&gt;thoughts&lt;/strong&gt; about this are as follows. What we are looking for here is the sign of $$\frac{ds^*}{d\beta}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $s^*$ denotes optimal savings. In the lecture we showed that its sign only depends on the sign of $$K = \frac{d\mathbb{E}[u']}{d\beta}$$ Since $\beta$ is a meaning-preserving spread we then said that the sign of $K$ only depends on the sign of $u'''$, i.e. that $K &amp;lt; 0$ if $u''' &amp;lt; 0$ and vice versa but we omitted the case $K = 0$. But since $u(c_i) = c_i^2$ it is $u''' = 0$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My &lt;strong&gt;questions&lt;/strong&gt; are thus &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;What is the conclusion if $u''' = 0$? Is it the same as the positive (&gt; 0) case? &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Why exactly do we, if $\beta$ is a MPS, only need to care about the argument's second derivative in order to determine the sign of the expectation? &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="7711" LastActivityDate="2017-06-01T16:10:11.953" Title="Change in optimal savings due to increased risk" Tags="&lt;microeconomics&gt;&lt;saving&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="16998" PostTypeId="2" ParentId="16981" CreationDate="2017-05-31T21:13:10.050" Score="3" Body="&lt;p&gt;Starting from &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Y = A\left( \alpha L^{\rho} + (1-\alpha)K^{\rho} \right)^{\frac{1}{\rho}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$...\implies MP_L = \alpha A\cdot\left( \alpha + (1-\alpha)\left(\frac {K}{L}\right)^{\rho} \right)^{\frac{1}{\rho}-1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;assume that $\rho &amp;lt;0$ (which gives an elasticity of substitution smaller than unity). Then we can write&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$MP_L = \frac A {\left( \alpha  + (1-\alpha)\left(\frac {L}{K}\right)^{|\rho|} \right)^{\frac{1}{|\rho|}+1}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$L\to 0 \implies MP_L \to \frac A { \alpha  ^{\frac{1}{|\rho|}+1}} &amp;gt;0 $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;although not infinite.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2017-05-31T21:13:10.050" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="17004" PostTypeId="2" ParentId="16997" CreationDate="2017-06-01T16:10:11.953" Score="2" Body="&lt;p&gt;Your question is essentially about precautionary savings, i.e. the response of savings to risk. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What determines precautionary savings is the coefficient of relative prudence: $CRP=-\frac{U'''}{U''}C$, where $U$ is the utility function, $C$ is consumption and primes denote derivatives. As we always have decreasing marginal utility in economics, i.e. $U''&amp;lt;0$, then the sign of the savings will depend on the sign of the third derivative, as you mentioned. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Think of this coefficient as similar to the risk aversion coefficients. The difference is that prudence means that agents act in anticipation of risk by saving more, whereas risk aversion reflects how agents react when presently faced with risk.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With quadratic utility, the coefficient of relative prudence is zero and there are no precautionary savings. Hence there is no effect of risk on savings. With such utility we therefore have certainty equivalence, which is quite convenient and hence often used. Mean preserving spreads don't matter then. So no, it is not the same as in the positive case, where savings would go up in resonse to risk.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is crucial here, as you noted, is the third derivative. The coefficient really only uses the second derivative as a normalization.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A mean-preserving spread keeps the mean/expected value of consumption the same. However, it does not neccssarily keep the derivatives (marginal utility) the same, which are what matter for (savings) decisions. If the marginal utility is linear (quadratic utility), then a mean-preserving spread keeps the expected marginal utilities the same as well. Hence, there are no precautionary savings (no reaction) in that case.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the marginal utilities are convex, then the mean-preserving spread changes things in a way that matters, i.e. it becomes beneficial to save more. This follows from Jensen's inequality. If it is concave, the opposite is true. So the relevant function to look at is $U'$, as this is how the agent makes decisions. When we want to see whether a function is convex or concave we look at the second derivative. So the second derivative of $U'$ is $U'''$, which is why the third derivative matters here.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastActivityDate="2017-06-01T16:10:11.953" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17005" PostTypeId="1" CreationDate="2017-06-01T16:25:14.960" Score="4" ViewCount="353" Body="&lt;p&gt;I was wondering if anyone had any insight into the conditions that lead to a unique equilibrium in an exchange economy under a general equilibrium framework. More specifically, I know that the two &quot;general&quot; conditions that can be used to show an equilibrium is unique are &lt;strong&gt;Gross Substitutes&lt;/strong&gt; and &lt;strong&gt;Weak Axiom of Revealed Preference.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But beyond that, I'm having trouble figuring out what those two conditions actually look like in practice, and finding examples for each case. For example, a few of the specific questions I have (and note, parts of my questions may themselves be wrong, so please do not hesitate to point out any and all flaws you see!):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In an Edgeworth Economy setting, both consumers having Cobb Douglas utility functions is sufficient, correct? I'm not 100% sure, but I think that satisfies the gross substitutes condition. That said, is that result generalize-able? If all individuals have Cobb Douglas utilities in an &lt;em&gt;n-consumer, l-good&lt;/em&gt; case, is there still a unique equilibrium?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Similarly, in an Edgeworth Economy setting, if both individuals have quasilinear utilities &lt;em&gt;in the same good&lt;/em&gt; it is also sufficient to show a unique equilibrium (if it exists). Is that result generalizable to an &lt;em&gt;n case&lt;/em&gt;?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Moreover, if anyone else has any good examples of either utility function forms or tips regarding proving or disproving uniqueness in a given case, I'd love to hear them! I'm particularly curious about Edgeworth Economy cases, but any general examples/results would be wonderful!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks so much!&lt;/p&gt;&#xA;" OwnerUserId="13366" LastActivityDate="2017-06-01T16:25:14.960" Title="Equilibrium Uniqueness in a General Equilibrium Framework" Tags="&lt;microeconomics&gt;&lt;general-equilibrium&gt;&lt;competitive-equilibrium&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17006" PostTypeId="2" ParentId="9087" CreationDate="2017-06-02T03:25:01.827" Score="0" Body="&lt;p&gt;Rate of growth of per capita GDP is defined as the difference between the rate of growth of GDP and the rate of growth of population as Per Capita GDP = GDP/Population. So, the growth rate of per capita GDP = 1.5% - 2.5% = -1.0%&lt;/p&gt;&#xA;" OwnerUserId="13450" LastActivityDate="2017-06-02T03:25:01.827" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17008" PostTypeId="1" CreationDate="2017-06-02T07:52:46.017" Score="0" ViewCount="132" Body="&lt;p&gt;In the history, like Japan, in the World War II, they had a hand in the war, the root cause is the economic depression.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And in this century, some country use this method many times to remit the economic problem.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, why war can remit the economic crisis, I just don't understand?  &lt;/p&gt;&#xA;" OwnerUserId="13453" LastEditorUserId="2776" LastEditDate="2017-06-02T08:11:12.133" LastActivityDate="2017-06-03T07:22:16.017" Title="Why war can remit the economic crisis？" Tags="&lt;international-economics&gt;&lt;economic-crisis&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="17009" PostTypeId="1" CreationDate="2017-06-02T07:55:51.893" Score="-1" ViewCount="469" Body="&lt;p&gt;Econ 101 teaches that government spending comes with a multiplier effect, yet whenever anyone in an election wishes to raise the size of government by even 0.5%, the right starts screaming the world will end. Obviously for large changes to the size of government, the above equation likely breaks down (since market economics effectively gets eaten up by a government controlled allocation system), is this just wrong view?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(my example being Corbyn in the UK, asking for a 2% of GDP increase to the size of the state, yet being threatened with a 6% GDP contraction by some critics).. Are there studies as to how government spending correlates to GDP?&lt;/p&gt;&#xA;" OwnerUserId="7785" LastActivityDate="2017-06-02T11:52:53.043" Title="The perception of the effects of government spending within the political world" Tags="&lt;government-spending&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17010" PostTypeId="2" ParentId="9087" CreationDate="2017-06-02T09:43:24.070" Score="1" Body="&lt;p&gt;Here is the calculus that you can make. I note $\tau_{GDPc} $ the rate of change of the per capita GDP, $\tau_{pop}$ the one for the population and $\tau_{GDP}$ for the GDP rate of change. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A rate of change for any variable A is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \tau _A = \frac{A(t)-A(t-1)}{A(t-1)}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;t being the moment considered, $(t-1)$ the previous moment for the calculus of the rate of change. So knowing $GDPc = \frac{GDP}{pop}$ you can write:&#xA;$$ \tau_{GDPc} = \frac{\frac{GDP(t)}{pop(t)} - \frac{GDP(t-1)}{pop(t-1)}}{ \frac{GDP(t-1)}{pop(t-1)}}$$&#xA;With the definition of the rate of change, you write&#xA;$$pop(t)= pop(t-1)*(\tau_{pop}+1) $$&#xA;You can then simplify the $pop(t-1)$ term in the previous equation and you get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\tau_{GDPc} = \frac{1}{\tau_{pop}+1}\left[\frac{GDP(t)-GDP(t-1)}{GDP(t-1)}-\tau_{pop}\right] $$&#xA;$$\tau_{GDPc} = \frac{1}{\tau_{pop}+1}\left[\tau_{GDP}-\tau_{pop}\right]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is indeed different than Brandon marcus answer. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can make a try with simple numbers: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;let's consider at t-1 a population of 100 for a GDP of 100. The per capita income is then 1.&lt;/li&gt;&#xA;&lt;li&gt;At t, you will have a population of 102,5 fo a GDP of 101,5, that is a per capita of 0,99024. &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The rate of chage of the per capita income will be $\frac{0,99024-1}{1} \simeq -0,975 \%$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With the formula I gave you:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\tau_{GDPc} = \frac{1}{1,025}(0,015 - 0,025) = -0,975 \% $$&#xA;Seems to work.&lt;/p&gt;&#xA;" OwnerUserId="13454" LastActivityDate="2017-06-02T09:43:24.070" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17011" PostTypeId="1" AcceptedAnswerId="17018" CreationDate="2017-06-02T09:50:15.810" Score="4" ViewCount="82" Body="&lt;p&gt;I came across these graphs today :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://data.oecd.org/gdp/gross-domestic-product-gdp.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://data.oecd.org/gdp/gross-domestic-product-gdp.htm&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://data.oecd.org/lprdty/gdp-per-hour-worked.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://data.oecd.org/lprdty/gdp-per-hour-worked.htm&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In both, something doesn't make sense for me: the GDP per capita of Ireland had a 30% growth between 2014 and 2015. None of the other country seems to have such behavior. &lt;br&gt;&#xA;Does anybody know why? Is there any bank/debt/accounting reason for this sudden increase? A political reason?&lt;/p&gt;&#xA;" OwnerUserId="13454" LastEditorUserId="1601" LastEditDate="2017-06-02T12:30:14.347" LastActivityDate="2017-06-02T13:37:05.257" Title="why has the GDP per capita of Ireland grown of almost 30% between 2014 and 2015?" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;&lt;national-accounts&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17013" PostTypeId="1" AcceptedAnswerId="17030" CreationDate="2017-06-02T11:15:50.593" Score="1" ViewCount="89" Body="&lt;p&gt;I once heard a fact that the richest 85 people are as wealthy as half the world's population put together. My question is, what does that mean?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does it mean that there is some feasible method in which these 85 people can double the wealth of half the world's population? What would happen if they decided to do so? How would they go about doing this?&lt;/p&gt;&#xA;" OwnerDisplayName="user13456" LastEditorDisplayName="user13456" LastEditDate="2017-06-02T11:24:26.147" LastActivityDate="2017-06-03T02:46:10.757" Title="if the richest 85 people give away all their money?" Tags="&lt;macroeconomics&gt;&lt;inequality&gt;&lt;wealth&gt;" AnswerCount="2" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="17014" PostTypeId="2" ParentId="17009" CreationDate="2017-06-02T11:52:53.043" Score="1" Body="&lt;p&gt;There are a few reasons why, at least in a broader theoretical context, substantial government influence in a market economy may have negative consequences. A few are:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Crowding Out Effect&lt;/strong&gt; Increases in government spending can potentially lead to a decrease in investment from the private sector. This can be thought of in the more formal definition of the term (that an increase in government demands for loanable funds can lead to an increase in the interest rates faced by the private sector) or in the more informal one- that government involvement can change the profit motive faced by private entities in the field. If you assume that those private firms are, on balance, more efficient with resources than the governmental agency, it can lead to negative economic outcomes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Market Distortions&lt;/strong&gt; One potential problem of increased governmental activity in the economy comes from unforeseen distortions that can ripple through other sectors. For all their problems, one nice feature of market equilibria are their ability to reflect private information and demands, and aggregate the individual actions of hundreds of millions of people effectively. That is no small feat; it is hard for a centralized agency to mimic that effectiveness. One of the major problems with centralized economies in practice is their practical inability to allocate resources &quot;efficiently.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Modeling government interaction in a &lt;strong&gt;repeated game&lt;/strong&gt;-like context. Another (albeit more philosophical) problem some see is that, even if a larger government would be optimal for right now, it is often difficult to cut bureaucracy once it becomes entrenched. Therefore, we should consider that &quot;future value&quot; of inefficiently large government spending in the future (even if it is optimal to increase government's size today) into today's perceived &quot;payoffs&quot; of different actions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Problems with the Multiplier Effect:&lt;/strong&gt; The multiplier, as learned in econ101, is a bit oversimplified in its presentation. While there almost certainly is some multiplier in every case, it isn't really just a single number that turns on an economy wide &quot;marginal propensity to consume.&quot; Instead, it's far more subtle, and often depends on who is receiving the benefit, what the context of the payment is, etc. Furthermore, some conservative economists argue it is often too small to justify the expense.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, note that I personally don't really believe much of what was said above. I'm not trying to suggest that Mr. Corbyn should or shouldn't increase the size of government expenditures (I haven't studied the issue enough to make an informed opinion). Furthermore, I think it should be noted (in the interest of fairness) that many times these theoretical concerns can be misapplied in practice: for example, The Laffer Curve may be the most poorly applied theoretical concept in political economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let me know if that didn't answer your question, or if you'd like more detail!&lt;/p&gt;&#xA;" OwnerUserId="13366" LastActivityDate="2017-06-02T11:52:53.043" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17015" PostTypeId="1" AcceptedAnswerId="17040" CreationDate="2017-06-02T12:07:12.923" Score="1" ViewCount="3768" Body="&lt;p&gt;I was recently watching the Forex market and I want to know what does it means when you see something like&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EUR/USD  -0.04% -1.1208&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does that mean the USD dropped with 0.04% against EUR or vice versa? Can you please also extend the explanation to stock indices?&lt;/p&gt;&#xA;" OwnerUserId="2681" LastEditorUserId="2776" LastEditDate="2017-06-05T10:07:10.060" LastActivityDate="2020-07-29T12:23:16.117" Title="What is the difference between USD/EUR and EUR/USD when talking about Forex" Tags="&lt;financial-economics&gt;&lt;financial-markets&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17016" PostTypeId="2" ParentId="17008" CreationDate="2017-06-02T12:44:27.627" Score="-2" Body="&lt;p&gt;That is not the war.&#xA;After WW2, japan was not permitted to have an army. And as we know, money paid on military has a big negative effect on economy.&#xA;As in japan and Germany, after the war, both were not facing military threats, not paying for military arms (technologies, soldiers, wars, training...), and both have faced a big advance in technology in ww2 as the war required that.&lt;/p&gt;&#xA;" OwnerUserId="13458" LastActivityDate="2017-06-02T12:44:27.627" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17017" PostTypeId="2" ParentId="17015" CreationDate="2017-06-02T13:25:50.497" Score="1" Body="&lt;p&gt;&lt;strong&gt;EUR/USD&lt;/strong&gt; should be the value of one euro divided by the value of one dollar.  Right now that seems to me to be about $1.1275$: in other words, $1$ euro is worth about $1.1275$ dollars.  I suspect this is the final number in your expression.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If it had been &lt;strong&gt;USD/EUR&lt;/strong&gt; then I would expect the reciprocal value $0.8869$ so $1$ dollar is worth about $0.8869$ euros&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My guess is that $-0.04\%$ is the percentage change in the EUR/USD rate so the euro would have fallen by a tiny amount against the dollar.  Whether this is since opening of the market today, or since the close yesterday or since a year ago is less clear. &lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2017-06-02T13:25:50.497" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17018" PostTypeId="2" ParentId="17011" CreationDate="2017-06-02T13:37:05.257" Score="2" Body="&lt;p&gt;It is an national accounting reason, rather than the Irish people have higher incomes or being more productive&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems that some companies previously deemed to be foreign are now deemed to be Irish, and so their profits now count towards Irish GDP (and, to the extent they are not a subsidiary of a foreign company and retain their profits, also to Irish Gross National Income).  The Irish Central Statistics Office said &lt;a href=&quot;http://www.cso.ie/en/releasesandpublications/er/nie/nationalincomeandexpenditureannualresults2015/&quot; rel=&quot;nofollow noreferrer&quot;&gt;a 26.3% increase in GDP and 18.7% in GNI from 2014 to 2015 at constant prices&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What may have happened is &lt;em&gt;inversion&lt;/em&gt; where United States companies are notionally taken-over by Irish companies (though the old US shareholders remain shareholders of the new merged company), largely to take advantage of Ireland's generous corporation tax regime.  That makes their production/value-added/profits appear to be Irish this year, boosting Ireland's GDP compared with last year&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Further reading from 10 months ago when this was noticed:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://www.irishtimes.com/business/economy/ireland-s-gdp-figures-why-26-economic-growth-is-a-problem-1.2722170&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.irishtimes.com/business/economy/ireland-s-gdp-figures-why-26-economic-growth-is-a-problem-1.2722170&lt;/a&gt; &lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.theguardian.com/business/2016/jul/12/irish-economic-growth-revised-figures-foreign-investment-aircraft&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.theguardian.com/business/2016/jul/12/irish-economic-growth-revised-figures-foreign-investment-aircraft&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://uk.reuters.com/article/uk-ireland-economy-idUKKCN0ZS0ZC&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://uk.reuters.com/article/uk-ireland-economy-idUKKCN0ZS0ZC&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2017-06-02T13:37:05.257" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17019" PostTypeId="1" CreationDate="2017-06-02T13:37:10.073" Score="-1" ViewCount="138" Body="&lt;p&gt;In &lt;a href=&quot;http://www.youtube.com/watch?v=w-I6XTVZXww&quot; rel=&quot;nofollow noreferrer&quot;&gt;this youtube video&lt;/a&gt;  the speakers present a line of reasoning as to why&#xA;$$&#xA; \sum_{n=1}^\infty  n =  -\frac{1}{12}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;in other words&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$1+2+3+\cdots=-\frac{1}{12}$$&#xA;and my brain still hurts.  It doesn't make any sense but it was also shown by other mathematicians like Euler.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;They said that this answer shows itself in quantum physics in explaining the &lt;a href=&quot;http://en.wikipedia.org/wiki/Casimir_effect&quot; rel=&quot;nofollow noreferrer&quot;&gt;Casimir effect&lt;/a&gt; and it has a role in explaining why there are 26 dimensions in string theory.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But, I don't think we need to delve into quantum physics and string theory to find examples of phenomena where we get negative results for positive infinite sums.  The practically infinite sum of money, time, and effort to put a child through school and college, then the negative result of said child unable to obtain gainful employment. Economics immediately came to mind.  I did a google search on this but nothing relevant came up.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can the Ramanujan sum be used to explain unexpected outcomes in macro-economics?&#xA;For example: &#xA;return on investment for government spending&lt;/p&gt;&#xA;&#xA;&lt;p&gt;student debt for college education&lt;/p&gt;&#xA;" OwnerUserId="13457" LastEditorUserId="13457" LastEditDate="2017-06-03T16:07:26.627" LastActivityDate="2017-06-03T16:07:26.627" Title="Can Ramanujan Sum : 1+2+3+4+5+... = -1/12 be used to explain some results in macro-economics?" Tags="&lt;mathematical-economics&gt;" AnswerCount="1" CommentCount="9" ClosedDate="2017-06-02T18:38:41.750" ContentLicense="CC BY-SA 3.0" />
  <row Id="17020" PostTypeId="1" AcceptedAnswerId="17034" CreationDate="2017-06-02T13:44:06.167" Score="1" ViewCount="974" Body="&lt;p&gt;In class we dealt with insurance economics and, specifically, adverse selection due to information asymmetry. As one possible solution we considered pooling contracts, i.e. the same contract for both high- and low-risk households for some average price. We showed and I understood why the high-risk households now would buy more insurance than the low-risk ones and thus everybody would act as if they were low-risk whether this is true or not. What I am not sure about is why there wouldn't be an equilibrium in a competitive market. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's clear that the low-risk individuals have reason to go for a lesser premium and, if some other insurer would offer this, then they would go there. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, my &lt;strong&gt;questions&lt;/strong&gt; are: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) So why won't there be an equilibrium? I would think that if a new insurer appears with a better deal than the pooling contract, then there would again be the problem with adverse selection. Hence, the new insurer wouldn't appear and offer a better deal in the first place? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) I also read that this is pareto-inefficient in that it disadvantages the low-risk households (obvious) but does not benefit the high-risk households. The latter point I do not understand since the high-risk households will have a higher demand since the pooling contract situation makes the insurance relatively cheap. Isn't that a benefit? &lt;/p&gt;&#xA;" OwnerUserId="7711" LastActivityDate="2017-06-04T14:12:05.457" Title="No competitive equilibrium for pooling contracts" Tags="&lt;microeconomics&gt;&lt;competitive-equilibrium&gt;&lt;contracts&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="17021" PostTypeId="2" ParentId="5713" CreationDate="2017-06-02T16:51:21.640" Score="2" Body="&lt;p&gt;I would strongly recommend reading &lt;a href=&quot;http://masongaffney.org/publications/K1Neo-classical_Stratagem.CV.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Neoclassical Economics as a Stratagem Against George&lt;/a&gt; by Dr. Mason Gaffney.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In short, it was indeed landed elite and their capture of the intellectual establishments of the day that led to this end. It should also be considered a perversion of history that the Progressive Movement isn't more closely identified with Georgist principles, given the incredible success of places like Milwaukee, Detroit, California (agricultural boom) all using Georgist economic ideas.&lt;/p&gt;&#xA;" OwnerUserId="13461" LastEditorUserId="2776" LastEditDate="2017-06-02T17:24:37.850" LastActivityDate="2017-06-02T17:24:37.850" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="17022" PostTypeId="1" CreationDate="2017-06-02T17:09:08.850" Score="1" ViewCount="59" Body="&lt;p&gt;This question concerns the need to generalise utility maximisation, the fact that it's a special case of a general problem familiar to physicists, and the question of whether economists have affected a similar generalisation or instead taken a different approach. A precise statement of my question is bold below, after some theoretical exposition.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A common model of preferences in economics is that agents choose to maximise the mean of some utility function. If the utility $U\left(x,\,\phi\right)$ depends on a random variable $x$ (possibly containing multiple parameters $x^\mu$) of pdf $f$ and a user-chosen $\phi$ (on which $f$ may or may not depend), we seek to minimise $S:=\int dx\mathcal{L},\,\mathcal{L}:=-Uf$. (I'm using a physicist's notation, but this sort of mathematical problem is common to both fields.) If only $x$ were known (viz. $f=\delta\left( x-x_0\right)$), $\phi$ could be chosen to maximise $U$; the $\phi$ which does this is in general a function of $x$. Generalising to random $x$, the solution is given by $0=\frac{\partial\mathcal{L}}{\partial\phi}$, an algebraic equation that can in principle be rearranged to express $\phi$ in terms of $x$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Maximising mean utility is equivalent to having preferences satisfying the von Neumann-Morgenstern axioms, but some empirical results such as the Ellsberg urn violate these. One possible explanation is that Knightian uncertainty bothers people, i.e. people prefer investment opportunities with known $f$. (In particular, each of Ellsberg's observed preferences was for a known probability distribution over an unknown one, even though whatever the unknown distribution was at least one of the resulting preferences would produce lower mean utility than the alternative chosen over it.) Whatever the explanation, we apparently cannot assume agents minimise $S$ as defined above.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, since new models should acknowledge the successes of old ones as much as their failures, a model in the above vein is warranted. When physicists work with such problems, typically $L$ also depends on $\partial_\mu\phi:=\frac{\partial\phi}{\partial x^\mu}$. The $S$-minimising result is then $0=\frac{\partial\mathcal{L}}{\partial\phi}-\partial_\mu\frac{\partial\mathcal{L}}{\partial_\mu\partial\phi}$ (the last term sums over $\mu$), which unlike the previous result is a differential equation. So my question is: &lt;strong&gt;Have economists taken this approach? If not, what have they done instead?&lt;/strong&gt; In particular, I'm looking for a generalisation of $\int dx Uf$ maximisation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let me try to make this more concrete. Suppose I'm investing in crops. Then $\phi$ could denote my portfolio, $x$ could denote future weather, $f$ would characterise the long-term climate, and ongoing climate change may present such uncertainty as to result in something analogous to an Ellsberg paradox. In particular my $\mathcal{L}$ might also depend on $\partial_\mu\phi$, my chosen portfolio's sensitivity to a guess about future weather. For example, I might have $\mathcal{L}=-Uf+a\partial_\mu\phi\frac{\partial\left(Uf\right)}{\partial_\mu\phi}$ for a constant $a$. This is just a hypothetical example, since I've not found any economic literature on this.&lt;/p&gt;&#xA;" OwnerUserId="10991" LastActivityDate="2017-06-02T19:24:08.597" Title="How do economists model VNM-rationality violation?" Tags="&lt;expected-utility&gt;&lt;portfolio-theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17023" PostTypeId="1" CreationDate="2017-06-02T17:20:51.490" Score="2" ViewCount="74" Body="&lt;p&gt;Suppose an infinite reserve of gold was found. What would be the consequences to the economy in general. Would it have major negative effects?&lt;/p&gt;&#xA;" OwnerDisplayName="user13456" LastEditorUserId="2776" LastEditDate="2017-06-05T10:15:16.377" LastActivityDate="2017-06-05T10:15:16.377" Title="Effects of finding infinite gold reserve" Tags="&lt;macroeconomics&gt;&lt;wealth&gt;" AnswerCount="1" CommentCount="5" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17024" PostTypeId="2" ParentId="17013" CreationDate="2017-06-02T18:09:48.807" Score="-1" Body="&lt;p&gt;There a no realistic expectations of doing this and nor a technical way of doing it, because every people on earth dont have a bank account or in age to have it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;No they don't double the wealth of every of them, they hold the same amount of wealth. If they would give it would be not well distributed.(fairly)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If they give to the haft of the humanity with no strategic distribution nothing will happens. Poor people always consume n amount of money for they basic needs. So they will spend it. And you would have 85 new poor guys.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;They will not like it for the reason just exposed before. They will be no impact at all ( its like having and extra meal for tomorrow). That why development is so crucial and smart investment too.&lt;/p&gt;&#xA;" OwnerUserId="13463" LastActivityDate="2017-06-02T18:09:48.807" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17025" PostTypeId="2" ParentId="17023" CreationDate="2017-06-02T18:13:10.227" Score="2" Body="&lt;p&gt;The gold  will be free. (price 0 not anymore rare).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;banks and others institutions will found others stuff for having reserve. ( platinum, silver, grains, maybe one day water ).&lt;/p&gt;&#xA;" OwnerUserId="13463" LastActivityDate="2017-06-02T18:13:10.227" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="17026" PostTypeId="2" ParentId="16994" CreationDate="2017-06-02T18:18:39.883" Score="1" Body="&lt;p&gt;Because stones like diamonds for example are rare on earth and takes millions of years to be synthesized (carbon).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the Giffen goods ( luxury ) it is a needs to show your social value thought the things you have and buy. And also the pleasure to have some ancient and high quality goods.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The market perception make it more pricy too ( more people want is when they see others craves for it) it is a psychology law due to our evolution ( tribes, stay conform etc).&lt;/p&gt;&#xA;" OwnerUserId="13463" LastActivityDate="2017-06-02T18:18:39.883" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17027" PostTypeId="2" ParentId="17019" CreationDate="2017-06-02T18:38:21.087" Score="1" Body="&lt;p&gt;(Don't vote on this; this is just my comment which is too long)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Riemann-Zeta function, which is a general case for the Ramanujan sum, has many un-intuitive and baffling properties such as:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;having no closed-form solution&lt;/li&gt;&#xA;&lt;li&gt;not being solvable with linear and stable methods&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The first roughly means that you need an infinite number of operations to expand out the actual Riemann-Zeta function. The second roughly means 0 is no longer an additive identity and/or associativity of addition breaks down. These things combined mean that you're gonna have weird issues treating infinite sums as if they were finite sums where you can do EZ-PZ operations with. It's almost as if you have to define the very concept of infinity as two separate, contradicting definitions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Treating infinite sums as finite sums could be interesting in theoretical topics. But with my money? I don't think my accountant would appreciate me going in and saying that my finite sum of money can be treated as an infinite sum of money.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2017-06-02T18:38:21.087" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17028" PostTypeId="2" ParentId="17022" CreationDate="2017-06-02T19:24:08.597" Score="1" Body="&lt;p&gt;It appears you are looking for literature on &lt;strong&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Ambiguity_aversion&quot; rel=&quot;nofollow noreferrer&quot;&gt;Ambiguity Aversion&lt;/a&gt;&lt;/strong&gt; and/or &quot;Uncertainty Aversion&quot;.&lt;br&gt;&#xA;You can start by looking up the work of &lt;a href=&quot;https://scholar.google.gr/citations?user=yoDpXhsAAAAJ&amp;amp;hl=en&amp;amp;oi=sra&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;strong&gt;L.G Epstein&lt;/strong&gt;&lt;/a&gt;, &lt;strong&gt;I. Gilboa, and  D. Schmeidler&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is an attempt to formalize the behavior of agents exhibiting behavior consistent with the Ellsberg paradox.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2017-06-02T19:24:08.597" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17029" PostTypeId="1" CreationDate="2017-06-03T02:33:54.497" Score="1" ViewCount="112" Body="&lt;p&gt;Given the following 3 equations:&#xA;$$&#xA;Y^*_t=100+3t \\&#xA;Y_t = Y_t^* (1+(0.2 (\sin t)) \\&#xA;B_t=B_t^* (1+(0.4 (\sin t)) \\&#xA;$$&#xA;And take B* to be the following, but is unknown:&#xA;$$&#xA;B_t^*= \alpha Y_t^* \\&#xA;$$&#xA;I've figured the best way to estimate B* is the following:&#xA;$$&#xA;\hat{B} _t^*=B_t (Y_t^*/Y_t )^{0.4/0.2} \\&#xA;$$&#xA;But I can't figure how it works. Can anyone provide a step-by-step? Also why is it not a perfect estimate?&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;3 knowns&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/EbsnU.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/EbsnU.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Estimate of unknown&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/mtntM.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/mtntM.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="6958" LastEditorUserId="6958" LastEditDate="2017-06-03T06:04:09.503" LastActivityDate="2017-06-03T06:04:09.503" Title="Elasticities and exponents" Tags="&lt;mathematical-economics&gt;&lt;elasticity&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17030" PostTypeId="2" ParentId="17013" CreationDate="2017-06-03T02:46:10.757" Score="1" Body="&lt;p&gt;It seems safe to say that the bulk of that wealth consists of equity (stock) holdings, not &quot;money.&quot; (For example, Bill Gates owns a lot of share of Microsoft.) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's assume that the top 85 people wanted to redistribute their wealth voluntarily.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;If they tried selling that equity all at once, the price of the equities would likely collapse (who would pay a lot of money for those shares, if everyone know that they were selling all at once?) The amount of money to redistribute would be a lot less than the current estimate of their wealth (which uses the current stock prices). The logistics involved with the transfer would probably consume most of of the transferred wealth. (If it were easy to transfer wealth to individuals in poorer countries, aid programmes would have been more effective than seen in practice.) That is, some people would be wealthier, but it would likely be intermediaries skimming off the cash transfers. &lt;/li&gt;&#xA;&lt;li&gt;Logistically, there would be no way to transfer all of those shares to half the world's population. (They would need something like a brokerage account.) And even if that were somehow accomplished, the recipients would likely dump their shares, and their value would collapse. Brokers would probably end up getting all of the value from their transaction fees.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;In other words, there would presumably be a transfer of wealth, but it would be a lot less than what is implied by current market prices.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This of course raises the obvious question of why they would do this voluntarily; the top 85 richest people did not get that way by dumping their wealth on random strangers.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2017-06-03T02:46:10.757" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17031" PostTypeId="2" ParentId="17008" CreationDate="2017-06-03T07:22:16.017" Score="2" Body="&lt;p&gt;It is not war itself that helps to counteract economic crises, but rather the increased spending needed to support the war. In terms of the evidence to support this claim, Lee Hudson Teslik from the Council on Foreign Relations writes:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;There is an ongoing debate about the extent to which war spending affects a country’s economy. Experts disagree on the most fundamental point—whether war helps or hurts national economic prospects. Massive U.S. national defense spending during World War II is sometimes credited with rejuvenating U.S. economic prospects following the Great Depression. The journalist Robert J. Samuelson, in a primer on the topic, says there can be little doubt that military spending and mobilization during World War II reduced U.S. unemployment rates and revitalized the economy. A recent paper from the National Bureau of Economic Research concludes that countries with high military expenditures during World War II showed strong economic growth following the war, but says this growth can be credited more to population growth than war spending. The paper finds that war spending had only minimal effects on per-capita economic activity. The effects of more recent wars are equally disputed. A historical survey of the U.S. economy from the U.S. State Department reports the Vietnam War had a mixed economic impact. The first Gulf War typically meets criticism for having pushed the United States toward a 1991 recession. In a 2003 op-ed in the Guardian, economist [Joseph] Stiglitz wrote that the aftermath of the Gulf War exposes the “myth of the war economy.” Indeed, he argues that increased military spending is “unambiguously bad” for the living standards of normal citizens. Other economists argue the opposite.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I would argue the consensus generally leans towards wartime spending as beneficial to a nation's economy. &lt;/p&gt;&#xA;" OwnerUserId="13459" LastActivityDate="2017-06-03T07:22:16.017" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17032" PostTypeId="1" AcceptedAnswerId="17033" CreationDate="2017-06-03T11:49:00.803" Score="1" ViewCount="181" Body="&lt;p&gt;Currently I am trying to figure out some old problems for an upcoming micro exam. One of them is about production under uncertainty. The exercise seems standard to me, yet I am not sure whether I have the correct solution. The &lt;strong&gt;question&lt;/strong&gt; is as follows. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A firm produces goods with the cost function $C(x) = cx^2$ where $x$ is the good. The price $p_x$ is exogenously given. The utility function of the producer is given as $u(y) = \sqrt{y}$ where $y$ is the income due to profit. Determine the optimal amount of produced goods $x$ in case i.) $p_x$ is deterministic and (ii.) the price is random where it is $p^0_x$ with probability 0.5 and $p^1_x$ with probability 0.5. How will the output change if there is some future price $p^f_x &amp;gt; \mathbb{E}[p^s_x]$?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My &lt;strong&gt;solution&lt;/strong&gt; is as follows. First, we have that the firm's profit is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$G = p_xx - cx^2$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;and its utility &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ u(y) = \sqrt{p_xx - cx^2}$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now under deterministic prices the firm owner wants to maximize expected utility, hence &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{d\mathbb{E}[U]}{dx} = (p_xx - cx^2)^{-\frac{1}{2}}(p_x - 2xc) = 0$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;and therefore $$x = \frac{p_x}{2c}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In case of random prices the optimality condition is now &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{d\mathbb{E}[u]}{dx} = \frac{1}{2}((p^0_xx - cx^2)^{-\frac{1}{2}}(p^0_x - 2xc) + (p^1_xx - cx^2)^{-\frac{1}{2}}(p^1_x - 2xc) = 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;right? After that I have to solve for $x$ and I got the result.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, if there is some future price which is higher than the expected price I am not quite sure how to proceed. Intuitively, I'd say that if the owner would produce more goods but how would I show that in an analytic manner?&lt;/p&gt;&#xA;" OwnerUserId="7711" LastActivityDate="2017-06-05T00:28:49.857" Title="Production under uncertainty" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17033" PostTypeId="2" ParentId="17032" CreationDate="2017-06-03T16:35:59.830" Score="2" Body="&lt;p&gt;Under random prices, the producer solves&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\max_x E[U(G(x,p)]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Compacting $U(G(x,p) \equiv U$, the f.o.c is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$E[U'\cdot (p_x-2cx)]= 0 \implies x^* = \frac 1 {2c}\cdot \frac {E[U'\cdot p_x]}{E[U']} \tag{1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;or&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$x^* = \frac 1 {2c}\cdot \left[E(p_x) + \frac {\text{Cov}(U', p_x]}{E[U']}\right] \tag{2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, &#xA;$$U' = \frac 1{2(p_xx - cx^2)^{1/2}}$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;and $U'$ is decreasing in $p_x$. Then (see for example &lt;a href=&quot;http://dx.doi.org/10.1080/23311835.2014.991082&quot; rel=&quot;nofollow noreferrer&quot;&gt;Egozcue, Cogent Mathematics (2015), 2: 991082&lt;/a&gt;), Theorem 2(2) p. 6)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\text{Cov}(U', p_x] &amp;lt;0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So we conclude that &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies x^* &amp;lt; \frac {E(p_x)} {2c}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;the RHS being the risk-neutral solution.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Plugging the distributional assumption for $p_x$ in $(1)$ gives us an implicit function for $x^*$. If one is patient enough to go through some boring algebra after that, one will obtain a very simple nice looking closed-form solution. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for the last question, it is poorly worded and it does not make much sense, or it is a trick question, since the set up implies that the producer must commit to an output level before the price is actually realized. If this was &lt;em&gt;not&lt;/em&gt; the case, then the producer would have no reason to solve an expected utility maximization problem, but he would wait to see the actual price and optimize accordingly. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the last question alludes to a dynamic maximization problem, then this is a whole new situation, and additional assumptions and modelling are needed in order to proceed.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2017-06-05T00:28:49.857" LastActivityDate="2017-06-05T00:28:49.857" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17034" PostTypeId="2" ParentId="17020" CreationDate="2017-06-03T17:16:32.670" Score="3" Body="&lt;p&gt;As one of the comments points out, there are many models of equilibria in insurance markets. But it sounds to me like you are referring to the Rothschild-Stiglitz (1976) paradigm. I will provide a basic summary of the key takeaways here, but there is a more complete explanation in &lt;a href=&quot;https://www.princeton.edu/~dixitak/Teaching/EconomicsOfUncertainty/Slides&amp;amp;Notes/Slides15.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;this set of slides&lt;/a&gt; and in those from any second-year graduate course in Public Economics.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;In this paradigm, mixed strategy equilibria are ruled out. So when we say that &quot;no equilibrium exists&quot;, we are actually just saying that no &lt;em&gt;pure strategy&lt;/em&gt; equilibrium exists.&lt;/li&gt;&#xA;&lt;li&gt;There is never a pooling equilibrium. The basic reason for this is that a firm could profitably come in and offer a cheaper package with less insurance and poach away the low risk types. This leaves the existing firm with only the high risk types and it makes a loss.&lt;/li&gt;&#xA;&lt;li&gt;There &lt;em&gt;may&lt;/em&gt; or &lt;em&gt;may not&lt;/em&gt; exist a separating equilibrium. If there does not, it is because - starting from a separating equilibrium - there exist pareto-improving cross-subsidies (from high to low risk types). This means that a firm can profitably come in and offer a package that attracts both types (i.e., a pooling contract).&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;EDIT&lt;/strong&gt;: To answer your second question, the separating equilibrium - if one exists - is indeed not pareto efficient but it does benefit both high and low risk types. The pareto efficient separating contract would offer full insurance to both type, but the Rothschild-Stiglitz candidate cannot. To see why, suppose that it did. Then both receive full insurance but the low-risk types get it for less. Clearly the high risk types will pretend to be low types and the incumbent firm will make a loss.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;In summary, this particular model offers a theory of pure strategy Nash Equilibria in insurance markets with adverse selection and multiple risk types. An equilibrium may or may not exist. If it does, then it is separating. &lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Additional information&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;There are competing paradigms that solve this problem with assumptions about the timing of when offers are made and accepted (e.g., Miyazaki-Wilson-Spence). Another classic model to compare is Akerlof-style adverse selection. Neither alternative suffers from the non-existence problem.&lt;/p&gt;&#xA;" OwnerUserId="13467" LastEditorUserId="1601" LastEditDate="2017-06-04T14:12:05.457" LastActivityDate="2017-06-04T14:12:05.457" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="17037" PostTypeId="1" AcceptedAnswerId="17039" CreationDate="2017-06-04T08:47:41.377" Score="3" ViewCount="15830" Body="&lt;p&gt;If I have, for instance, a Libor security with maturity of one month, with interest rate $r$. Is $r$ the amount to be paid after one month, or is it the annualized interest rate?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(My gut tells me that it is the annual interest rate, but I have not found a source to confirm this.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And if it is the annualized rate, how is the (actual) interest payment that is due after one month calculated? Is it $1+r/12$ or is it of the form $e^{r/12}$&lt;/p&gt;&#xA;" OwnerUserId="8630" LastActivityDate="2017-06-04T13:09:08.187" Title="LIBOR rates: Are these monthly or yearly interest rates?" Tags="&lt;interest-rate&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="17039" PostTypeId="2" ParentId="17037" CreationDate="2017-06-04T13:09:08.187" Score="6" Body="&lt;p&gt;To answer the first part, it's an &quot;annualised&quot; interest rate convention - like all other quoted interest rates. For example, if a one-month money market rates are unchanged at 4%, you would receive approximately 4% in interest after a year, or roughly 1/3% a month. (Note that those numbers are ignoring compounding, further details below.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for the calculations, things are complicated. The high level answer is that a monthly interest rate is roughly $r/12$, with $r$ being the quoted rate. This is a simple interest rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The true calculations are complicated by the nature of LIBOR. Technically, LIBOR (London Interbank Offer Rate) is a polled rate of &quot;large&quot; banks in a number of currencies. There are similar &quot;fixes&quot;, such as Euribor (Euro area), TIBOR (Japan), CDOR (Canada). The polled rate is based on the money market convention in each currency for a certain class of interbank borrowing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Interest rate calculations depend upon the daycount convention, and the calendar used. If we borrow on June 1st, one month later is normally July 1st. What happens if July 1st is a weekend or holiday? There are standard comventions in each currency that determine which days are holidays, and how to move the due date relative to such dates (before/after).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are a wide variety of day count conventions that are used across markets. I believe that act/365 (GBP) or act/360 (other currencies) are standard. (Based on this ICE LIBOR document: &lt;a href=&quot;https://www.theice.com/publicdocs/IBA_LIBOR_FAQ.pdf&quot; rel=&quot;noreferrer&quot;&gt;link&lt;/a&gt;.) Anyone who needs to know the exact calculations should refer their queries to their banking counterparties, as there can be a large number of small modifications to the generic description I give below.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In act/360, the amount of interest is given by the quoted rate times the fraction (actual number of days in the lending period)/360. For act/365, the interest is given by the quoted rate times (the number of days in the period/365).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, if the one-month maturity period is 30 days in the future, and the currency uses an act/360 convention, the fraction used for the one-month rate is 30/360 = 1/12. However, it is clear that the true annual compounding rate will vary from compounding $(1+r/12)^{12}$ since months are not exactly 30 days, and the number of days in the year is either 365 or 366.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2017-06-04T13:09:08.187" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17040" PostTypeId="2" ParentId="17015" CreationDate="2017-06-04T16:02:29.140" Score="2" Body="&lt;p&gt;When the forex market does a quote, it is done in currency pairs. When you sell a currency, you have to be buying something in return. That is why they are quoted in pairs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example when you buy an apple, you are selling your dollars to get it. Similarly in forex, when you sell EUR to get USD, you are using the EUR/USD currency pair, or USD/EUR depending on which way you want it, one is simply the inverse of the other.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, these pairs are counter-intuitive in a such a way that they are not fractional terms. It is simply a quote. What I mean is that in the quote EUR/USD, it is expressing how much 1 EUR is worth in USD and in USD/EUR, how much 1 USD is worth in EUR. The first currency in a pair is called the &quot;Base&quot; currency and the second is called &quot;Quote&quot; or &quot;term&quot; currency. Think of it this way, the first currency in a pair is your &quot;commodity&quot; currency and the second currency is its price. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for what &quot;EUR/USD -0.04% -1.1208&quot; means, I think I'll need more context to it. If by -0.04%, you mean that EUR/USD has dropped by 0.04%, in example, it simply means that if 1 EUR is 1.128 USD, it is now 1.1275 USD. Therefore, your EUR is now cheaper, USD has appreciated against the EUR or, EUR has depreciated against the USD, or a combination of both.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you are confused, just remember the first currency in a pair is your &quot;commodity&quot; currency. Replace EUR with apples and you should see it clearer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Read more about it &lt;a href=&quot;http://www.investopedia.com/terms/c/currencypair.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; and &lt;a href=&quot;http://www.investopedia.com/terms/b/basecurrency.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="12968" LastEditorUserId="2776" LastEditDate="2017-06-05T10:07:54.060" LastActivityDate="2017-06-05T10:07:54.060" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17041" PostTypeId="1" CreationDate="2017-06-04T17:33:58.520" Score="1" ViewCount="79" Body="&lt;p&gt;Consider the events that are developing in the US with regards to labor-intensive manual work and migrant workers. If more and more migrant workers are banished from the work pool, it remains a highly contested topic as to whether US nationals will able to pick up the slack. Let's say we're presented with both sides of the argument:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;(These are of course generalizations to a certain extent, and I don't pretend to speak for everybody; I'm just simply trying to highlight some of the major concerns of both sides of the aisle)&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Liberal:&lt;/strong&gt; &quot;Rethink your judgment on migrant workers. Americans are too soft for dirty jobs. Why else would so many unemployed people turn down the opportunity to work during a recession?&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Conservative:&lt;/strong&gt; &quot;It's not that we're too soft to work, it's just that the current labor market has a systemic bias against us. Why should we work for wages that are not fair?&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Liberal Americans put forth a compelling case that migrant workers are not stealing jobs from anybody, they are simply filling the jobs that Americans don't want to do. While in the past, Americans worked in labor-intensive industries like steel and manufacturing, but today's technologically-integrated America is different. Essentially, saying Americans are too soft for dirty jobs. Recent agriculture labor shortages in California illustrate a point along these lines.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Meanwhile, the conservatives also have a strong case that migrant workers are competitors for low-skilled US nationals. The low-skilled demographic are often considered the losers of globalization, as they are out-competed by migrant workers who will work harder on the job for less pay. Conservatives also cite net income flows from local communities. Many migrant workers send the bulk of their earnings back to their home countries, and at the macro level, it all adds up, their local communities lose economic vigor and deteriorate. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My question is:&lt;/strong&gt; Is there anything in theoretical/empirical economics that can be brought to bear for this debate? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;That is my question, although I realize some readers may find it rather broad, so I've included a few optional specific questions that you may answer if you feel so inclined.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Are there moral hazards in place? i.e. People would rather rely on welfare than work in an orchard?&lt;/li&gt;&#xA;&lt;li&gt;Is it a case of too much/too little regulation? i.e. Due to burdensome regulations, it's too expensive to hire legit workers, and the cheap but illegal migrant worker is preferred?&lt;/li&gt;&#xA;&lt;li&gt;If there is a &quot;fair&quot; equilibrium price that attracts local Americans, will that even be affordable to agriculture / other relevant industry companies? Might they not just mechanize?&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Note:&lt;/strong&gt; If possible, please do your best to criticize &lt;strong&gt;both&lt;/strong&gt; views in the answer, so that political affiliation bias will be weeded out a bit and it also will not make it appear as though one is &quot;better&quot; than the other.&lt;/p&gt;&#xA;" OwnerUserId="12212" LastEditorUserId="12212" LastEditDate="2017-06-04T17:39:18.483" LastActivityDate="2017-06-04T22:14:15.320" Title="Theoretical/Empirical Arguments for Migrant Workers in the US" Tags="&lt;macroeconomics&gt;&lt;labor-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17042" PostTypeId="2" ParentId="17041" CreationDate="2017-06-04T22:14:15.320" Score="3" Body="&lt;p&gt;There is a broad literature that attempts to address the very question you pose- what is the impact of immigration (legal and illegal) on native wages? However, if you're interested in the 'real world' evidence, I'd suggest focusing on empirical labor economics as opposed to more theoretical labor models.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reason for my suggestion is that theoretical economics makes no clear prediction without a lot more information. There are a variety of factors, such as the production function being considered, the labor market conditions observed, the relative substitutability of immigrant and native workers, etc. which tends to make answering the question more of an empirical exercise.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As far as the findings of the empirical papers, they actually tend to find relatively little impact of immigrant labor on native wages, with a few notable exceptions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For some examples:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://onlinelibrary.wiley.com/doi/10.1111/j.0950-0804.2005.00255.x/abstract;jsessionid=A56919A7D054EFEA65F620194AD0D9FF.f03t04&quot; rel=&quot;nofollow noreferrer&quot;&gt;This survey paper, though a bit out of date as it's from 2005&lt;/a&gt; outlines the results of 18 papers and finds wide discrepancies depending on modeling techniques and underlying assumptions used. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.nber.org/papers/w9755.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Borjas, 2003&lt;/a&gt; is one of the better known works, and finds what one might expect based on Econ101 models- that an increase in immigrant labor supply leads to a decrease in wages for native workers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A couple very well known articles have tried to tease out the impact of immigration on wages by focusing on particular events (called supply shocks) where the number of immigrants increased &quot;suddenly&quot; for reasons having nothing to do with the economic climate at the time. A pair of papers examined the impact of the Mariel Boatlift, which led to a spike in Cuban immigrants in Miami: The first, &lt;a href=&quot;http://davidcard.berkeley.edu/papers/mariel-impact.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;a paper by Card 1990&lt;/a&gt; found no evidence of a negative impact of immigration on wages, while &lt;a href=&quot;https://www.hks.harvard.edu/fs/gborjas/publications/working%20papers/Mariel2015.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Borjas 2015&lt;/a&gt; finds a substantial decrease in the wages for the least educated Miami residents.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Several other papers have found either no negative effect, or even positive effects, of immigrants on various worker wages. For example, &lt;a href=&quot;http://giovanniperi.ucdavis.edu/uploads/5/6/8/2/56826033/peri_effect_of_immigration_on_productivity_2011.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;this paper by Peri in 2011&lt;/a&gt; finds no negative impact of immigrants on wages, but a strongly positive impact of immigrants on productivity. &lt;a href=&quot;http://www.sole-jole.org/Hotchkiss.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;This paper from 2013&lt;/a&gt; finds significant positive impacts of undocumented immigrants on the wages of native workers in Georgia.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ultimately, the exercise of determining the impact of immigrants on wages really depends on the method of analysis and a number of underlying parameters, and applying &quot;standard&quot; (i.e. Principles of Micro) models can lead to erroneous results and a false sense of certainty. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If there's anything else in particular you're interested in, let me know and I'll try to improve the answer!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT: Sorry, I forgot to include a link to &lt;a href=&quot;https://wol.iza.org/articles/do-immigrant-workers-depress-the-wages-of-native-workers/long&quot; rel=&quot;nofollow noreferrer&quot;&gt;this additional survey paper&lt;/a&gt; in the original answer!&lt;/p&gt;&#xA;" OwnerUserId="13366" LastActivityDate="2017-06-04T22:14:15.320" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17043" PostTypeId="1" AcceptedAnswerId="17060" CreationDate="2017-06-05T01:07:36.130" Score="3" ViewCount="142" Body="&lt;p&gt;There is a significant amount of money in the stock market in US companies. For example, look at the largest US company by market cap - Apple. It is currently worth over 800 billion US dollars. I've heard there is about 1 trillion total US paper dollars. So Apple would cost you about 80% of all US paper money. I've also heard people say it is just 'funny money' and the 800 billion is not 'real money'. I would think there are brokerage accounts out there that account for the 800 billion that is Apple - that it is not just a made up number. So my question is, is there more money in traditional bank accounts like Bank of America checking and savings accounts or in brokerage accounts where the money in the account is accounted for by shares of companies and possibly other equities like ETF shares? What are the actual numbers? Is it even close? I see many of the big tech companies getting to around half a trillion dollars and it makes me wonder where all this money is when you also see articles that say something like 40% of Americans don't have $1000 in savings available for an emergency.&lt;/p&gt;&#xA;" OwnerDisplayName="user13472" LastEditorDisplayName="user13472" LastEditDate="2017-06-06T02:54:14.733" LastActivityDate="2017-12-05T11:33:07.843" Title="Where is there more money: Bank Accounts or Brokerage Accounts?" Tags="&lt;banking&gt;&lt;stock-market&gt;" AnswerCount="3" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="17045" PostTypeId="1" CreationDate="2017-06-05T09:17:38.813" Score="2" ViewCount="202" Body="&lt;p&gt;Are there any microeconomics or general equilibrium articles on &lt;a href=&quot;https://en.wikipedia.org/wiki/Basic_income&quot; rel=&quot;nofollow noreferrer&quot;&gt;universal basic income&lt;/a&gt;?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Papers dealing with general wealth transfer mechanisms where a basic universal income would be a subset of the general transfer mechanism discussed are also fine.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2017-06-05T09:17:38.813" Title="General equilibrium papers on universal basic income" Tags="&lt;microeconomics&gt;&lt;reference-request&gt;&lt;general-equilibrium&gt;&lt;basic-income&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="17046" PostTypeId="2" ParentId="4875" CreationDate="2017-06-05T09:23:39.130" Score="2" Body="&lt;p&gt;Given what you said about mathematics, I would recommend &lt;a href=&quot;http://cowles.yale.edu/sites/default/files/files/pub/mon/m17-all.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Theory of Value&lt;/a&gt; by Gerard Debreu. This book is probably more than what you need, but it defines almost everything clearly. Debreu writes in the famous Bourbaki style so mathematics is rigorous enough. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For macro it is hard to get everything in the same book. There are books very rigorous, but they generally covers techniques that are essential to do research. &lt;/p&gt;&#xA;" OwnerUserId="8081" LastEditorUserId="8081" LastEditDate="2017-06-21T11:59:37.960" LastActivityDate="2017-06-21T11:59:37.960" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17047" PostTypeId="1" CreationDate="2017-06-05T12:03:36.263" Score="1" ViewCount="86" Body="&lt;p&gt;Is there quick way to download the 85 time series (already transformed, i.e., seasonally adjusted and stationarized, if necessary) that are used to construct the Chicago Fed National Activity Index (CFNAI)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.chicagofed.org/publications/cfnai/index&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.chicagofed.org/publications/cfnai/index&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="6566" LastActivityDate="2020-05-23T10:49:14.147" Title="Chicago Fed National Activity Index: underlying data download" Tags="&lt;data-request&gt;" AnswerCount="1" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17048" PostTypeId="1" AcceptedAnswerId="17049" CreationDate="2017-06-05T12:20:04.070" Score="0" ViewCount="174" Body="&lt;p&gt;I understand the systemic risk that can be associated with the trading of credit default swaps, but is it the same with interest rate swaps? What was the &quot;default rate&quot; on interest rate swaps during the 2007-2008 crisis compared to CDS for instance?&lt;/p&gt;&#xA;" OwnerUserId="13479" LastEditorUserId="2776" LastEditDate="2017-06-05T13:33:13.233" LastActivityDate="2017-06-05T18:31:08.970" Title="Swaps and systemic risk" Tags="&lt;interest-rate&gt;&lt;risk&gt;&lt;default&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17049" PostTypeId="2" ParentId="17048" CreationDate="2017-06-05T15:24:06.900" Score="2" Body="&lt;p&gt;A standard (&quot;vanilla&quot;) interest rate swap is a contract in which one party pays a fixed rate of interest, and the other pays a floating rate (typically LiBOR, but it depends upon the market convention in the currency). (There are a lot of interest rates that deviate from this formula, but they have the same &quot;system risk&quot; characteristics as standard swaps.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a simplification, assume that the floating rate of interest is paid annually.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you receive fixed, each year, you would net receive:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Net receipt = (contracted rate of interest - the &quot;swap rate&quot;) - (latest 1-year floating rate).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is no notion of &quot;default&quot; in the contractual payments, unlike a credit default swap.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From a risk perspective, this can be viewed as owning a fixed rate bond, and borrowing 100% against it at the floating rate. There is obviously leverage, which poses risks (see below).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The only way a default can affect you is if your counterparty fails. All that you lose is:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;whatever value of future payments you would have received (the Net Present Value), that is not covered by collateral.&lt;/li&gt;&#xA;&lt;li&gt;You lost the interest rate risk exposure that the swap provided. If that swap was a required hedge, you need to find a new hedge.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The normal procedure is that the net NPV exposure is covered by collateral; an entity would have have to be in a weak bargaining positiom (or badly informed) to enter into derivatives trading without a collateral agreement.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;During the Financial Crisis of 2007-2008, I believe that it is safe to say that there was very little NPV losses that were incurred by inadequate collateral. That is, losses due to &quot;defaults&quot; was a very small number (compared to the other types of losses). The losses that were associated with interest rate swap trading was the result of needing to replace hedges that were lost when Lehman (and others) defaulted. (Not all of the problems that occurred during the Financial Crisis were documented, but I am unaware of issues in the interest rates swap market being a trigger. Once the crisis was underway, the swaps markets were dislocated, like most other ones.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Otherwise, the movements in interest rates were not enough to trigger a crisis in 2007-2008. The source of the crisis was funding/credit risks.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You would need to go back to the 1994 bond bear market, or the LTCM Crisis of 1998 to have a historical event where interest rate swaps were a factor in the crisis.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the case of 1994, there were very large movements in interest rates, coupled with risk management systems that did not really know how to measure interest rate risk. Since 1994, interest rate risk measurement is much better understood at any credibly managed investment firm or bank. (The comments about risk management are based on my knowledge of interest rate risk management that I gained from working in fixed income from 1998-2013. They are the result of my discussions with market participants who were involved with investment management during 1994. You would need to track down a paper on the evolution of interest rate risk management to get a formal reference.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Whether a situation similar to 1998 or 1994 could happen again is an open question that could not expected to be answered here. Regulators are certainly aware of what happened then, so they could be expected to take actions that would prevent an exact repeat.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastEditorUserId="12891" LastEditDate="2017-06-05T18:31:08.970" LastActivityDate="2017-06-05T18:31:08.970" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="17050" PostTypeId="1" AcceptedAnswerId="17059" CreationDate="2017-06-05T15:28:38.617" Score="0" ViewCount="32" Body="&lt;p&gt;Where can I find historical/very old USD printing data? Charts can be useful, but I want numbers. It is for a project.&lt;/p&gt;&#xA;" OwnerUserId="13480" LastEditorUserId="2776" LastEditDate="2017-06-05T19:29:44.147" LastActivityDate="2017-06-05T23:56:13.420" Title="Where can I find historical (very old) USD printing data?" Tags="&lt;macroeconomics&gt;&lt;mathematical-economics&gt;&lt;currency&gt;&lt;data-request&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="17053" PostTypeId="1" CreationDate="2017-06-05T18:58:49.653" Score="26" ViewCount="11547" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;If a man has an apartment stacked to the ceiling with newspapers we&#xA;  call him crazy. If a woman has a trailer house full of cats we call&#xA;  her nuts. But when people pathologically hoard so much cash that they&#xA;  impoverish the entire nation, we put them on the cover of Fortune&#xA;  magazine and pretend that they are role models.&quot; - B. Lester&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;My aunt posted this to her facebook page. She believes that people are poor because some other people are rich. I know that is totally fallacious, but I don't know how to explain it to her. Can any one help me to explain it to her?&lt;/p&gt;&#xA;" OwnerUserId="13482" LastEditorUserId="1601" LastEditDate="2021-05-12T10:54:59.683" LastActivityDate="2021-05-12T10:54:59.683" Title="People pathologically hoard so much cash that they impoverish the entire nation" Tags="&lt;macroeconomics&gt;&lt;money&gt;&lt;nonexpert&gt;&lt;poverty&gt;" AnswerCount="10" CommentCount="10" FavoriteCount="10" ContentLicense="CC BY-SA 3.0" />
  <row Id="17056" PostTypeId="1" AcceptedAnswerId="17073" CreationDate="2017-06-05T20:37:54.203" Score="4" ViewCount="210" Body="&lt;p&gt;I am looking for the first use of the term &quot;deadweight loss.&quot;  Any suggestions either as to who it was who first used it or how to search for it?&lt;/p&gt;&#xA;" OwnerUserId="11321" LastActivityDate="2017-06-06T16:54:56.357" Title="Who originated the term &quot;deadweight loss&quot; and when?" Tags="&lt;welfare-economics&gt;&lt;history-economic-thought&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17057" PostTypeId="2" ParentId="17053" CreationDate="2017-06-05T21:21:52.940" Score="41" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;But when people pathologically hoard so much cash that they impoverish&#xA;  the entire nation&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This sentence seems to imply that we should fault the rich not because they are rich, but because &lt;em&gt;they do not spend their riches&lt;/em&gt;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ok, let's scrutinize this assertion, and not go into philosophical and sociopolitical arguments about inequality, justice, etc, which is a totally different discussion and off-topic on this site (although I suspect that your aunt may in the end has something like this in mind...)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Who said rich people don't spend their riches&lt;/em&gt;?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) Last time I heard, we are all too ready to criticize them for &quot;lavish life-styles&quot;. But lavish life-styles cost a lot of money, so it appears they do spend a lot...so part of their riches becomes income for the rest.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But they are still rich!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) Yes, because most of their wealth is &lt;em&gt;invested&lt;/em&gt; in productive economic activities (directly or indirectly through mutual funds etc).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It follows that wealth is NOT &quot;hoarded&quot; - because hoarding means &quot;stash away wealth, don't spend it, don't invest it, just stash it away from any interaction with other humans and economic activities&quot;. A &quot;Scrooge McDuck&quot; kind of situation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is not what is happening in today's world, and so the specific sentence from this excerpt is simply factually wrong.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, the fact that even without hoarding, rich people may stay rich or become richer, the fact that there are people dying of hunger while others live lavish life-styles, in other words &lt;strong&gt;the issue of wealth and income inequality&lt;/strong&gt; could be certainly an on-topic subject here if, indicatively,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;a) It was examined as regards its effects on economic efficiency (there is growing evidence that efficiency and distribution are linked and that inequality affects negatively efficiency and economic growth, see for example &lt;a href=&quot;https://www.imf.org/external/pubs/ft/sdn/2014/sdn1402.pdf&quot; rel=&quot;noreferrer&quot;&gt;&lt;strong&gt;this recent IMF report&lt;/strong&gt;&lt;/a&gt;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;or&lt;/p&gt;&#xA;&#xA;&lt;p&gt;b) It was placed and studied in the context of &lt;strong&gt;normative economics&lt;/strong&gt; (and &quot;normative&quot; is &lt;strong&gt;not&lt;/strong&gt; a synonym for &quot;value judgements&quot; or &quot;opinions&quot;). I would suggest to &lt;a href=&quot;https://economics.meta.stackexchange.com/q/1702/61&quot;&gt;&lt;strong&gt;check this meta-thread&lt;/strong&gt;&lt;/a&gt; on the matter.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2017-06-11T11:47:35.153" LastActivityDate="2017-06-11T11:47:35.153" CommentCount="16" ContentLicense="CC BY-SA 3.0" />
  <row Id="17058" PostTypeId="2" ParentId="17053" CreationDate="2017-06-05T23:34:41.893" Score="13" Body="&lt;p&gt;Her position isn't quite untrue.  If you define poor and rich relatively, you cannot have &quot;poor&quot; without having &quot;rich.&quot;  However, this has little to do with hoarding.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We often think of money in terms of the medium it is stored.  We typically understand a vault full of cash.  However, such a vault isn't doing anything.  Money &lt;em&gt;does&lt;/em&gt; things when it is in motion.  It is a medium of exchange, not just a medium of storage.  When it comes to impoverishment, we're talking about people who want to spend money but don't have it.  We're focusing on the exchange half of the equation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Goods and services will always be exchanged.  Nobody really wants &quot;dollars.&quot;  You can't eat them.  You can't build a house with them (well, not a structurally sound one).  What you can do is use them to facilitate exchanges of goods and services.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If someone hoarded a bunch of money and made it clear that money isn't going to be returning to service any time soon, it would have a substantial effect on prices, but in the end, the people who want to eat bread will eat bread.  The people who want to buy Rolexes will buy Rolexes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The one case I can think of where hoarding could actually &quot;impoverish a nation&quot; is if they hoard large sums of currency and the &lt;em&gt;threat&lt;/em&gt; that they may use it all at once wreaks havoc on the market.  If you know that a bunch of dollars could suddenly enter the market at any moment, you know that the value of any dollar could deflate &lt;em&gt;rapidly&lt;/em&gt; at any moment.  Accordingly, you'll try to minimize how often you're holding onto a dollar.  You'll focus on holding on to tangible goods instead.  This could slow the &lt;em&gt;velocity&lt;/em&gt; of a market, which could impoverish people who can't get the things they need because the market is moving too slowly out of fear.&lt;/p&gt;&#xA;" OwnerUserId="9032" LastEditorUserId="68" LastEditDate="2018-11-12T03:49:43.313" LastActivityDate="2018-11-12T03:49:43.313" CommentCount="13" ContentLicense="CC BY-SA 4.0" />
  <row Id="17059" PostTypeId="2" ParentId="17050" CreationDate="2017-06-05T23:56:13.420" Score="1" Body="&lt;p&gt;The Bureau of Engraving and Printing maintains &lt;a href=&quot;http://www.moneyfactory.gov/resources/productionannual.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;public records on their web site&lt;/a&gt;, but that data only goes back to 1980. Therefor your best option might be to &lt;a href=&quot;http://www.moneyfactory.gov/contactus.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;write or call them&lt;/a&gt; and ask for information for the time period you're interested in. If they are not forthcoming, you can call back and try your luck with a different staff member. If that doesn't work, you can resort of filing a &lt;a href=&quot;https://www.moneyfactory.gov/foia.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Freedom of Information Act request&lt;/a&gt;. According to &lt;a href=&quot;https://foiamapper.com/agencies/treasury-foia/treasury-bep-foia/&quot; rel=&quot;nofollow noreferrer&quot;&gt;this page&lt;/a&gt; the average turnaround time is 23-31 days depending on the complexity of the request. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is also &lt;a href=&quot;https://tradingeconomics.com/united-states/money-supply-m0&quot; rel=&quot;nofollow noreferrer&quot;&gt;this site&lt;/a&gt;, which has information on the US money supply from 1959 - present, but I am not sure it is presented in a way you'll find useful for your project. I am also unsure if it meets your definition of &quot;very old.&quot; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Good luck!&lt;/p&gt;&#xA;" OwnerUserId="12054" LastActivityDate="2017-06-05T23:56:13.420" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17060" PostTypeId="2" ParentId="17043" CreationDate="2017-06-06T01:53:39.997" Score="1" Body="&lt;p&gt;At the time of writing this answer, I would note that the question is somewhat confusing. The issue is that the question uses the common definition of the word &quot;money&quot; which corresponds to the term &quot;wealth&quot; in economics, while &quot;money&quot; has a narrow technical meaning (referring to the &quot;money supply aggregates&quot;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This section is the part that is confusing.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;For example, look at the largest US company by market cap - Apple. It&#xA;  is currently worth over 800 billion US dollars. I've heard there is&#xA;  about 1 trillion total US paper dollars. So Apple would cost you about&#xA;  80% of all US paper money. I've also heard people say it is just&#xA;  'funny money' and the 800 billion is not 'real money'.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;(Please note that I have not validated these numbers; the exact values are not important.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Paper dollars (technically, &quot;currency in circulation&quot;) is one form of financial instrument, and is a component of the various money aggregates. It is easy to work with, because it has a fixed value. The shares of a company (equity) are another financial asset, but they are not a component of the money supply. (That is, they are not &quot;money&quot; from the perspective of economics.) The value of equities change continuously during the trading day. If there is good news, the price of a stock could double, doubling the wealth of all of the holders. This means that a shareholder's brokerage account value could double, without any &quot;money&quot; changing hands.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this &quot;real&quot; money? It is certainly wealth. But it would be effectively impossible for all Apple shareholders to sell at the same time at the current share price, and so the market value cannot be converted into &quot;money&quot; at the current market capitalisation. This is not a problem for U.S. paper money - it can always be redeemed at par (for a bank account balance). Therefore, there is a logic to not treating the market value of a company as the same thing as the equivalent amount of money in the bank.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for the comparison of sizes, any numbers I give will be outdated when later people read this answer. I will instead send you to a good source of data - the U.S. Federal Reserve's &quot;Flow of Funds Report&quot; (the Z.1 Report). &lt;a href=&quot;https://www.federalreserve.gov/releases/z1/current/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Link to Z.1 Report&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This report offers a quarterly summary of financial statistics for the United States. It contains data on flows - the value of transactions in instruments for the quarter, as well as balance sheet data (&quot;stock variables&quot; in economics jargon).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would recommend just looking at the balance sheet tables for now. In particular, you can look at the table for &quot;Households and Nonprofits&quot; (table L.101). It has a breakdown of household (and nonprofit) balance sheets. &lt;a href=&quot;https://www.federalreserve.gov/releases/z1/current/html/l101.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;(Link to html table for households.)&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As of the end of 2016, households held \$15874.2 billion (\$15.87 trillion) in corporate equities; that does not include indirect holdings. Meanwhile, bank deposits and currency was only \$1237.2 billion, (or \$1.24 trillion). In other words, equity holdings swamp narrow &quot;money&quot; holdings (currency and bank deposits) for &lt;em&gt;households.&lt;/em&gt; (Total bank deposits are much larger. I just wanted to compare direct holdings; the reader will have to look at the tables in their entirety to see total asset and portfolio sizes.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The other balance sheet tables will also be useful to find the relative sizes of financial asset holdings by various sectors. This may help answer your concerns.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastEditorUserId="12891" LastEditDate="2017-06-07T13:21:34.563" LastActivityDate="2017-06-07T13:21:34.563" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="17061" PostTypeId="1" CreationDate="2017-06-06T02:32:48.280" Score="1" ViewCount="18" Body="&lt;p&gt;I find it hard to get an intuitive understanding of the expected pay off of an American option. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I read in this thread &lt;a href=&quot;https://economics.stackexchange.com/questions/16618/expected-payoff-of-an-american-put-option&quot;&gt;expected payoff of an American put option&lt;/a&gt;&#xA;but what I don't understand is why do we have $$e^{-r(\tau-t)}$$ in the expected pay off? (where $r$: risk-free interest rate, &#xA;$\tau$: time to expiry&#xA;$t$: time&#xA;) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Am I right that this means that there is discounting? Why?&lt;/p&gt;&#xA;" OwnerUserId="13485" LastActivityDate="2017-06-06T02:32:48.280" Title="expected pay off of an American option" Tags="&lt;asset-pricing&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17063" PostTypeId="2" ParentId="17053" CreationDate="2017-06-06T08:00:29.303" Score="10" Body="&lt;p&gt;The argument is largely based of the following premise:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You have 10 Million Dollars. Say in one case you gave it all to 1 already rich millionaire, and in the other case you gave $1000 to 10,000 poor people, where we define a poor person as someone who does have somewhere to live (not homeless) but lives paycheck to paycheck and to whom even something like their Microwave breaking could mean not eating properly for a while.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The person who is already rich would probably struggle to spend that $10 Million quickly. What most rich people would do in that situation is invest it. The kind of things you could easily spend \$10 Million Dollars on are in very select industries, which are predominantly run by already rich people, effectively passing the money from 1 rich person to the other.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What all this means is that it takes a long time for the system as a whole (and in turn, those who require aid from their government) to see the money again. Furthermore, the rich have much more opportunities to avoid tax than someone making minimum wage at Walmart.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, if you give the 10,000 poor $1000, they will likely spend it almost immediately. The money very quickly goes from wages back into the economy and back into wages again, driving growth. This in theory leads to better wages for workers and lower inflation, as well as more tax revenue for the government.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, this uses very general examples and assumes a lot of things, but it's pretty much the argument that the post is trying to make.&lt;/p&gt;&#xA;" OwnerUserId="13490" LastEditorUserId="13490" LastEditDate="2017-06-06T09:49:25.423" LastActivityDate="2017-06-06T09:49:25.423" CommentCount="11" ContentLicense="CC BY-SA 3.0" />
  <row Id="17064" PostTypeId="1" CreationDate="2017-06-06T08:19:26.590" Score="0" ViewCount="780" Body="&lt;p&gt;I'm trying to collect current GDP data for India from 1990-2016. But, India changed its base year in 2011. So, to get a continuous series, do I have to change the data to a common base?&lt;/p&gt;&#xA;" OwnerUserId="13491" LastActivityDate="2018-12-07T07:00:50.720" Title="When the base year changes, does it affect data at current prices as well?" Tags="&lt;gdp&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="17065" PostTypeId="2" ParentId="17064" CreationDate="2017-06-06T08:37:04.730" Score="1" Body="&lt;p&gt;Yes, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you initially had GDP data at some base year $Year\;x$ for some $Year\;y$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$I_{\frac{Year\;y}{Year\;x}} = \frac{GDP_{Year\;y}}{GDP_{Year\;x}} \times 100$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If your base year has now changed to some base year $Year\;a$ for some $Year\;b$&#xA;, $a &amp;gt; x$, then you should convert the GDP data from year $b$ onwards to reflect the initial base year, $x$.&#xA;&lt;br/&gt;&#xA;$$I_{\frac{Year\;b}{Year\;x}} = I_{\frac{Year\;b}{Year\;a}} \times I_{\frac{Year\;a}{Year\;x}} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Further proof, &#xA;$$\frac{GDP_{Year\;b}}{GDP_{Year\;x}} = \frac{GDP_{Year\;b}}{GDP_{Year\;a}} \times \frac{GDP_{Year\;a}}{GDP_{Year\;x}} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This way you will be able to get a continuous and consistent series based on some base year, $x$. If there were multiple base years, the data would be meaningless since it would reflect on changes with regard to different periods of time - ie, you would not be able to draw a definite conclusion.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An index compares the value of the current year against the value in the base year.&#xA;In this case, you might be looking for the current GDP value for every year from your data-set. As an example, if $$I_{\frac{2001}{2000}} = 110, \; and \; GDP_{2000} = 200, \; then \; GDP_{2001} =220.$$&lt;br&gt;&#xA;&#xA;When comparing data with changing base years, for eg,&#xA;$$I_{\frac{2001}{2000}} = 110, \;I_{\frac{2002}{2001}} = 105,$$&#xA;&lt;strong&gt;You can see that this does not mean the GDP in 2002 is $10\%+5\%$ higher than 2000&lt;/strong&gt;. Instead, the actual GDP = &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$I_{\frac{2002}{2000}} \times GDP_{2000} = I_{\frac{2002}{2001}}\times I_{\frac{2001}{2000}} \times GDP_{2000} = 115.5 \times GDP_{2000} = 231$$ &#xA;or you can break this down to&#xA;$$GDP_{2000} = 200$$ $$GDP_{2001} = GDP_{2000} \times I_{\frac{2001}{2000}} = 220$$ $$GDP_{2002} = GDP_{2001} \times I_{\frac{2002}{2001}} = 231 $$ &#xA; Thus this is why you have to change your indexes to reflect on the same base year, since your calculated values of actual prices will differ.&lt;/p&gt;&#xA;" OwnerUserId="11855" LastEditorUserId="11855" LastEditDate="2017-06-06T09:55:20.270" LastActivityDate="2017-06-06T09:55:20.270" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="17066" PostTypeId="1" CreationDate="2017-05-31T09:54:27.257" Score="17" ViewCount="798" Body="&lt;p&gt;Common economic thinking dictates that an increase in price should lead to an increase in supply, and that an increase in supply should then lead to a decrease in price.  According to Maarten van Poelgeest, former alderman of Amsterdam, the opposite is happening in Amsterdam and other popular cities.  He is &lt;a href=&quot;https://www.groene.nl/artikel/het-kan-niet-slechter-dan-hoe-nederland-het-doet&quot; rel=&quot;noreferrer&quot;&gt;quoted in an article in De Groene Amsterdammer&lt;/a&gt; as saying:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;‘Hoe meer er gebouwd wordt, hoe aantrekkelijker de stad wordt. Er komen meer voorzieningen, er komt meer reuring. Nieuw aanbod maakt de vraag dus juist weer groter – en de huizenprijzen hoger.’&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Which means:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;’The more there is built, the more attractive the city becomes. There will be more facilities, there is more bustle. New supply therefore makes the demand even larger – and house prices higher.’&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The reasoning by Maarten van Poelgeest appears plausible, but is there any evidence that this is actually happening?  Is there evidence that an increase in housing supply leads to an increase in house prices, due to housing in the area becoming more attractive?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm looking for an answer based on empirical evidence from trends in the past up to the present, in order to present the claim/hypothesis by Maarten van Poelgeest up to the best available measurements.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;NB: I am emphatically&lt;/em&gt; not &lt;em&gt;asking just for a correlation.  A correlation between increase in supply and increase in price can easily be explained by the reverse of the causation I'm asking for here.  I'm aware that causation is harder to provide evidence for but it should not be impossible.&lt;/em&gt;&lt;/p&gt;&#xA;" OwnerUserId="332" OwnerDisplayName="gerrit" LastEditorUserId="332" LastEditDate="2017-06-06T14:43:33.247" LastActivityDate="2020-03-02T13:16:24.373" Title="Has an increase in housing supply in popular cities including Amsterdam led to an increase in house prices?" Tags="&lt;housing&gt;" AnswerCount="5" CommentCount="3" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="17067" PostTypeId="1" CreationDate="2017-06-06T13:47:03.820" Score="0" ViewCount="761" Body="&lt;p&gt;This question was asked in very popular civil services examination.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Question is : Whether the following statement is correct or not?&#xA;  Statement : If a country is experiencing increase in its per-capita&#xA;  GDP, its GDP must necessarily be growing?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The approach I applied is that, in a country like Syria, if mass emigration happens then population will decrease and at the same time GDP might not decrease with same rate. so this statement will be false. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know my assumption is not too correct, so ignoring that, please help me arrive in correct answer. &lt;/p&gt;&#xA;" OwnerUserId="4386" LastActivityDate="2017-06-06T17:37:21.263" Title="Increase in per capita GDP always means GDP is growing?" Tags="&lt;gdp&gt;&lt;economic-growth&gt;" AnswerCount="1" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="17068" PostTypeId="1" AcceptedAnswerId="17088" CreationDate="2017-06-06T14:09:41.757" Score="3" ViewCount="1714" Body="&lt;p&gt;I am comparing two vectors of values which indicate portfolio weights in monetary units at two different dates.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I wanted to quantify if the concentration in the portfolios changed. So I moved on with calculating the Gini index and the Herfindahl index for both vectors.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now I got the  result that the Gini index increased, but the Herfindahl index decreased. How can I understand this result?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I did it in R, so I provide you with the values and the code:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt; library(ineq)&#xA;&#xA;V0 &amp;lt;- c(6.162382e+01, 7.870565e+02, 2.922241e+03, 8.367593e-02, 3.306334e+01, 1.937308e+03, 2.114359e+01, 3.942730e+01, 2.682160e+00,&#xA;1.929470e+03, 2.052831e+03, 9.902533e+03, 9.603747e+03, 2.370503e+00, 3.841130e+01, 2.364905e+01, 3.627621e-01, 2.248296e+02,&#xA;2.330520e+03, 7.286694e+03, 5.218457e+00, 5.961622e-01, 0.000000e+00, 0.000000e+00, 5.048860e+03, 2.885924e+01, 3.051794e+02,&#xA;5.937953e+02, 6.668031e+00, 1.004851e+02, 3.319353e+02, 1.796081e+03, 1.407182e+03, 2.728721e+03, 3.892461e+04, 2.996096e+04)&#xA;&#xA;V1 &amp;lt;- c(1.07793e-03, 5.87720e-04, 1.95339e-04, 2.65183e+03, 8.58753e-04, 2.67605e-04, 4.86570e-05, 1.74857e-05, 1.00513e-04, 5.18214e+03,&#xA;9.09578e+03, 3.23243e+04, 4.41746e-03, 2.11019e-05, 2.87357e+04, 6.10592e+03, 2.25064e-03, 1.24105e-03, 1.63327e+04, 1.47689e-03,&#xA;1.60764e-04, 9.70041e-04, 2.64918e-06, 2.13185e-04, 1.95118e-03, 3.50591e+03, 2.97961e-03, 1.34459e-04, 1.10588e+03, 3.30131e-05,&#xA;2.41992e-04, 1.03209e-04, 2.25949e-03, 1.93734e-02, 1.50010e+04, 3.98032e+02)&#xA;&#xA;Gini(V0)&#xA;[1] 0.8202071&#xA;Gini(V1)&#xA;[1] 0.8503999&#xA;Herfindahl(V0)&#xA;[1] 0.187598&#xA;Herfindahl(V1)&#xA;[1] 0.1744127&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Clearly, both vectors are rather unequal distributed. The high Gini index says exactly that. The Herfindahl index is rather low to my feelings, but I am not very experienced with inequality/concentration measures. &lt;/p&gt;&#xA;" OwnerUserId="13500" LastEditorUserId="8891" LastEditDate="2017-06-07T22:36:55.617" LastActivityDate="2017-07-02T22:15:03.600" Title="Gini index vs Herfindahl index: one increases while the other decreases" Tags="&lt;econometrics&gt;&lt;inequality&gt;&lt;r&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17069" PostTypeId="2" ParentId="17053" CreationDate="2017-06-06T15:38:37.637" Score="4" Body="&lt;p&gt;This assumes they store their own money in their house. Like a room full of bills. If that's the case, if billions of dollars are stashed. Then it technically would reduce the supply of money and thus increase its value. If that was the case, we could call them crazy (unless it's drug money). But that's not what is happening. They store their money in a bank or invest it. In either case, the bank loans or invest the money to people who needs it.&lt;/p&gt;&#xA;" OwnerUserId="335" LastEditorUserId="68" LastEditDate="2018-11-12T03:50:09.967" LastActivityDate="2018-11-12T03:50:09.967" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="17070" PostTypeId="2" ParentId="17066" CreationDate="2017-06-06T15:47:03.720" Score="-2" Body="&lt;p&gt;Housing is something subject to socio-economic events and policy, which may produce a variety of outcome. So this is not a simple &quot;supply and demands&quot; issue. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, somebody must afford the house, i.e. enough business and job activities to sustain house purchase. You can build tons of house in the middle of nowhere, but without a job nearby, nobody going to buy it. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Second, a land is scarce, you cannot keep building houses/apartment on already used up land. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Third, housing price can be speculated and fuel by lenient bank loan terms&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Fourth, there is housing ownership tax and policies to curb speculation&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Fifth, Speculation on demands &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So you will see: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Hong Kong: expensive houses with builders monopoly, favourism and price fixing in place. &lt;/li&gt;&#xA;&lt;li&gt;Germany: only scarce city center are expensive, suburban housing price is still stable. Bank are very careful screening the client, little room for speculation.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="11177" LastEditorUserId="11177" LastEditDate="2020-02-27T11:56:04.330" LastActivityDate="2020-02-27T11:56:04.330" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="17072" PostTypeId="2" ParentId="17056" CreationDate="2017-06-06T16:05:54.467" Score="2" Body="&lt;p&gt;So far as the &quot;when&quot; is concerned, Google Ngram can be helpful for this sort of question.  It suggests (see &lt;a href=&quot;https://books.google.com/ngrams/graph?content=deadweight%20loss&amp;amp;year_start=1800&amp;amp;year_end=2000&amp;amp;corpus=15&amp;amp;smoothing=3&amp;amp;share=&amp;amp;direct_url=t1%3B%2Cdeadweight%20loss%3B%2Cc0&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;) that use of the term was nil or close to nil until 1960, since when its use has grown fairly steadily.&lt;/p&gt;&#xA;" OwnerUserId="1417" LastEditorUserId="1417" LastEditDate="2017-06-06T16:13:03.230" LastActivityDate="2017-06-06T16:13:03.230" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17073" PostTypeId="2" ParentId="17056" CreationDate="2017-06-06T16:29:47.477" Score="2" Body="&lt;p&gt;Start with &lt;a href=&quot;https://books.google.com/books?id=wLEZAQAAIAAJ&amp;amp;pg=PA237&amp;amp;dq=%22deadweight%20loss%22&amp;amp;hl=en&amp;amp;sa=X&amp;amp;ved=0ahUKEwjfkKnT0KnUAhVPHGMKHRDMB3MQ6AEIODAE#v=onepage&amp;amp;q=%22deadweight%20loss%22&amp;amp;f=false&quot; rel=&quot;nofollow noreferrer&quot;&gt;Practical Points in the Formation and Valuation of Pension Funds, with a Note on Group Assurances&lt;/a&gt; &lt;em&gt;Journal of the Institute of Actuaries&lt;/em&gt; July 1915.  (&lt;a href=&quot;https://www.cambridge.org/core/journals/journal-of-the-institute-of-actuaries/article/practical-points-in-connection-with-the-formation-and-valuation-of-pension-funds-with-a-note-on-group-assurances/DA6C59006628DB66A90DBAAAF3FD6B22&quot; rel=&quot;nofollow noreferrer&quot;&gt;alternative link&lt;/a&gt;):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;...so that an unusually low mortality was a deadweight loss &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The 1941 book &lt;a href=&quot;https://books.google.com/books?id=qgwPAQAAMAAJ&amp;amp;q=%22deadweight%20loss%22&amp;amp;dq=%22deadweight%20loss%22&amp;amp;hl=en&amp;amp;sa=X&amp;amp;ved=0ahUKEwi_mpe31qnUAhVGHGMKHYG0ACkQ6AEINTAD&quot; rel=&quot;nofollow noreferrer&quot;&gt;The Cambridge Economic History of Europe from the Decline of the Roman Empire&lt;/a&gt; may have contributed to the use of the term, and says: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In addition there was the 'deadweight loss', the additional value that American users would have enjoyed had rails sold at the lower price and assuming that they would therefore have bought more than the 1,550,000 tons which they did buy... &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="13505" LastEditorUserId="13505" LastEditDate="2017-06-06T16:54:56.357" LastActivityDate="2017-06-06T16:54:56.357" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17074" PostTypeId="2" ParentId="17053" CreationDate="2017-06-06T17:15:57.897" Score="9" Body="&lt;p&gt;This particular statement posted is actually two separate statements that are being conflated despite not being related:&lt;/p&gt;&#xA;&lt;p&gt;Statement 1:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;People who collect many newspapers or cats are called &amp;quot;nuts&amp;quot; by &amp;quot;us&amp;quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Statement 2:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;People who have a lot of money impoverish the nation, but &amp;quot;we&amp;quot; treat them as role models and put them on the cover of Fortune&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;The verbal slight of hand here is that newspapers or cats are comparable to money. The basic reason that &amp;quot;we&amp;quot; find the latter to be desirable is that &lt;strong&gt;money is more useful than cats or newspapers&lt;/strong&gt;.&lt;/p&gt;&#xA;&lt;p&gt;Even someone who loves cats will eventually find that for each additional cat they purchase or acquire their desire to have an additional cat diminishes. This is called &lt;strong&gt;marginal utility&lt;/strong&gt;.&lt;/p&gt;&#xA;&lt;p&gt;Someone who collects newspapers actually may have a pathological problem with their collection. Newspapers are generally only useful once, or shortly after they were printed.  The have reducing utility for each passing they they are collected and take up time and space to store appropriately. In rare cases, some newspapers and cats can hold value to others. However, typically they are not exchangeable and so they only provide utility to those who have some kind of attachment to them.&lt;/p&gt;&#xA;&lt;p&gt;Cats and newspapers are also not easily &lt;strong&gt;fungible&lt;/strong&gt;. With currency, you can have smaller units. So you could purchase an item for 10 cents with a dollar and still keep the portion that you did not spend. This is very difficult if you are trying to exchange for goods or services with a cat.  Similarly, newspapers are not easily &lt;strong&gt;convertible&lt;/strong&gt;.  While they may have a high utility to someone, they do not have much utility to other people.&lt;/p&gt;&#xA;&lt;p&gt;Money, on the other hand, is useful because, typically, it is something that is both fungible &lt;strong&gt;and&lt;/strong&gt; convertible.&lt;/p&gt;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.everydayhealth.com/news/are-you-sensibly-frugal-mentally-ill/&quot; rel=&quot;noreferrer&quot;&gt;According to the APA&lt;/a&gt;:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Being careful about how you spend your money can earn you a reputation for being frugal, but when the penny-pinching goes too far and money is essentially hoarded, that can be a symptom of obsessive compulsive personality disorder.&lt;/p&gt;&#xA;&lt;p&gt;Frugality is a symptom of obsessive compulsive personality disorder (OCPD) when a person &amp;quot;adopts a miserly spending style toward both self and others,...&lt;/p&gt;&#xA;&lt;p&gt;“People with OCPD are people who are very preoccupied with details, making lists, workaholic, very frugal. People with OCPD do not have intrusive thoughts, so they don’t worry about their symptoms. To them, they wonder, why is everyone else not as organized and as neat as I am?”&lt;/p&gt;&#xA;&lt;p&gt;People with OCPD might be so frugal that they'd go to a food pantry or skimp on essentials, even if they had enough money for all they need.&lt;/p&gt;&#xA;&lt;p&gt;During a recession or economic hard times, when tight budgeting is widely admired, it can be tough to know if you’re overdoing it. &lt;strong&gt;The most important sign that you’re going too far, he says, is when your frugality negatively affects relationships or the quality of your life because you can’t spend time or money on fun or relaxation.&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Or put another way, pathological hoarding is only the lack of action to spend money, not the collection of it.&lt;/p&gt;&#xA;&lt;p&gt;Further, people who have a lot of &lt;strong&gt;wealth&lt;/strong&gt; generally do not have a lot of &lt;strong&gt;cash&lt;/strong&gt;, per se. The people on the cover of Fortune, as the quote mentions, have large holdings of companies. And what cash they do have, the bank turns around and invests the money themselves, such that money is rarely sitting in a vault somewhere being hoarded.&lt;/p&gt;&#xA;&lt;p&gt;When they invest their wealth, their value is derived from their holdings.  When we say someone is worth $x million/billion dollars we are saying how much money you could get by selling all of their ownership and converting it to cash by selling it. Ownership of a company is less convertible than money, though still more convertible than cats.  If you sell several million shares of a company, the price will probably go down because of the additional quantity supplied. When the price goes down, the value of the company goes down. This means there is less money for the company to spend on increasing supply (often by hiring workers), diversifying their products, or acquiring better facilities.&lt;/p&gt;&#xA;&lt;p&gt;So even when someone has a lot of wealth, they probably &lt;strong&gt;are&lt;/strong&gt; spending the money (not hoarding it) but they are spending it in ways that also have high marginal value for themselves.  People who have pathological hoarding collect things with negative marginal value, like cats.&lt;/p&gt;&#xA;&lt;p&gt;Tl;dr, the FaceBook response should probably be: &amp;quot;Because money is more useful than cats.&amp;quot;&lt;/p&gt;&#xA;" OwnerUserId="5021" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2018-11-12T07:05:28.913" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="17075" PostTypeId="2" ParentId="17067" CreationDate="2017-06-06T17:37:21.263" Score="3" Body="&lt;p&gt;Your reasoning seems correct.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;if we consider that &lt;em&gt;Gp=G/(population)&lt;/em&gt; and we know that Gp is increasing then we have the following possibilities:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;if &lt;em&gt;(population)&lt;/em&gt; is static or growing then we can conclude that G must necessarily be growing&lt;/li&gt;&#xA;&lt;li&gt;if &lt;em&gt;(population)&lt;/em&gt; is decreasing then G can be either static or actually decreasing slower than &lt;em&gt;(population)&lt;/em&gt;. In this case, the statement on the question fails&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="13504" LastActivityDate="2017-06-06T17:37:21.263" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17077" PostTypeId="2" ParentId="17053" CreationDate="2017-06-06T17:55:06.447" Score="1" Body="&lt;p&gt;I think that your aunt is confusing cause and effect here.  Rich people staying rich is seldom the cause of poverty, rather it is a parallel effect.  The cause of much poverty and much wealth is the legal/social/economic environment that maintains stratification.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Many poor people stay poor because of the  situation that they are in. They live in neighborhoods that the cops only visit when weapons are reported; they pay taxes on most of the money that they earn; medical services are distant; even fresh veggies are scarce.  Their local schools are often not very good.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Many rich people stay rich because of their environment.  The cops will show up merely at the report of a vagrant; there are lots of tax loopholes to hide their earnings; the University medical center is a mile away; Gelson's and Trader Joe's compete for optimal retail space.  The schools are top notch, often blessed with funds secured by local parents.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;BTW, I use the term 'environment' to mean more than just a physical location and its character.  Rich kids may absorb the concept of tax-free annuities from hearing their parent's casual conversation; poor kids hear about the purchase of new anti-theft bars for the windows.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If your aunt wants to make a more balanced society, she will not do so by resenting the rich.  The way to solve the problem is to increase the mobility between groups.&lt;/p&gt;&#xA;" OwnerUserId="13510" LastActivityDate="2017-06-06T17:55:06.447" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17078" PostTypeId="2" ParentId="17053" CreationDate="2017-06-06T19:10:26.723" Score="1" Body="&lt;p&gt;One of the most fundamental aspects of economics is scarcity. We have a limited amount of material resources. Not everyone can have everything. However, through specialization, some become very good at making or acquiring a few things such that they have excess. Large-scale trading of excess becomes difficult without a system, thus we have money. Money is a system of perceived value that facilitates trade. However, money is not intrinsically as valuable as its perceived value (you can buy a filet mignon steak, but you can't eat the money at all). This system has lead to two modern economies which I like to call the material economy and the monetary (money) economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The material economy is everything you eat, drink, sleep on or in, or otherwise use in your life (your home, car, jewelry, etc.). The monetary economy, on the other hand, is simply the money we use to represent those things.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here's where the problem with your aunt's statement lies. The first things she lists (newspapers and cats) are material things that physically take up space and thus, when hoarded, act to the detriment of the person's capacity to act productively or live comfortably in their daily life. Money, however, is mostly imaginary. It exists in computer databases and is a tool used to acquire the material goods one needs/wants at their behest, and improve their productivity and ability to live their daily life comfortably. Money is not something that is hoarded in the sense of filling their house with paper money. Instead, people like Warren Buffet frequently invest and move these digital assets to stimulate activity in the material economy. Often, the wealthy do this as an intellectual exercise/hobby for them that adds to the quality of their life and the productivity of other industries as a result of their investments.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope this helps.&lt;/p&gt;&#xA;" OwnerUserId="13512" LastEditorUserId="13512" LastEditDate="2017-06-08T20:18:46.553" LastActivityDate="2017-06-08T20:18:46.553" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17079" PostTypeId="2" ParentId="17053" CreationDate="2017-06-06T20:24:58.140" Score="5" Body="&lt;p&gt;When people hoard cash they actually increase the value of everyone else's cash.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why? Because if they didn't hold it then some of it would instead be sold to the investors who support the price of the currency using different currencies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When it was dumped in this manner, everyone else's currency would be decreased in value on a per unit basis, yet most would have the same amount.&lt;/p&gt;&#xA;" OwnerUserId="13518" LastEditorUserId="2776" LastEditDate="2017-06-07T06:32:36.097" LastActivityDate="2017-06-07T06:32:36.097" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17080" PostTypeId="1" AcceptedAnswerId="17081" CreationDate="2017-06-06T21:39:30.373" Score="10" ViewCount="1630" Body="&lt;p&gt;I have noticed that many shoe selling shops I have visited have the same price tag regardless of the shoe size.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Intuitively I'd think the bigger the shoe the more material and consequently capital invested in producing it. That being the case why would a manufacturer equally price dissimilar shoe sizes?&lt;/p&gt;&#xA;" OwnerUserId="7379" LastEditorUserId="2776" LastEditDate="2017-06-07T06:33:14.283" LastActivityDate="2019-08-12T11:31:34.247" Title="Why isn't the cost of shoes affected by their size?" Tags="&lt;markets&gt;&lt;price&gt;" AnswerCount="5" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17081" PostTypeId="2" ParentId="17080" CreationDate="2017-06-06T22:05:40.700" Score="15" Body="&lt;p&gt;Most of the price of creating a shoe is the cost of labour to make it and the cost to ship it to the store. The cost of the materials needed to make the shoe is negligible. So, they can ignore the difference in material costs without losing too much money.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But why would they want to lose any money at all? Logistics. Keeping track of the different prices per shoe, printing the different labels, making sure the shoes are sold at the right price, paying people to determine how much of a price difference the company should charge are all things that cost money.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the company is looking at creating a giant logistical nightmare for themselves, costing them who knows how much money, all for a penny difference between a size 8 and a size 13.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Trying to charge a different price would be a case of being 'penny smart; dollar stupid'.&lt;/p&gt;&#xA;" OwnerUserId="7252" LastActivityDate="2017-06-06T22:05:40.700" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="17082" PostTypeId="2" ParentId="14098" CreationDate="2017-06-06T23:42:47.063" Score="1" Body="&lt;p&gt;I appreciate your question because there is an assumed level of individual responsibility. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Before I offer my answer, I want to make a recommendation. There is a fantastic book that addresses this question in great detail. It's called, &quot;The Poverty of Nations&quot; by Barry Asmus and Wayne Grudem. If you can get a hold of a copy (it's even available in digital forms), please do. They outline a path that a country a can take to move from poverty to prosperity, and make a very persuasive case. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The simplest answer to your question is, a citizen can contribute to moving his country out of poverty and into prosperity by producing more goods and services. The more wide-spread this type of change is in the country, the greater you will see the move away from poverty and into prosperity. This will lead to people having a greater sense of earned success in their lives. To borrow a quote from Arthur C. Brooks, &quot;Earned success means the ability to create value honestly— not by winning the lottery, not by inheriting a fortune, not by picking up a welfare check. It doesn’t even mean making money itself. Earned success is the creation of value in our lives or in the lives of others.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, telling someone that they need to produce more goods and services and have a sense of earned success is easier said than done. Several things can either help or hinder this. If the people are in a country with a lousy economic system, it will dramatically reduce their production of goods and services. Jut a few of these poor economic systems include Hunting and gathering,  Subsistence farming, Slavery, Tribal ownership, Socialism and communism. When these types of systems are in play, it will prevent people from getting out of the poverty trap. The more free a people can be, and the more protected from abuse, the more opportunity they will have to succeed. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In short, a free market will give people the chance and the motivation to produce more goods and services. The right kind of government, which is one where the leaders know and believe that they exist for the good and well-being of the people as a whole, and not just themselves or their family and friends, is one that is going to produce a safe environment for the people. &lt;/p&gt;&#xA;" OwnerUserId="13523" LastActivityDate="2017-06-06T23:42:47.063" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17084" PostTypeId="2" ParentId="17043" CreationDate="2017-06-07T14:37:49.420" Score="0" Body="&lt;p&gt;If all types of brokerage accounts are included, meaning stock, bond, mutual fund and call money, as well as IRA and defined contribution brokerage accounts, then the value of the brokerage accounts is somewhat greater than bank deposits.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The most recent analysis of brokerage accounts was publish at the end of 2015, &lt;a href=&quot;https://www.dol.gov/sites/default/files/ebsa/researchers/analysis/retirement/brokerageaccountsintheus.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Brokerage Accounts in the United States&lt;/a&gt;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A total value of &lt;strong&gt;\$15,825 billion&lt;/strong&gt; was determined for 2013 (the last year analyzed), though only \$4,274 billion was due to stocks outside retirement accounts.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The amount in bank accounts is much more well-known than brokerage accounts.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The FDIC &lt;a href=&quot;https://www5.fdic.gov/sod/sodSumReport.asp?sInfoAsOf=2016&amp;amp;sAreas=&amp;amp;barItem=3&quot; rel=&quot;nofollow noreferrer&quot;&gt;publishes&lt;/a&gt; the amount of deposits in all FDIC insured institutions for 30 June of each year: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;2013: &lt;strong&gt;\$9,433,522,000,000&lt;/strong&gt;&lt;br&gt;&#xA;2016: \$11,271,811,000,000 &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Keep in mind that a brokerage account is only one of &lt;a href=&quot;https://www.sec.gov/reportspubs/investor-publications/investorpubsholdsechtm.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;3 ways&lt;/a&gt; to hold stock, the others being a physical certificate and direct registration.   &lt;/p&gt;&#xA;" OwnerUserId="13505" LastEditorUserId="13505" LastEditDate="2017-12-04T13:54:03.003" LastActivityDate="2017-12-04T13:54:03.003" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17085" PostTypeId="2" ParentId="17080" CreationDate="2017-06-07T14:45:56.010" Score="0" Body="&lt;p&gt;In fact, fixing price for goods is never straightforward. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;@Sane argue that this can be a logistic problem. However, there is always practice that says otherwise, e.g. stock clearance, discount.  There is even shoe discount store sort the price according to size. But the price is subject to demand assumption, rather than material cost. Individual goods price discriminations are rather common on Amazon.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In addition, there is specialize shoe maker that charge accordingly.  &lt;/p&gt;&#xA;" OwnerUserId="11177" LastActivityDate="2017-06-07T14:45:56.010" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17086" PostTypeId="1" CreationDate="2017-06-07T19:20:17.637" Score="1" ViewCount="96" Body="&lt;p&gt;I was reading the paper by Berndt and Wood (1975), &quot;Technology, Prices, and the Derived Demand for Energy&quot;. It was an interesting paper to read but there has not been anything done on this in nearly 40 years. I was able to track down the data (part of the data is in the paper) and played with their data. I also used the updated data from KLEMS from 1947 to 2014 because I am curious if the elasticities for energy substitutability, etc, have changed over time. The econometric specification used 3SLS which is not as robust as GMM.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What would be the value in exploring this topic? What are the pitfalls in the role of technology in US manufacturing? Capital has changed a lot since Berndt and Wood (1975) so it is possible that the updated KLEMS data could have harmonized it? Maybe or maybe not.&lt;/p&gt;&#xA;" OwnerUserId="13545" LastEditorUserId="2776" LastEditDate="2017-06-08T05:23:36.663" LastActivityDate="2021-01-22T16:13:47.260" Title="Technology, Prices, and the Derived Demand for Energy" Tags="&lt;microeconomics&gt;&lt;production-function&gt;&lt;energy-economics&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17087" PostTypeId="1" CreationDate="2017-06-07T21:52:30.900" Score="1" ViewCount="48" Body="&lt;p&gt;According to the textbooks,in a long run equilibrium, the market price will be equal to the minimum point of firm's ATC curve. But every firm's ATC curve will differ i.e each one of them will have different cost structure. In such scenario, how do we identify the representative firm?&lt;/p&gt;&#xA;" OwnerUserId="13550" LastActivityDate="2017-06-07T21:52:30.900" Title="Firms Entry/Exit Due to Economic Profit in a Perfectly Competitive Market" Tags="&lt;microeconomics&gt;&lt;long-run&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="17088" PostTypeId="2" ParentId="17068" CreationDate="2017-06-07T22:32:03.037" Score="4" Body="&lt;p&gt;They measure different things.  In particular the Gini index measures inequality and is strongly affected by the number of individuals with almost nothing, while the Herfindahl index measures the diversity of the shares (for example the choice in a market) and is almost unaffected by those with almost no share&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If $n$ people had equal shares then the Gini index would be $0$, not changing as $n$ increased since inequality would not change, while the Herfindahl index would be $\frac1n$, reducing as $n$ increased to reflect greater diversity&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As an an illustration, the following $36$ values give roughly the same results as your two examples&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;V2 &amp;lt;- c(0,0,0,0,0,0,0,0,0,0,0,0,0,0,0,0,0,0,0,0,0,0,0,0,0,0,0,0,0,0, &#xA;        0.05, 0.19, 0.19, 0.19, 0.19, 0.19)&#xA;Gini(V2)&#xA;# [1] 0.8527778&#xA;Herfindahl(V2) &#xA;# [1] 0.183&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;But the zeros have no impact on the market shares and the Herfindahl index: having somebody extra with no share is as irrelevant as having nobody extra, and somebody with a tiny share is almost as irrelevant.  Removing those zeros would lead to &lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;V3 &amp;lt;- c(0.05, 0.19, 0.19, 0.19, 0.19, 0.19)&#xA;Gini(V3)&#xA;# [1] 0.1166667&#xA;Herfindahl(V3)&#xA;# [1] 0.183&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;with the Gini index being much smaller (there is less inequality when those with nothing are excluded from consideration) but the Herfindahl index staying the same, corresponding to somewhere between $5$ and $6$ equal shares&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You could looking at the Lorenz curves for your examples with something from the package like &lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;plot(Lc(V0), col=&quot;blue&quot;)&#xA;lines(Lc(V1), col=&quot;red&quot;)&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;or something homemade like &lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;plot(c(0,1), c(0,1), type=&quot;l&quot;)&#xA;points((0:length(V0))/length(V0),cumsum(c(0,sort(V0)))/sum(V0), &#xA;    type=&quot;b&quot;, col=&quot;blue&quot;)&#xA;points((0:length(V1))/length(V1),cumsum(c(0,sort(V1)))/sum(V1), &#xA;    type=&quot;b&quot;, col=&quot;red&quot;)&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;gives a picture like this with V0 in blue and V1 in red&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/GzD9q.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/GzD9q.png&quot; alt=&quot;Lorenz curves&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So you can see that there is a greater area between the diagonal and the red curve (V1) than between the diagonal and the blue curve (V0), explaing why V1 gives a higher Gini index.  This is largely due to V1 having more extremely low values than V0 does&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But on the right hand side, the top two values are greater for blue (the cumulative sums of the others are lower), so shares are more concentrated for V0 leading to a higher Herfindahl index &lt;/p&gt;&#xA;" OwnerUserId="8891" LastEditorUserId="8891" LastEditDate="2017-06-09T14:37:05.313" LastActivityDate="2017-06-09T14:37:05.313" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17089" PostTypeId="1" CreationDate="2017-06-07T22:41:45.907" Score="1" ViewCount="47" Body="&lt;p&gt;Basically we know that poor and middle class workers have a high marginal propensity to consume as compared to rich people. Assuming that all of their jobs will be done by robots, and  only a few consumers with jobs are left, won’t the overall spending decrease and thus result in a sort of recession? This is if we assume that Rich people who know robotics have a lower marginal propensity to consume and a higher marginal propensity to save. What is your view?&lt;/p&gt;&#xA;" OwnerUserId="13551" LastEditorUserId="2776" LastEditDate="2017-06-08T05:21:31.803" LastActivityDate="2017-08-07T07:36:45.663" Title="Effects of Robotics on the overall marginal propensity to consume" Tags="&lt;labor-economics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17090" PostTypeId="2" ParentId="17089" CreationDate="2017-06-07T22:53:10.433" Score="0" Body="&lt;p&gt;There are people vouching for Universal Basic Income as a compensation measure for job loss due to automation. It can be seen as a Keynesian spending measure till the workers are re-skilled and employed again.&lt;/p&gt;&#xA;" OwnerUserId="13550" LastActivityDate="2017-06-07T22:53:10.433" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17093" PostTypeId="2" ParentId="15564" CreationDate="2017-06-08T09:09:20.477" Score="4" Body="&lt;p&gt;They worked at home. Like &quot;Household Engineers&quot; do today, doing everything working from down to dusk like their husbands, and like their husband they shared in the earnings of the household.&#xA;Until the industrial revolution came each household operated like a mini business.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It was the Industrial revolution that divided &quot;work&quot;(e.g. business) from home.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;They never &lt;strong&gt;left&lt;/strong&gt; the workforce, They just stopped being called the workforce.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ironically with people working from home more and more we are returning to such a system.&lt;/p&gt;&#xA;" OwnerUserId="13565" LastEditorUserId="2776" LastEditDate="2017-06-08T10:47:23.480" LastActivityDate="2017-06-08T10:47:23.480" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17094" PostTypeId="1" CreationDate="2017-06-08T12:19:20.220" Score="0" ViewCount="913" Body="&lt;p&gt;I keep reading that China must switch to consumption-led growth or productivity-led growth, that investment-led growth is 'dangerous.'&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand that it is probably not sustainable in the sense that returns on capital will start to fall after awhile. But what else is the danger?&lt;/p&gt;&#xA;" OwnerUserId="12431" LastEditorUserId="12431" LastEditDate="2017-06-08T13:05:54.807" LastActivityDate="2017-12-08T10:16:03.730" Title="What is the danger of (China's) investment-led growth as opposed to consumption-led growth?" Tags="&lt;macroeconomics&gt;&lt;economic-growth&gt;&lt;investment&gt;&lt;development-economics&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17095" PostTypeId="1" CreationDate="2017-06-08T12:46:46.227" Score="1" ViewCount="131" Body="&lt;p&gt;&lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/S0048733308000231&quot; rel=&quot;nofollow noreferrer&quot;&gt;Park (2008)&lt;/a&gt; provides an international patent protection index between the years of 1960-2005 with 5 years intervals. I was wondering if an updated version of such an index exist?&lt;/p&gt;&#xA;" OwnerUserId="7726" LastEditorUserId="2776" LastEditDate="2017-06-09T10:13:05.863" LastActivityDate="2018-11-22T20:28:49.813" Title="Updated International patent protection index from Park (2008)" Tags="&lt;reference-request&gt;&lt;intellectual-property&gt;" AnswerCount="2" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="17096" PostTypeId="1" CreationDate="2017-06-08T13:50:24.213" Score="1" ViewCount="110" Body="&lt;p&gt;I am an student who does some research on sustainability of public debt.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which papers are essential to understand what determines the sustainable debt threshold, and the sustainable level of public debt?&lt;/p&gt;&#xA;" OwnerUserId="13570" LastEditorUserId="2776" LastEditDate="2017-06-09T10:10:54.473" LastActivityDate="2017-08-25T09:19:08.167" Title="References on the sustainability of the public debt" Tags="&lt;macroeconomics&gt;&lt;reference-request&gt;&lt;government-debt&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17099" PostTypeId="1" CreationDate="2017-06-08T16:38:59.430" Score="1" ViewCount="95" Body="&lt;p&gt;The BEA (US Bureau of Economic Analysis) that produces the GDP and GDI also prepares a summary of Personal Income for the nation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In that it includes employer contributions for both private pensions and insurance as well as the employer contributions for government social insurance such as social security and medicare. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Later on &quot;transfer payments&quot; from both private and government programs are also added. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, personal payments for social security etc are deducted. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To me it seems that including employer contributions that are not available as income and are counted later in transfers seems like double counting and also doesn't agree with elementary macro economic texts that define national personal income as not including such contributions. In fact these contributions are carried into &quot;Disposable Personal Income&quot; which seems clearly wrong. Am I missing something?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/0NZvD.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/0NZvD.jpg&quot; alt=&quot;Table 2.1 from BEA&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;6/15&lt;/p&gt;&#xA;&#xA;&lt;p&gt;After reading the comments, part of the issue may simply be that I'm not good at accounting, but I understand part of this better. I agree there is no double counting. But, in the image below (just looking at social security)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/57n7e.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/57n7e.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm OK with gross &quot;personal income&quot; at the aggregate level including line 8 and the net of lines 18 and 25. But if one thinks of Social Security as a big savings account, then line 8 belongs in personal savings and not disposable personal income. No?&lt;/p&gt;&#xA;" OwnerUserId="13573" LastEditorUserId="13573" LastEditDate="2017-06-15T20:36:39.300" LastActivityDate="2017-06-15T20:36:39.300" Title="Is the BEA double counting benefits in Personal Income?" Tags="&lt;national-accounts&gt;&lt;national-income&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17100" PostTypeId="1" CreationDate="2017-06-08T17:29:23.377" Score="2" ViewCount="219" Body="&lt;p&gt;I am attempting to think through a particular type of game with continuous strategies, with Bayes Nash equilibrium as the solution concept. I first describe the game below, followed by questions.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Game&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Consider the following game between two agents: A and B.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Agent A draws a cost $k$ from a distribution $F(k)$, which has support on $[0,\overline{k}]$. Knowing this cost, she chooses an action $x\in [0,\infty]$ and thereby incurs a cost $k\cdot x$.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The choice of $x$ produces a benefit $R(x)$ for agent B, with $R(0)=0$, $R^\prime(x)&amp;gt;0$ and $R^{\prime\prime}(x)&amp;lt;0$.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;$R(x)$ is not observed until the game is completed. Instead, A is paid by B for her effort based on a noisy but strictly informative signal $\xi(x)$. Higher $\xi$ always indicates higher $x$ on average.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Specifically, B has a prior distribution $\pi (x)$ over $x$ and observes $\xi(x)$. B &lt;em&gt;always&lt;/em&gt; pays A her expected product $E(R(x)|\pi,\xi)$ so that B expects a payoff of zero for any value of the signal.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Finally, in Bayes Nash equilibrium, we require that $\pi (x)$ is &quot;correct&quot;: i.e., given the distribution of costs $F(k)$ and the expected payments as a function of $x$ and $\pi (x)$, actions $x$ actually do have the distribution $\pi(x)$.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;h2&gt;Questions&lt;/h2&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;There appears to always be an equilibrium to this game with a degenerate prior $\pi(x)$ that has all its mass on zero. In this case, $E(R(x)|\pi,\xi)=0$ for all $x$, and A would never choose $x&amp;gt;0$, confirming the prior. Do you agree?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;What are some non-trivial sufficient conditions for there to be additional equilibria in pure strategies (i.e., with $x&amp;gt;0$ in some states of the world)?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;How would one characterize these other equilibria if they exist? For example, how would the set of equilibria change if the benefit function increased from $R(x)$ to $\hat{R}(x)$ = $c\cdot R(x)$ where c is a constant greater than one?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;h2&gt;Additional Notes&lt;/h2&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;I am aware of examples of this kind of game with &lt;em&gt;discrete&lt;/em&gt; actions $x$. These are comparatively easy to analyze. What I am struggling with here is how to think about equilibria with continuous actions and therefore also a continuous prior $\pi(x)$. The fixed point problem seems much trickier in this case.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;EDIT&lt;/strong&gt;: It seems the way to think about this may be with &lt;a href=&quot;https://lectures.quantecon.org/jl/stationary_densities.html#stability&quot; rel=&quot;nofollow noreferrer&quot;&gt;continuous-state markov chains&lt;/a&gt;, though I am not completely sure how to write this problem in that form. Even assuming I am on the right track here, I can so far only find sufficient conditions for the existence of a unique stationary distribution, but no theorems that guarantee &lt;em&gt;non-uniqueness&lt;/em&gt; or that suggest a way to do comparative statics on the set of equilibria.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Aside from that, feel free to make further assumptions or introduce new notation if it helps.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;This is the first question I have posted. So constructive feedback is welcome.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="13467" LastEditorUserId="13467" LastEditDate="2017-06-24T15:15:20.460" LastActivityDate="2017-06-24T15:15:20.460" Title="Bayes Nash Equilibrium in a game with continuous actions" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;game-theory&gt;&lt;bayesian-game&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="17103" PostTypeId="2" ParentId="17095" CreationDate="2017-06-09T10:41:21.987" Score="2" Body="&lt;p&gt;Apparently not. A &lt;a href=&quot;http://fs2.american.edu/wgp/www/GER2015.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;2015 article&lt;/a&gt; by the &lt;a href=&quot;http://fs2.american.edu/wgp/www/&quot; rel=&quot;nofollow noreferrer&quot;&gt;author&lt;/a&gt; uses his index to evaluate economic growth across country and time, stopping in 2005, same as the index in the original paper. And yet, many of the other variables are in principle available for more recent years. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first best here would be for you to &lt;a href=&quot;http://www.american.edu/cas/faculty/wgp.cfm&quot; rel=&quot;nofollow noreferrer&quot;&gt;contact the author&lt;/a&gt;. He might be in the process of updating his index. Actually, if you look into &lt;a href=&quot;http://www.american.edu/cas/faculty/wgp.cfm&quot; rel=&quot;nofollow noreferrer&quot;&gt;his working papers&lt;/a&gt;, you can see he is doing some work on patents. Even more, there he offers some (more updated) data on &lt;a href=&quot;http://fs2.american.edu/wgp/www/intl%20copyright.xlsx&quot; rel=&quot;nofollow noreferrer&quot;&gt;copyright&lt;/a&gt; and &lt;a href=&quot;http://fs2.american.edu/wgp/www/intl%20tmark.xls&quot; rel=&quot;nofollow noreferrer&quot;&gt;Trademark&lt;/a&gt;. You might contact him to know better what this is.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The second best is that you expand the index yourself. For example, you can use the data just mentioned. Alternatively, you can use the &lt;strong&gt;subcomponents&lt;/strong&gt; of &lt;a href=&quot;https://www.fraserinstitute.org/economic-freedom/dataset?year=2014&amp;amp;page=dataset&amp;amp;min-year=2&amp;amp;max-year=0&amp;amp;filter=0&amp;amp;most-free=1&amp;amp;quartile2=1&amp;amp;quartile3=1&amp;amp;least-free=1&quot; rel=&quot;nofollow noreferrer&quot;&gt;this&lt;/a&gt; or &lt;a href=&quot;http://www.heritage.org/index/explore&quot; rel=&quot;nofollow noreferrer&quot;&gt;this&lt;/a&gt; index (e.g. property rights or investor protection). There are more indexes &lt;a href=&quot;http://www3.weforum.org/docs/CSI/2012-13/GCR_Pillar1_2012-13.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; (e.g. intellectual property protection), and &lt;a href=&quot;http://internationalpropertyrightsindex.org/&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;One way to do this update is to take the original Park's series, and see which one of the above match its better (higher correlation, for instance). From here you obtain your &quot;proxy&quot;. Then, simply extend Park's index with the newest data on this proxy. This is simply an exercise of &quot;concatenation&quot;.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-06-09T10:41:21.987" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17104" PostTypeId="1" CreationDate="2017-06-09T11:12:10.117" Score="-2" ViewCount="3245" Body="&lt;p&gt;$y= (x_1x_2)^2-x_1x_2$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $x_1x_2=z$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;then $y=z^2-z$ and $y'=2z-1$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I can prove that y' is monotonically increasing, does that prove y is a homothetic function? if so then how can I prove that y' is monotonically increasing? &lt;/p&gt;&#xA;" OwnerUserId="13581" LastEditorUserId="2776" LastEditDate="2017-06-15T11:54:36.470" LastActivityDate="2017-06-15T13:37:17.703" Title="How can I show that the following function is homothetic?" Tags="&lt;mathematical-economics&gt;" AnswerCount="1" CommentCount="1" ClosedDate="2017-06-22T08:31:45.513" ContentLicense="CC BY-SA 3.0" />
  <row Id="17105" PostTypeId="2" ParentId="12354" CreationDate="2017-06-09T11:32:34.703" Score="1" Body="&lt;p&gt;Answer by @Wecon in the comments:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;With respect to your first question: they certainly do. The BIS quarterly review of sept. 2015 (p.9) even shows that &quot;firms in the United States increasingly issued euro-denominated debt to benefit from the low borrowing costs.&quot; This may already be a set-up for answering your second question: its (relative) importance may be highly dependent on economic circumstances&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-06-09T11:32:34.703" CommentCount="0" CommunityOwnedDate="2017-06-09T11:32:34.703" ContentLicense="CC BY-SA 3.0" />
  <row Id="17107" PostTypeId="1" AcceptedAnswerId="17122" CreationDate="2017-06-09T13:45:19.570" Score="1" ViewCount="159" Body="&lt;p&gt;I try to solve the following maximization problem of a representative household with dynamic programming. However, my last result is not similar to the solution. Could any one help me? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\max\limits_{C_{t},H_t,N_t} E_0 \sum_{t=0}^{\infty} \beta^t\Bigg[logC_t+jlogH_t-\dfrac{(N_t)^\eta}{\eta}\Bigg]$$&#xA;$C_t,H_t,N_t$ represent consumption at time t, housing stock and working hours, respectively. &#xA;Household budget constraint: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$C_t + b_t +q_t(H_t-H_{t-1})=\dfrac{R_{t-1} b_{t-1}}{\pi_t}+w_t N_t+F_t$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$b_t$ denotes bank deposits, $R_t$ is the return from deposit, $q_t$ is the price of housing, $\pi_t$ is the inflation rate and $w_t$ is the real wage rate. $F_t$ denotes profits received from firms. &#xA;To sole this problem, I use dynamic programming with these steps: &#xA;Step 1: Bellman equation: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I identify $b_{t-1}$ as the state variable, since the household must know the deposit in the previous period. The budget constraint can be rewrite as: &#xA;$b_t=f(C_t,b_{t-1},H_t,H_{t-1},N_t,F_t,q_t,R_{t-1},\pi_t)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Step 1: Setting up the Bellman equation:&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$V(b_{t-1})=\max\limits_{C_{t},H_t,N_t} \Bigg\{logC_t+jlogH_t-\dfrac{(N_t)^\eta}{\eta} +\beta E_tV(b_t) \Bigg\}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Evolution of the costate variable $b_t$, using envelope theorem: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\dfrac{\partial V(b_{t-1})}{\partial b_{t-1}} =\beta E_t \dfrac{\partial V(b_{t})}{\partial b_{t}} \dfrac{\partial b_t}{\partial b_{t-1}} = \beta E_t V'(b_t) \dfrac{R_{t-1}}{\pi_t}$$ (1)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Step 2: FOC&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First order condition (FOC1)&#xA;$$\dfrac{\partial V(b_{t-1})}{\partial C_t}=\frac{1}{C_t}+\beta E_t V'(b_t)\dfrac{\partial b_t}{\partial C_t}=0$$ &#xA;$\dfrac{\partial b_t}{\partial C_t}=-1$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\dfrac{1}{C_t}=\beta E_t V'(b_t)$ (2)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Inserting (2) into (1) twice to get the Euler equation, we have: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\dfrac{1}{C_t}=\beta E_t \Bigg(\dfrac{R_t}{\pi_{t+1 C_{t+1}}}\Bigg)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;This result is similar to the solution&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;FOC2: &#xA;$$\dfrac{\partial V(b_{t-1})}{\partial N_t}=-(N_t)^{\eta-1}+\beta E_t V'(b_t)w_t=0$$&#xA;Inserting (2), we have: &#xA;$\dfrac{1}{C_t} w_t = -(N_t)^{\eta-1}$, &lt;strong&gt;This result is similar to the solution&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;FOC3: The third FOC involves taking the partial derivative of $V(b_{t-1})$ with $H_t$, but I cannot get the same result with the solution: &#xA;The solution is: &#xA;$$\dfrac{j}{H_t}=\dfrac{1}{C_t}q_t-\beta E_t \dfrac{1}{C_{t+1}}q_{t+1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I only end up with: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\dfrac{\partial V(b_{t-1})}{\partial H_t}=\dfrac{j}{H_t}+\dfrac{1}{C_t}(-q_t)=0$$&#xA;&lt;strong&gt;Did I miss something?&#xA;Did I correctly identify the state variable? I suspect that it has something to do with $H_t$ and $H_{t-1}$, but I cannot figure it out&lt;/strong&gt; &lt;/p&gt;&#xA;" OwnerUserId="13584" LastEditorUserId="13584" LastEditDate="2017-06-09T13:51:38.597" LastActivityDate="2017-07-10T20:51:08.247" Title="Dynamic programming with housing consumption and labor" Tags="&lt;dynamic-programming&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17108" PostTypeId="1" AcceptedAnswerId="17130" CreationDate="2017-06-09T15:33:07.283" Score="1" ViewCount="44" Body="&lt;p&gt;In an early OECD study by &lt;a href=&quot;http://econpapers.repec.org/article/palimfstp/v_3a25_3ay_3a1978_3ai_3a1_3ap_3a147-206.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;Deppler and Ripley (1978)&lt;/a&gt;, the authors distinguish between output per man hour, $OMH$, and what they call &quot;Normal&quot; output per man-hour, $NOMH$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/ArGCf.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/ArGCf.png&quot; alt=&quot;table 2&quot;&gt;&lt;/a&gt;&#xA;(table 2, p152)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At no point in the paper do they explain this distinction, which also occurs for the labour cost variables.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the text (p154) they explain that:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The cyclical component of labor costs is represented by the ratio of&#xA;  actual to &quot;normal&quot; output per man-hour.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This all seems very mysterious to me. Are they talking about a particular reference year value? Or is it a trend component?&lt;/p&gt;&#xA;" OwnerUserId="7660" LastActivityDate="2017-06-11T19:37:48.193" Title="&quot;Normal&quot; vs &quot;actual&quot; variables in empirical work" Tags="&lt;macroeconomics&gt;&lt;labor-economics&gt;&lt;empirical-evidence&gt;&lt;definition&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17110" PostTypeId="2" ParentId="12410" CreationDate="2017-06-09T21:11:33.323" Score="1" Body="&lt;p&gt;This is a terribly general and incomplete question looking for an impossibly general answer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Before I attempt to paint a scenario or two as answers, I need to draw your attention to what have not been stated in your question as they could lead to dramatically different outcomes. If you had a particular business in mind, then it would be best to paint a full picture while leaving out all the identifiable bits.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It all depends on so many things you have not said, not least on what you actually meant by &quot;finances&quot; which I am interpreting as cash balance, and what you mean by no growth which I take as revenue growth. In fact, if the market does not change and the business is already reinvesting a portion of its cash flow as &quot;maintenance capex&quot;, then there is a pretty good chance that for at least some duration accounting profit would rise as some of the assets are fully depreciated. With that, tax would go up. While profit is just a number, tax is tangible cash.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It also depends on the state of its balance sheet; just because it is &quot;very profitable&quot;, you cannot assume that it is not excessively leveraged. Taking everything as you had described, this company's &quot;finances&quot; will continue on the same trend, up, down or level.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You have not said what kind of sector this is in and what kind of risks it is exposed to.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The company is &quot;very profitable&quot; and with no prospect of revenue growth, owners quite rightly expect a high payout ratio. It would also be adding economic value. If it is optimally leveraged for now, then the value to equity owners would be naturally magnified. If not, it would still be adding value. It can pay out all its current and accumulated profits and to its equity owners, this would be just an annuity with some risk. And its value would likely be driven by dividend yield. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You have not said anything about what kind of free-cash flow profile is expected. Does it need significant reinvestment to sustain this &quot;very profitable&quot; business? If there is no need for cash call, why would share price matter other than the board's responsibility to maximise shareholder value? Surely long term &quot;finances&quot; cannot be predicted without first addressing short term corporate governance. At the AGM, surely the board will be confronted on massive pay rises - it is hard to imagine management (and directors) not participating in this hike.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A lot will depend also on previous and future cash retention and what the payout ratio has been against accounting profit and more importantly against operating cash flow. So, &quot;finances&quot; could be in decline, just the same or improving - only you can supply the missing pieces to complete the scenario choice.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With all the behind us, we can look at a market value erosion. If there was a market revolt, it is likely to overreact. So, its intrinsic value may well be above market value, perhaps by a long margin. In time, liquidity of its shares would likely fall. Any selling (or buying) could exaggerate price movements. For a no growth business at below intrinsic value, is that not a great justification for a management buy-out? Or for a activist investor to take a meaningful stake, force a board and management change to reinstate better payout and reap the capital gain from market value restoration? If I were management, surely it might even make greed-driven sense to take on debt, make a leveraged buy-out and make a double gain from the higher payroll as well as take ownership of this annuity of a business at a discount? At that point, the lines between dividend and payroll becomes a little blurry. In fact, this kind of behaviour is not uncommon at all.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As written, your question is really not about finances, nothing will change in finances just because market value of equity drops. The real question is what could happen to the company's ownership and/or ownership structure.&lt;/p&gt;&#xA;" OwnerUserId="13591" LastEditorUserId="13591" LastEditDate="2017-06-10T08:10:15.397" LastActivityDate="2017-06-10T08:10:15.397" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17111" PostTypeId="2" ParentId="6441" CreationDate="2017-06-09T21:28:27.557" Score="1" Body="&lt;p&gt;Debt service cost is felt by equity owners and debt holders but neutral to the firm. Taxation does not care for cash flow, it is levied on tax law specific accounting profit, not even reporting profit, which tends to treat most interest charges (not all and not uniformly either) as a deductible cost. Thus you make an adjustment to your WACC as you said. However, interest charge does not need to be uniform during the life of the debt. Unless you do your WACC adjustment for every period and apply a different WACC for each (you should always at least justify not doing so anyway), you will end up with a inflated cash flow and higher discount rates. &lt;/p&gt;&#xA;" OwnerUserId="13591" LastActivityDate="2017-06-09T21:28:27.557" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17112" PostTypeId="2" ParentId="14044" CreationDate="2017-06-09T21:31:41.293" Score="0" Body="&lt;p&gt;No. Creditor and debt holders are not necessarily the same. The firm owes money to both. You can have debt holder vs other creditor conflict, who has priority and who has what charge to which asset. &lt;/p&gt;&#xA;" OwnerUserId="13591" LastActivityDate="2017-06-09T21:31:41.293" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17113" PostTypeId="1" CreationDate="2017-06-10T03:56:56.097" Score="-2" ViewCount="47" Body="&lt;p&gt;Just wondered if anyone has considered this. And any problems with the idea. Such as another theory.&lt;/p&gt;&#xA;" OwnerUserId="13594" LastActivityDate="2017-06-11T03:41:06.273" Title="Is there anything wrong with the idea that resource depletion causes recessions?" Tags="&lt;resource-economics&gt;" AnswerCount="1" CommentCount="2" ClosedDate="2017-06-15T18:07:17.813" ContentLicense="CC BY-SA 3.0" />
  <row Id="17114" PostTypeId="2" ParentId="17099" CreationDate="2017-06-10T04:42:03.597" Score="-1" Body="&lt;p&gt;Thats why transfer payments are not supposed to be counted in GDP, only private and government wages and salaries. But there is no way to tell what the BEA actually does, and this would be the least of their inconsistencies anyway.&lt;/p&gt;&#xA;" OwnerUserId="13595" LastEditorUserId="2776" LastEditDate="2017-06-10T08:24:24.853" LastActivityDate="2017-06-10T08:24:24.853" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17117" PostTypeId="1" CreationDate="2017-06-10T11:00:10.550" Score="5" ViewCount="238" Body="&lt;p&gt;It seems hard for me to understand the underlying logic of this sentence in Chapter 2 of this book:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;They do not seem to have realised that, unless the supply of labour is a function of real wages alone,&#xA;  their supply curve for labor will shift bodily with every movement of prices. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Keynes is talking about the demands of labor is more likely to be a minimum of money wage rather than real wage. Why the supply curve for labor will shift bodily with different prices(prices of wage-goods?) if the supply of labor is a function with other variables(what else variables in this function?)? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I imagine the supply &amp;amp; demand curve intersects on a sector with the x axis being the amount of employment y axis wages, but I'm not sure if this wage should be money wage or real wage or something else.&lt;/p&gt;&#xA;" OwnerUserId="13598" LastEditorUserId="2776" LastEditDate="2017-07-15T07:48:56.823" LastActivityDate="2018-07-10T15:45:33.453" Title="What is the logic behind this sentence in Keynes's General Theory?" Tags="&lt;unemployment&gt;&lt;keynes&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17119" PostTypeId="2" ParentId="17094" CreationDate="2017-06-10T14:35:44.310" Score="0" Body="&lt;p&gt;Some economists argue that China should head towards a consumption-led and especially a productivity-led growth because their investment-led growth is not sustainable (as you stated), at least not in the long run. China already relies heavily on exports, plus they produce more than the rest of the world can consume which obviously leads to certain difficulties in the future. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Although China's growth in the last quarter of a century has been impressive, some experts assert that China's growth rate could be much higher if the resources would be used more efficiently. This inefficiency is - according to them - due to the enormous investment projects that China has carried out. In addition, China's workforce will shrink in the future which makes relying heavily on investments more difficult to achieve.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I hope my explanation is helping, I know it is far from the only way to look at China's economic growth.&lt;/p&gt;&#xA;" OwnerUserId="13333" LastActivityDate="2017-06-10T14:35:44.310" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="17120" PostTypeId="2" ParentId="17117" CreationDate="2017-06-10T14:42:30.373" Score="0" Body="&lt;p&gt;Breaking down your question into parts:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;They do not seem to have realised that, unless the supply of labour is&#xA;  a function of real wages alone, their supply curve for labor will&#xA;  shift bodily with every movement of prices.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The quote implies that firms should calculate their costs using real wages instead of NOMINAL wages. Nominal wages are only important in the short run, nominal values are neutral in the long run. Repricing constantly leads to the well-known menu costs or shoe leather costs problems.    &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Why the supply curve for labor will shift bodily with different&#xA;  prices (prices of wage-goods)?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I don't think different prices make the supply curve shift according to Keynes. Rather the price-change will cause unemployment! Read more about this here: &lt;a href=&quot;https://economics.stackexchange.com/questions/12600/in-classical-macroeconomics-why-labor-supply-responds-to-real-wages-and-not-mon/12603#12603&quot;&gt;In classical macroeconomics, why Labor supply responds to real wages and not money wages?&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Which other variables are included in the labor supply function?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;A good estimation of the labor supply is the marginal rate of substitution (MRS) of labor and consumption. A typical form of labor supply then:&#xA;$$L_t ^\eta = w_t C_t ^{\sigma}$$&#xA;where $L_t$: labor, $w_t$: real wage, $C_t$: consumption, and $\eta, \sigma$: elasticities of labor and consumption.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;According to utilitarian school, working is considered a negative, and consumption is considered a desirable good. The goal is to optimize the path of lifetime consumption.&lt;/p&gt;&#xA;" OwnerUserId="5017" LastActivityDate="2017-06-10T14:42:30.373" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="17122" PostTypeId="2" ParentId="17107" CreationDate="2017-06-10T20:21:27.247" Score="1" Body="&lt;p&gt;$$V(b_{t-1})=\max\limits_{C_{t},H_t,N_t} \Bigg\{\ln C_t+j\ln H_t-\dfrac{(N_t)^\eta}{\eta} +\beta E_tV(b_t) \Bigg\}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;so &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\beta E_tV(b_{t})=\beta E_t\left[\max\limits_{C_{t+1},H_{t+1},N_{t+1}} \Bigg\{\ln C_{t+1}+j\ln H_{t+1}-\dfrac{(N_{t+1})^\eta}{\eta} +\beta E_{t+1}V(b_{t+1}) \Bigg\}\right]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But forwarding the budget constraint &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$C_t + b_t +q_t(H_t-H_{t-1})=\dfrac{R_{t-1} b_{t-1}}{\pi_t}+w_t N_t+F_t$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;we get after re-arranging, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$C_{t+1} =- b_{t+1} -q_{t+1}(H_{t+1}-H_{t})+\dfrac{R_{t} b_{t}}{\pi_{t+1}}+w_{t+1} N_{t+1}+F_{t+1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So $\beta E_tV(b_{t})$ is also a function of $H_t$ through $C_{t+1}$.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2017-06-10T20:21:27.247" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17125" PostTypeId="2" ParentId="17113" CreationDate="2017-06-11T03:41:06.273" Score="1" Body="&lt;p&gt;A recession is a temporary drop in economic activity, while resource depletion is a structural factor. One could easily imagine resource depletion causing a permanent drop in the standard of living. However, even if this occurs, there would still be a business cycle, with the economy moving between expansion and contraction (recession).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since resource depletion is a steadily increasing process, the theory that it causes recessions would suggest that recessions would be more frequent as time passes. In fact, recessions have been less frequent in recent decades. (One can examine the recession dating information for the United States from the National Bureau of Economic Research &lt;a href=&quot;http://www.nber.org/cycles/cyclesmain.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;at this web page.&lt;/a&gt;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Unless you can specify some theory linking historical recessions to resource depletion, this question cannot really be answered. I am unaware of any such theory in the literature, so there is nothing to point to. There may have been such ideas in the Peak Oil literature, but short-term economic forecasting was probably not that literature's greatest strength.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2017-06-11T03:41:06.273" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17126" PostTypeId="2" ParentId="12854" CreationDate="2017-06-11T04:04:26.853" Score="3" Body="&lt;p&gt;Money ultimately is trust and perception. We trust that the United States and the vendors here will exchange the paper or digital money we give them for something we desire. Once this trust is in place and we have a system that functions on a particular monetary system with defined characteristics (total money in circulation, methods of exchange, denominations of physical money, means of accounting, etc.) we then assign values to physical things on the basis of that system and our perceptions of those things. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Money has no intrinsic value. You cannot eat it, build a worthwhile shelter out of it, etc. It doesn't meet your physical needs. Thus, without trust people seek desperately to trade their currency for physical goods. This makes the demand for money plummet, while the demand for physical goods simultaneously skyrockets. The purchasing power of that money falls and you get hyperinflation. Examples of this can be seen in the Weimar Republic after World War 1 and Kenya, that both experienced this situation when trust in those currencies fell and the central banks overprinted money.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another interesting example can be found in fame. Take a sports shoe for example. That shoe may be worth some amount purchased from the retailer. However, say that shoe is signed by an incredibly famous athlete. With a very small value of ink and seconds of that athlete's time, the shoe's value will skyrocket without any addition of utility. The only thing that has changed is perception.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The last example I will point to is the US debt. Currently, the United States claims approximately $20 trillion of debt. The physical currency does not exist. That money could never exist. 20 trillion is an incomprehensibly large number. Never in my life have I ever encountered something, and decided, &quot;Hmm, that seems like around 20 trillion.&quot; It is not a physically realizable quantity. In other words, its perception, imagination if you will.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ultimately, money is a system of perceived value that only functions properly while all parties involved with the currency trust that it will continue to be a means of exchange for physical goods that meet their needs and wants. Any currency that is not trusted will fail.&lt;/p&gt;&#xA;" OwnerUserId="13512" LastActivityDate="2017-06-11T04:04:26.853" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17127" PostTypeId="2" ParentId="6829" CreationDate="2017-06-11T04:24:04.950" Score="-1" Body="&lt;p&gt;The reason the US dollar is not destined to collapse anytime soon is that the United States has the most powerful military in the world, and one of the strongest economies. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To put it simply, we produce sufficient food and clean water to feed our people, and we have sufficient housing and infrastructure to ensure that basic needs are met for the vast majority of our citizens. That isn't likely to change in the near future. This means that our currency in a way (though not directly) is backed by those resources (food, water, shelter, electricity, etc.) despite not being tied directly to an indicator like gold. This being the case the only other possible downfall of our currency would be theft or extortion by foreign powers that would deprive us of those resources. As I first noted, our military ensures that this will not happen.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Often, a point of concern for many people is our debt. We have $20 Trillion in debt at the moment. However, just like you wouldn't go try to collect the debt owed to you by &quot;El Chapo,&quot; Al Capone, John Gotti, or other violent groups with more guns than you, other countries are deterred from attempts at aggressive collections on the US debt. This is where the intertwining of our economies becomes important. With those economic relationships in place, these countries ultimately get things of value from the United States. Why would they cede those things to the detriment of both the US and that country unless they had an extraordinary reason? This paradox helps to ensure the stability of the currency as well.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That said, if it's still something you're worried about gold and bitcoin are both good investments, as are foreign currencies. A fundamental principle in investments is diversification. The more you spread your money into reasonable investments the less likely it becomes that all of your investments will fail. Thus you will always have something to fall back on. &lt;/p&gt;&#xA;" OwnerUserId="13512" LastActivityDate="2017-06-11T04:24:04.950" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17128" PostTypeId="1" CreationDate="2017-06-11T04:48:41.147" Score="1" ViewCount="34" Body="&lt;p&gt;How can governments incentivise NGOs and economic consulting firms to invest in national reserve conservation? I guess this would be more political, but what are the more economic aspects of trying to get corporations involved?&lt;/p&gt;&#xA;" OwnerUserId="13607" LastEditorUserId="44" LastEditDate="2017-06-11T07:02:55.947" LastActivityDate="2017-06-11T09:24:58.017" Title="Best strategy to incentivise third party investment" Tags="&lt;microeconomics&gt;&lt;political-economy&gt;&lt;environmental-economics&gt;" AnswerCount="1" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="17129" PostTypeId="2" ParentId="17128" CreationDate="2017-06-11T07:02:12.057" Score="2" Body="&lt;p&gt;There are several possible routes to get conservation investment into national reserves, i.e. geographic areas that are designated for special protection and environmental conservation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The government could set up a fund that rewarded the protection and enhancement of the reserves; by guaranteeing the returns on investment, then investors would be drawn in.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The government could specify that investment in national reserve conservation was a requirement for other rewarding activities: for example, it could specify that if a corporation wanted to win government contracts, it had to invest at least x% of its turnover in protecting national reserves. Or that planning permission was linked to such investment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It could create special tax incentives for such investment: for example, the company's tax burden might get reduced by amount equivalent to a fixed percentage of the investment in the national reserve.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I suspect that in any case, an expert panel would be needed, to assess whether something would represent beneficial investment or not; and if it is, then what the suitable size of return on the investment should be.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And any system is prone to gaming, so the scheme would need to put in place measures to detect and curb such gaming.&lt;/p&gt;&#xA;" OwnerUserId="44" LastEditorUserId="1601" LastEditDate="2017-06-11T09:24:58.017" LastActivityDate="2017-06-11T09:24:58.017" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="17130" PostTypeId="2" ParentId="17108" CreationDate="2017-06-11T10:29:36.507" Score="1" Body="&lt;p&gt;&quot;Normal&quot; in this context means &quot;trend&quot; (usually a simple linear trend, but in principle could be a non-linear trend by using for example the &lt;a href=&quot;https://en.wikipedia.org/wiki/Hodrick%E2%80%93Prescott_filter&quot; rel=&quot;nofollow noreferrer&quot;&gt;Hodrick-Prescott filter&lt;/a&gt; device).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Decompose output $Y_t = T_t+Y_{c,t}$, where $T_t$ is the trend component and $Y_{c,t}$ is the cyclical component (note that the cyclical component can be positive or negative). Then &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$OMH_t = \frac {Y_t}{L_t} = \frac {T_t+Y_{c,t}}{L_t}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;while &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$NOMH_t = \frac {T_t}{L_t}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then the ratio of actual to normal is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{OMH_t}{NOMH_t} = 1+ \frac{Y_{c,t}}{T_t}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This gives a &quot;mark-up&quot; (or &quot;mark-down&quot; if $Y_{c,t}&amp;lt;0$), on &quot;normal costs&quot; and it is in this sense that it &quot;represents the cyclical component of costs&quot;. Namely, this ratio is the gross mark-up or mark-down we need in order to go from &quot;normal&quot; costs to actual costs.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2017-06-11T19:37:48.193" LastActivityDate="2017-06-11T19:37:48.193" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="17132" PostTypeId="2" ParentId="17099" CreationDate="2017-06-11T11:23:09.067" Score="1" Body="&lt;p&gt;Statistical Agencies do not necessarily obey the habits of Economic Theory. There is no &quot;mistake&quot; here (certainly, there is no double-counting), but a different approach to what each concept means or &quot;should mean&quot; (which sometimes is also a consequence of historical precedence).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the fun of it I post below how the same data could be arranged to conform with standard theoretical economics, where we make a point of distinguish between income earned, taxes in the broad sense, transfers, consumption, saving. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;ALTERED/RE-ARRANGED&lt;/strong&gt; BEA TABLE 2.1. &quot;Personal Income and Its Distribution&quot; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/lyLvj.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/lyLvj.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2017-06-11T11:43:33.997" LastActivityDate="2017-06-11T11:43:33.997" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17133" PostTypeId="1" CreationDate="2017-06-11T23:26:22.653" Score="3" ViewCount="1508" Body="&lt;p&gt;I'm looking for a software which may help me to both take notes and draw graphs during university lectures. It must have the ability to switch between texts and graphs, add other formats such as Office related format and pdf. Also, the the graphs should be easily tunable (preferably on the fly) and of course, shareable. Being able to draw matrices and operate with them would be great too.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can't seem to find an application/software for laptop which makes all of those easy in an economics related setting. Any idea?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks a lot&lt;/p&gt;&#xA;" OwnerUserId="13419" LastActivityDate="2018-10-07T07:50:57.927" Title="Useful software for notes and graphs in economics?" Tags="&lt;software&gt;" AnswerCount="1" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="17135" PostTypeId="2" ParentId="17053" CreationDate="2017-06-12T09:33:07.073" Score="0" Body="&lt;p&gt;It is difficult to what exposure that lead &lt;a href=&quot;https://en.wikipedia.org/wiki/Lester_B._Pearson&quot; rel=&quot;nofollow noreferrer&quot;&gt;Lester B. Pearson&lt;/a&gt; giving out such statement, the quote itself is a metaphor. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;&lt;strong&gt;people pathologically&lt;/strong&gt; hoard so much cash that they impoverish the entire nation&quot; does not apply directly to any &quot;rich&quot; person, but &quot;people pathologically hoard so much cash&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is a few category of people that fit such criteria: &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Corrupted politicians that hoard cash inside Swiss bank or even in their home.&lt;/li&gt;&#xA;&lt;li&gt;Rent seekers that collaborate/lobby politicians that create monopoly rent seeking business with little to zero investment in innovation. &lt;/li&gt;&#xA;&lt;li&gt;Criminal syndicates, &lt;/li&gt;&#xA;&lt;li&gt;Various investment/hedge funds(e.g. retired funds) that took money from 1,2,3 execute speculation schemes. &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;So the mentioned quote is more serious than inequality in wealth distribution.  Even today, there is too little exposure to public the dangers of such &quot;pathologically cash hoarding&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The stock speculation cycles, subprime loan derivation bubbles, Wallstreet various acquisition, is indirectly due to &quot;pathologically cash hoarding&quot; mentality. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ironically, what OP aunt think is not all wrong. But it doesn't fit very well to the big picture of the quote.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Obsession in wealth hoarding is indeed the root of the government corruption, thus cause funds use to help minority in poverty vanish in the distribution channel.&lt;/p&gt;&#xA;" OwnerUserId="11177" LastActivityDate="2017-06-12T09:33:07.073" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17139" PostTypeId="2" ParentId="13815" CreationDate="2017-06-12T13:04:39.693" Score="1" Body="&lt;p&gt;I would say that (a) follows from a downward sloping demand curve that causes marginal revenue to decline faster than price. As you write a monopolist accounts for that and to maximize profits thus extracts less to drive up the price. That also explains why generally exploitation would take longer. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;That this is not always the case is shown by Stiglitz's (1974) &lt;a href=&quot;http://www.jstor.org/stable/1806704?seq=1#page_scan_tab_contents&quot; rel=&quot;nofollow noreferrer&quot; title=&quot;Monopoly and the rate of extraction of exhaustible resources&quot;&gt;Monopoly and the Rate of Extraction of Exhaustible Resources &lt;/a&gt; where he shows that the extraction path for the monopolist and perfect competition are the same for a constant elasticity demand curve and zero extraction costs. That in turn, has been shown by Gaudet and Lasserre in &quot;On comparing monopoly and competition in exhaustible resource exploitation&quot; to depend on the fact that the resource stock is fixed and hence it is sometimes hard to restrict output to increase the price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.jstor.org/stable/1802519?seq=1#page_scan_tab_contents&quot; rel=&quot;nofollow noreferrer&quot;&gt;Lewis et al.&lt;/a&gt; provide examples where the monopolist may be more excessive than socially optimal&lt;/p&gt;&#xA;" OwnerUserId="12186" LastActivityDate="2017-06-12T13:04:39.693" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17140" PostTypeId="2" ParentId="7035" CreationDate="2017-06-12T19:07:17.520" Score="2" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;If the output of a machine is arbitrarily reduced, what happens to the&#xA;  value of the goods being produced? If we simply divide the labour put&#xA;  into the machine across the units produced then it seems like their value&#xA;  should increase, but then it seems like the whole notion of value becomes&#xA;  quite arbitrary.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;According to the LTV, machinery transfers a portion of its value to each item produced. E.g. if a machine is worth 1000 \$ and can produce 10000 widgets during a lifetime of 10 years (after which it breaks and must be replaced), then it transfers 0.1 \$ to each widget produced.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose that the machine's lifetime is determined by how much it is used, i.e. by the number of widgets produced. Then, if you reduce the output by producing fewer widgets per unit of time, then the machine will still produce 10000 widgets during a longer lifetime, and therefore each widget will still receive 0.1 \$ of value from the machine.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose that the machine's lifetime is also determined by other factors and that it wears off even when it is not used. Then reducing the output will&#xA;indeed increase the value the machine transfers to each widget produced&#xA;&lt;strong&gt;for that particular producer&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, since the value of goods on the market is determined by the &lt;strong&gt;socially necessary&lt;/strong&gt; labour time,&#xA;that producer will still have to sell their widgets according to the value&#xA;they would have when produced under normal, average conditions: society (the market) will not be willing to buy at a higher price from that producer just because he or she has &lt;strong&gt;wasted&lt;/strong&gt; part of the value of their machinery.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Suppose I built a machine that, in any given hour, produces one unit&#xA;  of penicillin and one unit of randomly mixed chemicals (from the same&#xA;  raw materials). Does this mean that penicillin and mixed chemicals&#xA;  should have equal value?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;You have to break it up into two steps:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Does a good have any use value, i.e. does it satisfy any need? Penicillin: YES. Randomly mixed chemicals: NO.&lt;/li&gt;&#xA;&lt;li&gt;If a good has a use value (e.g. penicillin) then you measure its (exchange) value in socially necessary labour time. If a good has no use value (randomly mixed chemicals), then it has no exchange value either.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;So, no penicillin and randomly mixed chemicals do not have equal value according to the LTV: the machine will pass its value to the penicillin but not to the randomly mixed chemicals. See e.g. Capital, Volume 1, Part 1, Chapter 1, at the very end of Section 1: &quot;Lastly, nothing can have value without being an object of utility. If the thing is useless, so is the labour contained in it [...] and therefore [that labour] creates no value.&quot;&lt;/p&gt;&#xA;" OwnerUserId="8620" LastEditorUserId="8620" LastEditDate="2017-12-01T14:00:21.763" LastActivityDate="2017-12-01T14:00:21.763" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17141" PostTypeId="1" AcceptedAnswerId="17144" CreationDate="2017-06-12T23:51:35.197" Score="0" ViewCount="100" Body="&lt;p&gt;Say I have a starting situation with Pareto efficient allocations between 2 individuals, now a third one comes in and changes the allocations. Now a fourth one, etc. Up untill a nth individual comes in. Do we now have to resolve (n-1) equations or n^(n-1) equilibria? How does the &quot;difficulty&quot; scale for n individuals? I don't know if that makes sense? Thanks.&lt;/p&gt;&#xA;" OwnerUserId="13419" LastActivityDate="2017-06-13T07:48:02.530" Title="How does a Pareto efficient equilibrium scale for n individuals?" Tags="&lt;microeconomics&gt;&lt;pareto-efficiency&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17142" PostTypeId="1" AcceptedAnswerId="17143" CreationDate="2017-06-12T23:53:02.430" Score="1" ViewCount="3476" Body="&lt;p&gt;I understand that the Average Total Cost is equivalent to demand in a zero profiting monopoly or monopolistically competitive firm in order for there to be zero profits (when ATC = P at a given quantity), but why is ATC tangent to demand instead of intersecting demand at a point when ATC is downward sloping?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;See:&#xA;&lt;a href=&quot;https://i.stack.imgur.com/Kedoe.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Kedoe.png&quot; alt=&quot;ATC Intersecting Demand while Tangent on the Left (why is this correct?) ATC Intersecting Demand while Downward Sloping on the Right (why is this wrong?)&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="13616" LastActivityDate="2017-06-13T07:33:15.370" Title="Why is ATC tangent to Demand in a Monopolistic or Mopolistically Competitive Firm Making Zero Profit?" Tags="&lt;supply-and-demand&gt;&lt;markets&gt;&lt;cost&gt;&lt;firm&gt;&lt;profits&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17143" PostTypeId="2" ParentId="17142" CreationDate="2017-06-13T07:33:15.370" Score="0" Body="&lt;p&gt;A profit maximiser will aim to seek to maximise the difference between total revenue and total cost, providing this is non-negative&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;If there is a point at which this is positive, then this is equivalent to a point at which average total cost is below the demand curve, for example slightly to the right of $Q^*$ in your second diagram. At this point the firm will be making a profit, contrary to your assumption of zero profit.  So your second diagram does not illustrate the zero-profit case &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Alternatively, if the demand curve is always strictly below the average total cost curve then all situations lead to a loss, so not a zero profit &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;That leaves the case where the demand curve touches the average total cost curve but does not cross it, as in your first diagram.  At this point there is zero profit and no opportunity to increase it.  If the curves are smooth enough, you might describe this as the average total cost being tangent to demand&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2017-06-13T07:33:15.370" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17144" PostTypeId="2" ParentId="17141" CreationDate="2017-06-13T07:40:34.590" Score="0" Body="&lt;p&gt;If you are doing pairwise comparisons, then with $n$ individuals there will be $$\dfrac{n(n-1)}{2} $$ such comparisons.  You can write this as $\binom{n}{2}$ or as $\frac12n^2-\frac12n$ if you prefer.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$1$ for two people, $3$ for three, $6$ for four and so on, known as &lt;a href=&quot;https://en.wikipedia.org/wiki/Triangular_number&quot; rel=&quot;nofollow noreferrer&quot;&gt;triangular numbers&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="8891" LastEditorUserId="8891" LastEditDate="2017-06-13T07:48:02.530" LastActivityDate="2017-06-13T07:48:02.530" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="17146" PostTypeId="1" CreationDate="2017-06-13T10:11:50.030" Score="2" ViewCount="126" Body="&lt;p&gt;Consider the following scenario:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A consumer with CARA (constant absolute risk aversion) claims that she is indifferent between &quot;getting ＄2400 for sure&quot; and &quot;getting ＄5000 or ＄0, each with 50% possibility&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know that a consumer has CARA if and only if the vNM utility function is an affine transformation of $-e^{-\lambda x}$, where $x$ is the prize of the gamble. I was wondering how I could solve for the coefficient $\lambda$, given the above scenario.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To do so I wrote down the following equation:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$e^{-2400\lambda}=\frac{1}{2}e^{-5000\lambda}+\frac{1}{2}e^{-0\lambda}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is clear that $\lambda=0$ should be a solution to it. However, I found that this could not be the case, as $\lambda=0$ means risk neutral, which is controversial with the consumer's claim. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What should be the correct way of solving it? I think I must have made some stupid mistakes here but I couldn't figure it out.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(For reference, this is actually Problem 6.2 in Kreps' textbook - any suggestion or hint would be much appreciated.)&lt;/p&gt;&#xA;" OwnerUserId="11719" LastEditorUserId="61" LastEditDate="2018-01-21T15:33:47.840" LastActivityDate="2018-01-21T15:33:47.840" Title="CARA Coefficient Calculation" Tags="&lt;consumer-theory&gt;&lt;risk-aversion&gt;&lt;computation&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17147" PostTypeId="1" CreationDate="2017-06-13T13:53:14.223" Score="1" ViewCount="19" Body="&lt;p&gt;In some cases I see otherwise stable stocks or commodities having wild swings in price on exchanges. Even though the underlying company or commodity is going along normally and there is no news that the item is anything but stable, traders might be wildly buying or selling causing the market price to fluctuate. This seems to happen more often when an item or stock is the subject of public interest, so there might be an element of &quot;mob psychology&quot; involved.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are there any standardized models that have attempted to capture the psychological elements of trading?&lt;/p&gt;&#xA;" OwnerUserId="1448" LastEditorUserId="1601" LastEditDate="2017-06-13T15:44:40.197" LastActivityDate="2017-06-13T15:44:40.197" Title="Model for the psychology of trading?" Tags="&lt;stock-market&gt;&lt;commodities&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17149" PostTypeId="1" CreationDate="2017-06-13T17:07:12.247" Score="2" ViewCount="115" Body="&lt;p&gt;We often talk about information as pricing being the best information or reflection of different aggregate pieces of information existing on markets. Why do we then also often hear that some prices do not reflect reality or do not compare with the real economy? Thanks.&lt;/p&gt;&#xA;" OwnerUserId="13419" LastActivityDate="2018-05-01T22:12:02.767" Title="Why are prices considered the best information we could have?" Tags="&lt;microeconomics&gt;&lt;pricing&gt;&lt;price-level&gt;&lt;austrian&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="17150" PostTypeId="2" ParentId="15668" CreationDate="2017-06-13T20:50:30.833" Score="5" Body="&lt;p&gt;I've just solved this problem. First of all, your solution does not make too much sense, as in a simple interest rate rule it must hold that the sum of all coefficients must be greater than one. In your case this means that &lt;span class=&quot;math-container&quot;&gt;$\phi&amp;gt;1$&lt;/span&gt;. Therefore, the series would converge not to zero. Second, an interest rate rule should try to offset fluctuations. This means that the central bank should try to offset gaps from its target (like in the task). Try instead the following interest rate rule. &#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;i_t=\rho+\phi_{\pi}(\pi_t-\pi)+\sigma(\Delta y_{t+1})+\pi&#xA;\end{equation}&lt;/span&gt;&#xA;Now what is the idea? Assmung that the output does not change, this term is zero. Using the Fisherian &lt;span class=&quot;math-container&quot;&gt;$i_t=r_t+\mathbb{E}_t\{\pi_{t+1}\}$&lt;/span&gt; we get&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;\rho+\phi_{\pi}(\pi_t-\pi)+\sigma(\Delta y_{t+1})+\pi \overset{!}{=}r_t+\mathbb{E}_t\{\pi_{t+1}\}&#xA;\end{equation}&lt;/span&gt;&#xA;which can be summarized as&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;\phi_{\pi}^{-1}\left(r_t-\rho+\mathbb{E}_t{\bar{\pi}_{t+1}}-\sigma(\Delta y_{t+1})\right)=\bar{\pi}_t,&#xA;\end{equation}&lt;/span&gt;&#xA;where &lt;span class=&quot;math-container&quot;&gt;$\bar{\pi}_t=\pi_t-\pi$&lt;/span&gt;. &#xA;Solving forward yields &#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;\bar{\pi}_t=\sum_{k=0}^{\infty}\phi_{\pi}^{-(k+1)}\mathbb{E}_t\{r_{t+k}-\rho-\sigma\Delta y_{t+1+k}\}&#xA;\end{equation}&lt;/span&gt;&#xA;Notice that for &lt;span class=&quot;math-container&quot;&gt;$|\phi_{\pi}|&amp;gt;1$&lt;/span&gt;, the series converges. However, your log-linearized Euler equation can be rearranged such that it holds that &lt;span class=&quot;math-container&quot;&gt;$r_t=\rho+\sigma\mathbb{E}_t{\Delta y_{t+1}}$&lt;/span&gt;. Finally, this can be plugged into &lt;span class=&quot;math-container&quot;&gt;$\bar{\pi}_t$&lt;/span&gt; such that &lt;span class=&quot;math-container&quot;&gt;$\bar{\pi}_t=0 \quad \forall t$&lt;/span&gt;. Notice that this expression finally is your answer, as &lt;span class=&quot;math-container&quot;&gt;$\bar{\pi}_t=\pi_t-\pi=0$&lt;/span&gt; means that the central bank always achieves its target. &lt;/p&gt;&#xA;" OwnerUserId="13627" LastEditorUserId="13627" LastEditDate="2020-02-26T15:07:04.920" LastActivityDate="2020-02-26T15:07:04.920" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="17152" PostTypeId="1" CreationDate="2017-06-14T01:46:20.340" Score="2" ViewCount="549" Body="&lt;p&gt;The following question is taken from Economics: Principles and Applications 6th Edition, by Hall and Lieberman. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This question about applying the theory of comparative advantage between a hypothetical trade situation between US and China. Trade between these two countries involve only two goods - soybeans and T-Shirts. It has been established that the US has CA in soybean production whilst China has CA in T-Shirts. It is further known that, for the US, the opportunity cost of producing 100 bushels of soybeans is 200 T-Shirts. Now consider Qtn 9b in the top image.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/KaUgO.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/KaUgO.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My working is in bottom image and my final answer is that the US consumers will gain 70 more T-Shirts for consumption, compared to the situation before trade. However, in  an answer I found online, the US has 270 more T-Shirts available for consumption, compared to the situation before trade. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My answer was 70 more T-Shirts. Consumption experiences a net gain of 70. The raw gain in consumption due to importing from China is 270 but that is AFTER the US incurs the opportunity cost of producing 100 bushels of soybeans (due to specialisation) - which is decreasing production of T-Shirts by 200.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where did I go wrong?&lt;/p&gt;&#xA;" OwnerUserId="11353" LastEditorUserId="2776" LastEditDate="2017-06-14T07:24:59.957" LastActivityDate="2018-11-29T06:26:41.380" Title="Basic question on trade based on comparative advantage" Tags="&lt;international-trade&gt;&lt;comparative-advantage&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="17153" PostTypeId="1" CreationDate="2017-06-14T03:19:55.940" Score="2" ViewCount="540" Body="&lt;p&gt;e.g. Marginal Utility. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the good you're consuming is discrete, like &quot;slices of pizza eaten&quot;, then authors (or at least the author of my textbook) talk about Marginal Utility at each quantity eaten as &quot;the amount of extra utility you get from eating 'one more' slice&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the good you're consuming is continuous, like &quot;amount of juice drunk&quot;, then if you did that you'd just always get &quot;an infinitesimal amount of extra utility, from 'the next' infinitesimally small sip&quot;. That's useless, so instead you use derivatives and ask what the instantaneous &lt;em&gt;rate&lt;/em&gt; of change in utility is, with respect to juice.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Though related, these are different quantities, and they have different units (&quot;difference in height&quot; vs. &quot;slope&quot; of the total utility curve).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Do they also have different names?&lt;/p&gt;&#xA;" OwnerUserId="10618" LastEditorUserId="10618" LastEditDate="2017-06-14T06:29:33.920" LastActivityDate="2018-01-30T23:15:39.823" Title="Different terminology for discrete vs. continuous &quot;marginal&quot; concepts?" Tags="&lt;utility&gt;&lt;marginal&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17157" PostTypeId="1" CreationDate="2017-06-14T04:27:28.283" Score="0" ViewCount="57" Body="&lt;p&gt;A professor at my college (I'm a rising sophomore) expressed interest in me working for him as an RA as I have had previous research experience prior to coming to college and I did well my freshman year. He told me that he has projects that he is working on, but what he would enjoy more is for me to come to him with an interesting project idea and then he will just pay me to go loose on the work and come to him when I get stuck. In all my prior research experience I've always been assigned a research question or topic and from experience with open-ended classroom assignments I always struggle with finding a good topic and having that topic satiate my interest for a long time. I was wondering if you guys had any pointers as to how to come up with an interesting problem or research question. Furthermore, I want to do some work in financial trading, or quantitative finance or some field that utilizes heavy amounts of modeling and programming so if you know of any open research problems in those fields, feel free!&lt;/p&gt;&#xA;" OwnerUserId="13634" LastActivityDate="2017-06-29T09:16:47.650" Title="Finding a Research Project" Tags="&lt;research&gt;&lt;financial&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17159" PostTypeId="1" CreationDate="2017-06-14T06:41:30.117" Score="1" ViewCount="36" Body="&lt;p&gt;I am wondering if it's possible to estimate what percentage of a person's salary ends up in a charity even if that person never donates?&#xA;I am not an economists and I am not sure if that is a valid argument, but it seems to me that if some percentage of population is constantly donating say 10% of their income to charity, then some of other people's income will become part of that 10% due to circulation of money. &#xA;Also, governments of developed countries often spends some small percentage of budget on foreign aid so part of income goes there. If we take an average person from a developed country, like UK, would it be possible to estimate how much that person's salary contributes to charity? Is this even a correct way of thinking?&lt;/p&gt;&#xA;" OwnerUserId="13635" LastActivityDate="2017-06-14T06:41:30.117" Title="How much does a person donate to charity unintentionally" Tags="&lt;microeconomics&gt;&lt;money&gt;&lt;government-spending&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="1" ClosedDate="2019-04-02T21:32:11.877" ContentLicense="CC BY-SA 3.0" />
  <row Id="17160" PostTypeId="1" CreationDate="2017-06-14T08:51:00.023" Score="1" ViewCount="398" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/MwG7x.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/MwG7x.png&quot; alt=&quot;Imports Quota&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a small domestic market that can buy completely price elastic imports from the world, the price of the good will be at (P world).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, when there is an import quota of quantity (Q3 - Q2), why is the new price at (P quota), even for the imported goods? (At least that is what my notes said, and google did not give much answers)&#xA;For me, I feel that the price should instead be (P quota) for quantity Q2, and then at (P world) for quantity (Q3 - Q2), is that correct?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can anyone explain this in words other than simply saying it's because thats where the demand curve intersects the supply curve?&lt;/p&gt;&#xA;" OwnerUserId="13636" LastEditorUserId="2776" LastEditDate="2017-06-14T11:52:53.230" LastActivityDate="2017-06-14T11:52:53.230" Title="What is the new price after an import quota?" Tags="&lt;international-trade&gt;&lt;markets&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17162" PostTypeId="2" ParentId="4508" CreationDate="2017-06-14T14:48:48.423" Score="2" Body="&lt;p&gt;You might be confusing comparative advantage with absolute advantage. Comparative advantage is focused on opportunity costs. You are assuming that person A is good at cooking, B is good at foraging, and C is a good-for-nothing. However, no matter how lousy C is at both the skills, he still possesses them. So in this comparison, take a look at the following scenario:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume there are only two skills to be discussed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A can cook 3 pots of rice per hour OR forage 2 rabbits per hour.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;B can cook 2 pots of rice per hour OR forage 3 rabbits per hour.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;C can cook 1 pot of rice per hour OR forage 1 rabbit per hour.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the A and C comparison, A must give up cooking 3 pots of rice per hour in order to forage 2 rabbits for that hour. To make it easier to compare, A must give up cooking 3/2 pots of rice to forage 1 rabbit per hour. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand, C only needs to give up cooking 1 pot of rice to forage 1 rabbit per hour. So from this, you see that C actually has comparative advantage in foraging compared to A. Note that A is still better than C at foraging (absolute advantage), but he must give up cooking more pots of rice, thus the comparative advantage. Whether or not C actually wants to do any work, it is non-relevant. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the B and C comparison, B must give up foraging 3 rabbits in order to cook 2 pots of rice per hour. Simplified, B must give up foraging 3/2 rabbits in order to cook 1 pot of rice per hour. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Person C on the other hand, only gives up foraging 1 rabbit to cook 1 pot of rice per hour... and now you see where we are going with this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I hope this answers your question!&lt;/p&gt;&#xA;" OwnerUserId="12968" LastActivityDate="2017-06-14T14:48:48.423" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17165" PostTypeId="1" CreationDate="2017-06-14T16:44:07.887" Score="1" ViewCount="14" Body="&lt;p&gt;May be easiest to start with an example: let's say I'm looking to eliminate the mortgage interest deduction, but want to minimize the impact on households from doing so. I also want the change to be revenue-neutral, so I decide to offset the change with reductions to personal income tax rates.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The simplest way to do this would be to take the \$70B MID expenditure and reduce income tax rates across the board by \$70B / \$1.5T existing personal taxes, or ~5%. But MID currently benefits some income groups more than others, so this approach wouldn't minimize the adverse impact per household. To do that, we might look for the current distribution of MID benefit, and then tweak tax brackets accordingly optimizing for some loss function like median % reduction in after-tax income.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there a term for this type of policy design/analysis? It doesn't quite seem like Pareto optimality to me.&lt;/p&gt;&#xA;" OwnerUserId="1650" LastActivityDate="2017-06-14T16:44:07.887" Title="Is there a term for economic policy design built from minimizing per-household adverse impact?" Tags="&lt;pareto-efficiency&gt;&lt;fiscal-policy&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17167" PostTypeId="1" AcceptedAnswerId="17287" CreationDate="2017-06-14T19:20:41.937" Score="1" ViewCount="121" Body="&lt;p&gt;Let's say, hypothetically, we have the following imbalanced exchange rates:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1USD = 1.2EUR&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1.2EUR = 1000 JPY&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1000 JPY = 1.5 USD&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's say person A starts off with 1 USD, buys 1.2 EUR from B, then buys 1000 JPY from C with the 1.2 EUR, then finally buys 1.5 USD from D with the 1000 JPY.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Person A now has .5 more USD than they started with. Where did the .5 USD come from? Who lost that equivalent amount? Does it depend on the exchange rates before and after this imbalance happens?&lt;/p&gt;&#xA;" OwnerUserId="13642" LastActivityDate="2017-06-23T20:57:32.350" Title="In this 3-way currency exchange, who loses, and by how much?" Tags="&lt;exchange-rates&gt;" AnswerCount="4" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="17168" PostTypeId="1" AcceptedAnswerId="17172" CreationDate="2017-06-14T21:57:07.483" Score="1" ViewCount="899" Body="&lt;p&gt;I'm going through Fiscal Policy and I'm reading about Structural Budget and Cyclical Budget. To my understanding, Cyclical Budget is what occurs when automatic fiscal policy is in use. So G and T are equal at full employment, if the economy falls into a recession, the automatic fiscal policy will trigger a cyclical deficit. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I don't understand is the point of Structural Budget. Why is it run if the economy will return to full employment in the long run automatically? I understand that it gives an extra push but why don't we just let it handle it automatically? &lt;/p&gt;&#xA;" OwnerUserId="11994" LastEditorUserId="4988" LastEditDate="2017-06-23T21:14:06.303" LastActivityDate="2017-06-23T21:14:06.303" Title="Why is there a structural deficit/surplus?" Tags="&lt;macroeconomics&gt;&lt;fiscal-policy&gt;&lt;long-run&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17171" PostTypeId="1" CreationDate="2017-06-15T05:16:59.450" Score="0" ViewCount="3192" Body="&lt;p&gt;What is quasi fixed cost? What is the difference between fixed and quasi-fixed cost? Is capital, land and labour considered a quasi fixed cost for a firm? I have read that when the firm wants to take new labours, it can face a higher wage, then it is a quasi fixed cost but it seems to me that it should come under variable cost as the input cost changes with the quantity of output. Any help is appreciated.&lt;/p&gt;&#xA;" OwnerUserId="13646" LastActivityDate="2017-06-15T08:25:00.413" Title="Quasi Fixed Input" Tags="&lt;input-output&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="17172" PostTypeId="2" ParentId="17168" CreationDate="2017-06-15T06:50:59.693" Score="0" Body="&lt;p&gt;In terms of rule's logic, they are the same. The logic of structural budget is to provide stability and long-term planning to government spending. This is implemented by first finding the &quot;long-run&quot; revenue levels. Long run here means the economy in its potential. Additionally, for countries which rely a lot on some particular industries like natural resources (e.g. Copper in Chile), an estimation of the &quot;long-run&quot; price of such resources is required. These estimates are usually conducted by an independent, non-partisan, expert-based body, not affiliated with the government.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Once these revenues are defined, then a rule is chosen. It could be a balanced budget (all long-run revenues are spent), which is what you are calling Cyclical Budget, or a deficit/surplus, defined as % of total revenues, which is what you seem to refer to as Structural budget deficit/surplus. Either of these methods provide stability to spending, as the committee evaluating the long-term revenues of the government does this for several years in advance. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why to chose a structural deficit/surplus? A structural surplus can be chosen to accumulate savings over time, and have a cushion in time of a crisis. In the case of Chile, the aim was to build a cushion in case the long-run price of Copper fell sharply, and long-term government revenues shrank considerably. Others might chose a deficit in order to provide a constant stimulus to the economy. Naturally, the size of the public debt is something to have in consideration regarding which rule to choose.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can read a bit more about this rule, for the case of Chile, &lt;a href=&quot;http://www.dipres.gob.cl/594/articles-22592_doc_pdf.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; or &lt;a href=&quot;http://knesset.gov.il/mmm/oecd/Session_5_Klaus_SCHMIDT_HEBBE.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;. &lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-06-15T09:19:04.477" LastActivityDate="2017-06-15T09:19:04.477" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17173" PostTypeId="1" CreationDate="2017-06-15T06:57:34.717" Score="0" ViewCount="40" Body="&lt;p&gt;Suppose an individual $i$ has the utility function&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$U= f(x(i)) - k$(sum of all $x$ with index not equal to $i$)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where $x(i)$ denotes the miles driven by $i$, and $k$ is a positive constant.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The function $f$ is such that $f(0)=0$, and has a negative double derivative. It crosses the x axis once after increasing at $x=0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We're asked, that if a social planner taxes individuals on basis of $t$ dollars per mile driven, how will such an optimal tax change as we increase the number of individuals? It is given that the planner maximizes sum of all utilities.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I started out by finding the best response of individual $i$, which is &#xA;$f'(x)=t$. Hence every person has the same best response, so miles driven by everyone are the same. Hence maximising utility of any person will suffice.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Max. $f(x) - f'(x)*x - k(n-1)x$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which gives me $x=(n-1)k/f''(x)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't know how to proceed further.&lt;/p&gt;&#xA;" OwnerUserId="12874" LastEditorUserId="8891" LastEditDate="2017-06-15T07:29:23.890" LastActivityDate="2017-07-15T08:22:35.757" Title="Optimal taxing in case of negative externalities" Tags="&lt;utility&gt;&lt;optimization&gt;&lt;externalities&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17174" PostTypeId="2" ParentId="17173" CreationDate="2017-06-15T07:46:23.733" Score="1" Body="&lt;p&gt;I would have thought the social planner might want the value of $x_i$ to be such that $f'(x_i)=k(n-1)$ at which point the marginal gain to each individual offsets the marginal total cost to the others &lt;/p&gt;&#xA;&#xA;&lt;p&gt;while individual driver $i$ might want the value of $x_i$ to be such that $f'(x_i)=t$ at which point the marginal gain offsets the marginal tax&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To me that suggests the tax rate should be $t=k(n-1)$  &lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2017-06-15T07:46:23.733" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="17175" PostTypeId="2" ParentId="17171" CreationDate="2017-06-15T08:25:00.413" Score="1" Body="&lt;p&gt;&lt;em&gt;Quasi-fixed labour costs&lt;/em&gt; are typically those associated with the number of workers rather than the number of hours they work, so things like&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;recruitment costs&lt;/li&gt;&#xA;&lt;li&gt;training costs&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Commonly they are seen as fixed costs in the short run, but marginal costs in the long run. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Other non-labour costs which have the same short run / long run distinction can also be seen as &lt;em&gt;quasi-fixed costs&lt;/em&gt; &lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2017-06-15T08:25:00.413" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17176" PostTypeId="1" CreationDate="2017-06-15T09:35:44.357" Score="5" ViewCount="13528" Body="&lt;p&gt;I am trying to find the distinction between a free market and a perfectly competitive market, and I can't find the right definition on what makes them different. &lt;strong&gt;Can someone give me a clearly expressed definition on what makes one different from the other.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Please Note: I am looking for a reference based answer.&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="13649" LastEditorUserId="13649" LastEditDate="2017-06-15T14:30:13.373" LastActivityDate="2019-01-25T07:02:13.043" Title="What is the difference between a free market and a perfectly competitive market?" Tags="&lt;microeconomics&gt;&lt;competition&gt;" AnswerCount="6" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="17177" PostTypeId="1" AcceptedAnswerId="17188" CreationDate="2017-06-15T10:44:40.663" Score="2" ViewCount="337" Body="&lt;p&gt;I am having difficulties to understand the conclusion in bold below, taken from &lt;a href=&quot;https://eclass.uoa.gr/modules/document/file.php/ECON206/Course%20material/Frankel%20Production%20function%20AER%201962.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Frankel (1962)&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;A  second  limitation  of  the  Cobb-Douglas  function  appears  when  it  is  fitted  to  historical  data.  All  improved  fit  generally  is  obtainable  if  the  exponents:  and  a  are  allowed  to  vary  freely  instead  of  being  constrained  to  equal  unity.  With  some  sets  of  data,  the  resulting  sum  of  the  exponents  has  differed  significantly  from  unity,  an  outcome  that  opens  the  door  to  economies  and  diseconomies  of  scale  and  that  leads  to  &lt;strong&gt;abandonment  of  the  convenient  assumption  that  factors  are  paid  their  marginal  products.&lt;/strong&gt; &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;As I understand things, returns to scale is a technical issue, which &lt;em&gt;might&lt;/em&gt; be independent on market conditions. Albeit not a reliable source, the same appears in the &lt;a href=&quot;https://en.wikipedia.org/wiki/Returns_to_scale&quot; rel=&quot;nofollow noreferrer&quot;&gt;Wikipedia&lt;/a&gt; entry.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One interesting answer to this might come from the first answer &lt;a href=&quot;https://www.quora.com/Why-is-increasing-return-to-scale-incompatible-with-perfect-competition&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;. However, the author is interested in competition among producers, in terms of the final goods price. Basically, that a natural monopoly (where IRS hold), has an average cost always below the marginal cost, so competitive market produces loses. &lt;strong&gt;But what prevents a natural monopoly to pay its factors their marginal products?&lt;/strong&gt; You can think of a natural monopoly, or any other example of firms with DRS or IRS, in which they operate amid competitive capital and labour markets. I see no &lt;em&gt;a priori&lt;/em&gt; reason why market forces would not lead these firms to pay the factors their marginal product. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To sum up: why IRS or DRS mean we should abandon competitive assumptions &lt;strong&gt;in the factor markets&lt;/strong&gt;?&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-08-14T20:34:55.623" Title="Non-constant returns to scale and competitive factor markets" Tags="&lt;microeconomics&gt;&lt;competition&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17178" PostTypeId="2" ParentId="17104" CreationDate="2017-06-15T11:46:23.247" Score="1" Body="&lt;p&gt;A homothetic function is a monotonic transformation of a homogenous function. However, that function is not homogeneous.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For $x_1x_2 = y$, take then $f(y) = y^2 - y$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If $f(y)$ is homogenous of degree $k$, it means that $f(t y) = t^k f(y)$, $\forall t&amp;gt;0$. In this case,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$f(t y) = (t y)^2 - t y = t^{2} y^2 - t y \neq t^k y^2 - t^k y = t^k (y^2 - y) = t^k (f(y))$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This concludes the proof. &lt;/p&gt;&#xA;" OwnerDisplayName="user13650" LastEditorDisplayName="user13650" LastEditDate="2017-06-15T13:37:17.703" LastActivityDate="2017-06-15T13:37:17.703" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17179" PostTypeId="1" CreationDate="2017-06-15T12:05:21.913" Score="1" ViewCount="33" Body="&lt;p&gt;&lt;strong&gt;Motivating example:&lt;/strong&gt; Google, Apple, Microsoft et al were recently fined $430 million for wage collusion and anti-trust violations regarding hiring of employees. Their employees were involved in a class action lawsuit. My uninformed guess is that the wage collusion and anti-poaching agreements adversely affected market wages as a whole for everyone in software. I'd like to know how one might prove that.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To limit the scope of the question a little: &lt;strong&gt;how would one go about calculating the impact of anti-poaching agreements on market wages?&lt;/strong&gt; My intuition for a solution involves brute forcing an implausibly accurate dataset, but I know you economists are clever folks.&lt;/p&gt;&#xA;" OwnerUserId="13651" LastActivityDate="2017-06-15T12:05:21.913" Title="How would one model wage suppression from non-poaching agreements?" Tags="&lt;macroeconomics&gt;&lt;wages&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17180" PostTypeId="2" ParentId="4685" CreationDate="2017-06-15T13:38:04.743" Score="6" Body="&lt;p&gt;The viewpoint is this. The ISP is responsible for relaying internet traffic to their customers - they have different models for this, by &quot;speed&quot;, by amount of data, etc and this is working reasonably well.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then new suppliers of content arrive, heavy 4k streaming - content which is far more susceptible to &quot;errors&quot; in transmission than in ye olde days. Streaming of near lossless, high resolution video requires both low latency, high average throughput and high instantaneous throughput. This puts a different kind of stress on the system, people streaming 4k video consumes more resources than what the same amount of data would require in a different setting. The main problem is that the supplier of content (i.e Netflix) has &lt;strong&gt;no incentive&lt;/strong&gt; to avoid these issues, to design their content optimally. Quite the opposite. This can put a lot of stress on specific parts of the network - and again the supplier and customer both can just blame the ISP. The ISP will take steps, certainly improve transmission, maybe work out some caching or storing at different sites, but the cost will be evenly distributed on &lt;strong&gt;all customers&lt;/strong&gt;. Charging extra for &quot;unthrottling&quot; allows for the customers that consume the service to pay for it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, this is a minefield - there are huge pitfalls everywhere and throttling can certainly be abused in a number of ways, especially when we know that the service provider market has a significant barrier to entry and has had problems with near monopoly situations in the past. However, the argument against net neutrality is simple - why should the general customer pay for a service (from the ISP) that only benefits customers of certain content suppliers? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If Netflix were to offer airline passengers the option to watch Netflix during their flight, pass the cost of satellite usage on to United Airlines, making the tickets more expensive for everyone - it is to me obvious that we should allow United Airlines to charge Netflix for this inconvenience.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In closing, as I started understanding this from the other perspective my view of Net Neutrality changed. I still believe in a free, neutral and open internet - but we need to make the ISP service providers work in a reasonable environment as well or else we dig the grave even deeper. Not allowing for price differentiation will make the barrier to entry even higher. The market could use some regulation, and it needs to be good regulation in order to serve both customers, service providers and content providers.&lt;/p&gt;&#xA;" OwnerUserId="13652" LastEditorUserId="108" LastEditDate="2017-07-13T06:55:56.530" LastActivityDate="2017-07-13T06:55:56.530" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17182" PostTypeId="2" ParentId="17176" CreationDate="2017-06-15T15:45:31.707" Score="0" Body="&lt;p&gt;&quot;Free market&quot; is a vague everyday expression and has no formal definition, meaning that you will find it used with different meanings. Therefore it is not possible to &quot;compare&quot; it to the concept of &quot;perfectly competitive market&quot;, which has an established formal definition in the Economics discipline, one that can be found in many places. And even when economists want to use a variant of the concept, they clearly spell out which proeprties hold and which not.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Just to list the properties of a perfectly competitive market in a static setting: no barriers to entry, no other costs except for the product price, identical consumers, identical supliers, single homogeneous perishable good, price-taking behavior from all participants, complete perfect and symmetric information (everybody knows everything there is to know and all knowledge is correct). And no government intervening with regulations or taxes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I am forgetting something, please edit accordingly.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2017-06-15T15:51:14.330" LastActivityDate="2017-06-15T15:51:14.330" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="17185" PostTypeId="1" AcceptedAnswerId="17187" CreationDate="2017-06-15T17:46:19.120" Score="2" ViewCount="329" Body="&lt;p&gt;I'm working a location based home pricing model and I have a regression which looks like this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Price=\beta_0+\beta_1x_1+\beta_2x_1^2+\beta_3x_2+\beta_4x_2^2$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $x_1$ is longitude and $x_2$ is latitude. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm finding statistical significance in longitude, longitude squared and latitude squared but not in regular latitude itself. I know that in economic theory quadratic terms are used to capture the effect of diminishing returns, but in this case I find it odd that the quadratic is significant but the regular variable isn't.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How do I interpret these results?&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="2776" LastEditDate="2017-06-16T06:30:57.143" LastActivityDate="2017-06-16T19:12:45.097" Title="Housing econometrics: interpretation of a quadratic variable" Tags="&lt;econometrics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17186" PostTypeId="2" ParentId="10219" CreationDate="2017-06-15T18:03:00.110" Score="1" Body="&lt;p&gt;&lt;em&gt;(I do not agree that this is a duplicate of the answer proposed by other members here).&lt;/em&gt;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Total Revenue is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$TR = Q(P)\cdot P$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The derivative with respect to price is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\partial TR}{\partial P} = Q'(P)\cdot P + Q(P)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For this to be positive (and so total revenue to increase with price), we require &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\partial TR}{\partial P} &amp;gt; 0 \implies  Q'(P)\cdot P + Q(P) &amp;gt;0 $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies \frac{Q'(P)\cdot P}{Q(P)} &amp;gt; -1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The left-hand-side is the price elasticity of demand. Now, &lt;em&gt;greater&lt;/em&gt; than &lt;em&gt;minus&lt;/em&gt; unity means &lt;em&gt;smaller&lt;/em&gt; than unity &lt;em&gt;in absolute terms&lt;/em&gt;. And it is in that sense that demand at the region is &quot;price inelastic&quot; (the minus sign indicating direction of movement).&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2017-06-15T20:12:44.267" LastActivityDate="2017-06-15T20:12:44.267" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17187" PostTypeId="2" ParentId="17185" CreationDate="2017-06-15T18:13:03.780" Score="2" Body="&lt;p&gt;When both the level and the square affect the dependent variable (and if the coefficient on the square is negative), we have a case where the variable in question initially affects positively the dependent variable, but after a point it affects it negatively. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;When only the square is deemed to affect the dependent variable, then the effect is monotonic &lt;em&gt;and accelerating&lt;/em&gt;, while its direction is indicated by the sign of the coefficient.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Real world interpretation: can you rationalize &lt;em&gt;why&lt;/em&gt; latitude could have a monotonic effect, while longitude has not? Can you match this to the geographical areas you use data on? Is there anything special along latitude as regards the weather, socioeconomic conditions etc? And also, why longitude has an up-and-down effect? What could be the possible reason here?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;These are the cases when empirical studies become thrilling: when unexpected econometric results provide new insights into the real world.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2017-06-16T19:12:45.097" LastActivityDate="2017-06-16T19:12:45.097" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17188" PostTypeId="2" ParentId="17177" CreationDate="2017-06-15T18:35:25.613" Score="3" Body="&lt;p&gt;Frankel examines the use of the Cobb-Douglas formulation in &lt;strong&gt;aggregate&lt;/strong&gt; data, &lt;em&gt;where as a matter of macroeconomic(and essentially logical) identity output is exhausted in paying the factors of production&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the macroeconomic identity states, for &lt;em&gt;any&lt;/em&gt; aggregate production function&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Q=F(K,L) \equiv rK + wL$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $r,w$ are &lt;em&gt;ex post&lt;/em&gt; average unit rewards for the factors of production (hence the identity character).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &lt;em&gt;only&lt;/em&gt; way to equate $r$ and $w$ with marginal product is to have a function homogeneous of degree one (&quot;constant returns to scale&quot;) because it is only then that we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$F(K,L) = F_K\cdot K + F_L\cdot L$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and we can map $r=F_K,\; w=F_L$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the function is homogeneous but not of degree one but of a degree $k\neq 1$, then we have &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$F(K,L) = \frac 1k(F_K\cdot K + F_L\cdot L)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which leads to $r=(1/k)F_K,\;\; w=(1/k)F_L$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If $k&amp;gt;1$ we have Increasing returns to scale and factors are paid less than their marginal product (again, on average and on aggregate), while if $k&amp;lt;1$ we have Decreasing returns to scale and factors are paid more than their marginal product.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We then run into trouble regarding the &lt;em&gt;behavior&lt;/em&gt; and &lt;em&gt;structure&lt;/em&gt; assumptions at the micro level that lead to such a result at the macro-level.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2017-06-15T20:18:54.780" LastActivityDate="2017-06-15T20:18:54.780" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="17189" PostTypeId="2" ParentId="16259" CreationDate="2017-06-15T19:54:52.897" Score="2" Body="&lt;p&gt;I would say the following four:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Nash Equilibrium via Fixed Point (either Kakutani, Brouwer or Tarski, depending on the problem);&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Welfare theorems via Hanh-Banach theory (mainly the separating hyperplane theorem);&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Utility and Profit Optimization via Weierstrass Theorem, Kuhn-Tucker conditions, and existence of a Lagrangian;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Minimization of Least Squares;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerDisplayName="user13650" LastActivityDate="2017-06-15T19:54:52.897" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17190" PostTypeId="1" AcceptedAnswerId="21977" CreationDate="2017-06-15T21:34:45.187" Score="7" ViewCount="204" Body="&lt;p&gt;I'm trying to compile multiple scenarios of the breakdown of game theory. Specifically, I'm looking for scenarios where game theory predicts certain behaviours, but in real-world scenarios or experiments, people tend to behave quite differently.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here's an example of the kind of thing I'm looking for, based on the ultimatum game: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Two players, A and B, are offered a certain amount of money, for example, 100€, to share between them.&lt;/li&gt;&#xA;&lt;li&gt;Player A first decides the split (e.g. 50-50, 60-40, 90-10, or whatever player A decides).&lt;/li&gt;&#xA;&lt;li&gt;Player B chooses to either to accept Player A's split, in which case each player receives the amount dictated by Player A; or Player B refuses Player A's split, in which case both players receive 0€.&lt;/li&gt;&#xA;&lt;li&gt;The game is played only once; there is no repitition.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Classic game theory predicts that as long as Player A offers any split in which Player B receives more than 0€, Player B would accept the offer. For example, if Player A offers 99-1, then Player B would accept the offer since 1€ is better than nothing. However, from what I understand, experiments have shown that for many offers below 50-50, Player B refuses the offer. The explanation is that when Player B perceives that Player A is being unfair, Player B often prefers that both players receive nothing rather than undergoing what they perceive to be unfair treatment. Apparently, the refusal depends on how much Player B would eventually receive. (For example, Player B might refuse a 90-10 split if 100€ is at stake, but might grudgingly accept it if 1000€ is at stake.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Could anyone please offer any examples where game theory predictions are known to differ from actual human behaviour?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Strictly speaking, in the example I gave, the problem isn't with the &quot;theory&quot; part of game theory; the problem is with correctly specifying the utilities. The players' real utility is a function of both the money they would receive and their perception of fairness. Because the game classically only specifies their utility in terms of money, the prediction fails because the perception of fairness is also important, yet neglected. It is neglected because it is much harder to quantify and to accurately specify on the same scale as money. In fact, I strongly suspect that all cases that I'm asking for would involve a similar element: the game theoretic prediction fails because players have some very important behavioural aspects of their utilities which are not specified in the game model because they are hard to quantify.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I cross-posted this question with &lt;a href=&quot;https://cogsci.stackexchange.com/q/17521/16180&quot;&gt;Cognitive Science StackExchange&lt;/a&gt; because I originally posted it on the &lt;a href=&quot;https://math.stackexchange.com/questions/2308552/examples-of-behavioural-breakdowns-in-game-theory/2323514#2323514&quot;&gt;Mathematics StackExchange&lt;/a&gt; but didn't receive much helpful answers there.&lt;/p&gt;&#xA;" OwnerUserId="13656" LastEditorUserId="13656" LastEditDate="2018-05-14T20:07:48.043" LastActivityDate="2018-05-14T20:07:48.043" Title="Examples of behavioural breakdowns in game theory?" Tags="&lt;game-theory&gt;&lt;utility&gt;&lt;behavioral-economics&gt;&lt;experimental-economics&gt;" AnswerCount="4" CommentCount="2" FavoriteCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="17191" PostTypeId="1" CreationDate="2017-06-15T21:59:44.280" Score="1" ViewCount="24" Body="&lt;p&gt;Much of US military spending is more easily rationalised as a job-creating programme than a form of defence, e.g. vehicles Congress funds despite Pentagon insisting it doesn't need or want them or have anywhere to store them. Part of the reason the US spends far more on the military than other Western nations (&lt;a href=&quot;https://en.wikipedia.org/wiki/List_of_countries_by_military_expenditures&quot; rel=&quot;nofollow noreferrer&quot;&gt;3.3% of GDP vs 2% or less&lt;/a&gt;) is that, in the United States, the military is an especially socially acceptable source of welfare. As a UK citizen I find this plausible, but it occurs to me that I have no idea what the UK government spends money on as much for the jobs as for the apparent application. Which leads to my question: what forms of spending do different Western nations use with Keynesian motive?&lt;/p&gt;&#xA;" OwnerUserId="10991" LastActivityDate="2017-06-15T21:59:44.280" Title="What are the main long-standing Keynesian economic programmes in Western nations?" Tags="&lt;welfare-economics&gt;&lt;government-spending&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17192" PostTypeId="2" ParentId="17185" CreationDate="2017-06-16T02:43:28.453" Score="2" Body="&lt;p&gt;That can happen and is not odd.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For your model the partial effect of a change in $x_1$ on the average price equals $\beta_1 + 2\beta_2 x_1$ (use calculus for simple derivation). Thus, $\beta_1$ captures the effect of an increase in $x_1$ from &lt;strong&gt;zero&lt;/strong&gt;. The coefficient of $x_1$ being insignificant just means this effect of changing &lt;strong&gt;from zero&lt;/strong&gt; is insignificant. In other words, $x_1=0$ happens to be close to the turning point, which can happen in some applications (why not?). We wouldn't worry if the turning point is $age=43$ for a smoking regression. There can be other applications where the turning point is close to zero.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In many applications, $x_1=0$ is not very meaningful (e.g., $x_1$ is years of schooling), though I don't know it for your data. Often we subtract the sample mean (or any particular value) from $x_1$ so that the coefficient of the transformed variable ($x_1-c$) indicates the effect of a change of $x_1$ from $x_1=c$. This way, you can also compare easily the results from the linear model and the quadratic model.&lt;/p&gt;&#xA;" OwnerUserId="10775" LastActivityDate="2017-06-16T02:43:28.453" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17193" PostTypeId="1" CreationDate="2017-06-16T06:50:51.530" Score="2" ViewCount="109" Body="&lt;p&gt;I recently came across a question that asks, if exports in a country rises by USD10 billion and imports rises by USD10 billion, what's good about both of these?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To my understanding, the GDP wouldn't change as Net Exports would be constant, so I'm not quite sure how exactly is this good or bad.&lt;/p&gt;&#xA;" OwnerUserId="13649" LastEditorUserId="1417" LastEditDate="2017-06-17T11:45:24.417" LastActivityDate="2017-06-17T11:45:24.417" Title="What's good about both exports and imports of a country rising at the same time?" Tags="&lt;macroeconomics&gt;&lt;international-trade&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17194" PostTypeId="1" AcceptedAnswerId="17205" CreationDate="2017-06-16T07:30:39.027" Score="0" ViewCount="46" Body="&lt;p&gt;Which of the following policies does not contribute in lowering the trade deficit?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;a) the increase of government expenditure&lt;/p&gt;&#xA;&#xA;&lt;p&gt;b) growing the internal interest rate&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is only one correct answer, but I fell like both of them are wrong. Can someone help me with an argument?&lt;/p&gt;&#xA;" OwnerUserId="13662" LastEditorUserId="2776" LastEditDate="2017-06-16T08:59:16.680" LastActivityDate="2017-06-16T23:04:30.030" Title="Macroeconomic policies and trade balance" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17195" PostTypeId="2" ParentId="17190" CreationDate="2017-06-16T10:20:54.543" Score="3" Body="&lt;p&gt;The game you describe is known as the dictator's or ultimatum game, and indeed people typically refuse offers that are less than a 2/3-1/3 split. A lot of research has gone into this in the behavioural economics literature. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are many other situations where the predictions from the theory do not match actual behaviour, among others: people contribute more to a public good than they should (especially if the game is not repeated), people invest more than they should, people don't defect in a prisoner's dilemma et cetera.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Colin Camerer has an old but very readible piece in the Journal of Economic Perspectives &lt;a href=&quot;http://www.jstor.org/stable/2138470?seq=1#page_scan_tab_contents&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; and has written a full book on the subject: &quot;behavioral game theory&quot;.&lt;/p&gt;&#xA;" OwnerUserId="12186" LastActivityDate="2017-06-16T10:20:54.543" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17196" PostTypeId="1" CreationDate="2017-06-16T10:52:34.957" Score="1" ViewCount="428" Body="&lt;blockquote&gt;&#xA;&lt;p&gt;a. There are 2 cities C1 and C2. Everyone in both the cities has same concave, increasing utility function. There's only 1 good, with the social planner. How should s/he allocate it?&lt;/p&gt;&#xA;&lt;p&gt;b. Now assume that initially the endowment resides in C1 (but with the planner himself) and a transfer of 1 unit from C1 to C2 results in a loss of fraction 'v'. How should s/he allocate now?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;My analysis: If I assume a Rawlsian welfare function I'll get a different result than I'll  get from maximising sum of utilities which would be different from weighted sum of utilities.&lt;/p&gt;&#xA;&lt;p&gt;The only other thing I can think of is he may want the allocation to be fair i.e no one envies each other and locations are pareto optimal. No envy just means everyone gets the same allocation.&lt;/p&gt;&#xA;&lt;p&gt;How do I go about this?&lt;/p&gt;&#xA;" OwnerUserId="12874" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2017-06-16T11:27:21.423" Title="Exercise about social planner's optimal allocation of resources" Tags="&lt;pareto-efficiency&gt;&lt;social-welfare&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17198" PostTypeId="2" ParentId="13929" CreationDate="2017-06-16T12:19:04.730" Score="2" Body="&lt;p&gt;Το take this one out of the Unanswered queue:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The completeness property of the preference relation, implies that &lt;strong&gt;for all non-negativ&lt;/strong&gt;e $t$ we will be able to form and declare the preference relation. Hence&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$A \cup B = \mathbb{R_+}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By monotonicity we have $B=[0, \overline{t}],\;\; A=[\underline{t}, \infty)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ad absurdum, assume that $\overline{t} &amp;lt; \underline{t}$. Then there exists an open interval $(\overline{t},\underline{t})$ that does not belong to the union of $A$ and $B$. But then we arrive at $A \cup B \neq \mathbb{R_+}$ which contradicts the implications of the completeness property. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So we conclude that $\overline{t} \geq \underline{t}$, which implies that the intersection $A \cap B$ is non-empty (even if it may contain a single element, when $\overline{t} = \underline{t}$).&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2017-06-16T12:19:04.730" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17199" PostTypeId="2" ParentId="17190" CreationDate="2017-06-16T14:12:15.680" Score="-2" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;Could anyone please offer any examples where game theory predictions are known to differ from actual human behaviour?&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I can think of many outliers, however, outliers are not typical human being. e.g. Philosopher, economist, mathematicians, etc. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In behavioral science such as game theory, &quot;punishment&quot; play more important roles than rewards. When rationality lies on the punishment (of unfair practice), so you will not see people move towards rewards.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The said behavior is in fact, correctly describe typical human being behavior. If the stake is known, it will move towards 50/50 or nothing, equilibrium reach. When utilities are not equal, IMHO increasing the state still move towards 50/50 or nothing. However, nobody will fund such stakes. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, there are ways to manipulate the punishment and shift the paradigm using a bait, a bait that called &lt;strong&gt;Investment return promises&lt;/strong&gt;. E.g. In the ancient era, the promises are entering heaven after death; rewards from joining a war, etc. &lt;/p&gt;&#xA;" OwnerUserId="11177" LastEditorUserId="2776" LastEditDate="2017-06-17T06:34:53.873" LastActivityDate="2017-06-17T06:34:53.873" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="17200" PostTypeId="2" ParentId="17193" CreationDate="2017-06-16T14:50:03.460" Score="1" Body="&lt;p&gt;A rise in import and export can mean anything. For example, places like Hong Kong and Singapore, have extremely high import/export rate. Both both places are merely transit hub for neighbourhood area.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Trade agreement may also increase both import and export dramatically. But there is a huge difference between an industrial country with the agricultural country; a highly advanced agricultural country versus a poor agricultural country.&lt;/p&gt;&#xA;" OwnerUserId="11177" LastActivityDate="2017-06-16T14:50:03.460" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17201" PostTypeId="2" ParentId="17193" CreationDate="2017-06-16T15:23:22.200" Score="2" Body="&lt;p&gt;There are plenty of issues that can be relevant here, which mean it is hard to give a precise answer. On the one hand, even though GDP is not growing, at least the balance of trade is roughly unchanged. Some countries could experience an equivalent unaffected change in GDP via a trade deficit (e.g. if part of the fall in net imports is compensated with, say, an increase in consumption), which can fuel a &lt;a href=&quot;https://www.ncbfaa.org/Scripts/4Disapi.dll/userfiles/uploads/Charles_Zhao_-_trade_deficit_paper_2015.doc.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;currency depreciation and create inflationary pressures&lt;/a&gt;, not only on imported goods but on locally produced good which use imported inputs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand, it is interesting to compare two countries with the same GDP but different level of exports and imports. The country with greater trade levels is more likely engaged in global value chains, which spur specialisation, and &lt;a href=&quot;https://www.ids.ac.uk/ids/global/pdfs/JHHSRegStudies25jun02.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;learning&lt;/a&gt; for local producers. The literature recognises the role of trade as a mechanism to spur &lt;a href=&quot;http://blalock.dyson.cornell.edu/wp/imports_062305.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;technology transfer&lt;/a&gt; (and even transfer of &lt;a href=&quot;https://insight.kellogg.northwestern.edu/article/the_global_idea_market&quot; rel=&quot;nofollow noreferrer&quot;&gt;ideas&lt;/a&gt;), thereby fostering productivity and growth.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-06-16T15:53:26.490" LastActivityDate="2017-06-16T15:53:26.490" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17202" PostTypeId="1" CreationDate="2017-06-16T18:32:24.367" Score="2" ViewCount="71" Body="&lt;p&gt;Im working on college enrollment linear probability model where enrollment is regressed on income.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have the following regressions&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;$$y=\beta_0+\beta_1x_1+u$$&lt;/li&gt;&#xA;&lt;li&gt;$$y=\beta_0+\beta_1x_1^2+u$$&lt;/li&gt;&#xA;&lt;li&gt;$$y=\beta_0+\beta_1x_1+\beta_2x_1^2+u$$&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;where $x_1$ is Income and $y$ is a binary variable which indicates &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In cases (1) and (2) I have statistical significance at the 1% level ( *** ), but in regression (3)I have no significance at all in these variables.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How do I remedy/ interpret this?&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2017-06-17T14:23:46.337" Title="College enrollment probability model" Tags="&lt;econometrics&gt;&lt;education-economics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17205" PostTypeId="2" ParentId="17194" CreationDate="2017-06-16T23:04:30.030" Score="0" Body="&lt;p&gt;In a small open economy specifically (as opposed to a closed economy, which does not trade with other countries, so $NX$ is not considered) , the the real world interest rate is &lt;strong&gt;not&lt;/strong&gt; effected by the economy increasing its internal interest rate. As consumers can simply turn to the world market and get funds at a lower interest rate if the internal interest rate increases greater than the world interest rate. However an increase in government expenditure &lt;strong&gt;will&lt;/strong&gt; increase the trade deficit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that &lt;strong&gt;&lt;em&gt;Net Exports equals Net Capital Outflow&lt;/em&gt;&lt;/strong&gt;. This can be visualized mathematically: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$NX=S-I$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where: $S=$ &lt;em&gt;National Savings&lt;/em&gt; $= Y-C-G$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This means that as Government expenditure $(G)$ increases National Savings $(S)$ will decrease. Thus resulting in a greater trade deficit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, &lt;em&gt;It is of my humble opinion&lt;/em&gt;, based on the question, it seems that an increase in government expenditure will not assist in lowering the trade deficit. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope this is helpful. &lt;/p&gt;&#xA;" OwnerUserId="6629" LastActivityDate="2017-06-16T23:04:30.030" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17208" PostTypeId="1" CreationDate="2017-06-17T03:26:17.590" Score="3" ViewCount="335" Body="&lt;p&gt;Let utility curve an individual given as $U(C,R) = C^aR^{1-a}$ where $(0\lt a  \lt 1)$ and $C$ denotes consumption commodity and $R$ denotes its leisure, and price of $C$ is given as $P$, and the nominal wage for a unit of labor given as $W$. Total amount time available for the individual is $T$.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now I would like to derive the change of labor supply when nominal wage get increased with two different effect decomposed - income effect/substitution effect.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I have got is $L^s$ only, which is equal to $T-R$, following below process:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;first, $P\cdot C = L^s\cdot W $ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;second, $T-R = L^s$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;by, first and second, $P\cdot C= (T-R)\cdot W$ (*)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and the from the utility function we can derive the condition of maxmizing its utility, $MU_C = MU_R$, which is eqaul to $\frac{a}{1-a}=\frac{C}{R}$(**)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, since the (*), (**) must hold at the same time, we can derive equation between $W$ and $R$ without $C$ as below:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$P\cdot \frac{a}{1-a}\cdot R = (T-R)\cdot W$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then we get $R = \frac{TW}{P(\frac{a}{1-a})+W}$ and $L^s =T\frac{P(\frac{a}{1-a})}{P(\frac{a}{1-a})+W}$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;but my derivation of $L^s$ looks only decreasing while W is increasing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any points did I do wrong? I want to did some decomposition of Slutsky, but lack of skills to deal with partial derivatives, it makes me hard to do also.&lt;/p&gt;&#xA;" OwnerUserId="13667" LastActivityDate="2017-08-18T09:04:45.303" Title="Slutsky Decomposition of Given Labor Supply Model" Tags="&lt;labor-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17209" PostTypeId="2" ParentId="17202" CreationDate="2017-06-17T05:38:24.047" Score="1" Body="&lt;p&gt;Model (1) is a regular linear probability model. Your results say that $x_1$ is significantly correlated with $y$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Model (2) is strange. It means that the probability is quadratic in $x_1$ and the turning point is exactly $x_1=0$. You will have difficulty justifying the restriction.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The coefficients in Model (3) being insignificant may be a symptom of multicollinearity, i.e., $x_1$ and $x_1^2$ are strongly correlated. To see if that's the case, you can test $H_0: \beta_1 = \beta_2 = 0$. I am quite confident they are jointly significant considering the significant results in (1) and (2). If they are jointly significant but individually insignificant, it's a typical symptom of multicollinearity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Plotting the fitted probabilities for (1) and (3) often helps. Also see if the range of $x_1$ contains the turning point ($-\frac{1}{2} \beta_1/\beta_2$) in Model (3). You usually have insignificant quadratic terms if the turning point is not in data range, because $y$ is already explained well by the linear model, and then the linear term also becomes insignificant due to multicollinearity.&lt;/p&gt;&#xA;" OwnerUserId="10775" LastEditorUserId="10775" LastEditDate="2017-06-17T14:23:46.337" LastActivityDate="2017-06-17T14:23:46.337" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17211" PostTypeId="2" ParentId="9934" CreationDate="2017-06-17T07:46:02.307" Score="1" Body="&lt;p&gt;We need to provide one possible counter example, to show that these are not necessarily efficient.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider U(x,y,z)=x+2y+3z&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1st condition is obvious, but second condition says&#xA;3+n-1&gt;2n, which is incorrect for n&gt;2.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Would these be always inefficient?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider U(x,y,z)= x/3 + (2y-y^2/2)+ 4z&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Clearly 1 unit of z is preferred to 1 unit of y is preferred to 1 unit of x.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Second condition is also fulfilled.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So it depends on the individual's marginal utiity of each x,y,z.&lt;/p&gt;&#xA;" OwnerUserId="12874" LastActivityDate="2017-06-17T07:46:02.307" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17212" PostTypeId="2" ParentId="5237" CreationDate="2017-06-17T09:56:38.643" Score="0" Body="&lt;p&gt;Everyone who has the same Marginal rate of substitution will have the same preferences.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Everyone who has the same equation of indifference curves will have same ICs.&lt;/p&gt;&#xA;" OwnerUserId="12874" LastActivityDate="2017-06-17T09:56:38.643" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17214" PostTypeId="2" ParentId="17193" CreationDate="2017-06-17T11:44:47.553" Score="2" Body="&lt;p&gt;GDP is not itself a measure of welfare, though in some circumstances changes in GDP correlate fairly well with changes in measures of welfare (see for example Coyle D &lt;em&gt;&lt;a href=&quot;https://www.amazon.co.uk/GDP-Brief-but-Affectionate-History-x/dp/0691156794&quot; rel=&quot;nofollow noreferrer&quot;&gt;GDP: A Brief but Affectionate History&lt;/a&gt;&lt;/em&gt; pp 113-122). So it's a fallacy to argue that if the increases in exports and imports do not change GDP they cannot be good or bad.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If, for example, the initial position was one of autarky, and if the exports are of a good in which the country has a comparative advantage and the imports are of a good in which it has a comparative disadvantage, then welfare can be raised (as indicated for example by higher consumption from the same domestic inputs).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a secondary point, especially for a small country which must accept world prices for goods it exports or imports, trade will result in changes in at least some domestic prices. That in turn means that it may not even be true that GDP would not change, since some of the prices used in the value added calculations to measure GDP (from the output perspective) will have changed.&lt;/p&gt;&#xA;" OwnerUserId="1417" LastActivityDate="2017-06-17T11:44:47.553" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17215" PostTypeId="1" CreationDate="2017-06-17T14:05:39.957" Score="0" ViewCount="42" Body="&lt;p&gt;Here is a question that I've been thinking about for a while:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Theoretically, assuming investors are rational, a stock's price will be equal to its its intrinsic value (present value of discounted expected future cash flows). Therefore, when a share's price is $S_t$ at time $t$, and a new piece of information $I_t$ comes in that signals to investors that the expectation of future cash flows should go up, then at time $t+\epsilon$, the share price $S_{t+\epsilon}$ should immediately jump discontinuously to reflect this new fact.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;However, in practice, investors' cognitive capacities are limited.&lt;/strong&gt; Depending on the complexity of the information, $\epsilon$ could be longer or shorter. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, when news of an acquisition comes out, this will have various complex implications, for the stock price of the acquirer, the target company, and the competitors in both their markets. Compare this with the implications of a simple increase in the interbank rate set by the ECB for example, on the exchange rate between the Euro and the dollar. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The second information probably has a more simple effect on the exchange rate, than the first type of information has on the various companies that are involved. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Now my question is: In practice, how long do investors generally take before they've processed complex new information, like the announcement of a lateral acquisition deal?&lt;/strong&gt; That is, how long till they've reached a new, relatively stable assessment of expected value?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've seen data where the exchange rate adjusts literally within a matter of seconds to information about the ECB interest rate. But a reaction to such an acquisition should perhaps take days, instead of minutes?&lt;/p&gt;&#xA;" OwnerUserId="11146" LastActivityDate="2017-06-18T15:15:37.357" Title="How long do stock markets usually take to process complex new public information?" Tags="&lt;stock-market&gt;&lt;financial-markets&gt;&lt;behavioral-economics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17217" PostTypeId="2" ParentId="17215" CreationDate="2017-06-17T21:44:53.177" Score="1" Body="&lt;p&gt;I used to work for a company called Value Line, which is noted for its stock ranking system. Through a number of tests, its statistics department came to the conclusion that it took up to six months for new information (e.g. earnings) to be reflected in stock prices. So they introduced a time decay factor that would reduce the value of information to zero over a six month period in calculating their rankings.&lt;/p&gt;&#xA;" OwnerUserId="15" LastActivityDate="2017-06-17T21:44:53.177" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17218" PostTypeId="2" ParentId="16797" CreationDate="2017-06-17T21:52:59.363" Score="0" Body="&lt;p&gt;If you take &quot;energy&quot; as an alternative for &quot;labor,&quot; it can then be a complementary factor of production with capital.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Most factor substitution models deal with labor versus capital. Capital is just a fixed &quot;stock&quot; of machinery, etc., while labor is the source of the energy that makes these machines &quot;run.&quot; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So yes, if you are treating &quot;energy&quot; is a special case of &quot;labor,&quot; then it can complement capital.&lt;/p&gt;&#xA;" OwnerUserId="15" LastActivityDate="2017-06-17T21:52:59.363" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17219" PostTypeId="2" ParentId="16674" CreationDate="2017-06-17T22:35:52.820" Score="1" Body="&lt;p&gt;What is the difference for player 2 between accepting nothing or rejecting? None. Therefore, we may say that from the point of view of player 2, he is indifferent between accepting nothing or rejecting. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is done, as in Rubinstein's (1982) Bargaining Game, is to assume that in indifference, player 2 accepts receiving nothing, which also has more implications when the game is extended to an extra round where players change positions in case of player 2 rejecting the proposal on the first round, or when is included an outside option. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Following the comment from denesp, I will complete my answer. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The previous reasoning is applied mainly to SPE. If we want to see if there is any other equilibrium, we can start by representing the game in normal form, such that, we can identify two equilibria. &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Player A offers 2, and Player B accepts &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Player A offers 0, and Player B accepts.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;However, the last one is not SPE because precisely in Rubinstein's model (and in other bargaining models), it is assumed that if player B is faced with two options that have the same payoff (when involves accepting, and the other rejecting), then he accepts. &lt;/p&gt;&#xA;" OwnerDisplayName="user13650" LastEditorDisplayName="user13650" LastEditDate="2017-06-18T13:46:58.490" LastActivityDate="2017-06-18T13:46:58.490" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="17220" PostTypeId="1" CreationDate="2017-06-18T01:07:20.220" Score="3" ViewCount="597" Body="&lt;p&gt;As I had hoped to learn enough macroeconomic theory to get some research ideas, my goal at the beginning of this summer was to read through and complete the problems in an introductory advanced macroeconomics text (my first-year PhD macro courses left me more stunned than enlightened). I started with The McCandless's ABCs of RBCs, and quickly found that it was above my ability level when I reached problems I didn't even know how to set up, so now I'm trying Romer's Advanced Macroeconomics. I've gotta say that after having to consult the solutions manual several times through Chapter 2 out of 12, I'm feeling rather discouraged as the solutions involve methods that are not intuitive to me and not discussed in the text.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there even any point in someone with my skill level tackling such a task? I can't really see myself being a macroeconomic theorist after this, and it seems that the vast majority of empirical macroeconomic studies use reduced-form linear models backed by hand-waving arguments based on principles or intermediate theory, so I'm starting to doubt the utility of studying advanced theory at all.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand this may be an an &quot;illegal&quot; question here on Stack Exchange, so I won't protest if it's closed. But if not, does anyone have any tips for how to proceed?&lt;/p&gt;&#xA;" OwnerUserId="13249" LastActivityDate="2017-06-18T01:07:20.220" Title="How to self-study graduate level macroeconomics? Is there even a point?" Tags="&lt;macroeconomics&gt;&lt;self-study&gt;&lt;theory&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="17221" PostTypeId="2" ParentId="16797" CreationDate="2017-06-18T08:25:23.753" Score="1" Body="&lt;p&gt;You say &quot;energy and capital are complementary factors of production. So for instance if price of energy goes up, so will the price of capital.&quot;. I think you might have confused yourself because this kind of positive correlation in prices is not necessarily a property of complements (indeed, often one would expect the reverse to be true).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is more helpful to think of complementarity as &quot;if the price of energy goes up then the &lt;em&gt;demand&lt;/em&gt; for capital will go &lt;em&gt;down&lt;/em&gt;&quot; (in much the same way that people will buy less butter if bread becomes more expensive).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reason for this is not far from that proposed by andersan. Capital is often invested in machines (e.g., computers, robots, trucks, farm equipment) that require energy to operate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider a factory producing cars. It can assemble the car in various ways (a) by having a team of workers (labour) do the work, (b) installing robots on an assembly line, or (c) some combination of the two. If the price of electricity doubles then having a bunch of robots on the factory floor suddenly becomes more expensive because the energy needed to run them became more costly. Thus, the guy who was just indifferent between having a robot and a worker will now strictly prefer to hire a worker and the demand for capital decreases.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Even if you have a business (e.g. long-distance transportation) where you cannot easily substitute capital for labour, there will buy some entrepreneur who is indifferent between buying some capital goods (e.g. planes) to start a business and not. An increase in the cost of energy (e.g. fuel) will reduce the prospective profitability of his firm and thus leave him strictly preferring not to invest.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2017-06-18T08:25:23.753" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17223" PostTypeId="1" CreationDate="2017-06-18T11:51:20.383" Score="1" ViewCount="78" Body="&lt;p&gt;I have just read about the &quot;real intertemporal&quot; model of a macroeconomy in &lt;em&gt;Macroeconomics&lt;/em&gt; by Stephen Williamson. I am concerned about how it says any increase in government spending, even if it is equal to an increase in taxes, increases the output of the economy. This is because taxes don't reduce private consumption spending as much as government spending increases demand. But, if I extend this idea to the extreme, where government involvement is exceedingly high, I don't understand why people will carry on spending more than they earn, with high taxes and no way to pay off their debt. It seems like the autonomous component of private spending is problematic when thinking about tax (as opposed to an equilibrium), because this theoretically causes people to overspend in comparison to their income. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The deduction is that, with any positive multiplier (not just one greater than 1 as mentioned in the textbook), the more the government intervenes in the economy, the higher the GDP will be, &lt;em&gt;ad infinitum&lt;/em&gt;, so that this model encourages higher and higher government involvement. In reality, socialist countries such as Russia have had lower output than free-market countries such as the United States, and it is well known that government bureaucracies are more inefficient than the private sector. What I'm checking here is where the theory leads. I assume this must be a Keynesian-type model, because it encourages government involvement, and that other models give a different story (neoclassical perhaps?).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a public administration student as well, I don't like it how government spending is treated so differently to private spending, and this separation here seems to be problematic (as assuming that government departments are efficient in comparison to the private sector).&lt;/p&gt;&#xA;" OwnerUserId="175" LastActivityDate="2017-06-18T23:25:14.490" Title="Why do we model that higher government involvement increases output?" Tags="&lt;taxation&gt;&lt;general-equilibrium&gt;&lt;consumption&gt;&lt;government-spending&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17224" PostTypeId="1" CreationDate="2017-06-18T14:08:03.307" Score="0" ViewCount="1112" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;The following table lists the basket of goods in the &#xA;  Consumer Price Index for the nation of Astro​ (Assume 2014 is the base​ year.) &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;  Table 6.2  &#xA;             2014     2014  2015     2015  2016     2016&#xA;             quantity price quantity price quantity price&#xA;  Sunglasses  8        $9      10      $11   7       $10&#xA;  Toothpaste  15        3      18       4    15       4&#xA;  Ferrets     6         12     4        15   9        18&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Using the information in Table​ 6.2, the percent increase in prices over the two year period from 2014 to 2016 is approximately  &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The correct answer is 31% but I kept on getting 35%. &#xA;My solution was (CPI of 2016 - 100)/100&lt;/p&gt;&#xA;" OwnerUserId="13678" LastEditorUserId="2776" LastEditDate="2017-06-18T16:11:59.780" LastActivityDate="2017-06-18T17:53:02.873" Title="Solving for price incease" Tags="&lt;inflation&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="17225" PostTypeId="2" ParentId="17215" CreationDate="2017-06-18T15:15:37.357" Score="0" Body="&lt;p&gt;I believe the answer is that investor cognitive capacities are limited, but the sheer number of investors (and analysts who publish their speculations on market movements and the consumers of that information) aggregate a series of discrete, basically instantaneous reactions that effect an efficient continuous marginal movement.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reactions to information about earnings is probably more realized in the current price than any time decay model could reflect and over the course of any considerable amount of time will still follow more or less a random walk. Speculation about a new product or new innovations or introduction of new competitors will be the strongest short term drivers of price change&lt;/p&gt;&#xA;" OwnerUserId="13679" LastActivityDate="2017-06-18T15:15:37.357" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17226" PostTypeId="1" CreationDate="2017-06-18T15:27:32.430" Score="4" ViewCount="231" Body="&lt;p&gt;I'm playing around with a situation in which there are two possible scenarios. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Scenario 1&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This involves a transaction between two persons, Supplier and Consumer, who have the option of either behaving honestly or behaving corruptly. One thing to note is that a corrupt transaction is only possible when the Consumer is corrupt. If the Consumer is honest, the transaction will always be honest. The payoff matrix is shown below. (For convenience, I call the agents Supplier and Consumer. Don't worry about what these mean). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(In the images that follow, the Nash equilibrium is highlighted in the green box. I've highlighted the Supplier's best strategy and the Consumer's best strategy in RED and BLUE respectively).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/s8FDE.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/s8FDE.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now comes the tricky part (tricky for me, that is). I'm trying to model an altered version of Scenario 1, called Scenario 2, described below.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Scenario 2&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here, there is a credible threat to the Supplier. The credible threat is that if both Supplier and Consumer act corruptly, and the Consumer gets caught (in my model, we can only detect corruption by the Consumer), then the Supplier will be punished, along with the Consumer. Basically, I want to discourage corruption even before it happens. &lt;em&gt;If I only punished the Consumer, then Suppliers would feel free to latch onto the next corrupt Consumer that comes along. Since I am punishing both Supplier and Consumer, the Supplier might have to think twice before colluding with a corrupt Consumer.&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have a tentative payoff matrix below. I'd like to know if my reasoning in the matrix is correct.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm confused because there are two possible payoff matrices for Scenario 2. The only I've shown is the one in which they do get caught. What about the situation where they don't get caught? Do we need to take this into account? And most critical to me, is my reasoning (in italics above) about the double punishment (to Supplier and Consumer) in case of collusion being more advantageous for the system than simply punishing the Consumer a good strategy, assuming a system with a huge pool of Consumers and Suppliers?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/0He1m.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/0He1m.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="5591" LastActivityDate="2018-12-12T19:02:15.550" Title="How do I best prevent cheating using a credible threat in a two-person, non-cooperative, positive sum game?" Tags="&lt;game-theory&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="17227" PostTypeId="2" ParentId="17224" CreationDate="2017-06-18T15:33:07.837" Score="0" Body="&lt;p&gt;Presumably if you are to assume 2014 is the base year, you should weight prices in 2016 and 2014 by 2014 quantities, giving  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\dfrac{10\times 8+4\times 15+18\times 6}{9\times 8+3\times 15+12\times 6} \approx 1.312$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;i.e. a percentage increase of about $31\%$&lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2017-06-18T15:33:07.837" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17228" PostTypeId="2" ParentId="17226" CreationDate="2017-06-18T15:41:16.557" Score="0" Body="&lt;p&gt;Who makes that credible threat? What is the probability of being caught?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the probability is certain, then there is only your second game. However, notice that you change in the 2nd game the best-reply structure, which means that now you have two equilibria, i.e., (H,H) and (H,C).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the probability is less than 1, then you have two states of the world. One in which you are not caught (matrix 1) and the 2nd state of the world in where you are caught. Then that implies an analysis based on incomplete information.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So this depends on what is a credible threat. Because if the threat is credible, then the player should believe on it, and then a game as the one presented in scenario 2 is enough.&lt;/p&gt;&#xA;" OwnerDisplayName="user13650" LastActivityDate="2017-06-18T15:41:16.557" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="17229" PostTypeId="2" ParentId="17224" CreationDate="2017-06-18T17:53:02.873" Score="1" Body="&lt;p&gt;The &lt;a href=&quot;http://www.investopedia.com/terms/c/consumerpriceindex.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;Consumer price index&lt;/a&gt; of a country is defined as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$CPI_{t}^{t_0}={{P_{1t} Q_{1t_0}+P_{2t}Q_{2t_0}+P_{3t}Q_{3t_0}}\over{P_{1t_0}}Q_{1t_0}+P_{2t_0}Q_{2t_0}+P_{3t_0}Q_{3t_0}} \times 100$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $P$ is price, $Q$ is quantity, $t$ is reference to current year and  $t_0$ is reference to the base year.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So using this formula we get: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$${{10\times8 +4 \times 15+18 \times 6}\over{9 \times 8+3 \times 15 +12 \times 6}} \times 100 \approx 131.2 $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now finding the inflation rate we can see (CPI of the base year is always going to be $100$)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$${{131.2-100}\over{100}} \times 100 \% \approx 31\%$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope this is helpful!&lt;/p&gt;&#xA;" OwnerUserId="6629" LastActivityDate="2017-06-18T17:53:02.873" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17231" PostTypeId="2" ParentId="17176" CreationDate="2017-06-18T19:02:23.920" Score="0" Body="&lt;p&gt;A perfectly competitive market is a special case of a free market. That is, a perfectly competitive market has all the essential characteristics of a free market, but the reverse is not necessarily true.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A &lt;a href=&quot;http://www.businessdictionary.com/definition/free-market-economy.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;free market&lt;/a&gt; is one that is free from &quot;outside&quot; interference, either from the government, or from large private sector parties with market power.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a&lt;a href=&quot;http://www.emporia.edu/~ghoshdip/Lecture%20Notes/Chap14.Competition.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt; perfectly competitive market,&lt;/a&gt; there are no barriers to entry, all competitors are of equivalent size and power, and there are &quot;many&quot; such competitors. A free market doesn't always have these &quot;guarantees,&quot; of competition, only &quot;weaker&quot; conditions such as barriers to entry and differences in size not being factors in restricting the market's freedom. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The key precondition of a perfectly competitive market is the &lt;a href=&quot;http://www.economicprofit.org/UalYZ/Zero-Economic-Profit.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;zero (economic) profit&lt;/a&gt; condition. That is, all &quot;agents&quot; are earning zero profits after covering the costs of their factors of production. Because there are no surpluses, no one has an incentive to disturb the competitive equilibrium, and no rational agent will. In most free markets (other than a perfectly competitive one), there are economic surpluses to be obtained if someone muddies the waters to their own advantage, which is to say that there is no guarantee that those free markets will remain free.&lt;/p&gt;&#xA;" OwnerUserId="15" LastEditorUserId="15" LastEditDate="2017-06-25T22:55:47.503" LastActivityDate="2017-06-25T22:55:47.503" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17232" PostTypeId="2" ParentId="17208" CreationDate="2017-06-18T20:21:15.713" Score="2" Body="&lt;p&gt;In this static model with no savings/intertemporal aspect, labor supply does not depend on the wage. Using the equality relations, we can maximize over $L^s$ without constraints&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\max_{L^s} U = \left(\frac{L^s\cdot W}{P}\right)^a\cdot (T-L^s)^{1-a}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\partial U}{\partial L^s} = \frac a{L^s}\cdot U - \frac {1-a}{T-L^s}\cdot U$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and setting this equal to zero we get the optimal $L^s$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac a{L^s}= \frac {1-a}{T-L^s} \implies L^s = aT$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One can verify that, at the optimum, the second derivative of the Utility function is negative so we do have a maximum.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2017-08-18T09:04:45.303" LastActivityDate="2017-08-18T09:04:45.303" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17233" PostTypeId="2" ParentId="17176" CreationDate="2017-06-18T22:46:49.040" Score="1" Body="&lt;p&gt;The Oxford Dictionary definitions provide a good starting point, and align well with how economists generally use these terms. However, as various comments have noted, formal definitions will differ. This will especially be true for &amp;quot;free market&amp;quot;, because it is not a technical term in economics.&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;&lt;strong&gt;Perfect Competition&lt;/strong&gt;: The situation prevailing in a market in which buyers and sellers are so numerous and well informed that all elements of monopoly are absent and the market price of a commodity is beyond the control of individual buyers and sellers.&lt;/p&gt;&#xA;&lt;p&gt;&lt;strong&gt;Free Market&lt;/strong&gt;: An economic system in which prices are determined by unrestricted competition between privately owned businesses.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;For perfect competition, the key feature is that &lt;em&gt;the market price is beyond the control of individual buyers and sellers&lt;/em&gt;. The way this is often formally stated is that the elasticity of demand is zero for every individual seller, and the elasticity of supply is zero for every individual buyer.&lt;/p&gt;&#xA;&lt;p&gt;For the free market definition, the key point is that interactions are unrestricted. That means, for example, no government intervention. Wikipedia and a few other sources suggest that free markets preclude market power. If you take that view, then a free market implies perfect competition since no market power means zero elasticities.&lt;/p&gt;&#xA;&lt;p&gt;However, most definitions of a free market do not rule our market power. In that case, the presence of any of a host of imperfections (e.g., imperfect information, barriers to entry) can generate market power, and therefore imperfect competition despite interactions being unregulated. The distinction then seems to be the lack of external intervention.&lt;/p&gt;&#xA;" OwnerUserId="13467" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2017-06-18T22:46:49.040" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17234" PostTypeId="2" ParentId="17223" CreationDate="2017-06-18T23:25:14.490" Score="1" Body="&lt;p&gt;The book is talking about the short term effect. And yes, such a policy would be thought as Keynesian.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the long run, excessive government spending will cause inflation (if unfunded) or reduce both private production and demand (due to excessive taxation).&lt;/p&gt;&#xA;" OwnerUserId="11805" LastActivityDate="2017-06-18T23:25:14.490" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17236" PostTypeId="1" CreationDate="2017-06-19T03:43:45.900" Score="3" ViewCount="106" Body="&lt;p&gt;In the standard analysis of the paradox of voting, votes are pivotal only in two scenarios (exact tie or win by 1).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But in reality, vote counting is difficult and messy. And in reality, close elections are often disputed and the final outcome of the election may have little to do with who won the actual vote count. (The most famous example was the 2000 US presidential election.) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In light of the fact that close elections are usually disputed and rarely settled simply by an accurate count of the vote, what do we mean by a vote being pivotal? How do we calculate this probability?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The only analysis I've come across is the one-page appendix in &lt;a href=&quot;http://www.stat.columbia.edu/~gelman/research/published/gelmankatzbafumi.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Gelman, Katz, and Bafumi (2004)&lt;/a&gt;. They argue that the analysis of the paradox of voting is pretty much unchanged, even with disputed elections:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In fact, our decisive-vote calculations are reasonable, even for real elections with disputed votes, recounts and so forth. We show this by setting up a more elaborate model that allows for a grey area in vote counting, and then demonstrating that the simpler model of decisive votes is a reasonable approximation.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Are there any other analyses of the matter? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Given the vast literature on the paradox of voting, I'm surprised the only thing I can find on this obviously-important matter is the above one-page appendix.)&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastEditorDisplayName="user18" LastEditDate="2017-06-25T04:53:35.230" LastActivityDate="2017-06-25T04:53:35.230" Title="Analyses of the paradox of voting — given that close elections are usually disputed?" Tags="&lt;reference-request&gt;&lt;voting&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="17237" PostTypeId="2" ParentId="17176" CreationDate="2017-06-19T07:28:58.660" Score="5" Body="&lt;p&gt;&lt;strong&gt;Perfectly competitive market&lt;/strong&gt;: Numerous participants, so that no single participant has any influence.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;A perfectly competitive economic model is meant to describe a situation in which there are many participants, and the influence of each one individually is negligible. The state of the economy is thus insensitive to the actions&#xA;  of any single agent; only the aggregate behaviour matters. (&lt;a href=&quot;https://books.google.com/books?id=EO40DAAAQBAJ&amp;amp;pg=PA303&quot; rel=&quot;nofollow noreferrer&quot;&gt;Source&lt;/a&gt;.)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Free market&lt;/strong&gt;: Voluntary exchanges; no coercion (in particular, no government coercion).&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;Free market” is a summary term for an array of exchanges that take place in society. Each exchange is undertaken as a voluntary agreement between two people or between groups of people represented by agents. (&lt;a href=&quot;http://www.econlib.org/library/Enc/FreeMarket.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Source&lt;/a&gt;.)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Notes:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;The two terms are not mutually exclusive.&lt;/li&gt;&#xA;&lt;li&gt;Neither exists in the real world, though we can imagine examples of both.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerDisplayName="user18" LastEditorDisplayName="user18" LastEditDate="2017-09-22T00:57:33.863" LastActivityDate="2017-09-22T00:57:33.863" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17239" PostTypeId="1" AcceptedAnswerId="17254" CreationDate="2017-06-19T10:04:22.703" Score="0" ViewCount="442" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;How much money should be deposited each year&#xA;  for 12 years if you wish to withdraw $309 each year for&#xA;  five years, beginning at the end of the 14th year? Let&#xA;  i = 8% per year. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In the problem what does &quot;end of 14th year&quot; refer to? Will that amount remaining will compound interest when deposited at the &quot;end of 14th year&quot;?&lt;/p&gt;&#xA;" OwnerUserId="13685" LastEditorUserId="2776" LastEditDate="2017-06-19T10:56:01.530" LastActivityDate="2017-06-20T14:18:15.253" Title="How to make a timeline in given problem?" Tags="&lt;mathematical-economics&gt;&lt;interest-rate&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17240" PostTypeId="2" ParentId="16593" CreationDate="2017-06-19T11:51:22.673" Score="0" Body="&lt;p&gt;It is not only a question of belonging to some area. However, in a strict sense, it does not belong to Game Theory because only one of the players has strategic reasoning (the other simply accepts what is given to him), even if this is a variation of the ultimatum game.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Nevertheless, this is the case when the game is played once. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you run an experiment where players interchange roles, like it is a common practice, then you include strategic interaction, because players recall past events and take that piece of information into consideration when taking the role of dictator.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The usefulness of the game and these kind of studies, I suppose, you know as well as I do (e.g., analysis of psychological factors as revenge, punishment, and fairness)&lt;/p&gt;&#xA;" OwnerDisplayName="user13650" LastEditorDisplayName="user13650" LastEditDate="2017-06-19T12:13:28.317" LastActivityDate="2017-06-19T12:13:28.317" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17241" PostTypeId="1" AcceptedAnswerId="17242" CreationDate="2017-06-19T12:12:07.537" Score="0" ViewCount="407" Body="&lt;p&gt;Here is a so-called thought experiment. Suppose the inflation rate is negative, the nominal interest rate slightly negative, and the real interest rate positive (call it $r$). I think people would rationally make the same savings decisions as if they were in an economy with a real interest rate of $r$, but positive inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But, the liquidity trap is about the nominal interest rate. It says that the nominal interest rate can't drop below zero. I'm trying to understand why, and I think the question can be framed in terms of what banks will decide to do with bonds they own. When the real interest rate is positive, banks will continue to create money and buy bonds, no matter what the long run nominal interest rate is. If the real interest rate were negative, banks would not buy any more bonds, would get less money when selling their current bonds, and they would start to run out of liquidity (no matter what the nominal interest rate is).&lt;/p&gt;&#xA;" OwnerUserId="175" LastEditorUserId="175" LastEditDate="2017-06-19T12:17:21.767" LastActivityDate="2019-09-30T18:06:20.440" Title="Isn't the liquidity trap about real interest rates?" Tags="&lt;inflation&gt;&lt;monetary-policy&gt;&lt;banking&gt;&lt;central-banking&gt;&lt;liquidity&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17242" PostTypeId="2" ParentId="17241" CreationDate="2017-06-19T15:46:37.890" Score="1" Body="&lt;p&gt;The situation you describe, one with negative nominal rates, only can happen with the use of force or where the instrument acts as an insurance policy.  In the case where the instrument serves as an insurance policy, the implicit premium is that negative rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To consider why this is the case, consider two investments.  The first investment provides an $\alpha$ percent rate of return where $-100\%&amp;lt;\alpha&amp;lt;0$.  Now consider holding a bank note that pays a zero percent rate of return.  Bank notes have, at times, paid positive rates of return.  Let us assume that we have perfect foreknowledge of future deflation and we know that both will provide a positive real rate of return.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The bank note would always dominate the negative rate of return.  No one would invest in the security that provided negative nominal returns unless they believed the banknote itself was suspect.  There are two ways this dominates.  First, the note provides a higher real rate of return.  Second, however, the banknote will do a better job at preserving its value even under an assumption of future inflation because it pays a higher nominal rate, which is zero percent.  The banknote is both more valuable and simultaneously less risky.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As to the second part of your thinking, that banks would run out of liquidity, you are in error.  The reverse would happen.  As banks buy fewer bonds, they become less leveraged and intrinsically are more flexible and liquid.  Banks become fragile so that their customers can be flexible.  If there are no offers to borrow from the bank at advantageous rates to the bank, then the bank builds reserves instead.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the banks should be more liquid.  Of course, this does imply that commerce will become less liquid.  It would imply that access to liquidity would be more costly than normal as banks want nominal returns to at least cover costs plus an economic profit on those costs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is an issue is whether or not deflation triggers an exchange between debt and equity investing.  The least risky projects can no longer be financed with debt or equity.  It could be asked, &quot;does deflation make the entire system increasingly risky with the passage of time?&quot;  Are there situations that are unwise for the system, though individually rational for each separate actor?  There is also a question of sectoral transfers.  Does commerce transfer profit from itself to banks to preserve treasury operations and basic liquidity functions?&lt;/p&gt;&#xA;" OwnerUserId="11321" LastActivityDate="2017-06-19T15:46:37.890" CommentCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="17243" PostTypeId="1" CreationDate="2017-06-19T19:28:52.470" Score="3" ViewCount="998" Body="&lt;p&gt;I need access to a dataset that matches firms to their NAICS codes so that I can fill in some missing data in a data set I have for some research.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I was wondering if anyone on here might know of such a database or dataset I could explore?&lt;/p&gt;&#xA;" OwnerUserId="13641" LastEditorUserId="13641" LastEditDate="2017-06-20T02:45:38.540" LastActivityDate="2018-08-14T13:00:09.217" Title="Data Set/Database listing NAICS codes for U.S. firms?" Tags="&lt;data-request&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="17245" PostTypeId="2" ParentId="15854" CreationDate="2017-06-19T21:58:00.173" Score="2" Body="&lt;p&gt;Firstly, the diff-in-diff already is a fixed effects estimation. If you run a regression with FE and your time variant terms ($S_i*T_t$ and $T_t$) as in the plain and simple diff-in-diff setup, as such:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ Y_{it}=B_0+B_1T_t+B_2S_i+B_3S_i*T_t+e_{it} (1)$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You should obtain similar results. Secondly, your specification -- since it will be on a multiple treatment setup -- should consider if your treated groups in different periods of time are disjoint, that is, if a unit of observation might receive the treatment multiple times. Considering that adding a fixed effects in time might be convenient for your estimation, as you were considering, I would work with the following specification if the the treated groups are disjoint:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ Y_{it}=\alpha_0+\alpha_1S_i*T_t+\alpha_2S2_i*T2_t+v_t+u_i+e_{it} (2)$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And if they are not disjoint, I would consider a interaction between the treatment effects:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ Y_{it}=\beta_0+\beta_1S_i*T_t+\beta_2S2_i*T2_t+\beta_3(S_i*T_t)*(S2_i*T2_t)+v_t+u_i+e_{it} (3)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You should also consider &lt;a href=&quot;https://stats.stackexchange.com/questions/160359/difference-in-difference-method-how-to-test-for-assumption-of-common-trend-betw&quot;&gt;testing the common trend hypothesis&lt;/a&gt;, since you still need an adequate control group. &lt;/p&gt;&#xA;" OwnerUserId="4640" LastEditorUserId="4640" LastEditDate="2017-06-20T16:57:03.287" LastActivityDate="2017-06-20T16:57:03.287" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17247" PostTypeId="1" CreationDate="2017-06-20T02:29:23.360" Score="5" ViewCount="26" Body="&lt;p&gt;Why do co-ops dominate in certain markets rather than more-conventional enterprises?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, the US dairy processing market seems to be dominated co-ops like Land'O Lakes and Dairy Farmers of America, while meat processing (a nominally-similar market) is dominated by multinational public companies. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are there significant barriers to entry for co-ops trying to move into markets already dominated by conventional enterprises?  Or vice versa, are there barriers to entry for conventional enterprises wanting to enter markets controlled by co-ops?  If barriers to entry are overcome, does either form of enterprise have an ongoing competitive advantage?&lt;/p&gt;&#xA;" OwnerUserId="13690" LastActivityDate="2017-06-20T02:29:23.360" Title="Why do co-ops dominate in certain markets rather than more-conventional enterprises?" Tags="&lt;markets&gt;&lt;agriculture&gt;&lt;cooperative-game-theory&gt;" AnswerCount="0" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17248" PostTypeId="2" ParentId="17243" CreationDate="2017-06-20T06:28:02.983" Score="1" Body="&lt;p&gt;If NAICS are not provided in the dataset, you need a second variable, related to NAICS, to do the match. Two options are ISIC and SIC, related to industry classification. You can find the official link between these two and NAICS &lt;a href=&quot;https://www.census.gov/eos/www/naics/concordances/concordances.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;. These are Excel files with the concordances, which will not be perfect (sometimes you have m-to-1 or 1-to-m matches). There are more crosswalks between classifications &lt;a href=&quot;https://www.naics.com/naics-to-sic-sic-to-naics-crosswalks/&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;, &lt;a href=&quot;https://sites.google.com/site/alisonweingarden/links/industries&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;, and &lt;a href=&quot;https://www.bls.gov/emp/ep_crosswalks.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In terms of Stata files (if you need that), check file [C1] &lt;a href=&quot;http://www.ddorn.net/data.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;. There is also &lt;a href=&quot;http://www.nber.org/nberces/&quot; rel=&quot;nofollow noreferrer&quot;&gt;this&lt;/a&gt; very good NBER crosswalks (under Concordances heading), where you get SIC-NAICS crosswalks in Stata, SAS, Excel and CSV formats.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For reference, &lt;a href=&quot;https://www.xwalkcenter.org/index.php/classifications/crosswalks&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; you can find a mapping between SOC (occupations) and NAICS, but I am do not sure how it works, as I cannot see a 1-to-1 mapping between occupation and industry.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, &lt;a href=&quot;http://faculty.som.yale.edu/peterschott/files/research/papers/hs_sic_38.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; there is a document describing some technical aspects of the crosswalks.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-06-20T07:07:15.413" LastActivityDate="2017-06-20T07:07:15.413" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="17250" PostTypeId="1" AcceptedAnswerId="17252" CreationDate="2017-06-20T12:12:10.797" Score="1" ViewCount="75" Body="&lt;p&gt;So I was reading an article by Nick Szabo called &lt;a href=&quot;http://nakamotoinstitute.org/shelling-out/&quot; rel=&quot;nofollow noreferrer&quot;&gt;&quot;Shelling Out&quot;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And in his introduction paragraph he explains how American Indians use bones and shells as a currency called &quot;wampum&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This currency was accepted as legal tender in New England between 1637 and 1661. While the Colonies still accepted coin from the British.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;He points out that :&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The beginning of the end of wampum came when the British started&#xA;  shipping more coin to the Americas, and Europeans started applying&#xA;  their mass-manufacturing techniques.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;By 1661, British authorities had thrown in the towel, and decided it would pay in coin of the realm – &lt;strong&gt;which being real gold and silver&lt;/strong&gt;, and its minting audited and branded by the Crown, had even better monetary qualities than shells. In that year wampum ceased to be legal tender in New England.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Now I'm pretty new to economics but I thought Gresham's Law meant that people will &lt;strong&gt;not&lt;/strong&gt; spend valuable assets such as gold or silver instead they will spend less valuable currency for fear of it depreciating.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So did wampum cease to be legal tender because the government &quot;said so&quot; and if so, why would they make this decision?&lt;/p&gt;&#xA;" OwnerUserId="13694" LastActivityDate="2018-11-08T00:38:09.003" Title="Gresham's Law applied to wampum and gold/silver coins in the 1600s" Tags="&lt;currency&gt;&lt;theory&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17251" PostTypeId="1" AcceptedAnswerId="17255" CreationDate="2017-06-20T12:27:02.770" Score="1" ViewCount="40" Body="&lt;p&gt;I am a student researching 3D scanning service and developing it for a specific centre in my country, where the service does not exist in the way it does in USA. I know the price for the service in US. My supervisor suggests that the US prices can be converted to local prices by means of some economic indexes or tools. None of us is an economist and I don't really see how it can be done. Is there really a way to do this? &lt;/p&gt;&#xA;" OwnerUserId="13695" LastEditorUserId="1601" LastEditDate="2017-06-20T16:15:54.400" LastActivityDate="2017-06-20T16:38:03.157" Title="Converting price for service in the foreign market to local price" Tags="&lt;price&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17252" PostTypeId="2" ParentId="17250" CreationDate="2017-06-20T13:55:03.833" Score="1" Body="&lt;p&gt;A key component of Gresham's Law is that people will spend the less valuable asset such as gold or silver &lt;strong&gt;if they legally have the same face value.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sea shells and beads certainly didn't have the same value or demand within the colonies as British coin. You can't pay for import goods, taxes, or use the company store using beads or shells. Instead the issue that the colonies faced was that the British refused to pay them in coin but rather paid them in goods. If your colony wanted the manufactured British textiles then you would send a shipment of tobacco to receive it. There was an extremely limited supply of British coin in the colonies and so as a result alternatives, such as the wampum which was used by the local Indian tribes had to be adopted. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Eventually the British realized their system wasn't working and began sending over gold and silver coin. These coins were worth more on their face and probably could be considered a less volatile currency and so it was adopted in favor of the wampum which was then phased out of the colonies.&lt;/p&gt;&#xA;" OwnerUserId="10245" LastActivityDate="2017-06-20T13:55:03.833" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17253" PostTypeId="2" ParentId="17251" CreationDate="2017-06-20T14:11:55.627" Score="0" Body="&lt;p&gt;This can be done quite easily using an online currency converter.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Oanda is a reliable one which will have up to date prices of currency. Simply select U.S. currency in the box in the left, and the currency of the country you are in in the box on the right. Then type the price of the service you are using in the box on the left. The box on the right will now display that price in the currency of your home country.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Link: &lt;a href=&quot;https://www.oanda.com/currency/converter/&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.oanda.com/currency/converter/&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Something that you need to keep in mind is that there may be fees associated with converting the money and transferring it abroad. You'll need to work out a payment strategy with the company you are contracting to figure out how they want payment and what type of fees you will be incurring.&lt;/p&gt;&#xA;" OwnerUserId="10245" LastActivityDate="2017-06-20T14:11:55.627" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17254" PostTypeId="2" ParentId="17239" CreationDate="2017-06-20T14:18:15.253" Score="0" Body="&lt;p&gt;End of the 14th year is essentially the same as the start of the 15th year. As in, you need to apply the interest for the 14th year before you withdraw the &lt;code&gt;$309&lt;/code&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This problem has several steps and is most easily solved in reverse. First you need to figure out what principal A you need to withdraw &lt;code&gt;$309&lt;/code&gt; for 5 years. Second, you need to figure out what principal B you need with 8% interest over 2 years to reach principal A. Lastly, you need to find what annuity payment needs to be made each year for 12 years to reach principal B. That will be your answer.&lt;/p&gt;&#xA;" OwnerUserId="10245" LastActivityDate="2017-06-20T14:18:15.253" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17255" PostTypeId="2" ParentId="17251" CreationDate="2017-06-20T15:11:45.357" Score="1" Body="&lt;p&gt;Converting the amount from USD directly to the domestic currency using market exchange rates is an easy solution, but does not take into consideration the PPP (purchasing power parity) between the countries. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;One possibility is to use instead the PPP rates, which are rates of currency conversion that equalize the purchasing power of different currencies by eliminating the differences in price levels between countries. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The date can be obtained from: &lt;a href=&quot;https://data.oecd.org/conversion/purchasing-power-parities-ppp.htm#indicator-chart&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://data.oecd.org/conversion/purchasing-power-parities-ppp.htm#indicator-chart&lt;/a&gt;, from which you can calculate the price of the service, instead of using a currency converted based on market prices. On the same link you can check for the differences between the PPP rates and the market exchange rate, which in some cases are substantial. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;One limitation should be pointed. The PPP rate is not calculated for a specific kind of service, but for a basket of products and services. However, this is a limitation that also affects the market exchange rates.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, at least in my opinion, this method allows to better capture the differences in purchasing power between the countries, and allow you to apply a more reasonable and justifiable price.&lt;/p&gt;&#xA;" OwnerDisplayName="user13650" LastEditorDisplayName="user13650" LastEditDate="2017-06-20T16:38:03.157" LastActivityDate="2017-06-20T16:38:03.157" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="17256" PostTypeId="1" CreationDate="2017-06-20T15:13:34.840" Score="1" ViewCount="86" Body="&lt;p&gt;If I'm not mistaken, the economic value provided by a business entity to the community is just one kind of value. We tend to put numbers to things such as stock price, revenue, profits and so on. However, there is an aspect of value that cannot necessarily be measured, such as benefits to a local community.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there any great loss when we don't take into account the non-economic factors? Has there been any good discussion in the literature on this?&lt;/p&gt;&#xA;" OwnerUserId="5591" LastActivityDate="2017-06-22T11:29:28.647" Title="Reductionism, value and market economics" Tags="&lt;markets&gt;&lt;value&gt;" AnswerCount="2" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17257" PostTypeId="1" CreationDate="2017-06-20T15:51:37.353" Score="1" ViewCount="248" Body="&lt;p&gt;One of the definitions of continuity is that the Upper Contour Set and the Lower Contour Set are closed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am trying to show that if preference is continuous and $x&amp;gt;y&amp;gt;z$, then there is some $\alpha \in [0,1]$ such that $\alpha x+(1-\alpha)z&amp;gt;y$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can you help me to prove second one by using closeness?&lt;/p&gt;&#xA;" OwnerUserId="13697" LastEditorUserId="2776" LastEditDate="2017-07-06T16:00:30.200" LastActivityDate="2017-10-08T15:40:26.157" Title="Equivalence of definitions of continuity" Tags="&lt;utility&gt;&lt;preferences&gt;" AnswerCount="2" CommentCount="9" ClosedDate="2017-10-22T20:47:44.527" ContentLicense="CC BY-SA 3.0" />
  <row Id="17258" PostTypeId="1" CreationDate="2017-06-20T16:16:12.153" Score="2" ViewCount="93" Body="&lt;p&gt;The question revolves around another motivating question: How does economics become more effective at predicting the behavior of the macro economy? For example, how does economics develop methods that allow it to predict with some certainty, more certainty than current methods provide, that a recession in country A will occur?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How much is simulation used by economists and institutions? I know that the Federal Reserve in the US conducts bank 'stress tests', which are a sort of simulation. I'm wondering if this approach has been expanded and scaled to answer other sorts of economic questions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are there any institutions or researchers developing simulations as a core part of their research? &lt;/p&gt;&#xA;" OwnerUserId="13698" LastActivityDate="2017-06-20T16:16:12.153" Title="Simulating the economy - is it an active field of research?" Tags="&lt;macroeconomics&gt;&lt;econometrics&gt;&lt;computation&gt;" AnswerCount="0" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17259" PostTypeId="1" CreationDate="2017-06-20T19:30:53.100" Score="-1" ViewCount="196" Body="&lt;p&gt;A classmate asked me this and I have no idea how to approach the question. How would I even describe the effects of the universal basic income on the labour market from a Keynesian point of view?&lt;/p&gt;&#xA;" OwnerUserId="13665" LastEditorUserId="1601" LastEditDate="2019-04-21T08:31:48.740" LastActivityDate="2019-04-21T08:31:48.740" Title="What are the differences on the impact of a universal basic income from a liberal and a keynesian point of view?" Tags="&lt;keynesian-economics&gt;&lt;basic-income&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17260" PostTypeId="1" AcceptedAnswerId="17264" CreationDate="2017-06-21T01:26:45.087" Score="1" ViewCount="228" Body="&lt;p&gt;I understand why we don't include real estate in the CPI. It makes sense, when it is explained to me. I also understand Rent is included in the CPI.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However? I live in Canada . Our Populations Household Debt to Disposable income has been rapidly rising. Our real estate prices in urban centers have also been going up in value very quickly. We have very low interest rates. I also know this same effect is happening in Australia, and I believe Hong Kong.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To me this shows there is a correlation between household debt and rising home prices. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To me this extreme of rising house prices clearly is an example of too much cash chasing too few goods ( houses ).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://tradingeconomics.com/canada/housing-index&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://tradingeconomics.com/canada/housing-index&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://tradingeconomics.com/canada/households-debt-to-income&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://tradingeconomics.com/canada/households-debt-to-income&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there a better calculation that may include some form of rising/falling real estate prices into a consumer price index to show inflation? &amp;lt;-- this is my question&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've also noticed that if you take the median total household income in the Province of BC and you use it in a Canadian Bank mortgage calculator, there is no way a person could afford any home in the Vancouver Region, and the majority of the population lives in Vancouver. So clearly there is a disconnect. &lt;/p&gt;&#xA;" OwnerUserId="13702" LastActivityDate="2019-11-06T09:06:34.747" Title="Inflation , Housing Prices, Is there some form of the CPI that can include Home Prices?" Tags="&lt;inflation&gt;&lt;asset-pricing&gt;&lt;price-level&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="17261" PostTypeId="2" ParentId="17260" CreationDate="2017-06-21T06:53:08.397" Score="1" Body="&lt;p&gt;House price increases lead to increases in wealth for homeowners and increases in rental payments for renters. Thus, unlike for consumer products of the CPI like vegetables, milk, cheese, meat, or toothpaste for which the welfare impact of the increase of the price is clearly negative, the welfare impact of house price increases is ambiguous. In many countries the homeownership rate is greater than 50%, hence the median household tends to experience pretty significant increases in wealth in hot markets.&lt;/p&gt;&#xA;" OwnerUserId="10482" LastActivityDate="2017-06-21T06:53:08.397" CommentCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="17262" PostTypeId="2" ParentId="16987" CreationDate="2017-06-21T09:09:05.590" Score="0" Body="&lt;p&gt;okay meanwhile I got the answer to this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;the main idea behind LMP is to reduce the marginal cost of the WHOLE system.... therefore it is cheapier if you select those offers that way....&lt;/p&gt;&#xA;&#xA;&lt;p&gt;calculations:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;38 * 600 + 48 * 600 = 51600&lt;/p&gt;&#xA;&#xA;&lt;p&gt;if we would do it as I thought makes more sense:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;36 * 400 + 48 * 800 = 52800&lt;/p&gt;&#xA;&#xA;&lt;p&gt;as you can see even though the price seems to be more fair for node 1 now in total the costs increased from 51600 dollars to 52800 dollars&lt;/p&gt;&#xA;" OwnerUserId="13431" LastActivityDate="2017-06-21T09:09:05.590" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17264" PostTypeId="2" ParentId="17260" CreationDate="2017-06-21T09:24:34.283" Score="1" Body="&lt;p&gt;You may correlate between household debt and rising home price, but &lt;strong&gt;correlation does not denote causation&lt;/strong&gt;. In the scenario of property bubbles, Banks allow over-leverage with all sort of facilities will also trigger artificial demands for flipping.  When the housing bubble burst, the tide will change people may be in debt with a devalued house. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here are a few important factors affect the housing price. &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Employment rates and income level&lt;/li&gt;&#xA;&lt;li&gt;Utilities and facilities&lt;/li&gt;&#xA;&lt;li&gt;Government policies and speculation curbing effort&lt;/li&gt;&#xA;&lt;li&gt;Supplies and demands (locations, scarcity, market openness )&lt;/li&gt;&#xA;&lt;li&gt;Ease of loan facilities(low interests rate, relax loan criteria, low cost, etc) &lt;/li&gt;&#xA;&lt;li&gt;Inflation, i.e. expansion of government money printing machine&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;It is possible to define a clear CPI when you interconnect all the above factors, but the information is not free and clear. At the moment, there is no good way to produce a reliable housing price index. &lt;/p&gt;&#xA;" OwnerUserId="11177" LastEditorUserId="11177" LastEditDate="2019-11-06T09:06:34.747" LastActivityDate="2019-11-06T09:06:34.747" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="17265" PostTypeId="2" ParentId="17259" CreationDate="2017-06-21T10:08:27.633" Score="1" Body="&lt;p&gt;'Universal basic income' has largely been in the public dialogue, to counter the negative consequences of automation - or some other reasons for mass unemployment. In such a context, it is proposed as a &lt;strong&gt;last resort&lt;/strong&gt; if there is an extreme decline in Labour demand. It can however, be used as an alternative to basic unemployment benefits, or to simply combat poverty. I will try to address both.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Keynesian Economics, suggests that spending drives consumption of goods and services. This increase in consumption results in an increased requirement for labour, and thus an increase in employment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the answer really depends on the underlying factors, that have caused the implementation of a 'Universal Basic Income' and if it underpins &lt;strong&gt;drastic&lt;/strong&gt; changes in the economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we hypothetically assume that UBI is adopted because of automation, this simply means there is no requirement for mass labour. So any increase in spending, through Quantitative Easing or lowering or rates, will barely have any effect on labour demand. It will still be cheaper for a corporation to automate the job, and gradually depreciate the asset performing the automation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you think about it, UBI (in this context) basically implies keeping the economy stagnant - very low growth. Most people will get a standard level of income, and only the standard needs will be met. Since they do not have the opportunity to &quot;prove themselves&quot; and demand a higher salary - because of most jobs being automated. But business owners and start-ups will be the ones benefiting; they will get profits and Basic Income. Here, unless you have a great business idea you will not be able to indulge in excess.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the contrary, if UBI is adopted as a welfare program for the poor - basically no drastic changes in the economy. It would be very Keynesian in that, UBI would drive spending, which drives a growth in production, which drives the demand for labour. But the key here is the &quot;short-term&quot;. If the consumption, from UBI, is so large that the existing labour force cannot match demand, then employment will increase. But this underlines a few assumptions: there should be no development in technology to match demand, the UBI amount should be large enough to cause a massive requirement for an increase in supply, and the poor should have the skills required for production.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;The answer to this question depends on the assumptions you hold, and under what circumstances UBI is adopted. Based on the variation of these two factors, you will get a wide range of consequences thinking about UBI under Keynesian economics.&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="13707" LastActivityDate="2017-06-21T10:08:27.633" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17266" PostTypeId="1" CreationDate="2017-06-21T13:15:11.447" Score="0" ViewCount="145" Body="&lt;p&gt;I'm just trying to think through the implications of the theoretical scenario of disallowing the renting of housing.&#xA;My goal would be to reduce wealth inequality - as rent is generally a wealth transfer from the poor to the rich - but this would pull on so many threads in the economy that I wanted some other opinions.&#xA;So a builder or investor could own an apartment complex and sell the individual apartments, and the buyers could pay in installments that would be essentially the same as renting, from the perspective of the person living there, with the difference being that after 10 or 20 or 30 years the occupant would own the apartment and not owe anything but taxes and maintenance.&#xA;If someone knows that they are only going to stay someplace for a year or two then the buying/selling process would need to be much simpler and cheaper to avoid all of the transaction costs and paperwork.&#xA;How to distinguish apartments from hotels is another question.&lt;/p&gt;&#xA;" OwnerUserId="13709" LastEditorUserId="42" LastEditDate="2021-03-18T15:53:20.790" LastActivityDate="2021-04-23T23:20:35.040" Title="What would be the economic impact of disallowing the renting of housing?" Tags="&lt;nonexpert&gt;&lt;housing&gt;" AnswerCount="2" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17268" PostTypeId="1" CreationDate="2017-06-21T14:07:20.850" Score="2" ViewCount="84" Body="&lt;p&gt;I am always surprised why there are certain services or items which are on high demand, and do not have their prices increased to generate more profit. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As an example, tickets to the very popular EDM festival are always sold out in minutes, but the price each year increases little. Every year the tickets are at around 200-300€, so why not make them 400-500€, since they would still be most likely sold out in a matter of weeks or months, wouldn't they?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another example, I know a shoemaker who from time to time sells around 20-50 pairs of cordovan shoes, at a price of around 340€/pair. All the shoe stock is ordered (online sales) in around 1 day. Why wouldn't they increase the price by at least 10-20%, and then sell these same shoes over a week or so?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can see one possible explanation - that getting money immediately has more value, but it seems to me that in the overall a much bigger profit could be obtained if the price was simply increased.&lt;/p&gt;&#xA;" OwnerUserId="13712" LastEditorUserId="13712" LastEditDate="2017-06-21T21:42:31.297" LastActivityDate="2017-06-21T21:42:31.297" Title="Why the prices for very popular items do not increase?" Tags="&lt;supply-and-demand&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="17269" PostTypeId="2" ParentId="17268" CreationDate="2017-06-21T15:24:54.713" Score="2" Body="&lt;p&gt;Some online-shop does practice price discrimination. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, the seller must play the price game carefully to maximize their profits: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Lower price means lower profit per units but may increase revenue and increase overall profits&lt;/li&gt;&#xA;&lt;li&gt;Higher price is more profitable but hurt sales&lt;/li&gt;&#xA;&lt;li&gt;Shelter for the rainy day&lt;/li&gt;&#xA;&lt;li&gt;Competition&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;In addition, influence factors such as inflation, hot money also come in play.  For example, during economy bubbles, people don't mind paying extra $100. However, once the market shrink, you will face a huge retract of revenue. Worst still, the manufacturers need to served bank debt because they borrow money to expand the business. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Even items like EDM ticket may jack up the price(due to annual scarcity) , it may risk of losing patrons in bad time; too profitable, it will attract competitor enter the market. &lt;/p&gt;&#xA;" OwnerUserId="11177" LastEditorUserId="11177" LastEditDate="2017-06-21T15:36:38.157" LastActivityDate="2017-06-21T15:36:38.157" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17270" PostTypeId="1" AcceptedAnswerId="17289" CreationDate="2017-06-21T16:05:49.650" Score="0" ViewCount="127" Body="&lt;p&gt;Please Excuse my ignorance.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The US Federal Reserve has issued forward guidance telling the world that it is going to start to sell its (well a little less) 4.5 trillion dollars worth of securities that it purchased in 2008.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When the fed purchased bonds from the market this was considered open market operations. When the fed spent dollars to purchase securities it expanded the money supply. Correct?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So now that they are going to unload the securities.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When the fed sells bonds to the market this is also considered open market operations. This type of open market operation contracts the money supply as the fed will sell securities to the market and accept dollars for them. Correct?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As there is such a large amount of securities on their balance sheet, these open market operations are going to have global effects. What could some of the effects be? ( I realize they will do it slowly )&lt;/p&gt;&#xA;&#xA;&lt;p&gt;( Effect on Non-US real estate ( the bubbles around the world ))&#xA;( US Dollar value ( US Dollar Index ))&#xA;( China )&#xA;( Other Central Banks )&lt;/p&gt;&#xA;" OwnerUserId="13702" LastEditorUserId="13702" LastEditDate="2017-06-22T16:10:14.397" LastActivityDate="2017-06-23T12:34:30.990" Title="Forward Guidance - What happens when the FED unloads its balance sheet" Tags="&lt;money-supply&gt;&lt;central-banking&gt;&lt;money&gt;&lt;asset-pricing&gt;&lt;securities&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17271" PostTypeId="2" ParentId="17167" CreationDate="2017-06-21T16:33:03.593" Score="-1" Body="&lt;p&gt;I think you have answered your own question in the first line&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;we have the following imbalanced exchange rates&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Keyword here, imbalanced. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What you have written is mathematically impossible, one of your 3 exchange rates could never happen.&lt;/p&gt;&#xA;" OwnerUserId="13715" LastActivityDate="2017-06-21T16:33:03.593" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="17272" PostTypeId="1" CreationDate="2017-06-21T16:36:42.857" Score="2" ViewCount="44" Body="&lt;p&gt;Inspired by &lt;a href=&quot;https://devops.stackexchange.com/questions/1381/software-development-which-environment-is-it-manufacturing-or-projects&quot;&gt;this question&lt;/a&gt; on DevOps Stack Exchange,&#xA;here is a question to economists:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For long time being, software engineering and IT operations have been - and I guess they still are - considered to be &quot;services&quot;. I.e. the product is after all the time that I can trade and bill.&#xA;But, now we have many standard software components, and successful works like Kim Gene's &quot;The Phoenix Project&quot; align to industrial methodologies we know from manufacturing, and it seems like &quot;manufacturing-like&quot; teams become significantly competitive.&#xA;But then, billing hours is not really profitable if I am good, and not competitive if I am not so good.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, which type of work is done by computer specialists in software delivery and operations from economical point of view (manufacturing, service or something else)?&lt;/p&gt;&#xA;" OwnerUserId="13716" LastEditorUserId="2776" LastEditDate="2017-06-21T17:00:47.280" LastActivityDate="2017-06-21T17:00:47.280" Title="Which type of work is actually Software Development?" Tags="&lt;software&gt;" AnswerCount="0" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="17275" PostTypeId="2" ParentId="16081" CreationDate="2017-06-22T06:07:33.310" Score="1" Body="&lt;p&gt;Following up on the above answer, &lt;a href=&quot;http://www.irs.gov/uac/Filing-Season-Statistics&quot; rel=&quot;nofollow noreferrer&quot;&gt;filing season statistics&lt;/a&gt; from the IRS, show that less than the top 1% of earners have the ability to pay the country's personal income tax bill from their yearly earnings. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;When I asked the above question, I didn't know how the total amount of personal income tax owed by everyone would compare to sums earned by different groups.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, now, while the links above reveal that fewer than the top 1% could pay the nation's bill from their yearly earnings, there wouldn't be much left over. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A more relevant question is: what group could pay everyone's personal income tax from its yearly earnings and still be the highest earning group?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Using &lt;a href=&quot;http://www.irs.gov/uac/Filing-Season-Statistics&quot; rel=&quot;nofollow noreferrer&quot;&gt; the same filing season statistics&lt;/a&gt;, the data shows that for the past 7 years, the percentage of top earners with the latter ability varies from about the top 5.6% of earners in 2015 to the top 1.4% of earners in 2012.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To illustrate how these values are calculated, below is the November 2013 data containing income tax return information for income earned in 2012 primarily.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;An few important points are that this information is for tax returns which can be for a single earner or two earners. Also, dollar amounts are in thousands as the table heading shows. Finally, to conserve space, I abbreviated Adjusted Gross Income as AGI and had to do some other editing.  &lt;/p&gt;&#xA;&#xA;&lt;pre&gt;   &#xA;Cumulative 2013 Filing Season Information for Tax Returns Processed by the IRS Through November 21, 2013                &#xA;[Money amounts are in thousands of dollars]&#xA;&#xA;Size of AGI        # of returns     AGI             Income Tax  &#xA;Total              145,091,418      8,975,566,289   1,177,421,480   &#xA;&#xA;No AGI             2,586,825        (191,371,268)   1,001,326   &#xA;$1 under $5,000    10,642,587       27,494,791      72,522  &#xA;$5,000 - $9,999    12,097,923       91,880,435      427,515     &#xA;$10,000 - $14,999  12,440,450       155,570,995     1,804,904    &#xA;$15,000 - $19,999  11,541,160       200,981,089     3,870,826    &#xA;$20,000 - $24,999  10,027,087       225,038,715     6,498,966    &#xA;$25,000 - $29,999  8,708,609        239,020,621     9,203,542    &#xA;$30,000 - $39,000  14,278,866       496,331,842     25,224,694   &#xA;$40,000 - $49,999  10,878,331       487,141,721     31,016,143   &#xA;$50,000 - $74,999  19,045,531       1,171,648,022   95,431,989   &#xA;$75,000 - $99,999  12,094,113       1,046,369,468   99,386,182   &#xA;$100,000-$199,999  15,520,684       2,082,100,613   264,731,862     &#xA;$200,000-$249,999  1,827,917        405,798,871     68,143,041  &#xA;$250,000-$499,999  2,324,671        776,719,823     162,994,753     &#xA;$500,000-$999,999  693,078          469,167,322     12,665,726  &#xA;$1M under $1.5M    166,602          201,290,220     49,419,094   &#xA;$1.5M under $2M    70,348           121,099,557     29,792,330     &#xA;$2M under $5M      104,278          310,524,159     75,659,345   &#xA;$5M under $10M     25,840           177,029,891     41,433,068   &#xA;$10M or more       16,518           481,729,403     98,643,651  &#xA;&#xA;NOTE:  Table presents information from the population of all Forms 1040 processed by the IRS on or before week 47 of the calendar year. Returns filed primarily reflect income earned in 2012. &#xA;For more information on this data series, see http://www.irs.gov/uac/Filing-Season-Statistics.          &#xA;Source:  Statistics of Income, IRS.             &#xA;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;The total amount of personal income tax due in 2012 was about 1.2 trillion dollars. The total Adjusted Gross Income for tax returns with an AGI of 500,000 or more for the year was about 1.8 trillion dollars. Subtracting 1.2 trillion from 1.8 trillion is 0.6 trillion or 600 billion dollars.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The total number of returns with AGI greater than 500,000 was about 1.1 million. Dividing 600 billion by 1.1 million gives roughly 545,000 dollars per return, which is more than any other group's AGI.*&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The latter group of returns is 0.7% of the total number of returns and because returns can be joint, I suggested that the number of earners could be double that amount or 1.4%.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;*To refine the definition of the group for 2012, it seems the next step would be estimating how the 693,078 returns with an AGI between 500,000 and 999,999 dollars for the year are distributed within that range.  Then, based on that distribution, returns making up the high-earning group could be redefined by raising the lower boundary for the group to perhaps 600,000.  The latter steps need to be made to avoid assigning the group average (545,000 presently) to returns with an AGI less than the group average (between 500,000 and 544,999 dollars in the current scenario). &lt;/p&gt;&#xA;" OwnerUserId="12739" LastEditorUserId="12739" LastEditDate="2017-06-22T06:13:21.893" LastActivityDate="2017-06-22T06:13:21.893" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17277" PostTypeId="2" ParentId="17256" CreationDate="2017-06-22T07:25:16.120" Score="1" Body="&lt;p&gt;You &lt;em&gt;are&lt;/em&gt; mistaken. Economics doesn't actually concern itself with measurable quantities, but rather with the behavioral functions that give rise to measurable quantities (such as price, investment, &lt;em&gt;etc&lt;/em&gt;). The most obvious example of this is the utility function, as they are unique up to scale – meaning that there are several (actually infinitely many) which nonetheless do the same thing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider the prisoner's dilemma, for instance: we might introduce for each player a scale factor which multiplies his whole payoff matrix. But no matter how we change those payoffs, so long as the structure of those matrices is preserved so will be the behavior of the prisoners. So nothing really changes. But that is fine, because what we're not interested in modelling is the value of the choices to each player, but &lt;em&gt;how the players choose&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So it isn't necessary to introduce any concept of the measurable economic value of anything so long as we might say that it is preferable to something else. Which is to say that we might model the behavior of any agent without introducing a cardinal measure: we can do fine if his choices are merely &lt;em&gt;ordered&lt;/em&gt; (this is the idea behind &lt;a href=&quot;https://en.wikipedia.org/wiki/Revealed_preference&quot; rel=&quot;nofollow noreferrer&quot;&gt;Revealed Preference&lt;/a&gt;, which was initially formulated by Paul Samuelson as an alternative to utility functions, but which was later on found to be equivalent to them).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But to answer what's bugging your mind: there isn't practically anything even mildly relevant to human life which economists won't deal with. Because in so far as people's choices are observable, they can be treated by an economic model. For instance, there's a chapter in the &lt;em&gt;Handbook on the Economics of Leisure&lt;/em&gt; which is called &lt;em&gt;The Economics of Sleep and Boredom&lt;/em&gt;. I've also seen a paper once on the economics of suicide (there's actually a small literature on this). Another example – though less odd and more important – is Becker's theory of crime, which takes crime out of the domain of other social sciences (which might explain it in terms of &lt;em&gt;marginalization&lt;/em&gt;, poor education, &lt;em&gt;etc&lt;/em&gt;) and into the domain of expected utility and choice theory (i.e. what are the odds the guy think he has of getting away given the circumstances).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Contrary to popular opinion, dealing with money and crunching numbers is often the least important and most boring part of an economist's job. Most often economists are concerned with figuring out why people would do what they do.&lt;/p&gt;&#xA;" OwnerUserId="5741" LastActivityDate="2017-06-22T07:25:16.120" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17278" PostTypeId="1" CreationDate="2017-06-22T09:41:30.230" Score="0" ViewCount="22" Body="&lt;p&gt;In «The Federal Reserve's Large-scale Asset Purchase Programmes: Rationale and Effects» 2012 paper, there's the following sentence:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;According  to  the  pure  expectations theory of the term structure,&#xA;  targeting three separate interest rates should succeed if and only if&#xA;  the private sector's expectations of the path of the short rate are&#xA;  aligned in a way that precisely   generates   the   targeted&lt;br&gt;&#xA;  configuration   of   rates. In this environment,  for  a  given &#xA;  expected  path  for  the  short-term  rate,  direct  intervention in &#xA;  longer  maturity  Treasury  markets  could  not  contribute  to &#xA;  achieving  the  peg.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Why is it that intervening in the long-term market would not help achieve the peg? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="1601" LastEditDate="2017-06-22T15:51:35.470" LastActivityDate="2017-06-22T21:39:36.500" Title="Inability of a long-term bond market intervention to contribute to achieving a peg" Tags="&lt;financial-economics&gt;&lt;bonds&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17279" PostTypeId="1" CreationDate="2017-06-22T09:43:53.380" Score="1" ViewCount="49" Body="&lt;p&gt;Finland is currently trialling UBI at a rate of €560 (£473) per month. I'm looking for some contextualization of this figure.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Is this figure supposed to cover housing costs, or are they paid from a separate benefit for those who can't afford them? If not, what's the least one might pay for housing in Finland?&lt;/li&gt;&#xA;&lt;li&gt;How much does a week of food cost in Finland?&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="13720" LastActivityDate="2017-06-22T09:43:53.380" Title="Finland's Universal Basic Income Test - how much in local terms?" Tags="&lt;data-request&gt;&lt;welfare-economics&gt;" AnswerCount="0" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17280" PostTypeId="2" ParentId="17278" CreationDate="2017-06-22T10:39:27.707" Score="1" Body="&lt;p&gt;The issue isn't so much that intervening in the long-term market wouldn't help, but rather that under rational expectations all the return rates on government bonds are determined by the same process, and thus have to be consistent with each other and converge to the same rates. What &lt;em&gt;D'Amico et al.&lt;/em&gt; seem to be suggesting is that the Federal Reserve tried to enforce mutually inconsistent rates on bonds with different maturities, such that there was a sequence of operations on bonds with short-term maturities (what I think they're calling &lt;em&gt;&quot;an expected path for the short-term rate&quot;&lt;/em&gt;) which would yield a return either above or below that of bonds with different maturities.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What it seems that they're really saying is that, under rational expectations, the FED would have had really just one policy instrument: the interest rate at any time. Bonds with different maturities just had to conform to that rate. But in practice, the FED tried to enforce a set of different rates, one each for each kind of maturity, which the authors think it's doable because the variance of bond prices is lower than what would be expected under rational expectations (hence the &lt;em&gt;&quot;the slightest fluctuation in expectations of the short-rate path would immediately imperil the peg&quot;&lt;/em&gt; bit).&lt;/p&gt;&#xA;" OwnerUserId="5741" LastActivityDate="2017-06-22T10:39:27.707" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="17281" PostTypeId="2" ParentId="17256" CreationDate="2017-06-22T11:29:28.647" Score="0" Body="&lt;p&gt;Currently, the practice of economics is similar to weather broadcast: there is many technical limitations that you must overcome and choose the best tradeoff. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is possible to put intangible value into any economic model, but it is technically impossible at the moment to simulate the time, spatial and subject changes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;IMHO, your idea of &quot;economics values&quot; is rather flawed. Economics itself is about human activities on trade. The term &quot;values&quot; is heavily diluted by the popular media and popularism association with monetary activities.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Take Charles Dickens's &quot;A Christmas Carol&quot; as an example, the books change modern Europe/US society values about Christmas and associate it with altruism (and also Turkey). Those are &quot;trades&quot; that is impossible to measures.&lt;/p&gt;&#xA;" OwnerUserId="11177" LastActivityDate="2017-06-22T11:29:28.647" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17282" PostTypeId="1" CreationDate="2017-06-22T12:23:49.077" Score="0" ViewCount="42" Body="&lt;p&gt;I would like to know what exactly makes matching markets different from regular markets. If you could illustrate with examples to help me understand better, that would be nice. Thanks in advance.&lt;/p&gt;&#xA;" OwnerUserId="5591" LastActivityDate="2017-07-22T21:42:17.767" Title="What are the general charateristics of matching markets that make then different from regular markets?" Tags="&lt;search-and-matching&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17283" PostTypeId="2" ParentId="17282" CreationDate="2017-06-22T15:05:07.477" Score="1" Body="&lt;p&gt;The deviance from a &quot;normal&quot; market boils down to how that market clears. Matching markets are markets in which prices alone don't clear the market, as thought in mainstream economic theory, and so the market is clear using the help of other institutions. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Take it from Alvin Roth's informative &lt;a href=&quot;http://www.econtalk.org/archives/2015/07/alvin_roth_on_m.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;EconTalk&lt;/a&gt; interview: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;&quot;...labor markets are like these--they are among the markets that I've studied. And in labor markets, as in other matching markets, &lt;strong&gt;you can't just choose what you want. You also have to be chosen&lt;/strong&gt;. So, labor markets have all these other institutions about applications and interviews and offers and acceptances. And sometimes those are used for competitive purposes in various ways. So, for example, right now if you knew someone who was just graduating this month from a prestigious law school and was going to take his first job as a clerk for an appellate judge, there's a good chance he would have gotten that job two years ago, when he was a beginning second-year law student. And he would have gotten that job with an exploding offer--which meant that he had to say yes or no when the offer came, before he could find out what other offers might be coming...And so that's a market that doesn't work the way we normally think a well-functioning market should work, where you can consider lots of alternatives. But it's one of the ways that judges compete with each other. And that's a market where the judges can't compete on price because Congress sets the wage for clerks. But it turns out that other markets work that way, too. When private equity firms are trying to hire young investment bankers, they do the very same thing. When law firms which pay salaries very freely, try to hire new associates, they do the same thing--often with competition through summer associateships while people are in law school. So that new lawyers in general will often, as they go to their jobs after finishing three years of law school, have been committed to those jobs for years.&quot;&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In some other instances, consider trying to work for Stackexchange, where you can't just choose to work here: you have to be hired. Also this company doesn't actually try to lower it's price in order to clear the market like with commodities, but it will set a wage wide enough to be attractive to many people, in which it gets the opportunity to choose whomever it believes to be the best fit for their company. Or if we want to reverse the situation where you're a well sought after worker (perhaps a sports player, or a consultant) firms will express their strong interest in hiring you, but you can't just be hired because you have the opportunity to pick which of the employers you want to work for. I hope this helps.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Oh, and Consider Roth's &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0544291131&quot; rel=&quot;nofollow noreferrer&quot;&gt;book&lt;/a&gt; on the subject matter. Cheers.&lt;/p&gt;&#xA;" OwnerUserId="5271" LastActivityDate="2017-06-22T15:05:07.477" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17284" PostTypeId="2" ParentId="17278" CreationDate="2017-06-22T15:49:32.707" Score="1" Body="&lt;p&gt;The argument is that under rate expectations, all bonds should have the same return over different horizons. The implication is that bond yields will equal (roughly) the geometric average of the short rate (adjusting for various yield conventions).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If they try to peg a particular bond issue at a yield that is inconsistent with the path of short rates, that is assumed to be impossible. The mechanism why this would hold is straightforward.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;If the pegged yield is too low, the issue would have a negative expected return versus cash (short-term instruments). The private sector would sell all of that bond to the central bank. The Fed would end up owning the entire amount outstanding of that issue (which makes its &quot;market price&quot; a philosophical question). This might be referred to as a run on the bond yield peg.&lt;/li&gt;&#xA;&lt;li&gt;If the pegged yield was too high relative to expectations, bond market participants would keep buying the issue until the central bank has no more to sell. It would then lose its ability to influence the market price lower (assuming the central bank does not want to get involved in short-selling).&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;In practice, the uncertainty around rate expectations by investors prevented such extreme outcome during the period when the Federal Reserve bond yield peg was credible. (Since no one is completely sure about the expected path of short rates, investors will not dump their entire bond portfolio, or proceed to buy up all of the central bank's holdings.) However, once the commitment to keep short rates low was questioned by the Fed, the peg was abandoned before such a &quot;run&quot; started.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastEditorUserId="12891" LastEditDate="2017-06-22T21:39:36.500" LastActivityDate="2017-06-22T21:39:36.500" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="17285" PostTypeId="2" ParentId="11595" CreationDate="2017-06-22T16:10:29.543" Score="1" Body="&lt;p&gt;I'm assuming you know how to do spatial weights matrices and such, so I will just skip that and throw out a disclaimer that I use R as my primary statistical programming language, not STATA, so let's first observe a generic spatial model:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;spatreg $ylist $xlist, weights(W) eigenvalues(E) model(lag)&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;The &lt;code&gt;lag&lt;/code&gt; in that function can be replaced with an &lt;code&gt;error&lt;/code&gt; option if you want the SEM. To do a spatial durbin model (SDM) in R I find that using &lt;code&gt;mixed&lt;/code&gt; or a &lt;code&gt;durbin&lt;/code&gt; option does the job. Try and see if that works in place of &lt;code&gt;lag&lt;/code&gt; in &lt;code&gt;model()&lt;/code&gt;, for future reference. Sometimes the option is there but not many people use it because they don't usually care about estimating the model.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Next, try out the &lt;code&gt;spmlreg&lt;/code&gt; function which appears to have the spatial durbin option:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;spmlreg $ylist $xlist, weights(W) wfrom(Stata) eigenvar(E) model(durbin)&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;For a better understanding of the function, check out P. Wilner Jeanty's &lt;a href=&quot;http://fmwww.bc.edu/repec/bocode/s/spmlreg.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;documentation&lt;/a&gt; of &lt;code&gt;spmlreg&lt;/code&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Maybe both of them work fine, and that'd be cool. The more options the better. &lt;/p&gt;&#xA;" OwnerUserId="5271" LastActivityDate="2017-06-22T16:10:29.543" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17286" PostTypeId="1" AcceptedAnswerId="17293" CreationDate="2017-06-22T22:37:28.523" Score="2" ViewCount="180" Body="&lt;p&gt;Both USA and Europe have highly developed economies with famous car, aircraft, food, oil etc. companies.&#xA;However, when it comes to IT - &lt;/p&gt;&#xA;&#xA;&lt;p&gt;USA has Google, Facebook, Amazon, Dell, Cisco, Microsoft, Red Hat, HP, Apple etc.&#xA;Europe has... nothing? (Nokia is dead)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why? &lt;/p&gt;&#xA;" OwnerUserId="13337" LastActivityDate="2017-06-26T07:35:09.367" Title="Why there are no famous software/IT companies in Europe? (unlike USA)" Tags="&lt;usa&gt;&lt;software&gt;&lt;eu&gt;" AnswerCount="2" CommentCount="10" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17287" PostTypeId="2" ParentId="17167" CreationDate="2017-06-22T22:57:54.233" Score="2" Body="&lt;p&gt;If the starting balances were&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;A = 1USD&#xA;B = 1.2EUR&#xA;C = 1000JPY&#xA;D = 1.5USD&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;then the ending balances are&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;A = 1.5USD&#xA;B = 1USD&#xA;C = 1.2EUR&#xA;D = 1000JPY&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;so the simple answer to where the 0.5USD came from is D.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A more complicated answer would be some combination of B, C and D depending on how the exchange rates rebalanced to iron out this arbitrage opportunity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example if 1000JPY dropped back to 1USD, then D could do some exchanges with B and C leaving them where they started and D with 1USD, i.e. D lost the 0.5USD&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But if the EUR/JPY changed so that 1.8EUR = 1000JPY, then C ends up with -0.5USD, if you do exchanges to restore the JPY and EUR to where they started.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If USD/EUR changed so that 1.5USD = 1.2EUR, B ends up with -0.5USD.&lt;/p&gt;&#xA;" OwnerUserId="58" LastActivityDate="2017-06-22T22:57:54.233" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17288" PostTypeId="2" ParentId="17167" CreationDate="2017-06-23T10:16:15.180" Score="0" Body="&lt;p&gt;Let us assume that there are only these four individuals, and that the original currency they had is all the asset available. Then, B can sell its USD to buy EUR to C, who can then sell its USD to D to buy JPY. This means that B and C end up as before, except for A and D who swapped their currencies. &lt;strong&gt;Because your example &lt;em&gt;only&lt;/em&gt; allows A to benefit from the arbitrage, and D also had USD, necessarily A has benefited at expenses of D&lt;/strong&gt;. Notice that in this process, no money was created. Total assets in the group after transactions are 2.5 USD, 1.2 EUR, and 1000 JPY, as initially. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is evident that if you allow everyone to arbitrage, or allow for further rounds of arbitrage, the exchange rates are unsustainable; the demand for USD would be infinity. &lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-06-23T10:16:15.180" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17289" PostTypeId="2" ParentId="17270" CreationDate="2017-06-23T12:34:30.990" Score="0" Body="&lt;p&gt;The direct effect of changes in the money supply on the economy (and other variables) is not clear. The Fed purchases of assets created excess reserves in the banking system (which the banks cannot offset by themselves). The presence of excess reserves does not greatly affect the ability of banks to lend. Hence, there is limited evidence of direct effects on the real economy. (I am unaware of any such studies, but that does not mean that they do not exist.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The usual argument is that the effect of the large scale asset purchase program was that it reduced bond and mortgage yields. This note by Bonis, Ihrig, and Wei &lt;a href=&quot;https://www.federalreserve.gov/econres/notes/feds-notes/effect-of-the-federal-reserves-securities-holdings-on-longer-term-interest-rates-20170420.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;(link to note)&lt;/a&gt; gives a recent estimate of its effect. The effectiveness of the program to lower bond yields is questioned. (As a disclaimer, I see little evidence that bond yields are measurably lower as a result of the asset purchases.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we grant that the large scale asset purchases lowered bond (and mortgage) yields, the effects on the economy are indirect. The precise impact of lower bond yields on the economy is uncertain (it depends upon which econometric studies on the effects of bond yields on economic activity you believe). Presumably, the effect of a gradual unwind of the Fed's purchases would reverse those effects.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Returning to your question, the linkages to the areas you ask about (the value of the U.S. dollar, bubbles, etc.) would be even more controversial. For example, in my opinion, the Canadian real estate bubble was entirely driven by Canadian policy changes; it is very hard to see how the size of the Fed's balance sheet had a measurable effect. I am certainly unaware of any studies finding such a linkage, and there is no reliable rule for relating changes to American bond yields to Canadian bond yields (and mortgage rates). (If such a rule existed, it would imply that it was easy to make money on cross-currency spread trades.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Obviously, very rapid sales of securities by the Federal Reserve would be disruptive for the bond market, which presumably would cause contagion in other financial asset markets.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2017-06-23T12:34:30.990" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="17290" PostTypeId="2" ParentId="17286" CreationDate="2017-06-23T13:18:20.613" Score="2" Body="&lt;p&gt;In Europe there is typical more regulations and more and higher taxes on profits, financial transactions, and on products and services. This means there is less incentive for entrepreneurs to create their businesses since they face for example higher yields and higher interest rate coupons, environmental regulations, state bureaucracy which increases the cost and decreases the incentive (profit). Since most of innovative companies are generally start-ups such as Facebook was, there is higher cost of funding once these companies are considered riskier. In Europe that cost is further increased by the tax system for example.   There are also other factors such as education quality that differs. Europeans generally regards the US universities to be more prestigious and this is a decisive factor that makes lots of Europeans, typically the brightest to migrate to the US for further studies and higher wages since Americans can afford to pay more since there is less state interventionism.&#xA;I hope I gave you some ideas of what might be going on. In economics there is no definitive answer so keep on investigating and asking other people. Sorry for the lack of data. &lt;/p&gt;&#xA;" OwnerUserId="13728" LastActivityDate="2017-06-23T13:18:20.613" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17293" PostTypeId="2" ParentId="17286" CreationDate="2017-06-23T14:55:27.093" Score="0" Body="&lt;p&gt;The question should rephrase to &quot;Why Europe IT companies are not as prominent as USA IT companies&quot;? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Do you think Bosch is a IT company(when they supply software to VW)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;European capital model and ways of doing business is the opposite of US neo-liberalism models.  If you don't believe, you can compare Europe public own company capital with privately own company capital.  Even things like loan facilities, Germany private owns &lt;a href=&quot;https://de.wikipedia.org/wiki/Genossenschaftsbank&quot; rel=&quot;nofollow noreferrer&quot;&gt;credit union/cooperative bank&lt;/a&gt;(more than 1000) total asset is around 818 billion EUR (2015). Loan facilities from these &quot;small banks&quot; are mostly base on prudent loan criteria and credit records. So Europe society and the government basically favor prudent and organic growth. &#xA;However, this also means very conservative expansion. This explains why Northen Europe are less speculative. (with many historical lessons learned) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In addition, European private business owner also concerned about &quot;meeting profits target&quot;, handle control over a board with huge shares. In addition, the profits target concerned also raise issues of &quot;scorch and run&quot; common practice in USA PLTD company, i.e. using mass layoff to boost profits per shares, which against the Europe societies values(with exception of UK, which scorch their industries under Thatcherism). &lt;/p&gt;&#xA;" OwnerUserId="11177" LastEditorUserId="11177" LastEditDate="2017-06-26T07:35:09.367" LastActivityDate="2017-06-26T07:35:09.367" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="17295" PostTypeId="1" CreationDate="2017-06-23T17:46:07.247" Score="-1" ViewCount="867" Body="&lt;p&gt;Where can I find an excel sheet with total return (that is, with dividend reinvestment) of the S&amp;amp;P 500?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have only found an online &quot;calculator&quot; (not an excel sheet), or an excel sheet with prices only (not adjusted for dividends).&lt;/p&gt;&#xA;" OwnerUserId="11146" LastActivityDate="2020-12-05T01:30:28.767" Title="S&amp;P 500 total return excel sheet" Tags="&lt;data-request&gt;&lt;stock-market&gt;&lt;financial-markets&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17296" PostTypeId="2" ParentId="17167" CreationDate="2017-06-23T20:57:32.350" Score="0" Body="&lt;p&gt;I believe D loses in the exchange because USD in this are more valuable when directly exchanged for USD as opposed to EUR. And, the values between all others hold consistent, so it depends which direction USD and JPY are being exchanged in. As an example, If the person was to exchange 1.5 USD for 1000 JPY, then change 1000 JPY for 1.2 EUR and then 1.2 EUR for 1 USD then he would have a net loss of .5 USD.  So, that one inbalance can cause a net loss or profit dependent upon which way it is traded.&lt;/p&gt;&#xA;" OwnerUserId="13735" LastActivityDate="2017-06-23T20:57:32.350" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17298" PostTypeId="1" AcceptedAnswerId="17307" CreationDate="2017-06-23T22:35:14.613" Score="9" ViewCount="3915" Body="&lt;p&gt;In a comments on a &lt;a href=&quot;https://money.stackexchange.com/questions/81126/why-should-we-expect-stocks-to-go-up-in-the-long-term&quot;&gt;question on money.SE&lt;/a&gt;, the following dialog took place:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Eventually there will not be enough matter to represent all the money, so we know for certain that the answer is &quot;No&quot; for a long enough term. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;--yters&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;What do you mean by &quot;represent?&quot; Do you mean that we won't be able to build computer chips that can store a digital representation of someone's stock income? Do you mean that we will no longer be able to cash out our stock portfolio into a fixed commodity like gold, at a fixed dollar price? The former seems wrong to me, and the latter irrelevant.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;-- BenCrowell&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;@BenCrowell: the stock market is not abstract, it depends on investors expectations on the real economy. Its obvious that the economy cannot grow forever, as the planet (and its resources) are finite.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;-- Martin Argerami&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm not convinced by the argument that Martin Argerami claims is obvious. It seems to me to rest on a false assumption that value is measured by resources, e.g., that a dollar's &quot;true&quot; value is measured by how many milligrams of gold it can buy. But I'm not an economist. Would anyone like to take a shot at explaining who is right?&lt;/p&gt;&#xA;" OwnerUserId="13736" LastActivityDate="2021-04-30T13:13:10.140" Title="Can the stock market show indefinite exponential growth?" Tags="&lt;stock-market&gt;&lt;value&gt;&lt;resource-economics&gt;" AnswerCount="3" CommentCount="1" FavoriteCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="17299" PostTypeId="2" ParentId="17298" CreationDate="2017-06-24T01:21:00.913" Score="1" Body="&lt;p&gt;It depends on what time scales you are talking about, but no.&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;&amp;quot;The greatest shortcoming of the human race is our inability to understand the exponential function.&amp;quot;&lt;/p&gt;&#xA;&lt;p&gt;-Albert Allen Bartlett, emeritus professor of physics at the University of Colorado at Boulder, USA.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.youtube.com/watch?v=sI1C9DyIi_8&quot; rel=&quot;nofollow noreferrer&quot; title=&quot;Arithmetic, Population and Energy&quot;&gt;Arithmetic, Population and Energy (Youtube)&lt;/a&gt;&lt;/p&gt;&#xA;&lt;p&gt;You can watch the talk that goes over the math, but the conclusion inescapable: Exponential growth -- consistent growth over time -- cannot proceed indefinitely within a finite system. Ie: planet Earth or the universe.&lt;/p&gt;&#xA;&lt;p&gt;Even if you (correctly) believe that value doesn't come from gold, you have to agree that it comes from &lt;em&gt;somewhere&lt;/em&gt;. Eventually, that somewhere/something will run out. Even if you believe that the economy will be digital, and we go green, and come up with sustainable growth of computers and the digital economy, eventually just their waste heat will cook the planet. Forget co2!&lt;/p&gt;&#xA;&lt;p&gt;&lt;strong&gt;EDIT:&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Do you mean that we won't be able to build computer chips that can&#xA;store a digital representation of someone's stock income? This&#xA;seems wrong to me.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Yes! That is &lt;em&gt;exactly&lt;/em&gt; what it means. It means that if you somehow managed to store the value of a digit in one planck length^2 (note this is MANY, MANY,  MANY, orders of magnitude beyond what is theoretically possible, even in theory) eventually, the representation of the value will fill up the ENTIRE universe. Then on the next doubling, you would need &lt;em&gt;&lt;strong&gt;TWO&lt;/strong&gt;&lt;/em&gt; universes to just to contain the representation of the value of the stock market. Then four universes...&lt;/p&gt;&#xA;&lt;p&gt;The reason this seems wrong to you is because one of the greatest shortcomings of the human race is our inability to understand the exponential function.&lt;/p&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;Even if you can't wrap your head around that:&lt;/p&gt;&#xA;&lt;p&gt;One day the sun will burn out. One day, the last star will burn out. One day, the universe be totally cold and dark. On that day, even electrons will be too cold to spin around their atom. On that day, all physical processes stop. Yes, that does include the stock market.&lt;/p&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;On that depressing note, I leave you with the parable of the Indian king and his grain.&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;There's a famous legend about the origin of chess that goes like this. When the inventor of the game showed it to the emperor of India, the emperor was so impressed by the new game, that he said to the man&lt;/p&gt;&#xA;&lt;p&gt;&amp;quot;Name your reward!&amp;quot;&lt;/p&gt;&#xA;&lt;p&gt;The man responded, &amp;quot;Oh emperor, my wishes are simple. I only wish for this. Give me one grain of rice for the first square of the chessboard, two grains for the next square, four for the next, eight for the next and so on for all 64 squares, with each square having double the number of grains as the square before.&amp;quot;&lt;/p&gt;&#xA;&lt;p&gt;The emperor agreed, amazed that the man had asked for such a small reward - or so he thought. After a week, his treasurer came back and informed him that the reward would add up to an astronomical sum, far greater than all the rice that could conceivably be produced in many many centuries!&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;On the entire chessboard there would be 2^64 − 1 = 18,446,744,073,709,551,615 grains of wheat, weighing about 1,199,000,000,000 metric tons. This is about 1,645 times the global production of wheat in 2014 (729,000,000 metric tons).&lt;/p&gt;&#xA;" OwnerUserId="7252" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2017-06-27T21:19:42.100" CommentCount="16" ContentLicense="CC BY-SA 3.0" />
  <row Id="17301" PostTypeId="1" AcceptedAnswerId="17312" CreationDate="2017-06-24T05:55:09.197" Score="2" ViewCount="126" Body="&lt;p&gt;&lt;sub&gt;Source: &lt;em&gt;The European Union: A Beginner's Guide&lt;/em&gt; (1 ed. 2012) by Alasdair Blair.&lt;/sub&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;[p 139:]  Gender has traditionally played a key role in the pricing of insurance policies.&lt;br&gt;&#xA;    In 2004 an EU Directive prohibited all discrimination based on &#xA;  sex in the access to a supply of goods or services. In principle the &#xA;  Directive therefore prohibited the use of gender as a method of &#xA;  determining insurance premiums and benefits with regard to contracts that were entered into after 21 December 2007. However, &#xA;  the Directive also stated differential pricing could be maintained &#xA;  where statistical evidence supported such an approach. Insurance &#xA;  companies regarded this as crucial because as women drivers are &#xA;  statistically proven to have fewer accidents than male drivers, premiums for female insurance policies have generally been lower. In &#xA;  a similar way, because women live longer, men have traditionally &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;[p 140:]&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;received a higher rate from their pension annuities because their &#xA;  life expectancy is lower and as such their pension savings are able &#xA;  [1.] to produce  &lt;code&gt;more income&lt;/code&gt; over a shorter time [End of 1.].&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;What have I misunderstood about 1? If male pensioners die earlier,  then their pensions would be shorter, and the principal would generate less interest and fewer payments. So why &lt;code&gt;more income&lt;/code&gt;? &lt;/p&gt;&#xA;" OwnerUserId="4020" LastActivityDate="2017-06-26T06:59:31.367" Title="Why would males' shorter pension's savings produce more, and not less, income?" Tags="&lt;investment&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17303" PostTypeId="2" ParentId="17301" CreationDate="2017-06-24T10:57:02.873" Score="1" Body="&lt;p&gt;By more income here is meant a higher annual income for a pensioner from an annuity purchased at a given cost.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose an annuity will provide the purchaser with a stream of $X$ per year until death. In deciding how much to charge for such an annuity, a company will want to consider the stream of liabilities it is committing itself to. If a male pensioner has a life expectancy of $m$ years, and a female pensioner a life expectancy of $f$ years with $f &amp;gt; m$, then the respective expected commitments, as a first approximation, are $mX$ and $fX$, with $fX &amp;gt; mX$.  Obviously there are a whole lot of other factors the company will consider, eg inflation, interest rates, age of pensioner on date of purchase, variance of life expectancy.  But broadly, the company will want to charge a male pensioner less because its expected liabilities will be less. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose that for the above annuity the company would charge the male $M$ and the female $F$, with $F &amp;lt; M$.  Now look at this from the standpoint of a pensioner who has savings of $S$ with which to purchase an annuity. The male can obtain an annual income of $SX/M$, while the female can obtain $SX/F$.  Since $M&amp;lt;F$, the male will have a higher annual income.&lt;/p&gt;&#xA;" OwnerUserId="1417" LastActivityDate="2017-06-24T10:57:02.873" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17304" PostTypeId="2" ParentId="17295" CreationDate="2017-06-24T14:52:31.720" Score="1" Body="&lt;p&gt;The Adj Close column of &lt;a href=&quot;https://finance.yahoo.com/quote/%5EGSPC/history?p=%5EGSPC&quot; rel=&quot;nofollow noreferrer&quot;&gt;Yahoo Finance's historical data section&lt;/a&gt; might be what you're looking for. It has the closing price adjusted for both dividends and splits, which could be used to calculate total return between any two dates. Just click Download Data to get it in an Excel readable format.&lt;/p&gt;&#xA;" OwnerUserId="13740" LastActivityDate="2017-06-24T14:52:31.720" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17305" PostTypeId="2" ParentId="17157" CreationDate="2017-06-24T18:10:43.573" Score="1" Body="&lt;p&gt;One of the discussions in financial forecasting is whether econometric methods or machine learning methods give more sound results. Have a look at &lt;a href=&quot;https://www.researchgate.net/publication/303522905_Bridging_the_Divide_in_Financial_Market_Forecasting_Machine_Learners_vs_Financial_Economists&quot; rel=&quot;nofollow noreferrer&quot;&gt;this paper&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="7726" LastEditorUserId="2776" LastEditDate="2017-06-29T09:16:47.650" LastActivityDate="2017-06-29T09:16:47.650" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17306" PostTypeId="2" ParentId="15896" CreationDate="2017-06-24T18:41:44.140" Score="-1" Body="&lt;p&gt;This is/was a huge topic in macro and labor. Traditionally, macroeconomists calibrate models that require huge labor supply elasticities to match the data. Then labor economists estimate labor supply elasticities from micro data and find very very low elasticities. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Imo the labor estimates are more trustworthy than the macro calibrations. &#xA;Check out &lt;a href=&quot;http://www.rajchetty.com/chettyfiles/micro_macro_aerpp.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.rajchetty.com/chettyfiles/micro_macro_aerpp.pdf&lt;/a&gt; for a summary of the issue and citations to the further literature.&lt;/p&gt;&#xA;" OwnerUserId="11216" LastActivityDate="2017-06-24T18:41:44.140" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="17307" PostTypeId="2" ParentId="17298" CreationDate="2017-06-25T06:23:09.437" Score="20" Body="&lt;p&gt;May I rephrase your question into the broader question &lt;strong&gt;&quot;Can economic growth continue indefinitely?&quot;&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(In response to objections that eventually the sun will burn out or the universe will suffer heat death, I take &lt;strong&gt;indefinite&lt;/strong&gt; to mean &quot;lasting for an unknown or unstated length of time&quot; (&lt;a href=&quot;https://en.oxforddictionaries.com/definition/indefinite&quot; rel=&quot;noreferrer&quot;&gt;OED&lt;/a&gt;). So I am thinking of 100s, 1000s, or even 10000s of years ahead. But I am &lt;strong&gt;not&lt;/strong&gt; thinking of billions of years ahead or the &quot;infinite future&quot;.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Non-economists commonly believe the answer to be &quot;no&quot;, giving some reason along the lines of &quot;resources are finite!&quot; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But the economist's answer to this is &lt;strong&gt;&quot;Yes, of course economic growth can continue indefinitely.&quot;&lt;/strong&gt; And so to answer also your narrower question, &lt;strong&gt;&quot;Yes, of course the stock market can show indefinite exponential growth.&quot;&lt;/strong&gt; (By &quot;can&quot;, I mean that this is at least conceivable. Whether it &lt;em&gt;will&lt;/em&gt; is a different matter altogether. After all the world might end tomorrow in a nuclear apocalypse.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think we can distinguish between &lt;strong&gt;two common fallacies&lt;/strong&gt; at work here.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Fallacy #1. &quot;Economic growth is about making ever more &quot;stuff&quot;, digging ever more gold and other natural resources out of the ground, burning ever more energy, etc.&quot;&lt;/strong&gt; (This caricature is perhaps why many non-economists and especially environmentalists are averse to economists and the idea of economic growth.) The fallacy typically continues, &quot;Resources/the universe is finite. Therefore economic growth must also be finite.&quot; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But this is wrong. &lt;strong&gt;Economic growth is about improving human well-being, broadly conceived.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is true that for a long time (the past few centuries), improvements in human well-being were largely through improvements in &lt;strong&gt;material&lt;/strong&gt; well-being and highly-correlated with making ever more stuff and burning ever more energy. After all, it was not two centuries ago that the vast majority of mankind lived at bare subsistence level. (Indeed, even today, many people still do.) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But going forward, it is perfectly conceivable that we make ever less &quot;stuff&quot;, dig ever less &quot;stuff&quot; out of the ground, and burn ever less energy, and yet still become ever more well-off. This is actually already happening today in the rich countries (see e.g. falling energy use, briefly analyzed below).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since the 1930s and 1940s, we've measured economic growth mostly by GDP growth. But economists have always recognized that GDP is a very flawed measure of well-being. Economists are working on alternatives that better capture the notion of improvements in human well-being or equivalently, economic welfare. I do not expect that in 100 years, the current concept of GDP without fundamental modifications will still be used to as the primary measure of economic well-being.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Footnote: Perhaps in the future, we will also include non-human well-being in our conception of economic growth. But for now, we still restrict attention mostly to human well-being.)&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Fallacy #2. &quot;Bad things (like the consumption of food or resources) will grow rapidly or even exponentially. In contrast, offsetting good things (like technology) can at best grow arithmetically. Therefore, there are necessarily limits to growth.&quot;&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This fallacy is not new. Here's an example of doom-and-gloom predictions from each of the past three centuries, all of which proved to be wrong. &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/An_Essay_on_the_Principle_of_Population&quot; rel=&quot;noreferrer&quot;&gt;Malthus (1798): &lt;em&gt;An Essay on the Principle of Population&lt;/em&gt;&lt;/a&gt;. &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.crf-usa.org/bill-of-rights-in-action/bria-26-2-the-debate-over-world-population-was-malthus-right.html&quot; rel=&quot;noreferrer&quot;&gt;2010 commentary&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Malthus began with two “fixed laws of our nature.” First, men and&#xA;  women cannot exist without food. Second, the “passion between the&#xA;  sexes” drives them to reproduce.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;He explained that, if unchecked, people breed “geometrically” (1, 2,&#xA;  4, 8, 16, etc.). But, he continued, the production of food can only&#xA;  increase “arithmetically” (1, 2, 3, 4, 5, etc.). “The natural&#xA;  inequality of the two powers of population and of [food] production in&#xA;  the earth,” he declared, “form the great difficulty that to me appears&#xA;  insurmountable [impossible to overcome].”&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Malthus concluded: “I see no way by which man can escape from the&#xA;  weight of this law.” In other words, if people keep reproducing in an&#xA;  uncontrolled geometric manner, they will eventually be unable to&#xA;  produce enough food for themselves. &lt;strong&gt;The future, Malthus argued,&#xA;  pointed not to endless improvement for humanity, but to famine and&#xA;  starvation.&lt;/strong&gt; &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.google.com.sg/url?sa=t&amp;amp;rct=j&amp;amp;q=&amp;amp;esrc=s&amp;amp;source=web&amp;amp;cd=2&amp;amp;ved=0ahUKEwjdiu_hsdjUAhUIQ48KHWh9Ay8QFggrMAE&amp;amp;url=https%3A%2F%2Ffee.org%2Ffiles%2FdocLib%2F547_32.pdf&amp;amp;usg=AFQjCNGsuk7ZKFTBl0KCkGd0LOT_o4eHuQ&quot; rel=&quot;noreferrer&quot;&gt;The Great Horse Manure Crisis of 1894&lt;/a&gt;:&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Writing in the Times of London in 1894, one writer estimated that in 50 years every street in London would be buried under nine feet of manure. Moreover, all these horses had to be stabled, which used up ever-larger areas of increasingly valuable land. And as the number of horses grew, ever-more land had to be devoted to producing hay to feed them (rather than producing food for people), and this had to be brought into cities and distributed—by horse-drawn vehicles. &lt;strong&gt;It seemed that urban civilization was doomed.&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;In 1972, exactly such a book title was published: &lt;a href=&quot;https://en.wikipedia.org/wiki/The_Limits_to_Growth&quot; rel=&quot;noreferrer&quot;&gt;&lt;em&gt;The Limits to Growth&lt;/em&gt;&lt;/a&gt;:&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;Our attempts to use even the most optimistic estimates of the benefits of technology in the model did not prevent the ultimate decline of population and industry, and in fact did not in any case postpone the collapse beyond the year 2100&lt;/strong&gt; (p. 145.).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This was a highly-influential best-seller that has &lt;a href=&quot;https://www.clubofrome.org/news/publication-of-the-limits-to-growth/&quot; rel=&quot;noreferrer&quot;&gt;sold over 16M copies in over 30 languages&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Take their example of gold. On p. 56, they calculate that if gold use continued growing exponentially AND there was 5 times as much gold available as there were known gold reserves (they thought this was a very optimistic assumption), &lt;strong&gt;gold would be depleted in 29 years, or in 2001&lt;/strong&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Surprisingly, 2001 came and went and gold continued to be mined. Indeed, more than ever. Gold mining graph (&lt;a href=&quot;https://upload.wikimedia.org/wikipedia/commons/6/6d/World_Gold_Production_1900-2014.png&quot; rel=&quot;noreferrer&quot;&gt;source&lt;/a&gt;):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/07HhR.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/07HhR.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Roughly every 5 years since 1972, &lt;em&gt;The Limits to Growth&lt;/em&gt; folks (AKA the Club of Rome) have released a new update to their 1972 book, each time explaining why they had been correct all along (of course) and sometimes pushing back their predictions about when the eventual collapse will set in. In their &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/193149858X&quot; rel=&quot;noreferrer&quot;&gt;&lt;em&gt;30-Year Update&lt;/em&gt;&lt;/a&gt;, they make no mention whatsoever of gold. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The following is the &lt;a href=&quot;https://books.google.com/books?id=X_TjAAAAMAAJ&amp;amp;q=%22The%20authors%20load%20their%20case%20by%20letting%20some%20things%20grow%20exponentially%22&amp;amp;dq=%22The%20authors%20load%20their%20case%20by%20letting%20some%20things%20grow%20exponentially%22&quot; rel=&quot;noreferrer&quot;&gt;response&lt;/a&gt; by two critics to &lt;em&gt;The Limits to Growth&lt;/em&gt;, also quoted by Robert Solow in a &lt;em&gt;Newsweek&lt;/em&gt; article:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The authors load their case by letting some things grow exponentially&#xA;  and others not. Population, capital and pollution grow exponentially&#xA;  in all models, but technologies for expanding resources and&#xA;  controlling pollution are permitted to grow, if at all, only in&#xA;  discrete increments.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;(Footnote: Doomsday-mongering was especially fashionable in the West around the 1970s. See also the famous &lt;a href=&quot;https://en.wikipedia.org/wiki/Simon%E2%80%93Ehrlich_wager&quot; rel=&quot;noreferrer&quot;&gt;Simon-Ehrlich wager&lt;/a&gt; at around the same time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Predictions at the polar extremes capture the public's attention. &lt;a href=&quot;https://en.wikipedia.org/wiki/Ray_Kurzweil&quot; rel=&quot;noreferrer&quot;&gt;Ray Kurzweil&lt;/a&gt; comes to mind as someone who makes similar predictions, but at the polar opposite.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In contrast, the median economist is cautiously optimistic, believing merely that slow but steady, sustained growth is possible. No doomsday, no stagnation, but no &lt;a href=&quot;https://en.wikipedia.org/wiki/Technological_singularity&quot; rel=&quot;noreferrer&quot;&gt;impending Singularity&lt;/a&gt; either. Not exactly a position that sells many books.)&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;In 2012, a physics professor wrote a somewhat-influential blogpost: &lt;a href=&quot;https://dothemath.ucsd.edu/2012/04/economist-meets-physicist/&quot; rel=&quot;noreferrer&quot;&gt;Exponential Economist Meets Finite Physicist&lt;/a&gt;, exhibiting both of the above fallacies. That someone as intelligent as a physics professor could commit both fallacies shows that economists must do a far better job at educating the public.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is plenty that is wrong in that blogpost and perhaps I will do a sentence-by-sentence dissection elsewhere, but this is probably not the proper avenue. Here I'll merely point out one obvious factual error that's of particular relevance. He claims as fact that&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;energy growth has far outstripped population growth, so that&#xA;  &lt;strong&gt;per-capita energy use has surged dramatically over time&lt;/strong&gt;—our energy&#xA;  lives today are far richer than those of our great-great-grandparents&#xA;  a century ago [economist nods]. So &lt;strong&gt;even if population stabilizes, we&#xA;  are accustomed to per-capita energy growth: total energy would have to&#xA;  continue growing to maintain such a trend [another nod].&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;As &lt;a href=&quot;http://freakonomics.com/2014/01/24/can-economic-growth-continue-forever-of-course/&quot; rel=&quot;noreferrer&quot;&gt;Tim Harford&lt;/a&gt; points out, this is FALSE. In recent decades, energy growth per person in many countries has actually been falling, even as GDP per capita has risen. Graph (data from &lt;a href=&quot;http://data.worldbank.org/indicator/EG.USE.PCAP.KG.OE&quot; rel=&quot;noreferrer&quot;&gt;World Bank, June 1st 2017 update&lt;/a&gt;):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/Z4tHu.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Z4tHu.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In every rich country, per-capita energy use peaked years ago and has been falling ever since. In fact, in some countries, it peaked DECADES ago (peaked in 1978 in the US, in 1979 in Germany, and in 1973 in the UK).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(One would've hoped that a physics professor backed up his factual claims with something more than a fictitious and bumbling economist who repeatedly nods.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;See also falling energy intensity (energy use per unit of GDP) (&lt;a href=&quot;https://www.eia.gov/todayinenergy/detail.php?id=27032&quot; rel=&quot;noreferrer&quot;&gt;source&lt;/a&gt;):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/XEtPO.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/XEtPO.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The highest per-capita energy use ever attained was the US in 1978. My prediction is that global average human well-being will keep improving, but global per-capita energy use will never hit the US 1978 peak (at least not until we start populating other planets and stars). &lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastEditorDisplayName="user18" LastEditDate="2017-06-29T03:54:04.560" LastActivityDate="2017-06-29T03:54:04.560" CommentCount="20" ContentLicense="CC BY-SA 3.0" />
  <row Id="17311" PostTypeId="1" CreationDate="2017-06-25T21:38:14.420" Score="1" ViewCount="76" Body="&lt;p&gt;I have long wondered why groceries, rent, and especially cially taxes increase as cities get larger since the cost per capita goes down, at least according to everything I've read including a summary of Scale:&#xA;&lt;a href=&quot;https://www.wsj.com/articles/how-nature-scales-up-1498239216&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.wsj.com/articles/how-nature-scales-up-1498239216&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I could see the real estate gets priced up due to supply and demand, it's also more efficiently utilized, as denser cities are used 24h per day, and all areas see. To be used as work AND home with restaurants that service business customers during the day  residential at  night and both in morning. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And that doesnt explain higher tax Rates, which see, anecdotally at least to be higher. &lt;/p&gt;&#xA;" OwnerUserId="11575" LastActivityDate="2017-06-25T21:38:14.420" Title="Why does everything get more expensive as cities grow in density/size?" Tags="&lt;macroeconomics&gt;&lt;taxation&gt;&lt;urban-economics&gt;" AnswerCount="0" CommentCount="3" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="17312" PostTypeId="2" ParentId="17301" CreationDate="2017-06-26T06:59:31.367" Score="3" Body="&lt;p&gt;I suspect your confusion is merely because you don't know what an annuity is. &lt;strong&gt;An annuity pays you a regular stream of income until your death&lt;/strong&gt; (e.g. $10,000 every year until you die).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So say there's a man and a woman. Each is aged 65 and each has \$100,000 in pension savings. Each person uses their pension savings to buy an annuity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose the financial institution (usually an insurance company) selling them the annuity estimates that the man's life expectancy is 20 years, while the woman's is 40 years. Then the actuarially-fair payout would be \$5,000 per year for the man and \$2,500 per year for the woman (if we ignore interest rates, discount rates, and similar complications).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence, &lt;strong&gt;for the same amount spent on the annuity (\$100,000), the man gets a highly yearly income (\$5,000 per year) than the woman (\$2,500 per year).&lt;/strong&gt; This is what your quoted passage means.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;(More on how the annuity works: If the man/woman lives longer than the expected 20/40 years, then good for him/her. He/she keeps receiving the agreed-upon yearly payout even past those 20/40 years. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Conversely, if the man/woman lives shorter than the expected 20/40 years, then too bad for him/her. He/she gets the agreed-upon yearly payout only until he/she dies.)&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2017-06-26T06:59:31.367" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17313" PostTypeId="1" AcceptedAnswerId="43686" CreationDate="2017-06-26T09:44:21.567" Score="8" ViewCount="267" Body="&lt;p&gt;I am reading '&lt;a href=&quot;https://global.oup.com/academic/product/cities-agglomeration-and-spatial-equilibrium-9780199290444?cc=gb&amp;amp;lang=en&amp;amp;&quot; rel=&quot;nofollow noreferrer&quot;&gt;Cities, Agglomeration and Spatial Equilibrium&lt;/a&gt;' by Ed Glaeser.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;People live in a monocentric city, where consumers of heterogeneous income $y$ work at the centre of the city. They buy $H(y)$ housing for a price $p(d)$ at distance $d$ from the centre, incurring transport costs $t(y)d$ as they commute to work.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consumers have a utility function:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$U(C,H)=v(y - t(y)d - p(d)H(y),H(y))$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The budget constraint is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$C = y - t(y)d - p(d)H(y)$ where C is consumption net of transport and housing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The tangency condition implies:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac{U_1}{U_2} = p(d)$   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;where the subscript 1 denotes partial differentiation w.r.t. the first argument etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By the spatial equilibrium assumption, $\frac{dU}{dd}=0$: there are no rents to be gained by changing location.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac{dU}{dd} = U_1(-t(y)-p'(d)H(y))=0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\therefore p'(d)=\frac{-t(y)}{H(y)}$: the price of housing declines with distance $d$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the income elasticity of housing is greater than that of transport (i.e. $H(y)$ increases in $y$ more than $t(y)$ does), the rich (higher $y$) will live in the suburbs. Mathematically, the denominator gets larger than the numerator and the price gradient is less steep. The willingness to pay declines less with distance for the rich.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The book then defines the income associated with each distance $y(d)$ and differentiates again to find the 2nd order condition, $p''(d)&amp;gt;0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The book states that this is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$p''(d)=\frac{t(y)H'(y)-H(y)t'(y)}{y'(d)}&amp;gt;0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But I believe this is incorrect an should be:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$p''(d)=\frac{(t(y)H'(y)-H(y)t'(y))y'(d)}{H^2(y)}&amp;gt;0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Am I correct?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, how can you ignore the fact that $y=y(d)$ when calculating the 1st order condition then introduce it when you differentiate to find the 2nd order condition?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Should you not state $U(y(d)-t(y(d))d-p(d)H(y(d)),H(y(d)))$ and differentiate twice?&lt;/p&gt;&#xA;" OwnerUserId="12371" LastEditorUserId="12371" LastEditDate="2017-10-10T20:44:01.020" LastActivityDate="2021-05-01T14:10:34.720" Title="Where do the rich and poor live in a city? (Calculus)" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;urban-economics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17315" PostTypeId="2" ParentId="5709" CreationDate="2017-06-27T02:20:35.200" Score="0" Body="&lt;p&gt;The thing is, since the producer's curve is elastic, any producer necessary trades at equilibrium price. If my competitor try to earn more by elevating his prices, I will produce at the same price and kick him out of the market. In order to stay on the game, every producer sells at equilibrium price, no more, no less. Therefore, the producer surplus is 0.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The intuition of the consumer surplus is &quot;the gain of the consumer who were willing to pay a high value for something sold at a low value&quot;. The producer surplus express the same idea for the producer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But, the life of the perfectly-elastic-curve-producer is not bad everytime. If the government imposes a production tax, the cost will be indirectly payed by the consumer. You see, having an elastic curve has its advantages too sometimes. &lt;/p&gt;&#xA;" OwnerUserId="13762" LastActivityDate="2017-06-27T02:20:35.200" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17320" PostTypeId="1" AcceptedAnswerId="17348" CreationDate="2017-06-27T16:30:17.680" Score="0" ViewCount="103" Body="&lt;p&gt;I'am looking for a book or paper that explain (in a theoretical and empirical way) how to estimate the long-run exchange rate for a country. Could someone suggest me one?&lt;/p&gt;&#xA;" OwnerUserId="13654" LastActivityDate="2017-07-01T11:25:47.733" Title="How to estimate long term exchange rate?" Tags="&lt;macroeconomics&gt;&lt;reference-request&gt;&lt;exchange-rates&gt;&lt;long-run&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17321" PostTypeId="1" AcceptedAnswerId="17323" CreationDate="2017-06-27T17:34:37.430" Score="4" ViewCount="293" Body="&lt;p&gt;I am interested in a system where the state prints new money to cover all its expenses. (There is no direct tax collection.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm interested in anything you might have to say about this system, but to keep things concrete:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(1) Has it been tried?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(2) Have economists studied this system? Are there any consensus views?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(3) Does it have a googlable name?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I recall Milton Friedman mentioning this system somewhere in his work, but only in passing, with a negative remark along the lines of &quot;it wouldn't be a very good system&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems to me that such a system would correspond to a perfectly implemented flat rate tax-on-wealth. A possible downside is that people would invest the money in &quot;something without inflation&quot;, but this of course holds true for any system with any positive amount of inflation.&lt;/p&gt;&#xA;" OwnerUserId="13770" LastActivityDate="2019-07-25T12:03:02.107" Title="Tax by inflation" Tags="&lt;inflation&gt;&lt;taxation&gt;&lt;government-spending&gt;" AnswerCount="4" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17323" PostTypeId="2" ParentId="17321" CreationDate="2017-06-28T07:56:28.867" Score="6" Body="&lt;p&gt;It's called &lt;a href=&quot;https://en.wikipedia.org/wiki/Seigniorage&quot; rel=&quot;noreferrer&quot;&gt;seigniorage&lt;/a&gt;. This actually goes on to &lt;em&gt;some degree&lt;/em&gt; in every country. I don't think any country has ever relied solely on this to cover &lt;em&gt;all&lt;/em&gt; its expenses. (Those that come close usually suffer from hyperinflation.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Briefly googling I found this old graph (&lt;a href=&quot;https://books.google.com/books?id=TLq8z0oQg2sC&amp;amp;pg=PA63&quot; rel=&quot;noreferrer&quot;&gt;source&lt;/a&gt;). With more work you can probably find more up-to-date figures.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/gHOS8.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/gHOS8.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that although the printing of money by the government is sometimes dubbed an &quot;inflation tax&quot;, this is mostly a metaphorical expression, because it isn't really a tax.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2017-06-28T07:56:28.867" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17324" PostTypeId="2" ParentId="62" CreationDate="2017-06-28T08:28:27.010" Score="1" Body="&lt;p&gt;I would say that a &quot;shoe event horizon&quot; could be possible with other products. A positive feedback loop that cannot be interrupted(easily).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Management Event Horizon&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is an incentive when the pool of directors and upper level management is small to reduce the number of managers. This leaves more money for the remaining managers. The incentive to remove managers and directors is quite large. The incentive to add new managers is quite small.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However when upper management and the board of directors gets large enough managers have less incentive to prevent new people from becoming managers because each new manager would only shrink their take in bonuses and salary by a very small amount. This means that managers and the board of directors will actually try to &lt;strong&gt;increase&lt;/strong&gt; their number in order to ease administrative burdens. However eventually any suggestion by the CEO to trim management or the board will be met with a calls to replace the CEO by the board, and managers trying to fight administrative reductions. At this point the company may loose profits, and managers may fire workers to justify salaries. Consultants and other managers may be hired, further worsening the corporations profit margin. This eventually results in a company very very top heavy with management, and few workers to support it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At this point corporate restructuring may happen, and management styles may change either resulting in a highly managed company in a better position. The managers get paid less but there are more of them. Or if this goes badly and the company cannot improve its situation, the company may go out of business. The CEO and managers must either use incentives and superior market placement to support management or start cutting management. This can mean that the CEO is more likely to be removed if he is not being transparent with funds, and does not make the company profitable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The concepts for coalition size in corporate management can be found in &quot;The Dictators Handbook&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Alcohol and Gambling Event Horizon&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another such even horizon in some communities would be gambling and alcohol sales. This can be seen in some depressed desert areas in the united states. The areas were so depressed that people turned to alcohol as an escape. Unfortunately this also made them financially worse off. Eventually casino's and liquor sales would be one of the few businesses commonly associated with those areas.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Drug Event Horizon&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Yet another &quot;event horizon&quot; is drug use. People who buy illegal street drugs are often depressed. The use of these drugs make the person more depressed later and more financially worse off. The individuals selling said drugs make less than minimum wage. The community gets poorer and the only viable businesses are local drug dealing. All of the money reaped leaves that community. This can be seen in Freakanomics.&lt;/p&gt;&#xA;" OwnerUserId="13776" LastEditorUserId="2776" LastEditDate="2017-06-28T09:09:24.367" LastActivityDate="2017-06-28T09:09:24.367" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17325" PostTypeId="2" ParentId="17298" CreationDate="2017-06-28T09:34:10.690" Score="2" Body="&lt;p&gt;To answer your question, one needs to know a little economics and a little physics. I only really know anything about the former. That caveat aside, stock market values and GDP are metrics that reflect productive activity. Some vector of inputs $\mathbf{x}$ (n.b. these need not be material resources) are subjected to a production process yielding outputs $f(\mathbf{x})$ (n.b. this output also does not need to be in material consumables). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are two ways to increase economic output (i.e., to achieve economic growth).&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;The first is to increase the supply of inputs to $\mathbf{y}&amp;gt;\mathbf{x}$. This is the pre-industrial mode of econmic development: work harder, extract more resources, cultivate more land, and thereby produce more stuff.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The second way to increase growth is to develop a new production technology, $g$, such that $g(\mathbf{x})&amp;gt;f(\mathbf{x})$ (more is produced with the same inputs). For example, computers allow us to produce more output from fewer inputs than do typewriters. Indeed, if technology improves at a sufficient rate then it is (theoretically) possible to sustain exponential economic growth even as the the consumption of inputs &lt;em&gt;decreases&lt;/em&gt; faster than exponentially.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;In the extreme long-run, this observation interacts with the laws of physics (brace yourself for hand-waving). Provided there is some region of the universe that is not in a state of maximum entropy then there is scope for humans to effect a process of production and, with sufficiently advanced technology, for this production to grow exponentially (note: the claim is not that it will happen or that it is likely, only that there does not seem to be anything in either economics or physics that makes it fundamentally impossible).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand, if the entire universe converges to a uniform state of maximum entropy (commonly known as heat death) then, roughly, continuation of economic growth would require $f(\mathbf{0})&amp;gt;\mathbf{0}$—i.e. that valuable outputs spontaneously emerge from a fully entropic system. This seems implausible and probably contradicts the first law of thermodynamics.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;So my assessment of the situation is as follows:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;Q:&lt;/strong&gt; must the economy's long-run rate of economic growth eventually be less than exponential &lt;em&gt;as a matter of theoretical necessity&lt;/em&gt;?&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&lt;strong&gt;A:&lt;/strong&gt; If the universe converges to a uniform state of maximum entropy then yes, otherwise no.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This leaves the question of the long-run fate of the universe. To end on a note of optimism, here's a quote from Wikipedia:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;The role of entropy in cosmology remains a controversial subject since the time of Ludwig Boltzmann. Recent work has cast some doubt on the heat death hypothesis and the applicability of any simple thermodynamic model to the universe in general. Although entropy does increase in the model of an expanding universe, the maximum possible entropy rises much more rapidly, moving the universe further from the heat death with time, not closer. This results in an &quot;entropy gap&quot; pushing the system further away from the posited heat death equilibrium. Other complicating factors, such as the energy density of the vacuum and macroscopic quantum effects, are difficult to reconcile with thermodynamical models, making any predictions of large-scale thermodynamics extremely difficult.&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2017-06-28T11:47:02.077" LastActivityDate="2017-06-28T11:47:02.077" CommentCount="13" ContentLicense="CC BY-SA 3.0" />
  <row Id="17327" PostTypeId="2" ParentId="17321" CreationDate="2017-06-28T11:18:48.247" Score="1" Body="&lt;p&gt;Any government that removed the backing on the currency will turn the currency into commodities. From there on, the currency will take the path of any commodities.  Unless the state expenses bring immediate production value to the economy, otherwise, its value will diminish (we call it inflation) over other commodities.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Historically, there are only two incidents able to dodged the ills effect of the inflation, both happen in Japan.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first inflation nullified by Japanese bureaucrats propaganda on patriotism to encourage people to put money in the bank than spending. (those saving eventually funding Japan militarism expansion).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The second one is nobility in natures. Together with series of policy to protect civil necessity, the high inflation from 50's to end of 60's, effectively destroyed traditional rent seeker: rent control prevent landlord increase rental at wills; payment to the noble families(according to Japan monarchy system) are fixed and become worthless when the inflation goes sky rocket.  But once the general public income starts picking up the pace, the inflation start dropping. Because the tax collection in place are able to pay off the government expenses and allows the government dodge the ill effect of actual inflation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In shorts, inflation is a &quot;process&quot; or tools to achieve some economy objective, it should not be the objective itself. It is all about correct tool apply at the correct time and the correct place. &lt;/p&gt;&#xA;" OwnerUserId="11177" LastEditorUserId="11177" LastEditDate="2017-06-28T11:24:24.893" LastActivityDate="2017-06-28T11:24:24.893" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17328" PostTypeId="1" AcceptedAnswerId="17333" CreationDate="2017-06-28T15:46:30.697" Score="1" ViewCount="114" Body="&lt;p&gt;I've made a proof of Pareto efficiency of a funding system that I've developed. There are effectively four types of actors. I've shown all Pareto improvements are made between any two given parties are made (including between two actors within the same party). I believe that this proof by cases is valid, but I'm not 100% certain. My one concern is that maybe there is some tricky three-way or four-way trade that is somehow not captured in my proof. Thoughts?&lt;/p&gt;&#xA;" OwnerUserId="13779" LastActivityDate="2017-06-29T08:15:56.333" Title="Can one prove Pareto efficiency in an n-party system by showing all Pareto improvements between any two given parties are made?" Tags="&lt;pareto-efficiency&gt;&lt;proof&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17329" PostTypeId="2" ParentId="16947" CreationDate="2017-06-28T17:07:23.457" Score="1" Body="&lt;p&gt;Your problem has problems with it.  There is no disutility of studying and there is no interest rate or it is zero percent.  However, let's consider the three possible cases.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If $y_2&amp;gt;F$ then for all cases you should study.  If $y_1&amp;lt;F$ then all cases you should not study.  The difficulty happens when $y_2&amp;lt;F$ and $y_1&amp;gt;F$.  Then you should study if $E(U(s))\gg{U}(F)$ and not if $E(U(S))\ll{U}(F)$.  The difficulty with the phrasing of the problem arises when $E(U(s))\approx{U}(F)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From the form of your problem, indifference should happen at: $$(y_1^\alpha-y_2^\alpha)p+y_2^\alpha=F^\alpha.$$  It should have been written as: $$(y_1^\alpha-y_2^\alpha)p+y_2^\alpha-U(s=study)=F^\alpha(1+\bar{r})^\alpha.$$  You cannot differentiate over $s$ because it is a binary choice.  In fact, $y_1,y_2$ are really $y_1(s=study)$ and $y_2(s=study)$ and $F$ is really $F(s=\text{don't study})$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the form of your problem, you should be indifferent if: $$p=\frac{F^\alpha-y_2^\alpha}{y_1^\alpha-y_2^\alpha}.$$  This permits an objective solution that does not depend upon the person.  For the more expansive problem at the indifference point, the solution depends upon the market rate of interest and the subjective cost of studying.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This implies two important things.  The first is that the value of an education depends on market rates of interest.  Because of this, there should be a decrease in the rate of education when rates are high.  The second is that the indifference point for the probability depends on the specific person.  This implies that probability has a subjective component, even when the probability is external to the person.  Indeed, if the probability is a function of all the choices of all the people, then the probability actually depends upon the marginal rate of disutility experienced in studying.&lt;/p&gt;&#xA;" OwnerUserId="11321" LastActivityDate="2017-06-28T17:07:23.457" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17330" PostTypeId="2" ParentId="16947" CreationDate="2017-06-28T17:16:05.587" Score="0" Body="&lt;p&gt;The community bot bumped this to front page, so let's turn my comments into an answer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The OP makes a mistake in formulating the problem, as follows:&#xA;For the &quot;not study&quot; case, he says that the agent will have utility from &quot;the saved fees&quot;, hence his last-last equation &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\mathbb{E}[u(\text{wealth if not-study})] = (F+0)^a= F^a \tag{1} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It follows that currently the agent has wealth $F$ (otherwise how could he &quot;save&quot; the fees...) &lt;strong&gt;This comes for a &quot;state-of-the-workd&quot; approach.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But when considering what will happen to the agent if it studies, &lt;strong&gt;the OP adopts a &quot;income-flow&quot; approach&lt;/strong&gt;. It writes &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\mathbb{E}[u(\text{wealth if not-study})] = p(y_1 - F)^a + (1-p)(y_2 - F)^a \tag{2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;...ignoring the fact that $F$ is already available. If we wanted to describe a different situation, where the agent has no wealth, and it contemplates whether it would be beneficial to study and pay the tuition fees out of his future income, &lt;em&gt;then&lt;/em&gt; we should use eq. $(2)$, but together not with eq. $(1)$ but with $\mathbb{E}[u(\text{wealth if not-study})] = 0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In Expected Utility Theory we use the &quot;state-of-the world&quot; approach.&#xA;So the correct equation to go together with eq. $(1)$ (which implies that the agent has already and so certain wealth $F$) is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\mathbb{E}[u(\text{wealth if study})] = p(F+y_1 - F)^a + (1-p)(F+y_2 - F)^a \\= py_1^a  +(1-p)y_2^a \tag{3}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note what we are doing here. In each of the two possible states of the wrold given that the agent will study, the agent starts with wealth $F$ which he will sacrifice in order to study, and gain income $y_1$ or $y_2$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regarding the question &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;I am a bit puzzled as to which utility to use here? The expected&#xA;  utility or the utility of expected income and why?&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;the answer is &quot;expected utility of the different states of the world&quot;. It is in this way that we internalize the epxeriencing of uncertainty at utility level, and the effects of uncertainty on utility. If we were to compare utility of epxected wealth, it would be the &quot;utility of the average situation&quot;, not &quot;average utility from the uncertain situation&quot;. But by averaging first, we would not let the uncertainty interact directly with utility.The difference vanishes only if utility is linear in wealth (and we have a &quot;risk-neutral&quot; person).&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2017-06-28T17:16:05.587" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17331" PostTypeId="1" AcceptedAnswerId="17340" CreationDate="2017-06-28T17:55:21.917" Score="1" ViewCount="37" Body="&lt;p&gt;I seem to recall reading about the following research regarding &quot;national intangible wealth&quot; (IIRC):&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;For each country, compute the &lt;a href=&quot;https://en.wikipedia.org/wiki/Gross_domestic_product&quot; rel=&quot;nofollow noreferrer&quot;&gt;GDP&lt;/a&gt;.&lt;/li&gt;&#xA;&lt;li&gt;Convert the GDP to &quot;total national capital&quot; using &lt;em&gt;an&lt;/em&gt; interest rate (e.g., assuming 5% interest, the total national capital of a country with GDP=\$5B will be \$100B), the same(?) interest for all countries.&lt;/li&gt;&#xA;&lt;li&gt;Subtract from the above total national capital all the tangible capital: industry, farms, infrastructure, education of the population - everything you can put a price tag on.&lt;/li&gt;&#xA;&lt;li&gt;The result is the &quot;intangible national capital&quot; - stable non-corrupt government, courts that enforce contracts, work ethics...&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;I tried to google things like &quot;national intangible wealth&quot; &amp;amp;c, but found nothing reminiscent of the above approach.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Could you please provide a reference? Criticism of the methodology?&lt;/p&gt;&#xA;" OwnerUserId="13777" LastEditorUserId="2776" LastEditDate="2017-06-28T19:55:49.503" LastActivityDate="2017-06-29T13:05:12.847" Title="Estimating national intangible wealth" Tags="&lt;purchasing-power-partity&gt;&lt;wealth&gt;&lt;national-income&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17332" PostTypeId="1" AcceptedAnswerId="17334" CreationDate="2017-06-28T17:58:55.327" Score="5" ViewCount="155" Body="&lt;p&gt;I am reading about the higher order beliefs. Before getting into the formal definitions, I will define some common terminology which I will need for the formal definitions.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;If $X$ and $Y$ are two spaces, denote the set of probabilities over $X$ as $\Delta(X)$, and for $\delta\in \Delta(X\times Y)$ define the marginal probability measure of $\delta$ on $X$&#xA;  $$&#xA;marg(\delta;X)(E)=\delta(E\times Y)&#xA;$$&#xA;  for every measurable subset of $E$ of $X$.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The formal definition of higher order order is as follows:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Let $N=\{1,2,\dots, n\}$ be the set of players. For each $i\in N$, $A_i\neq\emptyset$ is the finite set of actions available to player $i$. Denote the set of mixed strategies for  the player $i$ as $\Sigma_i=\Delta(A_i)$. As usual define $\Sigma_{-i}=\times_{j\neq i} \Sigma_i$ and $\Sigma=\times_i \Sigma_i$. Define the se set of first order beliefs $B_i^1=\Delta(\Sigma_{-i})$ and $B_{-i}^1=\times_{j\neq i} B_j^1$, and $B^1=\times_i B_i^1$. Define inductively, for each $k\geq 1$&#xA;  $$&#xA;B_i^{k+1}=\Delta(\Sigma_{-i}\times B_{-i}^1\times \dots B_{i}^k)\\&#xA;B_{-i}^{k+1}=\times_{j\neq i} B_j^{k+1}\quad B^{k+1}=\times_i B_i^k&#xA;$$&#xA;  Finally, $B_i=\times_{k=1}^\infty B_i^k $&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The coherent belief is described in the following way:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;$b_i=(b_i^1,b_i^2,\dots)\in\times_i B_i^k$ is coherent if for each $k\geq 1$ $marg(b_i^{k+1},\Sigma_{-i}\times B_{-i}^1\times\dots\times B_{-i}^k)=b_i^k$ where $marg$ is the marginal probability measure.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Now according to this definition for $E\subset \Sigma_{-i}$ we have $marg(b_i^2;\Sigma_{-i})(E)=b_i^1(E)$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I try to understand this definition. So I tried to consider a game in which there are two players $i$ and $j$ and two actions for each player. So &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\Sigma_i=\{(p,1-p):p\in[0,1]\}\quad \Sigma_j=\{(q,1-q):q\in[0,1]\}&#xA;$$&#xA;and $b_i^1\in\Delta(\Sigma_j)$ and $b_i^2\in\Delta(\Sigma_j\times B_j^1)$. So $b_i^1$ is a probability measure over $q$, and $b_i^2$ is a joint probability measure over $q$ and the first order beliefs of $j$. Suppose $E$ is the collection of $(q,1-q)$ such that $q\leq 0.5$, which is a subset of $\Sigma_j$.&#xA;I could not convince myself why $marg(b_i^2;\Sigma_j)=b_i^1(E)$. Apologies for the length of the question and any help is greatly appreciated.&lt;/p&gt;&#xA;" OwnerUserId="8081" LastActivityDate="2017-06-28T21:18:58.310" Title="Higher order beliefs and coherency in game theory" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;game-theory&gt;&lt;probability&gt;&lt;information&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17333" PostTypeId="2" ParentId="17328" CreationDate="2017-06-28T21:14:48.283" Score="2" Body="&lt;p&gt;@HerrK. got it right in his comment (he should have deleted the somewhat confusing &quot;yes&quot; from the beginning and then posted it as an answer) It is possible that no pairwise improvements are possible but general Pareto-improvements are still possible. A simple counterexample for three actors and three goods is as follows. Let the utility functions be the same for all actors, that is&#xA;$$&#xA;U_A(x,y,z) = U_B(x,y,z) = U_C(x,y,z) = \min(x,y,z).&#xA;$$&#xA;Let actor $A$ have 3 units of good $x$, and 0 units of the other goods, whereas actor $B$ has 3 units of good $y$, and 0 units of the other goods, and actor $C$ has 3 units of good $z$, and 0 units of the other goods. No pairwise exchange can increase utilities above zero. But the goods could be distributed so that everyone has a unit of each. This would increase all utilities to one, making the original distribution not Pareto-efficient.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2017-06-29T08:15:56.333" LastActivityDate="2017-06-29T08:15:56.333" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17334" PostTypeId="2" ParentId="17332" CreationDate="2017-06-28T21:18:58.310" Score="3" Body="&lt;p&gt;The way hierarchies of beliefs are specified, beliefs on the same events are encoded in different places. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The basic idea is actually quite simple. You have two players, Ann and Bob, say. Ann's first order beliefs specify how likely she thinks each strategy choice of Bob. Ann's second order beliefs specify how likely she thinks each combination of a strategy choice of Bob and a belief of Bob on Ann's strategy choices. Second order beliefs are joint probabilities.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now suppose Ann's first order beliefs specify that she believes that Bob plays the strategies C and D with probability $1/2$ each.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose also that Ann believes with probability $1/4$ that &quot;Bob plays C and believes with probability 1 that Ann plays D for sure&quot; and believes with probability $3/4$ that &quot;Bob plays D and believes Ann plays D for sure&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you ask someone who knows only Ann's first order beliefs how likely Ann thinks it is that Bob will play C, that person will answer with $1/2$. If you ask someone who knows only Ann's second order beliefs how likely Ann thinks it is that Bob will play C, that person will answer with $1/4$. Indeed, that is what the marginal of her second order belief on the space of strategies says.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is absurd and makes no sense. Ann's beliefs on how likely it is that Bob plays C should be the same according to her first order beliefs as to her second order beliefs. Now coherency is exactly the condition that guarantees that. If some belief on an event E is specified in more than one level of the hierarchy of beliefs, each hierarchy should specify that the same belief on the event E.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In terms of the formalism: The marginal of a probability measure is again a probability measure, so $marg(b_i^2;\Sigma_j)=b_i^1(E)$ is comparing apples and oranges; on the left is a probability measure, on the right a number. What you want is $marg(b_i^2;\Sigma_j)(E)=b_i^1(E)$, as prescribed by coherency- and indeed by common sense.&lt;/p&gt;&#xA;" OwnerUserId="1442" LastActivityDate="2017-06-28T21:18:58.310" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="17336" PostTypeId="2" ParentId="17321" CreationDate="2017-06-28T23:07:29.877" Score="1" Body="&lt;blockquote&gt;&#xA;&lt;p&gt;I am interested in a system where the state prints new money to cover&#xA;all its expenses. (There is no direct tax collection.)&lt;/p&gt;&#xA;&lt;p&gt;I'm interested in anything you might have to say about this system,&#xA;but to keep things concrete:&lt;/p&gt;&#xA;&lt;p&gt;(1) Has it been tried?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;If one wants to take a very strict definition of &amp;quot;tax&amp;quot;, it may be possible that some resource-producing countries have no &amp;quot;tax.&amp;quot; Instead, they have revenue from commodity exports. However, such cases are somewhat of a stretch.&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;(2) Have economists studied this system? Are there any consensus&#xA;views?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Modern Monetary Theory (MMT) is one school of thought (part of post-Keynesian economics) that examines the details of government funding. The argument is that all government spending is effectively &amp;quot;paid for&amp;quot; by issuing money.&lt;/p&gt;&#xA;&lt;p&gt;However, MMT theory also argues that &amp;quot;taxes drive money.&amp;quot; In order for government-issued money to have non-zero value in exchange, it is necessary to have taxes, which can only be paid using the government-issued currency. If taxes were abolished, the currency would have zero value (or the prices of goods expressed in the currency unit &amp;quot;go to infinity,&amp;quot; which is effectively a hyper-inflation.&lt;/p&gt;&#xA;&lt;p&gt;MMT is popular on the internet; you can easily find a lot of information via a search engine. One academic site is fairly central: &lt;a href=&quot;http://neweconomicperspectives.org/&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://neweconomicperspectives.org/&lt;/a&gt;&lt;/p&gt;&#xA;&lt;p&gt;Of course, not everyone agrees with MMT. But the online debates would cover the issues that this question discusses.&lt;/p&gt;&#xA;&lt;p&gt;As for a consensus view, the argument that taxes are needed for the currency to have value is probably close to consensus, although the wording would be different. The Fiscal Theory of the Price Level is a theory that the expectations of future taxation (primary surpluses) is what drives the value of the currency. If only money were issued, interest rates would have to be 0% forever, and that allegedly gives rise to unstable equilibrium (with prices expected to shoot off to infinity). There is lot of related discussion with regards to the &amp;quot;governmental budget constraint&amp;quot; and &amp;quot;Ricardian/non-Ricardian&amp;quot; policies.&lt;/p&gt;&#xA;&lt;p&gt;Schools of thought that rely on the quantity theory of money would view the rapid creation of money as being a direct cause of hyperinflation.&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;(3) Does it have a googlable name?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;As I noted above, searching for:&lt;/p&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Modern Monetary Theory (or Chartalism);&lt;/li&gt;&#xA;&lt;li&gt;the Fiscal Theory of the Price Level;&lt;/li&gt;&#xA;&lt;li&gt;the Governmental Budget Constraint;&lt;/li&gt;&#xA;&lt;li&gt;Ricardian/non-Ricardian policies;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;p&gt;should give a lot of material to read.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2017-06-28T23:07:29.877" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="17337" PostTypeId="1" CreationDate="2017-06-29T02:25:59.997" Score="1" ViewCount="35" Body="&lt;p&gt;According to &lt;a href=&quot;http://www.econtalk.org/archives/2015/07/alvin_roth_on_m.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Alvin Roth&lt;/a&gt;, a matching market is one where &quot;&lt;em&gt;you don't simply choose what you want, you have to also be chosen&lt;/em&gt;&quot;. With this in mind, I would like to pose the question about whether the concept of division of labor (in the sense of Ricardo's theory of comparative advantage) applies at all in matching markets? If so, what are the qualifications? Examples would be appreciated. (So far, I haven't been able to find any resources on the web that deal with these two concepts tied together).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;P.S- I am interested more in labor and employment related matching markets. There are some papers on division of labor in the marriage market, but I'm not quite interested in that.&lt;/p&gt;&#xA;" OwnerUserId="5591" LastEditorUserId="2776" LastEditDate="2017-06-29T09:09:11.960" LastActivityDate="2017-06-29T09:09:11.960" Title="Does the concept of division of labor in matching markets work the same way as in regular markets?" Tags="&lt;matching&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17338" PostTypeId="2" ParentId="8863" CreationDate="2017-06-29T07:26:37.720" Score="3" Body="&lt;p&gt;To understand the issue let's review what is the so call robust variance-covariance matrix estimates (VCE) and the implied &quot;robust&quot; standard errors. The robustness is meant to allow for violations of homoscedasticity in the cross-sectional dimension or heteroscedasticity. There are various heteroscedastic robust VCE which are known as the Sandwich estimators or heteroscedasticity consistent (HC) standard errors due to their form: $\gamma(X'X)^{-1}\hat{\Omega}(X'X)^{-1}$. Stata by default uses HC1 which uses the residuals just as HC0, but has a degrees of freedom adjustment. However, one can request HC2 or HC3 through the vce option after a compatible command, e.g., &lt;code&gt;reg y x, vce(hc3)&lt;/code&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, in the case of unobserved effects models such as the one-way error component (&lt;code&gt;xtreg&lt;/code&gt;) one should not use HC estimators and choose an appropriate VCE which allows for dependence of the error term. These are known as CRVE or cluster robust Variance-Covariance estimators. Stata &lt;code&gt;xtreg&lt;/code&gt; and &lt;code&gt;xtivreg&lt;/code&gt; and similar commands are for short-panels one-way error models (one can include the temporal intercept for two-way error models manually). Therefore, independence in the temporal dimension might be a valid assumption, but rarely we can get away with independence through the cross-sectional dimension and thus one should &lt;strong&gt;always&lt;/strong&gt; cluster at least at the panel id level. Stata does not allow for two-way clustering, but the most important one for short-panels should be the &lt;code&gt;cl(pid)&lt;/code&gt; option. Stata's CRVE implementation is known as Roger's standard errors and is one of the first estimators... in the future newer solution might be implemented.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the case of fixed effects models, one should note that the coefficients can be estimated through the within estimator (&lt;code&gt;xtreg&lt;/code&gt; or LSDV: &lt;code&gt;reg y x i.pid&lt;/code&gt;). The asymptotic standard errors are correct for the LSDV and and for the within after correcting the degree of freedom (which all implementations should do). However, HC standard errors are inconsistent for the fixed effects model. Therefore, it is the norm and what everyone should do to use cluster standard errors as oppose to some sandwich estimator. Stata took the decision to change the &lt;code&gt;robust&lt;/code&gt; option after &lt;code&gt;xtreg y x, fe&lt;/code&gt; to automatically give you &lt;code&gt;xtreg y x, fe cl(pid)&lt;/code&gt; in order to make it more fool-proof and people making a mistake. CRVE are heteroscedastic, autocorrelation, and cluster robust.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As an aside, due to the small size corrections one obtains different cluster robust standard errors with &lt;code&gt;reg y x i.pid, cl(pid)&lt;/code&gt; and &lt;code&gt;xtreg y x, fe&lt;/code&gt; or equivalent &lt;code&gt;xtreg y x, fe vce(pid)&lt;/code&gt;. The correct ones are the latter ones.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;PD:&#xA;For REIV and FEIV, most implementations including Stata when using 2SLS use a GLS Anova method which by default is the Swamy-Arora which uses the residuals from the between and within models rather than P2SLS.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;References:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Cameron, Colin A., and Douglas L. Miller. 2015. &quot;A Practitioner’s Guide to Cluster-Robust Inference.&quot; Journal of Human Resources 50 (2): 317–372. doi:10.3368/jhr.50.2.317.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Stock, J. H., and M. W. Watson. 2008. Heteroskedasticity-robust standard errors for fixed effects panel data regression. Econometrica 76: 155–174.&lt;/p&gt;&#xA;" OwnerUserId="13784" LastEditorUserId="13784" LastEditDate="2017-06-29T22:53:04.107" LastActivityDate="2017-06-29T22:53:04.107" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17339" PostTypeId="2" ParentId="10254" CreationDate="2017-06-29T12:59:44.327" Score="2" Body="&lt;p&gt;A demand curve relates Quantity demanded to Price. If ice creams are always $2 then your data won't help you estimate a demand curve. Try offering some daily specials to create some price variation. No, people won't respond exactly the same way to a &quot;discounted regular price&quot; as they will to a lower everyday price, but still you will begin to gather the information you need tobuild a demand curve. And yes, you will need to offer higher prices, as well.&lt;/p&gt;&#xA;" OwnerUserId="13790" LastActivityDate="2017-06-29T12:59:44.327" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17340" PostTypeId="2" ParentId="17331" CreationDate="2017-06-29T13:05:12.847" Score="2" Body="&lt;p&gt;The reference is &lt;a href=&quot;http://documents.worldbank.org/curated/en/287171468323724180/Where-is-the-wealth-of-nations-measuring-capital-for-the-21st-century&quot; rel=&quot;nofollow noreferrer&quot;&gt;World Bank (2006)&lt;/a&gt;. You can see the detail of the methodology in Appendix 1, and their estimates of intangible wealth in Appendix 2. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are other methodologies to measure intangible wealth (e.g. &lt;a href=&quot;http://www.panoeconomicus.rs/casopis/2014_3/01%20Jose%20Luis%20Alfaro%20Navarro,%20Victor%20Raul%20Lopez%20Ruiz%20and%20Domingo%20Nevado%20Pena.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; and &lt;a href=&quot;http://documents.worldbank.org/curated/en/622091468153550529/pdf/wps6391.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;). Alternatively, there are many ways to compute natural and physical capital, which will give different results to the one given by the WB, even if using the same formula to compute intangible capital. For example, see &lt;a href=&quot;https://unu.edu/projects/inclusive-wealth-report.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;. If you search in google or &lt;a href=&quot;http://econpapers.repec.org/&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; things like &quot;measuring capital stock&quot;, you get tons of hits too. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think that because this is a relatively new research area, there is no &quot;official&quot; guideline about how to measure intangible wealth. Maybe in the future some sort of standard will be produces, pretty much like the standard for GDP came to be (which is still subject to criticism anyway).&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-06-29T13:05:12.847" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17342" PostTypeId="1" CreationDate="2017-06-29T19:19:43.970" Score="1" ViewCount="266" Body="&lt;p&gt;Reading about macroeconomics, I've come across a great deal of information regarding leading, lagging, and coincident indicators. I'd like to learn more, specifically information related to measurements. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the most part, in the books that I've read, indicators are graphed along side changes in the economy. I imagine that economists do not just graph items and visually inspect whether they are (1) indicators and (2) if they are leading, lagging, or coincident, etc. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What articles/texts are available that discuss the statistical methods behind identifying and measuring economic indicators?&lt;/p&gt;&#xA;" OwnerUserId="12662" LastEditorUserId="2776" LastEditDate="2017-07-03T12:02:38.027" LastActivityDate="2017-08-03T00:11:02.810" Title="References about leading, lagging, and coincident economic indicators" Tags="&lt;macroeconomics&gt;&lt;econometrics&gt;&lt;reference-request&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17343" PostTypeId="1" CreationDate="2017-06-29T20:44:22.767" Score="-1" ViewCount="128" Body="&lt;p&gt;For many years, I held a strong position against the copyright based on the effects of enforcing copyright on freedom of speach in the internet.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, recently I read Rothbard's &lt;a href=&quot;https://mises.org/library/man-economy-and-state-power-and-market&quot; rel=&quot;nofollow noreferrer&quot;&gt;Man, Economy, State&lt;/a&gt;, where he makes following point: when you purchase a work with a statement saying &quot;copyright&quot;, you agree not to copy the work without the prior authorization by the copyright owner, and on free market copyright violations would be prosecuted as contract violations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This strikes me as a really strong point for the protection of the copyright.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now I'm looking to hear some really strong arguments against copyright, preferably based on principles of free market and Austrian economics&lt;/p&gt;&#xA;" OwnerUserId="8498" LastEditorUserId="2776" LastEditDate="2017-06-30T07:34:46.563" LastActivityDate="2018-02-13T09:15:23.627" Title="Strong Austrian arguments against copyright" Tags="&lt;austrian&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="17344" PostTypeId="2" ParentId="17320" CreationDate="2017-06-29T21:01:55.743" Score="0" Body="&lt;p&gt;I kept digging and found the following references. Hope it will help someone else.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.imf.org/external/pubs/ft/wp/2007/wp07194.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;IMF: Estimation of Equilibrium Exchange Rates in the WAEMU: A Robustness Approach &lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.imf.org/external/pubs/ft/wp/wp97109.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;IMF: Estimating the equilibrium real exchange rate: an application to Finland&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="13654" LastActivityDate="2017-06-29T21:01:55.743" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17345" PostTypeId="1" CreationDate="2017-06-29T22:09:22.367" Score="1" ViewCount="105" Body="&lt;p&gt;Anecdotally, I know that myself and others have felt distracted, depressed and anxious since the election of Donald Trump. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are there any studies that have objectively sought to measure worker productivity since the election of Donald Trump? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What was their methodology, and what were the results? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If no such study does exist, can you describe any similar studies and what the methodology is? &lt;/p&gt;&#xA;" OwnerUserId="96" LastEditorUserId="11855" LastEditDate="2017-07-04T05:47:17.090" LastActivityDate="2017-07-04T05:47:17.090" Title="Has worker productivity decreased since the election of Donald Trump?" Tags="&lt;reference-request&gt;&lt;productivity&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="17346" PostTypeId="2" ParentId="17342" CreationDate="2017-06-29T23:52:32.090" Score="1" Body="&lt;p&gt;The Wooldridge texts are part of most graduate level econometric studies in the US. They are:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Introductory Econometrics: A Modern Approach, 6th Edition&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Econometric Analysis of Cross Section and Panel Data, 2nd Edition&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I would start with the first, unless you have a lot of formal training in statistics. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope this helps,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Justin&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;/questions/tagged/econometrics&quot; class=&quot;post-tag&quot; title=&quot;show questions tagged &amp;#39;econometrics&amp;#39;&quot; rel=&quot;tag&quot;&gt;econometrics&lt;/a&gt; &lt;a href=&quot;/questions/tagged/macroeconomics&quot; class=&quot;post-tag&quot; title=&quot;show questions tagged &amp;#39;macroeconomics&amp;#39;&quot; rel=&quot;tag&quot;&gt;macroeconomics&lt;/a&gt; &lt;a href=&quot;/questions/tagged/statistics&quot; class=&quot;post-tag&quot; title=&quot;show questions tagged &amp;#39;statistics&amp;#39;&quot; rel=&quot;tag&quot;&gt;statistics&lt;/a&gt; &lt;a href=&quot;/questions/tagged/r&quot; class=&quot;post-tag&quot; title=&quot;show questions tagged &amp;#39;r&amp;#39;&quot; rel=&quot;tag&quot;&gt;r&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;em&gt;UPDATED EXAMPLES:&lt;/em&gt;&lt;/strong&gt; from &lt;em&gt;INTRODUCTORY ECONOMETRICS by Jeffrey M. Wooldridge&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;While my suggested texts about Econometrics were downvoted, below is proof of how the text book referenced illustrates how Economists can use statistical methods to &lt;strong&gt;identify and measure&lt;/strong&gt; leading, lagging, and coincident relationships among economic indicators.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first examples are from chapter 16 on Simultaneous Equations. Examples &lt;code&gt;16.4&lt;/code&gt; and &lt;code&gt;16.6&lt;/code&gt; illustrate how to use &lt;strong&gt;Instrumental-variable regression by two-stage least squares&lt;/strong&gt; for identifying and measuring &lt;strong&gt;coincident&lt;/strong&gt; economic indicators. In this case, how annual inflation drops by about 1/3 of a percent for every 1 percent increase in the import share of GDP.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The second is an example &lt;code&gt;18.8&lt;/code&gt; of the text and illustrate how &lt;strong&gt;autoregresive $AR(1)$ and vector autoregressive $VAR(1)$ time series methods&lt;/strong&gt; can be used to identify and measure, intertemporal relationships between economic indicators, in an attempt to forecast the future unemployment rate using today's unemployment and inflation rates.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;code&gt;Example 16.4:&lt;/code&gt; INFLATION AND OPENNESS&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;Romer (1993) proposes theoretical models of inflation that imply that more &quot;open&quot; countries should have lower inflation rates. His empirical analysis explains average annual inflation rates (since 1973) in terms of the average share of imports in gross domestic product since 1973 - which is his measure of openness. In addition to estimating&#xA;  the key equation by OLS, he uses instrumental variables. While Romer does not specify&#xA;  both equations in a simultaneous system, he has in mind a two-equation system:&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;$$inf = \beta_{10} + \alpha_1open + \beta_{11}log(pcinc) + \mu_1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$open = \beta_{20} + \alpha_2inf + \beta_{21}log(pcinc) + \beta_{22}log(land) + \mu_2$$&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;where $pcinc$ is 1980 per capita income, in U.S. dollars, assumed to be exogenous, and&#xA;  $land$ is the land area of the country in square miles, also assumed to be exogenous. The first equation is the one of interest, with the hypothesis that $\alpha &amp;lt; 0$. More open&#xA;  economies have lower inflation rates.&quot;&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&quot;The second equation reflects the fact that the degree of openness might depend on the average inflation rate, as well as other factors. The variable $log(pcinc)$ appears in both equations, but $log(land)$ is assumed to appear only in the second equation.&#xA;  The idea is that, ceteris paribus, a smaller country is likely to be more open, so $\beta_{22} &amp;lt; 0$.&quot;&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&quot;Using the identification rule that was stated earlier, the first equation is identified, provided $\beta_{22} \ne 0$. The second equation is $not$ identified because it contains both exogenous variables. Be we are interested in the first equation.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;code&gt;Example 16.6:&lt;/code&gt; INFLATION AND OPENNESS&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;Before we estimate the first equation in 16.4 using the data in $openness$, we check to see whether $open$ has sufficient partial correlation with the proposed $IV$, $log(land)$. The reduced form regression is:&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;$$\widehat{open} = \beta_0 + \beta_{1}log(pcinc) + \beta_{2}log(land)$$&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;open_model &amp;lt;-lm(open ~ lpcinc + lland, data = openness)&#xA;summary(open_model)&#xA;Coefficients:&#xA;        Estimate Std. Error t value Pr(&amp;gt;|t|)&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;&lt;code&gt;(Intercept) 117.0845    15.8483   7.388 2.97e-11&lt;/code&gt;&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;lpcinc        0.5465     1.4932   0.366    0.715 &#xA;lland        -7.5671     0.8142  -9.294 1.51e-15&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;The $t$ statistic on $log(land)$ is over nine in absolute value, which verifies Romer's assertion that smaller countries are more open. The fact that $log(pcinc)$ is so insignificant in this regression is irrelevant.&quot;&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&quot;Estimating the first equation using $log(land)$ as an $IV$ for $open$ gives:&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;$$\widehat{inf} = \beta_0 + \beta_{1}open + \beta_{2}log(pcinc)$$&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;library(AER)&#xA;inflation_IV &amp;lt;- ivreg(inf ~ open + lpcinc | lpcinc + lland, data = openness)&#xA;summary(inflation_IV)&#xA;&#xA;Coefficients:&#xA;        Estimate Std. Error t value Pr(&amp;gt;|t|)  &#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;&lt;code&gt;(Intercept)  26.8993    15.4012   1.747   0.0835 .&lt;/code&gt;&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;open         -0.3375     0.1441  -2.342   0.0210&#xA;lpcinc        0.3758     2.0151   0.187   0.8524&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;The coefficient on open is statistically significant at about the 1% level against a one sided alternative of $\alpha_1 &amp;lt; 0$. The effect is economically important as well: for every percentage point increase in the import share of GDP, annual inflation is about 1/3 of a percentage point lower. For comparison, the OLS estimate is -0.215, $se = 0.095$.&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;code&gt;Example 18.8:&lt;/code&gt; FORECASTING THE U.S. UNEMPLOYMENT RATE&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;We use the $PHILLIPS$ DATA, but only for the years 1948 through 1996, to forecast&#xA;  the U.S. civilian unemployment rate for 1997. We use two models. The first is a simple&#xA;  AR(1) model for $unem$:&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;$$\widehat{unemp_t} = \beta_0 + \beta_1unem_{t-1}$$&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;In a second model, we add inflation with a lag of one year:&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;$$\widehat{unemp_t} = \beta_0 + \beta_1unem_{t-1} + \beta_2inf_{t-1}$$&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;library(dynlm)&#xA;phillips &amp;lt;- ts(phillips, start = 1948)&#xA;unem_AR1 &amp;lt;- dynlm(unem ~ unem_1, data = phillips, end = 1996)&#xA;unem_inf_VAR1 &amp;lt;- dynlm(unem ~ unem_1 + inf_1, data = phillips, end = 1996)&#xA;&#xA;stargazer(unem_AR1, unem_inf_VAR1, keep.stat=c(&quot;n&quot;,&quot;adj.rsq&quot;,&quot;ser&quot;)&#xA;=================================================================&#xA;                                 Dependent variable:             &#xA;                    ---------------------------------------------&#xA;                                        unem                     &#xA;                             (1)                    (2)          &#xA;-----------------------------------------------------------------&#xA;unem_1                     0.732                  0.647       &#xA;                           (0.097)                (0.084)        &#xA;&#xA;inf_1                                             0.184       &#xA;                                                  (0.041)        &#xA;&#xA;Constant                   1.572                  1.304        &#xA;                           (0.577)                (0.490)        &#xA;&#xA;-----------------------------------------------------------------&#xA;Observations                  48                     48          &#xA;R2                          0.554                  0.691         &#xA;Adjusted R2                 0.544                  0.677         &#xA;Residual Std. Error    1.049 (df = 46)        0.883 (df = 45)    &#xA;F Statistic         57.132   (df = 1; 46)  50.219   (df = 2; 45)      &#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;The lagged inflation rate is very significant in the second model $(t \approx 4.5)$, and the adjusted R-squared much higher than that from the first. Nevertheless, this does not necessarily mean that the second equation will produce a better forecast for 1997. All we can say so far is that, using the data up through 1996, a lag of inflation helps to explain variation in the unemployment rate.&quot;&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&quot;To obtain the forecasts for 1997, we need to know $unemployment$ and $inflation$ in 1996. These are 5.4 and 3.0, respectively. Therefore, the forecast of $unem_{1997}$ from the first equation is $1.572 + .732(5.4)$, or about $5.52$. The forecast from the second equation is $1.304 + 0.647(5.4) + 0.184(3.0)$, or about $5.35$. The actual civilian unemployment rate for 1997 was $4.9$, so both equations over-predict the actual rate. The second equation does provide a somewhat better forecast.&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="13741" LastEditorUserId="13741" LastEditDate="2017-07-03T23:45:05.027" LastActivityDate="2017-07-03T23:45:05.027" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="17347" PostTypeId="2" ParentId="17345" CreationDate="2017-06-30T07:52:48.323" Score="4" Body="&lt;p&gt;I think it's too early to identify &lt;strong&gt;econometrically&lt;/strong&gt; an effect of Trump in the economy. Recall that the election was the 8th of November, and his victory came partly as a surprise. He took some time to define his cabinet and got into office the 22nd of January. Thus, any effect of a Trump's &quot;dummy&quot; might only partially be reflected in data for Q4 of 2016, and perhaps not fully in Q1 2017. The release of (worker's productivity) for Q2 2017 is the 9th of July (soon), where we might see more of Trump's effect on the economy and productivity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The best we can do at the moment is simply look at how the economy has evolved since Trump (see &lt;a href=&quot;https://internationalbanker.com/brokerage/economic-impact-obama-presidency-2009-2017/&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; for a related exercise for Obama).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, the favourite measure of labour productivity among economists slowed down in Q4 of 2016 and did not increase in Q1 of 2017:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/xfJ2c.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/xfJ2c.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Source &lt;a href=&quot;https://fred.stlouisfed.org/series/OPHNFB&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Similarly, there was an increase in workers productivity in the manufacturing sector in Q4 of 2016, which slowed down considerably in Q1 of 2017:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/vW7vL.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/vW7vL.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Source &lt;a href=&quot;https://fred.stlouisfed.org/series/PRS30006163&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How these developments are related to Trump is not clear though. Some news reports about these data releases make no mention of a Trump effect (e.g. &lt;a href=&quot;http://www.reuters.com/article/us-usa-economy-productivity-idUSKBN15H1KR&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; (Q4 2017), &lt;a href=&quot;http://www.marketwatch.com/story/us-productivity-in-first-quarter-zero-2017-06-05&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; or &lt;a href=&quot;http://www.cnbc.com/2017/06/05/revised-q1-2017-productivity.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; (Q1 2017)).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another example comes from the stock market. &lt;a href=&quot;http://www.marketwatch.com/story/how-the-trump-stock-market-ranks-as-he-approaches-his-100th-day-in-office-2017-04-12&quot; rel=&quot;nofollow noreferrer&quot;&gt;Here&lt;/a&gt; is an analysis showing the performance of the stock market under different presidents, after their 100th days in office. I show the main table below:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/tpJcj.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/tpJcj.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-07-01T07:36:21.380" LastActivityDate="2017-07-01T07:36:21.380" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17348" PostTypeId="2" ParentId="17320" CreationDate="2017-06-30T10:24:19.387" Score="0" Body="&lt;p&gt;I find tons of references &lt;a href=&quot;http://econpapers.repec.org/&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; (search box, to the left):&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://econpapers.repec.org/paper/fipfedkrw/95-14.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;this&lt;/a&gt; paper recalls that if purchasing power parity holds, real exchange rates is constant (and thus prediction of nominal exchange rate depends on prediction of relative prices). They find evidence in favour of long-run PPP. There are tons of other papers testing PPP.&lt;/li&gt;&#xA;&lt;li&gt;forecasting long run exchange rate with &lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/016517659400591O&quot; rel=&quot;nofollow noreferrer&quot;&gt;cointegration methods&lt;/a&gt; (error-correction model).&lt;/li&gt;&#xA;&lt;li&gt;a &lt;a href=&quot;http://econpapers.repec.org/paper/fipfedgfe/1996-39.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;simulation study&lt;/a&gt; to test if predicting long-run exchange rates is ever appropriate. &lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://econpapers.repec.org/article/keakeappr/ker-199412-10-1-12.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;another test&lt;/a&gt; of predictability, using cointegration methods.&lt;/li&gt;&#xA;&lt;li&gt;Recent examples of how to predict equilibrium exchange rate for a country with a &lt;a href=&quot;http://econpapers.repec.org/paper/uzawpaper/18978.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;fixed exchange rate&lt;/a&gt;, and one for a &lt;a href=&quot;http://econpapers.repec.org/paper/bnoworpap/2010_5f19.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;flexible exchange rate&lt;/a&gt;.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The list is truly enormous. &lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-06-30T10:24:19.387" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17351" PostTypeId="1" AcceptedAnswerId="17361" CreationDate="2017-06-30T18:52:46.790" Score="2" ViewCount="161" Body="&lt;p&gt;An AR(1) process is given as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$x_t=\rho_0+\rho_{t-1}x_{t-1}+\epsilon_t$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This regression tells us that $x_{t}$ is a function of its value at time $t-1$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is, how do you interpret its coefficient $\rho_{t-1}$? by comparison in a labor economics example (where only cross sectional data is used) for a case where you regress education on wage.&#xA;$$y_{wage}=\beta_0+\beta_{1} x_{educ}+u$$&#xA;If I were to take partials of this regression with respect to $x_{educ}$ I can interpret $\beta_1$ as the marginal returns to wage from education.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the AR(1) process, following the same steps as before, I am not sure how to interpret the coefficient $\rho_{t-1}$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is its meaning?&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2017-07-01T22:56:47.433" Title="Interpetation of coefficent in AR(1) model" Tags="&lt;econometrics&gt;&lt;time-series&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17352" PostTypeId="2" ParentId="17351" CreationDate="2017-06-30T19:34:16.483" Score="2" Body="&lt;p&gt;I think the interpretation here is one of correlation if we assume second-order stationarity. That is, the coefficient in your example is simply the correlation between a contemporaneous value of your dependent variable and its one-period lag. &lt;/p&gt;&#xA;" OwnerUserId="1655" LastActivityDate="2017-06-30T19:34:16.483" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="17353" PostTypeId="1" CreationDate="2017-06-30T20:03:11.593" Score="1" ViewCount="34" Body="&lt;p&gt;Lets say that we have in my country Greece there is an Island Crete that it has big production (agriculture,small banks etc.) and produces big surplus compared with other parts of Greece and the people there wanted to create there own currency in order to influence their economy and economic policies. What are some benefits for those people in such scenario?  &lt;/p&gt;&#xA;" OwnerUserId="13626" LastEditorUserId="2776" LastEditDate="2017-06-30T21:02:44.673" LastActivityDate="2017-06-30T21:02:44.673" Title="What are some benefits of local currencies?" Tags="&lt;currency&gt;&lt;currency-exchange&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17354" PostTypeId="2" ParentId="16728" CreationDate="2017-06-30T23:10:11.303" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Like what percentage of financial/economical forecast fail? &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Well it depends on what you call a forecast.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Considering that there is a large uncountable number of people who are called (or call themselves) financial,economic and policy analysts all over the world who together make what one would think millions of forecasts made everyday, there is probably a number which fail and a number which succeed. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So where are the numbers on it?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would suspect no general statistic exists because its measurement does not have a practical use from a policy perspective. I say this in the sense, that it is a concern exclusively of private businesses and companies to care how well their forecasts work. providing statistics on their forecasting success would be exclusively for marketing purposes.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Or how often do politicians create bad policies based on wrong forecasts?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This part of the question I recommend for &lt;a href=&quot;https://politics.stackexchange.com/&quot;&gt;Politics SE&lt;/a&gt; as it is &lt;a href=&quot;https://economics.meta.stackexchange.com/questions/1670/when-is-a-question-political-therefore-not-economic&quot;&gt; more political than economic&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope this helps&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2017-06-30T23:10:11.303" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17355" PostTypeId="2" ParentId="5709" CreationDate="2017-07-01T02:32:13.317" Score="1" Body="&lt;p&gt;Steven Landsburg's answer is correct.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But one must first understand that &lt;strong&gt;the supply curve is the same thing as the cost curve&lt;/strong&gt;. If the supply curve is perfectly elastic (horizontal), that's because the cost of production is constant. Let's say this constant cost of production is \$0.50. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And so in equilibrium, the good must be traded at \$0.50. That's because if the price were &gt;\$0.50, then quantity supplied (QS) &gt; quantity demanded (QD). Conversely, if the price were &amp;lt;\$0.50, then QS &amp;lt; QD.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Altogether then, we have&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;The cost of producing &lt;strong&gt;every&lt;/strong&gt; unit of the good is \$0.50.&lt;/li&gt;&#xA;&lt;li&gt;The good is traded at \$0.50.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Therefore, producer surplus for every unit of the good is \$0.50 - \$0.50 = \$0. Therefore, (total) producer surplus is \$0.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;For a fuller understanding, contrast this to the more typical scenario where the supply curve is upward-sloping.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;The cost of producing the &lt;strong&gt;marginal&lt;/strong&gt; unit of the good is \$0.50. However, the cost of producing earlier units of the good is &amp;lt;\$0.50.&lt;/li&gt;&#xA;&lt;li&gt;The good is traded at \$0.50.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Therefore, producer surplus for the &lt;strong&gt;marginal&lt;/strong&gt; unit of the good is \$0.50 - \$0.50 = \$0. However, producer surplus for &lt;strong&gt;earlier&lt;/strong&gt; units of the good is &gt;\$0 (we produce them at &amp;lt;\$0.50 but sell them at \$0.50). Therefore, (total) producer surplus (which is the sum of producer surplus for each unit of the good) must be &gt;\$0.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Here I would also draw the graphs to illustrate but &quot;ain't nobody got the time for that&quot;.)&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2017-07-01T02:32:13.317" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17357" PostTypeId="1" AcceptedAnswerId="17358" CreationDate="2017-07-01T10:03:24.817" Score="3" ViewCount="2504" Body="&lt;p&gt;In my understanding, M2 includes M1 and M1 include M0. However, I checked the money supply &lt;a href=&quot;https://tradingeconomics.com/united-states/money-supply-m0&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; and used the &quot;Compare&quot; function to compare the money supply of m0 with money supply of m1, and found that the money supply of M0 is higher than that of M1. How come?&lt;/p&gt;&#xA;" OwnerUserId="13803" LastEditorUserId="4988" LastEditDate="2017-07-06T20:36:02.153" LastActivityDate="2017-07-06T20:36:02.153" Title="Why is M0 higher than M1?" Tags="&lt;macroeconomics&gt;&lt;money-supply&gt;&lt;money&gt;&lt;definition&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17358" PostTypeId="2" ParentId="17357" CreationDate="2017-07-01T11:02:30.640" Score="3" Body="&lt;p&gt;Because what Trading Economics states to be M0 is not really M0 but the monetary base (MB). Compare the data in their graph with the data from the Fed (e.g. &lt;a href=&quot;https://fred.stlouisfed.org/graph/?g=egmp&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;). These are some of the values from the monetary base (variable &lt;code&gt;BOGMBASE&lt;/code&gt;):&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;2016-09-01  3735888&#xA;2016-10-01  3572132&#xA;2016-11-01  3629770&#xA;2016-12-01  3531565&#xA;2017-01-01  3595455&#xA;2017-02-01  3746401&#xA;2017-03-01  3856260&#xA;2017-04-01  3821654&#xA;2017-05-01  3774390&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;They correspond roughly to the ones in the TE graph.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Whilst M1 is indeed larger than M1, the monetary base does not need to be. This is the entry in the &lt;a href=&quot;https://en.wikipedia.org/wiki/Money_supply#United_States&quot; rel=&quot;nofollow noreferrer&quot;&gt;Wikipedia article&lt;/a&gt; for monetary supply in the US:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;M0: The total of all physical currency including coinage. M0 = Federal Reserve Notes + US Notes + Coins. It is not relevant whether the currency is held inside or outside of the private banking system as reserves.&lt;/li&gt;&#xA;&lt;li&gt;MB: The total of all physical currency plus Federal Reserve Deposits (special deposits that only banks can have at the Fed). MB = Coins + US Notes + Federal Reserve Notes + Federal Reserve Deposits&lt;/li&gt;&#xA;&lt;li&gt;M1: The total amount of M0 (cash/coin) outside of the private banking system plus the amount of demand deposits, travelers checks and other checkable deposits&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;A &lt;a href=&quot;https://www.federalreserve.gov/faqs/money_12845.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;similar entry&lt;/a&gt; from the Fed website indicates that M1 does not include the whole of MB. The relevant quote is:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The monetary base is defined as the sum of currency in circulation and reserve balances (deposits held by banks and other depository institutions in their accounts at the Federal Reserve). M1 is defined as the sum of currency held by the public and transaction deposits at depository institutions (which are financial institutions that obtain their funds mainly through deposits from the public, such as commercial banks, savings and loan associations, savings banks, and credit unions).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It follows that the data from Trading Economics &lt;strong&gt;is misleading&lt;/strong&gt;. It might be worth pointing this out to them.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-07-01T11:02:30.640" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17359" PostTypeId="2" ParentId="17357" CreationDate="2017-07-01T11:12:01.897" Score="1" Body="&lt;p&gt;What you want to compare is M1 and the currency component of M1:&#xA;&lt;a href=&quot;https://fred.stlouisfed.org/graph/?id=CURRNS,M1NS&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://fred.stlouisfed.org/graph/?id=CURRNS,M1NS&lt;/a&gt;,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Trading Economics is a bad source.&lt;/p&gt;&#xA;" OwnerUserId="11216" LastActivityDate="2017-07-01T11:12:01.897" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17360" PostTypeId="2" ParentId="17320" CreationDate="2017-07-01T11:25:47.733" Score="0" Body="&lt;p&gt;(1) There is a large body of research that suggests that the statistical properties of exchange rates are best described by a random walk. In this case your best guess for the long run exchange rate is the exchange rate today.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(2) The theoretical foundation for many exchange rate forecasts is that in the long run some variation of PPP should hold. This means that the exchange rate should adjust to equalize prices in different countries. A forecast for the long run exchange rates could thus be based on the differences in prices today and forecasts of inflation rates.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(3) Be aware that your forecast will most likely be close to worthless which will be obvious to everyone if you include confidence intervals that attempt to correctly reflect the uncertainty in the numbers.&lt;/p&gt;&#xA;" OwnerUserId="11216" LastActivityDate="2017-07-01T11:25:47.733" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17361" PostTypeId="2" ParentId="17351" CreationDate="2017-07-01T14:24:43.320" Score="3" Body="&lt;p&gt;&lt;strong&gt;For a second-order stationary series it is the correlation coefficient between the dependent value and its lag.&lt;/strong&gt;&#xA;Specify&#xA;$$y_{t+1} = a+ \beta y_t + u_{t+1}\qquad u_{t+1}= \text{white noise}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The correlation coefficient between $y_{t+1}$ and $y_{t}$ is defined as usual&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\rho_{(1)} = \frac{\text{Cov}(y_{t+1},y_{t})}{\sigma(y_{t+1})\sigma(y_t)}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\text{Cov}(y_{t+1},y_{t}) = E(y_{t+1}y_{t}) - E(y_{t+1})E(y_{t})$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ = E\Big((a+\beta y_t+u_{t+1})y_{t}\Big) - E(y_{t+1})E(y_{t}) = aE(y_t)+\beta E\Big(y_t^2+u_{t+1}y_{t}\Big) - E(y_{t+1})E(y_{t})$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We have $E(u_{t+1}y_{t}) =0$. Also, under first-order stationarity we have $E(y_t)=E(y_{t+1}) = \frac{a}{1-\beta}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Using these we get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\text{Cov}(y_{t+1},y_{t}) = \frac{a^2}{1-\beta}+\beta E(y_t^2) - \frac{a^2}{(1-\beta)^2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By definition the variance is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\text{Var}(y_t) = E(y_t^2) - [E(y_t)]^2 = E(y_t^2) -\frac{a^2}{(1-\beta)^2}$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies E(y_t^2)  = \text{Var}(y_t) + \frac{a^2}{(1-\beta)^2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Substituting,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\text{Cov}(y_{t+1},y_{t}) = \frac{a^2}{1-\beta}+\beta \text{Var}(y_t) + \beta \frac{a^2}{(1-\beta)^2}   - \frac{a^2}{(1-\beta)^2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Things cancel out and we are left with&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\text{Cov}(y_{t+1},y_{t}) = \beta\text{Var}(y_t) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Under the assumption of  2nd-order stationarity, $\text{Var}(y_t) = \text{Var}(y_{t+1}) = \text{Var}(y)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Inserting all this back to the correlation coefficient&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\rho_{(1)} = \frac{\beta\text{Var}(y)}{\sigma(y)\sigma(y)} = \frac{\beta\text{Var}(y)}{\text{Var}(y)} = \beta. $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that the presence of the constant $a$ does not affect the correlation -it would be the same if $a=0$. This is because location parameters do not affect second-order statistics like the covariance and the variance.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2017-07-01T14:57:12.450" LastActivityDate="2017-07-01T14:57:12.450" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="17362" PostTypeId="1" AcceptedAnswerId="17367" CreationDate="2017-07-01T16:52:10.073" Score="6" ViewCount="6858" Body="&lt;p&gt;Consider an arbitrary 2x2 simultaneous game with complete information. Say that the model has only one pure-strategy Nash equilibrium. For example (first pay-off refers to Player 1): &lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;                    Player 2&#xA;           +---+-------+-------+&#xA;           |   |   A   |   B   |&#xA;           +---+-------+-------+&#xA;Player 1   | A | (1,2) | (2,1) |&#xA;           | B | (3,3) | (1,1) |&#xA;           +---+-------+-------+&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Here, (3,3) is the only pure-strategy Nash equilibrium. The reason there is just one is, apparently, because one of the players have a dominant strategy (Player 2 always prefers A). If we change this, we would get two pure-strategy equilibria.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Abstracting from the fact that the pure-strategy equilibrium is also a mixed strategy one with probability 0/100%, &lt;strong&gt;does any simple game with just one pure-strategy equilibrium have no mixed strategy equilibrium?&lt;/strong&gt; Is there a formal proof of this?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I educated guess is that there is no mixed strategy equilibrium. The &quot;proof&quot; I can think of is a best response plot. Basically, one player has a dominant strategy which means that for any probability, her response is a vertical/horizontal line at 0 or 1 (depending how probability is defined). Thus, regardless of how the other player's best response line looks like (i.e. where the indifference probability is), it will only cross the other player's line in one point. That point is the pure-strategy equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;PS: the adjective &quot;simple&quot; is to avoid more complex game scenarios like repetition, cooperation, incomplete information, etc. &lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-07-01T16:59:58.277" LastActivityDate="2019-03-09T19:38:54.263" Title="Can a game with a unique pure strategy Nash equilibrium also have a mixed strategy equilibria?" Tags="&lt;game-theory&gt;&lt;nash-equilibrium&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="17364" PostTypeId="5" CreationDate="2017-07-01T17:57:19.137" Score="0" Body="" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2017-07-01T17:57:19.137" LastActivityDate="2017-07-01T17:57:19.137" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17365" PostTypeId="4" CreationDate="2017-07-01T17:57:19.137" Score="0" Body="Use this tag to discuss empirical papers and issues arising when applying theoretical models to data. For theoretical econometric issues, use the `econometrics` tag" OwnerUserId="61" LastEditorUserId="4230" LastEditDate="2020-12-30T15:10:09.810" LastActivityDate="2020-12-30T15:10:09.810" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="17366" PostTypeId="1" AcceptedAnswerId="17381" CreationDate="2017-07-01T18:42:16.570" Score="1" ViewCount="71" Body="&lt;p&gt;I am reading Some Unpleasant Monetarist Arithmetic (Sargent and Wallace, 1981) and I had some questions about a claim made by the authors. They say:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The public's demand for interest-bearing government&#xA;  debt constrains the government of a monetarist economy in at least two ways. One way the public's demand for bonds&#xA;  constrains the government is &lt;strong&gt;by setting an upper limit on&#xA;  the real stock of government bonds relative to the size of&#xA;  the economy&lt;/strong&gt;. Another way is by affecting the &lt;strong&gt;interest rate&#xA;  the government must pay on bonds&lt;/strong&gt;.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;First of all, are we assuming that the government borrows from the private sector and spends it on something that improves productivity? For example, the government could borrow from the private sector and spend it on a road (something that increases productivity) or they could spend it on unemployment benefits (beneficial, but not productive). I think &quot;real stock of government bonds&quot; is what is confusing me. So the way I understand the first reason is that if government debt becomes too high and the interest payments exceed the growth rate of the economy, this will not be sustainable because the government will have to pay more to the private sector than is produced by the private sector.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, consider a extremely simplified economy where corn is the only thing produced and the agents are: (i) the government (ii) the private sector. So the government borrows 1 ton of corn from the private sector and promises to pay back 2 tons next year. They use that corn to improve corn producing ability of the private sector. However, the private sector was only able to produce 1.5 tons of corn the following year. Hence the real government debt is too high relative to the real size of the economy. Is this what Sargent and Wallace are referring to?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The second reason sounds very logical but I just want to ensure I understand it correctly. Is it simply saying that if the interest payments on government debt becomes too high, they will have to raise taxes to a level that is not optimal?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, the second reason appears to be very similar to my corn example so it feels like I am not understanding the authors reasoning very well. If anyone could explain or refer me to a source, I would greatly appreciate it.&lt;/p&gt;&#xA;" OwnerUserId="11767" LastActivityDate="2017-07-03T16:23:27.823" Title="Government debt constraint" Tags="&lt;interest-rate&gt;&lt;government-debt&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17367" PostTypeId="2" ParentId="17362" CreationDate="2017-07-01T22:07:17.887" Score="3" Body="&lt;p&gt;In general:&#xA;&lt;br&gt; If you draw the numbers of the payoff matrix from continuous i.i.distributions then with probability 1 the game will have an odd number of equilibrium points. (Meaning the sum total of pure and mixed equilibria.) &#xA;See &lt;a href=&quot;https://mindyourdecisions.com/blog/2014/10/07/game-theory-tuesdays-why-most-games-have-an-odd-number-of-nash-equilibria/&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; or &lt;a href=&quot;https://link.springer.com/article/10.1007/BF01737572&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If your game is 2x2 this means that with probability 1 it will have 1 or 3 equilibria. It can only have 2 equilibria if the game is 'degenerate', which would rely on the existence of weakly dominated strategies. An example is&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;                   Player 2&#xA;           +---+-------+-------+&#xA;           |   |   A   |   B   |&#xA;           +---+-------+-------+&#xA;Player 1   | A | (1,1) | (0,0) |&#xA;           | B | (0,0) | (0,0) |&#xA;           +---+-------+-------+&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Here both (A,A) and (B,B) are Nash-equilibria. There are no other equilibria, as A is better than B if the opponent plays A with non-zero probability. &#xA;&lt;br&gt; (B,B) is not a trembling-hand perfect equilibrium, but that would be an additional requirement.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As the existence of weakly dominated strategies is necessary for exactly 2 NE and in a 2x2 game that makes mixed equilibria impossible, this means that you cannot have exactly 1 pure and 1 mixed NE.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="2776" LastEditDate="2017-07-04T06:37:59.833" LastActivityDate="2017-07-04T06:37:59.833" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="17369" PostTypeId="2" ParentId="17362" CreationDate="2017-07-01T22:37:26.300" Score="6" Body="&lt;pre&gt;&lt;code&gt;                    Player 2&#xA;           +---+-------+-------+-------+&#xA;           |   |   A   |   B   |   C   |&#xA;           +---+-------+-------+-------+&#xA;Player 1   | A | (1,1) | (0,0) | (0,0) | &#xA;           | B | (0,0) | (2,1) | (1,2) |&#xA;           | C | (0,0) | (1,2) | (2,1) |&#xA;           +---+-------+-------+-------+&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;If we allow $3\times 3$ games, then above is an example of the game that has exactly one pure strategy Nash equilibrium $(A, A)$ and at least one mixed strategy Nash Equilibrium.&lt;/p&gt;&#xA;" OwnerUserId="11824" LastActivityDate="2017-07-01T22:37:26.300" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="17370" PostTypeId="2" ParentId="17351" CreationDate="2017-07-01T22:56:47.433" Score="1" Body="&lt;p&gt;You can think of the coefficient in the AR(1) model as telling you something about the dynamics of the process. For example, if the model is of wage growth, then a coefficient &gt;0 suggests that higher wages yesterday are associated with higher wages today. If the coefficient is &amp;lt;1 then there is not a complete pass-through from yesterdays wage growth (i.e. a stationary process) whereas if it were &gt;1 then you have a non-stationary process where wage increases are accelerating. In the wage growth or inflation case this could be suggestive of hyperinflation.&lt;/p&gt;&#xA;" OwnerUserId="6844" LastActivityDate="2017-07-01T22:56:47.433" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17371" PostTypeId="1" AcceptedAnswerId="17372" CreationDate="2017-07-02T04:05:35.297" Score="0" ViewCount="163" Body="&lt;p&gt;In undergrad econ we learned that it would cost a firm more money to increase its production in short term than in long term. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;MWG does not seem to cover this topic. I need a Graduate level texts/notes/papers that cover the Short Run and Long Run Costs of firms' production (or supply curve).&lt;/p&gt;&#xA;" OwnerUserId="13381" LastActivityDate="2017-07-02T08:58:38.343" Title="Graduate level texts/notes that cover the Short Run and Long Run Costs of firms' production" Tags="&lt;microeconomics&gt;&lt;reference-request&gt;&lt;production-function&gt;&lt;firm&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17372" PostTypeId="2" ParentId="17371" CreationDate="2017-07-02T08:58:38.343" Score="4" Body="&lt;p&gt;Textbooks:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Mas-Colell, Whinston, and Green (1995). Microeconomic Theory. &lt;strong&gt;Chapter 5&lt;/strong&gt;&lt;/li&gt;&#xA;&lt;li&gt;Geoffrey Reny. Advanced Microeconomic Theory, 3rd edition. &lt;strong&gt;Chapter 3&lt;/strong&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Kreps (1990). A Course in Microeconomic Theory. &lt;strong&gt;Chapter 7&lt;/strong&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Varian (1992). Microeconomic Analysis, 3rd edition. &lt;strong&gt;Chapter 5&lt;/strong&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Lecture notes: I think undergraduate notes are more useful on this respect. For instance:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Chapter 6 to Chapter 8 &lt;a href=&quot;https://ocw.mit.edu/courses/economics/14-01-principles-of-microeconomics-fall-2007/lecture-notes/&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;.&lt;/li&gt;&#xA;&lt;li&gt;Set 6 and 7 &lt;a href=&quot;https://ocw.mit.edu/courses/economics/14-04-intermediate-microeconomic-theory-fall-2006/syllabus/&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; (go to downloads to get slides).&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;In my experience, graduate notes deal with deeper issues. For instance &lt;a href=&quot;https://ocw.mit.edu/courses/economics/14-121-microeconomic-theory-i-fall-2015/lecture-slides/&quot; rel=&quot;nofollow noreferrer&quot;&gt;this&lt;/a&gt;, &lt;a href=&quot;https://ocw.mit.edu/courses/economics/14-03-microeconomic-theory-and-public-policy-fall-2016/lecture-notes/&quot; rel=&quot;nofollow noreferrer&quot;&gt;this&lt;/a&gt;, or &lt;a href=&quot;https://ocw.mit.edu/courses/economics/14-121-microeconomic-theory-i-fall-2005/syllabus/&quot; rel=&quot;nofollow noreferrer&quot;&gt;this&lt;/a&gt; one dig much deeper, skipping SR/LR cost functions altogether.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In any case, here Google is your friend. The trick (imo) is to add &quot;pdf&quot; to the search, to get lecture slides. For example: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://google.com/#q=microeconomics+cost+function+short+run+long+run+pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://google.com/#q=microeconomics+cost+function+short+run+long+run+pdf&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-07-02T08:58:38.343" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17375" PostTypeId="1" CreationDate="2017-07-03T07:46:51.167" Score="0" ViewCount="38" Body="&lt;p&gt;The premise is said best by the economist George Magnus in 2015:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;Advances in technological productivity gains are benefiting a limited number of people. The principal rewards of modern technology are accruing to the owners of capital, not the owners of labor. Think about the three biggest firms in silicon valley: they have 137,000 people. These three companies are worth 1.2 trillion dollars. Now cast your mind back just 25 years to 1990. The three biggest companies in Detroit had 10 times as many workers, but their combined market value was a mere 36 billion dollars.&quot; (in 2015 index dollars)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Magnus is making the case that the &quot;pendulum&quot; is swinging away from labor/masses in the main, and into the hands of the highly technically trained few. However, in America, nearly everyone has smartphones and laptops these days, but is this kind of access to capital enough to modestly challenge Magnus' assertion? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Main Question:&lt;/strong&gt; I concede a good portion of the middle class' top performers are indeed in the tech sector, but is it possible that there is still a lack in access to capital in America's middle class (despite our affinity for gadgets)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On a related note, in addition to technological capital, if we examine other measures of capital, like real estate, we find a similar trend. America's real estate market has very high prices, despite the fairly well-documented data that American national's demand for housing is weak. This is reflected by the Home Owner's index. It has been postulated that the housing demand stems stems from a wealthy few speculators who buy the land. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Tangent Question:&lt;/strong&gt; Is their any connection to these two facets of capital and how capital is owned in the US?&lt;/p&gt;&#xA;" OwnerUserId="12212" LastEditorUserId="12212" LastEditDate="2017-07-03T07:52:38.867" LastActivityDate="2017-07-03T07:52:38.867" Title="Which way is the pendulum swinging with regards to &quot;Access to Capital&quot;" Tags="&lt;macroeconomics&gt;&lt;technology&gt;&lt;capital&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="17378" PostTypeId="2" ParentId="12296" CreationDate="2017-07-03T12:35:01.540" Score="1" Body="&lt;p&gt;You need to use PPP rates. These convert basket of goods in one country (in LCU) to that of (normally) the US, in US dollars. You can find these rates &lt;a href=&quot;http://data.worldbank.org/indicator/PA.NUS.PPP&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; or &lt;a href=&quot;https://data.oecd.org/conversion/purchasing-power-parities-ppp.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;. With these rates you can transform nominal GDP in Yuan into nominal GDP in USD. Then, you can use a US CPI or GDP deflator index to transform these nominal international dollars into constant international dollars. The base year is given by the price index you use. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can rear more about PPP and how to use it &lt;a href=&quot;http://www.oecd.org/std/47359870.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, in case you do not want to bother to calculate this yourself, or that you want to confirm your calculations, &lt;a href=&quot;http://data.worldbank.org/indicator/NY.GDP.MKTP.PP.KD?locations=CN&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; is the actual series of China's GDP in 2011 international dollars.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-07-03T12:43:12.303" LastActivityDate="2017-07-03T12:43:12.303" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17379" PostTypeId="2" ParentId="11108" CreationDate="2017-07-03T12:41:34.873" Score="2" Body="&lt;p&gt;You are correct. That is the right way to go. &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Take your starting nominal GDP series in local currency units (e.g. Euros), and use the PPP rates to transform local currency units into nominal US dollars. You can find PPP rates &lt;a href=&quot;http://data.worldbank.org/indicator/PA.NUS.PPP&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; or &lt;a href=&quot;https://data.oecd.org/conversion/purchasing-power-parities-ppp.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;.&lt;/li&gt;&#xA;&lt;li&gt;Use the US GDP deflator (or a price index) to transform nominal GDP in USD into real GDP in USD. The base year is given by the chosen price index.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;You can find GDP in constant US dollars for 2011 form almost every country in the world &lt;a href=&quot;http://data.worldbank.org/indicator/NY.GDP.MKTP.PP.KD&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;See &lt;a href=&quot;https://data.oecd.org/conversion/purchasing-power-parities-ppp.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;this&lt;/a&gt; document or &lt;a href=&quot;http://www.worldbank.org/en/programs/icp#6&quot; rel=&quot;nofollow noreferrer&quot;&gt;this&lt;/a&gt; website for further references.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-07-03T12:41:34.873" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17380" PostTypeId="2" ParentId="6899" CreationDate="2017-07-03T12:49:21.137" Score="1" Body="&lt;p&gt;&lt;a href=&quot;https://beta.bls.gov/dataQuery/find?fq=survey:[ip]&amp;amp;s=popularity:D&quot; rel=&quot;nofollow noreferrer&quot;&gt;Here&lt;/a&gt; is exactly what you are looking for, at the finest level of NAICS disagregation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Example for aircraft manufacturing:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/4jE8F.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/4jE8F.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Example for Software publishers:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/Z1mL1.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Z1mL1.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-07-03T12:49:21.137" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17381" PostTypeId="2" ParentId="17366" CreationDate="2017-07-03T13:04:16.963" Score="2" Body="&lt;p&gt;The government just consumes within this model, as is similar to other standard DSGE models. Therefore, its consumption (G) never has an effect on productivity. Imagine a wartime situation where the government is buying goods that are used to provision the army; the goods are consumed, but will not help develop the domestic economy. If you wanted to simulate government infrastructure spending raising productivity within these models, the government infrastructure build would have to be added to business investment (raising the capital stock).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &quot;real government debt&quot; constraint says that although the nominal level of debt is fixed, if future taxation policy is expected to be &quot;too low&quot; relative to the nominal stock of debt, the price level will rise now. This the Fiscal Theory of the Price Level. The governmental budget constraint is used to determine the formal relationship between the expected primary surpluses and the real value of current government debt (effectively, the current price level, since the initial nominal debt level is fixed).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With regards to your examples, even if debt due was greater than GDP, the situation can be sustained. (We have seen debt-GDP ratios greater than 100% in a number of countries, including Japan at present.) Most of the debt will be rolled over into new debt. That is, in year 2 of your example, the government could just borrow the nominal amount equivalent to two tons of corn, and roll over the debt from year one. (This is possible since these are models of monetary economies, in which nominal claims - money and bonds - are used in exchange, and not just goods themselves, see below.) The issue with sustainability is whether the debt/GDP ratio will tend to infinity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If transactions were barter transactions with real goods, you could then have &quot;real debts&quot; which are payable by goods (corn, say). What the limits are for paying back debt depends upon your assumptions about the payment system. Normally these models assume simultaneously clearing of all transactions in a period. However, if we assume that there are multiple transactions possible within a period (and we are only simulating the aggregate), the government in your example could borrow corn from some members of the private sector, and then use that to pay off other lenders, and then repeat the process until the entire debt stock is rolled over. If that is assumed not be posisble, the government would have to lengthen maturities, so that only part of its debt stock needs to be rolled over, and the previously described procedure is again possible. Having debt with multiple maturities is avoided in DSGE models due to complexity concerns, but it would be necessary if the payments system was restricted like this.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastEditorUserId="12891" LastEditDate="2017-07-03T16:23:27.823" LastActivityDate="2017-07-03T16:23:27.823" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="17384" PostTypeId="1" CreationDate="2017-07-03T15:55:48.373" Score="1" ViewCount="13" Body="&lt;p&gt;If this question is off-topic, my apologies. It seems borderline to me.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have had several people tell me (without reference) this idea that: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Enforcement is ineffective because enforcement will only change behavior in the presence of the enforcer. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I have asked them for their source but I never get any. I also do not see it in my preliminary searches.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, I am wondering if anyone here knows the origin of this statement or any research which supports such a claim.&lt;/p&gt;&#xA;" OwnerUserId="13823" LastActivityDate="2017-07-03T15:55:48.373" Title="Origin of &quot;enforcement is only effective in the presence of the enforcer?&quot;" Tags="&lt;reference-request&gt;&lt;behavioral-economics&gt;" AnswerCount="0" CommentCount="1" ClosedDate="2017-07-07T16:21:43.863" ContentLicense="CC BY-SA 3.0" />
  <row Id="17385" PostTypeId="2" ParentId="12954" CreationDate="2017-07-03T16:14:58.760" Score="1" Body="&lt;p&gt;As already suggested in the comments of the OP, we find cases where the provision of essential services behave much like any other market when privatized.&lt;/p&gt;&#xA;&lt;p&gt;As suggested by &lt;a href=&quot;https://economics.stackexchange.com/users/8891/henry&quot;&gt;Henry&lt;/a&gt; it was found that in the case of fire fighters, they simply let the homes burn down. On the &lt;a href=&quot;http://www.london-fire.gov.uk/early-fire-brigades-and-james-braidwood.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;London Fire Brigade's Website&lt;/a&gt; they discuss the issue in question with great detail.&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;People paid a fee to an insurance company to insure their property against damage. The most common risk at this time was fire. The first insurance company was named Phoenix, after the Greek mythological bird that rose from the ashes, and was established by Nicolas Barbon.&lt;/p&gt;&#xA;&lt;p&gt;Building insurance was very profitable and many more insurance companies were set up with the insurance companies establishing their own fire brigades. These brigades were sent to insured properties if a fire occurred to minimise damage and cost.&lt;/p&gt;&#xA;&lt;p&gt;Firemarks were used to identify - and advertise - different insurance companies. They were placed on the outside of an insured building and brigades would use these firemarks to determine whether a building was insured by them. If a building was on fire, several brigades would attend; if they did not see their specific firemark attached to the building, they would leave the property to burn. You can still see some old firemarks on buildings today.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Similarly we in 2010 there was a case of &lt;a href=&quot;http://www.timesnews.net/News/2010/10/05/Tennessee-firefighters-let-home-burn-owner-didn-t-pay-fire-protection-fee&quot; rel=&quot;nofollow noreferrer&quot;&gt;Tennessee firefighters letting a home burn when the owner didn't pay fire-protection fee&lt;/a&gt;. Its clear that if an essential service is allowed to be privatized, they will function like any other business.&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2017-07-03T16:14:58.760" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17386" PostTypeId="1" CreationDate="2017-07-03T22:33:07.787" Score="0" ViewCount="645" Body="&lt;p&gt;Simple question: If the GINI coefficient (market incomes) goes up, is it a necessary feature that the mean income rises relative to the median? &lt;/p&gt;&#xA;" OwnerUserId="13825" LastEditorUserId="2776" LastEditDate="2017-07-04T06:05:00.087" LastActivityDate="2017-07-04T06:05:00.087" Title="Gini coefficients and median / mean income ratio" Tags="&lt;inequality&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17387" PostTypeId="2" ParentId="17080" CreationDate="2017-07-03T23:26:22.957" Score="-1" Body="&lt;p&gt;Infact they do this all the time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you have any friends with small feet (usually girls in my experience) you'll find that they constantly brag about how cheap their shoes are because they are able to purchase them in &lt;strong&gt;kids size&lt;/strong&gt; despite being ages 16-17+&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example the Nike Roshe One &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.jdsports.co.uk/product/black-nike-roshe-one-children/023064/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Kids Size&lt;/a&gt; Priced at £15&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.jdsports.co.uk/product/nike-roshe-one/176844/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Adult Mens Size 12&lt;/a&gt; Priced at £20&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From what I can see there is absolutely no difference between the two pairs of trainers besides their size and the smaller variant of the shoe costs 25% less than the adult version of it.&lt;/p&gt;&#xA;" OwnerUserId="4740" LastActivityDate="2017-07-03T23:26:22.957" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17389" PostTypeId="2" ParentId="17386" CreationDate="2017-07-04T02:03:57.610" Score="1" Body="&lt;p&gt;No, since you can change the Gini coefficient by altering the distribution of incomes in the top half (keeping the total the same) without changing the mean or median income; you can also change the Gini coefficient by altering the distribution of incomes in the bottom half without changing the mean or median income.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Compare the Gini coefficients of {2,2,2,2,2,6,10,10,10,10,10} and of {1,1,1,1,6,6,6,6,6,6,26}: the former will have a Gini index of about 0.33 while the latter will have a Gini index of about 0.46 though the mean and median do not change (6 each)  &lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2017-07-04T02:03:57.610" CommentCount="10" ContentLicense="CC BY-SA 3.0" />
  <row Id="17390" PostTypeId="2" ParentId="17080" CreationDate="2017-07-04T02:27:00.510" Score="1" Body="&lt;p&gt;I think the other answers' point about logistics is correct. But just to add another small insight:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is actually at least one airline that charges by weight: &lt;a href=&quot;http://www.aljazeera.com/news/asia-pacific/2013/04/20134363552821877.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Samoa Air&lt;/a&gt;. Samoa is also one of the most obese countries in the world. So its passengers which include both Samoans and non-Samoans (120 kg Samoans and 50 kg Japanese) exhibit a great variation in weight. With such great variation, it may be worthwhile taking on the additional logistical/administrative costs of price-discriminating by weight.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Like others have pointed out, there is actually price discrimination for shoe size, but done coarsely: Men, women, and children. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Within each group, they generally don't bother to price-discriminate more finely (i.e. by shoe size). That's because most men will fall within a narrow range of shoe sizes. Same for women and children. So the logistical/admin costs of price-discriminating by exact shoe size may not be worthwhile.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So perhaps in some country where there is very great variation in shoe size, it would also make sense to price-discriminate more finely.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2017-07-04T02:27:00.510" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17391" PostTypeId="1" AcceptedAnswerId="17733" CreationDate="2017-07-04T05:45:57.050" Score="2" ViewCount="452" Body="&lt;p&gt;This is something that's in the UK news at the moment. Public sector workers have experienced a 1% annual cap on pay increase since 2013.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Government ministers are appearing on TV saying that they don't have the multiple billions required to fund an increase to bring it in line with the private sector.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Despite the headline figure (let's call it £6 billion), how much does the pay increase actually cost the government?  I'm thinking that VAT receipts, income tax receipts and corporation tax receipts (from an increase in spending) would surely all go up?&lt;/p&gt;&#xA;" OwnerUserId="13828" LastActivityDate="2017-08-09T06:05:15.607" Title="How much does a public sector pay rise actually cost the UK government?" Tags="&lt;government-debt&gt;&lt;government&gt;&lt;government-spending&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="17392" PostTypeId="2" ParentId="16957" CreationDate="2017-07-04T07:38:16.547" Score="1" Body="&lt;p&gt;(Asker here):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I found an answer that satisfies me, in Alfred Marshall's original argument from &lt;em&gt;Principles of Economics&lt;/em&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The answer seems to have to do with who has bargaining power. At any higher price, when supply exceeds demand, every buyer can truthfully say to prospective sellers: &quot;If you aren't willing to accept a lower price, I'll find somebody else who is&quot;. At any lower price, when demand exceeds supply, every seller can truthfully say to prospective buyers: &quot;If you aren't willing to accept a higher price, I'll find somebody else who is&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here's the passage:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;…&#xA;  Let us take an illustration from a corn-market in a country town. The amount which each former or other seller offers for sale at any price is governed by his own need for money in hand, and by his calculation of the present and future conditions of the market with which he is connected. There are some prices which no seller would accept, some which no one would refuse. There are other intermediate prices which would be accepted for larger or smaller amounts by many or all of the sellers. Let us assume for the sake of simplicity that all the corn in the market is of the same quality. An acute dealer having corn for sale may perhaps, after looking around him, come to the conclusion that if 37$s$ could be got throughout the day, the farmers between them would be willing to sell to the extent of about 1,000 quarters; and that if no more than 36$s$ could be got, several would refuse to sell, or wold sell only small quantities, so that only 700 quarters would be brought forward for sale; and that a price of 35$s$ would only induce some 500 quarters to be brought forward. Suppose him further to calculate that millers and others would be willing to buy 900 quarters if they could be got at 35$s$ each, but only 700 if they could not be got for less that 36$s$, and only 600 if they could not be got for less than 37$s$. He will conclude that a price of 36$s$, if established at once, would equate supply and demand, because the amount offered for sale at that price would equal the amount which could just find purchasers at that price. He will therefore take at once any offer considerably over 36$s$; and other sellers will do the same.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Buyers on their part will make similar calculations and if at any time the price should rise considerably above 36$s$ they will argue that the supply will be much greater than the demand at that price; therefore even those of them who would rather pay that price than go unserved, wait, and by waiting they help to bring the price down. On the other hand, when the price is much below 36$s$ even those sellers who would rather take the price than leave the market with their corn unsold, may argue that at that price the demand will be in excess of the supply: so they wait, and by waiting help to bring the price up.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The price of 36$s$ has thus a claim to be called the true equilibrium price: because if it were fixed on at the beginning, and adhered to throughout, it would exactly equate demand and supply; and because every dealer who has a perfect knowledge of the circumstances of the market expects that price to be established. If he sees the price differing much from 36$s$ he expects that a change will come before long, and by anticipating it he helps it to come quickly…&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This argument sounds different from what other answers have said, and didn't mention sellers being &quot;price taking&quot;, which others have said is important. So I suspect there's more to it than Marshall's argument.&lt;/p&gt;&#xA;" OwnerUserId="10618" LastActivityDate="2017-07-04T07:38:16.547" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17393" PostTypeId="2" ParentId="14028" CreationDate="2017-07-04T10:01:55.983" Score="2" Body="&lt;p&gt;&quot;Rules of origin&quot; cover this. Try &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Wikipedia &lt;a href=&quot;https://en.wikipedia.org/wiki/Rules_of_origin&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://en.wikipedia.org/wiki/Rules_of_origin&lt;/a&gt; or &lt;/li&gt;&#xA;&lt;li&gt;WTO: &lt;a href=&quot;https://www.wto.org/English/tratop_e/roi_e/roi_info_e.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.wto.org/English/tratop_e/roi_e/roi_info_e.htm&lt;/a&gt;  or &lt;/li&gt;&#xA;&lt;li&gt;EU: &lt;a href=&quot;https://ec.europa.eu/taxation_customs/business/calculation-customs-duties/rules-origin_en&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://ec.europa.eu/taxation_customs/business/calculation-customs-duties/rules-origin_en&lt;/a&gt; or &lt;/li&gt;&#xA;&lt;li&gt;USA: &lt;a href=&quot;http://2016.export.gov/FTA/nafta/eg_main_017791.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://2016.export.gov/FTA/nafta/eg_main_017791.asp&lt;/a&gt; &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Essentially the rules tell someone trading between two places with a free trade agreement in which circumstances something partly originally imported from a third country (whether under another free trade agreement or having paid an original tariff) can be freely traded under the agreement&lt;/p&gt;&#xA;" OwnerUserId="8891" LastEditorUserId="2776" LastEditDate="2017-07-04T10:16:37.970" LastActivityDate="2017-07-04T10:16:37.970" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17394" PostTypeId="1" CreationDate="2017-07-04T15:27:50.813" Score="0" ViewCount="56" Body="&lt;p&gt;Let's say that there are 2 players Player A and Player B, engaged in a set of repeated strategic games. Is it then possible to transfer information from one player, say Player A, to the other player, Player B, simply by having Player B observe the strategies that Player A uses over a given period of time, in response to Player B's strategies? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, Player B could form a simple hypothesis about player A's beliefs  and/or preferences, and test it out by using different strategies. The hypothesis can then turn out to be true or false (over a period of time, with some probability) if Player A's strategies in response to Player B's take on a certain character.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would like to learn more about these kinds of games, if they've been studied.&lt;/p&gt;&#xA;" OwnerUserId="5591" LastActivityDate="2017-07-07T13:54:13.940" Title="Is it possible to transfer information through strategic games?" Tags="&lt;game-theory&gt;&lt;repeated-games&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="17395" PostTypeId="1" AcceptedAnswerId="17398" CreationDate="2017-07-04T20:28:42.717" Score="1" ViewCount="111" Body="&lt;p&gt;I have a question regarding regressing the log growth of Real GDP on the log growth of Intellectual Property production which contributes to GDP (through using the expenditure method of calculating GDP). My question is does this regression make sense? I used the dollar values initially and I had an absurdly high R^2. After refreshing my knowledge of Time Series regression I changed the model as well as adding a lag for the log growth of IP production. The values I get seem as if they are economically and statistically sound. However, I am not sure if my model makes sense as IP production is a component of calculating Expenditure based GDP.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My goal for this was to find out what effect IP production will have on economic growth in order to quantify some type of relation that I can add in a report regarding to a project which proposes an increase in IP production of a state.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I apologize if the question seems rather trivial. I'm possibly undertaking more then what is required for this project but I'd like to gain some knowledge through doing this. Thank you in advance.&lt;/p&gt;&#xA;" OwnerUserId="13831" LastEditorUserId="13831" LastEditDate="2017-07-05T20:01:56.950" LastActivityDate="2017-07-05T20:01:56.950" Title="Regression of Real GDP on Intellectual Property Products Problem" Tags="&lt;macroeconomics&gt;&lt;econometrics&gt;&lt;gdp&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17396" PostTypeId="1" CreationDate="2017-07-04T21:28:09.780" Score="-2" ViewCount="1561" Body="&lt;p&gt;I have $U(x,y)=xy$, $p_1=4$ and $p_2=1$. Income is unknown. Where do I start?&lt;/p&gt;&#xA;" OwnerUserId="13832" LastEditorUserId="2776" LastEditDate="2017-07-05T06:13:38.583" LastActivityDate="2018-11-06T02:52:46.220" Title="Find Engel Curve with a Cobb-Douglas" Tags="&lt;microeconomics&gt;&lt;cobb-douglas&gt;" AnswerCount="2" CommentCount="3" ClosedDate="2018-11-09T01:06:53.010" ContentLicense="CC BY-SA 3.0" />
  <row Id="17398" PostTypeId="2" ParentId="17395" CreationDate="2017-07-05T01:15:24.613" Score="1" Body="&lt;p&gt;It is never a good idea to regress something so complex as GDP on a single variate. There may be myriad confounding factors.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can think of two suggestions here:  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) Lookup Barro's and Sala-i-Martin book on Growth, the empirical part, to get an idea of what kind of factors seem to appear to influence growth (or what kind of factors growth can be decomposed into). They can be used as control variables, in order to check whether in their presence IntProp remains a statistically significant variable, and even if it does, what is the magnitude of its effect (so that one can assess its economic significance also).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) Consider detrending your variables, either linearly or non-linearly using for example the HP-filter, and regress the cycle components and perform the usual correlation analysis of real business cycle models, in order to see whether IntProp leads or lags the GDP cycle. If it leads, an argument could be made that in the short-run at least IntProp pushes the growth cycle out of its trough.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2017-07-05T01:15:24.613" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="17399" PostTypeId="2" ParentId="16767" CreationDate="2017-07-05T11:56:57.160" Score="1" Body="&lt;p&gt;It means what Herr K. has guessed: there are acts $f$ and $g$ that the decision maker does not deem equivalent from the preference standpoint. In other words, the DM expresses a strong preference in at least one comparison he makes. a preference that does &lt;strong&gt;not&lt;/strong&gt; satisfy it is a AA subjective expected utility with a constant index $u$ (i.e. such that the representation is $\int u dp$ for an arbitrary belief $p$). On the other hand if at least for one comparison the DM says $f$ is strictly better than $g$ then you satisfy it. &lt;/p&gt;&#xA;" OwnerUserId="5777" LastActivityDate="2017-07-05T11:56:57.160" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17401" PostTypeId="1" CreationDate="2017-07-05T13:11:06.677" Score="1" ViewCount="681" Body="&lt;p&gt;I have data on disposable income, where some households have negative income. Albeit I can immediately compute the Gini with these dataset (e.g. with &lt;code&gt;ineqdec0&lt;/code&gt;, &lt;code&gt;inequal7&lt;/code&gt; or &lt;code&gt;fastgini&lt;/code&gt; in Stata), it is &lt;a href=&quot;http://www.jstor.org/stable/2662589&quot; rel=&quot;nofollow noreferrer&quot;&gt;well known&lt;/a&gt; that Gini with some negative values could be higher than 1. An example from such reference:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/iRz85.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/iRz85.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Is there an &quot;optimal&quot; method to deal with such observations?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can think of some approaches like:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;truncating: eliminating all observations with negative income&lt;/li&gt;&#xA;&lt;li&gt;censoring: assign zero income to all negative income&lt;/li&gt;&#xA;&lt;li&gt;translation: add to every observation the largest negative income, so that the poorest observation has zero income&lt;/li&gt;&#xA;&lt;li&gt;some type of normalisation, like the one the reference above gives:  &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/hTqD3.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/hTqD3.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In all these cases, the Gini will now be between 0 and 1. Is there a &quot;preferred&quot; or an &quot;usual&quot; method? (perhaps by multilateral organisations like IMF, OECD, etc)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a secondary question, is there an inequality index that is better poised to deal with negative income?&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-07-05T13:11:06.677" Title="Gini with negative incomes" Tags="&lt;inequality&gt;" AnswerCount="0" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="17402" PostTypeId="1" CreationDate="2017-07-05T14:25:49.860" Score="2" ViewCount="39" Body="&lt;p&gt;I have trouble in understanding why a sufficient condition that a best reply function is a contraction. The following is a screenshot of Xavier Vives's &lt;em&gt;Oligopoly Pricing: Old Ideas and New Tools&lt;/em&gt; from googlebooks (see &lt;a href=&quot;https://books.google.de/books?redir_esc=y&amp;amp;id=le-OE5HMLY8C&amp;amp;q=47#v=snippet&amp;amp;q=47&amp;amp;f=false&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/MtTEV.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/MtTEV.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We have to find a constant $c \in [0,1)$ such that for all $x, y \in A$,&#xA;$$d(r(x),r(y)) \leq c d(x,y)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But it seems to me we don't have any parameter in this setting to calculate $c$.&lt;/p&gt;&#xA;" OwnerUserId="73" LastEditorUserId="42" LastEditDate="2017-07-06T07:38:59.190" LastActivityDate="2017-07-06T07:38:59.190" Title="Question on a sufficient condition of contractiveness of best reply functions in Vives (1999)" Tags="&lt;mathematical-economics&gt;&lt;game-theory&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17403" PostTypeId="1" CreationDate="2017-07-06T05:19:26.477" Score="1" ViewCount="71" Body="&lt;p&gt;I was asked this question in an interview: There are two people Mike and Cheng with one blank card each. Both write either a '0' or a '1' on it without showing the other while writing. They then simultaneously show their cards to each other. If the payoffs are as follows depending on the cards shown:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1,1: Mike pays Cheng 3&lt;/p&gt;&#xA;&#xA;&lt;p&gt;0,0: Mike pays Cheng 1&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1,0: Mike receives 2 from Cheng&lt;/p&gt;&#xA;&#xA;&lt;p&gt;0,1: Mike receives 2 from Cheng&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this game fair?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Using game theory I reason: Cheng will always play 1 because his payoff from 1 is (-2 or 3) as opposed to his payoff from playing 0 which is (1 or -2). Knowing that Cheng will prefer to play 1, Mike always plays 0 to get a payoff of 2. So the game is unfair to Cheng.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But I also reason: Mike will never play 1 because he has a payoff (2 or -3) vs playing 0 which has a payoff (-1 or 2). So Mike will always prefer to play 0 (this is also inline with the above reasoning). Knowing that Mike will always prefer 0, Cheng always plays 0 so Mike gets -1 every round. So this game is unfair to Mike.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regardless if the game is played one round or many rounds, I am unable to conclude which is correct.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can anyone help explain why I am getting conflicting results?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;PS: Later the interviewer told me that the game is unfair and Mike always wins.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;PPS: I apologize in advance if I have made any mistakes in the posting - this is my first post.&lt;/p&gt;&#xA;" OwnerUserId="13841" LastActivityDate="2017-07-15T01:15:37.800" Title="Faulty reasoning in two person card game problem" Tags="&lt;game-theory&gt;" AnswerCount="1" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="17406" PostTypeId="1" AcceptedAnswerId="17413" CreationDate="2017-07-06T07:22:52.387" Score="1" ViewCount="44" Body="&lt;p&gt;I was reading &lt;a href=&quot;https://www.project-syndicate.org/commentary/russia-bleak-economic-prospects-by-kenneth-rogoff-2017-07#comments&quot; rel=&quot;nofollow noreferrer&quot;&gt;Rogoff's piece&lt;/a&gt; on the Russia's economic outlook, and in a paragraph, he states &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The shock to the real economy has been severe, with Russia suffering a decline in output in 2015 and 2016 comparable to what the United States experienced during its 2008-2009 financial crisis, with the contraction in GDP totaling about 4%.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I'm wondering how did they reach this figure. I was trying to redo the calculations, this time with &lt;a href=&quot;https://data.oecd.org/gdp/gross-domestic-product-gdp.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;OECD data&lt;/a&gt; on GDP, but none of the figures obtained are comparable - I just did $GDP_{t+1}/GDP_{t}=1+gr$ For Russia, I got 6-7%, and USA 2-3%,  depending whether we use GDP or GDP per capita.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="118" LastEditDate="2017-07-06T09:04:00.090" LastActivityDate="2017-07-06T15:46:50.690" Title="Comparing GDP contractions between Russia and US" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17408" PostTypeId="1" AcceptedAnswerId="17418" CreationDate="2017-07-06T12:28:37.790" Score="1" ViewCount="74" Body="&lt;p&gt;In 2008 the UK deficit was around £10Bn - in 2010 it had reached around £100Bn.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I realise this was due to the &quot;global recession&quot; but exactly why did the deficit grow so much?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My understanding is the deficit is the UK Treasury income less expenditure, so did income drop (and why) or did expenditure increase and again, why?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I imagine the recession would show a reduction in tax receipts but £100Bn seems excessive and also there may be some increased borrowing leading to increased debt payments but again the figures seem huge.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Was it the bank bail-outs to blame?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My data is from &lt;a href=&quot;http://www.ukpublicspending.co.uk/uk_national_deficit_analysis&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally is austerity likely to return the UK treasury to surplus given that there is a finite amount of spending that can realistically be cut?&lt;/p&gt;&#xA;" OwnerUserId="13851" OwnerDisplayName="davidjwest" LastEditorUserId="2776" LastEditDate="2017-07-06T13:39:53.227" LastActivityDate="2017-07-07T01:08:06.923" Title="Causes of recent UK Deficit" Tags="&lt;government-debt&gt;&lt;government-spending&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="17409" PostTypeId="2" ParentId="88" CreationDate="2017-07-06T12:41:06.267" Score="2" Body="&lt;p&gt;I really don't see any paradox in here.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) Marx clearly separates the (exchange) value of a commodity from its use-value. Of course for an item to contain value, it needs to have at least a substantial use-value, but the later is not a measure of its exchange value. In simple words, we might assume that water has indeed much more use-value than diamonds, but that doesn't necessarily mean it will have more (exchange) value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) So, what gives this value to diamonds, if not their use-value?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;According to Marx: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;A use value, or useful article, therefore, has value only because&#xA;  &lt;strong&gt;human labour in the abstract has been embodied or materialised in it&lt;/strong&gt;.&#xA;  How, then, is the magnitude of this value to be measured?&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Plainly, by the quantity of the value-creating substance, the labour,&#xA;  contained in the article. The quantity of labour, however, is measured&#xA;  by its duration, and labour time in its turn finds its standard in&#xA;  weeks, days, and hours.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;3) And what happens if I am thirsty in the dessert?&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Some people might think that if the value of a commodity is determined&#xA;  by the quantity of labour spent on it, the more idle and unskilful the&#xA;  labourer, the more valuable would his commodity be, because more time&#xA;  would be required in its production. The labour, however, that forms&#xA;  the substance of value, is &lt;strong&gt;homogeneous human labour, expenditure of&#xA;  one uniform labour power.&lt;/strong&gt; The total labour power of society, which&#xA;  is embodied in the &lt;strong&gt;sum total of the values of all commodities&lt;/strong&gt; produced&#xA;  by that society, counts here as one &lt;strong&gt;homogeneous mass&lt;/strong&gt; of human labour&#xA;  power, composed though it be of innumerable individual units. Each of&#xA;  these units is the same as any other, so far as it has the character&#xA;  of the &lt;strong&gt;average labour power of society&lt;/strong&gt;, and takes effect as such; that&#xA;  is, so far as it requires for producing a commodity, no more time than&#xA;  is needed on an average, no more than is &lt;strong&gt;socially necessary&lt;/strong&gt;. The&#xA;  labour time socially necessary is that required to produce an article&#xA;  under the normal conditions of production, and with the &lt;strong&gt;average&#xA;  degree of skill and intensity prevalent&lt;/strong&gt; at the time.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So, according to Marx, it's the &lt;strong&gt;AVERAGE&lt;/strong&gt; labour power of the society and what the society thinks is &lt;strong&gt;SOCIALLY NECESSARY&lt;/strong&gt; that truly determines the exchange value of an item. Thus, if you go to Mars, probably water will cost more than diamonds, or if you travel back to 1960 a personal computer would cost more than your house. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;*Edit (Thanks to luchonacho for the comments):&#xA;Scarcity is given as an example here, not to suggest that people desire something more because it is scarce, but to focus on the fact that an item will require more labor work to produce BECAUSE it is scarce. Check comments for more info. *&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;PS. As a hint when reading Marx, I would suggest to look more on the overall picture, society related and not what happens to the individual case. Most of his concepts, especially as you go towards Book III, discuss the class and society as a whole relations, which by default consists of an average of all individuals. Think of it like macro-economics ;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.marxists.org/archive/marx/works/download/pdf/Capital-Volume-I.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Source: Karl Marx's Capital Vol.I page 29&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="13849" LastEditorUserId="13849" LastEditDate="2017-07-06T13:48:46.023" LastActivityDate="2017-07-06T13:48:46.023" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="17411" PostTypeId="1" AcceptedAnswerId="17414" CreationDate="2017-07-06T14:40:01.530" Score="0" ViewCount="445" Body="&lt;p&gt;an AR(p) process is given by:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$y_t=\phi_0+\phi_1y_{t-1}+\phi_2y_{t-2}+...+\phi_{t-p}y_{t-p}+u_t$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In such a model we have endogenous variables. My question is, why is this not an issue when dealing with time series data.&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="2776" LastEditDate="2017-07-06T16:13:27.213" LastActivityDate="2017-07-06T16:13:27.213" Title="Endogeneity and the AR model?" Tags="&lt;econometrics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17412" PostTypeId="2" ParentId="17257" CreationDate="2017-07-06T14:55:06.333" Score="0" Body="&lt;p&gt;HINT: it is easier if you go through the intermediate step that the set $\{\alpha \in[0,1]: \alpha x+(1-\alpha) z \succsim y\} $ is closed for every $x,y,z$&lt;/p&gt;&#xA;" OwnerUserId="5777" LastActivityDate="2017-07-06T14:55:06.333" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17413" PostTypeId="2" ParentId="17406" CreationDate="2017-07-06T15:46:50.690" Score="0" Body="&lt;p&gt;In Rogoff's article (at least current version) the first sentence you quote &lt;a href=&quot;https://www.imf.org/external/pubs/ft/weo/2017/01/weodata/index.aspx&quot; rel=&quot;nofollow noreferrer&quot;&gt;links to IMF's World Economic Outlook Database&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My guess is that when he is referring to &lt;em&gt;output&lt;/em&gt; he means &lt;em&gt;Gross domestic product, constant prices&lt;/em&gt;. Looking up the numbers in the database we have 63038.4 billions of 2011 rubles in 2014 and 61097.5 in 2016 which translates to 3.1% decline (negative growth). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I use per capita numbers than that also gives 3.1% decline which I guess is &quot;comparable&quot; to 4% decline.&lt;/p&gt;&#xA;" OwnerUserId="4193" LastActivityDate="2017-07-06T15:46:50.690" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17414" PostTypeId="2" ParentId="17411" CreationDate="2017-07-06T16:07:29.833" Score="2" Body="&lt;p&gt;It is not necessarily true that lagged $y$ are endogenous. That depends entirely on the structure you assume for $u_t$. If $u_t$ is white noise, there is no endogeneity, in the sense that &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ E(u_t|\mathbf{y}) = 0 $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $\mathbf{y}=\{y_{t-1}, \cdots , y_{t-p}\}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is trivial to prove, once you realise that the above equality can also be expressed as &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$E(u_t y_{t-i})=0 \,\,\quad, i=\{1, \cdots, p\} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;using the &lt;a href=&quot;https://en.wikipedia.org/wiki/Law_of_total_expectation&quot; rel=&quot;nofollow noreferrer&quot;&gt;Law of Total Expectations&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Conversely, it is trivial to show that if $u_t$ follows an autoregressive process, the above conditions does not hold anymore, in which case there is endogeneity, and OLS estimates are inconsistent.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-07-06T16:13:13.510" LastActivityDate="2017-07-06T16:13:13.510" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="17415" PostTypeId="2" ParentId="14668" CreationDate="2017-07-06T19:01:27.127" Score="2" Body="&lt;p&gt;Consider the inverse functions&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Q^d = A-bP$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Q^s = C + dP$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;to have the situation described by the OP, we will have that $b$ is &quot;very small&quot; while $d$ is &quot;very large&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Equilibrium price and quantity are&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$P^* = \frac {A-C}{d+b} = \frac {A}{d+b}-\frac {C}{d+b}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Q^* = A- b\frac {A-C}{d+b} = A- b\frac {A}{d+b}+b\frac {C}{d+b}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The change described by the OP amounts to $\Delta C &amp;gt; 0$. Then&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Delta P^*|_{\Delta C} = -\frac {1}{d+b}\Delta C $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;while&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Delta Q^*|_{\Delta C} = \frac {b}{d+b}\Delta C$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Comparing the two in absolute terms, we get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {|\Delta P^*|}{\Delta Q^*} = \frac 1 b$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;... from which we conclude:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) To have equilibrium price be relatively more affected than equilibrium quantity when the supply curve shifts outwards, we need the marginal effect of price on quantity demanded ($b$) to be smaller than unity&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) The above does not depend on how elastic or inelastic is the supply curve.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2017-08-06T16:48:37.433" LastActivityDate="2017-08-06T16:48:37.433" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17416" PostTypeId="1" AcceptedAnswerId="17428" CreationDate="2017-07-06T20:44:03.653" Score="3" ViewCount="113" Body="&lt;p&gt;I have difficulties deriving the non-cooperative Nash Equilibrium of this problem.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The objective function is to maximize the expected total rent over the two periods, that is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{align}&#xA;\max_{S_i} (1-e_i S_i + P_i(S_i, S_j) \delta(1-\underline{S}))&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;with $P_i(S_i, S_j)=\frac {S_i}{S_i+S_j}$, and $i,j \in \{A,B\}$, and $e_A=1-d$ and $e_B=1+d$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$S_i$ denotes the quality of the service, $e_i$ is a parameter that captured the spending needs in $i$, $P_i(S_i, S_j)$ is the re-election probability, $\delta$ is the discount factor and $\underline{S}$ is the minimum service quality.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The solution of the Nash Equilibrium of the game is&#xA;\begin{align}&#xA;(S_A^*, S_B^*)=\Big(\frac{\delta (1+d)(1-\underline{S})}{4}, \frac{\delta (1-d)(1-\underline{S})}{4}\Big)&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have tried but I don't get that same solution. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is what I have done: &#xA;I solve the maximization problem &#xA;\begin{align}&#xA;\frac {\partial{U_i}}{\partial{S_i}} = -e_i+\dfrac{\delta(1-\underline{S})S_j}{(S_i+S_j)^2}\stackrel{!}{=}0&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and get the best respond function for $i$ and $j$ respectively as follows&#xA;\begin{align}&#xA;\delta(1-\underline{S})S_j=e_i(S_i+S_j)^2 \\&#xA;\delta(1-\underline{S})S_i=e_j(S_i+S_j)^2&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I impose symmetry $S_i=S_j=S^*$ to the reaction function and I get this: &#xA;\begin{align}&#xA;\delta(1-\underline{S})S^*&amp;amp;=e_i(2S^*)^2 \\&#xA;S^*&amp;amp;=\dfrac{\delta(1-\underline{S})}{4e_i}&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am not sure though.&lt;/p&gt;&#xA;" OwnerUserId="13855" LastEditorUserId="2776" LastEditDate="2017-08-21T07:44:19.560" LastActivityDate="2017-08-21T07:44:19.560" Title="Non-cooperative Nash Equilibrium in political game" Tags="&lt;game-theory&gt;&lt;nash-equilibrium&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17418" PostTypeId="2" ParentId="17408" CreationDate="2017-07-07T01:08:06.923" Score="3" Body="&lt;p&gt;The chart you are looking at is off by a year: it should have shown about £10 billion in 2007 and almost £100 billion in 2009.  See the ONS figures for the &lt;a href=&quot;https://www.ons.gov.uk/economy/governmentpublicsectorandtaxes/publicsectorfinance/timeseries/dzlt/pusf&quot; rel=&quot;nofollow noreferrer&quot;&gt;&quot;Public sector current budget deficit, excluding public sector banks&quot;&lt;/a&gt; and click on &quot;table&quot; and &quot;year&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is more common to look at &lt;a href=&quot;https://www.ons.gov.uk/economy/governmentpublicsectorandtaxes/publicsectorfinance/timeseries/dzls/pusf&quot; rel=&quot;nofollow noreferrer&quot;&gt;&quot;Public sector net borrowing, excluding public sector banks&quot;&lt;/a&gt; but the story is similar: about £37 billion in 2007 and about £153 billion in 2009&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There was a reduction of about £25 billion in &lt;a href=&quot;https://www.ons.gov.uk/economy/governmentpublicsectorandtaxes/publicsectorfinance/timeseries/anbv/pusf&quot; rel=&quot;nofollow noreferrer&quot;&gt;central government current receipts&lt;/a&gt;  and an increase of about £60 billion in &lt;a href=&quot;https://www.ons.gov.uk/economy/governmentpublicsectorandtaxes/publicsectorfinance/timeseries/anlp/pusf&quot; rel=&quot;nofollow noreferrer&quot;&gt;central government current expenditure&lt;/a&gt;  plus some other things happening.  Falling receipts included lower corporation and income taxes and part of a 12 month cut in VAT, while increasing expenditure included support for banks and increased numbers of people claiming unemployment and other benefits.  &lt;a href=&quot;https://www.ons.gov.uk/economy/governmentpublicsectorandtaxes/publicsectorfinance/timeseries/nmfx/pusf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Interest payments&lt;/a&gt; (part of expenditure) actually fell by about £4 billion due to lower interest rates, though they rose the following year due to the increased debt&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can find more data in the &lt;a href=&quot;https://www.ons.gov.uk/economy/governmentpublicsectorandtaxes/publicsectorfinance/datasets/publicsectorfinances&quot; rel=&quot;nofollow noreferrer&quot;&gt;ONS Public Sector Finances time series dataset&lt;/a&gt; spreadsheet&lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2017-07-07T01:08:06.923" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17421" PostTypeId="1" CreationDate="2017-07-07T04:42:34.590" Score="1" ViewCount="29" Body="&lt;p&gt;How RBI prints money on what bases? other than changing old money to new money. If price increases and tax increases on what bases they will print more money. Please explain in simple words&lt;/p&gt;&#xA;" OwnerUserId="13860" LastEditorUserId="13860" LastEditDate="2017-07-07T09:30:43.037" LastActivityDate="2017-07-07T09:30:43.037" Title="Basis about money" Tags="&lt;finance&gt;&lt;political-economy&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="17423" PostTypeId="1" AcceptedAnswerId="17432" CreationDate="2017-07-07T10:27:16.060" Score="2" ViewCount="184" Body="&lt;p&gt;This is a basic question, but I cannot find the answer to it. In short, equilibria are often conditioned on a specific strategy. E.g., given A's strategy, B updates her beliefs to xyz. My problem is that often an action could be a part of the equilibrium path for many different strategies, so how does B know which strategy A is following?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Below is an example that might clarify the question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider a classic signaling game (2 types, 2 actions) à la Spence. Suppose furthermore that there are two equilibria: one pooling, one separating. In the pooling eq., say, both types of senders send &quot;Low&quot;. In the separating, the &quot;Strong&quot; type sends High, the Weak type sends Low.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The part that I struggle with is: how does the receiver know what equilibrium path they are in? For example, say the receiver observes &quot;Low&quot;. If we are in &quot;pooling world&quot;, then the receiver's posteriors are just going to be her priors. If, however, we are in &quot;separating world&quot;, then she can update to p(Weak|Low)=1. But observing &quot;Low&quot; alone does not tell the receiver what strategy the sender is following, so how can she possibly update her beliefs? It seems to me that she would need to have beliefs not only about types, but also about strategies being followed. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sorry if this is idiotic, but this has puzzled me for a while.&lt;/p&gt;&#xA;" OwnerUserId="13861" LastEditorUserId="11590" LastEditDate="2019-05-19T16:58:18.540" LastActivityDate="2019-05-19T16:58:18.540" Title="Beliefs about equilibrium paths with overlapping strategies" Tags="&lt;game-theory&gt;&lt;signaling&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17425" PostTypeId="1" AcceptedAnswerId="17427" CreationDate="2017-07-07T11:12:09.003" Score="1" ViewCount="233" Body="&lt;p&gt;I am trying to collect data I could use for calibration of a short-rate modeling process, so I need data which represents the historical short-rates. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the Bank of England webpage I came across the &lt;a href=&quot;http://www.bankofengland.co.uk/statistics/Pages/yieldcurve/archive.aspx&quot; rel=&quot;nofollow noreferrer&quot;&gt;historical Government liability curve data&lt;/a&gt;, and also the &lt;a href=&quot;http://www.bankofengland.co.uk/boeapps/iadb/index.asp?Travel=NIxIRx&amp;amp;levels=1&amp;amp;XNotes=Y&amp;amp;A3765XBMX3687X3764.x=7&amp;amp;A3765XBMX3687X3764.y=5&amp;amp;XNotes2=Y&amp;amp;Nodes=X4051X4052X4053X4066X4067X3687X3764&amp;amp;SectionRequired=I&amp;amp;HideNums=-1&amp;amp;ExtraInfo=true#BM&quot; rel=&quot;nofollow noreferrer&quot;&gt;3-months UK treasury bills discount rates&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It turns out they are not the same. For example, on the 31 May 2017 the UK nominal 3-month spot rate was 0.04, and the 3-months UK treasury bill discount rate was 0.0575. Also, in the 3-months UK nominal spot rate table, values of 3-months spots are actually mostly not given.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't understand what is the difference between these two values, and which ones should I use for my historical data?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Many thanks for any insights on this.&lt;/p&gt;&#xA;" OwnerUserId="12620" LastEditorUserId="12620" LastEditDate="2017-07-07T13:40:18.730" LastActivityDate="2017-07-07T15:54:24.220" Title="Difference between a 3-months UK nominal spot rate and a 3-months UK treasury bill discount rate?" Tags="&lt;interest-rate&gt;&lt;government&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17426" PostTypeId="2" ParentId="17425" CreationDate="2017-07-07T12:11:13.307" Score="1" Body="&lt;p&gt;(The question was clarified as specifying that the yield curve data had more missing observations. That may outweigh my theoretical preference for the yield curve in this answer.) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;are a few potential sources for the discrepancy. &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;The samples used to infer the 3-month rate could be different; for example, they could be done at a different time of day (or different instruments).&lt;/li&gt;&#xA;&lt;li&gt;The liability curve is a fitted curve; the fitted data will diverge from the observed market data. This is probably the largest potential defect of the fitted curve as a source.&lt;/li&gt;&#xA;&lt;li&gt;The quote conventions are different. The rest of this answer will discuss quote conventions.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The liability curve data uses a simple non-market convention that is consistent across maturities. If I am reading the document correctly, it's based on semi-annual compounding, and so the discount factor associated with a rate $r$ is $\frac{1}{1+\frac{r}{2}}$. For other maturities, the discount factor is calculated by taking to the power of the time period divided by six months.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;You would take that term to the power 2 to get the annual discount factor.&lt;/li&gt;&#xA;&lt;li&gt;The 3-month discount factor would be the square root of that term.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;As a disclaimer, I read the description documents quickly, and I am unsure that this is the convention used. However, the key is that it is consistent across maturities, and so if you want to compare to longer maturity interest rates, the discount curve data has the advantage of internal consistency.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The discount rate data presumably reflects market conventions for the rate quotation. You would need to find a source for the convention used in the U.K. market, I do not have a reference. Treasury bill discount rates were developed in the pre-digital computer era to offer an easily-calculated interest rate that was roughly comparable across maturities. (The invoice price for Treasury bills depends upon the maturity, even if the discount rate is the same.) We need comparability so that we can answer questions like the following: would I get a better return from holding a 3-month bill, or rolling the 1-month bill 3 times (assuming the interest rate is unchanged). The mathematically clean continuously-compounded interest rate answers that question, but it is not easy to work with if you do not have digital computers/calculators.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In pretty well all analytical applications, you want to convert from the market convention to a clean discount rate; you might only convert back to the market convention if you want your final results to be comparable to market quotations. In other words, the liability curve data is probably a better starting point, as otherwise, you need to track down the market convention formula to do the conversion to a clean convention in order to do your calculations.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastEditorUserId="12891" LastEditDate="2017-07-07T14:43:53.313" LastActivityDate="2017-07-07T14:43:53.313" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="17427" PostTypeId="2" ParentId="17425" CreationDate="2017-07-07T12:31:52.033" Score="2" Body="&lt;p&gt;&lt;strong&gt;They are based on completely different assets&lt;/strong&gt;.&lt;/p&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Gilts:&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;p&gt;As &lt;a href=&quot;http://www.bankofengland.co.uk/statistics/Documents/yieldcurve/yields_background_note.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;this document&lt;/a&gt; states:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;the government liability nominal yield curves are derived from UK gilt prices and General Collateral (GC) repo rates.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Later on, the same document defines:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;A conventional gilt is a guarantee by the Government to pay the holder of the gilt a fixed cash payment (coupon) every six months until the maturity date, at which point the holder receives the final coupon payment and the principal.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;These assets are usually long term. As &lt;a href=&quot;http://www.dmo.gov.uk/index.aspx?page=gilts/about_gilts&quot; rel=&quot;nofollow noreferrer&quot;&gt;this page&lt;/a&gt; states:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;In recent years the Government has concentrated issuance of conventional gilts around the 5-, 10- and 30-year maturity areas, but in May 2005 the DMO issued a new 50-year maturity conventional gilt. In June 2013, following market consultation the DMO issued a new 55 year maturity conventional gilt.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Meanwhile, the document referred earlier defines &amp;quot;General Collateral (GC) repo rates&amp;quot; as:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;General collateral (GC) repo rates refer to the rates for repurchase a&#xA;greements in which any gilt may be used as&#xA;collateral.  Hence, GC repo rates should in principle be close to true risk-&#xA;free rates.  Repo contracts are actively traded for maturities out to one year;  &lt;strong&gt;the rates prevailing on these contracts are very similar to&#xA;the yields on comparable maturity conventional gilts.&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Notice the phrase in bold. The rates are similar to comparable (e.g. 3-month T-Bills), but not identical. Unfortunately, they do not state why.&lt;/p&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;3-months T-Bills:&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;p&gt;According to &lt;a href=&quot;http://www.bankofengland.co.uk/statistics/Pages/iadb/notesiadb/wholesale_discount.aspx#treasurybill&quot; rel=&quot;nofollow noreferrer&quot;&gt;Bank of England&lt;/a&gt; definitions, the &amp;quot;Treasury bill tender 3 month (91 days) bills&amp;quot; is:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Treasury Bills are bearer Government Securities representing a charge on the Consolidated Fund of the UK issued in minimum denominations of £5,000 at a discount to their face value for any period not exceeding one year. Although they are usually issued for 3 month (91 days), on occasion they have been issued for 28 days, 63 days and 182 days. They are issued:&lt;/p&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;by allotment to the highest bidder at a weekly (Friday) tender to a range of counterparties;&lt;/li&gt;&#xA;&lt;li&gt;in response to an invitation from the Debt Management Office to a range of counterparties;&lt;/li&gt;&#xA;&lt;li&gt;at any time to Government departments (non-marketable bills only).&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Regarding why they have less data available, the same article points out that:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;The secondary market in Treasury bills has in recent years become illiquid and representative rates are no longer obtainable other than those for the most recently issued 91 day bills. The rates shown are the average rates of discount at the weekly tender for 91 day bills.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;Finally, regarding to which one to use, I would be definitively inclined to use the data related to the yield curve (gilts). This, as indicated above, are traded daily in the secondary market. Thus, data is more extensive, and perhaps more &amp;quot;reliable&amp;quot;.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2017-07-07T15:54:24.220" CommentCount="11" ContentLicense="CC BY-SA 3.0" />
  <row Id="17428" PostTypeId="2" ParentId="17416" CreationDate="2017-07-07T13:27:51.983" Score="4" Body="&lt;p&gt;You could add up the equations&#xA;\begin{align}&#xA;\delta(1-\underline{S})S_j=e_i(S_i+S_j)^2 \\&#xA;\delta(1-\underline{S})S_i=e_j(S_i+S_j)^2&#xA;\end{align}&#xA;to get&#xA;\begin{align}&#xA;\delta(1-\underline{S})(S_i+S_j)=(e_i+e_j)(S_i+S_j)^2&#xA;\end{align}&#xA;which simplifies to&#xA;\begin{align}&#xA;\delta(1-\underline{S})=(e_i+e_j)(S_i+S_j).&#xA;\end{align}&#xA;This gives you $(S_i+S_j)$. From the initial equations&#xA;\begin{align}&#xA;\delta(1-\underline{S})S_j=e_i(S_i+S_j)^2 \\&#xA;\delta(1-\underline{S})S_i=e_j(S_i+S_j)^2&#xA;\end{align}&#xA;you can also get&#xA;$$&#xA;\frac{S_j}{e_i} = \frac{(S_i+S_j)^2}{\delta(1-\underline{S})} = \frac{S_i}{e_j}, &#xA;$$&#xA;which gives you&#xA;$$&#xA;\frac{S_j}{S_i} = \frac{e_i}{e_j}.&#xA;$$&#xA;Now you have both the sum and ratio of the variables $S_j,S_i$. Calculating their individual values should be a straightforward matter.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2017-07-07T14:00:21.383" LastActivityDate="2017-07-07T14:00:21.383" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="17429" PostTypeId="2" ParentId="17394" CreationDate="2017-07-07T13:54:13.940" Score="1" Body="&lt;p&gt;What you are implying is thoroughly studied by what is called algorithmic game theory. There you can find the concept of a &lt;strong&gt;learning algorithm&lt;/strong&gt;. In game theoretical scenarios where the mathematical equilibrium is difficult to evaluate, those algorithms are used to get an approximation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What they do (in a simplified way)&#xA;1) Player A starts with an array of available strategies, each to be played with equal possibility.&#xA;2) In every iteration he randomly chooses one strategy and plays against his opponent.&#xA;3) The result comes as a feedback and according to an update function/algorithm, the array of strategies is re-evaluated/recalculated.&#xA;4) This is repeated many times, hopefully to converge to either one strategy which will be a nash equilibrium, or to a mixed-strategy profile.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is a very interesting topic, connected a lot with machine learning and AI.&#xA;Here are some links to get an idea:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) &lt;a href=&quot;https://books.google.gr/books?hl=el&amp;amp;lr=&amp;amp;id=FNgtH6h8MBcC&amp;amp;oi=fnd&amp;amp;pg=PP2&amp;amp;dq=learning%20algorithms%20game%20theory&amp;amp;ots=iIHUFyI_Vw&amp;amp;sig=QiSy4YeH_vf_LJnGzKex6iBWxi0&amp;amp;redir_esc=y#v=onepage&amp;amp;q=learning%20algorithms%20game%20theory&amp;amp;f=false&quot; rel=&quot;nofollow noreferrer&quot;&gt;Game Theory &amp;amp; Learning for wireless networks&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) &lt;a href=&quot;http://theory.stanford.edu/~valiant/papers/learningNash.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;On Learning Algorithms for Nash Equilibria&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="13849" LastActivityDate="2017-07-07T13:54:13.940" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17430" PostTypeId="1" AcceptedAnswerId="17436" CreationDate="2017-07-07T17:02:44.387" Score="0" ViewCount="90" Body="&lt;p&gt;I am reading Walsh's (2003) book on monetary economics. Specifically the chapter on money in utility function. I understand the basics of a value functions but I can't seem to get the same results as the author. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/aqRTb.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/aqRTb.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where &lt;a href=&quot;https://i.stack.imgur.com/7c16e.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/7c16e.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I.e the per capita budget constraint. He then finds an expression for $w_{t+1}$:&lt;a href=&quot;https://i.stack.imgur.com/IOz1n.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/IOz1n.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is the first source of my confusion. Previously he defines output per worker as a function of capital per worker, i.e $y_{t}=f(\frac{k_{t-1}}{1+n})$ where $n$ is the population growth rate. But all of a sudden he changes it to $\frac{f(k_{t-1})}{1+n}$. I am aware that there are many typos in this book, is this just one of them or am I missing something trivial?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Either way, he uses the budget constraint to express $k_{t}$ as $w_{t}-c_{t}-m_{t}-b_{t}$ and the definition of $w_{t+1}$ to express the value function as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/16Zcu.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/16Zcu.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, I don't know if it is because I am sleep deprived or because there is a typo, but I just can't seem to get the same results as Walsh. E.g, differentiating w.r.t $c_{t}$ I get:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$u_{c}(c_{t},m_{t}) + \beta*V_{w}(w_{t+1})[\frac{-f'(w_{t}-c_{t}-m_{t}-b_{t})}{1+n}(-1)+\frac{1+\delta}{1+n}(-1)]$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;While Walsh gets &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/PvRdW.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/PvRdW.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Am I missing something obvious or is there a typo?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks in advance!&lt;/p&gt;&#xA;" OwnerUserId="11767" LastActivityDate="2017-07-08T13:42:06.797" Title="Money in utility function - Value function" Tags="&lt;dynamic-optimization&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17431" PostTypeId="2" ParentId="17423" CreationDate="2017-07-07T20:07:14.250" Score="2" Body="&lt;p&gt;In signaling games, &lt;em&gt;beliefs&lt;/em&gt; as well as strategies constitute an equilibrium. In other words, beliefs are a part of the equilibrium object. By deciding which equilibrium to focus on, you also (partially) determines the beliefs consistent with that equilibrium. The key restriction is that beliefs be derived from Bayes' rule using sender's strategy and the prior. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider the following game, where P1 is the sender and the common prior is Type I realizes with probability $p$. &lt;/p&gt;&#xA;&#xA;&lt;h1&gt;Separating equilibrium&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/GMrfg.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/GMrfg.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a separating equilibrium, different types choose different actions (Type I chooses $A$ and Type II chooses $B$). Then, upon seeing action $A$, P2 (the receiver) updates her belief using Bayes' rule:&#xA;$$&#xA;\mu(\text{Type I}|A)=\frac{\Pr(A|\text{Type I})p}{\Pr(A|\text{Type I})p+\Pr(A|\text{Type II})(1-p)}=\frac{(1)p}{(1)p+(0)(1-p)}=1&#xA;$$&#xA;Therefore P2's conditional belief at node $x$ is $1$. Similarly for her belief at the information set $\{x',y'\}$&lt;/p&gt;&#xA;&#xA;&lt;h1&gt;Pooling equilibrium&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/hVmcq.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/hVmcq.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, consider a pooling equilibrium, where both types choose $A$. Then, upon seeing action $A$, P2's belief is calculated as &#xA;$$&#xA;\mu(\text{Type I}|A)=\frac{\Pr(A|\text{Type I})p}{\Pr(A|\text{Type I})p+\Pr(A|\text{Type II})(1-p)}=\frac{(1)p}{(1)p+(1)(1-p)}=p&#xA;$$&#xA;which is the same as her prior. This makes sense because P1's action provides no additional information in a pooling equilibrium. (P2's off-equilibrium belief can be arbitrary, unless you want to apply refinements such as consistency of the sequential equilibrium).&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;The bottom line is: you cannot talk about an equilibrium separately from the beliefs. By talking about a particular equilibrium, you also implicitly restrict the set of beliefs consistent with the said equilibrium. &lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2017-07-07T20:07:14.250" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17432" PostTypeId="2" ParentId="17423" CreationDate="2017-07-07T20:13:21.753" Score="2" Body="&lt;p&gt;This is a common source of misunderstanding with regards to the concept of equilibrium. The specification of an equilibrium (at least in the standard theory of a one shot games) is agnostic about how the players figured out they are in that equilibrium, and, by definition, assumes players &lt;em&gt;know&lt;/em&gt; the ex-ante strategies of their opponents. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;We do not need the complications of incomplete information games for this confusion to arise. Think of a simultaneous coordination game: both players playing heads is a NE, but how does player 1 know player 2 is going to play heads, since playing tails could also be a NE? In dynamic and incomplete info games this problem might be exacerbated, but the core issue is the same: equilibria assume the players are best responding to the true (ex-ante) strategy of the other players and therefore that they know which equilibrium is occurring.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How to make sense of this? Well, for starters we could accept it as the way things work, assuming that equilibria arise from some learning/evolutionary process, and once an equilibrium is known, no player will want to deviate. This might make sense in simple coordination games, but is unsatisfying in the example you give. To remedy this, we could make assumptions on which equilibria will occur (i.e., refine the set of equilibria), so that in the surviving equilibria, beliefs are more clearly specified. There are many different ways to go about this, but, a refinement that was developed to assuage your concern in particular is the &lt;a href=&quot;https://en.wikipedia.org/wiki/Intuitive_criterion&quot; rel=&quot;nofollow noreferrer&quot;&gt;Intuitive Criterion&lt;/a&gt;, which eliminates eq. where (shamelessly copying from wiki) &quot;some type $\theta$ who could benefit from a deviation that is assured of yielding him a payoff above his equilibrium payoff as long as other players do not assign a positive probability to the deviation having been made by any type $\theta'$ for whom this action is equilibrium dominated.&quot; Notice,  this eliminates the pooling eq. since the high type alone could profit by deviating to $high$, which would signal to the Receiver that the separating equilibrium is in play.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lastly, the option that is least practical but perhaps most theoretically satisfying is to give up on equilibrium all together and admit that from an epistemic perspective rationalizability is the strictest prediction implied by rationality :)&lt;/p&gt;&#xA;" OwnerUserId="398" LastEditorUserId="398" LastEditDate="2017-07-11T19:03:18.167" LastActivityDate="2017-07-11T19:03:18.167" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="17433" PostTypeId="2" ParentId="502" CreationDate="2017-07-08T06:18:34.760" Score="3" Body="&lt;p&gt;Ivo Welch at UCLA started the &lt;a href=&quot;http://cfr.ivo-welch.info/home/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Critical Finance Review&lt;/a&gt; (CFR). (I post this maintaining that finance is a subset of economics.) From the website,&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The CFR publishes leading academic research in all areas of financial&#xA;  economics. It is a high-prestige peer-reviewed free “boutique”&#xA;  journal. It only publishes 5-10 papers per year, but with paper&#xA;  quality comparable to the Journal of Finance, Journal of Financial&#xA;  Economics, and Review of Financial Studies.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The journal has a focus on critiques (&lt;a href=&quot;http://cfr.ivo-welch.info/critiques/&quot; rel=&quot;nofollow noreferrer&quot;&gt;see here&lt;/a&gt;) and replication. Many well respected authors have published papers in it and I think most people would agree that they like what the journal is trying to do.&lt;/p&gt;&#xA;" OwnerUserId="59" LastActivityDate="2017-07-08T06:18:34.760" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17434" PostTypeId="1" CreationDate="2017-07-08T07:59:51.653" Score="0" ViewCount="39" Body="&lt;p&gt;Ministry of commerce and industry of India doesn't provide WPI index for Natural Gas. Is there a way to calculate the same?&lt;/p&gt;&#xA;" OwnerUserId="13865" LastEditorUserId="2776" LastEditDate="2017-07-08T13:46:21.267" LastActivityDate="2017-07-08T13:57:11.020" Title="How to calculate price index for natural gas in India?" Tags="&lt;price-index&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17436" PostTypeId="2" ParentId="17430" CreationDate="2017-07-08T11:32:55.333" Score="1" Body="&lt;p&gt;Your calculation has two typos a) you type two times the minus sign related to $f'$ and b) you write $(1+\delta)$ instead of $(1-\delta)$. If we correct for these we have &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$u_{c}(c_{t},m_{t}) + \beta V_{\omega}(\omega_{t+1})\left[\frac{f'(\omega_{t}-c_{t}-m_{t}-b_{t})}{1+n}(-1)+\frac{1-\delta}{1+n}(-1)\right]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Taking out the minus sign and $1/(1+n)$, and compacting $f'(\omega_{t}-c_{t}-m_{t}-b_{t})=f_k(k_t)$  we have &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$u_{c}(c_{t},m_{t}) - \frac {\beta}{1+n}V_{\omega}(\omega_{t+1})\left[f_k(k_t)+1-\delta\right]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which is the expression in the book. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;As regards the definition of output per worker:&lt;/strong&gt;&lt;br&gt;&#xA;Given the clarification in the comments, aggregate output during period $t$ is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Y_t = F(K_{t-1}, N_{t})$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;while $N_t = N_{t-1}(1+n)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I guess constant returns to scale are assumed so per capita magnitudes are&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$y_t = \frac{Y_t}{N_t}  = F\left (\frac{K_{t-1}}{N_t}, \frac{N_{t}}{N_t}\right ) = F\left (\frac{K_{t-1}}{N_{t-1}(1+n)}, 1\right )$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, consider the notational/conceptual problem here: we will tend &quot;automatically&quot; to write $K_{t-1}/N_{t-1} \equiv k_{t-1}$ due of the same index, &lt;em&gt;but $K_{t-1}/N_{t-1}$ is economically meaningless because $K_{t-1}$ is not combined in production with $N_{t-1}$&lt;/em&gt;. This ratio describes &quot;capital used in period $t$ per worker in period $t-1$&quot;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Anyway, &lt;em&gt;if&lt;/em&gt; we clearly declare in building the model that we define $k_{t-1}$ in this way, then we end up with &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$y_t = f\left(\frac {k_{t-1}}{1+n}\right)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and the budget constraint for period $t$ is correct while the one for period $t+1$ is not. How this affects the first-order condition with respect to consumption?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Notice that with these notational coventions, &quot;capital per worker during period $t$&quot; is $k_{t-1}/(1+n)$ -&lt;a href=&quot;https://economics.stackexchange.com/a/6003/61&quot;&gt;I have argued elsewhere&lt;/a&gt; why it is preferable for modellers to adopt the meaning that $k_{t-1}$ represents the value &lt;em&gt;at the beginning&lt;/em&gt; of period $t-1$ and so is used in the production of period $t-1$).&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2017-07-08T13:42:06.797" LastActivityDate="2017-07-08T13:42:06.797" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="17437" PostTypeId="2" ParentId="17434" CreationDate="2017-07-08T13:57:11.020" Score="1" Body="&lt;p&gt;Since 2014, this is the official formula to compute the price of NG in India:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/DNChb.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/DNChb.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The details of this formula, including where the data is taken from can be found &lt;a href=&quot;http://ppac.org.in/WriteReadData/CMS/201501270457045609772DatasourcesforpricecalculationNov14-March-15.PDF&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To see historical data with this formula (since 2014), see the left panel &lt;a href=&quot;http://ppac.org.in/content/155_1_GasPrices.aspx&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;. Simply click in the period you want to see. Notice these prices are set for a six-month period.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is more information about the context of this policy and the different pricing systems regarding natural gas for India &lt;a href=&quot;http://www.ey.com/Publication/vwLUAssets/EY-natural-gas-pricing-in-India/$FILE/EY-natural-gas-pricing-in-India.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-07-08T13:57:11.020" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17438" PostTypeId="1" CreationDate="2017-07-08T15:00:22.890" Score="1" ViewCount="51" Body="&lt;p&gt;Take an agent with mean-variance utility over something that is uncertain:&#xA;$$&#xA;U(x) = \mu_x^\theta - \sigma_x^\lambda&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$A\in \{0,1\}$ happens if $U(x)&amp;gt;0$, and $x$ is a random variable&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;A = \mathbf{1}\left(\mu_x^\theta - \sigma_x^\lambda &amp;gt;0\right)&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Saha (1997) has shown that $\theta$ different from 1 corresponds to DARA or IARA preferences.  If an agent isn't necessarily CARA, and $\mu = value - cost$, then the first term is &#xA;$$&#xA;\mu_x^\theta = \left(E[value] - cost\right)^\theta&#xA;$$&#xA;This assumes that cost isn't separable from value.  In reality however, agents may not operate this way.  The simplest example is a cash/credit constraint.  You'd thus have &#xA;$$&#xA;A = \mathbf{1}\left(\left(E[value] - cost\right)^\theta - \sigma_x^\lambda &amp;gt;0\right) s.t. cost &amp;lt; c&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Alternatively, maybe cash expenditures are psychically painful.  Like, even if I value something at \$5, the thought of not having that \$5 just &lt;em&gt;bothers&lt;/em&gt; me.  Maybe because of loss of option value, for example. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;A = \mathbf{1}\left(\left(E[value] - cost\right)^\theta - \sigma_x^\lambda  - f(cost) &amp;gt;0\right) s.t. cost &amp;lt; c&#xA;$$&#xA;where $f$ is weakly positive and monotonic.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My questions:  &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Is there a specific term for this sort of separability in cost and value?&lt;/li&gt;&#xA;&lt;li&gt;Would it go away entirely if there were no credit constraint?  &lt;/li&gt;&#xA;&lt;li&gt;And if I simply model $\left(value - cost\right)^\theta$ with a nonparametric $g(cost, value)$, would economists know what I am talking about if I justify it as represeting &quot;non-classical behavior&quot; or &quot;deviations from the classical behavioral model?&quot;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="12318" LastEditorUserId="12318" LastEditDate="2017-07-08T19:51:50.853" LastActivityDate="2017-07-08T19:51:50.853" Title="Terminology for separability in price and value" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;behavioral-economics&gt;&lt;definition&gt;&lt;risk-aversion&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17442" PostTypeId="1" AcceptedAnswerId="17783" CreationDate="2017-07-08T23:28:22.263" Score="2" ViewCount="762" Body="&lt;p&gt;I am going to complete a continuous time finance course in  the upcoming semester. Although all my higher education is in economics I have not encountered a financial economics setting of contingent markets,i.e, of the geometric representation of the state space of the aforementioned. I have a solid knowledge on investments, financial markets and financial products such as derivatives but I was looking for the mathematical finance formulation of contingent markets. What introductory book would be good for an introduction in the simpler settings before jumping to the Black-Scholes setting for example which is the end-goal of the class I am going to take. Cochrane's book &quot;Asset Pricing&quot; is similar to what I am looking for but I would like to know if there are any alternatives.&lt;/p&gt;&#xA;" OwnerUserId="10953" LastEditorUserId="10953" LastEditDate="2017-07-11T18:41:52.187" LastActivityDate="2017-08-11T07:45:25.957" Title="Introductory book for asset pricing and financial economics" Tags="&lt;reference-request&gt;&lt;financial-economics&gt;&lt;asset-pricing&gt;" AnswerCount="3" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="17445" PostTypeId="1" AcceptedAnswerId="19091" CreationDate="2017-07-10T07:50:49.337" Score="5" ViewCount="267" Body="&lt;p&gt;Majority of countries (if not all) use tax brackets to define how much tax should the earning workforce pay. So we could have something like this.&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;Pay | Tax&#xA;0 - 10,000 | 10%&#xA;10,001 - 20,000 | 20%&#xA;20,001 - 30,000 | 30%&#xA;etc.&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;The breakpoints are what I am going to ask about. It has been proven in other schemes, such as the UK's &lt;a href=&quot;https://www.gov.uk/stamp-duty-land-tax/overview&quot; rel=&quot;noreferrer&quot;&gt;Stamp Duty Land Tax&lt;/a&gt; that separating tax into categories like this leads to clusters on the lower bound of the breakpoints. My understanding is that this is not a desired effect and the distribution on the scale should be more fluid.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I come more from the software engineering side as opposed to the economic side, so I assume that in the past it was easier to calculate tax using this system and that's why it was chosen. Humans would not be able or willing to do complex tax calculations had we used rules that can be charted for example as S curves.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, I wonder if we could have a better system today? (Assuming the current system is not sufficient.) Are there any proposals or significant movements that are not satisfied with the current tax system?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note: I am not making assumptions about how the collected money is being spent, or how much is being collected. This is purely about the curves behind the tax brackets and clustering.&lt;/p&gt;&#xA;" OwnerUserId="13875" LastActivityDate="2020-05-14T07:37:39.580" Title="Why do we use tax brackets?" Tags="&lt;taxation&gt;" AnswerCount="4" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17446" PostTypeId="1" CreationDate="2017-07-10T10:07:19.260" Score="0" ViewCount="57" Body="&lt;p&gt;In Chile, most of prices are measured in the local currency, the &lt;em&gt;peso&lt;/em&gt; (currency code &lt;a href=&quot;http://www.xe.com/currency/clp-chilean-peso&quot; rel=&quot;nofollow noreferrer&quot;&gt;CLP&lt;/a&gt;). However, there are two other &lt;a href=&quot;https://en.wikipedia.org/wiki/Unit_of_account&quot; rel=&quot;nofollow noreferrer&quot;&gt;units of account&lt;/a&gt;. These are the &lt;a href=&quot;https://en.wikipedia.org/wiki/Unidad_de_Fomento&quot; rel=&quot;nofollow noreferrer&quot;&gt;UF&lt;/a&gt; and the UTM. These keep track of the real value of the currency, and are updated daily based on past inflation. For instance, the 16th of March of 2009, the UF was equivalent to CLP$21,000.46, whereas today (10th of July of 2017), its value is CLP\$26,666.19. The difference reflects the effect of inflation between the two dates. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It serves several purposes. For example, it eases the denomination of assets paying real interest rates (e.g. UF + 2%); it is the standard used to price real estate; and it is the denomination of several state fines and minor taxes (e.g. parking fines). (It can also lead to hysteresis in inflation, when used to price wages).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Is there any other country using such inflation-adjusted units of account? Or perhaps a country that used it in the past?&lt;/strong&gt; I have never seen or read anything about this. I want to know more about the inspiration and usages of such monetary tools.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-07-10T10:07:19.260" Title="Inflation-adjusted units of account" Tags="&lt;inflation&gt;&lt;currency&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="17448" PostTypeId="1" CreationDate="2017-07-10T11:22:47.163" Score="1" ViewCount="40" Body="&lt;p&gt;What is the largest - by number of agents - reported known global market simulation as of summer 2017?&lt;/p&gt;&#xA;" OwnerUserId="13716" LastEditorUserId="13716" LastEditDate="2017-07-10T15:14:47.930" LastActivityDate="2017-07-10T15:14:47.930" Title="Computational economics and global market simulation" Tags="&lt;simulations&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17450" PostTypeId="2" ParentId="10747" CreationDate="2017-07-10T22:32:34.470" Score="1" Body="&lt;p&gt;He points out the fact that the money we have in our bank accounts is actually created by the banks - and not just passed on from other depositors as is the common assumption. you will find a very clear 101 on the process on &lt;a href=&quot;http://positivemoney.org/how-money-works/how-banks-create-money/&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://positivemoney.org/how-money-works/how-banks-create-money/&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="13878" LastActivityDate="2017-07-10T22:32:34.470" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17451" PostTypeId="1" CreationDate="2017-07-11T00:06:08.140" Score="3" ViewCount="63" Body="&lt;p&gt;I'm trying to support an argument being made with respect to camp fee changes, and I would need to know if &lt;em&gt;anyone&lt;/em&gt; has ever come up with a &quot;rule of thumb&quot; for demand drop due to price increases for a standard 1-week sleep-away summer camp?  No fancy expert training, or limited-access development, just standard summer camp  activities.&lt;/p&gt;&#xA;" OwnerUserId="13879" LastEditorUserId="2776" LastEditDate="2017-09-13T09:30:12.283" LastActivityDate="2017-09-13T09:30:12.283" Title="Has anyone ever done an analysis of the flexibility of the demand curve for summer camps?" Tags="&lt;microeconomics&gt;&lt;reference-request&gt;&lt;supply-and-demand&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17452" PostTypeId="1" CreationDate="2017-07-11T03:15:24.283" Score="0" ViewCount="54" Body="&lt;p&gt;I have a exercise with the corresponding answer, but i don't get it:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Suppose there's a better wheather this year and the size of the harvest of soy increased a 60%. The demand curve for soy did not change. The price of the soy dropped a 20%. We can conclude that the elasticity of demand is -3.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Is this true? Under what circumstances? Why? Thank's a lot!&lt;/p&gt;&#xA;" OwnerUserId="8035" LastEditorUserId="2776" LastEditDate="2017-07-11T07:23:24.053" LastActivityDate="2017-07-12T14:29:27.523" Title="Elasticity, link between demand and supply" Tags="&lt;supply-and-demand&gt;&lt;elasticity&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17453" PostTypeId="1" AcceptedAnswerId="17457" CreationDate="2017-07-11T14:13:02.647" Score="2" ViewCount="472" Body="&lt;p&gt;I am currently reading Atlas Shrugged by Ayn Rand and I came across an interesting paragraph related to Economics and American History.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;If you ask me to name the proudest distinction of Americans, I would choose—because it contains all the others—the fact that they were the people who created the phrase ‘to make money.’ No other language or nation had ever used these words before; men had always thought of wealth as a static quantity—to be seized, begged, inherited, shared, looted or obtained as a favor. Americans were the first to understand that wealth has to be created. The words ‘to make money’ hold the essence of human morality.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Is this a true piece of history? Did we create the idea of &quot;making money&quot;?&lt;/p&gt;&#xA;" OwnerUserId="13882" LastEditorUserId="1417" LastEditDate="2017-07-11T19:48:39.873" LastActivityDate="2017-07-12T14:47:43.223" Title="Did the idea of “making money” originate in the United States?" Tags="&lt;money&gt;&lt;history&gt;&lt;wealth&gt;&lt;capitalism&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="17455" PostTypeId="1" AcceptedAnswerId="17458" CreationDate="2017-07-11T17:54:36.820" Score="2" ViewCount="108" Body="&lt;p&gt;I am a very Macro guy, but I need to dive a little in the world of Microeconomics. Specifically, I need to study oligopolies. From the general theory to empirics. Since I do not know the literature, I would like to ask if anybody knows a good starting point. Preferably a paper that explains the strategic interactions between firms operating in a oligopoly.&lt;/p&gt;&#xA;" OwnerUserId="13218" LastEditorUserId="2776" LastEditDate="2017-07-11T18:08:49.687" LastActivityDate="2017-07-13T11:21:06.490" Title="Studying Oligopolies" Tags="&lt;microeconomics&gt;&lt;reference-request&gt;&lt;oligopoly&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17456" PostTypeId="2" ParentId="17442" CreationDate="2017-07-11T18:00:29.637" Score="1" Body="&lt;p&gt;If you are looking for something simpler before jumping to Black-Scholes, consider the textbook &quot;&lt;a href=&quot;http://www.mheducation.com/highered/product/investments-bodie-kane/0077861671.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Investments&lt;/a&gt;&quot; from Bodie, Kane, and Marcus.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can look at the &lt;a href=&quot;http://www.mheducation.com/highered/product/investments-bodie-kane/0077861671.toc.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;table of contents&lt;/a&gt;. The book assumes that the reader does not know stochastic calculus and continuous time finance, but it still gets to the Black-Scholes formula.&lt;/p&gt;&#xA;" OwnerUserId="13218" LastEditorUserId="2776" LastEditDate="2017-08-11T07:45:25.957" LastActivityDate="2017-08-11T07:45:25.957" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17457" PostTypeId="2" ParentId="17453" CreationDate="2017-07-11T19:24:54.450" Score="4" Body="&lt;p&gt;No, the idea of wealth as something to be created did not originate in the United States.  It was &lt;em&gt;part&lt;/em&gt; of the &lt;a href=&quot;https://en.wikipedia.org/wiki/Mercantilism&quot; rel=&quot;nofollow noreferrer&quot;&gt;mercantilist&lt;/a&gt; approach to national economic policy that was widely adopted in Europe in the 16th to 18th centuries.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Mercantilism involved a range of policies, many of which were designed to increase the wealth of one country at the expense of others and probably reduced wealth overall, eg restrictions on international trade, and warfare to gain control over sources of goods.  However, it also involved policies that were not at the expense of other countries, including promoting industry via research or subsidies, maximising the use of domestic resources, and (see under France in the link above) decreasing internal barriers to trade, reducing internal tariffs, and improving infrastructure.&lt;/p&gt;&#xA;" OwnerUserId="1417" LastActivityDate="2017-07-11T19:24:54.450" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="17458" PostTypeId="2" ParentId="17455" CreationDate="2017-07-11T19:35:22.290" Score="3" Body="&lt;p&gt;The basics are of course Cournot, Stackelberg and Bertrand competition, which you can find in any textbook.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you are referring to needing references for research, then the paper you absolutely must know is Dixit and Stiglitz (1977) &quot;Monopolistic Competition and Optimum Product Diversity&quot;. American Economic Review. With over 10k citations, the importance of this paper for research cannot be overstated. Especially for macroeconomics, which interests you, knowing this paper in and out is indispensible. It has been extensively used in international trade (e.g. Krugman's models), economic geography and monetary policy (most DSGE models incorporate it) to name a few fields.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;While this paper is a specific form of oligopoly, namely monopolistic competition, it is very general and implicitly incorporates much of Cournot and Bertrand competition models. It is simultaneously relatively simple and tractable for use.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Most papers use a &quot;light&quot; version of Dixit and Stiglitz, however. If you search for explanations of this model online, you will find a lot of ressources that explain the different (light) versions step by step. I would actually read those before reading the paper.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A good book on the Dixit &amp;amp; Stiglitz model is also Brakman, S. and Heijdra B.J. (eds.) (2004): &quot;The Monopolistic Competition Revolution in Retrospect.&quot; Because this model is so important, many interesting parts of Dixit and Stiglitz are also explained in Baldwin, R., Forslid, R., Martin, P., Ottaviano, G. and Robert-Nicoud, F. (2003). &quot;Economic Geography and Public Policy.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You usually won't need to know any other model for applying oligopolies to research problems. An alternative is, however, the Salop (circle) model (Salop, Steven C. (1979), &quot;Monopolistic competition with outside goods&quot;, The Bell Journal of Economics, 10). It may have an advantage depending on your setting, but is a bit outdated compared to Dixit and Stiglitz. In my experience Dixit and Stiglitz is preferred by the research community.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastEditorUserId="5557" LastEditDate="2017-07-13T09:12:33.203" LastActivityDate="2017-07-13T09:12:33.203" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17460" PostTypeId="2" ParentId="6221" CreationDate="2017-07-11T22:53:01.387" Score="-3" Body="&lt;p&gt;Only the injection is multiplied not the withdrawal - once money leaves the economy that is the end of it's journey in the circular flow of income - full stop.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The injection continues being spent around the economy which is why it is subject to the Multiplier.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is no negative Multiplier.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Multiplier is not a micro concept - the withdrawal is on the money supply not on an individual or even groups income even if he is called Clouseau.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore there is no real world example - only in the surreal world of micro economists.&lt;/p&gt;&#xA;" OwnerUserId="13887" LastActivityDate="2017-07-11T22:53:01.387" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17461" PostTypeId="1" CreationDate="2017-07-12T02:53:43.610" Score="6" ViewCount="91" Body="&lt;p&gt;I watch a dumb reality TV show which has a certain number of contestants to start with, and every week one contestant is eliminated.  Here's how the elimination process works.  Every week a certain number of contestants is nominated for elimination.  And then viewers get to vote online on who they want to save from elimination.  (A viewer can only vote to save one person.). Whoever gets the least votes gets eliminated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm interested in how to vote strategically in this process.  Now if I feel strongly about wanting someone not to be eliminated, it's clear what I should do: cast a vote to save them.  But my question is, what should I do if I feel strongly about wanting someone to be eliminated?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think the answer is that I should vote to save whichever contestant I expect to receive the least votes out of the contestants other than the one I want eliminated.  That way, if there's a tie between that least popular contestant and the one I want eliminated, I'll break the tie and succeed in getting them eliminated.  (I think it's generally true that if voting is rational, the rational way to vote is the way you would if yours was the tie-breaking vote.) Is that right according to game theory?&lt;/p&gt;&#xA;" OwnerUserId="4447" LastActivityDate="2017-07-12T02:53:43.610" Title="How do you strategically vote to put someone in last place?" Tags="&lt;game-theory&gt;&lt;voting&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="17462" PostTypeId="2" ParentId="17452" CreationDate="2017-07-12T02:53:56.337" Score="0" Body="&lt;p&gt;These changes (-20%, +60%) are too large to use point elasticity methods (which are accurate for small changes in price, like 1%).  The claim seems to be based on an arc elasticity formula instead, measured between the original Q and the new quantity, which is (1.6)*Q.  The two types will be equal only if elasticity is constant everywhere, which is very unlikely to be the case!&lt;/p&gt;&#xA;" OwnerUserId="10799" LastActivityDate="2017-07-12T02:53:56.337" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17463" PostTypeId="2" ParentId="17396" CreationDate="2017-07-12T03:07:07.393" Score="1" Body="&lt;p&gt;Step 1, as it were, would be to write down the expenditure function (4x+y).  Next, think about what happens if income is $0; the optimal choices of x and y are easy, as only (0,0) can be consumed. Then ask &quot;what happens as income increases?&quot; and you're off to the races!&lt;/p&gt;&#xA;" OwnerUserId="10799" LastActivityDate="2017-07-12T03:07:07.393" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17464" PostTypeId="2" ParentId="17452" CreationDate="2017-07-12T08:17:29.653" Score="1" Body="&lt;p&gt;&lt;strong&gt;Example&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;if p = -1%&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and the production increase is +2%&lt;/p&gt;&#xA;&#xA;&lt;p&gt;elasticity is -2&lt;/p&gt;&#xA;&#xA;&lt;p&gt;[2/-1 = -2]&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Our exercise&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;if this is true&lt;/p&gt;&#xA;&#xA;&lt;p&gt;when p = -20%&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and production is 60% more&lt;/p&gt;&#xA;&#xA;&lt;p&gt;elasticity is -3&lt;/p&gt;&#xA;&#xA;&lt;p&gt;[60/-20 = -3]&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To sell the 60% more the price has to decrease, if it decreases of 20%, the ratio among products sold (+60%) and price decrease (-20%) is equal to -3.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, elasticity is the ratio among variation in quantity (60%) and variation in price (-20%) = -3.&lt;/p&gt;&#xA;" OwnerUserId="13682" LastEditorUserId="2776" LastEditDate="2017-07-12T14:29:27.523" LastActivityDate="2017-07-12T14:29:27.523" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="17465" PostTypeId="2" ParentId="17451" CreationDate="2017-07-12T10:34:23.077" Score="1" Body="&lt;p&gt;It seems not, judging for the results of &lt;a href=&quot;http://econpapers.repec.org/scripts/search.pf?ft=%22summer+camp%22&quot; rel=&quot;nofollow noreferrer&quot;&gt;this&lt;/a&gt; and &lt;a href=&quot;https://scholar.google.com/scholar?q=%22summer+camp%22+demand+price&amp;amp;btnG=&amp;amp;hl=es&amp;amp;as_sdt=0%2C5&quot; rel=&quot;nofollow noreferrer&quot;&gt;this&lt;/a&gt; search (but you might want to take a look yourself).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are some more informal analysis of the market for summer camps (e.g. &lt;a href=&quot;http://scholarship.claremont.edu/cgi/viewcontent.cgi?article=1081&amp;amp;context=cmc_theses&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;) and some organisations recollecting some form of data (e.g. &lt;a href=&quot;https://www.acacamps.org/resource-library/research/research-reports-summaries-data-maps&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;). The former is interesting because it shows, unsurprisingly, that the services proved by a summer camp are very heterogeneous. They are also targeted to different audiences. This means that the good itself is heterogeneous, so thinking of a unified &quot;demand for summer camps&quot; might be problematic. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Still, there are studies estimating demand for such heterogeneous goods. &lt;a href=&quot;http://onlinelibrary.wiley.com/doi/10.1002/(SICI)1099-095X(199703)8:2%3C87::AID-ENV240%3E3.0.CO;2-H/pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Here&lt;/a&gt; (subscription-wall) is an example which perhaps might be related to your interest (not the least because it uses the word camp too, which is how I found it, btw). The study estimates the demand for camping park's amenities. The key is that these amenities differ across camping sites (e.g. electricity access, natural beauty, etc). The authors estimate, among other things, the &quot;price and income elasticity&quot; for 48 camping parks in a region of Canada. The main finding with respect to elasticities are:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;... it is immediately evident that there exists no definite pattern with regard&#xA;  to the price elasticity; there appear to be almost as many cases of&#xA;  inelastic as there are instances of elastic demand. [...] Since our results also indicate a negative income elasticity, higher user fees would represent a regressive form of taxation. The principle of user pay may still be justified on efficiency, not equity, grounds.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;If you want to do some form of econometric analysis of the market for summer camps, I think this method is a possible approach.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-07-12T10:34:23.077" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17466" PostTypeId="2" ParentId="17453" CreationDate="2017-07-12T14:47:43.223" Score="0" Body="&lt;p&gt;I think this is almost certainly wrong. I recommend &quot;The Protestant Ethic and the Spirit of Capitalism&quot; as a good book to read on this subject. Max Weber argues that protestant/puritan work ethics are the precursor to capitalism. Most of the early immigrants to the US were protestants and puritans, but these movements originated in England, Switzerland, Germany, etc.&lt;/p&gt;&#xA;" OwnerUserId="11216" LastActivityDate="2017-07-12T14:47:43.223" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17469" PostTypeId="2" ParentId="3393" CreationDate="2017-07-12T16:45:58.743" Score="3" Body="&lt;p&gt;$\newcommand{\R}{\mathbb{R}}&#xA;\newcommand{\N}{\mathbb{N}}&#xA;\newcommand{\F}{\mathbb{F}}&#xA;\newcommand{\C}{\mathbb{C}}&#xA;\newcommand{\E}{\mathbb{E}}&#xA;%short command for inseting abbreviated &quot;such that&quot; in a math environment&#xA;\newcommand{\st}{\text{ s.t. }}&#xA;%text in a math environment &quot;as&quot;&#xA;\newcommand{\as}{\text{ as }}&#xA;%various referencing commands&#xA;\newcommand{\rref}[1]{(\ref{#1})}&#xA;\newcommand{\eref}[1]{eq. (\ref{#1})}&#xA;\newcommand{\fref}[1]{Figure \ref{#1}}&#xA;%differential d&#xA;\newcommand{\dd}{\, \mathrm{d}}&#xA;%variance and covariance$&lt;/p&gt;&#xA;&#xA;&lt;h1&gt;Part 1&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;Yes. However, it is useful to simplify the answer even further and to write&#xA;optimal consumption in terms of other. more easily observed quantities.&#xA;Here's the derivation. I also solve for the portfolio holdings. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Calculating Optimal Consumption in terms of Wealth&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Start again with some preliminary calculations related to the budget constraint.&#xA;\begin{align*}&#xA;\mathbb E_t \left [\pi_T^{\frac{\gamma - 1}{\gamma}} \right ] &#xA;  &amp;amp;= \mathbb E_0 \pi_t^{\frac{\gamma-1}{\gamma}} \exp \left \{&#xA;  - \frac{\gamma - 1}{\gamma} \left (r + \frac 12 \eta^2 \right ) (T-t)&#xA;  - \frac{\gamma - 1}{\gamma} \eta (B(T) - B(t)) \right \} \\&#xA;  &amp;amp;= \pi_t^{\frac{\gamma-1}{\gamma}} \exp \left \{ - \frac{\gamma - 1}{\gamma} (r + \frac 12 \eta^2 ) (T-t) &#xA;  + \frac 12 \frac{(\gamma - 1)^2}{\gamma^2} \eta^2 (T-t) \right \} \\&#xA;  &amp;amp;= \pi_t^{\frac{\gamma-1}{\gamma}} \exp \left \{ (T-t) \frac{\gamma - 1}{\gamma} \left[ - r + \frac 12 \eta^2 &#xA;  \frac{1}{\gamma} \right] \right \}.&#xA;\end{align*}&#xA;From the budget constraint&#xA;\begin{align*}&#xA;\pi_t W_t &amp;amp;= \E_t \left[\int_t^\infty \pi_s C_s \dd s\right] \\&#xA;W_t &amp;amp;= \frac{1}{\pi_t} \E_t\left[\int_t^\infty \lambda^{-1/\gamma} e^{-\frac{\rho}{\gamma} s} \pi_s^{\frac{\gamma-1}{\gamma}} \dd s\right] \\&#xA;  &amp;amp;= \frac{1}{\pi_t} \int_t^\infty \lambda^{-1/\gamma} e^{-\frac{\rho}{\gamma} s} \E_t\left[\pi_s^{\frac{\gamma-1}{\gamma}} \right] \dd s \\&#xA;  &amp;amp;= \frac{1}{\pi_t} \int_t^\infty \lambda^{-1/\gamma} e^{-\frac{\rho}{\gamma} s} \pi_t^{\frac{\gamma-1}{\gamma}} \exp\{-(s-t) \frac{\gamma-1}{\gamma} \left[r + \frac 12 \eta^2 \frac 1 \gamma \right]\} \dd s \\&#xA;  &amp;amp;= \pi^{\frac{-1}{\gamma}} \lambda^{\frac{-1}{\gamma}} &#xA;  \int_t^\infty \exp\left\{ -\frac{\rho}{\gamma} (s-t) - \frac{\rho}{\gamma} t - (s-t) \frac{\gamma-1}{\gamma} \left[r + \frac 12 \eta^2 \frac 1 \gamma \right]\right\} \dd s\\&#xA;  &amp;amp;= \pi^{\frac{-1}{\gamma}} \lambda^{\frac{-1}{\gamma}} &#xA;  e^{-\frac \rho \gamma t} \int_t^\infty \exp\left\{ - (s-t) \frac{\gamma-1}{\gamma} \left[r + \frac{\rho}{\gamma-1} + \frac 12 \eta^2 \frac 1 \gamma \right]\right\} \dd s \\&#xA;  &amp;amp;= \pi^{\frac{-1}{\gamma}} \lambda^{\frac{-1}{\gamma}} &#xA;  e^{-\frac \rho \gamma t} \frac 1 a,&#xA;\end{align*}&#xA;where &#xA;$a = &#xA;\frac{\gamma-1}{\gamma} \left[r + \frac{\rho}{\gamma-1} + \frac 12 \eta^2 \frac 1 \gamma\right]$&#xA;(this is the same as defined in attempt demonstrated in the question).&#xA;From our derivation of optimal consumption, we have&#xA;$$&#xA;C_t^* = \lambda^{-\frac 1 \gamma }e^{-\frac \rho \gamma t} \pi_t^{-\frac 1 \gamma} = a W_t.&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Deriving the dynamics for optimal consumption: $\dd C_t^*$.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To proceed to find the optimal portfolio to support this level of consumption, we need to compute the dynamics of $C_t^*$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We will show that, from our derivation of optimal consumption, &#xA;\begin{equation}&#xA;\dd W_t = \frac 1 a \dd C_t^* =&#xA;\frac 1 a C_t \frac 1 \gamma \left( \eta \dd Z_t + \frac 12 \frac{1+\gamma}{\gamma} \eta^2 \dd t\right). \label{wealth-dynamics-from-optimal-consumption}&#xA;\tag 1&#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The second equality is derived as follows.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That second equality comes from $\lambda^{-\frac 1 \gamma} = \frac {w a} r$ (derived in the attempt given in the question statement) and&#xA;from Ito's lemma applied to&#xA;\begin{align*}&#xA;C^*_t &amp;amp;=  \lambda^{-\frac 1 \gamma }e^{-\frac \rho \gamma t} \pi_t^{-\frac 1 \gamma} \\&#xA;  &amp;amp;=  \frac {w a}{r}  (e^{\rho t} \pi_t)^{-\frac 1 \gamma} \\&#xA;&amp;amp;=  \frac {w a}{r}  \xi_t^{-\frac 1 \gamma}.&#xA;\end{align*}&#xA;Here I have added the simplifying assumption that $\rho = r$ and I have used the definition that&#xA;$\pi_t = e^{-r t} \xi_t$.&#xA;The calculation of Ito's lemma on optimal consumption proceeds like this:&#xA;\begin{align*}&#xA;\dd C_t &amp;amp;= - \frac {wa}{r} \frac 1 \gamma \xi_t^{\frac{-1 - \gamma}{\gamma}} \dd \xi_t&#xA;+ \frac 12 \frac{wa}{r} \frac 1 \gamma \frac{1 + \gamma}{\gamma} \xi_t^{- \frac 1 \gamma - 2} (\dd \xi_t)^2 \\&#xA;  &amp;amp;= - C_t \frac 1 \gamma \left( \frac{\dd \xi_t}{\xi_t} \right) &#xA;+ \frac 12 C_t \frac 1 \gamma \frac{1+\gamma}{\gamma} \left( \frac{\dd \xi_t}{\xi_t}\right)^2 \\&#xA;  &amp;amp;= -C_t \frac 1 \gamma (-\eta \dd B_t) + \frac 12 C_t \frac 1 \gamma \frac{1+\gamma}{\gamma} ( \eta^2 \dd t)&#xA;\end{align*}&#xA;Thus,&#xA;$$&#xA;\frac{ \dd C_t}{C_t} = \frac 1 \gamma \left( \frac 12 \eta^2 \frac{1+\gamma}\gamma \dd t + \eta \dd B_t \right).&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Match terms to derive optimal portfolio.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can deduce the optimal portfolio be deriving the dynamics of&#xA;a portfolio with a trading strategy defined by the weight $\omega_t$&#xA;and comparing these dynamics to the dynamics of wealth implied by&#xA;the dynamics we calculated for&#xA;optimal consumption.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If $\omega$ is the fraction of wealth we invest in the risky security&#xA;and $1-\omega$ is the fraction invested in the riskless security,&#xA;then the dynamics for wealth can be written&#xA;$$&#xA;\dd W_t = \omega (\mu -r) W_t \dd t + (r W_t - C_t) \dd t + W_t \omega \sigma \dd Z_t.&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, we can derive an expression for $\omega$ by matching the terms&#xA;of this equation with the terms of equation (\ref{wealth-dynamics-from-optimal-consumption}).&#xA;From the terms on $\dd Z_t$,&#xA;\begin{align*}&#xA;W_t \omega \sigma &amp;amp;= \frac 1 a C_t \frac 1 \gamma \eta \\&#xA;\omega &amp;amp;= \frac \eta {\sigma \gamma}.&#xA;\end{align*}&lt;/p&gt;&#xA;&#xA;&lt;h1&gt;Part 2&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;It seems like consumption is stochastic because consumption here &lt;em&gt;is&lt;/em&gt; stochastic. &#xA;Consumption&#xA;depends on the state of the economy. It is, however,&#xA;$\mathcal F_t$-measurable, so optimal consumption at time $t$&#xA;depends only on information available at time $t$. &#xA;Because of the positive Sharpe ratio $\eta$ and finite risk aversion, the agent will invest in the risky security. As we showed previously, consumption&#xA;is a fraction of wealth, $C_t^* = a W_t$. Wealth depends on the performance&#xA;of the agent's investments. In good times, the agent consumes more.&#xA;The fraction of wealth consumed, $a$, depends on&#xA;the interest rate $r$, subjective discounting $\rho$, risk aversion&#xA;$\gamma$, and the market price of risk (Sharpe ratio) $\eta$.&lt;/p&gt;&#xA;&#xA;&lt;h1&gt;Part 3&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;One way this can occur is if we assume that the agent can only invest&#xA;in the riskless security. Just as well, let $\eta = 0$. Also,&#xA;suppose that the interest rate is equal to the subjective discount rate, $r = \rho$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Doing this, we see that $\pi_t = \exp\{-r t\}$. Also, from&#xA;the budget constraint we know that wealth is&#xA;$$&#xA;W_t = B_t + \theta_t S_t + \E_t \frac{1}{\pi_t} \int_t^\infty \pi_s w \dd s = B_t + \theta_t S_t + \frac w r,&#xA;$$&#xA;where $B_t$ is the amount on money invested in the riskless asset, $\theta_t$&#xA;is the dollar amount invested in the risky security $S_t$, and the remaining&#xA;term is the expected discounted present value of future wages (the expectation&#xA;here could have been left out since $\pi_s$ and $w$ are constant in this case, &#xA;but I've included&#xA;it for consistency).&#xA;Also, since $\eta = 0$, $a = r$. Thus,&#xA;$$&#xA;C_t^* = r W_t = r \left( B_t + \frac w r\right).&#xA;$$&#xA;Since $B_0 = 0$ by assumption, $C_0 = w$. Loosely speaking, an induction-like&#xA;argument gives us that $B_t = 0$ for all $t$ and, thus,&#xA;$$&#xA;C_t^* = \frac w r = w.&#xA;$$&lt;/p&gt;&#xA;" OwnerUserId="59" LastEditorUserId="59" LastEditDate="2017-08-08T02:32:30.843" LastActivityDate="2017-08-08T02:32:30.843" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17471" PostTypeId="2" ParentId="4685" CreationDate="2017-07-13T00:18:40.597" Score="-1" Body="&lt;p&gt;Real freedom on the internet would mean that you or any “democratic” group would not force an ISP to deliver content (or not) on the hardware he installs, maintains and owns. It would also mean no one could forcibly prevent his competitor from extending services in any area or jurisdiction it chose to serve.  The resulting freedom would allow a competitor to provide that which the first ISP does not.  Forcing an ISP to be a  common carrier introduces all the nightmarish regulations and geographic restrictions that limit competition, stifle innovation and encourage industry protectionism. No one wins when freedom from coercion is surrendered.&lt;/p&gt;&#xA;" OwnerUserId="13901" LastActivityDate="2017-07-13T00:18:40.597" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17472" PostTypeId="1" CreationDate="2017-07-13T01:48:30.130" Score="1" ViewCount="110" Body="&lt;p&gt;When I analyzed a data set with two categories, I used a dummy variable $z=1$ for category 1, and 0 otherwise, and added the extra term $\beta z$ to the regression model. Suppose the least squares estimate for $\beta$ is $b$. I tried to calculate some prediction intervals for the two categories. For category 1, since $z=1$, I needed to count the variance for $b$, but for category 2, since $z=0$, I did not count this variance. It then appeared that the variance for category 1 includes an additional variance because I happened to code it as $z=1$. I am new to study econometrics. Could anyone please help with this puzzle? Am I missing anything here? &lt;/p&gt;&#xA;" OwnerUserId="2846" LastEditorUserId="2776" LastEditDate="2017-07-13T05:23:28.387" LastActivityDate="2017-07-14T05:00:49.103" Title="Regression with Dummy Variables" Tags="&lt;econometrics&gt;&lt;regression&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17474" PostTypeId="1" CreationDate="2017-07-13T09:12:41.120" Score="0" ViewCount="94" Body="&lt;p&gt;For my thesis I'm writing about the Baltic states and why they didn't vote out their incumbent governments despite undergoing severe austerity. As part of that I'm looking at their growth rates from quarter to quarter, but the OECD website gives me two options to do so:&#xA;Growth rate compared to previous quarter (GPSA)&#xA;Growth rate compared to same quarter of previous year (GYSA)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm not sure which is used more often in academic literature, or is more useful for my purposes. I've seen both being used in newspapers, and so I'm not sure which is better. GPSA seems more volatile, but I think I've seen it being used more often as well.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any ideas?&lt;/p&gt;&#xA;" OwnerUserId="13906" LastEditorUserId="2776" LastEditDate="2017-07-13T19:46:05.403" LastActivityDate="2017-09-26T13:42:43.310" Title="What is used more: economic growth rate compared to previous quarter (GPSA), or growth rate compared to the same quarter of the previous year (GYSA)" Tags="&lt;macroeconomics&gt;&lt;econometrics&gt;&lt;gdp&gt;&lt;international-economics&gt;" AnswerCount="3" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="17475" PostTypeId="2" ParentId="17455" CreationDate="2017-07-13T11:21:06.490" Score="2" Body="&lt;p&gt;I would recommend taking a look at Jean Tirole's &quot;The Theory of Industrial Organization&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This textbook provides a clean exposition of the models of Bertrand, Cournot, Stackelberg, Hotelling, and Salop (read chapters 5 and 7). This will provide a reasonably complete foundation for modern, game theoretic oligopoly theory.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2017-07-13T11:21:06.490" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17476" PostTypeId="1" AcceptedAnswerId="17493" CreationDate="2017-07-13T15:47:49.847" Score="4" ViewCount="2261" Body="&lt;p&gt;As has been widely discussed already, the situation in Greece is considered more serious than in the US, as they have dollar-denominated debt and can only print Greek currency. The US, has the benefit of World Reserve Currency status. All of that does make sense, but I'm thinking there might be more to the story. So I would like to invite speculation on the consequences if the US one day defaulted on its debt.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A country going bankrupt is hardly a novel event, but few countries of the wealth and influence of the US are can be found in historical precedent. One of the only examples that came to mind is when Russia defaulted in 1998. That had global repercussions to North and South America and beyond. Also it destroyed the business model of Long Term Capital Management, an investment fund headed by a team of nobel-prize winning economists and mathematicians. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;World Reserve Currency aside, is the Russian default a fair comparison? What different things might we expect if it were the US to default in the coming years?&lt;/p&gt;&#xA;" OwnerUserId="12212" LastEditorDisplayName="user18" LastEditDate="2017-07-14T00:34:58.647" LastActivityDate="2017-07-19T08:40:44.487" Title="What would happen if the US defaults on its debt?" Tags="&lt;macroeconomics&gt;&lt;international-economics&gt;&lt;government-debt&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17479" PostTypeId="2" ParentId="17474" CreationDate="2017-07-14T01:17:55.523" Score="1" Body="&lt;p&gt;QOQ (quarter on quarter) GDP growth is more common, at least in the US and the UK.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;See the press releases by the &lt;a href=&quot;https://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;US BEA&lt;/a&gt; and &lt;a href=&quot;https://www.ons.gov.uk/economy/grossdomesticproductgdp/bulletins/secondestimateofgdp/quarter1jantomar2017&quot; rel=&quot;nofollow noreferrer&quot;&gt;UK ONS&lt;/a&gt;. For both, the headline rate is the QOQ rate. &lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2017-07-14T01:17:55.523" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17480" PostTypeId="1" CreationDate="2017-07-14T01:20:15.903" Score="1" ViewCount="64" Body="&lt;p&gt;I am entering my first year of graduate studies in Economics this fall and I'm curious about which areas of economic research utilize various fields of computer science (e.g. Machine Learning, Graph Theory, etc.) to study economics. More specifically, how are recent advancements in the field of computer science being used to answer economic questions that were previously difficult or impossible to answer?&#xA;Thank you in advance for any responses.&lt;/p&gt;&#xA;" OwnerUserId="13899" LastEditorUserId="1601" LastEditDate="2017-07-14T06:37:05.977" LastActivityDate="2017-07-14T15:46:01.260" Title="What are some examples of modern economic research that integrate economics and computer science?" Tags="&lt;computation&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17481" PostTypeId="2" ParentId="17472" CreationDate="2017-07-14T05:00:49.103" Score="2" Body="&lt;p&gt;That is natural and you are not missing anything.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $y=\alpha + \beta z + u$. Your prediction of $y$ given $z=1$ is $\hat{y} = a + b$, where $a$ and $b$ are the OLS estimates. The prediction error ($y - \hat{y}$) for $z=1$ is, thus, $(\alpha - a) + (\beta-b) + u$, which is involved with $b$. On the other hand, for $z=0$, the prediction of $y$ is $a$ and the prediction error is $(\alpha-a) + u$, which has nothing to do with $b$. As you said, the former depends on $b$, while the latter does not. (Perhaps it would help to remember that the value of $z$ is given for the prediction, and thus the prediction intervals depend on the value of $z$.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Calculation of the prediction intervals:) You can calculate the prediction intervals using the formula $(a+b) \pm se((\alpha-a)+(\beta-b)+u) \cdot \textit{critical value}$ for $z=1$, and the formula $a \pm se((\alpha-a)+u) \cdot \textit{critical value}$ for $z=0$. which is fine. Note that these two prediction intervals can also be written as $(a+b) \pm se(a+b+u) \cdot cv$ and $a\pm se(a+u) \cdot cv$, respectively, because $\alpha$ and $\beta$ are constant (nonrandom). How to estimate the standard errors can be found in Wooldridge's textbook (the &quot;Prediction and Residual Analysis&quot; section; 6.4 in 5ed).&lt;/p&gt;&#xA;" OwnerUserId="10775" LastActivityDate="2017-07-14T05:00:49.103" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="17483" PostTypeId="2" ParentId="17480" CreationDate="2017-07-14T15:46:01.260" Score="1" Body="&lt;p&gt;I can try to give a bunch of examples about specific branches in economics that have been reshaped by computer science over the last decade, but I will leave this to the ones that are more knowledgeable, and far better writers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That being said, I really enjoyed Hal Varian's take away of it:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.aeaweb.org/articles?id=10.1257/jep.28.2.3&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.aeaweb.org/articles?id=10.1257/jep.28.2.3&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And this video where Susan Athey elaborates upon the role of machine learning in the study of causal effects and their connection with impact evaluation literature:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.youtube.com/watch?v=VeTl4mIdqWA&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.youtube.com/watch?v=VeTl4mIdqWA&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Good luck in your studies!&lt;/p&gt;&#xA;" OwnerUserId="4035" LastActivityDate="2017-07-14T15:46:01.260" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17484" PostTypeId="1" CreationDate="2017-07-14T17:50:52.890" Score="1" ViewCount="244" Body="&lt;p&gt;I wanted to value a High-tech start-up of which I have the cash flows of the coming 6 years. I decided to use the Discounted Cash Flow Method. To do so, I calculated the Discount rate. &#xA;For a High-tech start-up the discount rate  = Rate of equity (which can be determined by the Capital Asset Pricing Model).&#xA;So I calculated my Discount rate, used it in the DCF model And found an approximation of the Value of the High-tech Firm.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But I didn't took in consideration that the company sells their products globally. This fact has an impact on its beta Factor! and consequently on the discount rate and finally on the Value of the firm!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One option is to use the International CAPM model, but 'my' company is going to sell globally, so how do I know the impact of that to the Discount rate?&lt;/p&gt;&#xA;" OwnerUserId="13915" LastEditorUserId="2776" LastEditDate="2017-09-15T05:40:38.817" LastActivityDate="2021-04-27T18:03:20.343" Title="International Capital Asset Pricing Model (CAPM)" Tags="&lt;finance&gt;&lt;asset-pricing&gt;&lt;discount-rate&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="17485" PostTypeId="1" CreationDate="2017-07-14T19:01:06.950" Score="0" ViewCount="38" Body="&lt;p&gt;Often you hear people speak about how the Fed has created a fake economy, or one that is propped up with their support, and that they have artificially raised asset prices. What does this exactly mean? How as QE created a fake economy?&lt;/p&gt;&#xA;" OwnerUserId="5998" LastActivityDate="2017-08-14T15:40:06.547" Title="Fed, Asset prices, and the Economy" Tags="&lt;monetary-policy&gt;&lt;federal-reserve&gt;&lt;quantitative-easing&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17486" PostTypeId="1" CreationDate="2017-07-14T21:40:28.420" Score="0" ViewCount="86" Body="&lt;p&gt;Why is it not possible to prevent sudden unemployment of thousands of people? &#xA;Often one can observe, for example in news, that suddenly from one day to the other thousands of people of a company get unemployed. Why is it not possible to prevent this or why do companies not downsize slowly instead of above stated? Of course those companies should know this earlier and they could downsize slowly, but they don't. Why?&#xA;I would really appreciate any solutions and ideas&lt;/p&gt;&#xA;" OwnerUserId="13917" LastActivityDate="2017-08-15T15:17:21.277" Title="Why is it not possible to prevent sudden unemployment of thousands of people?" Tags="&lt;unemployment&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17488" PostTypeId="2" ParentId="17403" CreationDate="2017-07-15T01:15:37.800" Score="1" Body="&lt;p&gt;Suppose Mike plays a randomised strategy of playing &quot;0&quot; with probability $\dfrac58$ and playing &quot;1&quot; with probability $\dfrac38$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then @Herr K.'s table becomes (in expectation) &#xA;$$\begin{array}{|c|c|c|}\hline&amp;amp;\text{'0'}&amp;amp;\text{'1'}\\\hline\text{Mike's }\frac58,\frac38 \text{ combo}&amp;amp;\frac18,-\frac18&amp;amp;\frac18,-\frac18\\\hline\end{array}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and there is nothing Cheng can do to get a better result than an expected loss of $\frac18$.  So in that sense the game is advantageous to Mike if Mike takes this approach&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Incidentally, here Cheng can restrict expected losses to this amount by playing the same mixed strategy, and both players doing so is a Nash equilibrium&lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2017-07-15T01:15:37.800" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17489" PostTypeId="2" ParentId="17485" CreationDate="2017-07-15T15:23:18.747" Score="1" Body="&lt;p&gt;As a comment noted, without a reference, it is difficult to give a definitive answer. However, I have often run into similar phrasing in financial market commentary, so I will offer an initial guess as to what you read. This answer is just giving an initial idea as to what topics you could search for to get more information.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This phrasing is often used by members of the Austrian school of thought in economics. (The name &quot;Austrian&quot; refers to the fact that many of the founding members of the school of thought came from Austria.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Austrian school is very free markets oriented, and highly critical of government interference in the economy. The Austrian Business Cycle Theory - which I am not an expert on - argues that interest rates are important for planning in the private sector. If the central bank sets the interest rate away from the &quot;correct&quot; level (I am unsure how they phrase this technically), this leads to distortions in private sector activity (away from where the private sector would have naturally been). This leads to imbalances and eventually a crisis/recession. Since the economic activity is not &quot;natural&quot;, it is often referred to as &quot;fake.&quot; (Since interest rates are determined by the price of bonds, this is the link to asset prices and QE.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Mises Institute &lt;a href=&quot;https://mises.org&quot; rel=&quot;nofollow noreferrer&quot;&gt;link to website&lt;/a&gt; would be probably the best site to learn about Austrian economics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, the Austrian school is not well-represented in academia at present. Most other economic schools of thought currently do not take the Austrian criticisms very seriously. Austrian thinking has not changed much over the past decades, and most non-Austrians view them as having been debunked a long time ago. As a result, it would be difficult to find recent authoritative criticisms of Austrian business cycle theory. In other words, it would be probably be hard to find criticisms of the idea that QE has led to a &quot;fake economy.&quot; For example, from the post-Keynesian perspective, it is unclear how we can even define &quot;fake&quot; in this context.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I believe that if you wanted to pursue this, you would need to look further into Austrian theory, and ask a narrow question about a particular topic.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastEditorUserId="2776" LastEditDate="2017-08-14T15:40:06.547" LastActivityDate="2017-08-14T15:40:06.547" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17491" PostTypeId="1" AcceptedAnswerId="17503" CreationDate="2017-07-15T18:07:31.310" Score="2" ViewCount="226" Body="&lt;p&gt;Assume $U(x)$ is a concave, monotonically increasing function. If we know that &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U\left[E(p)\right] &amp;gt; U\left[E(q)\right]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $p$ and $q$ are probability distributions, how can we prove that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$E(U_p) &amp;gt; E(U_q)$$ &lt;/p&gt;&#xA;" OwnerUserId="6737" LastEditorUserId="2776" LastEditDate="2017-07-28T08:51:06.520" LastActivityDate="2017-07-28T09:05:31.613" Title="Prove relation between expected utility and utility of the mean" Tags="&lt;expected-utility&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="17492" PostTypeId="2" ParentId="17486" CreationDate="2017-07-15T23:50:35.080" Score="0" Body="&lt;p&gt;Your question asks &quot;why&quot; but does not provide a perspective.  Who is it that you believe should be attempting to prevent sudden unemployment?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It sort of sounds like you think CEOs might want to let people go slowly.  Generally speaking, I don't see why they would want that.  I believe an environment in which there is a constant threat of job loss would be worse for morale and productivity than one in which very occasionally there are larger cuts to a certain part of the business.  Also, the reasons for cutting the workforce don't tend to trickle in over time.  For example, when a certain production line stops making money, it's not like firing one or two people will change that.  You kind of have to shut the whole thing down.  &lt;strong&gt;CEOs could achieve slower workforce reductions if they desired it, but it would be bad for their companies and lose money&lt;/strong&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There may be government officials or other third parties who might prefer slower layoffs, but they don't have power over hiring and firing decisions, so they aren't relevant.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I will also ask you to think of why you believe slow downsizing would be better than fast.  It seems clear to me that fast downsizing is better for firms.  Are you certain that slow downsizing is better for the economy, or for the workers?  You would have to show this before others could provide additional reasons why it makes sense for large layoffs to occur.&lt;/p&gt;&#xA;" OwnerUserId="12673" LastActivityDate="2017-07-15T23:50:35.080" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17493" PostTypeId="2" ParentId="17476" CreationDate="2017-07-16T00:25:02.263" Score="6" Body="&lt;p&gt;The Russian default was an extraordinarily insignificant event compared with a current-day US default on all treasury securities.  There are no remotely similar events to compare it to.  This makes it hard to make guesses about all the ramifications.  Still, speculating is fun.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My guesses, based on a complete default (no money recovered) on all treasury securities:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;Massive failure of important financial institutions all across the world&lt;/strong&gt;.  LTCM was a hedge fund: a type of institution the is specifically expected to have significant failure risk.  On the other hand, treasury securities are held by institutions that are not well-equipped to bear risk.  Pension funds, banks, central banks, possibly whole governments would immediately fail.  There would be ripple effects as other institutions linked to them (or who they owe money to) faced an uncertain future.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;Total freezing of most important financial transactions and many markets&lt;/strong&gt;.  Treasury securities are used as currency and margin in many large and important financial transactions.  We witnessed a great deal of hobbling of financial institutions and markets when a few CDS's and mortgage-backed securities failed.  The loss of confidence in financial institutions and markets would be incomparably greater.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;Drastic increases in all interest rates and a sharp decline in all stock prices&lt;/strong&gt;.  The Russian default had consequences because it caused investors to dump risky investments in favor of safe ones.  A failure of the safest investment (treasuries) would cause utter loss of confidence in all investments and investors wouldn't know where to put money.  Cash maybe?  They would pull money out of both safe and risky investments, driving down both stock and bond prices. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;Widespread unemployment&lt;/strong&gt;. Cash available for lending would dry up.  Firms would be unable to borrow and have to forgo projects and lay people off.  These people would reduce their spending and default on some loans, causing amplified effects on interest rates and economic activity.  I would not be surprised if starvation and loss of social order ensued.  &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;Irreparable harm to confidence in the US government&lt;/strong&gt;.  The government would never again be able to borrow at low rates, it may not be able to borrow to fund its usual deficit.  This would be problematic since the depression and economic turmoil would require expanding the deficit.  It would be my guess that the US government as we know it would not continue.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I know this sounds a little alarmist, but wholesale default on all US government debt is truly an end-of-the-world-as-we-know-it scale event.    The world truly would change dramatically. Probably future generations would read about the golden age of humanity that ended with the great default.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Realistically, the US is not going to completely default on its debt any time soon.  If there was even a bit of worry about it, people and institutions would stop using it as such a critical component of their transactions and saving.  This would also be a dramatic change, but it would happen over time and reduce the effects, should a default ever happen.  I'm not sure what people would use as a substitute.  It would be uncharted territory.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A more likely, but still apocalyptic, scenario would be some partial default or sustained high inflation.  See the above consequences, but scaled down and including loss of confidence in the dollar.&lt;/p&gt;&#xA;" OwnerUserId="12673" LastActivityDate="2017-07-16T00:25:02.263" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17495" PostTypeId="1" AcceptedAnswerId="17496" CreationDate="2017-07-16T11:06:04.010" Score="3" ViewCount="365" Body="&lt;p&gt;The diagrams below showing demand for goods X1 and X2 are adapted from Johansson P-O (1991) &lt;em&gt;An Introduction to Modern Welfare Economics&lt;/em&gt; (p 43).  Demand for each good is assumed to be a function of its own price and the price of the other good.  At the initial price P2i of X2, demand for X1 is D1i, and at the final price P2f of X2, demand for X1 is D1f.  Similarly, demand for X2 increases from D2i to D2f when the price of X1 falls from P1i to P1f.  (Thus the goods seem to be complements, but that’s incidental).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/h6T9y.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/h6T9y.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Question&lt;/strong&gt;: What is the change in total (Marshallian) consumer surplus resulting from the combination of the two price changes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Johansson argues that it depends on the sequence of the price changes.  Suppose that the price of X1 changes first.  Considering the change in price of X1 with the price of X2 remaining at P2i, the relevant demand for X1 is D1i and we can infer that consumer surplus increases by area A.  Considering the change in price of X2, however, by assumption the price of X1 has already fallen to P1f, so the relevant demand is D2f and consumer surplus increases by area B + C.  In total, therefore consumer surplus increases by A + B + C.  But if the price of X2 changes first, then parallel reasoning leads to the conclusion that total consumer surplus increases by A + B + D.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems to me that this should instead be analysed as follows:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;The change in total consumer surplus is the difference between a)&#xA;the initial total consumer surplus and b) the final total consumer&#xA;surplus.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The sequence of the price changes has no bearing on either (a) or (b).&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;(a) is E + F and (b) is (A + D + E + G) + (B + C + F + H).&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Hence the change in total consumer surplus is an increase equal to (b) minus (a) or A + D + G + B + C + H.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Am I missing something?&lt;/p&gt;&#xA;" OwnerUserId="1417" LastActivityDate="2017-07-16T15:00:55.440" Title="Change in Consumer Surplus with Two Price Changes: Is it Path Dependent?" Tags="&lt;welfare-economics&gt;&lt;consumer-surplus&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17496" PostTypeId="2" ParentId="17495" CreationDate="2017-07-16T15:00:55.440" Score="2" Body="&lt;p&gt;Your reasoning is correct (i.e. the book is wrong). First, let's follow the book's logic a little more carefully step by step, beginning with the case where p1 changes first:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;a fall in p1 leads to a gain of A in market 1 and of H in market 2 (because D2 shifts).&lt;/li&gt;&#xA;&lt;li&gt;a subsequent fall in p2 leads to a gain of B + C in market 2 (we are now using the new demand curve in market 2); moreover, it causes D1 to shift so the consumer gains G + D.&lt;/li&gt;&#xA;&lt;li&gt;thus, the total gain is A + H +G + D + B + C.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;If p2 changes first:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;a fall in p2 leads to a gain of B in market 2 and of G in market 1 (because D1 shifts).&lt;/li&gt;&#xA;&lt;li&gt;a subsequent fall in p1 leads to a gain of A + D in market 1 (we are now using the new demand curve in market 1); moreover, it causes D2 to shift so the consumer gains H + C.&lt;/li&gt;&#xA;&lt;li&gt;thus, the total gain is A + H +G + D + B + C.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;We see that the order doesn't matter.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another quick way to verify that the order doesn't matter is to note that these demand curves are coming from a consumer who chooses the optimal demand vector for given prices. If the prices are the same then the solution to the maximisation problem will also be the same.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2017-07-16T15:00:55.440" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17497" PostTypeId="1" CreationDate="2017-07-16T23:13:49.473" Score="2" ViewCount="253" Body="&lt;p&gt;I'd like to compare the relative value (in USD) of three cryptocurrencies: Bitcoin, Ethereum, and IOTA. (See spreadsheet below.) Specifically, I'm comparing the price of each currency's smallest unit of division. And I'm taking that a step further to compare the &quot;unit price&quot; and the &quot;smallest unit price&quot; over the current circulating supply.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Note, although these currencies have big differences with respect to their feature sets and target markets, and I don't want to consider that for the purposes of this question.)&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;h1&gt;The Problem: Currency Differences&lt;/h1&gt;&#xA;&#xA;&lt;h2&gt;Unit Subdivision&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;These three cryptocurrencies vary dramatically by the amount a single unit can be subdivided. A single bitcoin (BTC) can be divided by 1/10^8. That is the smallest unit that can be recorded on the blockchain and is sometimes called a &lt;a href=&quot;https://en.bitcoin.it/wiki/Satoshi_(unit)&quot; rel=&quot;nofollow noreferrer&quot;&gt;Satoshi&lt;/a&gt;. A single Ethereum unit is called an ether. It can be divided by 1/10^18 and this smallest unit is called a &lt;a href=&quot;http://www.ethdocs.org/en/latest/ether.html#denominations&quot; rel=&quot;nofollow noreferrer&quot;&gt;Wei&lt;/a&gt;. A single IOTA cannot be subdivided, unlike the BTC and Ether units, &lt;a href=&quot;https://en.bitcoin.it/wiki/Units&quot; rel=&quot;nofollow noreferrer&quot;&gt;which were chosen to give sub-unit precision rather than large whole numbers&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Circulating Supply&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Also, the current circulating supply of each currency is dramatically different. At the time of this writing there are 16,451,325 BTC in circulation, 93,329,609 Ether in circulation, and approximately 2.8E+15 IOTA in circulation (which unlike BTC and Ether, is fixed and will never increase.)&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;h1&gt;Solution Premises&lt;/h1&gt;&#xA;&#xA;&lt;h3&gt;Use Smallest Unit of Currency for Price Comparison&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;The first premise of my question, which may be incorrect, is that we can get closer to an apples-to-apples comparison of price by calculating the price of the small unit of currency. For example, I don't think it would be accurate to compare the price of BTC ($1,918.41 at the time of this writing) and the circulating supply of 16,451,325 BTC against the price of an IOTA (0.17) and it's circulating supply of  2,779,530,283,000,000.&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Use Price over Supply to Show Value&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;The second premise, which may be also be incorrect, is that after we have a price-per-smallest-unit for each currency, we can further estimate value by dividing that number by the existing circulating supply. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, if a baker slices a single pie into 4 slices and sells each for two dollars apiece, and a second baker slices a pie into three slices and also sells for each for two dollars apiece, I can see that I can more &quot;value,&quot; for my money by dividing the cost of a single slice by the number of total slices. In the case, a value of .5 for the quarter slices and a value of .67 for the pie sliced in thirds.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm considering the available supply in this case to be fixed, which is true with IOTA. The circulation of Bitcoin and Ethereum will increase to give a slow inflationary rate, but I don't think I want to consider that in the context of this question.&lt;/p&gt;&#xA;&#xA;&lt;h1&gt;Summary&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;This is a screenshot of a spreadsheet where I've done the above calculations (click to enlarge):&#xA;&lt;a href=&quot;https://i.stack.imgur.com/LMHF5.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/LMHF5.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;In the last three columns we see very different results. In column G, the price of the smallest unit for the currency, the Ethereum unit &quot;Wei&quot; is cheapest by far.&lt;/li&gt;&#xA;&lt;li&gt;However, in column I--which takes the price of the smallest unit of currency divided by the circulating supply of that smallest unit--the IOTA (larger numbers are better here) seems to be a better value. &lt;/li&gt;&#xA;&lt;li&gt;And finally, in column H, we abandon the idea that using the smallest possible unit is important and simply divide the unit price by its circulating supply. That result suggest that bitcoin is a better value.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I feel that the calculation in column H, where we don't reduce the currency price/circulation to it's smallest possibly unit is wrong, especially if we're considering IOTA in the set. But I'm also unsure, due to my lack of economics knowledge, that the degree to which the currency can be subdivided is important.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the end, a stock (or cryptocurrency) is just worth what someone is willing to pay for it. And value is more than just price. But are the above calculations a valid way to compare cost of these currencies?&lt;/p&gt;&#xA;" OwnerUserId="13928" LastEditorUserId="5524" LastEditDate="2017-10-17T18:20:31.683" LastActivityDate="2017-10-17T18:20:31.683" Title="Is it valid to compare cryptocurrencies by using their smallest divisible unit?" Tags="&lt;currency&gt;&lt;money-supply&gt;&lt;price&gt;&lt;cryptocurrency&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="17498" PostTypeId="2" ParentId="17497" CreationDate="2017-07-17T04:22:30.710" Score="2" Body="&lt;p&gt;No, the above calculations are not a valid way to compare cost of these curencies, for exactly the reason you state:  a cryptocurrency is just worth what someone is willing to pay for it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;They don't have intrinsic value. Cryptocurrencies are inherently wealth-destroyers, they are not wealth: they require resources to construct, and then just act as ponzi schemes thereafter. So their only value derives from the number and purchasing power of the people that can be fooled into buying them.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2017-07-17T04:22:30.710" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="17499" PostTypeId="2" ParentId="6532" CreationDate="2017-07-17T08:11:14.957" Score="2" Body="&lt;p&gt;The answer depends on whether you want accuracy with respect to original (national) sources, more comparability, and how much time you want to spend compiling data.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you want to focus on a very few countries, or even just one country, I suggest to always go to the &lt;strong&gt;primary source&lt;/strong&gt;, which is the national statistical office, or central bank (depending on the country). There you will have ample documentation about what is being measured. Albeit countries are urged to use the latest &lt;a href=&quot;https://unstats.un.org/unsd/nationalaccount/sna2008.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;UN System of National Accounts&lt;/a&gt;, there might be particular issues that are nation-specific, which you will find in the national documentation. Additionally, you will find references to GDP measured in different ways (output, income, or expenditure approaches), which do not always give the same result. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To compare a few countries, you can use primary sources and then decide yourself how to compare them. For example, you can compare growth rates, transform GDP into an index (e.g. GDP=100 in 1990), or into a common currency, where you can decide which exchange rate to use.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This approach on primary sources gives you more accuracy with respect to national data, and also greater transparency in what you are actually measuring or comparing. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, if you want to compare many countries, or entire regions (e.g. OECD, EU, NAFTA, etc), using a consistent definition, or perhaps have little time for this comparative exercise, it might be better to use some &lt;strong&gt;international database&lt;/strong&gt; like World Bank or Penn Tables. Here, you depend on the particular arrangements of each institutions (in terms of assumptions regarding exchange rates, price indexes, etc). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, the &lt;a href=&quot;http://data.worldbank.org/indicator/NY.GDP.MKTP.CD&quot; rel=&quot;nofollow noreferrer&quot;&gt;World Bank data&lt;/a&gt; states its source as &lt;em&gt;World Bank national accounts data, and OECD National Accounts data files&lt;/em&gt;.  And yet, it indicates some limitations of the calculations:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Limitations and Exceptions: Gross domestic product (GDP), though widely tracked, may not always be the most relevant summary of aggregated economic performance for all economies, especially when production occurs at the expense of consuming capital stock. &lt;strong&gt;While GDP estimates based on the production approach are generally more reliable than estimates compiled from the income or expenditure side, different countries use different definitions, methods, and reporting standards.&lt;/strong&gt; World Bank staff review the quality of national accounts data and &lt;strong&gt;sometimes make adjustments to improve consistency with international guidelines&lt;/strong&gt;. Nevertheless, significant discrepancies remain between international standards and actual practice. Many statistical offices, especially those in developing countries, face severe limitations in the resources, time, training, and budgets required to produce reliable and comprehensive series of national accounts statistics. Among the difficulties faced by compilers of national accounts is the extent of unreported economic activity in the informal or secondary economy. In developing countries a large share of agricultural output is either not exchanged (because it is consumed within the household) or not exchanged for money.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The &lt;a href=&quot;http://www.rug.nl/ggdc/productivity/pwt/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Penn Tables&lt;/a&gt; are also based on national accounts. As the &lt;a href=&quot;http://www.rug.nl/ggdc/docs/user_guide_to_pwt90_data_files.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Documentation&lt;/a&gt; states:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;One of the major inputs into PWT is National Accounts (NA) data on gross domestic product (GDP)  at  current  and  constant  prices, in  local  currency  units.  [...] We  primarily  source  these  data  from  the  UN  National  Accounts  Main  Aggregates Database, &#xA;  see &lt;a href=&quot;http://unstats.un.org/unsd/snaama/Introduction.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://unstats.un.org/unsd/snaama/Introduction.asp&lt;/a&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;There are difference between these two sources. On the one hand, the WB database offer data in local currency units and US dollars (either in current or constant prices), and also in PPP. Additionally, the WB dataset includes all the exchange rates used to calculate its series. Penn Tables only include data in constant USD and PPP. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand, Penn Tables include data on PPP GDP measured in terms of output and expenditures. With WB, it is not clear which they are using for each country. Additionally, Penn Tables data is usually longer (some series start in 1950).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To check consistency across these databases, I made a few comparisons between the WB and Penn Tables data, for constant USD dollars, and for all countries I tried (France, India, Brazil, Canada), the correlation between the two series was 0.999). So clearly, there might not be much of an issue which one you use (as long as the one you want is available).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, regarding IMF, I would not use these. Their comparative advantage is not to be a database of GDP statistics but of financial and government variables. Its database is not intuitive to use, and GDP documentation is in my opinion of low quality. If you want other alternatives to the above two, you can check &lt;a href=&quot;https://unstats.un.org/unsd/snaama/dnlList.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;UN stats&lt;/a&gt;, &lt;a href=&quot;https://stats.oecd.org/&quot; rel=&quot;nofollow noreferrer&quot;&gt;OECD&lt;/a&gt;, &lt;a href=&quot;http://ec.europa.eu/eurostat/data/database&quot; rel=&quot;nofollow noreferrer&quot;&gt;Eurostat&lt;/a&gt;, or other regional bodies. Finally, you can also use &lt;a href=&quot;https://fred.stlouisfed.org/&quot; rel=&quot;nofollow noreferrer&quot;&gt;FRED&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(there are other benefits of Penn Tables, not related to GDP itself, which is that you can compare components of GDP (e.g. investment, government spending, etc) or TFP in a consistent fashion across countries)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;TL;DR&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For single or few country analysis, use &lt;strong&gt;primary source&lt;/strong&gt; (national statistic office or central bank offices). For comparative analysis across many countries or macro-regions, the &lt;strong&gt;World Bank&lt;/strong&gt; is the most comprehensive database. Penn Tables include just a few definitions of GDP. In any case, for common definitions, the two datasets are practically identical.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-07-17T08:11:14.957" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17501" PostTypeId="1" AcceptedAnswerId="17648" CreationDate="2017-07-17T11:23:21.603" Score="3" ViewCount="9008" Body="&lt;p&gt;What are the mathematical basics of production possibility frontier? How can I derivate it? Can I have an example for it?&lt;/p&gt;&#xA;" OwnerUserId="227" LastEditorUserId="2776" LastEditDate="2017-08-02T06:38:49.597" LastActivityDate="2017-10-05T12:34:56.980" Title="Mathematical derivation of the Production Possibility Frontier" Tags="&lt;mathematical-economics&gt;&lt;production-function&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17502" PostTypeId="1" CreationDate="2017-07-17T12:04:57.200" Score="0" ViewCount="152" Body="&lt;p&gt;I am trying to understand the intuition of the guess and verify method. Please could someone furnish me with a basic and very intuitive explanation of what we are trying to achieve and how this method helps us? I have been unable to find a summary elsewhere that explains the intuition in as jargon-free a way as possible.&lt;/p&gt;&#xA;" OwnerUserId="8443" LastEditorUserId="2776" LastEditDate="2017-07-17T12:51:36.787" LastActivityDate="2017-07-19T08:50:40.173" Title="Guess and verify?" Tags="&lt;macroeconomics&gt;&lt;new-keynesian-economics&gt;&lt;rbc&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17503" PostTypeId="2" ParentId="17491" CreationDate="2017-07-17T12:47:37.040" Score="2" Body="&lt;p&gt;The conclusion you want to prove is not always true. I will give you a graphical and mathematical answer. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Graphical analysis&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider the example in the image below:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/Cnjb7.gif&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Cnjb7.gif&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is one lottery, with expected payoffs $z_1$ and $z_2$, and average $E(z)$. The expected value of this lottery in terms of utility is $U[E(z)]$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, assume a second lottery, with higher $z_1$ &lt;strong&gt;and&lt;/strong&gt; smaller $z_2$, such that the expected value is the same, i.e. $E(z)$. The expected value of this lottery is the same, $U[E(z)]$. Yet, because of lower variance in the second lottery, &lt;strong&gt;the point E in the second lottery is closer to D&lt;/strong&gt;. (In the extreme case of no uncertainty, D and E coincide). In other words, &lt;strong&gt;$E[u(z)]$ in lottery one is lower than $E[u(z)]$ in lottery two, even if they pay the same on average.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The contradiction of your statement follows immediately. Take the second lottery just introduced, and decrease $z_1$ by a small $\epsilon$. Now, the expected income of the lottery is marginally &lt;strong&gt;lower&lt;/strong&gt; than $E(z)$, which is &lt;strong&gt;the opposite relation&lt;/strong&gt; to the one in your question. There clearly is a small $\epsilon$ such that the relation between $E[u(z)]$ in the two lotteries remains as before.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The proof follows the same logic for the case of risk loving individuals (where uncertainty is preferred to certainty and the utility function is convex).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Actually, the only case where your statement does hold is for risk neutrality. This can trivially be seen in the graph too.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Mathematical analysis&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, we know that $\dfrac{d U(x)}{d x}&amp;gt;0$. Then, it is true that:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ U(x_p + \pi)=E[U(x_p)] $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ U(x_q + \phi)=E[U(x_q)] $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where the term inside the parenthesis in the left-hand side are the &lt;em&gt;certainty equivalent&lt;/em&gt;. The sign of $\pi$ and $\phi$ depend on the nature of the utility function. There are three cases:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;strong&gt;Risk aversion&lt;/strong&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;If utility is concave (i.e. agent is risk averse), $\pi$ and $\rho$ are positive. Therefore:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ U(x_p) &amp;lt; U(x_p + \pi) = E[U(x_p)] $$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ U(x_q) &amp;lt; U(x_q + \phi) = E[U(x_q)] $$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assuming that $U(x_p) &amp;gt; U(x_q)$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$E[U(x_p)] = U(x_p + \pi) &amp;gt; U(x_p) &amp;gt; U(x_q) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, $E[U(x_q)] &amp;gt; U(x_q)$. It is evident that nothing more can be said regarding the relation between $E[U(x_p)]$ and $E[U(x_q)]$. &lt;strong&gt;The result you want to prove does not necessarily hold in this case.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Risk acceptance&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The proof is exactly the same, but reversing the signs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Risk neutrality&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\pi$ and $\phi$ are zero.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ U(x_p) = E[U(x_p)] $$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ U(x_q) = E[U(x_q)] $$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assuming $U(x_p) &amp;gt; U(x_q)$ implies that:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ E[U(x_p)] &amp;gt; E[U(x_q)] $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Thus, in this case the conclusion you want to prove is true.&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-07-28T09:05:31.613" LastActivityDate="2017-07-28T09:05:31.613" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="17506" PostTypeId="1" AcceptedAnswerId="17508" CreationDate="2017-07-17T20:13:51.027" Score="3" ViewCount="82" Body="&lt;p&gt;Economists generally frown on deception. For example, the journal Experimental Economics does not publish papers which use deception. However, I know that famous economics studies have been published where people send fake resumes to employers (to detect racial discrimination). For example, &lt;a href=&quot;http://www.cos.gatech.edu/facultyres/Diversity_Studies/Bertrand_LakishaJamal.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Bertrand and Mullainathan (2004)&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does this mean that sending fake resumes is not deception?&lt;/p&gt;&#xA;" OwnerUserId="11850" LastActivityDate="2017-07-17T21:25:17.637" Title="Is sending fake resumes deception?" Tags="&lt;experimental-economics&gt;" AnswerCount="1" CommentCount="5" ClosedDate="2017-07-17T21:45:12.800" ContentLicense="CC BY-SA 3.0" />
  <row Id="17507" PostTypeId="1" AcceptedAnswerId="17509" CreationDate="2017-07-17T21:19:11.087" Score="5" ViewCount="838" Body="&lt;p&gt;Back when Hugo Chavez was still alive (former leader of Venezuela), he said they made &quot;simulations&quot; to predict how much oil prices will increase if they retire the supply of oil they were giving to the world, and that in that time that would cause trouble to US. That made me wonder how oil price could be predicted, since I had classes of computer simulation of different type of systems in the University and I can't even imagine how could it be done to predict oil prices. If I recall correctly, I was also told by a neuronal network professor that a researcher worked in predicting oil prices for years with neuronal networks, and the work became useless when a war triggered oil prices in a completely unexpected way. Knowing how hard making accurate predictions of oil prices could be, is there still an oversimplificated equation or something to predict oil prices in the market?&lt;/p&gt;&#xA;" OwnerUserId="8165" LastEditorUserId="2776" LastEditDate="2017-07-18T09:12:33.253" LastActivityDate="2017-07-18T09:12:33.253" Title="Simple model to predict oil prices" Tags="&lt;supply-and-demand&gt;&lt;price&gt;&lt;price-theory&gt;&lt;oil&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17508" PostTypeId="2" ParentId="17506" CreationDate="2017-07-17T21:25:17.637" Score="3" Body="&lt;p&gt;Fake resumes are a form of deception in a manner of speaking, but the purpose of the deception is to reveal obfuscated bias in hiring practices. Not all journals take such a hard-line stance on this type of deception and as such papers can still be published.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a more robust discussion on the main dimensions that determine the judgment of deception, I recommend &lt;a href=&quot;https://www.wne.uw.edu.pl/files/4013/9636/8542/WNE_WP96_2013.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Krawczyk (2013)&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="7895" LastActivityDate="2017-07-17T21:25:17.637" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17509" PostTypeId="2" ParentId="17507" CreationDate="2017-07-18T09:11:59.323" Score="4" Body="&lt;p&gt;The most comprehensive survey of estimating oil prices is &lt;a href=&quot;http://www-personal.umich.edu/~lkilian/handbookpublication.pdf&quot; rel=&quot;noreferrer&quot;&gt;here&lt;/a&gt;. There you fund from very complicated models to very simple ones. As the article shows, the ultimate answer depends on whether you are estimating nominal or real price, and short-term or long-term prices.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some simple models to estimate price of oil might be:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;no-change forecast: if changes in the spot price are unpredictable, the best forecast of the spot price of crude oil is simply the current spot&#xA;price ($S_t$):&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;$$ \hat{S}_{t+h|t} = S_t \quad h&amp;gt;0$$&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;futures-based forecast: simply take the market's average expected oil price forecast as your forecast:&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;$$ \hat{S}_{t+h|t} = F^h_t \quad h&amp;gt;0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $F^h_t$ is the future forecast in the market. There are plenty of sources available online (e.g. &lt;a href=&quot;http://www.marketwatch.com/investing/future/crude%20oil%20-%20electronic&quot; rel=&quot;noreferrer&quot;&gt;here&lt;/a&gt; or &lt;a href=&quot;http://www.cmegroup.com/trading/energy/crude-oil/light-sweet-crude.html&quot; rel=&quot;noreferrer&quot;&gt;here&lt;/a&gt;).&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Double-difference forecasting: proposed by &lt;a href=&quot;https://ora.ox.ac.uk/objects/uuid:57adf07f-f189-4af4-9f17-6d36c5db46fd&quot; rel=&quot;noreferrer&quot;&gt;Hendry (2006)&lt;/a&gt;, it assumes past growth rates for future price changes:&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;$$ \hat{S}_{t+h|t} = S_t \left(1+ \Delta s_t \right)^h \quad h&amp;gt;0 $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $\Delta s_t$ is the percent growth rate of $S_t$ between $t-1$ and $t$&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;inflation-based forecast: use forecasts for inflation to predict oil prices (which according to &lt;a href=&quot;https://ideas.repec.org/a/eee/jeeman/v66y2013i3p383-403.html&quot; rel=&quot;noreferrer&quot;&gt;Anderson et. al. 2011&lt;/a&gt;, this is how households predict gasoline prices):&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;$$ \hat{S}_{t+h|t} = S_t \left(1+ \pi^e_{t,h} \right)^h \quad h&amp;gt;0 $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $\pi^e_{t,h}$ is the forecast of inflation, for example, from the &lt;a href=&quot;https://en.wikipedia.org/wiki/Survey_of_Professional_Forecasters&quot; rel=&quot;noreferrer&quot;&gt;Survey of Professional Forecasters&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;AR, ARMA, ARIMA regression models: last but not least, the famous AR-based models are very common. Simply regress the price of oil on its past values, using as many lags as you want (or the &lt;a href=&quot;https://en.wikipedia.org/wiki/Information_criterion&quot; rel=&quot;noreferrer&quot;&gt;information criterion&lt;/a&gt; tells you), accounting for MA errors (ARMA) and possible &lt;a href=&quot;https://en.wikipedia.org/wiki/Cointegration&quot; rel=&quot;noreferrer&quot;&gt;cointegration&lt;/a&gt; (ARIMA). For example, the AR model with $p$ lags is:&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;$$ S_{t} = \beta_0 + \beta_1 S_{t-1} + \cdots + \beta_p S_{t-p} + \mu_t $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;After you have estimated the model and obtained values for $\beta_i$, you can forecast oil prices by simply lagging the last $p$ observations one period and put into the model, from where you get $\hat{S}_{t+1|t}$ (assuming $\mu_{t+1} =0$). Then, iterate forward to get forecast for any other future period.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-07-18T09:11:59.323" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17511" PostTypeId="1" CreationDate="2017-07-18T12:59:07.103" Score="1" ViewCount="36" Body="&lt;p&gt;I need to work on a project regarding e-governance in a region of India, and, I need to consult professors in education institutes who would have knowledge in this subject. So, for that I need to know what part of Economics does e-governance come under? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does it come under Development Economics, Public Economics or any other field?&lt;/p&gt;&#xA;" OwnerUserId="13938" LastEditorUserId="2776" LastEditDate="2017-08-23T12:19:17.740" LastActivityDate="2017-08-23T12:19:17.740" Title="What branch of Economics does 'e-governance' fall under?" Tags="&lt;reference-request&gt;&lt;government&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17512" PostTypeId="2" ParentId="17511" CreationDate="2017-07-18T13:50:44.100" Score="1" Body="&lt;p&gt;This is &lt;strong&gt;Public Economics&lt;/strong&gt;, under the &lt;a href=&quot;https://en.wikipedia.org/wiki/JEL_classification_codes&quot; rel=&quot;nofollow noreferrer&quot;&gt;JEL code&lt;/a&gt; H11:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/CFYUQ.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/CFYUQ.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Examples of such papers on e-Governance using the H11 JEL code are:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;https://ideas.repec.org/a/ekz/ekonoz/2003311.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://ideas.repec.org/a/ekz/ekonoz/2003311.html&lt;/a&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;http://www.sobiad.org/ejournals/journal_ijebeg/arhieves/2009/01ajay_kr_singh.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.sobiad.org/ejournals/journal_ijebeg/arhieves/2009/01ajay_kr_singh.pdf&lt;/a&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;https://ideas.repec.org/p/cpr/ceprdp/11761.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://ideas.repec.org/p/cpr/ceprdp/11761.html&lt;/a&gt; &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;https://ideas.repec.org/a/eco/journ3/2016-04-38.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://ideas.repec.org/a/eco/journ3/2016-04-38.html&lt;/a&gt; &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;https://ideas.repec.org/p/wiw/wiwrsa/ersa14p905.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://ideas.repec.org/p/wiw/wiwrsa/ersa14p905.html&lt;/a&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Note that papers usually have multiple JEL codes. That is the case of the last three papers given above. Some also use codes related to Economic Development (Under JEL codes O), if they refer to developing countries. &lt;strong&gt;But the common denominator is Public Economics&lt;/strong&gt;.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-07-18T13:50:44.100" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17513" PostTypeId="1" AcceptedAnswerId="17891" CreationDate="2017-07-18T14:19:39.247" Score="5" ViewCount="134" Body="&lt;p&gt;I was reading a paragraph in an economics textbook that was talking about&#xA;resource allocation, and felt that it missed an important point, leading to&#xA;a conclusion that I disagreed with.&#xA;I was hoping that someone could either explain why I'm wrong, or point me to&#xA;alternate resources that talk about this facet of the problem.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My textbook asserts that a competitive market would produce an efficient&#xA;allocation of resources.&#xA;Resources would be moved from less profitable products to more profitable ones,&#xA;and this would necessarily increase the monetary value to consumers of the&#xA;total products sold.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand the reasoning, but I question that total monetary value to&#xA;consumers can be related to total satisfaction of consumers when applied to a&#xA;large populace.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I accept the implicit assumption that the amount a single actor is willing to&#xA;pay for something would be directly proportional to the amount of satisfaction&#xA;they expect to get from it, but don't think this property can't be generalised&#xA;to a system of people with different total wealth.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As an example, a beggar would not be willing to spent \$30 on a good steak&#xA;dinner while a millionaire might.&#xA;One would not reasonably use this fact to argue the millionaire gains more&#xA;satisfaction from the meal than the beggar, but rather that it would require&#xA;more expected satisfaction to get a beggar to part with \$1 than a millionaire.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Applying this observation to how markets determine a price, we can see that a&#xA;products price (and by extension its profitability) is not solely determined by&#xA;its utility.&#xA;Rather it reflects the products utility combined in some way with the wealth of&#xA;its consumers.&#xA;A simplistic view might say&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(price a consumer is willing to pay) = (wealth of consumer)*(expected satisfaction)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and so&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(price of a product) = (wealth of consumer base)*(expected satisfaction)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the above both the price and satisfaction represent their marginal values.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Working from that conclusion we can say that while allocating resources from a&#xA;less profitable product to a more profitable product will increase the &lt;strong&gt;monetary&lt;/strong&gt;&#xA;value of products sold to the entire populace, we say the same&#xA;about the total &lt;strong&gt;satisfaction&lt;/strong&gt; of the populace.&#xA;It may simply be that this moves satisfaction from a poorer section of the&#xA;populace to a richer section.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;i.e. in a situation where different products can be supplied to different&#xA;sections of the populace, a products price can no longer be used to directly&#xA;infer its utility.&#xA;Hence optimising for monetary value to all consumers is not necessarily&#xA;optimising for total consumer satisfaction.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Just to note:&#xA;The paragraph in the textbook never explicitly drew a conclusion between&#xA;monetary worth to all consumers and total satisfaction, but there were phrases&#xA;like &quot;\$20 worth of consumer satisfaction&quot;.&#xA;It's this conflation between satisfaction and monetary value over an entire&#xA;populace that I don't follow.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT:&#xA;I re-read my question, and thought I didn't make it clear what I was &lt;em&gt;asking&lt;/em&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) Is there an obvious flaw in my argument?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) If not, does anyone know of textbooks/articles that look into this (especially any that include data).&lt;/p&gt;&#xA;" OwnerUserId="13940" LastEditorUserId="13940" LastEditDate="2017-07-22T15:22:41.347" LastActivityDate="2017-08-17T20:46:49.650" Title="Allocative efficiency -- correlation between MB and p in populace with wealth inequality" Tags="&lt;microeconomics&gt;&lt;inequality&gt;&lt;resource-economics&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="17514" PostTypeId="1" AcceptedAnswerId="17515" CreationDate="2017-07-18T14:28:52.797" Score="2" ViewCount="286" Body="&lt;p&gt;Consider a two period OLG model where each young agent recieves an endowment of $w$ units of the single commodity good in the 1st period of his/her life, and nothing in the second period. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Each period the government consumes the fraction $\bar{g}$ of the total endowment. $\bar{g}$ is i.i.d with mean $\bar{g}$. The government's expenditures are financed  by lump-sum taxes, money and one-period discount bonds. $M_{t}$ and $B_{t}$ are the supplies of money and nominal bonds at the end of period $t$. The government's budget constraint is then:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac{B_{t-1}}{p_{t}} + \bar{g}w = \tau_{y}(t)+\tau_{o}(t) + \frac{M_{t}-M_{t-1}}{p_{t}} + \frac{B_{t}}{(1+i_{t})p_{t}}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\tau_{i}(t)$ is the lump-sum tax where $i$ is either the old or young generation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My only problem with this budget constraint is the $\frac{B_{t-1}}{p_{t}}$ component. I understand that it is the current real obligation but I don't understand why there is no interest component. I am self-studying OLG models so my reasoning might be flawed but here is how I see this constraint:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The RHS is the government's revenue in period $t$, which consists of tax revenue from the young and the old, seigniorage and new bond issuance. The LHS is the expenditure of the government in period $t$. It can spend the income on consumption ($\bar{g}w$), to pay off the existing debt ( $\frac{B_{t-1}}{p_{t}}$) but what about the interest on the existing debt?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am used to seeing government constraints in the form of:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$g_{t} + r_{t-1}b_{t-1} = t_{t}+(b_{t}-b_{t-1}) + h_{t} - \frac{h_{t-1}}{1 + \pi _{t}}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is almost identical to the author's budget constraint only that it includes an interest component. What am I missing here?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For reference, the budget constraint was obtained from &lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/0304393285900042&quot; rel=&quot;nofollow noreferrer&quot;&gt;Aiyagari and Gertler (1985)&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="11767" LastEditorUserId="2776" LastEditDate="2017-07-19T06:41:19.670" LastActivityDate="2017-07-19T06:41:19.670" Title="OLG - Government Budget Constraint" Tags="&lt;government-debt&gt;&lt;financial-constraints&gt;&lt;olg&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17515" PostTypeId="2" ParentId="17514" CreationDate="2017-07-18T22:53:48.350" Score="3" Body="&lt;p&gt;The interest component is already included. It was just their way of writing out the budget constraint that confused me. If anyone is interested:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac{B_{t-1}}{p_{t}} - \frac{B_{t}}{(1+i_{t})p_{t}} = \frac{i_{t}}{(1+i_{t})}\frac{B_{t}}{p_{t}} - \frac{B_{t}}{p_{t}} + \frac{B_{t-1}}{p_{t}}$. This is simply the interest on existing debt and the face value of existing debt (on the expenditure side). And real bond issuance on the income side. Simple rearranging and you have it.&lt;/p&gt;&#xA;" OwnerUserId="11767" LastActivityDate="2017-07-18T22:53:48.350" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="17516" PostTypeId="1" AcceptedAnswerId="17517" CreationDate="2017-07-19T06:00:47.463" Score="1" ViewCount="88" Body="&lt;p&gt;I am reading papers about moral hazard. What is one dimensional, ordered type $\theta\in\Theta$?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is one dimensional, not ordered type $\theta\in\Theta$?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Could you please give an example?&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;References: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.jstor.org/stable/1914187&quot; rel=&quot;nofollow noreferrer&quot;&gt;Riley (1979)&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://sites.wustl.edu/gottlieb/files/2016/11/NonExistenceofRiley-t05znz.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Azevedo and Gottlieb (2016)&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="13381" LastEditorUserId="2776" LastEditDate="2017-07-20T12:27:53.910" LastActivityDate="2017-07-20T12:27:53.910" Title="What is one dimensional, ordered type?" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;supply-and-demand&gt;&lt;choice-theory&gt;&lt;asymmetric-information&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17517" PostTypeId="2" ParentId="17516" CreationDate="2017-07-19T07:16:26.423" Score="5" Body="&lt;p&gt;Judging from the reference you provide, this refers to whether the set &lt;span class=&quot;math-container&quot;&gt;$\Theta$&lt;/span&gt; is &lt;a href=&quot;https://en.wikipedia.org/wiki/Total_order&quot; rel=&quot;nofollow noreferrer&quot;&gt;ordered&lt;/a&gt; or not. For example, natural numbers or the alphabet are ordered sets. In the context of moral hazard problems, examples could be effort, or ability. Since this is a numerical variable, it is an ordered set.&lt;/p&gt;&#xA;&lt;p&gt;In the paper you mention, the phrase &amp;quot;one dimensional, ordered type...&amp;quot; is not found. However, the paper states that:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;... differences among sellers are assumed to be parameterized by a &lt;strong&gt;single unobservable characteristic&lt;/strong&gt; &lt;span class=&quot;math-container&quot;&gt;$\theta \in \Theta$&lt;/span&gt;. Then the family of utility functions can be written in the alternative form,&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$U_i=U(\theta_i;y,p) \text{, } i \in I$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;If seller &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; has &lt;span class=&quot;math-container&quot;&gt;$\theta_i$&lt;/span&gt; &lt;strong&gt;units of the characteristic&lt;/strong&gt; we may therefore refer to him as being of &amp;quot;type &lt;span class=&quot;math-container&quot;&gt;$\theta_i$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;The first bold statement refers to the one dimensionality of the unobserved type, whereas the second refers to it being a numerical variable, which means &lt;span class=&quot;math-container&quot;&gt;$\Theta$&lt;/span&gt; is an ordered set.&lt;/p&gt;&#xA;&lt;p&gt;Conversely, a non-ordered set contains elements which have no intrinsic order. For instance, you can think of a case where agents do not know the city where they are to be located. The set &amp;quot;cities&amp;quot; is unordered because cities do not necessarily hold a particular order in a one-dimension set. You can add a second dimension (e.g. population), where you could order them based on city size.&lt;/p&gt;&#xA;&lt;p&gt;I would say that having ordered sets facilitates algebraic analysis, since it enables the introduction of monotonic strategies, whereby an important outcome variable is a monotonic function of the agent's &lt;strong&gt;type&lt;/strong&gt;. In effect, this seems to be important in the paper, when the author states that:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;A seller of type &lt;span class=&quot;math-container&quot;&gt;$\theta_i$&lt;/span&gt; brings to market a product that is valued equally by each of the set of potential buyers, &lt;span class=&quot;math-container&quot;&gt;$J$&lt;/span&gt;. This valuation, &lt;span class=&quot;math-container&quot;&gt;$V_i$&lt;/span&gt;, measured in dollars, is an &lt;strong&gt;increasing function&lt;/strong&gt; of &lt;span class=&quot;math-container&quot;&gt;$\theta$&lt;/span&gt; and (possibly) also of the intensity of sales-related activity, &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt;:&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$V_i = V(\theta_i;y)$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;The bold emphasis highlights precisely the monotonicity enabled by the order property of &lt;span class=&quot;math-container&quot;&gt;$\Theta$&lt;/span&gt;. Another example is given in &lt;a href=&quot;http://www.jstor.org/stable/2692247?seq=1#page_scan_tab_contents&quot; rel=&quot;nofollow noreferrer&quot;&gt;Athey (2001)&lt;/a&gt;:&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\hskip1in$&lt;/span&gt;&lt;a href=&quot;https://i.stack.imgur.com/tUPg5.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/tUPg5.png&quot; alt=&quot;enter image description here&quot; /&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;In response to the second reference you give (&lt;a href=&quot;https://sites.wustl.edu/gottlieb/files/2016/11/NonExistenceofRiley-t05znz.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;), in the phrase&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;We now show that Riley equilibria may not exist &lt;strong&gt;when types are not ordered&lt;/strong&gt;.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;the &amp;quot;ordered&amp;quot; adjective refers to the second interpretation given above (i.e. of monotonicity). First, they assume that&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Consumers are uniformly distributed in the unit interval, &lt;span class=&quot;math-container&quot;&gt;$\theta in [0,1]$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;which is an ordered set. However, because both the utility function and the cost function are quadratic, it results that&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;... the types in the extreme points have the strongest preference for one of the contracts and are the most costly to serve.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;which means that the utility and cost functions are not monotonic over &lt;span class=&quot;math-container&quot;&gt;$\theta$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2017-07-20T12:25:21.723" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="17518" PostTypeId="2" ParentId="17476" CreationDate="2017-07-19T08:40:44.487" Score="-1" Body="&lt;p&gt;I would put it that the US have already defaulted on their debt. They just keep kicking the stone down the road just like PIIGS did in the last decade before the &quot;crisis&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The deficits have not gone down which is indicative that there is no real will to adjust the deficit spending. It is therefore easier to treat them as &lt;em&gt;de facto&lt;/em&gt; defaulted instead of default &lt;em&gt;in theory&lt;/em&gt;. Once you have jumped over that cliff, you can start adjusting positions accordingly instead of diving in illusions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The dollar is no longer a reserve currency, it is a reserve currency among others. All the large central banks are in the same predicament issuing new debt and money. The business and speculative banks keeps lending irresponsibly and the central banks keeps bailing them out.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Look at how the central banks balance sheets have expanded in the last decade. Amazing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.ecb.europa.eu/pub/annual/balance/html/index.en.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;ECB balance sheet&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;FED balance sheet&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You asked: What would be the consequences? Look at how Argentina was handled. Part of the debt was written down, while a vulture fund wanted to be paid in full with the support of a US court. So a US court would also have to apply that common law practice on the US government and request it to pay in full. As the US government could not pay in full (otherwise it would have done it in the first place) it would have to ask the Federal Reserve to print even more money (just like they have been doing in the last decade).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore I conclude they have already defaulted, they are just pretending they have not.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Put it in other words. I work today on the promise you will work tomorrow to balance things out. I build your house, you say you will mow my lawn.&#xA;But instead you print money and watch videos of cats instead. I have to mow my own lawn and work in a coffee shop while you print money. You say there is not enough money to go around, but speculate on the Housing Futures market in Las Vegas, Chicago and London. The moral dilemma game can only be played until those who are being fooled gets wiser.&lt;/p&gt;&#xA;" OwnerUserId="13949" LastActivityDate="2017-07-19T08:40:44.487" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17519" PostTypeId="2" ParentId="15688" CreationDate="2017-07-19T08:48:06.190" Score="1" Body="&lt;p&gt;&lt;strong&gt;Feminist Economics&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Unlike Neoclassical Economics, which focus is usually on scarcity, Feminist economics focuses on the issue of Power relations, particularly in relation to gender and family structure. For example, whilst a neoclassical economist would study the gender gap in terms of benefits and costs (e.g. cost of post-natal leave), a Feminist economist would focus on how institutions (ranging from firm culture to family structures) are designed to the benefit of men's development and detriment of women's development.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Core elements of Feminist economics are:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;strong&gt;gender&lt;/strong&gt; dimension central &lt;/li&gt;&#xA;&lt;li&gt;(evolving) &lt;strong&gt;institutions&lt;/strong&gt; are important in shaping gender differences&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;power relations and hierarchies&lt;/strong&gt; matter&lt;/li&gt;&#xA;&lt;li&gt;policies are related to &lt;strong&gt;equality and emancipation&lt;/strong&gt; (e.g. right to vote, financial independence, participation in unions, equal pay, etc)&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;broad concept of labour&lt;/strong&gt;, including unpaid activities like housework and care&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;critique to masculine stereotype&lt;/strong&gt; behind rational, egoistic, objective, utility maximizing &lt;em&gt;homo economicus&lt;/em&gt; &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Methodologically, there is no a clear, distinct perspective. Both quantitative and qualitative methods are used (according to &lt;a href=&quot;https://www.aeaweb.org/articles?id=10.1257/jep.9.2.131&quot; rel=&quot;nofollow noreferrer&quot;&gt;Nelson (1995)&lt;/a&gt;, this is consistent with a feminist stance against the stereotype where mathematical models are &quot;masculine&quot; and better regarded than the &quot;femenine&quot; qualitative methods, which are weaker). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Politically, the spectrum of feminist economics is quite broad, ranging from liberal feminists (focused mainly on equal access to labour market and institutions) to Marxists feminists (arguing that gender differences are intrinsic to capitalism).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Needless is to say that there are both female and male feminist economists. See a comprehensive list &lt;a href=&quot;https://en.wikipedia.org/wiki/List_of_feminist_economists&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Key references:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/If_Women_Counted&quot; rel=&quot;nofollow noreferrer&quot;&gt;If Women Counted&lt;/a&gt; by Marilyn Waring, considered the founding book of the discipline.&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://demeterpress.org/books/counting-on-marilyn-waring-new-advances-in-feminist-economics-second-edition/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Counting on Marilyn Waring: New Advances in Feminist Economics&lt;/a&gt;, a 2014 book with an update on developments in the discipline.&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.aeaweb.org/articles?id=10.1257/jep.9.2.131&quot; rel=&quot;nofollow noreferrer&quot;&gt;Feminism and Economics&lt;/a&gt;, a 1995 paper on a mainstream journal (JEP) by &lt;a href=&quot;https://en.wikipedia.org/wiki/Julie_A._Nelson&quot; rel=&quot;nofollow noreferrer&quot;&gt;Julie A. Nelson&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/The_Subjection_of_Women&quot; rel=&quot;nofollow noreferrer&quot;&gt;The Subjection of Women&lt;/a&gt; by &lt;a href=&quot;https://en.wikipedia.org/wiki/John_Stuart_Mill&quot; rel=&quot;nofollow noreferrer&quot;&gt;John Stuart Mill&lt;/a&gt;, published in 1869.&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://www.feministeconomics.org&quot; rel=&quot;nofollow noreferrer&quot;&gt;Feminist Economics&lt;/a&gt;, a peer-reviewed journal&lt;/li&gt;&#xA;&lt;li&gt;A recent &lt;a href=&quot;http://www.economist.com/news/finance-and-economics/21694529-feminist-economics-deserves-recognition-distinct-branch-discipline?fsrc=scn%2Ftw_ec%2Fa_proper_reckoning&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;The Economist&lt;/em&gt; article&lt;/a&gt; on Feminist Economics&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Source: based on &lt;a href=&quot;https://www.exploring-economics.org/en/orientation/feminist-economics/&quot; rel=&quot;nofollow noreferrer&quot;&gt;this article&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-07-19T08:48:06.190" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17520" PostTypeId="2" ParentId="17502" CreationDate="2017-07-19T08:50:40.173" Score="2" Body="&lt;p&gt;As Dave Harris commented it depends a bit on the context. I know the guess and verify solution method mainly from solving value functions in differential resource games (more specifically the papers on fish wars), although I have also seen it used for value functions when there is no strategic interaction.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In such problems one is typically looking for a specific functional form that satisfies certain criteria, where the criteria are given by the problem. For a differential equation one of the criteria is that the functional form, when differentiated, returns the differential equation. For a value function, one of the criteria is that it satisfies the first order conditions and another that it satisfies Bellman's principal of optimality.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The specific functional form is often no more than an educated guess. In a paper on fish wars &lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/016518899290034C&quot; rel=&quot;nofollow noreferrer&quot;&gt;Fischer and Mirman&lt;/a&gt; try to identify a value function for a problem with an infinite time horizon, and they write that their guess is based on solving the problem in a finite 2,3 and 4 period setting and then inducting from that. They also write, however, that they cannot prove that this is the only functional form that satisfies the criteria. &lt;/p&gt;&#xA;" OwnerUserId="12186" LastActivityDate="2017-07-19T08:50:40.173" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17521" PostTypeId="2" ParentId="15688" CreationDate="2017-07-19T09:29:01.113" Score="3" Body="&lt;p&gt;&lt;strong&gt;The Chicago School&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Chicago School is a sub-school of the broader neoclassical school of economic thought, named for the significant influence of prominent scholars in Chicago. According to &lt;a href=&quot;https://en.wikipedia.org/wiki/Chicago_school_of_economics#cite_note-1&quot; rel=&quot;nofollow noreferrer&quot;&gt;Wikipedia&lt;/a&gt; &quot;The term was coined in the 1950s to refer to economists teaching in the Economics Department at the University of Chicago, and closely related academic areas at the University such as the Booth School of Business and the Law School. They met together in frequent intense discussions that helped set a group outlook on economic issues, based on price theory.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Key principles of this school include:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;the importance of careful and systematic analysis of social problems to the exclusion of intuition and political prejudice;&lt;/li&gt;&#xA;&lt;li&gt;the default position that markets work well unless specific reason to believe otherwise can be identified;&lt;/li&gt;&#xA;&lt;li&gt;the adoption of the neoclassical research method, characterized by the development of theory within mathematical models of optimizing behavior along with quantitative empirical testing of those theories;&lt;/li&gt;&#xA;&lt;li&gt;the principle that insights from market behavior can be applied to study a wide range of non-market social phenomena.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The Chicago School describes an approach to economics and is not confined to any particular field (indeed, the term also covers practitioners from closely related disciplines such as law who adhere to the same kind of principles). Prominent examples of work falling within this school are&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Milton Friedman's work on macroeconomics and political economy, with an archetypal Chicago view summarized in his book &lt;a href=&quot;http://www.press.uchicago.edu/ucp/books/book/chicago/C/bo18146821.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Capitalism and Freedom&lt;/a&gt;.&lt;/li&gt;&#xA;&lt;li&gt;Gary Becker's and Richard Posner's work to apply economic principles to study a wide range of social phenomena, such as crime (see, e.g., Becker's &quot;&lt;a href=&quot;http://www.nber.org/chapters/c3625.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Crime and Punishment: An Economic Approach&lt;/a&gt;&quot; or Posner's &quot;Economic Analysis of Law&quot;) and marriage (see, e.g., Becker's &quot;&lt;a href=&quot;http://www.nber.org/chapters/c2970.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;A Theory of Marriage&lt;/a&gt;&quot;).&lt;/li&gt;&#xA;&lt;li&gt;Robert Bork and Aaron Director's work advocating systematic economic analysis with a clear objective in antitrust cases (see, e.g., Bork's book &quot;&lt;a href=&quot;http://onlinelibrary.wiley.com/doi/10.1111/j.1468-2230.1979.tb01574.x/abstract&quot; rel=&quot;nofollow noreferrer&quot;&gt;The Antitrust Paradox&lt;/a&gt;&quot;).&lt;/li&gt;&#xA;&lt;li&gt;Robert Lucas, whose famous &lt;a href=&quot;https://en.wikipedia.org/wiki/Lucas_critique&quot; rel=&quot;nofollow noreferrer&quot;&gt;critique&lt;/a&gt; pointed out that a policy change many change agents' decision rules so that econometric analyses that assumed the decision rule to be fixed were not valid. Instead, Lucas advocated a micro-founded approach to macroeconomics in which the decision rules are explicitly modeled in equilibrium.&lt;/li&gt;&#xA;&lt;li&gt;Ronald Coase, who showed how market forces could be used to mitigate the effects of externalities (in &quot;&lt;a href=&quot;https://www.jstor.org/stable/724810&quot; rel=&quot;nofollow noreferrer&quot;&gt;The Problem of Social Cost&lt;/a&gt;&quot;) and argued that the existence of firms can be attributed to optimizing behaviour to minimize transaction costs (in &quot;&lt;a href=&quot;https://www.jstor.org/stable/2626876?seq=1#page_scan_tab_contents&quot; rel=&quot;nofollow noreferrer&quot;&gt;The Nature of the Firm&lt;/a&gt;&quot;).&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Note that while these works cover disparate branches of economics, they share in the application of the principle that individual rational behavior and systematic analysis of markets are important in understanding social phenomena.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Chicago School Economists' contributions have often been most valuable for the subsequent debate that they prompt. For example, Director, Bork, and others cogently argued that vertical relations between firms are not generally anti-competitive—contrary to the prevailing wisdom of the day. This prompted a re-think of decades of antitrust practice, and gave rise to an entire literature studying the limits of this line of reasoning and providing a much more nuanced understanding of sound antitrust practice.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A recent history of this school of thought can be found in the book&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Ebenstein, Lanny (2015): &lt;em&gt;Chicagonomics&lt;/em&gt;, St. Martin's Press.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2017-07-19T09:35:06.653" LastActivityDate="2017-07-19T09:35:06.653" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17522" PostTypeId="1" CreationDate="2017-07-19T12:33:37.947" Score="1" ViewCount="612" Body="&lt;p&gt;What determines the choice of the functional form to be adopted for the household CRRA utility function, when utility depends on consumption and leisure?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For examples, we have these three functional specifications:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;$U(c,l)=\left[\dfrac{c^φ l^{1-φ}}{1-θ}\right]^{1-θ}$&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;$U(c,l)=\dfrac{c^{1-φ}}{1-φ}+\alpha \dfrac{(1-N)^{1-γ}}{1-γ}$&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;$U(c,l)=\dfrac{c^{1-θ}}{1-θ}-\alpha \dfrac{N^{1-γ}}{1-γ}$&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;c: consumption, l: leisure, N: labor supplied. Total time endowment: unity&lt;/p&gt;&#xA;" OwnerUserId="13950" LastEditorUserId="2776" LastEditDate="2017-07-19T12:39:45.483" LastActivityDate="2017-07-24T17:28:45.567" Title="Specification form for household utility function" Tags="&lt;microeconomics&gt;&lt;utility&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17524" PostTypeId="1" AcceptedAnswerId="17528" CreationDate="2017-07-19T14:34:34.597" Score="2" ViewCount="91" Body="&lt;p&gt;This question is also regarding &lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/0304393285900042&quot; rel=&quot;nofollow noreferrer&quot;&gt;Aiyagari and Gertler (1985)&lt;/a&gt;. We have the governments flow budget contraint:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac{B_{t-1}}{p_{t}} + \bar{g}w = \tau_{y}(t)+\tau_{o}(t) + \frac{M_{t}-M_{t-1}}{p_{t}} + \frac{B_{t}}{(1+i_{t})p_{t}}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Each period the government consumes the fraction $\bar{g}$ of the total endowment. $\bar{g}$ is i.i.d with mean $\bar{g}$. The government's expenditures are financed  by lump-sum taxes, money and one-period discount bonds. $M_{t}$ and $B_{t}$ are the supplies of money and nominal bonds at the end of period $t$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\tau_{i}(t)$ is the lump-sum tax where $i$ is either the old or young generation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The authors then describe a fiscal policy rule: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Assume taxes are levied only to meet the obligation&#xA;  on the debt. Further, let $(1 - \delta)$ be the fraction of the obligation which is backed by direct taxation, where $0 \leq \delta \leq 1$. That is, the present value of the&#xA;  stream of direct tax levies equals $(1 - \delta)$ times $\frac{B_{t-1}}{p_{t}}$ &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In and of itself I don't have any problem understanding this. However, they then define a time-stationary tax policy which satisfies:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\tau_{y}(t)+\tau_{o}(t) = (1-\delta)[\frac{i_{t}}{(1+i_{t})}\frac{B_{t}}{p_{t}}-\frac{B_{t}-B_{t-1}}{p_{t}}]$ (2.8)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;They describe this as:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The policy requires that, each period, tax levies equal $(1 - \delta)$ times the&#xA;  difference between the present value of the current interest obligation on&#xA;  the debt and a term which corrects for the adjustment in the value of the&#xA;  obligation. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This I don't quite understand but I re-arranged the term inside the brackets and obtained $[\frac{B_{t-1}}{p_{t}} - \frac{B_{t}}{(1+i_{t})p_{t}}]$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This makes somewhat more sense to me because I interpret it as: Each period taxes have to back $(1-\delta)$ the value of the outstanding real debt minus the present value of the future debt (I don't quite understand why the present value of next periods debt is subtracted...)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The next part is in regards to difference equations (I think). They define the expected present value of discounted taxes as $T_{t}$ where $T_{t}$ must satisfy:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$T_{t} = \tau_{y}(t)+\tau_{o}(t) + \frac{E_{t}(T_{t+1})}{(1+i_{t})E_{t}(p_{t}/p_{t+1})}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand what the equation is saying but since I have barely done any dynamic programming at university yet I can't seem to solve it. The authors say:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In view of (2.8) it is clear that $T_{t} = (1-\delta) \frac{B_{t-1}}{p_{t}}$. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I understand why this must be true (given the definition of the fiscal policy) but I cannot show this from the difference equation above. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know one method of solving difference equations is to 'iterate forward' but I don't think I am doing it correctly. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So my question is regarding how to solve equations like the one above. And what should I read in order to get a better grasp at difference equations. I have heard Sargent and Ljungqvist is a good place to start. And some clarification regarding what the time-stationary policy means intuitively, would be greatly appreciated. &lt;/p&gt;&#xA;" OwnerUserId="11767" LastEditorUserId="2776" LastEditDate="2017-07-19T18:14:04.763" LastActivityDate="2017-07-19T18:51:41.943" Title="Difference equation in OLG framework" Tags="&lt;macroeconomics&gt;&lt;government-debt&gt;&lt;difference-equations&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17525" PostTypeId="1" AcceptedAnswerId="17533" CreationDate="2017-07-19T16:42:51.370" Score="3" ViewCount="177" Body="&lt;p&gt;I have some data on household income and goods purchased. The first three columns and rows are:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;Income    Good1    Good2  Price1  Price2&#xA;  100       4        12      1.5    2&#xA;  140       18       12      1.5    2&#xA;  200       9        3       1.5    2&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;I'm interested in understanding how I would use regression analysis/econometrics to understand the nature of the goods in question (i.e are they normal, ordinary, inferior, etc).&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="2776" LastEditDate="2017-07-19T17:29:50.187" LastActivityDate="2017-07-20T10:38:55.127" Title="Consumer Econometrics: Identifying nature of goods" Tags="&lt;consumer-theory&gt;&lt;applied-econometrics&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="17528" PostTypeId="2" ParentId="17524" CreationDate="2017-07-19T18:51:41.943" Score="2" Body="&lt;p&gt;The following approach seems to work in this case:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;look for the stead state formula of $T_t$. You can do this by taking (2.8) and the formula for $T_t$, and combine them. Then, get rid of all $t$ index:&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;$$ T = \frac{1-\delta}{p}\left(B - \frac{B}{1+i}\right) + \frac{T}{1+i}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, rearrange until you get $T$, the steady state formula for $T_j$. You should get:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ T= (1-\delta)\frac{B}{p} $$&lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;2&quot;&gt;&#xA;&lt;li&gt;Guess what the time indexes are, and confirm they are correct. To do this,  lag the equation for $T_t$ (so you get rid of expectations), and replace $T_{t-1}$ and $T_t$ with your guess. If the equality holds, your guess is correct. If not, try again. For example, let us assume  $T_t= (1-\delta)\frac{B_{t-1}}{p_t} $ (the correct one).&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Then, the equation is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ (1-\delta) \frac{B_{t-2}}{p_{t-1}} = \frac{1-\delta}{p_{t-1}}\left[B_{t-2} - \frac{B_{t-1}}{1+i_{t-1}}\right] + \frac{T_t p_t}{(1+i_{t-1})p_{t-1}} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;After simplifying and rearranging you get:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$T_t= (1-\delta)\frac{B_{t-1}}{p_t} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which is correct. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, I don't know how general this method is. This is not my area of knowledge. But at least it works here.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-07-19T18:51:41.943" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="17531" PostTypeId="1" CreationDate="2017-07-20T06:53:47.253" Score="2" ViewCount="1033" Body="&lt;p&gt;Let's say village A has all the &lt;em&gt;something&lt;/em&gt; S they need, and village B has all the &lt;em&gt;something&lt;/em&gt; T they need. The properties of S outweigh the benefits of T.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Village A and village B start to trade S for T.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;After trading, is the value V of S + T now different?&lt;/p&gt;&#xA;" OwnerUserId="13963" LastEditorUserId="13963" LastEditDate="2017-07-20T07:41:50.850" LastActivityDate="2017-07-23T08:24:07.227" Title="How does trading create value?" Tags="&lt;international-trade&gt;" AnswerCount="2" CommentCount="3" ClosedDate="2017-07-30T17:55:09.977" ContentLicense="CC BY-SA 3.0" />
  <row Id="17533" PostTypeId="2" ParentId="17525" CreationDate="2017-07-20T09:12:21.700" Score="3" Body="&lt;p&gt;There are few things that need to be clarified before we want to understand &lt;em&gt;the nature of goods.&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First concept is &lt;strong&gt;elasticity&lt;/strong&gt;: which is just change of one variable in response to change in another variable, here increase/decrease in &lt;em&gt;demand for good&lt;/em&gt; as a result of change in its &lt;em&gt;price&lt;/em&gt; or consumer &lt;em&gt;income&lt;/em&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Mathematically:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;strong&gt;Price (point) elasticity&lt;/strong&gt;: $\varepsilon_{price} = \frac{P}{Q_{d}} \frac{\partial Q_{d}}{\partial P}$ &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;If certain good has $|\varepsilon_{price}| &amp;lt; 1 $, it is inelastic meaning that any change in price will have low impact on your quantity demanded (think about drugs, which are very inelastic). Opposite works for $|\varepsilon_{price}| &amp;gt; 1 $.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;strong&gt;Income elasticity&lt;/strong&gt;: $\varepsilon_{income} = \frac{I}{Q_{d}} \frac{\partial Q_{d}}{\partial I}$&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The idea here is the same as in case of price elasticity but now income will have and impact on your demand.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In example you provided the prices are constant, therefore we cannot measure price elasticity of demand. However, it is relatively simple to calculate income elasticity of demand. We can either calculate it by hand or use simple OLS model. For sake of convenience I will use the latter (as it also was what you asked for). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I create simple linear model where my dependent variable is the &lt;em&gt;demand for good x&lt;/em&gt; and independent variable is &lt;em&gt;income&lt;/em&gt;. The result will be just measuring unit impact. In case you are interested in measuring % change you have to take logarithms on both sides. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$demand_{i} = \alpha + \beta_1 income_i + \varepsilon_i$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Good 1 (normal):&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;            Estimate Std. Error t value Pr(&amp;gt;|t|)&#xA;(Intercept)  5.31579   20.82775   0.255    0.841&#xA;income       0.03421    0.13674   0.250    0.844&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Good 2 (inferior):&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;            Estimate Std. Error t value Pr(&amp;gt;|t|)&#xA;(Intercept) 22.89474    6.24832   3.664     0.17&#xA;income      -0.09474    0.04102  -2.309     0.26&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;As you can see there are only 3 observations so the results are not very robust but should give you main idea. Furthermore, as there is not enough data we can only hypothesize about characteristic of a good, there is more information needed to distinguish between normal and luxury goods. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Nevertheless, current data shows that demand for first good increases as income increases. The case is opposite for the second good.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;EDIT:&lt;/strong&gt; As noted by &lt;code&gt;@luchonacho&lt;/code&gt; in order to generalize into income and price elasticity we would have to include price into our regression. The resulting model would look as follows:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$demand_{i} = \alpha + \beta_1 income_i + \beta_2 price_i + \varepsilon_i$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now one has to be careful with interpretation of the coefficients. $\beta_{i}$ shows and effect of 1 unit increase in income\price on the demand for good (elasticity), &lt;strong&gt;keeping all other variables constant&lt;/strong&gt; (&lt;em&gt;ceteris paribus&lt;/em&gt;).&lt;/p&gt;&#xA;" OwnerUserId="13965" LastEditorUserId="13965" LastEditDate="2017-07-20T10:38:55.127" LastActivityDate="2017-07-20T10:38:55.127" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17534" PostTypeId="1" CreationDate="2017-07-20T11:45:35.070" Score="1" ViewCount="1889" Body="&lt;p&gt;So I found this example in the net&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Compound interest formula (including principal):&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;A = P(1+r/n)(nt)&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;If an amount of $5,000 is deposited into a savings account at an annual interest rate of 5%, compounded monthly, the value of the investment after 10 years can be calculated as follows...&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;P = 5000. r = 5/100 = 0.05 (decimal). n = 12. t = 10.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;If we plug those figures into the formula, we get:&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;A = 5000 (1 + 0.05 / 12) ^ (12(10)) = 8235.05.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;So, the investment balance after 10 years is $8,235.05.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Okay, I'm using the PMT calculator in excel and I plug in these values &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/65GkI.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/65GkI.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I get 53.03\$ per month, okay if I multiply it by 12*10 years I should get the same amount as the site, but now I get 6 363,93$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why not the same? I use the pmt function in excel&lt;/p&gt;&#xA;" OwnerUserId="13967" LastEditorUserId="2776" LastEditDate="2017-07-20T13:13:20.937" LastActivityDate="2019-08-16T00:33:07.857" Title="Compound interest problem using PMT in Excel" Tags="&lt;interest-rate&gt;&lt;finance&gt;&lt;discount&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17536" PostTypeId="2" ParentId="17534" CreationDate="2017-07-21T01:07:25.277" Score="1" Body="&lt;p&gt;The reason of this difference is that you do not fully understand what Compound interest is.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Actually, if you want to get the same amount as the site, while using your monthly payment, which is &lt;em&gt;almost&lt;/em&gt; correct (more about this &quot;almost&quot; thereafter), what you must do is less straightforward than simply multiplying it by $120$ (calculation which would return the correct value in the $0$ interest rate case.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What you must understand is that, the first monthly payment, let call it $P_0$, is going to capitalize (at a $\frac{5}{12}\%$ rate) for $120$ months, $P_1$ during $119$ months, $...$ and $P_{119}$ during $1$ month. And this is the sum of all these differently capitalized identical payments that you must compute to get $8235.05$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;That being said, if you do so, you will get $8263.36$ instead of $8235.05$, since the payment is actually due at the beginning of the period (whence the term &lt;em&gt;almost&lt;/em&gt; above), i.e. you must set a $1$ instead of $0$ for the argument &lt;strong&gt;Type&lt;/strong&gt;, which will return a monthly flow of $(\$52.81)$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, to summarize&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$8235.05 = 52.8127046833568 \times \sum_{i=0}^{119} \left( 1+\frac{.05}{12} \right)^{120-i} \approx 52.813 \times 155.9292889&#xA;$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where $155.9292889$ can be interpreted as an implicit capitalization factor.&lt;/p&gt;&#xA;" OwnerUserId="10247" LastEditorUserId="10247" LastEditDate="2017-07-21T13:34:44.000" LastActivityDate="2017-07-21T13:34:44.000" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17538" PostTypeId="2" ParentId="11605" CreationDate="2017-07-21T08:06:14.863" Score="3" Body="&lt;p&gt;First, let us make a distinction between the &lt;strong&gt;functional distribution of income&lt;/strong&gt;, related to how payment goes to factors of production, i.e, labour and capital, via wages and rents, and the &lt;strong&gt;personal distribution of income&lt;/strong&gt;, which refers to how such factor payments are distributed across &lt;strong&gt;individuals or households&lt;/strong&gt;. After commenting about this, we can start to talk about &lt;strong&gt;wealth inequality&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we assume your two unsupported claims are true (namely (i) workers pay increase linearly, and (ii) profits increase exponentially), it would be true that the functional distribution of income would shift in favor of capital. This is, the &lt;a href=&quot;https://en.wikipedia.org/wiki/Wage_share&quot; rel=&quot;nofollow noreferrer&quot;&gt;labour share&lt;/a&gt; would fall exponentially to zero. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This however has several problems. First, bargaining by workers (e.g. through unions) would induce them to demand higher wages. Second, if captialists are getting a return higher than the opportunity cost of capital, there is incentive to create more companies. You can imagine many workers turning into entrepreneurs, reducing the supply of labour and thereby leading to higher wages; competition would also increase, reducing (even if not eliminating) &quot;abnormal&quot; profits. Third, such result is historically untrue. The labour share has remained either constant or fallen slowly, but by no means has decreased exponentially. It remains at a 50-60% level or so, depending on the country and definition: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/aLDZR.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/aLDZR.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(source &lt;a href=&quot;https://www.oecd.org/g20/topics/employment-and-social-policy/The-Labour-Share-in-G20-Economies.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Interestingly, the &lt;strong&gt;profit share&lt;/strong&gt; (which is normally included in the capital share, but it need not to be) has remained more or less stable in many countries (see Figure 6 &lt;a href=&quot;http://www.oecd-ilibrary.org/docserver/download/2dcfc715-en.pdf?expires=1500623802&amp;amp;id=id&amp;amp;accname=guest&amp;amp;checksum=97F1F9F491A2A5E3948FF3DC00908E18&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;), but has gone up in the last decades in the US (a country that has experienced a large increase in income and wealth inequality, not the least because a &lt;a href=&quot;https://upload.wikimedia.org/wikipedia/commons/c/cc/FRED_graph_of_US_labor_share_1948%E2%80%932016.svg&quot; rel=&quot;nofollow noreferrer&quot;&gt;significant fall&lt;/a&gt; in the labour share). Yet, this increase has been linear rather than exponential:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/xP892.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/xP892.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(source &lt;a href=&quot;https://www.gsb.stanford.edu/sites/gsb/files/jmp_simcha-barkai.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regarding the &lt;strong&gt;personal income distribution&lt;/strong&gt;, it is well known that capital income is more unequally distributed than labour income. Therefore, a shift in the distribution of factor income towards capital is to increase inequality at the individual and household level (due to &lt;a href=&quot;https://en.wikipedia.org/wiki/Assortative_mating#In_humans&quot; rel=&quot;nofollow noreferrer&quot;&gt;positive assortative mating&lt;/a&gt;). Whether this is intrinsic to capitalism or not it's not self-evident, I would say.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, from factor income and personal income to &lt;strong&gt;wealth&lt;/strong&gt; inequality there is a &lt;strong&gt;long&lt;/strong&gt; way. Evidence also indicates that wealth inequality is more unequally distributed than income, and a simple capitalisation approach would prove this. But again, even if it is true that wealth inequality has worsen in the last years, given that the premises by which you started are empirically false. If capitalism is the culprit here, it is for other reasons. If you want to argue that high inequality is intrinsic to Capitalism (like &lt;a href=&quot;http://www.hup.harvard.edu/catalog.php?isbn=9780674430006&quot; rel=&quot;nofollow noreferrer&quot;&gt;Piketty, 2014&lt;/a&gt; does), there are other arguments (e.g. power, taxation, reserve army of labour, technological change). Yo do not need the one you are mentioning, which seems to be at odd with the evidence.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-07-21T08:11:52.863" LastActivityDate="2017-07-21T08:11:52.863" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17539" PostTypeId="2" ParentId="17531" CreationDate="2017-07-21T11:53:07.987" Score="2" Body="&lt;p&gt;The net value of the two villages increases because value is in the eye of the beholder. If commodity S is more valuable to village A than to village B, and commodity T is more valuable to B than A, then, when they trade, both villages gained something of more value &lt;em&gt;to them&lt;/em&gt; and the relative wealth of both villages increased.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Value comes from the valuator. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is why--one of the reasons, anyway--Marxism was doomed. Value doesn't come from labor at all. Only cost comes from labor. For example, if I go stand in the middle of the road and labor all day pointing at the sky, I've worked hard but created no value, because no one else values my sky-pointing. Similarly, if I build two houses and put exactly the same amount of labor into both of them, but one is on a mountain with a beautiful view of the city, and the other is next to the city dump, the first will be far more valuable because people would value the location of the first, &quot;envaluating&quot; the house. &lt;/p&gt;&#xA;" OwnerUserId="13669" LastActivityDate="2017-07-21T11:53:07.987" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17540" PostTypeId="1" AcceptedAnswerId="17546" CreationDate="2017-07-21T16:28:21.057" Score="0" ViewCount="274" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Based on domestic production we observe the following income flows in a period:&lt;/p&gt;&#xA;  &#xA;  &lt;ol&gt;&#xA;  &lt;li&gt;&lt;p&gt;labor income of domestic residents: 150\$&lt;/p&gt;&lt;/li&gt;&#xA;  &lt;li&gt;&lt;p&gt;capital income received by foreign residents with a foreign citizenship: 5\$&lt;/p&gt;&lt;/li&gt;&#xA;  &lt;li&gt;&lt;p&gt;capital income of domestic residents with a foreign citizenship: 15\$&lt;/p&gt;&lt;/li&gt;&#xA;  &lt;li&gt;&lt;p&gt;capital income received by foreign residents with a domestic citizenship: 25\$&lt;/p&gt;&lt;/li&gt;&#xA;  &lt;li&gt;&lt;p&gt;capital income earned by domestic citizens with a domestic residence: 20\$&lt;/p&gt;&lt;/li&gt;&#xA;  &lt;/ol&gt;&#xA;  &#xA;  &lt;p&gt;Calculate the Gross Domestic Product (GDP) and the Gross National Income (GNI) of the economy:&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Not sure how to solve this problem. As I understand GDP = 1+3+5, GNI = 1+4+5&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't think that I understand how to treat foreign residents with foreign citizenship.&lt;/p&gt;&#xA;" OwnerUserId="13041" LastEditorUserId="2776" LastEditDate="2017-07-22T09:22:28.217" LastActivityDate="2017-07-22T10:22:04.633" Title="Difference between GDP and GNI in this exercise" Tags="&lt;gdp&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17541" PostTypeId="2" ParentId="17522" CreationDate="2017-07-21T18:46:17.360" Score="1" Body="&lt;p&gt;In growth models, in order to obtain a steady-state in growth rates (i.e. a constant growth rate in long-run equilibrium), the CRRA utility function when labor-leisure choice is present must have a specific functional form.&lt;/p&gt;&#xA;&lt;p&gt;The mathematical proof can be found in &lt;a href=&quot;http://down.cenet.org.cn/upfile/8/200751171644184.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Barro &amp;amp; Sala-i-Martin book (2nd ed)&lt;/a&gt; , Appendix 9.4, pp 427-428.&lt;/p&gt;&#xA;&lt;p&gt;It is shown that the CRRA utility function must take the form (&lt;span class=&quot;math-container&quot;&gt;$\ell$&lt;/span&gt; represents &lt;strong&gt;labor&lt;/strong&gt; here)&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$u(c,\ell) = \frac {c^{1-\theta}\cdot \exp\{(1-\theta)\cdot \omega(\ell)\}-1}{1-\theta}$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;where &lt;span class=&quot;math-container&quot;&gt;$\omega(\ell)$&lt;/span&gt; is some function of labor, and &lt;span class=&quot;math-container&quot;&gt;$\omega'(\ell)&amp;lt;0$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;p&gt;For &lt;span class=&quot;math-container&quot;&gt;$\theta=1$&lt;/span&gt; this simplifies to &lt;span class=&quot;math-container&quot;&gt;$u(c,\ell)=\ln(c) + \omega(\ell)$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;After we impose additive separability, the exact functional form of the component related to leisure/labor is sometimes formed so as to have a constant &lt;strong&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Frisch_elasticity_of_labor_supply&quot; rel=&quot;nofollow noreferrer&quot;&gt;Frisch elasticity of labor supply&lt;/a&gt;&lt;/strong&gt;, For example&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$u(c,\ell) = \ln(c) +\alpha \frac {(1-\ell)^{1+1/v}}{1+1/v}$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;has Frisch elasticity equal to &lt;span class=&quot;math-container&quot;&gt;$v$&lt;/span&gt;, free of &lt;span class=&quot;math-container&quot;&gt;$\ell$&lt;/span&gt;. See &lt;strong&gt;&lt;a href=&quot;https://economics.stackexchange.com/q/5722/61&quot;&gt;this thread&lt;/a&gt;&lt;/strong&gt; for more details on this.&lt;/p&gt;&#xA;&lt;p&gt;The Frisch elasticity of labor supply is defined as &lt;strong&gt;the elasticity of labor while keeping the marginal utility of wealth constant&lt;/strong&gt;. Its expression is derived &lt;em&gt;given&lt;/em&gt; the solution to the utility maximization problem (i.e. by using the relations emerging from the optimaztion conditions).  After some manipulations this expression is&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\eta_F = \frac {U_{\ell}\cdot U_{cc}}{\ell\cdot [U_{cc}\cdot U_{\ell \ell}-U^2_{c \ell}]}$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;Under separability between consumption and labor/leisure,&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$U^2_{c \ell} = 0 \implies \eta_F = \frac {U_{\ell}}{\ell\cdot U_{\ell \ell}}$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;To use one of the functional forms of the OP&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$U(c,N)=\dfrac{c^{1-θ}}{1-θ}-\alpha \dfrac{N^{1-γ}}{1-γ}$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;we have&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$U_{N} = -\alpha N^{-\gamma},\;\;\; U_{NN} = \alpha \gamma N^{-\gamma-1}$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;so&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\eta_F = \frac {-\alpha N^{-\gamma}}{N\cdot \alpha \gamma N^{-\gamma-1}} = -\frac 1 {\gamma}$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;So functional forms that lead to a constant Frisch elasticity, treat it as a &amp;quot;deep&amp;quot; preference parameter. Functional forms that lead to a Frisch elasticity that includes (the &lt;em&gt;optimal&lt;/em&gt;) level of labor (as is the first functional form of the OP), treat it as a derived measure, dependent on the optimization framework also.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2017-07-24T17:28:45.567" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="17542" PostTypeId="1" CreationDate="2017-07-21T19:51:44.030" Score="1" ViewCount="37" Body="&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Total_war&quot; rel=&quot;nofollow noreferrer&quot;&gt;Total war&lt;/a&gt; requires &lt;a href=&quot;https://en.wikipedia.org/wiki/War_economy&quot; rel=&quot;nofollow noreferrer&quot;&gt;mobilization of the economy&lt;/a&gt;.&#xA;The degree of a nation's mobilization can be quantified in &lt;strong&gt;two&lt;/strong&gt; major ways:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;strong&gt;Negatively&lt;/strong&gt;: as, e.g., the &lt;em&gt;reduction&lt;/em&gt; of &quot;non-essential consumer production&quot; --- describing the privations of the population.&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;Positively&lt;/strong&gt;: as, e.g., the &lt;em&gt;increase&lt;/em&gt; in &quot;war production&quot; (food and military heavy industrial equipment?) --- describing the increased fighting capability.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;What was the degree of mobilization of major World War (1&amp;amp;2) combatants by year?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Motivation:&lt;/em&gt; &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;I have seen claims that the degree of &quot;negative mobilization&quot; of Germany was &lt;em&gt;higher&lt;/em&gt; in WW1 than in WW2 because Hitler wanted to avoid the collapse of the &lt;a href=&quot;https://en.wikipedia.org/wiki/Home_front&quot; rel=&quot;nofollow noreferrer&quot;&gt;home front&lt;/a&gt; that lead to the defeat in the WW1 (this claim seems to suggest that Hitler did not quite believe himself in the &lt;a href=&quot;https://en.wikipedia.org/wiki/Stab-in-the-back_myth&quot; rel=&quot;nofollow noreferrer&quot;&gt;Stab-in-the-back myth&lt;/a&gt;).&lt;/li&gt;&#xA;&lt;li&gt;The common theme in the Soviet propaganda is that USSR won the war because the Socialist Economy is best suitable to mobilization. Indeed, the &quot;negative mobilization&quot; was probably the highest in the USSR (of course, &quot;positive mobilization&quot; is more important to war fighting).&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Complications&lt;/em&gt;:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;It is probably impossible to find any reliable numbers about USSR.&lt;/li&gt;&#xA;&lt;li&gt;Soviet economy has been always geared towards war production, so the changes due to war were not as dramatic as in other countries.&lt;/li&gt;&#xA;&lt;li&gt;Similarly, German &quot;positive mobilization&quot; started way before 1939.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;PS. I asked &lt;a href=&quot;https://history.stackexchange.com/q/39074/1979&quot;&gt;this&lt;/a&gt; on History, got nothing.&lt;/p&gt;&#xA;" OwnerUserId="13777" LastActivityDate="2017-09-20T12:38:29.443" Title="Quantifying economic mobilization" Tags="&lt;history&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="17543" PostTypeId="1" AcceptedAnswerId="17545" CreationDate="2017-07-22T05:46:56.500" Score="2" ViewCount="39" Body="&lt;p&gt;I'm looking for economic terminology which must exist, although I don't know what it is.  (I want to look up articles on a particular situation involving two real-world companies.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is the situation:  Company A is developing a diagnostic test which will warn of a particular type of deadly antibiotic resistance.  Company B is a pharmaceutical company developing a drug to treat that kind of resistance.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there an economic terms that describe concepts relevant to this situation?   The important features are that &lt;/p&gt;&#xA;&#xA;&lt;p&gt;1)  Product B will never be bought without product A.&#xA;2)  Customers will only buy A with the intention of possibly buying B.&#xA;3)  Product B will certainly sell at a very high price if product A works perfectly, because A will identify those patients for which B is life-saving.  A deserves some of this return, but the many customers buying A each will have only a low-probability of being one of the few to benefit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Similarly, one could imagine a related case that there are exactly two bicycle wheel manufacturers, and by law A can only sell front wheels and B can only sell back wheels.  There will be some sort of odd price hostility between A and B, because the two products are each useless without the other.  The natural thing to happen is for the producers A and B to merge, although wrangling about the terms of a merger may make this impossible. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In my real-world case the cognizant shareholders of A should oppose any buyout by B at anywhere near current market prices, because A's technology will extend to many many other applications.&lt;/p&gt;&#xA;" OwnerUserId="13981" LastEditorUserId="13981" LastEditDate="2017-07-22T07:58:26.487" LastActivityDate="2017-07-22T09:16:07.740" Title="Economic term for relation between drug and companion diagnositic" Tags="&lt;definition&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="17545" PostTypeId="2" ParentId="17543" CreationDate="2017-07-22T09:16:07.740" Score="3" Body="&lt;p&gt;Product A and B are &lt;a href=&quot;https://en.wikipedia.org/wiki/Complementary_good#Perfect_complement&quot; rel=&quot;nofollow noreferrer&quot;&gt;perfect complements&lt;/a&gt;. As the Wikipedia entry states:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;A perfect complement is a good that has to be consumed with another good. [...] One example is a left shoe and a right; shoes are naturally sold in pairs, and the ratio between sales of left and right shoes will never shift noticeably from 1:1, even if, for example, someone is missing a leg and buys just one shoe.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The example of the shoe matches the one of the bicycle you give.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Additionally, the two goods do not need to have a symmetric degree of complementarity. Again, quoting Wikipedia:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In the case of video games, a specific video game (the complement good) has to be consumed with a video game console (the base good). It does not work the other way: a video game console does not have to be consumed with that game.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So, for example the base good can be the diagnostic and the complement is the drug.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-07-22T09:16:07.740" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="17546" PostTypeId="2" ParentId="17540" CreationDate="2017-07-22T10:08:30.893" Score="2" Body="&lt;p&gt;GDP refers to income associated to particular &lt;strong&gt;geography&lt;/strong&gt; (or residence).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;GNI refers to income associated to a particular set of &lt;strong&gt;individuals&lt;/strong&gt; (citizens), regardless of where they earn their income.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since geography and citizenship do not fully overlap, they might be different:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/l0TsM.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/l0TsM.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think this is enough to help you answering the question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(code for reproducing the figure &lt;a href=&quot;https://paste.ubuntu.com/25145479/&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;)&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-07-22T10:22:04.633" LastActivityDate="2017-07-22T10:22:04.633" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17547" PostTypeId="2" ParentId="17542" CreationDate="2017-07-22T11:25:40.540" Score="1" Body="&lt;p&gt;It is my impression that the subject has seen its fair share of scholarly research already. Check the references in the &lt;a href=&quot;https://en.wikipedia.org/wiki/Military_production_during_World_War_II&quot; rel=&quot;nofollow noreferrer&quot;&gt;wikipedia article&lt;/a&gt; for WWW-II (the article itself is not very good), and maybe the book &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0521785030&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;strong&gt;The Economics of World War II: Six Great Powers in International Comparison&lt;/strong&gt;&lt;/a&gt;.  &lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2017-07-22T11:25:40.540" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17548" PostTypeId="1" CreationDate="2017-07-22T15:54:13.810" Score="0" ViewCount="213" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Consider an auction in which $k$ identical objects are sold to $&#xA;n&amp;gt;k $ bidders. Each bidder $i$ needs only one object and has a valuation $v_{i}$  for&#xA;  the object. In the auction, simultaneously, every bidder $i$ bids $ b_{i} $ . The highest $k$&#xA;  bidders win. Each winner gets one object and pays the $k+1 ^{st}$ highest bidder (i.e.,&#xA;  the price $p$ is the highest bid among the bidders who do not get an object). (The&#xA;  ties are broken by a coin toss.) Each of the losing bidders gets a gift of value $w$&#xA;  for their participation. (The winners do not get a gift.) Show that the game has&#xA;  a dominant strategy equilibrium, and compute the equilibrium.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It has a solution on page 9 &lt;a href=&quot;https://ocw.mit.edu/courses/economics/14-12-economic-applications-of-game-theory-fall-2012/lecture-notes/MIT14_12F12_chapter4.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;, but I cannot understand it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can someone explain me the answer or provide one? Also, do the losing bidders pay their bid amount here? And what does this line mean: &quot;Each winner gets one object and pays the $k+1 ^{st}$ highest bidder&quot;?&lt;/p&gt;&#xA;" OwnerUserId="7710" LastEditorUserId="2776" LastEditDate="2017-07-23T07:03:15.717" LastActivityDate="2017-08-11T20:36:21.197" Title="Auction and best response" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;game-theory&gt;&lt;auctions&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="17550" PostTypeId="1" AcceptedAnswerId="17551" CreationDate="2017-07-22T20:53:44.793" Score="3" ViewCount="2091" Body="&lt;p&gt;Regardless of why they'd do it, what do countries do to make their own currency, replacing the old one, and give their new one value?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I sorta get how it works, but this kind of economics is still super confusing to me; thus I thought I'd ask. You know, I get the ideas of supply and demand and what-not, but beyond that I'm at a general loss.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Example, if the Ryukyu islands had an uprising and separated from Japan to form their own nation, what could they do to make their own currency? To replace their Japanese Yen? Again, regardless of why they'd want to.&lt;/p&gt;&#xA;" OwnerUserId="13990" OwnerDisplayName="Tirous" LastActivityDate="2017-08-07T00:17:36.157" Title="How do countries create their own currencies (and give them meaningful value)?" Tags="&lt;currency&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="17551" PostTypeId="2" ParentId="17550" CreationDate="2017-07-22T23:44:49.013" Score="5" Body="&lt;p&gt;Money is something which has value because everyone believes it has value. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A good way to create a trustworthy currency is to create a &lt;a href=&quot;https://en.wikipedia.org/wiki/Representative_money&quot; rel=&quot;nofollow noreferrer&quot;&gt;representative&lt;/a&gt; currency. A representative currency is a currency which is backed by some rare commodity by always guaranteeing that it can be exchanged back into that commodity. For example, a state might decide to create a new currency, let's call it the TirousCoin, and back it with gold. They decide that one TirousCoin is worth one gram of gold. The state guarantees that when you give them 100 gram of gold, you get 100 TirousCoins from them. And when you give the state 100 TirousCoins, you get 100 gram of gold. That means the TirousCoin's value is bound to the world market price of gold. Giving someone 10 TirousCoins is as if you would give them 10 gram of gold which is as if you give them 442 USD.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But many countries go a step further and have currencies which are pure &lt;a href=&quot;https://en.wikipedia.org/wiki/Fiat_money&quot; rel=&quot;nofollow noreferrer&quot;&gt;fiat money&lt;/a&gt;. Fiat money is money which is not backed by any commodity. It is simply printed by a central bank, lent to regular banks and from there lent to people. And people trust that central bank to not lend too much of it, because that would cause inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But how do you get people to accept your TirousCoins as their tender for their every day business transactions instead of competing currencies issued by other states?&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Declare it &lt;a href=&quot;https://en.wikipedia.org/wiki/Legal_tender&quot; rel=&quot;nofollow noreferrer&quot;&gt;legal tender&lt;/a&gt; by law. This means that you decree by law that  the TirousCoin is valid payment for all debts. When someone thinks that someone owes them, they can ask the state to force their debtor to compensate them with money. They do that by bringing the case to the state's civil court system. But the court system will consider a debt settled if it is paid in TirousCoins. When a creditor rejects the debtor's TirousCoins and demand to be paid in some other currency, the state will consider the case closed and won't assist the creditor.&lt;/li&gt;&#xA;&lt;li&gt;Have the state do all their financial business in TirousCoins. Pay government employees in TirousCoins, demand that taxes are paid in TirousCoins (including taxes on transactions in foreign currency), pay subsidiaries and welfare in TirousCoins and demand fines in TirousCoins. When people need to acquire TirousCoins to avoid going to prison for tax evasion, the coins gain real value.&lt;/li&gt;&#xA;&lt;li&gt;Make sure TirousCoins are a stable currency. Many states in financial perils make the mistake of paying their bills in freshly printed fiat currency instead of playing fair and only spend what they receive in form of taxes. This leads to an &lt;a href=&quot;https://en.wikipedia.org/wiki/Inflation&quot; rel=&quot;nofollow noreferrer&quot;&gt;inflation&lt;/a&gt; which destroy trust in the currency and leads people to do dealings in other currencies.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;For further watching, I recommend the Extra History's series on &lt;a href=&quot;https://www.youtube.com/watch?v=-nZkP2b-4vo&amp;amp;list=PLhyKYa0YJ_5CL-krstYn532QY1Ayo27s1&quot; rel=&quot;nofollow noreferrer&quot;&gt;the history of paper money&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="7265" OwnerDisplayName="Philipp" LastEditorUserId="7265" LastEditDate="2017-08-07T00:17:36.157" LastActivityDate="2017-08-07T00:17:36.157" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="17552" PostTypeId="2" ParentId="15688" CreationDate="2017-07-23T02:56:20.233" Score="4" Body="&lt;p&gt;Chang Ha-Joon distinguishes between 9 schools of thought. Here are his one-sentence summaries of each:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;Classical&lt;/strong&gt;: &lt;em&gt;The market keeps all producers alert through competition, so leave it alone.&lt;/em&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;Neoclassical&lt;/strong&gt;: &lt;em&gt;Individuals know what they are doing, so leave them alone – except when markets malfunction.&lt;/em&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;Marxist&lt;/strong&gt;: &lt;em&gt;Capitalism is a powerful vehicle for economic progress, but it will collapse, as private property ownership becomes an obstacle to further progress.&lt;/em&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;Developmentalist&lt;/strong&gt;: &lt;em&gt;Backward economies can’t develop if they leave things entirely to the market.&lt;/em&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;Austrian&lt;/strong&gt;: &lt;em&gt;No one knows enough, so leave everyone alone.&lt;/em&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;(Neo-)Schumpeterian&lt;/strong&gt;: &lt;em&gt;Capitalism is a powerful vehicle of economic progress, but it will atrophy, as firms become larger and more bureaucratic.&lt;/em&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;Keynesian&lt;/strong&gt;: &lt;em&gt;What is good for individuals may not be good for the whole economy.&lt;/em&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;Institutionalist (Old and New?)&lt;/strong&gt;: &lt;em&gt;Individuals are products of their society, even though they may change its rules.&lt;/em&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;Behaviouralist&lt;/strong&gt;: &lt;em&gt;We are not smart enough, so we need to deliberately constrain our own freedom of choice through rules.&lt;/em&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Source: &lt;em&gt;&lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/1511310499&quot; rel=&quot;noreferrer&quot;&gt;Economics: The User's Guide (2014)&lt;/a&gt;&lt;/em&gt;.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2017-07-23T02:56:20.233" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17553" PostTypeId="1" CreationDate="2017-07-23T05:32:31.800" Score="1" ViewCount="390" Body="&lt;p&gt;I noticed many textbooks in undergraduate microeconomics cover the impacts of taxation but hardly any go in depth about the types of tax (unit tax vs proportionate tax). My question is, is there any microeconomic texts cover a broad range and in depth topics in applied microeconomics?&lt;/p&gt;&#xA;" OwnerUserId="13991" LastEditorUserId="2776" LastEditDate="2017-07-23T07:00:20.293" LastActivityDate="2017-07-24T14:00:20.027" Title="Good textbook in applied microeconomics" Tags="&lt;microeconomics&gt;&lt;reference-request&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17554" PostTypeId="1" CreationDate="2017-07-23T06:21:28.257" Score="1" ViewCount="187" Body="&lt;p&gt;In the opinion of the economists here, what are some of the more important theories in economics that remain untested? By untested I mean theories that, though perhaps evaluated using empirical data, have not been tested in a laboratory setting. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This interests me because of experimentalists track record with fundamentally altering how the field views certain theories. The most obvious example of tested theories are expected utility theory and the convergence of double auction markets with no restrictions. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What theories do you think the field should eventually test and why? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;examples: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;monetary policy experiments: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.macroeconomics.tu-berlin.de/fileadmin/fg124/heinemann/publications/CHsurvey-2014-08-25.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.macroeconomics.tu-berlin.de/fileadmin/fg124/heinemann/publications/CHsurvey-2014-08-25.pdf&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;macroeconomic experiments: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.socsci.uci.edu/~duffy/papers/expmacro2.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.socsci.uci.edu/~duffy/papers/expmacro2.pdf&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="1655" LastEditorUserId="1655" LastEditDate="2017-07-27T09:32:52.883" LastActivityDate="2017-08-15T04:05:38.030" Title="Most important but untested theories in economics?" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;theory&gt;&lt;experimental-economics&gt;" AnswerCount="0" CommentCount="12" FavoriteCount="1" ClosedDate="2017-08-18T16:05:10.230" ContentLicense="CC BY-SA 3.0" />
  <row Id="17555" PostTypeId="2" ParentId="17553" CreationDate="2017-07-23T07:14:14.550" Score="0" Body="&lt;p&gt;If taxation is your main interest (making this question different from others on this site), perhaps the best book around is the 1980's classic by Atkinson and Stiglitz, &lt;a href=&quot;http://press.princeton.edu/titles/10493.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Lectures in Public Economics&lt;/a&gt;. There is an updated version. See the Table of Contents &lt;a href=&quot;http://press.princeton.edu/chapters/c10493.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you are simply interest in microeconomic textbooks, see &lt;a href=&quot;https://economics.stackexchange.com/questions/4771/literature-recommendation-advanced-undergraduate-economics/4800#4800&quot;&gt;here&lt;/a&gt;, &lt;a href=&quot;https://economics.stackexchange.com/questions/4875/mathematical-micro-macro-economics-textbook-recommendation/4876#4876&quot;&gt;here&lt;/a&gt;, and &lt;a href=&quot;https://economics.stackexchange.com/questions/6195/list-of-math-intense-graduate-level-microeconomics-books&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-07-23T07:14:14.550" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17556" PostTypeId="2" ParentId="11595" CreationDate="2017-07-23T07:41:08.647" Score="1" Body="&lt;p&gt;&lt;a href=&quot;http://www.stata.com/meeting/germany13/abstracts/materials/de13_mortari.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Here&lt;/a&gt; is a detailed worked example of how to use the &lt;code&gt;xsmle&lt;/code&gt; command, including an example of the Spatial Durbin model. As the document says, it is estimated using Maximum Likelihood. The model can be of Random Effects or Fixed Effects. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Key screenshots below:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/IaitK.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/IaitK.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/tw3bq.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/tw3bq.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You need to use &lt;code&gt;model(sdm)&lt;/code&gt; in the options to get the spatial Durbin model. To get the dynamic version of the model, add &lt;code&gt;dlag&lt;/code&gt; to the options.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-07-23T07:41:08.647" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17557" PostTypeId="2" ParentId="17531" CreationDate="2017-07-23T08:24:07.227" Score="1" Body="&lt;p&gt;The example by @CWill is correct in an &lt;strong&gt;exchange economy&lt;/strong&gt; (explore more of it &lt;a href=&quot;https://en.wikipedia.org/wiki/Edgeworth_box&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;), but does not apply to a &lt;strong&gt;production economy&lt;/strong&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As David Ricardo &lt;a href=&quot;https://en.wikipedia.org/wiki/On_the_Principles_of_Political_Economy_and_Taxation&quot; rel=&quot;nofollow noreferrer&quot;&gt;explained&lt;/a&gt;, the only condition needed for exchange is the existence of &lt;em&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Comparative_advantage&quot; rel=&quot;nofollow noreferrer&quot;&gt;comparative advantage&lt;/a&gt;&lt;/em&gt;. This is when say  group A is &lt;em&gt;relatively&lt;/em&gt; more productive in the production of one good than another group B. Then, group A will specialise in the production of that good, whilst group B will specialise in the other good. Trade will expand the overall &lt;a href=&quot;https://en.wikipedia.org/wiki/Production%E2%80%93possibility_frontier&quot; rel=&quot;nofollow noreferrer&quot;&gt;production possibility frontier&lt;/a&gt;, which means consumers in both groups will see an expansion in their consumption possibilities. Thus, through trade, they can both consume more. Importantly, this is independent of any different in consumption (actually, trade still occurs if preferences are identical). The role of preferences is to determine the relative prices of the goods.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Notice that one reason why a group might have comparative advantage is relative abundance. For instance, one country might have a sea with so many fish that, even if using a net of the same size than another group, the output of such fishing will be very high. In this case, relative productivity is different between groups; comparative advantage exists.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another nice example is that of &lt;a href=&quot;https://en.wikipedia.org/wiki/Robinson_Crusoe_economy#Comparative_advantage&quot; rel=&quot;nofollow noreferrer&quot;&gt;Robinson Crusoe's economy&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-07-23T08:24:07.227" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="17559" PostTypeId="1" CreationDate="2017-07-23T10:55:25.140" Score="1" ViewCount="126" Body="&lt;p&gt;I'm investigating the determinants of economic growth of my country. Some of them are of long term other are of short term. For that I'm trying to construct an ARDL model, but I'm confused about the right variables to choose and whether I implement them in difference in level or difference in logarithm.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I found out that we use the logarithm of real GDP in differences which tend to represent the growth rate. The explicative variables are foreign direct investment credits to private sector education spending health spending.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is: if I'm using real GDP as a response variable, do I have to use deflated explicative variables? Or it's better to  use nominal GDP and nominal explicative variables?&lt;/p&gt;&#xA;" OwnerUserId="7702" LastEditorUserId="2776" LastEditDate="2017-07-23T15:04:16.397" LastActivityDate="2017-08-24T15:19:24.303" Title="Determinants of economic growth in ARDL model - nominal or real variables?" Tags="&lt;econometrics&gt;&lt;inflation&gt;&lt;economic-growth&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17561" PostTypeId="2" ParentId="3129" CreationDate="2017-07-24T05:21:47.193" Score="1" Body="&lt;p&gt;Historically banks kept close to the minimum in their reserve accounts.  Once the Fed started paying interest, they rapidly put a truly large amount of money in those accounts.  If the fed were to stop paying interest, I think we could expect them to go back to keeping the minimum in those accounts.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So what would they do with the money?  Buy safe securities?  Risky securities?  Make more loans?  I'd say all of the above.  Most likely the bulk of the money would go into subtitutes: very safe securities like T bill and money market securities.  Loans would go up by the least amount because the availability of high quality loan opportunities is already the limiting factor.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The influx of cash into the markets (and the new loans) would drive up prices of all investable securities (investors who used to buy T bills will look to alternatives, etc.).  It would also cause an expansion of the money supply that would likely lead to inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I actually worry about this quite a bit.  It's unprecedented, though, so we don't know what would happen. I think we could anticipate the Fed or government trying to do something to offset the inflation, at least.&lt;/p&gt;&#xA;" OwnerUserId="12673" LastActivityDate="2017-07-24T05:21:47.193" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17562" PostTypeId="1" CreationDate="2017-07-24T07:23:39.180" Score="3" ViewCount="356" Body="&lt;p&gt;The long story short, I have developed an index based on a certain distribution. Then I aligned NYSE stocks according to this index i.e. the stocks with the best fit are first and the worst are last. The index is irrelevant with economic theory.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Afterwards, I created a group of portfolios with equal number of stocks and equal observations and then I calculated the minimum variance per portfolio.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The result suggests that the portfolios with better fit have lower variances than the ones with &quot;bad&quot; fit. Does this prove market inefficiency assuming that it didn't occur just by chance?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit: According to efficient market hypothesis, asset prices reflect all information given and &quot;patterns&quot; should not occur. However, according to the results, patterns occur and they are independent to the information given.&lt;/p&gt;&#xA;" OwnerUserId="11470" LastEditorUserId="11470" LastEditDate="2017-07-24T08:34:04.060" LastActivityDate="2019-04-22T00:28:26.117" Title="Does my research prove market inefficiency?" Tags="&lt;stock-market&gt;&lt;efficient-markets&gt;&lt;portfolio-theory&gt;" AnswerCount="3" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17563" PostTypeId="1" CreationDate="2017-07-24T07:50:08.223" Score="2" ViewCount="47" Body="&lt;p&gt;Based on &lt;a href=&quot;https://economics.stackexchange.com/questions/15688/which-are-the-different-schools-of-economic-thought&quot;&gt;this question&lt;/a&gt; about alternative schools of thought, &lt;a href=&quot;https://economics.stackexchange.com/questions/17554/most-important-but-untested-theories-in-economics&quot;&gt;this question&lt;/a&gt; about untested economic theories, and the rather unsatisfactory answer (imo) to &lt;a href=&quot;https://economics.stackexchange.com/questions/5352/what-are-some-growth-theories-that-are-considered-the-most-correct-at-the-moment&quot;&gt;this question&lt;/a&gt; about which is the &quot;most correct&quot; growth theory at the moment, it would be great to learn more about &lt;strong&gt;how to compare economic models or theories&lt;/strong&gt;. Anyone familiar with this literature, which I think belongs to philosophy and methodology of economics?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have rudimentary ideas here, like &lt;a href=&quot;https://en.wikipedia.org/wiki/Occam%27s_razor&quot; rel=&quot;nofollow noreferrer&quot;&gt;Occam's razor&lt;/a&gt; and Friedman's &lt;a href=&quot;https://en.wikipedia.org/wiki/Essays_in_Positive_Economics#The_Methodology_of_Positive_Economics&quot; rel=&quot;nofollow noreferrer&quot;&gt;defense of unrealistic assumptions&lt;/a&gt;, but this is deeply unsatisfactory for such an important question (imo).&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-07-25T05:22:24.073" Title="Which are some proven methods to compare alternative economic theories?" Tags="&lt;methodology&gt;&lt;philosophy-of-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17565" PostTypeId="2" ParentId="17553" CreationDate="2017-07-24T14:00:20.027" Score="1" Body="&lt;p&gt;A classic on public choice and taxation theory is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;&quot;The Power to Tax: Analytic Foundations of Fiscal Constitution&quot;&lt;/em&gt; by Brennan and Buchanan&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Really interesting book and relatively easy read. &lt;/p&gt;&#xA;" OwnerUserId="10166" LastActivityDate="2017-07-24T14:00:20.027" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17567" PostTypeId="2" ParentId="16105" CreationDate="2017-07-24T17:31:12.437" Score="0" Body="&lt;p&gt;A sample being ``representative'' of the population has nothing to do with the distribution of some attribute in your sample, which is random. What counts is that the probability of a unit to be included in the sample is  equal for the whole population. Let's say you want to estimate the share of females in a population. When you draw a random sample of people from the population, the share of females in your sample is a consistent estimate for the share of females in the population because your sample is random. It will not be the same because of sampling error. As you draw a larger and larger sample your estimate of the female share will converge to the population value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now let's say you already know the population share of females and you want to estimate something else. Let's say your population of interest consists of 6 people, 2 females and 4 males. You draw a sample of 3 people without replacement. In the random sampling case, the sampling probability of each person in the population is 1/2. If you draw a stratified sample consisting of 1 woman and 2 men, the sampling probability is still 1/2 for each person in the population, so both ways of sampling are representative of the population.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Do you have anything to gain by stratifying your sample? If the thing you'd like to estimate is independent of gender, then you will gain nothing. However, if you'd like to estimate something that is not independent of gender, then a stratified sample will give you a more precise estimate by reducing sampling error. The drawback is that if you for some reason use incorrect sampling probabilities and do not adjust for it, then you will get a biased estimate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;RE: I just realized this answer is mostly a duplicate of the one above. Sorry about that.&lt;/p&gt;&#xA;" OwnerUserId="11216" LastActivityDate="2017-07-24T17:31:12.437" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17568" PostTypeId="1" AcceptedAnswerId="17569" CreationDate="2017-07-24T20:34:12.227" Score="1" ViewCount="34" Body="&lt;p&gt;Im interested in forecasting revenue for 2018. &lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;Year           Revenue &#xA; 2010        $22,306,000&#xA; 2011        $22,420,000&#xA; 2012        $23,010,000&#xA; 2013             NA&#xA; 2014        $25,430,000&#xA; 2015        $25,601,000&#xA; 2016        $25,267,000&#xA; 2017        $23,895,400&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Im unable to identify the appropriate model (AR,MA,ARMA ect.) since the use ACF and the PACF is not possible since i lack data for 2013.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How would i deal with such an issue? (preferably using R)&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2017-07-25T08:17:50.100" Title="Producer Econometrics: Univariate modelling with missing data" Tags="&lt;applied-econometrics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17569" PostTypeId="2" ParentId="17568" CreationDate="2017-07-24T20:50:37.353" Score="1" Body="&lt;p&gt;It is called &quot;imputing&quot; values.&#xA;Find the linear trend between 2012 and 2014 revenue and impute this value for 2013. In your case, it is just the average between the revenues before and after.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2017-07-24T20:50:37.353" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17570" PostTypeId="2" ParentId="17562" CreationDate="2017-07-25T02:30:07.083" Score="1" Body="&lt;p&gt;By itself, no it does not, at least how I am understanding your post.  While I am an opponent of the Efficient Market Hypothesis, what you would need to show is that there is a &quot;free lunch,&quot; with your methodology.  You would also have to show it persists out-of-sample and does so for decades.  You would need to measure commissions as well.  A $\$3$ gain that costs $\$5$ to get isn't a gain.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The second way to show it would be if your distribution implied a strong informational asymmetry by its structure.&lt;/p&gt;&#xA;" OwnerUserId="11321" LastActivityDate="2017-07-25T02:30:07.083" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17571" PostTypeId="2" ParentId="17563" CreationDate="2017-07-25T05:22:24.073" Score="3" Body="&lt;p&gt;There is one theoretically sound methodology to do what you are asking.  When you have multiple models to compare, the only choice is Bayesian model selection and Bayesian model averaging.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Bayesian methods have several properties that you would want.  Any statistic created is intrinsically &quot;admissible,&quot; and &quot;coherent.&quot;  The disadvantage, which does not exist for Frequentist methods, is that it is built on inductive reasoning rather than deductive reasoning.  An article on this can be found at &lt;a href=&quot;https://plato.stanford.edu/entries/induction-problem/&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://plato.stanford.edu/entries/induction-problem/&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Induction only allows you to test models you have, but cannot test models you do not have and so will always be incomplete.  If you reject a Frequentist null hypothesis, then you reject all theories except the null.  The problem with this happens when the model is complex and cannot be turned into a pure binary hypothesis.  It is worse when more than one model rejects its null.  If that happens then, Frequentist theory is silent on what to do.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A statistic is admissible if there is no less risky way to create it and it is coherent if you could place a fair gamble on it.  The idea of a parameter is more flexible in Bayesian thinking than Frequentist.  A model is a parameter in Bayesian thinking.  As it is a parameter, you can construct a probability statement around it.  Bayes theorem naturally rewards better fitting models, while penalizing models for more structure.  It is a natural Occam's razor with a mathematical interpretation.  It also simply sets aside Friedman's defense as unnecessary.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One of the better axiomatic constructions for Bayesian statistics is Cox's.  You can find it at &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Richard T. Cox. The Algebra of Probable Inference. 1961. Johns Hopkins University Press. Baltimore, MD&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It assigns &quot;plausibilities&quot; to logical assertions.  Usually as odds or probabilities.  Surprisingly, it is worth reading.  If you are doing model or theory comparison, then, more so, this is the case.&lt;/p&gt;&#xA;" OwnerUserId="11321" LastActivityDate="2017-07-25T05:22:24.073" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17572" PostTypeId="2" ParentId="17568" CreationDate="2017-07-25T08:17:50.100" Score="2" Body="&lt;p&gt;Alternatively, you can use the mean of the period, or fit a linear trend and interpolate. These methods use more information than just two years, which has the benefit of accounting for possible idiosyncratic factors in 2012 or 2014, with the cost of perhaps adding idiosyncratic factors from years as far as 2017. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is the R code with the three methods (including Alecos's):&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;# Interpolate between 2012 and 2014&#xA;df = data.frame(year = 2010:2017, y = c(22306000,22420000,23010000,NA,25430000,25601000,25267000,23895400))&#xA;df$y[is.na(df$y)] = mean(df$y[df$year==2012 | df$year==2014], na.rm=TRUE)&#xA;&#xA;# Replace with mean of period&#xA;df = data.frame(year = 2010:2017, y = c(22306000,22420000,23010000,NA,25430000,25601000,25267000,23895400))&#xA;df$y[is.na(df$y)] = mean(df$y, na.rm=TRUE)&#xA;&#xA;# Regression interpolation&#xA;df = data.frame(year = 2010:2017, y = c(22306000,22420000,23010000,NA,25430000,25601000,25267000,23895400))&#xA;fit &amp;lt;- lm(y ~ year, data=df)&#xA;df$y[df$year==2013] &amp;lt;- predict(fit, newdata = data.frame(year = 2013))&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;The results with each method are &lt;code&gt;24220000&lt;/code&gt;, &lt;code&gt;23989914&lt;/code&gt;, and &lt;code&gt;23753107&lt;/code&gt; respectively. They are different because the series does not follows a linear trend:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;# Plot&#xA;df = data.frame(year = 2010:2017, y = c(22306000,22420000,23010000,NA,25430000,25601000,25267000,23895400))&#xA;plot(x=df$year,df$y, type=&quot;l&quot;,lwd = 2)&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/oKUKt.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/oKUKt.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, it seems Aleco's method might be the most appropriate in this case. (It is also possible to fit &lt;a href=&quot;https://datascienceplus.com/fitting-polynomial-regression-r/&quot; rel=&quot;nofollow noreferrer&quot;&gt;non-linear trends&lt;/a&gt;)&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-07-25T08:17:50.100" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17574" PostTypeId="1" AcceptedAnswerId="17576" CreationDate="2017-07-25T17:52:23.553" Score="0" ViewCount="56" Body="&lt;p&gt;I know little about economics and am very confused on what this graph represents. &#xA; I found it when I saw that the President had tweeted it and was wondering what it mean.  Specifics what &quot;Jobs plentiful&quot; and &quot;jobs hard to get&quot; are measured in.&lt;a href=&quot;https://i.stack.imgur.com/GI35s.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/GI35s.jpg&quot; alt=&quot;&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="14006" LastActivityDate="2017-07-25T19:08:25.860" Title="What does this graph mean?" Tags="&lt;statistics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17576" PostTypeId="2" ParentId="17574" CreationDate="2017-07-25T19:08:25.860" Score="2" Body="&lt;p&gt;The data plotted in the graph are based on a consumer survey conducted by &lt;em&gt;Conference Board&lt;/em&gt;. They ask consumers how hard it to get a job. If 34.1% of people say that &quot;jobs are plentiful&quot; and 18% of people say &quot;jobs are hard to get&quot; then the figure would plot a value of $34.1-18=16.1$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The figure originally comes from &lt;a href=&quot;https://www.bloomberg.com/news/articles/2017-07-25/u-s-consumer-confidence-unexpectedly-rises-to-four-month-high&quot; rel=&quot;nofollow noreferrer&quot;&gt;this Bloomberg article&lt;/a&gt;, but you can read a little more about the underlying data &lt;a href=&quot;https://www.conference-board.org/data/consumerconfidence.cfm&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2017-07-25T19:08:25.860" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17577" PostTypeId="2" ParentId="8193" CreationDate="2017-07-25T20:46:56.673" Score="0" Body="&lt;p&gt;Here's some information with regard to the intuition of each. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &lt;strong&gt;Kolmogorov&#xA;forward equation&lt;/strong&gt; is often referred to as the Fokker-Planck equation.&#xA;It is a partial differential equation (PDE) that describes&#xA;the time evolution of the probability density function of a variable&#xA;over a state. That is, suppose we have information about the state&#xA;&lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; at a time &lt;span class=&quot;math-container&quot;&gt;$t$&lt;/span&gt;. The forward equation tells us the distribution&#xA;of &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; at a time &lt;span class=&quot;math-container&quot;&gt;$s&amp;gt;t$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &lt;strong&gt;Kolmogorov backward equation&lt;/strong&gt; on the other hand&#xA;is used to understand the probability of a state&#xA;ending up in a set &lt;span class=&quot;math-container&quot;&gt;$B$&lt;/span&gt; at some time &lt;span class=&quot;math-container&quot;&gt;$s$&lt;/span&gt;. Define a function of the state,&#xA;&lt;span class=&quot;math-container&quot;&gt;$u_s(x)$&lt;/span&gt;. At the final time &lt;span class=&quot;math-container&quot;&gt;$s$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$u_s(x) = 1$&lt;/span&gt; if &lt;span class=&quot;math-container&quot;&gt;$x \in B$&lt;/span&gt;. Otherwise,&#xA;it is zero. Then, for any time &lt;span class=&quot;math-container&quot;&gt;$t &amp;lt; s$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$u_t(x)$&lt;/span&gt; describes&#xA;the probability that &lt;span class=&quot;math-container&quot;&gt;$X_s$&lt;/span&gt; given &lt;span class=&quot;math-container&quot;&gt;$X_t = x_t$&lt;/span&gt; will end&#xA;up in the set &lt;span class=&quot;math-container&quot;&gt;$B$&lt;/span&gt;. The Kolmogorov&#xA;backward equation described the evolution of the probability function. &#xA;&lt;span class=&quot;math-container&quot;&gt;$u_s(x)$&lt;/span&gt; then is the final condition of a&#xA;this PDE.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've taken this information mostly from Wikipedia:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Kolmogorov_equations&quot; rel=&quot;nofollow noreferrer&quot;&gt;Kolmogorov equations&lt;/a&gt; &lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Fokker%E2%80%93Planck_equation&quot; rel=&quot;nofollow noreferrer&quot;&gt;Fokker–Planck equation&lt;/a&gt; &lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Kolmogorov_backward_equations_(diffusion)&quot; rel=&quot;nofollow noreferrer&quot;&gt;Kolmogorov backward equations&lt;/a&gt; &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="59" LastEditorUserId="365" LastEditDate="2018-11-18T04:12:05.417" LastActivityDate="2018-11-18T04:12:05.417" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="17578" PostTypeId="1" AcceptedAnswerId="17582" CreationDate="2017-07-25T22:15:06.427" Score="0" ViewCount="144" Body="&lt;p&gt;In this &lt;a href=&quot;http://voxeu.org/article/turtle-s-progress-secular-stagnation-meets-headwinds&quot; rel=&quot;nofollow noreferrer&quot;&gt;article from VoxEU&lt;/a&gt;, the author states:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;By definition growth in output per capita equals growth in labour&#xA;  productivity times growth in hours per capita. The slowdown in&#xA;  productivity growth that began 40 years ago was partly offset between&#xA;  1972 to 1996 by an increase in the labour-force participation rate of&#xA;  0.4% per year, as females and baby-boom teenagers entered the labour force. In contrast during 2004-2014 the participation rate has&#xA;  declined at an annual rate of 0.5%, and over the shorter 2007-2014&#xA;  interval at an annual rate of 0.8%. This transition from a 0.4%&#xA;  increase to a 0.8% decline accounts for a 1.2% reduction in the growth&#xA;  of per-capita real GDP for any given growth rate of labour&#xA;  productivity.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I don't understand how the participation rate influences the growth of GDP per capita. Is it because in the per capita, besides the labour force, we also take into consideration the rest of the population? And what's the link between productivity and labour force?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="118" LastActivityDate="2017-07-26T08:35:53.430" Title="Link between Productivity and Labour Force?" Tags="&lt;macroeconomics&gt;&lt;productivity&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17579" PostTypeId="1" CreationDate="2017-07-25T23:32:06.177" Score="0" ViewCount="27" Body="&lt;p&gt;The media loves to tout big debt figures whenever there is an economic crisis, but unless we know who owes money to who, it seems to me that these figures are useless since debt is all relative.  I know that economic policies are changing all the time, so the figures could shift, and that different states are paying their public debts at different interest rates. Therefore, looking at what I will call &quot;collapsed external debt&quot; is a gross oversimplification- but nonetheless I think this would be a useful heuristic figure when seeing who comes out on top today after all is said and done(although that would never actually happen).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If this figure does not exist or would not be useful in any way, then why not?&lt;/p&gt;&#xA;" OwnerUserId="14009" LastActivityDate="2017-07-27T18:06:51.017" Title="Is there a statistic that shows which countries would be owed money if all external public debts were payed immediately?" Tags="&lt;macroeconomics&gt;&lt;statistics&gt;&lt;debt&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17580" PostTypeId="1" AcceptedAnswerId="17584" CreationDate="2017-07-26T04:32:12.920" Score="5" ViewCount="444" Body="&lt;p&gt;Most urban parking structures/lots in the US seem offer so-called &quot;early bird&quot; discounts for parking, where a substantially discounted flat rate applies to customers entering before a certain cutoff time (typically 9 or 10 AM) and exiting before late evening (typically 6 or 7 PM). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The practice is nearly universal, so there must be some economic advantage to it (unless the various players are locked into some kind of weird Nash equilibrium). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My best guess is that this is a kind of price discrimination targeting people commuting in to work, but price discrimination usually soaks business customers in order to offer discounts to discretionary customers, and this situation is the opposite, so I'm not sure that's it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It could be that it's especially valuable to kick out a large number of vehicles by early evening so that a &quot;second crop&quot; of customers can be brought in. But evening rates (at least when no special events are being held nearby) are also typically discounted. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It could also relate to minimizing turnover costs and traffic congestion. But turnover costs for a parking lot (especially an automated one) seem to be a tiny fraction of the overall cost. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And it could be the result of a price war between suppliers. Knowledge of a particularly cheap nearby lot would tend to spread quickly among coworkers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there a definitive slam-dunk reason these discounts exist? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT: Another guess is that commuters are high-knowledge customers and shoppers are low-knowledge customers and so it makes sense that the latter would tend to get charged more. &lt;/p&gt;&#xA;" OwnerUserId="14010" LastActivityDate="2017-07-27T11:56:58.700" Title="What is the Economic Rationale for Discounted Early-Bird Parking?" Tags="&lt;price-discrimination&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17581" PostTypeId="1" CreationDate="2017-07-26T05:58:00.017" Score="2" ViewCount="50" Body="&lt;p&gt;Even though the rate of growth in the monetary base decelerated — and the money multiplier decreased for the most part — from 1993-96 in the United States, the growth rate of the M2 money stock still progressively increased. How is this possible?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/X8Qs3.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/vg2zo.jpg&quot; alt=&quot;You can see a steep drop in the money multiplier from &amp;#39;93-&amp;#39;96&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/c65BM.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;References:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://fred.stlouisfed.org/series/BASE&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://fred.stlouisfed.org/series/BASE&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.alt-m.org/2016/07/21/why-the-money-multiplier-remains-so-low/&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.alt-m.org/2016/07/21/why-the-money-multiplier-remains-so-low/&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://fred.stlouisfed.org/series/M2&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://fred.stlouisfed.org/series/M2&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="14011" LastEditorUserId="2776" LastEditDate="2017-07-27T06:26:34.477" LastActivityDate="2017-07-27T06:26:34.477" Title="Why did the rate of money supply growth increase from 1993-96 in the United States?" Tags="&lt;monetary-policy&gt;&lt;money-supply&gt;&lt;federal-reserve&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="17582" PostTypeId="2" ParentId="17578" CreationDate="2017-07-26T08:35:53.430" Score="3" Body="&lt;p&gt;Output per capita is $\dfrac{Y}{N}$. This can be decomposed as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{Y}{N} \equiv \frac{Y}{h} \times \frac{h}{L} \times \frac{L}{A} \times\frac{A}{N} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $h$ are aggregate hours of work, $L$ is number of employed, and $A$ is active population. $\frac{Y}{h}$ is aggregate labour productivity, $\frac{h}{L}$ is &quot;work intensity&quot;, $\frac{L}{A}$ is the employment rate and $\frac{A}{N}$ is the participation rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The above equality can be turned into &lt;a href=&quot;http://lhendricks.org/econ520/growth/growth_algebra_sl.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;growth rates&lt;/a&gt;, which means in approximation, the growth of output per capita is the sum of the growth rates of each of the subcomponents.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-07-26T08:35:53.430" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17583" PostTypeId="1" AcceptedAnswerId="17623" CreationDate="2017-07-26T11:51:19.207" Score="0" ViewCount="65" Body="&lt;p&gt;Does market crash like in 1930 and 2009 are always due to excessive and careless lending activity? Lets say all lending is done in careful manner and no corporate fraud is done somehow, would it be possible to avoid these types of crashes forever than, after all money moves among people only?&#xA;I know very less economics.&lt;/p&gt;&#xA;" OwnerUserId="14014" LastActivityDate="2017-07-29T01:34:14.203" Title="Market crash causes" Tags="&lt;macroeconomics&gt;&lt;financial-markets&gt;&lt;open-economy-macro&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17584" PostTypeId="2" ParentId="17580" CreationDate="2017-07-26T11:52:50.847" Score="3" Body="&lt;p&gt;There seems to be some research on price discounting. For example, &lt;a href=&quot;https://www.researchgate.net/profile/Ralph_Christopher_Bayer/publication/46497829_Intertemporal_Price_Discrimination_and_Competition/links/0deec52bab971e2337000000/Intertemporal-Price-Discrimination-and-Competition.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;this paper&lt;/a&gt; studies two forms of dicounting, last-minute discounting and early-bird discounting, in settings with monopoly, duopoly and competitive markets. They propose a model and run some experiments. Some excerpts from this paper:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;There might be many reasons for such a pricing policy [Early-Bird Discounting]. Early bookings for example reduce uncertainty for&#xA;  airlines, who might be willing to forgo some profit in order to reduce this&#xA;  uncertainty. Introductory pricing in markets with network externalities&#xA;  might be another reason. Here we want to investigate intertemporal price&#xA;  discrimination between different customer groups, who enter the market&#xA;  at diferent points in time. One might think of holiday makers versus&#xA;  business travellers in the market for airline tickets. Holiday makers&#xA;  usually plan ahead and enter the market for a particular flight quite early,&#xA;  while business travellers often cannot plan well in advance. Additionally,&#xA;  the reservation price of business travellers is much higher than that of&#xA;  holiday makers. A monopolist airline will try to persuade as many low-&#xA;  valuation customers as possible to book early, such that it can charge&#xA;  higher prices later when the high-valuation customers have entered the&#xA;  market.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This is also interesting:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;When customers with lower valuations for the good start&#xA;  searching earlier for cheap prices than consumers with higher valuations&#xA;  then it is possible to sell to these customers at early-bird discount prices,&#xA;  while the high valuation customers who enter later can be charged higher&#xA;  prices. The main objective of the monopolist is to get the low-valuation&#xA;  customers out of the market before the high-valuation customers arrive.&#xA;  The low-valuation customers accept early, as they anticipate that the&#xA;  prices will go up over time.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;They conclude that:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In the early-bird scenario competition even seems to enhance the ability&#xA;  to price discriminate initially, while with increasing experience this advantage is eroded. [...] The monopolists had much less pricing&#xA;  power than predicted by standard theory, while the duopolists - also&#xA;  contrary to the prediction - were able to retain at least some pricing&#xA;  power. The most striking advantage of competition is the increase in total welfare.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Perhaps not entirely pertinent to the case of parking, &lt;a href=&quot;http://www.economist.com/node/17963345&quot; rel=&quot;nofollow noreferrer&quot;&gt;this entry&lt;/a&gt; in &lt;em&gt;The Economist&lt;/em&gt; claims that early-bird tickets are useful in events like concerts to build up a minimum mass of goers:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;T in the Park, a large pop shindig held in Scotland, pioneered the practice of offering discounted “early bird” tickets to build buzz. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-07-26T11:52:50.847" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17585" PostTypeId="1" AcceptedAnswerId="17858" CreationDate="2017-07-26T12:28:43.507" Score="5" ViewCount="175" Body="&lt;p&gt;I am reading &lt;a href=&quot;https://www.minneapolisfed.org/~/media/files/pubs/books/models/cp131.pdf?la=en&quot; rel=&quot;noreferrer&quot;&gt;Lucas (1980)&lt;/a&gt; and I am a bit confused about the way he formulates the utility function.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So there is one non-storable good that comes in $n$ colours and one unit of labor produces $y$ units of any color. He says:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Consumption is now a vector $(c_{1t},...c_{nt})$ where $c_{it}$ is the consumption of color $i$ in period $t$.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So far I have no problems. But then he defines current period utility as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$V(c_{1},...c_{n}) = U[\pi_{i=1}^{n}(\frac{c_{i}}{\alpha_{i}})^{\alpha_{i}}]$ where U is a standard utility function. $\sum _{i} \alpha_{i}=1$ and $\sum _{i} c_{i}=c$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What seems to confuse me is first of all the use of lower case pi. Surely Lucas is referring to the multiplication operator? I.e $V(c_{1},...c_{n}) = U[(\frac{c_{1}}{\alpha_{1}})^{\alpha_{1}}...(\frac{c_{n}}{\alpha_{n}})^{\alpha_{n}}]$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then he says that the relative prices of the goods must be unity which I understand. However, the next part is where my main source of confusion lies, he says:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;With these prices, consumers will select color proportions $c_{i}/c=\alpha_{i}$ and given this mix   $V(c_{1},...c_{n}) = U(c)$. Without altering the example one can think of all agents having the same $\alpha$-weights, of agents distributed by a c.d.f. $F(\alpha)$ of weights. (...) In each of these cases, the equilibrium output mix (per capita) is $(\bar{\alpha_{1}}y_{1},...,\bar{\alpha_{n}}y_{n})$ each period, where  $\bar{\alpha_{i}} = \int\alpha_{i}dF(\alpha)$&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I tried equating MRS to the relative prices (i.e 1) but since I'm unsure about the form of the utility function I don't know if my working is correct. Also, I am very confused about the definition of $\alpha$. What does it mean for agents to have weights? Is it just a way of stating that they are equally distributed?  &lt;/p&gt;&#xA;" OwnerUserId="11767" LastActivityDate="2017-08-16T08:32:56.217" Title="Interpretation of utility function" Tags="&lt;mathematical-economics&gt;&lt;utility&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17586" PostTypeId="2" ParentId="17580" CreationDate="2017-07-26T12:30:25.063" Score="2" Body="&lt;p&gt;Some reasoning:  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Incoming &quot;Early-bird&quot; discounts relate to a time window where &lt;strong&gt;quantity supplied is high&lt;/strong&gt; - parking lots are empty waiting for today's customers. Since on the other hand quantity demanded is also high in this time window, it is natural to attribute the incoming early-bird discounts to price-competition between suppliers that attempt to attract as much as possible from the high quantity demanded.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Outgoing early-bird discounts on the other hand, appear indeed to be an attempt to free capacity for a new wave of evening customers (the fact that evening prices are also discounted is another matter). Suppliers are better off securing the flat fee early in the morning, and then they care more for new revenue from evening clients than possibly incremental charges to morning customers that leave late. It is also good in terms of customer differentiation and signalling that the parking lot can accommodate also evening customers. &lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2017-07-26T12:30:25.063" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17587" PostTypeId="1" CreationDate="2017-07-26T13:11:26.153" Score="0" ViewCount="543" Body="&lt;p&gt;If you buy a machine for 10.000 dollars, which costs as a yearly write-off 2000 dollars, how do I calculate the cost per usage of a machine? Do you just divide the the yearly write-off by the times you use it per year? Or do you divide the yearly write-off by the times you potentially could use it per year? &#xA;How do you take into account the wear and tear/loss of value of using it? &#xA;Or is there some other way?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The machine is used in diagnostic medicine. I'm trying to calculate how much 1 test costs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is it just 2000/(Number of times used per year)? &lt;/p&gt;&#xA;" OwnerUserId="14016" LastEditorUserId="14016" LastEditDate="2017-07-28T09:44:46.663" LastActivityDate="2017-10-26T20:08:49.503" Title="How do I calculate the cost per usage of a machine?" Tags="&lt;cost&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17588" PostTypeId="1" AcceptedAnswerId="17596" CreationDate="2017-07-26T14:38:54.060" Score="1" ViewCount="134" Body="&lt;p&gt;With quasilinear utiliy, I've seen that often there is no non-negativity restriction imposed on the numeraire good. &#xA;MWG justify it as &quot;to avoid dealing with boudary problems&quot;, but I cannot see the - probably trivial - step.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Moreover, are there situations when the nonnegativity constraint on the numeraire can be applied without adding restrictions?&lt;/p&gt;&#xA;" OwnerUserId="6737" LastActivityDate="2017-07-27T02:51:52.117" Title="Numeraire negativity to avoid boundary solution" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="17590" PostTypeId="2" ParentId="15635" CreationDate="2017-07-26T16:16:31.817" Score="-1" Body="&lt;p&gt;How do we go about fixing (or at least improving) the housing crisis? &#xA;I don’t think I’ve heard any dissenting voices to the opinion that the housing crisis that we’re in is being caused by the imbalance of supply and demand. &#xA;We’re not building enough homes and our population is growing. &#xA;It doesn’t take a Nobel winning economist to work out what that will lead to.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since the 1980’s - we have seen an increasing consolidation amongst house builders. This means that small and medium sized builders and developers now build approximately 60-70% fewer homes than they used to and it means that 70% of our homes are delivered by about 10 different house builders.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why is this important?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Well, consolidation reduces diversity and choice, and increases the power of the oligopoly. &#xA;This means that the big 10 can build what they like, when they like and that isn’t good for supply. Is it that surprising then that a recent RIBA report suggested that 75% of us would never buy a new-build home.&#xA;How can we improve both the quantity AND quality of the new homes being built? &#xA;Here are 5 actionable suggestions for Mr. Sharma, our new housing minister:&#xA;1. Create a farmer’s market of housing, where large sites are broken into smaller ones, where small and medium sized developers and builders can make a difference.&#xA;Exactly the same phenomenon has taken place in the supermarket industry. We have seen a consolidation of grocery shops so that the vast majority of our food purchases are through the big supermarket chains. We used to spend about 2 hours cooking every day and we now spend about 27 minutes. This is mainly due to the rise of the ‘ready-meal’ - which are tasty and convenient, but have too much salt and too much sugar in them and our nation is getting more obese as a result. The rise of the farmer’s market increases diversity and encourages that back to basic cooking from ingredients.&#xA;2. Disincentivise land trading by killing the planning arbitrage market.&#xA;It makes no sense that planning generally now costs tens of thousands of pounds and takes over a year on average to be successful. &#xA;3. Scrap stamp duty! I know that this is not really your bag, but please have a word with Mr. Hammond. Stamp duty is a (potentially) huge tax on transactions which discourages people to move out of their homes.&#xA;If we want the elderly to move out of their large homes and downsize into new homes freeing up space for the younger, we need to make the transaction as cheap as possible for them. &#xA;If we want families living near good schools to move on when their kids leave the school, we need to make that easy for them and cheap for them to do so.&#xA;4.Introduce a capital gains tax on all home profit sales over a certain level.&#xA;Fourth (again, a word to Philip), to offset the lack of tax take from stamp duty and to discourage flipping of homes and the holding of homes as investment assets, we should introduce capital gains tax on all home profit sales over a certain level.&#xA;5. Improve affordable housing. At the moment, policy dictates that developers should provide around 50% of new housing as affordable (borough/council dependent). In reality this never happens because of ‘viability assessments’.&#xA;Additionally, once a developer has agreed to provide the affordable homes, they are strongly incentivised to make these as low quality and as cheap as possible.&#xA;Instead, councils should build their own affordable housing - they know that building higher quality will pay dividends over the long-term as maintenance and refurbishment (whole life-cycle costs) are reduced, so they should do so, just like they used to.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you found this article insightful, useful or even just amusing, read it in its entirety on our blog - How to solve the housing crisis: An open letter to the government&lt;a href=&quot;https://www.inhabithomes.co.uk/custom-build-blog/how-to-solve-the-housing-crisis?utm_source=Quora&amp;amp;utm_campaign=Answers&quot; rel=&quot;nofollow noreferrer&quot;&gt;enter link description here&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.inhabithomes.co.uk/custom-build-blog/how-to-solve-the-housing-crisis?utm_source=Quora&amp;amp;utm_campaign=Answers&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.inhabithomes.co.uk/custom-build-blog/how-to-solve-the-housing-crisis?utm_source=Quora&amp;amp;utm_campaign=Answers&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="14018" LastActivityDate="2017-07-26T16:16:31.817" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17591" PostTypeId="1" AcceptedAnswerId="17607" CreationDate="2017-07-26T16:38:17.173" Score="2" ViewCount="615" Body="&lt;p&gt;The original development of general equilibrium theories involved differential topology. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I wonder if there are any recently developed theories, in any field of economic theories, that utilize differential topology (DT).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've seen some recent papers but none of them used DT. Some real analysis, topological topology, and convex analysis seem enough.&lt;/p&gt;&#xA;" OwnerUserId="13381" LastActivityDate="2019-06-30T05:22:03.797" Title="Recent economics theories that involve differential topology?" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;reference-request&gt;&lt;general-equilibrium&gt;&lt;asymmetric-information&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17592" PostTypeId="1" AcceptedAnswerId="17616" CreationDate="2017-07-26T17:55:56.690" Score="1" ViewCount="151" Body="&lt;p&gt;Are there any models which calculate the time (i.e. minutes, hours, days ect.) it takes for equilibrium to occur? I.e how long it takes for market forces to settle.&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="2776" LastEditDate="2017-07-28T06:12:23.547" LastActivityDate="2017-07-28T06:55:36.957" Title="Papers on time it takes to reach market equilibrium?" Tags="&lt;reference-request&gt;&lt;competitive-equilibrium&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="17593" PostTypeId="2" ParentId="17583" CreationDate="2017-07-26T19:33:20.217" Score="0" Body="&lt;p&gt;You get a crash, when loans go bad, or when there are excessive stock valuations, and everyone sells at the same time, and tries to run out the door at the same time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Think of the tech bubble at the end of the 90's, a lot of people realized that the P/E's (Price/Earnings) where unsustainable.  Either the profits weren't there or the growth and profits weren't there.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Loans going bad is the other big reason for crashes, money is lent out to company xyz, but for whatever reason, xyz can't deliver.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Other reasons are loans can't be renewed on favorable terms.  The fed hikes rates and things that where profitable, become unprofitable because of higher interest costs.&lt;/p&gt;&#xA;" OwnerUserId="14020" LastActivityDate="2017-07-26T19:33:20.217" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17594" PostTypeId="2" ParentId="17587" CreationDate="2017-07-26T19:55:15.630" Score="0" Body="&lt;p&gt;Accounting guidelines determine how you amortize the cost of the machine, typically straight line over 5 years.  Your cost per usage is a metric that you figure for your own purposes, you're mixing apples and oranges.&lt;/p&gt;&#xA;" OwnerUserId="14021" LastActivityDate="2017-07-26T19:55:15.630" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17596" PostTypeId="2" ParentId="17588" CreationDate="2017-07-27T02:51:52.117" Score="4" Body="&lt;p&gt;Consider $u(x,y)=2\sqrt x+y$, and the budget constraint is $x+y\le 0.5$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If non-negativity is imposed, i.e. $x,y\ge0$, then optimal solution to the utility maximization is $\bar x=0.5$ and $\bar y=0$. Note that under this solution, the FOC holds with strict inequality. So we need to discuss various complementary slackness conditions before arriving at the solution. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we allow $y$ to be negative, then the optimal solution is $x^*=1$ and $y^*=-0.5$. Under this solution, FOC holds with equality, and both $x^*$ and $y^*$ can be solved directly from the FOC (and the budget constraint).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From the perspective of characterizing solutions, it is thus more convenient not to impose the non-negativity constraint(s). &lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2017-07-27T02:51:52.117" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17598" PostTypeId="1" AcceptedAnswerId="17601" CreationDate="2017-07-27T09:25:22.613" Score="1" ViewCount="33" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;&lt;em&gt;Context: Loan waving  to small and marginal farmers in India.&lt;/em&gt;&lt;/strong&gt;&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;In wake of fulfilling poll promises and increasing farmer protests and&#xA;  suicides in India, many state (federal) governments have decided to&#xA;  waive loans to small and medium scale farmers.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;However, I found on going through various newspaper sources that loan waiving is not a good idea from the economic point of view. Why does then loan waiving lead to a decrease of the NPAs (Non performing assets)?&lt;/p&gt;&#xA;" OwnerUserId="13876" LastEditorUserId="13876" LastEditDate="2017-07-27T14:38:00.263" LastActivityDate="2017-07-27T14:38:00.263" Title="Why does loan waiving lead to a decrease of Non performing assets?" Tags="&lt;finance&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17599" PostTypeId="2" ParentId="17587" CreationDate="2017-07-27T09:59:50.417" Score="1" Body="&lt;p&gt;For plain accounting purpose, @bobu5678 is a common practice. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If your intention is to justify something like Return On Investment(ROI), then this can be pretty tricky. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;E.g.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Maintenance cost, e.g. electricity, replacement parts, cleanup/lubricants.&lt;/li&gt;&#xA;&lt;li&gt;Should you rent the machine?&lt;/li&gt;&#xA;&lt;li&gt;The cost of the machine in the 1 year time spend versus outsource the products. Or can you do otherwise, take others people outsource to make full use of the machine.&lt;/li&gt;&#xA;&lt;li&gt;Upgrade and obsolescent&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;You can use conservative formula&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(interest rates x purchase cost)/write-off period + &#xA;write off rates + operating cost + maintenance cost) / total usage &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sometime you may need to add up tangible or intangible benefits. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So in business, tools usage costing is not as simple as purchase and divide.  &lt;/p&gt;&#xA;" OwnerUserId="11177" LastEditorUserId="11177" LastEditDate="2017-07-28T12:51:39.153" LastActivityDate="2017-07-28T12:51:39.153" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17600" PostTypeId="2" ParentId="17580" CreationDate="2017-07-27T11:56:58.700" Score="1" Body="&lt;p&gt;I've always assumed the early cars spend the day blocked in by the later cars. The parking lots would want to get that first row filled up as icing on the cake, then let them sit there through the day as the cars they parked in the accessible ring arrived and left throughout the day.&lt;/p&gt;&#xA;" OwnerUserId="13669" LastActivityDate="2017-07-27T11:56:58.700" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17601" PostTypeId="2" ParentId="17598" CreationDate="2017-07-27T12:54:46.707" Score="2" Body="&lt;p&gt;&quot;Loan waiving&quot; means &quot;loan write-off&quot;: the debt is eliminated. Therefore it is subtracted from the assets of the lender, and if it was already a non-performing loan (asset for the lender), the total of non-performing assets is now reduced. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The value of the debt that has been wrtten-off appears as  a once-off &quot;loss&quot; in the Profit &amp;amp; Loss statement of the lender.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Whether debt write-off is or is not &quot;a good idea&quot; has no single/simple answer, and it depends on a lot of factors that may change in time and country.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The main abstarct arguments against is that&lt;br&gt;&#xA;&lt;strong&gt;a)&lt;/strong&gt; writing-off debt signals to other borrowers that they can too leave their debts unserviced on purpose, even though they are financially able to service them, in expectation of a future new write-off: in other words, it creates what is called &quot;moral hazard&quot;, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;b)&lt;/strong&gt; seeing debts being written off, lenders will be less willing to lend funds in the future, even to prospective borrowers in good financial standing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;c)&lt;/strong&gt; finally a pure economics agument, says that businesses that cannot repay their loans are inefficient businesses and so it is not in the economy's best interest to &quot;provide a lease of life&quot; through debt write-off to such inefficient entities.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Again, the above are the abstarct arguments. The OP has a specific situation in mind, and a specific study should be carried out to evaluate and quantify the socio-economic pros and cons of debt write-off for the specific case.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2017-07-27T12:54:46.707" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17602" PostTypeId="2" ParentId="14597" CreationDate="2017-07-27T14:20:37.317" Score="2" Body="&lt;p&gt;(1) The Phillips curve is not a structural thing, it is not surprising that the relationship between unemployment and inflation is not constant over time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(2) There's a nice &lt;a href=&quot;https://www.aeaweb.org/articles?id=10.1257/aer.20150248&quot; rel=&quot;nofollow noreferrer&quot;&gt;AER paper&lt;/a&gt; by Simon Gilchrist and coauthors that argues that inflation did not go down as much as in earlier recessions because financially constrained firms needed to keep their cash-flows up and increased prices.&lt;/p&gt;&#xA;" OwnerUserId="11216" LastEditorUserId="2776" LastEditDate="2017-07-28T06:19:52.487" LastActivityDate="2017-07-28T06:19:52.487" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17603" PostTypeId="2" ParentId="8257" CreationDate="2017-07-27T15:30:57.620" Score="1" Body="&lt;p&gt;More of a comment:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There should be an expectation operator in the statement of the problem, otherwise problem doesn't make sense.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That &quot;...the deterministic and stochastic value function must be the same...&quot; is not quite right. The value of $\sigma^2$ is crucial in the restriction&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{align}&#xA;\rho = \left(-n + \sigma^2\left(1 - \frac{\alpha\gamma}{2}\right)\right)(1-\alpha\gamma).&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If $\sigma^2 = 0$, then presumably $\rho &amp;lt; 0$ for economically reasonable $\alpha$ and $\gamma$, in which case the deterministic problem may be ill-posed. What is true is that the stochastic value function takes the given form only if the parameter restriction holds.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Factoring out the Ito term $\frac{1}{2} \sigma^2$ from the right hand side&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\sigma^2\left(1 - \frac{\alpha\gamma}{2}\right) (1-\alpha\gamma),&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;the restriction can be written as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\rho + n (1-\alpha\gamma) = \frac{1}{2} \sigma^2 [ (1-\alpha\gamma) - (-\left(1 - \alpha\gamma\right)^2)].&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the right hand side, we have a elasticity of intertemporal substitution term $(1-\alpha\gamma)$ and a risk aversion term $-\left(1 - \alpha\gamma\right)^2$. What the restriction says is that, with a particular choice of $\sigma$, they offset each other, up to time preference $\rho$ and the drift $n(1 - \alpha\gamma)$. Therefore the value function is independent of $\sigma$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That the value function is independent of $\sigma$ is an artifact of the restriction, and choice of CRRA $u$. Not true in general.&lt;/p&gt;&#xA;" OwnerUserId="126" LastActivityDate="2017-07-27T15:30:57.620" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17604" PostTypeId="1" AcceptedAnswerId="17614" CreationDate="2017-07-27T17:45:24.293" Score="1" ViewCount="41" Body="&lt;p&gt;I am going through the &lt;a href=&quot;https://www.mruniversity.com/courses/principles-economics-microeconomics&quot; rel=&quot;nofollow noreferrer&quot;&gt;microeconomics course&lt;/a&gt; of the &lt;a href=&quot;https://www.mruniversity.com&quot; rel=&quot;nofollow noreferrer&quot;&gt;MRUniversity&lt;/a&gt; and in the end of the chapter on supply and demand there is a question that I don't get. Here is the &lt;a href=&quot;https://www.mruniversity.com/node/179648&quot; rel=&quot;nofollow noreferrer&quot;&gt;question&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;If oil executives read in the newspaper that massive new oil supplies&#xA;  have been discovered under the Pacific Ocean but will likely only be&#xA;  useful in 10 years, what is likely to happen to the supply of oil&#xA;  today?&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;a. The supply of oil will rise today&lt;br&gt;&#xA;  b. The supply of oil will fall today&lt;br&gt;&#xA;  c. There will be no change in the supply of oil&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Now my analysis is that this means there would be more competition between the oil suppliers in the future and as a result some oil suppliers may decide to leave the market sooner and as a result the supply of oil will decrease. But according to the site the correct answer is that the supply of oil will rise. What is wrong with my analysis?&lt;/p&gt;&#xA;" OwnerUserId="14030" LastActivityDate="2017-07-28T15:05:44.883" Title="The effect of future increase in production on current market equilibrium" Tags="&lt;microeconomics&gt;&lt;supply-and-demand&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17605" PostTypeId="1" CreationDate="2017-07-27T17:57:57.417" Score="0" ViewCount="115" Body="&lt;p&gt;I don't understand how one can get from:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$1+r_{t+1}$=$\frac{1+i_{t}}{1+\pi_{t+1}}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;to&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$1+r_{t+1}$$\approx1+i_{t}-\pi_{t+1}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;by applying the following rule of thumb:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$Z$=$\frac{X\cdot{Y}}{Q}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;implies&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac{\Delta{Z}}{Z}$=$\frac{\Delta{X}}{X}$+$\frac{\Delta{Y}}{Y}$-$\frac{\Delta{Q}}{Q}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$r_{t+1}$: real interest rate&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$i_{t}$: nominal interest rate&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\pi_{t+1}$: inflation rate&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I hope someone will help :)&lt;/p&gt;&#xA;" OwnerUserId="7865" LastActivityDate="2017-07-28T15:06:17.653" Title="An approximate measure of the real interest rate applying rule of thumb for growth rates" Tags="&lt;macroeconomics&gt;&lt;interest-rate&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17606" PostTypeId="2" ParentId="17579" CreationDate="2017-07-27T18:06:51.017" Score="1" Body="&lt;p&gt;The description given implies to me that you want to net the debt holdings between governments only. For example, we would subtract the Chinese government's holdings of U.S. Treasury securities from Chinese debt (and so forth).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am unaware of any such statistics. For the developed countries, the amount of cross-governmental debt holdings is minimal (excluding the ambiguous situation of the European Central Bank). Therefore, such an adjustment would only matter for some developed countries. (The ratio of governmental debt to reserves - which are holdings of developed country debt - is probably looked at by ratings agencies and analysts of developing countries.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A more usual statistic is the net international position, which compares national holdings of foreign assets versus foreign holding of domestic assets. However, this mixes all form of financial assets (debt and equity) and includes both the private sector. The IMF has a standard for reporting the international investment position - &lt;a href=&quot;http://dsbb.imf.org/Pages/SDDS/InterInvPos.aspx&quot; rel=&quot;nofollow noreferrer&quot;&gt;link to page&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The usefulness of such statistics enters the realm of opinion. The main usage of the net international position seems to be the assessment of the odds of a currency crisis; I am unaware of the literature on that subject.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for debt statistics, things like the debt-to-GDP ratio have been greatly discussed. However, I am in the camp that argues that the main &quot;use&quot; of debt statistics has been to generate incorrect forecasts (such as the sustainability of Japanese debt). In general, the link between debt levels and bond yields for the developed countries is questionable, which indicates that bond investors are not greatly impressed by the importance of debt statistics.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2017-07-27T18:06:51.017" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17607" PostTypeId="2" ParentId="17591" CreationDate="2017-07-27T19:54:15.713" Score="4" Body="&lt;p&gt;The main reason differential topology had some success in economics is that supplies powerful methods to show that something holds generically, mainly Sard's theorem and the transversality theorem. Some of these methods have been generalized to contexts without differentiability, see for example the paper &lt;a href=&quot;http://www.ams.org/journals/proc/2006-134-09/S0002-9939-06-08607-2/S0002-9939-06-08607-2.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;&quot;A Prevalent Transversality Theorem for Lipschitz Functions&quot;&lt;/a&gt; by Shannon. Differential topology is still used in general equilibrium theory, you might take a look at recent work of Yves Balasko. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In positive political theory, there are results to the effect that generically no majority winner exists in multidimensional spatial voting models.  A good introduction to this topic is the book &lt;a href=&quot;https://www.press.umich.edu/14223/positive_political_theory_i&quot; rel=&quot;nofollow noreferrer&quot;&gt;&quot;Positive Political Theory I&quot;&lt;/a&gt; by Austen-Smith and Banks, the definitive treatment is the paper &lt;a href=&quot;http://www.jstor.org/stable/25054993&quot; rel=&quot;nofollow noreferrer&quot;&gt;&quot;The generic existence of a core for q-rules&quot;&lt;/a&gt; by Saari. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Inspired by the work on regular equilibria in general equilibrium theory, regular Nash equilibria were also studied in game theory, starting with Harsanyi. An elegant approach can be found in the paper &lt;a href=&quot;https://link.springer.com/article/10.1007/BF01247316&quot; rel=&quot;nofollow noreferrer&quot;&gt;&quot;The theory of normal form games from the differentiable viewpoint&quot;&lt;/a&gt; by Ritzberger (preprint &lt;a href=&quot;https://www.ihs.ac.at/publications/ihsfo/fo309.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;). Many genericity results in general equilibrium have corresponding versions in game theory, for example, &quot;most&quot; normal form games have a finite and odd number of Nash equilibria.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another area where differential topology is used is in the study of stability with respect to some dynamics. Indeed, one can define regular equilibria via the replicator dynamic from evolutionary game theory (that is how Ritzberger does it). For a recent example of using some differential topology (index theory, treat also in more generality), see the working paper &lt;a href=&quot;http://cupid.economics.uq.edu.au/mclennan/Papers/indpl05.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;&quot;The Index +1 Principle&quot;&lt;/a&gt; by McLennan.&lt;/p&gt;&#xA;" OwnerUserId="1442" LastEditorUserId="4816" LastEditDate="2019-06-30T05:22:03.797" LastActivityDate="2019-06-30T05:22:03.797" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="17610" PostTypeId="2" ParentId="17562" CreationDate="2017-07-28T02:23:43.730" Score="8" Body="&lt;p&gt;The efficient market hypothesis does &lt;strong&gt;not&lt;/strong&gt; imply that there are no patterns!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As Eugene Fama pointed out decades ago, any test of market efficiency is a joint test of market efficiency and an asset pricing model. The EMH on its own is not a testable theory.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I understand your statement properly, you're claiming that forecasting variance would violate market efficiency? For that to be true, you would need to assume an asset pricing model where variance is not forecastable. That's a strange claim. It would imply that risk free government bonds must have the same volatility as small biotech firms (otherwise, I can forecast volatility based upon whether a security is a stock or a bond).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It well known that volatility is forecastable, both in the cross section and in the time series. For example, there is the widely used &lt;a href=&quot;https://en.wikipedia.org/wiki/Autoregressive_conditional_heteroskedasticity&quot; rel=&quot;nofollow noreferrer&quot;&gt;GARCH&lt;/a&gt; model and all kinds of other &lt;a href=&quot;https://en.wikipedia.org/wiki/Stochastic_volatility&quot; rel=&quot;nofollow noreferrer&quot;&gt;stochastic volatility&lt;/a&gt; models. Forecasting volatility is interesting, but it in no way constitutes a per se violation of market efficiency.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://quant.stackexchange.com/questions/35008/does-the-existence-of-anomalies-disprove-the-efficient-markets-hypotheses/35020#35020&quot;&gt;This answer of mine&lt;/a&gt; goes into greater depth on what the efficient market hypothesis actually says and how to test it.&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;References&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;Fama, Eugene F., 1991, &quot;Efficient Capital Markets: II,&quot; &lt;em&gt;Journal of Finance&lt;/em&gt;&lt;/p&gt;&#xA;" OwnerUserId="10334" LastEditorUserId="10334" LastEditDate="2018-03-14T00:32:46.773" LastActivityDate="2018-03-14T00:32:46.773" CommentCount="12" ContentLicense="CC BY-SA 3.0" />
  <row Id="17611" PostTypeId="2" ParentId="17605" CreationDate="2017-07-28T02:33:08.960" Score="3" Body="&lt;h3&gt;Argument 1:&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;$$ 1+r_{t+1} = \frac{1+i_{t}}{1+\pi_{t+1}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Take the &lt;a href=&quot;https://en.wikipedia.org/wiki/Natural_logarithm&quot; rel=&quot;nofollow noreferrer&quot;&gt;natural log&lt;/a&gt; of both sides.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \log(1+r_{t+1}) = \log(1+i_{t}) - \log(1+\pi_{t+1})$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Observe that $\log(1 + x) \approx x$ for $x$ near zero because that's the &lt;a href=&quot;https://stats.stackexchange.com/questions/244199/why-is-it-that-natural-log-changes-are-percentage-changes-what-is-about-logs-th/244237#244237&quot;&gt;first order taylor expansion&lt;/a&gt;. Hence:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ r_{t+1} \approx i_{t} - \pi_{t+1}$$&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Argument 2:&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;$$ 1+r_{t+1} = \frac{1+i_{t}}{1+\pi_{t+1}}$$&#xA;$$  1+r_{t+1} + \pi_{t+1} + r_{t+1} \pi_{t+1} = 1+i_{t}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And if $r_{t+1} \pi_{t+1}$ is closer to zero&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ r_{t+1} + \pi_{t+1} \approx i_{t}$$&lt;/p&gt;&#xA;" OwnerUserId="10334" LastEditorUserId="10334" LastEditDate="2017-07-28T15:06:17.653" LastActivityDate="2017-07-28T15:06:17.653" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17612" PostTypeId="1" CreationDate="2017-07-28T03:29:28.200" Score="1" ViewCount="57" Body="&lt;p&gt;My understanding is that a short sell is possible because you can sell positions you don't have and then buy at a later point to cover your position (with the price hopefully being more favorable) to settle the trade. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In an instant settlement system (blockchains are the obvious examples, such as Bitcoin or Ethereum) would it be possible to have perform a short sell? Is there some other means of achieving the same thing? &lt;/p&gt;&#xA;" OwnerUserId="14035" LastEditorUserId="2776" LastEditDate="2017-07-28T05:49:29.600" LastActivityDate="2017-08-01T15:06:40.867" Title="Does an instant settlement system (such as blockchains) eliminate the possibility for short selling?" Tags="&lt;finance&gt;&lt;asset-pricing&gt;&lt;cryptocurrency&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17613" PostTypeId="2" ParentId="17612" CreationDate="2017-07-28T04:09:14.397" Score="4" Body="&lt;p&gt;Imagine:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;I borrow 1 bitcoin from you and agree to pay you back $(1+r)$ bitcoin in a month.&lt;/li&gt;&#xA;&lt;li&gt;I immediately sell the bitcoin you lent me.&lt;/li&gt;&#xA;&lt;li&gt;One month from now, I buy $(1+r)$ bitcoin and pay you back.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;If I can conduct those transactions, I can short sell bitcoin.&lt;/p&gt;&#xA;" OwnerUserId="10334" LastActivityDate="2017-07-28T04:09:14.397" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17614" PostTypeId="2" ParentId="17604" CreationDate="2017-07-28T04:39:18.387" Score="4" Body="&lt;p&gt;A key distinction is whether the good is storable.&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Example 1: Milk (non-storable)&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;Q: Imagine that there is new technology being developed that will increase the supply of milk ten years from now. What will happen to the supply of milk today?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A: Nothing. Each supply and demand curve is specific to the time period.&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Example 2: Oil (storable)&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;Let's assume oil producers currently have access to oil reserves that they are voluntarily leaving in the ground. That is, firms are effectively &lt;em&gt;storing&lt;/em&gt; oil (by leaving it in the ground).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In such a case, increasing the supply of oil in the future is similar to increasing the supply of oil today. You can draw from future supply by storing less today.&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Some intuition:&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;Imagine you have 10 cookies and were planning on eating 5 today and storing 5 to eat tomorrow.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Q: What happens to your cookie supply today if I tell you that I'll give you another 4 cookies tomorrow? Will eat 5 cookies today and 9 tomorrow?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A: No. You'll store fewer cookies for tomorrow.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you're storing a good for the future, an increase in future supply will increase supply today.&lt;/p&gt;&#xA;" OwnerUserId="10334" LastEditorUserId="10334" LastEditDate="2017-07-28T15:05:44.883" LastActivityDate="2017-07-28T15:05:44.883" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17615" PostTypeId="2" ParentId="11775" CreationDate="2017-07-28T06:09:58.110" Score="1" Body="&lt;p&gt;The &lt;em&gt;Journal of Economic Perspectives&lt;/em&gt; is really good. It tends to be less &quot;news&quot;, however (but still worth checking out). If your looking for policy papers then you might check out the Peterson Institute. But, frankly, it sounds like your best bet may be &lt;strong&gt;The Economist&lt;/strong&gt;. And if you're not up for shelling out any money for a subscription, then the podcast is great, too.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-07-28T06:09:58.110" CommentCount="0" CommunityOwnedDate="2017-07-28T06:09:58.110" ContentLicense="CC BY-SA 3.0" />
  <row Id="17616" PostTypeId="2" ParentId="17592" CreationDate="2017-07-28T06:48:32.773" Score="1" Body="&lt;p&gt;There is the famous &lt;a href=&quot;https://en.wikipedia.org/wiki/Cobweb_model&quot; rel=&quot;nofollow noreferrer&quot;&gt;Cobweb model&lt;/a&gt;. Starting from a situation of equilibrium, it analyses the effect of a shock, and how long it takes to reach the equilibrium, which depends entirely on the elasticities (or slopes) of demand and supply. Thus, by estimating empirically such elasticities &lt;strong&gt;for a given period&lt;/strong&gt; (e.g. year), you can predict/forecast how many periods (e.g. years) it will take the market to settle after a shock. (Strictly speaking, it is infinity, but you just need to select a threshold or margin of error to consider the market in equilibrium)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\hskip4cm$ &lt;a href=&quot;https://i.stack.imgur.com/Iij4o.gif&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Iij4o.gif&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Source of image &lt;a href=&quot;http://masters.donntu.org/2010/fknt/mospan/diss/indexe.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A huge literature exploded after the original paper, so if you google Cobweb models you get tons of hits. A very good treatment of this model can be found in &lt;a href=&quot;https://academic.oup.com/ajae/article-abstract/46/4/732/89790/Cobweb-Models?redirectedFrom=fulltext&quot; rel=&quot;nofollow noreferrer&quot;&gt;Waugh (1964)&lt;/a&gt;. He extends the simple model to multiple markets.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-07-28T06:55:36.957" LastActivityDate="2017-07-28T06:55:36.957" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17617" PostTypeId="1" AcceptedAnswerId="17618" CreationDate="2017-07-28T08:38:06.633" Score="0" ViewCount="164" Body="&lt;p&gt;I am completely new to economics, and am looking at some old exam papers. The question is as following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;&lt;em&gt;In a normal marked, where there is a negative correlation between quantity and price, which of the following are true for elasticity of demand, marginal revenue, and total revenue?&lt;/em&gt;&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;The correct alternative was:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;d)&lt;/strong&gt; When the absolute value of elasticity is 1, the marginal revenue is 0, and total revenue is maximized &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;I was wondering:&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why is the total revenue maximized when marginal revenue is 0? I know that, usually, total revenue is maximized when marginal revenue = marginal cost. In this case, however, no information is given about the marginal cost, so it does not make sense to me that it should be 0. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, is the marginal revenue always 0, when elasticity is exactly equal to 1? How does that make sense?&lt;/p&gt;&#xA;" OwnerUserId="14037" LastEditorUserId="2776" LastEditDate="2017-07-28T08:50:20.420" LastActivityDate="2017-07-28T09:53:48.987" Title="How are elasticity of demand, marginal revenue, and total revenue connected?" Tags="&lt;microeconomics&gt;&lt;elasticity&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="17618" PostTypeId="2" ParentId="17617" CreationDate="2017-07-28T09:53:48.987" Score="1" Body="&lt;p&gt;Marginal cost is irrelevant to total revenue. It's relevant to profit, but not total revenue.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Total revenue is just price x quantity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Marginal revenue is a monotonic decreasing function. That is, as quantity increases, marginal revenue decreases. So, let's take the quantity Q to be the point at which marginal revenue is zero.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For quantities below Q, marginal revenue is positive, so total revenue increases with quantity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For quantities above Q, marginal revenue is negative, so total revenue decreases with quantity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence Q is the turning point of the curve: it is the point of maximum total revenue.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Elasticity of 1 means that a tiny % change, $\Delta$ in price in one direction (equivalent to multiplying price by $1+\Delta$),  will be met by a reciprocal proportional change in quantity in the other direction, equivalent to multipying it by $\frac{1}{1+\Delta}$: that's straight from the definition of elasticity. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So total revenue, the product of price and quantity, remains the same:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$(1+\Delta) P \times \frac{1}{(1+\Delta)} Q = P \times Q$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence marginal revenue always 0, when elasticity is exactly equal to 1.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2017-07-28T09:53:48.987" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17619" PostTypeId="2" ParentId="17562" CreationDate="2017-07-28T13:00:46.907" Score="1" Body="&lt;p&gt;The latest Freakonomics podcast topic &lt;a href=&quot;http://freakonomics.com/podcast/stupidest-money/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Stupidest money&lt;/a&gt; may shed some light. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I just quote part of the conversation from John Bogle:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The markets are highly efficient — although, importantly, not&#xA;  perfectly efficient. Sometimes they’re very efficient and sometimes&#xA;  they’re not. It’s hard for we poor souls on Earth to know which is&#xA;  which&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It is a gamble of randomness.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(update)&#xA;Extreme cases like Comcast and Enron show so call &quot;public offering&quot; are not immunized to information opacity and wrong doing. In addition, fake news, manipulation using various rumor mills or even human error may skew &quot;market efficiency&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In addition, so call &quot;market analytical tools&quot; are anything but hindsight self-fulfillment prophecy. Currently, there is little proof that so call market-analytical tools are able to produce reliable results when compare to solid information collected (e.g. whether the business is managed by competence hand ) &lt;/p&gt;&#xA;" OwnerUserId="11177" LastEditorUserId="4816" LastEditDate="2019-04-22T00:28:26.117" LastActivityDate="2019-04-22T00:28:26.117" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="17620" PostTypeId="1" CreationDate="2017-07-28T14:27:55.960" Score="1" ViewCount="55" Body="&lt;p&gt;Bank today issues multiple type of Credit Cards with different promotions linked to them. Any reason stopping a bank from issuing a single card with combined benefits/promotions, wouldn't that be more consumer friendly resulting more customers and spending? &lt;/p&gt;&#xA;" OwnerUserId="14038" LastEditorUserId="2776" LastEditDate="2017-09-15T05:40:59.637" LastActivityDate="2017-10-15T07:04:02.950" Title="Why a bank never combine all benefits/promotions and issue a single Credit Card" Tags="&lt;banking&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17621" PostTypeId="1" AcceptedAnswerId="17638" CreationDate="2017-07-28T15:13:55.403" Score="4" ViewCount="5161" Body="&lt;p&gt;Would revenues be a good proxy variable? If not, what are the other proxy variables that I can use?&lt;/p&gt;&#xA;" OwnerUserId="6486" LastActivityDate="2020-12-08T19:04:07.753" Title="How can I best estimate a company's contribution to GDP?" Tags="&lt;gdp&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="17623" PostTypeId="2" ParentId="17583" CreationDate="2017-07-29T01:34:14.203" Score="2" Body="&lt;p&gt;This is a rather big question, and I am only attempting to give a partial answer. (This is perhaps an extended comment.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Firstly, the belief that &quot;market crashes&quot; (in a wide sense) are due to speculative lending activity is an argument that overlaps Hyman Minsky's Financial Instability Hypothesis. This is described in various books of his, &quot;Stabilizing an Unstable Economy&quot; was reprinted a few years ago and is easy to get. Not everyone agrees with the theory, but I would look up the existing literature if you wanted to pursue this idea. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Minsky argued (I do not have any references handy, but I believe that &quot;Stabilizing an Unstable Economy&quot; would cover this topic) that there is a tendency for capitalist economies to drift towards speculative, destabilising activity. However, the memories of the Great Depression were strong in the 1950s, and speculation was frowned upon. As a result, the early post-war period saw strong growth and an absence of financial crises. However, memories faded, and there have been recurrent financial crises since the 1960s. (Minsky predicted this rising instability.) The 1950s experience showed that it was possible to avoid financial crises, yet at the same time, that period of stability ended.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, it is clear that not &lt;em&gt;all&lt;/em&gt; market crashes are &lt;em&gt;always&lt;/em&gt; associated with financial instability. As an extreme example, the stock and bond markets of countries that are about to be invaded typically crash. (I am aware of bond market defaults in response to invasion; I do not know what happened to the equity markets in those episodes.) We can imagine that various market shifts (new technologies, new resource discoveries) that could wipe out the market value of certain types of equities, which may or may not be a &quot;crash.&quot;&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2017-07-29T01:34:14.203" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17625" PostTypeId="1" AcceptedAnswerId="17627" CreationDate="2017-07-29T15:10:07.877" Score="2" ViewCount="4380" Body="&lt;p&gt;Our lecture defined a preference to be &lt;em&gt;homothetic&lt;/em&gt;, if the following is true:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$(x_1, x_2)  \thicksim (y_1, y_2) \Leftrightarrow (kx_1, kx_2) \thicksim (ky_1, ky_2)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Cobb-Douglas&lt;/em&gt; preferences can be displayed as some utility function of the following form: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$u(x_1, x_2) = x_1^a \cdot x_2^b$$&#xA;Therefore:&#xA;$$(x_1, x_2)  \thicksim (y_1, y_2) \\ &#xA;\Leftrightarrow x_1^a \cdot x_2^b = y_1^a \cdot y_2^b \\&#xA;\Leftrightarrow k^ax_1^a \cdot k^bx_2^b = k^ay_1^a \cdot k^by_2^b \\&#xA; \Leftrightarrow (kx_1, kx_2)  \thicksim (ky_1, ky_2)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With this argumentation the &lt;em&gt;Cobb-Douglas&lt;/em&gt; preferences &lt;strong&gt;should be homothetic&lt;/strong&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &lt;a href=&quot;https://en.wikipedia.org/wiki/Homothetic_preferences&quot; rel=&quot;nofollow noreferrer&quot;&gt;wikipedia article&lt;/a&gt; about &lt;em&gt;Homothetic preferences&lt;/em&gt; however defined a preference to be &lt;em&gt;homothetic&lt;/em&gt;, if they can be represented by a utility function  and the following is true:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ u(kx_1, kx_2) = k \cdot u(x_1, x_2)$$&#xA;And I am pretty sure, that this is &lt;strong&gt;not true&lt;/strong&gt; for &lt;em&gt;Cobb Douglas&lt;/em&gt; preferences:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ u(kx_1, kx_2) = (kx_1)^a (kx_2)^b = k^{a+b} x_1^a x_2^b \neq k \cdot u(x_1, x_2)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So what am I missing here? Are the definitions not equivalent? Did I calculate something wrong?&lt;/p&gt;&#xA;" OwnerUserId="13821" LastActivityDate="2019-07-31T06:25:35.317" Title="Are Cobb-Douglas preferences homothetic?" Tags="&lt;utility&gt;&lt;consumer-theory&gt;&lt;preferences&gt;&lt;cobb-douglas&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="17627" PostTypeId="2" ParentId="17625" CreationDate="2017-07-29T19:06:40.163" Score="3" Body="&lt;p&gt;Note that the &lt;a href=&quot;https://en.wikipedia.org/wiki/Homothetic_preferences&quot; rel=&quot;nofollow noreferrer&quot;&gt;wikipedia article&lt;/a&gt;  is very specific:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;[...] defined a preference to be &lt;em&gt;homothetic&lt;/em&gt;, if they &lt;strong&gt;CAN&lt;/strong&gt; be represented by &lt;strong&gt;A&lt;/strong&gt; utility function [...]&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;You chose a specific utility function to represent your Cobb-Douglas preferences. However there are infinitely many others. All monotonic transformations of your utility function represent the same preference. Take&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\hat{u}(x_1,x_2) = \left(u(x_1,x_2)\right)^{\frac{1}{a+b}} = x_1^{\frac{a}{a+b}} \cdot x_2^{\frac{b}{a+b}}.&#xA;$$&lt;/span&gt;&#xA;As &lt;span class=&quot;math-container&quot;&gt;$\hat{u}$&lt;/span&gt; is a monotonic transformation of &lt;span class=&quot;math-container&quot;&gt;$u$&lt;/span&gt;, it represents the same preference. It is straightforward to check that &lt;span class=&quot;math-container&quot;&gt;$\hat{u}$&lt;/span&gt; fullfils the condition set forth in the wiki article. So there is indeed such a utility function, that also represents the preference, hence the preference is homothetic. &lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2019-07-31T06:25:35.317" LastActivityDate="2019-07-31T06:25:35.317" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="17628" PostTypeId="1" CreationDate="2017-07-29T21:33:04.103" Score="0" ViewCount="118" Body="&lt;p&gt;If I calculate debt to gdp ratios, do I include the interest payment on the debt as part of the debt?&#xA;Is debt defined as a recursive sequence? &#xA;Does current debt= interest on debt + previous debt? &lt;/p&gt;&#xA;" OwnerUserId="14047" LastActivityDate="2017-07-30T01:59:59.897" Title="Does debt include interest owed?" Tags="&lt;interest-rate&gt;&lt;debt&gt;" AnswerCount="1" CommentCount="1" ClosedDate="2017-08-18T16:04:52.867" ContentLicense="CC BY-SA 3.0" />
  <row Id="17632" PostTypeId="2" ParentId="17628" CreationDate="2017-07-30T01:59:59.897" Score="3" Body="&lt;ol&gt;&#xA;&lt;li&gt;Depending on your data source, the debt level will either be the face value of debt, or its market value. The usual choice is face value. The debt level is a stock.&lt;/li&gt;&#xA;&lt;li&gt;Interest payments are an expense that will show up in the deficit, which is a flow variable.&lt;/li&gt;&#xA;&lt;li&gt;If nothing else happens, then new debt = old debt + interest. More generally, (new debt) = (old debt) + (fiscal deficit) is the simplified relationship. (Note that this will be an approximation to real world data, as it is possible for some transactions to affect the debt level, but are not part of the definition of the fiscal deficit, and vice-versa.)&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2017-07-30T01:59:59.897" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17634" PostTypeId="2" ParentId="14367" CreationDate="2017-07-30T07:26:16.950" Score="-1" Body="&lt;p&gt;I didn't go through all that thinking and analysis as I see in this post, but while watching Narcos (both seasons so far), listening to the narration it seems the drug business is really just a logistics business, the value lies in insuring that the end user gets the product all cost even in human casualties.Every possible cost is factored into that value, so if you the manufacturer control every aspect of the supply chain, including insurance on the product. You can have a mark up as high as you want 1000%, 5000% if you want. Target a market that has the cash to burn, literally like the US or some specific areas of it, it really is that simple to be extraordinarily wealthy.&lt;/p&gt;&#xA;" OwnerUserId="14053" LastActivityDate="2017-07-30T07:26:16.950" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17637" PostTypeId="1" CreationDate="2017-07-30T09:19:33.777" Score="1" ViewCount="2346" Body="&lt;p&gt;I came across this term in the following paragraph and I could not comprehend what it meant. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The new WPI series does not include any indirect taxes, which brings it conceptually closer to the producer prices and also removes fiscal impulse impact&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="14055" LastEditorUserId="2776" LastEditDate="2017-07-30T09:38:58.587" LastActivityDate="2017-10-17T17:19:20.557" Title="What is fiscal impulse?" Tags="&lt;fiscal-policy&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17638" PostTypeId="2" ParentId="17621" CreationDate="2017-07-30T10:24:48.573" Score="6" Body="&lt;p&gt;As a comment noted, value-added is the way to go. And how do we measure value added at the level of an individual firm? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\text{Value-added} = \text{Wages and Salaries incl. Insurance}+\text{Depreciation}+\text{Profits before Taxes}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;Wages and Salaries including social security fees&quot; is the reward of Labor, while &quot;Depreciation plus Profits before Taxes&quot; is the (gross) reward of Capital.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This makes sense because if one views GDP from the &quot;income&quot; angle, it goes to these two aggregates of productive inputs, &quot;Labor&quot; and &quot;Capital&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;All other expenses that appear in a company's Profit &amp;amp; Loss Statement are &quot;third-party costs&quot;, or value that other productive entities create.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Depending also on the jurisidiction, in most cases Labor costs, Depreciation and Profits before Taxes can be found as separate items in the financial statements of a company.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2017-07-30T18:03:56.360" LastActivityDate="2017-07-30T18:03:56.360" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="17640" PostTypeId="1" CreationDate="2017-07-30T13:58:51.383" Score="1" ViewCount="32" Body="&lt;p&gt;Developmental studies usually is field of reasearch whose object is developing countries and industrial policy studies similarly are attributed to the developing countries or the things of the past. But still I feel that issues researched by these branches of economics are becoming more and more relevant to the economics of developed countries:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;How to make economic more fair and more distributed when technology developments create technological unemployment, when businesses require and reward exceptional talent but the jobs for least educated or least talented is replaced by automation and artificial intelligence&lt;/li&gt;&#xA;&lt;li&gt;Automation and artificial intelligence create opportunities to relocate manufacturing from the offshore to the onshore, remove back in developed countries. What policy decision about allocation of education, infrastructure spending promotes such relocation, should this trend be supported by the general or local governments and how?&lt;/li&gt;&#xA;&lt;li&gt;Industrial landscape is changing in current world, e.g. Artificial Intelligence is emering and completely new factor of production (along capital and labour). How this trend should be supported and how this trend should be guided for the benefit of all. What resources and how should be reallocated to increase competitivenes in all the new fields of technology - robotics, AI, ubiquitous computing, etc. Some of the developed countries rely on the traditional industries and they need modernization as well.&lt;/li&gt;&#xA;&lt;li&gt;Many more question...&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;So - my question is - how economics and policy planning is responding to these trend. &lt;strong&gt;Are there research trends, topics, journals, important monographs with such perspective?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I feel that the current developments put the developed nations in the situation that is somehow similar to developing countries - in need to increase competitiveness and in need to correct social issues raised by unequal social development. So - these topics should be researched.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know that &lt;strong&gt;I have raised many different topics in my question, but my aim is not to receive separate answer on any of those topics. My aim is to get the name and references to the research trend which answers those questions.&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="5373" LastActivityDate="2017-07-30T17:46:24.973" Title="Developmental studies and industrial policy for the highly developed countries - research trends?" Tags="&lt;industrial-organisation&gt;&lt;development-economics&gt;&lt;development&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17641" PostTypeId="2" ParentId="17640" CreationDate="2017-07-30T16:56:28.743" Score="2" Body="&lt;p&gt;There is a lot of newish research on the adverse consequences of Globalisation and more generally De-industrialization on low skilled workers in developed economies. A good place to start is Autor, Dorn, Hanson in the AER 2013. David Autor has other interesting work on this topic as well as on automation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your questions have quite a normative ring to themselves, and it seems to me you already know what kind of answers you want. It is true that discussing the adverse effects of Globalisation or technological progress  on some people in rich countries has become a more active research topic. But I think most people are very still far from questioning free trade or technological progress as Pareto efficient. And I think the overwhelming majority of economists still thinks that industrial policy in a developed country is a silly idea. So I don't think you are going to find this big trend you are looking for.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, as a sidenote, even development economics has moved quite far from the kind of research that debated the industrial policy you have in mind. It's mostly about RCTs and institutions now.&lt;/p&gt;&#xA;" OwnerUserId="11216" LastEditorUserId="11216" LastEditDate="2017-07-30T17:46:24.973" LastActivityDate="2017-07-30T17:46:24.973" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="17644" PostTypeId="1" CreationDate="2017-07-31T12:35:30.627" Score="3" ViewCount="75" Body="&lt;p&gt;Lets say two players, $i=2$ compete in a standard prisoners dilemma game where the action space of each player $a_i \in A_i=\{C,D\}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let say the game is repeated $T$ times and all information of past histories is common knowledge.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;the strategy function for any player $i$ at time period $t$ is $$s_i^{t}:H_t \rightarrow A_i$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where the history set at time $t$ is $H_t=A^t=(\{C,D\} \times \{C,D\})^t$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence the strategy set $S_i$ of player $i$ for the &lt;em&gt;entire&lt;/em&gt; T-repetition game is the cartesian product&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$S_i={\sf X}^{t-1}_{t=1} A_i^{A^t}  $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Did I define the strategy set (above equation) of the player for the $T$ repetition game correctly? The reason why I ask if because lots of books define the strategy set differently, as the union of all histories mapped into the action space of the player, as such:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$S_i={\sf \cup}^{t-1}_{t=1} H_t\rightarrow A_i  $$&lt;/p&gt;&#xA;" OwnerUserId="14058" LastEditorUserId="1601" LastEditDate="2017-07-31T23:25:30.910" LastActivityDate="2017-08-01T07:38:14.767" Title="Game Theory: T-Fold Repetition Game" Tags="&lt;game-theory&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="17645" PostTypeId="1" AcceptedAnswerId="17674" CreationDate="2017-07-31T16:20:14.820" Score="3" ViewCount="130" Body="&lt;p&gt;In his book &lt;a href=&quot;http://www.cambridge.org/catalogue/catalogue.asp?isbn=0521675731&quot; rel=&quot;nofollow noreferrer&quot;&gt;&amp;quot;Patterns of Speculation: A Study in Observational Econophysics&amp;quot;(2002)&lt;/a&gt; Bertrand Roehner makes a bold assertion:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Physical journals welcome all kinds of experimental observations, especially if they are puzzling and cannot be explained by existing theories. Recent illustrations are the numerous papers about avalanches in sandpiles. Economic journals, on the contrary, are very &lt;strong&gt;reluctant to publish empirical observations, especially when they have no clear interpretation within the existing theoretical framework.&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;p&gt;Another feature of great importance is the small volume of economic journals:&#xA;the total number of pages published annually in physical journals is probably of the order of 10–20 times larger than for economic journals. As a result the acceptance ratios for papers in economic journals are between 5 percent and 25 percent, which in turn &lt;strong&gt;induces authors to write on the most fashionable topics in the hope of raising the interest of referees, rather than to pursue an original and consistent research project.&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Was he right? Has the situation changed since 2002?  Are there economic journals which are publishing puzzling empirical observations, i.e. those observations which have no clear interpretation within the existing theoretical framework?&lt;/p&gt;&#xA;" OwnerUserId="14062" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2017-08-03T11:41:30.600" Title="Are there economic journals which are keen to publish puzzling empirical observations?" Tags="&lt;empirical-evidence&gt;&lt;empirical-methods&gt;" AnswerCount="2" CommentCount="10" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17646" PostTypeId="1" CreationDate="2017-07-31T16:47:23.643" Score="0" ViewCount="56" Body="&lt;p&gt;Recently the Nifty crossed the 10,000 mark for the first time. At the same time inflation in India is falling. My question is whether the fall in inflation in India one of the reasons for the Indian stock market doing well?&lt;/p&gt;&#xA;" OwnerUserId="13876" LastActivityDate="2017-09-01T11:05:19.263" Title="Is falling inflation in India one of the reasons for the Nifty crossing the 10,000 points mark?" Tags="&lt;stock-market&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17647" PostTypeId="2" ParentId="17645" CreationDate="2017-07-31T18:42:32.430" Score="1" Body="&lt;p&gt;Was he right? No.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Has the situation changed since 2002? Yes, there are lots more journals, and much higher diversity of publishing. Sadly, that also means there are also a lot more venues that publish at the bottom of the quality scale: one even shares a name with you.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are there decent economic journals which are keen to publish puzzling empirical observations? No, generally they'll look for something well-written, novel, intelligent, and within the journal's scope. Just being a puzzling empirical observation simply isn't enough for any decent venue. You'll want a blog for that.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for a slice of historical publishing of puzzling empirical observations, why not try a &lt;a href=&quot;https://scholar.google.co.uk/scholar?q=&amp;quot;productivity+puzzle&amp;quot;&amp;amp;btnG=&amp;amp;hl=en&quot; rel=&quot;nofollow noreferrer&quot;&gt;Google Scholar search for &quot;productivity puzzle&quot;&lt;/a&gt;?&lt;/p&gt;&#xA;" OwnerUserId="44" LastEditorUserId="44" LastEditDate="2017-08-03T04:32:23.250" LastActivityDate="2017-08-03T04:32:23.250" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="17648" PostTypeId="2" ParentId="17501" CreationDate="2017-07-31T20:03:31.020" Score="4" Body="&lt;p&gt;The question is broad, but I believe there is plenty of literature that defines this concept in similarly broad terms.&#xA;The following is adapted from the Wikipedia on &lt;a href=&quot;https://en.wikipedia.org/wiki/Pareto_efficiency&quot; rel=&quot;nofollow noreferrer&quot;&gt;Pareto Efficiency&lt;/a&gt;,&#xA;which is the mathematical basis of the &lt;a href=&quot;https://en.wikipedia.org/wiki/Production%E2%80%93possibility_frontier&quot; rel=&quot;nofollow noreferrer&quot;&gt;Production Possibilities Frontier.&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There may be better definitions out there, but this one should probably work in a lot of cases:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &lt;em&gt;Production Possibilities Frontier&lt;/em&gt;, $P(Y)$, may be more formally described as follows. Consider a system with function $f: \mathbb{R}^n \rightarrow \mathbb{R}^m$, where $X$ is a compact space of feasible decisions (including allocations of time and endowment goods) in the metric space $\mathbb{R}^n$, and $Y$ is the feasible set of criterion vectors (say, final goods and services) in $\mathbb{R}^m$, such that $Y = \{ y \in \mathbb{R}^m:\; y = f(x), x \in X\;\}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We assume that the preferred directions of criteria values are known so that more of any good in $Y$ is better. A point $y^{\prime\prime} \in \mathbb{R}^m$ strictly dominates another point $y^{\prime} \in \mathbb{R}^m$, written as $y^{\prime\prime} &amp;gt; y^{\prime}$, means that for each element index $i$, $y''_i \geq y'_i$ and there is at least one element $j$ such that $y_j'' &amp;gt; y_j'$. The Pareto frontier is thus written as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$P(Y) = \{ y^\prime \in Y: \; \{y^{\prime\prime} \in Y:\; y^{\prime\prime} &amp;gt; y^\prime, y^{\prime\prime} \neq y^\prime \; \} = \emptyset \}. $&lt;/p&gt;&#xA;" OwnerUserId="59" LastActivityDate="2017-07-31T20:03:31.020" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17649" PostTypeId="2" ParentId="17646" CreationDate="2017-07-31T20:54:43.360" Score="0" Body="&lt;p&gt;The &lt;a href=&quot;http://economictimes.indiatimes.com/markets/stocks/news/what-a-wednesday-nifty-closes-above-10000-mark-for-the-fist-time-ever-sensex-all-time-high/articleshow/59772462.cms&quot; rel=&quot;nofollow noreferrer&quot;&gt;indiatimes.com article you linked over on Skeptics &lt;/a&gt; lists inflation among a list of causes.  That article claims that:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Investors are happy about tax reform&lt;/li&gt;&#xA;&lt;li&gt;Small investors are investing more&lt;/li&gt;&#xA;&lt;li&gt;Liquidity from institutional investors both domestic and foreign is high&lt;/li&gt;&#xA;&lt;li&gt;Consumer inflation is low (1.54 percent, the lowest since 2012)&lt;/li&gt;&#xA;&lt;li&gt;Expectations of interest rate cuts (apparently the market expects a rate cut in August 1-2 monetary policy review)&lt;/li&gt;&#xA;&lt;li&gt;And a possibly politically biased (I have no basis to check this) - the article claims that the victory of BJP also helped the rally&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;If the article is correct, yes, one of the causes is the low level of consumer inflation.&lt;/p&gt;&#xA;" OwnerUserId="13508" LastActivityDate="2017-07-31T20:54:43.360" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17650" PostTypeId="2" ParentId="17644" CreationDate="2017-07-31T23:27:39.863" Score="3" Body="&lt;p&gt;You mostly got it, there are some minor mistakes.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;You cannot have the moving index $t$ of the Cartesian product in the superscript of said product&#xA;$$S_i={\sf X}^{t-1}_{t=1} A_i^{A^t}.$$&lt;/li&gt;&#xA;&lt;li&gt;At the start there have been no moves, so in round 1 you should map the empty history $H_0 = A^0$ to $A_i$, not $H_1 = A^1$ as you seem to have done.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Considering these I think the strategy set of $i$ is&#xA;$$&#xA;S_i={\sf X}^{T-1}_{t=0} A_i^{A^t}.&#xA;$$&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2017-08-01T07:38:14.767" LastActivityDate="2017-08-01T07:38:14.767" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17652" PostTypeId="1" AcceptedAnswerId="17665" CreationDate="2017-08-01T06:05:50.577" Score="1" ViewCount="754" Body="&lt;p&gt;Hello, all. So I am trying to gain a thorough understanding of why the Fed, or any other Central Bank, needs to keep pumping money into the economy as it grows.  My question is not asking why &lt;strong&gt;inflation&lt;/strong&gt; happens, but rather focuses on the money supply. I grasp how increasing the money supply &lt;em&gt;tends&lt;/em&gt; to increase inflation, and how, on the other hand, the Real GDP increasing &lt;em&gt;tends&lt;/em&gt; to decrease inflation (all this is bundled up in the MV = PY equation) and other higher-level economic concepts, but &lt;strong&gt;why&lt;/strong&gt; does the money supply need to increase at all in the first place? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am essentially asking what would be wrong with keeping it the same as the economy grows or contracts. &#xA;The colorful analogy found &lt;a href=&quot;http://www.philosophicaleconomics.com/hard-money-deflation-or-economic-stagnation/&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; helped me understand it a bit more, but I am still thoroughly confused. &lt;/p&gt;&#xA;" OwnerUserId="10446" LastEditorUserId="10446" LastEditDate="2017-08-01T19:24:41.667" LastActivityDate="2017-08-03T22:03:51.383" Title="Basic Reason of Why the Money Supply Needs to Increase?" Tags="&lt;inflation&gt;&lt;money-supply&gt;&lt;federal-reserve&gt;" AnswerCount="3" CommentCount="9" ClosedDate="2017-08-05T11:06:29.633" ContentLicense="CC BY-SA 3.0" />
  <row Id="17653" PostTypeId="2" ParentId="17612" CreationDate="2017-08-01T07:21:36.477" Score="2" Body="&lt;p&gt;I feel there's some technical confusion in the original question regarding &quot;Instant Settlement&quot; and BitCoin that's worth clarifying.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Traditional short-selling doesn't occur because of the lack of instant settlement (or the lack there of); it occurs when I create a contractual construct where I agree to enter into a transaction at some point in the future to transfer ownership of something of value to a third party, where I don't currently own the 'something' I am selling.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As an example &#xA;- I agree to sell you 1 BitCoin for $4,000 in one month. Whether I buy that BitCoin today or not is immaterial - that's purely down to how I choose to hedge my position (or not) &#xA;- In one month , I will need a BitCoin at that point to transfer to you (with immediate transfer at time of settlement).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When I come to settle;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;If the price of BitCoin is above USD 4,000 (say, USD 4,500), I'm out of the money and make a loss (as I either am forced to sell a BitCoin I already own for USD 4,000 when I could have sold it for USD 4,500, or I need to buy a BitCoin for USD 4,500 and immediately sell it for USD 4,000 - either way I lose)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;If the price of BitCoin is below USD 4,000 (say, USD 3,500) then I'm in the money and make a profit (as I either sell a BitCoin I already own for USD 4,000 whereas it's only worth USD 3,500 in the market, or I buy a BitCoin for USD3,500 from the market and immediately sell it for USD 4,000)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The key here is that it's the transfer at time of settlement that is instantaneous with BitCoin, but you and I are still contractually free to set the price we will pay at any amount at any time in the future.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that with the potential for smart contracts built into Ethereum and Hyperledger, it's entirely possible in theory to create a smart contract that does exactly the above, committing now to a short sell at some point in the future.&lt;/p&gt;&#xA;" OwnerUserId="14067" LastActivityDate="2017-08-01T07:21:36.477" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17654" PostTypeId="1" AcceptedAnswerId="17700" CreationDate="2017-08-01T10:10:02.237" Score="-1" ViewCount="630" Body="&lt;p&gt;I am really struggling with the following question: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Question:&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A company produces a product that they sell in two different countries. Because of transport costs, customs etc. it is not profitable for someone to buy the product in one country, to sell it in the other. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The demand in one country (country A), is given by P&lt;sub&gt;A&lt;/sub&gt; = 1000 - Q&lt;sub&gt;A&lt;/sub&gt;, where P&lt;sub&gt;A&lt;/sub&gt; is the price, and Q&lt;sub&gt;A&lt;/sub&gt; is the quantity. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the other country (country B) demand is given by P&lt;sub&gt;B&lt;/sub&gt; = 2000 - 0.2Q&lt;sub&gt;b&lt;/sub&gt;. For the company, the cost per unit sold is the same in both markets. The companies cost can be expressed as: TC(Q) = 100(Q&lt;sub&gt;A&lt;/sub&gt; + Q&lt;sub&gt;B&lt;/sub&gt;) + 1 000 000. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is the optimal profit for the company?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The answer is apparently 3 715 000, but I am not sure why. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My reasoning so far:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know that profit is equal to TR(Q) - TC(Q), and optimal profit can probably be found by taking the derivative of the expression, and setting the derivative to 0. We are given TC(Q), from the expression above, but I am not sure how to find TR(Q). Also, I am not sure if I am on the right track at all. I also don't understand why the first piece of information (that it is not profitable to buy the product in one country, and sell it in the other) was given. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any hints, or more detailed solutions, would be greatly appreciated! &lt;/p&gt;&#xA;" OwnerUserId="14037" LastEditorUserId="2776" LastEditDate="2017-08-01T15:38:53.497" LastActivityDate="2017-08-04T15:05:10.520" Title="What is optimal profit for this company?" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="0" ClosedDate="2017-08-23T16:27:39.463" ContentLicense="CC BY-SA 3.0" />
  <row Id="17655" PostTypeId="1" CreationDate="2017-08-01T10:40:59.760" Score="1" ViewCount="443" Body="&lt;p&gt;How do the role of relative prices affect how resources are allocated? And as a result, how does this effect living standards?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Would it be something along the lines of how changes of relative prices affect &quot;what and how much&quot; to produce, &quot;how&quot; goods are produced and &quot;whom&quot; to produce for?&lt;/p&gt;&#xA;" OwnerUserId="13613" LastEditorUserId="2776" LastEditDate="2017-08-01T15:51:51.113" LastActivityDate="2017-08-01T15:51:51.113" Title="The role of relative prices in markets on the allocation of resources and the effect on living standards" Tags="&lt;macroeconomics&gt;&lt;welfare-economics&gt;" AnswerCount="0" CommentCount="1" FavoriteCount="1" ClosedDate="2017-08-04T09:10:40.710" ContentLicense="CC BY-SA 3.0" />
  <row Id="17657" PostTypeId="2" ParentId="17612" CreationDate="2017-08-01T15:06:40.867" Score="0" Body="&lt;p&gt;I think you are looking at the wrong direction. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Short selling only happens when agents in between guaranteed to be paid, where the commodity values are within a controllable margin. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;1 Bitcoins can fluctuate more than 30% in a day, and the real world currency is subject to the bitcoin merchant payout cut.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Due to bitcoin cartel like exchange medium, there is no incentive (and high risk) to perform short selling. &lt;/p&gt;&#xA;" OwnerUserId="11177" LastActivityDate="2017-08-01T15:06:40.867" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17658" PostTypeId="2" ParentId="17646" CreationDate="2017-08-01T15:23:20.893" Score="1" Body="&lt;p&gt;Back to economy basic 101: &#xA;&lt;strong&gt;Inflation is due to excessive cash chasing limited goods.&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So to relieve monetary inflation, an institution can only do either or all of this: &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Slow down money printing&lt;/li&gt;&#xA;&lt;li&gt;Find ways to produces goods/needs/services that absorb the money &lt;/li&gt;&#xA;&lt;li&gt;Enact policies to make people stash the excess cash, e.g. high-interest long term bonds, tax incentive on saving. &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Other claims just typical media noise. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So &lt;strong&gt;&quot;Is falling inflation in India one of the reasons for the Nifty crossing the 10,000 points mark?&quot;&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The answer is No.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;No government can uplift market speculation by reducing &lt;strong&gt;money&lt;/strong&gt;. The good news is, India stock market cross the 10k mark is because more hot money(inflated money) is entering the stock market.  When excessive cash is snapped up in the stock market, there is little room for the cash to &quot;chase&quot; for the factors that cause goods price hikes, e.g. rents, raw material. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, in a country with poor institutional control, stock rallies are extremely dangerous. Once the speculator cash out their profits from stock market, they may switch attention to other more profitable speculation, e.g. real estate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Unless the country production sustains continuous growth (rule no 2) to absorb the overflow cash, otherwise you will see a repetition of 1997 Asia financial crisis. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Perhaps OP should ask, can Nifty dodge the fake of (East) Asia financial crisis and take the path of China (which thousands billions export surplus offset the inflation).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(update)&#xA;As in economics study, one must be very careful to distinguish between &lt;strong&gt;noise&lt;/strong&gt; and &lt;strong&gt;facts&lt;/strong&gt;. IMHO, &lt;strong&gt;all market analytical tools are noise, not facts&lt;/strong&gt;.  That's why real investor like Warren Buffet simply ignore &quot;market analytical tools&quot; and went straight to costly and time-consuming facts digging. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To learn the bubble is outside the scope of the question. But just a hint, IMHO, index stocks are the best anchor to check against bubbles.  &lt;/p&gt;&#xA;" OwnerUserId="11177" LastEditorUserId="11177" LastEditDate="2017-09-01T11:05:19.263" LastActivityDate="2017-09-01T11:05:19.263" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="17659" PostTypeId="1" CreationDate="2017-08-01T17:11:41.627" Score="1" ViewCount="75" Body="&lt;p&gt;I am currently undergoing a study on economic growth in 11 countries: Bangladesh, Egypt, Indonesia, Iran, Mexico, Philippines, Pakistan, South Korea, Turkey and Vietnam. I plan to use panel regression. I plan to follow an analysis such as Islam (1995) and Barro (1991) with an augmented Solow model with human capital. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As my human capital variable I am using the &quot;Index of human capital per person&quot; (based on years of schooling and returns to education), from the Penn-world tables. My question is, how would I go about finding the savings ratio $S_h$ i.e. the investment in human capital from the above index?&lt;/p&gt;&#xA;" OwnerUserId="13852" LastEditorUserId="2776" LastEditDate="2017-08-02T06:22:56.213" LastActivityDate="2020-08-16T01:00:35.083" Title="Human capital for under developed countries" Tags="&lt;economic-growth&gt;&lt;human-capital&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17662" PostTypeId="1" CreationDate="2017-08-01T20:03:32.047" Score="1" ViewCount="16" Body="&lt;p&gt;I am trying to distribute inflation in a hierarchical model.  In both of the following two scenarios, the &lt;a href=&quot;https://en.wikipedia.org/wiki/Price_index#Paasche_and_Laspeyres_price_indices&quot; rel=&quot;nofollow noreferrer&quot;&gt;Laspeyres' Index&lt;/a&gt; over the entire data set is 1.8; However, in the first scenario, the inflation is caused by a rise in prices in Florida.  i.e. the inflation is 1.8, and is caused by a change in relative prices between states.  In the second scenario, the inflation is caused by a rise in the price of Juice everywhere.  i.e. the inflation is 1.8 and is caused by a change in relative prices between products.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would like a metric that captures this intuition in a general scenario that gives a ratio (or something like it) of inflation-causality of price redistribution between states and price redistribution between products.  I have not been able to find anything in the literature, and I am having difficulty diving anything.  Any direction is appreciated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(note that the quantity at time 1 doesn't enter into the calculation, it's just displayed for completeness)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;SCENARIO 1&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;+---------+-------+-------------+--+-------------+&#xA;|         |       | time 0      |  | time 1      |&#xA;+---------+-------+-------------+--+-------------+&#xA;|         |       | price | qty |  | price | qty |&#xA;+---------+-------+-------+-----+--+-------+-----+&#xA;| Florida | Nuts  | 1     | 10  |  | 2.6   | 5   |&#xA;+         +-------+-------+-----+--+-------+-----+&#xA;|         | Juice | 2     | 20  |  | 5.2   | 40  |&#xA;+---------+-------+-------+-----+--+-------+-----+&#xA;|         |       |       |     |  |       |     |&#xA;+---------+-------+-------+-----+--+-------+-----+&#xA;| Alabama | Nuts  | 1     | 10  |  | 1     | 5   |&#xA;+         +-------+-------+-----+--+-------+-----+&#xA;|         | Juice | 2     | 20  |  | 2     | 40  |&#xA;+---------+-------+-------+-----+--+-------+-----+&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;SCENARIO 2&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;+---------+-------+-------------+--+-------------+&#xA;|         |       | time 0      |  | time 1      |&#xA;+---------+-------+-------------+--+-------------+&#xA;|         |       | price | qty |  | price | qty |&#xA;+---------+-------+-------+-----+--+-------+-----+&#xA;| Florida | Nuts  | 1     | 10  |  | 1     | 5   |&#xA;+         +-------+-------+-----+--+-------+-----+&#xA;|         | Juice | 2     | 20  |  | 4     | 40  |&#xA;+---------+-------+-------+-----+--+-------+-----+&#xA;|         |       |       |     |  |       |     |&#xA;+---------+-------+-------+-----+--+-------+-----+&#xA;| Alabama | Nuts  | 1     | 10  |  | 1     | 5   |&#xA;+         +-------+-------+-----+--+-------+-----+&#xA;|         | Juice | 2     | 20  |  | 4     | 40  |&#xA;+---------+-------+-------+-----+--+-------+-----+&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;" OwnerUserId="14072" LastEditorUserId="1601" LastEditDate="2017-08-01T20:57:36.680" LastActivityDate="2017-08-01T20:57:36.680" Title="Distributing inflation in a hierarchical model" Tags="&lt;reference-request&gt;&lt;price-index&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17663" PostTypeId="2" ParentId="17652" CreationDate="2017-08-02T00:01:38.760" Score="1" Body="&lt;p&gt;Actually, the expression &lt;em&gt;more money supply&lt;/em&gt; is not clarifying at all (i) which effect is desired and (ii) what really occurs, whence your (really natural) question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is implicit behind this expression is that commercial banks will have an easier access to (re-)financing. If commercial banks play their role of &lt;a href=&quot;https://en.wikipedia.org/wiki/Money_multiplier&quot; rel=&quot;nofollow noreferrer&quot;&gt;Money multiplier&lt;/a&gt; -- which is not that obvious since they may prefer to clean their balance sheets --, they will basically be more prompt to grant credits. Put differently and using an abusive but pedagogical term: they will be psychologically more prompt to &lt;em&gt;waste&lt;/em&gt; money, and thus to stimulate demands here and there. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since growth is very often conceived as being &lt;a href=&quot;https://en.m.wikipedia.org/wiki/Demand-led_growth&quot; rel=&quot;nofollow noreferrer&quot;&gt;demand led&lt;/a&gt;, more demands (of goods or whatever) at a constant level of supply (of those goods or whatever) in turn means inflation, until levels of supply, &lt;em&gt;here and there&lt;/em&gt;, adjust and create jobs, generate dividends, etc...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To conclude and summarize&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;&lt;em&gt;Basic&lt;/em&gt;&lt;/strong&gt; Reason of Why the Money Supply Needs to Increase?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Because one needs commercial banks to be more relax and play their role.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;what would be wrong with keeping it the same as the economy grows [...]&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The economy cannot &lt;em&gt;really&lt;/em&gt; grows without &lt;a href=&quot;https://en.wikipedia.org/wiki/Leverage_(finance)&quot; rel=&quot;nofollow noreferrer&quot;&gt;leverage&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;[...] or contracts&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Economic_bubble&quot; rel=&quot;nofollow noreferrer&quot;&gt;Bubbles&lt;/a&gt; may form and explode sooner or later in this case, which is nothing desirable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Adjusting the &lt;em&gt;money supply&lt;/em&gt; is a difficult balancing exercise for central banks.&lt;/p&gt;&#xA;" OwnerUserId="10247" LastEditorUserId="10247" LastEditDate="2017-08-02T12:09:17.013" LastActivityDate="2017-08-02T12:09:17.013" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17664" PostTypeId="1" AcceptedAnswerId="17669" CreationDate="2017-08-02T02:16:45.650" Score="1" ViewCount="77" Body="&lt;p&gt;Even though the rate of growth in the monetary base decelerated — and the money multiplier decreased for the most part — from 1993-96 in the United States, the growth rate of the M2 money stock still progressively sped up. How is this possible?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/o11JC.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/QujhK.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/mET2z.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Reference to second graph:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.alt-m.org/2016/07/21/why-the-money-multiplier-remains-so-low/&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.alt-m.org/2016/07/21/why-the-money-multiplier-remains-so-low/&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="14013" LastActivityDate="2017-08-03T13:12:08.223" Title="Why did the rate of money supply growth accelerate from 1993-96 in the United States?" Tags="&lt;monetary-policy&gt;&lt;money-supply&gt;&lt;federal-reserve&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17665" PostTypeId="2" ParentId="17652" CreationDate="2017-08-02T02:32:07.890" Score="1" Body="&lt;p&gt;I would highlight this article on money creation in the modern economy (by researchers at the Bank of England) - &lt;a href=&quot;http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;(link to article)&lt;/a&gt;. A key observation is that modern central banks do not directly determine the money supply, they set the rate of interest. (The policy of Quantitative Easing complicates matters, but what is happening there is that the monetary base is larger tha usual, but the central bank cannot set it below an effective minimum.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This means that the central bank is not really determining &quot;the money supply&quot;, but rather reacting to the private sector's demand for money at the target interest rate. In other words, the central bank has no ability to keep &quot;the money supply&quot; at a constant level. (The fact that the &quot;money supply&quot; is a vague term does not help. Is it M0?) It would have to move around the interest rate in a fairly erratic fashion in order to attempt to keep the money supply constant. (This was experienced during the money growth targeting experiments in the 1970s and 1980s.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The money supply does not have stable short-term relationship to other economic variables. Even if it were possible to keep it constant, what objective would that achieve? Other variables would be moving around, in probably unwelcome directions. Instead, developed country central banks attempt to keep an economic variable that people care about - inflation - near a target level. (Other targets include fixing the price of the currency versus a foreign currency, or even gold.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From a theoretical point of view, if money velocity were stable, nominal GDP would be stable if the money supply did not grow. Since we expect real GDP to grow as a result of productivity growth and population growth (in most countries), the implication is that there would be a steady deflation in the price level. This would imply that workers would need to get annual wage decreases, which is a situation that is psychologically unwelcome. As a result, there is a bias towards a positive rate of inflation. This implies growth in the money supply (assuming constant velocity).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A psychological bias against deflation is not just an arbitrary preference; in real-world data, wage decreases are avoided. (Sorry, I do not have a reference; I discuss references later.) Therefore, if policy attempts to force wage decreases, the result is that workers are laid of instead. Output would fall, that is, there would be a recession. This is a suboptimal outcome from almost any standpoint. An additional real-world issue is that debt contracts are entered into with the implicit assumption of positive earnings growth. Deflation leads to mass defaults, and recession.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is a large literature on the optimal level of inflation, which was a hot topic when central banks entered into the inflation targeting. The reader should be able to find dozens of articles in this vein either with web searches or at the websites of inflation targeting central banks. I found this survey paper from the Bank of Canada published in 2015, which I assume would be authoritative (I have not read it). &lt;a href=&quot;http://www.bankofcanada.ca/wp-content/uploads/2015/10/dp2015-8.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;(Link to survey paper.)&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="12891" LastEditorUserId="12891" LastEditDate="2017-08-03T22:03:51.383" LastActivityDate="2017-08-03T22:03:51.383" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="17667" PostTypeId="1" CreationDate="2017-08-02T09:22:11.873" Score="3" ViewCount="164" Body="&lt;p&gt;To illustrate the concept of fungibility, Deirdre McCloskey (1985, p. 7, &lt;a href=&quot;http://www.deirdremccloskey.com/docs/price.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;PDF&lt;/a&gt;) gives an example from basketball. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;She claims that the last two points scored are no more important than any two points scored earlier:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The University of Iowa beats the University of Michigan for the Big&#xA;  Ten basketball championship by two points in double overtime, 70 to&#xA;  68. Whose two points won the game? One's first thought is to look to the last points made. But points are fungible. Any two points can be&#xA;  viewed as the crucial points that make the difference between a score&#xA;  of 68 to 68 and 70 to 68. The shot that Weisskoff made in the first 5&#xA;  minutes of play counts as much as the last. For the purpose of making&#xA;  the score what it is, there is effectively no last, no crucial, point.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Is this analysis correct? And if not, in what sense are the last two points more important than any two points scored earlier?&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Two examples to illustrate the connection here to economics:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Example 1.&lt;/strong&gt; Two politicians A and B are running for village mayor. The electoral process in this village is unusual — the two politicians have 12 hours to take turns going door-to-door soliciting votes. The end result is that politician A beats politician B by 35 votes to 34.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Question: Is the first vote scooped up by politician A just as important as the last vote?&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Example 2.&lt;/strong&gt; Two Girl Scouts C and D go door-to-door trying to sell boxes of Girl Scout cookies. The Girl Scout who sells the most wins Girl Scout of the Month. The final score is 35 to 34, with Girl Scout C winning by one box. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Question: Is the first box sold by Girl Scout C just as important as the last box sold?&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastEditorDisplayName="user18" LastEditDate="2019-04-25T00:54:36.013" LastActivityDate="2019-04-25T00:54:36.013" Title="McCloskey's example of fungibility in basketball" Tags="&lt;philosophy-of-economics&gt;" AnswerCount="2" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="17668" PostTypeId="2" ParentId="17659" CreationDate="2017-08-02T10:16:19.263" Score="3" Body="&lt;p&gt;If you multiply the index by the population size (or the quantity used to compute the &lt;em&gt;per person&lt;/em&gt; index), you get an index of the &lt;strong&gt;stock of human capital.&lt;/strong&gt; For example, if for a given country the index is $h_t$ and population is $N_t$, then the stock is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ H_t = h_t \times N_t $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, by the definition a stock follows an accumulation rule, just as physical capital:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ H_{t+1} = H_t(1+d_t) + I_t $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $d_t$ is the &quot;depreciation&quot; of HK (e.g. because of death or skill obsolescence) and $I_t$ is &lt;strong&gt;gross&lt;/strong&gt; investment in HK. Since you probably do not have data on depreciation (which I imagine is very difficult to compute), you can only calculate &lt;strong&gt;net&lt;/strong&gt; investment, which is equivalent to net savings by definition:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ S^h_t = H_{t+1} - H_t $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, to compute the savings &lt;strong&gt;rate&lt;/strong&gt;, you need to divide this by a measure of GDP. &lt;strong&gt;However, these need to be measured in the same units&lt;/strong&gt;. Therefore, you need to transform $H_t$ or $S^h_t$ into &lt;strong&gt;monetary units&lt;/strong&gt;. For this you need something like the average price of human capital for every period, which I have never seen, and seems not available in Penn-world tables.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-08-02T10:24:31.563" LastActivityDate="2017-08-02T10:24:31.563" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17669" PostTypeId="2" ParentId="17664" CreationDate="2017-08-02T11:32:51.140" Score="0" Body="&lt;p&gt;So long as the growth rate of the monetary base is greater than the growth rate of M2, the ratio of M2 over the base (velocity) will decrease. (The numerator of M2/MB is growing less slowly than the denominator.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That is what happened during (most of) the period shown. It was only in 1996 that M2 was growing faster than the base, which would increase velocity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your question is effectively attempting to characterise the second time derivative (acceleration) of M2 in terms of the acceleration of the monetary base and velocity. &lt;a href=&quot;https://economics.stackexchange.com/questions/17677/other-factors-that-affect-the-supply-of-money/17687#17687&quot;&gt;In my answer to another question, I give the relationship for acceleration in the money supply, and it is related to the acceleration in the monetary base and the acceleration of velocity.&lt;/a&gt; The data shows the &lt;em&gt;level&lt;/em&gt; of velocity, which is not enough to characterise the relationship.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastEditorUserId="12891" LastEditDate="2017-08-03T13:12:08.223" LastActivityDate="2017-08-03T13:12:08.223" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17670" PostTypeId="2" ParentId="17652" CreationDate="2017-08-02T11:45:58.107" Score="1" Body="&lt;p&gt;Just to complement @Kanak answer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The major roles of finance industries are providing financing facilities, instead of involving in the creation of various speculative derivatives and masquerade them as &quot;investment&quot; product and call it &quot;diversify from the financing business&quot;. When shit hits the fans, e.g. a shift of paradigm due to policy changes, technology change, mentality change, such none-core &quot;diversify profile&quot; will crash.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Take Germany financial industries as an example, there is a huge number of Genossenschaftbank that provide credit to the local industry, rather than involving in various &quot;diversification&quot;, they survive most of the crisis, few need to call out for &quot;more money supply&quot;.   All funds managers view the credit unions like Genossenschaftbank as &quot;conservative&quot;, because they have little investor pressure to make huge returns. As long as a financial institution not fooling around with &quot;huge returns&quot;, you will not see high underwriting risk(nonperforming loans) coming from such institutions. &lt;/p&gt;&#xA;" OwnerUserId="11177" LastEditorUserId="11177" LastEditDate="2017-08-02T12:58:02.570" LastActivityDate="2017-08-02T12:58:02.570" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="17671" PostTypeId="2" ParentId="17667" CreationDate="2017-08-02T11:56:57.947" Score="2" Body="&lt;p&gt;In economics and finance, fungibility means that we cannot distinguish between instruments. For example, we normally do not care whether we have one \$20 bill or two \$10 bills.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;McCloskey's example is poor. In one sense, it is correct: when points are scored do not matter in the final tally. However, it is psychologically incorrect when applied to sports.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, in ice hockey, it is somewhat common to pull your goalie if you are behind at the very end of the game. You have a slightly greater chance of scoring since you have an extra attacker, but it is very easy for the other team to score if they get control of the puck. If you were leading 1-0, and then scored a second goal because the other team pulled their goalie, no sensible hockey fan would weigh the second goal as much as the first. The game was already effectively won by the earlier goal, and the second was just a statistic.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;More generally, a team's effort during the game probably reflects the score. Piling up points early may be dangerous, as the team will then relax and sit on its lead. Therefore, later points are effectively more valuable. In order for McCloskey to be correct, we have to believe that the score of the game does not influence behaviour.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These problems do not crop up when using \$10 bills in your example.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastEditorUserId="12891" LastEditDate="2017-08-02T12:04:00.413" LastActivityDate="2017-08-02T12:04:00.413" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="17672" PostTypeId="2" ParentId="17667" CreationDate="2017-08-02T17:07:20.960" Score="2" Body="&lt;p&gt;First, quoting from wikipedia/Mariam-webster&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;Fungibility is the property of a good or a commodity whose individual&#xA;  units are capable of mutual substitution (i.e., interchangeability).&#xA;  That is, it is the property of essences or goods which are &quot;capable of&#xA;  being substituted in place of one another&quot;.&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Let's move now to McCloskey's example:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Ex post&lt;/em&gt;, It would appear that &quot;points are fungible&quot; &lt;em&gt;as regards the question &quot;which points won the game&quot;&lt;/em&gt;: Once the game is over, we have a passed, static situation of one team &quot;having produced&quot; 68 fungible units of the good, and the other team having produced 70 fungible units of the good.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;But what happens when the game is ongoing?&lt;/strong&gt; I.e., A dynamic situation? Here, not all points are the same, not all are as easy (&quot;costly&quot;, &quot;of the same value&quot;), the sequence of scoring and the ups and downs of the score are important (most probably for behavioral reasons, and so squarely in the land of economics also, since many games are professional and material rewards are involved), there may be autocorrelation, or cross correlation, or &lt;em&gt;forward causation&lt;/em&gt; or all of them... (Remember a &quot;good&quot; is also characterized by its place in time and space). So in this perspective, I would not say that we can argue that &quot;points are fungible&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But then, if during the production process points are not fungible, and theoretically we could record and attribute differentiated value to each one of them, then in what sense, moving in the ex post view, after production has finished, we will suddenly say &quot;points are fungible&quot;? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I could only see that if we had no information on how the game evolved. Then we would be forced to say &quot;absent any other information, we have to treat points as fungible&quot;.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2017-08-02T17:07:20.960" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17674" PostTypeId="2" ParentId="17645" CreationDate="2017-08-02T19:22:48.647" Score="1" Body="&lt;p&gt;I will note that I am outsider with an interest in macroeconomics, and so this attempt at an answer only applies to the situation in macroecomics as I see it. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are effectively three questions here.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Was Roehner right (in 2002)? As I discuss below, this question is the most critical, but any answer is going to be controversial.&lt;/li&gt;&#xA;&lt;li&gt;Has the situation changed since 2002? I don't see any reason why this would be true, but see discussion below.&lt;/li&gt;&#xA;&lt;li&gt;Are there &lt;em&gt;journals&lt;/em&gt; that are keen to publish puzzling empirical data? From the standpoint of macro, that's the wrong question. The right question is: are there &lt;em&gt;articles&lt;/em&gt; published on empirical analysis in macro? And the answer is that there is a lot of empirical research published by central banks, supranational bodies, and &quot;think tanks.&quot;  If you want to see such empirical work, that is where you look - a reality that Roehner's characterisation skips over.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Was Roehner right in 2002? I would decompose his claims into a few levels.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first level is that the pattern of publications in economics journals (which ones?) is differrent than in physics. I imagine you could look at statistics on the classifications of journal articles, and give an authoritative answer to that question. However, why would anyone expect different academic fields to display the same distribution of article types?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The next level is the question: are there &quot;enough&quot; empirical papers in economics? If you look at developed economy macro, we are only accumulating data points at the rate of 4 quarterly observations per year. Given the general weakness of economic forecasting models, the amount of new &quot;puzzling&quot; data that can be possibly generated is extremely low. There are some empirical puzzles in macro, but the point is that those puzzles have been around for decades, and so there is no value in publishing new articles that just append a few observations to the previous data set. This is a data-generating environment that is utterly unlike the situation in physics. (How many articles on avalanches in sand piles could possibly be published if we only have records of three such avalanches?) Furthermore, such empirical studies largely end up in the central bank research environment, which was excluded by Roehner for unknown reasons. I do not see a good way of publishing authorative study on whether this provides a sufficient weight on empirical work.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Other areas of economics/finance have less data constraints. For example, finance is heavily empirical. However, the journals Roehner looked at would probably not been the venue for publishing empirical financial papers. That's a defect of Roehner's sampling process, not finance. Some areas are also highly experiment-based, like behavioural economics. My understanding is that these are published in different journals, some of which may have come into existence after 2002. Someone else is going to have to comment on the areas other than finance; I do not think the criticisms carry much weight for the financial literature.) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, one could infer from the quote the implicit criticism that economics journals have a deliberate policy of excluding empirical studies that allegedly contradict the existing paradigm. Such a charge is obviously extremely controversial; in the absence of evidence that such a suppression effort exists, you are not going to get a good answer here. (Can you cite any such &quot;puzzling&quot; data? If not, how do we even know that it exists to be written up in an article?) The controversial nature of this question suggests that it might be broken out into a new, very focussed question. Something like: &quot;what empirical data cannot be observed by standard theories in (some sub-field of economics)?&quot; If nobody here can find anything (that is not in the literature), then it does indicate that there may not be a large potential literature for &quot;puzzling empirical data.&quot; That said, the answers will be different for every subfield of economics; there are tons of &quot;puzzles&quot; discussed in finance.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastEditorUserId="12891" LastEditDate="2017-08-03T11:41:30.600" LastActivityDate="2017-08-03T11:41:30.600" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="17675" PostTypeId="1" AcceptedAnswerId="17681" CreationDate="2017-08-02T22:39:38.510" Score="1" ViewCount="72" Body="&lt;p&gt;I'm familiar with the measures of Gross domestic product (GDP PPP) total, per capita and GDP nominal total and per capita. But I'm not sure if these measures evaluate the economical development of a country since they don't take into account what a country owes, and external debts sometimes get countries into economical crisis when they become unable to pay them. &#xA;Then I found about net international investment position (&lt;a href=&quot;https://en.wikipedia.org/wiki/Net_international_investment_position&quot; rel=&quot;nofollow noreferrer&quot;&gt;NIIP&lt;/a&gt;) that is defined as a country's external financial assets and liabilities. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is, can this measure be used to evaluate the economical development of a country and if not, are there specific measures which are used to evaluate economical development?&lt;/p&gt;&#xA;" OwnerUserId="8165" LastEditorUserId="2776" LastEditDate="2017-08-03T05:45:23.670" LastActivityDate="2017-08-03T08:35:56.140" Title="Which measures are there to evaluate a country economical development?" Tags="&lt;gdp&gt;&lt;economic-growth&gt;&lt;government-debt&gt;&lt;development-economics&gt;&lt;development&gt;" AnswerCount="1" CommentCount="0" ClosedDate="2017-08-03T11:06:24.883" ContentLicense="CC BY-SA 3.0" />
  <row Id="17677" PostTypeId="1" AcceptedAnswerId="17687" CreationDate="2017-08-03T05:03:20.040" Score="2" ViewCount="47" Body="&lt;p&gt;I've read that it is not a hard-and-fast rule that the overall money stock growth rate speeds up in response to an accelerated expansion of the monetary base and a growing money multiplier. If this is the case, what factors unrelated to central bank policy and the lending propensity of commercial banks would cause this theoretical deceleration of money stock growth?&lt;/p&gt;&#xA;" OwnerUserId="14013" LastActivityDate="2017-08-04T10:58:25.757" Title="Other factors that affect the supply of money" Tags="&lt;macroeconomics&gt;&lt;money-supply&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17679" PostTypeId="2" ParentId="17501" CreationDate="2017-08-03T07:29:02.300" Score="2" Body="&lt;p&gt;&lt;strong&gt;Notice that it is not always possible to find a algebraic expression for the PPF.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;A context where the PPF is usually found is in a 2x2 model, where there are two sectors or goods ($x$ and $y$) and two factors of production ($K$ and $L$). The shape of the PPF depends on the &lt;em&gt;relative intensities&lt;/em&gt; in which each sector/good uses those factors. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, assume each sector $j$ has a CRS production function $F_j(K_j,L_j)$, with different technological parameters. Let us also assume a fixed endowment of factors of production, complete factor mobility across sectors, and competitive markets, such that payment of factors of production freely adjust in order to allocate factors into sectors. Also, assume the price of the goods fixed, e.g. as if the economy is small and open to international markets. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a given set of relative factor prices, $r/w$, common to both sectors, optimal relative factors in each sector are given by:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \dfrac{\frac{\partial F_x}{\partial K_x}}{\frac{\partial F_x}{\partial L_x}} = \frac{r}{w} = \dfrac{\frac{\partial F_y}{\partial K_y}}{\frac{\partial F_y}{\partial L_y}} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first fraction above is a function of $\frac{K_x}{L_x}$, whereas the last fraction is a function of $\frac{K_y}{L_y}$. Since by definition $L_x+L_y=L$ and $K_x+K_y=K$, we have a system of three equations with four unknowns. This means that we can reduce the system to one equation with two unknowns. Whether this equation yields a closed form solution for on variable in terms of the other (e.g. $L_x=f(K_x$) depends on the functional form of $F_j$. Apparently, this is possible only in the case of trivial production functions like Cobb-Douglas or Leontief (for an example of the former, see &lt;a href=&quot;http://kylewoodward.com/blog_data/pdfs/handout_micro_equilibrium.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assuming we can find such equation $L_x=f(K_x$), the algebraic solution to the PPF follows immediately. This is because you have reduced all four endowment variable sin terms of just one (for instance, $K_x$). Therefore, to find the PPF you can evaluate $F_x$ and $F_y$ for every possible value of $K_x$, and draw the map. Alternatively, you can solve the homogeneous equation $x-F_x(K_x)=0$ for $K_x$ as a function of $x$, and then replace this $K_x^*(x)$ into $F_y$, from where you get $y=f(x)$, having in mind the restrictions on the variable space (i.e. $x,y&amp;gt;0$). Notice again that solving the above homogeneous equation is not always possible. For an example where it is possible, see link above. The PPF might look like:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/YZt4e.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/YZt4e.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To close the model, the way that the actual equilibrium is found depend on international prices, where the MRS is tangent to the PPF. Alternatively, in a closed economy, the isoquant of consumer preferences provides the MRS.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;To complement @jmbejara comment about the relation between the PPF and Pareto optimality, notice that the condition that MRTS is equal to relative factor prices is exactly the definition of Pareto optimality in a production context. We can see this in the Edgeworth box. For standard production functions, the isoquants for each good are convex functions in the $\{K,L\}$ space. We can see the Edgeworth box of this economy:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/K0tpV.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/K0tpV.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The example above is clearly inefficient, as relative wages can adjust until the MRTS is the same across goods. In effect, the optimal allocation is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/LVBUD.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/LVBUD.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-08-03T07:36:27.387" LastActivityDate="2017-08-03T07:36:27.387" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17680" PostTypeId="2" ParentId="10364" CreationDate="2017-08-03T08:17:41.840" Score="0" Body="&lt;p&gt;Increases in profit margins in companies lead to longer term investments and cash-out to investors (via dividends or sale of the firm shares), which increase the demand for raw materials. &#xA;This increased demand of raw materials (e.g. Oil) leads to cost-push inflation.&lt;/p&gt;&#xA;" OwnerUserId="12304" LastActivityDate="2017-08-03T08:17:41.840" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17681" PostTypeId="2" ParentId="17675" CreationDate="2017-08-03T08:35:56.140" Score="1" Body="&lt;p&gt;Your question brakes down into:&#xA;- Alternatives to measure &quot;economic development&quot;: there are several ways to interpret what development is, it can be social, intensity of money flows, or volume of &quot;money flows&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you look for &lt;strong&gt;social development and well-being&lt;/strong&gt;, the &lt;a href=&quot;http://hdr.undp.org/en/content/human-development-index-hdi&quot; rel=&quot;nofollow noreferrer&quot;&gt;HDI&lt;/a&gt; (Human Development Index) is a good start, but there are several others like the Genuine Progress Indicator (&lt;a href=&quot;http://theconversation.com/beyond-gdp-are-there-better-ways-to-measure-well-being-33414&quot; rel=&quot;nofollow noreferrer&quot;&gt;GPI&lt;/a&gt;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you look more to assess the level of financial risk that a government or country is exposed to (debt wise) in combination to the wealth generated in that country, you can take as an example what the &lt;a href=&quot;https://en.wikipedia.org/wiki/Stability_and_Growth_Pact#Reform_2011_and_hints_to_the_new_European_economic_governance&quot; rel=&quot;nofollow noreferrer&quot;&gt;European union measures for economical stability&lt;/a&gt;: a combination of Budget deficit to GDP and &lt;a href=&quot;https://en.wikipedia.org/wiki/Debt-to-GDP_ratio&quot; rel=&quot;nofollow noreferrer&quot;&gt;debt-to-GDP ratio&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="12304" LastActivityDate="2017-08-03T08:35:56.140" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="17682" PostTypeId="1" CreationDate="2017-08-03T08:51:57.307" Score="1" ViewCount="141" Body="&lt;p&gt;I've just started to read an excellent textbook &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/B00BSZUGIW&quot; rel=&quot;nofollow noreferrer&quot;&gt;&quot;Macroeconomics&quot;&lt;/a&gt; by Gregory Mankiw. In the beginning he explains how economists think:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Young children learn much about the world around them by playing with toy&#xA;  versions of real objects. For instance, they often put together models of cars, trains, or planes. These models are far from realistic, but the model-builder learns a lot from them nonetheless. The model illustrates the essence of the real object it is designed to resemble. (In addition, for many children, building models is fun.)&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Economists also use models to understand the world, but an economist’s&#xA;  model is more likely to be made of symbols and equations than plastic and glue.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Then he explains what endogenous and exogenous variables are and &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;To make these ideas more concrete, let’s review the most celebrated of all&#xA;  economic models—the model of supply and demand&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/RYoRq.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/RYoRq.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The above is obviously a toy model of Supply and Demand. But since nobody will start building a new car having only a toy model of it, I suppose that there must be some empirical research showing how Supply and Demand curves behave in real life and how equilibrium is reached which are used by economists for decision-making etc.   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there any article or probably textbook which contain an example of &lt;strong&gt;working model&lt;/strong&gt; (i.e. an opposite of the toy model) of Supply and Demand?  I'd like to grasp the difference between toy and working model of Supply and Demand. &lt;/p&gt;&#xA;" OwnerUserId="14062" LastEditorUserId="2776" LastEditDate="2017-08-03T09:27:41.453" LastActivityDate="2017-08-03T14:55:31.793" Title="A working model of Supply and Demand" Tags="&lt;reference-request&gt;&lt;supply-and-demand&gt;" AnswerCount="1" CommentCount="7" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17683" PostTypeId="2" ParentId="3141" CreationDate="2017-08-03T10:00:10.790" Score="1" Body="&lt;p&gt;Higher salaries in a specific place will drive people to relocate there for better opportunities, thus creating demographic pressure.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As the housing stock usually takes a long time to increase, the offer in housing will have trouble adjusting to an increasing demand, thus driving prices higher and higher.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The causality also works the other way: as a result of increased housing cost, people with lower salary might become unable to afford a home and will be obliged to relocate to a place where real estate has a lower market value.&lt;/p&gt;&#xA;" OwnerUserId="10643" LastActivityDate="2017-08-03T10:00:10.790" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17684" PostTypeId="2" ParentId="10364" CreationDate="2017-08-03T10:11:09.947" Score="0" Body="&lt;p&gt;Because of the higher costs firm must raise their prices, which definitely leads to inflation. As well as, higher marginal costs lead to higher marginal profits.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;What kind of events cause higher marginal costs? &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Demand shock: there is a huge demand for products in the market, so&#xA;  the firm decides to produce more exceeding his optimal cost structure.&#xA;  He must increase his prices, too.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Supply shock: Accidentally, the prices of capital or labour become&#xA;  expensive. At the end, he must increase the price of products again.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This phenomenon leads to overheating spiral: higher profits cause higher costs, and higher costs cause higher profits. The government must set higher treasury rates to kill off the inflation monster.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sub-question. Increasing the money supply leads to the reverse effect of the former. Higher money supply increases the nominal rates, which give birth to crowding-out effect, so the aggregate output diminishes. As a result of lack of demand, the prices of production factor sink, which decrease the level of costs.&lt;/p&gt;&#xA;" OwnerUserId="5017" LastActivityDate="2017-08-03T10:11:09.947" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="17685" PostTypeId="1" AcceptedAnswerId="17692" CreationDate="2017-08-03T11:15:06.077" Score="0" ViewCount="80" Body="&lt;p&gt;In &lt;a href=&quot;https://economics.stackexchange.com/questions/17675/which-measures-are-there-to-evaluate-a-country-economical-development&quot;&gt;another question&lt;/a&gt; I asked someone pointed me to an answer where NIIP (Net International Investment Position) was mentioned as a measure of economical development, which I already heard about it and it makes sense since it takes into account not only the actives but the pasives of a country&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But then you see &lt;a href=&quot;https://en.wikipedia.org/wiki/Net_international_investment_position&quot; rel=&quot;nofollow noreferrer&quot;&gt;this list&lt;/a&gt;, and you find out that first world countries like United States, Australia, Sweeden or Spain are in big red. What does this mean? Does it mean that NIIP is a poor index to measure economical development or wealth? Or does it mean those countries are in a serious bad situation which could lead them to be in a crisis in the future?&lt;/p&gt;&#xA;" OwnerUserId="8165" LastEditorUserId="2776" LastEditDate="2017-08-03T11:43:47.317" LastActivityDate="2017-08-03T14:39:08.737" Title="Is NIIP a good measure of a country economical development?" Tags="&lt;economic-growth&gt;&lt;development&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17687" PostTypeId="2" ParentId="17677" CreationDate="2017-08-03T13:05:07.497" Score="2" Body="&lt;p&gt;I assume that this question is related to this question on money growth - &lt;a href=&quot;https://economics.stackexchange.com/questions/17664/why-did-the-rate-of-money-supply-growth-accelerate-from-1993-96-in-the-united-st/17669#17669&quot;&gt;link to question&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The monetary base and velocity completely pin down the wider monetary aggregate. The behaviour of acceleration is slightly trickier, but I will attack it here.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I will firstly use continuous time for simplicity. I will also use my own notation, which is explained.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $M$ be whatever wide monetary aggregate you want to study, and $B$ be the monetary base. Velocity $V$ is defined:&#xA;$$&#xA;V = \frac{M}{B}.&#xA;$$&#xA;Importantly, this is a definition, and always holds. There is no reason to ascribe changes in velocity to any particular factor, such as preferences of banks.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, the rate of change of the money stock is:&#xA;$$&#xA;\frac{dM}{dt} = \frac{d(BV)}{dt} = B\frac{dV}{dt} + V\frac{dB}{dt}.&#xA;$$&#xA;Since we are interested in the percentage rates of change, we define growth rates as the time derivative of the variable divided by the variable. That is,&#xA;$$&#xA;G_M(t) = \frac{\frac{dM}{dt}}{M},&#xA;$$&#xA;$$&#xA;G_B(t) = \frac{\frac{dB}{dt}}{B},&#xA;$$&#xA;$$&#xA;G_V(t) = \frac{\frac{dV}{dt}}{V}.&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, we see that:&#xA;$$ G_m(t) = \frac{B}{M}\frac{dV}{dt} + \frac{V}{M}\frac{dB}{dt}.&#xA;$$&#xA;Since $\frac{B}{M} = \frac{1}{V}$ and $\frac{V}{M} = \frac{1}{B}$,&#xA;$$&#xA;G_m(t) = \frac{\frac{dV}{dt}}{V} + \frac{\frac{dM}{dt}}{M} = G_V(t) + G_B(t).&#xA;$$&#xA;Since you are interested in acceleration, that would be $\frac{dG_M}{dt}$, which is given by:&#xA;$$&#xA;\frac{dG_M}{dt} = \frac{dG_V}{dt} + \frac{dG_M}{dt}.&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words, to characterise the acceleration of the money supply, you need to look at the acceleration of the monetary base and the acceleration of the velocity. If we refer back to the question on the money supply in the 1990s, you would have had to calculate the annual percentage change of velocity, and not look at the &lt;em&gt;level&lt;/em&gt; of velocity (which is what was displayed).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we return to discrete time (and observed data are discrete time), the relationships above become approximations. You would have to take the first differences, to get the rate of change, and the difference of the rate of change to get acceleration. For annual data, that means we end up comparing data two years apart, which may break the continuous time approximation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since this question asked about other factors influencing the relationship between the base and wider money: there are none. The above equations hold by definition. The question why velocity would change is a more difficult question.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastEditorUserId="12891" LastEditDate="2017-08-04T10:58:25.757" LastActivityDate="2017-08-04T10:58:25.757" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="17688" PostTypeId="5" CreationDate="2017-08-03T13:19:15.603" Score="0" Body="" OwnerUserId="-1" LastEditorUserId="-1" LastEditDate="2017-08-03T13:19:15.603" LastActivityDate="2017-08-03T13:19:15.603" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17689" PostTypeId="4" CreationDate="2017-08-03T13:19:15.603" Score="0" Body="Use only for questions that are directly related to the central bank of the United States, the &quot;Fed&quot;. For example, US monetary policy, US money supply, US balance sheet, etc. Do not use for generic questions related to central banks, monetary policy or other, which are not directly related to the Fed. Use instead central-banking, monetary-policy, or related tags." OwnerUserId="2776" LastEditorUserId="1601" LastEditDate="2017-08-04T13:52:33.180" LastActivityDate="2017-08-04T13:52:33.180" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17690" PostTypeId="5" CreationDate="2017-08-03T13:32:12.763" Score="0" Body="" OwnerUserId="-1" LastEditorUserId="-1" LastEditDate="2017-08-03T13:32:12.763" LastActivityDate="2017-08-03T13:32:12.763" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17691" PostTypeId="4" CreationDate="2017-08-03T13:32:12.763" Score="0" Body="Use for questions related to international trade, commercial policy, open economy macroeconomics, international finance, and exchange rates. It can also be used in financial and monetary policies, economic development, migration and factor movements, as long as they are specifically related to an international context. Preferably use in conjunction with other, more precise tag." OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-08-05T11:03:37.807" LastActivityDate="2017-08-05T11:03:37.807" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17692" PostTypeId="2" ParentId="17685" CreationDate="2017-08-03T14:39:08.737" Score="1" Body="&lt;p&gt;For common definitions of the word development the NIIP would be a very bad measure. The NIIP is a measure of net foreign debt. I don't see any clear first order link between foreign debt or assets and economic development. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A popular measure of development is the HDI, which is constructed from data on live expectancy, adult literacy rates and GDP.&lt;/p&gt;&#xA;" OwnerUserId="11216" LastActivityDate="2017-08-03T14:39:08.737" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="17693" PostTypeId="2" ParentId="17682" CreationDate="2017-08-03T14:55:31.793" Score="1" Body="&lt;p&gt;Industrial Organization is the field concerned with estimating supply and demand relationships in individual product markets. You can see for example &lt;a href=&quot;https://www.stanford.edu/~jdlevin/Papers/IO.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Einav and Levin&lt;/a&gt; for a description of what empirical IO people are up to. The specific models are usually much more complicated than what you learn in Mankiw, tailored to specific markets, and very strong assumptions are required to estimate them. For recent IO papers, you can see for example &lt;a href=&quot;http://www.nber.org/papersbyprog/IO.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;the NBER working paper series&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="11216" LastActivityDate="2017-08-03T14:55:31.793" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17695" PostTypeId="1" AcceptedAnswerId="17697" CreationDate="2017-08-03T17:17:18.867" Score="2" ViewCount="151" Body="&lt;p&gt;I'm experimenting with some data in R and I've found that though there is statistical significance between two variables, however their changes are not statistically significant. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I first ran a standard regression of revenue on price, adding a quadratic term to account for diminishing returns from increase in price. Giving us the formula:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$y_{Revenue}=\beta_0+\beta_1Price+\beta_2Price^2$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The results which were produced are:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;&amp;gt; summary(lm(Wage~Price+I(Price^2)))&#xA;&#xA;Call:&#xA;lm(formula = Wage ~ Price+ I(Price^2))&#xA;&#xA;Residuals:&#xA;Min      1Q  Median      3Q     Max &#xA;-131.87  -87.77  -27.60   44.15  244.66 &#xA;&#xA;Coefficients:&#xA;           Estimate Std. Error t value Pr(&amp;gt;|t|)    &#xA;(Intercept)  -1.650e+03  2.645e+02  -6.238 5.44e-06 ***&#xA;Price         3.640e-01  3.640e-02   9.999 5.28e-09 ***&#xA;I(Price^2)   -1.026e-05  1.129e-06  -9.086 2.41e-08 ***&#xA;---&#xA;Signif. codes:  0 ‘***’ 0.001 ‘**’ 0.01 ‘*’ 0.05 ‘.’ 0.1 ‘ ’ 1&#xA;&#xA;Residual standard error: 116.9 on 19 degrees of freedom&#xA;  (7 observations deleted due to missingness)&#xA;Multiple R-squared:  0.8816,    Adjusted R-squared:  0.8691 &#xA;F-statistic: 70.72 on 2 and 19 DF,  p-value: 1.577e-09&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;The second regression I ran was a regression of the change in revenue on change in price. Giving the formula:&#xA;$$\Delta y_{Revenue}=\alpha_0+\alpha_1 \Delta Price+\alpha_2 \Delta Price^2$$&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;Call:&#xA;lm(formula = diff(Revenue) ~ diff(Price) + diff(I(Price^2)))&#xA;&#xA;Residuals:&#xA;   Min     1Q Median     3Q    Max &#xA;-82.52 -42.55 -11.98  19.20 142.36 &#xA;&#xA;Coefficients:&#xA;                     Estimate Std. Error t value Pr(&amp;gt;|t|)   &#xA;(Intercept)         5.093e+01  2.649e+01   1.923  0.07046 . &#xA;diff(Price)         1.343e-01  7.165e-02   1.874  0.07727 . &#xA;diff(I(Price^2))   -4.987e-06  1.691e-06  -2.950  0.00857 **&#xA;---&#xA;Signif. codes:  0 ‘***’ 0.001 ‘**’ 0.01 ‘*’ 0.05 ‘.’ 0.1 ‘ ’ 1&#xA;&#xA;Residual standard error: 62.29 on 18 degrees of freedom&#xA;  (7 observations deleted due to missingness)&#xA;Multiple R-squared:  0.4521,    Adjusted R-squared:  0.3912 &#xA;F-statistic: 7.426 on 2 and 18 DF,  p-value: 0.004449&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Why do these variables lose their degree of  statistical significance while in the regular regression they are significant on the 1% level and how do you interpret such results economically?&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2017-08-05T15:38:45.463" Title="Interpretation of a differenced regression" Tags="&lt;applied-econometrics&gt;" AnswerCount="2" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="17696" PostTypeId="1" CreationDate="2017-08-03T18:27:17.957" Score="0" ViewCount="34" Body="&lt;p&gt;To simplify things, imagine a company which sells two products, A, and B, and it has two types of revenues, two types of variable costs, and 1 type of fixed costs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can calculate margins by taking revenue A - variable cost A, and revenue B - variable cost B. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This tells me how much I make by selling each product. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, then I have fixed costs, and I can't really &quot;attribute&quot; them to A and B. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is, how do I then decide which product is profitable to sell or not?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How do I &quot;apply&quot; fixed costs to my products? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Do I give use weights? For example, if 50 % of my sales are of product A, then it gets 50% of fixed costs attributed to it, and thus my profits from selling A is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;revenue from A - variable costs from A - 50 % of fixed costs = profit from A&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My interest lies in deciding whether I should scrap a product, or invest more in a product.&lt;/p&gt;&#xA;" OwnerUserId="14093" LastEditorUserId="1601" LastEditDate="2017-08-03T21:21:25.657" LastActivityDate="2017-08-06T08:53:03.620" Title="How do calculate whether selling a product leads to profit?" Tags="&lt;profit-maximization&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17697" PostTypeId="2" ParentId="17695" CreationDate="2017-08-03T20:40:06.130" Score="3" Body="&lt;p&gt;If the levels specification is deemed acceptable,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$y_t = \beta_0 + \beta_1 x_t + \beta_2 x_t^2$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;then it follows that the first-difference specification &lt;em&gt;should not include a constant term&lt;/em&gt; in order to be methodologically consistent,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Delta y_t = \beta_1\Delta x_t + \beta_2\Delta x_t^2$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;since $\Delta \beta_0 = \beta_0 -\beta_0 = 0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I suggest you run the specification of first-differences without intercept and see what happens.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note: the slope coefficient estimates you should obtain in the first-difference specification without intercept should be close to the corresponding estimates you obtained in the levels-estimation. Otherwise, the maintained hypothesis of constant slope coefficients becomes questionable, or the model has other misspecification issues. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(this is not to be confused with the case where we run a regression without constant term but with the dependent variable and the regressors centered on their sample means -there we would obtain the exact same slope estimates with the levels specification that includes a constant term, as a matter of algebraic property of least-squares estimation).&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2017-08-05T15:38:45.463" LastActivityDate="2017-08-05T15:38:45.463" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="17698" PostTypeId="1" AcceptedAnswerId="17706" CreationDate="2017-08-03T22:03:30.090" Score="0" ViewCount="188" Body="&lt;p&gt;From my perspective, during an economic expansion, industrial production, employment, personal incomes and sales are increased excluding the inflation rate. To be more specific, companies buy new machines or build new factories to increase the production in this period and to expand the business, the company should finance the expansion either through debt or equity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore I thought Return on Equity (ROE) would be increased because companies borrow more debts, which leads the denominator of ROE formula, shareholders' equity, to be decreased and it results ROE to be increased. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However if the company finance their expansion by the equity, not through debt financing, then denominator of ROE formula, shareholders' equity would be increased therefore the ROE will be decreased.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then during an economic expansion, how does the ROE will going to be changed, decreased or increased?&lt;/p&gt;&#xA;" OwnerUserId="14095" LastEditorUserId="2776" LastEditDate="2017-08-04T07:57:49.290" LastActivityDate="2017-08-06T23:35:51.857" Title="During an economic expansion, how do the ratios of Return on Equity and Return on Asset are affected?" Tags="&lt;economic-growth&gt;&lt;financial-economics&gt;&lt;asset-pricing&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17699" PostTypeId="1" AcceptedAnswerId="17704" CreationDate="2017-08-03T23:11:44.077" Score="1" ViewCount="23" Body="&lt;p&gt;I have a task at my internship which is to write 2 pages about the economic conditions in my country. My question is what I could include in my research. Surely, I'll address inflation, currency fluctuations since they are very unstabe. What else can I add? Where can I get reports on a certain country, in this case is Egypt. &lt;/p&gt;&#xA;" OwnerUserId="12280" LastActivityDate="2017-08-04T09:09:46.650" Title="What aspects of macroeconomics should I address for convincing an investor to invest in a certain country?" Tags="&lt;banking&gt;&lt;investment&gt;&lt;financial-markets&gt;" AnswerCount="1" CommentCount="2" ClosedDate="2017-08-18T16:05:44.817" ContentLicense="CC BY-SA 3.0" />
  <row Id="17700" PostTypeId="2" ParentId="17654" CreationDate="2017-08-04T02:54:52.023" Score="0" Body="&lt;p&gt;Note the revenue is the quantity sold in each country times its respective price.  Write out the profit equation&#xA;$$&#xA;\pi= Q_a*P_a+Q_b*P_b - TC(Q_a+Q_b)&#xA;$$&#xA;You already have expressions for $P_a$ and $P_b$ in terms of $Q_a$ and $Q_b$.  Substitute these in.  The result will be a profit function in terms of only $Q_a$ and $Q_b$.  This is your profit function.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Take the derivative of the profit function with respect to $Q_a$.  Set equal to 0 and solve for $Q_a$.  Repeat for $Q_b$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you do it right, you will get $Q_a=450$ and $Q_b=4750$.  Substitute these into the profit equation to get the total profit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;All these types of questions are solved the same way.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Write out the correct profit function.  &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Substitute everything in until the only remaining variables are the things you are able to control (in this case, the quantities).&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Take derivatives with respect to each choice variable and solve the resulting first order conditions (which sometimes may be a system of equations, but not here).  &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Substitute your optimal quantities back in to get the resulting profit.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;In a more complex case you should also take the second derivative to ensure that you are getting the maximums, not the minimums.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;=================== EDIT: Additional Help =============&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Profit function:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\pi=1000Q_a - Q_a^2+2000Q_b-0.2Q_b^2-100(Q_a+Q_b)-1000000&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First order conditions&#xA;$$&#xA;\frac{d\pi}{dQ_a}=1000-2Q_a - 100&#xA;$$&#xA;$$&#xA;\frac{d\pi}{dQ_b}=2000-0.4Q_b - 100&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that from the second first order equation&#xA;$$&#xA;Q_b=\frac{2000-100}{0.4} = 4750&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Substituting 450 and 4750 into the profit function gives exactly 3,715,000.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Please don't say that right answers are wrong when you are unable to replicate them on your own.  It causes those who don't know any better to downvote.&lt;/p&gt;&#xA;" OwnerUserId="12673" LastEditorUserId="12673" LastEditDate="2017-08-04T15:05:10.520" LastActivityDate="2017-08-04T15:05:10.520" CommentCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="17701" PostTypeId="1" AcceptedAnswerId="17702" CreationDate="2017-08-04T07:39:24.997" Score="2" ViewCount="94" Body="&lt;p&gt;Soros' theory of reflexivity is well known and I'll briefly summarize it below based on his &lt;a href=&quot;http://www.tandfonline.com/doi/full/10.1080/1350178X.2013.859415&quot; rel=&quot;nofollow noreferrer&quot;&gt;Fallibility, reflexivity, and the human uncertainty principle(2013)&lt;/a&gt; article. He &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;proposes distinguishing between the &lt;em&gt;objective&lt;/em&gt; and &lt;em&gt;subjective&lt;/em&gt; aspects of reality. Thinking constitutes the &lt;em&gt;subjective&lt;/em&gt; aspect. It takes place in the privacy of the participants’ minds and is not directly observable; only its material manifestations are. The &lt;em&gt;objective&lt;/em&gt; aspect consists of observable events.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Soros further divides subjective aspect into two parts:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The participants’ thinking serves two functions. One is to understand the world in which we live; I call this the &lt;em&gt;cognitive&lt;/em&gt; function. The other is to make an impact on the world and to advance the participants’ interests; I call this the &lt;em&gt;manipulative&lt;/em&gt; function. I use the term ‘manipulative’ to emphasize intentionality.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Soros emphasizes &lt;em&gt;fallibility&lt;/em&gt; of human thinking:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The complexity of the world in which we live exceeds our capacity to comprehend it.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Thus &lt;em&gt;subjective&lt;/em&gt; attempts to comprehend reality (but can't do it perfectly due to fallibility), &lt;em&gt;manipulative&lt;/em&gt; attempts to impact reality (but again do it imperfectly due to fallibility) so we have a reflexive loop shown below:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/4sX3c.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/4sX3c.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Soros criticizes economic theory as follows:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;.. their theories could not be falsified by testing. ... The same argument applies to the mainstream economic theory currently taught in universities. It is an axiomatic system based on deductive logic, not on empirical evidence.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;And as usual remembers: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;While I was reading Popper I was also studying economic theory, and I was struck by the contradiction between Popper’s emphasis on imperfect understanding and the theory of perfect competition in economics, which postulated perfect knowledge. This led me to start questioning the assumptions of economic theory.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;But at the same time he says in the same article:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;why should social science confine itself to passively studying social phenomena when it can be used to actively change the state of affairs? The temptation to use social theories to change reality rather than to understand it is much greater than in natural science. Indeed, economists commonly talk about &lt;em&gt;normative&lt;/em&gt; versus &lt;em&gt;positive&lt;/em&gt; economics.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It seems to me that we can associate &lt;em&gt;manipulative&lt;/em&gt; function with &lt;em&gt;normative&lt;/em&gt; economics and &lt;em&gt;cognitive&lt;/em&gt; function with &lt;em&gt;positive&lt;/em&gt; economics. Am I right?  Has this line of thought been elaborated by someone? &lt;/p&gt;&#xA;" OwnerUserId="14062" LastEditorUserId="2776" LastEditDate="2017-08-04T13:05:11.707" LastActivityDate="2017-08-04T17:23:45.997" Title="Is Soros' theory of reflexivity aligned with normative vs positive economy dichotomy?" Tags="&lt;economic-methodology&gt;&lt;scientific-method&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17702" PostTypeId="2" ParentId="17701" CreationDate="2017-08-04T08:05:15.557" Score="1" Body="&lt;p&gt;I would say there is some degree of correspondence between the two dichotomies. However, in the economic side of things, there is in my opinion a much clearer relation between positive and normative economics (at least in the theoretical side), as &lt;strong&gt;it is through the use of positive economics that normative means are supposed to be achieved&lt;/strong&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The other dichotomy however seems to be less formal in this relation. Individuals or agents can have a given understanding of the world, but this might not be correct, or precise. Thus, if they base their manipulative actions based on their &lt;em&gt;perceptions&lt;/em&gt; of the objective reality, it does not necessarily mean they are using the correct map of reality to act upon it. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;In other words, positive economics is (allegedly) science, whereas agents cognition is not necessarily (and perhaps not mainly) built upon scientific knowledge.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, having said this, it is also debatable that the normalite-positive dichotomy is as clear as initially theorised by Milton Friedman in his 1953 book &quot;&lt;a href=&quot;https://en.wikipedia.org/wiki/Essays_in_Positive_Economics&quot; rel=&quot;nofollow noreferrer&quot;&gt;Essays in Positive Economics&lt;/a&gt;&quot;. For example, &lt;a href=&quot;https://www.jstor.org/stable/4224749?seq=6#page_scan_tab_contents&quot; rel=&quot;nofollow noreferrer&quot;&gt;some Marxists&lt;/a&gt; argue that science itself (at least social sciences) is part of the tools used by the ruling/capitalist class to exert control over society.&#xA;In philosophy of science, there has been a long debate about what science is and about whether there is such thing as &quot;scientific progress&quot;, or whether science is just ideology (for example, see &lt;a href=&quot;https://philosophynow.org/issues/15/Is_Science_an_Ideology&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;).&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-08-04T08:35:14.323" LastActivityDate="2017-08-04T08:35:14.323" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17703" PostTypeId="1" AcceptedAnswerId="17705" CreationDate="2017-08-04T08:32:14.773" Score="1" ViewCount="37" Body="&lt;p&gt;How is it traditionally defined the minimum wage legislation in economics? And which countries does not have a minimum wage legislation as defined in these terms?&lt;/p&gt;&#xA;" OwnerUserId="13987" LastEditorUserId="13965" LastEditDate="2017-08-04T11:07:36.540" LastActivityDate="2017-08-04T12:57:34.437" Title="How is it traditionally defined the minimum wage legislation in economics?" Tags="&lt;labor-economics&gt;&lt;minimum-wage&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="17704" PostTypeId="2" ParentId="17699" CreationDate="2017-08-04T08:59:40.823" Score="0" Body="&lt;p&gt;As Brian said, international organisations are a good place to start. For example, the World Bank publishes periodic economic outlook updates on each country. For Egypt, see &lt;a href=&quot;http://www.worldbank.org/en/country/egypt/publication/economic-outlook-april-2017&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;. There is a pdf link to the right of the page. They covers aspects like GDP growth, inflation, financial and fiscal accounts, and also some prospects on ongoing, pro-business reforms. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another source is the African Economic Outlook reports. &lt;a href=&quot;http://www.africaneconomicoutlook.org/en/country-notes/egypt&quot; rel=&quot;nofollow noreferrer&quot;&gt;Here&lt;/a&gt; is the one for Egypt. This is a bit more broad, including analysis of debt, revenues and spending, monetary policy, governance, natural resources management, and the social sphere (poverty, social protection, gender equality). See also the website of the IMF &lt;a href=&quot;http://www.imf.org/external/country/egy/&quot; rel=&quot;nofollow noreferrer&quot;&gt;dedicated to Egypt&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, having worked in the financial sector for a few years, I know that most of the investment banks produce periodic reports on every country their clients might have investment interests, reports that usually include a lot of forecasts. Albeit most of these reports are not available to the public, some googling still yield some results. For example, &lt;a href=&quot;http://enterprise.press/wp-content/uploads/2017/06/DB_SpecialReport_2017-06-05.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; is a &lt;strong&gt;very comprehensive&lt;/strong&gt; analysis for Egypt from Deutsche Bank, published two months ago.  Other asset management companies also produce such reports (e.g &lt;a href=&quot;http://www.lazardassetmanagement.co.uk/institutional-investor/docs/sp0/10407/EmergingMarketsSovereign-Egypt_en.pdf?pagename=Emerging+Markets+Sovereign+Outlook&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;).&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-08-04T09:09:46.650" LastActivityDate="2017-08-04T09:09:46.650" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17705" PostTypeId="2" ParentId="17703" CreationDate="2017-08-04T09:32:38.817" Score="3" Body="&lt;p&gt;It depends. Some countries use hourly wage (Australia, Morocco, UK, US), other use daily (Mexico), other monthly (Argentina, Brazil, Chile, Colombia, France, Peru, Spain), others annually (Bolivia). (&lt;em&gt;this is not an exhaustive list&lt;/em&gt;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Countries without a minimum wage &lt;strong&gt;established by law&lt;/strong&gt; are: Denmark, Iceland, Italy, Norway, Sweden, Switzerland. They do however have minimum wages negotiated at the trade union level, even at industry level.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given this information, the &quot;traditionally&quot; adjective you are using is not very helpful.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-08-04T12:57:34.437" LastActivityDate="2017-08-04T12:57:34.437" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17706" PostTypeId="2" ParentId="17698" CreationDate="2017-08-04T12:19:52.363" Score="0" Body="&lt;p&gt;If all else were equal, then using more equity financing would reduce return on equity. (This is assuming a normal situation where the return on assets is greater than the cost of interest. If the interest cost is greater than the return on assets, using debt for financing reduces profits. In this case, there are less profits, and a smaller equity base. The net effect on the return on equity depends upon the exact numbers.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, this tells us nothing about observed data during an expansion, it just tells us about the difference between two hypothetical scenarios (the scenarios being defined by the level of equity financing).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Aggregate profits are determined by many factors. The effects of those factors change every cycle, and may be unrelated to businesses' financing decisions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, if the wage cost per unit of output (unit labour cost) is rising faster than selling prices, business profit margins will tend to fall (wages will represent a greater share of total income). Conversely, the profit share will generally rise if unit labour costs increase slower than selling prices. There is no law of economics that says which outcome will occur, and so we cannot be sure what is happening to profit margins.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, we have no way of answering the question of what happens to ROE during expansion, without pinning down what else is happening at the same time.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastEditorUserId="12891" LastEditDate="2017-08-06T23:35:51.857" LastActivityDate="2017-08-06T23:35:51.857" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="17707" PostTypeId="2" ParentId="6136" CreationDate="2017-08-04T15:51:54.130" Score="1" Body="&lt;p&gt;&lt;strong&gt;Deflation is when the purchasing power of money goes up because of either a reduction in available currency or an increase in productivity. A sympton of deflation is a persistent decrease in the cost of goods and services.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Well, we should look at the two possibles causes of deflation. The first possible cause of deflation is a reduction in the amount of available currency and the second is an increase in the amount of goods and services available to consumers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's take a look at this example. There are four oranges and four pounds, if we were to evenly distribute the amount of available money (£4.00) to the amount of available goods (four oranges), then each orange would be worth £1.00.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, let's take a look at this second example. The amount of available currency decreases from £4.00 to £2.00. Again, if we were to evenly distribute the amount of available money (£2.00) to the amount of available goods (four oranges), then each orange would be worth £0.50. You can see how the cost of each orange has decreased -- this is good for consumers because the price of goods goes down and they can buy more (this is known as an increase in the purchasing power of money), but its bad for the government because it shows the economy is moving very slowly (known as stagnation) and they need to respond by stimulating the economy and encouraging more people to spend money -- if the economy moves too slowly and stagnates, then the economy will grow very slowly and might begin to collapse.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/nVUX7.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/nVUX7.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Okay, now let's take a look at this third example. The amount of oranges increases from four oranges to eight oranges. Again, if we were to evenly distribute the amount of available money (£4.00) to the amount of availabe goods (eight oranges), then each orange would be worth £0.50 again. This is good for consumers because once again, the price of goods has gone down and they can buy more, it's also good for the government because it shows the economy is running smoothly and there is a lot of economic growth -- because there was an increase in productivity and more oranges were produced. This type of deflation is quite good and should be encourged.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/EUAsb.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/EUAsb.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can see how the first type of deflation is quite bad in the long run, but the second type is very good for the consumers and in the long run. Normally, governments that aren't in debt will seek the second type of deflation, however indebted governments seek inflation and dislike both types of deflation. Why? Well, deflation is bad for debtors because they have to pay back debts tht were borrowed with higher-valued dollars, this effectively increases the amount of debt -- this is bad for indebted governments.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;A lot of economists also believe that under deflation, consumers will choose to not spend and will wait for the prices to go down further -- however, some economists disagree with this idea because most people are going to buy something when they need it, they aren't going to wait a long time for the prices to go down and then buy it -- we have a mentality where everybody wants things when they're new and there are also certain things (like food) that we need now, not in the future. Though, this generally depends on your view.&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="14099" LastActivityDate="2017-08-04T15:51:54.130" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17708" PostTypeId="2" ParentId="17701" CreationDate="2017-08-04T17:23:45.997" Score="0" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;The complexity of the world in which we live exceeds our capacity to comprehend it.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;If I shut the door because it's cold outside, I've comprehended the world perfectly. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What Soros should say is the complexity of the world exceeds our capacity to understand it completely and immediately. Then he would be on firmer ground when he criticizes the Keynesian for not shutting the door. &lt;em&gt;Whether&lt;/em&gt; the door should be shut, of course, isn't a question for economics.&lt;/p&gt;&#xA;" OwnerUserId="13669" LastActivityDate="2017-08-04T17:23:45.997" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17709" PostTypeId="2" ParentId="17695" CreationDate="2017-08-04T21:42:29.347" Score="2" Body="&lt;p&gt;Let's explore this with a simple example.  In the table below, the first 4 columns calculate $Y$ from $P$ using the model:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Y = \beta_0 + \beta_1P$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;with $\beta_0=5$ and $\beta_1=2$ (in the interests of simplicity there is no $P^2$ term).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/LKPpJ.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/LKPpJ.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Because of the way the $Y$-values have been calculated, $Y$ and $P$ are perfectly correlated, and a regression of $Y$ on a constant and $P$ estimates $\beta_1$ as exactly 2, with standard error zero.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now we introduce greater realism by adding some random disturbances.  The column headed $RND$ contains random numbers within the range $(-10,10)$, and $YRAND = Y + RND$. A regression of $YRAND$ on a constant and $P$ estimates $\beta_1$ as 1.85 with a standard error of 0.46 and p-value 0.004, ie significantly different from zero at even the 1% level.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose now that we focus on the changes in variables shown in the last 3 columns of the above table.  A regression of $\Delta Y$ on $\Delta P$ with, as Alecos Papadopoulos explains in his answer, no constant term, again estimates $\beta_1$ as exactly 2, with standard error zero. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So will the regression of $\Delta YRAND$ on $\Delta P$ yield the same results for $\beta_1$ as that of $YRAND$ on $P$?  No, because the effect of the random disturbances on changes in $Y$ is much greater, proportionally, than their effect on the absolute values of $Y$.  In fact, this regression estimates $\beta_1$ as 3.12, with a standard error of 2.31 and a p-value of 0.21, ie not significantly different from zero at the 5% significance level.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So a likely interpretation of the results is simply that this is normal behaviour when there is a degree of random variation in the dependent variable.  &lt;/p&gt;&#xA;" OwnerUserId="1417" LastActivityDate="2017-08-04T21:42:29.347" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17710" PostTypeId="1" CreationDate="2017-08-05T07:03:51.890" Score="0" ViewCount="37" Body="&lt;p&gt;Income is often taxed implicitly by disqualifying deduction or government assistance. For example, if the recent proposal of &quot;free tuition for kids of families making under \$125k&quot; would pass the \$125,001-st dollar earned by the parents of 2 kids attending \$25k/year college would effectively reduce their after-tuition income by \$49,999, or 4,999,900% of that dollar.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus the question: which income dollar is currently taxed most heavily in USA, including both explicit federal+ssi+state taxation and implicit taxation by disqualifying deductions and assistance programs? How often it exceeds 100%?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;famsy's answer convinces me that the question is too complicated. Therefore I'd like to amend it as follows:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Could you list realistic situations in which marginal income is taxed much more than 100%?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;famsy mentioned hard cutoff in various welfare/HUD/etc benefits and a situation when a small marginal income led to \$30k of lost benefits. Assuming that the cutoff was set at the same amount that leads to implicit taxation of 3,000,000% on the disqualifying dollar.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any other examples of that?&lt;/p&gt;&#xA;" OwnerUserId="14100" LastEditorUserId="14100" LastEditDate="2017-08-05T18:06:13.950" LastActivityDate="2017-08-05T18:06:13.950" Title="Which income dollar is taxed most heavily, including implicit taxation, in USA?" Tags="&lt;taxation&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17712" PostTypeId="2" ParentId="8873" CreationDate="2017-08-05T09:06:26.583" Score="4" Body="&lt;p&gt;The problem with $\rho&amp;gt;1$ is that it means the marginal product of factors is not decreasing ($\rho&amp;lt;1$) or constant ($\rho=1$) but increasing, which is an odd assumption. Such functions yield isoquants that are concave, and might lead to only one factor being used (as BKay said).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As in any generic CES, the marginal product of factor $x_i$ is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ MP_i = \left(\frac{y}{x_i}\right)^{1-\rho} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The derivative of this MP with respect to $x_i$ is, after some rearranging,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ (\rho-1) \left(\frac{y}{x_i}\right)^{1-\rho}\left(\frac{x_{-i}}{x_iy^{\rho}}\right) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For $\rho&amp;gt;1$, this expression is positive, which means that the productivity of a factor increases as more of that factor is used. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regarding isoquants, you can find these by rewriting the production function as $x_2=g(y,x_1)$. In the generic CES, this is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ x_2 = \left(y^{\rho} - x_1^{\rho}\right)^\frac{1}{\rho} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These are linear in the case of $\rho=1$, convex in the case of Cobb-Douglas (where the function above is $x_2=\frac{y}{x_1}$, a hyperbole), and concave in the case of $\rho&amp;gt;1$. For example, select $\rho=2$ and you have:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ x_2^2 = y^2 - x_1^2 $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which is the formula of a circle centered at $(0,0)$, with radius $y$. Normally, for production theory only $x_i \geq 0$ is interesting, which gives you the concave isoquants for different levels of $y$. The figure below shows an example, were for a given factor prices ratio, there is a corner solution (point A):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\hskip3cm$&lt;a href=&quot;https://i.stack.imgur.com/vY4eY.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/vY4eY.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Code for reproducing figure &lt;a href=&quot;https://paste.ubuntu.com/25246082/&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;)&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-08-05T09:45:47.880" LastActivityDate="2017-08-05T09:45:47.880" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17713" PostTypeId="2" ParentId="17710" CreationDate="2017-08-05T14:19:13.723" Score="2" Body="&lt;p&gt;Unfortunately this question is exceptionally complex and depends on factors such has how many children the person has, which state they live in, and which services/opportunities they are taking advantage of.  I read a paper a while back (having a hard time finding it) in which the authors attempted to compute the effective tax rate for all incomes after the various deductions, benefits, alternative minimum tax, and other considerations.  The rate was very nonlinear with many peaks and valleys.  It was not particularly increasing with income.  This is further complicated by state taxes and the fact that states administer many welfare benefits using different criteria from each other.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Most taxes scale in and benefits scale out as income increases.  &lt;strong&gt;I believe the most heavily taxed dollar would be the one that takes you from qualifying for one of the various welfare benefits to not&lt;/strong&gt;.  Many welfare programs have hard cutoffs.  This will vary from state to state, though, and may depend on other factors like what your savings are and how your social worker is feeling that day.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When I was in graduate school I had a stipend of about \$22K and my friend got slightly less.  He qualified for food stamps, WIC, and medicaid, and HUD paid his rent and utilities.  He received about \$30K a year in government benefits (not counting the value of medicaid) on top of his stipend.  I was just over the income line got none of these (well, my wife got WIC when she was pregnant).  So the small difference in our income cost me many thousands of dollars--he lived much, much better than I did.  It was more than an income difference, though.  HUD paid his rent because he had found a cheaper apartment than I was able to and they had a rent-per-square-foot cutoff.  Later I tried restructuring my life in order to qualify for some of these, but the state had changed some of its rules (you had to have less than $2,000 in your bank accounts to qualify).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is also complicated by the fact that the rules are not applied consistently.  For example, some of the social workers deciding which benefits he got did not count his stipend as income, while all the ones I talked to counted mine.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your tax rate and marginal tax rate depend on many elements of who you are, where you live, how you file taxes, what consumption choices you make, and luck.&lt;/p&gt;&#xA;" OwnerUserId="12673" LastEditorUserId="12673" LastEditDate="2017-08-05T14:32:33.257" LastActivityDate="2017-08-05T14:32:33.257" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17714" PostTypeId="2" ParentId="17696" CreationDate="2017-08-05T14:51:13.200" Score="3" Body="&lt;p&gt;The process for solving this type of problem is very general--it's not a set of rules.  You don't need to attribute fixed costs to one good or the other (if there is only one fixed cost).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here's the procedure:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Write out the whole profit function&lt;/li&gt;&#xA;&lt;li&gt;Find the maximum of the profit function&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;If the maximum is less than the scrap value, then scrap it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If your profit function is continuous, then you can maximize it by differentiating with respect to the quantity produced of the two inputs, setting the first order conditions to 0, and solving.  Just be sure to check that you have found the maximums and not the minimums.  If it is not continuous you will need to use a different method to find the maximums.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How to write the profit function?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\pi= TR(q_1,q_2) -TC(q_1,q_2)&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$TR$ is usually easy.  It's &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;TR(q_1,q_2) = P_1(q_1,q_2)\cdot q_1 + P_2(q_1,q_2)\cdot q_2&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Insert your price functions (which will be constants if you are a price-taker) and your cost function so that $\pi$ is a function only of $q_1$ and $q_2$.  Then find its max.  The $q_1$ and $q_2$ that maximize $\pi$ are what you want.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This type of problem seems hard if you get caught up letting your right brain trying to figure out how to solve it heuristically.  Don't do that.  Write out the profit function and maximize it.&lt;/p&gt;&#xA;" OwnerUserId="12673" LastActivityDate="2017-08-05T14:51:13.200" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17715" PostTypeId="2" ParentId="8320" CreationDate="2017-08-05T15:14:54.380" Score="-1" Body="&lt;p&gt;&lt;strong&gt;Physical Money&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;M0 is just paper and metal.  The paper is printed in D.C. and Fort Worth by the Bureau of Printing and Engraving and banks purchase it using electronic money they have in their federal reserve deposit accounts.  Nothing special there and the effective money supply doesn't really change when M0 changes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;How the Fed Increases the Money Supply&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What it sounds like you are asking is how the Fed increases the money supply in general.  The Fed is constantly buying, selling, lending, and borrowing.  It does this through its open market operations desk at the NY fed and through other mechanisms such as lending to banks at the discount window and paying interest on deposits at the fed.  At any time you can look at how much money is flowing out of the fed (purchases, loans, and interest) and how much is flowing in (sales, redemptions, and borrowing) and compute the difference.  &lt;strong&gt;If they are buying and lending more than they are selling and borrowing, the money supply increases&lt;/strong&gt;.  That's how it happens and it is going on continuously.  Sometimes they buy things for above their market price (or push the price up) if they are trying to inject a lot of money into the supply or buoy up a particular market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the Fed increases the money supply in general, then it is possible that the number of physical dollars in use will increase, which means the Bureau of Printing and Engraving needs to spit out some more paper.  This is not that important of a consequence, though.  The spitting out of paper is not what increases the money supply.  Every physical dollar is purchased with an electronic dollar, so the effective money supply does not change.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Where Fed Dollars Come From&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The key to understanding the Fed is to remember that they are the only institution that doesn't really have a budget constraint.  &lt;strong&gt;When they buy something, they create brand new dollars to do so.  When they sell something, the dollars they receive effectively disappear.&lt;/strong&gt;  Every other institution, including the federal government, must actually have dollars to spend or get them via borrowing.    Because of this property, every time they buy something or make a loan, the money supply increases.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By the way, the fact that the Fed can make up and destroy money is why it makes little sense to worry about or discuss the Fed's balance sheet.  It's the unique institution with the property that its balance sheet doesn't need to affect its behavior.&lt;/p&gt;&#xA;" OwnerUserId="12673" LastEditorUserId="12673" LastEditDate="2017-08-05T15:45:01.680" LastActivityDate="2017-08-05T15:45:01.680" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="17716" PostTypeId="1" CreationDate="2017-08-05T16:07:24.770" Score="1" ViewCount="59" Body="&lt;p&gt;I currently deal with interest rate theories, reading amongst others Paul Samuelson (1958) and Peter Diamond (1965). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In Samuelson the possibility of a naturally occuring negative interest rate is introduced due to consumption smoothing and without some central bank mechanism. Often times I heard (or read) that the interest rate is impossible to decrease below zero as soon as some commodity is introduced that preserves its value over time, like land or some kind of neutral money. What I don't understand is, why? What is the idea behind that and what kind of concept is this neutral money as opposed to &quot;traditional&quot; money? &lt;/p&gt;&#xA;" OwnerUserId="7711" LastActivityDate="2017-09-05T09:08:46.873" Title="Negative interest rate and land" Tags="&lt;monetary-policy&gt;&lt;interest-rate&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17717" PostTypeId="1" CreationDate="2017-08-05T19:47:44.130" Score="-1" ViewCount="90" Body="&lt;p&gt;What should the Euro regulators look for and monitor to prevent a Euro crisis? &lt;/p&gt;&#xA;" OwnerUserId="14095" LastEditorUserId="2776" LastEditDate="2017-08-07T17:15:44.903" LastActivityDate="2017-08-07T17:15:44.903" Title="What should the Euro regulators look for and monitor to prevent a Euro crisis?" Tags="&lt;macroeconomics&gt;&lt;financial-crises&gt;" AnswerCount="1" CommentCount="1" ClosedDate="2017-08-11T19:29:09.723" ContentLicense="CC BY-SA 3.0" />
  <row Id="17718" PostTypeId="1" CreationDate="2017-08-05T21:16:36.153" Score="2" ViewCount="527" Body="&lt;p&gt;As noted in &lt;a href=&quot;https://economics.stackexchange.com/questions/12522/definition-of-market-to-book-value&quot;&gt;this post&lt;/a&gt;, the book value of a company is its assets minus its liabilities.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am reading this paper: &quot;&lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/S0304405X09000634&quot; rel=&quot;nofollow noreferrer&quot;&gt;The price of sin: the effect of social norms on market&lt;/a&gt;&quot; by Hong and Kacperczyk. One of the paper's hypothesis is that institutional investors are less likely to hold sin stocks. To demonstrate this, the following initial (Fama-Macbeth) regression was run as a benchmark:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$IO \sim Logsize + Beta + LOGMB + PRINV + STD+ RET $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;IO is institutional ownership&#xA;Logsize is the market cap&#xA;Beta is the beta of the sector the stock belongs&#xA;LOGMB is the log of the market to book ratio.&#xA;PRINV is the inverse of price&#xA;STD is standard deviation of monthly return&#xA;RET is log of arithmetic of previous year's monthly return.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question here is that, because the Market book ratio can be negative, how can we take log of this? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is not specified in the paper how this is treated. I have the strong suspicion that it is likely any company with negative book value for whatever reason is ignored. Surely this would introduce some sort of bias. Does anyone know what is the standard practice?&lt;/p&gt;&#xA;" OwnerUserId="4258" LastEditorUserId="2776" LastEditDate="2017-08-06T08:50:32.017" LastActivityDate="2019-08-07T17:42:09.380" Title="Log of a Negative Market-Book Ratio in a Regression Model" Tags="&lt;econometrics&gt;&lt;financial-economics&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17719" PostTypeId="2" ParentId="17717" CreationDate="2017-08-06T07:39:41.933" Score="1" Body="&lt;p&gt;For an EU member state to joins and stays in the &lt;a href=&quot;https://en.wikipedia.org/wiki/Eurozone&quot; rel=&quot;nofollow noreferrer&quot;&gt;Eurozone&lt;/a&gt; (the official name of what you called the Euro Club), it is necessary to comply with the &lt;a href=&quot;https://en.wikipedia.org/wiki/Stability_and_Growth_Pact&quot; rel=&quot;nofollow noreferrer&quot; title=&quot;Stability and Growth Pact&quot;&gt;Stability and Growth Pact&lt;/a&gt; (which Bulgaria already does) and fulfill the &lt;a href=&quot;https://en.wikipedia.org/wiki/Euro_convergence_criteria&quot; rel=&quot;nofollow noreferrer&quot;&gt;Euro Convergence Criteria&lt;/a&gt; defined in the Maastricht treaty &lt;a href=&quot;https://en.wikisource.org/wiki/Consolidated_version_of_the_Treaty_on_the_Functioning_of_the_European_Union/Title_VIII:_Economic_and_Monetary_Policy#Article_140&quot; rel=&quot;nofollow noreferrer&quot;&gt;article 140&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a nutshell, the convergence criteria define targets for the country on inflation, public debt deficit, interest rates and exchange rate against the Euro. These targets should be followed for a certain duration of time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;All of these targets were put in place to monitor and prevent economic instability - and after the debt crisis in several member states (such as Greece) these indicators keep on being used as good indicators to &lt;strong&gt;monitor&lt;/strong&gt; the stability of a country's economy. However, &lt;strong&gt;preventing&lt;/strong&gt; a economic crisis would require a higher integration of the member states, such as a Euro-zone public budget.&lt;/p&gt;&#xA;" OwnerUserId="12304" LastEditorUserId="12304" LastEditDate="2017-08-06T12:52:31.383" LastActivityDate="2017-08-06T12:52:31.383" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17720" PostTypeId="2" ParentId="17716" CreationDate="2017-08-06T08:09:18.843" Score="1" Body="&lt;p&gt;By neutral, the author probably refers to something that can hardly be influenced by external forces. Money can be affected by market forces and by central banks, and the consequences are variations on inflation and exchange rates. However, if you have gold or land, these will hardly lose their &lt;strong&gt;relative value&lt;/strong&gt;, at least that was the idea in the 50s-60s. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Coming back to the negative interest rates, for a rational investor that would need to decide between investing his money in return for a negative interest rate, or use the money to buy gold or land, which yield a neutral or positive interest rate, he/she would take the latter.&lt;/p&gt;&#xA;" OwnerUserId="12304" LastActivityDate="2017-08-06T08:09:18.843" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17721" PostTypeId="2" ParentId="17696" CreationDate="2017-08-06T08:37:18.693" Score="1" Body="&lt;p&gt;You can take 2 options: fixed costs are attributed (evenly or with a weight) to each unit produced, or use the fixed costs only to calculate the break-even point.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;&lt;strong&gt;Example:&lt;/strong&gt;&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm a taxi driver, I pay 300$ just to have a car every month (say insurance+license+depreciation of the car). &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Fixed costs can be attributed to each ride (a &quot;weight&quot;, as you mentioned). I would distribute by each of the ~1000 rides I make per month, so I know that for every trip I need to discount (300$/1000 customers=)30 cent, in average for fixed costs. &lt;em&gt;Of course, this only works when you can estimate +/- accurately your sales for a given month.&lt;/em&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Knowing that I will have 300\$ of fixed costs, I will keep an eye at my contribution margins and know that I need to make at least 300\$ every month to cover it. Simplifying, I can make short rides for 5\$, with a margin of 3\$, or long rides for 10\$, with a margin of 5$. This means I need to make 100 short rides or 60 long rides just to cover my fixed costs.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;The approach you take depends from what makes more sense for your business. In this case, I would take the approach 2, which also makes it more intuitive to understand that I making long rides will cover the fixed costs with less rides. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you have a positive contribution margin in a product, you should only stop producing it if you can produce and sell more of another product with the same resources and a higher margin.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can also use approach 2 and continuously verify the results of approach 1 for the previous month.&lt;/p&gt;&#xA;" OwnerUserId="12304" LastEditorUserId="12304" LastEditDate="2017-08-06T08:53:03.620" LastActivityDate="2017-08-06T08:53:03.620" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17723" PostTypeId="1" AcceptedAnswerId="17760" CreationDate="2017-08-06T14:27:21.030" Score="4" ViewCount="353" Body="&lt;p&gt;A lot of pegged exchange rate systems don't stay pegged for so long (e.g. because the central bank run out of reserves to maintain their values)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So far I understand that the HKD is 100% backed by the USD. How does this become a really good peg?&lt;/p&gt;&#xA;" OwnerUserId="14108" LastActivityDate="2017-08-22T18:42:52.057" Title="How can the HKMA peg the Hong Kong dollar at 7.8 HKD/USD for so long?" Tags="&lt;currency&gt;&lt;exchange-rates&gt;&lt;central-banking&gt;&lt;international-economics&gt;&lt;currency-peg&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="17724" PostTypeId="1" AcceptedAnswerId="17726" CreationDate="2017-08-06T14:29:20.777" Score="3" ViewCount="73" Body="&lt;p&gt;I'm new to this kind of topic and I'm trying to get a deeper understand. &#xA;I read that &quot;the shares' price times the number of shares outstanding is the value of a company (=market capitalization)&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, I'd say that it's just the value of that part of the company that is in the stock market. &#xA;In other words, when a company issues an IPO, it might not issue ALL of its shares, but just some of them.&#xA;So, let's say that the total amount of shares of a company (A) is 1000. The outstanding shares are 300 at the price of 10\$. The market cap is 300x10=3000\$. This number is the cumulative value of all the issued stocks.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's take this a bit further by taking another company (B). The second company has a total amount of share of 10000 (ten times that of A). So, if B issues 100 shares at the price of 10\$ its market cap will be 1000\$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By comparing the market cap of A and B I'd say that the value of A is three times greater than B, however, that's not correct. Or I should say that it is indeed correct for what regards the market cap, but that's not the case if we consider the shares that have not been issued yet.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the question is, how can the market capitalization give a hint about the value of a company? Also, how can the market cap be used to compare companies without taking into account the ratio between outstanding shares and the total amount of shares? (like the example above)&lt;/p&gt;&#xA;" OwnerUserId="14109" LastEditorUserId="2776" LastEditDate="2017-08-06T20:07:03.657" LastActivityDate="2017-08-07T00:03:33.010" Title="Clarifying the meaning of market capitalization" Tags="&lt;finance&gt;&lt;stock-market&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17725" PostTypeId="1" AcceptedAnswerId="17742" CreationDate="2017-08-06T18:14:51.487" Score="2" ViewCount="163" Body="&lt;p&gt;I am looking at Norway's economy, and I'm trying to make sense of some of the data I see. Norway's economy has a very close relationship to crude oil, and in 2014 crude oil had a massive drop. Looking at the inflation, exchange rate (USD/NOK, EUR/NOK) and interest rates, my questions are the following:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Is it a correct assumption that the the central bank started decreasing the interest rate, so that the damage to the economy (coming from the low crude oil price) is minimized?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Is it correct that a lower interest rate led to a weaker currency and thus higher inflation (2015, but mostly in 2016)?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;What could be the reason that inflation has dropped significantly recently? (I am asking this since the interest rate has remained the same, though the currency has strengthened a bit).&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="14112" LastEditorUserId="2776" LastEditDate="2017-08-07T17:12:02.277" LastActivityDate="2017-08-08T00:56:20.823" Title="Norway inflation and exchange rates" Tags="&lt;macroeconomics&gt;&lt;inflation&gt;&lt;currency&gt;&lt;exchange-rates&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="17726" PostTypeId="2" ParentId="17724" CreationDate="2017-08-07T00:03:33.010" Score="1" Body="&lt;p&gt;The &quot;shares outstanding&quot; variable used in the calculation of market capitalisation is defined as all shares that exist (and not was issued in public offerings). The market capitalisation is the share price times the outstanding. Therefore, the numbers in question do not apply.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is no need for shares to be transferred in a public offering; an initial investor in a firm before it was listed could sell to another investor privately. This means that there is no good way of tracking how many shares are held by &quot;the public,&quot; and that number is not used in calculations.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2017-08-07T00:03:33.010" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17727" PostTypeId="1" AcceptedAnswerId="17738" CreationDate="2017-08-07T03:08:37.250" Score="0" ViewCount="553" Body="&lt;p&gt;The economist Rudolf Hilferding refers to the immobility of capital to be able to respond to market signals. What does he mean by this and why is capital immobile?&lt;/p&gt;&#xA;" OwnerUserId="14115" LastEditorUserId="2776" LastEditDate="2017-08-07T06:51:41.870" LastActivityDate="2017-08-07T17:28:47.430" Title="What does it mean when capital is immobile as opposed to having full mobility?" Tags="&lt;capital&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17728" PostTypeId="2" ParentId="11252" CreationDate="2017-08-07T07:29:06.567" Score="0" Body="&lt;p&gt;Stock Exchanges are made of the investments, and serve as meeting point for company's ownership to be traded fast and legally. It's need and value increases with the the number of investors and companies in the market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Several developing countries lack legislation and law enforcement that would incentivize the use of a stock exchange. On the other hand, in developing countries the ownership of the largest companies is typically in the hands of a few powerful elites or foreign investors, and neither benefit from using a stock exchange, as they are usually not looking to exchange their investments.&lt;/p&gt;&#xA;" OwnerUserId="12304" LastActivityDate="2017-08-07T07:29:06.567" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17729" PostTypeId="2" ParentId="17089" CreationDate="2017-08-07T07:36:45.663" Score="1" Body="&lt;p&gt;If your assumption that &quot;only a few jobs are left (primarily high-skill)&quot; is true, then there are roughly two options: &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;people without jobs become redundant, meaning they will not reproduce anymore and disappear (pretty much as &lt;a href=&quot;https://www.economist.com/news/books-and-arts/21722813-quick-witted-hard-working-and-forgiving-horses-helped-man-conquer-world-how&quot; rel=&quot;nofollow noreferrer&quot;&gt;it happened to the horse&lt;/a&gt;). Here you end up with a society of a much reduced size, which will surely happen through some form of recession, or long stagnation period (kind of like a convergence to a new steady state. Naturally, this is very unlikely to happen in democracies (horses could not vote). An alternative is for many of the jobless to emigrate, but automation being a global force, this is just delaying the problem.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;the few remaining jobs are shared among the people. As &lt;a href=&quot;https://www.marxists.org/reference/subject/economics/keynes/1930/our-grandchildren.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;Keynes forecasted&lt;/a&gt; almost 90 years ago, technology could make a 15-hours working week possible. Thus, the fewer &lt;strong&gt;hours of work&lt;/strong&gt; available can be shared among the population (which would require some re-skilling effort). Although I am skeptical this will ever happen in capitalism, at least it averts a big recession. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;taxation becomes much more progressive, taxing the rich to provide subsidies to the jobless. An &quot;extreme&quot; form this could take could be the &lt;a href=&quot;https://en.wikipedia.org/wiki/Basic_income&quot; rel=&quot;nofollow noreferrer&quot;&gt;Universal Basic Income&lt;/a&gt;, or the &lt;a href=&quot;https://en.wikipedia.org/wiki/Negative_income_tax&quot; rel=&quot;nofollow noreferrer&quot;&gt;Negative Income Tax&lt;/a&gt;, favourite of Friedman. Since robotics is to increase productivity and increase profits (by lowering the labour share), an UBI could be finances via taxation on profits. On the one hand, giving income to the rest of the population is likely to generate more demand for products and services, leading to more job creation and growth. On the other hand, these taxation systems could be combined with some form of &quot;unproductive&quot; work, like volunteering, community work, etc. There is plenty of evidence that employment is important for mental and social wellbeing (e.g. &lt;a href=&quot;https://scholar.google.co.uk/scholar?q=unemployment+and+depression&amp;amp;btnG=&amp;amp;hl=es&amp;amp;as_sdt=0%2C5&amp;amp;as_vis=1&amp;amp;oq=unemployment+and+&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;), so simply providing income might not lead to socially desired outcomes. As Voltaire said, &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;“Work keeps at bay three great evils: boredom, vice, and need.”&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In all three options (explicitly and drastically in the first option), fertility is likely to endogenously adapt to these changes, just as it has done so &lt;a href=&quot;https://scholar.google.co.uk/scholar?q=economic+growth+and+endogenous+fertility&amp;amp;hl=es&amp;amp;as_sdt=0&amp;amp;as_vis=1&amp;amp;oi=scholart&amp;amp;sa=X&amp;amp;ved=0ahUKEwiH97HXzMTVAhUlKMAKHY-WD4oQgQMIJDAA&quot; rel=&quot;nofollow noreferrer&quot;&gt;in the past&lt;/a&gt;. Likewise, political ideas also adapt to technological and cultural changes, so things like UBI, which before were not feasible, might become socially accepted. The call for UBI from some of the very rich might partly reflect this (or an instinct response of those benefiting from capitalism to save it from a potential crisis/revolution).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Having said all this, I would dispute your assumption that there will be no jobs for the low/middle skilled individual. Under alternative assumptions the three options mentioned above might not be the most likely options anymore.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-08-07T07:36:45.663" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17730" PostTypeId="2" ParentId="5350" CreationDate="2017-08-07T07:40:03.507" Score="0" Body="&lt;p&gt;Aid money is channeled towards &lt;strong&gt;immediate disaster relief&lt;/strong&gt; and &lt;strong&gt;reconstructive/reparation efforts&lt;/strong&gt;, depending on the needs. Examples are the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Immediate disaster relief costs&lt;/strong&gt;: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Sending people and equipment to ensure basic safety: building structural safety, order and peace keeping, reduction of hazards from possible fuel/ gas / electricity leaks, etc.&lt;/li&gt;&#xA;&lt;li&gt;Sending people and equipment to ensure basic healthcare: doctors, nurses and mobile hospitals&lt;/li&gt;&#xA;&lt;li&gt;Sending food and cooking equipment&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Reconstructive/reparation efforts:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Rebuilding and repairing public infrastructure such as hospitals, electricity  and water networks, roads&lt;/li&gt;&#xA;&lt;li&gt;Ensuring communication networks are functional&lt;/li&gt;&#xA;&lt;li&gt;Others, depending on the case&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Referring to the Haiti earthquake, you can see this example of &lt;a href=&quot;http://www.sos-usa.org/emergency-response/haiti-hurricane-matthew&quot; rel=&quot;nofollow noreferrer&quot;&gt;reporting from SOS Children's Villages&lt;/a&gt; on their use of funds, or if you want to see how policy can be improved, you can read more from &lt;a href=&quot;https://www.oecd.org/gov/budgeting/48168599.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;OECD&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Naturally, several emergency relief initiatives are accused of having outrageous costs, as people in these kind of scenarios are typically paid a premium for their hardship, but also due to the need of special protection or transportation equipment. An example from Haiti, helicopters or special airplanes had to be used to land in a runway which is affected by an earthquake.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, the chance of corruption or appearance of guerilla groups is very likely in disaster situations.  &lt;/p&gt;&#xA;" OwnerUserId="12304" LastEditorUserId="12304" LastEditDate="2017-08-07T09:00:34.353" LastActivityDate="2017-08-07T09:00:34.353" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17731" PostTypeId="1" CreationDate="2017-08-07T07:47:41.840" Score="4" ViewCount="231" Body="&lt;p&gt;In an article of a respected German newspaper (&lt;em&gt;Die Zeit&lt;/em&gt;) I found the following statement (translation by me):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;90 % of all foreign exchange trades are dealt in USD. Since every electronic transaction of USD legally takes place on American territory, the US authorities can almost always take legal action against the involved individuals and companies, even if they are not located in the US.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I´ve tried a Google search, but did not find an explanation, so I thought I´d ask here (also, I´m quite new to economics).&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Are really 90 % of all foreign exchange trades dealt in USD?&lt;/li&gt;&#xA;&lt;li&gt;Why does every electronic transaction of USD legally take place on American territory? What laws/processes are responsible? What about non-electronic transactions in USD?&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;I´d be interested in an explanation or suggestions for further research!&lt;/p&gt;&#xA;" OwnerUserId="14116" LastActivityDate="2018-06-06T23:49:05.057" Title="Why does every electronic transaction of USD legally take place on American territory?" Tags="&lt;currency&gt;&lt;international-economics&gt;&lt;money&gt;&lt;law&gt;" AnswerCount="2" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="17733" PostTypeId="2" ParentId="17391" CreationDate="2017-08-07T10:30:20.020" Score="3" Body="&lt;p&gt;&lt;strong&gt;Unison (2014) - Net cost&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Public sector trade union did an analysis of lifting the cap in 2014. The report is &lt;a href=&quot;https://www.unison.org.uk/content/uploads/2014/05/On-line-Catalogue223292.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;. Unlike the IFS analysis presented above, &lt;strong&gt;Unison estimates the net cost of an increase in public pay&lt;/strong&gt; by 3%, using a microsimulation model. They estimates are summarised in the table below:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/4ddAN.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/4ddAN.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The key here is that a gross increase in the cost by approx. £4 billion reduces to a net increase between £1.7 and £2 billion (or £2.2; see Table 6a). The difference between scenarios depends on the assumption of the fiscal multiplier, which can range between 0.34 (used by the Office of Budget Responsibility), and 1.02 (upper bound used by the IMF). Naturally, the larger the multiplier is the higher the benefit from the wage increase, and the lower the net cost.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Institute for Fiscal Studies (2017) - Gross cost&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Institute for Fiscal Studies provided an analysis of the 2017 general election Labour and Lib Dem manifiesto, which included a lift to the 1% public pay cap increase. As the &lt;a href=&quot;https://www.ifs.org.uk/publications/9241&quot; rel=&quot;nofollow noreferrer&quot;&gt;report states&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Our analysis of the Labour plan implies that, compared to the current government’s plans, by 2021–22 a Labour government would need to provide departments and local government with an additional £9.2 billion per year to pay for the higher costs of employing public sector workers. Of this, £2.9 billion would be for the NHS. Comparing the Liberal Democrats’ plans to the current Conservative government’s plans, it would necessitate an extra £5.3 billion per year, of which £1.6 billion would be for the NHS.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The table below summarises their conclusions:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/H1v8f.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/H1v8f.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The key difference between the two parties is that the Lib Dem suggested to increase pay in line with inflation, whereas the Labour party suggested to increase pay in line with the private sector (more precisely, based on the recommendations of &lt;a href=&quot;http://press.labour.org.uk/post/160008381504/jonathan-ashworth-shadow-health-secretary-speech&quot; rel=&quot;nofollow noreferrer&quot;&gt;Pay Review Bodies&lt;/a&gt;). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As the report states, any forecast is highly dependent on the state of the economy (uncertainty due to e.g. Brexit):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;These Figures are highly sensitive to the forecasts of the economy. For the Liberal Democrats, the cost will be higher if inflation is higher in 2018–19 and 2019–20 than is expected by the OBR currently, or lower if inflation is lower. Under Labour’s policy if private sector earnings growth performs less well over the coming years than is forecast by the OBR (it has consistently underperformed OBR forecasts in recent years), then it would cost less than is implied by Table 1. Conversely, if private sector earnings growth performs better than forecast, and public pay is increased faster too, then the cost to departments and local government of Labour’s policy would be higher too.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Notice that these figures are gross cost estimates&lt;/strong&gt;. I.e. they do not include indirect costs or benefits associated with it. For example, further costs might arise due to how the spending is financed. Such increase in spending would certainly require (i) more taxation, and/or (ii) more borrowing (cuts also possible, but less likely, due to party manifestos). The former could change incentives to work or invest (affecting growth), whereas the latter means higher borrowing costs, which have to be paid too. Regarding the benefits, if you have some belief in the &lt;a href=&quot;https://en.wikipedia.org/wiki/Fiscal_multiplier&quot; rel=&quot;nofollow noreferrer&quot;&gt;fiscal multiplier&lt;/a&gt;, you could expect that part of that increase might be offset by extra revenues (income, VAT, etc) due to higher GDP (e.g. via consumption) from public workers. If this is a permanent increase, then such change in consumption is likely to be higher (at least according to the &lt;a href=&quot;https://en.wikipedia.org/wiki/Permanent_income_hypothesis&quot; rel=&quot;nofollow noreferrer&quot;&gt;permanent income hypothesis&lt;/a&gt;).&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-08-09T06:05:15.607" LastActivityDate="2017-08-09T06:05:15.607" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17735" PostTypeId="1" AcceptedAnswerId="17739" CreationDate="2017-08-07T17:27:00.167" Score="7" ViewCount="12221" Body="&lt;p&gt;There is a lot of debate on whether or not consumers and investors are rational. Unfortunately, I haven't seen much qualification for what is called a &lt;strong&gt;rational consumer&lt;/strong&gt;.  What are the requirements that must be met for us to consider a consumer to be rational?&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="4988" LastEditDate="2017-08-10T18:01:19.300" LastActivityDate="2018-05-14T12:09:22.493" Title="What is a rational consumer?" Tags="&lt;reference-request&gt;&lt;consumer-theory&gt;" AnswerCount="3" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="17736" PostTypeId="5" CreationDate="2017-08-07T17:28:29.710" Score="0" Body="" OwnerUserId="-1" LastEditorUserId="-1" LastEditDate="2017-08-07T17:28:29.710" LastActivityDate="2017-08-07T17:28:29.710" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17737" PostTypeId="4" CreationDate="2017-08-07T17:28:29.710" Score="0" Body="The euro area consists of those Member States of the European Union that have adopted the Euro as their currency. Monteray policy regarding the Euro is conducted by the European Central Bank." OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-08-12T01:09:45.737" LastActivityDate="2017-08-12T01:09:45.737" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17738" PostTypeId="2" ParentId="17727" CreationDate="2017-08-07T17:28:47.430" Score="0" Body="&lt;p&gt;Capital Mobility is usually defined, simply,  as the ability to move Capital out of one asset into another.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If a car manufacturing firm (Carmo) is deeply invested in Honda Engines and has built their production line and engineering team around that engine. Their capital is heavily invested in assets, labor and tech related to Honda.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now let's say tomorrow, Honda has a billion recalls on their entire line due to some severe engineering flaw. Carmo would like to switch to Toyota engines as their somewhat interchangeable with Honda Engines but this would require heavy asset replacement. Carmo's ability to respond to market preferences is hindered by the cost of replacing their asset bucket.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In summary, Capital Mobility refers to firm's capability in transferring capital from asset to asset to produce goods demanded by consumers.&lt;/p&gt;&#xA;" OwnerUserId="6173" LastActivityDate="2017-08-07T17:28:47.430" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="17739" PostTypeId="2" ParentId="17735" CreationDate="2017-08-07T17:40:18.783" Score="5" Body="&lt;p&gt;In consumer theory, &lt;strong&gt;preferences&lt;/strong&gt; are called rational if they are transitive and complete. Some nomenclature: An alternative A is weakly preferred to another alternative B, if you either like A more than B or you are indifferent between the two. Transitive means that whenever an alternative A is weakly preferred to alternative B, and B is weakly preferred to C, then A is weakly preferred to C. Complete means that for any two elements A and B of the set of possible alternatives, either A is weakly preferred to B, B is weakly preferred to A, or both. In short, preferences are rational when they are defined for all possible alternatives, and when they don't contradict each other in obvious ways.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Rational &lt;strong&gt;expectations&lt;/strong&gt; are a different beast and are specific to different models. Agents in a model have rational expectations if they use the model to form expectations about the future. This means that expectations are consistent with the model/theory in question, and it also means that every rational expectations model has a different &quot;theory&quot; about how people form their expectations. Rational expectations are as much a concept to solve dynamic models as they are an assertion on people's behavior. They are commonly used because they make sure that people are not systematically wrong about their beliefs, and they keep models' properties from being driven by more arbitrary assumptions on how people form expectations. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't think there is a lot of thought going into alternatives to rational preferences and most people are content with making the assumption that preferences are rational. There is a big literature in macro and finance on relaxing rational expectations assumptions. A lot of people work with models of bounded rationality, in which agents use a simpler approximation to the true model to form expectations.&lt;/p&gt;&#xA;" OwnerUserId="11216" LastEditorUserId="11216" LastEditDate="2017-08-07T20:26:07.733" LastActivityDate="2017-08-07T20:26:07.733" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17740" PostTypeId="1" CreationDate="2017-08-07T18:47:03.933" Score="1" ViewCount="64" Body="&lt;p&gt;In his  book &amp;quot;Zero to one&amp;quot;  Peter Theil describes a 2 X 2 matrix on how societies think about future.  Definite optimism (e.g. 1950s US), Definite Pessimism (Present day China), Indefinite Pessimism (Present Day Europe) and finally Indefinite Optimism (Present day US).  Does present day India fit in to one of these categories?&lt;/p&gt;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/fH5Th.png&quot; alt=&quot;Peter Theil&quot; /&gt;&lt;/p&gt;&#xA;" OwnerUserId="14118" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2017-08-07T19:39:48.103" Title="Where does India fall in Peter Theil's matrix?" Tags="&lt;macroeconomics&gt;" AnswerCount="0" CommentCount="2" ClosedDate="2017-08-11T19:28:36.133" ContentLicense="CC BY-SA 3.0" />
  <row Id="17741" PostTypeId="1" CreationDate="2017-08-07T20:56:05.357" Score="3" ViewCount="1492" Body="&lt;p&gt;Apparently the total market value of cryptocurrencies is currently &lt;a href=&quot;http://www.bbc.com/news/technology-40848505&quot; rel=&quot;nofollow noreferrer&quot;&gt;close to $118 billion&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is any of this reflected in GDP figures over the years? For example, if I start mining bitcoin today, I will consume electricity and produce bitcoins. How does this affect GDP?&lt;/p&gt;&#xA;" OwnerUserId="58" LastActivityDate="2017-09-12T15:08:52.070" Title="How are cryptocurrencies reported in GDP?" Tags="&lt;gdp&gt;&lt;cryptocurrency&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="17742" PostTypeId="2" ParentId="17725" CreationDate="2017-08-08T00:41:30.347" Score="1" Body="&lt;p&gt;I do not know Norway's economy. BTW, based on what you report, I would first rearrange your points into a more chrono-econo-logical order. Briefly,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;3 - Facing the loss of income due to the &lt;strong&gt;massive drop in the crude oil price&lt;/strong&gt;, --&#xA;depending on the impacts that this drop may have in term of &lt;a href=&quot;https://en.wikipedia.org/wiki/Redistribution_of_income_and_wealth&quot; rel=&quot;nofollow noreferrer&quot;&gt;income redistribution&lt;/a&gt; -- Norway's economic agents may have increased their saving rates $\iff$ economic agents consume less. Less demands means weaker upward pressure on prices, which in turn means &lt;strong&gt;less inflation&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1 - Facing the increasing masses of &lt;strong&gt;savings&lt;/strong&gt;, Norway's central bank may have started to &lt;strong&gt;decrease the interest rate&lt;/strong&gt; so as to &lt;strong&gt;disincentive&lt;/strong&gt; agents to do so. Indeed, lower interest rates $\iff$ lower rates of return on savings -- if commercial banks propagate this rate change, which is very likely. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;2 - Finally, since these lower interest rates tend to attract less &lt;a href=&quot;https://en.wikipedia.org/wiki/Foreign_investment&quot; rel=&quot;nofollow noreferrer&quot;&gt;foreign investments&lt;/a&gt; -- and since, to access to Norway's &lt;em&gt;lending&lt;/em&gt; market, those must first buy home country's currency -- this exerts a downward pressure on the value of Norway's currency, which in turn causes a relative price increase of imported goods $\iff$ &lt;a href=&quot;http://www.investorwords.com/15442/imported_inflation.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;imported inflation&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To conclude, I would say that your points 1 and 2 are as correct as they are incomplete.&lt;/p&gt;&#xA;" OwnerUserId="10247" LastEditorUserId="10247" LastEditDate="2017-08-08T00:56:20.823" LastActivityDate="2017-08-08T00:56:20.823" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17743" PostTypeId="1" AcceptedAnswerId="17746" CreationDate="2017-08-08T01:41:57.457" Score="2" ViewCount="113" Body="&lt;p&gt;I would like to know if there is an index which shows if food production growth is keeping pace with population growth worldwide. I know there are population growth rates available, for example for population there is a figure of 30% population growth rate for the period 1990-2010 worldwide from UN. Food production is harder to find , so I'm not sure if they are well known. I found here&#xA;&lt;a href=&quot;http://www.deltafarmpress.com/management/food-production-growth-not-keeping-pace&quot; rel=&quot;nofollow noreferrer&quot;&gt;Food production growth&lt;/a&gt; that USDA economists estimate global agricultural TFP growth averaged 1.4 percent per year between 2000 and 2007, but that doesn't help to compare it with the 1990-2010 period of population growth. So, is there any organization which keeps track of both figures or makes an index to compare both food production growth worldwide with population growth worldwide?&lt;/p&gt;&#xA;" OwnerUserId="8165" LastEditorUserId="2776" LastEditDate="2017-08-08T06:01:56.600" LastActivityDate="2017-08-08T06:06:12.010" Title="Is there any index which relates population growth rate with food production growth rate?" Tags="&lt;economic-growth&gt;&lt;agriculture&gt;&lt;population-economics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17744" PostTypeId="1" AcceptedAnswerId="17860" CreationDate="2017-08-08T03:03:32.683" Score="4" ViewCount="3710" Body="&lt;p&gt;To my understanding, all systems have a function.  For instance, the function of the respiratory system is to supply oxygen to the body.  The function of the digestive system is to break down and disseminate nutrients.  The function of a mass transit system is to facilitate large scale public transport.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Capitalism is defined in Merriam-Webster as, &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;an economic system characterized by private or corporate ownership of capital goods, by investments that are determined by private decision, and by prices, production, and the distribution of goods that are determined mainly by competition in a free market&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So clearly, capitalism is a system, but I can't glean from that definition its purpose.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;What would most economists consider the function of capitalism?&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Please be clear to separate, if you will, this system's function from the functions of other economic systems in your answer.&lt;/p&gt;&#xA;" OwnerUserId="14121" LastEditorUserId="2776" LastEditDate="2017-08-08T05:58:43.437" LastActivityDate="2017-08-16T23:34:00.953" Title="What is the function of capitalism?" Tags="&lt;capitalism&gt;" AnswerCount="3" CommentCount="3" FavoriteCount="1" ClosedDate="2017-08-18T16:05:27.147" ContentLicense="CC BY-SA 3.0" />
  <row Id="17745" PostTypeId="2" ParentId="17743" CreationDate="2017-08-08T05:14:05.600" Score="1" Body="&lt;p&gt;You can examine the components of &lt;a href=&quot;http://foodsecurityindex.eiu.com&quot; rel=&quot;nofollow noreferrer&quot;&gt;Global Food Security Index&lt;/a&gt;. If I'm not mistaken, you can actually download the data free online from the same website. It covers a large set of countries globally.&lt;/p&gt;&#xA;" OwnerUserId="14122" LastEditorUserId="2776" LastEditDate="2017-08-08T05:59:13.527" LastActivityDate="2017-08-08T05:59:13.527" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17746" PostTypeId="2" ParentId="17743" CreationDate="2017-08-08T06:06:12.010" Score="2" Body="&lt;p&gt;&lt;a href=&quot;https://ourworldindata.org/food-per-person/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Here&lt;/a&gt; there is a very good summary of existing information. Key variables are daily intake of calories/proteins/fat per person (so it is not so much about tons of food but their nutrient content). An example:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/pmHXf.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/pmHXf.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Notice that most of the data is taken from the FAO, which is available online &lt;a href=&quot;http://www.fao.org/faostat/en/#data&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-08-08T06:06:12.010" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17747" PostTypeId="2" ParentId="17744" CreationDate="2017-08-08T06:19:56.847" Score="3" Body="&lt;p&gt;From a &lt;strong&gt;neoclassical perspective&lt;/strong&gt;, its function is to allocate scarce resources efficiently, based on the &lt;a href=&quot;https://en.wikipedia.org/wiki/Invisible_hand&quot; rel=&quot;nofollow noreferrer&quot;&gt;invisible hand&lt;/a&gt; that make human selfishness work for the common good. Provided issues like externalities, public goods, etc are taking into account, every factor is paid its marginal product, &lt;a href=&quot;https://en.wikipedia.org/wiki/Allocative_efficiency&quot; rel=&quot;nofollow noreferrer&quot;&gt;ensuring efficiency&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From a &lt;strong&gt;Marxist perspective&lt;/strong&gt;, its function is to serve the capitalist class by &lt;a href=&quot;https://en.wikipedia.org/wiki/Exploitation_of_labour#Marxist_exploitation_theory&quot; rel=&quot;nofollow noreferrer&quot;&gt;exploiting the workers&lt;/a&gt;, who are forced to sell their labour in the market receiving a pay below their actual contribution (because, according to the &lt;a href=&quot;https://en.wikipedia.org/wiki/Labor_theory_of_value&quot; rel=&quot;nofollow noreferrer&quot;&gt;labour theory of value&lt;/a&gt;, only labour produces value). The surplus is appropriated by the capitalists, who enjoy the benefits of the system.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In my opinion these &lt;strong&gt;highly polar views&lt;/strong&gt; provide the basis with which other, more complex views can be compared.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-08-08T06:30:09.857" LastActivityDate="2017-08-08T06:30:09.857" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17751" PostTypeId="1" AcceptedAnswerId="17754" CreationDate="2017-08-08T18:52:24.507" Score="2" ViewCount="1048" Body="&lt;p&gt;Thomas Sowell has repeatedly made the case that government intervention is largely responsible for the Great Depression. For example, he notes what happened with the unemployment rate in the months after the stock market crash of 1929. Based on &lt;a href=&quot;https://nyupress.org/books/9780814787922/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Out of Work&lt;/a&gt; by Vedder and Gallaway (alternatively available through &lt;a href=&quot;http://www.jstor.org/stable/j.ctt9qg19k&quot; rel=&quot;nofollow noreferrer&quot;&gt;JSTOR&lt;/a&gt;), page 77, one sees that the unemployment rate went from 5% (Nov. 1929) to 9% (Dec. 1929) and down to 6.3% (June 1930). It is then that Hoover signs the Smoot-Hawley Tariff Act, which Sowell contends is the first cause of the Depression. He then notes that by December 1930, the unemployment rate had shot up to 14.4%. Furthermore, aside from minor fluctuations in early 1931, the unemployment rate dips just below that 14.4% figure in 1936, but that is still the unemployment rate in December 1939. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm wondering what alternative factors or explanations could explain the quick increase to the unemployment rate followed by a decrease that approaches the previous numbers and then the marked and sustained increase, or if such alternatives even exist.&lt;/p&gt;&#xA;" OwnerUserId="14131" LastEditorUserId="14131" LastEditDate="2017-08-09T17:02:53.870" LastActivityDate="2017-08-09T17:02:53.870" Title="1929 stock market crash and unemployment rate" Tags="&lt;macroeconomics&gt;&lt;stock-market&gt;&lt;unemployment&gt;&lt;government-spending&gt;&lt;tariffs&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17752" PostTypeId="1" AcceptedAnswerId="17755" CreationDate="2017-08-08T19:38:57.700" Score="0" ViewCount="91" Body="&lt;p&gt;If we assume a country where only &lt;strong&gt;demand pull&lt;/strong&gt; inflation holds, that is no imports cost inflation or currency fluctuations are a risk, then we can assume that inflation is determined by:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Consumer spending (for example for the US this should be the most important part of the economy)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Government spending&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Are retail sales and house sales included in the consumer spending figure?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Aside from that, are there other economic indicators (that are neither consumer spending nor government spending) that influence a country's inflation?&lt;/p&gt;&#xA;" OwnerUserId="14112" LastEditorUserId="2776" LastEditDate="2017-08-09T10:05:11.113" LastActivityDate="2017-08-09T10:05:11.113" Title="What are the constituents of a country's inflation" Tags="&lt;macroeconomics&gt;&lt;inflation&gt;&lt;currency&gt;" AnswerCount="1" CommentCount="4" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17753" PostTypeId="1" AcceptedAnswerId="37171" CreationDate="2017-08-08T21:57:03.317" Score="6" ViewCount="88" Body="&lt;p&gt;Economics models usually assume that the structure of the economy is &lt;strong&gt;common knowledge&lt;/strong&gt; among agents. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Mathematically, an event is common knowledge if it lies in the &lt;em&gt;meet&lt;/em&gt; of all agents' information sets. (The meet of a family of $\sigma$-algebras is the finest common coarsification of all $\sigma$-algebras in the family. See Aumann 1976.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, in the literature when a paper makes the common knowledge assumption, one almost never sees the meet of any information sets anywhere. Let me give an example (Grossman and Stiglitz 1980).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Grossman-Stiglitz model&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is a model where two traders with (essentially) mean-variance utility are asymmetrically informed about the mean. By assumption, structure of the economy is common knowledge and traders are rational. Equilibrium price must therefore, first, clear the market and, second, be consistent with the uninformed trader's expectation. Details given as follows.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $I$ and $U$ denote the informed and uninformed traders respectively. The traders have same CARA utility, $u_I(W) = u_U(W) = - e^{-\gamma W}$. The risk-free rate is $r$. The price of risky asset tomorrow is $P_2 \sim \mathcal{N}(\bar{P}, \sigma^2) | \bar{P}$. The informed trader $I$ knows $\bar{P}$; the uninformed trader $U$ only knows the prior distribution $\bar{P} \sim \mathcal{N}(P_0, \sigma_0^2)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let both trader have wealth endowments $E$. (CARA utility has no wealth effect, so $E$ plays no role in portfolio choice below.) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given today's price $P_1$ for the risky asset, trader's wealth tomorrow is&#xA;$W(\phi) = rW + \phi (P_2 - rP_1)$ if he choose to hold $\phi$ units of risky asset.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Maximizing expected utility, a traders' demand is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\frac{E[P_2|\mathcal{F}] - rP_1}{\gamma Var(P_2|\mathcal{F})}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;conditional on his information set $\mathcal{F}$. For $I$, $\mathcal{F}_I = \{ \bar{P}, P_1\} $. For $U$, $\mathcal{F}_U = \{ P_1 \}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The supply $x$ of risky asset is distributed $\mathcal{N}(\bar{x}, \sigma_x^2)$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Equilibrium is a price function $P_1(\bar{P}, x)$ such that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\frac{\bar{P} - r P_1(\bar{P}, x)}{\gamma \sigma^2}+&#xA;\frac{E[P_2|P_1(\bar{P}, x)] - r P_1(\bar{P}, x)}{\gamma Var(P_2|P_1(\bar{P}, x))} = x.&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words, market clears and the uninformed trader computes his demand using the correct pricing function in equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now in this CARA-normal setting, things are linear and one can solve for equilibrium by guessing a pricing function&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;P_1(\bar{P}, x) = A\bar{P} + Bx + C&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and find $A$, $B$ and $C$ by matching coefficients. For example, compute&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;E[P_2|P_1] = P_0 + \frac{A \sigma_0^2}{A^2 \sigma_0^2 + B^2 \sigma_x^2} [A(\bar{P} - P_0)  + Bx]&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;Var(P_2|P_1) = \frac{B^2 \sigma_x^2}{A^2 \sigma_0^2 + B^2 \sigma_x^2}\sigma_0^2 + \sigma^2 &#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Substituting into the market clearing equation and some tedious algebra gives endogenous constants $A$, $B$, and $C$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Instead, Grossman and Stiglitz do something more elegant.&#xA;They point out that uninformed trader $U$ can condition on the &lt;em&gt;residual demand&lt;/em&gt; for any realization of $(\bar{P},x)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;D_{resid} = x -  \frac{\bar{P} - r P_1 }{\gamma \sigma^2}.&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What's even more clever, they note that, since $P_1$ is observed in &#xA;in equilibrium, they first conjecture that $P_1$ and&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\tilde{D}_{resid}&#xA;= x -  \frac{\bar{P} }{\gamma \sigma^2}.&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;are informationally equivalent. Then equilibrium condition becomes&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\frac{ r P_1(\bar{P}, x)}{\gamma \sigma^2}+&#xA;\frac{E[P_2|\tilde{D}_{resid}] - r P_1(\bar{P}, x)}{\gamma Var(P_2|\tilde{D}_{resid})} = \tilde{D}_{resid}.&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now things are much less tedious and there are no endogenous constants $A$ and $B$ to solve for. $E[P_2|\tilde{D}_{resid}]$ is an affine function of&#xA;$\tilde{D}_{resid}$ and $Var(P_2|\tilde{D}_{resid})$ is an exogenous constant. So that $P_1(\bar{P}, x)$ can be backed out immediately. Since&#xA;$P_1$ is an affine function of $\tilde{D}_{resid}$, it is verified ex-post &#xA;that they are informationally equivalent.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Question&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To have the uninformed trader $U$ condition on the residual demand, the common knowledge assumption is used. Or, at least, $U$ knows that $I$ knows so that $U$ can put herself in $I$'s shoes and compute $I$'s demand. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, the meet of the information sets does not appear anywhere---as it should. Result of $U$'s calculations should be measurable with respect to the meet. If one is to formulate this mathematically, where would that appear?&lt;/p&gt;&#xA;" OwnerUserId="126" LastActivityDate="2020-06-08T22:23:49.063" Title="Common knowledge in model formulation and solution" Tags="&lt;mathematical-economics&gt;&lt;asymmetric-information&gt;&lt;information&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17754" PostTypeId="2" ParentId="17751" CreationDate="2017-08-09T03:56:09.230" Score="2" Body="&lt;p&gt;One caveat to the author you refer to, Thomas Sowell is a staunchly conservative economist, so most arguments you hear from him will stick to the Econ 101 wisdom that government intervention is usually bad, tariffs are always bad (to be fair, it is hard to use them to correct externalities for global &quot;public goods&quot;), etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Although tariffs probably were not necessarily the right choice for a tightening economy, the general story is that our central bank in America back then was a lot less independent from politics and less knowledgeable of how to deal with liquidity crises. It ended up tightening monetary policy instead of loosening it to ease the economic contraction, exacerbating employment problems for a long time. Keep in mind as well that this period of unemployment over 10% lasted for over a decade or so; it's not quite feasible to tell what all the factors were that caused the high unemployment, especially without official data on unemployment for a lot of that period.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2017-08-09T03:56:09.230" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="17755" PostTypeId="2" ParentId="17752" CreationDate="2017-08-09T10:03:08.407" Score="1" Body="&lt;p&gt;The components of aggregate demand are government consumption, consumption, investment, net exports. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;While people typically assume there is a relationship between demand shocks and inflation, this does not mean that inflation will necessarily go up whenever consumption goes up, because consumption depends not only on demand shocks but also many other things that will not necessarily affect inflation in the same way. For example, if consumption goes up because labor productivity and incomes increase, inflation may even go down. On the other hand, if the central bank decreases the interest rate, demand will increase and this will cause an increase in inflation.&lt;/p&gt;&#xA;" OwnerUserId="11216" LastActivityDate="2017-08-09T10:03:08.407" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="17757" PostTypeId="1" AcceptedAnswerId="17780" CreationDate="2017-08-09T14:36:30.027" Score="3" ViewCount="54" Body="&lt;p&gt;I am working through &lt;a href=&quot;https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2397393&quot; rel=&quot;nofollow noreferrer&quot;&gt;Rochet and Stohle (2003)&lt;/a&gt; chapter on multi-dimensional screening, and I am struggling filling in the blanks between equation (2.1) p. 154, and its simplified form on page 155. In particular, my question concerns:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consumers are of type $\theta$ $\in$ $\Theta$ = [$\underline\theta$, $\bar\theta$] with associated cdf $F(\theta)$, which is absolutely continuous, and associated density function $f(\theta)$ = $F'(\theta)$. This is the distribution of types.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There also is a preference relation for each consumer for $q \in Q = [0,\bar q]$: $u = v(q, \theta) - P$ with the single crossing property $v_{q\theta} &amp;gt; 0 $. I am adding this for context, but all information may not be necessary for my particular question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This renders an indirect utility function defined by:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$u(\theta) = \max_{\rm {q\in Q}} \{v(q, \theta) - P(q)\}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The monopoly firm is using a non-linear tariff, $P(q)$, and wants to maximize its expected payoff (I am skipping some information not needed for my question on what renders this equation): &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$E(\pi) = \int^\bar\theta_\underline\theta [S(q(\theta), \theta) - u(\theta)] dF(\theta)$ equation (2.1) in text&lt;/p&gt;&#xA;&#xA;&lt;p&gt;subject to:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$du/d\theta = v_\theta(q(\theta), \theta)$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$dq(\theta)/d\theta\geq0 $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$IR\space constraint$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that the function $S(q(\theta), \theta)$ is not important for my question, hence, I am not including its definition here.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now to my question. The authors makes a simplification of the problem:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$E(\pi) = \int^\bar\theta_\underline\theta [S(q(\theta), \theta) - \frac {1-F(\theta)}{f(\theta)}v_\theta(q(\theta), \theta) - u(\underline\theta)]dF(\theta)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;subject to:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$dq(\theta)/d\theta\geq0 $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$IR\space constraint$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, this to me is the same as saying:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\int^\bar\theta_\underline\theta u(\theta) dF(\theta) = \int^\bar\theta_\underline\theta [\frac {1-F(\theta)}{f(\theta)}v_\theta(q(\theta), \theta) + u(\underline\theta)]dF(\theta) $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And here is where I need help to fill in the steps. As the authors explain, this is done by integration by parts, and using one of the constraints. I get something like this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\int^\bar\theta_\underline\theta u(\theta) dF(\theta) = u(\theta)F(\theta)|^\bar\theta_\underline\theta - \int^\bar\theta_\underline\theta F(\theta)v_\theta(q(\theta),\theta)d\theta$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can simplify this a bit further, but it does not simplify to the authors' expression. Hence, can anybody help me fill in the blanks?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I hope that I have left sufficient information, otherwise, please let me know what I need to clarify.&lt;/p&gt;&#xA;" OwnerUserId="14135" LastEditorUserId="2776" LastEditDate="2017-08-09T14:41:30.643" LastActivityDate="2017-08-10T18:45:47.497" Title="Simplifying a monoplist's objective function under incomplete information" Tags="&lt;mathematical-economics&gt;&lt;statistics&gt;&lt;monopoly&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17759" PostTypeId="1" AcceptedAnswerId="17789" CreationDate="2017-08-09T16:45:26.920" Score="4" ViewCount="164" Body="&lt;p&gt;I have the following optimisation problem:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;max $E_{0}\sum_{t=0}^{\infty}[log(c_{t}) + log(m_{t})]$ subject to $y + \frac{M_{t-1}}{p_{t}} + R_{t-1}\frac{B_{t-1}}{p_{t}} = c_{t} + m_{t}+b_{t}+\tau_{t}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where lower case letters indicate real variables and $R$ is the gross nominal interest rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am trying to solve this using the value function approach but I am having a difficult time understanding what the state variable should be in this case. I tried using wealth as the state and formulated the following value function:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$V(a_{t}) = \max_{c_{t}, m_{t},b_{t}} [u(c_{t},m_{t}) + \beta V(a_{t+1})]$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $a_{t} = y+ \frac{M_{t-1}}{p_{t}} + R_{t-1}\frac{B_{t-1}}{p_{t}} $ and initial values are assumed to be given. My problem now is that I don't know what to substitute for $a_{t+1}$. I have tried forwarding the left-hand side of the budget constraint (i.e $a_{t+1} =  y + \frac{m_{t}}{\pi_{t+1}} + R_{t} \frac{b_{t}}{\pi_{t+1}})$ and then differentiating w.r.t c,m and b but my results are very strange. Furthermore, if I have understood correctly, I also have to find $V_{a}(a_{t})$ which I cannot do with this substitution.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am trying to learn this using Walsh's book and in his example, the budget constraint has capital which appears on both sides of the budget constraint, this allows him to re-write capital as a function of $a_{t}$. I tried to do the same but with real balances;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From the budget constraint I can write $m_{t} = a_{t}-c_t-b_t-\tau_t$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, $V(a_{t}) = [u(c_{t},m_{t}) + \beta V(y + \frac{a_{t}-c_t-b_t-\tau_t}{\pi_{t+1}}) + R_{t} \frac{b_{t}}{\pi_{t+1}} ]$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Again I differentiate w.r.t c,m and b and this time my results are looking less crazy but still not correct. I get:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(c) $u_{c} - \beta V_{a}(a_{t+1})[\frac{1}{\pi_{t+1}}] = 0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(m) $u_m + \beta V_{a}(a_{t+1})[\frac{1}{\pi_{t+1}}] = 0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(b) $\beta V_{a}(a_{t+1})[\frac{R_{t}}{\pi_{t+1}} - \frac{1}{\pi_{t+1}}] = 0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And lastly, $V_{a}(a_{t}) = \beta V_{a}(a_{t+1})[\frac{1}{\pi_{t+1}}] $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The final condition implies that $u_{c} = V_{a}(a_{t})$ which is similar to Walsh's answer but I can't seem to obtain a form of the Fisher equation and money demand function from my workings. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is also the equilibrium condition $c_{t} = y-g$ but I have no idea when to impose it. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any thoughts on what I have done incorrectly?&lt;/p&gt;&#xA;" OwnerUserId="11767" LastActivityDate="2017-08-12T16:25:25.240" Title="Optimisation using value function" Tags="&lt;dynamic-programming&gt;&lt;bellman-equations&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17760" PostTypeId="2" ParentId="17723" CreationDate="2017-08-09T21:38:35.903" Score="6" Body="&lt;p&gt;To maintain the currency peg, the Hong Kong Monetary Authority (HKMA) has to buy HKD and sell USD when the currency comes under depreciation pressure and sell HKD and buy USD when the currency comes under appreciation pressure.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Depreciation pressure:&lt;/strong&gt; The HKMA operates a currency board, which means that more than 100% of outstanding HKD is backed by USD reserves. It cannot run out of reserves and the peg could be maintained indefinitely in the face of depreciation pressure, if this was the only goal the HKMA wished to pursue.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Appreciation pressure:&lt;/strong&gt; The HKMA can print more HKD and sell it. There is no limit to this in theory (although the Swiss National Bank chose to abandon its peg in 2015). The peg could be maintained indefinitely in the face of appreciation pressure as well.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, as long as the HKMA is committed to maintaining the peg, it can't run an independent monetary policy suitable for Hong Kong. (The HKD is sold/bought to maintain the peg instead of being sold/bought to stimulate or rein in economy.) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the Hong Kong economy slowed, the HKMA would maybe prefer to simulate the economy by injecting more HKD into the system (printing more money). It might not be able to do so though if the HKD was under depreciation pressure. It would actually have to BUY the HKD to maintain the peg. This is the exact opposite of what would help the economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At the moment, Hong Kong is importing US monetary policy by pegging its currency to the USD. This has worked as Hong Kong is a small open economy in sync with the global economic cycle and the US is a main driver of that very cycle. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Nonetheless, some speculate that the peg will eventually be abandoned in favour of a peg to the Chinese renminbi as Hong Kong is more and more linked to the Chinese economy and US monetary policy is becoming less suitable for Hong Kong.&lt;/p&gt;&#xA;" OwnerUserId="14137" LastEditorUserId="14137" LastEditDate="2017-08-22T18:42:52.057" LastActivityDate="2017-08-22T18:42:52.057" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="17763" PostTypeId="1" AcceptedAnswerId="32868" CreationDate="2017-08-10T00:08:21.020" Score="1" ViewCount="78" Body="&lt;p&gt;In an &lt;a href=&quot;http://lemonde.fr/idees/article/2017/08/09/jean-michel-naulot-dix-ans-apres-un-effondrement-financier-est-toujours-possible_5170446_3232.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;article&lt;/a&gt; by Jean-Michel Naulot about the 2007–2008 financial crisis, I read (my translation):&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Although central banks had an exemplary reaction at the time of the [2007–2008] crisis, they subsequently carried out an unprecedented policy by massively and durably injecting currency into the financial system, as never before. A major part of these liquid assets was invested into risky assets and speculation. Private debt rose considerably again.&lt;/p&gt;&#xA;&lt;p&gt;In the past 20 years, a fiendish debt feedback system has risen: as crises break, public spending is massively revived and tax revenue is reduced, hence public debt soars. Central banks keep interest rates low for extended periods of time and private debt rises considerably, especially in countries with high levels of inequality. Excessive private debt leads to a new crises, which drives public debt up, ...&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;The second paragraph suggests that public debt rises because of public spending programs and because lower tax revenue during hard times is not compensated by higher tax revenue during boom times. However the first paragraph suggests that there's more to public debt than public works (which benefits the public) and low taxes (which benefits whoever gets low tax rates). Where does the money that's “massively and durably injected” go?&lt;/p&gt;&#xA;&lt;p&gt;Does this refer to stimulus packages? To governments compensating for defaulting financial institutions? Who's getting the money? Are these loans (that don't seem to be repaid) or gifts?&lt;/p&gt;&#xA;" OwnerUserId="252" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2019-11-21T02:24:26.003" Title="How have central banks been injecting currency after crises since 2007?" Tags="&lt;central-banking&gt;&lt;debt&gt;&lt;government-debt&gt;&lt;financial-crises&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="17764" PostTypeId="1" CreationDate="2017-08-10T06:04:29.120" Score="0" ViewCount="31" Body="&lt;p&gt;As far as I'm aware, the Federal Reserve has 4.5$ Billion on its balance sheet.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where did it get the money for buying all those assets?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand that it makes money out of interest on the bonds it holds, but where did it get the money to buy those bonds in the first place?&lt;/p&gt;&#xA;" OwnerUserId="14142" LastActivityDate="2017-08-10T06:13:42.647" Title="How does the Fed get money" Tags="&lt;central-banking&gt;&lt;federal-reserve&gt;" AnswerCount="1" CommentCount="1" ClosedDate="2017-08-18T16:06:04.637" ContentLicense="CC BY-SA 3.0" />
  <row Id="17765" PostTypeId="2" ParentId="17764" CreationDate="2017-08-10T06:13:42.647" Score="0" Body="&lt;p&gt;If you read Fed's balance sheet, you'll see a corresponding increase in its liabilities under various deposits. They simply credit the accounts of institutions who sold them the assets.&lt;/p&gt;&#xA;" OwnerUserId="14122" LastActivityDate="2017-08-10T06:13:42.647" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17766" PostTypeId="1" AcceptedAnswerId="17769" CreationDate="2017-08-10T06:31:40.430" Score="1" ViewCount="126" Body="&lt;p&gt;I knew that when the Fed in the US buys bonds through Quantitative Easing, it does so using money it has from previous profits and that it doesn't print new money.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, I was reading &lt;a href=&quot;https://www.bloomberg.com/quicktake/europes-qe-quandary&quot; rel=&quot;nofollow noreferrer&quot;&gt;this article&lt;/a&gt; about QE, which states that the European Central Bank prints new money when doing QE.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the ECB, unlike the Fed, does print new money when doing QE?&lt;/p&gt;&#xA;" OwnerUserId="14142" LastEditorUserId="2776" LastEditDate="2017-08-10T08:32:10.617" LastActivityDate="2017-08-23T13:09:15.710" Title="When the ECB does QE, does it print new money?" Tags="&lt;money-supply&gt;&lt;central-banking&gt;&lt;quantitative-easing&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17767" PostTypeId="2" ParentId="17766" CreationDate="2017-08-10T06:48:47.027" Score="0" Body="&lt;p&gt;As for what I've understood: by buying the bonds they're providing the system (banks) with liquidity. The banks in turn are supposed to lend this money out to people and businesses, i.e. increasing the money supply which otherwise would stay as assets on the banks' balance sheets. &#xA;By buying the bonds they're simultaneously lowering the rates on them since the prices go up (i.e. giving us lower rates). This in turn makes us more willing to loan if the rates are lower.    &lt;/p&gt;&#xA;" OwnerUserId="14132" LastActivityDate="2017-08-10T06:48:47.027" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17768" PostTypeId="2" ParentId="17094" CreationDate="2017-08-10T07:34:31.360" Score="1" Body="&lt;p&gt;&lt;strong&gt;From the Chinese perspective&lt;/strong&gt;, it's &quot;dangerous&quot; because high investment for so many years, particularly when driven by state incentives or by state-owned firms might induce &lt;a href=&quot;https://www.ft.com/content/253d7eb0-ca6c-11e5-84df-70594b99fc47&quot; rel=&quot;nofollow noreferrer&quot;&gt;mis-allocation of resources&lt;/a&gt;, high indebtness levels and excess capacity (some might say even voluntary, for example &lt;a href=&quot;https://en.wikipedia.org/wiki/Dumping_(pricing_policy)#Chinese_economic_situation&quot; rel=&quot;nofollow noreferrer&quot;&gt;dumping&lt;/a&gt; in steel to &lt;a href=&quot;https://theconversation.com/fact-check-is-china-dumping-steel-76916&quot; rel=&quot;nofollow noreferrer&quot;&gt;hurt developed countries' industries&lt;/a&gt;). For instance, &lt;a href=&quot;https://www.economics.ox.ac.uk/materials/working_papers/paper441.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;this paper&lt;/a&gt; states that:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The main  objective  of  management  in  Chinese  state-owned  and  state-&#xA;  dominated  firms  has been  to  maximise  not  profits  but  the  growth  of  investment  and  output.  The  reward  to such  bureaucrats  takes  the  form  of  prestige,  power  and  the  accompanying  perks  of commanding an organisation; the reward being greater the larger the organisation.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Another reason is that investment is &lt;a href=&quot;https://www.enotes.com/homework-help/why-investment-spending-more-sensitive-than-373971&quot; rel=&quot;nofollow noreferrer&quot;&gt;more volatile&lt;/a&gt; than consumption. However, if investment is supported importantly by state-owned enterprises, this might not apply well to China, which by the way have not had a recession in decades).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;From a western perspective&lt;/strong&gt;, high investment (and low consumption) contributes to a high trade balance surplus and therefore to a high &lt;a href=&quot;https://tradingeconomics.com/china/current-account&quot; rel=&quot;nofollow noreferrer&quot;&gt;current account surplus&lt;/a&gt;, which might be good for the central bank of China (accumulation of reserves) aiming to keep the Yuan relatively low to foster the competitiveness of the export sector, but is bad news for the rest of the world. The latter would benefit from higher consumption of the Chinese population (via Chinese imports and rest of the world's exports). The same story is told of &lt;a href=&quot;https://www.economist.com/news/leaders/21724810-country-saves-too-much-and-spends-too-little-why-germanys-current-account-surplus-bad&quot; rel=&quot;nofollow noreferrer&quot;&gt;Germany&lt;/a&gt;, which would help other countries (mainly European partners, because of same currency) by rebalancing its economy from exports toward more consumption. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Additionally, note that some economists have blamed China (among others) for the Great Recession (e.g. &lt;a href=&quot;http://foreignpolicy.com/2012/01/17/how-chinas-boom-caused-the-financial-crisis/&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; or &lt;a href=&quot;https://www.brookings.edu/research/global-saving-glut-monetary-policy-and-housing-bubble-further-evidence/&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;), partly because of their voracious reserve accumulation policies, a core element in the export-led Chinese development strategy. Thus, a more rebalanced global economy might be good for the world economy as a whole, decreasing the likelihood of another recession. &lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-08-10T07:43:09.637" LastActivityDate="2017-08-10T07:43:09.637" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17769" PostTypeId="2" ParentId="17766" CreationDate="2017-08-10T08:07:44.007" Score="3" Body="&lt;p&gt;First of all, I'm not sure you are reading that article correctly, as I cannot find any mention of the claim you make. In any case, you can find &lt;a href=&quot;https://files.stlouisfed.org/files/htdocs/publications/review/13/01/Fawley.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; a superb comparative analysis of QE for the Fed, the Bank of Japan, the ECB and the Bank of England. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regarding money creation, the key difference between conventional monetary policy and QE is the &lt;strong&gt;type of asset&lt;/strong&gt; being transacted (short-term government debt versus long-term government/private debt, respectively; again it depends on the central bank, see referred document). There is, to my understanding, no difference on how the monetary operations are carried out in each policy. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In fact, these operations are quite standard. The central bank buys assets by crediting the seller's bank account, in exchange for the ownership of the assets, which are then added to the central bank assets and eliminated from the sellers assets. This is akin to you receiving a deposit in your current account. You have been credited with some amount. There is no &lt;strong&gt;physical&lt;/strong&gt; money creation or physical money transfered in the process itself. There is indirect money creation (all electronic) if such transactions enable the banks to expand their credit to other institutions or companies (provided demand for such credit exist and banks are willing to do so, e.g. in an economic boom), whilst still complying with the &lt;a href=&quot;https://en.wikipedia.org/wiki/Fractional-reserve_banking#Reserve_requirements&quot; rel=&quot;nofollow noreferrer&quot;&gt;regulation&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To learn more about money creating and modern banking, I suggest &lt;a href=&quot;http://positivemoney.org/how-money-works/advanced/how-central-banks-create-money/&quot; rel=&quot;nofollow noreferrer&quot;&gt;this page&lt;/a&gt;, &lt;a href=&quot;http://www.investopedia.com/articles/investing/081415/understanding-how-federal-reserve-creates-money.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;this page&lt;/a&gt; or &lt;a href=&quot;https://economics.stackexchange.com/questions/3130/how-does-a-central-bank-create-the-money-used-for-quantitative-easing-or-lowerin&quot;&gt;this post&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-08-23T13:09:15.710" LastActivityDate="2017-08-23T13:09:15.710" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17770" PostTypeId="2" ParentId="14284" CreationDate="2017-08-10T10:43:05.347" Score="2" Body="&lt;p&gt;Commercial banks have existed &lt;a href=&quot;https://en.wikipedia.org/wiki/History_of_banking&quot; rel=&quot;nofollow noreferrer&quot;&gt;long before&lt;/a&gt; any institution akin to a modern central bank was established (the first &amp;quot;central bank&amp;quot; seems to have been the &lt;a href=&quot;https://en.wikipedia.org/wiki/Central_bank#Bank_of_Sweden_.28Sveriges_Riksbank.29&quot; rel=&quot;nofollow noreferrer&quot;&gt;Bank of Sweden&lt;/a&gt;, created in 1668, albeit this was a for-profit, private institution). Because of the important role of banking in financing trade, wars, and the recurrence of &lt;a href=&quot;https://en.wikipedia.org/wiki/Financial_crisis#Prior_to_19th_century&quot; rel=&quot;nofollow noreferrer&quot;&gt;crises&lt;/a&gt;, &lt;a href=&quot;https://en.wikipedia.org/wiki/Price_revolution&quot; rel=&quot;nofollow noreferrer&quot;&gt;inflation&lt;/a&gt;, and &lt;a href=&quot;https://en.wikipedia.org/wiki/Convertibility#Commodity_money&quot; rel=&quot;nofollow noreferrer&quot;&gt;convertibility&lt;/a&gt; problems, many politicians, economists, and other individuals wrote about issues related to money theory and banking. For instance, two prominent books about monetary theory are &lt;a href=&quot;https://en.wikipedia.org/wiki/Money_and_Trade&quot; rel=&quot;nofollow noreferrer&quot;&gt;John Law&lt;/a&gt; (main book in 1705) and &lt;a href=&quot;https://en.wikipedia.org/wiki/Della_Moneta&quot; rel=&quot;nofollow noreferrer&quot;&gt;Fernando Galiani&lt;/a&gt; (main book in 1751). Later on, both Adam Smith and David Hume wrote about banking. According to &lt;a href=&quot;http://sites.krieger.jhu.edu/iae/files/2017/04/Curott_Smiths_Theory.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;this source&lt;/a&gt; Adam Smith argued that:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;the banking system is guided by the invisible hand just like any other branch of  industry.  Smith  argued  that  the  profit  motive  would  ensure  that  the  supply  of  money is self-regulating even after the development of privately issued banknotes, and that  a  significant  savings  in  social  capital  results  from  using  paper  instead  of  precious  metals   as   circulating   currency.   In   this   way   Smith   attempted   to   show   that   free   competition   in   the   business   of   issuing   currency   directs   self-interested   market   participants to unintentionally promote the social interest.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;In sharp contrast, David Hume opposed for-profit, fractional reserve banking. According to &lt;a href=&quot;http://digitalcommons.trinity.edu/cgi/viewcontent.cgi?article=1016&amp;amp;context=econ_faculty&quot; rel=&quot;nofollow noreferrer&quot;&gt;this article&lt;/a&gt;:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Hume claims the following about the kind of bank he prefers: ‘‘No bank could be more advantageous, than such a one as locked up all the money it received, and never augmented the circulating  coin,  as  is  usual,  by  returning  part  of  its  treasure  into  commerce’’  ([1752]  1985, pp. 284–5). Hume recognizes that a bank that does not lend cannot stay in business by itself: ‘‘It would have no profit from its dealing’’ ([1752] 1985, p. 285). Therefore, rather than allowing the bank  to  earn  a  profit  by  lending  out  money  or  by  charging  fees,  Hume  suggests  a  purely&#xA;subsidized public bank, where ‘‘the state bore the charges of salaries of the directors and tellers of this bank’’ ([1752] 1985, p. 285)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;A bit later, amid the &lt;a href=&quot;http://www.hetwebsite.net/het/schools/bullion.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;Bullionist controversy&lt;/a&gt; (regarding whether paper money should be convertible to gold or not), a myriad of writings appeared (see link). For example, in 1801, Walter Boyd wrote a &lt;a href=&quot;https://archive.org/details/lettertorighthon11boyd&quot; rel=&quot;nofollow noreferrer&quot;&gt;letter&lt;/a&gt; to the primer minister William Pitt advocating for full convertibility, in order to avoid high inflation associated with private banks incentive to expand paper money under limited convertibility.&lt;/p&gt;&#xA;&lt;p&gt;A notorious economist at that time was &lt;a href=&quot;https://en.wikipedia.org/wiki/Henry_Thornton_(reformer)&quot; rel=&quot;nofollow noreferrer&quot;&gt;Henry Thornton&lt;/a&gt;, who wrote in 1802 the book &amp;quot;&lt;a href=&quot;https://en.wikipedia.org/wiki/Paper_Credit&quot; rel=&quot;nofollow noreferrer&quot;&gt;An Enquiry into the Nature and Effects of the Paper Credit of Great Britain&lt;/a&gt;&amp;quot;, partly in response to Boyd's views. Apparently, &lt;a href=&quot;https://en.wikipedia.org/wiki/Henry_Thornton_(reformer)#Legacy&quot; rel=&quot;nofollow noreferrer&quot;&gt;some&lt;/a&gt; (?) consider Thornton as the founder of central banking.&lt;/p&gt;&#xA;&lt;p&gt;Later on, Ricardo also wrote about central banking. In particular, he argued in favour of central bank independence (yet, remaining a for-profit institution). This is a quote from 1824 (emphasis mine):&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;It is said that Government could not be safely entrusted with the power of issuing paper money; that it would most certainly abuse it ... There would, I confess, &lt;strong&gt;be great danger of this if Government&lt;/strong&gt; – that is to say, the Ministers – &lt;strong&gt;were themselves to be entrusted with the power of issuing paper&lt;/strong&gt; the hands of Commissioners, not removable from their official situation but by a vote of one or both Houses of Parliament. I propose also to prevent all intercourse between these Commissioners and Ministers, by forbidding any species of money transactions between them.&lt;/p&gt;&#xA;&lt;p&gt;The Commissioners should never, on any pretense, lend money to Government, nor in the slightest degree be under its control or influence ... &lt;strong&gt;If Government wanted money, it should be obliged to raise it in the legitimate way; by taxing the people; by the issue and sale of exchequer bills; by funded loans; or by borrowing from any of the numerous banks which might exist in the country; but in no case should it be allowed to borrow from those who have the power of creating money.&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;(The quote is from &lt;a href=&quot;https://mostlyeconomics.wordpress.com/2009/09/01/ricardo-expressed-benefits-of-cbi-in-1824/&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;, but it belongs to Ricardo's 1824 pamphlet &amp;quot;&lt;a href=&quot;https://books.google.co.uk/books/about/Plan_for_the_Establishment_of_a_National.html?id=j-ozAQAAMAAJ&amp;amp;redir_esc=y&quot; rel=&quot;nofollow noreferrer&quot;&gt;Plan for the Establishment of a National Bank&lt;/a&gt;&amp;quot;, which can also be found as an appendix on &lt;a href=&quot;https://books.google.co.uk/books/about/A_National_Bank.html?id=-dw7AAAAYAAJ&amp;amp;redir_esc=y&quot; rel=&quot;nofollow noreferrer&quot;&gt;this book&lt;/a&gt;)&lt;/p&gt;&#xA;&lt;p&gt;Meanwhile, others consider the &amp;quot;founding father&amp;quot; of central banking to be &lt;a href=&quot;https://en.wikipedia.org/wiki/Walter_Bagehot&quot; rel=&quot;nofollow noreferrer&quot;&gt;Walter Bagehot&lt;/a&gt;, a &amp;quot;famous&amp;quot; editor of The Economist (you might have noticed that there is still a column under his name) that in 1873 published the book &amp;quot;&lt;a href=&quot;https://en.wikipedia.org/wiki/Lombard_Street:_A_Description_of_the_Money_Market&quot; rel=&quot;nofollow noreferrer&quot;&gt;Lombard Street: A Description of the Money Market&lt;/a&gt;&amp;quot;, where he advocated for the role of the Bank of England (still a private, for-profit institution) as a lender of last resort in the case of a financial crisis. Despite of this, he also advocated for a free banking sector. A quote (from &lt;a href=&quot;http://oll.libertyfund.org/quote/356&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;):&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;I shall have failed in my purpose if I have not proved that the system of entrusting all our reserve to a single board, like that of the Bank directors, is very anomalous; that it is very dangerous; that its bad consequences, though much felt, have not been fully seen; that they have been obscured by traditional arguments and hidden in the dust of ancient controversies.&lt;/p&gt;&#xA;&lt;p&gt;But it will be said — What would be better? What other system could there be? We are so accustomed to a system of banking, dependent for its cardinal function on a single bank, that we can hardly conceive of any other. But the natural system — that which would have sprung up if Government had let banking alone — is that of many banks of equal or not altogether unequal size. In all other trades competition brings the traders to a rough approximate equality. In cotton spinning, no single firm far and permanently outstrips the others. There is no tendency to a monarchy in the cotton world; nor, where banking has been left free, is there any tendency to a monarchy in banking either.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;For further references, check the book &amp;quot;&lt;a href=&quot;http://www.cambridge.org/gb/academic/subjects/economics/history-economic-thought-and-methodology/monetary-theory-and-policy-hume-and-smith-wicksell-money-credit-and-economy?format=HB&amp;amp;isbn=9780521191135&quot; rel=&quot;nofollow noreferrer&quot;&gt;Monetary Theory and Policy from Hume and Smith to Wicksell: Money, Credit, and the Economy&amp;quot;&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2017-08-12T08:17:03.263" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17771" PostTypeId="1" CreationDate="2017-08-10T10:44:17.680" Score="3" ViewCount="45" Body="&lt;p&gt;For my master thesis, I am studying the effect of input trade liberalizaion on Research and development decision depending on firms' financial constraints in India. I have a firm level database from 1991 to 1997 (before the asian crisis). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;At a first step, I run a baseline regression with Research and development dummy as a dependant variable and input tariff, output tariff, interacted term between input tariff and importer status and some control variables. This works fine. A decrease in input tariff increases the probability to R&amp;amp;D. I used a fxed effect logit model and a linear probability one. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;At a second step I use Rajan and Zingales's external financial dependance. I split my sample into high constrained firms and low constrained firms and I run the exact same model for the two groups (i.e R&amp;amp;D dummy as dependant variable and same explicative variables). I find that the highest constrained do more research and development. I compare the two coefficients in front of input tariff variables.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At a thrid step, I use an endogenous financial variable constructed from my database = leverage ratio. This is a robustness check for rajan and zingales' method When I slipt my sample into two groups high constrained and low constrained using leverage ratio, I find the opposite, the highest constrained are doing less research and development. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Do you have any advice for me to improve my work?  &lt;/p&gt;&#xA;" OwnerUserId="13297" LastActivityDate="2017-08-10T10:44:17.680" Title="advice on econometric or methodological approach of my master thesis" Tags="&lt;international-trade&gt;&lt;financial-constraints&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17772" PostTypeId="1" CreationDate="2017-08-10T11:53:28.830" Score="9" ViewCount="853" Body="&lt;p&gt;I have some doubts about risk vs. uncertainty. I have read the thread &lt;a href=&quot;https://economics.stackexchange.com/questions/14761/what-is-the-difference-between-risk-uncertainty-and-ambiguity&quot;&gt;&quot;What is the difference between risk, uncertainty and ambiguity&quot;&lt;/a&gt; and have skimmed through Knight's &lt;a href=&quot;https://mises.org/sites/default/files/Risk,%20Uncertainty,%20and%20Profit_4.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;&quot;Risk, Uncertainty, and Profit&quot;&lt;/a&gt; Chapter VII (starting on p. 197). It seems there exist alternative definitions of these concepts, which is a bit confusing. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have a particular example that implicitly defines risk and uncertainty. I would like to know if these implicit definitions are in line with any of the established ones.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Example:&lt;/strong&gt; In a lottery, the probability to win is $p$ and the probability to lose is $1-p$. If I know $p$ and participate in the lottery, I am facing &lt;em&gt;risk&lt;/em&gt;. If I do not know $p$ and participate in the lottery, I am facing &lt;em&gt;uncertainty&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does this match any existing definitions of risk vs. uncertainty?&lt;br&gt;&#xA;Could I also get a reference to an academic paper or a textbook?&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Edit 1:&lt;/strong&gt; User 123 notes correctly that there seems to be risk in both cases (whether I know the probabilities or not, I am still participating in the lottery which by itself is a source of risk). Hence, the term &lt;em&gt;uncertainty&lt;/em&gt; seems to incorporate risk + the lack of knowledge of the probabilities. This may suggest the terms &lt;em&gt;risk&lt;/em&gt; and &lt;em&gt;uncertainty&lt;/em&gt; are not mutually exclusive; when we call something &lt;em&gt;uncertain&lt;/em&gt;, it might also include an element of risk; but when we identify something as &lt;em&gt;risky&lt;/em&gt;, we must know the probabilities, thus it is not &lt;em&gt;uncertain&lt;/em&gt;. Yeah, it is convoluted...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Edit 2:&lt;/strong&gt; Quoting Knight via &lt;a href=&quot;https://en.wikipedia.org/wiki/Knightian_uncertainty&quot; rel=&quot;nofollow noreferrer&quot;&gt;Wikipedia&lt;/a&gt;, &lt;em&gt;a measurable uncertainty, or 'risk' proper, as we shall use the term...&lt;/em&gt;. Thus it is enough that the probability be measurable in the above example and is does not have to be known precisely. So I understand that the implicit definitions in the example above are not in line with the Knightian ones.&lt;/p&gt;&#xA;" OwnerUserId="4230" LastEditorUserId="4230" LastEditDate="2018-06-14T11:50:26.460" LastActivityDate="2018-06-18T13:02:17.917" Title="References for particular definitions of risk and uncertainty" Tags="&lt;reference-request&gt;&lt;risk&gt;&lt;uncertainty&gt;" AnswerCount="5" CommentCount="17" FavoriteCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="17774" PostTypeId="2" ParentId="17772" CreationDate="2017-08-10T15:59:59.263" Score="4" Body="&lt;p&gt;Knight's 1921 essay was not written in formal mathematics (and trying to formulate a direct translation into modern mathematics may be quite problematic). Since Knight's time, a formal decision theory literature has developed which makes distinctions that are at least reminiscent of Knight's.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lars P. Hansen (2012), writes &quot;Motivated by the insights of Knight (1921), decision theorists use the terms uncertainty and ambiguity as distinguished from risk.&quot; Hansen references Gilboa et. al. (2008) who write:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In economics, Knight (1921) is typically credited with the distinction&#xA;  between situations of &quot;risk” and of “uncertainty.” In his formulation,&#xA;  “risk” designates situations in which probabilities are known, or&#xA;  knowable in the sense that they can be estimated from past data and&#xA;  calculated using the laws of probability. By contrast, “uncertainty”&#xA;  refers to situations in which probabilities are neither known, nor can&#xA;  they be deduced, calculated, or estimated in an objective way.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Gilboa and Schmeidler (1989) introduced a max-min utility theory where instead of simply maximizing expected utility, agents solve a max-min problem where to model ambiguity aversion, the objective is minimized over different priors. This work has been expanded on by Hansen and Sargent in their work on robustness. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sliding away from Knight and into the broader topic of decision theory, it would be mandatory to reference Leonard Savage's classic, &lt;em&gt;Foundations of Statistics&lt;/em&gt; where he introduces the notion of &lt;a href=&quot;https://en.wikipedia.org/wiki/Bayesian_probability#Objective_and_subjective_Bayesian_probabilities&quot; rel=&quot;nofollow noreferrer&quot;&gt;subjective probability&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Your particular example (in more modern decision theory)&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;You have a &lt;a href=&quot;https://en.wikipedia.org/wiki/Bernoulli_distribution&quot; rel=&quot;nofollow noreferrer&quot;&gt;Bernoulli likelihood&lt;/a&gt; function for winning the lottery.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;To a frequentist statistician, $p$ is a scalar value, a parameter (albeit unknown). There is only one possible outcome for $p$ and so there's no randomness.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;If you're a Bayesian in the spirit of Savage, you're willing to extend the tools of probability to &lt;em&gt;model uncertainty in your own mind&lt;/em&gt;; you will treat $p$ as a random variable!&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;If we put a prior on $p$ (&lt;a href=&quot;https://en.wikipedia.org/wiki/Conjugate_prior&quot; rel=&quot;nofollow noreferrer&quot;&gt;eg. the beta distribution is a conjugate prior to the Bernoulli likelihood&lt;/a&gt;), we can compute posterior probabilities and make decisions based upon standard &lt;a href=&quot;https://en.wikipedia.org/wiki/Expected_utility_hypothesis&quot; rel=&quot;nofollow noreferrer&quot;&gt;expected utility&lt;/a&gt;. In terms of how we behave though, there's no difference between a 20% probability that's objective vs. subjective.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Under the ambiguity aversion, max-min model though, we may maximize our control variable over expected utility, taking into account that it will then be minimized over multiple priors: we choose control variable $x$ to maximize utility and then (after observing our choice $x$) a mean guy chooses the prior to minimize utility.&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;References&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;Hansen, Lars P., 2012, &lt;a href=&quot;http://www.nber.org/papers/w18505.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;&quot;Challenges in Identifying and Measuring Systemic Risk&quot;&lt;/a&gt;, NBER&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hansen, Lars P. and Thomas Sargent, 2001, &quot;Robust Control and Model Uncertainty,&quot; &lt;em&gt;American Economic Review&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Gilboa, Itzhak and David Schmeidler, 1989, &quot;Maxmin Expected Utility with Non-unique Prior,&quot; &lt;em&gt;Journal of Mathematical Economics&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Gilboa, Itzhak, Andrew W. Postlewaite, and&#xA;David Schmeidler, 2008, &lt;a href=&quot;http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.295.2518&amp;amp;rep=rep1&amp;amp;type=pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;&quot;Probability and Uncertainty in&#xA;Economic Modeling&quot;&lt;/a&gt;, &lt;em&gt;Journal of Economic Perspectives&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Savage, Leonard Jimmie, 1954, &lt;em&gt;Foundations of Statistics&lt;/em&gt;&lt;/p&gt;&#xA;" OwnerUserId="10334" LastEditorUserId="10334" LastEditDate="2017-08-11T12:45:49.467" LastActivityDate="2017-08-11T12:45:49.467" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="17777" PostTypeId="1" CreationDate="2017-08-10T17:59:16.680" Score="2" ViewCount="43" Body="&lt;p&gt;I want to use simulation in Stata to help me determine whether or not I will have sufficient statistical power to detect meaningful effects (should they exist) in a given data set using generalized DiD approach. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.stata.com/support/faqs/statistics/power-by-simulation/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Here&lt;/a&gt; is a walk through from Stata of how to do this in a different setting.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am not very familiar with Stata and so I am having trouble making this work for my setting. Maybe someone here can help me understand how to modify this code for my purposes? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A quick explanation: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I want to test whether or not a policy change at an institution has an impact on outcomes for people in that institution. Let us assume there are N similar institutions in our universe. Some portion of those N institutions, say $\alpha N$, $\alpha \in (0,1)$ implement this policy change of interest. Assume these institutions implement this policy change at staggered intervals (and implementation is i.i.d between institutions). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;How could I simulate data to determine whether or not this policy change impacts the people working in these $\alpha N$ institutions using a generalized DiD approach?  &lt;/p&gt;&#xA;" OwnerUserId="14150" LastEditorUserId="2776" LastEditDate="2017-08-10T18:13:02.020" LastActivityDate="2017-08-10T18:13:02.020" Title="Using Stata to perform power calculations" Tags="&lt;microeconomics&gt;&lt;applied-econometrics&gt;&lt;stata&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17779" PostTypeId="1" AcceptedAnswerId="17781" CreationDate="2017-08-10T18:35:10.100" Score="2" ViewCount="32" Body="&lt;p&gt;I want to assess the effects of energy saving technologies on output growth using time series data. My work would benefit from time series data on patents for energy saving innovations, but this is hard to find. I have time series data on energy service prices (not energy prices), which I am thinking of using as a proxy for energy saving technologies. Energy service prices appear to have declined over time and this is due to the improvement in energy technologies, mainly. Thus, I assume the energy service price data reflects the improvements in energy technologies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Do you think the idea of proxying energy technologies with energy service prices is appropriate in an empirical analysis? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit: Price of energy refers to the price of energy carrier, say oil. Energy service price refers to the cost of providing an energy service, say heating or lighting etc.&lt;/p&gt;&#xA;" OwnerUserId="6009" LastEditorUserId="6009" LastEditDate="2017-08-10T18:43:33.500" LastActivityDate="2017-08-10T18:59:45.693" Title="Energy saving technology and energy service price" Tags="&lt;macroeconomics&gt;&lt;technology&gt;&lt;energy-economics&gt;&lt;directed-technical-change&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17780" PostTypeId="2" ParentId="17757" CreationDate="2017-08-10T18:45:47.497" Score="2" Body="&lt;p&gt;I'll start from your last equation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{align*}&#xA;\int_{\underline{\theta}}^{\bar{\theta}}{u(\theta) dF(\theta)} &amp;amp; = \Big[ u(\theta)F(\theta) \Big]_{\underline{\theta}}^{\bar{\theta}} - \int_{\underline{\theta}}^{\bar{\theta}}{F(\theta) v_{\theta}(q(\theta),\theta) d\theta} \\&#xA;&amp;amp; = u(\bar{\theta})F(\bar{\theta})-u(\underline{\theta})F(\underline{\theta})-\int_{\underline{\theta}}^{\bar{\theta}}{F(\theta) v_{\theta}(q(\theta),\theta) d\theta} \\&#xA;&amp;amp; = u(\bar{\theta})-\int_{\underline{\theta}}^{\bar{\theta}}{F(\theta) v_{\theta}(q(\theta),\theta) d\theta} \text{ since } F(\bar{\theta})=1, F(\underline{\theta})=0\\&#xA;&amp;amp; = u(\underline{\theta})+(u(\bar{\theta})-u(\underline{\theta}))-\int_{\underline{\theta}}^{\bar{\theta}}{F(\theta) v_{\theta}(q(\theta),\theta) d\theta} \\&#xA;&amp;amp; = u(\underline{\theta})+\int_{\underline{\theta}}^{\bar{\theta}}{u'(\theta) d\theta}-\int_{\underline{\theta}}^{\bar{\theta}}{F(\theta) v_{\theta}(q(\theta),\theta) d\theta} \\&#xA;&amp;amp; = u(\underline{\theta})+\int_{\underline{\theta}}^{\bar{\theta}}{v_{\theta}(q(\theta),\theta) d\theta}-\int_{\underline{\theta}}^{\bar{\theta}}{F(\theta) v_{\theta}(q(\theta),\theta) d\theta} \text{ since } u'=v_{\theta}\\&#xA;&amp;amp; = u(\underline{\theta})+\int_{\underline{\theta}}^{\bar{\theta}}{(1-F(\theta)) v_{\theta}(q(\theta),\theta) d\theta} \\&#xA;&amp;amp; = u(\underline{\theta})+\int_{\underline{\theta}}^{\bar{\theta}}{\dfrac{1-F(\theta)}{f(\theta)} v_{\theta}(q(\theta),\theta) dF(\theta)} \\&#xA;&amp;amp; = \int_{\underline{\theta}}^{\bar{\theta}}{u(\underline{\theta})dF(\theta)}+\int_{\underline{\theta}}^{\bar{\theta}}{\dfrac{1-F(\theta)}{f(\theta)} v_{\theta}(q(\theta),\theta) dF(\theta)} \\&#xA;&amp;amp; = \int_{\underline{\theta}}^{\bar{\theta}}{\Big[u(\underline{\theta})+\dfrac{1-F(\theta)}{f(\theta)} v_{\theta}(q(\theta),\theta) \Big]dF(\theta)}&#xA;\end{align*}&lt;/p&gt;&#xA;" OwnerUserId="4667" LastActivityDate="2017-08-10T18:45:47.497" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17781" PostTypeId="2" ParentId="17779" CreationDate="2017-08-10T18:59:45.693" Score="2" Body="&lt;p&gt;A problem with using energy &lt;em&gt;service&lt;/em&gt; prices is that they might reflect competition conditions (e.g. monopoly/oligopoly, or the &lt;a href=&quot;https://en.wikipedia.org/wiki/Big_Six_energy_suppliers&quot; rel=&quot;nofollow noreferrer&quot;&gt;big six&lt;/a&gt; in the UK) rather than the true cost of energy to firms. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A problem with using energy prices is that they might reflect demand and supply issues. For example, no one would say that the drop in oil prices from 140 to 50 was due to technological improvement. Instead, it was driven by a shale oil revolution, and perhaps geopolitical aspects.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-08-10T18:59:45.693" CommentCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="17782" PostTypeId="2" ParentId="17442" CreationDate="2017-08-11T00:30:28.257" Score="1" Body="&lt;p&gt;&lt;a href=&quot;http://a.co/ev5Ywe4&quot; rel=&quot;nofollow noreferrer&quot;&gt;Financial Asset Pricing Theory&lt;/a&gt;, by Claus Munk.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This book takes a nice approach in that each chapter repeats the material 3 times: in discrete time with a discrete state space, in discrete time with a continuous state space, and in continuous time with a continuous state space. This makes it easy to see how each relates to the others. Also, it helps the reader to focus on the underlying concepts rather than the mathematical artifacts of each individual setting.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I like Cochrane's book a lot for the intuitions that it provides. In my opinion, Munk's book is very useful as a complement to Cochrane's book. Munk's book provides a lot of the mathematical clarity that I feel is less clear in Cochrane's book.&lt;/p&gt;&#xA;" OwnerUserId="59" LastActivityDate="2017-08-11T00:30:28.257" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17783" PostTypeId="2" ParentId="17442" CreationDate="2017-08-11T00:36:40.937" Score="1" Body="&lt;p&gt;&lt;a href=&quot;http://a.co/eMCTSvj&quot; rel=&quot;nofollow noreferrer&quot;&gt;Dynamic Asset Pricing Theory&lt;/a&gt;, by Darrell Duffie.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This book seems to be referred to a lot. It's very thorough. In my experience, it might be a little to difficult for a introduction to the topic. However, it is a good reference. &lt;/p&gt;&#xA;" OwnerUserId="59" LastActivityDate="2017-08-11T00:36:40.937" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17784" PostTypeId="1" AcceptedAnswerId="17790" CreationDate="2017-08-11T04:36:54.403" Score="4" ViewCount="182" Body="&lt;p&gt;I wonder how machine learning, particularly deep neural net which is considered the state-of-the-art among many data scientists, is used among economists, or other experts who is in in the similar field to predict economic situations, such as bank analysts, etc...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know in econometrics people heavily use statistics. But it is focused on  statistics, not on machine learning, let alone deep learning.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How prevalent is it? What kind of methods/algorithms/models, if any, are frequently used for what kind of purposes among what kind of economists? Where can I see their work (e.g. blog, paper, etc...)&lt;/p&gt;&#xA;" OwnerUserId="5432" LastActivityDate="2017-08-13T11:37:13.710" Title="How prevalent is the use of machine learning among economists?" Tags="&lt;statistics&gt;" AnswerCount="2" CommentCount="6" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="17785" PostTypeId="2" ParentId="16228" CreationDate="2017-08-11T06:39:24.593" Score="1" Body="&lt;p&gt;The classification of direct vs indirect taxes is outdated and has nothing to do with the effects of taxes on behaviour. This classification is mostly due to historic reasons.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Direct taxes are taxes on property, businesses or people. They tax entities directly and not through their behavior. This doesn't mean, however, that these taxes don't have behavioral effects. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Indirect taxes are taxes on transactions and exchanges, since they are not taxing entities themselves, but their behaviour. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The classification is not very meaningful nowadays. For example the estate tax is direct (it directly taxes the estate), whereas the inheritance tax is indirect  (it taxes the transaction from parent to child). However, these two taxes are economically equivalent. &lt;/p&gt;&#xA;" OwnerUserId="5557" LastEditorUserId="2776" LastEditDate="2017-08-11T06:45:13.537" LastActivityDate="2017-08-11T06:45:13.537" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17786" PostTypeId="2" ParentId="325" CreationDate="2017-08-11T07:11:34.327" Score="3" Body="&lt;p&gt;There are two main reason for the difference in tax rates that I see from the literature.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, some papers argue that the optimal tax rate on capital is zero. This is the famous &quot;Chamley-Judd&quot; result. The idea behind this result is that taxing capital is a tax on savings, which is a tax on all future consumption. This is more distortionary than a tax on current consumption or labor. Suppose there are ten periods in the economy. Taxing capital today, if I intend to consume those savings in period 10, is a tax on consumption in period 10. Taxing capital in period 2 is again a tax on consumption in period 10. If I keep going, this produces infinite exploding distortions. Labor taxes today, however, do not compound in this way. Hence many papers, especially by Judd, argue that it is better to tax labor and do not tax capital at all.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So then why is capital taxed? One main reason is a redistribution motive from the wealthy, who tend to have more capital income. However, we still may have reason to believe taxing capital less is more efficient if you combine both arguments.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The second and main explanation, as I see it, is tax competition. With taxes, you want to tax inelastic things more, because they do not react. Labor is very immobile and reacts less than capital. You're taxed where you work and avoiding that tax to go to a jurisdiction with lower taxes is costly, because you would have to move your whole family and find a job. Capital is very mobile. With the click of a button you can invest your capital in another jurisdiction. Hence, since capital reacts much more, jurisdictions compete for this tax revenue. This causes them to reduce capital tax rates in a race to the bottom.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastEditorUserId="5557" LastEditDate="2017-08-11T07:39:52.433" LastActivityDate="2017-08-11T07:39:52.433" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17787" PostTypeId="2" ParentId="16228" CreationDate="2017-08-11T07:27:10.433" Score="1" Body="&lt;p&gt;According to the &lt;a href=&quot;http://www.dictionaryofeconomics.com/article?id=pde1987_X001112&quot; rel=&quot;nofollow noreferrer&quot;&gt;1987's edition&lt;/a&gt; of the Palgrave Dictionary of Economics (subscription required):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;It is conventional to describe direct taxes as taxes where the person legally liable to pay the tax is also the person whose income or welfare is reduced as a result of its imposition: while indirect taxes are those where liability can be shifted to someone else. This distinction is essentially an arbitrary one. All taxes can be shifted to some degree: only in exceptional circumstances can any agent shift a tax completely. In common usage, indirect taxes are those which are paid by retailers, wholesalers or manufacturers, but believed to be shifted toward final consumers.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The first take away is that these are conventions. Second, based on the above convention, a corporation tax directly affects the income of the company (and their owners), as that income could have otherwise been reinvested (to increase future profits) and/or taken away by owners. Maybe some firm have &lt;em&gt;some&lt;/em&gt; leeway to shift their tax duties to consumers (specially if you believe that there is a natural/efficient/optimal after-tax rate of return on equity to which firms converge), but I'm not sure there is convincing evidence that changes in tax rates are transmitted 1-to-1 to prices.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In any case, as the quote above says, all taxes can be shifted to some degree, so the definition of in/direct tax remains primarily customary.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-08-11T07:27:10.433" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17788" PostTypeId="2" ParentId="13483" CreationDate="2017-08-11T07:45:58.783" Score="0" Body="&lt;p&gt;&lt;em&gt;If demand rises, prices rise in macroeconomic context.&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is called demand-pull inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Aggregate Demand grows faster than Aggregate Supply bidding the prices up.&lt;/p&gt;&#xA;" OwnerUserId="14155" LastActivityDate="2017-08-11T07:45:58.783" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17789" PostTypeId="2" ParentId="17759" CreationDate="2017-08-11T08:47:25.423" Score="3" Body="&lt;p&gt;Starting with your original equation:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$max_{c_t, m_t, b_t} E_0\sum_{t=0}^\infty U(c_t, m_t)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;s.t.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(1) $y+\frac{m_{t-1}}{1+\pi_t}+\frac{1+i_{t-1}}{1+\pi_t}b_{t-1}=c_t+m_t+b_t+\tau_t$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here: $R_{t-1} =1+i_{t-1}$ and $1+\pi_t=\frac{P_t}{P_{t-1}}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that in this problem, you have have two state variables, $m_{t-1}$ and $b_{t-1}$, and your main issue have been that you have bunched these together. your Bellman should be:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$V(m_{t-1},b_{t-1})=max_{c_t, m_t, b_t} U(c_t,m_t)+E_t\beta V(m_t,b_t)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;s.t. (1)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can here use your contstraint to get rid of one control, or you can solve it using the lagrangian. If you use your constraint to substitute for $c_t$, your updated problem becomes:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$V(m_{t-1},b_{t-1})=max_{m_t, b_t} U(c_t(y, m_{t-1}, b_{t-1},m_t, b_t, \tau _t),m_t)+E_t\beta V(m_t,b_t)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For clarification:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$c_t(y, m_{t-1}, b_{t-1},m_t, b_t, \tau _t)=y+\frac{m_{t-1}}{1+\pi_t}+\frac{1+i_{t-1}}{1+\pi_t}b_{t-1}-m_t-b_t-\tau _t$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;FOCs:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$[b_t$]: $-U_{c_t}+\beta E_tV_{b_t}=0 $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$[m_t]$: $-U_{c_t}+U_{m_t}+\beta E_tV_{m_t}=0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Envelopes:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$[b_{t-1}]$: $U_{c_t}\frac{1+i_{t-1}}{1+\pi _t}\implies V_{b_t}=U_{c_{t+1}}\frac{1+i_t}{1+\pi _{t+1}}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$[m_{t-1}]$: $U_{c_t}\frac{1}{1+\pi _t}\implies V_{m_t}=U_{c_{t+1}}\frac{1}{1+\pi _{t+1}}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You should be able to combine these equations such that you find the demand for money. To me, your equilibrium condition (along with the fact that no capital is present in the set-up) impies that there is no saving in real variables, and hence you have nothing that can pin down the real interest rate, and you therefore lack information to find the fisher equation.&lt;/p&gt;&#xA;" OwnerUserId="14135" LastActivityDate="2017-08-11T08:47:25.423" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17790" PostTypeId="2" ParentId="17784" CreationDate="2017-08-11T09:09:30.060" Score="4" Body="&lt;p&gt;I will attempt to answer the first (&lt;em&gt;How prevalent is it?&lt;/em&gt;) and last question (&lt;em&gt;Where can I see their work?&lt;/em&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There was a &lt;a href=&quot;https://www.economist.com/news/finance-and-economics/21710800-big-data-have-led-latest-craze-economic-research-economists-are-prone&quot; rel=&quot;nofollow noreferrer&quot;&gt;recent&lt;/a&gt; post in &lt;em&gt;The Economist&lt;/em&gt; about the emergence of machine learning into standard economic papers. They produced a nice graph, reproduced below:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/5Q9ua.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/5Q9ua.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Albeit machine learning is confounded with big data, it shows a rise in their use since 2014. Surely, this is a very narrow selection of the literature (NBER working papers, and only abstracts), but is a start. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regarding where you can find papers using machine learning, you can use &quot;keyword&quot; search &lt;a href=&quot;http://econpapers.repec.org/scripts/search.pf?kw=Machine%20learning&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; (26,665 documents are found), or &lt;a href=&quot;https://ideas.repec.org/cgi-bin/htsearch?ul=&amp;amp;q=%22machine+learning%22&amp;amp;cmd=Search%21&amp;amp;wf=0F00&amp;amp;s=R&amp;amp;dt=range&amp;amp;db=&amp;amp;de=&amp;amp;m=all&amp;amp;fmt=long&amp;amp;sy=1&amp;amp;ps=10&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; (337 documents are found). The latter allows you to select dates, which you could use to build your own indicator of machine learning related publications per year.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, related to blogs, I am not aware of a dedicated ML/DL economist's blog. However, &lt;a href=&quot;https://econacademics.org/&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; there is a very useful blog aggregator, which has indexed most of the &quot;serious&quot; blogs available. The full list of blog posts indexed is &lt;a href=&quot;https://econacademics.org/list.alpha.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;. A search for &quot;machine&quot; or &quot;deep&quot; does not yield a result. However, there are some hits for &quot;econometric&quot; and &quot;statistics&quot; which might help you.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-08-13T11:37:13.710" LastActivityDate="2017-08-13T11:37:13.710" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17791" PostTypeId="2" ParentId="17784" CreationDate="2017-08-11T11:28:59.063" Score="2" Body="&lt;p&gt;As previously stated by EnergyNumbers, ML is very often used in financial and economics forecasting, just like OLS. The deep learning is less useful in economics academia because you do not know the cause and it will be hard to publish a well-explained paper based on that.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;What kind of methods/algorithms/models, if any, are frequently used for what kind of purposes among what kind of economists? Where can I see their work (e.g. blog, paper, etc...)&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You could just use goole scholar and search for &quot;financial time series forecasting machine learning&quot;. GARCH, SVM, and ARIMA are often used. You could get started here: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Kim, Kyoung-jae. &quot;Financial time series forecasting using support vector machines.&quot; Neurocomputing 55.1 (2003): 307-319.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hsu, Ming-Wei, et al. &quot;Bridging the divide in financial market forecasting: machine learners vs. financial economists.&quot; Expert Systems with Applications 61 (2016): 215-234.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Shynkevich, Yauheniya, et al. &quot;Forecasting stock price directional movements using technical indicators: investigating window size effects on one-step-ahead forecasting.&quot; Computational Intelligence for Financial Engineering &amp;amp; Economics (CIFEr), 2104 IEEE Conference on. IEEE, 2014.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Tan, Elliot. &quot;Forecasting Foreign Exchange Rates in Response to Federal Reserve Communication: A Machine Learning Approach.&quot; (2016).&lt;/p&gt;&#xA;" OwnerUserId="13381" LastActivityDate="2017-08-11T11:28:59.063" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="17792" PostTypeId="1" CreationDate="2017-08-11T11:44:28.827" Score="2" ViewCount="83" Body="&lt;p&gt;Math Overflow is the best forum to learn about pure math researches. Does there exist a similar website or forum for economics researches?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The econ stack exchange seems quiet.&lt;/p&gt;&#xA;" OwnerUserId="13381" LastEditorUserId="2776" LastEditDate="2017-08-11T14:37:32.930" LastActivityDate="2017-08-11T14:37:32.930" Title="Forums to discuss and learn hot topics of economics research" Tags="&lt;research&gt;" AnswerCount="0" CommentCount="1" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="17793" PostTypeId="2" ParentId="17548" CreationDate="2017-08-11T20:30:42.180" Score="2" Body="&lt;p&gt;&lt;strong&gt;Hint:&lt;/strong&gt; I will talk through a simpler case, and let you extend it to the generic case.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's say there's only two bidders and only the top 1 bidders win. Whoever wins pays whatever the loser bid. This situation is basically a second price auction.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You, player 1, like the object up for auction with a value of $v_1$, but the consolation prize of $w$ is also nice. The solutions you gave say that the optimal bid is $b_1^* = v_1 - w$. Let's confirm this. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you win this auction with this bid, that means the other bidder bid less than you, $b_1^* &amp;gt; b_2^*$. The total value of winning is $v_1 - b_2^*$. If you lose, then the other bidder bid higher than you, and you receive $w$. So the difference between winning and losing is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$v_1 - b_2^* - w &amp;gt; v_1 - b_1^* - w = v_1 - (v_1 - w) - w = 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So hooray! There is value in winning &lt;em&gt;compared to taking the consolation&lt;/em&gt;. :)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What happens if you unilaterally deviate from this proposed strategy (so your opponent doesn't change their bid) and bid &lt;strong&gt;higher&lt;/strong&gt; up to  $b'_1 = v_1 + \epsilon - w$? Well, if you win when you were going to win anyway compared to the above case...you still get $v_1 - b_2^*$ as the total reward. If you lose when you were going to lose anyway, then you still get $w$. The interesting part is when you bid high enough to then win when you would have previously lost.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That implies we would have $b_1^* &amp;lt; b_2^* &amp;lt; b'_1$. You win and receive $v_1 - b_2^*$, so seems like nothing is different...or is it?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$v_1 - b_2^* - w &amp;lt; v_1 - b_1^* - w = v_1 - (v_1 - w) - w = 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So now you've won...but you should've just taken the consolation prize. :(&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;You can do a similar thought experiment for bidding lower. If you bid lower and win, then what you pay doesn't change from bidding the proposed strategy. If you lose when you would've lost anyway, then nothing changes. If you lose when originally you would've won, then you're taking a relative loss again.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So there is no outcome that makes you better off by unilaterally deviating from the proposed strategy of bidding $b_1^*$. You can extend this to realize it is a dominant strategy for all players to follow this line of reasoning.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What about with three players with two winners? Three players with one winner? This question is really just a weird extension of a second price auction. If you understand that, that will help, but otherwise, try following the intuition above and re-reading your solutions given to you.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastEditorUserId="4251" LastEditDate="2017-08-11T20:36:21.197" LastActivityDate="2017-08-11T20:36:21.197" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17795" PostTypeId="2" ParentId="526" CreationDate="2017-08-12T07:22:50.290" Score="0" Body="&lt;p&gt;I would suggest the 2016's handbook &quot;&lt;a href=&quot;http://www.e-elgar.com/shop/handbook-on-the-history-of-economic-analysis-volume-ii&quot; rel=&quot;nofollow noreferrer&quot;&gt;Handbook on the History of Economic Analysis, Volume II&lt;/a&gt;&quot;. It provides a comprehensive analysis of all schools of thought, from the Greek philosophers until today. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.e-elgar.com/shop/handbook-on-the-history-of-economic-analysis-volume-iii&quot; rel=&quot;nofollow noreferrer&quot;&gt;Volume III&lt;/a&gt; of the above handbook is also interesting, but it focuses on topics rather than schools of thought. For reference, &lt;a href=&quot;http://www.e-elgar.com/shop/handbook-on-the-history-of-economic-analysis-volume-i&quot; rel=&quot;nofollow noreferrer&quot;&gt;Volume I&lt;/a&gt; contains a comprehensive, chronological list of economists, from &lt;a href=&quot;https://en.wikipedia.org/wiki/William_Petty&quot; rel=&quot;nofollow noreferrer&quot;&gt;William Petty&lt;/a&gt; to Paul Krugman.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Focusing on less general topics and more mathematically involved, you can combine &lt;a href=&quot;http://press.princeton.edu/titles/8764.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Acemoglu's book&lt;/a&gt; on economic growth (a rather mainstream perspective) with the &quot;&lt;a href=&quot;http://www.e-elgar.com/shop/handbook-of-alternative-theories-of-economic-growth&quot; rel=&quot;nofollow noreferrer&quot;&gt;Handbook of Alternative Theories of Economic Growth&lt;/a&gt;&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, Elgar put together a cool &lt;a href=&quot;http://www.e-elgar.com/shop/capital-theory&quot; rel=&quot;nofollow noreferrer&quot;&gt;handbook&lt;/a&gt; of the most important papers on Capital theory, covering a whole range of perspectives.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-08-12T07:22:50.290" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17796" PostTypeId="2" ParentId="17759" CreationDate="2017-08-12T16:25:25.240" Score="2" Body="&lt;p&gt;Thanks to @Boaten I was able to find the solution. For those interested here are the steps for deriving the Fisher relation:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Combining the FOC $[b_{t}]$ and the envelope for $[b_{t-1}]$ we get &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$U_{c_{t}} = \beta E_{t}\frac{U_{c_{t+1}}(1+i_{t})}{1+\pi _{t+1}}$ Assuming utility is log in both arguments this can be simplified as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac{c_{t+1}}{c_{t}} = \beta E_{t} \frac{1+i_{t}}{1+\pi _{t+1}}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The author assumes $c_{t} = y - g$, thus the left-hand side is 1. Thus we get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac{1}{R_{t}} = \beta E_{t}[\frac{1}{1+ \pi_{t+1}}]$ which is the result I was after.&lt;/p&gt;&#xA;" OwnerUserId="11767" LastActivityDate="2017-08-12T16:25:25.240" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17797" PostTypeId="1" AcceptedAnswerId="17837" CreationDate="2017-08-12T18:56:49.653" Score="3" ViewCount="1160" Body="&lt;p&gt;I am trying to learn how to solve difference equations in order to derive intertemporal budget constraints. Consider the government's flow budget constraint:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{B_{t}-B_{t-1}}{p_{t}} + \frac{M_{t}-M_{t-1}}{p_{t}} + s_{t} -i_{t-1}\frac{B_{t-1}}{p_{t}} = 0$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $s_{t}$ is real taxes net of government consumption. I re-write the above as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{R_{t}B_{t-1} + M_{t-1}}{p_{t}} = \frac{B_{t} + M_{t}}{p_{t}} + s_{t}$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $R_{t}$ is the gross nominal interest rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now I am quite lost. I think what is confusing me is that I have $t-1$ &lt;strong&gt;and&lt;/strong&gt; $t$ terms on the left-hand side. The examples I have tried before are usually on the form $a_{t} = a_{t+1} + b_{t} +(...)$ which I then solve &quot;forward&quot; by substituting for $a_{t+1}$ over and over again until I see a pattern developing. But in this case I can't really re-write the LHS in a proper manner. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any thoughts on how I should proceed? And if there are any books that go through difference equations I would be very interested in some names as I am self teaching myself so far.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT: Thanks to @luchonacho I have obtained the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$B_{t} = \frac{B_{t+T}}{R_{t+1}R_{t+2}...R_{t+T}} + \frac{D_{t+T}}{R_{t+1}R_{t+2}...R_{t+T}} ...\frac{D_{t+1}}{R_{t+1}}$ since we are in an inifite period world I write this as&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$B_{t} = \lim_{T\to\infty}  \frac{B_{t+T}}{R_{t+1}R_{t+2}...R_{t+T}} + \sum\limits_{j=1}^{\infty} \frac{D_{t+j}}{\prod_{s=1}^{j} R_{t+s}}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I might have messed up the summation/product notation but this is one of the expressions I have seen for the intertemporal constraint. However, another common way I have seen it written is as follows:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/1MzQt.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/1MzQt.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ignore the right-hand side as it assumes a functional form of the utility function. I am interested in obtaining an expression with both $B_{t-1}$ and $M_{t-1}$ on the LHS. Is there a way I can go from the expression I obtained above to the one with both $B_{t-1}, M_{t-1}$? I am interested in deriving this because I want an expression for the valuation of all government liabilities. &lt;/p&gt;&#xA;" OwnerUserId="11767" LastEditorUserId="2776" LastEditDate="2017-08-15T15:23:10.390" LastActivityDate="2017-08-17T07:14:23.607" Title="Deriving intertemporal budget constraint from flow constraint" Tags="&lt;macroeconomics&gt;&lt;difference-equations&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17798" PostTypeId="1" AcceptedAnswerId="17805" CreationDate="2017-08-12T19:33:25.117" Score="1" ViewCount="40" Body="&lt;p&gt;I am trying to find if there is some litterature or definition of the concept of the Utility of a &lt;em&gt;set&lt;/em&gt; of choices. My google searches return nothing, and I expect it is because I do not know the right word. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is an example to illustrate what I am looking for.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Consider the following items; a very nice sport car, &lt;code&gt;Car1&lt;/code&gt;, the same model of car, only without some options such as no A/C and slightly worse seats, &lt;code&gt;Car2&lt;/code&gt;, and a worn off pickup, &lt;code&gt;Truck&lt;/code&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Say that all those vehicles have some associated utility, say&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;u(Car1) = 500, u(Car2) = 490, u(Truck) = 100&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;While &lt;code&gt;Car2&lt;/code&gt; is very good in isolation, it is dominated by &lt;code&gt;Car1&lt;/code&gt; and very unlikely that anyone would pick &lt;code&gt;Car2&lt;/code&gt; over &lt;code&gt;Car1&lt;/code&gt;. The &lt;code&gt;Truck&lt;/code&gt;, on the other hand, has a low value but might be picked over &lt;code&gt;Car1&lt;/code&gt; under some circumstances.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence, the utility of the &lt;em&gt;set&lt;/em&gt; of choices &lt;code&gt;{Car1, Truck}&lt;/code&gt; should be higher than the value of the set &lt;code&gt;{Car1, Car2}&lt;/code&gt; even if it contains lower quality items as the truck might actually be helpful.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;The assumption here is that the single value of utility associated with the item does not tell us exactly how the user makes its choice. We could assume for example that the utility of a vehicle is 2-dimensional and consists of &lt;code&gt;Niceness of the vehicle&lt;/code&gt; and &lt;code&gt;Carrying capacity&lt;/code&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The total utility of the vehicle is the sum of the utility provided by those two features, but the decision process might be more complicated and not follow the &lt;a href=&quot;https://en.wikipedia.org/wiki/Independence_of_irrelevant_alternatives&quot; rel=&quot;nofollow noreferrer&quot;&gt;Independance of Irrelevant Alternatives&lt;/a&gt;/&lt;a href=&quot;https://en.wikipedia.org/wiki/Luce%27s_choice_axiom&quot; rel=&quot;nofollow noreferrer&quot;&gt;Luce Choice Axiom&lt;/a&gt; and would follow a model where &lt;a href=&quot;https://en.wikipedia.org/wiki/Discrete_choice#Multinomial_choice_with_correlation_among_alternatives&quot; rel=&quot;nofollow noreferrer&quot;&gt;correlation among options&lt;/a&gt; is possible.&lt;/p&gt;&#xA;" OwnerUserId="14166" LastEditorUserId="14166" LastEditDate="2017-08-12T21:06:00.803" LastActivityDate="2017-08-13T09:46:27.007" Title="Vocabulary/Name for Utility of a Set of Choices" Tags="&lt;reference-request&gt;&lt;choice-theory&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17799" PostTypeId="1" CreationDate="2017-08-12T22:41:24.103" Score="4" ViewCount="503" Body="&lt;p&gt;Are there quantitative Marxian/Marxist/neo-Marxist economic models like Dynamic Stochastic General Equilibrium models or Euro Area Wide (micro-founded) models - that can be used by central banks and researchers? Are there efforts to model relations between notions in Marxist economy? Maybe there is no need for separate economic models between Marxist (heterodox) and mainstream economics - maybe Marxists assume that mainstream economic models describe the reality quite accurately and that Marxism can add only decisions about resource redistribution and there is no need of models for such decisions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have found only &lt;a href=&quot;http://www.inbooker.com/book/research-on-mathematical-model-of-marxist-economy-ce778&quot; rel=&quot;nofollow noreferrer&quot;&gt;one book&lt;/a&gt; and I have found some references about empirical work by Marxian economists - just compilation of statistics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I wonder why I can not find more quantitative Marxism models and literature, because there should be such work:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Economists of communist countries (if we can say that - like China) and central banks of communist countries should have some models for making investment decisions, extensive models for planning and decision making (e.g. Greenspan remembered very impressive matrix calculations). Maybe these models are expression of Marxist economy.&lt;/li&gt;&#xA;&lt;li&gt;Many countries after WWII experienced elements of state control, state planning and state intervention in economy (even US before till the Ford administration). So - these countries had to have some special models for planning and maybe they incorporated Marxian content?&lt;/li&gt;&#xA;&lt;li&gt;I can not understand how it is possible to write about economics without using math and without having models. Marxian economists, seems to me, have this ability.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Any references, mentoring, pointers to the literature or important terms and notions are welcome!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Maybe one approach to finding my answer is using some workaround way - e.g. maybe I should seek the Chinese economic literature - it can have formalization of Marxism and at the same time current Chinese economic literature may be quite rational and quite acceptable for mainstream economics. Are there any resource of Chinese economic research in English?&lt;/p&gt;&#xA;" OwnerUserId="5373" LastEditorUserId="2776" LastEditDate="2017-08-13T09:22:13.983" LastActivityDate="2017-08-13T13:01:15.510" Title="Quantitative Marxian/Marxist micro and macro economic models?" Tags="&lt;mathematical-economics&gt;&lt;political-economy&gt;&lt;marxism&gt;&lt;communism&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17800" PostTypeId="2" ParentId="17799" CreationDate="2017-08-13T02:19:16.793" Score="3" Body="&lt;p&gt;One (perhaps flippant) answer is that Marxists have a lot of ideas about how prices &quot;should&quot; work or how the value of labor &quot;should&quot; be rewarded, that aren't in line with what we observe, because central planning and/or mass subsidies  that Marxist economies like end up being grossly inefficient. :P&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another (perhaps more interesting) answer is that there is quantitative Marxist models. Kinda. The main body of work that comes to mind for me is from &lt;strong&gt;Michał Kalecki&lt;/strong&gt; and his version of the profit equation. He was a Marxist economist around the time of Keynes (and his work has Keynesian influences or influenced Keynes, depending on who you ask).&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot; For Kalecki, the saving propensity depends on the income distribution&#xA;  in a capitalist society, while investment expenditures are determined&#xA;  by past investment decisions. &quot; &lt;strong&gt;&lt;a href=&quot;https://wiiw.ac.at/kalecki-s-profit-equation-after-80-years-dlp-3020.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;1&lt;/a&gt;&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;which has some interesting implications. From my very basic knowledge of Kalecki, he tends to sort agents in the model as capitalists (firm owners), workers (sell labor to capitalists), and other proprietors (trade work, artisans, services). His models have a narrative around profit-led vs wage-led growth and what it means for investment and tax policy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The article cited probably has more knowledge about this guy than me.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://wiiw.ac.at/kalecki-s-profit-equation-after-80-years-dlp-3020.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Kalecki's Profit Equation after 80 Years&lt;/a&gt; (1)&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2017-08-13T02:19:16.793" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17805" PostTypeId="2" ParentId="17798" CreationDate="2017-08-13T09:36:00.490" Score="3" Body="&lt;p&gt;What you seem to be interested is the subfield of decision theory that goes by the name of &quot;menu choice.&quot; The starting point of this literature is the paper&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Kreps, David M. &quot;&lt;a href=&quot;http://www.isid.ac.in/~dmishra/pap_doc/kreps.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;A representation theorem for preference for flexibility&lt;/a&gt;.&quot; Econometrica: Journal of the Econometric Society (1979): 565-577.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This paper might be directly relevant to the problem you want to address.&lt;/p&gt;&#xA;" OwnerUserId="1442" LastEditorUserId="2776" LastEditDate="2017-08-13T09:46:27.007" LastActivityDate="2017-08-13T09:46:27.007" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17806" PostTypeId="2" ParentId="17799" CreationDate="2017-08-13T09:44:14.653" Score="4" Body="&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;There is a very interesting paper by John Roemer, published in &lt;em&gt;Econometrica&lt;/em&gt; in 1980, that presents a mathematical general equilibrium Marxian model. I am not sure someone have ever estimated it though. Find it &lt;a href=&quot;http://www.jstor.org/stable/1911113?seq=1#page_scan_tab_contents&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; (subscription required).&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;General equilibrium models (oftentimes idyosincratic) were also developed in the USSR. Check &lt;a href=&quot;https://www.hse.ru/data/2013/02/21/1306670053/14HUM2013.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; for an account of them.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Models also informed (or attempted to inform) policy in USSR. The 1985 book &quot;&lt;a href=&quot;http://www.springer.com/la/book/9789027716705&quot; rel=&quot;nofollow noreferrer&quot;&gt;Macromodels of the National Economy of the USSR&lt;/a&gt;&quot; gives an account of such models and policy applications.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-08-13T13:01:15.510" LastActivityDate="2017-08-13T13:01:15.510" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17807" PostTypeId="2" ParentId="12653" CreationDate="2017-08-13T10:06:39.010" Score="1" Body="&lt;p&gt;London remained for long as a key financial centre for Europe due to several reasons:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Historic: several universities and authors dedicated to the study of wealth (Smith, Ricardo, Malthus, Keynes&lt;/li&gt;&#xA;&lt;li&gt;Combination of privileged international positions with US (language + colonization) and commonwealth countries, as well as an average sized internal market&lt;/li&gt;&#xA;&lt;li&gt;Looser regulation than most countries in EU, providing lower barriers to entrepreneurship&lt;/li&gt;&#xA;&lt;li&gt;Fairly efficient justice system&lt;/li&gt;&#xA;&lt;li&gt;Management and investor attitude: social class or country of origin is less of an obstacle than in France, investors not as conservative as in Germany&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Comparing these factors to other large cities in Europe, it will be hard to match it. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In Germany, Munich or Berlin could be more attractive for investors than Frankfurt. Paris would be the favorite in France, but regulation doesn't attract investors nor entrepreneurs - so Amsterdam or Luxemburg would be much more inviting in this regard.&lt;/p&gt;&#xA;" OwnerUserId="12304" LastActivityDate="2017-08-13T10:06:39.010" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17809" PostTypeId="2" ParentId="17741" CreationDate="2017-08-13T10:57:43.843" Score="4" Body="&lt;p&gt;Mining cryptocurrency can be considered an export of computing processing time, which is paid in a foreign currency (e.g. BitCoin).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The GDP is a measure of production of wealth of a nation. Exports and imports are considered in every &lt;a href=&quot;http://www.investopedia.com/terms/g/gdp.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;method of calculating the GDP&lt;/a&gt;. You can read more on how each country calculates their GDP in this &lt;a href=&quot;https://www.economist.com/blogs/economist-explains/2014/03/economist-explains-26&quot; rel=&quot;nofollow noreferrer&quot;&gt;Economist article&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is important to note that the actual GDP for each country is an &lt;strong&gt;estimate&lt;/strong&gt;: it is very hard to calculate accurately the GDP, as you can imagine it is hard to calculate all of the consumption information about a given economy (cash transactions, informal markets, etc.). &#xA;However, economists try to include every single expenditure via estimations: the UK includes &lt;a href=&quot;http://www.dailymail.co.uk/news/article-2888416/Who-said-crime-doesn-t-pay-Counting-prostitution-drugs-GDP-figure-seen-UK-s-economy-overtake-France-fifth-largest-world.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;estimates of drug sales and prostitution&lt;/a&gt; as an illustration of the attempts to be accurate. I believe cryptocurrencies could fall in the same category.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Additional reading on the guesstimates of the GDP &lt;a href=&quot;http://www.newindianexpress.com/opinions/columns/shankkar-aiyar/2017/jan/08/gdp-estimates-guesstimates-assumptions-and-the-playbook-of-growth-1557247.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="12304" LastEditorUserId="2776" LastEditDate="2017-08-13T15:01:35.960" LastActivityDate="2017-08-13T15:01:35.960" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="17810" PostTypeId="1" AcceptedAnswerId="17811" CreationDate="2017-08-13T11:26:46.583" Score="5" ViewCount="191" Body="&lt;p&gt;When the economic prospect around the world feels getting worse and/or getting higher uncertainty, usually the value of JPY is getting higher, because investors are said to start to buy JPY to shelter their money in a safer place. In some cases even if the bad economic prospect is not on US or Europe, it seems that JPY still tends to be stronger even compared to USD or EUR (e.g. near the French election this year or Brexit, JPY was getting stronger compared to USD).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But it seems ridiculous to think of JPY as a safe currency, given that Japan's insanely high amount of debt.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So what makes JPY considered so safe to buy in case the economic situation feels getting worse and/or getting higher uncertainty around the world? And is JPY a safe currency to begin with, even compared to other major currency such as USD, EUR, CHF, CHY, CAD, etc...?&lt;/p&gt;&#xA;" OwnerUserId="5432" LastEditorUserId="2776" LastEditDate="2017-08-13T11:46:22.087" LastActivityDate="2017-08-13T12:03:12.507" Title="Why is JPY considered a &quot;safe currency&quot;?" Tags="&lt;currency&gt;&lt;finance&gt;&lt;japan&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17811" PostTypeId="2" ParentId="17810" CreationDate="2017-08-13T12:03:12.507" Score="5" Body="&lt;p&gt;Because:&lt;/p&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;they are a massive exporter, meaning their capital account is &lt;a href=&quot;https://data.worldbank.org/indicator/BN.TRF.KOGT.CD?locations=JP&amp;amp;page=2&quot; rel=&quot;nofollow noreferrer&quot;&gt;negative&lt;/a&gt;, and thus they &lt;a href=&quot;https://en.wikipedia.org/wiki/Capital_account&quot; rel=&quot;nofollow noreferrer&quot;&gt;own a lot of assets abroad&lt;/a&gt;. Therefore, as &lt;a href=&quot;http://www.valuewalk.com/2017/04/yen-new-safe-haven-currency/&quot; rel=&quot;nofollow noreferrer&quot;&gt;this site explains&lt;/a&gt;:&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;When a crisis erupts, the Japanese repatriate that money – they bring it back home. In that process, they’re selling assets in other currencies to buy yen. And at that point it’s a supply/demand issue. The supply of others currencies is rising as the Japanese pull out (those currencies fall in value) and demand for yen rises as the Japanese bring their money back home (the yen rises in value).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;they have had and are likely to continue to have among the lowest interest rate in the world (-0.1% now). Therefore, as &lt;a href=&quot;http://www.financialsense.com/contributors/matthew-kerkhoff/why-japanese-yen-safe-haven-currency&quot; rel=&quot;nofollow noreferrer&quot;&gt;this site explains&lt;/a&gt;:&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;In what’s known as a carry trade, investors will borrow money in a low-interest rate environment and then invest that money in higher yielding assets from other countries. Japan’s long-standing policy of near-zero interest rates has caused it to become a major source of capital for these types of trades.&lt;/p&gt;&#xA;&lt;p&gt;When uncertainty subsequently hits global markets, it can cause investors to unwind these trades, which then results in additional demand for the yen.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;hoard behaviour + path dependence in financial markets. As the site above explains:&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Part of the reason the yen continues to act as a safe-haven currency is simply because everyone acknowledges that it is. Investors around the world have come to embrace the yen as a reliable place to go for safety, and by attempting to take advantage of this, they actually create the intended effect.&lt;/p&gt;&#xA;&lt;p&gt;If you know that whenever the world panics, the yen is going to rise, then it makes it a no-brainer to buy the yen even if you’re unsure exactly why everyone else is.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Some differ though. An &lt;a href=&quot;http://www.imf.org/en/Publications/WP/Issues/2016/12/31/The-Curious-Case-of-the-Yen-as-a-Safe-Haven-Currency-A-Forensic-Analysis-41039&quot; rel=&quot;nofollow noreferrer&quot;&gt;IMF study&lt;/a&gt; concedes that:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Safe haven currencies tend to have low interest rates, a strong net foreign asset position, and deep and liquid financial markets. Japan meets all these criteria.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;But they find that:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Surprisingly and in contrast to the experience of the Swiss Franc, yen risk-off appreciations appears unrelated to capital inflows (cross-border transactions) [large foreign asset ownership] and do not seem supported by expectations about the relative stance of monetary policies [low interest rate].&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;They state:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;The third possibility is that risk-off appreciations of the yen come about because of portfolio rebalancing transactions that are not fully captured by BoP statistics, such as derivative transactions. For example, when risk perceptions change, exporters or overseas affiliates of Japanese companies may decide to lock in the exchange rate through hedging, or given Japan’s sizeable net foreign asset position, holders of foreign securities may take a long yen position. As such, these derivative transactions may not just reflect short-term speculative behavior, but may just reflect prudent risk management. We find support for this conjecture as risk-off episodes are associated with increases in net non-commercial exposures to the yen in the derivatives market.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2017-08-13T12:03:12.507" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17812" PostTypeId="2" ParentId="12311" CreationDate="2017-08-13T14:41:26.470" Score="2" Body="&lt;p&gt;Beyond what is written in this &lt;a href=&quot;https://www.economist.com/blogs/economist-explains/2014/03/economist-explains-26&quot; rel=&quot;nofollow noreferrer&quot;&gt;Economist article&lt;/a&gt;, the general principle is an estimation based on statistical data. The 4 major aspects are private consumption, government consumption, investment and net exports.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've worked as an auditor and cooperated with colleagues from the national bank of Portugal, which collected and cross-checked financial data to be able to calculate the GDP. Looking at the individual components:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;The private consumption can be assessed by surveying individuals, making  assumptions in connection with the tax information and financial aggregated data from banks (who are obliged to report to the National Banks)&lt;/li&gt;&#xA;&lt;li&gt;Government consumption is publicly available &lt;/li&gt;&#xA;&lt;li&gt;Investments are estimated by looking at company data and company tax filings&lt;/li&gt;&#xA;&lt;li&gt;Exports and Imports are calculated by crossing the info on  private consumption, investments, and bank data on payments sent overseas&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="12304" LastActivityDate="2017-08-13T14:41:26.470" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17814" PostTypeId="1" AcceptedAnswerId="17871" CreationDate="2017-08-13T15:34:28.937" Score="3" ViewCount="122" Body="&lt;p&gt;I am currently working to the numerical solution of a model similar to the consumption-savings decision model with hyperbolic discounting as in Krussel et al. (2003).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Even if hyperbolic discounting implies that the value function does not generally have the standard contraction property, some solutions to the problem have been implemented; for example Judd (2004) proposed perturbation methods from the exponential case and a local solution for small departures of hyperbolic discounting. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have already implemented the basic model without hyperbolic discounting, using value function iterations on discretized policy grids. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Do you have suggestions for the extension to hyperbolic discounting? Is it possible to extend the basic model without moving to iterations in the Euler equation? Any advice or reference is welcomed. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Krusell, Per, and Anthony A. Smith Jr. &quot;Consumption–savings decisions&#xA;  with quasi–geometric discounting.&quot; Econometrica 71.1 (2003): 365-375.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Judd, Kenneth L. &quot;Existence, uniqueness, and computational theory for&#xA;  time consistent equilibria: A hyperbolic discounting example.&quot; (2004).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="14177" LastEditorUserId="2776" LastEditDate="2017-08-13T15:45:50.653" LastActivityDate="2017-08-17T07:41:31.183" Title="Value function iterations with hyperbolic discounting" Tags="&lt;academic-graduate&gt;&lt;value&gt;&lt;dsge&gt;&lt;numerical-methods&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17815" PostTypeId="1" CreationDate="2017-08-13T18:42:00.850" Score="0" ViewCount="212" Body="&lt;p&gt;I am stuck with an exercise where I have to calculate the Weighted Average Cost of Capital (WACC) of the company X.&#xA;The data is as follows:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;We have two periods (t = 0 and t = 1). Company can be found in t = 1 in two states. Each state has a probability of 0.5. In t=1 the value of the company in State 1 is 200.000 USD and the value of the company in State 2 is 70.000 USD.&lt;/p&gt;&#xA;&lt;p&gt;The corporate tax rate is 40 %. The incurred costs if the firms becomes insolvent would be 20.000 USD in t = 1, which is subtracted from the firm's value. Contingent unit claims are both in State 1 and State 2 equal to 0.45 USD.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Since I am not the economist, I would have the following questions. In order to calculate WACC we need to calculate cost of equity (Re) and cost of debt (Rd). I found in the literature that the cost of equity (Re) is obtained by CAPM (capital asset pricing model), where Cost of equity (Re)  = risk free rate - beta * (market risk rate - risk free rate)&lt;/p&gt;&#xA;&lt;p&gt;Now let us suppose that the firm's capital is 100% equity financed. I have no idea of how to calculate the cost of equity using CAPM model. Using the data that I have at disposal I guess that I can calculate risk free rate by inversing the sum of contingent claims in State 1 and State 2 which is equal to &lt;span class=&quot;math-container&quot;&gt;$\frac{1}{0.90}$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;The problem remains how to calculate &lt;span class=&quot;math-container&quot;&gt;$beta$&lt;/span&gt; and market risk rate having at disposal only data that I presented above.&lt;/p&gt;&#xA;" OwnerUserId="14178" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2017-08-15T18:56:22.193" Title="Calculating Weighted Average Cost of Capital (WACC) in this example" Tags="&lt;financial-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17816" PostTypeId="1" CreationDate="2017-08-13T23:03:36.557" Score="3" ViewCount="91" Body="&lt;p&gt;I just wonder since money has to enter the system somehow. Currently the Fed will supply whatever banks ask to meet their capital needs. But how much physical currency does the Fed, treasury, and mint transfer to banks per year? And which banks?&lt;/p&gt;&#xA;" OwnerUserId="14179" LastEditorUserId="2776" LastEditDate="2017-08-14T07:50:40.973" LastActivityDate="2017-08-26T17:08:37.683" Title="How much physical currency does the Fed transfer to banks per year?" Tags="&lt;money&gt;&lt;federal-reserve&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17817" PostTypeId="1" AcceptedAnswerId="17822" CreationDate="2017-08-13T23:30:58.003" Score="3" ViewCount="193" Body="&lt;p&gt;There's been a lot of talk about Free Trade. People seem to either know nothing about it, or they seem to either support or oppose it with such passion that if you didn't know any better, you would think they were actually at war.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, I often don't like so called &quot;Free Trade Agreements&quot; like NAFTA, TPP, RCEP, CETA, etc. but more often than not my aversion to them tends to be based on toxic copyright provisions and a lack of Fair Use protections, not necessarily the actual macroeconomic effects of the trade deal as a whole.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, I have to ask: what exactly is the argument in favor of Free Trade? What exactly is it trying to achieve? And are there ways a nation can address the negative effects of such deals? And what is Free Trade NOT?&lt;/p&gt;&#xA;" OwnerUserId="13990" LastEditorUserId="2776" LastEditDate="2017-08-14T07:52:07.837" LastActivityDate="2017-08-14T08:31:19.233" Title="What exactly is the argument for Free Trade?" Tags="&lt;international-trade&gt;&lt;free-trade&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17818" PostTypeId="1" AcceptedAnswerId="17819" CreationDate="2017-08-14T01:53:36.850" Score="1" ViewCount="198" Body="&lt;p&gt;In neoclassical economics a worker is paid the marginal product of what they produce. If this is true then what is the source of profits? &lt;/p&gt;&#xA;" OwnerUserId="14115" LastEditorUserId="2776" LastEditDate="2017-08-14T08:09:04.723" LastActivityDate="2017-08-15T14:55:47.207" Title="Marginal productivity, wages, and profits in neoclassical economics" Tags="&lt;microeconomics&gt;&lt;wages&gt;&lt;profits&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="17819" PostTypeId="2" ParentId="17818" CreationDate="2017-08-14T03:14:56.987" Score="3" Body="&lt;p&gt;Recall the profit function.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\pi=pf(x)-wx$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $x$ is a set of inputs, and $w$ is a set of input prices.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A firm is profit maximizing when $MC=MR$ or in a competitive case where $MC=p$. If a worker is paid his marginal product (where $MPL=w$) we only pay what he produces. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If  marginal cost is constant and marginal revenues are constant across all production sets, then the firms profits will be zero. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However if there are diminishing returns from the inputs then every worker is paid less, thus allowing for profits to exist in the short run. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Bottom line: In the short run, through the diminishing returns from labor that profit for the firm comes into existence.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the long run however, new firms enter capturing more and more of the profits until they are reduced to zero. &lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="8815" LastEditDate="2017-08-14T17:43:13.163" LastActivityDate="2017-08-14T17:43:13.163" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="17820" PostTypeId="2" ParentId="17817" CreationDate="2017-08-14T03:44:37.747" Score="2" Body="&lt;p&gt;Free trade in theory allows for a greater division of labor by allowing countries as a whole to specialize rather than a section of each country specializing. In theory this should make every country involved wealthier as they can focus on doing more of what they're good at. Its the country level version of division of labor and trading in general.&lt;/p&gt;&#xA;" OwnerUserId="14181" LastActivityDate="2017-08-14T03:44:37.747" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17821" PostTypeId="1" AcceptedAnswerId="17857" CreationDate="2017-08-14T04:58:40.773" Score="0" ViewCount="44" Body="&lt;p&gt;What are some restrictions to the competitive restoration of proportionality across industries in regards to capital mobility? What is generally impeding the free flow of capital from less profitable sectors into those with higher profitable potentiality and from eroding larger firms market share? Also does the integration of finance capital and industrial capital play any role in this? Lastly, why isn't new capital entering these markets and averaging out profit rates?&lt;/p&gt;&#xA;" OwnerUserId="14115" LastEditorUserId="2776" LastEditDate="2017-08-14T08:11:59.720" LastActivityDate="2017-08-16T08:05:24.483" Title="Capital mobility across industries and equalization of profit rates" Tags="&lt;industrial-organisation&gt;&lt;profits&gt;&lt;capital-mobility&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17822" PostTypeId="2" ParentId="17817" CreationDate="2017-08-14T08:31:19.233" Score="4" Body="&lt;p&gt;The theory behind free trade is denominated &lt;a href=&quot;https://en.wikipedia.org/wiki/Comparative_advantage&quot; rel=&quot;nofollow noreferrer&quot;&gt;comparative advantage&lt;/a&gt;, and as mike stated, the advantage is that a country, as a whole, benefits from specializing in the fields at which it is best, as it will get more than it would if it would produce everything alone.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In practice, a big advantage is the ability to operate for a bigger market, reaping economies of scale. This is particularly advantageous for small countries.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The downside is that, although free trade will make the country as a whole richer, it wont make the society necessarily equally richer, so &lt;a href=&quot;https://en.wikipedia.org/wiki/Trade_and_development&quot; rel=&quot;nofollow noreferrer&quot;&gt;it wont guarantee that an economy will develop&lt;/a&gt;. This connects with the concept of exploitative trade and &lt;a href=&quot;https://en.wikipedia.org/wiki/Fair_trade&quot; rel=&quot;nofollow noreferrer&quot;&gt;fair trade&lt;/a&gt;: by entering international trade, developing countries might leave their economies vulnerable to foreign companies or governments, sometimes in critical sectors such as food and energy.&lt;/p&gt;&#xA;" OwnerUserId="12304" LastActivityDate="2017-08-14T08:31:19.233" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="17823" PostTypeId="1" CreationDate="2017-08-14T08:39:37.590" Score="1" ViewCount="377" Body="&lt;p&gt;I am currently trying to find 'Price Outliers' in a set of data. Given a set of product prices (within a product category, e.g. milk) I want to filter for prices that are suspicious - for example I have a set of milk prices $\{1,1.5,10,0.1\}$ then I want to filter for $10$ and $0.1$. The problem is that within different product categories price ranges can vary a lot - for example fish: a tin of tuna and a tin of caviar, converting the prices to 1kg has a very big difference in pricing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the question is, if anyone of you knows a (mathematical) model, to describe pricing within 'similar' products - I am more interested in relative conclusions about prices rather than absolute, for example: I am not interested in 1.5 Euro per liter milk against 1 Euro per liter milk but I am interested in the 'range prices can have' with the aim to find suspicious prices. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So far I worked with an empirical expected value and standard deviation, assumed prices are log-normal distributed and calculated the 2-sigma intervals and filtered all prices not within the 2-sigma interval. This gives more or less good results but is not really satisfying.&lt;/p&gt;&#xA;" OwnerUserId="14182" LastEditorUserId="2776" LastEditDate="2017-08-14T08:48:34.963" LastActivityDate="2017-08-14T12:07:13.990" Title="Modelling prices to identify price outliers" Tags="&lt;price&gt;" AnswerCount="0" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="17824" PostTypeId="1" CreationDate="2017-08-14T10:13:04.883" Score="1" ViewCount="55" Body="&lt;p&gt;The background of this question is: In Germany rental income is generally taxed the same as regular business income. In some cities, there seem to be housing shortages across different incomes.&#xA;Are there countries where rental income is taxed by square meter/footage? Could it provide housing relief?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the following tables there are three models of taxation shown. The first tries to model the current situation where the taxation is related to the gained income and not to the size and price of a flat. The following tables try to show the situation when taxation is based on price per m².&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/I9PxO.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/I9PxO.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="12910" LastEditorUserId="12910" LastEditDate="2017-08-14T15:25:07.533" LastActivityDate="2017-08-15T18:31:18.140" Title="Could a tax on rental income that depends on price per square meter induce more housing with lower rents?" Tags="&lt;taxation&gt;&lt;housing&gt;" AnswerCount="1" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="17827" PostTypeId="2" ParentId="17474" CreationDate="2017-08-14T14:15:38.760" Score="0" Body="&lt;p&gt;The OECD might be quite specific in their terminology. I think the use of QoQ (quarter on quarter) and YoY (year on year) are more commonly used. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a general context, it seems the most used is YoY, at least when it comes to published books:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/eOmLL.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/eOmLL.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A consistent picture emerges when looking at papers: &lt;a href=&quot;http://econpapers.repec.org/scripts/search.pf?ft=year+on+year&quot; rel=&quot;nofollow noreferrer&quot;&gt;YoY&lt;/a&gt; yields 3,140 results, whereas &lt;a href=&quot;http://econpapers.repec.org/scripts/search.pf?ft=quarter+on+quarter&quot; rel=&quot;nofollow noreferrer&quot;&gt;QoQ&lt;/a&gt; yields 355 results.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, these are general results, not specific to GDP. But they still reflect the fact that you will not go wrong using YoY, as it is a very familiar figure. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, you are correct that QoQ GDP figures are likely to be more volatile than YoY, particular if seasonality has not been accounted for. Another benefit of using YoY growth rates is that people is more used to yearly growth rates, so any analysis will be easier to grasp to the reader.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-08-14T14:51:29.157" LastActivityDate="2017-08-14T14:51:29.157" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17828" PostTypeId="2" ParentId="17816" CreationDate="2017-08-14T16:31:28.463" Score="0" Body="&lt;p&gt;In the US and in the Eurozone, a lot of the money doesn't physically exist - &lt;a href=&quot;http://www.marketwatch.com/story/this-is-how-much-money-exists-in-the-entire-world-in-one-chart-2015-12-18&quot; rel=&quot;nofollow noreferrer&quot;&gt;this graph&lt;/a&gt; illustrates it quite nicely. In Europe, only 1,1B of the 10B Euro in circulation are cash (&lt;a href=&quot;http://sdw.ecb.europa.eu/reports.do?node=1000003478&quot; rel=&quot;nofollow noreferrer&quot;&gt;source&lt;/a&gt;) - all the remainder is electronic. When banks need money from the Fed, there is an electronic transaction from the Fed to the bank. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Cash is introduced in the economy through banks, through their request to the central bank for cash, provided upon need and perhaps against a fee. &lt;/p&gt;&#xA;" OwnerUserId="12304" LastEditorUserId="12304" LastEditDate="2017-08-15T01:51:27.830" LastActivityDate="2017-08-15T01:51:27.830" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="17829" PostTypeId="2" ParentId="17735" CreationDate="2017-08-14T16:45:40.903" Score="-2" Body="&lt;p&gt;A consumer is rational if he decides for the option that maximizes his/her utility.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When studying the bachelor for Economics, in microeconomics class, the teacher would always tell you that it is assumed that consumers are rational, meaning that they maximize their profits based on their utility payoffs. The teacher would state that the utility expressed in currency, and the student compares this to the cost of several &lt;strong&gt;homogeneous goods&lt;/strong&gt;, choosing the cheapest that maximizes the payoff and consumer profit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Economics graduates often forget that in real world there are &lt;strong&gt;rarely homogeneous goods&lt;/strong&gt; and &lt;strong&gt;consumers cannot easily express their utilities&lt;/strong&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, when I'm buying a 3\$ water in a coffeeshop instead of buying the same water for 1\$ in the supermarket next door, my utility of buying together the water is different, therefore i'm rational even if I spend more to buy an apparently homogeneous product - because i'm buying the service, or because the time saved amplifies the utility of the water. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Besides this, take a look at the concept of &lt;a href=&quot;https://en.wikiquote.org/wiki/Bounded_rationality&quot; rel=&quot;nofollow noreferrer&quot;&gt;bounded rationality&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="12304" LastActivityDate="2017-08-14T16:45:40.903" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17831" PostTypeId="1" AcceptedAnswerId="17833" CreationDate="2017-08-15T08:23:17.283" Score="7" ViewCount="2508" Body="&lt;p&gt;Basic logic says that, once a central bank is issuing new money for increasing the money supply, the money should be distributed fairly between all the citizens, and that means giving them all an amount equal in proportion to their income (say a 5% of their annual income for achieving a 5% inflation). So they should give the money to the government, and then the  government either distributes the money or it builds public infrastructure that everyone benefits from. Most likely, this is the way the Eastern European countries experienced inflation in the 1990's.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Conversely, when the Fed decides to remove a certain amount of money from the economy, the Government should tax everyone in a fair way (the rich should pay more than the poor) and then give the money to the Fed to burn it. Or to burn it directly, without even giving it to the Fed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Instead, the Federal Reserve has some sophisticated and arcane ways to move the money, beyond the comprehension of the general public. The Fed and the banks are involved into actually owning those newly issued money, and that looks really strange.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.theatlantic.com/business/archive/2011/04/the-destruction-of-money-who-does-it-why-when-and-how/236990/&quot; rel=&quot;nofollow noreferrer&quot;&gt;This article&lt;/a&gt; says:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;When the Fed wants to expand the money supply, it buys a security -- let's call it Asset A -- from a bank. Then it electronically transfers money to that bank.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Therefore, if the Federal Reserve decides, it can issue new money and buy and own half of the assets in the USA for free whenever they want. The newly issued money get to the banks, and depending on the decision of the banks to use the money or not, they can create inflation - or not. They can give those money in astronomical bonuses to their top executives and those people can send the money to Switzerland for example - therefore no inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there something important that I'm missing?&lt;/p&gt;&#xA;" OwnerUserId="5161" LastEditorUserId="5161" LastEditDate="2017-08-17T14:41:45.040" LastActivityDate="2017-08-17T14:41:45.040" Title="Is the Federal Reserve issuing money in a fair way?" Tags="&lt;money-supply&gt;&lt;federal-reserve&gt;" AnswerCount="3" CommentCount="26" ContentLicense="CC BY-SA 3.0" />
  <row Id="17832" PostTypeId="2" ParentId="13618" CreationDate="2017-08-15T08:47:32.450" Score="0" Body="&lt;p&gt;Just to add to Alecos excellent answer: besides production and consumption, the government takes the role of investor too, providing the capital to execute projects like building a military base.&lt;/p&gt;&#xA;" OwnerUserId="12304" LastActivityDate="2017-08-15T08:47:32.450" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17833" PostTypeId="2" ParentId="17831" CreationDate="2017-08-15T09:06:26.460" Score="10" Body="&lt;p&gt;The Fed introduces money in the economy through the banks via the mechanism of &lt;a href=&quot;https://en.wikipedia.org/wiki/Fractional-reserve_banking&quot; rel=&quot;noreferrer&quot;&gt;fractional-reserve banking&lt;/a&gt;, as you mentioned in your article. &#xA;This means the Fed is then allowing the banks to provide credit to anyone who they find adequate. The reason to do so is that banks will favor investment opportunities which lead to long term growth, such as build a house or a factory, rather than immediate consumption of goods, which would lead faster to inflation. The alternative would be to transfer the money to the government, which would distribute it through investments (like build roads) or subsidies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your question is on fairness: whilst there would be several ways to look at what &quot;fairness&quot; means (give the same to everyone OR give more to the ones who deserve/need more), the key point is that the Fed's job is to make the US dollar stable, and not to work on individual bank gains. You can read on the &lt;a href=&quot;https://www.federalreserve.gov/publications/gpra/2011-mission-values-and-goals-of-the-board-of-governors.htm&quot; rel=&quot;noreferrer&quot;&gt;Fed's mission&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;(...) to foster the stability, integrity, and efficiency of the nation's monetary, financial, and payment systems so as to promote optimal macroeconomic performance&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Their approach to distributing the money is to keep the inflation low, which according to them and the US Congress, is on the best interest of the whole country and not just the banks.&lt;/p&gt;&#xA;" OwnerUserId="12304" LastActivityDate="2017-08-15T09:06:26.460" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="17834" PostTypeId="1" AcceptedAnswerId="17848" CreationDate="2017-08-15T11:45:03.777" Score="20" ViewCount="17923" Body="&lt;p&gt;&lt;strong&gt;Why do different countries have different currency?&lt;/strong&gt; &#xA;&lt;br&gt;&#xA;&lt;br&gt;&#xA; &lt;em&gt;I have this question&lt;/em&gt; because I want to know why to divide it? If it's not divided then we can easily use the money anywhere and we won't need to use &lt;strong&gt;currency exchange&lt;/strong&gt;. &lt;/p&gt;&#xA;" OwnerUserId="14198" LastEditorUserId="1601" LastEditorDisplayName="user14425" LastEditDate="2021-05-12T10:57:02.820" LastActivityDate="2021-05-12T10:57:02.820" Title="Why do different countries have different currency?" Tags="&lt;currency&gt;&lt;money&gt;&lt;nonexpert&gt;" AnswerCount="7" CommentCount="10" FavoriteCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="17835" PostTypeId="2" ParentId="17831" CreationDate="2017-08-15T12:27:38.757" Score="14" Body="&lt;p&gt;Normative questions require a standard of fairness in order to then be analyzed and answered with some degree of &quot;objectiveness&quot; so that the answer is not just a declaration of philosophical-ideological positions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The OP starts by writing&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;Basic logic says that, once a central bank is issuing new money for increasing the money supply, the money should be distributed equally&#xA;  between all the citizens.&quot;&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Why &quot;basic logic&quot; says that? &lt;em&gt;Whose&lt;/em&gt; &quot;basic logic&quot;? I note that throughout human history and especially in the western civilization in the last 400 years, &quot;fairness&quot; is almost exclusively interpreted as &quot;proportionality&quot;, not flat equality (i.e. as &quot;per capita tax&quot; is considered &lt;em&gt;not&lt;/em&gt; in accord with current societal values, so are &quot;per capita transfers&quot;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Anyway, under the given fairness standard, certainly &quot;new money is not fairly distributed&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regarding how the creation of new money works, and how it affects the domestic or global economy (or not), which is an additional question, I believe there are many threads here that provide a lot of information on the matter. Selecting the tag &quot;inflation&quot; or &quot;money supply&quot; will bring up most of them.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2017-08-15T12:27:38.757" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="17836" PostTypeId="2" ParentId="17834" CreationDate="2017-08-15T12:52:37.560" Score="35" Body="&lt;p&gt;Two reasons: history and ability to control the money supply.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;History: paper-money started by being issued by &lt;a href=&quot;http://content.time.com/time/specials/packages/article/0,28804,1914560_1914558_1914593,00.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;trustworthy agents from kings/governments&lt;/a&gt;, as a way to be able to transfer the ownership of gold without moving the gold physically. This looked something like &quot;This paper is exchangeable for 10 gold coins at this location&quot;. This meant you had to go to that specific kingdom to get the paper (bill) converted into gold. These papers &lt;a href=&quot;https://en.wikipedia.org/wiki/Banknote#Paper_banknotes&quot; rel=&quot;nofollow noreferrer&quot;&gt;evolved into what we now call banknotes&lt;/a&gt;, and kept tied to a specific country.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Money supply control: having your own currency allows governments to fund themselves by producing more money, or stimulate exports by devaluing their currency. Look at the euro-zone difficulties with the government debt of Greece: this could be solved (with consequences, of course) &lt;a href=&quot;https://www.cnbc.com/2015/07/08/euro-drachma-bitcoin-greeces-currency-options.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;if they had their own currency&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="12304" LastEditorUserId="12304" LastEditDate="2017-08-18T08:06:59.973" LastActivityDate="2017-08-18T08:06:59.973" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17837" PostTypeId="2" ParentId="17797" CreationDate="2017-08-15T13:23:13.770" Score="2" Body="&lt;p&gt;Take your second equation, move it forward one period, and rearrange. You get:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ B_t = \frac{p_{t+1} s_{t+1} + \Delta M_{t+1}}{R_{t+1}}  + \frac{B_{t+1}}{R_{t+1}} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, define the &lt;em&gt;nominal primary deficit&lt;/em&gt; as $D_{t+1} = -(p_{t+1} s_{t+1} + \Delta M_{t+1})$. The above transforms into:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ B_t = -\frac{D_{t+1}}{R_{t+1}} + \frac{B_{t+1}}{R_{t+1}} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which has the format you are looking for. To find the infinite-period intertemporal budget constraint, simply proceed with forward substitution.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The notation I've used (regarding the deficit) is taken from &lt;a href=&quot;http://press.princeton.edu/titles/9743.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Wickens&lt;/a&gt;, Chapter 5. The above is roughly equal to equation (5.11) in the book. There, the author has a more general expression, which includes inflation, GDP growth, and debt-to-GDP ratio. Your example is a simplification of his. I suggest you go through &lt;a href=&quot;http://press.princeton.edu/chapters/c9743.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Section 5.4&lt;/a&gt; of the book, which it gives a very detailed analysis of the Government budget constraint (it also gives the solution you are looking for, in case you want to compare).&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;To find the final expression you are looking for (after edit), take your second equation and replace $B_t$ with the infinite-period intertemporal budget constraint:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{R_{t}B_{t-1} + M_{t-1}}{p_{t}} = \frac{B^*_{t} + M_{t}}{p_{t}} + s_{t}$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $B^*_t$ is the result of the forward substitution exercise.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-08-17T07:14:23.607" LastActivityDate="2017-08-17T07:14:23.607" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17838" PostTypeId="2" ParentId="17831" CreationDate="2017-08-15T14:10:24.213" Score="5" Body="&lt;p&gt;&lt;strong&gt;No, because monetary policy is known to increase inequality.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In effect, &lt;a href=&quot;https://economix.blogs.nytimes.com/2013/06/03/the-fed-and-inequality/&quot; rel=&quot;nofollow noreferrer&quot;&gt;evidence&lt;/a&gt; indicates that monetary policy has contributed toward &lt;strong&gt;higher inequality&lt;/strong&gt;. Therefore, the Fed is not being very supportive of fairness, from this point of view.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Reasons are several. Some examples:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;strong&gt;Booming Stock Markets&lt;/strong&gt;: low interest rates generate booming stock markets. Because shares are mainly &lt;a href=&quot;https://www.clevelandfed.org/newsroom-and-events/publications/economic-commentary/2017-economic-commentaries/ec-201701-monetary-policy-and-inequality.aspx&quot; rel=&quot;nofollow noreferrer&quot;&gt;owned by the rich&lt;/a&gt;, this benefits them proportionally more than the poor:&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/wwNVx.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/wwNVx.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;strong&gt;Better access to finance by the rich&lt;/strong&gt;: because of higher collateral, more wealthy individuals have better access to financial markets, including loans to business and housing. Therefore, they benefit much more than the rest of individuals from cheap credit via low interest rates. As &lt;a href=&quot;https://www.forbes.com/sites/jeffreydorfman/2015/05/12/the-feds-low-interest-rates-are-increasing-inequality/#4ed6941678e9&quot; rel=&quot;nofollow noreferrer&quot;&gt;this article&lt;/a&gt; states:&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;the wealthier you are, the more you are likely to borrow (until one gets very, very wealthy), because banks will lend you more and because you are likely to buy an expensive house and want to milk the tax advantages of a large mortgage. With today’s low interest rates, a wealthy family with a \$300,000 mortgage could be saving \$7,500 per year in mortgage interest or over \$600 per month. Some wealthy families have much bigger mortgages than that, so the Fed-driven savings to the wealthy could be even larger. Since the wealthy save more from low interest rates than the poor, the Fed’s interest rate policy is making wealth inequality worse.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Some people however say that the activity of the Fed, even if it has increased inequality by the above channels, it remains overall beneficial by fostering higher employment and avoiding a more deep financial and economic recession. Thus, higher inequality is simply a &quot;short-term&quot; cost of the necessary activity of the Fed.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-08-15T20:00:44.493" LastActivityDate="2017-08-15T20:00:44.493" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="17839" PostTypeId="2" ParentId="17834" CreationDate="2017-08-15T14:23:31.537" Score="11" Body="&lt;p&gt;You might also want to think about&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;If it's not divided then we can easily use the money anywhere.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Is that positive and desirable for everyone in all situations? If you want to control the flow of money and people, different currencies are helpful. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;JoaoBotelho also pointed to control of the supply and historical reasons, I would also add that everyone would have to agree, what the currency of the world is supposed to be. Different countries have (and have had) very different ideas as to how a currency should behave. &#xA;Like: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;gold- or silver-backing, or fiat money?&lt;/li&gt;&#xA;&lt;li&gt;how independent should the central bank be?&lt;/li&gt;&#xA;&lt;li&gt;general monetary policy - this will never fit all of the world at the same time&lt;/li&gt;&#xA;&lt;li&gt;what is the &lt;em&gt;right&lt;/em&gt; amount of inflation?&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="13535" LastActivityDate="2017-08-15T14:23:31.537" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="17840" PostTypeId="2" ParentId="4665" CreationDate="2017-08-15T14:27:26.830" Score="1" Body="&lt;p&gt;Short answer: NO, it doesn't affect inflation. Longer answer follows:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The lowest denomination coin usually stands for a very small amount of the total amount of cash. There are a lot of them, but their total worth isn't that great. In Sweden, where I live, the lowest denomination coin has been removed several times.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The currency in Sweden is called krona (crown) and has the acronym kr. 1 kr = 100 öre.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.riksbank.se/sv/Sedlar--mynt/Mynt/Ogiltiga-mynt/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Changes in lowest denomination in Sweden&lt;/a&gt; (the link leads to page in swedish):&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;1972:  1 öre -&amp;gt;  5 öre&#xA;1985:  5 öre -&amp;gt; 10 öre&#xA;1992: 10 öre -&amp;gt; 50 öre&#xA;2010: 50 öre -&amp;gt;  1 krona&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.riksbank.se/sv/Press-och-publicerat/Nyheter/2010/Manga-vet-att-50-oringen-forsvinner/&quot; rel=&quot;nofollow noreferrer&quot;&gt;The last time&lt;/a&gt;, in 2010, there were around 400 million 50 öre coins in circulation with a total value of 200 million kr (around 25 million USD, or $2:50 per capita). Around 70% of those were never returned.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;While we no longer have smaller cash than 1 kr, money is still charged in increments of 0.01 kr.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When you pay electronically, the exact amount is charged. When you pay with cash the amount is rounded to the nearest krona. It is possible to game the system by using a card when the amount would be rounded up and using cash when it is rounded down. However, no one seems to do that. It just isn't profitable enough to be worth your time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Edit:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Bottom line: There doesn't seem to be any significant (measurable) effect of removing the lowest denomination coin once its value is so low that it has outlived its usefulness.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My conclusion is based partly on the low total value of the removed coins, partly on internet searches for news articles or comments relating to the change. The only noteworthy subject that came up was related to the change of deposit on soda cans from 50 öre to 1 kr in 2010 and the public response was slight &lt;a href=&quot;http://sverigesradio.se/sida/artikel.aspx?programid=3364&amp;amp;artikel=4057609&quot; rel=&quot;nofollow noreferrer&quot;&gt;confusion&lt;/a&gt; on whether the higher deposit would apply to cans already in circulation (which it didn't). &lt;/p&gt;&#xA;" OwnerUserId="11805" LastEditorUserId="11805" LastEditDate="2017-08-17T08:47:54.360" LastActivityDate="2017-08-17T08:47:54.360" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17841" PostTypeId="2" ParentId="17834" CreationDate="2017-08-15T14:34:06.993" Score="14" Body="&lt;p&gt;&lt;strong&gt;There are also many countries without their own currency.&lt;/strong&gt; For example, Ecuador and Panama both use the US dollar as their official currency. See &lt;a href=&quot;https://en.wikipedia.org/wiki/Currency_substitution#Countries_using_the_US_dollar_exclusively&quot; rel=&quot;noreferrer&quot;&gt;this list&lt;/a&gt; for more examples.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are several reasons why you might like to adopt another country's currency, but common factors are &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;high inflation&lt;/strong&gt;: the domestic currency loses value against foreign ones. Therefore, people start more and more to use foreign currency for transactions (e.g. dollars in Venezuela today). Therefore, one solution is simply to get rid of your own currency and adopt a foreign one. This &lt;strong&gt;immediately stabilises prices&lt;/strong&gt;, as the central bank can no longer print money.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;high levels of trade with one country&lt;/strong&gt;: for example, if you trade very much with the US (as many small Caribbean islands do), you would rather adopt the US dollar. This will give much more certainty to exporters and business in general.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="-1" LastEditDate="2017-08-17T14:16:03.713" LastActivityDate="2017-08-17T14:16:03.713" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17842" PostTypeId="2" ParentId="17818" CreationDate="2017-08-15T14:55:47.207" Score="0" Body="&lt;p&gt;Consider it intuitively. If each agent is paid the marginal product of what they contribute, then supposedly, the firm will also provide some value to a good or service that they will find a return on.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For someone like taxi cab drivers, they probably contribute most of the value of the service, (and pay for their own gas, upkeep, etc.). They end up getting paid close to the full value of the service, while the firm collects rents other ways. But if you are a car salesman, when you make a sale, you don't get paid the full value of the car that you sell. That's because sure, your labor contributed to the value of the sale, but so did the people keeping up the floor room, the advertising, etc. So everyone contributes some value to the firm, and presumably the firm itself will do so. The firm in this case may have put up financing for the dealership and taken on the cost of sifting through the labor market. So presumably the individuals in the firm will receive &quot;profits&quot; for these efforts as well.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Keep in mind that when we talk about zero economic profit in neoclassical economics, this does not preclude accounting profits.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2017-08-15T14:55:47.207" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="17843" PostTypeId="2" ParentId="17486" CreationDate="2017-08-15T15:17:21.277" Score="2" Body="&lt;p&gt;This question boils down to asking why business cycles exist and change employment in shocks.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One possibility is that employment is sticky or not worth changing constantly. A firm cannot constantly calculate and evaluate worker productivity and general profitability without a, perhaps rather expensive, cost, especially if the firm is very large. Constantly hiring and firing to try and have &quot;optimal&quot; employment for a firm is also bad for morale.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And perhaps more to the point, the alternative to firing people in large swathes is lowering wages, which is even worse for worker morale and sometimes not really legal (e.g. salaries are fixed for a year). So if there is a recession for example, a firm will generally choose to keep wages up, and then when it can't afford such a scenario anymore, it will create large layoffs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Further Reading:&lt;/strong&gt; The cost of firing changes the dynamics of how people are fired as well. See &lt;a href=&quot;http://onlinelibrary.wiley.com/doi/10.1111/j.1468-0297.2012.02534.x/full&quot; rel=&quot;nofollow noreferrer&quot;&gt;this article&lt;/a&gt; about France and Spain's different changes in employment with respect to the Great Recession. It is possible to prevent large drops in unemployment. Whether it is efficient is another question. My answer only briefly touches on the theory, and there is plenty of literature related to the points I've made that you can look for.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2017-08-15T15:17:21.277" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17844" PostTypeId="1" CreationDate="2017-08-15T15:52:14.530" Score="0" ViewCount="364" Body="&lt;p&gt;While reading the answer to &lt;a href=&quot;https://economics.stackexchange.com/questions/444/implications-of-abolishing-fractional-reserve-banking-on-mortgages-and-interest?newreg=aeceac822b864947a75417f912b5fc80&quot;&gt;Implications of abolishing Fractional Reserve Banking on mortgages and interest rates&lt;/a&gt;, I started to wonder if there wasn't a simple solution to the problems that would arise with the introduction of a constant money supply.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Right now, banks create the illusion of more money existing by accepting deposits and holding onto only a fraction of them while lending out the rest.  Alternatively, could they not just package up loans into investments and essentially sell shares in the investments to average people.  This would essentially have the same effect, your cash would be tied up in the bank and you would receive some amount of interest on it.  The investments could even be structured and insured in a similar way to the current system in order to maintain some amount of liquidity.  The only big change is that people would be very much aware of where there money is when they put it in the bank, which to me would only increase the robustness of the system and reduce the possibility of bank runs, as there would be a general understanding that some of your money is loaned out at any given time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Has this idea been studied, and are there any known or obvious flaws that I am not seeing?&lt;/p&gt;&#xA;" OwnerUserId="14203" LastEditorUserId="1601" LastEditDate="2017-08-15T17:53:24.447" LastActivityDate="2017-10-17T12:19:18.413" Title="Would this alternative to fractional reserve banking work?" Tags="&lt;money-supply&gt;&lt;banking&gt;" AnswerCount="1" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="17845" PostTypeId="2" ParentId="17824" CreationDate="2017-08-15T18:31:18.140" Score="1" Body="&lt;p&gt;Why do you think that additional taxes on more expensive apartments (progressive taxes) would lead to lowering the prices and offering them cheaper than market dictates? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Adding taxes on top would just make these apartments even more expensive for the consumer, since the owner will push down the additional cost to the consumer rather than take a haircut. Especially if these apartments are laying around empty anyway. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I am willing to sell product A for say 1.000$ but there are no buyers - will an increase in the tax help me sell it? &#xA;If you on the other hand gave me a tax discount, I might want to sell it cheaper, since I may be left with the same after-tax profit. &lt;/p&gt;&#xA;" OwnerUserId="14207" LastActivityDate="2017-08-15T18:31:18.140" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="17846" PostTypeId="2" ParentId="17815" CreationDate="2017-08-15T18:56:22.193" Score="1" Body="&lt;p&gt;You can't. Beta is observed from the value of the company respective to the market (beta represents volatility).&#xA;Also the market risk premium is the expected return for the market portfolio and cannot be calculated with what you have been given.&lt;/p&gt;&#xA;" OwnerUserId="14207" LastActivityDate="2017-08-15T18:56:22.193" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17847" PostTypeId="1" CreationDate="2017-08-15T19:02:14.693" Score="1" ViewCount="299" Body="&lt;p&gt;I've been told that an increase in wealth will lead to an increase in both the demand for Bonds determined by the Theory of Asset Demand. This should shift the bond curve to the right, increasing Price and decreasing interest rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But for the liquidity preference framework, it says that an increase in income leads to an increase in wealth thus shifting the demand curve for money to the right and increasing interest rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How can wealth increase decrease the interest rate in the bonds graph but increase it in the quantity of money supply graph. I'm sure I'm missing out on something obvious.&lt;/p&gt;&#xA;" OwnerUserId="14208" LastActivityDate="2021-03-29T21:02:25.237" Title="Wealth - Bond Market and Liquidity Preference Framework" Tags="&lt;macroeconomics&gt;&lt;bonds&gt;&lt;liquidity&gt;&lt;quantity-theory-of-money&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17848" PostTypeId="2" ParentId="17834" CreationDate="2017-08-15T19:03:13.147" Score="31" Body="&lt;p&gt;I will focus on some economics reasons not mentioned explicitly so far. There are economic benefits to having your own currency. Your question essentially raises the question of so-called &quot;Optimum Currency Areas&quot; (OCAs). There was a lot of interest in the question of what areas should have the same currency. It is in general not immediately obvious that different countries should have the same currency, or even that the same country should have the same currency everywhere.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your question boils down to asking whether the whole world is an OCA - and the short answer is no.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The pros of having different currencies are that you can use monetary policy to offset shocks. Especially for trade shocks, because monetary policy can change the exchange rate of a currency to affect trade. For example if Germany and France are hit by different shocks, then they will want to conduct different monetary policies, which they can't if they share the same currency. The main cost of different currencies are transaction costs of exchange, which can hamper things like trade and tourism.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore an area should have the same currency (is an OCA) if it is subject to the same shocks or other factors are present, such that those shocks are absorbed without monetary policy. This thinking leads us to the four most important criteria for an area to be an OCA. You can use these criteria to evaluate whether countries should have the same currency and to answer your question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is worth noting, that the pioneer in this literature was Robert Mundell with his 1961 paper. The other two most important works are Kenen (1969) and Mckinnon (1963). The criteria are:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;The regions should have similar business cycles. As mentioned, if the countries tend to experiene similar shocks, then they will require the same monetary policy. In that case there is no reason for them to have different currencies!&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Openness of the economy (Mckinnon). This can be divided in two parts:&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;2.1. High labor mobility across regions. If there is a recession in one region and people can move to another one as a response, then monetary policy is less important in adjusting to the shock, as labor itself adjusts. This is a reason why countries can usually have the same currency within their whole territory. For example, people who lose their job in one U.S. state often move to another. If that wouldn't be possible, then adjusting to the recession with monetary policy would be more important. That is why the freedom of movement agreement is so important for the Euro to be sustainable. Note that wage flexibility would be required here as well.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2.2. Capital mobility. The reasons are similar as for labor mobility. If a region becomes less developed, then returns to capital there will increase. If markets are free, then capital can travel from the more prosperous region to the one hit by the shock, thereby mitigating the negative effects of the shock. Note that price flexibility must be given here for these effects to occur.&lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;3&quot;&gt;&#xA;&lt;li&gt;&lt;p&gt;A risk sharing system, such as fiscal transfers. Since monetary policy can't be used, we would need fiscal policy. Fiscal transfers from unaffected areas can help with negative shocks in another region. The Eurozone has a no-bailout clause, so this condition wasn't given during the Greek crisis. However, this was de facto abandoned. This is unsurprising to those familiar with the theory of OCAs.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Product Diversity (Kenen). Trade shocks, which monetary policy can help with, usually occur to certain industries and not the whole economy. If countries produce a variety of products, they will be less likely to suffer from large demand shocks. Hence, more diverse economies will face fewer trade fluctuations and see smaller increases of unemployment if shocks occur to one industry. This also reduces the need for monetary policy stabilization, since any given shock has a small impact on the overall economy.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Sometimes further criteria are also given, but they are less important. These include &quot;solidarity&quot; as well as homogenous preferences across regions, for similar reasons as the condition of similar business cycles. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So you can use these criteria to evaluate whether certain countries or areas should have the same currrency or not. All these criteria are definitely not fulfilled for the whole world, so there is a role for different currencies. An issue with the theory of OCAs is that it is unclear how much weight we should give to each criterium. So it could be unclear how to evaluate whether two countries who partially fulfill some of the criteria should have the same currency or not.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastEditorUserId="5557" LastEditDate="2018-03-07T20:00:57.713" LastActivityDate="2018-03-07T20:00:57.713" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17849" PostTypeId="2" ParentId="13483" CreationDate="2017-08-15T19:16:55.750" Score="1" Body="&lt;p&gt;Except you didn't go further:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the demand increases and this leads to an increase in price -&gt; price increase will then lead to a decrease in demand.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Remember that demand will decrease when price increases. &lt;/p&gt;&#xA;" OwnerUserId="14207" LastActivityDate="2017-08-15T19:16:55.750" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17850" PostTypeId="2" ParentId="17620" CreationDate="2017-08-15T20:01:04.273" Score="1" Body="&lt;p&gt;Should P&amp;amp;G drop all their brands and only sell one shampoo and one deodorant and one toothpaste?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Volkswagen group own Skoda, Volkswagen and Audi (plus some additional brands - but lets exclude those for this example). Each brand has several series/models that are comparable between brand &quot;levels&quot;. E.g Skoda Octavia = Volkswagen Passat = Audi A6.. Essentially the same car (sure not exactly the same car, but comparable in size, equipment, material etc.) - but different prices. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Would it be more consumer-friendly to skip the different brands and just offer one car? &#xA;Same thing with credit cards. Different cards offer different things and a eligible for consumers with different income/wealth levels.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Take for example MasterCard Black which many banks will offer along with a large credit (e.g 100.000$ per month) and maybe a 24/7 concierge service that can take care of e.g plane tickets, helicopter service or whatever.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Take your average Joe with a yearly salary of 30.000, will he ever be in need of a 100.000 $ credit (or other way around; could he ever repay that debt?!).. and how often will he be using a concierge service for finding business class plane tickets from New York to Paris departuring the same day? Probably never.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That is why banks are not offering all customers the same credit card, because their customers have different needs.&lt;/p&gt;&#xA;" OwnerUserId="14207" LastActivityDate="2017-08-15T20:01:04.273" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17851" PostTypeId="2" ParentId="17484" CreationDate="2017-08-15T20:38:00.760" Score="0" Body="&lt;p&gt;When using DCF you would discount using the weighted average cost of capital; and yes you can then find the expected return on equity using CAPM - if you have beta. But how do you know what beta is in your case?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That being said it seems like you are just using DCF for the 6 years where you know the cash flow? Will the company seize to exist after that? If not, you need to discount all future cash flows as well making assumptions on how income/profit will continue in the future (usually a constant growth rate from e.g. Year 10-15 and into all eternity).&lt;/p&gt;&#xA;" OwnerUserId="14207" LastActivityDate="2017-08-15T20:38:00.760" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17852" PostTypeId="1" AcceptedAnswerId="17855" CreationDate="2017-08-16T01:31:57.760" Score="1" ViewCount="2824" Body="&lt;p&gt;A &lt;a href=&quot;https://www.youtube.com/watch?v=e-WO-c9xHms&quot; rel=&quot;nofollow noreferrer&quot;&gt;video&lt;/a&gt; I watched claimed (at 6:50) that while only \$0.25B had been paid for &lt;a href=&quot;https://en.wikipedia.org/wiki/Louisiana_Purchase&quot; rel=&quot;nofollow noreferrer&quot;&gt;the Louisiana Purchase&lt;/a&gt;, the current value was \$1200B (all in 2017 dollars).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/MeNVR.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/MeNVR.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I couldn't find any references, but assuming the latter number is correct, what might it refer to? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The current value of the land? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The estimated value of the land if all structures and roads were removed? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(It seems to me that these numbers would be vastly different, and comparing empty land to one with infrastructure is comparing apples and oranges)&lt;/p&gt;&#xA;" OwnerUserId="14218" LastEditorUserId="2776" LastEditDate="2017-08-16T06:39:25.750" LastActivityDate="2018-09-02T20:58:25.713" Title="Today's value of the Louisiana Purchase?" Tags="&lt;value&gt;&lt;united-states&gt;&lt;land&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17853" PostTypeId="2" ParentId="17735" CreationDate="2017-08-16T02:27:18.913" Score="2" Body="&lt;p&gt;This answer is partly from &lt;a href=&quot;https://economics.stackexchange.com/users/5635/hrse&quot;&gt;HRSE&lt;/a&gt; in his answer to &lt;a href=&quot;https://economics.stackexchange.com/questions/8344/are-monotonic-and-continuous-preferences-necessarily-rational?noredirect=1&amp;amp;lq=1&quot;&gt;Are monotonic and continuous preferences necessarily rational?&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm posting this as an answer for a more technical definition.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Rationality&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Rationality consist of the following properties:&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Completeness&lt;/h2&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;A preference relation is complete, if for all $x,y \in X$, we have $x\succsim y$, $y\succsim x$, or both.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;h2&gt;Transitivity&lt;/h2&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;A preference relation is transitive, if $x\succsim y$ and $y \succsim z$ imply $x\succsim z$.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;h2&gt;Continuity&lt;/h2&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;A preference relation is continuous if for all sequences ${(x_i,y_i)}_{i=1}^{\infty}$ converging to $(x,y)$ with $\forall i: x_i \succsim y_i$ we have $x \succsim y$.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;h2&gt;Monotonicity&lt;/h2&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;A preference relation is monotone, if $x \geq y$ implies $x \succsim y$.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2017-08-16T02:27:18.913" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17855" PostTypeId="2" ParentId="17852" CreationDate="2017-08-16T06:39:53.383" Score="3" Body="&lt;p&gt;The video has a &lt;a href=&quot;https://drive.google.com/file/d/0B2p-HoK9KXEANjIwc3ZjMWI2SWM/view&quot; rel=&quot;nofollow noreferrer&quot;&gt;transcript&lt;/a&gt; with the references. The \$0.25B figure is obtained from &lt;a href=&quot;http://www.history.com/topics/louisiana-purchase#&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; (after adjusting for inflation). Unfortunately, the author does not provide a source for the \$1.2B figure. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, there are estimates of the value of land elsewhere. For example, &lt;a href=&quot;https://www.bea.gov/papers/pdf/new-estimates-of-value-of-land-of-the-united-states-larson.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;. Their estimates on a map:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/O49mU.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/O49mU.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These estimates consider &lt;strong&gt;the value of land only&lt;/strong&gt;, removing the value of structures on that land (which, as you say, makes a big difference; see paper). They use &lt;a href=&quot;https://en.wikipedia.org/wiki/Hedonic_regression&quot; rel=&quot;nofollow noreferrer&quot;&gt;hedonic regression&lt;/a&gt; methods to separate land and building values (check from page 6 of document). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I leave to you the task to compute the precise value of the Louisiana Purchase. (you could ask them to send you the data on the map).&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-08-16T06:45:48.400" LastActivityDate="2017-08-16T06:45:48.400" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17856" PostTypeId="2" ParentId="17844" CreationDate="2017-08-16T08:03:21.897" Score="1" Body="&lt;p&gt;How, in practise, would that be different from what is happening now? ..or what you, as an &quot;investor&quot; could already do?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;No one is forcing you to deposit all your liquid assets into a bank account - most banks offer some sort of investment-opportunities, where you can buy into different funds with different risk-profiles.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Next thing; suppose banks take all deposits and lend out to different customers for various purposes and they receive interest on those lendings - some of those interest are transfered back to you for allowing the bank to use your money. This would actually be the same, as putting your money into a fund. The bank &quot;invests&quot; your money with other customers and recieve some sort of yield on that investment (interest). Difference will be the risk-profile. By &quot;investing&quot; in the bank you recieve an extremely diversified portfolio, funding everything from consumer goods, cars, houses to actually backing large corporations. Most of your investment is being placed high up in the hierarchy of priotization if the lenders go into default, which makes your investment &quot;safer&quot; than if you go and buy bonds in that same company (but obviously also recieves a lower yield).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your proposal will put peoples money in a different place in the hierarchy of debt if customer/lenders go bankrupt, actually increasing the general risk-profile of the bank.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In all everything comes down to your risk profile - which exposure do you want your investment to have. The risk of a AAA rated sovereign bond yielding -0.5%, receive 0% on your deposits in a government backed bank, 5% on a BB- mutual fund or 25% on an emerging markets bonds?&lt;/p&gt;&#xA;" OwnerUserId="14207" LastActivityDate="2017-08-16T08:03:21.897" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17857" PostTypeId="2" ParentId="17821" CreationDate="2017-08-16T08:05:24.483" Score="1" Body="&lt;p&gt;This is a massive area of research, revived recently under the title of &quot;&lt;a href=&quot;https://scholar.google.com/scholar?q=capital+misallocation&quot; rel=&quot;nofollow noreferrer&quot;&gt;capital misallocation&lt;/a&gt;&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some reason why capital do not fully adjust:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;grow in &lt;a href=&quot;https://www.federalreserve.gov/econresdata/feds/2017/files/2017009pap.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;intangible capital-intensive&lt;/a&gt; sectors (which require more internal financing than other sectors) + low interest rates.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;http://www.nber.org/papers/w23129&quot; rel=&quot;nofollow noreferrer&quot;&gt;quadratic adjustment costs&lt;/a&gt; on investment.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;https://editorialexpress.com/cgi-bin/conference/download.cgi?db_name=RESConf2016&amp;amp;paper_id=437&quot; rel=&quot;nofollow noreferrer&quot;&gt;financial frictions&lt;/a&gt; lowers access to credit to small yet highly productive firms.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;https://www.jstor.org/stable/2698185?seq=1#page_scan_tab_contents&quot; rel=&quot;nofollow noreferrer&quot;&gt;industry-specific&lt;/a&gt; physical and human capital.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The are many more papers studying financial frictions and related aspects of the financial market, showing that the role of finance is very important.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-08-16T08:05:24.483" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17858" PostTypeId="2" ParentId="17585" CreationDate="2017-08-16T08:27:37.380" Score="3" Body="&lt;p&gt;Yes, $\Pi^n_{i=1}$ refers to the &lt;a href=&quot;https://en.wikipedia.org/wiki/Multiplication#Capital_Pi_notation&quot; rel=&quot;nofollow noreferrer&quot;&gt;product of a sequence&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regarding Lucas' solution, the Lagrangian of the problem is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ L (c_1,...,c_n) = U(c_1,...,c_n) - (c-\sum c_i) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The FOC with respect to $c_i$ and $c_j$ are:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{\partial L}{\partial c_i} = \frac{\partial U}{\partial c_i} +1 = 0 $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{\partial L}{\partial c_j} = \frac{\partial U}{\partial c_j} +1 = 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From here you get (the MRS):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\partial U}{\partial c_i} = \frac{\partial U}{\partial c_j} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{\partial U}{\partial c_i} = \left(\frac{c_i}{\alpha_i}\right)^{-1} \Pi^n_{i=1} \left(\frac{c_i}{\alpha_i}\right)^{\alpha_i} = \left(\frac{c_i}{\alpha_i}\right)^{-1} U(c_1,...,c_n) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;from the MRS you get that:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{c_i}{\alpha_i} = \frac{c_j}{\alpha_j} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Using these, the definition of $c=\sum c_i$, and the fact that $\sum \alpha_i =1$, you can obtain Lucas's solution (I leave the last bit of the solution to you).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, regarding weights, I think that is just to make the model interesting, as it means consumers might prefer some colors more than others (they spend $\alpha_i$% of their income in colour $i$). If not, they would spend $1/n$ of their income on each, to which any loyal disciple of &lt;a href=&quot;https://en.wikipedia.org/wiki/Occam%27s_razor&quot; rel=&quot;nofollow noreferrer&quot;&gt;William of Ockham&lt;/a&gt; would rightly observe &quot;they why to bother with multiple colours at all&quot;? &lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-08-16T08:32:56.217" LastActivityDate="2017-08-16T08:32:56.217" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17859" PostTypeId="2" ParentId="17763" CreationDate="2017-08-16T10:09:59.193" Score="1" Body="&lt;p&gt;The question touches several points, but I can try to explain the &quot;where did the money go in the crisis&quot; with an example from Portugal: &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Through automatic stabilizers, and &lt;/li&gt;&#xA;&lt;li&gt;due to acquisition of bankrupt banks and companies, absorbing the losses in the public budget.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;With the crisis several companies and financial institutions went bankrupt, meaning that the government increased spending with the &lt;a href=&quot;https://en.wikipedia.org/wiki/Automatic_stabilizer&quot; rel=&quot;nofollow noreferrer&quot;&gt;automatic stabilizers&lt;/a&gt; such as unemployment subsidies =&gt; more public spending due to more subsidy and loss of tax collected from company and salaries&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Allegedly due to international toxic assets, as well as some media speculation, some banks couldn't face their responsibilities anymore, declaring bankruptcy - see &lt;a href=&quot;https://en.wikipedia.org/wiki/Banco_Esp%C3%ADrito_Santo&quot; rel=&quot;nofollow noreferrer&quot;&gt;BES bank&lt;/a&gt; for example. People were in panic because the money they had in the bank could disappear suddenly, so the government nationalized the bank, guaranteeing everyone's deposits, assuming the losses of the bank. This means that the government increased its costs in millions of euros to save this and other bank, in the interest of national financial stability.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you are more looking at how central banks inject money in the economy, take a look at &lt;a href=&quot;https://economics.stackexchange.com/questions/tagged/money-supply&quot;&gt;money supply tag&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="12304" LastActivityDate="2017-08-16T10:09:59.193" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17860" PostTypeId="2" ParentId="17744" CreationDate="2017-08-16T15:40:32.130" Score="4" Body="&lt;p&gt;Capitalism is defined as an economic and political system in which a country's trade and industry are controlled by private owners for profit, rather than by the state.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It functions as an &lt;a href=&quot;https://en.wikipedia.org/wiki/Resource_allocation&quot; rel=&quot;nofollow noreferrer&quot;&gt;allocation mechanism&lt;/a&gt; which generally yields the most optimal results under the &lt;a href=&quot;https://en.wikipedia.org/wiki/Fundamental_theorems_of_welfare_economics&quot; rel=&quot;nofollow noreferrer&quot;&gt;Fundamental theorems of welfare economics&lt;/a&gt; and prevents issues such as &lt;a href=&quot;https://en.wikipedia.org/wiki/Tragedy_of_the_commons&quot; rel=&quot;nofollow noreferrer&quot;&gt;Tragedy of the commons&lt;/a&gt; which a communist system would fail to deal with (unless all resources were heavily policed and regulated with knowledge of every consumers utility functions).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Under a pure capitalist system, government intervention in the market place is viewed as harmful.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However according to mainstream economic theory, there is some benefit to have from government intervention when dealing with &lt;a href=&quot;http://www.investopedia.com/terms/e/externality.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt; externalities&lt;/a&gt;, &lt;a href=&quot;https://en.wikipedia.org/wiki/Market_saturation&quot; rel=&quot;nofollow noreferrer&quot;&gt;market saturation&lt;/a&gt; and responding to &lt;a href=&quot;https://en.wikipedia.org/wiki/Business_cycle&quot; rel=&quot;nofollow noreferrer&quot;&gt;Business Cycles&lt;/a&gt;. &lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2017-08-16T15:40:32.130" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17862" PostTypeId="2" ParentId="17718" CreationDate="2017-08-16T17:42:42.363" Score="1" Body="&lt;p&gt;Well the problem can be dodged by the use of some simple solution of just adding a constant to all values which circumvent issues of taking logarithms of negative numbers. Usually the mean is used as a centering point. If the mean is negative though some other number must be chosen.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Interpretation of such a transformed variable would be different from its regular logged counter part.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These are just some hunches on what could have been done. Its odd that methods aren't mentioned for this case.&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="8815" LastEditDate="2017-08-16T18:24:41.923" LastActivityDate="2017-08-16T18:24:41.923" CommentCount="9" ContentLicense="CC BY-SA 3.0" />
  <row Id="17863" PostTypeId="2" ParentId="17718" CreationDate="2017-08-16T19:48:59.120" Score="1" Body="&lt;p&gt;Market value cannot be negative.  Book value can, but then again, these are outlier companies that can reasonably be taken out of the sample in order to estimate the &quot;normal&quot;/ &quot;average&quot; structure.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2017-08-16T19:48:59.120" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="17864" PostTypeId="1" AcceptedAnswerId="17870" CreationDate="2017-08-16T22:50:44.337" Score="8" ViewCount="229" Body="&lt;p&gt;As a quantitative analyst and armchair economist I have seen little reason to do qualitative analysis as done in the other social sciences.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However I keep running into these rather wordy analyses of economic issues (primarily from social research organisations) which are constantly pushed and presented as holding the same weight as those presented by the quant camp.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't want this to turn into a rant and if this question is opinionated please close it. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is: Where does qualitative analysis fit in formal economic research?&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="2776" LastEditDate="2017-08-17T07:21:03.713" LastActivityDate="2017-08-17T07:21:03.713" Title="Qualitative methods in Economics" Tags="&lt;reference-request&gt;&lt;research&gt;" AnswerCount="1" CommentCount="6" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="17865" PostTypeId="5" CreationDate="2017-08-16T23:05:52.140" Score="0" Body="" OwnerUserId="-1" LastEditorUserId="-1" LastEditDate="2017-08-16T23:05:52.140" LastActivityDate="2017-08-16T23:05:52.140" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17866" PostTypeId="4" CreationDate="2017-08-16T23:05:52.140" Score="0" Body="" OwnerUserId="-1" LastEditorUserId="-1" LastEditDate="2017-08-16T23:05:52.140" LastActivityDate="2017-08-16T23:05:52.140" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17867" PostTypeId="2" ParentId="17744" CreationDate="2017-08-16T23:34:00.953" Score="1" Body="&lt;p&gt;Capitalism is a historical form of organizing the social production, distribution and consumption of goods and services. This function shares capitalism with other forms organizing the economy of a society. But capitalism differs fundamental how this function is performed. The definition and the answers are describing some important aspects, but there are a lot more. One is that capitalism creates a great dynamic of development. The speed how the foundation of economic is changed is unique in human history. This is possible because the profit is used to improve the performance of the actors. This increase of performance is required because the competition would otherwise reduce the chance to survive on the market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A lot of views are possible, so there will be no definitive answer on your question. It is to say that there is not one capitalism - there are capitalisms, each a little bit different but each is capitalism. And a human society is an very complex thing, so it is ever a simplification to say something with attribute A and B performs function C. So we should not forget - capitalism is also the story how we tell and explain us, what is a main part of our social reality.&lt;/p&gt;&#xA;" OwnerUserId="12910" LastActivityDate="2017-08-16T23:34:00.953" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17870" PostTypeId="2" ParentId="17864" CreationDate="2017-08-17T07:07:58.573" Score="5" Body="&lt;p&gt;Good question!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Qualitative methods (QM henceforth) have become more widespread in the recent decades, according to a &lt;a href=&quot;http://onlinelibrary.wiley.com/doi/10.1111/joes.12004/abstract&quot; rel=&quot;noreferrer&quot;&gt;2014's survey&lt;/a&gt; in the &lt;em&gt;Journal of Economic Surveys&lt;/em&gt;. QM include, among others, in-depth interviews, focus groups, case studies, ethnographic studies, and mixed-methods (quanti+quali). They are still not that popular though, and have been very often looked down by the field. This is evident from the JEL coding, which does not include a specific section for QM, but does include one for &lt;a href=&quot;https://www.aeaweb.org/econlit/jelCodes.php?view=jel#C&quot; rel=&quot;noreferrer&quot;&gt;quantitative methods&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In contrast to BB King comment, &lt;strong&gt;these methods have been used in very hard-core economic issues&lt;/strong&gt; like &lt;strong&gt;Macro&lt;/strong&gt; (e.g. &lt;a href=&quot;https://www.russellsage.org/publications/asking-about-prices&quot; rel=&quot;noreferrer&quot;&gt;Blinder et. al. 1998&lt;/a&gt;), &lt;strong&gt;Labour Economics&lt;/strong&gt; (e.g. &lt;a href=&quot;http://journals.sagepub.com/doi/abs/10.1177/001979390505800207&quot; rel=&quot;noreferrer&quot;&gt;Cregan 2005&lt;/a&gt;), &lt;strong&gt;International Organisation&lt;/strong&gt; (e.g. &lt;a href=&quot;http://journals.sagepub.com/doi/abs/10.1177/001979390205500303&quot; rel=&quot;noreferrer&quot;&gt;Autor, Levy and Murnane 2002&lt;/a&gt;), &lt;strong&gt;Development Economics&lt;/strong&gt; (e.g. &lt;a href=&quot;http://www.tandfonline.com/doi/abs/10.1080/00220380903428415&quot; rel=&quot;noreferrer&quot;&gt;Valente 2011&lt;/a&gt;), etc (for more examples, see Table 1 in survey above). &lt;a href=&quot;https://economics.mit.edu/files/1125&quot; rel=&quot;noreferrer&quot;&gt;Here&lt;/a&gt; is an article from an MIT economist commenting on his experience with using qualitative methods in labour economics research (excuse the fallacy of authority).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you want to explore more, there is a &lt;a href=&quot;http://www.tandfebooks.com/action/showBook?doi=10.4324%2F9781315532257&amp;amp;&quot; rel=&quot;noreferrer&quot;&gt;2016's book&lt;/a&gt; dedicated entirely to the subject. Also, Chapter 7 of &lt;a href=&quot;http://www.e-elgar.com/shop/handbook-of-research-methods-and-applications-in-heterodox-economics&quot; rel=&quot;noreferrer&quot;&gt;this handbook&lt;/a&gt; focuses on QM used in Heterodox Economics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Other references in which QM are used:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;http://econpapers.repec.org/article/wlyhlthec/v_3a8_3ay_3a1999_3ai_3a4_3ap_3a345-353.htm&quot; rel=&quot;noreferrer&quot;&gt;Health Economics&lt;/a&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;http://econpapers.repec.org/article/saeamerec/v_3a44_3ay_3a2000_3ai_3a2_3ap_3a30-35.htm&quot; rel=&quot;noreferrer&quot;&gt;Introductory economics teaching&lt;/a&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;http://econpapers.repec.org/paper/wpawuwpdc/0505003.htm&quot; rel=&quot;noreferrer&quot;&gt;Measurement of poverty&lt;/a&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;http://econpapers.repec.org/article/saeausman/v_3a39_3ay_3a2014_3ai_3a1_3ap_3a127-135.htm&quot; rel=&quot;noreferrer&quot;&gt;Finance&lt;/a&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;http://onlinelibrary.wiley.com/doi/10.1007/s10110-003-0149-z/abstract&quot; rel=&quot;noreferrer&quot;&gt;Input-Output analysis&lt;/a&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;http://econpapers.repec.org/paper/temwpaper/1007.htm&quot; rel=&quot;noreferrer&quot;&gt;Economic modelling&lt;/a&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-08-17T07:13:01.093" LastActivityDate="2017-08-17T07:13:01.093" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17871" PostTypeId="2" ParentId="17814" CreationDate="2017-08-17T07:41:31.183" Score="0" Body="&lt;p&gt;Refer to Harris-Laibson 2001.&#xA;They show the validity of the contraction mapping theorem in a neighborhood of the exponential consumption path. &lt;/p&gt;&#xA;" OwnerUserId="14177" LastActivityDate="2017-08-17T07:41:31.183" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17872" PostTypeId="2" ParentId="17847" CreationDate="2017-08-17T07:42:42.250" Score="1" Body="&lt;p&gt;These are theories, so need empirical justification. They may not be true, and even if they appear to be true they may still be wrong about the cause and effect. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you regard your first statement as saying that people with increased monetary wealth will want to see a income increase from this wealth then they will buy bonds and other less liquid investments pushing interest rates down, and your second statement as saying that people with increased non-monetary wealth will want to see an increase in liquid assets such as money so they can spend some of their wealth then they will sell bonds and other less liquid investments pushing interest rates up, you will find there is no intrinsic contradiction. Instead you get an explanation of the existence of secondary markets in bonds and other investments to reconcile the needs and desires of different people&lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2017-08-17T07:42:42.250" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17874" PostTypeId="1" CreationDate="2017-08-17T11:02:03.807" Score="1" ViewCount="254" Body="&lt;p&gt;I have been advised by one of my professors to use UK treasury bills for a risk free rate when calculating expected returns for stocks.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I wanted to know whether I should be using 1 month T-Bills or 3 month T-bills.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Which is better to use and why? &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;My lecturer mentioned that the risk free rates I download will be annualized percent figures (although % notation may or may not be there), so I would need to convert them to daily rates before I can you use them in regressions. Does anyone know where I can obtain this data? I found the 1 month and 3 month T-bills data on the Bank of England website. I need to know how to get the daily data for these T-bills. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="14244" LastEditorUserId="2776" LastEditDate="2017-08-17T17:31:05.697" LastActivityDate="2017-08-17T18:39:35.187" Title="Monthly average rate of discount, 3 month Treasury bills, Sterling Vs 1 Month" Tags="&lt;econometrics&gt;&lt;finance&gt;&lt;financial-economics&gt;&lt;financial-markets&gt;&lt;regression&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17875" PostTypeId="2" ParentId="17816" CreationDate="2017-08-17T11:04:29.573" Score="1" Body="&lt;p&gt;The amount of currency in circulation (bills and coins) is published by the Federal Reserve. (&lt;a href=&quot;https://fred.stlouisfed.org/series/CURRCIR&quot; rel=&quot;nofollow noreferrer&quot;&gt;Available at the FRED web site.&lt;/a&gt;) The annual change in this time series is the amount created.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is the amount outstanding, it does not tell us how much currency is being destroyed and replaced. Also, there is seasonal demand for currency, and some cash is shipped back and forth.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The creation of currency is not really a &quot;transfer&quot; (gift). The banks need to buy the currency by exchanging reserves (settlement balance at the Fed) for the notes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, the Federal Reserve does not single out how much it deals with any particular banks by name under normal circumstances. (During some of the special operations undertaken after the Financial Crisis, the Fed published some information about their counterparties.) The most you would get would be on the basis of the category of bank.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2017-08-17T11:04:29.573" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17877" PostTypeId="2" ParentId="17874" CreationDate="2017-08-17T12:09:46.260" Score="0" Body="&lt;p&gt;There are different oppinions on which rates to use for calculating expected return (I assume you mean throu CAPM?).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Most, however, do agree that it should be long-term risk-free, so 1 and 3-month T-Bills are going to be way to short a timespan. Usually you would go with 10 to 30 year government bonds. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My professor in B-School recommended 10-year government bonds for a similar case.&lt;/p&gt;&#xA;" OwnerUserId="14207" LastActivityDate="2017-08-17T12:09:46.260" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="17878" PostTypeId="1" AcceptedAnswerId="17930" CreationDate="2017-08-17T13:33:32.773" Score="5" ViewCount="159" Body="&lt;p&gt;While Greece has required several bail-outs and is on the &lt;a href=&quot;http://www.bbc.co.uk/news/business-39933638&quot; rel=&quot;nofollow noreferrer&quot;&gt;brink of falling back into recession&lt;/a&gt;, the Portuguese economy has &lt;a href=&quot;https://www.ft.com/content/ea7f2a22-4219-11e7-82b6-896b95f30f58?mhq5j=e1&quot; rel=&quot;nofollow noreferrer&quot;&gt;seemingly recovered&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why has recovery gone so well in Portugal but failed abysmally in Greece, even though seemingly similar institutions and approaches where taken to both?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(or are we somehow deluded about Portugal's long term recovery and or Greece's problems) &lt;/p&gt;&#xA;" OwnerUserId="14247" LastEditorUserId="8481" LastEditDate="2020-05-04T10:09:44.523" LastActivityDate="2020-05-04T10:09:44.523" Title="Why did the Greek bailouts &quot;fail&quot; whereas the Portuguese bailouts succeeded?" Tags="&lt;government-debt&gt;&lt;government-spending&gt;&lt;portugal&gt;&lt;greece&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="17879" PostTypeId="1" AcceptedAnswerId="17882" CreationDate="2017-08-17T13:38:45.367" Score="3" ViewCount="184" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Take the set of all vectors $x = (x_1, \cdots, x_n)$ that are&#xA;  solutions to $p_1x_1 + \cdots + p_nx_n = I &amp;gt; 0$. Show that this set&#xA;  has $n-1$ dimensions.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I have somehow managed to get myself stuck on the last part of this proof it seems. I am not using the fact that this set is a hyperplane and that hyperplanes are $n-1$ dimensions of the space they are in.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is easy to show that $\{x_1, \cdots x_n\}$ spans the set we are considering, since $\sum p \cdot x$ is a linear combination and all that. However, $x_n$ can be expressed as a linear combination of $\{x_1 \cdots x_{n-1}\}$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$x_n = \frac{I - (p_1x_1 + \cdots p_{n-1}x_{n-1})}{p_n}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So we can remove $x_n$ from the span and the resulting set still spans. Now we want to show $\{x_1, \cdots n_{n-1}\}$ are linearly independent. That is, if $p_1x_1 + \cdots p_{n-1}x_{n-1} = 0$, all $p_i = 0$. If the set is spanning and linearly independent, then it is a basis. Since it would have $n-1$ vectors, it would be of dimension $n-1$ and we'd be done.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So I note that $p_1x_1 + \cdots + p_{n-1}x_{n-1} = I - p_nx_n$, and that $I &amp;gt; 0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So I assume there is a case where $I - p_nx_n = 0$ and where $I - p_nx_n \neq 0$. I am not sure how to finish off this proof, which makes me sad, because I think I'm just missing something obvious. Any assistance would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2017-08-17T21:16:09.880" Title="Budget hyperplane in n dimensions" Tags="&lt;mathematical-economics&gt;&lt;linear-algebra&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17880" PostTypeId="2" ParentId="5532" CreationDate="2017-08-17T14:08:00.917" Score="2" Body="&lt;p&gt;Similar to previous answers but with some additional sources (and possibly simpler?)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By investing abroad dollars(or any other currency) are purchased in exchange for Yuan, this &lt;strong&gt;reduces&lt;/strong&gt; the value of the &lt;em&gt;yuan&lt;/em&gt; and &lt;strong&gt;drives up&lt;/strong&gt; the value of the &lt;em&gt;dollar&lt;/em&gt;, supply and demand. This keeps the exchange rate favorable for exporting from China.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The same effect is achieved by investing in any foreign assets, from bonds to housing or infrastructure. The &lt;a href=&quot;https://www.theguardian.com/cities/2016/sep/29/inside-china-passion-foreign-property-investment-uk&quot; rel=&quot;nofollow noreferrer&quot;&gt;Chinese populus do this a lot too&lt;/a&gt; which increases the situation&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A little &lt;a href=&quot;http://www.investopedia.com/articles/investing/040115/reasons-why-china-buys-us-treasury-bonds.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;source&lt;/a&gt; to back me up.&lt;/p&gt;&#xA;" OwnerUserId="14247" LastEditorUserId="14247" LastEditDate="2017-08-18T08:41:56.043" LastActivityDate="2017-08-18T08:41:56.043" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17881" PostTypeId="1" CreationDate="2017-08-17T15:06:39.317" Score="4" ViewCount="227" Body="&lt;p&gt;I am trying to solve my first ratex model and make some impulse response functions using Dynare. I am following &lt;a href=&quot;https://www.researchgate.net/profile/Eric_Leeper/publication/4907434_Equilibria_Under_%27Active%27_and_%27Passive%27_Monetary_Policies/links/56041e7a08ae5e8e3f2fcd1d/Equilibria-Under-Active-and-Passive-Monetary-Policies.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Leeper (1991)&lt;/a&gt;. This is what I have done so far:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The utility function is $\log(c_{t})+\log(m_{t})$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I obtain two first order conditions:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(1) $\frac{1}{R_{t}} = \beta E_{t}\frac{1}{\pi_{t+1}}$  and&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(2) $m_{t} = c[\frac{R_{t}}{R_{t}-1}]$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where $R_{t}$ is the gross nominal interest rate, $\pi_{t}$ is the gross inflation rate and $c$ the deterministic steady state value of consumption.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose the monetary authority follows the following rule:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$R_{t} = \alpha_{0} + \alpha \pi_{t} + \theta_{t}$ where $\theta_{t} = \rho_{1} \theta_{t-1} + \epsilon_{1t}$,   $|\rho_{1}|&amp;lt;1$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The fiscal authority follows:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\tau_{t} = \gamma_{0} + \gamma b_{t-1} + \psi_{t}$&#xA;where $\psi_{t} = \rho_{2} \psi_{t-1} + \epsilon_{2t}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I then substitute the monetary policy rule in to (1) and both policy rules in to the government's flow budget constraint and linearize around the steady state. I end up with the same results as Leeper:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(3) $E_{t}\widetilde{\pi_{t+1}} = \alpha \beta \widetilde{\pi_{t}} + \beta \theta_{t}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(4) $\varphi_{1} \widetilde{\pi_{t}} + \widetilde{b_{t}} + \varphi_{2}\widetilde{\pi_{t-1}}  - (\beta^{-1}- \gamma)\widetilde{b_{t-1}} + \varphi_{3} \theta_{t} \ +\psi_{t} + \varphi_{4} \theta_{t-1} = 0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where the varphi's are steady state constants. So far I have just replicated what Leeper has done. Since I would like to make IRF's I believe I have to 'solve' the model. I haven't been taught this at university yet so all I know if from reading online lecture notes. I want to use Sims form, i.e &lt;/p&gt;&#xA;&#xA;&lt;p&gt;[![enter image description here][1]][1]&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And this is the system I ended up with:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;[![enter image description here][2]][2]&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I forwarded (4) one period in order to obtain $b_{t+1}$ and just put everything in matrix form.&#xA;$\eta$ is the forecasting error from (3).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I apologise for the matrix, I am not sure how to write matrices in TeX but hopefully you get the idea. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now I want to stack the matrices as the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The capital gamma's and phi's are the coefficient matrices from above. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There should be a matrix for the forecasting errors but I am not completely sure how to obtain it. But that is a minor issue at this point. If I have understood correctly, I can solve this by inverting the block matrix and since it is diagonal, the inverse is simply the inverse of gamma and phi. However, since phi_0 is singular I cannot invert it. So I have two questions:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(1) How do I deal with singular matrices in this context? I have seen some papers by Chris Sims where he shows to how to deal with singular matrices but my knowledge of linear algebra is too basic to understand it. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(2) Once I manage to solve the model, can I use Dynare to make IRF's?&lt;/p&gt;&#xA;" OwnerUserId="11767" LastEditorUserId="11767" LastEditDate="2017-08-22T23:58:52.450" LastActivityDate="2017-09-30T08:03:27.507" Title="Solving rational expectations model - Sims form" Tags="&lt;academic-graduate&gt;&lt;difference-equations&gt;&lt;dynare&gt;&lt;rational-expectations&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="17882" PostTypeId="2" ParentId="17879" CreationDate="2017-08-17T15:43:28.307" Score="5" Body="&lt;p&gt;Let matrix $A = \begin{bmatrix} p_1 &amp;amp; p_2 &amp;amp; \ldots &amp;amp; p_n \end{bmatrix}$. Let $\mathbf{x}^*$ be a fixed solution to $A \mathbf{x} = c$. Then for any vector $\mathbf{u}$ that belongs to the &lt;a href=&quot;https://en.wikipedia.org/wiki/Kernel_(linear_algebra)&quot; rel=&quot;noreferrer&quot;&gt;null space&lt;/a&gt; of $A$, we have $A \mathbf{u} = 0$ hence $\mathbf{x} = \mathbf{x}^* + \mathbf{u}$ is also a solution (furthermore, all solutions $\mathbf{x}$ can be written this way). The dimension of the set of solutions to $A\mathbf{x} = c$ is thus the dimension of the null space of $A$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By the &lt;a href=&quot;https://en.wikipedia.org/wiki/Rank%E2%80%93nullity_theorem&quot; rel=&quot;noreferrer&quot;&gt;rank-nullity theorem&lt;/a&gt;, the &lt;a href=&quot;https://en.wikipedia.org/wiki/Rank_(linear_algebra)&quot; rel=&quot;noreferrer&quot;&gt;rank&lt;/a&gt; of matrix $A$ plus the nullity (dimensionality of the &lt;a href=&quot;https://en.wikipedia.org/wiki/Kernel_(linear_algebra)&quot; rel=&quot;noreferrer&quot;&gt;null space&lt;/a&gt;) of matrix $A$ equals the number of columns of $A$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \operatorname{rank}(A) + \operatorname{nullity}(A) = n$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Matrix A is rank 1 (assuming not all $p_i$ are zero) and hence the nullity is $n-1$. &lt;/p&gt;&#xA;" OwnerUserId="10334" LastActivityDate="2017-08-17T15:43:28.307" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17883" PostTypeId="1" AcceptedAnswerId="19455" CreationDate="2017-08-17T16:12:17.543" Score="5" ViewCount="95" Body="&lt;p&gt;I'm starting to read the literature of multidimensional screening models for monopolists selling $n$ goods to a continuum of buyers with $m=n$ dimensional types, and &lt;a href=&quot;https://ideas.repec.org/a/eee/mateco/v16y1987i2p191-200.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Rochet (1987)&lt;/a&gt; proves that a mechanism is implementable if and only if the surplus function is convex. Let $s(\theta)$ be the surplus function defined as $\max\{ u(x,\theta) -t(\theta)\}$ where $x \in \mathbb{R}^n$, and $t$ is the tariff function the monopolist announces by the Taxation Principle. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, the monopolist solves the problem of maximizing the following functional (assuming 0 cost of producing the good) $$\max J(t) = \int_D t(\theta) \mathrm{d} \theta = \int_D u(x,\theta)-s(\theta) \mathrm{d} \theta $$ where $\theta \in [0,1]^n$ and $t: [0,1]^n \to \mathbb{R}$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is: what is the intuition behind the fact that $s(\theta)$ must be convex? What happens if the function is piecewise linear (and hence trivially convex) but globally concave, i.e. there are kinks along null-measure sets? Can you point me to any resources? &lt;/p&gt;&#xA;" OwnerUserId="14249" LastEditorUserId="2776" LastEditDate="2017-08-17T17:28:29.177" LastActivityDate="2017-11-25T09:53:09.190" Title="Multidimensional screening and convexity of the surplus/rent function" Tags="&lt;microeconomics&gt;&lt;reference-request&gt;&lt;mathematical-economics&gt;&lt;adverse-selection&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17884" PostTypeId="2" ParentId="12796" CreationDate="2017-08-17T16:20:34.213" Score="2" Body="&lt;p&gt;I've read Eric Reinerts book and I do not think it is conspiracy theory because he explains also the economic background of the both symptoms you show. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;One point he describes is how free trade discussion prefers the developed countries. Industrial production profits a lot more from scale effects than agricultural production. So he says, it is not fair to hinder countries to develop an industrial sector. Your argument about the so called &lt;a href=&quot;https://en.wikipedia.org/wiki/Four_Asian_Tigers&quot; rel=&quot;nofollow noreferrer&quot;&gt;tiger states&lt;/a&gt; has 'roots' in another development strategy of Japan for neighboring countries. The so called &lt;a href=&quot;https://en.wikipedia.org/wiki/Flying_geese_paradigm&quot; rel=&quot;nofollow noreferrer&quot;&gt;flying geese paradigma&lt;/a&gt; was one the reasons why it is now possible to buy high technology products from east asian countries. So it is more an example that strengthens Reinerts arguments. There was no leader goose for many other areas in the global south. Maybe china now plays this role. With the BRICS countries the situation today is more complex.  But the fact that the world is changing, can't be an argument against a theory which tries to be rooted in history.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That Eric Reinert points out still valid issues can you see in the discussion about the &lt;a href=&quot;https://en.wikipedia.org/wiki/Economic_Partnership_Agreements&quot; rel=&quot;nofollow noreferrer&quot;&gt;Economic Partnership Agreements&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="12910" LastEditorUserId="12910" LastEditDate="2017-08-18T09:11:51.553" LastActivityDate="2017-08-18T09:11:51.553" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="17885" PostTypeId="2" ParentId="16797" CreationDate="2017-08-17T16:53:26.453" Score="1" Body="&lt;p&gt;Energy and capital are complements. Would be good if you give an example of the situation that puzzled you.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is a growing list of empirical papers that attempt to estimate elasticity of substitution between energy and capital stock.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;ftp://ftp.repec.org/opt/ReDIF/RePEc/srt/wpaper/1314.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Paper 1&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://web.pdx.edu/~crkl/ec571/bw75.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Paper 2&lt;/a&gt; - one of the earliest attempts at providing empirical evidence.&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://www.kora.dk/media/272074/substitution.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Paper 3&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://www.wiod.org/conferences/brussels/ZEW_background.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Paper 4&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Energy and capital stock are complements - you need minimum energy to operate capital stock. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Examples: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Transition to coal in the British Industrial Revolution lead to the&#xA;development of coal-powered machinery. As price of coal declined&#xA;over time, the demand for coal-driven machinery increased. More and&#xA;more businesses replaced their horse-driven or charcoal powered&#xA;capital stock with coal-using machines. Econ textbooks explain this&#xA;situation using Cross Price Elasticity.&lt;/li&gt;&#xA;&lt;li&gt;In the 1970s oil price hikes meant businesses were not able to run&#xA;their oil-driven machinery (also think of cars in this category).&#xA;Not sure oil price hikes induced any price hikes in capital stock at&#xA;the time. Quite the opposite.&lt;/li&gt;&#xA;&lt;li&gt;Electric cars. As the price of energy (i.e. stored in electric&#xA;batteries) is going down, demand for electric cars is on the rise. Clear&#xA;case of complentarity.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Hope this helps.&lt;/p&gt;&#xA;" OwnerUserId="6009" LastEditorUserId="6009" LastEditDate="2017-08-17T17:56:49.937" LastActivityDate="2017-08-17T17:56:49.937" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17886" PostTypeId="1" AcceptedAnswerId="17888" CreationDate="2017-08-17T17:54:33.270" Score="3" ViewCount="131" Body="&lt;p&gt;I am trying to get a better grip on the literature on &lt;em&gt;directed technical change&lt;/em&gt; and &lt;em&gt;induced technical change&lt;/em&gt;. In other words, I am trying to understand if these concepts are the same and used interchangibly in the literature to refer to endogenous technical change.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, can anyone please point to a good review of the literature on this topic(s)? &lt;/p&gt;&#xA;" OwnerUserId="6009" LastEditorUserId="2776" LastEditDate="2017-08-21T12:31:03.850" LastActivityDate="2017-08-21T12:31:03.850" Title="Induced technical change vs. directed technical change" Tags="&lt;reference-request&gt;&lt;economic-growth&gt;&lt;endogenous-growth&gt;&lt;directed-technical-change&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17887" PostTypeId="1" CreationDate="2017-08-17T18:16:20.403" Score="1" ViewCount="155" Body="&lt;p&gt;A recent &lt;a href=&quot;https://www.ft.com/content/e2cdc6c0-72a3-11e7-93ff-99f383b09ff9&quot; rel=&quot;nofollow noreferrer&quot;&gt;op-ed&lt;/a&gt; (paywall) in the &lt;em&gt;Financial Times&lt;/em&gt; about inflation stated that (emphasis mine):&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Across the developed economies, the Phillips curve has gone ignominiously flat. The world's leading central bankers are scratching their heads.&lt;/p&gt;&#xA;&lt;p&gt;[...]&lt;/p&gt;&#xA;&lt;p&gt;Rather than a response to tightness in the markets for products and labour, [in earlier theories] &lt;strong&gt;inflation was understood as a barometer of the political system’s ability (or lack of it) to resolve struggles over the distribution of income and wealth&lt;/strong&gt;. Workers and bosses, creditors and debtors, fought one another for a larger slice of the pie. When negotiations failed, the path of least resistance was the excessive expansion of credit.&lt;/p&gt;&#xA;&lt;p&gt;[...]&lt;/p&gt;&#xA;&lt;p&gt;Stop dreaming of mythical beasts like the global output gap and the natural rate of interest, they would say. Wake up to the political realities.&lt;/p&gt;&#xA;&lt;p&gt;&lt;strong&gt;Globalisation and the march of technology have strengthened the hand of employers and weakened that of workers. So it is no surprise that though unemployment has relentlessly fallen, wage growth remains in the doldrums.&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;p&gt;[...]&lt;/p&gt;&#xA;&lt;p&gt;What these unfashionable theories of inflation see — that the central bankers’ current models do not — is simply put. &lt;strong&gt;It is the dirty secret of economics: the central importance of power.&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;The author is referring to &amp;quot;old&amp;quot; political theories of inflation. I have struggled to find references about them. I wonder if someone has come across some of these political theories of inflation?&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2020-12-04T22:14:02.770" Title="Political theories of inflation" Tags="&lt;reference-request&gt;&lt;inflation&gt;&lt;political-economy&gt;" AnswerCount="2" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17888" PostTypeId="2" ParentId="17886" CreationDate="2017-08-17T18:28:02.603" Score="2" Body="&lt;p&gt;&lt;em&gt;Directed technical change&lt;/em&gt; is the relatively recent name for what it was was previously called &lt;em&gt;Induced technical change&lt;/em&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Informal discussion about the &lt;strong&gt;endogenous&lt;/strong&gt; direction of technical change was first discussed (but not &quot;microfounded&quot;) by &lt;a href=&quot;https://en.wikipedia.org/wiki/The_Theory_of_Wages&quot; rel=&quot;nofollow noreferrer&quot;&gt;Hicks (1932)&lt;/a&gt; and &lt;a href=&quot;https://wwz.unibas.ch/fileadmin/wwz/redaktion/umwelt/Fellner_1961.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Fellner (1961)&lt;/a&gt;. Yet, it was &lt;a href=&quot;https://www.jstor.org/stable/2228295&quot; rel=&quot;nofollow noreferrer&quot;&gt;Kennedy (1964)&lt;/a&gt; who first proposed a formal model about endogenous technical change (previous examples like &lt;a href=&quot;https://faculty.georgetown.edu/mh5/class/econ489/Solow-Growth-Accounting.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Solow (1957)&lt;/a&gt; assumed &lt;strong&gt;exogenous&lt;/strong&gt; technical change).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The more recent denomination of &lt;em&gt;directed technical change&lt;/em&gt; was proposed by Acemoglu (2002). This author has plenty of material about the topic:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;these very comprehensive &lt;a href=&quot;https://economics.mit.edu/files/7402&quot; rel=&quot;nofollow noreferrer&quot;&gt;slides&lt;/a&gt; (also &lt;a href=&quot;https://economics.mit.edu/files/12249&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;, and why not, see all the material he shares &lt;a href=&quot;https://economics.mit.edu/faculty/acemoglu/courses&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;).&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The &lt;a href=&quot;https://economics.mit.edu/files/4126&quot; rel=&quot;nofollow noreferrer&quot;&gt;2002 paper&lt;/a&gt; on the subject&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Chapter 15 of his &lt;a href=&quot;http://press.princeton.edu/titles/8764.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;book&lt;/a&gt; on economic growth&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;You can also see more about the historical literature on induced technological change &lt;a href=&quot;https://wwz.unibas.ch/fileadmin/wwz/redaktion/umwelt/lecture_2_semi-endogenous_growth.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; and &lt;a href=&quot;http://onlinelibrary.wiley.com/doi/10.1111/meca.12141/abstract&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-08-17T18:48:25.670" LastActivityDate="2017-08-17T18:48:25.670" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="17889" PostTypeId="2" ParentId="17874" CreationDate="2017-08-17T18:39:35.187" Score="1" Body="&lt;p&gt;&lt;strong&gt;Answer to your first question&lt;/strong&gt;&#xA;Take a look at what Aswath Damadoran uses for his empirical work. He's been teaching applied corporate finance for a little while at NYU. &lt;a href=&quot;http://people.stern.nyu.edu/adamodar/pdfiles/eqnotes/dcfrates.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;These are his slides.&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Answer to your second question&lt;/strong&gt;&#xA;If you have access to any of the following, you should have no problem getting access to any economic and financial time series.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Datastream&lt;/li&gt;&#xA;&lt;li&gt;Bloomberg&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Also try &lt;a href=&quot;https://fred.stlouisfed.org/&quot; rel=&quot;nofollow noreferrer&quot;&gt;FRED database&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="6009" LastActivityDate="2017-08-17T18:39:35.187" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17890" PostTypeId="1" AcceptedAnswerId="17895" CreationDate="2017-08-17T19:15:38.403" Score="8" ViewCount="8123" Body="&lt;p&gt;The production of 'goods and services' and 'innovation' is the usual answer. I feel that doesn't really answer the question. &#xA;These things can be traded for wealth but they don't generate new wealth. They essentially take wealth from others and depend on there being wealth already. At least that is how I understand it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is, how is the world so much more well off than it was a century ago? (Please don't mention the industrial revolution) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;How did China raise a million people out of poverty without plunging another million into poverty?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How does trade create wealth?&lt;/p&gt;&#xA;" OwnerUserId="14251" LastEditorUserId="2776" LastEditDate="2017-08-17T20:12:50.263" LastActivityDate="2017-08-18T11:17:50.307" Title="How is wealth created?" Tags="&lt;economic-growth&gt;&lt;wealth&gt;&lt;international-trade&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="4" ClosedDate="2017-08-19T01:44:45.403" ContentLicense="CC BY-SA 3.0" />
  <row Id="17891" PostTypeId="2" ParentId="17513" CreationDate="2017-08-17T20:46:49.650" Score="0" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;My textbook asserts that a competitive market would produce an efficient allocation of resources. Resources would be moved from less profitable products to more profitable ones, and this would necessarily increase the monetary value to consumers of the total products sold.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The textbook is correct (provided the assumptions behind &quot;competitive market&quot; and other implicit ones hold).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, &lt;strong&gt;assume the distribution of wealth is given&lt;/strong&gt;. Then, based on their budget constraint, consumers will have a certain demand for goods. Firms will compete for such demand, offering the lowest price that earn them an &lt;a href=&quot;https://economics.stackexchange.com/questions/3382/why-neoclassical-economic-models-have-no-profits-unlike-the-real-world&quot;&gt;economic profit&lt;/a&gt;. In competitive markets, such profits are zero. Resources are allocated such that consumers are maximising their utility at the given prices. The allocation is Pareto Optimal.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This result is summarised in the &lt;a href=&quot;https://en.wikipedia.org/wiki/Fundamental_theorems_of_welfare_economics&quot; rel=&quot;nofollow noreferrer&quot;&gt;First Welfare Theorem&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Second, through some form of &lt;a href=&quot;https://en.wikipedia.org/wiki/Lump-sum_tax&quot; rel=&quot;nofollow noreferrer&quot;&gt;lump-sum taxation&lt;/a&gt;, we could redistribute wealth in order to change that allocation. A competitive market will make the equilibrium Pareto Optimal too. This is the Second welfare theorem (see link above).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, your intuition that the wealth/income distribution affects prices and the final allocation is correct. But the key to allocative &lt;strong&gt;efficiency&lt;/strong&gt; is in the &lt;strong&gt;mechanism&lt;/strong&gt; (market), not in what is being allocated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I hope I am answering your questions.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-08-17T20:46:49.650" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17892" PostTypeId="2" ParentId="17879" CreationDate="2017-08-17T21:16:09.880" Score="1" Body="&lt;p&gt;I got some outside help for the ending of the proof I was attempting. I'll leave this question if by chance someone else finds it useful.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So if we want to show $p_1x_1 + \cdots + p_{n−1}x_{n−1} = 0 \implies p_i = 0 \quad \forall i$, then assume without loss of generality that $p_1 \neq 0$. We have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$x_1 = \left(-\frac{p_2}{p_1}\right) x_2 + \cdots + \left(-\frac{p_{n-1}}{p_1}\right)x_{n-1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies x_1 + \left(\frac{p_2}{p_1}\right) x_2 + + \cdots + \left(\frac{p_{n-1}}{p_1}\right)x_{n-1} = 0 \tag1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then subtract $p \cdot x = 0$ from both sides.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$(x_1 - p_1x_1) + \left(\frac{p_2}{p_1} x_2 - p_2 x_2\right) + \cdots + \left(\frac{p_{n-1}}{p_1} x_{n-1} - p_{n-1}x_{n-1} \right) = 0$$&#xA;$$\implies (1 - p_1)x_1 + \left(\frac{p_2}{p_1} - p_2 \right)x_2 + \cdots + \left(\frac{p_{n-1}}{p_1} - p_{n-1} \right)x_{n-1} = 0 \tag2$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Set $(1) = (2)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\implies 1 - p_1 = 1 \implies p_1 = 0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which is a contradiction.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2017-08-17T21:16:09.880" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17893" PostTypeId="2" ParentId="16337" CreationDate="2017-08-17T23:50:52.903" Score="-1" Body="&lt;p&gt;If you're not looking exclusively at purchasing real assets, then taking a long position in an ETF/ETN tracking the &lt;a href=&quot;http://www.investopedia.com/terms/v/vix.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;volatility index&lt;/a&gt; could be a great move.  Symbols include UVXY or VIXY.  Remember that you are greatly exposed to &lt;a href=&quot;http://www.investopedia.com/terms/c/counterpartyrisk.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;Counterparty Risk&lt;/a&gt; on assets of this type.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Technical note: these assets don't track the VIX directly, rather they are based on an index of a rolling 30-day VIX futures positions.&lt;/p&gt;&#xA;" OwnerUserId="13208" LastActivityDate="2017-08-17T23:50:52.903" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17894" PostTypeId="1" AcceptedAnswerId="17896" CreationDate="2017-08-18T08:17:38.513" Score="2" ViewCount="61" Body="&lt;p&gt;I need to do data visualization of World Bank lending category for some countries using source from their page. When I was going through it I found some inconsistencies in categories they use to describe lending groups. According to the World Bank we have three lending group: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;IBRD, &lt;/li&gt;&#xA;&lt;li&gt;IDA,&lt;/li&gt;&#xA;&lt;li&gt;BLEND&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;but to describe other data they used following markers: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;IDA only  - IDX, &lt;/li&gt;&#xA;&lt;li&gt;IDA total - IDA,&lt;/li&gt;&#xA;&lt;li&gt;IDA Blend - IDB,&lt;/li&gt;&#xA;&lt;li&gt;IBRD only - IBD,&lt;/li&gt;&#xA;&lt;li&gt;IDA &amp;amp; IBR TOTAL - IBT&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Which of the three lending group correspond to six following markers? I mean is IBRD same as IBD (IBRD only), etc? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Source &lt;a href=&quot;https://datahelpdesk.worldbank.org/knowledgebase/articles/906519-world-bank-country-and-lending-groups&quot; rel=&quot;nofollow noreferrer&quot;&gt;[1]&lt;/a&gt; and &lt;a href=&quot;http://databank.worldbank.org/data/download/site-content/CLASS.xls&quot; rel=&quot;nofollow noreferrer&quot;&gt;[2]&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="14255" LastEditorUserId="2776" LastEditDate="2017-08-18T12:03:34.740" LastActivityDate="2017-08-18T12:13:32.963" Title="World Bank lending categories" Tags="&lt;banking&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17895" PostTypeId="2" ParentId="17890" CreationDate="2017-08-18T10:38:48.330" Score="5" Body="&lt;p&gt;First we need to discuss what wealth is. Is it just the amassment of valubles? In the 16th-18th century, rulers thought so. This notion is called &lt;a href=&quot;https://en.wikipedia.org/wiki/Mercantilism&quot; rel=&quot;noreferrer&quot;&gt;mercantilism&lt;/a&gt;. This idea was rejected by Adam Smith in book IV of &lt;a href=&quot;http://www.econlib.org/library/Smith/smWN.html&quot; rel=&quot;noreferrer&quot;&gt;The Wealth of Nations&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The current meaning of wealth is not the amount you own, but rather how much you can consume (sustainably). Formally, the &lt;a href=&quot;http://www.businessdictionary.com/definition/wealth.html&quot; rel=&quot;noreferrer&quot;&gt;definition&lt;/a&gt; is &lt;em&gt;Total of all assets of an economic unit that generate current income or have the potential to generate future income.&lt;/em&gt; This is of course the same amount as the amount that you can sustainably consume. This means that we can measure wealth either as production or as consumption.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, there is not just how much riches you own, but also how much you can create. Also, remember that you cannot consume money. You can only consume goods and services. Amassing riches has little value in itself. It is mainly a way (for an individual or group) to postpone consumption to some point in the future.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, wealth is measured not just by the current riches you own, but also by the ability to create more riches in the future. A man with 100,000 and no income is poorer than a man with no money but with an income of 50,000 a year. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;These things [...] don't generate new wealth. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;But they do. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Labor&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's look at how labor increases wealth by looking at a couple of examples:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Example 1. I work at a farm. The result of my work is some farm produce worth X. For that I am paid Y. The farmer that hired me will receive X-Y.&#xA;The net wealth gain for the society is Y + (X-Y), or X.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Example 2. I work as a barber. I charge X for a haircut. The customer gets a haircut worth X. Net wealth gain for the society is X + (X-X), or X. Since the haircut is consumed immediately, the amassed riches don't increase. Note that the customer didn't lose out - to him a haircut was worth at least X or he wouldn't have gotten one. In macroeconomic terms the GDP increases by X and net savings is unaffected.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Trade&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Trade increases wealth by transferring a good or a service to someone that values it higher. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Example 1: I buy a used car from a neighbour for X amount of money. I get a car that is worth Y to me (Y&gt;=X, or I wouldn't have bought it). My neighbour gets X for a car that was worth Z to him (Z&amp;lt;=X, or he would have kept the car). The wealth produced is (Y-X) + (X-Z), or Y-Z, which is &gt;= 0 because Z&amp;lt;=X&amp;lt;=Y. In GDP terms the wealth produced is X - X, or 0, because GDP only measures how much is paid. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Example 2: An electronics company imports batteries from China for 10 cents each. They sell the batteries to customers for \$3 each. The wealth increase in GDP terms is \$2:90 per battery. The wealth produced is shared by the electronics company, the shipping company, the store salesman and any others that provide services to the electronics company.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Innovation&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Innovation is both the invention of new and the improvement of the existing. Actually, most innovation is small improvements in existing technology or design.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Example: I improve a machine that makes nails so that it can make twice the number of nails in the same time. This means that more nails can be produced (and thus consumed) using less labor.&lt;/p&gt;&#xA;" OwnerUserId="11805" LastEditorUserId="11805" LastEditDate="2017-08-18T11:17:50.307" LastActivityDate="2017-08-18T11:17:50.307" CommentCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="17896" PostTypeId="2" ParentId="17894" CreationDate="2017-08-18T12:01:38.550" Score="0" Body="&lt;p&gt;As &lt;a href=&quot;https://datahelpdesk.worldbank.org/knowledgebase/articles/378834-how-does-the-world-bank-classify-countries&quot; rel=&quot;nofollow noreferrer&quot;&gt;this&lt;/a&gt; page states:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;International Development Association (IDA) countries are those with low per capita incomes that lack the financial ability to borrow from the International Bank for Reconstruction and Development (IBRD). Blend countries are eligible for IDA loans but are also eligible for IBRD loans because they are financially creditworthy.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Therefore the classification of countries can be representd with the following Venn diagram:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/ef0Bh.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/ef0Bh.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The final category, &lt;code&gt;IBT&lt;/code&gt;, compromises &lt;code&gt;IDA + IDBR&lt;/code&gt;, equivalent to &lt;code&gt;IDX + IDB + IBD&lt;/code&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note: this is &lt;strong&gt;my interpretation&lt;/strong&gt;, and not based on an official definition (which I couldn't find).&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-08-18T12:13:32.963" LastActivityDate="2017-08-18T12:13:32.963" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17898" PostTypeId="2" ParentId="14694" CreationDate="2017-08-18T14:10:54.613" Score="1" Body="&lt;p&gt;There are plenty of papers studying CEO pay and firm size empirically. Check a long list &lt;a href=&quot;http://econpapers.repec.org/scripts/search.pf?ft=ceo+pay+firm+size+data&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;. Some examples of data sources:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;US&lt;/strong&gt;: &lt;a href=&quot;https://www.library.hbs.edu/Find/Databases/Execucomp&quot; rel=&quot;nofollow noreferrer&quot;&gt;Execucomp&lt;/a&gt;, used by &lt;a href=&quot;http://onlinelibrary.wiley.com/doi/10.1111/ecoj.12084/abstract&quot; rel=&quot;nofollow noreferrer&quot;&gt;Gabaix, Landier, and Sauvagnat (2014)&lt;/a&gt;.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;UK&lt;/strong&gt;: Hemscott  and Datastream, as used by &lt;a href=&quot;http://onlinelibrary.wiley.com/doi/10.1111/j.1468-036X.2009.00511.x/abstract&quot; rel=&quot;nofollow noreferrer&quot;&gt;Ozkan (2009)&lt;/a&gt; or &lt;a href=&quot;http://onlinelibrary.wiley.com/doi/10.1111/j.1468-2443.2011.01136.x/abstract&quot; rel=&quot;nofollow noreferrer&quot;&gt;Gregg, Jewell, and Tonks (2011)&lt;/a&gt;. Also, BoardEx and Datastream, as used by &lt;a href=&quot;http://www.emeraldinsight.com/doi/abs/10.1108/RBF-12-2014-0053&quot; rel=&quot;nofollow noreferrer&quot;&gt;Tarkovska (2017)&lt;/a&gt;. You also have the &lt;a href=&quot;https://www.bvdinfo.com/en-gb/our-products/data/national/fame#secondaryMenuAnchor2&quot; rel=&quot;nofollow noreferrer&quot;&gt;Bureau van Dijk FAME&lt;/a&gt; dataset (used by the Bank of England, e.g. &lt;a href=&quot;http://www.bankofengland.co.uk/publications/Documents/speeches/2017/speech968.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;), but it is proprietary.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;Germany&lt;/strong&gt;: handpicked from financial reports as in &lt;a href=&quot;https://kops.uni-konstanz.de/bitstream/handle/123456789/29662/Heimes_0-274601.pdf?sequence=3&quot; rel=&quot;nofollow noreferrer&quot;&gt;Heimes and Seemann (2012)&lt;/a&gt;, or data obtained from the consulting firm&#xA;Kienbaum, as in &lt;a href=&quot;http://onlinelibrary.wiley.com/doi/10.1111/sjoe.12141/abstract&quot; rel=&quot;nofollow noreferrer&quot;&gt;Fabri and Marin (2015)&lt;/a&gt;.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-08-18T14:44:49.257" LastActivityDate="2017-08-18T14:44:49.257" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17899" PostTypeId="2" ParentId="4679" CreationDate="2017-08-18T14:32:46.317" Score="1" Body="&lt;p&gt;The Bank of England as a compilation of macroeconomic data for the UK ranging from at least the XIII century. The data is &lt;a href=&quot;http://www.bankofengland.co.uk/research/Pages/datasets/default.aspx#threecenturies&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-08-18T14:32:46.317" CommentCount="0" CommunityOwnedDate="2017-08-18T14:32:46.317" ContentLicense="CC BY-SA 3.0" />
  <row Id="17900" PostTypeId="1" CreationDate="2017-08-18T14:45:08.890" Score="2" ViewCount="979" Body="&lt;p&gt;ISDA &lt;a href=&quot;https://en.wikipedia.org/wiki/Credit_event&quot; rel=&quot;nofollow noreferrer&quot;&gt;Credit Event&lt;/a&gt; definitions state that CDS can be triggered in an event of Obligation Acceleration. What does that mean? If for example, a country pays a bond 1 year prior to maturity are CDS triggered? &lt;/p&gt;&#xA;" OwnerUserId="14258" LastEditorUserId="2776" LastEditDate="2017-08-18T15:02:29.173" LastActivityDate="2017-08-18T15:14:51.873" Title="Why obligation acceleration triggers Credit-Default Swaps (CDS)?" Tags="&lt;financial-markets&gt;&lt;bonds&gt;&lt;default&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17901" PostTypeId="2" ParentId="14947" CreationDate="2017-08-18T15:08:17.087" Score="-1" Body="&lt;p&gt;The Fed is responsible for promoting macroeconomic stability, which it accomplishes by controlling the money supply.&#xA;It is important to realize that by controlling the money supply, the Fed changes interest rates. When the money supply is&#xA;changed, interest rates follow. However, the Fed’s decision to change the money supply is not the final determining factor&#xA;of interest rates. The combination of the Fed’s control of money and how consumers react to this change makes up&#xA;equilibrium in the money market. To find the equilibrium interest rate, you must combine both the demand for money&#xA;and the supply of money. Once you combine these two factors, you can determine at what interest rate borrowers are&#xA;willing to borrow and at what point the Fed is controlling the supply of money.&#xA;At times, the interest rate can change without a change in money supply. If people attempt to increase their money holdings&#xA;by converting assets into money, interest rates will rise. Conversely, if people decide to increase their assets by&#xA;converting money into bonds or other non-monetary holdings, the interest rates will decrease.&#xA;Note that the Fed can only assume how the public will react to a change in the money supply. If consumers for some&#xA;reason decide to react differently to a policy change, the Fed must then reexamine the situation and try to introduce a&#xA;policy that will best remedy the problem. Ultimately, it is the consumers and borrowers who change interest rates. The&#xA;Fed can provide incentives to motivate the public; they cannot ultimately control these variables.&lt;/p&gt;&#xA;" OwnerUserId="14259" LastActivityDate="2017-08-18T15:08:17.087" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17902" PostTypeId="2" ParentId="17900" CreationDate="2017-08-18T15:14:51.873" Score="1" Body="&lt;p&gt;There is an example of its use at &lt;a href=&quot;https://definedterm.com/obligation_acceleration&quot; rel=&quot;nofollow noreferrer&quot;&gt;definedterm.com&lt;/a&gt; from a Cemex 2006 Note saying &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;Obligation Acceleration&quot; means one or more Obligations in an aggregate amount of not less that the Default Requirement have become due and payable before they would otherwise have been due and payable as a result of, or on the basis of, the occurrence of a default, event of default or other similar condition or event (however described), other than a failure to make any required payment, in respect of a Reference Entity under one or more Obligations.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;What this seems to mean (IANAL so this is not legal advice) is that a default or similar event (perhaps of a coupon) may lead to some or all of the amount borrowed becoming repayable earlier than originally planned, i.e. accelerating the obligation&lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2017-08-18T15:14:51.873" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17903" PostTypeId="2" ParentId="14947" CreationDate="2017-08-18T15:25:58.867" Score="-1" Body="&lt;p&gt;The demand for money slopes downward because as interest rate declines, the opportunity cost of holding money will decline too. Therefore, the quantity of money demanded will increase.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The supply of money in the economy is determined by the Fed through its control over excess reserves in the banking system. The supply of money is vertical which implies that quantity of money supplied is independent of the interest rate.&lt;/p&gt;&#xA;" OwnerUserId="14259" LastActivityDate="2017-08-18T15:25:58.867" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17905" PostTypeId="2" ParentId="17637" CreationDate="2017-08-18T16:36:47.940" Score="1" Body="&lt;p&gt;This looks like a quotation from &lt;a href=&quot;http://indianexpress.com/article/business/economy/measuring-capital-goods-production-work-in-progress-but-may-not-end-volatility-4657497/&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;The Indian Express&lt;/em&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;WPI is likely to mean &quot;Wholesale Price Index&quot;, similar to what is sometimes called the &quot;Producer Price Index&quot; and related to GDP deflators, but distinct from the &quot;Consumer Price Index&quot;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The exclusion of indirect taxes is presumably designed to avoid measuring price changes directly associated with India's introduction of a national Goods and Services Tax in 2017.    &lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2017-08-18T16:36:47.940" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17906" PostTypeId="2" ParentId="17637" CreationDate="2017-08-18T16:46:01.667" Score="1" Body="&lt;p&gt;&lt;em&gt;Fiscal impulse&lt;/em&gt; is synonymous with &lt;em&gt;fiscal stimulus&lt;/em&gt;. &lt;a href=&quot;http://www.ief.es/documentos/recursos/publicaciones/revistas/presu_gasto_publico/59-06.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;This&lt;/a&gt; article defines a fiscal impulse as:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;the additional financial impact of government finances on the economy relative to a reference situation&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The same document provides an example of a fiscal impulse for Spain. Table 1 (in page 9) provides a disaggregation of the different channels through which such stimulus impacts the economy. One of them is &lt;strong&gt;indirect taxation&lt;/strong&gt;, which affects households' consumption. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, using a price index like WPI, which removes indirect taxes, removes (part of) the effect of a fiscal impulse on the price index.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-08-18T16:46:01.667" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17907" PostTypeId="2" ParentId="75" CreationDate="2017-08-18T17:30:00.767" Score="-1" Body="&lt;p&gt;The partial equilibrium analysis studies the relationship between only selected few variables, keeping others unchanged. Whereas the general equilibrium analysis enables us to study the behaviour of economic variables taking full account of the interaction between those variables and the rest of the economy.&#xA;In partial equilibrium analysis, the determination of the price of a good is simplified by just looking at the price of one good, and assuming that the prices of all other goods remain constant. Thus the economy is in general equilibrium when commodity prices make each demand equal to its supply and factor prices make the demand for each factor equal to its supply so that all product markets and factor markets are simultaneously in equilibrium.&lt;/p&gt;&#xA;" OwnerUserId="14260" LastActivityDate="2017-08-18T17:30:00.767" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17908" PostTypeId="1" CreationDate="2017-08-18T22:51:10.947" Score="7" ViewCount="279" Body="&lt;p&gt;I'm reviewing the following question from my microeconomics course notes. I don't understand how to do part (b).&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;A firm faces a perfectly elastic demand curve because the product it&#xA;  sells has a perfect substitute. The (inverse) demand function is&#xA;  $p=2$. Its production function is $f(K,L)=K^{1/4}L^{1/4}$.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;(a) Assuming input prices of $w=r=1$, show that the firm's cost&#xA;  function is $C(q)=2q^2$.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;(b) Assuming the firm operates as a monopolist, what price will it&#xA;  charge, what quantity will it produce, and what are its profits?&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;(c) What is the deadweight loss from monopoly?&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;(d) Would the answers to parts (b) and (c) change if the firm could perfectly price discriminate?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Part (a) is easy; I'm stuck on part (b).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the firm faces a &quot;perfectly elastic demand curve&quot; $p=2$, then the firm &lt;em&gt;isn't&lt;/em&gt; in a position to operate as a monopolist, right? A monopolist ought to be able to &lt;em&gt;set&lt;/em&gt; a price, not have to accept the market price $p=2$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I assume the monopolist sets a price $p$ for quantity supplied $q$, then I can define the profit function&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\pi(q)=p(q)\cdot q-c(q)=p(q)\cdot q-2q^2$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Differentiating gives the first-order condition&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$q\cdot p'(q)+p(q)=4q$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But I can't proceed without knowing the monopolist's demand curve (which, again, I thought &lt;em&gt;couldn't&lt;/em&gt; be perfectly inelastic).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I &lt;em&gt;assume&lt;/em&gt; $p(q)=2$, then I can deduce that $q=1/2$. But this can't be right, because then I can't calculate a deadweight loss.&lt;/p&gt;&#xA;" OwnerUserId="14262" LastActivityDate="2017-08-19T08:53:06.180" Title="How to determine the price a monopolist will set when the demand curve the firm faces isn't known?" Tags="&lt;microeconomics&gt;&lt;monopoly&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17909" PostTypeId="2" ParentId="17908" CreationDate="2017-08-19T08:53:06.180" Score="3" Body="&lt;p&gt;The monopolist is allowed to set the price. However, because his product has a perfect substitute, he can sell 0 products at prices $p&amp;gt;2$. He also has no incentive seting the price $p&amp;lt;2$, because the consumers will buy any number of products he wishes to sell at $p = 2$. This means that $p(q) = 2$. Its graph in the $(q,p)$ coordinate system would be a horizontal line at $p = 2$. Because of this, $p'(q) = 0$. Correcting for this you should be able to easily finish the exercise. &lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2017-08-19T08:53:06.180" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17910" PostTypeId="2" ParentId="4913" CreationDate="2017-08-19T10:32:08.520" Score="2" Body="&lt;p&gt;Some quotes from &lt;a href=&quot;http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.197.1887&amp;amp;rep=rep1&amp;amp;type=pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;this article&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Where do preferences&#xA;  originate? How are they formed? How does the economic, social, legal, and cultural&#xA;  environment shape the formation of preferences? In recent years concepts such as ‘habit&#xA;  formation,’ ‘social norms,’ ‘cultural values,’ ‘conspicuous consumption,’ and others have&#xA;  been formalized in various ways in the economics literature in an attempt to begin to&#xA;  answer these difficult questions. Yet, mainstream economic theory typically assumes that&#xA;  preferences are exogenous and stable. [...] economists should take them as given and analyze the implications for economic behavior (Friedman, 1962).&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The endogeneity of preferences implies that not only individual preferences [...] determine&#xA;  economic outcomes, but also that the economic, social, legal, and cultural structure of society affects&#xA;  preferences.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Thus, using endogenous preferences allow a researcher to study phenomena where social interaction (e.g. networks, influence, marketing, etc) is relevant for consumption choices. For example, &lt;a href=&quot;http://dems.unimib.it/repec/pdf/mibwpaper235.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; is a paper studying &quot;fashion cycles&quot;. Preferences for individual $i$ are quite simply define as Cobb-Douglas functions:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ U^i = x^{\alpha_i} y^{1-\alpha_i} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $x$ and $y$ are two goods, and $\alpha_i \in (0,1)$. Preferences are endogenised by assuming that $\alpha_i$ &lt;strong&gt;depends on society's past level of consumption of good $x$&lt;/strong&gt;. Therefore, how much other individual have consumed in the past affects how much an individual would like to consume today. In this sense, &lt;strong&gt;preferences are endogenous&lt;/strong&gt;. This contrast with common exogenous preferences where individual choices &lt;strong&gt;do not depend&lt;/strong&gt; on other individual choices (other than through common market mechanisms like price, demand-supply).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.contrib.andrew.cmu.edu/~krack/documents/pubs/1998/1998%20Endogenous%20Preferences.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;This article&lt;/a&gt; offers a brief history of exogenous preferences.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-08-19T10:32:08.520" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17911" PostTypeId="2" ParentId="13756" CreationDate="2017-08-19T11:10:46.310" Score="1" Body="&lt;p&gt;In his 1974's &lt;a href=&quot;http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/1974/hayek-lecture.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Nobel Prize speech&lt;/a&gt; titled &amp;quot;The Pretense of Knowledge&amp;quot;, Hayek presented a fierce attack on Keynesianism (which argued for an active government), whilst defending free markets. His view is centered on the idea that there is too much &amp;quot;local knowledge&amp;quot; which is available to individuals but not to governments. Markets can use that information efficiently, whereas a central planner cannot. His view is also guided by a different ontological view of the economic system from his opponents, one centered in &lt;a href=&quot;http://www.tandfonline.com/doi/abs/10.1080/13501780903128548?journalCode=rjec20&quot; rel=&quot;nofollow noreferrer&quot;&gt;complexity&lt;/a&gt;. Some quotes from the speech:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Unlike the position that exists in the physical sciences, in economics and other disciplines that deal with essentially complex phenomena, the aspects of the events to be accounted for about which we can get quantitative data are necessarily limited and may not include the important ones. [...] We know: of course, with regard to the market and similar social structures, a great many facts which we cannot measure and on which indeed we have only some very imprecise and general information. And because the effects of these facts in any particular instance cannot be confirmed by quantitative evidence, they are simply disregarded by those sworn to admit only what they regard as scientific evidence: they thereupon happily proceed on the fiction that the factors which they can measure are the only ones that are relevant. [...]&lt;/p&gt;&#xA;&lt;p&gt;Into the determination of these prices and wages there will enter the effects of particular information possessed by every one of the participants in the market process - a sum of facts which in their totality cannot be known to the scientific observer, or to any other single brain. It is indeed the source of the superiority of the market order, and the reason why, when it is not suppressed by the powers of government, it regularly displaces other types of order, that in the resulting allocation of resources more of the knowledge of particular facts will be utilized which exists only dispersed among uncounted persons, than any one person can possess. [...]&lt;/p&gt;&#xA;&lt;p&gt;To act on the belief that we possess the knowledge and the power which enable us to shape the processes of society entirely to our liking, knowledge which in fact we do not possess, is likely to make us do much harm. [...]&lt;/p&gt;&#xA;&lt;p&gt;If man is not to do more harm than good in his efforts to improve the social order, he will have to learn that in this, as in all other fields where essential complexity of an organized kind prevails, he cannot acquire the full knowledge which would make mastery of the events possible. He will therefore have to use what knowledge he can achieve, not to shape the results as the craftsman shapes his handiwork, but rather to cultivate a growth by providing the appropriate environment, in the manner in which the gardener does this for his plants.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;(He had a relatively similar critique on central planning and the USSR in his book &amp;quot;&lt;a href=&quot;https://en.wikipedia.org/wiki/The_Road_to_Serfdom&quot; rel=&quot;nofollow noreferrer&quot;&gt;The Road to Serfdom&lt;/a&gt;&amp;quot;)&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2017-08-19T11:10:46.310" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="17912" PostTypeId="1" CreationDate="2017-08-19T12:16:44.253" Score="2" ViewCount="150" Body="&lt;p&gt;Getting qualified workforce for temporary projects can be difficult. If found from within the organisation, they may have to abstain from their regular work, and this may create additional complications to their worklife. Given that the right people may be difficult to find, they may have to be paid higher than if the same post would be a year-round job (if the quality of work is the same).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Many factors might need to be taken into account by an employer seeking staff for such projects.  What economic factors are relevant here?&lt;/p&gt;&#xA;" OwnerUserId="14264" LastEditorUserId="1417" LastEditDate="2017-08-19T21:31:23.740" LastActivityDate="2017-08-21T22:42:48.843" Title="What economic factors should be considered in attracting suitable staff and determining pay for temporary project work?" Tags="&lt;labor-economics&gt;&lt;wages&gt;&lt;labor-cost&gt;" AnswerCount="1" CommentCount="5" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17913" PostTypeId="1" AcceptedAnswerId="17919" CreationDate="2017-08-19T16:34:46.257" Score="3" ViewCount="52" Body="&lt;p&gt;I've been taught that small economies open to capital flows should avoid manipulating interest rates because increasing interest rates will mean capital inflow which causes currency appreciation. Overall, interest rate policy causes exchange rate volatility. But why is the case for small economies? Why is the US or China less susceptible to this theoretical argument?&lt;/p&gt;&#xA;" OwnerUserId="14266" LastEditorUserId="61" LastEditDate="2017-08-19T17:11:58.057" LastActivityDate="2017-08-20T13:13:58.383" Title="Why should small open economies avoid interest rate policies?" Tags="&lt;interest-rate&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17914" PostTypeId="2" ParentId="17881" CreationDate="2017-08-19T17:17:43.323" Score="1" Body="&lt;p&gt;I think I have managed to solve it. However, not the way I was initially hoping. I simplified the stacked matrices using the given conditions and some assumptions. Here is my solution:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Eq. (3) I write as $\pi_{t+1} = \alpha \beta \pi_{t} + \beta \theta_{t} + \eta_{t+1}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Forwarding equation (4) one period and arranging it in terms on $b_{t+1} = -\varphi_{1} {\pi_{t+1}} - \varphi_{2}{\pi_{t}}  + (\beta^{-1}- \gamma)\widetilde{b_{t}} - \varphi_{3} \theta_{t+1} \ - \psi_{t+1} - \varphi_{4} \theta_{t} = 0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\pi_{t+1}$ simplified by eq. (3)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\theta_{t+1} = \rho_{1} \theta_{t} + \epsilon_{1,t+1}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\psi_{t+1}$ can be written as its AR(1) formulation as well. Putting the four equations in matrix form results in:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/n3gyX.gif&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/n3gyX.gif&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which is what I was after. However, this made me wonder what was wrong with the method I was trying above. Looking at the top corner of the coefficient matrix (i.e the 4x4 matrix in the top left corner) it is clearly $\Gamma_{0}^{-1} \Gamma_{1}$. But the rest of the matrix I am unsure of. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And question (2) remains, once I have solved for the variables of interest, will I be ready to make IRF's?&lt;/p&gt;&#xA;" OwnerUserId="11767" LastActivityDate="2017-08-19T17:17:43.323" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17919" PostTypeId="2" ParentId="17913" CreationDate="2017-08-20T13:13:58.383" Score="3" Body="&lt;p&gt;The trilemma or &lt;a href=&quot;https://en.wikipedia.org/wiki/Impossible_trinity&quot; rel=&quot;nofollow noreferrer&quot;&gt;impossible trinity&lt;/a&gt; is said to be that it is impossible to have all three of the following at the same time:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;a fixed foreign exchange rate&lt;/li&gt;&#xA;&lt;li&gt;free capital movement (absence of capital controls)&lt;/li&gt;&#xA;&lt;li&gt;an independent monetary policy&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The United States prioritises the second and third, and only worries slightly about the first and its impact on trade.  Being an extremely large economy, capital inflows can only make a small difference to domestic market conditions, though during the world financial crisis some moments of fear did tend to push the relative price of the dollar up as international money sought a safe haven (abbreviated to &lt;em&gt;risk-off&lt;/em&gt; sentiments). Currently it seems that the US can make moderate increases to interest rates in contrast to Europe or Japan, without a major impact on US exchange rates   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;China prioritises the third and also the first in a managed exchange rate sense.  There are significant capital controls in China (more now than a few years ago), and they make it difficult for short-term capital flows to cross the border in either direction.  If somebody abroad wants to buy yuan-denominated shares or bonds, they will find it much easier in the rather peculiar markets in Hong Kong than in the domestic markets in Shanghai and the two often disconnect with significantly different prices for similar investments. This enables the Chinese government to pursue a domestic monetary policy without too many international concerns&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A small open economy cannot follow the US example (being too small) or the Chinese example (being too open).  And in many cases smaller countries are more affected by international trade than similarly structured larger ones. So the exchange rate implications of changes in domestic monetary policy are more important to small open economies &lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2017-08-20T13:13:58.383" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17923" PostTypeId="2" ParentId="3402" CreationDate="2017-08-21T08:31:52.450" Score="0" Body="&lt;p&gt;They now &lt;a href=&quot;https://www.zillow.com/research/data/#other-metrics&quot; rel=&quot;nofollow noreferrer&quot;&gt;provide&lt;/a&gt; values in dollars for several metrics related to median home value. For example, a graph using the data at the state level:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\hspace{3cm}$&lt;a href=&quot;https://i.stack.imgur.com/hC0KC.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/hC0KC.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(code for figure &lt;a href=&quot;https://paste.ubuntu.com/25361296/&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;)&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-08-21T08:31:52.450" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17924" PostTypeId="1" AcceptedAnswerId="41334" CreationDate="2017-08-21T10:38:53.303" Score="4" ViewCount="213" Body="&lt;p&gt;I'm a little baffled about this:&#xA;Let's say I want to compare the average income of 2 countries, A and B. Of course I'm interested in the real income so I adjust to PPP using the big mac index of that given year (dividing the average salary by some constant).&#xA;Now I do it again, but 10 years later (with the big mac index of t = 10).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Question -&#xA;Can I compare the &lt;strong&gt;adjusted&lt;/strong&gt; average salary of country &lt;strong&gt;A, t=0&lt;/strong&gt;  to the &lt;strong&gt;adjusted&lt;/strong&gt; average salary of country &lt;strong&gt;A, t=10&lt;/strong&gt;?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One can argue that no, because the index used for PPP adjustment changed over time, so we need to take account for this. That's why when you adjust for inflation you have specify to which year the prices have been fixed.&#xA;You can't compare a real salary adjusted to 2003 prices to a real salary adjusted to 2013 prices.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My logic says yes, because assuming that McDonalds hasn't changed their Big Mac over the past 10 years, the unit of choice remained that same - one delicious burger and it's NOT like adjusting to inflation (in which you have to randomly assign a base year).&lt;/p&gt;&#xA;" OwnerUserId="14279" LastEditorUserId="2776" LastEditDate="2017-08-21T11:53:07.307" LastActivityDate="2020-12-05T16:51:29.153" Title="Can PPP adjusted values be compared over time?" Tags="&lt;inflation&gt;&lt;time-series&gt;&lt;purchasing-power-partity&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="17925" PostTypeId="2" ParentId="17924" CreationDate="2017-08-21T12:00:50.727" Score="2" Body="&lt;p&gt;As you can see from the &lt;a href=&quot;http://infographics.economist.com/2017/databank/BMFile2000toJul2017.xls&quot; rel=&quot;nofollow noreferrer&quot;&gt;official dataset&lt;/a&gt;, the index changes over time. Therefore, by comparing a variable $x$ in two time periods using a different index for each period, the total change is a combination of changes in the variable $x$ &lt;strong&gt;and&lt;/strong&gt; changes in the index. In other words, you are comparing:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{x_0}{p_0} \text{   versus   }  \frac{x_{10}}{p_{10}} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From the above you cannot tell how much of the difference is due to changes in $x$ and in the index, $p$. &lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-08-21T12:06:24.320" LastActivityDate="2017-08-21T12:06:24.320" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17928" PostTypeId="1" AcceptedAnswerId="17947" CreationDate="2017-08-21T18:33:41.013" Score="8" ViewCount="296" Body="&lt;p&gt;I am always struggling with teaching this one. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The terminology of standard intro textbooks is unfortunate, although it's so pervasive that we probably have to live with it.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;By a &quot;Demand&quot;, intro textbooks really mean a &quot;Demand function&quot; (but talk about &quot;Demand&quot; either for concision, or because they think the word &quot;function&quot; will scare intro students).&lt;/li&gt;&#xA;&lt;li&gt;Having shied away from calling a function a function, intro textbooks then cannot speak of &quot;the demand at price $P$&quot; (just like you would speak of the value of $f(\cdot)$ at $x$), and need to introduce the awkward terminology &quot;quantity demanded at price $p$&quot;.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;That's an ok compromise, until you reach the usual section on &quot;changes in the quantity demanded v. changes in demand&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There, students are often told that we should only talk of a &quot;change in the quantity demanded&quot; if the demand function $D$ is fixed, and that such &quot;changes in the quantity demanded&quot; must be the consequence of a change in price only (typically following a change in supply).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then how can I speak of the comparison between $D(P) &amp;gt; \tilde{D}(\tilde{P})$ without being terribly confusing to my students? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I say, &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;1) &quot;Following a change in demand from $D$ to $\tilde{D}$, the equilibrium price changed from&#xA;  $P$ to $\tilde{P}$ and the quantity demanded therefore &lt;em&gt;changed&lt;/em&gt; from $D(P)$ to&#xA;  $\tilde{D}(\tilde{P})$&quot;,&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I think I am guaranteed to confuse the hell out of them, because the textbook essentially tells them that &quot;we should &lt;em&gt;never&lt;/em&gt; talk of a 'change in quantity demanded' unless the demand function remains unchanged&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At the same time, is there any other ways to formulate 1)? &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Should I use a different word and speak, e.g., of a &quot;move&quot; or a &quot;movement&quot; in quantity demanded from $D(P)$ to $\tilde{D}(\tilde{P})$  to avoid any confusion with a &quot;change in quantity demanded&quot;.&lt;/li&gt;&#xA;&lt;li&gt;Or is it better to be explicit about the ambiguity?&lt;/li&gt;&#xA;&lt;li&gt;Or is it better to try and avoid the issue as much as possible?&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;What is your experience teaching this? What are your tricks to get around this terminological difficulty? (Or, maybe, why do you think it is not a terminological difficulty at all?)&lt;/p&gt;&#xA;" OwnerUserId="38" LastActivityDate="2017-08-23T15:16:10.140" Title="Teaching changes in &quot;demand&quot; v. &quot;quantity demanded&quot;" Tags="&lt;supply-and-demand&gt;&lt;definition&gt;&lt;teaching&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="17929" PostTypeId="1" CreationDate="2017-08-21T19:52:24.347" Score="2" ViewCount="189" Body="&lt;p&gt;I'm reading &lt;a href=&quot;http://voxeu.org/article/missing-growth&quot; rel=&quot;nofollow noreferrer&quot;&gt;this article in VoxEU.or&lt;/a&gt;g, and there's the following paragraph:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;If the statistical office is correct to assume that the&#xA;  quality-adjusted inflation rate is the same for creatively destroyed&#xA;  products as for surviving incumbent products, then the market share of&#xA;  surviving incumbent products should stay constant over time. If&#xA;  instead the market share of these incumbent products shrinks&#xA;  systematically over time, then the surviving subset of products must&#xA;  have higher average inflation than creatively destroyed products. For&#xA;  a given elasticity of substitution between products, the more the&#xA;  market share shrinks for surviving products, the more the missing&#xA;  growth.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;From what I understood, since the entering products have a lower quality-adjusted price, and that's why they enter the market. I don't understand several things:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) Why the «surviving subset of products must have higher average inflation than creatively destroyed products»? Do they mean by this sentence, that the the surviving products have higher quality-adjusted inflation than those which just entered? If so, I understand that this would be a sufficient condition for the creative destruction, however, I don't see how it's a necessary conditions, as it seems to be implied by the text.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2)Why «For a given elasticity of substitution between products, the more the market share shrinks for surviving products, the more the missing growth.»?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="118" LastActivityDate="2017-08-21T19:52:24.347" Title="Creative destruction and quality-adjusted inflation rate." Tags="&lt;macroeconomics&gt;&lt;inflation&gt;&lt;economic-growth&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17930" PostTypeId="2" ParentId="17878" CreationDate="2017-08-21T21:20:12.980" Score="4" Body="&lt;p&gt;Greece had more debt, less growth and higher budget deficits than Portugal throughout the crisis. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/s89mB.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/s89mB.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/z1tSC.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/z1tSC.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/ou73T.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/ou73T.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/NmSlH.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/NmSlH.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a result, the Greek bailout should have been even bigger, but this was politically untenable, while the Portuguese bailout proved sufficient in size. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The lower budget deficits in Portugal, for example, also made it easier to comply with the austerity imposed by international organisations. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Portuguese economy was also better able to adjust by virtue of being more competitive. It was recently ranked 38 on competitiveness vs Greece ranked 81.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://reports.weforum.org/global-competitiveness-report-2015-2016/competitiveness-rankings/&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://reports.weforum.org/global-competitiveness-report-2015-2016/competitiveness-rankings/&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="14137" LastEditorUserId="14137" LastEditDate="2017-08-22T06:14:20.303" LastActivityDate="2017-08-22T06:14:20.303" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="17932" PostTypeId="1" CreationDate="2017-08-21T22:05:46.543" Score="3" ViewCount="117" Body="&lt;p&gt;I essentially asked this question &lt;a href=&quot;https://en.wikipedia.org/wiki/Wikipedia:Reference_desk/Miscellaneous#How_exactly_do_I_contribute_to_society_by_saving_money_in_the_bank.3F&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;, but IMO didn't get an answer from anyone who knew what they were talking about.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Normally someone gets paid because they work in a job, i.e. they contribute to society. I get paid by lending money to other people and charging interest. What exactly am I being paid for? It doesn't feel that I'm doing anything to better society.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It enables them to buy things they otherwise couldn't afford... in the near term. But ultimately they have to pay back the debt plus interest, so they can actually afford less in the long term. Is it just that I'm being paid to satisfy people's impatient desires? It doesn't seem that I'm contributing to long-term economic growth, and it seems that I may even be hurting it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Someone suggested that the loans can be used to finance investment, so I thought about it for a while. I considered an economy consisting of three agents: BANK, person A, and person B.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose person A is destitute and BANK lends £100 to person A in exchange for £110 later. Then person A pays person B the £100 to build a factory. Then person A manufactures goods with the factory and sells them to person B for £150. It seems that BANK has made £10 for nothing, as person A and person B could have come to an arrangement where person B would build the factory + pay person A £50 in exchange for the goods manufactured by person A directly. Maybe it's different with more than three agents. But I still come to the conclusion that the agents could collectively come to an agreement that wouldn't involve the BANK &quot;middleman&quot;. Maybe that wouldn't work in practice. But in any case, it doesn't feel that lending money does anything to contribute to society.&lt;/p&gt;&#xA;" OwnerUserId="14283" LastActivityDate="2017-08-22T21:04:58.163" Title="How does lending money contribute to society?" Tags="&lt;banking&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17933" PostTypeId="1" AcceptedAnswerId="17936" CreationDate="2017-08-21T22:32:38.517" Score="13" ViewCount="12180" Body="&lt;p&gt;We know that the money today is fiat currency, that it is money because the government says it's so. So when new money is printed or loaned out to the commercial banks by buying treasury bonds, government does not technically &quot;owe&quot; any thing. The only thing that is stopping it from creating new money every time need arises is the possibility of inflation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given all of that why is still money in circulation listed as a liability of the central bank? Am I missing something here?&lt;/p&gt;&#xA;" OwnerUserId="14281" LastEditorUserId="59" LastEditDate="2021-03-11T04:11:46.297" LastActivityDate="2021-03-11T04:11:46.297" Title="Why is money in circulation a liability of the central bank?" Tags="&lt;money-supply&gt;&lt;central-banking&gt;&lt;nonexpert&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="17934" PostTypeId="2" ParentId="17912" CreationDate="2017-08-21T22:42:48.843" Score="1" Body="&lt;p&gt;Characteristics of a &quot;project&quot;, as per the &lt;a href=&quot;https://www.pmi.org/about/learn-about-pmi/what-is-project-management&quot; rel=&quot;nofollow noreferrer&quot;&gt;Project Management Institute&lt;/a&gt;, are that it is temporary and unique (ie. non-routine).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a person employed to work on a project, the temporary nature of the work is likely to be a source of additional cost and risk, as compared with a person in a permanent job. This is because, as the project comes towards its end, the person is likely to &lt;em&gt;have to&lt;/em&gt; find another job.  That involves both the &lt;strong&gt;transaction costs&lt;/strong&gt; of finding a job (searching, assessing whether jobs are suitable, negotiation, etc., implying time and effort if not monetary costs) and the &lt;strong&gt;risk&lt;/strong&gt; of not finding a suitable job when needed and therefore experiencing a loss of income. These factors suggest that to recruit to a project role will require somewhat higher pay than to recruit to a permanent job with a similar skill level. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;An exception to the above is where a current staff member in a permanent job is seconded to work on a project. Provided they can be sure that at the end of the project they can return to their original job, they will not be subject to the sort of risk described above. On the other hand if a current staff member is to be asked to work on a project while also keeping their regular work going, they may decline unless offered higher pay (for reasons of workload, not risk).   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A further issue is how pay for project work might be structured. Suppose A is working on a project which is 90% complete. The employer will want A to stay and complete the project.  But A knows that staying until the end of the project will increase the risk that they will find themselves without a job. So they will be tempted to apply for other jobs before the project is complete. Hence there is a risk for the employer, ie that the departure of a key person will mean that completion of the project becomes problematic.  To address this, an employer might consider a pay structure consisting of a regular monthly salary plus a bonus payable on successful completion of the project.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But that in turn raises the issue of &lt;strong&gt;asymmetric information&lt;/strong&gt;. Because of the non-routine nature of project work, it may be that only those working on the project really know how near (or far) the project is from successful completion. This is especially likely where the output of a project is not very visible or tangible, an ICT system implementation for example. So even if the project is only 90% complete, and A knows that, there is a risk for the employer that A will leave to take another job while also persuading management that the project is complete and receiving the bonus.   &lt;/p&gt;&#xA;" OwnerUserId="1417" LastActivityDate="2017-08-21T22:42:48.843" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17935" PostTypeId="2" ParentId="17932" CreationDate="2017-08-21T22:46:17.170" Score="2" Body="&lt;p&gt;In this simplified hypothetical world, yes, person B could give 100 currency to person A to build the factory directly. But what if person B does not want to take on that risk? How does person B know that person A will be contracted to make 150 worth of goods properly? Person B could just wait to see if someone else finances person A and then buy from A if the factory is successful. A single individual lending, or even small businesses lending out money can be a relatively large amount of money for that entity (so, high risk), whereas banks are able to diversify risks, by making many different loans and spending time evaluating how risky different people are.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Banks take on risk that other people/firms can't afford to or don't want to. Interest rate is very roughly, the price needed to be willing to take on these risks, or more precisely, the rental rate of money.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastEditorUserId="4251" LastEditDate="2017-08-22T12:43:26.987" LastActivityDate="2017-08-22T12:43:26.987" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="17936" PostTypeId="2" ParentId="17933" CreationDate="2017-08-22T11:28:46.270" Score="11" Body="&lt;p&gt;Balance sheets always balance, so assets equal liabilities.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Imagine a commercial bank goes to the central bank and wants cash. The central bank provides the cash, but asks for some of the commercial bank's loans (or government bonds) in return.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The central bank now has the loans (or government bonds) as assets and the cash as liabilities.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The cash is a liability, because if the commercial bank goes back to the central bank and gives back the cash, the central bank will have to give back the loans (or government bonds).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So while it's true that cash is not backed by gold, it is still backed by something. You can take your cash to the central bank, exchange it for government bonds, earn cash interest on your government bonds and then use this cash to pay your taxes. More generally cash is backed by the goods that you can purchase for it.&lt;/p&gt;&#xA;" OwnerUserId="14137" LastEditorUserId="14137" LastEditDate="2017-08-22T11:40:02.240" LastActivityDate="2017-08-22T11:40:02.240" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="17937" PostTypeId="1" CreationDate="2017-08-22T11:35:29.987" Score="3" ViewCount="1006" Body="&lt;p&gt;I've been told that the interest rate is the price needed to be willing to take on the risk associated with lending. This is why personal loans have higher interest rates than bank deposits, for example. So why is there a positive (as opposed to zero) risk-free rate? It is usually assumed that government bonds are risk-free, yet they have a positive return. If there is no risk, how can there be a positive rate?&lt;/p&gt;&#xA;" OwnerUserId="14283" LastActivityDate="2017-08-22T18:44:28.773" Title="Why is there a positive risk-free interest rate?" Tags="&lt;interest-rate&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17938" PostTypeId="2" ParentId="17937" CreationDate="2017-08-22T12:00:54.517" Score="2" Body="&lt;p&gt;Risk is not the same than the interest rate an asset pays. In a world without risk, there is still room for positive interest rates. Why? &lt;strong&gt;Because of the opportunity cost of money.&lt;/strong&gt; Instead of lending that money to the government, a company or an individual, the owner of the money could investing in some profit making business. In a stylised Econ 101 neoclassical economy, decreasing marginal product and the &lt;a href=&quot;https://en.wikipedia.org/wiki/Inada_conditions&quot; rel=&quot;nofollow noreferrer&quot;&gt;Inada conditions&lt;/a&gt; imply that the equilibrium interest rate is only zero when the capital in the economy is infinity. As this is never the case, the equilibrium interest rate is necessarily positive. Its level is given among other things by technology and stocks of factors of production.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To see an example, consider an aggregate production function&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ Y = AK^{\alpha}L^{1-\alpha} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $\alpha \in (0,1)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Optimal choice of factors is given by&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{r}{w} = \frac{MP_K}{MP_L} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which is equivalent to&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{r}{w} = \frac{1-\alpha}{\alpha}\frac{L}{K} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;All the right hand side terms (technology parameters and stock of factors, including employment/population) are positive. Therefore, the left hand side is too. Notice that $K\rightarrow \infty$ means, &lt;em&gt;ceteris paribus&lt;/em&gt;, $r \rightarrow 0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://economics.stackexchange.com/a/16906/2776&quot;&gt;This post and answer&lt;/a&gt; provide more insights about profits and interest rates in a neoclassical economy.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-08-22T13:50:25.927" LastActivityDate="2017-08-22T13:50:25.927" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17939" PostTypeId="2" ParentId="17937" CreationDate="2017-08-22T12:16:53.013" Score="5" Body="&lt;p&gt;The interest rate is (1) the price needed to take on risk &lt;em&gt;and&lt;/em&gt; (2) the price needed to delay consumption.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reason there is a positive risk free rate, even though there is no risk, is because of the &lt;strong&gt;time preference&lt;/strong&gt; typical of any economic agent. It is preferable to consume today, than to consume tomorrow. To put off consumption today and invest in the risk free asset instead, the agents want to earn interest, otherwise they will consume instead of saving.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Normally, if the risk free rate was zero, nobody would buy the risk free asset, but spend everything on consumption. E.g. nobody would buy government bonds. The government has to offer a positive interest rate to find buyers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Current negative interest rates are actually a reflection of how our classical assumption, that agents prefer to consume today rather than tomorrow, has been turned on its head. Nobody wants to consume today despite zero or negative interest rates contrary to the classic theory above (and people buy government bonds with negative interest rates). This can happen if agents are apprehensive enough of the future to want to increase their precautionary savings instead of consuming. If they are worried enough, they will do this even if they lose money on their savings (due to the negative interest rate).&lt;/p&gt;&#xA;" OwnerUserId="14137" LastEditorUserId="14137" LastEditDate="2017-08-22T18:44:28.773" LastActivityDate="2017-08-22T18:44:28.773" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="17940" PostTypeId="1" AcceptedAnswerId="17958" CreationDate="2017-08-22T17:48:04.133" Score="1" ViewCount="242" Body="&lt;p&gt;In the Solow growth model, to compute economic output $Y$, you need variable $A$ being total factor productivity. I found some data about my country's TFP but it's estimated as a Tornqvist Index. What does it mean? Can I simply use that number in the equation to calculate $Y$?&lt;/p&gt;&#xA;" OwnerUserId="14299" OwnerDisplayName="Hoang Trieu Duong Kim" LastEditorUserId="2776" LastEditDate="2017-08-23T18:19:21.867" LastActivityDate="2017-08-23T19:49:26.740" Title="What is a number estimated as a Tornqvist Index?" Tags="&lt;econometrics&gt;&lt;macroeconomics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17941" PostTypeId="2" ParentId="17932" CreationDate="2017-08-22T21:04:58.163" Score="1" Body="&lt;p&gt;There's a bunch of different answers, depending on which of the paragraphs you want to address. In order:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;First, you need to be more precise about what &quot;society contribution&quot; means. After all, working as a drug seller may or may not contribute to society! Using a pretty standard definition like Pareto Optimality, by sacrificing consumption for a price and allowing others to consume or invest, someone else is better off and/or more production is available in the future.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Indeed, they can afford less things in the future. But that's like saying you can afford less coconuts because you bought a watermelon. There's a trade-off with expenditures, but in this case the trade-off is against the future. While it looks like hurting society, consider the economic forces put in motion because this individual, with a desire to spend, now has the ability to do so. Just as an example, if everyone had to save their own cash to buy a house, the construction sector would be highly inefficient, volatile and people that want houses, even if they could pay in a few years, would stay homeless.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;It has more to do with the social value of banks than of lending, but let's have a stab. Indeed, A and B may come into an agreement. This has a couple of hidden assumptions. Say:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;A can appraise (a) the investment risk and (b) person B's inherent risk. In practice, a bank is more likely to know and evaluate those two risks.&lt;/li&gt;&#xA;&lt;li&gt;A knows and performs risk mitigation strategies like insurance, maybe even building reinforced walls for preventing theft.&lt;/li&gt;&#xA;&lt;li&gt;A has enough money to finance B's needs. In practice, there are very few individuals with enough money; banks pool money from different lenders.&lt;/li&gt;&#xA;&lt;li&gt;A knows B. Usually, time and space constraints interfere with this.&lt;/li&gt;&#xA;&lt;/ol&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="7857" LastActivityDate="2017-08-22T21:04:58.163" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17942" PostTypeId="1" AcceptedAnswerId="17950" CreationDate="2017-08-22T22:32:42.757" Score="4" ViewCount="116" Body="&lt;p&gt;I have a vague recollection I am unsuccessfully trying to find an exact reference for.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I recall watching an interview of Jacques Attali about a new book of his (maybe 6 or 7 years ago) where he mentioned scholars who once (around 1700?) were convinced that economic growth would stop, not because of limits to technological progress, but because of satiation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As I recall it, the argument from these scholars was something like &quot;we may be able to produce 10 times more food, but there's only so much food an individual can eat in a day, so we'll never get to such levels of production because of a lack of demand&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course, we know that these scholars missed a number of important points, the main one being that growth occurs not only through producing more of the same old good, but by increasing the quality of these goods and by creating entirely new goods (which can easily break the satiation argument).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am not interested in a discussion of the argument per se. Rather, I am looking for precise references (if any) to people who actually argued (or maybe are still arguing) about the purported &quot;satiation&quot; limit to growth.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Bonus points if someone can point me to Attali's interview or to the book where he mentions these people.&lt;/p&gt;&#xA;" OwnerUserId="38" LastEditorUserId="38" LastEditDate="2017-08-23T00:54:01.977" LastActivityDate="2021-04-01T09:59:18.037" Title="Who said that growth would stop because of satiation?" Tags="&lt;reference-request&gt;&lt;history-economic-thought&gt;&lt;economic-growth&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17943" PostTypeId="1" CreationDate="2017-08-23T01:11:52.477" Score="3" ViewCount="23" Body="&lt;p&gt;Sometimes, when a public company allegedly does something wrong/illegal/etc, the investors of the company organise a class action suit against the company, such as the Commonwealth Bank of Australia (CBA) &lt;a href=&quot;http://www.canberratimes.com.au/business/banking-and-finance/cba-facing-potential-class-action-over-disclosure-of-laundering-allegations-20170821-gy196d.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;currently&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The Commonwealth Bank faces a potential investor class action over its&#xA;  disclosure of more than 53,000 alleged breaches of anti-money&#xA;  laundering laws, following a sharp fall in its share price when the&#xA;  scandal emerged earlier this month.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This confuses me, as (to my understanding). The people who own the CBA are suing the CBA.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If they win the case, money gets given from the CBA to the owners of the CBA, presumably in proportion to how much stock they own. This appears to be identical to a dividend, except of course for who decides how much should be distributed. A class action also transfers some of that money to lawyers and courts.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, I would appreciate if someone can either answer the below questions, or point out some flaw in my assumptions/understanding that makes all of the questions irrelevant.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) Does the money in a successful class action indeed go from the company, to the people who own the company, in proportion to their share in the company?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) In the long term, is someone who takes part in and wins a class action suit any richer than if the class action doesn't go ahead? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;3) If 2) is yes, is there some other entity that is poorer?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;4) If 3) is yes, who?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;5) Does a company's stock usually drop when a class action is announced, because the company will have a new expense? Does it usually rise, because investors want to receive the class action payout? Or does it do neither, because these two effects cancel?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;6) Is there anything to stop the company simply recouping the class action payout by dropping their dividend? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;7) If 6 is yes, does this happen commonly?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;8) Depending on the answer to all of the above, why would people organise a class action suit? As opposed to taking some action against those that they perceive to be at fault (calling for the resignation/reduced salary for the executives considered responsible)&lt;/p&gt;&#xA;" OwnerUserId="6459" LastEditorUserId="2776" LastEditDate="2017-08-23T06:08:53.033" LastActivityDate="2017-08-23T06:08:53.033" Title="What is a stockholder class action for?" Tags="&lt;stock-market&gt;&lt;law&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17945" PostTypeId="2" ParentId="6894" CreationDate="2017-08-23T06:31:48.850" Score="0" Body="&lt;p&gt;The list of references is long. Below some citations from &lt;a href=&quot;https://cris.maastrichtuniversity.nl/portal/files/11867448/content&quot; rel=&quot;nofollow noreferrer&quot;&gt;this&lt;/a&gt; 2017 article:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Studies estimating production functions&#xA;  based on industry-level data find mixed evidence for the returns to working&#xA;  hours. Whereas some studies find increasing returns to hours (Feldstein,&#xA;  1967; Craine, 1973; Leslie, 1984), which could be the result of not taking&#xA;  capacity utilisation rates into account (e.g. Tatom, 1980), or be due to aggregation&#xA;  bias (e.g. DeBeaumont and Singell, 1999), other studies conclude&#xA;  that output is roughly proportional to hours worked per worker (Hart and&#xA;  McGregor, 1988; Anxo and Bigsten, 1989; Ilmakunnas, 1994). The majority&#xA;  of studies, however, find evidence of decreasing returns to hours (e.g. Leslie&#xA;  and Wise, 1980; Tatom, 1980; DeBeaumont and Singell, 1999; Shepard and&#xA;  Clifton, 2000).&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;A few studies use panels of firms to estimate the link between&#xA;  working time and firm or establishment productivity (Crepon et al., 2004;&#xA;  Schank, 2005; Kramarz et al., 2008; Gianella and Lagarde, 2011). They&#xA;  tend to find that output is roughly proportional to the number of hours&#xA;  worked.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Studies using data about individual workers in a firm, or about workers&#xA;  in comparable firms date back to the early 20th century [...]  (Goldmark,&#xA;  1912; Vernon, 1921; Kossoris, 1947). More recently, [...] Crocker and Horst (1981) find that output is proportional&#xA;  to hours worked, Brachet et al. (2012), Pencavel (2015), and Dolton et al.&#xA;  (2016) find evidence of decreasing returns to hours. A contrasting result is&#xA;  found by Lu and Lu (2016).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;That same article is the latest paper available on the topic, which also finds a negative effect of working hours on productivity, this time for call-centre workers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is also this quote from a New Economics Foundation &lt;a href=&quot;http://neweconomics.org/wp-content/uploads/2016/10/BUILDING_A_NEW_ECONOMY.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;report&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In Gothenburg, Sweden’s second largest&#xA;  city, workers at the&#xA;  Svartedalens retirement home and&#xA;  the Toyota car factory have been&#xA;  working a 30-hour week. Nurses&#xA;  at the care home who worked&#xA;  six-hour days were happier than&#xA;  a comparable group on standard&#xA;  hours, and had more energy at&#xA;  work and in their spare time. They&#xA;  took half as much sick leave and&#xA;  were able to spend much more time&#xA;  undertaking activities with residents.&#xA;  At the Toyota factory, where a&#xA;  30-hour week was introduced a&#xA;  decade ago, staff now produce in 30&#xA;  hours 114% of what they used to&#xA;  produce in 40 hours. These results&#xA;  are encouraging other employers, in&#xA;  Sweden and elsewhere, to reduce&#xA;  working hours.  &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Unfortunately, they do not provide the references.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-08-23T06:31:48.850" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17947" PostTypeId="2" ParentId="17928" CreationDate="2017-08-23T07:32:18.083" Score="5" Body="&lt;p&gt;I think the terminology below is pretty unambiguous and also common: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;blockquote&gt;&#xA;  &lt;p&gt;a &lt;strong&gt;shift&lt;/strong&gt; in the demand &lt;strong&gt;curve&lt;/strong&gt; &lt;/p&gt;&#xA;&lt;/blockquote&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;to refer to movements from $D$ to $\tilde D$ (using shift is quite more specific than using change, as it more clearly refer to a change in the whole demand schedule).&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;blockquote&gt;&#xA;  &lt;p&gt;a movement &lt;strong&gt;along&lt;/strong&gt; the demand &lt;strong&gt;curve&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;to refer to changes in $D(P)$ induced by movements in the supply curve (this I normally do it by showing the &quot;dynamics&quot; in the graph, from the original equilibrium to the new equilibrium &lt;strong&gt;along&lt;/strong&gt; the demand curve). &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;blockquote&gt;&#xA;  &lt;p&gt;a &lt;strong&gt;change&lt;/strong&gt; in the &lt;strong&gt;quantity demanded&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;to compare different $D(P)$ &lt;strong&gt;in the horizontal axis&lt;/strong&gt;. A mention to the concept of equilibrium can be useful here too. For example, &lt;em&gt;a change in the final/equilibrium quantity&lt;/em&gt;. Here the demanded adjective is in a sense redundant, as in the equilibrium the quantity demanded and supplied is the same, but if you are being very forma as in $D(P)=S(P)$ then its fine. This terminology is different from the first one (shift in the demand curve) in the sense that the latter is a &lt;em&gt;ceteris paribus&lt;/em&gt; exercise, whereas the former is not (unless supply is perfectly in/elastic).&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Regarding your question about whether to use the textbook's proposed terminology, I would not advice so. First of all, it is not clear what the authors propose to use to refer to changes in $D(P)$ induced by &quot;changes in the demand [curve]&quot;. Why to have a separate notation for such changes and those induced by changes in the supply? That is very arbitrary. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Additionally, as their restrictive terminology is probably not the one you are used to (judging by question and comments), forcing you to adopt such &lt;strong&gt;incomplete&lt;/strong&gt; terminology (which is likely not to come to you naturally) might confuse your students because you might not always consistently use it. Provided you want to keep using that textbook, I would tell them something like &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;beware of this very restrictive termonology issue, which is uncommon in other books. More common instead is this terminology, and what I normally use is this. In any case, all this is not very relevant for understanding. In your answers, always explain what you mean, ideally with the aid of annotated graphs. Correct answers (mostly) do not depend on terminology.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-08-23T15:16:10.140" LastActivityDate="2017-08-23T15:16:10.140" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="17948" PostTypeId="1" AcceptedAnswerId="17949" CreationDate="2017-08-23T09:24:01.677" Score="2" ViewCount="58" Body="&lt;p&gt;Can anybody provide a reliable source that gives data on retail markups? My end goal is to make a fairly high-level statement along the lines of &quot;a typical retail markup (across all industries) is X%&quot;, or &quot;the average markup in industry Y is X%&quot;, so fairly aggregated data would be fine.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2017-09-01T08:07:08.903" Title="Data on average/typical retail markups" Tags="&lt;data-request&gt;&lt;pricing&gt;&lt;retail-economics&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17949" PostTypeId="2" ParentId="17948" CreationDate="2017-08-23T10:36:30.673" Score="3" Body="&lt;p&gt;I recommend the &lt;a href=&quot;http://www.comp-net.org/data/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Comp-Net database&lt;/a&gt;. It is a firm-level data for European countries. It includes a large range of variables, including mark-ups:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/E5e0J.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/E5e0J.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Check the &lt;a href=&quot;https://www.ecb.europa.eu/home/pdf/research/compnet/CompNet-database-user_guide-round4.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;documentation&lt;/a&gt; for more details.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Many researchers have also used the &lt;a href=&quot;https://www.bvdinfo.com/en-us/our-products/company-information/international-products/amadeus&quot; rel=&quot;nofollow noreferrer&quot;&gt;Amadeus database&lt;/a&gt;, also for Europe. A nice summary about it is &lt;a href=&quot;http://www.nber.org/data/international-finance/Sebnem.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the US, take a look at &lt;a href=&quot;http://www.janeeckhout.com/wp-content/uploads/RMP.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;this paper&lt;/a&gt;. The authors use three different sources of markups: Compustat, NBER Census of Manufacturing, and IRS (Inland Revenue Service). The first two are micro-data whereas the latter is aggregate at industry level.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-09-01T08:07:08.903" LastActivityDate="2017-09-01T08:07:08.903" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17950" PostTypeId="2" ParentId="17942" CreationDate="2017-08-23T11:06:58.250" Score="5" Body="&lt;p&gt;In an essay entitled &lt;a href=&quot;https://www.aspeninstitute.org/wp-content/uploads/files/content/upload/Intro_and_Section_I.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Economic Possibilities for Our Grandchildren&lt;/a&gt;, Keynes famously argued that people would one day only need to work 15 hours per week (see bottom of p 4).  This was linked to an argument about satiation (see p 3, half way down), although he was careful to say that this applies to absolute needs, and that relative needs (ie needs to feel superior to others) may be insatiable.&lt;/p&gt;&#xA;&lt;p&gt;Note that Keynes' essay is just pages 1-4 of the linked document.&lt;/p&gt;&#xA;" OwnerUserId="1417" LastEditorUserId="1417" LastEditDate="2021-03-31T20:58:13.373" LastActivityDate="2021-03-31T20:58:13.373" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="17951" PostTypeId="2" ParentId="6894" CreationDate="2017-08-23T14:22:09.827" Score="0" Body="&lt;p&gt;This question, as is, does not particularly describe a well-defined hypothetical.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Am I paying people a higher rate for more hours? The change in productivity might be a net positive or negative if wages rise, depending on the time allocation of the worker. Where is the change in working hours happening? If I go from 1 minute of work to 1 hour of work, productivity would presumably increase because of the time it takes to get into a state of mind to work.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These kinds of things that are needed to answer your question is related to the &lt;strong&gt;time allocation of labor, leisure, and household work&lt;/strong&gt; as posited by &lt;a href=&quot;http://www.jstor.org/stable/2228949&quot; rel=&quot;nofollow noreferrer&quot;&gt;Gary Becker in 1965&lt;/a&gt;. It has been revisited again by &lt;a href=&quot;http://agecon2.tamu.edu/people/faculty/capps-oral/agec%20635/Readings/Leisure,%20Home%20Production,%20and%20Work%20the%20Theory%20of%20the%20Allocation%20of%20Time%20Revisited.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Gronau, 1977&lt;/a&gt; and so on. If I am increasing working hours, I have to decrease activity in household production and leisure, so in order to say whether productivity increases if working hours increase, you have to answer what causes the marginal value of work to increase so that people willingly take on more work and less leisure.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If something like a technological advancement makes it easier for me to work, I may become more productive, but willingly take on less hours to do my work if I am on a salary/commission. This does mean the inverse, that more hours would make me less productive per se, would be true. If I am on a hourly rate, technology that makes it easier to work changes my marginal cost of effort, which changes the opportunity cost of leisure or household work. So maybe I'll take on more work in this case and become more productive.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;The question isn't whether higher working hours decreases productivity. The question is why workers change working hours, and whether those voluntary changes overlap with productivity changes. The &quot;effect&quot; of extra hours on productivity, is ambiguous.&lt;/em&gt;&lt;/p&gt;&#xA;" OwnerUserId="4251" LastEditorUserId="4251" LastEditDate="2017-08-23T14:45:21.277" LastActivityDate="2017-08-23T14:45:21.277" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="17952" PostTypeId="1" CreationDate="2017-08-23T14:52:01.590" Score="0" ViewCount="139" Body="&lt;p&gt;I know that GDP can be calculated from the national accounts using data which says how much of each industry's output was bought by each other industry.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But how is this kind of supply/use data gathered? Is it via questionnaire?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If so, is a random sample of businesses quizzed, or does every business have to submit data on what they bought and from whom?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where is this data-gathering process documented? (For, e.g., the UK.)&lt;/p&gt;&#xA;" OwnerUserId="7660" LastActivityDate="2017-08-24T10:05:45.347" Title="Who gathers the production/use data that makes up GDP? And how?" Tags="&lt;gdp&gt;&lt;national-accounts&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17953" PostTypeId="2" ParentId="17952" CreationDate="2017-08-23T15:02:00.910" Score="1" Body="&lt;p&gt;Answering to the &lt;strong&gt;who&lt;/strong&gt;: the GDP is usually calculated by a statistics agency of the government. In the US it is the America’s &lt;a href=&quot;https://www.bea.gov/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Bureau of Economic Analysis&lt;/a&gt;; in Britain, it is the &lt;a href=&quot;https://www.ons.gov.uk/economy/grossdomesticproductgdp&quot; rel=&quot;nofollow noreferrer&quot;&gt;Office for National Statistics&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;About how it is done &lt;em&gt;in practice&lt;/em&gt;, take a look at this question: &lt;a href=&quot;https://economics.stackexchange.com/questions/12311/how-to-measure-gdp-in-practice/17812#17812&quot;&gt;https://economics.stackexchange.com/questions/12311/how-to-measure-gdp-in-practice/17812&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="12304" LastActivityDate="2017-08-23T15:02:00.910" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17954" PostTypeId="2" ParentId="17952" CreationDate="2017-08-23T16:57:23.007" Score="2" Body="&lt;p&gt;In the UK, which uses what is know as &quot;the output approach&quot;, the Office for National Statistics (ONS) sends out around 45,000 surveys to business, called the &lt;a href=&quot;https://www.ons.gov.uk/surveys/informationforbusinesses/businesssurveys/monthlybusinesssurveyproductionandservices&quot; rel=&quot;nofollow noreferrer&quot;&gt;Monthly Business Survey&lt;/a&gt; (MBS).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The ONS claims that this covers &quot;&lt;a href=&quot;http://webarchive.nationalarchives.gov.uk/20160105180543tf_/http://www.ons.gov.uk/ons/rel/mro/news-release/ons-unveils-plans-to-replace-business-surveys-with-vat-returns/vat-news-release.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;around 55% of the economy.&lt;/a&gt;&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this survey, questions about turnover and purchases are asked which then allow the ONS to assign total outputs and intermediate expenditures to industry classifications. In the case of the ONS, they use Standard Industrial Classification (&lt;a href=&quot;https://www.ons.gov.uk/methodology/classificationsandstandards/ukstandardindustrialclassificationofeconomicactivities/uksic2007&quot; rel=&quot;nofollow noreferrer&quot;&gt;UK SIC 2007&lt;/a&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is a separate survey for construction called the &lt;a href=&quot;http://www.ons.gov.uk/ons/about-ons/get-involved/taking-part-in-a-survey/information-for-businesses/a-to-z-of-business-surveys/monthly-business-survey--construction-and-allied-trades-/index.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Construction Output Survey&lt;/a&gt;, and there are additional forecasts and models to fill in the gaps.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These output and expenditure estimates are then deflated by things like the Consumer Price Index (CPI) to produce an inflation-adjusted GDP figure.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;More detail on this process along with many more links to data sources is available in &lt;a href=&quot;https://www.ons.gov.uk/economy/grossdomesticproductgdp/qmis/grossdomesticproductgdpqmi&quot; rel=&quot;nofollow noreferrer&quot;&gt;the GDP quality and measurement information&lt;/a&gt; document.&lt;/p&gt;&#xA;" OwnerUserId="7660" LastActivityDate="2017-08-23T16:57:23.007" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17955" PostTypeId="2" ParentId="17940" CreationDate="2017-08-23T17:47:46.540" Score="0" Body="&lt;p&gt;I've seen the Tornqvist used as many measures of total factor productivity but have not seen it in conjunction with the Solow growth model. My understanding of how the Solow growth models measures TFP is by having values for economic output, labout and capital, and assigning the disparity to TFP.&lt;/p&gt;&#xA;" OwnerUserId="4808" LastActivityDate="2017-08-23T17:47:46.540" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="17956" PostTypeId="2" ParentId="6894" CreationDate="2017-08-23T17:53:34.970" Score="0" Body="&lt;p&gt;It might be interesting for you to compare different countries. French and German workers for example have worked less and less hours per year in the last decades whereas in the UK and US it has remained relatively stable. Only in UK has productivity not increased substantially from 2000-2015. For many years US labor productivity was below that of France and Germany. This has changed since 2000 (I presume the global crises played a major role but I am not an expert). Cf. &lt;a href=&quot;http://piketty.blog.lemonde.fr/2017/01/09/of-productivity-in-france-and-in-germany/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Thomas Piketty, 9 January 2017, &quot;Of productivity in France and in Germany&quot;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="14298" LastActivityDate="2017-08-23T17:53:34.970" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17957" PostTypeId="2" ParentId="9342" CreationDate="2017-08-23T19:32:21.143" Score="1" Body="&lt;p&gt;In Germany in crisis times working shorter hours (short-time work, Kurzarbeit) can be used by firms to prevent layoffs. There are legal regulations how labor unions need to be consulted on how this is done. It has been argued that this has helped to overcome the 2008 crisis better than some other countries, e.g.: &lt;a href=&quot;https://www.brookings.edu/bpea-articles/what-explains-the-german-labor-market-miracle-in-the-great-recession-the-evolution-of-inflation-dynamics-and-the-great-recession/&quot; rel=&quot;nofollow noreferrer&quot;&gt;&quot;What Explains the German Labor Market Miracle in the Great Recession? The Evolution of Inflation Dynamics and the Great Recession&quot;, Brookings Papers in Economic Activity, Spring 2011, Michael C. Burda &amp;amp; Jennifer Hunt&lt;/a&gt;; &lt;a href=&quot;https://www.boeckler.de/pdf/p_imk_wp_114_2013.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;&quot;Explaining the German Employment Miracle in the Great Recession – The &#xA;Crucial Role of Temporary Working Time Reductions&quot;, Alexander Herzog-Stein, Fabian Lindner, Simon Sturn, June 2013&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="14298" LastEditorUserId="14298" LastEditDate="2017-08-23T20:06:29.740" LastActivityDate="2017-08-23T20:06:29.740" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17958" PostTypeId="2" ParentId="17940" CreationDate="2017-08-23T19:49:26.740" Score="0" Body="&lt;p&gt;The index is just that, a dimensionless series of numbers (constructed in a &lt;a href=&quot;https://en.wikipedia.org/wiki/T%C3%B6rnqvist_index&quot; rel=&quot;nofollow noreferrer&quot;&gt;particular form&lt;/a&gt;). I'm not sure how deep that can go. For instance, if I have a series of prices, say \$1.5 in year 1 and \$3 in year 2, you can turn that into an index like 100 and 200 respectively. The index has no units. It just maps the growth rates of the underlying series into a fixed base (in the example above, 100 in year 1). If you happen to know the original series, you can recover the units of the series.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, the natural question that follows is, what are the units of $A$?&#xA;In an aggregate production function $Y=F(A,K,L)$, the units and the dimension of $A$ depends on the unit and dimension of the other factors. For example, if $Y$ is units of output per year, $K$ is units of capital per year, and $L$ is number of hours worked per year, then the unit of $A$ is a function of units of output over units of capital and hours. However, if you change $L$ from hours to workers using some transformation (e.g. average working hours), the units of $A$ change too. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, since it seems you want to compute $Y$, and because you have both (i) obtained an index for $A$ (ii) that is probably not related to the series of $K$ and $L$ you will use to compute $Y$, the units of $Y$ will not have direct meaning. This is, you cannot deduce that the resulting quantity of $Y$ corresponds to, say, millions of Euros per year. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this bad? Not really, if you are interested in computing the &lt;strong&gt;growth rate&lt;/strong&gt; of $Y$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, is this a logical method to compute $Y$? Absolutely not. Lee Sin's comment is entirely pertinent. &lt;strong&gt;You are given $Y$ in national statistics&lt;/strong&gt;. Why to compute it? Instead, what you want is to study the determinants of growth, which goes into estimating $A$ using methods like &lt;a href=&quot;https://en.wikipedia.org/wiki/Growth_accounting&quot; rel=&quot;nofollow noreferrer&quot;&gt;Growth accounting&lt;/a&gt;. That is a field as old as the &lt;a href=&quot;http://www2.econ.iastate.edu/classes/econ521/Orazem/Papers/cobb-douglas.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Cobb and Douglas production function&lt;/a&gt; itself (probably older).&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-08-23T19:49:26.740" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="17959" PostTypeId="2" ParentId="9342" CreationDate="2017-08-23T20:12:39.687" Score="1" Body="&lt;p&gt;Your question seems to be asking from a social planner perspective, as if the economic system could be freely designed. Let me offer you one from a Marxist perspective. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is no interest from the capitalist class (&lt;strong&gt;very&lt;/strong&gt; bluntly speaking, business owners + right-wing politicians + an important sector of the media) in lowering unemployment, because the latter acts as a check to the power of labour, and in favour of the power of capital. This enable the latter to appropriate a higher proportion of total surplus (value added), known as the capital share (opposite to the &lt;a href=&quot;https://en.wikipedia.org/wiki/Wage_share&quot; rel=&quot;nofollow noreferrer&quot;&gt;labour share&lt;/a&gt;). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, a fall in unemployment it is not in the interest of those with the &lt;a href=&quot;https://academic.oup.com/poq/article-abstract/80/S1/225/2223338/Representing-the-Preferences-of-Donors-Partisans?redirectedFrom=fulltext&quot; rel=&quot;nofollow noreferrer&quot;&gt;largest influence&lt;/a&gt; in regulation and politics in general.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Historically, at the beginning of industrial capitalism up until the introduction of labour laws in the early twentieth century, the working week was of six days, and the working day was of 12 hours. Even children worked. The reduction of such patters to modern ones could be argued to have reduced the rate of profit of the capitalist class (an empirical question).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can read more about this perspective &lt;a href=&quot;https://www.socialist.net/marx-s-capital-chapters-9-11-exploitation-and-the-working-day.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;, and (a more bizarre argument) &lt;a href=&quot;https://therealmovement.wordpress.com/2015/04/03/a-dagger-aimed-at-the-heart-of-capitalism/&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;PS: surely, some could argue that a more healthy and happy workforce is more productive, to the benefit of businesses, and so there are incentives within the system for it to move towards a lower working week. My (limited) knowledge of history tells me that most of the reductions in worker week have come through labour movements and not businesses initiatives nor through right-wing government.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-08-23T20:12:39.687" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17960" PostTypeId="2" ParentId="5483" CreationDate="2017-08-23T20:21:28.837" Score="0" Body="&lt;p&gt;This is the brain drain vs brain gain discussion, there is a huge literature on this, e.g. &lt;a href=&quot;http://dx.doi.org/10.1111/j.1468-0297.2008.02135.x&quot; rel=&quot;nofollow noreferrer&quot;&gt;&quot;Brain Drain and Human Capital Formation in Developing Countries: Winners and Losers&quot;, Michel Beine, Fréderic Docquier and Hillel Rapoport, Economic Journal 2008&lt;/a&gt;. A further point that is brought up is increased incentives to build human capital because of potential higher payoffs abroad. Higher individual human capital, not only of those who remain at home but also of those who return (and have built networks), has spillover effects and benefits for society as a whole. It has been argued that this is helpful for countries with huge population such as India where not everyone with high skills can leave. For smaller countries the loss of the highly skilled, especially in the medical sector, is often a substantial problem. One country (I think it was the Philippines) even temporarily stopped teaching English to nurses because of a lack of them at home due to the constant outflow because of better earnings perspectives abroad. With the financial crisis it seems many however got stuck at home because of reduced chances elsewhere.&lt;/p&gt;&#xA;" OwnerUserId="14298" LastActivityDate="2017-08-23T20:21:28.837" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="17962" PostTypeId="1" CreationDate="2017-08-24T00:08:39.570" Score="3" ViewCount="141" Body="&lt;p&gt;The government and media seem to judge whether it is in a good economy right now based on its quarterly GDP figure.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, I wonder how its figure is trustworthy. Even if the quarterly GDP is +1.2%, the actual figure should be +0.3 to +1.9% in 95% CI. Or -0.8% to 3.0%. Or something like that. But the point is that it should never be at the exact point, especially given that the figure is frequently updated later.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So how much standard error is it considered to include?&lt;/p&gt;&#xA;" OwnerUserId="5432" LastActivityDate="2017-10-23T07:29:26.437" Title="What is the standard error on quarterly GDP figure?" Tags="&lt;gdp&gt;&lt;statistics&gt;" AnswerCount="1" CommentCount="2" ClosedDate="2017-11-02T20:38:30.270" ContentLicense="CC BY-SA 3.0" />
  <row Id="17963" PostTypeId="1" CreationDate="2017-08-24T01:52:11.970" Score="2" ViewCount="271" Body="&lt;p&gt;Lets say that the government decides to pay some of its expenses by printing money*. This (according to some schools of thought) effectively increases the inflation rate and devalues the value of the country's currency. So the government skims off a little bit from the whole country's money &amp;amp; the money everyone had is worth a bit less.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So we have a weird indirect form of taxation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Would this form of taxation be:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Regressive  (taxing the 'poor' disproportionately) &lt;/li&gt;&#xA;&lt;li&gt;Progressive (taxing the 'rich' disproportionately) &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;*Not actually printing, but you get what I mean.&lt;br/&gt;&#xA;*Lets assume the amount created is below the amount which would trigger hyper-inflation.&lt;/p&gt;&#xA;" OwnerUserId="11558" LastEditorUserId="11558" LastEditDate="2017-08-24T21:06:29.467" LastActivityDate="2017-08-24T22:22:45.567" Title="Is printing money to pay government expenses regressive or progressive taxation?" Tags="&lt;inflation&gt;&lt;taxation&gt;" AnswerCount="2" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="17964" PostTypeId="2" ParentId="17962" CreationDate="2017-08-24T06:57:09.433" Score="1" Body="&lt;p&gt;Good question! &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've never seen standard errors reported alongside official figures (e.g. &lt;a href=&quot;https://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; for US, &lt;a href=&quot;https://www.ons.gov.uk/economy/grossdomesticproductgdp/bulletins/quarterlynationalaccounts/jantomar2017&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; for UK). You would expect they could calculate/report them, since GDP is computed from samples (so randomness is explicitly involved in the design). It is more common to see standard errors reported for GDP forecasts though. For example, check Figure 2.1 of the latest &lt;a href=&quot;http://www.bankofengland.co.uk/publications/Documents/inflationreport/2017/may.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Bank of England Inflation report&lt;/a&gt; (data &lt;a href=&quot;http://www.bankofengland.co.uk/publications/Documents/inflationreport/2017/may2.xlsx&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regarding GDP, what is very common however is the publication of &lt;strong&gt;revised figures&lt;/strong&gt;. That is something both the US and UK include in their quarterly reports (see links above), and also common in many (in not all) countries. Comparing actual and revised figures gives you an idea of the uncertainty involved on preliminary estimates. For example, in the release notes for quarterly GDP of the US economy (see link above), towards the end there is a section called &quot;Updates to GDP&quot;, which contains:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;BEA releases three vintages of the current quarterly estimate for GDP:  &quot;Advance&quot; estimates are&#xA;  released near the end of the first month following the end of the quarter and are based on source data&#xA;  that are incomplete or subject to further revision by the source agency; “second” and “third” estimates&#xA;  are released near the end of the second and third months, respectively, and are based on more detailed&#xA;  and more comprehensive data as they become available. [...]&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The table below shows the average revisions to the quarterly percent changes in real GDP between&#xA;  different estimate vintages, without regard to sign.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/7mGgE.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/7mGgE.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The Bank of England also provides its estimates of the past uncertainty (what they call &quot;backcast&quot;, in opposition to &quot;forecast&quot;). This is available in the last sheet of &lt;a href=&quot;http://www.bankofengland.co.uk/publications/Documents/inflationreport/2017/may2.xlsx&quot; rel=&quot;nofollow noreferrer&quot;&gt;this dataset&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another interesting example comes from the Euro Area. Eurostat produces quarterly &quot;&lt;a href=&quot;http://ec.europa.eu/eurostat/statistics-explained/index.php/Preliminary_GDP_flash_estimate_in_30_days_for_Europe&quot; rel=&quot;nofollow noreferrer&quot;&gt;Preliminary GDP flash estimates&lt;/a&gt;&quot; for the Euro Area for selection of periods: 30, 45, and 60 days after the end of the quarter. As the page states, there is &quot;a trade-off between timeliness and accuracy&quot;. An example of subsequent revisions are:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/dHopD.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/dHopD.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-08-24T07:11:27.143" LastActivityDate="2017-08-24T07:11:27.143" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17965" PostTypeId="2" ParentId="17963" CreationDate="2017-08-24T07:02:46.247" Score="4" Body="&lt;p&gt;It rather depends on what happens to wages and interest rates, a &lt;em&gt;ceteris paribus&lt;/em&gt; issue, and who you identify as &quot;rich&quot; or &quot;poor&quot;: for example current workers borrowing to buy a house tend to be richer than the unemployed but poorer than those with large savings.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;If wages fail to rise then existing workers may lose from this with their pay falling in real terms (while new workers resulting from the increased expenditure could gain)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;If interest rates fail to rise then existing holders of money may lose with the value their assets falling in real terms (while existing borrowers may gain as they have to repay less in real terms)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;If both rise to reflect the impact of inflation, it is much harder to identify who is bearing the cost&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Incidentally, the extent to which moderate unfunded increases in government expenditure actually affects inflation is an empirical question and the evidence is not conclusive&lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2017-08-24T07:02:46.247" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17967" PostTypeId="2" ParentId="9342" CreationDate="2017-08-24T09:01:21.880" Score="-2" Body="&lt;p&gt;No, it will not works without subsidies in place.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is no causation-correlation between a lower working hour and unemployment rates. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Employment, as in ideal fundamental economic conditions, is allocated suitable task for a person to produce the output that benefits others, which &quot;rewards&quot; is given accordingly. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;in labor intensive economy, employments are created by the supply and demands of the economy.  In such environment, it is possible to &quot;scale down&quot; workforce by cutting work hours and adjust the paycheck accordingly.   However, this will not work to save &quot;employments&quot; if the production replaces by game changing technology advancement/product obsolescence. &#xA;Another reason that forbids short work hour is the environments cause.  Let see some example:  &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;a farmer cannot afford to work &quot;shorter hour&quot; on various task. However, automated agriculture equipment might be splinter to shorter work hours to watch out equipment breakdown alert. &lt;/li&gt;&#xA;&lt;li&gt;Lots of machinery need a dry run before starting the actual production. A frequent restart to accommodate the shorter working hour is not practical and it is costly. &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Ironically, lower working hour to prevent immediate layoff works on the bureaucrat,  e.g. many developing countries are using such strategy to prevent immediate cut down of the workforce due to automation task, cutting down of red tapes. However, this comes into expenses of tax payer money. Some countries even resort to printing money to support such policies(i.e. the infamous Zimbabwe). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For developing countries, the &quot;head count&quot; subsidies are done by creating various grants for research and developments. But this depends on the socio-economy-knowledge structure, i.e. you cannot create a grant that one doesn't have enough knowledgeable personnel(with related knowledge on such fields)  to move around. &lt;/p&gt;&#xA;" OwnerUserId="11177" LastEditorUserId="11177" LastEditDate="2017-08-24T10:03:28.990" LastActivityDate="2017-08-24T10:03:28.990" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17968" PostTypeId="2" ParentId="17952" CreationDate="2017-08-24T10:05:45.347" Score="0" Body="&lt;p&gt;The &lt;a href=&quot;https://unstats.un.org/unsd/nationalaccount/sna.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;System of National Accounts&lt;/a&gt; (SNA) is the international standard regarding measurement and dissemination of National Accounts. It is produced by the United Nations. It's latest edition is 2008.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Chapter 14 in &lt;a href=&quot;https://unstats.un.org/unsd/publication/SeriesF/seriesF_85.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;this manual&lt;/a&gt; provides a very detailed account of who and how these statistics are obtained. A summary is shown in the image below:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/eMQb9.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/eMQb9.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As the document states:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Data for national accounts come from three main sources:&lt;br&gt;&#xA;  a)   Administrative records;&lt;br&gt;&#xA;  b)   Statistical  methods:  data  obtained  by  extrapolating  survey  results  on  the  basis  of  a benchmark census, a complete enumeration of the entire population;&lt;br&gt;&#xA;  c)   Estimation methods in the national accounts departments. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Regarding administrative records, these come from:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;a)   Government   revenue   and   expenditure   statistics   (traditionally   compiled   by   the  ministry of finance on government budget);&lt;br&gt;&#xA;  b)   Foreign trade statistics (i.e., exports and imports of goods through customs);&lt;br&gt;&#xA;  c)   Money and banking statistics (traditionally compiled by the central bank);&lt;br&gt;&#xA;  d)   Report on insurance companies by the insurance regulatory authority;&lt;br&gt;&#xA;  e)   Tax  records,  with  limited  information  on  sales,  cost  of  sales  and  income  (processed by tax authority);&lt;br&gt;&#xA;  f)    Business  accounts  of  publicly  traded  corporations  submitted  to  the  stock  exchange regulation commission. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Data from statistical methods are based on census and surveys. So in effect, National Accounts &lt;strong&gt;do not include a sample of every single firm/household&lt;/strong&gt;. As the document states:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Surveys are based on a scientifically selected random sample from a population. Data for the &#xA;  population  is  obtained  by  blowing  up  the  sample  data  by  extrapolating  the  sample  size  to  the&lt;br&gt;&#xA;  population size. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Finally, estimation is also used to produce national accounts:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;There are three methods of estimation in national accounts for data that are not available in administrative records, censuses or surveys:&lt;br&gt;&#xA;  a)   Balancing item method;&lt;br&gt;&#xA;  b)   Commodity flow method;&lt;br&gt;&#xA;  c)   Benchmark ratio method. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;You can read more about these issues on the aforementioned chapter.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-08-24T10:05:45.347" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17969" PostTypeId="2" ParentId="17559" CreationDate="2017-08-24T13:28:24.933" Score="0" Body="&lt;p&gt;The growth rate of the economy should be calculated in the real term, so I would say you definitely should use real variables. For instance, the price went up 20% from last year, do you say that this economy grew by 20%? Maybe no. Thus, in this case you should use real variable for every variable you include.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;FYI, the growth rate of the real GDP can be well approximated by the 1st log difference in real GDP provided that the growth rate is close to zero. If this is the case for you, you can use the first log difference.&lt;/p&gt;&#xA;" OwnerUserId="14303" LastActivityDate="2017-08-24T13:28:24.933" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17970" PostTypeId="1" CreationDate="2017-08-24T13:42:47.030" Score="2" ViewCount="88" Body="&lt;p&gt;This might seem like an odd question but seeing as I haven't had any formal education in solving ratex models yet, it is something I have been thinking about a lot recently. Consider the following state space representation of an arbitrary model:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\Gamma_{0}y_{t} = \Gamma_{1}y_{t-1}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where the gamma's are coefficient vectors. To solve this system we can simply pre-multiply by $\Gamma_{0}^{-1}$, define $A =\Gamma_{0}^{-1} \Gamma_{1}$ and then decompose $A$ in to its Jordan canonical form $A = P \Lambda P^{-1}$. $\Lambda$ being a vector with eigenvalues on the diagonal and the P's being right and left eigenvectors. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am fine with applying this method to different models but I feel like I don't have the intuition pinned down. I don't quite understand &lt;em&gt;why&lt;/em&gt; I do this decomposition. If I have understood correctly, eigenvalues originate from differential equations where you assume the solution to be on the form $e^{\Lambda t}$ and I suppose that is fine. But then we have to ensure that the eigenvalues are less than one in absolute terms or in some cases that one is inside the unit circle while the other is outside. When solving linear difference equations I can appreciate why we need coefficients to be inside the unit circle (to prevent explosive behavior) but I don't understand how this links to eigenvalues.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So I suppose my question is: what do eigenvector and eigenvalues tell us about the system? Why do we even have to decompose $A$? Is there a visual representation? I am sure in physics eigenvectors have a 'visual' meaning. Is there a similar way to look at eigenvectors in economics? A while back I recall reading a paper that showed the relationship between eigenvectors and the number of initial conditions needed to solve a model. If anyone has references similar to this I would very much like to read them. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand that this question is quite vague but I am just trying to understand why I am doing what I am doing.&lt;/p&gt;&#xA;" OwnerUserId="11767" LastActivityDate="2017-08-24T13:42:47.030" Title="Visualising eigenvectors/values" Tags="&lt;mathematical-economics&gt;&lt;linear-algebra&gt;&lt;eigenvalue&gt;" AnswerCount="0" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17971" PostTypeId="2" ParentId="8279" CreationDate="2017-08-24T13:47:08.197" Score="0" Body="&lt;p&gt;Answering the questions on the title, high-interest rate of the central bank (or increasing the policy rate by the central bank) means that they are trying to suppress the economic activity in order to avoid high inflation. In most of the countries, the purpose of the central bank is to stabilize the price fluctuation. When they increase its rate, it will move other interest rates through financial agencies' activity. Higher interest rate can prevent firms to borrow more, thus the economy might become sluggish.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for your remarks about banking rate, there are two things to mention. Firstly, interest rate depends on its duration. Usually longer the duration, higher the interest rate. The policy rate is usually a very short one, so it might be natural that the policy rate and bank rate differs. Second, the policy rate can be to some extent thought as a risk-free rate while banking rate might include risk premium of that bank. This is why the bank rate is higher than policy rate.&lt;/p&gt;&#xA;" OwnerUserId="14303" LastEditorUserId="2776" LastEditDate="2017-08-24T14:37:30.823" LastActivityDate="2017-08-24T14:37:30.823" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="17972" PostTypeId="2" ParentId="17559" CreationDate="2017-08-24T15:19:24.303" Score="1" Body="&lt;p&gt;My experience is that most of the papers estimating these sort of regressions use real variables, all of them deflected with the same index. As Roy says, you not want to confound an effect by inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, assume the &quot;true&quot; model is that with variables in real terms:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ Y_t = \beta_0 + \beta_1 X_t $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Converting into nominal variables, you get:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ Y_tp_t = \beta_0 p_t + \beta_1 X_tp_t $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, a correct estimation of the &quot;true&quot; model when using nominal variables would require you to add prices as a regressor (or inflation if using log of differences). Thus, you have a further robustness check of your model by estimating it in nominal terms and adding inflations as a regressor.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Someone could rightly ask, what if the &quot;true&quot; model is in nominal terms? That is slightly odd though. Such model would be something like&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ Y_tp_t = \alpha_0 + \alpha_1 X_tp_t $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But say that there is a change in $p_t$ and in $X_t$ such that $X_tp_t$ remains unchanged. And yet, $Y_tp_t$ would change because of the change in $p_t$, withouth any right-hand side variable changing - a clear inconsistency.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-08-24T15:19:24.303" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17973" PostTypeId="1" CreationDate="2017-08-24T16:28:36.057" Score="2" ViewCount="220" Body="&lt;p&gt;If I have a sequential game, i.e. in each node (that I will call $t$) only one player choose an strategy from a finite space of strategies, Is it true there always exist a subgame perfect equilibrium in pure strategies? My intuition says me &quot;yes&quot;, because at node $t$ a player could take the strategies from $t+1$ as given, and order all the available options where at least one would be the best (may be not unique, of course). If what I say it is true, I would very grateful to know who makes the proof or where to find it.&lt;/p&gt;&#xA;" OwnerUserId="4463" LastEditorUserId="4463" LastEditDate="2017-08-25T18:37:05.883" LastActivityDate="2017-08-25T18:37:05.883" Title="Subgame Perfect Equilibrium with Pure Strategies in Sequential Games" Tags="&lt;game-theory&gt;&lt;nash-equilibrium&gt;&lt;dynamic-games&gt;" AnswerCount="0" CommentCount="4" ClosedDate="2017-09-01T22:17:17.507" ContentLicense="CC BY-SA 3.0" />
  <row Id="17974" PostTypeId="2" ParentId="17096" CreationDate="2017-08-24T17:56:30.143" Score="2" Body="&lt;p&gt;A big debate started after a flaw had been found in the conference paper &quot;&lt;a href=&quot;http://www.aeaweb.org/articles.php?doi=10.1257/aer.100.2.573&quot; rel=&quot;nofollow noreferrer&quot;&gt;Growth in a Time of Debt&lt;/a&gt;&quot; by Reinhart and Rogoff. There are &lt;a href=&quot;http://replication.uni-goettingen.de/wiki/index.php/Growth_in_a_Time_of_Debt_(AER_2010)&quot; rel=&quot;nofollow noreferrer&quot;&gt;several replications&lt;/a&gt; and many articles in the media and blog posts. Reinhart and Rogoff have the book &quot;This Time is Different&quot; on the topic and several well published articles, cf. &lt;a href=&quot;http://www.reinhartandrogoff.com/related-research/growth-in-a-time-of-debt-featured-in&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;. Research on the topic continues to be published in top journals, e.g. &quot;&lt;a href=&quot;http://dx.doi.org/10.1162/REST_a_00593&quot; rel=&quot;nofollow noreferrer&quot;&gt;Is There a Debt-Threshold Effect on Output Growth?&lt;/a&gt;&quot;, Review of Economics and Statistics 99:1, March 2017. You should look at the references and also at which papers have cited the ones you find important.&lt;/p&gt;&#xA;" OwnerUserId="14298" LastActivityDate="2017-08-24T17:56:30.143" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17975" PostTypeId="2" ParentId="8279" CreationDate="2017-08-24T18:15:06.410" Score="1" Body="&lt;p&gt;I think the answer to your question does not require reference to economic theory as you are trying to understand why Russians cannot borrow at low rates. The prevailing high rates are not there for suppressing business activity, etc. This is something to do with the risk appetite of Russian commercial banks when dealing with domestic businesses. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why are Russians facing rates as high as 25% when the base rate is 9%?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Central Bank's current base rate is 9%, also called repo rate. This rate is the main monetary tool used by CB to influence the interbank interest rates and the interest rates for loans, mortgages and savings. As you can see, the CB rate is low, but the commercial banks are adding huge premium (here it is 16%) to the base rate when lending to domestic businesses. Perhaps, they may face high default risks, political risk, high inflation, exchange rate risk, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a side note, this is a typical characteristic of a transition economy, that's said, Russians will face relatively high interest rates till they gain 'developed' status.&lt;/p&gt;&#xA;" OwnerUserId="6009" LastActivityDate="2017-08-24T18:15:06.410" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="17976" PostTypeId="1" CreationDate="2017-08-24T18:43:02.240" Score="1" ViewCount="858" Body="&lt;p&gt;I am confused about how to proceed about testing for cointegration. I am interested in testing for cointegration between 3 stock indices. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I was instructed to use returns and not prices. So my question is how do I proceed about identifying a cointegrating relationship since the definition is finding a combination of I(1) variables that is I(0). Since returns are I(0) because they are the first differences, can I still use the Johansen test?   &lt;/p&gt;&#xA;" OwnerUserId="14305" LastEditorUserId="2776" LastEditDate="2017-08-25T18:12:35.843" LastActivityDate="2017-08-25T18:12:35.843" Title="Johansen cointegration and VECM?" Tags="&lt;econometrics&gt;&lt;time-series&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17977" PostTypeId="2" ParentId="17976" CreationDate="2017-08-24T19:15:19.940" Score="0" Body="&lt;p&gt;Use log price indices to test for their degree of integration, should be &lt;em&gt;I(1)&lt;/em&gt; - try ADF unit root test. Once you determine the cointegration rank among log price indices, proceed with VECM model where you data will autamatically be differenced. Log difference is an approximation of growth rate, here stock returns.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What software package are you using?&lt;/p&gt;&#xA;" OwnerUserId="6009" LastActivityDate="2017-08-24T19:15:19.940" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="17978" PostTypeId="1" CreationDate="2017-08-24T19:55:29.200" Score="3" ViewCount="358" Body="&lt;p&gt;After testing for cointegration with Johansen test using the following code&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;[h,pValue,stat,cValue,mles] = jcitest(ret,'model','H1*','lags',4,'display','params')&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;I received this output:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;Data: prices&#xA;Effective sample size: 56&#xA;Model: H1*&#xA;Lags: 4&#xA;Statistic: trace&#xA;Significance level: 0.05&#xA;&#xA;&#xA;r  h  stat      cValue   pValue   eigVal   &#xA;----------------------------------------&#xA;0  1  40.5214   35.1929  0.0161   0.3350  &#xA;1  0  14.6781   20.2619  0.1453   0.1667  &#xA;2  0  5.4670    9.1644   0.1580   0.1091 &#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;So it rejects no cointegration. So I am running the VECM with rank 1 restriction: &lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;B = mles.r1.paramVals.B % Cointegrating relations with rank = 1 restriction&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;I get the following output:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;r = 1&#xA;------&#xA;A =&#xA;-0.6259&#xA;-0.2261&#xA;-0.0222&#xA;&#xA;B =&#xA;0.7081&#xA;1.6282&#xA;-2.4581&#xA;&#xA;B1 =&#xA;0.0579 1.0824 -0.8718&#xA;0.1182 0.4993 -0.5415&#xA;0.1050 0.1667 -0.1600&#xA;&#xA;B2 =&#xA;-0.5462 2.2436 -1.7723&#xA;-0.1518 0.6605 -0.6169&#xA;-0.1610 0.5966 -0.5366&#xA;&#xA;c0 =&#xA;2.2351&#xA;&#xA;c1 =-0.0366&#xA;0.0872&#xA;0.1444&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;How would I interpret this output and how do I move forward after estimating the parameters? (I have only displayed the r=1, and these are not the actual results, by I couldn't find any explanation behind them) &lt;/p&gt;&#xA;" OwnerUserId="14305" LastEditorUserId="2776" LastEditDate="2017-08-25T17:22:23.480" LastActivityDate="2017-10-28T12:48:19.910" Title="VECM interpretation in Matlab?" Tags="&lt;econometrics&gt;&lt;time-series&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17979" PostTypeId="2" ParentId="502" CreationDate="2017-08-24T21:25:23.790" Score="3" Body="&lt;p&gt;Part of this question is &quot;What is a a reputable economics journal?&quot; There are several rankings.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://ideas.repec.org/top/top.journals.simple.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;RePEc&lt;/a&gt; was mentioned above. Since this is based on citations and the RePEc database, especially when it comes to citations, is far from comprehensive, I would not rely on this too much.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thomson Reuters Social Science Citation Index is another source (that itself is not open access).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The above mentioned Elsevier has a service Scopus that ranks journals and also &lt;a href=&quot;https://www.scopus.com/sources?sortField=metric&amp;amp;metricName=RP&amp;amp;openAccessDisplay=Y&amp;amp;subjectArea=2000&amp;amp;openAccessDisplayCheckBox=Y&quot; rel=&quot;nofollow noreferrer&quot;&gt;lists open access ones&lt;/a&gt;. As you see in the complete list there are many non-English-language open access economics journals and the ranking changes quite a bit according to what score you choose.&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;2017&#xA;Journal    CiteScore  SJR  SNIP&#xA;----------------------------------&#xA;ClinicoEconomics and Outcomes Research    2.18  0.861  1.003 &#xA;Theoretical Economics    1.97   5.511   2.203&#xA;Judgment and Decision Making     1.89   1.491   1.255&#xA;Wine Economics and Policy    1.78   0.539   1.658&#xA;Quantitative Economics    1.73  3.742   1.655&#xA;Review of Development Finance    1.30   0.452   1.787&#xA;Borsa Istanbul Review    1.02   0.372   1.276&#xA;Economics and Sociology    1.01     0.617   1.091&#xA;International Journal of Energy Economics and Policy    0.98    0.503   0.628&#xA;Agricultural and Resource Economics Review    0.93  0.400   1.030&#xA;IIMB Management Review    0.90  0.227   1.308&#xA;China Journal of Accounting Research    0.90    0.278   0.803&#xA;Agricultural Economics (Czech Republic)    0.89     0.553   0.933&#xA;Regional Studies, Regional Science    0.82  0.231   0.732&#xA;Agris On-line Papers in Economics and Informatics    0.65   0.344   0.916&#xA;Panoeconomicus    0.64  0.349   0.936&#xA;European Research on Management and Business Economics    0.64  0.236   0.557&#xA;SERIEs    0.58  0.304   0.754&#xA;REVESCO Revista de Estudios Cooperativos    0.54    0.216   0.643&#xA;Latin American Economic Review    0.54  0.258   0.852&#xA;Journal of Economics, Finance and Administrative Science    0.54    0.156   0.663&#xA;Review of Economic Perspectives    0.50     0.262   0.516&#xA;Journal of Economic Education    0.50   0.344   0.782&#xA;Croatian Economic Survey    0.50    0.145   0.617&#xA;Amfiteatru Economic    0.48     0.250   0.427&#xA;Economics    0.46   0.256   0.414&#xA;Universia Business Review    0.44   0.169   0.332&#xA;South African Journal of Economic and Management Sciences    0.43   0.219   0.403&#xA;IZA Journal of Labor Economics    0.43  0.428   0.348&#xA;Revista de Economia e Sociologia Rural    0.40  0.227   0.687&#xA;Asian Academy of Management Journal of Accounting and Finance    0.40   0.158   0.502&#xA;Latin American Journal of Economics    0.39     0.152   0.232&#xA;European Journal of Government and Economics    0.38    0.246   0.301&#xA;Journal of Applied Economic Sciences    0.37    0.199   0.416&#xA;Investigaciones Regionales&#xA;0.37    0.159   0.555&#xA;Zbornik Radova Ekonomskog Fakultet au Rijeci    0.35    0.157   0.352&#xA;IZA Journal of Labor and Development    0.34    0.182   0.510&#xA;Economic Annals     0.34    0.167   0.459&#xA;Revista de Economia Mundial    0.33     0.170   0.281&#xA;IZA Journal of European Labor Studies    0.32   0.200   0.449&#xA;IZA Journal of Labor Policy    0.31     0.182   0.213&#xA;Economy of Region    0.31   0.260   0.771&#xA;Danube    0.31  0.139   0.460&#xA;Contemporary Economics     0.31     0.141   0.379&#xA;South East European Journal of Economics and Business&#xA;0.30    0.169   0.145&#xA;Econ Journal Watch     0.30     0.184   0.287&#xA;Australasian Accounting, Business and Finance Journal    0.30   0.155   0.224&#xA;Revista de Economia Politica/Brazilian Journal of Political Economy    0.29     0.221   0.664&#xA;Revista de Metodos Cuantitativos para la Economia y la Empresa    0.28  0.205   0.491&#xA;Journal of Current Chinese Affairs    0.28  0.118   1.404&#xA;Economics Bulletin    0.27  0.199   0.306&#xA;Estudios de Economia    0.21    0.111   0.588&#xA;Revista de Analisis Economico    0.20   0.124   0.434&#xA;Electronic International Journal of Time Use Research    0.20   0.120   0.202&#xA;Economia Aplicada    0.19   0.152   0.552&#xA;Journal of Central Banking Theory and Practice    0.18  0.112   0.169&#xA;CESifo Forum    0.18    0.165   0.448&#xA;America Latina en la Historia Economica    0.17     0.136   0.598&#xA;Statistika    0.15  0.121   0.173&#xA;Business and Economic Horizons    0.14  0.106   0.163&#xA;Revista de Economia del Rosario     0.13    0.128   0.300&#xA;Revista Brasileira de Economia    0.12  0.165   0.355&#xA;Nova Economia    0.12   0.113   0.325&#xA;Estudos Economicos    0.12  0.120   0.398&#xA;Investigacion Economica    0.11     0.127   0.329&#xA;Cuadernos de Economia (Colombia)    0.11    0.124   0.254&#xA;Comparative Economic Research    0.11   0.105   0.116&#xA;Revista Contabilidade e Financas    0.10    0.111   0.203&#xA;Problemas del Desarrollo    0.10    0.121   0.295&#xA;Trimestre Economico    0.09     0.166   0.109&#xA;(and some others)&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;The &lt;a href=&quot;https://www.wu.ac.at/fileadmin/wu/d/economics/export_economics/Leistungspr%C3%A4mien/Handelsblatt-Liste_2015.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;German Economic Association in 2015 ranked the journals that were mentioned by others above&lt;/a&gt; from 0.05 (bottom) to 1 (top): Journal of Economic Perspectives 0.2, Theoretical Economics and Brookings Papers of Economic Activity 0.15, Journal of Economic Education and Economics Bulletin 0.1, and Games, Quantitative Economics and Review of Economic Analysis 0.05. Critical Finance Review was probably too new to be ranked at the time. Journal of Mechanism and Institution Design not included. In 2017 the ranking was updated to reflect changing impact factors over time and is now based on the Scopus SJR. That brought Journal of Economic Perspectives to 0.8 for 2016, Theoretical Economics 0.56, Quantitative Economics 0.54, Brookings Papers of Economic Activity 0.38, Journal of Economic Education 0.2, Games 0.05, Economics Bulletin 0.04, Review of Economic Analysis 0.025 (lowest ranking because not in EconLit), Critical Finance Review and Journal of Mechanism and Institution Design not included.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are many further rankings, like the &lt;a href=&quot;https://www.gate.cnrs.fr/spip.php?article1104&amp;amp;lang=fr&quot; rel=&quot;nofollow noreferrer&quot;&gt;French CNRS Journal Ranking in Economics and Management June 2017&lt;/a&gt; (1 top to 4 bottom: Journal of Economic Perspectives, Theoretical Economics, Brookings Papers of Economic Activity, Quantitative Economics all 1, Economics Bulletin 3. Review of Economic Analysis, Critical Finance Review, Games and Journal of Mechanism and Institution Design not included.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you look at more restrictive rankings you'll not find many open access journals. &lt;a href=&quot;https://econtop.uvt.nl/rankingsandbox.php&quot; rel=&quot;nofollow noreferrer&quot;&gt;Tilburg University only includes the Brookings Papers on Economic Activity and the Journal of Economic Perspectives in its 35 journals for the ranking of top economics universities as far as I see&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &lt;a href=&quot;https://doaj.org/search?source=%7B%22query%22%3A%7B%22filtered%22%3A%7B%22filter%22%3A%7B%22bool%22%3A%7B%22must%22%3A%5B%7B%22term%22%3A%7B%22_type%22%3A%22journal%22%7D%7D%2C%7B%22term%22%3A%7B%22index.classification.exact%22%3A%22Economic%20theory.%20Demography%22%7D%7D%5D%7D%7D%2C%22query%22%3A%7B%22match_all%22%3A%7B%7D%7D%7D%7D%2C%22from%22%3A0%2C%22size%22%3A10%7D&quot; rel=&quot;nofollow noreferrer&quot;&gt;Directory of Open Access Journals has 71 entries under &quot;Subject: Economic theory. Demography&quot;&lt;/a&gt; but some further economics journals are listed under different categories like Journal of Economic Education&quot; under &quot;Subject: Education: Theory and practice of education&quot;, and &quot;Journal of Economic Development, Environment and People&quot; under &quot;Subject: General Works&quot;.&lt;/p&gt;&#xA;" OwnerUserId="14298" LastEditorUserId="2776" LastEditDate="2017-09-04T08:46:44.633" LastActivityDate="2017-09-04T08:46:44.633" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17980" PostTypeId="2" ParentId="17963" CreationDate="2017-08-24T22:22:45.567" Score="3" Body="&lt;p&gt;&lt;strong&gt;Depends.  Who has the least currency?&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let us first take a look at the economics of inflation.&lt;br&gt;&#xA;A certain economy has \$100 in circulation.  If the government inflates the currency with an additional \$100, there is going to be \$200 in circulation.&lt;br&gt;&#xA;If a crate of apples originally cost \$1 in the initial economy, the market will adjust the cost to \$2 in the inflated economy.&lt;br&gt;&#xA;The original dollar only has half the purchasing power (and is only worth half a crate of apples) because the total amount of money in the economy doubled.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The same principles from this simple example can be applied to any real economy.  When the government injects more money into the economy, each piece of currency in the economy loses a portion of its purchasing power, and the market adjusts by increasing the prices of goods and services.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Inflation is no respecter of persons.  Bill Gate's money has devalued at the same rate as mine.&lt;br&gt;&#xA;&lt;strong&gt;So, with respect to inflation, the currency is taxed neither at a progressive nor at a regressive rate; the currency is taxed equally.&lt;/strong&gt;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;However, notice that the taxation caused by inflation affects the currency only.&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let us return to our example. &#xA;If we purchased a crate of apples in the \$100 economy, we would only pay \$1.&lt;br&gt;&#xA;Then the government inflates the economy to \$200.  If we try to resell the crate of apples (assuming that they have not spoiled), we can expect the selling price to  be \$2.&lt;br&gt;&#xA;There is nothing special about pre- or post- inflation apples; the apples are still worth the same amount and require payment with an equivalent purchasing power.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, we head back to the real world.&lt;br&gt;&#xA;When people purchase books, cars, refrigerators, vacation homes, stocks, bonds, etc., they are shielded from inflation.  They can sell the stocks, bonds, and homes at the new inflated price.&lt;br&gt;&#xA;&lt;strong&gt;Unfortunately, whoever took their money suffers the brunt of inflation and is poorer for holding onto their money.&lt;/strong&gt;  &lt;/p&gt;&#xA;" OwnerUserId="27" LastActivityDate="2017-08-24T22:22:45.567" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="17981" PostTypeId="1" AcceptedAnswerId="19157" CreationDate="2017-08-25T00:21:40.757" Score="7" ViewCount="231" Body="&lt;p&gt;Considering the standard utility maximization of representative household which lives forever, one may use dynamic programming and Kuhn-Tucker in case of discrete time. For instance, one would like to solve,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;max $\Sigma^∞_tU(C(t),N(t))$&#xA; subject  to $P(t)C(t)+Q(t)B(t)&amp;lt;B(t−1)+W(t)N(t)+D(t)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $C(t)$ is consumption, $B$ is the bond, $Q$ is the bond price, $D(t)$ is a dividend, and $N(t)$ is the amount of labor. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does the interpretation differ when one use Dynamic programming or Kuhn-Tucker? &#xA;Will it be something like this: &lt;em&gt;In DP all the paths are optimized along t, but in Kuhn-Tucker only the path at time t is optimized&lt;/em&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If so, how you can make the above statement?&lt;/p&gt;&#xA;" OwnerUserId="14303" LastEditorUserId="14370" LastEditDate="2017-11-06T18:57:30.870" LastActivityDate="2017-11-07T10:17:11.123" Title="Optimization: Dynamic Programming vs Kuhn-Tucker" Tags="&lt;macroeconomics&gt;&lt;mathematical-economics&gt;&lt;optimization&gt;&lt;optimal-control&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17982" PostTypeId="1" AcceptedAnswerId="17983" CreationDate="2017-08-25T06:55:24.210" Score="0" ViewCount="108" Body="&lt;p&gt;When a state company is sold to foreigners in a country, people who live in that country generally do not like it. Because the company is sold to foreigners. People are acting with a sense of nationalism.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other side if there is an economic crisis or economic recession in that country, foreign investment is needed and the money is very important for the development of the country.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How foreign investment can be interpreted for a country? Is Foreign investment good or bad for a country?&lt;/p&gt;&#xA;" OwnerUserId="14286" LastEditorUserId="2776" LastEditDate="2017-08-25T11:30:53.010" LastActivityDate="2017-08-25T11:30:53.010" Title="Is Foreign investment positive or negative for a country?" Tags="&lt;investment&gt;" AnswerCount="1" CommentCount="2" ClosedDate="2017-08-28T08:57:56.343" ContentLicense="CC BY-SA 3.0" />
  <row Id="17983" PostTypeId="2" ParentId="17982" CreationDate="2017-08-25T08:00:49.387" Score="2" Body="&lt;p&gt;From a purely &lt;strong&gt;economic perspective&lt;/strong&gt;, it doesn't make sense to feel resentful when a national company is sold to foreigners. Imagine a company in my country is sold to a German investor. This shouldn't be a problem, as from the sale price my country could go to Germany and buy a German company instead. So it's all fair game.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, some countries are growing in influence relative to others. For example, China is growing in influence and economic power relative to the rest of the world. When Chinese companies buy European companies, this is a very obvious sign of that growing influence and this is one reason it raises concerns in the countries that are being targeted. It is hard to accept that one's country might be losing in relative influence.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From a &lt;strong&gt;strategic point of view&lt;/strong&gt;, it might make sense to try and protect national companies from foreign buyers. If the Chinese buy a German company, they might get access to new technology, which can help them develop their own industries. This can lead to increased competition for the German industry. By protecting national companies and proprietary technologies, Germany can limit competition and stay more competitive on the world stage.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The above discussion covers the buying and selling of existing assets, which is usually more controversial. &lt;strong&gt;Foreign investment&lt;/strong&gt; in greenfield projects (when a foreign company builds a completely new factory) is generally considered positive for the national economy as it creates &lt;strong&gt;jobs&lt;/strong&gt; and generates additional &lt;strong&gt;tax revenue&lt;/strong&gt; for the government.&lt;/p&gt;&#xA;" OwnerUserId="14137" LastEditorUserId="14137" LastEditDate="2017-08-25T08:32:52.727" LastActivityDate="2017-08-25T08:32:52.727" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17984" PostTypeId="1" AcceptedAnswerId="18933" CreationDate="2017-08-25T08:51:13.973" Score="4" ViewCount="145" Body="&lt;p&gt;From &lt;a href=&quot;https://politics.stackexchange.com/questions/13408/how-could-the-usa-get-money-from-mexico-for-a-wall?rq=1&quot;&gt;this article&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Every year, Mexicans working in the U.S. send at least $20 billion back to Mexico in the form of remittances, placing a huge drain on our economy.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;But I don't see what negative effects it could have on the US economy.&#xA;Won't the money find their way back to the US, since that is the only place where you are able to trade them for goods and services?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Would the impact be different for a smaller country with a currency not as global as the US dollar?&lt;/p&gt;&#xA;" OwnerUserId="14308" LastEditorUserId="2776" LastEditDate="2017-08-25T09:32:15.303" LastActivityDate="2020-05-05T10:27:48.183" Title="How is sending money out of a country draining its economy?" Tags="&lt;international-economics&gt;&lt;exchange&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17985" PostTypeId="2" ParentId="502" CreationDate="2017-08-25T09:02:25.980" Score="2" Body="&lt;p&gt;Plenty of journals which are not open access &lt;em&gt;per se&lt;/em&gt; do publish &lt;em&gt;some&lt;/em&gt; papers in an open access fashion. For example:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.journals.elsevier.com/journal-of-public-economics/open-access-articles&quot; rel=&quot;nofollow noreferrer&quot;&gt;Journal of Public Economics&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.journals.elsevier.com/journal-of-financial-economics/open-access-articles&quot; rel=&quot;nofollow noreferrer&quot;&gt;Journal of Financial Economics&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://www.sciencedirect.com/science/journal/01676296/open-access?sdc=1&quot; rel=&quot;nofollow noreferrer&quot;&gt;Journal of Health Economics&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://www.sciencedirect.com/science/journal/03044076/open-access?sdc=1&quot; rel=&quot;nofollow noreferrer&quot;&gt;Journal of Econometrics&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Open access articles in non-open access journals are those whose authors (or institutions) are willing to pay a fee to make the article freely available (e.g. see &lt;a href=&quot;https://www.elsevier.com/journals/journal-of-econometrics/0304-4076/open-access-options&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some publishers or site aggregators offer the possibility to search for those articles, e.g. &lt;a href=&quot;http://www.sciencedirect.com/science/jrnlallbooks/sub/economics/all/all-open-access&quot; rel=&quot;nofollow noreferrer&quot;&gt;ScienceDirect&lt;/a&gt; and &lt;a href=&quot;http://onlinelibrary.wiley.com/subject/code/000047/homepage/open_access_2016.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;Wiley&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-08-25T09:02:25.980" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17986" PostTypeId="1" CreationDate="2017-08-25T09:14:36.880" Score="1" ViewCount="33" Body="&lt;p&gt;A sharp regression discontinuity design requires all of the treated to be compliers, never takers or always takers&lt;/p&gt;&#xA;" OwnerUserId="14294" LastActivityDate="2017-08-25T09:14:36.880" Title="Sharp Regression Discontinuity Design" Tags="&lt;econometrics&gt;" AnswerCount="0" CommentCount="1" ClosedDate="2017-08-26T06:55:52.330" ContentLicense="CC BY-SA 3.0" />
  <row Id="17987" PostTypeId="2" ParentId="17096" CreationDate="2017-08-25T09:19:08.167" Score="0" Body="&lt;p&gt;These books might be of help:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;https://mitpress.mit.edu/books/sustainability-public-debt&quot; rel=&quot;nofollow noreferrer&quot;&gt;Sustainability of Public Debt&lt;/a&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;http://www.springer.com/la/book/9783319093475&quot; rel=&quot;nofollow noreferrer&quot;&gt;Public Debt, Sustainability and Economic Growth&lt;/a&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;https://global.oup.com/academic/product/restoring-public-debt-sustainability-9780199644476?cc=gb&amp;amp;lang=en&amp;amp;&quot; rel=&quot;nofollow noreferrer&quot;&gt;Restoring Public Debt Sustainability&lt;/a&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Also, this chapter from the &lt;a href=&quot;http://www.sciencedirect.com/science/handbooks/15740048&quot; rel=&quot;nofollow noreferrer&quot;&gt;Handbook of Macroeconomics, Volume 2 (2016)&lt;/a&gt; might be of help:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/S1574004816000148&quot; rel=&quot;nofollow noreferrer&quot;&gt;Chapter 32 - What is a Sustainable Public Debt?&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-08-25T09:19:08.167" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17988" PostTypeId="2" ParentId="17976" CreationDate="2017-08-25T09:41:58.263" Score="1" Body="&lt;p&gt;Cointegration testing usually goes in this way:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Have very clear which is the &quot;long-run&quot; relationship among variables your theory predicts. The point about cointegration is that there is at least one &lt;strong&gt;common trend&lt;/strong&gt; among the variables. In your case, you would expect that the price of the three stocks move in tandem, based on some underlying market phenomena like economic growth, volatility, etc. In this case, the long run relationship between variables  in likely to be in &lt;strong&gt;levels&lt;/strong&gt; (price of stocks).&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Test for unit root on each variable in levels. There are plenty of tests here (ADF, KPSS, etc). You &lt;em&gt;want to find&lt;/em&gt; that these variables are I(1) or maybe I(2). &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Perform the Johansen cointegration test. If you reject the null hypothesis of cointegration ($r=0$), then &lt;strong&gt;there is not a common trend&lt;/strong&gt; among the variables, and they are not cointegrated. Do not run regressions with them in levels, as any result will be spurious. If you do happen to find cointegration ($0&amp;lt;r\leq n$), then estimate the VECM, from where you can get the cointegration vector(s) that define the common trend(s).&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-08-25T17:17:09.387" LastActivityDate="2017-08-25T17:17:09.387" CommentCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="17989" PostTypeId="2" ParentId="15169" CreationDate="2017-08-25T10:03:26.603" Score="1" Body="&lt;p&gt;Typically a company will have &lt;em&gt;shares&lt;/em&gt; with the features:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;they come in integer amounts&lt;/li&gt;&#xA;&lt;li&gt;they imply partial ownership of the company&lt;/li&gt;&#xA;&lt;li&gt;an investor can often sell them to third parties without the involvement of the company except to register the transfer&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;and this also applies to companies whose sole assets are investments. In the UK &lt;em&gt;Investment Trusts&lt;/em&gt; are typically structured this way.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Meanwhile a fund will typically have &lt;em&gt;units&lt;/em&gt; (though these can be called something else) with the features &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;they may be fractional or integer&lt;/li&gt;&#xA;&lt;li&gt;they may be created and cancelled easily by the manager as demand changes&lt;/li&gt;&#xA;&lt;li&gt;they may not represent ownership of a company even if they may represent a claim on assets &lt;/li&gt;&#xA;&lt;li&gt;they will typically be transacted between the investor and the manager rather than with third parties&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;In the UK &lt;em&gt;Unit Trusts&lt;/em&gt; are typically structured this way.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Each has advantages and disadvantages, so there are mechanisms which try to combine features of each, such as &lt;em&gt;Exchange Traded Funds&lt;/em&gt; which (as the name suggests) can easily be traded with third parties, but can also be created and cancelled easily by the manager as demand changes. &lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2017-08-25T10:03:26.603" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17990" PostTypeId="1" CreationDate="2017-08-25T12:02:20.317" Score="2" ViewCount="30" Body="&lt;p&gt;I'm currently writing my Bachelor Thesis which discusses the Question:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Does Facebook's free Basics Programm (A website which lets people in poor countries access Internet Services without paying anything) enhances the economic welfare? &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It is about zero rating content, which means that similar to t-mobiles &quot;binge on&quot; several services don't count against the data cap. Since I have no experience and no in-depth knowledge of microeconomics, I do not really know how to build this model.&#xA;I have several aspects that should be included: &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;We have 2 Content providers, one is this free basic program from Facebook, another one the regular Internet Service Provider like T-Mobile.&lt;/li&gt;&#xA;&lt;li&gt;We have 2 consumer groups, one with low income which can only afford the free basic program, and a high income group which can afford the tmobile service&lt;/li&gt;&#xA;&lt;li&gt;There has to be saturation in the consumers utility, so that they use Internet with a decreasing marginal utility&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;My questions are, how would you start a model like this? More Specifically, what should I calculate to come to a conclusion? How would you describe the two utility functions with respect of the saturation aspect? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If my question seems unclear, feel free to comment and I will try to specify my problem.&lt;/p&gt;&#xA;" OwnerUserId="14309" LastEditorUserId="2776" LastEditDate="2017-08-25T12:07:49.890" LastActivityDate="2017-08-25T12:07:49.890" Title="Microeconomic Modeling of Zero-Rated content" Tags="&lt;microeconomics&gt;&lt;financial-economics&gt;&lt;welfare-economics&gt;&lt;social-welfare&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="17991" PostTypeId="1" CreationDate="2017-08-25T12:25:35.603" Score="2" ViewCount="382" Body="&lt;p&gt;I am a bit puzzled by the quote below, from &lt;a href=&quot;https://thenextsystem.org/money#how-is-money-created-in-the-pluralist-commonwealth&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; (emphasis mine):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Modern monetary theorists have helped clarify the obvious point that private banks are not essential to the design of the system. It would be possible for the Federal Reserve to bypass &lt;strong&gt;the banks which profit by selling bonds to the Fed&lt;/strong&gt; and, instead, invest the proceeds, for instance, in a public “Infrastructure Bank” [...]&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So, central banks pursue open market operations by selling/buying bonds from banks or other financial institutions involved in these operations. Maybe the author is referring to the &quot;buying side&quot; of these operations, whereby the central banks buy short-term debt from banks?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does this mean that banks only sell these bonds if they expect a profit? Does that also mean that banks only buy these bonds at a profit? How does this profit materialise? Through a discount/premium over the price at which these bonds are bought/sold? Or is the author simply referring to the fact that these bonds have positive nominal interest rates? (but these bonds are usually from the government, so it is not the central bank who is paying the interest)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does this mean that banks are in every single transaction profiting from such operations?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(sorry, a lot of questions but they are very much related).&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-08-26T18:04:12.523" Title="Do banks make profits by selling bonds to the central bank?" Tags="&lt;monetary-policy&gt;&lt;banking&gt;&lt;central-banking&gt;" AnswerCount="1" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="17992" PostTypeId="2" ParentId="4619" CreationDate="2017-08-25T14:06:20.563" Score="2" Body="&lt;p&gt;&lt;strong&gt;The effect is more sustainable reporting&lt;/strong&gt;, which leads to setting strategic targets for environmental and social improvement. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The ethical investment funds make their investment decisions based on results published on the sustainability or integrated reports, which creates pressure for companies to report on their sustainability efforts. The drawback of this reporting is that it is often forward looking and harder to audit than financial statements. However, reporting comes usually together with target setting that, in the long run, continually improves the environment. Take a look at the executive summary of an Australian government &lt;a href=&quot;http://www.aph.gov.au/binaries/senate/committee/corporations_ctte/completed_inquiries/2004-07/corporate_responsibility/report/report.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;report regarding ethical and sustainable funds reporting and disclosures&lt;/a&gt;, and the idea of making it mandatory.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is important to note, though, that these funds will still invest in polluting industries, such as oil, mining, etc. However, they will invest in the companies within these industries which minimize their social and environmental impact.&lt;/p&gt;&#xA;" OwnerUserId="12304" LastEditorUserId="2776" LastEditDate="2017-08-25T14:09:44.007" LastActivityDate="2017-08-25T14:09:44.007" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17993" PostTypeId="2" ParentId="12653" CreationDate="2017-08-25T14:39:52.843" Score="1" Body="&lt;p&gt;Concerning why the UK financial sector might be so adversely affected, I understand a central issue may be the &quot;financial passports&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;These passports are basically a set of rules that permit one bank to operate in the rest of the EU, so a foreign bank may install a subsidiary in London and then branches out to the continent. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Critically, these passports come with the package of EU rules, notably freedom of movements for migrants. Therefore, it seems the bets are the UK will be willing to lose them at the end of the negociations. Some capacities to manage assets in the EU from the City migth also be lost and there is the prospect that a major euro clearing house operating outside the direct perview of the union may face agressive regulation post-brexit. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Disclaimer: this is my understanding from non-scientific readings. I heartily recommend &lt;a href=&quot;http://uk.businessinsider.com/article-50-brexit-financial-passporting-and-banks-city-explainer-2017-3&quot; rel=&quot;nofollow noreferrer&quot;&gt;this article&lt;/a&gt; to sum most of it up. &lt;/p&gt;&#xA;" OwnerUserId="12536" LastEditorUserId="2776" LastEditDate="2017-08-25T14:59:05.427" LastActivityDate="2017-08-25T14:59:05.427" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17994" PostTypeId="1" AcceptedAnswerId="18055" CreationDate="2017-08-25T14:46:57.953" Score="4" ViewCount="161" Body="&lt;p&gt;I'm very much interested in the difference between anglophonic and non-anglophonic countries stemming just from the language skills. I'll be grateful for any references regarding the topic.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is the approximate annual economical gain of a country stemming purely from investments in English language classes?&lt;/p&gt;&#xA;" OwnerUserId="6439" LastEditorUserId="2776" LastEditDate="2017-08-29T12:21:18.830" LastActivityDate="2017-08-30T06:34:26.820" Title="What is the economical advantage coming from the ability to speak English?" Tags="&lt;reference-request&gt;&lt;education-economics&gt;&lt;demographics&gt;" AnswerCount="2" CommentCount="5" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="17995" PostTypeId="2" ParentId="17994" CreationDate="2017-08-25T17:59:44.677" Score="4" Body="&lt;p&gt;One of the best ways to study the benefit of speaking English, at least within an English speaking country, is by looking at the wage discrimination literature. Some, but not all, of wage discrimination turns out can be explained away by the &lt;a href=&quot;http://www.journals.uchicago.edu/doi/abs/10.1086/298006&quot; rel=&quot;nofollow noreferrer&quot;&gt;ability to speak English&lt;/a&gt;. These studies are good to look at because of the controls for other factors. For example, it looks like the ability to speak English was a factor in this study, looking at before and after the impact of the &lt;a href=&quot;https://link.springer.com/article/10.2307/2648111&quot; rel=&quot;nofollow noreferrer&quot;&gt;IRCA in the US&lt;/a&gt;. The references I give of course are not generalizable to the whole world, because of their focus on the US. So I suggest looking more into the wage literature yourself.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastEditorUserId="4251" LastEditDate="2017-08-27T16:32:19.097" LastActivityDate="2017-08-27T16:32:19.097" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17996" PostTypeId="2" ParentId="17978" CreationDate="2017-08-25T18:09:06.723" Score="2" Body="&lt;p&gt;Based on the &lt;a href=&quot;https://www.mathworks.com/help/econ/jcitest.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;official documentation&lt;/a&gt;, you have found that there is one cointegration relationship with 95% probability. Given your selection of &lt;code&gt;Model: H1*&lt;/code&gt; and &lt;code&gt;Lags: 4&lt;/code&gt;, the model you are estimating is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \Delta y_t = A(B´y_{t−1}+c_0) + B_1\Delta y_{t-1} + B_2\Delta y_{t-2} + B_3\Delta y_{t-3} + B_4\Delta y_{t-4} + \epsilon_t $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The matrix &lt;code&gt;B&lt;/code&gt; is of dimension $n \times r$, and it contains as columns the cointegration vector(s). In your case, $r=1$, and the cointegration vector is&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;B =&#xA;0.7081&#xA;1.6282&#xA;-2.4581 &#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;The Matrix &lt;code&gt;A&lt;/code&gt; represent the &quot;error-correction&quot; matrix. For a system to converge towards the equilibrium cointegration relation (i.e. to be stable), you want these numbers to be in between -2 and 0 (as in your case).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;code&gt;c0&lt;/code&gt; is just a constant of the cointegration relationship (like in a standard function $y=c0+bx$).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The matrices &lt;code&gt;Bi&lt;/code&gt; show how previous period shocks translate through the system over time.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-08-29T11:35:57.660" LastActivityDate="2017-08-29T11:35:57.660" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="17997" PostTypeId="1" AcceptedAnswerId="18013" CreationDate="2017-08-25T19:08:37.463" Score="2" ViewCount="557" Body="&lt;p&gt;From what I understand, the basic cost function looks like&#xA;$$C(x_i)=\sum_{i=1}^{n}w_ix_i$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I'm wondering is whether or not its possible to create a non-linear cost function which adjusts based on the bundle consumed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Example:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lets say we have a discrete case where our  bundle price changes based on the combination of goods in a non-intuitive way. as seen in the table below.&#xA;$$\begin{array}{|c|c|c|c|}&#xA;\hline Bundle\ Price&amp;amp;x_1&amp;amp;x_2&amp;amp;x_3&#xA;\\\hline 5&amp;amp;1&amp;amp;1&amp;amp;0&#xA;\\\hline 10&amp;amp;2&amp;amp;1&amp;amp;0&#xA;\\\hline 15&amp;amp;2&amp;amp;2&amp;amp;0&#xA;\\\hline 25&amp;amp;2&amp;amp;3&amp;amp;1&#xA;\\\hline&#xA;\end{array}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We see such pricing methods employed in a number of commercial businesses. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;How does one model such a case&lt;sup&gt;1&lt;/sup&gt;?  &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;sub&gt;1. I would appreciate an answer that is more theoretical and does not rely upon regression , however if that is the only way to get an estimate i'll take it.&lt;/sub&gt;&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="2776" LastEditDate="2017-08-26T08:55:25.113" LastActivityDate="2017-08-26T19:09:26.857" Title="Creating non-linear cost functions" Tags="&lt;microeconomics&gt;&lt;cost-functions&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="17998" PostTypeId="2" ParentId="17997" CreationDate="2017-08-25T20:38:56.687" Score="2" Body="&lt;p&gt;When you say non-linear cost function, I assume you aren't referring to the firm's production having non-linear costs, but judging by your example, you rather mean the firm's output prices having weird &lt;strong&gt;&lt;a href=&quot;http://pubsonline.informs.org/doi/abs/10.1287/mnsc.36.2.155?journalCode=mnsc&quot; rel=&quot;nofollow noreferrer&quot;&gt;optimal bundle pricing&lt;/a&gt;&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From the abstract of the linked article (Hanson and Martin, 1990):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot; Bundle pricing is a widespread phenomenon. However, despite its importance as a pricing tool, surprisingly little is known about how to find optimal bundle prices. &quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So this may be a good place for you to start. For an article that is a little more recent/available online, you could look at extensions of the original work in this area, such as bundle pricing for &lt;a href=&quot;https://ideas.repec.org/p/unm/umamet/2006050.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;strong&gt;homogeneous items&lt;/strong&gt;&lt;/a&gt; (Grigoriev et.al., no date), or this article &lt;strong&gt;&lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/S016771871630162X&quot; rel=&quot;nofollow noreferrer&quot;&gt;correlated valuations for the items&lt;/a&gt;&lt;/strong&gt; (Chen and Ni, 2017).&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2017-08-25T20:38:56.687" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="17999" PostTypeId="2" ParentId="17984" CreationDate="2017-08-25T21:00:23.610" Score="0" Body="&lt;p&gt;Whatever money earned in a country that is spent outside that country is taking away economic activity from that country, GDP can no longer be increased with that money. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sending money to a country with a different currency usually implies that currency is bought. That will increase the value of the bought currency and decrease the value of the currency sold. A lower US dollar will make it easier for US exporters to sell their products abroad, which will lead to foreign importers selling their foreign currency in return for US dollars. That is how the money can come back at some point. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It can also come back if foreigners invest in the US. If the US has a lot of money from remittances flowing out and doesn't export as much as it imports, which has been the case for a long time, foreigners holding US stocks and bonds will be the result. You could argue this could lead to a dangerous dependency at some point, e.g., if you look at how much the US owes to the Chinese. Mexico in comparison is too small an economy to be such a threat and I agree with the comment above that losing a significant number of Mexican workers would be much more problematic to the US economy. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You should also take into account that the positive development effects of remittances in the receiving country should that country to become a more attractive partner for trade with the sending country, especially given the strong relationship that is built by the migrant community.&lt;/p&gt;&#xA;" OwnerUserId="14298" LastEditorUserId="12304" LastEditDate="2017-10-25T11:51:10.260" LastActivityDate="2017-10-25T11:51:10.260" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18000" PostTypeId="1" CreationDate="2017-08-25T21:27:50.630" Score="0" ViewCount="322" Body="&lt;p&gt;As the title says, I want to understand the differences between &lt;strong&gt;Unit Banking Systems&lt;/strong&gt; and &lt;strong&gt;Direct Banking Systems.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here are the few questions that'll help me understand:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Direct banks provide remote services online. Does Unit bank do so?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;It's said that Unit banks do not have branches in other areas. Now how big or small is this &lt;strong&gt;area?&lt;/strong&gt; A city? District? State? Can it have more than one one branches in the same area? &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Unit banks have at least one branch from where the it is operated, where people go and deposit their money physically. But direct bank has no such branch. All the work is done on line (Of course they have an office though.) Is it right?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;I assume they're both independent units. So kindly explain these and if there are other points besides these, please let me know.   &lt;/p&gt;&#xA;" OwnerUserId="14313" LastEditorUserId="8815" LastEditDate="2017-08-27T22:15:07.853" LastActivityDate="2018-11-21T07:03:10.603" Title="Difference between Unit Banking and Direct Banking" Tags="&lt;banking&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18003" PostTypeId="1" CreationDate="2017-08-26T02:03:34.397" Score="-1" ViewCount="687" Body="&lt;p&gt;Why do markets that are dominated by a single seller have a tendency to maximize profits at lower levels of output than their competitive counterpart? Why is the competitive market equilibrium price lower than the monopolist price? &lt;/p&gt;&#xA;" OwnerUserId="14115" LastActivityDate="2017-08-26T08:45:36.823" Title="Monopoly and competitive output levels" Tags="&lt;competition&gt;&lt;monopolistic-competition&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18005" PostTypeId="2" ParentId="18003" CreationDate="2017-08-26T07:23:44.383" Score="1" Body="&lt;p&gt;The monopolist will restrict output to be able to charge a higher price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is true that if the monopolist reduced the price, it could sell more units, but the benefit of selling more units is more than offset by the fact that the monopolist would have to charge a lower price on &lt;em&gt;all&lt;/em&gt; units that were previously sold at a higher price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Profits are maximised when marginal revenue (MR) equals marginal cost (MC). Producing in a region where marginal revenue is lower than marginal cost lowers profits.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/zhY17.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/zhY17.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the case of perfect competition, the firm can sell any quantity at the market price, so &lt;strong&gt;marginal revenue equals the price (MR = P)&lt;/strong&gt;. It will choose to sell a quantity where marginal revenue equals marginal cost (MR = MC). From these two equations we have MR = MC = P.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/BZLM9.gif&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/BZLM9.gif&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;For the monopolist, marginal revenue is lower than price (MR &amp;lt; P).&lt;/em&gt; This is the crucial point. When the monopolist sells an extra unit of output, it earns price, BUT it also loses some money as &lt;em&gt;it has to lower the price on all units previously sold at a higher price&lt;/em&gt;. This is why the monopolists marginal revenue at every quantity on the chart below is lower than the price. This is why on the chart below the marginal revenue curve lies below the demand curve.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/IGkjT.gif&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/IGkjT.gif&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The monopolist will choose to sell quantity Q* corresponding to Point A, where MR = MC &amp;lt; P. &lt;strong&gt;This quantity is lower than the quantity were price equals marginal revenue&lt;/strong&gt; (where the D curve intersects the MC curve above), which is the quantity chosen in perfect competition. So the quantity sold by the monopolist is lower than the quantity sold in perfect competition.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is why a monopoly is undesirable from the consumer's perspective. Look at the chart above to the right of Point B. There are people (represented by the D curve) who are willing to pay a higher price for an extra unit of output than the marginal cost. Still, the monopolist will not produce that extra unit.&lt;/p&gt;&#xA;" OwnerUserId="14137" LastEditorUserId="14137" LastEditDate="2017-08-26T08:45:36.823" LastActivityDate="2017-08-26T08:45:36.823" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18007" PostTypeId="2" ParentId="17991" CreationDate="2017-08-26T10:06:55.243" Score="2" Body="&lt;p&gt;No, banks don't directly profit from selling bonds to the central bank. These bonds are sold at face value, there is no discount or premium, this is not part of the system.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My best guess of what the author means is that by selling bonds to the central bank, commercial banks get cash, which they loan out and make a profit on the loans. So commercial banks profit from selling bonds to the central bank in an indirect way. Attributing banks' profits from lending to the central bank is a bit of stretch though and not a very appropriate statement in my view, so I fear I might have misunderstood the author.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What the article seems to promote is already a reality in communist China, where state-owned banks lend at favourable rates. There can be significant problems with this approach of cutting out private banks, as the Chinese bad loan problem shows (although private banks can also accumulate bad loans, but maybe less so due to competition), but this is a different discussion.&lt;/p&gt;&#xA;" OwnerUserId="14137" LastActivityDate="2017-08-26T10:06:55.243" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18009" PostTypeId="2" ParentId="17816" CreationDate="2017-08-26T17:08:37.683" Score="-2" Body="&lt;p&gt;The specific amount is irrelevant because it is just a gift to banks. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The currency &quot;purchases&quot;  are offset by deducting their account, which is based on fractional reserves, which are limited by a reserve ratio based on how much currency the bank has. Which is a circular logic, and thus meaningless. Banks can withdraw whatever they feel like from the Fed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Economics is of course about pretending that banks are bounded by some kind of law or whatever &lt;/p&gt;&#xA;" OwnerUserId="14315" LastActivityDate="2017-08-26T17:08:37.683" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18013" PostTypeId="2" ParentId="17997" CreationDate="2017-08-26T19:09:26.857" Score="2" Body="&lt;p&gt;I understand that the &quot;bundle price&quot; is &lt;em&gt;cost&lt;/em&gt; to us. Then your table depicts a linear system of equations&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$C_j = a_1x_1+a_2x_2+...+a_mx_m,\;\;\; j=1,...,n$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;with $C_j$  and the $x$'s being the known quantities, and we want to determine the unknown alphas. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If it so happens that the bundles on offer are same in number as the $x$'s, ($n=m$), then the system, bar the existence of exact linear dependence, will ave a &lt;em&gt;unique&lt;/em&gt; solution for the alphas, and the cost function will be linear.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But in your specific example, the system is &quot;overidentified&quot; ($n&amp;gt;m$) since you have more bundles on offer than inputs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In such a case, &quot;regression&quot;, or better, least-squares approximation enters the picture as a way to obtain a linear approximation, and also, quantify the deviation from actual through the obtained residual series.&#xA;In your example, one gets, $\hat a_1 = 3, \hat a_2=4, \hat a_3=7$, with estimated cost series $\hat C = 7,10,14,25$ compared to $C = 5,10,15,25$.&#xA;Essentially the estimated alphas here are the implied approximate separate unit prices per input, maintaining the linear relationship.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The non-linear approach would require to specify a non-linear function form first...and in principle, it would allow us to match the data exactly. The specified form could be found by trial and error, and it could be very complicated, which then would create the well-known issue: &quot;well we matched the data sample exactly, but is this any good for inference/design outside the sample?&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words, assume we do obtain a non-linear cost function in such a way. Assume now that we want to produce at a level where we need to purchase $x_1 = 4, x_2=5, x_3=3$. Prior to go to the supplier and ask for a price for this new bundle, how well will the obtained non-linear cost function predict the offer we will get?&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2017-08-26T19:09:26.857" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18014" PostTypeId="1" CreationDate="2017-08-27T02:17:39.123" Score="5" ViewCount="116" Body="&lt;p&gt;It has been shown, for example in the papers&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Deng, Du, &lt;a href=&quot;https://www.researchgate.net/profile/Xiaotie_Deng/publication/222532184_The_Computation_of_Approximate_Competitive_Equilibrium_is_PPAD-hard/links/0a85e537c19b4cd78d000000.pdf&quot; rel=&quot;noreferrer&quot;&gt;The Computation of Approximate Competitive Equilibrium is PPAD-hard&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;Hirsch, Papadimitriou, Vavasis, &lt;a href=&quot;http://ac.els-cdn.com/0885064X89900174/1-s2.0-0885064X89900174-main.pdf?_tid=890ab13e-8acc-11e7-b232-00000aacb35e&amp;amp;acdnat=1503799853_06f5caef5edfe726ead13a8e429eda9d&quot; rel=&quot;noreferrer&quot;&gt;Exponential Lower Bounds for Finding Brouwer Fixed Points&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;that finding competitive equilibria is in a certain sense computationally intractable.&#xA;So how does economic theory expect a market to reach a competitive equilibrium if each agent is presumably representable by an efficient computational process?&#xA;In fact, parallel computation doesn't really help because a polynomial number of processors can be simulated in polynomial time.&lt;/p&gt;&#xA;" OwnerUserId="2848" LastActivityDate="2017-08-31T08:43:21.637" Title="Could markets compute equilibria?" Tags="&lt;competitive-equilibrium&gt;&lt;computation&gt;" AnswerCount="3" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18015" PostTypeId="2" ParentId="9560" CreationDate="2017-08-27T04:03:14.703" Score="1" Body="&lt;p&gt;Net exports means total exports-total imports.&#xA;Export represents domestic production selling to another country. That's  why it is included in GDP (as GDP means the total market value of all final goods and services produced in a country within a given period). Import is subtracted because it's the production of a foreign country purchased by domestic country.&lt;/p&gt;&#xA;" OwnerUserId="14324" LastEditorUserId="2776" LastEditDate="2017-08-27T08:45:35.707" LastActivityDate="2017-08-27T08:45:35.707" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18020" PostTypeId="1" CreationDate="2017-08-27T09:47:35.883" Score="1" ViewCount="472" Body="&lt;p&gt;I'm reading the &quot;Personal MBA&quot; book right now and it says that &quot;Yoga is $8 billion industry worldwide&quot;. What does it mean? And how can one calculate the amount of money in some industry?&lt;/p&gt;&#xA;" OwnerUserId="14329" LastEditorUserId="2776" LastEditDate="2017-08-27T17:10:08.863" LastActivityDate="2017-08-30T10:19:49.450" Title="What exactly people mean when they say &quot;X is a $Y billion industry&quot;?" Tags="&lt;money&gt;" AnswerCount="4" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18021" PostTypeId="2" ParentId="18020" CreationDate="2017-08-27T09:57:27.183" Score="0" Body="&lt;p&gt;My understanding is it is the estimate of total revenue firms in the industry could potentially make. Analysts come up with the total estimate by considering the demand for the service or product in the industry and price ranges at which the product/service would be sold. &lt;/p&gt;&#xA;" OwnerUserId="6009" LastActivityDate="2017-08-27T09:57:27.183" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18022" PostTypeId="2" ParentId="18020" CreationDate="2017-08-27T10:23:03.917" Score="1" Body="&lt;p&gt;It's ambiguous - that is, the term is used to mean several different things.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It could mean that \$YYY is the annual turnover of the industry. Or the total market capitalisation of companies in the industry. Or possibly the annual investment in the industry.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In your particular context, of &quot;Yoga is \$8 billion industry worldwide&quot;, I'd expect it probably refers to the annual turnover of the industry&lt;/p&gt;&#xA;" OwnerUserId="44" LastEditorUserId="44" LastEditDate="2017-08-30T07:20:20.240" LastActivityDate="2017-08-30T07:20:20.240" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="18023" PostTypeId="1" AcceptedAnswerId="18030" CreationDate="2017-08-27T10:41:49.733" Score="8" ViewCount="2694" Body="&lt;p&gt;This is a historical trend whether it may 18th century Britain or 19th century America or what's currently happening in China. What I am confused is  by the fact that manufacturing jobs such as &lt;em&gt;working on an assembly line&lt;/em&gt; are not that well paying. Still the trend holds true. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I want to know what are the causes for the shift.&lt;/p&gt;&#xA;" OwnerUserId="14281" LastEditorUserId="2776" LastEditDate="2017-08-27T17:11:30.260" LastActivityDate="2017-08-28T08:38:13.510" Title="When countries industrialise, why do jobs from agriculture shift to manufacturing?" Tags="&lt;macroeconomics&gt;&lt;wages&gt;&lt;development-economics&gt;&lt;agriculture&gt;" AnswerCount="4" CommentCount="6" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18024" PostTypeId="1" AcceptedAnswerId="18025" CreationDate="2017-08-27T10:50:47.990" Score="2" ViewCount="82" Body="&lt;p&gt;I have seen several papers that refer to the CPI Research Database, which contains micro-level data on prices in the US. For example, the data was used by Klenow and Kryvtsov (2005) and Nakamura and Steinsson (2007). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The only similar thing I found is &lt;a href=&quot;https://www.bls.gov/cpi/#data&quot; rel=&quot;nofollow noreferrer&quot;&gt;Average Price Data on the site of the Bureau of Labor Statistics&lt;/a&gt;. Unfortunately, this dataset is quite small. First, only food and fuel are presented there. Second, average consumer prices for food are available for the U.S. city average and four regions only. However, Nakamura and Steinsson (2007) write that prices of food are collected monthly in 87 areas.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, there potentially is a more informative dataset which contains information on prices in all areas. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can I get it? What is the CPI Research Database? Is it available for the general public?&lt;/p&gt;&#xA;" OwnerUserId="14330" LastActivityDate="2017-08-27T11:08:13.253" Title="Disaggregated data on prices in US" Tags="&lt;data-request&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18025" PostTypeId="2" ParentId="18024" CreationDate="2017-08-27T11:08:13.253" Score="2" Body="&lt;p&gt;A &lt;a href=&quot;https://www.federalreserve.gov/pubs/feds/2009/200916/index.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;paper published in 2009 by the Federal Reserve Board&lt;/a&gt; gave a brief description&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The BLS surveys about 85,000 items a month in its Commodities and Services Survey. Individual prices are collected at around 20,000 retail outlets across 45 large urban areas. The survey covers all goods and services other than shelter, or about 70 percent of the CPI based on BLS consumer expenditure weights. The CPI Research Database (hereafter CPI-RDB) maintained by the BLS Division of Price and Index Number Research contains all prices in the Commodities and Services Survey since January 1988. We use the CPI-RDB through May 2008, for a sample of &quot;1988-2008&quot;.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The BLS collects consumer prices monthly for food and fuel items in all areas. The BLS also collects prices monthly for all items in the three largest metropolitan areas (New York, Los Angeles, and Chicago). The BLS collects prices for items in other categories and other urban areas only bimonthly.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Details may have changed since then but essentially the database is an detailed dataset of prices for a wide range of selected items charged by a large sample of individual retailers at different points in time&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is not available to the public.  In particular, it contains commercially sensitive information about individual retailers&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is available to some academic researchers who reach an agreement with the Bureau of Labor Statistics putting restrictions on how they handle and how they use the database and on the locations where they access the data; BLS also charges a fee.  BLS provides details on &lt;a href=&quot;https://www.bls.gov/rda/home.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;Restricted Data Access&lt;/a&gt; on its website &lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2017-08-27T11:08:13.253" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18026" PostTypeId="1" CreationDate="2017-08-27T12:31:52.480" Score="4" ViewCount="39" Body="&lt;p&gt;Suppose that we want to find a socially-optimal allocation in the following setting:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;There are $n$ firms and $m$ workers. &lt;/li&gt;&#xA;&lt;li&gt;Each firm $i$ needs one worker and has value $v_i$ for having a worker (any worker).&lt;/li&gt;&#xA;&lt;li&gt;Each worker $j$ needs one job and has value $v_j$ for having a job (at any firm).&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The values are private and we look for a truthful mechanism. The first attempt is VCG, however, it might run a deficit. For example, if:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;there are 5 firms with values are 5,4,3,2,1&lt;/li&gt;&#xA;&lt;li&gt;there are 4 workers with values 4,3,2,1&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;then VCG says that the 4 high-value firms are matched to the 4 workers, each firm pays 1 (its externality on the 5th firm) and each worker pays -2 (his externality on the 4th firm). So we have a deficit of 4.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A simple solution here is to declare that there will be no negative payments. Apparently the mechanism is truthful: if there are more firms than workers then all firms pay a positive price and all workers pay 0, and vice versa if there are more workers than firms. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is: in what other cases is it possible to modify the VCG mechanism like that, by adding a &quot;minimum payment&quot;?&lt;/p&gt;&#xA;" OwnerUserId="385" LastEditorUserId="2776" LastEditDate="2017-08-28T08:43:37.337" LastActivityDate="2017-08-28T08:43:37.337" Title="VCG mechanism with a minimum payment threshold" Tags="&lt;reference-request&gt;&lt;mechanism-design&gt;" AnswerCount="0" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18027" PostTypeId="2" ParentId="18023" CreationDate="2017-08-27T14:33:13.947" Score="6" Body="&lt;p&gt;A schematic picture is as follows:  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Industrialization also means industrialization of Agriculture. This kills land-related jobs in the sector while at the same time it increases output. Inceased output requires preservation since it can't be immediately consumed as fresh product. So jobs are created in the &quot;packaging&quot; business-end of Agriculture, which turns farm-workers into factory-workers already.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Moreover, the job-transformation is not one-to-one so a surplus of ex-farm workers is created, and they have to seek work in factories outside the Agriculture sector.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In more abstract terms, capital displaces labor from the traditional Agricultural activities, while also it creates demand for labor in the agriculture-related and other manufacturing activities.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2017-08-27T14:33:13.947" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="18028" PostTypeId="2" ParentId="18020" CreationDate="2017-08-27T15:21:04.440" Score="2" Body="&lt;p&gt;Considering the economic of world as a whole it could simply refers to that total spending by people on yoga might be \$8 billion. As in an economy total spending is the total revenue of a sector. For this particular scenario it simply means that yoga as an economic variable have transaction of \$8 billion.&#xA;Regarding the calculation we can de assured that no exact and absolute calculation could be made on national level how could it be calculated exactly at global level. However the estimated aggregated spending on yoga sector nation could be determined. Which further on processing might result to provied aggregate global spending on yoga as a figure, which is tentative not exact figure.&lt;/p&gt;&#xA;" OwnerUserId="14332" LastEditorUserId="42" LastEditDate="2017-08-27T16:54:01.450" LastActivityDate="2017-08-27T16:54:01.450" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18029" PostTypeId="2" ParentId="17587" CreationDate="2017-08-27T17:18:39.553" Score="2" Body="&lt;p&gt;&lt;strong&gt;Correct approach:&lt;/strong&gt; there is reliable information (from the vendor and/or from past experience), that the machine can perform $T$ number of tests in total before being scrapped or taken out of service. Then the cost of the machine per se allocated to the execution of one test is $10.000 / T$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the OP's case, a straight-line depreciation method is applied, writing-off $2.000$ per year. The problem here in the calculation $2.000/T_i$ for year $i$, is that next year, if the number of tests is more/less, one will get a different cost allocation of the value of the machine on a single test -and it will be misleading. So for economic-costing purposes this is not advised. But for purposes of reconciliation with accounting practice year-by-year, then one could accept the artificial variation, if one cannot apply the correct approach.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A mitigating approach, if historical data exist, is to take &quot;average yearly tests performed&quot;, and divide $2.000$ with this average.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2017-08-27T17:18:39.553" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18030" PostTypeId="2" ParentId="18023" CreationDate="2017-08-27T17:21:55.350" Score="9" Body="&lt;p&gt;This is a common area of study in Development Economics. There is for example the &lt;a href=&quot;https://en.wikipedia.org/wiki/Dual-sector_model&quot; rel=&quot;noreferrer&quot;&gt;Dual-sector model&lt;/a&gt;, first developed in 1954. It is very well explained in the link provided, but basically:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;[the] agricultural sector is typically characterized by low wages, an abundance of labour, and low productivity through a labour-intensive production process. In contrast, the capitalist manufacturing sector is defined by higher wage rates as compared to the subsistence sector, higher marginal productivity, and a demand for more workers. Also, the capitalist sector is assumed to use a production process that is capital intensive, so investment and capital formation in the manufacturing sector are possible over time as capitalists' profits are reinvested in the capital stock. [...]&lt;/p&gt;&#xA;&lt;p&gt;The primary relationship between the two sectors is that when the capitalist sector expands, it extracts or draws labour from the subsistence sector. This causes the output per head of labourers who move from the subsistence sector to the capitalist sector to increase. [...]&lt;/p&gt;&#xA;&lt;p&gt;The agricultural sector has a limited amount of land to cultivate, the marginal product of an additional farmer is assumed to be zero as the law of diminishing marginal returns has run its course due to the fixed input, land. As a result, the agricultural sector has a quantity of farm workers that are not contributing to agricultural output since their marginal productivities are zero. This group of farmers that is not producing any output is termed surplus labour since this cohort could be moved to another sector with no effect on agricultural output. [...]&lt;/p&gt;&#xA;&lt;p&gt;The end result of this transition process is that the agricultural wage equals the manufacturing wage, the agricultural marginal product of labour equals the manufacturing marginal product of labour, and no further manufacturing sector enlargement takes place as workers no longer have a monetary incentive to transition.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;In other words,, &lt;strong&gt;low productivity in agriculture due to unlimited land and workers and low use of capital means low agricultural wages, whereas high productivity in new capital intensive industries means high wages, thereby leading to a migration process that continues until wages equalise.&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;p&gt;It might be worth noticing that this model was also used by Simon Kuznets to explain why industrialised countries saw a non-monotonic evolution of wage inequality between 1870 and 1950 (i.e. an increase and then a decrease in inequality), pattern that came to be known as the &lt;a href=&quot;https://en.wikipedia.org/wiki/Kuznets_curve&quot; rel=&quot;noreferrer&quot;&gt;Kuznets Curve&lt;/a&gt;. As the article above states:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;The Kuznets curve implies that as a nation undergoes industrialization – and especially the mechanization of agriculture – the center of the nation’s economy will shift to the cities. As internal migration by farmers looking for better-paying jobs in urban hubs causes a significant rural-urban inequality gap (the owners of firms would be profiting, while laborers from those industries would see their incomes rise at a much slower rate and agricultural workers would possibly see their incomes decrease), rural populations decrease as urban populations increase. Inequality is then expected to decrease when a certain level of average income is reached and the processes of industrialization – democratization and the rise of the welfare state – allow for the trickle-down of the benefits from rapid growth, and increase the per-capita income.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2017-08-28T08:38:13.510" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18031" PostTypeId="2" ParentId="18000" CreationDate="2017-08-27T20:10:13.473" Score="1" Body="&lt;p&gt;Direct banking is done online. Unit banking is just normal banks. Instead of working with some franchise direct banking allows you to go straight to the computers with the ones and zeroes and do banking. Whereas unit banking just offers you physical branches as well.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You already defined all this in your post. There is no question to answer here.&lt;/p&gt;&#xA;" OwnerUserId="14328" LastActivityDate="2017-08-27T20:10:13.473" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18032" PostTypeId="2" ParentId="18023" CreationDate="2017-08-27T20:19:54.580" Score="2" Body="&lt;p&gt;Food is the most necessary thing in life. It is not uncommon that undeveloped societies can have as large as 80% of the economy in agriculture. One of the first steps to an industrialized society therefore becomes to make agriculture more efficient. To produce more food per worker. Why? Because otherwise no matter how efficient technology you have outside of agriculture, you don't have enough human resources available to allocate to work with it ( either that, or or force-reallocate with the trade-off that the population will starve )! You can have as advanced science and high tech machinery but if people have to work to get food for the day they don't have time to learn it and to work with it, those machines &amp;amp; that knowledge will stand mostly unused.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the effectivization of agriculture is a necessary prerequisite of industrialization.&lt;/p&gt;&#xA;" OwnerUserId="14336" LastActivityDate="2017-08-27T20:19:54.580" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18033" PostTypeId="2" ParentId="18023" CreationDate="2017-08-27T20:37:29.450" Score="4" Body="&lt;p&gt;Aside from the economic arguments, a big difference was the amount of autonomy for the workers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider agriculture and similar rural employment (as servants etc) in the UK, even as recently as 1900. The status of agricultural workers in society was little changed from a medieval serf. They lived in housing provided by their employer. Their employer provided much of the resources (including time) for them to grow their own food and keep a few animals for their own use (e.g. a pig to fatten, kill, and preserve the meat each year, and maybe a couple of cows for milk as well). If that was not practical (e.g. for unmarried female domestic servants) food was provided &quot;free&quot; by the employer - with no personal choice available, of course. Workers were employed on annual contracts with no long term security, and paid in cash just once per year - with no cash payment at all if their employer was dissatisfied with them for any reason, or no good reason at all.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Compare all that with the relative freedom of paid factory work in a town, even allowing for the appalling living conditions of many factory workers and the extortionate systems of payment by company tokens that were only valid in company-run stores, rather than in standard currency. &quot;The American Dream&quot; wasn't invented in the USA, but in the European Industrial Revolution!&lt;/p&gt;&#xA;" OwnerUserId="8757" LastActivityDate="2017-08-27T20:37:29.450" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18034" PostTypeId="1" AcceptedAnswerId="18038" CreationDate="2017-08-28T05:20:54.133" Score="4" ViewCount="532" Body="&lt;p&gt;I have a pretty straightforward question. What sort of textbooks or graduate readings are there for urban economics that you would personally suggest and why? Preferably I would like one that has practice exercises/proofs in them that I can use. I've seen a few books that look like graduate texts out there, but don't know much about what's in them, so I figured some people here might.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2017-08-28T17:05:03.107" Title="Textbook/Reading Suggestions for Urban Economics" Tags="&lt;reference-request&gt;&lt;urban-economics&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18035" PostTypeId="1" CreationDate="2017-08-28T06:35:49.730" Score="0" ViewCount="2629" Body="&lt;p&gt;I was just wondering how Infrastructure can impact on Aggregate Supply. More specifically, how does the improvement of infrastructure improve Aggregate Supply?&lt;/p&gt;&#xA;" OwnerUserId="14339" LastEditorUserId="2776" LastEditDate="2017-08-28T08:29:22.560" LastActivityDate="2017-08-28T09:15:01.770" Title="How does Infrastructure impact on Aggregate Supply?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18036" PostTypeId="2" ParentId="18035" CreationDate="2017-08-28T08:44:58.910" Score="5" Body="&lt;p&gt;Aggregate supply is typically modelled as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ Y = F(A, K, L) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$Y$ = total production&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$L$ = labour input&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$K$ = capital input&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$A$ = total factor productivity&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Investment in infrastructure can increase both capital input $K$ and total factor productivity $A$. In a standard $AS - AD$ model, the aggregate supply curve would shift to the right, as a result, and the equilibrium output of the economy would increase.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/qC9BC.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/qC9BC.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Investment in infrastructure can increase &lt;strong&gt;capital input&lt;/strong&gt;, because if there are more roads in the country, the economy can produce more goods and services (think about a truck company, for example, which can do more jobs per day if its trucks travel on more direct roads or faster highways). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It can also increase &lt;strong&gt;total factor productivity&lt;/strong&gt;, because the proportional increase in output is potentially higher than the proportional increase in capital input. If with a short road I link a town to a national highway network, the benefits can be disproportionally high, as a short road link now provides access to a huge existing highway network. Or think about the 50 mile Panama Canal. It provides ships an 8,000 mile shortcut.&lt;/p&gt;&#xA;" OwnerUserId="14137" LastEditorUserId="14137" LastEditDate="2017-08-28T09:15:01.770" LastActivityDate="2017-08-28T09:15:01.770" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18038" PostTypeId="2" ParentId="18034" CreationDate="2017-08-28T14:41:31.437" Score="2" Body="&lt;p&gt;Masahisa Fujita is considered as one of the most famous theorist in urban economics. He is one of the pioneers of the New Economic Geography. His book &#xA;&lt;strong&gt;&lt;em&gt;Urban Economic Theory: Land Use and City Size, 1989, Cambridge&lt;/em&gt;&lt;/strong&gt; is a master piece, laying down the theoretical foundations of urban economics. Also, you may read&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Fujita, Masahisa; Krugman, Paul; Venables, Anthony J. (1999). The&#xA;Spatial Economy: Cities, Regions, and International Trade. Cambridge,&#xA;Massachusetts: MIT Press. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Fujita, Masahisa; Thisse, Jacques-François (2013). Economics of&lt;br&gt;&#xA;Agglomeration: Cities, Industrial Location, and Regional Growth (2nd &#xA;ed.). Cambridge University Press.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Esteban Rossi-Hansberg from Princeton is a rising star in urban economics. You may check out his &lt;a href=&quot;http://www.princeton.edu/~erossi/WWS582a.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;syllabus&lt;/a&gt;, which is pretty useful. He does not recommend any textbook, and provides a more modern approach.&lt;/p&gt;&#xA;" OwnerUserId="6168" LastActivityDate="2017-08-28T14:41:31.437" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18040" PostTypeId="2" ParentId="18034" CreationDate="2017-08-28T17:05:03.107" Score="2" Body="&lt;p&gt;I recommend &lt;a href=&quot;https://global.oup.com/academic/product/cities-agglomeration-and-spatial-equilibrium-9780199290444?cc=gb&amp;amp;lang=en&amp;amp;&quot; rel=&quot;nofollow noreferrer&quot;&gt;Cities, Agglomeration and Spatial Equilibrium&lt;/a&gt; by &lt;a href=&quot;https://scholar.harvard.edu/glaeser/home&quot; rel=&quot;nofollow noreferrer&quot;&gt;Edward Glaeser&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It introduces a monocentric city model (the Alonso-Muth-Mills model) which is discussed in &lt;a href=&quot;https://nathanschiff.com/wp-content/uploads/2017/02/Brueckner_Handbook_1987.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;this excellent paper&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This looks at how housing prices and densities vary across a city, and how people of differing incomes sort spatially. This is the spatial equilibrium within cities.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It then goes on to look at spatial equilibrium across cities (using the &lt;a href=&quot;http://eml.berkeley.edu/~webfac/eichengreen/e196_fa11/mondragon_econ196_10-26-11.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Rosen-Roback model&lt;/a&gt;), agglomeration economics, urban distress and public policy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is mathematical, but does not include all steps in the derivations. My algebra and calculus is very good, but I have had trouble following all his steps. There are no exercises, but plenty of references to academic research that uses this theory.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Glaeser has studied urban economics at Harvard and wrote an excellent book &lt;a href=&quot;http://rads.stackoverflow.com/amzn/click/0143120549&quot; rel=&quot;nofollow noreferrer&quot;&gt;The Triumph of the City&lt;/a&gt; for the layman.&lt;/p&gt;&#xA;" OwnerUserId="12371" LastActivityDate="2017-08-28T17:05:03.107" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18045" PostTypeId="1" AcceptedAnswerId="18051" CreationDate="2017-08-28T19:48:15.003" Score="1" ViewCount="64" Body="&lt;p&gt;I need the historical GDP of all modern countries (or at least the vast majority) from 1945 to now. It seems the world bank data only starts in 1960 or later. I found &lt;a href=&quot;http://www.worldeconomics.com/Data/MadisonHistoricalGDP/Madison%20Historical%20GDP%20Data.efp&quot; rel=&quot;nofollow noreferrer&quot;&gt;Angus Maddison's data&lt;/a&gt;, but I don't know how reliable it is. Can anyone tell me if it is reliable? Are there other good data sets for my needs? &lt;/p&gt;&#xA;" OwnerUserId="14347" LastEditorUserId="2776" LastEditDate="2017-08-29T07:22:45.300" LastActivityDate="2017-08-29T08:23:08.900" Title="Historical GDP of world economies back to 1945: What are the most complete and reliable data sets?" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;&lt;data-request&gt;&lt;history&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18046" PostTypeId="5" CreationDate="2017-08-28T19:54:25.850" Score="0" Body="&lt;p&gt;In &lt;strong&gt;mechanism design&lt;/strong&gt;, a principal (or mechanism designer) designs the &quot;rules&quot; of a Bayesian game to implement some goal, but takes as given an economic environment. In standard settings, this given environment consists of a given number of agents, payoff functions conditional on types and outcomes, a type space, and beliefs about type profiles. The principal commits to a set of rules that determine what each player can do (and in which order) and what happens for each action profile, i.e., she sets an action space and an outcome function mapping each action profile into an outcome (such as &quot;who gets the good and what is the price&quot;, or &quot;is the public good provided or not and who has to contribute what&quot;). Together with the economic environment, a Bayesian game is induced. Typically, the goal of the principal is to either maximize welfare or profit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In such settings, often (but not always) a &lt;strong&gt;revelation principle&lt;/strong&gt; holds, which essentially implies that whatever the principal can achieve through some arbitrary set of rules can also be achieved through an incentive-compatible direct mechanism: If a social choice function&lt;span class=&quot;math-container&quot;&gt;${}^1$&lt;/span&gt; can be implemented&lt;span class=&quot;math-container&quot;&gt;${}^2$&lt;/span&gt; by an arbitrary mechanism, then the same function can be implemented by an incentive-compatible and direct mechanism with the same outcome. &lt;a href=&quot;https://economics.stackexchange.com/a/27320/11590&quot;&gt;Here&lt;/a&gt; is an accessible sketch of the proof.&#xA;As a result, the principal can focus on direct mechanisms in which participants have incentives to report their types truthfully, and she then maximizes her goal function constrained by incentive compatibility and possible other contraints such as individual rationality (a participation constraint). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Other than the revelation principle, notable results are the revenue equivalence theorem, the Gibbard–Satterthwaite theorem, and the Myerson–Satterthwaite theorem. Seminal contributions include Vickrey–Clarke–Groves mechanisms and Myerson's optimal auction. Mechanism design is closely connected to auction design, while the design of matching markets (often without transfers) often runs under the broader label &quot;market design&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;${}^1$&lt;/span&gt; A social-choice function maps type profiles &lt;span class=&quot;math-container&quot;&gt;$\theta$&lt;/span&gt; into outcomes &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$f: \Theta \rightarrow X$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;${}^2$&lt;/span&gt; A mechanism implements a social choice function, if the (game induced by the) mechanism has an equilibrium outcome that corresponds to the outcome of the social choice function.&lt;/p&gt;&#xA;" OwnerUserId="11590" LastEditorUserId="11590" LastEditDate="2019-04-28T21:12:50.410" LastActivityDate="2019-04-28T21:12:50.410" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="18047" PostTypeId="4" CreationDate="2017-08-28T19:54:25.850" Score="0" Body="Mechanism design is a field in economics and game theory that takes an engineering approach to designing economic mechanisms or incentives, toward desired objectives, in strategic settings, where players act rationally." OwnerUserId="8815" LastEditorUserId="8815" LastEditDate="2017-08-29T19:01:30.263" LastActivityDate="2017-08-29T19:01:30.263" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18050" PostTypeId="1" CreationDate="2017-08-29T04:38:23.503" Score="4" ViewCount="179" Body="&lt;p&gt;I am attempting to solve a variation of &lt;a href=&quot;http://mypage.iu.edu/~eleeper/Papers/LeeperJME1991.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Leeper's (1991)&lt;/a&gt; model, which deals with the FTPL. This is what I have done so far:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The utility function is $\log(c_t)+\delta\log⁡(M_t/p_t)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I obtain two first order conditions:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(1) $\frac{1}{R_t}=β E_t \left[\frac{1}{\pi_{t+1}} \right]$ and&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(2) $m_t = \delta c \left[ \frac{R_t}{R_t - 1} \right]$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where $R_t$ is the gross nominal interest rate, $\pi_t$ is the gross inflation rate and $c$ the deterministic steady state value of consumption.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose the monetary authority follows the following rule:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$R_t = α0+ απ_t+ θ_t R_t$, where $θ_t = ρ_1 θ_{t−1} + ϵ_{1t}, |ρ_1|&amp;lt;1$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The fiscal authority follows:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$τ_t = γ_0 + γ b_{t−1} + ψ_t$, where $ψ_t = ρ_2 ψ_{t−1} + ϵ_{2t}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am having trouble seeing how Leeper was able to take all the given information so far and produce the following two equations:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(3) $E_t \hat{π}_{t+1} = αβ\hat{\pi}_t + βθ_t$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(4) $φ_1 \hat{π}_t + \hat{b}_t + φ_2 \hat{π}_{t−1} - (β^{−1} − γ)\hat{b}_{t−1} + φ_3 θ_t + ψ_t + φ_4 θ_{t−1}=0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where the varphi's are the steady state constants:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\varphi_1 = \frac{\delta c}{\bar{R} - 1} \left[ \frac{1}{\beta \bar{\pi}} - \frac{\alpha}{\bar{R} - 1} \right] + \frac{\bar{b}}{\beta \bar{R}}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\varphi_2 = - \frac{\alpha}{\bar{\pi}} \left[ \frac{\delta c}{\left(\bar{R} - 1\right)^{2}} - \bar{b} \right] $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\varphi_3 = \frac{\delta c}{\left(\bar{R} - 1\right)^{2}}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\varphi_4 = - \frac{1}{\bar{\pi}} \left[ \frac{\delta c}{\left(\bar{R} - 1\right)^{2}} - \bar{b} \right] $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note: I was able to solve for (3); however, I am still unsure why $\theta_t$ does not have a hat on top of it. If someone can walk me through how to reach (4), I would very much appreciate it!&lt;/p&gt;&#xA;" OwnerUserId="14352" LastEditorUserId="2776" LastEditDate="2017-08-29T12:03:58.617" LastActivityDate="2017-08-30T10:19:34.957" Title="Solving Leeper (1991) model" Tags="&lt;academic-graduate&gt;&lt;difference-equations&gt;&lt;rational-expectations&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18051" PostTypeId="2" ParentId="18045" CreationDate="2017-08-29T06:49:30.010" Score="0" Body="&lt;p&gt;As far as I know Angus Madison's GDP figures are one of the most reliable sources of historical data, even if data construction is as always diputable. The &lt;a href=&quot;http://onlinelibrary.wiley.com/doi/10.1111/j.1475-4991.2006.00199.x/abstract&quot; rel=&quot;nofollow noreferrer&quot;&gt;Review of Income and Wealth&lt;/a&gt; published a rigorous debate between Angus Maddisson and Carsten A. Holz regarding Maddison's estimates on China's growth. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You may also find useful the  &lt;a href=&quot;http://www.cepii.fr/CEPII/fr/bdd_modele/presentation.asp?id=32&quot; rel=&quot;nofollow noreferrer&quot;&gt;Historical Bilateral Trade and Gravity Data set&lt;/a&gt; (TRADHIST) provided by the CEPII, which partly uses Maddison's data. TRADHIST gathers more than 1.9 million bilateral trade observations for the 188 years from 1827 to 2014. TRADHIST also provides about 42,000 observations on aggregate trade, and about &lt;strong&gt;14,000 observations on GDPs&lt;/strong&gt; and exchange rates respectively. This data set is publicly available.&lt;/p&gt;&#xA;" OwnerUserId="6168" LastEditorUserId="6168" LastEditDate="2017-08-29T08:23:08.900" LastActivityDate="2017-08-29T08:23:08.900" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18052" PostTypeId="2" ParentId="18045" CreationDate="2017-08-29T07:42:59.247" Score="0" Body="&lt;p&gt;Another source is the &lt;a href=&quot;https://link.springer.com/book/10.1057%2F9781137305688&quot; rel=&quot;nofollow noreferrer&quot;&gt;International Historical Statistics 1750-2010&lt;/a&gt;, a massive handbook of all sort of statistics, including GDP, for virtually every country. The data is full of references and footnotes to indicate the source and any adjustment made to the data, so everything is crystal clear.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Two drawbacks are: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;This data are not publicly available, but if you belong to an educational institution it's likely you will have access to it through your local library. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Data comes in pdf. You can however easily copy from pdf to excel using tools like &lt;a href=&quot;http://tabula.technology/&quot; rel=&quot;nofollow noreferrer&quot;&gt;this one&lt;/a&gt;.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Regarding to criticism of Agnus Maddison data, according to &lt;a href=&quot;https://www.quora.com/What-are-the-potential-inaccuracies-and-assumptions-in-Angus-Maddisons-plot-of-the-history-of-the-world-economy-How-reliable-is-it&quot; rel=&quot;nofollow noreferrer&quot;&gt;this source&lt;/a&gt; (sloppy but at least provides references) the major issue is related to old data. You would expect modern data is taken from accurate sources. In any case, documentation is not very easy to navigate (e.g. see &lt;a href=&quot;http://www.ggdc.net/maddison/maddison-project/publications/wp4.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;). In that sense, IHS is way better in my opinion.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-08-29T07:42:59.247" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18053" PostTypeId="2" ParentId="9444" CreationDate="2017-08-29T08:43:05.120" Score="1" Body="&lt;p&gt;The &lt;a href=&quot;http://www.adefa.org.ar/es/estadisticas-anuarios&quot; rel=&quot;nofollow noreferrer&quot;&gt;ADEFA website&lt;/a&gt; does have information on sales, disaggregated by company, market (internal/export), and for very year since 1959. For example:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/kVnE9.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/kVnE9.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This data is &lt;a href=&quot;http://www.adefa.org.ar/upload/anuarios/anuario2015/3.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;. Disaggregation by company and market is &lt;a href=&quot;http://www.adefa.org.ar/upload/anuarios/anuario2015/5.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;ADEFA does not provide data on profits thought. As you can see from the latter link, all companies are multinationals with subsidiaries in Argentina (e.g. Toyota Argentina S.A. where &quot;S.A.&quot; stands for &lt;em&gt;Sociedad Anónima&lt;/em&gt;, meaning PLC). As such, they provide annual statements to the local tax authorities, including profits. They should also publish annual reports to their investors (e.g. Toyota 2014 &lt;a href=&quot;https://www.toyotacfa.com.ar/uploads/politica/Memoria%20y%20Balance%20Consolidado%20Anual%20(Completo)%20al%2031%20Dic%202014.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;; see profits in page 8). And official government organisations also make these statement public (e.g. &lt;a href=&quot;https://www.boletinoficial.gob.ar/#!DetalleSegunda/A635012/null&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;). In other words, all the data must be available online. You just need to google something like &quot;name of company memoria anual 20XX&quot;, where &lt;em&gt;memoria anual&lt;/em&gt; stands for annual financial report, for year 20XX. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Whether the data is &lt;strong&gt;systematically&lt;/strong&gt; available free of charge, I doubt it. Normally consultancy companies, investment banks and other financial firms produce compilations and analysis of this data for their clients (know this from first hand, when worked at Deutsche Bank). Unless you have access to one of those, you will have to compile the data yourself. At least there are just a few car companies, so this should not take you long.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;PS: beware of over/under reported utilities due to &lt;a href=&quot;https://en.wikipedia.org/wiki/Transfer_pricing&quot; rel=&quot;nofollow noreferrer&quot;&gt;transfer pricing&lt;/a&gt; though.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-08-29T08:43:05.120" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18054" PostTypeId="2" ParentId="18050" CreationDate="2017-08-29T11:56:12.150" Score="2" Body="&lt;p&gt;You have the government's flow budget constraint (re-written in real terms):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$b_{t} + m_{t} + \tau_{t} = g + \frac{m_{t-1}}{\pi_{t}} + R_{t-1}\frac{b_{t-1}}{\pi_{t}}$ (1)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now all you need to do is substitute (2) and the policy rules (also, I don't think Leeper's utility function had a $\delta$ but that's not important) and linearise. I.e linearise:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$b_{t} +δc[\frac{R_{t}}{R_{t}-1}] + (\gamma_{0} + \gamma_{1}b_{t-1} + \psi_{t}) = g +\frac{δc[\frac{R_{t-1}}{R_{t-1}-1}]}{\pi_{t}} + (\alpha_{0} + \alpha_{1} \pi_{t-1} + \beta \theta_{t-1}) \frac{b_{t-1}}{\pi_{t}}$ (2)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note: I left some $R_{t}$ and $R_{t-1}$ in there but you will have to substitute the monetary policy rule there as well. Then all you do is a Taylor approximation around the deterministic steady state. Just a warning, the algebra will be very hairy, it took me several tries to get it right.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;OP requested some more reading on this topic so I'll add a list here:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;[&lt;a href=&quot;http://sims.princeton.edu/yftp/Loyo/LoyoTightLoose.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;1&lt;/a&gt;] Loyo (1999), Tight Money Paradox on the Loose: A Fiscalist Hyperinflation&lt;/p&gt;&#xA;&#xA;&lt;p&gt;[&lt;a href=&quot;http://www.columbia.edu/~mw2230/BOE.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;2&lt;/a&gt;] Woodford (1998), Public Debt and the Price Level&lt;/p&gt;&#xA;&#xA;&lt;p&gt;[&lt;a href=&quot;http://www.columbia.edu/~mw2230/jmcb.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;3&lt;/a&gt;] Woodford (2000), Fiscal Requirements for Price Stability&lt;/p&gt;&#xA;&#xA;&lt;p&gt;[&lt;a href=&quot;https://bfi.uchicago.edu/sites/default/files/research/Leeper-Leith-Handbook-Jan2016-Final.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;4&lt;/a&gt;] Leeper &amp;amp; Leith (2016), Understanding Inflation as a Joint&#xA;Monetary-Fiscal Phenomenon&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have many more but start with these. &lt;/p&gt;&#xA;" OwnerUserId="11767" LastEditorUserId="11767" LastEditDate="2017-08-30T10:19:34.957" LastActivityDate="2017-08-30T10:19:34.957" CommentCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="18055" PostTypeId="2" ParentId="17994" CreationDate="2017-08-29T12:31:42.867" Score="2" Body="&lt;p&gt;I think &lt;a href=&quot;https://www.econstor.eu/bitstream/10419/167615/1/GLO-DP-0104.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;this new paper&lt;/a&gt; might be of interest to you.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The authors estimate the earnings advantage of workers that speak a second language, differentiating between native-born and foreign-born speakers. They evaluate this for 15 European countries, between 1994 and 2001. Their results are:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;First, for&#xA;  native-born workers with a tertiary diploma, using a foreign language at work is found to have&#xA;  an unambiguously positive impact on their earnings (2% on average).  Second, for foreign-&#xA;  born workers, however, returns to foreign language use at work is highly complementary&#xA;  to education.  Foreign language users below the upper secondary educational level earned&#xA;  significantly less (&#xA;  −&#xA;  8%) than those who use the local language at work. Third, with regard to&#xA;  language types, a linguistically distant foreign language gives native-born workers the highest&#xA;  wage premium, and EU official languages pays off the most for foreign-born workers. Fourth,&#xA;  our results do not show that lack of local language knowledge of low-educated migrants causes&#xA;  these results, as immigrants for whom the mother tongue is similar to the local language show&#xA;  a similar pattern.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The authors also perform a calculation of the annual wage &lt;strong&gt;loss&lt;/strong&gt; from low skill foreign-workers not speaking the local language (as wages belong to GDP, this could partly be seen as a GDP loss, but it's not a very decent general equilibrium exercise in my opinion). The results below:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/6MgWl.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/6MgWl.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Not only the article itself but the references of the article might be of interest to you. For example:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;Ginsburgh and Prieto-Rodriguez (2011) found that for native workers, English skills are well&#xA;  rewarded in Northern Europe, but much less rewarded in Southern Europe (for example, less&#xA;  than French and German in Italy, etc.)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-08-30T06:34:26.820" LastActivityDate="2017-08-30T06:34:26.820" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18056" PostTypeId="2" ParentId="14368" CreationDate="2017-08-29T13:39:52.840" Score="1" Body="&lt;p&gt;Henry is right. The units of $A$ depends on how you are defining the variables $Y$, $K$ and $L$. You could only define an &quot;absolute value&quot; of $A$ is you have strong reason to believe that your definitions for these variables is the &quot;correct&quot; one (how they are computed, their units, etc). This is not trivial. For example, notice that GDP is, by definition, a &lt;strong&gt;nominal&lt;/strong&gt; variable (that is how the data is recorded/constructed). Real GDP is a &lt;em&gt;derivation&lt;/em&gt; from nominal GDP, based on some assumed price index. Therefore, the definition of $A$ will be affected by the choice of such index, which is not trivial.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Additionally, such &quot;absolute value&quot; of $A$ might be incorrect because the production function could be wrong. For example, the model does not include human capital, or energy, or land, etc. Or the functional form could be incorrect (CES?), or its parameters might vary over time. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But even more severe, an &lt;strong&gt;aggregate production function&lt;/strong&gt; (and therefore $A$) &lt;strong&gt;might not even exist&lt;/strong&gt;. This is the old-but-still-relevant issue of the &lt;a href=&quot;https://en.wikipedia.org/wiki/Cambridge_capital_controversy#The_aggregation_problem&quot; rel=&quot;nofollow noreferrer&quot;&gt;impossibility of aggregation&lt;/a&gt;. &lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-08-29T13:39:52.840" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18057" PostTypeId="2" ParentId="8541" CreationDate="2017-08-29T13:45:35.813" Score="1" Body="&lt;p&gt;A &lt;a href=&quot;http://www.janeeckhout.com/wp-content/uploads/RMP.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;paper&lt;/a&gt; just out of the oven provides a very comprehensive analysis of market power in the US for more than 50 years, using mark-up data from three different sources. The key graphs below:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/7nuEQ.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/7nuEQ.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-08-29T13:45:35.813" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18060" PostTypeId="2" ParentId="5861" CreationDate="2017-08-29T14:34:44.303" Score="3" Body="&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;A little inflation is better than zero inflation (or deflation),&#xA;because &lt;strong&gt;wages are &quot;sticky&quot;&lt;/strong&gt; - they don't usually get adjusted&#xA;downward.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If a company is facing a year that is a bit worse than the previous&#xA;year due to small fluctuations in demand, wages should actually be&#xA;decreased. Companies typically don't cut wages though, so they might&#xA;even choose to let go of some of their staff. Now, if there is 2%&#xA;inflation and wages remain flat in nominal terms (nobody is getting&#xA;a raise), wages will be down 2% in real terms. So the company is&#xA;better able to cope with the slump in demand (its real costs are&#xA;lower) and it might not have to let staff go.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Moderate inflation also makes it possible to have &lt;strong&gt;negative real&#xA;interest rates&lt;/strong&gt;. This gives central banks more flexibility to&#xA;stimulate the economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Real interest rate = Nominal interest rate - Inflation&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If inflation is zero and the nominal interest rate is zero, the real&#xA;interest rate will be zero and the central bank won't be able to&#xA;make interest rates go any lower (assuming nominal interest rates&#xA;can't be negative). However, if inflation is say 2%, if the central&#xA;bank sets the nominal interest rate to zero, the real interest rate&#xA;will be -2%, giving a significant stimulus to the economy.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;In general, moderate inflation also &lt;strong&gt;helps keep the economy going&lt;/strong&gt;. If&#xA;there is inflation and consumers or companies sit on cash, their&#xA;holdings are being devalued in real terms. This gives them an&#xA;incentive to spend and invest instead of hoarding cash.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="14137" LastActivityDate="2017-08-29T14:34:44.303" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18063" PostTypeId="1" CreationDate="2017-08-29T17:44:28.103" Score="3" ViewCount="422" Body="&lt;p&gt;I am wondering if it is possible to write down a following CRRA utility function ;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$u\left(c(t)\right)=a\frac{c\left(t\right)^{1-\sigma}}{1-\sigma}$$ where $a&amp;gt;0$ is a constant scale parameter. I need this $a$ to have some numerical results but I am not sure if $a$ can be justified. &#xA;In a growh model, I am trying to show the existence of Hopf bifurcation and limit cycles. Then, with a scale parameter like that, I can show that it exists. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Normally, it does not change the usual assumptions on a CRRA utility function, (an increasing concave function)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there any way to justify it (are there some examples of this kind ?) or are there any types of utility function with constant scale parameters ?&lt;/p&gt;&#xA;" OwnerUserId="2938" LastEditorUserId="2938" LastEditDate="2017-08-29T20:33:16.033" LastActivityDate="2017-09-29T14:37:24.577" Title="CRRA utility function with a scale parameter" Tags="&lt;macroeconomics&gt;&lt;utility&gt;" AnswerCount="2" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="18065" PostTypeId="1" CreationDate="2017-08-29T21:51:11.310" Score="2" ViewCount="57" Body="&lt;p&gt;I'm trying to build a structural model explaining the job search process by the job-seeker. One of the crucial component of job search, that i want to model, is the expectation about the employer. So things like a worker will not apply for job to the employer if he thinks/believe (correctly or incorrectly) that employer is racist, or if we thinks/believe that this job won't pay him well. I want to model these expectations and don't know where to start. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I will really appreciate if someone can help highlight few references in this regard and offer any useful suggestion that can help me build the structural model and eventually estimate parameters of interest. &lt;/p&gt;&#xA;" OwnerUserId="5863" LastActivityDate="2017-08-31T10:24:15.260" Title="Structural Modelling of Expectations/Beliefs" Tags="&lt;reference-request&gt;&lt;labor-economics&gt;&lt;structural-estimation&gt;&lt;discrimination&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18068" PostTypeId="1" CreationDate="2017-08-30T07:50:59.157" Score="3" ViewCount="473" Body="&lt;p&gt;Question: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;A choice rule $C$ satisfies path independence if for all $A, B \in 2^X \setminus \emptyset$, $C(A \cup B) = C(C(A) \cup C(B))$. Prove that if $C$ is nonempty and rationalizable, then $C$ satisfies path independence.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;My attempt: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since $C$ is rationalizable, there exists a preference relation $\succeq$ such that $C = C_{\succeq}$. Now let $A, B \in 2^{X} \setminus \emptyset$ and $x \in C(A \cup B) = C_{\succeq}(A \cup B) \subseteq A \cup B$. So $x \succeq y$ for all $y \in A \cup B$. Since $C(A) \cup C(B) = C_{\succeq}(A) \cup C_{\succeq}(B) \subseteq A \cup B$, then $x \succeq y$ for all $y \in C(A) \cup C(B)$, hence $x \in C(C(A) \cup C(B))$, which shows that $C(A \cup B) \subseteq C(C(A) \cup C(B))$. Now let $x \in C(C(A) \cup C(B)) = C_{\succeq}(C_{\succeq}(A) \cup C_{\succeq}(B))$, which implies that $x \succeq y$ for all $y \in C(A) \cup C(B)$. But if $y \in C(A) \cup C(B)$ then this means that $y \succeq z$ for all $z \in A \cup B$. By transitivity, we have $x \succeq z$ for all $z \in A \cup B$, so $x \in C(A \cup B)$. So, $C(C(A) \cup C(B)) \subseteq C(A \cup B)$. Therefore, together we have $C(A \cup B) = C(C(A) \cup C(B))$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is my proof correct?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Furthermore, can anyone provide an example of a nonempty choice rule that satisfies path independence but is not rationalizable?&lt;/p&gt;&#xA;" OwnerUserId="14359" LastEditorUserId="2776" LastEditDate="2017-08-30T09:15:31.703" LastActivityDate="2018-08-28T01:06:56.740" Title="Choice rule and path independence" Tags="&lt;microeconomics&gt;&lt;choice-theory&gt;" AnswerCount="0" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18070" PostTypeId="2" ParentId="18014" CreationDate="2017-08-30T10:18:06.660" Score="4" Body="&lt;p&gt;Computing an equilibrium is not needed for implementing it. This was the mistake of Lange and co. and was decisively rebutted by Hayek.&#xA;If you want a mathematical formulation, simply take a tatonement process. Given prices, each individual needs to compute her net demand correspondence. Under different tatonement mechanisms, which are an idealization of the dynamic process of price adjustment in the real-world economy, prices should converge to approximate equilibria. In both experimental settings and in financial markets, there is ample evidence for convergence. &lt;/p&gt;&#xA;" OwnerUserId="14310" LastActivityDate="2017-08-30T10:18:06.660" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18071" PostTypeId="2" ParentId="18020" CreationDate="2017-08-30T10:19:49.450" Score="0" Body="&lt;p&gt;&lt;strong&gt;It depends&lt;/strong&gt;. For example:&lt;/p&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;a &lt;a href=&quot;http://www.infodev.org/infodev-files/wb_crowdfundingreport-v12.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;report&lt;/a&gt; about crowdfunding from the World Bank refers to amount of &lt;strong&gt;investment&lt;/strong&gt;:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Crowdfunding based initially on soliciting pledges or&#xA;donations has emerged as a multibillion-dollar global&#xA;industry. [...] Projections for the size of the crowdfund &lt;strong&gt;investing&#xA;market&lt;/strong&gt; range from US\$3.98 billion (Best, Neiss, Stralser,&#xA;and Fleming 2013) to as much as US\$300 billion over&#xA;the coming years depending on the level of enabling&#xA;regulation adopted by governments (Huessner 2012).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;http://siteresources.worldbank.org/INTAFRICA/Resources/africa-agribusiness-report-2013.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;This report&lt;/a&gt; by World Bank about agribusiness in Africa refers to &amp;quot;&lt;strong&gt;Value added and household expenditure&lt;/strong&gt;&amp;quot; (Box 3.1, page 15) when they say:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Agriculture and agribusiness together are project&#xA;ed to be a US\$ 1 trillion industry in Sub-Saha-&#xA;ran Africa (SSA) by 2030 (compared to US\$ 313 billion in 2010)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;http://www.theorganicprepper.ca/making-a-killing-with-cancer-a-124-6-billion-dollar-industry-12092013&quot; rel=&quot;nofollow noreferrer&quot;&gt;this article&lt;/a&gt; about cancer refers to a billion dollar industry in terms of:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;[i]n 2012, the reported &lt;strong&gt;spending on cancer treatment&lt;/strong&gt; was 124.6 billion dollars.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Perhaps more oddly, &lt;a href=&quot;http://www.enn.com/business/article/49988&quot; rel=&quot;nofollow noreferrer&quot;&gt;this article&lt;/a&gt; refers to pollution as a billion dollar industry in terms of the &lt;strong&gt;economic costs&lt;/strong&gt; it imposes to the economy:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;For example, the United States is estimated to lose \$45 billion every year due to air pollution, while the UK loses \$7.6 billion annually. Germany comes in at \$18 billion&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;p&gt;In summary, there is no universal agreement on what that is supposed to mean. As the examples above show, &lt;strong&gt;it depends on the context&lt;/strong&gt;.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2017-08-30T10:19:49.450" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18072" PostTypeId="2" ParentId="18014" CreationDate="2017-08-30T10:34:36.780" Score="1" Body="&lt;p&gt;Check out &lt;a href=&quot;https://arxiv.org/pdf/1002.2284.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Maymin (2009)&lt;/a&gt;, who shows that if markets are weak-form efficient, meaning current prices fully reflect all information available in past prices, then $P = NP$, meaning every computational problem whose solution can be verified in polynomial time can also be solved in polynomial time.&lt;/p&gt;&#xA;" OwnerUserId="14078" LastEditorUserId="2776" LastEditDate="2017-08-30T10:43:15.890" LastActivityDate="2017-08-30T10:43:15.890" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18073" PostTypeId="2" ParentId="18063" CreationDate="2017-08-30T13:22:56.350" Score="1" Body="&lt;p&gt;As it is well-known, preferences (even under risk) are invariant to affine transformations of the utility function. Therefore, adding a 'scale' parameter adds nothing in terms of fundamental preferences (i.e. in terms of comparing streams of consumption). I cannot even imagine what kind of 'numerical results' would be sensitive to it. &lt;/p&gt;&#xA;" OwnerUserId="14310" LastActivityDate="2017-08-30T13:22:56.350" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18074" PostTypeId="1" AcceptedAnswerId="18098" CreationDate="2017-08-30T13:43:36.727" Score="10" ViewCount="795" Body="&lt;p&gt;What's the meaning of the standard error of a coefficient in a regression when the whole population is included?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've been so puzzled by this question. Because it seems to me, standard errors make no sense when the whole population is included -- there is no need for statistical inference since you already have the whole population.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But it is so widely used even by many articles published in top journals. For example, if I am examining the relationship between a country's GDP growth rate and its population density, I run the regression:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ GDP_i = \alpha + \beta Pop_i + \gamma \mathbf{X}_i + \epsilon_i$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;with all 195 countries on the earth. In the case, all countries (the population) are included. But all literature still talk about the statistical significance of the coefficients. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Could somebody explain is it a misuse of statistical inference when regressing over the whole population?&lt;/p&gt;&#xA;" OwnerUserId="14363" LastEditorUserId="44" LastEditDate="2017-08-31T08:37:15.713" LastActivityDate="2017-08-31T16:01:18.627" Title="Regression over the whole population" Tags="&lt;econometrics&gt;&lt;regression&gt;" AnswerCount="2" CommentCount="4" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18075" PostTypeId="2" ParentId="16763" CreationDate="2017-08-30T15:04:30.597" Score="4" Body="&lt;p&gt;For completeness, let me illustrate this in the continuous time framework. The Solow equation, in the simplest of cases, is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\dot{k} = s f(k) - \delta k = \phi(k)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then we have &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac{\partial \phi}{\partial k} = s f'(k) - \delta = \frac{sf'(k)k - \delta k }{k}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In steady state (i.e., $\dot{k} = \phi(k^{\ast}) = 0$), we have $\delta k = s f(k)$, hence&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\left. \frac{\partial \phi}{\partial k} \right|_{k=k^{\ast}} = \frac{s f' k - s f(k)}{k} = \frac{s}{k} f(k) \left[ \frac{k \cdot f'}{f(k)} - 1 \right]$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since both $\frac{s}{k}$ and $f(k)$ are always positive, the sign of that expression hinges on the term in brackets. But remember that $\frac{k \cdot f'}{f(k)}$ is the &lt;a href=&quot;https://economics.stackexchange.com/questions/15361/alpha-interpretation-in-solow-growth-model/15363#15363&quot;&gt;output elasticity of capital&lt;/a&gt;, which is smaller than 1 if $f$ is concave in $k$, which means $\frac{\partial \phi}{\partial k}$ at $k^{\ast}$ is negative. Therefore by &lt;a href=&quot;https://books.google.com/books?id=kKRyws2x9tQC&amp;amp;pg=PA63&quot; rel=&quot;nofollow noreferrer&quot;&gt;theorem 3.2.1 in Zhang (2005)&lt;/a&gt;, the steady state in the Solow model is stable.&lt;/p&gt;&#xA;" OwnerUserId="14365" LastEditorUserId="14365" LastEditDate="2017-09-03T14:34:41.333" LastActivityDate="2017-09-03T14:34:41.333" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18076" PostTypeId="2" ParentId="8582" CreationDate="2017-08-30T15:09:03.180" Score="1" Body="&lt;p&gt;If I understand your question correctly, you can take the log of the original utility function to simplify the calculations.  The demand derived will be the same as that which is derived from the original utility function.  This follows since the log function is a monotone function, and preferences are preserved under monotonic transformations of utility.  Thus, the &quot;log-utility&quot; case that you find online is exactly what you want to work with since it would simplify things quite a bit.&lt;/p&gt;&#xA;" OwnerUserId="14366" LastActivityDate="2017-08-30T15:09:03.180" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18077" PostTypeId="2" ParentId="18074" CreationDate="2017-08-30T16:13:18.013" Score="5" Body="&lt;p&gt;It's important to consider what exactly the population is about which an inference is being drawn.  It's easy to overlook the time aspect in this context.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose for example that the aim is to forecast the next two years' GDP for each country in the world. Then the population of interest is a set of pairs of the form &quot;country, year&quot;.  It isn't simply &quot;all countries&quot;, and even if a forecast model has been estimated by regression on current and past years' data for each country, that doesn't mean that the whole population of interest has been included.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If one really does start from a complete dataset for the whole population of interest, then all one can do is calculate summary statistics. That could include standard deviations, but it would be inappropriate to call these standard errors, since that term relates to a sampling distribution whereas the only &quot;sample&quot; in this case is the whole population.&lt;/p&gt;&#xA;" OwnerUserId="1417" LastEditorUserId="1417" LastEditDate="2017-08-30T18:49:55.370" LastActivityDate="2017-08-30T18:49:55.370" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18078" PostTypeId="2" ParentId="1812" CreationDate="2017-08-30T17:35:48.417" Score="2" Body="&lt;p&gt;There is also a good discussion in &lt;a href=&quot;http://a.co/5Z5AlZu&quot; rel=&quot;nofollow noreferrer&quot;&gt;&quot;Contract Theory&quot; by Bolton and Dewatripont&lt;/a&gt;. It is discussed in terms of non-linear pricing in Chapter 2, &quot;Hidden Information and Screening&quot;. However, Mirrlees optimal taxation is discussed explicitly in section 2.2.2, &quot;Optimal Income Taxation.&quot; This treatment covers the case with only two types. The case with a continuum of types is discussed in section 2.3.3, again in the non-linear pricing context.&lt;/p&gt;&#xA;" OwnerUserId="59" LastActivityDate="2017-08-30T17:35:48.417" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18079" PostTypeId="1" CreationDate="2017-08-30T20:20:32.207" Score="5" ViewCount="5613" Body="&lt;p&gt;It seems reasonable to say that technology generally increases output per unit of labour.  Therefore in any factory which has installed new technology one can reasonably expect that for the same output one is likely to need less employees than before (or perhaps the firm will retain the same number of employees but output will increase).  Therefore, in either case, the output per employee has increased.  Therefore one could say that labour has been saved by the new technology.  One could also say that labour has been augmented by the new technology as each worker is supported by the new technology and is now more productive.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is: do we have clear definitions of these two terms and what is the difference?&lt;/p&gt;&#xA;" OwnerUserId="14368" LastEditorUserId="2776" LastEditDate="2017-08-31T07:13:26.970" LastActivityDate="2018-05-07T17:06:25.640" Title="Labour Saving vs. Labour Augmenting - what is the difference?" Tags="&lt;labor-economics&gt;&lt;productivity&gt;&lt;technology&gt;" AnswerCount="4" CommentCount="1" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="18080" PostTypeId="1" AcceptedAnswerId="18087" CreationDate="2017-08-30T20:30:38.350" Score="0" ViewCount="107" Body="&lt;p&gt;I am looking for an objective way of measuring the &quot;asymmetry&quot; (the overall level of difference) of the GDP per Capita in groups of countries involved in an international agreement. So far, the best measures I found are the variance, the Gini coefficient and the maximum divided by the average. Do you know any better way of measuring this? If not, which one of these measures would be the best in your opinion?&lt;/p&gt;&#xA;" OwnerUserId="14347" LastEditorUserId="2776" LastEditDate="2017-08-31T06:36:43.050" LastActivityDate="2017-08-31T06:36:43.050" Title="Measuring asymmetry between countries GDP per capita" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;&lt;inequality&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18081" PostTypeId="2" ParentId="18079" CreationDate="2017-08-30T22:01:53.027" Score="0" Body="&lt;p&gt;Either way, output per unit of labour input increases. You could explain or define this process in any way you could - there is no clear difference between them.&lt;/p&gt;&#xA;" OwnerUserId="6009" LastActivityDate="2017-08-30T22:01:53.027" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18082" PostTypeId="1" CreationDate="2017-08-31T03:30:21.200" Score="4" ViewCount="197" Body="&lt;p&gt;The following is all public information available to all the players in this scenario.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;The General Setup&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the aftermath of the infamous race between the tortoise and the hare, the salty hare went to trash talk the tortoise in the news. Things come to a head and the two decide to settle their differences in the ring with an $N$ round boxing match. The house manager who owns the venue is wondering how to set three things: venue ticket price $p_t$, the size of the combined guaranteed salaries for both fighters $w$, and the fraction of ticket sales that go to the fight purse, denoted $p_f$. The other animals suspect that pay for the fighters will probably affect the intensity of the fight, and are wondering if the fight will be interesting.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The utility of paying for a fight ticket for each consumer is $$u_j(\mathbb{E}\left(\sum_{i=1}^{N} e_{ti} + e_{hi}\right), v, p_t)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That is, the expected total effort exerted by the tortoise and the hare across the $N$ rounds, the number $v \leq J$ of other animals who are in line to buy a ticket, and ticket price $p_t$ are what affect utility. An animal will get in line to buy a ticket if the utility of buying a ticket is $0$ or greater. We will say that $u_j$ is strictly increasing in the first and second arguments, strictly decreasing in the third argument, and that all animals are risk averse (so concave utility). The house manager sets one venue price and does not change it all the way up until the fight gets underway and ticket sales close (it's a cultural thing).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;The Fight&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Before ticket sales open, and after the house manager has made his decisions, the two fighters must agree on how to split the total fight purse $p_f p_t x$ based on who wins and who loses, where $x$ is the total number of tickets that end up being sold. The winner gets fraction of the fight purse $F$. The combined house salary $w$ is split equally between both fighters. Each fighter has a stock of effort/energy to use in the fight denoted $E_t$ and $E_h$ for the tortoise and hare respectively, where $E_t &amp;lt; E_h$. The total consumption of energy for fighter $f \in \{t, h\}$ is: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\sum^N_{i=1} e_{fi} + d(e_{-fi} - e_{fi}) \leq E_f$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We denote $d(\cdot)$ as a damage function where expending less energy than your opponent in a given round means you lose additional energy. We restrict $d(\cdot) = 0$ if the argument is less than or equal to $0$ and say $d(\cdot)$ is strictly increasing, but negative in the second derivative. For any given round, the fighter who suffers the damage penalty has a chance of being knocked down in the current round $i$ denoted $k_i = \min\{d(\frac{e_{-fi} - e_{fi}}{E_f - \sum^i e_{fi}}), 1\}$. Once knocked down, the chance of getting up is $\mathbb{K} = \frac{E_f - \sum^i e_{fi}}{E_f}$. (Note the way this problem is set-up, only one fighter per round can be knocked down, and only once.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the chance of being knocked down is the fraction of extra energy lost from damage divided by total remaining unallocated energy. The chance of getting back up is just the fraction of remaining unallocated energy left relative to the initial stock of energy. Once the fight ends, energy expenditure for all remaining rounds is $0$. If both fighters are still standing at the end of the last round, they get 1 point for each round they spent more energy, and 1 point for every knockdown they got. Most points wins. More knockdowns breaks ties. If that ties, the judge gives the win to the hare, because the hare is seen as more athletic.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the sake of a consistent set-up, we will say that the fighters set each round's energy expenditure at the start of every round.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The utility of the winning fighter can be expressed as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\overline{u}_f(\frac{w}{2} + F p_f p_t x, \quad v, \quad \frac{\sum_i^N e_{fi}}{E_f})$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and for the loser:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\underline{u}_f(\frac{w}{2} + (1-F) p_f p_t x, \quad v, \quad \frac{\sum_i^N e_{fi}}{E_f})$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That is, the total pay, the number of animals who show up to watch the fight, and the fraction of energy used through the fight are what affect utility. For the winner, utility is strictly increasing in the first and second arguments, and strictly decreasing in the third argument. For the loser, utility strictly decreases in the second argument instead. Both fighters are risk averse regardless of what outcome they get (concave utility).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We place two last conditions. If the expected utility of the fight for one of the contestants is less than some fixed $S &amp;lt; 0$, they will drop out the fight and take the $\mathscr{L}$ [insert picture of making an L on your forehead]. The other condition is that the two fighters have too much pride to accept a bribe. (At least from each other.)&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Just to clarify, we can consider the decision order as:&lt;/p&gt;&#xA;  &#xA;  &lt;ol&gt;&#xA;  &lt;li&gt;the house manager chooses $w, p_t, p_f$&lt;/li&gt;&#xA;  &lt;li&gt;the fighters set $F$&lt;/li&gt;&#xA;  &lt;li&gt;the $J$ animals choose queue in line for a ticket&lt;/li&gt;&#xA;  &lt;li&gt;the fighters exert $e_h, e_t$ across rounds&lt;/li&gt;&#xA;  &lt;/ol&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Starting Backwards Induction&lt;/strong&gt; &lt;em&gt;(skip this if you just wanna get to the question)&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One thing to note is that if the fighters set $F &amp;lt; \frac{1}{2}$, then there becomes a perverse incentive to throw the fight, which we imagine would cause less expected effort during the fight despite the dis-utility of losing. Knowing this, the consumers would purchase fewer tickets, which would decrease the fight purse, but also decrease the dis-utility of losing. So the change in $F$'s effect on effort is ambiguous in this question's current form.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose $F &amp;gt; \frac{1}{2}$. Say that the fight is already on and the wages for the winner and loser and the number of animals at the venue are fixed. The only change in utility happens with effort expended.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For $N = 1$, even here it is difficult to think of a pure Nash equilibrium. If the tortoise exhausts effort and the hare matches (thus winning), the tortoise will want to deviate by lowering effort. If the tortoise exerts no effort, the hare would want to match, but that would cause the tortoise to want to exert effort, which would give the hare the opportunity to increase effort. And so on.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The only way a pure Nash equilibrium exists is if at effort level $0$, the tortoise would find the marginal cost of exerting more effort and getting the winning payoff to be greater than the marginal benefit of getting that winning payoff. $e_t = 0, e_h = 0$ would then be Nash (then there is no incentive to lower effort, because the tortoise can't). On the flip side, maybe the hare would be in this position while the tortoise wasn't, so $e_t = 0 + \epsilon, e_h = 0$ would be some (ill-defined) Nash.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What about randomized strategies? Consider a discrete case:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{array} {|r|r|r|r|}&#xA; &amp;amp; e_h = 0 \;&amp;amp; e_h = 1 \;&amp;amp; e_h = 2 \;\\ &#xA;\hline&#xA;e_t = 0 &amp;amp; \underline{u}(e = 0), \overline{u}(e = 0)&amp;amp; \underline{u}(e = 0), \overline{u}(e = 1) &amp;amp; \underline{u}(e = 0), \overline{u}(e = 2)\\&#xA;\hline&#xA;e_t = 1 &amp;amp; \overline{u}(e = 1), \underline{u}(e = 0) &amp;amp; \underline{u}(e = 1), \overline{u}(e = 1) &amp;amp; \underline{u}(e = 1), \overline{u}(e = 2)\\&#xA;\hline&#xA;\end{array}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$e_h = 2$ is strictly dominated by $e_h = 1$, so we just look at cases where $e_h = 0, 1$ and similarly so where $e_t = 0, 1$ for the tortoise.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$u_t(\sigma_h, e_t = 0) \geq u_t(\sigma_h, e_t = 1)$ if &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$p\underline{u}(e = 0) + (1-p)\underline{u}(e = 0) \geq p\overline{u}(e = 1) + (1-p)\underline{u}(e = 1)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\implies \frac{\underline{u}(e = 0) - \underline{u}(e = 1)}{\overline{u}(e = 1) - \underline{u}(e = 1)} \geq p$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $p$ is the probability the hare picks $e_h = 0$. Similarly, with $q$ the probability the tortoise picks effort $e_t = 0$, our condition here is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$q \geq \frac{\overline{u}(e = 1) - \underline{u}(e = 0)}{\overline{u}(e = 0) - \underline{u}(e = 0)}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;with these conditions, as long as $p, q \in [0, 1]$, we can get conditions for randomized Nash. For the &lt;a href=&quot;https://en.wikipedia.org/wiki/Continuous_game&quot; rel=&quot;nofollow noreferrer&quot;&gt;continuous game&lt;/a&gt;, things are quite a bit trickier. Depending on what the fixed values are for the first and second arguments in fighter utility are as well, the existence of a randomized strategy might change. From here, we'd have to move back and see what each previous decision leading up to the fight would change. Then we could look at a two period fight, where the chance of getting knocked down would then come into play.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Specified Functional Forms&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's say&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;$u_j = \alpha_j \ln(\mathbb{E}\left(\sum_{i=1}^{N} e_{ti} + e_{hi}\right) + \beta_j \ln(v) + \gamma_j \ln(C - p_t)$ (so utility is also additive, but note $v$ and $\mathbb{E}(\cdot)$ may be endogenous) for $\alpha, \beta, \gamma, C &amp;gt; 0$&lt;/li&gt;&#xA;&lt;li&gt;$d = (e_{-fi} - e_{fi})^{\frac{1}{2}}$ with the same constraints on the domain&lt;/li&gt;&#xA;&lt;li&gt;$\overline{u} = \lambda \ln\left(\frac{w}{2} + F p_f p_t x \right) + \delta \ln(v) + \theta \ln\left(D - \frac{\sum_i^N e_{fi}}{E_f} \right)$ &lt;/li&gt;&#xA;&lt;li&gt;$\underline{u} = \lambda \ln\left(\frac{w}{2} + (1-F) p_f p_t x \right) + \delta \ln(E - v) + \theta \ln\left(D - \frac{\sum_i^N e_{fi}}{E_f} \right)$ &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;with $\lambda, \delta, \theta &amp;gt; 0; \quad D &amp;gt; 1; \quad E &amp;gt; J$&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;$N = 3$&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;And here's a big one, &lt;strong&gt;let's say consumers are identical&lt;/strong&gt;. So $\alpha_j = \alpha$ and so on. Once one animal gets in line, all the others will too (at least, I take that for granted given the incentives for the fighters).&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;The Question&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;ul&gt;&#xA;  &lt;li&gt;&lt;strong&gt;What is the probability of the tortoise winning the fight once the house sets their optimal prices and we go through the whole game?&lt;/strong&gt;&lt;/li&gt;&#xA;  &lt;/ul&gt;&#xA;  &#xA;  &lt;p&gt;You may express the values generally or plug in your own numbers for the fixed constants, as long as the values plugged in don't give trivial results like, &quot;all prices equal zero and the fight is called off&quot; or &quot;the tortoise always loses&quot;. Basically, what's an interesting equilibrium?&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;I'll also upvote answers that partially solve the game. So for example you could assume the number of viewers is fixed, as well as the size of the purse, but then show what the optimal $F$ is to be set along with the optimal fighting strategies, from where the chances of each player winning can be calculated.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;sub&gt;Addendum/Edits&lt;/sub&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;sub&gt;If you are wondering why I have posted this question, making &quot;fun&quot; questions is one of the ways I daydream. This question is mostly just a fun exercise, but I'm probably also willing to award a bounty if an interesting answer is posted. Because I like rewarding fun, even if economics is already so much fun. :^)&lt;/sub&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;sub&gt;Also I wanted to put a Mayweather joke in the problem somewhere but alas. Please feel free to incorporate one into a constructive comment about the question if you like.&lt;/sub&gt;&lt;/p&gt;&#xA;" OwnerUserId="4251" LastEditorUserId="4251" LastEditDate="2017-09-01T20:18:02.970" LastActivityDate="2017-09-04T15:45:44.450" Title="Optimal Fight Purse and Boxing Strategies" Tags="&lt;microeconomics&gt;&lt;game-theory&gt;&lt;general-equilibrium&gt;&lt;dynamic-optimization&gt;" AnswerCount="0" CommentCount="6" FavoriteCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="18086" PostTypeId="2" ParentId="18079" CreationDate="2017-08-31T04:43:52.313" Score="0" Body="&lt;p&gt;It really depends on context and model.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As an example, consider a Real Business Cycle model, with a representative individual that values consumption and leisure. Given a technology shock, adjusted labor will drop and, eventually, return to the stationary state. This could mean that people are laid off because the new technology replaced them, or because there's a shortage of qualified workers, or even that people decided to work less, now that the rest of the (more productive) society gives them unemployment benefits.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I haven't worked much with search&amp;amp;match models of unemployment, but given a set of firms with varying productivity, I guess a model could be constructed to define labor-saving and labor-augmenting in precise terms, based on the effect a shock has on the probability of firing people.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, labor-augmenting technology is necessary for balanced growth. You may not care about it, but many models do.&lt;/p&gt;&#xA;" OwnerUserId="7857" LastActivityDate="2017-08-31T04:43:52.313" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18087" PostTypeId="2" ParentId="18080" CreationDate="2017-08-31T05:11:26.753" Score="0" Body="&lt;p&gt;To improve the explanation of asymmetries you could add:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;You can look at the &lt;strong&gt;standard deviation&lt;/strong&gt;, and see how the GDP of a certain country is compared to the average +/- standard deviation&lt;/li&gt;&#xA;&lt;li&gt;You can make subgroups of the countries analysed and compare their averages to the target country. One example of subgroup is the country total population: could be the main explanation of asymmetries for Lichtenstein and Luxemburg to have such high GDPs per capita&lt;/li&gt;&#xA;&lt;li&gt;Compare the &lt;a href=&quot;http://www.investopedia.com/articles/investing/051415/how-calculate-gdp-country.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;specific elements of the GDP&lt;/a&gt;, if the data is available (C vs C + G vs G...)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The best measure depends on what &lt;em&gt;specifically&lt;/em&gt; do you want to measure. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you want to measure the asymmetry &lt;em&gt;per se&lt;/em&gt;, then you can focus on alternative indicators and descriptive statistics, as you suggested.&lt;/p&gt;&#xA;" OwnerUserId="12304" LastActivityDate="2017-08-31T05:11:26.753" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18088" PostTypeId="2" ParentId="17881" CreationDate="2017-08-31T05:36:29.870" Score="1" Body="&lt;p&gt;If you are planning on using Dynare, you do not need to &quot;solve&quot; the model using Sim's method. Dynare takes care of the solution algorithm for you. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you want to get to IRFs quickly, I suggest writing up the linearized version of your model in a &lt;code&gt;.mod&lt;/code&gt; file, then from Matlab, simply run &lt;code&gt;dynare model.mod&lt;/code&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.dynare.org/documentation-and-support/examples&quot; rel=&quot;nofollow noreferrer&quot;&gt;Here&lt;/a&gt; are some example &lt;code&gt;.mod&lt;/code&gt; files for you to work from (simply replace the equations with your own model's equations). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You may also want to take a look at the &lt;a href=&quot;http://www.dynare.org/phpBB3/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Dynare forum&lt;/a&gt;, which can help you with all sorts of questions related to setting up models and solving them. &lt;/p&gt;&#xA;" OwnerUserId="13118" LastEditorUserId="2776" LastEditDate="2017-08-31T06:27:26.203" LastActivityDate="2017-08-31T06:27:26.203" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18089" PostTypeId="2" ParentId="6902" CreationDate="2017-08-31T05:47:16.513" Score="2" Body="&lt;p&gt;Two suggestions: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, try some of the sample code at &lt;a href=&quot;http://www.vfitoolkit.com/&quot; rel=&quot;nofollow noreferrer&quot;&gt;this website&lt;/a&gt;. It builds simple Euler equation iteration methods from scratch in Matlab. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Second, try the sample code &lt;a href=&quot;http://www.simonmongey.com/teaching--notes.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;. You will need to read the associated notes, also. The code makes use of the CompEcon toolbox in Matlab, by Miranda and Fackler (associated with their book:  Applied Computational Economics and Finance).  &lt;/p&gt;&#xA;" OwnerUserId="13118" LastEditorUserId="2776" LastEditDate="2017-08-31T12:13:29.793" LastActivityDate="2017-08-31T12:13:29.793" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18090" PostTypeId="2" ParentId="3232" CreationDate="2017-08-31T06:00:15.220" Score="1" Body="&lt;p&gt;In this case, the stochastic discount factor appears in equation (7), the intertemporal optimization equation. You can derive (7) by taking the first order conditions of the Lagrangean function with respect to consumption, and then investment (or capital, &lt;code&gt;K_t+1&lt;/code&gt;, if you want to substitute out the capital accumulation equation). You then combine these two optimality conditions to yield (7).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The stochastic discount factor, then, is just the ratio of marginal utilities of consumption in period &lt;code&gt;t+1&lt;/code&gt; and &lt;code&gt;t&lt;/code&gt;. The ratio of prices appears in the stochastic discount factor because this is a nominal model, and you need to discount future nominal payoffs by inflation between time &lt;code&gt;t&lt;/code&gt; and &lt;code&gt;t+1&lt;/code&gt;.&lt;/p&gt;&#xA;" OwnerUserId="13118" LastActivityDate="2017-08-31T06:00:15.220" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18092" PostTypeId="2" ParentId="18079" CreationDate="2017-08-31T07:10:43.977" Score="3" Body="&lt;p&gt;Consider a Leontief production function:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ Y = \text{min}(aL,bK) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Optimal capital-labour ratio is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{K^*}{L^*}=\frac{a}{b} $$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Labour-saving&lt;/strong&gt; technical change is such that $a$ increases. The optimal capital-labour ratio increases, this is, firms use &lt;strong&gt;less labour per unit of capital&lt;/strong&gt;. This is also called &lt;strong&gt;Capital-augmenting&lt;/strong&gt; technical change (see reference [2]).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Labour-augmenting&lt;/strong&gt; technical change is such that $b$ increases. The optimal capital-labour ratio falls, this is, firms use &lt;strong&gt;more labour per unit of capital&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Notice that how output per worker changes depend on how $Y$ changes. For example, assume that the above adjustment is such that $Y$ is unchanged after the technical change. Then, output per worker increases in the labour-saving case but falls in the labour-augmenting change. A complete analysis would require a general equilibrium approach, where factor prices are endogenous. All I am showing here is that &lt;strong&gt;it is not necessarily the case that either type of technical change increases output per worker.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some references: &lt;a href=&quot;https://www.brown.edu/academics/economics/sites/brown.edu.academics.economics/files/uploads/Rage%20Against_Joachim%20Voth.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;[1]&lt;/a&gt;, &lt;a href=&quot;http://web.mit.edu/daron/www/lab-cap5.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;[2]&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;PS: I use the Leontief for simplicity. In a Cobb-Douglas, any technical change is Hicks-neutral, as it does not affect the K/L ratio (assuming fixed factor prices). In a CES, the nature of technical change depends on the elasticity of substitution. &lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-08-31T07:21:28.897" LastActivityDate="2017-08-31T07:21:28.897" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="18093" PostTypeId="2" ParentId="18065" CreationDate="2017-08-31T08:25:31.990" Score="2" Body="&lt;p&gt;Check for example &lt;a href=&quot;https://ideas.repec.org/a/ecm/emetrp/v70y2002i6p2295-2350.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Postel-Vinay and Robin (2002)&lt;/a&gt; and references therein to see how people go about structurally modeling the labour market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The general framework is a dynamic one, where the job-search process is a Poisson arrival process for each worker, and the results are derived by finding the market equilibrium conditions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The interesting point in this literature is that indeed labour market decisions are based on expectations about the employers, but here specifically the expectation about how career trajectories diverge and what this means for reservation wages for the employee, and how this depends on the productivity of firms.&#xA;In the cited paper, the productivity determines what a firm may be able to pay eventually. It raises wages when competing offers arrive by firms that may theoretically also employ the worker.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The worker forms expectations about his future trajectory and this implies that he is willing to work for a high productivity firm for less money, simply because he expects it can raise wages in the future if competing offers arrive.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So you see that expectations are indeed important for the job-search process. For your idea, you have to be specific as to what the worker expects if a firm is racist. An interesting idea would be to think about blacklists and stigma, which would mean that the worker could be locked-in the current firm. This would require the firm to offer higher wages compared to others.&#xA;It's a straightforward mechanism, and interesting I think, but you need to show basically how this impacts the workers choices based on preference (since you are doing structural modeling). It may be a good idea to start with reduced form analysis, and also to check out the sociology literature as I am sure this sort of idea has been used before. Your contribution would be to model it and get exact parameter values, run counterfactuals and hopefully discover some surprising results.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What worries me a bit about the idea is that you are somewhat missing an objective for the firm to be racist, given that it optimizes everything else in equilibrium in this setup. Of course you may assume it the same way one assumed productivity, and while it may be econometrically sound, it is not really identified in a theoretical sense. What I mean is that racism would just be a parameter akin to pushing down what a worker expects from a firm in terms of future productivity. And since it is outside of the explanatory power of a structural model, it may be that structural modeling is not really the necessary approach - a reduced form will tell you as much.&#xA;Perhaps you can make it bite, by making the stigma structurally different from lower productivity, and perhaps exactly this matters. This would be where the result would be interesting to me.&lt;/p&gt;&#xA;" OwnerUserId="6633" LastEditorUserId="2776" LastEditDate="2017-08-31T10:24:15.260" LastActivityDate="2017-08-31T10:24:15.260" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18094" PostTypeId="2" ParentId="18014" CreationDate="2017-08-31T08:43:21.637" Score="3" Body="&lt;p&gt;Generally the fixed-points of Nash Equilibria in a market can also be reached by a dynamic process where actors myopically best-reply to the market result in the last period (see Milgrom and Roberts 1990). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The process will converge to a steady state, which is the equilbrium. What this means is that actors do not need to know anything about the market except the things that happened last period, and they do not require anything but simplest computation (so, being able to best-respond). &#xA;Since actors can be firms (setting prices) and consumers (buying quantities), this will in the end give you the market equilibrium with respect to a steady state without computational burden.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The difference is basically that you have a mechanism for deriving prices, instead of calculating the set of prices which may be equilibria. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The former describes a market process, the latter is a scientific analysis. Such an analysis is intractable for each actor, but as it can be shown that both converge to the same equilbrium given some assumptions, it is still a valuable tool.&lt;/p&gt;&#xA;" OwnerUserId="6633" LastActivityDate="2017-08-31T08:43:21.637" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18095" PostTypeId="1" AcceptedAnswerId="18096" CreationDate="2017-08-31T11:43:42.270" Score="5" ViewCount="161" Body="&lt;p&gt;The question I really want to make is if poverty is decreasing of increasing worldwide, but since I guess there is no way to objectively define poverty, that question doesn't fit in here. I was always suspicious that when they release the poverty statistics, they always release the extreme poverty figures and not the poverty figures. For example, recently I found people living under 10 dollars a day either was increasing or it's stagnant (green line, as if they weren't poors). So this leads me to believe poverty is conveniently defined as for showing &quot;poverty is decreasing worldwide&quot;. That's why I would like to know if there is a way to figure out how many people leaves under 15 dollars (or any other figure between 10 to 15 dollars, if you like) which according to my country statistics for poverty it would be poverty. By seeing the green and blue lines in this graph the best guess is it's increasing, but I don't have data to sustain that assumption.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the question is, how many people in the world were living below 15 dollars a day in the last decades?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/CXr6a.jpg&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/CXr6a.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="8165" LastEditorUserId="2776" LastEditDate="2017-08-31T12:49:38.827" LastActivityDate="2017-09-06T12:31:06.893" Title="How many people in the world were living below 15 dollars a day in the last decades?" Tags="&lt;poverty&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18096" PostTypeId="2" ParentId="18095" CreationDate="2017-08-31T12:41:07.277" Score="4" Body="&lt;p&gt;Most of the &quot;official&quot; statistics compiled in international organisations use some thresholds like the one shown in the graph. Common for instance are the one by the World Bank (data &lt;a href=&quot;https://data.worldbank.org/topic/poverty&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; and report &lt;a href=&quot;http://www.worldbank.org/en/publication/poverty-and-shared-prosperity&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, unless you find such data already computed, it is not possible to tell. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is one imprecise alternative though. You can use &lt;a href=&quot;http://www.globalrichlist.net/&quot; rel=&quot;nofollow noreferrer&quot;&gt;this online tool&lt;/a&gt; to compute global poverty based on any threshold you like (using annual income in £). For example, 15 US dollars correspond to roughly to £11.64 (as of 31/08/17, 13:25 BST), which amounts to a yearly (365 days) income of £4,250, which yields:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/6X8s9.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/6X8s9.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As the &lt;a href=&quot;http://www.globalrichlist.net/#about-data&quot; rel=&quot;nofollow noreferrer&quot;&gt;FAQ&lt;/a&gt; explains, this analysis is based on data from the World Bank, is valid for &lt;strong&gt;2008&lt;/strong&gt;, and assumes a population of 6.69 billion. Therefore, based on the above result, &lt;strong&gt;5.34 billion people lived below $15 a day in 2008.&lt;/strong&gt; This is &quot;sort of&quot; consistent with the data in the graph you posted, in my opinion.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Unfortunately, such analysis is only valid for 2008.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-08-31T12:41:07.277" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18097" PostTypeId="2" ParentId="10699" CreationDate="2017-08-31T12:44:24.780" Score="1" Body="&lt;p&gt;If you would like to replicate you need to collect data for risk-free rate, market return, HML, and SMB. One way is to make these data sets by yourself and another is just use the data set uploaded on Kenneth French web site (&lt;a href=&quot;http://mba.tuck.dartmouth.edu/pages/faculty/ken.french/data_library.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://mba.tuck.dartmouth.edu/pages/faculty/ken.french/data_library.html&lt;/a&gt;). You can use Fama/French 3 Factors or Fama/French 5 Factors for daily, weekly or monthly analysis.&#xA;If you would like to construct the data set by yourself, you can use the rate of the government bond for the risk-free rate (I heard Hong Kong has its own bond, right). Market return can be calculated from the stock index that covers a wide range of stocks. HML and SMB are more complicated. You need the accounting data set for all the listed company and collect its stock price. You also need book-value, market-value in order to sort the stocks. For the detailed way of calculation, you can go to the link on the above question.&lt;/p&gt;&#xA;" OwnerUserId="14303" LastEditorUserId="14303" LastEditDate="2017-08-31T22:46:31.737" LastActivityDate="2017-08-31T22:46:31.737" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18098" PostTypeId="2" ParentId="18074" CreationDate="2017-08-31T16:01:18.627" Score="4" Body="&lt;p&gt;I had initially flagged this question for moderators to examine whether it would be better to migrate over to the statistics SE site Cross Validated. But since the OP introduced a very specific econometrics example, I believe the (very deep) concept of &quot;population/sample&quot; can be usefully discussed for the purposes of this example.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;A first issue&lt;/strong&gt; is that discussed in @AdamBailey answer: if one considers &quot;all the countries in the world&quot; for a given year or years, and it labels the data as &quot;population&quot;, then the next year should belong to a different population. If it belongs to a different population, then how are we to use results from one population to make inference for another population? So indeed, here our &quot;population&quot; is &lt;em&gt;two-dimensional&lt;/em&gt;, country &lt;em&gt;and&lt;/em&gt; time period -and in that sense, with the time horizon open-ended, we only have a sample in our hands.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;The second issue&lt;/strong&gt; (partly implied in @luchonacho answer) is the following: our population is not the actually &lt;em&gt;observed realizations&lt;/em&gt; of the random variables &quot;$GDP_i, i=1,..n$. This is the data. Our population is the collection of random variables themselves, which are functions, not values. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So our data is just one of the possible combined realizations of these random variables. These realizations came about not only as a result of deterministic/engineering relations/causality (reflected in the coefficients), but also under the effect of inherently random factors. In that sense, the data is not a &quot;pure/typical&quot; image of the &quot;population&quot; -it contains noise, non-structural disturbances, one-off shocks etc. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then this uncertainty will carry over to the estimation of the coefficients we are trying to estimate, because we assume that these coefficients describe causality or co-movement prior to the random elements affecting the final value of the dependent variable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Due to both aspects above, talking about &quot;standard error of estimates&quot; is totally valid, in this case too, and then apply statistical tests as usual.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2017-08-31T16:01:18.627" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18100" PostTypeId="2" ParentId="16699" CreationDate="2017-09-01T08:11:15.750" Score="-1" Body="&lt;p&gt;In &lt;a href=&quot;http://journals.sagepub.com/doi/abs/10.1177/0003122412468882&quot; rel=&quot;nofollow noreferrer&quot;&gt;this article&lt;/a&gt;, sociologist Erik Olin Wright provides a definition of &#xA;capitalism (from a socialist tradition):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Many people equate capitalism with the idea of a market economy. Capitalism is not simply an economy in which markets play a central role in &#xA;  coordinating economic activity; it is a specific kind of  market  economy,  one  in  which  workers  do  not own and control the firms in which they work, capital  is  privately  owned  and  allocated  to  alternative purposes  on  the  basis  of  private  economic  returns  (or, equivalently, on the basis of private profit-making),  and  labor  is  allocated  to  economic  activities through labor markets.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-09-01T08:11:15.750" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18101" PostTypeId="2" ParentId="14110" CreationDate="2017-09-01T08:35:20.390" Score="0" Body="&lt;p&gt;Such calculation is extremely difficult, because all the factors involved in shaping the &lt;strong&gt;personal distribution of income&lt;/strong&gt;: relative change in return to different skills/job (think e.g. on skill-biased technical change), demographical/educational composition change (e.g. many new educated young into the labour market), taxation/redustribution policies (if less poverty, less income support welfare needed?), variations in the &lt;strong&gt;functional&lt;/strong&gt; distribution of income (ownership of financial assets?), etc. It also depends on whether you are measuring inequality at the individual or household level, and which equivalence scale you use in the latter. Not to mention that you need to somehow differentiate between urban and rural sectors to incorporate your change.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can think of three options you can follow to get what you want:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;Microsimulation&lt;/strong&gt;: this requires to have a general equilibrium model where a population of (commonly) households are simulated, usually to analyse policy changes. For the case of China, an example is &lt;a href=&quot;http://www.agi.or.jp/workingpapers/WP2013-13.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;. This is the best approach in terms of using economic theory, but it is very time-consuming.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;Regression&lt;/strong&gt;: here you estimate a regression to evaluate determinants of nation-wide inequality. Included in these determinants should be the rate of urban and rural poverty. Forecasting them (and other regressors) you can forecast future Gini. This method is a highly reduced-form approach and might be highly inaccurate or inconsistent (due to endogeneity, etc). Still, to get an idea, see &lt;a href=&quot;https://www.diva-portal.org/smash/get/diva2:518600/FULLTEXT01.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;this paper&lt;/a&gt;.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;Percentile income growth&lt;/strong&gt;: as suggested by ahorn, you could go atheoretical and simply predict income growth of each percentile. Then you can easily compute Gini. The plot of these percentile income growth are commonly known as &quot;growth incidence curve&quot;. For an example on China see &lt;a href=&quot;https://www.princeton.edu/~piirs/projects/Democracy&amp;amp;Development/papers/chaudhuri%20and%20ravallion.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; (Figure 4). &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-09-01T08:45:36.553" LastActivityDate="2017-09-01T08:45:36.553" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18102" PostTypeId="1" CreationDate="2017-09-01T10:12:49.643" Score="-1" ViewCount="67" Body="&lt;p&gt;I am struggeling to find the specific commands to achieve lower standard errors within simple regressions. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would be thankful for your help.&lt;/p&gt;&#xA;" OwnerUserId="4407" LastEditorUserId="4407" LastEditDate="2017-09-07T12:07:14.363" LastActivityDate="2017-09-07T12:07:14.363" Title="How can I achieve better standard error values in Stata?" Tags="&lt;stata&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18103" PostTypeId="2" ParentId="18102" CreationDate="2017-09-01T12:41:59.103" Score="1" Body="&lt;p&gt;Pooled regression on a panel-data sample, &lt;strong&gt;indeed&lt;/strong&gt;, &lt;em&gt;does not take the time dimension into account&lt;/em&gt;. This is why it is called &quot;pooled&quot;: we ignore the fact that for each cross-section we have a time series, and we treat the whole panel-data sample as though it were a cross-sectional one, as if, say,  $x_{it}$ and $x_{i,t+1}$ are diffrenet cross sections.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2017-09-01T14:50:15.963" LastActivityDate="2017-09-01T14:50:15.963" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18104" PostTypeId="1" CreationDate="2017-09-01T15:39:57.537" Score="4" ViewCount="128" Body="&lt;p&gt;(My research question is economics based, but for simplicity, I'm using a non-economics example)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose I'm trying to find out whether average body temperature of a population is equal to 37 degrees Celsius. I take a random sample of people and take their body temperature. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem is, some people have taken their body temperature once, but others have taken their temperature multiple times (twice, thrice, or even ten times).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ordinarily I would regress body temperature on a constant, and do hypothesis testing with $H_0: \beta_0 = 37$. However, I am worried about serial correlation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Would clustering the standard errors by person be sufficient to correct for this serial correlation? (e.g. using &lt;code&gt;reg bodytemperature, cluster(person)&lt;/code&gt; in Stata)&lt;/p&gt;&#xA;" OwnerUserId="11850" LastEditorUserId="4251" LastEditDate="2017-09-01T19:36:42.270" LastActivityDate="2017-10-02T09:41:59.890" Title="Clustered standard errors" Tags="&lt;econometrics&gt;&lt;statistics&gt;" AnswerCount="3" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18105" PostTypeId="1" AcceptedAnswerId="18107" CreationDate="2017-09-01T18:11:28.723" Score="12" ViewCount="6096" Body="&lt;p&gt;It seems counter intuitive that markets would rise after a huge disaster that probably affects multiple industries like oil or produce. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, can someone explain why the US markets actually rose in the days following hurricane Harvey? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit: changed title to include natural disasters as a whole. &lt;/p&gt;&#xA;" OwnerUserId="14120" LastEditorUserId="14120" LastEditDate="2017-09-01T21:52:47.540" LastActivityDate="2017-09-02T12:18:21.337" Title="Does the US stock market tend to rise after natural disasters?" Tags="&lt;stock-market&gt;" AnswerCount="4" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18106" PostTypeId="2" ParentId="18079" CreationDate="2017-09-01T18:24:14.580" Score="2" Body="&lt;p&gt;From what I understand, &lt;strong&gt;labor augmentation&lt;/strong&gt; is when the labor productivity is increased when coupled with an amplifier such as &lt;a href=&quot;http://www.investopedia.com/terms/h/humancapital.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;human capital&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Looking at a sample labor augmented  production function with constant returns to scale we have:&#xA;$$F(L,K)=(AL)^\alpha K^{1-\alpha}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where $L$ is labor, $K$ is capital, $A$ is our augmenter and $\alpha$&lt;sup&gt;1&lt;/sup&gt; is our output elasticity from labor.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is through a change in technology by which labor is augmented&lt;sup&gt;2&lt;/sup&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;labor saving&lt;/strong&gt; from what is where there is a high &lt;a href=&quot;http://www.businessdictionary.com/definition/elasticity-of-substitution.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;elasticity of subsitution&lt;/a&gt; in a production function's inputs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example if we have a production function of&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$F(L,K)=L+K$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;we have a case where elasticity of subsitution is equal to infinity or $\sigma=\infty $. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Note:It is possible to have a labor augmenting production function which is not labor saving. (i.e the leontif production function)&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;sub&gt;1.where $\alpha&amp;lt;1$&lt;/sub&gt;&#xA;&lt;br&gt;&lt;sub&gt;2. &lt;a href=&quot;https://mnmeconomics.wordpress.com/2011/07/18/labour-augmenting-technical-progress/&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://mnmeconomics.wordpress.com/2011/07/18/labour-augmenting-technical-progress/&lt;/a&gt;&lt;/sub&gt;&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="8815" LastEditDate="2018-05-07T17:06:25.640" LastActivityDate="2018-05-07T17:06:25.640" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="18107" PostTypeId="2" ParentId="18105" CreationDate="2017-09-01T18:46:40.810" Score="10" Body="&lt;p&gt;This &lt;a href=&quot;https://www.cnbc.com/2017/08/28/stocks-will-likely-remain-unaffected-by-hurricane-harvey-tragedy.html&quot; rel=&quot;noreferrer&quot;&gt;news article with some statements from financial workers&lt;/a&gt; makes a case that usually big storms don't impact the national economy that much, even despite the large localized damages. While insurance companies will suffer in the stock market because of all those payouts they'll have to give, oil prices as you mentioned will be impacted, but in this case, gas prices will rise because of the change in the supply curve, so they will actually benefit in the stock market. The various effects combined end up with the stock market not really going up or down. It's more or less a wash. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To think of it another way, a shock in the short term capital in the economy won't particularly change the steady state level of capital. If markets know this, there isn't a need for huge changes in prices. In the case of the insurance companies, their money isn't so much based on capital as it is based on states of the world, so they will end up needing to adjust prices.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are other reasons why the stock market may not have moved up or down in particular, but for the most part it is speculation, and even my answer is just intuitive exposition.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2017-09-01T18:46:40.810" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18108" PostTypeId="2" ParentId="18104" CreationDate="2017-09-01T21:59:17.867" Score="1" Body="&lt;p&gt;I am not sure this will answer your question, but let's me try with a concrete example using Stata and its 1978 Automobile Data in order to regress car's price on mileage (mpg).&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;sysuse auto, clear    &#xA;reg price mpg, robust&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;This gives a price estimate of -238.9, with a standard error (s.e) of 57.5. Then, if I run the same regression after duplicating the observations three times.&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;expand 3&#xA;reg price mpg, robust&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;I get as expected a much lower s.e. of 32.9. Finally, clustering the s.e. by make (a Car Id) &lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;reg price mpg, cluster(make)&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;gives a s.e. of 57.2 and makes the trick. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, if you expand twice some observations and thrice others (as in your example). Then, you will get a larger s.e but also a different estimate. But, again, clustering by make reduces the s.e. Here is the code:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;sysuse auto, clear&#xA;expand 3 if price&amp;gt;4000 &amp;amp; price&amp;lt;=6000&#xA;expand 2 if price&amp;gt;6000&#xA;reg price mpg, robust&#xA;reg price mpg, cluster(make)&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Note that the price and mpg variables have been expanded &lt;strong&gt;without any change&lt;/strong&gt; for each car. In your example, if the ones who have taken their temperature multiple times have each time a different temperature, then you may consider introduction an &lt;strong&gt;individual fixed effect&lt;/strong&gt;.&lt;/p&gt;&#xA;" OwnerUserId="6168" LastActivityDate="2017-09-01T21:59:17.867" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18109" PostTypeId="2" ParentId="18105" CreationDate="2017-09-01T23:22:34.793" Score="2" Body="&lt;p&gt;I second @KitsuneCavalry, and add that Harvey damaged a lot of capital stock i.e. dwelling and non-dwelling, infrastructure etc. Well, that's a bad news, but also a good news as investors expect big spending by the government to rebuild the lost or damaged capital stock. As expected, Trump has requested billions (from the congress) for regeneration and rebuilding of the affected areas. These billions are going to have miltiplier effects in the wider economy as almost all listed firms set to benefit from this spending. Government will pay for reconstruction of the roads, electricity grid, bridges, etc. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Simlarly, insurance firms pay for the construction of private and commerical properties. They will have to borrow, issue shares or liquidate investments, and investment banks benefit from these activities. Many listed firms could receive a share of the spending. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Dividend increases could be on the way, and given the EMH, rising share prices already reflect these changes.&lt;/p&gt;&#xA;" OwnerUserId="6009" LastEditorUserId="6009" LastEditDate="2017-09-01T23:36:18.923" LastActivityDate="2017-09-01T23:36:18.923" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18111" PostTypeId="2" ParentId="18104" CreationDate="2017-09-02T01:50:12.613" Score="0" Body="&lt;p&gt;If you want to stick to OLS, your suggestion (clustering) seems fine. If you want to pursue efficiency, you may want to use the random effects FGLS (&lt;code&gt;xtreg bodytemperature, i(person)&lt;/code&gt;) estimation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you believe that all body temperatures are identical on average, it is alright to use any of them. But if they are heterogenous (due to genes or whatever), none is satisfactory. I would rather think more about what &quot;average body temperature&quot; means.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let us take an example. When your population is three people (101, 102, and 103) and your sample is&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;i      person         x      /* x = measured temp */&#xA;1       101         36.5&#xA;2       102         36.8&#xA;3       102         37.8&#xA;4       103         37.5&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;(note that person 102 is measured twice), I guess what you want is $A=(1/3) \times [E(temp_{101}) + E(temp_{102}) + E(temp_{103}) ]$. OLS (the unweighted average), however, equals $(1/4) \times (x_1 + x_2 + x_3 + x_4)$, which is an unbiased estimator of $B=(1/4) \times [ E(temp_{101}) + E(temp_{102}) + E(temp_{102}) + E(temp_{103}) ]$. If $A = B$, that's fine, but $A$ and $B$ can be different.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When you want $A$, what you want to calculate is $A_{be} = (1/3) \times [x_1 + (x_2 + x_3)/2 + x_4]$, while OLS puts too much weight on person 102. $A_{be}$ is called the panel &quot;between group (BE) estimator&quot;. You can get it by &lt;code&gt;xtreg bodytemperature, be i(person)&lt;/code&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the above data set, the BE estimate (of $A$) is 37.1, while the OLS estimate (of $B$) is 37.15. Try the following in Stata (copy &amp;amp; paste).&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;* Copy &amp;amp; paste into Stata&#xA;clear all&#xA;input person temp&#xA;101 36.5&#xA;102 36.8&#xA;102 37.8&#xA;103 37.5&#xA;end&#xA;gen temp37 = temp-37&#xA;reg temp37, vce(cluster person)&#xA;xtreg temp37, be i(person)&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;(I deliberately subtracted 37 in order to test your null hypothesis.)&lt;/p&gt;&#xA;" OwnerUserId="10775" LastEditorUserId="10775" LastEditDate="2017-09-02T02:00:55.583" LastActivityDate="2017-09-02T02:00:55.583" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18112" PostTypeId="1" AcceptedAnswerId="18114" CreationDate="2017-09-02T02:01:28.447" Score="1" ViewCount="99" Body="&lt;p&gt;I've been trying to do some cursory research on labor productivity. In the process, I've noticed that the readily available data in the US, as accessed through either &lt;a href=&quot;https://www.bls.gov/lpc/&quot; rel=&quot;nofollow noreferrer&quot;&gt;BLS&lt;/a&gt; or &lt;a href=&quot;https://fred.stlouisfed.org/graph/?g=eJKD&quot; rel=&quot;nofollow noreferrer&quot;&gt;FRED&lt;/a&gt; (yes, I know it's the same underlying data), is all in terms of year-to-year change, or level relative to a fixed year. Is there any theoretical or technical reason for this? It seems like an absolute level of labor productivity should be well defined: GDP divided by total hours worked. Am I neglecting something that would prevent reliable calculation of an actual dollars-per-hour number? If not, where can I find this figure?&lt;/p&gt;&#xA;" OwnerDisplayName="user14391" LastEditorDisplayName="user14391" LastEditDate="2017-09-02T03:39:29.147" LastActivityDate="2020-05-03T15:00:13.907" Title="Why are readily available productivity data relative, not absolute?" Tags="&lt;data-request&gt;&lt;productivity&gt;&lt;united-states&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18113" PostTypeId="2" ParentId="6426" CreationDate="2017-09-02T05:36:51.263" Score="2" Body="&lt;p&gt;The question &quot;how are the first order conditions&quot; seems very unclear to me, and I am providing a set-up for finding and writing them out, while explaining the Kuhn-Tucker conditions that are easy to struggle with.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Though we try to avoid giving away basic study question answers, it's a positively voted question without an answer, and I still think these questions have value for future users. Enough time has also passed where there's no risk of helping someone get through a class, if that was the intention.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Usually in cost minimization problems where the production function is a constraint, there is a set quantity to be produced that then leads to minimizing cost with respect to that. Here in this profit maximization problem, you have a minimum amount of production required of both goods, which I find interesting.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can note the objective function (profit) is linear, and therefore concave and differentiable. The constraints are more interesting because the Cobb-Douglas form is not necessarily concave, namely when the exponents sum to more than 1. So you can ask yourself when the constraints will be convex (they are certainly differentiable). These ideas are related to the &lt;strong&gt;sufficient&lt;/strong&gt; conditions for an optimum. A solution &lt;strong&gt;exists&lt;/strong&gt; by the Weierstrass Theorem (constraint is compact and the objective function is continuous).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To look at the first order &lt;strong&gt;necessary&lt;/strong&gt; conditions, we can omit your last two equalities since they don't add anything. We take:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{equation}&#xA;\begin{array}{l}&#xA;\max_{q_{x}, q_{y}, l_{x}, l_{y}, k_{x}, l_{x}} \quad p_{x}q_{x}+p_{y}q_{y}-w(l_{x}+l_{y})-v(k_{x}+k_{y}) \\ &#xA;\text{s.t.} \\&#xA;q_{x} - k_{x}^{\alpha}l_{x}^{\beta} \leq 0 \\&#xA;q_{y} - k_{y}^{\gamma}l_{y}^{\delta} \leq 0 \\&#xA;\end{array}&#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Form the Lagrangean:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\max \quad \mathscr{L} = p_{x}q_{x}+p_{y}q_{y}-w(l_{x}+l_{y})-v(k_{x}+k_{y}) - \mu_x (q_{x} - k_{x}^{\alpha}l_{x}^{\beta}) - \mu_y (q_{y} - k_{y}^{\gamma}l_{y}^{\delta})$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(note the signs in front of the Lagrangean multipliers)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, in place of the derivative with respect to the multipliers, we have our constraints with complementary slackness conditions. We take the other constraints as well.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\partial \mathscr{L}}{\partial \ ( \cdot )} \leq 0 \quad ; \quad ( \cdot ) \geq 0 \quad \forall ( \cdot )$$&#xA;$$\text{constraint} \quad ; \quad \mu_{(\cdot)} \geq 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And from there you can move on to solve the system, but you may find yourself in a weird spot because we haven't been able to establish &lt;strong&gt;uniqueness&lt;/strong&gt;.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2017-09-02T05:36:51.263" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18114" PostTypeId="2" ParentId="18112" CreationDate="2017-09-02T07:29:25.920" Score="1" Body="&lt;p&gt;The data you ask for is in the &lt;a href=&quot;http://stats.oecd.org/&quot; rel=&quot;nofollow noreferrer&quot;&gt;OECD stats website&lt;/a&gt; under&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Productivity &gt; Productivity and ULC – Annual, Total Economy &gt; Level of GDP per capita and productivity&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This is the graph (in 2010 PPP US dollars):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/eRnGM.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/eRnGM.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Aternatively, you can compute it manually:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Select a series of &lt;strong&gt;constant&lt;/strong&gt; GDP of your interest. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Divide it by number of hours for a group of interest.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;You can find both series in the above website. GDP is under &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;National Accounts &gt; Annual National Accounts &gt; Main Aggregates &gt; Gross domestic product &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Hours are under&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Labour &gt; Labour Force Statistics &gt; Hours worked&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-09-02T07:46:23.277" LastActivityDate="2017-09-02T07:46:23.277" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18115" PostTypeId="2" ParentId="18105" CreationDate="2017-09-02T08:03:00.550" Score="9" Body="&lt;p&gt;There is some research on this area. &lt;strong&gt;Overall, the effect of natural disasters on stock markets depend on &lt;em&gt;type of disaster, industry, and country&lt;/em&gt;&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, &lt;a href=&quot;http://www.worldscientific.com/doi/abs/10.1142/S021759081640004X&quot; rel=&quot;noreferrer&quot;&gt;this paper&lt;/a&gt; studies 30 natural disasters, from a variety of countries (including Hurricane Katrina, in the US). It concludes:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;We find that different natural disasters have different effects on stock markets and industries. Our evidence suggests that while earthquakes, hurricanes and tornadoes could negatively affect market returns several weeks after the events, other disasters such as floods, tsunamis and volcanic eruptions have limited impact on stock markets. We also find that construction and materials industry is generally positively affected by natural disasters but non-life and travel industries are likely to suffer negative effects.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://link.springer.com/article/10.1057%2Fces.2013.16&quot; rel=&quot;noreferrer&quot;&gt;This other paper&lt;/a&gt; has the following abstract:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;This paper investigates the impact of natural disasters on the insurance sector as well as on the composite stock market in Japan and the US. GARCH models are employed to capture both wealth and risk effects of natural disasters. There are no wealth effects in the US and Japan composite stock markets, indicating that these markets can well diversify away the impact of natural disasters on stock return, but there are significant wealth effects in the US and Japan insurance sectors. While US investors in the insurance sector lose, those in Japan gain. All markets except the composite stock market in Japan face risk effects of natural disasters.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;There are several more studies. For example, &lt;a href=&quot;http://journals.plos.org/plosone/article?id=10.1371/journal.pone.0133319&quot; rel=&quot;noreferrer&quot;&gt;this one&lt;/a&gt; focuses solely on earthquakes, and &lt;a href=&quot;http://www.inderscienceonline.com/doi/abs/10.1504/GBER.2008.016824&quot; rel=&quot;noreferrer&quot;&gt;this one&lt;/a&gt; studies Australia only.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-09-02T08:58:05.210" LastActivityDate="2017-09-02T08:58:05.210" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18116" PostTypeId="2" ParentId="17834" CreationDate="2017-09-02T10:15:56.600" Score="4" Body="&lt;p&gt;Ultimately, a complete answer has to deal with the &lt;strong&gt;history of money&lt;/strong&gt;. Here I just provide a very brief attempt to answer the question. There are dedicated books on the topic, of which the most authoritative source might be &lt;a href=&quot;http://press.uchicago.edu/ucp/books/book/distributed/H/bo22184363.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Glyn Davies' book&lt;/a&gt;. The analysis here is based on that book and Wikipedia. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;What is money?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Davies defines money as:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Money is anything that is widely used for making payments and accounting for debts and credits.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;As Davies states, money have a variety of &lt;strong&gt;economic&lt;/strong&gt; functions:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Unit of account &lt;/li&gt;&#xA;&lt;li&gt;Common measure of value &lt;/li&gt;&#xA;&lt;li&gt;Medium of exchange &lt;/li&gt;&#xA;&lt;li&gt;Means of payment &lt;/li&gt;&#xA;&lt;li&gt;Standard for deferred payments &lt;/li&gt;&#xA;&lt;li&gt;Store of value &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;These functions are important because they tell us why later on official authorities would like to &quot;produce their own money&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Origin of money&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given the above functions, it would seem simple to believe that money came to exist because its economic benefits, for example, to replace barter as a method of commerce. However, as Davis state:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Money originated very largely from non-economic causes: from tribute as well as from trade, from blood-money and bride-money as well as from barter, from ceremonial and religious rites as well as from commerce, from ostentatious ornamentation as well as from acting as the common drudge between economic men.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In other words, money originated from social customs. Davies does acknowledges that &quot;the clumsiness of barter&quot; gave an economic impulse to the spread of money, but it was not the cause of it. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Coins&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Yet, as civilisations became more complex and trade among nations grew, the &lt;strong&gt;economic&lt;/strong&gt; functions of money became more relevant. Davies notes that many physical items have been used as money:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Amber, beads, cowries, drums, eggs, feathers, gongs, hoes, ivory, jade, kettles, leather, mats, nails, oxen, pigs, quartz, rice, salt, thimbles, umiacs, vodka, wampum, yarns, and zappozats (decorated axes).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;But with the advance of ancient civilisations, &lt;strong&gt;coins&lt;/strong&gt; became the most common item to function as money. Pretty much every major civilisation or group had its own coins (e.g. Roman Empire &lt;a href=&quot;https://en.wikipedia.org/wiki/Denarius&quot; rel=&quot;nofollow noreferrer&quot;&gt;denarius&lt;/a&gt;, Etruscan empire &lt;a href=&quot;https://en.wikipedia.org/wiki/Shekel&quot; rel=&quot;nofollow noreferrer&quot;&gt;Shekel&lt;/a&gt;, Persian &lt;a href=&quot;https://en.wikipedia.org/wiki/Persian_daric&quot; rel=&quot;nofollow noreferrer&quot;&gt;daric&lt;/a&gt;, Chinese myriad &lt;a href=&quot;https://en.wikipedia.org/wiki/Ancient_Chinese_coinage#Western_Han_and_the_Wu_Zhu_coins&quot; rel=&quot;nofollow noreferrer&quot;&gt;of round-with-middle-hole coins&lt;/a&gt;, just to name a few; notice that &lt;a href=&quot;http://disinfo.com/2013/08/the-incan-empire-wealth-without-money/&quot; rel=&quot;nofollow noreferrer&quot;&gt;the Incas had no money&lt;/a&gt;). Coins normally represented a form of &lt;a href=&quot;https://en.wikipedia.org/wiki/Commodity_money&quot; rel=&quot;nofollow noreferrer&quot;&gt;commodity money&lt;/a&gt;, in that the coin itself had value because it was made of a valued metal like gold or silver.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As such, Roman emperors, Etruscan Kings, and other civilisations, pretty much until the end of the middle ages produced their own coins in order to foster commerce, facilitate taxes payment, and so on. Money usually had the stamp of a royalty or emperors, and minting was usually a monopoly of the state. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In fact, one of the first schools of economic thought was &lt;a href=&quot;https://en.wikipedia.org/wiki/Mercantilism&quot; rel=&quot;nofollow noreferrer&quot;&gt;mercantilism&lt;/a&gt;, which considered the accumulation of species (gold, silver, etc), primarily via trade surplus and mining as the chief economic objective of a government. As such, each country producing its own money via minting became a core state objective. Why would you then use another country's money? &lt;strong&gt;Why would the English Kings give up their capacity to control their currency and instead adopt that of e.g. the Kingdom of France&lt;/strong&gt;? The most sensible option was the sovereign control of the monopoly of money.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Paper Money&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The above already explains why different countries had different money systems. The &quot;natural&quot; transition from commodity money to &lt;a href=&quot;https://en.wikipedia.org/wiki/Fiat_money&quot; rel=&quot;nofollow noreferrer&quot;&gt;fiat money&lt;/a&gt; simply reproduced national differences into banknotes and eventually, to modern currencies. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Simply put, different bank notes emerged in the late middle ages (although its used has been recorded earlier in &lt;a href=&quot;https://en.wikipedia.org/wiki/History_of_money#Banknotes&quot; rel=&quot;nofollow noreferrer&quot;&gt;China&lt;/a&gt;), often as a simple mechanism to store and transfer money. Instead of you giving a load of heavy coins to someone, you simply used a bank to keep that physical money in exchange of a note that credited that ownership. You can then simply transfer the note and thereby the ownership of the load of coins. Many times there were many competing bank notes, but eventually the state and kings, not the least because of &lt;a href=&quot;https://economics.stackexchange.com/a/17770/2776&quot;&gt;some economists recommendation&lt;/a&gt; pursued the monopoly of banknote issuance, leading to what now are central banks.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Currency replacement&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Yet, in more recent times, some countries have gave up their own currencies. Notably is the case of the Euro, which replaced many national currencies like the Deutsche Mark, the Lira, the Peseta, etc. This was already commented by BB King in &lt;a href=&quot;https://economics.stackexchange.com/questions/17834/why-do-different-countries-have-different-currency/17848#17848&quot;&gt;another answer&lt;/a&gt;. Myself &lt;a href=&quot;https://economics.stackexchange.com/questions/17834/why-do-different-countries-have-different-currency/17841#17841&quot;&gt;also commented&lt;/a&gt; on why some countries have adopted the US Dollar (or other major currency). Most of the factors are economical, but political factors cannot be discounted too (e.g. Euro as part of a wider political integration process, not the least to avoid further war in the continent). &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;In summary, &lt;strong&gt;different countries have had different currencies because of historical reasons, ranging from non-economic to economic ones&lt;/strong&gt;. In the beginning, the production of competing forms of money by different civilisations and kingdoms was mainly a cultural issue, but with the growth of commerce and the growing complexity of societies, money became a powerful tool to foster economic activity and why not, military capacity. The state soon realised that controlling the monopoly of money production was beneficial for their interests. In this context, having no money and using other countries money was a totally irrational option. In modern times, economic motives has been the primary factor defining whether countries have or not their own currency. &lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="1601" LastEditDate="2019-03-31T09:12:48.363" LastActivityDate="2019-03-31T09:12:48.363" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="18117" PostTypeId="2" ParentId="18105" CreationDate="2017-09-02T12:18:21.337" Score="3" Body="&lt;p&gt;&quot;Natural disasters&quot; which are forecastable in advance (to some degree) are a particular case of a wider issue. Markets don't like uncertainty. Once the disaster has happened, the uncertainty is gone.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The same applies to elections, etc. For the market, it doesn't matter so much &lt;em&gt;who&lt;/em&gt; wins as &lt;em&gt;knowing&lt;/em&gt; who has won.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The arguments about increased economic activity, increased government money supply, etc, are true as far as they go, but the biggest factors that move markets will always be &quot;fear and greed&quot; so long as humans are involved in the market at all.&lt;/p&gt;&#xA;" OwnerUserId="8757" LastActivityDate="2017-09-02T12:18:21.337" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18118" PostTypeId="1" CreationDate="2017-09-02T14:53:36.567" Score="1" ViewCount="75" Body="&lt;p&gt;I was going to ask if there are any industries or companies that would be insulated from experiencing price changes from hype but I'm assuming it always plays a role. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, the question then turns to how we can absolutely know a price change was due to anticipated hype? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Perhaps this is due to a product release, incoming CEO, new management, etc. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does a price change due to hype occur at a certain time when affecting price? Basically does it only occur before the product is released or does it take effect when or after the product is released to confirm the sentiment? &lt;/p&gt;&#xA;" OwnerUserId="14120" LastEditorUserId="4251" LastEditDate="2017-09-03T23:40:11.873" LastActivityDate="2017-09-03T23:40:11.873" Title="How to know when hype is reason of a stock prices increase?" Tags="&lt;stock-market&gt;" AnswerCount="0" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18120" PostTypeId="1" CreationDate="2017-09-02T17:47:39.397" Score="2" ViewCount="119" Body="&lt;p&gt;What I've called &quot;elastic pricing&quot;, has a true economics name that I believe I once heard.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here's the notion:&#xA;I walked into a gas station to buy a fountain drink. I only brought a dollar with me, but when I went to purchase the drink, I found out it was actually \$1.89. The cashier accepted that as payment - making a real-time decision that he was able to capture my demand at only $1. I ended up trying this at a few other gas stations, sometimes bringing 90 cents, and it always works.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An alternative to this is that my University just started pricing football tickets at a variable rate based on the location of the seats. Invariably, they were trying to capture the additional value that the second market was instead capturing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A second alternative is that a former company of mine negotiated every price. So we would usually price the product at $500/user/month. But, we would always assess the situation, and with negotiation offer discounts, or increase the pricing. Or, provide value added services for free or at an increased rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So how do I talk about this flexible pricing concept – where a business sets it's pricing based on some kind of average demand, but considers an additional spread based on an individual's demand?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Edit&lt;/strong&gt;:&#xA;In my first example, the bargaining was only noteworthy because it informed a new mental model of mine – that the pricing was flexible. I don't believe it's an inherent component in the term I'm seeking.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As yet another example, consumer package good brands are known to alter their products slightly for online marketplaces – so that value savvy customers can't compare products directly online with those in the store. E.g. Duracell might offer a 6pk of batteries on Amazon vs. a 4pk at a retail outline. Or, they might package the item differently so it has a different SKU.&lt;/p&gt;&#xA;" OwnerUserId="14398" LastEditorUserId="14398" LastEditDate="2017-09-02T23:46:07.673" LastActivityDate="2017-09-03T02:34:51.653" Title="What's the term for elastic pricing?" Tags="&lt;supply-and-demand&gt;&lt;elasticity&gt;&lt;pricing&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18121" PostTypeId="1" CreationDate="2017-09-02T20:25:04.123" Score="5" ViewCount="4008" Body="&lt;p&gt;What is saddle point stability and what sorts of functions or systems of equations give rise to such a thing? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, would we say that a two systems of stochastic difference equations that are interlinked give rise to an environment with saddle point stability? &lt;/p&gt;&#xA;" OwnerUserId="14401" LastEditorUserId="2776" LastEditDate="2017-09-02T20:38:49.393" LastActivityDate="2019-03-04T02:49:43.120" Title="What is Saddle Point Stability?" Tags="&lt;macroeconomics&gt;&lt;mathematical-economics&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18122" PostTypeId="2" ParentId="18120" CreationDate="2017-09-02T21:18:50.180" Score="2" Body="&lt;p&gt;Perhaps you may want to look into Price Discrimination? This however is the concept of companies varying their prices on different consumer markets. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;1st degree price discrimination, at it's most optimal, is when companies charges the price of each individual consumer's demand. Those willing to pay the most will pay the most. Your description resembles this procedure, but it is not quite exact. Yours implied bargaining, which may or may not lead to 1st degree price discrimination. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;2nd degree price discrimination is setting variable prices depending on the product or the quantity sold, playing off of the consumer's preferences. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;3rd degree price discrimination is the segmenting of a market into smaller markets (based on some characteristic), and charging a uniform price in that market. The price between these segmented markets vary. &lt;/p&gt;&#xA;" OwnerUserId="11185" LastActivityDate="2017-09-02T21:18:50.180" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18123" PostTypeId="1" CreationDate="2017-09-03T00:18:59.383" Score="0" ViewCount="525" Body="&lt;p&gt;Question above, I have a very rudimentary understanding of econometrics.&lt;/p&gt;&#xA;" OwnerUserId="14396" LastActivityDate="2017-09-03T02:26:06.630" Title="What determines if a variable is exogenous or endogenous in a model?" Tags="&lt;macroeconomics&gt;&lt;econometrics&gt;&lt;mathematical-economics&gt;" AnswerCount="1" CommentCount="2" ClosedDate="2017-09-03T17:57:39.587" ContentLicense="CC BY-SA 3.0" />
  <row Id="18124" PostTypeId="2" ParentId="18123" CreationDate="2017-09-03T00:37:16.010" Score="0" Body="&lt;p&gt;An endogenous variable is one whose value determined within the model. Exogenous variables are those variables whose values are determined by influences outside the model. &lt;/p&gt;&#xA;" OwnerUserId="14401" LastActivityDate="2017-09-03T00:37:16.010" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18126" PostTypeId="2" ParentId="18120" CreationDate="2017-09-03T02:34:51.653" Score="2" Body="&lt;p&gt;The act where you go in with less money for fountain drinks but still are sold one is called &lt;strong&gt;fourth degree price discrimination&lt;/strong&gt;. This is when instead of the firm discriminating between buyers, the consumer extracts extra surplus from the seller by negotiating the price, and the seller moves closer to their willingness to sell. Often you'll see this happen with negotiating for large appliances for example.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first alternative you provide however is called &lt;strong&gt;vertical product differentiation&lt;/strong&gt;. The seller here (football venue in your example) provides different &lt;em&gt;quality&lt;/em&gt; products (better views/seats) at different rates.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The second alternative you provide is closest to &lt;strong&gt;first degree price discrimination&lt;/strong&gt;, where the firm tries to get a close to the consumer's willingness to pay as they can to extract the most surplus from them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your example with selling goods in a way where quality is indistinguishable or difficult, selling online versus in a retail store, sounds like &lt;strong&gt;horizontal product differentiation&lt;/strong&gt;, which involves distinguishing similar products based on characteristics that don't necessarily have to do with quality.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Your many different examples encompass different ideas, but a generic term that best describes the phenomena you are thinking of is called &lt;strong&gt;&lt;em&gt;nonlinear pricing&lt;/em&gt;&lt;/strong&gt;.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2017-09-03T02:34:51.653" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18127" PostTypeId="1" CreationDate="2017-09-03T04:04:01.710" Score="0" ViewCount="6000" Body="&lt;p&gt;&lt;strong&gt;Question:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A firm produces chairs using labor and capital. The price of labor is \$50 dollar per unit, and the price of capital is $100 per unit. At current output, the marginal product of labor is 10 chairs, and the marginal product of capital is 15 chairs. To reduce the total cost of producing the current quantity of chairs, how should the firm change its spending on labor and capital?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Answer:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Increase labor; Decrease capital. In order to reduce the total cost of producing the current quantity of chairs, one of the inputs to production must increase and the other must decrease. If neither changed, the cost would not be reduced. If one increased or decreased and the other did not change, the firm wouldn’t be producing the current quantity of chairs – it would be producing more or less, respectively. &lt;strong&gt;While the marginal product of labor (MPL = 10) is less than the marginal product of capital (MPK = 15), the RATIO of the MPL to the price of labor (10 / 50 = 0.2) is greater than the RATIO of the MPK to the price of capital (15 / 100 = 0.15).&lt;/strong&gt; To reduce the total cost, the firm should increase spending on labor, which increases output by 0.2 chairs for every dollar spent, and decrease spending on capital, which only increases output by 0.15 chairs for every dollar spent. &lt;/p&gt;&#xA;" OwnerUserId="14403" LastEditorUserId="2776" LastEditDate="2017-09-03T06:44:54.723" LastActivityDate="2017-11-02T08:10:04.907" Title="Why are we comparing the ratios of MPL to price of labor and MPK to price of capital not ratios of MPL and MPK to price of labor and price of capital" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18128" PostTypeId="1" CreationDate="2017-09-03T06:19:54.813" Score="2" ViewCount="264" Body="&lt;p&gt;I am trying to improve my economic logic skills and ability to think about day-to-day issues in the systematic way economics and decisions science approaches scarcity or optimization.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A simple example to clarify, I know that MC=MR however the &lt;strong&gt;intuition&lt;/strong&gt; as to why MC$&amp;lt;$MR is not optimal is something which educators seem to overlook to explain. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am looking for any resources online or textbooks, workbooks, non-fiction, etc that will help me sharpen these skills. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let me know if I can further improve my question, apologies in advance as this is my first post. &lt;/p&gt;&#xA;" OwnerDisplayName="user14404" LastEditorUserId="8815" LastEditDate="2017-09-03T18:35:37.363" LastActivityDate="2017-10-27T22:02:08.000" Title="Resources to improve my economic intuition" Tags="&lt;reference-request&gt;&lt;self-study&gt;&lt;soft-question&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="18129" PostTypeId="2" ParentId="18127" CreationDate="2017-09-03T07:25:36.033" Score="2" Body="&lt;p&gt;You can do both. Effectively you say &quot;let me move one dollar from labor to capital expenditure and see what happens&quot;. By doing so you have reduced labor by 0.01 and thus reduced production by 0.15 chairs, but increased capital by 0.02 and thus production by 0.2 chairs. Net effect is 0.05 chairs more at the same cost.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Equivalently, MPL/MPK = 1.5&amp;lt; w/r =2, or MPL/w= 0.15 &amp;lt; MPK/ r = 2. Second is just rearrangement of the first, but with both you answer where the dollar of you cost is more efficient.&lt;/p&gt;&#xA;" OwnerUserId="14406" LastActivityDate="2017-09-03T07:25:36.033" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18130" PostTypeId="2" ParentId="18128" CreationDate="2017-09-03T11:15:39.990" Score="4" Body="&lt;p&gt;While textbooks are the best way to learn the material (MC=MR etc), here are some suggestions for improving your intuitive understanding of economics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Books&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://rads.stackoverflow.com/amzn/click/0345494016&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;The Undercover Economist&lt;/em&gt;&lt;/a&gt; by Tim Harford&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://rads.stackoverflow.com/amzn/click/1451651732&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;The Armchair Economist&lt;/em&gt;&lt;/a&gt; by Steven E. Landesburg&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Blogs&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://marginalrevolution.com/&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;Marginal Revolution&lt;/em&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://noahpinionblog.blogspot.co.uk/&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;Noahpinion&lt;/em&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://conversableeconomist.blogspot.co.uk/&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;Conversable Economist&lt;/em&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.enlightenmenteconomics.com/blog/&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;The Enlightened Economist&lt;/em&gt;&lt;/a&gt; (Great for book recommendations)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Podcasts&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://itunes.apple.com/gb/podcast/econtalk/id135066958?mt=2&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;Econtalk&lt;/em&gt;&lt;/a&gt; with Russ Roberts&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://itunes.apple.com/gb/podcast/ft-alphachat/id448302257?mt=2&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;FT Alphachat&lt;/em&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is just a start. Hopefully these will send you to other excellent sources.&lt;/p&gt;&#xA;" OwnerUserId="12371" LastActivityDate="2017-09-03T11:15:39.990" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18131" PostTypeId="2" ParentId="18121" CreationDate="2017-09-03T13:01:22.343" Score="7" Body="&lt;p&gt;&quot;Saddle point stability&quot; refers to dynamical systems, (usually systems of difference or differential equations), where the system has a fixed point, &lt;em&gt;and there exists a single trajectory that leads to the fixed point&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It follows that from a mathematical point of view these systems are in reality &lt;em&gt;unstable&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A 2 X 2 system is the standard example because one can construct intuitive two-dimensional &lt;em&gt;phase diagrams&lt;/em&gt; to understand the properties and the behavior of the system over time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For natural sciences, unstable systems are useless as models -the tiniest deviation, if not corrected, would lead to corner solution (elimination or explosion of the system).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But saddle-path stable systems have found important uses in economics, because this feature of theirs accommodates &lt;em&gt;purposeful behavior&lt;/em&gt;. Assume that an economic system described by a set of difference equations was properly stable in the full mathematical sense. That would imply that no matter where we started, automatically the system would tend to its fixed point/long-run equilibrium. But this means that no matter what the economic agents did and how they interact, the system would settle in equilibrium... this does not sound very convincing once we accept that agents try to optimize their situation (in terms of utility, wealth, etc).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But if the system is &quot;saddle-path stable&quot;, then agents track the trajectory followed, and if it appears to deviate from the one that leads to the fixed point, they purposefully change their own behavior in order to go back to the desired trajectory, since corner solutions are not optimal.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The standard example here is the basic growth model. &lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2019-03-04T02:49:43.120" LastActivityDate="2019-03-04T02:49:43.120" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="18134" PostTypeId="1" AcceptedAnswerId="18139" CreationDate="2017-09-03T16:54:04.173" Score="3" ViewCount="3955" Body="&lt;p&gt;In which situation does the demand and supply curve both shift? My professor told me for the demand curve,  the income of the consumers changes etc. will shifted the demand curve; For the supply curve, the changes technology etc will shift the supply curve.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So is this statement true: Only the types of situation with some factors causes the demand curve shift along with some other separate factors causes the supply curve shift may had both curve shift simultaneously, but in fact there is no single one factor that could shift both curve simultaneously.&lt;/p&gt;&#xA;" OwnerUserId="95" LastEditorUserId="8815" LastEditDate="2017-09-03T18:28:05.613" LastActivityDate="2017-09-03T20:51:28.390" Title="In which situation does the demand and supply curve both shift?" Tags="&lt;microeconomics&gt;&lt;supply-and-demand&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18136" PostTypeId="2" ParentId="4913" CreationDate="2017-09-03T17:50:35.607" Score="4" Body="&lt;p&gt;An &lt;strong&gt;Exogenous Variable&lt;/strong&gt; is defined as a variable which is unaffected by other variables within an model. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;take a multivariable regression model as an example:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$y=\beta_0+\beta_1x_1+\beta_2x_2+u $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$x_1$ is called an exogenous variable when its determination is unaffected by $x_2$ and error term $u$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An &lt;strong&gt;Endogenous Variable&lt;/strong&gt; is defined when $x_1$ is influneced by $x_2$ or $u$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is important because when we run a regression we are producing a function which assumes a dependent and independent variable. If we find endogeneity  we wont get accurate estimates for the effect of $x_1$ on $y$.&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2017-09-03T17:50:35.607" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18137" PostTypeId="5" CreationDate="2017-09-03T18:15:59.793" Score="0" Body="" OwnerUserId="8815" LastEditorUserId="8815" LastEditDate="2017-09-03T18:15:59.793" LastActivityDate="2017-09-03T18:15:59.793" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18138" PostTypeId="4" CreationDate="2017-09-03T18:15:59.793" Score="0" Body="A Non-specific question regarding economic practice and analytical development." OwnerUserId="8815" LastEditorUserId="8815" LastEditDate="2017-09-03T18:15:59.793" LastActivityDate="2017-09-03T18:15:59.793" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18139" PostTypeId="2" ParentId="18134" CreationDate="2017-09-03T18:27:39.063" Score="4" Body="&lt;p&gt;No, this case is not true. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A factor which both shifts supply and demand curves at the same time is an &lt;strong&gt;increase or decrease in population&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This both adds consumers (increase in demand) to the economy and increases the workforce (increase in labor force, thus producing more and increasing quantity supplied).&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2017-09-03T18:27:39.063" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18141" PostTypeId="2" ParentId="18134" CreationDate="2017-09-03T20:51:28.390" Score="3" Body="&lt;p&gt;A change in labor wage could bring about a simultaneous change in the market demand and supply curves. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume that wages increase: consumers now have more income and this in principle will affect the demand curve. On the other hand, the costs of the firms have increased, and this will affect the supply curve.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The same could be said in case space rents increase: it results in an increase in (asset) income for consumers/asset holders, and an increase in costs for firms renting the space.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2017-09-03T20:51:28.390" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18143" PostTypeId="1" CreationDate="2017-09-03T21:22:41.013" Score="2" ViewCount="124" Body="&lt;p&gt;I am having diffculty with this question:&#xA;&lt;img src=&quot;https://i.stack.imgur.com/jkTWS.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can we proceed using Lagrange here since the utility function is convex, or do we have to treat them as perfect substitutes? If latter or any other method, please explain.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My attempt:&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$L= U(X,y) +λ(y-p1-p2)$$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;By using Lagrange, I got these &lt;strong&gt;FOCs&lt;/strong&gt;:&#xA;$$ α Ax1^{(α -1)} - λp1=0$$&amp;amp; $$1-λp2=0$$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, is it correct to use Lagrange method here? &lt;/p&gt;&#xA;" OwnerUserId="14345" LastEditorUserId="8815" LastEditDate="2017-09-03T22:07:30.907" LastActivityDate="2017-09-03T23:27:42.893" Title="Consumer utility optimization question" Tags="&lt;microeconomics&gt;&lt;utility&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="18145" PostTypeId="2" ParentId="16517" CreationDate="2017-09-03T22:57:31.993" Score="1" Body="&lt;p&gt;It should come to no surprise that some government debt is sometimes optimal, even if the country can pay off all its debt. The present value of paying off the interest rate on a loan in perpetuity and paying off the entirety of the loan in one go are equal to each other, but you can imagine a government might not be indifferent between those two options. For example, a short-sighted government will want to put off paying back any loans to the next government, for all else equal. (There are of course other reasons to hold some debt, outside the scope of this question.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Speaking of which, now consider a country that chronically keeps increasing its debt relative to its output. As suggested under Ricardian Equivalence, consumers won't respond to fiscal policy, because they know taxes will have to increase in the future. There are plenty of different exceptions that can break Ricardian Equivalence (e.g. consumers can be shortsighted too) but a high GDP to debt ratio suggests that a government will not only face &lt;strong&gt;increasing payments/spending on interest&lt;/strong&gt; instead of government goods and services, but also that &lt;strong&gt;fiscal policy will become less effective&lt;/strong&gt;.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2017-09-03T22:57:31.993" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18146" PostTypeId="2" ParentId="18143" CreationDate="2017-09-03T23:27:42.893" Score="1" Body="&lt;p&gt;I'll offer a little guidance to get you moving on the problem your own.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You've set up the Lagrangean incorrectly.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The maximization problem you have looks like:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\max \ U(x_1, x_2) \\&#xA;\text{s.t.} \ p_1 x_1 + p_2 x_2 \leq y $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Lagrangean should read:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\mathscr{L} = U(x_1, x_2) - \lambda (p_1 x_1 + p_2 x_2 - y)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Lagrangean you offered had utility as a function of $X$ and $y$, but you can see your utility function does not have $y$ as an argument in it. So this is just a notation error to keep track of. As for the part with the Lagrangean multiplier, you can imagine that if the inequality constraint is binding, then $p_1 x_1 + p_2 x_2 - y = 0$, so in that case, maximizing the Lagrangean is just maximizing utility minus $0$, but it's a special $0$ that helps to incorporate the budget constraint into the problem. (As for the non-binding case, you can think about what is happening to the optimization problem yourself.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your first order conditions are correct though. So that tells me you've mostly made some typing errors. To answer your question about whether the Lagrangean is okay here, the Lagrangean will work as long as the optimum is an interior solution. So if you suspect either $x_1, x_2$ will be equal to zero, then you may have to break out Kuhn-Tucker's theorem. So think about under what conditions Lagrange's theorem holds.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2017-09-03T23:27:42.893" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18147" PostTypeId="1" CreationDate="2017-09-03T23:32:23.373" Score="1" ViewCount="507" Body="&lt;p&gt;I've been searching for answer, but I can't find a clear cut one. From what I understand it says that, in the realistic model there are no exogenous variables? Or does it say that there can be no clear cut identification of exogenous and endogenous variables?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Link: &lt;a href=&quot;http://www.wifa.uni-leipzig.de/fileadmin/user_upload/iew-vwl/OEK-Lehre/tsa_winter2011/tsa01.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.wifa.uni-leipzig.de/fileadmin/user_upload/iew-vwl/OEK-Lehre/tsa_winter2011/tsa01.pdf&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="14396" LastEditorUserId="14396" LastEditDate="2017-09-04T00:00:23.457" LastActivityDate="2017-09-04T00:00:23.457" Title="What does Sims' critique of economics models actually say?" Tags="&lt;macroeconomics&gt;&lt;econometrics&gt;&lt;mathematical-economics&gt;" AnswerCount="0" CommentCount="5" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18148" PostTypeId="1" AcceptedAnswerId="18155" CreationDate="2017-09-04T02:36:32.603" Score="4" ViewCount="258" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Let $\succeq$ be a preorder, i.e., it is reflexive and transitive on $X$. Prove that there exists an index set $N$ and a multi-utility function $u:X \rightarrow \mathbb{R}^N$ such that $x \succeq y$ if and only if $[u(x)](n) &amp;gt; [u(y)](n)$ for all $n \in N$.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I know, for example, the relation $x \succeq y$ on $\mathbb{R}^2$ if $x_1 \ge y_1$ and $x_2 \ge y_2$ can be represented with $N= \{1,2\}$ and the multi-utility function defined by $u(x) = (x_1, x_2)$. But, I am unsure of how to do the general proof.&lt;/p&gt;&#xA;" OwnerUserId="14359" LastEditorUserId="2776" LastEditDate="2017-09-04T08:40:52.610" LastActivityDate="2017-09-04T12:50:51.490" Title="Preorder and multi-utility function" Tags="&lt;microeconomics&gt;&lt;utility&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18149" PostTypeId="2" ParentId="10688" CreationDate="2017-09-04T06:48:14.317" Score="0" Body="&lt;p&gt;When googling &quot;items of daily use&quot; together with inflation I only found the Central Bank of Pakistan using such expression. Your quote comes from &lt;a href=&quot;http://www.sbp.org.pk/Reports/Annual/arFY15/InflationMonetary.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;this report&lt;/a&gt;. There, you find in footnote 36 the following:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;This sub-group includes wheat flour, rice, chicken, fresh milk, vegetable ghee, sugar, tea, potatoes, onion, tomatoes, fresh&#xA;  vegetables, fresh fruits, five pluses, water supply, electricity, gas, kerosene oil, cotton cloth, utensils, washing soap &amp;amp;&#xA;  detergent, transport services, postal services and text books.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In that same report you find other goods/services which are not included in that category, like house rent,  government college and university fee, restaurants, alcoholic beverages and tobacco, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think this categorisation is rather arbitrary, and as I said, might only be used in Pakistan. In any case, if you want to give school children a rough idea, I would summarise it as &quot;&lt;em&gt;things for which people pay day after day, including food like rice, milk, tea (etc), or mobilisation like bus tickets, kerosene oil (etc), and it does not include things for which people pay only occasionally, like restaurants and college fee&lt;/em&gt;&quot;. Given the information I've given above, you can come up with a better phrase, more suitable for your (and school children's) context. &lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-09-04T06:48:14.317" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18150" PostTypeId="2" ParentId="283" CreationDate="2017-09-04T09:15:23.950" Score="0" Body="&lt;p&gt;INEGI has a (new) English version of its site, where you can find trade statistics (and many other). The site is &lt;a href=&quot;http://en.www.inegi.org.mx/proyectos/registros/economicas/comext/&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;. Whenever the statistics are not available in English, a link redirects to the Spanish version (for example, &lt;a href=&quot;http://en.www.inegi.org.mx/contenidos/temas/economia/comercio/tabulados/bcom01_2015_6_17.xls&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;), so you still get the data you want (luckly, technical words like imports and exports, sector, and so on are pretty similar in both languages).&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-09-04T09:15:23.950" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18151" PostTypeId="1" AcceptedAnswerId="18153" CreationDate="2017-09-04T10:39:46.027" Score="3" ViewCount="770" Body="&lt;p&gt;Assume, using the following equation&#xA;$Y=[((A_1L)^\alpha K^\beta)^\sigma+ (A_2X^\gamma)^\sigma]^{1/\sigma}$, we back out (obtain) the evolution of $A_1$ &amp;amp; $A_2$. Can we interpret $A_1$ as labour-saving technical change index since it augments labour in the model?&lt;/p&gt;&#xA;" OwnerUserId="6009" LastEditorUserId="2776" LastEditDate="2017-09-04T10:44:32.450" LastActivityDate="2017-09-05T07:10:09.043" Title="Cobb-Douglas nested in CES model" Tags="&lt;economic-growth&gt;&lt;production-function&gt;&lt;ces-function&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18153" PostTypeId="2" ParentId="18151" CreationDate="2017-09-04T12:06:13.317" Score="3" Body="&lt;p&gt;Think of your function as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Y=[A_1Q^\sigma+ A_2X^\sigma]^{1/\sigma}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $Q=L^\alpha K^\beta$ (I removed unnecessary bits like $\gamma$ and exponent of $A_i$). This is a standard CES, where the optimal use of $Q$ and $X$ depend on $\frac{A_1}{A_2}$ and $\sigma$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a relatively low substitution ($\sigma&amp;lt;0$), an increase in $A_1$ (&lt;strong&gt;holding factor prices fixed&lt;/strong&gt;) means firms make use of that extra increase in productivity of factor $Q$ by using less of it and more of $X$. Since $A_1$ corresponds to a Hick neutral change regarding $Q$, you will use the bundle $Q$ with the same initial $K/L$ ratio than before the change in $A_1$. Therefore, you will &lt;strong&gt;reduce both $K$ and $L$&lt;/strong&gt;. In consequence, an increase in $A_1$ could be thought as labour-saving technical change &lt;em&gt;with respect to $X$&lt;/em&gt;, and in absolute value (although notice that $K/L$ remains unchanged).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reverse is true if $0&amp;lt;\sigma \leq 1$, namely an increase in $A_1$ leads to more use of $Q$ relative to $X$, thereby expanding the use of $L$ and $K$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Meanwhile, in the inbetween case ($\sigma=0$), the function &lt;a href=&quot;https://economics.stackexchange.com/questions/361/how-can-i-obtain-leontief-and-cobb-douglas-production-function-from-ces-function&quot;&gt;collapses to&lt;/a&gt; a Codd-Douglas:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ Y = \left(L^\alpha K^\beta\right)^{\phi} X^{1-\phi} $$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $\phi = \frac{A_1}{A_1 + A_2}$. Here a change in $A_1$ does not affect the K/L ratio, albeit it does affect the optimal ratio with respect to $X$. But commonly technical change is though as a change in some $A$ rather than in the elasticities of factors, so this case does not nest well with the above. I think this might be because the original function &lt;a href=&quot;https://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1294.pdf?9fcd5fddf87498417164716f2bbee9fd&quot; rel=&quot;nofollow noreferrer&quot;&gt;is not properly normalised&lt;/a&gt;. This is, the terms $A_1$ and $A_2$ do not add up to one, which is necessary given your original assumption of constant returns to scale. &lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-09-05T07:10:09.043" LastActivityDate="2017-09-05T07:10:09.043" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="18154" PostTypeId="1" AcceptedAnswerId="18217" CreationDate="2017-09-04T12:12:44.660" Score="1" ViewCount="287" Body="&lt;p&gt;Let $\succeq$ be a preference relation on $X$. Is it true that $x \succeq y$ if and only if $\lnot (y \succ x)$? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think it is true and my proof is as follows. To prove $\implies$ direction, we have $\lnot (y \succ x) \equiv \lnot(y \succeq x)$ or $x \succeq y$. So clearly if we assume $x \succeq y$, then $\lnot (y \succ x)$ is true. To prove $\impliedby$ direction, assume $\lnot (y \succ x)$ is true. Then either $\lnot(y \succeq x)$ or $x \succeq y$. If $x \succeq y$ then we are done. If $\lnot(y \succeq x)$, then since $\succeq$ is a preference relation it must be complete, which implies $x \succeq y$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is my proof correct? Also, in general, I just want to ask, is it true that whenever we have a &lt;strong&gt;preference&lt;/strong&gt; relation $\succeq$, instead of proving all these facts, can we &quot;informally&quot; pretend $\succeq$ is like the inequality $\ge$, and everything works analougously? For example, we could prove that $\lnot (x \sim y)$ if and only if $x \succ y$ or $y \succ x$, but if we just wanted to use deduce this fact without actually proving it, we can clearly see it from $\lnot(x=y)$ if and only if $x&amp;gt;y$ or $y&amp;gt;x$.&lt;/p&gt;&#xA;" OwnerUserId="14414" LastActivityDate="2017-09-10T21:28:37.323" Title="Properties of preference relation" Tags="&lt;mathematical-economics&gt;&lt;preferences&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="18155" PostTypeId="2" ParentId="18148" CreationDate="2017-09-04T12:50:51.490" Score="1" Body="&lt;p&gt;This seems like an interesting question but I am not sure I understand all the details here, so this is more a comment than an answer.&#xA;Because the preference relation is incomplete, we cannot have a real-valued utility function representing it (recall that indifference is different from indecisiveness because the latter is not transitive).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Moreover, I do not think that you can have an arbitrary set $X$ together with an arbitrary $\succeq$ being represented by a finite-dimensional $u$. To give a simple example, suppose that $X=[1,p_n]$ with $p_n$ being the $n-th$ prime and your preferences are $x\succeq y$ if $x\geq y$ and $x,y\in(p_k,p_{k+1}]$ for some $k&amp;lt;n$. There are $n$ subsets of alternatives, each with a well-defined preference order but alternatives are no comparable across subsets so that you need at least $f(n)$ (not sure about the exact $f$) dimensions in your vector-valued utility function. When $X=[1,\infty)$, the number of dimensions explodes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An important example is the case of social choice. Suppose that you have $k$ individuals with preferences over $X$ and you want to aggregate them. The Pareto order then gives you $u(x)=(u_i(x))$ for all $i$ the (ordinal) utility of individual $i$ from alternative $x$. Indeed, if $u_i(x)&amp;gt;u_i(y)$ for all $i$, then $u(x)&amp;gt;u(y)$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, if $X$ was finite, then simply order the elements in some way $x^1,x^2,..,x^k$ and construct $u\in \mathbb R^k$ as follows:&#xA;$u_l(x^l)=1$, $u_l(x^k)=1$ iff $x^l\succeq x^k$ and $u_l(x^k)=0$ otherwise. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To see that this represents the preferences, notice that if $x^l\succeq x^{l'}$, $u_l(x^l)=1&amp;gt;u_l(x^{l'})$, $u_{l'}(x^l)=u_{l'}(x^{l'})$; if $x^m\succeq x^l$ it must be that $x^m \succeq x^{l'}$ so that $u_m(x^l)=u_m(x^{l'})$ and viceversa but if $x^l\succeq x^m\succeq x^{l'}$, then $u_m(x^l)&amp;gt;u_m(x^{l'})$; and if $x^m$ is not comparable with $x^l$ it cannot be worse than $x^{l'}$ so that $u_m(x^l)=u_m(x^{l'})=0$, while if it is not comparable with $x^{l'}$ it cannot be better than $x^l$.&lt;/p&gt;&#xA;" OwnerUserId="14310" LastActivityDate="2017-09-04T12:50:51.490" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18157" PostTypeId="1" AcceptedAnswerId="18158" CreationDate="2017-09-04T14:21:47.293" Score="1" ViewCount="53" Body="&lt;p&gt;Is there investment model with different depreciation rate. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, d1(depreciation rate in 1 period), d2(depreciation rate in 2 period)&lt;/p&gt;&#xA;" OwnerUserId="13815" LastEditorUserId="2776" LastEditDate="2017-09-04T15:01:31.627" LastActivityDate="2017-09-04T15:22:08.907" Title="Is there any investment model with time-varying depreciation rate?" Tags="&lt;investment&gt;&lt;discount-rate&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18158" PostTypeId="2" ParentId="18157" CreationDate="2017-09-04T14:58:18.797" Score="1" Body="&lt;p&gt;A type of model you might be interested on is one where &lt;strong&gt;the depreciation rate is endogenous&lt;/strong&gt;. This means, it depends on the value of other variables in the model, instead of being exogenous and constant (naturally, you can have a variable depreciation rate but exogenous, but that is as &lt;em&gt;ad-hoc&lt;/em&gt; as a constant depreciation rate).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One example is &lt;a href=&quot;http://www.nber.org/papers/w2571.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;this model&lt;/a&gt;. Equation 19.4 shows the formula of the depreciaton rate (which the authors also coll net utilization rate). Then, they state:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Thus the adjustment path for the capital utilization rate is a flexible accelerator.&#xA;  This result rigorously establishes the empirical finding obtained by Nadiri and Rosen (1969) that the adjustment' path of the&#xA;  capital utilization rate is similar to the paths of capital and labor growth rates which are governed by flexible accelerators. Along the&#xA;  dynamic path, &lt;strong&gt;as the capital intensity decreases the net utilization rate declines for two reasons.&lt;/strong&gt; First, there is the direct effect of the&#xA;  capital intensity on the net utilization rate. A decrease in the capital intensity leads the firm to reallocate resources towards capital output&#xA;  which decreases the rate. Second, there is the indirect effect, which arises because the decrease in capital intensity causes the price of&#xA;  unutilized capital to increase. Since the marginal value of unutilized capital increases, the firm then utilizes less of its capital and so the&#xA;  utilization rate falls. Thus $k^° &amp;gt; k^*$ implies that $\delta^° &amp;gt; \delta^*$. These results mean that along the dynamic path the net capital utilization rate&#xA;  and the rate of capital investment are inversely related while the net capital utilization rate and the labor investment rate are directly&#xA;  correlated.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://econpapers.repec.org/article/oupoxecpp/v_3a61_3ay_3a2009_3ai_3a3_3ap_3a440-466.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;This paper&lt;/a&gt; presents another model. They show that &quot;embodied&quot; technical change (i.e. technical change which comes with &lt;strong&gt;new&lt;/strong&gt; machines rather than occur amid current machines) decreases the lifetime of capital, thereby increasing the depreciation rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.mitpressjournals.org/doi/pdf/10.1162/003465300556832&quot; rel=&quot;nofollow noreferrer&quot;&gt;This paper&lt;/a&gt; finds empirical support for a variable depreciation rate.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-09-04T15:22:08.907" LastActivityDate="2017-09-04T15:22:08.907" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18159" PostTypeId="1" AcceptedAnswerId="18200" CreationDate="2017-09-04T19:12:10.263" Score="3" ViewCount="43" Body="&lt;p&gt;What is the general rule in words/mathematical description for a factor that only shifts one supply/demand curve or two supply/demand curves simultaneously?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is pretty confusing to me, because no single textbook I found had such a rule.&lt;/p&gt;&#xA;" OwnerUserId="95" LastEditorUserId="14454" LastEditDate="2017-09-09T03:00:58.033" LastActivityDate="2017-09-09T03:00:58.033" Title="What is the general rule for classifying factor that only shift one supply/demand curve or two supply/demand curve?" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18160" PostTypeId="2" ParentId="15157" CreationDate="2017-09-04T19:22:23.343" Score="2" Body="&lt;p&gt;Also remember that China's holdings of US Treasury's are a manifestation of the fact that they run a current account surplus with the US e.g. they sell more stuff to us than what they buy from us, which ends up creating dollars for them to hold which they invest mostly in USTs for obvious reasons related to safety and liquidity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Even if they dumped their holdings in the market, it would not relieve them of the burden of continuously reinvesting their current account surpluses. They could pass it off to someone else (say by buying german bunds for dollars) but then that someone else will be left holding the dollars. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Current account surpluses are like vendor financing - you are lending your customers funds so that they can buy stuff from you - there's not much you can do other than hold the debt or pass it on to someone else.&lt;/p&gt;&#xA;" OwnerUserId="11155" LastActivityDate="2017-09-04T19:22:23.343" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18161" PostTypeId="1" AcceptedAnswerId="18175" CreationDate="2017-09-04T19:25:41.040" Score="1" ViewCount="93" Body="&lt;p&gt;I am pretty new at this, so my apologies in advance if the question is too out of place.&lt;/p&gt;&#xA;&lt;p&gt;I have been reading about portfolio replication models, and stumbled upon this example that I don't quite understand. It goes like this: there's a stock with current price &lt;span class=&quot;math-container&quot;&gt;$S_0 = 100$&lt;/span&gt;, and a call option on it with strike price &lt;span class=&quot;math-container&quot;&gt;$K = 100$&lt;/span&gt;. The up-state and down-state values of the underlying are &lt;span class=&quot;math-container&quot;&gt;$S_u=110$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$S_d = 90$&lt;/span&gt;, respectively. Now the problem states&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Let's assume we take a position &lt;span class=&quot;math-container&quot;&gt;$\Delta$&lt;/span&gt; in shares and &lt;em&gt;short one call option&lt;/em&gt; to create our portfolio, which is then comprised by two assets: the underlying and the call option.&lt;/p&gt;&#xA;&lt;p&gt;If the price goes up, then the shares will be worth &lt;span class=&quot;math-container&quot;&gt;$110\Delta$&lt;/span&gt; and we will loose 10. Therefore, the value of the portfolio is &lt;span class=&quot;math-container&quot;&gt;$110\Delta \color{red}{-10}$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;p&gt;If, on the other hand, the price goes down, the call expires worthless and the value of the portfolio is &lt;span class=&quot;math-container&quot;&gt;$90\Delta$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;My question is: why would I include this call option in my portfolio at all? Clearly I am not profiting from it in any sense, I either would loose money or not gain anything.&lt;/p&gt;&#xA;" OwnerUserId="14419" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2017-09-05T18:16:42.763" Title="Short call in binomial option pricing model" Tags="&lt;portfolio-theory&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18162" PostTypeId="1" CreationDate="2017-09-04T20:16:49.873" Score="-1" ViewCount="32" Body="&lt;p&gt;If I'm not mistaken, in some work Hayek mentions that knowledge as he means it consists not so much in the awareness of facts as in the ability to learn.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It may have been in a passage concerning entrepreneurship.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does anyone know whether that's the case and where?&lt;/p&gt;&#xA;" OwnerUserId="5781" LastActivityDate="2017-09-04T20:27:58.623" Title="Where did Hayek say knowledge is the ability to learn?" Tags="&lt;reference-request&gt;&lt;history-economic-thought&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18163" PostTypeId="2" ParentId="18162" CreationDate="2017-09-04T20:27:58.623" Score="1" Body="&lt;p&gt;Found it. Individualism and Economic Order, p 155, &quot;most of [knowledge] consists in a technique of thought...&quot;&lt;/p&gt;&#xA;" OwnerUserId="5781" LastActivityDate="2017-09-04T20:27:58.623" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18165" PostTypeId="1" CreationDate="2017-09-04T22:58:57.517" Score="1" ViewCount="279" Body="&lt;p&gt;Out of curiosity, do you know if there is a collection of Economics PhD prelims questions?&lt;/p&gt;&#xA;" OwnerUserId="11843" LastActivityDate="2017-09-14T09:41:42.080" Title="Is there a collection of Economics PhD prelims questions?" Tags="&lt;reference-request&gt;" AnswerCount="1" CommentCount="5" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18167" PostTypeId="2" ParentId="13459" CreationDate="2017-09-05T06:49:37.973" Score="1" Body="&lt;p&gt;Part (a) is correct. Your error in (b) is to implicitly assume that relative prices are equal to $1/2$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The best way to understand the problem is using the &lt;a href=&quot;https://en.wikipedia.org/wiki/Edgeworth_box&quot; rel=&quot;nofollow noreferrer&quot;&gt;Edgeworth box&lt;/a&gt; (excuse the sloppy picture; will add a custom one when had the time):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/jKoOR.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/jKoOR.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The axes represent the two goods. Their lengths are 1800 (global endowment of food, x axis) and 900 (global endowment of clothing, y axis). Point 3 represents the endowment point, which is (1200,300) for Home and (600,600) for Foreign. As the figure shows, that point is not an optimal allocation. Such optimal allocation is where the MRS for the two countries is the same (point 1), MRS which is equal to the relative price of goods (same for both countries, i.e. they are international prices).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, this allocation has the following properties:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{H_f^2}{2H_c} = \frac{F_f^2}{2F_c} = \frac{P_c}{P_f}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(I replaced $D$ with home and foreign letters, for clarity).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Notice that the ratios of consumption are the same across countries. Yet, before trade, production is such that the ratio of food versus clothing is larger in home than in foreign. Therefore, home will export food and import clothing, and &lt;em&gt;vice versa&lt;/em&gt; for foreign. Yet, since imports of one country are the exports of the other country, you get:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{1200 - A}{300 + B} = \frac{600 + A}{600 - B} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $A$ are exports of food and $B$ exports of clothing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Additionally, you have that the trade balance must be in equilibrium. Therefore:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ P_fA = P_cB $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here you have all the equations you need to find the solution in terms of final consumption levels and relative prices. Let me know if this is enough. I can guide you further if you need.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-09-05T14:29:01.887" LastActivityDate="2017-09-05T14:29:01.887" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18168" PostTypeId="2" ParentId="17834" CreationDate="2017-09-05T06:52:51.790" Score="1" Body="&lt;p&gt;If I go down to the border with Mexico and step over the line that separates the two countries, what has changed? The air is the same. The sunshine is the same. There is only one thing that is not the same. The laws. I am now under a different legal system. If I commit a crime, I am arrested by Mexican police and face a Mexican judge who applies Mexican law to my case. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Money is legal tender. It's what the law recognizes as the unit that holds value for all economic activity occurring under the jurisdiction of the body that prints it. It's what the law itself uses to impose fines, enforce contracts, levy taxes, and so on. The entity that makes the laws also issues the currency and declares it the legal tender and guards its integrity.&lt;/p&gt;&#xA;" OwnerUserId="13669" LastActivityDate="2017-09-05T06:52:51.790" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18169" PostTypeId="1" CreationDate="2017-09-05T09:00:41.177" Score="1" ViewCount="38" Body="&lt;p&gt;I apologize for not being able to word this in a non subject specific way.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, for people who don't support widespread factory farming practices, there are people that abstain from meat completely, and then there are those who buy humane sources, such as cage free/organic/grass fed whatever. These terms differ by definition and enforcement by region, but for the sake of the argument please assume a best case scenario.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, I have heard non-meat eaters claim they make the most impact by not supporting the meat industry at all.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have also heard that they have no impact, since they are simply not a part of the market, and that meat eaters who buy 'humane' meats have much more of an impact because they are still buying meat, but putting it towards a minority practice helping it grow and showing demand for it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would appreciate a mathematical summary/explanation, as I'm not sure which explanation is correct.&lt;/p&gt;&#xA;" OwnerUserId="14424" LastActivityDate="2017-09-06T07:38:59.923" Title="Vegetarians vs shoppers of humane meat/eggs/dairy - Who has the biggest impact on the factory farming meat industry?" Tags="&lt;markets&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18173" PostTypeId="2" ParentId="4758" CreationDate="2017-09-05T12:15:34.133" Score="0" Body="&lt;p&gt;What if we went to China and said, &quot;Instead of us paying you 600m USD in full for your goods, how about we just give you a piece of paper that entitles you at some point in the future to come take some of our US goods? Say, \$1 worth of US goods.&quot; That sounds like debt to me. But that paper is the same thing as a $1 bill. This is one sense in which you could think of the trade deficit as representing actual indebtitude.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Originally a comment from @NickJ)&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-09-05T12:15:34.133" CommentCount="0" CommunityOwnedDate="2017-09-05T12:15:34.133" ContentLicense="CC BY-SA 3.0" />
  <row Id="18174" PostTypeId="1" CreationDate="2017-09-05T17:02:15.003" Score="0" ViewCount="24" Body="&lt;p&gt;Say there is an exchange with open buy and sell orders, why are there so many orders placed. So far away from the mid price. So for example is lowest sell order is say 1.01 and highest buy order is 1.00. It seems there is a trend that most of the open orders will reside away from the mid price. That is the total amount of orders at a given price is proportional to the distance from the mid price.&lt;/p&gt;&#xA;" OwnerUserId="14431" LastEditorUserId="2776" LastEditDate="2017-09-05T17:57:06.133" LastActivityDate="2017-09-05T17:59:25.637" Title="Why are most of open market orders so far from the mid price?" Tags="&lt;financial-markets&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18175" PostTypeId="2" ParentId="18161" CreationDate="2017-09-05T17:11:16.703" Score="2" Body="&lt;p&gt;One reason why you might want to do this, and perhaps is the motivation for this example, is that it gives you a simple example for thinking about option pricing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Under some assumptions, the value of any option can be replicated by continuously trading in the underlying asset. Here, you can think of the $\Delta$ shares that you have as your &lt;em&gt;replicating portfolio&lt;/em&gt;, and the amount $\Delta$ is meant to be chosen so that the value of these shares is exactly the value (to you) of the call option you just sold.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can then price the call option according to how much those $\Delta$ shares cost you. If you chose $\Delta$ appropriately, you break even, and this determines the &quot;market price&quot; for the call option you just sold. This example doesn't give you quite everything you need to calculate that yet, but I imagine whatever you're reading is building up to get you there.&lt;/p&gt;&#xA;" OwnerUserId="8595" LastEditorUserId="8595" LastEditDate="2017-09-05T18:16:42.763" LastActivityDate="2017-09-05T18:16:42.763" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18176" PostTypeId="2" ParentId="18174" CreationDate="2017-09-05T17:59:25.637" Score="1" Body="&lt;p&gt;Three suggestions:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Spoofing: some people place buy and sell orders that they do not want executed (so away from the mid-price) to create a false impression of demand or supply , so that the market moves in their desired direction&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Catching the flashcrash: occasionally the market has a blip with a temporary gross excess of supply or demand causing a volatile price shift which then returns to close to the original price when other players outside the market notice the unjustified price swing; leaving a bid some way away from the midprice can profit from such events providing that the price returns&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Volatility survival: rather like opposing WWI trenches which got further apart over time as proximity became unsurvivable, short-term small-scale volatility will tend to pick off many of the bids close to the midprice, while leaving those further away untouched for longer periods of time&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Market regulators tend to regard the first of these as bad (illegal in the US), the second as good, and the third as a natural though undesirable indicator of lack of liquidity &lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2017-09-05T17:59:25.637" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18177" PostTypeId="1" CreationDate="2017-09-05T20:18:22.273" Score="0" ViewCount="581" Body="&lt;p&gt;So here are the two pages I was reading to try and understand :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.investopedia.com/terms/n/negotiable-instrument.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;Negotiable Instrument&lt;/a&gt; &#xA;and&#xA;&lt;a href=&quot;http://www.investopedia.com/terms/f/financialasset.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;Financial Asset&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Confusion started as both pages use &lt;strong&gt;Certificates of Deposits(CDs)&lt;/strong&gt; as an example.So a CD is both a financial Asset and a Negotiable Instrument ? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Considering the other examples of negotiable instruments like cheque, draft,money order, traveler's cheque I understand that these instruments are basically used to &lt;em&gt;make payments&lt;/em&gt; from one person to another or access money from your own account.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And financial assets like stock,bonds,or bank deposits are well, just assets, that is your money kept secured or invested somehow in some place and you might earn a profit from it regularly or use it to bear various expenses. Basically it's your property.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But then, how can CDs be both? Are they financial assets that can be transferred to other people if deemed necessary? Because those articles clearly mention one thing that Negotiable instruments can be transferred. Then bonds,stocks etc can be Negotiable Instruments too? Can't we have someone else as a nominee in those?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is very confusing please explain. Thanks. &lt;/p&gt;&#xA;" OwnerUserId="14313" LastActivityDate="2017-09-05T22:06:19.553" Title="Difference between Negotiable Instrument and Financial Asset" Tags="&lt;finance&gt;&lt;financial-economics&gt;&lt;investment&gt;&lt;classical-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18178" PostTypeId="1" AcceptedAnswerId="18184" CreationDate="2017-09-05T20:20:19.977" Score="2" ViewCount="67" Body="&lt;p&gt;Under the assumption of competitive markets, the usual growth accounting equation using Cobb-Douglass function is as follows: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\Delta Y/Y = \Delta A/A+w_l\Delta L/L+w_k\Delta K/K$&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;$Y$ is output &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;$K$ &amp;amp; $L$ are factors of production    &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;$w_i$s are constant factor shares&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Almost all empirical papers I've read so far assume constant factor share values $w_i$s regardless of the sample span. Usually the papers assume $w_l=0.7$ and $w_k=0.3$. I believe the results would be different if we let the factor share values vary over time in the growth accounting exercises. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does anyone know of paper(s) that use growth accounting method by utilising actual data on factor shares?&lt;/p&gt;&#xA;" OwnerUserId="6009" LastEditorUserId="2776" LastEditDate="2017-09-06T10:04:34.640" LastActivityDate="2017-09-06T10:09:21.190" Title="Growth Accounting with variable factor shares" Tags="&lt;reference-request&gt;&lt;cobb-douglas&gt;&lt;growth-accounting&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18179" PostTypeId="2" ParentId="18177" CreationDate="2017-09-05T22:06:19.553" Score="1" Body="&lt;p&gt;CDs are money market instruments and hence are financial asset. There are &lt;strong&gt;traditional&lt;/strong&gt; and &lt;strong&gt;negotiable CDs&lt;/strong&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Traditional CDs are like term deposits in banks, and are not tradable. Liquidation before maturity entails penalty charges. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Negotiable CDs can be traded in the secondary market (referred to as money market). The original holder can 'liquidate' them at prices below the face value in the market. At maturity, the holder of the negotiable CD receives the face value of the security from the issuing bank.&lt;/p&gt;&#xA;" OwnerUserId="6009" LastActivityDate="2017-09-05T22:06:19.553" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18182" PostTypeId="2" ParentId="18169" CreationDate="2017-09-06T07:38:59.923" Score="2" Body="&lt;p&gt;I don't think there is right or wrong. Here is an example of what could be behind some of these arguments.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let us assume that there are two buyers in the economy: Singer and Foreman. Foreman enjoys meat but he prefers humane meat (other things equal). Let $V$ be the value that Foreman derives from a unit of humane meat and $v$ the value from normal meat.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Singer is a consequentialist and has as a goal to reduce the meat consumption. Singer is willing to pay $1\$$ to reduce the total consumption of meat in unit and $\beta\$&amp;lt;1$$ to reduce the total consumption of humane meat. If Singer was alone, he would simply refrain from eating. Because Singer is a consequentialist he does not care who eats the meat (this simplifies the analysis).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, suppose that there are scale economies in the production of humane meat so that the first unit costs $C$ and the second costs $C'$, while the production of normal meat has constant returns and the marginal cost is $c$. Both markets are competitive.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If $V-C&amp;lt;v-c$, then in isolation Foreman would buy normal meat. Singer would have a disutility of $1$. If Singer buys humane meat then Foreman would do so too if &#xA;$V-C'&amp;gt;v-c$ (which may be possible since $C'&amp;lt;C$). Singer would then have a disutility of $2\beta+C'$ (the price of the meat plus the total disutility of two units). If $2\beta+C'&amp;lt;1$, then Singer judges the world to be better if he buys humane meat and he proceeds to do so.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, if activists consider 'humane meat' to be much better than normal meat and there are substantial scale economies in its production, they may prefer to buy it as a way of inducing others to do the same. If they have agent-specific morality (e.g. they prefer a world in which others buy meat than a world in which they buy meat but they have the same world consumption), then participating in the humane meat market may be a less desirable option.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, notice that there are other ways in which Singer could improve the world. For instance, he can buy stock in humane meat consumption and swallow the losses that come from selling at a price $p=c+V-v&amp;lt;C$. This gives Singer a disutility of $\beta+(C-c)-(V-v)$ which is lower if $\beta$ is sufficiently high. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(For simplicity I assume that Singer does not consider Foreman's consumption of utility as deserving moral praise so he does not include Foreman's extra utility in his computation. If he did, then buying humane meat would be even more desirable.) &lt;/p&gt;&#xA;" OwnerUserId="14310" LastActivityDate="2017-09-06T07:38:59.923" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18184" PostTypeId="2" ParentId="18178" CreationDate="2017-09-06T09:59:49.267" Score="3" Body="&lt;p&gt;Interesting question. In effect, while factor shares were thought to have remained fairly stable over a long time (the first of the &lt;a href=&quot;https://en.wikipedia.org/wiki/Kaldor%27s_facts&quot; rel=&quot;nofollow noreferrer&quot;&gt;Kaldor's facts&lt;/a&gt;), more recently &lt;a href=&quot;https://www.oecd.org/g20/topics/employment-and-social-policy/The-Labour-Share-in-G20-Economies.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;they have varied&lt;/a&gt;, particularly in the direction of a fall in the labour share.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/S0165176511003557&quot; rel=&quot;nofollow noreferrer&quot;&gt;This short paper&lt;/a&gt; from (2012) shows that under such scenario, a growth accounting exercise which assumes constant factor shares leads to inconsistent results. The abstract reads:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Recent evidence shows that factor shares are not constant. Consequently, growth accounting exercises rely on a false assumption and a measurement problem arises. We propose an empirical methodology to solve the measurement issue and estimate TFP growth.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;A more complete and recent analysis from the same author (plus another co-author) is &lt;a href=&quot;https://ideas.repec.org/p/col/000089/015038.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; (and a theoretical model with these insights is &lt;a href=&quot;http://onlinelibrary.wiley.com/doi/10.1002/soej.12035/abstract&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As you can see, this is a very topical issue, and there seems to be very little empirical analysis so far. I only found &lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/S0164070414000809&quot; rel=&quot;nofollow noreferrer&quot;&gt;this one&lt;/a&gt;.   As the authors in the second article linked conclude, &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;any efforts to align empirical growth research with the reality of the factor share data cannot be carried out using standard techniques. New techniques need to be developed.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;There might still be some time until a satisfactory empirical method is developed.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-09-06T10:09:21.190" LastActivityDate="2017-09-06T10:09:21.190" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18185" PostTypeId="2" ParentId="18095" CreationDate="2017-09-06T11:36:32.090" Score="2" Body="&lt;p&gt;I found &lt;a href=&quot;http://iresearch.worldbank.org/PovcalNet/povOnDemand.aspx&quot; rel=&quot;nofollow noreferrer&quot;&gt;a tool in the World Bank website&lt;/a&gt; which allows you to set any income boundary, any country, years from 1980 to 2015 and display the data in charts to see how many people are under that boundary. You can set it to 15 dollars or any other figure.&lt;/p&gt;&#xA;" OwnerUserId="8165" LastEditorUserId="2776" LastEditDate="2017-09-06T12:31:06.893" LastActivityDate="2017-09-06T12:31:06.893" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18186" PostTypeId="1" CreationDate="2017-09-06T17:32:19.090" Score="1" ViewCount="74" Body="&lt;p&gt;I am experimenting with time series data to gauge the importance of factors of production i.e. labour force, capital stock, energy, land, etc. in output growth. One venue I am looking into is the estimation of co-integration model within production function framework. &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Assuming Cobb-Douglas function for the functional form, I wonder what&#xA;could be a very good proxy for the technical change or TFP. Some studies include trend term in the cointegration equation to account for TFP/technological change.&lt;/li&gt;&#xA;&lt;li&gt;I could back out the TFP or Solow residuals using growth accounting method,&#xA;but I wonder if I can use the derived TFP series in the cointegration&#xA;equation.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Highly appreciate your thoughts!&lt;/p&gt;&#xA;" OwnerUserId="6009" LastEditorUserId="6009" LastEditDate="2017-09-06T19:01:44.017" LastActivityDate="2017-09-06T19:01:44.017" Title="Sources of Growth and co-integration: production function approach" Tags="&lt;economic-growth&gt;&lt;production-function&gt;&lt;time-series&gt;&lt;growth-accounting&gt;&lt;co-integration&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18187" PostTypeId="1" AcceptedAnswerId="18188" CreationDate="2017-09-06T18:29:44.213" Score="3" ViewCount="546" Body="&lt;p&gt;I was able to prove that for a portfolio with one risk-free asset and one risky asset, if the Arrow-Pratt measure of absolute risk aversion is constant (i.e., constant absolute risk aversion, CARA), then the dollar amount invested in the risky asset does not depend on the agent's wealth. Similarly, with constant relative risk aversion (CRRA), the proportion of wealth an agent invests in the risky asset also does not depend on the agent's wealth.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, how can I prove the more general statement that with CARA and $N$ risky assets, the amounts of wealth invested in each of the $N$ risky assets is independent of the agent's initial wealth? As well as the analogous statement for CRRA?&lt;/p&gt;&#xA;" OwnerUserId="14414" LastEditorUserId="4251" LastEditDate="2017-09-08T18:27:55.367" LastActivityDate="2017-09-08T18:27:55.367" Title="Proving that constant absolute risk aversion and relative risk aversion implies independence of initial wealth" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;asset-pricing&gt;&lt;risk-aversion&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="18188" PostTypeId="2" ParentId="18187" CreationDate="2017-09-06T21:31:16.830" Score="1" Body="&lt;p&gt;The foundation for my exposition comes from Mas-Colell's examples in Ch. 6.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The maximization problem for your specific question can be generalized pretty easily. Consider the case with one risky asset and one riskless asset. Let $\beta$ be the wealth invested in the safe asset, normalized to 1 dollar per dollar invested. Let $\alpha$ be the wealth invested in the risky asset, which has some random payout $z$ such that:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\int z \ \text{d}F(z) &amp;gt; 1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So that the mean return is greater than the riskless asset. So we express our maximization problem as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\max \ \int u(\alpha z + \beta) \ \text{d}F(z) \\&#xA;\text{s.t.} \quad\alpha + \beta = w$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can take advantage of the fact that $w - \alpha = \beta$ $\implies \alpha z + \beta = w + \alpha(z - 1)$ and find first order conditions. If $u$ is concave (risk averse) then Kuhn-Tucker FOCs which combine to make:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\int u'(w + \alpha(z - 1))\cdot(z - 1) \ \text{d}F(z) = 0 \quad \text{iff} \quad \alpha \in (0, w) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So for the generic case, you can do the same setup with $N$ risky assets and one riskless asset that is better than whatever other riskless assets are out there. Let's normalize it again to payout of 1.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the maximization is now:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\max \int u(\alpha_1 z_1 + \cdots + \alpha_N z_N + \beta) \ \text{d}F(z_1, \cdots z_N) \\&#xA;\text{s.t.} \quad \alpha_1 + \dots + \alpha_N + \beta = w$$&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Notes:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you have already done the easy case, this general case should not be so bad, just some more work. For other readers, I'll state the definitions of constant absolute and relative risk aversion below, respectively.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$r_A(x) = -\frac{u''(x)}{u'(x)} = n \quad \forall x$$&#xA;$$r_R(x) = -\frac{x \cdot u''(x)}{u'(x)} = n \quad \forall x$$&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2017-09-06T21:31:16.830" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18189" PostTypeId="2" ParentId="14632" CreationDate="2017-09-07T06:38:57.480" Score="1" Body="&lt;p&gt;&lt;a href=&quot;http://opoccuu.com/kurs.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;This website&lt;/a&gt; (in Russian) states that, in 1825,&#xA;you could sell 1 &lt;a href=&quot;https://en.wikipedia.org/wiki/Ruble#Imperial_ruble_.2814th_century_.E2.80.93_1917.29&quot; rel=&quot;nofollow noreferrer&quot;&gt;Imperial Ruble&lt;/a&gt; and get 0.72 US dollars. I don't know Russian so I cannot tell the source of that data. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Those 0.72 US dollars in 1825 are worth US$15.49 in 2016, according to &lt;a href=&quot;https://westegg.com/inflation/&quot; rel=&quot;nofollow noreferrer&quot;&gt;this website&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, &lt;strong&gt;1 Imperial Ruble of 1825 was equivalent to US$15.59 in 2016.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Additionally, &lt;a href=&quot;http://www.iisg.nl/hpw/data.php#russia&quot; rel=&quot;nofollow noreferrer&quot;&gt;this website&lt;/a&gt; has information of prices of different goods and wages for Russia since the 16th century.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-09-08T07:12:52.603" LastActivityDate="2017-09-08T07:12:52.603" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18190" PostTypeId="1" CreationDate="2017-09-07T11:27:35.203" Score="4" ViewCount="3033" Body="&lt;p&gt;I am reading through a bit of policy literature and see authors referring often to the problem of time inconsistency when setting monetary policy. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can anyone explain what is time inconsistency?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An example from Daniels and Vanhoose (1998): &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Rogoff’s paper makes one of the most fundamental points about policy coordination: In the presence of time inconsistencies, monetary policy coordination is not necessarily welfare improving.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="14439" LastEditorUserId="2776" LastEditDate="2017-09-07T11:54:38.247" LastActivityDate="2017-09-09T01:25:43.477" Title="What is time inconsistency in monetary policy?" Tags="&lt;macroeconomics&gt;&lt;monetary-policy&gt;&lt;equilibrium-selection&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18191" PostTypeId="2" ParentId="18190" CreationDate="2017-09-07T12:08:04.553" Score="2" Body="&lt;p&gt;In a nutshell, time inconsistency occurs whenever a policy maker can publicly commit to a certain policy action in a non-binding way. This is an issue in several settings (commitment vs. discretion settings and, as you see, policy coordination settings). You've run across the issue of time inconsistency in the context of policy coordination across interdependent economies. One can summarize the issue as follows: I promise in $t-1$ to deliver policy action A in period $t$ but instead deliver policy action B once we arrive in period $t$.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider, as does the paper you cite here, a simple two-country model where the policy actions in a domestic country impact the loss function of the foreign economy and vice versa. Under certain first order conditions (laid out in the very paper you quote) there are obvious gains available to the policy makers of these nations if they are able to arrive at a coordinated equilibrium rather than the Nash equilibrium. However, in a dynamic game with no commitment device aside from reputational concerns it might be the case that one country will promise to play the coordinated equilibrium and then deviate unilaterally to the cheater equilibrium. As you can see, time inconsistency in this context means (literally) for one to be inconsistent over time with promised and realized policy actions. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Further, see Luchonacho's references in his comment. Both links are quite helpful here and themselves could serve as an answer to your question. &lt;/p&gt;&#xA;" OwnerUserId="1655" LastEditorUserId="1655" LastEditDate="2017-09-09T01:25:43.477" LastActivityDate="2017-09-09T01:25:43.477" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18194" PostTypeId="2" ParentId="6924" CreationDate="2017-09-07T23:21:18.950" Score="1" Body="&lt;p&gt;If you are conducting empirical exercises, you should use real values i.e. volumes. If the data has time dimension, it is even more imperative to deflate the variables. The reason for this suggestion is following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Take output data, over time output changes and usually around a rising trend. The trend growth of output could be due to rising prices instead of volume of output. The following image shows the effect of inflation on output:  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/1EUlF.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/1EUlF.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The nominal GDP grows at a relatively higher rate than real GDP. The economy appears to have grown, in fact, much of this growth is due to rising price levels, not due to positive growth in volume of output. Using the data from the graph, you can see that &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;nominal GDP in 2012 is 1.3 (=16000/12500) times that in 2005, that's&#xA;a 28% increase in GDP.&lt;/li&gt;&#xA;&lt;li&gt;real GDP grew by 8% only. &lt;/li&gt;&#xA;&lt;li&gt;in the same period, prices rose by 18.5% (=1.28/1.08-1).&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;This shows that the volume of GDP, real output, did not grow as fast. The nominal GDP, on the other hand, gives us false impression that the economy is growing at a faster pace.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you are using the data in statistical or econometric exercises, you should use volume data in constant prices. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And, if you are comparing performance across countries, you should convert the data to international dollars using purchasing power parity (PPP). I think OECD database offers PPP based macro-variables&lt;/p&gt;&#xA;" OwnerUserId="6009" LastEditorUserId="6009" LastEditDate="2017-09-08T14:42:03.173" LastActivityDate="2017-09-08T14:42:03.173" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18195" PostTypeId="1" CreationDate="2017-09-08T03:29:57.433" Score="2" ViewCount="28" Body="&lt;p&gt;I'm looking for GDP projections for the fifty American states (up till 2040, or 2050). Are these available online, or in any economics papers?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've found GDP projections for America, and historical GDP data for the fifty states. While GDP projections are not reliable, I need this for a project that I'm working on. &lt;/p&gt;&#xA;" OwnerUserId="14446" LastEditorUserId="1601" LastEditDate="2017-09-08T06:59:23.217" LastActivityDate="2017-09-08T07:11:25.273" Title="GDP projections for the fifty American states" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;&lt;data-request&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18196" PostTypeId="2" ParentId="18195" CreationDate="2017-09-08T06:47:55.120" Score="1" Body="&lt;p&gt;Official forecasts seem not to be available. The Bureau of Economic Analysis did produce these forecast in the past, but &lt;a href=&quot;https://www.bea.gov/faq/index.cfm?faq_id=456&quot; rel=&quot;nofollow noreferrer&quot;&gt;not anymore&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Forecasts from academic economists are scarce. US studies are usually only available for &lt;strong&gt;employment&lt;/strong&gt; and not for GDP (for example, &lt;a href=&quot;http://econpapers.repec.org/article/eeeintfor/v_3a28_3ay_3a2012_3ai_3a2_3ap_3a315-327.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;this paper&lt;/a&gt;). A &lt;a href=&quot;http://econpapers.repec.org/paper/cesceswps/_5f5145.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;working paper&lt;/a&gt; from late 2014 reviews the literature on regional forecasting (not only for the US) and the state-of-the-art methodology of such exercises. You can see in Table 1 a summary of studies between 1975 and 2015. None of them focuses on GDP for US states. Notice however that there are such studies for Germany (&lt;a href=&quot;https://ideas.repec.org/p/zbw/hwwirp/133.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Wenzel, 2013&lt;/a&gt;) and Europe (&lt;a href=&quot;https://ideas.repec.org/a/bla/obuest/v76y2014i1p112-138.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Baltagi et. al. 2014&lt;/a&gt;), so maybe in the future an equivalent for the US will be produced.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-09-08T07:11:25.273" LastActivityDate="2017-09-08T07:11:25.273" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18197" PostTypeId="2" ParentId="315" CreationDate="2017-09-08T07:10:00.040" Score="0" Body="&lt;p&gt;The &lt;a href=&quot;http://www.worldbank.org/en/topic/poverty/brief/global-poverty-line-faq&quot; rel=&quot;nofollow noreferrer&quot;&gt;FAQ&lt;/a&gt; in the World Bank website provides detailed information about it. Some excerpts below (emphasis mine):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;We start with &lt;strong&gt;national poverty lines, which usually reflect the line below which a person’s minimum nutritional, clothing, and shelter needs cannot be met in that country&lt;/strong&gt;. Not surprisingly, richer countries tend to have higher poverty lines, while poorer countries have lower poverty lines.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So they &lt;strong&gt;usually&lt;/strong&gt; reflect only food, clothing and housing costs. Do not include transport or education. However, it depends on how each country defines the national poverty line. Apparently the WB does not alter these lines.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;When we want to identify how many people in the world live in extreme poverty, however, we cannot simply add up the national poverty rates of each country, because this would mean using a different yardstick to identify who is poor in each and every country. &lt;strong&gt;We therefore need a poverty line that measures poverty in all countries by the same standard.&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Aggregating across these lines is not enough. You need to make them comparable. That is where the PPP comes in.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In 1990, a group of independent researchers and the World Bank proposed to measure the world’s poor using the standards of the poorest countries in the World.  They examined national poverty lines from some of the poorest countries in the world, and converted the lines to a common currency by using purchasing power parity (PPP) exchange rates. &lt;strong&gt;The PPP exchange rates are constructed to ensure that the same quantity of goods and services are priced equivalently across countries.&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So what is PPP? According to Chapter 1 in &lt;a href=&quot;http://web.worldbank.org/WBSITE/EXTERNAL/DATASTATISTICS/ICPEXT/0,,contentMDK:22407349~menuPK:6782529~pagePK:60002244~piPK:62002388~theSitePK:270065,00.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;this website&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;A Purchasing Power Parity is a form of exchange rate based upon a comparison of prices between countries. The Big Mac Index compiled and published by the Economist is a widely known example of a PPP based on a single consumption item. The Big Mac Index is based on the comparison of its cost between countries compared to its cost in the US. A Big Mac in the Philippines, for example, cost 68 pesos in July 2004 compared to $2.90 in the US. In the Big Mac index, the ratio of the price in pesos divided by the US price is 23.5, and this figure is a basic example of a Purchasing Power Parity between the Philippines and the US. &lt;strong&gt;The ratio, 23.5, implies that 23.5 pesos have the same purchasing power as one US dollar.&lt;/strong&gt; [...] In reality, Purchase Power Parities are prepared using relative prices for a very large number of comparable goods and services because the levels of price differences vary between different items and parts of the economy.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Therefore, the PPP converts local money into US dollar equivalent, for a given year. This means that a person living in the US could get an more or less precise idea of how poor a person living under the poverty line is by comparing their own incomes and prices to those of the poverty line (adjusting the line by inflation based on current year). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can read more about the PPP and its use for the international poverty line &lt;a href=&quot;http://web.worldbank.org/WBSITE/EXTERNAL/DATASTATISTICS/ICPEXT/0,,contentMDK:23721744~pagePK:60002244~piPK:62002388~theSitePK:270065,00.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;. &lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-09-08T07:10:00.040" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18200" PostTypeId="2" ParentId="18159" CreationDate="2017-09-08T20:11:59.060" Score="4" Body="&lt;p&gt;Treating supply and demand as functions that relate the price and quantity for a good, a variable that appears as a parameter in both functions will shift both curves. In macro and micro theories, the details of the model will determine what these are.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When we consider supply and demand with econometrics, the fact that prices and quantities affect each other through two processes (are jointly determined)  results in endogeneity problems. Wooldridge's Introductory Econometrics has an excellent chapter on simultaneous equations models.&lt;/p&gt;&#xA;" OwnerUserId="14454" LastActivityDate="2017-09-08T20:11:59.060" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18204" PostTypeId="1" CreationDate="2017-09-08T23:52:38.360" Score="3" ViewCount="200" Body="&lt;p&gt;I just started micro-economics at my community college and my teacher mentioned the derivative of the PPF for two output resources. I thought about it a while and came up with this approach. Some of the notation may be incorrect as the highest math course I completed was college algebra (I tested out of it but still have todo trigonometry).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does this approach I came up with already exist?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is the equations:&#xA;&lt;a href=&quot;https://i.stack.imgur.com/UqcAq.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/UqcAq.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="14457" LastActivityDate="2017-09-09T05:20:52.387" Title="Has this differential calculus inequality approach to optimizing the production possibility curve exist?" Tags="&lt;microeconomics&gt;&lt;linear-algebra&gt;&lt;linear-programming&gt;" AnswerCount="1" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="18205" PostTypeId="2" ParentId="18204" CreationDate="2017-09-09T05:20:52.387" Score="1" Body="&lt;p&gt;I don't really understand your optimization problem as it stands. Just as a few examples, when you write out&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\min \sum_m \sum_v \left( \frac{\partial \vec f_v (\vec Q_v)}{\partial \vec f_m (\vec Q_m)} - \frac{\partial \vec f_m (\vec Q_m)}{\partial \vec f_m (\vec Q_m)} \right)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have questions about why you are minimizing the difference between optimal conditions for output that has all equal opportunity costs. The justification is unclear to me. The function $\vec f_v(\vec Q_v)$ also leaves me confused looking at your work. Why is $f$ taking a vector of $n$ aggregate outputs as its argument? $f(q)$ is defined as the adjusted cost of purchasing $q \cdot n$ resources, so how does $f$ transform a vector as opposed to a scalar and what interpretation are you trying to give it?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or in your optimization problem when you write out&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{dy}{d\sqrt{r^2 - x^2}} \rightarrow - \frac{x}{\sqrt{r^2 - x^2}} = y$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have no idea what you are differentiating with respect to and how you arrived at the equality on the right. In step c.) later on you substitute $x = 0$ which doesn't have a justification either. (If it does, I think you should try to be more explicit about what is happening.)&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;I think as is, the method of finding an optimal point on the production possibilities frontier is cumbersome, and I don't think the optimization problem is well defined.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;If you wanted to refine your method&lt;/strong&gt;, you'd have to give&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;conditions under where an optimum exists (the conditions you state are not sufficient)&lt;/li&gt;&#xA;&lt;li&gt;identification strategies for an optimum&lt;/li&gt;&#xA;&lt;li&gt;a situation where this method is more practical than the industry standard&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;So for that last point, why can't someone just have a production function (where they can derive the PPF) and a budget constraint from prices, regularity conditions and then solve? Since you seem to have some familiarity with higher level math, you may find Chapter 5 and 15 of Mas-Colell, Whinston, and Greene a good resources for seeing the foundation of how production problems are approached. Chapter 15 in particular more explicitly talks about production possibility sets.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2017-09-09T05:20:52.387" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18206" PostTypeId="1" CreationDate="2017-09-09T07:34:04.660" Score="3" ViewCount="214" Body="&lt;p&gt;How empirical was Adam Smith's The Wealth of Nations? What about some other &quot;big books&quot;?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That is, how much empirical research does it contain?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And thus, what kind of &quot;epistemological accuracy&quot; does it have?&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Motive:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I want to understand whether books that are regarded as &quot;standards&quot; in political science and economics are actually &quot;scientific&quot; in the sense that they contain empirical proof for the theses that they put forward. Since I speculate that some portion of &quot;economic belief&quot; is &quot;a priori opinion&quot; or &quot;normative statements&quot; (what ought to be vs. what is).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Empirical research is more valid than philosophical, when the theses deal with things that are claimed to exist in other ways than mere beliefs. Empirical research (in the humanities) thus means validating theses through studying how people actually behave or formulating theses based on observing people.&lt;/p&gt;&#xA;" OwnerUserId="6848" LastEditorUserId="6848" LastEditDate="2019-11-22T16:07:47.140" LastActivityDate="2019-11-22T16:07:47.140" Title="How empirical was Adam Smith's The Wealth of Nations? What about some other &quot;big books&quot;?" Tags="&lt;history-economic-thought&gt;&lt;classical-economics&gt;" AnswerCount="0" CommentCount="5" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="18207" PostTypeId="1" AcceptedAnswerId="18210" CreationDate="2017-09-09T09:22:11.370" Score="4" ViewCount="227" Body="&lt;p&gt;I just watched the film 'The big short', and have been trying to think in context with the financial markets in 2008. I think the film does a great job of explaining how sub-prime mortgages came to be issued and sold by opportunists to investors who were blinded to their junk value. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;One key thing that I feel though is brushed over though is what the market for derivatives on the mortgage industry looked like at that time, and how the eventual defaults on the mortgages caused this to 'collapse'. They claim that the derivatives market had grown to 20 times the size of the market itself. According to the film,&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;if... the mortgage bonds were the kerosene soaked rags, then the 'synthetic CDOs' were the atomic bomb with the drunk president holding his finger over the button&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;but what did these derivatives look like? I understand how someone may invest in a mortgage, which is money lent that will have to be written off in case of default. But how did the actual defaults magnify in the event to hit investors twenty fold? What were people investing in on top of the mortgages themselves? And why did these objects all necessarily become junk when the mortgages themselves did?&lt;/p&gt;&#xA;" OwnerUserId="5594" LastEditorUserId="2776" LastEditDate="2017-09-09T10:00:08.067" LastActivityDate="2017-09-09T13:24:25.193" Title="How did the derivatives market 'collapse' in 2008?" Tags="&lt;finance&gt;&lt;financial-crises&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18208" PostTypeId="2" ParentId="14967" CreationDate="2017-09-09T11:22:49.317" Score="0" Body="&lt;p&gt;A related &lt;a href=&quot;https://economics.stackexchange.com/questions/315/1-25-ppp-per-day-poverty-threshold-what-precisely-does-it-mean?rq=1&quot;&gt;question&lt;/a&gt; in this site focuses on the definition of poverty lines by the World Bank. Basically, the WB poverty line is based on national poverty lines, which usually cover &lt;strong&gt;minimum nutritional, clothing, and shelter&lt;/strong&gt;. They do not include other things which other people might consider important, including transport. For instance, I would argue that transport costs is very important too, as it is common in Latin American &lt;a href=&quot;https://www.pdx.edu/sites/www.pdx.edu.econ/files/IDB_IPES_geo_lac.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;massive cities&lt;/a&gt; for the poor to live segregated, far from core commerce and industrial centres.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Additionally, the WB poverty line is based &lt;strong&gt;only&lt;/strong&gt; in a selection of countries. As such, it is not expected to be representative of all nations. For example, as the official WB &lt;a href=&quot;http://www.worldbank.org/en/topic/poverty/brief/global-poverty-line-faq&quot; rel=&quot;nofollow noreferrer&quot;&gt;FAQ&lt;/a&gt; states regarding the 1990 poverty line:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Once converted into a common currency, they [WB researchers] found that in six of these very poor countries the value of the national poverty line was about $1 per day per person, and this formed the basis for the first dollar-a-day international poverty line.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;More countries were added later:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;After a new round and larger volume of internationally comparable prices were collected in 2005, the international poverty line was revised based on 15 national poverty lines from some of the poorest countries in the World.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In any case, although I don't have the list at hand, I am very sure it does not include Argentina. The key here is that if the selection of countries were different, and more similar to the countries like Argentina, the poverty line would reflect more of the Argentinian reality.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Notice however that the calculation of this line already was converted using PPP levels. This means you cannot simply translate US\$ 3.10 and US\$ 90.30 into Argentinian &lt;em&gt;pesos&lt;/em&gt; using market exchange rates (of 2011). You need to revert back to &lt;em&gt;pesos&lt;/em&gt; using the PPP rate. Unfortunately, the &lt;a href=&quot;http://www.worldbank.org/en/programs/icp#5&quot; rel=&quot;nofollow noreferrer&quot;&gt;2011 edition&lt;/a&gt; is not available for Argentina. The &lt;a href=&quot;http://databank.worldbank.org/data/reports.aspx?source=international-comparison-program-(icp)-2005&quot; rel=&quot;nofollow noreferrer&quot;&gt;2005 edition&lt;/a&gt; is 1.2. For a poverty line in 2005 of US\$ 1.25, and monthly of US\$ 37.5, this corresponds to $37.5*1.2=45$ &lt;em&gt;pesos&lt;/em&gt; per month. You might agree that this, in 2005, is nonsensical, as the minimum wage per month was 550 &lt;em&gt;pesos&lt;/em&gt;. (For comparison, the Chilean monthly povert line according to the World Bank was 30,000 CLP, whereas the minimum wage was roughly 130,000 CLP). No surprise then that the poverty rate in Argentina was, according to the World Bank, so low.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a very recent study of global poverty using alternative definitions, coauthored by &lt;a href=&quot;https://en.wikipedia.org/wiki/Martin_Ravallion&quot; rel=&quot;nofollow noreferrer&quot;&gt;Martin Ravallion&lt;/a&gt; (one of the actual proponents of the poverty line statistic), see &lt;a href=&quot;http://www.nber.org/papers/w23739.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-09-09T11:22:49.317" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18209" PostTypeId="2" ParentId="18207" CreationDate="2017-09-09T11:54:01.583" Score="2" Body="&lt;p&gt;I am not sure which is your current level of understanding so tailoring the answer seems difficult. At a very basic level, the idea is as follows.&#xA;Commercial banks and other institutions originate mortgages but have a preference for liquid assets and so they would rather sell them to third parties instead of keeping them in their portfolio until all the money is paid back.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Because the market has to be thick, one cannot simply sell 'Fato's mortgage'. One pools together a bunch of mortgages with similar characteristics and then sells 'shares' on this pool. So far so good.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem becomes more complicated because the optimal structure of these 'shares' is not simple equity. This is because (i) different investors have different preferences for liquidity and (ii) there are information asymmetries in the market. In general, these assets are structured into tranches. The prime tranche offers debt (a fixed payment unless there is default) and uses the first income that the mortgage originates. The last tranche is equity and is the most junior so they only get money if the mortgage is paid in full. In the middle, the mezzanine tranches, are some sort of combination between the two. These assets' returns are completely tied to the mortgages so that if the mortgages fail, some of these assets become junk. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Notice also that, in principle, different people buy different tranches and the risk is spread. Furthermore, the bank does no longer have a stake in the mortgage. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Securitization had many problems that people failed to foresee, or at any rate, failed to fully understand. First, precisely because the originators no longer had a stake in the game, they did not provide accurate monitoring and screening and the quality of the mortgages dropped (this is accurately captured in the movie). Second, because the assets pooled together similar mortgages, they failed to take into account the full correlation structure of the different mortgages. Third, many investors did not fully understand these complex securities and held extremely long positions on some of the original mortgages, although they had normal positions on each of the assets (e.g. Lehman Bros was extremely long in subprime mortgages although it was not extremely long on any particular asset). As it happened, if a mortgage in Florida for a 200k house for a guy with credit score such and such defaults, it is quite likely that others would do too. This makes the whole castle crumble. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So back to the questions you raised at the beginning. First, if you buy the equity tranche of a mortgage (which is ex-ante very attractive) you only get paid at all if a large chunk of the mortgages in the pool are fully repaid. If a significant fraction defaults, then only the top tranches get anything and the rest get paid nothing. So it may be that you only get 5% of what you invested (but if things went well, you would get twice or more). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope this helps. If you need some further clarification feel free to ask. I can also add some numerical examples and give some more advanced references. Wikipedia has a good set of articles on it too.&lt;/p&gt;&#xA;" OwnerUserId="14310" LastActivityDate="2017-09-09T11:54:01.583" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18210" PostTypeId="2" ParentId="18207" CreationDate="2017-09-09T13:24:25.193" Score="6" Body="&lt;p&gt;The question is quite complex and an answer should be far beyond looking only at the structure of the derivatives, but i try my best.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;The initial situation:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Between 1998 and 2006, the price of the typical American house increased by 124%&lt;/li&gt;&#xA;&lt;li&gt;Global saving glut due to the dotcom-bubble in the early 2000s, seeking institutions for alternative investments, cutting out financial risks&lt;/li&gt;&#xA;&lt;li&gt;The Community Reinvestment Act which helped low- and moderate-income Americans to get mortgage loans&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;These points led to a situation, where in fact everyone could get a mortgage to buy a house, not only for using them as own-property, but as a financial asset. Also people with &lt;em&gt;&quot;no income, no job, no assets&quot;&lt;/em&gt;, leading to the term &lt;em&gt;Ninja-Loan&lt;/em&gt;, were granted loans and mortgages. Times were great, as long as house prices increased. The US financial markets were flood by money from investors, wanting to become part of that upswing. How they took part, answers how the derivatives look like, and how their structure led to the financial crisis:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;CDOs and CDSs&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lets take a look an a classic CDO:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/MahSW.jpg&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/MahSW.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;CDOs pay investors in a prescribed sequence, based on the cash flow the CDO collects from the pool of mortgage loans. There are several tranches, which catch the cash flow of interest and principal payments in sequence based on seniority.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As CDOs became popular, some investment banks repackaged selected tranches into yet another iteration, known as &lt;em&gt;CDO-squared&lt;/em&gt;, a complex and intransparent structure of financial derivative.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A CDS (credit default swap) is a financial agreement that the seller of the CDS will compensate the buyer in the event of a loan default. It can be considered as an insurance for a creditor of the referenced loan.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Synthetic CDOs&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Synthetic CDOs are CDOs, which do not only bundle the mortgage loans in the picture above, but also other assets and derivatives. Up to 2008 it was popular to construct CDOs, bundling single CDSs, rather then mortgage loans. This is the structure of a synthetic CDO, created in times before 2008.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;How did defaults of mortgages hit investors twenty fold?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Synthetic CDOs described above can be considered as a bet on the performance of CDSs, rather than the performance on a real mortgage security. In fact, the derivatives were detached from a single mortgage due to repeated securization in CDOs and there use as an underlying for CDSs. They became solid derivatives offering high returns.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As stated in the New York Times (1), from 2005 through 2007, at least $108 billion synthetic CDOs were issued, but the actual volume can be much higher because synthetic CDO trades were unregulated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Debate and further topics&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Synthetic CDOs are well known for their destructive character during the financial crisis. They were easy to construct, barely supervised or regulated and offered high returns. As the former Citigroup CEO said, referring to the leveraged lending practice: &lt;em&gt;&quot;As long as the music is playing, you’ve got to get up and dance. We're still dancing.&quot;&lt;/em&gt; As long as there was a market for these derivatives, they were constructed. Current research address the missing incentives for each, buyer and seller of CDOs, CDSs and synthetic CDOs during the time before the financial crisis: As long as the risks of defaulting mortgages could be transfered to other parties, the credit-worthiness of a borrower does not matter any more. Furthermore, speculatives without any real insurable interest could invest in these derivatives, which increased the demand for these derivatives additionally.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For further information to the structure of the derivatives mentioned above see &lt;a href=&quot;https://gates.comm.virginia.edu/uvafinanceseminar/Ivashina%20Paper%2009.pdf&quot; rel=&quot;noreferrer&quot;&gt;here&lt;/a&gt; or (2). On the role of rating agencies see (3).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(1): The New York Times, Banks Bundled Bad Debt, Bet Against It and Won,  by Gretchen Morgenson and Louise Story, Published: December 23, 2009&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(2) Joseph R. Mason, Josh Rosner: Where Did the Risk Go? How Misapplied Bond Ratings Cause Mortgage Backed Securities and Collateralized Debt Obligation Market Disruptions,  May 14, 2007&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(3): Markus K. Brunnermeier, DECIPHERING THE LIQUIDITY AND CREDIT CRUNCH 2007-08, NBER Working Paper No. 14612.&lt;/p&gt;&#xA;" OwnerUserId="14304" LastActivityDate="2017-09-09T13:24:25.193" CommentCount="9" ContentLicense="CC BY-SA 3.0" />
  <row Id="18211" PostTypeId="1" CreationDate="2017-09-09T14:17:28.613" Score="4" ViewCount="279" Body="&lt;p&gt;A consumer with income $m$ has preferences $U(x , y) = x^a y^{1-a} $ where a is between 0 and 1. A paternalistic Government wants to regulate the choices of the consumer to maximize it's own welfare function: $w(x,y) = \min(x,y)$ . The market prices are $p_x$ and $p_y$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A. Suppose the government can impose a ceiling on the consumption of either good. Under what parameter condition is it necessary to place a ceiling on good $x$?&#xA;B. Suppose, instead, government provides a per unit subsidy on good $x$ and charge a lump sum tax $t$. Derive Marshallian demand for any $(s,t)$.&#xA;C. A policy $(s,t)$ is budget balanced if total subsidy paid equal tax. Derive relationship between $s$ and $t$ that must be satisfied by any budget balanced policy.&#xA;D. From the government's perspective, find optimum s and t values subject to a balanced budget.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here's how I tried it:&#xA;Part A:&#xA;Using optimisation methods, from consumer perspective:&#xA;$$ X^*= (x^*,y^*) = \left( \frac{ am}{ p_x} , \frac{(1-a)m}{p_y} \right) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, Government's welfare is maximised at :&#xA;$$ X^g= (x^g,y^g) = \left( \frac{ m}{ p_x + p_y} , \frac{m}{p_x + p_y} \right) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, I considered two cases:&#xA;$$ 1. X^* &amp;gt; X^g $$&#xA;$$  2. X^* &amp;lt; X^g $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the first case, ceiling on good 2 would be effective whereas in second case, ceiling on 1 would be effective, the ceiling being the optimal quantity from government's perspective. The parameter condition for second case,by comparing the quantities of good , was:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{p_y}{p_x} &amp;gt; \frac{1}{a} -1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Part B:&#xA;Simple optimisation problem:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ X^*= (x^*,y^*) = \left( \frac{ a(m-t)}{ p_x - s} , \frac{(1-a)(m-t)}{p_y} \right) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Part C:&#xA;Putting $sx^* = t$ I get&#xA;          $$s = \frac{p_x t}{a(m-t)+ t}$$&#xA;Part D:&#xA;I am not sure if the method I have used is correct or not.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Government's welfare is maximised at :&#xA;$$ X^g= (x^g,y^g) = \left( \frac{ m-t}{ p_x + p_y-s} , \frac{m-t}{p_x + p_y-s} \right) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also,since,budget is balanced, therefore,&#xA;  $$ s*\frac{ m-t}{ p_x + p_y-s}= t $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now putting the s and t relationship from c part in the above balanced budget identity, I got&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ t^* = \frac {m(p_x(1-a) -ap_y)}{(p_x +p_y)(1-a)} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ s^* = p_x - \frac{a p_y}{1-a} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can someone please have a look at my solution and see if I have done it correctly?&lt;/p&gt;&#xA;" OwnerUserId="11893" LastEditorUserId="1601" LastEditDate="2017-09-09T14:31:29.487" LastActivityDate="2017-09-09T19:38:50.240" Title="Paternalistic Government policies" Tags="&lt;microeconomics&gt;&lt;optimal-taxation&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18213" PostTypeId="2" ParentId="15608" CreationDate="2017-09-09T16:34:16.663" Score="2" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Has anything like his proposed commons capital depository ever been tried in practice?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Sweden had such &lt;a href=&quot;https://en.wikipedia.org/wiki/Employee_funds&quot; rel=&quot;nofollow noreferrer&quot;&gt;experiment&lt;/a&gt;, but in a much lower scale than it was originally planned and of what Varoufakis is calling for. This was ultimately due to the opposition of employers/capitalists, and the election of a right-wing government. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The idea came from the trade unions in Sweden, and a proposal was presented in 1975 by the economist &lt;a href=&quot;https://en.wikipedia.org/wiki/Rudolf_Meidner&quot; rel=&quot;nofollow noreferrer&quot;&gt;Rudolf Meidner&lt;/a&gt;. According to &lt;a href=&quot;http://socav.gu.se/digitalAssets/1557/1557499_transfer_-european-review-of-labour-and-research-151217.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;this article&lt;/a&gt;, its goals were:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;to counteract the concentration of ownership which, from a general equality perspective, must be regarded as unacceptable; &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;to increase wage earners’ influence in economic life&#xA;through ownership of capital; &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;to facilitate the continuation of the solidaristic wage policy by a&#xA;mechanism to deal with excess profits (which could also be seen as an element in lessening the concentration of capital)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The fund was to be accumulated by holding a proportion of companies’ profits (originally, 20 per cent before tax), which were to be issued as new shares. This was basically an expansion of equity, to be owned commonly by all workers in the economy. After a few decades, this method would leave most of the (equity-based) companies in the hands of workers. So in effect, this was ultimately a socialisation of the ownership of firms. Quite a bold program. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the end, a reduced version was introduced in 1984, which lasted only for seven years. The fund was privatised by a right-wing government in 1992.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can read more about this &lt;a href=&quot;https://www.jstor.org/stable/20778709?seq=1#page_scan_tab_contents&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; and &lt;a href=&quot;https://jacobinmag.com/2017/08/sweden-social-democracy-meidner-plan-capital&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;More generally, there are plenty of countries with a so called &lt;a href=&quot;https://en.wikipedia.org/wiki/Sovereign_wealth_fund&quot; rel=&quot;nofollow noreferrer&quot;&gt;Sovereign Wealth Fund&lt;/a&gt; (SWF). Many of these are financed with natural resources like oil (Norway) and minerals (Chile, copper), either coming from special taxation or royalties, or because firms are owned by the state. These funds tend to be invested in a multitude of assets, not only equity. As such, they are not directly attempting to own capital (as in the case of Sweden). I am not aware of any SWF that yields a citizen's dividend though. Many are used as a buffer in case of an economic crisis, or reinvested in other activities like advanced human capital (e.g. Chile).&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-09-09T16:34:16.663" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18214" PostTypeId="2" ParentId="18211" CreationDate="2017-09-09T19:38:50.240" Score="4" Body="&lt;p&gt;It looks right to me. There's an alternative (but equivalent) way to solve part D: we know that the consumer's choice will satisfy&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ x^* =  \frac{ a(m-t)}{ p_x - s} ,\  y^*= \frac{(1-a)(m-t)}{p_y},  $$&#xA;or, with a balanced budget,&#xA;$$ x^* =  \frac{ a(m-sx^*)}{ p_x - s},\ y^* = \frac{(1-a)(m-sx^*)}{p_y}.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The government wants to maximize $\min\{x,y\}$, which is achieved when $x=y$. Solving&#xA;$$ x^*=y^*\iff \frac{ a(m-sx^*)}{ p_x - s}= \frac{(1-a)(m-sx^*)}{p_y}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;for $s$ yields&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ s^* = p_x - \frac{a p_y}{1-a}. $$&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2017-09-09T19:38:50.240" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18215" PostTypeId="1" CreationDate="2017-09-10T10:45:11.113" Score="3" ViewCount="137" Body="&lt;p&gt;In the UK, a builder constructing a new home need not add tax to the price charged, but a builder undertaking repairs or renovations to an existing home must add value added tax (VAT, currently 20%).  (There are some exceptions but that's the general rule - details can be found in &lt;a href=&quot;https://www.gov.uk/government/publications/vat-notice-708-buildings-and-construction/vat-notice-708-buildings-and-construction&quot; rel=&quot;nofollow noreferrer&quot;&gt;HMRC Notice 708&lt;/a&gt;). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Question&lt;/em&gt;: Are there any economic reasons that could justify a higher tax rate on repairs and renovations than on new construction?  I am interested in general economic arguments, whether applicable to the UK or not.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A possible argument for not taxing construction of new homes (even if most goods and services are subject to VAT) is that VAT should be regarded as a tax on consumption, and should instead be charged on the consumption of housing services (Barker K (2014) &lt;a href=&quot;http://londonpublishingpartnership.co.uk/housing-wheres-the-plan/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Housing: Where's the Plan?&lt;/a&gt; p 64). That presumably means that, for owner-occupiers, the tax authorities should determine the value of the housing services they consume each year and charge VAT on that.  However, even this argument does not seem to justify the differential taxation of new construction, since the same argument could be applied to renovations and repairs, implying that what is taxed should be any resulting increase in the value of housing services.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Addendum 14/9/2017: I've slightly changed the wording so that it invites answers on either side, either yes there are reasons or no there are not.&lt;/p&gt;&#xA;" OwnerUserId="1417" LastEditorUserId="1417" LastEditDate="2017-09-14T08:32:35.380" LastActivityDate="2017-10-28T00:35:03.723" Title="Are there any economic reasons that could justify a higher tax rate on housing repairs than on construction of new houses?" Tags="&lt;taxation&gt;&lt;housing&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="18217" PostTypeId="2" ParentId="18154" CreationDate="2017-09-10T19:52:42.427" Score="2" Body="&lt;p&gt;If we define $\succeq$ on $X$ as the primitive, then the strict preference relation is derived as&#xA;$$ x\succ y ~\Leftrightarrow~ x\succeq y ~\text{ but not }~ y\succeq x.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that you can view this as a definition of $\succ$. Now we prove $y\succeq x$ iff not $x\succ y$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$(\Rightarrow)$ If $y\succeq x$, by definition, $x\succ y$ is not true;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$(\Leftarrow)$ If not $x\succ y$, then there are only three possibilities: (i) $ x\succeq y$ and $y\succeq x$; (ii) not $x\succeq y$ but $y\succeq x$; and (iii) neither $x\succeq y$ nor $y\succeq x$. Case (iii) can be ruled out if we assume completeness of $\succeq$. Therefore, in both (i) and (ii), we have $y\succeq x$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's worth mentioning that Kreps (1990) introduces another approach to define preference relations on $X$. He takes $\succ$ as the primitive and then &lt;em&gt;derives&lt;/em&gt; the weak preference relation as:&#xA;$$x\succeq y ~\Leftrightarrow~ \text{not }~ y\succ x.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this case, there is no need to prove the equivalence since it is a definition.&lt;/p&gt;&#xA;" OwnerUserId="6014" LastEditorUserId="6014" LastEditDate="2017-09-10T21:28:37.323" LastActivityDate="2017-09-10T21:28:37.323" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18219" PostTypeId="2" ParentId="18215" CreationDate="2017-09-10T20:07:50.870" Score="1" Body="&lt;p&gt;If I'd have to summarize the proposed explanation that unfolds in the lines that follow in a few words, I would say that, the economic reasons behind a high tax rate on &lt;em&gt;repairs&lt;/em&gt; are related to the &lt;em&gt;effectiveness&lt;/em&gt; of revenue gathering and are also about providing the &lt;em&gt;proper&lt;/em&gt; set of incentives to private economic agents.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Governments tax in order to finance spending, according to textbooks. It would seem rather trivial to assume that, like all rational agents that populate textbooks, it, too, pursues its ends in the most efficient way (in a traditional means-ends kind of calculation). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the case of taxation, it also seems trivial to assume that the government will choose to impose &lt;em&gt;only&lt;/em&gt; those taxes that are expected to produce the &lt;em&gt;greater amount of revenue&lt;/em&gt; with the &lt;em&gt;least&lt;/em&gt; push-back from the economy. It is common ground in neoclassical economics that taxes distort economic outcomes. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore it follows naturally that taxing would be more productive (in terms of raising revenue) when applied on &lt;em&gt;abundant&lt;/em&gt; (or &lt;em&gt;relatively&lt;/em&gt; abundant-no free lunches, remember?) tax bases. Also, it seems that  it would be more probable for a government, to target consumption spending rather than capital expenditures. In that way, it would avoid distorting incentives (by taxing capital income, for example).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Having set the stage thus, what needs to follow is an explanation of how exactly &lt;em&gt;housing repairs&lt;/em&gt; and &lt;em&gt;new houses construction&lt;/em&gt; fit in the so neatly constructed frame.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When a house owner-or a house tenant, for that matter-need to fix a leaky roof, they forgo a portion of their income-lets assume that it's 'income' and not 'wealth', for the sake of simplicity-for the purchase of repair services and relevant commodities. The amount of money that is extinguished, will provide the government coffers with 20% (as per example) revenue. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider now what will happen in the case where there are &lt;em&gt;a lot&lt;/em&gt; of leaky roofs. It will come as no surprise that there will be &lt;em&gt;a lot&lt;/em&gt; of  repairing going on and as a consequence, there will be comparable &lt;em&gt;a lot&lt;/em&gt; 20%'s of those expenditures going into the government's coffers. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, it seems plausible, that when the stock of houses is old and in need of repairs, taxing the amount spent on repairs seems like an &lt;em&gt;effective&lt;/em&gt; way to pile up revenue.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand, the case is a bit different if we assume that instead of &lt;em&gt;many&lt;/em&gt; house owners there are &lt;em&gt;some&lt;/em&gt; real estate firms that own and distribute housing services in a country or a region. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this case, under the assumption of &quot;&lt;em&gt;leaky roofs&lt;/em&gt;&quot; it is not clear before-hand if it is in their interest to expend a &lt;em&gt;considerable&lt;/em&gt; sum of money on repairs. Especially, when spending this much would also be burdened with the &lt;em&gt;excessive&lt;/em&gt; tax rate. Perhaps, it is in &lt;em&gt;their interest&lt;/em&gt; to &lt;em&gt;build&lt;/em&gt; rather than &lt;em&gt;renovate&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When the government chooses to incentivize private agents like that, it seems probable to assume it expects that, the expenditure on &lt;em&gt;new buildings&lt;/em&gt; will create such a multiplier effect in the economy, that will-hopefully-overcompensate for the loss of revenue from the other options that got dis-incentivized ('&lt;em&gt;repairs&lt;/em&gt;'). Also, opting for &lt;em&gt;building new houses&lt;/em&gt; increases the stock of housing in the economy, which is another way of saying that the (&lt;em&gt;residential&lt;/em&gt;) &lt;em&gt;capital stock&lt;/em&gt; increases.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, it would appear that, when the government selects a high tax rate on &lt;em&gt;housing repair&lt;/em&gt; services-as compared with the tax burden of &lt;em&gt;new buildings&lt;/em&gt;-it is effectively 1. demonstrating its urgent need for &lt;em&gt;cash&lt;/em&gt; and it is either acknowledging that 2. the residential housing capital stock is in &lt;em&gt;dire need&lt;/em&gt; of repairs (derelict capital stock) or that it does not expect 3. the real estate developers &lt;em&gt;to actually invest&lt;/em&gt; in new housing that would, in turn, invigorate the economy and create new sources of tax revenue.&lt;/p&gt;&#xA;" OwnerDisplayName="user14471" LastEditorUserId="4251" LastEditDate="2017-10-28T00:35:03.723" LastActivityDate="2017-10-28T00:35:03.723" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18220" PostTypeId="1" AcceptedAnswerId="18296" CreationDate="2017-09-10T21:08:07.580" Score="2" ViewCount="138" Body="&lt;p&gt;Does anybody know if a competitive equilibrium obtains under Stone-Geary preferences; are there multiple equilibria problems; do such preferences admit an analysis with &lt;em&gt;more&lt;/em&gt; than one type of representative agents; any &lt;em&gt;good+relevant&lt;/em&gt; resources on the subject? &lt;/p&gt;&#xA;" OwnerDisplayName="user14471" LastEditorDisplayName="user14471" LastEditDate="2017-09-15T12:06:47.693" LastActivityDate="2017-09-15T14:51:31.733" Title="Stone-Geary preferences and competitive equilibrium" Tags="&lt;reference-request&gt;&lt;preferences&gt;&lt;general-equilibrium&gt;&lt;nash-equilibrium&gt;&lt;competitive-equilibrium&gt;" AnswerCount="1" CommentCount="6" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18221" PostTypeId="1" CreationDate="2017-09-10T21:59:10.293" Score="4" ViewCount="131" Body="&lt;p&gt;I know there are applications of determinants in economics to &lt;a href=&quot;http://aak.cms.opf.slu.cz/pdf/2011/3/valentova.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;compute equilibrium, aide in identifying profit maximisation/cost minimisation&lt;/a&gt; and in &lt;a href=&quot;http://www2.econ.iastate.edu/classes/econ521/orazem/substitution%20notes.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;calculating elasticity of substitution&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, is there ever an economic interpretation &lt;em&gt;Just&lt;/em&gt; the determinant on its own? What would the scenario be?&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="2776" LastEditDate="2017-09-12T06:17:07.820" LastActivityDate="2017-11-02T12:10:57.400" Title="Does a determinant ever have its own interpretation in economics?" Tags="&lt;mathematical-economics&gt;" AnswerCount="0" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="18222" PostTypeId="1" AcceptedAnswerId="18228" CreationDate="2017-09-10T22:55:17.427" Score="5" ViewCount="2142" Body="&lt;p&gt;I am trying to think of a preference relation that can be represented by a utility function but such that there does not exist a continuous utility function. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know that you can represent continuous preferences with a discontinuous utility function, but I am not sure if the opposite is true. I am struggling to show that NO such continuous utility function exists.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My thoughts are that if you can define something with discontinuous preferences then maybe you can use this to imply that there do not exist any continuous utility functions. Note that Lexiographic preferences will not work because I am interested in a preference that can be represented by a utility function (albeit discontinuous).&lt;/p&gt;&#xA;" OwnerUserId="14476" LastActivityDate="2018-02-26T16:40:44.267" Title="Do discontinuous preferences imply no continuous utility function?" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;preferences&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18223" PostTypeId="1" AcceptedAnswerId="18227" CreationDate="2017-09-11T01:59:06.963" Score="5" ViewCount="79" Body="&lt;p&gt;I'm thinking of the following problem: There's a set $M$ of men and a set $W$ of women; furthermore there's a set $S$ of &quot;possible marriages&quot;. Each possible marriage is a triple $(m, w, x)$, consisting of a man $m \in M$, a woman $w \in W$ and some arbitrary piece of extra information $x$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a man $m$, let $S_m = \{(m', w', x) \in S \mid m = m'\}$ be the set of possible marriages involving him, and for any woman $w$, let $S_w = \{(m', w', x) \in S \mid w = w'\}$ be the set of possible marriages involving her.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Instead of ranking the women he would marry, a man $m$ ranks the possible marriages: There is a total ordering $\leq_m$ defined on $S_m$. Similarly, for any woman $w$, there is a total ordering $\leq_w$ defined on $S_w$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem is to find a stable matching. A stable matching is now a subset $X \subseteq S$ such that&#xA;&lt;ul&gt;&#xA;&lt;li&gt; every person is matched at most once, that is, for each man $m$, the intersection $X \cap S_m$ has at most one element, and for each woman $w$, the intersection $X \cap S_w$ has at most one element, and &lt;/li&gt;&#xA;&lt;li&gt; $X$ is &lt;em&gt;stable&lt;/em&gt; in the sense that for each possible marriage $s \in S$ between a man $m$ and a woman $w$, either&lt;/p&gt;&#xA;&#xA;&#xA;&lt;li&gt; $m$ is in a marriage that is at least as good for him as $s$, that is, there is some $s' \in X \cap S_m$ such that $s' \geq_m s$, or &lt;/li&gt;&#xA;&lt;li&gt; $w$ is in a marriage that is at least as good for her as $s$, that is, there is some $s' \in X \cap S_w$ such that $s' \geq_w s$. &lt;/li&gt; &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The classical stable marriage problem is equivalent to the restricted version of this problem where for each possibe marriage $(m, w, x) \in S$, the &quot;extra information&quot; $x$ is required to be some fixed dummy value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Has anybody studied this generalization and given it some name?&lt;/strong&gt; If not, is there some naming convention for &quot;this kind of generalization&quot;?&lt;/p&gt;&#xA;" OwnerUserId="14421" LastActivityDate="2017-09-11T05:56:17.213" Title="Is there a name for this generalization of the stable marriage problem?" Tags="&lt;reference-request&gt;&lt;game-theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18225" PostTypeId="1" AcceptedAnswerId="18241" CreationDate="2017-09-11T04:30:26.310" Score="3" ViewCount="296" Body="&lt;p&gt;As I know, Marx economics did not solve the problem of transformation as Samuelson argued. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And at least, it has been known as a dead end. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;How does Marx economics get evaluated in modern economics? Is it considered as a kind of pseudoscience or something similar? &lt;/p&gt;&#xA;" OwnerUserId="13815" LastEditorUserId="2776" LastEditDate="2017-09-12T08:10:26.633" LastActivityDate="2017-09-12T09:15:41.503" Title="How does Marx economics get evaluated in modern economics?" Tags="&lt;reference-request&gt;&lt;marxism&gt;" AnswerCount="2" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18226" PostTypeId="1" CreationDate="2017-09-11T05:18:52.380" Score="1" ViewCount="193" Body="&lt;p&gt;If my mother sends me some money every month, is that considered an income?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I usually fill in a sheet to track my expenses and display my savings for every month. For the past few months, I've been living on my mother's generosity to sustain myself while I'm studying. &#xA;I was categorising this as an income but felt it wasn't right. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question is, What do you call the money you receive from a relative every month for a fixed period of time in exchange for basically nothing but your well being, education etc.? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I intend to share this sheet with students who might be receiving some sort of financial assistance from their relatives. The need for me to come up with a term that rightly describes this transfer of cash is to avoid any sort of confusion while using this sheet.&lt;/p&gt;&#xA;" OwnerUserId="14478" LastEditorUserId="14478" LastEditDate="2017-09-11T09:02:24.037" LastActivityDate="2017-10-28T00:33:49.600" Title="Is money received from my mother every month an income?" Tags="&lt;money&gt;" AnswerCount="2" CommentCount="14" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18227" PostTypeId="2" ParentId="18223" CreationDate="2017-09-11T05:56:17.213" Score="7" Body="&lt;p&gt;Yes, this has been studied. Look up &quot;matching with contracts&quot; and the earlier papers by Crawford &amp;amp; Knoer (1981), and Kelso &amp;amp; Crawford (1982) in Econometrica. &lt;/p&gt;&#xA;" OwnerUserId="1442" LastActivityDate="2017-09-11T05:56:17.213" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18228" PostTypeId="2" ParentId="18222" CreationDate="2017-09-11T07:54:57.763" Score="7" Body="&lt;p&gt;The easiest way to prove it is using the 'old' definition of continuity. &#xA;$\succ$ is continuous iff whenever $x\succ y$, there exists neighborhoods of $x$ and $y$, $B_x, B_y$, such that all $z\in B(x)$ and $z'\in B(y)$, $z\succ z'$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose $x\succ y$. Because $u$ represents $\succ$, $u(x)&amp;gt;u(y)$. Let $2\epsilon=u(x)-u(y)$. Because $u$ is continuous, there exists some $\delta&amp;gt;0$ such that for all $z\in B_{\delta}(x)$, $u(z)&amp;gt;u(x)-\epsilon$. Similarly, for all $z'\in B_{\delta}(y)$, $u(z')&amp;gt;u(y)+\epsilon$. But then for all $z\in B_{\delta}(x)$ and $z'\in B_{\delta}(y)$, $z\succ z'$ as required.&lt;/p&gt;&#xA;" OwnerUserId="14310" LastActivityDate="2017-09-11T07:54:57.763" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18229" PostTypeId="2" ParentId="18226" CreationDate="2017-09-11T08:15:54.367" Score="2" Body="&lt;p&gt;I will simply repeat what I've said in the comments, just so that there's a concentrated version of the argument.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What you are describing is not 'income' but a kind of 'transfer' payment. Your mother &lt;em&gt;transfers&lt;/em&gt; an amount of money from her account to yours.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is possible to consider it an 'investment' on &lt;em&gt;her&lt;/em&gt; part; she would be investing in the increase of your human capital stock; such an approach would imply that she would have a claim on a part of your &lt;em&gt;future&lt;/em&gt; income stream.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since, usually, parents don't enter into &lt;em&gt;contractual&lt;/em&gt; agreements with their children concerning their future income possibilities (&lt;em&gt;that I know of&lt;/em&gt;) I would argue that &lt;em&gt;from the viewpoint of you both&lt;/em&gt;, what you are receiving and what she is delivering is a &lt;em&gt;cash transfer&lt;/em&gt;.&lt;/p&gt;&#xA;" OwnerDisplayName="user14471" LastEditorUserId="4251" LastEditDate="2017-10-28T00:33:49.600" LastActivityDate="2017-10-28T00:33:49.600" CommentCount="12" ContentLicense="CC BY-SA 3.0" />
  <row Id="18231" PostTypeId="1" AcceptedAnswerId="18235" CreationDate="2017-09-11T18:49:02.397" Score="3" ViewCount="70" Body="&lt;p&gt;In the wake Harvey and Irma, I did some reading on the &lt;a href=&quot;https://en.wikipedia.org/wiki/Parable_of_the_broken_window&quot; rel=&quot;nofollow noreferrer&quot;&gt;Broken window fallacy&lt;/a&gt;. It makes sense on it's face that after paying the glazier for the broken window, the shopkeep could not spend his six francs elsewhere, so nothing of value was gained from the breaking of the window.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the modern world though, the shopkeep probably sets some portion of his funds aside (in the form of either paying an insurer or landlord (who in turn pays his insurer)). Let's also take the child out of the equation and say the window was broken by something an insurer wouldn't deny a payout on, like a very very localized hurricane (it only broke one window, but shattered it to pieces!).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The shopkeeps six francs would not have gone to pay for shoes or bread or the like, they would have gone to the insurance company, possibly at a higher value (let's say he made no claim in a year, with 12 monthly premiums at 1 franc a piece to pay for a six franc window).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the insurer, he may use some of these funds to pay for his own shoes, but as a responsible insurer he knows he needs to keep a few liquid francs in order to pay out for things like broken windows -- Ergo he probably wouldn't have spent the six francs either.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this model, it seems like the glazier has produced a product and received payment to nobody else's detriment; ergo the broken window fallacy has broken.&lt;/p&gt;&#xA;" OwnerUserId="12799" LastEditorUserId="1601" LastEditDate="2017-09-11T21:34:19.540" LastActivityDate="2017-09-12T01:16:26.597" Title="Does the existence of insurance markets negate the broken window fallacy?" Tags="&lt;economic-growth&gt;&lt;theory&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18232" PostTypeId="1" AcceptedAnswerId="18234" CreationDate="2017-09-11T21:45:14.083" Score="7" ViewCount="4886" Body="&lt;p&gt;This is related to &lt;a href=&quot;https://economics.stackexchange.com/questions/18222/do-discontinuous-preferences-imply-no-continuous-utility-function&quot;&gt;Do discontinuous preferences imply no continuous utility function?&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think the title of the above-linked question is phrased in such a way that obscures a subtly different but more interesting question which the OP also hinted at in the body. I'd like to ask that explicitly here. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;Does there exist a rational but &lt;em&gt;discontinuous&lt;/em&gt; preference relation that is representable by a (potentially discontinuous) utility function?&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In other words, if $\succsim$ satisfies completeness and transitivity but &lt;em&gt;violates continuity&lt;/em&gt;, can we still find a utility function to represent it?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From known results, the answer does not seem obvious. &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;We know that &lt;strong&gt;continuous utility representation exists if and only if preference is complete, transitive, and continuous&lt;/strong&gt;. But this doesn't tell us what happens when preference is not continuous.&lt;/li&gt;&#xA;&lt;li&gt;We know that &lt;strong&gt;utility representation does not exist for some discontinuous preference&lt;/strong&gt; (e.g. the lexicographic preference). But can this conclusion be generalized? &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Finally, I want to note that the requirement for $\succsim$ to violate continuity means we're ruling out finite (and countable?) domains.&lt;/p&gt;&#xA;" OwnerUserId="42" LastEditorUserId="42" LastEditDate="2017-09-11T21:54:51.877" LastActivityDate="2018-03-11T08:25:50.647" Title="Existence of utility representation of a rational but discontinuous preference" Tags="&lt;microeconomics&gt;&lt;reference-request&gt;&lt;utility&gt;&lt;preferences&gt;" AnswerCount="4" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18233" PostTypeId="1" CreationDate="2017-09-11T21:59:44.240" Score="0" ViewCount="9666" Body="&lt;p&gt;I've been confused about the exact difference between PRF and SRF is. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know that it has to do with other variables that influence the regression that is not accounted for, but what is the difference in the models?&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;sub&gt; &#xA;PRF: Population Regression Function&lt;br&gt;&#xA;SRF: Sample Regression Function.&lt;/sub&gt;&lt;/p&gt;&#xA;" OwnerUserId="14485" LastEditorUserId="8815" LastEditDate="2017-09-15T21:31:56.440" LastActivityDate="2017-09-15T23:36:04.340" Title="What is the exact difference between the $\hat{u}$ in PRF vs SRF?" Tags="&lt;econometrics&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ClosedDate="2017-09-20T12:29:27.423" ContentLicense="CC BY-SA 3.0" />
  <row Id="18234" PostTypeId="2" ParentId="18232" CreationDate="2017-09-11T22:02:42.047" Score="5" Body="&lt;p&gt;I think a basic problem is that any utility function defines a preference, and discontinuous utility functions can be used to define discontinuous preferences. Hence there are many discontinuous preferences that can be represented by utility functions.&#xA;An example:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $U(x,y)$ be a continuous utility function that maps from $\mathbb{R}^2$ to $(0,1)$. This latter may seem arbitrary, but the strictly monotononicaly increasing function $\frac{x}{x+1}$ maps from $\mathbb{R}_{++}$ to $(0,1)$, so it should be fine. Also define a closed set $H \subset \mathbb{R}^2$. Let&#xA;$$&#xA;\hat{U}(x,y)&#xA;=&#xA;\left\{&#xA;\begin{array}{ll}&#xA;U(x,y) &amp;amp; \mbox{if} (x,y) \notin H \\&#xA;\\&#xA;U(x,y)+1 &amp;amp; \mbox{if} (x,y) \in H.&#xA;\end{array}&#xA;\right.&#xA;$$&#xA;Obviously $\hat{U}(x,y)$ is not continuous and neither are the preferences defined by it. (The boundary of $H$ is prefered to anything outside $H$.) But the way these preferences were generated seems fairly general. So a large class of discontinuous preferences exists for which there is a utility representation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Future question: How 'large' is this class, what measure can be used?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT: As @NicolasPinto points out in his &lt;a href=&quot;https://economics.stackexchange.com/a/20960/1601&quot;&gt;answer&lt;/a&gt; it is also necessary to specify that $H$ is such that&#xA;$$&#xA;\exists x \in H, \exists y \notin H: y \succ x,&#xA;$$&#xA;so $H$ is not the upper contour set of some point,&#xA;otherwise $U(x,y)$ and $\hat{U}(x,y)$ would in fact represent the same continuous preferences.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2018-03-11T08:25:50.647" LastActivityDate="2018-03-11T08:25:50.647" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18235" PostTypeId="2" ParentId="18231" CreationDate="2017-09-12T01:16:26.597" Score="4" Body="&lt;p&gt;No, they don't negate the broken-window fallacy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You're overthinking it, and that's leading you to the wrong conclusion.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The breaking of the window represents a loss of wealth. The activities around it are neither here nor there - they do not change the fact that the breaking of the window represents a loss of wealth.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The existence of functional insurance markets just means that there are somewhat efficient markets to estimate the cost of that damage.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2017-09-12T01:16:26.597" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18237" PostTypeId="1" AcceptedAnswerId="18244" CreationDate="2017-09-12T06:05:36.057" Score="14" ViewCount="6937" Body="&lt;p&gt;Is there an &lt;strong&gt;&lt;em&gt;economic theory of quitting&lt;/em&gt;&lt;/strong&gt; an activity? A theory that weighs the investment costs put into something and the opportunity costs of pursuing it. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am aware of &lt;a href=&quot;http://rady.ucsd.edu/docs/faculty/GneezyTradeOff.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Fershtman and Gneezy Quitting in Tournaments&lt;/a&gt; paper that investigates the decision of quitting in the middle of a race or of a tournament. But, I am looking for a more general model of quitting something such as playing an instrument, a sport or even a job. Dropping-out from (grad)-school may obey the same investment-opportunity cost trade-off.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Update: I am looking for some explicit references modeling the exiting or quitting process, even if it concerns some decisions in particular without any generalization.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit: &lt;a href=&quot;https://economics.meta.stackexchange.com/questions/1762/should-we-explain-accepted-answers&quot;&gt;Here is why I picked @Ubiquitous' answer&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="6168" LastEditorUserId="6168" LastEditDate="2017-09-19T12:25:33.800" LastActivityDate="2017-09-19T12:25:33.800" Title="Should I stay or should I quit?" Tags="&lt;microeconomics&gt;&lt;reference-request&gt;&lt;behavioral-economics&gt;" AnswerCount="5" CommentCount="12" FavoriteCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="18238" PostTypeId="2" ParentId="18225" CreationDate="2017-09-12T07:19:55.350" Score="5" Body="&lt;p&gt;Here are some comments on Marx from people who can certainly not be called marxists.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;If Karl Marx and V. I. Lenin were alive today, they would be leading&#xA;  contenders for the Nobel Prize in economics. Marx predicted the&#xA;  growing misery of working people, and Lenin foresaw the subordination&#xA;  of the production of goods to financial capital’s accumulation of&#xA;  profits based on the purchase and sale of paper instruments. Their&#xA;  predictions are far superior to the “risk models” for which the Nobel&#xA;  Prize has been given and are closer to the money than the predictions&#xA;  of Federal Reserve chairmen, US Treasury secretaries, and Nobel&#xA;  economists, such as Paul Krugman, who believe that more credit and&#xA;  more debt are the solution to the economic crisis.  &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Paul Craig Roberts&lt;/strong&gt;,  United States Assistant Secretary of the Treasury for Economic Policy under President Reagan in 1981, &lt;a href=&quot;https://www.counterpunch.org/2009/10/07/marx-and-lenin-reconsidered/&quot; rel=&quot;noreferrer&quot;&gt;Source&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The American economy is still, by most measures, deeply depressed. But&#xA;  corporate profits are at a record high. How is that possible? It’s&#xA;  simple: profits have surged as a share of national income, while wages&#xA;  and other labor compensation are down. The pie isn’t growing the way&#xA;  it should — but capital is doing fine by grabbing an ever-larger&#xA;  slice, at labor’s expense.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Wait — are we really back to talking about capital versus labor? Isn’t&#xA;  that an old-fashioned, almost Marxist sort of discussion, out of date&#xA;  in our modern information economy? Well, that’s what many people&#xA;  thought;  &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Paul Krugman&lt;/strong&gt;, Nobel Prize in Economic Sciences 2008, &lt;a href=&quot;http://www.nytimes.com/2012/12/10/opinion/krugman-robots-and-robber-barons.html?hp&quot; rel=&quot;noreferrer&quot;&gt;Source&lt;/a&gt;        &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;extraordinary that 100 years after Das Kapital ... so little else&#xA;  should have emerged    &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Sir John Hicks&lt;/strong&gt;, Nobel Prize-winning British economist, &lt;a href=&quot;http://www.independent.co.uk/arts-entertainment/the-next-big-thinker-1287371.html&quot; rel=&quot;noreferrer&quot;&gt;Source&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="13849" LastActivityDate="2017-09-12T07:19:55.350" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18239" PostTypeId="2" ParentId="18237" CreationDate="2017-09-12T08:43:05.903" Score="16" Body="&lt;p&gt;Check out &lt;a href=&quot;https://en.wikipedia.org/wiki/Sunk_cost&quot; rel=&quot;noreferrer&quot;&gt;sunk cost&lt;/a&gt;. Although this might seem completely counterintuitive, the investment you have made should be &lt;strong&gt;irrelevant to your decision&lt;/strong&gt; to stay or quit, if this investment has already been made and cannot be recovered.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What matters is whether the benefits you are yet to incur outweigh the costs (that you are yet to incur). So the decision should be a &lt;strong&gt;forward-looking&lt;/strong&gt; one.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The above reference mentions that in the real-world, people often do not behave in this way. According to sunk cost theory, this is irrational, but this is only one theory.&lt;/p&gt;&#xA;" OwnerUserId="14137" LastEditorUserId="14137" LastEditDate="2017-09-12T08:48:06.390" LastActivityDate="2017-09-12T08:48:06.390" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="18240" PostTypeId="2" ParentId="18226" CreationDate="2017-09-12T08:50:31.207" Score="0" Body="&lt;p&gt;What your mother gives you can be called a scholarship - similar to what some governments and organizations provide to students who need financial support. In this case, she is your sponsor. Scholarships might be taxable or not - see the example of the &lt;a href=&quot;https://www.ato.gov.au/Calculators-and-tools/Is-my-scholarship-taxable/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Australian tax office&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you need to find an accurate name for that cash, that would be up to you (opinion based). As stated in the comments, you can use allowance, family support or any other of the namings mentioned by luchonacho.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Cheers&lt;/p&gt;&#xA;" OwnerUserId="12304" LastActivityDate="2017-09-12T08:50:31.207" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18241" PostTypeId="2" ParentId="18225" CreationDate="2017-09-12T09:08:40.323" Score="4" Body="&lt;p&gt;Your question is complex. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;First of all, what is science? Not even methodologists have settled this question. Falseability, testeability, a method? (great read &lt;a href=&quot;https://en.wikipedia.org/wiki/What_Is_This_Thing_Called_Science&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Second, what do you mean by &lt;a href=&quot;https://en.wikipedia.org/wiki/Marxism&quot; rel=&quot;nofollow noreferrer&quot;&gt;Marxism&lt;/a&gt;? Marxism is around 150 years old, and has evolved in the process.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Karl Popper &lt;a href=&quot;https://plato.stanford.edu/entries/popper/#BackHisThou&quot; rel=&quot;nofollow noreferrer&quot;&gt;argued&lt;/a&gt; that Marxism became a pseudoscience from the moment that their successors started to add &lt;em&gt;ad-hoc&lt;/em&gt; modifications to justify why its predictions were incorrect, a view rejected by another philosopher of science, Thomas Kuhn. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If it comes to testeability, well, there are plenty of tests around of the labour theory of value (albeit not originally marxists, a key component imo) (e.g. &lt;a href=&quot;http://users.wfu.edu/cottrell/eea97.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;), tests about the tendency of the rate of profit to fall (e.g. &lt;a href=&quot;http://econpapers.repec.org/paper/umspapers/2010-04.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;), or about Marx's understanding of crises  (e.g. &lt;a href=&quot;http://www.palgrave.com/us/book/9780333542835&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;). Under this grounds, it is a bit unfair to broadly define Marxism as unscientific. Keep in mind the two aforementioned caveats though.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, about modern mainstream critiques to Marxism, there are of course many. Their existence however does not provide a foundation for its obsolescence &lt;em&gt;per se&lt;/em&gt;, since every school of thought or ideology within a discipline faces criticism (see &lt;a href=&quot;https://paulromer.net/wp-content/uploads/2016/09/WP-Trouble.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; a critique from a mainstream economist - Paul Romer - about mainstream Macroeconomics). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here are two critiques from two mainstream Nobel prize winners that might be of interest:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Robert Solow, &lt;a href=&quot;http://www.nytimes.com/1988/03/20/books/the-wide-wide-world-of-wealth.html?pagewanted=all&amp;amp;mcubz=3&quot; rel=&quot;nofollow noreferrer&quot;&gt;reviewing&lt;/a&gt; the 1988's Palgrave Dictionary of Economics in the New York Times state:&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;there are always dissenting fringes within academic economics. Marxism is only the most persistent. [...] Nevertheless, there is usually a definite consensus - there is one now - and an accurate picture of the discipline would make that clear. It would have to give dissent a fair shake. It would have to treat mainstream ideas critically. But it should keep the various ''paradigms'' in proportion. I do not think ''The New Palgrave'' has managed to do that.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The most obvious, though not the most important, manifestation of imbalance is the large number of items devoted to Marxist themes [...] Marx was an important and influential thinker, and Marxism has been a doctrine with intellectual and practical influence. The fact is, however, that most serious English-speaking economists regard Marxist economics as an irrelevant dead end. ''The New Palgrave'' [...] gives a false impression of the state of play by this deadpan statement.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;George Stigler, also &lt;a href=&quot;http://www.jstor.org/stable/2726859?seq=1#page_scan_tab_contents&quot; rel=&quot;nofollow noreferrer&quot;&gt;reviewing&lt;/a&gt; the 1988's Palgrave Dictionary of Economics:&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Even if one is prepared to concede (as I certainly am not) that this emphasis on Marx and  Sraffa is justified by their importance in modern&#xA;   or earlier economics, that would not justify the frequent penetration of Marxian views into the treatment of what are surely non-Marxian subjects. [...] &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;A nonprofessional reader would never guess  from these volumes that economists working  in the Marxian-Sraffian tradition represent a&#xA;   small minority of modern economists, and that their writings have virtually no impact upon the professional work of most economists in major English-language universities.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;As a final comment, notice that one thing is for a theory/ideology to be unscientific and another is for it to be wrong. Furthermore, it is hard to imagine a theory/ideology that opposes the prevalent economic and political system to be mainstream.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-09-12T09:15:41.503" LastActivityDate="2017-09-12T09:15:41.503" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18242" PostTypeId="2" ParentId="18237" CreationDate="2017-09-12T09:21:30.747" Score="6" Body="&lt;p&gt;&lt;a href=&quot;http://www.e-elgar.com/shop/handbook-of-choice-modelling&quot; rel=&quot;nofollow noreferrer&quot;&gt;This handbook&lt;/a&gt; provides a broad overview of different modelling approaches to &lt;strong&gt;choice theory&lt;/strong&gt;. Here, I give just one example: discrete choice modelling.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Section 2 of &lt;a href=&quot;http://ftp.iza.org/dp9957.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;this paper&lt;/a&gt; offers an example of a dynamic discrete choice model about educational choices. The decision tree is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/QZF3f.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/QZF3f.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Individuals compare the return of each option, based on their ability and other observable variables.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The discrete choice literature is massive, and includes anything from modelling labour participation (e.g. &lt;a href=&quot;http://www.sole-jole.org/14404.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; or &lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/0304407694016941&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;) to marriage/divorce (e.g. &lt;a href=&quot;https://www.jstor.org/stable/3663512&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;) to corruption (e.g. &lt;a href=&quot;https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2214810&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;). See the handbook above for more references.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-09-13T10:22:17.000" LastActivityDate="2017-09-13T10:22:17.000" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18243" PostTypeId="1" AcceptedAnswerId="18246" CreationDate="2017-09-12T09:43:32.353" Score="5" ViewCount="84" Body="&lt;p&gt;How can a consumer (like myself) decide on whether they should pay for a music streaming service based on economic reasoning?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assumptions:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;The budget allows paying for a € 10/Month music subscription with what practically is a near infinite amount of songs.&lt;/li&gt;&#xA;&lt;li&gt;For 90% of the music, previews or ad-supported versions can be streamed for free. The streams do not offer a high-quality listening experience, but they are good enough to discover and prelisten&lt;/li&gt;&#xA;&lt;li&gt;The user would, without a subscription, buy 10 albums a year for € 9 each.&lt;/li&gt;&#xA;&lt;li&gt;The purchased albums can be played infinitely and passed on to family members.&lt;/li&gt;&#xA;&lt;li&gt;The user listens to music 1 hour a day when listening to purchased albums, 1,5 a day when paying for streaming&lt;/li&gt;&#xA;&lt;li&gt;80% of the time the user listens to music they listened to before or will listen to again&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The numbers are just examples, but key is that streaming services offer near infinite libraries, whereas purchased personal libraries are always limited to a budget.&lt;/p&gt;&#xA;" OwnerUserId="14488" LastActivityDate="2017-09-13T19:17:19.427" Title="Is there an economically sound way to decide between buying media or a streaming subscription?" Tags="&lt;microeconomics&gt;&lt;supply-and-demand&gt;&lt;consumption&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18244" PostTypeId="2" ParentId="18237" CreationDate="2017-09-12T10:14:35.843" Score="12" Body="&lt;p&gt;A relevant literature seems to be that on &lt;em&gt;optimal stopping problems&lt;/em&gt;. There is a fairly technical Wikipedia article &lt;a href=&quot;https://en.wikipedia.org/wiki/Optimal_stopping&quot; rel=&quot;noreferrer&quot;&gt;here&lt;/a&gt; and &lt;a href=&quot;https://www.math.ucla.edu/~tom/Stopping/sr1.pdf&quot; rel=&quot;noreferrer&quot;&gt;here's a book chapter&lt;/a&gt;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In economics, such models have been used to think about &lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/S0022053111000329&quot; rel=&quot;noreferrer&quot;&gt;how sellers learn about selling opportunities&lt;/a&gt;, &lt;a href=&quot;https://www.jstor.org/stable/1556717&quot; rel=&quot;noreferrer&quot;&gt;investment in R&amp;amp;D&lt;/a&gt;, and &lt;a href=&quot;https://www.jstor.org/stable/2297410&quot; rel=&quot;noreferrer&quot;&gt;optimal labor search strategies&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2017-09-12T13:54:47.543" LastActivityDate="2017-09-12T13:54:47.543" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18246" PostTypeId="2" ParentId="18243" CreationDate="2017-09-12T13:11:46.017" Score="6" Body="&lt;p&gt;Partly your question relates to more general questions like &amp;quot;buy versus rent a house&amp;quot;, or &amp;quot;buy versus lease a machine&amp;quot;. Under neoclassical assumptions of  competition, full information, etc, you can imagine that arbitrage would make these options equivalent &lt;em&gt;for the average of the population&lt;/em&gt; (or the representative agent). In practice, heterogeneous individuals might prefer one option than the other.&lt;/p&gt;&#xA;&lt;p&gt;Having said this, I think the study that is more pertinent for your example is &amp;quot;&lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/S0014292182800597&quot; rel=&quot;noreferrer&quot;&gt;The economics of subscriptions&lt;/a&gt;&amp;quot;, by Glazer and Hassin (1982). They evaluate whether it is welfare enhancing for a service provider (in their case, a publisher issuing a monthly magazine), to offer both subscriptions and individual sale of issues, rather than one of them alone. Adapting their terminology and notation to the case of music, define:&lt;/p&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;span class=&quot;math-container&quot;&gt;$\bar p $&lt;/span&gt;: average value to a consumer of an album. Might vary among consumers.&lt;/li&gt;&#xA;&lt;li&gt;&lt;span class=&quot;math-container&quot;&gt;$m$&lt;/span&gt;: number of albums available with subscription per year.&lt;/li&gt;&#xA;&lt;li&gt;&lt;span class=&quot;math-container&quot;&gt;$t$&lt;/span&gt;: price of each album by itself (assume identical). This might include the transaction cost of buying the albums.&lt;/li&gt;&#xA;&lt;li&gt;&lt;span class=&quot;math-container&quot;&gt;$c$&lt;/span&gt;: cost of subscription. (Assume no &lt;em&gt;re-selling&lt;/em&gt; is allowed, an important disclaimer!).&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;h1&gt;&lt;strong&gt;Subscription&lt;/strong&gt;&lt;/h1&gt;&#xA;&lt;p&gt;In this setting, the expected value of a consumer's surplus obtained by purchasing a subscription is&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ m\bar p -c $$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;h1&gt;&lt;strong&gt;Individual purchases&lt;/strong&gt;&lt;/h1&gt;&#xA;&lt;p&gt;Here, we assume that you can choose &lt;strong&gt;your favorite albums&lt;/strong&gt;. Hence, for a given population of albums, you will choose the &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt; that give you the most surplus (your favorite artists). For simplicity, &lt;strong&gt;I assume you do you know the universe of albums&lt;/strong&gt; (To add more complexity, you could instead assume you know a section of it, and hence a subscription could surprise you. I leave this example to you.)&lt;/p&gt;&#xA;&lt;p&gt;The surplus from buying the best &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt; albums (subset denoted &lt;span class=&quot;math-container&quot;&gt;$\Theta$&lt;/span&gt;) is&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$  \sum_{i \in \Theta} (\hat p + \epsilon_i - t) $$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;where &lt;span class=&quot;math-container&quot;&gt;$\epsilon_i$&lt;/span&gt; is the value &lt;strong&gt;above&lt;/strong&gt; &lt;span class=&quot;math-container&quot;&gt;$\bar p$&lt;/span&gt; of the &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;-th album you choose to buy. The above is equal to:&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ n(\hat p - t) + \sum_{i \in \Theta}\epsilon_i $$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;Hence, the valuation hinges on this comparison:&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ m\bar p -c \text{  vs } n(\hat p - t) + \sum_{i \in \Theta}\epsilon_i  $$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;h1&gt;&lt;strong&gt;Analysis&lt;/strong&gt;&lt;/h1&gt;&#xA;&lt;p&gt;Since you chose the best albums, &lt;span class=&quot;math-container&quot;&gt;$\sum_{i \in \Theta}\epsilon_i  $&lt;/span&gt; is large. However, these albums are also included in the subscription. Hence, define the non-negative function &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; as the combined value of all the albums in the subscription that you would not buy outside of it. This is:&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ X = (m - n)\bar p - \sum_{i \in \Theta}\epsilon_i $$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;Notice that &lt;span class=&quot;math-container&quot;&gt;$\lim_{n \rightarrow m} X = 0$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;p&gt;The comparison is now:&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ X \text{ vs } c - nt $$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;Thus, you prefer the subscription when:&lt;/p&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;the number of albums available under subscription is high&lt;/li&gt;&#xA;&lt;li&gt;the albums you would not buy are very valuable&lt;/li&gt;&#xA;&lt;li&gt;the cost of subscription is low&lt;/li&gt;&#xA;&lt;li&gt;the cost of individual albums is high&lt;/li&gt;&#xA;&lt;li&gt;the value of your best albums is low (if some &lt;span class=&quot;math-container&quot;&gt;$\epsilon &amp;lt;0$&lt;/span&gt;, then such album is below average)&lt;/li&gt;&#xA;&lt;li&gt;the effect of &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt; depends on the value distribution (the distribution of &lt;span class=&quot;math-container&quot;&gt;$\epsilon$&lt;/span&gt;). Clearly, at some point you are buying bad albums for the same price, so you rather buy the subscription.&lt;/li&gt;&#xA;&lt;li&gt;notice that if you do not know all the albums, then there is a stronger case for a subscription as you might discover some very good albums which value might even be higher than those you would buy otherwise. Here, a modelling of such distribution becomes crucial.&lt;/li&gt;&#xA;&lt;li&gt;the above does not include a risk-loving valuation from risk (i.e. discovering good music!). Such consumer would then more likely favour subscription.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2017-09-12T19:50:50.337" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="18248" PostTypeId="2" ParentId="18237" CreationDate="2017-09-12T14:15:17.790" Score="2" Body="&lt;p&gt;I'm reminded of the law of diminishing returns. &#xA;&lt;a href=&quot;https://en.wikipedia.org/wiki/Diminishing_returns&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://en.wikipedia.org/wiki/Diminishing_returns&lt;/a&gt;&#xA;The idea is the more you put into production, the less you get out of it. I originally stumbled upon this theory while looking for a mathematical model to model the increased demand for addictive substances, but noted the harmonic series &lt;a href=&quot;https://en.wikipedia.org/wiki/Harmonic_series_(mathematics)&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://en.wikipedia.org/wiki/Harmonic_series_(mathematics)&lt;/a&gt; also modeled it, where the second chocolate bar, cigarette, or dose of heroin is only half as good as the first, the third even less, the fourth, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But more salient to what you are looking for, investment into graduate school, in terms of time and money, naturally comes with greater cost, compounded by that diminished return on investment lost by decreased life time earnings in terms of raw years. This could be applied to the &quot;worth of skill&quot; in terms of enjoyment of a highly skilled musical instrument player vs. a skilled musical instrument player, as the number of pieces of music and number of people you can impress first opens very wide, then the limitations become more precise, and the scarcity of musical challenges increases so that a finer and finer list of musical rivals and musical challenges exists. With respect to both a musician and a graduate student, or a marathon runner, in addition to losing the time invested, there's also competition. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Rising in a given devotion forces you into the category of competitive X, such as competitive gambler, competitive skier, or competing against other graduates for the same job. This manifests either as literal reduction of wages, being over qualified or having to compete with a dozen other Ph.D students or a hundred scientists seeking the same grant money. That may be counter intuitive at first, but because the demand for extreme specialization decreases with the increased level of specialization, the supply of rewards for that increased specialization also decreases. With gambling or cheating gamblers, the risk continues to increase and the skill of rivals increases to to financially dangerous levels, as notoriety results in an endless sequence of people actively trying to bankrupt or arrest the gambler. Bank robbery theory is the same way, as criminals often talk about &quot;just one more job&quot;, assessing their risk vs. rewards and concluding (usually after arrest) that they should have quit while they were ahead. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Opportunity costs are extreme for some of these models too, as a skilled musician, for example, may impress at 3000-5000 hours of practice, but need 7000-10,000 hours of practice for the average person to appreciate any difference, and 20,000 hours of practice for a subtle improvement beyond that. With a marathon runner, the more you practice, the older you get, and the closer to &quot;peak&quot; you reach, and the more frequent the opportunities for injury, such as the recent Usain Bolt run. Boxing has a similar diminishing returns effect as injuries compound and performance decreases - that was a central theme of Rocky. Football Salaries are exceptionally high with a similar peak and injury calculated into the risk assessment. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Diminishing returns are most poignant though with the college graduate. You are assumed to have X number of years working, and every year in school is a year where you not only are not earning optimal wages, you are also building debt that will compound. Since work experience also increases wages with time, and since student loans have interest rates, there is a point in which a person's life time earnings actually start to drop lower. At one school I was attending, the tuition total was around $50,000/year, and to complete everything through graduate school was going to total half a million dollars and take a total of 10 years. As starting age was a constant and the growth of returns depended on the time from graduation to the time of retirement minus the growth of loans, the model for staying didn't pan out, and quitting was more fiscally sound. &lt;/p&gt;&#xA;" OwnerUserId="14491" LastActivityDate="2017-09-12T14:15:17.790" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18250" PostTypeId="1" CreationDate="2017-09-12T19:06:42.077" Score="3" ViewCount="65" Body="&lt;p&gt;What general activity or event(s) mark the time at which an economic &quot;bubble&quot; bursts? e.g. the dot-com bubble, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Would it be considered to have &quot;burst&quot; when intrinsic value is less than price?&#xA;What about when this drop in intrinsic value might be due to some news event, etc... &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is it simply when prices go down? When speculators exit the market, etc. or is it when &quot;the something&quot; happens that &lt;em&gt;causes&lt;/em&gt; the drop in prices or the mass exodus from the market? Or something else altogether? &lt;/p&gt;&#xA;" OwnerUserId="14496" LastEditorUserId="2776" LastEditDate="2017-09-12T19:13:11.453" LastActivityDate="2017-09-24T02:17:00.410" Title="What activity or event(s) marks the point at which an economic &quot;bubble&quot; burst?" Tags="&lt;economic-bubble&gt;&lt;economic-crisis&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18251" PostTypeId="2" ParentId="12453" CreationDate="2017-09-12T19:20:30.463" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;What is the reason that lotteries involving small risks of dying obey the von Neumann-Morgenstern axioms, when living and dying themselves do not?&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I believe that living and dying do obey these axioms.&#xA;The apparent discrepancy you've seen is because you are applying the biggest assumption of the statistical value of life inconsistently. (Kitsune Cavalry touched on this in a comment already.)&#xA;That assumption is that human lives and money are interchangeable in terms of utility.&#xA;Now let's look at your key objection:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;It's possible that no amount of money would convince the average person to give up his own life, and the average person would be willing to spend any amount of money to save his own life.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Let's apply the money-lives conversion assumption completely:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;It's possible that no amount of &lt;em&gt;lives saved&lt;/em&gt; would convince the average person to give up their own life, and the average person would be willing to &lt;em&gt;kill any number of people&lt;/em&gt; to save their own life.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Now we can see that this objection no longer holds (at least, I hope so).&#xA;Therefore, living and dying do seem to obey von Neumann-Morgenstern axioms. They just don't if you try to restrict them to monetary terms on one side of the equation.&lt;/p&gt;&#xA;" OwnerUserId="12499" LastActivityDate="2017-09-12T19:20:30.463" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18252" PostTypeId="2" ParentId="18250" CreationDate="2017-09-12T19:59:37.233" Score="1" Body="&lt;p&gt;&lt;strong&gt;An economic &quot;bubble&quot; bursts when the buyers in the market deem the good or service to be overpriced.&lt;/strong&gt;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;At a certain point, the price of whatever is causing the bubble will reach a certain &quot;threshold price.&quot;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is at this &quot;threshold price&quot; that the corresponding amount of &quot;threshold buyers&quot; is reached.  These buyers will stop buying (or continue not to buy) the good or service offered.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In an attempt to incentivize the buyers to continue buying their product, the sellers will lower their price.  Of course, certain sellers will lower their prices further to out maneuver each other in order to sell more of their product.  &lt;strong&gt;This is the burst.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At this point, some of the buyers will recognize the &quot;burst&quot; of the &quot;bubble market&quot; and will become sellers to move their product.  This, simultaneously, increases the amount of supply and decreases the demand, further lowering price.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This cycle will continue until a new (lower) equilibrium is reached.  &lt;/p&gt;&#xA;" OwnerUserId="27" LastActivityDate="2017-09-12T19:59:37.233" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="18253" PostTypeId="1" AcceptedAnswerId="18254" CreationDate="2017-09-12T20:28:37.503" Score="4" ViewCount="251" Body="&lt;p&gt;I am trying to understand a paper written back in 1989 about long run population growth. It seems like the PDF is a scanned image of the paper.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The notation for the function is on page 11 of the pdf (&lt;a href=&quot;http://faculty.econ.ucdavis.edu/faculty/gclark/papers/clark_evolution.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;):&lt;a href=&quot;https://i.stack.imgur.com/YQChZ.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/YQChZ.png&quot; alt=&quot;Cobb-Douglas Function&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is it:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ Q_t = A_t*(K_t^\alpha N^t_\beta T_t^\rho) $$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;or&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ Q_t = A_t*(K_t^\alpha N^\beta_t T_t^\rho) $$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Im not sure its a typo or not because it shows up the same way later in the paper on page 14.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;*Edit:  I also have no idea what $\hat c$ is in the paper:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't see where it is defined.  Only where consumption is compared to it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/8SKgb.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/8SKgb.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="14296" LastEditorUserId="2776" LastEditDate="2017-09-13T06:15:21.873" LastActivityDate="2017-09-13T06:15:21.873" Title="Notation of a Cobb-Douglas function printed in 1989" Tags="&lt;production-function&gt;&lt;cobb-douglas&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18254" PostTypeId="2" ParentId="18253" CreationDate="2017-09-12T20:42:47.237" Score="5" Body="&lt;p&gt;Seems to be the second one, so $$ Q_t = A_t*(K_t^\alpha N^\beta_t T_t^\rho). $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Two clues:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;This is the usual specification.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;On the top of page 14 it is written that&#xA;$$&#xA;w_t = \beta Q_t/N_t.&#xA;$$ &#xA;Given a competitive labor market you have&#xA;$$&#xA;w_t = \frac{\partial Q_t}{\partial N_t}.&#xA;$$ &#xA;If you assume the production function above then you indeed have&#xA;$$&#xA;\frac{\partial Q_t}{\partial N_t} = \beta Q_t/N_t.&#xA;$$ &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2017-09-12T20:42:47.237" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18255" PostTypeId="2" ParentId="6544" CreationDate="2017-09-12T21:10:33.920" Score="1" Body="&lt;p&gt;&lt;em&gt;GDP&lt;/em&gt; is a measure of &lt;em&gt;new&lt;/em&gt; value created in the system. It is a &lt;em&gt;flow&lt;/em&gt; magnitude. That statement is supposed to convey the notion of it adding something &lt;em&gt;new&lt;/em&gt; to something &lt;em&gt;else&lt;/em&gt; that is already &lt;em&gt;there&lt;/em&gt; ie to a &lt;em&gt;stock&lt;/em&gt; of already present &lt;em&gt;values&lt;/em&gt;. When &lt;em&gt;GDP&lt;/em&gt; grows, the economy is expanding its value stock. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;'&lt;em&gt;Value&lt;/em&gt;', as it were, is composed of two constituent parts; there is a part related to &lt;em&gt;price&lt;/em&gt; and a part related to &lt;em&gt;quantity&lt;/em&gt;. Also, note that value should be treated as a plural form, in the sense that, there are a lot of things &lt;em&gt;of&lt;/em&gt; value; the sum of those values is what constitutes the &lt;em&gt;total value available&lt;/em&gt; at a point in time, for a given economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Treating &lt;em&gt;GDP&lt;/em&gt; as a sum of values, allows us to decompose the change to its magnitude: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$ΔY = ΔY_1 + ΔY_2 + ... + ΔY_n$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(obviously, $Y$ denotes (the value of) &lt;em&gt;GDP&lt;/em&gt; while $Y_i$ denotes the value of &lt;em&gt;GDP&lt;/em&gt;'s component $i$)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Further decomposition of the change in the $Y_i$'s yields:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$ΔY=(ΔP_1Q_1+P_1ΔQ_1+ΔP_1ΔQ_1)+...+(ΔP_nQ_n+P_nΔQ_n+ΔP_nΔQ_n)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From a first glance to the change formula shown above, one should notice that the &lt;em&gt;total&lt;/em&gt; change for every value component of GDP ($Y_i$), can be attributed either to a change in &lt;em&gt;price&lt;/em&gt; ($ΔP_i&amp;gt;0$) or to a change in &lt;em&gt;quantity&lt;/em&gt; ($ΔQ_i$&gt;0) or to a change in &lt;em&gt;both&lt;/em&gt; ($ΔP_i&amp;gt;0$ and $ΔQ_i&amp;gt;0$).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When only the price changes, for a single component ie when $ΔP_i&amp;gt;0$ and $ΔQ_i=0$, a change in the value of that component is &lt;em&gt;effectively&lt;/em&gt; an &lt;strong&gt;&lt;em&gt;inflationary&lt;/em&gt;&lt;/strong&gt; change. On the other hand, when the value of a component changes due to changes in the underlying &lt;em&gt;quantity&lt;/em&gt; ie when when $ΔP_i=0$ and $ΔQ_i&amp;gt;0$, we get a &lt;strong&gt;&lt;em&gt;real growth effect&lt;/em&gt;&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are a few things to notice in this simple accounting exercise. The first has to do with the &lt;em&gt;signs&lt;/em&gt; of the changes we are considering so far. Although we have talked about &lt;em&gt;positive changes&lt;/em&gt; in either the price component or the quantity component, there is really no reason &lt;em&gt;not&lt;/em&gt; to consider the case where these changes are actually &lt;em&gt;negative&lt;/em&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A negative change in the price part is equivalent to valuing the &lt;em&gt;same&lt;/em&gt; quantity (assuming $ΔQ_i=0$) of component $i$ for &lt;em&gt;less&lt;/em&gt;. Similarly, when the quantity of component $i$ drops (assuming $ΔP_i=0$), there is &lt;em&gt;less&lt;/em&gt; of the actual commodity or service $i$ available-in this sense, the economy is poorer in &lt;em&gt;real&lt;/em&gt; terms. In the former case, the economy was simply &lt;em&gt;cheaper&lt;/em&gt; as far as the $i$ component was concerned.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another thing to consider, regarding the exposition so far, is that what happens to the value of component $i$ (whether it increases, decreases or stays the same) is not disconnected from what happens to the rest of the components of &lt;em&gt;GDP&lt;/em&gt;. This means that frequently (but not always) it is the case that positive or negative changes in the price or quantity components of some of the constituent parts of &lt;em&gt;GDP&lt;/em&gt; is accompanied by &lt;em&gt;similar movements&lt;/em&gt; in the value of most other components of GDP. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Effectively, that means that changes in &lt;em&gt;GDP&lt;/em&gt; ($ΔY$) are not happening because a few components &lt;em&gt;suddenly&lt;/em&gt; jumped/dropped in price or quantity terms ($ΔP_i&amp;gt;0$ and/or $ΔQ_i&amp;gt;0$ for few $i$'s) at the same time. &lt;em&gt;Persistent&lt;/em&gt; changes in &lt;em&gt;GDP&lt;/em&gt; are due to persistent changes in most, if not all, the constituent components. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;One more thing to consider is the fact that, most of the time, the parts that change are neither prices nor quantities in isolation but both of them &lt;em&gt;in tandem&lt;/em&gt;. That poses the very real problem of distinguishing which part of the newly created value (&lt;em&gt;GDP&lt;/em&gt;) is due to the economy having &lt;em&gt;more&lt;/em&gt; of some commodities or services ($ΔQ_i&amp;gt;0$ for some $i$'s) and which part is due to price changes ($ΔP_j&amp;gt;0$ for some $j$'s). Note that in all likelihood some of the $i$'s and $j$ are the same. It is because of this eventuality that we make the distinction between real and nominal &lt;em&gt;GDP&lt;/em&gt;. &lt;em&gt;Real growth&lt;/em&gt; is related to increases in the available &lt;em&gt;quantities&lt;/em&gt; of commodities and services while &lt;em&gt;nominal growth&lt;/em&gt; might be underlined by inflationary pressures. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A final point to consider is that $ΔY$ ie the change in the value of &lt;em&gt;GDP&lt;/em&gt; can come from another direction. Until now, we were considering the changes that were related to components $Y_i$ where $i=1,2,...,n$. Well, it so happens that $n$ is not constant but changes with time. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For some periods of time the number of available commodities and services might be equal to $n_1$ while for other periods the value of $n$ may be equal to $n_2$ and still other times it might be equal to $n_3$. What is important to understand is that it could be the case that $n_1&amp;lt;n_2&amp;lt;n_3$ but that is not &lt;em&gt;necessary&lt;/em&gt; how they should rank. It is just the case that when $n$ increases, the value of &lt;em&gt;GDP&lt;/em&gt; increases also and vice-versa (obviously, there is a &lt;em&gt;ceteris paribus&lt;/em&gt; clause of constant prices and quantities for all the 'old' commodities and services). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;When &lt;em&gt;GDP&lt;/em&gt; changes in that manner, the change can be attributed to the introduction of &lt;em&gt;new&lt;/em&gt; commodities and services. Generally speaking, when talking about &lt;em&gt;GDP&lt;/em&gt; growth, what is tacitly understood is that $n=const$. The introduction of &lt;em&gt;new&lt;/em&gt; commodities and services is generally attributed to the effects of &lt;em&gt;technological change&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;'Technological change' in economics is an all encompassing notion that fuses scientific progress with managerial and organizational changes in the way-of-doing-business. In that sense, the change in &lt;em&gt;GDP&lt;/em&gt; that is attributed to technological change (what is frequently dubbed &lt;em&gt;total factor productivity&lt;/em&gt; increases) might be due to the introduction of new commodities or services or the introduction of a better way of doing business but it might also be attributed to relative price changes due to innovations that conserve on (relatively) scarce productive resources.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Innovations that change relative prices effectively act upon the cost structure of some productive processes and if they are too disruptive they can also change the relative income distribution of the affected factors of production. These effects mean that innovations might lower the price component of (some) $Y_i$'s but it is not clear what will happen to the quantity component of those&lt;br&gt;&#xA;$Y_i$'s (we abstract from any substitution and/or complementary effects between $Y_i$'s).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Having covered all this ground, we can say that economies grow in real terms when, on average, modest price increases are accompanied by strong quantity increases. Also, these movements should be such for the majority of commodities and services. Additionally, growth can come in the form of changing the cost structure of available production processes without causing incommensurate income disruption or, ultimately, from the expansion of the number of available commodities and services.&lt;/p&gt;&#xA;" OwnerDisplayName="user14471" LastEditorUserId="4251" LastEditDate="2017-10-28T00:34:47.723" LastActivityDate="2017-10-28T00:34:47.723" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18256" PostTypeId="1" AcceptedAnswerId="18257" CreationDate="2017-09-12T23:46:18.467" Score="3" ViewCount="59" Body="&lt;p&gt;Im doing some research with  some &lt;a href=&quot;https://en.wikipedia.org/wiki/Panel_data&quot; rel=&quot;nofollow noreferrer&quot;&gt;panel data&lt;/a&gt; I have on firm output and investment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I ran two equations.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;$$y=\beta_0+\beta_1x+\beta_2x^2+\mu$$&lt;/li&gt;&#xA;&lt;li&gt;$$\Delta y=\alpha_0+\Delta\alpha_1x+\epsilon$$&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;in R these equations were prodouced using these commands&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;   1) lm(output~investment+I(investment^2))&#xA;   2) lm(diff(output)~diff(investment))&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;The first equation had statistical significance on the 1% level, however with the first differenced data statistical significance was lost, and I ended up with rather high p-values as if there is no relationship between the two variables.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is the interpretation of such results (i.e is there a relationship between investment and output in this data set) and which regression should I use in my research?&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="8815" LastEditDate="2017-09-14T17:54:26.257" LastActivityDate="2019-04-11T06:59:01.310" Title="When first differences contradict a regular regression regarding Investment vs Output relationship" Tags="&lt;applied-econometrics&gt;&lt;self-study&gt;&lt;r&gt;" AnswerCount="1" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="18257" PostTypeId="2" ParentId="18256" CreationDate="2017-09-12T23:57:13.747" Score="1" Body="&lt;p&gt;It's hard to say. Presumably you think you have some fixed (unobservable) omitted variables, which is why you ran fixed effects (FE) / first differences. So I see one of two things going on here:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;The fixed omitted variables caused significance in the first regression, which means you do not have a significant effect. Do you have fixed omitted variables? If not, go with the first regression instead.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;A quadratic model fits the data much better and hence you have significance in the first model, but not the second. In that case, you probably do have a significant effect. Is that true though? Why did you choose a quadratic specification? Does theory or the scatter plot suggest that is a good idea? If not go with the second regression. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;My suggestion would be to try fixed effects/first differences  with the qudratic terms if you have good reason for both. Otherwise use the specification you think has the most merit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Unfortunately, I am not familiar with R and cannot comment on the code.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastEditorUserId="5557" LastEditDate="2019-04-11T06:59:01.310" LastActivityDate="2019-04-11T06:59:01.310" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="18258" PostTypeId="2" ParentId="18250" CreationDate="2017-09-13T07:39:06.557" Score="0" Body="&lt;p&gt;A bubble is driven by a feedback mechanism...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A bubble may be instigated by a steady rise in price due to fundamentals but after a while there will be investors who are attracted by the fact that the market is rising having made little or no attempt to determine what the correct price should be (let's call these people momentum traders). The logic simply being that if it has been rising steadily for a while then surely it will continue to rise in the future. The addition of these momentum traders will drive a self fulfilling prophesy of rising prices over and above what the fundamentals would dictate. If at a later time the market falters for whatever reason, the demand from momentum traders will evaporate. This will in itself cause a fall in the price. A self fulfilling prophesy in the other direction.&lt;/p&gt;&#xA;" OwnerUserId="5081" LastEditorUserId="5081" LastEditDate="2017-09-13T07:46:54.050" LastActivityDate="2017-09-13T07:46:54.050" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18259" PostTypeId="2" ParentId="5861" CreationDate="2017-09-13T09:14:40.420" Score="1" Body="&lt;p&gt;To decide whether zero inflation is desirable or not we should first qualify the question. Inflation is not a &lt;em&gt;universal&lt;/em&gt; constant neither is the economic &lt;em&gt;universe&lt;/em&gt; immutable so as to admit some particular &lt;em&gt;fixed&lt;/em&gt; inflation level. Furthermore, inflation has different effects on different groups of agents; these depend on the composition of their wealth (debt or equity) and the nature of their incomes. Additionally, a second order issue might arise with the kind of time preferences that different agents employ when discounting the future.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since late 2007-early 2008, the world economy has been perturbed severely by what has come to be known as the &lt;em&gt;great recession&lt;/em&gt;. One major side-effect of this has been the &lt;em&gt;systematic&lt;/em&gt; difficulty with which a number of Central Banks struggled to achieve the objectives of their mandates ie financial stability with subdued inflation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the past, the '&lt;em&gt;problem&lt;/em&gt;' with inflation had been its tendency to spiral uncontrollably upward. In this context, most recall instances before the &lt;em&gt;Great Depression&lt;/em&gt; in the &lt;em&gt;US&lt;/em&gt;, the Weimar republic's inflation sprout before the Great War, the stagflation of the late 70's-early 80's, Zimbabwe in 2008 &lt;a href=&quot;https://en.wikipedia.org/wiki/Hyperinflation#Most_severe_hyperinflations_in_world_history&quot; rel=&quot;nofollow noreferrer&quot;&gt;etc&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This time around, the '&lt;em&gt;problem&lt;/em&gt;' is of the reverse kind. This time around, it is &lt;em&gt;deflation&lt;/em&gt; (or perhaps, more appropriately, &lt;em&gt;disinflation&lt;/em&gt;) that is the issue. The 'poster child' of this malaise is &lt;a href=&quot;https://en.wikipedia.org/wiki/Lost_Decade_(Japan)&quot; rel=&quot;nofollow noreferrer&quot;&gt;Japan&lt;/a&gt; and its two decades of deflation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;One characteristic of the present configuration that is up to par with the historic experience (to a greater rather than to a lesser degree) is the presence of &lt;em&gt;debt&lt;/em&gt; build-up. Just like in the Great Depression and before WWII in Germany, debt in today's economies is by all accounts too high (debt is '&lt;em&gt;too high&lt;/em&gt;' not because of its &lt;em&gt;absolute&lt;/em&gt; volume-which is admittedly high too-but due to the systematically &lt;em&gt;subdued ability to service it&lt;/em&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another characteristic of the current state of affairs is the subdued returns to labor income ('subdued' when compared to productivity). This is mostly &lt;a href=&quot;http://www.epi.org/productivity-pay-gap/&quot; rel=&quot;nofollow noreferrer&quot;&gt;related&lt;/a&gt; to the US economy and for a period of roughly fifty years since the early 70's but other industrialized countries show similar patterns for about the same period. This is the outcome of a number of effects such as financialization and innovations related to communications (internet) and transportation (containerization) that increased capital mobility globally. To some, the present situation is the result of the &lt;em&gt;success&lt;/em&gt; of what has been called the 'neoliberal agenda' (related to the 'Washington consensus'). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A third characteristic of the modern global economy is what has been called by B. Bernanke the &lt;a href=&quot;https://www.federalreserve.gov/boarddocs/speeches/2005/200503102/&quot; rel=&quot;nofollow noreferrer&quot;&gt;savings glut&lt;/a&gt; hypothesis. The former Governor of the Federal Reserve, made a case of why interest rates are subdued in the US (and the world). As the argument goes, there is an oversupply of savings that are looking for productive investments but cannot be accommodated by the current state of affairs. Hence, real interest rates (a measure of opportunity cost for real activities) will be low for as long as the conditions responsible for the oversupply, persist.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Perhaps the most interesting approach of the current configuration is one put forward by Brown's Watson Fellow &lt;a href=&quot;https://www.igs.berkeley.edu/sites/default/files/black_swans_lame_ducks_-_blyth_matthijs_ripe_2017.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;M. Blyth&lt;/a&gt;. Blyth talks about economic regimes of changing institutions (&lt;em&gt;a-la&lt;/em&gt; Aglietta). Juxtaposing 'the 70's' with the present, he finds a shift in institutional set-up, from an early one aligned with debtors' interests, to the later one aligned with creditors' interests. Regimes change when the underlying institutions become fetters rather than facilitators. Our present day experience is-according to Blyth-a (potential) turning point.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The preceding exposition was an attempt to frame the current configuration in a short and succinct way. As it is claimed in the introduction, inflation is dependent on the particulars of each historic (economic) epoch. During the present 'regime', low inflation is a strain rather than a strong point in the system. It makes debt repayment difficult. In turn debt overhang subdues growth by dampening profitability and allows for the continued trend of productivity-compensation gap. Low demand acts as a constraint on investment profitability prospects which in turn constraints growth prospects even more. This vicious cycle is but one example of why zero inflation is not a desirable level of inflation, at the current juncture. &lt;/p&gt;&#xA;" OwnerDisplayName="user14471" LastEditorUserId="8815" LastEditorDisplayName="user14471" LastEditDate="2017-11-13T01:07:23.213" LastActivityDate="2017-11-13T01:07:23.213" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18260" PostTypeId="2" ParentId="4667" CreationDate="2017-09-13T09:59:31.580" Score="0" Body="&lt;p&gt;The good &lt;strong&gt;is not a giffen good&lt;/strong&gt;. These goods have a positive elasticity of demand. Yours has a negative one, by assumption. It cannot yield a giffen good at all.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The error is in the negative sign that you (and also Thomas's answer) assumed. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The formula for the elasticity is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ e_d = \frac{\Delta Q}{\Delta P}\frac{P}{Q}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The negativeness of the elasticity is given by the &lt;strong&gt;sign&lt;/strong&gt; of the derivative (a price increase leads to a fall in quantity demanded; the contrary in a Giffen good).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In your example, assuming as starting point $Q_1$ and $P_1$ (you could alternative use the end point, or the arc elasticity; see &lt;a href=&quot;https://en.wikipedia.org/wiki/Price_elasticity_of_demand#Definition&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;), you get:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ -8 = \frac{Q_2 - 800,000}{12}\frac{24}{800,000}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which yields &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Q_2 = -2,400,000$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is, in effect, a negative quantity. To see why this is the case, rewrite the elasticity function as follows:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ e_d \frac{\Delta P}{P_1} = \frac{\Delta Q}{Q_1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is, the &lt;strong&gt;percentage&lt;/strong&gt; change in the quantity is equivalent to the &lt;strong&gt;percentage&lt;/strong&gt; change in prices times the elasticity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Replacing the numbers, you get:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ -4 = \frac{\Delta Q}{Q_1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is, &lt;strong&gt;the quantity falls by 400% percent!&lt;/strong&gt;. That is why it becomes negative (from 800,000 to -2,400,000).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The origin of the problem is the massive change in price (50%) together with the massive elasticity of demand (-8), which gives the total change in quantity ($50\% \times -8 = -400\%$). A less dramatic combination would yield a positive $Q_2$.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-09-13T09:59:31.580" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18264" PostTypeId="1" AcceptedAnswerId="18272" CreationDate="2017-09-13T13:51:33.857" Score="1" ViewCount="1405" Body="&lt;p&gt;Where can I find bilateral real exchange rates? For example per USD?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can only find real effective exchange rates, but it is an index, not a bilateral rate.&lt;/p&gt;&#xA;" OwnerUserId="14512" LastEditorUserId="2776" LastEditDate="2017-09-13T14:56:16.840" LastActivityDate="2017-09-13T20:14:40.973" Title="Data on bilateral real exchange rate" Tags="&lt;data-request&gt;&lt;exchange-rates&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18265" PostTypeId="1" CreationDate="2017-09-13T14:56:31.703" Score="1" ViewCount="210" Body="&lt;p&gt;Let $w$ denote wage. Let the price of each unit of food be $p_1$, the price of the first $M$ units of electricity be $p_2$ and the price of each unit of electricity over $M$ units is $q_2$. $M$ is fixed. My question is regarding how to express the (non-linear) budget constraint set $B_{p_1, p_2, q_2, w}$. I know one way is as follows:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$B_{p_1, p_2, q_2, w}=\begin{cases}p_1x_1 + p_2x_2 \le w &amp;amp; \text{ if } x_2 \le M \\ p_1x_1 + p_2M + q_2(x_2-M) \le w &amp;amp; \text{ if } x_2&amp;gt;M \end{cases} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, I am told that the budget set above can also be equivalently expressed as the union or intersection of linear budget sets. Namely, if $p_2&amp;lt;q_2$, then the budget set is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\{x \in \mathbb{R}^2: p_1x_1+p_2x_2 \le w\} \cap \{x \in \mathbb{R}^2: p_1x_1+q_2x_2 \le w+(q_2-p_2)M\}$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If $q_2&amp;lt;p_2$, then the budget set is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\{x \in \mathbb{R}^2: p_1x_1+p_2x_2 \le w\} \cup \{x \in \mathbb{R}^2: p_1x_1+q_2x_2 \le w+(q_2-p_2)M\}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How is the union/intersection expression derived? I can not see the connection between my expression and the above one at all.&lt;/p&gt;&#xA;" OwnerUserId="14416" LastEditorUserId="2776" LastEditDate="2017-09-13T15:20:25.953" LastActivityDate="2017-09-13T15:20:25.953" Title="Non-linear budget constraints written as union/intersection of linear budget constraints" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;" AnswerCount="0" CommentCount="2" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18266" PostTypeId="2" ParentId="18264" CreationDate="2017-09-13T15:22:37.983" Score="1" Body="&lt;p&gt;The real exchange rate &lt;strong&gt;is an index&lt;/strong&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, the nominal exchange rate between British pounds and US dollars is 0.75 pounds per dollar (as of today; e.g. £20 are roughly $27). To calculate the real exchange rate, you have to multiply this by the relative prices of these two countries, after which you end up with a dimensionless index. This index tells you the &lt;strong&gt;relative&lt;/strong&gt; value of the same basket of goods in the two countries. In a very idealised world were the &lt;a href=&quot;https://en.wikipedia.org/wiki/Law_of_one_price&quot; rel=&quot;nofollow noreferrer&quot;&gt;law of one price&lt;/a&gt; holds, such index is one.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Both the bilateral exchange rate and the effective or multilateral exchange rate are defined in terms of currencies. Not their real counterparts.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-09-13T15:42:13.080" LastActivityDate="2017-09-13T15:42:13.080" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="18267" PostTypeId="1" AcceptedAnswerId="18279" CreationDate="2017-09-13T16:01:28.130" Score="0" ViewCount="210" Body="&lt;p&gt;The &lt;a href=&quot;https://en.wikipedia.org/wiki/Allais_paradox&quot; rel=&quot;nofollow noreferrer&quot;&gt;Allais paradox&lt;/a&gt;, is an  experiment set up as follows, where you are free to chose between gambles $A$ and $B$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(the table on wikipedia is much more readable if you prefer)&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;Experiment 1&lt;/strong&gt;&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&lt;strong&gt;Gamble 1A&lt;/strong&gt;&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;\$1 million, 100% Chance&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&lt;strong&gt;Gamble 1B&lt;/strong&gt;&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;\$1 million, 89% Chance&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;\$0, 1% Chance&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;\$5 million, 10% Chance&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&lt;strong&gt;Experiment 2&lt;/strong&gt;&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&lt;strong&gt;Gamble 2A&lt;/strong&gt;&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;$0, 89% Chance&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;\$1 million, 11% Chance&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&lt;strong&gt;Gamble 2B&lt;/strong&gt;&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;\$0, 90% Chance&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;\$5 million, 10% Chance&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The paradox arises when one chooses both Gamble 1A and Gamble 2B.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This paradox is portrayed as a proof, or evidence of inconsistency in von Neumann–Morgenstern utility theory with it's status as a &quot;rational&quot; decision theory. In particular it is intended to show inadequacy of the independence axiom of that theory.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, while I find that while &lt;strong&gt;{Gamble 1A, Gamble 2B}&lt;/strong&gt; is an acceptable and even desirable set of choices (which would be logically inconsistent with the theory), this observation doesn't seem strong enough to show the theory is absurd -- it seems fair to argue that if one refused to accept 1% chance of gaining nothing, one would desire a 10% greater chance of winning anything (versus gaining nothing) to be the correct choice in Experiment 2. In other words, both choices &lt;strong&gt;{Gamble 1A, Gamble 1B}&lt;/strong&gt; and &lt;strong&gt;{Gamble 2A, Gamble 2B}&lt;/strong&gt; seem perfectly logical. In fact, if all choices were approximately the same utility, the inconsistency would disappear (which seems entirely plausible to me).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there another set of parameters, or another example entirely, which more convincingly shows an absurdity of the independence axiom, or are the parameters above as strong as it gets?&lt;/p&gt;&#xA;" OwnerUserId="14513" LastEditorUserId="2776" LastEditDate="2017-09-13T17:57:58.697" LastActivityDate="2017-09-14T08:16:24.830" Title="Maximal Allais paradox" Tags="&lt;utility&gt;&lt;expected-utility&gt;" AnswerCount="1" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="18269" PostTypeId="1" CreationDate="2017-09-13T17:46:41.853" Score="2" ViewCount="397" Body="&lt;p&gt;Here is a problem in &lt;strong&gt;evolutionary game theory&lt;/strong&gt;: (So the term I am using should be familiar for people in this field)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The game is called 'Clever Mutants' which is a symmetric two-player game:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/Ej8hV.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Ej8hV.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For this game, I have managed to find three symmetric Nash Equilibria. &#xA;They are $(a,a), (b,b)$ and $((1/4,3/4),(1/4,3/4))$, in which the first two are evolutionary stable (ES) and the last one is not. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Now, suppose that mutants have a 'secret handshake'. That is, suppose&#xA;  that mutants can recognize other mutants and play different pure strategies against normal&#xA;  and mutant opponents. For example, a mutant could play $b$ against another mutant but&#xA;  play $a$ against a non-mutant. &lt;strong&gt;Argue informally there can no longer be an $ESS$ (Evolutionary Stable Strategy) in which&#xA;  only $b$ is played.&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I don't know how to argue for that statement, even informally. Can someone help me, please? Thanks so much. &lt;/p&gt;&#xA;" OwnerUserId="14239" LastEditorUserId="2776" LastEditDate="2017-09-13T17:57:17.740" LastActivityDate="2017-09-13T19:43:47.227" Title="(Evolutionary Game Theory) Argue informally there can no longer be an ESS in which only b is played" Tags="&lt;game-theory&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18270" PostTypeId="2" ParentId="18243" CreationDate="2017-09-13T19:17:19.427" Score="0" Body="&lt;p&gt;I don't know if it is an economically sound solution, but a person could run experiments with alternating every few months between buying and subscribing for a couple of years. They'd self-report satisfaction with the music they listen to as well as the amount they pay for albums. Based on the assumption that the music they love will always be available in the subscription and that the subscription price will remain the same, they could then decide what works best for them. &lt;/p&gt;&#xA;" OwnerUserId="14488" LastActivityDate="2017-09-13T19:17:19.427" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18271" PostTypeId="2" ParentId="18269" CreationDate="2017-09-13T19:43:47.227" Score="6" Body="&lt;p&gt;The &quot;secret handshake&quot; idea was first formalized in economics by &lt;a href=&quot;http://www.dklevine.com/archive/refs4540.pdf&quot; rel=&quot;noreferrer&quot;&gt;Robson (1990)&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose initially the equilibrium is $(b,b)$. Since the normal population cannot recognize the mutants, they'd always play $b$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;When the mutants enter the population, because they can recognize their own kind through a secret handshake, they can play $a$ against one of their own (when there is a secret handshake), and play $b$ against the normal population (no secret handshake). This way, the mutants are getting $3$ each time they meet another mutant and $1$ each time they meet a normal. Therefore, the mutant's strategy is a best response to the normal's strategy, but a better response to itself than the normal's strategy is. As a result, the normal's strategy fails to be evolutionarilly stable.&lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2017-09-13T19:43:47.227" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18272" PostTypeId="2" ParentId="18264" CreationDate="2017-09-13T20:14:40.973" Score="2" Body="&lt;p&gt;Check out this &lt;a href=&quot;https://www.ers.usda.gov/data-products/agricultural-exchange-rate-data-set/&quot; rel=&quot;nofollow noreferrer&quot;&gt;link&lt;/a&gt; from the United States Department of Agriculture. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This data set contains annual and monthly data for exchange rates. It includes both &lt;strong&gt;bilateral&lt;/strong&gt; nominal and &lt;strong&gt;real exchange rates for 79 countries, plus the European Union,&lt;/strong&gt; as well as real trade-weighted exchange rate indexes for many commodities and aggregations. All series are updated quarterly. Data series start at the beginning of 1970 and run to the last available data point.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As pointed out by @luchonacho, real exchange rates here are derived by multiplying the nominal exchange rate by the ratio of the U.S. to local currency Consumer Price Index&lt;/p&gt;&#xA;" OwnerUserId="6168" LastActivityDate="2017-09-13T20:14:40.973" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18273" PostTypeId="2" ParentId="452" CreationDate="2017-09-13T21:06:17.513" Score="1" Body="&lt;p&gt;My understanding is that the literature has so far used three kinds of empirical analysis of the directed technical change.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;strong&gt;Illustration&lt;/strong&gt; based on the relationship between the relative supply of skills and the college premium as in &lt;a href=&quot;https://economics.mit.edu/files/4126&quot; rel=&quot;nofollow noreferrer&quot;&gt;Acemoglu (2002)&lt;/a&gt;.&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;Quantitative Analysis&lt;/strong&gt; to shed light on the theory as in &lt;a href=&quot;https://economics.mit.edu/files/11350&quot; rel=&quot;nofollow noreferrer&quot;&gt;Acemoglu, Gancia, and Zilibotti (2015)&lt;/a&gt;. They match key moments and simulate their model.&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;Estimate elasticities of substitution between more and less educated workers&lt;/strong&gt;. &lt;a href=&quot;https://www.economics.ox.ac.uk/materials/working_papers/paper467.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Behar (2009)&lt;/a&gt; use four types of data to estimate those elasticities, namely (i) cross sections, (ii) a long range panel of 40 observations,(iii) time series for Brazil and (iv) an annual panel for Latin America.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="6168" LastEditorUserId="6168" LastEditDate="2017-09-14T07:17:17.117" LastActivityDate="2017-09-14T07:17:17.117" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18274" PostTypeId="1" CreationDate="2017-09-13T22:52:23.140" Score="1" ViewCount="154" Body="&lt;p&gt;It happens specially for well known companies (e.g. Apple, Garmin, etc.) that some features of their products leaks into the media before the announcement. I was wondering what are the economical effects of these leaks on the company and how strong are they?&lt;/p&gt;&#xA;" OwnerUserId="14520" LastEditorUserId="2776" LastEditDate="2017-09-14T06:27:02.627" LastActivityDate="2017-09-14T11:41:24.013" Title="How product leaks before announcements affect a company economically?" Tags="&lt;marketing&gt;&lt;innovation&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18275" PostTypeId="1" CreationDate="2017-09-14T01:44:24.320" Score="0" ViewCount="944" Body="&lt;p&gt;The definition of productive efficiency is that &lt;em&gt;any given output&lt;/em&gt; is produced for the lowest possible cost.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the short run, only the minimum point on the SRAC curve is productively efficient - this makes sense because at any other output, the firm could move to a different SRAC curve that would give a lower cost for that output.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, the LRAC is, by definition, the envelope of all SRAC curve - it shows the cheapest way to produce any given output.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Agree / disagree?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If true, why is it that so many economics sources claim that &quot;productive efficiency is achieved when the firm produces at the lowest point of its AC curve&quot;? Is it simply that firm decisions are perpetually taken in the short run?&lt;/p&gt;&#xA;" OwnerUserId="14521" LastEditorUserId="1601" LastEditDate="2017-09-14T10:17:29.690" LastActivityDate="2017-09-14T10:17:29.690" Title="Are all points on the Long Run Average Cost (LRAC) curve productively efficient?" Tags="&lt;cost&gt;&lt;producer-theory&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18276" PostTypeId="1" CreationDate="2017-09-14T01:55:22.040" Score="1" ViewCount="88" Body="&lt;p&gt;I get that they are both gauging responsiveness, but I don't particularly understand why they are the same formula.&lt;/p&gt;&#xA;" OwnerDisplayName="user14404" LastActivityDate="2017-09-18T11:18:44.537" Title="Why are the formulas for price elasticity of supply and demand the same in intro microeconomics?" Tags="&lt;supply-and-demand&gt;&lt;elasticity&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18277" PostTypeId="2" ParentId="18237" CreationDate="2017-09-14T02:28:54.543" Score="1" Body="&lt;p&gt;Seeing Ubiquitous's answer, I want to offer a concrete model I learned originally from an Exercise in Jianjun Miao's &quot;Economic Dynamics in Discrete Time&quot;, which looked at &lt;strong&gt;McCall's (1970) job search model.&lt;/strong&gt; It asked to describe the model as an optimal stopping problem.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Consider an unemployed worker searching for a job, where each period he is unemployed, the worker draws one wage offer from a cumulative distribution function $F(w)$, where $F(0) = 0, F(B &amp;lt; \infty) = 1$. The worker may then reject the offer and receive compensation $C \geq 0$ or accept the wage $w$, which for now we will assume is received forever (no firing or quitting yet). You cannot accept past offers. The worker is risk neutral., so $\mathbb{E_0} \sum^\infty_{t=0} \beta^t y_t$, where $y_t = w$ if you accepted and $c$ if no offer has been accepted yet.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can then express the question of when to accept what wage as a dynamic programming problem:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$V(w) = \max_{\text{accept, reject}} \{\frac{w}{1- \beta}, \quad C+ \beta \int^\beta_0 V(\theta) dF(\theta)\}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;denote the integral part as $Q$, the value function for an unemployed person receiving $w$ as an offer. So then there is some reservation wage where you accept if you get offered the wage or above.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That is, $\exists \ \bar{w}$ such that you accept when $w &amp;gt; \bar{w}$. Since you accept when:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{w}{1 - \beta} \geq C + \beta Q$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;We have $\bar{w} = (C + \beta Q)(1 - \beta))$&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Now when you take this original model, what happens if we allow for quitting? No worker will want to quit since the solution is time consistent. There is no reason to quit the job if you found it optimal to accept a job in a previous period. So the model as is can't account for quitting.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some ways you can tweak the model though to change the optimal reservation wage over time is to change $C$ to be time varying. Maybe if you have more security over other periods, you might quit to look for a better job that will take you. You could also change $F(w)$ to be time varying. Maybe over time the wages available to someone of your skills rise. In Joanovic's matching model, &quot;tenure&quot; makes your wages increase over time, so that could affect the decision to quit. Maybe your agent isn't risk neutral and their risk preferences change over time.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;McCall's model is a nice place to start if you want to tweak with different variables to try and model different reasons for why workers quit, and you can imagine many different extensions have built on it in the literature.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastEditorUserId="4251" LastEditDate="2017-09-14T04:22:47.970" LastActivityDate="2017-09-14T04:22:47.970" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18278" PostTypeId="2" ParentId="18276" CreationDate="2017-09-14T06:35:12.233" Score="4" Body="&lt;p&gt;The elasticity is a &lt;a href=&quot;https://en.wikipedia.org/wiki/Elasticity_of_a_function&quot; rel=&quot;nofollow noreferrer&quot;&gt;very general concept&lt;/a&gt;. Consider an arbitrary function&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$y=f(x_1,x_2, \cdots , x_n) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The elasticity of $y$ with respect to $x_i$ is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ e_{y,x_i} = \frac{\partial y}{\partial x_i}\frac{x_i}{y} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It measures the percentage change of $y$ when variable $x_i$ changes by 1% - a measure of responsiveness, as you say. It can be applied to anything, including the demand and the supply, where you get the common concepts like own-price, cross-price, income elasticity, etc. The sign of the elasticity is given by the sign of the derivative, which depends on the function $f(\cdot)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Elasticities applied to functions other than standard demand and supply abound. For example, &lt;a href=&quot;http://www.colorado.edu/economics/morey/4808/elasticity.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;individual factors of production&lt;/a&gt;, &lt;a href=&quot;https://en.wikipedia.org/wiki/Elasticity_of_substitution&quot; rel=&quot;nofollow noreferrer&quot;&gt;relative factors of production&lt;/a&gt;, &lt;a href=&quot;http://econpapers.repec.org/article/eeemoneco/v_3a68_3ay_3a2014_3ai_3ac_3ap_3a86-100.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;investment&lt;/a&gt;, &lt;a href=&quot;https://en.wikipedia.org/wiki/Laffer_curve&quot; rel=&quot;nofollow noreferrer&quot;&gt;taxation&lt;/a&gt;, &lt;a href=&quot;https://www.jstor.org/stable/1964020?seq=1#page_scan_tab_contents&quot; rel=&quot;nofollow noreferrer&quot;&gt;preferences&lt;/a&gt;, &lt;a href=&quot;https://faculty.chicagobooth.edu/chang-tai.hsieh/research/growth.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;city size&lt;/a&gt;, &lt;em&gt;et cetera&lt;/em&gt;.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-09-18T11:18:44.537" LastActivityDate="2017-09-18T11:18:44.537" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18279" PostTypeId="2" ParentId="18267" CreationDate="2017-09-14T08:16:24.830" Score="4" Body="&lt;p&gt;One must first distinguish two different senses in which the Allais Paradox can be seen as a &quot;contradiction&quot; of vNM independence; these correspond to the two different interpretations which can be given to any model in Decision Theory. (von Neumann-Morgenstern (vNM) utility theory is one such model.)  According to the &lt;em&gt;descriptive&lt;/em&gt; interpretation, a model in Decision Theory is supposed to provide a description of how real, actual human beings actually make decisions.  According to the &lt;em&gt;normative&lt;/em&gt; interpretation, the model is supposed to tell us how an &quot;ideal rational agent&quot; &lt;em&gt;should&lt;/em&gt; make decisions.   To put it another way, the &lt;em&gt;descriptive&lt;/em&gt; interpretation matters to you if you are trying to construct a predictive model of insurance markets or financial markets or some other social phenomenon where people make risky decisions;  the &lt;em&gt;normative&lt;/em&gt; interpretation matters to you if you &lt;em&gt;yourself&lt;/em&gt; are making risky decisions, or if you are trying &lt;em&gt;advise&lt;/em&gt; someone who is making such decisions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Allais Paradox certainly falsifies the &lt;em&gt;descriptive&lt;/em&gt; interpretation of the vNM model; this simply means that, as a matter of empirical fact, most people (including, apparently, many economists) will choose &lt;strong&gt;1A&lt;/strong&gt; and &lt;strong&gt;2B&lt;/strong&gt;, which cannot be explained as maximizing the expected value of any possible vNM utility function.  Whether the Allais Paradox falsifies the &lt;em&gt;normative&lt;/em&gt; interpretation of the vNM model is a more subtle and controversial question. Basically it depends whether or not you think that {&lt;strong&gt;1A&lt;/strong&gt;, &lt;strong&gt;2B&lt;/strong&gt;} is really the &quot;correct&quot; answer.  Some people strongly feel that {&lt;strong&gt;1A&lt;/strong&gt;, &lt;strong&gt;2B&lt;/strong&gt;} is correct;  for them, this is evidence that vNM is &lt;em&gt;not&lt;/em&gt; the correct normative model of decision-making under risk.  Other people are initially tempted by {&lt;strong&gt;1A&lt;/strong&gt;, &lt;strong&gt;2B&lt;/strong&gt;}, but once they recognize that it is inconsistent with vNM, they are willing to &quot;bite the bullet&quot; and reject their own intuitions in favor of the theory;  their ultimate position is that the normative implications of vNM are counterintuitive, but correct.  (The fact that a theory has &quot;counterintuitive&quot; implications does not make it wrong;  modern physics is full of theories like this.  Indeed, there are even mathematical theorems which are &quot;counterintuitive&quot;, but evidently they are correct as a matter of logical necessity.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In your post, you wrote:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In fact, if all choices were approximately the same utility, the&#xA;  inconsistency would disappear (which seems entirely plausible to me).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I don't think &quot;approximately the same utility&quot; is good enough ---as long as the agent has &lt;em&gt;any&lt;/em&gt; nontrivial vNM utility function, the choice pattern {&lt;strong&gt;1A&lt;/strong&gt;, &lt;strong&gt;2B&lt;/strong&gt;} is impossible.  Perhaps what you mean is that the choice pattern {&lt;strong&gt;1A&lt;/strong&gt;, &lt;strong&gt;2B&lt;/strong&gt;} can be reconciled with vNM theory if the agent's vNM utility function is &lt;em&gt;trivial&lt;/em&gt; (i.e. constantly zero); in this case, the agent would be &lt;em&gt;indifferent&lt;/em&gt; between all possible lotteries.  As a purely mathematical point, this is correct. But it is not consistent with people's preferences; most people experience a &lt;em&gt;strict&lt;/em&gt; preference for &lt;strong&gt;1A&lt;/strong&gt; over &lt;strong&gt;1B&lt;/strong&gt;, and a &lt;em&gt;strict&lt;/em&gt; preference for &lt;strong&gt;2B&lt;/strong&gt; over &lt;strong&gt;2A&lt;/strong&gt;.  So we cannot &quot;explain away&quot; the paradox by positing trivial utility functions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your post ends with the question:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Is there another set of parameters, or another example entirely, which&#xA;  more convincingly shows an absurdity of the independence axiom, or are&#xA;  the parameters above as strong as it gets?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Perhaps you will be interested in the &lt;em&gt;Ellsberg Paradox&lt;/em&gt;.  (I won't bother including a complete description here, since there is a very nice Wikipedia article about it.)  The Ellsberg Paradox differs from the Allais Paradox in that the probabilities of certain events are left unspecified;  the decision-maker must construct her own &quot;subjective probabilistic beliefs&quot; about these events.  But the interesting fact is that there is &lt;em&gt;no&lt;/em&gt; set of &quot;subjective probabilistic beliefs&quot; which can explain the pattern of choices most people make in the Ellsberg Paradox.  So it definitely falsifies the &quot;descriptive&quot; validity of expected utility (EU) maximization as a model of human decision-making.  More importantly, it presents a strong challenge to the &quot;normative&quot; validity of EU-maximization;  even many economic theorists who &quot;bite the bullet&quot; in the Allais Paradox are willing to acknowledge that in the Ellsberg Paradox, the choice pattern which is inconsistent with EU-maximization is much more compelling than a choice pattern which &lt;em&gt;is&lt;/em&gt; consistent with EU-maximization.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, I should acknowledge that the Ellsberg Paradox is properly understood as a challenge to EU-maximization in a setting of &quot;ambiguity&quot; (where probabilities are not known &lt;em&gt;a priori&lt;/em&gt;), whereas the Allais Paradox is already a challenge to EU-maximization even in a setting of &quot;risk&quot; (where all probabilities are known).  It is a perfectly consistent position to accept the vNM axioms in a setting of risk (and hence, &quot;bite the bullet&quot; in the Allais Paradox), while rejecting EU-maximization (i.e. rejecting the Savage Theorem) in a setting of uncertainty.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another, entirely different normative challenge to vNM independence arises in a setting of social choice.  Suppose that you have an indivisible resource (e.g. a hard candy), which you must allocate to one of two claimants (e.g. two children, Alice and Bob).  Suppose that, &lt;em&gt;a priori&lt;/em&gt;, both claimaints have an equal claim to the resource (they are equally deserving, equally hungry, etc.).  The resource is indivisible, so you can't &quot;split&quot; it between the two claimants.   Question:  should you allocate the resource by some random mechanism (e.g. by flipping a fair coin)?  Or should you allocate it by some deterministic mechanism (e.g. give it to the older child, or the one whose name comes first in alphabetical order, or the one who is standing further to the left at the moment the decision is made)?   Most people have a strong intuition that a random mechanism is more &quot;fair&quot; than a deterministic mechanism.  So they prefer to randomize.  But at the same time, they are indifferent between giving the resource to Alice and giving it to Bob (recall: Alice and Bob are equally deserving of the resource).  So if &lt;strong&gt;A&lt;/strong&gt; is the outcome &quot;give it to Alice&quot;, and &lt;strong&gt;B&lt;/strong&gt; is the outcome &quot;give it to Bob&quot;, then we have a situation where the decision maker is &lt;em&gt;indifferent&lt;/em&gt; between &lt;strong&gt;A&lt;/strong&gt; and &lt;strong&gt;B&lt;/strong&gt;, but &lt;em&gt;strictly prefers&lt;/em&gt; the lottery (1/2 &lt;strong&gt;A&lt;/strong&gt;, 1/2 &lt;strong&gt;B&lt;/strong&gt;) to either &lt;strong&gt;A&lt;/strong&gt; or &lt;strong&gt;B&lt;/strong&gt;.  Clearly, this normative position cannot be explained by the vNM theory.  This is sometimes called the &lt;em&gt;Diamond Paradox&lt;/em&gt;, since it was originally pointed out in a 1967 article by Peter Diamond.&lt;/p&gt;&#xA;" OwnerUserId="8759" LastActivityDate="2017-09-14T08:16:24.830" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18280" PostTypeId="2" ParentId="18275" CreationDate="2017-09-14T08:38:56.687" Score="2" Body="&lt;p&gt;The statement&#xA;&quot;In the short run, only the minimum point on the SRAC curve is productively efficient&quot;&#xA;is false.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose producing 1 unit of a good costs 5 dollars. 2 unit costs 8, x&gt;2 units costs 5x. Clearly AC is minimal if you produce 2 units. &#xA;But perhaps I do not want two units of the good, only one. Why spend the extra 3 dollars on the second good? Producing only 1 unit is also efficient in this case.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that this does not contradict your definition&#xA;&quot;The definition of productive efficiency is that any given output is produced for the lowest possible cost.&quot;&#xA;The given output is 1 unit, and it is produced for 5 dollars, not 7 or 8, so there is no waste. Your definition does not say anything about per unit costs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My example is also consistent with the definition of &lt;a href=&quot;https://en.wikipedia.org/wiki/Productive_efficiency&quot; rel=&quot;nofollow noreferrer&quot;&gt;productive efficiency&lt;/a&gt; that I know.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Productive efficiency is a situation in which the economy could not produce any more of one good without sacrificing production of another good. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Sidenote:&#xA;&lt;br&gt; Perhaps you are confusing productive efficiency and &lt;a href=&quot;https://en.wikipedia.org/wiki/Minimum_efficient_scale&quot; rel=&quot;nofollow noreferrer&quot;&gt;minimum efficient scale&lt;/a&gt; of production?&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2017-09-14T08:50:31.390" LastActivityDate="2017-09-14T08:50:31.390" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="18281" PostTypeId="2" ParentId="18165" CreationDate="2017-09-14T09:41:42.080" Score="7" Body="&lt;p&gt;Exams from:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://economics.harvard.edu/pages/past-general-exams&quot; rel=&quot;noreferrer&quot;&gt;Harvard&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://economics.ucdavis.edu/graduate-program/current-students/past-preliminary-exams/prelims&quot; rel=&quot;noreferrer&quot;&gt;UC Davis&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://ocw.mit.edu/courses/economics/&quot; rel=&quot;noreferrer&quot;&gt;MIT&lt;/a&gt; (only problem sets; go to graduates).&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Although more cumbersome, you can also google something like &quot;advanced macroeconomics exams pdf&quot; or so, and you can discover personal pages of lecturers/professors that put up previous exams (or problem sets). For example, resources from a lecturer at &lt;a href=&quot;https://www.wifa.uni-leipzig.de/itvwl/makro/lehre/ss2017/am-ex2.html&quot; rel=&quot;noreferrer&quot;&gt;Leipzig&lt;/a&gt; (go to bottom of page), &lt;a href=&quot;http://www.uio.no/studier/emner/sv/oekonomi/ECON5300/&quot; rel=&quot;noreferrer&quot;&gt;Oslo&lt;/a&gt;, &lt;a href=&quot;http://karlwhelan.com/blog/?p=761&quot; rel=&quot;noreferrer&quot;&gt;Dublin&lt;/a&gt; (one exam only), &lt;a href=&quot;http://www.helsinki.fi/~ajripatt/opetus/index.html&quot; rel=&quot;noreferrer&quot;&gt;Helsinski&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-09-14T09:41:42.080" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18283" PostTypeId="2" ParentId="18274" CreationDate="2017-09-14T11:41:24.013" Score="1" Body="&lt;p&gt;&lt;strong&gt;Opinion&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the leak is close to a release date, I would say most of these are made on purpose, to feed expectations, leading to greater attention and publicity (and sales). I don't see how this can be negative for the company. In technological firms, most of the features are patent-protected so they cannot be copied anyway. However, if the leak were to happen long before a release, this could indicate rivals potential direction of own developments (either copying them or moving away/further than the competitors).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Research&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Maybe the question is related to the literature on &lt;a href=&quot;http://www.emeraldinsight.com/doi/abs/10.1108/VINE-01-2015-0009?journalCode=vine&quot; rel=&quot;nofollow noreferrer&quot;&gt;knowledge leakage&lt;/a&gt;, which relates to R&amp;amp;D, knowledge management, knowledge sharing, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One &lt;a href=&quot;https://www.researchgate.net/profile/Snejina_Michailova/publication/265296435_Knowledge_sharing_knowledge_leaking_and_relative_innovation_performance_An_empirical_study/links/546e55fa0cf29806ec2eb1b0/Knowledge-sharing-knowledge-leaking-and-relative-innovation-performance-An-empirical-study.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;recent paper&lt;/a&gt;  mentions some of the costs:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Knowledge leakage has various negative effects on&#xA;  firms,&#xA;  including loss of revenue, damaged reputation, loss of productivity&#xA;  and costs arising from breached confidentiality agreements&#xA;  (Ahmad et al., 2014). It also decreases bargaining power and even&#xA;  creates new competitors for the original knowledge owner&#xA;  (Baughn et al., 1997). Therefore, when an employee leaks knowl-&#xA;  edge that is rare, inimitable and non-substitutable, recovery from&#xA;  such leakage can be very challenging (Ahmad et al., 2014; Barney,&#xA;  1991, 1996).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The same paper states that :&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Firms traditionally attempt&#xA;  to protect their innovation-based competitive advantages with&#xA;  intellectual property rights (IPRs), trademarks, copyrights or other&#xA;  knowledge-protecting  mechanism&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I suggest you look into those references if you want to get further insights.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-09-14T11:41:24.013" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18284" PostTypeId="1" AcceptedAnswerId="18285" CreationDate="2017-09-14T12:44:30.050" Score="-1" ViewCount="75" Body="&lt;blockquote&gt;&#xA;&lt;p&gt;Oscar’s demand for movies is given by Q = 10−2P.&lt;/p&gt;&#xA;&lt;p&gt;(a) What is the price elasticity of demand at a price of 2? Is Oscar’s demand elastic or inelastic at a price of 2?&lt;/p&gt;&#xA;&lt;p&gt;(b) Assume that the price is 3. What is Oscar’s total expenditure on movies? What is the consumer surplus?&lt;/p&gt;&#xA;&lt;p&gt;(c) What is the price that maximizes Oscar’s total expenditure on movies? What is the price elasticity of demand at this price?&lt;/p&gt;&#xA;&lt;p&gt;(d) If the price increases from 1 to 2, does Oscar’s total expenditure on movies rise or fall? If the price rises from 3 to 4, does Oscar’s total expenditure on movies rise or fall?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="14524" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2017-09-14T17:37:51.733" Title="Microeconomics for demand" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="2" ClosedDate="2017-09-14T16:34:52.423" ContentLicense="CC BY-SA 3.0" />
  <row Id="18285" PostTypeId="2" ParentId="18284" CreationDate="2017-09-14T13:39:27.123" Score="-1" Body="&lt;p&gt;(a) Price elasticity is $\eta_d=\frac{\partial Q}{\partial P} \cdot \frac{P}{Q}$. Therefore you get $\eta_d=-2 \cdot \frac{2}{10-2\cdot2}= -\frac{2}{3}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(b) $Q=10-2 \cdot 3 = 4$. Total expenditure is $3 \cdot 4 = 12$. At a price of 5 units, there is no demand. The consumer surplus for linear demand functions follows $\frac{1}{2}\left(p_{max}-p\right)\cdot x$ with $p_{max}$ as the price where there is no demand. Consumer surplus therefore is $\frac{1}{2}\left(5-3\right)\cdot 4=4$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(c) Total expenditure $TR$ follows $TR=p \cdot x$. For maximizing $TR$ just derive it (and set it to zero) and you get $\frac{\partial TR}{\partial p}=\frac{\partial 10p-2p^2}{\partial p}=10-4\cdot p = 0$. This gives the value $2.5$ for $p$. On how to calculate elasticity see (a).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(d) Total expenditure for $p=1$ is $8 \cdot 1 = 8$, for $p=2$ it is $6 \cdot 2 = 12$. If price increases from 1 to 2, $TR$ increases. Look the result in (c), that $p=2.5$ maximizes $TR$. Therefore from $p=1$ to $p=2$, $TR$ has to increase. In equivalent, $TR$ has to decrease when price rises from $p=3$ to $p=4$.&lt;/p&gt;&#xA;" OwnerUserId="14304" LastActivityDate="2017-09-14T13:39:27.123" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="18287" PostTypeId="1" CreationDate="2017-09-14T14:47:08.100" Score="0" ViewCount="124" Body="&lt;blockquote&gt;Given an inverse demand function for hangars: $$P = 3 - \frac{Q}{16,000}$$ and constant marginal cost of $1$, what is the equilibrium price and quantity of hangars in a monopoly? &lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In a perfectly competitive market we need $P = MC$, which gives us an equilibrium price of $1$ and quantity of $32,000$. However, in a monopoly we need $MC = MR$, and in this case that equates simply to price = $1$. Then, the demand gives us, again, an equilibrium quantity of $32,000$. Am I making some mistake somewhere, or are the equilibrium prices and quantities in a monopoly and competitive market in this example equal simply by coincidence?&lt;/p&gt;&#xA;" OwnerUserId="14527" LastEditorUserId="2776" LastEditDate="2017-09-15T09:23:23.170" LastActivityDate="2017-09-15T16:02:43.653" Title="Simple equilibrium in monopoly question" Tags="&lt;monopoly&gt;&lt;competitive-equilibrium&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18292" PostTypeId="1" CreationDate="2017-09-15T05:25:49.403" Score="2" ViewCount="52" Body="&lt;p&gt;I have been searching for an article that I know exists, but somehow am unable to find.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The article is about an economic game where participants are assigned to a group, and can observe how much others have contributed to the common 'money pool.' According to the article, if people see the actual monetary amounts given by others, they will tend to like/not punish the person who has given the most. However, when they see the percentage of the incomes given to the money pool, and find out that the person who has given the most has actually given the least (percentagewise) from his income, they tend to severely punish him.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, the authors conclude that people care about ratios given by others.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I do not know exactly which economic game this is, but I am certain of having read this.&lt;/p&gt;&#xA;" OwnerUserId="14535" LastEditorUserId="2776" LastEditDate="2017-09-15T05:42:26.103" LastActivityDate="2017-10-15T09:53:57.630" Title="Looking for an article in Behavioral Economics about Inequality" Tags="&lt;reference-request&gt;&lt;behavioral-economics&gt;&lt;inequality&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="18293" PostTypeId="2" ParentId="18292" CreationDate="2017-09-15T09:00:08.873" Score="2" Body="&lt;p&gt;Although your description is very detailed, there is plenty of research on this topic. I think you are looking for this current published paper:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.researchgate.net/publication/315944588_Why_people_prefer_unequal_societies&quot; rel=&quot;nofollow noreferrer&quot;&gt;Starmans, Christina &amp;amp; Sheskin, Mark &amp;amp; Bloom, Paul. (2017). Why people prefer unequal societies. Nature Human Behaviour. 1. Article number 0082. doi:10.1038/s41562-017-0082.&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This paper covers the latest research about inequality. If its not the specific one you are searching for, please look at its 102 references and let us know.&lt;/p&gt;&#xA;" OwnerUserId="14304" LastActivityDate="2017-09-15T09:00:08.873" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18295" PostTypeId="2" ParentId="173" CreationDate="2017-09-15T12:33:01.357" Score="3" Body="&lt;p&gt;There is an amazing new working paper by Erik Reinhart and coauthors, titled &quot;&lt;em&gt;&lt;a href=&quot;https://developingeconomics.files.wordpress.com/2017/06/reinert-et-al-80-economic-bestsellers-before-1850-3.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;80 Economic Bestsellers before 1850: A Fresh Look at the History of Economic Thought&lt;/a&gt;&lt;/em&gt;&quot;. The work started in 1968 (!) and is soon to become a book. The paper focuses only on &quot;bestseller&quot; (apparently defined as number of copies produced/sold, albeit is not clear). The book is to include lesser known works.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some characteristics of the books included:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;one book printed in the  1400s,  4  books  published  in  the  1500s,  13  during  the  1600s,  46  during the 1700s, and 16 during the period from 1800 to 1848. &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The language distribution is as follows: &lt;/p&gt;&#xA;  &#xA;  &lt;ul&gt;&#xA;  &lt;li&gt;&lt;p&gt;4  books  were  originally  printed  in  Latin,  three  translated  from  ancient Greek authors Aristotle and Xenophon (I, II, IV) and one by a German (XXXIII Pufendorf)&lt;/p&gt;&lt;/li&gt;&#xA;  &lt;li&gt;&lt;p&gt;1 book was originally published bilingual, Latin and Italian (XXXI &#xA;  Belloni)&lt;/p&gt;&lt;/li&gt;&#xA;  &lt;li&gt;&lt;p&gt;2 books were originally published in Dutch &lt;/p&gt;&lt;/li&gt;&#xA;  &lt;li&gt;&lt;p&gt;2 in Spanish &lt;/p&gt;&lt;/li&gt;&#xA;  &lt;li&gt;&lt;p&gt;7 in German, of which one by an Austrian (XLV Sonnenfels) and one by a Swiss (XLI Hirzel)&lt;/p&gt;&lt;/li&gt;&#xA;  &lt;li&gt;&lt;p&gt;7 in Italian &lt;/p&gt;&lt;/li&gt;&#xA;  &lt;li&gt;&lt;p&gt;27 in English, of which 4 by Scots (XIX Law, XLVI Steuart, LIII Smith,  LXXI  McCulloch),  2  by  Welshmen  (XXX  Tucker,  LXVI Owen),  and  3  by  Americans  (XXXVII  Franklin,  LVIII  Paine,  LX Hamilton) &lt;/p&gt;&lt;/li&gt;&#xA;  &lt;li&gt;&lt;p&gt;30  in  French,  2  of  which  by  Germans  (XXXIX  Bielfeld  &amp;amp;  XLIII&lt;br&gt;&#xA;  Beausobre),  one  by  an  Italian  (XLIX  Galiani),  and  2  authors  hail from the Republic and Canton of Geneva (XXXVIII Rousseau, LI, LII, LV, LVII Necker)&lt;/p&gt;&lt;/li&gt;&#xA;  &lt;/ul&gt;&#xA;  &#xA;  &lt;p&gt;A main guideline  for  inclusion  has  been  if  the  author  is  included  in  the  1900-1901  edition of Palgrave’s Dictionary of Political Economy&#xA;   or similar works in other languages.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Some extracts:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The  most  successful  economics  publication  of  the  period  is  no  doubt  Benjamin  Franklin’s  Way  to  Wealth,  first  published  in  1757,  which  reached more than 1.100 editions before 1850. It is not a typical textbook of economics, but it is in many ways a handbook in capitalist ethics.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;We consider  it  an  important  achievement  that  this  publication  now  brings  to  the forefront the founders both of Italian and German economics, Giovanni Botero (V) and Veit Ludwig von Seckendorff (IX).&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;There are no Wikipedia entries  for  some  of  our  authors,  for  Culpeper  (VI),  Cary  (XVIII),  Gee  (XXVI), and Belloni (XXXI). It is worth noticing that, in addition to Culpeper, the only English economists who are not represented on Wikipedia are the two who most honestly explained English economic policy, e.g. (in the case of Gee) the prohibition of manufacturing in the colonies. For Herbert (XXXIII) Wikipedia has only name, dates, and the title of his book.  &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Data shows that the ideas of Adam Smith appear to diffuse &#xA;  more through French writers like Jean-Baptiste Say (LXV, LXVII, LXXII) &#xA;  and Droz (LXXIII) than through David Ricardo (LXIX), In fact Ricardo him-&#xA;  self,  in  the  translations  both  into  French&lt;br&gt;&#xA;  and  German,  was  published  ‘avec des notes explicatives et critiques, par M. Jean-Baptiste Say’. The first economics textbook with a truly global publication record, including Argentina and India, appears to be that of James Mill in 1821 (LXX).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The first 25 entries in the list of best-sellers are: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/lfcre.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/lfcre.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, the paper gives a reference to a 2006's German book called &quot;&lt;em&gt;&lt;a href=&quot;https://www.wbg-wissenverbindet.de/2444/Lexikon-oekonomischer-Werke&quot; rel=&quot;nofollow noreferrer&quot;&gt;Lexikon ökonomischer Werke ...&lt;/a&gt;&lt;/em&gt;&quot;, which Google translates as&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Encyclopedia of Economic Works: 650 pioneering writings from antiquity to the 20th century&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I cannot find a copy of it in English, but it looks like a super amazing book!&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-09-15T12:33:01.357" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18296" PostTypeId="2" ParentId="18220" CreationDate="2017-09-15T14:51:31.733" Score="2" Body="&lt;p&gt;&lt;a href=&quot;http://www.jstor.org/stable/pdf/2937865.pdf?refreqid=excelsior:3adaa806a3a46fc10d857d7d1856be53&quot; rel=&quot;nofollow noreferrer&quot;&gt;This is a paper&lt;/a&gt; using a competitive monopolistic framework (in GE). It is an old paper by Stratz (1989). Recent work with Stone-Geary preferences relates to the issue of structural transformation following the work of Herrendorf, Rogerson and Valentinyi (2013), although there is considerable debate on whether these preferences appropriately capture the data. All these papers have a representative consumer, with expenditure shares changing over time due to growth.&lt;/p&gt;&#xA;" OwnerUserId="14310" LastActivityDate="2017-09-15T14:51:31.733" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18297" PostTypeId="2" ParentId="18287" CreationDate="2017-09-15T16:02:43.653" Score="1" Body="&lt;p&gt;The monopolist solves,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\max \pi=R(Q)-C(Q)=P(Q)Q-C(Q)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The general solution is (if the problem is globally concave)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$MR(Q^*)=P'(Q^*)Q^*+P(Q^*)=C'(Q^*)$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since $P'(Q)&amp;lt;0$, notice that $MR(Q)&amp;lt;P(Q)$ and, therefore, $Q^*&amp;lt;Q^{C}$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this example, we have $P(Q)=3-\frac{Q}{16000}$ and $C(Q)=Q$. Hence, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$MR(Q)=-\frac{1}{160000}Q+(3-\frac{Q}{16000})=1=MC(Q)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Rewritting, we get&#xA;$3-\frac{Q}{8000}=1$ or $Q=16000$. To compute the price simply substitute in the demand function and get $P(16000)=3-1=2&amp;gt;1$.&lt;/p&gt;&#xA;" OwnerUserId="14310" LastActivityDate="2017-09-15T16:02:43.653" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18298" PostTypeId="2" ParentId="173" CreationDate="2017-09-15T17:29:50.647" Score="3" Body="&lt;p&gt;In 350 BC Aristotle in his works politics II, part III wrote about the tragedy of the commons:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;That all persons call the same thing mine in the sense in which each does so may be a fine thing, but it is impracticable; or if the words are taken in the other sense, such a unity in no way conduces to harmony. And there is another objection to the proposal. For that which is common to the greatest number has the least care bestowed upon it. Every one thinks chiefly of his own, hardly at all of the common interest; and only when he is himself concerned as an individual.&#xA;  &lt;a href=&quot;http://classics.mit.edu/Aristotle/politics.2.two.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Aristotle, 350 BC, Politics, Translated by: Benjamin Jowett&lt;/a&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="12186" LastActivityDate="2017-09-15T17:29:50.647" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18299" PostTypeId="1" AcceptedAnswerId="18304" CreationDate="2017-09-15T18:58:31.643" Score="0" ViewCount="146" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;In a two-period lived economy, one consumer wishes to buy a TV set in period 1. The consumer&#xA;  lives for two periods, and is willing to pay a maximum price of $100 per period of TV usage. In&#xA;  period 2, two consumers (who live in period 2 only) are born. Each of the newly born consumers is&#xA;  willing to pay a maximum of fifty dollars for using a TV in period 2. Suppose that in this market&#xA;  there is only one firm producing TV sets, that TV sets are durable, and that production is costless.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;(a) Calculate the prices the monopoly charges for TV sets in periods 1 and 2.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;(b) Answer the previous question assuming that in the first period, a consumer who lives two&#xA;  periods is willing to pay no more than twenty dollars per period for TV usage.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My attempt&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For this I consider cases whether person 1 buys tv in period one or not.&#xA;If he not buys then monopolist sell tv to other person for 50 yielding profit of 100 but also he can charge 100 for person 1 so total profit is 200. So my question is whether he charge 50 or 100 from person 1 as there is not given about price discrimination.&#xA;Also if he buys tv in period 1 then 100 for second period person is same but then how to calculate it for period 1 price is it 150 or 100 as person 1 not want to give more than 100 for period.&lt;/p&gt;&#xA;" OwnerUserId="14541" LastEditorUserId="2776" LastEditDate="2017-09-15T18:59:29.363" LastActivityDate="2017-09-16T05:16:39.353" Title="Exercise about Monopoly price charging" Tags="&lt;game-theory&gt;&lt;monopoly&gt;&lt;extensive-games&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18301" PostTypeId="2" ParentId="18233" CreationDate="2017-09-15T20:35:23.537" Score="4" Body="&lt;p&gt;Population Regression Function (PRF) is the relation between conditional expectation of population $Y_{i}$ conditional on population $X_{i}$, versus the corresponding $X_{i}$, which is also a random variable (to be precise, a matrix of random variables) with some specific given values, say $x$, that is, $E(Y_{i}|X_{i}=x)= f(X_{i})$, which is PRF. For linear regression, $f(X_{i})=\beta_{0}+\beta_{1}X_{i}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a specific value $X_{i}=x$ in population, there could be multiple corresponding $Y_{i}$. (Similarly, imagine when we have a sample dataset and we sort by $X$, we can find multiple corresponding $Y$). Thus, using the relation we get above, we have: $Y_{i}=E(Y_{i}|X_{i}=x)+\mu_{i}$ (Note: it's $\mu$, the deviation of population $Y_{i}$ from its conditional expectation value, rather than $\widehat{\mu }$, which is an estimated value from a specific sample). In other words, PRF captures the perfect, or ideal situation where if $X=x$ happens, we get $Y=y$. But remember both $Y_{i}$ and $X_{i}$  are random variables that may deviate from the perfect situation. Given $X_{i}=x$, the model uses an error term $\mu_{i}$ to capture the deviation caused by other random factors other than $X_{i}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sample Regression Function (SRF), on the other hand, is the estimated relation between estimated $Y_{i}$, denoted as $\widehat{Y_{i}}$, meaning it is calculated by SRF, that is, $\widehat f(X_{i})=\widehat\beta_{0}+\widehat\beta_{1}X_{i}$, and $X_{i}$. (Note that $X_{i}$ and $Y_{i}$ here are actual values from sample, rather than from population, although we usually use the same denotations). $\widehat\beta_{0}$ and $\widehat\beta_{1}$ mean they are calculated or estimated from sample, rather than the actual relation between population $Y_{i}$ and $X_{i}$. Also, $\widehat f(X_{i})$, $\widehat\beta_{0}$ and $\widehat\beta_{1}$ are estimated parameters/relation based on sample, in order to &quot;guess&quot; the true parameters/relation in population. The estimated error term $\widehat{\mu}$, is the difference between the sample $Y_{i}$ and the calculated value $\widehat{Y_{i}}$ using the model we specify, and is the estimator of population ${\mu}$.&lt;/p&gt;&#xA;" OwnerUserId="14540" LastEditorUserId="14540" LastEditDate="2017-09-15T23:36:04.340" LastActivityDate="2017-09-15T23:36:04.340" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18302" PostTypeId="1" AcceptedAnswerId="18303" CreationDate="2017-09-15T21:12:31.180" Score="1" ViewCount="146" Body="&lt;p&gt;I was wondering what would happen to aggregate capital, consumption and output (i.e. K, C, Y) in the Solow model with constant population growth (i.e. n &gt; 0) and no technological growth (i.e. a = 0) if TFP suddenly increases permanently at time $t_{0}$ (i.e. $A_{0}$ --&gt; $A_{1}$).  I am assuming that all three K, C, and Y will increase and converge to the new steady state level. But I wanted to know how it would adjust(i.e. would it be an instant increase or gradual increase from previous to new steady state level).&lt;/p&gt;&#xA;" OwnerUserId="14542" LastEditorUserId="14540" LastEditDate="2017-09-16T06:44:34.000" LastActivityDate="2017-09-16T20:57:38.233" Title="What happens to aggregate C, K, and Y when TFP increases permanently?" Tags="&lt;macroeconomics&gt;&lt;solow&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18303" PostTypeId="2" ParentId="18302" CreationDate="2017-09-15T22:58:30.933" Score="3" Body="&lt;p&gt;Take a look at the dynamics of the capital: &#xA;$k_{t+1}=sA_ty_t+(1-\delta-n)k_t$. A sudden positive shock to TFP in period $t$ increases the capital stock of the next period $k_{t+1}$. So, there is no contemporaneous effect on $k$, convergence to the new steady state will be gradual. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The other variables have contemporaneous relationship with TFP.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT: A google search for a good explanation lead me to lecture notes from MIT which you can find &lt;a href=&quot;https://ocw.mit.edu/courses/economics/14-05-intermediate-macroeconomics-spring-2013/lecture-notes/MIT14_05S13_LecNot_Int_Sol.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;. Start reading slide # 62+. You will see the graphical explanation as well. &lt;/p&gt;&#xA;" OwnerUserId="6009" LastEditorUserId="6009" LastEditDate="2017-09-16T20:57:38.233" LastActivityDate="2017-09-16T20:57:38.233" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="18304" PostTypeId="2" ParentId="18299" CreationDate="2017-09-16T05:16:39.353" Score="0" Body="&lt;p&gt;I do not understand your attempt very well. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assuming that the monopolist cannot directly price discriminate (i.e. charge different prices to old and new consumers in the same period), then in the second period it is optimal to offer a price of 50 and sell to everyone, regardless of whether the old guy bought or not. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Knowing this, the old guy would buy in the first period iff the price gives him a total surplus of 50 (which he can get by waiting). Hence, the initial price should be 150.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If, on the other hand, the old guy has a value of only 20, then in the second period the monopoly price would still be 50. Hence, the old guy has no surplus from waiting and the monopolist should charge 40 to him in the first period. &lt;/p&gt;&#xA;" OwnerUserId="14310" LastActivityDate="2017-09-16T05:16:39.353" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18305" PostTypeId="1" CreationDate="2017-09-16T12:23:28.340" Score="2" ViewCount="130" Body="&lt;p&gt;I have been doing some reading on general equilibrium theory and it has made me highly confused regarding the logic behind NK models. If I have understood correctly, NK models are based on Walrasian or Arrow-Debreu auctions where there is no role for money, banking or credit (since there is perfect barter in this world). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, in the NK framework the most commonly used methods for introducing money in to the model, is money-in-utility and cash in advance, but this seems very counter intuitive.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a world with perfect barter, clearly money provides no utility because it cannot be consumed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And since CIA imposes an additional restriction on consumers that was not present in the Arrow-Debreu world, are we not imposing a welfare reducing constraint?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand that in the real world money has many beneficial functions (store of value, removing double coincidence of wants etc etc). But in the Arrow-Debreu/Walrasian world it has no function. And since modern macro models are built around this, including money does not seem logical.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How can we use models to study the price level/inflation when the underlying theory has no logically consistent way of including money? I mean, I have nothing against the fact that money can provide direct utility or that CIA is a real life constraint. My question is on the theory side rather than the empirical side. &lt;/p&gt;&#xA;" OwnerUserId="11767" LastActivityDate="2017-09-16T12:23:28.340" Title="Money in New Keynesian models" Tags="&lt;general-equilibrium&gt;&lt;money&gt;&lt;theory&gt;" AnswerCount="0" CommentCount="6" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18306" PostTypeId="2" ParentId="13864" CreationDate="2017-09-16T14:48:24.147" Score="1" Body="&lt;p&gt;Your example does not contradict the theory.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Uncovered interest parity (UIP) indicates the &lt;strong&gt;degree and direction of movement of exchange rates in the long term&lt;/strong&gt; (though I see some economist supposes it's mid term). The intuition behind is that the currency of higher interest rate county has the expectation of depreciation in the future, to the percentage as the difference in the interest rates, to make arbitrage not profitable during a period of time. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Come back to your example. Given the foreign interest rate $R_{F}$ is 7% and and the domestic interest rate $R_{$}$ is 4% (less than 7%), the domestic currency (dollar) is expected to appreciate about 3% in the future according to the model, which is consistent with your calculation (from the current exchange rate $E_{F/$}^{c}$ 0.67 to the future exchange rate $E_{F/$}^{e}$ of 0.69, a 3% change). If the domestic interest rate $R_{$}$ is 8%, while the foreign interest rate $R_{F}$ is still 7% (now domestic interested rate is higher), it is expected that the domestic currency will depreciate for 1%, which is indicated by a change from 0.67 to 0.66.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This theory does not account for short term movement of exchange rate. The underlying assumption implied by this theory is that exchange rate is determined by capital flow, which is driven solely by interest rate spread, and it does not account for market impact of rate hike as well.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In addition, a interest rate hike, according to the theory, will change the direction of appreciation or depreciation only in the circumstance that it causes the interest rate spread to change direction, which means that a rate hike is not necessarily associated with appreciation or depreciation, but only the degree of appreciation or depreciation as the interest rate spread may increase or decrease under a rate hike.&lt;/p&gt;&#xA;" OwnerUserId="14540" LastEditorUserId="14540" LastEditDate="2017-09-17T12:05:55.610" LastActivityDate="2017-09-17T12:05:55.610" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18307" PostTypeId="1" CreationDate="2017-09-16T16:08:31.767" Score="-2" ViewCount="90" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Suppose that monopoly produces product $X$. Let $MC = 20$, Quantity demanded&#xA;  function is given by equation $Q_d = 600 - 2P$ (where $Q_d$ - demand curve, &#xA;  $P$ - price). Calculate the amount of production and the price in which the &#xA;  profit will be maximized.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;I'd like to know why is the following solution wrong:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$MC = 20 ,\ Q_d = 600 - 2P$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$(Q_d = AR $ &amp;amp; $ TR = Q*AR) \implies TR = Q*Q_d$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$TR = Q*(600-2P)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$TR = 600Q-2PQ + C$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$MR = \frac{\partial TR}{\partial Q} = 600 - 2P$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;since the profit is maximsed when $MR = MC$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$MR = MC$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$20 = 600 -2P \implies P = 290$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;since $Qd = 600-2P,$ &amp;amp; $ P^* = 290 \implies Q^* = 20$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;so the solution should be:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$&#xA;\left\{ &#xA;\begin{array}{c}&#xA;P^* =  290 \\ &#xA;Q^* = 20 \\&#xA;\end{array}&#xA;\right. &#xA;$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;But when we solved this task in classroom, the correct solution was:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$MC = 20 ,\ Q_d = 600 - 2P$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$Q_d = 600 - 2P \implies P=-\frac{Q_d}{2} + 300$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;since $TR = P*Q \implies TR = (-\frac{Q_d}{2} + 300)*Q = -\frac{Q_d^2}{2} + 300Q_d$ (I don't understand why the $Q = Q_d$ here)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;we know that the profit is maximsed when $MR = MC$, so:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$MR = MC$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$-Q+300 = 20 \implies Q = 280$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$P=\frac{Q_d}{2} + 300 \implies P = 160$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;so the solution is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$&#xA;\left\{ &#xA;\begin{array}{c}&#xA;P^* =  160 \\ &#xA;Q^* = 280 \\&#xA;\end{array}&#xA;\right. &#xA;$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why the answer is different when we solve this exercise in two different ways? What am I doing wrong in the first solution? Why is $Q_d = Q$?&lt;/p&gt;&#xA;" OwnerUserId="14546" LastEditorUserId="2776" LastEditDate="2017-09-18T18:58:34.503" LastActivityDate="2017-09-19T11:47:16.247" Title="Microeconomy, monopoly, maximum profit - two different answers when solving exercise in two different ways" Tags="&lt;microeconomics&gt;&lt;monopoly&gt;" AnswerCount="2" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="18310" PostTypeId="1" CreationDate="2017-09-16T21:18:04.740" Score="8" ViewCount="207" Body="&lt;p&gt;I'm currently making my way through Burdett and Mortensen's classic paper of on the job search. What should be an easy task of finding an expression for the reservation wage is made slightly more complicated by the presence of the max operator.  We are faced with the following Bellman equation for the value of a job paying a wage $w$. The bellman equations are standard. The value of a job paying $w$ consists of the wage $w$ plus the expected gain from searching and finding a better job discounted by the probability a job offer comes along $\lambda_1$ plus the loss of due to becoming unemployed when the job is destroyed at rate $\delta$. The value of unemployment $V_0$ consists of unemployment benefit $b$ plus the expected gain from becoming employed discounted by the probability an offer comes along $\lambda_0$. Note the probability an offer is made is different depending on whether someone is already employed or unemployed. The distribution of offers is given by $F$ \begin{equation} rV_1(w)=w+\lambda_1\bigg[\int \max\{V_1(w),V_1(\tilde{x})\}-V_1(w)\bigg]\;dF(\tilde{x})+\delta [V_0-V_1(w)]   \end{equation} \begin{equation}rV_0=b+\lambda_0 \bigg[\int \max\{V_0,V_1(\tilde{x})\}\;dF(\tilde{x})-V_0\bigg]\end{equation} Since $V_1(w)$ is increasing in $w$ and $V_0$ is independent of it we know a reservation wage exists such that if $w&amp;gt;R\implies V_1(w)&amp;gt;V_0$, $w&amp;lt;R\implies V_1(w)&amp;lt;V_0$ and $V_1(R)=V_0$. Standard arguments (integration by parts) shows that \begin{equation} R-b=(\lambda_0-\lambda_1)\int_R^\infty V_1'(\tilde{x})[1-F(\tilde{x})]\;d\tilde{x} \end{equation} from here I would like to take the derivative of the first equation and solve for $V_1'(w)$. However If I use &lt;a href=&quot;https://en.wikipedia.org/wiki/Leibniz_integral_rule&quot; rel=&quot;noreferrer&quot;&gt;Leibniz integration rule&lt;/a&gt; I need the integrand to be differentiable. The max of two continuous functions is usually not differentiable where they are equal so I have a problem. If I assume that I integrate over all $\tilde{x}\geq w$ then $V_1(\tilde{x})\geq V_1(w)$ (wage offers that will be induce a worker to switch jobs) and the result follows by Leibniz rule. But there are wages in the distribution that won't be accepted and this derivative wont hold. The derivative is \begin{equation} V'(\tilde{x})=\frac{1}{r+\delta+\lambda_1(1-F(\tilde{x}))} \end{equation} I imagine I'm missing something but I'm not sure what. If anyone could give me any advice I would really appreciate it. &lt;/p&gt;&#xA;" OwnerUserId="6966" LastEditorUserId="6966" LastEditDate="2017-09-17T13:48:17.583" LastActivityDate="2018-02-22T11:11:55.903" Title="Differentiation of the value function in Burdett Mortensen (1998)" Tags="&lt;labor-economics&gt;&lt;search-and-matching&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18311" PostTypeId="1" AcceptedAnswerId="18314" CreationDate="2017-09-16T22:29:19.620" Score="2" ViewCount="407" Body="&lt;p&gt;As far as I know, capitalism is based on competition: &#xA;If two(or more) companies produce similar products that compete against other, these companies are in a competition.&#xA;Because the objective of a company is to earn as much money as possible, the company will try to maximise the selling of their product. However, because normally there are more than a single company, every company has to sell their best possible product for the lowest price without making enough profit. That leads to a situation where the consumer gets a very good product for a very fair-realistic price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My problem here is, that this only works if every company only can make the decision about what price they make for what quality once. Like in the &lt;a href=&quot;https://en.wikipedia.org/wiki/Prisoner%27s_dilemma&quot; rel=&quot;nofollow noreferrer&quot;&gt;prisoner's dilemma&lt;/a&gt;.&#xA;The prisoner (the company) will (usually; if he is sane) make the decision to betray his member (-&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Game_theory&quot; rel=&quot;nofollow noreferrer&quot;&gt;Game Theory&lt;/a&gt;).&#xA;The point is the ideal strategy changes if this 'game' will be repeated forever (is identical to a situation where nobody knows, when the game ends). The strategy any sane prisoner would take is to not betray his gang-member, however, if his member betrays him he will betray him, too, until his member does not betray him anymore.&#xA;Because this is a simplified version of a real competition, real companies should act like the prisoners: make a high price until the competitor make a low price. However, no company would make a low price because although they would make better profit in short term, the company would make better in longterm if they made the unspoken deal with the other companies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So why is it not like this in real world, or is it like this and I haven't noticed that yet?&lt;/p&gt;&#xA;" OwnerUserId="14549" LastEditorUserId="2776" LastEditDate="2017-09-19T09:55:09.950" LastActivityDate="2017-10-28T00:31:02.583" Title="Why does competition work for capitalism?" Tags="&lt;game-theory&gt;&lt;competition&gt;&lt;capitalism&gt;" AnswerCount="3" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18312" PostTypeId="2" ParentId="18311" CreationDate="2017-09-17T03:40:03.147" Score="4" Body="&lt;p&gt;Competition &quot;works&quot; in capitalism in the sense that society, as a whole, is provided with the maximum possible quantity of goods for a price which gets close to the cost of producing the good.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Microeconomics&quot; rel=&quot;nofollow noreferrer&quot;&gt;Microeconomics&lt;/a&gt; studies how this works theoretically, and uses a series of &lt;a href=&quot;https://en.wikipedia.org/wiki/Microeconomics#Assumptions_and_definitions&quot; rel=&quot;nofollow noreferrer&quot;&gt;assumptions&lt;/a&gt; to make the &quot;mathematics&quot; simpler, such as that everyone in the market is rational (they want the maximum goods for the cheapest price), and that the goods are homogeneous (all the same, like potatoes in a veggies market for example).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To understand the benefits of competition, I'll compare a monopoly, where the company has a lot of power, to the perfect competition, where sellers have little power.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Selling water in the desert&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Imagine a seller of bottled water in the desert. Let's call her &lt;em&gt;Carmel&lt;/em&gt;. The seller has a cost of 1$ to buy the bottle and bring it to the desert. She also knows that 28 people pass the desert by day, and she made a study on how much each person would pay to buy water, what economists call demand. The results are here:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/ZHFBl.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/ZHFBl.png&quot; alt=&quot;Demand for bottled water in the desert at each price&quot;&gt;&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A quick read of the chart tells her that no one will buy water for a price higher than 14, and everyone will buy it at 1. We can read all the other quantities sold for prices between 14 and 1: for instance, at a price of 6, 18 people would buy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Knowing this, the water seller &lt;em&gt;Carmel&lt;/em&gt; calculates the profit at each quantity in a table:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/2NSGV.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/2NSGV.png&quot; alt=&quot;Profits for the sale of water bottles.&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;She starts selling water for 8$ a bottle the next day, making the maximum profit possible: 98 dollars. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;For that money, I can also sell water!&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;After a few days the word comes to the close-by village of &lt;em&gt;Oasisville&lt;/em&gt; that &lt;em&gt;Carmel&lt;/em&gt; is making 98$ a day selling water bottles to travelers in the desert. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Knowing that other travelers would buy bottle for lower prices, another seller decides to show up. Let's call her &lt;em&gt;Dromedaria&lt;/em&gt;. Dromedaria sets the price at 6, taking all the sales from Carmel. With the loss from buying the water bottles, Carmel sets the price at 2 the next day, taking all the sales from Dromedaria. They both undercut each others' prices until the price becomes close to 1. At the end all the travelers get water and the sellers get a small profit. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;When you think of the number of people benefiting from fresh water in the desert, the competition is giving a better outcome to society. This was achieved without government intervention (price setting), and is the simplified theoretical background for defending the free-market competition.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course this is a simplification, and in real life things would take more time, or they could collude, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Two additional points:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;The capitalism has as a key principle the freedom for sellers (capital owners) to freely trade at privately-set prices. Competition is just a consequence of that. The opposite would be a centralised pricing approach (planned economy), such as the USSR experienced in the after 1922&lt;/li&gt;&#xA;&lt;li&gt;Game theory would be the next step to try to predict what others do: how Dromedaria and Carmel would take each decision and react to each other's pricing&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="12304" LastEditorUserId="12304" LastEditDate="2017-09-19T04:02:23.473" LastActivityDate="2017-09-19T04:02:23.473" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="18314" PostTypeId="2" ParentId="18311" CreationDate="2017-09-17T07:46:24.293" Score="6" Body="&lt;p&gt;When two companies produce commodities and/or services that are &lt;em&gt;substitutes&lt;/em&gt; then they are simply producing for a market that allows the presence of two or more substitutes.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;...If two (or more) companies produce similar products that compete against other, these companies are in a competition&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Two firms do not necessarily compete with each other when they are supplying substitutes in the market. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What needs to be clear is that qualifying a market as &lt;em&gt;competitive&lt;/em&gt; amounts to making a series of statements about the way the participants in the market behave, their numbers, how potential new participants can interact with the market, the relevant time scale etc. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Narrowing the focus on two members of a market and claiming that they are in competition is not warranted by the assumptions. Nothing has been said about the structure of the market they are embedded in. They could eg be simply trying to flood the market with alternatives to a third commodity so as to narrow the market share of a third producer; the possibilities are really unbounded.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;...Because the objective of a company is to earn as much money as possible, the company will try to maximise the selling of their product.&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The objectives of firms are really as diverse as is the number of industries and producers immense. &quot;&lt;em&gt;Making money&lt;/em&gt;&quot; is not always a single operative constraint. Firms have a plurality of goals and obtaining liquidity is one of them. How binding that goal is depends on a host of issues like the market they are embedded in, the firm's size and relative position in the market, probably its access on financing etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Profit maximization is an assumption about the behavior of firms which is historically relevant and analytically useful but it is not always the case that firms are maximizing profits. They may be going for market share, or they may be simply optimizing some other metric. And, of course it could very well be the case that they are just winging it!&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;...However, because normally there are more than a single company, every company has to sell their best possible product for the lowest price without making enough profit...&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Again, this claim is not universally true. The number of firms in the market is not always a guarantee of '&lt;em&gt;quality&lt;/em&gt;' and '&lt;em&gt;affordability&lt;/em&gt;'. What matters is the cost structure of the industry, the technology and the assumptions about the market structure. Also, profits that vanish to zero is, again, a feature of the competitive model; not what '&lt;em&gt;really&lt;/em&gt;' obtains.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, as far as the '&lt;em&gt;Prisoner's dilemma&lt;/em&gt;' is concerned: In an one-shot game the &lt;em&gt;best&lt;/em&gt; thing to do is to '&lt;em&gt;defect&lt;/em&gt;'. In a repetitive setting, that is also open-ended (no predetermined end date) I think that anything goes. You would have to make more assumptions about the number of players and their strategies &lt;em&gt;over time&lt;/em&gt; (and in response to others') in order to arrive at definitive conclusions. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The short and non-definitive answer to the question of why don't firms collude when involved into price-competition with each other would be that there are laws that prevent them from that ie the fundamental cost structure of the game is different than what the '&lt;em&gt;dilemma&lt;/em&gt;' posits.&lt;/p&gt;&#xA;" OwnerDisplayName="user14471" LastEditorUserId="4251" LastEditDate="2017-10-28T00:31:02.583" LastActivityDate="2017-10-28T00:31:02.583" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18316" PostTypeId="1" AcceptedAnswerId="18324" CreationDate="2017-09-17T20:19:56.330" Score="3" ViewCount="1618" Body="&lt;p&gt;My question comes out of the context of the explanation for quotas in the textbook Macroeconomics, 4th edition by Paul Krugman. The explanation is for what could've happened had a quota on cab rides not been placed. In this explanation, the price of $5.50 is apparently the minimum price consumers are willing to offer:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Looking back at Figure 4-8, you can see that starting at the quota&#xA;  limit of 8 million rides, New Yorkers would be willing to pay at least&#xA;  $5.50 per ride when 9 million rides are offered. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In the next paragraph, there is another reference to the price as being the minimum that people were willing to pay:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The same is true for the next 1 million riders: New Yorkers would be&#xA;  willing to pay at least $5 per ride when the quantity of rides is&#xA;  increased from 9 to 10 million...&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Shouldn't this price be the maximum price that consumers are willing to pay for, instead of the minimum price, as the book suggests? Why would a consumer not want to pay less that $5.50$ dollars per ride, at $5.30$ dollars for example, if the same quantity of rides (9 million) is offered?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have included a copy of the diagram that is referenced, which I redrew. The x axis is quantity of cab rides per year, in millions of rides. The y axis is the fare price per ride. The green, orange and red lines are the demand, supply and quota restriction lines respectively. Please click to enlarge image.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/i9OU9.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/i9OU9.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="6782" LastEditorUserId="6782" LastEditDate="2017-09-17T20:25:41.817" LastActivityDate="2017-09-18T15:44:04.200" Title="Does a price on the demand curve represent the highest or lowest price the consumer is willing to pay?" Tags="&lt;supply-and-demand&gt;" AnswerCount="5" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18317" PostTypeId="2" ParentId="18316" CreationDate="2017-09-17T23:20:27.123" Score="-1" Body="&lt;p&gt;On an existing demand curve, yes. However, demand curves can move up and down laterally as well. This might be in response to an external shock such as a sudden perception that cabs are the cure for cancer. &lt;/p&gt;&#xA;" OwnerUserId="14553" LastActivityDate="2017-09-17T23:20:27.123" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18318" PostTypeId="1" AcceptedAnswerId="18323" CreationDate="2017-09-18T00:54:05.520" Score="2" ViewCount="236" Body="&lt;p&gt;I am interested in economics from the perspective of mathematical physics and complexity theory. An important set of systems in complex systems are systems that are Turing Complete and are cases of universal computation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This raises the issue of whether a virtual Turing Computer can be constructed in economics. Can accounting be considered a case of a universal computer? I find it interesting that the Ethereum cryptocurrency's support for smart contracts is Turing Complete. &lt;/p&gt;&#xA;" OwnerUserId="10583" LastEditorUserId="2776" LastEditDate="2017-09-18T09:50:28.307" LastActivityDate="2017-09-18T13:34:52.190" Title="Is economics Turing Complete?" Tags="&lt;mathematical-economics&gt;&lt;economic-methodology&gt;" AnswerCount="2" CommentCount="9" ContentLicense="CC BY-SA 3.0" />
  <row Id="18319" PostTypeId="2" ParentId="9158" CreationDate="2017-09-18T03:30:44.713" Score="2" Body="&lt;p&gt;Here are some references for a somewhat unsatisfying picture.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Rubinstein's lecture notes in microeconomic theory discuss a necessary condition for differentiability.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Debreu provided necessary and sufficient conditions for differentiability of demand functions. Unfortunately, they are not very intuitive.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Debreu, G. (1972). Smooth Preferences. Econometrica, 40(4), 603-615. &#xA;Debreu, G. (1976). Smooth Preferences: A Corrigendum. Econometrica, 44(4), 831. &lt;/p&gt;&#xA;" OwnerUserId="5635" LastActivityDate="2017-09-18T03:30:44.713" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18321" PostTypeId="2" ParentId="18316" CreationDate="2017-09-18T06:46:00.780" Score="2" Body="&lt;p&gt;The formulation quoted says:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;Looking back at Figure 4-8, you can see that starting at the quota limit of 8 million rides, New Yorkers would be &lt;strong&gt;willing to pay at least $5.50 per ride&lt;/strong&gt; when 9 million rides are offered.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note the bolded text. Assuming that a seller of rides can only charge one price regardless of which unit the seller is selling. The seller would then have to charge $5.50 if 9 million rides are to be sold. This price charged is the consumers' maximum willingness to pay for the 9th million unit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, buyers are willing to pay more for earlier units, that is why the demand curve is downward sloping. Hence, if the seller is able to perfectly price discriminate, that is set different prices for each ride based on the buyers' willingness to pay for that particular unit, (s)he could charge different prices for each ride. For example, if I read your graph correctly, the seller could charge $6 for the 8th million ride. The seller will still be able to sell 9 million rides, and the price will be &lt;em&gt;at least&lt;/em&gt; \$5.50 per ride. In fact, the only ride that will be sold for \$5.50 is the 9th million, all earlier rides will be sold at a higher price becaue the seller is charging exactly what the consumer is willing to pay for each individual ride.&lt;/p&gt;&#xA;" OwnerUserId="14135" LastEditorUserId="14135" LastEditDate="2017-09-18T07:39:54.243" LastActivityDate="2017-09-18T07:39:54.243" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18322" PostTypeId="2" ParentId="18318" CreationDate="2017-09-18T09:04:49.353" Score="4" Body="&lt;p&gt;I am not a CS guy so this answe may be flawed in many ways. Take it more as a long comment and please give some feedback.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Economists view Ethereum as a pure Arrow-Debreu market economy. In an AD economy you can write fully contingent contracts specifying commodity trades conditional on any future event at any particular date. Therefore, an AD economy is, by definition Turing complete. In that sense, for economists Ethereum is a cool implementation of an ideal but nothing new.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem is that, as Arrow himself recognized (but not Debreu!), this model of the economy is not realistic in any way because there are frictions to contracting, undescribable events, unawareness, asymmetric information, uninsurable risks, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At a more fundamental level, economics has another problem that seems to me to relate to the halting problem. if an economic system was decidable, then the agents in the economic model would have to either know the answer or not know the answer. In the former case, there would often be an eternal loop, since the answer to the problem would be part of the problem itself (this is the essence of the Lucas critique). If you assume they do not know the answer then you are imposing a certain rule on their actions that will not be universal and therefore would not allow for Turing completeness on the whole economy. &lt;/p&gt;&#xA;" OwnerUserId="14310" LastActivityDate="2017-09-18T09:04:49.353" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="18323" PostTypeId="2" ParentId="18318" CreationDate="2017-09-18T09:19:48.137" Score="4" Body="&lt;p&gt;According to &lt;a href=&quot;https://en.wikipedia.org/wiki/Vela_Velupillai&quot; rel=&quot;nofollow noreferrer&quot;&gt;Vela Velupillai&lt;/a&gt;, &lt;strong&gt;Orthodox Economic Theory is not Turing Complete&lt;/strong&gt;, because it is &quot;replete with uncomputabilites&quot;. On &lt;a href=&quot;https://www.math.tecnico.ulisboa.pt/~camado/eim2016/vela_JF.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;this&lt;/a&gt; 2009's article he states:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Economic theory, at every level and at almost all frontiers – be it microeconomics or macroeconomics, game theory or IO&#xA;  – is now almost irreversibly dominated by computational, numerical and experimental considerations. Curiously, though, none of the frontier emphasis from any one of these three points of view – computational, numerical or experimental – is underpinned by the natural algorithmic mathematics of either computability theory or constructive analysis. In particular, the much&#xA;  vaunted field of computable general equilibrium theory, with explicit claims that it is based on constructive and computable&#xA;  foundations is neither the one, nor the other. Similarly, Newclassical Economics, the dominant strand in Macroeconomics,&#xA;  has as its formal core so-called Recursive Macroeconomic Theory. The dominance of computational and numerical analysis,&#xA;  powerfully underpinned by serious approximation theory, is totally devoid of computable or constructive foundations.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The reasons for this paradoxical lack of interest in computability or constructivity considerations, even while almost the&#xA;  whole of economic theory is almost completely dominated by numerical, computational and experimental considerations,&#xA;  are quite easy to discern: the reliance of every kind of mathematical economics on real analysis for formalization. [...]&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Anyone with a modicum of expertise in recursion theory, constructive analysis or even nonstandard analysis in its constructive modes, would find, in any reading from these more algorithmically oriented perspectives, the citadel of economic theory, game theory and IO replete with uncomputabilities, undecidabilities and non-constructivities – even elements of incompleteness.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Section 2 of that paper explores some examples of uncomputability in economic theory.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This author is one of the leading figures in the field called &quot;Computable Economics&quot;, which is an attempt to produce Turing Complete economic theory.&#xA;In 2000 he compiled a &lt;a href=&quot;http://www.oxfordscholarship.com/view/10.1093/0198295278.001.0001/acprof-9780198295273&quot; rel=&quot;nofollow noreferrer&quot;&gt;book&lt;/a&gt; on the subject. There is also a 2009 &lt;a href=&quot;http://www.e-elgar.com/shop/computable-economics&quot; rel=&quot;nofollow noreferrer&quot;&gt;handbook&lt;/a&gt; of Computable Economics. The 2000's book opens with a quote that hints why Game Theory is not Turing Complete:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;[T]here are games in which the player who in theory can always win cannot do so in practice because it is impossible to supply him with &lt;em&gt;effective instructions&lt;/em&gt; regarding how he should play in order to win. Rabin (1957: 148; emphasis added)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Then, the authors state: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The key word is “effective,” referring to a procedure whose execution is specified in a finite series of instructions, each of which is finite in length and where all the details of the execution are specified exactly, thereby leaving no room for magic, miracles, or other such metaphysical entities. The exact meaning of “effecitivity” is mathematically equivalent, under the Church–Turing thesis, to “computability.”&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So, as I understand this, there are some games for which there is no algorithm that could help us &quot;compute&quot; such optimal wining strategy in practice. Hence, Game Theory is uncomputable, &lt;em&gt;ergo&lt;/em&gt; Turing incomplete. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Herbert_A._Simon&quot; rel=&quot;nofollow noreferrer&quot;&gt;Herbert Simon&lt;/a&gt; is perhaps the highest profile, relatively mainstream economist contributing toward Computable Economics. Actually, he got both the Nobel Prize in Economics and the &lt;a href=&quot;https://en.wikipedia.org/wiki/Turing_Award&quot; rel=&quot;nofollow noreferrer&quot;&gt;ACM Turing Award&lt;/a&gt; (regarded as the &quot;nobel prize for computing&quot;).&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-09-18T13:34:52.190" LastActivityDate="2017-09-18T13:34:52.190" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18324" PostTypeId="2" ParentId="18316" CreationDate="2017-09-18T11:37:39.090" Score="2" Body="&lt;p&gt;I am perfectly willing to pay &lt;strong&gt;nothing&lt;/strong&gt; to take a taxi ride in NY. If I were have to pay, I am willing to pay no more than \$5 for such ride. Therefore, I am not willing to pay \$10 for such a ride. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Add up the valuations of every other potential consumer of taxi rides in NY and you get the demand curve. Thus, this represents the &lt;strong&gt;maximum&lt;/strong&gt; price individuals are willing to pay.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regarding the apparently contradictory &quot;at least&quot; phrase in the second quote, this is consistent with the definition of demand. In effect, whilst the marginal consumer (the 10th million) is in fact willing to pay no more than \$5 for a ride, &lt;strong&gt;the other 9,999,999 consumer are willing to pay more than \$5&lt;/strong&gt; (for instance, the 8th million individual is willing to pay as much as \$6, whereas the 9th million consumer is willing to pay as much as \$5.5). Hence, strictly speaking it is correct to say that 10 million &quot;New Yorkers&quot; are willing to pay &lt;em&gt;at least&lt;/em&gt; \$5 for a ride. This is not a contradiction, but a use of terminology that refers to different groups of people.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-09-18T11:59:50.037" LastActivityDate="2017-09-18T11:59:50.037" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18325" PostTypeId="2" ParentId="18316" CreationDate="2017-09-18T12:23:47.673" Score="2" Body="&lt;p&gt;Of course everyone would be happy to pay less, but that's not exactly what is going on here. There are a few implicit assumptions going on in the supply and demand curves. &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;It's assumed that buyers will have internal utility functions determining their 'need', and the demand curve is an aggregate function representing the number of buyers that will be willing to pay at least that much. e.g. some buyers will not be willing to pay more than 5.30, some buyers will not be willing to pay more than 5.50, some buyers will be willing to pay up to 100.&lt;/li&gt;&#xA;&lt;li&gt;It is assumed sellers can only offer one price. So even though some buyers would be willing to pay exorbitant prices, sellers don't get to price according to any specific buyer.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;In this case, referencing the minimum is correct. The book is working a little bit counter-intuitively by increasing the supply and decreasing the price however the reverse is a bit more easy to grasp:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Each increase in price decreases the available population of potential riders as some buyers decide it is not worth it to take taxis anymore. Some buyers will still be willing to pay more (as should be obvious when the demand doesn't drop to 0 as the price is increased). So, at 5, 10 million New Yorkers are willing to pay &lt;em&gt;at least&lt;/em&gt; 5. However, some of the people willing to pay 5 are not willing to pay 5.50, so when the price goes up to 5.50 then 1 million buyers will drop out of the market leaving 9 million willing to pay 5.50 or more.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This naturally means the converse is true: if the price decreases some people that previously were not interested in taking taxis at the higher price will be okay to take the taxi at the lower price.&lt;/p&gt;&#xA;" OwnerUserId="2971" LastActivityDate="2017-09-18T12:23:47.673" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18326" PostTypeId="2" ParentId="10625" CreationDate="2017-09-18T12:32:20.047" Score="1" Body="&lt;p&gt;I want to provide a different perspective to those already presented, which is that of &lt;strong&gt;culture&lt;/strong&gt;. As you say, gold has almost no inherent value (at least it had little in the past, before the invention of electronics). However, cultural norms and customs give value to gold.&lt;/p&gt;&#xA;&lt;p&gt;An interesting example comes from 500's year old book &lt;em&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Utopia_(book)&quot; rel=&quot;nofollow noreferrer&quot;&gt;Utopia&lt;/a&gt;&lt;/em&gt;, by Thomas More, which describes an &amp;quot;ideal&amp;quot; (some might say totalitarian) society, without scarcity, poverty, conflict, &lt;em&gt;et cetera&lt;/em&gt;. This society disregards gold (and silver, diamonds, etc), partly by &lt;strong&gt;associating gold with slavery&lt;/strong&gt;.&lt;/p&gt;&#xA;&lt;p&gt;The context of the quotes below is that of a traveler who spent some time in Utopia, and describes such society to the reader. The quotes &lt;em&gt;in extenso&lt;/em&gt; (emphasis mine):&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;It is certain that all things appear incredible to us in proportion as they differ from known customs; but one who can judge aright will not wonder to find that, since their constitution differs so much from ours, their value of gold and silver should be measured by a very different standard; for since they have no use for money among themselves, but keep it as a provision against events which seldom happen, and between which there are generally long intervening intervals, &lt;strong&gt;they value it no farther than it deserves—that is, in proportion to its use&lt;/strong&gt;.  &lt;strong&gt;So that it is plain they must prefer iron either to gold or silver, for men can no more live without iron than without fire or water&lt;/strong&gt;; but Nature has marked out no use for the other metals so essential as not easily to be dispensed with.  &lt;strong&gt;The folly of men has enhanced the value of gold and silver because of their scarcity; whereas, on the contrary, it is their opinion that Nature, as an indulgent parent, has freely given us all the best things in great abundance, such as water and earth, but has laid up and hid from us the things that are vain and useless.&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;p&gt;“If these metals were laid up in any tower in the kingdom it would raise a jealousy of the Prince and Senate, and give birth to that foolish mistrust into which the people are apt to fall — a jealousy of their intending to sacrifice the interest of the public to their own private advantage.  &lt;strong&gt;If they should work it into vessels, or any sort of plate, they fear that the people might grow too fond of it&lt;/strong&gt;, and so be unwilling to let the plate be run down, if a war made it necessary, to employ it in paying their soldiers.  &lt;strong&gt;To prevent all these inconveniences they have fallen upon an expedient which, as it agrees with their other policy, so is it very different from ours [European kingdoms], and will scarce gain belief among us who value gold so much, and lay it up so carefully.&lt;/strong&gt;  They eat and drink out of vessels of earth or glass, which make an agreeable appearance, though formed of brittle materials; while they make their chamber-pots and close-stools of gold and silver, and that not only in their public halls but in their private houses.  &lt;strong&gt;Of the same metals they likewise make chains and fetters for their slaves, to some of which, as a badge of infamy, they hang an earring of gold, and make others wear a chain or a coronet of the same metal; and thus they take care by all possible means to render gold and silver of no esteem&lt;/strong&gt;; and from hence it is that while other nations part with their gold and silver as unwillingly as if one tore out their bowels, those of Utopia would look on their giving in all they possess of those metals (when there were any use for them) but as the parting with a trifle, or as we would esteem the loss of a penny!  They find pearls on their coasts, and diamonds and carbuncles on their rocks; they do not look after them, but, if they find them by chance, they polish them, and with them they adorn their children, who are delighted with them, and glory in them during their childhood; but when they grow to years, and see that none but children use such baubles, they of their own accord, without being bid by their parents, lay them aside, and would be as much ashamed to use them afterwards as children among us, when they come to years, are of their puppets and other toys.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;What this utopian example presents is an alternative cultural setting, one where gold is associated with deplorable things. In this setting gold would not act as a safe haven. Naturally, More is simplifying reality. For example, since other nations outside utopia value gold, holding gold reserves would actually act as accumulating a mean of payment, for example for imports. Still, I think this is a thought-provoking example of how the value society puts on gold might ultimately just be a &lt;strong&gt;cultural phenomenon&lt;/strong&gt;.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2017-09-18T15:16:56.883" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18327" PostTypeId="2" ParentId="9158" CreationDate="2017-09-18T13:34:12.480" Score="4" Body="&lt;p&gt;A continuous, transitive, complete, convex, and locally non-satiated preference on an open convex subset $V$ of some $\mathbb{R}^l$ has an $r$-times continuously differentiable utility representation with no critical points if and only if the space $I=\{(x,y)\in V\times V\mid x\sim y\}$ is a $C^r$-manifold.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This result is essentially Proposition 2.3.9. in the book &quot;The Theory of General Economic Equilibrium: A Differentiable Approach&quot; by Andreu Mas-Colell. Actually, the result there replaces convexity of $V$ and the preference relation to be represented by the weaker condition that all indifference curves are connected.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm not aware of any more elementary approach to the problem.&lt;/p&gt;&#xA;" OwnerUserId="1442" LastActivityDate="2017-09-18T13:34:12.480" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18328" PostTypeId="2" ParentId="18316" CreationDate="2017-09-18T15:44:04.200" Score="3" Body="&lt;p&gt;A distinction must be made between the individual demand curve and the aggregate demand curve.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;An individual demand curve (or demand schedule) for a product/service, represents the pairs {price, quantity demanded} that co-optimize the consumer's utility maximization problem&lt;/strong&gt; (together with all other quantities demanded of the other products that are present in the utility function).&lt;br&gt;&#xA;It may appear that then this would be the &quot;maximum&quot; price, but it would be confusing to characterize it like that. Because, if the price changes, what would happen to individual quantity demanded depends on whether the good is normal or not, and in general whether there are &quot;income-effects&quot; or not (not all utility functions allow for income effects, by the way).&lt;br&gt;&#xA;Moreover, at the individual level, the concept representing the consumer is quantity demanded, not price: the consumer observes prices and responds with quantity demanded.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's move now to the &lt;strong&gt;aggregate&lt;/strong&gt; demand curve. It is simply the sum of individual demand curves for each price. Here we have two alternative approaches:  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;a) The more &quot;traditional&quot; one is that &lt;strong&gt;all consumers have a non-zero demand schedule for all price levels&lt;/strong&gt;, each lowering its demand as price increases. Here the previous discussion applies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;b) The alternative but equally &quot;standard&quot; approach is to argue that &lt;strong&gt;for each consumer there exists a (possibly different) &quot;threshold&quot; price, above which the individual demands zero quantity&lt;/strong&gt;. So as price decreases, we imagine that &lt;em&gt;more consumers enter the market&lt;/em&gt; with non-zero demand, and this is why as price decreases aggregate quantity demanded increases.&lt;br&gt;&#xA;This approach implies that the price level in each price/quantity combination is the &lt;em&gt;minimum&lt;/em&gt; (&quot;at least&quot;) price for some consumers, while others would be willing to pay more (and so they have contributed positive quantity demanded for higher price levels).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I believe this is the approach taken by the textbook.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2017-09-18T15:44:04.200" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18329" PostTypeId="1" CreationDate="2017-09-18T16:29:44.270" Score="0" ViewCount="47" Body="&lt;p&gt;So I just want to make sure i got this right,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The national debt ceiling was suspended, i.e. the government can now freely spend until Dec.8, which they &quot;say&quot; was for providing $15bn in hurricane relief.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But lets face it, the treasury was running out of &quot;extraordinary measures&quot; to keep the debt below the ceiling, thus the extension. Source -&gt; &lt;a href=&quot;http://www.businessinsider.sg/us-debt-20-trillion-how-much-2017-9/?r=US&amp;amp;IR=T&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.businessinsider.sg/us-debt-20-trillion-how-much-2017-9/?r=US&amp;amp;IR=T&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The debt increased by 317 billion. But that aside, I want to get into the economics fundamentals. What does this mean for the dollar?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So foreign debt is increased, I am assuming the USD is going to plummet if expectations of quantitative easing to pay off the debt increases?&lt;/p&gt;&#xA;" OwnerUserId="12968" LastActivityDate="2018-06-30T02:06:34.873" Title="Extension on the suspension of national debt ceiling" Tags="&lt;government-debt&gt;&lt;quantitative-easing&gt;" AnswerCount="1" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="18330" PostTypeId="2" ParentId="18307" CreationDate="2017-09-18T18:11:55.247" Score="0" Body="&lt;p&gt;The reason why the answers are different is because the way you solved the for marginal revenue on your own includes &lt;span class=&quot;math-container&quot;&gt;$P$&lt;/span&gt; in your solution.&lt;/p&gt;&#xA;&lt;p&gt;The reason why this is problematic is because &lt;span class=&quot;math-container&quot;&gt;$MR=P$&lt;/span&gt; for a monopolist. You'll end up with some mathematically impossible statements when attempting to find the optimal quantity produced.&lt;/p&gt;&#xA;&lt;p&gt;I.e.&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$MR = \frac{\partial TR}{\partial Q} = 600 - 2P$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$MR = 600 - 2MR$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$ MR = 200$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;the monopolist prodouces where &lt;span class=&quot;math-container&quot;&gt;$MC=MR$&lt;/span&gt;  therefore&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\color{red}{20=200} $$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;As for the second point &lt;span class=&quot;math-container&quot;&gt;$Q_d$&lt;/span&gt; is &lt;span class=&quot;math-container&quot;&gt;$Q$&lt;/span&gt; because we can only have a single quantity supplied and demanded in equilibrium.&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2017-09-18T20:26:18.930" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18331" PostTypeId="1" AcceptedAnswerId="18332" CreationDate="2017-09-18T19:17:20.037" Score="3" ViewCount="36" Body="&lt;p&gt;I'm an econ noob so apologizes if this is a dumb question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm trying to find if there is categorization of a good that can be owned but is not consumed when used. Tools are an example of this. A hammer is owned and can be used repeatedly without diminishing it (I'm ignoring that it can break over long use). This is compared to a something that is owned but is consumed, like food or lumber or something that is public and is not consumed when used, like a park.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reason I'm interested in these goods is I want to determine what it means to fairly share goods of this type. I'm hoping knowing the what this type of good is called will help me search for work around it. &lt;/p&gt;&#xA;" OwnerUserId="14562" LastActivityDate="2017-09-18T19:50:54.803" Title="Type of good that can be owned but not consumed when used" Tags="&lt;self-study&gt;&lt;theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18332" PostTypeId="2" ParentId="18331" CreationDate="2017-09-18T19:50:54.803" Score="2" Body="&lt;p&gt;As I understand it, the best way to answer your question is to translate your description in to the language of economics and to understand the way that economists talk about these things.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To put this in to the language of economics, these would likely be &lt;a href=&quot;https://en.wikipedia.org/wiki/Durable_good&quot; rel=&quot;nofollow noreferrer&quot;&gt;&quot;durable goods&quot;&lt;/a&gt; with very low rates of depreciation. &lt;a href=&quot;https://en.wikipedia.org/wiki/Capital_good&quot; rel=&quot;nofollow noreferrer&quot;&gt;&quot;Capital goods&quot;&lt;/a&gt; (or just, capital) are a type of durable good. It is usually assumed that all durable good depreciate at least at some positive rate. This isn't a terrible assumption as, in your example, a hammer might rust over time---even if that time period is very, very long.&lt;/p&gt;&#xA;" OwnerUserId="59" LastActivityDate="2017-09-18T19:50:54.803" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18334" PostTypeId="1" CreationDate="2017-09-18T21:11:42.020" Score="1" ViewCount="344" Body="&lt;p&gt;I'm being asked to verify that two utility functions, $U(x_1,x_2)$ and $V(x_1,x_2)$ have the same indifference curves and the same MRS.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is no problem in verifying the MRS to be the same, but how can it be verified that the two utility functions have the same I.C.?&#xA;Should I assign a random level of utility and set them equal?&lt;/p&gt;&#xA;" OwnerUserId="14563" LastEditorUserId="1601" LastEditDate="2017-09-18T21:21:37.627" LastActivityDate="2017-09-18T21:56:38.493" Title="Verify Indifference curves of two utility function to be the same" Tags="&lt;microeconomics&gt;&lt;utility&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18335" PostTypeId="2" ParentId="18334" CreationDate="2017-09-18T21:56:38.493" Score="2" Body="&lt;p&gt;Here is a way to approach the problem:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An indifference curve is a set of consumption bundles all of which yield the same utility (the consumer being, of course, &lt;em&gt;indifferent&lt;/em&gt; to which she consumes). Nonetheless, the numerical level of utility is inconsequential, it is just a placeholder for the more fundamental (and ordinal) preference--any monotone transformation of a utility function represents the preferences. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So let $I_U(x_1,x_2)$ denote the indifference curve (of $U$) that contains $(x_1,x_2)$. That is $$I_U(x_1,x_2) = \{(x'_1,x'_2) \in X \mid U(x'_1,x'_2) = U(x_1,x_2)\}$$&#xA;Define $I_V$ in an analogous way.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So showing the indifference curves are the same amounts to showing $I_U(x_1,x_2)= I_V(x_1,x_2)$ for all $(x_1,x_2) \in X$. &lt;/p&gt;&#xA;" OwnerUserId="398" LastActivityDate="2017-09-18T21:56:38.493" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18336" PostTypeId="1" CreationDate="2017-09-18T22:02:25.610" Score="1" ViewCount="496" Body="&lt;p&gt;Firstly, I wanted to know if we may be consider as an externality, a situation such that a customer A bought a bike to a seller B, not properly checked - and which may provoke some accidents.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Obviously there is some damage here, not fixed by the price, because otherwise the bike would have been cheaper I guess, but is it not just an asymmetry information ? I am really hesitating.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, my two other questions are related to practical exercise:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;If I have a function such that $U(x_1,x_2)= C\ln(x_1-10)+D\ln(x_2)$. Can we agree on the fact that the function is NOT a Cobb-Douglas one? I thought that because if I take the exponential then I have something like $(x_1-10)^C(x_2)^D$ and although $C=D=1/2$, if I can increase by two $x_1$ and $x_2$ I don't double my utility. But don't know if that is enough to prove it.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Then in the second part, it's about how to internalize the social cost of an externality in order to reach the optimum. The context is quite basic: I pollute the environment in order to produce something, that I sell to: $p$. The cost of polluting is $2q^2$. The individual inverse demand function is $p=-q +100$. I did the calculation in order to find in private optimum how much good will be produced, found the how much good will be produced in social optimum if we take in account the social cost of 10$ per unit.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Basically, I found that with private optimum we produce 20 and with social one, 18. Then, I don't manage to find if we may reach 18 (by computing the damage on the seller, we will receive for every product 10 dollars less) - the social preferred level of production - by creating a tax? I guess a pigouvian one. I know that implementing a tax is not always the best solution because sometimes the externalities can be internalize by one of the two sides less costly, but I'm quite lost.&lt;/p&gt;&#xA;" OwnerUserId="14564" LastEditorUserId="2776" LastEditDate="2017-09-19T07:49:31.190" LastActivityDate="2017-09-19T07:49:31.190" Title="Private and Social Optimum with externality in this example" Tags="&lt;public-economics&gt;&lt;social-welfare&gt;&lt;externalities&gt;&lt;optimal-taxation&gt;&lt;pigouvian-taxes&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18337" PostTypeId="1" AcceptedAnswerId="18383" CreationDate="2017-09-19T00:35:56.813" Score="3" ViewCount="6189" Body="&lt;p&gt;In the aftermath of the Second World War the USA organised the Marshall plan for the post-war reconstruction of Europe.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I take it this was actually a loan of some kind; on what kind of terms was the loan given? How long did it take a country, for example the UK or France to pay this off - or are they still paying it off? How much was the loan worth in real terms if the interest due on the loan was discounted? &lt;/p&gt;&#xA;" OwnerUserId="13857" LastEditorUserId="2776" LastEditDate="2017-09-21T10:32:01.477" LastActivityDate="2018-06-19T04:14:46.050" Title="Was the aid in the Marshall Plan a loan?" Tags="&lt;history&gt;&lt;credit&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18338" PostTypeId="1" CreationDate="2017-09-19T02:38:50.140" Score="1" ViewCount="169" Body="&lt;p&gt;Charles Kindleberger writes in the introduction to /The World in Depression/:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The imposition of tariffs should be expansionary for the importing country, if contractive for the countries losing export markets.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I am not sure if this is right. In the long run, shouldn't the effect of an import tariff lead to an appreciation of the real exchange rate as relative demand for domestic output increases? This appreciation would raise export prices and reduce import prices, undermining the effect of the tariff. However, isn't there also the effect of a tariff (in a large country) on the terms of trade, in which case a tariff allows a country to buy imports more cheaply, which could be expansionary?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Export subsidies should also lead to real appreciation in the long-run, raising export prices and undermining the effect of the subsidy. But here the terms of trade worsens by making exports relatively cheaper. So aren't export subsidies contractionary?&lt;/p&gt;&#xA;" OwnerUserId="14565" LastEditorUserId="2776" LastEditDate="2017-09-19T07:39:28.807" LastActivityDate="2017-09-19T07:39:28.807" Title="Under what conditions are tariffs or export subsidies expansionary?" Tags="&lt;international-trade&gt;&lt;exchange-rates&gt;&lt;international-economics&gt;&lt;tariffs&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18339" PostTypeId="1" AcceptedAnswerId="18419" CreationDate="2017-09-19T02:41:32.660" Score="3" ViewCount="4976" Body="&lt;p&gt;Simple everyday examples of violations of transitivity are not difficult to come up with, but I'm having trouble thinking of some for the completeness axiom.&lt;/p&gt;&#xA;&lt;p&gt;One possible formulation of the completeness axiom in plain English:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Given any two alternatives A and B, exactly one of the following is true: (1) I strictly prefer A to B; (2) I strictly prefer B to A; (3) I am indifferent between A and B.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;One example that I was hoping could work (but didn't) came from the book/movie &lt;em&gt;Sophie's Choice&lt;/em&gt;, where Sophie is made to choose between the following two alternatives:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;A: Send her son to the gas chambers (and her daughter to the children's camp).&lt;/p&gt;&#xA;&lt;p&gt;B: Send her daughter to the gas chambers (and her son to the children's camp).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;She is initially very reluctant to express a preference for either alternative. So one possible interpretation is that she is exactly indifferent between A and B. Another is that she does not obey the completeness axiom.&lt;/p&gt;&#xA;&lt;p&gt;However, she is then pressed further and told that if she doesn't choose, she'll simply be given alternative C: &amp;quot;Send both children to the gas chambers.&amp;quot;&lt;/p&gt;&#xA;&lt;p&gt;Faced with this alternative C that is clearly inferior to both alternatives A and B, she then does indeed choose one of the alternatives (B: Send her daughter to the gas chambers), hence strongly suggesting that she does indeed obey the completeness axiom.&lt;/p&gt;&#xA;&lt;p&gt;The above is of course merely my interpretation of the story in &lt;em&gt;Sophie's Choice&lt;/em&gt;. Maybe someone can give an alternative interpretation where the above turns out to be an example of the completeness axiom being violated.&lt;/p&gt;&#xA;&lt;p&gt;(One possibility might be along these lines: Sophie's preference relation is incomplete over {A,B}. When faced only with A and B, she doesn't prefer A to B, doesn't prefer B to A, and isn't indifferent between A and B. However, when given an additional option C that is vastly inferior to A or B and which she must default to in the absence of a choice, she now prefers B to A.)&lt;/p&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;For those who seem to believe the completeness axiom is inviolable and are  unaware that &amp;quot;within economic theory, criticism of the axioms of transitivity and completeness have quite a long history&amp;quot; (&lt;a href=&quot;http://www.hup.harvard.edu/catalog.php?isbn=9780674013803&quot; rel=&quot;nofollow noreferrer&quot;&gt;Putnam, 2002&lt;/a&gt;, p. 163), please see the following three examples of economists criticizing the axiom of completeness:&lt;/p&gt;&#xA;&lt;p&gt;Von Neumann and Morgenstern (1953, &lt;em&gt;Theory of Games and Economic Behavior&lt;/em&gt;, 3rd edition, p. 630):&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;The axiom (3:A)—or, more specifically, (3:A:a)—expresses the completeness of the ordering of all utilities, i.e. the completeness of the individual's system of preferences. It is very dubious, whether the idealization of reality which treats this postulate as a valid one, is appropriate or even convenient.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Aumann (1962, p. 446):&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Of all the axioms of utility theory, the completeness axiom is perhaps the&#xA;most questionable. Like others of the axioms, it is inaccurate as a description of real life; but unlike them, we find it hard to accept even from the normative viewpoint.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Anand (1987, p. 190):&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Whilst completeness is one of the first assumptions used in any&amp;quot; formal&amp;quot;&#xA;theory of rational choice, it is probably less acceptable as an axiom of&#xA;rationality than either transitivity or independence.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerDisplayName="user18" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2017-09-24T01:55:04.757" Title="Violation of completeness axiom (simple everyday examples)" Tags="&lt;decision-theory&gt;&lt;rationality&gt;" AnswerCount="5" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="18340" PostTypeId="2" ParentId="18339" CreationDate="2017-09-19T04:26:41.537" Score="0" Body="&lt;p&gt;Based on &lt;a href=&quot;http://gametheory101.com/courses/game-theory-101/the-completeness-axiom/&quot; rel=&quot;nofollow noreferrer&quot;&gt;gametheory101.com&lt;/a&gt;, &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In essence, the only thing completeness rules out is a “decline to state” option.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;If a refusal to state a preference or indifference would be the violation of the axiom, then you can use the example of &lt;strong&gt;a couple that refuses to answer to their family if they will marry or not&lt;/strong&gt;. They are not saying yes, no, or that they are indifferent - they are refusing to discuss the topic.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, you can always say that this &lt;em&gt;is&lt;/em&gt; indifference. That's what Tassos Patokos wrote in his book Internal Game Theory (&lt;a href=&quot;https://books.google.com.au/books?id=HuzOWSG9ME8C&amp;amp;pg=PT48&amp;amp;lpg=PT48&amp;amp;dq=game%20theory%20%22violation%20of%20completeness%22&amp;amp;source=bl&amp;amp;ots=O_534WjLIE&amp;amp;sig=lQVoZNK0cXm6rXKhGet2ULN3Q0c&amp;amp;hl=en&amp;amp;sa=X&amp;amp;ved=0ahUKEwiw6or2srDWAhUDTrwKHftnAfIQ6AEIJjAA#v=onepage&amp;amp;q=game%20theory%20%22violation%20of%20completeness%22&amp;amp;f=false&quot; rel=&quot;nofollow noreferrer&quot;&gt;pages 33-34&lt;/a&gt;).&lt;/p&gt;&#xA;" OwnerUserId="12304" LastActivityDate="2017-09-19T04:26:41.537" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18341" PostTypeId="1" AcceptedAnswerId="18344" CreationDate="2017-09-19T04:43:24.957" Score="2" ViewCount="57" Body="&lt;p&gt;Australia is now conducting &lt;a href=&quot;http://www.abc.net.au/news/2017-09-19/ive-sent-back-my-marriage-survey-forms-now-what/8943048&quot; rel=&quot;nofollow noreferrer&quot;&gt;a survey on same sex marriage&lt;/a&gt;, to decide if they take the vote to the parliament or not. Although it is called a survey, the population is treating it as a referendum. The government could decide on its own to legalize the same-sex marriage, the same way it decides on topics such as immigration laws. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are there any economic arguments that help a government to decide which topics are polled from the population and which are not?&lt;/p&gt;&#xA;" OwnerUserId="12304" LastActivityDate="2017-09-19T09:20:48.307" Title="What are the Economic reasons and explanations to make a referendum?" Tags="&lt;government&gt;&lt;political-economy&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18342" PostTypeId="2" ParentId="18339" CreationDate="2017-09-19T05:13:45.430" Score="2" Body="&lt;p&gt;Indifference is different from incompleteness. A good example is indecisiveness. &lt;a href=&quot;http://ai2-s2-pdfs.s3.amazonaws.com/7f0b/14ba84d0be551d2818dac236240202cfbda8.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Eliaz and Ok&lt;/a&gt; have a nice discussion. Suppose you want to buy holidays for your family. You know your wife prefers Bahamas to Florida to Paris. Since you do not care particularly about the destination, you choose trying to represent their preferences. If Bahamas and Florida are available, you will choose Bahamas. If Bahamas and Paris are available, you may choose either of the two. But if Paris and Florida are available, you may also choose either of the two (absent any intensity of preferences)!.&lt;/p&gt;&#xA;&lt;p&gt;Notice that you are not indifferent since if you strictly prefer Bahamas to Florida and you do not prefer Bahamas to Paris, you should strictly prefer Paris to Florida.&lt;/p&gt;&#xA;" OwnerUserId="14310" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2017-09-19T05:13:45.430" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18343" PostTypeId="2" ParentId="11994" CreationDate="2017-09-19T09:10:48.353" Score="2" Body="&lt;p&gt;The calculation of PPP is a very complex, resource consuming task. As you can imagine, coming up with a single number comparing countries relative purchasing power means many assumptions have to be taken (i.e there is a trade-off between realism and simplicity).&lt;/p&gt;&#xA;&lt;p&gt;The most comprehensive documentation relating the methodology behind PPP can be found in &lt;a href=&quot;https://ec.europa.eu/eurostat/ramon/statmanuals/files/WorldBank_ICP_Methodological_handbook_2005_EN.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;this World Bank website&lt;/a&gt;. Here I just give a brief idea of what's going on. Check the documentation for further clarity (particularly Chapter 4).&lt;/p&gt;&#xA;&lt;p&gt;The calculation of PPP goes in stages. First, data on prices of individual products within a &lt;em&gt;basic heading&lt;/em&gt; (a macro category, e.g. food) is computed. From here, relative prices for each product across two countries are computed, and aggregated at the &lt;em&gt;basic heading&lt;/em&gt; level using a geometric mean. An example is given in Table 1 of Chapter 4, copied below:&#xA;&lt;a href=&quot;https://i.stack.imgur.com/YCdfo.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/YCdfo.png&quot; alt=&quot;enter image description here&quot; /&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&lt;p&gt;Then, an important issue is product choice. Comparability depends on products being relatively homogeneous in both countries, so that table above can be filled in completely. This requires an adjustment for product quality when necessary (e.g. mobile phones), part of which is adjusted using hedonic regression (see page 15+ of Chapter 4). Additionally, products must be &lt;em&gt;representative&lt;/em&gt; on each country, simply defined as (see point 7 in Chapter 11 for a technical definition):&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;A representative product is one that is purchased in relatively large quantities in a country.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Several mechanism are used to adjust for imbalances among these two factors (including weights).&lt;/p&gt;&#xA;&lt;p&gt;The list of problems continues. Which price to include? As the documentation states:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;The price at which any single good or service is purchased is liable to vary considerably during the course of a year and also between different locations, especially in large countries. In these circumstances, the PPPs for individual products have to be defined as ratios of average prices.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Finally, Chapter 8 deals with Government services like health and education, There is a differentiation between &lt;em&gt;individual&lt;/em&gt; services (household consumed) and &lt;em&gt;collective&lt;/em&gt; services (public goods). Most of education and health as services provided to the individual is the former, whereas others like R&amp;amp;D in education and health is the latter. See Box 1 in Chapter 8 for a complete list.&lt;/p&gt;&#xA;&lt;p&gt;The valuation of these services is an issue. A quote &lt;em&gt;in extenso&lt;/em&gt; might help here:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Most of the individual and collective services produced by government are non-market services.   They are either provided free to individual households or the community as a whole or they are sold at artificially low prices that do not reflect their costs of production.   As there are no market prices the value of the government’s current expenditures on non-market services has to be estimated in the national accounts by the current value of the inputs used to produce them.  Similarly, as there are no market prices the PPPs also have to be estimated indirectly using other data.  The same problem arises when trying to measure changes in the prices of government services over time within a single country.&lt;/p&gt;&#xA;&lt;p&gt;The solution usually adopted in both international and intertemporal price and volume indices is to compare the prices and volumes of the inputs used in the production of non-market services instead of the prices and volumes of the outputs.  When the PPPs compare input prices the resulting expenditure data when converted into a common currency compare the volumes of the inputs used up in the production of non-market services in different countries.   &lt;strong&gt;Input volume indices inputs can provide close approximations to output volume indices but only if the ratios of outputs to inputs, i.e., productivity levels, are the same in different countries.    This may often not be case.&lt;/strong&gt;   PPPs based on input prices are therefore second best measures that are necessitated by the lack of output prices&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;See the chapter for more details.&lt;/p&gt;&#xA;&lt;p&gt;In conclusion, there is an attempt to provide homogeneity across goods and services. But there are many reasons why perfect comparability might not be achieved. In the case of government services, if inputs do not reflect outputs homogeneously across countries (partly due to productivity differences, as highlighted above), this will affect PPPs.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2019-10-27T13:55:39.523" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="18344" PostTypeId="2" ParentId="18341" CreationDate="2017-09-19T09:20:48.307" Score="2" Body="&lt;p&gt;Polling is expensive so only issues that a lot of people feel strongly about will get polled.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can imagine that every citizen $i$ would pay $r_i$ monetary units to have a certain policy changed. This number may also be negative to reflect that some people like the current policy better than the proposed change.&lt;br&gt;&#xA;Ideally the government would like to know $\sum r_i$, if its positive or negative. But I am sure there are also a lot of practical political considerations. However polling itself has a significant cost. Let us denote this by $C$. The government probably has some vague idea about $\sum r_i$. E.g. most people don't care about the color of chewing gum wraps, so the $\sum r_i$ for banning silver coloring is likely negligable. In this case a poll to determine the exact value would be wasteful as &#xA;$$&#xA;\sum r_i - C &amp;lt; 0.&#xA;$$&#xA;So when you pick something to poll it is probably a salient issue, something that a lot of people know about and have strong opinions about. As I said, I am sure that these considerations are usually secondary to political ones. &lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2017-09-19T09:20:48.307" CommentCount="11" ContentLicense="CC BY-SA 3.0" />
  <row Id="18345" PostTypeId="2" ParentId="14479" CreationDate="2017-09-19T09:29:34.580" Score="1" Body="&lt;p&gt;I do not know where you got the forecasts for GDP, but it is very likely they do not include a forecast on how PPPs are changing. As such, a computation of the rate of growth of GDP in 2005 PPP is a mreasure of &lt;strong&gt;real GDP growth&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence, what you want to do is to concatenate two series. For this, take the latest GDP &lt;strong&gt;level&lt;/strong&gt; of each country from the World Bank series in 2011 prices, and &lt;strong&gt;extend it&lt;/strong&gt; using the forecasted GDP &lt;strong&gt;growth rates&lt;/strong&gt; in 2005 prices, calculated from your database of forecast. Naturally you only want to forecast GDP for the years that are missing in the World Bank database. The reliability of this exercise depends on how outdated the forecasts from the 2005 database are.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-09-19T09:29:34.580" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18346" PostTypeId="2" ParentId="12486" CreationDate="2017-09-19T09:37:43.330" Score="0" Body="&lt;p&gt;Based on the &lt;a href=&quot;http://web.worldbank.org/WBSITE/EXTERNAL/DATASTATISTICS/ICPEXT/0,,contentMDK:22407349%7EmenuPK:6782529%7EpagePK:60002244%7EpiPK:62002388%7EtheSitePK:270065,00.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;official documentation&lt;/a&gt; from the World Bank (particularly Chapter 1):&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;A problem that has challenged economists comparing economies across national boundaries is that the GDP of a country is expressed in its national currency. This requires that national levels of GDP be converted to a common currency before the comparisons can be made. While exchange rates can be used for this conversion, analysts find these to be deficient because of the effect of non-traded goods and services, capital movements, and exchange market interventions. [...] The longstanding recognition of these deficiencies led to the development of Purchasing Power Parities (PPP) as a more appropriate currency converter to compare the GDP and its components across countries.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;The definition of PPP:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;The Purchasing Power Parity between two countries is the rate at which the currency of one country needs to be converted into that of a second country to represent the &lt;strong&gt;same volume of goods and services&lt;/strong&gt; in both countries.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;In more detail:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;A Purchasing Power Parity is a form of exchange rate based upon a comparison of prices between countries. The Big Mac Index compiled and published by the Economist is a widely known example of a PPP based on a single consumption item. The Big Mac Index is based on the comparison of its cost between countries compared to its cost in the US. A Big Mac in the Philippines, for example, cost 68 pesos in July 2004 compared to $2.90 in the US. In the Big Mac index, the ratio of the price in pesos divided by the US price is 23.5, and this figure is a basic example of a Purchasing Power Parity between the Philippines and the US. &lt;strong&gt;The ratio, 23.5, implies that 23.5 pesos have the same purchasing power as one US dollar.&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;p&gt;If one wanted to compare the Philippines economy with the US, the first step would be to convert the level of its GDP to the US dollar. If one were to use exchange rates, the procedure would be to divide the Philippines GDP by 55.3. If the PPP based on the Big Mac Index were used, the GDP of the Philippines would be divided by 23.5 which would nearly double the size of its economy compared to the exchange rate derived level.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Notice that the calculation of PPP is based mostly on &lt;strong&gt;market prices&lt;/strong&gt; (government services are normally based on cost of inputs though). As such, they indirectly incorporate valuation by consumers through the &lt;strong&gt;demand&lt;/strong&gt; for such goods. This is, it could be that prices of e.g. smartphones in China are much lower than in Europe because Chinese consumers value smartphones less (or have less income, another important component of the demand). So valuation of demand is reflected in PPP, through market prices.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2017-09-19T09:37:43.330" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18347" PostTypeId="2" ParentId="18311" CreationDate="2017-09-19T09:51:56.950" Score="-2" Body="&lt;p&gt;I want to provide a more political aspect to the discussion by differentiating between a market economy, i.e. an economy where competition through markets is the main mechanism of creation and distribution of wealth/income, and that of a capitalist economy, defined as one where the ownership of means of production (ultimately, financial capital and equity) is mainly exercises through public limited companies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think the distinction is relevant, both from a theoretical and historical point of view. Theoretically, a market economy can exist within a pluralist range of forms of production (for example, there is a thing called &lt;a href=&quot;https://en.wikipedia.org/wiki/Market_socialism&quot; rel=&quot;nofollow noreferrer&quot;&gt;Market Socialism&lt;/a&gt;). A market economy is perfectly compatible with a legal structuring of firms as cooperatives. Just look at how the other answers were silent to the legal organisation of firms.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Historically, because it is a misconception from the liberal and conservative defendants of capitalism (rooted surely in Adam Smith's conception of the Invisible Hand) that competition is a natural tendency within capitalism. Evidence indicates time and time again that capitalism engenders monopolies, oligopolies, and capture of political and cultural power. It is only organised labour movements plus state intervention (many times inspired on such movements, and not emerging from capitalists self-restrain and benevolence) which put checks on capital inherent desire for power and control.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, what I am saying is that, yes, competition works for market economies, &lt;strong&gt;but competition does not work for capitalism&lt;/strong&gt;.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-09-19T09:51:56.950" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18348" PostTypeId="2" ParentId="13192" CreationDate="2017-09-19T10:40:26.620" Score="1" Body="&lt;p&gt;Your three stage procedure is not correct. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In effect, since the data is already in USD, to apply PPP you need to revert it back into LCU (local currency units). That is your step 1. Have in mind this might introduce errors if the one you use is not the same the authors used. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, since wages are not for the same year, ideally you do need a proxy for &lt;strong&gt;wage growth&lt;/strong&gt; of each occupation, for each country and year, so that you can compute wages in LCU for the same year. You are attempting to do this in step 3 using GDP growth, which is not ideal (and the order is wrong too). I would rather use an inflation index. This is not ideal either, but the World Bank provides an homogenised one. Alternatively, you could get wage growth for occupational groups (or aggregate) from national statistical offices, but this is a time-consuming exercise.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;After putting wages into the same year, you proceed with step 2, where you convert LCU to USD PPP, using &lt;strong&gt;a common year&lt;/strong&gt;.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-09-19T10:40:26.620" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18349" PostTypeId="2" ParentId="18307" CreationDate="2017-09-19T11:47:16.247" Score="1" Body="&lt;p&gt;The reason your solution is wrong is because this assumption is wrong Qd =/= AR.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The comments from your question has already stated that point. But lets put it into perspective.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The way to arrive at Average Revenue (AR) is by taking Total Revenue dividing by the quantity you sold.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Total revenue is derived from the price per unit multiplying by the number of units you sold (quantity, Q)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Essentially, this becomes AR = (P*Q)/Q = P&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, AR = P&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now that we have established that, you can go on to use TR = Q*AR which will eventually bring you through the steps of the second solution which you went through in the classroom.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For your second question, I do not really get where the confusion is coming from where Qd = Q.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I assume you get confused because you wrote TR = P * Q&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But read out the whole expression to yourself, the expression is saying Total revenue is equals to Price multiplied by the Quantity sold (AKA quantity demanded)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;AND, the quantity demanded is a function of the price which is provided to you in the question, Qd = 600 - 2P&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So at a particular price (P), you have a particular quantity demanded (Qd) which leads you to a particular Total Revenue. The Qd is equal to Q then, in your terms. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope this helps!&lt;/p&gt;&#xA;" OwnerUserId="12968" LastActivityDate="2017-09-19T11:47:16.247" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18350" PostTypeId="2" ParentId="15292" CreationDate="2017-09-19T12:20:45.693" Score="0" Body="&lt;p&gt;Kshitiz is right. If you define &lt;em&gt;effective capital per worker&lt;/em&gt; as $\hat k(t) \equiv \dfrac{K(t)}{L(t)Z(t)}$, the equation for the dynamic of $\hat k(t)$ is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \dot {\hat k} (t) = s {\hat k}^a - (n+g+\delta){\hat k} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;from where you get the constant effective capital per worker in the steady state:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ {\hat k} = \left(\frac{s}{n+g+\delta}\right)^{1/(1-a)} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Intuitively, every period the marginal product of capital is increasing because of the exogenous expansion in $Z(t)$. In the standard Solow diagram with &lt;em&gt;capital per worker&lt;/em&gt; in the horizontal axis, this exogenous technical change means an outward expansion of the $y$ and $sy$ curves. This higher return to capital induces more investment and an expansion of capital per worker. As technical change occurs every period, this process continues forever.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-09-19T12:20:45.693" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18351" PostTypeId="1" CreationDate="2017-09-19T12:47:38.017" Score="5" ViewCount="200" Body="&lt;p&gt;In physics there is the concept of &lt;a href=&quot;https://en.wikipedia.org/wiki/Arrow_of_time&quot; rel=&quot;noreferrer&quot;&gt;arrow of time&lt;/a&gt;, which states that time only evolves in one direction (forward), and that this should be visible in the material world. As the Wikipedia article states (emphasis mine):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Physical processes at the microscopic level are believed to be either entirely or mostly time-symmetric: &lt;strong&gt;if the direction of time were to reverse, the theoretical statements that describe them would remain true&lt;/strong&gt;. Yet at the macroscopic level it often appears that this is not the case: there is an obvious direction (or flow) of time.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The emphasis above wants to highlight an important question, which I think it is pertinent to economics. Namely, if the direction of time were to be reversed, would the theoretical statements described by these models still hold? This is, are dynamic economic models time-asymmetrical or time-symmetrical? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, consider a Solow model. Is there an arrow of time in this model?  To put it differently, draw a Solow diagram of the accumulation of capital. Draw the path of the economy from A to B. Does this imply &lt;strong&gt;necessarily&lt;/strong&gt; a unidirectional time evolution?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This relates to the issue of irreversibility and determinism. If we use deterministic models (as the standard Solow), we can reconstruct &quot;back&quot; everything from &quot;the future&quot;. However, complex systems, where uncertainty and stochastic shocks prevails are by definition &lt;a href=&quot;https://en.wikipedia.org/wiki/Irreversible_process#Complex_systems&quot; rel=&quot;noreferrer&quot;&gt;irreversible&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As this article on the Chemistry Nobel prize winner &lt;a href=&quot;https://en.wikipedia.org/wiki/Ilya_Prigogine&quot; rel=&quot;noreferrer&quot;&gt;Ilya Prigogine&lt;/a&gt; states:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Prigogine contends that determinism is no longer a viable scientific belief: &quot;The more we know about our universe, the more difficult it becomes to believe in determinism&quot;. This is a major departure from the approach of Newton, Einstein and Schrödinger, all of whom expressed their theories in terms of deterministic equations. According to Prigogine, determinism loses its explanatory power in the face of irreversibility and instability.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Any hints of how this discussion translates into economics?&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2018-05-31T02:57:46.363" Title="Arrow of time and irreversibility in Economics" Tags="&lt;philosophy-of-economics&gt;" AnswerCount="2" CommentCount="4" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18353" PostTypeId="1" CreationDate="2017-09-19T13:36:31.483" Score="1" ViewCount="185" Body="&lt;p&gt;Question: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Suppose Mr X maximises his utility for two periods, his total utility is given by  log $c_1$ + $\beta$ log $c_2$ where $\beta$ $\in$ ( 0,1) and $c_1$ and $c_2$ are his consumption for period 1 and period 2 respectively. Suppose he earns a wage only in period 1 and it is given by W. He saves for the second period on which he enjoys a gross return of (1+r) where r &gt; 0 is the net interest rate. Suppose the government implements a scheme where T $\geq$ 0 is collected from agents ( this is also from Mr. X) in the first period and returns the same amount T back in the second period. What is the optimum T for which his total utility is maximised?.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;My working: I tried putting $c_2= [(M -  c_1- T ) ( 1 + r )] + T$ and plugged in the values that helps the consumer achieve optimum utility for the given budget constraint. Using the lagrangean method of optimisation I got the following &#xA;$$\frac{c_2}{\beta c_1} = 1+r$$ &#xA;Solving the budget constraint using this, I got $$ c_2=\frac{\beta[ M ( 1 + r) - Tr ]}{\beta+ 1}$$Next I tried differentiating $c_2$ with respect to T so as to find the optimum T that maximises $c_2$ and in turn the utility function. This method doesn't seem to work. Could somebody correct me ?. Thank you.&lt;/p&gt;&#xA;" OwnerUserId="14574" LastEditorUserId="14574" LastEditDate="2017-09-28T07:15:12.267" LastActivityDate="2017-10-01T01:32:34.753" Title="Intertemporal choice with no income flow in the second period" Tags="&lt;microeconomics&gt;&lt;utility&gt;" AnswerCount="0" CommentCount="8" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18355" PostTypeId="2" ParentId="1893" CreationDate="2017-09-19T17:31:01.640" Score="5" Body="&lt;p&gt;A &lt;a href=&quot;http://rooseveltinstitute.org/modeling-macroeconomic-effects-ubi/&quot; rel=&quot;noreferrer&quot;&gt;new report&lt;/a&gt; by the Roosevelt Institute answers exactly that using a Keynesian, Stock-Flow-Consistent model calibrated to the US. According to their result, when distributional changes are considered, &lt;strong&gt;an UBI would considerably stimulate the economy&lt;/strong&gt;. The Executive Summary reads:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;How would a massive federal spending program like a universal basic income (UBI) affect the macroeconomy? We use the Levy Institute macroeconometric &#xA;  model to estimate the impact of three versions of such an unconditional cash assistance program over an eight-year time horizon. Overall, we find that the economy can not only withstand large increases in federal spending, but could also grow thanks to the stimulative effects of cash transfers on the economy.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;We examine three versions of unconditional cash transfers: \$1,000 a month to all adults, \$500 a month to all adults, and a \$250 a month child allowance. For each of the three versions, we model the macroeconomic effects &#xA;  of these transfers using two different financing plans - increasing the federal debt, or fully funding the increased spending with increased taxes on households - and compare the effects to the Levy model’s baseline growth rate forecast. Our findings include the following:&lt;/p&gt;&#xA;  &#xA;  &lt;ul&gt;&#xA;  &lt;li&gt;&lt;p&gt;For all three designs, enacting a UBI and paying for it by increasing the federal debt would grow the economy. Under the smallest spending scenario, \$250 per month for each child, GDP is 0.79% larger than under the baseline forecast after eight years. According to the Levy Model, the largest cash program - \$1,000 for all adults annually - expands the economy by 12.56% over the baseline after eight years. After eight years of enactment, the stimulative effects of the program dissipate and GDP growth returns to the baseline forecast, but the level of output remains permanently  higher.&lt;/p&gt;&lt;/li&gt;&#xA;  &lt;li&gt;&lt;p&gt;When paying for the policy by increasing taxes on households, the  Levy model forecasts no effect on the economy. In effect, it gives to households with one hand what it is takes away with the other.&lt;/p&gt;&lt;/li&gt;&#xA;  &lt;li&gt;&lt;p&gt;However, when the model is adapted to include distributional effects, &#xA;  the economy grows, even in the tax-financed scenarios. This occurs because the distributional model incorporates the idea that an extra dollar in the hands of lower income households leads to higher spending. In other words,&#xA;  the households that pay more in taxes than they receive in cash assistance have a low propensity to consume, and those that receive more in assistance than they pay in taxes have a high propensity to consume. Thus, even when the policy is tax - rather than debt - financed, there is an increase in output, employment, prices, and wages.&lt;/p&gt;&lt;/li&gt;&#xA;  &lt;/ul&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-09-19T17:31:01.640" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18356" PostTypeId="1" CreationDate="2017-09-19T19:21:50.933" Score="4" ViewCount="34" Body="&lt;p&gt;I am reading through Carlstrom and Feurst's 1997 paper &lt;a href=&quot;http://faculty.wcas.northwestern.edu/~lchrist/papers/aeragency.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Agency Costs, Net Worth, and Business Fluctuations: A Computable General Equilibrium Analysis&lt;/a&gt; and had a question, although it could apply to other papers as well. In the paper the authors derive 9 equations that uniquely derive an equilibrium in their model. Then in the next section they run empirical tests by starting at a steady state and then hitting the system with productivity and wage shocks to see the dynamics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I am confused about:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The equations that uniquely describe the solution already have shocks in them, so I am a little confused about what the steady state in the empirics section is. Here is the best answers I could come up with: They taking out the shocks, deriving the steady state, and then seeing how the shocks will move the system away from the steady state and then back over time.&#xA;If anyone could confirm or deny this answer that would be great. This is a problem I have come across before when reading these papers with general equilibrium models with shocks. &lt;/p&gt;&#xA;" OwnerUserId="14578" LastEditorUserId="2776" LastEditDate="2017-09-20T08:56:14.157" LastActivityDate="2017-09-21T12:53:04.303" Title="Question regarding Carlstrom and Feurst (1997)" Tags="&lt;macroeconomics&gt;&lt;dynamic-programming&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18358" PostTypeId="5" CreationDate="2017-09-19T20:40:22.703" Score="0" Body="" OwnerUserId="8815" LastEditorUserId="8815" LastEditDate="2017-09-19T20:40:22.703" LastActivityDate="2017-09-19T20:40:22.703" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18359" PostTypeId="4" CreationDate="2017-09-19T20:40:22.703" Score="0" Body="the means by which a government adjusts its spending levels and tax rates to monitor and influence a nation's economy." OwnerUserId="8815" LastEditorUserId="8815" LastEditDate="2017-09-19T20:40:22.703" LastActivityDate="2017-09-19T20:40:22.703" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18360" PostTypeId="2" ParentId="18351" CreationDate="2017-09-19T21:07:37.287" Score="0" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Any hints of how this discussion translates into economics?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I think the short answer is that it doesn't.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is an old &lt;a href=&quot;http://socserv2.mcmaster.ca/%7Eecon/ugcm/3ll3/veblen/econevol.txt&quot; rel=&quot;nofollow noreferrer&quot;&gt;paper&lt;/a&gt; by Thorstein Veblen where he tries to explicate why economics is not an evolutionary science; what he means by '&lt;em&gt;evolutionary&lt;/em&gt;' is in a sense the opposite of what he calls the '&lt;em&gt;taxonomical&lt;/em&gt;' view of his contemporary economics (late 1800's) namely a theory based on cumulative causation and not on explanation with recourse to immutable '&lt;em&gt;natural&lt;/em&gt;' laws (in this paper he doesn't seem to deal with the 'mechanics' of selection, mutation etc but is more dedicated to the idea of change that happens over (long?) periods of time due to a sequence of causes).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This '&lt;em&gt;evolutionary&lt;/em&gt;' flavor of economics never came to fruition in the sense that it never made it in the curricula for undergraduate studies nor did it ever influence policy in a distinguishable manner. I'm using this evolutionary analogy because I think that in many ways time irreversibility, path dependence etc is about evolutionary processes. Economics has always been for the major part about guiding policy; to the extent that policy makers are to some degree accountable for their actions, they cannot recourse for advice to a theory that permits in principle 'one thousand roses to bloom'.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;'Non-linearity', 'time-irreversibility', 'complex systems' applications in economics are ideas that have their origins in attempts to tackle problems in an interdisciplinary manner. Their distinctive characteristic-if we're allowed to single one out-is their fundamental pluralism in methods and open-endedness in results. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Those characteristics are a no-go for economics for the simple reason that economics is politics disguised in formulas and politics is about conflict resolution.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In general if someone is interested in those themes they could look into &lt;a href=&quot;http://tuvalu.santafe.edu/~wbarthur/complexityeconomics.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;this&lt;/a&gt; or &lt;a href=&quot;https://en.wikipedia.org/wiki/Complex_adaptive_system&quot; rel=&quot;nofollow noreferrer&quot;&gt;this&lt;/a&gt; or &lt;a href=&quot;http://understandingsociety.blogspot.gr/2015/11/are-emergence-and-microfoundations.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;this&lt;/a&gt; for that matter.&lt;/p&gt;&#xA;" OwnerDisplayName="user14471" LastEditorUserId="4251" LastEditDate="2017-10-28T00:31:52.640" LastActivityDate="2017-10-28T00:31:52.640" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18361" PostTypeId="1" AcceptedAnswerId="18369" CreationDate="2017-09-19T21:29:15.770" Score="0" ViewCount="114" Body="&lt;p&gt;This question may require some explanation. Also, I'm way out of my depths so please let me know if this question is misguided.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The standard Leontief utility seems to assume the goods are consumed in order to create the output (think tires and wheels to create a car). For comparison, producer goods are not consumed to create the output and the time to create the output becomes interesting. Considering the time with the producer goods seems an interesting extension of Leontief utility. Specifically, if an agent has a bundle of goods for a time less than it takes to produce the output than the bundle should provide low utility and if the agent has a bundle of goods for more than the time to produce the good than the utility should be flat (until it could produce another output).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are you aware of any work that considers Leontief utility in reference to producer goods or that considers the time to produce the output as part of the utility?&lt;/p&gt;&#xA;" OwnerUserId="14562" LastActivityDate="2017-09-20T08:54:33.937" Title="Leontief utility with producer goods" Tags="&lt;microeconomics&gt;&lt;self-study&gt;&lt;theory&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18363" PostTypeId="1" CreationDate="2017-09-20T00:46:54.377" Score="12" ViewCount="1581" Body="&lt;p&gt;Probably the answer to this question is &quot;business as usual&quot;, but I've observed of late that the market for bicycles is pretty weird.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can buy a brand new factory-produced bicycle in the US (I'm really only talking about the US here) for anywhere from \$50 (when not on sale) to maybe \$10,000 (depending on where you want to draw the line between &quot;production&quot; and &quot;custom&quot; bikes).  Some of this difference is due to actual quantifiable value -- the more expensive bikes generally are lighter, handle better, have advanced features, and are marginally more durable (though the cheap bikes are remarkably durable).  However, much of the difference is clearly &quot;glitz&quot; -- the latest features, fancy (though oddly impractical) arrangements of spokes in the wheels, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;More to my point, however, is what happens to the value of a bike once you &quot;drive it off the lot&quot;.  A &quot;moderately priced&quot; bike (say \$500-1000) will lose (very rough figures -- I've not done any rigorous research) maybe 50% of its value each year, such that it's market value (if in perfect condition) is less than \$50 after 5 years.  The net result is that lower-end bikes are not deemed worth selling when unused, and they tend to accumulate (even worse than other possessions) in basements, garages, and backyard sheds.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I became involved in this &quot;market&quot; because I work with a small group which reconditions used bikes and distributes them to various charities (primarily Christmas Anonymous).  Our small group, consisting of about 8 active members working two afternoons a week 8 months out of the year, manages to rehabilitate 200-300 bikes a year.  But we get donations of at least twice that amount, with the surplus being sold for scrap.  Currently we have so many bikes that many must be stored outside, and it is somewhat disheartening to see, say, a very nice looking bike in good condition, which sold originally for maybe $800, standing in a field of weeds, rusting away.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So I get to thinking that there must be &lt;em&gt;some&lt;/em&gt; economic principle at work here, beyond simple supply-and-demand, to cause such a skewed market.  Why can something of such inherent value (and so highly valued by the purchaser when new) become valueless so rapidly?  But I admit that not only do I not have a clue what it might be, but I find myself failing to even describe my perplexity adequately.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What principles are at work here?  Is there anything &quot;interesting&quot; or instructive in the scenario?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(I'm guessing that many will instantly shout &quot;Technology!&quot; -- that technology makes last year's bike much less valuable -- question answered!.  But I've observed that &quot;technology&quot; is the last (or is it first?) refuge of scoundrel economists -- technology hardly ever has the economic effect claimed.)&lt;/p&gt;&#xA;" OwnerUserId="12218" LastEditorUserId="2776" LastEditDate="2017-09-20T09:09:02.357" LastActivityDate="2017-10-19T08:10:32.800" Title="Depreciation and second-hand markets for bicycles" Tags="&lt;microeconomics&gt;&lt;reference-request&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18365" PostTypeId="1" CreationDate="2017-09-19T19:40:59.050" Score="1" ViewCount="130" Body="&lt;p&gt;&quot;In drug price hearing, Congress tries to answer some basic questions&quot; - dateline June 2017 CNBC.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I order a brand name prescription that has no generic, that is still under patent protection, that is not an orphan drug from a large mail order pharmacy. I have been getting this same prescription for six years. The mail order firm buys direct from the manufaturer, adding their overhead and profit to the price and then is paid by (1) my direct payment and (2) payment from my drug prescription insurer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Over the past two years (in particular) the sum of payments (from 1 and 2 above) to the mail order pharmacy has varied substantially, and inconsistently (eg. increases and decreases) from a low of \$1400 to a high of \$2600 for the same 90 day order. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To be more specific in my question, why would a manufacturer price for a drug fluctuate as I describe. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;One area That I've not been able to research is if Insurances companies negotiate pricing with the manufacturer -- but if that is the significant factor -- it suggests that the negotiated pricing only holds for 90 days or so.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any insight would be helpful.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If their is a better place to ask this question, please suggest.&lt;/p&gt;&#xA;" OwnerUserId="14587" OwnerDisplayName="BobE" LastEditorUserId="8815" LastEditDate="2017-09-20T02:57:06.090" LastActivityDate="2017-09-20T09:57:06.937" Title="Why does the price for a prescription drug fluctuate?" Tags="&lt;health-economics&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="18367" PostTypeId="2" ParentId="18339" CreationDate="2017-09-20T07:20:09.857" Score="1" Body="&lt;p&gt;I assume you are talking about preferences?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In case you are talking about mathematical relations in general, $\geq$ in $\mathbb{R}^2$ is not complete, as neither $(0,1) \geq (1,0)$ nor the opposite holds.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In case you are talking about preferences or decision theory, I don't think you can come up with any examples that violate completeness. The issue is that there is a set of choices which can violate transitivity, but there are none for completeness. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If a preference ordering is not complete then we are unable to forecast your decision even with perfect knowledge of your preferences. Empirically this would mean that we forecast your choosing $A$, but you choose $B$ instead. Obviously we could correct for this by forecasting $B$, so next time you would have to choose $A$ or $C$ or some other alternative. Unfortunately this could also mean that you are indifferent between the choices and then your preferences would still be complete.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are some suggestions on how to deal with this: Perhaps if you are unable to make a choice, you do not have to make a choice. But this can be regarded as a regular alternative $D$, like all the others, and then the above reasoning applies. Perhaps you can choose more than one alternatives. Again, indifference and being unable to tell the difference would be indistinguishable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are probably some assumptions you could make on the preferences to solve this (e.g. all preferences are strict) but I cannot think of any that &lt;strong&gt;in my opinion&lt;/strong&gt; would be realistic.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2017-09-20T07:20:09.857" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18368" PostTypeId="2" ParentId="18363" CreationDate="2017-09-20T07:38:24.420" Score="4" Body="&lt;p&gt;Interesting observation. Perhaps a part of the answer lies in Akerlof's &lt;a href=&quot;http://www.econ.yale.edu/~dirkb/teach/pdf/akerlof/themarketforlemons.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;lemons' problem&lt;/a&gt;? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Admittedly judging the quality of a 2nd hand bike is easier than that of a car, but from what you're describing in the US there doesn't seem to be a well functioning market for 2nd hand bikes in the US. Moreover, bikes are becoming more and more like cars in that respect with all the gadgets and technology that one cannot fix in their own shed or backyard. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Perhaps it also plays a role that US citizens are not used to bikes and therefore have a harder time judging their quality (just guessing here, and perhaps stereotyping too much). Here in the Netherlands we seem to have a well-functioning market for them that serve all segments (including, I might add, a high theft rate), but everyone rides a bike here, so we should be better at judging their quality.&lt;/p&gt;&#xA;" OwnerUserId="12186" LastActivityDate="2017-09-20T07:38:24.420" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18369" PostTypeId="2" ParentId="18361" CreationDate="2017-09-20T08:09:32.620" Score="0" Body="&lt;p&gt;In microeconomics it is common to model utility decision between &lt;strong&gt;consumption&lt;/strong&gt; and &lt;strong&gt;leisure&lt;/strong&gt;. The latter refers to the time of a day the individual is not producing goods himself (if a yeoman producer) or to sell his labour in the market (a waged labourer). The productivity of the individual will affect how much it can produce (and earn) per unit of time. Therefore, time is directly incorporated into the model via productivity, which then affects the balance between consumption and leisure an individual will choose. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, consider a yeoman producer with the following utility function (yes, no Leontief, but makes the point):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ U(C,1-L) = C + a(1-L) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $L$ refers to the proportion of the day the individual is working ($L \in [0,1]$).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;He can produce with the following technology:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ Y = bL^h $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and consumes all what he produces: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$C = Y$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assuming the yeoman farmer is interested in maximising his utility, the unidimensional optimisation problem is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \text{max}_{_L} U(L) = bL^h + a(1-L) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first order condition is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{\mathrm{d}U}{\mathrm{d} L} = bhL^{h-1} - a = 0 $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, optimal proportion of time allocated to work is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ L^* = b^{\dfrac{1}{1-h}}\left(\frac{h}{a}\right)^{\dfrac{1}{1-h}} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Optimal consumption is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ C^* = b^{\dfrac{1}{1-h}}\left(\frac{h}{a}\right)^{\dfrac{h}{1-h}} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The effect of (labour) productivity on hours of work depending on the returns to scale of technology ($h$). You have that:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;if $h \in (0,1)$, a &lt;em&gt;ceteris paribus&lt;/em&gt; increase in $b$ means the individual works and consumes more.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;if $h &amp;gt; 1$, a &lt;em&gt;ceteris paribus&lt;/em&gt; increase in $b$ means the individual works and consumes less.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;if $h = 1$, productivity might not affect labour at all (but does affect consumption). In this case, there is a corner solution for labour ($L^*=1$ or $L^*=0$). I leave this as an exercise.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;So, you are concerned about  &quot;the time to produce output&quot;. Well, think of $b$ as an indication of &lt;strong&gt;how much time you can spend to produce a given amount of output with a fixed amount of labour&lt;/strong&gt;. As I indicate above, variations in $b$ have important consequences for $L^*$, $C^*$, and ultimately for maximum utility $U(C^*,L^*)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note: The specification I chose means the income and substitution effect arising from an increase in productivity ($b$) do not cancel each other. Other utility function (e.g. with $\ln C$) will mean $b$ does not affect $L$. I also leave this exercise to you.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-09-20T08:54:33.937" LastActivityDate="2017-09-20T08:54:33.937" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18370" PostTypeId="2" ParentId="18365" CreationDate="2017-09-20T08:15:43.167" Score="2" Body="&lt;p&gt;Prescription drug prices, like those of most other retail products, fail to satisfy the law of one price routinely. The most obvious observation is that prices differ across pharmacies at a given point in time (&lt;a href=&quot;http://www.nber.org/papers/w8548.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.nber.org/papers/w8548.pdf&lt;/a&gt;) but just like supermarkets give discounts, so do pharmacies. If you always buy from the same shop, you are bound to end up paying different amounts. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reasons for this are manifold. Different consumers have different abilities or willingness to store and buy large chunks when it is cheap and stochastic prices allows for price discrimination (see &lt;a href=&quot;http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.395.460&amp;amp;rep=rep1&amp;amp;type=pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Sobel 84&lt;/a&gt; for an early reference). The idea is simple. Myopic consumers arrive in each period and buy if $p&amp;lt;V$, then leave the market. Otherwise, they die. Strategic consumers have a valuation of $v&amp;lt;V$ but can wait if the price is above $v$. Firms compete in prices. In equilibrium, firms charge often $p=V$ to extract rents from myopic consumers but every now and then they offer $p&amp;lt;v$ to attract all strategic consumers looking for prices.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Competition between stores may also result in random prices in a standard consumer search framework. Finally, retail prices may change because manufacturers prices are also random as a way to discipline pharmacies by encouraging consumers to shop. &lt;/p&gt;&#xA;" OwnerUserId="14310" LastEditorUserId="14310" LastEditDate="2017-09-20T09:57:06.937" LastActivityDate="2017-09-20T09:57:06.937" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="18371" PostTypeId="1" CreationDate="2017-09-20T08:23:32.483" Score="1" ViewCount="69" Body="&lt;p&gt;Monthly savings plans in stocks or funds are typical investments for many people. On aggregate, these plans generate a large demand on the underlying assets, often around the end/beginning of a month.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;How do banks or fund managers handle these investments?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I assume two strategies, wich both seems to have problems:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;As monthly savings plans are often due at the end of the month, a financial institution buys the underlying assets within the first days of a month. This demand would drive stock prices at the beginning of a month, but this effect is not observable in empirical research.&lt;/li&gt;&#xA;&lt;li&gt;Financial institutions spread the buying of underlying assets. Therefore, they bear market-risk, as the claim of monthly savers on these assets is not covered by the bank/fund by actually holding these assets. I know, that this risk can be managed, but on aggregate, not all institutions can hedge their offered investment plans without holding any underlying asset.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="14304" LastActivityDate="2017-09-22T09:33:01.887" Title="Monthly savings plans" Tags="&lt;financial-economics&gt;&lt;stock-market&gt;&lt;investment&gt;&lt;asset-pricing&gt;&lt;saving&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="18373" PostTypeId="1" AcceptedAnswerId="18512" CreationDate="2017-09-20T09:34:47.093" Score="0" ViewCount="483" Body="&lt;blockquote&gt;&#xA;&lt;p&gt;If &lt;em&gt;u(x)&lt;/em&gt; is an ordinal utility function that represents the (weak) preference relation &lt;em&gt;R&lt;/em&gt;, then&lt;/p&gt;&#xA;&lt;p&gt;(a) any strictly monotonic transformation of &lt;em&gt;u(x)&lt;/em&gt; also represents &lt;span class=&quot;math-container&quot;&gt;$R$&lt;/span&gt;, &lt;em&gt;or&lt;/em&gt;&lt;/p&gt;&#xA;&lt;p&gt;(b) any monotonic transformation of &lt;em&gt;u(x)&lt;/em&gt; also represents &lt;span class=&quot;math-container&quot;&gt;$R$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;p&gt;Which is the right proposition, (a) or (b)?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;I thought that (b) is the right answer, but when I looked up various online sources I found both definitions, so I'm no longer sure.&lt;/p&gt;&#xA;&lt;p&gt;I thought (a) cannot be right, because the condition for a monotonic transformation is usually formulated as a conditional: F is a strictly monotonic transformation of u if the following holds: (1) if &lt;span class=&quot;math-container&quot;&gt;$u(x)&amp;gt;u(y)$&lt;/span&gt;, then &lt;span class=&quot;math-container&quot;&gt;$F(u(x))&amp;gt;F(u(y))$&lt;/span&gt;. But that doesn't deal with the case (2) &lt;span class=&quot;math-container&quot;&gt;$u(x)=u(y)$&lt;/span&gt;, which represents xIy. Wouldn't &lt;span class=&quot;math-container&quot;&gt;$F(u(x))&amp;gt;F(u(y))$&lt;/span&gt; be compatible with (1) and (2), but represent xPy? Thinking about it, however, it seems that the same as (1) with &amp;quot;greater than or equal&amp;quot; wouldn't do it either. Are the monotonicity conditions formulated as biconditionals? I'm confused.&lt;/p&gt;&#xA;" OwnerUserId="7648" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2017-09-30T12:55:18.547" Title="Ordinal utility and monotonic transformations" Tags="&lt;utility&gt;&lt;preferences&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="18375" PostTypeId="2" ParentId="15471" CreationDate="2017-09-20T14:44:31.100" Score="0" Body="&lt;p&gt;In your example, we have a &lt;em&gt;multi&lt;/em&gt;-&lt;em&gt;sector&lt;/em&gt; economy with (presumably)&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;a &lt;em&gt;farming&lt;/em&gt; sector&lt;/li&gt;&#xA;&lt;li&gt;a tractor producing sector (&lt;em&gt;manufacturing&lt;/em&gt;)&lt;/li&gt;&#xA;&lt;li&gt;transit/transportation sector (&lt;em&gt;services&lt;/em&gt;) &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Also, there (seem to be/) are two different types of labor available to the economy:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;em&gt;unskilled&lt;/em&gt; workers (farmers, factory workers) &lt;/li&gt;&#xA;&lt;li&gt;&lt;em&gt;skilled&lt;/em&gt; drivers (services sector)&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Inputs to each sector are not spelled out in detail but it wouldn't be far-fetched to assume that the &lt;em&gt;farming sector&lt;/em&gt; used &lt;strong&gt;land&lt;/strong&gt;, &lt;strong&gt;unskilled labor&lt;/strong&gt; and &lt;strong&gt;tractors&lt;/strong&gt;, while the &lt;em&gt;manufacturing sector&lt;/em&gt; used &lt;strong&gt;unskilled labor&lt;/strong&gt; and &lt;strong&gt;tractors&lt;/strong&gt; (let's assume-for the sake of the argument-that we are dealing with &lt;em&gt;special&lt;/em&gt; multipurpose tractors that can plough the land &lt;em&gt;and&lt;/em&gt; mine for ore...). As far as the services sector is concerned, we'll assume that it requires &lt;strong&gt;skilled labor&lt;/strong&gt; (drivers) and &lt;strong&gt;tractors&lt;/strong&gt; (... some &lt;em&gt;really&lt;/em&gt; multipurpose piece of machinery)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In all honesty, it is a daunting task to analyze this economy. I wouldn't know where to begin... So let's begin by writing down the production side of this economy:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The production function for the farming sector should look something like this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$Q^f = Q^f(T, H_u^f, M^f)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where the superscript $f$ denotes the &lt;em&gt;sector&lt;/em&gt; ('&lt;em&gt;f&lt;/em&gt;'-arming) and $T$ denotes &lt;em&gt;effective arable land area&lt;/em&gt; (in square km-we use no superscript to denote the sector it provides services to, since in our economy, the land is used productively only in &lt;em&gt;farming&lt;/em&gt;), $H_u^f$ is &lt;em&gt;unskilled labor&lt;/em&gt; (in thousands of man-hours per year) used in farming and $M^f$ denotes the &lt;em&gt;number of tractors&lt;/em&gt; used in the farming sector. Note that the number of man-hours used up in the farming sector can be also decomposed as $L_u^f \times e_u^f$ ie the &lt;em&gt;number of unskilled workers&lt;/em&gt; used ($L_u^f$) times the &lt;em&gt;average effective number of man-hours&lt;/em&gt; one worker puts in during a whole year ($e_u^f$). The &lt;a href=&quot;https://data.worldbank.org/indicator/AG.PRD.CREL.MT?locations=US&quot; rel=&quot;nofollow noreferrer&quot;&gt;output&lt;/a&gt; of the &lt;em&gt;farming&lt;/em&gt; sector is measured in billions of 'metric tons/tonnes' of grain &lt;em&gt;per&lt;/em&gt; year.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's turn our attention to the production side of the manufacturing sector:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$Q^m = Q^m(H_u^m, M^m)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Obviously, the superscript denotes the sector ('&lt;em&gt;m&lt;/em&gt;'-anufacturing) and $H_u^m$ and $M^m$ denote &lt;em&gt;hours of unskilled labor&lt;/em&gt; and &lt;em&gt;number of tractors&lt;/em&gt; used up in the production of the manufacturing sector, respectively. The &lt;a href=&quot;https://eh.net/encyclopedia/economic-history-of-tractors-in-the-united-states/&quot; rel=&quot;nofollow noreferrer&quot;&gt;output&lt;/a&gt; of the &lt;em&gt;manufacturing&lt;/em&gt; sector is thousands of 'tractors' per year.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, the &lt;em&gt;services&lt;/em&gt; sector has a production side that looks like this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$Q^s = Q^s(H_s, M^s)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the case of the &lt;em&gt;transportation/transit industry&lt;/em&gt;, the &lt;em&gt;labor&lt;/em&gt; input is dedicated &lt;em&gt;skilled&lt;/em&gt; labor ($H_s$ ie skilled labor that is solely used in the services sector-remember the model structure layout from the beginning).'&lt;em&gt;Transportations&lt;/em&gt;' also use '&lt;em&gt;tractors&lt;/em&gt;' ($M^s$-remember the highly versatile machinery we assumed this economy is endowed with, in the beginning of this note). The &lt;a href=&quot;https://data.oecd.org/transport/passenger-transport.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;output&lt;/a&gt; of the *services * industry is measured in millions of '&lt;em&gt;passenger km&lt;/em&gt;' per year.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now that we have presented the production side of each sector in the economy we will display the productive potential of the economy in a more compact form:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$Y_f = Q^f(T, H_u^f, M^f) + P^m\times Q^m(H_u-H_u^f, M^m) + P^s\times Q^s(H_s, Q^m(H_u-H_u^f, M^m)-M^f-M^m)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note how $Y_f$  is the &lt;em&gt;value&lt;/em&gt; of the economy's output measured in terms of the output of the '&lt;em&gt;farming&lt;/em&gt;' sector ie $P^m$ and $P^s$ are &lt;em&gt;relative&lt;/em&gt; prices ('&lt;em&gt;metric tons&lt;/em&gt;/&lt;em&gt;tonnes&lt;/em&gt; of grain per &lt;em&gt;tractor&lt;/em&gt;' and '&lt;em&gt;metric tons&lt;/em&gt;/&lt;em&gt;tonnes&lt;/em&gt; of grain per &lt;em&gt;passenger km&lt;/em&gt;'). Also note how the input of &lt;em&gt;unskilled labor&lt;/em&gt; in the &lt;em&gt;manufacturing&lt;/em&gt; sector has been replaced by $H_u^m=H_u-H_u^f$, that is to say, the manufacturing sector uses all the unskilled labor that is left over from the &lt;em&gt;farming sector&lt;/em&gt; (we assume that the stock of unskilled labor ($H_u$) is &lt;em&gt;fixed&lt;/em&gt; for the period of study). Additionally note that something similar happens to the input of machinery in the &lt;em&gt;transportation&lt;/em&gt; sector ie $M^s=Q^m-M^f-M^m$. Finally, note how the output of the &lt;em&gt;services&lt;/em&gt; sectors is dependent upon the output of the &lt;em&gt;manufacturing&lt;/em&gt; sector ($Q^m$ as an input in $Q^S$). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Before proceeding we'll make the following simplifying assumptions for our model: the effective land area that is available is constant over time ($T=\bar{T}$) ie there are no wars of conquest going on neither is there any technological improvement on the soil (no fertilizers, hybrids etc); the available unskilled and skilled labor force does not grow ie workers simply replenish their numbers and there is no productivity improvement ($H_u=\bar{H_u}$ and $H_s=\bar{H_s}$). Finally, there is only one variety of tractors produced and it is this model that is used in all relevant sectors of the economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is the description so far an accurate portrayal of the economy you have in mind?&lt;/p&gt;&#xA;" OwnerDisplayName="user14471" LastEditorUserId="4251" LastEditDate="2017-10-27T23:26:38.217" LastActivityDate="2017-10-27T23:26:38.217" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18376" PostTypeId="1" CreationDate="2017-09-20T17:34:52.610" Score="4" ViewCount="243" Body="&lt;p&gt;Science is full of apparent puzzles and &lt;a href=&quot;https://en.wikipedia.org/wiki/List_of_paradoxes&quot; rel=&quot;nofollow noreferrer&quot;&gt;paradoxes&lt;/a&gt;, some of which still remain unexplained. &lt;a href=&quot;https://en.wikipedia.org/wiki/List_of_paradoxes#Economics&quot; rel=&quot;nofollow noreferrer&quot;&gt;Economics&lt;/a&gt; is not an exception. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It would be interesting to get a list of  &lt;strong&gt;unresolved puzzles&lt;/strong&gt; in Economics. By unresolved I mean there is a considerable divergence of opinions and evidence on what explains the puzzle, or perhaps not sufficient evidence to provide a clear explanation to the puzzle.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As always with these type of question, one puzzle/paradox per answer would be ideal. When doing so, &lt;strong&gt;please back up your answer with references that certify that the issue is currently a puzzle/paradox among academics and researchers.&lt;/strong&gt; Resolved puzzles are off-topic (another thread for that might be appropriate).&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-09-22T14:29:48.803" Title="Unexplained economic puzzles?" Tags="&lt;reference-request&gt;&lt;research&gt;" AnswerCount="3" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18377" PostTypeId="2" ParentId="18376" CreationDate="2017-09-20T18:52:26.130" Score="0" Body="&lt;p&gt;A good one is where the equilibrium is on the laffer curve and thus what the level of taxation for a society should be.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://dqydj.com/laffer-curve-does-decreasing-taxes-increase-revenues/&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://dqydj.com/laffer-curve-does-decreasing-taxes-increase-revenues/&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If what you're looking for is all the unsolved questions in economics you're going to have a pretty long list.&lt;/p&gt;&#xA;" OwnerUserId="10245" LastActivityDate="2017-09-20T18:52:26.130" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="18381" PostTypeId="1" AcceptedAnswerId="18382" CreationDate="2017-09-21T07:37:56.823" Score="1" ViewCount="6459" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;If planned aggregate expenditure in an economy can be written as: PAE = 5000 + 0.8Y, what is the income-expenditure multiplier in this economy?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;My Attempt:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;Y = 5000 + 0.8Y&#xA;Y - 0.8Y = 5000&#xA;0.2Y = 5000&#xA;Y = 25000&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Since the marginal propensity to consume (MPC) is equal to ΔC / ΔY, where ΔC is change in consumption, and ΔY is change in income.&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;25000 / 20000 = 1.25&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Do I take this further using multiplier = 1 / (1 - MPC) = 1 / (1-1.25) = 4&lt;/p&gt;&#xA;" OwnerUserId="14596" LastEditorUserId="2776" LastEditDate="2017-09-21T08:05:05.827" LastActivityDate="2017-09-21T08:47:02.703" Title="Calculating income-expenditure multiplier?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18382" PostTypeId="2" ParentId="18381" CreationDate="2017-09-21T08:41:37.610" Score="1" Body="&lt;p&gt;No, that is not correct. In the Keynesian model, the only variable that reacts to output is consumption. Other components of the aggregate demand do not.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For instance, in a closed economy, aggregate demand is $C+G+I$. Here, $C=c_0 + c_1Y$, where $c_0$ is autonomous consumption and $c_1$ is the MPC. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence, planned expenditure is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ Y^e = c_0 + G + I + c_1Y$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which can be condensed to &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ Y^e = a + bY $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is the equation you are given. Thus, the MPC is 0.8. This is actually the slope of the PAE curve in the Keynesian Cross diagram. It is usually lower than one. Calculation of the multiplier goes as normal.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-09-21T08:47:02.703" LastActivityDate="2017-09-21T08:47:02.703" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18383" PostTypeId="2" ParentId="18337" CreationDate="2017-09-21T09:12:22.470" Score="4" Body="&lt;p&gt;The plan did involve loans but was mostly in the form of grants (gifts). As the &lt;a href=&quot;https://en.wikipedia.org/wiki/Marshall_Plan&quot; rel=&quot;nofollow noreferrer&quot;&gt;Wikipedia&lt;/a&gt; entry states:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The Marshall Plan [...] consisted of aid both in the form of grants and in the form of loans. Out of the total, 1.2 billion USD were loan-aid.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Since the total economic support the program involved was of \$13 billion in contemporaneous time (roughly \$132 billion in Sept 2017 money), &lt;strong&gt;only 10% approx of the aid was in form of loans.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The UK received 385 million USD of its Marshall Plan aid in the form of loans. Unconnected to the Marshall Plan the UK also received direct loans from the US amounting to 4.6 billion USD. The proportion of Marshall Plan loans versus Marshall Plan grants was roughly 15% to 85% for both the UK and France.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The last payment of these loans by the UK government was done in &lt;a href=&quot;http://www.independent.co.uk/news/business/news/britain-pays-off-final-instalment-of-us-loan-after-61-years-430118.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;2006&lt;/a&gt;. Apparently, the last payment from the French occured in &lt;a href=&quot;http://archives.chicagotribune.com/1962/07/13/page/4/article/france-pays-on-u-s-debt-and-buys-gold&quot; rel=&quot;nofollow noreferrer&quot;&gt;1962&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Germany, which up until the 1953 Debt agreement had to work on the assumption that all the Marshall Plan aid was to be repaid, spent its funds very carefully. Payment for Marshall Plan goods, &quot;counterpart funds&quot;, were administered by the Reconstruction Credit Institute, which used the funds for loans inside Germany. In the 1953 Debt agreement the amount of Marshall plan aid that Germany was to repay was reduced to less than 1 billion USD. This made the proportion of loans versus grants to Germany similar to that of France and the UK. &lt;strong&gt;The final German loan repayment was made in 1971.&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-09-21T09:17:40.273" LastActivityDate="2017-09-21T09:17:40.273" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18384" PostTypeId="2" ParentId="18376" CreationDate="2017-09-21T09:39:36.557" Score="8" Body="&lt;p&gt;An important field in current research is the yet unexplained&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;&lt;a href=&quot;http://efinance.org.cn/cn/fm/The%20equity%20premium%20puzzle.pdf&quot; rel=&quot;noreferrer&quot;&gt;Equity premium puzzle&lt;/a&gt;&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;originally published by &lt;a href=&quot;https://www.academicwebpages.com/preview/mehra/pdf/The%20Equity%20Premium%20A%20Puzzle.pdf&quot; rel=&quot;noreferrer&quot;&gt;Mehra, Prescott (1985)&lt;/a&gt;. Considere a multiperiod investment consumption equilibrium model (CCAPM) with its important result:&#xA;$$E_t\left[m_{t,j}\right]=\frac1{\left(1+R_{F,t+j}\right)}$$&#xA;where $E_t\left[m_{t,j}\right]$ donates the expected value of a &lt;em&gt;stochastic discount factor&lt;/em&gt; (sometimes also referred to as a &lt;em&gt;pricing kernel&lt;/em&gt;) and $R_{F,t+j}$ a riskless rate of return.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The model states, that the maximized Sharpe-Ratio $SR_{max}$ can be represented as the ratio of the standard deviation of the optimal stochastic discount factor $\sigma_{m^*}$ to its mean:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$SR_{max}=\frac{\sigma_{m^*}}{\overline m}$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Linking this result with common time separable power utility function shows, that the above equation is approximately the risk-aversion coefficient times the standard deviation of the logarithm of consumption.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;The problem&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The average risk premium of the market measured in units of risk is far too high to be explained by any consumption-based representation of the stochastic discount factor. As &lt;a href=&quot;http://ecsocman.hse.ru/data/018/648/1219/finbook.pdf&quot; rel=&quot;noreferrer&quot;&gt;Cochrane(2001)&lt;/a&gt; notes, the Sharpe ratio measured in real terms has been about 0.5 on the basis of the past fifty years (in the US). This implies, that investors are very risk averse, with a coefficient of risk aversion at least &lt;em&gt;50&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What does that number mean? Suppose an individual faced with a 50-50 gamble of doubling or halving his savings. With a level of risk aversion of 50, he would pay 49% of his savings to avoid the loss of 50%. This individual would forgo a 50% chance of doubling his money and accept a certain loss of 49$ to avoid losing an additional 1% more.&lt;/p&gt;&#xA;" OwnerUserId="14304" LastActivityDate="2017-09-21T09:39:36.557" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18385" PostTypeId="2" ParentId="18339" CreationDate="2017-09-21T11:16:45.107" Score="4" Body="&lt;p&gt;There is a problem in how you translate completeness into behavior. Let $R$ be any binary relation, representing preferences, on a set $X$ of alternatives and $A\subseteq X$ be a nonempty set of alternatives available. The usual assumption is that the decisionmaker chooses an alternative $a\in A$ optimally according to the relation $R$. Here are three ways to interpret this:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;$a R b$ for all $b\in A$.&lt;/li&gt;&#xA;&lt;li&gt;$b R a$ for no $b\in A$. &lt;/li&gt;&#xA;&lt;li&gt;$b R a$ implies $a Rb$ for all $b\in A$.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;One usually uses 1. for weak (reflexive) preference relations, 2. for strict (irreflexive) preference relations, and 3. works in both cases. If we define $R'$ by $xR'y$ iff $\neg(yRx)\vee(xRy)$, then $R'$ is complete and satisfies 1. iff $R$ satisfies 3. If $R$ is irreflexive, $R'$ satisfies 1. iff $R$ satisfies 2. So completeness in itself has no behavioral implications from this perspective. It can interact with other properties. For example, transitive and complete is more restrictive than transitivity alone- completeness forces transitive to be applicable to more comparisons.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now one can try to make a distinction between indifference and incomparability. But such a distinction necessarily uses a different framework than the usual maximization paradigm. &lt;/p&gt;&#xA;" OwnerUserId="1442" LastEditorUserId="1442" LastEditDate="2017-09-22T05:06:32.920" LastActivityDate="2017-09-22T05:06:32.920" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18386" PostTypeId="2" ParentId="18356" CreationDate="2017-09-21T12:53:04.303" Score="2" Body="&lt;p&gt;What you address (and what is done in your referred paper) is called&lt;/p&gt;&#xA;&lt;h2&gt;&lt;a href=&quot;http://merkur.econ.muni.cz/%7Ehlousek/teaching/cooley1997.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Model Calibration&lt;/a&gt;&lt;/h2&gt;&#xA;&lt;p&gt;Many economic models use this method to determine one or more parameters:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Calibration is a strategy for finding numerical values for the parameters of artificial economic worlds.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;As the widespread use of this technique, let me explain it with a universal example and order your statements to the correct steps here:&lt;/p&gt;&#xA;&lt;h2&gt;The Model&lt;/h2&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;In the paper the authors derive 9 equations that uniquely derive an equilibrium in their model.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Let us construct a simple model to explain some dependent variable &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt;. The only independent variable to explain &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; is &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;. The only restriction in our model is, that &lt;span class=&quot;math-container&quot;&gt;$\frac{dy}{dx}=1$&lt;/span&gt; must hold for any observation.&lt;/p&gt;&#xA;&lt;h2&gt;The steady state&lt;/h2&gt;&#xA;&lt;p&gt;Without any further requirements, it is simple to derive the whole model:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$y=x + \mathbf{t}$$&lt;/span&gt;&#xA;What can be seen, is the appearance of an unknown variable &lt;em&gt;t&lt;/em&gt;. As our model contained a differential equation, such additional variables occur. How to deal with them?&lt;/p&gt;&#xA;&lt;h2&gt;Calibration&lt;/h2&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Then in the next section they run empirical tests by starting at a steady state and then hitting the system with productivity and wage shocks to see the dynamics.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Make use of your economic model and calibrate &lt;em&gt;t&lt;/em&gt; to your data. Thats exactly what the authors do in order to see the dynamics. Lets assume you have the following three observations:&lt;/p&gt;&#xA;&lt;pre&gt;&#xA;|    y    |    x    |&#xA;---------------------&#xA;|    3    |    1    |&#xA;|    4    |    2    |&#xA;|    5    |    3    |&#xA;&lt;/pre&gt;&#xA;&lt;p&gt;Calibration finds an optimized solution for our yet unknown parameter &lt;em&gt;t&lt;/em&gt;. For the three observations above, &lt;em&gt;t&lt;/em&gt; would have a value of &lt;span class=&quot;math-container&quot;&gt;$2$&lt;/span&gt;. Now, you have your full model given with the formula:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$y=x+2$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;h2&gt;Further information&lt;/h2&gt;&#xA;&lt;p&gt;I recommend to read &lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/S1573441201050115&quot; rel=&quot;nofollow noreferrer&quot;&gt;this&lt;/a&gt; paper, which discusses the use of calibration techniques in economic models. The authors discuss concrete various macroeconomic models on their critical use of calibration and offer more details and best practices on this technique.&lt;/p&gt;&#xA;" OwnerUserId="14304" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2017-09-21T12:53:04.303" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18387" PostTypeId="2" ParentId="13364" CreationDate="2017-09-21T17:03:10.447" Score="1" Body="&lt;p&gt;Another trick is to compare their marginal rate of substitution. If for a similar marginal rate of technical substitution (i.e. relative prices) they yield the same relative inputs, then they represent the same preferences (basically one is a monotonic transformation of the other; see below).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the first preferences you give, this is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{\dfrac{\partial u}{\partial x}}{\dfrac{\partial u}{\partial y}} = \frac{y}{x} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is trivial to show that the second function yields the same MRS. Hence, they represent the same preferences.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Another way to look at this is to notice that optimising a function $f(x)$ is the same than optimising a monotonically transformation of such function. Thus, apply the natural logarithm to the two functions and you get, respectively:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \ln u = \frac{1}{3}\left(\ln x + \ln y \right) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \ln v = 3\left(\ln x + \ln y \right) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Notice that $\ln v = 9\ln u$. Hence, they are indeed the same.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-09-21T17:08:24.503" LastActivityDate="2017-09-21T17:08:24.503" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18390" PostTypeId="1" AcceptedAnswerId="18393" CreationDate="2017-09-22T03:13:04.760" Score="2" ViewCount="112" Body="&lt;p&gt;I am taking a community college level intro to macro course, and while self-studying the text, I came across the concept of C-CPI or chained CPI. While I feel I have a grasp as to what CPI is, I have found explanations of chained CPI confusing. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can anyone ELI5 (explain like I'm 5)?&lt;/p&gt;&#xA;" OwnerUserId="14503" LastEditorUserId="2776" LastEditDate="2017-09-22T09:32:23.157" LastActivityDate="2017-09-22T11:30:39.430" Title="Difference between chained CPI and normal CPI in simple terms" Tags="&lt;inflation&gt;&lt;price-level&gt;&lt;price-index&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18391" PostTypeId="2" ParentId="17176" CreationDate="2017-09-22T08:23:19.390" Score="0" Body="&lt;p&gt;Definitions taken from the 5th edition (2017) of &quot;&lt;a href=&quot;https://global.oup.com/academic/product/a-dictionary--of-economics-9780198759430?q=dictionary%20of%20economics&amp;amp;lang=en&amp;amp;cc=gb&quot; rel=&quot;nofollow noreferrer&quot;&gt;A Dictionary of Economics&lt;/a&gt;&quot;, published by the Oxford University Press:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Free market:&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;A market in which people buy and sell voluntarily, without legal compulsion. Neither the quantities traded nor the price at which trade takes place are subject to control by third parties. This is not to say that such markets operate without legal regulation: the participants have to conform to laws concerning health and safety, weights and measures, labelling requirements, and so on. The essential point about these rules, however, is that they lay down the basis for property rights and contract law. The actual initiative to trade still lies with the market participants, on both sides.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Perfect competition (a type of market arrangment, so similar to perfectly competitive market):&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;An idealized market situation in which all information is known to all market participants, and both buyers and sellers are so numerous that each is a price-taker, able to buy or sell any desired quantity without affecting the market price. It was once thought that these were the assumptions necessary to describe a competitive economy. This is not the case. Provided all market participants have symmetric information (but not necessarily complete information) and act as if they were price-takers, the competitive equilibrium will emerge.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-09-22T08:23:19.390" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18392" PostTypeId="2" ParentId="14671" CreationDate="2017-09-22T08:44:46.263" Score="2" Body="&lt;p&gt;&lt;a href=&quot;https://www.oxfordenergy.org/wpcms/wp-content/uploads/2011/01/August2006-MiddleEastCrud-Pricing-BassamFattouh.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;This article&lt;/a&gt; states:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Brent, WTI and Dubai-Oman are the main crude oil benchmarks of &#xA;  the current oil pricing system. Nearly all oil traded outside America and the Far East is priced using Brent as a benchmark. WTI is the main benchmark used for pricing oil imports  into  the  USA.  Dubai-Oman  is  used  as  a  benchmark  for Gulf  crudes (Saudi Arabia, Iran, Iraq, the UAE, Qatar and Kuwait) sold in the Asia-Pacific market. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Regarding where the oil is produced, according to &lt;a href=&quot;http://www.investopedia.com/articles/investing/102314/understanding-benchmark-oils-brent-blend-wti-and-dubai.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;Investopedia&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;“Brent” actually refers to oil from four different fields in the North Sea: Brent, Forties, Oseberg and Ekofisk. [...] WTI refers to oil extracted from wells in the U.S. and sent via pipeline to Cushing, Oklahoma. [...] [Dubai-Oman is a] “basket” product consisting of crude from Dubai, Oman or Abu Dhabi.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The above is sometimes visualised in the following map:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/4q1Yz.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/4q1Yz.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-09-22T08:44:46.263" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18393" PostTypeId="2" ParentId="18390" CreationDate="2017-09-22T09:18:17.930" Score="3" Body="&lt;p&gt;The consumer price index is used to measure the rate at which prices increase. It is calculated by taking a basked of common goods that people buy all the time (groceries, appliances,  etc.) and looking at how their average prices change over time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose we are calculating the CPI using a basket of goods that contains only cinema tickets. Last year a cinema ticket cost \$15, but now it costs \$30. The CPI would then have doubled to reflect that fact that the prices in the basket of goods have doubled.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some argue that this isn't a very good way to measure consumer price inflation. Here's why: if the price of cinema tickets doubles then people will buy fewer cinema tickets and buy, for example, more Netflix subscriptions instead. So although the price of cinema tickets doubled, people aren't spending twice as much on cinema tickets (because they aren't buying cinema tickets any more!) So, in some respects, the fact that the CPI has doubled doesn't tell us very much.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are two ways to deal with this:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;the approach used when computing the CPI is to say that since people aren't buying cinema tickets we need to update the basket of goods we use to calculate inflation (remember the basket is supposed to be representative of peoples' consumption habits so if they buy fewer cinema tickets it should contain fewer cinema tickets). The problem here is that the basket is only updated infrequently so it takes time for the CPI to &quot;catch up&quot; with consumption habits.&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;the other approach (used in chained CPI) is to statistically adjust the standard CPI measure to account for the fact that we know people will substitute to different goods when the goods they were buying become more expensive.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To do this, the statistical authority gathers data on expenditure for each category in the basket of goods then then weights that category's contribution to the index by its share in expenditure. In the US, this is done on a monthly basis, so the chained CPI uses a more up to date measure of substitution between product categories.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2017-09-22T11:30:39.430" LastActivityDate="2017-09-22T11:30:39.430" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18395" PostTypeId="1" AcceptedAnswerId="18397" CreationDate="2017-09-22T11:41:23.153" Score="0" ViewCount="62" Body="&lt;p&gt;A company has backers who put in money seeking a return from either share-price growth through company growth, and yearly rent in the form of dividend payments. Debt is clearly the case where share price growth is 0 and only the yearly rent is paid, (Socialism is 1/population for both + a wage). Why do stockholders get both the right to make money from the investment, and the right to extract rent at the same time? How does having both rights at the same time impact the economy? Is there any economic thinker that considers banning dividend payments on shares from a legal perspective? &lt;/p&gt;&#xA;" OwnerUserId="7785" LastActivityDate="2017-09-22T14:43:13.093" Title="Rentier capitalism vs investment capitalism?" Tags="&lt;capitalism&gt;" AnswerCount="1" CommentCount="1" ClosedDate="2017-09-22T19:15:28.483" ContentLicense="CC BY-SA 3.0" />
  <row Id="18396" PostTypeId="2" ParentId="18376" CreationDate="2017-09-22T13:06:06.470" Score="4" Body="&lt;p&gt;Another unsolved puzzle in economics is the&lt;/p&gt;&#xA;&lt;h1&gt;Dividend puzzle&lt;/h1&gt;&#xA;&lt;p&gt;studied first by &lt;a href=&quot;http://www.iijournals.com/doi/abs/10.3905/jpm.1976.408558?journalCode=jpm&quot; rel=&quot;nofollow noreferrer&quot;&gt;Fischer Black(1976)&lt;/a&gt;, which evolves from the &lt;a href=&quot;https://www.jstor.org/stable/1809766?seq=1#page_scan_tab_contents&quot; rel=&quot;nofollow noreferrer&quot;&gt;Modigliani-Miller&lt;/a&gt; theorems.&lt;/p&gt;&#xA;&lt;p&gt;Considere well known models for equilibrium in capital markets like the CAPM or the Fama-French 4-factor model. In the latter, return &lt;span class=&quot;math-container&quot;&gt;$r_i$&lt;/span&gt; of any asset &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; is explained by the risk of &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; towards given portfolios:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$r_i=R_f+\beta_3(K_m-R_f)+b_s\cdot\mathit{SMB}+b_v\cdot\mathit{HML}+\alpha$$&lt;/span&gt;&#xA;where &lt;span class=&quot;math-container&quot;&gt;$R_f$&lt;/span&gt; is the risk-free return rate, and &lt;span class=&quot;math-container&quot;&gt;$K_m$&lt;/span&gt; is the return of the market portfolio. &lt;span class=&quot;math-container&quot;&gt;$SMB$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$HML$&lt;/span&gt; are given portfolios (for futher information see &lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/0304405X93900235?via%3Dihub&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;).&lt;/p&gt;&#xA;&lt;p&gt;Besides these models for equilibrium, return &lt;span class=&quot;math-container&quot;&gt;$r_i$&lt;/span&gt; can be calculated by Discounted Dividend Models (DDM) like the &lt;a href=&quot;https://www.jstor.org/stable/2977577?seq=1#page_scan_tab_contents&quot; rel=&quot;nofollow noreferrer&quot;&gt;Gordon-Groth-Model&lt;/a&gt;, which do not aim on the whole market. The valuation of a single share is determined by discounting all further dividends, taking into account increasing dividends in the future:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$ P_i= \sum_{t=1}^{\infty}  {D_0} \frac{(1+g)^{t}}{(1+r_i)^t}$$&lt;/span&gt;&#xA;where &lt;span class=&quot;math-container&quot;&gt;$P$&lt;/span&gt; is the observable stock price, &lt;span class=&quot;math-container&quot;&gt;$g$&lt;/span&gt; the infinite growth rate of dividend payments and &lt;span class=&quot;math-container&quot;&gt;$D_0$&lt;/span&gt; the value of current dividend payment (absolute value). Adjusting the formula gives the adequate &lt;span class=&quot;math-container&quot;&gt;$r_i$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;p&gt;&lt;strong&gt;The problem&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;p&gt;The dividend a corporation pays, should not affect its valuation. Its clear for equilibrium models, since there is no term in the formula representing dividend payments. Lets look at the Gordon-Growth model: Dividends (and their growth rate) are included within the formulas, but what happens around the payment day? The price of the share drops on the ex-dividend date exactly by the amount of the dividend (besides transaction costs or taxes). It just drops the whole range of possible stock prices by that amount.&lt;/p&gt;&#xA;&lt;p&gt;Empirical studies show (a good overview can be found &lt;a href=&quot;http://www.emeraldinsight.com/doi/abs/10.1108/03074350710715773&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;), that investors reward dividend-paying companies with higher valuation. Its evaluated by many researchers in the fields behavioral finance, asymmetric information, or taxes, but its not fully explained yet.&lt;/p&gt;&#xA;" OwnerUserId="14304" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2017-09-22T14:29:48.803" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18397" PostTypeId="2" ParentId="18395" CreationDate="2017-09-22T13:11:14.887" Score="1" Body="&lt;p&gt;A share is an entitlement to the &lt;strong&gt;ownership&lt;/strong&gt; of a company. Such ownership brings several benefits like voting rights and dividends, and the owner is free to sell such ownership whenever s/he wants, making a capital gain (or a loss) in the process. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why is this the case? Well, it was like that with the first publicly listed stock-owned company (the &lt;a href=&quot;https://en.wikipedia.org/wiki/Dutch_East_India_Company&quot; rel=&quot;nofollow noreferrer&quot;&gt;Dutch East India Company&lt;/a&gt;). In terms of incentives, it fosters the allocation of (financial) capital to new ventures by giving those taking the risk to benefit from it. It has proven a highly successful legal arrangement to foster businesses and investment. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another common legal arrangement is that of &lt;strong&gt;non-profit corporation&lt;/strong&gt;. These organisations are usually started by a group of people, which contribute capital to it (albeit this is not represented in the form of shares). Sometimes they transfer the ownership to a foundation. In any case, these companies cannot distribute profits to the owners.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, as you say an alternative legal arrangement would be one were ownership of shares do not lead to income via dividends, but such shares still allow for capital gains. In fact, &lt;strong&gt;some shares pay no dividend at all&lt;/strong&gt; (as a matter of fact, the &lt;a href=&quot;http://www.investopedia.com/ask/answers/033015/what-are-different-kinds-shares-public-limited-company-plc-can-issue.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;taxonomy of shares&lt;/a&gt; is quite diverse). As &lt;a href=&quot;http://www.investopedia.com/ask/answers/135.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;this article&lt;/a&gt; explains:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;investors who buy stocks that do not pay dividends prefer to see these companies reinvest their earnings to fund expansion and other projects which they hope will yield greater returns via rising stock price.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So in principle you could set up a company that does not issue dividends in order to foster its growth. Naturally, this could be changed in the future through a motion in an annual general meeting of shareholders. There are also plenty of companies who &lt;em&gt;decide&lt;/em&gt; not to pay dividends in order to foster expansion (e.g. &lt;a href=&quot;http://www.telegraph.co.uk/finance/newsbysector/mediatechnologyandtelecoms/9154333/Apple-to-pay-dividend-for-first-time-since-1995.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Apple&lt;/a&gt; until a few years ago). Yet, many of these companies, and particularly in the last decades, have decided to execute &lt;a href=&quot;http://www.investopedia.com/terms/b/buyback.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;share buybacks&lt;/a&gt; rather than foster expansion and investment. This is, the company buys their own shares with its profits, which fosters price growth and hence expands capital gains. This is part of a wider short-termist trend that some have denominated &quot;&lt;a href=&quot;https://www.theguardian.com/commentisfree/2015/jul/26/capitalism-shareholders-greedy-stakeholders-change&quot; rel=&quot;nofollow noreferrer&quot;&gt;Quarterly Capitalism&lt;/a&gt;&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is very interesting new research about the consequences of this &quot;quarterly capitalism&quot; on investment and growth. Check &lt;a href=&quot;http://rooseveltinstitute.org/wp-content/uploads/2015/09/Disgorge-the-Cash.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;, &lt;a href=&quot;http://pages.stern.nyu.edu/~tphilipp/papers/QNIK.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;, and &lt;a href=&quot;http://www.nber.org/papers/w22924&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;. The latter concludes:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;We show that capital no longer flows more to the industries with the best growth opportunities because, since the middle of the 1990s, firms in high q industries increasingly repurchase shares rather than raise more funding from the capital markets. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This evidence gives a rather counterintuitive result (at least from the normative meaning of the words), which is that &lt;strong&gt;a rentier capitalism might be better for investment and growth than an investment captialism&lt;/strong&gt;.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-09-22T14:43:13.093" LastActivityDate="2017-09-22T14:43:13.093" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18398" PostTypeId="1" CreationDate="2017-09-22T15:42:10.503" Score="1" ViewCount="32" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Financial markets have had only a muted reaction to the dispute in&#xA;  recent months, but on Friday assets regarded as havens for investors&#xA;  jumped immediately after the news of North Korea’s latest H-bomb&#xA;  threat. The Japanese yen firmed as much as 0.5 per cent to ¥111.96 per&#xA;  dollar. Gold was also 0.5 per cent stronger at $1,297.09 per ounce.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;(Source: &lt;a href=&quot;https://www.ft.com/content/199a98be-9ee0-11e7-8cd4-932067fbf946&quot; rel=&quot;nofollow noreferrer&quot;&gt;Financial Times&lt;/a&gt;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I thought Yen would grow weaker, but on the contrary it grew stronger, why?&lt;/p&gt;&#xA;" OwnerUserId="6699" LastEditorUserId="2776" LastEditDate="2017-09-22T15:50:35.023" LastActivityDate="2017-09-22T15:50:35.023" Title="Why Yen grew stronger after North Korea's H-bomb threat?" Tags="&lt;currency&gt;&lt;international-economics&gt;&lt;money&gt;&lt;currency-exchange&gt;" AnswerCount="0" CommentCount="3" ClosedDate="2017-09-24T21:22:14.700" ContentLicense="CC BY-SA 3.0" />
  <row Id="18401" PostTypeId="1" AcceptedAnswerId="18402" CreationDate="2017-09-22T18:22:25.227" Score="0" ViewCount="350" Body="&lt;p&gt;Why unemployment quantity can be larger than the market employment based on this price ceiling supply/demand chart?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, Isn't that (quantity demanded at minimum wage + unemployment = market employment)?&#xA;&lt;a href=&quot;https://i.stack.imgur.com/f5OLZ.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/f5OLZ.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="95" LastActivityDate="2017-09-22T19:29:32.677" Title="Why unemployment quantity can be larger than the market employment based on this price ceiling supply/demand chart?" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18402" PostTypeId="2" ParentId="18401" CreationDate="2017-09-22T19:14:07.970" Score="1" Body="&lt;p&gt;First of all, think about the definition of unemployment as it is used in this example. An unemployed person is someone that &lt;em&gt;wants&lt;/em&gt; to work, but who cannot, because he can't find a job - as labor supply is not high enough. The crucial point is that people may want to work in some situations, but in others they may not.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With this in mind, the reason that the equation you postulate is incorrect, is due to the fact that the labor supply in your example is &lt;em&gt;elastic&lt;/em&gt;. That means, the higher the wage, the higher is the labor supply. You can see this in the upward shape of the labor supply function. To answer your question: The unemployment quantity under minimum wage becomes larger than the market employment, because after the wage increases more people want to work, and hence the quantity of &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;employed people + unemployed  people&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;increases - as compared to the market equilibrium before where the wage was lower.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is also interesting to think about a case in which your initial thought would be correct. This would be the case if labor supply was completely &lt;em&gt;inelastic&lt;/em&gt;. This situation is reached as the labor supply curve rotates to the left (staying in the initial market equilibrium) until the labor supply curve is a vertical line. In this situation your equation &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;quantity demanded at minimum wage + unemployment = market employment&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;holds. This is how it would look like:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/2vw30.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/2vw30.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt; &lt;/p&gt;&#xA;" OwnerUserId="8831" LastEditorUserId="8831" LastEditDate="2017-09-22T19:29:32.677" LastActivityDate="2017-09-22T19:29:32.677" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18403" PostTypeId="1" AcceptedAnswerId="18409" CreationDate="2017-09-22T19:49:11.223" Score="2" ViewCount="74" Body="&lt;p&gt;When I construct panel data from large household surveys (say, World Bank's Living Standard Measurement Surveys), I try to construct data set with as many potentially usable variables as possible. This creates a large unbalanced dataset and I don't know how many balanced data left until I run a regression. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I personally have not encountered any problems with this, but I wonder what other people think when they have to use dataset I construct. &#xA;I have not worked with others so far, but I wonder how I should construct a good dataset to work on if I need to work with professors. &#xA;Should I construct balanced dataset? Or unbalanced dataset with many variables with many missing values?&lt;/p&gt;&#xA;" OwnerUserId="14607" LastActivityDate="2017-09-25T06:39:30.153" Title="Should I construct balanced data with only necessary variables or unbalanced data with many potentially usable variables?" Tags="&lt;paneldata&gt;&lt;micro-data&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18406" PostTypeId="1" CreationDate="2017-09-22T21:01:16.923" Score="3" ViewCount="2885" Body="&lt;p&gt;I find coins extremely inconvenient to carry and count. I feel I'm not the only one to find them annoying and inconvenient.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What are some economic reasons why all cash money isn't paper and coins still exist?&lt;/p&gt;&#xA;" OwnerUserId="4699" LastActivityDate="2017-09-24T07:51:59.927" Title="Why are there (still) coins?" Tags="&lt;money-supply&gt;" AnswerCount="2" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="18408" PostTypeId="2" ParentId="18403" CreationDate="2017-09-22T23:36:52.450" Score="0" Body="&lt;p&gt;I would construct and maintain only the full (unbalanced) data set with many variables with many missing values. Why? We can always extract balanced panel data sets from the full one; we can't go the other way around. When a balanced set is needed (in order to reduce the file size or send it to others), I would use Stata or R and never do it manually. To err is human.&lt;/p&gt;&#xA;" OwnerUserId="10775" LastEditorUserId="10775" LastEditDate="2017-09-22T23:49:37.060" LastActivityDate="2017-09-22T23:49:37.060" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18409" PostTypeId="2" ParentId="18403" CreationDate="2017-09-23T06:44:20.797" Score="0" Body="&lt;p&gt;The key question to ask here is this: &lt;strong&gt;is the data missing a random selection of the population/sample?&lt;/strong&gt; If this is the case (a situation called Missing Completely At Random, MCAR, you can simply discard the observations with missing values and run your model on the balanced panel. Conversely, if that is not the case (Missing Not At Random, MNAR), an estimation from the balanced panel will be biased. There is also an intermediate case, Missing At Random (MAR), which depends on distinguishing between missing based on observables (in which case you can do simple imputation), or missing on unobservables, in which case you need to perform a two-step Heckman estimation. Read more about missing data &lt;a href=&quot;https://en.wikipedia.org/wiki/Missing_data&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;, and in &lt;a href=&quot;https://us.sagepub.com/en-us/nam/missing-data/book9419&quot; rel=&quot;nofollow noreferrer&quot;&gt;this&lt;/a&gt; very approachable book.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are plenty of tests that you can do to evaluate the nature of missing data. See &lt;a href=&quot;http://dwkwak.weebly.com/uploads/1/2/4/1/12419825/ht_tests.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;. &lt;a href=&quot;https://msu.edu/~kwakdo/kwak_slide.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;These slides&lt;/a&gt; show a hands-on example of how to deal with unbalanced panel datasets.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A very useful introduction to Unbalanced Panal Data is &lt;a href=&quot;http://homepage.univie.ac.at/robert.kunst/pan2010_pres_mayer.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;, based on the &lt;a href=&quot;http://eu.wiley.com/WileyCDA/WileyTitle/productCd-EHEP003191.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;textbook&lt;/a&gt; on Panel Data by B. Baltagi.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-09-25T06:39:30.153" LastActivityDate="2017-09-25T06:39:30.153" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18410" PostTypeId="2" ParentId="18406" CreationDate="2017-09-23T08:03:56.783" Score="1" Body="&lt;p&gt;Two possible reasons:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Coins are not liabilities of the issuer. The issuer does not have to accept coins back, while notes typically have an associated &quot;promise to pay&quot; concept (as do bills and cheques).  This is rather notional, since with fiat currency you just get new notes back, but the reason it can even work as a concept is related to the real point: &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Coins have a far longer lifetime than notes. Among the few coins in my pocket, one is from 1983 and some others are also more than 20 years old.  I doubt any of the notes are even 5 years old.  So the cost of replacing worn notes is highly significant, particularly for low value notes. At some value the advantage of avoiding replacement costs outweighs the higher initial cost of using metal.   &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2017-09-23T08:03:56.783" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18411" PostTypeId="2" ParentId="18406" CreationDate="2017-09-23T08:50:53.383" Score="7" Body="&lt;p&gt;In 2013 researchers at the Federal Reserve Board published a paper {&lt;a href=&quot;https://www.federalreserve.gov/paymentsystems/files/staff-working-paper-20131211.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;link&lt;/a&gt;} considering the costs and benefits of replacing \$1 bills with \$ coins.&lt;/p&gt;&#xA;&lt;p&gt;Here are the takeaways from their executive summary: compared to notes, coins offer&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;&lt;strong&gt;Less payment system efficiency.&lt;/strong&gt; Using \$1 coins instead of \$1 notes for transactions is inherently inefficient, requiring a replacement of one \$1 note with more than one \$1 coin to make up for the difference in the way coins and notes are used by the public.&lt;/p&gt;&#xA;&lt;p&gt;&lt;strong&gt;Less cost-effective.&lt;/strong&gt; Replacing \$1 notes with \$1 coins is also not cost-effective for the U.S. government and public more broadly, primarily because the higher cost to produce coins compared with notes is not offset by the longer life of the coin.&lt;/p&gt;&#xA;&lt;p&gt;&lt;strong&gt;Higher costs under all projected scenarios.&lt;/strong&gt; Circulating only \$1 coins costs more under every scenario we considered (in net present value terms) than would continuing to provide $1 notes to the public.&lt;/p&gt;&#xA;&lt;p&gt;&lt;strong&gt;Increased costs to the private sector.&lt;/strong&gt; Circulating only \$1 coins could result in increased costs to the private sector, perhaps in the hundreds of millions of dollars per year, and would more than offset any &amp;quot;seigniorage revenue&amp;quot; to the government reported in earlier GAO studies.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;So the case for using coins is indeed weak. But reading the paper in more details offers some clues as to the historic reasons why coins are so widespread.&lt;/p&gt;&#xA;&lt;p&gt;For example, low denominations tend to be used quite frequently in day to day transactions, meaning they wear out much faster. The UK, Canada, and Australia all replaced their equivalent of the \$1 bill with a coin in the 1980s. But this was at a time when electronic payment mechanisms (such as credit/debit cards) were not widely available, meaning many small transactions used the low denomination currency with high frequency. This lent an advantage to coins' high durability that is less important today.&lt;/p&gt;&#xA;&lt;p&gt;Indeed, one of the historical advantages of coins has been their extra durability, which makes them cheaper to maintain in the long-run. But the FED report notes that the durability of notes has increased significantly. When the UK replaced its £1 note with a coin, the lifetime of a note was 10 months (many of the original coins are still in existence 30+ years later). But a 2012 \$1 bill has an expected lifetime of 70 months, tipping the economics of coins vs notes decisively in the latter's favour. Many countries are now adopting polymer (i.e., plastic) banknotes that have yet better durability.&lt;/p&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;In sum, notes appear to dominate coins both economically and practically (at least around the \$1 denomination value). Various countries have also eliminated lower denominations from their coinage altogether (see &lt;a href=&quot;https://en.wikipedia.org/wiki/Withdrawal_of_low-denomination_coins&quot; rel=&quot;nofollow noreferrer&quot;&gt;Wikipedia&lt;/a&gt;).&lt;/p&gt;&#xA;&lt;p&gt;But there are costs involved in replacing coins with notes. The state must retool its currency production, provide public awareness campaigns, and administer the process of currency replacement; the private sector must modify vending machines, cash dispensers, and similar appliances, and incur other costs implied by the transition.&lt;/p&gt;&#xA;&lt;p&gt;For example, &lt;a href=&quot;https://www.theguardian.com/money/shortcuts/2016/nov/01/new-pound-coin-uk-march-how-much-cost&quot; rel=&quot;nofollow noreferrer&quot;&gt;The Guardian reports&lt;/a&gt; that it was cost up to £50m to replace just the nation's parking meters as the UK undergoes its switch to a new design of one pound coin. Another estimate is that it will cost £40-50 for each changing room locker that needs to be upgraded. &lt;a href=&quot;http://www.governmentbusiness.co.uk/features/how-will-new-pound-coin-affect-vending&quot; rel=&quot;nofollow noreferrer&quot;&gt;A treasury estimate&lt;/a&gt; put the cost of introducing new 5p and 10p coins in the UK to the coin-operated industry at £80m.&lt;/p&gt;&#xA;&lt;p&gt;These costs, along with general inertia and the fact the people increasingly avoid using cash altogether are probably the main reason why we still have coin currency.&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2017-09-24T07:51:59.927" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18412" PostTypeId="1" CreationDate="2017-09-23T11:55:06.657" Score="2" ViewCount="63" Body="&lt;p&gt;I found a curated shop that heavily relies on store credit (or more accurately stated, a network of stores who rely on this credit)&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Is it accurate to call this system mostly M2 money? &lt;/li&gt;&#xA;&lt;li&gt;Does the depth and reach of the products and services change the classification? (e.g. Amazon points vs a small retailer also with points)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;When looking at this from an economic perspective, this seems similar to Credit Card points, Airline Miles, and XBox points. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Question&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Is there any authoritative source that explicitly states that store credit is M2 money? (or elaborates on it in a way this question can relate to)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Research&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;5 years ago I did find such a source, but now I'm at a loss in locating it. Investopedia, Wikipedia, and I've likely looked at many other -pedias and *.stackexchange.com and came up empty handed for my purposes. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Googling &quot;M2 Credit Card points&quot; resulted in me getting 20 advertisements, and will likely haunt me as I surf the net with advertisements for a Capital One card.  &amp;lt;-- if you intend to help, learn from this experience and use an incognito browser ;) &lt;/p&gt;&#xA;" OwnerUserId="5396" LastActivityDate="2017-09-25T18:10:40.930" Title="Are Credit Card Points, Airline Miles, and Store Credit representations of M2 money supply?" Tags="&lt;macroeconomics&gt;&lt;reference-request&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18413" PostTypeId="1" CreationDate="2017-09-23T12:31:13.923" Score="1" ViewCount="29" Body="&lt;p&gt;In &lt;a href=&quot;https://rads.stackoverflow.com/amzn/click/0262022834&quot; rel=&quot;nofollow noreferrer&quot;&gt;Lectures on Macroeconomics&lt;/a&gt; by O.Blanchard and S.Fisher (1993) stated that (the emphasize is mine):   &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Building a model that formally explains why money is used in transactions&#xA;  when it is dominated as a store of value has proved to be a difficult task.&#xA;  &lt;strong&gt;Consequently, most of the research has taken a shortcut and started with&#xA;  the assumption that money must be used in some transactions; this &#xA;  constraint is known as the Clower, or cash-in-advance, constraint.&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;But &lt;a href=&quot;https://rads.stackoverflow.com/amzn/click/1429240024&quot; rel=&quot;nofollow noreferrer&quot;&gt;Macroeconomics&lt;/a&gt; by G.Mankiw (2012) mentions neither this difficulty nor  Clower constraint. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So has this difficult task been solved and the model that formally explains why money is used in transactions when it is dominated as a store of value has been created? &lt;/p&gt;&#xA;" OwnerUserId="14062" LastActivityDate="2017-09-23T12:31:13.923" Title="Why is money used in transactions when it is dominated as a store of value?" Tags="&lt;money&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18415" PostTypeId="1" CreationDate="2017-09-23T13:48:03.133" Score="0" ViewCount="62" Body="&lt;p&gt;Who paid for that $4.5 trillion balance sheet?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.cnbc.com/2017/09/19/hedge-fund-titan-ray-dalio-says-to-succeed-in-markets-you-need-to-bet-against-the-consensus--and-be-right.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.cnbc.com/2017/09/19/hedge-fund-titan-ray-dalio-says-to-succeed-in-markets-you-need-to-bet-against-the-consensus--and-be-right.html&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="14613" LastEditorUserId="264" LastEditDate="2017-10-05T14:30:25.497" LastActivityDate="2017-10-05T14:30:25.497" Title="The Fed has a $4.5 trillion balance sheet: where did they get that money?" Tags="&lt;macroeconomics&gt;&lt;federal-reserve&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18416" PostTypeId="1" AcceptedAnswerId="18423" CreationDate="2017-09-23T18:42:25.480" Score="1" ViewCount="204" Body="&lt;p&gt;I've learnt to roughly draw graphs of various functions like isoquants of Cobb Douglas function, i.e., $k=√q/L$. Here first derivative is negative so it's downward sloping and second derivative is positive so convex to origin.&#xA;Now if Short-Run cost function is $C = (w/k)q^2 + (rk)$ then average cost is $AVC= (w/k)q +(rk)/q$.&#xA;First derivative is $(w/k)-(rk)/q^2$ but how do I know if it's positive or negative?&lt;/p&gt;&#xA;" OwnerUserId="14617" LastEditorUserId="42" LastEditDate="2017-09-23T19:21:19.167" LastActivityDate="2017-09-24T11:08:36.400" Title="How to Graph Short-Run Average Cost?" Tags="&lt;microeconomics&gt;&lt;production-function&gt;&lt;cost&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18417" PostTypeId="2" ParentId="15361" CreationDate="2017-09-23T20:08:33.590" Score="3" Body="&lt;p&gt;It represents two things: (1) the elasticity of output with respect to capital, and (2) capital's share of output.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To show (1), just take the natural log of the production equation, and then take the derivative of the logged equation with respect to time. &#xA;$$\ln{Y} = \alpha \ln{K} + (1 - \alpha)(\ln{A} + \ln{L})$$&#xA;$$\frac{\dot{Y}}{Y} = \alpha \frac{\dot{K}}{K} + (1 - \alpha)\Big(\frac{\dot{A}}{A} + \frac{\dot{L}}{L}\Big).$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Divide both sides by $\dot{K}/K$. You'll then have the right hand side as&#xA;$$\frac{\dot{Y}/Y}{\dot{K}/K} = \frac{\dot{Y}}{\dot{K}}\Big(\frac{K}{Y}\Big) = \alpha + (1 - \alpha)\Big(\frac{\dot{A}}{A} + \frac{\dot{L}}{L}\Big)\frac{K}{\dot{K}}.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This translates as the elasticity of output with respect to capital is equal to $\alpha$ plus $(1-\alpha)$ times the sum of the elasticities productivity and labor, each with respect to capital. In the basic Solow model, the growth rates of productivity and labor are exogenous constants, thus these latter elasticities are necessarily equal to zero You are left with&#xA;$$\frac{\dot{Y}}{\dot{K}}\Big(\frac{K}{Y}\Big) = \alpha.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To prove (2), take the derivative of output with respect to capital to get the marginal product of capital. This is the interest rate $r$. &#xA;$$\frac{\partial Y}{\partial K} = \alpha K^{\alpha-1}(AL)^{1-\alpha} = r$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, multiply both sides by $K/Y$. The left hand side is now $rK/Y$, which is capital's share of output. The right hand side will simplify to $\alpha.$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{rK}{Y}= \frac{(\alpha K^{\alpha-1}(AL)^{1-\alpha})K}{K^{\alpha}(AL)^{1-\alpha}} = \alpha.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The left hand side of the last equation above might look familiar, as it relates to the economy-wide budget constraint: $Y=rK+wL.$&lt;/p&gt;&#xA;" OwnerUserId="14616" LastEditorUserId="14616" LastEditDate="2017-09-23T20:20:12.720" LastActivityDate="2017-09-23T20:20:12.720" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18418" PostTypeId="1" CreationDate="2017-09-23T21:16:20.170" Score="0" ViewCount="116" Body="&lt;p&gt;I'm Looking for a term that explains the behavior of a market participants that will lie or exaggerate how much or what they offer in order to gain access to a market that would otherwise be inaccessible.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is simular to the concept &quot;bait and switch&quot; but the goal here isn't adverse-deception, its to overcome a barrier of entry. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, participant X wants to penetrate a market but monopoly protections prohibit entry. X can enter the market under the pretense of selling a different product and finds a way to disguise their new product to steal market share from the monopoly. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another example, Company Y wants to start manufacturing widgets, but suppliers only contract with companies who are a part of the big widget alliance. Big Widget alliance only accepts companies who produce at a certain quantity. Y then pretends to have a certain output to gain access to the market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another example (but might be a different concept), is when participant Z is known as a gizmo buyer but they actually are in the market exclusively to sell gizmos.&lt;/p&gt;&#xA;" OwnerUserId="11976" LastEditorUserId="11976" LastEditDate="2018-03-22T22:55:08.297" LastActivityDate="2018-05-18T09:00:19.727" Title="Looking for a term that explains market participants that lie about their participation to gain access to said market" Tags="&lt;markets&gt;&lt;theory&gt;&lt;competitive-equilibrium&gt;&lt;asymmetric-information&gt;&lt;market-failure&gt;" AnswerCount="3" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="18419" PostTypeId="2" ParentId="18339" CreationDate="2017-09-24T01:29:05.117" Score="2" Body="&lt;p&gt;Let $X$ be the number of possible baskets of goods that one can buy from a Walmart Superstore. Even if there were only 1,000 distinct items and we could only buy at most one of each item, that'd be $2^{1000}$ possible baskets. (Note that $X \gg 2^{1000}&amp;gt;10^{300}\gg10^{100}&amp;gt;$ &quot;any estimate of the number of particles in the universe&quot;.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Even as a normative matter, it is debatable whether a perfectly rational being &quot;should&quot; have a complete preference ordering over these $X$ baskets.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But as a positive matter, many (if not all) human beings will not have a complete preference ordering over these $X$ baskets. &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;(Continued discussion of example.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;... Certainly not in their heads. And not on paper either.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose we sat a bunch of human beings down. Ask each to go through a mere ten million of the $\left(\begin{array}{c}&#xA;X\\&#xA;2&#xA;\end{array}\right)$ possible pairwise comparisons of baskets.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Insist that for each pair of baskets, she must choose to agree with exactly one of the following statements: (i) I strictly prefer the first basket to the second; (ii) I strictly prefer the second to the first; (iii) I am exactly indifferent between the two.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Give her as much time as she needs to be absolutely sure and absolutely honest about each choice. (The flippant economist asked to do this exercise may simply and dishonestly claim that he's indifferent between all baskets, just so he doesn't violate the completeness axiom. But let's assume our subjects are all absolutely honest and carefully consider each choice.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then repeat the same exercise (i.e. go through all ten million pairwise comparisons again).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We will certainly discover some inconsistencies. That is, we'll certainly find for example that for some pair of baskets of goods $y$ and $z$, someone said $y \succ z$ the first time round but $z \prec y$ the second time round.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, the economist may say that: (1) she made a mistake; or (2) her preferences changed between the first and second runs of the exercise.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But I think there is a simpler and broader explanation that subsumes both of these explanations: This individual simply doesn't have a complete preference ordering over the $X$ Walmart baskets. &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;More examples from other economists/decision theorists/philosophers. The first two are similar to the above.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://link.springer.com/article/10.1007/BF00126305&quot; rel=&quot;nofollow noreferrer&quot;&gt;Anand (1987)&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Surely the interpretation that a consumer has, in his or her head (or on paper) a complete ordering of all possible pairs of choice objects is unacceptable. A shopping list for seven items with a choice between two brands for each would require 91 pairwise comparisons.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;On a similar note, &lt;a href=&quot;http://onlinelibrary.wiley.com/doi/10.1002/nav.3800010420/full&quot; rel=&quot;nofollow noreferrer&quot;&gt;Thrall (1954, p. 183)&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;From the practical point of view, if the number of judgments needed is finite but large, there is still the time difficulty. By the time the judge has reached the 1,000,000th choice, his standards of comparison are almost certainly not the same as initially.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.jstor.org/stable/1909888&quot; rel=&quot;nofollow noreferrer&quot;&gt;Aumann (1962)&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Or he might be willing to make rough preference statements such as, &quot;I prefer a cup of cocoa to a 75-25 lottery of coffee and tea, but reverse my preference if the ratio is 25-75&quot;; but he might be unwilling to fix the break-even point between coffee-tea lotteries and cocoa any more precisely. Is it &quot;rational&quot; to force decisions in such cases?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;The last class of examples is of the &lt;em&gt;Sophie's Choice&lt;/em&gt; variety. Not surprisingly, these examples are pursued largely by philosophers who argue (contra economists) that there is a real distinction between &lt;em&gt;indifference&lt;/em&gt; and &lt;em&gt;incomparability&lt;/em&gt; (or &lt;em&gt;incommensurability&lt;/em&gt;, though naturally philosophers split hairs over whether these two terms are the same).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.jstor.org/stable/40104582&quot; rel=&quot;nofollow noreferrer&quot;&gt;Putnam (1986)&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;I may be quite sure that if I choose the hedonistic-sensual may of life, I would prefer to have a beautiful and responsive lover to a plain and unresponsive one. Call these choices x and y, and let z be the ascetic-religious life. If I regard the two ways of life as &quot;incomparable&quot;, then I might insist that, prior to my making my existential choice, ~xPz&amp;amp; ~zPx, and also ~yPz&amp;amp; ~zPy&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;See also &lt;a href=&quot;http://www.hup.harvard.edu/catalog.php?isbn=9780674013803&quot; rel=&quot;nofollow noreferrer&quot;&gt;Putnam (2004)&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.oxfordscholarship.com/view/10.1093/0198248075.001.0001/acprof-9780198248071&quot; rel=&quot;nofollow noreferrer&quot;&gt;Raz (1986, pp. 341-2)&lt;/a&gt; similarly compares a teaching and a legal career.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Another perhaps distinct line of research is that initiated by Slovic and Lichtenstein (&lt;a href=&quot;https://www.scienceopen.com/document?vid=df1aa6fc-c92e-434a-aad0-dcf0dcbd823e&quot; rel=&quot;nofollow noreferrer&quot;&gt;1971&lt;/a&gt;, etc.) and goes by the name of &quot;Preference Reversals&quot;. These could arguably also be examples of incomplete preferences. The following example is from &lt;a href=&quot;https://www.aeaweb.org/articles?id=10.1257/jep.4.2.201&quot; rel=&quot;nofollow noreferrer&quot;&gt;Tversky &amp;amp; Thaler (1990, JEP Anomalies article)&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Imagine, if you will, that you have been asked to advise the Minister of&#xA;  Transportation for a small Middle Eastern country regarding the choice of a highway safety program. At the current time, about 600 people per year are killed in traffic accidents in that country. Two programs designed to reduce the number of casualties are under consideration. Program A is expected to reduce the yearly number of casualities to 570; its annual cost is estimated at \$12 million. Program B is expected to reduce the yearly number of casualities to 500; its annual cost is estimated at \$55 million. The Minister tells you to find out which program would make the electorate happier.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;You hire two polling organizations. The first firm asks a group of citizens which program they like better. It finds that about two-thirds of the respondents prefer Program B which saves more lives, though at a higher cost per life saved. The other firm uses a &quot;matching&quot; procedure. It presents respondents with the same information about the two programs except that the cost of Program B is not specified. These citizens are asked to state the cost that would make the two programs equally attractive. The polling firm reasons that respondents' preferences for the two programs can be inferred from their responses to this question. That is, a respondent who is indifferent between the two programs at a cost of less than \$55 million should prefer A to B. On the other hand, someone who would be willing to spend over \$55 million should prefer Program B. This survey finds, however, that more than 90 percent of the respondents provided values smaller than \$55 million indicating, in effect, that they prefer Program A over Program B.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;This pattern is definitely puzzling. When people are asked to choose between a pair of options, a clear majority favors B over A. When asked to price these options, however, the overwhelming majority give values implying a preference for A over B. Indeed, the implicit value of human life derived from the simple choice presented by the first firm is more than twice that derived from the matching procedure used by the other firm.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerDisplayName="user18" LastEditorDisplayName="user18" LastEditDate="2017-09-24T01:55:04.757" LastActivityDate="2017-09-24T01:55:04.757" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18420" PostTypeId="2" ParentId="18250" CreationDate="2017-09-24T02:17:00.410" Score="1" Body="&lt;p&gt;An Economic bubble &quot;bursts&quot; when we see a sudden drop in price (as you have said in your question). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Economic_bubble&quot; rel=&quot;nofollow noreferrer&quot;&gt;Wikipedia&lt;/a&gt; has an appropriate comment on the issue of bubbles being:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;...bubbles are often conclusively identified &lt;strong&gt;only&lt;/strong&gt; in retrospect, once a sudden drop in prices has occurred. Such a drop is known as a crash or a bubble burst.&quot;&lt;/em&gt; &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Thus Economic bubbles (and their bursting) are defined solely on their price increase or decrease.&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2017-09-24T02:17:00.410" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18421" PostTypeId="1" CreationDate="2017-09-24T03:04:01.297" Score="2" ViewCount="372" Body="&lt;p&gt;I am new to Dynare++ and I have really quick question I cannot seem to find the answer too.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is the difference between these two commands and why is the output different?&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;!dynare++ --per 20 --sim 3 file_name.mod&#xA;&#xA;dynare file_name.mod&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;In the first command its unable to find steady state values based on my initial values and in the second it can. Why?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is the mod file of the basic RBC model I want to simulate with the first command. I can do so with the second, but not the first. &lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;var c, l, k, w, r, y, i, z;&#xA;varexo eps;&#xA;&#xA;parameters beta, delta, alpha, a, rho, rbar, wbar;&#xA;&#xA;beta=.99;&#xA;delta=.025;&#xA;alpha=.33;&#xA;a=1;&#xA;rho=.9;&#xA;rbar=1/beta+delta-1; &#xA;wbar=(1-alpha)*(alpha/rbar)^(alpha/(1-alpha)); &#xA;&#xA;&#xA;model;&#xA;//Inter-Euler&#xA;1/c=beta*(1/c(+1))*(1+r(+1)-delta);&#xA;//Intra-Euler&#xA;a/(1-l)=w/c;&#xA;//H.H. Budget Constraint&#xA;k=w(-1)*l(-1)+(1-r(-1)-delta)*k(-1)-c(-1);&#xA;//Firm FOC Capital&#xA;r=exp(z)*alpha*exp(z)*(l/k)^(1-alpha);&#xA;//Firm FOC Labor&#xA;w=exp(z)*(1-alpha)*exp(z)*(k/l)^(alpha);&#xA;// Production Function&#xA;y=exp(z)*(k^alpha)*(l^(1-alpha));&#xA;i=y-c;&#xA;z=rho*z(-1)+eps;&#xA;end;&#xA;&#xA;initval;&#xA;k=((wbar/a)/(wbar*(1+1/a)-(r+delta)*(alpha/rbar)^(1/(1-alpha))))*(alpha/rbar)^(1/(1-alpha));  &#xA;c=wbar*(1-((wbar/a)/(wbar*(1+1/a)-(r+delta)*(alpha/rbar)^(1/(1-alpha)))))/a;  &#xA;l=(wbar/a)/(wbar*(1+1/a)-(r+delta)*(alpha/rbar)^(1/(1-alpha))); &#xA;w=wbar; &#xA;r=rbar; &#xA;y=(k^alpha)*(l^(1-alpha));&#xA;i=(k^alpha)*(l^(1-alpha))-(wbar*(1-((wbar/a)/(wbar*(1+1/a)-(r+delta)*(alpha/rbar)^(1/(1-alpha)))))/a);&#xA;z=0;&#xA;end;&#xA;&#xA;shocks;&#xA;var eps;&#xA;stderr .02;&#xA;end;&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;" OwnerUserId="14058" LastEditorUserId="14058" LastEditDate="2017-09-24T04:49:12.160" LastActivityDate="2017-09-24T04:49:12.160" Title="Running Dynare from Matlab" Tags="&lt;dynare&gt;" AnswerCount="0" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18423" PostTypeId="2" ParentId="18416" CreationDate="2017-09-24T11:08:36.400" Score="3" Body="&lt;p&gt;$\newcommand{\fone}{\color{red}{f_1(q)}}$&#xA;$\newcommand{\ftwo}{\color{blue}{f_2(q)}}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the sake of simplicity, call&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;f(q) = \frac{w}{k}q +  \frac{rk}{q} = rk\left(\underbrace{\frac{1}{q}}_{\fone} + \underbrace{\frac{w}{rk^2}q}_{\ftwo} \right) = rk (\fone + \ftwo)&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where I have factored $rk$ out of the expression. Now you want to understand each term separately:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;$\fone = 1/q$&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This term is drops as $q$ increases, and diverges when $q$ is small. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;$\ftwo = \alpha q$, with $\alpha = w/rk^2$&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This is a linear term with slope $\alpha$: it is small for small $q$ and large for large $q$.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Combined &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In this particular case the function one of the terms grows while the other shrinks. So in extreme cases only one matter. The question is where is the point in which one becomes more relevant than the other.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you notice above I always use the expressions &lt;em&gt;small&lt;/em&gt; and &lt;em&gt;large&lt;/em&gt;, but these are relative words. You can actually find a value $q^*$ at which these two terms are equal, and this defines in which each term dominates.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, if $q &amp;lt; q^*$ this is what I mean by small $q$ and therefore $\fone$ dominates. If, on the other hand $q &amp;gt; q^*$ $f$ will be dominated by $\ftwo$. To find $q^*$ we make&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{eqnarray}&#xA;\fone &amp;amp;=&amp;amp; \ftwo \\&#xA;\frac{1}{q} &amp;amp;=&amp;amp; \alpha q \\&#xA;q^* &amp;amp;=&amp;amp; \alpha^{-1/2}&#xA;\end{eqnarray}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With this in mind, below there's a graph for $\alpha = 1$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/dogTa.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/dogTa.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="14419" LastActivityDate="2017-09-24T11:08:36.400" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18425" PostTypeId="1" CreationDate="2017-09-24T13:43:32.970" Score="3" ViewCount="57" Body="&lt;p&gt;Whenever a new country becomes a member of the Eurozone, they convert all their local currency into the Euro. What I don't understand is where does this huge new volume of Euros come from overnight? Does the European Central Bank simply print the extra money? If so, why doesn't this cause significant inflation?&lt;/p&gt;&#xA;" OwnerUserId="8307" LastActivityDate="2017-09-25T18:39:53.143" Title="Where does the extra money come from when a new country joins the Euro and converts its currency?" Tags="&lt;euro-area&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18426" PostTypeId="1" CreationDate="2017-09-24T13:54:29.560" Score="1" ViewCount="3944" Body="&lt;p&gt;I know that diminishing marginal returns even to all factors of production doesn't imply decreasing returns to scale. But could you please give me just an example of such production function?&lt;/p&gt;&#xA;" OwnerUserId="14626" LastEditorUserId="108" LastEditDate="2017-09-26T10:01:43.670" LastActivityDate="2017-09-26T10:01:43.670" Title="Example production function with increasing returns to scale but diminishing marginal product" Tags="&lt;microeconomics&gt;&lt;production-function&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="1" ClosedDate="2017-09-25T20:27:08.967" ContentLicense="CC BY-SA 3.0" />
  <row Id="18427" PostTypeId="1" CreationDate="2017-09-24T15:34:33.720" Score="1" ViewCount="515" Body="&lt;p&gt;I encountered an example question regarding government deficit as follows:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$G-T=(S-I)-(X-M)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $G$ is government spending, $T$ is net tax (tax minus transfer payment), $S$ is total private sector saving, $I$ is investment, $X$ is export and $M$ is import.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose deficit $G-T=\$84249$, $S-I=\$58558$, so $X-M=-25661$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The example question states that: to finance the deficit, private saving must exceed investment by $\$58558$, and to finance the rest of the government deficit, foreign imports ($M$) must exceed exports ($X$) by $\$25661$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is, if there is a trade deficit (import is greater than export), that means the government buys imported products more than it sells the exported products; the government spends more than it earns, then how can it finance the government deficit?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This really confuses me. Thanks for any help!&lt;/p&gt;&#xA;" OwnerUserId="14627" LastActivityDate="2017-09-24T21:36:41.353" Title="Why can we finance government deficit by having a trade deficit?" Tags="&lt;government-debt&gt;&lt;balance-of-trade&gt;&lt;government-spending&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18428" PostTypeId="1" CreationDate="2017-09-24T17:28:08.633" Score="2" ViewCount="185" Body="&lt;p&gt;Why an imported Chinese product in India is cheaper compared to a locally manufactured item?&lt;/p&gt;&#xA;" OwnerUserId="1513" LastEditorUserId="6168" LastEditDate="2017-09-25T20:21:49.443" LastActivityDate="2017-09-25T20:21:49.443" Title="Why are imported Chinese products in India cheaper than those locally produced?" Tags="&lt;international-trade&gt;&lt;productivity&gt;&lt;price-level&gt;&lt;china&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18429" PostTypeId="2" ParentId="18428" CreationDate="2017-09-24T19:23:50.387" Score="2" Body="&lt;p&gt;Consider an exact same product, say an umbrella, which is both imported from China in India and locally produced. The reason why the Chinese product is cheaper compared to the local one could be related to differences in &lt;strong&gt;productivity&lt;/strong&gt; or &lt;a href=&quot;https://en.wikipedia.org/wiki/Total_factor_productivity&quot; rel=&quot;nofollow noreferrer&quot;&gt;total factor productivity&lt;/a&gt;. The Chinese product could be relatively cheaper because Chinese firms use better production techniques, &#xA;higher-quality general labor and capital input, better managerial practice/talent, or better information technology. See the JEL survey about &lt;a href=&quot;http://home.uchicago.edu/syverson/productivitysurvey.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;What Determines Productivity?&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The recent &lt;a href=&quot;https://drodrik.scholar.harvard.edu/files/dani-rodrik/files/recent_growth_boom_in_ldcs.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;paper&lt;/a&gt; by Rodrik and co-authors documents that labor productivity is higher in China than in India (see Table 1). This could be a first reason why prices of the same product differ.&lt;/p&gt;&#xA;" OwnerUserId="6168" LastEditorUserId="6168" LastEditDate="2017-09-25T17:07:35.800" LastActivityDate="2017-09-25T17:07:35.800" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="18431" PostTypeId="2" ParentId="6442" CreationDate="2017-09-24T21:12:03.877" Score="1" Body="&lt;p&gt;In this interesting paper, &lt;a href=&quot;http://econfaculty.gmu.edu/bcaplan/bsmb2.doc&quot; rel=&quot;nofollow noreferrer&quot;&gt;Caplan, 2001&lt;/a&gt; talks about &lt;em&gt;&lt;strong&gt;Conscientiousness&lt;/strong&gt;&lt;/em&gt;, which is a measure of motivation and diligence.&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Those low in Conscientiousness are typically seen as &lt;em&gt;&lt;strong&gt;lazy&lt;/strong&gt;&lt;/em&gt;, careless,&#xA;unambitious, and spontaneous; those who score high, on the other hand,&#xA;as hard-working, careful, ambitious, and cautious. (Hogan and Ones&#xA;1997)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Then, he links job performance to this personality trait.&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;In a wide-ranging meta-analysis, Barrick and Mount (1991) conclude&#xA;that such a link exists.  For every occupational category that they&#xA;consider, &lt;strong&gt;Conscientiousness&lt;/strong&gt; invariably predicts better job&#xA;performance: It &amp;quot;appears to tap traits which are important to the&#xA;accomplishment of work tasks in all jobs.&amp;quot; (Barrick and Mount 1991,&#xA;p.18)  Conscientiousness correlated .17 with productivity data, .23&#xA;with subjective job performance ratings, and .17 with salary. (Barrick&#xA;and Mount 1991, p.16)  Costa's (1996) survey article confirms Barrick&#xA;and Mount's results, noting further that Conscientiousness predicted&#xA;better job performance for both genders, and remained significant&#xA;controlling for age, sex, and years of education.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;All references are in &lt;a href=&quot;http://econfaculty.gmu.edu/bcaplan/bsmb2.doc&quot; rel=&quot;nofollow noreferrer&quot;&gt;Caplan, 2001&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="6168" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2017-09-24T21:12:03.877" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18432" PostTypeId="2" ParentId="18427" CreationDate="2017-09-24T21:36:41.353" Score="2" Body="&lt;p&gt;To answer the question, I feel it is needed to correct one misunderstanding first: trade deficit does not mean &lt;em&gt;the government&lt;/em&gt; buys imported products more than it sells the exported products. Rather, it means the imported products are more than exported products, which does not indicate whether the products are &lt;strong&gt;consumed&lt;/strong&gt; or &lt;strong&gt;invested&lt;/strong&gt; by the &lt;strong&gt;government&lt;/strong&gt; or the &lt;strong&gt;private sector&lt;/strong&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And this question relates the &lt;a href=&quot;https://en.wikipedia.org/wiki/Twin_deficits_hypothesis&quot; rel=&quot;nofollow noreferrer&quot;&gt;double deficit problem&lt;/a&gt; (also called twin deficit).&#xA;Let's start from the no tax situation, and there is:&#xA;$$Y-C-G=I+NX$$ &#xA;Since the LHS represents the total saving of the country (denoted as $S_{T}$), we have:&#xA;$$S_{T}-I=NX$$ &#xA;Recall that saving is the surplus of a country's production that is not consumed by private and government.That's why total saving equals its investment ($S_{T}=I$) if it is a closed economy ($NX=0$).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the perspective of an open economy, the consumption of a country's production is not only domestic spending on domestic products from the private sector ($C_{d}$) plus domestic spending on domestic products from government ($G_{d}$), but also foreign spending on domestic products ($X$). The private and government spending on foreign goods, as well as investment on foreign goods and services, should be eliminated from GDP or $Y$, and we have $M=C_{f}+G_{f}+I_{f}$ ($Y=C+G+I+X-M$)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Come back to the equation $S_{T}-I=NX$. The RHS is the trade balance, and the LHS can be view as the balance of this country. If the LHS is negative, it means the country has less saving than it has invested, which means it is the borrower in the global capital market (there is a capital inflow) in order to purchase foreign goods and services. This is caused (or accompanied) by a trade deficit, because the country produces ($X$) less than it consumes ($M$), which requires it to borrow money in the global market (if not, say, in the case of no capital flow, its currency will depreciate to balance $NX$, due to an excessive supply of domestic currency caused by trade deficit).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Adding tax is simply separate total saving into private saving and tax, which is just slightly different from the original equation, that is,&#xA;$$S+(T-G)-I=NX$$&#xA;As government spending is always exogenous, and others factors are relatively stable, the double deficit hypothesis supposes that an increase in government deficit will result in an increase in trade deficit, accompanied by an increase in capital inflow to finance the extra government spending.&lt;/p&gt;&#xA;" OwnerUserId="14540" LastActivityDate="2017-09-24T21:36:41.353" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18433" PostTypeId="2" ParentId="18426" CreationDate="2017-09-24T22:51:46.297" Score="3" Body="&lt;p&gt;Decreasing marginal returns to a factor means that keeping the other factors fixed, the marginal output generated by this factor is decreasing. When looking at returns to scale, we change all outputs. Increasing a factor with decreasing marginal returns can have an indirect effect in increasing the marginal productivity of other factors. If we increase all factors at the same time, the indirect effects may outweigh the direct effect. The production function $F:\mathbb{R}_+^2$ given by&#xA;$$F(x,y)=(x+1)^{2/3}(y+1)^{2/3}$$&#xA;has decreasing marginal factor productivities everywhere but not decreasing returns to scale (it doesn't have increasing returns to scale either).&lt;/p&gt;&#xA;" OwnerUserId="1442" LastEditorUserId="1442" LastEditDate="2017-09-25T06:22:17.390" LastActivityDate="2017-09-25T06:22:17.390" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18435" PostTypeId="2" ParentId="18426" CreationDate="2017-09-24T23:42:05.220" Score="2" Body="&lt;p&gt;For decreasing marginal returns we require second partial derivatives to be negative, since we examine what happens if we vary only one input&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So any function &#xA;$$y = \prod_{i=1}^{m}x_i^{a_i},\;\;\; 0&amp;lt;a_i&amp;lt;1\;\; \forall \,i$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;with $\sum a_i &amp;gt;1$ for increasing returns to scale, and with $\sum a_i &amp;lt;1$ for decreasing returns to scale, since here we examine what happens of we increase by the same proportion all inputs.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Responding to comments&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We check returns to scale for this function by examining, for $k&amp;gt;1$, the expression   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \prod_{i=1}^{m}(kx_i)^{a_i} = k^{\sum a_i}\cdot y$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the sum of the alphas is higher than unity, output increases more than $k$ so we have increasing returns to scale, and correspondingly for deceasing returns to scale when the sum of the alphas is smaller than unity.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regarding decreasing marginal returns, the rate of change of marginal output generated by a factor keeping the others fixed is given by its own second partial derivative, which here is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\partial^2 y}{\partial x_i^2}= a_i(a_i-1)\cdot \frac {y}{x_i^2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When $0&amp;lt;a_i&amp;lt;1$, these second partials are all negative.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2017-09-25T06:46:57.570" LastActivityDate="2017-09-25T06:46:57.570" CommentCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="18437" PostTypeId="2" ParentId="15688" CreationDate="2017-09-25T06:43:18.950" Score="2" Body="&lt;p&gt;&lt;strong&gt;Neoclassical Economics&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is not-controversial to say that Neoclassical Economics is the dominant strand of economics within mainstream economics, not only in academia but also in teaching. Regarding this school of thought, &lt;a href=&quot;https://www.exploring-economics.org/en/orientation/neoclassical-economics/&quot; rel=&quot;nofollow noreferrer&quot;&gt;this article&lt;/a&gt; states:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;It describes the synthesis of the subjective and objective theory of value in a diagram of supply and demand, which was developed by Alfred Marshall. Marshall combined the classical understanding that the value of a commodity results from the costs of production with the new findings of marginalism, stating that the value is determined by individual utility. Until today, the market diagram representing the intersection of (objective) supply and (subjective) demand is a central element of neoclassical economics.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The core elements of this school of thought are:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;a view of the economic system centered on &lt;strong&gt;scarcity&lt;/strong&gt;. This means the &lt;strong&gt;efficient allocation of resources&lt;/strong&gt; is the core economic problem to solve&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;individual action&lt;/strong&gt; is the key focus to the study of economic phenomena (see &lt;a href=&quot;https://en.wikipedia.org/wiki/Methodological_individualism&quot; rel=&quot;nofollow noreferrer&quot;&gt;methodological individualism&lt;/a&gt; for more details). This means social and economic dimensions that are not reduced to the individual are usually omitted from the analysis. Similarly, this makes the microfoundation of macroeconomics a key methodological aim (in opposition to e.g. (Post-)Keynesianism, or to emergence concepts in complexity economics).&lt;/li&gt;&#xA;&lt;li&gt;important emphasis (albeit not exclusively) on &lt;strong&gt;equilibrium&lt;/strong&gt; and comparative static evaluations&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;rationality and maximisation of utility&lt;/strong&gt; are central methodological tools (&lt;em&gt;homo economicus&lt;/em&gt;). This school of thought departs from classical economics in that it adopts the &lt;strong&gt;subjective theory of value&lt;/strong&gt;. &lt;/li&gt;&#xA;&lt;li&gt;a very high regard on the formalisation of theories through &lt;strong&gt;mathematics&lt;/strong&gt; and marginalist principles. &lt;/li&gt;&#xA;&lt;li&gt;economic reality can be observed and modelled, independent of the interpretation of the individual. This &lt;strong&gt;positivism&lt;/strong&gt; is common in most of schools of thought, but different for example in Austrian Economics (constructivist). It believes that science can be divided between normative and positive realms.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Albeit many economists contributed to the emergence of this school of thought (particularly the &lt;a href=&quot;https://en.wikipedia.org/wiki/Marginal_utility#The_Marginal_Revolution&quot; rel=&quot;nofollow noreferrer&quot;&gt;&quot;marginalists&quot;&lt;/a&gt; William Stanley Jevons, Leon Walras, and Carl Menger), the father of neoclassical economics is &lt;a href=&quot;https://en.wikipedia.org/wiki/Alfred_Marshall&quot; rel=&quot;nofollow noreferrer&quot;&gt;Alfred Marshall&lt;/a&gt;. In his famous and widely used book &quot;&lt;a href=&quot;https://en.wikipedia.org/wiki/Principles_of_Economics_(Marshall)&quot; rel=&quot;nofollow noreferrer&quot;&gt;Principles of Economics&lt;/a&gt;&quot;, published in 1890, he provided a systematic and rigorous treatment to now-common topics like &quot;elasticity, consumer surplus, increasing and diminishing returns, short and long terms, and marginal utility&quot;. He was also the first to use the demand and supply graph:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/R9r5m.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/R9r5m.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Source&lt;/em&gt;: &lt;a href=&quot;https://www.exploring-economics.org/en/orientation/neoclassical-economics/&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; plus Wikipedia.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-09-25T13:13:35.153" LastActivityDate="2017-09-25T13:13:35.153" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18439" PostTypeId="2" ParentId="18428" CreationDate="2017-09-25T08:53:35.623" Score="1" Body="&lt;p&gt;The cost of the umbrella is the sum of the cost of input raw resources (wood /  plastics / metal / fabric), labor, transport and retail. Assuming the retail costs are the same (you're buying in the same store, for example), then the difference is on the other factors. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Keep in mind that the cost of all the factors can be manipulated by the Chinese and Indian currency. Given that China probably owns all the resources needed for the production of the umbrella, they can produce it all and export it at a low price by &lt;a href=&quot;https://en.wikipedia.org/wiki/Devaluation&quot; rel=&quot;nofollow noreferrer&quot;&gt;devaluating their currency&lt;/a&gt;, lowering the total production cost of the umbrella. This will make China's exports cheaper and imports more expensive. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Without a specific case, we can't give you a more specific answer, but hope it helps!&lt;/p&gt;&#xA;" OwnerUserId="12304" LastActivityDate="2017-09-25T08:53:35.623" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18440" PostTypeId="2" ParentId="8935" CreationDate="2017-09-25T12:25:17.990" Score="9" Body="&lt;p&gt;Yes, there is no equilibrium in pure strategies. For any price charged by firm 2 above $c_1$, firm one could only best respond by charging the largest price that is strictly smaller. which is impossible. If both firms charge at most $c_1$, one of these firms must make a loss, which cannot be a best response. So there is no Nash equilibrium in pure strategies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are, however, equilibria in mixed strategies. Consider an equilibrium in which firm 1 chooses a price of $c_2$, while firm two randomizes uniformly over the interval $[c_2,c_2+\epsilon]$ for some $\epsilon&amp;gt;0$. For $\epsilon&amp;lt;c_2-c_1$, this is a Nash equilibrium and, moreover, it uses no weakly dominated strategies. Firm 1 is making a profit of $c_2-c_1$ and firm 2 a profit of $0$. Clearly, firm 2 has no profitable deviation. To see that firm $1$ has no profitable deviation, recall that there can be no profitable deviation in mixed strategies if there is no profitable deviation in pure strategies (a very general game-theoretic fact), and observe that firm $1$ cannot profit from deviating to a price strictly below $c_2$ or weakly above $c_2+\epsilon$. So take any $\delta$ satisfying $0&amp;lt;\delta&amp;lt;\epsilon$ and assume that firm 1 charges $c_2+\delta$ (note that $\delta=0$ would be no deviation.) The probability that firm 2 charges a lower price is $\delta/\epsilon$, so the expected profit of firm 1 is&#xA;$$(1-\delta/\epsilon)(c_2-c_1+\delta)+\delta/\epsilon~ 0.$$&#xA;Write $K$ for $c_2-c_1$. We have a profitable deviation if&#xA;$$(1-\delta/\epsilon)(K+\delta)&amp;gt;K,$$&#xA;which we can rearrange to get&#xA;$$\delta(1-K/\epsilon-\delta/\epsilon)&amp;gt;0,$$&#xA;which is equivalent to&#xA;$$K/\epsilon+\delta/\epsilon&amp;lt;1.$$ If $\epsilon&amp;lt; c_2-c_1=K$, this can never be the case, so we obtain a Nash equilibrium if $\epsilon&amp;gt;c_2-c_1$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;One can actually use the same construction to construct equilibria in which firm 1 charges less than $c_2$, but in the resulting equilibrium, firm 2 must play a weakly dominated strategy. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The construction in this answer is taken from the following short paper:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Blume, Andreas. &quot;Bertrand without fudge.&quot; &lt;em&gt;Economics Letters&lt;/em&gt; 78.2&#xA;  (2003): 167-168.&lt;/p&gt;&#xA;" OwnerUserId="1442" LastActivityDate="2017-09-25T12:25:17.990" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18441" PostTypeId="2" ParentId="18425" CreationDate="2017-09-25T13:46:08.397" Score="5" Body="&lt;p&gt;Yes the European Cenral Bank &lt;em&gt;issues&lt;/em&gt; the extra quantity of money (as for the actual &lt;em&gt;printing&lt;/em&gt; there are factories that print euros in many member countries of the EU, under the control of the ECB).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regarding why this does not cause inflation, it is because alongside the additional quantity of money comes the additional quantity of output of the new member, and the additional transactions related to this additional output that the additional quantity of money is called upon to facilitate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Use the traditional &quot;quantity theory of money&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$PQ = VM$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$M$ increases but $Q$ also increases, so $P$ does not have to increase.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course it is much more complex and complicated and gradual in a real world situation, but the fundamental idea is the above.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2017-09-25T18:39:53.143" LastActivityDate="2017-09-25T18:39:53.143" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18444" PostTypeId="1" CreationDate="2017-09-25T15:33:29.460" Score="1" ViewCount="67" Body="&lt;p&gt;I dimly recall a concept, I think defined by an economist, although I cannot remember the details or context.  I think an example--apocryphal or not--was welfare recipients who would have more children in order to qualify for more welfare.  I know that's a controversial example and am not claiming that the    phenomenon is real or wide-spread, but it's just to give a sense what the concept is that I'm searching for.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In general the concept is something like: although you may create some sort of financial or political mechanism to serve one purpose, if people can use it for unintended personal gain then they will.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I was wondering if anyone can name the concept for me so that I can research it further.  Also if anyone knows relevant literature from Economics or Social Science journals or academic publications, I'd appreciate it.  &lt;/p&gt;&#xA;" OwnerUserId="4138" LastEditorUserId="2776" LastEditDate="2017-09-25T15:53:09.107" LastActivityDate="2017-10-27T11:15:59.467" Title="Concept for &quot;when a mechanism exists which can be exploited, people will exploit it&quot;" Tags="&lt;behavioral-economics&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18445" PostTypeId="1" AcceptedAnswerId="18462" CreationDate="2017-09-25T17:30:19.190" Score="0" ViewCount="207" Body="&lt;p&gt;I want to test the CAPM. I have collected monthly data from 1-9-2012 to 1-9-2017. I have data from the return of Standard&amp;amp;Poor's 500 and data from various US companies. The beta's seem right, but my goodness of fit ($R^2$) are low: Ameren 0.0614, Apple 0.2456. My question is: Can this be right? If you're testing the CAPM or am I doing something wrong. I used the CAPM regression $R_{i,t}-R_{f,t}=\alpha_i+\beta_i(R_{M,t}-R_{f,t})+e_i$. &lt;/p&gt;&#xA;" OwnerUserId="14636" LastEditorUserId="2776" LastEditDate="2017-09-25T18:32:59.177" LastActivityDate="2017-09-27T03:12:55.843" Title="CAPM goodness of fit" Tags="&lt;finance&gt;&lt;statistics&gt;&lt;corporate-finance&gt;" AnswerCount="3" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="18446" PostTypeId="2" ParentId="18412" CreationDate="2017-09-25T18:10:40.930" Score="2" Body="&lt;p&gt;It seems unlikely that any authoritative source would consider credit card points, airline miles or store credit as apart of M2 money supply.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As you have probably read on &lt;a href=&quot;http://www.investopedia.com/terms/m/m2.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;investopedia&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;What is 'M2'&lt;/strong&gt;&lt;br&gt;&#xA;  M2 is a measure of the money supply that includes all elements of M1 as well as &lt;em&gt;&quot;near money.&quot;&lt;/em&gt; M1 includes cash and checking deposits, while &lt;strong&gt;near money refers to savings deposits, money market securities, mutual funds and other time deposits.&lt;/strong&gt; These assets are less liquid than M1 and not as suitable as exchange mediums, but they can be quickly converted into cash or checking deposits.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;According to this definition, credit card points are not counted to as apart of M2 money because they are not directly tied back to a cash exchange directly,(though there are some firms who will purchase them,) but are tied to specific services provided by the authorizing firms.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since Credit card points are only usable for a specific services and are viewed  as &lt;a href=&quot;https://en.wikipedia.org/wiki/In_kind&quot; rel=&quot;nofollow noreferrer&quot;&gt; &quot;in kind&quot; transfers &lt;/a&gt; rather than actual money.&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2017-09-25T18:10:40.930" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="18449" PostTypeId="2" ParentId="18445" CreationDate="2017-09-25T22:51:01.780" Score="1" Body="&lt;p&gt;First note the variables $\alpha_i$  and $e_i$ are completely degenerated, there's no way to tell one apart from the other, unless you have a strong prior on them. The model should look something like&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;R_i = R_f + \beta (R_{m,i} - R_f) + e_i \tag{1}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which can be rewritten in the form&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;R_i = \beta_0 + \beta R_{m,i} + e_i \tag{2}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the example below I selected &lt;a href=&quot;https://finance.yahoo.com/quote/AAPL/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Apple&lt;/a&gt; as my asset (with returns labeled &lt;code&gt;rasset&lt;/code&gt;) and &lt;a href=&quot;https://finance.yahoo.com/quote/%5EGSPC?p=%5EGSPC&quot; rel=&quot;nofollow noreferrer&quot;&gt;S&amp;amp;P 500&lt;/a&gt; as the market index (with returns labeled &lt;code&gt;rmarket&lt;/code&gt;), this for the window 2012-09-01 to 2017-09-01. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is a summary of OLR applied to Eq (2)&#xA;&lt;a href=&quot;https://i.stack.imgur.com/djpDi.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/djpDi.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You're right, the correlation between the two is low, which you can actually already see from a plot of the returns&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/HGTLS.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/HGTLS.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, you can see from the table above that &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;P(&amp;gt;|t|) = 0&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;for the coefficient $\beta$, which means you're almost 100\% sure that $\beta\not = 0$&lt;/p&gt;&#xA;" OwnerUserId="14419" LastActivityDate="2017-09-25T22:51:01.780" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18452" PostTypeId="1" CreationDate="2017-09-26T03:50:35.043" Score="15" ViewCount="1633" Body="&lt;p&gt;While languages are fun and add color and flair to cultures and make the world a more interesting place, &lt;a href=&quot;https://www.quora.com/What-is-the-economic-cost-of-the-world-not-speaking-the-same-language&quot; rel=&quot;noreferrer&quot;&gt;they also have a cost&lt;/a&gt;. Beyond the monetary costs of translation/editing/proofreading, interpretation, multi-language signage and so on, there are well-documented instances when minor translation errors have caused serious international crises resulting in &lt;a href=&quot;https://www.reddit.com/r/AskHistorians/comments/1spi7u/has_a_poor_translation_ever_caused_a_war_or_other/&quot; rel=&quot;noreferrer&quot;&gt;loss of life&lt;/a&gt; and/or &lt;a href=&quot;http://mentalfloss.com/article/48795/9-little-translation-mistakes-caused-big-problems&quot; rel=&quot;noreferrer&quot;&gt;of business&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What are some methods of estimating the (current or historical) global cost of language diversity? (I would like to limit the question to just the cost - language diversity also has benefits, such as tourism, or economic activity pertaining to language training.)&lt;/p&gt;&#xA;" OwnerUserId="12480" LastEditorUserId="-1" LastEditDate="2017-09-26T21:06:06.177" LastActivityDate="2017-09-26T21:06:06.177" Title="How could the economic cost of the world not speaking the same language be estimated?" Tags="&lt;international-trade&gt;&lt;international-economics&gt;&lt;history&gt;" AnswerCount="1" CommentCount="3" FavoriteCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="18453" PostTypeId="2" ParentId="18452" CreationDate="2017-09-26T06:19:27.550" Score="13" Body="&lt;p&gt;To measure the costs of different people speaking different languages, researchers use a &quot;linguistic distance&quot; metric, see for example &lt;a href=&quot;http://ftp.iza.org/dp1246.pdf&quot; rel=&quot;noreferrer&quot;&gt;this paper&lt;/a&gt;. However, measuring the cost of linguistic diversity appears to be challenging. Some effects are shown along the following lines.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Impact of linguistic distance on international trade&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.parisschoolofeconomics.eu/docs/koenig-pamina/article_1_native_language_melitz_toubal_2014.pdf&quot; rel=&quot;noreferrer&quot;&gt;In this paper&lt;/a&gt;, they construct new series for common native language and common spoken language for 195 countries, which they use together with series for common official language and linguistic proximity in order to draw inferences about &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;the aggregate impact of all linguistic factors on bilateral trade, &lt;/li&gt;&#xA;&lt;li&gt;the separate role of ease of communication as distinct from&#xA;ethnicity and trust, and &lt;/li&gt;&#xA;&lt;li&gt;the contribution of translation and interpreters to ease of communication.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Results&lt;/em&gt; show that the impact of linguistic factors, all together, is at least twice as great as the usual dummy variable for common language, resting on official language, would say.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Impact of linguistic distance on international migration&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In &lt;a href=&quot;http://onlinelibrary.wiley.com/doi/10.1111/ecoj.12231/abstract&quot; rel=&quot;noreferrer&quot;&gt;this paper&lt;/a&gt; they examine the importance of language in international migration from multiple angles by studying the role of linguistic proximity, widely spoken languages, linguistic enclaves and language-based immigration policy requirements. To this aim they collect a unique data set on immigration flows and stocks in 30 OECD destinations from all world countries over the period 1980–2010 and construct a set of linguistic proximity measures. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Results&lt;/em&gt;: Migration rates increase with linguistic proximity and with English at destination. Softer linguistic requirements for naturalisation and larger linguistic communities at destination encourage more migrants to move. Linguistic proximity matters less when local linguistic networks are larger.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This paper on &lt;a href=&quot;http://onlinelibrary.wiley.com/doi/10.1111/roie.12041/full&quot; rel=&quot;noreferrer&quot;&gt;the Costs of Babylon—Linguistic Distance in Applied Economics&lt;/a&gt;&#xA;may also be relevant.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Impact of linguistic distance on literary translations&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Interestingly, one of the latest Freakonomics Radio episode is called &lt;a href=&quot;http://freakonomics.com/podcast/why-dont-we-speak-language/&quot; rel=&quot;noreferrer&quot;&gt;&quot;Why Don't We All Speak the Same Language? (Earth 2.0 Series)&quot;&lt;/a&gt;. There are 7,000 languages spoken on Earth. What are the costs — and benefits? They quote (with references)&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;There's also the roughly \$40 billion a year we spend on global&#xA;  language services — primarily translation and interpretation. And&#xA;  another \$50-plus billion a year spent learning other languages.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Useful references&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Victor Ginsburgh and Shlomo Weber, &lt;a href=&quot;http://ecares.ulb.ac.be/ecare/personal/ginsburgh/papers/187.pdf&quot; rel=&quot;noreferrer&quot;&gt;Culture, languages, and&#xA;economics&lt;/a&gt;, in Victor Ginsburgh and David Throsby, eds.,  Handbook&#xA;of the Economics of Art and Culture, vol. 2, Amsterdam: Elsevier,&#xA;2014.&lt;/li&gt;&#xA;&lt;li&gt;Victor Ginsburgh and Shlomo Weber, &lt;a href=&quot;http://press.princeton.edu/titles/9481.html&quot; rel=&quot;noreferrer&quot;&gt;How Many Languages Do We Need? The Economics of Linguistic Diversity&lt;/a&gt;, Princeton, NJ: Princeton University Press, 2011&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="6168" LastEditorUserId="6168" LastEditDate="2017-09-26T07:25:01.843" LastActivityDate="2017-09-26T07:25:01.843" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18455" PostTypeId="2" ParentId="18363" CreationDate="2017-09-26T12:35:40.407" Score="3" Body="&lt;p&gt;This is a really engaging question. Not only does it identify an observable pattern (regarding the &quot;&lt;em&gt;depth&lt;/em&gt;&quot; or lack-thereof of the second-hand market of bicycles) it also associates that pattern with &lt;em&gt;'value&lt;/em&gt;' (&lt;em&gt;in-use&lt;/em&gt; and &lt;em&gt;intrinsic&lt;/em&gt;).&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;...what happens to the value of a bike once you &quot;drive it off the lot (...) Why can something of such inherent value (and so highly valued by the purchaser when new) become valueless so rapidly?&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Although asymmetric information (see answer by &lt;em&gt;@Maarten Punt&lt;/em&gt;) is definitely in play (the seller knows more about the condition of the bike than the potential buyer) I don't think that the second hand market for bicycles is as &lt;em&gt;shallow&lt;/em&gt; as described in the question for reasons &lt;em&gt;predominantly&lt;/em&gt; related to quality. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Buying a second-hand bike is &lt;em&gt;not&lt;/em&gt; as complicated as buying a second-hand car. The potential buyer can readily identify quality characteristics or pinpoint possible mechanical or design failures. The '&lt;em&gt;lemons&lt;/em&gt;' in the bicycle second-hand market are probably less &lt;em&gt;sour&lt;/em&gt; than are their mechanical cousins, the automobiles.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;With these observations in mind, we'll take a different route in figuring out what's going on.&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;The flow of services that a bicycle delivers can be quantified in a &lt;em&gt;roundabout&lt;/em&gt; way. Namely, we can-in a sense-use an &lt;em&gt;envelope&lt;/em&gt; of services that are substitutes for bicycle services to &lt;em&gt;encapsulate&lt;/em&gt; the value of owning a bicycle. In the &lt;em&gt;Appendix&lt;/em&gt; of this note we have identified three activities that are used as proxies for the value of a bicycle, namely '&lt;em&gt;transportation&lt;/em&gt;', '&lt;em&gt;exercise&lt;/em&gt;' and '&lt;em&gt;leisure activities&lt;/em&gt;'. The flow of services an average bicycle delivers over the period of one year is calculated to be equal to &lt;strong&gt;&lt;em&gt;\$1,834.6&lt;/em&gt;&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, after having decided what the value therein is, we can &lt;em&gt;subtract&lt;/em&gt; its price and then obtain a measure of the &lt;em&gt;residual value&lt;/em&gt; that the consumer is left with, after assuming the costs needed to obtain a bicycle.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As far as the second-hand market for bicycles is concerned, there are three grades of relevant &lt;em&gt;commodities&lt;/em&gt;:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;em&gt;used&lt;/em&gt; bicycles&lt;/li&gt;&#xA;&lt;li&gt;&lt;em&gt;refurbished&lt;/em&gt; bicycles&lt;/li&gt;&#xA;&lt;li&gt;&lt;em&gt;scrapped&lt;/em&gt; bicycles&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;A '&lt;em&gt;used&lt;/em&gt;' bicycle, is a bicycle that has been purchased &lt;em&gt;relatively&lt;/em&gt; recently and is resold by its owner in the secondary market. As far as its &lt;em&gt;quality&lt;/em&gt; characteristics are concerned, they are &lt;em&gt;close enough&lt;/em&gt; to the respective characteristics of a brand new bicycle of the same make. '&lt;em&gt;Refurbished&lt;/em&gt;' bicycles, are used bicycles that have undergone a-more or less extensive-repair and revamp process. Finally, 'scrapped' bicycles are bicycles that are either sold for parts or recycled altogether.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the &lt;em&gt;Appendix&lt;/em&gt; of this note we have obtained a measure of the value of '&lt;em&gt;refurbished'&lt;/em&gt; and '&lt;em&gt;scrapped&lt;/em&gt;' bicycles. They are valued at &lt;strong&gt;&lt;em&gt;\$160.278&lt;/em&gt;&lt;/strong&gt; and &lt;strong&gt;&lt;em&gt;\$11.25&lt;/em&gt;&lt;/strong&gt; respectively.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Pricing second-hand bicycles&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Buying a &lt;em&gt;new&lt;/em&gt; bicycle can be &lt;em&gt;treated&lt;/em&gt; as an &lt;em&gt;investment&lt;/em&gt;. By incurring the costs of the investment (the retail price of the bicycle) the user is entitled to '&lt;em&gt;harvest&lt;/em&gt;' the remaining (or &lt;em&gt;residual&lt;/em&gt;) value by virtue of ownership rights. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, the &lt;em&gt;residual&lt;/em&gt; value (= \$1,834.6 - &lt;em&gt;price&lt;/em&gt;) is subject to &lt;em&gt;depreciation&lt;/em&gt;. Buying a bicycle and locking it up in a closet will not retain its &lt;em&gt;residual&lt;/em&gt; value intact. Value, &lt;em&gt;dissipates&lt;/em&gt;. The rate at which this happens is &lt;em&gt;different&lt;/em&gt; for different makes of bicycles. Also, different riders, have different &lt;em&gt;subjective&lt;/em&gt; valuations regarding the &lt;em&gt;speed&lt;/em&gt; of that process.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What does that mean for an eg. \$600 bicycle? The following graph shows the different value regions that are relevant to pricing the \$600 bicycle in the second-hand market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/XGryq.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/XGryq.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The rate at which value dissipates is denoted by $\delta$. Given the price of the bicycle set at \$600, different values of $\delta$ imply different time scales for value dissipation. The following three graphs show what happens to the &lt;em&gt;residual&lt;/em&gt; value of a \$600 bike under different values of $\delta$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/mSfWO.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/mSfWO.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are three things to note here. &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;em&gt;First&lt;/em&gt;, as $\delta$ increases, the residual value after one year drops (notice the y-intercept at $n=1$). This is true for all the&#xA;graphs. For moderate values of $\delta$, this point is above the&#xA;price level.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;em&gt;Secondly&lt;/em&gt;, it takes considerable time for the residual value to cross the \$600 line for moderate values of $\delta$. This can be&#xA;interpreted as the point when a commodity (the bike in this case)&#xA;stops being &lt;em&gt;new&lt;/em&gt;, in an economic sense. That point is reached when&#xA;the &lt;em&gt;residual value&lt;/em&gt; equals the price. Note, how for $\delta=0.54$ in&#xA;the last graph, the commodity becomes &lt;em&gt;old&lt;/em&gt; even before the first&#xA;year of use ends&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;em&gt;Lastly&lt;/em&gt;, the number of years it takes for the &lt;em&gt;residual&lt;/em&gt; value to fall below the price and become equal to the &lt;em&gt;refurbished&lt;/em&gt; value (the&#xA;x-intercept), &lt;em&gt;falls&lt;/em&gt; as $\delta$ increases. This is clearly seen in&#xA;the third graph.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;What is relevant for the task at hand, is the fact that &lt;strong&gt;&lt;em&gt;high&lt;/em&gt;&lt;/strong&gt; rates of depreciation of &lt;em&gt;residual&lt;/em&gt; value (high $\delta$'s) imply that the commodity becomes &lt;em&gt;old&lt;/em&gt; (obsolete) &lt;strong&gt;&lt;em&gt;faster&lt;/em&gt;&lt;/strong&gt; and '&lt;em&gt;force&lt;/em&gt;' it to approach the boundaries  of the refurbished market &lt;strong&gt;&lt;em&gt;rapidly&lt;/em&gt;&lt;/strong&gt;. This implies that the time it spends in the territory of the '&lt;em&gt;used&lt;/em&gt;' segment is really &lt;strong&gt;&lt;em&gt;short&lt;/em&gt;&lt;/strong&gt; or virtually non-existent (notice how on the third graph for $\delta=0.54$, the bicycle, after two years of use-or storage, for that matter-has a &lt;em&gt;residual&lt;/em&gt; value that is approx. equal to the &lt;em&gt;refurbished&lt;/em&gt; price).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, what happens to used bicycles is heavily dependent upon the relevant value of $\delta$. It seems that relatively high values for the &lt;em&gt;residual&lt;/em&gt; value depreciation parameter will scrap the value of a moderately priced bicycle real fast to the point where it becomes worth-less relatively fast. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &lt;em&gt;real&lt;/em&gt; question is what sets the &lt;strong&gt;particular&lt;/strong&gt; value of $\delta$ at &lt;em&gt;relatively&lt;/em&gt; high levels, in the first place.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;h2&gt;Appendix&lt;/h2&gt;&#xA;&#xA;&lt;h2&gt;Intrinsic value and value-in-use of new bicycles&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;People will use a bicycle for different reasons. All in all, we can think of three &lt;em&gt;obvious&lt;/em&gt; use cases for bicycles:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;transportation&lt;/li&gt;&#xA;&lt;li&gt;exercise&lt;/li&gt;&#xA;&lt;li&gt;leisure activities&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;For small distances (less than 10-20 miles) perhaps it would make more sense to use a bicycle than go on foot or-worse even-use the car. Obviously, substituting cycling for driving (or walking) depends on a host of parameters (like availability of bicycle lanes, average road congestion, cultural attitudes towards cycling, availability of other transit alternatives for small distances, crime rates related to petty theft etc) &lt;em&gt;and&lt;/em&gt; relative prices.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &lt;a href=&quot;https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&amp;amp;s=emm_epmru_pte_nus_dpg&amp;amp;f=m&quot; rel=&quot;nofollow noreferrer&quot;&gt;price&lt;/a&gt; of a gallon of gas seems to be equal to &lt;strong&gt;&lt;em&gt;$2.152&lt;/em&gt;&lt;/strong&gt; (approx.).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/UqeZx.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/UqeZx.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assuming the &lt;em&gt;relevant&lt;/em&gt; distance covered by an individual using a gas powered vehicle (small car or other motorized two-wheeler) is 20 miles a day and that in a year this use case of the vehicle is applied &lt;em&gt;two thirds&lt;/em&gt; of the time (ie 240 days approx.-because you don't go &lt;em&gt;every&lt;/em&gt; day eg to the grocery store) then with an average figure of &lt;a href=&quot;https://en.wikipedia.org/wiki/Energy_efficiency_in_transport#Example_consumption_figures&quot; rel=&quot;nofollow noreferrer&quot;&gt;miles per gallon&lt;/a&gt; around 60, operating a vehicle for small distances over a year costs &lt;strong&gt;&lt;em&gt;\$172.2&lt;/em&gt;&lt;/strong&gt; (= 240 days 20 miles/day / 60 miles/gallon $2.152/gallon).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Average &lt;em&gt;annual&lt;/em&gt; exercise &lt;a href=&quot;http://www.statisticbrain.com/gym-membership-statistics/&quot; rel=&quot;nofollow noreferrer&quot;&gt;costs&lt;/a&gt; can be as high as &lt;strong&gt;&lt;em&gt;\$696&lt;/em&gt;&lt;/strong&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As far as leisure time is concerned, people tend to do different things that suit their personalities, tastes and social backgrounds. According to &lt;a href=&quot;https://www.bls.gov/news.release/atus.t11a.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;this&lt;/a&gt; time use survey by the &lt;em&gt;BLS&lt;/em&gt;, 0.3 of an hour per day is spent in '&lt;em&gt;Participating in sports, exercise and recreation&lt;/em&gt;' activities while 0.415 of an hour is spent in '&lt;em&gt;Other leisure and sports activities, including travel&lt;/em&gt;' (average for both sexes). It seems that the later activity takes 38% more time than the former (0.3 hour 60 min /hour = 18 min and 0.415 hour 60 min / hour = ~25 min). We are going to assume that the costs associated to '&lt;em&gt;Other leisure and sports activities, including travel&lt;/em&gt;' are, also, 38% greater than the costs associated with '&lt;em&gt;Participating in sports, exercise and recreation&lt;/em&gt;', namely they equal &lt;strong&gt;&lt;em&gt;\$966.7&lt;/em&gt;&lt;/strong&gt; (approx.) on an annual basis.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Adding up the annual costs of transportation, exercise and recreation sum up to a value of &lt;strong&gt;&lt;em&gt;\$1,834.6&lt;/em&gt;&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This will be assumed to be the equivalent value of owning a bicycle in the US as of late 2016-2017. &lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Opportunity costs for refurbished bicycles.&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Obviously, not all bicycles are made from the same &lt;a href=&quot;https://en.wikipedia.org/wiki/Bicycle_frame&quot; rel=&quot;nofollow noreferrer&quot;&gt;materials&lt;/a&gt;. For the sake of simplicity, we'll assume that bicycles that are relevant for the second hand market are predominantly made of &lt;em&gt;steel&lt;/em&gt; or &lt;em&gt;aluminum&lt;/em&gt;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Taking a look at the &lt;a href=&quot;https://www.bls.gov/regions/mid-atlantic/data/producerpriceindexmetals_us_table.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;PPI&lt;/em&gt;&lt;/a&gt; from the &lt;em&gt;US&lt;/em&gt; &lt;em&gt;Bureau of Labor Statistics&lt;/em&gt; we observe the following pattern:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/oE4wR.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/oE4wR.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Namely, both steel and aluminum (producer) prices seem to be &quot;&lt;em&gt;moving in tandem&lt;/em&gt;&quot; (approx. 13%-14% yoy on average). When two commodities (raw materials) are displaying similar price movements, there is no reason to expect that either will be relatively more preferred than the other in all relevant applications. We'll choose to interpret this finding as a sign for treating steel and aluminum bikes as equally probable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The price of scrap metal (from &lt;a href=&quot;http://www.cmcrecyclingspringfield.com/current-pricing/&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;, &lt;a href=&quot;http://www.scrapmsc.com/our-pricing/&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; and &lt;a href=&quot;https://www.capitalscrapmetal.com/prices/&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;) seems to be approximately &lt;strong&gt;&lt;em&gt;\$0.5/lb&lt;/em&gt;&lt;/strong&gt; for &lt;em&gt;aluminum&lt;/em&gt; and &lt;strong&gt;&lt;em&gt;\$0.4/lb&lt;/em&gt;&lt;/strong&gt; for &lt;em&gt;steel&lt;/em&gt; (depending on the grade).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It would &lt;a href=&quot;http://www.bikesdirect.com/weights.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;seem&lt;/a&gt; that a bicycle weighs, on average, around &lt;strong&gt;&lt;em&gt;25lbs&lt;/em&gt;&lt;/strong&gt; (&lt;em&gt;20lbs&lt;/em&gt; for road bikes and approx. &lt;em&gt;30lbs&lt;/em&gt; for mountain bikes). Although this weight figure includes the weights from &lt;em&gt;all&lt;/em&gt; the parts of the bicycle-not just the frame-we'll nevertheless chose this as the operational weight figure.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With all this information in hand, we can calculate a rough estimate of the scrap value of the bicycles that the OP mentions. Namely, 250 bicycles (per year, on average) have a scrap value equal to &lt;strong&gt;&lt;em&gt;\$2,812.5&lt;/em&gt;&lt;/strong&gt; (=125 \$0.4/lb 25lbs+125 \$0.5/lb 25lbs). On average, a single bicycle has a scrap value of &lt;strong&gt;&lt;em&gt;\$11.25&lt;/em&gt;&lt;/strong&gt; (=\$2,812.5 / 250).&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Labor costs&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;The &lt;a href=&quot;https://en.wikipedia.org/wiki/Minimum_wage_in_the_United_States&quot; rel=&quot;nofollow noreferrer&quot;&gt;minimum wage&lt;/a&gt; in the US is on average equal to &lt;strong&gt;&lt;em&gt;\$7.55/h&lt;/em&gt;&lt;/strong&gt;. Having 8 persons working for 3-5 hours a day for 2 days a week for 8 months a year amounts approx. to an annual value equal to &lt;strong&gt;&lt;em&gt;\$14,850&lt;/em&gt;&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Materials' and equipment costs&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;From &lt;a href=&quot;https://www.walmart.com/browse/outdoor-sports/bikes/4125_546956_1081404&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; we get that changing the tires and inner tubs of a bicycle, changing the saddle and break pads and replacing a wheel costs approx. \$80. Treating in the same way 250 bikes amounts to costs for parts of \$20,000. We figure that since the \$80 price tag is a retail price, we'd be eligible for a wholesale price discount say for 40% of the retail value. Thus we calculate that costs for parts would amount to &lt;strong&gt;&lt;em&gt;\$12,000&lt;/em&gt;&lt;/strong&gt; per year.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Financing costs&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;So far we've calculated labor costs and materials' costs and haven't included figures for tools and facilities costs or utility expenses etc. We are abstracting from those costs and we assume that financing will need to cover &#xA;one year of operating expenses, namely \$34,850 (= \$14,850 + \$20,000). The interest rate charged will &lt;a href=&quot;https://www.sba.gov/loans-grants/see-what-sba-offers/sba-loan-programs/general-small-business-loans-7a/7a-loan-amounts-fees-interest-rates&quot; rel=&quot;nofollow noreferrer&quot;&gt;be&lt;/a&gt; &lt;em&gt;LIBOR&lt;/em&gt; +/- 2.25% spread. Also, we assume that the loan will have to be repaid in 7 years.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With a base &lt;a href=&quot;http://www.wsj.com/mdc/public/page/2_3020-libor.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;rate&lt;/a&gt; of 1.7676 (we ignore the spread) the annual financing costs are &lt;a href=&quot;https://www.mortgagecalculator.org/&quot; rel=&quot;nofollow noreferrer&quot;&gt;equal&lt;/a&gt; to &lt;strong&gt;&lt;em&gt;\$9,601.4&lt;/em&gt;&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;So, what's the imputed price of a refurbished bike?&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Combining the scrap value of the frames and the costs associated with the process of restoring bicycles to operating condition, should provide a &lt;em&gt;lower&lt;/em&gt; bound for the value of a refurbished bicycle. It is a '&lt;em&gt;lower&lt;/em&gt;' bound because there are certainly other costs and overheads we didn't include in our calculations and also because our calculations are rough and not precise. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;With that in mind, &lt;strong&gt;&lt;em&gt;\$160.278&lt;/em&gt;&lt;/strong&gt; seems to be the (&lt;em&gt;opportunity&lt;/em&gt;) cost of a refurbished bicycle (assuming a 3% profit margin on labor and materials' cost).&lt;/p&gt;&#xA;" OwnerDisplayName="user14471" LastEditorDisplayName="user14471" LastEditDate="2017-10-19T08:10:32.800" LastActivityDate="2017-10-19T08:10:32.800" CommentCount="13" ContentLicense="CC BY-SA 3.0" />
  <row Id="18457" PostTypeId="2" ParentId="17474" CreationDate="2017-09-26T13:42:43.310" Score="0" Body="&lt;p&gt;Both are combined. They look at the current quarter compared with the previous quarter, but first change the previous quarter up or down based on an average seasonal adjustment based on prior years. It's called the Seasonally Adjusted Annual Rate. &lt;a href=&quot;http://www.investopedia.com/terms/s/saar.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;SAAR&lt;/a&gt;. An obvious example is comparing toy sales in January with toy sales in December to calculate estimated toy sales in February.&lt;/p&gt;&#xA;" OwnerUserId="14643" LastActivityDate="2017-09-26T13:42:43.310" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18459" PostTypeId="2" ParentId="18444" CreationDate="2017-09-26T18:40:27.780" Score="0" Body="&lt;p&gt;What you are talking about doesn't sound like a behavioral economics question. Behavioral economics would concern itself more with why a person wouldn't exploit a poorly constructed welfare system. What you are asking is perhaps more related to market failure and how non-excludability and non-rivalry lead to a rational person taking advantage of such a welfare system. I say the system has to be poorly designed, or else the desired effect of helping children would naturally be benefitted if having more children resulted in higher welfare, which would in term help parents to care for those additional children. The example you used was a result of people claiming dependents they did not have (&quot;other people's children&quot;) and welfare was given to people who had no claim to it. &#xA;This is resolved by amending one or more aspects of the market failure of the public good, such as rivalry: having multiple agencies of the government provide this welfare and cutting the one that does a worse job, leading to a greater incentive for agencies to gather accurate data; or non-excludability: requiring more stringent measures for receiving said welfare, such as children's birth certificates, school report cards etc. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is interesting as we see a possible route for amending this market failure, perhaps subsidizing school costs instead of a lump sum welfare for the parent, is already being addressed by our current school system, albeit in a poor way (providing education for a sizable portion of students future income in terms of school loans and resulting interest payments). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A weak mechanism will always be exploited in the view of economists as the exploiters are homo economicus, a perfectly rational and utility-maximizing being. &lt;/p&gt;&#xA;" OwnerUserId="14648" LastActivityDate="2017-09-26T18:40:27.780" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18462" PostTypeId="2" ParentId="18445" CreationDate="2017-09-26T22:22:45.123" Score="2" Body="&lt;p&gt;$\beta$ is the measure of the sensitivity of stock returns to market returns. This has nothing to do with the value of $R^2$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your results appear to be fine, you can get significant beta estimates but low $R^2$. Why? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As measured by $R^2$, 24.56% of variation in Apple returns is accounted for by the variation in the market index, $S$&amp;amp;$P 500$. Clearly, there must be other factors that determine the remaining 75.44$% of variation in the Apple returns. Other factors that you could include in the model are copmany size and market to book value (Fama and French Three-Factor Model). By including these omitted variables in your new model, you may achieve higher r-squared value. &lt;/p&gt;&#xA;" OwnerUserId="6009" LastActivityDate="2017-09-26T22:22:45.123" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18463" PostTypeId="1" CreationDate="2017-09-26T23:12:48.447" Score="4" ViewCount="484" Body="&lt;p&gt;This is referring to an earlier question: &lt;a href=&quot;https://economics.stackexchange.com/questions/10511/why-are-real-median-household-incomes-stagnant&quot;&gt;Why are real median household incomes stagnant?&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How do the following graphs actually tell you that US real median personal/household income has been stagnant since the late 1970's/early 1980's?&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://fred.stlouisfed.org/series/MEPAINUSA672N&quot; rel=&quot;noreferrer&quot;&gt;Real Median Personal Income in the United States&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/DtWrj.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/DtWrj.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;2&quot;&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://fred.stlouisfed.org/series/MEHOINUSA672N&quot; rel=&quot;noreferrer&quot;&gt;Real Median Household Income in the United States&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/3n7lF.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/3n7lF.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How are these graphs in line with the following graph, which does look more like stagnant wages (when comparing wages in constant dollar):&lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;3&quot;&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://www.pewresearch.org/fact-tank/2014/10/09/for-most-workers-real-wages-have-barely-budged-for-decades/&quot; rel=&quot;noreferrer&quot;&gt;For most workers, real wages have barely budged for decades&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/BW1kj.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/BW1kj.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;as well with the following graph which also seems to show stagnant wages:&lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;4&quot;&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://www.epi.org/publication/charting-wage-stagnation/&quot; rel=&quot;noreferrer&quot;&gt;Wage Stagnation in Nine Charts&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/m7EXP.jpg&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/m7EXP.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="13244" LastEditorUserId="8815" LastEditDate="2017-09-27T02:31:21.963" LastActivityDate="2017-09-27T06:46:53.980" Title="Has US real median personal/household income been stagnant since the late 1970's/early 1980's?" Tags="&lt;labor-economics&gt;&lt;economic-growth&gt;&lt;inequality&gt;&lt;wages&gt;" AnswerCount="1" CommentCount="9" ContentLicense="CC BY-SA 3.0" />
  <row Id="18464" PostTypeId="1" CreationDate="2017-09-27T00:12:13.033" Score="0" ViewCount="439" Body="&lt;p&gt;Most utility functions we work with are already continuous, so I thought it was understood that it must continuous. But how would I show that if the utility function is discontinuous the identity V(p, e(p,u))=u might not hold?&lt;/p&gt;&#xA;" OwnerUserId="14652" LastEditorUserId="14652" LastEditDate="2017-09-27T22:34:28.093" LastActivityDate="2017-09-28T02:06:07.103" Title="Utility function must be continuous for $V(p, e(p,u) )$ to hold?" Tags="&lt;microeconomics&gt;&lt;utility&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18465" PostTypeId="2" ParentId="18445" CreationDate="2017-09-27T03:12:55.843" Score="0" Body="&lt;p&gt;Note: I'm adding this simply to supplement the other answers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, I'm going to assume that you're talking about the $R^2$ of the time series regression&#xA;of security $i$ on the market portfolio $M$&#xA;$$&#xA;R_{it} = \alpha_i + \beta_i R_{Mt} + \epsilon_{it}.&#xA;$$&#xA;As @london described in his answer, the $\beta_i$ is simply the sensitivity of security $i$&#xA;to the market. In the Sharpe-Lintner CAPM, as well as in other variations, systematic risk is then defined as $\beta^2 \cdot \sigma^2_{R_M}$ and idiosyncratic risk is $\sigma^2_{\epsilon_i}$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, the $R^2$ (r-squared) of this regression should not be interpreted so much as&#xA;&quot;goodness of fit.&quot; Rather, &lt;strong&gt;it is simply a measure of the ratio&#xA;of ratio of systematic risk to total risk&lt;/strong&gt; (systematic plus idiosyncratic risk). As @london described, total risk includes all the other things that drive&#xA;security $i$'s returns. To see this,&#xA;note that the definition of $R^2$ in the population sense&#xA;is&#xA;$$&#xA;R^2 = \frac{\beta_i^2 \sigma^2_{M}}{\beta_i^2 \sigma^2_M + \sigma_\epsilon^2}.&#xA;$$&lt;/p&gt;&#xA;" OwnerUserId="59" LastActivityDate="2017-09-27T03:12:55.843" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18468" PostTypeId="2" ParentId="18463" CreationDate="2017-09-27T06:21:48.093" Score="3" Body="&lt;p&gt;As said in the comments, there is an important difference between household income and wages. Household income includes income from capital. As a higher share of total income is going to capital than to labour (see below), you would expect a divergence between household and wages. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/tl9UM.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/tl9UM.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Similarly, productivity increases are not being translated into higher wages, which means a higher distribution of gains toward capital (see below).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/PgG9k.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/PgG9k.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Source of image &lt;a href=&quot;https://www.bls.gov/opub/mlr/2011/01/art3full.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another important issue is that the &lt;em&gt;median&lt;/em&gt; can be a misleading figure when distributional changes are occurring. For instance, below is the percentile level of household income for the US:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/qgDiG.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/qgDiG.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Source of image &lt;a href=&quot;http://www.keepeek.com/Digital-Asset-Management/oecd/social-issues-migration-health/redistribution-policy-and-inequality-reduction-in-oecd-countries_5kg5dlkhjq0x-en#page16&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As you can see, the median can mask quite an heterogeneous development for different percentiles. Since lower percentiles source their household income mainly from wages, a stable median wage but an increasing median income is entirely consistent with higher inequality plus lower labour share.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-09-27T06:46:53.980" LastActivityDate="2017-09-27T06:46:53.980" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18470" PostTypeId="1" CreationDate="2017-09-27T09:26:32.693" Score="0" ViewCount="6837" Body="&lt;p&gt;My textbook says that:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Ratio of capital per capita to income per capita in the steady state is a positive function of s and an inverse function of η and δ.  Thus, k*/y* is a constant.  This means when saving increase, the ratio does not change as both capital per capita and income per capita increase at the same rate.  However, both capital per capital and income per capital decrease at the same rate if the depreciation and population growth rate are higher.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It also says that:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;When you get to the steady state of output per worker, it means that your economy will still grow, just that it will only grow at the rate of growth of the labour force i.e. equals to the rate of population growth)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Doesn't both statement contradict each other?  I mean if the population growth rate grows, why could the capital and income per capita decreases which the first statement seems to state.  Am I reading the statements wrongly?&lt;/p&gt;&#xA;" OwnerUserId="14657" LastEditorUserId="2776" LastEditDate="2017-09-27T15:09:44.727" LastActivityDate="2017-09-28T07:37:09.703" Title="Effect of population growth on Solow steady state" Tags="&lt;macroeconomics&gt;&lt;solow&gt;" AnswerCount="1" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="18471" PostTypeId="2" ParentId="18470" CreationDate="2017-09-27T12:50:45.077" Score="2" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;if the population growth rate grows, why could the capital and income per capita decreases&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This is basically asking &quot;why does higher population growth lower the steady state capital per worker&quot;?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Mathematics&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let us assume a Cobb-Douglas production function with constant returns to scale. This is,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Y=K^{\alpha}L^{1-\alpha}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It can be shown that in the steady state optimal capital &lt;em&gt;per capita&lt;/em&gt; is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$k^* = \left(\frac{s}{\delta+n}\right)^\frac{1}{1-\alpha}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(for example, see &lt;a href=&quot;https://economics.stackexchange.com/questions/15335/steady-state-solow-model-with-exogenous-technological-change?rq=1&quot;&gt;here&lt;/a&gt;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, an increase in $n$ lowers $k^*$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Similarly, in the steady state, output &lt;em&gt;per capita&lt;/em&gt; is $y^*=k^*{^{\alpha}}$. Thus, a fall in $k^*$ leads to a fall in $y^*$, given that $\alpha \in (0,1)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Intuition&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To start simple, think of an economy with a fixed level of workers ($n=0$). This economy has an exogenous saving rate $s$. Thus, for an initial level of output $Y$, workers save $s$ percentage of their income $Y$. These savings become investment, which then contributes to expanding capital. Meanwhile, there is a positive depreciation rate $\delta$, which in a given year renders a $\delta$% of the capital stock unusable. These two forces go in the opposite direction, moving capital stock up or down, depending on which force is stronger. Will there be a point in which these forces are in equilibrium? Necessarily there is one. Why? Because $\alpha \in (0,1)$ implies there is &lt;strong&gt;decreasing marginal returns&lt;/strong&gt; to capital, case in which the &lt;a href=&quot;https://en.wikipedia.org/wiki/Inada_conditions&quot; rel=&quot;nofollow noreferrer&quot;&gt;Inada Conditions&lt;/a&gt; hold. In other words, if capital is very low, adding more capital will expand output and investment &lt;strong&gt;by very much&lt;/strong&gt;. Conversely, when capital is very low, an identical increase in capital expands output and investment &lt;strong&gt;by very little&lt;/strong&gt;. In the middle, there is a point where such expansion is equal to the depreciation (which is constant). In the Solow diagram with axes $K$ and $Y$ (in capital letters, not in &lt;em&gt;per capita&lt;/em&gt; terms), that point is represented by the intersection between the depreciation function (a straight line) and the $sY$ line (concave, in line with the Inada Conditions).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, let us move to the case of positive population growth ($n&amp;gt;0$). Here, employment is increasing every period. Therefore, $Y$ is also increasing. In consequence, savings, investment and therefore capital is also increasing. In this economy, there is no steady state in terms of $K$ (unlike before), because $K$ is growing every period with the expansion of the population size. In terms of the same Solow diagram of above (with axes $K$ and $Y$, in capital letters, not in &lt;em&gt;per capita&lt;/em&gt; terms), the function $sY$ is shifting upwards every period, pushing the &lt;strong&gt;never-reachable&lt;/strong&gt; point where $sY$ intersects $\delta K$ further to the right.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since there is no steady state in terms of $K$, the next question to ask is, is there a steady state in terms of $K/L$? Because of the same logic than before, necessarily there is one. To see this, notice that capital &lt;em&gt;per capita&lt;/em&gt; terms has decreasing marginal returns in the production function (see the function above). This is, an increase in $K/L$ by 1% leads to an increase in $Y/L$ by less than 1%. Therefore, for a very low $K/L$, an increase in $K/L$ means a relatively large increase in $Y/L$ and therefore in savings $sY$ and in investment, and therefore in capital. Conversely, for a very high $K/L$, an increase in $K/L$ means a relatively small increase in $Y/L$ and therefore in savings $sY$ and in investment, and therefore in capital. The Inada Conditions ensure there is a middle point by which the forces that lower $K/L$ (in this case, depreciation and population growth) equilibrate the expansion of capital.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, why does an increase in $n$ lowers that optimal $K/L$? On the one hand, the first force in the equilibrium (pushing $K/L$ up) is given by both the savings rate $s$ and the degree of marginal returns ($\alpha$). Neither of these have changed. On the other hand, the second force in the equilibrium (pushing $K/L$ down) is given by both the depreciation rate $\delta$ (which makes a certain proportion of $K$ obsolete) and by the exogenous increase in $L$, which itself depends on $n$. In consequence, an increase in $n$ makes the second force stronger. This pushes the equilibrium to a lower level of $K/L$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Notice that a way to compensate this is to make the first force stronger, for instance, by increasing the savings rate. This can be easily seen in the Solow diagram, where it is possible to revert to the original $K/L$ steady state by increasing $s$.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-09-28T07:37:09.703" LastActivityDate="2017-09-28T07:37:09.703" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18472" PostTypeId="1" AcceptedAnswerId="18496" CreationDate="2017-09-27T17:34:52.767" Score="2" ViewCount="83" Body="&lt;p&gt;In the calculation of HDI, three indices are involved. One of them is the GNI index. In calculating this index, there's some scaling done. Quoting from the UNDP &lt;a href=&quot;http://hdr.undp.org/sites/default/files/hdr2016_technical_notes.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Technical notes&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The low minimum value for gross national income (GNI) per capita, $100, is justified by the considerable amount of unmeasured subsistence and nonmarket production in economies close to the minimum, which is not captured in the official data.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I don't understand what this justification means. &lt;strong&gt;Isn't \$100 too low?&lt;/strong&gt; The index goes on to put an upper cap at $75000 which makes sense - because beyond that income there's not much impact on the standard of living.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The calculation of this index is fairly straightforward:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$Dimension\ index = \frac{actual\ value – minimum\ value}{maximum\ value – minimum\ value}$&lt;/p&gt;&#xA;" OwnerUserId="14660" LastEditorUserId="14660" LastEditDate="2017-09-29T15:05:48.733" LastActivityDate="2017-09-30T03:37:53.517" Title="Understanding minimums in the calculation of Human Development Index" Tags="&lt;welfare-economics&gt;" AnswerCount="2" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="18473" PostTypeId="2" ParentId="18472" CreationDate="2017-09-27T18:36:46.617" Score="0" Body="&lt;p&gt;If anything the &lt;code&gt;$100&lt;/code&gt; is too high. There are many people in rural communities within which they earn 0 income given the fact that they are subsistence farmers and don't hold a job.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &lt;code&gt;$100&lt;/code&gt; per year minimum is to state that it is impossible for anybody to subsist on 0 per day and that if someone in official statistics is recorded with an income of 0 per day then in all likelihood there is unrecorded income from subsistence farming and non-market activity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &lt;code&gt;$100&lt;/code&gt; a year salary isn't all that unreasonable considering the kind of poverty many people live in. Nearly 1.1 Billion people live in absolute poverty (&lt;code&gt;Income &amp;lt; $1.90 / day&lt;/code&gt;) which annualized is a salary of &lt;code&gt;$700&lt;/code&gt;. It's quite reasonable to assume that some large percentage of those individuals make less than that which means there are millions who live on less than &lt;code&gt;$.3 per day&lt;/code&gt; which the &lt;code&gt;$100&lt;/code&gt; annual income would imply.&lt;/p&gt;&#xA;" OwnerUserId="10245" LastActivityDate="2017-09-27T18:36:46.617" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="18474" PostTypeId="1" AcceptedAnswerId="18478" CreationDate="2017-09-27T23:21:22.897" Score="3" ViewCount="1924" Body="&lt;p&gt;How would you best explain to a student in intermediate micro class that the Hicksian demand for a normal good is more inelastic than the Walrasian demand without heavy differential calculus?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When I mean inelastic, I mean specifically being less responsive to price changes, a picture similar to MWG Figure 3.I.3.&lt;/p&gt;&#xA;" OwnerUserId="8560" LastEditorUserId="8560" LastEditDate="2017-09-28T12:40:08.427" LastActivityDate="2017-09-28T12:40:08.427" Title="Explaining why Hicksian demand is more inelastic to intermediate micro student" Tags="&lt;microeconomics&gt;&lt;supply-and-demand&gt;&lt;consumer-theory&gt;" AnswerCount="1" CommentCount="5" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18475" PostTypeId="2" ParentId="18464" CreationDate="2017-09-28T02:06:07.103" Score="1" Body="&lt;p&gt;Define the function&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;V(p, e(p, u)) - u = f(u) ~~~\mbox{for}~~~ u_\min \leq u \leq u_\max&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your problem is then reduced to finding a point $u^* \in [u_\min, u_\max]$ such that $f(u^*)=0$. First, this problem may have not solution at all, even if the function is continuos. That being said, if the function is not continuos, you can have a situation like the one below&#xA;&lt;a href=&quot;https://i.stack.imgur.com/hF9do.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/hF9do.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Clearly, this function is not continuos at $u=u_0$, moreover, it is not possible to find a point $u^*$ such that $f(u^*) = 0$.&lt;/p&gt;&#xA;" OwnerUserId="14419" LastActivityDate="2017-09-28T02:06:07.103" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="18476" PostTypeId="1" CreationDate="2017-09-28T02:47:37.527" Score="0" ViewCount="177" Body="&lt;p&gt;In page 75 of Mascolell's microeconomic theory, there is a diagram showing some relations. In particular, there is a relation saying $e(p,u) = v(p, e(p,u))$. I wonder if this is a typo? If not, how to interpret it so that it reconciles with the usual relation $v(p,e(p,u)) = u$?&lt;/p&gt;&#xA;" OwnerUserId="11843" LastEditorUserId="11843" LastEditDate="2017-09-28T02:55:29.827" LastActivityDate="2017-09-28T08:42:38.093" Title="Is the relation between expenditure and indirect utility in the Mascolell's diagram wrong?" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18478" PostTypeId="2" ParentId="18474" CreationDate="2017-09-28T08:28:55.647" Score="9" Body="&lt;p&gt;Here's a &quot;no maths&quot; explanation (including the inferior goods case, because I think it helps to understand what's going on):&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Suppose we have a &lt;em&gt;normal good&lt;/em&gt;, $x$, and we increase its price. Marshallian demand decreases thanks to two effects (i) consumers &lt;strong&gt;substitute&lt;/strong&gt; away from $x$ towards cheaper alternatives; (ii) because prices are higher, consumers can afford less stuff, so it's as if their &lt;strong&gt;income&lt;/strong&gt; were lower. Both of these effects point towards lower demand for $X$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now consider Hicksian demand, which shows the effect of a price change after we compensate consumers to eliminate the income effect. Instead of having two effects (income and substitution) pointing in the direction of lower demand, now there is only one (substitution). So Hicksian demand changes less with prices.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that on p83 of MWG, the authors note that the figure is drawn for the case of normal goods.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;But let's look at the case of an &lt;em&gt;inferior good&lt;/em&gt;. By definition, when the price of an inferior good increases Marshallian demand tends to fall due to the substitution effect, but increase due to the income effect. In other words, there is one negative effect and one positive effect on demand. These two effects cancel each other out to some extent, so that the overall effect of price on Marshallian demand is muted.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hicksian demand eliminates the (positive) income effect, so  that the only remaining effect is the unambiguously negative substitution effect. Thus, Hicksian demand for an inferior good is &lt;em&gt;more&lt;/em&gt; sensitive to price that Marshallian demand.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2017-09-28T08:28:55.647" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="18479" PostTypeId="2" ParentId="18476" CreationDate="2017-09-28T08:42:38.093" Score="2" Body="&lt;p&gt;We can say that $v(p,w)=e(p,v(p,w))$ (or, equivalently, that $e(p,u)=v(p,e(p,u))$ if we are using the &quot;money metric&quot; indirect utility function. You can read about this in section 3.I of MWG. I guess that is what the authors had in mind when they drew figure 3.G.3.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;More generally, the relationship between $e$ and $v$ is one of inverses: $e(p,u)$ tells us the mapping $$\text{target utility}-&amp;gt;\text{money spent}$$ while $v(p,w)$ tells us the mapping  $$\text{money available}-&amp;gt;\text{attainable utility}.$$&#xA;So $e$ maps from money to utility and $v$ maps from utility back into money.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In words: if we take a given $w$ and feed it into $v$, we will get an answer to the question &quot;what is the most utility I could ever achieve, $\bar{u}$?&quot; Now, if I take that $\bar{u}$ and feed it into the expenditure function I get an answer to the question &quot;what do I have to spend to achieve utility level $\bar{u}$. That answer will be exactly $w$ (so $e$ 'undoes' the transformation applied by $v$, and vice-versa).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That's just a long-winded way of saying that you can obtain the expenditure function by inverting $v$ in its second argument, or obtain $v$ by inverting $e$. This is made explicit in equation 3.E.1 of MWG.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2017-09-28T08:42:38.093" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18484" PostTypeId="1" CreationDate="2017-09-28T13:29:30.867" Score="1" ViewCount="90" Body="&lt;p&gt;Which factors or formulas are used by the Fed to predict Economic Growth?&lt;/p&gt;&#xA;" OwnerUserId="14674" LastActivityDate="2017-09-28T13:29:30.867" Title="How does the Fed predict Economic Growth?" Tags="&lt;macroeconomics&gt;&lt;federal-reserve&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="18485" PostTypeId="1" AcceptedAnswerId="18495" CreationDate="2017-09-28T17:17:25.467" Score="2" ViewCount="1086" Body="&lt;p&gt;I am writing a paper on the application of Value-Added TFP to measurement of technological change. Just thinking of throwing in a few variables into my regression. I have ICT capital share (as seen in KLEMS dataset) as another proxy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would be grateful to hear your suggestions on other known proxies (if you know papers that relate to those proxies even better).&lt;/p&gt;&#xA;" OwnerUserId="2832" LastEditorUserId="2776" LastEditDate="2017-09-29T13:44:32.290" LastActivityDate="2017-09-29T13:44:32.290" Title="Proxies for technological change in an economy?" Tags="&lt;macroeconomics&gt;&lt;econometrics&gt;&lt;reference-request&gt;&lt;economic-growth&gt;&lt;technology&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18487" PostTypeId="2" ParentId="18485" CreationDate="2017-09-28T22:24:01.353" Score="3" Body="&lt;p&gt;I would say these are some proxies&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;em&gt;&lt;a href=&quot;https://www.uspto.gov/web/offices/ac/ido/oeip/taf/us_stat.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;Number of patents&lt;/a&gt;&lt;/em&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;em&gt;Number of published scientific papers&lt;/em&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;em&gt;&lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/016722319090028J&quot; rel=&quot;nofollow noreferrer&quot;&gt;Human capital&lt;/a&gt;&lt;/em&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="14419" LastActivityDate="2017-09-28T22:24:01.353" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18488" PostTypeId="1" CreationDate="2017-09-29T00:45:54.140" Score="1" ViewCount="437" Body="&lt;p&gt;I have recently been stumped on a microeconomics question where it gives a monopoly firm, its operating ATC (average total cost), price (average revenue), and quantity traded. First thing it wants me to do is to calculate marginal cost (MC). However, the information I am given is only at a single point, so how am I going to calculate it? Here it gives ATC = 30,Price=&#xA;300, and Q = 1,000,000. That's all the info the question gave me. I've had the thought that since this is where the firm is operating, then MC = MR. So if I can find MR at this quantity traded, that will be the MC. However, I am also stuck calculating MR. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here's all the working I've been able to do:&#xA;TR = AR x Q = 300 * 1000000 = 300 m.&#xA;TC = ATC x Q = 30 * 1000000 = 30 m.&#xA;I've also drawn a graph of ATC, AR, MR, and MC, but without knowing the y-intercept of the AR and MR functions it looks unlikely that MC = MR can be evaluated. I'm aware that the MR curve has twice the slope of demand curve, but that does not give any help with finding MR from the Price. Neither does ATC = MC since monopolies are not operating at the efficient scale.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks!&lt;/p&gt;&#xA;" OwnerUserId="14669" LastActivityDate="2017-09-29T00:45:54.140" Title="Monopoly marginal cost" Tags="&lt;monopoly&gt;&lt;cost&gt;" AnswerCount="0" CommentCount="3" FavoriteCount="1" ClosedDate="2017-09-29T18:21:22.267" ContentLicense="CC BY-SA 3.0" />
  <row Id="18489" PostTypeId="1" AcceptedAnswerId="18490" CreationDate="2017-09-29T01:00:50.977" Score="1" ViewCount="397" Body="&lt;p&gt;How to compute the utility function when risk aversion is equal to 1?&#xA;If the utility function of consumption is set as,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac{C^{1-\sigma} - 1}{1-\sigma}$.&#xA;Is it meaningful as $\sigma$ is equal to 1?&#xA;How to prove it if so? Thanks a lot!&lt;/p&gt;&#xA;" OwnerUserId="13914" LastActivityDate="2017-09-29T05:03:45.657" Title="How to compute the utility function when risk aversion is equal to 1?" Tags="&lt;utility&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18490" PostTypeId="2" ParentId="18489" CreationDate="2017-09-29T05:03:45.657" Score="3" Body="&lt;p&gt;Take the limit as $\sigma \rightarrow 1$,&#xA;\begin{align*}&#xA;\lim_{\sigma \rightarrow 1} \frac{C^{1-\sigma}}{1-\sigma}.&#xA;\end{align*}&#xA;This will then results in log utility. Calculating the limit goes as follows.&#xA;Since plugging in $\sigma = 0$ would give $\frac 0 0$, we use L'Hopital's rule.&#xA;This gives us&#xA;\begin{align*}&#xA;\lim_{\sigma \rightarrow 1} \frac{C^{1-\sigma}}{1-\sigma}&#xA;  &amp;amp;= \lim_{\sigma \rightarrow 1} \frac{- C^{1-\sigma} \log C}{-1} \\&#xA;  &amp;amp;= \log C.&#xA;\end{align*}&lt;/p&gt;&#xA;" OwnerUserId="59" LastActivityDate="2017-09-29T05:03:45.657" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18492" PostTypeId="1" CreationDate="2017-09-29T09:18:53.157" Score="2" ViewCount="53" Body="&lt;p&gt;Search for &lt;code&gt;Iran's GDP&lt;/code&gt; in Google, and what you will see is an image representing GDP of Iran, compared to other neighbor countries. It gives us the value of &lt;strong&gt;393.4 billion USD (2015)&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now in that page simply open some results. From Wikipedia, from World Economics, and other sources. You see values from 300 to 1.3 trillion Dollars.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Values are not coherent with each other. As an engineer who is not an economist but understands figures and diagrams, I think these values are so varied that they can not be used in researches as reliable information.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm working on a proposal, and I need information that can be trusted. What makes such a bold and universally known economical value so varied across data sources?&lt;/p&gt;&#xA;" OwnerUserId="14682" LastEditorUserId="2776" LastEditDate="2017-09-29T19:07:32.017" LastActivityDate="2017-09-29T19:07:32.017" Title="What makes statistics economical reports so varied and different?" Tags="&lt;gdp&gt;&lt;economic-measurement&gt;" AnswerCount="1" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="18494" PostTypeId="2" ParentId="18492" CreationDate="2017-09-29T11:09:58.793" Score="4" Body="&lt;p&gt;Regarding the general question in the title, the reasons why &quot;the same&quot; variable vary across sources depends very much on the particular variable you are talking about. Personally, one of my first shocks when I started working after my undergraduate was the high number of ways the same conceptual variable studied theoretically (e.g. inflation) could be measured in practice. These alternative definitions might refer to slightly different phenomena, or might reflect different set of assumptions by those computing the statistics. Depending on your ontological position when it comes to economic concepts (e.g. is there such a thing as &quot;inflation&quot; out there?), you can argue that some assumptions are better than others. But this does not deny the fact that there are potentially many ways to measure the same variable, and different institutions/individual might prefer one over the other.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Focusing in the case of GDP for Iran in particular, there is the &quot;original&quot; GDP (as coming from official or primary sources) in local currency (notice there are several definitions of GDP too, and in the case of Iran, one with and without oil production). For international comparison purposes, this metric needs to be transformed into e.g. current US\$ or PPP US\$, process which involves some assumptions (e.g. which exchange rate to use?). Again, different institutions might use different metrics and prefer different assumptions. As said below, for data coming from countries using the Islamic calendar, there are further complications when translating to the Gregorian calendar.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let us dig deeper in the case of Iran's GDP. First, you need to start with the &lt;strong&gt;official data&lt;/strong&gt; (or primary source), available in the website of the &lt;a href=&quot;https://www.amar.org.ir/english/Statistics-by-Topic/National-accounts#2223535-time-series&quot; rel=&quot;nofollow noreferrer&quot;&gt;Statistical Center of Iran&lt;/a&gt;. If you select the file for GDP at current prices (&lt;a href=&quot;https://www.amar.org.ir/Portals/1/PropertyAgent/2212/Files/7136/GDP-table1.xlsx&quot; rel=&quot;nofollow noreferrer&quot;&gt;this file&lt;/a&gt;), you get the quarterly data for GDP in current Iranian currency. Notice however, that this data corresponds to the &lt;a href=&quot;https://en.wikipedia.org/wiki/Solar_Hijri_calendar&quot; rel=&quot;nofollow noreferrer&quot;&gt;Islamic year&lt;/a&gt;, which is different from the Gregorian calendar used in most of the world (and used in the websites you mention). The former starts around the 21st of March of the latter. This is not exactly the end of the first quarter of the Gregorian calendar. Since quarterly data is the minimum frequency of the Iranian GDP, &lt;strong&gt;there is no exact way to convert quarterly Islamic-based GDP into annual Gregorian-based GDP&lt;/strong&gt;. This tells you immediately that the translation exercise is by definition an approximation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One reasonable approximation is to use the last quarter of an Iranian year and the first three quarters of the next Iranian year to produce a metric of the Gregorian-based year GDP. For 2015, this is:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;Quarter     GDP&#xA;-----------------&#xA;1393_4    439,687&#xA;1394_1    432,264&#xA;1394_2    450,158&#xA;1394_3    433,799&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Which add up to &lt;code&gt;1,755,908&lt;/code&gt; billion Rials (this includes Oil production). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To translate this into $USD, which is the metric of the World Bank data, you would need to assume something about the exchange rate. Do you use the average over the quarter? Over the year? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, the same official statistics website above offer a measure of GDP in USD for the Gregorian calendar (see &lt;a href=&quot;https://www.amar.org.ir/Portals/1/PropertyAgent/2212/Files/4503/01%20-%20GDP%20at%20Current%20Prices.xls&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/Yb788.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Yb788.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Unfortunately, they do not mention which exchange rate conversion was used.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Meanwhile, the &lt;a href=&quot;https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?end=2011&amp;amp;locations=IR&amp;amp;start=2000&amp;amp;view=chart&quot; rel=&quot;nofollow noreferrer&quot;&gt;World Bank&lt;/a&gt; offers a slightly different one:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/0H4WF.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/0H4WF.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The notes for the latter states:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Dollar figures for GDP are converted from domestic currencies using single year official exchange rates. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Did they use a different conversion rate? It's very likely.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regarding the IMF data, which is reported in the Wikipedia article (particularly in the graph &lt;a href=&quot;https://en.wikipedia.org/wiki/Economy_of_Iran#Macroeconomic_trends&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;), this is measured in PPP terms (and the data is highly consistent with World Bank data of GDP in PPP; see &lt;a href=&quot;https://data.worldbank.org/indicator/NY.GDP.MKTP.PP.CD?end=2015&amp;amp;locations=IR&amp;amp;start=2000&amp;amp;view=chart&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;). PPP adjusts GDP figures not only by the exchange rate but also by a measure of the relative cost of living of Iran with respect to the US. This &lt;strong&gt;inflates&lt;/strong&gt; the GDP of Iran (see PPP rates &lt;a href=&quot;https://data.worldbank.org/indicator/PA.NUS.PPP?locations=IR&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are plenty of questions in this site about PPP. For example, see &lt;a href=&quot;https://economics.stackexchange.com/questions/12486/what-exactly-is-purchasing-power-parity-ppp/18346#18346&quot;&gt;here&lt;/a&gt; and &lt;a href=&quot;https://economics.stackexchange.com/questions/11994/how-are-purchasing-power-parity-ppp-conversions-computed/18343#18343&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-09-29T19:04:55.533" LastActivityDate="2017-09-29T19:04:55.533" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18495" PostTypeId="2" ParentId="18485" CreationDate="2017-09-29T13:43:31.833" Score="2" Body="&lt;p&gt;&lt;a href=&quot;http://www.foreurope.eu/fileadmin/documents/pdf/Workingpapers/WWWforEurope_WPS_no098_MS217.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;This paper&lt;/a&gt; names some alternatives available:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;a linear trend (something like assuming constant exogenous growth)&lt;/li&gt;&#xA;&lt;li&gt;ICT capital&lt;/li&gt;&#xA;&lt;li&gt;stock of patents&lt;/li&gt;&#xA;&lt;li&gt;stock of knowledge (proxied by education levels or human capital)&lt;/li&gt;&#xA;&lt;li&gt;R&amp;amp;D &lt;/li&gt;&#xA;&lt;li&gt;energy prices (e.g. see &lt;a href=&quot;https://web.stanford.edu/group/emf-research/docs/occasional_papers/op56.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.nber.org/reporter/summer99/bartel.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;This article&lt;/a&gt; mentions the following proxies for technological change:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;the NBER productivity series, the Census of Manufacturers series on investment in computers, the industry's research and design to sales ratio, the industry's use of patents, and the number of scientists and engineers employed within the industry.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;If you want homogeneous, long and wide coverage, the best option might be the World Bank Development Indicators for science and technology. Some of them have been mentioned above. See the database &lt;a href=&quot;http://wdi.worldbank.org/table/5.13&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;, and &lt;a href=&quot;http://www.econ.boun.edu.tr/content/wp/EC2014_06.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; is a paper using them to study their importance on technical change.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A dataset which is also quite popular at the moment is that of &lt;strong&gt;robots&lt;/strong&gt;, compiled by the &lt;a href=&quot;https://ifr.org/&quot; rel=&quot;nofollow noreferrer&quot;&gt;International Federation of Robotics&lt;/a&gt;. The logic is the same than that of using ICT (notice both of these could be considered as capital too). For example, see &lt;a href=&quot;http://cep.lse.ac.uk/pubs/download/dp1335.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;. The authors state:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The IFR provides data on the number of robots delivered to each industry, in each country and year. We construct the stock of robots based on the deliveries using the perpetual inventory method, assuming a depreciation rate of ten percent. This approach is similar to the EUKLEMS procedure for computing the stock of ICT capital. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-09-29T13:43:31.833" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="18496" PostTypeId="2" ParentId="18472" CreationDate="2017-09-29T13:56:42.883" Score="1" Body="&lt;p&gt;This means that if a country would have most of its population living out of subsistence farming, which in practice could be registered as zero income, this would lead to an estimated/assumed GNIpc equivalent to \$100 per year per capita, which no country would ever go below. &#xA;Having this value makes sense when reading the starting notes of that section:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Minimum and maximum values (goalposts) are set in order to &#xA;  transform the indicators expressed in different units into indices on a scale of 0 to 1. These goalposts act as the “natural zeros” &#xA;  and “aspirational targets” (...)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Said in other words, having this minimum means that \$100 would be the GNI per capita that would provide the lowest or minimum standard of living possible.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Answering to the &lt;strong&gt;&lt;em&gt;&quot;isn't \$100 too low&quot;&lt;/em&gt;&lt;/strong&gt;: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;For income, it is set at \$100 per capita GNI, which is lower than the lowest value attained by any country in recent history (Zimbabwe in 2008). Should any country’s per capita GNI fall close to or below $100, the minimum will be changed accordingly.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I can recommend to read the &lt;a href=&quot;http://hdr.undp.org/en/content/what-rationale-behind-minimum-values-indicators&quot; rel=&quot;nofollow noreferrer&quot;&gt;source from UNDP&lt;/a&gt;, gives interesting inputs on the other dimensions too. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;There are mathematical reasons to chose a low minimum&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is also convenient to choose minimums that make the dimensions non-zero, or not too close to zero even for countries which would score close to the minimum. Since the HDI is all about the combination of several aspects, and the formula is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$HDI = (I_{health} \cdot I_{education} \cdot I_{income})^\frac13$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If any country would score a zero in any dimension this would dominate the whole HDI (make it zero), which defeats the purpose of the index. The index aims at acknowledging average human development balancing the three aspects. &lt;/p&gt;&#xA;" OwnerUserId="12304" LastEditorUserId="12304" LastEditDate="2017-09-30T03:37:53.517" LastActivityDate="2017-09-30T03:37:53.517" CommentCount="11" ContentLicense="CC BY-SA 3.0" />
  <row Id="18497" PostTypeId="2" ParentId="18063" CreationDate="2017-09-29T14:37:24.577" Score="1" Body="&lt;p&gt;&lt;a href=&quot;https://mpra.ub.uni-muenchen.de/13260/1/MPRA_paper_13260.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;This paper&lt;/a&gt; might be of interest to you. This bit is important:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/ysMTF.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/ysMTF.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So any linear transformation of $u(c)$ solved the differential equation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In section 3 the author derives a linear transformation that allows for a balanced growth path under bounded consumption. In particular, the author computes an expression for $a$ above. This is not necessarily what you are interested on, but gives an idea of the values of $a$ given assumptions on $\sigma$, which might give you an idea about how to justify the value of $a$.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-09-29T14:37:24.577" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18498" PostTypeId="2" ParentId="15953" CreationDate="2017-09-29T14:54:18.273" Score="1" Body="&lt;p&gt;An alternative procedure would be to extrapolate the data for the most recent time backwards at the growth rate of the first set (earlier periods). By doing this, you do not have to rebase, adjust or splice the two sets. You will have the base year of the data for the most recent years (2004-5) and also will preserve the trend growth of the data for the earlier periods.&lt;/p&gt;&#xA;" OwnerUserId="6009" LastEditorUserId="6009" LastEditDate="2017-09-29T15:01:10.020" LastActivityDate="2017-09-29T15:01:10.020" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18500" PostTypeId="1" AcceptedAnswerId="18515" CreationDate="2017-09-29T20:13:44.683" Score="0" ViewCount="113" Body="&lt;p&gt;I want to analyze the changes in the interest rate $r$ when dealing with the permanent income hypothesis. First of all, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$r$ is the interest rate $0&amp;lt;\beta&amp;lt;1$ is the discount factor, $Y_t$ is the labor income for period $t$, $A_t$ is the net asset wealth, $C_t$ is the consumption in the period $t$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now the Euler equation comes up :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$u'(C_t)=\beta(1+r)u'(C_{t+1}) \ \  (*)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And If we assume $\beta(1+r)=1$ (We are going to be assuming this all the time when we are doing our analysis (closed economy)). Then:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consumption in each period equals to each other (derived from the Euler equation) and it is equal to :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$C = \frac{r}{1+r}(A_0+\sum_{t=0}^{\infty} (\frac{1}{1+r})^t Y_t )  \ \ (**)$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm not gonna go through the details of how the equation $(**)$ is derived, since it will distort the scope of my question here.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now Clearly It could be observed that when the interest rate $r$ increases, we use the $eq(*)$ to identify the substation effect and $eq(**)$ to identify the income effect. Substitution effect could be identified easily by using the fact that $u''()&amp;lt;0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However when identifying the income effect there are two cases :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$(1)$ Consumer is saving&#xA;$(2)$ Consumer is borrowing&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When looking at the case $(2)$ I could easily show that consumers that are borrowing will decrease their consumption for all periods if the interest rates increase (Intuition = formula)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However if Consumer is saving:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then $A_0 &amp;gt;0$ So $$ A_0 \frac{r_2}{1+r_2} &amp;gt; A_0 \frac{r_1}{1+r_1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where $r_2$ is the new interest rate. However, We need to look at the change that occurs for $\sum_{t=0}^{\infty} (\frac{1}{1+r})^t Y_t$ when the interest rate increases. However this decreases with a higher $r$. Since the change in $A_0 \frac{r}{1+r}$ and $\sum_{t=0}^{\infty} (\frac{1}{1+r})^t Y_t$ act in opposite directions, I couldn't show whether $C$ would decrease or increase. (i.e I couldn't show that $intuition = formula$)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help?&lt;/p&gt;&#xA;" OwnerUserId="10922" LastActivityDate="2017-09-30T14:38:41.163" Title="Permanent Income Hypothesis - Changes in r" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18501" PostTypeId="1" CreationDate="2017-09-29T20:21:05.587" Score="0" ViewCount="444" Body="&lt;p&gt;The Euler equation is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$u(C_{t})=\beta(1+r)U(C_{t+1})$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In my lecture notes, I noted that my prof. said something like:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Since our economy is closed, we are going to assume that $\beta(1+r)=1$&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;What did he mean by this statement? I couldn't get it. Why would closed economy imply this condition. What would happen if $\beta(1+r)&amp;gt;1$ or $&amp;lt;1$?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm trying to understand the intuition behind it.&lt;/p&gt;&#xA;" OwnerUserId="10922" LastEditorUserId="2776" LastEditDate="2017-09-29T20:26:58.867" LastActivityDate="2017-09-29T20:26:58.867" Title="Euler equation - Intuition behind setting $\beta(1+r)=1$ if the economy is closed" Tags="&lt;macroeconomics&gt;&lt;consumer-theory&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18502" PostTypeId="1" CreationDate="2017-09-29T20:31:37.140" Score="2" ViewCount="46" Body="&lt;p&gt;Has there been any scholarship done on the proportion of producers producing high-end vs low-end goods? This could also be framed as the proportion of economic activity generated by wealth excess of a certain amount per person. Or is there a better way to understand this issue? &lt;/p&gt;&#xA;" OwnerUserId="14685" LastEditorUserId="1601" LastEditDate="2017-09-29T20:54:40.750" LastActivityDate="2017-09-29T20:54:40.750" Title="How many of the world's workers are producing luxury vs necessary goods?" Tags="&lt;reference-request&gt;&lt;labor-economics&gt;&lt;inequality&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18503" PostTypeId="1" AcceptedAnswerId="18505" CreationDate="2017-09-29T20:42:06.163" Score="2" ViewCount="873" Body="&lt;p&gt;The following is a problem I am dealing with related to Weak Axiom of Revealed Preference. I have given my solution below to the situation. What I am not getting is how is WARP not violated?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A law firm looking to hire to fill three positions gets applications from Andrew, Barbara and Celia.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The law firm's set of alternatives is the set of possible hiring decisions:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$ X = \{ \phi, \{a\}, \{b\}, \{c\}, \{a,b\}, \{b,c\}, \{a,c\}, \{a,b,c\}  \} $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For any $Y \subset \{a,b,c\}$, define the power set of Y as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$ 2^{Y} \equiv \{Z | Z \subset Y \}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$ 2^{Y}$ is the set of hiring decisions that the firm can make when it receives applications from the lawyers in Y.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The law firm's budget sets $ B \in \mathcal{B} $ are the sets of hiring decisions it can make after receiving applications from some combination of Andrew, Barbara and Celia :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\mathcal{B} = \{2^{Y} |Y \subset \{a, b, c \} \}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) When it receives applications from Andrew and Barbara, it will choose to hire Barbara (and not Andrew):-&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$ C(2^{\{a,b\}}) = \{b\} $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) When it receives applications from Barbara and Celia, it will choose to hire Celia (and not Barbara):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$ C(2^{\{b,c\}}) = \{c\} $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The following is the problem I am confused in :&#xA;Q) What restrictions does the weak axiom place on the firm's hiring&#xA;decision $C(2^{\{a,b,c\}})$ when it receives applications from Andrew, Barbara and Celia?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My Solution: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;According to Mas-Colell et al (Definition 1.C.1) , the Weak Axiom of Revealed Preference says that if x is ever chosen when y is available then there can be no budget set containing both alternatives for which y is chosen and x is not.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So based on my understanding of WARP, in my situation above, when Andrew and Barbara apply the firm chooses Barbara , i.e. &#xA;$ Barbara \succsim_R Andrew$&#xA;and when Barbara and Celia apply, the firm chooses Celia i.e. :&#xA;$ Celia \succsim_R Barbara $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here we see that since Barbara is not chosen over Celia , WARP is violated. Because WARP would imply that Barbara is chosen everywhere when Barbara is a choice in the set. So when Andrew , Barbara and Celia apply, and WARP violates the above relation given , the firm would hire only Andrew.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I am not getting is how is WARP not violated?&lt;/p&gt;&#xA;" OwnerUserId="14591" LastActivityDate="2017-09-29T22:33:07.877" Title="Weak axiom of Revealed Preference application" Tags="&lt;microeconomics&gt;&lt;preferences&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18504" PostTypeId="1" CreationDate="2017-09-29T20:51:21.100" Score="2" ViewCount="138" Body="&lt;p&gt;Regardless of the morality of progressive taxes, the economical benefit of progressive tax is at least debatable. But could a highly progressive tax replace at least some of the american/european anti-trust regulations?&lt;/p&gt;&#xA;" OwnerUserId="6439" LastActivityDate="2017-09-30T11:26:14.250" Title="How effective is progressive tax at regulating monopoly?" Tags="&lt;taxation&gt;&lt;monopoly&gt;&lt;regulation&gt;" AnswerCount="1" CommentCount="8" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18505" PostTypeId="2" ParentId="18503" CreationDate="2017-09-29T22:22:43.867" Score="3" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Because WARP would imply that Barbara is chosen everywhere when Barbara is a choice in the set.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This is not true. Instead WARP would say that &lt;strong&gt;it is not possible for Andrew to be chosen whenever both Andrew and Barbara are in the choice set&lt;/strong&gt;, which is different than your claim above.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Just because $b$ is chosen from the set $\{a,b\}$ doesn't mean that $b$ should &lt;em&gt;always&lt;/em&gt; be chosen, e.g. from the set $\{b,c\}$. It just means that $b$ is revealed-preferred to $a$, but it doesn't mean that $b$ is preferred to all other possible alternatives (in particular, $c$). For example, the preference $c\succ b\succ a$ is perfectly consistent with the revealed choice pattern of the firm.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Write out the two conditions explicitly: &#xA;$$&#xA;\begin{align}&#xA;C(\color{red}{\varnothing},\color{red}{\{a\}},\{b\},\color{red}{\{a,b\}})&amp;amp;=\{b\}\tag{1}\\&#xA;C(\color{red}{\varnothing},\color{red}{\{b\}},\{c\},\color{red}{\{b,c\}})&amp;amp;=\{c\}\tag{2}&#xA;\end{align}&#xA;$$&#xA;$(1)$ just says that whenever the four choices --- hire no one, hire $a$ only, hire $b$ only, hire both --- are present, the firm hires $b$ only. &#xA;Likewise, $(2)$ says whenever the four choices --- hire no one, hire $b$ only, hire $c$ only, hire both --- are present, the firm hires $c$ only. &#xA;These two are consistent with WARP (for $(1)$, the x in your quoted definition is $a$ and y is $b$; for $(2)$, x is $b$ and y is $c$). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For restrictions on $C(2^{\{a,b,c\}})$, writing it out explicitly, we get &#xA;$$&#xA;C(\color{red}{\varnothing},\color{red}{\{a\}},\color{red}{\{b\}},\color{black}{\{c\}},\color{red}{\{a,b\}},\color{black}{\{a,c\}},\color{red}{\{b,c\}},\color{black}{\{a,b,c\}})=\{\{a\},\{a,c\},\{a,b,c\}\}&#xA;$$&#xA;where the elements colored in red are revealed to be inferior according to $(1)$ and $(2)$.&lt;/p&gt;&#xA;" OwnerUserId="42" LastEditorUserId="42" LastEditDate="2017-09-29T22:33:07.877" LastActivityDate="2017-09-29T22:33:07.877" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18506" PostTypeId="1" AcceptedAnswerId="18510" CreationDate="2017-09-29T23:18:12.470" Score="3" ViewCount="184" Body="&lt;p&gt;I have been reading about various explanations for the British industrial revolution. A strand of research lead by &lt;a href=&quot;http://onlinelibrary.wiley.com/doi/10.1111/j.1752-5209.2009.00032.x/abstract&quot; rel=&quot;nofollow noreferrer&quot;&gt;Allen (2009)&lt;/a&gt; tries to provide an incentives based explanation whereby high wage and cheap energy (coal-based) economy of Britain induced labour-saving and capital-deepening technical change. That's, low cost of capital relative to high wages encouraged innovative activities which lead to the substitution of expensive labour with machines i.e. mechanisation of manufacture, textiles, agriculture etc. and this transformation sustained the productivity growth.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the businesses tried (perhaps, managed) to reduce their labour costs, the labour's share in national income should decline over time. However, looking at the time series of labour's share in national income estimed by &lt;a href=&quot;http://faculty.econ.ucdavis.edu/faculty/gclark/papers/Macroagg2009.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Clark(2009)&lt;/a&gt;, I see the opposite. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/Mhe7D.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Mhe7D.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The data does not show any support to Allen's hypothesis, which, if true, I would expect the aggregate wage bill to go down in the 19th century due to labour saving and the share of capital to go up due to capital deepening.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any thoughts or suggestions as to why the wage bill increased despite the efforts to save labour?&lt;/p&gt;&#xA;" OwnerUserId="6009" LastEditorUserId="6009" LastEditDate="2017-09-30T10:20:39.260" LastActivityDate="2017-11-13T02:10:46.790" Title="Industrial Revolution: Induced technical change and factor shares" Tags="&lt;macroeconomics&gt;&lt;economic-growth&gt;&lt;directed-technical-change&gt;&lt;economic-history&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="18508" PostTypeId="1" CreationDate="2017-09-30T03:55:32.797" Score="0" ViewCount="905" Body="&lt;p&gt;If a country enacts a program that successfully reduces its imports, eg: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;A 'buy local' advertising campaign&lt;/li&gt;&#xA;&lt;li&gt;A program of training mechanics to maintain older cars, rather than buying new imports&lt;/li&gt;&#xA;&lt;li&gt;An extensive public transport program that reduces the country's oil imports. &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;(These programs aren't reducing imports by imposing tarrifs). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What would the effect on that country's economy be? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Under existing trade rules, are any of these examples likely to breach free trade agreements? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the face of it, a reduce demand for imported goods would correspond with a lower supply of that country's currency, as they need to sell less of their own currency to buy the imports they need. This would raise the price of their currency, and that would in turn reduce demand for the country's exports. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, I'm wondering I'm missing another side of the equation here - eg, selling currency for international investment. &lt;/p&gt;&#xA;" OwnerUserId="96" LastEditorUserId="6009" LastEditDate="2017-09-30T11:53:47.820" LastActivityDate="2017-10-28T00:32:09.570" Title="What's the economic effect of a country reducing its imports?" Tags="&lt;currency&gt;&lt;international-trade&gt;&lt;international-economics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18509" PostTypeId="1" CreationDate="2017-09-30T07:40:49.427" Score="3" ViewCount="195" Body="&lt;p&gt;A &lt;a href=&quot;http://www.nmpf.org/latest-news/press-releases/sep-2015/losing-immigrant-workers-dairy-farms-would-nearly-double-retail&quot; rel=&quot;nofollow noreferrer&quot;&gt;2015 article on the Farm Bureau's website&lt;/a&gt; states:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Half of all workers on U.S. dairy farms are immigrants, and the damage&#xA;  from losing those workers would extend far beyond the farms, nearly&#xA;  doubling retail milk prices and costing the total U.S. economy more&#xA;  than $32 billion, according to a new report commissioned by the&#xA;  National Milk Producers Federation.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;According to an &lt;a href=&quot;http://www.progressivedairy.com/topics/management/how-much-does-the-farmer-get-when-a-consumer-buys-milk&quot; rel=&quot;nofollow noreferrer&quot;&gt;analysis at Progressive Dairy&lt;/a&gt;, out of the 3.40 a consumer pays for a gallon of milk at the supermarket, 1.53 goes to the farmer. In terms of hundredweight, the numbers are 39.40 cwt and 17.85 cwt.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;According to a survey of dairy farms in the Northeast, the labor costs of running a dairy farm in terms of cost/hundredweight were [also] about 3.40 (with variations by herd size, etc).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Various sources put the hourly wage for illegals on dairy farms between 10.00 and 14.00 dollars per hour. Let's assume a dairy farmer hires only illegals and he pays them 12.00 per hour. Then they are all deported. In order to attract quality legal workers to take their places, lets say he needs to pay 24.00 per hour and that the full amount of that cost is passed directly to the consumer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since 24.00 is twice 12.00, we can multiply the labor share of a dairy farm's expenses per hundredweight by 2 which equals 6.80 and then add the increase into the farmer's share of the consumer's dollar / hundredweight, or 17.85 + 3.40 = 21.25.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A gallon of milk weighs about 8.6 pounds which means there are about 11.63 gal of milk in a hundredweight. So we take the 3.40 new labor costs and divide between the 11.63, which is a .29 per gallon increase.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, the next time you bought a gallon of milk it would be 3.69, up from 3.40--a very far cry from &quot;nearly doubling&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Question: How can we analyze the veracity of the claim that milk prices would double at the retail level if all the illegals were deported?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;The article was a press release from the &quot;National Milk Producers Federation&quot;, which is located in the heart of dairy country, Arlington, VA.&lt;/p&gt;&#xA;" OwnerUserId="13669" LastEditorUserId="4251" LastEditDate="2017-10-05T03:29:47.733" LastActivityDate="2017-10-07T16:50:52.987" Title="Analyzing Farm Bureau's claim that milk prices would double at the retail level if all the illegals were deported" Tags="&lt;labor-economics&gt;&lt;agriculture&gt;&lt;migration&gt;&lt;black-market&gt;" AnswerCount="1" CommentCount="10" ContentLicense="CC BY-SA 3.0" />
  <row Id="18510" PostTypeId="2" ParentId="18506" CreationDate="2017-09-30T08:52:34.680" Score="3" Body="&lt;p&gt;According to &lt;a href=&quot;http://econpapers.repec.org/article/eeeexehis/v_3a38_3ay_3a2001_3ai_3a4_3ap_3a411-447.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;Allen (2001)&lt;/a&gt;, real wages expanded throughout the 19th century in the UK. You seem to imply that they did not. The graph below shows that the UK (London) had higher wages+cost of living than the rest of Europe (except the Netherlands) for several centuries, whereas the rising productivity in the 19th century (because of industrialisation) &lt;strong&gt;enabled&lt;/strong&gt; the possibility of rising wages (see more graphs and tables in the paper).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/6yRh0.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/6yRh0.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The author states:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The high real wages in the northern Europe were the result of high nominal wages. These, in turn, reflected a growing productivity advantage that these economies enjoyed during the early modern period. [...] The advantage of northern Europe, therefore, did not lie in cheap labor but rather in high productivity: Exporters in northern Europe could successfully compete against those in the south and pay a higher wage only because their productivity was higher. By the same argument, the eighteenth century rise in English wages above those prevailing in the Low Countries or, indeed, anywhere else on the continent, attests to rising productivity in British manufacturing (cf. Temin, 1997; Berg and Hudson, 1992). The English labor market was so inflated in the late eighteenth century that even the winter wage of men in agriculture exceeded the wage of craftsmen in many parts of Europe. This premium became even greater during the industrial revolution. English construction wages leaped up again in the first half of the nineteenth century, and for this period we know that the wage advance was general. &lt;strong&gt;The only way that Britain could pay the highest wages in Europe and dominate export markets as it did was to have the most productive manufacturing sector.&lt;/strong&gt; Wage history indicates the mid-nineteenth century preeminence was built up over several centuries.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;A &lt;a href=&quot;http://www.bankofengland.co.uk/publications/Documents/speeches/2015/speech864.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;recent piece&lt;/a&gt; by the Bank of England presents a long series of data on different variables, including labour productivity and wage growth. The graph (below) gives further support to Allen's analysis.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/rTa2f.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/rTa2f.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, even in a period of high capital deepening, if real wages (and employment) are rising because of Hicks-Neutral technical change (on top of labour-saving technical change) a rise in the labour share over that period is possible. This can also be seen mathematically.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider a constant returns to scale CES production function:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ Y = A\left[\alpha K^{\rho} + (1-\alpha)L^{\rho} \right]^{\frac{1}{\rho}} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a competitive market, the real wage is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ w = (1-\alpha)\left(\frac{Y}{L}\right)^{1-\rho} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The wage share is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{wL}{Y} = (1-\alpha)\left(\frac{L}{Y}\right)^{\rho} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Adding capital to the right-hand side produces:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{wL}{Y} = (1-\alpha)\left(\frac{L}{K}\frac{K}{Y}\right)^{\rho} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Capital deepening means $\frac{L}{K}$ falls. In a world with a mild degree of Hicks-neutral technical change (growth in $A$, as you would expect in the industrial revolution and Allen argues), it is reasonable to expect $\frac{K}{Y}$ is falling. Therefore, the term inside the parenthesis is falling. In the case of $\rho&amp;lt;0$, i.e. relatively low substitution between capital and labour (as is the &lt;a href=&quot;https://ideas.repec.org/a/aea/aecrev/v100y2010i4p1330-57.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;empirical regularity&lt;/a&gt;, at least in recent decades; maybe different around the industrial revolution?), such biased plus unbiased technical change leads to an increase in the labour share. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Notice that in the case of $\rho=0$, the CES degenerates to the Cobb-Douglas function, in which case the labour share depends only on $(1-\alpha)$ and not on the capital-labour ratio.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, the above is a highly ad-hoc, not general equilibrium analysis. &#xA;I just wanted to make the point that the equations &lt;em&gt;allow&lt;/em&gt; for labour-saving technical change to expand the labour share. &lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="6009" LastEditDate="2017-11-13T02:10:46.790" LastActivityDate="2017-11-13T02:10:46.790" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="18511" PostTypeId="2" ParentId="18504" CreationDate="2017-09-30T11:26:14.250" Score="1" Body="&lt;p&gt;Progressive income taxes on &lt;em&gt;individuals&lt;/em&gt; is not very likely to have any real impact on market power, but progressive income taxes on &lt;em&gt;corporations&lt;/em&gt; can certainly have this effect. The key idea is that in many industries (for example, the financial industry), there are geniune economies of scale: having a big balance sheet allows an investment bank to take advantage of various synergies, meet demand from customers at lower costs and therefore at lower prices. This means that there is a natural pressure towards concentration in the financial industry. High levels of concentration, however, allow firms to price out their competitors from the market due to their size and the aforementioned scale effects, and can lead to a scenario of oligopoly.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The government can try to deal with this problem by introducing negative incentives for corporations to get bigger. This can be in the form of an explicit limit on the size of corporate balance sheets rel to GDP, as advocated by Stiglitz, or it can be in the form of income taxes, or capital requirements, which are &quot;progressive&quot; in the sense that they impose higher marginal costs on larger and more complex firms over smaller ones. Such a measure can offset the natural incentive towards aggregation in the financial industry, for example. This is already done to some extent by Dodd-Frank (perhaps unintentionally) in the US, which raised capital requirements for SIFIs (which are well-integrated financial institutions with large balance sheets). The adverse effect is that by doing this, a country can effectively price its financial institutions out of international markets. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In turn, a policy which reduces market power can have positive effects on the income distribution, as it would lead to lower prices and higher wages. The problem is to find the right balance between the benefits (lower costs) and costs (market power) of concentration in the marketplace.&lt;/p&gt;&#xA;" OwnerUserId="13743" LastActivityDate="2017-09-30T11:26:14.250" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18512" PostTypeId="2" ParentId="18373" CreationDate="2017-09-30T12:55:18.547" Score="2" Body="&lt;p&gt;You need to be clear about the definitions. Lets take:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(1) $u: X \to \mathbb{R}$ &lt;strong&gt;represents&lt;/strong&gt; $\succsim$ if $u(x) \geq u(y) \iff x \succsim y$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(2) A function $h: \mathbb{R} \to \mathbb{R}$ is &lt;strong&gt;monotone&lt;/strong&gt; if $z \geq w \implies h(z) \geq h(w)$. $h$ is &lt;strong&gt;strictly&lt;/strong&gt; monotone if $z &amp;gt; w \implies h(z) &amp;gt; h(w)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, note that every strictly monotone function is monotone. Why? Well let $z \geq w$, and there are two cases to check: (i) $z &amp;gt; w$: apply the definition; (ii) $z = w$: then $h(z) = h(w)$ by the definition of equality (this is because $\mathbb{R}$ is a totally ordered set). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So immediately, we see that your condition (b) implies your condition (a). However, (b) is false (I do not understand Kanak's line of reasoning, but it is certainly wrong, although perhaps can be rationalized by non-standard definitions). To show that it is wrong, we need a counter example. Lets let $X = \{x,y\}$ and let $x \succ y$. Then $u(x) = 1$ and $u(y) = 0$ represents $\succsim$. Moreover, $h: z \mapsto 0$ is a monotone transformation. But, $h(u(x)) = h(u(y)) = 0$ does not.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Indeed, this example shows that it is &lt;em&gt;weakly&lt;/em&gt; monotone transformations that destroy information (they need not be invertible), which in terms of the representation, indicates that strict preference gets collapsed into weak inequality. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Showing that (a) holds is a straightforward application of the definitions. (Hint: show that strict monotonicity can be defined via a bi-conditional statement).  &lt;/p&gt;&#xA;" OwnerUserId="398" LastActivityDate="2017-09-30T12:55:18.547" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18513" PostTypeId="2" ParentId="18508" CreationDate="2017-09-30T13:31:51.137" Score="1" Body="&lt;p&gt;The short unqualified answer is '&lt;em&gt;it depends&lt;/em&gt;'. Are we talking about a '&lt;em&gt;small&lt;/em&gt;' or a '&lt;em&gt;big&lt;/em&gt;' economy? Is that economy '&lt;em&gt;wide&lt;/em&gt;' open or sealed tight to factor movements? Does it issue its own currency? What's the exchange rate regime it uses? Furthermore, what are its developmental goals, in general? The answers are going to be different, depending on what kind of countries we are talking about eg US vs Belgium, or Singapore, to take two extreme cases.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In general, directing consumers towards domestically produced commodities would &lt;em&gt;increase&lt;/em&gt; the demand for local commodities at the expense of imported ones &lt;em&gt;as long as&lt;/em&gt; there are local substitutes for foreign imports. It seems plausible to substitute imported beer for domestic wine. The catch is that the domestically produced substitutes should actually &lt;em&gt;be&lt;/em&gt; price competitive to foreign alternatives otherwise no amount of 'national pride' can compensate for a price tag eg twice as high (I'm assuming that quotas, tariffs and the like are not sought for). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As far as the 'training program' is concerned, it could be a more all-encompassing venture that extended beyond cars. The 'training' could affect the total of local manufacturing and durables' production. Such a substitution of 'old' for 'new' would probably reduce manufactured imports, industrial machinery imports etc at a significant cost of maintaining and operating an aging infrastructure. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Practically that means higher costs for operation and maintenance and higher prices for the finished products (although that could be offset with appropriate industrial policies-in a hypothetical scenario, using appropriate subsidies etc). It could also mean an &lt;em&gt;increase&lt;/em&gt; in imports of spare parts because &lt;em&gt;old&lt;/em&gt; equipment tends to break down more often. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The major drawback would be the impact on the &lt;em&gt;distance&lt;/em&gt; of the domestic economy from the technological frontier. To the extent that technological innovations are embedded in new equipment and machinery (and tools and parts), 'shutting down' imports implies skewing the age-structure of the domestic capital stock to less productive older technologies (such an occasion might not be necessarily as bad as it sounds as long as the consumption structure is similarly skewed).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, when it comes to overhauling public transport, that is something that would require &lt;em&gt;significant&lt;/em&gt; investment. Usually, such '&lt;em&gt;efficient&lt;/em&gt;' technologies are more likely to be 'modern' than 'mature' ones hence this consideration introduces the reservations related with the previous point regarding the age-structure of the domestic capital stock and the distance from the technological frontier. Nevertheless, the significant cost of such an investment could be-in principle-justified by an appropriate investment horizon. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, without playing down the costs of oil imports, the price of oil is really not where it used to be and supposedly with the advent of fracking that is going to continue indefinitely. Oil is generally related to energy production, so having a small energy footprint would be more effective in curbing energy needs and related imports.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where do all that leave us?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Directing resources from tradables to non-tradables will change relative prices. Investing in public transportation infrastructure will have a similar effect of what constitutes productive investment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A plausible scenario is that resources will be pulled away from the tradables sector (exports) and will be directed to the non-tradables sector (which will now be more profitable that before). That will decrease the output of the tradablers sector. Also, the product mix of exports will be skewed to older technologies (courtesy of the 'training' policy). That would imply decreased price competitiveness in the international market. Such an occasion by itself could imply a deterioration of the trade deficit which is arguably the opposite of the intended result of the proposed reforms. Also, incomes might increase courtesy of the multiplier effect (assume that the non-tradables sector is labor intensive). That could potentially introduce another snag, to the extent that the income elasticity of imports is significantly large. Although, the 'buy local' campaign could potentially be effective in this regard.&lt;/p&gt;&#xA;" OwnerDisplayName="user14471" LastEditorUserId="4251" LastEditDate="2017-10-28T00:32:09.570" LastActivityDate="2017-10-28T00:32:09.570" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18514" PostTypeId="1" CreationDate="2017-09-30T13:32:43.317" Score="1" ViewCount="36" Body="&lt;p&gt;I am looking for the researches that have studied &lt;strong&gt;factors influencing marital status probability&lt;/strong&gt;. I need them for &lt;strong&gt;citation purposes&lt;/strong&gt;. After looking for a long time I have not found anything. So I need something like &lt;strong&gt;probit/logit regression on marriage status probability&lt;/strong&gt; and so on. Any researches of these kind &lt;strong&gt;published in scientific journals&lt;/strong&gt; are welcome. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Will be very greatful for help!&lt;/p&gt;&#xA;" OwnerUserId="7119" LastEditorUserId="1601" LastEditDate="2017-09-30T20:02:28.283" LastActivityDate="2017-09-30T20:02:28.283" Title="Marital status determinants" Tags="&lt;reference-request&gt;&lt;regression&gt;&lt;probability&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18515" PostTypeId="2" ParentId="18500" CreationDate="2017-09-30T14:38:41.163" Score="1" Body="&lt;p&gt;If you impose the condition $ \beta (1 + r) = 1 $ and then move around $ r $, you're assuming that consumer preferences are changing. In other words, you have introduced a third effect: increased interest rates lead to consumers &lt;em&gt;decrease&lt;/em&gt; their preference for consuming in the future. In other words, there is &lt;em&gt;no&lt;/em&gt; substitution effect in your model, there is &lt;em&gt;only&lt;/em&gt; an income effect. The result you derived for consumption is fine, and the reason you see an ambiguity is because the consumer not borrowing today doesn't mean the consumer will not borrow at some point in the future, and if the consumer does want to borrow, the higher interest rates will induce them to borrow and consume less. This happens when the consumer expects their income to rise in the future. To illustrate, assume that $ Y_t = Y (1 + \gamma)^t $ for some $ \gamma &amp;lt; r $ (which could change the NPG condition you used to derive this equation, but whatever) so we get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ C = \frac{r}{1+r} A_0 + \frac{r}{r- \gamma} Y $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If $ \gamma \leq 0 $ and $ A_0 &amp;gt; 0 $, i.e if the consumer expects his future income to stay constant or decline, then the impact of a rise in $ r $ is unambiguous: it leads to higher consumption in all periods. However, if the consumer expects his income to rise, i.e $ \gamma &amp;gt; 0 $, then the two effects work in opposite directions: higher rates mean that the consumer borrows less, and this decreases $ C $. The net effect is ambiguous, and depends on the values of the variables in the model.&lt;/p&gt;&#xA;" OwnerUserId="13743" LastActivityDate="2017-09-30T14:38:41.163" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18517" PostTypeId="1" CreationDate="2017-09-30T16:11:40.913" Score="0" ViewCount="38" Body="&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Olivier_Blanchard&quot; rel=&quot;nofollow noreferrer&quot;&gt;O. Blanchard&lt;/a&gt; &lt;a href=&quot;https://piie.com/blogs/realtime-economic-issues-watch/need-least-five-classes-macro-models#_ftn1&quot; rel=&quot;nofollow noreferrer&quot;&gt;claims&lt;/a&gt; that the discipline needs &lt;em&gt;at least&lt;/em&gt; 5 types of models. Did the &lt;em&gt;Great Recession&lt;/em&gt; have an impact on the economics curriculum? What are the discipline areas that were affected/'reformed'? If possible, present a representative example of what got replaced and what took its place.&lt;/p&gt;&#xA;" OwnerDisplayName="user14471" LastActivityDate="2017-09-30T16:11:40.913" Title="What was the impact of the Great Recession on the economics curriculum" Tags="&lt;macroeconomics&gt;" AnswerCount="0" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="18518" PostTypeId="1" AcceptedAnswerId="18520" CreationDate="2017-09-30T16:16:39.820" Score="3" ViewCount="1138" Body="&lt;p&gt;The understanding that I am not clear is in when do homothetic preferences represent a utility function and vice-versa. My solution to the problem is posted below the problem:&lt;/p&gt;&#xA;&lt;p&gt;A consumer’s preferences are described by a utility function that is homogeneous&#xA;of degree two: For all &lt;span class=&quot;math-container&quot;&gt;$\alpha &amp;gt; 0$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$x \in R^{L}_{+} $&lt;/span&gt; ,&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$u(\alpha x) = \alpha^2 u(x)$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;The problem that I am not getting clear is:&#xA;Q) &amp;quot;Are this consumer’s preferences homothetic? Show that they are or give a counterexample.&amp;quot;&lt;/p&gt;&#xA;&lt;p&gt;My solution:&lt;/p&gt;&#xA;&lt;p&gt;According to Mas Colell et al. &amp;quot;Microeconomic Theory&amp;quot; (chapter 3, page 50)&#xA;&lt;a href=&quot;https://i.stack.imgur.com/XqLGR.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/XqLGR.png&quot; alt=&quot;enter image description here&quot; /&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&lt;p&gt;Therefore, this given consumer's preferences are not homothetic as it doesn't generate a utility function that is homogeneous of degree 1 (HOD(1)). A counter example would be a utility function that is HOD(1) like the Cobb Douglas Utility Function&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$ U(x_1, x_2) = x_{1}^{\alpha} x_{2}^{1-\alpha} $&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;To conclude, this consumer's preferences are not homothetic as it represents a utility function of HOD(2). While , according to Mas Colell et al. preference &lt;span class=&quot;math-container&quot;&gt;$\pmb{\succsim}$&lt;/span&gt;  is homothetic &lt;span class=&quot;math-container&quot;&gt;$\textbf{if and only if}$&lt;/span&gt; it admits a utility function that is HOD(1).&lt;/p&gt;&#xA;&lt;p&gt;Could you please help me in understanding where I am going wrong with what Mas-Colell mentioned above &amp;quot;necessary and sufficient condition&amp;quot; and how a utility function that is HOD(2) implies that &lt;span class=&quot;math-container&quot;&gt;$\pmb{\succsim}$&lt;/span&gt; is homothetic.&lt;/p&gt;&#xA;&lt;p&gt;Thanks.&lt;/p&gt;&#xA;" OwnerUserId="14591" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2017-11-01T04:14:59.090" Title="Homogeneous of Degree Two Utility Functions and Homothetic Preferences." Tags="&lt;microeconomics&gt;&lt;preferences&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18519" PostTypeId="2" ParentId="18518" CreationDate="2017-09-30T17:02:11.687" Score="-3" Body="&lt;p&gt;actually if a utility function is HOD(2) then it is not HOD(1), therefore, you can conclude (as Mas Colell states), that it does not represent an homotetic preference relation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a supportive example, consider an economy with just 1 good and a consumer whose preferences are HOD(2) and can be represented by the utiliy function $u(x)=x^2$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is easy to see that $u(\cdot)$ is homogeneous of degree 2 (for $\alpha&amp;gt;0$):&#xA;$$u(\alpha x)=(\alpha x)^2=\alpha^2x^2=\alpha^2 u(x)$$&#xA;however you also know that $\forall \alpha\neq1$ you have $\alpha^2u(x)\neq \alpha u(x)$ therefore you conclude that $u(\cdot)$ is not HOD(1). At this point you can use Mas Colell's proposition and conclude that this kind of preferences is not necessarily homotetic.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What Mas Colell means with &quot;necessary and sufficient&quot; is that as long as $\succeq$ is continuous, homotetic and rational you can always rationalize it as with a HOD(1) utility function; furthermore, as long as the utility representation of a preference relation is HOD(1), you can always prove that $U(a)&amp;gt;U(b)\Rightarrow a\succeq b$ where $\succeq$ is rational, continuous and homotetic (cfr. Mas Colell pag.96, excercise 3.C.5).&lt;/p&gt;&#xA;" OwnerUserId="14692" LastActivityDate="2017-09-30T17:02:11.687" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18520" PostTypeId="2" ParentId="18518" CreationDate="2017-09-30T17:05:36.980" Score="7" Body="&lt;p&gt;First of all, in order to provide a counterexample, you need to construct a utility function that is homogeneous of degree two, but is not homothetic. Therefore, the counterexample you gave in your solution doesn't work.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To prove the statement directly, let $u(x)$ be a utility representation that is homogeneous of degree two. That is, $u(\alpha x)=\alpha^2 u(x)$. Therefore, if $x\sim y$, which means $u(x)=u(y)$, we have &#xA;$$u(\alpha x)= \alpha^2 u(x)=\alpha^2 u(y)=u(\alpha y).$$&#xA;This means $\alpha x\sim \alpha y$, and hence the preferences are homothetic.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can also use the proposition in MWG: A continuous $\succeq$ is homothetic if and only if it &lt;strong&gt;admits&lt;/strong&gt; a utility function $u(x)$ that is homogeneous of degree one. One caveat is that the utility representation is unique up to monotone transformations, so even if one representation $u(x)$ is not homogeneous of degree one, the preferences could still be homothetic if a monotone transformation of the representation, $\phi(u(x))$, is.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this question, if we consider a monotone transformation $\hat{u} (x)=(u(x))^\frac{1}{2}$, this $\hat{u}(x)$ still represents the preferences $\succeq$. Notice that &#xA;$$\hat{u} (\alpha x)=(u(\alpha x))^\frac{1}{2}=(\alpha^2 u(x))^\frac{1}{2}=\alpha (u(x))^\frac{1}{2}=\alpha\hat{u} (x),$$&#xA;meaning that this new representation is homogeneous of degree one. Therefore, by the proposition above, the preferences are homothetic.&lt;/p&gt;&#xA;" OwnerUserId="6014" LastEditorUserId="6014" LastEditDate="2017-11-01T04:14:59.090" LastActivityDate="2017-11-01T04:14:59.090" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18521" PostTypeId="1" AcceptedAnswerId="18536" CreationDate="2017-09-30T18:43:55.963" Score="4" ViewCount="885" Body="&lt;p&gt;Let's take the example of a generic Harrod-neutral (labor-augmenting) production function $f(k)$; all letters denote the growth rates they usually would. In the regular Solow growth model with the Inada assumptions, it is a result of its comparative statics that, since $sf(k^*)=(n+\delta+g)k^*$ is the steady-state condition, if we assume $k^*$ is a function of the savings rate then $\frac{\partial k^*}{\partial s}&amp;gt;0$. Total differentiation gives us that&#xA;$$ \frac{\partial k^*}{\partial s} = \frac{f(k^*)}{(n+g+\delta)-sf'(k^*)},$$&#xA;and in my class the professor claimed that this last expression is strictly positive because the numerator is (fine) and the denominator is too. Basically, it boils down to the fact that $\frac{n+g+\delta}{s} &amp;gt; f'(k^*)$, and that this is a fact implied by the Inada assumptions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have tried messing around with the statement about the limiting behavior of the derivative at 0 (infinity) and as k tends to infinity (zero); all to no avail. If someone could please offer some hints or an explanation or a proof of this fact I would deeply appreciate. This was not a question posed for an assignment or anything of the sort, just personal interest (having some background in analysis).&lt;/p&gt;&#xA;" OwnerUserId="11376" LastActivityDate="2017-10-02T11:42:18.280" Title="Solow growth model - analytic proof that Inada conditions imply steady state capital is increasing in the savings rate" Tags="&lt;macroeconomics&gt;&lt;mathematical-economics&gt;&lt;solow&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="18524" PostTypeId="1" AcceptedAnswerId="18527" CreationDate="2017-10-01T06:30:02.587" Score="1" ViewCount="45" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/4oNT0.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/4oNT0.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?end=2016&amp;amp;locations=TR&amp;amp;start=2007&amp;amp;view=chart&quot; rel=&quot;nofollow noreferrer&quot;&gt;Source&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Why did the Turkish economy plunge after 2013?&lt;/li&gt;&#xA;&lt;li&gt;Why didn't it recover ever since?&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerDisplayName="user13954" LastActivityDate="2017-10-01T10:05:52.850" Title="Turkish economy after 2013" Tags="&lt;gdp&gt;" AnswerCount="1" CommentCount="6" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18525" PostTypeId="1" CreationDate="2017-10-01T07:10:08.877" Score="1" ViewCount="340" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/NgMcf.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/NgMcf.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/List_of_countries_by_foreign-exchange_reserves&quot; rel=&quot;nofollow noreferrer&quot;&gt;Source&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Russia is under U.S. sanctions. How does Russia have so much foreign exchange reserves?&lt;/p&gt;&#xA;" OwnerDisplayName="user13954" LastEditorUserId="8481" LastEditDate="2020-05-07T02:15:24.663" LastActivityDate="2020-05-07T02:15:24.663" Title="How does Russia have so much foreign exchange reserves?" Tags="&lt;international-economics&gt;&lt;balance-of-trade&gt;&lt;foreign-exchange&gt;&lt;balance-of-payments&gt;&lt;russia&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18526" PostTypeId="2" ParentId="18525" CreationDate="2017-10-01T08:52:19.983" Score="1" Body="&lt;p&gt;russia uses its oil revenue to setup russia stabilization fund in 2004. The money in that fund is used to pay for national budget deficit. The foreign exchange reserve of Bank of Russia is not affected by the US led sanctions.&lt;/p&gt;&#xA;" OwnerUserId="13582" LastActivityDate="2017-10-01T08:52:19.983" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18527" PostTypeId="2" ParentId="18524" CreationDate="2017-10-01T10:05:52.850" Score="2" Body="&lt;p&gt;I think I understand the problem here: you're thinking of exchange rates as &quot;units&quot;, i.e you're thinking that looking at GDP numbers in dollars tells you the same thing as looking at the same numbers in the local currency after adjusting for inflation. Unfortunately, exchange rates need not reflect what you think they reflect at all. In a world without capital flows between countries and with floating exchange rates, exchange rates would adjust in order to ensure that the current account position of any given country is balanced. This adjustment means that exchange rates primarily reflect relative prices on the international market of &lt;em&gt;tradable&lt;/em&gt; goods, like commodities, for instance. Services such as medicine, education, finance (the capital account is closed) are not easily traded, therefore the exchange rate would carry little information about their prices, which are relevant to any person living in the country.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, the real situation is even worse, because in reality there are capital flows between countries; there's borrowing, there's portfolio investment, there's direct investment, etc. Therefore, the condition I mentioned above fails: instead, the exchange rate adjusts so that the balance of payments balances, i.e such that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \textrm{Current account} + \textrm{Capital account} = 0 $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This means that if investors in the US decide to cut exposure to Turkish assets in the face of increasing political risks, the lira would depreciate and the nominal GDP measured in dollars would fall. However, such a devaluation would likely be expansionary for exports, and if the country has no problems of inflation (which is not true for Turkey), and there is no currency mismatch on domestic balance sheets (which is, again, not true for Turkey) their central bank could maintain monetary policy at low interest rates, causing the depreciation to become &lt;em&gt;expansionary&lt;/em&gt;. Turkey would be producing more goods and services, it would just be that their value measured in local currency and then converted to USD would be less than it was before.&lt;/p&gt;&#xA;" OwnerUserId="13743" LastActivityDate="2017-10-01T10:05:52.850" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18528" PostTypeId="2" ParentId="18525" CreationDate="2017-10-01T11:42:26.490" Score="1" Body="&lt;p&gt;Russia has been ramping up its production of oil since late 1990s after it defaulted on its debt. It has been maintaining positive trade balance since then. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/2T4QT.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/2T4QT.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, notice in the above graph, Russia has had current account surplus for a long time. It is somewhat similar to saying that Russia has been a net lender to the rest of the world. The current account surplus has increased Russia's net foreign assets, this situation puts Russia among the top countries with the highest foreign reserves. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, the sanctions did not target oil and gas industry as much as the financial, agriculture, weapons and other industries.&lt;/p&gt;&#xA;" OwnerUserId="6009" LastActivityDate="2017-10-01T11:42:26.490" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18529" PostTypeId="2" ParentId="5112" CreationDate="2017-10-01T11:51:46.583" Score="1" Body="&lt;p&gt;Changing the base year of index numbers shifts the level only, it does not alter the rates of growth. So, not true. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the rates of growth changed, this must have been due to revisions of the historical estimates of GDP. Can also stem from changes in the national accounting standards. &lt;/p&gt;&#xA;" OwnerUserId="6009" LastEditorUserId="6009" LastEditDate="2017-10-01T12:18:28.383" LastActivityDate="2017-10-01T12:18:28.383" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18530" PostTypeId="1" CreationDate="2017-10-01T18:24:34.313" Score="0" ViewCount="27" Body="&lt;p&gt;Suppose the government pegs an exhaustible resource, at a price $P^*$. I found out that the shadow price (initial price of the resource if government didn't peg) would be &#xA;$$Q_t = ( \sigma i S_t )^\frac{-1}{\sigma}$$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where $S_t$ is the resources left after time $t$. And  $\sigma$ is a parameter, whereas $i$ is the interest rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm trying to show that if $q(t) = ln Q_t$ and $ \triangle q(t) = i$ (change in q(t)) Then &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Q_t = P^*$$&lt;/p&gt;&#xA;" OwnerUserId="10922" LastActivityDate="2017-10-01T18:24:34.313" Title="When is the pegged price equal to the market price" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;financial-economics&gt;&lt;financial-crises&gt;" AnswerCount="0" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="18531" PostTypeId="1" AcceptedAnswerId="18533" CreationDate="2017-10-01T19:37:56.557" Score="5" ViewCount="5772" Body="&lt;p&gt;&lt;a href=&quot;https://www.rte.ie/news/business/2017/0907/902980-imf-loan-repayments/&quot; rel=&quot;noreferrer&quot;&gt;IMF&lt;/a&gt;, &lt;a href=&quot;https://www.premiumtimesng.com/business/business-news/227111-world-bank-approves-200-million-loan-nigeria-boost-agriculture.html&quot; rel=&quot;noreferrer&quot;&gt;WB&lt;/a&gt;, &lt;a href=&quot;https://www.cnbc.com/2017/09/27/asian-development-bank-approves-50-million-loan-to-boost-rooftop-solar-in-sri-lanka.html&quot; rel=&quot;noreferrer&quot;&gt;ADB&lt;/a&gt;, &lt;a href=&quot;http://news.xinhuanet.com/english/2017-09/17/c_136616122.htm&quot; rel=&quot;noreferrer&quot;&gt;IDB&lt;/a&gt;, &lt;a href=&quot;http://business.inquirer.net/237611/asian-infrastructure-investment-bank-aiib-metro-manila-flood-control-china-loan-project-infra&quot; rel=&quot;noreferrer&quot;&gt;AIIB&lt;/a&gt; are known to give &lt;strong&gt;loans&lt;/strong&gt;. On the other hand, China is said to be &lt;a href=&quot;https://tribune.com.pk/story/1381733/cpec-investment-pushed-55b-62b/&quot; rel=&quot;noreferrer&quot;&gt;&lt;strong&gt;investing&lt;/strong&gt;&lt;/a&gt; in Pakistani project termed as &lt;strong&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/China%E2%80%93Pakistan_Economic_Corridor&quot; rel=&quot;noreferrer&quot;&gt;CPEC&lt;/a&gt;&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is the difference between these two terms in these two particular cases?&lt;/p&gt;&#xA;" OwnerDisplayName="user13954" LastEditorDisplayName="user13954" LastEditDate="2017-10-01T19:50:58.633" LastActivityDate="2017-10-01T21:25:02.050" Title="What is the difference between a loan and an investment?" Tags="&lt;investment&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18533" PostTypeId="2" ParentId="18531" CreationDate="2017-10-01T20:12:22.547" Score="5" Body="&lt;p&gt;A loan is an agent lending funds to another agent. This money can be used for investment spending, or it can be used for personal consumption expenditures. It can be used to buy fixed assets like real estate, which may or may not be &quot;investment&quot; depending on how you use the terminology. In the case of the IMF, the role of the institution is to ensure financial stability by providing funds to countries in an emergency; for example, a country which becomes insolvent and is unable to service its sovereign debt is likely to seek help from the IMF. The IMF would then provide a bailout loan along with a stabilization program aimed at improving the country's public finances. This is not investment, in the sense that it does not grow the country's capital stock; it just allows it to meet its obligations to past creditors.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Investment is an expenditure which will yield revenue in the future, and hopefully amortize itself through that revenue. In the case of a household, investment can take the form of acquiring financial assets; in the case of an economy, investment often refers to actions which improve the country's productivity. This can be the construction of new factories, higher wages at state subsidized education institutions, higher research and development spending by the private sector, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reason the two are related is that quite a lot of investment is done through borrowing. A corporation can borrow to ramp up capital expenditures, a country can borrow on international capital markets to invest more in infrastructure, an individual can take out a mortgage to acquire a house. All of these can be legitimately described as &quot;investment&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;China is said to be investing in Pakistan (and quite a lot of other countries) under its Belt and Road Initiative because of two reasons: these expenditures are aimed at boosting domestic productivity in those countries, and China expects to reap benefits from its program. The potential benefits for China are plentiful. China is still very much an export-oriented economy and a global manufacturing hub. Strong growth in underdeveloped countries is likely to increase demand for Chinese goods, allowing the Chinese economy to experience faster growth. China also hopes to get direct revenue from its investment operations under this program, and they have the additional goal of expanding their political clout. Contrast this with the case of the IMF, whose founding goal is to ensure financial stability and to prevent crisis contagion and panic. The two forms of lending are evidently quite different in their desired goals.&lt;/p&gt;&#xA;" OwnerUserId="13743" LastActivityDate="2017-10-01T20:12:22.547" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="18534" PostTypeId="1" CreationDate="2017-10-01T20:59:22.833" Score="1" ViewCount="62" Body="&lt;p&gt;Background&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have studied matematics for 4 years at the university, both pure and applied, e.g. topology, functional analysis and valuation of Derivative Assets. Currently I'm taking a course called advanced microeconomics, using Hal Varian Microeconomics Analysis. I feel that this book has a lot of explaining text that I would better understand with &quot;pure math definition&quot;. E.g. Just defining risk-averse as a concave utility function.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So I wonder if there is book more related to the format of a math textbook that I can use as a secondary book, to get another perspective? I'm asking this question because during my studies I often find myself reading through a lot of text and when I arrive at a mathematical definition in the book or e.g. wikipedia, then I can understand what the author is trying to tell me.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have looked at &lt;a href=&quot;https://math.stackexchange.com/questions/945210/good-economics-textbooks&quot;&gt;this&lt;/a&gt; and &lt;a href=&quot;https://economics.stackexchange.com/questions/4875/mathematical-micro-macro-economics-textbook-recommendation&quot;&gt;this&lt;/a&gt; questions but both are &gt;2 years old, thus maybe there is something new on the market?&lt;/p&gt;&#xA;" OwnerUserId="14702" LastEditorUserId="2776" LastEditDate="2017-10-01T21:10:16.850" LastActivityDate="2017-10-01T21:10:16.850" Title="Microeconomics book for a mathematician?" Tags="&lt;microeconomics&gt;&lt;reference-request&gt;" AnswerCount="0" CommentCount="6" ClosedDate="2017-10-01T23:37:33.947" ContentLicense="CC BY-SA 3.0" />
  <row Id="18536" PostTypeId="2" ParentId="18521" CreationDate="2017-10-01T21:07:07.100" Score="3" Body="&lt;p&gt;We want to prove that &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{n+g+\delta}{s} &amp;gt; f'(k^*)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Replace the left hand side with the equivalent from the expression $sf(k^*)=(n+\delta+g)k^*$, and you get:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{f(k^*)}{k^*} &amp;gt; f'(k^*) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Cobb-Douglas case&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Without loss of generality, assume $$f(k^*) = {k^*}^{\alpha}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, the above inequality is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ {k^*}^{\alpha-1} &amp;gt; \alpha{k^*}^{\alpha-1} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ 1&amp;gt; \alpha $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This condition represents a production function with decreasing marginal returns to capital, necessary for the Inada conditions to hold.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;General case&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A concave function has the &lt;a href=&quot;https://en.wikipedia.org/wiki/Convex_function#Properties&quot; rel=&quot;nofollow noreferrer&quot;&gt;following property&lt;/a&gt;, for any $x$ and $y$ in the domain:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$f(y) \leq f(x) + f'(x)(y-x) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Rearranging, this is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{f(y)- f(x)}{y-x} \leq f'(x) \hspace{1cm}, \text{for } y&amp;gt;x $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is, the derivative of $f(x)$ at point $x$ is no smaller than the slope of the segment between $x$ and $y$. For the case of a strictly concave function (which is needed for the Inada conditions to hold), the inequality is strict ($&amp;lt;$), except in the trivial case of $x = y$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For further confirmation, apply the above when $y=0$ and $x=k^*$ (notice here $y&amp;lt;x$ so the sign of the above inequality reverses). Since $f(0)=0$, you get:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{f(k^*)}{k^*} &amp;gt; f'(k^*) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which is what we wanted to demonstrate.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-10-02T11:42:18.280" LastActivityDate="2017-10-02T11:42:18.280" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="18537" PostTypeId="2" ParentId="18531" CreationDate="2017-10-01T21:25:02.050" Score="0" Body="&lt;p&gt;Multilateral, international organisations like all the ones you mention do not &amp;quot;invest&amp;quot; in countries. They provide &amp;quot;support&amp;quot; in the form of technical and financial assistance. For example, the World Bank offers &lt;a href=&quot;http://www.worldbank.org/en/projects-operations/products-and-services#2&quot; rel=&quot;nofollow noreferrer&quot;&gt;financing instruments&lt;/a&gt; like:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Investment Project Financing provides IBRD loan, IDA credit/grant and guarantee financing to governments for activities that create the physical/social infrastructure necessary to reduce poverty and create sustainable development.&lt;/p&gt;&#xA;&lt;p&gt;Development Policy Financing provides IBRD loan, IDA credit/grant and guarantee budget support to governments or a political subdivision for a program of policy and institutional actions to help achieve sustainable, shared growth and poverty reduction.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Conversely, China is a country, with a particular set of geopolitical goals, and which is interested (one guesses) in the wellbeing of their citizens. As such, the Chinese government uses institutions like the &lt;a href=&quot;https://en.wikipedia.org/wiki/Exim_Bank_of_China&quot; rel=&quot;nofollow noreferrer&quot;&gt;Exim Bank&lt;/a&gt; to provide loans to countries abroad where the Chinese government expects rewards. China is investing everywhere, Africa, Latin America, Asia. &lt;a href=&quot;http://knowledge.wharton.upenn.edu/article/chinas-investments-in-africa-whats-the-real-story/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Some&lt;/a&gt; have even accused them of &amp;quot;neo-colonialism&amp;quot;.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2017-10-01T21:25:02.050" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18538" PostTypeId="1" AcceptedAnswerId="18562" CreationDate="2017-10-02T01:17:32.667" Score="3" ViewCount="1383" Body="&lt;blockquote&gt; A price discriminating monopolist sells in two markets. Inverse demand in market 1 is given by: $$P_1(Q_1) = 80 - (1/2)Q_1$$ and inverse demand in market 2 is given by: $$P_2(Q_2) = 100 - Q_2$$ The monopolist's cost function is $C(Q) = (Q_1 + Q_2)^2$&lt;br&gt;&#xA;a. Formulate the monopoly's function as a function of $Q_1$ and $Q_2$. &lt;br&gt;&#xA;b. Calculate the monopoly's profit maximizing quantity sold in markets 1 and 2 and the corresponding prices.&lt;br&gt;&lt;br&gt;&#xA;Now suppose the government forbids price discrimination, so the monopolist can only set a single price for the two markets.&lt;br&gt;&lt;br&gt;&#xA;c. Compute the monopoly price and quantity.&lt;br&gt;&#xA;d. How much is sold in market 1 and market 2, respectively?&lt;br&gt;&#xA;e. Was the government intervention beneficial for social welfare or not? &lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;a. This one is straightforward. $$= Q_1(80 - Q_1/2) + Q_2(100 - Q_2) - (Q_1 + Q_2)^2$$&#xA;b. This one I believed to be straightforward - set MR = MC. Thus, $$MR_1 = 80 - Q_1$$ $$MR_2 = 100 - 2Q_2$$ $$MC_1 = 2Q_1$$ $$MC_2 = 2Q_2$$ which gives $$(Q_1, Q_2, P_1, P_2) = (\frac{80}{3}, 25, \frac{200}{3}, 75)$$&#xA;c. This is where I start to get a bit messed up. Setting $P_1 = P_2$ gives a total demand function $$Q_1 + Q_2 = Q = 260 - 3P$$ I then solve for price, and get $$MR = \frac{260}{3} - \frac{2Q}{3}$$ and $$MC = 2Q$$ Thus, I'm left with $$(P,Q) = (75.8333, 32.5)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, I feel as though I must have made a mistake. The profit when the monopolist is able to price discriminate actually ends up being lower than the profit when limited to one price. This surely can't be the case - where is my thinking going wrong here? Is my methodology off?&lt;/p&gt;&#xA;" OwnerUserId="14527" LastEditorUserId="14527" LastEditDate="2017-10-02T02:05:53.803" LastActivityDate="2018-12-18T12:21:33.387" Title="Price discriminating monopolist question" Tags="&lt;general-equilibrium&gt;&lt;monopoly&gt;&lt;price-discrimination&gt;" AnswerCount="2" CommentCount="6" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18539" PostTypeId="2" ParentId="18104" CreationDate="2017-10-02T09:41:59.890" Score="0" Body="&lt;p&gt;I think you are overcomplicating the issue. There is no good reason to believe that the measurement of temperature for the same individual in different times are to be &lt;strong&gt;dependent&lt;/strong&gt;. If the thermometer (or the instrument used to measure temperature) is of good quality, then observations, both over time and across the sample are independent. &#xA;Therefore, you can treat multiple observations of the same individual as if they were from other individuals. There is no need to cluster. In other words, your sample is $iid$, under which OLS estimates are unbiased and consistent.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you still believe there is dependence of measurement over time (but you need to argue why), you can indeed use clustering. Comparing the two models would give you an idea of whether the clustering is in fact needed.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-10-02T09:41:59.890" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18540" PostTypeId="2" ParentId="3392" CreationDate="2017-10-02T09:54:23.120" Score="1" Body="&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;http://www.dynare.org/news/macroeconomic-model-database&quot; rel=&quot;nofollow noreferrer&quot;&gt;Here&lt;/a&gt; is a collection of 38 models implemented in Dynare. As the page states:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;It includes small, medium- and large-scale models of the United States, the Euro Area, Canada, and several small , medium- and large-scale models of the United States, the Euro Area, Canada, and several small open emerging economies. In addition, there are a few models with two or more economies.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The list includes state-of-the art DSGE models, earlier-generation New-Keynesian models with rational expectations as well as more traditional Keynesian-style models with adaptive expectations. [...]&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Recent applications involve economic forecasting, monetary policy optimization under model uncertainty, evaluation of fiscal stimulus and the effects of the zero bound on nominal interest rates. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;https://github.com/JohannesPfeifer/DSGE_mod&quot; rel=&quot;nofollow noreferrer&quot;&gt;Here&lt;/a&gt; is another collection of 40 models. They include replication of several well-known papers, implementation of models from &lt;a href=&quot;https://press.princeton.edu/titles/10495.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Gali's books&lt;/a&gt;, and other standard models like RBC and Solow.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-10-02T09:54:23.120" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18541" PostTypeId="1" CreationDate="2017-10-02T09:58:44.343" Score="1" ViewCount="1016" Body="&lt;p&gt;I know the &quot;common sense&quot; proof, but how can we prove it algebraically?&lt;/p&gt;&#xA;" OwnerUserId="14626" LastActivityDate="2017-10-02T11:51:18.423" Title="Proof that for increasing AC MC(Q)&gt;AC(Q) at any Q&gt;0?" Tags="&lt;microeconomics&gt;&lt;production-function&gt;&lt;cost&gt;&lt;marginal&gt;" AnswerCount="2" CommentCount="0" ClosedDate="2017-10-03T09:12:51.793" ContentLicense="CC BY-SA 3.0" />
  <row Id="18542" PostTypeId="2" ParentId="18541" CreationDate="2017-10-02T10:37:22.917" Score="2" Body="&lt;p&gt;Let $C(y)$ denote the cost function and $y$ the quantity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The average cost function is $AC=C/y$. This is increasing if its derivative is positive. Let $C'$ denote the derivative of $C$. The marginal cost function is $MC=C'$. We have:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac{\partial AC}{\partial y}= \frac{C'y - C}{y^2}&amp;gt;0$ by using the quotient rule. As $y^2&amp;gt;0$, the condition becomes:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$C'y - C&amp;gt;0$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Rearranging yields:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$C' &amp;gt; C/y$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence: $MC&amp;gt;AC$.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastEditorUserId="5557" LastEditDate="2017-10-02T11:51:18.423" LastActivityDate="2017-10-02T11:51:18.423" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18543" PostTypeId="1" CreationDate="2017-10-02T10:57:45.740" Score="1" ViewCount="112" Body="&lt;p&gt;In the lecture, my professor said &quot;when we eliminate weakly dominated strategies, you might end up with different equilibria depending on&#xA;the order of deletion!&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can anyone give me an example?&lt;/p&gt;&#xA;" OwnerUserId="14709" LastActivityDate="2017-10-02T15:46:17.677" Title="Non-uniqueness of iterated elimination of weakly dominated strategies?" Tags="&lt;game-theory&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18544" PostTypeId="2" ParentId="18541" CreationDate="2017-10-02T11:10:16.970" Score="1" Body="&lt;p&gt;We can calculate total cost as TC(Q)= Q*AC(Q) now just take derivative on both sides w.r.t Q so we get MC(Q)= AC(Q)+ Q * derivative of average cost w.r.t Q. Since Average cost is increasing function derivative must be non-negative so Marginal cost always greater than average cost.&lt;/p&gt;&#xA;" OwnerUserId="14541" LastActivityDate="2017-10-02T11:10:16.970" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18545" PostTypeId="1" AcceptedAnswerId="18557" CreationDate="2017-10-02T13:52:42.120" Score="2" ViewCount="62" Body="&lt;p&gt;I have a question regarding basic econometrics.&#xA;Consider the model &#xA;$$y_i=\alpha +\beta x_i +u_i$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand that assumption 4 of the linear regression model states&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$[1] \quad  E(u|x)=0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, I often see this condition written as: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$[2] \quad E(ux)=0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are these two things equivalent? I see that if [1] and $E(u)=0$ then we get [2]; however I don't understand why [2] would imply [1]. &lt;/p&gt;&#xA;" OwnerUserId="14708" LastActivityDate="2017-10-02T21:01:12.717" Title="Conditional independence and no correlation" Tags="&lt;econometrics&gt;&lt;statistics&gt;&lt;regression&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18546" PostTypeId="1" CreationDate="2017-10-02T13:54:53.643" Score="0" ViewCount="2014" Body="&lt;p&gt;I thought about possibility of occurring such event in the case of presence  of fixed costs, but I would like to know others opinions.&lt;/p&gt;&#xA;" OwnerUserId="14626" LastActivityDate="2017-10-02T23:46:17.707" Title="Is it possible to have constant marginal cost and decreasing average cost simultaneously?" Tags="&lt;microeconomics&gt;&lt;cost&gt;&lt;producer-theory&gt;&lt;cost-functions&gt;" AnswerCount="3" CommentCount="0" ClosedDate="2017-10-04T00:23:55.533" ContentLicense="CC BY-SA 3.0" />
  <row Id="18547" PostTypeId="1" AcceptedAnswerId="18566" CreationDate="2017-10-02T14:45:09.530" Score="0" ViewCount="156" Body="&lt;p&gt;I am baffled by this for so many years! Kindly, explain this in layman's terms (i.e. to a guy who never studied economics at a university):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;I  can purchase one dozen of eggs for &lt;a href=&quot;https://www.expatistan.com/price/eggs/frankfurt-am-main&quot; rel=&quot;nofollow noreferrer&quot;&gt;€3.52 in Frankfurt, Germany&lt;/a&gt; but for &lt;a href=&quot;https://www.expatistan.com/price/eggs/mumbai&quot; rel=&quot;nofollow noreferrer&quot;&gt;₹66 in New Delhi, India&lt;/a&gt;. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;If I am living in India, I am in double trouble:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Why is the price of goods higher in India than that of Germany with reference to people's income level?&lt;/li&gt;&#xA;&lt;li&gt;An employer is paying me such an amount of money (say,₹10,000 ≈ USD 152.52) which apparently looks larger, but in actuality, I am earning much lesser than that of a German guy (say, €1000 ≈ USD1173.96). Why am I earning less?&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;So, what factors make this difference?&lt;/p&gt;&#xA;" OwnerDisplayName="user13954" LastEditorUserId="12304" LastEditDate="2017-11-18T02:27:16.380" LastActivityDate="2017-11-18T02:27:16.380" Title="Why are different currencies able to purchase different amounts?" Tags="&lt;currency&gt;&lt;wages&gt;" AnswerCount="3" CommentCount="6" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18548" PostTypeId="2" ParentId="18546" CreationDate="2017-10-02T14:45:46.597" Score="-1" Body="&lt;p&gt;Yes, but dropping fixed costs is not really a thing, is it? That is kind of the idea, you can't lower them easily&lt;/p&gt;&#xA;" OwnerUserId="14704" LastActivityDate="2017-10-02T14:45:46.597" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="18549" PostTypeId="2" ParentId="18546" CreationDate="2017-10-02T14:51:26.893" Score="4" Body="&lt;p&gt;Yes, if there are non-zero fixed costs, and constant marginal cost, then average cost decreases strictly monotonically with quantity, asymptotic to the marginal cost.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2017-10-02T14:51:26.893" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18550" PostTypeId="2" ParentId="18546" CreationDate="2017-10-02T15:35:07.827" Score="4" Body="&lt;p&gt;Short answer: Yes, it is possible.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Decreasing average cost implies that marginal cost is less than average cost ($MC&amp;lt;AC$, which can be proved by simply taking the first derivative of $C(q)/q$). With constant marginal cost, there exists a simple linear cost function $C(q)=F+a\times q$ that satisfies the constant $MC$ condition, where the constant $F$ is the fixed cost and $a \times q$ is the variable cost, and the constant $a$ is $MC$. Therefore $AC=F/q+a$ is greater than $MC=a$.&lt;/p&gt;&#xA;" OwnerUserId="14540" LastEditorUserId="14540" LastEditDate="2017-10-02T23:46:17.707" LastActivityDate="2017-10-02T23:46:17.707" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18551" PostTypeId="2" ParentId="18543" CreationDate="2017-10-02T15:46:17.677" Score="1" Body="&lt;p&gt;Consider the game below.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\begin{array}{|r|c|c|}&#xA;\hline &#xA;&amp;amp;L&amp;amp;R\\\hline&#xA;U&amp;amp;5,1&amp;amp;4,0\\\hline &#xA;M&amp;amp;6,0&amp;amp;3,1\\\hline &#xA;D&amp;amp;6,4&amp;amp;4,4\\\hline&#xA;\end{array}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Both $U$ and $M$ are weakly dominated by $D$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we start by deleting $U$. This would lead to the removal of $L$ in the next step. Then $M$ would be deleted. The solution would be $(D, R)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, if we start by removing $M$, then $R$ would be removed next, and then $U$. The solution from deleting in this order is $(D, L)$.&lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2017-10-02T15:46:17.677" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18552" PostTypeId="2" ParentId="18547" CreationDate="2017-10-02T15:56:43.703" Score="2" Body="&lt;p&gt;The eggs vs relative income is a common economy thesis for production efficiency , market efficiency, good institutional control and low income in-equality.  I wouldn't call this as &quot;free market&quot;, as free market itself may introduce syndicate price fixing. FYI, 10pcs of eggs in Germany discount store is much cheaper €1.20 ~ €2.00 &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To a 1st world livestock breeder, here is the advantages : &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Technology such as advanced automated monitoring, better control use of biological control, source control, etc can reduce livestock fatality thus reduce cost and increase yield.&lt;/li&gt;&#xA;&lt;li&gt;Miminise wastage. Eggs that screen out from the normal process (color or deformed) actually will be cracked and pasteurized for food manufacturing. &lt;/li&gt;&#xA;&lt;li&gt;A good waste management will turn chicken waste to money &lt;/li&gt;&#xA;&lt;li&gt;Knowledge sharing and cooperative. Livestock breeders are not live in Island, they will share information. Small livestock breeders even cooperate and create cooperative union to share financial burden.&lt;/li&gt;&#xA;&lt;li&gt;Well establish sales channel&lt;/li&gt;&#xA;&lt;li&gt;Government policy is ready when livestock owner faced problem (e.g. compensation when there is bird flu outbreak, damage control over the egg issues,etc). There is law in place to prevent cartel like price fixing.&lt;/li&gt;&#xA;&lt;li&gt;Proper localisation policy in place. Germans growth some livestock feeds then relies heavily by imports.  &lt;/li&gt;&#xA;&lt;li&gt;low income in-equality.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;On the other hand.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;India has a huge culture problem that prevent cooperation among livestock breeders.&lt;/li&gt;&#xA;&lt;li&gt;rampant corruption culture mean bad execution on incentive, loan provisioning,  subsidies distributions. Poor management and bad technique means smaller livestock breeders in India are more susceptible to heavy losses when disaster hits.  &lt;/li&gt;&#xA;&lt;li&gt;Despite so call &quot;free economy&quot;, there is a many oligarchy businessman cooperate with the local government, hampers the business. &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;With total landscape bigger than the whole West Europe, but poor government policy to manage the land, &lt;a href=&quot;http://www.infodriveindia.com/india-import-data/animal-feed-import-data.aspx&quot; rel=&quot;nofollow noreferrer&quot;&gt;India is a livestock feeds import country&lt;/a&gt;. Besides India, there is many astonishing agricultural countries face similar issues.&lt;/p&gt;&#xA;" OwnerUserId="11177" LastEditorUserId="11177" LastEditDate="2017-10-02T16:22:40.723" LastActivityDate="2017-10-02T16:22:40.723" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18553" PostTypeId="1" CreationDate="2017-10-02T16:36:56.323" Score="2" ViewCount="298" Body="&lt;p&gt;I want to access the infamous Excel spreadsheet from Reinhart and Rogoff's 2010 paper &quot;Growth in a Time of Debt&quot;. I see the paper &lt;a href=&quot;http://www.nber.org/papers/w15639.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;, and in the &lt;a href=&quot;http://www.carmenreinhart.com/user_uploads/data/36_data.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;2013 errata&lt;/a&gt; I see a &lt;a href=&quot;https://www.conference-board.org/data/economydatabase/&quot; rel=&quot;nofollow noreferrer&quot;&gt;link to the raw data&lt;/a&gt;, however I'm not an economist and I don't know how to find the data in the link (it looks very comprehensive). Also it doesn't have the spreadsheet, and I'd like to reproduce the error in that.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How do I find Reinhart and Rogoff's original 2010 spreadsheet from &quot;Growth in a Time of Debt&quot;?&lt;/p&gt;&#xA;" OwnerUserId="14706" LastEditorUserId="14706" LastEditDate="2017-10-02T18:04:23.717" LastActivityDate="2019-07-06T09:02:26.613" Title="Download original spreadsheet from Reinhart-Rogoff &quot;Growth in a Time of Debt&quot;" Tags="&lt;data-request&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18554" PostTypeId="2" ParentId="18547" CreationDate="2017-10-02T16:42:19.630" Score="3" Body="&lt;p&gt;Let &lt;em&gt;EUR&lt;/em&gt; 1 = &lt;em&gt;USD&lt;/em&gt; 1.17. Also, let &lt;em&gt;INR&lt;/em&gt; 1 = &lt;em&gt;USD&lt;/em&gt; 0.015 (these are the actual figures reported by &lt;em&gt;Google&lt;/em&gt; on 10/2/2017) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Before we can make any meaningful comparison, we need to express the values of the dozen of eggs in a common currency. For simplicity we choose as that common currency the &lt;em&gt;USD&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;A dozen of eggs in &lt;em&gt;Frankfurt&lt;/em&gt; cost &lt;em&gt;USD&lt;/em&gt; 4.142&lt;/li&gt;&#xA;&lt;li&gt;A dozen of eggs in &lt;em&gt;Delhi&lt;/em&gt; cost &lt;em&gt;USD&lt;/em&gt; 0.99&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;How did we get the &lt;em&gt;USD&lt;/em&gt; equivalent prices? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's straightforward: we multiplied the price of the &lt;em&gt;commodity&lt;/em&gt; (dozen of eggs) denominated in some currency (&lt;em&gt;EUR&lt;/em&gt; or &lt;em&gt;INR&lt;/em&gt;) with the price of that &lt;em&gt;currency&lt;/em&gt; denominated in &lt;em&gt;USD&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, the price of a dozen of eggs is &lt;em&gt;lower&lt;/em&gt; in &lt;em&gt;Delhi&lt;/em&gt; than it is in &lt;em&gt;Frankfurt&lt;/em&gt;, when the common currency in which the prices are quoted is the &lt;em&gt;USD&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's turn now to the compensation figures:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;wages of &lt;em&gt;INR&lt;/em&gt; 10,000 are equal to &lt;em&gt;USD&lt;/em&gt; 152.58&lt;/li&gt;&#xA;&lt;li&gt;wages of &lt;em&gt;EUR&lt;/em&gt; 1,000 are equal to &lt;em&gt;USD&lt;/em&gt; 1,170&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;A employee in Germany can afford to buy 282 dozens of eggs while an employee in Delhi can afford to buy 154 dozens of eggs (divide the wage figure in &lt;em&gt;USD&lt;/em&gt; by the price of the eggs again denominated in &lt;em&gt;USD&lt;/em&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, if we are quoting wealth in terms of dozens of eggs that can be bought, then the employee in Germany is 1.8 times wealthier than the corresponding employee living in Delhi.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What are the contributing factors to this unequal distribution of wealth (measured in dozens of eggs-potentially-bought)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are three factors in play, namely &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;the price of the commodities quoted in domestic currency (ie the&#xA;price level in eg Germay or India)&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;the price of the currencies quoted in &lt;em&gt;USD&lt;/em&gt; (the common currency we&#xA;used as a common measure)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and lastly &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;the level of the compensation quoted in domestic currency that each employee can command, in different countries&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerDisplayName="user14471" LastEditorUserId="4251" LastEditDate="2017-10-28T00:31:29.313" LastActivityDate="2017-10-28T00:31:29.313" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="18556" PostTypeId="2" ParentId="18553" CreationDate="2017-10-02T18:57:34.053" Score="1" Body="&lt;p&gt;I think it is not available. The data is not available in the official &lt;em&gt;American Economic Review&lt;/em&gt; &lt;a href=&quot;https://www.aeaweb.org/articles?id=10.1257/aer.100.2.573&quot; rel=&quot;nofollow noreferrer&quot;&gt;website&lt;/a&gt;, nor on the personal website of the authors of the replication study (the third author does not have a website).&lt;/p&gt;&#xA;&lt;p&gt;The spreadsheet was given to the authors of the replication paper by Reinhart and Rogoff via email. There might have been an implicit agreement not to disclose it. Apparently, the underlying data cannot be produced directly from the website Reinhart and Rogoff used. The &lt;a href=&quot;https://academic.oup.com/cje/article-abstract/38/2/257/1714018/Does-high-public-debt-consistently-stifle-economic?redirectedFrom=fulltext&quot; rel=&quot;nofollow noreferrer&quot;&gt;replication paper&lt;/a&gt; states:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;On their web site, RR provide public access to country historical data for public debt and GDP growth in spreadsheets with complete source documentation. However, these publicly available spreadsheets do not include information on the exact data series, years and methods used in their paper. As such, we were unable to replicate the RR results from the data they posted on their web site.&lt;/p&gt;&#xA;&lt;p&gt;In response to our request of April 2013, RR did provide us with the working spreadsheet that they used in producing the RR papers.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;As always with negative replies, we can only prove the contrary, so I might be wrong.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2017-10-02T18:57:34.053" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="18557" PostTypeId="2" ParentId="18545" CreationDate="2017-10-02T19:00:50.757" Score="1" Body="&lt;p&gt;[2] does not imply [1]. [2] and $E(u)=0$ imply $cov(u,x)=0$, which is about &lt;strong&gt;linear independence&lt;/strong&gt;. [1] is stronger, as it refers to any type of dependence. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The classic counterexample to show this is $x=u^2$ over a symmetric domain. These are dependent yet linearly independent.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The R code below shows this:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;set.seed(1)&#xA;u &amp;lt;- runif(100, min = -1, max = 1)&#xA;e &amp;lt;- rnorm(100, mean = 0, sd = 0.1)&#xA;x &amp;lt;- u^2 + e&#xA;&#xA;plot(u,x)&#xA;abline(lm(x ~ u)) # Yields an R^2 of 0.006539&#xA;&#xA;cov(u,x) # Yields 0.01206663&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;The plot is, where the black line represents the regression line:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/xjjKs.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/xjjKs.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Read more about this &lt;a href=&quot;https://en.wikipedia.org/wiki/Uncorrelated_random_variables&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-10-02T19:21:51.293" LastActivityDate="2017-10-02T19:21:51.293" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18558" PostTypeId="2" ParentId="18545" CreationDate="2017-10-02T21:01:12.717" Score="0" Body="&lt;p&gt;[1] is stronger than [2]. By applying the law of total probability expectation and the properties of conditional expectation, we have: $$E(ux)= E(E(ux|x)) =E(xE(u|x)) $$&#xA;Thus [1] implies [2] but [2] does not necessarily imply [1]&lt;/p&gt;&#xA;" OwnerUserId="14540" LastActivityDate="2017-10-02T21:01:12.717" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18562" PostTypeId="2" ParentId="18538" CreationDate="2017-10-03T02:40:56.327" Score="2" Body="&lt;p&gt;MC = 2Q1 + 2Q2 for both demand functions. Set MR1 = 2Q1 + 2Q2, and MR2 = 2Q1 + 2Q1 and then you have a system of 2 unknowns and 2 equations. The solution ends up being Q1 = 15, P1 = 72.5, Q2 = 17.5, P2 = 82.5. In this case Profits under PD &gt; Profits Under single price. See you in 468 tomorrow. &lt;/p&gt;&#xA;" OwnerUserId="14717" LastActivityDate="2017-10-03T02:40:56.327" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18564" PostTypeId="1" CreationDate="2017-10-03T03:17:41.017" Score="1" ViewCount="158" Body="&lt;p&gt;Consider a two period model with limited commitment involved.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Each consumer&#xA;has a component of wealth which has value $pH$ in the future period, cannot be sold in the&#xA;current period, and can be pledged as collateral against loans. The government uses lump-sum&#xA;taxes $t$ and $t'$&#xA;in the current and future period, respectively, to fund its expenditures.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose that there is limited commitment with respect to taxation as well. More precisely,&#xA;while all consumers pay their taxes in the current period, consumers might refuse to pay&#xA;their taxes in the future period. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume that in that case the government can seize the&#xA;consumer’s collateralisable wealth, but cannot confiscate income. Moreover, assume that if&#xA;a consumer fails to pay off his or her debts to private lenders, and also fails to pay her taxes,&#xA;the government has to be paid first from the consumer’s collateralisable wealth.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;I'd like to say I don't think the RE holds here. But there's some other things I'm not sure about in a model like this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How does the limited commitment friction affect the government’s budget constraint?. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Would the Lifetime Budget Constraint for the Government in this model be $G+\frac{G'}{1+r}=T+\frac{T'+pH}{1+r}$? Or would this be incorrect?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, how does a consumers collateral constraint change taking into account the limited commitment friction with respect to taxes? I have an idea it would look something like. $c\leq{y}$$-t+\frac{pH}{1+r}$? This is my work so far on constructing it, I'm not sure if just plodding pH into the constraint is correct though. But it does imply much like the model suggests that any pH owed is collected in the future period only due to illiquidity. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, what do you all think happens when the government reduces $t$ and increases $t'$ so that it's budget constraint will continue to hold? I'm sure the RE equivalence doesn't hold here. I think the optimal consumption choices of the household in the present and the future will lead to a consumption increase. But hey, I'm not exactly sure.&#xA;Edit: Ignore this for now, working with it for a possible solution.&#xA;$c+\frac{c'}{1+r}=y-t_cc+y'-\frac{t'_{c'}c'}{1+r}$&lt;/p&gt;&#xA;" OwnerUserId="14718" LastEditorUserId="14718" LastEditDate="2017-10-04T04:54:18.740" LastActivityDate="2017-10-04T04:54:18.740" Title="How does Limited Friction affect a two-period model? Does the Ricardian Equivalence hold?" Tags="&lt;macroeconomics&gt;&lt;fiscal-policy&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18565" PostTypeId="1" CreationDate="2017-10-03T05:25:06.543" Score="1" ViewCount="447" Body="&lt;p&gt;Firstly they have given output elasticity of a factor, use of which is clear to me. It says to what degree my total output will vary due to a change in the quantity of a factor.&#xA;But what else do we get to know from elasticity of Average product?&lt;/p&gt;&#xA;" OwnerUserId="14617" LastActivityDate="2017-11-06T22:22:13.870" Title="What is the use of knowing elasticity of average product?" Tags="&lt;production-function&gt;" AnswerCount="2" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="18566" PostTypeId="2" ParentId="18547" CreationDate="2017-10-03T07:45:59.030" Score="1" Body="&lt;p&gt;This adds to the other good answers already posted:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Different prices in different countries are a result of complex factors, which are hard to explain in one, simple way. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;An example: the housing prices in Sydney are extremely high compared to Frankfurt, with the reason being the high demand of housing vs housing supply, and the lack of adequate public transportation. This is not connected with the salary you might earn in Sydney, but rather with the housing market itself. The same applies to eggs, as highlighted by mootmoot.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you want to compare costs of living, there are some nice tools like &lt;a href=&quot;https://www.numbeo.com/cost-of-living/compare_cities.jsp?country1=India&amp;amp;country2=Germany&amp;amp;city1=Mumbai&amp;amp;city2=Frankfurt&quot; rel=&quot;nofollow noreferrer&quot;&gt;Numbeo&lt;/a&gt; that compare a basket of goods between different cities. &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Regarding your later comments on &quot;maintaining currencies that are a false measure of wealth&quot;: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is a different question already. Exchange rates and valuation / devaluation of currency can be influenced by the central bank of a country, with different aims. Many countries artificially devaluate their currency to make their exports cheaper - with a consequence that national wages are lowered compared to the rest of the world. See my answer &lt;a href=&quot;https://economics.stackexchange.com/questions/18428/why-are-imported-chinese-products-in-india-cheaper-than-those-locally-produced/18439#18439&quot;&gt;here&lt;/a&gt; for more details. &lt;/p&gt;&#xA;" OwnerUserId="12304" LastEditorUserId="12304" LastEditDate="2017-10-03T07:54:56.713" LastActivityDate="2017-10-03T07:54:56.713" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="18568" PostTypeId="1" AcceptedAnswerId="18639" CreationDate="2017-10-03T09:13:25.703" Score="2" ViewCount="218" Body="&lt;p&gt;Suppose you know that the (Marshallian) demand function $x(p,m)$ that satisfies the consumer's problem of utility maximization is such that $\frac{\partial x_i(p,m)}{\partial m}$ is always well-defined for each good $i\in\{1,\dots,L\}$. In other words, the demand function is differentiable with respect to income.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What does this &lt;strong&gt;necessarily implies&lt;/strong&gt; about the properties of the utility function $U(x_1,\dots,X_L)$?&lt;/p&gt;&#xA;" OwnerUserId="14692" LastActivityDate="2017-10-08T14:26:17.320" Title="Implications of differentiable demand function on the utility function properties" Tags="&lt;microeconomics&gt;&lt;utility&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18573" PostTypeId="1" AcceptedAnswerId="18587" CreationDate="2017-10-03T15:39:33.997" Score="0" ViewCount="48" Body="&lt;p&gt;In this &lt;a href=&quot;https://www.project-syndicate.org/commentary/advanced-economy-recovery-vulnerable-by-carmen-reinhart-2017-08&quot; rel=&quot;nofollow noreferrer&quot;&gt;text by Carmen Reinhardt&lt;/a&gt;, there's the following sentence:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;For Greece, Italy, Portugal, and Spain, public-sector debt must now also include the central bank’s sharply rising debts. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;What does she mean by this? Isn't all public debt usually considered? &lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="118" LastEditDate="2017-10-03T18:12:00.577" LastActivityDate="2017-10-27T22:01:41.957" Title="«public-sector debt must now also include the central bank’s sharply rising debts». It didn't before?" Tags="&lt;macroeconomics&gt;&lt;debt&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18574" PostTypeId="1" AcceptedAnswerId="18575" CreationDate="2017-10-04T00:32:40.573" Score="2" ViewCount="112" Body="&lt;p&gt;Hotelling rule states that at equilibrium &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\dot p(t)}{p(t)} = i$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Meaning that rate of change of the price at time $t$ should be equal to $i$, the interest rate. Assume that the government pegs the price at the level $P^{*}$. Assume further that the shadow price at time t is given by: $Q_t =( \sigma i S_t)^\frac{-1}{\sigma}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Show that if $\dot q(t)= i$  then $Q_t = P^{*}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My questions:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(1) what exactly is $\dot q(t)$ or $\dot p(t)$. Is it the derivative? I couldn't make sense out of it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(2) Is the hoteling condition given in logarithms?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(3) And what method to go with after understanding (1)-(2)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Yes, this is a homework question. However I never asked you to solve the question. I asked what kind of a method would be used in this case. Since the problem doesn't make sense.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$q(t) = log (Q_t) = \frac{-1}{\sigma} log(\sigma i S_t) \\ \frac{dq(t)}{dt}=\dot q(t) = \frac{- \sigma i S_t}{\sigma^2 i} = \frac{- S_t}{\sigma }$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So condition on $q(t)$ implies that $S_t = - \sigma i$. Which I believe there is a problem since $S_t &amp;lt;0$ Anyway :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;since $S_t &amp;lt;0$ at this specified time $t$ all the resources have varied off. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I ended up finding $S_t = 0$ then I would conclude that at this time $t$ all the speculators bought up the resource and since the resource was sold at the price $P^*$ somehow this would imply $Q_t = P^*$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But $S_t &amp;lt;0$ is the result we get. Which simply says that all the goods were bought plus government bought some goods. I think that implies a price $q(t)&amp;gt;P^*$&lt;/p&gt;&#xA;" OwnerUserId="10922" LastEditorUserId="10922" LastEditDate="2017-10-04T03:20:44.467" LastActivityDate="2017-10-05T01:15:09.760" Title="Hotelling rule and the shadow prices in a peg" Tags="&lt;macroeconomics&gt;&lt;financial-economics&gt;&lt;resource-economics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18575" PostTypeId="2" ParentId="18574" CreationDate="2017-10-04T03:06:29.987" Score="1" Body="&lt;h1&gt;Partial Answer&lt;/h1&gt;&#xA;&lt;p&gt;I can give you an answer for parts (1) and (2). As for (3), I can't give an answer unless you show some work as per our &lt;a href=&quot;https://economics.meta.stackexchange.com/questions/1465/economics-se-policy-on-homework-questions&quot;&gt;site policy on homework questions&lt;/a&gt;.&lt;/p&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;(1)These variables are interpreted as the change in &lt;span class=&quot;math-container&quot;&gt;$q$&lt;/span&gt; or &lt;span class=&quot;math-container&quot;&gt;$p$&lt;/span&gt; over time. Mathematically this is the derivative, giving us the results:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\dot q(t)=\frac{dq(t)}{dt}$$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$$\dot p(t)=\frac{dp(t)}{dt}$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;(2) Hotelling's rule is not given in logarithms, as explained in as the notation is explained for (1). if it was it would be indicated by the notation of &lt;span class=&quot;math-container&quot;&gt;$\hat p(t)$&lt;/span&gt;. Written concisely as:&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\hat p(t)=\ln(p(t))$$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2017-10-05T01:15:09.760" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18580" PostTypeId="1" CreationDate="2017-10-04T10:36:28.430" Score="3" ViewCount="132" Body="&lt;p&gt;Countries in the gulf are oil rich. But they are lagging in R&amp;amp;D sector. Governments do not spend much on R&amp;amp;D. Most countries employ foreign contractors or import technologies. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is the reason?&lt;/p&gt;&#xA;" OwnerDisplayName="user13954" LastEditorDisplayName="user13954" LastEditDate="2017-10-05T05:42:37.310" LastActivityDate="2017-10-06T11:02:33.340" Title="Why are countries in the Gulf rich but lagging in technological innovation?" Tags="&lt;development-economics&gt;&lt;development&gt;&lt;research&gt;" AnswerCount="3" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18581" PostTypeId="2" ParentId="18580" CreationDate="2017-10-04T11:17:31.930" Score="2" Body="&lt;p&gt;Update&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://resourcegovernance.org/sites/default/files/nrgi_Resource-Curse.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Resource Curse literature&lt;/a&gt; attempts to address the issues you are raising, take a look at &lt;a href=&quot;http://siteresources.worldbank.org/INTTRADERESEARCH/Resources/D.Lederman_W.Maloney_Natural_Resources_book.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; and &lt;a href=&quot;http://www.nber.org/papers/w15836&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.rt.com/business/405820-kalshnikov-russia-saudi-salman/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Here&lt;/a&gt; is an interesting example of a technology transfer case.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Original answer&lt;/p&gt;&#xA;&#xA;&lt;p&gt;They do, in fact, have increased the share of R&amp;amp;D spending by a huge margin in the past 5 years. Some of these countries see commerce, trade and tourism as more central to their development than other aspects of development. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The number of Arab students on government scholarship in the West has been on the rise and many western universities have opened branches in the Middle East, especially in the Gulf countries. In the past, only the rich kids of Arabs were able to go to universities in the West. By default, these kids, did not bother working as scientists or educators, they, probably, stayed in the west or became entrepreneurs. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Today, with the help of government scholarships, the ordinary folks can send their kids for education, and hopefully, these kids will bring the science to the other ordinary folks in their respective countries. Remember, technological shock is not so fast and abrupt as we assume in the models, it take decades to have a measurable effect in practice. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As younger 'kings' and 'princes' are involved in politics, there are signs of greater investment in education and science. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://data.worldbank.org/indicator/GB.XPD.RSDV.GD.ZS?end=2015&amp;amp;locations=KW-SA-QA-AE-BS-OM-1A&amp;amp;start=1997&amp;amp;view=chart&quot; rel=&quot;nofollow noreferrer&quot;&gt;Here&lt;/a&gt; is the chart of R&amp;amp;D spending to GDP ratios in the Gulf countries.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the countries, where younger generation have more say in politics, there the spending on R&amp;amp;D has been higher than in those where older 'kings' rule. See the chart, Qatar and UAE have had higher R&amp;amp;D shares, but the data is limited for these countries.&lt;/p&gt;&#xA;" OwnerUserId="6009" LastEditorUserId="6009" LastEditDate="2017-10-06T11:02:33.340" LastActivityDate="2017-10-06T11:02:33.340" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18583" PostTypeId="2" ParentId="18580" CreationDate="2017-10-04T17:35:34.647" Score="1" Body="&lt;p&gt;There is a great deal to consider when discussing resource rich countries. Countries that rely on a single sector have less diverse economies, which can lead to a number of issues (especially if the price of a particular resource drops).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Additionally, resource rich countries tend to have unstable governments, which makes it difficult to diversify and grow the economy. Some of these governments are dictatorships and some are run by those who are wealthy as a result of having a stake in the resource. These particular issues tend to spawn corruption and abuses in a way that is not usually seen in other governments.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course these are broad generalizations, but they are important.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To address your question specifically, I would suggest that there is a reliance on foreign contractors because the necessary skills are not in abundance within the country itself. Since the countries rely on a single resource, most jobs and education are tied to the resource, which means limited available skills. Additionally, if one of these countries wants to develop technologies within the country, it would need to import tons of resources, probably more so than other countries that have multiple resources. My guess is that at this time, importing  technologies is more efficient. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This isn't to say that gulf countries don't invest in R&amp;amp;D, they do. It just looks different than in other countries.&lt;/p&gt;&#xA;" OwnerUserId="12662" LastActivityDate="2017-10-04T17:35:34.647" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18584" PostTypeId="2" ParentId="12824" CreationDate="2017-10-04T17:50:28.320" Score="1" Body="&lt;p&gt;You are a supplier of magic crystals.  You dig them out of a plot of ground you own, and, aside from your effort and the fuel you use for your digging machine, they are &quot;free&quot;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some are not buried too deeply and take only 5 minutes and 10 cents worth of fuel to dig out, but you've already dug those up, so you have to dig deeper -- they take twice as long and need twice as much fuel.  And after you've dug those then you will have to go deeper still.&lt;/p&gt;&#xA;" OwnerUserId="12218" LastActivityDate="2017-10-04T17:50:28.320" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18585" PostTypeId="1" CreationDate="2017-10-04T18:27:01.810" Score="1" ViewCount="309" Body="&lt;p&gt;Let $q(p) = \frac{1}{p}$ denote the demand function and $p^*$ some equilibrium price. Consumer surplus is defined as &#xA;\begin{align}&#xA;CS = \int_{p^*}^\infty\frac{1}{p} dp= \ln(\infty) - \ln(p^*) = \infty &#xA;\end{align}&#xA;which is quite unsatisfactory. What's the convention here?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit: Since I wanna compare welfare under price and quantity competition I found a workaround. Let $n$ the number of firms in the market, $\bar \pi^j$, equilibrium profits of the firm, $\bar p^j$ equilibrium prices and $j \in \{b,c\}$ is the index for the compeition type. &#xA;Now we may calculate the welfare difference as&#xA;\begin{align}&#xA;\Delta W := W^c - W^b &amp;amp;= n(\bar \pi^c - \bar \pi^b) + \int_{\bar p^c}^\infty\frac{1}{p}dp - \int_{\bar p^b}^\infty\frac{1}{p}dp\\&#xA;&amp;amp; = n(\bar \pi^c - \bar \pi^b) + \ln(\bar p^b) - \ln(\bar p^c) &#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose we get the following relationship&#xA;\begin{align}&#xA;\Delta W = \frac{(n-1)(\sigma-1)^2}{\sigma n^2(\sigma(n-1)+1)} + \ln\left(\frac{\sigma(n-1)+1}{n \sigma}\right)&#xA;\end{align}&#xA;with $n \geq 2$ and $\sigma \in [0,\infty)$ is a parameter.&#xA;Clearly $\Delta W = 0$ for $\sigma = 1$ and for all $n$. &#xA;I wanna further show that $\Delta W &amp;gt; 0$ for $\sigma &amp;lt; 1$ and $\Delta W &amp;lt; 0$ for $\sigma &amp;gt; 1$. Any ideas how to proceed?&lt;/p&gt;&#xA;" OwnerUserId="4266" LastEditorUserId="4266" LastEditDate="2017-10-09T09:07:07.277" LastActivityDate="2018-02-06T11:59:15.443" Title="Consumer surplus with isoelastic demand" Tags="&lt;microeconomics&gt;&lt;social-welfare&gt;&lt;consumer-surplus&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="18586" PostTypeId="1" CreationDate="2017-10-04T19:16:00.210" Score="1" ViewCount="228" Body="&lt;p&gt;I'm having some doubts on how to interpret the following ratio.&#xA;I tend to think of leverage as a measure of how much debt the firm takes on.&#xA;By equity=Assets-Liabilities. When Equity is negative, I would say a firm is insolvent or very close to not meet its financial obligations. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What's the rationale for the ratio below? When asset/liability is smaller than one, doesn't it mean that assets &amp;lt; liabilities, and so the firm is insolvent? Do they mean these Chinese industries are insolvent?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Wouldn't it be better to use equity instead of assets for a measure of leverage?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/xBBuG.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/xBBuG.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="4816" LastEditDate="2018-05-16T01:29:52.153" LastActivityDate="2018-05-16T01:29:52.153" Title="Help in interpreting this graph? Assets/Liability ratio" Tags="&lt;microeconomics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="18587" PostTypeId="2" ParentId="18573" CreationDate="2017-10-04T19:42:23.227" Score="1" Body="&lt;p&gt;..............................................&lt;/p&gt;&#xA;" OwnerDisplayName="user14471" LastEditorDisplayName="user14471" LastEditDate="2017-10-27T22:01:41.957" LastActivityDate="2017-10-27T22:01:41.957" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18589" PostTypeId="2" ParentId="18415" CreationDate="2017-10-04T21:12:31.097" Score="1" Body="&lt;p&gt;&quot;Money&quot; in this case is a liability of the Federal Reserve - mainly reserve balances held at the Fed, but also curency in circulation (which was largely stable).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Like any other entity, the Fed creates liabilities by issuing them. It did this by buying bonds in the open market (mainly Treasury and mortgage securities).&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;The seller of the bond (more likely, its bank) will get a deposit (&quot;money&quot;).&lt;/li&gt;&#xA;&lt;li&gt;The Fed gets an asset (the bond).&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;As people have found out, there is little to stop the Fed from doing this. They get matched assets and liabilities, and the assets it buys pays a higher rate of interest than its liabilities.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Other entities have to worry about funding risk when conducting such trades -- others may fear bankruptcy, and not lend them money. Very few people worry about the central bank running out of money.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2017-10-04T21:12:31.097" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18591" PostTypeId="2" ParentId="18573" CreationDate="2017-10-04T21:27:18.150" Score="1" Body="&lt;p&gt;There are a lot of potential definitions of &quot;public debt,&quot; and differing statistical agencies use different ones. (They may have more specific names, such as &quot;Federal debt held by the public.&quot;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A lot of these definitions exclude debt held by the central bank, based on theoretical arguments that may or may not make sense. (These debt holdings would roughly correspond to the money supply, which is allegedly not &quot;debt&quot; according to some economists.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is any particular definition &quot;correct&quot;? It seems that the &quot;correct&quot; definition would be practically useful. However, as Professor Reinhart discovered the hard way (the &quot;90% debt limit paper&quot;), government debt levels (however defined) do not appear to offer much predictive power for economic outcomes. If this is indeed the case, why worry about what definition is used?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Arguing that ECB &quot;debt&quot; is meaningful implies a belief that the ECB can default on euro-denominated debts. It is very unclear how such an event can occur, other than in the context of a disorderly break up of the euro area. However, that would imply the end of the existence of the euro itself -- in which case, why care about euro-denominated debt values? It will all have to be defaulted on anyway.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastEditorUserId="12891" LastEditDate="2017-10-04T21:40:57.143" LastActivityDate="2017-10-04T21:40:57.143" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18592" PostTypeId="2" ParentId="18586" CreationDate="2017-10-04T21:51:13.400" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;Wouldn't it be better to use equity instead of assets for a measure of&#xA;  leverage?&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;No, but the correct ratio is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\text{Assets} }{ \text{Equity}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Reasoning: with &quot;leverage&quot; we want to obtain information on how much a company uses debt for financing. And we want to have the correspondence &quot;higher leverage $\to$ &lt;em&gt;more&lt;/em&gt; debt financing&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Moreover, in order to be consistent with the definition of &quot;leverage&quot; (&quot;the exertion of force by means of a lever&quot;), we want the information on debt to be in the denominator, since we want to form a ratio.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In order to achieve all these together, we need to put &lt;em&gt;equity&lt;/em&gt; on the denominator, so that lower equity (implying higher debt for same level of assets) &lt;em&gt;increases&lt;/em&gt; the value of the ratio, and we get the higher leverage.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2017-10-05T01:55:03.237" LastActivityDate="2017-10-05T01:55:03.237" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="18593" PostTypeId="2" ParentId="18586" CreationDate="2017-10-04T22:09:30.737" Score="1" Body="&lt;p&gt;The y-axis in the graph must be showing the values for $\frac{liabilities}{assets}$ ratio, and the title 'asset-to-liabilities ratio' refers to this ratio. There are other leverage ratios, $\frac{debt}{equity}$ and $\frac{debt}{assets}$. All measure the so called financial risk of the company.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regarding negative equity values, it is possible to have negative Equity in the balance sheet, take a look at the instances when this might occur &lt;a href=&quot;https://www.accountingcoach.com/blog/negative-owners-equity&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="6009" LastEditorUserId="6009" LastEditDate="2017-10-04T22:34:32.337" LastActivityDate="2017-10-04T22:34:32.337" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18598" PostTypeId="2" ParentId="18509" CreationDate="2017-10-05T05:28:14.373" Score="8" Body="&lt;p&gt;It is worth noting that OP's original question before I edited it asked, &quot;why would economists lie to us?&quot; This already leaves a poor taste in my mouth; such a question is loaded enough as it is, only good for picking fights. The author stated at the bottom of the Progressive Dairy article is a lawyer, not an economist, and seems to be the basis for some of your figures in your analysis. The article from the Texas A&amp;amp;M AgriLife study cited by the Farm Bureau/NMPF did have economists writing on the topic, which I'll discuss briefly later.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Related to denesp's comment on cost of labor share, consider the firm's cost of milk production:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$p_L q_L + \sum^n_{i = 1} p_iq_i = C$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The cost $C$ is made up of the cost of labor (price of labor times quantity of labor) plus the cost of all other factors of production. The labor share of cost that was mentioned by OP would be:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{p_L q_L}{C} \equiv \boxed{s_L = \frac{p_L q_L}{p_L q_L + \sum^n_{i = 1} p_iq_i}}$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose as in the hypothetical that the cost of labor doubles. OP argues that then, &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;we can multiply the labor share of a dairy farm's expenses per hundredweight by 2&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;but this is clearly not true from a mathematical standpoint.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$2s_L \neq \frac{(2p_L) q_L}{(2p_L) q_L + \sum^n_{i = 1} p_iq_i}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;More than this, it also assumes there are no cross-price effects. That is, if the price of one good changes, it will not change the quantity demanded of other factors of production. If there is any sort of substitutability OR complementarity between labor and any other factor of production, this cannot hold. Empirically, low-skill/blue-collar labor is a complement to high skill labor and a substitute with capital.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;All of this walks around a bigger issue. The article in question makes a claim about the effect of disemployment on doubling milk prices. It does not say that it will come about by doubling labor prices, so the argument posed above is just a strawman. That is, it may very well be that doubling labor price would not double the final price of milk, but that is not what the article is arguing.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;That said, I don't particularly like the analysis done in the Texas A&amp;amp;M AgriLife study cited either. Ultimately, it has no inference/causal modelling and is just a survey with some summary statistics, with a lot of questionable assumptions.  There is like one price elasticity in that whole analysis as I could see, and its use was not compelling.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The lazy way to interpret this is to just say the methods of the study are bad and that its conclusions have no value and only serve to mislead the public. I don't think this is particularly true either. Private sector market analysis is definitely in some ways less stringent than publishing in, say, an economics journal however.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So what can we do?&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;The long, boring, rigorous way to estimate the impact of a large shock to the labor supply is to look at labor demand and labor supply simultaneously.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider an extremely simple set of linear estimations:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\ln(L_s) = \alpha_s \ln(w) + \vec{\beta}_s \vec{Z} + \epsilon_s$$&#xA;$$\ln(L_d) = \alpha_d \ln(w) + \vec{\beta}_d \vec{X} + \epsilon_l$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where $Z$ is a vector of control variables/supply shifters (e.g. non-labor income), and $X$ is the same but for demand. Notice that labor, $L$ and wage, $w$ are endogenously determined, which nudges us towards the use of IV estimation, rather than the typical OLS.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Labor Demand:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From here you'd have to think about what kind of functional form production should take: $Y = f(K, L, \cdots)$, where $K$ is capital, and you can put in some other factors if you want (legal labor vs illegal labor perhaps?), and derive conditional factor demands, which you can plug into the equation for cost which gets some $C(w, r, \cdots, Y)$, with $r$ representing the rental rate of capital.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Applying Shephard's Lemma, you can then derive the elasticities of substitution between two different factors of production, which are used to calculate the cost shares of of each production factor, and eventually, we can then find the own-price elasticity of the factors, used to help estimate $\alpha_d$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Labor Supply:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Similar line of thought, but with a specification of utility and working with Frisch elasticities.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Plugging in the data (number of laborers, capital stock on farms, etc.) could prove difficult or impossible without existing data of course.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is obviously a very rough sketch for an empirical framework for analyzing labor supply, but it is a foundation for analyzing all sorts of shocks to the labor supply. For a more detailed analysis, you can refer to &lt;strong&gt;Cahuc, Carcillo, and Zylberberg&lt;/strong&gt; and their first few chapters on labor supply and labor demand.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sometimes in the economic literature, undertaking a more detailed study like this requires a lot of funding and time, with in mind particularly the hassle of data. People want practical policy answers in the short run, particularly in the private sector. With limited resources, sometimes studies like the ones you've looked at provide &quot;second-best results&quot; and that is the analysis we have to work with. The productive, honest thing to do with studies that take on partisan issues is to think about how to feasibly improve them and ask specifically about how to look at the research being done on the topic.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are plenty of voices accusing all manner of partisan research/analysis as misleading, and still plenty polemics out there who would waste their time writing polemics. It is not for this site.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastEditorUserId="4251" LastEditDate="2017-10-07T16:50:52.987" LastActivityDate="2017-10-07T16:50:52.987" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="18599" PostTypeId="2" ParentId="18580" CreationDate="2017-10-05T08:42:36.933" Score="0" Body="&lt;p&gt;Oil-rich country &quot;resource curse&quot; is merely symptoms, not the root cause of the poor R&amp;amp;D. It is a fallacy once you inspect the fact: US, Russia are both oil-rich country. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Technologies advancement is a culture of a collective and organic development process, a stable society(that doesn't burn and kill the scientist), critical thinking (breakthrough that will overthrow the previous finding), motivation incentive and lots of available wells trained &quot;manpower&quot; on the field, government policies on fundamental science.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Just look into human history, you will notice there is little progress in technology until the 18-century industrial revolutions: it is the synergy of all the above factors that lead the technologies boom.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now take any gulf oil exporting countries and compare facts in the checklist, you will find there is a huge gap of each factor when compared to technologies advanced country. First, suppression of female rights, cut the science production to half (FYI, lots of modern scientific breakthrough are from the female scientist). Lack of top-notch scientist (as guidance), challenging cultures and persistency (many scientists that win nobles prize have their papers rejected by prominent science paper). Such countries government also lack the vision to invest in fundamental science. &lt;/p&gt;&#xA;" OwnerUserId="11177" LastActivityDate="2017-10-05T08:42:36.933" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18600" PostTypeId="1" AcceptedAnswerId="18603" CreationDate="2017-10-05T09:22:55.077" Score="1" ViewCount="45" Body="&lt;p&gt;I am from a non-economic background so please bare with me.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have a crowdsourcing system that enables businesses to request individuals to perform certain tasks in exchange for a monetary payment. For any task &lt;em&gt;t&lt;/em&gt;, the business pays an amount of &lt;strong&gt;&lt;em&gt;p&lt;/em&gt;&lt;/strong&gt; units as long as the participant is taking on only one task. If a user wishes to multi-task, the system pays an amount &lt;strong&gt;&lt;em&gt;p-x&lt;/em&gt;&lt;/strong&gt; where * x &amp;lt; p* and both are nonnegative. This motivates users to take on multiple tasks as it will achieve &lt;em&gt;higher profitability&lt;/em&gt; to each user. At the same time, the incurred costs for businesses will be reduced. Is there a scientific term that describes this mechanism? Is the term &quot;cost-efficiency&quot; correctly describes what the business is trying to do?&lt;/p&gt;&#xA;" OwnerUserId="14747" LastActivityDate="2017-10-05T17:29:19.083" Title="Correct scientific term to describe this system property" Tags="&lt;economic-terms&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18601" PostTypeId="2" ParentId="17501" CreationDate="2017-10-05T10:00:25.037" Score="0" Body="&lt;p&gt;Assume there are only two goods. The price of Y defined by X amount and the price of Y is defined by X respectively. Then by assuming a fixed amount of production resources (for example labor and capital), the PPF could be obtained. In this context, the cost functions should be defined as a function of other commodities. Here we could use X as a base commodity, overall production possibility function could be written as &#xA;$  Q=c(x,y) $  and $ y=f(x) $  then, a total differentiation could solve the problem. $$ dQ=MC_x dx + MC_y { \frac{dy}{dx}} dx $$ &#xA;$dQ=0$ therefore, $$ \frac{dy}{dx} =- \frac{MC_x}{MC_y}  $$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Details are &lt;a href=&quot;http://www.wifa.uni-leipzig.de/fileadmin/user_upload/itvwl-vwl/MIKRO/Lehre/AdvancedMicro/par.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; .&lt;/p&gt;&#xA;" OwnerUserId="227" LastEditorUserId="227" LastEditDate="2017-10-05T12:34:56.980" LastActivityDate="2017-10-05T12:34:56.980" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="18602" PostTypeId="2" ParentId="12477" CreationDate="2017-10-05T12:32:24.147" Score="1" Body="&lt;p&gt;Stiglitz has written extensively about how conventional monetary policy &lt;strong&gt;does&lt;/strong&gt; affect inequality (for example, &lt;a href=&quot;https://www8.gsb.columbia.edu/faculty/jstiglitz/sites/jstiglitz/files/2015%20Federal%20Reserve%20Policy%20Report.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;). There are a multitude of channels by which MP affect inequality. To mention one of them, low interest rates lowers the return on savings of workers, whereas it generates a booming stock market (which benefit mostly top percentiles) due to the fall in the discount rate at which future profits are discounted. &lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-10-05T12:32:24.147" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18603" PostTypeId="2" ParentId="18600" CreationDate="2017-10-05T12:55:28.907" Score="2" Body="&lt;p&gt;The term is &quot;&lt;strong&gt;volume discounting&lt;/strong&gt;&quot;, where a supplier offers/accepts a lower unit price in exchange for higher volume of business.&#xA;Here, it is the firm/buyer that asks for this volume discount, rather than the suppliers/users that offer it as a commercial policy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that  when the buyer demands a volume discount (when it sets $x$) some conditions must be satisfied in order to be even feasible.&#xA;Assume $m$ tasks identical as regards the costs that &lt;em&gt;the user&lt;/em&gt; has to incur (time etc). Denote the cost per task $c_a$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a single task the user is paid $p$, so its net payoff is $p-c_a$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Taking on multitasking, the user will be paid in total $m\cdot (p-x)$ and its costs will be $m\cdot c_a$. &#xA;In order to take on multitasking it must hold that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ m\cdot (p-x-c_a) &amp;gt; p-c_a$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A &lt;em&gt;necessary&lt;/em&gt; but not sufficient condition for this to hold is that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$p-x-c_a &amp;gt; 0 \implies  x &amp;lt; p -c_a$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which places an uper bound on $x$, a bound that depends on supplier costs $c_a$. So the firm/buyer that sets $x$  must have a good idea about what $c_a$ might be.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume that this holds. Then we need&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$m &amp;gt; \frac {p-c_a}{p-x-c_a}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &lt;em&gt;higher&lt;/em&gt; the reduction $x$  in price per task the &lt;em&gt;more&lt;/em&gt; tasks a user must take on. This may seem like providing an incentive to the buyer to set the requested $x$ as bigger as possible, but it may be the case that the reduction in unit price is so large that the user cannot take on the necessary number due to physical constraints. Let a maximum possible number of tasks that the agent can hanlde be $\bar m$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then we need as a necessary condition&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {p-c_a}{p-x-c_a} &amp;lt; \bar m$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;so that there exist feasible number of tasks $m$ below the maximum, and above the minimum number required to have higher profitability of the supplier/agent.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Re-arranimng for $x$ we obtain &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$x&amp;lt; \left(1-\frac 1{\bar m}\right)(p-c_a)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which is tighter than the previous necessary condition on $x$. So the fimr/buyer must also have a good idea about what the value of $\bar m$ is. Otherwise the whole plan runs the risk of not being adopted by the user.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A situation where the above becomes more feasible is when $c_a$ is not fixed per task but at least initially declines with multi-tasking.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2017-10-05T17:29:19.083" LastActivityDate="2017-10-05T17:29:19.083" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18606" PostTypeId="1" CreationDate="2017-10-05T17:50:47.807" Score="2" ViewCount="156" Body="&lt;p&gt;Given all the hype around the cryptocurrencies like bitcoin, ethereum, etc., I'm wondering what are the main differences between those and a possible digital currency, backed by a central bank, in a hypothetical 'cashless society'?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="4988" LastEditDate="2017-10-13T03:29:43.563" LastActivityDate="2017-10-13T03:29:43.563" Title="What are the differences between cryptocurrencies and digital currencies backed by CBs?" Tags="&lt;cryptocurrency&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18612" PostTypeId="2" ParentId="18606" CreationDate="2017-10-06T19:50:44.340" Score="1" Body="&lt;p&gt;The major difference in cryptocurrencies is the absence of the centralised control on money supply. In fact, money growth rate and the maximum amount possible of money supply in cryptocurrency is typically defined at the creation of the currency, and is publicly known.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can read &lt;a href=&quot;https://www.economist.com/news/briefing/21677228-technology-behind-bitcoin-lets-people-who-do-not-know-or-trust-each-other-build-dependable&quot; rel=&quot;nofollow noreferrer&quot;&gt;this economist article&lt;/a&gt;, makes a great summary of blockchain and potential impact of the technology and cryptocurrencies in society. The &lt;a href=&quot;https://en.wikipedia.org/wiki/Cryptocurrency#Overview&quot; rel=&quot;nofollow noreferrer&quot;&gt;wikipedia article on cryptocurrencies&lt;/a&gt; also collects several interesting sources.&lt;/p&gt;&#xA;" OwnerUserId="12304" LastActivityDate="2017-10-06T19:50:44.340" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18613" PostTypeId="2" ParentId="18565" CreationDate="2017-10-06T20:10:28.387" Score="0" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Companies with high elasticity ultimately compete with other businesses on price and are required to have a high volume of sales transactions to remain solvent. Firms that are inelastic, on the other hand, have products and services that are must-haves and enjoy the luxury of setting higher prices.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.investopedia.com/terms/e/elasticity.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;Source&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="12304" LastActivityDate="2017-10-06T20:10:28.387" CommentCount="9" ContentLicense="CC BY-SA 3.0" />
  <row Id="18614" PostTypeId="1" CreationDate="2017-10-06T20:15:56.870" Score="0" ViewCount="38" Body="&lt;p&gt;Today the Trump administration in the USA announced they are &lt;a href=&quot;http://thehill.com/policy/healthcare/354232-trump-administration-eliminates-obamacare-birth-control-mandate&quot; rel=&quot;nofollow noreferrer&quot;&gt;removing the mandate&lt;/a&gt; that company provided health insurance include free contraception coverage. My understanding is that providing contraception for free actually reduces the overall healthcare cost in the US, since the price of pregnancy and births is extremely high compared to inexpensive pills. Therefore, from a strictly economics standpoint, I would expect that companies that elect to not cover contraception might pay &lt;em&gt;higher&lt;/em&gt; premiums than if they were to choose policies that included coverage. Is this the case? Prior to today did religious organizations and private companies that chose not to cover contraception actually pay higher premiums, or did insurance companies just raise everyone's premiums to compensate? (Or is my original premise flawed that premiums should be higher when contraception is not covered?)&lt;/p&gt;&#xA;" OwnerUserId="6988" LastEditorUserId="12304" LastEditDate="2017-10-07T10:08:37.663" LastActivityDate="2017-10-11T10:44:36.810" Title="Effect of today's decision in the US to no longer mandate contraception coverage" Tags="&lt;united-states&gt;&lt;health-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18615" PostTypeId="1" AcceptedAnswerId="18629" CreationDate="2017-10-07T00:16:16.670" Score="0" ViewCount="94" Body="&lt;p&gt;I want to do an economics masters course (not a PHD) in the UK or US preferably with a focus on game theory, auction theory, mechanism design and contract theory though I understand I'll probably have to take at least one macro and metrics course.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I found that NYU has an MA in econ and has good game theory (by Ariel Rubinstein) but are there any others?&lt;/p&gt;&#xA;" OwnerUserId="14078" LastActivityDate="2017-10-07T17:18:45.337" Title="Economics Masters Courses?" Tags="&lt;microeconomics&gt;&lt;game-theory&gt;" AnswerCount="1" CommentCount="2" ClosedDate="2017-10-21T15:30:42.353" ContentLicense="CC BY-SA 3.0" />
  <row Id="18616" PostTypeId="2" ParentId="18606" CreationDate="2017-10-07T04:14:09.460" Score="0" Body="&lt;p&gt;Digital currencies and cryptocurrencies differ from each other in how they operate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Digital currencies:&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;_There must be a server for the whole system to be maintained. That means authorities can control the currencies by controlling the server. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;_From the security perspective, The server needs to be protected from hackers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Cryptocurrencies:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;_Everything operates on the blockchain, which can be considered the same as digital currencies 's server, but it doesn't run on 1 hard server . It runs on hundreds of thousands of computers that miners turn on for block reward. Each of these computer runs the same thing on it simultaneously, and when all of those computer (or a majority of them) reach a consensus, that's the blockchain. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;_Because there's no server, governments can't control the blockchain or shut it down (with the same reason why copyrights holders can't shut bitTorrent down, or why people can't kill SkyNet in the Terminator series). In the case governments want to shut the blockchain down, with just 1 single of the hundreds thousands computers, located around to globe, running the blockchain, survives, the chain survives.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;_From the security perspective, the only way to &quot;hack&quot; a block chain is to hack 51% of ALL THE COMPUTERS running it AT THE SAME TIME (within the same block, which typically ranges from a few seconds to a few minutes). That's why if the chains is large enough, it's theoretically impossible to hack the blockchain.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit: (further explaining the &quot;hacking&quot;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By hacking the blockchain, I mean the same as controlling a server that run something and change the datas. For example, the hacker can set the balance of his account to 1 million dollars. In online banking system, or digital currency server, it can be done by hijacking the server. As for cryptocurrencies, the same thing can be done by controlling 51% of all the hardware running the blockchain, and it have to be achieved within the same block on the chain (a few secs to mins), because when when the new block is mined or forged to the chain, all previous block is encrypted, which is impossible to decrypt within a a few seconds (block-time for the following block).&lt;/p&gt;&#xA;" OwnerUserId="14764" LastEditorUserId="14764" LastEditDate="2017-10-07T11:26:14.830" LastActivityDate="2017-10-07T11:26:14.830" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="18617" PostTypeId="2" ParentId="1726" CreationDate="2017-10-07T04:42:13.627" Score="0" Body="&lt;p&gt;If it's more than one, it means that the variation of the selled quantity is greater that the variation of the price. In other words a variation in price cause a bigger variation in production. So if price goes down, consumers will increase purchases in a bigger variation: the demand of that good is more than elastic to the price. If it's 1 it's elastic. If it's less than one, it is not very elastic or unelastic.&lt;/p&gt;&#xA;" OwnerUserId="13682" LastActivityDate="2017-10-07T04:42:13.627" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18619" PostTypeId="2" ParentId="18614" CreationDate="2017-10-07T10:56:23.410" Score="2" Body="&lt;p&gt;There are different arguments here, depending on the points of view of the government and the insurance providers. I'm trying to answer to the general question on the title.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Insurance providers&lt;/strong&gt; aim at minimizing their costs with healthcare and the probability of health issues. Free birth control not only prevents &lt;em&gt;unwanted&lt;/em&gt; pregnancy, but &lt;a href=&quot;https://www.plannedparenthood.org/learn/birth-control/birth-control-pill/what-are-the-benefits-of-the-birth-control-pill&quot; rel=&quot;nofollow noreferrer&quot;&gt;might also have other health benefits&lt;/a&gt;. This prevention would save insurance providers from the costs of unwanted pregnancy, which are not only the birth but also psychological costs. I am not aware of any studies that would compare both situations. Insurance providers could benefit from this measure if they know that women will buy the birth control anyways, so the insurer free rides on the benefits of the pill.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;The government&lt;/strong&gt; should try to maximize the &quot;society's profit&quot; or well being, coming from healthcare, but also from other aspects like the fulfillment of values. The logic is to balance the &quot;harm&quot; inflicted by this policy to some groups (say, some religious citizens could say they feel bad for living with these policies) and the losses in profit inflicted to insurance providers or employers, with the potential benefits to society. The book Freakonomics makes an interesting correlation with approving abortion and reducing crime in New York, which could be an argument to give it for free (social benefit of less crime). Note that the argument was later refuted in The Economist, but might still be used by some people who only read the book.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Who could benefit from this change in policy,&lt;/strong&gt; besides what is mentioned above (my own opinion, discussable)&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Pharma industry, with people choosing more expensive pills when they are not covered by the insurer&lt;/li&gt;&#xA;&lt;li&gt;Religious groups and anyone who disagrees with the concept of free birth control&lt;/li&gt;&#xA;&lt;li&gt;President Trump, by gaining more approval from these groups&lt;/li&gt;&#xA;&lt;li&gt;(Far fetched) Hospitals and doctors who could increase their services&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="12304" LastEditorUserId="12304" LastEditDate="2017-10-11T10:44:36.810" LastActivityDate="2017-10-11T10:44:36.810" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="18620" PostTypeId="2" ParentId="18585" CreationDate="2017-10-07T12:47:48.960" Score="1" Body="&lt;p&gt;This simply tells us that the mathematical object $f(x) = 1/x$ is not friendly to all the economic concepts we want to associate/obtain from its use as a demand function.&lt;br&gt;&#xA;So, it is not the right tool to represent a demand function, we should use something else.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Mathematically, this relates to the harmonic series which is divergent (think of the integral as a discrete sum).&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2017-10-08T13:55:44.013" LastActivityDate="2017-10-08T13:55:44.013" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18622" PostTypeId="1" CreationDate="2017-10-07T13:47:57.863" Score="0" ViewCount="70" Body="&lt;p&gt;From the paper: &quot;Standard Auctions with Financially Constrained Bidders&quot; - by Che and Gale. The authors describe an isobid curve as the curve that represents payments of the same value in a 2-dimensional plane (wealth and valuation). They state that:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;The isobid curves are negatively sloped and have no interior&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What does it mean that an iso curve has no interior?&lt;/p&gt;&#xA;" OwnerUserId="11008" LastActivityDate="2017-11-06T14:55:16.980" Title="What does it mean when we say an iso curve has no interior?" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;auctions&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18623" PostTypeId="2" ParentId="18622" CreationDate="2017-10-07T14:09:34.437" Score="2" Body="&lt;p&gt;From &lt;a href=&quot;https://en.wikipedia.org/wiki/Interior_(topology)&quot; rel=&quot;nofollow noreferrer&quot;&gt;Wikipedia&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In mathematics, specifically in topology, the interior of a subset S of points of a topological space X consists of all points of S that do not belong to the boundary of S. A point that is in the interior of S is an interior point of S. [...] If S is a subset of a Euclidean space, then x is an interior point of S if there exists an open ball centered at x which is completely contained in S. (This is illustrated in the introductory section to this article.)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2017-10-07T14:09:34.437" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18626" PostTypeId="1" AcceptedAnswerId="18627" CreationDate="2017-10-07T16:45:10.667" Score="0" ViewCount="39" Body="&lt;p&gt;I am reading this article on the Financial Times: Oil prices hit as US gulf coast faces hurricane&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the production of oil is forecast to decrease, that means the supply would decrease. Surely the price should rise, not fall? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The article says:&#xA;&lt;em&gt;The price of crude oil was driven down on Friday as Tropical Storm Nate was forecast to strengthen and hit the US Gulf of Mexico coast with hurricane force winds on Saturday night, and as traders anticipate disruption to refineries.&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What am I missing?&lt;/p&gt;&#xA;" OwnerUserId="14769" LastActivityDate="2017-10-07T17:04:42.563" Title="Oil price decreases due to supply decrease?" Tags="&lt;oil&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18627" PostTypeId="2" ParentId="18626" CreationDate="2017-10-07T17:04:42.563" Score="3" Body="&lt;p&gt;Refineries need oil to produce chemical products. Therefore, it means declining demand for oil and falling prices according to demand supply principles.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The point is refineries which use oil as ingredient.&lt;/p&gt;&#xA;" OwnerUserId="14767" LastActivityDate="2017-10-07T17:04:42.563" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18628" PostTypeId="1" AcceptedAnswerId="18632" CreationDate="2017-10-07T17:16:11.823" Score="0" ViewCount="36" Body="&lt;p&gt;Is there someplace specifically on the internet where one can find Beta values for stocks? I've been looking but apparently I'm looking in the wrong places. Tried WSJ stocks and Morningstar. Morningstar need to subscribe.&lt;/p&gt;&#xA;" OwnerUserId="13264" LastEditorUserId="1601" LastEditDate="2017-10-07T17:30:01.513" LastActivityDate="2017-10-08T04:26:22.903" Title="Where can one find Beta values for stocks?" Tags="&lt;microeconomics&gt;&lt;data-request&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18629" PostTypeId="2" ParentId="18615" CreationDate="2017-10-07T17:18:45.337" Score="0" Body="&lt;p&gt;This website will be helpful.&#xA;Ask that in here.&#xA;&lt;a href=&quot;http://www.urch.com/forums/phd-economics&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.urch.com/forums/phd-economics&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="14767" LastActivityDate="2017-10-07T17:18:45.337" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18631" PostTypeId="1" CreationDate="2017-10-08T03:25:01.310" Score="10" ViewCount="1341" Body="&lt;p&gt;The &lt;a href=&quot;https://en.wikipedia.org/wiki/Sunk_cost&quot; rel=&quot;nofollow noreferrer&quot;&gt;sunk-cost fallacy&lt;/a&gt; has also been dubbed the Concorde Fallacy.&lt;/p&gt;&#xA;&lt;p&gt;&lt;strong&gt;Examples of the Concorde Fallacy in the academic literature and beyond&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;p&gt;I believe &lt;a href=&quot;http://psycnet.apa.org/record/1977-05021-001&quot; rel=&quot;nofollow noreferrer&quot;&gt;Dawkins and Carlisle (1976)&lt;/a&gt; were the first to use Concorde as an example of the sunk-cost fallacy, though they did not mention it by name:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;A government which has invested heavily in, for example, a supersonic airliner, is understandably reluctant to abandon it, even when sober judgment of future prospects suggests that it should do so.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Thereafter, the Concorde project would be frequently cited as a &amp;quot;classic&amp;quot; example of the sunk-cost fallacy. Examples: evolutionary biologists — &lt;a href=&quot;http://users.ox.ac.uk/%7Egrafen/cv/sibly.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Grafen and Sibly (1978)&lt;/a&gt;, &lt;a href=&quot;https://www.gwern.net/docs/1980-dawkins.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Dawkins and Brockmann (1980)&lt;/a&gt;, &lt;a href=&quot;https://www.gwern.net/docs/1987-curio.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Curio (1987)&lt;/a&gt;, &lt;a href=&quot;http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.322.4021&amp;amp;rep=rep1&amp;amp;type=pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Arkes and Ayton (1999)&lt;/a&gt;; economists — &lt;a href=&quot;https://www.coll.mpg.de/download/Hoeffler/Sunk%20Cost_080331.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Höffler (2008)&lt;/a&gt;, &lt;a href=&quot;https://books.google.com/books?id=HqUZ-aeWENIC&amp;amp;pg=PA281&quot; rel=&quot;nofollow noreferrer&quot;&gt;Ahlstrom and Bruton (2009)&lt;/a&gt;, &lt;a href=&quot;http://onlinelibrary.wiley.com/doi/10.1111/j.1465-7295.2008.00184.x/&quot; rel=&quot;nofollow noreferrer&quot;&gt;McAfee, Mialon, and Mialon (2010)&lt;/a&gt;, &lt;a href=&quot;https://www.aeaweb.org/articles?id=10.1257/mic.3.4.35&quot; rel=&quot;nofollow noreferrer&quot;&gt;Baliga and Ely (2011)&lt;/a&gt;; media and blogs — &lt;a href=&quot;https://www.forbes.com/sites/jimblasingame/2011/09/15/beware-of-the-concorde-fallacy/&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;Forbes&lt;/em&gt; (2011)&lt;/a&gt;, &lt;a href=&quot;https://www.newyorker.com/magazine/2013/01/21/that-sunk-cost-feeling&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;The New Yorker&lt;/em&gt; (2013)&lt;/a&gt;, &lt;a href=&quot;http://conversableeconomist.blogspot.com/2014/12/sunk-cost-fallacy-do-children-and.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Tim Taylor (2014)&lt;/a&gt;, &lt;a href=&quot;https://fee.org/articles/the-concorde-fallacy-why-we-cant-quit-losing-battles/&quot; rel=&quot;nofollow noreferrer&quot;&gt;FEE (2015)&lt;/a&gt;.&lt;/p&gt;&#xA;&lt;p&gt;The &lt;a href=&quot;https://www.aspistrategist.org.au/dont-look-back-the-fallacy-of-sunk-costs/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Australian Strategic Policy Institute (2013)&lt;/a&gt; writes:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;One of the most egregious examples is the development of the Concorde supersonic transport aircraft at a total cost far in excess of the initial predictions and which was persevered with long after it became clear that there was no hope turning a profit on the venture. It’s such a clear case of the sunk-cost fallacy that 'Concorde fallacy' is now a synonym.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;In every instance, it is simply asserted without any evidence that the British/French governments egregiously and foolishly fell victim to the sunk-cost fallacy.&lt;/p&gt;&#xA;&lt;p&gt;&lt;strong&gt;But were the British/French governments actually guilty of the sunk-cost fallacy?&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;p&gt;Given the huge number of citations, I had myself assumed that Concorde was indeed a &amp;quot;classic&amp;quot; example of the sunk-cost fallacy that I could cite. I thought it would be very easy to find evidence that some British/French government officials were indeed guilty of the sunk-cost fallacy. (With another less well-known example of the sunk-cost fallacy — the Tenn-Tom Waterway project, I was easily able to find examples of several US government officials committing the sunk-cost fallacy.)&lt;/p&gt;&#xA;&lt;p&gt;However, in my brief investigation, I have been unable to find any for Concorde.&lt;/p&gt;&#xA;&lt;p&gt;Instead, I found this &lt;a href=&quot;http://filestore.nationalarchives.gov.uk/pdfs/large/cab-129-160.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;29 Nov 1971 British memo&lt;/a&gt; expressing a very clear understanding of the concept of sunk costs and cautioning against falling for the sunk-cost fallacy. It began:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Concorde is a commercial disaster. It should never have been started. On 30 November, 1971, it had cost the British Government an irrecoverable £350 million. If continued, development and production will cost us at least £475 million more (£392 million present value) from 1971–75. Concorde will make little money for its manufacturers and precious little, if anything, for the airlines who buy it. The total liability to the United Kingdom alone could be about £550 million excluding the written off £350 million mentioned above.&lt;/p&gt;&#xA;&lt;p&gt;... The decision whether or not to abandon Concorde must start from where we are now—much of the milk is already spilt.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;The memo then cited three political arguments against cancellation:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;(a) Given President Pompidou's personal commitment, cancellation would have to be precipitated by unilateral British withdrawal. This would do great harm to Anglo- French relations and, before 1 January, 1973, might imperil Ratification. British withdrawal after that date might seriously hinder co-operation with France.&lt;/p&gt;&#xA;&lt;p&gt;(b) Cancellation in 1972 would destroy 26,000 jobs in the United Kingdom, when unemployment and, possibly, redundancy rates will be high. Redeployment may be very difficult.&lt;/p&gt;&#xA;&lt;p&gt;(c) Now that the public believes Concorde is a spectacular technological success, cancellation would be a severe, almost emotional, blow to the average man and woman in the United Kingdom. The CPRS believes this is a real consideration, if only from the point of view of getting people to work and enjoy it.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;After reviewing the worst-case and most-likely-case scenarios, the memo recommended on p. 6 that&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;The Government should commit itself whole-heartedly and publicly to Concorde, with a professionally run sales and publicity campaign.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;My tentative view is thus that the so-called Concorde Fallacy may itself be a fallacy and yet another academic urban legend — an influential academic makes a mistaken assertion that is then picked up, repeated, and converted into gospel over the subsequent years, without anyone bothering to check if it was ever true in the first place.&lt;/p&gt;&#xA;&lt;p&gt;I am however not an expert on the history of Concorde and am therefore looking for any evidence to the contrary. In particular, at each juncture in the project's history, did any British/French government official cite sunk costs as a reason for continuing with the project?&lt;/p&gt;&#xA;&lt;p&gt;(So far, my reading of the history of the Concorde project is that at every critical juncture, the British/French government may have chosen to plod ahead for a variety of reasons that one could label &amp;quot;foolish&amp;quot;. But at no point did anyone argue that they should continue &amp;quot;because they had already sunk so much into the project&amp;quot;.)&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2020-06-26T21:26:01.023" Title="Was the Concorde project an example of the sunk-cost fallacy?" Tags="&lt;behavioral-economics&gt;&lt;economic-history&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18632" PostTypeId="2" ParentId="18628" CreationDate="2017-10-08T04:26:22.903" Score="2" Body="&lt;p&gt;&lt;a href=&quot;http://finance.google.ca&quot; rel=&quot;nofollow noreferrer&quot;&gt;Google Finance&lt;/a&gt; and &lt;a href=&quot;https://ca.finance.yahoo.com&quot; rel=&quot;nofollow noreferrer&quot;&gt; Yahoo Finance&lt;/a&gt; are both sites which provide free information on Stock prices and their variables.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I prefer google as it is easier to use, but both sites are pretty good.&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2017-10-08T04:26:22.903" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18634" PostTypeId="2" ParentId="18631" CreationDate="2017-10-08T10:38:10.440" Score="3" Body="&lt;p&gt;Well presented question.&lt;/p&gt;&#xA;&lt;p&gt;I think that the government was probably not a victim of the fallacy but the British people were. If the British people - falsely - feel that they should continue the project a self-interested government will rationally conclude that continuation is worthwhile for reelection purposes. You cite a part of the memo that I find crucial: &amp;quot;political reasons against cancellation [...] emotional impact on British citizens&amp;quot;.&lt;/p&gt;&#xA;&lt;p&gt;Why do academics conflate the two?&#xA;&lt;br&gt;&#xA;Doubtless there are some who embrace the example without knowing much about the subject. (Another frequently retold but incorrect example is potatoes as Giffen goods during the Irish Potato Famine.)&#xA;&lt;br&gt;&#xA;But one may also argue that the government ideally represents the people. The people were victims of the fallacy and this incentivized the government to act as if they too were taken in by it. Separating the two agents may seem an unecessary step at this point.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2020-06-26T21:26:01.023" LastActivityDate="2020-06-26T21:26:01.023" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="18636" PostTypeId="2" ParentId="18606" CreationDate="2017-10-08T11:40:51.383" Score="2" Body="&lt;p&gt;Two more differences &#xA;(1) You can pay your taxes in a government controlled digital currency, and you can't do that in cryptocurrency.  According to Modern Monetary Theory, that is an essential element to the fundamental value of a currency&#xA;(2)  even though an individual cryptocurrency may have the feature of a limited supply, there's nothing to stop multiple cryptocurrencies being created, potentially diluting each other's value.  That is not the case with the single currency of the realm.  &lt;/p&gt;&#xA;" OwnerUserId="13062" LastActivityDate="2017-10-08T11:40:51.383" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18637" PostTypeId="1" CreationDate="2017-10-08T12:07:02.917" Score="1" ViewCount="445" Body="&lt;p&gt;What is to stop the value of cryptocurrencies being diluted by the emergence of other cryptocurrencies?  For example, according to Wikipedia, Bitcoin was 80% of the crypto market cap in 2016, but this had been reduced to 40% by 2017 due to the emergence of Ethereum and others.   Although during this period the price of Bitcoin kept going up, what's to stop them all eventually cannibalizing each other?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The definition of dilution and cannibalization for these purposes means a significant reduction in market cap of an individual cryptocurrency.&lt;/p&gt;&#xA;" OwnerUserId="13062" LastEditorUserId="13062" LastEditDate="2017-10-08T12:45:33.743" LastActivityDate="2020-04-26T03:02:31.153" Title="The potential dilution of cryptocurrencies" Tags="&lt;cryptocurrency&gt;" AnswerCount="0" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="18639" PostTypeId="2" ParentId="18568" CreationDate="2017-10-08T14:26:17.320" Score="1" Body="&lt;p&gt;In the (&lt;strong&gt;quantity, income&lt;/strong&gt;) space, &lt;em&gt;not&lt;/em&gt; being everywhere differentiable would mean that we would observe gaps, discontinuous jumps, or kinks, in the corresponding graph of the Marshallian individual demand function.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;GAPS:&lt;/strong&gt; if there was a gap, it would mean that for a certain range of income, the demand function does not exist. In other words, it is not defined for a certain range of income (but it still is defined with respect to prices). This could be interpreted that for this range, income does not affect quantity demanded. So &quot;differentiable everywhere&quot; excludes such a phenomenon.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;DISCONTINUOUS JUMPS:&lt;/strong&gt; If there was a discontinuous jump, it would mean that a specific level of income induces a &quot;threshold effect&quot; on quantity demanded. So &quot;differentiable everywhere&quot; necessitates that no such effects exist on quantity demanded.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;KINKS:&lt;/strong&gt; If there was a kink, we would have a &quot;second-order&quot; threshold effect, where quantity demanded would change at a discontinuous rate with respect to income. So &quot;differentiable everywhere&quot; excludes such phenomena.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These should now be &quot;mathematicized&quot; and projected back to the properties of the utility function (&lt;em&gt;if&lt;/em&gt;, that is, they are relevant to it).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Note:&lt;/strong&gt; In many utility maximization problems, income does not enter the utility function, but it is part of the problem's constraints. In others, we postulate a utility function as a bivariate function of one good and income.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2017-10-08T14:26:17.320" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18642" PostTypeId="2" ParentId="17257" CreationDate="2017-10-08T15:40:26.157" Score="0" Body="&lt;p&gt;I think a proof by contradiction would be easier (if your preferences are complete). If there is no such $\alpha$ then each $\alpha x + (1-\alpha)z$ is in the (weak) lower contour set of $y$, which is closed. Now construct a sequence (or net).&lt;/p&gt;&#xA;" OwnerUserId="14777" LastActivityDate="2017-10-08T15:40:26.157" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18644" PostTypeId="1" AcceptedAnswerId="18645" CreationDate="2017-10-08T17:08:34.493" Score="1" ViewCount="66" Body="&lt;p&gt;How do international organizations like IMF, WB, and &lt;a href=&quot;https://www.cia.gov/library/publications/the-world-factbook/&quot; rel=&quot;nofollow noreferrer&quot;&gt;CIA Fact Book&lt;/a&gt; collect statistics regarding a country's economic indicators? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is their primary source of information?&lt;/p&gt;&#xA;" OwnerDisplayName="user13954" LastActivityDate="2017-10-10T09:33:18.590" Title="How do international organizations collect statistics regarding a country?" Tags="&lt;statistics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18645" PostTypeId="2" ParentId="18644" CreationDate="2017-10-08T17:36:10.127" Score="2" Body="&lt;p&gt;I don't know how CIA gets its information from other countries on their economic performance, but I can tell you that IMF and WB have residence representative offices in member countries. Central Banks, various ministries and other government agencies supply periodic performance records to these offices. &lt;/p&gt;&#xA;" OwnerUserId="6009" LastActivityDate="2017-10-08T17:36:10.127" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="18646" PostTypeId="1" CreationDate="2017-10-08T17:47:30.633" Score="0" ViewCount="23" Body="&lt;p&gt;Suppose, there are 100 banks in a country. 50 of them are government owned. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What would be the possible effect on a country's economy if private banks are declared as non-profit? I.e. they can not show any profit. If they have any profit, they must return that profit either to the government's treasury or spend in government's humanitarian projects. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;How would that affect or effect a country's economy?&lt;/p&gt;&#xA;" OwnerDisplayName="user13954" LastActivityDate="2017-10-08T17:47:30.633" Title="What would be the possible effect on a country's economy if private banks are declared as non-profit?" Tags="&lt;banking&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18647" PostTypeId="2" ParentId="18631" CreationDate="2017-10-08T18:39:07.157" Score="5" Body="&lt;p&gt;I doubt that the sunk-cost fallacy was a major reason why the Concorde project was pursued for so long (approved by the UK government 1962, entered commercial service 1976). Any &quot;emotional impact on British citizens&quot; that it was feared cancellation would cause would more likely have been due to a loss of national prestige (this was a time when many in Britain still - unrealistically - thought of their country as a great power).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;An account of the project (Myddelton &lt;em&gt;&lt;a href=&quot;https://iea.org.uk/wp-content/uploads/2016/07/upldbook419pdf.pdf&quot; rel=&quot;noreferrer&quot;&gt;They Meant Well: Government Project Disasters&lt;/a&gt;&lt;/em&gt; pp 107-127) identifies the following factors which may have contributed to decisions at various times to keep the project going (see especially Conclusion p 127):&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;A belief that cancellation would have upset France, who were a partner in the project, with risks of being sued (p 119) and of jeopardising negotiations on entry to what is now the European Union.&lt;/li&gt;&#xA;&lt;li&gt;Over-optimism about potential sales based on a belief that passengers would be willing to pay a very high premium for shorter flight times due to travelling at supersonic speed.&lt;/li&gt;&#xA;&lt;li&gt;Failure to take sufficient account of the environmental problems from take-off and landing noise and sonic booms.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="1417" LastActivityDate="2017-10-08T18:39:07.157" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="18650" PostTypeId="1" CreationDate="2017-10-08T19:51:24.823" Score="1" ViewCount="1947" Body="&lt;p&gt;I'm trying to maximize a firm's profit given the production function $F(L,K)=L^\alpha K^\beta$ (where $L$ is labor and $K$ is capital) and that $\alpha + \beta \neq 1$.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;So, I know that this maximization problem can be written as $\text{max }pF(L,K)-w_1 L-w_2 K$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since $pMP_L (L^*,K^*)=w_1$, $p\alpha(L^*)^{\alpha-1}(K^*)^\beta=w_1$. And since $pMP_K (L^*,K^*)=w_2$, $p\beta(L^*)^{\alpha}(K^*)^{\beta-1}=w_2$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By dividing these functions and simplifying, we get $\displaystyle\frac{\alpha K^*}{\beta L^*}=\displaystyle\frac{w_1}{w_2}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm unsure how to proceed from here, though. Should I solve for $L^*$ by separating $K^*$ from the equation and plugging into $pMP_L$? Wouldn't this yield a very complicated solution?&lt;/p&gt;&#xA;" OwnerUserId="14781" LastActivityDate="2017-11-08T00:09:05.050" Title="Profit maximization with Cobb-Douglas function" Tags="&lt;self-study&gt;&lt;cobb-douglas&gt;&lt;profit-maximization&gt;" AnswerCount="1" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="18651" PostTypeId="1" AcceptedAnswerId="18665" CreationDate="2017-10-08T20:02:10.403" Score="0" ViewCount="27" Body="&lt;p&gt;From my understanding, FinCEN is controlled or heavily influenced by the UN.  In addition, The Federal Reserve is not a governmental body, yet it has appointees from the current administration.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm concerned that a democratic influence in economics (currency, M1, etc) could remove the &quot;purity of intent&quot; of an election, or the policy resulting from an election. &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;What have we learned from FinCEN, the IMF, and The Federal Reserve in relation to maintaining the integrity of the democratic voice? &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I suspect that if the two are combined, the democratic &quot;wants&quot; will re-prioritize its actions based financial matters, not the democratic consensus.  If taken to an extreme, this lack of &quot;democratic consent&quot; consensus could result in chaos, anarchy, or other frightening outcomes. &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;What review boards, governance controls, or other systems prevent the academic research of financial systems from contaminating democratic outcomes? &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="5396" LastActivityDate="2017-10-10T18:35:44.857" Title="Does the separation of FinCEN, and The Federal Reserve protect the integrity of a representative democracy?" Tags="&lt;macroeconomics&gt;&lt;monetary-policy&gt;&lt;federal-reserve&gt;&lt;political-economy&gt;&lt;fiscal-policy&gt;" AnswerCount="1" CommentCount="2" ClosedDate="2017-10-10T18:36:28.910" ContentLicense="CC BY-SA 3.0" />
  <row Id="18653" PostTypeId="1" CreationDate="2017-10-08T20:32:05.270" Score="4" ViewCount="236" Body="&lt;p&gt;I am not liking Romer's Advanced Macroeconomics. I feel like it demands a stronger intuitive knowledge of economics than I currently possess, and on the other hand, it is not as theoretically strong and deep.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;While I am trying to increase my intuition ... is there an alternative that covers roughly the same as Romer's book, but actually goes in-depth with all of the issues at a deep theoretical level, rather than just treat it intuitvely?&lt;/p&gt;&#xA;" OwnerUserId="14784" LastActivityDate="2017-11-08T05:27:02.050" Title="What's a good alternative to Romer's Advanced Macroeconomics?" Tags="&lt;macroeconomics&gt;&lt;reference-request&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18654" PostTypeId="2" ParentId="18653" CreationDate="2017-10-08T21:01:55.277" Score="3" Body="&lt;p&gt;I like &lt;a href=&quot;https://www.amazon.co.uk/Introducing-Advanced-Macroeconomics-Education-Economics/dp/0077117867&quot; rel=&quot;nofollow noreferrer&quot;&gt;Introducing Advanced Macroeconomics: Growth and Business Cycles&lt;/a&gt; by Sorensen and Whitta-Jacobsen. The text provides intuitive explanation and exposition of models. The book is neither too mathy nor descriptive, I would say, they offer somewhat balanced introduction. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A similar question was submitted before, have a look &lt;a href=&quot;https://economics.stackexchange.com/questions/1753/textbook-for-macroeconomics-advanced-undergrad?rq=1&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="6009" LastActivityDate="2017-10-08T21:01:55.277" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18656" PostTypeId="2" ParentId="18650" CreationDate="2017-10-08T23:41:55.523" Score="3" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Should I solve for $L^∗$ by separating $K^∗$ from the equation and plugging into $pMP_{L}$&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Yep, that's about it.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Wouldn't this yield a very complicated solution?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Somewhat. The math is available at many places, like section 4 &lt;a href=&quot;https://www3.nd.edu/~agervais/documents/Cobb-Douglas.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;. But you can surely do it yourself!&lt;/p&gt;&#xA;" OwnerUserId="14510" LastActivityDate="2017-10-08T23:41:55.523" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18657" PostTypeId="2" ParentId="18631" CreationDate="2017-10-09T01:51:43.480" Score="2" Body="&lt;p&gt;One additional point for the reluctance to show a failure would be the first steps of the European Consortium Airbus starting at the same time, finally disputing the US-dominated market of commercial airliners (at the time with McDonnel-Douglas DC9/10 and Boeing 727/737s). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As both BAC (British) and Aérospatiale (French) were manufacturers highly involved in the construction and marketing of new airliners such as the &lt;a href=&quot;https://en.wikipedia.org/wiki/Airbus_A300&quot; rel=&quot;nofollow noreferrer&quot;&gt;A300&lt;/a&gt;, it was in their interest to be have the Concorde as a success story. Concord was an icon for the British/French capacity to make airplanes, playing as free publicity: &quot;&lt;em&gt;If a company can make the fastest commercial airliner in the world, it can also be trusted to make medium-range aircraft.&lt;/em&gt;&quot; Having a failure in the Concorde project could affect the market for other models like the A300 and the new A310 at the time, endangering the whole European aircraft industry in France and Britain.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By the way, Vox made a 10-min documentary on the &lt;a href=&quot;https://www.youtube.com/watch?v=a_wuykzfFzE&quot; rel=&quot;nofollow noreferrer&quot;&gt;history of the concorde&lt;/a&gt;. Not necessarily academic, but interesting and a lead for more sources.&lt;/p&gt;&#xA;" OwnerUserId="12304" LastEditorUserId="12304" LastEditDate="2017-10-09T05:33:45.143" LastActivityDate="2017-10-09T05:33:45.143" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18658" PostTypeId="2" ParentId="1753" CreationDate="2017-10-09T06:30:57.100" Score="3" Body="&lt;p&gt;Although I have my reservations as to whether this book would be suitable for an undergraduate level, I could be wrong.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I will include the following book as it is by no means less accessible than other textbooks listed here (eg &lt;em&gt;Recursive macroeconomics theory&lt;/em&gt;) but is equally-if not more-appealing. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The book is &lt;a href=&quot;https://books.google.gr/books/about/Lectures_on_Macroeconomics.html?id=j_zs7htz9moC&amp;amp;redir_esc=y&quot; rel=&quot;nofollow noreferrer&quot;&gt;Lectures on Macroeconomics&lt;/a&gt; by &lt;em&gt;Blanchard, O. J. &amp;amp; S. Fischer&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One other perhaps less exotic option would be:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Scarth, W. &lt;a href=&quot;https://books.google.gr/books/about/Macroeconomics.html?id=khGgAgAAQBAJ&amp;amp;redir_esc=y&quot; rel=&quot;nofollow noreferrer&quot;&gt;Macroeconomics The development of modern methods for policy analysis&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some other options would be:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Blanchard, Amighini, Giavazzi, &lt;a href=&quot;https://books.google.gr/books?id=6ePSoQEACAAJ&amp;amp;dq=Macroeconomics+An+European+perspective&amp;amp;hl=en&amp;amp;sa=X&amp;amp;ved=0ahUKEwitm5rX9-LWAhVKahoKHbm4CJ4Q6AEIJjAA&quot; rel=&quot;nofollow noreferrer&quot;&gt;Macroeconomics An European&#xA;perspective&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;Baumol, Binder &lt;a href=&quot;https://books.google.gr/books/about/Macroeconomics_Principles_and_Policy.html?id=qQW0BAAAQBAJ&amp;amp;redir_esc=y&quot; rel=&quot;nofollow noreferrer&quot;&gt;Macroeconomics Principles and Policy&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;Abel, Bernanke, Croushore &lt;a href=&quot;https://books.google.gr/books/about/Macroeconomics.html?id=1GpbzgAACAAJ&amp;amp;redir_esc=y&quot; rel=&quot;nofollow noreferrer&quot;&gt;Macroeconomics&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerDisplayName="user14471" LastEditorUserId="4251" LastEditDate="2017-10-28T00:34:12.347" LastActivityDate="2017-10-28T00:34:12.347" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18659" PostTypeId="1" CreationDate="2017-10-09T07:56:11.240" Score="1" ViewCount="508" Body="&lt;p&gt;I'm measuring some very specific items (across 5 countries) using my country's currency as the base. My questions are:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;How should I address PPP in this case? (Is it just like the example in Table 1 &lt;a href=&quot;https://siteresources.worldbank.org/ICPINT/Resources/270056-1255977254560/6483625-1338834270350/FVogel_WhatisPurchasingPowerParity.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;?)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;What are the limitations if I decided to just use the market exchange rate? Is it considered &quot;fair&quot;?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="14788" LastEditorUserId="2776" LastEditDate="2017-10-09T08:08:36.313" LastActivityDate="2017-10-09T08:54:43.077" Title="How to address PPP when doing price comparison across countries?" Tags="&lt;purchasing-power-partity&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="18660" PostTypeId="2" ParentId="16290" CreationDate="2017-10-09T08:21:06.183" Score="0" Body="&lt;p&gt;You are right. The EUR is overvalued. Or, to put it differently, a change in the exchange rate from 1/3 to 1/2 means that the EUR appreciated (or increased its value) with respect to the USD. Equivalently, the USD depreciated with respect to the EUR. You need more USD to buy a Big Mac in Germany.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-10-09T08:21:06.183" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18661" PostTypeId="2" ParentId="18659" CreationDate="2017-10-09T08:54:43.077" Score="1" Body="&lt;p&gt;As you are interested in &lt;strong&gt;very specific items&lt;/strong&gt;, using an aggregate PPP measure like the ones provided by the &lt;a href=&quot;https://data.worldbank.org/indicator/PA.NUS.PPP&quot; rel=&quot;nofollow noreferrer&quot;&gt;World Bank&lt;/a&gt; (which are as aggregate as the GDP or private consumption), or the Big Mac index is not very good idea. &lt;a href=&quot;https://economics.stackexchange.com/a/18343/2776&quot;&gt;This answer&lt;/a&gt; explains in some detail how PPPs are calculated ((the bottom line is that aggregate PPPs include a whole range of products; see &lt;a href=&quot;http://www.worldbank.org/en/programs/icp/brief/methodology-calculation&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; for more details).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you are interested in just a few products, or maybe a single product (steel), as one of your comments suggest, you have to look into a more dissagregate PPP. You can find it &lt;a href=&quot;http://databank.worldbank.org/data/reports.aspx?source=international-comparison-program-(icp)-2011&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;. These PPPs are still quite aggregate (for example, in the Classification tab you can find the full list). In your case, you might be interested in the Gross Fixed Capital Formation: Construction index. See &lt;a href=&quot;http://www.worldbank.org/en/programs/icp/brief/methodology-price#vi.%20Gross%20Fixed%20Capital%20Formation:%20Construction&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; for more details on what this index includes. Notice that this is still quite an aggregate measure of PPP. Another drawback is that this is only available for either 2011 or 2005. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A final note is that you are normally one adjusts for PPP when the interest is in comparing cost of living or wellbeing across countries. Adjusting for PPP makes less sense when the comparison is for example about the cost of sourcing a material from different countries. Here, exchange rates is what you need, as this reflects the actual cost for firms of selling/buying a product in different markets. As you do not provide the context of your question, it is not possible to tell whether PPP is pertinent or not to you.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-10-09T08:54:43.077" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18662" PostTypeId="2" ParentId="1753" CreationDate="2017-10-09T09:19:40.960" Score="2" Body="&lt;p&gt;In my university, lecturers of Advanced Macroeconomics at the undergraduate level use the following books:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;em&gt;&lt;a href=&quot;http://global.oup.com/uk/orc/busecon/economics/carlin_soskice/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Macroeconomics: Institutions, Instability, and the Financial&#xA;System&lt;/a&gt;&lt;/em&gt; by Wendy Carlin and David Soskice (2015).&lt;/li&gt;&#xA;&lt;li&gt;&lt;em&gt;&lt;a href=&quot;https://global.oup.com/ukhe/product/macroeconomics-9780198776222?cc=gb&amp;amp;lang=en&amp;amp;&quot; rel=&quot;nofollow noreferrer&quot;&gt;Macroeconomics: Imperfections, Institutions, and Policies&lt;/a&gt;&lt;/em&gt; by Wendy Carlin and David Soskice (2005).&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;These are references for the following series of topics:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1 - Monetary Policy&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2 - Sticky Price Models&lt;/p&gt;&#xA;&#xA;&lt;p&gt;3 - Macroeconomics at the Zero Lower Bound&lt;/p&gt;&#xA;&#xA;&lt;p&gt;4 - Open Economy&lt;/p&gt;&#xA;&#xA;&lt;p&gt;5 - Economic Growth&lt;/p&gt;&#xA;&#xA;&lt;p&gt;6 - Inter-temporal Macro&lt;/p&gt;&#xA;&#xA;&lt;p&gt;7 - Debt and Fiscal Policy&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-10-09T09:19:40.960" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18665" PostTypeId="2" ParentId="18651" CreationDate="2017-10-09T14:18:18.400" Score="2" Body="&lt;p&gt;Your understanding is wrong. FinCEN &lt;a href=&quot;https://www.fincen.gov/what-we-do&quot; rel=&quot;nofollow noreferrer&quot;&gt;is a bureau&lt;/a&gt; of the United States Department of the Treasury. The director reports to the Secretary of the Treasury, who is appointed by the President and confirmed by the Senate. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Further, the Federal Reserve system is also a government entity. It was established under the Federal Reserve Act. The Federal Reserve Board of Governors, which supervises the Federal Reserve Banks, is an independent agency of the federal government. Its members are appointed by the President, with the advice and consent of the Senate. The system's structure was deliberately designed by Congress to grant it independence in its conduct of monetary policy, with the intent of minimizing political interference in monetary policy. However, this independence was granted and is maintained via democratic consensus.&lt;/p&gt;&#xA;" OwnerUserId="264" LastEditorUserId="264" LastEditDate="2017-10-10T18:35:44.857" LastActivityDate="2017-10-10T18:35:44.857" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18667" PostTypeId="1" AcceptedAnswerId="21512" CreationDate="2017-10-09T17:01:15.087" Score="2" ViewCount="984" Body="&lt;p&gt;&lt;a href=&quot;http://voxeu.org/article/employment-effects-minimum-wages-directions-research&quot; rel=&quot;nofollow noreferrer&quot;&gt;In this VoxEU text, «Promising ideas for future research on the employment effects of minimum wages »&lt;/a&gt;, how do I interpret the elasticity of employment?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would think of it as percentual change in quantity of labour demanded over percentual change in minimum wage. However, if I &lt;a href=&quot;https://www.google.pt/search?q=employment%20elasticity&amp;amp;ie=utf-8&amp;amp;oe=utf-8&amp;amp;client=firefox-b&amp;amp;gfe_rd=cr&amp;amp;dcr=0&amp;amp;ei=sqfbWenWH47Y8gevtIX4Cg&quot; rel=&quot;nofollow noreferrer&quot;&gt;google&lt;/a&gt; the concept, I get % change in employment associated with a % change in output. Ok, Factor Incomes = Expenditures = Output. However, although at a national level they are the same, at a micro level, I don't see how both definitions would equate...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="43" LastEditDate="2018-04-16T13:00:56.777" LastActivityDate="2018-04-16T13:00:56.777" Title="How to interpret Employment Elasticity in this text?" Tags="&lt;macroeconomics&gt;&lt;labor-economics&gt;&lt;elasticity&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18668" PostTypeId="2" ParentId="1753" CreationDate="2017-10-09T18:09:23.843" Score="1" Body="&lt;p&gt;I like &lt;a href=&quot;https://www.amazon.co.uk/Introducing-Advanced-Macroeconomics-Education-Economics/dp/0077117867&quot; rel=&quot;nofollow noreferrer&quot;&gt;Introducing Advanced Macroeconomics: Growth and Business Cycles&lt;/a&gt; by Sorensen and Whitta-Jacobsen. An accessible UG book. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another very accesible text is &lt;a href=&quot;https://press.princeton.edu/titles/9743.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Macroeconomic Theory&lt;/a&gt; by Wickens. It is a gradulate level book, but is suitable for advanced UG courses in Economics.&lt;/p&gt;&#xA;" OwnerUserId="6009" LastEditorUserId="6009" LastEditDate="2017-10-11T14:50:42.493" LastActivityDate="2017-10-11T14:50:42.493" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18669" PostTypeId="2" ParentId="18310" CreationDate="2017-10-09T18:35:24.980" Score="2" Body="&lt;p&gt;When you take the integral of a $\max_{\{\cdot\}}$ operator, I think you have to split the integral into two separate integrals with different supports on them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Even if your value function is complicated and there is no differentiability, you only need continuity for an existence of a solution to solve the optimization problem.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2017-10-09T18:35:24.980" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18671" PostTypeId="1" CreationDate="2017-10-10T01:10:14.773" Score="0" ViewCount="32" Body="&lt;p&gt;Apologies if this question is not worded very well - this is not really my field of expertise but I'd like to see how to correctly understand some data.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's say I am studying the increase in cases of a disease over the last 100 years. I am comparing two different ethnicities, to see if one of them is more susceptible to the disease. The data I have is as follows; for the purposes of the example let's assume that all other factors are equal:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1917: General population consists of 70% Ethnicity A, 30% Ethnicity B&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1917: 10% of Ethnicity A contracts the disease during their lifetime&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1917: 30% of Ethnicity B contracts the disease during their lifetime&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2017: General population consists of 60% Ethnicity A, 40% Ethnicity B&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2017: 30% of Ethnicity A contracts the disease during their lifetime&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2017: 60% of Ethnicity B contracts the disease during their lifetime&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can make two observations:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;The percentage of infection has doubled in Ethnicity B, and tripled in Ethnicity A.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;There is a 30 percentage point increase in Ethnicity B, but only a 10 percentage point increase in Ethnicity A&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;To someone who has a limited grasp of statistics and data analysis (i.e. me), these two outcomes seem contradictory - observation 1 indicates that Ethnicity A is worse off than Ethnicity B with regard to the rate of increase, while observation 2 seems to indicate the reverse.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From a data analysis and statistics point of view, what is the correct approach to take to determine the significance of the respective increase in percentages?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, does the changing ratio of ethnicities in the general population also affect how I should interpret the results?&lt;/p&gt;&#xA;" OwnerUserId="14795" LastEditorUserId="14795" LastEditDate="2017-10-10T01:15:46.677" LastActivityDate="2017-10-11T09:12:41.503" Title="How to interpret increases in percentage with different sample groups" Tags="&lt;statistics&gt;" AnswerCount="1" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="18673" PostTypeId="2" ParentId="2954" CreationDate="2017-10-10T02:36:51.260" Score="0" Body="&lt;p&gt;I think what you are referring to a regression betas. Those are commonly used to look at the risk, but due to the high std error in many regression or a high r^2 traditional regression betas are somewhat obsolete.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, if you take an industry average of all regression betas due to &quot;the law of large numbers&quot;(about 9+ betas, but the more the better) your std error will be much smaller. If you then unlever this industry average beta by:&#xA;AvgBeta/(1+(1-NominalTaxRate)*(AvgD/E_Ratio)) you will have a pure industry beta. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Moreover, you could adjust this beta for company specific operating leverage by:&#xA;PureBeta*(1+(1-NominalTaxRate)*(Company_Specific_D/E_Ratio)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you calculate these betas for every industry your company operates in and then take a weighted average, you will have a better beta alternative to traditional regression betas.&lt;/p&gt;&#xA;" OwnerUserId="14796" LastActivityDate="2017-10-10T02:36:51.260" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18674" PostTypeId="1" CreationDate="2017-10-10T06:44:16.053" Score="1" ViewCount="102" Body="&lt;p&gt;In contract theory and mechanism design, if the agents have one-dimensional characteristics, then they are usually considered as a contiuum on $\mathbb R$; if they have n-dimensional type, then they are in a contiuum on $\mathbb R^n$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Naturally, if those (n-dimensional) types have some sort of correlations, then we could have a manifold of agents!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or, if &quot;n&quot; is infinite, then we have agents on the infinite dimensional vector space.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are there any research considered a manifold of agents?&lt;/p&gt;&#xA;" OwnerUserId="13381" LastEditorUserId="1601" LastEditDate="2017-10-10T13:15:03.450" LastActivityDate="2017-10-10T13:15:03.450" Title="A manifold of agents?" Tags="&lt;microeconomics&gt;&lt;reference-request&gt;&lt;mechanism-design&gt;&lt;contract-theory&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18676" PostTypeId="2" ParentId="18644" CreationDate="2017-10-10T09:33:18.590" Score="1" Body="&lt;p&gt;Building on london's answer, and the question in the comments about how agencies deal with erroneous data supplied by governments, &lt;a href=&quot;https://www.imf.org/en/Publications/Fiscal-Affairs-Department-How-To-Notes/Issues/2016/12/31/How-to-Check-Integrity-of-Fiscal-Data-44354&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; is a relevant IMF paper.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&quot;How to Check Integrity of Fiscal Data&quot;&lt;/strong&gt;. The abstract:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The accuracy and reliability of government accounts and fiscal data is an issue in a number of countries, with significant and persistent discrepancies that can indicate underlying weaknesses in the country’s public financial management system. This note provides guidance on how to detect issues with data quality, perform integrity checks, and reconcile fiscal data from various sources. It discusses the importance of reconciliation to provide reasonable assurance on the quality and reliability of government fiscal data, explores the main reasons for which discrepancies may arise, and explains how to conduct quality checks. The note concludes with recommendations for country teams of concrete steps to ensure data quality.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In short, the IMF advocates a process of reconciliation, whereby supplied data is checked for consistence with additional sources. For example, as london noted in a comment, any time a government claims to have paid a supplier, that transaction should also show up in the accounts of the supplier.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2017-10-10T09:33:18.590" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18677" PostTypeId="1" CreationDate="2017-10-10T15:50:44.747" Score="3" ViewCount="66" Body="&lt;p&gt;I'm wondering why money is super neutral in Brunnermeier and Sannikov's &quot;I-theory of money&quot;, but is not super neutral in their 2016 AER paper &quot;On the optimal inflation rate&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the I-theory of money, they show the super neutrality of money by arguing that the real return on money is $dp_tK_t/p_tK_t$, so the growth rate of money supply has no effect on the real return on money. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the AER paper &quot;On the optimal inflation rate&quot;, they show that the real return on money is $dpK_t/pK_t-dM_t/M_t$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is, why don't they subtract the growth rate of money in the &quot;I-theory of money&quot;? Or, in other words, why is $dp_t/p_t$ not affected by money growth rate?&lt;/p&gt;&#xA;" OwnerUserId="14800" LastActivityDate="2017-10-10T15:50:44.747" Title="Why is money super neutral in Brunnermeier and Sannikov's I theory of money?" Tags="&lt;macroeconomics&gt;&lt;monetary-policy&gt;&lt;money-supply&gt;&lt;quantity-theory-of-money&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18678" PostTypeId="1" CreationDate="2017-10-10T23:49:18.347" Score="0" ViewCount="310" Body="&lt;p&gt;Why is Pakistan repeatedly defaulting?&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;2008 - &lt;a href=&quot;http://www.reuters.com/article/us-pakistan-loans-sb/pakistan-seeks-9-billion-imf-bailout-to-avert-crisis-idUSTRE4AD17D20081114?mod=related&amp;amp;channelName=ousivMolt&quot; rel=&quot;nofollow noreferrer&quot;&gt;Pakistan seeks USD9 billion IMF bailout to avert crisis&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;2013 - &lt;a href=&quot;http://economictimes.indiatimes.com/saudi-arabia-expected-to-extend-15-billion-bailout-package-to-pakistan/articleshow/20223503.cms&quot; rel=&quot;nofollow noreferrer&quot;&gt;Saudi Arabia come to Pakistan’s Rescue with USD15 Billion Energy Bailout Deal&lt;/a&gt; &lt;/li&gt;&#xA;&lt;li&gt;2014 - &lt;a href=&quot;https://www.reuters.com/article/us-pakistan-saudi/saudi-arabia-loans-pakistan-1-5-billion-to-shore-up-economy-idUSBREA2C13G20140313&quot; rel=&quot;nofollow noreferrer&quot;&gt;Saudi Arabia loaned Pakistan USD1.5bn to shore up economy&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;2015 - &lt;a href=&quot;https://timesofindia.indiatimes.com/world/pakistan/IMF-approves-506-million-for-Pakistan-under-bailout-programme/articleshow/47858308.cms&quot; rel=&quot;nofollow noreferrer&quot;&gt;IMF approves USD506 million for Pakistan under bailout programme&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;2017 - &lt;a href=&quot;http://economictimes.indiatimes.com/saudi-arabia-expected-to-extend-15-billion-bailout-package-to-pakistan/articleshow/20223503.cms&quot; rel=&quot;nofollow noreferrer&quot;&gt;China bails out Pakistan with USD1.2bn loans&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;What is the fundamental problem with Pakistan's economy?&lt;/p&gt;&#xA;" OwnerDisplayName="user13954" LastEditorUserId="6009" LastEditDate="2017-10-11T14:52:19.370" LastActivityDate="2017-10-11T14:52:19.370" Title="What is the fundamental problem with Pakistan's economy?" Tags="&lt;economic-growth&gt;&lt;development-economics&gt;&lt;default&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18680" PostTypeId="2" ParentId="18671" CreationDate="2017-10-11T09:12:41.503" Score="1" Body="&lt;p&gt;If you ask me your question is better suited to cross validated (stats.stackexchange.com). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Anyway you're probably confused because the percentages refer to different base lines. Note that the 60% of disease at B in 2017 refers to 40% of the population, whereas the 30% in 1917 refers to 30% of the population, so they are hard to compare.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Try working it out in absolute numbers to get a clearer picture:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In 1917 if there are 100 people, 70 of ethnicity A, 30 of B. Of the 70 people of A 7 (10% of 70) get sick, of B 9 get sick (30% of 30)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In 2017 there are 100 people, 60 of ethnicity A, 40 of B. Of the 60 people of A now 18 catch the disease (30% of 60), and of B 24 catch the disease (60% of 40).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Observations: overall sickness has increased (16 vs 42). The absolute increase in sick B people (15) is larger than that in A people (11), but this in part due to the fact that there are more B people now &lt;/p&gt;&#xA;" OwnerUserId="12186" LastActivityDate="2017-10-11T09:12:41.503" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18681" PostTypeId="2" ParentId="18678" CreationDate="2017-10-11T11:08:21.633" Score="2" Body="&lt;p&gt;Let's split the problems into two categories, proximate and fundamental. It is easy to confuse the two categories or mix the problems of fundamental nature with those of proximate. Econoimc historians, in the pursuit of determining the causes of Britain's industrialisation have come up with several plausible explanations. I think we can use their framework to explain why Pakistan faces economic problems. I believe these factors are relevant in this case - Pakistan has not been able to take off from the low growth state for a while now. If I remember, it was a success story in the 1990s, but it could not sustain its high growth. In that sense, the country faces Malthusian straightjack.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Quality of Institutions. Every since &lt;a href=&quot;http://faculty.econ.ucdavis.edu/faculty/gclark/210a/readings/Northweingast.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;North and Weingast (1989)&lt;/a&gt; claimed that Britain's take off in the eighteenth century was possile thanks to its Glorios Revolution when the Crown transferred much of its power to the Parliament. With this transformation, Britain was able to lift itsel from centuries of low growth state, first in the world. Does this give any explanation to why Pakistan faces the problems it has had for years. I would say it does. First. The quality of institutions is poor in Pakistan - rules of the game are not enforced properly. The political and social setting is not condcuive to growth - property rights are not secure, corruption is rampant, it is, possibly, institutionalised, and the presence of the rent seeking political elite obstructs the enforcement of rules. The necessary institutions have eveloved there, but they do not function in a way that permits growth. Daron Acemoglu (MIT) has successfully built on North's work, &lt;a href=&quot;https://www.amazon.co.uk/Why-Nations-Fail-Origins-Prosperity/dp/1846684307&quot; rel=&quot;nofollow noreferrer&quot;&gt;Acemoglu&lt;/a&gt; has a nice book on why nations fail. I would recommend you to read it. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Culture. &lt;a href=&quot;https://press.princeton.edu/titles/10835.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Joel Mokyr&lt;/a&gt; has been putting the idea of 'cultural supremacy' in centrestage to explain the Industrial Revoltuion. I think his ideas could as well provide some explanation why Pakistan is facing problems. Historically, Mokyr believes, the beliefs, values, and preferences in society that are capable of changing behavior were a deciding factor in societal transformations. He goes on explaning what these transformations were and how they lead to the take off of Britain. Does Pakistan have the type of culture Mokyr is referring to, possible yes, but it is suppressed due to the presence of the issues outlined above in point 1. (will continue later)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Ideology/Religion. Pakistan is a hotspot of religious conflicts. The conflicts are not between religions but within religions. Tribes fighting tribes and depriving the young generation from education (girls and women especially). Such a culture suppresses innovation and discourages innovative behaviour. There is a growing literature on the role of religion in economic growth. Consensus has not been achieved as in other areas, but the papers look into catholicism vs. protestant vs. anglican vs. bhuddism vs. islam vs. judaism etc. vs. growth. It is probably not possible to quanitify religion's role in growth precisely. There is a misconception that religion suppresses innovation. Some papers point at the events of the past, there have been many including the locking up of Galileo for his claims about solar system which we today know were true. Pakistan is an Islamic country (in fact, it is Islamic Replublic of Pakistan). Does Islam hinder growth there? The facts point at No. Islam, like any other religions, promotes peace, grwoth and wellbeing but people adhering to Islam do not follow the teachings correctly. &lt;a href=&quot;http://history.uwo.ca/people/Docs/Shatzmiller%20Growth%20in%20Early.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Economic historians&lt;/a&gt; agree that during the time of &lt;a href=&quot;https://www.saylor.org/site/wp-content/uploads/2012/07/HIST101-9.3.1-AbbasidDynasty-FINAL.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Abbasid Caliphate&lt;/a&gt;, Muslims had their golden age. It would not be an exaggeration if I claim that muslims were the only people making progress in all aspects of life at the time. Much of the World was in turmoil (Europeans had not seen a long lasting peace until nineteenth century, spurts of wars hindered growth for a long time). Exceptions could be given to the nations of the Far East (China). So, what is the issue here, it is surely the individuals and groups wages conflicts between various religios factions. These acts do not promote growth.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;The other factors (i.e. low investment, human capital, terrorism, etc.) causing the problems are generally proximate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(I will add more as soon as I have time)&lt;/p&gt;&#xA;" OwnerUserId="6009" LastEditorUserId="6009" LastEditDate="2017-10-11T13:24:46.480" LastActivityDate="2017-10-11T13:24:46.480" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18682" PostTypeId="1" CreationDate="2017-10-11T14:51:01.540" Score="1" ViewCount="431" Body="&lt;p&gt;I am looking at GDP in current prices for Indian states and there are multiple base years. This is confusing because GDP in current prices is supposed to be reported in the value of the currency for that particular year. So why are there multiple base years? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is an illustration of how the data are presented (this is coming from the Reserve Bank of India, source is Central Stats Office)&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;            Base Year: 2004-05          &#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Year:  2011-12,    2012-13, 2013-14,        2014-15&lt;/p&gt;&#xA;&#xA;&lt;p&gt;GDP:  36224493, 41006812,   46418355,   52002992&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;            Base Year: 2011-12          &#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Year:  2011-12,  2012-13,   2013-14,        2014-15&lt;/p&gt;&#xA;&#xA;&lt;p&gt;GDP:  37940203, 41140371,   46427154,   52646842&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is for norminal GDP. Again why is there base years when we are looking at nominal GDP (data for each year should use value of the currency for that particular year) Really appreciate any clarification.&lt;/p&gt;&#xA;" OwnerUserId="14812" LastActivityDate="2017-10-16T15:17:34.143" Title="Why are there base years for GDP in current prices (or Nominal GDP)?" Tags="&lt;gdp&gt;&lt;base-year&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18683" PostTypeId="1" AcceptedAnswerId="19057" CreationDate="2017-10-11T15:26:34.150" Score="3" ViewCount="100" Body="&lt;p&gt;&lt;em&gt;I have edited this question considerably to narrow the focus.&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A recent New York Times &lt;a href=&quot;https://www.nytimes.com/2017/10/09/business/nobel-economics-richard-thaler.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;article&lt;/a&gt; was published on the Nobel Prize for Economics. The article discusses that Nobel laureate Richard Thaler was responsible for a push to account for human behavior in economic models:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;...He showed that people depart from rationality in consistent ways,&#xA;  so their behavior can still be anticipated and modeled.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;What is the historical context of resisting including these data in older models and what has influenced the paradigm shift?&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;More broadly, I am most interested in the question of &lt;em&gt;why&lt;/em&gt; there was resistance historically in economic models when there is empirical evidence (cognitive neuroscience, psychology) going back for decades indicating that humans, in certain contexts, make decisions that may deviate from various definitions of &quot;rational&quot; choice. If this is not out of scope for this site (as pointed out in the comments) I would also like this to be a part of the answer to my question.&lt;/p&gt;&#xA;" OwnerUserId="14813" LastEditorUserId="14813" LastEditDate="2017-11-01T14:37:32.953" LastActivityDate="2017-11-01T21:25:13.833" Title="Was there resistance, historically, to the idea that human behavior deviates from rational decision making theory?" Tags="&lt;behavioral-economics&gt;&lt;decision-theory&gt;&lt;history-economic-thought&gt;&lt;bounded-rationality&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="18684" PostTypeId="2" ParentId="18682" CreationDate="2017-10-11T15:26:51.173" Score="2" Body="&lt;p&gt;Updating of the base year is an indication of &lt;strong&gt;methodological changes&lt;/strong&gt; in the way the national accounts are measured. This means two series with different base year (or reference year, as others call it) are strictly speaking &lt;strong&gt;not comparable&lt;/strong&gt; over time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.epwrfits.in/Changes_in_Methodology_NS_2011_12_%20June_2015.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Here&lt;/a&gt; is the official document from the Central Statistics Office informing about the changes. As the document states:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;1.3 The reason for changing the base year of the nation&#xA;  al accounts periodically is to &#xA;  take into account the structural changes which have &#xA;  been taking place in the economy &#xA;  and  to  depict  a  true  picture  of  the  economy  through &#xA;  macro  aggregates  like  Gross &#xA;  Domestic Product (GDP), National Income, consumption&#xA;   expenditure of Government and &#xA;  individuals, capital formation etc.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Also, as &lt;a href=&quot;https://www.rbi.org.in/scripts/AnnualReportPublications.aspx?Id=1148#F1&quot; rel=&quot;nofollow noreferrer&quot;&gt;this article&lt;/a&gt; from the Reserve Bank of India states:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;II.1.1 In January 2015, the Central Statistics Office (CSO) released a new series on India’s national accounts. The distinguishing features of the new series are: (i) updating the base year from 2004-05 to 2011-12; (ii) improved coverage of corporate activity by (a) using the MCA 21 database1 of the Ministry of Corporate Affairs, (b) employing value-based indicators such as sales tax collections in conjunction with volume-based indicators such as industrial production, and (c) use of results from the latest surveys, including on activity in the unorganised sector; and (iii) methodological changes such as shifting from the ‘establishment’ to the ‘enterprise’ approach for estimating value added in mining and manufacturing.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;If the base year is not updated when methodological changes are carried out, you would not be able to tell that the series before and after the update are not the same. Hence, changing the base year is a trivial way to tell the public they are different.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That is also the reason why the two series, even if in nominal prices, are different over the years.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A comprehensive and critical analysis of these methodological changes for India can be found in &lt;a href=&quot;https://mpra.ub.uni-muenchen.de/81340/1/MPRA_paper_81340.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;this recent paper&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-10-16T15:17:34.143" LastActivityDate="2017-10-16T15:17:34.143" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="18685" PostTypeId="1" AcceptedAnswerId="18688" CreationDate="2017-10-11T16:45:57.070" Score="4" ViewCount="426" Body="&lt;p&gt;I'm reading Fisher (1997, Journal of Monetary Economics). From the intermediate goods produced ($Y_t$), the final goods firm allocates into consumption ($C_t$), business capital investment ($I_{b,t}$), and household investment ($I_{h,t}$) s.t....&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$C_t + (I_{b,t}^K + I_{h,t}^K)^{\frac{1}{K}} \le Y_t$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Fisher claims when $K&amp;gt;1$ there is complementarity in production, but my intuition is failing me. If $K&amp;gt;1$, $I_t = (I_{b,t}^K + I_{h,t}^K)^{\frac{1}{K}}$ is maximized when I invest all savings into either business or investment capital, while $I_t$ is minimized when I split my savings equally between the two. To me this sounds like anti-complementarity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can someone point one where my intuition is going awry? If it helps, on the utility side of things is log-utility w.r.t to $C_t$, $K_{h,t}$, and $L_t$ (leisure). &lt;/p&gt;&#xA;" OwnerUserId="4938" LastEditorUserId="61" LastEditDate="2017-10-11T17:39:23.983" LastActivityDate="2017-10-11T21:52:46.613" Title="Complementarity in CES Production Function" Tags="&lt;production-function&gt;&lt;aggregate-production&gt;&lt;elasticity-of-substituion&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18686" PostTypeId="1" CreationDate="2017-10-11T19:14:23.887" Score="4" ViewCount="1111" Body="&lt;p&gt;Im currently doing research using some macroeconomic data. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I just want to know what are the pros and cons of using seasonally adjusted/non-seasonally adjusted data in terms of forecasting.&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2017-10-22T21:39:38.237" Title="To use seasonally adjusted data or not seasonally adjust data?" Tags="&lt;macroeconomics&gt;&lt;applied-econometrics&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18687" PostTypeId="1" CreationDate="2017-10-11T20:23:28.817" Score="1" ViewCount="248" Body="&lt;p&gt;I am looking for a reference to learn how to plot mixed strategy profile in a two player game with three pure strategies. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Looking forward to any advice or suggestion.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(&lt;a href=&quot;https://math.stackexchange.com/q/2467809/484080&quot;&gt;Here&lt;/a&gt; is the question regarding simplex I posted in mathematics.stackexchange)&lt;/p&gt;&#xA;" OwnerUserId="14591" LastEditorUserId="2776" LastEditDate="2017-10-12T12:01:11.333" LastActivityDate="2017-10-12T12:01:11.333" Title="Visual Representation of mixed strategy profile using a simplex in $R^3$" Tags="&lt;microeconomics&gt;&lt;reference-request&gt;&lt;game-theory&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18688" PostTypeId="2" ParentId="18685" CreationDate="2017-10-11T21:52:46.613" Score="1" Body="&lt;p&gt;Total investment &lt;em&gt;in terms of how much capital is augmented&lt;/em&gt;, is always $I = I_{b} + I_{h}$.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$(I_{b}^K + I_{h}^K)^{\frac{1}{K}}$ is equal to the amount of the intermediate good $Y$ that we need to allocate &lt;em&gt;for&lt;/em&gt; investment. And given the formulation and when $K&amp;gt;1$ we see that we &lt;em&gt;economize&lt;/em&gt; on the amount of the intermediate good $Y$,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Y_I = (I_{b}^K + I_{h}^K)^{\frac{1}{K}} &amp;lt; I_{b} + I_{h} = I$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Further, if we split investments equally, we achieve the maximum possible economy (i.e. the &lt;em&gt;minimum&lt;/em&gt; $Y$ required for given total $I$ to be achieved).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So inherently, the formulation &quot;pushes us&quot; to keep the two investment levels close, because the further apart they are (for given total $I$), the more $Y$ we will require, reducing consumption. This &quot;closeness of levels&quot; is what the author refers to as &quot;complementarity&quot; (perhaps confusingly, if one has the micro/demand-production theory meaning of the term in mind).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/S030439329700024X&quot; rel=&quot;nofollow noreferrer&quot;&gt;Fisher, J. D. (1997). Relative prices, complementarities and comovement among components of aggregate expenditures. Journal of Monetary Economics, 39(3), 449-474.&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2017-10-11T21:52:46.613" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18690" PostTypeId="1" CreationDate="2017-10-12T01:21:44.667" Score="4" ViewCount="4805" Body="&lt;p&gt;I heard the terms deflationary recession &amp;amp; inflationary recession in a podcast and would like to understand what it means, what causes them and past examples.&lt;/p&gt;&#xA;" OwnerUserId="14819" LastEditorUserId="2776" LastEditDate="2017-10-12T06:18:49.277" LastActivityDate="2020-07-10T01:16:50.603" Title="Inflationary recession vs Deflationary recession" Tags="&lt;inflation&gt;&lt;deflation&gt;&lt;economic-crisis&gt;" AnswerCount="3" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18692" PostTypeId="2" ParentId="18687" CreationDate="2017-10-12T03:38:04.927" Score="5" Body="&lt;p&gt;I'm not sure what you're asking is possible.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Start with the intuition from the case with 2 pure strategies. A player's mixed strategy is a 2-vector $\sigma_i(p)=(p,1-p)$, which can be visualized on a 1-dimensional simplex (or simply a line). Therefore, a profile of two mixed strategies can be represented as a point in a 2-dimentional plane, because this profile is controlled by two parameters (say $p$ for player 1 and $q$ for player 2) like the following &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/sqTlG.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/sqTlG.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With 3 pure strategies, a mixed strategy is a 3-vector $\sigma_i(p_1,p_2)=(p_1,p_2,1-p_1-p_2)$. It is controlled by two parameters, and so we need a 2-dimensional simplex to represent one (mixed) strategy. For a profile of two mixed strategies, we need two 2-dimensional simplices, or planes. Naturally they should be perpendicular to each other just like the two 1-dimensional simplices are in the 1-dimensional case, although this is not a hard requirement. The difficult part is that we now have four controlling parameters, e.g. $p_1,p_2$ for player 1 and $q_1,q_2$ for player 2. So the strategy profile lives in a 4-dimensional space, which is impossible to visualize. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The following is a failed example. Player 1's mixed strategy $\sigma_1(\hat p_1,\hat p_2)$ lives in the blue simplex and Player 2's mixed strategy $\sigma_2(\hat q_1,\hat q_2)$ lives in the orange simplex. The two simplices share the vertical axis, but this is not necessary. As the two red dashed lines show, it's not always possible to find an &quot;intersection&quot; of the two strategies (the two lines have different heights).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/gVoce.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/gVoce.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2017-10-12T03:38:04.927" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18693" PostTypeId="2" ParentId="18690" CreationDate="2017-10-12T06:17:02.307" Score="2" Body="&lt;p&gt;&lt;strong&gt;Deflationary recession&lt;/strong&gt; refers to a recession in which prices are falling. An example was the &lt;a href=&quot;https://en.wikipedia.org/wiki/Great_Depression&quot; rel=&quot;nofollow noreferrer&quot;&gt;Great Depression&lt;/a&gt;. Below you have a graph of the yearly rate of change in CPI. A negative number means a fall in prices, i.e. deflation. Shaded areas mean recession period according to NBER.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/9CbQv.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/9CbQv.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/A_Monetary_History_of_the_United_States#The_Great_Depression&quot; rel=&quot;nofollow noreferrer&quot;&gt;Some argue&lt;/a&gt; that deflation was actually a factor contributing towards the great fall in GDP, because the Fed did not act soon enough, keeping the money supply low. The &lt;a href=&quot;https://en.wikipedia.org/wiki/Gold_standard#Depression_and_World_War_II&quot; rel=&quot;nofollow noreferrer&quot;&gt;Gold Standard&lt;/a&gt; is partly to blame for this inaction of the Fed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Inflationary recession&lt;/strong&gt; is when a recession is accompanied with increasing prices. It is commonly known in Macroeconomics as &lt;a href=&quot;https://en.wikipedia.org/wiki/Stagflation&quot; rel=&quot;nofollow noreferrer&quot;&gt;Stagflation&lt;/a&gt;. That was the case on the &lt;a href=&quot;https://en.wikipedia.org/wiki/1973%E2%80%9375_recession&quot; rel=&quot;nofollow noreferrer&quot;&gt;1973-1975 recession&lt;/a&gt; in the US. The graph below shows the yearly rate of change in CPI (again, shaded area represents a recession):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/6sLiS.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/6sLiS.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The latter happened mainly because of the &lt;a href=&quot;https://en.wikipedia.org/wiki/1973_oil_crisis&quot; rel=&quot;nofollow noreferrer&quot;&gt;1973's oil crisis&lt;/a&gt; where the OAPEC (oil cartel) stopped selling oil to countries supporting Israel (including the US), rising its price. &lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-10-12T09:42:48.927" LastActivityDate="2017-10-12T09:42:48.927" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18694" PostTypeId="1" AcceptedAnswerId="18696" CreationDate="2017-10-12T08:46:04.320" Score="1" ViewCount="844" Body="&lt;p&gt;I am trying to understand how marginal product of capital net of depreciation is the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/cfzxI.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/cfzxI.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given that the production function is quite standard&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/l6FzV.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/l6FzV.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand the first term of the marginal product, but I am asking about the depreciation part.&lt;/p&gt;&#xA;" OwnerUserId="14822" LastEditorUserId="2776" LastEditDate="2017-10-12T08:59:12.490" LastActivityDate="2017-10-12T11:34:47.507" Title="Marginal product of capital net of depreciation" Tags="&lt;cobb-douglas&gt;" AnswerCount="1" CommentCount="7" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18695" PostTypeId="1" CreationDate="2017-10-12T10:02:34.770" Score="0" ViewCount="170" Body="&lt;p&gt;While reading &lt;a href=&quot;http://www.africanews.com/2016/10/11/congolese-franc-continues-to-slide-against-demand-for-strong-dollar//&quot; rel=&quot;nofollow noreferrer&quot;&gt;this article&lt;/a&gt;, I was wondering about the policies the DRC's government could employ to make the congolese franc appreciate. To appreciate the currency, the DRC by decreased investment in the mining sector which decreased the supply of the currency -&gt; Appreciation. On the other hand, the decrease in investment caused inflation to happen, countering the original beneficial effects of this policy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is: what would the implications be if the DRC simply pegged its value to the dollar or revalued it? Why hasn't it done that?- there must be reasons...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am learning high-school economics so pardon my limited knowledge.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I look forward to your answers!&lt;/p&gt;&#xA;" OwnerUserId="14823" LastEditorUserId="2776" LastEditDate="2017-10-12T10:08:14.900" LastActivityDate="2017-10-12T18:34:16.167" Title="Solutions for the de-dollarization of the Democratic Republic of Congo" Tags="&lt;inflation&gt;&lt;international-trade&gt;&lt;exchange-rates&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18696" PostTypeId="2" ParentId="18694" CreationDate="2017-10-12T11:29:15.193" Score="0" Body="&lt;p&gt;This is a misuse of terms.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The marginal product of capital net of depreciation is indeed $MP_k - \delta$, there is no doubt about it.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What the authors mean  is that &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$R = 1 + (MP_k - \delta)  $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;is the &quot;gross return on capital&quot; factor. In fact a few lines below the equation they call it exactly that, which is the correct term. Here &quot;gross&quot; reflects the inclusion of $1$.  &lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2017-10-12T11:34:47.507" LastActivityDate="2017-10-12T11:34:47.507" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="18698" PostTypeId="2" ParentId="18687" CreationDate="2017-10-12T11:58:29.873" Score="3" Body="&lt;p&gt;If what you actually want to do is to plot a strategy, not a &lt;em&gt;strategy profile&lt;/em&gt;, then you can use a Kolm triangle. The Kolm triangle is an equilateral triangle that is a representation of the three dimensional unit simplex. Any point in the triangle defines three numbers by taking the distances of the point from each side. In the equilateral triangle the sum of these distances is always constant. If the sides are of length one then the sum of the distances is also one.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Kolm's book wherein the notion is introduced is called Public Value/La Valeur Publique, and you can read a bit about his triangles for example in &lt;a href=&quot;https://www.google.hu/url?sa=t&amp;amp;rct=j&amp;amp;q=&amp;amp;esrc=s&amp;amp;source=web&amp;amp;cd=6&amp;amp;cad=rja&amp;amp;uact=8&amp;amp;ved=0ahUKEwiw3pfLhOvWAhUCSRoKHXP_Cm4QFghIMAU&amp;amp;url=https%3A%2F%2Furresearch.rochester.edu%2FfileDownloadForInstitutionalItem.action%3FitemId%3D2196%26itemFileId%3D2969&amp;amp;usg=AOvVaw1I6e788i1bPo4nMMDm9Wwg&quot; rel=&quot;nofollow noreferrer&quot;&gt;Economies with Public Goods: An Elementary Geometric Exposition&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2017-10-12T11:58:29.873" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18701" PostTypeId="1" AcceptedAnswerId="18824" CreationDate="2017-10-12T18:28:51.337" Score="1" ViewCount="179" Body="&lt;p&gt;I'm a syndicated writer working on an explainer about income inequality and I realized I didn't really understand how it can possibly develop in an economy where all dollars are spent. That is, let's take a hypothetical: I understand how it's possible where one person creates a product that everyone else purchases (creating a concentration of wealth). But, then, that person invests or saves the money, which ultimately gets circulated back into the economy. If total money is zero-sum (all saved money is spent, all received money is spent), how does any one actor in the system end up with more money than others?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As I see it, the only mechanisms by which income inequality could increase within a group of people is if the system included globalization, where wealthy people spend money outside of the system (i.e. sending the money to other countries which were previously poor)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm open to answers that include a closed hypothetical economy (with 3 actors) or some other explanation. Thank you and let me know if I can clarify this question. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Update: Some have suggested its a duplicate of &quot;how wealth is created&quot;. This is different because im asking about income (money supply and distribution), not the distribution of outputs. I get how some people might produce more. I dont understand how money concentrates in a system where all savings is invested or spent. &lt;/p&gt;&#xA;" OwnerUserId="11170" LastEditorUserId="2776" LastEditDate="2017-10-13T07:56:35.587" LastActivityDate="2018-03-27T16:34:23.870" Title="Explaining the development of income inequality" Tags="&lt;inequality&gt;" AnswerCount="3" CommentCount="9" ContentLicense="CC BY-SA 3.0" />
  <row Id="18702" PostTypeId="2" ParentId="18695" CreationDate="2017-10-12T18:34:16.167" Score="1" Body="&lt;p&gt;Yes, it is possible to peg any currency to the USD. The big question is: at what rate? To peg the Congolese franc to the USD, the &lt;strong&gt;central bank needs USD reserves&lt;/strong&gt;. This is necessary to maintain the peg. (If the currency depreciates, the central bank will sell some of its USD reserves and buy the currency to prop up the exchange rate and thus uphold the peg). As per the article cited in the question, the Congolese central bank doesn't have much foreign currency reserves.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Based on the chart below, it appears to me that the Congolese franc was in fact pegged to the USD until early 2016. It seems the central bank couldn't maintain the peg at that rate and had to let the franc slide.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To have a strong currency, the central bank needs to &lt;strong&gt;limit the money supply&lt;/strong&gt;. However, the government will often pressure it to do the opposite, i.e. pressure the central bank to print money and buy government bonds, so the government has money to spend. (The article mentions plans to slash the government budget in order to limit the supply of francs in the economy). For this reason in advanced economies central banks are typically strictly &lt;strong&gt;independent&lt;/strong&gt; from government. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/XrI8t.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/XrI8t.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="14137" LastActivityDate="2017-10-12T18:34:16.167" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18704" PostTypeId="1" CreationDate="2017-10-13T00:58:36.650" Score="0" ViewCount="5049" Body="&lt;p&gt;Question for y'all with a background in econometrics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does the zero conditional mean assumption rely on complete randomness in a trial when doing regression analysis?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, if I was testing the effect of a free training program on wage, and the men in the trial were randomly given x amount of months of training, but the women were not assigned randomly, would that be a violation of a ZCM? I am struggling to make the connection between randomness and ZCM at all, but it was pointed out to me by someone that it is in fact influential.&lt;/p&gt;&#xA;" OwnerUserId="14828" LastEditorUserId="2776" LastEditDate="2017-10-13T12:12:09.040" LastActivityDate="2017-10-22T19:06:06.807" Title="Question about violating the zero conditional mean assumption" Tags="&lt;econometrics&gt;&lt;statistics&gt;" AnswerCount="3" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18706" PostTypeId="1" CreationDate="2017-10-13T07:19:27.900" Score="10" ViewCount="6478" Body="&lt;p&gt;Increasing prices for housing are pretty much universally treated as positive in the news and in political discourse: newspapers run headlines like &lt;a href=&quot;http://www.star-telegram.com/opinion/letters-to-the-editor/article70826917.html&quot; rel=&quot;noreferrer&quot;&gt;&quot;Good news: Home values are up&quot;&lt;/a&gt; and talk about &quot;housing recoveries&quot; when home prices go up and housing's &quot;remaining depressed&quot; (as opposed to &quot;remaining moderate&quot; or &quot;remaining affordable&quot;) when they don't. (See &lt;a href=&quot;https://www.iwillteachyoutoberich.com/blog/housing-prices-cultural-assumptio/&quot; rel=&quot;noreferrer&quot;&gt;here&lt;/a&gt; for several more examples.) But as with any other good, rising home prices are good for sellers and bad for buyers. I can't see any reason why everyone seems to treat the sellers' status as more important.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In fact, when people move between (owned) homes, they usually sell one house and buy another in quick succession. Any &lt;em&gt;overall&lt;/em&gt; change in housing prices is a wash for them. Many people buy a home and then die before selling it - high housing prices don't seem to help them much. By the time people sell a home to move to a rental retirement home, they are usually receiving Social Security, Medicare, and a pension, and don't have a long life expectancy, so it seems to me that they would prioritize the money they receive from a sale less than a young first-time homebuyer would prioritize the amount that they lose. And of course, most people don't sell their homes very often, so higher prices don't seem to do them much good over the vast majority of their lifetimes. The most concrete impact I can think of that changes in the average homeowner's house price have on their day-to-day life is through their property taxes, in which case rising house prices are a bad thing for the homeowner.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(It's true that it's good for you if your &lt;em&gt;neighbors'&lt;/em&gt; house prices rise, because then they pay higher property taxes which go to local services that you can take advantage of. But people seem to focus more on their own house's price then on their neighbors'.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems to me that for anyone other than the tiny percentage of the population who are professional real estate agents, roughly speaking, rising housing prices are a bad thing until you buy your first house, and then after that are fairly neutral, at least until you're very old and about to move into a retirement home. Housing is a notoriously illiquid good, so an increase in the fraction of total wealth tied up in housing would seem to decrease overall economic flexibility. Am I missing an obvious reason why rising prices are a good thing for the economy as a whole?&lt;/p&gt;&#xA;" OwnerUserId="14832" LastEditorUserId="14832" LastEditDate="2017-10-13T18:55:52.687" LastActivityDate="2017-10-17T10:33:53.733" Title="Why are high/rising property values considered a good thing?" Tags="&lt;macroeconomics&gt;&lt;housing&gt;" AnswerCount="4" CommentCount="9" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18707" PostTypeId="2" ParentId="18706" CreationDate="2017-10-13T07:35:16.467" Score="9" Body="&lt;p&gt;House prices usually don't rise in isolation. You make some very good points that are all valid. Nonetheless, house prices typically rise, when the economy is doing well, when unemployment is falling, when wages are rising, etc. So when newspapers welcome rising house prices, they treat it as an &lt;strong&gt;indicator of the overall health of the economy&lt;/strong&gt; and this is why it's considered positive.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If my salary is increasing rapidly, I might not mind house prices rising even if I don't own a house. A good example is the &lt;strong&gt;housing boom in the US until 2007&lt;/strong&gt;. The economy was booming, people were better off each year and rising house prices were not seen as something negative.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In recent years, however, extraordinary central bank policy (low interest rates basically) pushed up house prices, but the economy was not booming to the extent that house prices rose in many countries. In this scenario it is less clear that rising house prices are a good thing, as you also elaborate.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Note: Housing is illiquid, but in the US housing boom until 2007, many people could take out home equity loans to turn their illiquid wealth into cash and spending power.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="14137" LastActivityDate="2017-10-13T07:35:16.467" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="18709" PostTypeId="2" ParentId="18706" CreationDate="2017-10-13T08:33:52.460" Score="18" Body="&lt;p&gt;Considered a good thing by whom?&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;Financial institutions and speculators&lt;/strong&gt;: yes, since houses for them are just another asset. Higher asset prices is a key mechanism of profit making for financial institutions (capital gains). In the recent financial crisis house prices collapsed and people defaulted on their mortgage payments. Thus,  the fall in the value of houses repossessed by banks meant the return on financial assets associated to housing translated into massive losses for financial institutions and government agencies associated with the housing market like Fannie Mae and Freddie Mac in the US.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;Home owners&lt;/strong&gt;: partly yes. A price increase is good, particularly if you have a mortgage to pay (so if you sell the house you can pay the loan back). Rising house prices are also good for pensioners, which main source of wealth is their house. Rising prices also give people the feeling they are richer (and hence &lt;a href=&quot;http://www.nber.org/papers/w21667&quot; rel=&quot;noreferrer&quot;&gt;spend more&lt;/a&gt;). Some argue that the positive appreciation of the media of rising house prices is partly due to the fact that newspapers are written and read mainly by older people, not by youngsters i.e. renters.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;Renters&lt;/strong&gt;: no, because rents are associated with house prices. If incomes are not growing at the pace of house prices, renters will be squeezed, to the benefit of landlords and homeowners. This is true in the UK (and in many other advanced economies, see &lt;a href=&quot;https://www.imf.org/external/research/housing/&quot; rel=&quot;noreferrer&quot;&gt;here&lt;/a&gt;):&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/NJaMb.jpg&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/NJaMb.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;Central banks&lt;/strong&gt;, and perhaps the overall economy and population: not necessarily, because rising house prices fueled by speculation and indebtedness (e.g. speculators and investors entering into the buy-to-let market) mean possibilities of a bubble bursting and a subsequent financial crisis. For example, in the UK, Mark Carney &lt;a href=&quot;https://www.theguardian.com/business/2014/may/18/mark-carney-house-prices-risk-economy-bank-of-england&quot; rel=&quot;noreferrer&quot;&gt;has expressed&lt;/a&gt; such concerns in the past.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;Estate Agents&lt;/strong&gt;: yes, as their business as intermediaries depends partly on fees from sales. People is more willing to sell when the market is on the up, fostering the &lt;a href=&quot;https://en.wikipedia.org/wiki/Chain_(real_estate)&quot; rel=&quot;noreferrer&quot;&gt;property chain&lt;/a&gt;. If prices are falling, people prefer to wait instead of selling their house, breaking the property chain.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-10-13T13:59:33.527" LastActivityDate="2017-10-13T13:59:33.527" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="18710" PostTypeId="1" CreationDate="2017-10-13T10:53:09.310" Score="2" ViewCount="42" Body="&lt;p&gt;Using the following CES function I backed out factor-augmenting indices $A_1$ and $A_2$ using OECD country level macro data. This process is akin to Solow's (1956) method for deriving technology residuals. I want to examine the bias in the direction of technical change by examining the temporal evolution of the factor-augmenting indices.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Y=[((A_1L^\alpha) K^{(1-\alpha)})^\sigma+ A_2E^\sigma]^{1/\sigma}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The elasticity of substitution parameter $\sigma$ is 0.1 (Estimated using MLE). $Y$ is GDP. $E$ is energy flow.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is no evidence of trend in the two technical change indices until the last few decades of the sample. From there on, the labour-augmenting index grows rapidly. The other index augmenting energy declines gradually. This divergence in the indices coincides with the sudden energy price shocks. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It might look pretty obvious that there was a labour saving and energy using bias in technical change. Though, I am stuck at this point, &lt;strong&gt;&lt;em&gt;how would I link the derived factor-augmenting indices with factor prices and factor ratios to impart the technical change biases in a systematic way?&lt;/em&gt;&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;I tried a slightly different formulation because of the nesting of the Cobb-Douglas function in CES. The evidence pointed out by &lt;code&gt;@luchonacho&lt;/code&gt; &#xA; in previous posts shows that Cobb-Douglas is not an apropriate fit to the data given that there is little potential for $K$ and $L$ to be perfect substitutes.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;An alternative formulation could be &#xA;$$Y=[(A_lL^\nu+ A_kK^\nu)^\frac{\sigma}{\nu}+ A_eE^\sigma]^{1/\sigma}$$&#xA;However, estimating $\nu$ and $\sigma$ would not be easy due to the nonlinearities in the relationship. Thus, the first formulation was adopted. Any suggestions welcome! Alternative formulation, methods etc.&lt;/p&gt;&#xA;" OwnerUserId="6009" LastEditorUserId="6009" LastEditDate="2017-10-14T18:28:41.147" LastActivityDate="2017-10-14T18:28:41.147" Title="How to pin down the bias and its/their sources in derived technical change indices?" Tags="&lt;macroeconomics&gt;&lt;economic-growth&gt;&lt;directed-technical-change&gt;" AnswerCount="0" CommentCount="13" ContentLicense="CC BY-SA 3.0" />
  <row Id="18711" PostTypeId="2" ParentId="18704" CreationDate="2017-10-13T11:32:18.480" Score="1" Body="&lt;p&gt;If you introduce any sort of correlation between the explanatory variables $X$ and the error $\epsilon$ then the zero conditional mean may be violated. In your example, if you were to assign women their training time according to their age, then the exogeneity assumption breaks.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;More formally, this last condition means&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\mathbb{E}[\epsilon|X] = 0&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If, wlog we assume $\mathbb{E}[\epsilon] = 0$, and there's a non-vanishing correlation between $X$ and $\epsilon$ then&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA; 0\not= \mathbb{C}{\rm ov}[X,\epsilon] = \mathbb{E}[X^t\epsilon] + \mathbb{E}[X] \mathbb{E}[\epsilon] = \mathbb{E}[X^t\epsilon]&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;therefore $\mathbb{E}[\epsilon|X]\not = 0$&lt;/p&gt;&#xA;" OwnerUserId="14419" LastActivityDate="2017-10-13T11:32:18.480" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18713" PostTypeId="2" ParentId="15501" CreationDate="2017-10-13T14:58:07.353" Score="1" Body="&lt;p&gt;In the exactly identified case, it is natural to assume that a unique $\theta$ satisfies $\bar{g}(\theta) = 0$, because the number of parameters is equal to the number of equations. Let $\hat\theta$ denote such $\theta$ value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When $W$ is positive definite, $\bar{g}(\theta)' W \bar{g}(\theta) \ge 0$ (because $W$ is positive definite), and $\bar{g}(\theta)' W \bar{g}(\theta)$ attains zero if and only if $\bar{g}(\theta)=0$. That is, the global minimizer of $\bar{g}(\theta)' W \bar{g}(\theta)$ equals the solution to $\bar{g}(\theta)=0$, which is $\hat\theta$, for whatever positive definite $W$ matrix. Thus, $W$ is irrelevant. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that this argument does not hold if $W$ is not positive definite. For example, if $W$ is positive semi-definite but not positive definite, then the GMM estimator may not be unique.&lt;/p&gt;&#xA;" OwnerUserId="10775" LastActivityDate="2017-10-13T14:58:07.353" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18715" PostTypeId="1" AcceptedAnswerId="18859" CreationDate="2017-10-13T20:13:00.760" Score="4" ViewCount="6010" Body="&lt;p&gt;Local non satiation says that for any $x \in X$ and $\epsilon &amp;gt; 0$, there exists $y \in X$ such that $d(x,y) &amp;lt; \epsilon$ and $U(x) &amp;lt; U(y)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't understand why this implies that $px^* = m$ if $x^*$ sovles consumer problem. If we think of $x \in R^2$, it implies that you can find a $y$ that is strictly preferred in the small neighborhood of $x$. In that case, even $x$ is on $px = m$, LNS seems to imply that there is a $y$ that is strictly preferred than $x$, and that $y$ may not be on the boundary since LNS only says there's a increasing direction but doesn't say which direction it is increasing. &lt;/p&gt;&#xA;" OwnerUserId="14842" LastActivityDate="2017-10-21T11:36:10.937" Title="Why does local non satiation imply the constraint is binding?" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;consumer-theory&gt;&lt;preferences&gt;" AnswerCount="2" CommentCount="4" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="18717" PostTypeId="2" ParentId="18706" CreationDate="2017-10-13T21:49:03.067" Score="2" Body="&lt;p&gt;If I care about the well-being of my children then, once my children own a house, I expect our family unit (consisting of me plus my children) to become net sellers of housing in the future (because I will one day die and my children will sell my home).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;People are typically in their mid 40s or older when their parents die. If we look at the proportion of UK adults in their mid 40s who own their own home we find that the figure is around 70%, so the majority of parents who die will be leaving a house to children who already own a home (although if the current trend for home ownership rates to decrease continues, this will cease to be true in 20 or 30 years' time).&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;&lt;a href=&quot;https://i.stack.imgur.com/rLYyb.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/rLYyb.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Responding to comments:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The number of children is virtually irrelevant once they already own a house. At that point, the price at which they bought is locked-in. If they want to buy a new house then any increase in its price is mostly offset by an increase in the price at which they can sell their current house. For this reason, from the point of view of keeping a roof over your own head, the price at which you buy your &lt;em&gt;first&lt;/em&gt; house matters far more than the price at which you buy each subsequent house.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can look at a quick example. Suppose that the parents live in a family home, worth $x$, and the $n$ children each have a stake in a 'starter home' which is currently worth $x-\epsilon$. Now let prices increase by a factor $\Delta$. At some point, each child will (a) upgrade to a family home, and (b) inherit $2/n$ stakes in a family home from their two parents. The overall future housing expenditure of your child will be&#xA;$$E=\Delta(x-x+\epsilon)-\frac{2}{n}\Delta x=\Delta\left(\epsilon-\frac{2}{n} x\right).$$&#xA;We can look at the effect of an increase in house prices on expenditure:&#xA;$$\frac{\partial E}{\partial \Delta}=\epsilon-\frac{2}{n} x.$$&#xA;This is negative (i.e. children experience a net gain) if $n&amp;lt;2x/\epsilon$. To do a back of the envelope calculation, in the part of the world where I live a family home costs about £375,000 (e.g. three bedroom stand alone house) and a starter home (e.g., two bedroom apartment) costs around £300,000. We would thus find a net gain if a typical family has fewer than $2\times 375/75=10$ children, which is easily satisfied.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Two final remarks: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;This assumes your children already own a home. But if they don't already own a home then they expect to have a future expenditure of $\Delta x$ and a future inheritance of $\Delta 2x/n$. In that case, any family with $n\leq 2$ is still weakly better-off after a house price increase. In the UK, about 85% of all households with at least one child have 2 or fewer children.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Your children will also have children of their own. But even if I care about all future generations of my family to some extent, I still like high house prices provided I put enough weight on my children's' wealth relative to that of other future generations. I do not think it is unreasonable assume that people care disproportionately about their children's' well-being.&lt;/p&gt;&lt;/li&gt;&#xA; - &#xA;&lt;/ul&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2017-10-14T12:10:23.670" LastActivityDate="2017-10-14T12:10:23.670" CommentCount="9" ContentLicense="CC BY-SA 3.0" />
  <row Id="18718" PostTypeId="2" ParentId="18704" CreationDate="2017-10-14T00:36:54.713" Score="0" Body="&lt;p&gt;Perhaps you are having trouble because the meaning of &quot;nonrandom assignment&quot; is not specific enough. Just saying &quot;random&quot; is not good enough. You need to ask &quot;random (or nonrandom) in what sense&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the assignment is random in the sense that it is independent of any factors whatsoever, i.e., of all the factors that affect $y$, then it is also independent of the regression error (with zero unconditional mean), and ZCM holds (because independence implies ZCM).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other cases (nonrandom assignment), whether ZCM holds depends on what kind of factors the assignment depends on. If the assignment is nonrandom in the sense that it depends on other explanatory variables (such as $age$), ZCM still holds. If the assignment is nonrandom in the sense that it depends on the error term (the factors that affect $y$ other than the included control variables), then ZCM is likely violated.&lt;/p&gt;&#xA;" OwnerUserId="10775" LastActivityDate="2017-10-14T00:36:54.713" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18719" PostTypeId="1" CreationDate="2017-10-14T06:42:44.100" Score="5" ViewCount="372" Body="&lt;p&gt;In &lt;em&gt;Predictably Irrational&lt;/em&gt; (2008, pp. 127-133), Dan Ariely describes the &lt;a href=&quot;https://en.wikipedia.org/wiki/Krzyzewskiville&quot; rel=&quot;nofollow noreferrer&quot;&gt;Krzyzewskiville&lt;/a&gt; phenomenon (Duke students camp for weeks to get basketball tickets), and how he and Ziv Camron used it to study the WTP-WTA discrepancy. This is all very interesting — the only problem is that what's written in that book is completely different from the analyses done in the original academic paper &lt;a href=&quot;http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.20.2961&amp;amp;rep=rep1&amp;amp;type=pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Camron &amp;amp; Ariely (2000)&lt;/a&gt;. (See summaries below.)&lt;/p&gt;&#xA;&lt;p&gt;So my question is this: Which version is correct (if any) — the one in &lt;em&gt;Predictably Irrational&lt;/em&gt; or the one in &lt;a href=&quot;http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.20.2961&amp;amp;rep=rep1&amp;amp;type=pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Camron &amp;amp; Ariely (2000)&lt;/a&gt;?  Which facts/results are actually correct? Or did they just make up most of it?&lt;/p&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;&lt;strong&gt;Summary of version in &lt;em&gt;Predictably Irrational&lt;/em&gt;:&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Duke students queue up in tents for weeks or even months.&lt;/li&gt;&#xA;&lt;li&gt;Those at the front of a line don't get tickets to the game. Instead, they merely get a lottery number that gives them a chance to win the game.&lt;/li&gt;&#xA;&lt;li&gt;Camron &amp;amp; Ariely then personally called up &amp;quot;more than 100 students&amp;quot;. For the lottery winners, they asked for their WTA (minimum price at which they were willing to sell a ticket). For the lottery losers, they asked for their  WTP (maximum price at which they were willing to buy a ticket).&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;p&gt;Findings:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;In general, the students who did not own a ticket were willing to pay around \$170 for one. ... Those who owned a ticket, on the other hand, demanded about \$2,400 for it.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Conclusion:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;From a rational perspective, both the ticket holders and the non-ticket holders should have thought of the game in exactly the same way. After all, the anticipated atmosphere at the game and the enjoyment one could expect from the experience should not depend on winning a lottery. Then how could a random lottery drawing have changed the students' view of the game—and the value of the tickets—so dramatically?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;&lt;strong&gt;Summary of version in Camron &amp;amp; Ariely (2000):&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;p&gt;In their &amp;quot;Study 1&amp;quot;, their subjects are students who signed up for a lottery. However, there is no mention that these students had to queue or camp for tickets. More importantly, contrary to what's stated in &lt;em&gt;Predictably Irrational&lt;/em&gt;, Study 1 contains no analysis that compares lottery winners to the lottery losers. Instead:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;A hundred names of potential subjects were randomly drawn from a list of students, who had signed up for a lottery determining who would be eligible to purchase a ticket to the tournament. Ninety-three respondents (those we were able to locate) were interviewed over the phone by research assistants who were unaware of the study’s hypotheses. ...&lt;/p&gt;&#xA;&lt;p&gt;Participants were first asked to indicate their selling and buying prices. The buying-price question asked for the highest price the respondent would pay for a ticket (to the NCAA Final Four basketball tournament), assuming s/he did not have a ticket. The selling-price question asked for the lowest price at which the respondent would agree to sell a ticket assuming s/he had one&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Table 1 (which I presume is where the \$170 and \$2,400 figures quoted above come from):&lt;/p&gt;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/Ddnmn.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Ddnmn.png&quot; alt=&quot;enter image description here&quot; /&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&lt;p&gt;It is only in their &amp;quot;Study 2&amp;quot; that there is any mention of campers being recruited as study subjects. Here however, there is no mention whatsoever of these campers entering any sort of lottery. There is certainly also no analysis comparing lottery winners and losers. There is also no hint of the \$170 and \$2,400 figures in the results here.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2021-01-02T04:34:26.100" Title="Fact-checking Dan Ariely (2008) on Duke basketball tickets story" Tags="&lt;behavioral-economics&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18720" PostTypeId="2" ParentId="18706" CreationDate="2017-10-14T07:54:22.630" Score="2" Body="&lt;p&gt;Whether rising housing prices are a good or a bad thing depends on the stage of &lt;a href=&quot;https://en.wikipedia.org/wiki/Business_cycle&quot; rel=&quot;nofollow noreferrer&quot;&gt;business cycle&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the economy is coming out of recession or economic growth is slow (below average), as it is now in 2017, then rising housing prices are generally a good thing. Housing reflects the broader state of the economy. People have more money to pay for houses, homeowners and companies benefit from real estate appreciation, lenders/borrowers are more optimistic, construction and related industries are hiring to build more houses, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the economy is going strong and prices are rising rapidly, that is the sign of overheating. Lenders are lending recklessly and buyers become speculative (buying only because the prices are going up). It is not good because it causes a real estate bubble. Eventually it bursts and a lot of people lose a lot of money, like back in 2008. Or even like in 1990's in Japan:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/mfQn6.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/mfQn6.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is not always easy to make a correct judgement in real time. The state of the economy and whether there is a bubble or not is only obvious in retrospect. So media often makes bad calls, as do economists, bankers, and governments. They do the best they can, much like weather forecasters.&lt;/p&gt;&#xA;" OwnerUserId="6231" LastActivityDate="2017-10-14T07:54:22.630" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18722" PostTypeId="1" AcceptedAnswerId="18723" CreationDate="2017-10-14T10:03:24.540" Score="0" ViewCount="298" Body="&lt;p&gt;When consider the following DGP : $y=X\beta^{*}+\epsilon$ where $\beta^{*}$ is a $\tilde k\times1\ $ vector.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Define the projection matrices: $P_{X}=X(X^{T}X)^{-1}X^{T}$ and $M_{X}=I-X(X^{T}X)^{-1}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;first problem is prove that $X^{T}P_{X}=X^{T}$ and $ X^{T}M_{X}=0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I thought this problem is too simple to think because P is just I. So, I think that there is an intention for given problem considering second problem.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Second problem is Prove thath if $X_{(i)}$ is the $i^{th}$ column of $X$, then, $M_{X}X_{(i)}=0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;What is the point of first problem?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Can I solve these problem by considering $X_{(i)}=XA\ $ where A has a vector consisting of just 1 and the other columns are all zero? or Should I utilize first problem's solution?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="14767" LastEditorUserId="2776" LastEditDate="2017-10-14T16:22:14.680" LastActivityDate="2017-10-14T16:22:14.680" Title="How to utilize the projection matrix in econometrics?" Tags="&lt;econometrics&gt;&lt;linear-algebra&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18723" PostTypeId="2" ParentId="18722" CreationDate="2017-10-14T12:14:05.200" Score="2" Body="&lt;p&gt;This kind of projections in econometrics are usually employed for partialling out some covariates from a linear regression.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Observe that in general $P_X\neq I$. Consider $X=\begin{bmatrix}1&amp;amp;5\\1&amp;amp;0\\1&amp;amp;1\end{bmatrix}$. Then $X'X=\begin{bmatrix}3&amp;amp;6\\6&amp;amp;26\end{bmatrix}$ and $(X'X)^{-1}=\begin{bmatrix}26/42&amp;amp;-6/42\\-6/42&amp;amp;3/42\end{bmatrix}$ then $X(X'X)^{-1}X^T=\frac{1}{42}\begin{bmatrix}41&amp;amp;-4&amp;amp;5\\-4&amp;amp;26&amp;amp;20\\5&amp;amp;20&amp;amp;17\end{bmatrix}\neq I$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First problem: $X^TP_X=X^TX(X'X)^{-1}X^T=(X^TX)(X'X)^{-1}X^T=I_{(\tilde k\times\tilde k)}X^T=X^T$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Similarly: $X^TM_X=X^T[I_{(\tilde k\times\tilde k)}-P_X]=X^TI_{(\tilde k\times\tilde k)}-X^TP_X=X^T-X^T=0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The second problem is a direct consequence of $X^TM_X=0$, simply now you can post-multiply for $X_{(i)}$ since you are considering just one single column. The approach of $X_{(i)}=XA$ where $A$ is a vector $\tilde k\times 1$ of 0 apart from the $i$-th element which is 1. Then it should be straightforward to see: $0=(XA)^TM_X=M_XX_{(i)}$&lt;/p&gt;&#xA;" OwnerUserId="14692" LastActivityDate="2017-10-14T12:14:05.200" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18724" PostTypeId="2" ParentId="18686" CreationDate="2017-10-14T12:15:56.690" Score="4" Body="&lt;p&gt;There is a theoretical objection to using seasonally adjusted data, which I saw in an essay by Kalman (developer of the Kalman filter); sorry, I cannot find the reference. The argument is that seasonal adjustment is a filter, that has its own dynamics. You are then embedding these filter dynamics within the system that you are modelling. This would be a bad idea in engineering systems, but I am not entirely convinced it matters for economic systems. (My academic background is in engineering control systems.) However, if the variables you are forecasting exhibit roughly the same seasonal pattern, separately seasonally adjusting them might be problematic.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Most economic forecasting exercises involve variables with different seasonal patterns, and it is probably easier to work with seasonally adjusted data. You would have to embed the deseasonalisation within your model, which raises model complexity, and probably introduces extra errors that we know that we can explain.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If your objective is to forecast the non-seasonally adjusted variable, the usual practice in finanicial market economics is to come up with an estimate of the non-seasonally adjusted variable, then apply the existing seasonal pattern. The main example I have in mind is the forecasting of the CPI index in the inflation-linked markets, where the instruments are linked to the non-adjusted index. These forecasts were short-term (few month horizon), and were expected to be fairly accurate. Even long-term forecasts had a seasonal pattern built into them, since it mattered for relative value even for instruments with longer maturities.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Academics may prefer other techniques, but I am unaware of their use in short-term inflation forecasting.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you are attemptng to forecast an aggregate index by forecasting its components, you might need to forecast each component, and then aggregate and seasonally adjust using the same algorithms used by the statistical agency. However, it’s rare that you can get the level of accuracy needed for this to matter.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2017-10-14T12:15:56.690" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18725" PostTypeId="2" ParentId="18715" CreationDate="2017-10-14T14:17:18.927" Score="2" Body="&lt;p&gt;The OP is correct in pointing out that &quot;Local Non Satiation (LNS) only says there's a (utility) increasing direction but doesn't say which direction it is increasing&quot;. Namely, we entertain the possibility on dealing with &quot;bads&quot; also, not only with &quot;goods&quot;. MWG Microeconomic Theory book page 43 Figure 3.B.1 depicts exactly such a situation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But it &lt;em&gt;is&lt;/em&gt; the case that, when the bundle set is $\mathbb R_+$, &lt;strong&gt;under LNS not all items can be bads&lt;/strong&gt;. Because then, &lt;em&gt;the zero vector will be a point of satiation&lt;/em&gt; (and so it would violate the LNS assumption).   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So using non-negative quantities of items and imposing LNS forces us to consider only the cases where at least one item in the bundle is a good and not a bad, in which case &quot;more is better&quot; for this item.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, we can prove that local non-satiation implies exhaustion of the available budget.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ad absurdum, assume that $px^* &amp;lt; m$. Under LNS &lt;em&gt;for every $\epsilon &amp;gt;0$&lt;/em&gt;, there exists a $y(\epsilon)$ that is more preferred to $x^*$. If some $y(\epsilon)$ is feasible, $py(\epsilon) \leq m$, then $x^*$ cannot be the optimal choice in the first place.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the question is : Is it possible that &lt;em&gt;all&lt;/em&gt; $y(\epsilon)$ that are preferred to $x^*$ under LNS, are infeasible, $py(\epsilon)&amp;gt;m,\;\; \forall \epsilon&amp;gt;0$?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I guess the OP can take it from here.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2017-10-14T14:17:18.927" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18729" PostTypeId="1" CreationDate="2017-10-14T18:58:51.420" Score="2" ViewCount="213" Body="&lt;p&gt;Can monopolistic dead weight loss persist without government intervention? If so how? I am researching monopolies and find dead weight loss proposed as an evil of monopolies but i can not find any examples or understand the reasoning behind it. I have seen the graphs and understand them but why would new businesses not enter the market if there are profits to be earned.&lt;/p&gt;&#xA;" OwnerUserId="14851" LastEditorUserId="14851" LastEditDate="2017-10-14T19:47:21.647" LastActivityDate="2017-11-14T00:20:22.087" Title="Can monopolistic dead weight loss persist without government intervention? If so how?" Tags="&lt;monopoly&gt;&lt;social-welfare&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18731" PostTypeId="2" ParentId="18729" CreationDate="2017-10-14T21:15:08.863" Score="2" Body="&lt;p&gt;If I understand you correctly, monopolistic deadweight loss persists without gov intervention because of the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Economies of Scale&lt;/strong&gt;: if monoplist is able to produce at below the market prices due to the presence of economies of scale, then the monoplist is effectively able to retain its dominance in the market as new firms entering the market cannot undercut the monopolist. Thus, deadweight loss persists.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Patenting&lt;/strong&gt;: Monoplist could patent its products and process innovation. A new entrant would have to come up with a new idea of a similar product to enter the market tha the incumbet dominates. This however is not usually possible due to very high initial R&amp;amp;D investment requirement. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Rent-seeking&lt;/strong&gt;: It is also possible that a monoplist could lobby governments in order to influence policy related decisions. Tobacco and weapons manufacturng companies are known to spend large sums on lobbying efforts. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;These effectively serve as barriers to entry.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the presence of barriers to entry, monopoly profits effectively transfer income from households to the monopoly. The monopolist could also under-produce in order to maintain monopoly profits. Examples could be the production of &quot;limited edition&quot; goods which are usually priced above average market prices. Because the monopolist earns above normal profits, it may not invest in cost-saving technologies. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In order to minimise or elliminate the deadweight loss, governments tend to invoke antri-trust laws and regulate the markets and industries. Deadweight loss persists in the absence of action by governments.&lt;/p&gt;&#xA;" OwnerUserId="6009" LastEditorUserId="6009" LastEditDate="2017-10-15T00:01:38.120" LastActivityDate="2017-10-15T00:01:38.120" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="18734" PostTypeId="1" CreationDate="2017-10-14T22:35:43.617" Score="4" ViewCount="159" Body="&lt;p&gt;The Euler equation, specifying the dynamical constraint for optimality of an intertemporal optimization problem, is widely used in modern economics. But where does it get its name from? What did Euler have to do with it?&lt;/p&gt;&#xA;" OwnerUserId="14855" LastEditorUserId="8815" LastEditDate="2017-10-16T04:34:30.353" LastActivityDate="2017-10-16T07:36:22.983" Title="Where does the Euler equation get its name from?" Tags="&lt;soft-question&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18735" PostTypeId="1" AcceptedAnswerId="18756" CreationDate="2017-10-14T22:55:46.580" Score="3" ViewCount="60" Body="&lt;p&gt;I found that, though most of the time the math technical parts of economics is not a problem for me, I am somehow troubled with extracting the descriptive meaning of formally stated economic statements. I seem to not have the intuition developed enough to read the economic meaning out of formal conditions. This is manifested in macroeconomics. For example, in the class of OLG models, the budget constraints may take many different forms according as scenario (with money, social security,...). Many times, after I saw how simple the economic meaning a sentence conveys either by lecturer in a class or author in a book, I asked myself how I did not see this. &#xA;On the other hand, microeconomics is much more clearer to me. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So my question is how to develop a proper intuition to extract the descriptive meaning of any given economic formal relation.&lt;/p&gt;&#xA;" OwnerUserId="11843" LastEditorUserId="11843" LastEditDate="2017-10-15T13:54:32.623" LastActivityDate="2017-10-16T04:45:03.083" Title="How to enhance one's comprehension of the descriptive meaning of formal economic statements?" Tags="&lt;macroeconomics&gt;&lt;self-study&gt;" AnswerCount="2" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="18736" PostTypeId="1" CreationDate="2017-10-15T02:24:11.100" Score="4" ViewCount="4005" Body="&lt;p&gt;I'm a bit unsure about how to derive a long-run cost function. Suppose my production function was $X(L, K)=L^a K^b$, where $a+b&amp;gt;1$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm thinking about doing the following, but I'm not sure it's correct. If it's not, what am I not considering?&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;The beginning of my solution&lt;/strong&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Our production function is $X=L^a K^b$ and our cost equation is $C=wL+rK$. So, we must solve $\max L^a K^b \text{ s.t. } C=wL+rK$. Therefore, our Lagrangian function is $\mathcal{L}=L^a K^b + \lambda(C-wL-rK)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first order conditions are: (1) $aL^{a-1}K^b-\lambda w=0$, (2) $bL^aK^{b-1} -\lambda r=0$, and (3) $C-wL-rK=0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, we solve the maximization problem (dividing conditions 1 and 2, solving for $L$ and $K$, and then plugging $L$ and $K$ into the cost equation). Does this seem like the right way to do it?&lt;/p&gt;&#xA;" OwnerUserId="14781" LastActivityDate="2017-10-15T03:42:16.017" Title="Deriving long-run cost function" Tags="&lt;production-function&gt;&lt;self-study&gt;&lt;cost-functions&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18738" PostTypeId="2" ParentId="18736" CreationDate="2017-10-15T03:42:16.017" Score="4" Body="&lt;p&gt;You're right. Divide Eq (1) by Eq (2):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\frac{a L^{a-1}K^b}{bL^aK^{b-1}} = \frac{aK}{bL} = \frac{w}{r} ~~~\Rightarrow~~~ L = \frac{ar}{bw}K \tag{4}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now use this in Eq. (3)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;C = wL + rK = \left(\frac{a}{b} + 1\right)rK ~~~\Rightarrow~~~ K = \frac{C}{r(a/b + 1)} \tag{5}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Replace this in Eq. (4) to get $L$&lt;/p&gt;&#xA;" OwnerUserId="14419" LastActivityDate="2017-10-15T03:42:16.017" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18739" PostTypeId="2" ParentId="17620" CreationDate="2017-10-15T07:04:02.950" Score="1" Body="&lt;p&gt;Would it be more consumer-friendly? Probably, for some customers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But that's not the basis on which they'll make their decisions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Their decision is: would it be more profitable? And the answer to that, is: no, probably not. Product differentiation and market segmentation allow them to extract more profit from a wider customer base. They use different products with differences in interest rates, interest-free periods, other charges, and side-benefits, to suit different market segments. This allows them to convert what would have been consumer-surplus in a single-product market, into producer surplus, i.e. more profit for the card issuer.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2017-10-15T07:04:02.950" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18743" PostTypeId="1" CreationDate="2017-10-15T12:41:24.687" Score="2" ViewCount="312" Body="&lt;p&gt;I'm looking for a book to refresh my macroeconomics and also continue studying the topics that I did not have. My math background is solid. Can anyone suggest a macro book that takes it from the beginning to advanced and covers hopefully most macroeconomics? if there is no such a book and a few books should be read, please also let me know your suggestions.&lt;/p&gt;&#xA;" OwnerUserId="14860" LastEditorUserId="2776" LastEditDate="2017-10-15T16:23:31.827" LastActivityDate="2019-05-16T01:13:15.040" Title="Macroeconomics textbook suggestion" Tags="&lt;reference-request&gt;&lt;books&gt;" AnswerCount="2" CommentCount="1" ClosedDate="2017-10-16T04:20:38.263" ContentLicense="CC BY-SA 3.0" />
  <row Id="18744" PostTypeId="1" AcceptedAnswerId="18788" CreationDate="2017-10-15T13:04:48.270" Score="1" ViewCount="138" Body="&lt;p&gt;There's an exercise I cannot wrap my head on. I actually have the solution to the problem, but still I don't quite understand it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Let an economy be composed of two consumers $A$ and $B$ and two goods $X$ and $Y$, such that $Y$ is produced using $X$ with production function $Y = \sqrt{5X}$. We suppose $A$ and $B$ have identical utility function $U(X,Y) = XY$. Initial endowment of the economy is $X = 1$ and $Y=0$ Find the Pareto-optima of this economy, and express them as a function of $X_A$, the quantity of good $X$ allocated to consumer $A$.&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So what I did to find those optima is to put $MRS_{XY}^A = MRS_{XY}^B$ subject to constrains $X_A + X_B \leq 1$ and $Y_A + Y_B = \sqrt{5(1 - X_A - X_B)}$. But it seems to me that I got to few equations to actually solve the problem. What I find is, putting $X = 1- X_A - X_B$:&#xA;\begin{align*}&#xA;Y_A = \frac{\sqrt{5X}}{1 - X} \cdot X_A &#xA;\end{align*}&#xA;but I can't seem to be able to go any further... In the solution, it reads:&#xA;\begin{align*}&#xA;\frac{Y_A}{X_A} = \frac{Y_B}{X_B} (=\frac{Y_A + Y_B}{X_A + X_B}) = \frac{\sqrt{5}}{2\sqrt{X}}&#xA;\end{align*}&#xA;without explaining how to derive the last equality.&lt;/p&gt;&#xA;" OwnerUserId="13622" LastEditorUserId="8595" LastEditDate="2017-10-18T22:27:38.840" LastActivityDate="2017-10-18T22:27:38.840" Title="Find Pareto-optima two good economy" Tags="&lt;microeconomics&gt;&lt;pareto-efficiency&gt;" AnswerCount="1" CommentCount="10" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18745" PostTypeId="2" ParentId="18701" CreationDate="2017-10-15T13:31:23.000" Score="0" Body="&lt;p&gt;I'm &lt;em&gt;pretty&lt;/em&gt; sure this answer is not definitive on the subject of &lt;em&gt;income inequality&lt;/em&gt;, but I think it can address a couple of &lt;em&gt;broad&lt;/em&gt; points in the original question.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In '&lt;em&gt;income inequality&lt;/em&gt;', '&lt;em&gt;income&lt;/em&gt;' refers to a flow concept. Either a number of monetary units per unit time (eg USD 12,000 per year) or a 'quantity' of commodities and services that the money can command over some period of time. The '&lt;em&gt;inequality&lt;/em&gt;' part has to do with some underlying distribution and its particular shape and/or general properties.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Incomes are generated as a remuneration to the factors of production that participated in output creation over a certain period of time (production too is a flow concept). If someone accepts that factors of production are paid their marginal value products (and production is linearly homogeneous) then that same person should also accept that the sum of incomes generated is equal to the sum of values (of output, commodities) produced. &#xA;In this setting, differences in marginal productivity of factors should be sufficient in explaining differences in incomes (along with initial endowments). Actually, this is the canonical representation of how distribution works out.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this setting, &quot;...all dollars are spent&quot;. In fact, &quot;...all saved money is spent, all received money is spent&quot;. 'Income inequality' is &lt;em&gt;not&lt;/em&gt; about accounting identities (a caveat is that in the canonical representation there is no such thing as &quot;money&quot; and such a representation is more in par with the second view presented above with regards to what is denoted by '&lt;em&gt;income&lt;/em&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The other point is about what '&lt;em&gt;increases&lt;/em&gt;' or '&lt;em&gt;decreases&lt;/em&gt;' income inequality. Obviously, the specific definition of how to measure inequality will affect the scale over which changes are measured. There are different measures of inequality and which one is operational each time matters. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, '&lt;em&gt;globalization&lt;/em&gt;' is a term that contains myriads of processes and effects and as such obviously has an impact on '&lt;em&gt;inequality&lt;/em&gt;'. It's the specific degree and appropriate channels through which its effects are expressed, that matter for the changes in 'inequality'.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems to be suggested in the body of the question that free movement of capital across countries-courtesy of 'globalization'-increases inequality &lt;em&gt;at home&lt;/em&gt; because money 'leak out' of the domestic circuit. On the other hand, it seems to be suggested that inequality &lt;em&gt;decreases&lt;/em&gt; in the countries that receive the capital injections.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If that were the case and under suitable assumptions, inequality in the world as a whole would remain constant.&lt;/p&gt;&#xA;" OwnerDisplayName="user14471" LastEditorUserId="4251" LastEditDate="2017-10-27T23:31:15.287" LastActivityDate="2017-10-27T23:31:15.287" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18746" PostTypeId="1" CreationDate="2017-10-15T14:12:46.287" Score="0" ViewCount="87" Body="&lt;p&gt;Shouldn’t there also be a concept of short vs. long-run equilibrium in microeconomics? After all, short-run equilibrium describes the state of the economy when wages and prices are still adjusting and when worker misperceptions are affecting quantity-supplied of labor; and long-run equilibrium is the state of the economy when worker misperceptions have been corrected, and wages and prices have adjusted to their final levels. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Doesn’t this happen in microeconomic situations? If not, why not?&lt;/p&gt;&#xA;" OwnerUserId="14503" LastActivityDate="2017-10-15T16:48:05.227" Title="Why are the concepts of short-run and long-run equilibrium exclusive to aggregate supply and demand and macroeconomics?" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;long-run&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="18748" PostTypeId="2" ParentId="18746" CreationDate="2017-10-15T16:48:05.227" Score="1" Body="&lt;p&gt;The concepts of short-run and long-run equilibria certainly feature in microeconomics.  Indeed, they have done so for over a century: see Marshall's &lt;em&gt;&lt;a href=&quot;http://www.econlib.org/library/Marshall/marP32.html#Bk.V,Ch.V&quot; rel=&quot;nofollow noreferrer&quot;&gt;Principles of Economics&lt;/a&gt;&lt;/em&gt; (1890).&lt;/p&gt;&#xA;" OwnerUserId="1417" LastActivityDate="2017-10-15T16:48:05.227" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18750" PostTypeId="2" ParentId="18743" CreationDate="2017-10-15T22:42:48.347" Score="1" Body="&lt;p&gt;Obstfeld and Rogoff (Foundations of International Macroeconomics) or Romer (Advanced Macroeconomics) both cover a lot and present all the math.&lt;/p&gt;&#xA;" OwnerUserId="14822" LastActivityDate="2017-10-15T22:42:48.347" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18752" PostTypeId="1" CreationDate="2017-10-16T01:14:19.840" Score="1" ViewCount="103" Body="&lt;p&gt;I'm looking for a reference with the most used utility functions in macroeconomic problems of intertemporal optimization. The reference should preferably include a list of properties of those functions, and of why they are usually used.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated&lt;/p&gt;&#xA;" OwnerUserId="118" LastActivityDate="2017-10-16T15:28:18.903" Title="A reference for most used utility functions in macroeconomic problems of intertemporal optimization" Tags="&lt;macroeconomics&gt;&lt;reference-request&gt;&lt;dynamic-programming&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18753" PostTypeId="1" CreationDate="2017-10-16T02:00:59.277" Score="1" ViewCount="99" Body="&lt;p&gt;In a lecture about ancient and modern cities, a quote came up on the slides from Karl Marx's &lt;em&gt;Capital&lt;/em&gt; where he writes&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;The foundation of every division of labor that is well developed, and brought about by the exchange of commodities, is the separation between town and country. It may be said that the whole economic history of society is summed up in the movement of this antithesis.&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;What does a movement of an antithesis mean ? And I don't understand what antithesis he is referring to in this excerpt; what is being contrasted; the well-established separation of divisions of labour and the exchange of their resulting specialised products ? Or the well-established foundations of divided labour and how that was brought about by exchanging commodities (or that commodities could be exchanged at all) ? Or am I missing something else completely ? Is this a translation thing, an English thing or an economics thing ?&lt;/p&gt;&#xA;" OwnerUserId="14865" LastActivityDate="2017-10-17T00:58:53.387" Title="What did Karl Marx mean by &quot;the movement of this antithesis&quot;?" Tags="&lt;marxism&gt;&lt;definition&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18754" PostTypeId="2" ParentId="18743" CreationDate="2017-10-16T04:20:12.143" Score="0" Body="&lt;p&gt;If you're looking for a free introductory textbook, Caltech professor Preston McAfee's &lt;em&gt;Introduction to Economic Analysis&lt;/em&gt; is available here: &lt;a href=&quot;http://www.muhlenberg.edu/media/contentassets/pdf/economicanalysis/IEA.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.muhlenberg.edu/media/contentassets/pdf/economicanalysis/IEA.pdf&lt;/a&gt; and here: &lt;a href=&quot;http://www.muhlenberg.edu/media/contentassets/pdf/economicanalysis/IEA.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.muhlenberg.edu/media/contentassets/pdf/economicanalysis/IEA.pdf&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can read more about the textbook here: &lt;a href=&quot;https://en.wikipedia.org/wiki/Introduction_to_Economic_Analysis&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://en.wikipedia.org/wiki/Introduction_to_Economic_Analysis&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="14868" LastEditorUserId="14868" LastEditDate="2019-05-16T01:13:15.040" LastActivityDate="2019-05-16T01:13:15.040" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="18755" PostTypeId="2" ParentId="18735" CreationDate="2017-10-16T04:28:22.013" Score="0" Body="&lt;p&gt;The best advice I've found on the topic have been summed up by the words of &lt;a href=&quot;https://en.wikipedia.org/wiki/Hal_Varian&quot; rel=&quot;nofollow noreferrer&quot;&gt;Hal Varian&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&lt;strong&gt;&quot;In my view, it is impossible to learn economic theory without solving lots of problems&quot;&lt;/strong&gt;&lt;sup&gt;1&lt;/sup&gt;&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The more problems you solve, the more accustomed you will become to economic logic and the language that comes with it.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;sub&gt;1. from  &quot;&lt;a href=&quot;http://people.ischool.berkeley.edu/~hal/Papers/theory.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;What Use is Economic Theory?&lt;/a&gt;&quot; &lt;/sub&gt;&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2017-10-16T04:28:22.013" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18756" PostTypeId="2" ParentId="18735" CreationDate="2017-10-16T04:45:03.083" Score="2" Body="&lt;p&gt;I faced a similar issue coming from mathematics where context plays very little role in framing theorems. I was a top maths student. But Econ grad school was difficult for this. The solution I found (and successfully so since I publish well) is to read as much “soft Econ” as possible: policy discussions, business reports, newspaper analysis. Then I went back to formalized economics, and it worked. The conclusion I reached is that economics theorems are very context dependent, and typically cannot be grasped without cultural/policymaking/business context. &lt;/p&gt;&#xA;" OwnerUserId="10482" LastActivityDate="2017-10-16T04:45:03.083" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18757" PostTypeId="2" ParentId="18734" CreationDate="2017-10-16T07:36:22.983" Score="2" Body="&lt;p&gt;It appears, like a lot of other math economics uses, this one was lifted from fluid dynamics. From &lt;a href=&quot;https://en.wikipedia.org/wiki/Euler_equations_(fluid_dynamics)#History&quot; rel=&quot;nofollow noreferrer&quot;&gt;Wikipedia&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The Euler equations first appeared in published form in Euler's article &quot;Principes généraux du mouvement des fluides&quot;, published in Mémoires de l'Academie des Sciences de Berlin in 1757 (in this article Euler actually published only the general form of the continuity equation and the momentum equation;[3] the energy balance equation would be obtained a century later). They were among the first partial differential equations to be written down.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2017-10-16T07:36:22.983" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18758" PostTypeId="1" CreationDate="2017-10-16T01:10:55.333" Score="2" ViewCount="428" Body="&lt;p&gt;Currency is represented as an exchange for something valuable, whether it be an object or work. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Prices for objects can change over time, depending on demand and supply, making objects unreliable to measure inflation. Most countries use precious metals to measure or establish currencies, but the prices for metals can also change over time. The amount of work it takes someone to complete a task depends on their physical and mental abilities, in which no two humans are the same.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there something that does not change its value that can be used to measure currency inflation?&lt;/p&gt;&#xA;" OwnerUserId="14867" OwnerDisplayName="SuperMaku" LastActivityDate="2017-10-16T14:31:16.330" Title="Is there something that does not change its value that can be used to measure currency inflation?" Tags="&lt;currency&gt;" AnswerCount="4" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18759" PostTypeId="2" ParentId="18758" CreationDate="2017-10-16T01:31:01.670" Score="0" Body="&lt;p&gt;No. Value is a human term and is based on how much someone is willing to pay for something and as such value changes over time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Quite often things like a loaf of bread or a &lt;a href=&quot;https://en.wikipedia.org/wiki/Big_Mac_Index&quot; rel=&quot;nofollow noreferrer&quot;&gt;Big Mac&lt;/a&gt; can be used to measure inflation between currencies&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Inflation is usually measured by how much something changes value, not against something of static value.&lt;/p&gt;&#xA;" OwnerDisplayName="Thorne" LastActivityDate="2017-10-16T01:31:01.670" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18760" PostTypeId="2" ParentId="18758" CreationDate="2017-10-16T01:32:13.503" Score="4" Body="&lt;p&gt;&lt;strong&gt;TL;DR -- No&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now for the fun part.  No!  No-no-no-no-no!  And here's why...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Conditions change.  Any commodity you can name will change in value over time, as various things happen:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;People stop wanting it (I mean, you can buy myrrh these days, but it's not a hot-ticket item)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The availability changes (New mines show up, or old ones shut down)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;People start wanting it (use of gallium really spiked when electronics came along)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;But wait!  How about gold?  It's been in demand for like &lt;em&gt;evah&lt;/em&gt;, right?  Well.  Let's look at the inflation-adjusted price of gold, just for the last century:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/083QG.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/083QG.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Maybe you could try something like &quot;one day's rations&quot;, ie enough food to feed the metric standard guy for one day.  Of course, as agriculture gets more efficient...  Hmm.  The US gov't uses a &quot;standard grocery basket&quot; to measure inflation, that works ... okay, though politics occasionally sneak in.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Anyway.  Short story -- nope.&lt;/p&gt;&#xA;" OwnerDisplayName="akaioi" LastActivityDate="2017-10-16T01:32:13.503" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18761" PostTypeId="2" ParentId="18758" CreationDate="2017-10-16T03:17:18.260" Score="2" Body="&lt;p&gt;For something reliable which does not change its value, it must be an everyday need for survival. Note that value does not mean price. In times of plenty, the price of a staple is lower than in times of low supply. The value of it lies in its ability to keep you alive.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The best index for that is food. You always need food. You can't eat diamonds, gold, or platinum. Computers are nice, but not necessary for survival. Clothing is very important but varies a lot in quality; it would have to be a staple for all people, which doesn't exist (e.g. a pair of jeans.), Housing can be simple or elaborate. So can food, but the basics - a loaf of bread, a gallon of water (if not free), an egg: these things have real and lasting value by which inflation can be measured.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If everything else vanished, we would still need bread, water, protein, etc. That's as basic as it gets in real life.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In science fiction, Oxygen might also be a basic necessity.&lt;/p&gt;&#xA;" OwnerUserId="7748" OwnerDisplayName="medica" LastActivityDate="2017-10-16T03:17:18.260" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="18762" PostTypeId="2" ParentId="9940" CreationDate="2017-10-16T09:58:24.157" Score="2" Body="&lt;p&gt;This is a great question, you're not the only one confused. We just completed a working paper on this very topic: &quot;&lt;a href=&quot;https://www.researchgate.net/publication/320409218_What_is_action_what_is_inaction_A_review_of_action-inaction_biases_and_recommendations_for_term_use_and_typology&quot; rel=&quot;nofollow noreferrer&quot;&gt;What is action, what is inaction? A review of action-inaction biases and recommendations for term use and typology&lt;/a&gt;&quot; and we cover these two biases and many other action-inaction biases. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;See page 5:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Building on the action-effect is the omission bias. The omission bias&#xA;  has been defined in many different ways, and is sometimes regarded to&#xA;  be the same as the action-effect. We view the two biases as different,&#xA;  with the omission bias extending the action-effect to focus on the&#xA;  choices made between action and inaction or about moral attributions&#xA;  to action and inaction, rather than the experience of negative&#xA;  emotions or regret as a consequence of action-inaction. In its&#xA;  broadest definition, the omission bias is the phenomenon that people&#xA;  prefer omissions to commission when there is the possibility of a&#xA;  negative outcome (Spranca, Minsk, &amp;amp; Baron, 1991; Ritov &amp;amp; Baron, 1990).&#xA;  Using this definition, if we consider the classic action-effect&#xA;  scenario, the two investors facing a risky situation and presented&#xA;  with the options of taking action and switching versus not taking&#xA;  action and sticking to the initial investment would prefer inaction to&#xA;  action. Linking with the action-effect, the bias could partly be&#xA;  explained as a strategy to minimize anticipated-regret (Anderson,&#xA;  2003; Wong &amp;amp; Kwong, 2007; Zhang &amp;amp; Fishbach, 2005), possibly further&#xA;  heightened by related biases such as loss aversion (Tversky &amp;amp;&#xA;  Kahneman, 1991) and risk aversion (Kahneman &amp;amp; Tversky, 1979; Tversky &amp;amp;&#xA;  Kahneman, 1992).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Briefly, the &quot;action effect&quot; is the tendency to regret actions more than inaction (negative outcomes) leading to a preference for omissions. In Bar-Eli's paper the action-effect is reversed to an inaction-effect (Zeelenberg etal. 2002) due to normality, the expectations for goal keepers to act. Therefore, the reconciliation is by using normality from norm theory (Kahneman &amp;amp; Miller, 1986).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope that helps, we'd appreciate feedback if things aren't clear. &lt;/p&gt;&#xA;" OwnerUserId="14870" LastActivityDate="2017-10-16T09:58:24.157" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18763" PostTypeId="1" AcceptedAnswerId="18766" CreationDate="2017-10-16T10:23:37.727" Score="1" ViewCount="122" Body="&lt;p&gt;I know what the probability mass function of a multinomial logit model is.  However, I do not know what the probability mass  function of an individual observation i, f(yi|xi), is for a multinomial logit model.  I would really appreciate if someone could explain how to get the answer and knows the correct answer.  &lt;/p&gt;&#xA;" OwnerUserId="14871" LastEditorUserId="14871" LastEditDate="2017-10-16T16:03:06.583" LastActivityDate="2017-10-16T16:27:18.533" Title="How do I find the probability mass function of an individual observation for a multinomial logit model?" Tags="&lt;econometrics&gt;" AnswerCount="1" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="18766" PostTypeId="2" ParentId="18763" CreationDate="2017-10-16T13:49:15.377" Score="1" Body="&lt;p&gt;A useful way to view the model is as follows. For each observation $i$, there are $K$ different possible observations (choices). So, there is a random variable $\varepsilon_{i,k}$ for each possible choice. We observe which choice is made and the values of the explanatory variables $\boldsymbol X_i$. Then, for a given distribution of the random variables $\varepsilon_{i,k}$ (given parameter values of the Type-1 EV), we know the conditional probability of picking choice $k$ conditional on $\boldsymbol X_i$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is explained in the following part of the relevant Wikipedia &lt;a href=&quot;https://en.wikipedia.org/wiki/Multinomial_logistic_regression#As_a_latent-variable_model&quot; rel=&quot;nofollow noreferrer&quot;&gt;article&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;It is also possible to formulate multinomial logistic regression as a&#xA;  latent variable model, following the two-way latent variable model&#xA;  described for binary logistic regression.  This formulation is common&#xA;  in the theory of discrete choice models, and makes it easier to&#xA;  compare multinomial logistic regression to the related multinomial&#xA;  probit model, as well as to extend it to more complex models.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Imagine that, for each data point $i$ and possible outcome $k$,&#xA;  there is a continuous latent variable&#xA;  $Y_{i,k}^*$ (i.e. an unobserved random&#xA;  variable) that is distributed as follows:&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;$$\begin{align} Y_{i,1}^{\ast} &amp;amp;= \boldsymbol\beta_1 \cdot&#xA;\mathbf{X}_i + \varepsilon_1 \, \\ Y_{i,2}^{\ast} &amp;amp;=&#xA;\boldsymbol\beta_2 \cdot \mathbf{X}_i + \varepsilon_2 \, \\ \cdots &amp;amp;&#xA;\\ Y_{i,K}^{\ast} &amp;amp;= \boldsymbol\beta_K \cdot \mathbf{X}_i +&#xA;\varepsilon_K \, \\ \end{align} $$&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;where $\varepsilon_k \sim \operatorname{EV}_1(0,1),$ i.e. a&#xA;  standard type-1 extreme value distribution.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;This latent variable can be thought of as the utility associated&#xA;  with data point $i$ choosing outcome $k$, where there is some&#xA;  randomness in the actual amount of utility obtained, which accounts&#xA;  for other unmodeled factors that go into the choice.  The value of the&#xA;  actual variable $Y_i$ is then determined in a non-random&#xA;  fashion from these latent variables (i.e. the randomness has been&#xA;  moved from the observed outcomes into the latent variables), where&#xA;  outcome $k$ is chosen if and only if the associated utility (the&#xA;  value of $Y_{i,k}^{\ast}$) is greater than the utilities of&#xA;  all the other choices, i.e. if the utility associated with outcome&#xA;  $k$ is the maximum of all the utilities. Since the latent variables&#xA;  are continuous, the probability of two having&#xA;  exactly the same value is 0, so we ignore the scenario. That is:&lt;/p&gt;&#xA;  &#xA;   \begin{align} \Pr(Y_i = 1) &amp;amp;= \Pr(Y_{i,1}^{\ast} &amp;gt;&#xA; Y_{i,2}^{\ast} \text{ and } Y_{i,1}^{\ast} &amp;gt; Y_{i,3}^{\ast}\text{ and&#xA; } \cdots \text{ and } Y_{i,1}^{\ast} &amp;gt; Y_{i,K}^{\ast}) \\ \Pr(Y_i = 2)&#xA; &amp;amp;= \Pr(Y_{i,2}^{\ast} &amp;gt; Y_{i,1}^{\ast} \text{ and } Y_{i,2}^{\ast} &amp;gt;&#xA; Y_{i,3}^{\ast}\text{ and } \cdots \text{ and } Y_{i,2}^{\ast} &amp;gt;&#xA; Y_{i,K}^{\ast}) \\ \cdots &amp;amp; \\ \Pr(Y_i = K) &amp;amp;= \Pr(Y_{i,K}^{\ast} &amp;gt;&#xA; Y_{i,1}^{\ast} \text{ and } Y_{i,K}^{\ast} &amp;gt; Y_{i,2}^{\ast}\text{ and&#xA; } \cdots \text{ and } Y_{i,K}^{\ast} &amp;gt; Y_{i,K-1}^{\ast}) \\&#xA; \end{align} &#xA;  &#xA;  &lt;p&gt;Or equivalently:&lt;/p&gt;&#xA;  &#xA;   \begin{align} \Pr(Y_i = 1) &amp;amp;=&#xA; \Pr(\max(Y_{i,1}^{\ast},Y_{i,2}^{\ast},\ldots,Y_{i,K}^{\ast})=Y_{i,1}^{\ast})&#xA; \\ \Pr(Y_i = 2) &amp;amp;=&#xA; \Pr(\max(Y_{i,1}^{\ast},Y_{i,2}^{\ast},\ldots,Y_{i,K}^{\ast})=Y_{i,2}^{\ast})&#xA; \\ \cdots &amp;amp; \\ \Pr(Y_i = K) &amp;amp;=&#xA; \Pr(\max(Y_{i,1}^{\ast},Y_{i,2}^{\ast},\ldots,Y_{i,K}^{\ast})=Y_{i,K}^{\ast})&#xA; \\ \end{align} &#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Edit:&lt;/strong&gt;&#xA;Sometimes you'll see notation like this:&#xA;$$&#xA;Pr( i \rightarrow k) = \Pr(\max(Y_{i,1}^{\ast},Y_{i,2}^{\ast},\ldots,Y_{i,K}^{\ast})=Y_{i,k}^{*}),&#xA;$$ &#xA;where $i \rightarrow k$ means that individual $i$ chooses choice $k$, is fairly concise once the appropriate notation is defined. &#xA;If you're looking for a useful way to put this into a likelihood function, you might see something like this:&#xA;$$&#xA;P_i = \prod_{k=1}^K Pr( i \rightarrow k)^{\mathbb 1_{i \rightarrow k}}, &#xA;$$&#xA;where $\mathbb 1_{i \rightarrow k}$ is an indicator function that is equal to 1 when $i$ chooses choice $k$ and zero otherwise and $P_i$ is the PMF of the observation associated with individual $i$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Edit 2:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For an explicit formula, see the same Wikipedia article. Check out, for instance, the section with the following:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;As a result, it is conventional to set $C = -\boldsymbol\beta_K$ (or alternatively, one of the other coefficient vectors).  Essentially, we set the constant so that one of&#xA;  the vectors becomes 0, and all of the other vectors get transformed&#xA;  into the difference between those vectors and the vector we chose. &#xA;  This is equivalent to &quot;pivoting&quot; around one of the $K$ choices, and&#xA;  examining how much better or worse all of the other $K-1$ choices&#xA;  are, relative to the choice are pivoting around.  Mathematically, we&#xA;  transform the coefficients as follows:&lt;/p&gt;&#xA;  &#xA;   \begin{align} \boldsymbol\beta'_1 &amp;amp;= \boldsymbol\beta_1 -&#xA; \boldsymbol\beta_K \\ \cdots &amp;amp; \cdots \\ \boldsymbol\beta'_{K-1} &amp;amp;=&#xA; \boldsymbol\beta_{K-1} - \boldsymbol\beta_K \\ \boldsymbol\beta'_K &amp;amp;=&#xA; 0 \end{align} &#xA;  &#xA;  &lt;p&gt;This leads to the following equations:&lt;/p&gt;&#xA;  &#xA;   \begin{align} \Pr(Y_i=1) &amp;amp;= \frac{e^{\boldsymbol\beta'_1 \cdot&#xA; \mathbf{X}_i}}{1 + \sum_{k=1}^{K-1} e^{\boldsymbol\beta'_k \cdot&#xA; \mathbf{X}_i}} \, \\ \cdots &amp;amp; \cdots \\ \Pr(Y_i=K-1) &amp;amp;=&#xA; \frac{e^{\boldsymbol\beta'_{K-1} \cdot \mathbf{X}_i}}{1 +&#xA; \sum_{k=1}^{K-1} e^{\boldsymbol\beta'_k \cdot \mathbf{X}_i}} \, \\&#xA; \Pr(Y_i=K) &amp;amp;= \frac{1}{1 + \sum_{k=1}^{K-1} e^{\boldsymbol\beta'_k&#xA; \cdot \mathbf{X}_i}} \, \\ \end{align} &#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="59" LastEditorUserId="59" LastEditDate="2017-10-16T16:27:18.533" LastActivityDate="2017-10-16T16:27:18.533" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18767" PostTypeId="2" ParentId="18758" CreationDate="2017-10-16T14:24:30.400" Score="0" Body="&lt;p&gt;You are asking for a &quot;thing&quot; which value is unrelated to the malleable economic and social system to which it belongs. This is impossible, because &lt;strong&gt;the value of anything is a social construct that cannot be disentangled from its context&lt;/strong&gt;. Prices are one mechanism in which such valuations are represented and aggregated via markets. As the conditions under which markets operate change, prices will change too. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, the &lt;a href=&quot;https://en.wikipedia.org/wiki/Quantity_theory_of_money&quot; rel=&quot;nofollow noreferrer&quot;&gt;Quantitative theory of money&lt;/a&gt; states that the price of goods and services ($P$) depend on the amount of money ($M$) and goods ($Y$) available in a given time, together with the technological and institutional conditions of society ($v$):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ Mv = PQ $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For changes in any of these variables, prices of things will change.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another important reason why the value of everything is bound to change relates to the concept of &lt;strong&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Opportunity_cost&quot; rel=&quot;nofollow noreferrer&quot;&gt;opportunity cost&lt;/a&gt;&lt;/strong&gt;. As the social and economic system changes, the opportunity cost of everything changes too. For example, if suddenly the wage you could earn for the same number of hours doubles, the value of all things that you could do with such time (e.g. leisure, voting, studying, etc) changes too. This will affect not only you but other individuals and hence impact market goods and services - and prices.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the answer is no.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-10-16T14:31:16.330" LastActivityDate="2017-10-16T14:31:16.330" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18768" PostTypeId="2" ParentId="18752" CreationDate="2017-10-16T15:28:18.903" Score="4" Body="&lt;p&gt;I think that this article might be helpful:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;“Exotic Preferences for Macroeconomists”&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.nber.org/chapters/c6672.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.nber.org/chapters/c6672.pdf&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;They give a thorough explanation of many preference functionals and show their usefulness with macroeconomic applications.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Im not a specialist in macroeconomics, so I dont know the literature that well, but I think that the most used preferences nowadays are the Epstein-Zin preferences. The article I cite discusses thoroughly their properties. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A nice thing this paper has is that it contains detailed comments  from Peter Lars Hansen and Ivan Werning among others at the back.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope it helps! &lt;/p&gt;&#xA;" OwnerUserId="10166" LastActivityDate="2017-10-16T15:28:18.903" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="18772" PostTypeId="2" ParentId="18753" CreationDate="2017-10-17T00:58:53.387" Score="1" Body="&lt;p&gt;Town represents manufacturing and it's where a lot exchanges taking place. Country represents farming. The movement of antithesis symbolizes the urbanization of civilizations as economy progresses.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As an economy progresses, people will move from rural area into the cities. Labour associated with agriculture will decrease, at the same time, workforce in manufacturing and services industries will increase. &lt;/p&gt;&#xA;" OwnerUserId="5194" LastActivityDate="2017-10-17T00:58:53.387" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18775" PostTypeId="1" CreationDate="2017-10-17T04:13:47.863" Score="2" ViewCount="568" Body="&lt;p&gt;As you can see from the graph, the LRATC doesn't touch the SRATC curves when they're at their minimum. Why is this so? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/jB6Ln.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/jB6Ln.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="14877" LastActivityDate="2017-10-18T20:58:29.867" Title="Why is the long-run average production cost not necessarily the same as the minimum average total cost?" Tags="&lt;microeconomics&gt;&lt;theory-of-the-firm&gt;" AnswerCount="2" CommentCount="0" ClosedDate="2021-05-07T22:29:23.983" ContentLicense="CC BY-SA 3.0" />
  <row Id="18776" PostTypeId="1" AcceptedAnswerId="18840" CreationDate="2017-10-17T04:25:04.370" Score="0" ViewCount="31" Body="&lt;p&gt;Is anything special expected of insurance companies after a natural disaster? Many different sectors have to cooperate to put affected urban communities back together. Recently there are reports of labor shortages that has stunted the rebuilding of some of the cities affected by the hurricane season of 2017. Likewise, I was wondering if there would also be a strain on the available insurance. Are there ever concerns about insurance shortages? The insurance companies typically try to create a &quot;healthy&quot; risk pool, but if several natural disasters hit, are they still expected to function as normal? Perhaps, insurance companies have policies in place for extremely uncommon events that are massive in scale, which may result in massive claims? Is there a historical precedent for how many natural disasters it takes for the insurance companies to &quot;throw in the towel?&quot; Let's assume the majority of victims have insurance (flood, house, ect).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I had in mind the case of the US/Caribbean in light of the recent hurricanes, but any country / case study will be acceptable as an answer as long as it is clearly explained. &lt;/p&gt;&#xA;" OwnerUserId="12212" LastActivityDate="2017-10-20T07:18:51.713" Title="Insurance Company's Role after Natural Distaster" Tags="&lt;macroeconomics&gt;&lt;finance&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18777" PostTypeId="1" CreationDate="2017-10-17T04:30:42.827" Score="0" ViewCount="65" Body="&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/List_of_tram_and_light_rail_transit_systems&quot; rel=&quot;nofollow noreferrer&quot;&gt;This list&lt;/a&gt; suggests that tram systems are massively unpopular in most of the countries outside the Western sphere.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why is not tram popular in most countries?&lt;/p&gt;&#xA;" OwnerDisplayName="user13954" LastEditorUserId="2776" LastEditDate="2017-10-17T10:56:50.070" LastActivityDate="2017-10-17T10:56:50.070" Title="Why is not tram popular in most countries?" Tags="&lt;infrastructure&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ClosedDate="2017-10-17T16:38:16.433" ContentLicense="CC BY-SA 3.0" />
  <row Id="18778" PostTypeId="2" ParentId="17066" CreationDate="2017-10-17T06:08:11.173" Score="2" Body="&lt;p&gt;This is an interesting question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Firstly, I think it would be better to look at rents than housing supply. Rents are the aspect of home ownership that is 'consumed' whereas there is an investment element to home ownership.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Housing, as an investment class, is characterised by low vacancy and low yields. The reason for the low vacancy is that future demand is well known (for the most part). Population growth tends to be a pretty stable, and causal, driver of demand.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Housing prices, on the other hand, tend to be more of a function of how much people can borrow, and, as a result, are influenced hugely by macroeconomic conditions. Low-interest rates, like we are seeing in much of the world, allow people to borrow more money.&lt;/p&gt;&#xA;" OwnerUserId="40" LastActivityDate="2017-10-17T06:08:11.173" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="18779" PostTypeId="1" CreationDate="2017-10-17T06:11:06.537" Score="3" ViewCount="1519" Body="&lt;p&gt;I realise that subsidies cause allocative inefficiency if the market was already allocation efficient pre-subsidy due to deadweight loss.. but is this always true? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;what if the subsidy was granted due to market failure (as is usually the case), that would mean that granting the subsidy would improve allocative efficiency, right? In this situation, does it still cause a certain degree of deadweight loss?&lt;/p&gt;&#xA;" OwnerUserId="14877" LastActivityDate="2017-10-17T07:28:27.070" Title="Do granting subsidies always cause allocative inefficiency?" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18780" PostTypeId="1" AcceptedAnswerId="18781" CreationDate="2017-10-17T06:40:03.510" Score="1" ViewCount="413" Body="&lt;p&gt;I have a question about the following definition of a continuous preference relation. I apologize for not providing a reference and will try to add one as soon as I can find one.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Definition:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A preference relation is continuous &lt;strong&gt;if&lt;/strong&gt; for all sequences x_n, y_n with x_n converges to x and y_n converges to y as n goes to infinity and x_n is at least as good as y_n for all n, then this must also hold for the limits x and y.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My simple question is:&#xA;Is the &lt;strong&gt;if&lt;/strong&gt; an iff or only an if? That is, say this condition (or definition?) above is not ful-filled, can I infer that the preference relation is not continuous or might it still be continuous?&lt;/p&gt;&#xA;" OwnerUserId="11518" LastActivityDate="2017-10-17T07:22:49.630" Title="Continuity of preference relation (iff?)" Tags="&lt;microeconomics&gt;&lt;preferences&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18781" PostTypeId="2" ParentId="18780" CreationDate="2017-10-17T07:22:49.630" Score="3" Body="&lt;p&gt;This is a definition. Definitions are always iff.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider this property. From now on we call this and exactly this (name of the concept here).&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2017-10-17T07:22:49.630" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="18782" PostTypeId="2" ParentId="18779" CreationDate="2017-10-17T07:28:27.070" Score="2" Body="&lt;p&gt;Your intuition is correct: in cases of market failure when the price under-represents the marginal value to society as a whole (for example if positive externalities are present) then granting the subsidy would improve allocative efficiency. As long as the subsidy is not greater than the positive externality, then the only loss in that case arises from the overhead in managing the subsidy - the bureaucratic cost. This is typically less than the inefficiency resulting from the market failure, so society gets a net gain from the subsidy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The same thing applies with taxes and negative externalities. For the original work on this, see Pigou's seminal &quot;The Economics of Welfare&quot; (1924)&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2017-10-17T07:28:27.070" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18783" PostTypeId="2" ParentId="18777" CreationDate="2017-10-17T07:46:17.637" Score="1" Body="&lt;p&gt;My guess: high investment costs, low gains relative to alternatives such as buses. You need rails and electric lines, which are expensive. In the western hemisphere trams already existed before alternatives such as large buses came about, so the costs consist mainly of maintenance. In other parts of the world the infrastructure is not in place, and getting it is expensive. For buses the infrastructure is already there as all you need is a decent road. &lt;/p&gt;&#xA;" OwnerUserId="12186" LastActivityDate="2017-10-17T07:46:17.637" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18784" PostTypeId="2" ParentId="18775" CreationDate="2017-10-17T08:02:09.043" Score="1" Body="&lt;p&gt;Denesp's comment is your full answer: it's a badly-drawn chart which fails to do its one job, that was to illustrate that the long-run cost curve consists of joining up the minima of the short-run cost curves.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2017-10-17T08:02:09.043" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18785" PostTypeId="1" CreationDate="2017-10-17T10:08:41.533" Score="3" ViewCount="123" Body="&lt;p&gt;I live in Asia where the inflation rate is approximately around 4.5-6% (average) in last 10 years. If in the next 10 years I plan to buy a house in other country (any country which I have the currency). Should I choose to buy the currency which have the lowest inflation rate?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, if I hold US Dollar 100,000 right now, and I can buy a house. But with the inflation rate of 1.3% in 10 years the price will be approximately 13% (USD13,000). Means my money will not enough and I must add 13,000.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, If I hold JPY 11,000,000 right now and I can buy house too right now, with the inflation rate of 0.1%. it will be only 1% increase in next 10 years (about 110,000 JPY). It's not so much.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, Is my idea correct?&lt;/p&gt;&#xA;" OwnerUserId="14879" LastEditorUserId="2776" LastEditDate="2017-10-17T10:56:19.833" LastActivityDate="2018-12-12T03:03:30.683" Title="Inflation, Future, And Value of Money - deciding to buy a house" Tags="&lt;inflation&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18786" PostTypeId="1" CreationDate="2017-10-17T12:53:18.617" Score="2" ViewCount="82" Body="&lt;p&gt;Nowadays, when trying to model (log)technology $a_t$, I've seen many times the following: $a_t = \rho a_{t-1}+\epsilon$, where epsilon is given a certain probability distribution. What does it mean for $|\rho|&amp;lt;1$? I know that in this way, the time series is stationary. My question is related towards more the interpretation. With such a $rho$ does this mean that our technological discoveries are being lost in time? We're forgetting our past? or That the discoveries give a surge of increase in 'productivity', but then the 'productivity' decreases...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="118" LastEditDate="2017-10-17T14:02:38.957" LastActivityDate="2017-10-17T16:40:47.027" Title="What does it mean for a technology to have a $|\rho|&lt;1$?" Tags="&lt;macroeconomics&gt;&lt;new-keynesian-economics&gt;&lt;technology&gt;&lt;rbc&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18788" PostTypeId="2" ParentId="18744" CreationDate="2017-10-17T14:03:08.970" Score="1" Body="&lt;p&gt;The first equality, as you've already found, equates $A$'s and $B$'s MRSs. The last equality comes from setting the marginal rate of transformation $MRT_{XY}$ between $X$ and $Y$ to the common MRS. For a production function with a single input and a single output, $MRT_{XY}$ is equal to $MP_X$, the marginal product of the input good $X$. That is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ MRT_{XY} = \frac{1}{2}\sqrt\frac{5}{X}. $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For details, see Mas-Colell, Whinston and Green (1995), section 16.F.&lt;/p&gt;&#xA;" OwnerUserId="8595" LastActivityDate="2017-10-17T14:03:08.970" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18789" PostTypeId="1" CreationDate="2017-10-17T15:02:53.167" Score="4" ViewCount="779" Body="&lt;p&gt;I was wondering what software/libraries everyone uses to simulate games? For instance finding the Nash Equilibrium. I see that Gambit is a popular one, but I was wondering if there are any other good ones? (good=robust, reliable and not slow)&lt;/p&gt;&#xA;" OwnerUserId="14882" LastEditorUserId="42" LastEditDate="2017-10-17T23:05:58.440" LastActivityDate="2017-10-17T23:19:15.077" Title="Game theory software" Tags="&lt;game-theory&gt;&lt;nash-equilibrium&gt;&lt;software&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="18790" PostTypeId="1" AcceptedAnswerId="18792" CreationDate="2017-10-17T15:25:39.170" Score="4" ViewCount="1498" Body="&lt;p&gt;&lt;a href=&quot;https://www.theguardian.com/books/2016/apr/15/neoliberalism-ideology-problem-george-monbiot&quot; rel=&quot;nofollow noreferrer&quot;&gt;This article&lt;/a&gt; claims Hayek endorsed competition regulation:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;As it evolved, neoliberalism became more strident. Hayek’s view that governments should regulate competition to prevent monopolies from forming gave way – among American apostles such as Milton Friedman – to the belief that monopoly power could be seen as a reward for efficiency.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In which work did Hayek advance such view?&lt;/p&gt;&#xA;" OwnerUserId="6099" LastEditorUserId="1601" LastEditDate="2019-04-21T08:31:56.950" LastActivityDate="2019-04-21T08:31:56.950" Title="Hayek's defense of competition regulation" Tags="&lt;monopoly&gt;&lt;competition&gt;&lt;regulation&gt;&lt;austrian&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18792" PostTypeId="2" ParentId="18790" CreationDate="2017-10-17T15:45:38.287" Score="3" Body="&lt;p&gt;&lt;a href=&quot;http://www.law.nyu.edu/sites/default/files/ECM_PRO_060889.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;This article&lt;/a&gt; states:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In  both  of  his  seminal  works  in  political  theory, &#xA;  &lt;em&gt;The  Constitution  of  Liberty&lt;/em&gt;  and &lt;em&gt;Law, Legislation and Liberty&lt;/em&gt;, Hayek endorsed as a legitimate function of the state the  power  to  regulate  monopolies  and  curtail  industry  practices  in  restraint  of  trade. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;For example, in the first book, in Chapter 15, Hayek declares the importance of the &lt;em&gt;nature&lt;/em&gt; of government intervention:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/VsWHd.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/VsWHd.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Notice that Hayek considered trade unions as workers' monopolistic institutions that damaged free market. Hence, in his view, these are undesirable. In Chapter 18 of the above books it says:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/8vwKY.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/8vwKY.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;More on monopoly is in Chapter 17:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/tJccS.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/tJccS.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/5Cb1r.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/5Cb1r.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-10-17T19:41:43.390" LastActivityDate="2017-10-17T19:41:43.390" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18793" PostTypeId="2" ParentId="18786" CreationDate="2017-10-17T15:51:33.090" Score="0" Body="&lt;p&gt;when $|\rho|&amp;lt;1$, it means that that &lt;em&gt;specific&lt;/em&gt; shock loses its influence over time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;for example, upon invention of the car engine there was a productivity shock to the transportation of goods and services. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As innovation and integration of newer transportation technology occurs (i.e. development of a newer and better engine,development of different transportation options) the original engine's contribution to an economy's level of technology loses its influence over time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In short it tells us that as time moves on the integration of a specific technology has a diminishing returns to an economy's level of technological development.&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="118" LastEditDate="2017-10-17T16:40:47.027" LastActivityDate="2017-10-17T16:40:47.027" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18794" PostTypeId="2" ParentId="18786" CreationDate="2017-10-17T16:12:46.560" Score="2" Body="&lt;p&gt;New technology makes past technology obsolete. How many people know these days how to light a fire by rubbing wood together? How many people know the nuts and bolts of tending to the engine of a train powered by coal? Heck, how many coal-trains are still operational?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So yes, we do forget our past discoveries and technologies, as they are replaced by new ones. But the technology as inserted in the production function, operates as a production shifter, a &quot;mark-up&quot;, it does not represent the composition of technology, but rather its final effect on the production inputs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Modeling the technological production shifter as a stationary auto-regressive scheme (&lt;em&gt;without&lt;/em&gt; drift), we essentially assume that, random shocks aside, we are set today to produce less efficiently than yesterday.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does this accord with observed reality? Do we depend on positive random discoveries to produce more efficiently? My impression is that, on the contrary, humans very purposefully try to make their production processes more efficient.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, if you were to add a &lt;em&gt;drift&lt;/em&gt; (a constant term) in the log-technology process,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$a_t = \delta + \rho a_{t-1}+\epsilon_t$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;you would capture, the rising trend in efficiency we have observed historically, and also implicitly, the fact that we discard old technologies.&#xA;This also has the benefit that it envisions rising efficiency while also, an eventual level-off (which seems wise to me).&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2017-10-17T16:12:46.560" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18795" PostTypeId="2" ParentId="18789" CreationDate="2017-10-17T16:22:23.767" Score="6" Body="&lt;p&gt;I have used &lt;a href=&quot;http://gambit.sourceforge.net/gambit15/gui.html&quot; rel=&quot;noreferrer&quot;&gt;gambit&lt;/a&gt; (python) in the past and could recommend it. It also includes a small &lt;a href=&quot;http://gambit.sourceforge.net/gambit15/gui.html&quot; rel=&quot;noreferrer&quot;&gt;GUI&lt;/a&gt; which makes things very intuitive.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;R also has &lt;a href=&quot;https://cran.r-project.org/web/packages/GameTheory/index.html&quot; rel=&quot;noreferrer&quot;&gt;GameTheory&lt;/a&gt; if you prefer this platform instead&lt;/p&gt;&#xA;" OwnerUserId="14419" LastActivityDate="2017-10-17T16:22:23.767" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18797" PostTypeId="2" ParentId="18785" CreationDate="2017-10-17T18:14:42.547" Score="1" Body="&lt;p&gt;If a country has a lower inflation rate than your country, it's &lt;strong&gt;currency will tend to appreciate&lt;/strong&gt; against your currency over time, see &lt;a href=&quot;http://www.investopedia.com/terms/i/interestrateparity.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;interest rate parity&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is true that if inflation is low, house prices will tend to increase less over the next ten years, however, the currency will tend to appreciate, making it more expensive to buy a house in ten years time.&lt;/p&gt;&#xA;" OwnerUserId="14137" LastActivityDate="2017-10-17T18:14:42.547" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18800" PostTypeId="2" ParentId="17066" CreationDate="2017-10-17T22:08:20.433" Score="2" Body="&lt;p&gt;Increased supply will reduce the cost of housing (best measured by rents), all else equal.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The 'all else equal' is important. Other things can be going on (like rising population and incomes) that increase the cost of housing even as increased supply tends to reduce it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You could make an argument about induced demand. There may be latent demand to live in a city. The increased supply induces those who could not live in the city before to move there, driving up the cost of housing. Conceptually you can separate increased supply (reducing the cost of housing) and the subsequent increase in population (increasing the cost of housing).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Empirically, I expect there to be many cases where the cost of housing has increased with rising supply. This is because of effects other than the direct effect of increased supply decreasing the cost of housing.&lt;/p&gt;&#xA;" OwnerUserId="12371" LastActivityDate="2017-10-17T22:08:20.433" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18801" PostTypeId="2" ParentId="18789" CreationDate="2017-10-17T23:19:15.077" Score="5" Body="&lt;p&gt;&lt;a href=&quot;http://gte.csc.liv.ac.uk/index/&quot; rel=&quot;noreferrer&quot;&gt;&lt;strong&gt;Game theory explorer (GTE)&lt;/strong&gt;&lt;/a&gt; offers a web-based solver that searches for Nash equilibria of the inputted games. &lt;a href=&quot;http://www.maths.lse.ac.uk/Personal/stengel/TEXTE/largeongte.pdf&quot; rel=&quot;noreferrer&quot;&gt;Its documentation&lt;/a&gt; highlights the main differences between GTE and Gambit: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Gambit has been developed over the course of nearly 25 years and&#xA;  presents a library of solution algorithms, formats for storing games,&#xA;  ways to program the creation of games with the help of the Python&#xA;  programming language, and a GUI for creating game trees. It is&#xA;  open-source software that is free to use and that can be extended by&#xA;  anyone. Given the mature state of Gambit and the joint research&#xA;  interests and close contacts with its developers, it is clear that any&#xA;  improvements offered by GTE should eventually be integrated into&#xA;  Gambit.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;[...]&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The main difference of GTE to Gambit is the provided access to the&#xA;  software and the user interface. In terms of access, Gambit needs to&#xA;  be downloaded and installed; it is offered on the main personal&#xA;  computing platforms Windows, Linux or Mac. Getting the program to run&#xA;  may require some patience and technical experience with software&#xA;  installations, which may present a “barrier to entry” for its use. In&#xA;  contrast, GTE is started in a web browser via the web address&#xA;  &lt;a href=&quot;http://www.gametheoryexplorer.org&quot; rel=&quot;noreferrer&quot;&gt;http://www.gametheoryexplorer.org&lt;/a&gt;. All interaction with the software&#xA;  is via the browser interface. The created games and their output can&#xA;  be saved as files by the user on their local computer. This avoids the&#xA;  technical hurdles of installing software on the user side, and&#xA;  simplifies updating the software.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="42" LastActivityDate="2017-10-17T23:19:15.077" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18804" PostTypeId="2" ParentId="18667" CreationDate="2017-10-18T03:57:23.987" Score="-1" Body="&lt;p&gt;Employment elasticity is the growth of employment relative to growth of Economy. Reforms of 1991 is a shift in era in Indian economic realm. Post Liberalization the major change occurred is the shift in population from agriculture to Manufacturing and Services. India traditionally being an agrarian economy, the low growth and heavy population pressure on land, disguised unemployment have led to people waiting for opportunity to change to a rapid growth environment and liberalisation provided a medium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Despite aspiring for an Industrial economy during Nehruvian era, there was a marginal growth which could not sustain momentum resulting in low productivity in manufacturing as well. Post liberalization period gave an opportunity for people to turn to services with the growth of banking, financial sector, BPO industry, coming of internet. Though new employment opportunities have come but the rapid rise of population, urbanisation have made it mandatory to raise the employment growth. So, unlike expected post liberalisation has led to stagnation in employment growth. With deregulation of sectors and removal of licenses, emergence of private sector and employment in trade and tourism etc also tried to provide employment. But overall Employment Elasticity in India has been flexible till 1991 and post liberalization has made it rigid and sectoral composition to GDP of the country changed especially with rapid growth in services sector and marginal growth in manufacturing, and not much change in agriculture. The low employed industry of services is contributing maximum share to GDP is an evidence that employment elasticity is rigid posing a challenge to the current Indian government and revival of manufacturing through 'Make in India' could be a great opportunity to meet the growing requirements.&lt;/p&gt;&#xA;" OwnerUserId="14890" LastActivityDate="2017-10-18T03:57:23.987" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18805" PostTypeId="1" AcceptedAnswerId="18806" CreationDate="2017-10-18T05:42:35.913" Score="0" ViewCount="65" Body="&lt;p&gt;&lt;strong&gt;Developed Economy&lt;/strong&gt; = low human capital flight, good infrastructure, low corruption, high per-capita income, dominated by hi-tech industry, high expenditure in R&amp;amp;D, high-quality higher education, high-quality health care, and so on.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Developing Economy&lt;/strong&gt; = high human capital flight, bad infrastructure, high corruption, mediocre per-capita income, dominated by agriculture or service sector, not enough expenditure in R&amp;amp;D, low quality higher education, low life expectancy, and so on.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is the first sign that a country is transitioning from a developing to a developed economy? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we want to point to 'only one sign', what would that be?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And, Why?&lt;/p&gt;&#xA;" OwnerDisplayName="user13954" LastEditorDisplayName="user13954" LastEditDate="2017-10-18T07:05:24.960" LastActivityDate="2017-10-18T13:14:18.833" Title="What is the prime sign that a country is transitioning from a developing to a developed economy?" Tags="&lt;development&gt;" AnswerCount="1" CommentCount="8" ClosedDate="2017-10-21T15:32:10.890" ContentLicense="CC BY-SA 3.0" />
  <row Id="18806" PostTypeId="2" ParentId="18805" CreationDate="2017-10-18T13:14:18.833" Score="0" Body="&lt;p&gt;I don't know what the '&lt;em&gt;first sign that a country is transitioning from a developing to a developed economy&lt;/em&gt;', but I would look at the rates of output growth and study its acceleration. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a layman's words, a transition from low to high income regime requires convergence to a high income teady state. This is only possible if the growth rate of aggregate output, underpinned by improvements in all aspects of the economy, has been consistently higher than that observed in high income (which you call developed) economies. Transition is complete (or the country achieves a 'developed' status) when the economy's growth rate reaches its long run steady state rate (typically low (&amp;lt;2% p.a.) positive growth rate). &lt;/p&gt;&#xA;" OwnerUserId="6009" LastActivityDate="2017-10-18T13:14:18.833" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18809" PostTypeId="1" CreationDate="2017-10-18T17:42:01.093" Score="1" ViewCount="117" Body="&lt;p&gt;I'm studying for an exam and facing a question about the relationship between the $\alpha$ of the Cobb-Douglas function and the loss of utility of imposing taxes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I have understood correctly, given a function ${X}^{\alpha}Y^{1-\alpha}$, the DWL because of a tax on good X is defined as the lump-sum tax the agent would pay to avoid the tax minus the income from the tax. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The lump-sum tax is $m(1-\frac{p}{p+t}^\alpha)$ where $m$ is the income and $p$ the before-tax price and the income from the tax is $\alpha \frac{m}{p+t} t$ where $\alpha \frac{m}{m+t}$ is the quantity of good X consumed and $t$ is the tax income by unit of x.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Deriving the DWL in Wolfram Alpha I get $\frac{d}{da}=-m\frac{p}{p+t}^\alpha log\frac{p}{p+t} - \frac{mt}{p+t}$, where the first term is always positive for a tax since $\frac{p}{p+t} &amp;lt; 1$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't know how to go from here. Would the answer be that there is no clear effect for a change in $\alpha$ in the DWL? My intuition is that a high value of $\alpha$ means a higher lose of utility for the individual but also a higher income from the tax because MRS is higher and therefore good X can't be easily substituted by good Y. Is that correct?&lt;/p&gt;&#xA;" OwnerUserId="14896" LastEditorUserId="4534" LastEditDate="2017-10-19T05:58:32.403" LastActivityDate="2017-10-19T05:58:32.403" Title="What's the relation between deadweight-loss and alpha in Cobb-Douglas?" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;utility&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18810" PostTypeId="1" AcceptedAnswerId="18830" CreationDate="2017-10-18T19:50:24.503" Score="3" ViewCount="492" Body="&lt;p&gt;Probably this question is really dumb - and I'm sorry if it is - but why solving the model for a benevolent social planner, gives an efficient allocation?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What's the criteria for this efficiency?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm asking this because in several NK models in macro, when we're comparing the 'desirability' of &lt;em&gt;simple rules&lt;/em&gt;, we take as efficient the allocation obtained from solving the model as stated above.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="2776" LastEditDate="2017-10-19T20:07:43.483" LastActivityDate="2019-11-14T16:27:31.830" Title="Why solving the model for a benevolent social planner gives an efficient allocation?" Tags="&lt;macroeconomics&gt;&lt;new-keynesian-economics&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18811" PostTypeId="1" AcceptedAnswerId="18813" CreationDate="2017-10-18T20:17:29.253" Score="13" ViewCount="2390" Body="&lt;p&gt;A little head-scratcher (and a good example why we should be careful with notation).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider a profit maximizing monopoly, that solves over price &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\max \pi = PQ(P) - C(Q(P)) \tag{1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Following the routine steps (&lt;strong&gt;&lt;a href=&quot;https://economics.stackexchange.com/a/1728/61&quot;&gt;see this post&lt;/a&gt;&lt;/strong&gt;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;we arrive at the important result that, at the profit maximizing price, the price elasticity of demand should be higher than $1$ in absolute terms, or lower than $-1$ in algebraic terms. Namely at the profit-maximizing price we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\eta^* = \frac {\partial Q }{ \partial P}\cdot \frac {P}{Q} &amp;lt;-1 \Rightarrow \frac {\partial Q }{ \partial P}P &amp;lt;-Q$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Rightarrow \frac {\partial Q }{ \partial P}P +Q &amp;lt;0 \tag{2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But $\frac {\partial Q }{ \partial P}P +Q$ is the derivative of $PQ(P)$ and $PQ(P) = TR$, Total Revenue. So $\frac {\partial Q }{ \partial P}P +Q = MR$, Marginal Revenue and we just obtained that at the profit maximizing price and in order to have elasticity greater than $1$ in absolute terms, we must have $MR^* &amp;lt;0$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But we also now that at the profit maximizing point we have $MR^*=MC^*&amp;gt;0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;So a solution does not exist, and therefore we conclude that monopolies are just a mathematical misunderstanding.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, I went into the trouble(?) to write this smirking post, I hope somebody will go into the few dozens of seconds required to write a clear answer to point out where the trick lies.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2020-11-11T12:48:07.630" Title="Monopolies are just a mathematical misunderstanding" Tags="&lt;monopoly&gt;&lt;profit-maximization&gt;" AnswerCount="2" CommentCount="10" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="18812" PostTypeId="2" ParentId="18775" CreationDate="2017-10-18T20:58:29.867" Score="1" Body="&lt;p&gt;There is a nice explanation, just take a look at the source &lt;a href=&quot;http://www.economicsdiscussion.net/cost/short-run-and-long-run-average-cost-curve/25523&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="6009" LastActivityDate="2017-10-18T20:58:29.867" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18813" PostTypeId="2" ParentId="18811" CreationDate="2017-10-18T21:41:46.680" Score="18" Body="&lt;p&gt;$PQ(P)=TR$, Total Revenue. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac{∂Q}{∂P}P+Q$ is the derivative of $PQ(P)$ &lt;em&gt;with respect to $P$&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$MR$, Marginal Revenue, is the derivative of $TR$ &lt;em&gt;with respect to $Q$&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So in general $\frac{∂Q}{∂P}P+Q \neq MR$&lt;/p&gt;&#xA;" OwnerUserId="1417" LastActivityDate="2017-10-18T21:41:46.680" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18814" PostTypeId="1" AcceptedAnswerId="18815" CreationDate="2017-10-18T23:17:27.103" Score="2" ViewCount="416" Body="&lt;p&gt;I've been working with some historical macroeconomic data of the Canadian economy and am having difficulty empirically testing the Phillips curve long run and short run versions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I got the data from FRED, logged the variables and then plotted them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The results are unsatisfactory; the scatter plot I have is:&lt;br&gt;&#xA;&lt;a href=&quot;https://i.stack.imgur.com/6eeHH.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/6eeHH.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A shape which is looking like a bow, going up right and then back.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I tried using fitting the data using a loess curve again yielding unsatisfactory results.&lt;a href=&quot;https://i.stack.imgur.com/lB4oh.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/lB4oh.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Im probably not doing something right as the data does not seem to fit with either the short run or long run versions of what the Phillips curve represents.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;So to offically crown myself as conspiracy theorist of the day on Economics.SE (which is probably a problem for a mod):&lt;/em&gt;&lt;br&gt;&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Does this analysis disprove both the long run and short run Phillips curve?&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;&lt;sub&gt;*&lt;em&gt;for Canada&lt;/em&gt;?&lt;/sub&gt;&lt;br&gt;&#xA;&lt;sub&gt;&lt;sub&gt;** what is incorrect in this analysis?&lt;/sub&gt;&lt;/sub&gt;&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="2776" LastEditDate="2017-10-19T06:14:06.747" LastActivityDate="2018-01-17T07:51:40.523" Title="Testing the long run phillips curve / Contradicting empirical results?" Tags="&lt;macroeconomics&gt;&lt;inflation&gt;&lt;applied-econometrics&gt;&lt;unemployment&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="18815" PostTypeId="2" ParentId="18814" CreationDate="2017-10-19T06:09:50.750" Score="1" Body="&lt;p&gt;You are assuming the PC has not shifted over the period. For example, you can see at the top right some sort of PC. To see this better, you need first to analyse the data in evidence for regime shifts. The first suggestion is to connect the points over time. US example below:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/LvRaj.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/LvRaj.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This will let you see possible structural changes in the PC, together with movements between two PCs. This gif shows this more clearly:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/N8COS.gif&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/N8COS.gif&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Knowing the monetary and economic history of Canada should certainly help you understand the movement and changes of the PC. For example, you cannot expect the PC to hold over the oil crisis period, where the economy was basically in &lt;a href=&quot;https://en.wikipedia.org/wiki/Stagflation&quot; rel=&quot;nofollow noreferrer&quot;&gt;stagflation&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Once you identify sub-periods, estimate the PC for each subperiod. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A paper from the Central Bank of Canada estimating the PC and its regime shifts can be found &lt;a href=&quot;https://www.banqueducanada.ca/wp-content/uploads/2010/02/wp03-32.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;. Notice that standard analysis of PC are much more elaborated than a simply bivariate correlation. Strictly speaking, you are assuming there is no other variable involved in the correlation. The example of structural changes might for example be captured with changes in a variable you are omitting.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;PS: I gave an answer to a related question &lt;a href=&quot;https://economics.stackexchange.com/questions/16407/how-do-i-verify-philips-curve-empirically-for-recent-years/16413#16413&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastEditorUserId="2776" LastEditDate="2017-10-19T06:16:59.450" LastActivityDate="2017-10-19T06:16:59.450" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18816" PostTypeId="1" AcceptedAnswerId="18819" CreationDate="2017-10-19T08:30:57.667" Score="0" ViewCount="116" Body="&lt;p&gt;I have this production function:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$P(x_1,x_2)=x_1+x_1*x_2$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am trying to find the elasticity of substitution, and I found this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\sigma = -\frac{d \ln (\frac{x_2}{x_1})}{d \ln(\frac{x_1}{1+x_2})}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then I have these conditions:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$x_1 &amp;gt;0$ and $x_2=0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When putting this numbers in, I have ln (0) which is not possible, what is the interpretation of this elasticity of substitution?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Will the elasticity be zero or infinity?&lt;/p&gt;&#xA;" OwnerDisplayName="user14906" LastEditorUserId="8815" LastEditDate="2017-10-27T02:58:48.407" LastActivityDate="2017-10-27T23:24:37.063" Title="Interpretation: Elasticitity of Substitution" Tags="&lt;microeconomics&gt;&lt;elasticity&gt;&lt;production-function&gt;&lt;elasticity-of-substituion&gt;" AnswerCount="1" CommentCount="2" ClosedDate="2017-10-21T01:13:14.580" ContentLicense="CC BY-SA 3.0" />
  <row Id="18818" PostTypeId="2" ParentId="18810" CreationDate="2017-10-19T11:12:38.900" Score="1" Body="&lt;p&gt;At least in environmental and resource economics it is because it internalizes all externalities. If there is only a single person to consider (and the payoff of this person is &quot;made up&quot; of the sum of individual welfare) than by maximizing the sum all externalities get accounted for.&lt;/p&gt;&#xA;" OwnerUserId="12186" LastActivityDate="2017-10-19T11:12:38.900" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18819" PostTypeId="2" ParentId="18816" CreationDate="2017-10-19T11:15:59.647" Score="0" Body="&lt;p&gt;The ratio of marginal products $\frac{\partial P}{\partial x_1}/\frac{\partial P}{\partial x_2}$ (the marginal rate of tech. substitution) is equal to $1/x_1+r$ where $r\equiv x_2/x_1$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The derivative of the &lt;strong&gt;MRS&lt;/strong&gt; &lt;em&gt;wrt&lt;/em&gt; to $r$ ($\frac{d MRS}{d r}$) is equal to $1-\frac{g}{MRS-r}$, where $g\equiv \frac{dln(x_1(r))}{dr}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note how $\frac{dln(MRS)}{dr}$ which is equivalent to $\frac{d MRS/d r}{MRS}$ is equal to $\frac{MRS-r-g}{MRS(MRS-r)}$. Also note how $\frac{dln(r)}{dr}=1/r$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Rearranging the last two relations in order to acquire expressions for $dln(MRS)$ and $dln(r)$ and substituting into the definition of the elasticity of substitution yields $-\frac{MRS(MRS-r)}{(MRS-g-r)r}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, note how $r=0$ when $x_2=0$. Also, $MRS=1/x_1$ when $x_2=0$. The behavior of &lt;strong&gt;σ&lt;/strong&gt; depends of the value of $g\equiv \frac{dln(x_1(r))}{dr}$ at $x_2=0$. If the value of $g$ is defined and is finite and constant then $σ$ approaches $- \infty$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Intuitively, the behavior of $g$ near $x_2=0$ depends on the shape of the isocurves. $g$ denotes the (&lt;em&gt;proportionate&lt;/em&gt;) rate of change in $x_1$ as a result of an &lt;em&gt;infinitesimal&lt;/em&gt; change in $r$. The following graph shows that for values of  $x_2$ near zero (notice the values on the vertical axis), the isocurves are really steep.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/5S174.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/5S174.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Very informally, in this setting, (&lt;em&gt;really&lt;/em&gt;) small changes in $r$-which is equal to the ratio of $x_2/x_1$ (which is equivalent to the tangent of angle $θ$)- have almost no effect on $x_1$. For $Δθ$ approaching zero $Δx_1$ is also small and probably close to zero too. Equivalently and very loosely speaking, in this region $g$ should be close to zero too.&lt;/p&gt;&#xA;" OwnerDisplayName="user14471" LastEditorUserId="4251" LastEditDate="2017-10-27T23:24:37.063" LastActivityDate="2017-10-27T23:24:37.063" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18821" PostTypeId="1" AcceptedAnswerId="18831" CreationDate="2017-10-19T13:29:53.873" Score="1" ViewCount="104" Body="&lt;p&gt;The gibbard-saterthwatie theorem states that a social choice function where truthfullness is a dominant strategy must be dictatorial. However, in a median voting system, with single peaked preferences of voters, truthfullness is a dominant strategy yet it is not dictatorial.&#xA;what is the solution to this contradiction?&lt;/p&gt;&#xA;" OwnerUserId="14910" LastEditorUserId="2776" LastEditDate="2017-10-19T19:30:37.907" LastActivityDate="2017-10-19T19:55:20.593" Title="gibbard-satterthwaite theorem and median voting" Tags="&lt;social-choice&gt;&lt;voting&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18824" PostTypeId="2" ParentId="18701" CreationDate="2017-10-19T14:59:33.437" Score="1" Body="&lt;p&gt;First off, dollars are not the sole determination of wealth.  People can be wealthy by having a large house and a nice car and still have \$0 in the bank.  Dollars hold wealth only because they can be exchanged for goods or services that actually do have value.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;With that being said, let us take a look at what you have asked: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;I understand how it's possible where &lt;strong&gt;one person creates a product that everyone else purchases&lt;/strong&gt; (creating a concentration of wealth). But, then, &lt;strong&gt;that person invests or saves the money, which ultimately gets circulated back into the economy.&lt;/strong&gt; If total money is zero-sum (all saved money is spent, all received money is spent), how does any one actor in the system end up with more money than others? &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The two phrases that I have emphasized above, hold the answer to your question.  In fact, you have almost answered your question in the first phrase.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The only reason that wealth has concentrated in Person A (who creates a product that everyone else purchases) is because everyone else has determined that they would rather have that product than the money that they have.  The benefits of having that product outweigh the benefits of keeping the money.  Many economists would argue that everyone is better off because the seller has improved his life by getting more money and the buyers have improved their lives by getting the better product.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, what does Person A do with the money?  Person A does the exact same thing that everyone else did originally: &lt;strong&gt;he looks for products that he would rather have than money.&lt;/strong&gt;&lt;br&gt;&#xA;In the marketplace, Person B, Person C, and Person D are all selling unique products of their own.  Person A sees value in purchasing the products from Person B and Person D, but values his money more than the product from Person C.  So, Person A purchases from Persons B and D but not from Person C.  This means that the money flows from Person A to Person B and Person D.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This cycle will continue to repeat indefinitely.&lt;br&gt;&#xA;As long as Persons A, B, and D continue to produce products that people value more than money, they will continue to gain wealth.&lt;br&gt;&#xA;On the flip side, as long as Person C does not produce a product that people value more than money, he will not gain wealth.  &lt;/p&gt;&#xA;" OwnerUserId="27" LastActivityDate="2017-10-19T14:59:33.437" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18826" PostTypeId="2" ParentId="18811" CreationDate="2017-10-19T16:53:54.317" Score="5" Body="&lt;p&gt;To complement @AdamBailey to-the-point answer, the purpose of this post was to alert interested readers to the consequences of changing decision-variables in our thinking.&lt;/p&gt;&#xA;&lt;p&gt;We are accustomed to think of Demand as either &amp;quot;price depending on quantity&amp;quot; or &amp;quot;quantity depending on price&amp;quot;. But on the production-cost side, we automatically tend to think of cost depending on quantity, not on selling price.&lt;/p&gt;&#xA;&lt;p&gt;Therefore, being even a bit tediously explicit with notation pays off (ask the guys over dynamic optimization, e.g. &lt;a href=&quot;https://rads.stackoverflow.com/amzn/click/com/0521603684&quot; rel=&quot;nofollow noreferrer&quot; rel=&quot;nofollow noreferrer&quot;&gt;Caputo's book&lt;/a&gt;). In the specific example, the symbols &lt;span class=&quot;math-container&quot;&gt;$TR$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$MR$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$MC$&lt;/span&gt;, do not reveal the decision variable, and this is where the ruse was based. But if, we wrote&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\max \pi = TR[Q(P)] - C[Q(P)]$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;we would clearly signaled that our ultimate decision variable is price, and so&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$f.o.c: \;\;\;MR(Q)\cdot \frac {\partial Q}{\partial P} - MC(Q)\frac {\partial Q}{\partial P} =0 $$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\implies (MR(Q)  - MC(Q))\cdot \frac {\partial Q}{\partial P} =0 \implies MR(Q)  = MC(Q)$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;while also we would clearly see that&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\frac {\partial TR}{\partial P} = MR(Q)\cdot \frac {\partial Q}{\partial P} = \frac {\partial Q}{\partial P}Q + Q$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;and so that the requirement on the price elasticity of demand leads to&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\frac {\partial TR}{\partial P} = MR(P) = \frac {\partial Q}{\partial P}Q + Q &amp;lt; 0 \implies MR(Q)\cdot \frac {\partial Q}{\partial P} &amp;lt; 0 \implies MR(Q) &amp;gt;0$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;(since &lt;span class=&quot;math-container&quot;&gt;$\frac {\partial Q}{\partial P} &amp;lt;0$&lt;/span&gt;). So at the optimal point, marginal revenue &lt;em&gt;with respect to quantity&lt;/em&gt; should be positive, but marginal revenue &lt;em&gt;with respect to price&lt;/em&gt; should be negative.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2020-11-11T12:48:07.630" LastActivityDate="2020-11-11T12:48:07.630" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="18827" PostTypeId="1" CreationDate="2017-10-19T17:25:00.907" Score="1" ViewCount="177" Body="&lt;p&gt;Are there any good textbooks/books for capital flows?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have found some from searching online, but they are a bit older:&#xA;International Capital Flows by Feldstein in 1999&#xA;Capital Flows and Crises by Eichengreen in 2002&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am wondering if there is anything out there that is more recent?&lt;/p&gt;&#xA;" OwnerUserId="14822" LastEditorUserId="2776" LastEditDate="2017-10-19T20:38:24.393" LastActivityDate="2017-12-18T21:51:30.873" Title="Good book on capital flows?" Tags="&lt;reference-request&gt;&lt;open-economy-macro&gt;&lt;capital-mobility&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18828" PostTypeId="1" CreationDate="2017-10-19T19:05:56.533" Score="2" ViewCount="81" Body="&lt;p&gt;Has anyone ever read the book &lt;a href=&quot;https://www.amazon.co.uk/Time-Panel-Econometrics-Hashem-Pesaran/dp/0198759983/ref=sr_1_1?ie=UTF8&amp;amp;qid=1508438977&amp;amp;sr=8-1&amp;amp;keywords=time%20series%20panel%20data%20pesaran&quot; rel=&quot;nofollow noreferrer&quot;&gt;«Time Series and Panel Data Econometrics» by M. Hashem Pesaran&lt;/a&gt;? I'm trying to find a hardcopy near me, but I can't find it anywhere, even in libraries near where I live. Hence this question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How would you compare the treatment of the subject by him, and Hayashi or Wooldridge? For me the main good points in Hayashi was the mathematical clearness, and rigour. Every demonstration was very rigorous. However, the intuition for the use of certain objects like Instrument Variables, Panel Data, etc. was a bit lacking, also his treatment of time series was almost inexistent. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;With respect to Wooldridge, I really like the intuition he gives, but contrary to Hayashi, the proofs are not very rigorous, sometimes lacking in important(at least for me...) details. Also, he defines certain concepts in a very specific context, instead of giving a general definition and working with it right from the start. It's almost too ad-hoc. Also, there's almost no clear separation in the cycle: Motivation-&gt;Theorem-&gt;Proof-&gt;Examples/Properties-&gt;More Examples.( Repeat as needed)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Well this was the opinion I made after reading most of Hayashi, and a few hundred pages from Wooldridge. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can someone help me to by telling me how the book by Pesaran would fit in the scale for someone who has this opinion on Hayashi and Wooldridge?&lt;/p&gt;&#xA;" OwnerUserId="118" LastActivityDate="2017-10-19T20:29:48.800" Title="How would I assess Pesaran's «Time Series and Panel Data Econometrics»?" Tags="&lt;reference-request&gt;&lt;soft-question&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18830" PostTypeId="2" ParentId="18810" CreationDate="2017-10-19T19:52:10.713" Score="3" Body="&lt;p&gt;I think the general proof is in &lt;a href=&quot;http://onlinelibrary.wiley.com/doi/10.1111/j.1467-999X.1960.tb00275.x/abstract&quot; rel=&quot;nofollow noreferrer&quot;&gt;this paper&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thinking in a simple exchange &lt;a href=&quot;https://en.wikipedia.org/wiki/Edgeworth_box&quot; rel=&quot;nofollow noreferrer&quot;&gt;Edgeworth Box&lt;/a&gt;, a competitive economy involves &lt;em&gt;prices&lt;/em&gt;, which mediate the relationship between consumers relative valuation of goods - the marginal rate of substitution. A (benevolent) social planner does not need those prices, as goods will not be traded in the market, but simply allocated to whom it &quot;corresponds&quot;, based on the same optimality conditions. Such equilibrium is simply found by equalising consumers marginal rate of substitution. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;equilibrium in competitive economy through exchange/markets:&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;$$ MRS^1_{X,Y} = \frac{P_x}{P_y} = MRS^2_{X,Y} $$&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;equilibrium via allocation from benevolent social planner:&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;$$ MRS^1_{X,Y} = MRS^2_{X,Y} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(the formulas above can be trivially extended to $n$ consumers and goods)&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-10-19T19:52:10.713" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="18831" PostTypeId="2" ParentId="18821" CreationDate="2017-10-19T19:55:20.593" Score="4" Body="&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Gibbard%E2%80%93Satterthwaite_theorem#Formal_statement&quot; rel=&quot;nofollow noreferrer&quot;&gt;Gibbard and Satterthwaite&lt;/a&gt; insist that the social choice function must be defined over all rational preferences over outcomes. That is, if voters' preferences could be anything (subject to the constraint of completeness and transitivity), then we have the Gibbard–Satterthwaite theorem.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand, if preferences were single-peaked, then the assumptions they make do not hold, and the theorem does not apply.&lt;/p&gt;&#xA;" OwnerUserId="8595" LastActivityDate="2017-10-19T19:55:20.593" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18832" PostTypeId="1" CreationDate="2017-10-19T20:15:46.400" Score="2" ViewCount="95" Body="&lt;p&gt;In Diamond's OLG model, why is capital in the next period equal to total savings by the young in the current period?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What happeend to the pre-existing capital? Surely it doesn't just cease to exist?&#xA;I know it belongs to the old who die, but just because they die doesn't mean the capital disappears?&lt;/p&gt;&#xA;" OwnerUserId="14914" LastActivityDate="2017-12-18T22:54:14.667" Title="In Diamond's OLG model, why is capital equal to saving by the young in previous period?" Tags="&lt;olg&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18833" PostTypeId="2" ParentId="18832" CreationDate="2017-10-19T20:26:37.937" Score="0" Body="&lt;p&gt;In such model (as in most of simple one-good models), capital and output are interchangeable - they are the same good. Thus, capital can be &quot;consumed&quot;. Any excess capital that the young do not want will be consumed by the old.&lt;/p&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-10-19T20:26:37.937" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18835" PostTypeId="2" ParentId="18827" CreationDate="2017-10-19T20:36:09.887" Score="2" Body="&lt;p&gt;Here are some recent books:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;https://www.bookdepository.com/Taming-Capital-Flows-Joseph-E-Stiglitz/9781137427663&quot; rel=&quot;nofollow noreferrer&quot;&gt;Taming Capital Flows: Capital Account Management in an Era of Globalization&lt;/a&gt; (2015)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;https://global.oup.com/academic/product/capital-flows-and-exchange-rate-management-9780198075455?cc=us&amp;amp;lang=en&amp;amp;&quot; rel=&quot;nofollow noreferrer&quot;&gt;Capital Flows and Exchange Rate Management&lt;/a&gt; (2013)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;https://www.adb.org/publications/managing-capital-flows-search-framework&quot; rel=&quot;nofollow noreferrer&quot;&gt;Managing Capital Flows: The Search for a Framework&lt;/a&gt; (2010)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;https://www.palgrave.com/us/book/9780230612310&quot; rel=&quot;nofollow noreferrer&quot;&gt;Capital rising: how capital flows are changing business systems all over the world&lt;/a&gt; (2010)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="2776" LastActivityDate="2017-10-19T20:36:09.887" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18837" PostTypeId="2" ParentId="18832" CreationDate="2017-10-19T21:51:01.400" Score="2" Body="&lt;p&gt;Property rights and assuming away bequest motives (the Old do no care about the Young).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Capital of the previous period belongs to the Old, and since they will die at the and of old age, the finite-horizon transversality condition for utility maximization requires that either all assets have been consumed at the time of death, or that they have no utility-enhancing potential. Since the utility function reflects the &quot;more is better&quot; property, assets do have value as consumption down to the last bolt, and since there is no bequest motive, no utility from &quot;leaving something for your children&quot;, it follows that the Old will consume all their capital, being utility maximizers.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2017-10-19T21:51:01.400" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18839" PostTypeId="1" AcceptedAnswerId="18903" CreationDate="2017-10-20T03:29:36.410" Score="2" ViewCount="7916" Body="&lt;p&gt;Could anyone provide a possibly intuitive and friendly explanation to the Engel Aggregation $(\sum s_i \eta_i = 1)$ and Cournot Aggregation$(\sum s_i \epsilon_{ij} = -s_j)$? Here, $s_i = \frac{p_i,x_i}{I} \ge 0$ is the income share, $\epsilon_{ij}, \eta_i$ are price and income elasticities, respectively. I was not sure how this theory of aggregation of consumer demand tell us about the consumption behavior. Thank you in advance for your help! &lt;/p&gt;&#xA;" OwnerUserId="14542" LastActivityDate="2021-04-08T07:44:30.060" Title="Intuition behind Engel Aggregation and Cournot Aggregation" Tags="&lt;microeconomics&gt;&lt;elasticity&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18840" PostTypeId="2" ParentId="18776" CreationDate="2017-10-20T07:06:37.837" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Is anything special expected of insurance companies after a natural disaster?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Insurance providers in high-risk areas tend to increase the premiums, particularly for re-insurance (&lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/S0304405X01000526&quot; rel=&quot;nofollow noreferrer&quot;&gt;Froot, 2001&lt;/a&gt;). Some insurers will also leave the market, with others coming in (&lt;a href=&quot;https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2670910&quot; rel=&quot;nofollow noreferrer&quot;&gt;Grace, Klein &amp;amp; Liu 2005&lt;/a&gt;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Semi-related: One paper with a 1970-2002 analysis of disasters and financial flows suggests that in poorer countries the migrant's remittances increase after the hurricanes covering $\frac 45$ of the damages, but in richer countries it only stimulates lending, not fully offsetting the losses (&lt;a href=&quot;https://www.degruyter.com/view/j/bejeap.2008.8.1/bejeap.2008.8.1.1903/bejeap.2008.8.1.1903.xml&quot; rel=&quot;nofollow noreferrer&quot;&gt;Yang 2008&lt;/a&gt;).&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Are there ever concerns about insurance shortages? The insurance companies typically try to create a &quot;healthy&quot; risk pool, but if several natural disasters hit, are they still expected to function as normal?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;According to the &lt;a href=&quot;https://www.cnbc.com/2017/09/06/insurance-group-says-industry-well-poised-to-withstand-hurricane-irma.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;news&lt;/a&gt; there wasn't shortage or bankruptcy concerns in the Hurrican Irma. The straight answer for that question is it depends on the impact of the damages. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;About functioning as normal: they will probably increase the premiums, as stated above, and might implement lower compensation limits for future losses, or exemptions for certain kinds of damage (e.g. most insurances stopped covering terrorist attacks &lt;a href=&quot;http://www.investopedia.com/ask/answers/050115/what-impact-have-terrorist-attacks-had-insurance-industry.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;after the 9/11, or priced it extremely high&lt;/a&gt;).&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Many different sectors have to cooperate to put affected urban communities back together. Recently there are reports of labor shortages that has stunted the rebuilding of some of the cities affected by the hurricane season of 2017. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This is not the insurer's problem. If you suffered damages, you receive the previously agreed compensation. It is up to you to rebuild or not with the compensation you received, with whatever conditions the market has at the moment. &lt;/p&gt;&#xA;" OwnerUserId="12304" LastEditorUserId="12304" LastEditDate="2017-10-20T07:18:51.713" LastActivityDate="2017-10-20T07:18:51.713" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18846" PostTypeId="2" ParentId="14639" CreationDate="2017-10-20T19:07:44.407" Score="-1" Body="&lt;p&gt;U=(xy)&#xA;du/dx=y&#xA;du/dy=x&#xA;Mux=y&#xA;Muy=x&#xA;Then Budget constraints =Px.X+Py.Y=M&#xA;Price ratios px/py=y/x&#xA;1000/500=y/x&#xA;Cross multiply when you get y, put it in the budget constraints and solve for y and use it to solve for x&#xA;When you finish, equate x and y values to the price ratio to get the optimal consumption bundle. &lt;/p&gt;&#xA;" OwnerUserId="14929" LastActivityDate="2017-10-20T19:07:44.407" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18847" PostTypeId="1" CreationDate="2017-10-20T19:21:48.497" Score="2" ViewCount="120" Body="&lt;p&gt;Is not Mascolell's definition in his microeconomic theory of the second-order stochastic dominance narrower? He defines for distribution functions with the same mean only. Although he gives some motivation for doing this, somehow I do not get his motivation.&lt;/p&gt;&#xA;" OwnerUserId="11843" LastActivityDate="2017-10-20T21:19:49.050" Title="Why does Mascolell define second-order stochastic dominance as such?" Tags="&lt;microeconomics&gt;&lt;reference-request&gt;&lt;risk&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18848" PostTypeId="2" ParentId="18847" CreationDate="2017-10-20T21:19:49.050" Score="3" Body="&lt;p&gt;The motivation is I believe clearly stated in p. 197 beginning of the section, where they write that they want to use Second-order stochastic dominance to reflect comparisons related to &quot;riskiness/dispersion&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To make this prominent, they use distributions with the same mean, so that it is &lt;em&gt;obvious&lt;/em&gt; that we compare them &lt;strong&gt;not&lt;/strong&gt; w.r.t their means, but w.r.t. riskiness/dispersion. In fact, the authors use the concept as equivalent to the stochastic dominance over mean-preserving spreads (see proposition 6.D.2 p. 199).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Using the general definition (which is defined by what they provide as property 6.D.2 p. 198) would not have offered them something more, in view of the reasons they want to use the concept.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2017-10-20T21:19:49.050" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="18855" PostTypeId="1" CreationDate="2017-10-21T04:47:13.900" Score="1" ViewCount="101" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/QFmXu.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/QFmXu.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This graph shows that South Korea, Malaysia, China, India, Pakistan, Bangladesh started around the 1970s. Income of South Koreans rocketed while Malaysia and China seem like they couldn't live up to their potential, and Indo-Pak-Bangla are sitting at the bottom with no visible change.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is the basic problem of 3rd group I am talking about?&lt;/p&gt;&#xA;" OwnerDisplayName="user13954" LastActivityDate="2017-10-22T02:16:24.780" Title="GDP per capita growth of Asia" Tags="&lt;national-income&gt;" AnswerCount="0" CommentCount="2" ClosedDate="2017-10-23T03:41:04.167" ContentLicense="CC BY-SA 3.0" />
  <row Id="18859" PostTypeId="2" ParentId="18715" CreationDate="2017-10-21T11:36:10.937" Score="-1" Body="&lt;p&gt;There are two situations with us when we know that preferences are locally non satiated. &#xA;1) Preferences are monotonic - In this case we know that we have &quot;good&quot; goods which necessarily means that more of every good is better, and thus the consumer would want to exhaust his income &#xA;2) Preferences are non monotonic - This permits the existence of &quot;bad&quot; goods but that doesn't mean that all goods are bad because that would mean that there is no bundle in the neighbourhood of origin (no good is consumed because all are bad) that is preferred to origin, thus we reach at a bliss/satiation point, violating LNS assumption. So, we need atleast one good which is not bad. In this case, the consumer would not spend anything on all the &quot;bad&quot; goods and exhaust his/her entire income on that one good which gives him/her positive utility.&lt;/p&gt;&#xA;" OwnerUserId="14345" LastActivityDate="2017-10-21T11:36:10.937" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18867" PostTypeId="1" CreationDate="2017-10-22T12:26:32.283" Score="1" ViewCount="227" Body="&lt;p&gt;Consider a spatial model in which two candidates A and B compete for office. The policy space ranges from -1 to 1 and each candidate can take one of three positions, -1, 0, and 1 (so that they have only three pure strategies). Voters vote for the candidate closer to their ideal points, but the location of the median voter is not known to the candidates: the median voter is located at either -1 or 1 with probability s &amp;lt; 1/2 and is located at 0 with probability 1 - 2s. Assume that candidate A is slightly more advantaged than B: A prevails if A and B are equidistant from the median voter but B wins if he is closer to the median voter. Winning yields a payoff of 1 and losing 0. The candidates simultaneously choose a position. Answer the following questions.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Draw a 3-by-3 payoff matrix and show if there are any pure-strategy Nash equilibria.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;My attempt:&#xA;$\begin{array}{r|ccc}&#xA;A\backslash B &amp;amp; -1 &amp;amp; 0 &amp;amp; 1\\&#xA;\hline&#xA;-1 &amp;amp; 1, 0 &amp;amp; s, 1-2s+s &amp;amp; 1-2s+s, s\\&#xA;0 &amp;amp; 1-2s+s, s &amp;amp; 1, 0 &amp;amp; 1-2s+s, s\\&#xA;1 &amp;amp; 1-2s+s, s &amp;amp; s, 1-2s+s &amp;amp; 1, 0   &#xA;\end{array}&#xA;$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This simplifies to&#xA;$\begin{array}{r|ccc}&#xA;A\backslash B &amp;amp; -1 &amp;amp; 0 &amp;amp; 1\\&#xA;\hline&#xA;-1 &amp;amp; 1, 0 &amp;amp; s, 1-s &amp;amp; 1-s, s\\&#xA;0 &amp;amp; 1-s, s &amp;amp; 1, 0 &amp;amp; 1-s, s\\&#xA;1 &amp;amp; 1-s, s &amp;amp; s, 1-s &amp;amp; 1, 0   &#xA;\end{array}&#xA;$&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Computing PSNE: &lt;/li&gt;&#xA;&lt;li&gt;If A chooses -1&#xA;-- if s&gt;1/2, B chooses 1&#xA;-- if s=1/2, B chooses either 1 or 0&#xA;-- if s&amp;lt;1/2, B chooses 0&lt;/li&gt;&#xA;&lt;li&gt;If A chooses 0&#xA;-- B chooses either -1 or 1&lt;/li&gt;&#xA;&lt;li&gt;If A chooses 1&#xA;-- if s&gt;1/2, B chooses -1&#xA;-- if s=1/2, B chooses either -1 or 0&#xA;-- if s&amp;lt;1/2, B chooses 0&lt;/li&gt;&#xA;&lt;li&gt;If B chooses -1&#xA;-- A chooses -1&lt;/li&gt;&#xA;&lt;li&gt;If B chooses 0&#xA;-- A chooses 0&lt;/li&gt;&#xA;&lt;li&gt;If B chooses 1&#xA;-- A chooses 1&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;There's no PSNE. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or can I say the following? Since the BR for either player should result in a strategy that helps them win the median voter, it can't happen that both players win the median voter. Therefore, there exists no PSNE.&lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;2&quot;&gt;&#xA;&lt;li&gt;Characterize a MSNE if it exists. Hint: let A's mixed strategy to choose -1, 0, and 1 be p, q, 1-p-q, respectively, and B's mixed strategy be x, y, and 1-x-y, respectively.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;For B to be indifferent, EU(-1)=EU(0)=EU(1). Thus, sq+s(1-p-q)=(1-s)p+(1-s)(1-p-q)=sp+sq&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Solution: p=s/(2-s), q=(3s-2)/(s-2)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For A to be indifferent, EU(-1)=EU(0)=EU(1). Thus, x+sy+(1-s)(1-x-y)=(1-s)x+y+(1-s)(1-x-y)=(1-s)x+sy+(1-x-y)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Solutions: s=o, y=0, or&#xA;x=(s-1)/(s-2), y =s/(2-s)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't know how to translate these into MSNE. Can you also let me know if I have got everything right so far?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks in advance.&lt;/p&gt;&#xA;" OwnerUserId="14938" LastEditorUserId="14938" LastEditDate="2017-10-22T14:52:34.240" LastActivityDate="2018-08-14T07:12:47.560" Title="Compute Nash Equilibrium in median voter game" Tags="&lt;game-theory&gt;&lt;nash-equilibrium&gt;&lt;bayesian-game&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18868" PostTypeId="1" AcceptedAnswerId="18870" CreationDate="2017-10-22T15:51:51.237" Score="1" ViewCount="459" Body="&lt;p&gt;I have been working the afternoon on an intertemporal exercise where I'm blocking on something very basic. Have been looking on previous posts but didn't find a similar question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We have the utility function of the household : $ U(C_1,C_2,n_2)= \log(c_1) + \beta \log(c_2) - \beta n_2 $ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;We have an allocation $ \bar y $ for period 1 and none for period 2, the household can only work in period two.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is the budget constraint : $ c_1 p_1 + c_2 p_2 = p_1 ( \bar y - x ) + qx + wn_2 + \pi  $ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And the production function of the firm : $ f(k) = k^\alpha n_2^{1-\alpha} $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I did until now is replacing $ c_2 $ in the utility function to have it depending on $c_1$,$ n_2$ and $ x $ only. Then I derive it for each variable and I can get the optimal condition for consumption : &#xA;$ \frac{c_2}{c_1} = \beta \frac{p_1}{p_2} $, the other derivatives gives me : $ w = p_2 c_2 $ and $ q = p_1 $ .&#xA;By replacing $c_2$ in the budget constraint, I can determine $ c_1$ and then $c_2$, and x is given by the market clearing condition $ \bar y = c_1 + x $.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But I can't find anyway to determine $n_2$, it's usually in a logarithm so we can find it in our First Order Conditions...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit : &#xA;$ x $ is the amount of capital given to the firm by the household, so we sould have $ x=k $ on capital market&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$ q $ is the price of capital per unit&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$ \pi $ is the profit of the firm , i.e. $ \pi(k,n_2) = p_2 k^\alpha n_2^{1-\alpha} - kq - wn_2 $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit 2 :&#xA;Rereading my question, I realize I should precise : &#xA;The household can only consume the firm production in period 2, which is why he contributes to the capital and labor of the firm, earning wages and profits.&#xA;Therefore, we should also have $ f(k,n_2) = c_2 $ I believe&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit 3 : &#xA;My profit maximisation gives me : &#xA;$ \frac{\alpha}{1-\alpha} n_2 w = k q $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit 4 after @X recommendation : &#xA;So I do the lagrangian and derivatives, which gets me : &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$ \frac{1}{c_1} = \lambda p_1 $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$ \frac{\beta}{c_2} = \lambda p_2 $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$ \beta = \lambda w $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$ p_1 = q $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;After computing, I find : $ c_1 = \frac{p_1 \bar y + w n_2 - \pi}{p_1(1+\beta)} $ and $ x = k = \bar y - c_1 = \frac{\beta p_1 \bar y - w n_2 + \pi}{p_1(1+\beta)} $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But still having trouble regarding my original issue, $ n_2 $ : I did , according to your advices : &#xA;$ \frac{\alpha}{1-\alpha} n_2 w = k q $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$ \frac{\alpha}{1-\alpha} n_2 \frac{\beta}{\lambda} = \frac{\beta p_1 \bar y - w n_2 + \pi}{p_1(1+\beta)} p_1 $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$ \frac{\alpha}{1-\alpha} n_2 \beta p_1 c_1 = \frac{\beta p_1 \bar y - w n_2 + \pi}{(1+\beta)} $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$ \frac{\alpha}{1-\alpha} n_2 \frac{\beta}{1+\beta}(p_1 \bar y + w n_2 - \pi) = \frac{\beta p_1 \bar y - w n_2 + \pi}{(1+\beta)} $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$ \frac{\alpha}{1-\alpha} n_2 \beta(p_1 \bar y + w n_2 - \pi) = \beta p_1 \bar y - w n_2 + \pi $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$  n_2 \beta(p_1 \bar y + w n_2 - \pi) = \frac{1-\alpha}{\alpha} \frac{\beta p_1 \bar y - w n_2 + \pi}{\beta(p_1 \bar y + w n_2 - \pi)} $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Still pretty stupid as results ... I also used the central planner way and found $ n_2 = 1 - \alpha $ , which is weird..&#xA;I'd still like to go at the end of this way if someone has an idea.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any idea ? &#xA;Thanks.&lt;/p&gt;&#xA;" OwnerUserId="14940" LastEditorUserId="14940" LastEditDate="2017-10-22T18:41:51.527" LastActivityDate="2017-10-22T18:42:24.210" Title="Find the optimal labor supply when labor utility is linear" Tags="&lt;microeconomics&gt;&lt;labor-economics&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18870" PostTypeId="2" ParentId="18868" CreationDate="2017-10-22T17:24:56.300" Score="0" Body="&lt;p&gt;I guess you mean that the condition $-\beta +\lambda w =0$ does not include labor. But you have the profit maximizing wage relation that includes labor and wage, and so combining, you can obtain an expression that includes the marginal product of labor, and the multiplier lambda, which can be expressed in terms of the other decision variables.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Ok, I see you got lost in running around your equations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Profits are zero since the firm is a price taker and the production function is homogeneous of degree one (constant returns to scale).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{\alpha}{1-\alpha}n_2 w = k q \implies n_2\frac{\beta}{\lambda} = \frac{1-\alpha}{\alpha} kq$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since $\lambda = 1/c_1p_1$, $q=p_1$ and $k = \bar y -c_1$we get &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$n_2\beta c_1p_1 = \frac{1-\alpha}{\alpha} (\bar y -c_1)p_1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies n_2 = \frac{1-\alpha}{\alpha\beta } \left(\frac{\bar y}{c_1} -1\right)$$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, go back to the budget constraint&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$c_1 p_1 + c_2 p_2 = p_1 ( \bar y - x ) + qx + wn_2 + \pi$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Inserting the various optimal conditions, you should arrive at &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$c_1 = \frac {\bar y}{1+\alpha \beta}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which leads to $n_2 = 1-\alpha$.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2017-10-22T18:42:24.210" LastActivityDate="2017-10-22T18:42:24.210" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="18871" PostTypeId="2" ParentId="18704" CreationDate="2017-10-22T19:06:06.807" Score="1" Body="&lt;p&gt;Recall the assumptions behind the Multiple linear regression model assumptions 1-4:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;MLR.1:&lt;/strong&gt; Linear parameters &lt;br&gt;&#xA;  &lt;strong&gt;MLR.2:&lt;/strong&gt; Random sample&lt;br&gt;&#xA;  &lt;strong&gt;MLR.3:&lt;/strong&gt; No perfect Colinearity &lt;br&gt;&#xA;  &lt;strong&gt;MLR.4:&lt;/strong&gt; Zero condtional mean $\mathbb{E}(\epsilon|x_i,...,x_n)=0$&lt;br&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In order to have unbiased estimates you require that all of these conditions hold.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In your case it is very much possible that you can have a non-random sample that does not violate the fourth assumption.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However your estimates will be off because of the non-random sampling , so though you dont have any problems which  like &lt;a href=&quot;https://en.wikipedia.org/wiki/Endogeneity_(econometrics)&quot; rel=&quot;nofollow noreferrer&quot;&gt;endogeneity&lt;/a&gt; when &lt;strong&gt;MLR.4&lt;/strong&gt; is violated, you will end up with estimates which do not  accurately represent the influence of variables on the subject in question (because of the violation of &lt;strong&gt;MLR.2&lt;/strong&gt;).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In your example you will end up with accurate estimates for the men but not for the women based on the fulfillment of &lt;strong&gt;MLR.2&lt;/strong&gt;.&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2017-10-22T19:06:06.807" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18872" PostTypeId="1" CreationDate="2017-10-22T19:07:59.013" Score="1" ViewCount="566" Body="&lt;p&gt;I know both market structures are allocatively inefficient as P &gt; MC. But,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since monopolistic competitive firms produce on the downward sloping part of their AC curves, there is excess capacity which implies productive inefficiency. To achieve productive efficiency, they have to produce on the lowest point of their ATC curve. Since monopolies also do not operate on this lowest point of their AC, they are also productively inefficient. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, the total cost curve shows the least cost method of producing each output level as it is derived from the tangent of the isocost to isoquant, which implies that all points on the total cost curve is productively efficient since cost is minimised. Since AC = TC/Q, it also implies that all points on the AC curve is productively efficient - all points on the LRAC are productively efficient. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since all points on the total cost curve and average cost curves are productively efficient, monopolies and monopolistic competitions, who operate on their AC curves, are productively efficient.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Both of this concepts contradict one another. One claims both are inefficient while the other says they are efficient. Am i confused or is one of them wrong?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If productive efficiency is achieved when goods are produced at the lowest cost possible, are all points on the LRAC are productively efficient since the LRAC shows the lowest cost of producing at each output?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Productively efficiency is only achieved on the lowest point of LRAC/SRAC?&lt;/p&gt;&#xA;" OwnerUserId="14943" LastEditorUserId="14943" LastEditDate="2017-10-22T20:53:28.767" LastActivityDate="2017-12-23T13:44:05.050" Title="Monopoly/Monopolistic Competition Productively Efficient or Inefficient?" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18874" PostTypeId="1" CreationDate="2017-10-22T19:49:09.743" Score="4" ViewCount="198" Body="&lt;p&gt;How can one use Brouwer's Fixed Point Theorem to prove that the following game F has a solution:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;F is defined as N={L,R} Ai=(g,1-g) where g must be positive and smaller than 1, that is, each player plays a completely mixed strategy and has the following payoff matrix:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{array}{|c|c|c|}&#xA;\hline &#xA;&amp;amp;LU&amp;amp;LD\\\hline&#xA;RU&amp;amp;0,0&amp;amp;6,3\\\hline&#xA;RD&amp;amp;3,6&amp;amp;0,0\\\hline&#xA;\end{array}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I reached the conclusion that one cannot use such theorem to prove there exists a solution to the game since the plays do not belong to a compact set. Can anyone use it?&lt;/p&gt;&#xA;" OwnerUserId="10953" LastEditorUserId="42" LastEditDate="2017-10-23T15:06:01.317" LastActivityDate="2017-10-24T03:59:46.553" Title="Use Brouwer's Fixed Point Theorem to Prove existence of equilibrium(a) with completely mixed strategies" Tags="&lt;mathematical-economics&gt;&lt;game-theory&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18875" PostTypeId="2" ParentId="18867" CreationDate="2017-10-22T20:21:30.497" Score="1" Body="&lt;p&gt;The calculations look correct. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the PSNE, I would just say since there is no mutual BRs in pure strategy, there is no PSNE, and leave it at that.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the MSNE, A would play $-1$ with probability $\frac{1-s}{2-s}$, $0$ with $\frac{s}{2-s}$ and $1$ with $\frac{1-s}{2-s}$; B would play $-1$ with $\frac{s}{2-s}$, $0$ with $\frac{2-3s}{2-s}$ and $1$ with $\frac{s}{2-s}$. &lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2017-10-22T20:21:30.497" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18877" PostTypeId="2" ParentId="18874" CreationDate="2017-10-22T23:11:16.653" Score="4" Body="&lt;p&gt;Rather than deprive you of the joy of solving your own problem, I will show how one can also use Brouwer's theorem to show that the function $f:\mathbb{R} \to \mathbb{R}$&#xA;$$&#xA;f(x) = \frac{33+x}{16+x^4}&#xA;$$&#xA;has a fixed point, even though its range is not compact.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that $f(1) = 2$ and $f(2) = 35/32$. As $f$ is monotonically decreasing over $[1,2]$, this also means that $f([1,2]) \subset [1,2]$. Also, $[1,2]$ is compact and $f$ is continuous over this set. So $f: [1,2] \to [1,2]$ will have a fixed point by Brouwer's fixed point theorem.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Similar tricks are used in game theory and general equilibrium theory. By showing that the optimal decisions by some players cannot possibly be outside of some boundaries one can frequently create a compact space over which fixed point theorems are applicable.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2017-10-22T23:11:16.653" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18879" PostTypeId="1" CreationDate="2017-10-23T01:27:28.297" Score="2" ViewCount="61" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/BjMOq.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/BjMOq.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hi, is there a way to interpret this picture as a Pareto set? What assumptions are necessary for such an interpretation?&lt;/p&gt;&#xA;" OwnerUserId="14827" LastEditorUserId="42" LastEditDate="2017-10-23T03:32:11.000" LastActivityDate="2017-10-23T03:32:11.000" Title="Could be this picture be interpreteded as a pareto set?" Tags="&lt;macroeconomics&gt;&lt;consumer-theory&gt;" AnswerCount="0" CommentCount="3" FavoriteCount="1" ClosedDate="2017-11-15T18:50:41.957" ContentLicense="CC BY-SA 3.0" />
  <row Id="18884" PostTypeId="2" ParentId="18872" CreationDate="2017-10-23T15:20:54.887" Score="1" Body="&lt;p&gt;No contradiction. All points in the AC curve indeed reflect the production of the corresponding quantity at minimum cost. This is &lt;em&gt;conditional&lt;/em&gt; efficiency, conditional on arbitrarily specifying an output level.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then we ask: what is the output level for which this product is produced at an average cost that it is lower than the average cost for all other output levels, the &lt;em&gt;minimum minimorun&lt;/em&gt;, the least of all minima?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And we get the minimum of the Average Cost curve. At this output level we cannot do better by varying the quantity (either increase it or decrease it). So it is this quantity that achieves &quot;universal&quot; efficiency.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2017-12-23T13:44:05.050" LastActivityDate="2017-12-23T13:44:05.050" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18889" PostTypeId="1" AcceptedAnswerId="18897" CreationDate="2017-10-23T16:30:52.310" Score="3" ViewCount="149" Body="&lt;p&gt;Wikipedia claims that &quot;capitalism is an economic system and an ideology based on private ownership of the means of production and their operation for profit&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And then, the land used for agriculture is a mean of production? Are the farmers capitalists?&lt;/p&gt;&#xA;" OwnerUserId="5161" LastEditorUserId="4988" LastEditDate="2017-10-26T17:27:04.047" LastActivityDate="2017-10-26T17:27:04.047" Title="Is the arable land a mean of production?" Tags="&lt;definition&gt;&lt;capitalism&gt;" AnswerCount="3" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18890" PostTypeId="2" ParentId="10273" CreationDate="2017-10-23T17:35:23.860" Score="4" Body="&lt;p&gt;I think Barro means in the footnote that Giovanni and Weil find the same equation, $U_t=\Phi C^{1-\gamma}$, but using the optimal path of $C_t$.&#xA;In Barro's paper, the approach is different given that the dynamics of $C_t$ is exogenous: $C_t=Y_t$ by assumption.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Barro uses the limit case when the length of a period gets close to 0. Maybe what may bother the reader is that the model is defined as discrete.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Rewrite the model&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;First, we can rewrite the model with a length of period $\delta$ and then use $\delta\to 0$.&#xA;The GDP dynamics write&#xA;$$\log(Y_{t+\delta})=\log(Y_t)+g\delta+u_{t+\delta}+v_ {t+\delta}$$ &#xA;with $u_{t+\delta}\sim \mathcal{N}(0,\delta\sigma^2)$, and $v_{t+\delta}=0$ with probability $1-p\delta$ and $\log(1-b)$ with probability $p\delta$.&#xA;The utility satisfies&#xA;$$&#xA;U_t=\frac{1}{1-\gamma}\left\lbrace C_t^{1-\theta}+\frac{1}{1+\rho\delta}\left[(1-\gamma)E_tU_{t+\delta}\right]^\frac{1-\theta}{1-\gamma}\right\rbrace^\frac{1-\gamma}{1-\theta}.&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;1) Find $\Phi$ as a function of $E_t\left[\left(\frac{C_{t+\delta}}{C_t}\right)^{1-\gamma}\right]$&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;From now suppose there is a $\Phi$ such that $U_t=\Phi C^{1-\gamma}$ (note that $\Phi$ depends on $\delta$ a priori).&#xA;Define $H(U)=[(1-\gamma)U]^\frac{1-\theta}{1-\gamma}$, the utility satisfies&#xA;\begin{align}&#xA;H(U_t)= C_t^{1-\theta}+\frac{1}{1+\rho\delta}H(E_tU_{t+\delta}).&#xA;\end{align}&#xA;We substitute $U_t$:&#xA;\begin{align}&#xA;H(\Phi)C_t^{1-\theta}= C_t^{1-\theta}+\frac{1}{1+\rho\delta}H(\Phi)\left(E_t\left[C_{t+\delta}^{1-\gamma}\right]\right)^\frac{1-\theta}{1-\gamma}.&#xA;\end{align}&#xA;Hence, we obtain for $C_t\neq 0$,&#xA;\begin{align}&#xA;\frac{1}{H(\Phi)}= 1-\frac{1}{1+\rho\delta}\left(E_t\left[\left(\frac{C_{t+\delta}}{C_t}\right)^{1-\gamma}\right]\right)^\frac{1-\theta}{1-\gamma}.&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;2) Find $E_t\left[\left(\frac{C_{t+\delta}}{C_t}\right)^{1-\gamma}\right]$ fromp the GDP dynamics&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;The trick is to find the expectation in the right-hand side from the GDP dynamics.&#xA;\begin{align}&#xA;\left(\frac{Y_{t+\delta}}{Y_t}\right)^{1-\gamma}= \exp\left((1-\gamma)g\delta\right).\exp\left((1-\gamma)u_{t+\delta}\right).\exp\left((1-\gamma)v_ {t+\delta}\right).&#xA;\end{align}&#xA;Taking the expectation and using the independence between $u_{t+1}$ and $v_{t+1}$, it follows&#xA;\begin{align}&#xA;E_t\left(\frac{Y_{t+\delta}}{Y_t}\right)^{1-\gamma}= \exp\left((1-\gamma)g\delta\right).E_t\exp\left((1-\gamma)u_{t+\delta}\right).E_t\exp\left((1-\gamma)v_ {t+\delta}\right).&#xA;\end{align}&#xA;The expectation of $\exp(X)$ where $X$ follows $\mathcal{N}(0,\sigma^2)$ is $\exp(\sigma^2/2)$. $\exp\left((1-\gamma)v_ {t+\delta}\right)$ is a random variable equal to $1$ with probability $1-p\delta$ and $(1-b)^{1-\gamma}$ with probability $p\delta$.&#xA;We substitute the expectation operator:&#xA;\begin{align}&#xA;E_t\left(\frac{Y_{t+\delta}}{Y_t}\right)^{1-\gamma}= \exp\left((1-\gamma)g\delta\right).\exp\left(\frac{(1-\gamma)^2\sigma^2\delta}{2}\right).\left(1-p\delta+pE[(1-b)^{1-\gamma}]\delta\right).&#xA;\end{align}&#xA;Finally, we use $C_t=Y_t$ to compute an equation for $\Phi$:&#xA;\begin{align}&#xA;\frac{1}{H(\Phi)}&amp;amp;= 1-\frac{1}{1+\rho\delta}\left\lbrace\exp\left((1-\theta)g\delta\right).\exp\left(\frac{(1-\gamma)(1-\theta)\sigma^2\delta}{2}\right)\right.\\&#xA;	&amp;amp;\left. .\left(1-p\delta+pE[(1-b)^{1-\gamma}]\delta\right)^\frac{1-\theta}{1-\gamma}\right\rbrace.&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;3) Take the approximation $\delta\to 0$&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;The last step consists in taking a first-order approximation (I abusively keep the equal symbol):&#xA;\begin{align}&#xA;\frac{1}{H(\Phi)}&amp;amp;= 1-(1-\rho\delta). \left(1+(1-\theta)g\delta\right).\left(1+\frac{(1-\gamma)(1-\theta)\sigma^2\delta}{2}\right)\\&#xA;	&amp;amp; .\left(1-\frac{1-\theta}{1-\gamma}p\delta+\frac{1-\theta}{1-\gamma}pE[(1-b)^{1-\gamma}]\delta\right).&#xA;\end{align}&#xA;Pursuing the first-order apprixmation (all the $\delta^i$ with $i&amp;gt;1$ can be neglected), we have&#xA;\begin{align}&#xA;\frac{1}{H(\Phi)}&amp;amp;= \rho\delta -(1-\theta)g\delta-\frac{(1-\gamma)(1-\theta)\sigma^2\delta}{2}\\&#xA;	&amp;amp; +\frac{1-\theta}{1-\gamma}p\delta-\frac{1-\theta}{1-\gamma}pE[(1-b)^{1-\gamma}]\delta.&#xA;\end{align}&#xA;Substitute $g$ using $g^*=g+\frac{\sigma^2}{2}-pEb$, &#xA;\begin{align}&#xA;\frac{1}{H(\Phi)}&amp;amp;= \rho\delta -(1-\theta)g^*\delta+(1-\theta)\frac{\sigma^2}{2}\delta -(1-\theta)pEb\delta -\frac{(1-\gamma)(1-\theta)\sigma^2\delta}{2}\\&#xA;	&amp;amp; +\frac{1-\theta}{1-\gamma}p\delta-\frac{1-\theta}{1-\gamma}pE[(1-b)^{1-\gamma}]\delta.&#xA;\end{align}&#xA;We take $\delta=1$ and invert function $H$ to find the solution in the footnote 7 of the paper. The right-hand side of this equation &quot;simplifies&quot; to the within braces in the formula.&lt;/p&gt;&#xA;" OwnerUserId="4094" LastActivityDate="2017-10-23T17:35:23.860" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18895" PostTypeId="1" CreationDate="2017-10-23T19:01:27.860" Score="7" ViewCount="171" Body="&lt;p&gt;I was experimenting with a seemingly simple optimal control problem that generates a system of differential equations. When I calculate the values of the steady state of the system I get some very strange results I believe I did something wrong when I applied the Maximum Principle. If you are patient enough to read some text, I would be grateful to listen to your suggestions what could go wrong.&lt;/p&gt;&#xA;&#xA;&lt;h1&gt;Notation&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;I use a subscript $t$ whenever a variable depends on time. E.g. $A_t(x_1,x_2):=A(x_1,x_2,t)$&lt;/p&gt;&#xA;&#xA;&lt;h1&gt;Setup&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;Imagine a closed-economy with a linear production function. The amount of goods produced depends on the level of human capital $A_t$ and some fixed ressource endowment $R$. Thus, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$Y_t := A_tR$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The economy we imagine has an insecure environment and can be attacked at random with a probability of $p$ (exogenous). Whenever country is attacked, it losses some of its income. I denote the remaining share $q_t$. The share of income protected depends on the amount of military spending the country has augmented by the level of human capital accumulated:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$q_t:=1-\frac{1}{\alpha A^m_t M_t}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I assume $m \in [0,1]$&#xA;Thus the greater is military spending, the more secure is current income. Note that military spending does better job in securing protection as long as $m&amp;lt;1$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given all this, assume the economy produces 3 types of goods: consumption goods $C_t$, military goods $M_t$ and human capital $A_t$. Assume for simplicity, that $A_t$ is the only variable that accumulates while consumption goods and military goods are consumed instantaneously at every moment in time. If one agrees on this, one way of expressing the equation of motion for human capital is the weighted average of income the country has minus spending on consumption, military and deprecitation of human capital:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\dot{A}_t=\underbrace{pq_tY_t}_\text{Post-war income} + \underbrace{(1-p)Y_t}_\text{No-war income} - C_t - M_t - \delta A_t$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assuming that all variables belong to the positive real line, additionaly  $A_t,M_t&amp;gt;0$, a concave utility function $U'(C_t)&amp;gt;0, U''(C_t)&amp;lt;0$ and `granting' some initial value of human capital $A(t=0)=A_0$ one can formulate the following optimal control problem:&#xA;\begin{equation}&#xA;    \max_{C_t, M_t}\int_0^\infty U(C_t)e^{-\rho t}dt&#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In words: maximize utility over infinite horizon steering consumption and military.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Such that:&#xA;\begin{equation}&#xA;\dot{A}_t=p\left(1-\frac{1}{\alpha A^m_t M_t}\right)A_tR + (1-p)A_tR - C_t - M_t - \delta A_t&#xA;\end{equation}&#xA;And the transversality condition:&#xA;\begin{equation}&#xA;\lim_{t-&amp;gt;\infty} e^{-\rho t}\lambda_t A_t=0&#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;h1&gt;Hamiltonian and Solution&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;The current-value Hamiltonian looks like this ($\mu_t = \lambda_t e^{-\rho t}$):&#xA;\begin{equation}&#xA;H^c = U(C_t) + \mu_t\left(p\left(1-\frac{1}{\alpha A^m_t M_t}\right)A_tR + (1-p)A_tR - C_t - M_t - \delta A_t\right)&#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Chiang (1992) argues that if the Hamiltonian is nonlinear in control and state variables, one derive the first-order conditions by taking derivatives of the Hamiltonian and setting them equal to zero.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{equation}&#xA;\frac{\partial H^c}{\partial C_t}: U'(C_t)-\mu_t = 0&#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{equation}&#xA;\frac{\partial H^c}{\partial C_t}: \mu_t\left(pA^{1-m}_tR\frac{1}{\alpha M^2_t}-1\right) = 0&#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{equation}&#xA;\dot{\mu}_t = \rho \mu_t - \mu_t\left(pR\frac{m-1}{\alpha A^m_t M_t} + R - \delta\right)&#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The expressions for $\dot{\mu}_t$ and $\dot{A}_t$ form a system of differential equations. But interpreting \dot{\mu}_t is counter-intuitive. Instead, one usually differentiates the FOC for consumption with respect to time  $U''(C)_t=\dot{\mu}_t$ and impute \dot{\mu}_t from the equation of motion. Since $U'(C_t) = \mu_t$, one can get rid of $\mu_t$ in $\dot{C}_t$. Yet, the system will consist of two equations $\dot{C}_t, \dot{A}_t$ and three variables $A_t$, $C_t$, $M_t$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{equation}&#xA;    \begin{cases}&#xA;        \dot{C}_t = -\frac{U'(C_t)}{U''(C_t)}\left(pR\frac{m-1}{\alpha A^m_t M_t} + R - \delta -\rho\right) \\&#xA;        \dot{A}_t = A_t R - A^{1-m}_t\frac{pR}{M_t} - C_t - M_t - \delta A_t&#xA;    \end{cases}&#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I need a way to express $M_t$ as a function of other variables or parameters. Thus I take the second FOC, equate it to zero (dismiss the option $\mu_t=0$ because $\mu_t=U'(C_t)&amp;gt;0$) and derive $M_t$ as a function of $A_t$: $M^*_t:=A^{\frac{1-m}{2}}_t\sqrt{\frac{pR}{\alpha}}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I impute $M^*_t$ in the system above, set $\dot{C}_t=\dot{A}_t=0$ and calculate the expressions for the steady state. Dismissing the trivial solution $C_t = 0$, I obtain the following equilibrium values:&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Human Capital&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;\begin{equation}&#xA;    \bar{A}_t = \left(\frac{pR}{\alpha}\frac{(1-m)^2}{(R - \delta -\rho)^2}\right)^{\frac{1}{1+m}} &#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Military&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;\begin{equation}&#xA;        \bar{M_t} = \left(\frac{pR}{\alpha}\frac{(1-m)^2}{(R - \delta -\rho)^2}\right)^{\frac{1-m}{2(1+m)}}\sqrt{\frac{p R}{\alpha}} &#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Consumption&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;\begin{multline}&#xA;    \bar{C_t} = \left(\frac{pR}{\alpha}\frac{(1-m)^2}{(R - \delta -\rho)^2}\right)^{\frac{1}{1+m}} (R - \delta) \\- \left(\frac{pR}{\alpha}\frac{(1-m)^2}{(R - \delta -\rho)^2}\right)^{\frac{1-m}{2(1+m)}} \sqrt{\alpha pR} \left(1 + \frac{1}{\alpha}\right)&#xA;\end{multline}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The expression for consumption looks clumsy. It is indeed! When I tried to calculate values of consumption given some more or less reasonable parameters ($p=0.052$, $m=0.21$, $\delta=0.242$, $\alpha = 2.54$, $\rho=1.48$), I got &lt;em&gt;negative&lt;/em&gt; numbers. A screenshot from Mathematica depicting $C_t$ (vertical axis) as a function of $R$ (horizontal axis):&lt;a href=&quot;https://i.stack.imgur.com/ag6gQ.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/ag6gQ.png&quot; alt=&quot;Steady state consumption with $p=0.052$, $m=0.21$, $\delta=0.242$, $\alpha = 2.54$, $\rho=1.48$&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I do not expect that introducing insecure property rights will change the steady state consumption to negative values given a linear production function. It looks that I applied the Maximum Principle algorithm in a wrong way but I cannot figure out what was my mistake. Could somebody point me what went wrong? Any ideas? P.S. You are a hero if you read till the very end :) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;UPDATE: As some of people here suggested, the Maximum Principle fails because I apply deterministic method to a stochastic model. This is a fair concern. I decided to check if the method works in case I set $p=1$ (implying the infinitely long war-scenario for the economy).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The canonical equations with the specification look like that:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{equation}&#xA;\frac{\partial H^c}{\partial C_t}: U'(C_t)-\mu_t = 0&#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{equation}&#xA;\frac{\partial H^c}{\partial C_t}: \mu_t\left(pA^{1-m}_tR\frac{1}{\alpha M^2_t}-1\right) = 0&#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{equation}&#xA;\dot{\mu}_t = \rho \mu_t - \mu_t\left(R - R\frac{1-m}{\alpha A^m_t M_t} - \delta\right)&#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I proceeded with the solution as before and got the following dynamical system (assuming $U(C_t)=\ln{C_t}$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{equation}&#xA;    \begin{cases}&#xA;        \dot{C}_t = C_t\left(R - R\frac{1-m}{\alpha A^m_t M_t} + R - \delta -\rho\right) \\&#xA;        \dot{A}_t = A_t R - A^{1-m}_t\frac{R}{M_t} - C_t - M_t - \delta A_t&#xA;    \end{cases}&#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Solve it for the steady state. Here are my equilibrium values for Human Capital, Military and Consumption.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{equation}&#xA;\bar{A}=\left(\frac{(1-m)^2}{(R-\delta-\rho)^2} \frac{R}{\alpha} \right)^{\frac{1}{1+m}}&#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{equation}&#xA;\bar{M}=\left(\frac{R}{\alpha}\right)^{1/2}\left(\frac{(1-m)^2}{(R-\delta-\rho)^2} \frac{R}{\alpha} \right)^{\frac{1-m}{2(1+m)}}&#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{equation}&#xA;\bar{C}=(R-\delta)\left(\frac{(1-m)^2}{(R-\delta-\rho)^2} \frac{R}{\alpha} \right)^{\frac{1}{1+m}}-2\left(\frac{R}{\alpha}\right)^{1/2}\left(\frac{(1-m)^2}{(R-\delta-\rho)^2} \frac{R}{\alpha}\right)^{\frac{1-m}{2(1+m)}}&#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I simulated the values of $C_t$ again. Here is what I get:&#xA;&lt;a href=&quot;https://i.stack.imgur.com/n9pyK.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/n9pyK.png&quot; alt=&quot;Consumption (vertical axis) as a function of resource endowment (horizontal axis)&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Different equations, yet similar picture. So the stochastic nature of the model is not the only problem. Maybe I miss something like a bang-bang solution here? Or maybe it simply does not exist in the case?&lt;/p&gt;&#xA;" OwnerUserId="14950" LastEditorUserId="14950" LastEditDate="2017-10-25T15:11:40.677" LastActivityDate="2017-10-25T15:11:40.677" Title="An Optimal Control Model: A Rediculous Result for a Steady State" Tags="&lt;dynamic-optimization&gt;&lt;steady-state&gt;&lt;optimal-control&gt;" AnswerCount="1" CommentCount="4" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18897" PostTypeId="2" ParentId="18889" CreationDate="2017-10-23T20:48:21.430" Score="5" Body="&lt;h2&gt;Yes.&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Anyone who utilizes their privately owned property or assets as a means of production for the sake of profit is a capitalist.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this case the farmer's capital  is the land which they use for agricultural production.&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2017-10-23T20:48:21.430" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18899" PostTypeId="2" ParentId="18889" CreationDate="2017-10-23T21:08:06.837" Score="1" Body="&lt;p&gt;Agricultural land is certainly one means of production.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A farmer is usually taken to mean someone who uses or manages land for agriculture.  If they also own the land and seek to make a profit from their agriculture, then they could be described as a capitalist.  But some farmers rent land from its owner. Other arrangements are possible, eg farmers may enjoy &lt;a href=&quot;https://en.wikipedia.org/wiki/Usufruct&quot; rel=&quot;nofollow noreferrer&quot;&gt;usufructuary rights&lt;/a&gt; to land which they do not own. In mediaeval Europe, many people farmed land granted to them under the &lt;a href=&quot;https://en.wikipedia.org/wiki/Feudalism#Classic_feudalism&quot; rel=&quot;nofollow noreferrer&quot;&gt;feudal system&lt;/a&gt; in return for services to a lord. So not all farmers are, or were, capitalists.&lt;/p&gt;&#xA;" OwnerUserId="1417" LastActivityDate="2017-10-23T21:08:06.837" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18900" PostTypeId="2" ParentId="8279" CreationDate="2017-10-23T22:39:46.110" Score="0" Body="&lt;p&gt;A conventional answer would be that interest rates represents the rate of return Russian banks agree upon to lend money to physical clients/enterprises. If you believe this, you can create the following explanations. Two things come to my mind.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Option A: High Costs&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Russian banks are unproductive and poorly managed. Their operational business is so inefficient that forces the bank to add a high premium on the interest rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Option B: High Risks&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Russian banks have to lend money to clients with high risks. What would you do as a bank if you face many clients with high risks? You charge a higher price so in case somebody fails you may cover the sunk costs by revenues generated from credits to other clients. This is a simple way to `compensate' for uncertainty.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can have a combination of two of course and that could already explain some of the differences you observe in the world and in Russia as well. Note for instance, that financial sanctions decreased stability of the Russian banks in a number of ways: a) enterprises (thus lenders) do not have access to external finance anymore and given the record low interest rates in Europe it means less access to cheap finance b) banks cannot finance on the external market themselves; thus if you have a liquidity problem you have less sources to take finance from. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is not the end of the story however, as banks usually differentiate the interest rates they charge depending on the type of product they offer and a type of client, who wants to lend. If they do a poor job at differentiating between good and bad borrowers, another option arises: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Option C: Banks do poor job at separating the wheat from the chaff // Signalling does not work&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Imagine you have two type of borrowers: risky and non-risky. If you would have perfect information on everyone, you could easily charge interest rates according to how risky the business of clients is. Lower rate for a risk-free guy, higher rate for a risky guy. But reality is more complex: you do not know for sure. And here they sit and show their documents, balance sheets, profits and loss statements etc both giving an impression how brilliant their business is. Yet if you know (post factum) that half of you clients go bankrupt, what do you do? Well, you just charge a high interest rate for both of the guys! Maybe it will be the wrong guy who will take your loan in the very end but at least you'll get high interest payments before he goes bankrupt. Maybe it is exactly the case with Russian banks. That is, maybe they just do a horrible job at investigating how reliable business of their lenders is. That indeed might be the case because many of Russian banks expanded their business in mid-2000 on the boom of the consumer credits. And it is not a heavy job to do: broad consumer base, high diversification - just give money to everyone and be happy. Yet now, when income stagnates, the business model does not work that good anymore. What do you need to do? Well, you need to start working with the enterprises. But lending to them is more complicated if you want to know for sure: you need knowledge of how business operates, what business-risks are relevant, how responsible is the team, how the industry feels in general and the list goes on. Maybe most of Russian banks do not know how to do it good and therefore keep charging high interest rates.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;A Little Sidenote&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Keep in mind two things however: &#xA;a) My answer comes from the micro-perspective. The macro guys would probably point out on the issues related to capital flows and macro regulation,&#xA;b) You better be clear which numbers you are reffering to and where do they come from. I've just checked the web-site of Sberbank. The web-site reports the following borrowing rates (minimum interest rate charged per annum): consumer credit (12.9%), morgage for flats in built houses (8.9%), security-free SME loan (17%), securitized SME loan (14.52%), SME loan for investment purposes (12.2%). Yes, these are minimal rates meaning that the actual rates are higher. But note two things: they are very far from 25% you mention (and I bet that the rates in private banks have to be lower if they want to compete with Sberbank) and there is a high variation between them: the maximum difference is around 8%. And we are talking just about one bank. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, when you claim that the interest rates in Russia are way higher than in other developing countries you have to be sure that you compare apples with apples. And that you compare the averages of the apple sizes in both cases and do not take the maximum size on one side and the minimum size on the other. Hopefully you will find some of my explanations trustworthy ;)&lt;/p&gt;&#xA;" OwnerUserId="14950" LastActivityDate="2017-10-23T22:39:46.110" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18903" PostTypeId="2" ParentId="18839" CreationDate="2017-10-24T01:18:46.497" Score="4" Body="&lt;p&gt;These expressions can be easily derived formally by taking the derivatives of Walras' law w.r.t $I$ (Engel aggregation) and $p_j$ (Cournot aggregation). &#xA;The Engel aggregation means that not all goods are luxuries ($\eta_i&amp;gt;1$), or necessities ($\eta_i&amp;lt;1$), or inferior goods ($\eta_i&amp;lt;0$). The Cournot aggregation says that the budget share $s_j$ of the good $j$  is small when the good $j$ has many substitutes ($\epsilon_{ij}&amp;gt;0$), and big when it has many complements ($\epsilon_{ij}&amp;lt;0$), or their respective budget shares are large. &lt;/p&gt;&#xA;" OwnerUserId="7532" LastActivityDate="2017-10-24T01:18:46.497" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18904" PostTypeId="2" ParentId="18895" CreationDate="2017-10-24T01:33:19.820" Score="4" Body="&lt;p&gt;One general issue I see is that you try to include uncertainty in a framework developed for a deterministic setup.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What you do is to use &lt;em&gt;expected&lt;/em&gt; income in the equation of motion for human capital. Let $I_{a,t}$ denote the indicator function for attack, taking the value $1$ when there is an attack, and the value $0$ when there isn't. Then, properly,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\dot{A}_t=\underbrace{I_{a,t}q_tY_t}_\text{Post-war income} + \underbrace{(1-I_{a,t})Y_t}_\text{No-war income} - C_t - M_t - \delta A_t$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and what you are using in your model is $\mathbb E (\dot A_t)$. Hmm..., I am not sure that it is that simple... Have you looked up the machinery of Stochastic Optimal Control in continuous time? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Apart from that, I also see two parameter values that are strange in your simulation, except if there is something you don't tell us. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) $\delta = 0.242$ means $24.2$% depreciation of human capital per period. What is your &quot;period&quot; here? Granted, this is continuous time, but in order to assess simulation results and see if they make sense, you must determine a discrete length of the &quot;time period&quot;. A benchmark yearly value would be $\delta = 0.04$, then yours corresponds to approximately a 7-year period.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) The rate of pure time preference equal to $\rho=1.48$?? How did you come up with a value greater than unity?... For a yearly period a benchmark value is $\rho = 0.02$. So if we want to be consistent with the implied 7-year period for the depreciation rate, it should be approx $\rho = 0.132$. So in order to be consistent with the $\delta$ parameter, you should change $\rho$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But this won't affect the result, as should be obvious from your equations, especially since $R$ is checked for very large values compared.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, and ignoring all the above, it is not the fact that you introduced &quot;insecure property rights&quot;, it is &lt;em&gt;the specific functional form&lt;/em&gt; you chose in order to incorporate them in the model, that apparently causes all the trouble. Mathematical forms are tools, and even when we have many reasonable tools (your specification of the $q_t$ function is not unreasonable), not all are appropriate for all models.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are many other ways to include &quot;insecure property rights&quot; -for example: you could argue that military spending affects the probability of attack. You could choose to not include human capital in the expression for $q_t$. Etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So if the issue with how you handle uncertainty in principle (my first comment) is not an issue after all, then you should just change the way you model the probability of attack and/or lost output due to the attack. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Remember that you are just building a model -and it is the model that should conform to reality and reason, not the other way around. And since steady-state consumption &lt;em&gt;monotonically&lt;/em&gt; decreasing in the exogenous resource endowment is not reasonable nor realistic, you should tweak your model. It is &lt;em&gt;not&lt;/em&gt; the case that you just uncovered a surprising law about human behavior (not yet at least). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It would be interesting to obtain a non-monotonic result - say for ss-consumption to have a minimum or a maximum in $R$ -&lt;em&gt;that&lt;/em&gt; would be really tantalizing.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2017-10-24T01:39:17.887" LastActivityDate="2017-10-24T01:39:17.887" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18906" PostTypeId="2" ParentId="18874" CreationDate="2017-10-24T03:59:46.553" Score="0" Body="&lt;p&gt;Just wanted to add that in general, you can show this holds for any finite two-player game. I will not repeat the proof, as it is easily found online (e.g. &lt;a href=&quot;http://math.uchicago.edu/~shmuel/AAT-readings/Econ%20segment/nash.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;this one&lt;/a&gt;). It is also worth nothing that you can prove this result with other fixed point theorems. The most notable example is probably Kakutani's fixed point theorem, where the existence of NE is proven with correspondences (see &lt;a href=&quot;http://www.library.fa.ru/files/Tirole-Game.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Fudenberg and Tirole&lt;/a&gt;). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Just thought you might want to know if you are looking more into this!&lt;/p&gt;&#xA;" OwnerUserId="14249" LastActivityDate="2017-10-24T03:59:46.553" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="18907" PostTypeId="1" AcceptedAnswerId="18909" CreationDate="2017-10-24T04:18:14.350" Score="0" ViewCount="223" Body="&lt;p&gt;Can a empty edgeworth box be a pareto set? What kind of economy would be describe in this situation?&lt;a href=&quot;https://i.stack.imgur.com/VwwaL.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/VwwaL.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="14827" LastActivityDate="2017-10-24T07:05:52.027" Title="Empty edgeworth box" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;&lt;exchange&gt;" AnswerCount="1" CommentCount="0" ClosedDate="2017-11-02T20:37:36.093" ContentLicense="CC BY-SA 3.0" />
  <row Id="18909" PostTypeId="2" ParentId="18907" CreationDate="2017-10-24T07:05:52.027" Score="0" Body="&lt;p&gt;assuming the $x_1$ and $x_2$ are positive endowments then I can think of two cases &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;we are looking at an edgeworth box before any useful information is displayed on it, so we really &lt;em&gt;don't&lt;/em&gt; know what that info would be like.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;we are dealing with some exotic model where the subset of $\mathfrak{R^2}$ defined by the endowments is not reachable; the endowments are '&lt;em&gt;too little&lt;/em&gt;' in a sense, if that makes any sense. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;please note that the second case could be an abnormal specification or it could well may be a perfectly acceptable one, albeit constrained to some appropriate set.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;also, as far as the former case is concerned, consider the box as a zoom on a region where the economic problem is restricted from reaching.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On a general note, the edgeworth box is a tool that assists in visualizing equilibrium positions (contract curves and the such); having an empty edgeworth box-aside from very unusual circumstances-is not very helpful. &lt;/p&gt;&#xA;" OwnerDisplayName="user14471" LastActivityDate="2017-10-24T07:05:52.027" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18910" PostTypeId="1" CreationDate="2017-10-24T07:46:32.667" Score="3" ViewCount="34" Body="&lt;p&gt;Most of the conferences I've learned about essentially by word of mouth.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there any website listing prominent economics conferences? I'm interested in Economic Theory conferences mostly, but feel free to comment with any helpful listing Economics conferences.&lt;/p&gt;&#xA;" OwnerUserId="6023" LastEditorUserId="8815" LastEditDate="2017-10-24T14:46:08.540" LastActivityDate="2017-10-24T16:42:02.637" Title="Conference venues" Tags="&lt;soft-question&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18911" PostTypeId="2" ParentId="18889" CreationDate="2017-10-24T10:12:43.770" Score="1" Body="&lt;p&gt;Both classical and marxian schools assume the (cultivated) land to be  &lt;a href=&quot;https://en.wikipedia.org/wiki/Means_of_production&quot; rel=&quot;nofollow noreferrer&quot;&gt;means of production&lt;/a&gt;. The differentiation between land and shovel for example is that the land is considered natural resource (&lt;strong&gt;subject of labor&lt;/strong&gt;) while the shovel is an &lt;strong&gt;instrument of labor&lt;/strong&gt;.&lt;br&gt;&#xA;Subjects + instruments together = means of production.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Owning the means of production is a necessary but not sufficient factor for a capitalist to exist. There is an umbrella of conditions and pre-conditions (i.e. ownership of labor-power, ownership of capital, capitalistic mode of production in society, advanced credit/banking system etc. ) that need to occur.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, big land owners in Medieval times were feudal lords but not capitalists, since capitalistic mode hadn't emerged yet. A small peasant who owns a small piece of land and uses it to feed his family nowadays or sells some part of the crops in the local market, is not a capitalist, since he lacks capital and doesn't have ownership of other labor but his own.    &lt;/p&gt;&#xA;&#xA;&lt;p&gt;PS. That was the analysis for the question, bearing in mind that we are talking about land used for farming. Using it for other purposes (ex. rent) needs a more elaborate analysis. &lt;/p&gt;&#xA;" OwnerUserId="13849" LastActivityDate="2017-10-24T10:12:43.770" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="18913" PostTypeId="1" CreationDate="2017-10-24T11:38:10.197" Score="1" ViewCount="170" Body="&lt;p&gt;I first posted my question in the wrong forum (I did not know that there was an economic forum now) so I want to apologise for that by User Ben Bolker and User Robert. Also special thanks to User Robert who gave me the information with the econonomics forum!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So my question is about the Samuelson acceleration model. I am trying to help a friend of mine solve this question.  I am not an economic studied person. I attached the question and my answers and conclusions. Maybe some of you can give me a little bit of help. In the first case, I did interpret the whole topic wrong and was confused because of the difference and thought this should be possible with an derivation (which was absolutely wrong, in my opionion now). I found an old analysis economics book and there were some interesting facts about the question (I also attached these facts).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The main question is, is it possible to bring the function back to the standard form of an inhomogen linear style with index inversion or something else. You can see what I have done attached, but I could not change the following from t-1 to t+1 because I did not know how.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Maybe some specialists here can help me. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/j2hHJ.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/j2hHJ.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&#xA;&lt;a href=&quot;https://i.stack.imgur.com/RWynX.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/RWynX.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&#xA;&lt;a href=&quot;https://i.stack.imgur.com/6crFM.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/6crFM.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank You!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Cheers&lt;/p&gt;&#xA;" OwnerUserId="14935" LastEditorUserId="27" LastEditDate="2017-10-24T12:03:40.823" LastActivityDate="2018-03-24T08:38:22.970" Title="Samuelson Acceleration Model Question" Tags="&lt;difference-equations&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18915" PostTypeId="2" ParentId="18910" CreationDate="2017-10-24T13:23:03.090" Score="3" Body="&lt;p&gt;You may find &lt;a href=&quot;https://editorialexpress.com/cgi-bin/conference/listconfs.cgi&quot; rel=&quot;nofollow noreferrer&quot;&gt;conference maker&lt;/a&gt; useful, it lists upcoming conferences in economics/finance. &lt;/p&gt;&#xA;" OwnerUserId="6009" LastActivityDate="2017-10-24T13:23:03.090" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18916" PostTypeId="1" CreationDate="2017-10-24T14:09:40.577" Score="0" ViewCount="366" Body="&lt;p&gt;I'm studying problem that requires me to calculate social welfare in a monopoly setting.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But I dont know what social welfare is, and I can't find it in my book or by googling. What am I asked to compute?&lt;/p&gt;&#xA;" OwnerUserId="14702" LastEditorUserId="1601" LastEditDate="2017-10-24T14:21:22.007" LastActivityDate="2017-10-24T14:21:22.007" Title="What is the definition of social welfare in monopoly?" Tags="&lt;microeconomics&gt;&lt;monopoly&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18917" PostTypeId="2" ParentId="18916" CreationDate="2017-10-24T14:19:47.333" Score="2" Body="&lt;p&gt;By social welfare your professor probably means total &lt;a href=&quot;https://en.wikipedia.org/wiki/Economic_surplus&quot; rel=&quot;nofollow noreferrer&quot;&gt;economic surplus&lt;/a&gt; which is the sum of consumer's surplus and producer's surplus.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2017-10-24T14:19:47.333" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18918" PostTypeId="1" CreationDate="2017-10-24T15:11:42.860" Score="2" ViewCount="470" Body="&lt;p&gt;The problem is to maximize $\int_0^1 y(t) + u(t)^2 dt$ where $y$ is state and $u$ is control.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Further we have $y' = u, y(0) = 5$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I set up the Maximum Principle equations, but, in particular, I need to maximize the Hamiltonian in the $u$-variable. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My nstructor's solutions does this by differentiating and letting it equal zero, i.e. he gets $$2u(t) + \lambda = 0.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then he goes on with the other equations, and sovles for $\lambda$, and then $u$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, if we differentiate the Hamiltonian again with respect to $u$, then we get $$2 &amp;gt; 0$$&#xA;which is not negative, hence surely the 1st equation is not warranted, as we have found a minimum, not maximum? &lt;/p&gt;&#xA;" OwnerUserId="14968" LastActivityDate="2017-10-24T21:15:05.040" Title="Optimal control theory: How to maximize Hamiltonian in this case?" Tags="&lt;optimal-control&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18920" PostTypeId="2" ParentId="18910" CreationDate="2017-10-24T16:42:02.637" Score="1" Body="&lt;p&gt;I'm not aware of any comprehensive list of theory conferences. But here are some usual suspects in North America: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.econometricsociety.org/meetings/future-meetings&quot; rel=&quot;nofollow noreferrer&quot;&gt;Econometric Society Meetings&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.aeaweb.org/conference/&quot; rel=&quot;nofollow noreferrer&quot;&gt;AEA Meetings&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.economics.utoronto.ca/conferences/index.php/cetc/index/schedConfs/archive&quot; rel=&quot;nofollow noreferrer&quot;&gt;Canadian Economic Theory Conference&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://www.gametheorysociety.org/conferences/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Game Theory Society Conferences&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://www.gtcenter.org/?page=Conference.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Stony Brook Game Theory Summer Festival&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://myweb.uiowa.edu/rriezman/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Midwest Economic Theory and International Trade Conference&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Some institutes/departments (e.g. &lt;a href=&quot;https://bfi.uchicago.edu/events/economic-theory-conference-iii&quot; rel=&quot;nofollow noreferrer&quot;&gt;BFI&lt;/a&gt;, &lt;a href=&quot;http://econ.columbia.edu/columbia-conference-economic-theory&quot; rel=&quot;nofollow noreferrer&quot;&gt;Columbia&lt;/a&gt;, &lt;a href=&quot;http://cowles.yale.edu/conferences/theory-sum17&quot; rel=&quot;nofollow noreferrer&quot;&gt;Cowles Foundation&lt;/a&gt;) would have periodic but irregular theory workshops. However, presentations in these events are usually by invitation only.&lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2017-10-24T16:42:02.637" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18921" PostTypeId="1" CreationDate="2017-10-24T17:47:30.077" Score="1" ViewCount="191" Body="&lt;p&gt;Previously, we have seen that Europeans and Americans provided various technologies (high-speed rail&lt;sup&gt;[1]&lt;/sup&gt;, aerospace&lt;sup&gt;[2]&lt;/sup&gt;&lt;sup&gt;[3]&lt;/sup&gt;, microprocessor&lt;sup&gt;[4]&lt;/sup&gt;, etc.) to China to earn instantaneous money. Later what happened was, China did its own research on those techs, improved them and became a giant vendor.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Apparently, the same is being repeated in case of India. The USA and EU is giving India missile tech&lt;sup&gt;[5]&lt;/sup&gt;, nuclear tech&lt;sup&gt;[6]&lt;/sup&gt;, aircraft carrier tech&lt;sup&gt;[7]&lt;/sup&gt;, fighter jet tech&lt;sup&gt;[8]&lt;/sup&gt;, and so on. India is also making 100% sure that they obtain those techs by enforcing a so-called policy named: &quot;Make in India&quot;&lt;sup&gt;[9]&lt;/sup&gt;.   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is, Why Is the West providing technology to India even though there is an imminent danger to the West of India becoming a 2nd giant vendor?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;References&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/High-speed_rail_in_China#Acquisition_of_foreign_technology&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://en.wikipedia.org/wiki/High-speed_rail_in_China#Acquisition_of_foreign_technology&lt;/a&gt; &lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.ainonline.com/aviation-news/defense/2017-06-20/new-chinese-fighters-tap-russian-us-technology&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.ainonline.com/aviation-news/defense/2017-06-20/new-chinese-fighters-tap-russian-us-technology&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.cnbc.com/2017/09/18/rolls-royce-chairman-ian-davis-on-chinese-jet-engines-singapore-summit.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.cnbc.com/2017/09/18/rolls-royce-chairman-ian-davis-on-chinese-jet-engines-singapore-summit.html&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Loongson#MIPS_patent_issues&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://en.wikipedia.org/wiki/Loongson#MIPS_patent_issues&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://uk.reuters.com/article/uk-l-t-mbda-idUKKBN15S0XG&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://uk.reuters.com/article/uk-l-t-mbda-idUKKBN15S0XG&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://www.firstpost.com/india/india-us-nuclear-deal-all-you-need-to-know-about-the-landmark-agreement-3596209.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.firstpost.com/india/india-us-nuclear-deal-all-you-need-to-know-about-the-landmark-agreement-3596209.html&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://www.news18.com/news/world/us-to-provide-emals-technology-to-india-for-aircraft-carriers-1550359.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.news18.com/news/world/us-to-provide-emals-technology-to-india-for-aircraft-carriers-1550359.html&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://economictimes.indiatimes.com/news/defence/us-updates-jet-engine-technology-transfer-policy-with-india/articleshow/50131574.cms&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://economictimes.indiatimes.com/news/defence/us-updates-jet-engine-technology-transfer-policy-with-india/articleshow/50131574.cms&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Make_in_India&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://en.wikipedia.org/wiki/Make_in_India&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerDisplayName="user13954" LastActivityDate="2018-09-09T17:00:33.080" Title="Why Is the West providing technology to India?" Tags="&lt;technology&gt;" AnswerCount="3" CommentCount="2" FavoriteCount="1" ClosedDate="2018-09-11T21:54:17.780" ContentLicense="CC BY-SA 3.0" />
  <row Id="18923" PostTypeId="2" ParentId="18913" CreationDate="2017-10-24T18:29:34.890" Score="1" Body="&lt;p&gt;There is nothing more to it than the equation&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Y_t - (c_y+v)Y_{t-1} = C^a + I^a$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is a linear non-homogeneous first-order difference equation, and it is non-homogeneous because there is a non-zero constant, $C^a + I^a \neq 0$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is not some &quot;habit in economics&quot;, but rather standard mathematical terminology.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2017-10-24T18:29:34.890" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18925" PostTypeId="1" CreationDate="2017-10-24T19:01:58.677" Score="2" ViewCount="28" Body="&lt;p&gt;I have panel data for individuals in an economy that experienced fluctuations in employment levels. I also have some health information for these individuals, BMI, self-rated health etc., &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is this, my dataset is quite small, (1500 people wave one, 1000 wave two, 700 people wave three), I am aware that fixed effects regressions can really cut down the number of individuals I can examine observations in comparison to random effects. Hausman tests aside, are there any theoretical good arguments for using a random effects model in the case where fixed effects decreases the number of individuals analysed to just a handful of people? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Similarly, in a fixed effects regression is it necessary to include control variables? After all, surely this kind of regression is only examining within individual variation, such that control variables are not necessary?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Basically, as fixed-effects models are looking at the determinants of within-subject variability. If there is no variability within a subject, there is nothing to examine. If I am analyzing something that rarely changes across time, or if very few individuals are in a binary group that I would like to examine, there wouldn’t be many cases left for a fixed effects analysis. Thus some of the sample will be dropped from the analysis. Which is what I mean by &quot;reduce the number of individuals (in my sample)&quot;. I am aware that other techniques, like random effects or xtreg, fe, won’t cost so many cases and would like a sound theoretical argument to support the use of these techniques. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any and all insight is greatly appreciated,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;John &lt;/p&gt;&#xA;" OwnerUserId="12034" LastActivityDate="2017-10-24T19:01:58.677" Title="Panel data: When can I used random effects instead of fixed effects? Are control variables necessary?" Tags="&lt;econometrics&gt;&lt;paneldata&gt;&lt;fixed-effects&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18926" PostTypeId="1" AcceptedAnswerId="18936" CreationDate="2017-10-24T20:37:21.367" Score="3" ViewCount="1960" Body="&lt;p&gt;If a man has a small business where he is the only employee or if he is self employed, that makes him a capitalist?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example a freelance writer. Or a subsistence farmer that only produces enough to feed himself and his family. Or a subsistence farmer that makes a little income on top of feeding himself and his family. Is there an income threshold that makes them capitalist?&lt;/p&gt;&#xA;" OwnerUserId="5161" LastEditorUserId="5161" LastEditDate="2017-10-25T12:36:35.597" LastActivityDate="2017-10-26T13:28:12.120" Title="Is a small business owner without employees a capitalist?" Tags="&lt;capitalism&gt;" AnswerCount="3" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="18927" PostTypeId="2" ParentId="18918" CreationDate="2017-10-24T21:15:05.040" Score="2" Body="&lt;p&gt;Hamiltonian&#xA;\begin{align}&#xA;H(y(t),u(t),\lambda(t)) = y(t)+u(t)^2 + \lambda(t) u(t)&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First order conditions read&#xA;\begin{align}&#xA;&amp;amp;H_u = 0 \quad \Longleftrightarrow \quad u(t) = -\frac{\lambda(t)}{2}\\[2mm]&#xA;&amp;amp;\frac{d\lambda(t)}{dt} = -H_y = -1\\[2mm]&#xA;&amp;amp;\lambda(1) = 0&#xA;\end{align}&#xA;Integrate costate&#xA;\begin{align}&#xA;&amp;amp;\int \frac{d\lambda(t)}{dt} = \int -1\\[2mm]&#xA;&amp;amp;\int d\lambda(t) = \int -dt\\[2mm]&#xA;&amp;amp;\lambda(t) = -t + C &#xA;\end{align}&#xA;with &#xA;\begin{align}&#xA;&amp;amp;\lambda(1) = -1 + C = 0 \quad \Longleftrightarrow \quad C = 1\\[2mm]&#xA;\Longrightarrow \quad &amp;amp; \lambda(t) = 1-t\\[2mm]&#xA;\Longrightarrow \quad &amp;amp; u(t) = \frac{t-1}{2}  &#xA;\end{align}&#xA;Now integrate state equation&#xA;\begin{align}&#xA;&amp;amp;\int \frac{dy(t)}{dt} = \int \frac{t-1}{2}\\[2mm]&#xA;&amp;amp;\int dy(t) = \int \frac{t-1}{2}dt\\[2mm]&#xA;&amp;amp;y(t) = \frac{t}{2}\left(\frac{t}{2}-1\right) + C&#xA;\end{align}&#xA;with &#xA;\begin{align}&#xA;&amp;amp;y(0) =  C = 5\\&#xA;\Longrightarrow \quad &amp;amp; y(t) = \frac{t}{2}\left(\frac{t}{2}-1\right) + 5&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I'm not mistaken necessary conditions are sufficient if maximized Hamiltonian is concave in state (Arrow sufficiency if I recall correctly (see e.g. Caputo, 2005, Ch. 3))&#xA;\begin{align}&#xA;H^*(y,\lambda) = \max_u H(y,u,\lambda) = y - \frac{\lambda^2}{2}.&#xA;\end{align}&#xA;Now we have&#xA;\begin{align}&#xA;H_y &amp;gt; 0 = H_{yy}&#xA;\end{align}&#xA;such that concavity is given.&lt;/p&gt;&#xA;" OwnerUserId="4266" LastActivityDate="2017-10-24T21:15:05.040" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18928" PostTypeId="2" ParentId="18926" CreationDate="2017-10-24T21:19:15.207" Score="4" Body="&lt;p&gt;(Bowing to peer pressure) &lt;strong&gt;According to original Marxist theory, no, he is not&lt;/strong&gt;. Here, the defining characteristic of a capitalist is that he appropriates (as &quot;profits&quot;) the surplus value that is created during the production process by &lt;em&gt;other people's labor&lt;/em&gt; (capital does not produce surplus value).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your freelancer or small business owner without employees appropriates only their own surplus value, created by their own labor. And it doesn't matter how large is their income, as long as they make it without employing other people as their employees.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;According to some other theory? Well, somebody name the theory, and then we can clarify who is a capitalist and who is not, according to that other theory. Otherwise, it will be too much &quot;personal opinion-based&quot;.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2017-10-26T13:28:12.120" LastActivityDate="2017-10-26T13:28:12.120" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="18929" PostTypeId="2" ParentId="18926" CreationDate="2017-10-24T21:54:16.623" Score="1" Body="&lt;p&gt;If I correctly remember it, the profit motive was an important factor in the definition, though, there are other characteristics of &quot;capitalist&quot; i.e. wage labour, free market agent, private property etc. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;One definition I found useful is this:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;A capitalist is, practically by definition, one who exalts capital,&#xA;  who emphasizes the importance of its holders, as against the workers,&#xA;  in the process of production.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;You may want to read the rest &lt;a href=&quot;https://www.counterpunch.org/2015/10/16/who-is-a-capitalist/&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="6009" LastEditorUserId="6009" LastEditDate="2017-10-25T13:02:35.683" LastActivityDate="2017-10-25T13:02:35.683" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18931" PostTypeId="2" ParentId="18921" CreationDate="2017-10-25T00:26:22.783" Score="0" Body="&lt;p&gt;I may hazard a small guess to this. India has a very young workforce in comparison to its Asian counterparts (China and Japan). We especially see this in the field of software design where it has an even lower median age of labour than USA. As we know the West gains a lot from brain drain and stands to gain even more from young innovative minds that India produces, we can assume this access to new technology will let India produce even more bright minds.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for India becoming a large vendor. We can see China will be facing extreme labour shortages soon due to it's high aged labour force and extreme brain drain. This in turn has China to be predicted to fall as a large vendor in the global market (Or at least possible). If it does India can take its place, easing the instability of the market, and if it doesn't we have a new youth force with amazing work ethic gain from.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also from an Economic view more vendors in the market is decentralizing, which can be seen as good or bad depending.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope this had something to gain.&lt;/p&gt;&#xA;" OwnerUserId="14967" LastActivityDate="2017-10-25T00:26:22.783" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="18933" PostTypeId="2" ParentId="17984" CreationDate="2017-10-25T01:31:04.523" Score="0" Body="&lt;p&gt;The argument for the &quot;draining the economy&quot; is that money is not recirculated in the economy, and cannot be spent in consumption, which generates growth. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It would be a similar argument, however, for several other situations, like the firms implementing automation: the shareholders will capture the wealth from wages saved. The portion of this money that is saved in personal fortunes is also &lt;a href=&quot;https://www.youtube.com/watch?v=rmVcW5VMTX8&quot; rel=&quot;nofollow noreferrer&quot;&gt;not being recirculated in the economy&lt;/a&gt;, slowing down growth.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As the user london pointed out in the comments - the size of the US economy makes the remittances insignificant. I assume this is the case for most large countries. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you want to explore a case of a small country with large remittances, I believe Qatar is one of the big outliers out there, where the migrant population is 88% of the total population of the country, sending &lt;a href=&quot;http://www.qatar-tribune.com/news-details/id/10630/d/20160503&quot; rel=&quot;nofollow noreferrer&quot;&gt;$11B in remittances in 2016&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="12304" LastActivityDate="2017-10-25T01:31:04.523" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18934" PostTypeId="2" ParentId="17883" CreationDate="2017-10-25T01:36:31.280" Score="0" Body="&lt;p&gt;This is an old question, and my apologies for surfacing this again. For anyone curious about the answer, I think the result is quite intuitive and unless I am missing something completely, the answer seems clear enough that I apologize for wasting your time! &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In essence, incentive compatibility requires that truth-telling yields a higher payoff. Now we require this to be the case along all dimensions of the buyer's type. This is exactly akin to convexity, and we can see this through the Taylor Series expansion. Any movement along any other dimension is an underestimator. &lt;/p&gt;&#xA;" OwnerUserId="14249" LastActivityDate="2017-10-25T01:36:31.280" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18936" PostTypeId="2" ParentId="18926" CreationDate="2017-10-25T12:20:51.267" Score="2" Body="&lt;p&gt;&lt;strong&gt;Small Business Owner: Yes.&lt;/strong&gt;&lt;br&gt;&#xA;&lt;strong&gt;Freelance Writer: Yes.&lt;/strong&gt;&lt;br&gt;&#xA;&lt;strong&gt;Subsistence Farmer: No.&lt;/strong&gt;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Capitalism is the use to the private sector to grow the economy.&lt;br&gt;&#xA;This means that the private sector has to be producing a good or service that can be sold in the marketplace to benefit society.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let us take a look at your examples. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A small business owner is, by definition, owning a business that is producing some good or service for which there is a market.  One example would be a barber shop or a &quot;mom and pop&quot; restaurant.  It does not matter if the venture is making millions of dollars or just making ends meet.  It does not even matter if they are the only employee.  The business is making a good or service that is demanded, and they are fulfilling that demand.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A freelance writer is also producing a good or service that is demanded by others.  This could be written articles, books, essays, etc. or the service of taking notes and transcribing words.  Again, it does not matter the payment received for this good or service or if the freelance writer is a loner.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, the subsistence farmer is different.  By definition, a subsistence farmer is only producing enough food to keep themselves alive; they are not producing any food to sell to anyone else.  The farmer (presumably) has no other source of income and is forced to produce all other items on their own.  So, although they are innovative, the subsistence farmer is not a capitalist.  &lt;/p&gt;&#xA;" OwnerUserId="27" LastActivityDate="2017-10-25T12:20:51.267" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18937" PostTypeId="1" CreationDate="2017-10-24T09:35:48.707" Score="0" ViewCount="394" Body="&lt;p&gt;I was solving a prep Econometrics exam, with STATA output provided on two different models. &#xA;They asked me to &quot; Estimate the marginal effect of ability (x variable) on wage (y variable) for the models of output A and B for average levels of wage and ability.&quot; &#xA;Model A is a log-log model for the given x and model B is log-linear model. The answers they provided are &#xA;Model A: ∂wage/ ∂asvabc = 0.403*(wage/asvabc), at averages we get 0.153.&#xA;; Model B: ∂wage/ ∂asvabc = 0.008*wage, at average we get 0.169&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Irrespective of the numbers, I don't understand how they know whether to multiply the marginal effect by x or x/y or... Can someone help me with the logic? Or if you know the rule for this?&lt;/p&gt;&#xA;" OwnerDisplayName="Olya" LastActivityDate="2017-12-24T15:53:10.350" Title="Econometrics - marginal effect of x on y at average values" Tags="&lt;econometrics&gt;&lt;marginal&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18939" PostTypeId="2" ParentId="18937" CreationDate="2017-10-25T14:48:49.510" Score="1" Body="&lt;p&gt;&quot;They knew&quot; because they have written down the models. Ignoring other variables, the log-log specification is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\ln y = \beta\ln x \implies e^{\ln y} = e^{\ln x ^{\beta}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies y = x^{\beta} \implies \frac {\partial y}{\partial x} = \beta \frac {x^{\beta}}{x} = \beta \frac {y}{x}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I guess the OP can work out the other model now.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2017-10-25T14:48:49.510" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18941" PostTypeId="2" ParentId="11217" CreationDate="2017-10-25T16:11:44.580" Score="6" Body="&lt;p&gt;So you want to find a maximum of $\sigma(s,z)$. If $\sigma$ is diagonally strictly concave you can do so by starting at any point and just following the gradient $g(s,z)$ until you find the maximum and no matter where you start, you will always end up at the same point (Start at the lower black points and follow the direction of the gradient (the direction of the steepest ascent).).&#xA;&lt;a href=&quot;https://i.stack.imgur.com/pLQRe.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/pLQRe.png&quot; alt=&quot;Following the gradient in a diagonally strictly concave function&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, if $\sigma$ isn't diagonally strictly concave, you could end up at different maxima by starting at an arbitrary point and following the gradient (Follow the direction of the steepest ascent starting from the two lower black dots; you'll end up at two different points.).&#xA;&lt;a href=&quot;https://i.stack.imgur.com/wsE3S.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/wsE3S.png&quot; alt=&quot;Following the gradient in a non-diagonally strictly concave function&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="14978" LastActivityDate="2017-10-25T16:11:44.580" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18946" PostTypeId="1" CreationDate="2017-10-25T21:29:55.900" Score="0" ViewCount="31" Body="&lt;p&gt;Im trying to replicate the forecasts of this VECM model presented by the bank of canada in &lt;a href=&quot;http://www.bankofcanada.ca/wp-content/uploads/2010/08/adam-final.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;The M1 Vector-Error-Correction Model:&#xA;Some Extensions and Applications&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Context (from page 24 in the pdf).&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;Details of the Adjusted-M1 VECM&lt;/strong&gt;&lt;br&gt;&lt;br&gt;&#xA;  Step 1: Estimating long-run money demand and the money gap&#xA;  The Johansen-Juselius methodology is used to test for the existence of a&#xA;  unique long-run cointegrating relationship between money, inflation, output,&#xA;  and interest rates (non-seasonally adjusted data). The model is an errorcorrection&#xA;  model because deviations of money demanded from money&#xA;  supplied (the money gap) are assumed to be corrected in the long run. The&#xA;  model has the form&#xA;  $$\Delta X=\Gamma(L)\Delta X_t+DZ_t+\alpha \beta^{'}[X_{t-1},D80a_{t-1}]$$&#xA;  , (A1)&#xA;  where&#xA;  $X_t= [M1_t, CPI_t, Y_t , RONf_t]$&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;$RONf_t$= &lt;strong&gt;level of “policy-free” overnight interest&#xA;  rate&lt;/strong&gt; =$RONf_t- \epsilon_t$&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;$\epsilon_t$ is the residual from the interest rate equation(A8)&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;$M1_t$=log level of adjusted M1&lt;br&gt;&#xA;  $Y_t$= log level of real output&lt;br&gt;&#xA;  $CPI_t$= log level of the consumer price index&lt;br&gt;&#xA;  $Zt$= [constant, 3 seasonal dummies, output gap$_{t–1}$, log(exchange&#xA;  rate) from $t$ to $t–3$, $USCP90_t$&#xA;   rate, $D80b^* \Delta NPNt$&#xA;  , $D80a_t$]&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;$...$&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Im just wondering, how does the bank of Canada define output $Y_t$? do they mean GDP?&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="8815" LastEditDate="2017-10-26T02:43:12.940" LastActivityDate="2017-10-27T22:29:11.957" Title="How does the bank of Canada define &quot;output&quot;" Tags="&lt;reference-request&gt;&lt;monetary-policy&gt;&lt;applied-econometrics&gt;" AnswerCount="0" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="18952" PostTypeId="1" CreationDate="2017-10-26T05:42:53.847" Score="2" ViewCount="309" Body="&lt;p&gt;The law of supply shows a positive relationship between price and quantity &#xA;However, a firm producing at break even level of output would have to increase the quantity supplied if the price of the commodity goes down in order to break even.&#xA;Does that mean that a firm producing at break even level is an exception to the law or that the analysis contradicts the law of supply ? ( please correct me if there are any inconsistencies in the logic) &lt;/p&gt;&#xA;" OwnerUserId="14988" LastActivityDate="2017-10-26T13:49:38.723" Title="Does the break even analysis contradict the law of supply?" Tags="&lt;microeconomics&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18954" PostTypeId="2" ParentId="18952" CreationDate="2017-10-26T07:16:04.887" Score="2" Body="&lt;p&gt;The short answer is &lt;strong&gt;no.&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &lt;a href=&quot;https://en.wikipedia.org/wiki/Law_of_supply&quot; rel=&quot;nofollow noreferrer&quot;&gt;law of supply&lt;/a&gt; only states that increases in price result in higher quantities supplied, ceteris paribus. Break even is the point where Revenue = Costs. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your confusion might come from this sentence:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;a firm producing at break even level of output would have to increase the quantity supplied if the price of the commodity goes down in order to break even.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;If the price lowers, the firm will reduce its quantity supplied. That's it. The specific quantity depends on the variable and fixed costs. &#xA;It's not mentioned that the company has to break even - think of a monopolist for example.&lt;/p&gt;&#xA;" OwnerUserId="12304" LastActivityDate="2017-10-26T07:16:04.887" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18955" PostTypeId="2" ParentId="18952" CreationDate="2017-10-26T11:13:34.877" Score="1" Body="&lt;p&gt;The logic of the OP implies that &lt;em&gt;all costs are fixed&lt;/em&gt;. In the very short-term one could say that this holds for many firms: a firm cannot leave rented buildings immediately, it can not fire employees immediately etc. Namely &quot;costs&quot; have the form of financial commitments. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But in the mid term (and I am talking a few weeks to a few months, no more), some of the costs are in reality variable. Then if at the original break-even point average cost was increasing, the reduction of price will lead the firm to a lower quantity (where it will have lower average cost), that may even bring in profits. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And the &quot;Law of Supply&quot; refers &lt;em&gt;not&lt;/em&gt; to the very short term, but rather to the mid- and long-term behavior.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2017-10-26T13:49:38.723" LastActivityDate="2017-10-26T13:49:38.723" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18956" PostTypeId="2" ParentId="3390" CreationDate="2017-10-26T12:02:39.087" Score="0" Body="&lt;p&gt;Yes. Merchandise trade is nothing but trade in goods. So total trade would be trade in merchandise + trade in services. Goods simply being transported through a country (goods in transit) or temporarily admitted or withdrawn (except for goods for inward or outward processing) do not add to or subtract from the stock of material resources of a country and are not included in the international merchandise trade statistics&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Reference: &lt;a href=&quot;http://www.wikinvest.com/wiki/Merchandise_Trade&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.wikinvest.com/wiki/Merchandise_Trade&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://stats.oecd.org/glossary/detail.asp?ID=919&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://stats.oecd.org/glossary/detail.asp?ID=919&lt;/a&gt; &lt;/p&gt;&#xA;" OwnerUserId="14990" LastActivityDate="2017-10-26T12:02:39.087" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18959" PostTypeId="1" CreationDate="2017-10-26T14:53:35.210" Score="1" ViewCount="419" Body="&lt;p&gt;I was just thinking about the question&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;How does a firm choose the optimal input vector as to maximize profits when the firm produces more than one final product&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;More precisely if $\mathbb{R}_{\geq 0}^{\ell}=\{x \in  \mathbb{R}^{\ell} : x \geq 0\}$, the production function would be&#xA;$$&#xA;f:\mathbb{R}_{\geq 0}^{\ell}\rightarrow \mathbb{R}_{\geq 0}^{n}, \quad n\geq 2&#xA;$$&#xA;For simplicity we can assume the firm operates in a competitive market so that the price is given. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is, how does the firm choose the input vector $x \in \mathbb{R}_{\geq 0}^{\ell}$ as to maximize profits?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I did some research and apparently the type of problem this is a “multi-objective” optimization problem, and it appears to be an active field in engineering. Some of the methods to solve this kind of problems use pareto-dominance style arguments. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I wanted to know if anyone could clarify the specific question of multi product profit maximization, and more generally I would also appreciate any literature or books on this topic (multi objective optimization), written for economists, as I have been searching in google and every book I find appears to be written for engineers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I suspect that a treatment of this topic from an economics point of view would involve some discussion of social choice theory.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help is most welcomed!   &lt;/p&gt;&#xA;" OwnerUserId="10166" LastActivityDate="2017-10-27T22:28:17.340" Title="Multi-product profit maximization" Tags="&lt;microeconomics&gt;&lt;reference-request&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18961" PostTypeId="2" ParentId="18959" CreationDate="2017-10-26T16:00:14.657" Score="3" Body="&lt;p&gt;At the end of the day, the firm seeks to maximize &lt;strong&gt;profits&lt;/strong&gt;, which is a one-dimensional object. So the firm simply solves &#xA;\begin{equation}&#xA;\max_{\mathbf x}\;\mathbf{p}\cdot\mathbf f(\mathbf x)-c(\mathbf x)&#xA;\end{equation}&#xA;where $\mathbf x\in\mathbb R_+^\ell$ is a vector of $\ell$ inputs, $\mathbf p\in\mathbb R_+^n$ is a vector of $n$ prices for the final output, $\mathbf f:\mathbb R_+^\ell\to\mathbb R_+^n$ is the production function mapping $\ell$ inputs to $n$ outputs, and $c:\mathbb R_+^\ell\to \mathbb R_+$ is the cost function. This is a standard unconstrained optimization exercise that any first year grad student in economics should know how to solve. The standard textbooks --- MWG, Jehle and Reny, Simon and Blume --- have sections that cover the techniques.&lt;/p&gt;&#xA;" OwnerUserId="42" LastEditorUserId="42" LastEditDate="2017-10-26T16:18:50.740" LastActivityDate="2017-10-26T16:18:50.740" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18964" PostTypeId="1" AcceptedAnswerId="19497" CreationDate="2017-10-26T17:14:06.800" Score="3" ViewCount="2016" Body="&lt;p&gt;I have recently been playing the game of fallout 4 and I was struck by an interesting spec of the game.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;People in the nuclear post-apocalyptic world use bottle caps as barter money.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Inquiring a little, it is said that it has a certain logic to use them, &lt;em&gt;since they resist more or less well the inclemencies of the climate.&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;They are difficult to duplicate without heavy machinery, which is scarce in the post-nuclear world.&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;The banks of the world are supposed to base their value on purified water and that in a certain way, if you came to a bank with 100 bottle caps you could come out with a bucket of water.&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;(I do not know if this means that the banks function at the same time as exchange houses and water purification and distribution facilities)&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;All this sounds good and in a way with some logic, but reading this only left me more doubts than answers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;How would inflation work in such an economic environment?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;How can people buy expensive objects like houses or maybe vehicles, (they cost at least 10000)?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;How would a bank know if another has launched a new version of purple coin that is worth more than any other single bottle cap?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;If a new bottle cap of unique color appears, how to corroborate that a bank in another village supports its value? (that is, that is not false).&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;(Sorry about my tags I could not find some tags for a &quot;what if&quot; scenarios).&lt;/em&gt;&lt;/p&gt;&#xA;" OwnerUserId="14993" LastEditorUserId="1601" LastEditDate="2017-10-26T18:11:55.190" LastActivityDate="2017-11-27T23:52:57.293" Title="What are the logistic implications of using bottle caps as currency?" Tags="&lt;macroeconomics&gt;&lt;money-supply&gt;&lt;political-economy&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="18965" PostTypeId="5" CreationDate="2017-10-26T17:20:58.110" Score="0" Body="&lt;p&gt;According to &lt;a href=&quot;http://www.dictionary.com/browse/terminology&quot; rel=&quot;nofollow noreferrer&quot;&gt;dictionary.com terminology&lt;/a&gt; is:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The system of terms belonging or peculiar to a science, art, or specialized subject; nomenclature:&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Use this tag to ask about unclear or ambiguous terms, and remember to show any research you've found already before asking about a definition.&lt;/p&gt;&#xA;" OwnerUserId="4988" LastEditorUserId="4988" LastEditDate="2017-10-26T17:27:09.157" LastActivityDate="2017-10-26T17:27:09.157" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18966" PostTypeId="4" CreationDate="2017-10-26T17:20:58.110" Score="0" Body="For questions about clarifications of economics terms. Use this tag to ask about unclear or ambiguous terms, and remember to show any research you've found already before asking about a definition." OwnerUserId="4988" LastEditorUserId="4988" LastEditDate="2017-11-06T18:57:40.427" LastActivityDate="2017-11-06T18:57:40.427" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18967" PostTypeId="1" CreationDate="2017-10-26T18:39:45.223" Score="2" ViewCount="44" Body="&lt;p&gt;Does Fannie Mae directly or indirectly get money that is printed from the federal reserve to buy mortgages, or have they ever? If so, when has this happened? How much money? What is the process by which it gets to them?&lt;/p&gt;&#xA;" OwnerUserId="14994" LastEditorUserId="14994" LastEditDate="2017-10-27T18:32:08.597" LastActivityDate="2017-10-27T18:32:08.597" Title="Does Fannie Mae get money from the FED" Tags="&lt;money-supply&gt;&lt;federal-reserve&gt;&lt;housing&gt;&lt;united-states&gt;" AnswerCount="0" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18970" PostTypeId="1" CreationDate="2017-10-26T23:23:03.420" Score="1" ViewCount="72" Body="&lt;p&gt;I would like to ask you a super-basic question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I need to use Gini coefficient as moderator to examine well-being, resilience and other variables in Immigrants.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which Gini index is more reliable or popular to use among professional economists, World Bank's or CIA's? Either way, the most recent year are varied depending on countries. How do you deal with it?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you for your advice!&lt;/p&gt;&#xA;" OwnerUserId="14997" LastActivityDate="2017-10-27T22:28:45.567" Title="Which Gini is more reliable, CIA or World Bank?" Tags="&lt;development-economics&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18972" PostTypeId="1" AcceptedAnswerId="18977" CreationDate="2017-10-27T08:11:10.363" Score="3" ViewCount="89" Body="&lt;p&gt;Say there's a bunch of competing businesses, car repair shops for example, in a certain market. Business is good and there's a substantial average turnaround time for all of them. Someone decides they're going to add a bunch of capacity - hire more mechanics and expand their space.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Say that shop finds as soon as they add the capacity, customers figure it out, get in the shortest line available to them, and very quickly the capacity is all in use, and the turnaround time is only lower, slightly, as a result of the total supply in the entire market being greater. The shop's business volume has quickly increased in close proportion to the expansion, but that's about all that changed. What is the best term for what this observation says about the market? Low perceived switching costs? High market fluidity?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Say the opposite turns out to be true. The shop adds the same extra capacity, but the total number of people walking in the door doesn't change, or is sluggish to change. Turnaround time goes down, business volume stays the same, profits go down due to the unused capacity, and the competitors are humming along as though nothing happened. The managers are left thinking, &quot;Either we have a reputation or marketing problem, or the market we're in is just ____.&quot; What's the term for a market that behaves this way? &lt;/p&gt;&#xA;" OwnerUserId="15002" LastActivityDate="2017-10-27T13:01:57.733" Title="The right term for a market that tends towards consumers switching suppliers freely" Tags="&lt;behavioral-economics&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18975" PostTypeId="2" ParentId="18972" CreationDate="2017-10-27T09:34:49.753" Score="1" Body="&lt;p&gt;The basic thing that this scenario says is that capacity/supply was below demand, in the sense that the customers would want to be serviced earlier than they did.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And whatever the switching costs, by revealed preference it appears these costs were lower than the monetary value of extra utility gained by consumers because now they are serviced earlier.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So no, we cannot say that switching costs are low, only that they are lower than the value to be serviced earlier.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2017-10-27T09:34:49.753" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18976" PostTypeId="2" ParentId="18444" CreationDate="2017-10-27T11:15:59.467" Score="3" Body="&lt;p&gt;I think the broad principle you are looking for is: &lt;strong&gt;people respond to incentives&lt;/strong&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is an important principle (some would say the most important in economics), with many implications and corollaries. But I think the particular implication you're looking for is &lt;strong&gt;unintended consequences&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So in your example, welfare was intended to alleviate poverty. However, because &lt;strong&gt;people respond to incentives&lt;/strong&gt;, welfare has the &lt;strong&gt;unintended consequence&lt;/strong&gt; that some people have more children.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Other similar terms you may be thinking of: &lt;a href=&quot;https://en.wikipedia.org/wiki/Cobra_effect&quot; rel=&quot;nofollow noreferrer&quot;&gt;Cobra effect&lt;/a&gt;, &lt;a href=&quot;https://en.wikipedia.org/wiki/Perverse_incentive&quot; rel=&quot;nofollow noreferrer&quot;&gt;perverse incentive&lt;/a&gt;.)&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2017-10-27T11:15:59.467" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18977" PostTypeId="2" ParentId="18972" CreationDate="2017-10-27T11:30:08.053" Score="3" Body="&lt;p&gt;If you want a general term, I would suggest &lt;strong&gt;frictionless market.&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Normally, we would expect customers to reallocate themselves until the waiting time across shops is equalised. Indeed, all else equal, if the waiting time at $A$ is greater than that at $B$ then customers will switch from $A$ to $B$ until the discrepancy is eliminated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we do not observe such switching occurring then we say there is some sort of &quot;market friction&quot;. Some examples of frictions:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;strong&gt;switching costs&lt;/strong&gt;: switching to a new supplier is costly and the gain in reduced waiting time is not sufficient to compensate consumers for the cost of switching;&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;informational friction&lt;/strong&gt;: some consumers don't know of the existence of firm $B$ (or don't know how long its waiting time is). Perhaps they could acquire the missing information, but doing so takes time and effort, which is costly.&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;principal-agent problems&lt;/strong&gt;: customers might rationally trust their current supplier because of positive past experiences (formally, reputation can solve moral hazard problems). Or perhaps they just had enough time to learn whether their current supplier is competent or not; something they don't know about the alternatives.&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;product differentiation&lt;/strong&gt;: perhaps people like some products more than others. $B$ might be further from their house than $A$ so that visiting $B$ takes longer. Or maybe they know the mechanic at $A$ and like to talk to him/her. This makes them reluctant to switch to $B$.&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;behavioural factors&lt;/strong&gt;: if consumers do/can not act rationally then they may fail to take advantage of potential gains from switching.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Here's a neat quote on the issue:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;As recognised by the 2010 Nobel prize, the study of market frictions has generated rich insights in many areas of economics, especially macroeconomics, labour economics and monetary theory.1 In industrial organisation, analysis has focussed on understanding how market frictions can create a source of market power by restricting consumers' ability to change suppliers (&lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/S0014292112000773&quot; rel=&quot;nofollow noreferrer&quot;&gt;Wilson, 2012&lt;/a&gt;).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="108" LastActivityDate="2017-10-27T11:30:08.053" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18978" PostTypeId="2" ParentId="18972" CreationDate="2017-10-27T13:01:57.733" Score="0" Body="&lt;p&gt;Perhaps it would make sense when trying to figure out how to label a particular instance in the functioning of the specific market you have in mind, to start from a typical market set-up and then try to work out what could the specific configuration mean in the context of that market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As an example consider the case of the auto repair shops referenced in the question; I assume that the reference is not about specialized shops or those certified to deal with a single car brand;  fixing the relevant market withing a given spatial territory eg 'the auto repair shops located downtown' could probably be used as a particular instance of a market operating under monopolistic competition; there are 'many firms' that supply a slightly differentiated product and 'entry' and 'exit' is relatively easy. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, in the context of a market under monopolistic competition, there is spare capacity usually maintained to defer competition;  it could be the case that the shops in the example expand capacity utilization in order to lower prices, soak up demand and run new entrants out of business. For incumbent firms, this could mean an increase in their turnover with or without impact on profits (that depends upon the particulars of the model) whereas for the new entrants it could very well mean that their customer base wears thin (because of consumers' 'brand loyalty' eg they trust their tried-and-tested mechanics, or because of simple cost calculations eg the new shops are located 'far away' presumably because the old shops have already been located at 'proper' locations 'downtown') and they are effectively ejected from the marker altogether.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, in this context, the managers should realize the monopolistic structure of the market and either advertise more or try to find a better location or something else along these lines etc. I don't know how they'd call it, but the fact of the matter would be that they have been outflanked and removed from the market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To sum up, perhaps it would be more helpful in your attempt to identify a specific configuration of a market if you could depart from a relatively well documented case and tried to work out the specifics from there.&lt;/p&gt;&#xA;" OwnerDisplayName="user14471" LastActivityDate="2017-10-27T13:01:57.733" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18980" PostTypeId="2" ParentId="9220" CreationDate="2017-10-27T19:35:56.520" Score="0" Body="&lt;p&gt;The laws of thermodynamics and futuristic technological advancement aside, I will attempt to answer the economics portion of the question.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You are a farmer that needs to plant &quot;the back forty&quot; (acres).  You could either (A) use a hoe and do the work by hand, or (B) use a tractor and do the work in a matter of hours.  You would probably choose the tractor since it would save you weeks of labor that you could use to work another job or till more acres of land.&lt;br&gt;&#xA;&lt;strong&gt;You chose to use the machine because it reduced your labor.&lt;/strong&gt;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But what about the labor beyond your local farm? &#xA;Any farmers around you who do not have a tractor will not be able to keep up with your productivity.  The market disruption will force them to sell their farms and, more importantly, find work elsewhere.&lt;br&gt;&#xA;No one is going to pay them because you have a tractor or because technology has advanced beyond hoes.  &lt;strong&gt;The other farmers are still going to need to work for their living.&lt;/strong&gt;&lt;br&gt;&#xA;So, they go find work.  Fortunately for them, the invention of tractors has caused a small increase demand for iron chassis, rubber wheels, petroleum, etc. and new jobs have been created.&lt;br&gt;&#xA;Some of the farmers get these jobs; the rest of the farmers get jobs in other sectors of the economy.  These ex-farmers invent or help to invent other machines, and the cycle continues.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Did the ex-farmers' transition from a &quot;low-cost&quot; zone to a &quot;high-cost&quot; zone?&lt;br&gt;&#xA;I would answer with &quot;a qualified yes.&quot;  The ex-farmers could no longer make a living as farmers.  So they moved to a sector where they could make a living.  However, I would also say that the invention of the tractor transitioned the farmer occupation from a &quot;high-cost&quot; zone to a &quot;low-cost&quot; zone, in the first place. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is it possible for the tractor to produce more &quot;work&quot; in total than goes into it?&lt;br&gt;&#xA;Yes.  Since it is much harder to see this answer from the tractor example, I will used the simpler &quot;machine&quot; of the lever.&lt;br&gt;&#xA;You are using your tractor to plow some new land and find a 200lb stone in your field.  You do not have rope to pull it with the tractor; instead, you use a sturdy tree branch to move the stone.  Depending on how long your lever (tree branch) is and where you place your fulcrum, any amount of force less than 200lbs would move the stone.&lt;br&gt;&#xA;The equation for the lever is $F_1 * d_1 = F_2 * d_2$ where $F_1$ is the 200lb stone, $d_1$ is the distance of the stone to the fulcrum, $F_2$ is your force, and $d_2$ is the distance of your force to the fulcrum.  If we assume that $d_1 = 1 ft$ (for simplicity), we have the equation become $200 = F_2 * d_2$.&lt;br&gt;&#xA;If your distance to the fulcrum ($d_2$) is 2 ft, you will need to apply 100lbs of force.&lt;br&gt;&#xA;If your distance to the fulcrum is 4 ft, you will need to apply 50lbs of force.&lt;br&gt;&#xA;&lt;strong&gt;This validates our answer that, yes, it is possible to get more work out of a machine than is put into it.&lt;/strong&gt;  &lt;/p&gt;&#xA;" OwnerUserId="27" LastActivityDate="2017-10-27T19:35:56.520" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18988" PostTypeId="1" AcceptedAnswerId="19000" CreationDate="2017-10-28T01:33:36.580" Score="0" ViewCount="117" Body="&lt;p&gt;According to some lecture notes, apparently it is possible for the economy to return to long run equilibrium if via the self-correcting mechanism if there is a temporary shock to the stick wage (horizontal) SRAS. I believe the situation can be graphed as below (SRAS shifting to SRAS1). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem is I don't see an explanation as to how it will return to long run equilibrium ($Y_f$), other than to let labour markets adjust itself over long periods of time??&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/NUgtI.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/NUgtI.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="6782" LastEditorUserId="6782" LastEditDate="2017-10-28T01:44:49.290" LastActivityDate="2017-10-29T04:41:19.703" Title="How does the self-corecting mechanism put the economy back to long run equilibrium following a negative shock on the stick-wage SRAS?" Tags="&lt;macroeconomics&gt;&lt;long-run&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18989" PostTypeId="1" AcceptedAnswerId="18990" CreationDate="2017-10-28T07:25:21.577" Score="2" ViewCount="104" Body="&lt;p&gt;For example, a Japanese automobile company of which manufacturing factory located in China. Do the outputs produce from the factory located in China contribute to the well being of the Chinese people or the Japanese people?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why do outputs of a Japanese company manufactured in China counted in China's GDP instead of being counted as exports from Japan to China?&lt;/p&gt;&#xA;" OwnerUserId="14764" LastEditorUserId="-1" LastEditDate="2017-10-28T18:36:05.483" LastActivityDate="2017-10-28T18:36:05.483" Title="Do outputs of a country produced outside its borders contribute to its citizens' well-being?" Tags="&lt;gdp&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18990" PostTypeId="2" ParentId="18989" CreationDate="2017-10-28T08:14:56.307" Score="5" Body="&lt;p&gt;GDP stands for Gross Domestic Product: this is the amount of activity that happens within the borders of the country itself, irrespective of source.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What you are thinking of is GNP: Gross National Product- which ideally would be the amount of economic activity worldwide attributable to citizens or corporations or the government of a particular country.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Historically, countries liked the idea of GNP and it used to be the 'favoured' way of reporting economic activity. However from a practical perspective as the world has become more and more globalized, it turns out that GDP is easier to estimate and is somewhat more realistic when trying to assess the level of economic activity happening in a geographic area.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ultimately who cares who owns the factory, the fact that it exists where it is and not somewhere else is a huge boost to the local economy. Many industries have profit margins of 5% or less, guess where much of the expenses are being spent?&lt;/p&gt;&#xA;" OwnerUserId="2971" LastEditorUserId="2971" LastEditDate="2017-10-28T10:41:21.107" LastActivityDate="2017-10-28T10:41:21.107" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="18991" PostTypeId="1" AcceptedAnswerId="18993" CreationDate="2017-10-28T08:25:36.237" Score="7" ViewCount="956" Body="&lt;p&gt;Let $p$ be the market demand. It is a function of the market production $Q$. Let $q_i$ be the production of firm $i$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Reading Steve Keen (in &lt;em&gt;Debunking Economics&lt;/em&gt;, chapter II) quoting George Stigler, I think the first wants to deduce the following contradiction in the atomicity of firms.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Using the chain rule, we get : $\frac{dp}{dq_i}= \frac{dp}{dQ} \frac{dQ}{dq_i}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The firm $i$ is price-taker, so the market price is the same whatever its production and so $\frac{dp}{dq_i}=0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The demand $p$ is a (strictly) decreasing function of $Q$ (supposing the law of demand is true). Thus $\frac{dp}{dQ} &amp;lt; 0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The other firms than firm $i$ are not supposed to react to a change in production of firm $i$, so that $\frac{dQ}{dq_i}=1$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We get : $0 &amp;lt; 0$. Is that the contradiction that Steve Keen means (or another way of expressing it) ?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you so very much !&lt;/p&gt;&#xA;" OwnerUserId="15010" LastActivityDate="2017-11-04T17:28:03.930" Title="In microeconomics : is this the contradiction in the atomicity of firms ?" Tags="&lt;microeconomics&gt;&lt;supply-and-demand&gt;&lt;competition&gt;&lt;aggregate-production&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18992" PostTypeId="2" ParentId="18991" CreationDate="2017-10-28T10:36:02.240" Score="12" Body="&lt;p&gt;A price-taking firm takes prices as given, but that does not mean that the firm cannot influence prices; it just means that the firm ignores its own impact on prices.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now the question is how sensible it is to assume that firms take prices as given. The usual view is that it is a reasonable assumption when the impact of a firm on prices is small enough that profit-maximizing behavior for given prices does not differ much from profit-maximization under actual prices. This is usually the case if there are many firms that are small relative to the market. There are various ways to make this precise. One can also work with models with a continuum of firms in which a single firm hs literally no impact on prices. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a side remark, Steve Keen's book reveals a strange mixture of incompetence and dishonesty. Keen is ignorant of &lt;a href=&quot;http://chrisauld.com/2012/12/06/steve-keen-still-butchering-basic-microeconomics/&quot; rel=&quot;noreferrer&quot;&gt;basic calculus&lt;/a&gt;. Keen, sometimes with coauthors, has come up with a nonsensical theory of the firm. &lt;a href=&quot;https://www.sciencedirect.com/science/article/pii/S0378437107008874&quot; rel=&quot;noreferrer&quot;&gt;Here&lt;/a&gt; is a note by Paulin Anglin pointing out several of the many problems. One of these problems is acknowledged &lt;a href=&quot;https://arxiv.org/abs/1309.3369&quot; rel=&quot;noreferrer&quot;&gt;here&lt;/a&gt;. Later, Keen (and Standish) wrote a &lt;a href=&quot;http://www.paecon.net/PAEReview/issue53/KeenStandish53.pdf&quot; rel=&quot;noreferrer&quot;&gt;survey&lt;/a&gt; of Keen's history of criticising the theory of the firm in which they did not acknowledge Anglin's criticism. I recommend reading books from people with higher scholarly standards than Keen.&lt;/p&gt;&#xA;" OwnerUserId="1442" LastActivityDate="2017-10-28T10:36:02.240" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="18993" PostTypeId="2" ParentId="18991" CreationDate="2017-10-28T15:32:31.403" Score="7" Body="&lt;p&gt;This does sound a lot like the “contradiction” that Keen tries to derive. The key to resolving it is to remember that firms are small relative to the market, so $$\frac{\mathrm dQ}{\mathrm dq_i} = 0.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One way to justify the above restriction is to assume there is a continuum of firms, so that each firm has zero measure, and $$Q = \int_{j \in I} q_j \, \mathrm dj,$$ where $I$ is the index set of firms.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another way to justify the price-taking assumption (which means that price is equal to marginal cost) is to look at a Cournot competition model with a large number of firms, as Michael mentions in his answer to this question. Formally, suppose there are $n$ firms in the industry so that industry output is given by&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ Q^s = \sum_{i=1}^n q_i, $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $q_i$ is the output of firm $i$. Market demand is given by the inverse demand curve&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ p = a -bQ, $$ where $a,b &amp;gt; 0$. We normalise each firm's (constant) marginal cost to $0$, so that firm $i$'s profits are given by&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ pq_i=(a-bQ^s)q_i = aq_i - bq_i \sum_{j=1}^n q_j.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The choice of $q_i$ that maximises the above expression solves&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ a - b \sum_{j=1}^n q_j -b q_i = 0. $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ q_i^* (q_{-i}) = \frac{a - b\sum_{j \neq i}q_j}{2b} .$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a &lt;em&gt;symmetric&lt;/em&gt; equilibrium, $q_i^* = q_j^* = q^*$, so the above best response function gives us&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ q^* = \frac{a - (n-1)bq^*}{2b} \implies q^* = \frac{1}{n+1} \frac{a}{b}. $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence, the equilibrium price is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ p^* = a - b \frac{n}{n+1}\frac{a}{b} = \frac{1}{n+1}a. $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is now easy to show that $p^* \to 0$ as $n \to \infty$, which is exactly the claim that the equilibrium price approaches marginal cost when the number of firms is large.&lt;/p&gt;&#xA;" OwnerUserId="8595" LastEditorUserId="8595" LastEditDate="2017-11-04T17:28:03.930" LastActivityDate="2017-11-04T17:28:03.930" CommentCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="18994" PostTypeId="2" ParentId="12512" CreationDate="2017-10-28T16:38:20.633" Score="3" Body="&lt;p&gt;Futures and Options are all about exchanging something for something else. These kind of derivatives all involve exchanging different 'kinds' of goods so it doesn't make sense to have both sides denominated in the same currency: When you have X Ethereum which you are willing to give up for Y Ethereum later, what you have is a loan. Loans aren't going to do much in terms of managing volatility, which is essentially, how much is Ethereum worth in terms of other stuff. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the futures contracts needs to be exchanging Ethereum for that other stuff that happens to be volatile relative to Ethereum or vice versa. (could be dollars, could be Bitcoins). Of course since we can't predict the future there will be a winner and a loser. It's the nature of this sort of thing, however supposedly both parties are gaining a loss of volatility.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you want to manage the downside, you can structure it as an option. An example of this would be, You pay \$1 now to have the right to exchange \$300 for 1 Ethereum in 90 days. (or vice versa). If the Ethereum ends up being worth more than \$301 then you end up winning on that deal, and if Ethereum ends up being worth less than \$301, you don't buy it. This benefits both parties: The person selling the option gets \$1 either way, and if Ethereum drops the purchaser of the option doesnt't lose more than \$1. This type of option is called a 'call option'. If structured the opposite way (you pay \$1 for the right to exchange 1 Ethereum for \$300 in 90 days) then the opposite happens: you 'win' if Ethereum drops below \$299, and you don't exercise the option if Ethereum rises in value, in which case you're simply out \$1. This is called a 'put option'.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;No matter what, there will be a winner and a loser come the time to exercise the option. This is inevitable. However, the big idea is that the buyer of the option has a certain expectation on the market trend but wants to protect themselves against the opposite trend (in the case of call, fixed loss and unlimited upside, in the case of a put, guaranteed gain if there is downward movement vs. fixed loss if there is upward movement). The opposite side, the side selling the option, makes money off of the fee to purchase the option and is hoping that the volatility works out to less than the cost of the fee.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You are right about fixed futures (where the price and quantity are fixed and there is no option to back out): they will definitely have a winner and a loser. However, both parties get a guaranteed price, and that may be more valuable than any potential gains or losses. For example, say I am a multinational corporation where most of my profits come in USD but have just built a factory in Kenya and have taken out a loan to do so from a local bank. To pay off the loan, I need to guarantee I can get a fixed amount of Kenyan shilling every month, and it may be worth it to set price in USD so I don't have to worry about exchange fluctuations causing the loan to cost more USD than I expect one month, leaving me short; in that case I won't care too much if I lose out on the potential for the USD/Kenyan Shilling rate to move in my favour. Maybe the same thing could apply for someone who has contracts denominated in Ethereum, who knows.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand, any kind of investment based on expected future trends is just a smarter form of gambling, when you find someone to take the other side of the bet of course someone will win and someone will lose.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Enforceability of such contracts is a separate measure, it would be the same problem for any futures market and ideally that is what contracts, reputation and the rule of law is for.&lt;/p&gt;&#xA;" OwnerUserId="2971" LastActivityDate="2017-10-28T16:38:20.633" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18995" PostTypeId="2" ParentId="18964" CreationDate="2017-10-28T18:27:19.287" Score="0" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;How would inflation work in such an economic environment?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Supposedly, whenever a wastelander opens a bottle of Nuka-Cola, &quot;new money&quot; is injected into the world, so that would theoretically drive up inflation, but very minimally. Also, information asymmetry would certainly cause prices to fluctuate differently in different regions of the game. I think we need to assume that banks do not communicate with each other, at least not regularly.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;How can people buy expensive objects like houses or maybe vehicles, (they cost at least 10000)?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;While caps are definitely accepted as a form of currency in the Fallout world, many would opt to convert their caps to a larger capital asset that is easier to carry around. Then, the purchaser can use that to barter. It's not ideal to carry tens of thousands of caps, as you're probably implying.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;How would a bank know if another has launched a new version of purple coin that is worth more than any other single bottle cap?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The bank would probably find out when someone tries to convert the new currency for purified water or whatever the good was. My guess is that the new currency would also be commodity-backed based on something else (stimpacks, perhaps?). &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;If a new bottle cap of unique color appears, how to corroborate that a bank in another village supports its value? (that is, that is not false).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Not sure how this would work. Maybe show the bank the bottle which the cap was found on? Show that it was indeed Nuka-Cola branded. Then, the bank can take-it-or-leave-it. I'm only aware of regular Nuka-Cola and Nuka-Cola quantum, and I think they have the same cap style.&lt;/p&gt;&#xA;" OwnerUserId="15012" LastActivityDate="2017-10-28T18:27:19.287" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="18998" PostTypeId="1" AcceptedAnswerId="20093" CreationDate="2017-10-29T02:26:47.703" Score="11" ViewCount="2642" Body="&lt;p&gt;As relatively novice quantitative analyst/ Cost analyst, Ive been asked to estimate the level of a given organizations productivity more than once, and then forecast for the next couple of periods. The place I work at is a relatively small non-profit (around 30 people) dedicated to food bank donation distribution and volunteer solicitation, so Im not sure if firm size has something to do with this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Most of the time I've been asked for specific units and not percentage changes or elasticities, so I'm forced to present one of two production functions.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;$$f(x_1,...,x_n)=\Sigma_{i=1}^n\beta_i x_i$$&lt;/li&gt;&#xA;&lt;li&gt;$$f(x_1,...,x_n)=\gamma \min(x_1,...,x_n)$$&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Yet when I read  economic literature I see the cobb douglas (or some variation of it like the stone-gerry)  being used all the time. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know it has the property of mathematically showing diminishing returns to scale for a single factor of production, however Im having difficulty seeing it in my line of work. Is it a production function exclusive to manufacturing of real goods?&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="1601" LastEditDate="2017-11-19T16:35:43.353" LastActivityDate="2018-12-30T18:26:25.400" Title="Why is the Cobb-Douglas production function so popular?" Tags="&lt;mathematical-economics&gt;&lt;production-function&gt;" AnswerCount="4" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19000" PostTypeId="2" ParentId="18988" CreationDate="2017-10-29T04:29:50.813" Score="1" Body="&lt;p&gt;The SRAS wage price being bumped up temporarily means that employers are forced to pay more for labour. From the graph, you can see aggregate demand is much lower at the higher wage price (SRAS1) however the stickiness of wages &amp;amp; employment means that employers have been forced to pay more in wages but cannot immediately adjust the 'supply' by firing employees. Likewise workers will not likely be willing to accept pay cuts, so in the short run the market will be pushed off equilibrium. However, given a little more time, the firms will find ways to let go of employees, bringing the market towards point Y1. This is 'automatic' in the sense that workers are expecting wages of SRAS1 and firms only want to pay for Y1 amount of labour. Once the employees have been laid off to reach Y1, there will be unemployed workers who are willing to work for less (since otherwise they get nothing and we know the position of the LRAS of labour implies a larger available work force than point Y1) and their negociation with firms will push the market back to equilibrium at the lower wage price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To give a real life example of this, (I know it's micro and this is a macro effect but it helps to build an intuitive sense of how this works) I know of a factory that had a strong union that pushed continuosly for wage increases despite the factory being the least efficient and cost-effective in the firm. So when they threatened to strike, the firm gave in to their wage demands however the firm also invested to build capacity in the other more efficient factories. Doing so took about 2 years.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, once the firm was sure it could handle losing the output from the 'bad' factory, it gave an ultimatum, the workers would have to be more efficient at a lower wage or it would shut the factory down. The workers refused, and the factory closed. Over the next year, the workers realized that nobody was hiring for the wages they wanted and after a little over 12 months most of the workers were hired back at the lower wages the firm wanted in the beginning and the factory re-started. From start to finish it took &lt;strong&gt;3 years&lt;/strong&gt; for the wage to 'equilibrate' at this firm.&lt;/p&gt;&#xA;" OwnerUserId="2971" LastEditorUserId="2971" LastEditDate="2017-10-29T04:41:19.703" LastActivityDate="2017-10-29T04:41:19.703" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19005" PostTypeId="1" CreationDate="2017-10-29T23:37:05.297" Score="4" ViewCount="65" Body="&lt;p&gt;The production&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$f(x_i,...,x_n)=\min\{x_i,...,x_n\}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;is pretty straight forward and usually with smaller size data sets and can usually be picked up on rather quickly in an intuitive sense.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However if one has a very large set of data with a firm that produces $n$ products, how does one go about analyzing the production process and say that such a relationship exists in production of a given good?&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2017-10-29T23:37:05.297" Title="How to econometrically identify perfect complements in production?" Tags="&lt;mathematical-economics&gt;&lt;production-function&gt;&lt;applied-econometrics&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19006" PostTypeId="1" CreationDate="2017-10-30T03:11:04.727" Score="3" ViewCount="173" Body="&lt;p&gt;According to this graph:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/SneqU.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/SneqU.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I just don't get when natural unemployment is greater than actual unemployment. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Why is this the case?&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="14325" LastEditorUserId="1417" LastEditDate="2017-10-30T11:33:41.123" LastActivityDate="2018-02-27T12:44:16.090" Title="What does it mean when the natural rate of unemployment is greater than the actual rate?" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;&lt;unemployment&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19007" PostTypeId="2" ParentId="19006" CreationDate="2017-10-30T06:50:14.290" Score="1" Body="&lt;p&gt;Natural unemployment is the 'expected equilibrium' rate. In the same way unemployment can go above the natural rate (usually when the economy is in a downturn) it can go below (usually when an economy is doing well). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;An economy could report actual unemployment below the natural rate in multiple circumstances, one such being a shortage of labour across the economy. (usually due to an economic upturn). In that case employers may try to reduce the time workers take to switch jobs and they might be temporarily less stringent in their hiring requirements causing some 'structurally unemployed' workers to get picked up. To cope with the labour shortage, firms may also encourage retired or serially unemployed workers who have stopped looking for jobs (who in both cases are excluded from the labour force) to gain employment thus these people may go from not being counted in unemployment statistics to increasing the population of employed workers and therefore influencing the unemployment rate downward.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another effect that should probably be considered is that real unemployment can be directly measured via surveys and the natural rate is estimated indirectly based on assumptions of what the equilibrium rate of unemployment 'should' be. There is no direct way to validate whether or not a particular methodology is 'the most correct' and when we are presented with only a graph like this we are trusting that the person compiling the graph did their work correctly. If their assumptions were incorrect then the graph is wrong and there isn't much point pulling our hair out to figure out an explanation for the results of the graph. In your case it looks like the graph is coming from a textbook so you're probably expected to believe that the calculation is reasonable and the answer is something lile the above. In real life graphs tend to have hidden assumptions that very well may be wrong (either intentionally or incompetently) so if something doesn't look right it's almost never a bad idea to start asking questions to validate if the result is truly different from your intuition or if somebody made a bad assumption.&lt;/p&gt;&#xA;" OwnerUserId="2971" LastActivityDate="2017-10-30T06:50:14.290" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19008" PostTypeId="1" CreationDate="2017-10-30T07:57:05.803" Score="1" ViewCount="42" Body="&lt;p&gt;&lt;a href=&quot;https://politics.stackexchange.com/q/18946/17569&quot;&gt;How did Turkey manage to create a springboard for its defense industry so fast?&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/TAI_TFX&quot; rel=&quot;nofollow noreferrer&quot;&gt;TFX program costs USD 10bn&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://www.israeldefense.co.il/en/node/30343&quot; rel=&quot;nofollow noreferrer&quot;&gt;S-400 purchase costs USD 2.5bn&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.al-monitor.com/pulse/originals/2017/10/turkey-military-government-adopts-war-budget-for-2018.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Turkey targets 30% hike in military spending next year&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;How is Turkish economy handling the pressure of so much defense purchase?&lt;/p&gt;&#xA;" OwnerDisplayName="user13954" LastActivityDate="2018-04-06T01:17:33.183" Title="How is Turkish economy handling the pressure of so much defense purchase?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19011" PostTypeId="1" CreationDate="2017-10-30T10:07:19.297" Score="6" ViewCount="101" Body="&lt;p&gt;Are there any classical, major theories/models that consider positive return due to idiosyncratic risk? For example, CAPM only considers return due to systemic risk but not idiosyncratic risk. If there are no major theories/models that fit the criterion, are there perhaps unorthodox ones worth mentioning? I would be grateful for references. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(I am a novice in asset pricing, so pardon if the question is too basic.)&lt;/p&gt;&#xA;" OwnerUserId="4230" LastEditorUserId="4230" LastEditDate="2017-10-30T15:44:06.773" LastActivityDate="2017-11-02T21:45:16.370" Title="Any major theory/model that considers return due to idiosyncratic risk?" Tags="&lt;reference-request&gt;&lt;finance&gt;&lt;asset-pricing&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19012" PostTypeId="1" AcceptedAnswerId="19016" CreationDate="2017-10-30T12:18:55.483" Score="4" ViewCount="1122" Body="&lt;p&gt;I am wondering how to include &lt;strong&gt;price elasticity&lt;/strong&gt; (demand side) in a linear price regression model that is based on asuming price is the result of demand=supply. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Constructing a price regression under the asumption of &lt;strong&gt;price inelastic demand&lt;/strong&gt; is pretty straight forward, since you do not have the problem of dealing with simultaneous equations. Yet, I cant wrap my head around how to implement the asumption of price elastic demand in a simple linear price regression. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks in advance for any kind of comment on that problem!&lt;/p&gt;&#xA;" OwnerUserId="15027" LastActivityDate="2017-10-30T23:28:16.610" Title="Including (demand) price elasticity in a price regression model" Tags="&lt;macroeconomics&gt;&lt;econometrics&gt;&lt;regression&gt;&lt;price&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19013" PostTypeId="2" ParentId="19008" CreationDate="2017-10-30T13:28:02.293" Score="2" Body="&lt;p&gt;Turkey had an estimated military spending of &lt;a href=&quot;https://www.al-monitor.com/pulse/originals/2017/10/turkey-military-government-adopts-war-budget-for-2018.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;$14.8 billion&lt;/a&gt; in 2016. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A 30% increase would be a $4.5 billion increase. That's 0.5% of GDP. Turkey's government budget deficit was &lt;a href=&quot;https://tradingeconomics.com/turkey/government-budget&quot; rel=&quot;nofollow noreferrer&quot;&gt;1.1%&lt;/a&gt; in 2016. All else equals, the budget deficit would rise to 1.6% with that kind of increase in spending. Either that or they cut spending elsewhere. &lt;/p&gt;&#xA;" OwnerUserId="14137" LastActivityDate="2017-10-30T13:28:02.293" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19014" PostTypeId="2" ParentId="19011" CreationDate="2017-10-30T16:32:36.717" Score="0" Body="&lt;p&gt;Idiosyncratic risk is, by definition, impossible to predict so it is not really useful to model it. The probability of positive return due to idiosyncratic risk is the exact same as the probability of negative return due to idiosyncratic risk, so simple random walk models should suffice.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have some more time so I will elaborate on my answer. Any risk that is systematic should have a factor corresponding to it in a corresponding factor pricing model. For example, CAPM fails with small stocks, so we added a small firm factor. At the end of the day, in theory, investors should not be able to trade on idiosyncratic risk, which is the point of factor models.&lt;/p&gt;&#xA;" OwnerUserId="14578" LastEditorUserId="14578" LastEditDate="2017-10-30T17:41:14.477" LastActivityDate="2017-10-30T17:41:14.477" CommentCount="17" ContentLicense="CC BY-SA 3.0" />
  <row Id="19016" PostTypeId="2" ParentId="19012" CreationDate="2017-10-30T17:05:01.377" Score="6" Body="&lt;p&gt;The incorporation of a price elasticity in your regression requires that your dependent variable, quantity,  be logged as well.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Take an example of a basic demand side equation including two independent variables &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Q_d=\beta_0+\beta_1 P+\beta_2 S+\mu$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $Q_d$ is quantity demanded, $P$ is the price of the good in question and $S$ is the price of a substitute.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To incorporate price elasticity in this regression you have to log your dependent $Q_d$ and then log price $P$ as well.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\ln(Q_d)=\beta_0+\beta_1 \ln(P)+\beta_2 S+\mu$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Only via this framework can we calculate elasticity, given by $\beta_1$.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;In terms of calculating equilibrium we would require the use of simultaneous equations where supply $Q_s$ is logged.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However this calculation of percentage change in $Q$ can be transformed easily by specific equilibrium quantity by using basic algebra such as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1.$$Q_d=Q_s=Q^*$$&#xA;2.$$\ln(Q_d)=\ln(Q_s)=\ln(Q^*)$$&#xA;3.$$\mathrm e^{\ln(Q_d)}=\mathrm e^{\ln(Q_s)}=\mathrm e^{\ln(Q^*)}$$&#xA;4.$$Q_d=Q_s=Q^*$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The same steps can be followed when calculating $P^*$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope this helps. &lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="42" LastEditDate="2017-10-30T20:06:53.073" LastActivityDate="2017-10-30T20:06:53.073" CommentCount="10" ContentLicense="CC BY-SA 3.0" />
  <row Id="19017" PostTypeId="2" ParentId="19011" CreationDate="2017-10-30T18:54:19.560" Score="4" Body="&lt;p&gt;There are no major models that come to the conclusion that idiosyncratic risk can drive positive returns. The reason is that idiosyncratic risk is diversifiable. The models, however, do in fact consider idiosyncractic risk. The theories don't forget or ignore them. It just turns out that this risk doesn't matter.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this sense, CAPM actually does consider idiosyncratic risk. In this model, if you are perfectly rational, you will diversify your portfolio to minimize risk. This leads you to hold the whole market portfolio, in which case idiosyncratic risks are diversified away in your portfolio and therefore no longer matter. In simple terms, market risk then is not diversifiable, because once you hold the market portfolio, there's no way to diversify further. What drives returns are risk, but rational investors can remove the idiosyncratic risk through diversification. Hence, what matters for returns in the CAPM therefore is just the market risk (which you refered to as systemic risk, but that term actually means something else). That's why under CAPM, the returns are driven by the asset correlation with the market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;EDIT:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The CAPM model does not put any explicit assumptions on the number of assets available, hence the model does not require an infinite number of assets. However, the derivation is based on the decision to add an asset to an already well-diversified portfolio, i.e. adding an asset to the market portfolio.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Nevertheless, if only a handful of assets exist, then it might not be possible to diversify away all idiosyncratic risk. In that case, the CAPM does not work, because it implicity assumes enough assets exist, since it assumes a well-diversified portfolio exists to which you can add an asset. In such a case idiosyncratic risk may become relevant.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Such considerations are unlikely to be relevant in practice though. It is difficult to put a number on how many assets are necessary for idiosyncratic risk to be diversified away completely. Often, a number that is mentioned is 30-40 assets. The number required in practice is usually very realistic and far below infinity. The number of assets required for idiosyncratic risk to be completely diversified away becomes larger if assets are more correlated with each other or very volatile.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lastly, an asset with such high idiosyncratic risk that no investor would want to add it to their portfolio cannot exist in equilibrium, because supply of the asset could never equal demand.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastEditorUserId="5557" LastEditDate="2017-11-02T21:45:16.370" LastActivityDate="2017-11-02T21:45:16.370" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="19019" PostTypeId="1" AcceptedAnswerId="19042" CreationDate="2017-10-30T20:19:16.093" Score="10" ViewCount="3788" Body="&lt;p&gt;Question &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/wVKRe.jpg&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/wVKRe.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;blockquote&gt;&#xA;    &lt;p&gt;My solution is as follows. Please check my solution. If I make a mistake, please tell. I am really not sure about my solution. Thank you  &lt;/p&gt;&#xA;  &lt;/blockquote&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;U(x) is homogenous of degree one i.e. u(tx)=tu(x)&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Firstly I show that the indirect utility function is homogenous of degree one in m. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;By the utility maximization, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;V(p,m)=max u(x) subject to px$\le$ m &lt;/p&gt;&#xA;&#xA;&lt;p&gt;tv(p,m)=max tu(x) subject to px$\le$ m&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since u(tx)=tu(x),  tv(p,m)=max u(tx) subject to px$\le$ m &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then v(p,tm)=tv(p,m)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That is the indirect utility function is homogenous of degree one.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;I show that the expenditure function is homogenous of degree one in u by using previous result.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I know that &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;blockquote&gt;&#xA;    &lt;blockquote&gt;&#xA;      &lt;p&gt;v(p,m)=v(p, e(p,u))=u(x)&lt;/p&gt;&#xA;    &lt;/blockquote&gt;&#xA;  &lt;/blockquote&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Since u(x) is homogenous of degree one and v(p,m) is homogenous of degree one in m, v(p, e(p,u)) have to be homogenous of degree one in e(p,u).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words, v(p, e(p,u(tx)))=v(p, e(p,tu(x)))=tv(p, e(p,u)) holds iff e(p,tu(x))=te(p,u(x))&lt;/p&gt;&#xA;&#xA;&lt;p&gt;i.e. The expensive function e(p,u) is homogenous of degree one in u. &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;blockquote&gt;&#xA;    &lt;p&gt;Now I will show that the marshallian demand x(p,m) is homogenous of degree one in m. &lt;/p&gt;&#xA;  &lt;/blockquote&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;By Roy's identity, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\partial v(p,m)/\partial p}{\partial v(p,m)/\partial m}=x(p,m)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By the first result, since v(p,m) is homogenous of degree one in m, then x(p,m) is homogenous of degree one in m. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;now lets show that the hicksian demand is homogenous of degree one in u. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I know that&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;blockquote&gt;&#xA;    &lt;blockquote&gt;&#xA;      &lt;p&gt;x(p,m)= x(p,e(p,u))=h(p,u) ........(1)&lt;/p&gt;&#xA;    &lt;/blockquote&gt;&#xA;  &lt;/blockquote&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;x(p,tm)=tx(p,m)=tx(p,e(p,u))=x(p,te(p,u))&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since e(p,u) is homogenous of degree one by the second part, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;x(p,te(p,u))=x(p,e(p,u(tx))=h(p,u(tx))=h(p,tu(x))=th(p,u(x)) must hold since the equality(1) exist. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;That is the hicksian demand is homogenous of degree one in u. &lt;/p&gt;&#xA;" OwnerUserId="14785" LastActivityDate="2017-11-01T05:01:41.037" Title="Homogenous of degree one in utility function." Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;utility&gt;&lt;consumer-theory&gt;&lt;self-study&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="19021" PostTypeId="2" ParentId="19012" CreationDate="2017-10-30T23:28:16.610" Score="3" Body="&lt;p&gt;The answer by @EconJohn covers the case of a constant price elasticity of demand. To model a varying price elasticity of demand you employ the &lt;em&gt;semi&lt;/em&gt;-log specification,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\ln(Q_d)=\beta_0-\beta_1 P+\beta_2 S+\mu$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies Q_d = \exp \{\beta_0-\beta_1 P+\beta_2 S+\mu\}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here, the price elasticity of demand is (use &quot;marginal over average&quot;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\eta = -\frac {\beta_1 \cdot Q_d}{Q_d/P} = -\beta_1P$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and it is increasing in price, which is intuitive (the higher the price level, the more &quot;jittery&quot; the consumers, the more &quot;itchy&quot; to go).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course the numerical estimate of the coefficients in the two specifications will be different, since they represent different things in each case.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2017-10-30T23:28:16.610" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19025" PostTypeId="1" CreationDate="2017-10-31T10:09:02.467" Score="2" ViewCount="64" Body="&lt;p&gt;The &lt;a href=&quot;http://www.econlib.org/library/Smith/smWN1.html#B.I,%20Ch.1,%20Of%20the%20Division%20of%20Labor&quot; rel=&quot;nofollow noreferrer&quot;&gt;three reasons given&lt;/a&gt; by Adam Smith were:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Increased dexterity.&lt;/li&gt;&#xA;&lt;li&gt;Saving of the time which is commonly lost in passing from one species of work to another.&lt;/li&gt;&#xA;&lt;li&gt;The invention of a great number of machines which facilitate and abridge labour, and enable one man to do the work of many.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;What other reasons are there?&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastEditorDisplayName="user18" LastEditDate="2017-11-03T10:22:40.840" LastActivityDate="2017-11-03T10:22:40.840" Title="Why division of labor or specialization boosts productivity" Tags="&lt;international-trade&gt;&lt;division-of-labor&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19027" PostTypeId="1" CreationDate="2017-10-31T11:40:36.263" Score="-1" ViewCount="40" Body="&lt;p&gt;I recently came up with the idea that all the worlds currencies with central banks may be being used as a way to steal value from people who give value to them. And no, im not talking about inflation (priting/supply demand), interest rate or debt.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now let's say there's currency that has a very stable value, dont go up too much, dont go down too much. If you start printing, the currency go down in value. That's the situation i suppose the dollar is right now, dont go down or up too much.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What if the dollar should be always going up in value, like bitcoin is right now, but the central banks print just enough to keep the unit having the same value. What if a dollar that can buy one apple today, and one apple tomorrow, should be buying three apples tomorrow.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose when the dollar is about to go up, instead of being stable, the central banks print just enough to keep the value the same, defrauding all dollar owners from value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is it possible that the dollar is almost always going up in value, as opposed to being stable, but all that value is being removed from individual dollars by printing (and they getting insanely wealthy by accumulating commodities or dollars)?&lt;/p&gt;&#xA;" OwnerUserId="15034" LastActivityDate="2018-01-04T00:24:40.783" Title="Central Banks Currency being used as value keeping hypothesis" Tags="&lt;currency&gt;&lt;price&gt;&lt;deflation&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19028" PostTypeId="1" CreationDate="2017-10-31T11:55:22.310" Score="2" ViewCount="29" Body="&lt;p&gt;I read &lt;a href=&quot;https://quant.stackexchange.com/questions/4160/discrete-returns-versus-log-returns-of-assets&quot;&gt;this link&lt;/a&gt; and it is very helpful. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, if log-returns are easier for time-aggregation, then why do economists work with discrete returns e.g. in GDP growth?&lt;/p&gt;&#xA;" OwnerUserId="15035" LastActivityDate="2017-11-07T05:06:47.280" Title="Discrete returns versus log-returns" Tags="&lt;economic-growth&gt;&lt;growth-accounting&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19029" PostTypeId="2" ParentId="9117" CreationDate="2017-10-31T12:17:25.753" Score="9" Body="&lt;p&gt;This seemed like a fun exercise, so using just the info on &lt;a href=&quot;https://en.wikipedia.org/wiki/List_of_Nobel_Memorial_Prize_laureates_in_Economics&quot; rel=&quot;noreferrer&quot;&gt;Wikipedia&lt;/a&gt;, I was able to compile this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/2uT9x.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/2uT9x.png&quot; alt=&quot;Nobel Advisors and Students&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Honourable mentions&lt;/strong&gt;, who I classify as economists who have at least two students who have won the Nobel include:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Wilson (Roth and Holmstrom)&lt;/li&gt;&#xA;&lt;li&gt;Lovell (Prescott and Mortensen)&lt;/li&gt;&#xA;&lt;li&gt;Tucker (Nash and Shapley)&lt;/li&gt;&#xA;&lt;li&gt;Cassel (Myrdal and Ohlin)&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Another interesting fact worth mentioning is that, while Krugman’s advisor, Dornbusch, did not win the Nobel, Dornbusch’s supervisor, Mundell, did. A similar comment applies so Lovell, who was Leontief's student, and had two students who won the Prize.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;More interesting observations: predictably, for the vast majority of these pairs, the advisor won the prize before the student. Exceptions are Leontief and Samuelson; Fama and Scholes; and Hurwicz and McFadden.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Other triplets:&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Miller-Fama-Scholes&lt;/li&gt;&#xA;&lt;li&gt;Leontief-Samuelson-Merton&lt;/li&gt;&#xA;&lt;li&gt;Leontief-Solow-Akerlof/Diamond/Stiglitz&lt;/li&gt;&#xA;&lt;li&gt;Leontief-Schelling-Spence&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;We even have a &lt;strong&gt;quadruplet&lt;/strong&gt;: Kuznets-Friedman-Markowitz-Sharpe.&lt;/p&gt;&#xA;" OwnerUserId="8595" LastEditorUserId="8595" LastEditDate="2017-11-01T17:48:11.050" LastActivityDate="2017-11-01T17:48:11.050" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19031" PostTypeId="1" CreationDate="2017-10-31T14:25:45.543" Score="1" ViewCount="428" Body="&lt;p&gt;I have been asked by my professor for Decisions Theory to refer to David M. Kreps' Notes on Theory of Choice for the proof of the vNM theorem of expected utility. Before the proof of the theorem actully starts, there are two Lemmas stated which are used in the proof of the theorem. I am unable to understand the proof of one part of one of the Lemmas. Specifically, the proof for part (c) of the below Lemma. I understand the intuition behind it. Its basically the indpendence axiom but with equivalence relation, however I do not get the proof at all. Any help is much apprciated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/PHk7Y.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/PHk7Y.png&quot; alt=&quot;Lemma&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And this is the proof for part (c). When the author talks about applying (5.2), he is referring to the independence axiom and when he talks about applying (5.3) he is referring to the Archemedean or the continuity axiom.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/fYXX7.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/fYXX7.png&quot; alt=&quot;Lemma Proof&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="15038" LastActivityDate="2018-02-01T18:23:50.360" Title="vNM Expected Utility Theorem Proof" Tags="&lt;decision-theory&gt;&lt;expected-utility&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19032" PostTypeId="1" CreationDate="2017-10-31T14:43:39.970" Score="1" ViewCount="12" Body="&lt;p&gt;There is any way to model downward price inflexibility? Because the different models of sticky prices, don´t have more downward inflexibility than upward.&lt;/p&gt;&#xA;" OwnerUserId="15039" LastActivityDate="2017-10-31T14:43:39.970" Title="Modeling Asymmetric price adjustment (downward price inflexibility)" Tags="&lt;price&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19035" PostTypeId="1" CreationDate="2017-10-31T18:20:31.867" Score="2" ViewCount="49" Body="&lt;p&gt;I need to model the job application process by job seekers. Specifically a job seeker when looking for a job, comes across a job and then decides whether to apply for it or not. I want to model this application decision. Assuming that job seeker has already come across a job, I want to model what are the factors (of the job/employer) that will make this person apply or not apply to the job. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I will appreciate any references that have done similar modeling or any suggestions in this direction. I have been reading papers from job search theory but I can't figure how to use search theory to build my model. The search literature seem to argue that only factor that may affect person's decision to apply is the wage offer from current job versus an outside option. However, in the absence of wage offer; for example person looking at job description and thinking whether he should apply to this job or not, is the question that I'm really after. I guess this is still a search question, it's just that I want to model for other factors (expectation about wages, job condition, employer, my own taste towards the job/employer etc) in the application decision. Appreciate any help!&lt;/p&gt;&#xA;" OwnerUserId="5863" LastEditorUserId="42" LastEditDate="2017-11-01T02:44:04.067" LastActivityDate="2017-11-01T02:44:04.067" Title="Modeling job application process in labor market" Tags="&lt;microeconomics&gt;&lt;reference-request&gt;&lt;labor-economics&gt;&lt;search-and-matching&gt;" AnswerCount="1" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="19036" PostTypeId="2" ParentId="19031" CreationDate="2017-10-31T18:32:19.910" Score="2" Body="&lt;p&gt;Let's write&#xA;\begin{align}&#xA;  x&amp;amp;=ap+(1-a)r\\&#xA;  y&amp;amp;=aq+(1-a)r&#xA;\end{align}&#xA;You want to show that $x\sim y$. But&#xA;\begin{equation}&#xA;x\sim y\quad\Leftrightarrow\quad x\not\succ y\;\text{ and }\;y\not\succ x.&#xA;\end{equation}&#xA;So the given proof tries to establish that $x\not\succ y$ (and in a similar way, $y\not\succ x$) is true. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To show this, use proof by contradiction. Suppose the contrary is true: $x\succ y$, and try to derive a contradiction. This is what the given proof is doing. &lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2017-10-31T18:32:19.910" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19041" PostTypeId="2" ParentId="19035" CreationDate="2017-11-01T02:42:44.840" Score="2" Body="&lt;p&gt;Chapters 6-8 (especially 8) in &lt;a href=&quot;http://fac.ksu.edu.sa/sites/default/files/Modern_labor_economics__theory_and_public_policy_0.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;Modern Labor Economics: Theory and Public Policy&lt;/em&gt;&lt;/a&gt;, a textbook by Ehrenberg and Smith, cover the topics concerning labor supply. I guess the parts in Ch. 8 that discuss hedonic wage theory would be most relevant to your inquiry. &lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2017-11-01T02:42:44.840" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19042" PostTypeId="2" ParentId="19019" CreationDate="2017-11-01T04:55:36.863" Score="5" Body="&lt;p&gt;The way you show that $v(p,m)$ is homogeneous of degree one in $m$ is correct, but the reason why this implies that, $e(p,u)$ is homogeneous of degree one in $u$, is not very precise in your argument. For example, duality tells us&#xA;$$v(p,e(p,u))=u,$$&#xA;where $u$ is just a target utility level, but should not be $u(x)$ as in your proof.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is one possible way to proceed: Since $v(p,m)$ is homogeneous of degree one in $m$, it can be written as&#xA;$$v(p,m)=mv(p,1)=m\tilde v(p).$$&#xA;Applying the equality $v(p,e(p,u))=u$ gives&#xA;$$e(p,u)=\frac{u}{\tilde v(p)},$$&#xA;which clearly implies that $e(p,u)$ is homogeneous of degree one in $u$. You can use a similar argument to prove homogeneity of the Hicksian demand.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With all that said, I would suggest you prove the original statement directly using the definitions of expenditure function and Hicksian demand. For instance,&#xA;\begin{align*}&#xA;e(p,\lambda u)&amp;amp;= \min p\cdot x ~~\text{ s.t. } u(x)\geq \lambda u\\&#xA;&amp;amp;=\lambda\min p\cdot\frac{1}{\lambda}x ~~\text{ s.t. }\frac{1}{\lambda}u(x)\geq u\\&#xA;&amp;amp;=\cdots&#xA;\end{align*}&lt;/p&gt;&#xA;" OwnerUserId="6014" LastEditorUserId="6014" LastEditDate="2017-11-01T05:01:41.037" LastActivityDate="2017-11-01T05:01:41.037" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19043" PostTypeId="1" CreationDate="2017-11-01T07:28:32.177" Score="5" ViewCount="167" Body="&lt;p&gt;I have a question. I know governments do &lt;a href=&quot;http://www.investopedia.com/terms/r/rollover.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;debt rollover&lt;/a&gt; from time to time. But, to me it seems logical that governments do this when the interest rate of bonds they have issued in the past is higher than the one they could get now. This way, they pay more expensive debt with cheaper debt. To me this seems like a no-brainer. But is this what they do?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With current QE and low interest rates, are governments doing this? I think they are not. Why?&lt;/p&gt;&#xA;" OwnerUserId="15049" LastEditorUserId="15049" LastEditDate="2017-12-05T19:29:28.557" LastActivityDate="2019-04-30T01:02:10.403" Title="Do governments issue debt at low r to pay debt with high r?" Tags="&lt;government-debt&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19045" PostTypeId="2" ParentId="19043" CreationDate="2017-11-01T09:55:29.383" Score="0" Body="&lt;p&gt;Debt rollover is a direct result of different bond terms combined with continued deficit spending. When issuing bonds, Governments give buyers the option to purchase bonds at different terms with slightly different rates. In my view this is less related to lowering the interest rate of historical bonds as it is ensuring different segments of the bond market have bond terms suitable for them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the U.S this ranges from a 1-month bond to a 30-year bond. Presumably buyers of the 1-month bond will have a different investment profile and financial needs than those purchasing the 30-year bond. Since this is the case, giving different bond offerings allows the government to issue more debt for better interest rates than it would be able to otherwise. However, a 1-month bond is obviously going to expire a lot faster, if the government doesn't have a surplus to absorb the debt and doesn't want to print money, it will have to roll over the debt to a new bond. The same idea carries over to the other bond offerings.&lt;/p&gt;&#xA;" OwnerUserId="2971" LastActivityDate="2017-11-01T09:55:29.383" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19046" PostTypeId="2" ParentId="19043" CreationDate="2017-11-01T10:35:28.457" Score="0" Body="&lt;p&gt;This is happening, to a certain extent. An OECD report highlights that:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In recent years, governments are extending the average length of their public debt and&#xA;  locking in low borrowing rates in a historically low interest-rate environment. Figure 1.12&#xA;  reflects aggregate figures for government issuance of ultra-long bonds. Compared to precrisis&#xA;  years, government ultra-long bond issuances have increased significantly since&#xA;  2009 as a result of increased borrowing requirements as well as maturity choice in&#xA;  issuance strategy. Specifically, the annual volume of ultra-long bond sales has almost&#xA;  tripled from 2006 to 2016, as the number of issues doubled in the same period. In recent&#xA;  years, several countries including Australia, Austria, the United Kingdom,&#xA;  9&#xA;  the United&#xA;  States, Japan, France, Italy, Spain, Canada and Switzerland have issued a number of&#xA;  securities maturing in 30 to 70 years. Mexico, Belgium and Ireland have sold 100-year&#xA;  bonds, which are called &quot;century bonds&quot;. As a result, not only the volume, but also the&#xA;  average maturity of ultra-long bond issues has significantly increased.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/ccVRb.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/ccVRb.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.oecd.org/finance/Sovereign-Borrowing-Outlook-in-OECD-Countries-2017.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Source&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="15051" LastEditorUserId="15051" LastEditDate="2017-12-01T10:40:14.883" LastActivityDate="2017-12-01T10:40:14.883" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19048" PostTypeId="2" ParentId="11161" CreationDate="2017-11-01T11:59:45.293" Score="2" Body="&lt;p&gt;I think i have answers for your question. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In &quot;thebanks.eu&quot; you can find banks list by country and there is a filter so you can find commercial banks in Europe. &#xA;&lt;a href=&quot;https://thebanks.eu/banks-by-country&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://thebanks.eu/banks-by-country&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is an other answer for your question; &quot;stockopedia.com&quot;. This time you can find banks list and data. But there is no filter so you can not find only commercial banks and this service isn't free. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.stockopedia.com/sectors/banking-services-551010//&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.stockopedia.com/sectors/banking-services-551010//&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="5791" LastActivityDate="2017-11-01T11:59:45.293" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19049" PostTypeId="1" AcceptedAnswerId="19051" CreationDate="2017-11-01T13:44:03.900" Score="4" ViewCount="311" Body="&lt;p&gt;My book says the way we calculate real GDP in a given year is by adding the quantities of all goods and services produced in that year multiplied by their prices in some base year. There are actually two things I can't quite get: &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;How do we account for goods and services that exist now but weren't&#xA;around in the base year? I mean, especially today, with things such&#xA;as the market for apps, startups, and the increasing number of new&#xA;products that get released on an almost daily basis, wouldn't the&#xA;real GPD calculated that way become dated really fast? &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;This might turn out to be a really silly question, but how do we&#xA;take into account quantities of services that are provided in a&#xA;given year, such as lawyer services, marketing services etc.? All&#xA;examples I've seen of calculating real GDP were of the sort&#xA;&quot;consider an economy that produces only apples an orange...&quot;.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Thanks very much in advance. &lt;/p&gt;&#xA;" OwnerUserId="15052" LastActivityDate="2017-11-02T17:46:32.927" Title="Basic question on calculating real GDP" Tags="&lt;gdp&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19051" PostTypeId="2" ParentId="19049" CreationDate="2017-11-01T14:33:04.113" Score="4" Body="&lt;p&gt;First, note that GDP is not the quantities of all goods and services produced in that year multiplied by their prices in some base year, but the quantities of all &lt;strong&gt;final&lt;/strong&gt; goods and services produced in that year multiplied by their prices. Intermediate goods and services are not included.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) GDP is about value created in the economy. So, if there are new services or products, we should simply include them. For the price, we take the price in that year and deflate it using a factor that accounts for inflation. Note also that new services and products typically come at the expense of other products produced. People that would otherwise be, say, working at a factory, are now programming apps.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) As you would with oranges and apples. Lawyers typically charge a price per hour. So, it would be number of hours times the price. For more general services, like, say, the police force, you would just calculate the costs of the police force for a given year. &lt;/p&gt;&#xA;" OwnerUserId="12186" LastEditorUserId="27" LastEditDate="2017-11-02T17:46:32.927" LastActivityDate="2017-11-02T17:46:32.927" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19056" PostTypeId="1" CreationDate="2017-11-01T20:21:21.813" Score="1" ViewCount="36" Body="&lt;p&gt;So I remember this in my Econ 101 course thing.. eg. If all cars are legally required to be insured, insurers work off a population statistic to calculate cost of crashes/ individual issues (population statistics are public). If insurance is not compulsory, worse drivers insure, better ones don't, then insurers can't price off the population statistic because they only have a sample statistic (not public) of worse drivers on their books. I believe this was called the 'pooling problem' in my lecture, but sadly google comes up with entirely different ideas for that search! Please enlighten me! :) (if possible, some links to theory would be great, thanks!)&lt;/p&gt;&#xA;" OwnerUserId="7785" LastEditorUserId="1601" LastEditDate="2017-11-01T20:48:49.977" LastActivityDate="2017-11-01T23:02:18.773" Title="Issues if insurance is not compulsory for population" Tags="&lt;reference-request&gt;&lt;pricing&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="19057" PostTypeId="2" ParentId="18683" CreationDate="2017-11-01T21:19:54.237" Score="2" Body="&lt;p&gt;I would recommend reading Thaler's &lt;em&gt;Misbehaving&lt;/em&gt;, which chronicles the development of behavioral economics as a field and its struggle to gain recognition by mainstream economists. Several of its chapters (particularly, 6, 17-20) would directly answer your question regarding the historical context and partly the &quot;why&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I share my own personal view below. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I believe the &quot;as if&quot; argument as advanced by Milton Friedman in his &lt;a href=&quot;https://campus.fsu.edu/bbcswebdav/orgs/econ_office_org/PowerPoint_Files/2023-Joe_Calhoun/2023_Chapter_01/Friedman-Essays_in_Positive_Economics.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;Essays in Positive Economics&lt;/em&gt;&lt;/a&gt; plays an important role in countering the move towards a relaxation of the rationality assumption. In a nutshell, the argument says that a theory should be judged by the &lt;strong&gt;&lt;em&gt;accuracy of its predictions&lt;/em&gt;&lt;/strong&gt;, not by the &lt;strong&gt;&lt;em&gt;realism of its assumptions&lt;/em&gt;&lt;/strong&gt;. Therefore, while the assumption of a rational decision-maker is not entirely realistic, the theory is doing a good job as long as it generates sufficiently accurate predictions (in the sense that they match what actually happens in the real world) based on such an assumption. Friedman describes a simple of model of billiard players that I think nicely illustrates his idea: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Consider the problem of predicting the shots made by an expert&#xA;  billiard player. It seems not at all unreasonable that excellent&#xA;  predictions would be yielded by the hypothesis that the billiard&#xA;  player made his shots &lt;em&gt;as if&lt;/em&gt; he knew the complicated mathematical&#xA;  formulas that would give the optimum directions of travel, could&#xA;  estimate accurately by eye the angles, etc., describing the location&#xA;  of the balls, could make lightning calculations from the formulas, and&#xA;  could then make the balls travel in the direction indicated by the&#xA;  formulas. Our confidence in this hypothesis is not based on the belief&#xA;  that billiard players, even expert ones, can or do go through the&#xA;  process described; it derives rather from the belief that, unless in&#xA;  some way or other they were capable of reaching essentially the same&#xA;  result, they would not in fact be &lt;em&gt;expert&lt;/em&gt; billiard players.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Thaler, and Kahneman and Tversky before him, mounted copious evidence that people  consistently deviate from the behavioral benchmark set by the &lt;em&gt;homo economicus&lt;/em&gt;. But to people like Friedman, this is not a sufficient cause for a change of paradigm, unless one brings conclusive evidence to show that the predictions made by rational choice models are wrong. It didn't help that experimental economists like Vernon Smith were successfully showing that (in the market context) people's collective behavior leads to outcomes consistent with rational choice theory. (In this regard, it does seem a bit ironic that Smith would share a Nobel with Kahneman). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another reason against the paradigm shift could be in the interest of parsimony. Including more realistic behavioral foundations in economic models inevitably makes the models more complex. But if the simpler, albeit less realistically-founded, rational choice model can get things right just as well, there is a philosophical reason for favoring the latter. In a way, this is similar to the if-it-ain't-broke-don't-fix-it mentality. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Eventually, however, rational choice theory were found to fail to predict a lot of phenomena. For example, Nash equilibia are notoriously inaccurate in predicting how people actually behave in many games (e.g. Prisoners' Dilemma, ultimatum game, public goods game, and so on). And adding behavioral assumptions/relaxing the rationality assumption seemed like a natural way to &quot;fix&quot; existing models to increase their predictive power. Hence we have the rising popularity of behavioral economics these days. Still, these &quot;behavioral patches&quot; are often met with skepticism from of many traditional &quot;rationalists&quot;. See &lt;a href=&quot;https://afinetheorem.wordpress.com/2017/10/09/the-2017-nobel-richard-thaler/&quot; rel=&quot;nofollow noreferrer&quot;&gt;this post&lt;/a&gt; for example. &lt;/p&gt;&#xA;" OwnerUserId="42" LastEditorUserId="42" LastEditDate="2017-11-01T21:25:13.833" LastActivityDate="2017-11-01T21:25:13.833" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19058" PostTypeId="1" AcceptedAnswerId="19063" CreationDate="2017-11-01T22:14:39.093" Score="6" ViewCount="4488" Body="&lt;p&gt;My class IB has just discussed allocative efficiency and hence consumer and producer supply. They explained the concepts with a diagram like this:&#xA;&lt;a href=&quot;https://i.stack.imgur.com/KHOo8.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/KHOo8.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It all made perfect sense to me until it was mentioned that the supply curve can also be seen as a marginal cost curve. If this is the case, I don't understand why it is only sloping upwards. I know that marginal cost curves (at least at short-term) look something like... &lt;a href=&quot;https://i.stack.imgur.com/5wQEF.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/5wQEF.png&quot; alt=&quot;This&quot;&gt;&lt;/a&gt;&#xA;But the curve in the first diagram is different.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is is an oversimplification of a real marginal cost diagram, or am I missing something?&lt;/p&gt;&#xA;" OwnerUserId="15056" LastActivityDate="2017-11-02T01:29:25.510" Title="Understanding the shape of a Marginal Cost Curve" Tags="&lt;cost&gt;&lt;marginal&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19059" PostTypeId="1" CreationDate="2017-11-01T22:32:00.020" Score="1" ViewCount="24" Body="&lt;p&gt;Suppose a country decided to implement a new stimulus package as a way to energize the economy. Wikipedia defines two types of stimulus:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;Fiscal stimulus&lt;/strong&gt; refers to increasing government consumption or&#xA;  transfers or lowering taxes. Effectively this means increasing the&#xA;  rate of growth of public debt, except that particularly Keynesians&#xA;  often assume that the stimulus will cause sufficient economic growth&#xA;  to fill that gap partially or completely. See multiplier (economics).&#xA;  &lt;strong&gt;Monetary stimulus&lt;/strong&gt; refers to lowering interest rates, quantitative&#xA;  easing, or other ways of increasing the amount of money or credit.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;What effect would each of these stimulus types generally have on nations other than the country that tries the stimulus? Will the main trading partners be affected the most? Who benefits more, exporters or importers? Does it depend on the particular details of the stimulus package? Does it cause the other nations to start their own stimulus program? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am looking for theoretical (analytical) responses, not necessarily something that is backed by empirical evidence.&lt;/p&gt;&#xA;" OwnerUserId="15058" LastActivityDate="2017-11-01T22:32:00.020" Title="How do domestic stimulus packages affect other nations?" Tags="&lt;macroeconomics&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19060" PostTypeId="1" AcceptedAnswerId="20556" CreationDate="2017-11-01T22:44:12.253" Score="4" ViewCount="1019" Body="&lt;p&gt;Ive noticed the use of univariate forecasting methods (i.e the ARIMA model) employed in forecasting inflation (see references below).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How is this a valid approach in terms of forecasting economic variables? does this approach not omit the large amount of economic theory which determines how these variables are determined (i.e via equilibrium and interaction of variables other than themselves?)&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;sub&gt;1.&lt;a href=&quot;https://scholar.harvard.edu/files/stock/files/forecastinginflation.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://scholar.harvard.edu/files/stock/files/forecastinginflation.pdf&lt;/a&gt; see pages 6-7&lt;br&gt;2.&lt;a href=&quot;http://repository.graduateinstitute.ch/record/294965/files/HEIDWP05-2017.pdfhttp://repository.graduateinstitute.ch/record/294965/files/HEIDWP05-2017.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://repository.graduateinstitute.ch/record/294965/files/HEIDWP05-2017.pdfhttp://repository.graduateinstitute.ch/record/294965/files/HEIDWP05-2017.pdf&lt;/a&gt; &lt;br&gt;&#xA;3.&lt;a href=&quot;http://www.unagaliciamoderna.com/eawp/coldata/upload/pakistans%20inflaction_arima%20model.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.unagaliciamoderna.com/eawp/coldata/upload/pakistans%20inflaction_arima%20model.pdf&lt;/a&gt; &lt;/sub&gt;&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="8815" LastEditDate="2018-02-11T02:10:31.353" LastActivityDate="2018-03-07T22:07:55.537" Title="How is the ARIMA model a valid approach for forecasting Economic Variables?" Tags="&lt;macroeconomics&gt;&lt;econometrics&gt;&lt;reference-request&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19061" PostTypeId="2" ParentId="19056" CreationDate="2017-11-01T23:02:18.773" Score="2" Body="&lt;p&gt;If insurance is not compulsory for all drivers there can be a case where the affected parties are unable to be compensated when an accident happens. In that case those affected by the accident wont have the means by which they can have their property replaced.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Insurance provides a service which guarantees a certain level of wealth for a party who is insured. Without insurance sub optimal transactions can take place making everyone worse off. This can be illustrated via an abstracted example.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Example&lt;/strong&gt; &lt;br&gt;&#xA; 1. Party A has wealth of \$50 and Party B has a wealth of \$100 and all their wealth is stored in their cars.&lt;br&gt;&#xA; 2. Party A and Party B both get into a car accident.&lt;br&gt;&#xA; 3. Party A destroys Party B's Car and legally owes Party B \$100 &lt;br&gt;&#xA; 4. without insurance Party A is unable to compensate Party B and loses all his income.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This whole issue can be avoided via the purchase of car insurance. So the law requiring all drivers to have insurance actually leads to a net increase in welfare for all involved  because it allows legally required transactions to take place.&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2017-11-01T23:02:18.773" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19062" PostTypeId="2" ParentId="19058" CreationDate="2017-11-02T01:06:45.090" Score="4" Body="&lt;p&gt;You are missing the &lt;em&gt;average&lt;/em&gt; cost curve in the same diagram. &#xA;Basic algebra gives us the following.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's find the minimum of the $AC = C/Q$. We have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\partial AC}{\partial Q} = \frac {MC\cdot Q - C}{Q^2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For this to be equal to zero, we must have $MC \cdot Q = C \implies MC = AC$. So when $AC$ is at its minimum, it equals $MC$. But we also want the second order condition, and we want the second derivative to be positive, &lt;em&gt;evaluated at the critical point&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\partial^2 AC}{\partial Q^2} &amp;lt;0 \implies ...MC'\cdot Q^3-2MC\cdot Q^2 + 2QC &amp;gt;0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At the critical point $MC = AC = C/Q$. Inserting this we get the condition &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$MC'\cdot Q^3-2(C/Q)\cdot Q^2 + 2QC &amp;gt;0 \implies MC'&amp;gt;0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So at the point where $MC = AC$ we want MC to be &lt;em&gt;rising&lt;/em&gt;. But this implies that it will cross the $AC$ curve from &lt;em&gt;below&lt;/em&gt;. In turn this implies that for quantities lower than this point, marginal cost curve will be below the average cost curve, which means that if this left part of $MC$ curve was a supply curve the firm would have losses.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore the supply curve is only an upwards-sloping part of the marginal cost curve. You can now superimpose the $AC$ curve that is consistent with all these.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2017-11-02T01:06:45.090" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19063" PostTypeId="2" ParentId="19058" CreationDate="2017-11-02T01:29:25.510" Score="4" Body="&lt;p&gt;I'll offer a less algebraic alternative to Alecos's answer. In short, yes and no.&lt;/p&gt;&#xA;&lt;h3&gt;The &amp;quot;no&amp;quot; part&lt;/h3&gt;&#xA;&lt;p&gt;Normally the MC and AC curves would look like the following, with MC intersecting AC from below AC's minimum point. Suppose price &lt;span class=&quot;math-container&quot;&gt;$P_0$&lt;/span&gt; were below this point. Then the firm would sell at a quantity below &lt;span class=&quot;math-container&quot;&gt;$Q_1$&lt;/span&gt;. But what does this imply for the firm's profit? On average, the firm would make &lt;span class=&quot;math-container&quot;&gt;$P_0$&lt;/span&gt; per unit sold, but the cost per unit must be higher than &lt;span class=&quot;math-container&quot;&gt;$P_0$&lt;/span&gt;, i.e. at &lt;span class=&quot;math-container&quot;&gt;$AC_0$&lt;/span&gt; if the firm is selling at &lt;span class=&quot;math-container&quot;&gt;$Q_0$&lt;/span&gt;. This means the firm would be making a loss (negative profit) and no profit maximizing firm would try to operate at this point; they'd be better off shutting down and get zero profit instead.&lt;/p&gt;&#xA;&lt;p&gt;Therefore, a firm's supply curve should be the fraction of its MC curve that's above the AC curve, which is always upward sloping. The quantity &lt;span class=&quot;math-container&quot;&gt;$Q_1$&lt;/span&gt; where a firm would start producing is sometimes referred to as the &lt;a href=&quot;https://en.wikipedia.org/wiki/Minimum_efficient_scale&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;minimum efficient scale&lt;/em&gt;&lt;/a&gt; of production.&lt;/p&gt;&#xA;&lt;h3&gt;The &amp;quot;yes&amp;quot; part&lt;/h3&gt;&#xA;&lt;p&gt;In your demand-supply diagram, the supply curve starts from the origin. Imagine this is just as having the red-dash line in the following diagram &amp;quot;approximating&amp;quot; the part of the MC curve that is below AC --- filling the gap, so to speak.&lt;/p&gt;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/oEJdx.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/oEJdx.png&quot; alt=&quot;enter image description here&quot; /&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="42" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2017-11-02T01:29:25.510" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="19064" PostTypeId="1" CreationDate="2017-11-02T01:37:51.410" Score="2" ViewCount="160" Body="&lt;p&gt;I am &quot;new&quot; to economics but have some maths background (no analysis). Looking to learn how to read and make my own microeconomic models. Is there any online resources (or books) that can help me?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would like it to walk through some key models used in microeconomics, behavioral is my interest, but most important to me is a good and simple guide. It will explain the notation used, for example why do all models have these complex equations with many integrals. It will also discuss other common assumptions, such as why certain distribution of variables are chosen (e.g., Poisson and exponential). &lt;/p&gt;&#xA;" OwnerUserId="15059" LastEditorUserId="15059" LastEditDate="2017-11-02T03:28:42.097" LastActivityDate="2017-11-03T01:10:25.840" Title="Intro to Modeling" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;" AnswerCount="2" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="19065" PostTypeId="2" ParentId="19064" CreationDate="2017-11-02T01:44:52.493" Score="5" Body="&lt;p&gt;There's the well known step-by-step guide on &lt;a href=&quot;http://people.ischool.berkeley.edu/~hal/Papers/how.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;&quot;How to build an economic model in your spare time&quot;&lt;/a&gt; by Hal Varian. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Edit&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Based on further clarifications made in the comments that OP's interest is in behavioral, I'd recommend &lt;a href=&quot;https://books.google.com/books?id=AMBjDQAAQBAJ&amp;amp;printsec=frontcover#v=onepage&amp;amp;q&amp;amp;f=false&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;The Foundations of Behavioral Economic Analysis&lt;/em&gt;&lt;/a&gt; by Sanjit Dhami. The book covers, comprehensively, the various models in behavioral economics and how they are justified and applied. From the publisher: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;This is the first definitive introduction to behavioral economics&#xA;  aimed at advanced undergraduate and postgraduate students.&#xA;  Authoritative, cutting edge, yet accessible, it guides the reader&#xA;  through theory and evidence, providing engaging and relevant&#xA;  applications throughout.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;NB: The book is huge --- 1798 pages, and yet still modestly priced (&lt;a href=&quot;https://global.oup.com/ukhe/product/the-foundations-of-behavioral-economic-analysis-9780198715535?cc=us&amp;amp;lang=en&amp;amp;&quot; rel=&quot;nofollow noreferrer&quot;&gt;£30&lt;/a&gt; or &lt;a href=&quot;https://rads.stackoverflow.com/amzn/click/0198715536&quot; rel=&quot;nofollow noreferrer&quot;&gt;$47&lt;/a&gt;). Definitely a bargain.&lt;/p&gt;&#xA;" OwnerUserId="42" LastEditorUserId="42" LastEditDate="2017-11-02T03:20:39.737" LastActivityDate="2017-11-02T03:20:39.737" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="19067" PostTypeId="1" CreationDate="2017-11-02T03:06:07.547" Score="-1" ViewCount="25" Body="&lt;p&gt;Is it possile that central banks are secretly stealing from the economy by printing money when the the dollar deflates, so the dollar stay the same value and nobody notice it?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What if the dollar should have had massive deflations on graphs, but it didnt because the value was stolen by printing?&lt;/p&gt;&#xA;" OwnerUserId="15034" LastActivityDate="2017-11-02T06:51:53.007" Title="Is it possbile central banks are outside of books getting money from deflation?" Tags="&lt;currency&gt;&lt;central-banking&gt;&lt;deflation&gt;" AnswerCount="1" CommentCount="0" ClosedDate="2017-11-02T07:43:48.320" ContentLicense="CC BY-SA 3.0" />
  <row Id="19068" PostTypeId="2" ParentId="19067" CreationDate="2017-11-02T06:51:53.007" Score="1" Body="&lt;p&gt;The whole point of the recent attempts at monetary expansion (&quot;printing money&quot;) has been to prevent deflation. There's nothing secret about it, and it doesn't &quot;steal from the economy&quot;.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2017-11-02T06:51:53.007" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19069" PostTypeId="1" AcceptedAnswerId="19071" CreationDate="2017-11-02T07:52:57.807" Score="5" ViewCount="522" Body="&lt;p&gt;Suppose that the direct utility $u(x_1,...,x_n)$ is concave in each of its arguments.  Does this imply that the indirect utility $U(w,p)$ is concave with respect to $w$? If all goods are normal than this can proved. e.g. using Lagrange multipliers.  But, is it true in general?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;One can assume that $u$ is differential as many times as necessary.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks.&lt;/p&gt;&#xA;" OwnerUserId="15061" LastEditorUserId="15061" LastEditDate="2017-11-02T08:51:28.613" LastActivityDate="2019-07-24T22:25:07.827" Title="If the (direct) utility is concave in all goods, is the indirect utility necessarily concave in wealth?" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19070" PostTypeId="2" ParentId="19060" CreationDate="2017-11-02T08:54:08.670" Score="3" Body="&lt;p&gt;So your question is basically asking why a purely statistical model would be better at forecasting than a model based on theoretical relationships. For example, think about a simple form of the ARIMA model i.e. an AR model where you're just using lags of the process to explain the process itself. Now think about what is contained in the lags of the process... If the true process (i.e. the DGP) is determined by theoretical relationships between other variables then these will automatically be included in the lag. So the ARIMA model is a statistical way of modeling the process to make sure you capture the statistical properties of the underlying relationship but does not necessarily provide an explanation for what is going on. In forecasting, especially when series are volatile and erratic, you often find that simple statistical models such as these do a better job since the underlying relationships may not be very stable or may be more complicated than any theory we can come up with. This is related to a recent article  which you may find interesting: &lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/S0169207017300997&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.sciencedirect.com/science/article/pii/S0169207017300997&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="6844" LastActivityDate="2017-11-02T08:54:08.670" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19071" PostTypeId="2" ParentId="19069" CreationDate="2017-11-02T10:03:29.057" Score="4" Body="&lt;p&gt;Your statement does not seem to be true for normal goods either. A counterexample:&#xA;$$&#xA;U(x_1,x_2) = (x_1x_2)^{\frac{2}{3}}&#xA;$$&#xA;By the Cobb-Douglas property the optimum bundle given $w,p$ is&#xA;$$&#xA;(x_1,x_2) = \left(\frac{w}{2p_1}, \frac{w}{2p_2}\right),&#xA;$$&#xA;so both goods are normal. The indirect utility is&#xA;$$&#xA;U(w,p) = \left(\frac{1}{4p_1p_2}\right)^{\frac{2}{3}}w^{\frac{4}{3}}.&#xA;$$&#xA;Here $w$ is raised to a power higher than 1 so $U(w,p)$ is convex in $w$.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2017-11-02T10:03:29.057" CommentCount="11" ContentLicense="CC BY-SA 3.0" />
  <row Id="19072" PostTypeId="1" CreationDate="2017-11-02T10:28:47.377" Score="4" ViewCount="108" Body="&lt;p&gt;We can write down the &lt;strong&gt;coefficient of absolute risk aversion&lt;/strong&gt; $R_a$, or the &lt;strong&gt;coefficient of relative risk aversion&lt;/strong&gt; $R_r$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Are there intuitive interpretations of the numerical values of these coefficients? Let's say that someone has $R_a=5$ or $R_r=3$ for certain wealth level $W$, how would we interpret that number?&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="11146" LastActivityDate="2017-11-02T12:29:34.010" Title="Is there a natural intuitive interpretation of the **numerical value** of the coefficients of risk aversion?" Tags="&lt;utility&gt;&lt;preferences&gt;&lt;expected-utility&gt;&lt;risk-aversion&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19073" PostTypeId="2" ParentId="19072" CreationDate="2017-11-02T12:29:34.010" Score="4" Body="&lt;p&gt;Yes, there is such an interpretation in Section 3 of the original paper by Pratt:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Pratt, J. (1964). &lt;a href=&quot;http://www.jstor.org/stable/1913738&quot; rel=&quot;nofollow noreferrer&quot;&gt;Risk Aversion in the Small and in the Large&lt;/a&gt;.&#xA;  Econometrica, 32(1/2), 122-136.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Under some regularity conditions, the coefficient of absolute risk aversion approximates the risk premium divided by half the variance for a small actuarily fair gamble. In Pratt's words, &quot;$r(x)$ is twice the risk premium per unit of variance for infinitesimal risks&quot;. A similar interpretation holds for relative risk aversion, see Section 10.&lt;/p&gt;&#xA;" OwnerUserId="1442" LastActivityDate="2017-11-02T12:29:34.010" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19074" PostTypeId="1" CreationDate="2017-11-02T12:57:40.807" Score="4" ViewCount="8344" Body="&lt;p&gt;Would it be correct to say that the Permanent Income Hypothesis (PIH) stipulates that current consumption decisions are made based on future income projections/expectations, while the Life Cycle Hypothesis (LCH) claims that consumption is constant over the average person's life time, and this is made possible, despite changes in income level throughout his/her lifetime, through borrowing when younger and savings during the elderly years?&lt;/p&gt;&#xA;" OwnerUserId="6782" LastActivityDate="2021-02-19T04:06:30.680" Title="What's the difference between the Life Cycle Hypothesis and Permanent Income Hypothesis?" Tags="&lt;consumption&gt;&lt;saving&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19077" PostTypeId="1" AcceptedAnswerId="19096" CreationDate="2017-11-02T21:01:34.523" Score="0" ViewCount="345" Body="&lt;p&gt;I have asked another question related to price elasticity, which pretty much left me with this problem:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I want to analyze the factors influencing the price of a product. The underlying assumption is that of a classic market equilibrium situation where the price equals the point of demand=supply. Now - how do I model such &lt;strong&gt;equilibrium prices&lt;/strong&gt; and estimate the estimators correctly? How do I treat the problem of &lt;strong&gt;simultanious equations&lt;/strong&gt; in this specific case? And can I simply use OLS regression in the case of &lt;em&gt;price-unelastic demand&lt;/em&gt; since price is only included in the supply function? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I already tried reading the relevant chapters in some of the most common pieces of literature (Wooldridge etc.), but I just do not fully understand how to effectively solve the issue. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The goal is to construct a simple linear regression formula that looks like this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$P_{t}=\beta _{0}+\beta _{1}X_{t}+\varepsilon _{t}$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;where P = Price is the &lt;strong&gt;dependent&lt;/strong&gt; variable. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am sorry for bothering but I am trying to understand this topic for weeks now and I just need some basic explanation on how to solve this issue. I am really thankful for any comment/answer that sheds some light on this. The more I think about it, the more confused I get.&lt;/p&gt;&#xA;" OwnerUserId="15027" LastEditorUserId="15027" LastEditDate="2018-01-29T13:37:31.290" LastActivityDate="2018-01-29T13:37:31.290" Title="Equilibrium Price - OLS Regression" Tags="&lt;econometrics&gt;&lt;regression&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19078" PostTypeId="1" CreationDate="2017-11-02T22:20:24.780" Score="3" ViewCount="68" Body="&lt;p&gt;I'm considering using difference in difference techniques to write my last two undergraduate papers relating minimum wages and employment/poverty. I've been told issues arise with using aggregate data like you would find on major statistical sources. I have notice most DID papers use survey data, however i do not have access to this or time to get it.   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, my question is: what are the issues with not using micro-level data? how big of a deal is it? and are there possible solutions? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;-Thanks&lt;/p&gt;&#xA;" OwnerUserId="15064" LastEditorUserId="15064" LastEditDate="2017-11-02T23:00:27.630" LastActivityDate="2018-05-02T17:30:15.120" Title="What type of biases arise from DID estimation using aggregate data?" Tags="&lt;econometrics&gt;" AnswerCount="0" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="19079" PostTypeId="1" AcceptedAnswerId="19100" CreationDate="2017-11-02T22:30:24.093" Score="7" ViewCount="278" Body="&lt;p&gt;This question pertains to the paper &quot;Optimal Tax Administration&quot; by Slemrod and Keen (2017). The IMF working paper is freely available on SSRN, however, it is not necessary to know the paper in order to understand the question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am confused on how to arrive at equation (5) in the working paper version.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose there is a welfare function:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$W(t,\alpha)= wl - tz(t,\alpha) -c(e,\alpha) - \psi(l) + v(tz(t,\alpha) -a(\alpha)) $ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here, $v$ is an increasing and concave function, $\psi$ is an incresing and convex function, $t$ is the tax rate, $\alpha$ is tax enforcement, $c$ is evasion/compliance cost and $z$ is declared income, which depends on $t$ and $\alpha$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Declared income is given by $z=wl(t,w) - e(t,\alpha)$, where $w$ is the wage rate, $l$ is hours worked and $e$ is concealed income. Both $l$ and $e$ are derived optimally.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first order conditions for $l$ and $e$ are given by:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$(1-t)w - \psi'(l) = 0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$t - c_e(e,\alpha) = 0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here $c_e$ denotes the derivative of $c$ with respect to $e$ and $\psi'$ is the derivative of $\psi$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am interested in $\frac{dW}{dt}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The author's invoke the envelope property to arrive at:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac{dW}{dt}= -z + v'*(z + tz_t)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here $z_t$ is the derivative of $z$ with resprect to t and $v'$ is the derivative of $v$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;How  can I arrive at this expression?&lt;/p&gt;&#xA;" OwnerUserId="5557" LastEditorUserId="5557" LastEditDate="2018-07-29T19:09:11.897" LastActivityDate="2018-07-29T19:09:11.897" Title="Envelope Theorem in Keen and Slemrod (2017)" Tags="&lt;mathematical-economics&gt;" AnswerCount="2" CommentCount="7" FavoriteCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="19081" PostTypeId="2" ParentId="19064" CreationDate="2017-11-03T01:10:25.840" Score="0" Body="&lt;p&gt;I would suggest that you practice macro or micro models in excel first, and then you will be able to figure out where the integrals etc. come from in abstract/theoretical models. You can find some useful books &lt;a href=&quot;https://www.depauw.edu/learn/econexcel/&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="6009" LastActivityDate="2017-11-03T01:10:25.840" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19083" PostTypeId="1" CreationDate="2017-11-03T05:15:08.893" Score="4" ViewCount="40" Body="&lt;p&gt;I'm looking for some websites; books or videos on the beginning levels of economics like micro and macro economics to do a research project projects on.  I found some course videos but they were a bit confusing.  I'm not sure what specific fields I'm supposed to begin with but I'm looking for but the lower levels of subject in both micro and macro economics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What are some clear and trustworthy resources you recommend.  One's like database with the reference links (works cited) would be really good.&lt;/p&gt;&#xA;" OwnerUserId="14403" LastEditorUserId="14403" LastEditDate="2017-11-05T23:50:22.753" LastActivityDate="2017-11-05T23:50:22.753" Title="What are some database like websites about lower levels of economics (micro/macro) for a research project?" Tags="&lt;self-study&gt;&lt;research&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19085" PostTypeId="1" CreationDate="2017-11-03T10:31:17.117" Score="3" ViewCount="169" Body="&lt;p&gt;I am testing the quantitative theory of money for South Africa. QP = Mv. It is fairly clear what M and P are (broad money, or M1, price index, etc). But I am puzzled with Q. Is it GDP or does it include also intermediary inputs?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The idea of the theory is that prices depend on the amount of money and the quantity of &quot;goods and services&quot;. But since companies and people also pay for intermediate goods and services, I think I need to consider also intermediate inputs and not only final goods and services, as in GDP.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any ideas? Thank you very much!&lt;/p&gt;&#xA;" OwnerUserId="15069" LastActivityDate="2017-12-05T19:38:04.553" Title="What is Q in the quantitative theory of money?" Tags="&lt;gdp&gt;&lt;money&gt;&lt;empirical-methods&gt;&lt;quantity-theory-of-money&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19086" PostTypeId="2" ParentId="17445" CreationDate="2017-11-03T12:36:09.697" Score="0" Body="&lt;p&gt;I have been asking myself this question for a long time. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Indeed using a steady curve (instead of brackets) for linking income to tax rates would be simpler and clearer.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Everybody could easily calculate their tax rates at a given income. Or if he or she is traumatised by maths in school: government could publish look-up tables anyway. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So why don't states do this?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The only explanation I can imagine is that &lt;/p&gt;&#xA;&#xA;&lt;p&gt;a) politicians are often maths- and formula-averse, or &lt;/p&gt;&#xA;&#xA;&lt;p&gt;b) they are not but they feel that a majority of population is formula-averse and that they would not meet the necesssary level of understanding in the electorate, so it is unattractive for them to propagate such an improved system, or &lt;/p&gt;&#xA;&#xA;&lt;p&gt;c) bureaucrats in financial authorities are change-averse and do not suggest that solution to politicians. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;All of these are weak reasons. But still I do not see better ones. &lt;/p&gt;&#xA;" OwnerUserId="10589" LastEditorUserId="10589" LastEditDate="2017-11-03T15:20:13.220" LastActivityDate="2017-11-03T15:20:13.220" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19089" PostTypeId="2" ParentId="13356" CreationDate="2017-11-03T14:43:24.000" Score="1" Body="&lt;p&gt;Okay here is an answer.  Nothing in this is simple.   But this is how you lie with statistics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The U-3 number is the one posted in the news all the time.   It is a simple percentage of people unemployed when taken from the total number of people &quot;participating in the workforce&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That's where the confusion, deliberate or otherwise, sets in.   Change the number of people &quot;participating in the workforce&quot; and the  U-3 percentage may not change, yet the actual number of people who are not holding down a job and contributing to the economy can go through the roof.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For instance: current headlines.    Unemployment rate lowest since 2000.    This is a phony comparison.   In 2000 the percentage of working age Americans &quot;participating in the workforce&quot; was nearly 67%.   TODAY that percentage is only 62%.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In terms of total numbers let's look at a guestimate of numbers.   Let's say that 1/3 of America is of the age to work, i.e. between 16 and 60.   That would be approximately 87 million.  So in 2000 with a 67% participation rate you had a workforce of approx. 58 million.  Thus a 4.1 percent unemployment meant you had a total of 23 million people officially unemployed.   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;That is interesting.   Now in 2016 the participation rate was only 62%.   That means your number of people who are still in the work force is only 53 million.  So you do the calculation on that and you get a total of 22 million unemployed.   And, everybody is all happy and stuff.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem is that in addition to that you now have to figure out why you have FIVE MILLION fewer people in your workforce.   Now to make matters worse.  In 2010, to hide this decline in workforce participation the Obama admin made a significant change in methodology.    &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In 2000 you were dropped out of work force participation if you had not found a job in 99 weeks.   In 2010, 2 yrs into the Obama admin that was increased to 260 weeks.  This skewed the workforce participation rate so badly that comparing unemployment numbers in 2017 to those of 2000 and going, &quot;YIPPEEEEE what great news!&quot;,  should be prefaced with, &quot;Once upon a time&quot;, to make sure you get credit for being a great story teller instead of being mistaken for a bare faced liar.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This fairy tale skews the number of people &quot;no longer participating in the workforce&quot; by totals up in the millions.   In a straight line comparison we only had to figure out where the extra FIVE million jobs went.   But with this change in 2010 the actual number of people not participating in the work force goes up by even MORE millions, if calculated using pre-2010 methodolgy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That change in methodology in 2010 means that ANY comparison of unemployment between unemployment rates in 2017 with any year prior to 2010 is just a meaningless exercise in story telling.  Furthermore with a workforce participation rate of only 62%  the U-3 number is just a farce. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let me finish, that my grasp of all of this is pretty weak.   If someone can offer better or more complete interpretation of all of this PLEASE feel free to chime in.&lt;/p&gt;&#xA;" OwnerUserId="15074" LastActivityDate="2017-11-03T14:43:24.000" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19090" PostTypeId="1" CreationDate="2017-11-03T15:09:05.473" Score="0" ViewCount="91" Body="&lt;p&gt;I am trying to study the effects of a program, where everyone gets treated. I have 50% of the population in &lt;strong&gt;t&lt;/strong&gt; and the rest of the 50% in &lt;strong&gt;t+1&lt;/strong&gt; period. I understand this gives me a slight opportunity of creating a control group for just one time period and run something like DID. Or I can run a Segmented TS analysis.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I was wondering if there is any better way?&lt;/p&gt;&#xA;" OwnerUserId="15075" LastActivityDate="2017-12-03T20:02:55.983" Title="Best econometric models to fit when there is no control group?" Tags="&lt;econometrics&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19091" PostTypeId="2" ParentId="17445" CreationDate="2017-11-03T16:20:28.157" Score="7" Body="&lt;p&gt;I think you've misunderstood how the (UK) income tax brackets work. They work differently to how stamp duty used to work.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Stamp duty brackets used to be absolute rates: so when the purchase price crossed over the bracket threshold by £1, the marginal rate would be huge, as the whole purchase price was taxed in the higher rate. Hence the clustering.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That's not what happens with income tax. (and it's no longer what happens with stamp duty, either)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With income tax, only the amount of income that's above the threshold, gets taxed at the higher rate. So, the marginal rate is always equal to the band rate. i.e. if the rates are as in your example, and your income rises from 10,000 to 10,001 then you would pay 10% on the first 10,000 and 20% on the extra 1. You would not pay 20% on all 10,001.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2017-11-03T16:20:28.157" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19092" PostTypeId="2" ParentId="19090" CreationDate="2017-11-03T17:04:19.043" Score="1" Body="&lt;p&gt;If you dont want to used DID, a simple cross sectional analysis would do with the addition of a dummy variable to indicate whether the individual was treated in period $t+1$ or not (implying they were treated in period $t$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;for example if you were trying to see if  test scores of students change depending on when they have their class on monday or tuesday. your data set would be:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\begin{array}{c|lcr}&#xA;n &amp;amp; \text{Test score} &amp;amp; \text{IQ} &amp;amp; \text{Class on monday} \\&#xA;\hline&#xA;1 &amp;amp; 60 &amp;amp; 80 &amp;amp;0\\&#xA;2 &amp;amp;80 &amp;amp;65 &amp;amp; 1 \\&#xA;3 &amp;amp; 90&amp;amp; 70 &amp;amp; 0&#xA;\end{array}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By the incorporation of dummies you can just use regression methods for cross sectional data.&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="8815" LastEditDate="2017-11-03T19:48:21.700" LastActivityDate="2017-11-03T19:48:21.700" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19094" PostTypeId="2" ParentId="17445" CreationDate="2017-11-03T17:36:20.310" Score="3" Body="&lt;p&gt;The way tax brackets currently work is a fixed marginal rate that increments at set intervals. Solving the amount of tax to be paid can be done with a pocket calculator and basic algebra. Using a curve implies a constant change to the marginal rate implying every dollar earned will have a slighly different tax rate and you need to use calculus to figure out how much to pay. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;At the end of the day, the people running the tax office are not going to care about having a beautiful curve for tax rates as they are dealing with all of us incompetent tax payers paying the wrong amount of taxes. As well, complicated tax calculations hurt small business owners and the self-employed, who can't be expected to be using calculus just to pay their taxes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Politicians are smart enough to realize just because it's pretty that doesn't mean it's practical. You've got to consider the audience of people actually implementing the rules.&lt;/p&gt;&#xA;" OwnerUserId="2971" LastActivityDate="2017-11-03T17:36:20.310" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19096" PostTypeId="2" ParentId="19077" CreationDate="2017-11-03T19:29:29.773" Score="1" Body="&lt;p&gt;The same factor affect how a product is supplied and demanded in different ways. If you want to model what the effect of change in a given independent variable has on equilibrium as a whole you need convert both your equations to a single reduced form equation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you have two equations a supply and demand equation both of the forms:&#xA;$$P_s=\alpha_0+\alpha_1X_i+\mu_i$$&#xA;$$P_d=\beta_0+\beta_1X_i+\epsilon_i$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;for estimating how $X_i$ affects &lt;strong&gt;equilibrium&lt;/strong&gt; price set $P_s=P_d$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\alpha_0+\alpha_1X_i+\mu_i=\beta_0+\beta_1X_i+\epsilon_i$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$X_i(\alpha_1-\beta_1)=(\beta_0-\alpha_0)+(\epsilon_i-\mu_i)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;letting the terms $(\alpha_1-\beta_1)$,$(\beta_0-\alpha_0)$ and $(\epsilon_i-\mu_i)$ be equal to $\gamma_1$,$\gamma_0$ and $z$ respectively we solve and find that the effect of $X_i$ on equilibrium price is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\gamma_1=\frac{\gamma_0+z}{X_i}$$&#xA;based on this formula we see that the &#xA;coefficents value actually changes based on the the amount of $X_i $ provided.  Using this method you can get an accurate estimate of your factor's influence on equilibrium price and see how it changes.&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="8815" LastEditDate="2017-11-03T19:42:21.930" LastActivityDate="2017-11-03T19:42:21.930" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="19099" PostTypeId="1" AcceptedAnswerId="19101" CreationDate="2017-11-03T21:56:55.313" Score="0" ViewCount="53" Body="&lt;p&gt;I was not around at this time but I know roads(existing for bikes) and gas(existing for tractors) were complements for cars.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I was looking at complements for computers and noticed the ARPANET could maybe be regarded as a complement because it appears it would increase a computers usefulness.  I'm trying to leave the history out of this but I figured an example would be helpful.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can a complement good like the ARPANET have either a fixed cost or be free?&lt;/p&gt;&#xA;" OwnerUserId="14683" LastEditorUserId="14683" LastEditDate="2017-11-03T22:57:01.060" LastActivityDate="2017-11-04T11:26:38.027" Title="Can a complement good be free or have a fixed cost?" Tags="&lt;perfect-complements&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19100" PostTypeId="2" ParentId="19079" CreationDate="2017-11-03T21:59:41.867" Score="3" Body="&lt;p&gt;The answer to this &quot;puzzle&quot; has been clarified in the comments to the original OP's post.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The issue is that agents treat the $v$ function as exogenous when optimizing with respect to $l$ and $e$, while the social planner naturally takes it into account.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But this is a behavioral assumption with mathematical consequences. The Envelope Theorem does not allow for such asymmetries.   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's apply the Envelope Theorem, which says that if we have a function $f(x;a)$ and we optimize it over, say, $x$, then the total derivative of the optimized function $f(x^*,a)$ with respect to what previously was treated as a parameter equals the partial derivative of the non-optimized function with respect to that parameter, &lt;em&gt;keeping the $x$s fixed&lt;/em&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {df(x^*,a)}{da} = \frac {f(x,a)}{\partial a}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, note that $z$ depends on $t$ &lt;em&gt;only through $l$ and $e$&lt;/em&gt;. So, for the purpose of applying the theorem, we have that the &lt;em&gt;partial&lt;/em&gt; derivative $\partial z/\partial t =0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Keeping that in mind let's write&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$W = H + v$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $H$ contains all the other terms. As the OP showed in his answer we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{dW}{dt}= l_t[w(1-t)-\psi'] + e'[t-c_e] - z + \frac{dv}{dt}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and taking into account the f.o.c for $l$ and $e$ &lt;em&gt;given&lt;/em&gt; the behavioral assumptions related to $v$, we are left with &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{dW}{dt}= \frac{dH}{dt} + \frac{dv}{dt} = -z + \frac{dv}{dt}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies \frac{dH}{dt} = -z$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does this conform with the Envelope Theorem? It does, &lt;em&gt;with respect to $H$ only&lt;/em&gt;, because  this is the part of $W$ over which we maximize with respect to $l$ and $e$. And we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\partial H}{\partial t} = \frac{\partial (-tz)}{\partial t} = -z$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;since as we have said, $\partial z/\partial t =0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So we should not see the partial of $z$ in the first position in any case, while the appearance of $dz/dt$ in relation to $v$ appears only because we have ignored it in the maximization with respect to $l$ and $e$.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the agents optimized taking into account $v$ also we would have obtained&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{dW}{dt} = -z + v'\cdot z$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and the Envelope Theorem would hold for the full $W$ function.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2017-11-08T20:41:58.650" LastActivityDate="2017-11-08T20:41:58.650" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="19101" PostTypeId="2" ParentId="19099" CreationDate="2017-11-03T22:16:27.507" Score="3" Body="&lt;p&gt;Air is a complement good for a lot of things. If you get no air at all then food, gold and iPhones give you no utility either. And air is free! Except in &lt;a href=&quot;https://www.youtube.com/watch?v=gzbIrb7LUJA&quot; rel=&quot;nofollow noreferrer&quot;&gt;Spaceballs&lt;/a&gt;...&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2017-11-04T09:29:11.027" LastActivityDate="2017-11-04T09:29:11.027" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="19102" PostTypeId="2" ParentId="12341" CreationDate="2017-11-04T02:16:36.810" Score="0" Body="&lt;p&gt;Hotelling's Rule only applies to the royalty for the oil, not the produced oil price. The price of oil is about \$60/barrel now. How much of that is royalty, and how much is extraction cost? My guess is that about \$10/barrel is the value in the ground, though I might well be wrong. In that case, it is the \$10 part that should rise at the discount rate, which means the \$60 price will rise at a much lower rate. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;We must also remember that Hotelling's Rule is the same idea as that the stock market must on average rise at the discount rate. It's on average, and in any particular month, or even year, the stock market swings wildly because of unexpcted supply and demand changes. &lt;/p&gt;&#xA;" OwnerUserId="15078" LastEditorUserId="1601" LastEditDate="2017-11-04T09:28:29.707" LastActivityDate="2017-11-04T09:28:29.707" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19104" PostTypeId="1" CreationDate="2017-11-04T09:09:34.877" Score="1" ViewCount="137" Body="&lt;p&gt;&lt;a href=&quot;https://www.jstor.org/stable/1815613&quot; rel=&quot;nofollow noreferrer&quot;&gt;Brandis (1967)&lt;/a&gt; argues that &quot;absolute advantage does not exist&quot; and &quot;that it is a logical impossibility&quot;. (See also &lt;a href=&quot;https://www.jstor.org/stable/1813779&quot; rel=&quot;nofollow noreferrer&quot;&gt;comment&lt;/a&gt;, &lt;a href=&quot;https://www.jstor.org/stable/1813780&quot; rel=&quot;nofollow noreferrer&quot;&gt;comment&lt;/a&gt;, &lt;a href=&quot;https://www.jstor.org/stable/1813781&quot; rel=&quot;nofollow noreferrer&quot;&gt;reply&lt;/a&gt;.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question here is very narrow and specific. I do not understand why the highlighted sentence below (from p. 172) is true. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Brandis seems to be claiming that the last 5 units of Product Y cannot possibly cost 5 units of capital and 15 units of labor. But I do not understand why this is not possible.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/47gz9.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/47gz9.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2017-11-04T09:09:34.877" Title="Question on an argument in &quot;The Myth of Absolute Advantage&quot;" Tags="&lt;international-trade&gt;&lt;cost&gt;&lt;opportunity-cost&gt;" AnswerCount="0" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19105" PostTypeId="1" CreationDate="2017-11-04T09:28:32.587" Score="1" ViewCount="47" Body="&lt;p&gt;In this &lt;a href=&quot;http://voxeu.org/article/behavioural-economics-also-useful-macroeconomics&quot; rel=&quot;nofollow noreferrer&quot;&gt;VOXEU&lt;/a&gt; article, the authors talk about a model in which behaviour economics is applied to macroeconomics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm trying to understand fig.1, and the following sentence: «This means that if the central bank keeps its inflation control unchanged, increasing flexibility creates a new trade-off, which is negatively sloped – that is, more flexibility then reduces output volatility at the expense of more inflation variability.»&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why is there a trade-off when b2 increases? doesn't the std dev of inflation gap decreases as the std dev of output gap decreases? where's the trade-off?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I just don't see how there's a trade-off when the flexibility parameter b2 increases... Also, the authors sometimes say that b2 is the «sensitivity of inflation to the output gap», and others «[wage/price] flexibility».&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="118" LastActivityDate="2017-11-04T09:28:32.587" Title="«Behavioural economics is also useful in macroeconomics»" Tags="&lt;macroeconomics&gt;&lt;behavioral-economics&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19106" PostTypeId="1" CreationDate="2017-11-04T11:17:14.280" Score="3" ViewCount="45" Body="&lt;p&gt;I am an econ master student and I need a bit of help understanding an issue, for my thesis. I have two related questions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume a firm producing a good with labor and capital, $Y=F(L,\bar K)$. Capital is fixed, so the firm optimizes only labor. Consider two alternative scenarios:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) Workers have monopsonistic power in the labor market: the supply of labor is $w(L)$, upward slopping, with elasticity $\eta$. In this case, profits are:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \Pi(L) = pY - w(L)L - rK $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It can be shown that optimal labor is given by:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{\partial Y}{\partial L} =  \left(1+\frac{1}{\eta}\right)\frac{w}{p} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the elasticity of supply is infinity (competitive market), there is no wedge between MP and wages. If the elasticitity is below infinity (for example 2), there is a positive wedge (term is 1.5) so workers are paid LESS than their competitive wage. This is counterintuitive. Why can the firm pay LESS than competitive wage, if workers are the ones with the power? This is question 1. It is also strange that if supply is perfectly inelastic ($\eta=0$), the term is infinity, which means competitive wage is zero? I am lost. Now to question 2.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) Firms have monopolistic power in the product market: the demand for output is $p(Y)$, downward sloppoing, with elasticity $\epsilon$ (which is negative)  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \Pi(L) = p(Y)Y - wL - rK $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It can be shown that optimal labor is given by:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{\partial Y}{\partial L} =  \frac{1}{\left(1+\frac{1}{\epsilon}\right)}\frac{w}{p} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here I am very very lost. So, in the case of competitive markets ($\epsilon=-\infty$), workers are paid their MP. If the elasticity is between negative infinity and -1, the wedge is positive. However, if the elasticity is $\epsilon=-1$, the wedge is infinity. What does this mean? What is so special about $\epsilon=-1$? Even worse, if the elasticity is between 0 and -1, the wedge is negative!! What the heck does this mean? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks for taking the time to read this question. If you have any further question, let me know. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Bob.&lt;/p&gt;&#xA;" OwnerUserId="15081" LastActivityDate="2017-11-04T15:36:26.853" Title="Interpreting wedge between MP and wage" Tags="&lt;microeconomics&gt;&lt;elasticity&gt;&lt;self-study&gt;&lt;competition&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19107" PostTypeId="2" ParentId="19099" CreationDate="2017-11-04T11:26:38.027" Score="2" Body="&lt;p&gt;Public goods are goods which have a fixed cost and are sometimes free for businesses. Think of police. They patrol streets, protecting businesses premises. Businesses do not pay directly for these services, except in very general terms with taxation and land rates. But these are fixed costs in the sense that the provision of the service do not depend on the activities of the firm.&lt;/p&gt;&#xA;" OwnerUserId="15081" LastActivityDate="2017-11-04T11:26:38.027" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19108" PostTypeId="2" ParentId="19106" CreationDate="2017-11-04T13:20:13.997" Score="1" Body="&lt;p&gt;You are right that for $|\epsilon|\leq1$, you would have issues with the wedge. However, this cannot occur in equilibrium, so it is not a problem.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Both your questions stem from the same issue. I will illustrate it for monopolists, but it is analogous for monopsonists.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First note, elasticity is not constant (except in the rare case of a constant elasticity of demand function). The elasticity of demand varies across the points on the demand function. In some regions it is $|\epsilon|&amp;gt;1$ and in others it is  $|\epsilon|\leq1$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Second, note that the monopolist chooses the point on the demand curve, that she operates in, unlike under perfect competition.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is a well known result that monopolists optimally only choose to operate in the elastic region of demand. This is because, if they are in an inelastic region, then in response to a price increase, demand is reduced proportionally less than the price increase. In such a case, the monopolist can increase its profits, so that cannot be an optimal price. The profit maximizing price chosen by the monopolist is always in the elastic region of the demand curve.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This means that $|\epsilon|&amp;gt;1$ always holds for a profit maximizing monopolist and the wedge is always positive.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastEditorUserId="5557" LastEditDate="2017-11-04T15:36:26.853" LastActivityDate="2017-11-04T15:36:26.853" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19109" PostTypeId="1" AcceptedAnswerId="19115" CreationDate="2017-11-04T16:06:11.087" Score="1" ViewCount="357" Body="&lt;p&gt;I tried to look for this term on the Internet, to no avail, as what I found does not fit into the context I found this word in.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My context is:&#xA;The incentive-compatible instrument of Vickrey Auction is that there is no incentive for bidders to submit speculative bids.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What does &quot;speculative bid&quot; mean here?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks in advance.&lt;/p&gt;&#xA;" OwnerUserId="14778" LastActivityDate="2017-11-04T22:38:10.580" Title="What does speculative bid mean?" Tags="&lt;auctions&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19111" PostTypeId="1" CreationDate="2017-11-04T18:34:41.850" Score="2" ViewCount="374" Body="&lt;p&gt;Why is there Ricardian equivalence in Ramsey's model, but not in OLG?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am looking for an intuitive explanation.&lt;/p&gt;&#xA;" OwnerUserId="15086" LastActivityDate="2017-11-10T22:30:08.533" Title="Why is there Ricardian equivalence in Ramsey's model, but not in OLG?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19112" PostTypeId="2" ParentId="19085" CreationDate="2017-11-04T22:17:33.033" Score="0" Body="&lt;p&gt;Yes, this is supposed to be the GDP. You can interpret it as being the sum of all aggregate value in the economy, so all intermediary goods and services are already in there. &lt;/p&gt;&#xA;" OwnerUserId="15089" LastActivityDate="2017-11-04T22:17:33.033" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19114" PostTypeId="2" ParentId="19083" CreationDate="2017-11-04T22:31:39.927" Score="2" Body="&lt;p&gt;&lt;a href=&quot;http://mba.tuck.dartmouth.edu/pages/faculty/ken.french/data_library.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Fama-French library&lt;/a&gt;&#xA;has good data on which you can test your first Fama-French regression model. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have found &lt;a href=&quot;https://www.youtube.com/watch?v=dc1L3zjsgiY&quot; rel=&quot;nofollow noreferrer&quot;&gt;this video&lt;/a&gt; on Youtube that might help you with this first project.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ps.: It would help a lot if you were more specific about what you want to learn. I can give other suggestions, but I really don't know what you are looking for. &lt;/p&gt;&#xA;" OwnerUserId="15089" LastActivityDate="2017-11-04T22:31:39.927" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19115" PostTypeId="2" ParentId="19109" CreationDate="2017-11-04T22:38:10.580" Score="2" Body="&lt;p&gt;A speculative bid in a Vickrey auction means that it is not what the bidder really thinks that the product is worth. Hence, a speculative bid is anything different from the true valuation of this product by the bidder (either a smaller or a larger price than the true one).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a Vickrey auction, the bidder has incentive to reveal his/her true valuation. If he/she does not do so, he/she risks losing (either by winning the bid and paying more than what the product is worth for them - if price was higher than true valuation -, or by losing the bid - if price was lower than true valuation).&lt;/p&gt;&#xA;" OwnerUserId="15089" LastActivityDate="2017-11-04T22:38:10.580" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19116" PostTypeId="2" ParentId="19027" CreationDate="2017-11-04T22:45:47.253" Score="0" Body="&lt;p&gt;If that were the case, then they would have to print each time more and more money. And this does not happen.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If fact, they usually just print what naturally comes out of circulation (bills get old and coins get lost) and enough to have inflation above zero, but not too far from it. (Deflation, as well as excessive inflation, have been shown to cause many problems to an economy.)&lt;/p&gt;&#xA;" OwnerUserId="15089" LastActivityDate="2017-11-04T22:45:47.253" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19117" PostTypeId="1" AcceptedAnswerId="19118" CreationDate="2017-11-05T00:49:52.560" Score="7" ViewCount="143" Body="&lt;p&gt;a) Delta Air Lines buys a new jet from Boeing for 200 million dollars.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;b) Delta Air Lines sells **one of its jets to Kim Kardashian for 100 million dollars. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So..&lt;/p&gt;&#xA;&#xA;&lt;p&gt;a) $200 million investment, purchase of the final good, so GDP increased by 200 M&lt;/p&gt;&#xA;&#xA;&lt;p&gt;b) No change, but why? Even if the had bought the plane for 50 million and made profit by selling it to Kim? Here's my in length answer I am not too certain of:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does not change. Why? This good was already included in GDP. It was produced and sold. It has not been modified by Delta Air Lines, thus absolutely no value added to this plane.  It is simply the ownership transfer of a good that was bought. However...Wasn't that a service? I mean, Delta made it EASIER for Kim to buy a plane. They provided a service, so a profit would be added to GDP...NO?&lt;/p&gt;&#xA;" OwnerUserId="15090" LastEditorUserId="5017" LastEditDate="2017-11-05T13:12:44.980" LastActivityDate="2019-04-20T21:18:08.570" Title="GDP simple question got me confused: the sale of a capital asset" Tags="&lt;gdp&gt;&lt;value&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19118" PostTypeId="2" ParentId="19117" CreationDate="2017-11-05T01:02:17.933" Score="5" Body="&lt;p&gt;No, the sale of a capital asset doesn’t count in GDP, as the cost of the asset was already accounted for when the plane was first sold to Delta. To your second point, if a broker somehow provided a service by facilitating the sale, that would count towards GDP, but the sale itself would not. &lt;/p&gt;&#xA;" OwnerUserId="264" LastActivityDate="2017-11-05T01:02:17.933" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19119" PostTypeId="1" AcceptedAnswerId="19120" CreationDate="2017-11-05T01:15:16.907" Score="2" ViewCount="53" Body="&lt;p&gt;I've been thinking about how to answer this question &lt;a href=&quot;https://economics.stackexchange.com/questions/19005/how-to-econometrically-identify-perfect-complements-in-production&quot;&gt;How to econometrically identify perfect complements in production?&lt;/a&gt; and may think that multicollinearity has something to do with identifying such a process.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I have a regression such that:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$y=\beta_0+\beta_1x_1+\beta_2x_2+\mu$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $x_1$ and $x_2$ are correlated with each other. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;does that imply that some function of the nature $\min\{x_1,x_2\}$ is present in the determination of $y$? &lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="8815" LastEditDate="2017-11-05T02:07:37.450" LastActivityDate="2017-11-08T22:16:04.037" Title="Does multicolinearity of variables imply complementary inputs?" Tags="&lt;microeconomics&gt;&lt;econometrics&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19120" PostTypeId="2" ParentId="19119" CreationDate="2017-11-05T02:04:06.470" Score="1" Body="&lt;p&gt;A &lt;a href=&quot;https://en.wikipedia.org/wiki/Leontief_production_function&quot; rel=&quot;nofollow noreferrer&quot;&gt;Leontief production&lt;/a&gt; does imply perfect multicollinearity between the inputs, since there is no substitutability between them. Thus, if a firm's production technology features non-substitutability between inputs, one would observe the firm choosing inputs in fixed proportions. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, (perfect) multicollinearity does not necessarily imply non-substitutability. For instance, the Cobb-Douglas production technology of the form $y=x_1^{0.5}x_2^{0.5}$ is also consistent with a firm choosing inputs in fixed proportions. So the answer to your question is no (from a theoretical perspective). &lt;/p&gt;&#xA;" OwnerUserId="42" LastEditorUserId="42" LastEditDate="2017-11-08T22:16:04.037" LastActivityDate="2017-11-08T22:16:04.037" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19122" PostTypeId="1" AcceptedAnswerId="19184" CreationDate="2017-11-05T09:05:21.737" Score="13" ViewCount="333" Body="&lt;p&gt;In the aftermath of 2008 economists were, fairly or not, blamed for a failure to foresee the coming crisis. Ideas such as &quot;&lt;a href=&quot;https://en.wikipedia.org/wiki/Great_Moderation&quot; rel=&quot;noreferrer&quot;&gt;The Great Moderation&lt;/a&gt;&quot; and market efficiency were openly ridiculed as hubristic. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, almost a decade later, seems like a good time to take stock and ask: What have been the main developments in macroeconomics and financial economics research that have emerged in response to the financial crisis?&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;are there lines of research that have been discredited or essentially abandoned?&lt;/li&gt;&#xA;&lt;li&gt;are there new topics that have received much more attention?&lt;/li&gt;&#xA;&lt;li&gt;are the new approaches to modelling (or approaches that have come to be used more than previously)?&lt;/li&gt;&#xA;&lt;li&gt;have any big new ideas emerged in our understanding of recessions / financial crises?&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Or perhaps there is good reason to think that everything was fine before and so nothing has to change.&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2017-11-08T18:04:26.070" LastActivityDate="2017-11-15T16:01:03.417" Title="What have been the main developments in macroeconomics and financial economics since the 2008 financial crisis?" Tags="&lt;reference-request&gt;&lt;history-economic-thought&gt;" AnswerCount="3" CommentCount="5" FavoriteCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="19123" PostTypeId="1" AcceptedAnswerId="19126" CreationDate="2017-11-05T09:19:29.590" Score="0" ViewCount="64" Body="&lt;p&gt;Are there any studies trying to measure the increase of the wealth inequality in the USA?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Say for example how much it increased, comparing with 1990. Or compared with any other moment in time after 1970.&lt;/p&gt;&#xA;" OwnerUserId="5161" LastActivityDate="2017-11-05T11:21:50.613" Title="How much the wealth inequality increased in the USA in the last decades?" Tags="&lt;inequality&gt;&lt;wealth&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19124" PostTypeId="2" ParentId="19083" CreationDate="2017-11-05T09:29:23.343" Score="1" Body="&lt;p&gt;Are you interested in inequality? I highly recommend &lt;a href=&quot;http://wid.world&quot; rel=&quot;nofollow noreferrer&quot;&gt;this database&lt;/a&gt; made by Thomas Piketty. Here's &lt;a href=&quot;https://www.ted.com/talks/thomas_piketty_new_thoughts_on_capital_in_the_twenty_first_century&quot; rel=&quot;nofollow noreferrer&quot;&gt;his TED lecture&lt;/a&gt; on the topic, too.&lt;/p&gt;&#xA;" OwnerUserId="5017" LastActivityDate="2017-11-05T09:29:23.343" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19125" PostTypeId="1" CreationDate="2017-11-05T10:00:31.003" Score="1" ViewCount="1324" Body="&lt;p&gt;Consider a two player simultaneous game where each player chooses a non-negative value, $x_i$, $i=1,2$. The payoff to each player is $π_i(x_1,x_2)=2x_i+2x_1x_2-x_i^2.$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;a. What are the pure strategy Nash equilibria of this game?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;b. Suppose that the set of strategies is limited to $[0,M],M&amp;gt;0$. What are the pure strategy Nash equilibria of the game now?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a) I got the answer that there are no PSNE since there's no intersection between the best response function of both players. Please correct me if that's wrong! &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For b) I got very confused because I'm unsure how bounding the values of $x$ will make the conclusion any different from a). I realize that the payoff function provided doesn't necessarily mean that the larger $x_i$ is, the larger the payoff will be.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Below is my proof:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider $π_i(x_1,x_2)=2x_i+2x_1x_2-x_i^2.$. We first assume $x_1&amp;gt; x_2$. In order to find out if a larger number leads to a higher payoff, i.e. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;if $2x_1+2x_1x_2-x_1^2&amp;gt;2x_2+2x_1x_2-x_2^2$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$2x_1-x_1^2&amp;gt;2x_2-x_2^2$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$x_1(2-x_1)&amp;gt; x_ 2(2-x_2)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Following from $x_1&amp;gt;x_2$,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$2-x_1&amp;lt;2-x_2$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$x_1(2-x_1)&amp;gt; x_ 2(2-x_2)$ for $0&amp;lt;x_1\leq 1 $ and $0&amp;lt;x_2&amp;lt; 1$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$x_2(2-x_2)&amp;gt; x_ 1(2-x_1)$ for $x_1&amp;gt;1 $ and $x_2\ge 1$, where $x_2&amp;lt;x_1$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, in order to maximize the payoff of each player and find the intersection of their best response such that they will have no incentive to deviate, with the condition that $[0,M]$, we find that:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As long as $0&amp;lt;M\leq 1$, the PSNE will be {$P1: M, P2: M$}. When $M&amp;gt;1$, the PSNE will be {$P1: 1, P2: 1$}.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm quite unsure if I'm right though, and would love to get some input!&lt;/p&gt;&#xA;" OwnerUserId="15094" LastEditorUserId="15094" LastEditDate="2017-11-07T05:49:55.917" LastActivityDate="2017-11-07T05:49:55.917" Title="Game Theory PSNE of a two player simultaneous game" Tags="&lt;game-theory&gt;" AnswerCount="0" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="19126" PostTypeId="2" ParentId="19123" CreationDate="2017-11-05T11:21:50.613" Score="2" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/IyEm2.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/IyEm2.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;This statistic shows the Gini coefficient, an index for measuring&#xA;  income distribution, for U.S. households from 1990 to 2016. A Gini&#xA;  coefficient of zero expresses perfect equality, where all would have&#xA;  the same income,a Gini coefficient of one expresses maximal inequality&#xA;  among values. In 2016, the Gini coefficient for household income was&#xA;  0,48. This is an increase since 1990 of 0.5 points, indicating an&#xA;  increase of income inequality in the United States.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Source: &lt;a href=&quot;https://www.statista.com/statistics/219643/gini-coefficient-for-us-individuals-families-and-households/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Statista&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In case you are interested in &lt;em&gt;how&lt;/em&gt; data for such indeces are gathered, a recent study explaining its data process is &lt;a href=&quot;https://academic.oup.com/qje/article-abstract/131/2/519/2607097&quot; rel=&quot;nofollow noreferrer&quot;&gt;Wealth Inequality in the United States since 1913&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2017-11-05T11:21:50.613" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19128" PostTypeId="1" AcceptedAnswerId="19129" CreationDate="2017-11-05T13:05:58.413" Score="4" ViewCount="1067" Body="&lt;p&gt;According to &lt;a href=&quot;https://en.wikipedia.org/wiki/Hotelling%27s_lemma&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://en.wikipedia.org/wiki/Hotelling%27s_lemma&lt;/a&gt;, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;the maximum of the firm's profit at some output is given by the minimum of the difference between the profit and the revenue.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, it does not sound right, as the difference of difference of the profit and the revenue is the negative of the cost of the input. The minimum would correspond to the maximum cost for input incurred. How would the maximum of the fir's profit at this point?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also what does it mean by &quot;at some output y*(p)&quot;? Is y*(p) fixed here?&lt;/p&gt;&#xA;" OwnerUserId="14778" LastActivityDate="2017-11-05T15:59:55.287" Title="Could someone please explain the proof of Hotelling's lemma?" Tags="&lt;supply-and-demand&gt;&lt;production-function&gt;&lt;profit-maximization&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19129" PostTypeId="2" ParentId="19128" CreationDate="2017-11-05T15:59:55.287" Score="2" Body="&lt;p&gt;Well done for spotting this one. It is (was) simply a wrong statement. It is indeed the &lt;em&gt;maximum&lt;/em&gt; and not the minimum of the expression as (was in the past) stated in the wikipedia article. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then the maximum of this expression is the maximum of $-C$ (Cost) which is equivalent to the minimum of $C$, and the equivalence with maximum profit holds under duality.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2017-11-05T15:59:55.287" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="19131" PostTypeId="1" AcceptedAnswerId="19186" CreationDate="2017-11-05T20:34:14.517" Score="2" ViewCount="366" Body="&lt;p&gt;Why is it that if lenders expect higher inflation in years to come, they will most likely increase $nominal$ rates of interest opposed to $real$ rates of interest?&lt;/p&gt;&#xA;" OwnerUserId="14755" LastActivityDate="2017-11-08T22:42:58.737" Title="Why $nominal$ interest increases when inflation is expected to increase?" Tags="&lt;inflation&gt;&lt;interest-rate&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19135" PostTypeId="2" ParentId="19131" CreationDate="2017-11-05T23:58:40.363" Score="2" Body="&lt;p&gt;Better look at the Fisher rule (Fisher equation).&#xA;nominal interest rate (i) = real interest rate (r) + inflation (pi) (i = r + pi)&lt;/p&gt;&#xA;" OwnerDisplayName="user15100" LastActivityDate="2017-11-05T23:58:40.363" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19138" PostTypeId="2" ParentId="18565" CreationDate="2017-11-06T05:41:56.533" Score="1" Body="&lt;p&gt;If you know Elasticity of average product you can identify how your output per worker or machine will change as $L$ or $K$ increases.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Recall the definition of elasticity is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\mathcal{E}=\frac{\Delta y/y}{\Delta x/x}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;average product of labor and capital:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$AP_L=\frac{Q}{L}$$&#xA;$$AP_K=\frac{Q}{K}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;therefore the elasticity of average product of labor and capital is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Gamma_L=\frac{\Delta AP/AP}{\Delta L/L}$$&#xA;$$\Gamma_K=\frac{\Delta AP/AP}{\Delta K/K}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is useful for evaluating how existing worker or capital productivity will be impacted as a result of an increase in capital or labor.&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="8815" LastEditDate="2017-11-06T22:22:13.870" LastActivityDate="2017-11-06T22:22:13.870" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19140" PostTypeId="2" ParentId="19079" CreationDate="2017-11-06T13:25:19.787" Score="4" Body="&lt;p&gt;At first glance, it appears the answer should be $\frac{dW}{dt}= -(z + tz_t) + v'*(z + tz_t)$, as $l$ and $e$ are chosen optimally and the envelope theorem cancels these terms out. Furthermore, one could expect both $z_t$ terms in the final derivative to drop out due to the envelope theorem. However, one and only one $z_t$ term remains in the authors' calculations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The envelope theorem is just an application of first order conditions. In this case, it is better to simply use the first order conditions we know to derive the results, instead of using the theorem directly. I believe the authors invoke the term &quot;envelope property&quot; to concisely convey that they are using the previously found first order conditions. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Taking the total derivative we arrive at: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac{dW}{dt}= wl_t -z - tz_t -c_ee' - \psi'l_t + v'*(z + tz_t)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Inserting the expression for $z_t$ and grouping some terms we have:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac{dW}{dt}= l_t[w(1-t)-\psi'] + e'[t-c_e] - z + v'*(z + tz_t)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that the terms in square brackets are the same as the first order conditions for $l$ and $e$ and hence equal to zero. This leaves us with:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac{dW}{dt}= - z + v'*(z + tz_t)$&lt;/p&gt;&#xA;" OwnerUserId="5557" LastEditorUserId="5557" LastEditDate="2018-07-29T19:08:57.033" LastActivityDate="2018-07-29T19:08:57.033" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="19141" PostTypeId="5" CreationDate="2017-11-06T15:31:46.660" Score="0" Body="" OwnerUserId="-1" LastEditorUserId="-1" LastEditDate="2017-11-06T15:31:46.660" LastActivityDate="2017-11-06T15:31:46.660" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19142" PostTypeId="4" CreationDate="2017-11-06T15:31:46.660" Score="0" Body="This is a special tag that is designed to be used only by the system for questions that have had all of their other tags removed. Do not add this tag to existing questions, it is reserved for use by the system to identify posts with no valid tags." OwnerUserId="4816" LastEditorUserId="4816" LastEditDate="2017-11-06T18:57:20.420" LastActivityDate="2017-11-06T18:57:20.420" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19145" PostTypeId="1" AcceptedAnswerId="19150" CreationDate="2017-11-06T17:33:10.667" Score="4" ViewCount="858" Body="&lt;p&gt;My question is from production side. Firms which are using better resources will have low cost curves than other firms and earn more profits. To ensure the supply of these effecient resources firms have to pay more than transfer prices and this difference is economic rent. So, their whole profit is used as these economic rent and their average cost is same as theother firms which are not using better resources.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this type of situation possible in perefect competition?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Panel(a) are the firms using efficient resources.&#xA;&lt;a href=&quot;https://i.stack.imgur.com/30yAh.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/30yAh.jpg&quot; alt=&quot;figure showing cost curve&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="15107" LastEditorUserId="15107" LastEditDate="2017-11-06T19:39:49.637" LastActivityDate="2017-11-07T04:36:28.420" Title="Why economic rent does not exist in perfect competition" Tags="&lt;microeconomics&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19146" PostTypeId="2" ParentId="19145" CreationDate="2017-11-06T18:20:42.377" Score="1" Body="&lt;p&gt;Suppose the competitive price is P. If you quote at a a higher price Ph2&gt;P, then someone else, say firm 2, will quote at a slightly lower price than you, say Ph2, and Ph1&gt;Ph2&gt;P. Since competition is perfect, firm 2 will capture all the market and you will go bankrupt. But firm 3 may put price Ph3 such that Ph2&gt;Ph3&gt;P and capture all the market. This process can be repeated until the equilibrium price is reached. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand, if you place a price that is below the competitive price, you will go bankrupt. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence, there is no economic rent because all firms in the competitive equilibrium will choose the equilibrium price which gives them an economic profit(rent) of zero. &lt;/p&gt;&#xA;" OwnerUserId="15089" LastActivityDate="2017-11-06T18:20:42.377" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19147" PostTypeId="1" CreationDate="2017-11-06T20:23:01.103" Score="0" ViewCount="99" Body="&lt;p&gt;Moved from the personal finance &amp;amp; money SE:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The following question is somewhat of an existential nature and may not necessarily be related to finance or economics in the strict sense.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Reading various articles about professions, or things in general, that are progressively being automated (and it's not just about work in factories but doctors, brokers, lawyers, artists (sic!) and heck! even programmers themselves...), the development of medicine and biology (let's just grab CRISPR for example) I often imagine a world in which literally everything is automated: from agricultural production through everyday things (maybe even maid robots) to high-end jobs. Since in such a world literally everything is done for people, what is the meaning of work and money? When there is no work that people can do, I imagine that there are no costs associated with it, and consequently, everything is free for everyone. We live in times when people could completely give up using physical money (and some countries have already done so, I guess Sweden have forbidden using physical money and left only cards). Hence I can not fight the feeling that in today's world money is such a virtual thing, something that has no &quot;real&quot; value: it's just printed pieces of paper or stamped metal pieces, and people have agreed on how much they are worth, and that whole economy has been built on top of these ephemeral, imaginary things, and the finances basically come down to the database entry and the fact that someone could just type in the UPDATE TABLE query with the new amount of money that is in the account (of course, I know that it is impossible that there is inflation, etc.).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Summing up:&#xA;there is certainly a lot of mistakes or misunderstandings in my thinking, but I wonder what role the money will have (or any other means of payment) in the world at the moment when there will be no more jobs for humans on the planet? Is it possible that the money will still exist at all? I know that there is a fairly fierce debate on this subject and that different approaches to the topic, such as universal basic income, are invented, but again I have the impression that it comes down to the thing above, that is subtracting the amount in one cell and adding in the other.&lt;/p&gt;&#xA;" OwnerDisplayName="user15109" LastEditorDisplayName="user15109" LastEditDate="2017-11-09T15:32:19.233" LastActivityDate="2017-11-09T15:32:19.233" Title="Will money still have any value in the fully automated world?" Tags="&lt;macroeconomics&gt;&lt;finance&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19148" PostTypeId="2" ParentId="19147" CreationDate="2017-11-06T23:35:42.477" Score="0" Body="&lt;p&gt;Money fulfill three main function. They are:&#xA; -medium of exchange&#xA; -unit of account &#xA; -store of value.&#xA;Money are the most liquid asset one can own, as a medium of exchange they help us avoid the &quot;coincidence of wants&quot; that should be given in a barter system. The purchasing power of money depends on the supply and demand of them. &#xA;The value of the money depends on their purchasing power, on their expected future purchasing power (are they good as a storage of value), and from their wider acceptance as a medium of exchange.&lt;/p&gt;&#xA;" OwnerDisplayName="user15100" LastActivityDate="2017-11-06T23:35:42.477" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19149" PostTypeId="1" AcceptedAnswerId="19151" CreationDate="2017-11-07T03:58:15.457" Score="1" ViewCount="2722" Body="&lt;p&gt;I get confused on what is the difference between asset pricing vs empirical asset pricing? Could you clarify your answer? Also, is asset pricing just assessing the current value of an asset?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks,&lt;/p&gt;&#xA;" OwnerUserId="15112" LastActivityDate="2017-11-07T04:48:53.067" Title="Asset pricing vs Empirical asset pricing" Tags="&lt;asset-pricing&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19150" PostTypeId="2" ParentId="19145" CreationDate="2017-11-07T04:36:28.420" Score="1" Body="&lt;p&gt;So, the answer is no. Panel (a) is not possible in perfect competition. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And it follows much of the idea from the previous answer. The price will be equal to the average cost if the firm is to have zero profit. Moreover, from the maximization of the firm's problem, price will also equal the marginal cost. This situation is given to you on panel (b). &lt;/p&gt;&#xA;" OwnerUserId="15089" LastActivityDate="2017-11-07T04:36:28.420" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19151" PostTypeId="2" ParentId="19149" CreationDate="2017-11-07T04:48:53.067" Score="3" Body="&lt;p&gt;As mentioned in Herr K's comment, asset pricing is the theory to price assets (such as equity, bonds, options, futures, swaps, etc). For this, you can use models like CAPM/Fama-French (returns), Black-Scholes (options), Swensonn (interest rates), and many many others. When you say empirical asset pricing, this means that you go to the data (and each model deals with a different type of data) and try to price an existing asset based on the information that you see on the market. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, in the Black-Scholes model, given the current stock price (S), the strike price for the option (K), the time until exercise (T-t), the risk-free rate (r) and the volatility of returns (sigma), you can use the formula directly and calculate the price of the option. Notice that this would be a theoretical price. In practice, you might observe something else in the market. You may want to do some arbitrage from here since there is mispricing (Don't go using this in the real market, but you get my point).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For your last question, asset pricing is not necessarily just about the current value of an asset. You probably would also want to estimate future values based on your models. In fact, it is really of no use a model that tells you today's price. For that, you just look at the price on the tape and ignore your model. The whole point of building models is to make predictions. &lt;/p&gt;&#xA;" OwnerUserId="15089" LastActivityDate="2017-11-07T04:48:53.067" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="19152" PostTypeId="2" ParentId="19028" CreationDate="2017-11-07T05:06:47.280" Score="2" Body="&lt;p&gt;I would say people usually use log-returns for continuous data (although no data is really continuous, not even tick data). And discrete returns when your data is discrete. In the case of GDP, you only get the data every 3 months, so that is as discrete as it gets. &lt;/p&gt;&#xA;" OwnerUserId="15089" LastActivityDate="2017-11-07T05:06:47.280" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19154" PostTypeId="2" ParentId="19147" CreationDate="2017-11-07T06:12:11.470" Score="4" Body="&lt;p&gt;Your argument is built on this assumption:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;When there is no work that people can do, I imagine that there are no costs associated with it, and consequently, everything is free for everyone&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;That assumption is not true, and so your conclusion does not stand.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We usually classify production factors into labour, land, capital, enterprise. As you can see, labour is only one of the four factors. But all four factors incur costs: land still needs rent, enterprise still needs profit, capital still needs investment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another way of looking at it, is that even if the supply of labour is effectively unlimited (because so little of it is needed to produce anything), the supply of other things is still limited, i.e. there is still some scarcity. There is still a limited amount of iron in the world, or copper, or cabbages. And money is part of markets, which are the main mechanism for managing those limited supplies.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2017-11-07T06:12:11.470" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="19157" PostTypeId="2" ParentId="17981" CreationDate="2017-11-07T10:17:11.123" Score="1" Body="&lt;p&gt;I would say that the main difference stems from the solution method, which results in your statement about all paths versus only the path at time t being true.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Dynamic programming (at least when done numerically) consists of backward induction. One tries to identify the optimal action for all possible values of the state variable in the final period, and then reasons backwards following the state equation. In this way one gets a solution not just for the path we're currently on, but also all other paths. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Similarly, if one uses the guess-and-verify method to solve the value function of the Bellman equation, the value function one guesses defines the optimal decision for all possible values of the state variable. Thus one gets a solution for all possible paths, including the current one.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Kuhn-Tucker basically works the other way around. One formulates the necessary and sufficient conditions, and solves the resulting difference equation(s) using the initial conditions as starting points. &lt;/p&gt;&#xA;" OwnerUserId="12186" LastActivityDate="2017-11-07T10:17:11.123" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="19158" PostTypeId="1" AcceptedAnswerId="19161" CreationDate="2017-11-07T11:10:17.440" Score="5" ViewCount="155" Body="&lt;p&gt;The idea to treat fossil fuel as capital is found in the first chapter of the book &quot;Small is Beautiful: (A Study of) Economics as if People Mattered&quot; (1973) by E. F. Schumacher. Is there recent research following this idea?&lt;/p&gt;&#xA;" OwnerUserId="12910" LastEditorUserId="1601" LastEditDate="2017-11-07T13:51:16.557" LastActivityDate="2017-11-07T22:38:21.110" Title="How would gross world product look like if fossil fuel is treated as capital and not as income?" Tags="&lt;reference-request&gt;&lt;gdp&gt;&lt;economic-growth&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19159" PostTypeId="1" CreationDate="2017-11-07T13:32:48.867" Score="1" ViewCount="54" Body="&lt;p&gt;I recently investigated a bit about the Iranian economy and did not get an interesting result:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Iran's currency dropped to worst low in four decades&#xA;(Since the Islamic Revolution in Iran).&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Transferring money in Iran is very difficult and sometimes impossible.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Most countries of the world have declined from banking transactions with Iran.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Catastrophic!، right!?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is the economic situation in Iran? &lt;/p&gt;&#xA;" OwnerUserId="15114" LastActivityDate="2017-11-07T13:49:44.323" Title="What is the economic situation in Iran?" Tags="&lt;self-study&gt;&lt;research&gt;" AnswerCount="0" CommentCount="1" ClosedDate="2017-11-09T03:30:30.300" ContentLicense="CC BY-SA 3.0" />
  <row Id="19161" PostTypeId="2" ParentId="19158" CreationDate="2017-11-07T14:51:23.520" Score="6" Body="&lt;p&gt;There is a large literature considering the depletion of natural resources, including fossil fuels, in relation to GDP. Some writers explicitly refer to such resources as a kind of &lt;a href=&quot;https://en.wikipedia.org/wiki/Natural_capital&quot; rel=&quot;nofollow noreferrer&quot;&gt;natural capital&lt;/a&gt;. Others may refer to natural resource assets, or simply to natural resources. A key question within this literature is whether depletion of natural resources should be recognised via a deduction within net domestic product (NDP), in (broadly) the same way that a deduction is made for depreciation of man-made capital.  The range of views is wide. Some examples: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.wri-indonesia.org/sites/default/files/wastingassets_bw.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Repetto et al (1989)&lt;/a&gt; attempted to calculate Net Domestic Income (NDI) for Indonesia for 1971-84, taking account of resource depletion, and found that the differences from Gross Domestic Income (GDI) were very large (p 8).  Various resources were considered including petroleum (pp 37ff).  It was argued that, for resource-dependent countries, not applying the depreciation concept to the stock of natural resources was &quot;a major omission and inconsistency&quot; (p 4)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.nap.edu/catalog/6374/natures-numbers-expanding-the-national-economic-accounts-to-include-the&quot; rel=&quot;nofollow noreferrer&quot;&gt;Nature's Numbers (1999)&lt;/a&gt;, a report sponsored by the US Bureau of Economic Analysis, devoted a large section (pp 59-105) to &quot;Accounting for Subsoil Mineral Resources&quot; (including fossil fuels).  It recognised that conventional national accounts treat natural capital in a way which is inconsistent with that of man-made capital (pp 25-6), but stopped short of recommending a deduction for depletion.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.amazon.co.uk/Natural-Resource-Environmental-Economics-Perman/dp/0321417534&quot; rel=&quot;nofollow noreferrer&quot;&gt;Natural Resource and Environmental Economics&lt;/a&gt;, a textbook by Perman et al, gives a useful overview of the issues (in the 3rd edition I have it's Chapter 19, especially section 19.2.4 on measuring national income).  It identifies several different methods that have been proposed for estimating the value of resource depletion.  In their concluding remarks (section 19.5), the authors express scepticism as to whether concepts of &quot;adjusted GDP&quot; are worthwhile, mainly because of the difficulty of determining the appropriate valuation basis.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &lt;a href=&quot;https://data.worldbank.org/indicator/NY.ADJ.DNGY.GN.ZS&quot; rel=&quot;nofollow noreferrer&quot;&gt;World Bank&lt;/a&gt; has published estimates of the percentage by which world Gross 'National' Income (GNI) would be reduced if allowance were made for depletion of energy resources. Over the period 1970-2015, this varies between about 0.1% and 3%. Illustrating the valuation problem, the pattern of change with sharp increases around 1973 and 1979 (times at which OPEC substantially raised the price of oil) suggests that these estimates have been heavily influenced by market prices. Physical depletion of fossil fuel reserves certainly did not change as dramatically as that pattern might suggest (see the chart &lt;a href=&quot;https://en.wikipedia.org/wiki/World_energy_consumption&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;, fossil fuel consumption being a reasonable proxy for depletion). &lt;/p&gt;&#xA;" OwnerUserId="1417" LastEditorUserId="1417" LastEditDate="2017-11-07T22:38:21.110" LastActivityDate="2017-11-07T22:38:21.110" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="19165" PostTypeId="1" CreationDate="2017-11-07T19:49:27.523" Score="2" ViewCount="1297" Body="&lt;p&gt;I'm working on the following homework problem, transcribed verbatim:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;A firm has a production function defined as $y = 8L^{1/4}K^{3/4}$. The firm faces costs of \$20 wage, \$60 rental rate of capital, \$2 per unit produced, and a \$42 fixed cost. Find the cost function, and average total cost, average variable cost, and marginal cost functions.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I'm confused on two levels. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(1) Does &quot;cost function&quot; mean &lt;em&gt;short-term&lt;/em&gt; cost function, holding capital constant, or does it mean &lt;em&gt;long-term&lt;/em&gt; cost function, allowing both inputs to vary? How can the professor possibly be so clueless as to fail to realize that the question is ambiguous as written?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(2) If the firm faces costs of &quot;\$2 per unit produced and a \$42 fixed cost,&quot; shouldn't the cost function simply be $c(y)=2y+42$? But this answer contradicts the solution I get when I use the Lagrangian approach.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;According to the minimization problem, the cost function $c(y)$ is the minimum value of $20L+60K$ subject to the constraint that $y=8L^{1/4}K^{3/4}$. The Lagrangian condition says&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$20=2\lambda (K/L)^{3/4}$$&#xA;$$60=6\lambda(L/K)^{1/4}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;so&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$10(L/K)^{3/4}=10(K/L)^{1/4} \implies L=K$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore $y=8K$ and thus the cost function is $c(y)=80K=10y$. This is not the same thing as $c(y)=2y+42$. What is going on here?&lt;/p&gt;&#xA;" OwnerUserId="14262" LastActivityDate="2017-11-07T19:49:27.523" Title="How to find the &quot;cost function&quot; given the production function *as well as* the cost per unit produced and the fixed costs?" Tags="&lt;microeconomics&gt;&lt;production-function&gt;&lt;producer-theory&gt;&lt;cost-functions&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19166" PostTypeId="1" CreationDate="2017-11-07T21:01:42.147" Score="0" ViewCount="66" Body="&lt;p&gt;Economic theory states that under competitive markets, economic profits are zero (even though accounting profits are not zero). What is the origin of this analysis? Who was the first author to write about this? Who was the first to put this into mathematics? I don't know how to search for this. I know Alfred Marshall is an important economist, who wrote a widely used book, but I do not have access to it. Is it him?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any references are most welcomed.&lt;/p&gt;&#xA;" OwnerUserId="15121" LastEditorUserId="15121" LastEditDate="2017-11-09T12:07:53.280" LastActivityDate="2017-11-09T12:07:53.280" Title="Which is the origin of the &quot;economic&quot; approach to production?" Tags="&lt;reference-request&gt;&lt;competition&gt;&lt;history-economic-thought&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19167" PostTypeId="1" CreationDate="2017-11-07T22:25:01.213" Score="1" ViewCount="140" Body="&lt;p&gt;Given the decentralized nature of cryptocurrencies like bitcoin and ethereum, how can centralized organisations like banks and the government create policies around it without changing the way traditional economies work?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have read a little bit about Japan accepting bitcoin as legitimate payments, and also countries like Japan, Russia and Estonia wanting to create their own cryptocurrency so it definitely appears to be something that is going into mainstream finances soon.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can someone explain how a typical government would deal with this?&lt;/p&gt;&#xA;" OwnerUserId="15122" LastActivityDate="2017-11-18T21:38:52.123" Title="How do economic and financial policies in government deal with cryptocurrencies?" Tags="&lt;macroeconomics&gt;&lt;currency&gt;&lt;finance&gt;&lt;cryptocurrency&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19168" PostTypeId="1" CreationDate="2017-11-07T22:57:32.707" Score="5" ViewCount="172" Body="&lt;p&gt;I've read several texts stating that with a complete market assumption, there's always a representative agent &lt;em&gt;lurking&lt;/em&gt;. How is it that by assuming complete markets, we're able to prove the existence of a representative agent?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What's the connection between both?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="118" LastEditDate="2017-11-12T15:44:42.210" LastActivityDate="2017-12-12T22:43:31.253" Title="How, with complete markets, do we have a representative agent?" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;complete-markets&gt;&lt;representative-agent&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19169" PostTypeId="2" ParentId="19167" CreationDate="2017-11-07T22:59:11.390" Score="0" Body="&lt;p&gt;Governments have had very varied reactions to cryptocurrencies in the past years. Some forbid them based on the fact that they're mainly used for criminal activity such as drug dealing, human traficking and tax evasion. Others embrace the idea, as you mentioned. There is no 'typical government' way of dealing with this so far.&lt;/p&gt;&#xA;" OwnerUserId="15089" LastActivityDate="2017-11-07T22:59:11.390" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19171" PostTypeId="1" AcceptedAnswerId="19178" CreationDate="2017-11-08T02:00:08.450" Score="4" ViewCount="86" Body="&lt;p&gt;The following is taken from &lt;a href=&quot;https://www.jstor.org/stable/117041&quot; rel=&quot;nofollow noreferrer&quot;&gt;Baye, Shin (1999)&lt;/a&gt;&lt;/p&gt;&#xA;&lt;p&gt;Consider a contest over a prize valued at 1 with symmetric players &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$2$&lt;/span&gt; who exert a level of effort &lt;span class=&quot;math-container&quot;&gt;$x_1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$x_2$&lt;/span&gt; respectively. Effort cannot exceed &lt;span class=&quot;math-container&quot;&gt;$2/3$&lt;/span&gt;. Profit (&lt;span class=&quot;math-container&quot;&gt;$\pi$&lt;/span&gt;) of player 1 is&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\pi_1=\frac{x_1-\frac{x_1x_2}{2}}{x_1+x_2-x_1x_2}-x_1$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;The simultaneous-move equilibrium is (denoted with superscript &lt;span class=&quot;math-container&quot;&gt;$*$&lt;/span&gt;)&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$x_1^*=x_2^*=1-\frac{\sqrt{2}}{2}$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;The profit for each is&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\pi_1^*(x_1^*,x_2^*)=\pi_2^*(x_1^*,x_2^*)=\frac{\sqrt{2}-1}{2}$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;And we have that the best response of player &lt;span class=&quot;math-container&quot;&gt;$2$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$R_2(x_1)=\frac{2x_1-\sqrt{(-2x_1^2+4x_1)}}{2(x_1-1)}$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;However, suppose that player &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt; 'moves' before player &lt;span class=&quot;math-container&quot;&gt;$2$&lt;/span&gt;. Then, player &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt; would deviate (upwards) from &lt;span class=&quot;math-container&quot;&gt;$x_1^*$&lt;/span&gt;, presumably, because player &lt;span class=&quot;math-container&quot;&gt;$2$&lt;/span&gt; would reduce it's level of effort, and it would receive more of the prize. How does one show this?&lt;/p&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;In the article, Baye and Shin consider the new Stackelberg equilibrium &lt;span class=&quot;math-container&quot;&gt;$\pi_1^s$&lt;/span&gt; where they show that &lt;span class=&quot;math-container&quot;&gt;$\pi_1^s(x_1^*+\epsilon)&amp;gt;0$&lt;/span&gt; for some &lt;span class=&quot;math-container&quot;&gt;$\epsilon&amp;gt;0$&lt;/span&gt;. Specifically&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\pi_1^s(x_1^*+\epsilon)-\pi_1^*(x_1^*+x_2^*)=\frac{\sqrt{1+2\epsilon\sqrt{2}-2\epsilon^2}-1-\epsilon\sqrt{2}+2\epsilon^2}{\sqrt{2}-2\epsilon}&amp;gt;0$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;I've tried replicating their result by seeing how &lt;span class=&quot;math-container&quot;&gt;$x_2$&lt;/span&gt; changes with &lt;span class=&quot;math-container&quot;&gt;$x_1+\epsilon$&lt;/span&gt; and substituting &lt;span class=&quot;math-container&quot;&gt;$x_1+\epsilon$&lt;/span&gt; and the new value of &lt;span class=&quot;math-container&quot;&gt;$x_2^s$&lt;/span&gt; into &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt;'s profit function, but I fail to reach their result.&lt;/p&gt;&#xA;" OwnerUserId="14078" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2017-11-08T12:26:28.693" Title="Subgame Perfect Equilibrium in Baye, Shin (1999)" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;game-theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19172" PostTypeId="1" AcceptedAnswerId="19181" CreationDate="2017-11-08T04:19:32.817" Score="15" ViewCount="7565" Body="&lt;p&gt;Are there any applications of trig functions (ie $\sin(x)$, $\cos(x)$,$\tan(x)$) in economics? &lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2017-11-10T20:36:48.207" Title="Applications of Trig functions in Economics?" Tags="&lt;mathematical-economics&gt;" AnswerCount="5" CommentCount="3" FavoriteCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="19173" PostTypeId="2" ParentId="19166" CreationDate="2017-11-08T04:25:56.537" Score="1" Body="&lt;p&gt;The book from Alfred Marshall you are talking about is &quot;Principles of Economics&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://files.libertyfund.org/files/1676/Marshall_0197_EBk_v6.0.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Principles of Economics PDF&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As much I know the idea for Economic Surplus (Consumer Surplus and Producer Surplus) originated from Alfred Marshall, he is considered the person who &quot;put&quot; mathematics in the Economics theory.&lt;/p&gt;&#xA;" OwnerDisplayName="user15100" LastEditorDisplayName="user15100" LastEditDate="2017-11-08T05:35:55.923" LastActivityDate="2017-11-08T05:35:55.923" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="19174" PostTypeId="2" ParentId="19172" CreationDate="2017-11-08T04:48:31.213" Score="11" Body="&lt;p&gt;I know of Fourier series being used in Finance and Econometrics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://rads.stackoverflow.com/amzn/click/0470994002&quot; rel=&quot;noreferrer&quot;&gt;Fourier Transform Methods in Finance&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerDisplayName="user15100" LastActivityDate="2017-11-08T04:48:31.213" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19175" PostTypeId="2" ParentId="18653" CreationDate="2017-11-08T05:04:20.567" Score="1" Body="&lt;p&gt;My favorite Macroeconomics book is &quot;Macroeconomics&quot; from Rudiger Dornbusch, Stanley Fischer. You can find older edition for a good price. The theory is explained very well, and is good choice for Intermediate Macroeconomics class.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;ISBN-10:&#xA;0078021839&#xA;ISBN-13:&#xA;9780078021831&lt;/p&gt;&#xA;" OwnerDisplayName="user15100" LastEditorDisplayName="user15100" LastEditDate="2017-11-08T05:27:02.050" LastActivityDate="2017-11-08T05:27:02.050" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19176" PostTypeId="1" CreationDate="2017-11-08T09:15:25.080" Score="5" ViewCount="47" Body="&lt;p&gt;Everybody knows that moment when you are in search for a beach lounger but everything is covered by towels, yet the people who placed them there are untraceable, often back at the hotel or in the town and will often not be needing the space for hours. The same problem arises in public libraries (if you attend the University of Innsbruck, you know first hand). People come there at opening time, reserve their space and then leave for an indefinite amount of time, just so that they are guaranteed to have a place to work when they need it at some later point in time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have seen multiple examples of a strategy that follows a simple principle: &lt;strong&gt;clear space that has not been occupied by a person&lt;/strong&gt; (but by some stuff to mark it as occupied) &lt;strong&gt;for a certain amount of time&lt;/strong&gt;. It seems to me that this strategy optimizes a number of desirable quantities:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;total work/activity: more people are performing their work/activity at the space that is provided for it&lt;/li&gt;&#xA;&lt;li&gt;efficient use of space: i.e. less space for the same result&lt;/li&gt;&#xA;&lt;li&gt;average availability of space for an individual at any given point in time&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;As another plus, people do not have to worry about reserving space early in the day.&#xA;Of course there is a certain amount of added administrative cost: somebody probably has to be in charge of clearing space that should not have been reserved but has been.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is: is there any research that investigates said quantities (or similar)? It seems to me that this paradigm optimizes efficiency, customer satisfaction and also safety (imagine hundreds of clients &quot;fighting&quot; for spaces at opening time).&lt;/p&gt;&#xA;" OwnerUserId="15126" LastEditorUserId="1601" LastEditDate="2017-11-08T09:46:04.893" LastActivityDate="2017-11-08T09:46:04.893" Title="Letting clients/guest reserve their space vs keeping space clear so that it is available for people who really need it at the moment" Tags="&lt;reference-request&gt;&lt;efficient-markets&gt;" AnswerCount="0" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19177" PostTypeId="2" ParentId="19172" CreationDate="2017-11-08T09:58:33.977" Score="13" Body="&lt;p&gt;A natural application of trigonometric functions is in the analysis of spatial data.  An example is the &lt;a href=&quot;https://en.wikipedia.org/wiki/Weber_problem&quot; rel=&quot;noreferrer&quot;&gt;Weber problem&lt;/a&gt; in location theory - finding the point which minimises the sum of transport costs to $n$ destinations.  There is more than one way to solve the problem but &lt;a href=&quot;https://en.wikipedia.org/wiki/Weber_problem#Tellier.E2.80.99s_trigonometric_solution_of_the_Fermat_and_Weber_triangle_problems&quot; rel=&quot;noreferrer&quot;&gt;Tellier's solution&lt;/a&gt; uses trigonometry.&lt;/p&gt;&#xA;" OwnerUserId="1417" LastEditorUserId="1417" LastEditDate="2017-11-08T17:10:46.277" LastActivityDate="2017-11-08T17:10:46.277" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19178" PostTypeId="2" ParentId="19171" CreationDate="2017-11-08T12:26:28.693" Score="6" Body="&lt;p&gt;True to the saying that a picture is worth a thousand words, let's plot the profit function under the Stackelberg game and see what we're dealing with.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You correctly observed (or copied from the Baye, Shin paper) that the reaction function of player 2 is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;R(x_1)=\frac{2\mathit{x_1}-\sqrt{2}\,\sqrt{2\mathit{x_1}-{{\mathit{x_1}}^{2}}}}{2\mathit{x_1}-2}\&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Inserting this reaction function in the profit function of player 1 gives us a complicated expression:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\pi(x_1)=-\frac{{{2}^{\frac{3}{2}}}\,\sqrt{2-\mathit{x_1}}\,{{\mathit{x_1}}^{2}}-2{{\mathit{x_1}}^{\frac{3}{2}}}-3\sqrt{2}\,\sqrt{2-\mathit{x_1}}\,\mathit{x_1}+4\sqrt{\mathit{x_1}}}{{{2}^{\frac{3}{2}}}\,\sqrt{2-\mathit{x_1}}\,\left( \mathit{x_1}-1\right) }&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Perhaps more advanced symbolic math programs can further simplify this, mine won't). In any case this is  a function of one variable $\mathit{x_1}$, and can be plotted. For completeness I have inserted the original equilibrium as well.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/cTy7H.jpg&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/cTy7H.jpg&quot; alt=&quot;SB profit function and symmetric NE&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As you can see the original NE is no longer a local maximum, and player 1 can increase its profits by increasing their effort.&lt;/p&gt;&#xA;" OwnerUserId="12186" LastActivityDate="2017-11-08T12:26:28.693" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19179" PostTypeId="1" AcceptedAnswerId="19180" CreationDate="2017-11-08T13:41:32.550" Score="3" ViewCount="369" Body="&lt;p&gt;Consider a 2 player all-pay auction, bidding for $1.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Each submits a bid that is a real number, thus $S_i=[0,\infty)$. The player with a higher bid wins $1, but both players must pay the submitted bid.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Player $i$'s payoff function is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$v_i(s_i,s_{j})=$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$-s_i$ if $s_i&amp;lt;s_{j}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;($\frac{1}{2}-s_i$) if $s_i=s_{j}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;($1-s_i$) if $s_i&amp;gt;s_j$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose player $j$ plays a mixed strategy in which she is uniformly choosing a bid between 0 and 1.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am only interested in the expected payoff from player $i$'s bidding less than 1, because if $s_i$&gt;1, he would win, but also incur a negative payoff.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why is Pr$(s_i=s_j)$=0 for any $s_i\in[0,1]$ if player $j$'s mixed strategy is U[0,1]?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My confusion is: the PDF of player $j$ is 1 for any $s_j\in(0,1)$. So if I only consider $s_i&amp;lt;1$ and Pr$(s_i=s_j)$, how do I justify it becomes $0$?&lt;/p&gt;&#xA;" OwnerUserId="8560" LastActivityDate="2017-11-09T09:45:56.070" Title="2 Player All-Pay Auction" Tags="&lt;game-theory&gt;&lt;auctions&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19180" PostTypeId="2" ParentId="19179" CreationDate="2017-11-08T14:45:33.120" Score="5" Body="&lt;p&gt;This seems like a basic issue about probability calculus/theory.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The intuition behind the uniform distribution over $[a,b]$ is that all outcomes between and $a$ and $b$ are equally likely. Because of this, one can get an intuitive grasp about the probability that the outcome $x$ falls in a subinterval $[a_1,b_1] \subset [a,b]$. As the ratio of their length is&#xA;$$&#xA;\frac{b_1 - a_1}{b - a},&#xA;$$&#xA;the subinterval $[a_1,b_1]$ contains $(b_1 - a_1)/(b-a)$ share of all the points in $[a,b]$. Each point is an equally likely outcome, therefore&#xA;$$&#xA;P\left(x \in [a_1,b_1]\right) = \frac{b_1 - a_1}{b - a}.&#xA;$$&#xA;A problem arises if the subinterval is in fact a single point, $a_1$. What is &#xA;$P\left(x \in \left\{a_1\right\}\right)$?&#xA;&lt;br&gt; By the above intuitive reasoning&#xA;$$&#xA;P\left(x \in [a_1,a_1]\right) = \frac{a_1 - a_1}{b - a} = 0.&#xA;$$&#xA;A more rigorous approach:&#xA;&lt;br&gt; Let us denote this probability $P\left(x \in \left\{a_1\right\}\right)$ by $\alpha$. As the distribution is uniform, all points are equally likely outcomes and hence for any $a_i \in [a,b]$ we have&#xA;$$&#xA;P\left(x \in \left\{a_i\right\}\right) = \alpha.&#xA;$$&#xA;There are infinitely many (disjoint) points in $[a,b]$. Let $A$ be an arbitrary set of infinitely many such points, that is&#xA;$$&#xA;A = \bigcup_i^{\infty} a_i.&#xA;$$&#xA;Then as probability is &lt;a href=&quot;https://en.wikipedia.org/wiki/Sigma_additivity&quot; rel=&quot;nofollow noreferrer&quot;&gt;sigma additive&lt;/a&gt; over disjoint sets&#xA;$$&#xA;P\left(x \in A \right) = P\left(x \in \bigcup_i^{\infty} a_i \right)&#xA;= \sum_i^{\infty} P\left(x \in \left\{a_i\right\}\right)&#xA;= \sum_i^{\infty} \alpha.&#xA;$$&#xA;However as $A \subseteq [a,b]$, $P\left(x \in A \right) \leq 1$. But for any $\alpha &amp;gt; 0$ the sum $\sum_i^{\infty} \alpha$ would be infinite. Therefore $\alpha$ cannot be positive, it is zero.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2017-11-09T09:45:56.070" LastActivityDate="2017-11-09T09:45:56.070" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19181" PostTypeId="2" ParentId="19172" CreationDate="2017-11-08T17:12:55.657" Score="15" Body="&lt;p&gt;The main property of trig functions is their cyclicality. Then one would think that they could be ideal in time series analysis, to model &quot;fluctuations around a trend&quot;. I believe that the reasons they are not actually used in such a setting are &lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) They are &lt;em&gt;deterministic&lt;/em&gt; functions, so they do not allow for fluctuations to be stochastic&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) If the researcher wants to create a model that &lt;em&gt;produces&lt;/em&gt; up and down fluctuations (oscillations) around a trend, he would want to &lt;em&gt;obtain&lt;/em&gt; that property from the behavioral and other assumptions of the model. If he were to use a trig function, he would &lt;em&gt;a priori&lt;/em&gt; impose on the model the sought theoretical outcome.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Instead, one opts for difference-differential equations. There we obtain oscillations (damped or not) if some characteristic roots are complex -and then the trig functions appear, but as an alternative representation, not as buidling blocks.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2017-11-08T17:12:55.657" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="19183" PostTypeId="2" ParentId="16290" CreationDate="2017-11-08T18:27:16.793" Score="1" Body="&lt;p&gt;Your conclusion is correct here. Since at the current FX rate you can buy the burger cheaply at an equivalent rate of 2 EUR in the US. So basically, if you live in Germany and want to buy a Big Mac, you are better of buying the Big Mac from the US since via the FX rate you will still have 1 EUR left(if you started with 3 EUR) and hence this will increase the demand of the USD in the foreign exchange market and hence&lt;/p&gt;&#xA;&#xA;&lt;p&gt;USD should appreciate in the future =&gt; USD in undervalued =&gt; EUR is overvalued.&lt;/p&gt;&#xA;" OwnerUserId="15131" LastActivityDate="2017-11-08T18:27:16.793" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19184" PostTypeId="2" ParentId="19122" CreationDate="2017-11-08T18:55:09.663" Score="5" Body="&lt;p&gt;Well, in macroeconomics, namely in DSGE modelling, VOXEU has recently published a &lt;a href=&quot;http://voxeu.org/content/dsge-models-conduct-policy-use-intended&quot; rel=&quot;nofollow noreferrer&quot;&gt;report on its uses by Central Banks (CBs)&lt;/a&gt;, and future lines of improvement, which academics have been tackling but still hasn't found its way into CBs policy analysis. There's no space to explain all the new topics, nor do I think it's the intention of this question. So, I'll just enunciate the topics, with some references. More can be found in reading the report. Also, I'll focus on the theoretical considerations, i.e., it's known that, empirically, the the VAR obtained by solving the DSGE model can be considered as misspecified (&lt;a href=&quot;http://www.econ.vt.edu/wp-content/uploads/2016/09/Spanos13-DSGE-model-validation-2016.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;see here&lt;/a&gt;). This is a WP, but you can easily find many articles on this subject, increasingly so since the crisis)&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Financial Frictions (&lt;a href=&quot;https://www.aeaweb.org/articles?id=10.1257/aer.104.1.27&quot; rel=&quot;nofollow noreferrer&quot;&gt;an example&lt;/a&gt;)&lt;/li&gt;&#xA;&lt;li&gt;Forward Guidance(extending low-rates period), due to the presence of a ZLB (&lt;a href=&quot;https://www.brookings.edu/bpea-articles/the-zero-bound-on-interest-rates-and-optimal-monetary-policy/&quot; rel=&quot;nofollow noreferrer&quot;&gt;see here&lt;/a&gt;; this was already being studied before the crisis.)&lt;/li&gt;&#xA;&lt;li&gt;(Incomplete Markets) Heterogeneity across households in&#xA;the transmission of monetary and fiscal policy (&lt;a href=&quot;https://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1899.en.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;see here&lt;/a&gt;). I would also add firm heterogeneity (&lt;a href=&quot;https://www.bundesbank.de/Redaktion/EN/Downloads/Publications/Discussion_Paper_1/2017/2017_08_31_dkp_25.pdf?__blob=publicationFile&quot; rel=&quot;nofollow noreferrer&quot;&gt;example here&lt;/a&gt;)&lt;/li&gt;&#xA;&lt;li&gt;Systemic fragilities, i.e., economy more prone to crisis due to increasing leverage (&lt;a href=&quot;http://www.econ.nyu.edu/user/gertlerm/GertlerKiyotakiAERJuly2015.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;an example&lt;/a&gt;)&lt;/li&gt;&#xA;&lt;li&gt;Allowing for structural (long-run) changes, instead of a simple sequence of short-run shocks, this allows for fluctuations of for example the natural rate of interest (&lt;a href=&quot;http://www.frbsf.org/economic-research/files/wp2016-11.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;see here&lt;/a&gt; and &lt;a href=&quot;https://www.google.pt/url?sa=t&amp;amp;rct=j&amp;amp;q=&amp;amp;esrc=s&amp;amp;source=web&amp;amp;cd=1&amp;amp;ved=0ahUKEwjt947V16_XAhUMthQKHbuqA3UQFggmMAA&amp;amp;url=https%3A%2F%2Fwww.aeaweb.org%2Fconference%2F2017%2Fpreliminary%2Fpaper%2Fk3Qr4Qz2&amp;amp;usg=AOvVaw1Pu9VhqKiL-W03g27elqq4&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;). &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Finally, one critique, with which I agree, and Romer has written very funny and interesting '&lt;a href=&quot;https://paulromer.net/wp-content/uploads/2016/09/WP-Trouble.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;WP&lt;/a&gt;' on, is the degree of exogeneity, through shocks, that is needed to explain the economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Behavioural economics (2017 Nobel prize winner was from this area) may supply us with an answer. It allows to endogenize some of the shocks. Here's an &lt;a href=&quot;http://voxeu.org/article/behavioural-economics-also-useful-macroeconomics&quot; rel=&quot;nofollow noreferrer&quot;&gt;article on VOXEU&lt;/a&gt; with many references, and analysis of an example of how it's done. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit: To complement Kitsune answer, I find this image from the wikipedia page really good. In a very succint way, it explains the difference between macro and micro prudential perspectives.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/jWe1O.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/jWe1O.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="118" LastEditDate="2017-11-15T13:06:40.813" LastActivityDate="2017-11-15T13:06:40.813" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19186" PostTypeId="2" ParentId="19131" CreationDate="2017-11-08T22:42:58.737" Score="2" Body="&lt;p&gt;Lenders do not set interest rates solely based on what they would like to receive; in practice, nominal interest rates roughly reflect the expected path of the short-term rate of interest (which is set by the central bank), plus premiums for credit risk and the term of lending (term premium).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If inflation is expected to rise, the usual reaction of the central bank is to raise the policy rate. This will raise nominal interest rates. If this stabilises inflation expectations, inflation expectations may end up remaining near target, and the real rate rises. Since we cannot be sure sure what the effect on expectations will be, we do not know whether an increase in nominal rates translates into an increase in inflation expectations, or the real rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, I would note that this question is somewhat ambiguous. One interpretation of the question is: why do lenders not specify the real rate when lending? (This is done in the inflation-linked bond market.) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the developed countries, the reason why lenders do not specify lending contracts in real terms is straightforward: almost no private sector entity is willing to borrow at a fixed real rate. Since you have no guarantee that your income will rise with inflation, you have no idea whether you can repay the loan. In practice, we see that the only major borrower in the inflation-linked market is the central government (which has no worries about inflation). Therefore, lenders have little choice but to set nominal interest rates in contracts.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It should be noted that some countries with high inflation feature widespread indexation of contracts to inflation. I am not familiar with such countries, but it is possible that lending contracts could be set in real terms in such places.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2017-11-08T22:42:58.737" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19187" PostTypeId="2" ParentId="19043" CreationDate="2017-11-08T23:39:21.470" Score="2" Body="&lt;p&gt;The phrase governments &quot;do debt rollover from time to time&quot; is an understatement. The entire stock of Treasury bills is rolled over continuously, as well as the coupon debt. For example, a 3-month Treasury bill needs to be rolled over four times a year.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for the current situation, it is somewhat strange.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Government fiscal agencies (Treasury, Ministry of Finance) have tended to increase the average maturity of their debt issued. (The answer by Facet_Velvet discusses this, but in order to keep this answer self-contained, I will provide the same link: &lt;a href=&quot;https://www.oecd.org/finance/Sovereign-Borrowing-Outlook-in-OECD-Countries-2017.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;link to OECD report&lt;/a&gt;.)&lt;/li&gt;&#xA;&lt;li&gt;Many (but not all) developed central banks have been buying government bonds, replacing them with short-maturity governmental liabilities (deposits at the central bank).&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;These two actions tend to cancel each other out. The only defense of the policy that I can offer in this context is that the central bank is the party taking the interest rate risk. (The central bank has nominally independent finances.) As a disclaimer, I think Quantitative Easing as a policy makes no sense, so I cannot come up with a good rationale for this policy mix.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, the answer to your question is that we cannot think of the central government as being like a household or business. As the currency issuer, it has a very different perspective on finances, and minimising interest costs is actually not an important policy objective.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, it is extremely easy for the government to minimise interest costs: it just needs to set interest rates at 0% by legislative fiat. (Some may object that this is impossible; the experience with interest rate pegs during and after World War II show that the policy is feasible.) However, just because we can minimise interest costs does not mean that it is a good idea. In order for monetary policy to work, the government needs to have bonds that set the rate of interest at a positive level, which can then be varied by the central bank to help control the business cycle.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The primary interests of the government in issuing bonds are:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Create a yield curve that act as a benchmark for private sector borrowing. When Australia was running large surpluses, I believe that the Australian banks pleaded for continued government bond issuance to keep the yield curve liquid. (I do not have a reference.)&lt;/li&gt;&#xA;&lt;li&gt;Have a liquid Treasury bill market that gives risk-averse investors a place to park cash. In particular, central bank foreign exchange reserve managers are not willing to take large amounts of interest rate or credit risk, and so you need a liquid Treasury bill market if you want foreigners to hold your currency as foreign reserve assets.&lt;/li&gt;&#xA;&lt;li&gt;They need to meet the demands of institutional investors for long-dated credit risk free bonds.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;These competing demands imply a continued juggling act to balance out issuance at various maturity points.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, governmental debt managers do not want to lock in their portfolio of issued bonds as long-dated instruments, as they can do nothing about them. Unlike mortgages, almost all government bonds cannot be repaid early. (The U.S. issued some 30-year callable bonds in the early 1980s.) If the debt is termed out, and the the government has a fiscal surplus (which happened for a brief period in the late 1990s), the government would end up with no Treasury bills outstanding and a surplus of liquidity. It would have to go into the private markets and lend to private sector entities with that surplus, which the government does not want to do. Hence, they need to have a sizeable amount of short-dated paper that can be run off in such a situation.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2017-11-08T23:39:21.470" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19188" PostTypeId="2" ParentId="19167" CreationDate="2017-11-09T05:06:28.283" Score="3" Body="&lt;p&gt;In order to increase use of a cryptocurrency it could be suggested that the developers making this currency should not seek to develop a medium of exchange which would work separately from the country's currency as an independent currency, &lt;em&gt;but rather seek to work together with it&lt;/em&gt;.&lt;/p&gt;&#xA;&lt;p&gt;Though having a cryptocurrency working with an already existing currency would seemingly result in this cryptocurrency being backed on the by the country's pre-existing currency (which in return would give the same reliability),&#xA;nonetheless, to attempt to establish a new method of payment which would be reliable, &lt;em&gt;&lt;strong&gt;it is necessary to create a relationship with the country's previously existing currency, regardless of the previous currency's basis&lt;/strong&gt;&lt;/em&gt;&lt;/p&gt;&#xA;&lt;p&gt;W.J. Luther writes in his paper &lt;a href=&quot;https://www.peter-boettke.com/app/download/7114251938/luther_paper.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;&amp;quot;Cryptocurrencies, Network Effects, and Switching costs&amp;quot;&lt;/a&gt; (Contemporary Economic Policy, 34, 2016, 553-571)&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;&amp;quot;By anchoring expectations- perhaps by committing to (or refusing to) accept a currency for payment of taxes- a government can effectively determine the medium of exchange&amp;quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Hope this helps.&lt;/p&gt;&#xA;" OwnerUserId="6629" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2017-11-09T05:06:28.283" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19190" PostTypeId="1" AcceptedAnswerId="19191" CreationDate="2017-11-09T13:01:16.303" Score="3" ViewCount="135" Body="&lt;p&gt;Consider the following 2x2 game:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{array}{|c|c|c|}&#xA;\hline &#xA;&amp;amp;C&amp;amp;R\\\hline&#xA;M&amp;amp;0,0&amp;amp;3,5\\\hline&#xA;D&amp;amp;4,4&amp;amp;0,3\\\hline&#xA;\end{array}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This game has two distinct pure-strategy Nash equilibria.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I recall that in cases like this there is almost always a third mixed NE, and this had to do with the index theorem and having an odd number of equilibria.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can someone provide the idea behind the index theorem and why having two distinct pure strategy NE in 2x2, 2 person game, static, complete information results into a third mixed NE with probability 1?&lt;/p&gt;&#xA;" OwnerUserId="8560" LastActivityDate="2017-11-09T13:35:12.493" Title="Multiple Equilibria and Index Theorem" Tags="&lt;game-theory&gt;" AnswerCount="1" CommentCount="0" ClosedDate="2017-11-15T18:57:35.880" ContentLicense="CC BY-SA 3.0" />
  <row Id="19191" PostTypeId="2" ParentId="19190" CreationDate="2017-11-09T13:35:12.493" Score="4" Body="&lt;p&gt;What about&#xA;\begin{array}{|c|c|c|}&#xA;\hline &#xA;&amp;amp;C&amp;amp;R\\\hline&#xA;M&amp;amp;0,0&amp;amp;0,0\\\hline&#xA;D&amp;amp;0,0&amp;amp;1,1\\\hline&#xA;\end{array}&#xA;?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This game has two pure equilibria, $(M,C)$ and $(D,R)$ but no mixed equilibra.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You are probably referring to Wilson's Oddness Theorem, which guarantess your claim for generic games. See&#xA;&lt;a href=&quot;https://economics.stackexchange.com/questions/12612/oddness-of-equilibrium-points&quot;&gt;Oddness of equilibrium points&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2017-11-09T13:35:12.493" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19192" PostTypeId="1" AcceptedAnswerId="19193" CreationDate="2017-11-09T13:47:05.600" Score="3" ViewCount="325" Body="&lt;p&gt;Consider a game in static, complete information environment, and the following definition of a strategy never being a best response to a player:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;A strategy $\sigma_i\in\Delta S_i$ is never a best response if there are no beliefs $\sigma_{-i}\in \Delta S_{-i}$ for player $i$ for which $\sigma_i\in BR_i(\sigma_{-i})$.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I want to understand the role of belief in this definition correctly. The definition of belief is given as:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;A belief of player $i$ is a possible profile of his opponent's strategies, $\sigma_{-i}\in \Delta S_{-i}$.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;My understanding is:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In situations where there is no strictly dominant strategy, a player asks herself &quot;what do I think my opponents will do?&quot;. To resolve this uncertainty, the player assigns probability distribution over the set of pure strategies of opponent. One particular distribution produces a belief, one possible opponent's profile which is $\sigma_{-i}\in \Delta S_{-i}$.&#xA;  &lt;br/&gt;Now, I look at my simplex and say, is my particular strategy $\sigma_{i}\in \Delta S_{i}$ a BR to that of opponent? I strike out my $\sigma_i$ if I cannot find any probability distribution over the opponent's pure strategies such that $\sigma_i$ would be my BR.&#xA;  &lt;br/&gt;So, technically, I would have to compare my particular $\sigma_i$ against every possible probability distribution over the opponent's pure strategies to identify it as Not-BR, but in simple games, you often face with a situation where one of the pure strategies a player might have, say Column L of player 2, never gets underlined when you work out which ones for Player 2 is BR. This helps the process of eliminating all the strategies that are never a best response.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Is my understanding of belief and its role in finding the set of rationalizable strategies correct?&lt;/p&gt;&#xA;" OwnerUserId="8560" LastActivityDate="2017-11-09T22:11:12.597" Title="Never a Best Response and Belief" Tags="&lt;game-theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19193" PostTypeId="2" ParentId="19192" CreationDate="2017-11-09T17:51:15.727" Score="4" Body="&lt;p&gt;Your understanding is mostly correct, but the following sentence is not: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;in simple games, you often face with a situation where one of the pure strategies a player might have, say Column L of player 2, never gets underlined when you work out which ones for Player 2 is BR.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Consider the following counterexample: &#xA;\begin{array}{|c|c|c|c|}&#xA;\hline&#xA; &amp;amp;L&amp;amp;C&amp;amp;R\\\hline&#xA;U&amp;amp;1,3&amp;amp;3,4&amp;amp;3,0\\\hline&#xA;M&amp;amp;2,3&amp;amp;0,1&amp;amp;0,4\\\hline&#xA;D&amp;amp;0,0&amp;amp;1,2&amp;amp;2,1\\\hline&#xA;\end{array}&#xA;In this game, $L$ is never a BR to any of player 1's pure strategies. However, if player 2 believes player 1 will play a mixed strategy that assigns $\frac12$ probability to $U$, $\frac12$ to $M$ and $0$ to $D$, then $L$ becomes a BR. &lt;/p&gt;&#xA;" OwnerUserId="42" LastEditorUserId="42" LastEditDate="2017-11-09T22:11:12.597" LastActivityDate="2017-11-09T22:11:12.597" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19194" PostTypeId="1" CreationDate="2017-11-09T18:41:33.803" Score="3" ViewCount="5603" Body="&lt;p&gt;For example, suppose I made \$100 from an investment. If I'd had deposit the same amount of money in the bank I would have get \$60 of interest. Then the &lt;strong&gt;'forgone profit'&lt;/strong&gt; or &lt;strong&gt;'opportunity cost'&lt;/strong&gt; in this example is \$60, and the &lt;strong&gt;economic profit&lt;/strong&gt; is \$40.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now let me use another example. Suppose I would need to spend 1 hour to make a spreadsheet for my homework assignment, but I instead spent 1.5 hours to write some VBA code and the code generates the spreadsheet programatically. Then the &lt;strong&gt;'forgone cost'&lt;/strong&gt; or &lt;strong&gt;'_____'&lt;/strong&gt; in this example is 1 hour, and the &lt;strong&gt;economic cost&lt;/strong&gt; is 0.5 hour. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is the right term that can fit in the &lt;strong&gt;_____&lt;/strong&gt; in the 2nd example above ?&lt;/p&gt;&#xA;" OwnerUserId="15142" LastEditorDisplayName="user18" LastEditDate="2017-12-13T01:47:50.660" LastActivityDate="2018-07-11T05:46:13.097" Title="What is the term for 'forgone cost' as 'opportunity cost' is for 'forgone profit'?" Tags="&lt;microeconomics&gt;&lt;definition&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19195" PostTypeId="1" AcceptedAnswerId="19196" CreationDate="2017-11-09T20:16:30.190" Score="2" ViewCount="75" Body="&lt;p&gt;Was the role of &lt;em&gt;technological progress&lt;/em&gt; formalised by Solow (1956) for the first time? or at least he provided the initial formal insight into the role of technological progress in economic growth?&lt;/p&gt;&#xA;" OwnerUserId="6009" LastEditorUserId="8815" LastEditDate="2017-12-29T01:48:46.247" LastActivityDate="2017-12-29T01:48:46.247" Title="Was there a Role of Technology in Macroeconomic Models before Solow?" Tags="&lt;economic-growth&gt;&lt;solow&gt;&lt;technological-progress&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19196" PostTypeId="2" ParentId="19195" CreationDate="2017-11-09T21:46:20.080" Score="1" Body="&lt;p&gt;The Solow model was indeed the first model to account for technological progress.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;While models like the the &lt;a href=&quot;https://en.wikipedia.org/wiki/Harrod%E2%80%93Domar_model&quot; rel=&quot;nofollow noreferrer&quot;&gt; Harrod-Domar model&lt;/a&gt; and the Neo-Marxian  &lt;a href=&quot;https://en.wikipedia.org/wiki/Feldman%E2%80%93Mahalanobis_model&quot; rel=&quot;nofollow noreferrer&quot;&gt;Feldman–Mahalanobis model&lt;/a&gt; conciser investment and saving as contributors to economic growth, they don't consider any measure of technology like total factor productivity to contribute to economic growth, like the &lt;a href=&quot;https://en.wikipedia.org/wiki/Solow_residual&quot; rel=&quot;nofollow noreferrer&quot;&gt;Solow Residual&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="8815" LastEditDate="2017-12-28T18:10:32.077" LastActivityDate="2017-12-28T18:10:32.077" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19197" PostTypeId="1" CreationDate="2017-11-09T21:58:32.357" Score="5" ViewCount="201" Body="&lt;p&gt;I am trying to find a book that covers human history with a special focus on economics. It should answer questions like:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;What economic systems prevailed during which eras?&lt;/li&gt;&#xA;&lt;li&gt;How did these systems work in detail?&lt;/li&gt;&#xA;&lt;li&gt;How did economic organization evolve (Not just since the industrial revolution)?&lt;/li&gt;&#xA;&lt;li&gt;Were there civilizations which particularily focused on economic development?&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;It should NOT be a history of economic thought, like e.g. Niall Kishtainy's &quot;A little history of economics&quot;.&lt;/p&gt;&#xA;" OwnerUserId="14892" LastActivityDate="2018-04-11T20:04:36.457" Title="What are good books on economic world history?" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;reference-request&gt;&lt;history&gt;&lt;economic-history&gt;" AnswerCount="5" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19198" PostTypeId="2" ParentId="19194" CreationDate="2017-11-09T22:03:11.107" Score="0" Body="&lt;p&gt;The closest I can think about is&#xA;&lt;a href=&quot;https://www.investopedia.com/terms/i/implicitcost.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;Implicit cost&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerDisplayName="user15100" LastActivityDate="2017-11-09T22:03:11.107" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19199" PostTypeId="2" ParentId="19197" CreationDate="2017-11-09T22:18:07.533" Score="0" Body="&lt;p&gt;Only book I can think of is &lt;a href=&quot;https://rads.stackoverflow.com/amzn/click/0756698278&quot; rel=&quot;nofollow noreferrer&quot;&gt;The Economics Book Big Ideas simply explained&lt;/a&gt;.&#xA;But as the tittle says it is about Ideas and not the economic system of different civilizations. And everything is explained &quot;SIMPLY&quot;.&lt;/p&gt;&#xA;" OwnerDisplayName="user15100" LastActivityDate="2017-11-09T22:18:07.533" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19201" PostTypeId="2" ParentId="19197" CreationDate="2017-11-09T23:18:35.143" Score="1" Body="&lt;p&gt;Rondo Cameron's &lt;a href=&quot;https://www.amazon.co.uk/Concise-Economic-History-World-Paleolithic/dp/0195127056&quot; rel=&quot;nofollow noreferrer&quot;&gt;A Concise Economic History of the World&lt;/a&gt; may be helpful. I read an early edition many years ago and it certainly is primarily economic history rather than history of economic thought. One limitation however, identified in &lt;a href=&quot;https://academic.oup.com/ahr/article-abstract/95/5/1496/70168?redirectedFrom=fulltext&quot; rel=&quot;nofollow noreferrer&quot;&gt;this review&lt;/a&gt;, is that despite its title it focuses mainly on Europe.&lt;/p&gt;&#xA;" OwnerUserId="1417" LastActivityDate="2017-11-09T23:18:35.143" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19202" PostTypeId="1" AcceptedAnswerId="19205" CreationDate="2017-11-09T23:47:39.583" Score="1" ViewCount="56" Body="&lt;p&gt;i'm new at this, so i´m really sorry sorry if i do something wrong.&#xA;The problem is this:&#xA;A choice function satisﬁes &lt;strong&gt;condition α&lt;/strong&gt; if whenever $x = C(A)$ and $x ∈ B ⊂ A$, it follows that $x = C(B)$ as well.&#xA;Axiom 1: If $x ≠ C(A)$ then C(A) = C(A\{x})&#xA;And i need to show if condition α implies Axiom 1.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;C(A) is choice function. Here is a definition of choice function (just in case you need it): &quot;Let X be a ﬁnite set of alternatives. Let P(X) be the set of all nonempty subsets of X. We call the elements of P(X) as menus. A choice function is a map C : P(X) → X such that C(A) ∈ A, for all A ∈ P(X). It selects a single element from each menu. A choice correspondence is a map C : P(X) →P(X) such that C(A) ⊆ A, for all A ∈P(X). From each menu, at least one alternative is chosen&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And i found that Axiom 1 does not implies Condition α. Here is a counter example: We have X = {x, y, z}. Take A = {x, y, z} and y∈C({x, y, z})&#xA;y∈C({x, y}), z∈C({x, z}) and {y, z}∈C({ y, z}). Here we have a contradiction because C({x, y, z})≠C({ y, z}).&#xA;Thank you. &lt;/p&gt;&#xA;" OwnerUserId="10240" LastEditorUserId="10240" LastEditDate="2017-11-10T01:59:18.253" LastActivityDate="2017-11-10T02:25:50.043" Title="Is this proof correct?" Tags="&lt;microeconomics&gt;&lt;choice-theory&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="19203" PostTypeId="2" ParentId="19172" CreationDate="2017-11-10T00:28:08.687" Score="4" Body="&lt;p&gt;For a concrete example of how trig (and inverse trig) functions may have financial or economic applications, here's one from &amp;quot;Analysis of Financial Time Series&amp;quot; by Ruey S. Tsay. Consider the AR(2) model:&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$r_t = \phi_0 + \phi_1 r_{t-1} + \phi_2 r_{t-2} +a_t$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;Its autocorrelation function (ACF) &lt;span class=&quot;math-container&quot;&gt;$\rho_\ell = \operatorname{Corr}(r_t, r_{t-\ell})$&lt;/span&gt; satisfies the difference equation &lt;span class=&quot;math-container&quot;&gt;$(1 - \phi_1 B - \phi_2 B^2) \rho _ \ell = 0$&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$B$&lt;/span&gt; is the back-shift operator, i.e. &lt;span class=&quot;math-container&quot;&gt;$B \rho_\ell = \rho_{\ell-1}$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$B^2 \rho_\ell = \rho_{\ell-2}$&lt;/span&gt;. (Some people prefer to write &lt;span class=&quot;math-container&quot;&gt;$L$&lt;/span&gt; for lag operator instead.)&lt;/p&gt;&#xA;&lt;p&gt;The second-order characteristic equation &lt;span class=&quot;math-container&quot;&gt;$1 - \phi_1 \omega - \phi_2 \omega^2 = 0$&lt;/span&gt; has characteristic roots &lt;span class=&quot;math-container&quot;&gt;$\omega_1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\omega_2$&lt;/span&gt; given by:&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\omega = \frac{\phi_1 \pm \sqrt{\phi_1^2 + 4\phi_2}}{-2\phi_2}$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;If the characteristic roots are real, the behaviour is a mixture of two exponential decays. But if instead the discriminant &lt;span class=&quot;math-container&quot;&gt;$\phi_1^2 + 4\phi_2 &amp;lt; 0$&lt;/span&gt;, then the characteristic roots &lt;span class=&quot;math-container&quot;&gt;$\omega_1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\omega_2$&lt;/span&gt; form a complex-conjugate pair, and the plot of the ACF will exhibit damped sinusoidal waves. To quote Tsay:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;In business and economic applications, complex characteristic roots are important. They give rise to the behavior of business cycles. It is then common for economic time series models to have complex-valued characteristic roots. For an AR(2) model ... with a pair of complex characteristics roots, the &lt;em&gt;average&lt;/em&gt; length of the stochastic cycles is&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ k = \frac{2 \pi}{\cos^{-1}[\phi_1 / (2\sqrt{-\phi_2})]} $$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;where the cosine inverse is stated in radians. If one writes the complex solutions as &lt;span class=&quot;math-container&quot;&gt;$a \pm bi$&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$i=\sqrt{-1}$&lt;/span&gt;, then we have &lt;span class=&quot;math-container&quot;&gt;$\phi_1 = 2a$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$\phi_2 = -(a^2 + b^2)$&lt;/span&gt;, and&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ k = \frac{2 \pi}{\cos^{-1}(a / \sqrt{a^2+b^2})} $$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Note that this second way of writing &lt;span class=&quot;math-container&quot;&gt;$k$&lt;/span&gt; has a much more geometrically intuitive way of thinking about the inverse cosine.&lt;/p&gt;&#xA;" OwnerUserId="4992" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2017-11-10T00:28:08.687" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19204" PostTypeId="1" AcceptedAnswerId="19206" CreationDate="2017-11-10T00:52:02.410" Score="4" ViewCount="128" Body="&lt;p&gt;Reading about the academic journal &lt;em&gt;&lt;a href=&quot;http://pubsonline.informs.org/journal/mnsc#&quot; rel=&quot;nofollow noreferrer&quot;&gt;Management Science&lt;/a&gt;&lt;/em&gt;, one can read the following:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Management Science is a scholarly journal that publishes scientific research on the practice of management. (...) Our articles are primarily based on the foundational disciplines of economics, mathematics, psychology, sociology, and statistics, and we encourage cross-functional, multidisciplinary research that reflects the diversity of the management science professions.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So is management science (the scientific research that is published in journals like this) a separate science, similar to the way economics uses Mathematics? What is the view of economists on this? &lt;/p&gt;&#xA;" OwnerUserId="12304" LastEditorUserId="4988" LastEditDate="2017-11-16T19:15:59.220" LastActivityDate="2018-03-14T21:43:12.487" Title="Is &quot;management science&quot; a subsection of economics?" Tags="&lt;definition&gt;&lt;scientific-method&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19205" PostTypeId="2" ParentId="19202" CreationDate="2017-11-10T02:25:50.043" Score="2" Body="&lt;p&gt;Your &quot;counterexample&quot; also violates condition $\alpha$: $y=C(\{x,y,z\})$ but $y\ne C(\{y,z\})$. So it's not really a counterexample.&lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2017-11-10T02:25:50.043" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="19206" PostTypeId="2" ParentId="19204" CreationDate="2017-11-10T03:12:03.433" Score="6" Body="&lt;p&gt;The journal &lt;em&gt;Management Science&lt;/em&gt; is a decent one. Many economists do publish on that journal. In fact, a quick look at its &lt;a href=&quot;http://pubsonline.informs.org/page/mnsc/editorial-board&quot; rel=&quot;noreferrer&quot;&gt;editorial board&lt;/a&gt; reveals many notable names, with the recent Nobel laureate in Economics Richard Thaler among the associate editors.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The field of management science is more interdisciplinary in nature. See &lt;a href=&quot;https://en.wikipedia.org/wiki/Management_science&quot; rel=&quot;noreferrer&quot;&gt;Wikipedia's entry for it&lt;/a&gt;. To me, it's like operations research for business or applied microeconomics in the context of business decision-making. To call it a &quot;separate science&quot; is a bit too much, though.&lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2017-11-10T03:12:03.433" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19207" PostTypeId="1" AcceptedAnswerId="19208" CreationDate="2017-11-10T03:45:52.057" Score="0" ViewCount="980" Body="&lt;p&gt;I'm having difficultly understanding what my professor taught in class.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/F0QeH.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/F0QeH.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&#xA;I thought, like cobb-douglas, when finding $U_1$ we take partial derivative with respect to $q_1$ and hold everything else constant. Why does gamma($q_2$) disappear? Same with $U_2$. and what is gamma? a variable?&lt;/p&gt;&#xA;" OwnerUserId="5404" LastEditorUserId="8815" LastEditDate="2017-11-10T18:08:31.560" LastActivityDate="2017-11-10T18:08:31.560" Title="MRS for quasi-linear preferences" Tags="&lt;utility&gt;&lt;preferences&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19208" PostTypeId="2" ParentId="19207" CreationDate="2017-11-10T05:11:21.033" Score="2" Body="&lt;p&gt;Well going through the derivatives, simply put. View $U$ as a function. &lt;strong&gt;A.K.A $U=U(q_1,q_2)$&lt;/strong&gt; and let $U_1=U(q_1)$ and $U_2=U(q_2)$. So to find $U_1$ and $U_2$ respectively, just take the partial derivatives in respect to the  given variables&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U_1=\frac{\partial U(q_1,q_2)}{\partial q_1 }=(1-\beta)q_1^{-\beta}+ \frac{\partial}{\partial q_1} \gamma q_2=(1-\beta)q_1^{-\beta}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since $\frac{\partial}{\partial q_1}\gamma q_2=0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Similarly,&#xA;$$U_2=\frac{\partial U(q_1,q_2)}{\partial q_2}= \frac{\partial}{\partial q_2}q_1^{1-\beta}+\gamma=\gamma$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;since $\frac{\partial}{\partial q_2} q_1^{1-\beta}=0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope this helps &lt;/p&gt;&#xA;" OwnerUserId="6629" LastActivityDate="2017-11-10T05:11:21.033" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19209" PostTypeId="2" ParentId="35" CreationDate="2017-11-10T05:14:51.340" Score="3" Body="&lt;p&gt;Well for microeconomics there are several, however they all follow the same pattern.  &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&lt;strong&gt;Here I'll attempt to teach an entire intermediate microeconomics course in one post.&lt;/strong&gt;&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;h2&gt;Most microeconomics problems follow this format:&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Though leaving out some minor details, if you do enough microeconomics practice sets the problems end up looking the same after a while. This is what I got to share.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Production/Utility functions&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;There are three main types of utility/production functions you will be exposed to in an intermediate microeconomics course&lt;sup&gt;1&lt;/sup&gt;. They are:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Cobb Douglas&lt;br&gt;&#xA;$$f(x_1,x_2)=x_1^ax_2^b$$&lt;/li&gt;&#xA;&lt;li&gt;Leontif/ Perfect Complement&lt;br&gt;&#xA;$$f(x_1,x_2)=\min\{x_1,x_2\}$$&lt;/li&gt;&#xA;&lt;li&gt;Perfect substitutes&#xA;$$f(x_1,x_2)=x_1+x_2$$&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;h2&gt;Budget lines and Cost functions&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;In consumer theory, you have a budget line represented by the formula:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$m=p_1x_1+p_2x_2$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In producer theory we call it a cost function.&#xA;$$C(x_1,x_2)=w_1x_1+w_2x_2$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;we either want to maximize consumption given a budget/cost function or minimize costs holding your utility/output level constant. To do this we use another equation:&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;The Lagrangian Multiplier:&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Though not exclusive to economics tool per say, its the primary tool of all intermediate microeconomics students.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\mathcal{L}=f(x_1,x_2)\pm\lambda(H-g(x_1,x_2))$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $H-g(x_1,x_2)$ is either a budget line/cost function or Utility/Production function when its equal to zero. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;We use this for calculating utility/profit maximizing consumption bundles/inputs or Minimize Costs holding profit/utility constant.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And thats a wrap!* &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;sub&gt;*Though there is what to say on marshallian and hicksian demands I'll leave that for others to fill in.&lt;/sub&gt;&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="8815" LastEditDate="2017-11-10T16:55:52.090" LastActivityDate="2017-11-10T16:55:52.090" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19210" PostTypeId="1" AcceptedAnswerId="19211" CreationDate="2017-11-10T07:30:49.350" Score="24" ViewCount="4101" Body="&lt;p&gt;&lt;a href=&quot;https://www.bloomberg.com/news/articles/2017-10-30/record-winds-in-germany-spur-free-electricity-at-weekend-chart&quot; rel=&quot;noreferrer&quot;&gt;Bloomberg&lt;/a&gt; shows this chart:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/GiYXf.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/GiYXf.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand the above chart to mean that consumers were actually paid to use electricity. (Please correct me if I'm mistaken.) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I was wondering how this is possible? How is the power/electricity market special and different from other markets? (Or perhaps the German electricity market is special.)&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastEditorUserId="44" LastEditDate="2017-11-28T12:02:43.967" LastActivityDate="2020-08-15T21:56:05.160" Title="How can power/electricity prices be negative?" Tags="&lt;microeconomics&gt;&lt;supply-and-demand&gt;&lt;energy-economics&gt;&lt;germany&gt;" AnswerCount="4" CommentCount="4" FavoriteCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="19211" PostTypeId="2" ParentId="19210" CreationDate="2017-11-10T07:57:55.097" Score="31" Body="&lt;p&gt;Yes, customers who were exposed to day-ahead wholesale market prices were paid to use electricity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is a combination of several different factors that make the day-ahead wholesale electricity market special.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Firstly&lt;/strong&gt;, very few electricity consumers participate in it directly. So the demand side is very illiquid, with very low short-run elasticity - and it quickly becomes perfectly inelastic.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Secondly&lt;/strong&gt;, there's very little time-arbitrage. The market for electricity at 0500 and the market at 1500 are two separate markets: there are very few arbitrageurs who can buy at 0500 and sell at 1500. That's because until recently, there's been very low rewards for doing so (more on this, below).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Thirdly&lt;/strong&gt;, there are several suppliers for whom reducing supply would incur expense: so, for market-clearing purposes, they have negative short-run marginal costs. There are two ways that can happen.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;very inflexible conventional generators (usually nuclear) just can't turn their output up and down every hour or two, without incurring maintenance costs.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;generators with contracts that enable them to sell all their output at a pre-specified positive price: they would need wholesale prices to go negative by the more than that amount, to make it worthwhile for them to reduce their output.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Germany now has such a high combination of those two kinds of generators, that there are times when their combined output is greater than domestic consumption, and that's when prices go negative.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Fourthly&lt;/strong&gt;, although Germany shares a grid with many other continental European countries, the opportunities for spatial arbitrage are very limited, because total German generation is much much larger than the interconnection power capacity to the rest of the grid: so that interconnection capacity strictly limits the amount of energy that can be arbitraged with other countries within a given trading hour.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Finally&lt;/strong&gt;, though it seems strange, these negative prices are a good thing. They're a temporary condition that will only last for a transition period, as electricity markets decarbonise. At the moment, we've got transmission networks and market structures that were designed for, and built around, excessively-polluting suppliers such as coal and gas. We have to stop that pollution - the cost of it way exceeds the benefits. So, the industry has to change structurally, and markets and networks will have to change too.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Coal- and gas-fuelled generators have been very helpful for in-day markets, because they can rapidly change the amount they supply. So the near-absence of participation from the consumption side hasn't been a problem at all, until recently - and why the rewards for arbitrageurs were low. But now, there is an increasing number of hours when those very flexible generators no longer dominate the market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As we move to a grid that no longer has that supply-side responsiveness, we need responsiveness from new arbitrageurs, and from the demand-side. Period of negative pricing provide strong incentives for those new market participants to come forwards. And, as more and more of those new participants enter the market, the negative prices will become rarer and rarer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So this isn't just Germany. It has happened, and will happen, elsewhere too.&lt;/p&gt;&#xA;" OwnerUserId="44" LastEditorUserId="44" LastEditDate="2017-11-10T08:52:37.193" LastActivityDate="2017-11-10T08:52:37.193" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="19212" PostTypeId="1" CreationDate="2017-11-10T08:08:21.640" Score="1" ViewCount="158" Body="&lt;p&gt;There is a hint of a connection to game theory in Adam Smith's Wealth of Nations. For example, he says: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;It is not from the benevolence of the butcher, the brewer, or the&#xA;  baker that we expect our dinner, but from their regard to their own&#xA;  interest.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;We can put his general argument into a payoff matrix, like shown below:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/YBGJY.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/YBGJY.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are two Nash Equilibria here: {DS,DS} and {S,S}.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Obviously, if they both specialize, they are both much better off. However, each of them not specializing is also an equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there any way that Game Theory predicts the emergence of specialization in a population of such players?&lt;/p&gt;&#xA;" OwnerUserId="5591" LastActivityDate="2017-11-10T15:51:35.623" Title="Can game theory be used to predict economic specialization (division of labor)?" Tags="&lt;game-theory&gt;&lt;division-of-labor&gt;" AnswerCount="2" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="19213" PostTypeId="2" ParentId="19204" CreationDate="2017-11-10T08:59:06.313" Score="3" Body="&lt;p&gt;To the extent that economics and business are related fields, &quot;Management Science&quot; is related to economics as well. Many economists serve as part of business school faculties and vice-versa. So these two fields are very closely related, but not completely identical. I wouldn't call it a completely seperate science and the distinction is much less stark than between economics and mathematics. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Similarly, &quot;Management Science&quot; is not a (pure) economics journal, but there is a lot of overlap and many great economists publish in management science. Management science is often considered the top journal for business and has a very respectable standing within economics. Mostly it's (applied) microeconomists publishing there. Naturally, you wouldn't expect to see a paper about macroeconomics in there.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As an example, taxes is a topic for both economists and bussiness professors. While optimal taxation theory would not interest business people and would not be published in &quot;Management Science&quot;, papers on tax evasion are studied within both business and economics.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastEditorUserId="5557" LastEditDate="2018-03-14T21:43:12.487" LastActivityDate="2018-03-14T21:43:12.487" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19214" PostTypeId="2" ParentId="19212" CreationDate="2017-11-10T10:45:19.637" Score="3" Body="&lt;p&gt;I think you're over-analyzing here. Game theory is not just about maximizing your own pay-off, but about doing the best you can &lt;em&gt;given the behavior of others&lt;/em&gt;. What Smith describes is just that people do what they're good at to make a living. That is, the way I read it, Smith claims that people specialize &lt;em&gt;independent of what others do.&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That being said if the emergence of specialization was to be predicted with game theory I'd look into evolutionary game theory. I'm not sure if you'll find anything though.&lt;/p&gt;&#xA;" OwnerUserId="12186" LastActivityDate="2017-11-10T10:45:19.637" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19215" PostTypeId="2" ParentId="19210" CreationDate="2017-11-10T13:37:03.587" Score="4" Body="&lt;p&gt;Basically negative prices reflect that there is produced more electricity than the market asks for. In all other markets, this is not a problem as you can just refuse to sell, but for electricity, there has to be a balance. You can not stack up electricity in a warehouse.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So to give a bit background information, let us take Nord Pool Spot as an example: Every day at 12 CET suppliers and consumers provide Nord Pool Spot with bids on what they can sell and buy the electricity for per MWh the next day (from 00:00). &lt;a href=&quot;http://www.nordpoolspot.com/the-power-market/Day-ahead-market/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Link to Nord Pool Spot&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These bids form the suppliers can be divided into several bits. Which is (in increasing price): forced production, Wind power, gas-, oil- and coal-fired. One can think of this as the suppliers first sell the electricity from the forced production, then the wind energy, etc. The more expensive it is for the suppliers to produce, the higher the cost per MWh. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The wind power is the zero point. Once the windmill is up, it is (for simplicity) free to use, and you can shut it off if necessary. In other words, giving wind power away is a lost opportunity, but it does not include extra costs for the supplier. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the negative, we have the forced production, this can come from @EnergyNumbers, third point. If it is more costly to reduce the produce the production of a plant than to pay someone to take it, you would rather do this. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Something that is not mentioned, is that plants typically also provide you with hot water. However, in older plants, the generator is always coupled to the output of the plant. Thus sometimes they have to fire up a plant to produce hot water, and thus also electrical power at the same time, giving them a forced production. Often the usage is high enough to take the forced production, but sometimes this is not the case and you will have negative prices.&lt;/p&gt;&#xA;" OwnerUserId="15151" LastActivityDate="2017-11-10T13:37:03.587" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19216" PostTypeId="2" ParentId="19212" CreationDate="2017-11-10T15:51:35.623" Score="0" Body="&lt;p&gt;The matrix table show is just a part of Game theory tool set. The matrix only can be proven with granular heuristic rules. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Adams Smith claim of specialization is describing a generic context.&lt;br&gt;&#xA;Because technology advancement can bring specialization beyond any imagination, that even bring diversification.&#xA;For example, vacuum cleaner is something &quot;specialize&quot; before 20th century, today it is a household commodity.  In addition, example like bakers/brewers doesn't guarantee efficiency, i.e. overproduction , recycling and many issues are beyond Adam Smith imagination. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't think it is possible to construct a reliable matrix to validate specialization.&lt;/p&gt;&#xA;" OwnerUserId="11177" LastActivityDate="2017-11-10T15:51:35.623" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19217" PostTypeId="2" ParentId="19210" CreationDate="2017-11-10T16:50:28.903" Score="4" Body="&lt;p&gt;This reflects the problem of electricity storage.  With most other commodities, there is some way to store it ahead of future need, but in general this option is not so readily available with electricity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course storage is possible.  Traditionally this has been in the form of &lt;a href=&quot;https://en.wikipedia.org/wiki/Pumped-storage_hydroelectricity&quot; rel=&quot;nofollow noreferrer&quot;&gt;pumped hydroelectric&lt;/a&gt; storage, where the &quot;free&quot; electricity is used to pump water back uphill.  More generally there are &lt;a href=&quot;https://en.wikipedia.org/wiki/Grid_energy_storage&quot; rel=&quot;nofollow noreferrer&quot;&gt;other forms of storage possible&lt;/a&gt;, and Tesla is famously planning to contribute with its &lt;a href=&quot;https://en.wikipedia.org/wiki/Tesla_Powerwall&quot; rel=&quot;nofollow noreferrer&quot;&gt;Powerwall and Powerpack&lt;/a&gt; projects.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When grid storage becomes more widespread, it is possible that negative electricity price spikes will no longer occur.  Price spikes will still occur, but storage may limit how extreme those spikes are, both in positive and negative directions.  At the moment though, it is those negative spikes which allow rather inefficient pumped-hydro schemes to be cost-effective.&lt;/p&gt;&#xA;" OwnerUserId="12534" LastActivityDate="2017-11-10T16:50:28.903" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19219" PostTypeId="2" ParentId="19172" CreationDate="2017-11-10T19:53:30.507" Score="5" Body="&lt;p&gt;Ignoring the intertemporal budget constraint, mergers and bankruptcies the distribution of returns for equity securities traded in a double auction is $$\Pr(\tilde{r}_t)=\left[\frac{\pi}{2}+\tan^{-1}\left(\frac{\mu}{\gamma}\right)\right]^{-1}\frac{\gamma}{\gamma^2+(\tilde{r}_t-\mu)^2}.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For this see: Harris, D.E. (2017) The Distribution of Returns. Journal&#xA;of Mathematical Finance , 7, 769-804.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For returns calculated as the difference of logs, the returns are:&#xA;$$\Pr(log(r_t))=\frac{1}{2\sigma}\text{sech}\left(\frac{\pi(\tilde{r}_t-\mu)}{2\sigma}\right)$$&lt;/p&gt;&#xA;" OwnerUserId="11321" LastEditorUserId="11321" LastEditDate="2017-11-10T20:36:48.207" LastActivityDate="2017-11-10T20:36:48.207" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19220" PostTypeId="2" ParentId="19111" CreationDate="2017-11-10T22:30:08.533" Score="3" Body="&lt;p&gt;Ricardian equivalence essentially means the timing of taxation doesn’t matter. Ramsey models are typically infinitely lived agent (or can be formulated as such) models with no heterogeneity. OLG models have age heterogeneity, so if people live for k periods an agent born in period 0 receiving a transfer in period t &amp;lt; k to be financed by a tax in period t+j, t+j &gt; k, they don’t live to face the tax and the transfer is a permanent increase in income. Similarly, a person born in period k does not receive the transfer and views the tax as a permanent decrease in income. In an infinitely lived agent model (here a Ramsey model), the agent will always live to see both the transfer and the tax.&lt;/p&gt;&#xA;" OwnerUserId="13732" LastActivityDate="2017-11-10T22:30:08.533" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19222" PostTypeId="1" CreationDate="2017-11-11T01:57:11.453" Score="1" ViewCount="153" Body="&lt;p&gt;I have the following example for an imposed quota on the importing of Japanese cars to Europe and it's relative effects:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/4LkcH.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/4LkcH.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am told that $NX=NCO$ (Net exports are equal to National Capital Outflow). I understand we would see a shift to the right in the demand for Euros as relatively Imports have increased compared to Exports, but would we also see a shift in the NCO curve too as the purchase of foreign assets by domestic residents has decreased hence reducing the value of NCO?&lt;/p&gt;&#xA;" OwnerUserId="14755" LastActivityDate="2021-04-12T04:24:47.447" Title="National Capital Outflow Question" Tags="&lt;supply-and-demand&gt;&lt;exchange-rates&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19223" PostTypeId="1" CreationDate="2017-11-11T07:33:59.597" Score="-1" ViewCount="59" Body="&lt;p&gt;I would like to find the Nash equilibrium of the following allocation problem.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are 3 courses and 3 students. Each student has to take 2 courses, and each course has a capacity of 2 seats. Students have the following values for each of the 3 courses with strict preferences. Let student be s where s1= student 1, and course be c where c1=course 1&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ranking c1, c2, c3 respectively in values,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;s1: 12, 10, 6&lt;/p&gt;&#xA;&#xA;&lt;p&gt;s2: 6, 10, 8&lt;/p&gt;&#xA;&#xA;&lt;p&gt;s3: 7, 10, 5&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Students are allocated to courses in the following manner.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;First, each student submits their course preferences (eg. c2&gt;c1&gt;c3).&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Then, a random order of the 3 students are generated. All combinations are equally likely.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Suppose the order generated is s1,s2,s3. the first-ranked student gets to pick 1 course first, according to his submitted preferences. s2 picks 1 course next and followed by s3.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;After every student has picked a course, the generated order is reversed, so s3 now gets to pick his 2nd course first, followed by s2, and s1.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Process ends after all course spaces are full.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;In the event it is a student's turn to pick a course but it is full, the student will be allocated his next preferred course.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Here's an example:&#xA;Student 1 decides what preference to submit. If he assumes that the other 2 students will tell the truth, and he submits preference $c1&amp;gt;c2&amp;gt;c3$ according to his true values, then his expected utility is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$EU = \frac{1}{6}(12+6) +\frac{1}{6}(12+6)+\frac{1}{6}(12+6)+\frac{1}{6}(12+6)+\frac{1}{6}(12+6)+\frac{1}{6}(12+6)=18$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;given that the student order generated are equally likely&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(s1,s2,s3);(s1,s3,s2);(s2,s1,s3);(s3,s1,s2);(s3,s2,s1);(s2,s3,s1)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, if student 1 lies about his preferences, and submits $c2&amp;gt;c1&amp;gt;c3$ instead, his expected utility is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$EU = \frac{1}{6}(10+12) +\frac{1}{6}(10+6)+\frac{1}{6}(10+12)+\frac{1}{6}(10+12)+\frac{1}{6}(12+6)+\frac{1}{6}(12+6)=19\frac{2}{3}&amp;gt;18$, thus he has an incentive to lie.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is student 1's best response given that s2 and s3 tell the truth. But if s2 and s3 decide to lie also, knowing that s1 would lie as well, how exactly can we find the Nash equilibrium? It seems very tedious to iterate all the possible scenarios and I hope there is an elegant way to find the Nash equilibrium.&lt;/p&gt;&#xA;" OwnerUserId="13055" LastActivityDate="2017-11-11T09:47:21.147" Title="Random Draft Allocation: Nash Equilibrium?" Tags="&lt;microeconomics&gt;&lt;game-theory&gt;" AnswerCount="1" CommentCount="1" ClosedDate="2017-11-27T18:32:20.627" ContentLicense="CC BY-SA 3.0" />
  <row Id="19224" PostTypeId="2" ParentId="19223" CreationDate="2017-11-11T09:39:16.113" Score="1" Body="&lt;p&gt;Each student can report 6 preference orders. However, eliminating strictly dominated strategies (no need to calculate actual expected payoffs, you can use basic logic based on their real preference orders and the availability of places) reduces this to 2 orders per student. A second iteration of elimination reduces s2's strategy set to a single order. The third iteration reduces s1's and s3's strategy set to a single order as well. These reported preference orders constitute the Nash-equilibrium.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2017-11-11T09:47:21.147" LastActivityDate="2017-11-11T09:47:21.147" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="19227" PostTypeId="1" CreationDate="2017-11-11T15:30:09.313" Score="1" ViewCount="57" Body="&lt;p&gt;Let's assume a market with linear demand and supply functions, let's say $Q_d = 20 - 4p$ and $Q_s = -4 +8p$ respectively.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can easily find the market equilibrium by either setting $Q_d = Q_s$ (or $P_d = P_d$ in the inverse demand and supply functions) or by maximising the total surplus, as done in the following screenshot:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/eiGJE.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/eiGJE.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can now add a subside to the consumers, let's say 2 monetary unit/quantity unit, and the result is to shift up the demand curve, so that the new equilibrium can be easily obtained setting for example the prices equal in the new apparent demand curve $Q_dsub = 28-4p$ and the supply curve, and we find equilibrium quantity with subside $Q^{*sub} = 52/3$, eq. price with subside for the producers $P^{*sub}_{S} = 8/3$ and eq. price for the consumers with subsides $P^{*sub}_{D} = 2/3$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem is that if I try to obtain that results by maximisation of the total surplus as before, I obtain:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$TotalSurplus = - \frac{3}{16}Q^2+\frac{9}{2}Q + P^{*sub}_{S} * Q^{*sub} - P^{*sub}_{D} * Q^{*sub}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When I account for $P^{*sub}_{S} = P^{*sub}_{D} + 2$, I obtain:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$TotalSurplus = - \frac{3}{16}Q^2+\frac{9}{2}Q  + 2 * Q^{*sub}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And here I don't know how to continue, as the equilibrium point doesn't write off any more.&lt;/p&gt;&#xA;" OwnerUserId="10376" LastActivityDate="2017-11-13T09:01:18.110" Title="How to find the market equilibrium by surplus maximisation when there is a consumer subside?" Tags="&lt;competitive-equilibrium&gt;&lt;subsidies&gt;&lt;surplus&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="19229" PostTypeId="1" CreationDate="2017-11-11T15:49:28.400" Score="-1" ViewCount="911" Body="&lt;p&gt;In the case of a perfectly elastic demand curve, when price rises the consumer is said to demand 0 units of the said commodity. However, graphically, even when price falls demand falls to 0. This seems to violate the demand law.&#xA;Is there an explanation for this phenomenon or is the graph supposed to be interpreted differently?&lt;/p&gt;&#xA;" OwnerUserId="15161" LastActivityDate="2018-02-10T07:35:57.030" Title="Is the law of demand violated in the case of perfectly elastic demand?" Tags="&lt;supply-and-demand&gt;&lt;elasticity&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19230" PostTypeId="1" AcceptedAnswerId="19321" CreationDate="2017-11-11T17:06:01.783" Score="1" ViewCount="103" Body="&lt;p&gt;Suppose today a 10 per cent coupon bond sells at par. Two years from now, the required return on the same bond is 8 per cent. What is the YTM?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;^That's a question I've been asked and have literally no clue about how to calculate the YTM.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My understanding is: YTM is the anticipated return on a bond if held to maturity. If I buy a fresh bond at say \$90 and the par value is \$100 at 10% coupon rate, the YTM will be 10/90 = 11.11%. So for this question, If I buy a bond on the secondary market at par value, the YTM should equal the coupon rate no? If so, how does rrr affect YTM?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm so confused, send help.&lt;/p&gt;&#xA;" OwnerUserId="15163" LastEditorUserId="42" LastEditDate="2017-11-11T17:58:34.317" LastActivityDate="2017-11-15T21:58:02.683" Title="How do you calcualte Yield To Maturity, given only the coupon rate and current required rate of return?" Tags="&lt;bonds&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19232" PostTypeId="1" CreationDate="2017-11-11T19:29:49.613" Score="1" ViewCount="23" Body="&lt;p&gt;UK had a negative trading balance for the last 20 years. Where does it find money to finance it? Is such situation sustainable?&lt;/p&gt;&#xA;" OwnerUserId="13337" LastActivityDate="2017-11-11T19:29:49.613" Title="Where UK finds money to sustain its negative trading balance?" Tags="&lt;international-trade&gt;&lt;balance-of-trade&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19233" PostTypeId="2" ParentId="5022" CreationDate="2017-11-11T20:15:52.463" Score="-1" Body="&lt;p&gt;Answer is A. R2795279&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You take GDE, add Exports, less Imports and get GDP. That is GDP @ market prices.&#xA;Then you work backwards, in stead of adding taxes, you deduct them &amp;amp; instead of deducting subsidies you add them. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;GDP@ market prices=GDE+X-Z=3251414+891562-987781&#xA;                                     =3155195&#xA;GDP @ factor cost=GDP @ market prices - taxes + subsidies&#xA;                                 =3155195-54166-338792+14358+18684&#xA;                                 =2795279&lt;/p&gt;&#xA;" OwnerUserId="15166" LastEditorUserId="15166" LastEditDate="2017-11-11T20:21:54.033" LastActivityDate="2017-11-11T20:21:54.033" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19236" PostTypeId="2" ParentId="1748" CreationDate="2017-11-11T23:23:41.473" Score="0" Body="&lt;p&gt;Deciding on whether to use monthly,quarterly or yearly data depends on over what period you wish to investigate for potential policy intervention.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The term costs and benefits solely depends on what type of data you are looking at. If you want to figure out if the crime rate that is currently being experienced by a given city is normal currently, yearly data  is probably not the best for investigating such phenomenon.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Quarterly or monthly data is probably better because controls for seasonality can be applied, however for yearly data you cant implement seasonal dummies because there is no rationale for doing so.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand,recall the more often you sample macroeconomic data the &quot;noisier&quot; it gets, so sampling more often than a monthly basis can add unnecessary noise which can make your data more difficult to interpret.&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2017-11-11T23:23:41.473" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19241" PostTypeId="2" ParentId="19229" CreationDate="2017-11-12T02:09:51.850" Score="0" Body="&lt;p&gt;&quot;Perfectly elastic demand&quot; is not a situation associated with individual consumer demand, it is a concept related to the market demand schedule.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And then, it does not describe any rigorous aggregation of individual demands, but instead, it expresses &lt;em&gt;demand as perceived by the firms&lt;/em&gt; and is related to firm competition, not consumer preferences:  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If a firm increases its price it will lose all customers, but because they will shop elsewhere, not because their utility maximization tells them to stop consuming  the product. So it does &lt;em&gt;not&lt;/em&gt; say that &quot;consumer demand will drop to zero&quot; -it will do so for the specific firm, not for the market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for &lt;em&gt;decreasing&lt;/em&gt; the price, the firm has no reason to do it, since it can sell all the product it can at the going price.  &lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2017-11-12T02:09:51.850" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19242" PostTypeId="2" ParentId="19194" CreationDate="2017-11-12T04:38:33.940" Score="1" Body="&lt;p&gt;The short answer: we don't need a separate term for &quot;foregone cost&quot;, because opportunity cost of doing something = highest (forgone benefit - foregone cost).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'd like to stress two points about opportunity cost.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, it doesn't make much sense to say &quot;the opportunity cost in this example&quot;; you need to specify the opportunity cost of doing what? We always explicitly state the opportunity cost &lt;strong&gt;of doing something&lt;/strong&gt;, or opportunity cost of &lt;strong&gt;choosing something&lt;/strong&gt;. In your investment vs bank savings example, the opportunity cost of using the money to invest is \$40, and the opportunity cost of depositing the money in the bank is \$60 (assuming investing and saving are the top 2 most productive use of your money, and assuming no ex-ante risk in investing). In your spreadsheet example, suppose you only have two options to spend 1.5 hours: A - you can spend 1 hour to make the spreadsheet, and use the rest 0.5 hour to do whatever is most productive, or B - you can spend 1.5 hours to program in VBA. The opportunity cost of choosing A is the &lt;strong&gt;net benefit&lt;/strong&gt; of doing B, and the opportunity cost of choosing B is the &lt;strong&gt;net benefit&lt;/strong&gt; of doing A.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Second, I highlighted the &lt;strong&gt;net benefit&lt;/strong&gt; at the end of the previous paragraph. Opportunity cost of doing something is the highest foregone net benefit of the alternatives. Here the foregone net benefit is defined as the (foregone benefit - foregone cost). Let me go back to your spreadsheet example. Suppose finishing the spreadsheet gives you \$50 equivalent of utility, regardless of how you make the spreadsheet. However, let's say, manually making the spreadsheet bores you, incurring \$30 equivalent disutility, and making the spreadsheet via VBA bores your less, incurring \$20 disutility. I also assume the most productive use of your time in that 1.5 hours is taking some rest, which gives you \$40 per hour utility. Now here is the net benefit of option A: \$50 (benefit for finishing the spreadsheet) - \$30 (cost for making the spreadsheet manually) + \$20 (benefit for 0.5 hour rest) = \$40. And the net benefit of option B: \$50 (benefit for finishing the spreadsheet) - \$20 (cost for making the spreadsheet via VBA) = \$30. Therefore the opportunity cost of choosing A is \$30, and the opportunity cost of choosing B is \$40. We don't need a term for &quot;foregone cost&quot;.&lt;/p&gt;&#xA;" OwnerUserId="10853" LastActivityDate="2017-11-12T04:38:33.940" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19243" PostTypeId="1" CreationDate="2017-11-12T04:45:17.997" Score="2" ViewCount="27" Body="&lt;p&gt;last year I asked  &lt;a href=&quot;https://economics.stackexchange.com/questions/14551/how-do-we-estimate-production-functions&quot;&gt;How do we estimate production functions?&lt;/a&gt;. That answer provided was insightful from an econometric perspective and has helped me in applying such an understanding to the workplace.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Right now Im doing some consulting by a small medical sales business and they wanted me to do a workforce evaluation of their sales staff, and they wanted to know if they should expand their workforce. The numbers they are giving me are on a monthly basis, they did not provide me with numbers of what their revenues are but they have given me quantities like the table below. (Note the numbers provided are fictitious).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{array}{c|lcr|}&#xA;n &amp;amp; \text{Sales}&amp;amp;\text{Staff}{}  \\&#xA;\hline&#xA;1 &amp;amp;103&amp;amp; 10\\&#xA;2 &amp;amp;234&amp;amp; 10\\&#xA;3&amp;amp;88&amp;amp;9\\&#xA;4 &amp;amp;115&amp;amp; 8 \\&#xA;5&amp;amp;63&amp;amp;9\\&#xA;6&amp;amp;91&amp;amp;10\\&#xA;7&amp;amp;130&amp;amp;10\\&#xA;8&amp;amp;168&amp;amp;9\\&#xA;...&amp;amp;...&amp;amp;...\\&#xA;\end{array}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We know mathematically a production function provide us with a single value, however as we can see from this table, the quantities produced by the input above differs by time and period.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How does one model such inconsistencies in production where the exact yield from inputs are not specific.&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2017-11-12T04:45:17.997" Title="modelling Inconsistent production functions" Tags="&lt;production-function&gt;&lt;applied-econometrics&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19245" PostTypeId="1" CreationDate="2017-11-12T07:08:41.413" Score="2" ViewCount="147" Body="&lt;p&gt;in the ramsey model, we use the no ponzi condition $$\lim_{t\to\infty}e^{-R_t}a_t\geq 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;for assets $a_t$ that a household holds at time $t$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand intuitively what the reasoning behind this is: the present value of the level of assets one holds in the &quot;final period&quot; (which goes to infinity), cannot be negative, because if it was, lenders would not be willing to borrow. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, I have ever only encountered this argument in vague terms like that. I have never seen a rigorous argument that the condition has exactly this form (rather than some other form such as $\lim_{t \to \infty}a_t\geq 0$, or $\lim_{t \to \infty}e^{-f(t)}a_t\geq 0$ for some other function $f$).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the Ramsey model, we have of course the equation of motion for capital, and while we can integrate this, and find something that &lt;strong&gt;looks like&lt;/strong&gt; the no ponzi condition, we cannot actually derive the condition from it. It also seems to me that the no-ponzi condition is a bit ad-hoc, since we don't explicitly model lending and borrowing at all in the ramsey model. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;So is there a rigorous argument from first principles, based on the assumptions of the Ramsey model, that this is the condition we need&lt;/strong&gt;, that doesn't rely on simply vaguely stating that &quot;otherwise the household could borrow indefinitely&quot;? &lt;/p&gt;&#xA;" OwnerUserId="11146" LastActivityDate="2017-11-12T07:08:41.413" Title="Is there an argument from first principles for the form of the no-ponzi condition?" Tags="&lt;macroeconomics&gt;&lt;dynamic-optimization&gt;" AnswerCount="0" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19246" PostTypeId="1" AcceptedAnswerId="19247" CreationDate="2017-11-12T09:51:34.283" Score="3" ViewCount="102" Body="&lt;p&gt;This is in relation to a &lt;a href=&quot;https://skeptics.stackexchange.com/questions/39955/does-the-fossil-fuel-industry-receive-trillions-of-dollars-of-subsidy-from-gover&quot;&gt;recent question on skeptics&lt;/a&gt; which to me seems to broil down to whether you accept that form of accounting, i.e. consider undervaluing environmental impact a hidden subsidy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, is it this a common or uncommon practice in economics research? Or is it somewhere in between, e.g. does it vary with the school of thought?&lt;/p&gt;&#xA;" OwnerUserId="6210" LastActivityDate="2017-11-15T18:00:34.637" Title="Is undervaluing environmental impact a subsidy?" Tags="&lt;environmental-economics&gt;&lt;subsidies&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19247" PostTypeId="2" ParentId="19246" CreationDate="2017-11-12T10:22:21.887" Score="7" Body="&lt;p&gt;Yes, undervaluing environmental impact is a subsidy, within the context of the IMF report that you are referring to.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here's what &lt;a href=&quot;https://www.imf.org/external/pubs/ft/wp/2015/wp15105.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;that report&lt;/a&gt; says in its abstract (my emphasis):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;it focuses on the broad notion of post-tax energy subsidies, which arise when &#xA;  consumer prices are below supply costs &lt;strong&gt;plus a tax to reflect environmental damage&lt;/strong&gt; and an additional tax applied to all consumption goods to raise government revenues.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It goes on further on pages 10-11 to define some aspects of the subsidy in more detail.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In particular:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;post-tax consumer subsidies represent the amount by which the cost borne by the consumer falls short of the total economic cost of consumption. This excess cost (or subsidy) is either covered by governments in the form of budgetary support or foregone revenues or passed to the society in the form of environmental damage. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;and&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Producer subsidies exist when producers receive either direct or indirect support that increases profitability above what it otherwise would be (that is, the support is not passed forward in the form of lower consumer prices). This support can take many forms, including receiving a price for the output above the supply cost, paying a price for inputs below supply costs, receiving preferential tax treatment, or receiving a direct transfer from the budget&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This makes it clear that within the context of that report, undervaluing environmental impact is a subsidy. And that is entirely consistent with how &quot;subsidy&quot; is used within the field of environmental economics generally.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;See, for example: &lt;a href=&quot;http://dx.doi.org/10.1257/aer.104.5.581&quot; rel=&quot;nofollow noreferrer&quot;&gt;The Economic Cost of Global Fuel Subsidies, Davis (2014)&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Fuel  subsidies  are  different  from  subsidies in  most  other  markets  because  of  the  substantial  external  costs  of  driving.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;And &lt;a href=&quot;http://dx.doi.org/10.5547/2160-5890.3.1.bcle&quot; rel=&quot;nofollow noreferrer&quot;&gt;Energy subsidies: How large are they and how can they be reformed?, Clements et al 2014&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The subsidy estimates capture both those that are explicitly recorded in the budget and those that are implicit and off budget ... Tax subsidies&#xA;  arise when energy taxation, which includes a corrective component for externalities and a component for revenue consideration, is below the efficient level. The efficient taxation of energy requires corrective taxes to capture negative environmental and other externalities owing to energy use.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;And &lt;a href=&quot;https://doi.org/10.1016/j.enpol.2017.09.021&quot; rel=&quot;nofollow noreferrer&quot;&gt;Fossil fuel subsidies in the Pacific island context: Analysis of the case of Kiribati, Peltovuori (2017)&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Subsidy in this report is defined according to the definition of World Trade Organisation's (WTO) Agreement on Countervailing Measures (ASCM) (Uruguay Round Agreements, 1994). This definition has been recommended to G-20 by the Global Subsidies Initiative (The Global Subsidies Initiative, 2010). The methodology for quantifying fuel subsidies in this study is the price gap approach. In the price gap approach, a cost recovery price for fuels is first estimated based on the world free on board (FOB) market prices. All additional monetary and non-monetary costs such as transport, storage, distribution costs, and corrective taxes to account for externalities are then added on top of the FOB price. This cost recovery price is then compared to the actual price. The gap between the two prices is the amount of subsidy per price unit.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;These pollution costs are included within the broader definition of subsidy as used by the IMF, because these negative production externalities are costs incurred by production, that the producer itself does not directly bear. Thus, those costs are not reflected in prices, leading to market failure and an unfair competitive advantage, of the same kind and market impact as if they'd received a cash subsidy on their directly-incurred costs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &lt;a href=&quot;https://www.economicshelp.org/micro-economic-essays/marketfailure/negative-externality/&quot; rel=&quot;nofollow noreferrer&quot;&gt;&quot;Economics Help&quot; site explains the issue&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/dRZuY.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/dRZuY.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The deadweight loss from coal pollution is the red striped triangle: this comes about because coal producers do not have to pay for their pollution, leading to a competitive advantage, and an artificially high quantity sold Q1 at price P1.&lt;/p&gt;&#xA;" OwnerUserId="44" LastEditorUserId="44" LastEditDate="2017-11-15T18:00:34.637" LastActivityDate="2017-11-15T18:00:34.637" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19249" PostTypeId="1" CreationDate="2017-11-12T11:38:36.563" Score="2" ViewCount="37" Body="&lt;p&gt;Is anyone aware of statistics about the total volume of trade that happens under regional trade agreements (RTAs)? It's easy to find figures for &lt;a href=&quot;https://www.wto.org/english/tratop_e/region_e/regfac_e.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;the number of agreements&lt;/a&gt;, but not so easy for their cumulative impact.&lt;/p&gt;&#xA;" OwnerUserId="6210" LastActivityDate="2019-12-13T10:51:33.473" Title="Volume of trade covered by regional trade agreements" Tags="&lt;international-trade&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="19250" PostTypeId="1" AcceptedAnswerId="19251" CreationDate="2017-11-12T12:20:42.530" Score="4" ViewCount="168" Body="&lt;p&gt;I'm looking at &lt;a href=&quot;http://asean.org/storage/2016/11/Table18_as-of-6-dec-2016.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;ASEAN data&lt;/a&gt; for 2015. It seems the intra-ASEAN exports are 305bn USD while the intra-ASEAN imports are only 238 billion USD. Am I misreading the statistics or is it actually possible for a group of countries to have such an imbalance in the group?&lt;/p&gt;&#xA;" OwnerUserId="6210" LastActivityDate="2017-11-15T20:35:16.473" Title="How can a RTA have a trade imbalance with itself?" Tags="&lt;international-trade&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19251" PostTypeId="2" ParentId="19250" CreationDate="2017-11-12T13:46:30.443" Score="2" Body="&lt;p&gt;Yes, such imbalances or asymmetries are possible in practice and quite frequent across RTAs. These statistics simply mean that each ASEAN member exports more on average to the other members than they import from them. But this pattern is not true for all ASEAN countries. &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Singapore exports 118bn USD to the other ASEAN countries and imports 64bn USD from them.&lt;/li&gt;&#xA;&lt;li&gt;Mynamar exports 4bn to the other ASEAN countries and and imports 7bn USD from them.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Finally, they define the `intra-ASEAN exports' as the sum of the exports of the individual ASEAN countries (305 billion USD in the second column of &lt;a href=&quot;http://chrome-extension://oemmndcbldboiebfnladdacbdfmadadm/http://asean.org/storage/2016/11/Table18_as-of-6-dec-2016.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;ASEAN data&lt;/a&gt;). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In &lt;strong&gt;theory&lt;/strong&gt;, this number should be equal to the sum of the individual imports from the other ASEAN members. To fix ideas, consider a RTA with 3 countries A,B, and C. If each country exports 10 to each partner. The sum of exports is equal to 60, and if A-&gt;B is equal to B&amp;lt;-A, etc. the sum of imports is also equal to 60.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In &lt;strong&gt;practice&lt;/strong&gt;, this number is not equal because intra-RTA exports may not be calculated the same way as intra-RTA imports. This is explained in this &lt;a href=&quot;http://ec.europa.eu/eurostat/statistics-explained/index.php/International_trade_statistics_-_background&quot; rel=&quot;nofollow noreferrer&quot;&gt;Eurostat&lt;/a&gt; website for the intra-EU trade.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Asymmetries&lt;/strong&gt; occur when the declaration of the importer in country A is not consistent with the declaration of the exporter in country B. Asymmetries come either from errors in reporting or from differences in the concepts and definitions applied by the partner countries. Some of the asymmetries of a methodological nature could disappear thanks to further harmonisation in national practices; others will continue as they are linked to basic principles for compiling ITGS which are unlikely to change (e.g. CIF/FOB valuation). The most common causes of methodological asymmetries are the following: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;strong&gt;&lt;em&gt;simplified product reporting&lt;/em&gt;&lt;/strong&gt;: Where the EU legislation allows simplified codification of goods for certain transactions, some Member States apply the simplifications but others do not;&lt;/li&gt;&#xA;&lt;li&gt;different approaches to estimating or compiling trade data for &lt;strong&gt;&lt;em&gt;specific goods&lt;/em&gt;&lt;/strong&gt; and movements not covered by customs or statistical declarations, such as gas, electricity, vessels or aircraft;&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;&lt;em&gt;confidentiality&lt;/em&gt;&lt;/strong&gt;: It is possible that data are considered confidential by only one of the two partners. However, the application of the confidentiality procedures should not impact the results at total trade level;&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;&lt;em&gt;time lag&lt;/em&gt;&lt;/strong&gt;: the same operation can be recorded under a different reference period because of transport times or processing delays;&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;&lt;em&gt;CIF/FOB valuation&lt;/em&gt;&lt;/strong&gt;: imports are valued on a CIF basis and exports on a FOB basis. This causes a systematic asymmetry as the value of the imports should then be higher than the value of the mirror exports;&lt;/li&gt;&#xA;&lt;li&gt;differences in methods and data used to &lt;strong&gt;&lt;em&gt;estimate missing trade&lt;/em&gt;&lt;/strong&gt;;&lt;/li&gt;&#xA;&lt;li&gt;different practices in the treatment of &lt;strong&gt;&lt;em&gt;revisions&lt;/em&gt;&lt;/strong&gt;;&lt;/li&gt;&#xA;&lt;li&gt;problems of &lt;strong&gt;&lt;em&gt;currency conversion&lt;/em&gt;&lt;/strong&gt;; and&lt;/li&gt;&#xA;&lt;li&gt;other &lt;strong&gt;&lt;em&gt;methodological differences&lt;/em&gt;&lt;/strong&gt; such as definition of partner country, definition of statistical territory, trade system (special or general).&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;h2&gt;Why is the intra-EU trade balance not equal to zero?&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Considering that the intra-EU trade data are based on common and largely harmonised rules, &lt;strong&gt;one might expect the intra-EU trade balance to be zero&lt;/strong&gt; or at least close to it. However, it is worth underlining that a perfect match is made impossible first of all by the &lt;strong&gt;CIF/FOB approach&lt;/strong&gt;: the import value should be higher than the mirror export value as it includes extra transport costs.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;h2&gt;What is the 'Rotterdam effect'?&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Dutch trade flows are over-estimated because of the so-called ‘Rotterdam effect’ (or quasi-transit trade): that is goods bound for other EU countries arrive in Dutch ports and, according to EU rules, are recorded as extra-EU imports by the Netherlands (the country where goods are released for free circulation). This in turn increases the intra-EU flows from the Netherlands to those Member States to which the goods are re-exported. To a lesser extent, Belgian figures are similarly overestimated.&lt;/p&gt;&#xA;" OwnerUserId="6168" LastEditorUserId="6168" LastEditDate="2017-11-15T20:35:16.473" LastActivityDate="2017-11-15T20:35:16.473" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="19253" PostTypeId="1" AcceptedAnswerId="20041" CreationDate="2017-11-12T14:57:41.927" Score="5" ViewCount="64" Body="&lt;p&gt;The following problem is in the context of continuous time, although I suspect something could be said about discrete time also.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's assume that we have the following equation:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\dot x=f(x)$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where &lt;span class=&quot;math-container&quot;&gt;$x(t)\in \mathbb{R}^n$&lt;/span&gt;, for &lt;span class=&quot;math-container&quot;&gt;$t\in I\subset \mathbb{R}$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm reading a book on Ordinary Differential Equations. In this book, they state that one should verify some conditions on &lt;span class=&quot;math-container&quot;&gt;$f$&lt;/span&gt;, usually &lt;span class=&quot;math-container&quot;&gt;$f\in C^2(E\subset \mathbb{R}^n)$&lt;/span&gt;, to be sure that the linearization of &lt;span class=&quot;math-container&quot;&gt;$f$&lt;/span&gt; behaves in a qualitatively similar manner (ensures existence of a &lt;span class=&quot;math-container&quot;&gt;$C^1$&lt;/span&gt;-diffeomorphism).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, consider &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\begin{aligned} &#xA;  \dot x &amp;amp;= -x -\frac{y}{\ln \left(\sqrt{x^2+y^2}\right)}\\&#xA;  \dot y &amp;amp;= -y -\frac{x}{\ln \left(\sqrt{x^2+y^2}\right)}\end{aligned}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;with &lt;span class=&quot;math-container&quot;&gt;$f(0)=0$&lt;/span&gt;. This &lt;span class=&quot;math-container&quot;&gt;$f$&lt;/span&gt; is only &lt;span class=&quot;math-container&quot;&gt;$C^1$&lt;/span&gt; not &lt;span class=&quot;math-container&quot;&gt;$C^2$&lt;/span&gt;(transform to polar coordinates&lt;span class=&quot;math-container&quot;&gt;$(\theta,r)$&lt;/span&gt;, and then see &lt;span class=&quot;math-container&quot;&gt;$\frac{d^2 \dot \theta}{dr^2}$&lt;/span&gt; tends to infinity as &lt;span class=&quot;math-container&quot;&gt;$r$&lt;/span&gt; goes to zero). The linearization gives a stable node, but according to a more general definition, we have a stable focus for the original non-linear system.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, whenever I see any kind of linearisation being done (DSGE or Growth Theory), not once do I see any concern related to this... Maybe, there's something, which I'm missing, that makes economic diff. equations already satisfy this. Or am I wrong, and this simply isn't, and shouldn't be a concern to theoretical macroeconomists?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="8481" LastEditDate="2020-05-11T16:26:59.320" LastActivityDate="2020-05-11T16:26:59.320" Title="In economic modelling, how are we sure the linearized equilibria behave similarly to original equilibria?" Tags="&lt;economic-growth&gt;&lt;dsge&gt;&lt;ode&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="19256" PostTypeId="1" AcceptedAnswerId="19262" CreationDate="2017-11-12T19:14:26.180" Score="4" ViewCount="657" Body="&lt;p&gt;Morton Davis in his book &lt;a href=&quot;https://www.amazon.ca/Game-Theory-Nontechnical-Morton-Davis/dp/0486296725&quot; rel=&quot;nofollow noreferrer&quot;&gt;Game Theory: A non-Technical introduction&lt;/a&gt; brings the&#xA;following example of a &lt;a href=&quot;http://www.businessdictionary.com/definition/non-zero-sum-game.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;non-zero sum game&lt;/a&gt; (pg.73) :&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;&lt;strong&gt;A Buisness Partnership&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;p&gt;A builder and an architect are jointly offered a contract to design and construct a building. They are offered a single lump sum as a payment and are given a week to decide whether they accept. The approval of both is required, so they must decide how the lump sum will be divided. The architect writes to the builder suggesting that the profits be divided equally. The builder replies, committing himself to the contract in writing provided he receives 60 percent of the profits. He informs the architect moreover, that he is going on a two week vacation, that he cannot be reached, and it is up to the architect to accept the contract on these terms or reject it entirely.&lt;/p&gt;&#xA;&lt;p&gt;The architect feels like he is being exploited. He feels that his services are valuable as the builder's and that each should receive half the profits. On the other hand, the probable profit is large, and under different circumstances, he would consider 40 percent of such a total an acceptable fee. Should he accept the builder's offer? Note that the builder has no more options; on the architect has the choice- to accept or reject the contact. This is reflected in the payoff matrix shown:&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\left[\begin{matrix}(0.40,0.60)\\(0, 0)\end{matrix} \right]$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;h1&gt;My question :&lt;/h1&gt;&#xA;&lt;p&gt;The way the case seems to be presented is that the architect is &lt;em&gt;forced&lt;/em&gt; to choose 40 percent in light of the alternative where there is no profits to be gained. What about the architect's &lt;a href=&quot;https://en.wikipedia.org/wiki/Opportunity_cost&quot; rel=&quot;nofollow noreferrer&quot;&gt;opportunity cost&lt;/a&gt;? Isn't there what to be gained from the architect when refusing this split of profits in a 40-60 split as far as opportunity cost in concerned?&lt;/p&gt;&#xA;" OwnerUserId="6629" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2017-11-13T00:19:37.897" Title="Does Game theory consider opportunity cost?" Tags="&lt;game-theory&gt;&lt;opportunity-cost&gt;" AnswerCount="2" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="19257" PostTypeId="1" AcceptedAnswerId="19288" CreationDate="2017-11-12T20:38:08.810" Score="1" ViewCount="327" Body="&lt;p&gt;I have a Consumer Price Index series in monthly frequency from January 1947 to September 2017 with base year 1982-1984 (units are: Index 1982-1984=100), which, I think, means that the simple average of CPI values from January 1982 to December 1984 is equal to 100. I calculated the average of those monthly values and found that it is equal to 100.01667, which may be due to the rounding errors because the data are rounded to one decimal place. The problem is that I would like to have (still monthly) CPI with base year 2009, so that the average of its values in 2009 would be equal to 100, and I don't know how to do that. Does anyone have the idea how to shift a base year of those monthly data from 1982-1984 to 2009? It would be much appreciated. Thank you very much.&lt;/p&gt;&#xA;" OwnerUserId="15174" LastActivityDate="2017-11-14T11:56:15.213" Title="How do I change the base year from multiple years to one with monthly data?" Tags="&lt;base-year&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19258" PostTypeId="2" ParentId="19256" CreationDate="2017-11-12T22:12:49.063" Score="0" Body="&lt;p&gt;In the case of this problem, you are assuming that the opportunity cost of the architect is zero (and the same for the builder), since you are saying that his payoff from refusing the contract is zero. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Remember that this is a theoretical game. You could include a different payoff for the opportunity cost, but it would be a different problem from the one you are presenting. &lt;/p&gt;&#xA;" OwnerUserId="15089" LastActivityDate="2017-11-12T22:12:49.063" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="19259" PostTypeId="2" ParentId="19168" CreationDate="2017-11-12T22:20:43.603" Score="1" Body="&lt;p&gt;It depends on what you want from a representative agent. What you get is a representative agent at the given prices. For any two commodities, you have relative prices. This is where market completeness comes in. All you have to do now is find a well-behaved utility function whose marginal rate of substitution between the commodities corresponds to the relative prices. You can even take the utility function to be linear:&#xA;$$u(x_1,x_2,\ldots,x_l)=\sum_{i=1}^l x_i/p_i.$$&#xA;Of course, the resulting &quot;representative agent&quot; is utterly useless for any comparative statics exercise or any welfare analysis.&lt;/p&gt;&#xA;" OwnerUserId="1442" LastActivityDate="2017-11-12T22:20:43.603" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19260" PostTypeId="5" CreationDate="2017-11-12T22:53:26.590" Score="0" Body="" OwnerUserId="-1" LastEditorUserId="-1" LastEditDate="2017-11-12T22:53:26.590" LastActivityDate="2017-11-12T22:53:26.590" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19261" PostTypeId="4" CreationDate="2017-11-12T22:53:26.590" Score="0" Body="ode - ordinary differential equations" OwnerUserId="118" LastEditorUserId="118" LastEditDate="2017-11-13T00:20:45.127" LastActivityDate="2017-11-13T00:20:45.127" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19262" PostTypeId="2" ParentId="19256" CreationDate="2017-11-12T23:32:19.560" Score="3" Body="&lt;p&gt;Recall that &lt;a href=&quot;https://en.wikipedia.org/wiki/Opportunity_cost&quot; rel=&quot;nofollow noreferrer&quot;&gt;Oppurtunity Cost&lt;/a&gt; is referred to the benefit forgone by choosing the other option.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In your example of a single player game, opportunity cost exists since the architect is completely in control of the benefit he receives. In this case the opportunity cost for signing the contract is 0 (and conversely -40 for not signing the contract).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;However this is only applicable in a single person game&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a case where the business owner and Architect were actively negotiating, it would appear that there would not be any practical ramifications for considering opportunity cost because the payoffs change depending on the other player and can only be seen after the fact.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;for example consider a single period 2x2 game such that:&#xA;$$\left[\begin{matrix}(10,5)&amp;amp;(2,2)\\(2,2)&amp;amp;(5,10)\end{matrix} \right]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From the horizontal/vertical player's position his payoffs range from 10,5 and 2. He does not choose with respect to costs, he chooses based on what he thinks the payoffs will be.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;To answer the broader question which  you are probably wondering about.&lt;br&gt;&#xA;&lt;strong&gt;Opportunity cost is only considered when a buy in for a specific game is necessary&lt;/strong&gt;&lt;br&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You'd have to consider expected value of a game compared to the cost. (however that only provides a fair price when the game is played infinity, you would also have to consider how many times you'd have to play a game and end up with a positive profit) using this formula: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$n=\left(\frac{1.96\sigma}{p-\mu}\right)^2$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I suggest reading up on &lt;a href=&quot;https://en.wikipedia.org/wiki/Martingale_(betting_system)&quot; rel=&quot;nofollow noreferrer&quot;&gt;Martingales&lt;/a&gt; and the &lt;a href=&quot;https://en.wikipedia.org/wiki/St._Petersburg_paradox&quot; rel=&quot;nofollow noreferrer&quot;&gt;St. Petersberg Paradox&lt;/a&gt; for more info.&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="1601" LastEditDate="2017-11-13T00:19:37.897" LastActivityDate="2017-11-13T00:19:37.897" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19265" PostTypeId="2" ParentId="19227" CreationDate="2017-11-13T09:01:18.110" Score="1" Body="&lt;p&gt;never work on weekends :-)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What you really do here is to find the total surplus in terms of $Q*$ and then maximise it setting the derivative to $Q*$ equal to zero.&#xA;So, you just maximise &#xA;$$TotalSurplus = - \frac{3}{16}Q^{*2}+\frac{9}{2}Q^{*}  + 2 * Q^{*}$$&#xA;for $Q*$ and you obtain the expected results.&lt;/p&gt;&#xA;" OwnerUserId="10376" LastActivityDate="2017-11-13T09:01:18.110" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19266" PostTypeId="1" CreationDate="2017-11-13T09:01:24.983" Score="5" ViewCount="633" Body="&lt;p&gt;A buyer wants to buy contiguous land plots from three landowners (sellers) who own fixed size plots. Sellers have their private valuation of their plots. The buyer will hold a closed bid procurement auction. The profit for the buyer is greater if he purchases all plots of land as compared to (any) 2 plots(without any specific order), which itself is greater than profit for a single plot. Does someone have an idea of how strategies will be developed for the sellers (in equilibrium)? I will later extend it to multiple rounds reverse auctions. &lt;/p&gt;&#xA;" OwnerUserId="15180" LastEditorUserId="15186" LastEditDate="2017-11-13T19:15:04.567" LastActivityDate="2017-11-14T02:46:52.830" Title="Reverse Auction bidding strategy" Tags="&lt;game-theory&gt;&lt;auctions&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19267" PostTypeId="1" CreationDate="2017-11-13T10:15:57.213" Score="1" ViewCount="224" Body="&lt;p&gt;Let's designate the Net International Investment Position(NIIP:it's the net international wealth of a country), as $B_t$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why can we see the current account at time t, as $CA_t=B_{t+1}-B_t$ , when we know that $CA_t=TB_t+i^wB_{t}$?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$TB_t$ is trade balance at time $t$, and $i^w$ is world nominal interest rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Intuitively it makes sense, since the variation of a country net international wealth should mimic its international 'consumption/expenditures'. However, I'm looking for a more formal derivation. I think it would probably be related to the Financial and Capital Accounts.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="118" LastActivityDate="2021-04-17T15:59:58.783" Title="Why can we see the Current account as variation in NIIP?" Tags="&lt;international-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19270" PostTypeId="2" ParentId="12367" CreationDate="2017-11-13T12:15:19.013" Score="3" Body="&lt;p&gt;I can shed some light on the question, but am not sure I can answer it as I am not sure it is really even well defined.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(1) The Weak Axiom of Revealed Preference is a decision theoretic concept regarding the choices of a single agent. So I do not understand how having $N$ agents is relevant to the problem. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(2) Generally speaking, if $U: X \to \mathbb{R}$ is a utility function and $\mathscr{C}$ is a choice correspondence over $X$ such that $\mathscr{C}(A) = \{x \in A \mid U(x) \geq U(y), \ \forall y \in A\}$ then $\mathscr{C}$ will satisfy WARP. This is a straightforward exercise in using the definitions, and the dimensionality of the space should play no role (its true over an abstract $X$).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(3) If the consumption space is $\mathbb{R}^l$ then preferences over defined $\mathbb{R}^l$. How you project preferences into $\mathbb{R}^2$ matters. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(4) If I interpret your question a la denesp, so that you ask: fix the $2 &amp;lt; k \leq l$ dimensions of consumption and only let dimensions 1 and 2 vary (of course, what we fix the other dimensions of still may make a difference), and assume that this restricted choice correspondence satisfied WARP will the choice correspondence in general satisfy WARP.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To answer (4): if the choices comes from a utility function then yes, trivially (see point (2)). If the choices are more general, then no. This fails severely. Take as a counter example a preference over $\mathbb{R}^3$ such that fixing the 3rd dimension, the consumer is indifferent over all elements (i.e., the first and second dimensions are null). WARP holds as $\mathscr{C}^{x}(A) = A$ for all $A \in \mathbb{R}^2 \times \{x\}$. This leaves the 3rd dimension wholly unrestricted. Letting the choice function over this last dimension be cyclic (i.e., fail WARP) and we see that the original choice would as well. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(5) What if we instead interpret your question as: we see every two dimensional projection of choice. (That is for every $i,j \leq l$, $i \neq j$, we see the projection of choices over the dimensions $i$ and $j$ fixing the other dimensions arbitrarily. Well, if the way we fix the other dimensions matters to the restricted choices (e.g., $\mathscr{C}^{x}$ over $\mathbb{R}^2 \times \{x\}$ is not the same as $\mathscr{C}^{y}$ over $\mathbb{R}^2 \times \{y\}$). Then we are back to the same type of problem as (5)---$\mathscr{C}$ could be cyclic when the dimensions are fixed differently. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What if how we fix the dimensions doesn't affect the restricted choice (so we have separable preferences, a la Koopmans). Then WARP will hold over $\mathscr{C}$ if it is rationalized by a preference relation. But, the result is not very interesting, since from the restricted choices know the choice of out of $\{x,y\}$ for all $x,y \in \mathbb{R}^l$. It is well known that only a binary choice is necessary to verify a rationalization. Without this additional constraint, I believe you could still cook up a counter example in the spirit of (4) where cyclically kicks in when certain elements (at least 3, pairwise distinct over 3 different dimensions) are present. &lt;/p&gt;&#xA;" OwnerUserId="398" LastActivityDate="2017-11-13T12:15:19.013" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19275" PostTypeId="1" CreationDate="2017-11-13T18:23:52.617" Score="2" ViewCount="183" Body="&lt;p&gt;I know that the First Welfare theorem holds for pure exchange economies for strict monotonicity of preferences, and logically it should also hold for local nonsatiation, but does anyone have a simple proof for this? &lt;/p&gt;&#xA;" OwnerUserId="15053" LastActivityDate="2017-11-13T18:23:52.617" Title="First Welfare theorem proof for local nonsatiation" Tags="&lt;welfare-economics&gt;" AnswerCount="0" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="19276" PostTypeId="1" CreationDate="2017-11-13T20:04:03.297" Score="1" ViewCount="83" Body="&lt;p&gt;So according to the &lt;a href=&quot;https://www.census.gov/topics/income-poverty/poverty/guidance/poverty-measures.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;US census office&lt;/a&gt; capital gains are not included when trying to figure out if a household is living in poverty. Does this mean if I have one billion dollars in index funds that I am living off of am I in poverty(at least by this definition)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am I understanding this correctly? Is this considered a fault in the poverty status measurements? If this is an oversight is there some political reason for it?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks in advance!&lt;/p&gt;&#xA;" OwnerUserId="15192" LastActivityDate="2017-12-14T20:40:53.423" Title="Why are capital gains not counted in a poverty status calculation?" Tags="&lt;poverty&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19281" PostTypeId="2" ParentId="19266" CreationDate="2017-11-14T02:46:52.830" Score="5" Body="&lt;p&gt;Given the very general description of the problem, I can think of the following (also very general) way of formulating it mathematically. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $v_n$ be the buyer's value from owning $n$ plots of land, with $v_3&amp;gt;v_2&amp;gt;v_1$. &#xA;Let $c_i$ be seller $i$'s private valuation of the plot she owns. Let $b_i$ be seller $i$'s bid, and we assume the buyer will purchase $n$ plots of land whenever $v_n$ is greater than or equal to the sum of the $n$ smallest $b_i$'s, and each seller gets the amount she asks for in the bid. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Seller 1's objective is to choose $b_1$ to maximize the following: &#xA;\begin{align}&#xA;&amp;amp;\Pr(b_1+b_2+b_3\le v_3)b_1&#xA;\\&amp;amp;\qquad+\Pr(b_1\le\max\{b_1,b_2,b_3\}\text{ and }b_1+\min\{b_2,b_3\}\le v_2\text{ and }b_1+b_2+b_3&amp;gt; v_3)b_1&#xA;\\&amp;amp;\qquad+\Pr(b_1=\min\{b_1,b_2,b_3\}\text{ and }b_1\le v_1\text{ and }b_1+\min\{b_2,b_3\}&amp;gt; v_2)b_1&#xA;\end{align}&#xA;The problems for the other two sellers would be symmetric. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you assume that $c_i$'s are i.i.d. draws from a distribution $F$, then it seems plausible to solve for a symmetric Bayesian Nash equilibrium, where every seller bids according to the same bidding function, $b_i=\beta(c_i)$ for each $i$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Using $b_i=\beta(c_i)$, and perhaps with the assumption that it is strictly increasing, you should be able simplify the $\Pr(\cdot)$'s in the objective function. The rest is just to solve for the bidding function. I will leave you to finish the remaining steps. &lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2017-11-14T02:46:52.830" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="19282" PostTypeId="1" CreationDate="2017-11-14T04:07:18.900" Score="0" ViewCount="1106" Body="&lt;p&gt;Slutsky identity is given by: ∆x/∆p = (∆x/∆p)|substitution effect + (∆x/∆p)|income effect&#xA;Now we know ∆m= x*∆p =&gt; ∆p=∆m/x&#xA;Therefore, ∆x/∆p = (∆x/∆p)|substitution effect + (x*(∆x/∆m))|income effect&#xA;But in HAL Varian's book there's minus sign in front of income effect. I am not being able to figure out how the minus sign came there.&#xA;I think of income effect as total effect minus substitution effect.&lt;/p&gt;&#xA;" OwnerUserId="14617" LastEditorUserId="14617" LastEditDate="2017-11-16T03:59:40.023" LastActivityDate="2017-11-16T03:59:40.023" Title="Why is there negative sign for income effect in slutsky equation?" Tags="&lt;microeconomics&gt;&lt;supply-and-demand&gt;&lt;price&gt;" AnswerCount="1" CommentCount="2" ClosedDate="2017-11-27T18:36:53.120" ContentLicense="CC BY-SA 3.0" />
  <row Id="19283" PostTypeId="1" AcceptedAnswerId="19297" CreationDate="2017-11-14T04:12:50.133" Score="2" ViewCount="67" Body="&lt;p&gt;In Chapter 24 of Richard Thaler's book &lt;em&gt;Misbehaving&lt;/em&gt;, he writes: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;An important property of rational forecasts---as a stock price is supposed to be---is that the predictions cannot vary more than the thing being forecast. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;He then goes on to explain this using an example of weather forecast. If the temperature in a region typically varies between 85°F and 95°F, then it would be wrong to predict 50°F one day and 115°F the next day (although this would be approximately right &lt;em&gt;on average&lt;/em&gt;). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;What exactly is underlying mathematical principle for when he says &quot;the predictions can't vary more than the thing being forecast&quot;?&lt;/strong&gt; Do forecasts have to get both the mean and the variance right to qualify as rational? &lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2017-11-20T21:56:37.167" Title="Variance of a rational forecast" Tags="&lt;finance&gt;&lt;financial-economics&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19284" PostTypeId="2" ParentId="9830" CreationDate="2017-11-14T07:37:34.860" Score="5" Body="&lt;p&gt;Strict convexity of preferences is not needed in existence results for competitive equilibria. Leontief preferences are quite well-behaved. They are continuous, convex, and strongly monotonic.   If all endowments are strictly positive, the existence of a competitive equilibrium in an exchange economy (or a production economy satisfying standard conditions) exists by the first result of the original &lt;a href=&quot;https://web.stanford.edu/class/msande311/arrow-debreu.pdf&quot; rel=&quot;noreferrer&quot;&gt;Arrow-Debreu paper&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Arrow-Debreu actually do not just require convexity, they make, as pointed out by denesp in a comment, the convexity assumption (III.c) on utility functions that $u(x)&amp;gt;u(x')$ and $0&amp;lt;t&amp;lt;1$ implies $u(tx+(1-t)x')&amp;gt;u(x')$. Plain convexity suffices for existence, but Leontief preferences do also satisfy condition (III.c).:  Assume $\min\{\alpha_i x_i\}&amp;gt;\min\{\alpha_i x_i'\}$. Then&#xA;$$\min\big\{\alpha_i (tx_i+(1-t)x_i')\big\}&amp;gt;\min\big\{\alpha_i tx_i\big\}+\min\big\{\alpha_i(1-t) x_i'\big\}$$ $$=t\min\{\alpha_i x_i\}+(1-t)\min\{\alpha_i x_i'\}&amp;gt;\min\{\alpha_i x_i'\}.$$ &lt;/p&gt;&#xA;" OwnerUserId="1442" LastEditorUserId="1442" LastEditDate="2017-11-14T10:07:38.710" LastActivityDate="2017-11-14T10:07:38.710" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="19285" PostTypeId="2" ParentId="19276" CreationDate="2017-11-14T07:51:58.077" Score="1" Body="&lt;p&gt;Most Exchange Traded Funds of stocks or bonds have an associated income (even those which reinvest or accumulate this income)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example &lt;a href=&quot;https://personal.vanguard.com/us/funds/snapshot?FundId=0970&amp;amp;FundIntExt=INT#tab=4&quot; rel=&quot;nofollow noreferrer&quot;&gt;Vanguard Total Stock Market ETF&lt;/a&gt; has a dividend yield of $1.81\%$.  So multiplying by $\$10,000,000,000$, this would give an annual income of about $\$18,100,000$, a little above income poverty levels&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand, people with a large amount of physical cash or gold coins and no income, and using some of this for living expenses, would count as being in income poverty, no matter how high their wealth.  But there are relatively few people like this&lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2017-11-14T07:51:58.077" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="19287" PostTypeId="2" ParentId="19282" CreationDate="2017-11-14T08:32:12.447" Score="1" Body="&lt;p&gt;Intuitively, if the price of a particular good in a basket rises, then the individual can no longer afford to buy the same overall basket of goods&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If there were no substitution effect, then this would be likely to result in amounts of each of the goods being bought being reduced, even those whose price had not changed, since the overall effect would be similar to a real reduction in income. Since the impact is negative, the equation needs a negative sign for this income effect   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In general there will be a negative income effect on all goods and a positive substitution effect on all goods apart from the one whose price has increased.  Which is dominant for a particular good may depend on the particular situation &lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2017-11-14T08:32:12.447" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19288" PostTypeId="2" ParentId="19257" CreationDate="2017-11-14T11:56:15.213" Score="0" Body="&lt;p&gt;One possible approach&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Take the average of the original values for the 12 months of 2009. Call this &quot;the original 2009 average&quot;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Divide all the original values by &quot;the original 2009 average&quot;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Multiply by 100&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Round&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2017-11-14T11:56:15.213" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19289" PostTypeId="1" AcceptedAnswerId="19291" CreationDate="2017-11-14T14:11:10.253" Score="7" ViewCount="1153" Body="&lt;p&gt;Consider a pure exchange economy with two goods ($x_1,x_2$) and two consumers $A,B$. Both users have an initial endowment, $(\omega_1^A,\omega_2^A)$ and $(\omega_1^B,\omega_2^B)$ respectively. A price ratio $p^*$ is an equilibrium price ratio if after both users maximize their utility given their budget, that is $\forall i\in \left\{A,B\right\}$ they solve the problem&#xA;\begin{align*}&#xA;\max_{x_1^i,x_2^i} \ &amp;amp; U(x_1^i,x_2^i) \\&#xA;\\&#xA;\mbox{s.t. } &amp;amp; p \omega_1^i + \omega_2^i = p x_1^i + x_2^i,&#xA;\end{align*}&#xA;the maximizing bundles $(x_1^A,x_2^A),(x_1^B,x_2^B)$ are such that the markets are in equilibrium, meaning&#xA;\begin{align*}&#xA;x_1^A + x_1^B &amp;amp; = \omega_1^A + \omega_1^B \\&#xA;\\&#xA;x_2^A + x_2^B &amp;amp; = \omega_2^A + \omega_2^B.&#xA;\end{align*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose that $U$ fulfils the usual conditions of convexity, monotonicity (or local non-satiation, pick whichever you like) and continuity. Given an initial endowment is it possible to have two different equilibrium price ratios? The ideal answer would give a simple example, but non-constructive proofs are also okay. I am especially interested in examples where both equilibria are interior points of the Edgeworth-box.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A graphical representation of the problem:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/C67NF.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/C67NF.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&#xA;Green is the set of Pareto-optimal points, red and blue are indifference curves, thin lines are budget lines.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2018-06-13T03:11:43.667" Title="Pure exchange economy: Given an initial endowment are multiple equilibria possible?" Tags="&lt;competitive-equilibrium&gt;&lt;pure-exchange-economy&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19290" PostTypeId="1" CreationDate="2017-11-14T14:19:51.240" Score="7" ViewCount="284" Body="&lt;p&gt;Initial endowments which can result in multiple equilibria in a pure exchange economy are explained &lt;a href=&quot;https://economics.stackexchange.com/questions/19289/pure-exchange-economy-given-an-initial-endowment-are-multiple-equilibria-possib&quot;&gt;here&lt;/a&gt;. Given a pure exchange economy, that is given the utility functions (which fulfil the usual properties) and total amounts of each good, what are some properties of the set of 'multiple equilibria endowment points'?&#xA;&lt;br&gt; Is this set connected?&#xA;&lt;br&gt; If yes, is it convex?&#xA;&lt;br&gt; Are there additional properties, does a charaterization (a set of necessary and sufficient properties) exist? &lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2021-05-17T11:47:42.470" LastActivityDate="2021-05-17T11:47:42.470" Title="Pure exchange economy: Set of multiple equilibria endowments" Tags="&lt;microeconomics&gt;&lt;competitive-equilibrium&gt;&lt;pure-exchange-economy&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19291" PostTypeId="2" ParentId="19289" CreationDate="2017-11-14T14:35:21.673" Score="6" Body="&lt;p&gt;Yes. The &lt;a href=&quot;https://doi.org/10.1016/0304-4068(74)90032-9&quot; rel=&quot;noreferrer&quot;&gt;Debreu version&lt;/a&gt; of the Sonnenschein-Mantel-Debreu theorem guarantees that excess demand has to satisfy very little restrictions if there are as many consumers as commodities.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An explicit example of multiple equilibria in a $2\times 2$-exchange economy can be found in&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Shapley, L. S., and M. Shubik. “&lt;a href=&quot;http://www.jstor.org/stable/1828711&quot; rel=&quot;noreferrer&quot;&gt;An Example of a Trading Economy with&#xA;  Three Competitive Equilibria.&lt;/a&gt;” Journal of Political Economy, vol.&#xA;  85, no. 4, 1977, pp. 873–875.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In the example, both consumers have even quasi-linear preferences, which are (necessarily for nonuniqueness) linear in different commodities.&lt;/p&gt;&#xA;" OwnerUserId="1442" LastActivityDate="2017-11-14T14:35:21.673" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19294" PostTypeId="1" AcceptedAnswerId="19302" CreationDate="2017-11-14T17:41:37.240" Score="-1" ViewCount="50" Body="&lt;p&gt;I need help with this task.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The utility function is &lt;em&gt;U(a;b)=3a+2b.&lt;/em&gt; &#xA;The prices for the goods &lt;em&gt;a&lt;/em&gt; and &lt;em&gt;b&lt;/em&gt; are equal. &#xA;Explain what an optional consumption of the consumer would be without calculating. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;How do I explain it without math? &lt;/p&gt;&#xA;" OwnerUserId="15200" LastActivityDate="2017-11-15T06:04:45.783" Title="Finding out an optional consumption without calculation" Tags="&lt;microeconomics&gt;&lt;utility&gt;" AnswerCount="1" CommentCount="0" ClosedDate="2017-11-15T13:03:22.243" ContentLicense="CC BY-SA 3.0" />
  <row Id="19295" PostTypeId="1" CreationDate="2017-11-14T18:16:20.467" Score="1" ViewCount="305" Body="&lt;p&gt;Im familiar with sequential games in game theory. Specifically Im interested in if one can forecast using such a method?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;what specific models I should know about if I can forecast using game theory?&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2017-11-15T09:52:11.167" Title="Forecasting with game theory?" Tags="&lt;game-theory&gt;" AnswerCount="1" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="19297" PostTypeId="2" ParentId="19283" CreationDate="2017-11-14T18:50:40.640" Score="2" Body="&lt;p&gt;A colleague of mine pointed me to Steven M. Sheffrin's &lt;a href=&quot;https://books.google.com/books?id=nkLzXjsMgbEC&amp;amp;printsec=frontcover&amp;amp;source=gbs_ge_summary_r&amp;amp;cad=0#v=onepage&amp;amp;q=this%20rather%20trivial%20fact&amp;amp;f=false&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;Rational Expectations&lt;/em&gt;&lt;/a&gt;, where I found the explanation (on p.122): &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;[L]et $P_t^*$ be the variable to be forecast. Then the optimal forecast is given by &#xA;  \begin{equation}P_t=E[P_t^*|I_{t-1}].\end{equation}&#xA;  Let $u_t$ denote the forecast error, which, by the orthogonality principle, must be uncorrelated with the forecast $P_t$. Thus $P_t^*=P_t+u_t$ and, taking the variance of both sides, &#xA;  \begin{equation}&#xA;\mathrm{var}(P_t^*)=\mathrm{var}(P_t)+\mathrm{var}(u_t)&#xA;\end{equation}&#xA;  or &#xA;  \begin{equation}&#xA;\mathrm{var}(P_t^*)\ge \mathrm{var}(P_t),\quad\text{since $\mathrm{var}(u_t)\ge0$}.&#xA;\end{equation}&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="42" LastEditorUserId="42" LastEditDate="2017-11-20T21:56:37.167" LastActivityDate="2017-11-20T21:56:37.167" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19300" PostTypeId="1" CreationDate="2017-11-15T00:24:41.123" Score="1" ViewCount="63" Body="&lt;p&gt;Suppose player $1$ and $2$ are playing a simultaneous move game where with continuous strategies $x_1$ and $x_2$. The Cournot equilibrium is $x_1^*,x_2^*$. The following diagram purports to show that in a sequential game, player $1$ benefits from deviating (upwards) from $x_1^*.$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/8P3qn.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/8P3qn.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The isoprofit curve maps the level of $x_1$ onto $x_2$ such that each combination &#xA;generates player $1$'s Cournot equilibrium profit $\pi^*$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How exactly does this diagram show that player $1$ benefits by player $x_1+\epsilon$, where $\epsilon&amp;gt;0$?&lt;/p&gt;&#xA;" OwnerUserId="14078" LastActivityDate="2017-11-15T00:24:41.123" Title="Deviating from Cournot-Nash" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;game-theory&gt;&lt;nash-equilibrium&gt;" AnswerCount="0" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="19301" PostTypeId="1" AcceptedAnswerId="19303" CreationDate="2017-11-15T03:05:31.863" Score="2" ViewCount="61" Body="&lt;p&gt;Consider a static, complete information game with 2 players.&#xA;&lt;br/&gt;Strategy sets are $S_1=\{U,D\},S_2=\{l,m,r\}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Payoffs are irrelevant to this question as I am trying to get the concept of rationalizability correct.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose I want to verify whether $m$ is a rationalizable strategy for player 2.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, I want to ask the following question:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\exists \sigma_1=(q^*,1-q^*)\in\Delta(S_1)$ such that for $\sigma^*_2=(0,1,0),$ $u_2(\sigma_1,\sigma^*_2)\geq u_2(\sigma_1,\sigma_2)$ for all $\sigma_2\in\Delta(S_2)?$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, suppose I have payoff matrix such that I could find $(q^*,1-q^*)$ such that it satisfies both:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(1) $u_2(\sigma_1,\sigma^*_2)\geq u_2(\sigma_1,(1,0,0))$&#xA;&lt;br/&gt;(2) $u_2(\sigma_1,\sigma^*_2)\geq u_2(\sigma_1,(0,0,1))$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This means, I could find a valid range of $q^*$ such that for player 2, choosing $m$ provides a weakly better payoff for her compared to the degenerate (i.e. pure) strategies of $l$ or $r$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I could find such $q^*$ that satisfies both (1),(2), then I do not have to check for any other strategy profiles in $\Delta(S_2)$, that is any convex combo of $(1,0,0)$ and $(0,0,1)$? My intuition is that for any $\alpha\in[0,1]$, I could simple have:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(1)' $\alpha u_2(\sigma_1,\sigma^*_2)\geq \alpha u_2(\sigma_1,(1,0,0))$&#xA;&lt;br/&gt;(2)' $(1-\alpha)u_2(\sigma_1,\sigma^*_2)\geq (1-\alpha)u_2(\sigma_1,(0,0,1))$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and show that (1)'+(2)'implies the degenerate strategy $m$ for player 2 is a best response to some belief, $\sigma_1\in\Delta(S_1)$. Hence, the bottom line is (1),(2) is sufficient, and I do not have to check the convex combo of the two other pure strategies.&lt;/p&gt;&#xA;" OwnerUserId="8560" LastActivityDate="2017-11-15T07:58:37.707" Title="Verifying rationalizability of pure strategy" Tags="&lt;game-theory&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19302" PostTypeId="2" ParentId="19294" CreationDate="2017-11-15T06:04:45.783" Score="0" Body="&lt;p&gt;Since the prices of &lt;strong&gt;a&lt;/strong&gt; and &lt;strong&gt;b&lt;/strong&gt; are equal, but the consumer gets more utility from &lt;strong&gt;a&lt;/strong&gt; (&lt;strong&gt;3a&lt;/strong&gt; vs. &lt;strong&gt;2b&lt;/strong&gt;) then the optimal consumption would be to purchase as much of &lt;strong&gt;a&lt;/strong&gt; as possible, and only purchase &lt;strong&gt;b&lt;/strong&gt; if &lt;strong&gt;a&lt;/strong&gt; has run out. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'd also like to point out it doesn't completely make sense to explain a math equation without math... &lt;/p&gt;&#xA;" OwnerUserId="2971" LastActivityDate="2017-11-15T06:04:45.783" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="19303" PostTypeId="2" ParentId="19301" CreationDate="2017-11-15T07:58:37.707" Score="3" Body="&lt;p&gt;Yes. Generally, the set of best replies is always a mixture over the set of pure best replies.  In particular, there is never a strict incentive to play a mixed strategy, a player playing a mixed best response is indifferent between all pure strategies in the support of the mixed strategy. All this follows from the linearity of expected utility.&lt;/p&gt;&#xA;" OwnerUserId="1442" LastActivityDate="2017-11-15T07:58:37.707" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19304" PostTypeId="2" ParentId="19295" CreationDate="2017-11-15T09:52:11.167" Score="1" Body="&lt;p&gt;As @denesp has pointed out making real precise predictions with game theory is difficult because it is hard to gather data on payoffs and behavior under uncertainty, not to mention the fact that game theory typically assumes individual rationality (although the behavioral game theory referenced by @HerrK above loosens some of those requirements)&lt;/p&gt;&#xA;&lt;p&gt;Of course that has never stopped people from trying. At least in environmental and resource economics there are plenty of papers looking into dynamic games that are calibrated to make some general (but perhaps not very accurate) predictions. &lt;a href=&quot;http://www.annualreviews.org/doi/full/10.1146/annurev-resource-083110-120107#_i9&quot; rel=&quot;nofollow noreferrer&quot;&gt;This overview paper from Hannesson&lt;/a&gt; includes a lot of references to such papers in fisheries, a similar but older overview paper on transboundary polution was written by &lt;a href=&quot;https://www.researchgate.net/profile/Michael_Finus/publication/228739073_Stability_and_design_of_international_environmental_agreements_The_case_of_transboundary_pollution/links/0912f51384bb0287da000000/Stability-and-design-of-international-environmental-agreements-The-case-of-transboundary-pollution.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Finus&lt;/a&gt;.&lt;/p&gt;&#xA;&lt;p&gt;Given what you're interested in, I'd look into repeated games with sequential moves. In a very simple set-up it could work out like this: each period the employers make an offer, and the unions then decide to either go on strike (hurting the employers &lt;em&gt;and employees&lt;/em&gt; and moving to another round) or accept (which ends the game). As said, I don't think it will give you an accurate prediction, but it would perhaps give you some insights in the motives at work.&lt;/p&gt;&#xA;&lt;p&gt;The problem with such a game set-up is that&lt;/p&gt;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;I'd expect both the employers and unions to fall for sunk cost arguments (can't quit now, we've gone so far...), which a rational player wouldn't do&lt;/li&gt;&#xA;&lt;li&gt;Repeated games in the presence of uncertainty often have multiple equilibria that can be supported by trigger strategies. Although these trigger strategies are subgame perfect, they are also non-renegotiation proof, and that is probably exactly what you're interested in.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&lt;p&gt;Hope that helps.&lt;/p&gt;&#xA;" OwnerUserId="12186" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2017-11-15T09:52:11.167" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19305" PostTypeId="1" CreationDate="2017-11-15T12:05:29.287" Score="5" ViewCount="623" Body="&lt;p&gt;I just wanted to know if price changes how much quantity is supplied or demanded then what creates the price in the first place?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you say that price affects supply and demand and supply and demand affect price then this just sounds like circular logic to me.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks&lt;/p&gt;&#xA;" OwnerDisplayName="user15210" LastActivityDate="2017-11-15T14:33:08.560" Title="What Creates the Price in the First Place" Tags="&lt;supply-and-demand&gt;&lt;price&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19306" PostTypeId="1" CreationDate="2017-11-15T12:25:52.253" Score="0" ViewCount="118" Body="&lt;p&gt;It says on &lt;a href=&quot;https://en.wikipedia.org/wiki/Contract_curve&quot; rel=&quot;nofollow noreferrer&quot;&gt;Wikipedia&lt;/a&gt;: &quot;All the points on this locus are Pareto efficient allocations, meaning that from any one of these points there is no reallocation that could make one of the people more satisfied with his or her allocation without making the other person less satisfied.&quot; But aren't different points on the contract curve different &quot;reallocations&quot;? Some of the points have better utility for both players than others. Isn't that a contradiction or did I miss something?&lt;/p&gt;&#xA;" OwnerUserId="14778" LastEditorUserId="14778" LastEditDate="2017-11-15T17:38:42.733" LastActivityDate="2017-11-15T17:38:42.733" Title="A question regarding definition of Pareto efficiency" Tags="&lt;microeconomics&gt;&lt;pareto-efficiency&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19308" PostTypeId="1" CreationDate="2017-11-15T12:47:58.680" Score="1" ViewCount="27" Body="&lt;p&gt;To my best knowledge, in Ross's APT, it is assumed that the pricing model is  the exact factor model. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Chamberlain (1983 ECTA) expanded it into the approximate factor model.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the exact factor model, the covariance matrix of the error term is diagonal matrix with each variance on its diagonals, while in approximate factor model, the errors of the cross section can be &quot;weakly correlated&quot;, which makes the covariance matrix non-diagonal matrix. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My questions are, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(1) Can we define &quot;weakly correlated&quot; in a rigorous statistical definition?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This paper(&lt;a href=&quot;https://arxiv.org/pdf/1612.04990.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://arxiv.org/pdf/1612.04990.pdf&lt;/a&gt;) defines it as &quot;If we have an approximate factor structure, we expect a vanishing largest eigenvalue (of the covariance matrix)&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(2)Could you explain why the discussion of the strength of the correlation of the cross-section (off-diagonal of the covariance matrix) can be delivered with eigenvalues?&lt;/p&gt;&#xA;" OwnerUserId="14303" LastActivityDate="2017-11-15T12:47:58.680" Title="Approximate factor model: Weakly correlated and eigenvalue" Tags="&lt;econometrics&gt;&lt;finance&gt;&lt;financial-economics&gt;&lt;statistics&gt;&lt;asset-pricing&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19309" PostTypeId="2" ParentId="19122" CreationDate="2017-11-15T13:01:22.293" Score="2" Body="&lt;p&gt;One of the biggest areas of policy research that seems to have gotten a lot of attention since the Great Recession is &lt;a href=&quot;http://onlinelibrary.wiley.com/doi/10.1111/j.1467-6419.2012.00729.x/full&quot; rel=&quot;nofollow noreferrer&quot;&gt;macroprudential policy&lt;/a&gt;. My understanding of it is that it tries to move beyond microfoundations of understanding individual risk and looks at system wide risk across institutions. The article I link gives a lot of good resources on recent research done on it in the last 10 years, and some limited comments on the effectiveness of new policies formed out of it.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2017-11-15T13:01:22.293" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19310" PostTypeId="2" ParentId="19305" CreationDate="2017-11-15T13:24:07.957" Score="5" Body="&lt;p&gt;This is indeed a bit confusing. Supply and demand functions depend on &lt;em&gt;potential&lt;/em&gt; prices. That is, the agents think &quot;if the price were a given level, what would I want to supply or demand?&quot;. So supply and demand depend on a whole range of (hypothetical) prices. However, the &lt;strong&gt;equilibrium&lt;/strong&gt; price (which is a certain price and different from the range of potential prices) is that price where both supply and demand meet. In your example, the equilibrium is where the circular logic stops and finds a resting point, which is also why we refer to it as an equilibrium. This is a concept, which we borrowed from physics and is often used to mean a position where things stop changing/moving.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You are right to ask, however, how this whole process is initialized.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The rigorous way to think about this for economists, is to use what is called a &quot;Walrasian Auctioneer&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can imagine the process as such. An auctioneer calls out prices. Suppliers report how much they wish to supply, whereas consumers report how much they wish to demand. If these do not meet, the auctioneer calls out other prices. This goes on until demand meets supply and that's when the auctioneer stops.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course in reality, there is no walrasian auctioneer. Nevertheless, it is not hard to imagine that a new firm sets some price when it starts and then adjusts it depending on demand. Furthermore, depending on that new suppliers might enter, which changes supply and causes the price to adjust again. This goes on until a stable point is found, which we call the equilibrium.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastActivityDate="2017-11-15T13:24:07.957" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19311" PostTypeId="2" ParentId="19306" CreationDate="2017-11-15T13:47:59.107" Score="1" Body="&lt;p&gt;the process of moving from one point to another i.e. reallocation makes one person better off while making another person worse off. for instance, moving from the lower part of the contract curve to a higher part makes Octavio better off as Octavio's indifference curve goes further away from the origin. However, the process makes Abby worse off as Abby's indifference curve moves closer to the origin.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There exist multiple points of pareto efficient outcomes which are stable, i.e. no more trading occurs.&lt;/p&gt;&#xA;" OwnerUserId="13055" LastActivityDate="2017-11-15T13:47:59.107" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19312" PostTypeId="1" AcceptedAnswerId="19387" CreationDate="2017-11-15T14:16:43.400" Score="2" ViewCount="110" Body="&lt;p&gt;As an example, different parts of an Airbus A380 are produced in factories all over Europe, and then assembled in a factory in France. Transporting these massive objects must be incredibly expensive (unless in fact they are shipped in small parts).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why not build it in one place, like ships?&lt;/p&gt;&#xA;" OwnerUserId="15211" LastActivityDate="2017-12-01T12:46:19.940" Title="Why are aeroplanes not made in one place?" Tags="&lt;international-economics&gt;" AnswerCount="3" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="19313" PostTypeId="2" ParentId="19305" CreationDate="2017-11-15T14:33:08.560" Score="4" Body="&lt;p&gt;It depends on the market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In most markets - in particular, most retail markets - the supplier first sets the price, by offering their goods/service at an advertised price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other markets - in particular, many auctions - the purchasers between them first set the price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In some markets - for example, some openly-traded financial instruments, and some betting exchanges - both suppliers and purchasers specify a bid stack, so both of them are directly involved in first setting the price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Over time, suppliers and purchasers interact repeatedly to discover prices that converge on the equilibrium.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2017-11-15T14:33:08.560" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19315" PostTypeId="2" ParentId="19122" CreationDate="2017-11-15T15:19:32.707" Score="2" Body="&lt;p&gt;I'll sketch a few initial thoughts.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since the crisis, several financial economics research agendas have examined topics related to the questions of what caused the great recession and why was it so big?&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;Household finance (and relation to the real economy)&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;While corporate finance has traditionally examined the financing decisions of firms, there has been increasing study of the financial decisions of households. The work of Sufi and Mian stands out in examining how credit supply shocks (through the advent of mortgage securitization) impacted consumption.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;More people in financial economics are looking at mortgage debt, student debt, credit card debt, etc.... Are households financially constrained? How do households make their financing decisions?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;The financial system's role in the crisis?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Early on in the subprime crisis, a view developed that it would be a limited problem because there simply wasn't that much subprime mortgage debt. The .com bust erased more wealth than subprime debt existed, and we survived the .com bust.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What was different this time?&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Reinvigorated study of banking: bank runs, fire sales, etc...&lt;/li&gt;&#xA;&lt;li&gt;Macro-finance theories with a financial sector and limited capital (negative shocks deplete financial system's capital -&gt; higher risk prices etc...)&lt;/li&gt;&#xA;&lt;li&gt;Increased study of market micros-structure (perhaps engineering details, the actual pipes and plumbing of the financial system actually are of interest to economists?)&lt;/li&gt;&#xA;&lt;li&gt;Increased study of liquidity, risk prices for liquidity&lt;/li&gt;&#xA;&lt;/ul&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="10334" LastEditorUserId="10334" LastEditDate="2017-11-15T16:01:03.417" LastActivityDate="2017-11-15T16:01:03.417" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19317" PostTypeId="1" CreationDate="2017-11-15T17:11:46.760" Score="1" ViewCount="115" Body="&lt;p&gt;One argument against a completely free market economy without &quot;government&quot; oversight is the tendency towards anti-competitive behavior. The argument is that government laws are needed to prevent anti-competitive behavior which could be used to create and solidify monopolies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A typical example of this is the behavior of liquor distributors in the United States. In the United States it is (or was?) a common practice of liquor distributors to coerce retailers into selling only the brands of liquor that the distributor offered. Distributors carrying the major brands would inspect liquor stores and if they found the store selling any small company's liquor, they would threaten them: &quot;Either stop selling this company's liquor, or else our deal is over and we won't supply you anymore.&quot; This is deadly threat, since liquor stores need big brands to stay in business. Because of this, it has been traditionally been difficult for small liquor distillers to survive without a deal with a major distributor.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The same kind of argument was floated at the turn of the century (1900). Oil companies would threaten pipelines: don't carry this small oil company's oil or we will drop you. This type threat caused small oil companies to get frozen out of pipeline distribution networks until legislation basically forced pipelines to carry all oil equally and made it illegal to prefer one company's oil to another.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is it possible in a totally free market economy to combat anti-competitive behavior or is government regulation the only way to stop it?&lt;/p&gt;&#xA;" OwnerUserId="1448" LastActivityDate="2017-11-17T00:17:26.413" Title="Free market defense against anti-competitive behavior?" Tags="&lt;monopoly&gt;&lt;regulation&gt;&lt;monopolistic-competition&gt;&lt;free-market&gt;" AnswerCount="2" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="19319" PostTypeId="2" ParentId="19317" CreationDate="2017-11-15T20:09:35.373" Score="1" Body="&lt;p&gt;Depends on what you mean by 'possible'. The liquor stores in your example could form a union, and collectively bargain with brands. Then if a brand breaks a contract with one of them, they all break the contract. This would greatly disincentivize the brands' strong arm practice.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In my opinion this is unlikely to work (it is very hard to organize), but it is 'possible'.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2017-11-15T20:09:35.373" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19320" PostTypeId="1" CreationDate="2017-11-15T21:46:44.033" Score="1" ViewCount="190" Body="&lt;p&gt;I have a doubt about monetary policy, as suggested by Walter Bagehot. He wrote a book &quot;Lombard Street&quot; in 1873, to comment on a recent banking crisis. There he recommends these measures to stop a banking panic:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;That the central bank lend freely.&lt;/li&gt;&#xA;&lt;li&gt;At a high rate of interest.&lt;/li&gt;&#xA;&lt;li&gt;On good banking securities.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The second point is particularly puzzling. In his own words:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;First. That these loans should only be made at a very high rate of interest. This will operate as a heavy fine on unreasonable timidity, and will prevent the greatest number of applications by persons who do not require it. The rate should be raised early in the panic, so that the fine may be paid early; that no one may borrow out of idle precaution without paying well for it; that the Banking reserve may be protected as far as possible.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;(From Wikipedia: &lt;a href=&quot;https://en.wikipedia.org/wiki/Lombard_Street:_A_Description_of_the_Money_Market&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://en.wikipedia.org/wiki/Lombard_Street:_A_Description_of_the_Money_Market&lt;/a&gt;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This goes counter the main narrative in the press today, which is that central banks have to lower the interest rate in order to increase lending and economic activity, not to increase it. Bagehot's policies could actually exacerbate the crisis! A high interest rate might produce deflation, which exacerbates debts, like in the Great Depression. What is going on here?&lt;/p&gt;&#xA;" OwnerUserId="15121" LastActivityDate="2017-11-16T23:50:49.500" Title="What is the logic of Bagehot's policy of high interest rate?" Tags="&lt;monetary-policy&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19321" PostTypeId="2" ParentId="19230" CreationDate="2017-11-15T21:58:02.683" Score="1" Body="&lt;p&gt;The yield-to-maturity is similar to an internal rate of return, so the calculations need to take into account the timing of cash flows. So your example calculation 10%/.90 = 11.11% does not work. (That is known as a simple interest convention, which I think is sometimes used in the Japanese bond market.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The calculation form depends upon the coupon frequency of the bond. For an annual coupon, if we denote the yield as y, then the price of the bond equals (convention of \$100 equals par):&#xA;$$p = \sum_{i=1}^8 \frac{10}{(1+y)^i} + \frac{100}{(1+y)^8}.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, I do not know what “required return” in the question refers to (a true internal rate of return?). You would need to find the price of the bond using that “required return,” and then work from the price equation to get the yield.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2017-11-15T21:58:02.683" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19322" PostTypeId="2" ParentId="19320" CreationDate="2017-11-15T22:08:16.290" Score="3" Body="&lt;p&gt;We need to distinguish between a crisis and a normally functioning financial system. During a crisis, there is an unwillingness to lend  against collateral at any price (interest rate). Financial firms are liquidity constrained, and they assume that the entities that want to borrow are similarly constrained. Being able to fund positions in securities at any price is a huge relief, since that means you are not forced to sell (at a distressed price).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As an example, imagine that a financial firm needs to borrow at 12% interest to finance a position in corporate bonds. If that borrowing is done for a month at that rate, the total interest cost would be 1%. This is probably going to be much less costly than being forced to sell the position; a loss of 20% would not be unusual in such a situation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Furthermore, the crisis lending is done by the central bank to financial firms facing financing issues; it is not aimed at the broad public. During the Financial Crisis, lending programs were aimed at banks and security markets, not non-financial entities.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The level of short-term rates does not really matter that much; once the markets return to normal, you will be able to fund your positions at a much better rate. Having to pay a high rate of overnight interest for a week on a long-term security is not a big deal.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The argument for lender-of-last-resort operations at a high level of interest is that you do not want this facility to be a regular source of financing for the financial system.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastEditorUserId="12891" LastEditDate="2017-11-16T23:50:49.500" LastActivityDate="2017-11-16T23:50:49.500" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="19323" PostTypeId="1" CreationDate="2017-11-16T04:29:03.740" Score="2" ViewCount="29" Body="&lt;p&gt;I've been to a couple of presentations recently on the housing market in Toronto and I've heard the term &quot;speculation&quot; thrown around by economists/academics when discussing factors that are contributing to the rise in housing prices.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems to be just something to pin the blame of forecasting error on. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am yet to see any clear measures of speculation but always see it mentioned again and again. &lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2017-11-16T05:35:00.390" Title="Speculation: Why is it referenced and how do we account for it?" Tags="&lt;econometrics&gt;&lt;reference-request&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19324" PostTypeId="2" ParentId="19323" CreationDate="2017-11-16T05:35:00.390" Score="1" Body="&lt;p&gt;It is problematic to use as a word.  Some of the better authors in the last one hundred years have defined it, but there is no consistent definition.  I provide an operational definition for a narrow purpose in a paper as those possessing risk-loving preferences.  That definition, of course, would exclude many traders.  I use it with reference to implications for prudential regulation, but I didn't need to measure it for what I was doing as their presence or absence didn't impact the empirical component.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem of talking about &quot;speculators,&quot; aside from the definition problem, is that it is not a behavior.  Indeed, it's not meaningful.  Imagine seeing a newspaper article about a plane crash, and &quot;gravity&quot; was blamed.  Excluding planes flying into mountains, how useful would it be to discuss the effects of gravity on planes instead of mechanical failure causing gravity to suddenly become more meaningful?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can think of possible ways to mathematically segregate speculative behavior if you can clearly state what you mean by the word, but I would really want to ground that in a model so it would very clear what the predictions might be.  However, I can also imagine definitions where central banks could fall into that categorization in some cases so rigor will be both difficult and require a clear statement that it is an operational definition and not a canonical definition.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the housing market, I doubt it could be readily measured because the measures in the housing market are so easily manipulated and there are plenty of incentives to manipulate.  That may not be true in the Canadian system, but in the American system, particularly with REITs, there is just a ton of ways to play games.  I think you would want a tamer market, such as equities, to build test runs of a methodology.&lt;/p&gt;&#xA;" OwnerUserId="11321" LastActivityDate="2017-11-16T05:35:00.390" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19325" PostTypeId="1" CreationDate="2017-11-16T10:06:33.353" Score="5" ViewCount="127" Body="&lt;p&gt;I seem to have a major misconception in my understanding of the bond market and how interest rates and demand and supply influence valuation levels. I hope someone will be able to clarify.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My thinking is as follows. If the fair value of a bond is the present value of the cash flows resulting from coupons and principal repayment, discounted at an interest rate that depends on a policy interest rates, how can the bond market be overvalued, given a specific set of interest rate levels?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand the idea of overvaluation in equity markets, where demand and supply freely determine prices, and demand may be artificially high in expectation of fiscal stimulus or because investors buy into unrealistic success narratives of specific companies. But in bond markets, the situation is a little more complex because both the policy interest rate and demand and supply feature in the valuation mechanism.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So my questions are the following:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;How to interest rate levels on the one hand and demand and supply on the other hand interact to determine the market price of bonds?&lt;/li&gt;&#xA;&lt;li&gt;Can the bond market be overvalued or can bond market valuations be inferred perfectly from policy interest rates?&lt;/li&gt;&#xA;&lt;li&gt;How can it be that bond markets are referred to in the media as overvalued when valuations depend on interest rates? Do they mean that market participants are assuming inappropriately low spreads to discount bond-related cashflows in valuation?&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Thank you in advance for any clarifications you may be able to provide!&lt;/p&gt;&#xA;" OwnerUserId="337" LastActivityDate="2018-09-27T08:27:24.400" Title="How can the bond market be overvalued when the value of a bond is a function of interest rates?" Tags="&lt;supply-and-demand&gt;&lt;interest-rate&gt;&lt;bonds&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19326" PostTypeId="1" AcceptedAnswerId="19327" CreationDate="2017-11-16T14:11:19.927" Score="3" ViewCount="946" Body="&lt;p&gt;For a highschool economics/mathematics interdisciplinary essay I will use the Lagrange multipliers and deriving formulas that find the maximum. Could some one maybe suggest any (utility) functions that have 3 (also 4) variables (doesn't matter if it has constants).&#xA;Thanks in advance!&lt;/p&gt;&#xA;" OwnerUserId="15217" LastEditorUserId="8815" LastEditDate="2017-11-16T18:39:05.943" LastActivityDate="2018-07-28T03:25:36.930" Title="Multivariable Utility functions" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;utility&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19327" PostTypeId="2" ParentId="19326" CreationDate="2017-11-16T14:36:13.747" Score="5" Body="&lt;p&gt;Let's say you have $k$ goods $x_1, x_2, \ldots, x_k$. Let $\mathbf{x}$ denote the vector $\mathbf{x} = \begin{bmatrix}x_1 \\ \ldots \\  x_k \end{bmatrix}$.&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Some common workhorses to get you started:&lt;/h3&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Cobb%E2%80%93Douglas_production_function&quot; rel=&quot;nofollow noreferrer&quot;&gt;Multivariate Cobb-Douglas&lt;/a&gt;: $u(\mathbf{x}) = \prod_{i=1}^k x_i^{\lambda_i} $. &#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Note that $\max_\mathbf{x} u(\mathbf{x})$ has the same solution as $\max_\mathbf{x} \log u(\mathbf{x})$ because the logarithm is a monotonically increasing function. Hence maximizing the utility function $u(\mathbf{x}) = \sum_{i=1}^k \lambda_i \log x_i$ will give the same solution and also is referred to as Cobb-Douglas.&lt;/li&gt;&#xA;&lt;/ul&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Constant_elasticity_of_substitution&quot; rel=&quot;nofollow noreferrer&quot;&gt;Constant elasticity of substitution&lt;/a&gt; $u(\mathbf{x}) = \left( \sum_i \alpha_i ^\frac{1}{s} x_i ^\frac{s - 1}{s}\right)^\frac{s}{s-1}$&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="10334" LastEditorUserId="10334" LastEditDate="2018-07-28T03:25:36.930" LastActivityDate="2018-07-28T03:25:36.930" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="19328" PostTypeId="2" ParentId="19326" CreationDate="2017-11-16T15:18:09.500" Score="1" Body="&lt;p&gt;To get started note that there are three main types of utility functions/production functions in economics. for a multi-variable case I'll illustrate it below.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Complements&lt;/strong&gt;&#xA;$$U(\mathbf{X})=\min\{x_i,...,x_n\}$$&#xA;&lt;strong&gt;Subsitutes&lt;/strong&gt;&#xA;$$U(\mathbf{X)}=\sum_{i=1}^{n}a_1x_i$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $a_i$ is a constant greater than zero (for normal goods).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Cobb-douglas&lt;/strong&gt; (as Matthew Gunn has already said).&#xA;$$u(\mathbf{X}) = \prod_i^n x_i^{\lambda_i} $$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;where each $\lambda_i$ is greater than zero (for normal goods).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope this helps.&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2017-11-16T15:18:09.500" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19330" PostTypeId="1" AcceptedAnswerId="19332" CreationDate="2017-11-16T16:31:52.343" Score="4" ViewCount="1568" Body="&lt;p&gt;Can you use two instrumental variables $z_1$ and $z_2$ at the same time for $x_1$ and $x_2$, in the following regression model&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$y=a+bx_1+cx_2+dX_{other}+e$, where&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$y$ is the explained variable,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$x_1$ and $x_2$ are two variables of interest that you want to study but are endogenous,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$X_{other}$ are other exogenous control variables,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$e$ is the error term.&lt;/p&gt;&#xA;" OwnerUserId="15218" LastEditorUserId="15218" LastEditDate="2017-11-17T14:31:22.333" LastActivityDate="2017-11-17T14:31:22.333" Title="Can you use more than one instrumental variables in an Econometric model?" Tags="&lt;econometrics&gt;&lt;instrumental-variable&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19332" PostTypeId="2" ParentId="19330" CreationDate="2017-11-16T18:56:41.400" Score="2" Body="&lt;p&gt;If you have endogeneity between a dependent variable and error term the use of Instrument variables are the way to go.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;as long as $\mathbf{COV}(x_1,z_1)\ne0,\mathbf{COV}(x_2,z_2)\ne0,\mathbf{COV}(z_2,e)=0$ and $\mathbf{COV}(z_1,e)=0$ you can do so.&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="8815" LastEditDate="2017-11-17T03:24:45.857" LastActivityDate="2017-11-17T03:24:45.857" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="19333" PostTypeId="2" ParentId="19326" CreationDate="2017-11-16T18:57:30.763" Score="1" Body="&lt;p&gt;The word &quot;utility&quot; is in brackets in the body of your question, so I am not sure if it means that you prefer or that you only want utility maximization problems. Anyway, here is an optimization problem that is not about utility.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose a company produces output $y$ using inputs $x_1$ and $x_2$. The technology used is described by the concave production function $f(x_1,x_2)$. (For example $\sqrt{x_1x_2}$.) The company wishes to minimize its costs, that is given the input prices $w_1$ and $w_2$ it wishes to produce $y$ units as cheaply as possible.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The optimization problem is&#xA;\begin{align*}&#xA;\min_{x_1,x_2} \ &amp;amp; w_1x_1 + w_2x_2 \\&#xA;\\&#xA;\mbox{s.t. } &amp;amp; f(x_1,x_2) = y \\&#xA;\\&#xA;&amp;amp; x_1,x_2 \geq 0.&#xA;\end{align*}&#xA;Assuming the solution is an interior solution, that is $x_1^*, x_2^* &amp;gt; 0$, the Lagrange-multiplier of the production function's condition has a rather nice economic meaning. It is the marginal cost of production.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you insist on three or more variables, you can easily adjust the number of inputs, e.g. $f(x_1,x_2,x_3) = \sqrt[4]{x_1x_2x_3}$.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2017-11-16T18:57:30.763" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19335" PostTypeId="1" CreationDate="2017-11-16T20:28:39.777" Score="0" ViewCount="31" Body="&lt;p&gt;How do economists/investors predict supply and demand in financial markets such as indices, currencies, etc?&lt;/p&gt;&#xA;" OwnerDisplayName="user15210" LastActivityDate="2017-11-17T14:43:29.363" Title="Financial markets predictions" Tags="&lt;financial-markets&gt;&lt;prediction&gt;" AnswerCount="1" CommentCount="0" ClosedDate="2017-11-23T02:01:00.877" ContentLicense="CC BY-SA 3.0" />
  <row Id="19338" PostTypeId="2" ParentId="19335" CreationDate="2017-11-17T00:00:12.920" Score="2" Body="&lt;p&gt;There’s a lot of techniques used, but it is extremely rare that forecasts are on “supply and demand”, rather prices. To go from supply and demand to prices (which is what investors are interested in), you need supply and demand functions, which nobody can really estimate well.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I will first comment on supply and demand analysis for the bond market (the market I am familiar with), then have a few quick comments on price forecasts.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One does see attempts to match up the supply of government bonds (based on projected deficits) to what end investors want to buy, but such analysis is only of a niche interest. For example, governmental debt agencies try to gauge what maturity structure of issuance will match investor needs. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Meanwhile, on the demand side, people look at the effects of regulatory changes, and how much demand that will create for long-term bonds. The UK gilt curve was greatly affected by pension demand for long-term gilts.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There’s a wide range of techniques used in practice to forecast prices (rates in fixed income). If one looks at the debate about market efficiency, most do not work very well (bulk of investors underperform the market average). Some analysts use methods like story-telling or technical analysis, which are generally looked down on by academic studies. However, the bulk of the analysis is fair value analysis.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, if I a wanted to gauge fair value for a 2-year bond, I am just going to look at the outlook for central bank policy. This is because the fair value of a bond is the expected cost of financing over the life of the bond (the short rate), which is set by the central bank. If one is interested in corporate bonds, one estimates the probability of default, to get an idea what spread is fair. Equity investors attempt to forecast future dividends and earnings. All of these analyses can be done in a wide variety of ways.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastEditorUserId="12891" LastEditDate="2017-11-17T14:43:29.363" LastActivityDate="2017-11-17T14:43:29.363" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19339" PostTypeId="2" ParentId="19317" CreationDate="2017-11-17T00:17:26.413" Score="0" Body="&lt;p&gt;There really is not one.  Even things like unions, water, fire or homeowners' associations are really special purpose governments.  They derive their powers from the governmental body that delegates police power to them.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Even &quot;voluntary&quot; associations that can enforce welfare optimality derive their authority from the government and can only enforce through the courts.  The only real exception would be where the Coase theorem would apply and that isn't a free market defense.  Rather, it says that rational people will accept transferrable utility, side payments or bribes in such a way that optimal output will not be impacted.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem is that &quot;good&quot; solutions do not generally exist to these type of problems.  Instead, there are a set of less inefficient solutions.  All of the possible less inefficient solutions involve police power.  How much police power is useful is an important question, but police power underlies all free markets.  Free markets do not exist in the absence of police power.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Still, the use of police power is a costly use of resources and so there are two desired elements of police power.  The first is that no more power is in use than is needed at the moment.  The second is that a large level of reserve power exists to meet emergencies.  This is a difficult problem to balance.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In its simplest form, you want to send the appropriate size response for a home on fire and no more.  You don't want sixteen fire engines for a two bedroom home.  On the other hand, if you have a large chemical plant in the city, you want to be capable on short notice to respond to a catastrophic accident with the release of hazardous materials and explosion risk and the presence of fire.  For a smaller sized town this is almost a contradiction. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The size of governmental response to a catastrophe would require maintaining substantial immediate reserves, well in excess of actual need.  Nonetheless, if the failure to respond adequately would be the loss of hundreds of homes and lives then not carrying that capacity is irresponsible.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Generally free-market people have a bias downward, which makes emergency responses difficult, due to the fear of overreach.  Over the years, since I know many free market people, I have come to conclude that most of them have a strong emotional reaction to government and they wrap their thinking in a logical manner around this emotion.  I think a few of them recognize this is nothing more than preferences in action, but I think most don't realize how much their emotions govern their rationality.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am biased toward the libertarian view, in the sense that I believe the hand of government should be designed and biased to be the softest possible response that is effective, but I don't have a problem or struggle with solving the public goods problem with government.  I do believe that rational oversight by voters is the only solution because the system will reshape itself to accommodate the government with the intent of defeating social efficiency.  I also don't believe rational oversight by voters is a good solution, just better than a system on autopilot.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't think that questions on the free-market/libertarian/objectivist movement are intellectual in nature and not really a serious question in economics.  They are political and emotional.  The problem of external costs and inefficiencies isn't a controversy in economics.  Now, mechanism design is a serious issue in economics.  How to minimize things like regulatory capture and voting inefficiency are serious issues, but the use of government or government authorized bodies is not.&lt;/p&gt;&#xA;" OwnerUserId="11321" LastActivityDate="2017-11-17T00:17:26.413" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19341" PostTypeId="2" ParentId="19283" CreationDate="2017-11-17T04:13:34.813" Score="1" Body="&lt;p&gt;I do not know what Thaler was trying to say, but I can guess at what the context was.  Regardless, until quite recently forecasts were problematic in finance because the underlying distributions that were involved were unknown.  Indeed, the validity of estimators was unknown.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Mean-variance finance models, if both literally true in their assumptions and correctly derived, do not give rise to estimators.  If the CAPM $\beta$ exists, then the disappointing problem is that a proof exists to show that no stronger statement than it is in the real numbers can be found that is both consistent with Frequentist theory and mean-variance finance.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;One of the assumptions of mean-variance finance models is that their parameters are known with probability one.  If that is not the case, then you will not be able to find the parameters.  There are several reasons for this, but the simplest is to note that if $w_{t+1}=Rw_t+\epsilon_{t+1}, R&amp;gt;1$(people want a profit), then the correct Frequentist estimator is the least squares estimator for any distribution of $\epsilon$ centered on zero with finite variance greater than zero.  White, however, shows that the distribution of $\hat{R}-R$ is the Cauchy distribution.  As $\hat{\beta}$ is a form of the sample mean and the mean of the Cauchy distribution does not exist, the power of one billion observations is no greater than the power of one observation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the parameters are unknown, then no person could ever find the mean or the variance to solve the model to get to a $\beta.$  Further, because of the distributions involved, $\hat{\beta}$ is meaningless.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A recent paper derived the various families of distributions that must be present in financial returns, as well as returns for antiques sold at auction, seeds, tractors and so forth.  It isn't a single distribution and cannot be.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The paper noted that returns are not data.  Prices are data.  Volumes are data.  Cash flows are data.  Returns are not observed, they are computed.  Any function of actual data is a statistic.  It inherits its properties from the properties in the data.  You could no more assume returns are normally distributed than you could assume Student's t-test follows a Weibull distribution.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Under the assumptions used in CAPM models, the distribution of returns would be the Cauchy distribution as above.  In the real world, there is bankruptcy, mergers and a finite but unknown planetary budget constraint.  Because most of the distributions involved lack the first or higher moments, no computable non-Bayesian method exists that is also admissible.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Forecasts in Bayesian methods have the important property that they are coherent.  A statistic is coherent if fair gambles could be based on them.  Frequentist statistics are not coherent.  Technically, the definition of coherence is that no market-maker or bookie could be gamed to take a sure loss in all states of nature by a crafty actor or set of actors.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can find Mann and Wald's paper at:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Mann, H. and Wald, A. (1943) On the Statistical Treatment of Linear Stochastic&#xA;  Difference Equations. Econometrica, 11, 173-200&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;You can find White's paper at:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;White, J.S. (1958) The Limiting Distribution of the Serial Correlation Coefficient in the Explosive Case. The Annals of Mathematical Statistics, 29, 1188-1197&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;You can find the derivation of the distributions involved at:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Harris, D.E. (2017) The Distribution of Returns. Journal of Mathematical Finance, 7, 769-804.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;A Bayesian prediction is a distribution such that:&#xA;$$\Pr(\tilde{x}|\mathbf{X})=\int_{\theta\in\Theta}\Pr(\tilde{x}|\theta)\Pr(\theta|\mathbf{X})\mathrm{d}\theta.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you note, there is no parameter in $\Pr(\tilde{x}|\mathbf{X}).$  This is because the prediction does not depend upon knowing the true value of the parameter.  This is an entire distribution of predictions, however, a point prediction can be formed by minimizing a cost function over the density.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ignoring the coherence issue, the Frequentist prediction has quite a few problems.  For starters, the distributions involved lack a sufficient point statistic. Any attempt to create a statistic would lose information.  This is also true for someone minimizing a cost function over a Bayesian posterior density, but not the predictive density.  The Bayesian posterior is sufficient, however.  In addition, the limitation of liability truncates the distribution at -100% returns.  This shifts the median away from the center of location and no Frequentist estimator exists for the mode that is admissible.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a result, Frequentist statistics overestimate returns by 2% per year and understate risk by 4% per years for the period 1925-2013.  Using the log returns retains this bias.  Furthermore, in log space, no covariance style construction exists in these distributions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The criticism of prior forecasts is not really relevant.  If I forecast anything using a non-converging random number generator, which is what the method of least squares does with stock prices, then I should not be upset that I have bad forecasts.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Predictions will get either/both the center of location and the scale parameter correct with measure zero.  Any countable set of points in a continuum of points has zero measure and therefore has zero probability.  Forecasts should be judged on a system of scoring.  There is an entire field that studies the proper scoring of forecasts.  In this sense, Thaler is correct in that if the distribution of forecasts was stochastically dominated by the raw data alone, then the forecasts are worse than chance alone.  As the entire set of raw data is a sufficient statistic for a parameter, having forecasts worse implies that they come from a forecast that is not sufficient for the parameter involved.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Do note that expectations cannot exist for distributions without a first moment, so rational expectations is a meaningless statement if it is over the raw distribution.  They would exist for log utility, though.  All risk-averse utility functions should have an expected utility.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hopefully, a paper will be forthcoming soon that derives a pricing model for European, Asian, look back and American style options that are both distribution-free and assumes the absence of the first moment.  It will, I hope, also provide a set of new operators for stochastic calculus to deal with the absence of expectations.  Ito methods do not give rise to an admissible statistic, except in a handful of special cases, such cash-for-stock mergers.  I am hoping to have it complete soon and I am looking for comment on the mathematics of certain components as they appear to be novel innovations and I want mathematicians to kick the tires.&lt;/p&gt;&#xA;" OwnerUserId="11321" LastActivityDate="2017-11-17T04:13:34.813" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19343" PostTypeId="1" CreationDate="2017-11-17T07:39:33.900" Score="5" ViewCount="71" Body="&lt;p&gt;I have a question at the intersection of Economics and Politics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Every country has her own inflation target. But who, how and on what basis is it determined? Of course, we know that too big inflation is bad and deflation is bad, but why it's around 2% (depending on a country) and not around 1% or 3% or any other? Maybe a little deflation (around 1%) would be better?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am trying to understand why the inflation target is set to some exact value. What is the process of setting this value. Who is responsible for this task and what data does he work with.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are there any scientific publications explaining the process of determining the inflation target?&lt;/p&gt;&#xA;" OwnerUserId="15229" LastEditorUserId="1601" LastEditDate="2017-11-17T13:59:02.380" LastActivityDate="2017-11-17T21:38:46.080" Title="How and on what basis the inflation target is determined?" Tags="&lt;reference-request&gt;&lt;inflation&gt;&lt;monetary-policy&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="19346" PostTypeId="2" ParentId="19325" CreationDate="2017-11-17T10:29:54.107" Score="3" Body="&lt;p&gt;&lt;strong&gt;How can the bond market be overvalued?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To value a bond, you need, as you mention, to discount future cash flows. The cash flows (or coupons) are fixed, but the discount rate is not, and every investor may have a different view on interest rates and hence price bonds differently. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, someone thinking that interest rates will remain at rock-bottom levels will find different prices for bonds from someone who thinks that interest rates will rise sharply in the near future (the first investor will find higher prices).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, in your case, someone thinking that the bond market is overvalued simply has a different view on interest rates than the consensus on the market. To be more precise, they expect interest rates to increase faster than the market consensus.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Bond Prices and interest rates&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Taking into account what we have said above, you can view the bond market as follows: every investor forms a view on discount rates, for a given bond. Doing so, they actually compute the yield, that is the discount rate that makes the NPV of the cash flows of the bond equal to 0.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, investors disagree on where the yield should be. They will thus trade the bond between them until they all agree. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's take a numerical example :&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Investor A owns a Bond, which has a face value of 100, a coupon of 1 and will mature in one year.&lt;/li&gt;&#xA;&lt;li&gt;Investor A thinks that the yield of this bond should be 2%&lt;/li&gt;&#xA;&lt;li&gt;Investor B thinks that the yield of this bond should be 0.5%&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The value of this Bond to Investor A is : &lt;span class=&quot;math-container&quot;&gt;$(100 + 1) / 1.02 = 99.02$&lt;/span&gt;&#xA;The value of this Bond to Investor B is : &lt;span class=&quot;math-container&quot;&gt;$(100 + 1) / 1.005 = 100.50$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore investor A and Investor B will both improve their current state by trading the bond anywhere between \$99 and \$100.5, ie. Investor A should sell the Bond to Investor B.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the market price of the bond is \$100, then Investor A thinks that the bond is overvalued, and Investor B thinks that the bond is undervalued.&lt;/p&gt;&#xA;" OwnerUserId="6820" LastEditorUserId="6820" LastEditDate="2018-09-27T08:27:24.400" LastActivityDate="2018-09-27T08:27:24.400" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="19347" PostTypeId="1" CreationDate="2017-11-17T11:20:16.980" Score="1" ViewCount="106" Body="&lt;p&gt;How do they measure productivity in the public sector? Companies just say this is how much money we make per input but what about the public sector?&lt;/p&gt;&#xA;" OwnerDisplayName="user15210" LastActivityDate="2019-02-07T14:07:36.640" Title="How is productivity measured in public sector?" Tags="&lt;public-economics&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19349" PostTypeId="1" CreationDate="2017-11-17T14:40:22.977" Score="1" ViewCount="150" Body="&lt;p&gt;According to the doctrine of the money multiplier (&lt;a href=&quot;https://en.wikipedia.org/wiki/Money_multiplier&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://en.wikipedia.org/wiki/Money_multiplier&lt;/a&gt;), a positive reserve ratio means a bank has LESS loans than deposits. See the table in the link. Therefore, if a bank gets a loan of 100, it can lend, say 80. Here I understand that the interest rate on loans must be higher than the interest rate on deposits, so that the bank can make a profit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;HOWEVER, there are other theories like endogenous money theory which state that actually, if a bank has 100 in deposits, it creates 900 of bank money (see &lt;a href=&quot;https://en.wikipedia.org/wiki/Reserve_requirement&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://en.wikipedia.org/wiki/Reserve_requirement&lt;/a&gt;). In this case, there is no need for the bank to charge a spread! &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can you guide me on this? I am confused!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this a proof that the money multiplier is correct?&lt;/p&gt;&#xA;" OwnerUserId="15121" LastEditorUserId="15121" LastEditDate="2017-11-20T12:57:21.973" LastActivityDate="2017-11-20T13:39:40.520" Title="Why do banks charge a spread on credit?" Tags="&lt;money&gt;&lt;quantity-theory-of-money&gt;" AnswerCount="5" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19352" PostTypeId="2" ParentId="19349" CreationDate="2017-11-17T18:52:31.817" Score="0" Body="&lt;p&gt;There are two topics mixed up here and they aren't really &quot;doctrine&quot;:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;On one hand, there's a reserve requirement. This ubiquitous regulation comes from the fact that banks are by their very nature illiquid: if they make a profit by lending other people's money then they can't give all that money back immediately. A minimum of liquid reserves may (or may not!) be established, by the central bank and/or the bank itself, to safeguard deposits.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;On the other hand, consider that the bank lends all the money he's allowed. The borrowers won't have immediate use of that money, so they store it in the bank once again as deposits. Now, the bank can get those new deposits, fulfill their reserve requirement and lend that money once again. Repeat this to infinity, that is, until 100% of the original money is reserve requirement. Suppose you have 10% of R.R.:&#xA;$$&#xA;C_1=100\%-(100*{10\over 100})=90\%\\&#xA;C_2=90\%-(90*{10\over 100})=81\%\\&#xA;...\\&#xA;C_n=0.9^n\\&#xA;\sum_{n=1}^\infty C_n={0.9\over{1-0.9}}=900\%&#xA;$$&#xA;What this means is that, even though the economy has a certain amount of cash, it may behave as if there's more, with an upper bound on 900%. The bank isn't benefiting with money creation except that it's lending more money than at first sight.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;The spread neither influence the reserve requirement nor the money supply expansion argument seen above.&lt;/p&gt;&#xA;" OwnerUserId="7857" LastActivityDate="2017-11-17T18:52:31.817" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="19353" PostTypeId="2" ParentId="19343" CreationDate="2017-11-17T21:38:46.080" Score="1" Body="&lt;p&gt;Recently, at the 2017 Money and Banking Conference at Buenos Aires, the Governors of the Central Bank of Peru and Paraguay talked about this same thing. Those two countries successfully brought inflation from double-digits to ~2% in recent times and they said the changes were opportunistic: if they were sure they'd be able to meet the IT, they changed it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, Peru has a constitutional amendment that allows for Peruvians to have a savings account in &lt;strong&gt;any&lt;/strong&gt; currency they want and indeed around ~70% of deposits were in dollars which implies they aimed at something close to US' inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is in stark contrast to the host's (Argentina's) strategy, mainly to reach a 1-digit inflation around mid-2019, just before the presidential elections. The bands are:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;14.5% ±2.5 for 2017 (they already failed, it will end up around 20%)&lt;/li&gt;&#xA;&lt;li&gt;10.0% ±2.0 for 2018&lt;/li&gt;&#xA;&lt;li&gt;5.0% ±1.5 for 2019.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;While the targets are aggressive and they already surpassed this year's band, market's inflation expectations consistently have a downwards trend.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, what's so special about 2%? An unexpected deflation has a negative short-term effect on growth. High inflation also has a negative effect on growth. So, being stable around 2% is a nice &quot;Goldilocks&quot; zone.&lt;/p&gt;&#xA;" OwnerUserId="7857" LastActivityDate="2017-11-17T21:38:46.080" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19354" PostTypeId="2" ParentId="19349" CreationDate="2017-11-17T21:55:19.087" Score="3" Body="&lt;p&gt;You're getting two quite different concepts mixed up:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Banks earn a spread on loans for serving as an intermediary between savers and borrowers and for holding credit risk.&lt;/li&gt;&#xA;&lt;li&gt;The process of borrowing and lending, of banking, leads people in an economy to have more liquid assets (money in a broader sense), than there is underlying cash.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;When economists say banks &quot;create money&quot; they don't mean they're printing money off the presses and giving it to themselves as profits. &lt;/p&gt;&#xA;&#xA;&lt;h3&gt;How banking expands the money supply&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;To understand banking clearly, its helpful (perhaps 100% required) to understand and use the &lt;a href=&quot;https://en.wikipedia.org/wiki/Accounting_equation&quot; rel=&quot;nofollow noreferrer&quot;&gt;fundamental equation of accounting&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \mathrm{Assets} = \mathrm{Liabilities} + \mathrm{Shareholders Equity} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's say Warren Buffet decides to start a bank. He puts in \$10 billion of his own money. The balance sheet of the bank would look like:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \begin{array}{r|rr}\text{Assets} &amp;amp; \text{Liabilities} &amp;amp; \text{Equity} \\ \hline \$10 \text{ cash}&amp;amp; &amp;amp; \$10\end{array} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's say he now collects \$90 billion worth of deposits from people. These bank deposits are assets for the people, but they are liabilities to the bank (the bank owes the depositors \$90 billion).&#xA;$$ \begin{array}{r|rr}\text{Assets} &amp;amp; \text{Liabilities} &amp;amp; \text{Equity} \\ \hline \$100 \text{ cash}&amp;amp; \$90 \text{ deposits} &amp;amp; \$10\end{array} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now let's imagine that the bank lends out $80 billion. The balance sheet would then look like:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \begin{array}{r|rr}\text{Assets} &amp;amp; \text{Liabilities} &amp;amp; \text{Equity} \\ \hline \$20 \text{ cash}&amp;amp; \$90 \text{ deposits} &amp;amp; \$10  \\ \$80 \text{ loans}\end{array} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Depositors have \$90 billion in deposits, and the borrowers have \$80 billion in cash. So the economy now has \$170 billion in money where there previously was only \$90 billion.&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;A key point to realize...&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Across the whole economy, all these assets and liabilities cancel out!&lt;/strong&gt; Borrowing and lending (on its own) &lt;strong&gt;is not&lt;/strong&gt; creating any real wealth. The expansion of the banking system's balance sheet is simply creating more entries on the assets and liabilities side that cancel out. To the extent though that the liabilities of the banking system, deposits etc... are easily tradeable, this does create more money in the economy. More people have liquid assets in the form of bank deposits etc... (which are liabilities of the bank).&lt;/p&gt;&#xA;" OwnerUserId="10334" LastEditorUserId="10334" LastEditDate="2017-11-17T22:33:34.917" LastActivityDate="2017-11-17T22:33:34.917" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19355" PostTypeId="2" ParentId="19349" CreationDate="2017-11-17T23:53:28.370" Score="2" Body="&lt;p&gt;The money supply expansion mechanics are interesting, but do not affect loan pricing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let’s assume that the only assets a bank invests in are loans it extended, and required reserves at the central bank. Furthermore, assume that the rate of interest on required reserves is 0%.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We will assume that bank equity is extremely small (close to the truth), and the bank only funds itself with deposits. For simplicity, assume that deposits are equal to 100% of the right hand side of the balance sheet.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In order to break even, the total interest rate on assets has to equal the amount of interest paid on deposits.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Denote:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;$r$is the percentage of the balance sheet held as reserves;&lt;/li&gt;&#xA;&lt;li&gt;$D$ is the amount of deposits,&lt;/li&gt;&#xA;&lt;li&gt;$i_d$ ($i_l$) is the average interest rate on deposits (loans).&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Then, interest received is equal to $(1-r)D i_l$, and interest paid is $D i_d$. Therefore, for the bank to not lose money,&#xA;$$ (1-r) i_l \geq i_d.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words, the average interest rate on loans has to be greater than the average interest rate on deposits (assuming non-zero reserve holdings). This is going to be true regardless of the size of the bank’s balance sheet (the amount of the money multiplier).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If balance sheets get more complicated, the equation needs additional terms. However, the basic principle remains: by forcing banks to hold an asset that yields 0%, they have to increase lending spreads to remain profitable. This makes banks less competitive versus non-bank financial firms, creating an incentive to move towards less regulated entities. This perverse incentive explains why many countries (such as Canada) have abolished reserve requirements. (I am unsure which developed countries still have reserve requirements, other than the United States.)&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2017-11-17T23:53:28.370" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19358" PostTypeId="1" CreationDate="2017-11-18T08:05:52.620" Score="0" ViewCount="78" Body="&lt;p&gt;I know how to derive the transversality condition in simple models like the Ramsey model. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, I am looking to develop a deeper understanding of transversality conditions in more complex models. However most macroeconomics books I've seen only have about 1 page about the transversality condition, namely its simplest form. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Is there a good book that shows how to deal with more complex trannversality conditions than the one in the ramsey model?&lt;/strong&gt; e.g. if the utility function contains a term for assets?&lt;/p&gt;&#xA;" OwnerUserId="11146" LastActivityDate="2017-11-18T08:05:52.620" Title="Good book/article that goes into depth about transversality conditions?" Tags="&lt;macroeconomics&gt;&lt;mathematical-economics&gt;&lt;dynamic-optimization&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19362" PostTypeId="2" ParentId="16332" CreationDate="2017-11-18T19:51:50.267" Score="1" Body="&lt;p&gt;The difference between direct and indirect taxation is not that the first cannot be passed onto a consumer. The difference is that in case of direct taxes the direct tax is imposed upon a person and not a transaction (there is a convergence between the source of taxation and the entity subject to taxation).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Direct taxes are paid by a entity subject to taxation, but can be passed:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;onto a buyer (consumer) of the taxpayer (shifting the tax ‘&lt;em&gt;forward&lt;/em&gt;’), bo also&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;onto a seller to the taxpayer (shifting the tax ‘&lt;em&gt;backward&lt;/em&gt;’).&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Of course, the taxpayer can also cover the increase of taxes by lowering its profit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The rules, whether the increase should be passed onto consumers, are set under the &lt;a href=&quot;http://www.econ2.jhu.edu/people/ccarroll/Courses/365/Topics/5-Taxation/Handouts/TaxesHandoutRosenIncidence.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;price elasticity of demand/supply&lt;/a&gt; (please see also &lt;a href=&quot;http://www.accountingnotes.net/taxation/tax-shifting/top-4-theories-of-tax-shifting/10060&quot; rel=&quot;nofollow noreferrer&quot;&gt;alternative theories&lt;/a&gt; to tax shifting). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, if a convenience store is subject to increase of taxation, it shouldn’t pass it onto consumers, when the consumers have access to a cheaper substitute (eg. grocery store not in the scope of increase of taxation). On the other hand, if the market between store’s suppliers is competitive, the convenience store can pass the increase of taxation onto suppliers.&lt;/p&gt;&#xA;" OwnerUserId="15240" LastEditorUserId="15240" LastEditDate="2017-11-19T01:26:40.120" LastActivityDate="2017-11-19T01:26:40.120" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19364" PostTypeId="2" ParentId="19167" CreationDate="2017-11-18T21:38:52.123" Score="2" Body="&lt;p&gt;Governments and financial institutions usually don’t like anything that is not under their control. The same applies to cryptocurrencies. In this case, however, it seems that such careful policy (so-called risk-based approach) is justified.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To sum it shortly, I think most central banks and governments view cryptocurrencies as a means of exchange, rather than as a means of payment. As a result, state administrations accepts usage of  cryptocurrencies between private entities, but will not accept cryptocurrency as a mean to pay taxes, just as it will not accept a payment of taxes in eggs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;See comprehensive &lt;a href=&quot;http://www.fatf-gafi.org/media/fatf/documents/reports/Guidance-RBA-Virtual-Currencies.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;examples of countries’ risk-based approach to virtual currency payments&lt;/a&gt;, prepared by Financial Action Task Force (2015).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, please see below citations from some institutions in this regard:&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;&lt;a href=&quot;https://www.imf.org/external/pubs/ft/sdn/2016/sdn1603.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;International Monetary Fund (2016)&lt;/a&gt;&lt;/h2&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;VCs [virtual currencies] offer many potential benefits, including greater speed and&#xA;  efficiency in making payments and transfers—particularly across&#xA;  borders––and ultimately promoting financial inclusion. The distributed&#xA;  ledger technology underlying some VC schemes—an innovative&#xA;  decentralized means of keeping track of transactions in a large&#xA;  network––offers potential benefits that go far beyond VCs themselves.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;At the same time, VCs pose considerable risks as potential vehicles&#xA;  for money laundering, terrorist financing, tax evasion and fraud.&#xA;  While risks to the conduct of monetary policy seem less likely to&#xA;  arise at this stage given the very small scale of VCs, risks to&#xA;  financial stability may eventually emerge as the new technologies&#xA;  become more widely used. &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The development of effective regulatory&#xA;  responses to VCs is still at an early stage. VCs are difficult to&#xA;  regulate as they cut across the responsibilities of different agencies&#xA;  at the national level, and operate on a global scale. Many are opaque&#xA;  and operate outside of the conventional financial system, making it&#xA;  difficult to monitor their operations. &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Regulators have begun to&#xA;  address these challenges, with a variety of approaches across&#xA;  countries. Responses have included clarifying the applicability of&#xA;  existing legislation to VCs, issuing warnings to consumers, imposing&#xA;  licensing requirements on certain VC market participants, prohibiting&#xA;  financial institutions from dealing in VCs, completely banning the use&#xA;  of VCs, and prosecuting violators. These approaches represent an&#xA;  initial policy response to the challenges that VCs pose, but further&#xA;  development is needed. In particular, national authorities will need&#xA;  to calibrate regulation in a manner that appropriately addresses the&#xA;  risks without stifling innovation.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;h2&gt;&lt;a href=&quot;https://www.ecb.europa.eu/pub/pdf/other/virtualcurrencyschemesen.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;European Central Bank (2015)&lt;/a&gt;&lt;/h2&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;A number of international authorities have developed an interest in&#xA;  VCS [Virtual currency schemes], including the Financial Action Task Force (FATF), given the&#xA;  potential risks for the integrity of the international financial&#xA;  system. Several central banks and financial and supervisory&#xA;  authorities around the world have warned users of the risks related to&#xA;  holding and transacting virtual currencies, provided clarifications on&#xA;  the legal status, started regulating certain activities or issued an&#xA;  outright ban. However, the responses vary, depending to some degree on&#xA;  the part of the world from which they originate and on the type of&#xA;  authority. &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;[...]&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;For the tasks of the ECB as regards monetary policy&#xA;  and price stability, financial stability, promoting the smooth&#xA;  operation of payment systems, and prudential supervision, the&#xA;  materialisation of these risks depends on the volume of VCS issued,&#xA;  their connection to the real economy – including through supervised&#xA;  institutions involved with VCS – their traded volume and user&#xA;  acceptance. For the moment, all these risk drivers have remained low,&#xA;  which implies that there is no material risk for any of the central&#xA;  bank’s tasks as yet. Nevertheless, a major incident involving VCS and&#xA;  a subsequent loss of trust in them could also undermine users’&#xA;  confidence in electronic payment instruments, in e-money and/or in&#xA;  specific payment solutions, such as those in place for e-commerce.&#xA;  Therefore, the Eurosystem intends to continue to monitor&#xA;  payments-related developments in virtual currency schemes.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Please also be aware of two issues while researching this topic:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;financial institutions often concentrate on virtual currencies as a whole rather than on a cryptocurrencies, which are type of virtual currencies without supervision of some central authority (so if Japan, Russia or Estonia issues virtual currency under their central bank, technically it will not ba a cryptocurrency); this means that while saying positive things about virtual currencies they often don’t think about eq. bitcoin, but rather new form of virtual currency under supervision of a central bank,&lt;/li&gt;&#xA;&lt;li&gt;the people most interested in cryptocurrencies are those, who own cryptocurrencies; thus,  the information is usually presented more positive than the source of information intended.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="15240" LastActivityDate="2017-11-18T21:38:52.123" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19366" PostTypeId="1" AcceptedAnswerId="19381" CreationDate="2017-11-19T03:18:58.837" Score="1" ViewCount="42" Body="&lt;p&gt;I have been reading about how an increase in interest rates causes inflation to decrease as there is less money in circulation. However; I have never seen an article explaining how interest rates are affected by rising or falling inflation (The opposite).Could someone explain to me how interest rates are affected by a changing inflation rate?&lt;/p&gt;&#xA;" OwnerUserId="14755" LastActivityDate="2018-09-09T14:18:48.377" Title="How Are The Interest Rates Affected By Inflation Changes?" Tags="&lt;inflation&gt;&lt;interest-rate&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19367" PostTypeId="1" CreationDate="2017-11-19T04:53:45.783" Score="1" ViewCount="1589" Body="&lt;p&gt;I am trying to write my performance assessment about income and price elasticities of demand but I have a hard time figuring out if a house is a normal necessity good or a normal luxury good.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Everyone needs a house, however, no one needs a mansion. So which is it, is a house a normal necessity good or a normal luxury good?&lt;/p&gt;&#xA;" OwnerUserId="15243" LastActivityDate="2017-11-19T08:46:50.550" Title="Do you consider a house a normal NECESSITY good or normal LUXURY good?" Tags="&lt;microeconomics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19368" PostTypeId="2" ParentId="19367" CreationDate="2017-11-19T05:33:54.260" Score="0" Body="&lt;p&gt;Dependent on what part of the world you live in and are you living within your means. I assume you are from a first world country, it is generally expected that you own a house by any standards (Homelessness is frowned upon by society generally whether we like to admit it or not), so I would class this as a Normal Necessity Good.&lt;/p&gt;&#xA;" OwnerUserId="14755" LastActivityDate="2017-11-19T05:33:54.260" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19371" PostTypeId="2" ParentId="19367" CreationDate="2017-11-19T08:46:50.550" Score="2" Body="&lt;p&gt;I would expect necessity goods to have an income elasticity between 0 and 1 in keeping with &lt;a href=&quot;https://en.wikipedia.org/wiki/Engel%27s_law&quot; rel=&quot;nofollow noreferrer&quot;&gt;Engel's Law&lt;/a&gt;, which was originally observed for food (an obvious necessity good).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Housing indeed exhibits this feature because poorer households spend a larger fraction of their income on housing. That makes housing look like a necessity good. E.g.,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/VjPuu.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/VjPuu.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(source: &lt;a href=&quot;http://www.lao.ca.gov/reports/2015/finance/housing-costs/housing-costs.aspx&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.lao.ca.gov/reports/2015/finance/housing-costs/housing-costs.aspx&lt;/a&gt;)&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2017-11-19T08:46:50.550" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19373" PostTypeId="1" AcceptedAnswerId="19374" CreationDate="2017-11-19T10:56:06.310" Score="0" ViewCount="54" Body="&lt;p&gt;In my lecture slide, it is said to be one of the competition-based price determination. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;When I searched online, I was unable to find anything relevant.&lt;/p&gt;&#xA;" OwnerUserId="14778" LastActivityDate="2017-11-19T12:56:41.637" Title="What does pilot price mean in the context of marketing?" Tags="&lt;competition&gt;&lt;price&gt;&lt;marketing&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19374" PostTypeId="2" ParentId="19373" CreationDate="2017-11-19T12:56:41.637" Score="2" Body="&lt;p&gt;If the phrase &lt;a href=&quot;https://en.wikipedia.org/wiki/Pilot_experiment&quot; rel=&quot;nofollow noreferrer&quot;&gt;pilot experiment&lt;/a&gt;&#xA;or more famously &lt;a href=&quot;https://en.wikipedia.org/wiki/Television_pilot&quot; rel=&quot;nofollow noreferrer&quot;&gt;television pilot&lt;/a&gt; is any indication, then pilot price is probably an initial price, one that the company experiments with when trying to find the ideal price of their product.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2017-11-19T12:56:41.637" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19375" PostTypeId="1" CreationDate="2017-11-19T15:42:46.053" Score="4" ViewCount="2879" Body="&lt;p&gt;We learned in class that variable cost is the sum of marginal cost. I am given the following question.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Assume you are a profit-maximizing firm in a perfectly competitive market. Marginal cost is MC(qi) = 10 + qi/4 and the market price for you output is P= $60.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Calculate variable costs. So the teacher goes ahead and solves for the area of a trapezoid to get a variable cost of 7000 (when q=200) and that's fine. But why do I get a different answer when I try to calculate the sum of a series? My attempt:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$VC=(10+1/4)+(10+2/4)+...+(10+200/4)=2000+(200)(201)/8=7025$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Clearly 7025 doesn't equal 7000, so what is going on here? Also I thought MC isn't supposed to include fixed costs so is the equation MC(qi)=10+qi/4 only defined when qi is at least 1? Thanks&lt;/p&gt;&#xA;" OwnerUserId="15248" LastActivityDate="2017-11-21T15:41:22.063" Title="Variable cost as the sum of marginal cost" Tags="&lt;microeconomics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19376" PostTypeId="1" AcceptedAnswerId="19380" CreationDate="2017-11-19T16:07:54.907" Score="0" ViewCount="1515" Body="&lt;p&gt;So, I need to determine whether or not $u=x^{0.5}y^{0.5}$ exhibits the same preferences as $u'= log(x) + log (y)$. Any tricks I can use here? I've done the logarithmic transformation so that I now have $(0.5)log (x) + (0.5)log (y)$. My guess is, if I multiply these by $2$ I'll get $log (x) + log (y)$ and thereby proving that u and u' refer to the same preferences, but I'm not sure if this is correct? &lt;/p&gt;&#xA;" OwnerUserId="15249" LastEditorUserId="6629" LastEditDate="2017-11-21T04:30:25.107" LastActivityDate="2017-11-21T04:30:25.107" Title="Transformation of Cobb Douglas Utility" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19377" PostTypeId="2" ParentId="18998" CreationDate="2017-11-19T16:10:42.350" Score="0" Body="&lt;p&gt;Okay I think I made a lot of implicit assumptions because I was confused by your functions in the last answer, which made my answer very confusing itself. So I try to be a bit more explicit this time. I will only consider your first function.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now if this is a production function, then the $x_i$ are inputs, and you only have one output.&#xA;Now your production function has the following properties: $\frac{df}{dx_i}=\beta_i$ and $\frac{df}{dx_jdx_i}=0$. This implies that your inputs are completely independent from each other. You can reach the same output with only $x_1$ or with only $x_2$. This makes no sense if your inputs are Capital and Labor (at least not until we have fully automized production where you don't need a human anywhere in the production process). Because if either of them are 0 in the real world, you would get no output.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This consideration lead me to believe that your $x_1$ model methods of production, which implies that they already contain mixes of Capital and Labor. In that case you would simply optimize over these different methods of production, and pick the best one. The one with the highest $\beta_i$ to cost ratio. Because at a company level, marginal costs would most likely be constant.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is a reasonable model, from a companies perspective. You can only choose between those production methods, so the fact that you mashed together Capital and Labor does not concern you. You optimize the function and pick the best method of production given fixed costs. The (presumed) simplification is, that you don't consider how expansion or production changes the marginal cost within a production method. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(If the expansion would be on a economic scale, then you would increase the wage of workers by employing more of them, which would at some point result in you picking a more capital heavy production method)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An economists approaches this from a different angle: They are interested in the Capital/Labor ratio and not in the specific method of production. They want a function that takes Capital and Labor as input, selects the best method of production given that input, and returns an output. Their assumption is, that on this scale there are so many different methods of production, that you can brush over them and basically get a continuous function in Capital and Labor.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;They want a model which has the property $\frac{df}{dx_jdx_i}&amp;gt;0$ which the Cobb-Douglas function provides.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You are basically comparing particle simulation with fluid simulation. The equations to model a single water molecule will be different from modelling a stream of water. And it might look like one doesn't have anything to do with the other. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The other possibility I thought of, was that this function is actually a cost function of producing the outputs $(x_1, ...,x_n)$ but then you have a fixed marginal cost of $x_i$ by definition. Which again, is an assumption that is reasonable to make on the micro level but not on the macro level.&lt;/p&gt;&#xA;" OwnerUserId="15245" LastEditorUserId="15245" LastEditDate="2017-11-19T18:27:52.887" LastActivityDate="2017-11-19T18:27:52.887" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19378" PostTypeId="1" CreationDate="2017-11-19T16:51:53.123" Score="1" ViewCount="61" Body="&lt;p&gt;We know: $PCI = \frac{Y(Income)}{P(population)}$ and that&#xA;$PCI$ growth rate is $\frac{\Delta PCI}{PCI}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How is this equal to the difference between income growth rate and population growth rate?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words how is $\left(\frac{∆\frac{Y}{P}}{\frac{Y}P}\right) = (∆Y/Y) - (∆P/P)$ ?&lt;/p&gt;&#xA;" OwnerUserId="14617" LastEditorUserId="6629" LastEditDate="2017-11-19T18:44:33.047" LastActivityDate="2017-11-20T22:51:27.523" Title="Per capita income growth rate is difference between income growth rate and population growth rate?" Tags="&lt;macroeconomics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19379" PostTypeId="2" ParentId="18998" CreationDate="2017-11-19T17:10:33.637" Score="2" Body="&lt;p&gt;As you hint at in your question, the real underlying reason (in my opinion) behind the C-D production function's popularity is mathematical convenience. The fact that the sum $\alpha + \beta$ is a nice, intuitive representation of &quot;returns to scale&quot; is very convenient.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think of its use as similar to the use of exponential or power utilities in mathematical finance. Unrealistic? Perhaps, but oh so friendlier to work with.&lt;/p&gt;&#xA;" OwnerDisplayName="user11305" LastActivityDate="2017-11-19T17:10:33.637" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19380" PostTypeId="2" ParentId="19376" CreationDate="2017-11-19T17:13:01.327" Score="1" Body="&lt;p&gt;Hint: how does a positive monotone transformation of the utility function affect the consumer's maximization problem?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose the optimal bundle for some agent with some utility function $u$ is given by $x^{*} = (x_{1}^{*},x_{2}^{*})$. Suppose then that I take the transformation of $u$ by some strictly monotone function $f$. I claim that $x^{*} = (x_{1}^{*},x_{2}^{*})$ is the optimal bundle for the new utility function $v = f \circ u$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose not, suppose that there is another bundle $\hat{x} = (\hat{x}_{1},\hat{x}_{2})$ such that $v(\hat{x}) &amp;gt; v(x^{*})$. But by the definition of $v$, we have $$\tag{In}\label{In} f(u(\hat{x})) &amp;gt; f(u(x^{*}))$$ Then, since $f$ is strictly monotone, it is invertible and so from \ref{In} we must have $u(\hat{x}) &amp;gt; u(x^{*})$, which contradicts optimality of $x^{*}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The $\ln$ function is one such strictly monotone function on domain $\Re_{+}$.&lt;/p&gt;&#xA;" OwnerDisplayName="user11305" LastEditorDisplayName="user11305" LastEditDate="2017-11-19T18:19:02.743" LastActivityDate="2017-11-19T18:19:02.743" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="19381" PostTypeId="2" ParentId="19366" CreationDate="2017-11-19T17:18:21.223" Score="1" Body="&lt;p&gt;I would note &lt;a href=&quot;https://economics.stackexchange.com/questions/19131/why-nominal-interest-increases-when-inflation-is-expected-to-increase&quot;&gt;this similar question&lt;/a&gt; on interest rates and inflation. &#xA;I would summarise the answer there as follows.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Short-term interest rates are set by the central bank (in most developed countries; things are different in places with currency pegs).&lt;/li&gt;&#xA;&lt;li&gt;Longer-term bond yields should roughly equal the expected path of the short-term rate (plus a term premium). One can debate this point, but it is a fairly standard assumption.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;The answer therefore ends up: what is the effect of inflation on how the central bank sets policy? This is the subject of monetary economics, and is an open-ended topic that cannot easily be answered here.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In practice, we often see the central bank raising rates as the expected rate of inflation rises. Since they are worried about expected inflation, they do not automatically react to every wiggle in measured inflation. For example, a central bank may not react to an oil price spike. (Reactions varied during the 2008 oil price spike, with the ECB hiking, and the Fed not.) &lt;/p&gt;&#xA;" OwnerUserId="12891" LastEditorUserId="4020" LastEditDate="2018-09-09T14:18:48.377" LastActivityDate="2018-09-09T14:18:48.377" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="19382" PostTypeId="1" AcceptedAnswerId="19385" CreationDate="2017-11-19T17:52:12.213" Score="3" ViewCount="607" Body="&lt;p&gt;In a basic mathematics for economists course one is exposed to the concept of directional derviative. Recall that a directional derivative is defined as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\nabla f \frac{\mathbb{v}}{\|\mathbb{v}\|}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know that it mathematically tells you the direction the function is increasing on a two or three dimensional graph, however I am yet to see an application of such a formula in any economics problems.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What are some applications of the directional derivative in Economics?&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2017-11-19T20:19:36.130" Title="What are directional derivatives used for in economics?" Tags="&lt;mathematical-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19383" PostTypeId="2" ParentId="19375" CreationDate="2017-11-19T19:12:44.283" Score="4" Body="&lt;p&gt;VC is not exactly the sum of MC but the &lt;em&gt;integral&lt;/em&gt; of it. A sum is the discrete analog of an integral. I think you've been told this to help with intuitive comprehension. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In general, &#xA;\begin{equation}&#xA;TC(Q)=FC+VC(Q)&#xA;\end{equation}&#xA;where $FC$ is independent of $Q$. To get MC, we take the derivative of TC with respect to $Q$: &#xA;\begin{equation}&#xA;MC(Q)=\frac{\mathrm dTC(Q)}{\mathrm dQ}=\frac{\mathrm dVC(Q)}{\mathrm dQ}.&#xA;\end{equation}&#xA;The second equality obtains because differentiating a constant always give you zero. Now to get VC from MC, we need the reverse operation of differentiation, which is integration, i.e. &#xA;\begin{equation}&#xA;VC(Q)=\int_0^{Q}MC(q)\,\mathrm dq.&#xA;\end{equation}&#xA;In your example, given $MC(Q)=10+\frac14Q$ and $Q=200$, &#xA;\begin{equation}&#xA;VC(200)=\int_0^{200}\left(10+\frac14q\right)\mathrm dq=\left.10q+\frac18q^2\right\vert_0^{200}=10(200)+\frac{200^2}{8}=7000&#xA;\end{equation}&lt;/p&gt;&#xA;" OwnerUserId="42" LastEditorUserId="42" LastEditDate="2017-11-21T15:41:22.063" LastActivityDate="2017-11-21T15:41:22.063" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19384" PostTypeId="2" ParentId="19378" CreationDate="2017-11-19T19:36:50.683" Score="1" Body="&lt;p&gt;Knowing that:&#xA;$$\frac{\Delta PCI}{PCI}=&#xA;\left(\frac{∆\frac{Y}{P}}{\frac{Y}P}\right) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we rearrange the terms on the right hand side:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\Delta PCI}{PCI}=\left(\frac{\frac{\Delta Y}{Y}}{\frac{\Delta P}{P}}\right)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In order to get your last equation we would have to log the variables, for logged growth rates. This makes things easier because we can think of the variables in terms of percentages.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Logging the variables we get&#xA;$$\ln\left(\frac{\Delta PCI}{PCI}\right)=\ln\left(\frac{\frac{\Delta Y}{Y}}{\frac{\Delta P}{P}}\right)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\ln\left(\frac{\Delta PCI}{PCI}\right)=\ln\left(\frac{\Delta Y}{Y}\right)-\ln\left(\frac{\Delta P}{P}\right)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;in more formal notation used in macroeconomics:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\hat{PCI}=\hat{y}-\hat{p}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;hope this helps.&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="8815" LastEditDate="2017-11-19T19:51:11.703" LastActivityDate="2017-11-19T19:51:11.703" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="19385" PostTypeId="2" ParentId="19382" CreationDate="2017-11-19T19:54:15.623" Score="1" Body="&lt;p&gt;Recall, that the directional derivative of a function is defined as the the rate at which the function &lt;span class=&quot;math-container&quot;&gt;$f(x,y,z)$&lt;/span&gt; at a given point &lt;span class=&quot;math-container&quot;&gt;$(x_0, y_0, z_0)$&lt;/span&gt; changes in  direction of the vector &lt;span class=&quot;math-container&quot;&gt;$v$&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$||v||$&lt;/span&gt; is the &lt;a href=&quot;http://mathworld.wolfram.com/Norm.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;norm&lt;/a&gt; of &lt;span class=&quot;math-container&quot;&gt;$v$&lt;/span&gt;&lt;sup&gt;1&lt;/sup&gt;.&lt;/p&gt;&#xA;&lt;h1&gt;What comes to mind&lt;/h1&gt;&#xA;&lt;p&gt;Applications of the directional derivative can be used in determining the rate of switching inputs in &lt;a href=&quot;https://en.wikipedia.org/wiki/Production_function&quot; rel=&quot;nofollow noreferrer&quot;&gt;production functions&lt;/a&gt;, which can be very helpful in determining/forecasting switching costs for a given bundle of inputs. &lt;strong&gt;Though it does not tell you where the optimum points are&lt;/strong&gt; it does tell you the rate of change (i.e. the switching costs) of  moving to a different bundle.&lt;/p&gt;&#xA;&lt;p&gt;Hope this is helpful&lt;/p&gt;&#xA;&lt;p&gt;&lt;sub&gt;&lt;sup&gt;1&lt;/sup&gt; &lt;a href=&quot;http://mathworld.wolfram.com/DirectionalDerivative.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://mathworld.wolfram.com/DirectionalDerivative.html&lt;/a&gt;&lt;/sub&gt;&lt;/p&gt;&#xA;" OwnerUserId="6629" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2017-11-19T20:19:36.130" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="19386" PostTypeId="1" CreationDate="2017-11-19T22:29:05.767" Score="1" ViewCount="84" Body="&lt;p&gt;Empirically we observe that the uncovered interest rate parity (UIP) does not hold; in fact the exchange rate adjusted return on an emerging market bond is higher than the return on US bonds; I know that the risk premium may account for this empirical observation and that a recent theoretical literature has emphasized the role of financially constrained international investors (Gabaix, and Maggiori, 2015). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is: Does the receiving (emerging market) economy benefits from (or has an interest in maintaining) a positive UIP spread? Capital flows (especially short term capital flows, such as bond and portfolio flows) have been at the center-stage of a literature that emphasizes the negative effects (asset prices booms, sudden stops, conflict with the emerging market inflation targeting regime etc). To the extent that it is plausible to think that a positive UIP spread &quot;encourages&quot; these types of flows, why wouldn't the emerging market central bank try to compress the spread as much as possible? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In theory the emerging market central bank of a very small economy could engage in foreign exchange interventions aimed at compressing the UIP spread, so to rephrase my question: what are the possible reasons that would instead justify maintaining (and maybe even contributing to maintain) a positive spread. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I can think of as of now: &#xA;Consider a positive UIP spread: $ (1+i_t) - \mathbb{E}_t\Big[(1+i_t^*)\frac{e_{t+1}}{e_{t}}\Big] &amp;gt;0$, where $i_t^*$ is the US interest rate at time $t$, $i_t$ is the domestic interest rate in the emerging market economy at time $t$, $e_{t+1}$ is the exchange rate at time $t+1$ (expressed in terms of units of domestic currency per unit of foreign (dollar) currency) and $e_t$ is the exchange rate at time $t$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is certainly possible for a central bank to use foreign exchange interventions (possibly) together with interest rate policy in order to achieve a zero UIP gap; for instance the central bank could increase the domestic interest rate or sell foreign exchange reserves with the objective of appreciating the period $t$ exchange rate, or a combination of the two. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A higher domestic interest rate is however contractionary and an appreciated domestic currency (for a given domestic policy rate, $i_t$) would certainly reduce exports (which generally represent an important segment of emerging market economies). In relation to the latter point it is unclear to me whether this is however going to have a negative impact on domestic welfare -- households in the emerging market economy could be actually better off since their currency is now stronger, and they can therefore substitute part of their consumption basket with imported goods while at the same time reducing their (welfare reducing) labor supply to the domestic firms. This outcome can indeed arise when there is a terms of trade externality (see for example De Paoli, 2009).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any other ideas?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sources: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;De Paoli, Bianca. &quot;Monetary policy and welfare in a small open economy.&quot; Journal of international Economics 77.1 (2009): 11-22.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Gabaix, Xavier, and Matteo Maggiori. &quot;International liquidity and exchange rate dynamics.&quot; The Quarterly Journal of Economics 130.3 (2015): 1369-1420.&lt;/p&gt;&#xA;" OwnerUserId="46" LastEditorUserId="46" LastEditDate="2017-11-19T22:34:20.263" LastActivityDate="2017-11-19T22:34:20.263" Title="Consequences of a positive uncovered interest rate parity (UIP) spread for an emerging market economy" Tags="&lt;macroeconomics&gt;&lt;financial-economics&gt;&lt;international-economics&gt;&lt;theory&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19387" PostTypeId="2" ParentId="19312" CreationDate="2017-11-20T00:09:46.030" Score="4" Body="&lt;p&gt;The main reasons for decentralization in aviation industry would be lower costs, but also (if not most importantly):&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;supportive public policies (e.g. local tax incentives, provision of low-interest or no-interest loans, other production subsidies),&lt;/li&gt;&#xA;&lt;li&gt;technology and specialization,&lt;/li&gt;&#xA;&lt;li&gt;industrial agreements, such as offset (in order to sell Boeing 747s to Air China, for example, at least part of the final product must be manufactured or assembled inside China itself).&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;In &lt;a href=&quot;https://www.academia.edu/8052368/Global_Decentralization_of_Commercial_Aircraft_Production_Implications_to_the_U.S._Based_Manufacturing_Activity&quot; rel=&quot;nofollow noreferrer&quot;&gt;‘Global Decentralization of Commercial Aircraft Production: Implications to the U.S. Based Manufacturing Activity’&lt;/a&gt; David Pritchard entertains the following hypothesis:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;[...] the geography of input supply for a global company like Boeing&#xA;  may not simply reflect issues such as unit costs, price-quality&#xA;  ratios, input delivery speeds, or any of the related factors that are&#xA;  traditionally thought to encourage internationally decentralized&#xA;  production. More simply, the argument is that big buyers can impose&#xA;  purchasing conditions that aircraft suppliers cannot ignore.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;See also &lt;a href=&quot;https://www.quora.com/Is-the-decentralization-of-production-for-Airbus-and-Boeing-planes-an-intelligent-economic-strategy-or-a-political-necessity&quot; rel=&quot;nofollow noreferrer&quot;&gt;the opinion posted on Quora&lt;/a&gt; to similar question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;General explanations for decentralization of chain production can be found &lt;a href=&quot;https://digitalcommons.mtu.edu/cgi/viewcontent.cgi?article=1354&amp;amp;context=etds&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Corporations are perpetually choosing which approaches to processing,&#xA;  logistics, and product design will best meet company goals.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;[...]&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Localizing production has impacts on product design choices such as&#xA;  processing and remanufacturing limitations based on the capabilities&#xA;  of supply chain members. However, a local supply chain also has the&#xA;  advantage of easier communication and therefore ability to initiate&#xA;  concurrent engineering approaches between supply chain members.&#xA;  Containing production within a physical area affects costs (such as&#xA;  reducing transportation requirements). [...] Transportation costs can&#xA;  plummet in a localized approach to manufacturing but other&#xA;  manufacturing related costs (e.g., capital costs, energy use,&#xA;  materials cost) could rise.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Hope this helps.&lt;/p&gt;&#xA;" OwnerUserId="15240" LastActivityDate="2017-11-20T00:09:46.030" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19388" PostTypeId="2" ParentId="19312" CreationDate="2017-11-20T06:32:40.310" Score="5" Body="&lt;h2&gt;Short answer&lt;/h2&gt;&#xA;&lt;p&gt;Airbus is a particular case of decentralised supply chain which came from historical and political reasons. Airbus is a consortium with several European states having a stake on it, which means that each state wants a part of the production in their country.&lt;/p&gt;&#xA;&lt;h2&gt;Long answer: Why is Airbus' supply chain disperse&lt;/h2&gt;&#xA;&lt;p&gt;The aviation industry for commercial planes basically has has two large players nowadays: Boeing and Airbus. The 70's-80's saw the consolidation of American producers, with Boeing as the survivor and most successful of them (incorporating other large players such as the old &lt;a href=&quot;https://en.wikipedia.org/wiki/McDonnell_Douglas&quot; rel=&quot;nofollow noreferrer&quot;&gt;McDonell Douglas&lt;/a&gt;).&lt;/p&gt;&#xA;&lt;p&gt;Europe had smaller producers, such as &lt;a href=&quot;https://en.wikipedia.org/wiki/British_Aircraft_Corporation&quot; rel=&quot;nofollow noreferrer&quot;&gt;BAC&lt;/a&gt; or &lt;a href=&quot;https://en.wikipedia.org/wiki/A%C3%A9rospatiale&quot; rel=&quot;nofollow noreferrer&quot;&gt;Aerospatiale&lt;/a&gt;. Smaller European producers in the 70's and 80's wanted to compete with Boeing, namely with the success of the 727, but the fragmented market would be a challenge. Therefore, Airbus was a consortium created with several European manufacturers to have a large aviation player with European roots. To minimize political difficulties, the supply chain was split over several countries:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;While the original partners in the company recognised that the only way to compete was to consolidate national industries on a regional European basis, consolidation required negotiation and political finesse. Most sensitive was the decision where to site the different manufacturing operations.&lt;/p&gt;&#xA;&lt;p&gt;&lt;strong&gt;The easiest way to defuse tensions was to build different bits of the first plane, the A300B, in the different partner countries.&lt;/strong&gt; The French made the cockpit, the control systems and the lower-centre section of the fuselage; the UK made the wings, and the Germans made the rest of the fuselage and a part of the centre section. The Dutch made the moving parts of the wing, the flaps and the spoilers, while the Spanish made the horizontal tailplane.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Source: &lt;a href=&quot;https://www.ft.com/content/c9a9a77c-db07-11e3-8273-00144feabdc0&quot; rel=&quot;nofollow noreferrer&quot;&gt;Financial Times&lt;/a&gt;&lt;/p&gt;&#xA;&lt;h3&gt;This supply chain is unlikely to become more centralised or placed offshore, for political and economic reasons. &lt;/h3&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;From the economic perspective,&lt;/strong&gt; today's supply chain is too fixed to be able to be moved somewhere cheaper, as the regions where each part is produced developed local expertise and innovation centres around it. Another argument is that the de-centralized supply chain helps to have a faster delivery time (see FT article mentioned above).&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;From the political perspective,&lt;/strong&gt; European stability (commercial and military) requires that countries depend on each other for developing aircraft. Although Airbus is mostly known from the A380s and A320s, they also produce military aircraft with their subdivision &lt;a href=&quot;https://en.wikipedia.org/wiki/Airbus_Defence_and_Space&quot; rel=&quot;nofollow noreferrer&quot;&gt;Airbus Defense and Space&lt;/a&gt;. Placing production outside of Europe would place aviation expertise in other countries, a strategic expertise to have for defense.&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="12304" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2017-12-01T10:54:18.397" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19390" PostTypeId="1" CreationDate="2017-11-20T07:57:50.323" Score="3" ViewCount="432" Body="&lt;p&gt;Does anyone know where I can download from:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) historical data for sovereign bond yields (or prices) and &#xA;2) historical data for soveregin CDS (credit default swaps) rates?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;preferebly free?&lt;/p&gt;&#xA;" OwnerUserId="15252" LastEditorUserId="108" LastEditDate="2018-04-20T15:33:01.767" LastActivityDate="2019-08-13T22:02:50.410" Title="Historical sovereign bond yield and CDS rate data download" Tags="&lt;econometrics&gt;&lt;data-request&gt;&lt;asset-pricing&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19391" PostTypeId="2" ParentId="19349" CreationDate="2017-11-20T08:52:09.747" Score="1" Body="&lt;p&gt;Amongst central bankers there is no controversy, the money multiplier is plain wrong, see this definitive paper from the Bank of England &lt;a href=&quot;http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So assuming that loans create deposits...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Imagine a bank lends (i.e. creates) 1000 dollars for person A to buy second hand car from person B (for simplicity imagine they both are customers of the same bank). Person B stores the 1000 dollars in their bank account, expecting interest to be paid on their savings. The bank then makes its profit on the difference between the interest A is paying to the bank and what the bank pays in interest to the saver B.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that as A repays the principal on the loan the money disappears back out of existence. The bank only gets to keep the interest.&lt;/p&gt;&#xA;" OwnerUserId="5081" LastActivityDate="2017-11-20T08:52:09.747" CommentCount="9" ContentLicense="CC BY-SA 3.0" />
  <row Id="19394" PostTypeId="1" AcceptedAnswerId="19720" CreationDate="2017-11-20T13:05:06.683" Score="2" ViewCount="88" Body="&lt;p&gt;I am reading Money Power book, from 1932 (&lt;a href=&quot;http://www.worldcat.org/title/money-power-and-human-life/oclc/3783026&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.worldcat.org/title/money-power-and-human-life/oclc/3783026&lt;/a&gt;). The author explains how the War Loans in the UK worked.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;He says that the government offered a bond at, say, X% interest rate. Then, banks offered some of their clients a loan of credit, at a cost of X-1%, which had to be tied to such bond. This is, clients would &quot;buy&quot; the bond with credit money. This was a sound business for the client, which would make 1%, and the bank, which would receive X-1% almost risk-free (bond was a collateral).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It occured to me, that this practice could be quite common. Is it? For example, say a poor country is selling a bond, which pay high interest rates. Then I could go to the bank and ask them for a loan, backed with the bond as collateral, and use that money to buy that loan. The bank would agree to do so, and we would both benefit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this legal? Is it cheating? Does this happen?&lt;/p&gt;&#xA;" OwnerUserId="15121" LastEditorUserId="15121" LastEditDate="2017-11-22T07:43:05.193" LastActivityDate="2017-12-15T14:57:51.140" Title="Do institutions buy debt with credit?" Tags="&lt;banking&gt;&lt;debt&gt;&lt;bonds&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19395" PostTypeId="2" ParentId="19349" CreationDate="2017-11-20T13:21:50.130" Score="1" Body="&lt;p&gt;You may have misunderstood the endogenous money-creation argument. &#xA;The endogenous money growth theory is a useful explanation of how monetary expansion works: but note that it describes the aggregate effect across the whole banking system; not the effect within a single bank.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When a bank takes deposits of 100, it can't lend more than that. Indeed, because of the capital requirements placed on banks, it can only lend strictly less than that. That's because the money the bank lends, is going to leave the bank shortly after being loaned: it will get spent on something, and the seller is unlikely to use the same bank as the buyer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, because a balance sheet always has to balance, banks can't lend out more than they borrow from savers (plus the amount they borrow from the markets or the Central Bank, plus any equity).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are differences between a bank's lending rates and its borrowing rates, for several reasons.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;The bank has to make a surplus (profit), as well as costs such as staff salaries, building maintenance, and so on. So in general, the average lending rate has to be above the average saving rate by an amount to cover all this.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The bank can only lend out &lt;em&gt;part&lt;/em&gt; of the deposits, so the average lending rate has to be even further above the average saving rate, to cover that too.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Although the bank will pay back all of its savers in full, when they ask for their money, not all of its borrowers will repay their full loans: some will go bankrupt, others will default in other ways. So the average lending rate has to be even further above the average savings rate, to cover that too.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Banks lend out money on different terms to those on which they accept savings. For example, savings accounts can often be emptied at a moment's notice, or with 90 days notice, or 1 year of notice. So in effect, the bank is borrowing short-term money. Whereas loans and mortgages aren't repaid in such short intervals: they get repaid over months to decades. And usually, the yield curve (yields vs loan duration) curves upwards, which means that longer-term loans carry higher interest rates than shorter-term loans.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="44" LastEditorUserId="44" LastEditDate="2017-11-20T13:39:40.520" LastActivityDate="2017-11-20T13:39:40.520" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19397" PostTypeId="1" CreationDate="2017-11-20T13:47:37.953" Score="3" ViewCount="104" Body="&lt;p&gt;Assume a bank gives a loan to Mr X. for, say 100. The bank's assets (account &quot;loans&quot;) increases by 100, and its liability (account &quot;deposits&quot;) also go up by 100 (which is the extra 100 added to the current account of that who asked for the loan). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Say Mr. X does not want to pay the loan+interest. The bank is, by law, entitled to them, so it can perfectly use the law to reclaim the money and interest back (maybe possessing some material wealth like a house or other collateral used to secure the loan in the first place). However, can a bank, &lt;em&gt;in theory&lt;/em&gt;, simply erase the loan and deposit? Can it simply eliminate the 100 from both assets and liabilities? Would not this way the bank be exactly the same as in the beginning?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;PS: sorry I am asking many questions. I am study economics and banking and cannot understand everything very well. It is great to have a place here to improve my knowledge&lt;/p&gt;&#xA;" OwnerUserId="15121" LastActivityDate="2020-05-31T07:39:39.913" Title="Could a bank simply eliminate a loan from its books?" Tags="&lt;banking&gt;" AnswerCount="3" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="19399" PostTypeId="2" ParentId="19397" CreationDate="2017-11-20T16:46:08.677" Score="0" Body="&lt;p&gt;If Mr X has not spent the money yet and has not taken it out of the bank in the form of cash then in theory a bank cancelling both the assets and liabilities would bring it back to how it was before the loan took place.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If Mr X spent the money, buying something from person Y the situation can no longer be undone by simply cancelling assets/liabilities because the liabilities are now liabilities to Y.&lt;/p&gt;&#xA;" OwnerUserId="5081" LastActivityDate="2017-11-20T16:46:08.677" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="19400" PostTypeId="1" AcceptedAnswerId="19406" CreationDate="2017-11-20T18:39:00.647" Score="1" ViewCount="61" Body="&lt;p&gt;I recently came by a post that states in panel data with small time dimensions the stationarity issue is not present, is this true? can anybody provide a source for this?&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;I'm working with a panel data set for 10 states over 11 years, with variables: unemployment, poverty rates, age controls in (%) and minimum wages.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Should I bother trying to test for unit roots? if so what tests would you recommend? I am using R and having difficulties trying to find and understand some tests used in panel data sets.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;-thanks&lt;/p&gt;&#xA;" OwnerUserId="15064" LastActivityDate="2017-11-20T21:17:23.193" Title="When does the &quot;stationary&quot; problem become and issue with panel data?" Tags="&lt;econometrics&gt;&lt;paneldata&gt;&lt;r&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19404" PostTypeId="1" CreationDate="2017-11-20T20:53:16.777" Score="1" ViewCount="53" Body="&lt;p&gt;Suppose a reform makes potential GDP higher, at what speed does actual GDP close the gap? I'm looking preferentially for empirical estimates, but anything that allows me to narrow it down will be helpful.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Dietz Vollrath says (&lt;a href=&quot;https://growthecon.wordpress.com/2014/12/03/insert-policy-here-wont-boost-growth-rates/&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://growthecon.wordpress.com/2014/12/03/insert-policy-here-wont-boost-growth-rates/&lt;/a&gt;) that there's copious empirical evidence saying that the rate is about 2% (2% of the gap is closed each year); he doesn't provide sources and it seems awfully slow, but he is very confident on that. I've tried to find such an estimate, and failed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks!&lt;/p&gt;&#xA;" OwnerUserId="125" LastEditorUserId="42" LastEditDate="2017-11-20T21:08:01.667" LastActivityDate="2018-02-20T15:26:00.147" Title="What's the speed of convergence to the potential GDP? (Empirical estimates)" Tags="&lt;macroeconomics&gt;&lt;reference-request&gt;&lt;empirical-evidence&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19405" PostTypeId="2" ParentId="16729" CreationDate="2017-11-20T20:53:41.900" Score="0" Body="&lt;p&gt;No, because money can be destroyed and counterfeited. For example, I have a shop, and you buy something from me. I could burn the money. The number of goods have not changed, but money has. Similarly, evildoers can counterfait money, adding it to circulation, without changing the amount of goods available in the economy.&lt;/p&gt;&#xA;" OwnerUserId="15121" LastActivityDate="2017-11-20T20:53:41.900" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19406" PostTypeId="2" ParentId="19400" CreationDate="2017-11-20T21:17:23.193" Score="2" Body="&lt;p&gt;The data sample is so small that formal testing for stationarity would be essentially worthless. Inspect visually your individual series for any obvious trend. This would be the case where even with a short sample non-stationarity would be a problem.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2017-11-20T21:17:23.193" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19407" PostTypeId="2" ParentId="19375" CreationDate="2017-11-20T22:12:59.657" Score="5" Body="&lt;p&gt;You can obtain variable cost as the sum of a series &lt;em&gt;in this case&lt;/em&gt; because the given formula for marginal cost is linear. But there is a much simpler way.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First the &lt;strong&gt;series approach&lt;/strong&gt;.  The first term of your series was $10+1/4$ which is the marginal cost at $q=1$. This ignores the fact that, according to the formula, marginal cost is less than that whenever $0 \leq q &amp;lt; 1$. The first term should instead be the average marginal cost over the range $[0,1]$. Since marginal cost at $q=0$ is $10$, this is given by:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$(1/2)[10 + (10 + 1/4)] = 10 + 1/8$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now the idea of a marginal cost for a quantity of less than one unit may seem nonsense if one thinks of marginal cost as the additional cost attributable to the marginal unit. But it does make sense for a good that can be produced in quantities that are not exact numbers of units of measurement (eg liquids, powders, measured in units of capacity or volume).  In such a case, and given linearity, marginal cost can be defined as $\Delta C/\Delta q$, where the $\Delta$'s indicate changes in cost $C$ and $q$ respectively, and $\Delta q$ may be less than one unit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By a similar logic, the second term in the series should be the average marginal cost over the range $[1,2]$ which is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$(1/2)[(10 + 1/4) + (10 + 2/4)] = 10 + 3/8$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Continuing in this manner up to the final term which is the average marginal cost over the range $[199,200]$ we have:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$VC = (10 + 1/8) + (10 + 3/8) \dots + (10 + 399/8) = 2000 + (100)(400)/8 = 7000$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(The formula $(100)(400)$ comes from summing $100$ pairs: $1+399$, $3 + 397$, and so on.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now the &lt;strong&gt;simpler way&lt;/strong&gt;. Given linearity, there is no need to consider intervals of one unit.  The averaging formula can just be applied to the whole range $[0,200]$ as below:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\text{Variable cost = No. of units x Average marginal cost}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$VC = (200)(1/2)[10 + (10 + 200/4)] = (200)(35) = 7000$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note however that neither of these methods would work if the formula for marginal cost were non-linear.  Given a non-linear formula you would need to calculate an integral as illustrated in Herr K's answer.&lt;/p&gt;&#xA;" OwnerUserId="1417" LastEditorUserId="1417" LastEditDate="2017-11-20T22:59:17.910" LastActivityDate="2017-11-20T22:59:17.910" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19408" PostTypeId="2" ParentId="19378" CreationDate="2017-11-20T22:13:24.827" Score="0" Body="&lt;p&gt;Yes, there is a rule: the  growth rate of  the  ratio of  two  variables is equal to the  difference between the  two growth rates. To show this, assume, $PCI=\frac{Y}{P}=y$, take logs of both sides $log(y)=log(Y)-log(P)$. &#xA;Now take time deriveative$$\frac{dlog(y)}{dt}=\frac{dlog(Y)}{dt}-\frac{dlog(P)}{dt}$$ and note that the growth rate of variable $x$ is $g_x=\frac{dlog(x)}{dt}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;hence, we have $$g_y=g_Y-g_P$$&lt;/p&gt;&#xA;" OwnerUserId="6009" LastEditorUserId="6009" LastEditDate="2017-11-20T22:51:27.523" LastActivityDate="2017-11-20T22:51:27.523" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19409" PostTypeId="1" CreationDate="2017-11-21T02:08:11.817" Score="2" ViewCount="271" Body="&lt;p&gt;I'm currently trying to do some estimations using the micEconCES package in R by Henningsen/Henningsen (2011). My issue is that I am not very familiar with R and I'm trying to implement my own dataset to get the estimations with the package. They authors of the paper created this data set for the estimations. &lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;R&amp;gt; set.seed( 123 ) &#xA;R&amp;gt; cesData &amp;lt;- data.frame(x1 = rchisq(200, 10), x2 = rchisq(200, 10), x3 = rchisq(200, 10), x4 = rchisq(200, 10) ) &#xA;R&amp;gt; cesData$y2 &amp;lt;- cesCalc( xNames = c( &quot;x1&quot;, &quot;x2&quot; ), data = cesData, + coef = c( gamma = 1, delta = 0.6, rho = 0.5, nu = 1.1 ) ) &#xA;R&amp;gt; cesData$y2 &amp;lt;- cesData$y2 + 2.5 * rnorm( 200 )&#xA;R&amp;gt; cesData$y3 &amp;lt;- cesCalc(xNames = c(&quot;x1&quot;, &quot;x2&quot;, &quot;x3&quot;), data = cesData, coef = c( gamma = 1, delta_1 = 0.7, delta = 0.6, rho_1 = 0.3, rho = 0.5, + nu = 1.1), nested = TRUE ) &#xA;R&amp;gt; cesData$y3 &amp;lt;- cesData$y3 + 1.5 * rnorm(200) &#xA;R&amp;gt; cesData$y4 &amp;lt;- cesCalc(xNames = c(&quot;x1&quot;, &quot;x2&quot;, &quot;x3&quot;, &quot;x4&quot;), data = cesData, coef = c(gamma = 1, delta_1 = 0.7, delta_2 = 0.6, delta = 0.5, rho_1 = 0.3, rho_2 = 0.4, rho = 0.5, nu = 1.1), nested = TRUE ) &#xA;R&amp;gt; cesData$y4 &amp;lt;- cesData$y4 + 1.5 * rnorm(200)&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;The ﬁrst line sets the“seed”for the random number generator so that these examples can be replicated with exactly the same data set. The second line creates a data set with four input variables (called x1, x2, x3, and x4) that each have 200 observations and are generated from random χ2 distributions with 10 degrees of freedom. The third, ﬁfth, and seventh commands use the function cesCalc, which is included in the micEconCES package, to calculate the deterministic output variables for the CES functions with two, three, and four inputs (called y2, y3, and y4, respectively) given a CES production function. Now in my paper I'm trying to estimate the CES function for the U.S. at the Aggregate Level for the two input case with capital and labor. So what I did is I gathered data from the World Bank Data Base from 1990-2015, where I used Gross Fixed Capital Formation for capital and total Labor Force for Labor.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The authors did f.e. a non linear estimation the following way&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;R&amp;gt; cesNls &amp;lt;- nls( y2 ~ gamma * ( delta * x1^(-rho) + (1 - delta) * x2^(-rho) )^(-phi / rho), + data = cesData, start = c( gamma = 0.5, delta = 0.5, rho = 0.25, phi = 1 ) ) &#xA;R&amp;gt; print( cesNls )&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Now I want the exact same thing for my own data Set which is called Data_Extract_From_World_Development_Indicators. So what I did is firstly&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;R&amp;gt; ceslan &amp;lt;- cesCalc( xNames = c( &quot;GrossFixedCapitalFormation&quot;, &quot;LaborForce&quot; ), data = Data_Extract_From_World_Development_Indicators, coef = c( gamma = 1, delta = 0.6, rho = 0.5, nu = 1.1 ) )&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;So i replicated&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;R&amp;gt; cesData$y2 &amp;lt;- cesCalc( xNames = c( &quot;x1&quot;, &quot;x2&quot; ), data = cesData, coef = c( gamma = 1, delta = 0.6, rho = 0.5, nu = 1.1 ) )&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;All I did was changing the name of the Dataset and replaced x1 and x2 with my two variables for capital and Labor.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Afterwards I tried to do the non linear estimation&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;R&amp;gt; cesulan &amp;lt;- nls(y2 ~ gamma * (delta * GrossFixedCapitalFormation^(-rho) + (1-delta)*LaborForce^(-rho))^(-phi / rho), data = Data_Extract_From_World_Development_Indicators, start = c(gamma = 0.5, delta = 0.5, rho = 0.25, phi = 1) )&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Now this is where my Problem is: I dont know what variable is meant to be y2 in my dataset. I can see in the formula that y2 ~ gamma *... so ist plotted against the rest of the term, but I dont know what Kind of value I need to plug in there. Does anyone have any advice?&lt;/p&gt;&#xA;" OwnerUserId="13030" LastEditorUserId="10247" LastEditDate="2017-11-22T20:35:11.817" LastActivityDate="2019-04-17T03:04:10.990" Title="CES production function application problem" Tags="&lt;elasticity&gt;&lt;elasticity-of-substituion&gt;&lt;ces-function&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19411" PostTypeId="2" ParentId="19376" CreationDate="2017-11-21T03:59:58.483" Score="1" Body="&lt;p&gt;To see if the preferences between $u$ and $u'$ are the same, simply look at the $MRS$ of both of them to see if they are equivalent.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;i.e. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$MRS_{u}=\frac{MU_x}{MU_y}=\frac{\left(0.5x^{-0.5}y^{0.5}\right)}{\left(0.5x^{0.5}y^{-0.5}\right)}=\frac{y}{x}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$MRS_{u'}=\frac{\frac{1}{x}}{\frac{1}{y}}=\frac{y}{x}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Rightarrow MRS_u=MRS_{u'}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\therefore$ $u$ and $u'$ have the same preferences.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope this is helpful&lt;/p&gt;&#xA;" OwnerUserId="6629" LastActivityDate="2017-11-21T03:59:58.483" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19412" PostTypeId="2" ParentId="19390" CreationDate="2017-11-21T04:10:51.820" Score="0" Body="&lt;p&gt;&lt;a href=&quot;https://fred.stlouisfed.org/&quot; rel=&quot;nofollow noreferrer&quot;&gt;FRED&lt;/a&gt; is a good source.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can find info on both those topics by searching the site.&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2017-11-21T04:10:51.820" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19414" PostTypeId="2" ParentId="19397" CreationDate="2017-11-21T07:28:14.713" Score="3" Body="&lt;p&gt;If Mr. X hasn't used the money, so it's all still in a deposit account at the same bank, then the bank &lt;em&gt;may&lt;/em&gt; be able to cancel the loan. Whether they can or not, will depend on the exact contract attached to the loan.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If Mr. X has withdrawn the money as cash, then that transaction represented a drop in the bank's liability to Mr. X of 100, and a drop in the bank's assets of cash-at-hand of 100.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If Mr. X has used the money in a digital transaction, then they can no longer cancel both at the same time, as the asset of the loan is with Mr. X, but its matching liability will be with another party.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In either of the last two cases, the bank can cancel the loan, reducing its assets by 100. The balancing transaction will be a reduction in the bank's equity of 100 - i.e. the bank records a net loss on the loan of 100, and the shareholders make a loss of 100 on the transaction as a result.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(because assets = liabilities + equity)&lt;/p&gt;&#xA;" OwnerUserId="44" LastEditorUserId="44" LastEditDate="2017-11-21T12:47:25.537" LastActivityDate="2017-11-21T12:47:25.537" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="19415" PostTypeId="2" ParentId="16729" CreationDate="2017-11-21T08:59:54.537" Score="2" Body="&lt;p&gt;Answer: no.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In our &lt;a href=&quot;https://en.wikipedia.org/wiki/Fractional-reserve_banking&quot; rel=&quot;nofollow noreferrer&quot;&gt;fractional reserve&lt;/a&gt; monetary system, money (in particular in the form of &lt;a href=&quot;https://en.wikipedia.org/wiki/Demand_deposit&quot; rel=&quot;nofollow noreferrer&quot;&gt;demand deposits&lt;/a&gt;) is being created and destroyed all the time. It is created when loans are made by commercial banks and destroyed when the principal on those loans is repaid.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Re: &quot;In daily transactions that I have experience with, it obviously is. If I buy something from Joe, and give him \$10 dollars, I will have \$10 less and he will have \$10 more. But the total amount we have together has not changed.&quot; - indeed true. It would only not be true if you borrowed the \$10, from a bank in which case a fresh \$10  will have come into existence at that moment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Re: &quot;when does it disappear&quot;... if you had previously borrowed \$100 form a bank and you now repay them that \$100, that money disappears out of existence. If you had additionally to give them say \$5 of interest for that loan, then that $5 does not disappear - the bank gets to keep it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With regard the total quantity - that question is complicated by the fact that there are a variety of forms of money. I'm afraid that's a bit of a minefield. But that is just the kind of data that is published in &lt;a href=&quot;https://fred.stlouisfed.org/&quot; rel=&quot;nofollow noreferrer&quot;&gt;FRED&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="5081" LastEditorUserId="5081" LastEditDate="2017-11-21T09:18:38.140" LastActivityDate="2017-11-21T09:18:38.140" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19416" PostTypeId="2" ParentId="19390" CreationDate="2017-11-21T09:06:48.177" Score="1" Body="&lt;p&gt;There was a similar question in the Quant. Finance section (see here: &lt;a href=&quot;https://quant.stackexchange.com/questions/22819/where-to-get-price-data-on-credit-default-swaps&quot;&gt;https://quant.stackexchange.com/questions/22819/where-to-get-price-data-on-credit-default-swaps&lt;/a&gt;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;People suggested the following options: &lt;a href=&quot;https://www.datagrapple.com/&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.datagrapple.com/&lt;/a&gt; (free for subscription), &lt;a href=&quot;http://www.markit.com/Product/Pricing-Data-CDS&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.markit.com/Product/Pricing-Data-CDS&lt;/a&gt; (not free)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I also guess that Bloomberg and Thomson Reuters databases should also contain historical CDS rates. Practicioners use the data source extensively. Though they are very expensive for a personal use, some universities buy a license to get access to it and it is worth asking people from the finance/banking/econ department if they have access to the database.&lt;/p&gt;&#xA;" OwnerUserId="14950" LastActivityDate="2017-11-21T09:06:48.177" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19417" PostTypeId="1" CreationDate="2017-11-21T12:34:16.760" Score="1" ViewCount="700" Body="&lt;p&gt;In macroeconomics, what is the difference between potential output and maximum output? Or they are simply equivalent concepts? If they are different, how can we graph it in comparison to LRAS on AD-AS model?&lt;/p&gt;&#xA;" OwnerUserId="15265" LastActivityDate="2017-11-23T21:36:14.703" Title="Difference between Maximum Output and Potential Output" Tags="&lt;macroeconomics&gt;&lt;economic-growth&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19420" PostTypeId="2" ParentId="19397" CreationDate="2017-11-21T15:54:30.627" Score="2" Body="&lt;p&gt;Yes, it can eliminate a loan (an asset), but assets have to equal liabilities, so it would also need to eliminate a liability. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It can't just eliminate any liability. It couldn't eliminate any deposit liabilities, for example, because it still owes money to depositors. This doesn't change just because a loan is written down.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the loan is worth 100, it would have to eliminate 100 from shareholder equity (a liability). Shareholders would take a loss as a result of the bank writing down the loan. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The end result wouldn't be the same as how the bank started out. In the most simple case the bank started out with:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Start&lt;/strong&gt;: 100 shareholder equity (Liabilities) and 100 cash (Assets).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;It made the loan from cash&lt;/strong&gt;: 100 shareholder equity (Liabilities) and 100 &lt;strong&gt;loan&lt;/strong&gt; (Assets).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;After writing down the loan&lt;/strong&gt;: &lt;strong&gt;0&lt;/strong&gt; shareholder equity (Liabilities) &lt;strong&gt;0&lt;/strong&gt; loan (Assets).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The bank blew 100 in cash, which ultimately came out of the shareholders' pockets.&lt;/p&gt;&#xA;" OwnerUserId="14137" LastEditorUserId="14137" LastEditDate="2020-05-31T07:39:39.913" LastActivityDate="2020-05-31T07:39:39.913" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="19422" PostTypeId="1" CreationDate="2017-11-22T13:40:44.873" Score="2" ViewCount="37" Body="&lt;p&gt;I would like to post my working paper (broadly defined as theoretical work in finance) on a repository. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Goals&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Primary: to get a time stamp for a new idea that I have, such that I could establish the authorship and the date. &lt;/li&gt;&#xA;&lt;li&gt;Secondary: to get some attention to my new idea, receive comments and discussions, so that I could improve the paper.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Conditions&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;I would like to be able to post the paper myself and to have good control over updating it when I wish to, provided that a track record is kept (see my primary goal).&lt;br&gt;&#xA;(The reason for focusing on easy updates is that the paper is still rather preliminary and changes will be needed. You could say, I should finalize it first and submit only then, and I get the point. But it has been sitting around for too long, and I do not want the idea in it to get stale. Perhaps receiving good comments on the preliminary version will quicken my progress.)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Situation so far&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;I have considered posting it in my institution's working paper series, but that process goes through a secretary which is always busy and would not normally accommodate requests of updating the paper in a timely manner. &lt;/li&gt;&#xA;&lt;li&gt;I have considered posting it on my own website, but then I do not get an official time stamp on the idea, and the visibility is low.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;What could you recommend?&lt;/p&gt;&#xA;" OwnerUserId="4230" LastEditorUserId="4230" LastEditDate="2017-11-22T13:49:17.327" LastActivityDate="2017-11-22T14:17:57.650" Title="Repositories for working papers in economics and finance" Tags="&lt;reference-request&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19423" PostTypeId="2" ParentId="19409" CreationDate="2017-11-22T13:47:06.157" Score="1" Body="&lt;p&gt;Your y2 needs to be the output associated produced with those inputs. Given that you have a CES production function and you use World Bank Country data as inputs, you need output of the countries in that specific year. Typically we use GDP as a measure of output at country level. You can get it a.o. from the World Bank.&lt;/p&gt;&#xA;" OwnerUserId="12186" LastActivityDate="2017-11-22T13:47:06.157" CommentCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="19424" PostTypeId="2" ParentId="19404" CreationDate="2017-11-22T14:11:38.977" Score="1" Body="&lt;p&gt;First of all the speed is not constant, it declines as one gets closer (at least according to the text book predictions).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A classic paper on among others this issue is the one by Mankiw, Romer and Weil in the 1992 QJE &quot;&lt;a href=&quot;http://www.jstor.org/stable/2118477?seq=1#page_scan_tab_contents&quot; rel=&quot;nofollow noreferrer&quot;&gt;A Contribution to the Empirics of Economic Growth&lt;/a&gt;&quot; They find convergence rates of about 1 to 2%. The paper is cited 16,000 times in Google scholar, so no doubt you'll find some material there too. I'm no macro-economist, but it seems an area of active research. &lt;/p&gt;&#xA;" OwnerUserId="12186" LastActivityDate="2017-11-22T14:11:38.977" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19425" PostTypeId="2" ParentId="19422" CreationDate="2017-11-22T14:17:57.650" Score="3" Body="&lt;p&gt;How about &lt;a href=&quot;https://mpra.ub.uni-muenchen.de/&quot; rel=&quot;nofollow noreferrer&quot;&gt;MPRA&lt;/a&gt;? After acceptance it would be cross-posted to REPEC, Ideas and Econpapers.&lt;/p&gt;&#xA;" OwnerUserId="12186" LastActivityDate="2017-11-22T14:17:57.650" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="19428" PostTypeId="1" AcceptedAnswerId="19430" CreationDate="2017-11-22T23:18:37.787" Score="3" ViewCount="72" Body="&lt;p&gt;I've just learned the following way of calculating the real return rate $R$ of an investment:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;$$R=\frac{P(1+N)-P(1+I)}{P(1+I)}$$&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Where $P$ is the initial value invested, $N$ is the nominal interest rate and $I$ is the inflation rate. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, I've seen an alternative formula for calculating the same thing, which is&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;$$R=N-I$$&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So my question is, which one gives a better result for the effective rate of return of an invesment and why? Thanks very much in advance.&lt;/p&gt;&#xA;" OwnerUserId="15052" LastActivityDate="2017-11-23T12:02:55.950" Title="Difference between two ways of calculating real return" Tags="&lt;finance&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19429" PostTypeId="2" ParentId="19428" CreationDate="2017-11-23T03:01:13.020" Score="3" Body="&lt;p&gt;First, it's better to cancel $P$ in your first definition. Then &#xA;$$&#xA;R=\frac{N-I}{1+I}&#xA;$$&#xA;And the second expression is&#xA;$$&#xA;R=N-I&#xA;$$&#xA;Actually, it is the famous $\textit{Fisher Equation}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The difference that there is a $1+I$ on denominator. Of course they are different. But economists sometimes use both since they are approximately equal when $R$ and $I$ are small. If you look at the data, both real interest rate and inflation rate are just a little above 2%.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Instead of using your first definition, let's start from an alternative form&#xA;$$&#xA;1+N = (1+R)(1+I) = 1+R+I+R\cdot I&#xA;$$ &#xA;When $R,I$ are both small, their product can be ignored. Say $2\%\times 2\%=0.0004$. Hence, you can say&#xA;$$&#xA;N= R+I \Leftrightarrow R= N-I&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is the Wikipedia Link.&#xA;&lt;a href=&quot;https://en.wikipedia.org/wiki/Fisher_equation&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://en.wikipedia.org/wiki/Fisher_equation&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="15276" LastActivityDate="2017-11-23T03:01:13.020" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19430" PostTypeId="2" ParentId="19428" CreationDate="2017-11-23T12:02:55.950" Score="3" Body="&lt;p&gt;The second expression is an approximation which works reasonably well for small inflation $I$ but badly for high $I$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose the inflation rate is $I=300\%$ (i.e. prices this year are four times what they were a year ago) and nominal interest rates were $N=100\%$ (i.e. nominally your savings doubled in a year).  Then, in real terms after interest, your savings could buy half the stuff it previously could and the real interest rate was $\frac{N-I}{1+I}=-50\%$ while $N-I=-200\%$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Instead suppose the inflation rate is $I=3\%$ and nominal interest rates were $N=1\%$.  Then  the real interest rate was $\frac{N-I}{1+I}\approx-1.94\%$ while $N-I=-2\%$, fairly close&lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2017-11-23T12:02:55.950" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19433" PostTypeId="1" CreationDate="2017-11-23T20:44:18.130" Score="2" ViewCount="62" Body="&lt;p&gt;I am currently reading &lt;a href=&quot;http://www.columbia.edu/~mw2230/G_ASSA.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Woodford (2010)&lt;/a&gt; and I have understood it for the most part. However, as I am new to solving these kind of models I have a question regarding a specific type of monetary policy rule. Namely one where the domestic central bank pegs domestic rates to foreign interest rates (due to e.g a currency peg).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The examples I have working with involved a Taylor rule of the form:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$i_{t} = \bar{r} + \phi \pi_{t}$ &#xA;I then use the method of undetermined coefficients and assume a solution on the form:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$i_{t} = \bar{r} + \gamma_{i} \hat{g}_{t}$, $\pi_{t} = \gamma_{\pi}$ $\hat{g}_{t}$ , $y_t = \gamma_y \hat{g}_t$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and do the appropriate substitution in to the IS function:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\hat{y_{t}} = E_t \hat{y}_{t+1} + \sigma^{-1}(i_{t} - E_t \pi_{t+1} - \bar{r})$  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the term inside the brackets become:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;($\phi$ $\gamma_{\pi}$ $\hat{g}_{t}$ - $\gamma_{\pi}$ $\hat{g}_{t+1}$) and after assuming a functional form of $g_{t}$ I am able to solve the model.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, now when the monetary policy rule is to peg the interest rate I am unsure how to guess the form of the solution. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My monetary policy rule is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$i_{t} = i_{t}^{*}$ where $i_t^*$ is the interest rate of the foreign country. My initial thought was to do something like:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$i_{t}^* = \gamma_{i^*} \hat{g}_{t} $ but then when I try to solve it I end up with two equations (PC and IS ) and three unknowns ($\gamma_\pi,\gamma_i^*,\gamma_y$). TO clarify what I mean, consider again the term in brackets from the IS function:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$(\gamma_i^*\hat{g}_t - \gamma_\pi \hat{g}_{t+1})$, it's the $\gamma_i$ that is causing me problems. With the Taylor rule I was able to deal with it because the policy rule implies:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\gamma_i = \phi \gamma_\pi$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any ideas where I am going wrong?&lt;/p&gt;&#xA;" OwnerUserId="15284" LastEditorUserId="15284" LastEditDate="2017-11-25T16:51:33.917" LastActivityDate="2017-11-25T16:51:33.917" Title="Government spending dynamics" Tags="&lt;new-keynesian-economics&gt;&lt;government-spending&gt;" AnswerCount="0" CommentCount="4" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19434" PostTypeId="1" AcceptedAnswerId="19449" CreationDate="2017-11-23T21:20:12.833" Score="1" ViewCount="271" Body="&lt;p&gt;In almost all documents I have read on the internet, the locus of consumption where $C_{t} = C_{t+1}$ seems to be a vertical line as shown below. However, my teacher said it could well be not a vertical line. I really don't know why it should be different. Thank you for all your help.&#xA;&lt;a href=&quot;https://i.stack.imgur.com/EIbMT.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/EIbMT.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="14729" LastActivityDate="2017-11-25T13:58:13.420" Title="Is the locus of consumption in Ramsey growth model a vertical line?" Tags="&lt;economic-growth&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19435" PostTypeId="2" ParentId="19417" CreationDate="2017-11-23T21:36:14.703" Score="-1" Body="&lt;p&gt;Potential output and maximum output are often interchangeable and be used in place with each other. Another term is Maximum Potential Output, but the most commonly used is Potential Output. &lt;a href=&quot;https://www.google.co.uk/search?ei=tj0XWomSLtCLaruqvqAL&amp;amp;q=maximum+potential+output+economcis&amp;amp;oq=maximum+potential+output+economcis&amp;amp;gs_l=psy-ab.3..33i21k1.66432.71652.0.71722.36.34.1.0.0.0.188.3982.4j27.31.0..2..0...1.1.64.psy-ab..4.32.4002...0j0i67k1j0i131k1j0i131i67k1j0i22i10i30k1j0i22i30k1j33i22i29i30k1.0.wmBah6x6sbg&quot; rel=&quot;nofollow noreferrer&quot;&gt;This google search&lt;/a&gt; shows that all the results on the first page use the term Potential Output instead of Maximum Output.&lt;/p&gt;&#xA;" OwnerUserId="15286" LastActivityDate="2017-11-23T21:36:14.703" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19437" PostTypeId="1" CreationDate="2017-11-24T01:32:21.817" Score="1" ViewCount="62" Body="&lt;p&gt;Could someone give me some suggestions or some possible papers to look at in order to improve upon RBC theory to explain the recent 2008 financial crisis? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks!&lt;/p&gt;&#xA;" OwnerUserId="15270" LastEditorUserId="15270" LastEditDate="2017-11-24T10:53:36.507" LastActivityDate="2017-11-24T10:53:36.507" Title="Real Business Cycle" Tags="&lt;macroeconomics&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19438" PostTypeId="1" CreationDate="2017-11-24T01:36:56.950" Score="3" ViewCount="1109" Body="&lt;p&gt;Julie spent the entire summer of 2007 working for a tree planting company in Central British Columbia. At the end of July, her contract ended because of weather conditions. She spent the month of August looking for a job but was unsuccessful. In September of 2017 Julie stopped looking for work and instead decided to attend the UBC. As a result, Julie would be considered seasonally unemployed in August but would not be unemployed in September because she is not part of the labour force.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I cannot figure out if this paragraph is true or false. I think it is frictional unemployment in August as she is actively looking for jobs. But it also fits for the seasonal unemployment since she is dismissed because of weather condition. So I dont know how to define this situation. &lt;/p&gt;&#xA;" OwnerUserId="14817" LastActivityDate="2018-04-24T13:16:53.087" Title="Difference between frictional unemployment and seasonal unemployment" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;unemployment&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19439" PostTypeId="1" CreationDate="2017-11-24T04:57:56.590" Score="4" ViewCount="266" Body="&lt;p&gt;Of course, the value of the sesterti must itself have fluctuated over the centuries it was in use. And so if I must narrow it down, I am particularly interested in its value during &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;the time of Lollia Paulina who was once covered with 40M sesterces' worth of jewels; and &lt;/li&gt;&#xA;&lt;li&gt;the time of Cleopatra, who once drank a dissolved pearl worth 10M sesterces, &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;both of these stories being from &lt;a href=&quot;http://www.perseus.tufts.edu/hopper/text?doc=Perseus%3Atext%3A1999.02.0137%3Abook%3D9%3Achapter%3D58#note10&quot; rel=&quot;nofollow noreferrer&quot;&gt;Pliny, Book 9, Ch. 58&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Adam Smith &lt;a href=&quot;https://books.google.com/books?id=KpWg1DYxRTwC&amp;amp;pg=PA273&quot; rel=&quot;nofollow noreferrer&quot;&gt;writes&lt;/a&gt; in &lt;em&gt;The Wealth of Nations&lt;/em&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;When we read in Pliny, therefore, that Seius bought a white nightingale, as a present for the Empress Agrippina, at a price of six thousand sestertii, equal to about fifty pounds of our present money; and that Asinius Celer purchased a surmullet at the price of eight thousand sestertii, equal to about sixty-six pounds thirteen shillings and fourpence of our present money&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Smith also &lt;a href=&quot;https://books.google.com/books?id=KpWg1DYxRTwC&amp;amp;pg=PA272&quot; rel=&quot;nofollow noreferrer&quot;&gt;writes&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Three sestertii, equal to about sixpence sterling,&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;which would be consistent with the previous quote, since £1 = 240p.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So according to Smith, 6,000 sestertii ≈ £50 &quot;of our present money&quot;. &lt;em&gt;The Wealth of Nations&lt;/em&gt; was first published in 1776. Using &lt;a href=&quot;http://www.bankofengland.co.uk/education/Pages/resources/inflationtools/calculator/default.aspx&quot; rel=&quot;nofollow noreferrer&quot;&gt;the Bank of England's inflation calculator&lt;/a&gt;, £50 in 1776 = £7,519.57 in 2016, or about US\$10,000 at current conversion rates (according to &lt;a href=&quot;https://www.google.com/search?q=7%2C519.57%20gbp%20in%20usd&quot; rel=&quot;nofollow noreferrer&quot;&gt;Google&lt;/a&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So 6,000 sestertii ≈ US\$10,000 in 2017 or &lt;strong&gt;1 sesterti ≈ US\$1.67&lt;/strong&gt;? Thus&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Lollia Paulina's jewels (40M sesterces according to Pliny) would be worth US\$66.7M today? And&lt;/li&gt;&#xA;&lt;li&gt;Cleopatra's swallowed pearl (10M sesterces according to Pliny) would be worth US\$16.7M today?&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Of course, I have no idea how Adam Smith did his conversion, but presumably some modern day historians/economic historians have since done better.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(This question was originally posted over at History.SE, but unfortunately the folks there don't seem to know anything about economics. So I'm trying here instead.)&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2017-11-24T04:57:56.590" Title="How could the Roman sestertii/sesterces be converted into modern terms (say 2017 US$)?" Tags="&lt;inflation&gt;&lt;currency&gt;&lt;economic-history&gt;" AnswerCount="0" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="19440" PostTypeId="1" CreationDate="2017-11-24T06:06:25.823" Score="1" ViewCount="42" Body="&lt;p&gt;Aggregate demand is used to show the long run effects of price on equilibrium, but how is price a long run concept and interest a short run one ?. I see price fluctuating on a daily basis, interest rates on the other hand fluctuate on a quarterly basis. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Forgive the simplicity of my doubt, I'm an Econ undergrad student. But these concepts were never clearly elucidated in class so I thought of taking to the internet where experts could help clear my doubts.&lt;/p&gt;&#xA;" OwnerUserId="14574" LastActivityDate="2017-11-24T06:06:25.823" Title="Why is price a long run concept and interest rate a short run one?" Tags="&lt;macroeconomics&gt;" AnswerCount="0" CommentCount="1" ClosedDate="2017-12-03T18:56:06.963" ContentLicense="CC BY-SA 3.0" />
  <row Id="19441" PostTypeId="2" ParentId="19438" CreationDate="2017-11-24T10:39:36.640" Score="1" Body="&lt;p&gt;What &quot;seasonally unemployed&quot; means? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, to be &quot;unemployed&quot;, one must actively be seeking for work, as the OP stated. The adjective &quot;seasonally&quot; here would reflect the fact that Julie is looking for a &lt;em&gt;seasonal&lt;/em&gt; job, and couldn't find any. &lt;strong&gt;But this information is not provided to us&lt;/strong&gt;. Irrespective of her past employment, Julie may have been looking for a permanent job, in which case she should not be categorized as &quot;seasonally unemployed&quot;.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2017-11-24T10:39:36.640" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19443" PostTypeId="1" CreationDate="2017-11-24T15:40:45.107" Score="2" ViewCount="238" Body="&lt;p&gt;I'm trying to work out how to model a utility function that is bounded below some level. More precisely, given a specified limit $L$, I want to work out how to ensure that the utility of any outcome $o$ asymptotically approaches $L$ as the value of $o$ increases.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'd really appreciate any help offered! &lt;/p&gt;&#xA;" OwnerUserId="13853" LastActivityDate="2017-11-24T18:26:43.297" Title="Modelling Bounded Utility Functions" Tags="&lt;utility&gt;&lt;expected-utility&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19444" PostTypeId="2" ParentId="19443" CreationDate="2017-11-24T16:53:32.197" Score="4" Body="&lt;p&gt;There are many such utility functions. Most commonly: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{equation}&#xA;u(x)=L-\mathrm e^{-ax},\tag{1}&#xA;\end{equation}&#xA;where typically $a&amp;gt;0$. Or &#xA;\begin{equation}&#xA;u(x)=L-(x-a)^2.\tag{2}&#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Both of these are uniformly bounded below $L\in\mathbb R$ and both tend to $L$ as the functions approach their respective maximum.&lt;/p&gt;&#xA;" OwnerUserId="42" LastEditorUserId="42" LastEditDate="2017-11-24T18:26:43.297" LastActivityDate="2017-11-24T18:26:43.297" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="19445" PostTypeId="1" CreationDate="2017-11-24T19:26:01.363" Score="3" ViewCount="267" Body="&lt;p&gt;Von-Neumann Morgenstern preferences are preferences over lotteries that can be represented as the expectation of a &quot;deterministic&quot; utility function over outcomes. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;non-von-Neumann-Morgenstern&quot; preferences are therefore preferences that cannot be described this way, so that we cannot apply expected utility maximization. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know of at least one non-von-Neumann Morgenstern preference relation, namely so called &quot;EZ preferences&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;What are some other non-von-Neumann-Morgenstern preferences that are actually used in economics (or some other field)?&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="11146" LastActivityDate="2017-11-26T18:35:45.750" Title="What are some non-von-Neumann-Morgenstern preferences used in economics?" Tags="&lt;microeconomics&gt;&lt;decision-theory&gt;&lt;expected-utility&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19446" PostTypeId="1" AcceptedAnswerId="19454" CreationDate="2017-11-24T22:02:27.970" Score="3" ViewCount="257" Body="&lt;p&gt;I am reading Melitz and Ottaviano (2008), but I find it hard to understand some math in the model. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The preference is given by :&#xA;&lt;a href=&quot;https://i.stack.imgur.com/57Px7.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/57Px7.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;, which implies a demand function:&#xA;&lt;a href=&quot;https://i.stack.imgur.com/KDtaz.jpg.&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/KDtaz.jpg.&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then the paper says the &quot;inverse demand function can then be inverted to yield the linear market demand system for these varieties&quot;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/YV7Oi.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/YV7Oi.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But what operations do they take in getting the function $q_i$? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am very confused on dealing with the $Q_c$ variable, which is defined to be :&#xA;&lt;a href=&quot;https://i.stack.imgur.com/cBJI7.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/cBJI7.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks.&lt;/p&gt;&#xA;" OwnerUserId="2801" LastActivityDate="2017-11-25T03:54:33.597" Title="Math in Melitz and Ottaviano (2008)" Tags="&lt;mathematical-economics&gt;&lt;international-trade&gt;&lt;industrial-organisation&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19448" PostTypeId="2" ParentId="19445" CreationDate="2017-11-24T23:33:28.540" Score="1" Body="&lt;p&gt;A utility function that does not incorporate the probabilities associated with the outcomes cannot be expressed as an expected value of the $p\cdot u(x_1) + (1-p) \cdot u(x_2)$ form. Therefore all such utilities are non-vNM.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The most familiar case may be Leontief preferences. Assuming that you get outcome $x_1$ with probability $p$ or outcome $x_2$ with probability $1-p$, your utility would be $\min(x_1,x_2)$. This cannot be expressed as expected value. It has a nice interpretation though: A person with such preferences is an absolute pessimist. No matter the actual probabilites, he is sure he will get the worst possible outcome.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Similarly an extreme optimist would have $U(x_1,x_2) = \max(x_1,x_2)$.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2017-11-24T23:33:28.540" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19449" PostTypeId="2" ParentId="19434" CreationDate="2017-11-24T23:58:53.873" Score="1" Body="&lt;p&gt;In the standard/canonical Ramsey model for discrete time, the Euler equation is of the form (notation is standard here, I won't write the whole model),&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\beta (1+r_{t+1})u'(c_{t+1}) = u'(c_{t})$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To obtain a zero-change locus for consumption, we must satisfy &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$c_{t+1} = c_t \implies u'(c_{t+1}) = u'(c_{t}) \implies \beta (1+r_{t+1}) = 1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \implies r = (1/\beta)-1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;-irrespective of the form of the utility function assumed (as long as it does not change, as a function, from period to period), and irrespective of the level of consumption. The locus  therefore cannot have a slope in the consumption-capital space but it has to be vertical to the capital axis at a level of capital for which $r$ (which equals the marginal product of capital) equals the above constant.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2017-11-24T23:58:53.873" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19451" PostTypeId="1" AcceptedAnswerId="19479" CreationDate="2017-11-25T01:15:41.403" Score="3" ViewCount="168" Body="&lt;p&gt;When I was in college, a classmate of mine working two jobs mentioned that his/her job working at at a local fast food restaurant was causing undue stress and dissatisfaction. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My response was to ask &quot;What is your price on Happiness?&quot; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If your income from the other job can satisfy your basic needs (rent, food, clothing, etc.) and the income from your fast food job was 'extra' aren't you valuing your happiness at $10/hr? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a short time I learned that my classmate decided to quit the fast-food position. But in hindsight, I never gave much thought as to my advice. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;With this said, can it be realistically said that a price can be put onto happiness?&lt;/p&gt;&#xA;" OwnerUserId="5318" LastEditorUserId="5318" LastEditDate="2017-11-27T00:55:56.580" LastActivityDate="2017-11-27T00:55:56.580" Title="Putting a Price on Happiness" Tags="&lt;utility&gt;&lt;wages&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19454" PostTypeId="2" ParentId="19446" CreationDate="2017-11-25T03:54:33.597" Score="3" Body="&lt;p&gt;hint: &#xA;sum equation (2) for all i and use the definition of $Q^c$, we get an expression for $Q^c$. then, substitute this expression into (2) and solve for $q^c$.&lt;/p&gt;&#xA;" OwnerUserId="8273" LastActivityDate="2017-11-25T03:54:33.597" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19455" PostTypeId="2" ParentId="17883" CreationDate="2017-11-25T09:46:45.950" Score="1" Body="&lt;p&gt;First, it's important to be clear about what Rochet proves. In theorem $1$ of Rochet (1987), he shows that &lt;em&gt;cyclical monotonicity&lt;/em&gt; is equivalent to the implementability of a mechanism for general environments (i.e. arbitrary allocation/type spaces). (See the statement of theorem $1$, or a standard text such as Borgers (2015), for the definition of cyclical monotonicity.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The convexity result (proposition $2$) applies to the case when $u(x,\theta)$ is &lt;em&gt;linear&lt;/em&gt; in $\theta$. In this case, we have that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ V(\theta) = \max_{\theta^\prime} \, u\left(x\left(\theta^\prime\right),\theta\right) - t\left(\theta^\prime \right) .$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The convexity of $V$ follows from the fact that it is the maximum of a family of linear functions. I'm not sure there's much more intuition to be given here, but a simple drawing may help. (That is, draw two straight lines that intersect. The maximum over the two straight lines will be convex, while the minimum will be concave.) &lt;a href=&quot;https://math.stackexchange.com/questions/373229/show-that-the-maximum-of-a-set-of-convex-functions-is-again-convex&quot;&gt;This&lt;/a&gt; may also help.&lt;/p&gt;&#xA;" OwnerUserId="8595" LastEditorUserId="8595" LastEditDate="2017-11-25T09:53:09.190" LastActivityDate="2017-11-25T09:53:09.190" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19456" PostTypeId="1" AcceptedAnswerId="19477" CreationDate="2017-11-25T09:54:23.977" Score="5" ViewCount="4793" Body="&lt;p&gt;I'm third year economics student and all econometrics we had so far and basically all empirical studies in economic subjects we had so far are linear regression. Is there any alternative, can anyone suggest any reading material or direction in which I can explore? &lt;/p&gt;&#xA;" OwnerUserId="15297" LastActivityDate="2017-11-30T16:32:40.490" Title="Alternative to linear regression" Tags="&lt;regression&gt;" AnswerCount="4" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19457" PostTypeId="2" ParentId="19434" CreationDate="2017-11-25T13:58:13.420" Score="1" Body="&lt;p&gt;If the steady state curve of consumption depends on the physical capital, then the $\dot{c}$ will not be equal to zero. Especially, in models with endogenous discount, the steady state curve of consumption is not a vertical line. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is an example : &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://hal.archives-ouvertes.fr/hal-00356233/document&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://hal.archives-ouvertes.fr/hal-00356233/document&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="2938" LastActivityDate="2017-11-25T13:58:13.420" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19459" PostTypeId="1" AcceptedAnswerId="19474" CreationDate="2017-11-25T15:17:51.520" Score="2" ViewCount="112" Body="&lt;p&gt;In my case, the utility function is CEIS and discrete, the production fuction is $f(k_{t})=k_{t}^\alpha$, the budget constraint is $f(k_{t})+(1-\delta)k_{t}=c_{t} + k_{t+1}$. I use Jacobian matrix and Schur factorization to get the linearized policy function for consumption, therefore i can plot saddle path and unstable arms. In the end they look like below. However I read that saddle path must go through the origin, which is not right in my plot. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So my question is: does saddle path always go through the origin?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/Ru8Wt.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Ru8Wt.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="14729" LastActivityDate="2017-11-26T15:07:12.737" Title="Can saddle path not go through the origin in Ramsey model?" Tags="&lt;economic-growth&gt;&lt;rbc&gt;&lt;balanced-growth&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="19462" PostTypeId="1" AcceptedAnswerId="19464" CreationDate="2017-11-25T22:52:45.447" Score="1" ViewCount="31" Body="&lt;p&gt;Why is public debt in % of GDP in post-socialistic countries of Eastern Europe is less than in countries of Western Europe. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some arguments, opinions or articles?&lt;/p&gt;&#xA;" OwnerUserId="15306" LastEditorUserId="1601" LastEditDate="2017-11-26T10:44:44.097" LastActivityDate="2017-11-26T10:44:44.097" Title="Public debt and GDP in post-socialistic countries" Tags="&lt;gdp&gt;&lt;debt&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19463" PostTypeId="2" ParentId="19456" CreationDate="2017-11-25T23:07:17.723" Score="4" Body="&lt;p&gt;Linear regression, despite its simplicity, it is actually a very powerful tool. That's why it's everywhere in econometrics, to give you an example you're maybe familiar with, consider an &lt;a href=&quot;https://en.wikipedia.org/wiki/Autoregressive_model&quot; rel=&quot;nofollow noreferrer&quot;&gt;auto-regressive&lt;/a&gt; model, turns out you can write the future state of a variable that follows this model as a linear combination of previous states&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;X_t = C + \phi_1 X_{t-1} + \phi_2 X_{t-2} + \cdots + \phi_p X_{t-p} + \eta_t \tag{1}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;so, if you know the weights $\{\phi_k \}_{k=1}^p$ you can predict what's going to be the future values of $X$. The interesting part is that these numbers are obtained through linear regression: just call $y = X_t$, $x_1 = X_{t-1}, x_2 = X_{t-2},\cdots$ and realize Eq. (1) can be written as &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;y = C + \phi_1 x_1  + \phi_2 x_2 + \cdots + \phi_p x_p + \epsilon \tag{2}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this sense linear regression can be used for forecasting. But there are other tools, I will link you to &lt;a href=&quot;https://stats.stackexchange.com/questions/10162/how-to-apply-neural-network-to-time-series-forecasting&quot;&gt;this&lt;/a&gt; other thread where you can get an idea on how &lt;em&gt;neuronal networks&lt;/em&gt; can be used for this task: forecasting time series. But forecasting can also be done with a plethora of methods: &lt;a href=&quot;http://www.svms.org/finance/&quot; rel=&quot;nofollow noreferrer&quot;&gt;support vector machines&lt;/a&gt; are popular choices.&lt;/p&gt;&#xA;" OwnerUserId="14419" LastActivityDate="2017-11-25T23:07:17.723" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19464" PostTypeId="2" ParentId="19462" CreationDate="2017-11-25T23:14:46.227" Score="1" Body="&lt;p&gt;The statement is not generally true. If you &lt;a href=&quot;https://en.wikipedia.org/wiki/List_of_countries_by_public_debt&quot; rel=&quot;nofollow noreferrer&quot;&gt;look at&lt;/a&gt; gross debt, the Western countries of Finland, Denmark and Norway have lower debt ratios (53%,50%,34%) than post-socialistic Croatia (80%) and Hungary (79%). If you look at net debt, these Western countries have even better numbers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So right now the correct answer is that your premise is not true.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your statement is probably true in some form (e.g. on 'average', whatever that would mean in this context, or given some specific Western countries), but please make it exact and back it up with a source. (Perhaps in a new question, seeing that I put effort into answering your current one. &lt;a href=&quot;https://economics.meta.stackexchange.com/questions/1460/editing-answered-questions&quot;&gt;Changing it post-answer&lt;/a&gt; would be somewhat unsporting.)&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2017-11-25T23:14:46.227" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19465" PostTypeId="1" AcceptedAnswerId="19471" CreationDate="2017-11-25T23:31:24.337" Score="5" ViewCount="190" Body="&lt;p&gt;Suppose there is a linear demand function $D(p)$ describing the demand of an individual consumer. This is derived from a utility function or is just observed, but let us assume it is correct. Now suppose that the product is available at price $p$, but the store insists that each consumer buys a minimum amount that is in fact larger than $D(p)$, but only by very little.&#xA;&lt;br&gt; Say it is $D(p) + \epsilon$, where $\epsilon &amp;lt; D(p)/100$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can I say without additional assumptions that given the options of buying a quantity $q$ where $q \in \left\{0\right\} \bigcup \left[D(p) + \epsilon,\infty\right)$, the consumer will choose to buy $D(p) + \epsilon$?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My argument is that this will maximize her consumer surplus given the constraint on $q$. As I specified that this is a linear demand function and $\epsilon &amp;lt; D(p)/100$ you can do the math, but it is easy to see that the surplus will be positive for any continuous demand function given a small enough $\epsilon$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Is this an accepted line of argumentation?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In most models it is accepted that consumers seek to maximize their utility. I am not sure however if one can argue absent a utility function that surplus maximization is the goal.&#xA;&lt;br&gt; A workaround would be specifying a quasi-linear utility function supporting $D(p)$ but I would like to avoid this if possible.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2017-11-26T13:11:05.197" Title="Consumer behavior with constrained demand" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;&lt;consumer-surplus&gt;" AnswerCount="2" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="19466" PostTypeId="2" ParentId="19465" CreationDate="2017-11-26T03:46:03.453" Score="3" Body="&lt;p&gt;It appears that the consumer faces an exogenous additional constraint in her optimization problem, which restricts the feasible set for the good in question, say $x$. We take this for granted: the consumer will buy either zero or at least what the store demands at the minimum, say $\bar x$. No other options are available. But this means that the consumer must &lt;em&gt;solve again&lt;/em&gt; her optimization problem, incorporating this additional constraint and its effect on the feasible set - the &quot;initial&quot; demand function is not relevant anymore, because it represents a solution to a problem that has just been altered. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What will the result be?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assuming &quot;usual&quot; preferences, let a two-good utility function $U(x, z)$. then, graphically, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/xTI1s.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/xTI1s.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Choosing to buy zero will send the consumer to an even lower utility level, than the one forced on her by the minimum quantity requirement.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;EDIT by denesp: What about this graph though?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/YYZRK.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/YYZRK.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;RESPONSE :&lt;/strong&gt; It does tell us what we should expect after all: the smaller the quantity demanded in the unconstrained solution, and the larger the distance of this solution from the minimum quantity required by the store, the more possible it becomes that the consumer will choose to buy zero in the end. So it appears there is no single answer to the general question, even under &quot;usual&quot; preferences. Intuitively of course, if the distance is &quot;very small&quot; and the unconstrained solution is not &quot;very small&quot; to begin with we expect that usual preferences will lead the consumer to buy the bit more that the store requires. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Maybe all this could be made into a rigorous description exploiting the lengths measured on the budget constraint between, the zero bundle and the unconstrained solution, and between the uncostrained solution and the minimum quantity required by the store. &lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2017-11-26T11:40:21.893" LastActivityDate="2017-11-26T11:40:21.893" CommentCount="10" ContentLicense="CC BY-SA 3.0" />
  <row Id="19468" PostTypeId="2" ParentId="19445" CreationDate="2017-11-26T09:32:49.717" Score="4" Body="&lt;p&gt;The von Neumann-Morgenstern (vNM) utility function takes the form &#xA;\begin{equation}&#xA;U(p,x)=\sum_{i=1}^np_iu(x_i)&#xA;\end{equation}&#xA;where $x=(x_1,\dots,x_n)$ with $x_i$ being the (monetary) payoff associated with outcome $i$ and $p=(p_1,\dots,p_n)$ with $p_i$ being the probability that $i$ occurs. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In behavioral economics, generalizations of the vNM utility usually happen in either (or both) of the following two channels:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Non-linear probability weighting: instead of using $p_i$'s, which can be considered objective probabilities, a model may use &lt;em&gt;decision weights&lt;/em&gt; $w_i$'s which map the objective probability distribution into a new distribution. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Reference dependent utility function: instead of $u(x_i)$, which depends only on the payoff in outcome $i$, a model may consider a utility function $u(x_i,r)$ that depends on both $x_i$ and some reference payoff $r$. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Modifications made through either of these will give rise to a non-expected utility function, which is supposed to improve the model's descriptive accuracy of people's decision under risk. &lt;/p&gt;&#xA;&#xA;&lt;h1&gt;Example of 1: Rank-Dependent Utility&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;Suppose $x_1&amp;lt;x_2&amp;lt;\cdots&amp;lt;x_n$, and calculate decision weights ($w_i$'s) as follows: &#xA;\begin{equation}&#xA;w_i=\pi\left(\sum_{j=i}^np_j\right)-\pi\left(\sum_{j=i+1}^np_j\right),&#xA;\end{equation}&#xA;where $\pi(\cdot)$ is called a probability weighting function (PWF). &#xA;A common PWF is the Tversky-Kahneman PWF: &#xA;\begin{equation}&#xA;\pi(t)=\frac{s^\gamma}{(s^\gamma+(1-s)^\gamma)^{1/\gamma}}.&#xA;\end{equation}&#xA;Then the rank-dependent utility with T-K PWF is &#xA;\begin{equation}&#xA;RDU(p,x;\gamma)=\sum_{i=1}^nw_iu(x_i).&#xA;\end{equation}&#xA;Note that $w_i=p_i$ if $\gamma=1$, so that vNM EU is a special case of RDU.&lt;/p&gt;&#xA;&#xA;&lt;h1&gt;Example of 2: Disappointment Aversion&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;\begin{equation}&#xA;DAU(p,x;\overline U)=\sum_{i=1}^np_i[u(x_i)-D(u(x_i)-\overline U)],&#xA;\end{equation}&#xA;where $D(\cdot)$ is a function that captures how disappointment ($u(x_i)&amp;lt;\overline U$) or elation ($u(x_i)&amp;gt;\overline U$) affects an individual's evaluation of a prospect. Here, the reference utility level $\overline U$ can be something like the certainty equivalent level of utility. EU can also be derived as a special case from DAU by requiring that $D(\cdot)$ be a constant function.&lt;/p&gt;&#xA;&#xA;&lt;h1&gt;Example of 1+2: Prospect Theory&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;Prospect theory (PT) incorporates both non-linear probability weighting and reference dependence. Again, assume $x_1&amp;lt;\cdots&amp;lt;x_n$. PT distinguishes between gains ($x_i&amp;gt;r$) and losses ($x_i&amp;lt;r$). For gains, decision weights are given by &#xA;\begin{equation}&#xA;w_i=\pi^+(p_i+\cdots+p_n)-\pi^+(p_{i+1}+\cdots+p_n),&#xA;\end{equation}&#xA;while for losses the decision weights are &#xA;\begin{equation}&#xA;w_i=\pi^-(p_i+\cdots+p_n)-\pi^-(p_{i+1}+\cdots+p_n),&#xA;\end{equation}&#xA;where $\pi^+(\cdot)$ and $\pi^-(\cdot)$ are both PWFs. For instance, one can have both PWFs be the Tversky-Kahneman form, but with different parameters. In addition, the utility function also takes a reference dependent form: &#xA;\begin{equation}&#xA;u(x_i,r)=&#xA;\begin{cases}&#xA;(x_i-r)^\alpha &amp;amp;\text{if }x_i\ge r\\&#xA;-\lambda(r-x_i)^\beta &amp;amp;\text{if }x_i&amp;lt;r&#xA;\end{cases}&#xA;\end{equation} &#xA;where $\alpha,\beta\in(0,1)$ are parameters of risk aversion (differentiated between gains and losses) and $\lambda&amp;gt;0$ is the coefficient of loss aversion. &#xA;Thus, the non-expected utility function under PT is &#xA;\begin{equation}&#xA;V(p,x;\text{parameters})=\sum_{i=1}^nw_iu(x_i,r)&#xA;\end{equation}&lt;/p&gt;&#xA;" OwnerUserId="42" LastEditorUserId="42" LastEditDate="2017-11-26T18:35:45.750" LastActivityDate="2017-11-26T18:35:45.750" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="19469" PostTypeId="1" CreationDate="2017-11-26T10:55:55.577" Score="1" ViewCount="476" Body="&lt;p&gt;On the Skeptics Stack Exchange, porn is estimated to generate 57 billion dollars a year in America.  However, I've never once paid for porn, and I don't know of any other friends, classmates, students who pay for porn either.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I am missing?  Is there porn that's targeted at wealthier, paying customers that I am not aware of?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Seems like porn is in great demand, but there's also a great &lt;em&gt;supply&lt;/em&gt; of Internet porn, too, and thus anyone can consume porn for free these days...&lt;/p&gt;&#xA;" OwnerUserId="15311" LastActivityDate="2017-11-26T11:27:21.350" Title="If porn is free on the Internet, then how do porn stars actually make money?" Tags="&lt;supply-and-demand&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="19470" PostTypeId="2" ParentId="19469" CreationDate="2017-11-26T11:19:25.880" Score="3" Body="&lt;p&gt;Using Google is also free, yet the firm is quite profitable, so a possible solution could be ad revenue.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another solution could be that your sampling is off. E.g. most urban Democrats do not know many rural Republicans and vice-versa. It is similarly possible that people who do pay for porn do not move in your social circle.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is also an incentive issue to your sampling. This is a subject most people probably do not wish to discuss. As such you can reasonably doubt if you are getting honest answers. If one were to answer your question in the affirmitive, he would incur not only the stigma of watching porn, but also the stigma of having paid for it, which as you say is kind of strange given its free availability. &lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2017-11-26T11:27:21.350" LastActivityDate="2017-11-26T11:27:21.350" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19471" PostTypeId="2" ParentId="19465" CreationDate="2017-11-26T13:11:05.197" Score="4" Body="&lt;p&gt;In a two-good space, initially the consumer maximizes $U(x,z)\;\; s.t. \;\;p_xx+p_zz =I$ and we assume it obtains the solution $(x^*, z^*)$ as a function of prices and income.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the constrained case, the consumer will either choose $(0, \tilde z)$ or $(x^*+\epsilon, z'$), for some $\epsilon &amp;gt;0 $ always exhausting its budget, so in particular, $\tilde z = I/p_z$.&#xA;In order for the consumer to still choose to buy a strictly positive quantity of $x$, it must be the case that &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U(x^*+\epsilon, z') &amp;gt; U(0, \tilde z)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Apply a first order approximation around $(x^*, z^*)$ without ignoring the remainders, we want &lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{align}&#xA; U(x^*, z^*) + U_x(x^*)\cdot \epsilon + U_z(z^*)(z'-z^*) + R_{\epsilon} &amp;amp;\\&amp;gt; U(x^*, z^*) + U_x(x^*)(-x^*) + U_z(z^*)(\tilde z-z^*) + R_0&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Simplify and re-arrange, we want&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U_x(x^*)(x^*+\epsilon) + R_{\epsilon} &amp;gt; U_z(z^*)(\tilde z-z') + R_0 $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We know that from the unconstrained optimization, $U_x(x^*)/U_z(z^*) = p_x/p_z$  so &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {p_x}{p_z}(x^*+\epsilon) + \frac {R_{\epsilon}}{U_z(z^*)} &amp;gt; \left(\frac{I}{p_z}-z'\right) + \frac {R_0}{U_z(z^*)} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Multiply throughout by $p_z$,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$p_x(x^*+\epsilon) + p_z\frac {R_{\epsilon}}{U_z(z^*)} &amp;gt; I - p_zz'  + p_z\frac {R_0}{U_z(z^*)} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;but $p_x(x^*+\epsilon) + p_zz' = I \implies p_x(x^*+\epsilon) = I-p_zz'$ so we are left with the requirement that (ignoring positive terms)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$R_{\epsilon} &amp;gt;  R_0 $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;in order for the consumer to choose $x^*+ \epsilon$ and not $0$ for $x$.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that the above take into account also the signs of the remainders, it is not just about their absolute magnitudes. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now let's go back to our first-order expansions. We know that both candidate bundles yield utilities lower than $U(x^*, z^*)$, because they were feasible in the unconstrained case, and they weren't chosen. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Looking at the expansion of $U(0, \tilde z)$ we then conclude that we have &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U_x(x^*)(-x^*) + U_z(z^*)(\tilde z-z^*) + R_0 &amp;lt; 0 $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies U_z(z^*)\cdot \Big[(U_x(x^*)/U_z(z^*))\cdot(-x^*) + \tilde z-z^*\Big] + R_0 &amp;lt; 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies \frac {U_z(z^*)}{p_z}\cdot \Big[-p_xx^* + p_z\tilde z-p_zz^*\Big] + R_0 &amp;lt; 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But $-p_xx^* -p_zz^* = -I$ and $p_z\tilde z =I$ so the term in brackets is zero. Therefore we conclude that &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$R_0 &amp;lt;0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Looking now at the expansion of $U(x^*+\epsilon, z')$, we know we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U_x(x^*)\cdot \epsilon + U_z(z^*)(z'-z^*) + R_{\epsilon} &amp;lt; 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Performing the same manipuations as before we obtain here too that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$R_{\epsilon} &amp;lt; 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the condition to buy $x^*+\epsilon$ can be re-written as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$|R_{\epsilon}| &amp;lt; |R_0|$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This formalizes somewhat the notion that if $\epsilon$ is &quot;sufficiently small&quot;, $R_{\epsilon}$ will be smaller in absolute terms than  $R_0$, since the approximation to the same function will be &quot;better&quot;, and so we will observe $x^*+\epsilon$ and not $0$. But it also tells us what the graphs in the other answer told us too, that there is not a single general answer to the matter.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2017-11-26T13:11:05.197" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19474" PostTypeId="2" ParentId="19459" CreationDate="2017-11-26T15:07:12.737" Score="1" Body="&lt;p&gt;I guess you already went trough the algebra below, but just for context, the problem you're trying to solve is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\max_{c}\sum_{t=0}^{+\infty}\beta^t u(c_t) \\&#xA;\text{s.t.}~~ f(k_t) + (1- \delta)k_t = c_t + k_{t+1} \tag{1}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $f(k_t) = k_t^\alpha$ and&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;u(c_t) = \frac{c_t^{1-\gamma}}{1-\gamma} - 1 \tag{2}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem in (1) can be cast into the two coupled equations&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{eqnarray}&#xA;u'(c_t) &amp;amp;=&amp;amp; \beta[1 + f'(k_{t+1}) - \delta]u'(c_{t+1}) \\&#xA;k_{t+1} &amp;amp;=&amp;amp; f(k_t) + (1-\delta)k_t - c_t \tag{3}&#xA;\end{eqnarray}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $u'(x) = x^{-\gamma}$, and $f'(x) = \alpha x^{\alpha-1}$. These first of Eqns. (3) can be inverted to obtain an expression for $c_{t+1}$ in terms of $(k_t,c_t)$, leading to&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{eqnarray}&#xA;c_{t+1} &amp;amp;=&amp;amp; \beta^{1/\gamma}c_t [1 + \alpha[k_t^\alpha + (1-\delta)k_t - c_t]^{\alpha-1} - \delta]^{1/\gamma} \\&#xA;k_{t+1} &amp;amp;=&amp;amp; f(k_t) + (1-\delta)k_t - c_t \tag{4}&#xA;\end{eqnarray}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which can be expressed as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;{\bf x}_{t+1} = {\bf F}({\bf x}_{t})~~~\mbox{with}~~~ {\bf x}_t = \left(\begin{array}{c}c_{t}\\k_{t}\end{array}\right) \tag{5}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A fixed point ${\bf x}^*$ of the map ${\bf F}$ is such that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;{\bf x}^* = {\bf F}({\bf x}^*) \tag{6}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;that is, a point for which the system does not evolve. If you use $\gamma=2$, $\beta=0.9964$, $\alpha=0.36$, $\delta=0.025$ this point is (found by solving Eq. (6)),&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;{\bf x}^* = \left(\begin{array}{c}c^*\\k^*\end{array}\right) = \left(\begin{array}{c}2.84829\\52.2808\end{array}\right)  \tag{7}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which is clearly different from zero! You can linearize ${\bf F}$ around ${\bf x}^*$ and write the result as &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;{\bf y}_{t+1} = {\bf J}{\bf y}_t ~~~\mbox{where}~~~ {\bf y}_t = {\bf x}_{t} - {\bf x}^*, ~~~ {\bf J} = \left.\frac{\partial{\bf J}}{\partial {\bf x}}\right|_{{\bf x} = {\bf x}^*} \tag{8}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this last system the one that has a saddle point at ${\bf y} = 0$&lt;/p&gt;&#xA;" OwnerUserId="14419" LastActivityDate="2017-11-26T15:07:12.737" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="19476" PostTypeId="1" AcceptedAnswerId="19488" CreationDate="2017-11-26T15:41:23.027" Score="2" ViewCount="88" Body="&lt;p&gt;The following is taken from &lt;a href=&quot;https://www.jstor.org/stable/30024495&quot; rel=&quot;nofollow noreferrer&quot;&gt;Nti (1999)&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider a 2 player game in which each exerts effort in attempt to win a prize. Let $V_1$ be player $1$'s valuation of the prize and let $V_2$ be player $2$'s valuation, where $0&amp;lt;V_1&amp;lt; V_2$. Player $1$ and $2$ expend efforts $x_1$ and $x_2$ respectively to win prize $p=1$. The cost of effort is $1$ per unit. Given a profile of effort levels ($x_1$, $x_2$),the probability that player i wins the prize takes the symmetric form&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$p_i(x_1,x_2)=\frac{x_i^r}{x_1^r+x_2^r}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$r$ is the returns to scale parameter associated with effort $r&amp;gt;0$. Profit is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\pi_i(x_1,x_2)=v_i\frac{x_i^r}{x_1^r+x_2^r}-x_1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In equilibrium (Nash-Cournot) player $i$ exerts effort $x_i^*$: $$x_i^*=\frac{rv_i^{r+1}v_{-i}^r}{(v_1^r+v_2^r)^2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If both follow the equilibrium strategy, $i$'s probability of winning is&#xA;$P_i=\frac{v_i^r}{v_1+v_2^r}$. Inserting these two into the second equation for player 1 (with simplification) yields&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\pi_1(x_1^*,x_2^*)=\frac{v_1^{r+1}}{(v_1^r+v_2^r)^2}\big[v_1^r+v_2^r-rv_2^r\big]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The second order (sufficiency) condition $\frac{\partial^2\pi_1}{\partial{x_1^2}}=\frac{rv_1^{1-r}x_2^rx_1^{2r-2}}{(x_1^r+x_2^r)^3}\big[rv_2^r-v_2^r-v_1^r-rv_1^r\big]$ is satisfied iff $$rv_2^r-v_2^r-v_1^r-rv_1^r&amp;lt;0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, it is clear that for $x_1^*$ to be a Nash Equilibrium, $\pi_1(x_1^*,x_2^*)\geq0$ and hence that $$v_1^r+v_2^r&amp;gt;rv_2^r$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;which is a stronger requirement than the second order condition. Hence, it is possible that the second order condition is met but not that $v_1^r+v_2^r&amp;gt;rv_2^r$. My question is what happens when this occurs? Is there no Nash equilibrium here? Does the player who makes negative profit drop out, if so what does the remaining player do?&lt;/p&gt;&#xA;" OwnerUserId="14078" LastEditorUserId="14078" LastEditDate="2017-11-26T17:46:39.093" LastActivityDate="2017-11-27T10:14:13.143" Title="Contest game: second order condition satisfied, but negative profits?" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;game-theory&gt;&lt;public-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19477" PostTypeId="2" ParentId="19456" CreationDate="2017-11-26T15:50:43.523" Score="3" Body="&lt;p&gt;Regression is the mapping of &lt;em&gt;any&lt;/em&gt; function of any dimension onto a result.  There exists an infinite number of functions.  Furthermore, there is a wider range of &lt;em&gt;linear&lt;/em&gt; regression tools than just least squares style solutions.  My guess is that you have yet to even come close to covering the linear tools if you are in your third year.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For more linear tools, look at quantile regression and Theil's regression.  Both are very robust.  Quantile, ordinary least squares and Theil's method of regression are usable for a polynomial of any degree.  If you are studying least squares style methods such as OLS, GLS or FGLS then you are also studying non-linear methods at the same time.  All linear tools can be readily adapted to non-linear problems.  The part no one has told you is that you are studying non-linear regression, but using linear models to study the properties because they are easier.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The linkage is similar to the linkage between Algebra 2 in high school and calculus 1.  Grounding in the former is necessary for the latter.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Instead of worrying about &quot;non-linear&quot; methods, I would recommend taking two different routes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first is non-parametric and distribution-free methods.  The second is Bayesian methods.  Your instructor will hate me forever for this recommendation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Distribution-free methods are the easiest to understand.  They are robust under any distributional assumption, which results in a material loss of power.  They always work, but they are weak solutions because you know so little about how the world works.  Theil's regression is such an example.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Non-parametric methods are a little harder to understand.  They do not depend upon a parameter to perform inference.  So, for example, when you have performed a t-test, you have assumed that a mean exists and that it is meaningful.  It is not always true that a mean exists in a distribution and it is not always true that it is a meaningful measurement when it does exist.  Non-parametric methods allow you to perform tests on data without reference to a parameter.  As with distribution-free methods, they are weaker than the equivalent parametric test.  They always work, but they are more likely to not detect an effect that is really there.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, after you have looked at distribution-free and non-parametric methods, then you should look at Bayesian methods.  Bayesian methods are older than Frequentist methods, but allow you to solve problems that have no Frequentist solution.  On the surface, they can look just like the problems you are solving now, but below the surface, they open up entire world's of prediction and modeling not available with Frequentist methods.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Bayesian methods reverse the direction of uncertainty.  With a null hypothesis method, you assert that the null is true and use the data to falsify it.  Essentially you are performing a test as $\Pr(x|\theta)$, that is to say, what is the probability of seeing this data if the null is actually true.  The use of Bayesian methods reverses the question.  The Bayesian asks $\Pr(\theta|x)$?  The Bayesian method asks, &quot;what is the probability the hypothesis is true, given the data that was actually seen?&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Frequentist works in the &quot;sample space,&quot; which is the set of all possible outcomes of a random event.  The Bayesian works in the &quot;parameter space&quot; which is the set of all possible explanations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A good post showing the differences that you can readily see is on the difference between a Frequentist confidence interval and a Bayesian credible interval.  It is at &lt;a href=&quot;https://stats.stackexchange.com/questions/2272/whats-the-difference-between-a-confidence-interval-and-a-credible-interval&quot;&gt;https://stats.stackexchange.com/questions/2272/whats-the-difference-between-a-confidence-interval-and-a-credible-interval&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;William Bolstad writes a good introductory book on Bayesian methods if you have had calculus through integration.  You cannot do Bayesian methods without knowing integration.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is a giant world out there.  Go explore.&lt;/p&gt;&#xA;" OwnerUserId="11321" LastEditorUserId="11321" LastEditDate="2017-11-26T18:33:40.270" LastActivityDate="2017-11-26T18:33:40.270" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19479" PostTypeId="2" ParentId="19451" CreationDate="2017-11-26T18:08:20.763" Score="5" Body="&lt;p&gt;There are several approaches to this problem, none of them accurate as the human happiness is internal subjective experience and thus not verifiable by people other than the afflicted (it is not intersubjectively verifiable).&#xA;Please see below several methodologies for pricing the non-economical values such as happiness developed by economists:&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Willingness to pay&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;This problem can be viewed as ‘what is the market price of an item not sold on the market’. To solve it, economists can look whether happiness cannot be, at least in theory, bought on the market. For example, if a pharmaceutical company wants to test some drug that causes unhappines and has to pay USD 1000 for a person to take the test and willingly be unhappy at some level, then the price of this level of unhappiness is USD 1000.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Cost-base valuation&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;This can be applied when the lack of happiness is directly connected with measurable expenses, like therapy bills, antidepressant drugs, lost income, etc. In this methodology, if a decrease of a happiness is connected with cost of USD 1000 in some period, its value in this period can be measured at not less than USD 1000.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Comparability with damages won in courts&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;In this method you must find a statistical sample of court judgments, in which compensation was granted for non-pecuniary damages (e.g. for work related undue stress and dissatisfaction) under similar circumstances. As the circumstances can never be the same in different cases (happiness always is subjective and have different economical and social context for each individual), you rank the judgments (e.g. from the weakest to the strongest undue stress and dissatisfaction) and try to place your case on the X axis against court cases. This should result in a point or a range at which unhappiness at question should be valued.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;The methods above are connected with many technical problems and are highly criticized. For example, such issues are usually tackled in economics by analyzing the relationship between the marginal cost and one unit of happiness. But what would be a unit of happiness? I recommend further reading of some legal papers on this issue as well as Steven Kelman criticizm in his paper &lt;a href=&quot;http://heinonline.org/HOL/LandingPage?handle=hein.journals/rcatorbg5&amp;amp;div=10&amp;amp;id=&amp;amp;page=&quot; rel=&quot;noreferrer&quot;&gt;‘Cost-Benefit Analysis: An Ethical Critique’&lt;/a&gt;, where he argues against putting dolar values on non-market benefits and costs at all.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope this helps.&lt;/p&gt;&#xA;" OwnerUserId="15240" LastActivityDate="2017-11-26T18:08:20.763" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="19480" PostTypeId="1" AcceptedAnswerId="19495" CreationDate="2017-11-26T23:21:30.557" Score="2" ViewCount="283" Body="&lt;p&gt;ARIMA models, from what I know, are atheoretical models in the sense that they don't provide us with meaningful economic interpretation of a process.&lt;/p&gt;&#xA;&lt;p&gt;However in population forecasting, can ARIMA models be interpreted in a meaningful way?&lt;/p&gt;&#xA;&lt;p&gt;i.e.&#xA;&lt;br&gt;&lt;/p&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;can &lt;span class=&quot;math-container&quot;&gt;$AR(1)$&lt;/span&gt; process can be interpreted as:&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;&lt;em&gt;population growth in period &lt;span class=&quot;math-container&quot;&gt;$t$&lt;/span&gt; is a function of population in period &lt;span class=&quot;math-container&quot;&gt;$t-1$&lt;/span&gt;&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;can &lt;span class=&quot;math-container&quot;&gt;$MA(1)$&lt;/span&gt; process can be interpreted as:&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;&lt;em&gt;population in period &lt;span class=&quot;math-container&quot;&gt;$t$&lt;/span&gt; is a function of a policy or ongoing event (like immigration or emigration) which has occured in &lt;span class=&quot;math-container&quot;&gt;$t-1$&lt;/span&gt;.&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2017-12-03T20:15:05.157" Title="ARIMA modelling and Economic interpretation" Tags="&lt;econometrics&gt;&lt;demographics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19482" PostTypeId="2" ParentId="19456" CreationDate="2017-11-27T00:19:29.880" Score="2" Body="&lt;p&gt;You can always think of a linear regression model as a first-order &lt;a href=&quot;https://en.wikipedia.org/wiki/Taylor_series#Approximation_error_and_convergence&quot; rel=&quot;nofollow noreferrer&quot;&gt;Taylor approximation&lt;/a&gt; of some nonlinear regression model. So linearity itself is not a particularly serious issue. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;That being said, there are a couple of common nonlinear regression models that are accessible at the undergraduate level, namely, models with binary dependent variables: &lt;a href=&quot;https://liberalarts.utexas.edu/prc/_files/cs/Fall2013_Moore_Logistic_Probit_Regression.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;logit and probit&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2017-11-27T00:19:29.880" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19483" PostTypeId="1" CreationDate="2017-11-27T01:07:19.373" Score="2" ViewCount="304" Body="&lt;p&gt;Are there any online resources on Dynamic Stochastic General Equilibrium models supplied with video lectures, which include theory and some practical examples of fitting models as well? I did not find anything like that in Google, but maybe there are some records from PhD courses or summer schools, which are hopefully available online? &lt;/p&gt;&#xA;" OwnerUserId="15314" LastEditorUserId="15314" LastEditDate="2017-11-27T02:45:17.527" LastActivityDate="2018-01-18T15:07:04.437" Title="What are some good video lectures on DSGE modeling?" Tags="&lt;dsge&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19484" PostTypeId="1" AcceptedAnswerId="19486" CreationDate="2017-11-27T05:15:23.273" Score="2" ViewCount="3037" Body="&lt;p&gt;I have almost no knowledge about economics. However, a question always comes in my mind. How exchange rate really differ? I live in Bangladesh. So how, why, who changing BDT and US Dollar exchange rate?&lt;/p&gt;&#xA;" OwnerUserId="15315" LastEditorUserId="1601" LastEditDate="2017-11-27T10:30:29.430" LastActivityDate="2018-08-08T21:34:33.640" Title="Who determines the exchange rate and how?" Tags="&lt;exchange-rates&gt;&lt;foreign-exchange&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19485" PostTypeId="1" AcceptedAnswerId="19522" CreationDate="2017-11-27T05:20:06.210" Score="1" ViewCount="831" Body="&lt;p&gt;So I'm trying to estimate a &lt;a href=&quot;https://en.wikipedia.org/wiki/Shapley_value&quot; rel=&quot;nofollow noreferrer&quot;&gt;Shapley value&lt;/a&gt; in a game with uncertain payoffs. Specifically, imagine a game where the payoff function as as follows&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;(A) = 1 &#xA;(B) = 2&#xA;(B,C) = 4&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;For instance, you can imagine this game representing Person A and Person B deciding whether to go into business by themselves or together.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Calculating the Shapley value for this game is very straightforward by listing all the permutations along with the marginal contribution of each person in the given permutation divided by the number of permutations: &lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;[A, B] = [1, 3]&#xA;[B, A] = [2, 2]&#xA;&#xA;[A, B] = [(1+2)/2, (3+2)/2] &#xA;[A, B] = [1.5, 2.5]&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;So Person A should get \$1.5 and Person B should get \$2.5 in the grand coalition. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, I am struggling to figure out how I would go about computing the Shapley value in the presence of uncertainty. For instance, imagine I change the payoff function to use confidence intervals as follows:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;(A) = 1 ± 0.2&#xA;(B) = 2 ± 0.6&#xA;(B,C) = 4 ± 0.5&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;This is important as I am trying to compute the Shapley value in an real life setting with experimental data. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What will the Shapley value be in this case WITH uncertainty?&lt;/p&gt;&#xA;" OwnerUserId="15316" LastEditorUserId="15316" LastEditDate="2017-11-27T13:38:50.600" LastActivityDate="2017-11-29T21:36:12.207" Title="How to calculate Shapley Value with uncertainty?" Tags="&lt;game-theory&gt;&lt;expected-utility&gt;&lt;cooperative-game-theory&gt;" AnswerCount="2" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="19486" PostTypeId="2" ParentId="19484" CreationDate="2017-11-27T09:38:39.903" Score="2" Body="&lt;p&gt;In many ways, it's no different to how any other price is set - by supply and demand. The only thing is, that because it's a transaction of money for money, there's some symmetry at play.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When you buy USD with BDT, the price you pay for your USD will go up if the general market demand for USD goes up, or if the supply of USD goes down. Similarly, it will go down if USD demand goes down or USD supply goes up.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And if the supply of BDT goes up, or the demand for BDT goes down, the price of USD will go up. If the supply of BDT goes down, or the demand for BDT goes up, then the price of USD will go down.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Bear in mind that because there is an active international market for these currencies, then the relative values of each reflects a minute-by-minute shifting balance between buyers and sellers of each; and the exchange rates reflect all available information, as well as the market participants' future expectations.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2017-11-27T09:38:39.903" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19487" PostTypeId="2" ParentId="19484" CreationDate="2017-11-27T09:58:23.640" Score="8" Body="&lt;p&gt;Technically you are changing the BDT/USD exchange rate, or at least you're changing one of the reasons. If supply/demand changes, the value of a particular currency is going to change as well. But there are other factors - interest rates and political climate also affects the rate. To give you an example, Venezuela is now going through some rough times, perhaps not many people are willing to buy their local currency (VEF) today because tomorrow it may be not be worth the original investment, as as consequence the exchange rate BDT/VEF will increase: you can buy a lot of Venezuelan Bolivar with a few Taka. Each country then has its own policy to set exchange rates - basically there are two of them.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Floating exchange rate&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In this system the rate is fixed by supply/demand. Roughly speaking: a currency is worth whatever buyers are willing to pay for it. So, for example if (for some reason) many people in US are buying Euro (EU) then the demand increases, and so will the price, the rate USD/EU will drop and you will get fewer Euro for each US Dollar. Conversely, for Europeans the Dollar will depreciate as more USD were supplied to the market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Usually countries with very mature/estable currencies have these systems (e.g. Canada, Switzerland, United States), allowing the exchange rate to adjust itself to local conditions (inflation, supply, demand, $\dots$). Although this may sound great, it actually has its drawbacks, for instance, lack of certainty may refrain some investors. One may argue that the fact that the economy is stable in these countries, then we're indeed certain of what's going to happen before an investment, but I guess that's a whole other story.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Below there's a graph of the evolution of the exchange rate for the Swiss Franc to USD:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/32LEw.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/32LEw.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Fixed exchange rate&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In contrast with the previous system, the exchange is artificially maintained fixed by the government. The way they do it is pegging the local currency to a foreign currency (say USD) and compensate the supply/demand in order to keep the exchange fixed. A good example of this system was the Chinese Yuan, when the local demand of USD increased, the government had to release US Dollar into the market in order to mitigate the fluctuation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the curve bellow I show the exchange CHY/USD, you can immediately see that in the period 1998-2005 (for instance) the Yuan was pegged to the Dollar:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/ucH7f.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/ucH7f.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;After 2005 the model is changed, and they decide the exchange rate from a basket of external currencies.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Managed exchange rate&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In practice all governments make local decisions to modify the exchange rates, for instance to help import/exports they can slightly provide supply/demand so that the rate is modified.&lt;/p&gt;&#xA;" OwnerUserId="14419" LastEditorUserId="7921" LastEditDate="2018-08-08T21:34:33.640" LastActivityDate="2018-08-08T21:34:33.640" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="19488" PostTypeId="2" ParentId="19476" CreationDate="2017-11-27T10:14:13.143" Score="3" Body="&lt;p&gt;Well it says in the paper on p. 423:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;Thus the sufficiency assumption implies a unique pure strategy equilibrium. And if the sufficiency assumption is violated, at least one player will receive a negative payoff; &lt;em&gt;that player can improve by reducing his or her effort to zero&lt;/em&gt;, which will destroy the equilibrium.&quot; [emphasis mine]&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So that player will not make any effort because he/she cannot win. I leave it to you to figure out what the best reply from the other player is in that case. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I guess to be completely mathematically correct one would have to formulate these kind of games with non-negativity constraints, but because it complicates the analysis they're often left out and an interior equilibrium is either assumed or, as here, checked afterwards.&lt;/p&gt;&#xA;" OwnerUserId="12186" LastActivityDate="2017-11-27T10:14:13.143" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19489" PostTypeId="2" ParentId="19480" CreationDate="2017-11-27T18:27:25.393" Score="2" Body="&lt;p&gt;So we can think of an AR(1) process as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$y_t = a*y_{t-1} +e_t$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $e_t$ is some shock / noise process that we can't explain. Note that we can rewrite an AR process as an MA process where by tracing through we get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$y_t = a^2*y_{t-2}+a*e_{t-1}+e_t\approx \sum_{i=0}^{t-1}a^i*e_{t-i}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So that an AR process is just the weighted sum of all previous shocks where $a$ is what determines the persistence of past shocks. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So then what does it mean to say we have an AR(1) process? Well it means that the outcome today is to some extent dependent on the outcome yesterday (as you yourself suggested). In an extreme case we can set $a=1$ so that we have a random walk process where&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\Delta y_t=y_t-y_{t-1}=e_t$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This implies that the outcome today depends entirely on the outcome yesterday and any additional change in the series is purely due to random noise. Alternatively if $a\geq1$ we would say the process is non-stationary or explosive while if $a&amp;lt;1$ then the process is stationary around the mean of the process or of the shocks themselves.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An MA process has a similar interpretation except we think of it more in terms of unexplainable shocks or noise with some degree of persistence. The important thing is that it is not really something we have a variable for in the MA case but rather this notion that the the process just depends on this noise component. It is more common to find these types of models for forecasting in finance where there's alot of movement but a less clear sense of what might be driving it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In terms of population forecasting, the AR component could definitely be interpreted as you suggested, while the MA component is less easy to interpret. It's really just a sum of shocks that are otherwise unexplained. If you had an explanation for it (i.e. immigration etc.) then you would likely want to include that as an explanatory variable to model it explicitly rather than approximately through the MA process.&lt;/p&gt;&#xA;" OwnerUserId="6844" LastActivityDate="2017-11-27T18:27:25.393" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19490" PostTypeId="1" AcceptedAnswerId="40087" CreationDate="2017-11-27T18:55:28.530" Score="6" ViewCount="1007" Body="&lt;p&gt;Why is railway electrification in North America far less common than in Europe?  I suspect that the answer has something to do with the economics of electrification.  In Europe, railway electrification varies a lot between countries, ranging from 3% in Ireland to 95% in Luxembourg (not shown: 100% in Switzerland):&lt;/p&gt;&#xA;&lt;p&gt;&lt;a href=&quot;https://ec.europa.eu/transport/facts-fundings/scoreboard/compare/energy-union-innovation/share-electrified-railway_en&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/nwkcs.png&quot; alt=&quot;Electrification&quot; /&gt;&lt;/a&gt;&#xA;Source: &lt;a href=&quot;https://ec.europa.eu/transport/facts-fundings/scoreboard/compare/energy-union-innovation/share-electrified-railway_en&quot; rel=&quot;nofollow noreferrer&quot;&gt;European Commission: Mobility and Transport&lt;/a&gt;.&lt;/p&gt;&#xA;&lt;p&gt;In the USA, &lt;a href=&quot;https://en.wikipedia.org/wiki/Railroad_electrification_in_the_United_States#Overview_of_electrification_in_the_U.S.&quot; rel=&quot;nofollow noreferrer&quot;&gt;less than 1000 km is electrified&lt;/a&gt;, or less than 0.5% of the network length.&lt;/p&gt;&#xA;&lt;p&gt;One might expect the answer to be related to population density, but electrification rate is 76% in Sweden, 55% in Finland, and &lt;a href=&quot;https://www.cia.gov/library/publications/the-world-factbook/geos/rs.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;nearly 50% in Russia&lt;/a&gt;, three countries with lower or much lower population densities than the USA.  The US network is primarily freight whereas the European network is dual-use, but many freight-heavy railway lines in Europe (and Asian Russia) are electrified as well.  The Trans-Siberian railway electrification &lt;a href=&quot;http://www.railpage.com.au/news/s/russia-s-transsiberian-railway-fully-electrified&quot; rel=&quot;nofollow noreferrer&quot;&gt;completed in the 21st century&lt;/a&gt;.  Why is it, then, that railway electrification is apparently economical in Europe, but not in the USA?&lt;/p&gt;&#xA;" OwnerUserId="332" LastEditorUserId="332" LastEditDate="2020-10-05T14:22:25.370" LastActivityDate="2020-10-07T12:02:22.443" Title="Why is railway electrification in North America far less common than in Europe?" Tags="&lt;cost&gt;&lt;infrastructure&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="19491" PostTypeId="2" ParentId="19485" CreationDate="2017-11-27T18:57:04.523" Score="0" Body="&lt;p&gt;It sounds like you may have a quadratic loss function, but I am guessing a little.  If the players have played enough to be experienced in how the game works, then I would simply use the sample mean reward as my calculation point.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You should read up on the theory behind loss functions.  The players are making estimates, certain types of estimates are the natural minimization of certain loss functions.  Most gambling type behavior results from quadratic loss, though there are particular exceptions.  Equity securities center of location is the mode because there can be no such thing as a mean return.  Equity securities behaviors should result from an all-or-nothing loss function.  Physicians are another example where there is an asymmetric loss.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If a physician fails to diagnose you with a disease, then they lost the revenue from treatment and face malpractice claims.  If they misdiagnose you as having a disease but you do not, then they still collect the medical billings and may not face malpractice claims, especially if they do not reveal it was a misdiagnosis.  A diagnosis is a form of gamble.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Take a look at the losses experienced from failing to take a particular type of behavior.  &lt;/p&gt;&#xA;" OwnerUserId="11321" LastActivityDate="2017-11-27T18:57:04.523" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19494" PostTypeId="2" ParentId="19490" CreationDate="2017-11-27T19:38:13.690" Score="2" Body="&lt;p&gt;It is a legal issue, originally.  The US did have a giant electrified trolly system built around the coal and diesel-electric train system.  This was a primary method to sell electricity before the Great Depression.  When Congress decided to do mass electrification they guaranteed generation and sales monopolies but required firms to sell off all non-generation related businesses.  The primary buyers of the trolly systems were the automotive makers, who immediately shut them down.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;While there was some electrification early in the 20th century, mostly in response to legal issues with smoke generation, the change in technologies eliminated this need.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, by the time the US finally electrified its grid, it has a well established diesel-electric train network.  There is an economic issue, however.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The US hasn't had its housing or industrial base destroyed since the Civil War and there, only in the south.  Rail lines were set to be optimal for the construction and land use of the 19th century, well before electrification or mass transit.  Europe, on the other hand, has suffered multiple catastrophic eliminations of its physical plant.  This has allowed for the laying of rail in ways not possible in the US without mass condemnation of land, hence the US lacks any type of bullet train.  The same is true for electrification of trains.  It would require a massive reverse engineering of the existing system.  Rail, in the US, often travels places that people do not live.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Hi-Line is a good example of a train route that has very few people on the entire route.  Trains can travel at relatively high speeds because there are no people in the middle to slow it down to allow for automotive traffic.  Because there are no people, there is also no power system to support it, except incidentally where it hits settled areas.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It would be possible to create a long electrical system for this one customer, but why?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another likely issue is that there are multiple competing railroads that use each others' tracks.  They rent them. If one electrified, but the others did not, then no one would be able to use the electrified tracks without serious modification.  Even if all electrified, they would have to do so to the same standards.  There are several small roads too in the US.  Look at &lt;a href=&quot;http://www.wlerwy.com/&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.wlerwy.com/&lt;/a&gt;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The persisting existence of small lines implies that the economies of scale are such that they can thrive.  Electrification requires a large capital investment compared to a diesel-electric train.  There would have to be some national impetus to move these small companies down that path when they do not have to take the risk that they will not recover their investments down the road.&lt;/p&gt;&#xA;" OwnerUserId="11321" LastActivityDate="2017-11-27T19:38:13.690" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="19495" PostTypeId="2" ParentId="19480" CreationDate="2017-11-27T19:46:58.007" Score="1" Body="&lt;p&gt;You got it quite nicely:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;An AR(1) process would imply population in $t$ depends linearly on the population level at $t-1$&lt;/li&gt;&#xA;&lt;li&gt;An MA(1) process would imply population in $t$ depends linearly on the population shock, event or &quot;surprise&quot; at $t-1$.&lt;/li&gt;&#xA;&lt;li&gt;An I(1) process would imply population growth (that is, the first difference, $X_t-X_{t-1}$) is a stationary process and doesn't have a trend; the population level itself isn't. In the real world, though, it's strange to find an I(2) model, much less I(&gt;2).&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Mix everything up and you can forecast population with a combination of previous population levels, surprising events and population growths.&lt;/p&gt;&#xA;" OwnerUserId="7857" LastEditorUserId="7857" LastEditDate="2017-12-03T20:15:05.157" LastActivityDate="2017-12-03T20:15:05.157" CommentCount="10" ContentLicense="CC BY-SA 3.0" />
  <row Id="19496" PostTypeId="1" CreationDate="2017-11-27T20:17:14.923" Score="1" ViewCount="13" Body="&lt;p&gt;I'm learning economics and I want to read/hear the world through the lenses of any economist. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What are the best periodical economics news feeds?&#xA;It could &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Magazines such as theeconomist.com&lt;/li&gt;&#xA;&lt;li&gt;Podcast etc. &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Thank you,&#xA;Karsnen&lt;/p&gt;&#xA;" OwnerUserId="15108" LastActivityDate="2017-11-27T20:17:14.923" Title="Resources for periodical economics feed" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;financial-economics&gt;&lt;markets&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="1" ClosedDate="2017-11-27T20:27:44.690" ContentLicense="CC BY-SA 3.0" />
  <row Id="19497" PostTypeId="2" ParentId="18964" CreationDate="2017-11-27T23:37:20.507" Score="0" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;People in the nuclear post-apocalyptic world use bottle caps as barter money.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I love the series, so I can definitely answer with enthusiasm!&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;How would inflation work in such an economic environment?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In a fiat-monetary system, the supply of cash circulating in the system is defined and controlled by a central bank. Although the amount may seem arbitrary, i.e.let us print 100 million tomorrow, this would be extremely inflationary and as a result devalue the currency and its use within the economy. &lt;a href=&quot;https://en.wikipedia.org/wiki/Zimbabwean_dollar&quot; rel=&quot;nofollow noreferrer&quot;&gt;See Zimbabwe Dollar&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But with bottle caps, the amount is fixed, but to a certain extent. &lt;a href=&quot;http://www.ign.com/wikis/fallout-new-vegas/Pressing_Matters&quot; rel=&quot;nofollow noreferrer&quot;&gt;Bottle caps can still be made.&lt;/a&gt; But as with all counterfeiting operations, newly minted caps =/= the consistency of old caps. The type of metal, paint, and even evidence of bottling may be distinctive enough to discern authentic caps from counterfeited caps. Nevertheless, the premise of the quest is that the trading company doesn't wish for the supply of caps to increase relative to demand, thereby retain the value of each cap in the long run.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In addition, metal caps wear out &lt;a href=&quot;http://www.nytimes.com/1994/05/22/us/in-recycling-of-greenbacks-new-meaning-for-old-money.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;through use just like regular money&lt;/a&gt;. Although not represented in the game, this fact would act as a mechanism of which caps that have sufficiently deteriorated are removed from the system, acting as a deflationary mechanism.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;How can people buy expensive objects like houses or maybe vehicles,&#xA;  (they cost at least 10000)?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://fallout.wikia.com/wiki/Fallout_4_items&quot; rel=&quot;nofollow noreferrer&quot;&gt;Take a look at the table of items and their assigned values.&lt;/a&gt; Given that markets will reach an equilibrium in terms of price for each item bartered, the cost of a rare or expensive item would be determined by those who produce the item and desire the item. Although one might argue that current theories of the value of labor may apply in a post-apocalyptic world, I don't think there would be a high need for economists in that dystopian future, despite the dismal setting. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But as for how, there will be a need for banks for wealthy individuals to store their caps given the weight and bulk of caps. At established settlements, it would be a simple matter for me to write out a contract to you stipulating and instructing the bank to transfer my caps to your name. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;How would a bank know if another has launched a new version of purple&#xA;  coin that is worth more than any other single bottle cap?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;At least in lore, there are a handful of caps widely recognized by all factions: Nuka-Cola caps, Sunset Sarsaparilla Caps, and Bawls. At the same time, there are secondary currency systems: New California Republic Dollars, Legion currency, and Pre-War Money. All of which have (or had) a central authority, but not widely circulated or accepted. NCR money is not accepted in the Legion and vice versa. Pre-War Money has value, but isn't the primary means of currency use. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given that all caps are equal, meaning no denominations, a user (regardless of status as a bank) would see if the logo on the caps would match his or her experience of caps that would be accepted by other participants in the market.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;If a new bottle cap of unique color appears, how to corroborate that a&#xA;  bank in another village supports its value? (that is, that is not&#xA;  false).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Over time, and given that there is no significant production anymore, there will be a set amount of produced bottles and their corresponding caps. Just like there are &lt;a href=&quot;http://classicautoappraiser.com/&quot; rel=&quot;nofollow noreferrer&quot;&gt;authenticity experts today to verify the origins of cars&lt;/a&gt; the same can be said for a new cache of bottles found. The drinks are opened and an article is published by the media that either supports or refutes the authenticity of the new cache.&lt;/p&gt;&#xA;" OwnerUserId="5318" LastEditorUserId="5318" LastEditDate="2017-11-27T23:52:57.293" LastActivityDate="2017-11-27T23:52:57.293" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19501" PostTypeId="1" CreationDate="2017-11-28T14:23:04.463" Score="1" ViewCount="1112" Body="&lt;p&gt;Imagine a scenario where an agent is faced with two purchasing options, each with an individual utility function. Let us say option $A$ offers $m$ units of $P$ per £, and option $B$ offers $n$ units of $Q$ per pound. Additionally, utility is linear with respect to $P$, but not so for $Q$. How do I find out when the marginal utility of $A$ is greater than $B$?&lt;/p&gt;&#xA;" OwnerUserId="13853" LastActivityDate="2017-11-28T16:11:05.663" Title="How to Calculate Marginal Utility" Tags="&lt;utility&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19502" PostTypeId="2" ParentId="19501" CreationDate="2017-11-28T16:11:05.663" Score="3" Body="&lt;p&gt;Let's assume our agent purchases positive quantities of $x$ and $y$. The utility maximization problem (without constraints on purchasing non-negative quantities) is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{equation}&#xA;	\begin{array}{*2{&amp;gt;{\displaystyle}r}}&#xA;	\mbox{maximize (over $x, y$)} &amp;amp; u(x,y) \\&#xA;	\mbox{subject to} &amp;amp; p_x x + p_y y \leq w&#xA;	\end{array}&#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Lagrangian is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \mathcal{L}(x, y, \lambda) = u(x,y) - \lambda(p_x x + p_yy - w)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assuming $u$ is concave and differentiable, the problem is a convex optimization problem (in the jargon of optimization problems), and Slater's condition holds, hence the first order conditions are necessary and sufficient for an optimum. The first order conditions are:&#xA;$$ \frac{\partial \mathcal{L}}{ \partial x} = \frac{\partial u}{\partial x} - \lambda p_x  \quad \quad  \frac{\partial \mathcal{L}}{ \partial y} = \frac{\partial u}{\partial y} - \lambda p_x = 0 $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Combining both equations (taking out lambda) we have:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\partial u / \partial x}{p_x} = \frac{\partial u / \partial y}{p_y} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This gives you the classic microeconomic theory result that &lt;a href=&quot;https://en.wikipedia.org/wiki/Marginal_rate_of_substitution&quot; rel=&quot;nofollow noreferrer&quot;&gt;the marginal rate of substitution is the ratio of prices&lt;/a&gt;. From here can you answer the question?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Note: as you may have noticed, I slipped into your question a few more assumptions: eg. an assumption that the agent actually buys positive quantities of Option  A and Option B.)&lt;/p&gt;&#xA;" OwnerUserId="10334" LastActivityDate="2017-11-28T16:11:05.663" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19506" PostTypeId="1" AcceptedAnswerId="19510" CreationDate="2017-11-28T20:36:39.473" Score="3" ViewCount="965" Body="&lt;p&gt;Are there game theoretic models where one player is rational and the other is irrational (i.e., plays with behavioral limitations)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The motivation for this question is that behavioral economics has documented how people often make choices that don't maximize expected utility, but those irrational people might be interacting with near-rational computers or organizations. I've never seen a game theory model that has both an expected utility-maximizing player and a behavioral player. &lt;/p&gt;&#xA;" OwnerUserId="15337" LastEditorUserId="15337" LastEditDate="2017-11-29T01:02:07.987" LastActivityDate="2017-11-29T16:07:17.283" Title="Game theory with rational and irrational players" Tags="&lt;game-theory&gt;&lt;behavioral-economics&gt;&lt;bayesian-game&gt;&lt;repeated-games&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19507" PostTypeId="1" CreationDate="2017-11-28T21:25:57.663" Score="4" ViewCount="108" Body="&lt;p&gt;&lt;strong&gt;Is skills or abilities of the worker taking in consideration in Marx law of value?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;I know about the &lt;code&gt;subjective theory of value&lt;/code&gt;, but I want to know how Marx takes this in consideration&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As far as I have been reading the &lt;code&gt;law of value&lt;/code&gt; only takes the &lt;code&gt;labour hours work&lt;/code&gt; to produce a &lt;code&gt;commodity&lt;/code&gt;.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;the more labour it costs to make a product, the more it is worth, and inversely the less labour it costs to make a product, the less it is worth&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;let's say &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;product A &#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;takes 10 hours&lt;/li&gt;&#xA;&lt;li&gt;you need specially skills that are a hard to learn&lt;/li&gt;&#xA;&lt;li&gt;only 14% of population already have those skills to build that product&lt;/li&gt;&#xA;&lt;/ul&gt;&lt;/li&gt;&#xA;&lt;li&gt;product B &#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;takes 10 hours&lt;/li&gt;&#xA;&lt;li&gt;you do not need special skills&lt;/li&gt;&#xA;&lt;li&gt;90% of the people already have those skills to build that product&lt;/li&gt;&#xA;&lt;/ul&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;code&gt;A value = B value ?&lt;/code&gt;&#xA;&lt;em&gt;I'm not taking about money price&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;In a real example&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;A web developer takes 10 hours to make a fancy custom bio web page.&lt;/li&gt;&#xA;&lt;li&gt;A woodworker takes 10 hours to make a chair.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;code&gt;the chair value = the web site value?&lt;/code&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Is the worker him or her self taking in consideration at all?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;since &lt;code&gt;worker1&lt;/code&gt; might build a much better web site in 10 hours than &lt;code&gt;worker2&lt;/code&gt;&lt;/p&gt;&#xA;" OwnerUserId="15343" LastActivityDate="2018-10-30T01:06:19.347" Title="Is skills or abilities of the worker taking in consideration in Marx law of value?" Tags="&lt;marxism&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19508" PostTypeId="2" ParentId="19456" CreationDate="2017-11-28T22:47:27.577" Score="6" Body="&lt;p&gt;There are numerous directions to go which start moving you beyond ordinary least squares (OLS), linear regression. The universe of statistical methods is large! &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Two books that I particularly enjoyed are &lt;em&gt;Econometrics&lt;/em&gt; by Hayashi and &lt;em&gt;Elements of Statistical Learning&lt;/em&gt; by Hastie et. al. Looking back at your question, these books may be too advanced. But maybe not. An easier version of the latter is &lt;em&gt;An Introduction to Statistical Learning&lt;/em&gt; (and may be interesting from the perspective of a broader exposure to data science than just econometrics).&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Hayashi's &lt;em&gt;Econometrics&lt;/em&gt; introduces a variety of methods through the lens of GMM and with an eye towards time-series econometrics.&lt;/li&gt;&#xA;&lt;li&gt;&lt;em&gt;Elements of Statistical Learning&lt;/em&gt; is a modern classic of the statistics, machine learning literature. It's great for opening your eyes to methods outside of traditional econometrics.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;h3&gt;Some examples beyond ordinary least squares...&lt;/h3&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Maximum_likelihood_estimation&quot; rel=&quot;nofollow noreferrer&quot;&gt;Maximum likelihood estimation (MLE)&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You must know this if you continue doing statistics. It's a ubiquitous workhorse.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you can specify the &lt;a href=&quot;https://en.wikipedia.org/wiki/Likelihood_function&quot; rel=&quot;nofollow noreferrer&quot;&gt;likelihood function&lt;/a&gt; then parameters of the likelihood function can be estimated by maximizing the likelihood function. In certain special cases, (eg. linear regression with conditionally normal error terms) the OLS estimator is the MLE estimator. You've undoubtedly encountered MLE estimation before if you've estimated a &lt;a href=&quot;https://en.wikipedia.org/wiki/Logistic_regression&quot; rel=&quot;nofollow noreferrer&quot;&gt;logit model&lt;/a&gt;. MLE is all over physics, engineering, and the sciences.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are issues with applying MLE to economic models though. Often we know that an overall economic model is false. A model will imply certain facts that are entirely fallacious. Forcing the model to match the data in a maximum likelihood sense may not induce a useful choice of parameters. GMM can be used as an alternative approach to selectively test certain predictions of a model.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Generalized_method_of_moments&quot; rel=&quot;nofollow noreferrer&quot;&gt;GMM&lt;/a&gt; is another broad method for estimating parameters based upon moment conditions that in expectation should be zero. Hayashi's book &lt;em&gt;Econometrics&lt;/em&gt; develops ordinary least squares regression, instrumental variables, maximum likelihood, and other methods as special cases of GMM with different moment conditions. OLS can be thought of as GMM using the orthogonality condition of the regressors and the error terms. MLE can be derived as GMM on the &lt;a href=&quot;https://en.wikipedia.org/wiki/Score_(statistics)&quot; rel=&quot;nofollow noreferrer&quot;&gt;score&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://johnhcochrane.blogspot.com/2013/10/hansens-nobel.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;A John Cochrane ode to GMM is here.&lt;/a&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Matching_(statistics)&quot; rel=&quot;nofollow noreferrer&quot;&gt;Matching methods&lt;/a&gt; for estimating causal effects are common in certain areas of economics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The idea is to match a treated entity with an untreated entity based upon observable characteristics. A widely used technique for example is &lt;a href=&quot;https://en.wikipedia.org/wiki/Propensity_score_matching&quot; rel=&quot;nofollow noreferrer&quot;&gt;propensity score matching&lt;/a&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;There are all kinds of variations on classic linear methods:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The idea here is to start with ordinary least squares but then to bias coefficient estimates towards zero to reduce overfitting and improve out of sample prediction.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Tikhonov_regularization&quot; rel=&quot;nofollow noreferrer&quot;&gt;Ridge regression&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Lasso_(statistics)&quot; rel=&quot;nofollow noreferrer&quot;&gt;Lasso&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;h3&gt;References&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://rads.stackoverflow.com/amzn/click/0691010188&quot; rel=&quot;nofollow noreferrer&quot;&gt;Fumio, Hayashi, 2000, &lt;em&gt;Econometrics&lt;/em&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://rads.stackoverflow.com/amzn/click/B00475AS2E&quot; rel=&quot;nofollow noreferrer&quot;&gt;Hastie, Trevor, Robert Tibshirani, Jerome Friedman, 2009, &lt;em&gt;Elements of Statistical Learning&lt;/em&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://rads.stackoverflow.com/amzn/click/1461471370&quot; rel=&quot;nofollow noreferrer&quot;&gt;James, Gareth, Daniela Witten, Trevor Hastie, and Robert Tibshirani, 2017, &lt;em&gt;An Introduction to Statistical Learning&lt;/em&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="10334" LastEditorUserId="10334" LastEditDate="2017-11-30T16:32:40.490" LastActivityDate="2017-11-30T16:32:40.490" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19509" PostTypeId="1" CreationDate="2017-11-28T22:48:24.170" Score="1" ViewCount="30" Body="&lt;p&gt;This came up in a pub discussion.  (yes, it was good beer...)  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose that instead of taxing companies on the net income they make, they were taxed at a much lower rate on cash flow, with no deductions for anything at all.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It would play hell with the financials market because every stock and bond transaction will be nibbled, so there would enormous pressure to buy and hold, compared to quick turn around.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It would affect mass market goods more than services.  Mass markets tend to run on fairly low margins, compared to services.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The lack of any deductions would be interesting.  Not sure what effect that would have.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It would be very simple, so a whole bunch of very smart people who have been working hard to keep a nickel out of the government's pocket could devote their talents to something else.&lt;/p&gt;&#xA;" OwnerUserId="12670" LastActivityDate="2017-11-28T22:48:24.170" Title="What would be the effect on a tax on business cash flow instead of on income?" Tags="&lt;taxation&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19510" PostTypeId="2" ParentId="19506" CreationDate="2017-11-29T00:41:52.603" Score="4" Body="&lt;p&gt;Yes, a whole book has been written on &lt;a href=&quot;https://press.princeton.edu/titles/7517.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Behavioral Game Theory&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;More specifically, standard solution concept such as Nash equilibrium requires that players &lt;strong&gt;&lt;em&gt;best respond&lt;/em&gt;&lt;/strong&gt; to a &lt;strong&gt;&lt;em&gt;correct belief&lt;/em&gt;&lt;/strong&gt; about other players' moves. The following are examples that relax one of these cognitive restrictions:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Quantal_response_equilibrium&quot; rel=&quot;nofollow noreferrer&quot;&gt;Quantal response equilibrium&lt;/a&gt; allows for the possibility that players do not always choose a best response. Instead, they &quot;quantal respond&quot; (or best respond with mistakes) to a correct belief about others' quantal response. &lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Cognitive_hierarchy_theory&quot; rel=&quot;nofollow noreferrer&quot;&gt;Level-&lt;em&gt;k&lt;/em&gt; or Cognitive Hierarchy Theory&lt;/a&gt; relaxes the correctness of beliefs assumption, and allows players to best respond to a set of mutually inconsistent beliefs. &lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://ac.els-cdn.com/0899825689900055/1-s2.0-0899825689900055-main.pdf?_tid=5119d6d2-d49c-11e7-92e6-00000aab0f6c&amp;amp;acdnat=1511915530_bbe87353c0e762ef52a7b113f865977f&quot; rel=&quot;nofollow noreferrer&quot;&gt;Psychological games&lt;/a&gt; allow players to derive utility directly from beliefs (and belief-dependent emotions). Relevant solution concept include &lt;a href=&quot;http://www.u.arizona.edu/~martind1/Papers-Documents/atosr.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;sequential reciprocity equilibrium&lt;/a&gt; and &lt;a href=&quot;https://people.hss.caltech.edu/~camerer/NYU/07-Rabin.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Rabin's fairness equilibrium&lt;/a&gt;. &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;For a complete review of models of behavioral game theory, see Chapter 13 of &lt;a href=&quot;https://rads.stackoverflow.com/amzn/click/B01N7D2D20&quot; rel=&quot;nofollow noreferrer&quot;&gt;Dhami (2016)&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a specific example of a game with mixed players, see this paper on &lt;a href=&quot;https://www.researchgate.net/publication/266318534_Robust_protection_of_fisheries_with_COmPASS&quot; rel=&quot;nofollow noreferrer&quot;&gt;robust protection of fisheries&lt;/a&gt;. A more comprehensive treatment of mixed games is available in Rani Spiegler's &lt;a href=&quot;http://www.tau.ac.il/~rani/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Bounded Rationality and Industrial Organization&lt;/a&gt; per Michael Greinecker's comment on the original question.&lt;/p&gt;&#xA;" OwnerUserId="42" LastEditorUserId="15337" LastEditDate="2017-11-29T16:07:17.283" LastActivityDate="2017-11-29T16:07:17.283" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="19511" PostTypeId="1" CreationDate="2017-11-29T05:23:19.757" Score="4" ViewCount="518" Body="&lt;p&gt;I was thinking of a better monetary system, and here is what I came up with it. I'd like to know if this would work, as I see if offers many advantages over our debt-based monetary system today.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;A new monetary system:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;All currency, should be created by the government. Goverments will spend created currency into circulation through government jobs, such as teachers, construction workers, law enforcement officers, and firefighters. The currency can be spent interest free, allowed to circulate permanently, for the benefit of the people.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now you might be thinking; inflation. Well, goverments can still tax us, but the tax will remove the currency from existence. This provides a very smart way to allow currency to keep its value, yet let our goverment spend money on things we as a society need in the 21st century without going into debt. A small inflation rate of 0.5% a year is ideal, and can be achieved by destroying a certain percentage of the money removed by circulation by tax (example, 95% of whatever is taxed is destroyed to allow inflation). The 0.5% inflation rate will always be predictable for people who seek to loan money. It will also simulate spending. Also, a 0.5% inflation rate allows savers to save again whereas we have a 2% interest rate today and money quickly loses value over years.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Providing credit is very important so people can purchase houses, create businesses, and &quot;start&quot; there life. Therefor, banks will no longer be for profit, and governments shall provide bank services that run as non-profit organizations. Loans may be created to people who have good and decent credit. These loans will only have a .5% interest rate to keep up with inflation. No collateral will be lost if the loan fails, however jail time can be faced. This is to prevent corruption, as no government would want to jail someone for the fun of it. To maintain price stability, the amount of money destroyed by tax will be to proportion of the loans given out that year. This &quot;tax variable&quot; allows the government to let the currency have value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The key with this system is a balancing act, in which governments must balance the amount of money they create/spend into government jobs, how much money they can create with loans, and maintaining price stability by removing money from circulation with a &quot;variable tax&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Should the economy fail in any way, only the government can be blamed. No multi-billion dollar bailouts at the expense of tax payers, and the system can be revised to see what went wrong.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Our current debt based monetary system:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Our current monetary system is debt base. 95% of our money is bank credit, created by loans. Private bankers charge interest on these loans, yet they do not create the future interest payments needed to repay the loans back. They only create the principle. Therefor, we can establish a couple things:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Money is created as debt&lt;/li&gt;&#xA;&lt;li&gt;Interest is charged on money that does not exist.&lt;/li&gt;&#xA;&lt;li&gt;If everyone payed off there debt, there would be no money in circulation.&lt;/li&gt;&#xA;&lt;li&gt;Every-time our bank system fails, multi-billion dollar bailouts are given to banks at the expense of tax payers.&lt;/li&gt;&#xA;&lt;li&gt;Every dollar in existence has interest due on it.&lt;/li&gt;&#xA;&lt;li&gt;There will always be more debt than currency, which drives down spending.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Now, when a loan is repayed, the principle is destroyed. Many economists argue that interest is recycled, because banks need to pay employees, pay bills, etc. However this is not true. It is true that some interest IS recycled, however many banks will always invest money for there own financial gain, and no where in the law is there a rule stating banks must recycle interest. Also, what happens if I loan 100,000 dollars to someone? There would be TWO interest payments on the same dollar making it impossible to extinguish the debt that the dollar carries. No where is there a law that prevents a company, me, or you from loaning money and charging interest, money that came from a bank loan originally.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can conclude this in a simple mathematical equation:&#xA;p ≠ p + i&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The result:&#xA;Governments must steal prosperity out of the future to spend money into services by borrowing it and promising to pay back interest. The only way our current monetary system can sustain itself is if we go more into debt to pay back old loans. We can't keep going into debt forever, and that is why foreclosures are a guarantee with this system, and banks end up with most our assets which have real value, compared to the paper they print out of thin air.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, lets say everyone today stops borrowing from banks tomorrow and pays there bills. This is deflationary. When the money supply shrinks, paying off debts + interest due on them is much harder and spending dries out. Wages fall, buisnesses need to attract more sales but they can't do that without lowering prices. Our whole system goes in a deflationary collapse, leading to a financial crisis. When the system fails, the banks may take your property as you fail to pay loans, and they always get bailed out by our government at the expense of more tax, just so we can keep this monetary system.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Other interesting things to note:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Our current inflation rate of 2% is a huge disadvantage to savers.&lt;/li&gt;&#xA;&lt;li&gt;Most our taxes go to pay off debt + interest.&lt;/li&gt;&#xA;&lt;li&gt;Most people don't even    know such a system exists today.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;So back to the question, can such a new monetary system be achieved, or is there something I haven't took into consideration?&lt;/p&gt;&#xA;" OwnerUserId="15274" LastEditorUserId="44" LastEditDate="2017-11-29T09:10:09.540" LastActivityDate="2018-04-24T20:00:08.053" Title="Why doesn't the government create money, spend it for free without interest, and recollect it with taxes?" Tags="&lt;macroeconomics&gt;&lt;inflation&gt;&lt;monetary-policy&gt;&lt;money-supply&gt;&lt;government-debt&gt;" AnswerCount="3" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19514" PostTypeId="2" ParentId="19511" CreationDate="2017-11-29T08:04:26.237" Score="11" Body="&lt;p&gt;Why doesn't the government create money, spend it for free without interest, and recollect it with taxes, you ask. Well, it does. That's exactly what public investment &amp;amp; spending, and the taxation system, do. The government creates money, puts it out into the economy, and collects it back through taxation and other payments.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If it does that while putting more money into the economy than it takes back, then that causes growth of the money supply. If the money supply grows faster than the supply of goods and services, then inflation starts to accumulate, and will continue to rise and rise until something changes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In order to prevent that, governments typically sell bonds, to stabilise the money supply. And as long as the market for those bonds is liquid enough, the yield on the bonds gives the government and central bank a useful additional macroeconomic indicator to inform policy-making.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There's even a paradigm describing the current monetary system that starts with the perspective that money is created when government spends, and is destroyed when government taxes: Modern Monetary Theory. It hasn't got much traction, largely because it doesn't seem to offer any additional insights or analytic power beyond the neo-classical view.&lt;/p&gt;&#xA;" OwnerUserId="44" LastEditorUserId="44" LastEditDate="2017-11-29T09:09:38.903" LastActivityDate="2017-11-29T09:09:38.903" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19515" PostTypeId="2" ParentId="19511" CreationDate="2017-11-29T10:39:24.603" Score="1" Body="&lt;p&gt;Your idea was proposed more than 100 years ago by Silvio Gesell (&lt;a href=&quot;https://en.wikipedia.org/wiki/Silvio_Gesell&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://en.wikipedia.org/wiki/Silvio_Gesell&lt;/a&gt;). He wanted to create a National Currency Office, in charge of money. No private banks. Money would be created in accordance with amount of wealth available. It would also depreciate, to make people spend it. Read his book &quot;Natural Economic Order&quot;. It is online.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You might be interested also in Social Credit (&lt;a href=&quot;https://en.wikipedia.org/wiki/Social_credit&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://en.wikipedia.org/wiki/Social_credit&lt;/a&gt;). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am reading about this at the moment. Very interesting.&lt;/p&gt;&#xA;" OwnerUserId="15121" LastActivityDate="2017-11-29T10:39:24.603" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19517" PostTypeId="1" AcceptedAnswerId="19587" CreationDate="2017-11-29T15:38:22.770" Score="1" ViewCount="71" Body="&lt;p&gt;Consider a simple static, incomplete-information entry game.&#xA;&lt;br/&gt; Two players, $i=1,2$. where player $1$ is new entrant, and $2$ is incumbent.&#xA;&lt;br/&gt; Player 2 can be two types: rational or belligerent, with common prior $(p,1-p)$ over her types.&#xA;&lt;br/&gt;Action set: $A_1=\{Enter, Out\}$, $A_2=\{Fight, Accomodate\}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;br/&gt;When we turn this extensive form game into normal form, we compute the expected payoff for each pair of strategies $(x,zy)$ where $x$ refers to what player 1 chooses at the information set, and $zy$ refers to what player 2 chooses in case of each type.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question:&#xA;&lt;br/&gt; When we make this incomplete information game into a complete-imperfect one, we introduce Nature and let her draw the type for player 2. However, she knows her type when she is called upon to move, so why do we calculate an expected payoff for player 2 when converting the game into an normal-form? Is this because when we collapse the extensive form into the normal-form, player 2's pure strategy set takes into account each type that she can be (rational or belligerent), thus she is also forced to calculate an expected pay off? I mean, for any pair of pure strategy set, you have to deal with two terminal nodes and their payoff, so it makes sense in this perspective, you need some sort of expected payoff calculation. But it seems odd that player 2 who supposedly knows her type also has to form expectation on her payoff.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My guess is the way strategy is defined in incomplete information is that it prescribes each type of a player what she should do if this is the type Nature draws. So, as long as the cardinality of type space is greater 1, any pair of pure strategy will force each player to face more than 1 terminal nodes (eg. $(Enter, (Fight, Fight)$).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It just sounds odd that all along, Harsanyi allows a player's type to be unknown only to other players, but in the end, no matter what, whether you have various types or not, the payoffs must be computed in expectation.&lt;/p&gt;&#xA;" OwnerUserId="8560" LastActivityDate="2017-12-05T00:07:07.500" Title="Timing of Nature Drawing Types" Tags="&lt;game-theory&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19518" PostTypeId="1" CreationDate="2017-11-29T16:21:26.337" Score="1" ViewCount="460" Body="&lt;p&gt;I was reading about the debate about income inequality and I would like to know your opinion on the matter. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Basically, the positions are two: the classical one, which states that inequality is good for growth because it fosters innovation and investments and the most recent one, the one of IMF and OECD, which states that inequality causes a decrease in human capital investment among lower-income households, which prevent them to become earners or consumers in the future. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I read that both are supported by empirical evidence but there is skepticism about them (e.g. &lt;a href=&quot;https://www.ft.com/content/94a7b252-45a1-11e5-b3b2-1672f710807b&quot; rel=&quot;nofollow noreferrer&quot;&gt;Chris Giles on FT&lt;/a&gt;). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What's your idea on the topic? Do you have any suggestion about literature/articles I can read about it?&lt;/p&gt;&#xA;" OwnerUserId="6773" LastActivityDate="2017-11-29T22:21:59.370" Title="Is inequality good for growth?" Tags="&lt;economic-growth&gt;&lt;inequality&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ClosedDate="2017-12-04T13:03:23.573" ContentLicense="CC BY-SA 3.0" />
  <row Id="19519" PostTypeId="2" ParentId="19517" CreationDate="2017-11-29T16:22:46.647" Score="0" Body="&lt;p&gt;I think the point is that player 2 has no way of revealing her type to player 1 (and even if she did, she might not want to). So regardless of the fact that she knows her type she is going to have to rely on player 1 calculating the expectation when making layer 1's decision to enter or stay out, making the payoff of player 2 also expected.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You're right of course that the expectation collapses if both types result in the same terminal node, because in that case no expectation is needed.&lt;/p&gt;&#xA;" OwnerUserId="12186" LastActivityDate="2017-11-29T16:22:46.647" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19520" PostTypeId="1" CreationDate="2017-11-29T16:33:06.837" Score="1" ViewCount="597" Body="&lt;p&gt;I'm writing my thesis and for the data I'm using I had calculated the real interest rate by dividing the nominal interest rate by the inflation rate. My supervisor recommended me to change it to instead just subtracting the inflation but I didn't want to ask him why since I've already asked him too many stupid questions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I always thought dividing is the &quot;real&quot; way and IIRC one of my professors called subtracting the inflation rate a mere &quot;approximation&quot;. So why would my supervisor want me to subtract it?&lt;/p&gt;&#xA;" OwnerUserId="15281" LastActivityDate="2017-12-30T09:36:55.897" Title="Calculating the real interest rate, why would my thesis supervisor want me to subtract inflation instead of dividing by inflation?" Tags="&lt;inflation&gt;&lt;interest-rate&gt;" AnswerCount="3" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19521" PostTypeId="2" ParentId="19520" CreationDate="2017-11-29T17:55:41.833" Score="0" Body="&lt;p&gt;Rules to keep in mind when dealing with nominal variables.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;To convert a nominal quantity (i.e. nominal GDP) to real value (i.e. real GDP, you divide the nominal value by a measure of price level (i.e. GDP deflator or CPI).&lt;/li&gt;&#xA;&lt;li&gt;To convert a nominal interest rate to real interest rate, you subtract inflation rate from nominal interest rate. Read the post about fisher equation @Herr K. suggested above.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="6009" LastActivityDate="2017-11-29T17:55:41.833" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19522" PostTypeId="2" ParentId="19485" CreationDate="2017-11-29T21:36:12.207" Score="0" Body="&lt;p&gt;I talked with an economist friend and it appears the best way to get what I'm after is to bootstrap estimate the Shapley value. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;e.g. Randomly sample with replacement my experimental data 1000 times, compute the Shapley value with each sample, and then average those computations. And at that point, it's not hard to construct a confidence interval using the 5% and 95% percentiles of the computations. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This may not be the most theoretically correct way, but it gives me precisely what I'm looking for - namely confidence intervals on the &lt;strong&gt;computed&lt;/strong&gt; Shapley value. Except incidentally, I don't care about the confidence intervals on the data points themselves. &lt;/p&gt;&#xA;" OwnerUserId="15316" LastActivityDate="2017-11-29T21:36:12.207" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19523" PostTypeId="2" ParentId="19518" CreationDate="2017-11-29T22:21:59.370" Score="1" Body="&lt;p&gt;It depends upon how and why the inequality exists.  Equality can also be bad for growth.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the old Soviet system, most people were approximately equal and this was done by the use of police power.  It did permit rapid industrialization but then stagnated.  Not all innovation was good either.  Look at the Trabant.  An amazing vehicle.  Watch &lt;a href=&quot;https://www.youtube.com/watch?v=No1-4GsQa-g&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.youtube.com/watch?v=No1-4GsQa-g&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The US used to be very flexible.  That was good for growth.  If you were born poor, then you could become rich.  If you were born rich, then you could become poor.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some income inequality is due to changes in technology and required education.  Some are due to legal changes that transfer resources from ordinary people to the rich.  It is now very difficult to become poor if you are rich and to become rich if you are poor.  That damages the incentives to build a business to grow the system.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Inequality is neither good nor bad, by itself.  It is a consequence of something else.  It is smoke; it is not fire.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are several papers by Peter Temin that are very good on the topic, but he has quite a few and I don't know exactly what you are searching for or have already read.  &lt;/p&gt;&#xA;" OwnerUserId="11321" LastActivityDate="2017-11-29T22:21:59.370" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19524" PostTypeId="1" AcceptedAnswerId="19567" CreationDate="2017-11-30T00:55:14.740" Score="3" ViewCount="539" Body="&lt;p&gt;My book (Goodwin's Microeconomics in Context, pg. 117) states the following about price-elasticity of demand:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Given two demand curves that go through a specific point on graphs with the same scale, the flatter demand curve will represent the relatively more elastic demand and the stepper one the relatively less elastic demand.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I have actually two questions about this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) Will the flatter demand curve be more elastic at any given point (for any given value of $p$) or just at the point that both curves pass through? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) How can we show this mathematically using the definition of elasticity as  $$\epsilon=\frac{dQ}{dp}\frac{p}{Q}$$?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks very much in advance. &lt;/p&gt;&#xA;" OwnerUserId="15052" LastEditorUserId="1601" LastEditDate="2021-05-11T05:56:17.860" LastActivityDate="2021-05-11T05:56:17.860" Title="How exactly does elasticity relate to slope?" Tags="&lt;microeconomics&gt;&lt;elasticity&gt;" AnswerCount="2" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="19526" PostTypeId="1" CreationDate="2017-11-30T09:46:59.817" Score="0" ViewCount="30" Body="&lt;p&gt;In one of my marketing slides it says: The diagnostic potential of micro test market is low because no survey of panel possible; the diagnostic potential of simulated test market is high.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think the diagnostic potential is in regard to product positioning.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What does &quot;survey of panel&quot; mean here?&lt;/p&gt;&#xA;" OwnerUserId="14778" LastActivityDate="2017-12-01T08:03:13.127" Title="What does &quot;survey of panel&quot; mean?" Tags="&lt;marketing&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19527" PostTypeId="1" AcceptedAnswerId="19539" CreationDate="2017-11-30T10:30:09.897" Score="1" ViewCount="742" Body="&lt;p&gt;u1(x1,y1)=max(x1,y1)&#xA;ω1=(0.2,0.2);&lt;br /&gt;&#xA;u2(x2,y2)=min(x2,y2)&#xA;ω2=(0.8,0.8)&lt;/p&gt;&#xA;&lt;p&gt;The utility functions for two individuals and their endowments are given above for a two person two good economy. My question is that is there any competitive vector of prices that gives rise to competitive equilibrium in the economy?&#xA;I used the Edgeworth box analysis and determined that the indifference curves for both the individuals will coincide completely and will be L shaped for individual 2 and an inverted L shape for individual 1. However, individual 1 will always look for a boundary optimum while the optimum for individual 2 will be at the kink of the L shaped indifference curve.&lt;/p&gt;&#xA;&lt;p&gt;I assumed good 2 to be the numeraire good with price = 1, and assumed the price of good 1 is simply p. So income of individual 1 = 0.2p+0.2 and income of individual 2 = 0.8p+0.8.&#xA;I also inspected three cases&lt;/p&gt;&#xA;&lt;h1&gt;CASE 1&lt;/h1&gt;&#xA;&lt;p&gt;When p&amp;gt;1.&#xA;Demand for good 1 by individual 1 will be zero, because good 2 is cheaper. Demand for good 1 by individual 2 = (0.8p+0.8)/(1+p).&#xA;I equated demand and supply, and found that the price was coming out to be negative, which is an impossibility so I ruled out this case.&lt;/p&gt;&#xA;&lt;h1&gt;CASE 2&lt;/h1&gt;&#xA;&lt;p&gt;When p&amp;lt;1. Demand for good 1 by individual 1 = (0.2p+0.2)/p and by individual 2 = (0.8p+0.8)/(1+p).&#xA;I equated demand and supply, and found that the price was coming out to be negative, which is an impossibility so I ruled out this case too.&lt;/p&gt;&#xA;&lt;h1&gt;CASE 3&lt;/h1&gt;&#xA;&lt;p&gt;When p=1. Individual 1 will either demand zero units or all 0.4 units that he can afford at that price. Individual 2's demand, meanwhile, will be 0.8 units of good 1. I got stuck here. It seems apparently that a competitive equilibrium does not exist. Am I wrong somewhere?&lt;/p&gt;&#xA;" OwnerUserId="15375" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2017-12-01T11:26:59.417" Title="Existence of competitive equilibrium between max utility function and min utility function" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;general-equilibrium&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19528" PostTypeId="2" ParentId="19524" CreationDate="2017-11-30T11:12:01.280" Score="7" Body="&lt;p&gt;The two demand functions $D_1(p),D_2(p)$ cross at the point $(Q,p)$. Their respective elasticities at price $p$ are&#xA;\begin{align*}&#xA;\epsilon_1(p) &amp;amp; = \frac{\text{d}D_1(p)}{\text{d}p}\frac{p}{D_1(p)} \\&#xA;\\&#xA;\epsilon_2(p) &amp;amp; = \frac{\text{d}D_2(p)}{\text{d}p}\frac{p}{D_2(p)}.&#xA;\end{align*}&#xA;However since both function cross at the point $(Q,p)$ we know that&#xA;$$&#xA;D_1(p) = D_2(p) = Q.&#xA;$$&#xA;But then&#xA;$$&#xA;\frac{p}{D_1(p)} = \frac{p}{Q} = \frac{p}{D_2(p)}.&#xA;$$&#xA;Meaning the only difference between their elasticities is $\text{d}D_i(p)/\text{d}p$, which is their slopes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for your 1. question, the conditions are not clear. Is the 'flatter' curve only 'flatter' locally, or for every price $p$? If you only mean locally, then no, the statement is only valid in the intersection point $(Q,p)$.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2017-11-30T12:49:44.473" LastActivityDate="2017-11-30T12:49:44.473" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19533" PostTypeId="1" AcceptedAnswerId="19562" CreationDate="2017-11-30T20:20:00.963" Score="6" ViewCount="1371" Body="&lt;p&gt;I cannot find anything on this online. The wikipedia article is purely technical, except by a mention that such system was used in England in early 16th century.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Do you know who was the first to come up with this idea and technique?&lt;/p&gt;&#xA;" OwnerUserId="15121" LastEditorUserId="4988" LastEditDate="2017-12-07T18:46:05.057" LastActivityDate="2017-12-07T18:46:05.057" Title="Who created the concept of &quot;present value&quot;?" Tags="&lt;finance&gt;&lt;history&gt;&lt;definition&gt;" AnswerCount="3" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19534" PostTypeId="1" CreationDate="2017-12-01T00:18:24.443" Score="1" ViewCount="42" Body="&lt;p&gt;Can someone please guide me to find data which fulfills following requests:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;It should be from one of the major leagues: Premier League, Bundesliga, La liga or Serie A.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;From a given betting company, I need odds for a home win, draw, away win for all games in an entire season&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;It doesn't matter for which season but I would prefer for a recent season.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="6611" LastActivityDate="2017-12-01T00:18:24.443" Title="Data request: guidance to find football betting data" Tags="&lt;econometrics&gt;&lt;data-request&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19535" PostTypeId="1" AcceptedAnswerId="19577" CreationDate="2017-12-01T03:08:43.077" Score="0" ViewCount="111" Body="&lt;p&gt;I made up this situation where candidate $A$ and $B$ are vying for a job. They can accept wage $x$ or undercut this to agree to work for $x-k$ where $0&amp;lt;k&amp;lt;x$. My point was that eventually they kept undercutting because they didn't want to get beat out of a job and thus they ended up being paid $0$ (evol. of internships). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I tried to show how this looks in a supply and demand graph with the equilibrium being $0$ but it wasn't making sense to me. Is it illogical to try to connect the two?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here were my thoughts:&#xA;If we had labour supply (employees) and labour demand (employers), and then the price employees are willing to work for decreases so the supply curve shifts to the right. But then this would make employers want to hire more people which would make the demand curve shift up to the right. If this keeps repeating how would we get that people are working for a price of $0$? And then it also doesn't make sense that if they're working for less the quantity supplied is greater. Or does it?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Very confused!&lt;/p&gt;&#xA;" OwnerUserId="15395" LastEditorUserId="10922" LastEditDate="2017-12-02T17:04:32.433" LastActivityDate="2017-12-04T12:53:33.830" Title="Trying to show result of prisoners dilemma simulation through supply/demand graph" Tags="&lt;microeconomics&gt;&lt;supply-and-demand&gt;&lt;labor-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19537" PostTypeId="2" ParentId="19526" CreationDate="2017-12-01T08:03:13.127" Score="1" Body="&lt;p&gt;A panel survey is a kind of longitudinal study.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In effect the survey sample (known as the panel) is asked repeated questions over time.  This allows the measurement of change over time for the units of analysis.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example you could measure unemployment by taking a random sample of the working age population and asking them whether they are working or looking for work.  Later you could take a different random sample, and get a new number at the later date. This would be a series of cross-sectional studies and could give you an estimate of the net change.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;With a panel survey, you could ask the same people at different times, giving you an estimate of gross employment flows and other more interesting details of change over time.  The difficulty is that some members of the panel might leave, and if this departure was related to the question of interest then it could bias the results. In addition, even if the panel was typical at the start, it might cease to be in future simply because all its members had become older.      &lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2017-12-01T08:03:13.127" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19539" PostTypeId="2" ParentId="19527" CreationDate="2017-12-01T11:26:59.417" Score="1" Body="&lt;p&gt;Indeed, there is no competitive eq. To see this case-by-case analysis is the best way forward. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If either price is 0, consumer 1 will demand an infinite amount, markets will not clear. If prices are both positive, consumer 1 will only ever demand 1 of the 2 goods. But, consumer 2 demands an equal amount of each good is such any such case. No allocation is compatible with both these demands.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The failure lies in the fact that the demand functions (in particular of consumer 1) are not continuous. This happens because 1 has a convex utility function.&lt;/p&gt;&#xA;" OwnerUserId="398" LastActivityDate="2017-12-01T11:26:59.417" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19542" PostTypeId="2" ParentId="19312" CreationDate="2017-12-01T12:46:19.940" Score="0" Body="&lt;p&gt;&quot;Boeing said [Airbus'] tax breaks amounted to no more than $1bn [from the EU].&quot; (link: &lt;a href=&quot;http://www.bbc.com/news/business-41152544&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.bbc.com/news/business-41152544&lt;/a&gt;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I doubt their reason for spreading out the supply chain is due to gains in economic efficiency. I'm guessing it is largely due to subsidies. A more dispersed manufacturing chain may get them bigger subsidies because politicians who have constituents working for an Airbus are more likely to demand subsidies for Airbus. Those politicians can withhold their vote on other matters, and the greater the number of politicians who support Airbus, the more the EU has to heed to Airbus' wishes.&lt;/p&gt;&#xA;" OwnerUserId="13779" LastActivityDate="2017-12-01T12:46:19.940" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19544" PostTypeId="1" CreationDate="2017-12-01T18:07:21.637" Score="3" ViewCount="98" Body="&lt;p&gt;For example, if I know in time period 2 I will get paid £x in real terms&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where the real interest rate of borrowing and lending is r% between period 1 and 2&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this the same as being paid £x/(1+r) in period 1?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or is this the same as being paid £x in period 1?&lt;/p&gt;&#xA;" OwnerUserId="15405" LastActivityDate="2017-12-02T00:24:05.760" Title="Is real income the same as present value of income?" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;interest-rate&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19545" PostTypeId="2" ParentId="19544" CreationDate="2017-12-01T19:18:19.703" Score="1" Body="&lt;p&gt;Real income refers to the income of an individual or group after taking into consideration the effects of inflation on purchasing power. For example, if you receive a 2% salary increase over the previous year and inflation for the year is 1%, then your real income only increases by 1%. Conversely, if you receive a 2% raise in salary and inflation is at 3%, then your real income shrinks by 1%.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Net present value is the value today of a stream of income over time - it is influenced primarily by interest rates.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is some relationship between the terms - because they both discuss the value of money in relationship to to time, but real income discusses the difference of buying power over time due to inflation and NPV focusses on the theoretical equivalence of money today versus a stream of money over a period of time - largely influenced by the risk of receiving that income and the available alternatives of investment during the time period.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.investopedia.com/terms/r/realincome.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;Investopedia definition of Real Income&lt;/a&gt; &lt;/p&gt;&#xA;" OwnerUserId="14376" LastEditorUserId="14376" LastEditDate="2017-12-01T19:56:35.277" LastActivityDate="2017-12-01T19:56:35.277" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="19546" PostTypeId="2" ParentId="19533" CreationDate="2017-12-01T19:32:14.833" Score="1" Body="&lt;p&gt;NPV or Net Present Value was formalized and popularized by Irving Fisher in his 1907 theory &quot;The Rate of Interest.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This &lt;a href=&quot;https://faculty.fuqua.duke.edu/~charvey/Research/Thesis/CHD1.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Duke Fuqua article&lt;/a&gt; explains some of the background on how he came to this theory.&lt;/p&gt;&#xA;" OwnerUserId="14376" LastActivityDate="2017-12-01T19:32:14.833" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19548" PostTypeId="2" ParentId="19544" CreationDate="2017-12-02T00:14:45.583" Score="1" Body="&lt;p&gt;Suppose you expect to receive £1000 (moninal income) in one year from now. Just to get the setting right, we assume 'now' is year 0 and 'one year from now' is year 1. You expect the inflation rate to be 2% in year 1. Then your &lt;strong&gt;real income&lt;/strong&gt; in &lt;strong&gt;year 1&lt;/strong&gt; is &#xA;$$£980.39=\frac{1000}{1+0.02}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now suppose you expect to receive £980.39 in year 1 as above. And you know that nominal interest rate is 5% or in real terms appr. 3%(=5%-2%). Then, the present value of your real income discounted at the real interest rate of 3% is&#xA;$$951.84=\frac{980.39}{1+0.03}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first demonstrates the calcluation of real income to be received in year 1. The second example shows the calcluation of present value of a future (real) cash flow using real interest rate. So, it depends on what (i.e. inflation rate or interest rate) is used in calcluating the discount factor. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If your £x is a real cash flow in year 1, then you do not need to discount it. Hope this helps.&lt;/p&gt;&#xA;" OwnerUserId="6009" LastEditorUserId="6009" LastEditDate="2017-12-02T00:24:05.760" LastActivityDate="2017-12-02T00:24:05.760" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19549" PostTypeId="2" ParentId="19533" CreationDate="2017-12-02T00:32:40.610" Score="0" Body="&lt;p&gt;I guess the method might have been around since the first bank was established back in the 14th century if not even centuries before. That known first bank must have used the method prior to making lending decisions. The Wikipedia article &lt;a href=&quot;https://en.wikipedia.org/wiki/History_of_banking&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; can be useful to figure out when the method might have possibly been used, but the genius behind its invention may not be easily identified. &lt;/p&gt;&#xA;" OwnerUserId="6009" LastActivityDate="2017-12-02T00:32:40.610" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19551" PostTypeId="1" CreationDate="2017-12-02T07:23:59.293" Score="9" ViewCount="250" Body="&lt;p&gt;In poor countries, one might bargain over even say a bottle of water. This is unthinkable in most rich countries. (And in countries that develop rapidly, one can actually notice the steady movement from bargaining to fixed prices.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &quot;obvious&quot; explanation is that time is less valuable in poorer countries and so people (both buyers and sellers) are willing to spend some time bargaining.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But I wonder if there have been more in-depth attempts to understand this matter (empirical and theoretical).&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastEditorDisplayName="user18" LastEditDate="2018-01-03T00:55:38.603" LastActivityDate="2018-03-09T06:32:09.063" Title="Why is bargaining more common in poor countries?" Tags="&lt;bargaining&gt;&lt;transaction-costs&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="19552" PostTypeId="1" AcceptedAnswerId="19553" CreationDate="2017-12-02T10:17:32.353" Score="0" ViewCount="36" Body="&lt;p&gt;For an assignment I need to perform a VAR model on the three variables real GDP, short term interest rate and inflation. While for the first two variables I have not any problem, I am struggling to understand how to obtain a reliable &quot;inflation&quot; time series to be used for the  model. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;An expression I found on &quot;Vector Autoregressions&quot; by James H. Stock and Mark W. Watson is:&#xA;$$&#xA;\pi_t = 400 \ln \left(\frac{P_t}{P_{t-1}}\right) &#xA;$$&#xA;where $P_t$ is the chain-weighted GDP index.&#xA;However, I don't understand the reasoning behind this expression (why 400?) and I'd prefer to avoid using the chain-weighted GDP index since is an index I don't know very well.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'd like to start from the GDP deflator. I tried with some reasoning to obtain an useful expression and I came to the conclusion that maybe a good variable is:&#xA;$$&#xA;\pi_t = \frac{DEF_t -DEF_{t-1}}{DEF_t}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is that correct? Which is the best series to use as inflation for the VAR model?&lt;/p&gt;&#xA;" OwnerUserId="14712" LastActivityDate="2018-01-01T10:36:04.737" Title="How to calculate inflation rate in order to perfom VAR model?" Tags="&lt;macroeconomics&gt;&lt;inflation&gt;&lt;autoregressive&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19553" PostTypeId="2" ParentId="19552" CreationDate="2017-12-02T10:33:31.957" Score="1" Body="&lt;p&gt;Stock and Watson use log approximation and quarterly data. Premultiplying the log approximation by 400 could be due to data being quarterly. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your second method is fine too. &lt;/p&gt;&#xA;" OwnerUserId="6009" LastActivityDate="2017-12-02T10:33:31.957" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19555" PostTypeId="1" CreationDate="2017-12-02T16:19:32.200" Score="3" ViewCount="76" Body="&lt;p&gt;So, for most of us Americans, our official retirement age is 66 and we get 100% of our retirement benefits.  If we delay retirement, that benefit increases by 8% each year (up to age 70) and if we retire early that benefit decreases 6.667% each year to age 63 (when it's 80%) and an additional 5% at age 62.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/qFnzb.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/qFnzb.png&quot; alt=&quot;SS Retirement Benefits&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, if you expect that you might die (let's say you have ALS or cancer or something) before age 66, of course it doesn't make sense to wait until then to start drawing your retirement benefits.  Also, if you have a family history of dying sorta young (like cancer or heart disease) you might not expect to live to be 90 or even 80.  There is some judgement that might lead one to decide to draw retirement benefits early.  But when?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So given an interest rate (let's say it's the same as the rate of increase of the CPI) so that we attach more weight to present value vs. future value of dollars, and let's say you know how long you're gonna live.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So let $m_\text{R}$ be the month of one's &lt;em&gt;&quot;retirement&quot;&lt;/em&gt; (actually the month one first begins to draw SS benefits) which is 12 times the age of retirement in years.  And let $m_\text{D}$ be the month of one's death.  Let $i$ be an assumed interest rate (or inflation rate) per month.  And let $B(m_\text{R})$ be the monthly SS retirement benefit which is a function of the month one retires (that is the function displayed above and I presume it's linearly interpolated on a per month basis).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The total lifetime SS payout adjusted for &quot;interest&quot; of inflation or future value is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \sum\limits_{n=0}^{m_\text{D}-m_\text{R}-1} B(m_\text{R}) (1+i)^n $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now given a fixed date of death one can see that while $B(m_\text{R})$ decreases with decreasing $m_\text{R}$, the number of terms in the summation &lt;em&gt;increases&lt;/em&gt; with decreasing $m_\text{R}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course, with no inflation (or increased present value over future value) and $i$ is considered to be zero, then this comes out to be&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ B(m_\text{R}) (m_\text{D}-m_\text{R}) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which is simply the total number of monthly benefits one has received.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Has anyone published a good study on this, so that one can input $i$, $m_\text{D}$ and derive an optimal $m_\text{R}$ for their own total retirement benefit?  If so, where can I find it?&lt;/p&gt;&#xA;" OwnerUserId="15430" LastActivityDate="2017-12-02T16:19:32.200" Title="Mathematically optimal age to begin drawing Social Security retirement benefits as a function of expected life span?" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;united-states&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19557" PostTypeId="1" AcceptedAnswerId="19582" CreationDate="2017-12-02T17:37:56.353" Score="2" ViewCount="207" Body="&lt;p&gt;In the habit formation RBC model, the utility can be given as follows:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$U(c_{t},n_{t}) = \ln(c_{t}) - \frac{\theta}{1+\upsilon} \bigg(\frac{n_{t}}{n_{t-1}^{\phi}}\bigg)^{1+\upsilon}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When I do FOC wrt $n_t$, I'm confused about how to treat the variable $n_{t-1}$. Is it exogenous or should I try to find $\frac{\partial n_{t-1}}{\partial n_t}$?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Many thanks.&lt;/p&gt;&#xA;" OwnerUserId="14729" LastEditorUserId="42" LastEditDate="2017-12-04T21:18:23.300" LastActivityDate="2017-12-04T21:18:23.300" Title="Utility function of habit formation model" Tags="&lt;macroeconomics&gt;&lt;rbc&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19561" PostTypeId="2" ParentId="19551" CreationDate="2017-12-02T21:02:59.000" Score="2" Body="&lt;p&gt;I think the best approach to describe this phenomenon is to see it as a change from &lt;em&gt;relational-oriented economics&lt;/em&gt; of poor countries (developing countries) to &lt;em&gt;transactional-oriented economics&lt;/em&gt; of developed countries. The first is governed by uncertainty: the good’s value is what the customer is willing to pay, it difficult for the seller to calculate all the costs involved in selling the good, and without specialization there is no knowledge to calculate how much of items must be sold for price X to reach the certain profitability.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Example:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lets imagine a street seller of bottled water in a developing country. The price of a bottled water will not be fixed, if his business activity has too many unknown factors. Perhaps he knows the price per unit at which he bought a bottled water, but there are more factors he has to consider. For example,&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Will the deliveries of bottled water from the manufacturer reoccur in the future? &lt;/li&gt;&#xA;&lt;li&gt;Is the bottled water delivered in a timely fashion?&lt;/li&gt;&#xA;&lt;li&gt;Does he have a sure mean of transportation to get to or back from the street where he sells his product?&lt;/li&gt;&#xA;&lt;li&gt;Can he be sure that no one will take his ‘spot’ on the street, or his market position in general?&lt;/li&gt;&#xA;&lt;li&gt;Can he be certain about the quality of the bottled water?&lt;/li&gt;&#xA;&lt;li&gt;Can he trust the law enforcement if someone steals his yield?&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;With development of institutions and with specialization, the participants of the market are more interested in transactions (to get the job done) rather in having a good relationship with the supplier, truck driver or law enforcer. Thus,&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;they can calculate their cost, &lt;/li&gt;&#xA;&lt;li&gt;they can enter into a contract for week-to-week supply of goods and be sure that the product will be delivered on time (right before the shop opens and in the quantity they will be able to store and sell),&lt;/li&gt;&#xA;&lt;li&gt;they have some accountancy proficiency to keep track of turnover and marginal costs.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;This enables to calculate profitability of the business give the price of a certain level. If you don’t agree with the price you will not buy the product, which is fine with the seller, because he thinks in the long-run and he may adjust in the price in the future to meet certain profitability.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;I couldn’t find any of the articles I had in mind when writing this answer, but this quote form &lt;a href=&quot;https://books.google.pl/books?id=8N1SpG5f2TEC&amp;amp;dq=east%20meets%20west%20civilizational%20encounters&amp;amp;source=gbs_navlinks_s&quot; rel=&quot;nofollow noreferrer&quot;&gt;'East Meets West: Civilizational Encounters and the Spirit of Capitalism in East Asia'&lt;/a&gt;, 2007, summarizes the issue quite well.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;If transactional rationality follows neo-Darwinism and natural law, it&#xA;  may be deducted that the natural selection process will eventually&#xA;  favor transactional rationality over relational rationality. Indeed,&#xA;  many examples and studies demonstrating the relational imperative of&#xA;  exchanges, especially from anthoropological studies, drew on data and&#xA;  observations from ancient or primitive societies. It has been&#xA;  suggested that emphasis on interpersonal relationship reflects the&#xA;  nature of communities that are more homogeneous, less technologically&#xA;  developed, and less industrially developed, and where rituals,&#xA;  ascription, and emotion define exchanges. As a society develops&#xA;  technologically and industrially and becomes more diverse in skills,&#xA;  knowledge and production, division of labor requires more rational&#xA;  allocation of resources, including the increasing importance of&#xA;  rationality for resource transactions in exchanges. It has further&#xA;  been argued that the relational significance in economic exchanges&#xA;  today represents residual effects from the past. As the selective&#xA;  process proceeds, relational significance will eventually be&#xA;  superseded and replaced by transactional significance. [...]&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The author, however, criticized this view saying that there is no empirical evidence for a development view between relational rationality and transactional rationality (the author’s main interest is the difference between cultures of East and West).&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;As for the empirical research itself, I’ve seen many comparisons between transactional selling vs. relational selling, but this is a comparison between different marketing strategies (and approaches to marketing in general) in developed countries rather than cross-national analysis. This refers to your question in some way, for example in relational selling you are more inclinable to extend your budget for a certain customer and renegotiate price for the sake of creating long-lasting relationship with your client.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope this helps.&lt;/p&gt;&#xA;" OwnerUserId="15240" LastEditorUserId="15240" LastEditDate="2017-12-02T23:17:24.403" LastActivityDate="2017-12-02T23:17:24.403" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="19562" PostTypeId="2" ParentId="19533" CreationDate="2017-12-02T22:13:08.573" Score="4" Body="&lt;p&gt;It has been argued that the concept of present value was implicit in &lt;em&gt;Liber Abaci&lt;/em&gt; (1202) by Leonardo of Pisa (also known as Fibonacci).  &lt;em&gt;&lt;a href=&quot;http://depot.som.yale.edu/icf/papers/fileuploads/2591/original/03-28.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;This paper&lt;/a&gt;&lt;/em&gt; by Goetzmann makes this claim in its abstract and introduction, and presents (pp 26-7) an example from &lt;em&gt;Liber Abaci&lt;/em&gt; of what appears to be present value analysis. &lt;/p&gt;&#xA;" OwnerUserId="1417" LastActivityDate="2017-12-02T22:13:08.573" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19565" PostTypeId="1" AcceptedAnswerId="19766" CreationDate="2017-12-02T23:38:38.203" Score="0" ViewCount="245" Body="&lt;p&gt;The more I look at the shareholder system in modern capitalism, the more it starts to appear as nothing more then an otherwise meaningless system that allows rich people to profit off others work while providing nothing and holding no liabilities.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course, I will explain why I think this, then I want someone to explain to me why and how I'm wrong. What exactly am I missing?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A company sells shares in order to raise money from the IPO, however:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;ol&gt;&#xA;  &lt;li&gt;Why couldn't you just use bonds and other forms of debt instead?&lt;/li&gt;&#xA;  &lt;li&gt;Why should shares give shareholders rights beyond receiving dividends? Couldn't they justify buying the security on that alone?&lt;/li&gt;&#xA;  &lt;li&gt;Why should the company act for their shareholder's profit? They bought an IPO (or, most of the time, didn't) and are receiving dividends? Why should they arbitrarily be given more?&lt;/li&gt;&#xA;  &lt;li&gt;Given that major shareholders are often vary rich; doesn't this system just facilitate unhealthy levels of income inequality given how the workers are treated as liabilities to be minimised?&lt;/li&gt;&#xA;  &lt;li&gt;What's the point of money making via stock buy-backs if smaller companies who could use the money to better compete (and thus help the market) are more rarely in a position to do this?&lt;/li&gt;&#xA;  &lt;li&gt;Don't hostile takeovers using this system do nothing more then create frustration and monopolies?&lt;/li&gt;&#xA;  &lt;/ol&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Again, I get the point of the system, but how does having all this gunk help? Again, it just looks to me like a simple idea that was pumped full of crap that conveniently helps no one except power interests.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But as I said; am I wrong? And if so, how?&lt;/p&gt;&#xA;" OwnerUserId="13990" LastActivityDate="2017-12-27T18:57:38.340" Title="Aside from buying IPOs, what exactly is the point of shareholders?" Tags="&lt;stock-market&gt;&lt;capitalism&gt;" AnswerCount="3" CommentCount="7" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19566" PostTypeId="2" ParentId="19565" CreationDate="2017-12-03T02:29:23.920" Score="7" Body="&lt;p&gt;The shareholder system is a way of distributing the ownership of the company - each shareholder owns a certain part of the company. &lt;strong&gt;Shareholders are the owners of the company&lt;/strong&gt;, in several company legal forms, such as an LLC. They exist before and after an IPO (Initial public offer), meaning that both public (traded) and private companies may have shareholders.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The shareholders can fire and hire the Management team (CEO/CFO/ etc), which answers your questions 2 and 3. They usually signal the Management team which actions they expect the company to take to maximize the company value, reflected by the share value. If the shareholders have a short-term gain objective, this might harm the long-term sustainability of the company - a case where the management team and the shareholders might have different perspectives.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Raising funds through the sale of shares is attractive for companies because it is interest free, and might give you access to much more funds than you would ever be able to get from bonds - depending on how a company communicates its future potential. However, this comes with a loss of ownership. There is only so much unsecured debt one can sell - and debt is always paid back with interest.&lt;/p&gt;&#xA;" OwnerUserId="12304" LastEditorUserId="12304" LastEditDate="2017-12-03T08:53:59.937" LastActivityDate="2017-12-03T08:53:59.937" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="19567" PostTypeId="2" ParentId="19524" CreationDate="2017-12-03T04:53:19.550" Score="2" Body="&lt;p&gt;1) Yes, the steeper curve is more inelastic at all prices, if they are linear.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) For linear demand curves, we have $\epsilon(P) = \frac{1}{m}\frac{P}{Q(P)}$ for a demand curve with slope $\frac{\Delta P}{\Delta Q}=m$. Let the demand curve be represented $P=b+mQ$. This will reduce to $\epsilon = \frac{P}{P-b}$ where $b$ is the $P$-intercept.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By hypothesis, they both share a point $(Q,P)$, so the steeper slope corresponds to a greater value of $b$, and so the curve is more inelastic. &lt;/p&gt;&#xA;" OwnerUserId="14" LastActivityDate="2017-12-03T04:53:19.550" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="19569" PostTypeId="1" AcceptedAnswerId="19586" CreationDate="2017-12-03T21:25:57.687" Score="5" ViewCount="568" Body="&lt;p&gt;I'm interested in how we model a consumer with a changing utility function over time. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;Example:&lt;/strong&gt; an individual's demand for candy/sweets at 10 years of age will be different when he is 20,30 or 40 years old (based on casual observation).&lt;em&gt;This would seem to indicate the utility derived from this &quot;input&quot; in our utility function has changed.&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In basic intertemporal models the general assumption is that the objective utility function does not change. mathematically it makes the model simple to compute, however it does not reflect the changes in preferences over time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, if we do allow the individuals utility function to change over time in our model, does this not violate the requirements for a &lt;a href=&quot;https://economics.stackexchange.com/a/17853/8815&quot;&gt;rational consumer &lt;/a&gt;?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How do we model an individual with changing preferences over time and is it economically sound to do so?&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2017-12-04T23:11:17.550" Title="Does consumer theory assume that utility functions are consistent overtime?" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;" AnswerCount="2" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="19570" PostTypeId="1" CreationDate="2017-12-04T04:48:34.627" Score="0" ViewCount="87" Body="&lt;p&gt;How will CVS be able to buy Aetna for 69 billion if CVS only has 3 billion in cash without borrowing a large amount of money?  I understand that a company can trade for a multiple larger than 1 of their assets but how can they buy other companies which cost much more than their assets?  The market cap of CVS is 76 billion.  This is what CVS shareholders currently are worth.  How can they spend 69 billion of this and still own CVS?  Wouldn't they have to give Aetna almost all of their CVS equity in exchange for Aetna's equity?   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;One way this would make sense would be if it is more of a merger and that Aetna shares will become CVS shares.  So the value of the new CVS shares will be worth about the same as the value of the current CVS shares and the current Aetna shares.  There would simply be more shareholders in the new company - all of the existing CVS shareholders plus all the existing Aetna shareholders.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this case, I suppose I could buy a large company like Google even if I only had a company with a market cap of 1 million.  Google's shareholders would simply own virtually all of the new combined company.  &lt;/p&gt;&#xA;" OwnerDisplayName="user13472" LastEditorDisplayName="user13472" LastEditDate="2017-12-04T05:04:36.180" LastActivityDate="2018-09-21T04:06:23.860" Title="How can CVS which has about 3 billion in cash on hand buy Aetna for 69 billion?" Tags="&lt;stock-market&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19571" PostTypeId="1" AcceptedAnswerId="19572" CreationDate="2017-12-04T06:14:02.737" Score="0" ViewCount="939" Body="&lt;p&gt;When the Sharks on Shark Tank buy equity in private companies, how do they eventually make money by purchasing only equity?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, if the company makes a lot of money for a few years but then goes out of business, does the Shark lose all of their money if they don't sell their equity share to another private investor before the company goes out of business even if the company was very profitable for a few years?  &lt;/p&gt;&#xA;" OwnerDisplayName="user13472" LastEditorDisplayName="user13472" LastEditDate="2017-12-04T07:04:41.530" LastActivityDate="2017-12-04T07:04:41.530" Title="How do Sharks make money on Shark Tank through equity alone?" Tags="&lt;stock-market&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19572" PostTypeId="2" ParentId="19571" CreationDate="2017-12-04T06:40:10.827" Score="2" Body="&lt;p&gt;Getting cash out is no different for sharks on Shark Tank than any other investors in private equity: they can make money back from dividends that are yielded by profits; or by selling on the shares to someone else; or by asset-stripping the companies - i.e. selling off their assets, and closing down the trading activities of the company.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As with most other equity investors, they own shares in a mix of companies. So to make money overall, they don't need to make money on every single company. They can accept that some will do badly (often losing them their whole investment), and some will do well, but overall, they expect to make a profit on the portfolio.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Indeed, in general, for investing in small companies with private equity, the expectation might normally be that most investments will yield the investor a 100% loss, but the few that do make a profit, make such a big profit that the overall bottom line is positive.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, the sharks do have the huge advantage that every one of their companies has received significant free tv advertising, and has had the public endorsement of a supposed &quot;smart&quot; investor, which tilts the odds in their favour.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2017-12-04T06:40:10.827" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19573" PostTypeId="1" CreationDate="2017-12-04T07:06:16.300" Score="1" ViewCount="67" Body="&lt;p&gt;How can a company with shareholders stop operations without being acquired or going bankrupt?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;How is a company with shareholders that is closing up shop able to give shareholders money back for their shares if the shareholders invested more money than the value of the company's assets?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If a company with shareholders has closed up shop in the past without being acquired or going bankrupt, what are some well-known examples?&lt;/p&gt;&#xA;" OwnerDisplayName="user13472" LastEditorDisplayName="user13472" LastEditDate="2017-12-04T07:20:46.717" LastActivityDate="2018-09-21T05:01:09.713" Title="How do companies with shareholders close up shop?" Tags="&lt;stock-market&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19574" PostTypeId="1" CreationDate="2017-12-04T07:54:47.420" Score="3" ViewCount="52" Body="&lt;p&gt;I was reading this article in &lt;a href=&quot;http://voxeu.org/article/aggregate-productivity-and-rise-mark-ups&quot; rel=&quot;nofollow noreferrer&quot;&gt;VoxEU&lt;/a&gt;, where the authors (one is a Professor of Economics at Harvard University) make the case that an increasing average mark-up has accounted for much of the late productivity growth, since it leads to an increasing allocative efficiency.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, isn't this exactly the oposite of what one would want? It seems that they are somehow mixing up the possibility of high profits due to one would usually think of as high productivity, with high profits due to market imperfections... Also, it's also as if the authors would defend a higher 'productivity' but at a lower output, than a lower 'productivity' at a higher output.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here's a quote from the text which I find baffling:  &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;«(...)this reallocation of market share from low- to high-mark-up&#xA;  firms has considerably improved the allocative efficiency of the US&#xA;  economy over the last 20 years. In fact, improvements in allocative&#xA;  efficiency account for about 50% of the cumulated growth in aggregate&#xA;  productivity during this period. This suggests that ‘true’&#xA;  technological productivity growth has been even slower than previously&#xA;  imagined.(...)A high average mark-up reduces output and depresses the&#xA;  demand for labour and capital, generating low aggregate employment and&#xA;  low aggregate investment. It reduces the aggregate labour and capital&#xA;  shares, and increases the aggregate profit share.»&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="118" LastEditorUserId="61" LastEditDate="2017-12-05T19:05:26.150" LastActivityDate="2017-12-05T19:05:26.150" Title="When does a high markup mean high productivity? Never?" Tags="&lt;macroeconomics&gt;&lt;productivity&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19575" PostTypeId="2" ParentId="19569" CreationDate="2017-12-04T09:43:31.700" Score="3" Body="&lt;p&gt;Not a real answer, but a few thoughts.&lt;/p&gt;&#xA;&lt;p&gt;(1) In principle I think it can be done as long as the preferences changes relate to current consumption trade-offs e.g. sweets versus bread now, rather than sweets now versus sweets tomorrow. The latter is the problem of time inconsistency you link to in your comment. There's a large literature on time inconsistency, hyperbolic discounting etc., see for example also &lt;a href=&quot;https://academic.oup.com/qje/article-abstract/112/2/443/1870925?redirectedFrom=fulltext&quot; rel=&quot;nofollow noreferrer&quot;&gt;Laibson's classic&lt;/a&gt;. Incidentally, if the consumer can somehow commit to a certain path, that solves the problem of the inconsistency.&lt;/p&gt;&#xA;&lt;p&gt;(2) If you're looking at the whole economy, a way around the problem is to work with a representative consumer that incorporates both the preferences of the young people and the elder people. As long as the relative proportions of the population do not change over time the representative consumer should make the same choices in the aggregate.&lt;/p&gt;&#xA;&lt;p&gt;(3) How to do this in a practical way in the utility function: you could include time dependent weights on the different goods, where one increases and the other one decreases. It would definitely become more difficult to solve, but would be doable for small problems, and if the weights are simple functions of time perhaps even possible for larger problems.&lt;/p&gt;&#xA;" OwnerUserId="12186" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2017-12-04T09:43:31.700" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19576" PostTypeId="1" CreationDate="2017-12-04T12:45:45.403" Score="1" ViewCount="245" Body="&lt;p&gt;My understanding of supply and demand is that at higher prices sellers are more willing to supply and buyers will demand less, and the total transaction volume will be supply or demand, whichever is less. At some finite price the two are equal, given an equilibrium; and whereas at a higher price demand and hence transaction volume would fall, at a lower one supply and hence transaction volume would fall. Thus the equilibrium price should also maximize transaction volume.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But here's where I get confused. Excuse my inventing notation. Suppose at selling price $P$ there is a transaction volume $V(P)$, maximised at equilibrium price $P=P_E$ so $V'(P_E)=0$. If the unit cost to the seller is $c$, their profit is $\Pi=(P-c)V(P)$. Hence $$\dfrac{d\Pi}{dP}=V(P)+(P-c)V'(P),$$ which at $P=P_E$ is $V(P_E)&amp;gt;0$. Thus the profit-maximising price exceeds $P_E$. This logic seems to imply profit maximization won't occur at the equilibrium price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So what does microeconomics actually predict happens in a market?&lt;/p&gt;&#xA;" OwnerUserId="10991" LastActivityDate="2017-12-05T00:54:36.363" Title="How does demand-supply equilibrium interact with profit maximisation?" Tags="&lt;microeconomics&gt;&lt;general-equilibrium&gt;" AnswerCount="1" CommentCount="3" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19577" PostTypeId="2" ParentId="19535" CreationDate="2017-12-04T12:53:33.830" Score="0" Body="&lt;p&gt;All right, first some initial thoughts:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;You don't really need game theory for this, although you could.&#xA;Take it to a multi-person level and basically what you have is&#xA;simple competition.  &lt;/li&gt;&#xA;&lt;li&gt;Unless there is some other motivation to&#xA;take the job (for example because one is required to do an&#xA;internship and it's one of the only ones offered) you would not&#xA;compete to 0, but to your reservation wage, below which you would&#xA;refuse to work at all. Of course you can always say that you've&#xA;normalized the reservation wage to 0. Moreover, the reservation wage is not the same for everyone because we have different alternative opportunities, typically.&lt;/li&gt;&#xA;&lt;li&gt;If there is an other reason to take the job, as e.g. with the earlier mentioned internship, there is no reason why competition could not drive the wage below 0, that is people will actually pay to take the job if they want it bad enough.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;As for your question in principle nothing happens to demand (in the short-run); only the quantity demanded changes. Suppose before the game is played we have the initial situation like this:&#xA;&lt;a href=&quot;https://i.stack.imgur.com/5Un2z.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/5Un2z.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&#xA;The staircase function is the supply of laborers, the dotted function the demand. In this situation person 1 is willing to work at wage=1, and person 2 at wage=2. In principle in this case the firm would hire person 1.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now the game is played and person 2, undercuts person 1, who will undercut person 2 in turn etc.. What this does is bring the staircase steps down until they are all aligned at 0 like this:&#xA;&lt;a href=&quot;https://i.stack.imgur.com/N5u34.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/N5u34.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The supply curve becomes a horizontal line at 0. The quantity demanded for the number of laborers changes from 1 to 2.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a model involving more people that all have the same reservation wage the supply curve would look like a straight upward-sloping line and competition would induce the supply curve to turn until it is horizontal at the reservation wage.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why does that not happen in real life? Given that typically everyone has &lt;em&gt;not&lt;/em&gt; the same reservation wage because they have different outside options, people do drop out of the competition earlier and the supply curve stays an upward sloping line.&lt;/p&gt;&#xA;" OwnerUserId="12186" LastActivityDate="2017-12-04T12:53:33.830" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19578" PostTypeId="2" ParentId="19574" CreationDate="2017-12-04T14:13:50.420" Score="2" Body="&lt;p&gt;allocative efficiency = Using resurces where they add the most value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Example:&#xA;The resources needed to create a branded t-shirt (or any other product with a strong brand) is the same as for the creation of a no-name t-shirt. However, the price/value of the branded product is considerably higher.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, if you can switch production from cheap no-name products to more expensive branded products then output value increases but resource consumtion is unaffected. This value increase is separate from the resource reduction caused by an increase in productivity.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;However, isn't this exactly the oposite of what one would want? &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Depends on who &quot;one&quot; is. For american companies it is good, since it increases their profits. For the resource producers (seamstresses, cotton farmers etc) it is bad since it reduces the demand for their resources.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;It seems that they are somehow mixing up the possibility of high profits due to one would usually think of as high productivity, with high profits due to market imperfections... &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;That depends on whether you consider branding a market imperfection. When measuring it is very difficult to distinguish quality and branding. If a no-name t-shirt costs \$6 and branded t-shirt costs \$30, how much of the price difference is due to quality and how much is brand name?&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Also, it's also as if the authors would defend a higher 'productivity' but at a lower output, than a lower 'productivity' at a higher output.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;From the quoted snippet it looks like they are describing the effects successful branding has had for US companies and for the US economy. &lt;/p&gt;&#xA;" OwnerUserId="11805" LastActivityDate="2017-12-04T14:13:50.420" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19579" PostTypeId="1" CreationDate="2017-12-04T14:31:10.787" Score="1" ViewCount="731" Body="&lt;p&gt;I'm reading David Romer's Macroeconomics. However, what I don't like is that he doesn't go at all into detail about the mathematical underpinnings of RBC/DSGE models. When it comes to the central mathematical parts of these models, such as how to derive and solve an expectational recurrence equation in a mathematically rigorous way, Romer instead treats it very hand-wavy and skips over steps. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Perhaps that is fine for some people, but I would like more mathematical rigour.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, the problem is that every textbook I've found so far that is about mathematical economics only treats deterministic dynamic models.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;So my question is: Is there a good textbook that treats stochastic dynamic models in a mathematically rigorous way?&lt;/strong&gt; Note I am NOT talking about the econometric estimation of these models, but merely the purely theoretical treatment of dynamic stochastic models. &lt;/p&gt;&#xA;" OwnerUserId="11146" LastActivityDate="2021-03-23T12:24:20.310" Title="Textbook on the mathematics of RBC/DSGE models?" Tags="&lt;macroeconomics&gt;&lt;reference-request&gt;&lt;dynamic-optimization&gt;&lt;dsge&gt;&lt;rbc&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19580" PostTypeId="1" CreationDate="2017-12-04T15:06:55.800" Score="1" ViewCount="67" Body="&lt;p&gt;All the rankings available on the internet are &quot;R&amp;amp;D expenditure by % of GDP&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there any ranking of countries based on per-capita expenditure in R&amp;amp;D?&lt;/p&gt;&#xA;" OwnerDisplayName="user13954" LastActivityDate="2017-12-04T15:06:55.800" Title="Is there any ranking of countries based on per-capita expenditure in R&amp;D?" Tags="&lt;gdp&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="19581" PostTypeId="2" ParentId="19579" CreationDate="2017-12-04T15:23:11.077" Score="6" Body="&lt;p&gt;The mathematical theory behind DSGE models can be found in any textbook on stochastic dynamic optimisation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One common reference that economists use for this is &lt;a href=&quot;http://www.hup.harvard.edu/catalog.php?isbn=9780674750968&quot; rel=&quot;noreferrer&quot;&gt;Stokey, Lucas and Prescott&lt;/a&gt;. Of course, they focus exclusively on recursive methods, but (perhaps) the lion’s share of dynamic problems in economics are solved in this way.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is also a treatment of dynamic optimisation (including non-recursive and/or continuous-time methods) in &lt;a href=&quot;https://press.princeton.edu/titles/8764.html&quot; rel=&quot;noreferrer&quot;&gt;Acemoglu&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="8595" LastActivityDate="2017-12-04T15:23:11.077" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19582" PostTypeId="2" ParentId="19557" CreationDate="2017-12-04T21:11:15.670" Score="1" Body="&lt;p&gt;I believe $n_{t-1}$ is a quantity from the past, so you should be able to treat it as an exogenous variable&lt;/p&gt;&#xA;" OwnerUserId="12128" LastEditorUserId="42" LastEditDate="2017-12-04T21:17:30.683" LastActivityDate="2017-12-04T21:17:30.683" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19583" PostTypeId="2" ParentId="19557" CreationDate="2017-12-04T21:17:09.743" Score="1" Body="&lt;p&gt;$n_{t-1}$ is exogenous at time $t$. Since you must be working in a dynamic setting, $n_t$ will also show up in the utility function at time $t+1$.&lt;/p&gt;&#xA;" OwnerUserId="14662" LastActivityDate="2017-12-04T21:17:09.743" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19585" PostTypeId="1" AcceptedAnswerId="19588" CreationDate="2017-12-04T22:19:06.137" Score="6" ViewCount="129" Body="&lt;p&gt;Consider a typical event for which tickets are sold. The event only occurs once, and for simplicity we can assume that only one kind of ticket is provided, i.e, no VIP seats etc. $N$ tickets are available for purchase, and the $N$ highest bids win the tickets.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does it exist any &lt;em&gt;clever&lt;/em&gt; method for auctioning this type of good? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a classical auction, the highest bid at any time is shown and participants can increase their bid to be the winning participant. But when auctioning this type of good that does not make any sense, since there will be multiple winning bids. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Should we perhaps display the currently lowest bid that is needed to win a ticket?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What if we think that it is desirable that all winners pay the same amount, how does this effect things?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have tried to find existing research about this, but to no avail. Maybe there exist some other type of good with similar characteristics to tickets (oil/electricity?) that is auctioned in a similar way? Pointers to existing literature would be greatly appreciated.&lt;/p&gt;&#xA;" OwnerUserId="15470" LastActivityDate="2017-12-05T00:58:31.263" Title="Auction models for tickets" Tags="&lt;auctions&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="19586" PostTypeId="2" ParentId="19569" CreationDate="2017-12-04T23:11:17.550" Score="5" Body="&lt;p&gt;In &lt;em&gt;The Economic Approach to Human Behavior&lt;/em&gt;, Gary Becker said: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The combined assumptions of &lt;em&gt;maximizing behavior&lt;/em&gt;, &lt;em&gt;market equilibrium&lt;/em&gt;, and &lt;strong&gt;&lt;em&gt;stable preferences&lt;/em&gt;&lt;/strong&gt;, used relentlessly and unflinchingly, form the heart of the economic approach as I see it. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The emphasis is mine. Here &quot;stable preferences&quot; refer to preferences (and by association, the utility functions representing them) that are more or less the same across different periods. The reason for preference stability is obvious. If we allow preference or utility function to change arbitrarily, then we'd be able to explain pretty much anything by attributing the cause to some appropriately chosen change in people's preference.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When it comes to the intertemporal preferences in particular, I agree with @MaartenPunt that, at least in principle, one can incorporate time-dependence into utility function. For instance, in the usual discounted utility framework, we have &#xA;\begin{equation}&#xA;U(\mathbf x_t)=\sum_{t=0}^\infty D(t)u(\mathbf x_t)&#xA;\end{equation}&#xA;where $\mathbf x_t$ is a vector of consumption goods at time $t$, $D(\cdot)$  is a discount function (e.g. $D(t)=\delta^t$ as in an exponential discounting model), and $u(\cdot)$ is the time-invariant period utility function. To incorporate time-dependence, we can simply allow $u(\cdot)$ to also be a function of time &#xA;\begin{equation}&#xA;U(\mathbf x_t)=\sum_{t=0}^\infty D(t)u(\mathbf x_t,\color{red}t).&#xA;\end{equation}&#xA;To make @MaartenPunt's third comment more explicit, suppose &#xA;\begin{equation}&#xA;u(\mathbf x,t)=\alpha_t^1v(x^1)+\cdots+\alpha_t^iv(x^i)+\cdots+\alpha_t^nv(x^n)&#xA;\end{equation}&#xA;where $x^i$ denotes the quantity consumed of good $i$ and $\alpha_t^i$s are the time-dependent weights on the utility derived from each good $i$.&#xA;So the same consumption bundle will generate possibly different levels of utility  in different time periods. For example, $\alpha_{10}^\text{candy}&amp;gt;\alpha_{40}^\text{candy}$ would capture the fact that a 10-year-old values a candy more than a 40-year-old does. On the other hand, a time-invariant preference would imply that $\alpha_t^i=\alpha^i$ for all $t=0,1,\dots$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The above discussion is however distinctly different from the paper you linked to in the comment, which is about dynamic (in)consistency of choices. In the literature on intertemporal choices, the main focus is usually about whether some optimal consumption profile decided at time $t$ will remain optimal when reevaluated at some future time $t+k$. &#xA;Usually papers in this literature maintain the assumption of time-invariant period utility function, i.e. $u(\mathbf x,t)=u(\mathbf x)$, but play with various forms of the discount function $D(\cdot)$ (e.g. &lt;a href=&quot;https://en.wikipedia.org/wiki/Hyperbolic_discounting&quot; rel=&quot;noreferrer&quot;&gt;hyperbolic&lt;/a&gt; or &lt;a href=&quot;https://en.wikipedia.org/wiki/Hyperbolic_discounting#Quasi-hyperbolic_approximation&quot; rel=&quot;noreferrer&quot;&gt;quasi-hyperbolic&lt;/a&gt; discounting) to generate predictions that match experimental data. &lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2017-12-04T23:11:17.550" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19587" PostTypeId="2" ParentId="19517" CreationDate="2017-12-05T00:07:07.500" Score="4" Body="&lt;p&gt;I suppose you have in mind a game that looks like this: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/NANEi.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/NANEi.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;she knows her type when she is called upon to move, so why do we calculate an expected payoff for player 2 when converting the game into an normal-form?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The fact that &quot;she knows her type&quot; and therefore has no need to calculate an expected payoff presupposes that the play has reach a particular information set for player 2. Formally, let $\theta\in\{R,B\}$ be P2's type. Her utility  &lt;em&gt;conditional on her type being $\theta$&lt;/em&gt; is&#xA;\begin{equation}&#xA;u_2(\sigma_1,\beta_2(\color{red}{\theta})\vert\color{red}{\theta}). &#xA;\end{equation}&#xA;where $\beta_2(\theta)$ is P2's behavior strategy at the information set associated with $\theta$ (i.e. the left decision node for P2 when $\theta=R$ and the right decision node for P2 if $\theta=R$). Here, no expected value is calculated since the uncertainty is resolved for P2.&#xA;In contrast, in the normal form representation, P2's utility is an &lt;em&gt;unconditional&lt;/em&gt; one: &#xA;\begin{equation}&#xA;u_2(\sigma_1,\sigma_2)=\Pr(R)u_2(\sigma_1,\beta_2(R)\vert R)+\Pr(B)u_2(\sigma_1,\beta_2(B)\vert B)&#xA;\end{equation}&#xA;where expectation is to be taken.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reason is that by converting an extensive form game into the normal form, the temporal aspect of the game is lost and everything is seen from the &lt;em&gt;ex ante&lt;/em&gt; perspective. &lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2017-12-05T00:07:07.500" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19588" PostTypeId="2" ParentId="19585" CreationDate="2017-12-05T00:30:26.707" Score="7" Body="&lt;p&gt;First, you should note that there is a &lt;a href=&quot;https://en.wikipedia.org/wiki/Revenue_equivalence&quot; rel=&quot;noreferrer&quot;&gt;Revenue Equivalence Theorem&lt;/a&gt; that says under a set of conditions, the seller's revenue from using different forms of auctions will be the same. This same result holds also &lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/0165176588900444&quot; rel=&quot;noreferrer&quot;&gt;in the multi-object case&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, if you have $n$ identical objects, you can sell them using a ($n+1$)th price sealed bid auction, where &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;each bidder submits a bid,&lt;/li&gt;&#xA;&lt;li&gt;the highest $n$ bidders each gets $1$ object, and &lt;/li&gt;&#xA;&lt;li&gt;they all pay a price equal to the ($n+1$)th highest bid. &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;In such an auction, it is a weakly dominant strategy for every bidder to bid their true valuation of the object. The reasoning is similar to the &lt;a href=&quot;https://en.wikipedia.org/wiki/Vickrey_auction&quot; rel=&quot;noreferrer&quot;&gt;second price auction&lt;/a&gt;. &lt;/p&gt;&#xA;" OwnerUserId="42" LastEditorUserId="42" LastEditDate="2017-12-05T00:58:31.263" LastActivityDate="2017-12-05T00:58:31.263" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="19589" PostTypeId="2" ParentId="19576" CreationDate="2017-12-05T00:54:36.363" Score="2" Body="&lt;p&gt;I think one source of confusion in your question is that you are piecing together assumptions from different models that are incompatible. In particular, you've implicitly referred to a supply curve, but attempted to write down the optimisation problem of a monopolist. This doesn't work because a monopolist has no supply curve: a supply curve describes how much a seller would be willing to sell for a given price, taking prices as given. However, monpolists &lt;em&gt;do not&lt;/em&gt;, by definition, take prices as given. Supply curves only make sense when the seller faces perfect competition.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hopefully I can make this clearer by giving you an overview of the two different models.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One standard assumption in basic models is that markets are &lt;strong&gt;perfectly competitive&lt;/strong&gt;. For sellers, this means that they take prices as given, and nothing they do can affect the price of the good that they are selling. (Alternatively, they solve their profit maximisation problem while ignoring any effects their choices have on the market price.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Formally, a seller chooses the output quantity $q$ to maximise&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ pq-c(q), $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $p$ is the price of the good, and $c$ is the (convex) cost of producing $q$ units of the good. Hence, the seller's profit-maximising level of output is given by&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ p = c^\prime(q). $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This gives us the seller's supply curve&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ q^s(p) = (c^\prime)^{-1}(p). $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given some demand curve $q^d$, the relevant equilibrium condition is now&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ q^d\left(p^*\right)=q^s\left(p^*\right) = q^*, $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $p^*$ and $q^*$ are, respectively, the equilibrium price and quantity. (This treatment needs to be slightly modified when $c(q)$ is linear, as in your question, but this can be done.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can, of course, relax the assumption that the seller is a price-taker. Suppose now the seller realises that their choice of $q$ can affect the equilibrium price. Here, we say that the seller is a &lt;strong&gt;monopolist&lt;/strong&gt;. They now choose $q$ to maximise&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ p(q)q - c(q), $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $p(q)$ is the inverse demand curve. That is,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ p (q) = (q^d)^{-1}(q). $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Equivalently, as in your question, they would choose $p$ to maximise&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ p q^d(p)-c\left(q^d(p)\right). )$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The equilibrium quantity is then given by the solution to&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ p^\prime (q^m) q^m + p(q^m) = c^\prime (q^m). $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that it now doesn't make sense to ask what the seller's supply curve is. The seller's profit-maximising level of output isn't determined by a given price, because their choice of output affects the price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One can show, as you've found above in the case with constant marginal costs, that (assuming demand is downward sloping) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$q^m &amp;lt; q^*$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$p(q^m) &amp;gt; p^*. $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words, when the seller is a monopolist, the seller's profit-maximising output (which they will sell in the equilibrium where the seller is, in fact, a monopolist) is smaller than the equilibrium output under perfect competition.&lt;/p&gt;&#xA;" OwnerUserId="8595" LastActivityDate="2017-12-05T00:54:36.363" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="19590" PostTypeId="1" CreationDate="2017-12-05T09:17:19.860" Score="2" ViewCount="108" Body="&lt;p&gt;Why is an increase in foreign assets in a country different from us just selling foreigners our goods? As in why is one (inc. in assets) in capital account and the other (exports) in current account? &lt;/p&gt;&#xA;" OwnerUserId="15478" LastEditorUserId="3998" LastEditDate="2017-12-07T01:07:40.470" LastActivityDate="2018-11-02T14:00:37.483" Title="Difference between capital and current account" Tags="&lt;macroeconomics&gt;&lt;national-accounts&gt;&lt;balance-of-payments&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19591" PostTypeId="1" CreationDate="2017-12-05T10:38:41.697" Score="2" ViewCount="39" Body="&lt;p&gt;In the paper &lt;a href=&quot;http://www.nber.org/papers/w20819.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Gorodnichenko, Sheremirov and Talavera (2014)&lt;/a&gt; the authors compute empirically the degree of price synchronization across different goods. In a nutshell their definition of synchronization is given by: &#xA;\begin{equation}&#xA;sync^h_i = \frac{(A− 1)}{(B − 1)} \text{ provided $A &amp;gt; 0$ and $B &amp;gt; 1$}&#xA;\end{equation}&#xA;where $A$ is the number of sellers of good $i$ that change their prices and $B$ is the total number of sellers of good $i$. The measure is computed over an horizon $h$ in weeks. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;They then compare this empirical measure with what would be implied by the Calvo (1983) model of price adjustment. In page 16 they argue that the degree of synchronization at horizon $h$ in the Calvo (1983) model is given by:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{equation}&#xA;sync_{calvo} = 1 - (1 - \bar{f})^{h+1}&#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $\bar{f}$ is the median frequency of price adjustment. I have two questions regarding the last equation:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) Why does the calvo model imply this degree of price synchronization?&#xA;2) What should be the frequency at which $\bar{f}$ is computed? Is it annual? Weekly? Something tells me it should be a daily measure of the frequency of price adjustment ... But if that is the case the figure 2 on their paper below, implies that a 0 week horizon, $\bar{f}$ should be 0.2. I have no idea where this number comes from (definitely does not seem consistent with their estimates of price adjustment in table 5).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/sURHg.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/sURHg.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="6641" LastActivityDate="2017-12-05T10:38:41.697" Title="Price Synchronization in the Calvo Model" Tags="&lt;price&gt;&lt;new-keynesian-economics&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19592" PostTypeId="2" ParentId="19085" CreationDate="2017-12-05T11:26:38.997" Score="0" Body="&lt;p&gt;Money has to be used in all transaction. So Q refers to all transactions. In the early literature Q refered to commodities. This includes everything, from inputs to outputs. So you should include not only GDP but also intermediate transactions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Using only GDP is like thinking that only final goods were bought using money! This is plainly wrong.&lt;/p&gt;&#xA;" OwnerUserId="15121" LastActivityDate="2017-12-05T11:26:38.997" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="19593" PostTypeId="2" ParentId="17043" CreationDate="2017-12-05T11:33:07.843" Score="0" Body="&lt;p&gt;The &quot;common man&quot; conception of money is not helpful to think about these issues. Money is not ONLY currency and notes anymore. These are just a TOKEN used to distribute goods and provide exchanges. They are not the real stuff. For example, when you make a bank account transfer, you are not moving TOKENS. Why would you? Banks are given these tokens by the central bank in order to keep a smooth movement of payments.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So Apple does not have 80% of all tokens of the US economy in a vault somewhere. Why would they? It's dangerous! They have such ownership of wealth, but in the form of a current account and other assets.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So you need to think differently between a claim on wealth, WHICH CAN BE TURNED INTO TOKENS, and the TOKENS THEMSELVES.&lt;/p&gt;&#xA;" OwnerUserId="15121" LastActivityDate="2017-12-05T11:33:07.843" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19594" PostTypeId="1" CreationDate="2017-12-05T12:46:05.307" Score="0" ViewCount="558" Body="&lt;p&gt;In my coursebook it says that in a deflationary fiscal policy governments may reduce government expenditure (such as building hospitals and road constructions) to reduce aggregate demand but I don't see how is this supposed to affect aggregate demand.&lt;/p&gt;&#xA;" OwnerUserId="15483" LastActivityDate="2018-03-06T00:44:53.493" Title="How is reducing government expenditure supposed to reduce aggregate demand?" Tags="&lt;macroeconomics&gt;&lt;fiscal-policy&gt;&lt;government-spending&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19595" PostTypeId="2" ParentId="19085" CreationDate="2017-12-05T13:55:05.553" Score="1" Body="&lt;p&gt;Assume there are two agents in an economy, $A$ and $B$, (and some costless transaction mechanism). Per time period, agent $A$ produces alone quantity of intermediate good $q_A$. Agent $B$, thorugh a company where it is shareholder, buys this quantity, the company inputs also some other intermediate good , say $q_B$, and the two together through a production function result in a final good quantity $(q_A,q_B) \to Q$. $Q$ is then bought by agent $A$ and agent $B$ as consumers, at price $P$. $PQ &amp;gt; p_Aq_A$ since it embodies a larger amount of productive resources (assume no inflation, which is not essential here).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, for the first transaction to take place, the buying of intermediate good $q_A$, we need quantity of money $M_A=p_Aq_A$. This quantity of money is now held by agent $A$. How much money we want, in order to facilitate also the purchasing by both consumers of the final good? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It will depend on what kind of transactions we envisage to the end of the cycle.  Agent $A$ already has $M_A = p_Aq_A$ with which he can buy part of the final good. If $B$ buys the good pior to any other interaction with $A$, then $B$ must also hold quantity of money equal to $M_B = PQ - p_Aq_A$.  So the total quantity of money needed, in this scenario, is $PQ$, and the intermediate goods do not enter the final equation of the quantitative theory of money.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume now that the only quantity of money available is $p_Aq_A$. What can we do to facilitate all transactions? Well, agent $A$ can buy first a part of the final good from company belonging to $B$, then the company will give the money to $B$ as dividends, and then $B$ will give the money to the company as consumer buying the rest of the final product. But in order for the transactions to happen &lt;em&gt;sequentially&lt;/em&gt; as described, and be completed within the same time period as previously, money must &quot;move faster&quot;. So in such a situation, the velocity of money will be higher than unity. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$PQ = \left(\frac{PQ}{p_Aq_A}\right) \cdot M$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where the term in the parenthesis is $\left(\frac{PQ}{p_Aq_A}\right)\equiv \mathbf v$, the velocity of money. But again, the &quot;product&quot; side of the equation will be $PQ$. No counting of intermediate goods. &lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="1601" LastEditDate="2017-12-05T19:38:04.553" LastActivityDate="2017-12-05T19:38:04.553" CommentCount="9" ContentLicense="CC BY-SA 3.0" />
  <row Id="19597" PostTypeId="1" CreationDate="2017-12-05T19:02:43.780" Score="3" ViewCount="100" Body="&lt;p&gt;For example: if a bond got a 1% coupon, and tomorrow is the maturity date, so tomorrow I will have 101.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, in my opinion a bond price should tend to notional+coupon, because today I want this amount of money to be at par. Where I am wrong?&lt;/p&gt;&#xA;" OwnerUserId="15492" LastActivityDate="2017-12-05T22:06:43.737" Title="Why does bond price tend to 100?" Tags="&lt;bonds&gt;&lt;pricing&gt;&lt;price-theory&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19598" PostTypeId="2" ParentId="19597" CreationDate="2017-12-05T22:06:43.737" Score="3" Body="&lt;p&gt;There’s two prices for a bond:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Invoice or dirty price: what you actually pay; and&lt;/li&gt;&#xA;&lt;li&gt;the clean price, which is the dirty price less accrued interest.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;In market convention, the clean price is the quoted price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Accrued interest starts off at \$0 at a coupon date, and then rises (roughly) linearly each day until it matches the value of a coupon at the coupon date. The exact formula is a fixed schedule that depends upon market convention.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you buy a 1% annual coupon bond one day before maturity, you will probably have a clean price very close to \$100. The accrued interest will be very close to \$1, and so the dirty price would be close to \$101.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The deviation of the clean price from \$100 would depend on the deviation from 1% for the yield you bought it at. The exact accrued interest will depend on the daycount convention in the market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In any event, people use the clean price precisely because there is a “pull to par,” we do not have to worry about the coupon when thinking about the bond price.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2017-12-05T22:06:43.737" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19599" PostTypeId="1" CreationDate="2017-12-05T22:11:56.633" Score="1" ViewCount="95" Body="&lt;p&gt;I'm having some issues with solving this general equilibrium exercise.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/9Jw1a.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/9Jw1a.png&quot; alt=&quot;General Equilibrium&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The way I started off is by assuming that since consumer 2's utility is fixed, he will have a fixed utility function. Then consumer 1 would shift his indifference curve to the point where they are tangent to maximise his own utility. Thus deriving the contract curve, by $$MRS^1=MRS^2$$ &#xA;$$64x_1=117x_2-5x_1x_2$$&#xA;Then using the utility function: $$6=x{_{1}}^{1/2}x{_{2}}^{1/3}$$&#xA;I should be able to solve this because it's only 2 unknowns with 2 equations, but I cannot get anywhere without using an online calculator. I think the solution is allocation for consumer 1 is (4,8) and consumer 2: (9,8), but I am not sure how to get to this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can anyone find a similar exercise, where one consumer's utility was held fixed? Any advice on how to solve this?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My workings so far&lt;a href=&quot;https://i.stack.imgur.com/NcQQJ.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/NcQQJ.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="15495" LastEditorUserId="15495" LastEditDate="2017-12-06T01:45:15.903" LastActivityDate="2017-12-06T01:45:15.903" Title="General Equilibrium allocation holding fixed a consumer's utility" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;general-equilibrium&gt;&lt;competitive-equilibrium&gt;&lt;walrasian&gt;" AnswerCount="0" CommentCount="10" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19601" PostTypeId="2" ParentId="19594" CreationDate="2017-12-06T00:21:19.857" Score="2" Body="&lt;p&gt;Aggregate demand is the total domestic demand for goods and services in an economy. Cutting government spending could reduce aggregate two ways.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Direct. Government demand is obviously lower, and is a component of domestic demand.&lt;/li&gt;&#xA;&lt;li&gt;Indirect. The recipients of income from government spending have less money to spend.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;It is theoretically possible that other sectors can raise spending to offset those effects. (If taxes were cut at the same time, this is obviously easier. In that case, there can just be a shrinkage of the government’s share of the economy.) There is a large debate about the empirical effects of spendng cuts. However, since the question just asked for a mechanism, that literature is somewhat out of scope.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2017-12-06T00:21:19.857" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19602" PostTypeId="2" ParentId="19573" CreationDate="2017-12-06T00:45:26.857" Score="1" Body="&lt;p&gt;We need to distinguish between private corporations, and public. Private corporations are largely free in what they do, public corporations listed on stock exchanges have to follow various procedures.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For any corporation, there’s no guarantee that you make a profit, so what price you bought it at makes no difference.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If a company wound up its affairs, it would make a final cash distribution to shareholders, and that would be it. The cash would either be a dividend or a return of capital, depending upon the equity levels of the company.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem is that do this, the company would have to sell all assets simultaneously. That is normally difficult to do, and so it is much more usual for the entire firm to bought out (after selling some assets).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Furthermore, having a listing on the stock exchange is itself valuable. It would be far more common for a company to pursue a “reverse takeover”: the listed company appears to take over a private firm, but the private firm actually buys out the existing shareholders. This way, the private firm saves the expenses of seeking a listing on the stock exchange. Just shutting the firm down would probably be viewed as a suboptimal course of action, and might expose the directors to lawsuits.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is more likely is that companies largely fail, and end up having to shut down most of their operations. After awhile, they will not meet listing requirements to remain on the stock exchange, and the shares are delisted. The shares still exist, but it is very hard to find buyers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you want to find examples, you could just do a web search looking for the terms “delisted companies” and the name of a stock exchange that you are interested in. The following link is an example: &lt;a href=&quot;http://apps.tmx.com/TSXVenture/TSXVentureHttpController?GetPage=TradingStatusChanges&amp;amp;PageMode=L&quot; rel=&quot;nofollow noreferrer&quot;&gt;&#xA;TSX Venture Exchange listing changes&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2017-12-06T00:45:26.857" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19603" PostTypeId="1" AcceptedAnswerId="19605" CreationDate="2017-12-06T11:42:56.357" Score="4" ViewCount="173" Body="&lt;p&gt;I've just started studying Macroeconomics and I have a quick doubt about the following problem from Mankiw's Macroeconomics 7th edition, page 81:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;ol start=&quot;8&quot;&gt;&#xA;  &lt;li&gt;Consider how each of the following events is likely to affect real GDP. Do you think the change in real GDP reflects a similar change in&#xA;  economic well-being?&lt;/li&gt;&#xA;  &lt;/ol&gt;&#xA;  &#xA;  &lt;p&gt;a) A hurricane in Florida forces Disney World to shut down for a&#xA;  month.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;According to the solution manual, the answer is that &quot;real GDP falls because Disney does not produce any services while it is closed&quot;. However, I wonder if it's not possible that real GDP remains constant in that scenario, for instance, if people decides to spend whatever they were going to spend at Disney on other goods and services? Then, if the fall in Disney's production were fully offset by the increased production of substitutes for Disney's services, could real GDP remain unchanged? Is my reasoning correct? Thanks. &lt;/p&gt;&#xA;" OwnerUserId="15052" LastActivityDate="2017-12-07T08:23:47.007" Title="Doubt on a simple problem from Mankiw's Macroeconomics" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19604" PostTypeId="2" ParentId="19590" CreationDate="2017-12-06T13:52:19.333" Score="0" Body="&lt;p&gt;The same reason how you segregate Plant as asset and sale of goods as Income from operations.&#xA;Similarly foreign assets which are intended for long term investment (usually FDI) are treated as assets while Exports treated as sale of goods treated as current account&lt;/p&gt;&#xA;" OwnerUserId="15503" LastActivityDate="2017-12-06T13:52:19.333" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19605" PostTypeId="2" ParentId="19603" CreationDate="2017-12-06T13:57:12.127" Score="6" Body="&lt;p&gt;In theory, yes. If there are perfect** (and mutually exclusive) substitutes, and exactly the same amount of money is spent on those substitutes (and individuals would not have spent that money otherwise), then GDP could remain constant.However, even for extremely simple goods, this is unlikely.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, the question asks how the events are &lt;em&gt;likely&lt;/em&gt; to affect GDP. In practice, there are relatively few true perfect substitutes. If people can't go to Disney world, some may opt for less expensive alternatives, like watching a movie. Another consideration is whether or not Disney is obligated to pay staff during the time (probably not, so now there are people who are making less money and buying fewer things), Disney isn't purchasing food stocks and cute teddy bears for its canteens and games, and a host of other effects. The point is, it is most likely to push GDP down.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this case, I would say the question kind of implies &quot;all else held constant&quot;. The key learning outcome here is &quot;When there is a shock, and firms are forced to cease production temporarily, this negatively impacts GDP.&quot; This is the basic principal for first year econ. In later years, you will get into general equilibrium, which deals more with the side-effects of such shocks and aggregate micro-decisions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;** Edit: It is technically not strictly necessary for them to be perfect substitutes (see comments below). But in practice (and in the spirit of the first-year level question), shutting down a whole firm/industry will push GDP down. People are choosing between consumption and savings when deciding how to &lt;em&gt;spend&lt;/em&gt; their money, between labor and leisure when deciding how to &lt;em&gt;make&lt;/em&gt; their money, and taking away a large source of consumption-based utility is likely to ultimately shift choices away from consumption and towards savings and leisure both of which push down GDP in the current period, though savings generally increases it for t+1 (I am not going to get into trade-deficit effects here). But that is a more complex analysis that isn't really the point of the thought exercise in this particular case. Key learning: External shocks that reduce production generally reduce GDP, all else held constant.&lt;/p&gt;&#xA;" OwnerUserId="4079" LastEditorUserId="4079" LastEditDate="2017-12-07T08:23:47.007" LastActivityDate="2017-12-07T08:23:47.007" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="19606" PostTypeId="1" AcceptedAnswerId="19608" CreationDate="2017-12-06T15:49:48.037" Score="2" ViewCount="14476" Body="&lt;p&gt;I have a task: to download daily stock quotations, create a portfolio and draw a CML-line. Risk-free rate was given: 6.5% of annual.&#xA;I decided to convert daily returns to annual returns, using formula from &lt;a href=&quot;https://www.fool.com/knowledge-center/how-to-convert-daily-returns-to-annual-returns.aspx&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;:&#xA;$$AnnualReturn = [(DailyReturn + 1)^{365} - 1]*100\%$$&#xA;I found out, that result numbers are just insane. For example, for one company price 2017/09/07 was 27.025 , price 2017/09/08 was 27.77. Then&#xA;$$ DailyReturn = \frac{27.77-27.025}{27.025} = 0.0276$$&#xA;$$AnnualReturn = [(1.0276)^{365} - 1]*100\%=2069063\%$$&#xA;I suppose I did something wrong. Could you help me, please?&#xA;And there is one more question: can I convert a daily return to annual return like this?&#xA;$$AnnualReturn = DailyReturn*365$$&lt;/p&gt;&#xA;" OwnerUserId="15504" LastEditorUserId="15504" LastEditDate="2017-12-06T16:02:10.120" LastActivityDate="2021-05-13T23:56:53.197" Title="How to convert daily returns to annual returns?" Tags="&lt;stock-market&gt;&lt;capital-returns&gt;" AnswerCount="3" CommentCount="2" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19608" PostTypeId="2" ParentId="19606" CreationDate="2017-12-06T21:10:32.397" Score="7" Body="&lt;p&gt;So, let me start with your second question.  No you cannot multiply by 365.  You could approximate it by $$\log(\text{Annual Return})=365*\log(\text{Daily Return}),$$ but for what you are doing, it does not make sense to do so.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You are correct in your annualized rate of return.  It is 2069063%. It should be obvious as to why you would not want to do this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are two solutions.  The first is to convert annual rates, such as the bond rate, from an annual format to a daily format.  So make your risk-free rate: $$\text{Daily risk-free rate}=1.065^{\frac{1}{365}}-1=0.0001725485.$$  The second is to search through the dates of your returns and find returns that are 365 days apart, so return would be $$r=\frac{p_{366}}{p_1}.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By annualizing daily returns, you are insanely increasing the variability, but it is artificial so it isn't a true increase, it is an artifact of the method you are choosing.&lt;/p&gt;&#xA;" OwnerUserId="11321" LastActivityDate="2017-12-06T21:10:32.397" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19609" PostTypeId="1" CreationDate="2017-12-06T21:12:17.800" Score="0" ViewCount="29" Body="&lt;p&gt;I have a question. A company is worth 1 million dollars, in terms of present value of revenues, discounted at rate R. Can I borrow 1 million dollars from a bank and buy the company? If the bank charges me R, I am indifferent?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or, can I issue a bond for 1 million, with coupon R? Am I indifferent too?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Do these things happen? Do businesses ask for credit or issue bonds in order to buy companies?&lt;/p&gt;&#xA;" OwnerUserId="15121" LastActivityDate="2017-12-07T00:08:12.327" Title="Buy a company with credit or bonds. Does this happen?" Tags="&lt;finance&gt;&lt;bonds&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19610" PostTypeId="2" ParentId="19570" CreationDate="2017-12-06T21:55:33.077" Score="1" Body="&lt;p&gt;The deal is a mixture of cash and shares. Existing CVS shareholders get some cash, plus some shares in Aetna. It is likely that they would borrow in the bond market to raise the cash.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Yes, existing Aetna shareholders end up diluted. Ownership percentages in the combined firm will reflect the terms of the share conversion. The cash payment is there to reduce the dilution of Aetna shareholders, as it means that CVS shareholders get less Aetna shares.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You would only be able to take over a large firm as a small firm if the large firm’s shareholders want shares in a company that is managed by yourself. Unless you have a stellar reputation as a manager, why would they want that?&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2017-12-06T21:55:33.077" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19613" PostTypeId="2" ParentId="19609" CreationDate="2017-12-07T00:08:12.327" Score="2" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;I have a question. A company is worth 1 million dollars, in terms of present value of revenues, discounted at rate R. Can I borrow 1 million dollars from a bank and buy the company?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Yes.  It is done all of the time.  &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Can I borrow 1 million dollars from a bank and buy the company? If the bank charges me R, I am indifferent?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;No, you are not indifferent unless there is a mandatory repayment schedule.  This is a riskless contract to you otherwise.  If there is no better rate of return for you, then you begin to repay the loan, but if a new opportunity develops at $R'&amp;gt;R$ then you stop repaying the loan.  If there is no mandatory repayment schedule then you would always opt for the loan as you can require the bank to keep a bad opportunity and you can keep any good opportunity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In periods where $R$ is the superior opportunity, you repay the loan until it is fully repaid.  In periods where $R'$ dominates the original opportunity, you send the cash flow into the new opportunity.  The loan is acting as if it were a free option contract.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is an implicit cost to not taking the loan.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;None of this necessarily holds if there is a repayment schedule or if there is a loan rate of return which does not equal $R$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As to bonds, again it is the terms and conditions that matter.  In the real world bonds are costly to issue.  It appears here that bonds and bank loans are identical so you would be indifferent to using a bond or a loan, but not indifferent to buying the firm on credit since the bank or bondholders will accept taking all of the risk for the return $R$.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the return $R$ were risky and there were cash repayment obligations, then it is difficult to determine if you would be indifferent or prefer to borrow because the option requires exercise making it a forward contract and not an options contract unless there is also the capacity to prepay.  You would be strictly indifferent if and only if there existed a mandatory principal repayment scheme.  Otherwise, assuming that at the moment, no opportunity $R'&amp;gt;R$ existed, then you would take the loan and buy the firm.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This entirely depends upon the bank accepting the profit of the firm as the interest payment.  This would never happen in the real world.&lt;/p&gt;&#xA;" OwnerUserId="11321" LastActivityDate="2017-12-07T00:08:12.327" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19614" PostTypeId="1" AcceptedAnswerId="19619" CreationDate="2017-12-07T01:30:52.203" Score="4" ViewCount="145" Body="&lt;p&gt;I was talking with friends about soil exhaustion in agriculture. They tell me that it is very frequent because of the methods employed in modern agriculture. They suggest that this amount of exhaustion is 'unsustainable'.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What strikes me in contrast with other environmental issues is that there seems to be no externality here : each farmer degrades his own land. So what should we think :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;a) These are long-term effects, so that it is a problem of intergenerational equity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;b) Farmers do not know about the effects of these methods, or are not rational.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;c) There is no problem : soil exhaustion is the rational outcome of intertemporal planning and is due to time preference of farmers and consumers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any references on the subject are welcome.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks,&#xA;U.&lt;/p&gt;&#xA;" OwnerUserId="11629" LastActivityDate="2017-12-07T11:00:13.657" Title="Is soil exhaustion rational?" Tags="&lt;agriculture&gt;&lt;land&gt;&lt;rationality&gt;" AnswerCount="1" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19615" PostTypeId="1" AcceptedAnswerId="19617" CreationDate="2017-12-07T01:44:16.527" Score="3" ViewCount="244" Body="&lt;p&gt;What makes bitcoin so valuable?  It has already surpassed the value of almost all publicly traded companies.  I understand it can be used to buy things like digital money but why does the price go up?  Can't people buy things with a more steady price of bitcoin?  It seems like a steady price would be better for using it to buy things.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Have people missed this rally or does the current price grossly undervalue bitcoin?&lt;/p&gt;&#xA;" OwnerDisplayName="user13472" LastEditorDisplayName="user13472" LastEditDate="2017-12-07T03:09:32.583" LastActivityDate="2017-12-07T23:27:26.517" Title="How can all the bitcoin in the world be worth more than McDonald's Corporation?" Tags="&lt;money&gt;&lt;bitcoin&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19617" PostTypeId="2" ParentId="19615" CreationDate="2017-12-07T03:25:20.910" Score="6" Body="&lt;p&gt;Bitcoin doesn't have a value. It doesn't create wealth - it destroys it. It therefore has no yield.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It does, however, have a price. It's designed to have tightly-constrained supply, so that those people who got bitcoins early, can get rich by luring more people into buying bitcoin. And demand is just as large as the number of gullible people who can be fooled into buying it. That combination of extremely inelastic supply, and very malleable demand, creates very volatile pricing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This extreme volatility makes it very impracticable as a currency, as does its extremely inflexible supply.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2017-12-07T03:25:20.910" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19619" PostTypeId="2" ParentId="19614" CreationDate="2017-12-07T11:00:13.657" Score="3" Body="&lt;p&gt;The true answer is of course it depends. What it depends on is how you define sustainability.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a natural resources context, with weak sustainability, soil quality is a capital asset, just as a fish stock, a forest or an oil field. Given that we have manure and fertilizer I would argue that it is a renewable resource (until we run out of phosphate perhaps or poison the soil with too many pesticides), but let's start from the simpler case of a non-renewable resource.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In that case the golden rule tells us to gradually exhaust the soil until no more degradation is possible. In the simplest case we should degrade at the rate of interest. You correctly observed that in principle there are no externalities. The individual optimal solution is equal to the social optimal solution, &lt;strong&gt;provided the individual discount rate (interest rate) is equal to the social discount rate&lt;/strong&gt; (see e.g. &lt;a href=&quot;http://eu.wiley.com/WileyCDA/WileyTitle/productCd-0470372990.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Clark 2010&lt;/a&gt; for this often missed point). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;One can modify such a model to allow for renewable resources with the use of fertilizer or natural regeneration, which would change the solution somewhat. &lt;a href=&quot;http://www.jstor.org/stable/1240340&quot; rel=&quot;nofollow noreferrer&quot;&gt;Kenneth McConnel (1983)&lt;/a&gt; has a model showing the basics. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reason that soil exhaustion is optimal is that the proceeds can be invested in alternative assets, which generate a larger rent. The problem is of course that i) this model assumes we discount the future (which we do) so future generations are discounted; ii) such models at an economy wide level typically assume the existence of a backstop technology, something we can use when we run out of good quality soil. Whether or not something like that will exist is debatable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Moving towards a strong sustainability viewpoint the main thought is that we should not deplete our natural resources beyond their regenerative capacity, unless we already have a substitute. We don't currently have a real good substitute for soil quality, although we can use fertilizers and such to make up for some of that. From a strong sustainable perspective we are therefore not (yet) sustainable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From a bit broader perspective the production of artificial fertilizer is very energy intensive, and one can question whether the current amounts used (as well as the earlier mentioned pesticides) do not have unintended effects, but then you're back at externalities. &lt;/p&gt;&#xA;" OwnerUserId="12186" LastActivityDate="2017-12-07T11:00:13.657" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19623" PostTypeId="1" AcceptedAnswerId="19631" CreationDate="2017-12-07T20:18:10.380" Score="1" ViewCount="30" Body="&lt;p&gt;I am not an econometrician, but noticed that discrete choice experiments are often used to determine willingness to pay for products with specific characteristics and prices. However, these average prices seem to be reported for the average person in that sample, not being specific to specific groups of individuals. For example, by looking at the results I can't tell how that willingness to pay for a given product/price combination varies across individuals with a different socio-economic background, gender, education, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Getting more specific: what would prevent one from taking a reasonably large dataset with a discrete choice experiment and develop a machine lerning model to predict willingness to pay for individuals with specific characteristics?&lt;/p&gt;&#xA;" OwnerUserId="15513" LastActivityDate="2017-12-08T16:14:57.607" Title="Can data from discrete choice experiments be used to predict models be used to predict willingnes to pay by specific individuals?" Tags="&lt;econometrics&gt;&lt;prediction&gt;&lt;discrete-preferences&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19624" PostTypeId="1" AcceptedAnswerId="19635" CreationDate="2017-12-07T21:22:05.733" Score="2" ViewCount="1993" Body="&lt;p&gt;I have a question about a proper derivation of industry supply curve from cobb-Douglas. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The production function is given as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{equation}&#xA;q_i = 2x_1^{1/2}x_2^{1/2}&#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;the price of $x_1$ input is $w_1=1$ and $x_2$ is $w_2=4$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;These are the steps I used in trying to derive the supply curve:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I used the well-known fact that technical rate of substitution must be equal to factor prices so:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{equation}&#xA;\frac{\text{MP}_{x_1}}{\text{MP}_{x_2}} = \frac{w_1}{w_2}&#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So after substituting prices and the marginal products which we get from taking the partial derivatives of $q_i$ we get:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{equation}&#xA;\frac{x_1}{x_2} = \frac{1}{4} \text{ or } x_1 = 4x_2&#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now I substituted this back into the cobb-douglas to get:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{equation}&#xA;q_i = 4x_2 \text{ or } \frac{q_i}{4} = x_2&#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now I just used general profit equation:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{equation}&#xA;\pi_i= pq_i - w_1x_1 -w_2 x_2&#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I substituted the solution for both $x_1 = 4x_2$ and also that $x_2 = q_i/4$ and I got:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{equation}&#xA;\pi_i= pq_i - 2q_i&#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So my thinking was that by solving for optimal $q_i*$ and multiplying it by $n$ - the number of firms I could get the supply curve. But since the profit function is linear the $q_i$ drops from the derivation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Please, could someone give me advice on how to proceed?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit: Also I forgot to mention that it is assumed that industry is perfectly competitive.&lt;/p&gt;&#xA;" OwnerUserId="15517" LastEditorUserId="15517" LastEditDate="2017-12-07T22:02:58.190" LastActivityDate="2017-12-08T21:11:18.760" Title="A question of deriving an industry supply curve from cobb-douglass production function" Tags="&lt;microeconomics&gt;&lt;supply-and-demand&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19625" PostTypeId="1" CreationDate="2017-12-07T23:14:04.570" Score="0" ViewCount="530" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/Ms8ZU.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Ms8ZU.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;a href=&quot;https://i.stack.imgur.com/2h2nH.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/2h2nH.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am curious why the area $\Delta p \Delta q$ is so small that it can safely be neglected.&lt;/p&gt;&#xA;" OwnerUserId="15518" LastEditorUserId="1601" LastEditDate="2018-01-07T11:08:57.603" LastActivityDate="2018-01-07T11:08:57.603" Title="Why is $\Delta p \Delta q$ in this diagram infinitely small?" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19626" PostTypeId="2" ParentId="19625" CreationDate="2017-12-07T23:20:20.503" Score="1" Body="&lt;p&gt;It says &quot;for small values of delta p and delta q&quot;. So something small times something small is something very small. Basically we are taking a limit and as delta p and delta q go towards zero, the product goes to zero faster.&lt;/p&gt;&#xA;" OwnerUserId="11255" LastEditorUserId="11255" LastEditDate="2017-12-07T23:29:22.780" LastActivityDate="2017-12-07T23:29:22.780" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19627" PostTypeId="2" ParentId="19615" CreationDate="2017-12-07T23:27:26.517" Score="6" Body="&lt;p&gt;Bitcoin has two different audiences right now. One group wants to use it to transfer money in a hard to trace manner and is willing to take some risk and some frictional costs to do it. Some of these are criminals and some are just people who don't want to have to do the currency exchange themselves. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The other group is speculating on a change in the value of bitcoin versus other currencies. It is the second group that is driving the price change right now (December 2017) The danger is that if this price rise reverses, they will bail out and the value will crash back to that driven by the first group.&lt;/p&gt;&#xA;" OwnerUserId="11255" LastActivityDate="2017-12-07T23:27:26.517" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19631" PostTypeId="2" ParentId="19623" CreationDate="2017-12-08T16:14:57.607" Score="1" Body="&lt;p&gt;In principle it would be possible to do so. In fact this is exactly what we do if we convert a marginal effect at the mean to a willingness to pay. We calculate it for the average person in the dataset.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One can also distinguish the average WTP by subgroups and socio-economic characteristics such as gender. The reason why academic papers do not often go beyond that (I guess) is that the predictions become so specific that they are hardly interesting anymore. Who would be interested in the willingness to pay of say &quot;a 27 year old male with 12 years of education, an annual income of 24000€, voting republican and an interest in violent video games&quot;? What about when he is 28 years old? Given that these models are typically non-linear their WTPs are going to be different. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Moving to a practical point of view price discrimination at such detailed level is impossible at the moment and for a number of products it may even be illegal (insurance is an exception).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, a problem with any contingent valuation problem is that is willingness to say rather than willingness to pay. This is less of a problem in markets for goods with which the participants have experience with the good in question, but there will always be a bit of hypothetical bias.&lt;/p&gt;&#xA;" OwnerUserId="12186" LastActivityDate="2017-12-08T16:14:57.607" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19635" PostTypeId="2" ParentId="19624" CreationDate="2017-12-08T21:11:18.760" Score="3" Body="&lt;p&gt;Your method and numerical calculations are correct.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, it is a well-known fact that Cobb-Douglas (i.e exponential with constant returns to scale) production functions with price-taking behavior lead to linear cost functions, i.e. to constant marginal cost and equal to average cost, and linear profit functions, which means that profits in the long run will be either zero or infinite: If price is above $2$ ($=MC=AC$) each firm would want to produce an infinite amount of output. if it is equal to $2$, firms that produce will make zero profits. If it is below $2$ no firm will produce and profits will again be zero.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At market level, the assumption of perfect competition (costless entry especially) in turn implies that the &lt;em&gt;long-run&lt;/em&gt; (no fixed costs) market supply curve will be horizontal at $P=MC=AC$, and the level of output will be determined by the demand curve and consumer preferences. The output per firm and hence the number of firms remains undetermined here.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2017-12-08T21:11:18.760" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19636" PostTypeId="1" CreationDate="2017-12-08T23:32:38.647" Score="1" ViewCount="672" Body="&lt;p&gt;Are there any estimates on how many US Dollars are lost or destroyed annually? By &quot;lost or destroyed&quot;, I mean permanently removed from circulation because the currency is no longer usable&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For instance, if I had a briefcase full of $100 bills that I either misplace (any nobody ever finds it) or toss into a fire, that money is no longer usable and cannot circulate within the economy. How much money is lost or destroyed in ways like these annually?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm primarily interested in estimates for physical currency, but would be interested in other means of money loss (can this happen electronically?) as supplementary information.&lt;/p&gt;&#xA;" OwnerUserId="7255" LastActivityDate="2017-12-10T03:43:47.053" Title="How many US Dollars are lost or destroyed annually?" Tags="&lt;currency&gt;&lt;united-states&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="19639" PostTypeId="2" ParentId="19636" CreationDate="2017-12-09T08:32:08.030" Score="2" Body="&lt;blockquote&gt;&#xA;&lt;p&gt;Are there any estimates on how many US Dollars are lost or destroyed&#xA;annually? By &amp;quot;lost or destroyed&amp;quot;, I mean permanently removed from&#xA;circulation because the currency is no longer usable.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.theatlantic.com/business/archive/2011/04/the-destruction-of-money-who-does-it-why-when-and-how/236990/&quot; rel=&quot;nofollow noreferrer&quot;&gt;The link I offered as a comment covers this question nicely.&lt;/a&gt;&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;When Currency Is Physically Destroyed&lt;/p&gt;&#xA;&lt;p&gt;Obviously, not all money is electronic. Just look at your wallet.&#xA;Bills and coins are destroyed every day. There are three destroyers of&#xA;money, and they're the same ones who create and regulate it.&lt;/p&gt;&#xA;&lt;p&gt;(1) The Bureau of Engraving and Printing and (2) The U.S. Mint&lt;/p&gt;&#xA;&lt;p&gt;The U.S. Bureau of Engraving and Printing creates all of the nation's&#xA;bills, while the U.S. mint creates its coins. But they also destroy&#xA;money.&lt;/p&gt;&#xA;&lt;p&gt;Banks and individuals will hand over &amp;quot;mutilated&amp;quot; bills and coins to&#xA;these agencies. They then validate its authenticity and issue a&#xA;Treasury check in return. &lt;strong&gt;The Bureau of Engraving and Printing&#xA;receives around 25,000 mutilated currency redemption claims annually.&#xA;Each bill is shredded and sent to waste energy facilities for&#xA;disposal.&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.youtube.com/watch?v=mwCfK1oqRkI&quot; rel=&quot;nofollow noreferrer&quot;&gt;Here is a great video I found on the subject.&lt;/a&gt;&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;For instance, if I had a briefcase full of $100 bills that I either&#xA;misplace (any nobody ever finds it) or toss into a fire, that money is&#xA;no longer usable and cannot circulate within the economy. How much&#xA;money is lost or destroyed in ways like these annually?&lt;/p&gt;&#xA;&lt;p&gt;I'm primarily interested in estimates for physical currency, but would&#xA;be interested in other means of money loss (can this happen&#xA;electronically?) as supplementary information.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;By your situation previously, it is neigh-impossible to track such bills in circulation. As these bills don't transmit a signal as to their location, or who the buyer/seller is in a private party transaction. i.e. I meet up with you to buy your phone and pay in cash.&lt;/p&gt;&#xA;&lt;p&gt;But at the same time, all US bills are serialized, meaning each are unique. A 1 dollar bill might have the same value as another $1, but each has its own unique identifier (serial number). When the US Treasury (through the Mint for coins and Bureau of Engraving and Printing for paper bills) issues new currency, the flow and supply chain of the money is tracked from its raw materials (ink, cotton, etc.) to distribution (banks, credit unions, foreign countries). Whenever a bill 're-enters' the system (i.e. deposited at a bank) the serial can be tracked from its origin point to its reentry point. However I am unaware of a system that can actively track its location in between.&lt;/p&gt;&#xA;&lt;p&gt;At the same time, &lt;a href=&quot;https://en.wikipedia.org/wiki/Superdollar&quot; rel=&quot;nofollow noreferrer&quot;&gt;counterfeits&lt;/a&gt; are also taken into account the total supply of US dollars in circulation.&lt;/p&gt;&#xA;&lt;p&gt;As for electronic loss, the current &lt;a href=&quot;https://www.thebalance.com/how-ach-payments-work-315441&quot; rel=&quot;nofollow noreferrer&quot;&gt;ACH System&lt;/a&gt; acts like a central authority that syncs all of the electronic activity that takes place. This is why when you pay, items on your bill are 'pending' until a couple of days later when they are 'posted'. At the same time, banks have several layers of backup systems and redundant systems to ensure 100% up-time and preventing data-loss.&lt;/p&gt;&#xA;&lt;p&gt;Some reading to get started, but by no means definitive.&lt;/p&gt;&#xA;" OwnerUserId="5318" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2017-12-10T03:43:47.053" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19640" PostTypeId="1" AcceptedAnswerId="19857" CreationDate="2017-12-09T12:30:05.600" Score="0" ViewCount="47" Body="&lt;p&gt;For example, unemployment welfare payments could be argued to be ameliorating the negative externalities of large corporates hiring newly arrived unskilled migrants.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there a term that covers this?&lt;/p&gt;&#xA;" OwnerUserId="5505" LastActivityDate="2017-12-29T01:53:41.340" Title="Is there a term for the indirect sponsorship of large corporates by the state?" Tags="&lt;definition&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19641" PostTypeId="1" CreationDate="2017-12-09T12:53:55.480" Score="0" ViewCount="216" Body="&lt;p&gt;Does Okun's law also work for nominal (not real) GDP growth?&lt;/p&gt;&#xA;" OwnerUserId="14636" LastActivityDate="2017-12-17T15:05:54.007" Title="Okun's law nominal GDP growth" Tags="&lt;gdp&gt;&lt;unemployment&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19643" PostTypeId="1" CreationDate="2017-12-09T21:14:30.920" Score="0" ViewCount="282" Body="&lt;p&gt;In social choice theory, Arrow's impossibility theorem, the general possibility theorem or Arrow's paradox is an impossibility theorem stating that when voters have three or more distinct alternatives (options), no ranked voting electoral system can convert the ranked preferences of individuals into a community-wide (complete and transitive) ranking while also meeting a specified set of criteria: unrestricted domain, non-dictatorship, Pareto efficiency and independence of irrelevant alternatives (IIA)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, I'm looking for an example where the preferences satisfy unrestricted domain, non dictatorship, IIA and is an ordering, but not meet the Pareto criteria.&lt;/p&gt;&#xA;" OwnerUserId="14345" LastActivityDate="2017-12-11T13:12:13.937" Title="Arrow's impossibility theorem" Tags="&lt;social-choice&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19646" PostTypeId="2" ParentId="19643" CreationDate="2017-12-10T00:07:46.483" Score="6" Body="&lt;p&gt;Let the set of alternatives be $A = \left\{a_1,a_2,...,a_k\right\}$. Let the number of players be $n$. Let the set of preference orderings over $A$ be $\mathcal{P}$. Then the set of preference profiles is the Cartesian product &#xA;$$&#xA;\mathcal{P}^n = \times_{i=1}^{n} \mathcal{P}.&#xA;$$&#xA;Let us denote the preference ordering&#xA;$$&#xA;a_1 \succ a_2 \succ ... \succ a_k &#xA;$$&#xA;by $p^*$. Define the Social Choice Function $F$ by&#xA;$$&#xA;\forall p \in \mathcal{P}^n: F(p) = p^*.&#xA;$$&#xA;This SCF $F$ clearly has universal domain, is not a dictatorship, and is also independent of irrelevant alternatives. (Or any alternatives for that matter.)&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2017-12-10T21:48:28.717" LastActivityDate="2017-12-10T21:48:28.717" CommentCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="19648" PostTypeId="1" CreationDate="2017-12-10T01:49:53.697" Score="0" ViewCount="76" Body="&lt;p&gt;In other words, what were the factors in the reduction of the debt-to-GDP ratio?  Why did the ratio decrease during some booms and not others? &lt;/p&gt;&#xA;" OwnerUserId="12857" LastActivityDate="2017-12-13T00:43:18.967" Title="Since 1980, in which years has the US debt-to-GDP declined and why?" Tags="&lt;government-debt&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19651" PostTypeId="1" CreationDate="2017-12-10T09:31:02.483" Score="0" ViewCount="800" Body="&lt;p&gt;What happens to a country when a reserve bank runs out of foreign currency reserve?&lt;/p&gt;&#xA;" OwnerDisplayName="user13954" LastActivityDate="2019-08-24T06:03:00.383" Title="What happens when a reserve bank runs out of foreign currency reserve?" Tags="&lt;federal-reserve&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19653" PostTypeId="2" ParentId="19197" CreationDate="2017-12-10T09:56:52.707" Score="0" Body="&lt;p&gt;Maybe also &quot;Why nations fail&quot; from Daron Acemoglu!&lt;/p&gt;&#xA;" OwnerUserId="15538" LastActivityDate="2017-12-10T09:56:52.707" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19656" PostTypeId="1" AcceptedAnswerId="19687" CreationDate="2017-12-10T16:01:04.663" Score="1" ViewCount="125" Body="&lt;p&gt;I have seen many economists saying that &lt;a href=&quot;https://www.cnbc.com/2017/11/21/cramer-bitcoin-is-a-bubble-but-stocks-are-not-overvalued.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;bit-coin is highly overvalued&lt;/a&gt; and &lt;a href=&quot;http://www.zerohedge.com/news/2017-12-12/its-official-bitcoin-surpasses-tulip-mania-now-biggest-bubble-world-history&quot; rel=&quot;nofollow noreferrer&quot;&gt;on the verge of a massive corrections.&lt;/a&gt;  What are the most popular models being used to determine the proper price for bit coin?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I find it very hard to believe that these economists would base these opinions on this purely on conjecture based on the fact that bitcoin is a new technology, or not backed by a government.&lt;/p&gt;&#xA;" OwnerUserId="260" LastEditorUserId="260" LastEditDate="2017-12-13T15:19:55.523" LastActivityDate="2017-12-13T15:19:55.523" Title="What are the most common methods of determining valuation used by economists that claim Bit-Coin is on the verge of being a bubble" Tags="&lt;commodities&gt;&lt;bitcoin&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19658" PostTypeId="2" ParentId="19656" CreationDate="2017-12-10T21:07:11.793" Score="4" Body="&lt;p&gt;There are two ways to look at the value of a financial instrument. One is the underlying asset base, the other is the yield.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Bitcoin has no underlying asset base and no yield.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, its only value is whatever people imagine it to be.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words, it's completely overvalued. But that does not mean it is on the verge of massive corrections. There is an old saying (attributed, as they often are, to Keynes) that the market can remain irrational for longer than you or I can remain solvent.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2017-12-10T21:07:11.793" CommentCount="14" ContentLicense="CC BY-SA 3.0" />
  <row Id="19659" PostTypeId="1" CreationDate="2017-12-10T21:34:03.717" Score="1" ViewCount="72" Body="&lt;p&gt;Is it possible for a social choice rule to simultaneously violate the condition of non dictatorship and weak pareto property?&#xA;Non dictatorship is when there is no individual such that if he prefers x over y, then so does the society irrespective of what the society feels.&#xA;And Pareto property is that if all individuals prefer x over y, then so should the society. It is about how society preserves total agreement. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't think it's possible because of the following reason. &#xA;Now, if we have dictatorship and rest all also agree with him, then society is essentially preserving that opinion (so Pareto property satisfied). &#xA;On the other hand, if Pareto property is not satisfied, ie total agreement of x preferred over y by each individual doesn't not lead to society choosing x over y, this means there is no individual such that if he prefers x over y, then society prefers x over y. So non dictatorship is satisfied.&#xA;Please see if this line of thought is correct.&lt;/p&gt;&#xA;" OwnerUserId="14345" LastActivityDate="2017-12-12T07:27:39.763" Title="Social choice theory" Tags="&lt;social-choice&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19660" PostTypeId="1" CreationDate="2017-12-10T21:43:39.207" Score="2" ViewCount="63" Body="&lt;p&gt;Let $Z_t = \phi Z_{t-1} + u_t$ where $u_t \sim uniform[-1,1]$ and $|\phi|&amp;lt;1$ I &#xA;I am facing problems coming up with conditional maximum likelihood estimate of an AR(1) process with &lt;strong&gt;uniform errors&lt;/strong&gt;. I want to compute the conditional maximum likelihood estimate of $\phi$. Specifically, I want to see how I can come up with: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;the joint distribution of the uniform random variables conditional on $Z_1$ (e.g. if initial values for $Z$ where $Z_1 = 0.3$, $Z_2 = 0.8$ and $Z_3 = 1.2$, $Z_4 = 1.6$) how can I get the joint distribution&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;What will be the conditional maximum likelihood estimate of $\phi$&lt;/li&gt;&#xA;&lt;/ul&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I have tried to approach the problem as follows but end up with no solution:&#xA;Conditional on $Z_1$, $Z_2$ is distributed as: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$Z_2 \sim uniform[-1 + 0.3 \phi, 1 + 0.3 \phi]$ marginal distribution $ 1/2$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$Z_3 \sim uniform[-1 + 0.8\phi, 1 + 0.8 \phi$ marginal distribution $ 1/2$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$Z_4 \sim uniform[-1 + 1.2\phi , 1 + 1.2\phi$ marginal distribution $ 1/2$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I got the marginal distribution to be (1/2) for all of them got confused on how I can maximize the likelihood if the marginal distribution of the variables is not dependent on $\phi$, I am sure I missed something, any suggestion:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assuming the processes are independent, I took the joint distribution to be a multiple of the individual marginals (1/2), but I think this is somehow wrong and it should depend on the interval they can exist together.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$ f_{z_2,z_3,z_4} = \prod 1 I(x_1 &amp;lt; \phi &amp;lt; x_n)$ but I couldn't get how I should approach this indicator function and also identify what should be the common interval where the marginal distributions overlap.&lt;/p&gt;&#xA;" OwnerUserId="15541" LastEditorUserId="15541" LastEditDate="2017-12-12T11:52:51.600" LastActivityDate="2017-12-12T11:52:51.600" Title="Conditional maximum likelihood of AR(1) UNIFORM PROCESS" Tags="&lt;econometrics&gt;&lt;statistics&gt;&lt;time-series&gt;" AnswerCount="0" CommentCount="5" ClosedDate="2018-01-18T09:58:00.320" ContentLicense="CC BY-SA 3.0" />
  <row Id="19661" PostTypeId="2" ParentId="19197" CreationDate="2017-12-10T21:57:21.033" Score="0" Body="&lt;p&gt;I would suggest Felipe Fernandez-Armesto and The World: a History&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://rads.stackoverflow.com/amzn/click/013113499X&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.amazon.com/gp/aw/d/013113499X&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is an easy read and is rather less eurocentric. Starts from the close ancestors of humankind, has a good emphasis on early societies and definitely brilliant reading list at the end of every chapter.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, in addition to Acemoğlu, Jared Diamond and Gregory Clark would be a good start. The books are called &quot;guns, germs and steel&quot; and &quot;a farewell to alms&quot; respectively.&lt;/p&gt;&#xA;" OwnerUserId="15542" LastEditorUserId="15542" LastEditDate="2018-04-11T20:04:36.457" LastActivityDate="2018-04-11T20:04:36.457" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19665" PostTypeId="2" ParentId="19643" CreationDate="2017-12-11T13:12:13.937" Score="5" Body="&lt;p&gt;The Pareto criterion has two effects: It guarantees that every ranking can occur as a social ranking and it connects social rankings to individual rankings. If one drops the Pareto criterion but keeps the assumption that every social ranking is possible, one obtains a generalization in which every SCG corresponds to a dictatorship or an anti-dictatorship in which the social ranking is exactly opposite to the ranking of a specific individual, an anti-dictator. This is known as Wilson's theorem, originally from:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Wilson, Robert. &quot;Social choice theory without the Pareto principle.&quot;&#xA;  &lt;em&gt;&lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/0022053172900518?via%3Dihub&quot; rel=&quot;noreferrer&quot;&gt;Journal of Economic Theory&lt;/a&gt;&lt;/em&gt; 5.3 (1972): 478-486.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="1442" LastActivityDate="2017-12-11T13:12:13.937" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19666" PostTypeId="1" AcceptedAnswerId="19667" CreationDate="2017-12-11T15:39:55.023" Score="6" ViewCount="111" Body="&lt;p&gt;Consider an economy with a finite number of goods and a finite quantity of each good. Each agent $i$ has a preference-relation $\succeq_i$ which is a total, reflexive and transitive relation over the set of bundles. Given an allocation $x$ of the goods among the agents, say that $x^*$ is a &lt;strong&gt;maximal Pareto-improvement&lt;/strong&gt; of $x$ if:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;$x^*$ is Pareto-optimal,&lt;/li&gt;&#xA;&lt;li&gt;Every agent weakly prefers the allocation $x^*$ over the allocation $x$.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;What is the weakest condition on the preference-relations $\succeq_i$ that guarantees that every allocation has a maximal Pareto-improvement?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would guess that it is somehow related to compactness, however, I do not see how to define this condition on preference-relations.&lt;/p&gt;&#xA;" OwnerUserId="385" LastEditorUserId="385" LastEditDate="2017-12-12T07:25:21.570" LastActivityDate="2017-12-12T13:31:01.880" Title="Does every allocation have a maximal Pareto-improvement?" Tags="&lt;mathematical-economics&gt;&lt;pareto-efficiency&gt;" AnswerCount="2" CommentCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="19667" PostTypeId="2" ParentId="19666" CreationDate="2017-12-11T16:48:25.473" Score="5" Body="&lt;p&gt;I think there is a short proof if you also assume that the number of agents $n$ is finite and that the preferences are continuous.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given the second assumption Debreu's theorem (1954, &quot;Representation of a preference ordering by a numerical function&quot;) states that a continuous utility function exists which represents the preferences. I will denote the utility function representing the preference of agent $i$ by $U_i$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Though this is somewhat uncommon, I will denote the utility agent $i$ gets from an allocation $x$ by $U_i(x)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An algorithm resulting in a maximum Pareto-improvement of $x$:&#xA;&lt;br&gt;&lt;strong&gt;Step 1.&lt;/strong&gt; Initially set $i=1$ and set $y = x$.&#xA;&lt;br&gt;&lt;strong&gt;Step 2.&lt;/strong&gt; Maximize the utility of agent $i$ over the set of allocation where all other agents $j$ have at least utility $U_j(y)$. As all functions $U_j$ are continuous, there is a finite number of goods and a finite quantity of each good, for all $j$ the upper set of $U_j$ is a closed set. A finite intersection of closed sets is also a closed set. As $U_i$ is also continuous, it will have a maximum over this set. Select an allocation $y'$ which maximizes $U_i$ and let this be the our allocation $y$ from now on, so set $y = y'$.&#xA;&lt;br&gt;&lt;strong&gt;Step 3.&lt;/strong&gt; If $i = n$, stop. Otherwise set $i = i+1$ and proceed to step 2.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Notice the following:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Any move from $y$ to $y'$ in Step 2. is a Pareto-improvement.&lt;/li&gt;&#xA;&lt;li&gt;Pareto-improvements are transitive, therefore the set of Pareto-improvements is narrowing, i.e. if $y'$ is a Pareto-improvement to $y$ then the set of Pareto-improvements to $y'$ is included in the set of Pareto-improvements to $y$.&lt;/li&gt;&#xA;&lt;li&gt;As the utility of agent $i$ is maximized in Step 2. over the set of Pareto-improvements to $y$, it is impossible that his utility can be further increased by a Pareto-improvement. Therefore once we reach Step 3. for $i = n$ we have a Pareto-optimal allocation $y$, that is either a Pareto-improvement of $x$ or where $\forall i$: $x\sim_i y$. Hence $y$ is a maximal Pareto-improvement of $x$.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;A comment: It seems to me you could replace continuity with monotonicity, but that would require another proof. Hopefully someone else is up to it!&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2017-12-11T17:02:02.907" LastActivityDate="2017-12-11T17:02:02.907" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="19668" PostTypeId="1" AcceptedAnswerId="19674" CreationDate="2017-12-11T17:10:45.630" Score="1" ViewCount="105" Body="&lt;p&gt;Is there a cost to running the New York Stock Exchange? For example electricity costs, management costs,  rents on the building(s).  How do these costs (if any)  affect the price of stocks sold on the exchange?&lt;/p&gt;&#xA;" OwnerUserId="15550" LastActivityDate="2017-12-11T20:34:09.420" Title="Is there a cost to running the NewYork Stock Exchange? Does it affect the price of stocks sold on the exchange?" Tags="&lt;cost&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19669" PostTypeId="2" ParentId="19668" CreationDate="2017-12-11T18:44:52.267" Score="1" Body="&lt;p&gt;Stock exchanges do not own the stocks traded there. They are just like markets you buy your grocery from. Market stalls are rented out to traders and traders pay small fee/rent in return. Similarly, companies that list their stocks in exchanges (like NYSE and LSE) pay fees in return for having their stocks listed and traded. This has nothing to do with the prices of stocks that vary every second. The stock prices reflect the performance of the companies which issue them among other economic factors. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As to the cost of running exchanges, it really depends on the size of the exchange, you should get in touch with the NYSE for information about running it. &lt;a href=&quot;http://www.londonstockexchange.com/companies-and-advisors/listing/fees/fees.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;Here&lt;/a&gt; you can find info about LSE registration and annual fees.&lt;/p&gt;&#xA;" OwnerUserId="6009" LastEditorUserId="1601" LastEditDate="2017-12-11T19:08:12.540" LastActivityDate="2017-12-11T19:08:12.540" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="19674" PostTypeId="2" ParentId="19668" CreationDate="2017-12-11T20:34:09.420" Score="3" Body="&lt;p&gt;Yes, there's a cost to running the New York Stock Exchange. There's the premises, utility bills, staff, systems, and so on.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Yes, this affects the price of stocks on the exchange. The exchange recoups its fees, ultimately, from the companies listed on it, pushing up their costs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, for pretty much all companies listed on it, the stock exchange fees are a tiny part of their overall costs. Which means that the impact on the stock prices is pretty much negligible.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2017-12-11T20:34:09.420" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19677" PostTypeId="1" CreationDate="2017-12-12T00:03:33.740" Score="-1" ViewCount="197" Body="&lt;p&gt;Suppose there are $N$ firms each with the same positive marginal cost $c$. How would I go about finding a pure strategy Nash Equilibrium for the firms? Suppose the Inverse Demand curve is defined: $p=a-Q$ with $Q$ being the market output. &lt;/p&gt;&#xA;" OwnerUserId="15053" LastActivityDate="2017-12-12T02:05:35.823" Title="How to derive a Nash equilibrium pure strategy in a linear Cournot Model" Tags="&lt;nash-equilibrium&gt;" AnswerCount="1" CommentCount="0" ClosedDate="2017-12-12T21:02:02.810" ContentLicense="CC BY-SA 3.0" />
  <row Id="19678" PostTypeId="2" ParentId="19677" CreationDate="2017-12-12T02:05:35.823" Score="0" Body="&lt;ul&gt;&#xA;&lt;li&gt;firm $i$'s output: $q_i$&lt;/li&gt;&#xA;&lt;li&gt;total output: $Q = q_1 + \ldots + q_n$&lt;/li&gt;&#xA;&lt;li&gt;everyone but firm $i$'s output (output of rest): $R_i = Q - q_i$&lt;/li&gt;&#xA;&lt;li&gt;marginal cost: $c$&lt;/li&gt;&#xA;&lt;li&gt;inverse demand function: $p(Q) = a - Q$&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;profit for firm $i$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Profit = Total Revenue - Total Cost$$&#xA;$$\Pi_i(q_i, R_i) = p(q_i + R_i)q_i - cq_i$$&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;At profit maximum, the derivative of the profit equation equals zero (a.k.a. first order condition). So let's take the derivative of the above with respect to $q_i$ holding $R_i$ constant and set it equal to zero:&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;$$p'(R_i + q_i)q_i + p(R_i + q_i) - c = 0$$&#xA;$$p'(Q)q_i + p(Q) - c = 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note the above is true for all firms since they are all simultaneously profit-maximizing in the Cornout model.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now substitute $p(Q) = a - Q$ and $p'(Q) = -1$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$-q_i + a - Q - c = 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's get all our $Q$s on one side of the equation:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$q_i + Q = a - c$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note we have $n$ equations of that form. We can add them all together to solve for $Q$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\begin{align*}&#xA;(q_1 + \ldots + q_n) + nQ &amp;amp;= n(a - c)\\&#xA;Q + nQ &amp;amp;= n(a - c) \\&#xA;(n + 1)Q &amp;amp;= n(a - c) \\&#xA;Q &amp;amp;= {n \over n + 1}(a - c)&#xA;\end{align*}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The best response for any individual firm is therefore:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\begin{align*}&#xA;q_i &amp;amp;= a - c - Q \\&#xA;&amp;amp;= a - c - {n \over n + 1}(a - c)\\&#xA;&amp;amp;= \frac{a - c}{n + 1}&#xA;\end{align*}&#xA;$$&lt;/p&gt;&#xA;" OwnerUserId="15545" LastActivityDate="2017-12-12T02:05:35.823" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19679" PostTypeId="1" CreationDate="2017-12-12T02:07:25.647" Score="5" ViewCount="196" Body="&lt;p&gt;I want to know the impact of misspecifying lag levels in AR models. Say the true model is AR(P), while in estimation AR(P-1) is estimated and used for forecast.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What will be the impact of estimating AR(P-1) on the estimated coefficients of $\phi_1 - \phi_{p-1}$, can they be consistently estimated. What about the forecast error.&lt;/p&gt;&#xA;" OwnerUserId="15541" LastActivityDate="2018-01-17T20:06:02.477" Title="Misspecified autoregressive models" Tags="&lt;econometrics&gt;&lt;time-series&gt;" AnswerCount="3" CommentCount="3" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19680" PostTypeId="2" ParentId="19659" CreationDate="2017-12-12T07:27:39.763" Score="3" Body="&lt;p&gt;You are correct that it is not possible to violate Weak Pareto and Nondictatorship at the same time.  But your explanation (second paragraph) is a bit muddled.  Here is how I would put it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To prove, &quot;it is not possible to violate Weak Pareto and Nondictatorship at the same time&quot;, it suffices to prove:  &quot;Any Dictatorship satisfies Weak Pareto.&quot;  To prove this, suppose &lt;em&gt;F&lt;/em&gt; is a social choice rule in which voter &lt;em&gt;i&lt;/em&gt; is a dictator.  So for any alternatives &lt;em&gt;a&lt;/em&gt; and &lt;em&gt;b&lt;/em&gt;, if &lt;em&gt;i&lt;/em&gt; prefers &lt;em&gt;a&lt;/em&gt; over &lt;em&gt;b&lt;/em&gt;, then so does the output of rule &lt;em&gt;F&lt;/em&gt;.  To see that &lt;em&gt;F&lt;/em&gt; satisfies weak Pareto, let &lt;em&gt;a&lt;/em&gt; and &lt;em&gt;b&lt;/em&gt; be social alternatives, and suppose that &lt;em&gt;everyone&lt;/em&gt; prefers &lt;em&gt;a&lt;/em&gt; over &lt;em&gt;b&lt;/em&gt;.  Then in particular, &lt;em&gt;i&lt;/em&gt; does.  Thus, the output of &lt;em&gt;F&lt;/em&gt; prefers &lt;em&gt;a&lt;/em&gt; over &lt;em&gt;b&lt;/em&gt; (because &lt;em&gt;i&lt;/em&gt; is a dictator in &lt;em&gt;F&lt;/em&gt;).  Therefore, &lt;em&gt;F&lt;/em&gt; satisfies Weak Pareto.&lt;/p&gt;&#xA;" OwnerUserId="8759" LastActivityDate="2017-12-12T07:27:39.763" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19681" PostTypeId="2" ParentId="19194" CreationDate="2017-12-12T07:57:34.903" Score="0" Body="&lt;p&gt;The closest term that I am aware of is &lt;strong&gt;conserved cost&lt;/strong&gt;, meaning the cost saved by not having to undertake some action.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2017-12-12T07:57:34.903" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19682" PostTypeId="1" CreationDate="2017-12-12T10:00:50.763" Score="2" ViewCount="4445" Body="&lt;p&gt;I have just learned about Perfect price discrimination and block pricing. And I was wondering, in the case of these two graphs&#xA;&lt;a href=&quot;http://mgh-images.s3.amazonaws.com/9780133457056/13745-12.4-1IQ1.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;Block pricing&lt;/a&gt; &amp;amp; &lt;a href=&quot;http://slideplayer.com/slide/6273906/21/images/10/12.2+Perfect+Price+Discrimination.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;Perfect price discrimination&lt;/a&gt;. Why, in case of the perfect discrimination, is the monopolist still willing to sell the quantity where reservation price is equal to marginal cost. while in the block pricing situation the &amp;quot;block&amp;quot; from 40 - 60 would have a price equal to MC but the producer is unwilling to sell it for a price equal to MC, thus ending up with a deadweight loss.&lt;/p&gt;&#xA;&lt;p&gt;Perhaps I have a few conceptual misunderstandings but I would appreciate it if someone could explain what is different in these two cases.&lt;/p&gt;&#xA;&lt;h1&gt;Block pricing&lt;/h1&gt;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/d1m9y.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/d1m9y.png&quot; alt=&quot;enter image description here&quot; /&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&lt;h1&gt;Perfect price discrimination&lt;/h1&gt;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/klONG.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/klONG.jpg&quot; alt=&quot;enter image description here&quot; /&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="15554" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2020-01-02T07:02:30.423" Title="Block pricing vs Perfect price discrimination" Tags="&lt;microeconomics&gt;&lt;monopoly&gt;&lt;price-discrimination&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19683" PostTypeId="2" ParentId="19666" CreationDate="2017-12-12T12:47:51.087" Score="3" Body="&lt;p&gt;This is essentially a variation on the answer of denesp that requires slightly fewer assumptions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume there are $l$ commodities and $m$ agents. An allocation is then a point in $\mathbb{R}^{lm}_+$. If the aggregate endowment is $e\in\mathbb{R^l}_+$, an allocation is a point in $\sum^{-1}(\{e\})$, where $\sum:\mathbb{R}^{lm}_+\to\mathbb{R}^l$ is the continuous &quot;summation function&quot;. Since this function is continuous and the set $\{e\}\subseteq\mathbb{R}^l$ closed, the space of allocations is closed too. It is also clearly bounded, so the space of allocation is compact. Let $A\subseteq\mathbb{R}^{lm}_+$ be the nonempty compact space of feasible allocations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Define the relation $\succeq$ on $A$ such that for allocations $x=(x_1,\ldots,x_m)$ and $y=(y_1,\ldots,y_m)$, we have $x\succeq y$ if and only if $x_i\succeq_i y_i$ for every agent $i$. Now $x^*\in A$ is a maximal Pareto improvement over $x$ exactly if $x^*\succeq x$ and there is no $y\in A$ such that $y\succeq x^*$ but not $x^*\succeq y$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume now that for all $a\in\mathbb{R}^l_+$ and every agent $i$, the &quot;weakly-better-set&quot; $\{b\in\mathbb{R}^l\mid b\succeq_i a\}$ is closed. Then the set $A_x=\{y\in A\mid y\succeq x\}$ is closed and, as the closed subset of a compact set, compact. Our problem reduces to showing that there exists a $\succeq$-maximal element $x^*\in A_x$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $\succ$ be the asymmetric part of $\succeq$. It is transitive and irreflexive and therefore acyclic. Also, the &quot;upper sections&quot; of $\succeq$ are closed and therefore the lower sections of $\succ$ open. The existence of a $\succ$-maximal element follows then from what is sometimes referred to as the Walker-Bergstrom theorem (first proven by Sloss....). For the sake of completeness, I give the easy proof here. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $L_z=\{y\in A_y\mid y\prec z\}$ be the lower set of $\succ$ at $z$. Assume for the sake of contradiction that there is no $\succ$-maximal element in $A_x$. Then every point in $A_x$ lies in some $L_z$ with $z\in A_x$. Also, the $L_z$ are relatively open in the compact space $A_x$. So $\{L_z\mid z\in A_x\}$ is an open cover of $A_x$ and, by compactness, there is a finite set $F\subseteq A_x$ such that $\{L_z\mid z\in F\}$ is still an open cover of $A_x$. In particular, for each $z\in F$, there is some $z'\in F$ such that $z\in L_{z'}$ or, equivalently, $z'\succ z$. So the relation $\succ$ has no maximal element on the finite set $F$. This means there exists an infinite sequence $\langle z_n\rangle$ such that $z_{n+1}\succ z_n$ for all $n$. Since $\succ$ is acyclic, the sequence consists of infinitely many distinct elements. Since $F$ is finite, this is impossible.&lt;/p&gt;&#xA;" OwnerUserId="1442" LastEditorUserId="1601" LastEditDate="2017-12-12T13:31:01.880" LastActivityDate="2017-12-12T13:31:01.880" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19684" PostTypeId="2" ParentId="19648" CreationDate="2017-12-12T13:30:52.247" Score="1" Body="&lt;p&gt;The time series for the debt-to-GDP ratio are available on the FRED wesbite: &lt;a href=&quot;https://fred.stlouisfed.org/series/GFDEGDQ188S&quot; rel=&quot;nofollow noreferrer&quot;&gt;link to debt-to-GDP chart&lt;/a&gt;. I will let the reader download the data, rather than list the years here.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for why it falls, it requires a good macroeconomic model. The reason being is that we need to explain both the fiscal deficit and the rate of nominal GDP growth.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Policymakers do not directly control the deficit. Faster growth means a greater tax take, less social spending. Meanwhile, capital gains taxes are determined by the hard-to-forecast changes in stock prices.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Nominal GDP (the denominator) can grow as a result of faster inflation, or faster real growth. The precise determinants of this have bee the subject of economic debates for decades. I obviously cannot answer it here.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One factor to keep in mind that the existing level of the ratio matters a lot. If nominal GDP growth is 5%:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;you need a fiscal deficit of 5% of GDP to keep the ratio unchanged if the starting level is 100%,&lt;/li&gt;&#xA;&lt;li&gt;you only need a deficit of 2.5% if the starting level is 50% of GDP.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;If you look at the chart, the biggest fall in the ratio after 1980 was during the late 1990s. There was a brief fiscal surplus, and growth was relatively strong. There was a technology boom, along with the tech stock bull market/bubble that generated a lot of capital gains taxes. (The Clinton administration raised taxes earlier, which was also a factor in the surplus.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(In a comment, you asked about the 2000s. During that period, the ratio rose, but that can be partly traced to the increased defense spending that happened. Once again, there’s too many moving parts in the budget and economic growth to give a simple explanation of how the ratio moved.)&lt;/p&gt;&#xA;" OwnerUserId="12891" LastEditorUserId="12891" LastEditDate="2017-12-13T00:43:18.967" LastActivityDate="2017-12-13T00:43:18.967" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="19686" PostTypeId="2" ParentId="19682" CreationDate="2017-12-12T22:40:12.123" Score="1" Body="&lt;p&gt;In a nutshell, it is because people talk.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Information asymmetry happens at the firm/consumer level. The consumer does not know exactly how much it costs the firm to produce a given product, nor are they able to discern the actual quality of the product without expert knowledge. But what they do know is the price of the product, and whether or not individuals within their network have purchased the product (think reviews on amazon).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a perfect discrimination situation, each individual will get their individual price for the product. If I buy a widget at $20, and learn that it cost my friend 10, I wouldn't buy the widget. I'd ask my friend to buy that widget for me. Hence the blocks. An analogy would be cars, why there are different 'trim' levels for at its core, the same car. Some people want alloy wheels, others want tinted windows. Different combinations of trim constitute different classes (blocks) and as a result, the firm can sell these seemingly similar products under different price ranges (Basic &amp;lt; Limited Edition)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At the same time, from a production perspective, the marginal cost for each product differs when you scale up or down. Your 100th widget will cost less on average than your 1st widget and vice versa. As a result, even if the monopolist wanted to, perfect price discrimination would be impractical given the varying production costs. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This might not capture the your question in full, but other people are free to chime in and I'll revise as needed.&lt;/p&gt;&#xA;" OwnerUserId="5318" LastActivityDate="2017-12-12T22:40:12.123" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19687" PostTypeId="2" ParentId="19656" CreationDate="2017-12-12T23:24:24.343" Score="4" Body="&lt;p&gt;I'll draw from &lt;a href=&quot;https://johnhcochrane.blogspot.com.ar/2017/11/bitcoin-and-bubbles.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;John Cochrane's article&lt;/a&gt; and &lt;a href=&quot;http://faculty.chicagobooth.edu/john.cochrane/research/papers/cochrane_stock_as_money.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;working paper&lt;/a&gt;, which provide some great points.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Bitcoin doesn't provide dividends or an interest rate, there isn't any payment or reward for saving in Bitcoins by itself. Therefore, it has 0 expected value of dividends and should have a price of 0. But it has a positive price in real life. There are two reasons for holding a 0-expected value asset:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Convenience yield. That is, they provide some convenience, like cash for making transactions. The convenience is especially linked to illegal transactions. This already has a model to describe behavior: Baumol-Tobin (which is also a model for storage and logistics). There's a huge lack of information to apply it (who knows enough about money laundering to make a prediction?)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Rational bubble. This is where all models break apart. Speculators don't care about the future value, just volatility now (because that's how they turn a profit), much like they don't care about a bond's yield but for changes in its price. In the short term, supply is limited: Bitcoins aren't being created fast enough, competitors like Ethereum or even Dogecoin have still to catch up and there are no derivatives that allow betting against Bitcoin prices (Bitcoin futures have only recently started being offered). Demand is also limited because speculators are buying the asset for short-term profit, not for keeping it long-term.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Add this with huge information asymmetry and you'll get a highly volatile, high-rising price. As long as (1) doesn't change too much, it's a bubble.&lt;/p&gt;&#xA;" OwnerUserId="7857" LastActivityDate="2017-12-12T23:24:24.343" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19688" PostTypeId="2" ParentId="19679" CreationDate="2017-12-13T01:55:27.833" Score="0" Body="&lt;p&gt;If your model does not pass the Ramsey RESET for model specification then &lt;strong&gt;all of your results are untrustworthy&lt;/strong&gt;. If this is the case, experiment with logarithmic transformations, etc. &lt;/p&gt;&#xA;" OwnerUserId="15543" LastActivityDate="2017-12-13T01:55:27.833" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19690" PostTypeId="1" AcceptedAnswerId="19697" CreationDate="2017-12-13T02:10:17.613" Score="2" ViewCount="391" Body="&lt;p&gt;In my undergraduate career an economic experiment was conducted on my class:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;one class was the control&lt;/li&gt;&#xA;&lt;li&gt;two classes were the experimental (I was in an experimental class)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The basic premise was a modified prisoner's dilemma whereas two individuals had to make a decision regarding whether or not to 'cheat'. As this was a two stage game, the first person can choose whether or not they will cheat the second. The second can choose to cooperate or cheat. Each individual are in different classes to prevent collusion.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The monetary value (USD) was 1 for both individuals choosing to cheat, 5 if one cheated the other, and 3 if both cooperated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Nonetheless, the experiment itself went well with no hiccups. But I approached the PI's of the experiment with the following:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;This would a be a poor measure of individuals within a population willingness to deviate from established rules as you've established what the options to cheat are, issues that are prevalent within society are often based upon individuals looking for overlooked loopholes, obscure mechanisms, or outright illegal means to obtain an advantage over their competitors. As a result, the results in this experiment are predetermined and not representative of a random and at times chaotic economic structure.&lt;/li&gt;&#xA;&lt;li&gt;If you wanted to explore an alternative measurement of behavioral economics, look for individuals who are unique in their attempts to cheat. Who go beyond the rules that you place in front of them and seek alternative means to maximize gains.&lt;/li&gt;&#xA;&lt;li&gt;An example: Given that the experiment happened sequentially, a student who was in a previous class holds the details of the experiment as leverage in return for a greater monetary reward, threatening to disclose the details (effectively blackmail). The individual-level analysis concludes that the student realizes that there is a greater 'pot' of money that can be had (if the total class sizes is 100, then there is a budget of at least $500 to cover the situation where everyone cooperated) and the options at hand: to play according to the experiment rules (1, 3, or 5 payoff) or not to and blackmail the experimenters for a greater payoff (&gt;5 but &amp;lt;500). From the experimenter's perspective, a slightly higher expense to payoff the rogue student and in the process, preserve the integrity of the experiment (and the research value of the expended monies of conforming students).&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Of course, I am in full knowledge that the the deviation itself in the real world would constitute a crime and liable to criminal prosecution then and now. But this does not deter crime given the prevalence of well... crimes committed for monetary gain.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Although the reply was along the lines of &quot;We hope you don't tell the other classes about the experiment&quot; I retorted that my goal wasn't monetary gain, but wanted to learn more about experimental methodology and parameters. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The basic premise remains unanswered. &lt;strong&gt;When an economic experiment is designed to have predetermined outcomes of ethical and unethical decisions, how does it address the extreme levels of deviation that is present within historical record?&lt;/strong&gt; Enron, Bernard Madoff, Arthur Anderson, to name a few. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am sure I am missing a couple of literary research pertaining to the experiment and would be open to any suggestions.&lt;/p&gt;&#xA;" OwnerUserId="5318" LastActivityDate="2017-12-13T20:42:25.243" Title="What is the economic incentive to cheat? How does an experiment capture exogenous deviations?" Tags="&lt;microeconomics&gt;&lt;game-theory&gt;&lt;choice-theory&gt;&lt;social-choice&gt;&lt;experimental-economics&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19695" PostTypeId="1" AcceptedAnswerId="19704" CreationDate="2017-12-13T17:28:33.453" Score="5" ViewCount="57" Body="&lt;p&gt;I have a very general question. I am reading this paper : &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.webmeets.com/files/papers/eaere/2015/177/Discounting-HelsinkiBlind.pdf&quot; rel=&quot;noreferrer&quot;&gt;http://www.webmeets.com/files/papers/eaere/2015/177/Discounting-HelsinkiBlind.pdf&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is a catastrophic event probability and after the catastrophic event the consumption level is reduced to zero. However, authors are making a steady state analysis prior to the catastrophic event. The catastrophic event probability is $h\left(X\right)$ (let s say that it follows a Poisson process.) $X$ stands for the pollution for example. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $T$ be the event occurrence time and denote $F\left(t\right)=Pr\left\{ T\leq t\right\}$  and $f\left(t\right)=F^{'}\left(t\right)$ as the corresponding probability distribution and density functions respectively. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$h\left(S\left(t\right)\right)\Delta=\frac{f\left(t\right)\Delta}{1-F\left(t\right)}=-\frac{d\left[ln\left(1-F\left(t\right)\right)\right]}{dt}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $\Delta$ is an infinitesimal time interval. The term $h\left(S\left(t\right)\right)\Delta$ specifies the conditional probability that an abrupt event will occur between $\left[t,t+\Delta\right]$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is that : Due to this specification, the probability distribution function will be equal to 1 when $t$ tends to $\infty$. Then, in this case, for sure that catastrophic event will occur at the long run. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, how is it possible to discuss about a steady state with catastrophic events ? At some moment in time, the economy will change regime with the catastrophic event and this steady state will not be a &quot;permanent&quot; one. How can it be possible to justify this ?  &lt;/p&gt;&#xA;" OwnerUserId="2938" LastActivityDate="2017-12-14T15:53:39.780" Title="A growth model with regime switch" Tags="&lt;economic-growth&gt;&lt;environmental-economics&gt;&lt;uncertainty&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="19696" PostTypeId="1" CreationDate="2017-12-13T19:43:00.107" Score="4" ViewCount="24" Body="&lt;p&gt;Here I'm using &quot;excess liquidity&quot; not in reference to monetary policy, but to the concentration of capital at the top in regard to private citizens.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This excess liquidity, for which the tax cuts in the early 2000's were certainly a major contributing factor (changes to taxation regarding capital gains, dividends, etc.), created a condition where there was more money than places to invest, which led to the re-purposing of legitimate financial interests to create a new &quot;casino&quot; for investors to gamble in.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since trickle down is a limited-at-best redistribution method (an individual can only buy so many goods &amp;amp; services, regardless of net worth), what is the thinking on possible repeat of 2008 re: the current US tax proposal (2017)? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;i.e. Although the bill will certainly help legitimate small businesses in relation to how pass-though income is treated, the benefits will also be utilized by high-net worth individuals taking advantage of the pass-through rules.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note: This question is not meant to be political.  Rather, my primary interest is in stability/instability, and how that is affected by tax and monetary policy, particularly in creating conditions for catastrophic &quot;market corrections&quot; that can result in sharp, persistent spiking of the national debt.&lt;/p&gt;&#xA;" OwnerUserId="12857" LastEditorUserId="12857" LastEditDate="2017-12-13T22:09:18.087" LastActivityDate="2017-12-13T22:09:18.087" Title="How did &quot;excess liquidity&quot; in the US contribute to the 2008 crash?" Tags="&lt;taxation&gt;&lt;liquidity&gt;" AnswerCount="0" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19697" PostTypeId="2" ParentId="19690" CreationDate="2017-12-13T20:42:25.243" Score="2" Body="&lt;p&gt;A couple of comments to your question below:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;When an economic experiment is designed to have predetermined outcomes of ethical and unethical decisions, how does it address the extreme levels of deviation that is present within historical record?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;1) External validity --- whether results obtained in the lab can be generalized to settings outside the lab --- has long been one of the main criticisms of experimental economics, and practitioners in this field are well aware of this. In light of this concern, one must therefore exercise caution in interpreting experimental results. Lab results should be extrapolated to an external environment only if the settings of the experiment sufficiently resemble those in that environment. (To some extent, the same can be said about generalizations of results obtained using field data.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the experiment that you participated, decisions were labeled as &quot;cooperate&quot; and &quot;cheat&quot;. However, the labels could very well be &quot;A&quot; and &quot;B&quot;, or &quot;Left&quot; and &quot;Right&quot;, or &quot;Aspiring&quot; and &quot;Cautious&quot;. The point is that the labeling of the actions is arbitrary, and you shouldn't (over)interpret the results just because the experimenter happen to choose a non-neutral frame. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) Judging by your very limited description of the experiment --- e.g. you didn't say what the control treatment was like, or whether the subject moving at stage 2 can observe what was chosen in stage 1 --- I suspect that the experiment was more for a pedagogical purpose than a research one. Generally speaking, experiments for research purposes should avoid recruiting subjects from the experimenter's own class, since there are strong outside incentives that may affect/dominate the salience of the payoff from within the experiment. Moreover, experiments should generally adopt neutral framing, since non-neutral frames tend to bias the results in a certain direction. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, I think you are over-interpreting the results in an experiment that is not very rigorously conducted. &lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2017-12-13T20:42:25.243" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19699" PostTypeId="1" AcceptedAnswerId="19705" CreationDate="2017-12-13T22:52:57.190" Score="0" ViewCount="87" Body="&lt;p&gt;The cost function associated with this production function is&#xA;$A) 2awQ\\&#xA;B) 4brQ\\&#xA;C) (wa + 2br)Q\\&#xA;D) None\; of\; the\; above$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I have tried is:&#xA;We have the cost function $wL+rK=C$.&#xA;Since, here, the goods are perfect compliments, therefore, $\frac{L}{2a}=\frac{K}{4b}$.&#xA;Putting the value of $L$ in cost function we would get $\left(\frac{K}{2b}(wa+2br)\right)=C$.&#xA;Which would be C option if $Q$ can taken as $\frac{K}{2b}$. &#xA;But I'm not sure about that.&#xA; Please confirm?&lt;/p&gt;&#xA;" OwnerUserId="15567" LastEditorUserId="15567" LastEditDate="2017-12-14T13:25:40.140" LastActivityDate="2017-12-14T13:46:25.780" Title="Consider the following production function $Q=min \left(\frac{L}{2a}, \frac{K}{4b}\right)$. Let $w$ and $r$ be the wage and rental rate respectively" Tags="&lt;production-function&gt;&lt;producer-theory&gt;" AnswerCount="1" CommentCount="2" ClosedDate="2017-12-15T09:29:59.297" ContentLicense="CC BY-SA 3.0" />
  <row Id="19700" PostTypeId="1" CreationDate="2017-12-14T00:25:40.590" Score="7" ViewCount="600" Body="&lt;p&gt;I am doing a research with content analysis, verifying certain disclosures on CEO letters and Shareholder letters present in annual reports of listed companies in the London Stock Exchange.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can someone recommend a database where these letters would be available in plain text? Or at least where all the PDFs could be downloaded as a whole package? All I've found until now was the website &lt;a href=&quot;http://www.annualreports.com/Companies?exch=9&quot; rel=&quot;noreferrer&quot;&gt;AnnualReports&lt;/a&gt; but I believe someone must have done already this work :)&lt;/p&gt;&#xA;" OwnerUserId="12304" LastEditorUserId="1601" LastEditDate="2017-12-14T06:47:40.403" LastActivityDate="2018-01-26T19:47:06.257" Title="Any databases with CEO letters and shareholder letters?" Tags="&lt;reference-request&gt;&lt;data-request&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19703" PostTypeId="1" CreationDate="2017-12-14T11:45:40.363" Score="5" ViewCount="424" Body="&lt;p&gt;I've read a number of posts on the above topic but none refers to published empirical papers. Google searches have been hopeless. Does anyone know of any paper on empirical derivation of technical change indices? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A lot of papers use these terms interchangibly, there is a clear difference between them (labour-saving technical change stems from bias in technical chnage). Using some historical data, I am trying to establish if technical change has been labour-saving or labour-augmenting. However, I've yet to read an empirical paper on the topic.&lt;/p&gt;&#xA;" OwnerUserId="6009" LastEditorUserId="6009" LastEditDate="2017-12-14T11:59:50.050" LastActivityDate="2021-04-20T14:54:58.480" Title="Labour-saving vs. Labour-augmenting technical change" Tags="&lt;reference-request&gt;&lt;economic-growth&gt;&lt;directed-technical-change&gt;&lt;technological-progress&gt;" AnswerCount="1" CommentCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="19704" PostTypeId="2" ParentId="19695" CreationDate="2017-12-14T13:26:46.813" Score="4" Body="&lt;p&gt;Continuing on the comments exchange, the conclusion that the overall effect is to change the discount factor, is similar to the one reached in the original Overlapping Generations Model of Blanchard, where individuals are faced with a &quot;probability of death&quot; (surely a &quot;catastrophic event&quot; I believe).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;See the Blanchard &amp;amp; Fischer book &lt;a href=&quot;https://mitpress.mit.edu/books/lectures-macroeconomics&quot; rel=&quot;nofollow noreferrer&quot;&gt;&quot;Lectures in Macroeconomics&quot;&lt;/a&gt;, p. 117. The authors note that the result has been originally obtained by Cass and Yaari (1967) &quot;Individual Saving, Aggregate Capital Accumulation, and Efficient Growth&quot;, a paper that is part of the book &lt;a href=&quot;https://www.researchgate.net/publication/44523101_Essays_on_the_theory_of_optimal_economic_growth_edited_by_Karl_Shell&quot; rel=&quot;nofollow noreferrer&quot;&gt;Essays on The Theory of of Optimal Economic Growth&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2017-12-14T15:53:39.780" LastActivityDate="2017-12-14T15:53:39.780" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19705" PostTypeId="2" ParentId="19699" CreationDate="2017-12-14T13:46:25.780" Score="0" Body="&lt;p&gt;The steps to optimally go from the Production function to the Cost function is to solve the cost-minimization problem for the firm, which determines the input mix given prices and some level of output, and in turn allows us to express one input with respect to the other (in this simplest two-inputs case).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When the production function is of the Leontief variety, optimal input mix is indeed determined by the equality stated by the OP, since by simple reasoning, any amount of one input above the amount satisfying the equality will incur the cost to  buy it but not any extra output.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Inserting the equality &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{L^*}{2a}=\frac{K^*}{4b} \implies L^* = \frac {a}{2b}K^*$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;into the cost function we get Cost expressed as a function of one of the inputs only, $C^* = g(K^*)$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In order to eliminate it too, we turn again to the production function which can also be expressed as a function of one input at the optimal solution, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Q = h(K^*) \implies K^* = h^{-1}(Q)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Inserting $h^{-1}(Q)$ into the Cost function we obtain&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$C = g\left[h^{-1}(Q)\right]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where also the various exogenous constants and prices will be present. In fact, this is easier done when the production function is Leontief, than when it is Cobb-Douglas for example, and so it should be easy for the OP to arrive at the correct solution.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2017-12-14T13:46:25.780" CommentCount="25" ContentLicense="CC BY-SA 3.0" />
  <row Id="19707" PostTypeId="2" ParentId="19276" CreationDate="2017-12-14T17:04:49.273" Score="0" Body="&lt;p&gt;The difficulty is in how you are thinking about the problem.  You are thinking of capital gains as income and that is not intrinsically true.  Consider a person who purchased a home in 1970 for \$14,000.  They sell it today for \$150,000.  That is a capital gain.  However, if the cost of goods has gone from \$14 to \$150, then the sale is neutral.  They have exactly the same amount of money as they started with.  Particularly for those living in poverty, their capital gains are real losses and not real gains.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you live in poverty then you cannot maintain or provide general upkeep.  This causes a deterioration in the assets and so they lose real value even if there is a nominal capital gain.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Poverty is also about daily living and not single transactions.  Although some impoverished individuals do have capital assets, this is a trivial percentage of that group.  Most of them are retirees who are gradually spending down everything they own.  They may have incidentally purchased 100 shares of AT&amp;amp;T fifty years ago and never sold it.  In that case, when it is sold it is a real gain, but they cannot live off of it until it is sold.  You are impoverished even if you hold assets you could sell.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, the median net wealth for Caucasian women, aged 35-45, is slightly less than \$42,000, but for women of color of the same age, it is \$50.  This difference is due to being more likely than Caucasian women to be laid off and to be laid off for longer periods of time and due to receiving lower wages.  You have to spend down assets when you are unemployed and you may not be able to save if your wages are sufficiently lower.  That number is a net wealth.  Some of those women own capital assets, such as for retirement, but they have offsetting debt.  The debt is not considered either in poverty calculations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Capital gains are not included because they would require an exceedingly costly, per person, analysis of the circumstances to determine if it was a real gain or a nominal gain.  Remember, if a person moved from or to a high-cost area the value of the gain could be completely different.  The same is true if they moved from or to a low-cost area.  A \$5,000 gain in New York City or Anchorage Alaska is negligible, but it is material in West Virginia or Mississippi.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Captial gains are also excluded because the percentage having capital gains are quite small.  Capital assets are not commonly an element of the portfolio of the poor.  Half of all Americans do not have bank accounts, let alone stocks.  Most of the poor carry all of their assets with them all of the time.  Indeed, one way to materially alleviate poverty is to engage in acts that compel banks to move branches into poor areas.  The presence of a bank makes it safer to open businesses and triggers lending, which in turn triggers more businesses and an increase in wages.  Banks are highly resistant to move to areas where the business does not already exist, hence the Community Reinvestment Act which compels banks to at least reinvest some assets in the communities that they serve in even if they are not yet high-profit locales.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It would cost a small fortune to collect and calculate the data and it would be to measure a small effect.&lt;/p&gt;&#xA;" OwnerUserId="11321" LastActivityDate="2017-12-14T17:04:49.273" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19708" PostTypeId="1" CreationDate="2017-12-14T17:52:31.480" Score="4" ViewCount="59" Body="&lt;p&gt;I'm currently reading up on matching models in terms of their ability to describe frictional unemployment, they generally follow a cobb-douglas form.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$M(u,v)=m=\mu u^\alpha v^{1-\alpha}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where $M(u,v)$ or $m$ is the number of employed, $u$ is the number of unemployed, $v$ is the number of job vacancies, $\mu$ is a constant and $0&amp;lt;\alpha&amp;lt;1$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;moving around the formula we obtain vacancy rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$v=\left(\frac{m}{\mu u^\alpha}\right)^{\frac{1}{1-\alpha}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Economterically estimating job vacancy  would seem to be much more difficult for countries which do not have a history of report it.This is mainly due to omitted variable bais, which would skew our estimates for $\alpha$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How does one estimate job vacancy in countries that only report employment and unemployment?&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="8815" LastEditDate="2017-12-14T22:36:41.320" LastActivityDate="2017-12-14T22:36:41.320" Title="Estimating Job Vacancy rate empirically" Tags="&lt;labor-economics&gt;&lt;unemployment&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19709" PostTypeId="1" CreationDate="2017-12-14T20:37:31.607" Score="1" ViewCount="43" Body="&lt;p&gt;The theory of present value states that the price of a stock is the discounted value of the infinite stream of future income of the company.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Several countries have had very very low interest rates, very close to zero. Yet, stock prices have not gone to very very high values, or even infinity. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why is this the case? Is this a proof that the theory of present value is incorrect? Or maybe investors think companies will not last &quot;forever&quot; (which they cannot, as earth's lifespawn is finite)?&lt;/p&gt;&#xA;" OwnerUserId="15121" LastActivityDate="2017-12-15T11:14:59.293" Title="Why are prices of stocks not very very high with very very low r?" Tags="&lt;finance&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19710" PostTypeId="2" ParentId="19276" CreationDate="2017-12-14T20:40:53.423" Score="0" Body="&lt;p&gt;I think this is because of liquidity. If I am a poor household, and I own stocks (maybe via my pension?), if the price of those stocks go up, I cannot consume such extra income. Actually, if the stock market crashes, my capital gains can be wiped out! So in a sense, this is not &quot;actual purchasing power&quot;, as it is the case with direct income like wages or transfers. So, to the day to day interest of a household, capital gains should not be relevant for their wellbeing.&lt;/p&gt;&#xA;" OwnerUserId="15121" LastActivityDate="2017-12-14T20:40:53.423" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19711" PostTypeId="1" AcceptedAnswerId="19728" CreationDate="2017-12-14T20:54:49.627" Score="4" ViewCount="51" Body="&lt;p&gt;I am interested in the debate about affirmative action in college admissions and I would be happy to read some theoretical economic investigations of the effects of these policies. I would be glad if someone could point out a good and recent survey of this literature, or some papers addressing this issue. The following two questions are of particular interest to me:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;the general equilibrium effects of affirmative action (say, in college admissions) on labor market outcomes (acquisition of human capital, wage differentials, etc.)&lt;/li&gt;&#xA;&lt;li&gt;the welfare analysis of affirmative action policies, with some discussion of the appropriate social welfare criterion (e.g., fairness vs efficiency)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Any reference would be appreciated. Thanks in advance.  &lt;/p&gt;&#xA;" OwnerUserId="4667" LastActivityDate="2017-12-16T20:13:15.937" Title="General equilibrium effects of affirmative action policies" Tags="&lt;reference-request&gt;&lt;labor-economics&gt;&lt;education-economics&gt;&lt;discrimination&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19712" PostTypeId="2" ParentId="19709" CreationDate="2017-12-14T20:55:34.903" Score="4" Body="&lt;p&gt;Equities and some other asset classes have gone up in price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, just because interest rates are very close to zero, does not mean discount rates are very close to zero.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Discount rates account not only for the price of money, but also for future uncertainties.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The extended period of depressed demand in many nations has added considerably to the uncertainty.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence, some asset classes have increased in price, but not to extreme values.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2017-12-14T20:55:34.903" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19714" PostTypeId="2" ParentId="4582" CreationDate="2017-12-15T02:31:35.830" Score="0" Body="&lt;p&gt;All quantities produced rise by 10% and all prices fall by 10%.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's say,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Year 1 2013&lt;/strong&gt;; Q = 10; P = $10; Nominal GDP (10*10) = 100; Real GDP (10*10) = 100; GDP Deflator ([100/100]*100)= 100&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Year 2 2014&lt;/strong&gt;; Q = 11 (10% increase); P = $9 (10% fall); Nominal GDP (11*9) = 99; Real GDP (11*10) = 110; GDP Deflator ([99/110]*100) = 90 (10% decrease from base year 2013)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Year 2 shows a 10% decrease in GDP from year 1. Nominal GDP went from 100 in year 1 to 99 in year 2, indicating a 1% decrease from year 1 to year 2. Real GDP went from 100 in year 1 to 110 in year 2, indicating a 10% increase from year 1 to year 2. &lt;strong&gt;Since your question doesn't factor in the 1% decrease in nominal GDP, I would have to say that the answer is B: real GDP rises by 10% and nominal GDP remains unchanged.&lt;/strong&gt; This is because the decrease in nominal GDP is so small, and closer to 0% than 10%.&lt;/p&gt;&#xA;" OwnerUserId="15580" LastActivityDate="2017-12-15T02:31:35.830" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19716" PostTypeId="1" AcceptedAnswerId="19741" CreationDate="2017-12-15T10:38:02.080" Score="1" ViewCount="66" Body="&lt;p&gt;A friend mentioned that in Marxism, the distance a good was transported was used to determine the price of said good.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can't find anything on the Internet to support this claim, although I might be misremembering his statement.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can anyone think to what he was referring?&lt;/p&gt;&#xA;" OwnerUserId="5505" LastActivityDate="2017-12-18T07:48:19.023" Title="Distance transported used to price goods in Marxism" Tags="&lt;pricing&gt;&lt;marxism&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19717" PostTypeId="2" ParentId="19709" CreationDate="2017-12-15T11:14:59.293" Score="2" Body="&lt;p&gt;More sophisticated calculations of present value account for:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;uncertainty: this is for example assuming different scenarios of cash flows, and assigning probabilities to them.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;risk premium: you are referring to a &quot;risk-free&quot; interest rate, whereas companies are subject to risks, including bankruptcy or technological displacement. Thus, to discount flows the rate of discount used is different, and higher. Even more, the longer the period, the higher this rate should be. This is, estimates of cash flows in 50 years more have little effect on the current price stock.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="15051" LastActivityDate="2017-12-15T11:14:59.293" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19718" PostTypeId="1" AcceptedAnswerId="25056" CreationDate="2017-12-15T13:55:48.090" Score="1" ViewCount="1010" Body="&lt;p&gt;Until now I've learned that the Fed controls the interest rates and that affects the money supply. For instance,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Fed increases Interest Rate ----&gt; makes firms/households reluctant to borrow and Banks loan less ---&gt; less money supply.   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, what is the economic intuition for the opposite sequence? So &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;Fed increase money supply ----&gt; interest rate decrease&quot;&#xA;&quot;Fed decrease money supply ----&gt; interest rate increase&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have never thought of this sequence - I have always thought of the interest rate as the causal factor and the money supply change as the result. I would appreciate it if somebody could explain how the opposite sequence is also possible. So to put it simply,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;if Fed increases/decreases the money supply, why does interest rate decrease/increase? not in economic theory, but in real-life explanation please. &lt;/p&gt;&#xA;" OwnerUserId="15585" LastActivityDate="2019-01-03T14:01:50.350" Title="The sequence of Money Supply - Interest Rate" Tags="&lt;interest-rate&gt;&lt;money-supply&gt;" AnswerCount="4" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19719" PostTypeId="2" ParentId="19718" CreationDate="2017-12-15T14:52:09.043" Score="2" Body="&lt;p&gt;It’s just supply and demand. The interest rate is the price at which you can borrow money. For a fixed demand curve, if there’s less money available (the supply curve shifts left), the market will clear at a higher price (higher interest rate). Similarly, if there’s more money available for lending, the equilibrium interest rate will be lower. &lt;/p&gt;&#xA;" OwnerUserId="264" LastActivityDate="2017-12-15T14:52:09.043" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19720" PostTypeId="2" ParentId="19394" CreationDate="2017-12-15T14:57:51.140" Score="2" Body="&lt;p&gt;This is extremely common in institutional markets, and is called a &quot;repo&quot; transaction - short for &lt;a href=&quot;https://en.wikipedia.org/wiki/Repurchase_agreement&quot; rel=&quot;nofollow noreferrer&quot;&gt;Repurchase agreement&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a repo transaction, you &quot;sell&quot; the bond to the bank and agree to buy it back again at a fixed price in the future (regardless what the actual market price may be).  This is the same business model as pawnbroking.  If you fail to buy the bond back, the bank gets to keep the bond.  The reason it is done as this sale-and-repurchase, rather than collateral (which is economically identical) is that it makes handling a default much simpler.  If you default on a collateralised loan, the lender still has to apply to take full ownership of the collateral, which can delay matters (such as under chapter 11 protection).  In a repo transaction, the bank already legally owns the bond and has it in custody, so it is much simpler.  It is worth noting, that although they have bought the bond from you the repo agreement (GMRA - &quot;General Master Repo Agreement&quot;) specifies that the original owner retails &quot;full economic interest&quot; in the bond - that is they get any interest payments from the original bond.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That said, this is most commonly done for Treasury bonds in highly rated countries (US, UK, Germany etc.).  Since the bond is collateral for the loan banks are less keen to lend you for bonds that are risky, as should the collateral become worthless, then the loan becomes unsecured.  For this reason repo transactions in EM bonds or Corporate Bonds tend to have a significant &quot;haircut&quot;.  The haircut is the difference between the value of the bond and the amount borrowed.  So in your example, a repo transaction of a poor country bond the bank may take a 20% haircut, so to buy \$10m of the bond, you would borrow \$8m and pay for \$2m yourself.  The logic here is the same as when you mortgage your house, the bank won't usually lend you the full value of the house.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As you might have guessed from my example using millions, repo transactions are done between banks and institutional investors, not the man-on-the-street.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For extensive details see: &lt;a href=&quot;https://www.icmagroup.org/Regulatory-Policy-and-Market-Practice/repo-and-collateral-markets/icma-ercc-publications/icma-ercc-guide-to-best-practice-in-the-european-repo-market/&quot; rel=&quot;nofollow noreferrer&quot;&gt;ICMA Guide to Best Practice in Repo&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="119" LastActivityDate="2017-12-15T14:57:51.140" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19721" PostTypeId="1" CreationDate="2017-12-15T19:38:29.370" Score="0" ViewCount="84" Body="&lt;p&gt;If there are increasing returns to scale in both sectors (in a 2x2x2x2) production and consumption economy, then a profit maximizing allocation most likely involves the economy producing only one type of good?&lt;/p&gt;&#xA;" OwnerUserId="15588" LastActivityDate="2017-12-15T21:42:27.250" Title="Relationship between IRS and Competitive equilibrium" Tags="&lt;microeconomics&gt;&lt;competitive-equilibrium&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19722" PostTypeId="2" ParentId="19721" CreationDate="2017-12-15T21:42:27.250" Score="2" Body="&lt;p&gt;&quot;Most likely&quot; is not a precise term.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given the available information it is quite possible that an equilibrium does not exist. In that case we can't really tell what will happen.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2017-12-15T21:42:27.250" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19723" PostTypeId="1" CreationDate="2017-12-16T04:55:27.930" Score="2" ViewCount="452" Body="&lt;p&gt;I learned from the Fischer Effect that &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Real Interest Rate = Nominal Interest Rate - Inflation Rate . &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But in today's class the professor told us that due to money neutrality, an increase in money growth doesn't affect the real interest rate, just nominal interest rate. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reason this is confusing to me is that when money growth increases the nominal interest rate decreases.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;so it definitely affects the real interest rate. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm aware that this is the short-run affect. Nominal interest (decrease) - Inflation rate (increase) = Real interest Rate (decrease) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So why, in the long run, doesn't real interest rate change? Why is nominal interest rate the only variable affected?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Everyone's been answering &quot;its because money neutrality applies to the long-run&quot;. I don't really like this answer because it still doesn't explain why money growth doesn't affect &quot;real interest rate&quot; out of all real variables.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So my question is this: Why does the increase in money supple not affect real interest rate? Could someone explain this in an economic context, containing the behavior of agents, not in  some kind of mathematical way like &quot;its because of money neutrality&quot; which has no economic logic to explaining why money supply doesn't affect Real Interest Rate in the long run . &lt;/p&gt;&#xA;" OwnerUserId="15585" LastActivityDate="2017-12-16T04:55:27.930" Title="Money Neutrality and Real Interest Rate" Tags="&lt;interest-rate&gt;&lt;money-supply&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19724" PostTypeId="1" AcceptedAnswerId="19771" CreationDate="2017-12-16T08:28:42.630" Score="0" ViewCount="431" Body="&lt;p&gt;When the price level increases in the economy,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;we generally know that the value of money decreases. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, what is the definition of money here?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is it just currency? Or does it include assets, such as stocks and bonds? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Because if the price rises, due to the interest rate effect people sell their bonds and stocks. So the creditors charge a higher interest rate. Then the means that the value of assets becomes higher right? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Could someone explain this logic clearly? Thank you! &lt;/p&gt;&#xA;" OwnerUserId="15585" LastActivityDate="2017-12-19T23:15:50.053" Title="Price Level and Value of money" Tags="&lt;interest-rate&gt;&lt;price-level&gt;&lt;asset-prices&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19725" PostTypeId="1" AcceptedAnswerId="21077" CreationDate="2017-12-16T10:00:35.770" Score="2" ViewCount="893" Body="&lt;p&gt;When the interest rate increases, I learned that money supply decreases because people put their currency back in banks in forms of assets and tend to save more, spend less. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, money supply includes deposits as well as currency. So what I'm really curious about is whether a rise in interest rate actually decreases money supply. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Doesn't a rise in interest rate just decrease the ratio of currency in the economy and increase the ratio of deposits in the bank, the sum (deposits + currency) remaining the same? So shouldn't money supply technically stay the same? &lt;/p&gt;&#xA;" OwnerUserId="15585" LastActivityDate="2018-12-12T02:01:35.353" Title="interest rate and money supply" Tags="&lt;interest-rate&gt;&lt;money-supply&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19726" PostTypeId="2" ParentId="19725" CreationDate="2017-12-16T14:49:14.303" Score="1" Body="&lt;p&gt;If the interest rate increase people put their money in SAVINGS account, not in DEPOSIT accounts. People also buy BONDS. This is what keynes said, and what is behind the LM curve in the ISLM model.&lt;/p&gt;&#xA;" OwnerUserId="15049" LastActivityDate="2017-12-16T14:49:14.303" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19727" PostTypeId="2" ParentId="19724" CreationDate="2017-12-16T14:56:19.570" Score="0" Body="&lt;p&gt;It is the value of money as units of account, as a currency, for example the US dollar. If prices change the value of the dollar changes...so it changes compared with other currencies, like the Japanese YEN. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Exchange rates change...&lt;/p&gt;&#xA;" OwnerUserId="15049" LastActivityDate="2017-12-16T14:56:19.570" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19728" PostTypeId="2" ParentId="19711" CreationDate="2017-12-16T20:13:15.937" Score="1" Body="&lt;p&gt;I found one survey which corresponds to what I was looking for: &lt;em&gt;Theories of Statistical Discrimination and Affirmative Action: A Survey&lt;/em&gt; by Hamming Fang and Andrea Moro, in the &lt;em&gt;Handbook of Social Economics&lt;/em&gt; (2011 edition).&lt;/p&gt;&#xA;" OwnerUserId="4667" LastActivityDate="2017-12-16T20:13:15.937" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19729" PostTypeId="1" CreationDate="2017-12-16T20:21:01.160" Score="6" ViewCount="1499" Body="&lt;p&gt;I understand the mathematical proof and the graphical illustration behind this property ($EV&amp;gt;CV$ for the variation in the price of a normal good), but I still do not understand the economic intuition. Can anyone explain, in intuitive terms, why the comparison between $EV$ and $CV$ is given by the sign of the wealth effects?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit: there seems to be different definitions of $EV$ and $CV$. Here are the ones that I use. Following a change in price from $p^{0}$ to $p^{1}$, the income being fixed at $w$, $EV$ is defined by&#xA;\begin{equation*}&#xA;v(p^{0},w+EV) = v(p^{1},w)&#xA;\end{equation*}&#xA;whereas $CV$ is defined by&#xA;\begin{equation*}&#xA;v(p^{0},w) = v(p^{1},w-CV).&#xA;\end{equation*}&#xA;For these definitions, if I am not mistaken, if the good is normal, then $EV&amp;gt;CV&amp;gt;0$ for a price decrease and $0&amp;gt;EV&amp;gt;CV$ for a price increase.&lt;/p&gt;&#xA;" OwnerUserId="4667" LastEditorUserId="4667" LastEditDate="2018-01-02T16:14:49.513" LastActivityDate="2018-01-02T16:14:49.513" Title="Intuition for why $EV&gt;CV$ for a normal good" Tags="&lt;consumer-theory&gt;&lt;consumer-surplus&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19730" PostTypeId="1" AcceptedAnswerId="19757" CreationDate="2017-12-16T22:05:57.343" Score="1" ViewCount="67" Body="&lt;p&gt;People talk a lot about well-being as an objective of macro policy (together with gdp growth). So if well-being is an objective, i'm wondering if we can add well-being into macro model as an endogenous variable? and we can see the response of this variable to a shock just as we did for other endogenous variables?&#xA;Thank you for all your help.&lt;/p&gt;&#xA;" OwnerUserId="14729" LastActivityDate="2017-12-19T10:32:18.227" Title="Can we add well-being into macro model as an endogenous variable?" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;social-welfare&gt;&lt;rbc&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19734" PostTypeId="2" ParentId="19641" CreationDate="2017-12-17T15:05:54.007" Score="-1" Body="&lt;p&gt;Does Okun's law work at all?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It was an empirical observation of the relationship between unemployment and an estimate of the &quot;output gap&quot; (the relative difference between actual GDP and potential GDP)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To the extent that the relative difference between actual GDP and potential GDP may be the same whether calculated using nominal GDP or real GDP, then the relationship should hold either in both cases or in neither. Otherwise the argument becomes one of saying that the output gap is affected by inflation&lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2017-12-17T15:05:54.007" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="19735" PostTypeId="2" ParentId="19729" CreationDate="2017-12-17T19:42:10.237" Score="1" Body="&lt;p&gt;I think the magnitude of EV is less than the magnitude of CV for a normal good which increases in price (and the reverse for a normal good which reduces in price, so there may be a sign issue) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Intuitively, you should be able to argue that for a small price increase for an income-inelastic good (so neither normal nor inferior) the increase in income based on the new price you would need to take you back to your old utility (CV: the Compensating Variation) should be equal to the amount based on the old price you would be prepared to pay to avoid the price change (EV: the Equivalent Variation). The shift along the utility curves caused by the price change is similar in both cases as the unchanged-priced goods substitute for the increased-price good.  Graphically the two utility curves are in a sense almost equally spaced with a vertical translation&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Meanwhile with a normal good, you now face a increased price for this good, so in the CV calculation not only do you need an increased income to compensate for the loss of utility, but it has to be even higher because you will want more of this increased-price normal good when you get your compensation than you would if it were income-inelastic, so CV is even higher for a normal good than for an income-inelastic good for a given level of EV calculated on the old prices.  For a decrease in prices you would get the opposite effect  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some &lt;a href=&quot;http://users.ox.ac.uk/~sedm1375/Teaching/Micro/week3.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Oxford lecture notes (pages 5 and 6)&lt;/a&gt; use a similar argument:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;For a normal good, for an &lt;em&gt;increase&lt;/em&gt; in the price of good $x$, the compensating variation &lt;strong&gt;must&lt;/strong&gt; be greater than or equal to the equivalent variation because once $p_x$ has increased, with $p_y$ remaining constant at $1$, it must cost more to compensate the consumer in get them back to their original indifference curve than would be required to take from them at the original price level to take them from the old to the new indifference curve, because both goods are at least or more expensive than before (another way of saying this is that the marginal utility that the consumer gets from each additional unit of cash income must be lower at the new price level, so more cash income must be given to get the consumer back to their original utility level). For a &lt;em&gt;decrease&lt;/em&gt; in the price of a normal good, this result is reversed.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2017-12-17T19:42:10.237" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19737" PostTypeId="1" CreationDate="2017-12-18T00:10:14.387" Score="1" ViewCount="24" Body="&lt;p&gt;Assuming:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;A world in which the market value of publicly traded companies is known&lt;/li&gt;&#xA;&lt;li&gt;Any transaction to buy or sell stock of said companies can &lt;strong&gt;only&lt;/strong&gt; be consummated with a new currency X, which is freely tradable into and out of other, existing currencies (that is, currency X is required only as long as the transaction is in flight; the buyer trades value into X, makes the purchase, after which the seller trades out of X back into some other form of value.)&lt;/li&gt;&#xA;&lt;li&gt;The total supply of currency X is fixed and known&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Then:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What correlation is there, if any, between the total market cap of currency X and the total market cap of the publicly traded companies (both market caps being calculated in the same external form of value)? Put another way, what would determine the value of currency X in terms of other forms of value? The total market cap of the companies? The total of market transactions in flight at any given moment? Something else? Nothing?&lt;/p&gt;&#xA;" OwnerUserId="15605" LastActivityDate="2017-12-18T00:10:14.387" Title="In a closed system, what is the relationship, if any, between currency supply and market capitalization?" Tags="&lt;currency&gt;&lt;monetary-policy&gt;&lt;stock-market&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19738" PostTypeId="1" AcceptedAnswerId="19742" CreationDate="2017-12-18T05:16:38.940" Score="64" ViewCount="12781" Body="&lt;p&gt;I'm coming at this from a scientific point of view, having had no formal training in economics - most of what I know about it was from self-studying an undergraduate economics textbook.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is, why do economists disagree so much? This doesn't happen in the sciences. For example, for the question &quot;will a driver in a car with these safeguards survive a collision at 100km/h&quot;, most scientists will agree on an answer. It might be conditional on various things (e.g. age of the driver), but most scientists will come to the same conclusion.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However in economics, it's different. Faced with a question such as &quot;should we provide more fiscal stimulus for the economy&quot;, it's possible that one big group of economists says &quot;yes&quot;, and then another big group says &quot;no&quot;. To some extent this might be because of personal interpretation of what is desirable. However I would expect that economists should still be able to say something like &quot;if you provide fiscal stimulus, this will happen, and it's up to you to judge whether the consequences are desirable&quot;, and yet it seems there's no consensus on what will actually happen. It doesn't help that when I see economics debated in the media, both sides advance what looks like reasonable arguments.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does economics have predictive power? If so, why can't economists simply &lt;em&gt;tell&lt;/em&gt; policymakers what to do? If not, what's the point of economics (it might as well be astrology)?&lt;/p&gt;&#xA;" OwnerUserId="15607" LastEditorUserId="1601" LastEditDate="2021-05-12T10:48:33.810" LastActivityDate="2021-05-12T10:48:33.810" Title="Why do economists disagree so much?" Tags="&lt;macroeconomics&gt;&lt;nonexpert&gt;" AnswerCount="4" CommentCount="16" FavoriteCount="13" ContentLicense="CC BY-SA 4.0" />
  <row Id="19739" PostTypeId="1" CreationDate="2017-12-18T05:18:50.043" Score="2" ViewCount="54" Body="&lt;p&gt;What causal relationship is there, if any, between the country’s 2015-17 migrant policy and its economic growth?&lt;/p&gt;&#xA;" OwnerUserId="8639" LastEditorUserId="8639" LastEditDate="2017-12-18T05:48:57.100" LastActivityDate="2017-12-18T05:48:57.100" Title="Has Germany’s migrant policy improved the economy?" Tags="&lt;germany&gt;" AnswerCount="0" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="19740" PostTypeId="1" AcceptedAnswerId="19769" CreationDate="2017-12-18T07:10:19.053" Score="0" ViewCount="77" Body="&lt;p&gt;I thought about this question during the height of the Greek economic crisis several years ago. The media was saying that Greece had run out of money, having used funds that had been set aside for a natural disaster, and they &lt;em&gt;really badly&lt;/em&gt; needed a loan.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose that during this period, an alien spaceship crash-landed in Greece and the aliens proceeded to invade the country. Since Greece has no money (= cannot buy weapons, ammunition, pay their soldiers, etc), and it cannot borrow (since nobody being willing to lend Greece money was the cause of economic crisis) does it mean Greece will be easily conquered? If the answer is no, where will Greece get the money to defend itself from?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm asking this as an economics question, so I'm not thinking of stuff such as whether NATO intervenes or what the technological capabilities of the aliens are.&lt;/p&gt;&#xA;" OwnerUserId="15607" LastActivityDate="2017-12-19T22:41:26.303" Title="Invading a country with high debt" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19741" PostTypeId="2" ParentId="19716" CreationDate="2017-12-18T07:48:19.023" Score="4" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Quantities of products are not increased by transportation. Nor, with&#xA;  a few exceptions, is the possible alteration of their natural&#xA;  qualities, brought about by transportation, an intentional useful&#xA;  effect; it is rather an unavoidable evil. But the use-value of things&#xA;  is materialised only in their consumption, and their consumption may&#xA;  necessitate a change of location of these things, hence may require an&#xA;  additional process of production, in the transport industry. The&#xA;  productive capital invested in this industry imparts value to the&#xA;  transported products, partly by transferring value from the means of&#xA;  transportation, partly by adding value through the labour performed in&#xA;  transport. This last-named increment of value consists, as it does in&#xA;  all capitalist production, of a replacement of wages and of&#xA;  surplus-value.  &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Source: &lt;a href=&quot;https://www.marxists.org/archive/marx/works/1885-c2/ch06.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;Capital Volume II, Chapter 6: The Costs of Circulation, &#xA;I. Genuine Costs of Circulation, III. Costs of Transportation&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My understanding of Marx's argument is the following: Transportation does not alter the quantity/quality of products significantly. But, products need to have a use-value in order to also have an exchange value. Thus, an orange for example produced in Spain has an exchange value in UK, only if it arrives in UK, so that it can be bought and consumed. So, transportation adds value to the products, and this is done (as with all products) partly from the labor value (transportation workers) and partly from the means of production (means of transportation: airplanes, ships, cars, trucks...).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since transportation adds value to the product, and since price is a mirror of value according to Marx, then we can say that transportation tends to increase the price of the product (which is a logical assumption on average).   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regarding distance, I am not sure if that is explicitly mentioned, but again we can deduce from the previous that: bigger distance --&gt; more transportation needed (given constant technological advancement in a period) --&gt; more transportation labor needed + more transportation means of production --&gt; more added value --&gt; tendency for bigger price.  &lt;/p&gt;&#xA;" OwnerUserId="13849" LastActivityDate="2017-12-18T07:48:19.023" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19742" PostTypeId="2" ParentId="19738" CreationDate="2017-12-18T09:13:36.047" Score="82" Body="&lt;p&gt;Some areas of economics have more consensus and predictive power than others. Most economists would agree on the effects of trade barriers, could fairly accurately forecast the effects of a price change given a good demand estimate, would come to the same conclusion about the effects of allowing a merger between two large competing firms, know how asset prices will react to a change in interest rates, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The effect of a fiscal stimulus is one of the most complicated questions in economics because you are asking about the effect of stimulating a system with millions of moving parts (people and firms) and many dimensions (consumption/saving, employment/work, trade, investment, innovation, ...). This is a long way from the simple, closed systems for which natural science is able to give sharp predictions. In fact, when you look at parts of the natural sciences that deal with similar levels of systemic complexity, the overall (lack of) predictive power looks similar to that in economics:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;although principles of ecology are well understood, it is almost impossible to accurately predict what the final effect of, say, introducing a new species into an ecosystem will be&lt;/li&gt;&#xA;&lt;li&gt;the theory of evolution is probably one of the greatest scientific theories of all time, but can only be used to make the vaguest predictions about the future&lt;/li&gt;&#xA;&lt;li&gt;medics cannot accurately predict the onset of a wide range of diseases—only diagnose them ex post&lt;/li&gt;&#xA;&lt;li&gt;models of future global temperature increases have wide error bars&lt;/li&gt;&#xA;&lt;li&gt;weather forecasts more than one or two days into the future have wide error bars&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The other thing to note is that fiscal stimulus is a highly politicised topic and economists often do a (frustratingly) poor job of keeping politics out of the debate. If you read the economic literature, you will find a story similar to that for your car crash: any outcome is possible but some look more likely, depending on the exact circumstances. Given this ambiguity, politicians of different persuasions have no difficulty finding an economist willing to ignore this nuance and take a politically expedient position (just as conservative politicians can always find scientists willing to play down anthropogenic global warming). But that is less a failing with economics than with economists.&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2017-12-18T16:57:40.963" LastActivityDate="2017-12-18T16:57:40.963" CommentCount="14" ContentLicense="CC BY-SA 3.0" />
  <row Id="19743" PostTypeId="2" ParentId="19738" CreationDate="2017-12-18T14:13:51.083" Score="21" Body="&lt;p&gt;In addition to Ubiquitous' excellent answer, I will also point out the general lack of experimental controls in economics. Your example about crash-testing a car is an easily designed, perfectly reproducible experiment. We can start with laws of motion and knowledge of forces and material strengths to design a car we think will work well, and then actually test the theory. If it doesn't work, we can change the design and try again, until we learn what makes a good design. We can estimate the effect of each individual change, or a combination of changes, by carefully designing the experiment to test the car with/without componnet A, with/without component B, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Economists do not have the luxury of well-controlled or repeatable experiments. We can't test out the economy with both higher taxes and with lower taxes to see which one works. Without a good control, it's very difficult to tease apart interrelated factors. Control experiments allow us to test individual experimental factors to determine their effect, but that's not at all possible in economics. Cause and effect becomes much more difficult to agree upon when one must consider many causes and many effects simultaneously.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The other systems of high complexity mentioned in the other answer all share this feature. They are systems that cannot have all their parameters controlled, so we're just limited to observational studies from which we develop theories. We can examine those theories after the fact, but we usually can't design experiments to test them directly.&lt;/p&gt;&#xA;" OwnerUserId="7030" LastEditorUserId="7030" LastEditDate="2020-04-13T18:06:15.987" LastActivityDate="2020-04-13T18:06:15.987" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="19744" PostTypeId="1" CreationDate="2017-12-18T15:31:42.613" Score="2" ViewCount="27" Body="&lt;p&gt;since I have to write a paper on transformation/transition processes in the baltic states (Estonia, Lithuania and Latvia), I would like to analyze GDP data from 1988 (shortly before the end of the soviet union) until now.&#xA;I already checked eurostats, the world bank and OECD databases. &#xA;Unfortunately I couldn't find any GDP data for these countries for the period from 1988-1994.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would highly appreciate recommendations for other databases, that might contain the data I am looking for.&lt;/p&gt;&#xA;" OwnerUserId="15618" LastActivityDate="2018-02-18T00:22:50.667" Title="GDP data for the baltic states from 1988-1994" Tags="&lt;gdp&gt;&lt;data-request&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19745" PostTypeId="1" CreationDate="2017-12-18T15:31:56.220" Score="2" ViewCount="230" Body="&lt;p&gt;According to various sources (source listed in parentheses):&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Mexico's unemployment rate is 3.3% (Trading Economics)&lt;/li&gt;&#xA;&lt;li&gt;Mexico's literacy rate is 94.5% (Statistica)&lt;/li&gt;&#xA;&lt;li&gt;Mexico's upper secondary graduation rate is 49% (OECD estimate)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Yet, when I look at the poverty rate for Mexico, the &lt;a href=&quot;https://www.reuters.com/article/us-mexico-poverty/mexican-government-says-poverty-rate-rose-to-46-2-percent-in-2014-idUSKCN0PX2B320150723&quot; rel=&quot;nofollow noreferrer&quot;&gt;poverty rate is 46.2%, according to Reuters&lt;/a&gt;.  Mexico has low unemployment and a high rate of education, yet almost half of its population is in poverty.  What's the cause of this?&lt;/p&gt;&#xA;" OwnerUserId="15619" LastActivityDate="2018-03-21T22:02:38.267" Title="What's the Cause of Mexico's Poverty Rate?" Tags="&lt;poverty&gt;" AnswerCount="2" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="19747" PostTypeId="1" CreationDate="2017-12-18T20:34:20.393" Score="1" ViewCount="46" Body="&lt;p&gt;If money neutrality stipulates that only nominal variables will be affected following changes in money supply, then does this mean that following such money supply changes, real GDP remains unchanged while nGDP changes, as changes in money supply causes changes in price levels, and nGDP is by definition real GDP (which is unchanged) * price level deflator?&lt;/p&gt;&#xA;" OwnerUserId="6782" LastActivityDate="2018-01-19T00:07:50.313" Title="Does money neutrality mean that nominal GDP (output) changes following changes in money supply?" Tags="&lt;money-supply&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19749" PostTypeId="2" ParentId="19738" CreationDate="2017-12-18T21:47:32.797" Score="7" Body="&lt;p&gt;In my view, the main problem is, that economics is a science about human behavior. Human decision making. Plus, human decision making of large scale. And it is not easy to reliably study and predict that. Too many factors come into play.&#xA;For example, if you rise price of some good, you can guess that people will buy it less. But if there is a complex problem, like fiscal stimulus or new government tax policy, there are millions of people affected. And each of them has their own priorities, needs and desires. Plus, people do not always react rationally (there is a whole field of economics studying irrationality in human decision making - behavioral economics).&#xA;So, to have a clear answer to some economic problems, you would need to see into millions of individual minds. That is clearly impossible, so you won't have a definitive answer.&lt;/p&gt;&#xA;" OwnerUserId="7059" LastActivityDate="2017-12-18T21:47:32.797" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="19751" PostTypeId="1" CreationDate="2017-12-18T22:38:24.050" Score="1" ViewCount="154" Body="&lt;p&gt;I'm reading a game-theory related &lt;a href=&quot;https://www.google.co.uk/search?hl=en&amp;amp;q=Effort%20Levels%20in%20Contests%20with%20Two%20Asymmetric%20Players&amp;amp;meta=&quot; rel=&quot;nofollow noreferrer&quot;&gt;paper&lt;/a&gt;*, and I'm not following the derivation of some property of the best-response functions. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose I have two players $1$ and $2$, whose strategies are continuous levels of effort $x_1$ and $x_2$ respectively. The first order condition is given by for a Nash equilibrium strategy is given just standardly by $argmax_{x_1}(\pi_1)$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\partial \pi_i}{\partial x_1}=\frac{\alpha\sigma h'(x_1)h(x_2)}{(\sigma h(x_1)+h(x_2))^2}-1=0$$&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Let $x_1=r_1(x_2)$ denote player $1$'s reaction function. Since it is&#xA;  derived from player $1$'s first-order condition (above), we obtain&#xA;  it's derivative by differentiating along [the above FOC]:&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;$$\frac{dr_1(x_2)}{dx_2}=\frac{h'(x_1)h'(x_2)(\sigma h(x_1)-h(x_2))}{h(x_1)[h''(x_2)(\sigma&#xA;&amp;gt; h(x_1)+h(x_2)-2h'(x_2))^2]}$$&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Note that this is not the derivative of the first equation w.r.t. $x_2$, which simply is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\alpha\sigma h'(x_1)h'(x_2)(\sigma h(x_1)-h(x_2))}{(\sigma h(x_1)+h(x_2))^3}=0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, besides this approach, I fail to see how the equation could be obtained. Rearranging for $x_1$ to express player $1$'s BR function the conventional way seems no option here either, since the function $h$ is undefined, and the BR function would also become much messier that the one quoted.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;*Some of the working out is in a technical appendix elsewhere, which I can email.&lt;/p&gt;&#xA;" OwnerUserId="14078" LastActivityDate="2017-12-18T22:38:24.050" Title="Deriving a Best Response Function in Baik (1994)" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;game-theory&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19752" PostTypeId="1" AcceptedAnswerId="19753" CreationDate="2017-12-18T23:07:53.787" Score="3" ViewCount="159" Body="&lt;p&gt;In Europe, shop prices are typically displayed including VAT. This gives the impression that the seller is paying the VAT. They have to offer a competitive price, then a percentage of that is taken out as tax. But, if VAT didn't exist, sellers could offer a lower price. So in another sense, buyers pay the tax.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the US, sales tax is typically added at the till. This makes it feel like the buyer is paying the tax. But ultimately, VAT and sales tax are the same (at the point of final sale) - does it really make a difference how the prices are displayed?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The same issue exists with income tax, stamp duty, and presumably many other taxes. It's quite integral to Western life that income tax is paid by the employee - you hear people say &quot;I pay my taxes, I'm part of this society&quot;. But the need to pay income tax means that employers need to pay higher wages, so the employer is bearing the cost as well.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does it make a difference what happens when the rate changes? For example, if income tax rises, typically salaries do not rise to match. But if sales tax rises, the the amount added at the till immediately rises too.&lt;/p&gt;&#xA;" OwnerUserId="6281" LastActivityDate="2017-12-19T00:23:33.833" Title="Who really pays transaction taxes like VAT or sales tax?" Tags="&lt;taxation&gt;&lt;transaction-costs&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19753" PostTypeId="2" ParentId="19752" CreationDate="2017-12-19T00:23:33.833" Score="5" Body="&lt;p&gt;The issue you are asking about is tax incidence. This &lt;a href=&quot;https://en.wikipedia.org/wiki/Tax_incidence&quot; rel=&quot;noreferrer&quot;&gt;Wikipedia entry&lt;/a&gt; provides a good introduction. In short: it depends on how easily supply and demand respond to price changes relatively to each other, the so called price elasticity of demand and supply.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;According to standard theory, it doesn't matter who pays (in the legal/fiscal sense) the taxes, as the burden of the taxes depend on economic circumstances. If demand falls rapidly with higher prices while supply does not, sellers/producers will lower their price (before tax), and therefore carry a relatively large part of a tax.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course, there may be all kinds of administrative costs and other 'frictions', that make it more or less efficient to have one group or another pay taxes. Also, there is evidence that people do change their behavior according to how the taxes are paid; see for example &lt;a href=&quot;https://doi.org/10.1162/qjec.2009.124.3.969&quot; rel=&quot;noreferrer&quot;&gt;this paper&lt;/a&gt;, or &lt;a href=&quot;http://www.rajchetty.com/chettyfiles/taxsalience_testimony.pdf&quot; rel=&quot;noreferrer&quot;&gt;this document&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="5288" LastActivityDate="2017-12-19T00:23:33.833" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19756" PostTypeId="2" ParentId="19744" CreationDate="2017-12-19T09:45:39.550" Score="1" Body="&lt;p&gt;The Penn World Tables for those countries goes back to 1990. Some of their indicators may even go back further but I haven't checked.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Access to them is found &lt;a href=&quot;https://www.rug.nl/ggdc/productivity/pwt/&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="12186" LastActivityDate="2017-12-19T09:45:39.550" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19757" PostTypeId="2" ParentId="19730" CreationDate="2017-12-19T10:32:18.227" Score="3" Body="&lt;p&gt;One can model &lt;strong&gt;anything&lt;/strong&gt;, that's why it is a model. The real question is what the value of such a model would be.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;More to the point, I think this would be a very hard thing to do sensibly because how are we going to measure well-being? It encompasses way more factors than our economic models typically capture, such as social relations, health and mental state. Even if we include all of those, the relation between all those variables among each other and well-being is often unknown. We could theorize about it, but actually finding out what the relations are would be very hard to do.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example suppose I model well-being as a combination of health, income and social relationships. That would mean that my macro-economic model would have to contain some kind of measure how social relationships evolve. Moreover, not only are increases in my income going to improve my well-being directly, but it is also going to affect my health (positively up to a point probably) and social relationships (those I guess could go both ways depending on income inequality or the possibility to be generous or visit friends and relatives). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If one really wants to capture well-being there are so many variables affecting that, that the model essentially becomes a black box. We don't know what's driving the results anymore.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What has been done, is trying to measure these things in retrospect. There are various macro-economic/social indicators and indices that try to capture how well-being has evolved over time. These retrospective studies are then used to judge what has gone well and what has not (the latter is &lt;strong&gt;also&lt;/strong&gt; a hard thing to do because we typically have no good counterfactuals)&lt;/p&gt;&#xA;" OwnerUserId="12186" LastActivityDate="2017-12-19T10:32:18.227" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="19758" PostTypeId="1" CreationDate="2017-12-19T12:11:41.043" Score="1" ViewCount="60" Body="&lt;p&gt;From the &quot;Manual of Ideas&quot;...&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;VALUE CREATION VIA BUYBACKS Share repurchases tend to be particularly accretive in the case of companies generating cash from operations while trading below tangible book value. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Why are they particularly accretive given these conditions. This is not clear to me at all how to think about this.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;If such companies apply free cash flow toward buying back stock, they accrete tangible book value per share...&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Why is this?&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;...widening the gap between the market price and the accounting net worth. It becomes exceedingly difficult for the stock price to decrease when the discount to book value per share keeps getting wider if the stock price remains constant.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This also is not clear but may be explained by the bits above.&lt;/p&gt;&#xA;" OwnerUserId="5515" LastEditorUserId="5515" LastEditDate="2018-08-11T12:56:01.807" LastActivityDate="2018-08-11T12:56:01.807" Title="Why are share repurchases particularly accretive?" Tags="&lt;microeconomics&gt;&lt;finance&gt;&lt;stock-market&gt;&lt;corporate-finance&gt;&lt;accounting&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19760" PostTypeId="1" CreationDate="2017-12-19T13:11:07.310" Score="1" ViewCount="23" Body="&lt;p&gt;What would be a good reference for how companies utilise their cash to conduct share buybacks. I am trying to understand how share buybacks affect the valuation of a company.&lt;/p&gt;&#xA;" OwnerUserId="5515" LastEditorUserId="5515" LastEditDate="2018-08-11T12:57:50.783" LastActivityDate="2018-08-11T12:57:50.783" Title="Best texts on cash usage and share buybacks in companies" Tags="&lt;reference-request&gt;&lt;stock-market&gt;&lt;corporate-finance&gt;&lt;value&gt;&lt;soft-question&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="19761" PostTypeId="1" CreationDate="2017-12-19T13:13:44.793" Score="1" ViewCount="164" Body="&lt;p&gt;Would technologies as AI, BI and Big Data help the economists to make better predictions and test models to solve problems like &quot;What level of fiscal stimulus is better for a especific country?&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is it something for the future or its already been used?&lt;/p&gt;&#xA;" OwnerUserId="15656" LastEditorUserId="15656" LastEditDate="2017-12-19T20:05:44.877" LastActivityDate="2017-12-22T04:07:23.397" Title="How technology will help economists to do better predictions?" Tags="&lt;econometrics&gt;&lt;technology&gt;&lt;prediction&gt;&lt;technological-progress&gt;" AnswerCount="2" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19763" PostTypeId="1" AcceptedAnswerId="26642" CreationDate="2017-12-19T14:02:35.273" Score="7" ViewCount="181" Body="&lt;p&gt;Reducing food wastage should in theory reduce demand for food, thereby driving food prices down. However, there are a lot more factors involved here (for example, the reduction in price of a product x due to lesser wastage in region A may not actually lead to lesser prices in region B because transportation costs may fully offset the price decrease). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Has there been a study that quantitatively links food wastage and food prices?&lt;/p&gt;&#xA;" OwnerUserId="6486" LastEditorUserId="6486" LastEditDate="2018-08-09T15:26:02.050" LastActivityDate="2019-01-28T17:33:43.797" Title="Is there a proven, quantitative link between food wastage and food prices?" Tags="&lt;agriculture&gt;" AnswerCount="2" CommentCount="3" FavoriteCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="19764" PostTypeId="1" AcceptedAnswerId="19787" CreationDate="2017-12-19T14:53:49.220" Score="2" ViewCount="476" Body="&lt;p&gt;I apologize if this question is very basic. I have the following plain vanilla Instrumental Variable model. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$Y=\alpha+X\beta+\varepsilon$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$X=\delta+Z\gamma+\eta$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\varepsilon\perp\eta,\quad Z\perp\eta \quad$ true&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am interested in testing $\varepsilon\perp X$, that is, whether X is a valid instrument for the first equation (very informally stated, one might say I want to test whether $X$ is exogenous, or whether I need to instrument $X$ with $Z$)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My idea is: estimate the IV model using 2SLS or GMM, using both $X$ and $Z$ as instruments, and then perform a Sargan/Hansen test. My guess is that the test's power will depend on how strongly $Z$ predictx $X$ (that is, on how relevant of an instrument $Z$ is for $X$). In 2SLS, the first stage will fit perfectly and the test will be basically a test of whether the OLS residual are orthogonal to $Z$. Is this reasoning correct? Is the Sargan/Hansen test a valid test for $&#xA;\varepsilon\perp X$?&lt;/p&gt;&#xA;" OwnerUserId="15658" LastEditorUserId="15658" LastEditDate="2017-12-20T09:11:18.033" LastActivityDate="2018-01-26T02:51:32.297" Title="Testing for Endogeneity" Tags="&lt;econometrics&gt;&lt;regression&gt;&lt;instrumental-variable&gt;&lt;endogeneity&gt;" AnswerCount="2" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19765" PostTypeId="1" AcceptedAnswerId="19773" CreationDate="2017-12-19T20:30:40.137" Score="2" ViewCount="161" Body="&lt;p&gt;This is a &lt;strong&gt;very&lt;/strong&gt; basic question. I can understand that price of goods and stocks change follows the supply and demand law. On the other hand, I find it difficult to understand what happens in the real world.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I want to buy a particular stock I can buy it at the daily price and I can sell it at the daily price. I can't choose to sell it at a higher price as I would do if I had the only orange in the world and 1 million people wanted that orange.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Who has the ability to start selling a specific stock at a different price? Who initiate the change in price if the demand goes down? Has anyone a practical simple example for me?&lt;/p&gt;&#xA;" OwnerUserId="15661" LastActivityDate="2017-12-25T17:15:39.297" Title="What lies behind supply and demand model?" Tags="&lt;supply-and-demand&gt;&lt;stock-market&gt;" AnswerCount="1" CommentCount="4" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19766" PostTypeId="2" ParentId="19565" CreationDate="2017-12-19T20:41:18.153" Score="1" Body="&lt;p&gt;a bit late to the party, but:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;While shareholders are traditionally considered owners, whether this is legally true is a matter of dispute&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As Cornell Law professor Lynn Stout writes in The Shareholder Value Myth:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://scholarship.law.cornell.edu/cgi/viewcontent.cgi?article=2311&amp;amp;context=facpub&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://scholarship.law.cornell.edu/cgi/viewcontent.cgi?article=2311&amp;amp;context=facpub&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Although laymen sometimes have difficulty understanding the point, corporations are legal entities that own themselves, just as human entities own themselves. What shareholders own are shares, a type of contact between the shareholder and the legal entity that gives shareholders limited legal&#xA;  rights. In this regard, shareholders stand on equal footing with the corporation’s bondholders, suppliers, and employees, all of whom also enter contracts with the firm that give them limited legal rights.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;And as Harvard business professor Jay Lorsch writes:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://hbr.org/2012/07/what-good-are-shareholders&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://hbr.org/2012/07/what-good-are-shareholders&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In legal terms, shareholders don’t own the corporation (they own securities that give them a less-than-well-defined claim on its earnings)...&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;But remember, shareholders aren’t quite the same as owners. A simple&#xA;  illustration: If you own a car, you’re liable for damages in an&#xA;  accident even if they exceed the value of the car. But shareholders&#xA;  are on the hook only for what they’ve invested. And although some&#xA;  shareholders behave much like owners, most of them are effectively&#xA;  renters&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;For more, see the works of Stephen Bainbridge or Kent Greenfield, or The Fundamental Rights of the Shareholder by Julian Velasco, which gives a good summary of the debate and shareholders' legal status:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://lawreview.law.ucdavis.edu/issues/40/2/articles/davisvol40no2_velasco.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://lawreview.law.ucdavis.edu/issues/40/2/articles/davisvol40no2_velasco.pdf&lt;/a&gt; (see section IV)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Shareholder primacy ideology is bad for the economy&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So when you write:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The more I look at the shareholder system in modern capitalism, the more it starts to appear as nothing more then an otherwise meaningless system that allows rich people to profit off others work while providing nothing and holding no liabilities.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;There are a lot of very smart and very well-informed people who believe that this is not too far off, and that our financial system is practically designed to cause inequality and wealth extraction.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here are some interesting papers with some choice quotes:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://hbr.org/2014/09/profits-without-prosperity&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://hbr.org/2014/09/profits-without-prosperity&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Corporate profitability is not translating into widespread economic prosperity...The allocation of corporate profits to stock buybacks deserves much of the blame. Consider the 449 companies in the S&amp;amp;P 500 index that were publicly listed from 2003 through 2012. During that period those companies used 54% of their earnings—a total of $2.4 trillion—to buy back their own stock, almost all through purchases on the open market. Dividends absorbed an additional 37% of their earnings. That left very little for investments in productive capabilities or higher incomes for employees...&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;the amount of stock taken out of the market has exceeded the amount issued in almost every year; from 2004 through 2013 this net withdrawal averaged $316 billion a year. In aggregate, the stock market is not functioning as a source of funds for corporate investment...&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;from 2003 through 2012, Pfizer funneled an amount equal to 71% of its profits into buybacks, and an amount equal to 75% of its profits into dividends. In other words, it spent more on buybacks and dividends than it earned and tapped its capital reserves to help fund them. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://hbr.org/2014/06/the-price-of-wall-streets-power&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://hbr.org/2014/06/the-price-of-wall-streets-power&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Scholars and executives alike have criticized Wall Street not only for promoting short-term thinking but for sacrificing the interests of employees and customers to benefit shareholders...&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;One of the most important—and most dangerous—is when a single sector or group is so powerful that it dominates how an entire society thinks about itself. Once you view research from a variety of fields through that lens, it becomes clear that we must do something to curb the enormous and disproportionate power of Wall Street.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2993978&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2993978&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;By legitimizing massive distributions of corporate cash to shareholders, MSV directly undermines the building of the organizational capabilities that are the essence of innovative enterprise.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://cepr.net/documents/publications/private-equity-2012-02.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://cepr.net/documents/publications/private-equity-2012-02.pdf&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;...regulatory changes that are needed to curb the destructive&#xA;  outcomes associated with some types of private equity activity&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.huffingtonpost.com/dean-baker/finance-in-america-promot_b_5628729.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.huffingtonpost.com/dean-baker/finance-in-america-promot_b_5628729.html&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The bloated financial sector in the United States is a major engine of inequality sucking money away from poor and middle-income households and making folks like Lloyd Blankfein, Jamie Dimon, and Robert Rubin incredibly rich.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;(okay, a Huffington Post article isn't an academic paper, but just about everything Dean Baker writes is gold, such as: &lt;a href=&quot;http://cepr.net/documents/working-paper-upward-distribution-income-rents.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://cepr.net/documents/working-paper-upward-distribution-income-rents.pdf&lt;/a&gt;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT: not sure why I'm getting downvoted. I (1) provided two reputable sources arguing that the accepted answer is incorrect (don't have enough rep to comment), and (2) giving a broad answer to a broad question, I explained that the OP's concerns about inequity are completely justified and provided reliable and rigorous reading material if they should want to learn more&lt;/p&gt;&#xA;" OwnerUserId="15663" LastEditorUserId="15663" LastEditDate="2017-12-27T18:57:38.340" LastActivityDate="2017-12-27T18:57:38.340" CommentCount="10" ContentLicense="CC BY-SA 3.0" />
  <row Id="19767" PostTypeId="2" ParentId="19565" CreationDate="2017-12-19T21:14:27.773" Score="0" Body="&lt;p&gt;Risk is important. A bond (or even a credit) is backed up by the company's assets. Companies go bankrupt because of a mismatch between assets and liabilities maturities (e.g. cannot pay a bond of a loan), but not because they are unsustainable in the long run. If a company goes bankrupt, debtholders are the first on the list (after workers, in some countries) to receive compensation. Sometimes they do assume losses, when the debt is negotiated at a lower value. The shareholder is the last one to get any money out of the assets of the company. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So being a shareholder is more risky than being a bondholder.  &lt;/p&gt;&#xA;" OwnerUserId="15121" LastActivityDate="2017-12-19T21:14:27.773" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19769" PostTypeId="2" ParentId="19740" CreationDate="2017-12-19T22:41:26.303" Score="1" Body="&lt;p&gt;The situation in Greece is complicated because it is part of the euro area, and NATO. It would presumably receive external aid.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But if you want a historical example, you could look at the tail end of the Depression in the 1930s. Although debt levels were not high by modern standards, governments had difficulty because of the Gold Standard. As countries moved to build up their militaries, they broke their pegs to gold. This gave them the ability to run large deficits to pay for the military spending.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Eichengreen’s “Golden Fetters” gives an overview of that era.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(The problem Greece faces that it is locked into an exchange rate system,like the Gold Standard, but it is even harder to get out of.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In summary, the usual response is to break any existing currency pegs, default on foreign currency debt, and use deficit finance (and inflation) to handle the emergency.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2017-12-19T22:41:26.303" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19770" PostTypeId="2" ParentId="19718" CreationDate="2017-12-19T23:05:28.540" Score="1" Body="&lt;p&gt;The answer to this question is complicated because the way the Fed operates has changed over time. In particular, Quantitative Easing (QE) changed things a lot.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Firstly, the Fed largely controls the Fed Funds rate, which is an overnight inter-bank rate. Other interest rates are set as a spread to that rate, but are not directly controlled by the Fed. Instead, those rates are generally set by what market participants expect the Fed to do.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Secondly, we need to be careful about what “money supply” you are talking about. The Fed directly operates on the monetary base, since that roughly corresponds to the size of its balance sheet. Other monetary aggregates include other instruments that the Fed cannot directly control.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the pre-QE era, the Fed could control interest rates by creating/destroying bank reserves - a major component of the monetary base. Banks lend reserves to eachother in the Fed Funds market. If there is a shortage of reserves, banks will bid up the cost of reserves - the Fed Funds rate. The Fed creates reserves by buying bonds (or lending against them),and withdraws reserves by selling them. They need to conduct operations to keep interest rates near target.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, the Fed is effectively forced to supply whatever reserves are needed by the banking system, otherwise they will fail their reserves requirements. Central bankers started listening to Monetarists in the 1970s, and tried setting their interest rate target so that money growth would hit a target rate. However, since they did not publicly acknowledge that they had a target interest rate, it appeared that they were targeting the money supply.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the post-QE era, there is an excess of reserves in the system, so there is no issue of banks being short. Interest rates are instead determined by the level of interest paid on reserves, which can evolve completely independently of monetary aggregates.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2017-12-19T23:05:28.540" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19771" PostTypeId="2" ParentId="19724" CreationDate="2017-12-19T23:15:50.053" Score="1" Body="&lt;p&gt;We need to keep two things seperate: the unit of account, and instruments.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The unit of account is a currency unit, like the U.S. dollar. When the price level (e.g., CPI) rises, the cost of goods measured in that unit of account rises.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We then have monetary instruments, like $20 bills, or bank accounts. Their value in the unit of account are unchanged. Therefore, they drop in value versus goods and services (as expected).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The prices of stocks and bonds may go up or down, for any number of reasons. Like other things, their value is measured in the unit of account. Therefore, it is unclear what relationship there will be between the price level change and financial asset prices. For example, CPI inflation has been close to a 2% annual rate since the Financial Crisis, and stock indices have generally risen much faster than that.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for interest rates, the relationship is: bond price up, yield down (and vice versa). &lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2017-12-19T23:15:50.053" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19772" PostTypeId="2" ParentId="19747" CreationDate="2017-12-19T23:23:52.490" Score="1" Body="&lt;p&gt;I looked at “Monetary Economics: Theory and Policy” by Bennett T. McCallum. On page 95, he describes what he refers to as “the Classical Model”, where the money supply is set outside the model (exogenous). In the Classical Model, if the money supply is changed, nominal values in equilibrium change, but ratios like wage/prices and real values do not. (The implication being that nominal GDP changes proportionally to the money supply, but real GDP is fixed.) He describes this as money neutrality, and it matches the description in the question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I do not know how money neutrality can be defined for models where the money supply is determined within the model (endogenous).&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2017-12-19T23:23:52.490" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19773" PostTypeId="2" ParentId="19765" CreationDate="2017-12-19T23:44:50.170" Score="4" Body="&lt;p&gt;The “law of supply and demand” is a feature of economic models with supply and demand curves. These are usually mainstream equilibrium models. It is somewhat difficult to relate these models to real world behaviour. I am in a theoretical camp that is critical of such models; perhaps someone else can give a better account.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for your questions about stock prices, you probably would need to look at the mechanics of stock trading. Investors post prices at which they are willing to buy or sell, and then others will transact at those prices. (In some cases, market makers are the ones posting the price.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Those participants can change their posted prices whenever they want, typically in response to news. The prices can move without a single share trading hands. This can be interpreted as a shift in the supply or demand curve.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If someone has a big order to buy or sell, they can clear out the first set of posted prices, and transact against other orders. This will result in a price change. For example, assume there are orders to buy 100 shares at \$10 and \$5. An order to sell 200 shares would first clear the best bid (\$10) and then hit the next bid (\$5). In this way, big orders can change prices.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A longer version of this example.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;There are no existing orders for shares in a company.&lt;/li&gt;&#xA;&lt;li&gt;Investor A puts in a bid to buy 100 shares for \$5. The best bid (highest bid) is now \$5.&lt;/li&gt;&#xA;&lt;li&gt;Investor B puts in an order to buy 100 shares for \$10. The best bid is now \$10. The bid price solely as the result of the new order; there was no transaction that moved the price.&lt;/li&gt;&#xA;&lt;li&gt;Investor C wants to sell, and puts in an order to sell 200 shares. The first 100 shares clears B’s bid at \$10, and the second 100 clears A’s bid at \$5. The prices at which transactions happened was the result of an order clearing out the existing order.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="12891" LastEditorUserId="12891" LastEditDate="2017-12-25T17:15:39.297" LastActivityDate="2017-12-25T17:15:39.297" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="19774" PostTypeId="1" CreationDate="2017-12-20T00:05:00.277" Score="9" ViewCount="1996" Body="&lt;p&gt;Counterfeiting money is clearly a difficult thing for individuals, but surely a country should have no problems counterfeiting another country's currency. Why don't countries do it? For example, for the US to exert pressure on North Korea (or vice versa), it could conceivably print lots of North Korean Won and use that to cause hyperinflation in North Korea. Similarly for Greece to dig itself out of its debt crisis it could just print USD or any other major currency, and convert that into Euros.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My best guess is that this isn't done because it's an act of war, but countries are apparently willing to sling cyberweapons at each other, in which case I don't understand why they don't also do this, at least on a small scale.&lt;/p&gt;&#xA;" OwnerUserId="15607" LastActivityDate="2020-02-04T09:47:44.183" Title="Why can't countries print another country's currency?" Tags="&lt;macroeconomics&gt;&lt;monetary-policy&gt;" AnswerCount="3" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19775" PostTypeId="1" CreationDate="2017-12-20T06:48:55.540" Score="-1" ViewCount="101" Body="&lt;p&gt;I have indicated my understanding and problem on the attached image below. I'm a bit confused on the impact of inflation on stock price. As increase in inflation would cause nominal interest rate to increase and also may cause firms' nominal profit and dividend to increase, does this mean that the nominal stock price will not change due to inflation change? Then it contradicts with with item one in the image? Or does it mean that both are separate view and cannot be combine together? On the other hand, if i consider the decrease in real interest rate, will real stock price decrease or increase?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another question is that, when analyzing the impact of inflation on stock price, or when scholars formulate theory,  real stock price or nominal stock price will usually be used for explanation?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would appreciate it if anyone could explain this , or point out to me if there's anything wrong on my analysis.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/fB0ya.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/fB0ya.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="15671" LastEditorUserId="15671" LastEditDate="2017-12-20T07:04:15.143" LastActivityDate="2018-02-19T17:17:13.533" Title="Inflation and stock price" Tags="&lt;inflation&gt;&lt;money-supply&gt;&lt;stock-market&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19776" PostTypeId="1" CreationDate="2017-12-20T08:22:33.277" Score="2" ViewCount="55" Body="&lt;p&gt;I know that the conventional explanation linking fall in cost of production and rise in supply is that a fall in cost of production of A means that it is more profitable to produce A. Thus, suppliers will be incentivised to produce more of A, hence rise in supply of A. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is - why should suppliers even want to produce more? Can't they just enjoy the higher profits attained automatically through the fall in COP? What exactly is the explanation for them wanting to produce more? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is the missing link in many explanations I see and I hope to clarify this, thanks!&lt;/p&gt;&#xA;" OwnerUserId="11353" LastEditorUserId="11353" LastEditDate="2017-12-20T08:38:50.023" LastActivityDate="2017-12-21T09:57:15.380" Title="Supply and Demand: Why should lower costs lead to a rise in supply?" Tags="&lt;microeconomics&gt;&lt;supply-and-demand&gt;" AnswerCount="1" CommentCount="7" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19777" PostTypeId="1" CreationDate="2017-12-20T08:36:27.393" Score="0" ViewCount="444" Body="&lt;p&gt;This is my understanding:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Fisher effect posits that expected nominal returns on any asset would move one-for-one with expected inflation. That is, when expected inflation increase, the nominal return on stock would also increase, is this correct? Besides, based on the theory, inflation would also cause nominal interest rate (the rate which dividend is discounted to the present to obtain stock price -Present Value Model) to increase, which would decrease stock price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My problem:&#xA;The two conclusion above contradicts and I'm confused. Can anyone point the mistake of my thoughts? or PVM and fisher effect cannot be viewed together?&lt;/p&gt;&#xA;" OwnerUserId="15671" LastEditorUserId="15671" LastEditDate="2017-12-21T02:19:08.770" LastActivityDate="2018-03-22T09:01:59.170" Title="Fisher Effect - inflation and stock return" Tags="&lt;macroeconomics&gt;&lt;inflation&gt;&lt;interest-rate&gt;&lt;stock-market&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19778" PostTypeId="2" ParentId="19774" CreationDate="2017-12-20T09:07:42.807" Score="9" Body="&lt;p&gt;Why assuming that it isn't done in the first place? Turns out, it was actually done by Nazis in WWII&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Operation_Bernhard&quot; rel=&quot;noreferrer&quot;&gt;https://en.wikipedia.org/wiki/Operation_Bernhard&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, suppose that somebody actually made dollars that are indistinguishable from genuine, Fed-printed dollars. How would you find out in the first place? How sure are you that nobody is doing it? :)&lt;/p&gt;&#xA;" OwnerUserId="15658" LastActivityDate="2017-12-20T09:07:42.807" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19779" PostTypeId="1" AcceptedAnswerId="19783" CreationDate="2017-12-20T09:55:03.343" Score="3" ViewCount="617" Body="&lt;p&gt;A lot of controversy in economics on the political stage comes from trickle down economics and whether it even works or not. The idea is that if we give sufficient tax cuts to corporations, they'll use that money to expand and create more jobs and just overall bettering the economy for everyone. My question is, why can't that work the other way around? If you give the working class just as much in tax cuts, they'll eventually spend that money to where it does end up at an American corporation. And in my opinion, this way is more capitalist, because the consumers decide what businesses get what percentage of their tax cut, instead of just multiplying the corporation's wealth. &lt;/p&gt;&#xA;" OwnerUserId="15673" LastEditorUserId="59" LastEditDate="2021-04-08T17:59:52.433" LastActivityDate="2021-04-08T17:59:52.433" Title="If Trickle Down Economics Works, Then Shouldn't &quot;Trickle Up&quot; Economics Work as Well?" Tags="&lt;macroeconomics&gt;&lt;taxation&gt;&lt;nonexpert&gt;" AnswerCount="5" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="19780" PostTypeId="1" AcceptedAnswerId="19786" CreationDate="2017-12-20T10:44:38.320" Score="1" ViewCount="72" Body="&lt;p&gt;I have studied the development of the difference in unemployment and the difference in the growth of real GDP in the Netherlands over the years 1963-2016. &lt;a href=&quot;https://i.stack.imgur.com/TRm8E.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/TRm8E.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From the picture it seems like a change in unemployment has a positive effect/predicts a change in GDP growth. How is this possible? Has this to do with the fact that unemployment is a lagging variable?  &lt;/p&gt;&#xA;" OwnerUserId="14636" LastActivityDate="2017-12-21T03:59:15.467" Title="Relation $\Delta Unemployment$ and $\Delta GDPgrowth$" Tags="&lt;gdp&gt;&lt;time-series&gt;&lt;unemployment&gt;" AnswerCount="2" CommentCount="4" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19781" PostTypeId="2" ParentId="19780" CreationDate="2017-12-20T11:27:17.713" Score="0" Body="&lt;p&gt;GDP might be thought of as a product of several factors:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Labour productivity (gross value added per hour worked)&lt;/li&gt;&#xA;&lt;li&gt;Working time (hours worked each year per worker)&lt;/li&gt;&#xA;&lt;li&gt;Employment rate (proportion of working-age population in work) &lt;/li&gt;&#xA;&lt;li&gt;Age demographics (working-age proportion of population)&lt;/li&gt;&#xA;&lt;li&gt;Total population&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;If you have $E$ working-age people in employment, $U$ unemployed but looking for work and $I$ inactive so neither working nor looking for work, then the employment rate $\frac{E}{E+U+I}$ and unemployment rate $\frac{U}{E+U}$ are related and tend to move in opposite directions&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So if other things remain equal (which they do not), an increase in the unemployment rate can be associated with a reduction in the employment rate and a reduction in GDP, and similarly in the opposite direction.  This says nothing about causality either way&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The point about unemployment being a lagging indicator is that, in some business cycles, employers may sometimes respond to immediate reductions in demand by reducing working time or productivity before they move to dismissing workers, as they do not yet know whether the demand reduction is short-term or medium-term and they want to be able to respond to any quick recovery. This would be an example of other things not remaining equal  &lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2017-12-20T11:27:17.713" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19782" PostTypeId="2" ParentId="19779" CreationDate="2017-12-20T14:29:55.747" Score="5" Body="&lt;p&gt;As you learn more about economics you should gradually come to distinguish the vocabulary of economics from that of politics (which is also not the same as political science). When politicians or political activists speak, they use a variety of terms that are very vaguely defined, and sometimes outright derogatory. They are not actually meant to convey exact economic concepts or ideas, but more like feelings. &quot;Trickle down economics&quot; is an example. &quot;Neo-liberism&quot; is another example. You won't find any formally trained economists discussing &quot;trickle down economics&quot; or &quot;neo-liberist&quot; policies simply because these are not properly defined concepts, i.e. they don't really mean anything specific. In order to discuss productively with economists and generally any scholar from a discipline that is based on the scientific method (biology, physics, statistics, etc.), it is important to acquire the right vocabulary. The dictionary or an encyclopedia is usually a good place to start.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;P.S. it is not a coincidence that controversy tends to stir around topics that are not discussed in scientific terms - it is difficult for people to agree on ideas if they can't articulate them :)&lt;/p&gt;&#xA;" OwnerUserId="15658" LastActivityDate="2017-12-20T14:29:55.747" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19783" PostTypeId="2" ParentId="19779" CreationDate="2017-12-20T16:31:21.630" Score="3" Body="&lt;p&gt;In Keynesian economics, yes, it can work the other way around - in fact, it may even be more effective. I don't have any textbooks or sources handy, but in general, people with lower incomes have a higher marginal propensity to consume. That is, if you give a poor person an extra dollar, they will spend more of that dollar, and save less of it, than someone who is wealthier. Since more of the additional money is spent, the tax cut will have more of a stimulative effect on the economy. In Keynesian terms, the fiscal multiplier will be larger.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here are some links that go over this in more detail. And if you really want to understand it, any decent macroeconomics textbook should cover this pretty thoroughly.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.investopedia.com/exam-guide/cfa-level-1/macroeconomics/multiplier-effect.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.investopedia.com/exam-guide/cfa-level-1/macroeconomics/multiplier-effect.asp&lt;/a&gt;&#xA;&lt;a href=&quot;https://en.wikipedia.org/wiki/Marginal_propensity_to_consume#MPC_and_the_multiplier&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://en.wikipedia.org/wiki/Marginal_propensity_to_consume#MPC_and_the_multiplier&lt;/a&gt;&#xA;&lt;a href=&quot;https://en.wikipedia.org/wiki/Fiscal_multiplier#Marginal_Propensity_to_Consume&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://en.wikipedia.org/wiki/Fiscal_multiplier#Marginal_Propensity_to_Consume&lt;/a&gt;&#xA;&lt;a href=&quot;https://scandalum.wordpress.com/2007/10/17/10-the-marginal-propensity-to-consume-and-the-multiplier/&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://scandalum.wordpress.com/2007/10/17/10-the-marginal-propensity-to-consume-and-the-multiplier/&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="15663" LastActivityDate="2017-12-20T16:31:21.630" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="19785" PostTypeId="2" ParentId="19779" CreationDate="2017-12-20T22:16:32.777" Score="3" Body="&lt;p&gt;The overall effect of reducing tax on a factor of production (or its owner) will depend on at least two things:&lt;/p&gt;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;The change in the quantity of the factor used in production&#xA;in response to the increase in the post-tax factor return.&lt;/li&gt;&#xA;&lt;li&gt;The use of the extra disposable income resulting from the tax cut.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&lt;p&gt;The answer by @krock addresses 2.  I would just add that whether a tax cut (for corporations or labour) will have a Keynesian type stimulative effect on an economy depends on conditions.  It will not have such an effect if the economy is already at full capacity, or if a restrictive monetary policy offsets the effect of the fiscal stimulus.&lt;/p&gt;&#xA;&lt;p&gt;Focusing now on 1, an increase in the post-tax return to capital is likely, &lt;em&gt;ceteris paribus&lt;/em&gt;, to result over time in an increase in the quantity of capital.  This is partly because it will encourage savers, seeking the best return subject to prudent diversification, to invest more in productive capital rather than other assets such as housing or government securities.  To the extent that financial capital is internationally mobile, it will also encourage more of the investment in productive capital to be in &lt;em&gt;domestic&lt;/em&gt; rather than foreign capital.  The effect of increasing the quantity of productive capital in the economy, assuming a constant labour supply and assuming a Cobb-Douglas or similar production function, will be to raise the marginal product of labour and therefore (to the extent that the marginal productivity theory of distribution is valid) to raise wages (which could loosely be described as “trickle down”).  A mathematical treatment of this process is in &lt;a href=&quot;http://gregmankiw.blogspot.co.uk/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Greg Mankiw’s blog&lt;/a&gt; (October 18th 2017).&lt;/p&gt;&#xA;&lt;p&gt;The effect of an increase in the post-tax return to labour, on the other hand, is hard to predict. It raises the opportunity cost of leisure time, which could lead some (if they have a choice) to work more hours (a substitution effect).  If, in aggregate, hours worked were to increase, then (adapting the above reasoning) the marginal product of capital and therefore the return on capital would increase (which could loosely be described as “trickle up”).  However, an increase in the post-tax return to labour would also mean  that a desired level of income can be achieved from fewer working hours, which could lead some to reduce their hours (an income effect).  There is evidence that the income and substitution effects often approximately offset each other, so that changes in returns to labour have little effect on hours worked (see for example &lt;a href=&quot;https://www.nber.org/system/files/working_papers/w14208/w14208.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Kimball &amp;amp; Shapiro 2008&lt;/a&gt;, especially pp 3-4)&lt;/p&gt;&#xA;&lt;p&gt;Thus there is a key difference between the responses of capital and labour to an increase in post-tax return.  There is no equivalent, for capital, of the fact that a worker only has 24 hours in a day and derives utility from the non-working  part of the day.  Because of this, the response of capital to a tax cut is more predictable than that of labour and (loosely again) “trickle down” may be less dependent on circumstances than “trickle up”.&lt;/p&gt;&#xA;" OwnerUserId="1417" LastEditorUserId="1417" LastEditDate="2021-04-08T17:59:14.410" LastActivityDate="2021-04-08T17:59:14.410" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="19786" PostTypeId="2" ParentId="19780" CreationDate="2017-12-21T03:59:15.467" Score="1" Body="&lt;p&gt;Well it seems like you are observing somthing consistent with  &lt;a href=&quot;https://en.wikipedia.org/wiki/Okun%27s_law&quot; rel=&quot;nofollow noreferrer&quot;&gt;Okun's Law&lt;/a&gt; which reveals empirically negative relationship between Unemployment and GDP.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As &lt;a href=&quot;https://www.researchgate.net/profile/Donald_Freeman&quot; rel=&quot;nofollow noreferrer&quot;&gt;Donald Freeman&lt;/a&gt; states in the conclusion to his paper titled paper &lt;a href=&quot;https://www.researchgate.net/profile/Donald_Freeman/publication/225116273_Regional_tests_of_Okun%27s_law/links/00b4952924dbedfc2c000000.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;Regional tests of Okun's law&lt;/em&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Okun's law is one of the more enduring stylistic facts of U.S. macroeconomics, having&#xA;  withstood numerous tests in the almost four decades since it was first promulgated by&#xA;  Arthur Okun.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2017-12-21T03:59:15.467" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="19787" PostTypeId="2" ParentId="19764" CreationDate="2017-12-21T05:03:16.040" Score="1" Body="&lt;p&gt;(i) I think your idea makes sense. Under the null, $[X,Z]$ is orthogonal to $\varepsilon$. Under the alternative, $X$ is correlated with $\varepsilon$. (ii) Your statement that it's &quot;basically a test of whether the OLS residual are orthogonal to $Z$&quot; is exactly what I think. (iii) Your thought about the power depending on the relevance of $Z$ also makes sense. If $Z$ is irrelevant, then the moment restrictions $E[Z_i' (y_i - \alpha - X_i \beta)] = 0$ hold for any $\beta$ (due to the uncorrelatedness of $Z_i$ and $X_i$) so the OLS residuals should appear to be uncorrelated with the instruments although the OLS estimator is inconsistent. I think this test is closely related with standard methods explained below, although I have not done any derivation in this regard.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(iv) As you would be aware, there are textbook methods to test endogeneity. Stata implements some. See &lt;code&gt;help ivregress postestimation&lt;/code&gt;. You will see &lt;code&gt;estat endogenous&lt;/code&gt; there. There, for the 2SLS estimation, OLS and 2SLS can be compared; or $y$ is regressed on $[X,\hat{\eta}]$, after which the statistical significance of $\hat\eta$ is tested.&lt;/p&gt;&#xA;" OwnerUserId="10775" LastActivityDate="2017-12-21T05:03:16.040" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="19788" PostTypeId="1" CreationDate="2017-12-21T07:02:30.537" Score="0" ViewCount="60" Body="&lt;p&gt;Economics books often quotes &lt;em&gt;import as a borrowing&lt;/em&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why it is borrowing since the importer pays to exporter for the goods they have received. Lets say, a US company is importing apparel from China. &lt;/p&gt;&#xA;" OwnerUserId="15681" LastActivityDate="2017-12-21T14:51:08.803" Title="Why U.S Import from China is a big deal?" Tags="&lt;macroeconomics&gt;&lt;international-trade&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19789" PostTypeId="1" AcceptedAnswerId="19795" CreationDate="2017-12-21T08:55:45.653" Score="1" ViewCount="77" Body="&lt;p&gt;From what I gather, price fixing works by getting all the relevant actors in a certain economic sector to agree to fix the price of the goods they sell at a certain, higher-than-normal price, so that the consumer is forced to buy overpriced goods.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is: how does this even work in real life? If the goods are overpriced, what stops a new seller from offering his/her goods at the real (lower) price, rendering the price fixers unable to profit from their scheme?&lt;/p&gt;&#xA;" OwnerUserId="15684" LastActivityDate="2017-12-21T14:06:02.077" Title="How does price fixing work if it requires an almost universal agreement?" Tags="&lt;price&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19790" PostTypeId="2" ParentId="19776" CreationDate="2017-12-21T09:57:15.380" Score="2" Body="&lt;p&gt;You can think about this using the basic theory of the firm that we teach in principles courses, such as &lt;a href=&quot;https://friedmanseconomy.files.wordpress.com/2013/02/monopoly-abnormal-profit.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;this one&lt;/a&gt;.  The specifics of the graph will change depending on the assumptions of the market it represents (perfect competition, monopoly, etc), but the story should be the same.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In brief, each individual firm makes a production decision so that marginal cost (MC) equals marginal revenue (MR), where &quot;marginal&quot; means the next unit of production.  &lt;strong&gt;Keep in mind that a firm is always trying to maximize its profits.&lt;/strong&gt;  Therefore, if &lt;strong&gt;MC &gt; MR&lt;/strong&gt; (the cost of the next unit of production exceeds the revenue of the next unit of production), it means the firm could increase those profits by producing one unit less.  If &lt;strong&gt;MC &amp;lt; MR&lt;/strong&gt;, then they could increase profits by producing one unit more.  &lt;em&gt;Only when &lt;strong&gt;MC = MR&lt;/strong&gt; can the firm no longer increase its profits by changing the quantity it produces.&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If anything happens in the market to lower production costs, it means the firm's old production decision leaves them with MC &amp;lt; MR, and thus they should produce a higher quantity.  Continuing to produce the same quantity would mean they're earning lower total profit than they could be.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course there are a lot of simplifying assumptions in this model, which is why it's one taught in principles classes.  But that's the foundation of the idea you're asking about, I think.&lt;/p&gt;&#xA;" OwnerUserId="8834" LastActivityDate="2017-12-21T09:57:15.380" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="19791" PostTypeId="2" ParentId="19761" CreationDate="2017-12-21T10:20:54.977" Score="3" Body="&lt;p&gt;I'm an economist by training who also is a programmer and works with a lot of data scientists, so I've some insight into this area.  One of my projects at the Urban Institute is trying to bridge the gap between these fields, and part of our work, supported by the Sloan Foundation, is &lt;a href=&quot;https://urbaninstitute.github.io/spark-social-science-manual/&quot; rel=&quot;nofollow noreferrer&quot;&gt;publicly available here.&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To some degree the answer is yes, but there are huge obstacles as well.  Some are surmountable with work, like differences in terminology, programming platforms (knowledge of SAS or Stata versus R or Python) and conventions (do others in your field understand and/or accept the results of machine learning models?).  Others are much more difficult to surmount, such as the size of data available.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Essentially, the fields that make extensive use of AI and machine learning have huge amounts of data.  They can afford to, say, set aside a million observations for training the model and then test the model on the other nine million.  Economists, and social scientists in general, however, are often lucky if they have 100 observations.  Many macroeconomic variables are annual, or quarterly.  Some are monthly, which means if you can get 30 years of observations then you've got 360 time periods!  Data-rich by social science standards, but not even a rounding error in many data science models.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That said, computing power and sophisticated data collection are making it more and more feasible to approach social science questions with big data.  Social media is a major area that social scientists are just beginning to reach into.  However, some areas of economics will likely remain closed off to data science methods due to the nature of the data.  Your fiscal stimulus example might very well be one - the relevant data just isn't produced that fast.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;So the answer to your question is yes, with reservations and a hope for the future.&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="8834" LastEditorUserId="8834" LastEditDate="2017-12-21T10:26:50.810" LastActivityDate="2017-12-21T10:26:50.810" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19792" PostTypeId="2" ParentId="19745" CreationDate="2017-12-21T10:22:00.080" Score="3" Body="&lt;p&gt;High poverty rates are generally a result of two factors&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A) Low per capita income (GDP / capita)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;B) High inequality (frequently measured as the Gini coefficient)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are multiple potential reasons for any country's income level and degree of inequality (not just for Mexico's). Moreover, one can decompose your question into two.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) What makes some countries (in general) richer than others?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) Is Mexico poorer because of some Mexico-specific factors?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The answer to the first question is kind of the Holy Grail of empirical economics, and if any single economist had been able to answer that he would have definitely won a Nobel prize. The consensus view is that there are different factors contributing to cross-country differences in income. Literacy and education, which you mentioned (and which fit into the economists' definition of Human Capital) are mostly likely a key factor. However, another one which appears to be particularly important to Mexico's case is the quality of a country's economic and political institutions. See below a highly recommended reading from an economist who's likely to win a Nobel for growth theory, which in his very readable book frequently uses Mexico as a case-in-point for his theory.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://whynationsfail.com/blog/2013/10/29/what-are-institutions.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://whynationsfail.com/blog/2013/10/29/what-are-institutions.html&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="15658" LastActivityDate="2017-12-21T10:22:00.080" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19793" PostTypeId="1" AcceptedAnswerId="19804" CreationDate="2017-12-21T11:32:37.213" Score="3" ViewCount="3112" Body="&lt;p&gt;In order for a DSGE model to have a unique solution, it is required to satisfy the Blanchard Kahn conditions. However, these conditions seem very abstract to me. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Is there an intuition behind the blanchard kahn conditions? Why does a DSGE model have a unique solution iff the number of unstable eigenvalues at the linearized steady state is equal to the number of control variables?&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="11146" LastActivityDate="2019-05-19T04:55:18.613" Title="intuition behind the blanchard kahn conditions?" Tags="&lt;mathematical-economics&gt;&lt;dsge&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19794" PostTypeId="1" AcceptedAnswerId="19803" CreationDate="2017-12-21T12:31:14.057" Score="1" ViewCount="141" Body="&lt;p&gt;Can one forecast $\Delta Unemployment$ and $\Delta Inflation$ using a VAR model based on Okun's law?&lt;/p&gt;&#xA;" OwnerUserId="14636" LastEditorUserId="8815" LastEditDate="2017-12-21T21:32:57.930" LastActivityDate="2017-12-21T21:32:57.930" Title="Can Okun's Law be used for forecasting?" Tags="&lt;inflation&gt;&lt;unemployment&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19795" PostTypeId="2" ParentId="19789" CreationDate="2017-12-21T12:45:05.653" Score="1" Body="&lt;p&gt;In the real world, &quot;price fixing&quot; is very difficult to accomplish.  In most industries, it would be very easy for a new seller to enter the market and offer their goods at the lower price, stealing the customers from the &quot;price fixing&quot; sellers.  For these sectors of the economy, &quot;price fixing&quot; is not an option unless the &quot;price fixing&quot; sellers can convince/coerce any entering sellers to commit to the existing fixed price.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ordinarily, &quot;price fixing&quot; occurs in industries with either a monopoly or an oligopoly.&lt;br&gt;&#xA;In a monopoly, there is only one seller.  So, they alone are able to dictate the price of the good or service.&lt;br&gt;&#xA;In an oligopoly, there are only a few sellers.  These few sellers can easily conspire with each other to elevate the price.  However, even then, there is always the danger that one of the sellers will eventually drop their prices and try to steal the consumers from the other sellers.  &lt;/p&gt;&#xA;" OwnerUserId="27" LastActivityDate="2017-12-21T12:45:05.653" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19797" PostTypeId="2" ParentId="19789" CreationDate="2017-12-21T14:06:02.077" Score="1" Body="&lt;p&gt;So you can think of this issue in a game theoretic sense. Think of a simple case where each oligopolist has two strategys; collude, or price war. Though it may be Pareto optimal (for them) to collude, there is a prisoners' dilemma-esque incentive to deviate and undercut one's competitor. Thus, even without entry, collusion may be difficult to sustain.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Naturally, price fixing and collusion interests many economists and the resulting literature is huge. &lt;/p&gt;&#xA;" OwnerDisplayName="user11305" LastActivityDate="2017-12-21T14:06:02.077" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19798" PostTypeId="2" ParentId="19788" CreationDate="2017-12-21T14:51:08.803" Score="1" Body="&lt;p&gt;You are right. There is nothing in &quot;importing&quot; which is intrinsically related to &quot;borrowing&quot;. If economics books often quotes this, it is because they make an accounting-like &lt;em&gt;shortcut&lt;/em&gt; (under assumptions of balanced public accounts) that is representative of the USA-China case. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the one hand, USA has a &lt;a href=&quot;https://www.census.gov/foreign-trade/balance/c5700.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;net negative trade balance&lt;/a&gt; with China, i.e. USA is &quot;net-importing&quot; from China.&#xA;On the other hand, the &lt;a href=&quot;https://www.thebalance.com/u-s-debt-to-china-how-much-does-it-own-3306355&quot; rel=&quot;nofollow noreferrer&quot;&gt;&quot;U.S. debt to China is $1.2 trillion as of August 2017&quot;&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The accounting-like &lt;em&gt;shortcut&lt;/em&gt; consists of saying that USA debt to China is actually used to import goods from China. This is not the factual reality, but an accounting one. The real story behind is that actually, when importing goods from another country, a U.S. private company is not doing so from a local one who would pays taxes and thus generates tax income for the U.S. government, which would in turn allows it to contract less debt and so on...&lt;/p&gt;&#xA;" OwnerUserId="10247" LastActivityDate="2017-12-21T14:51:08.803" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="19799" PostTypeId="2" ParentId="19775" CreationDate="2017-12-21T15:56:07.987" Score="0" Body="&lt;p&gt;More money supply is actually equivalent to saying &quot;cheaper debt&quot;. Cheaper debt means, more loans in the economy. More loans in the economy stimulates demands here and there, be them related to stocks, to consumption goods or to productive goods (but let's maintain the latter constant). More demands (with a constant level of supply) means increases in prices: of stocks or of consumption goods; actually all this depends on where (stimulated) demands go.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Nominal rates are price-like objects and are subject as well to augmentations (inflation), depending on companies' strategy for dealing with increases in demands, their supply-capacity, their marketing considerations and the competition intensity in the sector. Be those as they are, inflation generates a downward pressure on real rates (of return). This downward pressure may be counterbalanced if companies chose to adapt their nominal rates (prices) as well, or not. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;As increase in inflation would cause nominal interest rate to increase and also may cause firms' nominal profit and dividend to increase, [...]&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This depends on whether companies want to keep their real rates of return constant. This is not &quot;mechanic&quot;, but companies' strategy-based. If they chose to do so, i.e. to keep constant their real rates of return, this will be reflected in the &lt;em&gt;nominal&lt;/em&gt; increase of their profits (real profits will thus remain constant).&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;[...] does this mean that the nominal stock price will not change due to inflation change.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The intellectual link you are doing here is nothing but obvious nor mechanic, and it appears to reflect your confusion regarding the subject. This is possible but not for unequivocal reasons: this ultimately depends on &lt;em&gt;(i)&lt;/em&gt; where (stimulated) demands go or &lt;em&gt;(ii)&lt;/em&gt; how the &quot;market&quot; perceives (within this context of exogenous/political-based increase in money supply) the strategy of the considered company. E.g. If the market &quot;thinks&quot; that the chosen strategy is the good one, they will probably wants more of company's stocks, which in turn will &lt;em&gt;ceteris paribus&lt;/em&gt; increase their prices...&lt;/p&gt;&#xA;" OwnerUserId="10247" LastActivityDate="2017-12-21T15:56:07.987" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19800" PostTypeId="2" ParentId="19777" CreationDate="2017-12-21T16:16:02.987" Score="1" Body="&lt;p&gt;It’s simpler if you start with a bond. If the yield increases (expected return), the price goes down. Future returns are higher, but if you were holding it before the price change, you get a capital loss. Your return to maturity will still be the previous (lower) yield; the capital loss acts as a drag on the future expected returns.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we assume that the only thing that changes in the stock valuation, an increased discount rate causes a fall in price, with a higher expected return later.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, the situation for equities is more complicated. The fair value is the discounted value of future cash flows. If expected inflation is higher, why are not the cash flows also higher? Therefore, you need to model the relationship between cash flows and inflation.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2017-12-21T16:16:02.987" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19801" PostTypeId="1" AcceptedAnswerId="19962" CreationDate="2017-12-21T19:55:58.463" Score="1" ViewCount="2582" Body="&lt;p&gt;I don't understand the difference between the two. For example:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2 Shoes = 3 wood&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now Marx says that the first is the relative-form and the second is the equivalent-form. So the use-value expressed in the equivalent-form is represendet in the value of the relative-form. Why does the equivalent-form represent the use-value of the wood? Isn't it just a commodity with use-value and exchange-value? So why is the equivalent-form only the use-value of that thing?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Marx says in the simple-value form there is a contradiction because one is equating use-value and it's opposite, value.&#xA;But aren't they both commodities with use- and exchange-value? Because they already exist as commodities in the system.&#xA;Is it because the commodity is &quot;new&quot; in the market and exists only as use-value until I put it into the relationship with commodities in the market and therefore obtains value??&lt;/p&gt;&#xA;" OwnerUserId="7036" LastActivityDate="2018-02-03T13:37:26.563" Title="Marx: Relative and equivalent-form. Difference?" Tags="&lt;labor-economics&gt;&lt;marxism&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19803" PostTypeId="2" ParentId="19794" CreationDate="2017-12-21T21:31:52.350" Score="2" Body="&lt;p&gt;Well you can essentially forecast anything using a VAR/VECM framework.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you're wondering if such estimates will be accurate the answer really depends on the region, as the Okun Coefficent differs depending on where you are. (much like the &lt;a href=&quot;https://en.wikipedia.org/wiki/Gravity_of_Earth#Variation_in_gravity_and_apparent_gravity&quot; rel=&quot;nofollow noreferrer&quot;&gt;law of gravity on earth&lt;/a&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;a working paper released by the IMF titled &lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/S0169207014000466&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;Do Forecasters Beleive in Okun's Law?&lt;/em&gt;&lt;/a&gt; its conclusions were rather in favor for the use of Okun's law in forcasting.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Our results show that professional forecasters believe in Okun’s Law to a degree merited by how&#xA;  well it holds in the data. &lt;strong&gt;For all nine countries we study, the relationship between forecasts of&#xA;  changes in unemployment and changes in real GDP growth is negative, which is consistent with&#xA;  Okun’s Law.&lt;/strong&gt;...&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Its generally more accurate for short run forecasts then it is for long run. However the same counter-cyclical relationship is maintained between Real GDP growth rate and Unemployment Rate.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;the correlation between output and unemployment forecast revisions is stronger in year-ahead&#xA;  forecasts than in current-year forecasts; this finding leads us to conjecture that forecasters’&#xA;  reliance on Okun’s Law is stronger in the early stages of the forecast horizon, when information&#xA;  about the likely departures from Okun’s Law is scarce.&lt;/strong&gt; &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2017-12-21T21:31:52.350" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19804" PostTypeId="2" ParentId="19793" CreationDate="2017-12-21T22:58:59.427" Score="2" Body="&lt;p&gt;The condition that unstable eigenvalues equal in number the control/decision/non-predetermined variables is equivalent to the requirement that a model possess the &quot;saddle point property&quot;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of more interest is &lt;em&gt;why economists generally want their models to possess such a property&lt;/em&gt;, something that holds for the DSGE models.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In Economics we call models with the saddle point property as &quot;saddle path &lt;em&gt;stable&lt;/em&gt;&quot;; a mathematician would disagree. From a mathematical point of view these models are unstable, because there is a &lt;em&gt;unique path&lt;/em&gt; to the fixed point/equilibrium. It should then be evident why such models are characterized as unstable: the slightest perturbation will push the dynamics off the unique path to equilibrium, never to return... enter human will and purposeful action by economic agents: we &lt;em&gt;keep&lt;/em&gt; the model on the unique path on purpose, in order to fulfill the optimization conditions that describe our will and desires. In other words, going to the fixed point is the optimal thing to do from a utility-maximization point of view. And if a shock happens we forcefully &quot;jump&quot; back on the saddle path (that may have changed or stayed the same due to the shock), correcting the course of the economic system by will and decision.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider now a model that is mathematically stable proper. It means that it does not matter where we start, and it does not matter what we do, we will end up in the long-term equilibrium. Hardly an appropriate model to reflect the observed human affairs, or decision-making. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;And decision-making is structurally an unstable phenomenon, mathematically speaking&lt;/em&gt;. This may help glean a bit more intuition: to possess &quot;as much decision-making as needed&quot; in order to have a unique way to go to the fixed point, we need the model to allow us to actually decide optimally on the number of variables the model premises say that we can decide upon, no less and no more: so, as many &lt;em&gt;unstable&lt;/em&gt; roots as &quot;unstable&quot;(decision) variables.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the unstable roots are &lt;em&gt;less&lt;/em&gt; than the unstable/decision variables, the model does not give us the &quot;degrees of freedom&quot; we need - it is &quot;too stable&quot;, hence the many solutions: it is mathematically stable. Boring.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the unstable roots are &lt;em&gt;more&lt;/em&gt; than the &quot;unstable&quot; variables, we cannot control the model through our decision making, and it will explode/implode.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2017-12-21T22:58:59.427" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19805" PostTypeId="1" CreationDate="2017-12-21T23:00:07.870" Score="2" ViewCount="20" Body="&lt;p&gt;The following question is based on a hypothetical scenario, in which the goal(s) is/are to identify how system participants may use/abuse the system to their benefit.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;You are in the fortunate position to be able to create your own currency, which we will call Galatic Dollar (or GD), which is not tied to any economy or country.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You will act as the &quot;central bank&quot; for your currency by maintaining money supply. You will do this through a set of tools:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Maintaining/Owning at least 99.5% of the money supply&lt;/li&gt;&#xA;&lt;li&gt;Using a fixed exchange-rate policy by pegging your currency against a basket of other currencies at their lowest denomination&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;For simplicity sake, there are &lt;strong&gt;only 3 foreign exchange providers&lt;/strong&gt; and &gt;90% of exchanges happen on these providers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You thus decide to peg your currency against a basket of: USD, EUR and CNY (at their lowest denomination would be 0.01 CNY)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For another simplicity sake, we will assume that the GD (Galatic Dollar) is not a currency with supply in the trillions. Based on this assumption, we (the &quot;central bank&quot;) will allow fluctuations of between 0.01-0.05 for normal exchange to flow.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your mandate is to ensure that the GD meets the standard definition of money: medium of exchange, a unit of accounting, and a store of value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Scenarios where monetary policy is applied:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Currency pumping : some actors on an exchange decide to create volatility by buying up lots of GD - the &quot;central bank&quot; steps in and quells this by playing market-maker and selling its supplies&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Decrease in confidence : some actors decide to spread rumours in order to enable a shorting of the GD - the &quot;central bank&quot; periodically applies measures where money supply from its reserves are destroyed AND by maintaining the peg at the lowest denomination (CNY 0.01), the GD cannot be shorted into oblivion&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Arbitrage - the &quot;central bank&quot;, as market-maker, ensures no price-arbitrage across the 3 exchanges&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Maintaining supply - the &quot;central bank&quot; will occasionally create new currency to maintain its 99.5% supply&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Question/s:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;How can participants in this model use/abuse the system to profit off of it?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;What fundamental flaws exist in this model?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="15694" LastActivityDate="2017-12-21T23:00:07.870" Title="Theoretical - Direct Money Supply model" Tags="&lt;macroeconomics&gt;&lt;money-supply&gt;" AnswerCount="0" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19806" PostTypeId="2" ParentId="19774" CreationDate="2017-12-21T23:22:17.167" Score="6" Body="&lt;p&gt;Although one should never speculate, this &lt;em&gt;may&lt;/em&gt; actually be happening on a small scale of sorts. The reference to this is from here:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Superdollar&quot; rel=&quot;noreferrer&quot;&gt;https://en.wikipedia.org/wiki/Superdollar&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;A superdollar (also known as a superbill or supernote) is a very high quality counterfeit United States one hundred-dollar bill, alleged by the U.S. Government to have been made by unknown organizations or governments.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Also, it doesn't have to be another country printing fake currency. It is arguable that criminals have greater incentive to print fake money then another country would.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Going back to your extremely hypothetical scenario of the US attempting hyperinflation by printing NK Won, we must keep in mind the following:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;NK is a closed economy&lt;/li&gt;&#xA;&lt;li&gt;That means currency and other controls are tightly regulated&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;If the US wanted to cause hyperinflation of the NK Won, their only (realistic) option would be to fly over NK territory and dump the money over cities. The act of flying over another countries sovereign territory would be considered an act of war, so it would be pointless to do such an action just for hyperinflation.&lt;/p&gt;&#xA;" OwnerUserId="15694" LastActivityDate="2017-12-21T23:22:17.167" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="19808" PostTypeId="1" AcceptedAnswerId="25275" CreationDate="2017-12-22T00:28:58.473" Score="0" ViewCount="725" Body="&lt;p&gt;Does the average total cost include opportunity costs? If so, are these opportunity costs considered fixed costs or variable costs? How are they calculated.&lt;/p&gt;&#xA;" OwnerUserId="12423" LastEditorUserId="8815" LastEditDate="2017-12-24T19:53:26.527" LastActivityDate="2018-10-30T17:54:03.050" Title="Does Average Total Cost (ATC) include implicit opportunity costs?" Tags="&lt;microeconomics&gt;&lt;cost&gt;&lt;opportunity-cost&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19809" PostTypeId="1" CreationDate="2017-12-22T03:13:26.480" Score="1" ViewCount="97" Body="&lt;p&gt;An issue/disadvantage that the gold standard had was a lack of mechanisms that forced economies to abide by the rules of the game. As a result, they could at any time de-monetize gold and therefore hurt the whole purpose behind it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can't this same idea be applied to crypto-currency? If one day individuals decide to not put any value behind XYZ-Therum Crypto (using a generic name), won't that cause a collapse?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, isn't there a danger in the lack of regulations behind it?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why can't I invent MikeIsCool-Coins. I make a website, with a wallet and say that the direct quote for MikeIsCool-Coins is 1BTC. I then give myself how ever much I want MICC, trade it to bozos for BTC, then sell the btc for USD, renderring myself a millionaire?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And this scheme, as a result of a lack of regulation puts no consequences on me?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you, I'm just trying to challenge crypto. I think a currency backed by prime numbers (something that itself holds no value, where FIAT money is based by a promise) is complete nonsense.&lt;/p&gt;&#xA;" OwnerUserId="14880" LastActivityDate="2021-03-02T23:05:20.520" Title="Is a lack of &quot;rules&quot; dangerous for cryptocurrency" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;cryptocurrency&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="19810" PostTypeId="2" ParentId="19761" CreationDate="2017-12-22T04:07:23.397" Score="1" Body="&lt;p&gt;There seems to be a lot of misconceptions regarding the use of technology in economics. Its important to remember a two points.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;1. Modern economic theory is mostly, just a branch of Applied Math&lt;/strong&gt;&#xA;&lt;br&gt; Sure there are lots of fundamental philosophical concepts underlying the economics as a social science, however most practical problems require some calculus or linear algebra.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;2. Economists test theories all the time using statistics.&lt;/strong&gt;&#xA;&lt;br&gt;Some people don't know how data driven economics is. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The utilization of Vector Auto Regressive Models (VAR),Vector Error Correction Models (VECM) and Impulse Response Functions in Macroeconomics tests is common practice. Central Banks use these methods and are constantly testing economic theories all the time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Answering the question: &quot;What level of fiscal stimulus is better for a specific country?&quot; has already been considering these methods for a while and are not a result of the big data revolution.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope this helps&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2017-12-22T04:07:23.397" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19811" PostTypeId="1" CreationDate="2017-12-22T12:03:45.497" Score="3" ViewCount="74" Body="&lt;p&gt;I am looking at the balance sheet of Coca-Cola (&lt;a href=&quot;https://www.marketwatch.com/investing/stock/coke/financials/balance-sheet&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.marketwatch.com/investing/stock/coke/financials/balance-sheet&lt;/a&gt;), but I cannot guess where loans with banks are. These liabilities accounts are:&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;ST Debt &amp;amp; Current Portion LT Debt   25.23M  25.94M  6.45M   7.06M   7.53M&lt;br&gt;&#xA;Short Term Debt     -   -   -   -   -&lt;br&gt;&#xA;Current Portion of Long Term Debt   25.23M  25.94M  6.45M   7.06M   7.53M&lt;br&gt;&#xA;Accounts Payable    79.48M  69.45M  109.87M 162M    251.98M &#xA;Income Tax Payable  -   2.52M   -   -   -&lt;br&gt;&#xA;Other Current Liabilities   111.6M  110.91M 111.11M 157.49M 198.4M&lt;br&gt;&#xA;Dividends Payable   -   -   -   -   -&lt;br&gt;&#xA;Accrued Payroll     49.42M  49.4M   51.19M  68.99M  84.74M&lt;br&gt;&#xA;Miscellaneous Current Liabilities   62.19M  61.52M  59.91M  88.49M  113.67M&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;But debt is bonds, accounts payable refer to money owed to suppliers (&lt;a href=&quot;https://en.wikipedia.org/wiki/Accounts_payable&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://en.wikipedia.org/wiki/Accounts_payable&lt;/a&gt;). Is it under &quot;Other Current Liabilities&quot;?. How can I know? Anyone has experience looking at balance sheets? I'm learning this. &lt;/p&gt;&#xA;" OwnerUserId="15121" LastActivityDate="2017-12-24T13:34:03.267" Title="Where are bank loans in balance sheet?" Tags="&lt;finance&gt;&lt;corporate-finance&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19812" PostTypeId="1" AcceptedAnswerId="19858" CreationDate="2017-12-22T21:26:44.503" Score="2" ViewCount="140" Body="&lt;p&gt;I recently have gained interest in the way currency value is derived in crypto-currencies and have researched the ins and outs of supply and demand. Is there a particular mathematical formula to compute both the supply and demand curves based off of data. In other words what data is needed in order to come up with currency value. I understand that supply of course is just the unit amount of a currency that is available for consumption. Demand however seems to be a bit tricky in that its curve can be adjusted by more than one factor.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.economicsonline.co.uk/Competitive_markets/The_foreign_exchange_market.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Research Link&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;EDIT&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am by no means attempting to argue the legitimacy of crypto-curriences because I think the value of bitcoin alone explains for itself how much we value it regardless of any real physical asset to back it up. I am merely asking by what means is that value derived.&lt;/p&gt;&#xA;" OwnerUserId="15697" LastEditorUserId="15697" LastEditDate="2017-12-29T09:56:52.477" LastActivityDate="2017-12-29T13:48:19.717" Title="Currency Value Formula" Tags="&lt;currency&gt;&lt;cryptocurrency&gt;" AnswerCount="1" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="19815" PostTypeId="1" AcceptedAnswerId="19833" CreationDate="2017-12-23T15:09:47.600" Score="0" ViewCount="54" Body="&lt;p&gt;I obtained the historical CPI data available in monthly and quarterly format from a data repository. It seems that the Q1, Q2, etc. data are the average of the monthly data.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I thought that if I were to get quarterly data from monthly data, I can just take the March, June, Sept, and December closing figures. If I were to get the quarterly data for stock price or stock index, should I can just take the 4 month closing price or would I have to take the average of 3 months in each quarter?&lt;/p&gt;&#xA;" OwnerUserId="15671" LastEditorUserId="5318" LastEditDate="2017-12-26T15:06:07.533" LastActivityDate="2017-12-26T15:06:07.533" Title="Economic Data - Frequency" Tags="&lt;macroeconomics&gt;&lt;stock-market&gt;" AnswerCount="2" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="19817" PostTypeId="2" ParentId="19679" CreationDate="2017-12-23T17:05:31.307" Score="3" Body="&lt;p&gt;Just think your true model is: &#xA;$$y_t = \phi_0 + \phi_1 y_{t-1} + \phi_2 y_{t-2} + u_t \tag{1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, under your true model, $u_t$ is uncorrelated with all explanatory variables. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, instead of using AR(2), use selected AR(1) model as: &#xA;$$y_t = \phi_0 + \phi_1 y_{t-1} + \epsilon_t \tag{2}$$&#xA;So, now, $\epsilon_t = \phi_2 y_{t-2} + u_t$; therefore, $y_{t-1}$ will no longer will be uncorrelated with $\epsilon_t$ (due to correlation between $y_{t-1}$ &amp;amp; $y_{t-2}$). In simple words, this lead to the problem of &lt;strong&gt;endogeneity&lt;/strong&gt;. And we know, OLS estimators are not consistent when residuals are correlated with any of the explanatory variables. &lt;/p&gt;&#xA;" OwnerUserId="15703" LastActivityDate="2017-12-23T17:05:31.307" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19818" PostTypeId="2" ParentId="19811" CreationDate="2017-12-23T21:43:36.880" Score="2" Body="&lt;p&gt;In the link one can very clearly see that the company has no contractually short term debt, and in the short-term (i.e. in the next 12 months) has to pay part of its long term debt. Also, that the debt amounts are &lt;em&gt;not&lt;/em&gt; included in the line &quot;Accounts payable&quot; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/fJpaH.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/fJpaH.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, one can see its long term debts&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/Jzk5y.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Jzk5y.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And no, debt is not only bonds.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2017-12-23T21:43:36.880" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19819" PostTypeId="1" CreationDate="2017-12-23T23:34:18.897" Score="2" ViewCount="70" Body="&lt;p&gt;Given the fact that mostly all cryptocurrencies have a permanently set supply, they will invariably rise in value as cryptocurrency transactions rise. Even if cryptocurrency deflation cools off from where it is now, Crypto/fiat would still rise at a high rate due to population and economic growth.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, I don't understand how loans would be feasible on blockchain. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's say I get a 1 BTC car loan at 1% interest that's amortized over 6 years, then the amount I would have to pay in dollars to cover the appreciation of BTC/USD along with the interest on the loan would probably be way above that on standard car loans. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To me, the only time it would be feasible to borrow BTC is when I am shorting BTC... Or am I missing something? &lt;/p&gt;&#xA;" OwnerUserId="15706" LastActivityDate="2018-02-22T01:30:38.877" Title="How can lending be feasible on blockchain?" Tags="&lt;cryptocurrency&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19820" PostTypeId="2" ParentId="19815" CreationDate="2017-12-23T23:37:38.423" Score="0" Body="&lt;p&gt;Given that this is a macroeconomic study, the cost to write a script to average your data is simple and effectively costless. If you obtain your variables based off of monthly formats, then it would be wise to also obtain your other variables also in the same format.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Each time you simplify, you may potentially lose small but significant outliers in your data that are averaged out as part of your calculations. But if you have more granular data at hand, you can revisit your figures and revise your analysis as needed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words, if you can do your analysis month-by-month I would recommend that you do so, it is relatively simple to scale up and analyze it by quarter as needed; it is however difficult to 'scale' down, don't mix and match two variables measured by different time segments.&lt;/p&gt;&#xA;" OwnerUserId="5318" LastActivityDate="2017-12-23T23:37:38.423" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19821" PostTypeId="2" ParentId="19819" CreationDate="2017-12-23T23:57:53.360" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;So, I don't understand how loans would be feasible on blockchain.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Lending and borrowing money via blockchain is similar but not equal to traditional methods.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The similarities:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Same parties: lender, borrower, broker&lt;/li&gt;&#xA;&lt;li&gt;Same goals: those with capital wishing to increase their capital, those without wishing to increase their capital, a (optional) agent broker who receives a commission as part of their brokerage services.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The Differences are in how the process works:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I presume you are knowledgeable of traditional lending and borrowing mechanisms: banks, private loans, bond, equity, etc. So I'll cover the blockchain side of things.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You and I would sign up at a blockchain institution where the service of the firm is to match borrowers with lenders. I 'deposit' my blockchain assets and I either allow the firm to look for matches based on my preferences of interest rate, term, risk, and credit (in the abstract sense, not your FICO score); or pick and choose contracts to my liking.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The caveat for blockchains is that there is no known of recourse in case of default. The keystone basis of blockchain tech are the control and usage of private 'keys' (or password) matched to public keys that allow a user to control the 'data' associated with 'wallets'. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Unlike a traditional funding mechanism, if 'keys' are lost due to theft or malice (default), it is currently impossible to recover lost funds. No matter how powerful the judiciary and law enforcement system is in a given jurisdiction, they can't use a court order to brute force a solution to find the lost keys. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a traditional lending environment, a creditor can go after assets that are tied to your identity and have monetary value (other forms of cash, real estate, vehicles, furniture, etc.) and liquidate them for their monetary worth. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Riskier? Definitely, but this doesn't mean that blockchain tech hasn't been used to facilitate lending arrangements with differing ranges of success.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;To me, the only time it would be feasible to borrow BTC is when I am shorting BTC... Or am I missing something?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;You are, the key point here is if the loan is in BTC or fiat currencies (USD, Yuan, Ruble, Yen, etc.) BTC can be the mechanism of which the current market prices of BTC to X is transferred, but the loan would still be valued in USD. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So if you enter into a contract for 10,000USD at 1% over 10 years, (simple interest). Your USD obligations for the contract would be $100 a year, regardless of the USD to BTC rates.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Year 1: BTC/USD might be 1BTC/1USD. Your debt obligation is 100 BTC.&lt;/li&gt;&#xA;&lt;li&gt;Year 2: BTC/USD might be 1BTC/10,000USD. Your debt obligation is .001 BTC.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The best way to approach the system is to first determine A: if the underlying monetary system is deflationary or inflationary. Deflation benefits the creditor, inflation credits the borrower. But with blockchain lending system: no one can force the borrower who is in default to return the Blockchain based assets. With traditional systems: you have law enforcement and judicial systems available.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.linkedin.com/pulse/why-you-shouldnt-get-paid-bitcoin-frank-fyc/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Here's something I wrote for LinkedIn.&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="5318" LastEditorUserId="5318" LastEditDate="2017-12-24T00:34:21.890" LastActivityDate="2017-12-24T00:34:21.890" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="19822" PostTypeId="1" CreationDate="2017-12-24T05:58:20.973" Score="0" ViewCount="99" Body="&lt;p&gt;I'm in the midst of preparing data to test the relationship between stock index and macroeconomic variables. The variables include m1, cpi, ipi, interest rate, exchange rate. I have some question below:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Is seasonality adjustment on the data required? If one variable is seasonality adjusted,  is that all variables in the models have to be seasonality adjusted as well? If all are not seasonality adjusted,  will there be a problem? &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Would it be alright if all data are not inflation adjusted,  that is nominal data?  And if one variable  are inflation adjusted,  is that all must be so to be consistent? &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The base period for CPI and IPI is not the same. Is it a requirement for the base period to be the same in the model ?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="15671" LastEditorUserId="8815" LastEditDate="2017-12-27T22:21:06.173" LastActivityDate="2017-12-27T22:21:06.173" Title="testing the relationship between stock price and macroeconomic variables" Tags="&lt;macroeconomics&gt;&lt;econometrics&gt;&lt;stock-market&gt;&lt;applied-econometrics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19824" PostTypeId="2" ParentId="19811" CreationDate="2017-12-24T13:34:03.267" Score="0" Body="&lt;p&gt;Thank you Brian for the suggestion, and the others too. It took me a long time to find it in the Coca-Cola report, and it was under Current Liabilities:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;LIABILITIES AND EQUITY&lt;br&gt;&#xA;  CURRENT LIABILITIES&lt;br&gt;&#xA;  Accounts payable and accrued expenses&lt;br&gt;&#xA;  $9,490 $9,660&lt;br&gt;&#xA;  Loans and notes payable&lt;br&gt;&#xA;  12,498 13,129  &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Page 75 of document: &lt;a href=&quot;http://www.coca-colacompany.com/content/dam/journey/us/en/private/fileassets/pdf/investors/2016-AR-10-K.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.coca-colacompany.com/content/dam/journey/us/en/private/fileassets/pdf/investors/2016-AR-10-K.pdf&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I see, as Alecos suggested, that debt includes both loans and bonds. Itwas my mistake to assume debt is only bonds. &lt;/p&gt;&#xA;" OwnerUserId="15121" LastActivityDate="2017-12-24T13:34:03.267" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19825" PostTypeId="1" CreationDate="2017-12-24T16:42:42.960" Score="0" ViewCount="192" Body="&lt;p&gt;Let's say, for the sake of the argument, that the US population grows from 320 millions people to 420 millions overnight, wouldn't that increase inflation?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What if in reaction to this, the monetary mass is left untouched?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks&lt;/p&gt;&#xA;" OwnerUserId="13419" LastEditorUserId="13419" LastEditDate="2017-12-24T16:50:11.000" LastActivityDate="2017-12-24T19:33:31.853" Title="Would a sudden increase in population, increase inflation?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="6" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19826" PostTypeId="2" ParentId="19825" CreationDate="2017-12-24T19:33:31.853" Score="1" Body="&lt;p&gt;It would lead to demand pull inflation as the goods in the said economy would not match the demand. But this depends on the time frame and how the producers in the said economy react.&#xA;Let me give you an example of immigration. Let's say large numbers of people from a country leave their country for the said country. Ignoring all social issues let's see what would happen. On one hand inflation would increase as the immigrants would cause high demand for goods and services which would drive the prices up. On the other hand, the immigrants would bring in supply of labour which  lead to a drop in real wages and decrease the prices of goods thereby reducing prices. So an increase in population may or may not lead to inflation &lt;/p&gt;&#xA;" OwnerUserId="15708" LastActivityDate="2017-12-24T19:33:31.853" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19831" PostTypeId="1" AcceptedAnswerId="19832" CreationDate="2017-12-25T17:07:58.887" Score="-1" ViewCount="59" Body="&lt;p&gt;Let's say I'm given a matrix ixj with n games, is there a finite amount of Nash equilibria for those games?&lt;/p&gt;&#xA;" OwnerUserId="13419" LastActivityDate="2017-12-25T18:03:06.003" Title="For any given non-null game, is there always a finite amount of Nash equilibria?" Tags="&lt;game-theory&gt;" AnswerCount="1" CommentCount="1" ClosedDate="2017-12-26T19:40:41.057" ContentLicense="CC BY-SA 3.0" />
  <row Id="19832" PostTypeId="2" ParentId="19831" CreationDate="2017-12-25T18:03:06.003" Score="3" Body="&lt;p&gt;If you are talking pure strategies Nash equilibria, then yes. Otherwise, you could have infinitely many mixed strategies Nash equilibria. Take a matrix in which all cells have the payoff vector $(1,1)$. So any convex combination of pure strategies is a Nash equilibrium.&lt;/p&gt;&#xA;" OwnerUserId="5368" LastActivityDate="2017-12-25T18:03:06.003" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19833" PostTypeId="2" ParentId="19815" CreationDate="2017-12-25T20:57:57.297" Score="0" Body="&lt;p&gt;The bottom line is that we never want to discard information we can use, unless it we have good reason to believe it's &quot;noise&quot;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can imagine an extreme case, with four quarterly closing values: &lt;strong&gt;10, 10, 10, 10&lt;/strong&gt;.  Is that an accurate snapshot of the market in those times, if that's all the data you have?  Yes, surely.  But what if the &lt;em&gt;monthly&lt;/em&gt; data looked like: 16, 14, &lt;strong&gt;10&lt;/strong&gt;, 4, 6, &lt;strong&gt;10&lt;/strong&gt;, 16, 14, &lt;strong&gt;10&lt;/strong&gt;, 4, 6, &lt;strong&gt;10&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;While the quarterly closings give us some information, there's clearly important information in the monthly data that we lose.  Ideally we would do our analysis at the monthly level here, but maybe that's not possible due to, say, the frequency of the other variables in your analysis.  If we take the quarterly mean, we get: &lt;strong&gt;13.3, 6.7, 13.3, 6.7&lt;/strong&gt;.  That conveys a lot more of the information we have about this data, even if we're still discarding some of it by resampling to quarterly.&lt;/p&gt;&#xA;" OwnerUserId="8834" LastActivityDate="2017-12-25T20:57:57.297" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19835" PostTypeId="2" ParentId="19779" CreationDate="2017-12-25T22:54:22.577" Score="0" Body="&lt;p&gt;‘Trickle up’ as you call it or ‘trickle down’ shouldn’t be the focus of inequality research done by economists (as this is ideologically driven rather than evidence based). The evidence does point towards excessive inequality causing worsening social outcomes. This is recognised by institutions such as the IMF and WB. Inequality research is also conducted by economists who examine structural economic inequalities. Development economists also research this question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Quality of life measures are much more important to look at when considering how an economy is progressing. Quality of life measures should be viewed side-by-side with inequality metrics. Economic growth is only one component. It’s not the most important component. Economies that grow rapidly but only benefit a small subset of the population aren’t very effective tools for raising living standards for the most amount of people. This is a fairly utilitarian standpoint. There are some good studies about inequality that use economic measures such as the HDI versus economic inequality to determine how we should redistribute wealth and income. One of the most well-known study is titled &lt;em&gt;The Spirit Level&lt;/em&gt;. Stiglitz and Krugman also have written extensively on these topics. &lt;/p&gt;&#xA;" OwnerUserId="14566" LastActivityDate="2017-12-25T22:54:22.577" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19836" PostTypeId="1" AcceptedAnswerId="19852" CreationDate="2017-12-26T01:29:08.460" Score="0" ViewCount="140" Body="&lt;p&gt;Here’s the context. I want to know what the theoretical market capitalisation (say eg $US / Bitcoin times Q the number of coins - it doesn’t have to be Bitcoin) of a crypto currency? Assume that the crypto currency is uniformly better than fiat. I think it tends to infinity. To see this, let’s say everyone decides that a digital currency is better (eg because you could avoid tax / minimise transaction costs), then in an extreme scenario ppl decide that it’s just better to hold digital currency rather than fiat - so demand for fiat currency in that case tends to 0 and exchange rate between fiat / digital currency tends towards infinity because the fiat becomes worthless. So it’s kind of like holding a stock that’s price goes to 0. And that probably explains the considerable growth of digital market capitalisation. Is my reasoning correct? &lt;/p&gt;&#xA;" OwnerUserId="15720" LastEditorUserId="15720" LastEditDate="2017-12-26T03:19:01.883" LastActivityDate="2017-12-30T10:54:35.080" Title="Theoretical market capitalisation of a crypto currency?" Tags="&lt;exchange-rates&gt;&lt;cryptocurrency&gt;&lt;foreign-exchange&gt;&lt;bitcoin&gt;" AnswerCount="3" CommentCount="11" ContentLicense="CC BY-SA 3.0" />
  <row Id="19837" PostTypeId="1" AcceptedAnswerId="21482" CreationDate="2017-12-26T04:28:47.300" Score="0" ViewCount="268" Body="&lt;p&gt;When being exposed to your equations for profit maximization you have an equation of:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\pi=pf(x)-c(x)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;with this you can solve for the optimal input(s) $x$ from the first order conditions and some basic algebra.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I was wondering why in consumer theory we don't solve for the bundle that maximizes consumer surplus using a similar type of formula.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The motive behind this question is that if such a formula exists it would simplify the calculations for utility maximization in consumer theory. The profit function is convenient because it incorporates the constraint, however we can't seem to do this in consumer theory.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why does such a function not exist?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Edit:&lt;/strong&gt; I'm interested in understanding why we don't have a function which circumvents the use of the Lagrangian in consumer theory. I.e. Why don't we solve to maximize consumer surplus&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="8815" LastEditDate="2017-12-26T18:58:43.500" LastActivityDate="2018-04-15T02:47:01.990" Title="Unconstrained Optimization:Why is there no &quot;profit style&quot; function in consumer theory?" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19841" PostTypeId="2" ParentId="19836" CreationDate="2017-12-26T12:00:35.947" Score="4" Body="&lt;p&gt;As there is no practical limit on the number of cryptocurrencies that can be created, and as no one crpytocurrency has a unique advantage over any other, and as no cryptocurrencies are legal tender anywhere, the theoretical market cap of any one cryptocurrency has zero underlying value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What its actual market cap is, will depend on how many suckers can be lured into purchasing it, and what their combined purchasing power is.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Furthermore, even if all your incorrect assumptions were correct, your conclusion would not be: the total capitalisation of all existing sovereign currencies is finite. If they were all to be replaced by a cryptocurrency, then its capitalisation would be much less than the existing total capitalisation of all sovereign currencies, because economic activity would have taken a huge downturn. That's because the world is not an Optimal Currency Area.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is not to say that cryptocurrencies will never have any value. But at time of writing, there is no visible legitimate application that gives them value.&lt;/p&gt;&#xA;" OwnerUserId="44" LastEditorUserId="44" LastEditDate="2017-12-27T11:58:50.623" LastActivityDate="2017-12-27T11:58:50.623" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19842" PostTypeId="2" ParentId="19837" CreationDate="2017-12-26T14:58:00.173" Score="2" Body="&lt;p&gt;The &quot;profit&quot; function for consumer choice does exist; it is the Lagrangean: &#xA;\begin{equation}&#xA;\mathcal L(x;\lambda)=u(x)+\lambda[c-g(x)]\,,&#xA;\end{equation}&#xA;where utility $u(x)$ is to be maximized subject to budget constraint $c\ge g(x)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that $\max_x \mathcal L(x;\lambda)$ is an unconstrained optimization problem just like $\max_x\pi(x)$.&lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2017-12-26T14:58:00.173" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="19846" PostTypeId="1" AcceptedAnswerId="19847" CreationDate="2017-12-26T22:10:57.310" Score="3" ViewCount="558" Body="&lt;p&gt;In Microeconomics producer surplus is equivalent to profits minus fixed costs. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However getting a tangible definition of consumer surplus has been difficult for me to ponder. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is the practical use of knowing  consumer surplus and what does it tell us?&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="1601" LastEditDate="2018-10-04T05:54:17.373" LastActivityDate="2018-10-04T05:54:17.373" Title="what is consumer surplus practically?" Tags="&lt;consumer-theory&gt;&lt;consumer-surplus&gt;" AnswerCount="4" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="19847" PostTypeId="2" ParentId="19846" CreationDate="2017-12-26T22:33:34.950" Score="6" Body="&lt;p&gt;It is better to think of it as a &quot;saving&quot; rather than as a&quot;surplus&quot;.&#xA;Also, it is better understood if we imagine heterogeneous consumers for whom a threshold price exists, a &quot;maximum willingness to pay&quot;. Then at  a given price level, some consumers are willing to buy the product and are expressing their demand for the product, while others are out of the market, because the price is still above their maximum willingness to pay. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the price falls more towards the equilibrium,  they enter the market.&#xA;But the ones already in the market would be willing to buy the good at a higher price. With the added consumers/higher output, they buy the good in a lower price than their maximum willingness to pay, and in that sense, they &quot;save&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Imagine that the market demand function is build gradually not by the same persons increasing their quantity demanded, but by the addition of new consumers (this is easier imagined if we think of durable goods of which most consumers will usually buy just one unit or not at all).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/mxrp8.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2017-12-27T13:49:38.693" LastActivityDate="2017-12-27T13:49:38.693" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19848" PostTypeId="2" ParentId="19846" CreationDate="2017-12-26T23:42:00.080" Score="1" Body="&lt;p&gt;You can think of consumer surplus as exactly analogous to the consumer’s profits. Let’s think of a setting with only one consumer and one firm, both price takers, and standard demand and supply (i.e. downward- and upward-sloping) curves.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Observe that profits capture how much more the firm would have been willing to incur in costs in order to produce the good (at the equilibrium price and quantity). In the same way, consumer surplus captures how much more the consumer would be willing to pay to purchase the goods from the firm. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Put differently, suppose I charged the consumer some amount in exchange for the opportunity to trade with the firm. The consumer surplus captures the largest amount I could charge this consumer without deterring them from accepting the opportunity to trade.&lt;/p&gt;&#xA;" OwnerUserId="8595" LastActivityDate="2017-12-26T23:42:00.080" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19851" PostTypeId="2" ParentId="18701" CreationDate="2017-12-27T13:55:08.133" Score="0" Body="&lt;p&gt;It’s difficult to think any economy would have zero surplus. If it did, and all funds were spent as soon as they were received there’d be zero savings or surplus goods. In a primitive economy (which suits your example as applying this to modern society isn’t reasonable) there’d be a lot of barter and the usage of money would mostly be superfluous. In a developed economy, for businesses to know how much to produce or services to offer they need some type of surplus and require savings and investment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How does inequality get created in a closed economy? Your thought experiment that everybody spends what they receive straight away would in theory mean there would be zero inequality but there would be those who produce and provide more goods and services than others or the government would tax more than it spends giving rise to inequality. Eliminating inequality totally is not realistic in any way. Only if you want to set up a moneyless economy but even then goods and services still have utility and their value is intrinsic. Exchange of these goods would mostly be done by barter unless everybody’s needs were met such as under an abundance economy or techno communism, etc.&lt;/p&gt;&#xA;" OwnerUserId="14566" LastActivityDate="2017-12-27T13:55:08.133" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19852" PostTypeId="2" ParentId="19836" CreationDate="2017-12-27T15:29:31.807" Score="2" Body="&lt;p&gt;Unfortunately, those who are riding the current trend do not have a clue about what they are doing. I guess, they don't even think of hypothetical situations you've given above to legitimise cryptocurrencies, instead, they appear to be enjoying the joyride. If anything, cryptocurrency trading is more like a &lt;a href=&quot;http://forums.moneysavingexpert.com/showthread.php?t=2920264&quot; rel=&quot;nofollow noreferrer&quot;&gt;fantasy share trading&lt;/a&gt; with real consequences.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As of now, there are &lt;a href=&quot;https://digitalcurrencyindex.io/&quot; rel=&quot;nofollow noreferrer&quot;&gt;1354 cryptocurrencies&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As you suggest, &quot;investors&quot; may have decided that digital currencies are better &quot;&lt;em&gt;(eg because you could avoid tax / minimise transaction costs)&lt;/em&gt;&quot;.&lt;/p&gt;&#xA;" OwnerUserId="6009" LastEditorUserId="6009" LastEditDate="2017-12-27T16:30:47.033" LastActivityDate="2017-12-27T16:30:47.033" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19855" PostTypeId="2" ParentId="19822" CreationDate="2017-12-27T21:42:23.570" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;ol&gt;&#xA;  &lt;li&gt;Is seasonality adjustment on the data required? If one variable is seasonality adjusted, is that all variables in the models have to be seasonality adjusted as well? If all are not seasonality adjusted, will there be a problem?&lt;/li&gt;&#xA;  &lt;/ol&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Seasonal adjustment of data is required in your VAR/VECM, you can do this by employing seasonal dummies (dummies 11 if you have monthly data and 4 if you have quaterly data).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;All your data has to initially be seasonally unadjusted, because the inclusion of dummies will affect all the data that you include in your model. You will end up having skewed estimates of your already adjusted variables influence on a given process.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;ol start=&quot;2&quot;&gt;&#xA;  &lt;li&gt;Would it be alright if all data are not inflation adjusted, that is nominal data? And if one variable are inflation adjusted, is that all must be so to be consistent?&lt;/li&gt;&#xA;  &lt;/ol&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Again if you want your estimates to be consistent you have to make sure all of your monetary variables are inflation adjusted. practically you may want to use real exchange rate instead of nominal exchange rate data for this.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;ol start=&quot;3&quot;&gt;&#xA;  &lt;li&gt;The base period for CPI and IPI is not the same. Is it a requirement for the base period to be the same in the model ?&lt;/li&gt;&#xA;  &lt;/ol&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;No this is not necessary and your estimates will be fine. Just remember to keep this in mind when your run your model.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope this helps&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2017-12-27T21:42:23.570" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="19856" PostTypeId="1" CreationDate="2017-12-27T22:39:17.017" Score="1" ViewCount="247" Body="&lt;p&gt;A Hicksian demand curve indicates how much of a good will be demanded given price holding level of overall utility fixed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When in equilibrium with a supply curve we end up with this area we would call consumer surplus, however we can no longer interpret it as &quot;income saved by the consumer with respect to his actual demand&quot; &lt;a href=&quot;https://economics.stackexchange.com/questions/19846/what-is-consumer-surplus-practically&quot;&gt;which is an appropriate interpretation when marshallian demands are used&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How exactly do we interpret this type of consumer surplus?&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="8815" LastEditDate="2017-12-29T01:03:42.530" LastActivityDate="2017-12-31T16:48:53.897" Title="Consumer surplus from a Hicksian demand curve: what is it?" Tags="&lt;consumer-theory&gt;&lt;consumer-surplus&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19857" PostTypeId="2" ParentId="19640" CreationDate="2017-12-28T00:23:08.313" Score="2" Body="&lt;p&gt;In European Union's nomenclature this is called &lt;em&gt;'State aid'&lt;/em&gt; (see &lt;a href=&quot;http://eur-lex.europa.eu/summary/glossary/state_aid.html?locale=en&quot; rel=&quot;nofollow noreferrer&quot;&gt;glossary&lt;/a&gt; on EU's legislation site for a quick summary).&#xA;The idea behind this term is to cover all direct and indirect aid, including economic policy. If the measure is selective and it distorts the competition, it constitutes &lt;em&gt;'incompatible State aid'&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Besides the EU, I think the word you are looking for is &lt;em&gt;'subsidy'&lt;/em&gt;, which covers both direct and indirect aid, or more generally, &lt;em&gt;'aid measure'&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope this helps, if still relevant to you :)&lt;/p&gt;&#xA;" OwnerUserId="15240" LastEditorUserId="15240" LastEditDate="2017-12-29T01:43:24.963" LastActivityDate="2017-12-29T01:43:24.963" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19858" PostTypeId="2" ParentId="19812" CreationDate="2017-12-28T03:28:09.217" Score="2" Body="&lt;p&gt;This is a difficult question in that it is very difficult to prove that something is impossible. However, based on the types of analysis done in financial markets, estimating supply and demand curves is obviously difficult to do.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The usual methods for valuing assets in financial markets is to rely on some relative value versus a similar asset, or discounted cash flow. For a currency, we can compare the prices of similar items (hourly wages, goods prices) to get fair value. However, I am unaware of items sold at fixed prices in crypto currencies that would allow us to use a similar valuation method.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for supply and demand, unless we have a reason to know that supply and demand curves follow some particular parameterisation, all that it says that for every buyer there is a seller. A price change can either be explained by the supply curve or the demand curve shifting (or both); we have no idea what happened. There is no clear method to go from observed transaction data to back out supply and demand curves.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, imagine there are a sequence of transactions at rising prices. Is that because there was an increased demand by buyers, or was it the result of existing owners being less willing to sell? Since every transaction has two sides, we have no idea. All we know for sure is that the price went up - which we could see by just looking at the time series of prices.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Furthermore, prices can change without any transactions. In the financial markets, prices jump on the release of economic or corporate news. This is much more easily interpreted as a change in fair value, rather than a shift in demand or supply curves.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, it is unclear what a supply or demand curve represents. In the short term, a crypto currency supply is fixed (at least until the next coin is “mined”). How exactly can the quantity supplied or demanded change?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words, probably the only way to see whether “supply and demand” work is to build a model that works. I am unaware of any successful attempts in other asset markets to build such a model, so you have little guidance on how it could be done.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Addendum: It is difficult to control supply to keep an asset near a target level. Preventing the price from going up is easy, as you could just flood the market. Stopping the price from falling is difficult. You cannot destroy currency units held by people, and so you cannot reduce the amount outstanding. If people want to sell at a lower price, there is little you can do except buy the crypto up with some kind of currency reserves. (Which is how currency pegs are defended.) However, currency pegs tend to fail. (I believe some crypto currencies follow a backing strategy; I do not know how popular those currencies are are.)&lt;/p&gt;&#xA;" OwnerUserId="12891" LastEditorUserId="12891" LastEditDate="2017-12-29T13:48:19.717" LastActivityDate="2017-12-29T13:48:19.717" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="19860" PostTypeId="1" AcceptedAnswerId="19861" CreationDate="2017-12-28T08:08:19.847" Score="3" ViewCount="81" Body="&lt;p&gt;The are various opinion whether entrepreneurs are more or less risk-averse than the general population. The &lt;a href=&quot;http://guides.wsj.com/small-business/starting-a-business/how-to-decide-if-entrepreneurship-is-right-for-you/&quot; rel=&quot;nofollow noreferrer&quot;&gt;commonly held belief&lt;/a&gt; is that they are less so, but the &lt;a href=&quot;https://www.inc.com/paul-brown/entrepreneurs-most-risk-averse-people-on-the-planet.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;contrary opinion&lt;/a&gt; exists as well. There's even &lt;a href=&quot;https://www.inc.com/kathleen-kim/entrepreneurs-more-cautious-not-risk-takers.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;one small survey in the UK&lt;/a&gt; that seems to back up this view.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there more empirical research in this respect?&lt;/p&gt;&#xA;" OwnerUserId="6210" LastEditorUserId="1601" LastEditDate="2017-12-28T09:54:58.380" LastActivityDate="2017-12-28T10:00:27.380" Title="Entrepreneurs and risk aversion" Tags="&lt;reference-request&gt;&lt;behavioral-economics&gt;&lt;risk-aversion&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19861" PostTypeId="2" ParentId="19860" CreationDate="2017-12-28T10:00:27.380" Score="3" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Interestingly—and much in contrast to recent research—our data supports the conventional wisdom that persons with a higher inclination towards risk have a significantly higher probability of becoming entrepreneurs. However, sensitivity analysis reveals that this result holds only for those individuals who were previously employed. For previously unemployed or inactive persons, we find no significant influence of risk attitudes, indicating that other variables drive their decision towards self-employment.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://link.springer.com/article/10.1007/s11187-007-9078-6&quot; rel=&quot;nofollow noreferrer&quot;&gt;Caliendo et al. (2009)&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Conclusions section of the paper lists several other research papers with slightly different conclusions, you may also want to read those.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2017-12-28T10:00:27.380" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19862" PostTypeId="1" CreationDate="2017-12-28T17:27:54.400" Score="0" ViewCount="79" Body="&lt;p&gt;Sorry for my bad english, i'll try to explain my difficulty. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;1° Question&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the last exam an exercise asked to derivate OLS estimators and calculate their value with the data provided (ex.: $\sum x_iy_i=...$, $\sum Y_i=...$). Now, I know how to derivate them ($\hat{\beta _{0}}=\bar{Y} -\hat{\beta _{1}}\bar{Y}$ and $\hat{\beta _{1}}=\frac{\sum_{i=1}^{n}(X_i-\bar{X})(Y_i-\bar{Y})}{\sum_{i=1}^{n}(X_i-\bar{X})^2}$) but i have difficulties calculating them because data can be &quot;big&quot; ($X$) or &quot;little&quot; ($x$). My prof. tried to explain me that $x=X-\bar{X}$ but my difficulties remain. For example: assuming that $\sum x_iy_i=...$, $\sum Y_i=...$, $\sum X_{i}^{2}=...$ and $\sum X_i=...$: all data are uncertain except the last. I know that $\hat{\beta _{1}}$ can be written like&#xA;$=\frac{\sum_{i=1}^{n}X_iY_i- n\bar{X}\bar{Y}}{\sum_{i=1}^{n}X_{i}^{2}-n\bar{X}^2}$: so, how can i transform $x_iy_i$ in $X_iY_i$ to use it in the formula? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;2° Question&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In light of the problems that i have for the 1° question, i can't write a good form so i ask you if formulas below are corrected:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;mean for observed variables: $\bar{x}=\frac{1}{n}\sum x_i$&lt;/li&gt;&#xA;&lt;li&gt;variance for observed variables: ${s_{X}}^{2}=\frac{1}{n}\sum (x_i-\bar{x})^2=\frac{1}{n}\sum ({x_{i}}^{2}-2x_i\bar{x}+\bar{x}^2)=\bar{x^2}-\bar{x}^2=\frac{1}{n}\sum {x_{i}}^{2}-\bar{x}^2$&lt;/li&gt;&#xA;&lt;li&gt;standard deviation for observed variables: ${s_{X}}^{2}=\sqrt{\frac{1}{n}\sum (x_i-\bar{x})^2}$&lt;/li&gt;&#xA;&lt;li&gt;covariance for observed variables: ${s_{XY}}=\frac{1}{n}\sum (x_i-\bar{x})(y_i-\bar{y})=\bar{xy}-\bar{x}\bar{y}=\frac{1}{n}\sum x_iy_i-(\frac{1}{n}\sum x_i)(\frac{1}{n}\sum y_i)$&lt;/li&gt;&#xA;&lt;li&gt;correlation for observed variables: ${r_{XY}}=\frac{s_{XY}}{s_{X}s_{Y}}=\frac{\frac{1}{n}\sum x_iy_i-(\frac{1}{n}\sum x_i)(\frac{1}{n}\sum y_i)}{\sqrt{\frac{1}{n}\sum (x_i-\bar{x})^2\cdot\frac{1}{n}\sum (y_i-\bar{y})^2}}=\frac{\sum (x_i-\bar{x})(y_i-\bar{y})}{\sqrt{\sum (x_i-\bar{x})^2\cdot\sum (y_i-\bar{y})^2}}=\frac{\sum x_iy_i-n\bar{x}\bar{y}}{({\sum x_{i}}^{2}-n\bar{x}^2)({\sum y_{i}}^{2}-n\bar{y}^2)}$&lt;/li&gt;&#xA;&lt;li&gt;sample mean: $\bar{X}=\frac{1}{n}\sum X_i$&lt;/li&gt;&#xA;&lt;li&gt;sample variance: ${S_{e}}^{2}=\frac{1}{n}\sum (X_i-\bar{X})^2$&lt;/li&gt;&#xA;&lt;li&gt;standard error: $SE=\sqrt{\frac{1}{n}\sum (X_i-\bar{X})^2}$&lt;/li&gt;&#xA;&lt;li&gt;corrected estimator for sample variance: $S^2=\frac{1}{n-1}\sum (X_i-\bar{X})^2$ with $S^2=\frac{n}{n-1}{S_{e}}^{2}$&lt;/li&gt;&#xA;&lt;li&gt;$R^2$: $R^2=(r_{XY})^2$ or $R^2=\frac{ESS}{TSS}=\frac{\sum_{i=1}^{n}(\hat{y_i}-\bar{y})^2}{\sum_{i=1}^{n}(y_i-\bar{y})^2}\Rightarrow ESS=R^2\cdot TSS=(r_{XY})^2\cdot (\sum {y_{i}}^{2}-n\bar{y}^2)\Rightarrow RSS=TSS-ESS$&lt;/li&gt;&#xA;&lt;li&gt;estimate of the variance of residuals: $SER=\sqrt{\frac{1}{n-2}\sum (e_i-\bar{e})^2}=\frac{RSS}{n-2}$&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="15740" LastActivityDate="2017-12-29T07:48:04.057" Title="Difference between $x$ and $X$" Tags="&lt;econometrics&gt;&lt;statistics&gt;&lt;applied-econometrics&gt;&lt;instrumental-variable&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19863" PostTypeId="2" ParentId="19862" CreationDate="2017-12-28T20:12:43.297" Score="1" Body="&lt;p&gt;Formulas can be checked against infinite online resources, not here.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The most widespread use of $x$ and $X$ to distinguish something, is when it is needed to emphasize what is treated in theoretical derivations as a realized value (a fixed number, $x$), and what as a random variable, $X$. When using matrix algebra though bold uppercase denotes a matrix (but in panel data where everything is a matrix, we see often simple uppercase to denote a matrix).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sometimes, authors don't bother, since it should be obvious from context.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Perhaps the most usual confounding is to use lowercase $x$ for either a realized value or a random variable, but use uppercase letters for random variables.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for calculation, it is always done using data, so there is nothing to &quot;convert&quot; here. If you have the realized data on $X$ and $Y$, then plug them in the formula. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any other contrasting use of the two is of course not &quot;forbidden&quot;, but then one should read carefully how each author defines their use. Nevertheless, to use simply $x$ to denote &quot;a variable centered on its sample mean&quot; $x=X-\bar X$, is rather unusual and confusing I would say, and in any case it does not warrant a change from lowercase to uppercase. We usually write things like&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$x^* \equiv x-\bar x$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;or some other symbol instead of a star.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2017-12-28T22:21:44.957" LastActivityDate="2017-12-28T22:21:44.957" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19866" PostTypeId="1" AcceptedAnswerId="19869" CreationDate="2017-12-29T07:09:34.290" Score="1" ViewCount="261" Body="&lt;p&gt;Remember our friend Ralph Rigid from Chapter 3? His favorite&#xA;diner, Food for Thought, has adopted the following policy to reduce the&#xA;crowds at lunch time: if you show up for lunch t hours before or after&#xA;12 noon, you get to deduct t dollars from your bill. (This holds for any&#xA;fraction of an hour as well.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(a) Use blue ink to show Ralph's budget set. On this graph, the horizontal&#xA;axis measures the time of day that he eats lunch, and the vertical axis&#xA;measures the amount of money that he will have to spend on things other&#xA;than lunch. Assume that he has 20 total to spend and that lunch at&#xA;noon costs 10. (Hint: How much money would he have left if he ate at&#xA;noon? at 1 P.M.? at 11 A.M.?)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(b) Recall that Ralph's preferred lunch time is 12 noon, but that he is&#xA;willing to eat at another time if the food is sufficiently cheap. Draw&#xA;some red indifference curves for Ralph that would be consistent with his&#xA;choosing to eat at 11 A.M.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The answer is given as &lt;a href=&quot;https://i.stack.imgur.com/WQIIx.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/WQIIx.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is, shouldnt the graph be perfectly parabolic? with both tangents at Time = 11 and 1.&#xA;Shouldn't eating at 11 be exactly as preferable to eating at 1?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks for the help.&lt;/p&gt;&#xA;" OwnerUserId="15730" LastActivityDate="2017-12-29T11:45:28.767" Title="Problem with a Hal Varian Question from chapter 5" Tags="&lt;preferences&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19868" PostTypeId="1" CreationDate="2017-12-29T08:29:22.530" Score="1" ViewCount="47" Body="&lt;p&gt;I'm reading some of Paul Krugman's writing on Japan and the liquidity trap; specifically this article: &lt;a href=&quot;http://web.mit.edu/krugman/www/japtrap.html#Figure%201&quot; rel=&quot;nofollow noreferrer&quot; title=&quot;Japan&amp;#39;s Trap&quot;&gt;Japan's Trap&lt;/a&gt;. However, I'm not an economist (just an enthusiast) so I have some basic questions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, PK uses the notation $y_t$ to refer to an endowment that's received at the start of each period. It's my understanding that this can be thought of as output, I.e. What individuals have to sell at the start of each period. Is it correct, then, to interpret the model as follows?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For $t=1$:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;The endowment is $Y_1$&lt;/li&gt;&#xA;&lt;li&gt;The nominal value of the endowment is $p_1Y_1$&lt;/li&gt;&#xA;&lt;li&gt;A portion of this is used to purchase one-period bonds and the remainder is used to purchase consumption, $c_1$. Cash is required for consumption but not for the purchase of bonds. Thus, $M_1 = p_1c_1$ is the money demand for period 1, where $M_1 &amp;lt; p_1Y_1$ if any bonds are purchased.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;For $t=2$:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;An endowment of $Y_2$ is received &lt;/li&gt;&#xA;&lt;li&gt;The nominal value of the endowment is $p_2Y_2$&lt;/li&gt;&#xA;&lt;li&gt;Additionally, people will be paid from their bond purchases in the previous period, receiving $(p_1Y_1 - M_1)(1+i_1)$. &lt;/li&gt;&#xA;&lt;li&gt;Thus, total income available in period 2 is the nominal value of period 2 output plus the principal and interest on period 1 investment: $p_2Y_2 + (p_1Y_1 - M_1)(1+i_1)$&lt;/li&gt;&#xA;&lt;li&gt;This total income is then allocated to second-period bond purchases and consumption, $c_2$.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Essentially, my interpretation is that total income available in period 2 and beyond may be larger than the endowment received each period, $Y_t$, and this is due to investment. Thus, for any period t, if the amount of income that is used for bond purchases is $I_t$, then $C_t + I_t = RGDP_t &amp;gt; Y_t$ if bond purchases $I_t$ are above 0, the economy is closed, and the government contributes nothing beyond open-market operations and lump-sum transfers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the above is correct, then I don't understand PK's reasoning in section 1, where he makes some assumptions about periods 2 and beyond, saying that &quot;from the second period onwards output (and therefore also consumption) will remain constant at a level y*.&quot; I don't understand this statement. I'm fine with the assumption that $y_t = y*$ for all $t &amp;gt; 1$, as PK says at the beginning of the paper that $Y_t$ is exogenous. What I don't get is why it follows that $c_t = y_t$. &lt;/p&gt;&#xA;" OwnerUserId="15745" LastEditorUserId="15745" LastEditDate="2017-12-29T18:22:56.990" LastActivityDate="2017-12-29T18:22:56.990" Title="Questions about Paul Krugman's 1998 Japan Analysis" Tags="&lt;macroeconomics&gt;&lt;monetary-policy&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19869" PostTypeId="2" ParentId="19866" CreationDate="2017-12-29T08:51:24.483" Score="3" Body="&lt;p&gt;I think the answer to your question is that it would be a matter of Ralph's preferences. Perhaps he is indifferent to eating at 11:00 am or 1:00 pm, as you suggest. But he might have non-parabolic preferences (for reasons unspecified), and both this situation and the one you describe are consistent with his eating at 11:00 am, so the answer provided is a correct solution to the question asked. Perhaps the particular indifference curves drawn are a way to avoid multiple solutions (the author might have thought it simpler).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm going exclusively off the information in your post though, so I'm assuming that we do not know if Ralph has any preferences over time independent of how it implicitly affects the price he pays.&lt;/p&gt;&#xA;" OwnerUserId="15745" LastActivityDate="2017-12-29T08:51:24.483" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19870" PostTypeId="1" CreationDate="2017-12-29T09:35:48.977" Score="0" ViewCount="218" Body="&lt;p&gt;Consider a simple Keynesian economy in which the government expenditure (&lt;span class=&quot;math-container&quot;&gt;$G$&lt;/span&gt;) exactly equals its total tax revenue: &lt;span class=&quot;math-container&quot;&gt;$G = tY$&lt;/span&gt; where &lt;span class=&quot;math-container&quot;&gt;$t$&lt;/span&gt; is the tax rate and &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt; is the national income. Suppose that the&#xA;government raises &lt;span class=&quot;math-container&quot;&gt;$t$&lt;/span&gt;. Then what happens to &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt;?.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My working: With the balanced budget multiplier in effect &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt; becomes equal to &lt;span class=&quot;math-container&quot;&gt;$\frac I {(1- c) (1 - t)}$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However without the balanced budget in effect ( when taxes are increased over government expenditure), &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt; becomes equal to &lt;span class=&quot;math-container&quot;&gt;$\frac {I + G} {1 - c(1-t)}$&lt;/span&gt;&#xA;Is the working right ?. How should I proceed in order to come to a solution ?.&lt;/p&gt;&#xA;" OwnerUserId="14574" LastEditorUserId="23083" LastEditDate="2019-12-15T14:40:33.173" LastActivityDate="2021-05-08T18:01:40.160" Title="Balanced budget and change in taxes" Tags="&lt;macroeconomics&gt;&lt;keynesian-economics&gt;" AnswerCount="2" CommentCount="10" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="19872" PostTypeId="2" ParentId="19866" CreationDate="2017-12-29T11:32:53.123" Score="1" Body="&lt;p&gt;There is no reason why Ralph's indifference curves should be parabolic or symmetrical about 12 noon. Their shape will depend on his preferences and circumstances (or, more precisely, on his preferences which will be influenced by his circumstances and may therefore change from one day to another). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose for example that it's a working day and his boss has asked him to attend a meeting at 1 pm.  In that case his indifference curves on that day would probably become almost vertical at some time before 1 pm. &lt;/p&gt;&#xA;" OwnerUserId="1417" LastEditorUserId="1417" LastEditDate="2017-12-29T11:45:28.767" LastActivityDate="2017-12-29T11:45:28.767" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19877" PostTypeId="2" ParentId="19870" CreationDate="2017-12-29T16:56:17.083" Score="0" Body="&lt;p&gt;Here's my take, which could be wrong.  We assume a closed economy, so net exports, imports and exports themselves are all zero.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We have Y = C + I + G&#xA;Suppose we have the simple consumption function C= k +c*(Y-T).  We are only allowed to consume out of disposable income or have autonomous consumption.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then Y = k+c*(Y-T) + I + G&#xA;This goes to &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Y*(1-c) = k - c*T + I + G&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You take T = t*Y.  So this is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Y*(1-c) = k - c&lt;em&gt;t&lt;/em&gt;Y + I + G&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Subtract c&lt;em&gt;t&lt;/em&gt;Y from both sides.  Then we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Y*(1-c*(1-t)) = k + I + G  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The solution in the absence of the balanced budget would be&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Y = [k + I + G]/(1 - c*(1-t))&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now have G = t*Y - the balanced budget&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Y*(1 - c*(1-t)) = k + I + t*Y  or&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Y*((1-t) - c*(1-t)) = k+ I or&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Y*((1-t)*(1-c)) = k + I&lt;/p&gt;&#xA;&#xA;&lt;p&gt;or &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Y = [k + I]/((1-t)*(1-c))&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So my take is that the multiplier is right, in both cases, but that there is or will have to be some autonomous consumption expenditure in the economy, and that's what's left out.  You can say, &quot;I don't need autonomous expenditure!&quot;  But just try coming up with a Keynesian cross to settle output in nominal terms without one!&lt;/p&gt;&#xA;" OwnerUserId="15751" LastActivityDate="2017-12-29T16:56:17.083" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19878" PostTypeId="1" CreationDate="2017-12-29T17:09:26.990" Score="0" ViewCount="353" Body="&lt;p&gt;&lt;a href=&quot;https://imgur.com/xatMuTW&quot; rel=&quot;nofollow noreferrer&quot;&gt;This&lt;/a&gt; is an excerpt from a data source that I am using. According to the authors it has been created from accounting identities such that it matches theoretical variables used in macroeconomics. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, they state that the consolidated government constraint is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$T_t + S_t + \Delta B_t^p = G_t +I_t + i_t B_{t-1}^p$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where $T_t$ is tax revenue, $S_t$ is seigniorage, $B_t^p$ is government debt owned by the public, $G_t + I_t$ is government spending on consumption and investments and $i_t B_{t-1}^p$ is interest payments to the public. This is inline with government constraints I have seen in textbooks. However, when I use their data, I cannot seem to get correct numbers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, consider $t = 1802$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$T_t = 9844$,&#xA;$S_t =813$, $G_t + I_t = 7096 $, $i_t B_{t-1}^p = 1083$, $\Delta B_{t}^p = 23406 - 22243$ and clearly the number do not add up.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, when I calculate the consolidated deficit ($G_t +I_t + i_t B_{t-1}^p -(T_t + S_t))$ I get something very similar to $DEF_t^c$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So I am quite confused as to what I am doing wrong. My only guess is that it has to do with the timing notation. I.e $\Delta B_{t}^p \neq B_{t}^p - B_{t-1}^p$. &#xA;Any ideas on what I am doing wrong?&lt;/p&gt;&#xA;" OwnerUserId="11767" LastEditorUserId="11767" LastEditDate="2017-12-29T17:44:51.640" LastActivityDate="2017-12-29T17:44:51.640" Title="Consolidated budget constraint" Tags="&lt;government-debt&gt;&lt;government-spending&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19880" PostTypeId="1" CreationDate="2017-12-29T17:57:05.123" Score="1" ViewCount="13" Body="&lt;p&gt;I am here to ask you a suggestion about how to correctly handle this situation related to how to calculate the earned money into an financial investment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here you can find a basic Excel sheet related about how I am modeling the problem: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://drive.google.com/file/d/1R29ofaOfSlzqkcjFsAmWvry-knfv8zOn/view?usp=sharing&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://drive.google.com/file/d/1R29ofaOfSlzqkcjFsAmWvry-knfv8zOn/view?usp=sharing&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now I will try to explain you the context in details:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;It represents cryptocurrencies financial investment. In this case this specific sheet is related to &lt;strong&gt;Ethereum&lt;/strong&gt; currency.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The &lt;strong&gt;IN MOVEMENTS&lt;/strong&gt; section on the left contains the input movements: the user is buying Ethereum currency using &lt;strong&gt;euro&lt;/strong&gt;, the quantity of euro for each input movement is into the &lt;strong&gt;B&lt;/strong&gt; column having *IN-VALUE** as label. The quantity of bought ethereum for each movement is into the &lt;strong&gt;D&lt;/strong&gt; column (having &lt;strong&gt;QUANTITY&lt;/strong&gt; as label). The &lt;strong&gt;€ to ETH&lt;/strong&gt; change is into the &lt;strong&gt;E&lt;/strong&gt; column having &lt;strong&gt;CHANGE VALUE&lt;/strong&gt; as label. For some moovements I pay a fee in  € represented by the value of the &lt;strong&gt;F&lt;/strong&gt; column (haivng &lt;strong&gt;FEE&lt;/strong&gt; as label).&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;In the &lt;strong&gt;OUT MOVEMENTS&lt;/strong&gt; on the right I have the &lt;strong&gt;output movements&lt;/strong&gt;. These movements represent when I change a specific quantity of ethereum currency (represented by the &lt;strong&gt;K&lt;/strong&gt; column, having &lt;strong&gt;QUANTITY&lt;/strong&gt; as label) into another cryptocurrency (because I use Ethereum currency to buy other cryptocurrencies on the exchange). So for each output movement I have the &lt;strong&gt;K&lt;/strong&gt; column representing the amount of the Ethereum that is going out to buy another currency (de facto these ethereum are not destroyed or lost but are transformed in something different that will be considered into another Excel sheet) and the value in € of this amount of ethereum (the value into the &lt;strong&gt;I&lt;/strong&gt; column) in the specific time of this movement (this last step is very important for my reason).&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Finally into the &lt;strong&gt;N13&lt;/strong&gt; cell I have the last value of Ethereum currency in €.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Now my problem is: how to calculate how much I am earning?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I started thinking: it is simple and I just have to do something like this:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;REWARD = [(SUM(D clumn values) + SUM(K column values)] * N13 + SUM(I column values)&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;So, usign this formula, the reward in €) is the final number of the Ethereum coin that I have (the sum of the coin that I have bought + the negative number of the cin that are went out buying other currencies) multiplied for the current value of ETH coin (in €) + the negative sum of the € related each out movement.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But in this case I have a big problem, I try to explain you. Looking my Excel example there are 2 possible situation:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) The red background scenario in which I buy some Ethereum and immediately I move these quantity of Ethereum (the exactly same quantity) on a Market and I buy another currency. So the &lt;strong&gt;IN-VALUE&lt;/strong&gt; and the &lt;strong&gt;OUT-VALUE&lt;/strong&gt; have the same values (or otherwise very similar). And it is ok, I think that can be handle with my previous &lt;strong&gt;REWARD&lt;/strong&gt; formula.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) All the other situation (that are problematic). For example, using my Excel as Example, I do 3 different IN MOVEMENT (in these date: 08/12/2017 and 15/12/2017 and 21/12/2017)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then in the &lt;strong&gt;16/12/2017&lt;/strong&gt; I do an out movement where I transfer &lt;strong&gt;-0,3353050000&lt;/strong&gt; Ethereum to another market. The problem is that during this tume the value of Ethereum is changed (in this case it was increased) so I have a value in € of &lt;strong&gt;-198,96 €&lt;/strong&gt; that broke my previous reward formula, infact:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;REWARD = [(SUM(D clumn values) + SUM(K column values)] * N13 + SUM(I column values)&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;means:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;REWARD = 0,55363224 * 728,454911165 - 292,94&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;--&gt;&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;REWARD = 110.356124207 €&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;The problem is that I think that it is a very bad approximation and the problem is related in this section of my &lt;strong&gt;REWARD&lt;/strong&gt; formula: &lt;strong&gt;SUM(I column values)&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Infact here I am adding the negative out value in € at the moment I am doing the out transaction to buy another currency. This value embody the actual conversion ETH to € constant. If the value of ETH is increased a lot after that I have done my last input transaction this section &lt;strong&gt;SUM(I column values)&lt;/strong&gt; should take a too hight value. If the value of ETH is decreased a lot ater that I have done my last input transaction this section of the formula should take a too low value. So my final value can be not meaningful.&#xA;Is it my reason correct?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So I am thinking to solve the situation in this way:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For each out movement I will calculate something like an &lt;strong&gt;actualized&lt;/strong&gt; value (into the &lt;strong&gt;L&lt;/strong&gt; column, now labeled with &lt;strong&gt;XXX&lt;/strong&gt;), in this way:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I consider the date of the current &lt;strong&gt;out movement&lt;/strong&gt; (for example &lt;strong&gt;16/12/2017&lt;/strong&gt;), then I take all the &lt;strong&gt;IN MOVEMENTs&lt;/strong&gt; having anantecedent date (so the input movements related to these dates: &lt;strong&gt;08/12/2017&lt;/strong&gt;, &lt;strong&gt;15/12/2017&lt;/strong&gt;, &lt;strong&gt;21/12/2017&lt;/strong&gt;). I use these movements to calculate the weighted average of the ETH to € conversion (so if I have 3 input movements in which I bought 3 different quantity of ETH at 3 different prices, I will calculate the weighted average of the ETH to € conversion). I want to use the weighted average because if in a movement I buy a greater quantity of ETH with a specific price it have to weigh more on the avarage).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So now I have a weighted average of all the previous input movement and I put it ino my &lt;strong&gt;L3&lt;/strong&gt; (labeled with &lt;strong&gt;XXX&lt;/strong&gt;) cell of the current output movement. I know how much ETH coins I have moved out in this transaction (the &lt;strong&gt;K3&lt;/strong&gt; value), so multiply the &lt;strong&gt;K3* value for the new **L3&lt;/strong&gt; value and I use these &lt;strong&gt;L&lt;/strong&gt; coumn values into my REWARD formula instead the I column values.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So my formula will be:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;REWARD = [(SUM(D clumn values) + SUM(K column values)] * N13 + SUM(L column values)&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;I think that in this way I should obtain a more accurate reward value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does my idea make sense?&lt;/p&gt;&#xA;" OwnerUserId="15752" LastActivityDate="2017-12-29T17:57:05.123" Title="How can I change this formula to better calculate the reward of some financial movements? (avoiding to consider maturation)" Tags="&lt;interest-rate&gt;&lt;investment&gt;&lt;cryptocurrency&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19881" PostTypeId="2" ParentId="19520" CreationDate="2017-12-29T18:46:24.863" Score="0" Body="&lt;p&gt;Your supervisor wants you to do this because its based on the fisher equation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$i =r+\pi$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $i$ is nominal interest rate, $r$ is real interest rate and $\pi$ is inflation rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;rearranging this equation we get the basis for your supervisors recommendation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$r=i-\pi$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope this helps.&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2017-12-29T18:46:24.863" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19882" PostTypeId="1" CreationDate="2017-12-29T18:55:08.053" Score="2" ViewCount="91" Body="&lt;p&gt;I'm reading a paper that tries to estimate the following model:&#xA;$$y = \alpha x+\beta z+\gamma xz+\epsilon$$&#xA;where x,z are dummy variables and y isn't. &#xA;The estimated coefficient of $\alpha$ is positive (0.02), and the sum of $\alpha+\gamma$ is negative (-0.01,insignificant). The writer examines the marginal effect of x, conditional on z and finds a positive (0.01, with significant of 90%). &#xA;My question is what is the difference in interpretation of marginal effect VS. $\alpha+\gamma$?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The paper is &quot;Terrorism and Voting: The Effect of Rocket Threat on Voting in Israeli Elections&quot; by Anna Getmansky and Thomas Zeitzoff (link: &lt;a href=&quot;https://www.zeitzoff.com/uploads/2/2/4/1/22413724/zeitzoff_getmank_rockets_main.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.zeitzoff.com/uploads/2/2/4/1/22413724/zeitzoff_getmank_rockets_main.pdf&lt;/a&gt;).&#xA;The marginal analysis is on page 11.&lt;/p&gt;&#xA;" OwnerUserId="11977" LastEditorUserId="8595" LastEditDate="2017-12-31T19:21:35.060" LastActivityDate="2017-12-31T19:21:35.060" Title="Marginal Effects Interpretation" Tags="&lt;econometrics&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="19883" PostTypeId="1" CreationDate="2017-12-29T19:10:31.230" Score="5" ViewCount="59" Body="&lt;p&gt;How exactly do you measure human capital for a given country and what numbers are included in that measure.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reason why I ask is because im interested in simulating the &lt;a href=&quot;https://en.wikipedia.org/wiki/Solow%E2%80%93Swan_model#Addition_of_human_capital&quot; rel=&quot;noreferrer&quot;&gt;Mankiw–Romer–Weil version of the solow Model&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Links to where I can get the data will be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2018-01-29T14:42:33.807" Title="Macroeconomic Measures of Human Capital" Tags="&lt;macroeconomics&gt;&lt;data-request&gt;&lt;solow&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19884" PostTypeId="5" CreationDate="2017-12-29T19:20:53.567" Score="0" Body="" OwnerUserId="8815" LastEditorUserId="8815" LastEditDate="2017-12-29T19:20:53.567" LastActivityDate="2017-12-29T19:20:53.567" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19885" PostTypeId="4" CreationDate="2017-12-29T19:20:53.567" Score="0" Body="Referring to the Solow-Swan model of economic growth." OwnerUserId="8815" LastEditorUserId="8815" LastEditDate="2017-12-29T19:20:53.567" LastActivityDate="2017-12-29T19:20:53.567" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19886" PostTypeId="1" AcceptedAnswerId="19889" CreationDate="2017-12-29T23:47:10.357" Score="2" ViewCount="34" Body="&lt;p&gt;I'm confused about how one acquires the data necessary to compute price indices--specifically, how one acquires quantity data.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose I wanted to compute the Laspeyres Index, defined as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\sum\limits_{i=1}^{N} p_{i}(t_{f}) q_{i}(t_{0}) / \sum\limits_{i=1}^{N} p_{i}(t_{0}) q_{i}(t_{0})$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $N$ is the number of different goods, each $p_{i}$ is a price, and each $q_{i}$ is a quantity. Each $p_i$ is measured in units of currency per units of a good, and each $q_{i}$ is measured in units of a good per unit of time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But as far as I can tell, we can't measure $q_{i}(t_{o})$ or $q_{i}(t_{f})$. These represent the instantaneous rates that a certain good is sold at a particular time, whereas data-collectors are only able to ask how much firms have sold of a good over a period of time--in other words, we can measure&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\int\limits_{t_{0}}^{t_{f}} q_{i}(t)dt$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;by summing the total sales of all firms that sell good $i$ during the period between $t_{0}$ and $t_{f}$, but not&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$q_{i}(t)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;for any given $t$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How do actual econometricians measure $q_{i}(t_{o})$ and $q_{i}(t_{f})$? Do they measure the number of goods sold $x$ days after $t_{0}$ or $t_{f}$, then divide by $x$ for a sort of local approximation? Or do they use some other method?&lt;/p&gt;&#xA;" OwnerUserId="15755" LastActivityDate="2017-12-30T10:12:00.693" Title="Measuring quantities for price indices?" Tags="&lt;price&gt;&lt;economic-measurement&gt;&lt;price-index&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="19887" PostTypeId="2" ParentId="19520" CreationDate="2017-12-30T00:54:59.300" Score="3" Body="&lt;p&gt;Two things to note here. First, subtracting inflation from the nominal interest rate &lt;em&gt;is&lt;/em&gt; an approximation to the real interest rate, but only in discrete time. Furthermore, the &quot;true&quot; relationship it's approximating isn't division of one rate by the other--you have to add 1 to all three of your quantities (inflation, real interest rate, and nominal interest rate) first to get the true relationship.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here's a brief overview. Consider the Fisher equation of&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$r = i - \pi$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $r$ is the real interest rate, $i$ is the nominal interest rate, and $\pi$ is the inflation rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This equation is often introduced as a linear approximation to the true real rate of interest, given by the equation&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac{1 + i}{1 + \pi} = 1 + r$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's see how this holds in a discrete time model. Denote your nominal income as $Y$ and the price level as $P$. Your real income is $Y/P$. If all this income is invested in some interest-bearing asset in a discrete time model, your real income in the next time period becomes&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac{Y (1 + i)}{P (1 + \pi)}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and if we want to find a real interest rate that summarizes this change in real income, we would need to write your real income in the next time period as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac{Y}{P} (1 + r)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which gives us the identity $\frac{1 + i}{1 + \pi} = 1 + r$ that the Fisher equation approximates. However, if we work in continuous time, this breaks down. First, the units don't work out--inflation rates and interest rates are measured in percentage change per year (or some other unit of time), so they cannot be added to the dimension-less number $1$. Second, it turns out that Fisher's approximation is actually completely correct in continuous time. Using derivatives, we define our quantities as follows:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$i = \frac{dY}{dt} \frac{1}{Y}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\pi = \frac{dP}{dt} \frac{1}{P}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$r = \frac{d(Y/P)}{dt} \frac{1}{(Y/P)}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Using the quotient rule, we can rewrite $r$ as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$r = \frac{\frac{dY}{dt}P - \frac{P}{dt}Y}{P^{2}} \frac{1}{(Y/P)}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which simplifies to&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$r = (\frac{dY}{dt} \frac{1}{P} - \frac{dP}{dt} \frac{Y}{P^{2}}) \frac{P}{Y} = \frac{dY}{dt} \frac{1}{Y} - \frac{dP}{dt} \frac{1}{P} = i - \pi$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which gives us the Fisher equation, no approximations about it!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that this assumes continuous compounding from your nominal interest rate. If you instead have a compounding rate of $\tau$, we would define $i$ differently, and our equation becomes&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$r = \tau \ln(1 + \frac{i}{\tau}) - \pi$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, for the purposes of the data you're working with, I am 90% sure that this modification is completely superfluous. If you want to use something more precise than the Fisher equation, you need to know exactly how your data was computed. What price index was used to calculate the inflation rate? Under what assumptions was the nominal interest rate calculated?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In short, while I can't speak to the reasons for your supervisor's recommendation, they're definitely correct that you should subtract inflation rather than divide by it. There's a reason why we use the Fisher equation.&lt;/p&gt;&#xA;" OwnerUserId="15755" LastEditorUserId="15755" LastEditDate="2017-12-30T09:36:55.897" LastActivityDate="2017-12-30T09:36:55.897" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19888" PostTypeId="1" CreationDate="2017-12-30T06:30:57.157" Score="6" ViewCount="859" Body="&lt;p&gt;I keep reading about certainty equivalence in the context of DSGE models.&lt;/p&gt;&#xA;&lt;p&gt;I understand that it has something to do with &amp;quot;Getting rid of the expectation operator&amp;quot;, but I'm not entirely sure? &lt;strong&gt;What exactly is &amp;quot;certainty equivalence&amp;quot; in the context of DSGE models?&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;p&gt;Do we have certainty equivalence if the solution to a stochastic model &lt;span class=&quot;math-container&quot;&gt;$M_S$&lt;/span&gt; is the same as the solution to the non-stochastic model &lt;span class=&quot;math-container&quot;&gt;$M_N$&lt;/span&gt;, if &lt;span class=&quot;math-container&quot;&gt;$M_N$&lt;/span&gt; is obtained by taking the equations of &lt;span class=&quot;math-container&quot;&gt;$M_S$&lt;/span&gt; and simply removing the expectation operator and the random shocks?&lt;/p&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;&lt;strong&gt;EDIT&lt;/strong&gt;: I just read in the Dynare user manual, that a first order taylor approximation of a DSGE model has &amp;quot;certainty equivalence&amp;quot;, because future shocks drop out when you take the expectation operator. Yet current shocks do not drop out, as we can see in the following equation:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/I27HR.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/I27HR.png&quot; alt=&quot;enter image description here&quot; /&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&lt;p&gt;Note the &lt;span class=&quot;math-container&quot;&gt;$u$&lt;/span&gt; at the very end. This denotes the current-time shock.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;So if this is a &amp;quot;certainty equivalent model&amp;quot;, but we still have an exogenous shock, then what does certainty equivalence mean? Apparently it doesn't mean &amp;quot;the absence of uncertainty&amp;quot; since there is still an exogenous shock.&lt;/p&gt;&#xA;" OwnerUserId="11146" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2018-01-01T13:01:45.780" Title="What exactly is certainty equivalence in the context of DSGE models?" Tags="&lt;uncertainty&gt;&lt;dsge&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19889" PostTypeId="2" ParentId="19886" CreationDate="2017-12-30T10:12:00.693" Score="0" Body="&lt;p&gt;The notation $q_{i}(t_{0})$ does not necessarily mean number of goods sold in instant $t_0$. It can also mean the number of goods sold in the period denoted by $t_0$. As you point out the first one would be somewhat difficult to measure.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In fact I have not yet seen the notation you use. The &lt;a href=&quot;https://en.wikipedia.org/wiki/Price_index#Paasche_and_Laspeyres_price_indices&quot; rel=&quot;nofollow noreferrer&quot;&gt;notation&lt;/a&gt; I am familiar with is usually something like $q_{i,t_0}$, which better indicates that time is treated as a discrete variable. The unit of time could be anything, but it is usually a year or quarter.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2017-12-30T10:12:00.693" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="19890" PostTypeId="2" ParentId="19836" CreationDate="2017-12-30T10:54:35.080" Score="0" Body="&lt;p&gt;You can measure capitalization if a &quot;crypto currency&quot; is a security (an investment asset). For currencies, you can measure the &lt;a href=&quot;https://en.wikipedia.org/wiki/Money_supply&quot; rel=&quot;nofollow noreferrer&quot;&gt;money supply&lt;/a&gt; - the total amount of currency available.&#xA;You are trying to measure the total money supply in a foreign currency. For this you can multiply the total money supply by the exchange rate, as you already suggested in the question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The main issue with crypto currencies is that they are being bought and traded as securities rather than currency. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Definition of security (USA)&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;(...)a contract, transaction or scheme whereby a person invests his money in a common enterprise&lt;a href=&quot;https://en.wikipedia.org/wiki/Money_supply&quot; rel=&quot;nofollow noreferrer&quot;&gt;1&lt;/a&gt; and is led to expect profits solely from the efforts of the promoter or a third party.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.cuttingedgecapital.com/what-is-a-security-and-why-does-it-matter/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Source&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="12304" LastActivityDate="2017-12-30T10:54:35.080" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19892" PostTypeId="2" ParentId="19883" CreationDate="2017-12-30T14:16:15.297" Score="1" Body="&lt;p&gt;The approach developed by &lt;a href=&quot;http://barrolee.com/Lee_Lee_LRdata.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;Barro and Lee&lt;/a&gt; has been used in many empirical analysis. They provide a detailed discussion of how to construct an aggregate human capital measure. &lt;/p&gt;&#xA;" OwnerUserId="6009" LastActivityDate="2017-12-30T14:16:15.297" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19893" PostTypeId="5" CreationDate="2017-12-30T16:09:48.953" Score="0" Body="&lt;p&gt;Questions involving crypto currencies traded via the distributed ledger technology (blockchain) and its functioning aspects, as well as the valuation, exchange and issuance of new cryptocurrencies.&lt;/p&gt;&#xA;" OwnerUserId="12304" LastEditorUserId="12304" LastEditDate="2018-01-01T00:55:58.510" LastActivityDate="2018-01-01T00:55:58.510" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19894" PostTypeId="4" CreationDate="2017-12-30T16:09:48.953" Score="0" Body="Questions involving crypto currencies, crypto coins and tokens traded via the distributed ledger technology (blockchain) and its functioning aspects, as well as the valuation, exchange and issuance of new cryptocurrencies." OwnerUserId="12304" LastEditorUserId="12304" LastEditDate="2018-01-26T09:46:47.190" LastActivityDate="2018-01-26T09:46:47.190" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19895" PostTypeId="1" AcceptedAnswerId="19909" CreationDate="2017-12-30T16:53:37.963" Score="1" ViewCount="79" Body="&lt;p&gt;I don't understand. Ok, we have $\beta_1-\hat{\beta }_1=\frac{\frac{1}{n}\sum_{i=1}^{n}v_i}{(\frac{n-1}{n}){s_{X}}^{2}}$. So, for the first OLS assumption results that $E(v_i)=E((X_i-\bar{X})u_i\overset{p}{\rightarrow}E((X_i-\mu_X)u_i)=E(X_i-\mu_X)E(u_i)=0$ (since $E(u_i|X=x_i)=0$). Then Stock and Watson says that for the second OLS assumption $v_i$ is i.i.d. and $Var(v_i)&amp;lt;\infty$. Surely this is for the casual sampling of variables but i can't prove it clearly. &#xA;After this, we have $E(v_i)=0$ and $Var(v_i)={{\sigma _{v}}^{2}}&amp;lt;\infty$ so we can apply CLT and saying that for $n\rightarrow \infty$ $v_i\sim N(0,{{\sigma _{v}}^{2}}/n)$ since $\frac{1}{n}\sum_{i=1}^{n}v_i=\bar{v}$.&lt;/p&gt;&#xA;" OwnerUserId="15741" LastEditorUserId="15741" LastEditDate="2017-12-30T17:00:23.143" LastActivityDate="2017-12-31T17:03:55.587" Title="Why $v_i=(X_i-\mu _X)u_i$ is i.i.d?" Tags="&lt;econometrics&gt;&lt;mathematical-economics&gt;&lt;applied-econometrics&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="19897" PostTypeId="1" AcceptedAnswerId="21135" CreationDate="2017-12-30T22:34:53.507" Score="2" ViewCount="77" Body="&lt;p&gt;My understanding of a shareholder buy-backs is the definition given by &lt;a href=&quot;https://www.investopedia.com/articles/02/041702.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;Investopedia&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;A stock buyback, also known as a &quot;share repurchase&quot;, is a company's&#xA;  buying back its shares from the marketplace. You can think of a&#xA;  buyback as a company investing in itself, or using its cash to buy its&#xA;  own shares. The idea is simple: because a company can't act as its own&#xA;  shareholder, repurchased shares are absorbed by the company, and the&#xA;  number of outstanding shares on the market is reduced.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In &quot;The Entrepreneurial State: Debunking Public vs. Private Sector Myths&quot; by Dr. Mazzucato claims that shareholder buy-backs are a sign of stagnant economy that prioritizes stock prices and executive pay over things benefiting society:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;We are witnessing an increased financialization of the business&#xA;  sector, with many companies spending more on share buybacks—to boost&#xA;  their stock prices, stock options, and executive pay—than on areas&#xA;  like human capital and R&amp;amp;D. As the work of Lazonick (2014) has shown,&#xA;  in the last decade, nearly $4 trillion has been spent on share&#xA;  buybacks by Fortune 500 companies.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;sub&gt;I've &lt;a href=&quot;https://seanaubin.com/post/2017-05-09-book-review-the-entrepreneurial-state/&quot; rel=&quot;nofollow noreferrer&quot;&gt;reviewed the book&lt;/a&gt; if you're looking for more context to this quote.&lt;/sub&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Furthermore, &lt;a href=&quot;http://robertreich.org/post/172036828855&quot; rel=&quot;nofollow noreferrer&quot;&gt;Robert Reich believes they should be made illegal, as they were before 1982&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Stock buybacks are artificial efforts to interfere in the so-called “free market” to prop up stock prices. Because they create an artificial demand, they force stock prices above their natural level. With fewer shares in circulation, each remaining share is worth more.     &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Buybacks don’t create more or better jobs. Money spent on buybacks&#xA;  isn’t invested in new equipment, or research and development, or&#xA;  factories, or wages. It doesn’t build a company. Buybacks don’t grow&#xA;  the American economy.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;So why are buybacks so popular with Corporate CEOs?&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Because a bigger and bigger portion of CEO pay has been in stocks and&#xA;  stock options, rather than cash. So when share prices go up,&#xA;  executives reap a bonanza. The value of their pay from previous years&#xA;  also rises – in what amounts to a retroactive (and off the books) pay&#xA;  increase on top of their already outrageous compensation.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Is there some amount of shareholder buy-backs that could be seen as the sign of a healthy economy? Wherein &quot;healthy&quot; means still benefiting society via redistribution of wealth to those participating in the labour that created the profits or increase of collective human knowledge. Alternatively, what regulation has been proposed to correct short-sighted buy-backs?&lt;/p&gt;&#xA;" OwnerUserId="13059" LastEditorUserId="13059" LastEditDate="2019-07-03T02:59:56.327" LastActivityDate="2019-07-03T02:59:56.327" Title="What amount of share buy-backs are legitimate?" Tags="&lt;macroeconomics&gt;&lt;reference-request&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="19898" PostTypeId="2" ParentId="19888" CreationDate="2017-12-30T23:30:02.620" Score="3" Body="&lt;p&gt;Intuitively, it means that the model has such characteristics that &quot;the best we can say&quot; about remaining uncertainty, is that it will be zero. From general experience, we know that it won't be zero, but the information we possess does not permit us to say anything else than that it will be zero. The even deeper assumption here is that the information and knowledge we possess make all things that remain unpredictable to average to zero.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In such a case, of course the actual realized path of the model is affected by these totally unpredictable shocks, but &lt;em&gt;the decisions&lt;/em&gt; we take are based on a rule &quot;as if&quot; the future shocks will be zero (it is implied that we have to take decisions prior to observe the realization of the shock).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;More technically, quoting from Lungqvist &amp;amp; Sargent's &quot;Recursive Macroeconomic Theory&quot; 2004, 2nd ed:  &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;a) &lt;strong&gt;p.113&lt;/strong&gt;: &quot;CERTAINTY EQUIVALENCE PRINCIPLE: The decision rule that&#xA;  solves the stochastic optimal linear regulator problem is identical&#xA;  with the decision rule for the corresponding nonstochastic linear&#xA;  optimal regulator problem.&lt;/em&gt;&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&lt;em&gt;b) &lt;strong&gt;p.115&lt;/strong&gt;: The certainty equivalence principle is a special property of&#xA;  the optimal linear regulator problem, and comes from the quadratic&#xA;  objective function. the linear transition equation, and the property&#xA;  that (future disturbances have zero mean conditional on the current&#xA;  state). Certainty equivalence does not characterize stochastic control&#xA;  problems generally.&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Please read also &lt;a href=&quot;https://economics.stackexchange.com/a/9554/61&quot;&gt;&lt;strong&gt;this post&lt;/strong&gt;&lt;/a&gt;, so that if you do further search, to make sure that you look for &quot;certainty equivalence in macroeconomics&quot;.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2018-01-01T13:01:45.780" LastActivityDate="2018-01-01T13:01:45.780" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19899" PostTypeId="2" ParentId="19703" CreationDate="2017-12-31T02:53:38.990" Score="0" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;This is how I'd approach the problem. Please point out any issues on this method as it is based on my own approach (I have no textbook to reference this to).&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Based on the information you have, you would run a regression of log output on log-labor, log-capital and log-human capital. This would give you a model like this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\ln(Y)=\beta_0+\beta_1\ln(L)+\beta_2\ln(K)+\beta_3\ln(H)+\mu$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;in terms of a more &quot;economic looking&quot; equation, we take the expectation of this equation and take $e$ and raise it to the power of both sides giving us our production function.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\mathbb{E}[\ln(Y)]=\mathbb{E[}\beta_0+\beta_1\ln(L)+\beta_2\ln(K)+\beta_3\ln(H)+\mu]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\ln(Y)=\beta_0+\beta_1\ln(L)+\beta_2\ln(K)+\beta_3\ln(H)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Recall that we view $\beta_0$s the co-efficient on omitted variable $\ln(A)$ as the rate of technological change&lt;sup&gt;1,2&lt;/sup&gt;&lt;/em&gt;&#xA;$$\exp\{\ln(Y)\}=\exp\{\beta_0+\beta_1\ln(L)+\beta_2\ln(K)+\beta_3\ln(H)\}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Y=A^{\beta_0}L^{\beta_1}K^{\beta_2}H^{\beta_3}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Using this form you can more comfortably  calculate elasticity of subsitution between $L$ and $K$. If your elasticity of substitution is greater than or equal to 1 you have a labor saving process, however if elasticity of substitution is less than 1, we either have a process which is either a Human capital augmented process of TFP augmented process &lt;sup&gt;3&lt;/sup&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope this helps&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;sub&gt;1. &lt;a href=&quot;https://en.wikipedia.org/wiki/Solow_residual#Regression_analysis_and_the_Solow_residual&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://en.wikipedia.org/wiki/Solow_residual#Regression_analysis_and_the_Solow_residual&lt;/a&gt;&lt;/sub&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;sub&gt;2. the actual &quot;quantity&quot; of $A$ can be calculated by&#xA;$$A=\left(\frac{Y}{L^{\beta_1}K^{\beta_2}H^{\beta_3}}\right)^{\frac{1}{\beta_0}}$$&lt;/sub&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;sub&gt;3. this is of course assuming that either  $\beta_3&amp;gt;0$ and/or $\beta_0&amp;gt;0$.&lt;/sub&gt;&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="8815" LastEditDate="2017-12-31T15:50:18.693" LastActivityDate="2017-12-31T15:50:18.693" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="19902" PostTypeId="1" CreationDate="2017-12-31T03:27:47.517" Score="1" ViewCount="13" Body="&lt;p&gt;Suppose I want to open a long position (that which increases in value as the commodity goes up in value) in some commodity whose price at the time of opening the trade is, say, $p$. The position is opened on margin, and the margin is 3 times of the collateral. That is, if I have $p$ dollars in my margin account I can open a position of size $3p$, and the liquidation price will be $p$. Suppose also that the collateral for the commodity I'm trading in the long position is also denominated in the said commodity, which means that as the commodity goes down, the liquidation price (when the position has to be closed) goes up.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, I want to obtain the graph of the liquidation price change.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $y$ be the liquidation price and $x$ be the price of the commodity. Suppose I have 1 unit of the commodity and I open a long position for 1 unit. I think that in this case I come up with the following differential equation:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$3 \frac{dy}{dx}=-x, y(p) = \frac{p}{3},$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which doesn't give me the correct graph.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can someone please help me with this? I'm missing some important point here and thus the DE I'm coming up with is not correct.&lt;/p&gt;&#xA;" OwnerUserId="15761" LastActivityDate="2017-12-31T03:27:47.517" Title="Graph of liquidation of trade versus price of commodity" Tags="&lt;finance&gt;&lt;financial-markets&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19903" PostTypeId="1" CreationDate="2017-12-31T04:57:59.283" Score="2" ViewCount="576" Body="&lt;p&gt;Ive been doing some superficial reading on &lt;a href=&quot;https://en.wikipedia.org/wiki/Feldman%E2%80%93Mahalanobis_model&quot; rel=&quot;nofollow noreferrer&quot;&gt;Feldman-Mahalanobis Model&lt;/a&gt; and have been wondering what other equations and &quot;brand name&quot; models that have been prodouced by marxist economists?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What other mathematical Marxian models are out there?&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2018-01-06T15:34:25.477" Title="mathematical marxian models" Tags="&lt;mathematical-economics&gt;&lt;marxism&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19904" PostTypeId="1" AcceptedAnswerId="19927" CreationDate="2017-12-31T05:45:19.260" Score="7" ViewCount="407" Body="&lt;p&gt;The inverted yield curve has often been cited as a good predictor of impending economic recession. What are the reasons to explain why is it a good predictor? Is the inverted yield curve a cause or symptom of recession?&lt;/p&gt;&#xA;" OwnerUserId="6172" LastActivityDate="2018-03-21T23:19:07.600" Title="Why is the inverted yield curve a good predictor of impending economic recession?" Tags="&lt;interest-rate&gt;&lt;bonds&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19905" PostTypeId="1" AcceptedAnswerId="19907" CreationDate="2017-12-31T07:51:59.177" Score="6" ViewCount="310" Body="&lt;p&gt;If we have a function&#xA;$$f(x)=\max_yg(x,y)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then we can find the derivative $d/dx \ f(x)$ by realizing that &#xA;$$(1): \quad \frac {\partial }{\partial y}g(x,y^*)=0$$&#xA;because of the first order condition for maximization. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can use this by recognizing that $$\frac d {dx}f(x)=\frac d {dx}g(x,y^*(x))=\frac \partial {\partial x}g(x,y^*)+\frac \partial {\partial y}g(x,y^*)\frac {dy^*(x)} {dx}=\frac \partial {\partial x}g(x,y^*)$$&#xA;Where the last equality follows because of result $(1)$. &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;However, my question is, &lt;strong&gt;what if $y$ can only take a discrete number of values&lt;/strong&gt;? such as $0$ or $1$? We can of course say: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$f'(x)=\begin{cases}&#xA;g_x(x,0) \quad \text { if } g(x,0) &amp;gt; g(x,1)\\&#xA;g_x(x,1) \quad \text { if } g(x,0) &amp;lt; g(x,1)&#xA;\end{cases}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;However, I am wondering if there is a kind of &quot;envelope theorem for discrete choice sets&quot;, that would allow us to simplify this (especially if the choice set is discrete but large).&lt;/strong&gt; &lt;/p&gt;&#xA;" OwnerUserId="11146" LastEditorUserId="1601" LastEditDate="2017-12-31T08:54:51.877" LastActivityDate="2017-12-31T12:25:38.513" Title="Envelope theorem for discrete choice sets?" Tags="&lt;mathematical-economics&gt;&lt;choice-theory&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19907" PostTypeId="2" ParentId="19905" CreationDate="2017-12-31T12:25:38.513" Score="5" Body="&lt;p&gt;There is an envelope theorem for the setting you describe.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Have a look at “&lt;a href=&quot;http://onlinelibrary.wiley.com/doi/10.1111/1468-0262.00296/abstract&quot; rel=&quot;noreferrer&quot;&gt;Envelope Theorems for Arbitrary Choice Sets&lt;/a&gt;” by Milgrom and Segal (2002).&lt;/p&gt;&#xA;" OwnerUserId="8595" LastActivityDate="2017-12-31T12:25:38.513" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19909" PostTypeId="2" ParentId="19895" CreationDate="2017-12-31T13:13:51.587" Score="1" Body="&lt;p&gt;Even after the comments exchange I am not totally sure what is the problem of the OP, but I will answer the question in the title.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume that we have a model&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Y_i = \beta X_i + u_i,\;\;\; i=1,...,n$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume that we obtain a &quot;random sample&quot; of observations from $\{Y_i, X_i\}$. This makes each observation $i$ identically and independently distributed from all other observations.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now consider the random variable&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$v_i=(X_i-\mu _X)u_i = (X_i-\mu _X)(Y_i - \beta X_i) = X_iY_i - \beta X_i^2 - \mu_XY_i+\mu_x\beta X_i$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;while also&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$j\neq i : v_j=(X_j-\mu _X)u_j = (X_j-\mu _X)(Y_j - \beta X_j)=X_jY_j - \beta X_j^2 - \mu_XY_j+\mu_x\beta X_j$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$v_i$ is a function of random variables $\{Y_i, X_i\}$ only, while $v_j$ is a function of random variables $\{Y_j, X_j\}$ only which are independent from  $\{Y_i, X_i\}$. So  $v_i$ is independent from $v_j$.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;More over, since $X_i$ follows the same distribution as $X_j$, and $X_j$ follows the same distribution as $Y_j$, we have that $X_iY_i$ follows the same distribution as $X_jY_j$.Etc. So we also conclude that $v_i$ will have the same distribution as $v_j$.  &lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2017-12-31T17:03:55.587" LastActivityDate="2017-12-31T17:03:55.587" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19910" PostTypeId="2" ParentId="19870" CreationDate="2017-12-31T14:54:35.840" Score="0" Body="&lt;p&gt;Let me be careful about multipliers, because they are a controversial topic.  Barro has an extremely hostile view of multipliers from spending by the Federal government, which is on display in &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.imf.org/external/np/seminars/eng/2013/fiscal/pdf/barro.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.imf.org/external/np/seminars/eng/2013/fiscal/pdf/barro.pdf&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I believe that his view is widely shared; economists want to get paid, and sucking up to people who rabidly want to cut back government is a successful strategy these days.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the Keynesian mulitipliers (a la (G+I + k)/(1-c)), let /\  denote change.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So if we have /\G =40, then, under the Keynesian assumptions, and we let M denote our multiplier, we have /\Y = M*/\G.  If the numerical value of M were 2, as used to be assumed, then /\Y = 80. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My own feeling is that the harsh view of multipliers is misleading.  Suppose the government builds a road where there was none before.  My impression, which could be verified with an intensive search that I can't promise to do now, is that in Barro's view the spending increases from the road in the 1st year ONLY are counted as a response to the government spending.  But of course the road promotes spending for a number of years, and all the spending should be discounted and put in to get an honest answer.  You keep getting things like this - when West Germany absorbed East Germany to reunify the German state, my recollection is that someone calculated some multiplier involved as 0.2, conveniently overlooking that the West German government paid off the (worthless) debts of the East in legitimate marks.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the occasions when I pretend to be a &quot;respectable&quot; economist, I do regional analysis.  The work usually involves making some use of IMPLAN, one of the few input-output programs of the necessary size around these days.  The key assumption behind IMPLAN is that you have constant returns to scale and no bottlenecks, and multipliers wind up from 1.7 to a little over 2 for that sort of work.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To return to Barro, his assumptions fall very easily from his assumptions about aggregate supply.  If you assume aggregate supply is nearly perfectly inelastic with regard to any government spending, then you get all his results about crowding out and inflation and the rest. This aggregate supply assumption is of course not Keynesian; it is the opposite, that there really is no slack.  It is difficult to develop an unambiguous test for whether there is slack or not.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A good example of standard thought about multipliers now, not that I necessarily agree with it, is in Price Fishback, &quot;How Successful Was the New Deal? The Microeconomic Impact of New Deal Spending and Lending Policies in the 1930s&quot;, Journal of Economic Literature, December 2017, Vol. 55, No. 4, 1435 - 1485.&lt;/p&gt;&#xA;" OwnerUserId="15751" LastActivityDate="2017-12-31T14:54:35.840" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19911" PostTypeId="2" ParentId="19882" CreationDate="2017-12-31T17:17:58.937" Score="1" Body="&lt;p&gt;The paper computes the value of your coefficient $\gamma$ on its own with comparison to $\alpha +\gamma$&lt;sup&gt;1&lt;/sup&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The interpretation in this context, would be that there is a limit of the returns to &lt;strong&gt;RightShare&lt;/strong&gt; given the presence of observations existing contemporaneously with &lt;strong&gt;RightPM&lt;/strong&gt; and &lt;strong&gt;InRange&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;sub&gt;1. this of course assumes that $z=1$&lt;/sub&gt;&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2017-12-31T17:17:58.937" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19912" PostTypeId="2" ParentId="4596" CreationDate="2017-12-31T20:12:49.990" Score="3" Body="&lt;p&gt;Mathematically, the intuition is simple. (This is not a formal proof, though it can easily be turned into one. It's just another dimension of intuition -- symbolic intuition.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The price elasticity of demand at $(P_0, Q_0)$ is the infinitesimal ratio of percentage change in quantity demanded ($dQ/Q_0$) to percentage change in price ($dP/P_0$).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\epsilon_d=\left|\frac{dQ/Q}{dP/P}\right|_{(P_0, Q_0)}=\color{red}{\left|\frac{dQ}{dP}\right|_{(P_0,Q_0)}}\cdot\color{blue}{\frac{P_0}{Q_0}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When the demand curve is linear, the red expression is constant: it's just the slope of the demand curve. The blue expression, however, depends on the point at which the elasticity is calculated; even for a linear demand curve, it is &lt;em&gt;not&lt;/em&gt; constant.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In fact, if you draw a typical demand diagram, you plot the &lt;em&gt;inverse&lt;/em&gt; demand function, with $P$ on the vertical axis and $Q$ on the horizontal axis. In this case, &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;$P_0/Q_0&amp;gt;1$ when the point $(P_0, Q_0)$ lies &lt;em&gt;above&lt;/em&gt; the line $P=Q$&lt;/li&gt;&#xA;&lt;li&gt;$P_0/Q_0=1$ when the point $(P_0, Q_0)$ lies &lt;em&gt;on&lt;/em&gt; the line $P=Q$&lt;/li&gt;&#xA;&lt;li&gt;$P_0/Q_0&amp;lt;1$ when the point $(P_0, Q_0)$ lies &lt;em&gt;below&lt;/em&gt; the line $P=Q$&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Thus, it is easy to see why $\epsilon_d$ changes along even a linear demand curve. The inverse demand curve will cut through Quadrant I of the $QP$-plane. The closer the point $(P_0, Q_0)$ gets to the vertical axis, the larger the elasticity.&lt;/p&gt;&#xA;" OwnerUserId="11354" LastActivityDate="2017-12-31T20:12:49.990" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19913" PostTypeId="1" CreationDate="2018-01-01T00:56:58.307" Score="8" ViewCount="390" Body="&lt;p&gt;Does the discipline of economics have an accepted rigorous definition of capitalism?&#xA;&lt;br&gt; I.e. not something like &quot;&lt;em&gt;some economists would quote Hayek and say that so and so constitutes capitalism&lt;/em&gt;&quot; but an &lt;strong&gt;if and only if&lt;/strong&gt; definition that most economists would agree on.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2019-09-14T11:14:11.873" Title="Definition of capitalism" Tags="&lt;definition&gt;&lt;capitalism&gt;" AnswerCount="4" CommentCount="6" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19918" PostTypeId="1" CreationDate="2018-01-01T16:17:43.483" Score="0" ViewCount="232" Body="&lt;p&gt;I have a very basic model about a small open economy. This is a summary: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;$$&#xA;E_0\sum_{t=0}^{\infty}\theta_t U(c_t, h_t)&#xA;$$&#xA;  utility function:&#xA;  $$&#xA;d_t = (1 + r_{t-1})d_{t-1} - y_t + c_t + i_t + \Phi(k_{t-1} - k_t)&#xA;$$&#xA;  evolution of foreign debt:&#xA;  $$&#xA;y_t = A_t F(k_t, h_t)&#xA;$$&#xA;  output:&#xA;  $$&#xA;k_{t+1} = i_t + (1 - \delta)k_t&#xA;$$&#xA;  stock of capital evolves according to:&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The first order conditions of the household's maximization problem are:&#xA;  \begin{align}&#xA;\lambda_t = \beta(c_t, h_t)(1 + r_t)E_t\lambda_{t+1}\\&#xA;\lambda_t = U_c(c_t,h_t) - \eta_t\beta_c(c_t,h_t)\\&#xA;\eta_t = -E_t U(c_{t+1}, h_{t+1}) + E_t \eta_{t+1} \beta(c_{t+1}, h_{t+1}) \\&#xA;-U_h(c_t,h_t) + \eta_t\beta_h(c_t,h_t) = \lambda_tA_tF_h(k_t,h_t)\\&#xA;\lambda_t[1 + \Phi'(k_{t+1} - k_t)] = \beta(c_t,h_t)E_t\lambda_{t+1}[A_{t+1}F_k(k_{t+1},h_{t+1}) + 1 - \delta + \Phi'(k_{t+2} - k_{t+1})]&#xA;\end{align}&#xA;  Law of motions of the productivity shock:&#xA;  $$&#xA;\ln A_{t+1} = \rho \ln A_t + \epsilon_{t+1}; ~~~~ \epsilon_{t+1} \sim { NIID}(0,\sigma_\epsilon^2); ~~~~ t\ge 0&#xA;$$&#xA;  we parametrize this as &#xA;  \begin{align}&#xA;U(c,h) = \frac{[c - \omega^{-1}h^\omega]^{1 - \gamma} - 1}{1 - \gamma}\\&#xA;\beta(c,h) = [1 + c - \omega^{-1}h^\omega]^{-\psi_1} \\&#xA;F(k,h) = k^{\alpha}h^{1-\alpha} \\&#xA;\Phi(x) = \frac{\phi}{2}x^2; ~~~~ \phi&amp;gt;0&#xA;\end{align}&#xA;  $$&#xA;\begin{array}{|c|c|c|c|c|c|c|c|c|} \hline&#xA;\gamma &amp;amp; \omega &amp;amp;  \psi_1 &amp;amp; \alpha &amp;amp; \phi &amp;amp; r &amp;amp; \delta &amp;amp; \rho &amp;amp; \sigma_{\epsilon} \\\hline&#xA;2 &amp;amp; 1.455 &amp;amp; 0.11 &amp;amp; 0.32 &amp;amp; 0.028 &amp;amp; 0.04 &amp;amp; 0.1 &amp;amp; 0.42 &amp;amp; 0.0129 \\ \hline&#xA;\end{array}&#xA;$$&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I have computed the steady state, but how can I compute the impulse response function? &lt;/p&gt;&#xA;" OwnerUserId="15771" LastEditorUserId="8595" LastEditDate="2018-01-06T22:59:38.580" LastActivityDate="2018-02-05T23:54:44.523" Title="Impulse response functions?" Tags="&lt;macroeconomics&gt;&lt;international-economics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19919" PostTypeId="2" ParentId="5399" CreationDate="2018-01-01T18:43:52.580" Score="1" Body="&lt;p&gt;This is an example of an exchange trading a bond in EUR even though the normal trading currency is DKK: &lt;a href=&quot;http://www.nasdaqomxnordic.com/bonds/denmark/microsite?Instrument=XCSE2NYK13HJ20LRT&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.nasdaqomxnordic.com/bonds/denmark/microsite?Instrument=XCSE2NYK13HJ20LRT&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="15773" LastActivityDate="2018-01-01T18:43:52.580" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19923" PostTypeId="2" ParentId="8266" CreationDate="2018-01-02T07:29:12.117" Score="3" Body="&lt;p&gt;To add a simple analogy: Take a solar farm that was constructed in 2010. Its construction was included in 2010 GDP. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But the electricity it produced in 2011 was also included in 2011 GDP; the electricity it produced in 2012 was also included in 2012 GDP; etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The construction of the solar farm is analogous to that of the house. And the electricity generated by the farm is analogous to the rental services generated by the house.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2018-01-02T07:29:12.117" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19924" PostTypeId="1" AcceptedAnswerId="19926" CreationDate="2018-01-02T11:38:11.987" Score="1" ViewCount="48" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;For the system&#xA;  \begin{align}&#xA;\dot{x} = x + y + 1\\&#xA;\dot{y} = 2x - y + 5&#xA;\end{align}&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;(i) Find the fixed point.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;(ii) Transform the system into deviations &lt;strong&gt;from the fixed point&lt;/strong&gt;. What are the characteristic roots of the transformed &lt;strong&gt;system&lt;/strong&gt;?&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;(iii) Derive the equations for the stable and unstable &lt;strong&gt;arms&lt;/strong&gt;.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;(iv) Set the model up on a spreadsheet and plot, &lt;strong&gt;on the same graph&lt;/strong&gt;, the following trajectories:&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;(a) The trajectory from &lt;strong&gt;initial&lt;/strong&gt; point &lt;strong&gt;(-2,4)&lt;/strong&gt;&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;(b) The unstable arm &lt;strong&gt;passing through&lt;/strong&gt; the point at which $x=2$&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&lt;em&gt;4th exercise page 172 in the &quot;An Introduction to Economic Dynamics book&quot;&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Can anyone explain to me how do we solve - (ii) &lt;em&gt;Transform the system into deviations from the fixed point. What are the characteristic roots of this transformed system ?&lt;/em&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I simply do not understand the point of the exercise. Anyone care to explain what it wants us to do?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am a Slovakian student, and the exercises in English are getting me stuck. Any help would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="15778" LastEditorUserId="14419" LastEditDate="2018-01-02T16:02:11.857" LastActivityDate="2018-01-02T16:02:11.857" Title="Saddles and Rational Expectations. Language barrier preventing me to solve this exercise" Tags="&lt;rational-expectations&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="19925" PostTypeId="1" CreationDate="2018-01-02T14:38:58.853" Score="1" ViewCount="61" Body="&lt;p&gt;I am going to participate in a decision committee of a governmental auction in energy market. I want to learn more about how to decide which bid is the best in short/mid/long term. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can you suggest me a solid source to read/learn about it?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit: Private sector is going to bid to rent a geothermal field to construct a power plant and produce electricity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit2: Maybe my question was not clear. If one party is offering high amount of cash + low annual payments and the other body is offerıng low amount of cahs + high annual payments, which one I should accept? How can I do the risk analysis? So on ...&lt;/p&gt;&#xA;" OwnerUserId="15780" LastEditorUserId="15780" LastEditDate="2018-01-03T12:50:39.003" LastActivityDate="2018-01-03T12:50:39.003" Title="How to decide the best bid in an auction?" Tags="&lt;reference-request&gt;&lt;auctions&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19926" PostTypeId="2" ParentId="19924" CreationDate="2018-01-02T15:32:36.400" Score="1" Body="&lt;p&gt;$\newcommand{\vect}[1]{{\bf #1}}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that you can write the system in the form&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\dot{\vect{x}} = A \vect{x} + \vect{b}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\vect{x} = \left(\begin{array}{c} x \\ y\end{array}\right), ~~~~ A = \left(\begin{array}{cc} 1 &amp;amp; 1 \\ 2 &amp;amp; -1\end{array}\right), ~~~~~ \vect{b} = \left(\begin{array}{c} 1 \\ 5\end{array}\right)&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A fixed point $\vect{x}^*$ is a point for which $A\vect{x}^* + \vect{b} = 0$, which in this case is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\vect{x}^* = \left(\begin{array}{c} -2 \\ 1\end{array}\right)&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now define the variable&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\vect{z} = \vect{x} - \vect{x}^*&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and note that &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\dot{\vect{z}} = \dot{\vect{x}} = A\vect{x} + \vect{b} = A\vect{x} - A\vect{x}^* = A(\vect{x} - \vect{x}^*) = A\vect{z}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That is,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\dot{\vect{z}} = A \vect{z}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What you need to do now is to find the eigen-decomposition of $A$&lt;/p&gt;&#xA;" OwnerUserId="14419" LastActivityDate="2018-01-02T15:32:36.400" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19927" PostTypeId="2" ParentId="19904" CreationDate="2018-01-02T15:42:51.630" Score="6" Body="&lt;p&gt;There is a fair amount of ambiguity to this question. The first question is: what is the yield curve? A fixed income investor may refer to the yields across all maturities as the yield curve, while economists pick the difference in yields between two arbitrary maturities as the yield curve. Which two? Typical choices are the spread between the 2-year and 10-year bond, or the spread between the 3-month Treasury bill rate and the 10-year. The quality of a recession indicator depends which pair you choose.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The second question is: what country are we talking about? The yield curve is often described as a good recession indcator for the United States (which can be seen by looking at the time series of the 2-year/10-year Treasury spread, and compare them to recession dates. It is less clear how well it works for other countries.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is a simple theoretical reason why it works. Under any modern financial model of the risk-free interest rate curve, we can see that term interest rates are roughly equal to the average of the expected overnight rate to its maturity, plus a term premium. (Technically, the average is a geometric average, since we are compounding an investment at the overnight rate.) As long as the term premium is not significantly negative, an inverted yield curve implies that the expected path of short-term rates is heading lower. The usual reason for a central bank to cut rates significantly is a recession (either domestically, or in trading partners).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words, if an inverted yield curve is a good recession indicator, it is just telling us that bond investors may be good at forecasting recession odds. Do we have reason to expect that they are perfect forecasters? Probably not. There’s any number of things that could distort bond market pricing, or else bond investors could herd into a poor forecast. Attempting to do statistical analysis of the yield curve without taking into account the changing institutional structure of the bond market is problematic.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am not aware of any reason that suggests the inverted yield curve causes recessions &lt;em&gt;under current institutional arrangements&lt;/em&gt;. (I am admittedly biased.) This is because developed country banking systes have much tighter control of interest rate risk now. This was not the case earlier (e.g., 1970s), and it may be that for some countries now, interest rate risk is not being hedged.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you are interested in that question, I suggest asking it in a separate question, and you should specify what countries and eras you are interested in. The title of the question refers to prediction; a lot of readers would not relate that to causing recessions.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastEditorUserId="12891" LastEditDate="2018-02-05T15:57:56.010" LastActivityDate="2018-02-05T15:57:56.010" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19928" PostTypeId="2" ParentId="19925" CreationDate="2018-01-02T16:20:08.937" Score="0" Body="&lt;p&gt;I can only give an answer on the theory behind it, hopefully that will be enough. You can solve this using a game-theoretical framework and a solid source is the classic Fundenberg &amp;amp; Tirole's &quot;Game Theory&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This game depends crucially on the way the bid is structured and if there's any knowledge of how other agents respond. In a typical bid with no extra knowledge, a natural result is that everyone offers the lowest (or almost the lowest) possible price they can afford. Buyers like bids for this reason.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A second enrichment to this theory appears if you can gauge other agents' responses with a signal (previous contracts or quarter reports). In that case, you end up with a probability distribution for other people's prices and the price you'll set will depend on the probability you want of winning the bid.&lt;/p&gt;&#xA;" OwnerUserId="7857" LastActivityDate="2018-01-02T16:20:08.937" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19931" PostTypeId="1" AcceptedAnswerId="19948" CreationDate="2018-01-02T20:49:51.913" Score="1" ViewCount="73" Body="&lt;p&gt;First, I'll introduce the observation and then ask the question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have a brother-in-law who has a quirk: given the same product and two prices for it in different stores, he's willing to pay the greater one. For instance, he preferred window panes cut from a more expensive store, even if they are the exact same thing. He also goes to expensive restaurants and order basic meals (say, beef with salad) so there's very little extra they can offer for a steep price increase. Trust me, I can continue providing examples until you convince yourself that he just like to pay more, given the opportunity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I wonder how would one model such behavior. The easiest way is to give up and say he's irrational (his choices can be easily shown to be intransitive) and be thankful that he's a minority. I'd like to explore other alternatives:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;There are prices in the utility function and $\frac{\partial U}{\partial p} \gt 0$ . This solves the problem but it introduces more issues. On the one hand, the price doesn't belong to a basket. On the other hand, he doesn't just spend all of his income to buy just an extremely overpriced glass pane, so they must be introduced &lt;em&gt;carefully&lt;/em&gt;.&lt;/li&gt;&#xA;&lt;li&gt;The basket has a &quot;perceived as expensive&quot; variable that accounts for the behavior. How would such variable differ from being just the price is intriguing...&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Can you think of other alternatives, superior to these? Maybe ones that involve consumer aggregation?&lt;/p&gt;&#xA;" OwnerUserId="7857" LastActivityDate="2018-02-04T05:09:20.530" Title="How to model spendthrift behavior" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19932" PostTypeId="1" CreationDate="2018-01-02T20:57:51.897" Score="0" ViewCount="325" Body="&lt;p&gt;Is it possible to Structural VAR (vector autoregression) model to imply Granger Causality? &#xA;In other words, if X and Y are determined at the same time, is it possible that X Granger-causes Y? &#xA;Thanks!&lt;/p&gt;&#xA;" OwnerUserId="11977" LastEditorUserId="8815" LastEditDate="2018-01-02T21:59:54.330" LastActivityDate="2018-01-17T17:49:42.773" Title="Structural VAR and Granger Causality" Tags="&lt;econometrics&gt;&lt;time-series&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19933" PostTypeId="2" ParentId="19932" CreationDate="2018-01-02T21:34:24.170" Score="0" Body="&lt;p&gt;The nature of the Granger causality test is that determines if another series past values preforms a better job at forecasting the series of interest than the series of Interest's own values.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If X and Y are procyclical and move together in the same wave form throughout time they would not be good predictor of future values.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;i.e. Increase in Investment and Consumption would not &quot;Granger Cause&quot; GDP since they are contemporaneous terms.&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2018-01-02T21:34:24.170" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19935" PostTypeId="2" ParentId="12253" CreationDate="2018-01-03T02:26:22.267" Score="0" Body="&lt;p&gt;It is possible to have &quot;Giffen Inputs,&quot; but we rarely see them in practice.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can decompose an output effect and a substitution effect in producer theory. In consumer theory, we used Slutsky decomposition to find income and substitution effects. This is done by setting compensated (Hicksian) demand equal to uncompensated (Marshallian) demand and taking the derivative with respect to the price of the good in question. Similarly, we can find a compensated and uncompensated factor input demand through the derivative of the profit function and the cost function, respectively, with respect to the price of the input we wish to analyze. We then set these equal to one another, and take the derivative again with respect to the input price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With an increase in input price, we find that the substitution effect will always be negative. If we fix our level of output, the output effect will be zero, and there will never be an inferior or giffen input. However, when we allow output to vary - we can get all three results: normal input, inferior input, and giffen input.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We might imagine a firm using an environmentally unfriendly resource, and facing political pressure from using it. In this case, it might be reasonable for the firm to increase the use of another more environmentally friendly input even though its price is increasing from the outside political pressure (firms are increasing demand for it to save their public image) and decrease the use of this input when its price subsides after the spotlight is gone. This is not a perfect example, but again, giffen things are tricky to find in practice. The theory behind it, however, exists.&lt;/p&gt;&#xA;" OwnerUserId="15787" LastActivityDate="2018-01-03T02:26:22.267" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19936" PostTypeId="2" ParentId="12253" CreationDate="2018-01-03T08:34:22.463" Score="3" Body="&lt;p&gt;There are no Giffen inputs. Suppose there are $l$-goods, including all inputs and outputs. A &lt;em&gt;price system&lt;/em&gt; is then a vector $p=(p_1,\ldots,p_l)\in\mathbb{R}^l$. One can give a firms production decision by a &lt;em&gt;production plan&lt;/em&gt; $y=(y_1,\ldots,y_l)\in\mathbb{R}^l$. The idea is that $y_j$ denotes the net output produced of good $j$. If it is an input, this entry is negative. This way of writing production plans has the wonderful effect that&#xA;$$p\cdot y=\sum_{j=1}^lp_jy_j$$ equals revenue minus cost and therefore profit when the firm can actually sell $y$ at the price system $p$. The revenue comes from the positive entries, the output times price, the cost from the negative entries. Now let $p$ and $p'$ be two price systems and $y$ and $y'$ be two production plans such that $y$ is profit-maximizing given the price system $p$ and $y'$ is profit-maximizing given the price system $p'$. Then we must have (we'll see later why) that&#xA;$$(p-p')\cdot(y-y')=\sum_{j=1}^l(p_j-p_j')(y_j-y_j')\geq 0.$$ If $p$ and $p'$ differ only in the price of good $j$, this gives us&#xA;$(p_j-p_j')(y_j-y_j')\geq 0$ which shows that an increase of the price of good $j$ can never reduce the amount of net output of good $j$ being produced. If this is an input, so that the entry is negative, there can be never more use of the input.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So let's prove that $(p-p')\cdot(y-y')\geq 0$. Since $y$ is proft maximizing at $p$, $y'$ cannot give a higher profit at $p$. So $p\cdot y-p\cdot y'=p\cdot (y-y')\geq 0$. Similarly, $p'\cdot y'-p'\cdot y=p'\cdot (y'-y)\geq 0$. Therefore,&#xA;$$(p-p')\cdot(y-y')=p\cdot (y-y')+(-p')\cdot(y-y')=p\cdot (y-y')+p'\cdot(y'-y)\geq 0.$$&lt;/p&gt;&#xA;" OwnerUserId="1442" LastEditorUserId="1601" LastEditDate="2018-01-03T09:17:15.287" LastActivityDate="2018-01-03T09:17:15.287" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19940" PostTypeId="2" ParentId="19925" CreationDate="2018-01-03T11:29:04.320" Score="2" Body="&lt;p&gt;To understand the economics of auctions a little better, I'd recommend taking a look at &quot;Auctions: Theory and Practice&quot; by Paul Klemperer. This book has a number of advantages:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;with the exceptions of some non-essential appendices, the book is non technical and therefore more accessible to lay-readers. Other texts on auctions tend to be aimed at economics graduate students or above.&lt;/li&gt;&#xA;&lt;li&gt;the book was motivated by Klemperer's experience designing radio spectrum auctions in the UK and discusses applications for public sale/procurement auctions at some length.&lt;/li&gt;&#xA;&lt;li&gt;the book emphasises the main considerations and intuition behind the analysis and design of auctions, rather than the details that are more likely to be of interest to academics rather than participants.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The book can be read free of charge &lt;a href=&quot;http://www.nuffield.ox.ac.uk/users/klemperer/VirtualBook/VBCrevisedv2.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;on Klemperer's website here&lt;/a&gt;. Alternatively, it is available in print; &lt;a href=&quot;https://press.princeton.edu/titles/7728.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;here is the publisher's page&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2018-01-03T11:29:04.320" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19941" PostTypeId="1" AcceptedAnswerId="19943" CreationDate="2018-01-03T12:46:04.023" Score="-1" ViewCount="43" Body="&lt;p&gt;I read that Facebook got worth at billions after IPO, but how did this brought money to Mark himself. And did Facebook earned before IPO, or after IPO. I think that after facebook earns from revenue from ads for example, and this brings money to the company, and shareholders get money - and since Mark bought shares himself, he continues to get money - am I correct?&lt;/p&gt;&#xA;" OwnerUserId="15792" LastActivityDate="2018-01-03T14:26:14.730" Title="How Mark Zuckerburg (or any other company founder) got valued at billions?" Tags="&lt;stock-market&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19942" PostTypeId="1" CreationDate="2018-01-03T14:19:46.323" Score="0" ViewCount="137" Body="&lt;p&gt;Stock and Watson express the variance of $\hat{\beta _0}$ like &#xA;$\hat{\sigma }^2_\hat{\beta _0}=\frac{E({X_{i}}^{2})}{n\sigma _{X}^{2}}\sigma ^{2}$, but starting from variance of $\hat{\beta _1}=\frac{\sigma^{2}}{n\sigma_{X}^{2}}$ i proved only that $\hat{\sigma }^2_\hat{\beta _0}=\frac{1}{n}\sigma^{2}(1+\frac{\bar{X}^2}{\sigma_{X}^{2}})$, that is the same that is showed &lt;a href=&quot;http://www.utstat.utoronto.ca/alisong/Teaching/0708/Sta302/formulae.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;How can i prove that are similar forms? &lt;/p&gt;&#xA;" OwnerUserId="15741" LastEditorUserId="8815" LastEditDate="2018-01-03T21:49:35.613" LastActivityDate="2018-09-01T00:03:58.797" Title="Variance of $\hat{\beta _0}$ in case of homoskedasticity" Tags="&lt;econometrics&gt;&lt;mathematical-economics&gt;&lt;applied-econometrics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19943" PostTypeId="2" ParentId="19941" CreationDate="2018-01-03T14:26:14.730" Score="0" Body="&lt;p&gt;Mark Zuckerberg is the founder of Facebook, and founders of companies own it via owning shares of that company itself. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;During an IPO, several shares of a company are sold, and a part of the total shares remains in possession of the founders (such as Zuckerberg). This makes it easier to value the shares that are owned by the founders, as the shares are valued publicly in the stock exchange. When you see he is &quot;valued in billions&quot; this means that he owns Facebook shares which, if sold at current prices, would be worth billions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In addition, Zuckerberg or founders can earn from his shares in two ways:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Dividends from the profits, like any other shareholder&lt;/li&gt;&#xA;&lt;li&gt;Often founders are also CEOs and pay themselves a salary, or pay themselves house allowances / car / etc.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="12304" LastActivityDate="2018-01-03T14:26:14.730" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19945" PostTypeId="2" ParentId="19942" CreationDate="2018-01-03T18:59:35.967" Score="1" Body="&lt;p&gt;They are certainly not the same, since the first contains an expected value while the second does not contain an expected value but a sample mean.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course, they are very closely connected, and one can see this if one writes down the definition of the variance of a random variable.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="1601" LastEditDate="2018-04-03T23:18:59.153" LastActivityDate="2018-04-03T23:18:59.153" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19948" PostTypeId="2" ParentId="19931" CreationDate="2018-01-03T20:40:20.620" Score="2" Body="&lt;p&gt;It could simply be &lt;a href=&quot;https://en.wikipedia.org/wiki/Conspicuous_consumption&quot; rel=&quot;nofollow noreferrer&quot;&gt;conspicuous consumption&lt;/a&gt;, a case of signaling. He does not buy the more expensive item for quality's sake, but to show that he has the income to shop there. In this model you could tweak his utilities in such a way that he would not spend all his money on needless expenses, but he would spend some of it.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2018-01-03T20:40:20.620" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19950" PostTypeId="2" ParentId="19918" CreationDate="2018-01-04T00:18:18.450" Score="1" Body="&lt;ol&gt;&#xA;&lt;li&gt;Start by establishing $ \epsilon _1 = \epsilon , \epsilon_{t&amp;gt;1}=0$ . Now, epsilon will be your impulse.&lt;/li&gt;&#xA;&lt;li&gt;You can calculate an expression for $A_t,\bar{A}_t\ \forall t$ . From here, you can either:&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Work recursively with each variable and provide an analytic function for them, for every moment on time.&lt;/li&gt;&#xA;&lt;li&gt;Calculate a value if you are simulating it, using the policy functions at each step.&lt;/li&gt;&#xA;&lt;/ol&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Notice that, if you log-linearized your equations, $\epsilon=1$ would mean a 1% deviation from the steady state.&lt;/p&gt;&#xA;" OwnerUserId="7857" LastActivityDate="2018-01-04T00:18:18.450" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19951" PostTypeId="1" AcceptedAnswerId="19987" CreationDate="2018-01-04T01:48:03.863" Score="0" ViewCount="391" Body="&lt;p&gt;Suppose a company is selling a good worthy of 200 dollars, but it was charging it for 100 dollars intending for promotion. And the company have to pay salaries of $200 per good, so it loses 100 dollars per good sold.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From the income side, it is 200 dollars to the employees and -100 dollars to the shareholders.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From the expenditure side, it's 100 dollars from the consumers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Should the GDP be reckoned as 200 dollars as the good's market value or 100 dollars? And why?&lt;/p&gt;&#xA;" OwnerUserId="15769" LastActivityDate="2018-01-06T02:05:02.893" Title="How to calculate gdp of a company during promotion and loss?" Tags="&lt;gdp&gt;" AnswerCount="1" CommentCount="1" ClosedDate="2018-01-09T01:45:14.583" ContentLicense="CC BY-SA 3.0" />
  <row Id="19952" PostTypeId="1" AcceptedAnswerId="20421" CreationDate="2018-01-04T06:06:36.390" Score="0" ViewCount="2336" Body="&lt;p&gt;I was having some trouble understanding the Law of Supply, and I now understand that I was looking at it from the wrong &lt;a href=&quot;https://economics.stackexchange.com/questions/10350/why-law-of-supply-indicate-direct-relation-between-price-and-supply&quot;&gt;perspective&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, I'm confused with shifts in the Supply Curve. After &lt;a href=&quot;https://economics.stackexchange.com/questions/5764/when-do-supply-and-demand-curves-shift&quot;&gt;reading&lt;/a&gt; through the answers in the thread, I think I'm on the right track. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, some of the material I'm studying doesn't make sense. Take a look at my study material below. If you were to shift the image 45 degrees counter clock-wise, yes the curve would shift &lt;em&gt;left&lt;/em&gt;, but that doesn't indicate &quot;a smaller quantity at any given price&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;It's the same quantity, isn't it?&lt;/strong&gt; I hope I'm not missing something completely obvious. My apologies if I am, and thank you for your input.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/Qx0Ra.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Qx0Ra.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I googled &quot;shift in supply&quot;, and below is what I was expecting:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/bFQ2s.gif&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/bFQ2s.gif&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="15796" LastEditorUserId="15796" LastEditDate="2018-01-04T06:12:22.513" LastActivityDate="2018-02-04T08:15:48.403" Title="Does this explanation pertaining to the Supply Curve and Law of Supply make sense?" Tags="&lt;supply-and-demand&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19955" PostTypeId="1" AcceptedAnswerId="20023" CreationDate="2018-01-04T09:08:35.857" Score="7" ViewCount="796" Body="&lt;p&gt;Monopolies are often blamed for DWLs(Dead Weight Losses), while competitive markets believed to work without DWLs (assuming zero taxes/subsidies and zero externalities). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But I think I found an example when ABSENCE of a monopoly (in this case - a regulated natural monopoly) and presence of a competitive market can lead to smaller market surplus (i.e. DWLs). Am I correct? If not - why? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's assume there is a competitive market for a specific medicine. The competition is tough. Economies of scales aren't exploited to their maximum because in this case, only one firm would be able to survive (there is enough demand only for one Gigafactory) and &lt;strong&gt;for this reason, the state puts limit on maximum size of factories in order to prevent full exploitation of economies of scale&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So many people can't afford the medicine despite fierce competition. And if you don't buy anything, then obviously you can't have surplus. Not to mention, that in their totality the producers have lower surplus due to higher costs and lower sales.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now let's suppose that one day the state decided that maybe a monopoly isn't so bad thing if it's properly regulated. So the state let the firms increase their exploitation of economies of scale and soon only one firm was left. Of course, it was regulated in order to prevent abuses. Now the market surplus increased. The surplus of consumers increased because now more people can afford to buy the medicine. The surplus of the producer's also greater than the total surplus of producers of the existed competitive market because the production of the medicine is less costly and it has more buyers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But if we increased the market surplus compared with the existed competitive market, then what does it mean? Shockingly, it means that said competitive market had DWLs! Even if there were no taxes/subsidies and externalities.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;UPDATE 01:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ok, there is my try to formalize my thought. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's suppose that there is a perfectly competitive market for a particular medicine. There are NO taxes/subsidies or externalities.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The aggregative demand is Qd=1000-P&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The aggregative supply is Qs=-2+0.2*P&lt;/p&gt;&#xA;&#xA;&lt;p&gt;P = 835 is the equalibrium price, thus we will have Q=165 as equalibrimum quantity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The total surplus of consumers is equal to (1000 - 835)*165*0.5 = 13612.5&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The total surplus of producers is equal to (835 - 10)*165*0.5 = 68062.5&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus the market surplus is 13612.5 + 68062.5 = 81675&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now let's replace the competitive market with a regulated natural monopoly that can fully exploit economies of scale.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The aggregative demand is the same, it's Qd=1000-P&lt;/p&gt;&#xA;&#xA;&lt;p&gt;P=ATC=200 by the law, while the price without dead weight losses is P=183.(3)&#xA;It means that Q=800.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The monopolist's MC=-100+5*P&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The total surplus of consumers is equal to (1000 - 200)*800*0.5= 320000&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The total surplus of the monopoly is equal to 180*800*0.5+800*(200-180)=88000&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus the market surplus is 320000 + 88000 = 408000.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As you can see, the total market surplus is bigger. Much bigger.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;UPDATE 02&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I found book &quot;Intermediate Microeconomics&quot; by  John Hey, it seems to support my conclusion. And there is nothing radical. I will quote some places from the chapter 29. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;One very obvious reason why a single large firm might be more appropriate in some industry is simply that a single large firm might have access to a more efficient technology than lots of small firms. This is a plausible case if centralisation of the industry has consequences in terms of&#xA;increased efficiency – contrariwise, if splitting it up into lots of little units causes losses of efficiency and increased bureaucratic costs. ... Even if it behaves like a monopolist – and there is an associated deadweight loss as a consequence – the end product for both consumers and producer might be better.&quot;&lt;/p&gt;&#xA;" OwnerUserId="4979" LastEditorUserId="4979" LastEditDate="2018-01-07T17:51:27.813" LastActivityDate="2018-01-24T06:13:19.923" Title="Can a monopoly INCREASE the market surplus compared with a competitive market?" Tags="&lt;microeconomics&gt;&lt;monopoly&gt;&lt;consumer-surplus&gt;&lt;economies-of-scale&gt;&lt;producer-surplus&gt;" AnswerCount="3" CommentCount="12" ContentLicense="CC BY-SA 3.0" />
  <row Id="19956" PostTypeId="2" ParentId="19952" CreationDate="2018-01-04T09:12:57.770" Score="1" Body="&lt;p&gt;The figure from your study material looks very much like the one you found via Google. In particular, it shows a leftward shift in supply and a corresponding reduction in quantity supplied for any price. We can confirm this with a minor edit to the figure:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/Ep7pB.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Ep7pB.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2018-01-04T09:12:57.770" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19957" PostTypeId="1" AcceptedAnswerId="19958" CreationDate="2018-01-04T10:52:01.453" Score="0" ViewCount="520" Body="&lt;p&gt;I was solving an economic problem (I was calculating explicit and implicit costs) and noticed one interesting thing:&#xA;In the said problem, the entrepreneur set himself the wage of 10 000 rubles AND in the solution said wage was NOT included in explicit costs. But his old wage (before he started his own business) was included in implicit costs(By the way, his old wage was 12 000 rubles).&#xA;This puzzles me because although he owns the business, he's also its employee. And if he is his own employee, his wage must be accounted as a wage of any other employee. I don't think that an accountant would make an exception for him. Besides, if he decreased his own wage, then expenses of his business would decrease and consequently, its profit would increase.&lt;/p&gt;&#xA;" OwnerUserId="4979" LastActivityDate="2018-01-04T11:59:16.360" Title="Why wasn't the wage of the entrepreneur included in explicit costs?" Tags="&lt;microeconomics&gt;&lt;accounting&gt;&lt;profits&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19958" PostTypeId="2" ParentId="19957" CreationDate="2018-01-04T11:21:42.647" Score="0" Body="&lt;p&gt;Entrepreneur's wages are his return from his investment (his labour, leisure time, etc.) and his current wages are implicit costs. You need to be able to differentiate between accounting and economic profits to understand why this is so. This can be explained with an example. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume that you currently work for a dentistry. You are now considering operning your own practice. You may earn 100,000 per year as an entrepreneur. The running business costs are, say, 40,000.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Step 1. &lt;strong&gt;Calculate Explicit costs.&lt;/strong&gt; &#xA;Explicit costs: rental, utility, admin etc. costs = 40,000.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Step 2. &lt;strong&gt;Accounting profit&lt;/strong&gt;. Accounting profit = Revenues−Explicit costs = 100,000 - 40,000 = 60,000. Looks good!&#xA;​​&#xA;But these calculations consider only the explicit costs. Since running your practice means leaving your current job where you are earning $40,000, your current earnings will be opportunity costs or things that you sacrifice to get the next best alternative. Thus, your current salary is an implicit cost to your business. You will compare implicit costs and potential profit from the new business (your net earnings from the new business).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Step 3. You need to subtract both the explicit and implicit costs to determine the true &lt;strong&gt;economic profit&lt;/strong&gt;: 60,000 - 40,000 = 20,000. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that, here, your wages are not explicit costs; as the owner of the business you are receiving return on your investment in the form of wages.&lt;/p&gt;&#xA;" OwnerUserId="6009" LastEditorUserId="6009" LastEditDate="2018-01-04T11:59:16.360" LastActivityDate="2018-01-04T11:59:16.360" CommentCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="19959" PostTypeId="1" CreationDate="2018-01-04T11:23:23.750" Score="2" ViewCount="435" Body="&lt;p&gt;Denote by $i \in \{1, \ldots, n\}$ an economic agent.&#xA;Let $\mathbf x \in \mathbb R^n$ denote a vector of actions and $x_i  \in \mathbf x$ a typical element.&#xA;Let further $f_i : \mathbb R^n \to \mathbb R$ denote the objective function.&#xA;The vector $\mathbf x^*$ constitutes a Nash equilibrium if the following holds&#xA;\begin{align}&#xA;\forall i : f_i(\mathbf x^*) = \max_{x_i} f_i(x_i, \mathbf x_{-i}^*) &#xA;\end{align}&#xA;where $\mathbf x_{-i}^* := (\ldots, x_{i-1}^*, x_{i+1}^*, \ldots)$ are the equilibrium actions of the opponents.&#xA;The $n$ first order conditions read&#xA;\begin{align}&#xA;\frac{\partial f_i(x_i, \mathbf x_{-i}^*)}{\partial x_i}\Bigg|_{x_i = x_i^*} = 0.&#xA;\end{align}&#xA;The second order conditions read&#xA;\begin{align}&#xA;\frac{\partial^2 f_i(x_i, \mathbf x_{-i}^*)}{\partial x_i^2}\Bigg|_{x_i = x_i^*} &amp;lt; 0.&#xA;\end{align}&#xA;Assume symmetry such that $x_j^* = x^* ~ \forall j$.&#xA;Since the problem is quite complex I cannot derive the second order partial derivative.&#xA;I was thus thinking to define the first derivative in a single argument (the symmetric equilibrium actions)&#xA;\begin{align}&#xA;\forall i : f'(x^*) = f'_i(x^*) := \frac{\partial f_i(x_i,\mathbf x_{-i}^*)}{\partial x_i} \Bigg|_{x_j^* = x^* ~ \forall j} &#xA;\end{align}&#xA;and then take the derivative of the the simplier first order derivative&#xA;and check wether it's negative.&#xA;In order to make the simplifictaion in between I must somehow make sure that no information gets lost and that's why I'm wondering if the follwoing relation holds in general&#xA;\begin{align}&#xA;\text{sign}\left[f''(x^*)\right] ~~ \substack{? \\ =} ~~ \text{sign}\left[\frac{\partial^2 f_i(x_i,\mathbf x_{-i}^*))}{\partial x_i^2} \Bigg|_{x_j^* = x^* ~ \forall j}\right].&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I was thinking that there may exists a general theorem from optimization for symmetric actions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Example&lt;/strong&gt;&#xA;Consider text book Cournot duopol with $i,j \in \{1,2\}$, $i \neq j$ and&#xA;\begin{align}&#xA;f_i(x_i, x_j) = (1-x_i-x_j)x_i.&#xA;\end{align}&#xA;Now we readily get the following partial derivatives&#xA;\begin{align}&#xA;&amp;amp;\frac{\partial f_i(x_i,  x_j^*)}{\partial x_i}\Bigg|_{x_i = x_i^*} = 1 - 2x_i^* - x_j^* \\[2mm]&#xA;&amp;amp;\frac{\partial^2 f_i(x_i,  x_j^*)}{\partial x_i^2}\Bigg|_{x_i = x_i^*} = -2\\[2mm]&#xA;&amp;amp;f'(x^*) = 1-3x^*\\[2mm]&#xA;&amp;amp;f''(x^*) = -3\\&#xA;\end{align}&#xA;So the sign is the same, but the values differ.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Solution&lt;/strong&gt;&#xA;It seems that the idea was published in the latest &lt;em&gt;&lt;a href=&quot;https://econtheory.org/ojs/index.php/te/article/view/20170979&quot; rel=&quot;nofollow noreferrer&quot;&gt;Theoretical Economics&lt;/a&gt;&lt;/em&gt; and the approach is valid. The author actually discusses the super simple Cournot example as well.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The following statement is adapted from Theorem 1 of Hefti (2017): &quot;Equilibria in symmetric games: Theory and applications&quot;, Theoretical Economics 12, pp. 979–1002&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose $f_i(x_i, \mathbf x_{-i})$ is strongly quasiconcave in $x_i$.&#xA;Define $f'(x)$ as above.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Let $x^* \in \mathbb R$ solve $f'(x^*) = 0$.&#xA;  If $f''(x^*) &amp;lt; 0$ then there exists a unique symmtric equilibrium.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Further Issues&lt;/strong&gt; In footnote 7 the author argues&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The&#xA;  assumption of a strongly quasiconcave payoff function in own strategies is mainly for convenience, because it is a sufﬁcient condition for the existence of a (possibly differentiable) best-reply function. However, many results require only differentiability of best replies (and do not otherwise hinge on quasiconcavity), and some results do not require that best replies are everywhere differentiable.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This statment is particular useful, because I have a problem in mind where I cannot say anything about (quasi)concavity of the objective function. I'm, however, not sure if I can apply Theorem 1, because the author does not specify when quasiconcavity is imposed for a result.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How would I know wether the theorem is applicable?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that I cannot(!) derive a best response function $x_i^* = \phi_i(\mathbf x_{-i}^*)$, but only the symmetric equilibrium actions $x_j = x^* ~ \forall j$. &lt;/p&gt;&#xA;" OwnerUserId="4266" LastEditorUserId="4266" LastEditDate="2018-01-08T19:28:27.677" LastActivityDate="2018-01-08T19:28:27.677" Title="Second order condition for symmetric game" Tags="&lt;reference-request&gt;&lt;mathematical-economics&gt;&lt;game-theory&gt;&lt;optimization&gt;" AnswerCount="0" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="19961" PostTypeId="1" AcceptedAnswerId="19966" CreationDate="2018-01-04T12:51:24.400" Score="1" ViewCount="1306" Body="&lt;p&gt;I have read that the convexity of production sets (for instance non-increasing returns to scale) is not a necessary assumption for the first welfare theorem but it is for the second welfare theorem. Maybe I got things wrong and what the author actually tried to say is that convexity is not necessary for the efficiency of the competitive equilibrium but rather for the existence of the competitive equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Could you please elaborate where the assumption of convex production sets is needed in the first and second welfare theorem?&lt;/p&gt;&#xA;" OwnerUserId="7834" LastActivityDate="2018-01-04T16:03:29.963" Title="Is the convexity of production sets necessary for the welfare theorems?" Tags="&lt;microeconomics&gt;&lt;general-equilibrium&gt;&lt;pareto-efficiency&gt;&lt;welfare-economics&gt;&lt;efficient-markets&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="19962" PostTypeId="2" ParentId="19801" CreationDate="2018-01-04T13:11:08.003" Score="3" Body="&lt;p&gt;It has nothing to do with new products in the market, nor with confusion of use-value and exchange-value. To make it a bit simpler:  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) Commodities in capitalism have a two-fold character. The use-value (they are useful products for the buyer to consume) and the exchange-value (they can be exchanged to another products in a given way).    &lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) The exchange-value of the product depends on the embodied labor of the product, which is named as Value by Marx. So in a sense, exchange-value = Value.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;3) Products can only be compared in relation to one another. You cannot understand anything by saying ex. 2 apples = 2 apples.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, we reach to the &lt;strong&gt;Elementary Form:&lt;/strong&gt; 20 yards of linen = 1 coat&lt;br&gt;&#xA;In this equation, linen plays the active role or &lt;strong&gt;Relative form&lt;/strong&gt; and coat plays the passive role, or &lt;strong&gt;Equivalent form&lt;/strong&gt;. In other terms, you define the Value of linen comparing it to the Value of coat.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, here is the core of the analysis.  Marx claims that since there is a comparison (20 linen=1 coat), there must be a common element to compare. That common element is not the use-value (linen is not the same as coat). It is the exchange-value, or Value, or the human labor embodied in the two products. In other words, this equation states that labor needed to develop 20 yards of linen is equal to labor needed to develop 1 coat (given constant technological advancement, resources, etc.) Use-value, on the other hand, just acts as a carrier of Value.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The importance of this realization, is to understand the essence of exchange in capitalistic world and connect it to the money form (20 yards of linen = 1 coat = 100 Euros), and understand socio-economically how money was created and what does it really mean.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.marxists.org/archive/marx/works/1867-c1/ch01.htm#S3a2&quot; rel=&quot;nofollow noreferrer&quot;&gt;Karl Marx. Capital Volume One, Part I: Commodities and Money, Chapter One: Commodities&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="13849" LastActivityDate="2018-01-04T13:11:08.003" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19966" PostTypeId="2" ParentId="19961" CreationDate="2018-01-04T16:03:29.963" Score="4" Body="&lt;p&gt;Convexity of the production set is indeed not needed for the proof of the first welfare theorem but for the proof of the second welfare theorem. It is not a necessary condition though. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is possible to interpret this as an existence issue. The first welfare theorem is about all competitive equilibria and holds trivially if there are none. The second welfare theorem, on the other hand, states that for a given Pareto efficient allocation, there is a price system and redistribution of endowments with respect to which it is a (quasi-)equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The standard proof of the second welfare theorem uses a result of Minkowski on the separation of nonoverlapping convex sets by a hyperplane, but it is possible to prove a version of the second welfare theorem as a corollary to an existence result by a nice argument due to &lt;a href=&quot;https://link.springer.com/article/10.1007/s00199-007-0233-8&quot; rel=&quot;nofollow noreferrer&quot;&gt;Maskin and Roberts&lt;/a&gt;. The argument is quite easy in the case of an exchange economy: Take a Pareto efficient allocation as the endowment distribution. If a competitive equilibrium exists from these endowments, everyone will end up with something at least as good as their endowment. Since the endowment distribution was Pareto efficient, nobody can end up with something better. So everyone must be indifferent between their demanded commodity bundle and their endowment, so they might as well just demand just their endowment. The argument generalizes to economies with production. &lt;/p&gt;&#xA;" OwnerUserId="1442" LastActivityDate="2018-01-04T16:03:29.963" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="19968" PostTypeId="2" ParentId="19955" CreationDate="2018-01-04T17:18:52.863" Score="1" Body="&lt;p&gt;Trying to avoid posting further comments above.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ok, as you suggest, let's assume that demand curve does not shift, because &lt;strong&gt;P=ATC&lt;/strong&gt; condition moves the price along the deman curve. The only situation where surplus is higher under monopoly is when &lt;strong&gt;ATC&lt;/strong&gt; curve shifts downward so that at the new scale of operations where &lt;strong&gt;P=ATC&lt;/strong&gt;, &lt;strong&gt;ATC&lt;/strong&gt; is lower than that observed in perfect competition and this point is not in the diseconomies of scale region or is the minimum efficient scale. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This may happen under strict regluatory environment whereby monopoly exists through nationalisation.&lt;/p&gt;&#xA;" OwnerUserId="6009" LastActivityDate="2018-01-04T17:18:52.863" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19969" PostTypeId="1" CreationDate="2018-01-04T18:53:51.680" Score="0" ViewCount="81" Body="&lt;p&gt;My question relates to calculation total debt as percent of GDP (quarterly). Since debt is a stock and GDP is a flow, I can understand calculation it on an annual basis but not quarterly.&lt;/p&gt;&#xA;" OwnerUserId="15802" LastActivityDate="2018-01-04T21:41:15.487" Title="Public Debt as Percent of GDP" Tags="&lt;gdp&gt;&lt;debt&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19970" PostTypeId="1" AcceptedAnswerId="19991" CreationDate="2018-01-04T19:33:01.430" Score="1" ViewCount="39" Body="&lt;p&gt;I wanted to know what industries are there from an economics point of view, and how each industry branches into different parts. Just categories and names will do , or if you can point to a resource please do. &lt;/p&gt;&#xA;" OwnerUserId="15803" LastEditorUserId="15803" LastEditDate="2018-01-04T19:59:17.297" LastActivityDate="2018-01-06T15:51:09.407" Title="what are the categorization by industry in economics?" Tags="&lt;macroeconomics&gt;&lt;financial-economics&gt;&lt;soft-question&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19974" PostTypeId="1" AcceptedAnswerId="19976" CreationDate="2018-01-04T21:32:29.320" Score="-1" ViewCount="84" Body="&lt;p&gt;I want to know if these people can spend or have access to all this anytime they want, without harming their businesses, or if there are bounds related to how much money they can spend/have access to. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't understand anything about economics, so... take it easy :)&#xA;i don't even know in which tag to place this question too... :V&lt;/p&gt;&#xA;" OwnerUserId="15804" LastActivityDate="2018-01-05T16:20:42.390" Title="Do billionaires like Bill Gates have access to their entire net worth or it is symbolic?" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19975" PostTypeId="2" ParentId="19969" CreationDate="2018-01-04T21:41:15.487" Score="2" Body="&lt;p&gt;Even if the measure calculated is total debt at a point in time as a percentage of annual GDP, the &lt;em&gt;frequency&lt;/em&gt; with which it is calculated could be quarterly. Taking quarter 1 2018 as an example, debt would be the total at end of that quarter.  GDP might relate to the last available full year, ie 2017, or to the year ending in that quarter, ie from quarter 2 2017 to quarter 1 2018.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A chart of such quarterly data for the US may be viewed &lt;a href=&quot;https://fred.stlouisfed.org/series/GFDEGDQ188S&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="1417" LastActivityDate="2018-01-04T21:41:15.487" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19976" PostTypeId="2" ParentId="19974" CreationDate="2018-01-04T22:28:46.680" Score="4" Body="&lt;p&gt;Respecting the honest declaration of total ignorance, the vast part of the wealth of rich people is in non-liquid form: land, company shares, etc. Sometimes, also in trust funds, or as assets pledged to charity organizations &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So for a portion of their wealth, there may exist binding constraints related to &quot;spending&quot; them: for example, they may have the obligation not to sell at least part of their share-holdings in a company (usually their &quot;own&quot; company). Also, assets pledged to charities are managed by boards which are not (or at least not always) mere puppets to the founders' will. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So no, they cannot &quot;access all their wealth any time they want&quot; - this could happen only if all their wealth was held in bank accounts, and this is definitely not the case.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2018-01-05T16:20:42.390" LastActivityDate="2018-01-05T16:20:42.390" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19977" PostTypeId="1" AcceptedAnswerId="19982" CreationDate="2018-01-05T03:32:45.303" Score="1" ViewCount="494" Body="&lt;p&gt;Why is the bliss point utility function convex even though it has concave portions to it ?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;According to Nicholson and Snyder (authors of Microeconomic theory - Basic principles and extensions) a function has diminishing MRS and is convex only if it is quasi-concave. Accordingly, I checked quasi concavity for the bliss point utility function $U (x, y) = 12x + 16y –x^2 – y^2$, and it showed that the function is quasi concave throughout. This means that the function should be convex throughout, but that is not the case here. &lt;/p&gt;&#xA;" OwnerUserId="14574" LastEditorUserId="14574" LastEditDate="2018-01-05T04:11:34.713" LastActivityDate="2018-01-05T12:11:11.977" Title="Bliss point utility doubt" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;consumer-theory&gt;" AnswerCount="1" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19978" PostTypeId="1" CreationDate="2018-01-05T06:02:25.343" Score="0" ViewCount="1674" Body="&lt;p&gt;Country A's GDP is larger than Country B's GDP. However, Country B's GNP is larger than Country A's GNP. Which country has a stronger economy? Which country's citizens is more likely to enjoy prosperity?&lt;/p&gt;&#xA;" OwnerUserId="6172" LastActivityDate="2018-01-05T20:37:59.893" Title="GDP versus GNP. Which is a better gauge of a country's economy size and prosperity?" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;&lt;economic-growth&gt;&lt;economic-measurement&gt;&lt;gnp&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="19979" PostTypeId="5" CreationDate="2018-01-05T06:06:42.393" Score="0" Body="&lt;p&gt;Gross national product (GNP) is the market value of all the products and services produced in one year by labor and property supplied by the citizens of a country. Unlike gross domestic product (GDP), which defines production based on the geographical location of production, GNP indicates allocated production based on location of ownership.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;GNP is an economic statistic that is equal to GDP plus any income earned by residents from overseas investments minus income earned within the domestic economy by overseas residents.&lt;/p&gt;&#xA;" OwnerUserId="6172" LastEditorUserId="6172" LastEditDate="2018-01-12T00:53:22.753" LastActivityDate="2018-01-12T00:53:22.753" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19980" PostTypeId="4" CreationDate="2018-01-05T06:06:42.393" Score="0" Body="GNP (Gross National Product)" OwnerUserId="6172" LastEditorUserId="6172" LastEditDate="2018-01-12T00:52:39.653" LastActivityDate="2018-01-12T00:52:39.653" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19982" PostTypeId="2" ParentId="19977" CreationDate="2018-01-05T12:11:11.977" Score="4" Body="&lt;p&gt;Quasi-concave utility functions represent convex preferences. But that preferences are convex means that the weakly-better sets are convex, it is not about the convexity of any function.&lt;/p&gt;&#xA;" OwnerUserId="1442" LastActivityDate="2018-01-05T12:11:11.977" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19983" PostTypeId="2" ParentId="19978" CreationDate="2018-01-05T17:16:52.793" Score="1" Body="&lt;p&gt;I think the safest answer is “it depends.”&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Firstly, the terms “stronger economy” or “enjoy prosperity” are subjective, so I think if you want a stronger answer, you would need to tighten that part of the question up, with more concrete phrasing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Secondly, we would need to pin down the reasons why GDP and GNP diverge.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ireland is a well-known example, where GDP is much larger than GNP. This is usually ascribed to multinational corporations funnelling revenue through Ireland to take advantage of low corporate tax rates. In this case, GNP is viewed as being more representative of the state of the Irish economy, since those corporate revenues have very little to do with the Irish economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am unaware of examples where GNP is much larger than GDP, but I believe that it would be easy to create theoretical examples where GNP is telling us very little about domestic economic conditions. (A country with large ownership of foreign assets, where production and income is almost entirely the result of the economic conditions facing those foreign subsidiaries.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words, you need to know exactly what question you want to answer, and see whether GDP or GNP is closer to what answer you need.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2018-01-05T17:16:52.793" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19986" PostTypeId="2" ParentId="19955" CreationDate="2018-01-05T22:37:37.483" Score="3" Body="&lt;p&gt;Under standard assumptions (some of which you state in your question: no externalities, etc.), no. This follows from the &lt;a href=&quot;https://en.wikipedia.org/wiki/Fundamental_theorems_of_welfare_economics&quot; rel=&quot;nofollow noreferrer&quot;&gt;First Welfare Theorem&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Perhaps there are departures from standard models that would support something resembling your conclusion, but my guess is that most economists would view any such departure as the absence of “perfect competition”.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It might be a good exercise for you to write this down in a model (even a simple one) to help you figure out what those departures might be.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regarding the example you put in your &lt;strong&gt;edit&lt;/strong&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, your &quot;monopoly&quot; is not a monopoly in the sense that economists understand it. Monopolies have market power, and thus &lt;a href=&quot;https://economics.stackexchange.com/questions/19576/how-does-demand-supply-equilibrium-interact-with-profit-maximisation/19589#19589&quot;&gt;have no supply curve&lt;/a&gt;. The firm in your example has a supply curve, and has no market power.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Second, the example you give does not seem to all support your argument. The firms in the two different situations you present seem to have markedly different production technologies (reflected in the differing supply curves). Your argument requires that the firms have the same technology, only that perfect competition prevents the exploitation of &quot;economies of scale&quot; of their (common) technologies. In other words, this result is driven by differences in production technology, and not from the fact that one market is perfectly competitive and the other is monopolistic. (I believe this is what some comments to your question mean when they say that this is a &lt;em&gt;weird comparison&lt;/em&gt;.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Moreover, &lt;em&gt;where exactly is economies of scale in the second situation&lt;/em&gt;? How am I supposed to be able to interpret what is going on as the firm being able to take advantage of economies of scale? Bear in mind that in the second situation, you would have the same outcome (with respect to surplus) if there were many firms, as long as the aggregate supply curve were the same. The fact that there is a single firm is not at all important to the result you've found.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's illustrate this previous argument specifically in your example. It seems the correct intervention for the state is not to allow the monopoly to continue but to regulate it. Instead, what the state should do is to make the monopolist's production technology available to other firms that want to enter the market to foster competition.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose that the state does this, and another firm enters the market with the same technology. Let's also suppose now that the market is perfectly competitive. Each firm's supply curve must be&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ q_s = -100 + 5P $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which makes industry supply&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ Q_s = -200 + 10P. $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given the demand curve $ Q_d = 1000 - P $, the equilibrium price and quantity is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ P^* = \frac{1200}{11}; \, Q^* = \frac{9800}{11}. $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Total surplus is then $$ \frac{1}{2} (1000-20)\cdot \frac{9800}{11}, $$ a $7 \%$ increase in surplus. Surplus should also increase further when more firms enter.&lt;/p&gt;&#xA;" OwnerUserId="8595" LastEditorUserId="8595" LastEditDate="2018-01-06T20:25:54.870" LastActivityDate="2018-01-06T20:25:54.870" CommentCount="13" ContentLicense="CC BY-SA 3.0" />
  <row Id="19987" PostTypeId="2" ParentId="19951" CreationDate="2018-01-06T02:05:02.893" Score="2" Body="&lt;p&gt;As noted in a comment, GDP is associated with a country, not a firm.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But if we are talking about the contribution to GDP, the operating assumption is that calculations are based on observed (market) prices. So the value of consumption is \$100 if we are calculating GDP based on expenditures. If we are looking at domestic income, it would be \$100: \$200 wage income, and -\$100 business income. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Statisticians do not attempt to decide what goods are “really worth”, they use data based on actual transactions. Since GDP numbers are estimates based on a variety of sources, it is unlikely that they capture when particular firms have promotional sales.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2018-01-06T02:05:02.893" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19988" PostTypeId="1" AcceptedAnswerId="20006" CreationDate="2018-01-06T07:59:35.380" Score="0" ViewCount="1966" Body="&lt;p&gt;I assume that the natural monopoly is required by law to have maximum price=MC. According to this video such regulation would require constant subsidies for monopoly, because otherwise it would go bankrupt:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.coursera.org/learn/microeconomics-part2/lecture/VWpuW/3-1-6-natural-monopoly-regulation-though-marginal-cost-pricing&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.coursera.org/learn/microeconomics-part2/lecture/VWpuW/3-1-6-natural-monopoly-regulation-though-marginal-cost-pricing&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The monopoly losses money because P &amp;lt; ATC, while for a competitive firm P &gt; ATC.  &lt;strong&gt;Somehow it seems that a competitive firm would have lower ATC than a monopoly.&lt;/strong&gt; I don't understand why.&lt;/p&gt;&#xA;" OwnerUserId="4979" LastActivityDate="2018-01-08T09:16:14.013" Title="Why would a natural monopoly lose money when MC=P, but a competitive firm would get positive accounting profit?" Tags="&lt;microeconomics&gt;&lt;monopoly&gt;&lt;competition&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19989" PostTypeId="1" CreationDate="2018-01-06T09:36:28.810" Score="0" ViewCount="76" Body="&lt;p&gt;Trickle-down economics, also referred to as trickle-down theory, is an economic theory that advocates reducing taxes on businesses and the wealthy in society as a means to stimulate business investment in the short term and benefit society at large in the long term. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;When it works, wealth created by the rich will trickle down to the middle-class and poor. Hence, the name trickle-down economics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Trickle-down_economics&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://en.wikipedia.org/wiki/Trickle-down_economics&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Strangely, one of the richest man in U.S, Warren Buffett, does not seem to think so. Why have trickle-down economics failed to trickle down to the middle-class and poor in recent years?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.cnbc.com/2018/01/04/warren-buffett-on-the-failure-of-trickle-down-economics.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.cnbc.com/2018/01/04/warren-buffett-on-the-failure-of-trickle-down-economics.html&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Buffett says there is a problem with that economic system, which made&#xA;  him a king: Many individuals suffer even as those at the top prosper&#xA;  wildly.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;He points to the Forbes 400, which lists the wealthiest Americans.&#xA;  &quot;Between the first computation in 1982 and today, the wealth of the&#xA;  400 increased 29-fold — from $93 billion to $2.7 trillion — while many&#xA;  millions of hardworking citizens remained stuck on an economic&#xA;  treadmill. During this period, the tsunami of wealth didn't trickle&#xA;  down. It surged upward.&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="6172" LastEditorUserId="6172" LastEditDate="2018-01-06T10:27:06.440" LastActivityDate="2018-01-06T12:43:09.443" Title="Why have trickle-down economics failed to trickle down to the middle-class and poor in recent years?" Tags="&lt;macroeconomics&gt;&lt;wealth&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="19990" PostTypeId="2" ParentId="19989" CreationDate="2018-01-06T12:43:09.443" Score="1" Body="&lt;p&gt;Trickle-down economics are widely criticized and many believe that it doesn't work. Asher Edelmanon explains brilliantly in the first 2min of &lt;a href=&quot;https://www.youtube.com/watch?v=O9MZ8y3CFTE&quot; rel=&quot;nofollow noreferrer&quot;&gt;this video&lt;/a&gt; (or in the written version &lt;a href=&quot;https://www.businessinsider.com.au/asher-edelman-endorses-bernie-sanders-2016-3?r=US&amp;amp;IR=T&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The basic logic is that, in practice, doing this only leads to a higher accumulation of wealth by the wealthy.&lt;/p&gt;&#xA;" OwnerUserId="12304" LastActivityDate="2018-01-06T12:43:09.443" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19991" PostTypeId="2" ParentId="19970" CreationDate="2018-01-06T13:54:20.977" Score="0" Body="&lt;p&gt;Several countries have it defined in their tax code, or by the national statistics institute, or the central bank. Stock exchhanges also define industry categories.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For general purposes or international comparisons you can use the categories defined by the &lt;a href=&quot;http://projects.worldbank.org/sector&quot; rel=&quot;nofollow noreferrer&quot;&gt;world bank&lt;/a&gt; &lt;a href=&quot;http://siteresources.worldbank.org/PROJECTS/Resources/WBsectors_eff_OCT03.doc&quot; rel=&quot;nofollow noreferrer&quot;&gt;(see also in word version)&lt;/a&gt;, or from the &lt;a href=&quot;https://unstats.un.org/unsd/publication/seriesm/seriesm_4rev4e.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;United Nations&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="12304" LastEditorUserId="12304" LastEditDate="2018-01-06T15:51:09.407" LastActivityDate="2018-01-06T15:51:09.407" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="19994" PostTypeId="2" ParentId="19903" CreationDate="2018-01-06T15:34:25.477" Score="4" Body="&lt;p&gt;Paul Samuelson wrote a series of papers formalizing Marxian economics, e.g. &#xA;&lt;a href=&quot;https://www.sciencedirect.com/science/article/pii/B9780123567505500177&quot; rel=&quot;noreferrer&quot;&gt;https://www.sciencedirect.com/science/article/pii/B9780123567505500177&lt;/a&gt;  &lt;/p&gt;&#xA;" OwnerUserId="15817" LastActivityDate="2018-01-06T15:34:25.477" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="19997" PostTypeId="1" AcceptedAnswerId="20003" CreationDate="2018-01-06T22:37:09.717" Score="0" ViewCount="34" Body="&lt;p&gt;I'm new to all this and balance sheets are extremely confusing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this example I've received a £25,000 loan from the bank, it has a fixed interest rate of 6% to be paid over 1-5 years.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is the only cash I have to finance my business at the moment and I don't have any other assets (2000 cash from personal finance)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So what I'm wondering is, in a balance sheet do I include the 25,000 as a Cash asset as well as putting it in the liabilities as I have to pay that back?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If someone could explain this to me or maybe show me what it would look like in a mini balance sheet I would be super grateful!&lt;/p&gt;&#xA;" OwnerUserId="15822" LastActivityDate="2018-01-07T13:04:11.783" Title="If I have a £25,000 loan, in a balance sheet do I include it in the Cash as well as a liability?" Tags="&lt;finance&gt;&lt;corporate-finance&gt;" AnswerCount="1" CommentCount="1" ClosedDate="2018-01-09T11:24:15.460" ContentLicense="CC BY-SA 3.0" />
  <row Id="19999" PostTypeId="1" CreationDate="2018-01-07T00:51:43.247" Score="1" ViewCount="47" Body="&lt;p&gt;I'm having trouble getting some intuition beneath the sheer maths of the following toy model:&#xA;\begin{align*}&#xA;(IS) : y_t &amp;amp;= -\eta r_t^e\\&#xA;(B) : r_t^e &amp;amp;= -\delta y_t + r_t&#xA;\end{align*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where $r_t$ is the real interest that applies for household, and $r_t^e$ is the real interest that applies for firms only. Given our IS curve, we assume that household do not care about $r_t$, so that aggregate demand $y_t$ is only a function of $r_t^e$ (i.e. firms do care about interest rate). Our $(B)$ equation states that bank lend money to firms based on the general level of GDP : the higher $y_t$, the lower $r_t^e$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now the following bugs me : you would believe that higher $r_t$ will deter $y_t$ (as it usually does). But in fact, if $\eta $ is high enough, one has :&#xA;\begin{align*}&#xA;y_t = \frac{\eta}{\eta \delta - 1}r_t&#xA;\end{align*}&#xA;Therefore, if $\eta \delta &amp;gt; 1$, we might end up with a positive relation between $r_t$ and $y_t$. Now what I don't know, is how to explain this appart from just stating &quot;math&quot; fact, i.e. I'm looking for an &quot;economical explanation&quot;. What I know so far is :&#xA;\begin{align*}&#xA;y_t = \delta \eta y_t + r_t&#xA;\end{align*}&#xA;Therefore if $\delta \eta $ is high, we have more that a &lt;em&gt;one-to-one multiplicative effect&lt;/em&gt;. But that doesn't explain to me why, given some possible value of $\eta$ and $\delta$, one might end up with a situation where &lt;strong&gt;a rise&lt;/strong&gt; in $r_t$ will cause &lt;strong&gt;a fall&lt;/strong&gt; in $r_t^e$, appart from stating the obvious maths behind it.&lt;/p&gt;&#xA;" OwnerUserId="13622" LastActivityDate="2018-01-07T00:51:43.247" Title="From mathematics to economical interpretation" Tags="&lt;macroeconomics&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20001" PostTypeId="1" CreationDate="2018-01-07T06:39:59.053" Score="6" ViewCount="474" Body="&lt;p&gt;Suppose we have the following production function:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$F(L,K)=\max_{L_K}H(L,L_K,K)=\max_{L_K}\left[(L-L_K+1)^\alpha(L_K+K)^{1-\alpha}\right]=(L-L_K^*+1)^\alpha(L_K^*+K)^{1-\alpha}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With the constraint $L_K\in[0,L]$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We know that $$\frac {dH}{dL_K}=\alpha(L-L_K+1)^{-1}H+(1-\alpha)(L_K+K)^{-1}H=0$$&#xA;Hence the value for $L_K$ at which the derivative is zero is $L_K^0=\frac {(1-\alpha)(L+1)+\alpha K}{1-2\alpha}$. And the optimal value $L_K^*$ is: &#xA;$$&#xA;L_K^*=\begin{cases}&#xA;L_K^0 &amp;amp;\text{ if } &amp;amp;0&amp;lt;L_K&amp;lt;L &amp;amp;(1)\\&#xA;L&amp;amp;\text { if } &amp;amp;L&amp;lt;L_K^0&amp;amp;(2)\\&#xA;0 &amp;amp;\text { if } &amp;amp;L_K^0&amp;lt;0 &amp;amp;(3)&#xA;\end{cases}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is clear that if $L_K^*\in(0,L)$, (case $(1)$ ), then the envelope theorem holds:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac d {dL} F(L,K)=\frac \partial {\partial L}H(L,L_K^*,K)=\alpha(L-L_K^*+1)^{-1}\cdot F(L,K)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Moreover, in the third case (3), it is also clear to me that the envelope theorem holds. &lt;strong&gt;However, I am not so sure about the second case (2)&lt;/strong&gt;. &lt;strong&gt;I would say that the envelope theorem does not hold in this case&lt;/strong&gt;, because if we substitute $L_K^*$ back into the original production function, we get &#xA;$$F(L,K)=1^\alpha(L+K)^{1-\alpha}$$&#xA;And the derivative with respect to $L$ in this case is &#xA;$$ (1-\alpha)(L+K)^{-1}\cdot F(L,K)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the envelope theorem to hold in case 3, this would require $\alpha= (1-\alpha)(L+K)^{-1}$, which Almost-Always doesn't hold. &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;But the reason this confuses me is that in &lt;a href=&quot;https://economics.stackexchange.com/questions/19905/envelope-theorem-for-discrete-choice-sets&quot;&gt;this question&lt;/a&gt; I was referred to &lt;a href=&quot;http://onlinelibrary.wiley.com/doi/10.1111/1468-0262.00296/abstract&quot; rel=&quot;noreferrer&quot;&gt;this paper&lt;/a&gt;, which has a theorem that states:&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/hG9cQ.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/hG9cQ.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/jeqvJ.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/jeqvJ.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;So my question is:&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Am I right that the envelope theorem doesn't hold when $L_K$ is at a corner solution? &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Does this contradict the theorem, or do I misunderstand the theorem? If not, is the theorem correct? &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="11146" LastActivityDate="2019-04-02T19:03:35.710" Title="Does the envelope theorem hold at a corner solution?" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20003" PostTypeId="2" ParentId="19997" CreationDate="2018-01-07T13:04:11.783" Score="0" Body="&lt;p&gt;Yes, you are correct: add the 25k both in cash and in liabilities. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The balance sheet represents what you have (assets) and what you owe (liabilities). So when you get the loan you do have 25,000 in cash under assets, but you also owe it and will need to repay it at some point (which appear as 25,000 in bank loans, under liabilities). As you repay it, the value in liabilities decreases. If you need to learn more there are several free online courses, like &lt;a href=&quot;http://www.accounting-basics-for-students.com/double-entry-accounting.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;this one&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="12304" LastActivityDate="2018-01-07T13:04:11.783" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20006" PostTypeId="2" ParentId="19988" CreationDate="2018-01-07T19:29:54.173" Score="0" Body="&lt;p&gt;I found the answer in &quot;Intermediate Microeconomics&quot; by N. Gregory Mankiw.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;When a firm’s average-total-cost curve continually&#xA;  declines, the firm has what is called a natural monop-&#xA;  oly. In this case, when production is divided among&#xA;  more firms, each firm produces less, and average total&#xA;  cost rises. As a result, a single firm can produce any&#xA;  given amount at the smallest cost.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;...&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;By definition, natural&#xA;  monopolies have declining average total cost [&lt;strong&gt;due to economies of scale, I suppose&lt;/strong&gt;]. As we first discussed in Chapter 13, when average total cost is declining, marginal cost is less than average total cost. This situation is illustrated in Figure 10, which shows a firm with a large fixed cost and then constant marginal cost thereafter. If regulators were to set price equal to marginal cost, that price must be less than the firm’s average total cost, and the firm would lose money. Instead of charging such a low price, the monopoly firm would just exit the industry.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;From other book:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;If demand is large relative to the minimum efficient scale, a competitive market is likely to result. If it is small, a monopolistic industry structure is possible.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Of course there must be the point where MC=ATC, but if the demand will ever become big enough to go beyond this point, then it will probably mean that our natural monopoly isn't natural anymore, that it makes sense to (re)introduce competition because now we have diseconomies of scale. Although it can be exactly MC=ATC, but it will be just coincidence and as such is unlikely.&lt;/p&gt;&#xA;" OwnerUserId="4979" LastEditorUserId="4979" LastEditDate="2018-01-08T09:16:14.013" LastActivityDate="2018-01-08T09:16:14.013" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20007" PostTypeId="1" CreationDate="2018-01-07T20:33:37.010" Score="0" ViewCount="84" Body="&lt;p&gt;My book states that one factor defining a perfectly competitive market is its participants having full information about prices and product characteristics. I can understand how having perfect information about prices promotes price taking behaviour (you can't charge me a higher price for your product if I know I can buy it cheaper from other producers). However, why exactly is having full information about product characteristics important for characterizing perfect competition? Thanks in advance.&lt;/p&gt;&#xA;" OwnerUserId="15052" LastActivityDate="2018-01-08T12:19:27.633" Title="Why exactly does a perfectly competitive market depend on consumers having perfect information about a product?" Tags="&lt;microeconomics&gt;&lt;competition&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20008" PostTypeId="1" AcceptedAnswerId="33571" CreationDate="2018-01-07T22:30:54.760" Score="14" ViewCount="219" Body="&lt;p&gt;Lots has been written in terms of &lt;a href=&quot;http://www.homelessresearch.net/our-content/report-series/index.html&quot; rel=&quot;noreferrer&quot;&gt;the social context of homelessness&lt;/a&gt;. Often attributing the causes due to mental illness, previous criminal activity and addiction.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've been wondering, how much of a role (if any) does home price or rent play into the phenomenon of homelessness?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Im guessing estimates will be different depending region, but I'd like to know if the relationship is consistent across the board.&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2020-02-24T08:12:14.373" Title="Economics of Homelessness: Are housing prices to blame?" Tags="&lt;reference-request&gt;&lt;housing&gt;" AnswerCount="3" CommentCount="2" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="20010" PostTypeId="2" ParentId="20007" CreationDate="2018-01-07T23:25:08.827" Score="2" Body="&lt;p&gt;&lt;strong&gt;Perfect information&lt;/strong&gt; implies every buyer and every seller knows everything in the market. As soon as a firm brings a new product to the market, other firms start selling the same, identical, product. In practice, say a kebab shop comes up with a secret new ingredient and attracts more custoemrs, but as soon as this happens, other shops copy it. Bottomline: any information-advantage is short-lived in perfect competition. This also leads to the other characterisation, &lt;strong&gt;all products are homogeneous&lt;/strong&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the firms/customers do not possess full information about the market/products, then you should characterise the market differently i.e. oligopoly, monopolistic competition or monopoly.&lt;/p&gt;&#xA;" OwnerUserId="6009" LastActivityDate="2018-01-07T23:25:08.827" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20011" PostTypeId="1" CreationDate="2018-01-08T00:59:30.903" Score="1" ViewCount="240" Body="&lt;p&gt;I do not understand how Mas-Collel, Whinston, and Green derive the Hicksian demand functions in Example 3.E.1 in their textbook. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Allow me to give further background regarding the problem: The authors give us a Cobb-Douglas utility function for &lt;span class=&quot;math-container&quot;&gt;$L = 2$&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$L$&lt;/span&gt; refers to the number of commodities. The function is &lt;span class=&quot;math-container&quot;&gt;$u(x_1, x_2) = kx_1^{α} \cdot x_2^{1-α}$&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$k$&lt;/span&gt; is some positive constant and alpha is some number between &lt;span class=&quot;math-container&quot;&gt;$0$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt;. They note that the function is strictly increasing on &lt;span class=&quot;math-container&quot;&gt;$x_i &amp;gt; 0$&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$i=1,2$&lt;/span&gt;. Thereafter, they apply an increasing transformation of &lt;span class=&quot;math-container&quot;&gt;$u(x_1,x_2)$&lt;/span&gt; - namely, the natural logarithm. They note that since natural logarithm is strictly concave, it is strictly quasi-concave, which tells us that the Walrasian Demand correspondence will in fact be a function. Moreover, since the utility function is increasing, we know that the consumer has monotone preferences, thus her preferences satisfy local non-satiation, thus the budget constraint holds with equality; that is: &lt;span class=&quot;math-container&quot;&gt;$p_1x_1 + p_2x_2 = w$&lt;/span&gt; (wealth). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, when the authors go on to derive the Hicksian demand functions, I am lost. I tried setting up the first-order conditions for minimization, by setting up the Lagrangian function; that is, take the objective function (the utility function) plus Lambda times (u minus (the utility function)). I set the partial derivative of the Lagrangian with respect to the choice variables and set them greater than or equal to zero. Next, there is the partial derivative of the Lagrangian function with respect to lambda, which I set less than or equal to zero. Lastly, there are the complementary slackness conditions.    &lt;/p&gt;&#xA;&#xA;&lt;p&gt;References: Mas-Colell, Andreu, et al. Microeconomic Theory. Oxford University Press, 1995.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is not a homework problem, I just wish to have elucidation on this example. &lt;/p&gt;&#xA;" OwnerUserId="15830" LastEditorUserId="23083" LastEditDate="2019-12-15T14:40:23.590" LastActivityDate="2019-12-15T14:40:23.590" Title="MWG Example 3.E.1" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;" AnswerCount="0" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="20012" PostTypeId="1" CreationDate="2018-01-08T02:04:52.623" Score="0" ViewCount="70" Body="&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Life-cycle_hypothesis?wprov=sfti1&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://en.wikipedia.org/wiki/Life-cycle_hypothesis?wprov=sfti1&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems self-evident to me that nobody on Earth actually does this. Real people are short-sighted, undisciplined, and lack the computational ability to account for all the variables.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some may attempt to, but will invariably fail, and most people don’t even try and instead live for the short-term. Richard Thaler covers this in his book “Misbehaving: The Making of Behavioral Economics”. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Has even one instance of LCH behavior ever been documented?&lt;/p&gt;&#xA;" OwnerUserId="14503" LastEditorUserId="14503" LastEditDate="2018-01-08T12:34:30.677" LastActivityDate="2018-02-10T08:36:07.027" Title="Has any person ever actually planned his or her consumption according to Modigliani’s LCH?" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;consumer-theory&gt;&lt;behavioral-economics&gt;&lt;decision-theory&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="20013" PostTypeId="1" CreationDate="2018-01-08T10:14:40.747" Score="0" ViewCount="57" Body="&lt;p&gt;It just doesn't make sense. Any try to challenge a natural monopoly is fruitless (at the best) or an economic suicide (at the worst). Why would you forbid companies from doing such stupid move? It's like forbidding inhabatants of skyscrapers from jumping out of windows. &lt;/p&gt;&#xA;" OwnerUserId="4979" LastEditorUserId="4979" LastEditDate="2018-01-08T12:04:05.380" LastActivityDate="2018-01-08T12:04:05.380" Title="Why are some natural monopolies protected by the law from competition?" Tags="&lt;macroeconomics&gt;&lt;monopoly&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="20014" PostTypeId="1" AcceptedAnswerId="20017" CreationDate="2018-01-08T10:23:17.280" Score="1" ViewCount="52" Body="&lt;p&gt;could you help me to solve the task, please? The task is following.&#xA;Total costs of the сompetitive firm are $TC = Q^3 +6$ (Q in thousands \$). If the production is stopped then monthly costs are 4000\$. At what prices the company that maximising profit should shut off the production?&lt;br/&gt;&lt;br/&gt;&#xA;I know that if $P &amp;lt; minAVC$, then the company should stop producing. &#xA;So $VC = Q^3$ then $AVC = \frac{Q^3}{Q} = Q^2$ and $minAVC = 0$&#xA;So I get $P&amp;lt;0$ that sounds stupid. And I don't even know how to use that 4000\$.&#xA;The answer should be $P&amp;lt;3$&#xA;Could you help me to find out how to solve this? &lt;br/&gt;&#xA;Thank you in advance.&lt;/p&gt;&#xA;" OwnerUserId="15504" LastEditorUserId="15504" LastEditDate="2018-01-08T13:23:11.133" LastActivityDate="2018-01-08T15:23:03.340" Title="Shutting off production in short term" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="20015" PostTypeId="1" CreationDate="2018-01-08T11:41:21.777" Score="-1" ViewCount="82" Body="&lt;p&gt;How did economics become a &quot;science&quot;, an academic field?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Because I think of it as a soft science and thus in order to be considered a science it would need to be able to reply to the hard sciences? By which I mean that:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In order to be considered a science in a similar sense than the hard sciences, because &quot;science&quot; is a general term and not a particular, wouldn't economics also need to be able to &quot;match&quot; the truth/validity of hard sciences? Otherwise call it soft science directly, rather than merely &quot;science&quot;, in order to not imply validity, which it doesn't have.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Was economics established in universities through political processes or through demand?&lt;/p&gt;&#xA;" OwnerUserId="6848" LastEditorUserId="6848" LastEditDate="2018-01-10T11:32:27.723" LastActivityDate="2018-01-10T11:32:27.723" Title="How did economics become a &quot;science&quot;, an academic field?" Tags="&lt;philosophy-of-economics&gt;" AnswerCount="1" CommentCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="20016" PostTypeId="2" ParentId="20007" CreationDate="2018-01-08T12:19:27.633" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;However, why exactly is having full information about product characteristics important for characterizing perfect competition?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Because in this situation even in extreme case you can be sure, that MC=MB. For example, let's assume that 1 util=1 dollar. There is a pizza with price of 100 dollars and I agree to pay only 100 dollars as maximum (not even 1 cent more), because I expect to derrive 100 utils from its comsumptions. If my estimate of its utility is even slightly off, then I can be worse off by buing it. For example, if it turned out that its consumptions gives me only 99 utils of satisfaction.&lt;/p&gt;&#xA;" OwnerUserId="4979" LastActivityDate="2018-01-08T12:19:27.633" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20017" PostTypeId="2" ParentId="20014" CreationDate="2018-01-08T13:20:17.207" Score="0" Body="&lt;p&gt;I think I understand the problem now, your AVC(Q) is wrong. Your fixed costs are 4000, because it's what the firm will pay after it stops production. VC=TC-4=Q^3+2. Thus AVC=Q^2+2/Q. Now you should use your calculus in order to find where AVC has local positive minimum (because it doesn't have global minimum due to its hyperbolic nature).&lt;/p&gt;&#xA;" OwnerUserId="4979" LastEditorUserId="4979" LastEditDate="2018-01-08T15:23:03.340" LastActivityDate="2018-01-08T15:23:03.340" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="20018" PostTypeId="2" ParentId="20015" CreationDate="2018-01-08T13:38:27.170" Score="3" Body="&lt;p&gt;It appears that you equate &quot;science = academic field&quot; which is certainly not the case.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, it may be true that the word &quot;science&quot; was customarily associated with what we nowadays call &quot;hard science&quot;, which exactly proves that the use of the word &quot;science&quot; has been generalized.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hard and soft, humanities and social sciences, they are all &quot;scientific fields/ scientific disciplines&quot; now, in the sense of being fields of human activity where the accumulation of knowledge is systematically and purposefully pursued, (and no, &quot;science&quot;, or &quot;knowledge&quot; for that matter, is &lt;em&gt;not&lt;/em&gt; just about &quot;uncovering unchanging laws&quot;). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is what happened with economics. People of knowledge have occasionally written about economic phenomena from the ancient times, but these instances were few and far between. Starting from the end of 18th century, whole books appeared that described, debated, explored economic phenomena. And during the 19th century it became more and more frequent, ending up in &quot;systematic&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I do not understand the final question of your post about &quot;political processes or demand&quot;&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2018-01-08T13:38:27.170" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="20021" PostTypeId="1" AcceptedAnswerId="20053" CreationDate="2018-01-08T16:17:47.147" Score="1" ViewCount="159" Body="&lt;p&gt;Can one say that the demand curve equals the marginal utility function? I have one course where this is stated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, the demand curve dan be derived from combining the utility function with the budget curve, while varying the price of the one good of interest and plotting the corresponding quantities found from the equilibria in the goods space and the budget curve.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;While I do understand this method, I don't understand how the demand curve can be seen as the marginal utility function using this method (or any unknown other).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Please enlighten me :).&lt;/p&gt;&#xA;" OwnerUserId="15819" LastActivityDate="2018-01-12T04:26:57.213" Title="relation between the demand function and the marginal utility function" Tags="&lt;utility&gt;&lt;supply-and-demand&gt;&lt;price&gt;&lt;marginal&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20022" PostTypeId="2" ParentId="19507" CreationDate="2018-01-08T16:28:18.680" Score="3" Body="&lt;p&gt;Labour power is a commodity like any other. Its value is consequently a function of the labour embodied in it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Taking your example,&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;product A (a webpage)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;takes 10 hours&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;you need special skills (those of a webdesigner) that are hard to learn&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;only 14% of population already have those skills to build that&#xA;product&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Versus&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;product B (a chair)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;takes 10 hours&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;you do not need special skills (you do; those of carpenter. But those are easier to learn, compared to those of a webdesigner)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;90% of the people (probably an exageration, but certainly more people have the skills of a carpenter than those of a webdesigner) already have those skills to build that product &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;code&gt;A value = B value ?&#xA;the chair value = the web site value?&lt;/code&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;No.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;While each of them requires 10 hours of labour, the labour embodied in each has a different value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The labour of the webdesigner is more valuable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Because it takes - say - 1,000 hours of labour to turn an unskilled labourer into a webdesigner, while it takes - say - 200 hours of labour to turn an unskilled labourer into a carpenter.&lt;/p&gt;&#xA;" OwnerUserId="15747" LastActivityDate="2018-01-08T16:28:18.680" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20023" PostTypeId="2" ParentId="19955" CreationDate="2018-01-08T16:35:04.610" Score="1" Body="&lt;p&gt;I found book &quot;Intermediate Microeconomics&quot; by John Hey, it seems to support my conclusion. And there is nothing radical. I will quote some places from the chapter 29.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;One very obvious reason why a single large firm might be more appropriate in some industry is simply that a single large firm might have access to a more efficient technology than lots of small firms. This is a plausible case if centralisation of the industry has consequences in terms of increased efficiency – contrariwise, if splitting it up into lots of little units causes losses of efficiency and increased bureaucratic costs. ... Even if it behaves like a monopolist – and there is an associated deadweight loss as a consequence – the end product for both consumers and producer might be better.&quot;&lt;/p&gt;&#xA;" OwnerUserId="4979" LastActivityDate="2018-01-08T16:35:04.610" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20027" PostTypeId="1" CreationDate="2018-01-09T22:01:19.423" Score="2" ViewCount="70" Body="&lt;p&gt;If you think this is going to lead to answers which are too speculative, let me know, but I think it should be possible to at least make some strong educated guesses...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What would happen if there was a one-time redistribution of wealth from the wealthiest 1% of people in the US to the other 99% of people? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I was directed to this question on the website “Quora” by a friend the other day, and the answer posted there made me want to bang my head against the wall. I don’t want to say what it was because I don’t want to bias the answers, but it basically led to a never ending back-and-forth between my friend and myself, so I thought it was time to ask some qualified people to weigh in. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;What would happen?&lt;/strong&gt; I’m interested in both short-term and long-term consequences (as well as possible large-scale psychological consequences, though those might be outside the scope of this site). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;With my friend we discussed whether it would be different depending on whether the 1%’s assets were &lt;strong&gt;first sold, then distributed&lt;/strong&gt;, or &lt;strong&gt;first distributed, then sold&lt;/strong&gt;. We discussed whether there would be &lt;strong&gt;buyers&lt;/strong&gt; for the assets, given that those who previously had the most money now have none in this scenario. (Of course there could be buyers from foreign markets). We discussed whether it would affect employment and lending, given that the 1% by and large own businesses which employ a lot of people. We discussed whether various groups of people would choose to keep working and what kind of effect that would have. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can find the stats to calculate this on the Internet, but just to speed things along, the numbers would wind up being a little under 100k per person (if minors are included). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I want to clarify that this was &lt;strong&gt;not&lt;/strong&gt; (I hope) posed as a real &lt;em&gt;suggestion&lt;/em&gt; - because robbing people of their assets just because they’ve been more successful than other people seems obviously morally wrong - the question is whether, in a &lt;em&gt;practical&lt;/em&gt; sense, the &lt;em&gt;consequences&lt;/em&gt; of this scenario would be &lt;strong&gt;good&lt;/strong&gt; or &lt;strong&gt;bad&lt;/strong&gt; overall, for the average individual, and for humanity as a whole, long-term. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume that:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;The total net worth of the USA is $84 trillion. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The population of the USA is 323 million. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The “wealthiest 1%” is any &lt;strong&gt;individual&lt;/strong&gt; possessing $8 million or more in total assets.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The “wealthiest 1%” controls 38% of the nation’s wealth. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The time period is 2018. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The mechanism is government. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="15846" LastEditorUserId="15846" LastEditDate="2018-01-10T10:13:00.593" LastActivityDate="2018-01-10T10:13:00.593" Title="What would happen if there was a one-time redistribution of wealth from the wealthiest 1% to the other 99% of people in the US?" Tags="&lt;supply-and-demand&gt;&lt;inequality&gt;&lt;consumption&gt;" AnswerCount="0" CommentCount="8" ClosedDate="2018-01-15T12:52:29.580" ContentLicense="CC BY-SA 3.0" />
  <row Id="20028" PostTypeId="2" ParentId="19197" CreationDate="2018-01-09T23:04:07.553" Score="0" Body="&lt;p&gt;&lt;a href=&quot;https://mobile.audible.com/pd/History/An-Economic-History-of-the-World-since-1400-Audiobook/B01K4ZNTFS?ref=msw_search_c1_0_1_AN&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://mobile.audible.com/pd/History/An-Economic-History-of-the-World-since-1400-Audiobook/B01K4ZNTFS?ref=msw_search_c1_0_1_AN&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I recommend this — there isn’t a written format. You can choose Amazon Video, Audible Audiobook, or DVD. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Highly recommended, however.&lt;/p&gt;&#xA;" OwnerUserId="14503" LastActivityDate="2018-01-09T23:04:07.553" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20029" PostTypeId="2" ParentId="20012" CreationDate="2018-01-10T00:10:07.757" Score="2" Body="&lt;p&gt;The life-cycle hypothesis as a model doesn't need to explain people's behavior perfectly to be of use in understanding the economy or the decisions that individuals make. Recall the old saying that &quot;&lt;a href=&quot;https://en.wikipedia.org/wiki/All_models_are_wrong&quot; rel=&quot;nofollow noreferrer&quot;&gt;all models are wrong but some are useful&lt;/a&gt;.&quot; As a quick example, note that many people do in fact borrow when they are young (e.g., for college, save while their income is relatively high (e.g., a lot of people save for retirement), and dissave when they're older---just as would be predicted by this theory.&lt;/p&gt;&#xA;" OwnerUserId="59" LastEditorUserId="59" LastEditDate="2018-01-11T07:11:42.217" LastActivityDate="2018-01-11T07:11:42.217" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20030" PostTypeId="1" CreationDate="2018-01-10T01:26:07.767" Score="1" ViewCount="143" Body="&lt;p&gt;It is my understanding that countries without fractional reserve requirements still have capital requirements, but what I do not understand is how equity can be used to satisfy these requirements without causing large amounts of inflation in the housing market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If banks are not required to have currency reserves, then what is to prevent them from extending themselves effectively unlimited credit based on their equity?  In the short term, they may be limited by debt to equity ratios, but in the long term, wouldn't this lead to a consistent rate of near constant inflation?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Every time a bank issues credit to buy a house, (in aggregate, of course) the price of housing increases, which increases equity, which allows them to issue more credit..&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does anyone else not see a problem with this?&lt;/p&gt;&#xA;" OwnerUserId="15848" LastActivityDate="2018-02-11T00:37:33.387" Title="Does Not Having a Fractional Reserve System Cause More Inflation?" Tags="&lt;inflation&gt;&lt;monetary-policy&gt;&lt;finance&gt;&lt;money-supply&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="20033" PostTypeId="1" CreationDate="2018-01-10T11:24:47.837" Score="1" ViewCount="57" Body="&lt;p&gt;Does exist some model of optimal people occupancy over whole our planet?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Something accounting for climate, resources (with and without existing settlements) availability, progress and grows perspectives and so on.&#xA;I would like to find it in form of heat map.&#xA;All I can find is just studies about cities layout or population size and density.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I came to the question thinking about advisability of my little hometown existence and ways to improve it - may be the game is not worth the candle.&lt;/p&gt;&#xA;" OwnerUserId="15851" LastActivityDate="2020-12-21T11:01:45.173" Title="Optimal population allocation layout over the Earth" Tags="&lt;optimization&gt;&lt;resource-economics&gt;&lt;population-economics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20034" PostTypeId="1" CreationDate="2018-01-10T14:46:29.370" Score="0" ViewCount="27" Body="&lt;p&gt;How do I plot a multiple regression graph? Shall it be a many dimensional plane(equals to number of explanatory variable)? Or will be the line for each beta, since the slope or beta is the partial derivative of y(explained) with respect to that particular x(explanatory)??&lt;/p&gt;&#xA;" OwnerUserId="12793" LastActivityDate="2018-01-10T21:28:21.583" Title="Multiple regression." Tags="&lt;regression&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="20035" PostTypeId="1" AcceptedAnswerId="20038" CreationDate="2018-01-10T16:23:32.073" Score="3" ViewCount="110" Body="&lt;p&gt;Certainly there is a time value of money: If the nominal interest rate of treasury bonds is 5%, then if one has a choice between receiving a hundred dollar bill now and receiving it a year from now, the better option would be to receive it now.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But what if we lived in a society where charging interest is illegal? Would there still be a time value of money? In other words, if we lived in such a society, then if one had a choice between receiving a hundred dollar bill now and receiving it a year from now, would the better option still be to receive it now?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the essence of my question is &quot;Is the time value of money natural or artificial?&quot; If it is natural, then a law against charging interest would have no effect on the reality that there is a time value of money. And if it is artificial, then the law which states whether charging interest is illegal or not is what determines whether there is a time value of money. &lt;/p&gt;&#xA;" OwnerUserId="13169" LastActivityDate="2018-01-15T08:13:29.557" Title="Is the time value of money natural or artificial?" Tags="&lt;interest-rate&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20037" PostTypeId="1" CreationDate="2018-01-10T17:10:03.943" Score="2" ViewCount="2155" Body="&lt;p&gt;I know that if capital is below the golden rule level in the Solow model, then we are dynamically efficient, and vice versa.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How is that proven?&lt;/p&gt;&#xA;" OwnerUserId="15857" LastEditorUserId="27" LastEditDate="2018-01-10T21:00:18.870" LastActivityDate="2018-06-14T08:07:51.083" Title="How to prove dynamic inefficiency in the Solow model?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20038" PostTypeId="2" ParentId="20035" CreationDate="2018-01-10T17:18:59.460" Score="4" Body="&lt;p&gt;Let's first write down two realistic reasons as to why the &quot;time value of wealth&quot; (since here &quot;money&quot; is considered in its function as store of value), is &quot;natural and not artificial&quot;, to use the OP's words.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;1) The phenomenon of inflation.&lt;/strong&gt; &lt;em&gt;If&lt;/em&gt; we expect to see price inflation, then a given amount of nominal &quot;wealth tomorrow&quot; will buy for us less goods and services than the same amount of &quot;wealth today&quot;. So &quot;wealth today&quot; is preferable than &quot;wealth tomorrow&quot;, since what we care about, is goods and services which are the things generating utility for us.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But note that inflation is not some always-present phenomenon in all economic systems, economies, countries, eras: for example the 19th century has been largely a deflationary period, with prices tending to fall during the century, in the main capitalistic economies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;2) The uncertainty of the future.&lt;/strong&gt; This is always present, even if it has to do with the possibility of unexpected death. So &quot;wealth tomorrow&quot; may not be enjoyed because I will have die suddenly and unexpectedly till then. So &quot;wealth today&quot; is preferable, and so more valuable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a lending and borrowing situation, we can also map to the &quot;uncertainty of the future&quot; the risk of not-repayment etc. and so view the time value of wealth as being also a compensation for undertaking these risks.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, in a long-term approach, eventually we all die, so the very finiteness of our horizon creates a situation where &quot;wealth today&quot; is more preferable and so more valuable than &quot;wealth tomorrow&quot;, if this &quot;tomorrow&quot; is far in the future.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The thing is, economists argue that &quot;wealth today&quot; &lt;em&gt;is always preferable to &quot;wealth tomorrow&quot;&lt;/em&gt;&lt;br&gt;&#xA;a) even if there is no inflation, or alternatively, if we examine wealth in &quot;real terms&quot; (i.e. in terms of goods and services),&lt;br&gt;&#xA;b) even if there is no uncertainty &lt;em&gt;at all&lt;/em&gt;,&lt;br&gt;&#xA;c) even if we have an &quot;infinite&quot; time horizon, i.e. even in the hypothetical situation that we are certain that we will never die, not even from &quot;natural causes.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is why in intertemporal models of consumer choice and utility optimization that are deterministic /incorporate no uncertainty, and assume an infinite time horizon, still, a &quot;discount factor&quot; exists that &lt;em&gt;discounts future certain utility in real terms&lt;/em&gt;, which indirectly reflects that &quot;wealth today&quot; is preferable to &quot;wealth tomorrow&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is the argument behind that? Well, sometimes there is no philosophical argument only a methodological argument: &quot;a deterministic economic model with infinite time horizon and in real terms is an approximation to reality, which is uncertain and has finite horizon for economic agents, and so we include the discount factor to keep it a little closer to reality&quot;. That's fine, that's what economic models do (models in general actually).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;But could we come up with an argument that even an immortal living in a perfectly deterministic world, would prefer &quot;wealth today&quot; to &quot;wealth tomorrow&quot;?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;We can. It's called &quot;opportunity cost&quot;.&lt;/strong&gt; It can stand on its own without invoking uncertainty or the possibility of death. It depends on the following very simple axiom, which is supported by timeless experience related to human behavior: &quot;more is better&quot;. Under this axiom, having wealth today will permit me, if I choose so to have more wealth tomorrow and for all tomorrows. So it potentially expands my &quot;choice set&quot; for all eternity.  If more is better, then I want a larger choice set, so I would prefer to have all my future wealth today rather than tomorrow.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;...one could of course argue that the &quot;more is better&quot; postulate is not an independent trait of humans, but is one more incarnation of the &quot;survival instinct&quot; and so it is in reality a response to uncertainty and risk of death. Certainly, but everything can be eventually attributed to the &quot;survival instinct&quot;, and what explains everything explains nothing.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2018-01-10T22:43:54.277" LastActivityDate="2018-01-10T22:43:54.277" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20040" PostTypeId="2" ParentId="20034" CreationDate="2018-01-10T21:28:21.583" Score="2" Body="&lt;p&gt;In principle it's a plane for 2 independent variables or a hyperplane for more. An exception is when your independent variables are a continous and a dummy variable. In that case the dummy basically changes to the intercept only so you could show two lines with different intercepts.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A work around if you have 2 continuous independent variables is to show the relation between the dependent and one independent for several values of the other independent.&lt;/p&gt;&#xA;" OwnerUserId="12186" LastActivityDate="2018-01-10T21:28:21.583" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20041" PostTypeId="2" ParentId="19253" CreationDate="2018-01-11T07:11:15.003" Score="1" Body="&lt;p&gt;Many macroeconomists have a somewhat cavalier attitude towards checking the validity of linearization methods, but definitely not all of them. For an example of the approximation issues being taken seriously, see Appendix A.3 on &quot;Log-Linearization and Determinacy of Equilibrium&quot; in the book &lt;em&gt;Interest and Prices&lt;/em&gt; by Michael Woodford.&lt;/p&gt;&#xA;" OwnerUserId="1442" LastActivityDate="2018-01-11T07:11:15.003" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20042" PostTypeId="2" ParentId="19229" CreationDate="2018-01-11T07:19:07.540" Score="1" Body="&lt;p&gt;Your second sentence is false (&quot;However, graphically, even when price falls demand falls to 0.&quot;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Below is an example of perfectly elastic demand. At any price above \$1, quantity demanded (QD) is 0, as indicated by the vertical line segment on the left.† &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But at any price below \$1, QD is &lt;em&gt;not&lt;/em&gt; 0, but $\infty$. This is not depicted in the graph below, because we can't depict $\infty$ on a graph.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And so the law of demand is not violated: when price falls, QD does not also fall. Instead, QD rises.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/SKvW4.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/SKvW4.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Note that in the real world, perfectly elastic demand does not exist. To use the above example, it is never the case that at a price of $1, every non-negative real number is a possible QD. As is often the case in economics, the concept of perfectly elastic demand is simply an abstract idealization that is occasionally helpful for explaining certain phenomena.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;†Note that this vertical line segment is often omitted. In my opinion, this omission is a mistake and is one of the reasons for the confusion on your part.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2018-01-11T07:19:07.540" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20043" PostTypeId="2" ParentId="20035" CreationDate="2018-01-11T10:48:54.787" Score="0" Body="&lt;p&gt;The prevailing explanation for the existence of rate of interest (aka time-value of money) is the one thoroughly explained above by Alecos. My objection to this is that it analyses the phenomenon from a psychological perceptive, and not from a purely economical one. I will give Marx's arguments on the matter, as an alternative for you to consider.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;According to Marx, there is no such thing as &quot;Natural Interest&quot;. There is nothing natural in it. The rate of interest is just an agreement made between money capitalists on one side (banks) and the industrial and commercial capitalists on the other (factory owners, merchants, etc.) and it varies depending on the competition between them.   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The theory behind this explanation, lies on Marx's central idea that profit is not made during product exchange, but during the production, by extracting the surplus value from the workers. So, how does a banker makes a profit? What is really happens, in simple words, is firstly he lends capital to the factory owner/merchant, then profit is produced via the production process and in the end profit is shared between the two. Thus, competition between the two different types of capitalists (relation between real capital/money in an society at a given time period), determines the rate of interest.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given these arguments, the answer to your question is that in a capitalistic society, there is indeed time-value of money, as there has to be rate of interest (credit system will always be essential for such a society to exist). However, in a non-capitalistic society, ex. in a socialist one, there can be banks to serve public needs, public sector projects &amp;amp; state-owned enterprises, but there won't be a rate of interest for that, thus the time-value of money disappears in such a society.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.marxists.org/archive/marx/works/1894-c3/ch22.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;Capital Vol. III Part V Division of Profit into Interest and Profit of Enterprise. Interest-Bearing Capital Chapter 22. Division of Profit. Rate of Interest. Natural Rate of Interest.&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;EDIT:&lt;/strong&gt;&lt;br&gt;&#xA;The time value of money in a capitalist society stems from the fact that a capital now can be invested to yield a larger capital later. Thus, it has a dynamic, a potential and there lies its time value. And that's its connection to the interest rate, as explained above. In a socialist society, that's not the case, as there is no private investment for profit. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &quot;more is better&quot; argument is debatable, as it lies on psychological reasoning. To what extend money for consumption now is better than money for consumption later in any kind of society can vary according to individual's preferences, views, current needs, economic security of a given society, etc.  &lt;/p&gt;&#xA;" OwnerUserId="13849" LastEditorUserId="13849" LastEditDate="2018-01-15T08:13:29.557" LastActivityDate="2018-01-15T08:13:29.557" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="20044" PostTypeId="1" CreationDate="2018-01-11T11:29:20.187" Score="5" ViewCount="4106" Body="&lt;p&gt;Does anyone know any seminal reference (either a paper in a top economics journal or a book) that compares own-price elasticities of demand for durable vs non-durable goods?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My intuition tells me that durable goods should be more elastic ... but not sure how to defend that statement without a reference.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As requested I added some more content to the question. However, the question trying to find an answer to is merely an empirical question and therefore I do not have a specific model in mind. To be slightly more precise: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider a demand function for good $i$: $P_i = f(Q_i, X_i)$ where $P_i$ is the price of good $i$, $Q_i$ is the quantity and $X_i$ are other factors that influence demand. What I am looking are empirical estimates for $\frac{\partial Q_i}{\partial P_i} \frac{P_i}{Q_i}$ for two sectors: durable goods and non-durable goods. Now usually there is a problem in estimating this elasticity given the standard endogeneity problems. However, there are methods that have been used to disentangle such quantities. Two examples are: &lt;a href=&quot;http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.554.3931&amp;amp;rep=rep1&amp;amp;type=pdf&quot; rel=&quot;noreferrer&quot;&gt;Berry,Levinson and Pakes (1995)&lt;/a&gt; and &lt;a href=&quot;https://www.google.co.uk/url?sa=t&amp;amp;rct=j&amp;amp;q=&amp;amp;esrc=s&amp;amp;source=web&amp;amp;cd=2&amp;amp;cad=rja&amp;amp;uact=8&amp;amp;ved=0ahUKEwi-rKrbnNDYAhUCIsAKHS2yBp8QFggyMAE&amp;amp;url=https%3A%2F%2Fwww.aeaweb.org%2Farticles%3Fid%3D10.1257%2Faer.100.3.691&amp;amp;usg=AOvVaw2s5HyohFkg3ulCDUGgRyWm&quot; rel=&quot;noreferrer&quot;&gt;Broda and Weinstein (2004)&lt;/a&gt;.&lt;br&gt;&#xA;There are few anecdotal evidence of differences in elasticities for durable and non durable goods. One example taken from &lt;a href=&quot;https://courses.lumenlearning.com/boundless-economics/chapter/price-elasticity-of-demand/&quot; rel=&quot;noreferrer&quot;&gt;here&lt;/a&gt; is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Duration of price change: For non-durable goods, elasticity tends to be greater over the long-run than the short-run. In the short-term it may be difficult for consumers to find substitutes in response to a price change, but, over a longer time period, consumers can adjust their behavior. For example, if there is a sudden increase in gasoline prices, consumers may continue to fuel their cars with gas in the short-run, but may lower their demand for gas by switching to public transportation, carpooling, or buying more fuel-efficient vehicles over a longer period of time. However, this tendency does not hold for consumer durables. The demand for durables (cars, for example) tends to be less elastic, as it becomes necessary for consumers to replace them with time.&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But this is not an sufficient academic reference which is what I am looking for. &lt;/p&gt;&#xA;" OwnerUserId="6641" LastEditorUserId="6641" LastEditDate="2018-01-11T15:32:24.860" LastActivityDate="2021-04-26T23:05:10.607" Title="Elasticity of Durable Goods vs Non-Durable Goods" Tags="&lt;elasticity&gt;" AnswerCount="2" CommentCount="5" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="20047" PostTypeId="1" CreationDate="2018-01-11T15:06:05.113" Score="2" ViewCount="2106" Body="&lt;p&gt;When discussing panel data, many econometric books, usually, focus just on fixed or random effect model as means of estimating regression for panel data. Despite this tendency, I have seen many papers use Fama and MacBeth regression for this purpose, an approach I previously thought its application is constrained to asset pricing models like CAPM. &#xA;Now my question is: in panel data application, when using Fama and MacBeth regression is preferable over the fixed or random effect model? Is there a statistical test shedding light on this issue? Another question is: in Fama and MacBeth regression can individuals under study be different in different time periods? It would be very kind of you, if you guide me through a link or book dealing whit this subject.&lt;/p&gt;&#xA;" OwnerUserId="15867" LastEditorUserId="15867" LastEditDate="2020-03-28T19:39:27.953" LastActivityDate="2020-03-28T19:39:27.953" Title="In panel data application, when using Fama and MacBeth regression is preferable over the fixed or random effect model? thought" Tags="&lt;econometrics&gt;&lt;regression&gt;&lt;paneldata&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="20051" PostTypeId="2" ParentId="20030" CreationDate="2018-01-11T23:23:19.223" Score="1" Body="&lt;p&gt;Canada abolished bank reserves in 1992. Canada has had very similar inflation rates as the United States since then.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Increases in house prices do not improve bank equity. Banks make a profit based on being paid a rate of interest above their cost of funds. Increasing house prices just reduce losses in the case of default. Threfore, the relatively steady profits that come from interest rate spreads slowly builds up equity, with the result that bank balance sheets only exhibit moderate growth rates (similar to nominal GDP growth rates).&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2018-01-11T23:23:19.223" CommentCount="15" ContentLicense="CC BY-SA 3.0" />
  <row Id="20053" PostTypeId="2" ParentId="20021" CreationDate="2018-01-12T04:26:57.213" Score="2" Body="&lt;p&gt;This is true for quasilinear utility function. Suppose&#xA;$$U = d + V(x),&#xA;$$&#xA;where $d$ is the numeraire. The budget constraint is given by $p_x x + d = I$. The utility is then&#xA;$$U = I - p_x x + V(x).$$&#xA;Maximizing this, we have the following FOC: $p_x = V'(x)$. That is, for a given $x$, my willingness to pay is $V'(x)$, the marginal utility.&lt;/p&gt;&#xA;" OwnerUserId="5145" LastActivityDate="2018-01-12T04:26:57.213" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20054" PostTypeId="2" ParentId="14891" CreationDate="2018-01-12T07:43:34.367" Score="-1" Body="&lt;p&gt;No it can not. &#xA;Obviously in the short term an increase in productivity through technology or upskilling the workforce can fuel economic growth,as can other factors, but not indefinitely. Population growth is the key. For example: How could the world in the beginning of the 19th century with a population of just 1 Billion have developed into a world with a GDP of $126 Trillion by 2017 if the population had not grown (now over 6 Billion). I believe the answer is &quot;it could not&quot;. Our modern day economy depends on production and consumption and no matter what equations you choose to use, at the end of the day you still need PEOPLE to produce and consume in increasing amounts for there to be sustained growth.&lt;/p&gt;&#xA;" OwnerUserId="15874" LastActivityDate="2018-01-12T07:43:34.367" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="20056" PostTypeId="1" AcceptedAnswerId="20069" CreationDate="2018-01-12T10:49:15.927" Score="2" ViewCount="3616" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;$$\text{C+S+T = Y = C+I+G+(X-M)}$$&#xA;  where:&lt;br&gt;&#xA;  $\text{Y}$ is GDP&lt;br&gt;&#xA;  $\text{C}$ is Private consumption&lt;br&gt;&#xA;  $\text{S}$ is Private savings&lt;br&gt;&#xA;  $\text{T}$ is net taxes&lt;br&gt;&#xA;  $\text{I}$ is investment&lt;br&gt;&#xA;  $\text{G}$ is Government's expenditure on final goods.&lt;br&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;How does $\text{C+S+T= C+I+G+(X-M)}$?&#xA;What do they form? Which one's aggregate demand and which one's distribution of income and why are the called so?&lt;/p&gt;&#xA;" OwnerUserId="14617" LastEditorUserId="8815" LastEditDate="2018-01-12T18:01:43.383" LastActivityDate="2020-07-19T16:51:59.787" Title="GDP Identity:Why does $\text{C+S+T = C+I+G+(X-M)}$?" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;&lt;national-income&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="20059" PostTypeId="2" ParentId="20044" CreationDate="2018-01-12T15:08:59.573" Score="-1" Body="&lt;p&gt;Some papers with estimates of consumer demand systems including non-durable and durable (usually clothes) goods:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lewbel, A. (1997). Consumer demand systems and household equivalence scales. Handbook of Applied Econometrics Volume 2: Microeconomics, 155-185.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Banks, J., Blundell, R., &amp;amp; Lewbel, A. (1997). Quadratic Engel curves and consumer demand. The review of economics and statistics, 79(4), 527-539.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Crawford, I., Laisney, F., &amp;amp; Preston, I. (2003). Estimation of household demand systems with theoretically compatible Engel curves and unit value specifications. Journal of Econometrics, 114(2), 221-241.&lt;/p&gt;&#xA;" OwnerUserId="15876" LastActivityDate="2018-01-12T15:08:59.573" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20060" PostTypeId="1" AcceptedAnswerId="20076" CreationDate="2018-01-12T17:26:58.870" Score="2" ViewCount="146" Body="&lt;p&gt;In the basic New Keynesian Model most variables are described as an integral equation. Lets for Instance look at labour demand which is defined as:&#xA;$$N_t=\int_{0}^{1}N_t(i)di$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is the intuition behind that. How does the $N_t(x)$ function look like and why do we integrate it interval $[0,1]$?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am reading Gali's book.&lt;/p&gt;&#xA;" OwnerUserId="6611" LastEditorUserId="6611" LastEditDate="2018-01-13T00:42:16.717" LastActivityDate="2018-01-13T18:10:48.343" Title="Basic New Keynesian Model: Why variables are defined by integral equations" Tags="&lt;macroeconomics&gt;&lt;new-keynesian-economics&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20061" PostTypeId="1" CreationDate="2018-01-12T18:11:21.190" Score="2" ViewCount="234" Body="&lt;p&gt;In an econometric sense, how do macroeconomists measure capital depreciation $\delta$ in the formula $K_{t+1}=K_t(1-\delta)+I_{t+1}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What data would I need and what kind of regression would I run?&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="6009" LastEditDate="2018-01-12T22:26:59.213" LastActivityDate="2018-01-14T22:28:06.877" Title="Macroeconometrics:How to measure capital depreciation?" Tags="&lt;macroeconomics&gt;&lt;applied-econometrics&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20062" PostTypeId="2" ParentId="20047" CreationDate="2018-01-12T18:13:23.450" Score="3" Body="&lt;p&gt;I cannot precisely answer your questions because I do not know which exactly regressions you want to perform as @jmbejara says and which papers are you referring to that use Fama-MacBeth regression. Are they on financial or other literatures? I haven't seen Fama-MacBeth on other literatures (I do not follow any other literature to be exact), so please post the papers. Obviously, if in other literatures one can justify the analogy of the risk-premia concept, Fama-MacBeth can be applied there, too.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I answer your three main questions in reverse. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;3. It would be very kind of you, if you guide me through a link or book dealing whit this subject?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you are interested in financial panel data, there are plenty of resources to consult. Some are: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;The amazing book of Bali, Engle, and Murray (2016). &lt;a href=&quot;https://www.wiley.com/en-us/Empirical+Asset+Pricing%3A+The+Cross+Section+of+Stock+Returns-p-9781118095041&quot; rel=&quot;nofollow noreferrer&quot;&gt;&quot;Empirical Asset Pricing: The Cross Section of Stock Returns&quot;&lt;/a&gt;, because it explains the Fama-MacBeth procedure (among others) step-by-step and I find it the most important of all the resources (ToC available &lt;a href=&quot;http://faculty.msb.edu/tgb27/BaliEngleMurray_ContentsReferences.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;).&lt;/li&gt;&#xA;&lt;li&gt;For more information on the standard errors, Petersen (2008, published in the RFS) with his article &lt;a href=&quot;https://academic.oup.com/rfs/article-abstract/22/1/435/1585940&quot; rel=&quot;nofollow noreferrer&quot;&gt;&quot;Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches&quot;&lt;/a&gt; (it also seems available online &lt;a href=&quot;http://finpko.faculty.ku.edu/myssi/FIN938/Peterson_Estimating%20Std%20Errs%20in%20Finance%20Panel%20Datasets_RFS_2009.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;) compares different approaches and highlights their intricacies. This paper is crucial for any financial panel data research paper!&lt;/li&gt;&#xA;&lt;li&gt;Goyal (2012) in &lt;a href=&quot;http://www.hec.unil.ch/agoyal/docs/Survey_FMPM.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;&quot;Empirical cross-sectional asset pricing: a survey&quot;&lt;/a&gt; also explains the Fama-MacBeth approach with different applications.&lt;/li&gt;&#xA;&lt;li&gt;Chordia, Goyal and Shanken (2015) in &lt;a href=&quot;https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2549578&quot; rel=&quot;nofollow noreferrer&quot;&gt;&quot;Cross-Sectional Asset Pricing with Individual Stocks: Betas versus Characteristics&quot;&lt;/a&gt; because it has an extensive discussion for the Errors-in-Variables problem of the Fama-MacBeth procedure.&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.sciencedirect.com/science/article/pii/B9780444535481500040&quot; rel=&quot;nofollow noreferrer&quot;&gt;Jagannathan, Skoulakis and Wang (2010)&lt;/a&gt; (also a &lt;a href=&quot;http://home.uchicago.edu/~lhansen/HandBook-JSW-Oct-14-02.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;draft&lt;/a&gt;) contains more &quot;mathematical/econometric&quot; formalization.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;2.  In Fama and MacBeth regression can individuals under study be different in different time periods?&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Yes, and this is one of the reasons that Fama-MacBeth is appealing, since you can run it on unbalanced panel datasets. In a balanced panel, every individual has data for the same/every time period, while in an unbalanced this is not a requirement.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;1. In panel data application, when using Fama and MacBeth regression is preferable over the fixed or random effect model? Is there a statistical test shedding light on this issue?&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Usually, in finance, a fixed effect concerns a firm effect (dummy for firms), while Fama-MacBeth is designed to account for a time effect (Petersen (2008)).&#xA;Random effects are rarely used in the financial literature (Petersen (2008)). As he says: &lt;em&gt;&quot;When the residuals of a panel regression are correlated, not only OLS standard error estimates are biased but also the coefficient estimates are inefficient (the estimates do not exploit all of the information in the data). Researchers can improve efficiency by estimating a random effects model using a GLS approach.&quot;&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To sum up:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;I find Fama-MacBeth appealing for accounting for time-effects (it's easy to calculate time-varying betas, for example)&lt;/li&gt;&#xA;&lt;li&gt;it has easy intuition for the financial literature, and &lt;/li&gt;&#xA;&lt;li&gt;it can be applied to unbalanced panels.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;People use the Hausman test to decide between fixed/random effects models, but I find the intuition and justification of the choice of the proper model more appropriate. I am unaware for a specific test which includes Fama-MacBeth but I am far from an expert in the field.&lt;/p&gt;&#xA;" OwnerUserId="246" LastEditorUserId="246" LastEditDate="2019-10-01T16:25:15.813" LastActivityDate="2019-10-01T16:25:15.813" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="20063" PostTypeId="1" CreationDate="2018-01-12T18:47:34.220" Score="3" ViewCount="1964" Body="&lt;p&gt;With &quot;trickle-down economics&quot; on the tongue of Americans this year, I wanted to do some research.  The prevailing opinion is &quot;trickle-down economics doesn't work.&quot;  I can find many resources which defend this position.  However, I am having trouble finding resources which suggest trickle-down/supply-side economics does indeed work which have not been refuted by history.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Do we have any examples where trickle-down/supply-side economics has been applied, and has been considered a success?  Ideally, I'm looking for examples of events which occurred long enough ago to provide it the opportunity to fail, but in which it is generally agreed it succeeded.&lt;/p&gt;&#xA;" OwnerUserId="9032" LastActivityDate="2018-01-12T18:47:34.220" Title="Has Trickle-Down economics ever worked?" Tags="&lt;macroeconomics&gt;&lt;history&gt;" AnswerCount="0" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="20064" PostTypeId="1" AcceptedAnswerId="20102" CreationDate="2018-01-12T19:19:56.710" Score="0" ViewCount="33" Body="&lt;p&gt;I was running a t test over two regression betas with the assumption of equal variance. I know that if the condition of homoscedasticity do not hold then there are chances to have type 2 error but what if in my regression I do not have the intercept? (The models without errors do not require the error mean to be zero).&#xA;I am very confused, I may have mixing two different concepts so, please tell me the associated readings to get it more clear.&lt;/p&gt;&#xA;" OwnerUserId="12793" LastEditorUserId="12793" LastEditDate="2018-01-13T07:56:38.990" LastActivityDate="2018-01-15T12:22:11.573" Title="Ttest and heteroscedasticity problem in no intercept model" Tags="&lt;econometrics&gt;&lt;statistics&gt;&lt;regression&gt;&lt;variance&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20065" PostTypeId="2" ParentId="20061" CreationDate="2018-01-12T21:38:24.083" Score="2" Body="&lt;p&gt;I tried to empirically estimate the rate of depreciation a couple of years ago. I gave up! Following a large literature on growth, I assumed a constant rate of depreciation eventually. I did not have data for all the variables needed to estimate the model. &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Take a look at &lt;a href=&quot;http://www.econ.nyu.edu/user/nadiri/pub86.PDF&quot; rel=&quot;nofollow noreferrer&quot;&gt;Nadir and Prucha&lt;/a&gt;'s modelling approach.&lt;/li&gt;&#xA;&lt;li&gt;In chapter 7 of &lt;a href=&quot;https://www.amazon.co.uk/Introductory-Econometrics-Practical-Hamid-Seddighi/dp/0415566878&quot; rel=&quot;nofollow noreferrer&quot;&gt;this book&lt;/a&gt;, the authors develop an accelerator model of investment. You may then calculate the depreciation rate using the parameter estimates of the model.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="6009" LastActivityDate="2018-01-12T21:38:24.083" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20066" PostTypeId="2" ParentId="20061" CreationDate="2018-01-12T22:19:09.497" Score="1" Body="&lt;p&gt;In order to measure the depreciation rate from the law of motion of capital, you need to have data on capital. But usually capital data series are constructed from investment, with a more-or-less arbitrary initial capital level (which, by the way, necessitates to discard a portion of the initial values). So we do, for some $K_0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$K_1 = (1-\delta)K_0 + I_1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$K_2 = (1-\delta)K_1 + I_2$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;etc.&#xA;But how do we do that without specifying $\delta$?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One way is to calibrate it rather than estimate it, by using the estimated &quot;capital/output&quot; ratio, which is obtained independently and not using the capital series.&#xA;Then essentially you ask : &quot;what is the value of $\delta$ so that the implied capital series through the law of motion of capital gives me capital/output ratios that agree with estimated such ratios?&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;--&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Solving backwards the law of motion of capital we get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$K_t = I_{t-1} + (1-\delta)I_{t-2}+(1-\delta)^2 I_{t-2}+...+ (1-\delta)^tI_0 + (1-\delta)^tK_0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For large enough series (40 or more observations, given that the depreciation range, being an average, is not expected to exceed $0.1$, and it is usually computed as less), one ignores the last term involving the initial capital stock which is usually unknown. Assume more over that we have an independent estimate that &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$K_t/Y_t = \bar k_y(t) \implies K_t = \bar k_y(t)Y_t$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;or that we have some &quot;average&quot; accepted value for the capital/output ratio. So, given the gross investment series, output and this average capital/output ratio value, we have to solve for $\delta$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\bar k_y(t)Y_t = I_{t-1} + (1-\delta)I_{t-2}+(1-\delta)^2 I_{t-2}+...+ (1-\delta)^tI_0 $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;through some iterative algorithm.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2018-01-14T22:28:06.877" LastActivityDate="2018-01-14T22:28:06.877" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="20068" PostTypeId="2" ParentId="14793" CreationDate="2018-01-13T01:36:44.783" Score="1" Body="&lt;p&gt;You should have a good chance of some interest in your paper if it is: &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;high quality (i.e. well thought out and well-written)&lt;/li&gt;&#xA;&lt;li&gt;doesn't take too long to get its point across&lt;/li&gt;&#xA;&lt;li&gt;cognizant of other research (i.e. make sure your research is new and not a rehash of some existing papers)&lt;/li&gt;&#xA;&lt;li&gt;sent to people who will have an interest in it (i.e. not randomly sending it to just any old professors of economics)&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;I am not an academic but I sent a paper to the chair of my country's society for economics, and I was given the option to present it at their annual convention. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's too presumptuous to send the paper in the first email, so I asked if there was any interest in my first email, and sent the paper in the second email. Not all professors will reply (some will be just too busy even if your paper is very interesting)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you're genuinely contributing to the field, people will be interested in your work, but remember that they are probably time-poor, and there may not be anything in it for them, at least in the short term (if your paper is quite good, and you're happy to do so, you could offer them the opportunity to collaborate so they get their name on the final paper - this might be of enough value to them to consider your paper more seriously)&lt;/p&gt;&#xA;" OwnerUserId="7027" LastActivityDate="2018-01-13T01:36:44.783" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20069" PostTypeId="2" ParentId="20056" CreationDate="2018-01-13T08:33:01.443" Score="2" Body="&lt;p&gt;A concrete example makes it easier to think about:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's say during the week you receive \$1000 income. Only 3 things can happen to your $1000: &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;You could be taxed some/all of it (T: Tax)&lt;/li&gt;&#xA;&lt;li&gt;You could spend some/all of it (C: Consumption)&lt;/li&gt;&#xA;&lt;li&gt;You could save some/all of it (S: Savings)&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;In this example we've used your $1000 income. The distribution of income (Y = C + S + T) is exactly the same but not just one week of your income, but 52 weeks of everyone's income. So it's a measure of how much income was received across everyone in the economy for the whole year. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, all this income had to originate from somewhere, and there are only four possibilities: &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;someone's spending (C: Consumption) - this goes to businesses and is paid out as wages, as interest on business loans, or as share dividends or profits to owners&lt;/li&gt;&#xA;&lt;li&gt;government spending (G: Government Spending) - payments to government workers and for anything government buys (e.g. materials to build roads, defence spending etc etc)&lt;/li&gt;&#xA;&lt;li&gt;banks making loans (I: Investment) - loans made to businesses or individuals &lt;/li&gt;&#xA;&lt;li&gt;sales to foreign economies less what is paid to foreign economies for their goods and services (X - M: exports minus imports)&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Adding these components together gives aggregate demand: C + I + G + (X - M); it's the $ amount of all the goods and services purchased in an economy over one year. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;GDP is not a perfect way to measure the size of an economy, but it's probably the most common way. So when we talk about GDP = Y = C + S + T = C + I + G + (X - M), what we know is that GDP can be measured in a few different ways, and that more spending will mean more income (and vice-versa). &lt;/p&gt;&#xA;" OwnerUserId="7027" LastActivityDate="2018-01-13T08:33:01.443" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20070" PostTypeId="2" ParentId="9176" CreationDate="2018-01-13T09:47:14.580" Score="4" Body="&lt;p&gt;On a lighter note,...... Robots do not eat, drink, buy consumer goods or take their date to the movies. Who is going to buy the goods that the robots produce if all the workforce is out of a job.&#xA;Do not be afraid of Technology, the economic equilibrium will balance itself out eventually. It's the greedy/powerful people you need to worry about. &lt;/p&gt;&#xA;" OwnerUserId="15874" LastActivityDate="2018-01-13T09:47:14.580" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20071" PostTypeId="1" AcceptedAnswerId="20083" CreationDate="2018-01-13T09:52:33.743" Score="0" ViewCount="127" Body="&lt;p&gt;Suppose the United States experiences a long period of relatively stable prices while other countries experience long periods of inflation. How will this affect U.S. net exports? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think that if U.S have long period of stable prices ,when U.S export some products abroad ,  it will be cheaper than the others.Therefor Export will increase  How can we predict  net export?&lt;/p&gt;&#xA;" OwnerUserId="15886" LastActivityDate="2018-01-14T01:22:37.620" Title="Effects of long run stability in U.S price level comparing to other countries on net export" Tags="&lt;macroeconomics&gt;&lt;inflation&gt;&lt;price-level&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="20072" PostTypeId="2" ParentId="6986" CreationDate="2018-01-13T10:09:55.293" Score="4" Body="&lt;p&gt;The use of the word “spurs” is incorrect.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Higher interest rates -&gt; people borrow less -&gt; people spend less -&gt; aggregate demand shifts left (falls) -&gt; prices fall (prices falling means inflation is reduced; definitely not increased (or spurred)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for the relationship between a country’s exchange rate and its interest rate; it’s actually very simple. Basically there’s a whole lot of money managed by all the big global banks and as soon as they think they can get a better % return on those large chunks of cash, they’ll shift their money into those assets&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So say JP Morgan think the Reserve Bank of Australia is going to increase Australia’s interest rates. JP Morgan will buy Australian dollars in order to put their funds into an Australian bank account (or other Australian dollar denominated assets) in order to take advantage of the better interest rates&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A lot of other global investment firms would probably do similar.. this extra demand for Australian dollars will put upward pressure on it and it will appreciate against other currencies&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Long story short, as soon as money markets believe a country’s interest rates might go up, they’ll buy that currency (and vice versa). The more certain they are, the more the currency will appreciate as they buy it and park their money there &lt;/p&gt;&#xA;&#xA;&lt;p&gt;NB: the handy way of remembering this relationship is to simply think about what you’d do with your own money if you knew two countries offered different interest rates - all else equal, you’d probably want to put your money into the one with the higher returns, meaning you have to trade whatever currency you currently hold for the new currency, causing it to appreciate in value.&lt;/p&gt;&#xA;" OwnerUserId="7027" LastActivityDate="2018-01-13T10:09:55.293" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20076" PostTypeId="2" ParentId="20060" CreationDate="2018-01-13T18:10:48.343" Score="6" Body="&lt;p&gt;First of all, this is not something special to &quot;the basic New Keynesian Model&quot;. It is a commonly used technique when modeling an economy with competitive environment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In your case, the author wrote that there is a continuum of differentiated goods represented by the interval [0,1] and each firm is producing one of the goods. You can imagine that there are uncountably many different kinds of good in the market. As a result, the size of each firm is negligible (just a point on the [0,1] interval) compared to the entire economy. Each firm indexed by $i$ solves its individual profit maximization problem to obtain its labor demand $N(i)$. Then, the aggregate labor demand is simply the &quot;sum&quot;. In this case, the sum is replaced by the integral because the variety of different firms is the whole unit interval.&lt;/p&gt;&#xA;" OwnerUserId="14680" LastActivityDate="2018-01-13T18:10:48.343" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20078" PostTypeId="1" AcceptedAnswerId="20085" CreationDate="2018-01-13T23:19:37.710" Score="0" ViewCount="327" Body="&lt;p&gt;Here is (one of the ways to state) social planner's problem:&#xA;&lt;a href=&quot;https://i.stack.imgur.com/lv6kh.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/lv6kh.png&quot; alt=&quot;statement&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www3.nd.edu/~esims1/neoclassical_growth_11.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Eric Sims'&lt;/a&gt; notes then immediately gives the solution:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/MhtMB.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/MhtMB.png&quot; alt=&quot;solution&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am trying to connect these two lines. This is what I get after taking a derivative with respect to consumption.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/N4EA3.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/N4EA3.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Question is: how did he get rid of expectation and discount factor?&lt;/p&gt;&#xA;" OwnerUserId="10506" LastEditorUserId="10506" LastEditDate="2018-01-13T23:26:17.000" LastActivityDate="2018-01-14T03:48:57.073" Title="Social planner's first order condition (current-value Lagrangian)" Tags="&lt;macroeconomics&gt;&lt;optimization&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20082" PostTypeId="1" CreationDate="2018-01-14T00:44:01.260" Score="1" ViewCount="171" Body="&lt;p&gt;I have a question based on reading some speeches and research papers, mainly by Ben Bernanke, on the portfolio balance effect. Here is Bernanke in a recent paper he authored where he describes the portfolio-balance effect as one of the two principal channels of large-scale asset purchases: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;The portfolio balance channel depends on the premise that securities are  imperfect substitutes in investors’ portfolios, reflecting differences in liquidity, transactions costs, information, regulatory restrictions, and the like. Imperfect substitutability implies that changes in the net supply of a security affect asset prices and yields, as investors must be induced to rebalance their portfolios (Bonis et al., 2017). In principle, the two channels of QE can be distinguished by the fact that the signaling channel operates by affecting expectations of future policy rates while the portfolio balance channel works by changing term and risk premiums.&quot;- Bernanke (2017), in a paper that can be located here: &lt;a href=&quot;https://www.brookings.edu/wp-content/uploads/2017/10/bernanke_rethinking_macro_final.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.brookings.edu/wp-content/uploads/2017/10/bernanke_rethinking_macro_final.pdf&lt;/a&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I'm having some trouble here understanding the finance of this. In particular, how does this channel necessitate imperfect substitutability? I understand that the argument hinges on 'habitat preferences' -- certain investors prefer, say, a specific type of security -- but I haven't been able to put the pieces together. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a potential example: let's say that we have an investor who will only deal with 5-year Treasury bonds due to either preference, risk appetitive, liquidity requirements, and so forth. The Federal Reserve then purchases 5-year Treasury bonds. Bernanke seems to suggest that the reason that reductions in the supply of these securities will increase their prices and reduce their yields is that investors don't view other securities as perfect substitutes. Is the argument perhaps that, if our investor considered 7-year bonds a perfect substitute, the increase in the price of the 5-year bond would cause him to sell off his supply of 5-years for a significant capital gain and purchase some other security? Or, for that matter, his portfolio would consist of such a wide array of different maturities that buying 5-year bonds wouldn't impact his behavior at all, as he would just replace it with any other bond. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know this has something to do with elasticity of demand, but I just haven't been able to piece together the logistics of imperfect substitutability, hopefully, leading to a rebalancing of investor portfolios and a decline in interest rates across asset classes in a broad-based way. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'd appreciate any insights people might have on this. &lt;/p&gt;&#xA;" OwnerUserId="15892" LastEditorUserId="15892" LastEditDate="2018-01-14T01:00:54.743" LastActivityDate="2018-07-16T16:46:15.490" Title="Ben Bernanke Portfolio Balance Effect" Tags="&lt;monetary-policy&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20083" PostTypeId="2" ParentId="20071" CreationDate="2018-01-14T01:22:37.620" Score="0" Body="&lt;p&gt;Net exports are exports less imports. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If other countries begin to experience inflation while US prices remain stable, then the dollar becomes more attractive to investors as its purchasing power has maintained more so than foreign currencies. The demand for dollars increases, which leads to an appreciation of the home currency. This leads to a decrease in net exports as US goods become pricier relative to foreign goods.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This theoretical relationship between the exchange rate and the relative purchasing power of two currencies is known as &lt;em&gt;purchasing power parity&lt;/em&gt;.&lt;/p&gt;&#xA;" OwnerUserId="14688" LastActivityDate="2018-01-14T01:22:37.620" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20085" PostTypeId="2" ParentId="20078" CreationDate="2018-01-14T02:56:50.353" Score="1" Body="&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/lv6kh.png&quot; alt=&quot;&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At $t=0$, consumption in future periods is indeed uncertain because output is uncertain since $A_t$ is stochastic. But the maximization we are doing here is taking place &lt;strong&gt;in each period&lt;/strong&gt; $t$. In each period $t$, the realization of $c_t$ is observed; that is, $E_t[c_t] = c_t$. By the same logic, $E_t[\lambda_t] = \lambda_t$. Since we are maximizing in each period $t$, the first-order condition of $\mathcal{L}$ with respect to $c_t$ is not a summation. Instead, $\frac{\partial \mathcal{L}}{\partial c_t} = 0$ implies&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ &#xA;\begin{align}&#xA;\beta^t E_t[c_t^{-\sigma}] - \beta^tE_t[\lambda_t] &amp;amp;= 0 \\&#xA;\beta^t c_t^{-\sigma} - \beta^t \lambda_t = 0.&#xA;\end{align}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that if the coefficient of relative risk aversion were not assumed to be constant across time; that is, if $\sigma_t \neq \sigma$, then the result we wish to show does not follow. Just some subtleties about expectations to keep in mind.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But since indeed $\sigma_t = \sigma$, it then follows that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$c_t^{-\sigma} = \lambda_t.$$&lt;/p&gt;&#xA;" OwnerUserId="14688" LastEditorUserId="14688" LastEditDate="2018-01-14T03:48:57.073" LastActivityDate="2018-01-14T03:48:57.073" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20086" PostTypeId="2" ParentId="20037" CreationDate="2018-01-14T04:37:31.483" Score="3" Body="&lt;p&gt;I give the intuitive explanation in words first, then below is the proof.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Define a &lt;em&gt;Pareto improvement&lt;/em&gt; to be where consumption is no lower in every period and higher in at least one period. We're said to be &lt;em&gt;dynamically efficient&lt;/em&gt; if there's no possible Pareto improvement and &lt;em&gt;dynamically efficient&lt;/em&gt; if there's a possible Pareto improvement.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume we start off already in steady state. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Proposition 1.&lt;/strong&gt; &lt;em&gt;If the savings rate is below the golden-rule level (or equivalently, the steady-state capital stock is below the golden-rule level), then we're dynamically efficient.&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Proof.&lt;/em&gt; If we switch to a lower savings rate, the new steady-state level of consumption will be lower, and so this cannot be a Pareto improvement.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Conversely, if we switch to a higher savings rate, then consumption in the initial period of the switch will be lower, so that again this cannot be a Pareto improvement.∎&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Proposition 2.&lt;/strong&gt; &lt;em&gt;If the savings rate is above the golden-rule level (or equivalently, the steady-state capital stock is above the golden-rule level), then we're dynamically inefficient.&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Proof.&lt;/em&gt; We claim that switching to the golden-rule savings rate is a Pareto improvement.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, note that by switching, the new steady-state level of consumption will be higher.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Next, note that in the initial period (after we've switched), consumption is higher than before, because we've lowered our savings rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In fact, in the initial period, consumption will be higher than the new steady state. Consumption will then fall monotonically towards the new steady state level (which is higher than old steady state).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Altogether then, by switching to this lower savings rate, consumption in each period is higher than the old steady-state level (or in other words, than it would've been had we not made the switch). This is thus a Pareto improvement.∎&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/PYdpf.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/PYdpf.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastEditorDisplayName="user18" LastEditDate="2018-01-15T06:28:44.000" LastActivityDate="2018-01-15T06:28:44.000" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="20087" PostTypeId="1" CreationDate="2018-01-14T06:28:12.793" Score="2" ViewCount="236" Body="&lt;p&gt;There is a dutch book argument to show that nontransitive preferences are in a sense &quot;unreasonable&quot;, which justifies why we pose the axiom of transitivity in the definition of &quot;rational preferences&quot;, when it comes to no-uncertainty utility. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;When it comes to utility functions over lotteries, Von Neumann and Morgenstern additionally pose the Independence axiom w.r.t. lotteries. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Are there Dutch-book arguments to justify the independence axiom?&lt;/strong&gt; &lt;/p&gt;&#xA;" OwnerUserId="11146" LastActivityDate="2019-09-02T02:51:43.710" Title="Is there a dutch book argument for the &quot;independence of irrelevant alternatives&quot; axiom?" Tags="&lt;expected-utility&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20090" PostTypeId="1" CreationDate="2018-01-14T13:25:12.180" Score="1" ViewCount="72" Body="&lt;p&gt;In the Ramsey model, $K_t$ denotes capital, and $A_t$ denotes the assets/wealth of the households. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, each household is &lt;strong&gt;identical&lt;/strong&gt;. Since the economy is closed, the assets of each household equal their share of the capital. So, $A_t = K_t/H$, where $H$ is the number of households. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, in theory, $A_t$ can be negative. Obviously a household can accumulate debt at some point in their lifetime. But $K_t/H$ can never be negative, since $K_t$ itself, total capital in the economy, cannot be negative. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So I do not understand how it makes sense in the Ramsey model to talk about &quot;wealth&quot; and &quot;borrowing&quot; and &quot;debt&quot; since $A_t$ is forced to be positive?&lt;/p&gt;&#xA;" OwnerUserId="15898" LastActivityDate="2018-05-15T07:06:55.830" Title="In the Ramsey model, how does it make sense to say that capital equals wealth when wealth can be negative and capital cannot?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20092" PostTypeId="1" CreationDate="2018-01-14T15:24:16.837" Score="6" ViewCount="210" Body="&lt;p&gt;Hayek's idea, roughly, is that individuals in aggregate have distributed knowledge about their own utility functions and about specific supply-conditions, that no single individual can oversee, and that markets can aggregate this information efficiently, while planning bureau's cannot. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does there exist a mathematical formalization of Hayek's ideas about this?&lt;/p&gt;&#xA;" OwnerUserId="11146" LastActivityDate="2018-01-15T02:09:08.127" Title="Does there exist a mathematical formalization of Hayek's ideas about information and the price system?" Tags="&lt;information&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="20093" PostTypeId="2" ParentId="18998" CreationDate="2018-01-14T18:45:32.137" Score="2" Body="&lt;p&gt;The reason why Cobb Douglas production functions are so popular stem from the fact that the following assumptions are satisfied while remaining statistically rigorous&lt;sup&gt;1&lt;/sup&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Recall the Cobb- Douglas production function form:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$F(K,AL)=K^{\alpha}(AL)^{1-\alpha}$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $0&amp;lt;\alpha &amp;lt;1$ (i.e. the share of output that goes to capital)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$1)$ Positive marginal products:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$${\partial{F(K,AL)}\over{\partial K}}&amp;gt;0 \space , \space\space{\partial{F(K,AL)}\over{\partial (AL)}}&amp;gt;0$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$2)$ Diminishing Marginal Products (as you already mentioned)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$${\partial^2{F(K,AL)}\over{\partial K^2}}&amp;lt;0 \space , \space\space{\partial^2{F(K,AL)}\over{\partial (AL)^2}}&amp;lt;0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$3)$ Constant Returns to Scale (this is how most production processes work)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$F(\lambda K, \lambda AL)= \lambda F(K, AL)$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;for any $\lambda \ge 0$ (E.g. &quot;Double input $\Rightarrow$ Double output&quot;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope this helps!!&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;sub&gt;&lt;sup&gt;1&lt;/sup&gt; Source: &lt;a href=&quot;https://en.wikipedia.org/wiki/Cobb%E2%80%93Douglas_production_function&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://en.wikipedia.org/wiki/Cobb%E2%80%93Douglas_production_function&lt;/a&gt;&lt;/sub&gt;&lt;/p&gt;&#xA;" OwnerUserId="6629" LastActivityDate="2018-01-14T18:45:32.137" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20094" PostTypeId="1" CreationDate="2018-01-14T20:32:39.840" Score="1" ViewCount="256" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/8Hw97.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/8Hw97.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Stupid question: What do the phi and lambda from the equations above represent?&lt;/p&gt;&#xA;" OwnerUserId="15899" LastActivityDate="2018-12-12T00:03:15.670" Title="Dornbusch Sticky Price (Overshooting) model" Tags="&lt;exchange-rates&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20095" PostTypeId="2" ParentId="20092" CreationDate="2018-01-14T21:42:50.460" Score="1" Body="&lt;p&gt;I really struggle to find any sort of formalism (theoretical models, empirical analyses, etc.) in Hayek's own publications. The best I could find is &lt;a href=&quot;https://mises.org/system/tdf/Reflections%20on%20the%20Pure%20Theory%20of%20Money%20of%20Mr%20JM%20Keynes_4.pdf?file=1&amp;amp;type=document&quot; rel=&quot;nofollow noreferrer&quot;&gt;Reflections on the Pure Theory of Money of Mr. J.M. Keynes, Economica, No. 33 (August 1931)&lt;/a&gt;, where he talks (mostly qualitatively) through some of his disagreements with the equations in Keynes' theory of money.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.hayek.sk/wp-content/uploads/2012/12/hayekcollection.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;This&lt;/a&gt; is a collection of Hayek's more extended works related to theories of price. I encourage you to give it a look over, but the only legitimate maths I could find (aside from some included in the first article I mentioned) is an integral relegated to a footnote on page 231 and a series of tables in the neighboring pages.&lt;/p&gt;&#xA;" OwnerUserId="14688" LastEditorUserId="14688" LastEditDate="2018-01-15T02:09:08.127" LastActivityDate="2018-01-15T02:09:08.127" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20096" PostTypeId="1" CreationDate="2018-01-14T22:33:49.537" Score="1" ViewCount="56" Body="&lt;p&gt;I'm looking at Greg Mankiw's Macroeconomics (7th edition), at the model presented in chapter 3:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$Y = C + I + G,$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $Y$ is total output, $C = C(Y-T)$ is consumption, $T$ are net taxes (fixed by policy), $I = I(r)$ is investment, $r$ is the interest rate, and $G$ are government purchases (fixed by policy). The model further makes the assumption that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$Y = F(K,L),$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $K,L$ are the factors of production, capital and labor, and are assumed to be fixed, so that $Y$ is therefore fixed as well. Using the fact that $Y,T,G$ are fixed, it follows that $C$ is also fixed and thus saving,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$S = Y-C-G,$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;is fixed. But the model entails that $S = I(r)$ and therefore any movement in saving translates into a movement in investment (and thus the interest rate). How is it possible that investment is considered variable, if investment is the purchase of new capital goods and capital is taken as fixed? If investment increases, then so should capital.&lt;/p&gt;&#xA;" OwnerUserId="15900" LastActivityDate="2018-01-15T10:14:08.570" Title="In Mankiw's Macreoconomics, how come capital is assumed to be fixed while investment is assumed to be variable?" Tags="&lt;macroeconomics&gt;&lt;general-equilibrium&gt;&lt;investment&gt;&lt;capital&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20097" PostTypeId="2" ParentId="20096" CreationDate="2018-01-15T01:20:35.263" Score="1" Body="&lt;p&gt;It seems that Mankiw has implicitly assumed that all the investment is used to replace the depreciated capital. See the second sentence in the Investment section of Chapter 3-3:&quot;Firms buy investment goods to add to their stock of capital and to replace existing capital as it wears out. &quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Usually, the law of motion of capital is written as&#xA;\begin{equation}&#xA;K_{t+1}=I_{t+1}+(1-\delta)K_{t}&#xA;\end{equation}&#xA;where $\delta$ is the depreciation rate of capital. By assuming capital to remain at a fixed level $\overline{K}$, I believe that Mankiw is trying to only discuss the steady state in which capital is remained at a constant level, while avoiding introducing any more details. Since this is just the beginning part of textbook, everything is made as simple as possible. There is even no time subscripts for variables!&lt;/p&gt;&#xA;" OwnerUserId="14680" LastEditorUserId="6009" LastEditDate="2018-01-15T10:14:08.570" LastActivityDate="2018-01-15T10:14:08.570" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20098" PostTypeId="2" ParentId="20092" CreationDate="2018-01-15T01:49:21.160" Score="3" Body="&lt;p&gt;Eric Maskin has a paper called “&lt;a href=&quot;https://scholar.harvard.edu/maskin/publications/friedrich-von-hayek-and-mechanism-design&quot; rel=&quot;nofollow noreferrer&quot;&gt;Friedrich von Hayek and Mechanism Design&lt;/a&gt;”, which tries to connect some of Hayek’s ideas to the (formal) theory of mechanism design. This paper, and the references therein, might interest you.&lt;/p&gt;&#xA;" OwnerUserId="8595" LastActivityDate="2018-01-15T01:49:21.160" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20099" PostTypeId="2" ParentId="20094" CreationDate="2018-01-15T02:36:30.077" Score="0" Body="&lt;p&gt;To my understanding, $\phi$ and $\lambda$ are simply positive parameters in the Dornbusch model used to represent the linear (in logarithms) equilibrium condition in the money market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;m - p = \phi y - \lambda i&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;is also known as the LM curve, in logarithms.&lt;/p&gt;&#xA;" OwnerUserId="14688" LastActivityDate="2018-01-15T02:36:30.077" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20100" PostTypeId="2" ParentId="20090" CreationDate="2018-01-15T05:43:20.420" Score="1" Body="&lt;p&gt;No matter in Ramsey model or the basic structure of Solow-Swan model, as long as is in the closed economy. The asset equals to the capital in the equilibrium. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$A_t$ is the total asset owned by the households, or by the representative household. In the market equilibrium, all the borrowing and lending must cancel within the economy. Therefore, the only asset in positive net supply is capital, which means $A_t = K_t $. The asset equals the capital stock quantity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, the asset per person $a_t$ = the capital stock per person $k_t$. It seems like you confuse $A_t$ with $a_t $. &lt;/p&gt;&#xA;" OwnerUserId="15879" LastActivityDate="2018-01-15T05:43:20.420" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20101" PostTypeId="1" CreationDate="2018-01-15T07:44:50.063" Score="5" ViewCount="102" Body="&lt;p&gt;Standard production functions are Cobb-Douglas, CES, Leontief.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The most exotic production function I have seen is the Ethier production function. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am wondering whether there is a book/list of other exotic production functions. i.e. production functions with heterogeneous capital, integrals, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I could not find it doing a google scholar search.&lt;/p&gt;&#xA;" OwnerUserId="11146" LastActivityDate="2018-01-15T20:00:09.840" Title="list of exotic production functions?" Tags="&lt;production-function&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="20102" PostTypeId="2" ParentId="20064" CreationDate="2018-01-15T12:22:11.573" Score="0" Body="&lt;p&gt;You are generally better off asking statistics questions at &lt;a href=&quot;https://stats.stackexchange.com/&quot;&gt;cross validated&lt;/a&gt;, simply because there are more statisticians there. Also, you will get a better answer if you supply some more detail of what you want to test exactly, and what program you use if you want hints on where to read up on these things&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I assume that you want to test whether two coefficients that you found in a linear regression are equal or different from another, where your regression model has no intercept. That is an example of a linear restriction. These kind of restrictions are generally tested with F-tests. You can read up on them a.o. &lt;a href=&quot;http://www.murraylax.org/econometrics/notes/regression_restrictions.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; (which implements them in R).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How to implement them depends on your stats program.&lt;/p&gt;&#xA;" OwnerUserId="12186" LastActivityDate="2018-01-15T12:22:11.573" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20105" PostTypeId="2" ParentId="20101" CreationDate="2018-01-15T20:00:09.840" Score="3" Body="&lt;p&gt;&lt;a href=&quot;https://papers.ssrn.com/sol3/papers.cfm?abstract_id=890956&quot; rel=&quot;nofollow noreferrer&quot;&gt;Belo (2010)&lt;/a&gt; uses a production function &#xA;$$&#xA;Y_{j,t} = \epsilon_{j,t} F^j(K_{j,t})&#xA;$$&#xA;where a competitive producer $j$ is allowed to choose the state-contingent productivity level $\epsilon_{j,t}$, subject to the constraint set&#xA;defined by the following analytically tractable CES aggregator:&#xA;$$&#xA;E_t\left[ \left( \frac{\epsilon_{j,t+1}}{\Theta_{j, t+1}}\right)^\alpha \right]^{1/\alpha} \leq 1.&#xA;$$&#xA;In Cochrane's  2016 essay, &quot;Macro-Finance&quot;, Cochrane mentions this specification as a potentially important ingredient for understanding the interaction of macroeconomics and financial markets: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The second ingredient, I think, is to enrich the production technology&#xA;  so that consumer investors can shape the riskiness of the&#xA;  technological opportunities they face. Belo (2010) and Jermann (2013)&#xA;  have recently explored specifications of technology that allow such&#xA;  choices.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="59" LastActivityDate="2018-01-15T20:00:09.840" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20106" PostTypeId="1" CreationDate="2018-01-15T21:18:54.143" Score="0" ViewCount="81" Body="&lt;p&gt;Let $f=f(K,L)$ - production function.&#xA;Let $f(1,2) \le4 $ and a production function is defined to have increasing returns to scale.&#xA;What maximum product can the firm produce using K=3 and L=6?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So we know that $f(3,6) = f(3*1, 3*2) &amp;gt; 3*f(1,2)$ and $f(1,2)\le4$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But what should I do next?&lt;/p&gt;&#xA;" OwnerUserId="15504" LastActivityDate="2018-01-16T05:07:53.493" Title="Increasing returns to scale" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20108" PostTypeId="2" ParentId="20087" CreationDate="2018-01-16T00:26:43.943" Score="1" Body="&lt;p&gt;I would think not.  First, one can readily imagine cases where the Dutch book would hold, but which the independence axiom could not.  Consider the presidential election of 1992.  It would satisfy the necessary conditions for Bayesian reasoning and hence support the Dutch Book argument by default, but would clearly fail the independence of irrelevant alternatives criterion.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If someone chose to gamble on the election, then it is difficult to imagine why bookies could not place coherent odds.  On the other hand, if memory serves me correctly, the majority polled preferred Bush over Clinton, but the plurality went for Clinton.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Part of that discussion, however, has to do with the particular form of von Neumann's particular axiom.  He is adding zero, essentially, to a binary preference.  There exist lotteries, such as those built around voting or other binary choice events, where the form of von Neumann's axiom is simply irrelevant to the problem.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you take von Neumann's form, it implies that a third lottery has no impact on a binary choice of another lottery by implying that sufficient funds exist to purchase that lottery as well.  In an election, you get only one outcome, you cannot &quot;afford&quot; two Presidents.  This only holds if you can develop a &quot;portfolio&quot; of lotteries in any convex combination. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you imposed additional restrictions on the type of lottery, then you may be able to get there from the Dutch book axioms, but that has more to do with the fact that you can always add zero to both sides of an equation in ordinary math.  You should be able to walk backward from the utility function into preferences and arrive at von Neumann's axiom.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course, von Neumann's axioms do not assume the Dutch book argument and so you are dangerously mixing and matching.  From the Dutch book argument, you can arrive at Kolmogorov's axioms.  It doesn't mean you should, other than as a mental exercise.  Indeed, Savage subsumes Kolmogorov into his justification of personalistic probability.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It does beg the somewhat interesting question as to whether the independence axiom is really an axiom and under what circumstances it is an axiom.&lt;/p&gt;&#xA;" OwnerUserId="11321" LastActivityDate="2018-01-16T00:26:43.943" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20112" PostTypeId="1" AcceptedAnswerId="20116" CreationDate="2018-01-16T05:01:48.987" Score="2" ViewCount="413" Body="&lt;p&gt;My question is about the following notation:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have noticed in several places (for example &lt;a href=&quot;https://rads.stackoverflow.com/amzn/click/1107458110&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; (page 15)  and &lt;a href=&quot;http://www.columbia.edu/~md3405/DT_Choice_15.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; (page 1)) that different authors use different notations for &lt;em&gt;choice correspondences&lt;/em&gt;. Given a set $X$ of &lt;em&gt;objects that might be chosen&lt;/em&gt; and a collection of non-empty subsets $\mathcal{A}$ of the power set of $X$, some use &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;$c:\mathcal{A} \rightarrow 2^{X}\backslash \emptyset$ (as in the second link)&lt;/li&gt;&#xA;&lt;li&gt;$c:\mathcal{A} \rightarrow 2^{X}\backslash \{ \emptyset\}$ (as in the first link)&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;They both want to express that the co-domain of the choice correspondence must include all the &lt;em&gt;non-empty subsets&lt;/em&gt; of the power set of X, i.e from any menu of options, you &lt;em&gt;must&lt;/em&gt; choose something. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is, which one is the correct way to define it? Clearly, since $\emptyset \neq \{\emptyset\}$, both definitions cannot be equivalent. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My intuition would tell me that from the list above, (1) is the correct one. For example, if $X=\{\text{pasta (p)},  \text{chicken (c)}, \text{sushi (s)}\}$, then the power set of $X$ is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;2^{X}=\Bigg\{\emptyset, \{p \},  \ \{c \}, \{s \},     \{p,c \}, \{p,s \} , \{c,s \}, \{ p,c, s\} \Bigg\}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since I want to “take out” the empty set from $2^{X}$ so that the choice from any non-empty subset of $X$ is itself non-empty, and since $\{\emptyset\} \notin 2^{X}$, it should be &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;c:\mathcal{A} \rightarrow 2^{X}\backslash \emptyset&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you for any answers!&lt;/p&gt;&#xA;" OwnerUserId="10166" LastEditorUserId="10166" LastEditDate="2018-01-16T05:29:03.893" LastActivityDate="2018-01-16T11:04:47.073" Title="Choice correspondence notation" Tags="&lt;choice-theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20114" PostTypeId="2" ParentId="20106" CreationDate="2018-01-16T05:07:53.493" Score="1" Body="&lt;p&gt;What I believe you mean is that a production function has &lt;a href=&quot;https://www.economicshelp.org/blog/glossary/constant-returns-scale/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Constant Returns to Scale&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;i.e. $$f(\lambda K, \lambda L)= \lambda f(K, L) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where $\lambda \ge 0$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus in your case where $K=3$ and $L=6$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$f(3,6)=3 \times f(1,2)$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;and since ${f_{max}(1,2)=4}$  (i.e. $f(1,2) \le4$) the &lt;em&gt;maximum product&lt;/em&gt; a firm can produce using $K=3$ and $L=6$ would be&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$3 \times f(1,2)= 3 \times 4 =12$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope this helps!&lt;/p&gt;&#xA;" OwnerUserId="6629" LastActivityDate="2018-01-16T05:07:53.493" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="20116" PostTypeId="2" ParentId="20112" CreationDate="2018-01-16T07:33:55.567" Score="3" Body="&lt;p&gt;&quot;1.&quot; is wrong and &quot;2.&quot; is correct, because (see e.g. &lt;a href=&quot;http://mathworld.wolfram.com/SetDifference.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Wolfram&lt;/a&gt;):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$A \setminus B = \{x: x \in A \text{ and } x \notin B\}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Say for example we have $S = \{a, b, c\}$ and $T = \{b,c\}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then we'd write $S \setminus \{a\} = T$. We do NOT write $S \setminus a = T$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And so in general, for &lt;em&gt;any&lt;/em&gt; set $S$, $S\setminus \emptyset =S$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We write $2^{X}\backslash \{\emptyset\}$ because $\emptyset \in 2^X$. In contrast, we have $2^{X}\backslash \emptyset = 2^{X}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Example.&lt;/strong&gt; The set $S$ contains four elements: the empty set, an element called $a$, the set containing the empty set, and the set containing $a$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;S=\Bigg\{\emptyset,a,\{\emptyset \},\{a \}\Bigg\}.&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then we have: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \begin{align} S \setminus \emptyset &amp;amp; = S &#xA;\\ S\setminus\{\emptyset\}&amp;amp; = \Bigg\{a,\{\emptyset \},\{a \}\Bigg\}, &#xA;\\ S\setminus\{\{\emptyset\}\}&amp;amp; = \Bigg\{\emptyset,a,\{a \}\Bigg\},&#xA;\\ S\setminus\{a\}&amp;amp; = \Bigg\{\emptyset,\{\emptyset \},\{a \}\Bigg\},&#xA;\\ S\setminus\{a,\{\emptyset\}\}&amp;amp; = \Bigg\{\emptyset,\{a \}\Bigg\},&#xA;\\ S\setminus\{\{a,\emptyset\}\}&amp;amp; = S.&#xA;\end{align} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The last equation is true because $S$ does not contain the set $\{a,\emptyset\}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;See Enderton, in particular &lt;a href=&quot;https://books.google.com/books?id=JlR-Ehk35XkC&amp;amp;pg=PA3&quot; rel=&quot;nofollow noreferrer&quot;&gt;p.3, top paragraph&lt;/a&gt; -- it's well worth spending a little time if only on the first chapter.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastEditorDisplayName="user18" LastEditDate="2018-01-16T11:04:47.073" LastActivityDate="2018-01-16T11:04:47.073" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20117" PostTypeId="2" ParentId="7044" CreationDate="2018-01-16T08:19:56.807" Score="1" Body="&lt;p&gt;&lt;strong&gt;Collective decision-making&lt;/strong&gt; is not really a term used by economists. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Collective choice theory&lt;/strong&gt; = &lt;strong&gt;social choice theory (SCT)&lt;/strong&gt;. (Sen's 1970 book was titled &lt;em&gt;Collective Choice and Social Welfare&lt;/em&gt;, but I think &lt;em&gt;social&lt;/em&gt; choice theory is now the more standard term.)&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Social choice theory (SCT)&lt;/strong&gt; is the study of what social welfare is and of how a rational society &lt;em&gt;should&lt;/em&gt; act, in order to maximize social welfare.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Public choice (PC)&lt;/strong&gt; recognizes that societies are not &quot;rational&quot; and do not seek to maximize &quot;social welfare&quot; (whatever that is). Instead, societies are composed of self-interested actors (voters, politicians, bureaucrats, businessman, etc.). &lt;strong&gt;PC&lt;/strong&gt; is thus the study of how a society with self-interested actors actually acts.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One possible (if simplistic) characterization of the difference between SCT and PC may thus be the good ol' positive-normative dichotomy: SCT studies how society &lt;em&gt;should&lt;/em&gt; act, while PC studies how society actually &lt;em&gt;does&lt;/em&gt; act.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Amartya Sen on &lt;strong&gt;SCT&lt;/strong&gt; in the &lt;em&gt;New Palgrave Dictionary&lt;/em&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Social choice theory, pioneered in its modern form by Arrow (1951), is concerned with the relation between individuals and the society. In particular, it deals with the aggregation of individual interests, or judgements, or well-beings, into some aggregate notion of social welfare, social judgement or social choice.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;SCT examines the &lt;strong&gt;rational basis&lt;/strong&gt; for answering these questions:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Society consists of Ann and Bob. Society must choose between alternative $x$ and alternative $y$. Ann prefers $x$ to $y$ while Bob prefers $y$ to $x$. Which should society choose?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;90% of the population will benefit greatly from a nuclear plant. The remaining 10% will die a horrible death. Should society build a nuclear plant? &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Key figures in SCT are &lt;a href=&quot;https://en.wikipedia.org/wiki/Kenneth_Arrow&quot; rel=&quot;nofollow noreferrer&quot;&gt;Kenneth Arrow&lt;/a&gt; and &lt;a href=&quot;https://en.wikipedia.org/wiki/Amartya_Sen&quot; rel=&quot;nofollow noreferrer&quot;&gt;Amartya Sen&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Gordon Tullock on &lt;strong&gt;PC&lt;/strong&gt; in the &lt;em&gt;New Palgrave Dictionary&lt;/em&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;We do not expect businessmen to devote a great deal of time and attention to maximizing the public interest. We assume that, although they will of course make some sacrifices to help the poor and advance the public welfare, basically they are concerned with benefiting themselves. Traditionally economists did not take the same attitude towards government officials, but public choice theory does.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;PC studies such questions:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;In a democracy, 40% of the population are farmers while 30% are factory workers. What sort of trade policies are likely to be enacted?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Why are bridges to nowhere built, while potholes on busy roads left unrepaired? &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Key figures in PC are &lt;a href=&quot;https://en.wikipedia.org/wiki/James_M._Buchanan&quot; rel=&quot;nofollow noreferrer&quot;&gt;James M. Buchanan&lt;/a&gt; and &lt;a href=&quot;https://en.wikipedia.org/wiki/Gordon_Tullock&quot; rel=&quot;nofollow noreferrer&quot;&gt;Gordon Tullock&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2018-01-16T08:19:56.807" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20119" PostTypeId="1" CreationDate="2018-01-16T13:39:57.787" Score="2" ViewCount="524" Body="&lt;p&gt;Consider a market for a homogenous product with three producers, firms A, B and&#xA;C. The firms have constant marginal costs which are equal to $c = 20$ for each firm. Consumers always buy from the firrm with the lowest price. If the lowest price is set by two (three) firms, half (one third) of the consumers go to each of those firms.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consumer demand is given by $D(p) = 50 - p$. Each firm can only choose prices from the set $\{10, 20, 30, 40, 50, 60\}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Determine all Bertrand-Nash equilibria.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Attempt:&lt;/em&gt; First, we observe that the monopoly price is 35 (this is easy to determine). Also, profit is zero when the price of any firm is 20, and profit is negative for $p = 10$. I thought that this means that any price-set of the form $\{20, p_B, p_C\}$ would do (and similarly $\{p_A, 20, p_C\}$ and $\{p_A, p_B, 20\}$), as long as all other prices are at least 20. This is not the case, however, since $\{20, 30, 30\}$ will cause all customers to go to firm $A$, resulting in 0 profits for everyone, but if firm $A$ increases price to 30, all firms will make a positive profit, hence $\{20, 30, 30\}$ is not Pareto-efficient. Hence, the only Pareto-efficient price-sets are those where &lt;em&gt;two&lt;/em&gt; firms have price 20, and the remaining firm has any price that is 20 or higher.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My mistake was that I missed the $\{30, 30, 30\}$ equilibrium. But how could I have seen this? I always thought that if all companies have constant and identical marginal costs (in this case 20), the only Nash-equilibrium is the one in which all companies have their price equal to the marginal costs. Apparently, this is not the case here. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What am I missing? What is the general approach to problems of this type? Any help is greatly appreciated.&lt;/p&gt;&#xA;" OwnerUserId="15917" LastEditorUserId="2938" LastEditDate="2018-01-16T16:47:44.197" LastActivityDate="2018-01-18T07:44:01.790" Title="Bertrand-equilibrium with discrete price set" Tags="&lt;nash-equilibrium&gt;&lt;pareto-efficiency&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20120" PostTypeId="2" ParentId="20119" CreationDate="2018-01-16T18:38:09.640" Score="4" Body="&lt;p&gt;The key is the definition of the Nash equilibrium solution concept that you are applying to solve your game. In non-formal terms, a Nash equilibrium is a set of strategies such that no player can increase his or her payoff by deviating to some alternative strategy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's consider $\{30,30,30\}$. In this 'putative' equilibrium, firm A's profit is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{D(p)}{3}(p-c)=\frac{20}{3}(30-20)=\frac{200}{3}&amp;gt;0.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Could A do better with a lower price? A price of $p=10$ is less than his cost, so this obviously can't be better. Likewise, a price of $p=20$ yields profit&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$D(20)(p-c)=0,$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which is less than the profit (200/3) in the putative equilibrium. So, again, a deviation to $p_A=20$ is not profitable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can A do better by deviating to $p_A&amp;gt;30$? The answer is clearly no because any $p_A&amp;gt;p_B,p_c=30$ implies that A attracts no demand and therefore earns zero profit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We thus observe that A cannot find a profitable way to deviate from the putative equilibrium $\{30,30,30\}$, so this is indeed a Nash equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;To address your final question: there are two general approaches to problems of this type.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;For each player in the game, compute their &lt;strong&gt;best response&lt;/strong&gt; (i.e. profit-maximising strategy) to each possible combination of strategies by the other players. Then look for all situations in which every player is playing a best response; that is a Nash equilibrium.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Guess a set of strategies that you think might be an equilibrium. Then verify that is is indeed an equilibrium by checking that no player could do better by changing their strategy.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2018-01-18T07:44:01.790" LastActivityDate="2018-01-18T07:44:01.790" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20122" PostTypeId="2" ParentId="5479" CreationDate="2018-01-16T20:13:43.113" Score="0" Body="&lt;p&gt;Your link is broken. Can you update it?&lt;/p&gt;&#xA;" OwnerUserId="15856" LastActivityDate="2018-01-16T20:13:43.113" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="20129" PostTypeId="2" ParentId="20082" CreationDate="2018-01-17T12:37:32.287" Score="-2" Body="&lt;p&gt;My argument is that he is just looking to find a justification for a policy choice he made, and so there is no reason to believe that his arguments are completely coherent.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We need to understand why he is making such arguments in the first place. If interest rates are purely the result of expectations (term premium equal to zero), the purchases themselves have no direct effect on yields, only as the result of signalling what the Fed will do (the first channel). However, the Fed could achieve the exact same effect by just saying that the economy stinks, and they will not raise rates for a really long time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In order to find a justification for the decision to purchase bonds (instead of just talking), he needs to argue that the change in supply affects bond yields. The problem with that argument is that the front end of the yield curve does a pretty good job of tracking expectations, regardless of the state of supply and demand in the bond market. (One can look at how market participants use front end pricing as an estimate of what the central bank will do in the next few rate setting meetings across all the major markets as an empirical validation of that assertion.) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, we need some reason to believe that the short maturity bonds are somehow different from long maturity bonds, i.e., there is some form of segmentation. This way, one can hope that supply and demand affects long-term bond risk premia more than short-term premia (which would sound plausible to most bond market analysts). What matters is that the term structure of the term premia is changing due to the supply effect. One can come up with different verbal explanations for why term premia move, they will end up being indistinguishable in practice. That said, we need to ignore the possibility that other factor affect term premia, such as returns volatility (which would be suggested by portfolio theory).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The obvious issue with this argument is that Fed purchases are not the only factor affecting supply and demand in the bond market. Why are those other factors being ignored?&lt;/p&gt;&#xA;" OwnerUserId="12891" LastEditorUserId="12891" LastEditDate="2018-01-17T13:20:12.187" LastActivityDate="2018-01-17T13:20:12.187" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20130" PostTypeId="1" AcceptedAnswerId="20149" CreationDate="2018-01-17T13:20:33.263" Score="1" ViewCount="466" Body="&lt;p&gt;I am self-studying contract theory using Bolton and Dewatripont (2005). It is meant for grad students, which might be why I am having a difficult time understanding basic terminology. Here is the problem:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider two agents, an employee and an employer. The employer's utility function is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U(l_1,t_1),$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $l_1$ is the amount of 'employee time' consumed and $t_1$ is the amount of output consumed by the employer. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The employee's utility function is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$u(l_2,t_2),$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $l_2$ is the amount of `employee time' spent on leisure and $t_2$ is the amount consumed by the employee.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The initial endowments are&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$(\hat{l_{1}}, \hat{t_{1}}) = (0,1) \\&#xA;(\hat{l_{2}}, \hat{t_{2}}) = (1,0).$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Without trading their respective utility levels are&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\bar{U} = U(0,1) \\&#xA;\bar{u} = u(1,0).$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus far I am able to follow.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Now if we want to maximize joint surplus, the authors set up the following maximization problem:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\begin{align}&#xA;\text{max} \quad U(l_1,t_1) &amp;amp;+ \mu u(l_2,t_2) \\&#xA;\text{s.t.} \quad l_1 + l_2 &amp;amp;= \hat{l_1} + \hat{l_{2}} = 1 \\&#xA;t_1 + t_2 &amp;amp;= \hat{t_1} + \hat{t_{2}} = 1&#xA;\end{align}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is about the parameter $\mu$. The book says $\mu$ represents the individual's respective reservation utility levels, $\bar{U}$ and $\bar{u}$, and their relative bargaining strength. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't understand what this means intuitively. Why do we even need to introduce $\mu$ if we simply want to maximise joint surplus? Why not just maximise the sum of respective utility's subject to the endowment constraints? &lt;/p&gt;&#xA;" OwnerUserId="11767" LastEditorUserId="14688" LastEditDate="2018-01-17T16:27:35.553" LastActivityDate="2018-01-18T11:15:26.143" Title="Reservation utility" Tags="&lt;utility&gt;&lt;optimization&gt;&lt;contract-theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20131" PostTypeId="2" ParentId="6973" CreationDate="2018-01-17T17:19:58.057" Score="1" Body="&lt;p&gt;Recall that central banks use interest rate to control inflation by inducing spending or saving  with decrease or increase in interest rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also,note the theory proposed by the short-run &lt;a href=&quot;https://en.wikipedia.org/wiki/Phillips_curve&quot; rel=&quot;nofollow noreferrer&quot;&gt;Phillips curve&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/pKDUK.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/pKDUK.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Though this graph has &lt;a href=&quot;https://economics.stackexchange.com/questions/18814/testing-the-long-run-phillips-curve-contradicting-empirical-results&quot;&gt; some controversy&lt;/a&gt; in terms of its empirical soundness. It is the basis of how we tie interest rate to unemployment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;abstractly you can think of it as a &quot;causal chain&quot; being:&#xA;$$\text{interest rate}\rightarrow\text{savings rate}\rightarrow\text{spending}\rightarrow\text{inflation}\rightarrow\text{unemployment}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope this helps.&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2018-01-17T17:19:58.057" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20132" PostTypeId="1" AcceptedAnswerId="24665" CreationDate="2018-01-17T17:33:45.960" Score="10" ViewCount="357" Body="&lt;p&gt;Does the Karush-Kuhn-Tucker theorem on sufficient conditions for optimality of a convex program apply in countable dimension?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For precisions, see Definition 4.1.1 and Theorem 4.1.4 of &lt;a href=&quot;https://ljk.imag.fr/membres/Anatoli.Iouditski/cours/convex/chapitre_4.pdf&quot; rel=&quot;noreferrer&quot;&gt;this course&lt;/a&gt;. Does the theorem extend to an infinite (but discrete) number of variables and associated constraints? If so, do you have a reference?&lt;/p&gt;&#xA;" OwnerUserId="15856" LastEditorUserId="42" LastEditDate="2018-01-17T20:19:36.637" LastActivityDate="2021-03-08T15:51:41.830" Title="Karush-Kuhn-Tucker in infinite dimension" Tags="&lt;mathematical-economics&gt;&lt;optimization&gt;" AnswerCount="1" CommentCount="7" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="20133" PostTypeId="2" ParentId="19932" CreationDate="2018-01-17T17:49:42.773" Score="3" Body="&lt;p&gt;Every structural VAR (SVAR) model, e.g.&#xA;$$&#xA;B_0 y_t = B_1 y_{t-1} + u_t&#xA;$$&#xA;has an equivalent reduced form (VAR), e.g.&#xA;\begin{aligned}&#xA;y_t &amp;amp;= B_0^{-1} B_1 y_{t-1} + B_0^{-1} u_t \\&#xA;    &amp;amp;= A_1 y_{t-1} + \varepsilon_t.&#xA;\end{aligned}&#xA;where $A_1 := B_0^{-1} B_1$ and $\varepsilon_t := B_0^{-1} u_t$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reduced form can be used directly for testing Granger causality. In the example, one would test whether certain off-diagonal elements in $A_1$ are equal to zero. E.g. if $y_t$ is bivariate, then testing $H_0\colon a_{12}=0$ would tell us whether $y_2$ does not Granger-cause $y_1$. The structural form might even imply Granger non-causality if it implies that certain off-diagonal elements are zero. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, Granger non-causality does not preclude finding an equivalent representation of the reduced form that has a nondiagonal $B_0$ matrix. In fact, you would just multiply any reduced form (whether Granger-causal or not) by any nondiagonal matrix, and that matrix would then be your $B_0$. Hence, $B_0$ being nondiagonal is not informative of presence or absence of Granger causality. (This is a sort of tautology, I think.)&lt;/p&gt;&#xA;" OwnerUserId="4230" LastActivityDate="2018-01-17T17:49:42.773" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20134" PostTypeId="2" ParentId="19679" CreationDate="2018-01-17T18:10:41.753" Score="3" Body="&lt;p&gt;As Neeraj has explained correctly, omitting a variable will lead to inconsistent estimates of the included variables. They will be biased both in a finite sample and asymptotically because the included variables will be capturing the effect of the omitted variable. (The exception would be if the omitted variable is uncorrelated with the included regressors individually and their linear combinations; then there would be no bias, finite or asymptotic.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regarding the forecast error, it may or may not increase depending on how big the true effect of the variable is and how precisely you could estimate the coefficient had you not omitted the variable from the model. &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;If the effect is large and you can estimate the coefficient quite precisely, including the variable would help increase the forecast accuracy (reduce the forecast error), and conversely, omitting the variable would decrease forecast accuracy. &lt;/li&gt;&#xA;&lt;li&gt;Meanwhile, if the effect is small and you cannot estimate the coefficient quite precisely, including the variable could induce too much unnecessary variability in the forecast and this way reduce the forecast accuracy. &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;This phenomenon is known as the &lt;em&gt;bias-variance trade-off&lt;/em&gt;. Excluding a variable that truly belongs in the model introduces a bias, but it also reduces estimation variance. The total effect in terms of expected squared forecast error&#xA;$$&#xA;\mathbb{E}\left((y-\hat y)^2\right)=\text{bias}^2+\text{variance}+\text{irreducible error}&#xA;$$ &#xA;is &#xA;$$&#xA;\Delta\text{bias}^2+\Delta\text{variance}&#xA;$$&#xA;where $\Delta$ denotes the change due to omitting the variable from the full model. If &#xA;$$&#xA;\Delta\text{bias}^2+\Delta\text{variance}&amp;lt;0&#xA;$$&#xA;you will have an increase in forecast accuracy. If not, you will have a decrease. Hence, the answer is, it depends. Akaike's information criterion AIC gives a quick indication of which of the two cases your are in. The model with the lower AIC value is likely going to forecast better.&lt;/p&gt;&#xA;" OwnerUserId="4230" LastEditorUserId="4230" LastEditDate="2018-01-17T20:06:02.477" LastActivityDate="2018-01-17T20:06:02.477" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20136" PostTypeId="1" CreationDate="2018-01-17T19:59:13.090" Score="1" ViewCount="15" Body="&lt;p&gt;My understanding is that market stability is a good thing, because it allows more reliable estimates of profits (revenues minus expenses) and expected return-on-investment related to new investments.&lt;/p&gt;&#xA;&lt;p&gt;But in a recent article about Goldman Sachs' 4th quarter losses, with a 75% in commodities trading revenue as the greatest factor.&lt;/p&gt;&#xA;&lt;p&gt;In the a BBC article, the firm reportedly framed the losses as:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Goldman has blamed the problems on unusually calm markets, which can dampen demand from clients looking to take advantage of fluctuation.&lt;/p&gt;&#xA;&lt;p&gt;Executives have pledged to improve the business, which accounts for a large portion of the firm's overall revenue.&lt;/p&gt;&#xA;&lt;p&gt;Investors, however, are growing impatient. &lt;br&gt;&lt;sub&gt;&#xA;SOURCE: &lt;a href=&quot;http://www.bbc.com/news/business-42723366&quot; rel=&quot;nofollow noreferrer&quot;&gt;Goldman posts first quarterly loss in six years (BBC)&lt;/a&gt;&lt;/sub&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;See also: &lt;a href=&quot;https://www.bloomberg.com/news/articles/2018-01-16/goldman-s-commodity-revenue-said-to-drop-75-to-lowest-on-record&quot; rel=&quot;nofollow noreferrer&quot;&gt;Goldman’s Commodity Revenue Drops 75% to Lowest on Record&lt;/a&gt;&lt;/p&gt;&#xA;&lt;p&gt;&lt;strong&gt;- In which contexts are stable markets sub-optimal?&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;&lt;em&gt;I'd also be interested in information how firms and governments can work to destabilize markets to create profit opportunities.&lt;/em&gt;&lt;/p&gt;&#xA;" OwnerUserId="12857" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2018-01-17T19:59:13.090" Title="In what contexts are stable markets sub-optimal?" Tags="&lt;general-equilibrium&gt;&lt;markets&gt;&lt;commodities&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20138" PostTypeId="1" CreationDate="2018-01-17T23:19:54.150" Score="1" ViewCount="59" Body="&lt;p&gt;In Chapter 20 of the book &lt;a href=&quot;https://rads.stackoverflow.com/amzn/click/0262027615&quot; rel=&quot;nofollow noreferrer&quot;&gt;Economic Dynamics in Discrete Time&lt;/a&gt;, named &quot;Recursive Utility&quot;, the author asserts that the Time-Additive Expected Utility Model (TAEU) has some shortcomings when applied to dynamic economic models. He lists them as follows: &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Constant marginal rate of substitution between consecutive periods. &#xA;One of the consequences of this is that a consumer that faces a given interest rate, would either save with no limit, or borrow without limit (except when the subjective discount factor equals the interest rate). &lt;/li&gt;&#xA;&lt;li&gt;TAEU implies that the elasticity of intertemporal substitution is equal to the inverse of the relative risk aversion coefficient. &lt;/li&gt;&#xA;&lt;li&gt;TAEU implies indifference to the timing of the resolution of uncertainty.&lt;/li&gt;&#xA;&lt;li&gt;TAEU cannot explain experimental anomalies such as the Ellsberg Paradox, etc. &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Then he introduces Recursive Utility (RU) as a class of preferences developed to overcome these issues. He then proceeds to study the properties of RU, without stopping to study these &quot;shortcomings&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am interested in the following: even though I could &lt;strong&gt;&lt;em&gt;try&lt;/em&gt;&lt;/strong&gt; to derive the anomalies myself, is there a article/textbook/survey article that studies formally (by formally I mean in a decision theoretic fashion, i.e studying the axioms and their effect on the representation) the structure of TAEU and show formally the shortcomings mentioned above? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The author offers references for textbook and survey treatments of RU, but not the TAEU. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you very much for any comment and help!&lt;/p&gt;&#xA;" OwnerUserId="10166" LastEditorUserId="10166" LastEditDate="2018-01-18T01:07:51.190" LastActivityDate="2018-01-18T01:07:51.190" Title="Literature on Recursive Preferences and Time-Additive Expected Utility" Tags="&lt;reference-request&gt;&lt;preferences&gt;&lt;expected-utility&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20140" PostTypeId="1" CreationDate="2018-01-17T23:35:53.200" Score="0" ViewCount="3367" Body="&lt;p&gt;&lt;strong&gt;&lt;em&gt;Problem:&lt;/em&gt;&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My lecturer wrote the marginal revenue formula before writing the markup formula, indicating some sort of similarity between the two. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;em&gt;How it was written on the board:&lt;/em&gt;&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Market Power being $\text{P&amp;gt;MC}$&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;$\text{MR} = \text{P  (1+1/η) = MC}$ (This being profit maximising condition for a monopoly)&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Can be written as:&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;$\text{MC/P = 1+1/η}$&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Markup: $\text{(P-MC/P)= -1/η}$&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;em&gt;Question:&lt;/em&gt;&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As much as I can see the similarity, I can't understand how he got to $\text{(P-MC/P)= -1/η}$ from $\text{MC/P = 1+1/η}$?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Index: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;P&lt;/strong&gt; = Price,&#xA;&lt;strong&gt;MR&lt;/strong&gt; = Marginal Revenue,&#xA;&lt;strong&gt;MC&lt;/strong&gt; = Marginal Cost,&#xA;&lt;strong&gt;η&lt;/strong&gt; = Elasticity &lt;/p&gt;&#xA;" OwnerUserId="15234" LastEditorUserId="8815" LastEditDate="2018-01-17T23:54:18.617" LastActivityDate="2018-03-19T05:34:09.133" Title="Monopoly - Where is the Markup formula derived from?" Tags="&lt;microeconomics&gt;&lt;elasticity&gt;&lt;monopoly&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="20142" PostTypeId="1" AcceptedAnswerId="20165" CreationDate="2018-01-18T03:17:35.530" Score="2" ViewCount="217" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/Y9AiD.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Y9AiD.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's assume that there is disequilibrium, namely that $P=P_2$, thus $Q_s &amp;gt; Q_d$. In other words, there is overproduction. This is perfectly competitive market, so competition between producers will make them lower prices in order to get rid of excessive production, thus allowing the market equilibrium (in the point $E$) to be reached. But wait a second! When we said that producers will change price we said nothing about quantity of production. But you can clearly see that in point $L$ (before producers lowered prices) the quantity was equal to $Q_2$, while in point $E$ it's equal to $Q'$, and $Q' &amp;lt; Q_2$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;What happened with all these ${\bf Q}_2$ minus ${\bf Q}'$ goods?&lt;/strong&gt; It looks like producers collectively decided to destroy part of their excessive goods in order to reach the point of equilibrium. Because if producers will change only price of their goods (i.e. $Q_s$ is constant) there is NO way they can reach equilibrium without moving their supply curve (or alternatively - without moving the demand curve).&lt;/p&gt;&#xA;" OwnerUserId="4979" LastEditorUserId="4979" LastEditDate="2018-01-18T13:28:37.147" LastActivityDate="2018-01-19T04:51:01.703" Title="It's unclear how market equilibrium is reached in case of overproduction" Tags="&lt;markets&gt;&lt;price&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="20143" PostTypeId="2" ParentId="531" CreationDate="2018-01-18T03:48:19.713" Score="2" Body="&lt;p&gt;According to &lt;a href=&quot;http://archive.is/Bjcjn&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;The Economist&lt;/em&gt;, 2015-09-26&lt;/a&gt;, pornography (the &quot;adult&quot; industry) may be one such industry. Due to the entrance of YouTube-like porn aggregators, industry revenues have shrunk dramatically in recent years:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In America the number of porn studios is now down from over 200 to 20 ... Performers who used to make \$1,500 an hour now get \$500 ... Revenues are well below their peak; how far below is hard to say, as most porn producers are private. Just before the tubes took off, plausible estimates put worldwide industry revenues at $40 billion-50 billion. Mr Thylmann thinks they have fallen by at least three-quarters since then.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Here though we must perhaps be careful about defining &quot;market size&quot;. If we define it by such measures as industry revenue and profits, then &quot;market size&quot; has indeed shrunk. But if we define it by say quantity traded (e.g. &quot;number of hours of porn watched&quot;), then probably &quot;market size&quot; is no smaller than before.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2018-01-18T03:48:19.713" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20144" PostTypeId="2" ParentId="20140" CreationDate="2018-01-18T03:55:15.760" Score="1" Body="&lt;p&gt;It is just a missing parenthesis issue. The expression&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\text{(P-MC/P)= -1/η}$$  should have been written&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\text{((P-MC)/P)= -1/η}$$&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2018-01-18T03:55:15.760" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="20145" PostTypeId="1" CreationDate="2018-01-18T05:12:00.680" Score="0" ViewCount="70" Body="&lt;p&gt;From my understanding, all new money enters the market either 1) by the Fed lending it to banks, so the Fed essentially owns bonds in the exchange, or, 2) The Fed purchasing other financial assets. So for each new dollar, it is represented by some new security in the Fed's &quot;vault&quot;. This doesn't sound like it's unbacked to me. Hypothetically, if the Fed and the dollar &quot;went under&quot; would there not be some obligation to distribute these securities among all dollar holders?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Furthermore, what is stopping the Fed from acting like a fund where each dollar represents a (very) small percentage of all securities in &quot;the vault&quot;. To me, it seems like this would create a basis for value of the USD. If a USD-holder were able to trade in his dollar for tangible securities, would this not increase his confidence in the system itself? What's the reason the Fed doesn't operate this way?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Very interested in hearing more educated responses to this, thanks in advance.&lt;/p&gt;&#xA;" OwnerUserId="15938" LastActivityDate="2018-02-19T07:10:10.013" Title="Considering how USD enters the market, is the USD actually unbacked? Could the USD represent a unit of a “fund” of securities held by the Fed?" Tags="&lt;currency&gt;&lt;monetary-policy&gt;&lt;money-supply&gt;&lt;federal-reserve&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20146" PostTypeId="1" AcceptedAnswerId="20151" CreationDate="2018-01-18T09:17:07.403" Score="0" ViewCount="18" Body="&lt;p&gt;I have this two charts of gold prices for the last 60 days. One is in Dollars and the other in Euros. Why they are not an exact match?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/k3rvm.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/k3rvm.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/gdHqW.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/gdHqW.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="15940" LastActivityDate="2018-01-18T11:47:01.177" Title="Gold charts on different currencies" Tags="&lt;financial-economics&gt;&lt;financial-markets&gt;&lt;price&gt;&lt;pricing&gt;&lt;commodities&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="20147" PostTypeId="1" CreationDate="2018-01-18T10:10:06.000" Score="3" ViewCount="42" Body="&lt;p&gt;I'm planning on using a regression discontinuity design (RDD) to estimate the impact of a sector-specific law on the firms in that sector. I need to create a control group and I have read somewhere in the literature that you should use &quot;a similar sector&quot;. When it comes down the selecting the similar sector, I don't know where to start. Does anyone have any suggestion (readings and such)?&#xA;The sectors which would be (separately) analysed are: telecommunication, education, construction, banking, finance.&lt;/p&gt;&#xA;" OwnerUserId="15942" LastEditorUserId="12304" LastEditDate="2018-05-20T07:11:15.763" LastActivityDate="2018-05-20T07:11:15.763" Title="I'm studying the effect of a law on a sector: how do I select the control group?" Tags="&lt;reference-request&gt;&lt;firm&gt;&lt;causality&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="20148" PostTypeId="2" ParentId="20142" CreationDate="2018-01-18T11:03:53.250" Score="1" Body="&lt;p&gt;You are basically asking a dynamic question on the basis of a static model, although this often done for convenience. In a real static model, over production is impossible.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You answered the first part of your question yourself: In the short run the Q2-Q'goods got sold off at a lower price. For the long run: recall that the supply curve is also the industry's marginal cost curve. If producers lower their prices below P2, some of them will start to operate at less than max profit and either go out of business or reduce production, to operate at max profit level again. In the long run we thus move along the supply curve, downwards to point E.&lt;/p&gt;&#xA;" OwnerUserId="12186" LastActivityDate="2018-01-18T11:03:53.250" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="20149" PostTypeId="2" ParentId="20130" CreationDate="2018-01-18T11:15:26.143" Score="1" Body="&lt;p&gt;I suspect the $μ$ is introduced to account for the fact that no party can be forced to enter into a contract. Thus if we want to maximize the joint surplus that only works if both parties are willing to trade, and the parties are only willing to trade if it makes them both better off.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose you had a situation where the maximum joint surplus results in a negative utility of the employee, but that is outweighed by the positive utility for the employer. Clearly, the employee would not want to enter into such a contract, because the employee is better off not working in that case. &lt;/p&gt;&#xA;" OwnerUserId="12186" LastActivityDate="2018-01-18T11:15:26.143" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20150" PostTypeId="2" ParentId="20147" CreationDate="2018-01-18T11:29:44.803" Score="1" Body="&lt;p&gt;Ideally, but not always feasible, the first option would be to select a similar region where the law is not in place and compare them (e.g. different country / State / city)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If it is not possible to compare with another region, then chose a similar industry. I would try to justify it well though, and comparability would be harder to prove. For example, if you want to study subsidised education, you might want to compare it with subsidized healthcare - the argument could be they're both services, and provide basic needs at some point, with standardised outcomes expected. &lt;/p&gt;&#xA;" OwnerUserId="12304" LastActivityDate="2018-01-18T11:29:44.803" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20151" PostTypeId="2" ParentId="20146" CreationDate="2018-01-18T11:47:01.177" Score="0" Body="&lt;p&gt;Because they are different markets, which trade at different hours, leading to different results. There is also the effect of variations of variations in the USD/EUR rates.&lt;/p&gt;&#xA;" OwnerUserId="12304" LastActivityDate="2018-01-18T11:47:01.177" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20152" PostTypeId="1" CreationDate="2018-01-18T11:55:08.820" Score="0" ViewCount="40" Body="&lt;p&gt;How can an increase in the interest rate make bonds more attractive and reduce their price? &lt;/p&gt;&#xA;" OwnerUserId="13465" LastActivityDate="2018-01-19T23:43:09.650" Title="Financial markets, money demands" Tags="&lt;macroeconomics&gt;&lt;monetary-policy&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ClosedDate="2018-01-23T01:06:10.537" ContentLicense="CC BY-SA 3.0" />
  <row Id="20153" PostTypeId="2" ParentId="20145" CreationDate="2018-01-18T12:07:20.530" Score="0" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;So for each new dollar, it is represented by some new security in the Fed's &quot;vault&quot;. This doesn't sound like it's unbacked to me.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;When you look at case number 1, the Fed lends money to the bank, the bank can ask more than the assets it owns (e.g. asking for 2M when all the cash and bank assets are worth 1M). This means that the debt of the bank is accounted for and will be paid back with interest - but it is not backed. If the bank doesn't pay, even seizing all the bank's assets wont pay the debt back.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;what is stopping the Fed from acting like a fund where each dollar represents a (very) small percentage of all securities in &quot;the vault&quot;?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The dollar, as it is, already serves the &lt;a href=&quot;https://en.wikipedia.org/wiki/Money#Functions&quot; rel=&quot;nofollow noreferrer&quot;&gt;functions it needs to fulfill&lt;/a&gt;. Central banks / the Federal reserve have the job to maintain the stability of the monetary system, meaning controlled inflation and exchange rates. They do so by influencing the interest rates. &#xA;The fact that the government backs a currency, and the independence of the federal reserve from the government gives it credibility on its own.&lt;/p&gt;&#xA;" OwnerUserId="12304" LastActivityDate="2018-01-18T12:07:20.530" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="20159" PostTypeId="1" CreationDate="2018-01-18T19:02:39.543" Score="0" ViewCount="55" Body="&lt;p&gt;let's say I'm analyzing the import of France and it is 100 billion dollars and is divide between 200 countries. how should I gauge where has most of the import come from? top 10? 90 percent of the import? what should be used as a measure here?&lt;/p&gt;&#xA;" OwnerUserId="15803" LastActivityDate="2018-03-19T23:36:21.480" Title="How should I define most of the import or export when doing analysis of the import and export of a country?" Tags="&lt;macroeconomics&gt;&lt;econometrics&gt;&lt;international-trade&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20160" PostTypeId="1" CreationDate="2018-01-18T19:11:41.493" Score="3" ViewCount="168" Body="&lt;p&gt;I was wondering if the uniqueness of equilibrium conditions in n-person games as published in Rosen's 1965 paper (&lt;a href=&quot;http://www.jstor.org/stable/pdf/1911749.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;J. B. Rosen. Existence and uniqueness of equilibrium points for concave n-person games. Econometrica, 1965&lt;/a&gt;) are for single-dimensional strategy spaces only? It says in the paper that the strategy of each player can be a vector, but the rest of the conditions seem to be derived for one-dimensional strategy spaces. Can the results be generalized to multi-dimensional spaces as well? Thank you.&lt;/p&gt;&#xA;" OwnerUserId="15948" LastActivityDate="2018-11-30T01:29:29.870" Title="Rosen's unique equilibrium conditions: Multi dimensional strategies?" Tags="&lt;nash-equilibrium&gt;&lt;competitive-equilibrium&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20161" PostTypeId="1" AcceptedAnswerId="20162" CreationDate="2018-01-18T19:59:28.940" Score="1" ViewCount="118" Body="&lt;p&gt;I found some Anthracite coal. I know a coal bed of this quality is worth money? I also know that there is a &quot;no pun intended&quot; carbon foot print if I decide to share my findings to others. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Economics wise would the coal be worth more now or 20 years from now at our current consumption?&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I could not find a SE for Ethics, but I wander is this something I should buy and sit one for environmental sake?&lt;/p&gt;&#xA;" OwnerUserId="15570" LastActivityDate="2018-01-19T02:12:30.057" Title="Pro and cons to finding coal" Tags="&lt;inflation&gt;&lt;stock-market&gt;&lt;commodities&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20162" PostTypeId="2" ParentId="20161" CreationDate="2018-01-18T21:12:02.647" Score="3" Body="&lt;p&gt;It's highly likely that the coal will be pretty much worthless in 20 years from now.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That's because &lt;a href=&quot;https://www.nature.com/articles/nature14016&quot; rel=&quot;nofollow noreferrer&quot;&gt;we've got far more fossil fuels than we can burn safely&lt;/a&gt;: the negative externalities far exceed the consumer's private benefit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The world is on the edge of rejecting coal forever. Several countries have already done so, and that number is growing steadily.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2018-01-18T21:12:02.647" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="20163" PostTypeId="2" ParentId="20159" CreationDate="2018-01-18T22:12:53.693" Score="1" Body="&lt;p&gt;If I understand you correctly, you are asking how to find out which countries' exports have most significantly contributed to a given country's (say, France's) imports.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have recently completed some research on gravity models of trade, and in the process I ended up having to compile various datasets on precisely the topic you are raising.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The United Nations Comtrade International Trade Statistics Database has an easy-to-use interface where you can download bilateral trade data between a &quot;reporter&quot; country (France) and &quot;partner&quot; countries from Rest Of World.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here: &lt;a href=&quot;https://comtrade.un.org/data&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://comtrade.un.org/data&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Set the relevant year, set &quot;Reporter&quot; $\to$ &quot;France&quot;, set &quot;Partner&quot; $\to$ &quot;All&quot;, and set &quot;Trade flows&quot; $\to$ &quot;Imports&quot;. Then you can download a cleaned .csv file on which you can run basic summary statistics and do some data analysis (such as finding the top-10 country exporters to France, etc.).&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Broadly labeling where &quot;most of France's imports come from&quot; is an ambiguous task. Are you referring to a measure that uses a single country or perhaps a continent? It really depends on what your research question/methodology is. Can you provide some more details?&lt;/p&gt;&#xA;" OwnerUserId="14688" LastEditorUserId="14688" LastEditDate="2018-01-18T22:34:40.733" LastActivityDate="2018-01-18T22:34:40.733" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="20164" PostTypeId="2" ParentId="20161" CreationDate="2018-01-18T22:42:21.447" Score="1" Body="&lt;p&gt;I agree with EnergyNumbers. A few more points on coal however: the value and investment can vary slightly depending on the region of the world you are on. Australia still as significant interest in coal with several mines in place and new mines being planned, such as Adani. Coal investments, here in Australia, are under extreme pressure from environmental groups and citizens in general.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;China and Australia still have a high interest in coal, due to existing investments which will last 10-20 years more. The energy plants in Australia are mostly coal based, and the steel production in China uses coal extensively (currently). Even in Australia, though, the end of the coal era &lt;a href=&quot;https://www.theguardian.com/environment/2017/aug/24/coal-in-decline-an-energy-industry-on-life-support&quot; rel=&quot;nofollow noreferrer&quot;&gt;is discussed already&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The major use of coal is energy (through burning it). There are other uses, but I don't think these could sustain the industry as it is now - the demand would be much smaller. For possible uses, check here: &lt;a href=&quot;https://www.worldcoal.org/coal/uses-coal&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.worldcoal.org/coal/uses-coal&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, ethically you shouldn't invest in Coal. Looking at ethical or sustainable funds do not have coal industries in their portfolios.&lt;/p&gt;&#xA;" OwnerUserId="12304" LastEditorUserId="12304" LastEditDate="2018-01-19T02:12:30.057" LastActivityDate="2018-01-19T02:12:30.057" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20165" PostTypeId="2" ParentId="20142" CreationDate="2018-01-19T04:43:10.213" Score="1" Body="&lt;p&gt;The Econ 101 demand-and-supply story serves to illustrate a simple point: &lt;strong&gt;Markets &lt;em&gt;tend&lt;/em&gt; to move/adjust towards equilibrium.&lt;/strong&gt; However, &lt;strong&gt;such adjustment is neither instantaneous nor perfect; rather, it takes time.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;For simplicity, let's first imagine we have &lt;strong&gt;perishable goods&lt;/strong&gt; that must be consumed by the end of each day. On Day 1, producers set the price too high at $P_2$ and there is excess supply AL. And so at the end of Day 1, producers end up with AL units of unsold (and wasted) goods. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;On Day 2 then, producers will probably wisen up a little. They'll probably produce a little less and reduce the price by a little, so that excess supply is reduced by at least a little.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If on Day 2 there is still excess supply, then on Day 3 we'll see still further reductions in quantity produced and prices, and hence a still further reduction in excess supply. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This common-sense story tells us that &lt;em&gt;over time&lt;/em&gt;, the market will &lt;em&gt;tend&lt;/em&gt; to move towards equilibrium. However, this adjustment process is neither instantaneous nor perfect. It happens gradually, over time.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;In the case of &lt;strong&gt;non-perishable goods&lt;/strong&gt;, the adjustment process will likely even be slower, because, as you rightly point out, there is now the possibility that producers can store their inventories and sell today's unsold goods tomorrow. The $Q_2 - Q_1$ goods can indeed be stored and we can try to sell them tomorrow.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, it is not free to store inventories. If every day producers produce $Q_2 = 1,000$ units but consumers buy only $Q_1 = 600$, then each day we'll add another $Q_2 - Q_1 = 400$ units to our inventories. Our inventories will keep piling up. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And so over time, even with the possibility of storing inventories, producers will recognize there is persistent excess supply, wisen up, and gradually reduce the quantity they produce and also their prices. Excess supply will thereby gradually be reduced.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The story is the same whether goods are perishable or non-perishable. The only difference here is that we'd expect a market for perishable goods to adjust more rapidly towards equilibrium.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastEditorDisplayName="user18" LastEditDate="2018-01-19T04:51:01.703" LastActivityDate="2018-01-19T04:51:01.703" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="20168" PostTypeId="1" AcceptedAnswerId="20169" CreationDate="2018-01-19T10:11:04.380" Score="2" ViewCount="39" Body="&lt;p&gt;Norway intends to shutdown the fur farming industry over the next 5+ years. In the meantime, can Norway ban imports and sales of fur without violating WTO regulation?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are there alternative strategies? Examples of countries doing something similar (banning imports of goods it exports)?&lt;/p&gt;&#xA;" OwnerUserId="15954" LastActivityDate="2018-01-19T12:06:35.970" Title="Ban an import that is exported" Tags="&lt;international-trade&gt;&lt;balance-of-trade&gt;&lt;free-trade&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20169" PostTypeId="2" ParentId="20168" CreationDate="2018-01-19T12:06:35.970" Score="2" Body="&lt;p&gt;In general, no, it can't impose stricter rules on imports than it does on domestic production. Or more accurately, it could, but the countries exporting fur to Norway could challenge this. The guiding rule is that domestic industry cannot receive preferential treatment over importers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Norway can do it the other way around - that is to say, WTO rules would allow it to continue to import furs after closing down its domestic industry.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But there are always way around this. For example, by setting very specific standards (which are not explicitly to do with country of origin) that apply to everyone, but that only domestic industry complies with. If the standards are crafted well enough, they'll pass WTO's scrutiny.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2018-01-19T12:06:35.970" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20170" PostTypeId="1" AcceptedAnswerId="20179" CreationDate="2018-01-19T15:13:33.907" Score="3" ViewCount="142" Body="&lt;p&gt;I have constructed a linear time series regression model and estimated the parameters by applying OLS. I now want to test wether the assumptions for proper large sample inference (&lt;em&gt;asymptotic Gauß Markov assumptions&lt;/em&gt;) are fulfilled.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, I am not sure how to test wether the residuals are autocorrelated or not. Since my model contains lagged dependent variables I can not use the Durbin-Watson test (since my independent variables are not strictly exogenous). Following &lt;em&gt;Wooldridge&lt;/em&gt; I decided to apply the Breusch-Godfrey test. &lt;strong&gt;But&lt;/strong&gt; the residuals are heteroscedastic, which I tested for via applying the Bresuch-Pagan test. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Wooldridge&lt;/em&gt; says that in the case of heteroscedasticity, one can not apply the usual Breusch-Godfrey test. How can I test for autocorrelation in the presence of heteroscedasticity? Is there any robust method? If that is of any interest - I am using R, so it would be helpful if there would be an implementation of the method (if there is one) in R.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT: I have found a quite interesting paper that proposes a method of dealing with the topic: The &lt;strong&gt;modified Breusch-Godfrey test&lt;/strong&gt;. Link: &lt;a href=&quot;http://www.naun.org/main/NAUN/mcs/17-542.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.naun.org/main/NAUN/mcs/17-542.pdf&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Yet, I did not find any practical implementations of this test. As I am (just) an undergrad student, my possibilities regarding implementing such methods on my own are rather limited. So I am still looking for a general approach/test or method. (And I assume there &lt;strong&gt;has to&lt;/strong&gt; to be a method, because the problem I am having strikes me as a rather common one.) Thank you!&lt;/p&gt;&#xA;" OwnerUserId="15027" LastEditorUserId="15027" LastEditDate="2018-01-19T22:41:05.117" LastActivityDate="2018-01-20T09:24:05.853" Title="Regression - Testing for autocorrelation in the presence of heteroscedasticity" Tags="&lt;econometrics&gt;&lt;time-series&gt;&lt;regression&gt;&lt;r&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="20171" PostTypeId="1" AcceptedAnswerId="20174" CreationDate="2018-01-19T18:56:27.423" Score="1" ViewCount="315" Body="&lt;p&gt;There are many examples of the preference axioms of consumer theory being violated. I feel like there are very few cases where at least one of these axioms isn't broken, so is any theory or model created under these assumptions representative of the real world?&lt;/p&gt;&#xA;" OwnerUserId="15957" LastActivityDate="2018-02-19T03:01:35.917" Title="Why does the violation of a preference axiom not invalidate the discipline of economics?" Tags="&lt;microeconomics&gt;&lt;preferences&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="20172" PostTypeId="2" ParentId="20152" CreationDate="2018-01-19T23:27:46.077" Score="1" Body="&lt;p&gt;The question as posed doesn't make sense to me. An increase in the market interest rate will reduce the price of current bond holdings precisely because they become less attractive since there are now more profitable alternatives in the market. Market forces will lower the price of the bonds in response to the increase in expected future coupon streams from these alternatives.&lt;/p&gt;&#xA;" OwnerUserId="14688" LastEditorUserId="14688" LastEditDate="2018-01-19T23:43:09.650" LastActivityDate="2018-01-19T23:43:09.650" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20174" PostTypeId="2" ParentId="20171" CreationDate="2018-01-20T02:14:38.013" Score="2" Body="&lt;p&gt;The violation of the &lt;a href=&quot;http://www.oxfordreference.com/view/10.1093/oi/authority.20110803095437703&quot; rel=&quot;nofollow noreferrer&quot;&gt;preference axioms&lt;/a&gt; is frequent in the real world, which questions the usefulness of neoclassical model results. This is something that most neoclassical economists will say that it is just &quot;noise&quot;, or has a minimum effect, while there is limited empirical data to sustain this - maybe some lab work (controlled experiences), but not real world observations that I know of. The consensus in most policy making institutions and economic universities it is, still (and unfortunately), that neoclassical assumptions are what should be used. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can read Transaction cost economics for a different perspective which doesn't assume the preference axioms, from Oliver Williamson, Nobel Prize in 2009. It refutes the preference axioms, stating that there is bounded rationality in every choice: humans have limited reasoning and searching capabilities. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here's a summary of his work on TCE:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Williamson’s contributions to the field of Transaction Cost Economics complement, and extend, those of Coase. First, Williamson started with an explicitly behavioral assumption of human behavior (bounded rationality). Second, he recognized that transacting parties sometimes behave opportunistically and take advantage of their counterparties. Finally, he identified features of transactions (e.g., specificity, uncertainty, frequency) that cause markets to fail; and hence, are likely to lead certain transactions to be organized within firms (hierarchies) rather than markets.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://economistsview.typepad.com/economistsview/2009/10/transaction-cost-economics.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Source&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="12304" LastActivityDate="2018-01-20T02:14:38.013" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="20175" PostTypeId="2" ParentId="9867" CreationDate="2018-01-20T02:25:51.793" Score="0" Body="&lt;p&gt;I see two possibilities here:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;strong&gt;Consumers are paying for the possibility to have the product available in the future.&lt;/strong&gt; They now that paying zero will lead the producer to be bankrupt, but paying what they want will make them buy a product at surplus (price&#xA;&lt;li&gt;&lt;strong&gt;Consumers receive a negative social value from stealing, and paying zero = stealing.&lt;/strong&gt; It is intuitive that most of us does not want to harm others, and when you translate that into a neoclassical model, this would represent a negative utility that outweighs the value of the good. Knowing this, the producer can be confident that the consumers will always pay more than zero. The expected price could be, for instance, the value of the cheapest comparable product, perhaps with a discount of ~20% (&lt;em&gt;this is what I used to pay in PWYW restaurants&lt;/em&gt;).&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="12304" LastActivityDate="2018-01-20T02:25:51.793" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20176" PostTypeId="1" AcceptedAnswerId="20244" CreationDate="2018-01-20T04:24:48.323" Score="3" ViewCount="258" Body="&lt;p&gt;Consider two lotteries $N$ and $M$. Agent $i$ is risk-averse and prefers $N$. Agent $j$ is risk-neutral and prefers $M$. Would any risk-loving agent $k$ also prefer $M$? That is, would $j$ and $k$ have the same preferences in this scenario?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My attempt: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, I can easily show that a risk averse agent can behave as if it is risk natural. I can show this on indifference curves by using the equal marginal rate of substitution. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then I consider and follow the same way to demonstrate a risk lover agent behave as if risk natural agent by using MRS. But I cannot a result that does make sense. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But I know and assume that I need to use MRS and indifference curve. After that point, I am glad if you give any help. Thanks a lot!&lt;/p&gt;&#xA;" OwnerUserId="14785" LastEditorUserId="14785" LastEditDate="2018-01-20T09:47:02.873" LastActivityDate="2018-01-23T21:55:25.990" Title="a risk lover agent preferences and the preference of risk natural agent may be the same" Tags="&lt;microeconomics&gt;&lt;self-study&gt;&lt;choice-theory&gt;&lt;risk-aversion&gt;" AnswerCount="2" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20178" PostTypeId="2" ParentId="20145" CreationDate="2018-01-20T06:35:02.807" Score="1" Body="&lt;p&gt;When the Fed purchases something, it creates the money to do so out of thin air (it just changes the balance in a bank's Fed account. Click, click.). Similarly when the fed is paid, the dollars disappear. From the Fed's perspective, dollars are very ephemeral and not backed by anything.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Dollars are not like debt. They don't entitle you to anything the Fed owns. The Fed can't &quot;go under&quot; in the normal sense of word (bankruptcy) because it has no obligations to repay or if it does, it creates the money to pay those obligations with no limitation.  It goes under only by an act of law.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It would be possible for the government to abolish the fed and take its assets, but that doesn't sound much like a fund to me--there is no reason to think those assets, whichever ones remain meaningful in that context, would be disbursed to dollar holders.  I would expect them instead to be kept by the treasury and used to reduce the national debt.&lt;/p&gt;&#xA;" OwnerUserId="12673" LastActivityDate="2018-01-20T06:35:02.807" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20179" PostTypeId="2" ParentId="20170" CreationDate="2018-01-20T07:46:08.043" Score="2" Body="&lt;p&gt;&lt;strong&gt;General remarks:&lt;/strong&gt; The BG test under homoskedasticity can be done using the &lt;code&gt;bgtest&lt;/code&gt; command in the &lt;code&gt;lmtest&lt;/code&gt; package of R. The $(n-p)R_{aux}^2$ version mentioned in link works only under homoskedasticity. In the presence of heteroskedasticity, &lt;a href=&quot;http://www.sciencedirect.com/science/article/pii/030440769190076P&quot; rel=&quot;nofollow noreferrer&quot;&gt;Wooldridge (1991, JoE)&lt;/a&gt; gives a discussion (as noted in the Wooldridge textbook you mentioned).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;What I think:&lt;/strong&gt; I guess that what Wooldridge does is to use a heteroskedasticity-robust variance estimator. For this, (i) get the OLS residuals, (ii) regress e(t) on e(t-1), ..., e(t-p) and X, and test the joint significance of e(t-1), ..., e(t-p) using a heteroskedasticity-robust covariance estimate. If you want to use R, do the following for AR(2):&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;DF &amp;lt;- data.frame(y=rnorm(100), x1=rnorm(100), x2=rnorm(100))&#xA;ols &amp;lt;- lm(y~x1+x2, data=DF)&#xA;DF$e &amp;lt;- ols$resid&#xA;DF$e1 &amp;lt;- c(NA,DF$e[-100])    # are there better ways to lag a variable?&#xA;DF$e2 &amp;lt;- c(NA,DF$e1[-100])&#xA;aux &amp;lt;- lm(e~e1+e2+x1+x2, data=DF)&#xA;library(car)&#xA;lht(aux, c('e1','e2'), white.adjust='hc3')&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Discussions:&lt;/strong&gt; That said, there is the &lt;a href=&quot;https://www.jstor.org/stable/2648877&quot; rel=&quot;nofollow noreferrer&quot;&gt;generated regressor problem&lt;/a&gt; in the &lt;code&gt;aux&lt;/code&gt; regression above, that is, the some of RHS variables (&lt;code&gt;e1&lt;/code&gt; and &lt;code&gt;e2&lt;/code&gt;) are generated using the OLS regression results. This usually causes trouble. However some tests can be done even if the regressors are generated. I guess this is one, but I haven't checked it formally.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Further discussions:&lt;/strong&gt; The BG test is an LM test, while &lt;code&gt;lht&lt;/code&gt; does a Wald test. The difference should be minor.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Simulation results:&lt;/strong&gt; I did simulations. The ordinary BG test seems to fail. The robustified version seems working.&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;library(car)&#xA;iterate &amp;lt;- 1000&#xA;n &amp;lt;- 400&#xA;&#xA;ans &amp;lt;- data.frame(ord=rep(NA,iterate), rob=rep(NA,iterate))&#xA;set.seed(1)&#xA;for (iter in seq_len(iterate)) {&#xA;  x1 &amp;lt;- rnorm(n+1)&#xA;  x2 &amp;lt;- rnorm(n+1)&#xA;  u0 &amp;lt;- rnorm(n+1)&#xA;  u0[1:floor(n/2)] &amp;lt;- 2*u0[1:floor(n/2)]&#xA;  u &amp;lt;- sqrt(1+abs(x1+x2))*u0&#xA;&#xA;  ## y(t) = 1+x1(t)+x2(t)+0.5*y(t-1)+u(t)&#xA;  y &amp;lt;- filter(1+x1+x2+u, 0.5, method='recursive')&#xA;&#xA;  y1 &amp;lt;- y[-(n+1)]      # y(1), ..., y(n)&#xA;  y &amp;lt;- y[-1]           # y(2), ..., y(n+1)&#xA;  x1 &amp;lt;- x1[-1]         # x1(2), ..., x1(n+1)&#xA;  x2 &amp;lt;- x2[-1]         # x2(2), ..., x2(n+1)&#xA;&#xA;  ols &amp;lt;- lm(y~x1+x2+y1)&#xA;&#xA;  e &amp;lt;- ols$resid&#xA;  e1 &amp;lt;- c(NA,e[-n])    # NA, e(1), ..., e(n-1)&#xA;  e2 &amp;lt;- c(NA,e1[-n])   # NA, NA, e(1), ..., e(n-2)&#xA;  aux &amp;lt;- lm(e~e1+e2+x1+x2+y1)&#xA;  tst0 &amp;lt;- lht(aux, c('e1','e2'), white.adjust=FALSE)&#xA;  ans$ord[iter] &amp;lt;- as.numeric(tst0$`Pr(&amp;gt;F)`[2] &amp;lt; 0.05)&#xA;  tst1 &amp;lt;- lht(aux, c('e1','e2'), white.adjust=TRUE)&#xA;  ans$rob[iter] &amp;lt;- as.numeric(tst1$`Pr(&amp;gt;F)`[2] &amp;lt; 0.05)&#xA;}&#xA;&#xA;print(colMeans(ans))&#xA;##   ord   rob&#xA;## 0.090 0.046&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Note: I edited the simulation a lot. I hope this one is OK.&lt;/p&gt;&#xA;" OwnerUserId="10775" LastEditorUserId="10775" LastEditDate="2018-01-20T09:24:05.853" LastActivityDate="2018-01-20T09:24:05.853" CommentCount="19" ContentLicense="CC BY-SA 3.0" />
  <row Id="20180" PostTypeId="1" CreationDate="2018-01-20T14:31:57.903" Score="0" ViewCount="144" Body="&lt;p&gt;I am currently reading some theoretical economics books and, of course, many mathematical expressions appear. I kind of guess their meaning, but it takes a lot of time and, after all, my guesses are assumptions rather than certainties. Many times I find myself lost even in the easiest questions like: why use an exponent instead of a multiplication in this particular case? And even if I kind of guess their meaning, I struggle to understand the creation process of a model. I have looked for mathematical modelling textbooks but all I kind find are introductions to models for processing big data or data analysis. I would like to read a textbook that is fully focused on theoretical models. Also, the books I find for mathematical economics and such are books that teach how to solve specific problems rather than how to formulate models. Does anyone know any good textbook for someone like me? Thank you.&lt;/p&gt;&#xA;" OwnerUserId="15875" LastActivityDate="2018-01-20T19:07:56.007" Title="Is there any good textbook for theoretical economics mathematical modelling?" Tags="&lt;reference-request&gt;&lt;mathematical-economics&gt;&lt;theory&gt;" AnswerCount="1" CommentCount="1" ClosedDate="2018-02-06T22:37:07.040" ContentLicense="CC BY-SA 3.0" />
  <row Id="20181" PostTypeId="1" AcceptedAnswerId="20182" CreationDate="2018-01-20T17:55:39.380" Score="1" ViewCount="626" Body="&lt;p&gt;Suppose the state raises taxes in order to internalise externalities. Doesn't the consumer have to pay the additional external costs then, because the prices are raised due to the taxes?&lt;/p&gt;&#xA;" OwnerUserId="15239" LastEditorUserId="44" LastEditDate="2018-01-21T08:53:16.560" LastActivityDate="2018-01-21T09:02:12.123" Title="Who pays externalities?" Tags="&lt;microeconomics&gt;&lt;externalities&gt;&lt;pigouvian-taxes&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20182" PostTypeId="2" ParentId="20181" CreationDate="2018-01-20T18:15:55.800" Score="3" Body="&lt;p&gt;If negative externalities are priced into the market via a pigouvian tax, then those responsible for the negative externalities pay.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a whole, the public is better off. Firstly because the market will now move to a more efficient situation, and the amount of negative externality will decrease (assuming something other than perfect inelasticity). And secondly, it will also benefit in other ways, through improved public services paid for by the taxes; and/or decreased deadweight loss, achieved by lowering non-pigouvian taxes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some market participants will be worse off - the polluter will be paying. Exactly how the burden is spread among those responsible, will depend on the specifics of the situation. Consumers, equity-owners, managers, employees, land-owners, in short anyone involved in the relevant polluting supply chain - each of them might bear some, none or all of the burden, and between them, they'll bear it all.&lt;/p&gt;&#xA;" OwnerUserId="44" LastEditorUserId="44" LastEditDate="2018-01-21T09:02:12.123" LastActivityDate="2018-01-21T09:02:12.123" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20183" PostTypeId="1" CreationDate="2018-01-20T18:21:30.607" Score="1" ViewCount="2723" Body="&lt;p&gt;I have been trying to derive the indirect utility function $(V(p,y))$, where $p$ is price and $w$ is wage, given the Marshallian demand functions $x(p,y)$ with the help of Roy’s identity (the utility function is not known. We only know the Marshallian Demand functions)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would need to take the integral of the marshallian demand to obtain V. But this seems rather complicated to me.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If Roy’s Identity is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ x(p,y) = - \frac{\partial V(p,y)/ \partial p}{\partial V(p,y)/ \partial y}$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So if I know $x$ how can I derive $V$?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have been thinking about this and trying some equations, but unfortunately I could not come up with a solution.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you for your help!&lt;/p&gt;&#xA;" OwnerUserId="15964" LastEditorUserId="5780" LastEditDate="2018-01-22T11:57:12.200" LastActivityDate="2018-01-22T18:12:30.660" Title="How to derive the Indirect Utility Function from the Marshallian Demand Function?" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20184" PostTypeId="2" ParentId="20176" CreationDate="2018-01-20T18:38:52.857" Score="6" Body="&lt;p&gt;Don't commit the cardinal mistake of equating preferences with choices.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the context of Expected Utility Theory, the fact that a risk-averse agent ($RA$) would choose $N$ over $M$ implies that &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$E[u_{RA}(N)] &amp;gt; E[u_{RA}(M)]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The fact that a risk-neutral agent ($RN$) could choose $M$ over $N$ implies that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$E[u_{RN}(N)] &amp;lt; E[u_{RN}(M)] \implies E(N) &amp;lt; E(M)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A risk-lover is a person that could choose $M$ over $N$ even if $E(N) &amp;gt; E(M)$. So here that the opposite inequality holds, it is certain that it will also choose $M$ over $N$, &lt;em&gt;given&lt;/em&gt; also the fact that there appears to be no other lotteries to choose from. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But never say that the risk-neutral and the risk-lover have &quot;same preferences&quot;. They don't -it just happens, given the available lotteries, that they choose the same lottery, even though they have different preferences.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2018-01-20T20:40:54.503" LastActivityDate="2018-01-20T20:40:54.503" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20185" PostTypeId="2" ParentId="20180" CreationDate="2018-01-20T19:07:56.007" Score="0" Body="&lt;p&gt;Your question seems a bit broad. What kind of “theoretical economics” are your reading?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Nevertheless, I infer from what you write that you need to start from the beginning with maths for economcis (and maths in general), (this is because of your comment not knowing when to use an exponent  and when to multiply.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Having said this, I would recommend:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;“Essential Mathematics for Economic Analysis” by Hammond et al&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This book starts at the basics and builds up mathematical tools to study economic ideas.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Having mastered this book, I would try&lt;/p&gt;&#xA;&#xA;&lt;p&gt;“The Structure of Economics” of Eugene Silberberg. This books is more advanced, but it is “economics with mathematics”, so having aquired the basic mathematical tools in the first book, this book focuses con economic models from a mathematical standpoint.&lt;/p&gt;&#xA;" OwnerUserId="10166" LastActivityDate="2018-01-20T19:07:56.007" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20188" PostTypeId="1" CreationDate="2018-01-21T08:42:07.107" Score="1" ViewCount="71" Body="&lt;p&gt;Macroeconomists tend to study GDP in terms of macro variables. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Microeconomists study general equilibrium (among other thinga of course).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there theory about the relation between general equilibrium and GDP? Where should I look for this?&lt;/p&gt;&#xA;" OwnerUserId="11146" LastActivityDate="2018-02-23T18:41:36.503" Title="Microeconomics of GDP" Tags="&lt;gdp&gt;&lt;general-equilibrium&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20189" PostTypeId="1" CreationDate="2018-01-21T11:03:00.373" Score="1" ViewCount="25" Body="&lt;p&gt;As a result of a decrease in corporation tax, which curve shifts to the right first? Does AD shift to the right first or does SRAS shift to the right? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My argument is that a decrease in corporation tax causes post-tax profits to rise as the cost of production decreases, resulting in an incentive for corporations to increase supply. The supply curve shifts to the right.&#xA;Alternatively, it has been argued that AD shifts to the right first as corporations react to tax cuts by increasing investment, causing demand-pull inflation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is it the case that AD always shifts before SRAS?&lt;/p&gt;&#xA;" OwnerUserId="15971" LastActivityDate="2018-01-21T11:03:00.373" Title="AD-AS Analysis of the Effects of a Decrease in Corporation Tax" Tags="&lt;macroeconomics&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20191" PostTypeId="2" ParentId="17146" CreationDate="2018-01-21T14:04:32.737" Score="2" Body="&lt;p&gt;Implementing the &quot;affine transformation&quot;, let $$u(x) = A-B\exp\{-\lambda x\}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then we want to solve $(x_1 = 2400, x_2 = 5000)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$A-B\exp\{-\lambda x_1\} = \frac 12 \Big[A-B\exp\{-\lambda x_2\}\Big]+\frac 12 \Big[A-B\exp\{-\lambda \cdot 0\}\Big]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies A-B\exp\{-\lambda x_1\} = A - \frac 12B - \frac 12B\exp\{-\lambda x_2\}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies \frac 12B -B\exp\{-\lambda x_1\} + B\frac 12\exp\{-\lambda x_2\} =0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies -\frac 12 +\exp\{-\lambda x_1\} - \frac 12\exp\{-\lambda x_2\} =0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and we verify that $A,B$ do not matter.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is a non-linear function in one variable, and a computer algorithm should be used to find the possible solutions. In this particular case, trial-and-error by hand (or naive graphing in a spreadsheet) may mislead, because, as the posted solution by the OP in a comment shows, the non-zero value for $\lambda$ that satisfies the equation is very small, $\lambda = 0.0032$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So if one tries to graph the function in a spreadsheet, it must specify very small increments for $\lambda$ otherwise it will miss the small interval for which the function becomes positive for strictly positive values of $\lambda$, and then falls to zero and negative values again.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Making matters worse,the values of the actual prizes are too large numerically when inserted into the exponential function, and so the increments for lambda should be even smaller, if one would want to &quot;see&quot; the solution in a spreadsheet.. For example to use the actual levels of the prices as coefficients of the equation, one needs to specify increments of the order $10^{-5}$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;One could input the prizes in hundreds or in thousands... (the solution in the link posted in the comment uses hundreds), which allows for larger increments.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2018-01-21T15:32:29.290" LastActivityDate="2018-01-21T15:32:29.290" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20192" PostTypeId="1" AcceptedAnswerId="20193" CreationDate="2018-01-21T17:00:27.937" Score="0" ViewCount="123" Body="&lt;p&gt;I am reading &lt;a href=&quot;https://poseidon01.ssrn.com/delivery.php?ID=025078121121078077093105077031109009116008031085056044126100100009101077075089123065033020049102118033018094021122114070092014085037055023091119089123064099121064008016102019069100009015127085125126083084064100082124100118104121005086122017103088&amp;amp;EXT=pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Sala (2004)&lt;/a&gt; and I think I have found a mistake in the paper. On page 7 the author argues that one can differentiate between Ricardian and Non-Ricardian policy regimes by considering correlations between primary surpluses and their effect on real debt. See &lt;a href=&quot;https://imgur.com/a/dTpqB&quot; rel=&quot;nofollow noreferrer&quot;&gt;this&lt;/a&gt; picture.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where $s_t$ is current primary surplus, $\alpha_t$ is the discount factor and $b_t$ is the real debt.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;He says:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;if the response of $b_t$&#xA;  to $s_t$ is negative, the regime is Ricardian; if the response of $b_t$ to $s_t$ is nonnegative,&#xA;  the regime is Non Ricardian&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;While I agree with this, I don't agree with what he wrote in the picture I linked to. I.e that case 1 represents the Ricardian regime and case 2 the non-RIcardian regime. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In case 1 there is no correlation between current primary surplus ($s_t$) and future surpluses ($s_{t+k})$, thus the real value of debt is constant. How is this consistent with the quote above? To me, case 3, i.e the one where $\text{corr}(s_{t},s_{t+k}) &amp;lt; 0$ should be the Ricardian regime because high surpluses today imply low surpluses tomorrow.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Have I misunderstood the author or did he mean to write 'Case 2 and 3 allow for regime identification'?&lt;/p&gt;&#xA;" OwnerUserId="11767" LastActivityDate="2018-01-21T17:32:13.733" Title="Ricardian vs Non-Ricardian policy identification" Tags="&lt;macroeconomics&gt;&lt;government-debt&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20193" PostTypeId="2" ParentId="20192" CreationDate="2018-01-21T17:16:07.037" Score="1" Body="&lt;p&gt;I think you're misreading what Sala wrote. The first sentence in the image you linked is just saying that in the worlds where either Case 1 or Case 2 occurs, the response of $b_t$ to a shock in $s_t$ allows us to differentiate between Ricardian and non-Ricardian regimes since there are no identification issues. In other words, if either the Case 1 inequalities or the Case 2 inequalities hold, then we can be confident that we have identified a non-Ricardian regime from a Ricardian regime.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;According to Sala, it seems that we cannot as easily identify Ricardian regimes from non-Ricardian regimes in Case 3 due to identification issues related to co-movements in real debt.&lt;/p&gt;&#xA;" OwnerUserId="14688" LastEditorUserId="14688" LastEditDate="2018-01-21T17:32:13.733" LastActivityDate="2018-01-21T17:32:13.733" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="20194" PostTypeId="1" AcceptedAnswerId="20199" CreationDate="2018-01-21T17:45:26.633" Score="0" ViewCount="111" Body="&lt;p&gt;Do utility functions imply that if a consumer's income infinite, his consumption should also be infinite? The reason why I'd think this is the case is based on my basic understanding of utility functions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Recall your cobb-douglas style utility function:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U(x_1...x_n)=\prod_{i=1}^nx_i^{\alpha_i}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $0&amp;lt;\alpha_i&amp;lt;1$ and $\sum_{i=1}^n\alpha_i=1$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If our consumer is utility maximizing he should spend all of his income in a given period or even over multiple periods. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A practical application would be to answer the question of whether or not consumption growth in consumption (&lt;strong&gt;C&lt;/strong&gt;) in the GDP equation can grow holding the number of consumers in an economy fixed as argued on the my answer &lt;a href=&quot;https://economics.stackexchange.com/questions/14891/can-an-economy-grow-without-its-population-growing/14893#14893&quot;&gt;Can an economy grow without its population growing?&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you to   &lt;a href=&quot;https://economics.stackexchange.com/users/18/kenny-lj&quot;&gt;Kenny LJ&lt;/a&gt; for inspiring this question.&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="8815" LastEditDate="2018-01-22T00:40:48.047" LastActivityDate="2020-01-31T08:18:40.513" Title="Utility Functions: Implying endless consumption?" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;consumer-theory&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20195" PostTypeId="2" ParentId="14891" CreationDate="2018-01-21T18:17:37.840" Score="0" Body="&lt;p&gt;Yes, I would say so. If there is a stable increase in technological progress and productivity over time, the efficiency of the work force would increase, leading to current goods being produced more efficiently. This opens up space for new, higher-quality goods and services to be introduced into the market, which would undoubtedly grow the economy and likely increase consumption per capita.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems unlikely to me, however, that such an economy would be able to maintain a fixed population in the long run. There would likely be an increase in the standard of living and life expectancy of the population.&lt;/p&gt;&#xA;" OwnerUserId="14688" LastEditorUserId="14688" LastEditDate="2018-01-21T18:28:16.457" LastActivityDate="2018-01-21T18:28:16.457" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20196" PostTypeId="2" ParentId="20188" CreationDate="2018-01-21T18:48:14.583" Score="0" Body="&lt;p&gt;You would probably be interested in the identification of &lt;a href=&quot;https://en.wikipedia.org/wiki/Balanced-growth_equilibrium&quot; rel=&quot;nofollow noreferrer&quot;&gt;Balanced Growth Path (BGP) &lt;/a&gt;. It one of the topics covered in advanced macroeconomics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;David Romer gives it a good treatment in his book advanced macroeconomics.&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2018-01-21T18:48:14.583" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20199" PostTypeId="2" ParentId="20194" CreationDate="2018-01-21T23:12:11.193" Score="2" Body="&lt;p&gt;When the utility function is strictly increasing, it follows that more consumption provides more utility. So it seems evident to say &quot;more income more consumption&quot;. But discussing infinity outside mathematics makes no sense. So we want to examine&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$u'(c) &amp;gt; 0\;\;\; \forall c,\;\;\; I\to \infty \;\;\;?\implies? \;\;\;c\to \infty$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And the answer is &quot;the question is indeterminate&quot; or at least &quot;it depends on the particulars&quot;, since what will matter is the rate at which Income and Consumption &quot;go to infinity&quot;. If consumption goes faster, it will eventually deplete the infinite income, and if the consumer has infinite horizon, it will end up with no income. Etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we want to entertain concepts from Non-Standard Analysis, and treat &quot;infinity&quot; not as a limiting concept but as something more concrete, then the answer will be the same, because this will be indeterminate also in Non-Standard Analysis, absent the particulars of the situation.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2018-01-21T23:12:11.193" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="20200" PostTypeId="1" AcceptedAnswerId="20354" CreationDate="2018-01-21T23:17:44.267" Score="2" ViewCount="642" Body="&lt;p&gt;Is it often taught that the Fed can only affect the short end of the (Treasury) yield curve, while the long end is governed by investors' inflation expectations. Could the Fed in principle control the long end as well, e.g. by buying long dated Treasuries. Could the Fed in theory set the whole yield curve to zero?&lt;/p&gt;&#xA;" OwnerUserId="15975" LastEditorUserId="264" LastEditDate="2018-01-31T05:07:59.077" LastActivityDate="2018-01-31T05:07:59.077" Title="Can the Fed control the shape of the entire yield curve?" Tags="&lt;interest-rate&gt;&lt;federal-reserve&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20205" PostTypeId="1" CreationDate="2018-01-22T07:50:39.860" Score="0" ViewCount="116" Body="&lt;p&gt;Intuitively, one might make a naive first guess that the production function of the economy, or of a firm, should be a &quot;leontief&quot; production function: &quot;for example, you need both a factory and a worker to produce cars. A worker by himself, without the help of furnaces, and so forth, cannot construct a car, and the furnace by itself cannot do so either&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Obviously, this argument does not mean that the production function has to be leontief, but intuitively this might be what one expects.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;I am looking for something written, that goes into great detail, on what the processes are behind the form of the production function (both firm-level and aggregate).&lt;/strong&gt; Why would we expect a certain form of production function and not another? E.g. why would we expect a CES production function? why would the elasticity parameter be close to negative infinity, or to 0, or to 1? &lt;strong&gt;I hope that someone has written something that answers these questions on the basis of a micro level account (whether mathematical, or narrative).&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="11146" LastActivityDate="2018-01-22T13:45:11.960" Title="Anything written on the process behind &quot;multiplicative&quot; production function?" Tags="&lt;microeconomics&gt;&lt;production-function&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="20206" PostTypeId="1" CreationDate="2018-01-22T10:24:26.630" Score="1" ViewCount="1843" Body="&lt;p&gt;In a recent interview I watched a economist say something along the lines of:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;There is a distinction between being pro-business and being pro-market. There should be rules in place so that businesses can compete in a way that is good for the economy and not just good for their shareholders.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Question:&lt;/strong&gt; What is this distinction exactly? In other words, what is he probably referring to?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The only thing that comes to mind when I think about that statement is how many corporations are using large amounts of profits to buy back their shares as opposed to investing in capital. Am I on the right track, or is there more to it than that?&lt;/p&gt;&#xA;" OwnerUserId="12212" LastActivityDate="2018-01-24T09:32:14.970" Title="What's the Difference Between Being Pro-business and Being Pro-market?" Tags="&lt;macroeconomics&gt;&lt;markets&gt;&lt;regulation&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="20207" PostTypeId="2" ParentId="7035" CreationDate="2018-01-22T12:59:33.113" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Suppose I built a machine that, in any given hour, produces one unit&#xA;  of penicillin and one unit of randomly mixed chemicals (from the same&#xA;  raw materials). Does this mean that penicillin and mixed chemicals&#xA;  should have equal value?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;That's an interesting issue, which we could call the question of by-products. It isn't, that I know, directly addressed by Marx, but I think we can logically deduce an answer to it from his other points.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If a given production process results in two different products, then the total value of both products is given by the total labour time embodied in both of them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We could then make the following hypothesis:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;One of the products has a use value, the other has not.&lt;/li&gt;&#xA;&lt;li&gt;Both products have a use value.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;If 1., then the value of the product that has a use value is the total value produced.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If 2., then the total value of the production process is spread among both products. In terms of &lt;strong&gt;price&lt;/strong&gt;, this does not mean that they each must have the same price - price gravitates around value but is not determined by it. In practice, the prices are given by supply and demand.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's suppose that in a given society, it is usual to consume bread without the crust. So the crust has no use value; only the crumb is useful, only the crumb is sold. Its price gravitates around the value of the whole productive process, which, in the case, besides the usual mixing and baking, includes the cutting away of the crust (and so, it is more expensive than the bread as a whole, crust included). A baker can sell his bread cheaper if he sells it with the crust, thus &quot;outsourcing&quot; the task of cutting the crust off to the consumer - as long as the consumers recognise this whole bread as a use value of itself.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If on the other hand the baker does the cutting himself, he ends with up with two products: a commodity - the bread crumb - and waste - the crust.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose now that the baker discovers that there is a demand - ie, a use value - for the crust (he can sell it to pigherds, who feed their pigs on bread crust, for instance). In this case, he now has two commodities at the end of his productive process. That is, the labour that it takes to produce one is the same labour that it takes to produce both. Their total value is the total value of the whole productive process.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The baker can now sell his crustless bread for a lower price than previously, because he can realise some of the value by selling the crust apart, to different costumers. Obviously, as long as this remains his commercial secret, he may instead make superprofits: he sells his crustless bread for the same price as before, and sells the crust for any price he finds pigherds eager to buy it. This doesn't mean that he is producing more value, but that he is engaging in unequal exchanges, giving away less value than he is getting for it in exchange.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But this would be an exceptional situation: with time, other bakers will realise they can do the same thing; at this point, the market will bring the total prices of both commodities to the same level as the former price of the previously sole commodity. The proportion between the prices of each commodity, however, cannot be explained by labour embodied in each of them, for it is the &lt;strong&gt;same&lt;/strong&gt; labour. They will be fixed by supply and demand considerations, which in turn rely on other productive processes - that of producing pork, regarding the sale of crust, that of re-producing labour power, regarding the sale of the crumb.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, back to your example of penicilin and mixed chemicals, it depends on whether there is a use for mixed chemicals or not. If not, all the value of this productive process is embodied in penicilin. If yes, then the value of both penicilin and the other chemicals is the &quot;same&quot;, not as in &quot;equal&quot;, but as in &quot;inseparable&quot;, and will be distributed among the price of both commodities, not in proportion to necessary labour, but in proportion to market considerations.&lt;/p&gt;&#xA;" OwnerUserId="15747" LastEditorUserId="15747" LastEditDate="2018-01-22T15:21:17.797" LastActivityDate="2018-01-22T15:21:17.797" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20209" PostTypeId="2" ParentId="20205" CreationDate="2018-01-22T13:45:11.960" Score="-1" Body="&lt;p&gt;As I understood from my lectures, a multiplicative function means that the marginal product of one factor increases when another factor increases, and decreases when another factor decreases. The extreme cases (leontieff or additive) don't have this property.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At the moment the teacher explained this, it made sense to me. If one factor increases, it expands the capacity of the other to produce more. I think it makes sense.&lt;/p&gt;&#xA;" OwnerUserId="15121" LastActivityDate="2018-01-22T13:45:11.960" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20211" PostTypeId="2" ParentId="10747" CreationDate="2018-01-22T16:28:00.537" Score="1" Body="&lt;p&gt;Varoufakis refers to the process of money creation in modern economies through bank lending. Banks create money out of 'nothing', as lending simultaneously generates an asset (the loan) and a liability (the deposit credited to the borrower's account) for the bank. What we call money today are mostly commercial banks' liabilities. This does not require banks to have any prior deposit or cash reserves. Accounting identities only require that the balance sheet of the bank is balanced, and should they find themselves short of funding sources (i.e. liabilities) they can borrow from other banks or the central bank.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The mechanism has long been known by a number of economists, but was given mainstream prominence in a recent working paper by the Bank of England, which has already been cited on this page ( &lt;a href=&quot;https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf&lt;/a&gt; ). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Varoufakis then relates this process to his wider views about economics. While there is no technical constraint to this mechanism of money creation, this has to somehow be validated by the &quot;real economy&quot;. So what Varoufakis means here is that effectively banks will lend (thus creating money) in the expectation that the borrowers will make some money in the future with which to repay their loans. So in a sense bankers are anticipating the 'value' that businesses will create in the future, and lending money against it. &lt;/p&gt;&#xA;" OwnerUserId="15982" LastActivityDate="2018-01-22T16:28:00.537" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20212" PostTypeId="2" ParentId="20183" CreationDate="2018-01-22T18:12:30.660" Score="3" Body="&lt;p&gt;Recovering the utility function given Marshallian demands only is called the 'Integrability problem'.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In general, it is quite difficult. However, there are some conditions under which it is possible. Kim Border has some &lt;a href=&quot;http://people.hss.caltech.edu/~kcb/Notes/Demand4-Integrability.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;notes&lt;/a&gt; on this topic on his website.&lt;/p&gt;&#xA;" OwnerUserId="8595" LastActivityDate="2018-01-22T18:12:30.660" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20214" PostTypeId="1" AcceptedAnswerId="20215" CreationDate="2018-01-22T19:39:20.167" Score="3" ViewCount="58" Body="&lt;p&gt;I am trying to understand the way Smith arrived from (1) and (2) to (6) and (8). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Could anyone give me a hint? Thank you!&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;It is well known that the dynamics per capita consumption $c$ and capital $k$ are determined by the following pair of differential equations:&#xA;  \begin{eqnarray}&#xA;\dot{k} &amp;amp;=&amp;amp; k^\alpha - \delta k - c \tag{1} \\&#xA;\frac{{\dot c}}{c} &amp;amp;=&amp;amp; \sigma(\alpha k^{\alpha - 1} - \delta - \rho) \tag{2}&#xA;\end{eqnarray}&#xA;  &lt;strong&gt;A Solution&lt;/strong&gt;&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The system of equations (1)-(2) is dauntingly nonlinear. To approach a solution, define the capital-output ratio (a Bernoulli transformation) by $z = k^{1-\alpha}$ and the consumption-capital ratio by $x = c/k$. Using these  transformations the system can be rewritten as &#xA;  \begin{eqnarray}&#xA;\dot{z} &amp;amp;=&amp;amp; (1-\alpha)[1 - (\delta + x)z] \tag{6} \\&#xA;\frac{{\dot x}}{x} &amp;amp;=&amp;amp;  \frac{\sigma \alpha - 1}{z} + \delta (1 - \sigma) - \rho\sigma + x \tag{7}&#xA;\end{eqnarray}&#xA;  The Bernoulli transformation converts the capital accumulation equation [Equation (1)] into the &lt;em&gt;linear&lt;/em&gt;, albeit non-autonomous, differential equation in Equation (6). Despite this simplification, the system still does not allow an analytical solution. Equation (7) is still non-linear.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Suppose, however, that $\sigma = 1/\alpha$. In that case $z$ disappears from Equation (7), and the system becomes recursive: Equation (7) reduces to&#xA;  $$&#xA;\frac{\dot{x}}{x} = - \frac{\delta(1- \alpha) \rho}{\alpha} + x \tag{8}&#xA;$$&#xA;  while $z$ evolves according to Equation (6), given the forcing process $x$ determined in Equation (8). This is a simple, autonomous logistic equation.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Citation: &lt;a href=&quot;https://www.researchgate.net/publication/4744308_A_Closed_Form_Solution_to_the_Ramsey_Model&quot; rel=&quot;nofollow noreferrer&quot;&gt;Smith, William. (2006). A Closed Form Solution to the Ramsey Model. Contributions to Macroeconomics. 6.&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="5720" LastEditorUserId="14419" LastEditDate="2018-01-23T09:22:39.180" LastActivityDate="2018-01-23T09:22:39.180" Title="Bernoulli transformation in &quot; A Close Form Solution to the Ramsey model&quot; by Smith (2006)" Tags="&lt;economic-growth&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20215" PostTypeId="2" ParentId="20214" CreationDate="2018-01-22T20:15:47.177" Score="1" Body="&lt;p&gt;If $z = k^{1-\alpha}$ then&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{eqnarray}&#xA;\dot{z} &amp;amp;=&amp;amp; (1-\alpha)k^{1-\alpha-1}\dot{k} = (1-\alpha)k^{-\alpha} \dot{k} \\ &amp;amp;=&amp;amp; (1-\alpha) k^{-\alpha} [k^{\alpha} - \delta k - c] \\&#xA;&amp;amp;=&amp;amp; (1-\alpha) [1 - \delta k^{1-\alpha} - c k^{-\alpha}\color{blue}{(k/k)}] \\&#xA;&amp;amp;=&amp;amp; (1-\alpha) [1 - \delta z - c(k^{1-\alpha})/k] \\&#xA;&amp;amp;=&amp;amp; (1-\alpha) [1 - \delta z - x z]&#xA;\end{eqnarray}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I will leave $\dot{c}/c$ for you to work out&lt;/p&gt;&#xA;" OwnerUserId="14419" LastActivityDate="2018-01-22T20:15:47.177" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20217" PostTypeId="1" CreationDate="2018-01-22T23:09:55.080" Score="3" ViewCount="417" Body="&lt;p&gt;Why do the U.S and other major Western Countries (e.g, Canada, Germany, in contrast to India, Australia, and China) have stagnated GDP growth? Comparing the GDP growth in the post-2000s from the 1990s and previous decades, the trendline seems to go down. Government debts have also increased by a lot among many countries. Is there a reason applicable to all of these nations that explains this?&lt;/p&gt;&#xA;" OwnerUserId="15985" LastEditorUserId="15985" LastEditDate="2018-01-23T12:23:01.670" LastActivityDate="2018-01-23T12:23:01.670" Title="Reason for Economic Slowdown in Western Nations" Tags="&lt;economic-growth&gt;&lt;economic-crisis&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20218" PostTypeId="2" ParentId="20217" CreationDate="2018-01-23T01:22:48.457" Score="3" Body="&lt;p&gt;The primary reason is that it is easier to catch up than it is to forge ahead.  India and China have lower GDPs per capita, so they can copy what other countries have done and gain.  But the United States, Canada, and Germany can't copy from India or China, as they are already higher.  Copying would make them lower.  And there's no one higher from whom they can copy.  They can copy a little from each other, but not enough to maintain high growth.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A good example is Japan.  Japan used to experience fast GDP growth.  Then it caught up to countries like the US and Germany.  Since then, it has stagnated.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Presumably this will also happen with China and India, but their high populations mean that it might not happen until their GDPs are bigger than those of the United States.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that China remains below the world average in &lt;a href=&quot;https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)_per_capita&quot; rel=&quot;nofollow noreferrer&quot;&gt;GDP per capita&lt;/a&gt;.  Presumably it can grow until it is closer to the US or Germany.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course, it is also possible that there is something about the Chinese system that will limit it before then.  We can only speculate until their GDP stabilizes.  Some have speculated that China's growth is stabilizing now (it's been decreasing steadily since 2010), but we will need more time to make that determination.  At least ten years after it hits a steady rate, which it has yet to do.  &lt;/p&gt;&#xA;" OwnerUserId="68" LastActivityDate="2018-01-23T01:22:48.457" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20219" PostTypeId="1" AcceptedAnswerId="20226" CreationDate="2018-01-23T01:28:57.290" Score="3" ViewCount="72" Body="&lt;p&gt;I have a seller say S and I have a buyer say B. Buyer’s willing to pay is equal to x which is private information. But Seller believe that it falls in the range [0,x1]. Seller’s belief distribution is F and cdf of F is f which is positive. &#xA;Take it or leave it price offer is p which is offered by seller. Buyer accept it iff p is less then and equal to x. How can I write seller’s profit maximization. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;How can I construct maximization problem. I cannot imagine it. But after construction I can solve it. Please give me a hint to construct it. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I did is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Pi_s=(1-F(x))q.r-pq$$&#xA;where r is income q is quantity. &lt;/p&gt;&#xA;" OwnerDisplayName="user15967" LastEditorDisplayName="user15967" LastEditDate="2018-01-23T02:02:34.353" LastActivityDate="2018-01-23T09:12:30.820" Title="Profit maximization under uncertainity" Tags="&lt;self-study&gt;&lt;uncertainty&gt;&lt;profit-maximization&gt;&lt;stochastic-processes&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="20221" PostTypeId="1" AcceptedAnswerId="20230" CreationDate="2018-01-23T05:19:00.090" Score="0" ViewCount="30" Body="&lt;p&gt;Why cant America set prices by law, which would establish the value of the dollar within its borders and then print money and give it to those who qualify.  Making deals with some of those who are over seas could be made with the people who import goods into the USA.&lt;/p&gt;&#xA;" OwnerUserId="15987" LastActivityDate="2018-01-23T10:09:02.763" Title="printing money after making the value by setting prices by law" Tags="&lt;macroeconomics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20222" PostTypeId="1" CreationDate="2018-01-23T06:26:29.537" Score="1" ViewCount="68" Body="&lt;p&gt;Economic transactions happen when both think it will benefit them - that is, when there are gains from trade on both sides.  But that says nothing about the size of that gain.  If you're a consumer, then the amount you value a consumer good minus the cost of the good is called the consumer surplus, and in principle it could be arbitrarily small.  You could buy an apple for a dollar, which you value at a dollar and ten cents, and thus your consumer surplus would only be 10 cents.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is, what is the typical consumer surplus of consumers goods as a percentage of their price?  If it varies by the type of consumer goods, I'd appreciate an answer giving percentages for different types of goods. Like groceries, clothing, cars, etc. Is there data on this?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I just want to get a rough idea of whether the percentage is typically low or high.  I have a feeling that the percentage is a lot lower than most people would expect.&lt;/p&gt;&#xA;" OwnerUserId="4447" LastActivityDate="2018-01-23T06:26:29.537" Title="How big is the consumer surplus for typical consumer goods?" Tags="&lt;microeconomics&gt;&lt;data-request&gt;&lt;consumer-surplus&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20223" PostTypeId="2" ParentId="20221" CreationDate="2018-01-23T07:30:59.893" Score="0" Body="&lt;p&gt;If it's illegal to raise certain prices when there's a lot of money in circulation, demand exceeds supply and there are shortages. That can be a problem even without adding more money. This has occurred in some natural disasters, when the law has called prices; and rent controls have had these effects too.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Compare to UK WWII rationing, where limited supplies were distributed fairly to prevent starvation. Customers had restricted buying power regardless of funds &lt;/p&gt;&#xA;" OwnerUserId="10991" LastActivityDate="2018-01-23T07:30:59.893" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20224" PostTypeId="1" CreationDate="2018-01-23T08:00:04.107" Score="2" ViewCount="58" Body="&lt;p&gt;I am starting on a research project that requires the measurement of subjective beliefs of subjects around uncertainty. Since I'm new in this field I'm looking for references that can help me get started. In this project we can survey the subjects but bringing them to lab might not be possible. I'll appreciate any leads in this direction. Thanks for your help. &lt;/p&gt;&#xA;" OwnerUserId="5863" LastActivityDate="2018-01-23T17:28:30.043" Title="Measuring Subjective Beliefs" Tags="&lt;reference-request&gt;&lt;decision-theory&gt;&lt;experimental-economics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20225" PostTypeId="2" ParentId="18921" CreationDate="2018-01-23T08:43:51.743" Score="0" Body="&lt;p&gt;I will try to answer your question using principles of market competition, I would do so to avoid delving into the geopolitical ramifications of technology transfer, since it has no direct relation to pure economics.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My competitors's enemy is not a friend, but a considerable force so as to help me keep my competitor busy and force him to use his resources to compete. Here, US and other western nations, say NATO are trying to use India as a force to compete directly with China. Given the pathetic infrastructure and colonial laws of Indian Union, it is logical that no western nation sees India as a real rival to China. But then it is good to have China compete, this will ensure two things.   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$1)$ Force China to allocate a considerable amount of its resources to sectors which it wouldn't have had (had there been no purported Indian threat)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$2)$ If Chinese and Indian manufacturers flood the market with their goods, then who gets the positive end result, the consumers but obviously. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;An important point to note is that with the given bureaucracy in India being near to 100% corrupt (its a fact), and with defence lobby infiltrated by foreign vendors; has resulted in the Indian indigenous defence organizations to stagnate. Also, the technology transfer is of systems and methodologies which are not going to have a reverse effect on the West.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For instance, Russia has literally help India to build two SLBM capable nuclear powered submarines, and leased other two nuclear submarines to India. Now that is something west is not up to. What west is doing instead is supplying not so lethal toys, like Submarine hunter planes. These cannot be used on a mass scale, say for invasion of Pakistan or liberation of Tibet.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is very different to what china has done, but that is irrelevant to what you asked. &lt;/p&gt;&#xA;" OwnerUserId="7521" LastActivityDate="2018-01-23T08:43:51.743" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20226" PostTypeId="2" ParentId="20219" CreationDate="2018-01-23T09:12:30.820" Score="2" Body="&lt;p&gt;Let $G$ be the cumulative distribution function for the buyers' willingness to pay. If there is no cost, expected profit is simply expected revenue. The revenue is quantity times price. If the unit of the good is actually sold, this is just the price. Now the probability that the good is sold at price $p$ is the probability that the willingness to pay is not smaller than $p$, which is $\big(1-G(p)\big)$. So in total, expected profit is simply&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\big(1-G(p)\big)p.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Two things are implicit in the problem already: First, the willingness to pay already includes all relevant aspects of the buyer's income. Moreover, unless we have the willingness to pay for each amount of the commodity, it is likely that the expected quantitty is a unit quantity of $1$.&lt;/p&gt;&#xA;" OwnerUserId="1442" LastActivityDate="2018-01-23T09:12:30.820" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="20227" PostTypeId="2" ParentId="20217" CreationDate="2018-01-23T09:35:29.420" Score="1" Body="&lt;p&gt;Let us put these terms like GDP, GNP and other stated economic indicators aside for a moment. Saying that nations have &quot;developed&quot; is rather a very easy way to address the question of why growth rates have declined.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So our problem is low growth right, how do we achieve low growth. I mean we are living in a Utopia, everything is fine, prices are stable and low, production is high as usual, demand is high as usual, the credit rating of our country is good, our people have no debt, there are no people left in the economy unemployed, there are more and more people choosing entrepreneurship, meaning almost all problems of society are being addressed by free market, and finally; the government is not interfering in many of the day to day activities other than providing legal backbone to the market.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now lets smash the utopia one by one. Suddenly the government changes its mood, says it needs to flex its muscle. It starts looking at the free market to start flexing itself, now remember, everything is hunky dory; but the government rather than providing LEGAL backbone, is now expanding further into moral space. Rather than letting the free market decide the demand and supply of goods and services, the government now tries to manipulate it to &quot;Achieve Optimal Results&quot;. So how to control to market, well you just can't tie the hands and legs of the buyers and sellers, so you use your Legal power to make laws which control, that's right, price and quantity.   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;With price ceilings/floor, and restrictions/regulations on production in place, government ensures itself to be a significant (actually more than significant) member of the Erstwhile free market. Now count all the goods which government can price control on; commodities,raw materials, and, did you forget MONEY!&#xA;Out of $S_n$ $total $ $supply$ of the economy, $n^{th}$ good is money.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The utopia is now feeling uneasy, the market cannot decide the rates for various stuff it trades, so we start experiencing volatility. Now a sane successful businessman has build his enterprise from his life blood and time, so that man will be there for his enterprise for a long long time. But this is not true for government, the man who is in government will stay there for say 4 years; and even before assuming office, will start thinking how to win the next elections.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So soon people will start speculating on the market. Corporations, fed up of being taxed will invest most of their profits back into the market, which will drive their prices high. Soon, due to regulations and bone-breaking taxes, production will become low, or it will become so efficient, that for a considerable interim period, there will be very few jobs.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since now people start becoming unemployed, they need someone to take care of their basic needs like shelter, medicine, food, etc. Now government ain't saying nothing to help these poor folks, but then elections depends on votes of these folks. So soon government starts helping out these people, which not to say is a bad thing, but it just makes the problems worse. On an individual level, the incentive to work depreciates. This continues on in a vicious cycle and soon becomes a part of politics.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;With not enough corporations to tax, government starts selling its contracts at a negative interest rate; flooding the market with more money, increasing the prices and thus making the poor more poor, and the rich, well marginally rich.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now combine all the points above and see what the result will be. Yes India and China are having a higher rate, but what economic sense says that countries with already higher GDP's cannot grow? It sounds more like an excuse from charlatans than a rational, logical, sensible fact backed analysis.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And yeah, did I told you about $DEBT$&lt;/p&gt;&#xA;" OwnerUserId="7521" LastActivityDate="2018-01-23T09:35:29.420" CommentCount="13" ContentLicense="CC BY-SA 3.0" />
  <row Id="20228" PostTypeId="1" CreationDate="2018-01-23T09:46:57.863" Score="-1" ViewCount="60" Body="&lt;p&gt;If (for example) a heavily traded asset like crude oil has a price move of x, how much of that is influenced by functional buyers/sellers and how much by speculators?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's say x is +100, there are 8 speculators who bought 1 each and a big petrol station who bought 92. The price move is experienced by the speculators but heavily moved primarily by the petrol station. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know it will never be possible to know the exact distribution (unless you can see all orders and know who made them?) but is there a model to describe this?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Would the 'functional buyer/seller' be what microeconomics calls 'business owner'. And 'speculator' the 'buyers' and 'sellers'?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Although it might be easier to classify all market participants as 'buyers' and 'sellers' if looking to model trending markets it may be good to incorporate how much of price change was heavily social. &lt;/p&gt;&#xA;" OwnerUserId="15990" LastActivityDate="2018-03-02T17:17:40.650" Title="How much of an assets price change is due to speculators and functional buys/sellers" Tags="&lt;microeconomics&gt;&lt;supply-and-demand&gt;&lt;asset-pricing&gt;&lt;price-theory&gt;" AnswerCount="2" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="20229" PostTypeId="2" ParentId="20228" CreationDate="2018-01-23T09:51:00.940" Score="0" Body="&lt;p&gt;You have a nice idea going on there, I suggest you transform this thing into a research. If you are familiar with Econometrics, you can take data related to specific thing, in your case a commodity and analyze how much of it was traded between individual buyers and how much between institutional investors.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Based on the results of the tests you run, you would then be able to base your conclusions on hard evidence.&lt;/p&gt;&#xA;" OwnerUserId="7521" LastActivityDate="2018-01-23T09:51:00.940" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20230" PostTypeId="2" ParentId="20221" CreationDate="2018-01-23T10:09:02.763" Score="2" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Why cant America set prices by law; and then print money and give it to those who qualify  &lt;/p&gt;&#xA;  &#xA;  &lt;blockquote&gt;&#xA;    &lt;p&gt;&lt;strong&gt;This is the main question&lt;/strong&gt;&lt;/p&gt;&#xA;  &lt;/blockquote&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So the Fed along with the US government declares that it will start controlling the prices within the US territory. There will be some simple consequences to this decision,  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$1)$ Investors who invest in enterprises and corporations, big and small will run away, literally run away. This will drive the investments at an all time low. Ask yourself, why would anyone invest their hard earned cash in the US if they would not be allowed to enjoy the profits. After all, profits revenues and other benefits are a result of price flexibility.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$2)$ No price means no profit, means no investment means soon many private entities will either stop functioning or just find some other country to move to. If there are no other entities to tax on, whom will the government tax on.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$3)$ If prices remain fixed, then who will the government give its money? Who will even want the money. What good use is the money if an individual cannot buy or sell, in short have any purchasing power.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here you go, &lt;a href=&quot;http://www.socialstudieshelp.com/economics_basic_concepts.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.socialstudieshelp.com/economics_basic_concepts.htm&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="7521" LastActivityDate="2018-01-23T10:09:02.763" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="20232" PostTypeId="1" AcceptedAnswerId="20310" CreationDate="2018-01-23T10:30:02.437" Score="0" ViewCount="94" Body="&lt;p&gt;I am graduated in AI field. I love robotics and intelligent systems, so I worked on some new products by myself at home that have new ideas and are interesting(at least me and my friends think!). I decided to apply for a accelerator or incubator, bu I faced whit a question like this in those forms:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Who are your largest competitors and why? Differentiators? How can you&#xA;  defend your business model?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;And when I thought about it, there is no competitor at the moment(because of new idea and product), but the large companies like google,apple,microsoft,sony,samsung,etc would become our competitor at AI(Artificial Intelligence) field! And I think they can remove me from the market very soon and very easy!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, I don't know what should I do? Should I forget my AI field ideas and make a company in that field because of those huge companies?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is it possible to find that, when does companies enter to a business? Or is it possible to make a deal with them to have our individual company? Or I must try to become their employee and just this(Actually if the accept me :) )?&lt;/p&gt;&#xA;" OwnerUserId="15988" LastActivityDate="2018-01-29T00:14:59.660" Title="When big companies invest on a new idea/product?" Tags="&lt;competition&gt;&lt;profits&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="20235" PostTypeId="1" AcceptedAnswerId="20236" CreationDate="2018-01-23T12:38:22.323" Score="10" ViewCount="2455" Body="&lt;p&gt;I wondered if it would be beneficial to exchange a currency through one or more &quot;in-between&quot; currencies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example: instead of trading Russian Ruble (RUB) to Euro's (EUR), one would trade from RUB to US Dollars (USD) and then to EUR.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Neglecting exchange costs, I expected that there would be some difference in the resulting amount of money.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I tried this out in an &lt;a href=&quot;https://drive.google.com/file/d/118OQAKdK0hSxby4dX3i7OFGRqnDjDvk-/view?usp=sharing&quot; rel=&quot;noreferrer&quot;&gt;Excel sheet&lt;/a&gt;, using data from &lt;a href=&quot;http://www.floatrates.com&quot; rel=&quot;noreferrer&quot;&gt;Floatrates&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;I first imported an &lt;a href=&quot;http://www.floatrates.com/daily/rub.xml&quot; rel=&quot;noreferrer&quot;&gt;xml of all the RUB exchange rates&lt;/a&gt; (column C in the Excel).&lt;/li&gt;&#xA;&lt;li&gt;Then I imported an &lt;a href=&quot;http://www.floatrates.com/daily/eur.xml&quot; rel=&quot;noreferrer&quot;&gt;xml of all the EUR exchange rates&lt;/a&gt; (column G in the Excel).&lt;/li&gt;&#xA;&lt;li&gt;By inverting the latter I found how much EUR every currency was worth (column H in the Excel).&lt;/li&gt;&#xA;&lt;li&gt;Then I multiplied the column C with column H to find the resulting value.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;What I found is that the resulting amount of money stayed the same, regardless of which currency I went through.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How can this be? Is my method of calculating the resulting amount of money perhaps incorrect?&lt;/p&gt;&#xA;" OwnerUserId="15993" LastEditorUserId="6168" LastEditDate="2018-04-03T22:33:12.043" LastActivityDate="2018-04-03T22:33:12.043" Title="How is it possible that all currency exchange rates are fixed w.r.t. to each other?" Tags="&lt;exchange-rates&gt;&lt;currency-exchange&gt;&lt;trading&gt;" AnswerCount="3" CommentCount="3" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="20236" PostTypeId="2" ParentId="20235" CreationDate="2018-01-23T13:00:24.367" Score="19" Body="&lt;p&gt;International currency markets are highly liquid, with near-instant transfer of knowledge between trading centres.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This means that any &lt;a href=&quot;https://en.wikipedia.org/wiki/Arbitrage&quot; rel=&quot;noreferrer&quot;&gt;arbitrage&lt;/a&gt; opportunities tend to get resolved within seconds.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To put it simply, the thing you tried to do, of trading two currencies via a third, is something that lots of real-world currency traders, and their automatic trading programs, are trying to do all the time; so any discrepancies are quickly mopped up by the market.&lt;/p&gt;&#xA;" OwnerUserId="44" LastEditorUserId="10172" LastEditDate="2018-01-23T17:17:21.647" LastActivityDate="2018-01-23T17:17:21.647" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="20239" PostTypeId="2" ParentId="20224" CreationDate="2018-01-23T17:28:30.043" Score="2" Body="&lt;p&gt;you can do a belief elicitation.&#xA;See more on this here:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Rauhut, H., 2013. Beliefs about lying and spreading of dishonesty: Undetected lies and their constructive and destructive social dynamics in dice experiments. &lt;em&gt;PloS one&lt;/em&gt;, 8(11), p.e77878.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;and here:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Gächter, S. and Renner, E., 2010. The effects of (incentivized) belief elicitation in public goods experiments. &lt;em&gt;Experimental Economics, 13(3)&lt;/em&gt;, pp.364-377.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;If you don't want to invite them into the lab, you can use Amazon mTurk and oTree.&lt;/p&gt;&#xA;" OwnerUserId="15999" LastActivityDate="2018-01-23T17:28:30.043" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20241" PostTypeId="2" ParentId="20235" CreationDate="2018-01-23T18:02:39.190" Score="0" Body="&lt;p&gt;Exchange rates are NOT fix. It is volatile to the supply-demands during the trade. The stability is artificially buffered by various country policy maker stack of cache for each currency they hold. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Unless particular currency are under heavy trade restriction, otherwise you will never be able to gain by introduce a &quot;proxy currency&quot;.  Money trades such as banks and money changer act as some sort of agent that connect buyer and seller, even though they keep a cache of currency for payout, they usually don't trade volatile currency, or slap an expensive trade fees to curb the risks. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Nevertheless, in real work, a huge currency exchange can cheat their prominent customer during the trades by sneakily contact their counterpart trader, to jack up the agreeable rates to profit more from the marginal trade.  But it is not easy as the world market will detect the fluctuation and supply will rush in.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;While in other extreme case is about international speculator that throw billions on short selling/future trade the currency(like commodities). I don't think OP is within that domain to perform such stunt. &lt;/p&gt;&#xA;" OwnerUserId="11177" LastEditorUserId="11177" LastEditDate="2018-01-23T18:10:29.640" LastActivityDate="2018-01-23T18:10:29.640" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20242" PostTypeId="2" ParentId="20235" CreationDate="2018-01-23T19:52:03.990" Score="1" Body="&lt;p&gt;What you're describing doesn't work on the open market, where any arbitrage opportunity is scooped up within milliseconds by thousands of trading algorithms.  That's because currency markets are perhaps the most liquid market of all markets - primarily traded using derivatives anyway, and able to reconcile nearly instantly.  Supply and demand are not very relevant to the individual trade or to the pair of currencies; any factor affecting supply or demand would affect both transactions equally.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, what you're describing sometimes &lt;em&gt;is&lt;/em&gt; possible in person, such as when you're going to a foreign country.  Physical currency supply and demand becomes relevant then.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, if you're going from the US to Russia on a holiday.  In Russia, not very many people go from Russia to the US, compared to the proportion who go from Russia to the EU, so the demand for USD is lower than the demand for EUR.  In the US, on the other hand, EUR is in lower demand, and fairly high supply with many tourists over here, so it may be reasonably cheap to buy EUR here.  You easily could have a situation where it's advantageous to buy EUR here and take them to Russia and then exchange those for Rubles.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Usually&lt;/em&gt;, that's ultimately inefficient because of exchange costs (in particular, in person exchange costs typically are very high comparatively).  But sometimes, particularly when your own bank is willing to give fairly good exchange rates and/or low transaction costs due to your being a member, it can be slightly advantageous (or if you have accounts in multiple currencies).&lt;/p&gt;&#xA;" OwnerUserId="1590" LastActivityDate="2018-01-23T19:52:03.990" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20243" PostTypeId="1" CreationDate="2018-01-23T21:34:56.260" Score="1" ViewCount="97" Body="&lt;p&gt;From &lt;a href=&quot;http://uk.businessinsider.com/bank-of-america-fourth-quarter-earnings-q4-2018-1?r=US&amp;amp;IR=T&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://uk.businessinsider.com/bank-of-america-fourth-quarter-earnings-q4-2018-1?r=US&amp;amp;IR=T&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Like the other big banks, Bank of America took a hit from the recently&#xA;  enacted tax law, writing down \$2.9 billion primarily in deferred tax&#xA;  assets that declined in value.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;JPMorgan earlier reported a \$2.4 billion fourth-quarter loss because&#xA;  of the new tax law, and Citigroup reported a $22 billion loss.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;My simple minded expectation is that when you lower a tax rate companies should have more money.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I tried reading about 'deferred tax assets':&#xA;&lt;a href=&quot;https://www.investopedia.com/terms/d/deferredtaxasset.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.investopedia.com/terms/d/deferredtaxasset.asp&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where I found:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The simplest example of a deferred tax asset is the carry-over of&#xA;  losses. If a business incurs a loss in a financial year, it usually is&#xA;  entitled to use that loss in order to lower its taxable income in&#xA;  following years. In that sense, the loss is an asset.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So perhaps there is a place for clever accounting around expenses and taxes. But what is the exact mechanism? Why some companies are reporting loss due to the new US tax law?&lt;/p&gt;&#xA;" OwnerUserId="16002" LastActivityDate="2018-01-27T06:22:59.687" Title="Why some companies are reporting loss due to the new US tax law?" Tags="&lt;taxation&gt;&lt;accounting&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20244" PostTypeId="2" ParentId="20176" CreationDate="2018-01-23T21:55:25.990" Score="3" Body="&lt;p&gt;Another way of looking at this problem is to consider the means and variances of the lotteries. &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;A risk averse agent (RA) likes high mean and low variance &lt;/li&gt;&#xA;&lt;li&gt;A risk neutral agent (RN) likes high mean and is indifferent to changes in variance&lt;/li&gt;&#xA;&lt;li&gt;A risk loving agent (RL) likes high mean and high variance &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;From the fact that RN chooses $M$ over $N$, we known that the mean of $M$ is higher than the mean of $N$, or $E(M)&amp;gt;E(N)$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The fact that RA chooses $N$ over $M$ despite the latter having a higher mean must imply that $N$ has a much lower variance than $M$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, given the features of RL's preference (she likes high mean and high variance), the obvious choice is therefore $M$. &lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2018-01-23T21:55:25.990" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20247" PostTypeId="2" ParentId="20243" CreationDate="2018-01-24T01:23:32.113" Score="2" Body="&lt;p&gt;The lower tax rate means that they will gain less benefit when they apply their deferred tax assets against their income. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;They have large amounts of these assets recorded on their balance sheets and are adjusting them to reflect the new, lesser value.&lt;/p&gt;&#xA;" OwnerUserId="2852" LastEditorUserId="2852" LastEditDate="2018-01-25T14:23:59.857" LastActivityDate="2018-01-25T14:23:59.857" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20249" PostTypeId="1" CreationDate="2018-01-24T04:35:34.720" Score="1" ViewCount="77" Body="&lt;p&gt;How do i show that the strict preference (&gt;) ordering is not reflexive. I've tried to prove this by asymmetry but I am not sure this is the way to do it. Any help? Thank You. &lt;/p&gt;&#xA;" OwnerUserId="16007" LastActivityDate="2018-01-24T06:30:59.697" Title="Show that strict preference ordering is not reflexive" Tags="&lt;consumer-theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20251" PostTypeId="2" ParentId="20249" CreationDate="2018-01-24T06:30:59.697" Score="1" Body="&lt;p&gt;Just think about the definition of $\succ$ (in terms of $\succeq$) and the result follows immediately.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Proof:&#xA;Suppose $x\succ x$. Then, by definition, $x\succeq x$ and $x\nsucceq x$, which is impossible. Hence, $x\nsucc x$ which means that $\succ$ is not reflexive.&lt;/p&gt;&#xA;" OwnerUserId="14680" LastActivityDate="2018-01-24T06:30:59.697" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20252" PostTypeId="2" ParentId="20206" CreationDate="2018-01-24T09:32:14.970" Score="1" Body="&lt;p&gt;In a nutshell, pro-business policies help currently existing businesses and their shareholders. Pro-market economies are those that follow the tenets of the free market - competition, no barriers to entry and so on. Pro-business policies may not imply a pro-market environment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is discussed at length for the case of India in &lt;a href=&quot;https://www.imf.org/External/Pubs/FT/staffp/2004/00-00/rodrik.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Rodrick, D. and Subramanian, A., 2004. From “Hindu growth” to productivity surge: the mystery of the Indian growth transition, &lt;em&gt;NBER Working Paper Series&lt;/em&gt;, WP 10376&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="14510" LastActivityDate="2018-01-24T09:32:14.970" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20253" PostTypeId="1" CreationDate="2018-01-24T10:27:29.547" Score="2" ViewCount="241" Body="&lt;p&gt;In his &lt;a href=&quot;http://www.dictionaryofeconomics.com/article?id=pde2008_Q000006&quot; rel=&quot;nofollow noreferrer&quot;&gt;Quantity Theory of Money&lt;/a&gt; article M. Friedman uses the following formula for the money multiplier: $$ M = H \times \frac{\frac{D}{R}(1 + \frac{D}{C})}{\frac{D}{R}+\frac{D}{C}} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $M = $ money supply under fractional reserve, $H$ = high-powered money, $D$ = deposits, $R$ = bank reserves, $C$ = currency in the hands of the public. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why did he write the formula in this unusual form? Are there any insights to be seen from it? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For me the usual form is the one given for example in &lt;a href=&quot;https://rads.stackoverflow.com/amzn/click/1464182892&quot; rel=&quot;nofollow noreferrer&quot;&gt;Mankiw&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ M = H \times \frac{C+D}{C + R} = H \times \frac{\frac{C}{D} + 1}{\frac{C}{D} + \frac{R}{D}}$$ &lt;/p&gt;&#xA;" OwnerUserId="14062" LastActivityDate="2018-01-24T10:27:29.547" Title="Friedman's version of money multiplier formula" Tags="&lt;money-supply&gt;&lt;money&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20254" PostTypeId="1" CreationDate="2018-01-24T15:59:10.797" Score="0" ViewCount="125" Body="&lt;p&gt;I'm having a hard time visualizing why a strong dollar would make an imported good cheaper?  If I buy an ounce of gold in the US for \$1,353.70 (todays rate) and I buy an ounce of gold in Europe, would it not cost me 1,092.81 Euros at todays exchange rate of \$1.24 to 1 Euro?  Why would I expect to get to get more than an ounce of gold if I spend \$1,353.70 in Europe?&lt;/p&gt;&#xA;" OwnerUserId="16012" LastEditorUserId="16013" LastEditDate="2018-01-24T17:40:40.887" LastActivityDate="2018-01-25T01:05:06.597" Title="Why does a strong dollar make imported goods cheaper?" Tags="&lt;international-economics&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20255" PostTypeId="2" ParentId="20254" CreationDate="2018-01-24T16:06:08.960" Score="0" Body="&lt;p&gt;When the dollar appreciates relative to the euro, then either gold has gotten cheaper in dollars or more expensive in euros or both.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A better example is some European product.  Then, if that products has a constant price in euros, an appreciating dollar means it's cheaper in dollars.&lt;/p&gt;&#xA;" OwnerUserId="16013" LastActivityDate="2018-01-24T16:06:08.960" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20256" PostTypeId="1" AcceptedAnswerId="20259" CreationDate="2018-01-24T18:52:22.097" Score="3" ViewCount="392" Body="&lt;p&gt;I have asked the question on the statistic section on stack exchange, but no one was able to give me an answer. I think this is actually is a question that touches econometrics so I am going to ask it here (I would like to use the answer to this in an econometric context): &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am a bit confused. The assumptions that have to be fulfilled so that OLS estimators are consistent (and efficient) are fairly straightforward.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am currently trying to prove consistency of quantile regression (QR) estimators.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have found the following lecture notes: &lt;a href=&quot;https://eml.berkeley.edu/~powell/e241a_sp10/qrnotes.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://eml.berkeley.edu/~powell/e241a_sp10/qrnotes.pdf&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are 4 assumptions listed (page 3) for the proof of consistency of the QR estimators. The first one being that the data $x_{t},y_{t}$ given $t=1,2,..,n$ has to be i.i.d. (independent and indentically distributed). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the case of OLS the data only has to be &lt;em&gt;covariance-stationary&lt;/em&gt;. To my understanding the above mentioned assumption of i.i.d. data rules out the possibility of for example autoregressive processes, since in that case the data points are not independent from one another. This in turn puts quite restrictive boundaries on the possible applications of QR.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Am I missing something here? Could someone clarify the assumptions for consistency of the QR estimators for me? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you!&lt;/p&gt;&#xA;" OwnerUserId="15027" LastActivityDate="2018-01-24T23:52:26.230" Title="Proving consistency of quantile regression estimators" Tags="&lt;econometrics&gt;&lt;regression&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="20257" PostTypeId="1" CreationDate="2018-01-24T20:01:15.627" Score="1" ViewCount="72" Body="&lt;p&gt;I am newbie to cryptocurrencies and just read an article about ICO (Initial Coin Offerings). However, I didn’t quite get the functioning and role of tokens. Lets say there is a company that plans to build a marketplace that operates on blockchain, where you can buy and sell many different things. To use the marketplace the user however needs to buy company’s tokens.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To raise money to build the marketplace, the company one day decides to participate in an ICO, where it will issue its tokens for a low price. The ICO is very successful and the company manages to build the platform and attract a reasonably sized customer base.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let’s say that in a few years the value of the company goes up, which means that the value of the token will also increase. Then come new users who are attracted to the platform and want to participate in it. This is the part which I don’t understand. Because they need to buy the tokens to participate in the market, wouldn’t the high price of tokens (compared to their original price at ICO) significantly deter new users from coming to the platform? The new users would have to pay high costs (buying the tokens) just to enter the platform. How do blockchain companies (like Status.im) solve this problem?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks a lot for clarifying the problem.&lt;/p&gt;&#xA;" OwnerUserId="16016" LastEditorUserId="12304" LastEditDate="2018-01-26T06:10:42.220" LastActivityDate="2018-01-26T06:37:22.143" Title="Crypto-tokens: how do they function in a latter stage of company?" Tags="&lt;macroeconomics&gt;&lt;cryptocurrency&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20258" PostTypeId="2" ParentId="20254" CreationDate="2018-01-24T21:17:41.470" Score="3" Body="&lt;p&gt;Consider that you want to purchase a product from a EU country, pricing their products in Euros.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let’s say that you want to buy a product that costs 100 euro. No matter what the relationship is between USD/EUR, the product will still be 100 EUR.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let’s say the USD/EUR is 1.24 as in your example - that means for every 1.24 USD you have, you get 1 EUR. If you want to buy the product you will then need 124 USD to buy a 100 EUR product.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now let’s say that the USD strengthens compared to EUR and the new exchange rate is 1.15 instead of 1.24. Using same logic as above, you now need 115 USD to purchase that same product, giving you a discount of 9 USD just because of the new exchange rate. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Remember the product is still 100 EUR - but you can now buy more euros for your dollar than you could before.&lt;/p&gt;&#xA;" OwnerUserId="14207" LastActivityDate="2018-01-24T21:17:41.470" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20259" PostTypeId="2" ParentId="20256" CreationDate="2018-01-24T23:52:26.230" Score="2" Body="&lt;p&gt;I can give you literature. An authoritative book on the subject is &lt;strong&gt;&lt;a href=&quot;https://rads.stackoverflow.com/amzn/click/0521608279&quot; rel=&quot;nofollow noreferrer&quot;&gt;Koenker, R. (2005). Quantile regression. Cambridge university press.&lt;/a&gt;&lt;/strong&gt;. In there we read (p.126)&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&lt;strong&gt;4.6 QUANTILE REGRESSION ASYMPTOTICS UNDER DEPENDENT CONDITIONS&lt;/strong&gt;    Relaxation of the independence condition on the observations is&#xA;  obviously possible and offers considerable scope for continuing&#xA;  research. Bloomfield and Steiger (1983) showed the asymptotic&#xA;  normality of a median autoregression estimator for a model in which&#xA;  the observations were assumed to be stationary and ergodic martingale&#xA;  differences. Weiss (1991) considers models under α-mixing conditions.&#xA;  Portnoy (1991) considers a considerably more general class of models&#xA;  with “m-decomposible” errors, a condition that subsumes m-dependent&#xA;  cases with *m* tending to infinity sufficiently slowly... More&#xA;  recently, Koul and Mukherjee (1994) and Mukherjee (2000) have&#xA;  considered the asymptotic behavior of both the primal and dual&#xA;  quantile regression process under conditions of long-range dependence&#xA;  of the error process. This work relies heavily on the theory of&#xA;  weighted empirical processes developed by Koul (1992).&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The section continues with a presentation of the properties of Quantile regression for AR, ARMA, and ARCH models.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2018-01-24T23:52:26.230" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="20260" PostTypeId="2" ParentId="20254" CreationDate="2018-01-25T01:05:06.597" Score="0" Body="&lt;p&gt;Here's why:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Stronger dollar implies you can purchase a larger quantity of foreign&#xA;currency per dollar. &lt;/li&gt;&#xA;&lt;li&gt;The larger amount of foreign currency available to you implies you&#xA;can  purchase a larger quantity of a foreign good in its local&#xA;market.&lt;/li&gt;&#xA;&lt;li&gt;This is the same as the per unit price of the product being reduced,&#xA;allowing you to buy more of it per dollar.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="11155" LastActivityDate="2018-01-25T01:05:06.597" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20261" PostTypeId="1" AcceptedAnswerId="20262" CreationDate="2018-01-25T02:23:21.513" Score="0" ViewCount="1136" Body="&lt;p&gt;I am having trouble understanding how to calculate the optimal price &lt;strong&gt;&lt;em&gt;P&lt;/em&gt;&lt;/strong&gt; for a good and understand the optimal price elasticity of demand in the following condition:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;The firm is a &lt;strong&gt;monopoly&lt;/strong&gt; seeking to maximise profit. &lt;/li&gt;&#xA;&lt;li&gt;It also has a zero marginal cost (&lt;strong&gt;MR = 0&lt;/strong&gt;).&lt;/li&gt;&#xA;&lt;li&gt;The firm can only produce/sell an upper limit/number of the good (I am not sure if this changes anything in the analysis)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I found a lot of documentation on the web regarding price elasticity, but I did not find (enough) details about the conditions described above. My understanding is that, even in the above conditions, the optimal price elasticity of demand is at unit elastic (&lt;strong&gt;&lt;em&gt;E= -1&lt;/em&gt;&lt;/strong&gt;) [is this correct?], but I have no clue how to calculate the optimal price of the good [is there any formula for it?].&#xA;Apologies if my questions is a bit broad, I am very new to this area of study and any help (or reference to a worked solution) is appreciated.&lt;/p&gt;&#xA;" OwnerUserId="16021" LastActivityDate="2018-01-25T04:02:14.553" Title="Price elasticity and optimal pricing in a monopoly with zero marginal cost" Tags="&lt;elasticity&gt;&lt;monopoly&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20262" PostTypeId="2" ParentId="20261" CreationDate="2018-01-25T04:02:14.553" Score="0" Body="&lt;h1&gt;Hint&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;You are probably working with (or given) a linear demand function of the form $Q=\frac{a}{b}-\frac1bP$, or its equivalent inverse form $P=a-bQ$, where $a$ and $b$ are positive numbers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given that price elasticity of demand at the optimum is $-1$, which you were right to point out (assuming linear demand), you can use the elasticity formula&#xA;\begin{equation}&#xA;-1=\frac{\mathrm dQ}{\mathrm dP}\cdot\frac{P}{Q}=-\frac1b\cdot\frac{P}{Q}&#xA;\end{equation}&#xA;and the demand equation to solve for the two unknowns $P$ and $Q$.&lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2018-01-25T04:02:14.553" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="20265" PostTypeId="1" CreationDate="2018-01-25T14:23:10.697" Score="1" ViewCount="98" Body="&lt;p&gt;I am working through the basic examples of the stochastic RBC models in the book by McCandless (2008): The ABCs of RBCs, pp. 71 - 75&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;A Standard Stochastic Dynamic Programming Problem&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;Here is a formulation of a basic stochastic dynamic programming model:&#xA;\begin{equation}&#xA;y_t = A^t f(k_t)&#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{equation}&#xA;A^t = \cases{A_1 \text{ with probability } p \\ A_2  \text{ with probability } (1 - p) }&#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{equation}&#xA;k_{t+1} = A^tf(k_t) + (1 - \delta)k_t - c_t&#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With an agent maximizing the expected utility function:&#xA;\begin{equation}&#xA;E_t \sum_{t}^\infty \beta^t u(c_t)&#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Substituting consumption from the previous equation and using the recursive formulation of the problem gives the following problem:&#xA;\begin{equation}&#xA;V(k_t, A^t) = \max_{k_{t+1}} \left[u(A^tf(k_t) + (1 - \delta)k_t - k_{t+1}) + \beta E_t V(k_{t+1},A^{t+1})\right]&#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then McCandless proceeds saying that the algorithm to solve to the problem is almost identical to the deterministic case. One finds the first-order conditions (a derivative of the value function with respect to $k_{t+1}$) for the control variables, then does the same for $k_t$ and applies the Envelope theorem to get an analytical solution. Steady-states found, model written, paper submitted. Profit.&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;A Lottery Augmented Version&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;Now I want to investigate a little different case. Take the very same model but introduce another control variable. Call it $s_t$ for a security:&#xA;\begin{equation}&#xA;l_{t+1} = l_t + s_t&#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And the $l_t$ enters the problem through the variable $A^t$:&#xA;\begin{equation}&#xA;A^t = \cases{A_1 \text{ with probability p} \\&#xA;A_2l_{t} \text{ with probability (1 - p)}}&#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The main difference is easy to see if one writes the equation for income in a period $t$ explicitly opening up the expectation sign:&#xA;\begin{equation}&#xA;y_t = pA_1f(k_t) + (1-p)A_2l_tf(k_t)&#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this case we have a deterministic control variable $l$ &quot;turning on&quot; when a certain event happens (as if you would win in a lottery, which increases your income by the factor of how much you invested in it - yes the example makes little sense but I am interested in the principle itself). &#xA;&lt;strong&gt;The Question:&lt;/strong&gt; Does the following lottery augmentation changes the process of how to solve the model? If yes, what is the idea behind and what does change? If no, why is that?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;P.S. If someone could point me a paper with an example model, which is very close to the one I described, that would be brilliant.&lt;/p&gt;&#xA;" OwnerUserId="14950" LastActivityDate="2018-01-25T14:23:10.697" Title="Stochastic Dynamic Programming: Deriving the Steady-State for a Lottery" Tags="&lt;dynamic-programming&gt;&lt;dynamic-optimization&gt;&lt;stochastic-processes&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20266" PostTypeId="1" CreationDate="2018-01-25T15:30:28.973" Score="2" ViewCount="73" Body="&lt;p&gt;It has come to my attention that the big telecom providers are launching some big infrastructural projects recently (at the time of post, Jan. 2018). I presume by that they mean talking laying cables and related activities. Supposedly this is being at least partially attributed to the repeal of net neutrality. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Question:&lt;/strong&gt; What is it about net neutrality that would impact the profitability of these projects? Would it be fair to compare this to the price of gold and mining? If the costs to mine gold (per unit) outweigh the trading price of gold (per unit), the miners close up shop; and likewise if net-neutrality hurts the big telecom companies' margins enough for them to forego big projects?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or what is really behind the incentives here?&lt;/p&gt;&#xA;" OwnerUserId="12212" LastActivityDate="2021-04-10T08:04:10.373" Title="Net Neutrality and Recent Telecom Projects" Tags="&lt;macroeconomics&gt;&lt;public-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20267" PostTypeId="1" CreationDate="2018-01-25T17:27:36.417" Score="5" ViewCount="437" Body="&lt;p&gt;In my understanding the utility of econometrics versus machine learning is generally argued to be the research of causality.&lt;/p&gt;&#xA;&lt;p&gt;If I'm not wrong, when we put aside experimental economics, the golden standard to prove causality is to use Intrumental Variables. But in practice it has been showed that finding a relevant IV is often not possible, and authors end up taking the best &amp;quot;IV&amp;quot; they can find.&lt;/p&gt;&#xA;&lt;p&gt;Problem: This variable has a high chance to not in fact be exogenous, but we can not verify it when the IV is dependant of variables like happiness, for example. Since we have no way do verify those dependances, science stops here.&lt;/p&gt;&#xA;&lt;p&gt;SO I am wrong to say that in most cases econometrics can not scientifically establish causality? In that case why using traditional econometrics instead of modern machine learning techniques?&lt;/p&gt;&#xA;" OwnerUserId="16030" LastEditorUserId="16030" LastEditDate="2020-07-10T10:06:07.630" LastActivityDate="2020-07-10T10:06:07.630" Title="The relation between econometrics and machine learning" Tags="&lt;econometrics&gt;&lt;causality&gt;" AnswerCount="4" CommentCount="0" FavoriteCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="20268" PostTypeId="2" ParentId="20267" CreationDate="2018-01-25T18:11:58.193" Score="1" Body="&lt;p&gt;So you are right. It is extremely difficult to prove causality in economics. Using an instrumental variable is a good way to do so. I think you might be a little confused about the difference between &quot;machine learning&quot; and Econometrics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Machine learning works in 2 ways:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) You have a massive data set with the correct answers already keyed in. You split the data set in 2 into a test and train set, then run programs to create a function to identify the already correct answers given a variety of variables within the train set. You then can use the currently unseen test set to see how accurate the function that the computer has to see how accurate it is. A good example of this is computers figuring out which hand drawn number represents what real number because you can feed in pre-existing data sets.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) You have no data but a fitness function (a function which defines correctness). You create your own data by having the computer randomly set the function that turns data into the output and then put the many random functions into a situation. After the simulation finishes then you see which functions performed the best and modify all the functions to be more like that. Over thousands or millions of iterations the functions slowly &quot;tune&quot; the functions so that the give the correct answer given the repeated situations. A good example of this would be self driving cars. Some researchers have literally loaded computers up into grand theft auto to allow it to practice.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Both cases have very limited applications to economics. In the first scenario you would need to have data sets on thousands of economies over thousands of years all with differing data. We certainly do have plenty of economic data but when you think about it we only have 195 countries to look at and there is only 1 global economy. We also only have around 100 years of good economic data. More over the relationships between variables seem to change. Conventional wisdom used to be the low unemployment led to inflation which doesn't seem to be the case anymore in the U.S. economy. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;With the second machine learning practice there is no way to simulate the entire world economy accurately enough to test how different policies would impact the world economy due to not strong enough computer power.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Econometrics uses instruments because it allows for a natural experiment. You obviously can't just run experiments in the economy to see what happens (ex: What would happen if we dropped the minimum wage to 0 or took away all taxes) because there would be real impacts on people so it's unethical. Instead what economists do is look for places where there is an arbitrary difference between two economies. A good example is when one state raises the minimum wage and another state doesn't. You can now compare the economies between the two states to see whether he state with high minimum wage suddenly has inflation while the low minimum wage state doesn't. This would be an instrumental variable. This allows economists to look at natural experiments and derive causal results from these.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The issue with instrumental variables is that you can never be 100% certain that the instrumental variables are unrelated to the dependent variable. In the minimum wage example maybe the state that raised the minimum wage has strong labor unions which has some impact on inflation when the same effect wouldn't be true in the first state. It's the job of an economists to try and do their best to tease out these biases but in reality it's impossible to ever be 100% accurate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So to answer your question &quot;Why use econometrics instead of machine learning&quot; the answer is that machine learning just can't be used most economic applications. It's an huge technology but is not a pancea and still can be wrong. There a great &lt;a href=&quot;https://www.youtube.com/watch?v=aircAruvnKk&amp;amp;t=984s&quot; rel=&quot;nofollow noreferrer&quot;&gt;video&lt;/a&gt; series which explains what machine learning is and how it works that I'd recommend you watch to understand the subject deeper.&lt;/p&gt;&#xA;" OwnerUserId="10245" LastActivityDate="2018-01-25T18:11:58.193" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20270" PostTypeId="1" CreationDate="2018-01-25T18:54:26.650" Score="2" ViewCount="1140" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/2c4Iw.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/2c4Iw.png&quot; alt=&quot;A market for Lemons&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there a deadweight loss in this used car market and why?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the plums side we can make a pareto improvement by exchanging information and matching 200 buyers and sellers who will gain from trade. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the lemons side, we can't say for certain that it is inefficient. Lemons are being exchanged at the expected value of a car (50% of cars are plums and 50% are lemons) which is 12k. This becomes the maximum WTP of an ignorant buyer, so the exchange is not inefficient, there are equity issues but not efficiency issues. A Pareto improvement is not possible because any gain that buyers make when given information (they will keep their money in their pockets) is a loss to sellers. (Is this correct? the sale of 600 lemons is Pareto efficient but why can you not return to this point once you're off equilibrium without making sellers worse off?)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So is the deadweight loss the 400k on each side, or just the 400k in the plums market, or is it something else - 2 million on the right hand side for example because the true WTP is 16k? What do you think? &lt;/p&gt;&#xA;" OwnerUserId="16032" LastActivityDate="2018-02-28T11:51:50.697" Title="Why is there a deadweight loss in this lemons market?" Tags="&lt;microeconomics&gt;&lt;market-failure&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20271" PostTypeId="1" AcceptedAnswerId="20277" CreationDate="2018-01-25T20:58:33.583" Score="1" ViewCount="162" Body="&lt;p&gt;Thanks for your patience with answering my question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am interested in building an optimal wealth allocation strategy across multiple betting opportunities, correlated or uncorrelated and with different types of constraints.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've been looking for relevant papers and literature.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I've found so far is all Markowitz theory, Kelly criterion related. My question is if there are other alternatives to such strategies that may have very different idea behind them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also if there are some papers that you yourself found very relevant to Markowitz and Kelly. Papers about informed betting strategies, investments across multiple opportunities, wealth allocation etc.&lt;/p&gt;&#xA;" OwnerUserId="16029" LastEditorUserId="1601" LastEditDate="2018-01-26T07:18:47.737" LastActivityDate="2018-01-26T07:18:47.737" Title="Kelly criterion wealth allocation alternatives" Tags="&lt;reference-request&gt;&lt;investment&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20272" PostTypeId="1" CreationDate="2018-01-25T22:09:52.103" Score="1" ViewCount="237" Body="&lt;p&gt;I'm trying to replicate some results of Fed Underlying Inflation Gauge (UIG) model, which is a dynamic factor model to capture inflation trend.  &lt;a href=&quot;https://www.newyorkfed.org/research/policy/underlying-inflation-gauge&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.newyorkfed.org/research/policy/underlying-inflation-gauge&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm getting some not so good results. The following figure shows the UIG results while my is a lot smoother.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/q8CwK.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/q8CwK.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm trying to investigate the reason. One difference is that I used a dynamic factor model in statsmodels package in Python, which has the static format as following:&#xA;$\begin{align}&#xA;y_t^i &amp;amp; = \Lambda^i f_t + u_t^i \\&#xA;f_t &amp;amp; = A_1 f_{t-1} + \dots + A_p f_{t-p} + \eta_t \qquad \eta_t \sim N(0, I)\\&#xA;u_t^i &amp;amp; = \varepsilon_t^i \qquad \varepsilon_t^i \sim N(0, \Sigma)&#xA;\end{align}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But the UIG is actually doing something like:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\begin{align}&#xA;y_t^i &amp;amp; = \sum_{h}\beta_h^i f_{t-h} + u_t^i \\&#xA;u_t^i &amp;amp; = \varepsilon_t^i \qquad \varepsilon_t^i \sim N(0, \Sigma)&#xA;\end{align}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Could this cause a problem? &lt;/p&gt;&#xA;" OwnerUserId="16035" LastActivityDate="2019-09-24T09:00:31.103" Title="Dynamic factor model for inflation (UIG)" Tags="&lt;econometrics&gt;&lt;inflation&gt;&lt;applied-econometrics&gt;&lt;federal-reserve&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20273" PostTypeId="1" AcceptedAnswerId="20279" CreationDate="2018-01-25T22:39:15.607" Score="2" ViewCount="735" Body="&lt;p&gt;I've just read an econ textbook and want to verify a statement/definition about income elasticity of demand.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Changes in income shift the demand curve, and we can measure the responsiveness of demand to income changes by calculating &lt;strong&gt;income elasticity of demand&lt;/strong&gt; as follows:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/KJcr0.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/KJcr0.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Question: Where does this &lt;strong&gt;change in quantity demanded&lt;/strong&gt; come from? Is it from a movement along demand curve, or from a shift of demand curve?&lt;/p&gt;&#xA;" OwnerUserId="6009" LastActivityDate="2020-05-14T23:31:26.837" Title="Income Elasticity of Demand vs. shift in demand curve" Tags="&lt;microeconomics&gt;&lt;elasticity&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20274" PostTypeId="2" ParentId="20273" CreationDate="2018-01-25T23:52:03.660" Score="0" Body="&lt;p&gt;The change would be the slope of the demand curve in relation to the income variable. For example, if your demand curve is given as follows: $$Q_x = -P_x +.5I$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then the elasticity would be the derivative of the demand function in relation to the income variable, times the given point at which you're calculating the elasticity:&#xA;$$\frac{\partial Q}{\partial I} \frac{I}{Q}  = .5 \frac{I}{Q} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In essence what you're doing is  calculating how much would the demand curve move if your income were to change in relation to a given income and quantity of demand.&lt;/p&gt;&#xA;" OwnerUserId="16038" LastEditorUserId="16038" LastEditDate="2018-01-25T23:59:44.710" LastActivityDate="2018-01-25T23:59:44.710" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20276" PostTypeId="2" ParentId="19764" CreationDate="2018-01-26T02:51:32.297" Score="1" Body="&lt;p&gt;I looked a bit more into this and I think I found the confirmation of my suspicion into this article, which describes the command ivreg2 in STATA.&#xA;I am not a super-techy econometrician but from my understanding it can apparently be done using the orthog() option, and under certain conditions it is equivalent to a Hausman test.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.stata-journal.com/sjpdf.html?articlenum=st0030_3&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.stata-journal.com/sjpdf.html?articlenum=st0030_3&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One advantage of doing the test as a Sargan test, which turned out useful for my work, is that, if you implement the model yourself in STATA using the GMM engine you can perform it even when you have fewer instruments than endogenous variables (that's because you're performing the test under the null that the supposedly-endogenous variable are actually exogenous)&lt;/p&gt;&#xA;" OwnerUserId="15658" LastActivityDate="2018-01-26T02:51:32.297" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20277" PostTypeId="2" ParentId="20271" CreationDate="2018-01-26T06:31:27.783" Score="0" Body="&lt;p&gt;Yes.  I just published a paper deriving the distributions of returns for all asset and liability classes.  It isn't one distribution or one family of distributions.  Stocks are a mixture of multiple distributions.  Some of these distributions have covariance structures, and some do not.  You may have to do a bunch of your own math though.  I have been contemplating writing a Kelly bet paper, but have not had the time.  I am about to present a distribution-free replacement for Ito calculus that does not assume the existence of first or higher moments at the Southwestern Finance Association Conference.  As such, I have been busy.  It is nearly independent of the economic model in use.  I say that because it would cover a model built around panda bears if that were the true model in nature but nobody knew it, but it may not hold if certain implicit biological assumptions became untrue in the future about humans.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What you will want to do is account for bankruptcy risk, cash merger risk, stock-for-stock merger risk and liquidity risk in addition to return risk.  There are distributions for each in the paper.  Because a Kelly bet is equivalent to having logarithmic utility, my recommendation is to solve it as a log problem.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The difficulty you will find in the paper is that for stocks, there is no equivalent to a covariance matrix.  As you add dimensions, you do not add terms for the scale parameter.  If you ignore liquidity, the limitation on liability, bankruptcy and mergers then the returns for one asset are: $$\frac{1}{\pi}\frac{\sigma}{\sigma^2+(r-\mu)^2},$$ but for two assets it becomes $$\frac{1}{2\pi}\frac{\gamma}{(\gamma^2+\sum_{i=1}^2(r_i-\mu_i)^2)^{3/2}}$$ and for three assets it becomes $$\frac{1}{\pi^2}\frac{\delta^2}{\sqrt{\delta^3}\left(\delta+\sum_{i=1}^3(r_i-\mu_i)^2\right)^2}.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Notice that the scale parameter changes as assets are added which I denote by simply changing the variable name $(\sigma,\gamma,\delta)$.  This is really challenging to work with because of the poor form.  Also, I didn't work out the correct constant of integration since I didn't want to sit around working out the integrals under the limitation of liability.  It is late, and I teach in the morning.  These assume up to infinitely negative returns.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is a practical alternative as well here, and you should assume no correlation as well.  Graham and Dodd investing provide the clue.  If you assume an all-or-none utility function, that you receive a utility of one if your return exceeds a threshold and a zero otherwise, then you get a simple answer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First calculate the Kelly bet on a binomial, which is trivial, for your threshold rate of return.  That becomes your allocation level.  Second, as price falls, the probability of meeting the level increases and so your variance falls.  So pay as little as possible for a bet.  As you are reducing your price, you are also exposing less money to each bet, so you are reducing your risk in three ways, both through the probability of loss is reduced, the variance is reduced and the exposure size being reduced per unit of risk.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can find the paper at &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;a href=&quot;https://file.scirp.org/pdf/JMF_2017083015172459.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Harris, D.E. (2017) The Distribution of Returns. Journal&#xA;  of Mathematical Finance, 7, 769-804&lt;/a&gt;.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The paper is built around the observation that questions such as $\text{var}\left(\frac{S_{t+1}}{S_t}\right)$ are built around two observable stock prices.  This implies that stock prices and stock volumes are data, but returns are a function of data and therefore a statistic and not data itself.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since the return is future value divided by present value minus one, it follows that returns are a ratio distribution of future prices divided by current prices.  Under mild assumptions about how stocks are traded and the number of investors involved, stock prices should be normally distributed at any static moment.  More precisely, the limit order book should be.  These distributions are just the ratios of two normal distributions for each stock.  It also nicely fits the data if you make adjustments for things like bankruptcy and so forth.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By converting your problem to a binomial you tame it and put yourself in Warren Buffett's shoes with a mathematical explanation as to why that is the case.  The downside is you now have all the terrible reading to do of annual reports as you have to restate them from their official values to their economic values for this to work.  So a ten year deferred tax liability for $100 million needs reduced to present value since this is an interest-free loan from the Treasury and the difference added to equity.  Still, once you do the analysis, you can make a good return.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also note that these distributions lack both a mean and a sufficient statistic. In the real world they are truncated at -100% and so no non-Bayesian solution exists for any of these that is unbiased and admissible.  Don't plug in your R function. It won't work.  You have to build this from scratch if you are going to make predictions.  Nicely, Bayesian predictions are of the form:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Pr(\tilde{x}|\mathbf{X})=\int_{\theta\in\Theta}\Pr(\tilde{x}|\theta)\Pr(\theta|\mathbf{X})\mathrm{d}\theta,$$ so you can form predictions that do not depend upon the value of the parameters.  Use the CDF of $\tilde{x}$ to form your binomial density.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Technically, this is not quite correct because the multi-asset form is not independent.  No two returns can ever be independent, even if there is no correlation.  Still, it is a reasonable heuristic.&lt;/p&gt;&#xA;" OwnerUserId="11321" LastEditorUserId="1601" LastEditDate="2018-01-26T07:17:55.843" LastActivityDate="2018-01-26T07:17:55.843" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20278" PostTypeId="2" ParentId="20257" CreationDate="2018-01-26T06:37:22.143" Score="2" Body="&lt;p&gt;The companies who engage in these sort of mechanisms expect the token to have a variable price which remains accessible and fair for the product in question, and also keep some tokens for themselves which can be used to influence the. In case the price rises beyond intended, some companies reserve large amounts of initial tokens to sell in the market (sell high volumes of tokens to keep the price low), or they even reserve the right to produce new tokens.&lt;/p&gt;&#xA;&lt;p&gt;However, these companies also benefit from a high valuation of the token, which creates a speculative risk, benefiting the company but not necessarily consumers. See the long example/explanation below.&lt;/p&gt;&#xA;&lt;h3&gt;Example: Amusement park tokens&lt;/h3&gt;&#xA;&lt;p&gt;The situation can be illustrated as an amusement park who requires tokens to access and use the rides. Instead of selling the tokens themselves, the park sells lots of tokens before being built (similar to an ICO). Consider they sell it for €1 instead of the typical €2 or €3 on other amusement parks. You can then go to the park and try to sell the tokens to anyone. The logic is any visitor would still pay 2 or 3€ for the tokens, since he/she is a casual visitor. If it is a regular visitor, maybe he or she would try to save some money by buying the early tokens, but once those were used, the rides are still fairly priced at €2 or €3.&lt;/p&gt;&#xA;&lt;p&gt;However, if the tokens are in too much demand, their price would climb to, for instance €10. When this happens, people would stop buying until the price lowers again until an acceptable value. If this doesn't happen due to whatever reason (e.g. speculation) the amusement park could sell some reserve tokens at the intended price (2€). Some amusement parks would even say they can produce new tokens at any time, to avoid this risk. However, remember that the amusement park benefits from selling reserve or new tokens for high prices at any time, and this would be a profit without delivering any value or product.&lt;/p&gt;&#xA;&lt;h3&gt;Research and further reading on ICOs&lt;/h3&gt;&#xA;&lt;p&gt;Please note that this is a very new area and very few studies have been performed yet on this field. I've recently read one paper on &lt;a href=&quot;https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3067615&quot; rel=&quot;nofollow noreferrer&quot;&gt;&amp;quot;Red Flags for ICOs&amp;quot;&lt;/a&gt;, and another one is &lt;a href=&quot;https://econpapers.repec.org/paper/vanwpaper/vuecon-sub-17-00007.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;the economics of ICOs&lt;/a&gt;, if you want to learn more.&lt;/p&gt;&#xA;" OwnerUserId="12304" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2018-01-26T06:37:22.143" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20279" PostTypeId="2" ParentId="20273" CreationDate="2018-01-26T07:32:49.757" Score="2" Body="&lt;p&gt;Short answer:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Denoting income by $I$, price by $p$, the demand function by $D(I,p)$ and income elasticity of demand by $\eta$, the definition of point elasticity of income is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\eta = \frac{\text{d}D(I,p)}{\text{d}I}\frac{I}{D(I,p)}.&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the change in demand comes from a change in income.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Long answer:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Without specifying your coordinate system the terms &quot;movement along the curve&quot; and &quot;shift of the curve&quot; are meaningless.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider the function $f(a,x) = a/x$. Suppose this function determines the value of a variable $y$, that is $y = f(a,x)$. Given $a$ we can plot $f(a,x)$ in the $(x,y)$ coordinate system. If $x$ changes there is movement along the curve in this coordinate system. If $a$ changes the curve shifts in this coordinate system.&#xA;However treating $a$ as a variable and given $x$ we could also plot $f(a,x)$ in the $(a,y)$ coordinate system. Then change in $a$ would mean movement along the curve and change in $x$ would shift the curve.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As quantity demanded usually depends on both income and price, you face a similar situation, where $q = D(I,p)$. Income elasticity examines a change in income, but without specifying if your curve is ploted in $(p,q)$ or $(I,q)$ you cannot classify the change in $I$ as either &quot;movement along the curve&quot; or &quot;shift of the curve&quot;.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2018-01-26T07:32:49.757" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="20282" PostTypeId="1" CreationDate="2018-01-26T16:05:21.930" Score="2" ViewCount="1441" Body="&lt;p&gt;I've found a few sources &lt;a href=&quot;https://assylias.wordpress.com/2011/10/27/linear-vs-logarithmic-returns/&quot; rel=&quot;nofollow noreferrer&quot;&gt;for instance this one&lt;/a&gt;, that makes the claim that over a portfolio, simple returns are additive. I can see why it doesn't make a difference if we use net or gross returns as long as the weights add to one, but I can't see why we should get this additive behaviour for a quantity that has a division in it. Perhaps I am using a bad definition of weight?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If someone could share a derivation for a portfolio of two assets that would be sufficient.&lt;/p&gt;&#xA;" OwnerUserId="16045" LastActivityDate="2018-11-25T21:01:55.917" Title="Why are simple returns additive over securities?" Tags="&lt;econometrics&gt;&lt;definition&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="20283" PostTypeId="2" ParentId="20267" CreationDate="2018-01-26T17:44:13.333" Score="9" Body="&lt;p&gt;I.)  2 Principles of econometrics can potentially be useful compared to Machine Learning.&#xA;(see  Hal R Varian 2014 Paper : &lt;a href=&quot;https://pubs.aeaweb.org/doi/pdf/10.1257/jep.28.2.3&quot; rel=&quot;noreferrer&quot;&gt;https://pubs.aeaweb.org/doi/pdf/10.1257/jep.28.2.3&lt;/a&gt;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A.) As you suggest the search of causality is one advantage but unlike what you think, even if causality sometimes could be tricky to measure it remains very useful and functional.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But first,  when you suggest that Instrumental variable is the only available tool which work for most of the cases and allow causal inference, i think there is a few more techniques that could  still be applicable  to measure causality in response to a treatment, a manipulation, or an intervention and still be relevant (unlike natural experiment as you precise because of its restricted direct applicability to most of the cases) in most of the situations such as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;● explicit experiments&#xA;● regression discontinuity&#xA;● difference in differences&#xA;● structural estimation&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For instance you can investigate causality with theses techniques or instrumental variables because even if those techniques are subject to bias and correlation issues (all the more since big data because the increasing size of datasets limits the usefulness of instrumental variable methods, depending on instrument strength and level of confounding), it still give a hint to investigate causality. &#xA;In a way that, for instance, it enables the detection of conditional counterfactual (an if-clause which is contrary to fact) while also check the existence of potential selection bias.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is a Conditional counterfactual:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If it is raining, then he is inside.  : Rain = Indicative Variable &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If it were raining, then he would be inside. : Rain = Conditional Counterfactual variable &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence, the better predictive model you have for the counterfactual, the better you will be able to estimate the causal effect.&#xA;Thus, even though a predictive model will not necessarily allow one to conclude anything about causality by itself, such models may help in estimating the causal impact of an intervention when it occurs.&#xA;Because it can highlights a bunch of conditional counterfactual which could be use as potential causal Variables to run the test on, in order to  eventually determined causality in a given dataset to do good decision making (clean up from confounding issues). If not, at least, it gives you some clues to conduct a deeper investigation to understand the problem : anything wrong with the theory ? anything wrong with my econometric model ? anything wrong with my data ?.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For more insight about the pro cons of differents causal inferences techniques in econometrics : &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.jstor.org/stable/pdf/44234997.pdf?refreqid=excelsior%3A18bacfd86299dcf19e7f1f13d9c52022&quot; rel=&quot;noreferrer&quot;&gt;https://www.jstor.org/stable/pdf/44234997.pdf?refreqid=excelsior%3A18bacfd86299dcf19e7f1f13d9c52022&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;B.) Except causality, model uncertainty is another advantage of Econometrics compared to ML.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Probabilistic foundation of econometrics is a strenght in a way that it allows interpretability of most of the models and their parameters (avoiding black box phenomenon) and give a quantisation of uncertainty (with confident intervals ) .&#xA;The goal is usually to show that the estimate of some interesting parameter is not very sensitive to the exact specification used : how an estimated parameter varies as different models are used.This question illustrate a simple form of model uncertainty.&#xA;In this period of “big data,” it seems strange to focus on sampling uncertainty, which tends to be small with large datasets, while completely ignoring model uncertainty, which may be quite large. &#xA;One way to address this is to be explicit about examining how parameter estimates vary with respect to choices of control variables and instruments.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;II.) On the contrary Machine Learning techniques could  also be useful for data analytics in social Science.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A.) Parameters Selection, Model validation methods in ML can improve traditional econometrics models&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Researchers in machine learning have developed ways to deal with large datasets and economists interested in dealing with such data would be well advised to invest in learning these techniques.&#xA;For instance, Web Mining methods could discover new usuable explanatory variable.&#xA;Cross validation should identify a non-linear effect or a forgotten cross effect. &#xA;Model Validation should detect when a model is mispecified and thus allows a better specification of an econometric model and on the whole reduce omitted variable bias and error.&#xA;As an example, recent litterature in finance focus on Garch models (traditional times series models) improved with Neural Network to better predict volatility and asset prices.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For more insight about the usefulness of ML in econometrics check out this paper by Arthur Charpentier : &lt;a href=&quot;https://arxiv.org/pdf/1708.06992.pdf&quot; rel=&quot;noreferrer&quot;&gt;https://arxiv.org/pdf/1708.06992.pdf&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;B.) Causal Modelling began to be a concern and a field of research in ML. Which means that in the long run ML could potentially overcome its own flaws ( like being exclusively focus on the fit ) and outperform Econometrics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some Theoretical computer scientists, such as Pearl (2009a, b) have&#xA;made significant contributions to causal modelling in computer science (by extension machine learning):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(see:  Causal Inference in Statistics: A Primer Wiley, 2016  Judea Pearl et Al)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Pearl defines counterfactuals directly in terms of a &quot;structural equation model&quot; – a set of equations, in which each variable is assigned a value that is an explicit function of other variables in the system. Given such a model, the sentence &quot;Y would be y had X been x&quot; (formally, X = x &gt; Y = y ) is defined as the assertion: If we replace the equation currently determining X with a constant X = x, and solve the set of equations for variable Y, the solution obtained will be Y = y. This definition has been shown to be compatible with the axioms of possible world semantics and forms the basis for causal inference in the natural and social sciences, since each structural equation in those domains corresponds to a familiar causal mechanism that can be meaningfully reasoned about by investigators.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, it appears that these theoretical advances have not as yet been incorporated into machine learning practice. Except in some recent research paper :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.nasonline.org/programs/sackler-colloquia/documents/athey.pdf&quot; rel=&quot;noreferrer&quot;&gt;http://www.nasonline.org/programs/sackler-colloquia/documents/athey.pdf&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a Conclusion, in my opinion and as things now stand, Econometrics as more valuable input in social science than what machine learning could bring. So it is still adequate to use econometrics to conduct data analysis instead of ML techniques.&lt;/p&gt;&#xA;" OwnerUserId="16048" LastEditorUserId="16048" LastEditDate="2018-02-10T02:13:28.940" LastActivityDate="2018-02-10T02:13:28.940" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20287" PostTypeId="2" ParentId="19700" CreationDate="2018-01-26T19:47:06.257" Score="1" Body="&lt;p&gt;Perhaps you could try something like the Bloomberg Terminal; I hear they have a lot of information.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you were looking for annual reports from American companies, I'd tell you to go to the SEC website. However, I've noticed that &lt;a href=&quot;http://www.luse.co.zm/&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.luse.co.zm/&lt;/a&gt; has some annual reports from companies on the London Stock Exchange, such as British American Tobacco, &lt;a href=&quot;http://www.luse.co.zm/media/pdf/British-American-Tobacco-Annual-Report-2016_voChix1.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="14868" LastActivityDate="2018-01-26T19:47:06.257" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20290" PostTypeId="1" CreationDate="2018-01-26T22:45:16.853" Score="0" ViewCount="36" Body="&lt;p&gt;I want to know how much salary paid by apple in 2017 to whole employees. Also the details of other payments of the company(How much they paid for raw materials for example). Also like to know these information about other big companies. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But my study field isn't economics and my English isn't well enough to know where and what should I search?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I will be happy if you guide me!&lt;/p&gt;&#xA;" OwnerUserId="15988" LastEditorUserId="108" LastEditDate="2018-03-28T15:49:35.763" LastActivityDate="2018-03-28T15:49:35.763" Title="Where/What should I search to find the big companies annual paid salary information?" Tags="&lt;reference-request&gt;&lt;labor-economics&gt;&lt;wages&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20291" PostTypeId="2" ParentId="20267" CreationDate="2018-01-26T22:47:08.483" Score="2" Body="&lt;p&gt;My view coincides with the introduction to your question. Namely,&#xA;a) Econometrics is mostly concerned with causality&#xA;b) Machine learning is mostly concerned with fit&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But for the remaining part, our views depart. Here is why:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;a) IV (and other quasi-experimental techniques) are not the only way to test for causality. The alternatives are i) experiments ii) structural estimations. In both cases you apply econometric machinery though you will mostly use a simple OLS in the first case and bayesian/GMM/Maximum Likelihood things in the second. Compared to experiments, it is probably less clear how structural estimations help and here I come to the second point;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;b) As in any science, economists build math models of how things work. The problem is, there are many models for many contexts. How to define, which one is an appropriate in given circumstances? Here is where the econometricians help, because econometrics helps to discriminate between working and non-working models. There are different ways to show it: with (the now so popular) quasi-experiments, you show that the (hopefully causal) link either exists or does not and its magnitude = $\beta_i$. Now, what if your data does not fit into the shoes of the approach and doing an experiment is impossible? You can go for structural estimation You say: &quot;Hey! Let's assume that the model XYZ - e.g. the Cobb-Douglas production function - works. If this is true, what would be the estimated parameters?&quot; So you take your non-experimental data and forcefully put them into the model you have and estimate the parameters. How does it help to establish the &quot;truth&quot;? You look at the parameters and try to understand how reasonable they are. For instance, if you investigated the parameters of the Cobb-Douglas production ($Y = AK^\alpha L^{1-\alpha}$ s.t. $\alpha &amp;lt; 1$) function but your coefficients for the log-log regressions are $\beta = [13, 0.8, 1.5]$ (the numbers are absolutely fictional) then you have a reason to conclude that the model does not fit the context (maybe the industry) you are studying because you got $\beta_2 = (1 - \alpha) = 1.5 &amp;gt; 0$. Nonsense, right? Maybe, because you can blame data, the fact that you observe the equilibrium outcomes and omitted variable bias. But it makes you &lt;em&gt;think&lt;/em&gt; in both directions: anything wrong with the theory? anything wrong with my econometric model? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;People in Macro and IO frequently follow the approach (their tools differ though) because one has limited abilities to experiment in the field. Otherwise, when you &lt;em&gt;do&lt;/em&gt; follow the prescriptions of the quasi-experimental literature, you have investigate only a little subset of problems, which are crucial for our understanding of how economies work. This is in my opinion the main point of the Deaton's &lt;a href=&quot;https://www.princeton.edu/~deaton/downloads/Instruments_of_Development.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;critique&lt;/a&gt; with respect to the quasi-experimental approach to the causal inference. It turns researchers into people, who are looking for a problem that fits the tool and care about the context in asmuch as randomization is credible without digging into the field for real. They can &lt;em&gt;publish&lt;/em&gt; studies on labor economics, make conclusions about political economy, analyze sports data and evaluate development policies in poor countries all at the same time and do not care about the underlying mechanisms. The quasi-experimentalist don't care about the econometric model as long as randomization works. Maybe the true relationship is linear, maybe not. But when instruments are strong and you use the right words in the section on identification strategy, it does not matter for the publication? This is probably not that bad per se, but Deaton is worried that the approach tell little about which models work and what are the values of the &lt;em&gt;fundamental&lt;/em&gt; parameters (Check the &lt;a href=&quot;https://ideas.repec.org/p/nbr/nberwo/14896.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;response&lt;/a&gt; of Imbens though. Both things are good readings). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why are the &lt;em&gt;parameters&lt;/em&gt; important? Let me give an analogy from physics (where my knowledge is limited by my high school classes). In physics you measure the things, make experiments and obtain the coefficients. Fine, now we want to make a prediction about how fast the stone falls in a new place. The natural appoach is to use the previously obtained parameter estimates to predict how fast a stone falls from a certain distance in a &lt;em&gt;new&lt;/em&gt; environment. If you know how the new environment differs from the other one (defined by the &lt;strong&gt;model&lt;/strong&gt;!) you can use the coefficients you got, plug them into a model and get a credible prediction. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In economics, the values you get from the quasi-experiments won't help you to do the same thing. Think of a development program the World Bank started in Eastern Europe and want to apply in South Africa. Assume you had a credible inference with a super-fancy RDD strategy. Fine, you got your super-significant $\beta_i$. It is clear though that the impact of development program in Eastern Europe won't be the same as in South Africa because the context (environment) differs. So using the $\beta_i$ directly won't work. But can't we just somehow adjust the values and make a reasonable prediction? Well, since we don't know what on Earth the $\beta_i$ really is and how two models really differ, we don't know what kind of transformation to the $\beta$ we need to apply. So we know something for Eastern Europe but cannot use the numbers for other places. That's a pity right? Cause you did a good job, but cannot generalize it's results. Structural econometrics can be explicit on what the coefficients - in terms of the model - mean and how to use the values when you transfer them to another environment. The price of it are stricter assumptions on the relationship between the variables and the structure you - as a modeller - impose on the error term.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;c) In my opinion, machine learning is a valuable tool to gather the previously unavailable data and test things, which we could not test before. A good example is the current stream of papers on protests and political economy. With internet you get access to a lot of unstructured information. The ability to extract it using the machine learning techniques enables you, for instance, to evaluate the sentiments of the electorate and how it affects future political outcomes. So in a sense ML is a good tool to save your time to create datasets to study novel problems or tackle the omitted-variable bias (since now you can quantify things, which remained unmeasured - and staying part of an error term - before).&lt;/p&gt;&#xA;" OwnerUserId="14950" LastActivityDate="2018-01-26T22:47:08.483" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20292" PostTypeId="2" ParentId="20270" CreationDate="2018-01-27T00:39:18.207" Score="2" Body="&lt;p&gt;You can calculate the total social surplus (= CS + PS) in this equilibrium and compare it to the social surplus in the efficient allocation of cars. &lt;/p&gt;&#xA;&#xA;&lt;h1&gt;Equilibrium allocation&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;The equilibrium (under asymmetric information) has price equal to $12000$. Thus, in the lemon's market,&#xA;\begin{align}&#xA;CS_L&amp;amp;=(8000-12000)\times1000=-4000000\\&#xA;PS_L&amp;amp;=\frac12\times(12000-2000)\times1000=5000000.&#xA;\end{align}&#xA;Total social surplus in the lemon's market is &#xA;\begin{equation}&#xA;TS_L=CS_L+PS_L=1000000.&#xA;\end{equation}&#xA;In the plum's market, &#xA;\begin{align}&#xA;CS_P&amp;amp;=(16000-12000)\times400=1600000\\&#xA;PS_P&amp;amp;=\frac12\times(12000-4000)\times400=1600000.&#xA;\end{align}&#xA;Total social surplus in the lemon's market is &#xA;\begin{equation}&#xA;TS_P=CS_P+PS_P=3200000.&#xA;\end{equation}&#xA;Joint surplus from the two markets: &#xA;\begin{equation}&#xA;TS=TS_L+TS_P=4200000.&#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;h1&gt;Efficient allocation&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;Efficiency occurs when lemons are priced at $8000$ and plums at $16000$. Note that in both markets, since demand is perfectly elastic, consumer surplus is zero at the efficient allocation. So total surplus is the same as producer surplus. &#xA;\begin{align}&#xA;TS_L^*&amp;amp;=\frac12\times(8000-2000)\times600=1800000\\&#xA;TS_P^*&amp;amp;=\frac12\times(16000-4000)\times600=3600000\\&#xA;TS^*&amp;amp;=TS_L^*+TS_P^*=5400000.&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;The gap between $TS^*$ and $TS$ is the DWL. The inefficiency arises from the fact that, in equilibrium (with asymm info), some cars are in the wrong hands: the last 400 lemons sold and the potential 200 plums that were unsold. &lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2018-01-27T00:39:18.207" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20293" PostTypeId="2" ParentId="6118" CreationDate="2018-01-27T01:00:44.140" Score="0" Body="&lt;p&gt;A useful way to think about the NA assumption is to conceptualize it as a very strong constraint on equations of a given model. It has been shown that NA unifies not only many theories of financial economics (like the Modigliani-Miller theorem, cash flow valuation, options and asset pricing, among others), but also game theory and decision theory. For references, see O. Varela, Arbitrage in General Equilibrium, (2012) 3 Modern Economy 396 and R.F. Nau, K.F. McCardle, Arbitrage, Rationality, and Equilibrium, (1991) 31 Theory and Decision 199.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Those constraints imply, among others, the existence of general equilibrium and, perhaps more importantly, of a positive linear map that prices &lt;em&gt;all&lt;/em&gt; assets, including those that are not traded (!). The proof of this last implication was given in by Dybvig and Ross in (1987) New Palgrave: A Dictionary of Economics, volume 1, J. Eatwell, M. Milgate, P. Newman (eds).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This map, I think, helps to intuitively explain how NA is connected with EMH. If the market is able to price any and all assets, even those that are going to be traded only in the future, it must be strongly efficient in the sense of Fama. Stated more precisely, with perfect information, arbitrage-free prices maximize the amount of information in the economy. Traditional general equilibrium analysis deals with markets that are efficient in this sense. For a precise exposition, see N. Kuksin, General Equilibrium: Arbitrage and Information, Centre for Economic Reform and Transformation Discussion Paper 2007/01.&lt;/p&gt;&#xA;" OwnerUserId="16054" LastActivityDate="2018-01-27T01:00:44.140" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20294" PostTypeId="2" ParentId="125" CreationDate="2018-01-27T01:19:54.200" Score="0" Body="&lt;p&gt;The simplest and most persuasive argument against REH is that it assumes that &quot;the market&quot; can &lt;em&gt;predict the future&lt;/em&gt; (literally). There is no difference between subjective and objective expectations in the long run, because subjective expectations converge to objective expectations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A more theoretically grounded reason is due to game theorists. It has been demonstrated that when individuals follow rational choice theory, economic models that assume the REH yield results that are inconsistent with the REH whenever at least one agent has non-rational expectations. See &lt;a href=&quot;http://papers.tinbergen.nl/06041.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;M.C.W. Janssen, Microfoundations, Tinbergen Institute Discussion Paper (TI 2006-041/1)&lt;/a&gt; for literature.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, although others have argued that REH is only about &quot;the market&quot; (aggregate) and not about the individuals, if we allow &lt;em&gt;any&lt;/em&gt; individual to have non-rational expectations, the model becomes inconsistent with rational choice theory. In this sense RE is all or nothing - either REH holds and all individuals have RE or REH does not hold and only some individuals have RE. Unless, of course, we are willing to venture into the land of heuristics, bounded rationality etc. to salvage REH.&lt;/p&gt;&#xA;" OwnerUserId="16054" LastActivityDate="2018-01-27T01:19:54.200" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20296" PostTypeId="2" ParentId="125" CreationDate="2018-01-27T04:57:40.160" Score="2" Body="&lt;p&gt;One of the challenges to rational expectations is that it must be the case that the first moment exists for the variable of interest.  This cannot be the case either for equity or equity-like investments, or economic growth.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The assumption is that the marginal expectation, or possibly the average expectation is equal to the true value at some limit.  For some equations, such as $x_{t+1}=Rx_t+\varepsilon_{t+1}, R&amp;gt;1$ then while the maximum likelihood estimator and the mvue is the least squares estimator, the test statistic for $\hat{R}-R$ is the Cauchy distribution which has no mean.  See&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;White, J.S. (1958) The Limiting Distribution of the Serial Correlation Coefficient in the Explosive Case. The Annals of Mathematical Statistics, 29, 1188-1197&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;or &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Harris, D.E.(2017) The Distribution of Returns. Journal of Mathematical Finance, 7, 769-804.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;As a consequence, if it is true that $R$ is truly known with perfect certainty by all actors except the economist measuring the behavior of $x_{t+1}$, then the economist has no test that can ever be performed validly to determine whether the hypothesis is either true or false because the statistic is the mean of a distribution that notoriously has no mean.  You cannot accept or reject any null hypothesis because there is no power to test the hypothesis in the first place, regardless of sample size including having an infinite sample.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the Harris paper above, the equation does have a Bayesian solution, but that rejects the rational expectations model as no Bayesian solution with a proper prior is unbiased.  R must be greater than one as who would invest money if they believed the future would be worse tomorrow so all models with capital in it must lack a mean and a variance.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Rational expectations should hold when one is playing roulette or parimutuel horse racing.  Indeed, there is literature showing this to be the case that is quite credible.  Those models have finite variance so they behave well.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It isn't that people are biased or anything like that.  Models where $R$ is greater than one have no solution.  The White paper above is effectively a non-existence proof.  So, for macroeconomics, the best refutation is that there is a non-existence proof for the expectations.&lt;/p&gt;&#xA;" OwnerUserId="11321" LastActivityDate="2018-01-27T04:57:40.160" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20298" PostTypeId="2" ParentId="20282" CreationDate="2018-01-27T05:50:16.883" Score="0" Body="&lt;p&gt;It is not true.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$w_t=p_{1,t}q_{1,t}+p_{2,t}q_{2,t}$$&#xA;Without loss of generality, to ignore splits, $q_{x,t}\equiv{q_{x,t+\Delta{t}}}.$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$w_{t+\Delta{t}}=p_{1,t+\Delta{t}}q_{1,t+\Delta{t}}+p_{2,t+\Delta{t}}q_{2,t+\Delta{t}}.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Delta{w}=p_{1,t+\Delta{t}}q_{1,t+\Delta{t}}+p_{2,t+\Delta{t}}q_{2,t+\Delta{t}}-p_{1,t}q_{1,t}-p_{2,t}q_{2,t}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Delta{w}=\Delta{p_1}q_{1,t}+\Delta{p_2}q_{2,t}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$r=\frac{\Delta{w}}{w_t}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$r=\frac{\Delta{p_1}q_{1,t}}{p_{1,t}q_{1,t}+p_{2,t}q_{2,t}}+\frac{\Delta{p_2}q_{2,t}}{p_{1,t}q_{1,t}+p_{2,t}q_{2,t}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Except for a couple of special cases, such as bankruptcy where the assets go to zero, this is not generally true.  For example, if you made a 1000% return on a \$1 investment and a 1% return on a \$100,000,000 then clearly the returns are not additive.&lt;/p&gt;&#xA;" OwnerUserId="11321" LastActivityDate="2018-01-27T05:50:16.883" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20299" PostTypeId="2" ParentId="20243" CreationDate="2018-01-27T06:22:59.687" Score="2" Body="&lt;p&gt;@ThisIsNoZaku is correct, but I thought I should explain the mechanism.  When you have a tax asset, you were required to pay a tax by the taxing authority before GAAP says the income happened.  A tax asset, in GAAP terms, is a prepaid liability.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When the tax rates fell and the income was realized, the prepaid tax cannot be recovered.  It is gone for good.  The tax is extinguished by the prepayment at the old tax levels, but GAAP records a lower tax due than was paid.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In banking, a good example is the loan loss reserve.  For GAAP purposes it is a write-down of assets.  The tax code does not allow a deduction for this so you pay the tax as if no losses will ever happen.  If a loss does happen, it is deductible.  Effectively, that payment is a prepayment because expected losses are expected to happen and the firm was overtaxed at the old rate.  Now, let us imagine a loss happens.  It is deductible but at a much lower rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let us imagine a portfolio of \$100,000 with a \$1,000 loan loss reserve and income of \$10,000.  For GAAP purposes, pre-tax income was $\$10,000-\$1000=\$9000$ with taxes of $\$3,000$.  For tax purposes, the income was $\$10,000$ with actual taxes of $\$3333$.  This creates a Tax Asset of $\$333$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The next year the tax law changes and there is a loan loss of $\$1,000$.  The actual tax savings because the rate lowered was $\$200$ instead of the anticipated $\$333$.  For GAAP purposes the $\$133$ needs to be written off.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In practice, this is a real, non-deductible cash loss, but one that happened in a prior year.&lt;/p&gt;&#xA;" OwnerUserId="11321" LastActivityDate="2018-01-27T06:22:59.687" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20300" PostTypeId="1" CreationDate="2018-01-27T08:19:49.877" Score="2" ViewCount="43" Body="&lt;p&gt;The consumption elasticity of substitution  (ES) is the ES between different consumption goods.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The production ES is the ES between factors of production.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My question is: are there any serious empirical studies of the numerical values of these elasticities, and if so, where can I find them?&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="11146" LastEditorUserId="11146" LastEditDate="2018-01-27T08:48:42.983" LastActivityDate="2018-01-31T19:50:16.770" Title="Empirical measurements of consumption and production elasticity of substitution?" Tags="&lt;elasticity-of-substituion&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20301" PostTypeId="1" CreationDate="2018-01-27T09:05:47.083" Score="2" ViewCount="272" Body="&lt;p&gt;I am trying to find Nash Equilibrium of an auction with two bidders in which the highest bidder wins the object but both bidders pay the losing bid. Here every bidder follows the same bidding strategy β which is a strictly increasing and differentiable map from values to bids.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am unable to find the Nash equilibrium of the game. Can someone help me with this? Is this some kind of standard Auction?&lt;/p&gt;&#xA;" OwnerUserId="16057" LastActivityDate="2018-01-27T13:06:38.673" Title="Nash Equilibrium in 2 bidder auction" Tags="&lt;game-theory&gt;&lt;nash-equilibrium&gt;&lt;auctions&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20302" PostTypeId="2" ParentId="20290" CreationDate="2018-01-27T10:37:01.750" Score="1" Body="&lt;p&gt;I believe there is no comprehensive source of the information collected in a standardized way that you are looking for.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you want to have info on a single company only, I guess your best bet is to look at the companies' annual reports. Companies disclose a lot of information about their operations there.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some newspapers certainly did investigations on the topic and collected (spuriously, I guess) some info on that. Try to check the Wall Street Journal, the Financial Times and the Economist for the starter. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you look for the aggregated statistics by countries, try to search the web-site www.statista.com and the works done by scientists like Gabaix and Branco Milanovic. They both did much of empirical work in inequality and could gather much info on that. No guarantee they published their datasets free of charge.&lt;/p&gt;&#xA;" OwnerUserId="14950" LastActivityDate="2018-01-27T10:37:01.750" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20304" PostTypeId="2" ParentId="20301" CreationDate="2018-01-27T13:00:44.313" Score="3" Body="&lt;p&gt;Assuming the auction has a pure strategy equilibrium, we can set up the problem as follows:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Each bidder has a value $v_i\sim F$ on support $[\underline{v},\overline{v}]$. The symmetric equilibrium, we posit, is an increasing continuous function $b(v)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, imagine bidder $i$ bids &lt;em&gt;as if&lt;/em&gt; his value were $\widetilde{v}$. Then he wins iff $v_j&amp;lt;\widetilde{v}$ and $i$'s expected payoff is therefore&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U_i=-[1-F(\widetilde{v})]b(\widetilde{v})+\int_0^{\widetilde{v}}\! \left(v_i-b(v_j)\right)F'(v_j)\,dv_j$$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first term is the payoff if $i$ loses (he then pays his own bid, which is $b(\widetilde{v})$ sinc $i$ is using $\widetilde{v}$'s bidding strategy). The second term is the payoff if he wins (he pays his rival's bid, provided his rival's value is less than $\widetilde{v}$).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now we compute the best $\widetilde{v}$ for $i$ to choose by computing a first-order condition:&#xA;$$\frac{\partial U_i}{\partial \widetilde{v}}=-[1-F(\widetilde{v})] b'(\widetilde{v})+v F'(\widetilde{v})=0.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We know that, in equilibrium, it must be optimal for $i$ to choose $\widetilde{v}=v_i$ (i.e., it must be a best response for $i$ to use his intended strategy rather than deviate to someone else's strategy):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$-[1-F(v)] b'(v)+v F'(v)=0.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus,&#xA;$$b(v)=b(\underline{v})+\int_{\underline{v}}^v\!\frac{xF'(x)}{1-F(x)}\,dx.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can check that $$b'(v)=\frac{vF'(v)}{1-F(v)}&amp;gt;0$$ as required. All we need is a boundary condition to pin-down $b(\underline{v})$. For example, we might think it natural that $b(\underline{v})=0$ because a $\underline{v}$ type knows he can never win the auction.&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2018-01-27T13:06:38.673" LastActivityDate="2018-01-27T13:06:38.673" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20305" PostTypeId="1" AcceptedAnswerId="20306" CreationDate="2018-01-27T13:14:25.517" Score="4" ViewCount="620" Body="&lt;p&gt;I'm aware that the fed controls the supply of money by contracting and expanding through permanent and temporary open market operations. Consisting of purchasing Treasury securities or through repos. These are sold primarily to primary dealers I  derstand but also to other organizations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can someone explain how the interest that is paid is set during auctions? Additionally it seems that the securities alone can not introduce money but through the interest paid on them?&lt;/p&gt;&#xA;" OwnerUserId="14431" LastActivityDate="2018-01-27T14:09:32.100" Title="how is new money actually introduced in the United States?" Tags="&lt;federal-reserve&gt;" AnswerCount="1" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20306" PostTypeId="2" ParentId="20305" CreationDate="2018-01-27T14:09:32.100" Score="7" Body="&lt;p&gt;The Treasury auction process is described here: &lt;a href=&quot;https://www.treasurydirect.gov/instit/auctfund/work/work.htm&quot; rel=&quot;noreferrer&quot;&gt;Treasury Direct&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Bidders can either enter competitive or non-competitive bids. Non-competitive bids are limited in size; the price is set by the competitive bids, which generally come from Primary Dealers (that are obliged to bid).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a simplified example of the bidding process, assume that the government announces an auction for $2 million in 30-year bonds. (Note that this example ignores bidding size limits.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are three bids:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;a bid for \$1 million at 4% from A&lt;/li&gt;&#xA;&lt;li&gt;a bid for \$1 million at 4.25% from B&lt;/li&gt;&#xA;&lt;li&gt;a bid for \$1 million at 4.50% from C.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The government looks at the bids (starting with the lowest yields) until the amounts cover the amount to be issued. The highest winning bid yield is used for all. In this case, that means that A and B get filled with a $1 million in bonds at 4.25%, and C gets nothing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The connection to money is somewhat complicated. The issuance of the bonds reduces the money supply - the bidders have to pay for the bond. The coupon and principal payments will increase the money supply.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2018-01-27T14:09:32.100" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20308" PostTypeId="1" AcceptedAnswerId="20317" CreationDate="2018-01-27T19:28:54.980" Score="2" ViewCount="173" Body="&lt;p&gt;&lt;strong&gt;Introduction&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Wage ratio caps prevent the wages of all employees from exceeding a maximum of a fixed multiple of the wages of the lowest paid employee in a given institution.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Wage ratio caps can apply to both the public and private sector. In some places they have been &lt;a href=&quot;http://www.wagemark.org/registry/&quot; rel=&quot;nofollow noreferrer&quot;&gt;introduced&lt;/a&gt; as company policy. Though they are yet to have been implemented, they have also been &lt;a href=&quot;https://en.wikipedia.org/wiki/Wage_ratio&quot; rel=&quot;nofollow noreferrer&quot;&gt;proposed as legislation&lt;/a&gt; in some countries.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Question&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What effect does a wage ratio cap have on the efficency of allocation of labour?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm having difficulty with comparing this to other policies which directly represent &lt;a href=&quot;https://en.wikipedia.org/wiki/Price_ceiling&quot; rel=&quot;nofollow noreferrer&quot;&gt;price ceilings&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I see one main difference with pay ratios: companies can always compete to provide high pay for their executives. A company can always offer a more competitive wage for its executives by paying its lowest earning workers more. This is different to price controls like a &lt;a href=&quot;https://en.wikipedia.org/wiki/Rent_regulation&quot; rel=&quot;nofollow noreferrer&quot;&gt;rent control&lt;/a&gt;, where a landlord does not have access to a lever which raises the rent they can charge.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would accept an answer that can show that the policy has the same effects as a price ceiling, but I'd also like to see explanation of the consequences for the labour market.&lt;/p&gt;&#xA;" OwnerUserId="16061" LastEditorUserId="16061" LastEditDate="2018-01-29T01:03:54.197" LastActivityDate="2018-01-29T01:03:54.197" Title="What effect does a wage ratio cap have on the efficency of allocation of labour?" Tags="&lt;microeconomics&gt;&lt;labor-economics&gt;&lt;political-economy&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="20310" PostTypeId="2" ParentId="20232" CreationDate="2018-01-27T21:05:51.200" Score="0" Body="&lt;h2&gt;Legal perspective&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Big companies have no reluctance is taking other people ideas:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;usually legal systems does not provide protection for ideas themselves,&lt;/li&gt;&#xA;&lt;li&gt;even if an idea is protected by intellectual protection rights (IP, as a side note please consider long procedure for application for patents, etc.), litigation is costly and long-lasting. You will have significantly smaller resources to be able to protect your idea (even if you win, by the time of the court ruling the market will be taken).&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Thus, an idea is not purchasable for big companies. IP, prototype or a small company with IP is.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Business perspective&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Even if you will have purchasable IP/prototype/company, big companies still decide which is the most beneficial: to buy or to reproduce. Most often the latter is cheaper. This is because if a larger company can, as you say, remove you from the market very easily, it probably will. If you are considering building your own company, I suggest seeing &lt;a href=&quot;http://www.startupsecrets.com/game-changing-business-models&quot; rel=&quot;nofollow noreferrer&quot;&gt;Michael Skok’s framework&lt;/a&gt;, especially chapter ‘Disruptive business models’ and ‘Getting Behind the Perfect Investor Pitch’. In short: if there are no technical barriers for possible competition, make a business model impossible to be replicated by competitors (real life example: Netscape market position was taken by Microsoft’s Internet Explorer because Microsoft could sell IE with every copy of Windows; Microsoft’s lost huge part of the market to the Google, because Google's business model comprised of delivering free products to consumers and profit based on advertisements).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Please also consider that creating a new market takes not shorter than 3 years from the release of the product, sometimes even 7 years (source: S.Blank, B.Dorf, The Startup Owner's Manual).&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;If you are interested in methods of evaluation return of investment&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;However, if you are interested how big companies evaluate new ideas for investment (usually for development by themselves), most important factors are soft criteria. Those depend on the project, please find some exemples of such criteria below:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;strong&gt;technology&lt;/strong&gt; (in short: is it the way to go?)&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;competition&lt;/strong&gt; (the questions you’ve described can be good examples of some of questions, which companies have to answer before going into investment)&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;missed opportunities&lt;/strong&gt; (what would be the better investment, which the company could miss if it will engage in the project at hand?)&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;profitability&lt;/strong&gt; in general (how much the value of the company will increase as a result of the investment? when the project will yield return?)&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;advisability and viability&lt;/strong&gt; (in general: labour-, capital- and resource- intensity of the project)&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;means&lt;/strong&gt; - what is the funding structure (who is bringing their financial contribution? will the gathered means be sufficient?)&lt;/li&gt;&#xA;&lt;li&gt;in cases when capital is to be transferred to an outside entity (e.g. while investing in smaller company) - &lt;strong&gt;credibility&lt;/strong&gt; of the team, which will lead development works (can they deliver? what were their previous projects? what is their commitment to the project?),&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;‘extras’&lt;/strong&gt; (additional cost-, income-, manufacturing- and/or public image- advantages)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;There are many interesting mathematical models to calculate return on investment (ROI, ROE, Payback Period, Accounting Rate of Return, Net Present Value, Internal Rate of Return etc.) but these are only used after all the soft questions can be answered positively.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope it helps. I intended to make a small comment, but ended with few paragraph answer :)&lt;/p&gt;&#xA;" OwnerUserId="15240" LastEditorUserId="15240" LastEditDate="2018-01-29T00:14:59.660" LastActivityDate="2018-01-29T00:14:59.660" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="20312" PostTypeId="1" CreationDate="2018-01-28T03:48:28.637" Score="6" ViewCount="430" Body="&lt;p&gt;I was somewhat surprised by the following claims by Gregory Clark in &lt;a href=&quot;https://books.google.com/books?id=i-PLg2PsNd4C&amp;amp;pg=PA1&amp;amp;dq=%22the%20average%20person%20in%20the%20world%20of%201800%20was%20no%20better%20off%20than%20the%20average%20person%20of%20100,000%20BC.%22&quot; rel=&quot;noreferrer&quot;&gt;&lt;em&gt;A Farewell to Alms, A Brief Economic History of the World&lt;/em&gt; (2007)&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;the average person in the world of 1800 was no better off than the&#xA;  average person of 100,000 BC. Indeed in 1800 the bulk of the world’s population was poorer than their remote ancestors. The lucky denizens of wealthy societies such as eighteenth-century England or the Netherlands managed a material lifestyle equivalent to that of the Stone Age. But the vast swath of humanity in East and South Asia, particularly in China and Japan, eked out a living under conditions probably significantly poorer than those of cavemen. ... for the majority of the English as late as 1813 conditions were no better than for their naked ancestors of the African savannah.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So, would most economic historians agree with the above claims? Or have any openly disagreed with the above claims? &lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2018-01-29T21:51:45.800" Title="Was the average person no better off in 1800 than in 100,000 BC?" Tags="&lt;economic-history&gt;" AnswerCount="1" CommentCount="3" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="20313" PostTypeId="1" AcceptedAnswerId="20380" CreationDate="2018-01-28T07:30:14.000" Score="3" ViewCount="247" Body="&lt;p&gt;I run a large Massively Multiplayer Online (MMO) gaming community and one of the services we’ve try to provide to our members is crafting. One of the challenges of this has been determining the price of crafted items when we sell to our membership.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;While a lot of the time the materials that we use to craft items is donated to us; there a plenty of occasions were we run short or need rare materials that make up a bulk of the cost of an item. When this happens, we have to buy them from other players at the market rate in-game.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a lot of MMOs, the price of the crafting materials can be higher than the crafted item on the market. This happens for several different reasons. Crafting material is necessary to “level” a character’s crafting ability meaning the materials are more valuable than the end result.  Crafting is chance based and some outcomes are less desirable so the non-desirable results are sold to recoup as much cost as possible to fund another chance.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On top of all this, we want to offer our crafted items at a discounted rate than what our membership can get on the open market. Determining a price that keeps our profit margins at least breaking even with our losses have been difficult. In the past, we’ve tried basing the price on the material price with a base discount, but a lot of times this doesn’t adequately cover our costs or beat the prices on the market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How can we determine a price for an item that takes into account our supply of donated materials and materials we have to purchase? Is there a standard method of tracking costs in this situation?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;I'm a gamer and a web developer, not a economist so some help here would be appreciated. Thanks!&lt;/em&gt;&lt;/p&gt;&#xA;" OwnerUserId="16067" LastEditorUserId="16067" LastEditDate="2018-01-29T02:39:11.940" LastActivityDate="2018-02-04T22:47:49.443" Title="How to track costs and calculate price?" Tags="&lt;cost&gt;&lt;price&gt;" AnswerCount="4" CommentCount="6" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="20315" PostTypeId="1" CreationDate="2018-01-28T17:16:12.107" Score="2" ViewCount="411" Body="&lt;p&gt;My intuition is that as the price level falls, cost of inputs is falling for suppliers and their output increases. More people are then employed to increase production - correct? &lt;/p&gt;&#xA;" OwnerUserId="5743" LastActivityDate="2019-08-31T05:02:10.323" Title="What impact would falling oil prices have on the natural rate of unemployment?" Tags="&lt;labor-economics&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="20317" PostTypeId="2" ParentId="20308" CreationDate="2018-01-29T00:02:47.073" Score="0" Body="&lt;p&gt;The effects can be quite different from a price (wage) ceiling. The baseline case where you have homogeneous, inelastically supplied labor that's free to move across different &quot;types&quot; of work produces no supply response in reaction to a wage ceiling, but leads to complete specialization in one type of labor or another in the case of enforced bounds on relative wages which rule out the competitive market allocation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For companies, enforcing internal wage ceilings may be a way of trying to address problems of corporate governance - the shareholders may be trying to address a principal-agent problem by getting such a policy instituted within the company. In that case, it may well improve efficiency, but it's hard to say if there would be a significant impact on the supply of executives available for corporate management.&lt;/p&gt;&#xA;" OwnerUserId="13743" LastActivityDate="2018-01-29T00:02:47.073" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20318" PostTypeId="2" ParentId="20315" CreationDate="2018-01-29T00:18:39.077" Score="0" Body="&lt;p&gt;Falling oil prices may or may not lead to a lower price level depending on how you're measuring the price level and what measure of inflation the monetary authority is trying to target. Is the relevant inflation figure the GDP deflator? The PCE deflator? The CPI? The &quot;core&quot; CPI?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ignoring any nominal effects of falling oil prices if they exist at all, the mantra here is &quot;never reason from a price change&quot;. &lt;em&gt;Why&lt;/em&gt; is the price of oil falling? Is it because we've invented a new technology which allows us to synthesize oil at low cost, or is it because there was a recession in China which is leading to lower global demand? In the latter case, clearly the experience of the US and of China would be different.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There's also the fact that higher productivity of the kind that would be caused by a new technology allowing easier production of oil may not necessarily translate into higher employment. In general, there are competing income and substitution effects in these situations - as you become wealthier you want to work less, but as wages are higher you want to work more. It's not clear a priori which effect would dominate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, &quot;unemployment&quot; as used in &quot;natural rate of unemployment&quot; is meant to be a proxy for output gaps - if unemployment is higher than the &quot;natural rate&quot;, then there's a negative output gap, and vice versa. In down-to-earth terms, we define &quot;unemployment&quot; as the state of not working but actively looking for a job, and the unemployment rate is the ratio of the number of such people to the size of the labor force. A change in the &lt;em&gt;employment rate&lt;/em&gt; (the employment-to-population or employment-to-working age persons ratio) need not have any effect on the &lt;em&gt;unemployment rate&lt;/em&gt;. Unemployment in a time of negligible output gaps is mostly the result of search frictions in the labor market. If a technological development made it easier to match potential employees with employers we would expect the &quot;natural rate of unemployment&quot; to fall, but it's not clear if or how an oil price change would lead to such an outcome.&lt;/p&gt;&#xA;" OwnerUserId="13743" LastActivityDate="2018-01-29T00:18:39.077" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="20319" PostTypeId="1" CreationDate="2018-01-29T07:00:48.587" Score="-1" ViewCount="112" Body="&lt;p&gt;How can I find the stationary distribution (as t goes to infinity) of stochastic difference equations in the form:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$x_{t+1} = a*x_t + b*N(0,1)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where N(0,1) is a standard normal pdf&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have numerical results for a few examples I'm working through from notes, but I'm having trouble following the analytic derivation. There must be a simpler solution...&lt;/p&gt;&#xA;" OwnerUserId="14631" LastEditorUserId="1601" LastEditDate="2018-01-31T16:17:00.267" LastActivityDate="2018-01-31T16:17:00.267" Title="Stochastic process difference equation: stationary distribution" Tags="&lt;econometrics&gt;&lt;statistics&gt;&lt;stochastic-processes&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="20323" PostTypeId="2" ParentId="20282" CreationDate="2018-01-29T14:37:42.777" Score="1" Body="&lt;p&gt;We have a portfolio of two assets, with prices $P_1(0), P_2(0)$ at $t=1$. In the next period, their prices are $P_1(1), P_2(1)$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The portfolio market value at $t=0$ is $V(0) = W_1 P_1(0) + W_2 P_2(0)$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The portfolio weights $\omega_i$ (for $i =1,2$) are:&#xA;$$&#xA;\omega_i = \frac{W_i P_i(0)}{W_1 P_1(0) + W_2 P_2(0)}.&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(We can easily see that $\omega_1 + \omega_2 = 1$.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The return for an asset $R_i$ is given by:&#xA;$$&#xA;R_i = \frac{P_i(1)}{P_i(0)} - 1.&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The market value of the portfolio $V(1)$ is equal to:&#xA;$$&#xA;V(1) = W_1 P_1(0)(1+R_1) + W_2 P_2(0) (1+R_2).&#xA;$$&#xA;Then,&#xA;$$&#xA;V(1) = (W_1 P_1(0) + W_2P_2(0))(1 + \frac{W_1P_1(0)R_1}{W_1 P_1(0) + W_2P_2(0)} +&#xA;\frac{W_2P_2(0)R_2}{W_1 P_1(0) + W_2P_2(0)}),&#xA;$$&#xA;$$&#xA;V(1) = V(0) (1 + \omega_1 R_1 + \omega_2 R_2).&#xA;$$&#xA;If we define the portfolio return $R$ as $\omega_1 R_1 + \omega_2 R_2$, then&#xA;$$&#xA;V(1) = V(0) (1 + R).&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is easier to see if we normalise prices.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2018-01-29T14:37:42.777" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20326" PostTypeId="2" ParentId="20312" CreationDate="2018-01-29T17:08:33.330" Score="8" Body="&lt;p&gt;In a detailed &lt;a href=&quot;http://faculty.econ.ucdavis.edu/faculty/gclark/Farewell%20to%20Alms/Allen_JEL_Review.pdf&quot; rel=&quot;noreferrer&quot;&gt;review&lt;/a&gt; of Clark's book, concluding that its &quot;central theses ... are contradicted by well-known evidence&quot; (p 969), &lt;a href=&quot;https://en.wikipedia.org/wiki/Robert_C._Allen&quot; rel=&quot;noreferrer&quot;&gt;Robert Allen&lt;/a&gt; addresses the claim about 1800 and 100,000 BC in a section headed &quot;Malthus in the Very Long Run&quot; (pp 951-5). His criticisms of Clark include:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;That he has no evidence of living standards in 100,000 BC, but relies on an assumption that living standards at that time were the same as those of modern foragers (p 951).&lt;/li&gt;&#xA;&lt;li&gt;That he draws inferences about diet (a key aspect of living standards) from male heights (from skeletons) but ignores evidence from female heights and from other skeletal features, which some have claimed to support different conclusions (p 952).&lt;/li&gt;&#xA;&lt;li&gt;That his argument that humans of 100,000 BC had more leisure time (another aspect of living standards) because of their forager life-style is not supported by skeletal evidence comparing (more recent) foragers and agriculturalists (p 955).&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Some other criticisms in this section are hard to summarise briefly. In conclusion of this section, Allen states: &quot;Economic growth before the Industrial Revolution was not rapid, but it did generate a higher standard of living for most people than that enjoyed by ancient foragers&quot;.&lt;/p&gt;&#xA;" OwnerUserId="1417" LastEditorUserId="1417" LastEditDate="2018-01-29T21:51:45.800" LastActivityDate="2018-01-29T21:51:45.800" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20327" PostTypeId="1" AcceptedAnswerId="20329" CreationDate="2018-01-29T19:15:03.530" Score="4" ViewCount="45" Body="&lt;p&gt;I am using the Williamson Macroeconomics textbook to look over a chapter on Monetary Policy and Banking (Chapter 12, 5th Edition).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a bit of context, the author specifices the government budget constraint as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$PG+\left(1+R^{-}\right)B^{-}=PT+B+M-M^{-}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;wherein it can be understood as a flow budget constraint. The term $PG$  is the amount in dollars of government purchases, and the term $(1+R^{-})B^{-}$  is the payment due on outstanding government debt. The LHS therefore corresponds to government outlays. The RHS consists in nominal terms, government recepits. The first term $PT$ measures nominal taxes, $B$ denotes government bonds, and the final term $M-M^{-}$ deenotes change in nominal money supply. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question relates to what would happen the nominal money supply increased (the last term $M-M^{-}$ increased). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The explanation on page 455 is as follows: because both sides have to be equal, and one part of the RHS has increased, something has to give way. That means either $PT$ has decreased or $B$ has decreased or both to preserve equality. In the case that $PT$ does not change, the author explains that the government could reduce the quantity of bonds $B$ that it issues during the current period. This is an &lt;strong&gt;open market operation&lt;/strong&gt; wherein the fiscal authority issues debt, and the monetary authority purchases some of this debt by issuing new money. In essence, the author argues that $M-M^{-}$ increases as $B$ decreases. This does not make sense to me, however. If the fiscal authority were to issue more debt, would $B$ not increase? That is, the quantity of bonds in the market would go up in this open market purchase. Am I missing something obvious?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Many thanks!&lt;/p&gt;&#xA;" OwnerUserId="5233" LastActivityDate="2018-01-30T00:23:54.787" Title="Question regarding to Government Debt in Williamson Textbook" Tags="&lt;macroeconomics&gt;&lt;government-debt&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="20329" PostTypeId="2" ParentId="20327" CreationDate="2018-01-30T00:23:54.787" Score="1" Body="&lt;p&gt;Given the clarification from the OP in the comments, there appears to be a mix-up here.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We learn that the author explains as follows: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;This is an &lt;strong&gt;open market operation&lt;/strong&gt; wherein the fiscal authority&#xA;  issues debt, and the monetary authority purchases some of this debt by&#xA;  issuing new money.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This sentence describes a situation where the monetary authority is separate from government. But if this were so, &lt;em&gt;we could not have in the same budget constraint both inflows from bond issue &lt;strong&gt;and&lt;/strong&gt; from increase of the money supply&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Namely, the budget constraint describes a different situation, one where the government &lt;em&gt;is a single entity&lt;/em&gt; that has three options to finance itself:&lt;br&gt;&#xA;1) Collect Taxes from the private sector&lt;br&gt;&#xA;2) Issue bonds &lt;em&gt;that are purchased by the private sector&lt;/em&gt;&lt;br&gt;&#xA;3) Issue new money by fiat&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In such a case, with fixed outlays in the left-hand side, more money issuance allows indeed for less debt.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I note the the author writes &quot;the monetary authority purchases &lt;em&gt;some&lt;/em&gt; of this debt&quot;. This complicates things a bit, it means that part of the debt is bought by the private sector, and then we could have a partial substitution effect, but then we would have to distinguish between &quot;debt held by the monetary authority&quot; and &quot;debt held by the private sector&quot;, etc.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2018-01-30T00:23:54.787" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20330" PostTypeId="1" AcceptedAnswerId="20340" CreationDate="2018-01-30T01:44:50.013" Score="5" ViewCount="429" Body="&lt;p&gt;Several users in this forum have addressed bitcoin and other cryptocurrencies as ponzi schemes. Bitcoins have several uses which could legitimate its value as a currency, but also have received massive investments in the last months, making it considered a highly speculative asset. Are there signs and information that proves that cryptocurrencies are being used as a (intentionally fraudulent) scheme, or should we consider it a speculative asset similar to other assets in economic bubbles that happened before?&lt;/p&gt;&#xA;" OwnerUserId="12304" LastActivityDate="2018-11-06T03:41:46.173" Title="Are cryptocurrencies a ponzi scheme or a bubble?" Tags="&lt;macroeconomics&gt;&lt;currency&gt;&lt;financial-markets&gt;&lt;cryptocurrency&gt;&lt;economic-bubble&gt;" AnswerCount="3" CommentCount="3" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="20333" PostTypeId="2" ParentId="20330" CreationDate="2018-01-30T02:08:29.937" Score="-3" Body="&lt;p&gt;A &lt;a href=&quot;https://en.wikipedia.org/wiki/Ponzi_scheme&quot; rel=&quot;nofollow noreferrer&quot;&gt;Ponzi Scheme&lt;/a&gt; is a fraudulent investment operation where the operator generates returns for older investors through revenue paid by new investors, rather than from legitimate business activities or profit of financial trading.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence, cryptocurrencies are not Ponzi Schemes, since this would require some central authority falsifying records to mislead investors. Cryptocurrencies are specifically designed to make this type of fraudulent activity, which relies on information asymmetry and trust in a central authority,  mathematically provably impossible.&#xA;Nobody is buying shares in an investment scheme, investors are trading an asset among themselves in the most transparent way possible (Everyone has access to an immutable public ledger, the Blockchain, containing details about every transaction that has ever occurred).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So in some sense, cryptos are the exact opposite of a Ponzi Scheme. On the other hand, one could make a case that Fractional Reserve Banking and Social Security are Ponzi Schemes. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;EDIT&lt;/strong&gt;: Other answers have suggested that fraudulent activities are not a necessary condition for a Ponzi Scheme. Other objections to my answer include my use of a non reliable source. From a legal perspective, the last word on whether something is a Ponzi Scheme lies with the Securities and Exchange Commission, whose &lt;a href=&quot;https://www.sec.gov/fast-answers/answersponzihtm.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;definition&lt;/a&gt; should therefore be considered:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;A Ponzi scheme is an investment &lt;strong&gt;fraud&lt;/strong&gt; that involves the payment of &lt;strong&gt;purported&lt;/strong&gt; returns to existing investors from funds contributed by new investors. Ponzi scheme organizers often solicit new investors by promising to invest funds in opportunities claimed to generate high returns with little or no risk. In many Ponzi schemes, the &lt;strong&gt;fraudsters&lt;/strong&gt; focus on attracting new money to make promised payments to earlier-stage investors to create the &lt;strong&gt;false appearance&lt;/strong&gt; that investors are profiting from a legitimate business.&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Furthermore, it has been suggested that a group of actors attempting to drive up the price of cryptocurrencies by engaging in leveraged buying, are effectively running a Ponzi Scheme, and therefore cryptocurrencies are a Ponzi Scheme. I strongly disagree with this claim. Apart from the fact that it does not meet the definition, it is also not a claim about cryptocurrencies but about rogue actors using crypos in an attempt to implement a Ponzi Scheme. Any arbitrary asset could be traded in this way - this is not a specific characteristic of cryptocurrencies. Such &quot;strategy&quot; qualifies as deliberately creating a bubble, (an ill-conveived undertaking, exposing the creator to ever increasing market risk), rather than running a Ponzi Scheme. &lt;/p&gt;&#xA;" OwnerUserId="15975" LastEditorUserId="15975" LastEditDate="2018-01-31T00:25:19.957" LastActivityDate="2018-01-31T00:25:19.957" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="20334" PostTypeId="2" ParentId="20319" CreationDate="2018-01-30T02:21:30.960" Score="0" Body="&lt;p&gt;If a stationary distribution exists, the time index no longer matters as t goes to infinity. Replace x_{t+1} and x_{t} by x and solve for x. What you obtain is a random variable whose distribution you can infer. In your case you get x = b/(1-a) N(0,1) which has normal distribution with mean 0 and variance (b/(1-a))^2.&lt;/p&gt;&#xA;" OwnerUserId="15975" LastActivityDate="2018-01-30T02:21:30.960" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20338" PostTypeId="1" CreationDate="2018-01-30T06:41:47.607" Score="3" ViewCount="42" Body="&lt;p&gt;Over the last fifty years U.S. average household size has declined dramatically. When making within-year comparisons of household income, it is regarded as good practice to adjust for adult-equivalent household size, often by dividing by the square root of the number of household members or the poverty level for households of that size, or by summing some weighted value of number of adults and number f children.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assuming (as I do) that this practice is appropriate, should equivalence scales also be used in making intertemporal comparisons? I am very much of two minds about this. Changes in birth control technology, divorce law, and public assistance all suggest that constraints on smaller family sizes have been relaxed. If people took advantage of that relaxation, the usual economic approach would suggest that the change is welfare-improving. On the other hand, if families are shrinking mainly because men are louts and have increased ability to shirk their family support responsibilities, then that conclusion seems insecure at best.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To put the question in more concrete terms, I am doing some work on inequality trends using the CPS, and applying an inverse square root household size adjustment to HH income. I am thinking of normalizing that adjustment with a constant so as to leave median income the same, so that it is applied within but not between years. I can not decide if that is a good idea or not. Is there a literature on this?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I find it remarkable (shocking, actually) that this forum does not have tags for family economics (that's a &lt;em&gt;field&lt;/em&gt;, for gosh sake), marriage, fertility, or any related item I could find. Or for intertemporal comparisons of utility or welfare.&lt;/p&gt;&#xA;" OwnerUserId="12668" LastEditorUserId="1601" LastEditDate="2018-01-30T06:51:33.297" LastActivityDate="2018-01-30T06:51:33.297" Title="Has the shrinking of the American household improved or diminished household welfare?" Tags="&lt;reference-request&gt;&lt;inequality&gt;&lt;welfare-economics&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20339" PostTypeId="1" CreationDate="2018-01-30T07:09:40.053" Score="1" ViewCount="2204" Body="&lt;p&gt;What are the differences between the approaches of Keynes and Real Business Cycle theorists? What are the assumptions made by both the theories?&#xA;How do they differ in their methodology? &#xA;Do they contradict each other??&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I wish to get a basic idea of the theories with a  slight bit ofrigour.&lt;/p&gt;&#xA;" OwnerUserId="13998" LastEditorUserId="13998" LastEditDate="2018-01-30T16:52:13.813" LastActivityDate="2018-01-31T07:19:27.750" Title="What are the assumptions of real business cycle theory and Keynesian theory?" Tags="&lt;new-keynesian-economics&gt;&lt;keynesian-economics&gt;&lt;business-cycles&gt;&lt;real-business-cycles&gt;&lt;keynes&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="20340" PostTypeId="2" ParentId="20330" CreationDate="2018-01-30T09:32:14.303" Score="7" Body="&lt;p&gt;In general, &quot;Ponzi schemes&quot; in the context of asset pricing refer to &quot;rational bubbles&quot;, or a failure of the transversality condition you need when passing from a flow identity to a present value identity. They are not &quot;fraudulent schemes&quot;. For instance, there can be a rational bubble on a &quot;fundamentally&quot; worthless asset in a perfect foresight world if its price grows at the real interest rate available in the broader economy. (This is actually what you're talking about, in case it's not clear to you - each investor assumes they can offload the asset at a higher price to another investor, and you push the problem of the &quot;greatest fool&quot; to infinity, which makes the assumption a rational one ex post.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there any evidence for the existence of such rational bubbles? &lt;a href=&quot;http://www.nber.org/papers/w8987.pdf&quot; rel=&quot;noreferrer&quot;&gt;Cochrane (2002)&lt;/a&gt; points out that rational bubble theory does not account for the association of &quot;bubbles&quot; with high trading volume. In a rational bubble, it is rational to &lt;em&gt;hold&lt;/em&gt; the asset in every period: there's no reason to observe high turnover along with high prices. They are also silent on the association of high prices with high volatility - in a rational bubble context, volatility (induced by shifting from one equilibrium to another) is always present, and the &lt;em&gt;choice&lt;/em&gt; of equilibrium (the fact that we're on an explosive price path) does not produce more volatility than usual. Rational bubbles appear to be a poor explanation of events that people have historically described as &quot;bubbles&quot; (and of the price behavior of cryptocurrencies).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In contrast, the convenience yield theory outlined in Cochrane (2002) and also in &lt;a href=&quot;https://johnhcochrane.blogspot.com/2017/11/bitcoin-and-bubbles.html&quot; rel=&quot;noreferrer&quot;&gt;this blog post&lt;/a&gt; seems to fit the data much better. If &quot;overvaluation&quot; is driven by a liquidity premium induced by shorting constraints and a short-term constraint on supply, then we would expect to see the standard prediction of monetary economics that high prices should be associated with high turnover. In that case, overvaluation relative to &quot;fundamentals&quot; should also require shorting constraints - in the case of dollars vs treasuries, for instance, it's illegal to print banknotes or close substitutes to money to finance a purchase of bonds, which is a kind of shorting constraint. Indeed, shorting constraints are what we see in the cryptocurrency market: BTC futures have only recently started trading on stock exchanges, and even then the &quot;electronic paper&quot; that you hold when you take the long side of a BTC futures contract is not the same thing as holding BTC directly, so what appears like a possibility to short BTC through these contracts is in fact not so. (It satisfies &quot;speculative demand&quot;, so it's possible to &quot;bet on cryptocurrencies&quot; without having to hold any, but it's not possible to use these contracts in the place of cryptocurrencies in transactions.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you want to ask whether cryptocurrencies are a bubble, then you have to define what &quot;bubble&quot; means. If it is &quot;overvaluation relative to fundamentals&quot;, then is USD a bubble? After all, it's trading at a premium relative to T-bills. If you include any convenience yield the asset may have in your definition of &quot;bubble&quot; so that USD is not one, then it's likely that cryptocurrencies are not &quot;bubbles&quot; either. It's very difficult to say anything about whether cryptocurrency valuations are &quot;justified&quot; or not by this explanation, since the convenience demand of cryptocurrencies, like of cash, has components which are not transparent. We're mostly in the dark, and I wouldn't try to outguess the market price of an asset in a circumstance where we know next to nothing about the factors which are driving the convenience demand for it.&lt;/p&gt;&#xA;" OwnerUserId="13743" LastActivityDate="2018-01-30T09:32:14.303" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="20341" PostTypeId="5" CreationDate="2018-01-30T12:50:08.513" Score="0" Body="" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2018-01-30T12:50:08.513" LastActivityDate="2018-01-30T12:50:08.513" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20342" PostTypeId="4" CreationDate="2018-01-30T12:50:08.513" Score="0" Body="Differences in resource allocations or opportunities that arise within or between countries." OwnerUserId="108" LastEditorUserId="108" LastEditDate="2018-01-30T12:50:08.513" LastActivityDate="2018-01-30T12:50:08.513" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20343" PostTypeId="5" CreationDate="2018-01-30T12:51:07.217" Score="0" Body="" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2018-01-30T12:51:07.217" LastActivityDate="2018-01-30T12:51:07.217" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20344" PostTypeId="4" CreationDate="2018-01-30T12:51:07.217" Score="0" Body="The remuneration/ price of labor, analogue to profits and rents. " OwnerUserId="108" LastEditorUserId="18167" LastEditDate="2018-09-22T09:23:11.967" LastActivityDate="2018-09-22T09:23:11.967" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="20345" PostTypeId="5" CreationDate="2018-01-30T12:52:13.293" Score="0" Body="" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2018-01-30T12:52:13.293" LastActivityDate="2018-01-30T12:52:13.293" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20346" PostTypeId="4" CreationDate="2018-01-30T12:52:13.293" Score="0" Body="Economic questions related to the United States of America, a large country located in North America." OwnerUserId="108" LastEditorUserId="108" LastEditDate="2018-01-30T12:52:13.293" LastActivityDate="2018-01-30T12:52:13.293" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20347" PostTypeId="5" CreationDate="2018-01-30T12:54:21.980" Score="0" Body="" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2018-01-30T12:54:21.980" LastActivityDate="2018-01-30T12:54:21.980" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20348" PostTypeId="4" CreationDate="2018-01-30T12:54:21.980" Score="0" Body="Questions related to the application of game theory to situations in which actions are taken sequentially." OwnerUserId="108" LastEditorUserId="108" LastEditDate="2018-01-30T12:54:21.980" LastActivityDate="2018-01-30T12:54:21.980" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20349" PostTypeId="5" CreationDate="2018-01-30T12:55:27.393" Score="0" Body="" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2018-01-30T12:55:27.393" LastActivityDate="2018-01-30T12:55:27.393" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20350" PostTypeId="4" CreationDate="2018-01-30T12:55:27.393" Score="0" Body="A situation in which a market fails to produce an efficient (i.e., welfare-maximizing) allocation." OwnerUserId="108" LastEditorUserId="108" LastEditDate="2018-01-30T12:55:27.393" LastActivityDate="2018-01-30T12:55:27.393" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20351" PostTypeId="5" CreationDate="2018-01-30T12:56:43.947" Score="0" Body="" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2018-01-30T12:56:43.947" LastActivityDate="2018-01-30T12:56:43.947" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20352" PostTypeId="4" CreationDate="2018-01-30T12:56:43.947" Score="0" Body="Situations in which different consumers pay different prices (or, more precisely, different price-cost margins)." OwnerUserId="108" LastEditorUserId="108" LastEditDate="2018-01-30T12:56:43.947" LastActivityDate="2018-01-30T12:56:43.947" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20353" PostTypeId="1" AcceptedAnswerId="20357" CreationDate="2018-01-30T14:03:42.290" Score="3" ViewCount="74" Body="&lt;p&gt;I've read that, concerning the CAPM, in equilibrium all portfolio weights are strictly positive. Why is that? You can also go short in the risk free asset right? And then you're on the right of the Tangency Portfolio. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Furthermore, I read that by definition, the MVP can contain short positions. How does this relate to my first question? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope you can help out!&lt;/p&gt;&#xA;" OwnerUserId="16093" LastActivityDate="2018-01-30T20:31:01.767" Title="Two Funds Separation &amp; CAPM" Tags="&lt;portfolio-theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20354" PostTypeId="2" ParentId="20200" CreationDate="2018-01-30T16:18:28.150" Score="3" Body="&lt;p&gt;Yes, and they don't need any &quot;unconventional&quot; policy tools to do this, all they need to do is precommit to a future path of short-term nominal interest rates which they will maintain no matter what. The reason that &lt;em&gt;in practice&lt;/em&gt; the Fed is unable to control the long end of the yield curve is because the Fed is not an institution which precommits to these kinds of policies - their policy decisions are always contingent on the information available at the date they take the decision, which means bond investors will try to forecast Fed funds rate movements not by looking at what the Fed says they will do in the future, but by forecasting the relevant macroeconomic variables that enter the Fed's decision process and thinking about how the Fed will react to what they expect will happen. Long-term bond yields reflect investors' future short-term nominal interest rate expectations, and by Fisher you may split that into inflation and real interest rates, so inflation expectations are a part of it, but they are not the whole story. Could the Fed set the entire yield curve to zero? Sure, if it could convince investors that it would maintain a zero interest rate policy for 30 years.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If government bonds bear no liquidity premium, then buying up lots of long-term debt and replacing it with short-term reserves will have no effect on long-term bond yields &lt;em&gt;given&lt;/em&gt; the short-term nominal interest rate path the Fed intends to follow in the future. If long-term debt is important for some other purpose, for instance to meet some regulatory safety requirements, as collateral in secured lending, etc. then the Fed buying up long-term government bonds may create a shortage of long-term debt, increase the liquidity premium and force long-term bond yields down, but this policy is not optimal. When the Fed tries to reduce long rates, they intend this to have a stimulative effect on the economy today; reducing yields through this kind of mechanism would instead lead to inefficiency a la Friedman's rule.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In practice, a lot of the correlation between QE announcements and bond yield movements comes from what Bernanke called the forward guidance effect: investors interpret QE as a sign of the central bank's commitment to maintain lower policy rates in the future. According to Bernanke, this effect was the primary reason for the &quot;taper tantrum&quot; in 2013, and when the Fed clarified that &quot;tapering&quot; would not mean that the Fed would start raising policy rates sooner, bond yields came back down again.&lt;/p&gt;&#xA;" OwnerUserId="13743" LastActivityDate="2018-01-30T16:18:28.150" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20355" PostTypeId="2" ParentId="20001" CreationDate="2018-01-30T16:36:22.107" Score="3" Body="&lt;p&gt;First, you made a sign error in the computations. After correcting for your error, a crucial hypothesis you miss is that $X$, the choice set, does not depend on the variable $t$ in the theorem (with the notations of the theorem). To apply the theorem properly, the interval $[0,L]$ should not depend on $L$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;A) The sign error&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\partial H}{\partial L_K}=-\alpha (L-L_K+1)^{-1}H+(1-\alpha)(L_K+K)^{-1}H=0$$&#xA;We define $L_K^0= (1-\alpha)(L+1)-\alpha K$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;B) Why we could think the envelop theorem's result may fail&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Presuming that $0&amp;lt;\alpha&amp;lt;1$, there are four possible cases.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(1) $L_K^0\in [0,L]$. One can check the objective function is concave, thus $L_K^*=L_K^0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(2.i) $L_K^0\notin [0,L]$ and $H(L,0,K)&amp;lt; H(L,L,K)$. Then $L_K^*=0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(2.ii) $L_K^0\notin [0,L]$ and $H(L,0,K)&amp;gt; H(L,L,K)$. Then $L_K^*=L$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(2.iii) (just to be exhaustive) $L_K^0\notin [0,L]$ and $H(L,0,K)= H(L,L,K)$. Then there are two solutions, $0$ and $L$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In case (1), $$\frac{\partial F}{\partial L}(L,K)=\frac{\partial H}{\partial L}(L,L^*_K,K)+\frac{\partial L^*_K}{\partial L}.\frac{\partial H}{\partial L_K}(L,L^*_K,K).$$&#xA;The second term of the right-hand side is equal to zero thanks to the first-order condition. This is &lt;strong&gt;compatible with the envelop theorem's result&lt;/strong&gt; for an interior solution.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In case (2.i), $F(L,K)=H(L,0,K)$ and so $$\frac{\partial F}{\partial L}(L,K)=\frac{\partial H}{\partial L}(L,0,K).$$&#xA;This is &lt;strong&gt;compatible with the envelop theorem's result for a corner solution&lt;/strong&gt; here.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In case (2.ii), $F(L,K)=H(L,L,K)$ and so $$\frac{\partial F}{\partial L}(L,K)=\frac{\partial H}{\partial L}(L,L_K=L,K)+\frac{\partial H}{\partial L_K}(L,L_K=L,K).$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We have to be cautious about the notations here, $\frac{\partial H}{\partial L}$ means the partial derivative corresponding to the first argument, and $\frac{\partial H}{\partial L_K}$ to the second one. The second term of the right-hand side is nonzero, which &lt;strong&gt;does not fit with the envelop theorem's result&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;C) Why it actually does not fail&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Write the problem as $F(L,K)=\max_{x\in [0,1]}H(x,L,K)$, with&#xA;$$H(x,L,K)=(L-x L+1)^\alpha(x L+K)^{1-\alpha}.$$&#xA;This problem is equivalent to the initial one.&#xA;The key difference is that the interval $[0,1]$ does not depend on $L$ or $K$. This is the reason why we can apply the envelop theorem, whereas it was wrong to apply it before. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can check that the case (2.ii) is compatible with the envelop theorem, we have $F(L,K)=H(x=1,L,K)$ and so $$\frac{\partial F}{\partial L}(L,K)=\frac{\partial H}{\partial L}(x=1,L,K).$$&lt;/p&gt;&#xA;" OwnerUserId="4094" LastEditorUserId="4094" LastEditDate="2018-03-09T10:45:27.767" LastActivityDate="2018-03-09T10:45:27.767" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20357" PostTypeId="2" ParentId="20353" CreationDate="2018-01-30T20:31:01.767" Score="1" Body="&lt;p&gt;An &lt;em&gt;equlibrium&lt;/em&gt; is a property of an entire market, not of any given investor's portfolio. The CAPM is an equilibrium theory.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In equilibrium, all (nontoxic!) assets must have non-negative prices. Hence, the weights of all assets in the &lt;em&gt;market portfolio&lt;/em&gt; must be non-negative as well. The market portfolio weights will be strictly positive only if the assets have positive value, i.e., if their prices are strictly positive.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Within an equilibrium, it may be possible that some individual investors will find it optimal to be short some assets. But that does not imply that it's possible for market portfolio weights to be negative. &lt;/p&gt;&#xA;" OwnerUserId="25" LastActivityDate="2018-01-30T20:31:01.767" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20358" PostTypeId="2" ParentId="17153" CreationDate="2018-01-30T23:15:39.823" Score="1" Body="&lt;p&gt;I found an answer that satisfies me in Preston McAffee's &lt;em&gt;&lt;a href=&quot;http://www.mcafee.cc/Introecon/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Introduction to Economic Analysis&lt;/a&gt;&lt;/em&gt; (2006):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Marginal is just economist’s jargon for “the derivative of.” For&#xA;  example, marginal cost is the derivative of cost; marginal value is&#xA;  the derivative of value. Because introductory economics is usually&#xA;  taught to students who have not yet studied calculus or can’t be&#xA;  trusted to remember even the most basic elements of it, economists&#xA;  tend to avoid using derivatives and instead talk about the value of&#xA;  the next unit purchased, or the cost of the next unit, and describe&#xA;  that as the marginal value or cost.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So it looks like economists don't have a terminological distinction, because in their own work they tend to treat all goods as near enough to continuous anyway (I suppose because it's easier and because markets are often large). The only reason they talk about e.g. the price of &quot;one more unit&quot; of a good, in introductory classes and textbooks, is that they don't expect the students to be comfortable with calculus yet.&lt;/p&gt;&#xA;" OwnerUserId="10618" LastActivityDate="2018-01-30T23:15:39.823" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20361" PostTypeId="2" ParentId="20339" CreationDate="2018-01-31T07:19:27.750" Score="1" Body="&lt;p&gt;The distinction is between &quot;nominal&quot; and &quot;real&quot; recessions and booms.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Real business cycle theory was developed to point out the fact that variations in employment and hours could occur even in an economy where markets were working competitively and there were no pricing frictions. In the RBC world, recessions and booms are driven by &quot;real&quot; factors: variation in technology, variation in the supply of commodities used as input in the production process, etc. A consequence is that in the RBC world while increased government spending on consumption goods indeed raises output and employment (the fiscal multiplier in RBC models is between 0 and 1), following such a policy during a recession is socially suboptimal. (You force people to work more and consume less.) To justify government spending during a recession is no easier and no harder than to justify it during &quot;normal times&quot;, and then the argument becomes one about market failure, public finance, etc. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In contrast, Keynesian theory (and its modern cousins) say that while &quot;real recessions&quot; in the above sense may indeed exist, there are also &quot;nominal recessions&quot;: these are recessions caused by &quot;less spending&quot; (for instance, if you're working with MV = PY, they are recessions caused by a fall in V). The reason this creates a recession is because there are nominal rigidities in the economy - workers are unwilling to accept nominal wage cuts, producers face &quot;menu costs&quot; which make price changes infrequent, etc. Because of these rigidities, a fall in &quot;aggregate spending&quot; manifests itself not only in the form of lower prices, but also in the form of lower output. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So far, everything I said is also consistent with monetarism, for instance. However, this is not all there is to Keynesian theory: Keynesians go further and claim that the solution to a shortfall in spending is for the government to increase spending and &quot;make up the lost demand&quot;. In other words, if you think of the AD-AS model, Keynesians think that government spending can raise AD. This idea has been discredited in academia for decades because it ignores budget constraints - there's only so much money available in the economy, if the government borrows money from you and spends it, that's money someone else did not spend. It's not clear how government spending boosts &quot;money velocity&quot;, and in fact there are New Keynesian models where increased government spending is &lt;em&gt;deflationary&lt;/em&gt; and makes a nominal recession worse by creating more demand for real money balances. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Keynesian ideas have made a resurgence in the past 10 years thanks to the zero lower bound. The argument above about budget constraints is no longer true when nominal interest rates are stuck at zero, because now people will actually start hoarding cash instead of spending it. Therefore, increasing government spending does not &quot;crowd out&quot; private spending, because households and firms are just sitting on the cash they have anyway. Monetary stimulus is ineffective because any additional money is just held by the public. This is the &quot;liquidity trap&quot; a nutshell. Critics point out that &lt;em&gt;permanent&lt;/em&gt; monetary stimulus as opposed to a temporary one can still work in a liquidity trap (as pointed out in &lt;a href=&quot;https://www.brookings.edu/bpea-articles/its-baaack-japans-slump-and-the-return-of-the-liquidity-trap/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Krugman (1998)&lt;/a&gt;) and that monetary models (say, with cash-in-advance constraints) are &lt;em&gt;indeterminate&lt;/em&gt; at the zero lower bound: without anchoring consumption and prices in the future to some level chosen arbitrarily, it's not possible to pin down a unique equilibrium of the economy today. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There's more to be said on this subject, but this should be enough for an answer.&lt;/p&gt;&#xA;" OwnerUserId="13743" LastActivityDate="2018-01-31T07:19:27.750" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20362" PostTypeId="1" AcceptedAnswerId="20392" CreationDate="2018-01-31T07:34:26.067" Score="1" ViewCount="144" Body="&lt;p&gt;I was wondering if there is still welfare loss for example there is a positive externality in production of a good and the government decides to subsidise the good? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think it does still have welfare loss, because the subsidy has to be payed for but I am not sure.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is it because the government taxes things that have negative externalities and then uses this money to subsidise things that have positive externalities that in the end there is no welfare loss?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you for your help in advance.&lt;/p&gt;&#xA;" OwnerUserId="15548" LastActivityDate="2018-02-02T09:12:18.973" Title="Welfare status when a positive externality is subsidised" Tags="&lt;microeconomics&gt;&lt;externalities&gt;&lt;subsidies&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20364" PostTypeId="2" ParentId="20228" CreationDate="2018-01-31T17:08:58.130" Score="0" Body="&lt;p&gt;The closest you can get to data on this is the CME Commitment of Trader reports.&#xA;&lt;a href=&quot;http://www.cmegroup.com/tools-information/quikstrike/commitment-of-traders-agricultural.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;link to CME page&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The report breaks down the position sizes in futures based on the reporting segment of client (e.g., commodity producers).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Based on my experience, it is hard to relate the changes in positioning to price changes. (I used to look at an earlier version of the report, which divided participants into “commercial”/“non-commercial” entities.) You can always look at historical data and tell a story why the price changed, but that methodology has little predictive power (you just change your story).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At the minimum, you need to specify what market you are interested in. Crude oil trades differently than bonds, which trade differently than equities. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, market structure matters. An exchange where all participants trade as equals is different than where there are market makers. In a market dominated by market makers, prices are literally set by the market makers. The question then becomes: why do market makers change their prices? (If you had an exact answer to that question, you would make a fortune as a trader.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My experience is in fixed income, and it is safe to say that the bulk of price movements are associated with the release of economic data (although this was not the case during the Financial Crisis). Since prices typically jump immediately on the release of data, there is no way to associate any group with the price change - posted prices are changed without any transactions taking place. Fixed income prices are a mixture of exchange prices (Treasury bond futures) and market making (exotic derivatives).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My understanding of the energy markets is that commodity data releases have a similar effect. That is, prices are often adjusted based on news about consumption and production, not just the act of buying/selling by the end users/producers themselves. This should be expected, as energy commodities can generally be stored, and so commodities can be moved in/out of storage if the prospects for future supply/demand change. (Electricity was an exception for storage, although storage technology there is improving.)&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2018-01-31T17:08:58.130" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20365" PostTypeId="2" ParentId="20300" CreationDate="2018-01-31T18:54:09.333" Score="2" Body="&lt;p&gt;The elasticity of substitution of production factors derived from empirical data depends on the data. In the case of simple production, you can estimate the production function (fit your data to the functional form of the production function) and from it derive the elasticity of substitution and other functional parameters.&#xA;The elasticity of substitution in the case of a production function (accounting for output) has it's roots in the classical consumption function (accounting for utility), as you mention.&#xA;Empirical studies are plenty and the numerical results vary depending on country, industry (aggregate level) or type of company (micro level). However, the robustness of the results may not be up to par, because aggregate (and otherwise), especially neoclassical, production functions are subject to numerous restrictions and assumptions. &#xA;For empirical studies you can start here &lt;a href=&quot;https://papers.ssrn.com/sol3/papers.cfm?abstract_id=573246&quot; rel=&quot;nofollow noreferrer&quot;&gt;Chirinko R., Fazzari S., Meyer A., 2004 &lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;In the case of utility (elasticity of substitution in consumption function), I don't know of any empirical studies. I'm not one to be asked this, but my first hunch is - additive utility is a REALLY strong assumption. Classical and austrian economists have argued that utility is subjective. So, numerical studies of elasticities of substitution in consumption would have to be verry biased.&lt;/p&gt;&#xA;" OwnerUserId="15936" LastEditorUserId="15936" LastEditDate="2018-01-31T19:50:16.770" LastActivityDate="2018-01-31T19:50:16.770" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20366" PostTypeId="1" CreationDate="2018-01-31T19:13:59.783" Score="3" ViewCount="70" Body="&lt;p&gt;When estimating an aggregate production function you fit your data to a selected functional form of the production function, derive the parameters and inference from there. &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;My &lt;strong&gt;question&lt;/strong&gt; is, is there a reason for testing for cointegration (i.e. Engle &amp;amp; Granger method) of the production input variables' time series data? What is the extra information you could derive from, for example, VECM analysis of such cointegrated variables, apart from their long-term relationship?&lt;/p&gt;&#xA;" OwnerUserId="15936" LastEditorUserId="15936" LastEditDate="2018-01-31T19:36:12.620" LastActivityDate="2018-02-01T09:41:38.517" Title="Aggregate production function, factor shares and cointegration" Tags="&lt;production-function&gt;&lt;applied-econometrics&gt;&lt;autoregressive&gt;&lt;co-integration&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20367" PostTypeId="1" CreationDate="2018-01-31T20:58:36.623" Score="1" ViewCount="25" Body="&lt;p&gt;How could one go about estimating a long term aggregate production function, when there is a sharp decline in both factor inputs (i.e. investment and hours worked) and output for a few consecutive periods?&#xA;I have seen some research, where the authors either adapt a regime-switching errors technique &lt;a href=&quot;http://www.zurnalai.vu.lt/ekonomika/article/download/10122/8178&quot; rel=&quot;nofollow noreferrer&quot;&gt;Bartkus, A., 2016&lt;/a&gt; (although this technique was used in forecasting GDP as a random-walk process, and not estimating a production function), and in another - the authors omitted the &quot;undesireable&quot;, &quot;anomalous&quot; data (the three or four consecutive quarters that the sharp fall in GDP was observed in the GFC) from the estimation alltogether.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;What other, robust, methods are used when estimating the aggregate production function from such heteroscedastic(?) time-series data? Without going too much into business cycle theory teritory.&lt;/p&gt;&#xA;" OwnerUserId="15936" LastActivityDate="2018-01-31T20:58:36.623" Title="Estimating aggregate production function with sharp decline during a crisis period" Tags="&lt;aggregate-production&gt;&lt;economic-crisis&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20368" PostTypeId="1" AcceptedAnswerId="20369" CreationDate="2018-01-31T21:15:33.363" Score="2" ViewCount="100" Body="&lt;p&gt;My textbook says that sometimes producers are responsible for ensuring that their product is recycled. They are required to buy &quot;credits&quot; from firms that recycle their type of product. It says that the local newspaper company may be required to buy 500 pounds of credits for every 1,000 pounds of newspapers it produces. It would buy its credits from firms such as cardboard box producers that can use old newspapers in producing their product. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But I don't understand why a newspaper company should be responsible for recycling newspapers. After all, once the newspaper company sells its newspapers, they belong to the consumers i.e. readers of the newspaper. Shouldn't they be the ones responsible for making sure that the newspaper gets recycled? I guess I don't understand how the newspaper company would buy credits from the cardboard box producer and how that will result in the newspaper, which is now in the hands of the consumer, being recycled.&lt;/p&gt;&#xA;" OwnerUserId="16105" LastActivityDate="2018-02-02T07:20:44.460" Title="Recycling credits" Tags="&lt;environmental-economics&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20369" PostTypeId="2" ParentId="20368" CreationDate="2018-02-01T00:30:08.957" Score="2" Body="&lt;p&gt;Recycling credits are put in place assuming that the pollution after the consumption of a good is a &lt;a href=&quot;https://en.m.wikipedia.org/wiki/Externality&quot; rel=&quot;nofollow noreferrer&quot;&gt;negative externality&lt;/a&gt;. This negative externality affects everyone,  when you have a newspaper in the streets this reduces the utility of the street for you, creating a social inefficiency. The government puts in place a mandatory correction system to correct the inefficiency: the recycling credits.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In your case, the newspaper company is producing a good that, after its consumption, will most likely be trashed. The company might very well transfer the costs of the recycling credits to consumers, increasing the &#xA;price (similar to the effect of a tax in microeconomics). However, the newspapers that are not sold will also be trashed - old news dont sell. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So why do they force the producer to pay the recycling? Two key reasons. First, if the producer has higher costs, it will produce less, therefore pollute less. Second, pratically it is much easier to make one agent pay on a easily verifiable ammount, than charge thousands of consumers very small amounts. So at the end of the day both consumrs and producer end up paying and being responsible for recycling, even if the producer is the agent paying initially for the recycling credits. &lt;/p&gt;&#xA;" OwnerUserId="12304" LastActivityDate="2018-02-01T00:30:08.957" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="20370" PostTypeId="1" AcceptedAnswerId="20371" CreationDate="2018-02-01T02:52:00.357" Score="1" ViewCount="140" Body="&lt;p&gt;At the last State of the Union address, the President of the United States has reaffirmed his intentions to undertake a massive &lt;a href=&quot;https://www.cbsnews.com/news/state-of-the-union-trump-infrastructure/&quot; rel=&quot;nofollow noreferrer&quot;&gt;1.5 trillion dollar infrastructure spending&lt;/a&gt; project over the coming years. If you believe simple macroeconomic models, like the &lt;a href=&quot;https://en.wikipedia.org/wiki/IS%E2%80%93LM_model&quot; rel=&quot;nofollow noreferrer&quot;&gt;IS-LM model&lt;/a&gt;, this kind of government spending should lead to higher real GDP and higher interest rates. I am assuming that, in the real world, this would correspond to a steepening of the yield curve, i.e. medium and long term yields go up. However, looking at &lt;a href=&quot;https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield&quot; rel=&quot;nofollow noreferrer&quot;&gt;yield curve data&lt;/a&gt;, I cannot discern any significant uptick in long term yields DoD. Does this mean that either:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;the yield curve should not actually respond the way I assumed?&lt;/li&gt;&#xA;&lt;li&gt;this announcement carried no real information that would have&#xA;changed market participants' expectations about the future?&lt;/li&gt;&#xA;&lt;li&gt;the IS-LM model is too simplistic to even adequately predict the directional&#xA;impact of government spending on interest rates?&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;I realize that I may be abusing the IS-LM model here, as it probably takes a more long term, qualitative view. However, I would think, due to &lt;a href=&quot;https://en.wikipedia.org/wiki/Efficient-market_hypothesis&quot; rel=&quot;nofollow noreferrer&quot;&gt;market efficiency&lt;/a&gt;, its predictions should be priced into the yield curve immediately.&lt;/p&gt;&#xA;" OwnerUserId="15975" LastActivityDate="2018-02-01T18:46:14.237" Title="Impact on interest rates of massive government spending" Tags="&lt;macroeconomics&gt;&lt;interest-rate&gt;&lt;government-spending&gt;" AnswerCount="2" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="20371" PostTypeId="2" ParentId="20370" CreationDate="2018-02-01T06:33:54.437" Score="1" Body="&lt;p&gt;You &lt;em&gt;could&lt;/em&gt; say IS-LM is too simplistic.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The fundamental discrete time consumption-based asset pricing equation says that if $ r_t $ is the risk-free interest rate at time $ t $, we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \beta (1+r_t) \frac{u'(C_{t+1})}{u'(C_t)} = 1 $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(I'm dropping the expectation since I will be working with a perfect foresight model later on) where $ u $ is the utility function of &lt;em&gt;any&lt;/em&gt; consumer, $ 0 &amp;lt; \beta &amp;lt; 1 $ is a discount factor which measures &quot;impatience&quot; of the same consumer, and $ c_t, c_{t+1} $ is the consumption of the same consumer in time $ t $ and $ t+1 $ respectively. The most elegant form of the relation is with the assumption of power utility $ u(c) = c^{1 - \gamma}/(1 - \gamma) $ with $ \gamma &amp;gt; 0 $, in which case we get (after log-linearization)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ r_t = R + \gamma \Delta c_t $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $ \Delta c_t $ is log consumption growth and $ R = -\log(\beta) $ is the real interest rate consistent with flat consumption. The intuition is simple: people want to smooth consumption over time. If they expect their consumption in the future to be much higher than their consumption today, they will try to borrow against the better future and push real interest rates up, and vice versa. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider a baseline economy with no investment, perfect foresight, and a representative consumer first. (This is unrealistic, but IS-LM is even more unrealistic, so...) In this case, the resource constraint of the economy reads $ Y_t = C_t + G_t $ in every period, where $ G_t $ is government spending. If you assume consumers have utility that is additively separable over time (the asset pricing relation assumes this as well), then the no investment assumption turns their decision problem into a set of one-period decision problems. (This is a technical condition to ensure what I am doing is well-defined.) Define $ D_t $ as the level of output consistent at time $ t $ with $ G_t = 0 $, and let $ m_t $ be the &quot;fiscal multiplier&quot;, defined by&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ m_t = \frac{dY_t}{dG_t} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Most models won't give constant $ m $, but if necessary we may linearize the model around somewhere other than $ G_t = 0 $ and make this assumption locally. These assumptions imply $ Y_t = D_t + m_t G_t $ at any time $ t $, so we may express consumption as $ C_t = D_t + (m_t -1) G_t $. Plugging into the relation gives&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ r_t \approx R + \gamma \Delta d_t + \gamma (m_t -1) \Delta \left( \frac{g_t}{1 - m_t g_t} \right) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $ g_t = G_t/Y_t $ is the ratio of government spending to GDP and $ \Delta d_t = \Delta \log(D_t) $. (Ignore the pole of the denominator - we're working around $ g_t = 0 $.) The fraction $ \frac{g_t}{1 - m_t g_t} $ is increasing in $ g_t $ with $ m \geq 0 $, so we see that the real interest rate at time $ t $ depends on two things: the &quot;natural&quot; growth rate of the economy given by $ \Delta d_t $, and the consumption growth induced by changes in government spending rel to GDP $ g_t $. However, the &lt;em&gt;sign&lt;/em&gt; of the effect of an anticipated increase in government spending depends on the value of the fiscal multiplier $ m $. If $ m &amp;lt; 1 $, then government spending crowds out consumption, and &lt;em&gt;rising&lt;/em&gt; government spending is associated with &lt;em&gt;low&lt;/em&gt; real interest rates, i.e expectations of high spending in the future would push rates down today, and vice versa if $ m &amp;gt; 1 $. Most everyone would agree that the fiscal multiplier in the US economy today is less than $ 1 $, so news of higher spending in the future should be associated with lower real interest rates now, if with anything at all.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It also matters, of course, if government spending affects $ \Delta d_t $ - if we're speaking of an infrastructure investment program, for instance, then we should expect that the change in government spending also leads to a change in the path of $ D_t $. The two effects for such a program act in opposite directions, so the net effect of a government investment program tomorrow on real interest rates today could go either way, even in this simple economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I won't work out the model with investment (allowing consumers to invest) here, but the effect of investment is to allow consumers to trade consumption now for consumption in the future in aggregate; so it dampens the impact of a change in government spending on real interest rates (since now consumers have a tool for smoothing consumption in the face of government expenditure shocks). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's also true that the announcement in the State of the Union address probably carried less information than an announcement in this model, since market participants were already aware of such an infrastructure investment plan for months (maybe a year?), but with a fiscal multiplier less than $ 1 $ it's not easy to say anything about the direction of the real interest rate response. &lt;/p&gt;&#xA;" OwnerUserId="13743" LastEditorUserId="13743" LastEditDate="2018-02-01T11:12:44.910" LastActivityDate="2018-02-01T11:12:44.910" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20372" PostTypeId="2" ParentId="20313" CreationDate="2018-02-01T06:33:59.637" Score="1" Body="&lt;p&gt;The concept which you should be looking it is called prime costs. Businesses use prime cost as a way of measuring the total cost of the production inputs needed to create a given output. Usually this would be e.g. material, working hours, machine time and so on; since in your case there are only materials they are the only components you should consider when calculating the price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So in your example the prime costs would be cost of purchased material + cost of donated material at market price. After this you would have to add a profit margin which you feel comfortable offering to your members.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As you mentioned their might be cases when the prime costs are higher then prices on the open market. In this case the only thing you can do is sell your material and buy the product directly on the market this is classical make or buy decision. If you still want to offer these product at a discount to the market price your only option is to take a loss on every sold item.&lt;/p&gt;&#xA;" OwnerUserId="16109" LastActivityDate="2018-02-01T06:33:59.637" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20373" PostTypeId="1" CreationDate="2018-02-01T08:03:33.643" Score="3" ViewCount="116" Body="&lt;p&gt;Say's law is roughly that &quot;an increase in aggregate supply generates an equal increase in aggregate demand&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Can this law be stated, or derived from, a model of general equilibrium?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;EDIT&lt;/strong&gt;: what if we assume a dynamic economy? I.e. where saving is possible.&lt;/p&gt;&#xA;" OwnerUserId="11146" LastEditorUserId="1601" LastEditDate="2018-02-01T13:28:45.033" LastActivityDate="2018-02-01T13:28:45.033" Title="Say's law stated in terms of general equilibrium theory?" Tags="&lt;general-equilibrium&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20374" PostTypeId="2" ParentId="20313" CreationDate="2018-02-01T09:10:23.750" Score="1" Body="&lt;p&gt;A few ideas that can help avoid losses:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Make a list the most requested items and raw materials. Keep an eye in the market to buy the most requested ones on discount, and resell them with a tiny margin in the community.&lt;/li&gt;&#xA;&lt;li&gt;List the items that gave you the biggest losses recently. Restrict the requests for them (e.g. a X maximum per month), or keep a look at the market to buy the same item whenever it is at discount. &lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;If you must buy items or materials at loss&lt;/strong&gt;, then offer to buy from your community first. Like this you're making the community wealthier, which is a benefit to be a member.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;As to pricing your items, you can set the prices as a percentage of discount from the market price in general, and adjust for a lower discount on the items where you have losses.&lt;/p&gt;&#xA;" OwnerUserId="12304" LastActivityDate="2018-02-01T09:10:23.750" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20375" PostTypeId="2" ParentId="20373" CreationDate="2018-02-01T09:16:58.933" Score="4" Body="&lt;p&gt;How about &lt;a href=&quot;https://en.wikipedia.org/wiki/Walras%27s_law&quot; rel=&quot;noreferrer&quot;&gt;Walras's law&lt;/a&gt;?&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Walras's law is a principle in general equilibrium theory asserting that budget constraints imply that the values of excess demand (or, conversely, excess market supplies) must sum to zero.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2018-02-01T09:16:58.933" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="20376" PostTypeId="2" ParentId="20366" CreationDate="2018-02-01T09:41:38.517" Score="1" Body="&lt;p&gt;Intuitively, you test for cointegration because if two variables are cointegrated, they represent only a &quot;one dimensional&quot; family of data points - even if you have a million data points from that sample, they will all fall close to the same subspace, and in general that will mean that you will have many values of parameters for your regression problem which will give a good fit (spurious regression).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider the linear regression case - say that you have $ y = Ax + \varepsilon $ as your regression problem, where $ x $ is a column vector, $ A $ is a row vector and $ y $ is a real number. Let's say further that the &quot;structural&quot; relationship we are looking for is $ y = Bx $, where $ B $ is also a row vector. Take an extreme case of cointegration - $ x $ is $ 2 $-dimensional, and we have a linear relationship between its coordinates, i.e $ x_2 = c x_1 $ for some constant $ c $. In this case, &lt;em&gt;any&lt;/em&gt; linear functional $ A $ which is equal to $ B $ when restricted to the subspace spanned by $ (1, c) $ will give a perfect fit, and the regression won't be able to distinguish between them. (There's a one dimensional family of such functionals, i.e row vectors $ A $.) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What VECM analysis does is to take advantage of deviations when the relationship is not perfect. In real econometric applications, you never have a relationship that's as clean as $ x_2 = c x_1 $ (or $ y = Bx $) for your entire dataset - cointegration allows for transitory white noise in the linear combination $ x_2 - c x_1 $. If the variance of the white noise is relatively small, a standard regression will still return similar $ R^2 $ values for many different operators. Instead, what you do is look at first differences: a good fit should also fit these, i.e we should have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ Ax_{t+1} - Ax_t \approx y_{t+1} - y_t $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where the subscripts denote the time of observation. Running the regression this way allows you to capture the white noise in the cointegration process and use it to your advantage - it's a way of capturing the information which a naive linear regression is going to miss.&lt;/p&gt;&#xA;" OwnerUserId="13743" LastActivityDate="2018-02-01T09:41:38.517" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20377" PostTypeId="1" CreationDate="2018-02-01T10:11:16.303" Score="1" ViewCount="4574" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/A07ni.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/A07ni.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To preface this, I appreciate any help you offer. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In reference to 1.(d) I'm trying to understand the MRS of perfect complements. Given: utility function U(x,y), commodity pair (2,8): y/x is 4 ...&gt; a/b which is 3, so we say the MRS at this point is undefined (Δy/Δx = Δy/0)? Given commodity pair (5,1): y/x is 1/5...&amp;lt; a/b which is 3, so we say the MRS at this point is 0(0/Δx)? I'm not exactly sure why this is or how to best phrase those statements if they're correct, I've looked everywhere and have not really caught any explanation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In reference to 2.(f) Is &quot;the expression&quot; requested maybe MRS = (dUx/dx)/(dU/dy) = Px/Py? I'm confused by this phrase &quot;positive values of consumption&quot;... is this positive x and y values? How do I find this minimal combination? I'm only familiar with the approach to finding a maximal utility producing combination. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks so much if you've read this far. &lt;/p&gt;&#xA;" OwnerUserId="16110" LastEditorUserId="16110" LastEditDate="2018-02-01T10:19:33.280" LastActivityDate="2018-02-01T11:18:56.213" Title="MRS of Perfect Complements and MRS Equilibrium Condition" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20378" PostTypeId="2" ParentId="20377" CreationDate="2018-02-01T11:18:56.213" Score="1" Body="&lt;p&gt;Your instructor seems to have a rather sloppy approach to the mathematics of microeconomics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's begin with the easiest case, the bundle $(5,1)$. We have $\min\{3\cdot 5,1\}=1$. For $\delta&amp;lt;14$, we have $\min\{3\cdot 5, 1+\delta\}=1+\delta$ so the marginal utility of $y$ is $1$ at the bundle $(5,1)$. Moreover, for any $\delta&amp;gt;-14/3$, we have $\min\{3\cdot(5+\delta),1\}=1$, so the marginal utility of $x$ is $0$ at $(5,1)$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A similar argument applies to the bundle $(2,8)$, but here the marginal utility of $y$ is $0$, and dividing by zero is not allowed. Maybe your instructor wants to hear that the MRS is infinite.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now at the bundle $(3,9)$, increases in any commodity have zero effects, but decreases do. There is a kink and you cannot smoothly move along the curve. By any semi-reasonable standards, the MRS is undefined. But to answer the verbal question, the consumer is not willing to give up any amount of one commodity ( effect negative) to receive more of the other good (effect zero). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now the idea that you get the optimal consumption bundle by setting the MRS equal to relative prices is complete nonsense. If prices $p_x$ and $p_y$ and income $m$ are all positive, we can still, however, still find the optimal bundle. First note that the optimal bundle $(x,y)$ wil satisfy $3x=y$. If $3x&amp;gt;y$, one could reduce the amount $x$ without decreasing the utility (the minimum is unchanged), but use the freed money to increase $y$, which does have a positive effect. In an optimal bundle, this is not possible. by a similar argument, we can rule out $3x&amp;lt;y$. So we must have $3x=y$, which means that at any optimal solution, the MRS is undefined!!! To solve for an optimal bundle, all that remains to do is plug the condition $3x=y$ into the budget constraint $p_x x+p_y y=m$. We can substitute $3x$ for $y$ to get&#xA;$$p_x x+p_y 3x=m$$ and solve for $x$, which gives us&#xA;$$x=\frac{m}{p_x+3p_y}.$$&#xA;Similarly, we get &#xA;$$y=\frac{m}{p_x/3+p_y}.$$&lt;/p&gt;&#xA;" OwnerUserId="1442" LastActivityDate="2018-02-01T11:18:56.213" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20379" PostTypeId="2" ParentId="20368" CreationDate="2018-02-01T12:03:21.027" Score="1" Body="&lt;p&gt;Building on the description from @LimonadaPT, I'll try to make a simple example story with five players: &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;sellers of newspapers&lt;/li&gt;&#xA;&lt;li&gt;buyers of newspapers &lt;/li&gt;&#xA;&lt;li&gt;government&lt;/li&gt;&#xA;&lt;li&gt;buyers of old newspapers/sellers of cardboard boxes&lt;/li&gt;&#xA;&lt;li&gt;buyers of cardboard boxes&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Plus a &quot;society&quot; that includes all five of the above, plus many people not involved in any of these steps.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;First&lt;/strong&gt;, the buyers and sellers of newspapers arrive at some equilibrium price and quantity, which gives a positive &quot;utility&quot; to both, and thus to society in general.  However, that price and quantity is failing to account for the &lt;strong&gt;negative externality&lt;/strong&gt; that people who aren't buying or selling newspapers experience, such as trash in the streets.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Second&lt;/strong&gt;, government steps in and says, hey, if that negative externality were being taken into account, then the equilibrium price of newspapers would be higher and the quantity lower.  Therefore, we slap a tax on newspapers.  That would lower utility to the buyers and sellers of newspapers, but raise the total amount of utility to society.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Third&lt;/strong&gt;, we set that aside for a moment and move on to a new problem:  The makers of cardboard boxes use recycled newspaper for their product, but there's a cost associated with doing so which gets reflected in the price of cardboard boxes.  The cleanup of old newspapers has a &lt;strong&gt;positive exeternality&lt;/strong&gt; to society, but society isn't paying for it; only the buyers and sellers of cardboard boxes are.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So &lt;strong&gt;fourth&lt;/strong&gt;, government steps in again and subsidizes cardboard boxes.  This lowers costs faced by cardboard box manufacturers, which raises the quantity they produce and thus the quantity of old newspapers they recycle.  This raises the utility to society.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Finally&lt;/strong&gt;, to bring it all together, imagine government uses the tax revenue from newspapers to pay for the subsidy on collecting used newspapers.  Or better yet, remove government all together and just make it a direct payment from newspaper creators to used newspaper recyclers.  The transaction creating the negative exeternality now pays for the transaction creating the positive externality, raising total utility in society on both ends.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Of course, this is highly simplified.  I've left out, for example, elasticity and who bears the burden of a tax.  But hopefully it illustrates the general idea.  &lt;em&gt;The fundamental point to the whole thing is that both the sale of newspapers and the creation of cardboard boxes affect people who aren't involved in the transactions, and the transfer payment forces the market to take their considerations into account.&lt;/em&gt;&lt;/p&gt;&#xA;" OwnerUserId="8834" LastEditorUserId="8834" LastEditDate="2018-02-02T07:20:44.460" LastActivityDate="2018-02-02T07:20:44.460" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="20380" PostTypeId="2" ParentId="20313" CreationDate="2018-02-01T12:55:47.270" Score="1" Body="&lt;p&gt;Part of your question is to find the threshold price of a crafted item that covers exactly its cost of production, especially when production is random. Once you know this threshold, the price you will ask to a buyer has to be greater than this threshold. Otherwise, you make losses.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Consider the craft of a precise item.&lt;/strong&gt;&#xA;First, you need to determine a value for each item that enters as inputs. The sum will be denoted $V_I$. &#xA;If you do not have any idea about the values, you can set them as average market prices, so that $V_I$ is the average market price for all the inputs. In other words, $V_I$ is what it costs you to produce the item if you have to buy the inputs on the market. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If there were no randomness in production, you would ask at least a price $p\geq V_I$ to any buyer who does not provide you with any input. Conversely, if the buyer comes with all the inputs, you have zero cost and your constraint is simply $p\geq 0$. If the buyer comes with some inputs, the price should be higher than the value of the remaining inputs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It becomes more difficult with randomness in production. &#xA;You need to determine two elements: i) the probability $q$ to fail in producing the item, ii) the value of non-desirable outcomes $V_N$.&#xA;You can estimate $q$ by dividing the number of times you failed by the number of times you tried.&#xA;If the non-desirable outcomes are not always the same, $V_N$ can be an average. Again, if you do not know which value to associate, you can take average market prices. In that case, $V_N$ would be on average the money you get from selling the non-desirable outcomes on the market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are two possibilities. Either you make the buyer bears the risk, or you cover the risk.&#xA;In the first case, imagine for instance that you manage to produce the desirable item after 3 trials. The price you will ask to the buyer should be at least $3V_I-2V_N$ because you needed 3 times the inputs but you will keep twice non-desirable outputs.&#xA;Whether a buyer is lucky or unlucky, it is not your problem. However, you do not have an invariant price of the crafted item.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the second case, you can ask a fixed price to the buyers (higher for non-members), irrespective of their luck.&#xA;If you make enough transactions, the lucky buyers will pay for the unlucky ones, and you can make positive profits at the same time. We need some maths to find the expected (or average) cost of producing the item. The average cost is the sum of the values of inputs minus the values of non-desirable outcomes, weighted by the probability of each event.&lt;br&gt;&#xA;$$AvCost = \underset{1\ trial}{\underbrace{(1-q)V_I}} + \underset{2\ trials}{\underbrace{q(1-q)(2V_I-V_N)}}+\underset{3\ trials}{\underbrace{q^2(1-q)(3V_I-2V_N)}}+...$$&#xA;This writes as&#xA;$$AvCost = (1-q)\sum_{k=0}^\infty q^k[(k+1)V_I-kV_N].$$&#xA;Using $\sum_{k=0}^\infty q^k(k+1)=\frac{1}{(1-q)^2}$, we obtain&#xA;$$AvCost=\frac{V_I-qV_N}{1-q}.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The condition to make positive profits on average is to fix a price $p\geq \frac{V_I-qV_N}{1-q}$. In other words, if you want to be the most generous with members, they have to pay at least $\frac{V_I-qV_N}{1-q}$ so that you make no losses on average. If a buyer comes with some inputs, you reduce this cost by the value of her inputs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Members vs non-members&lt;/strong&gt;&#xA;You can also decide to make losses on average for your members, $p_{member}&amp;lt; \frac{V_I-qV_N}{1-q}$. These losses would be compensated by gains from non-members, $p_{non-member}&amp;gt; \frac{V_I-qV_N}{1-q}$. You have to make sure that the gains compensate the losses.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;About being competitive on the market&lt;/strong&gt;&#xA;We have established the conditions to make positive profits, but there is no guarantee that you will be competitive on the market. It is possible that the minimum price you ask to a buyer ($\frac{V_I-qV_N}{1-q}$) will still be higher than the price of your competitors. They can produce the inputs more easily for instance, or they can value the fact that the skill to produce will level up. &lt;/p&gt;&#xA;" OwnerUserId="4094" LastActivityDate="2018-02-01T12:55:47.270" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20381" PostTypeId="2" ParentId="20370" CreationDate="2018-02-01T13:17:49.793" Score="1" Body="&lt;p&gt;Your answer hits a lot of points, some theoretical, some practical.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Most versions of IS/LM that I am aware of have only one interest rate, and if we want to be strict, cannot be applied to a yield curve. (Is “the” interest rate the short rate set by the central bank, or the market-determined bond yield?) There are standard ways of thinking about this, but I never look at IS/LM, so I will not comment.&lt;/li&gt;&#xA;&lt;li&gt;If you look at any modern textbook on fixed income pricing, you will see that long-term bond yields are equal to the expected path of the short rate plus a term premium. If we ignore the term premium, this means that a 10-year bond is roughly equal to the expected average of the policy rate over the next 10 years.&lt;/li&gt;&#xA;&lt;li&gt;During a rate hike cycle, the typical pattern is for the yield curve to flatten. This can be seen by looking at data on the FRED database: &lt;a href=&quot;https://fred.stlouisfed.org/series/T10Y2Y&quot; rel=&quot;nofollow noreferrer&quot;&gt;Link to FRED 2/10 year slope&lt;/a&gt;. This is because the market generally expects the policy rate to stop rising after a few years; and so the average policy rate during any maturity converges towards the terminal rate. (Term premia etc. will affect that.) &lt;/li&gt;&#xA;&lt;li&gt;Under most economic models, increased spending - “all else equal” - would at least raise nominal GDP in the short run (or at the minimum, force the central bank to raise the policy rate, which is what matters here). Whether that increase represents higher real GDP, or greate inflation, becomes a controversial question. (One could argue that an inflation-targeting central bank can cancel out the effect of fiscal policy, but that then requires the central bank to correctly forecast how to tighten monetary policy to exactly offset fiscal policy. Such a move might not be considered holding everything “all else equal.”) If market participants believe that the central bank’s policy rate is approximated by a Taylor Rule, then this would presumably lead to higher policy rates. However, it is possible that there could be spare capacity in the economy, and interest rates could be unchanged, and inflation remains near the central bank’s implicit target.&lt;/li&gt;&#xA;&lt;li&gt;Market participants will react to new information about growth and the policy rate. This can be seen by looking at yield changes on the the dates of important data releases, auch as Nonfarm Payrolls. A lack of reaction to the State if the Union speech may just tell us that it had no new information. &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;There are a number of reasons that the announcement could be ignored. &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;The market may have priced in a loosening of fiscal policy much earlier, such as after the election result was announced.&lt;/li&gt;&#xA;&lt;li&gt;There is no guarantee that any plan can get through Congress. Also, even if it is passed, it might be offset by cuts to other programs.&lt;/li&gt;&#xA;&lt;li&gt;Finally, its size needs to be taken in context relative to the volatility of growth in the private sector. Infrastructure spending 10 years from now is a lot less important for interest rates than the potential for a recession in the next few years.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="12891" LastEditorUserId="12891" LastEditDate="2018-02-01T18:46:14.237" LastActivityDate="2018-02-01T18:46:14.237" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20382" PostTypeId="1" CreationDate="2018-02-01T15:07:47.560" Score="7" ViewCount="883" Body="&lt;p&gt;I was listening to an interview with David Harvey and he mentioned that if Russia and China were to sell the debt owed to them by the US, the US economy would take a serious dive. How would they sell the debt and why would that impact the US economy so negatively?&lt;/p&gt;&#xA;" OwnerUserId="16115" LastEditorUserId="8481" LastEditDate="2020-05-06T11:50:07.073" LastActivityDate="2020-05-06T11:50:07.073" Title="Why would China and Russia selling the US' debt ruin the economy?" Tags="&lt;government-debt&gt;&lt;international-economics&gt;&lt;debt&gt;&lt;bonds&gt;&lt;united-states&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20385" PostTypeId="2" ParentId="20382" CreationDate="2018-02-01T19:23:19.727" Score="2" Body="&lt;p&gt;It wouldn't &quot;ruin the US economy&quot;. The US (the country as a whole, not the government) bought goods and services from rest of the world by selling them IOUs. So far, the world has been content to let the US roll over these obligations. If the world decided that they wanted to trade these IOUs for goods and services, the US would have to start running current account surpluses and shipping goods abroad to pay for its past current account deficits. These surpluses have to come from somewhere, and they would result in less consumption and less investment in the US economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course, an economy can't borrow its way in global capital markets forever - the US does eventually have to ship some stuff over to China in exchange for all of the stuff that China shipped over to the US in exchange for (electronic) green pieces of paper. If China decides to unilaterally impose capital controls and stop lending goods to the US, then this hurts both China and the US - the reason capital in China was flowing to the US is that it could get higher returns there. (The functioning of domestic capital markets in China has become a lot better over the past decade, which is why China can now allocate its savings to productive uses domestically instead of lending large amounts of it to foreign countries.) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What some people are specifically afraid about ties into the USD's status as the international reserve currency - the Chinese government and central bank own plenty of US government debt as part of their foreign exchange reserves, and if they want to redeem this debt in exchange for goods and not roll it over, the scenario I mentioned above comes to pass. This seems to me like a grossly exaggerated concern at a time when global real interest rates are quite low. If China wanted to sell its US government bonds and the US had no intention of stopping the rollover process, returns would rise until the market for US external debt cleared, and there's no reason to think that the return response would be large given the low level of global real interest rates. The US (as a country) would have to pay more interest on its debt outstanding, which isn't great, but it's not a disaster of a scale that would &quot;ruin the US economy&quot;.&lt;/p&gt;&#xA;" OwnerUserId="13743" LastActivityDate="2018-02-01T19:23:19.727" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20386" PostTypeId="1" AcceptedAnswerId="20387" CreationDate="2018-02-01T19:48:30.790" Score="3" ViewCount="94" Body="&lt;p&gt;Cities like New York, San Francisco, and others enjoy booming local economies that support high-paying jobs in industries like finance and technology. This and other factors have driven the price tenants are willing to pay for rent to astronomical levels, pricing out lower-income workers who then have to make long commutes or take public transit to get to work.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where I live, the average rent is $2,000, and both that figure and the area affected by inflated rent prices expands every year. As this progresses, help wanted signs and aggressive recruiting for low income jobs have become far more commonplace, indicating a labor shortage in these industries that is steadily increasing as the difficulty of commuting from areas with reasonably priced rent increases.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My city is by no means in a dire labor shortage situation, but I thought it might be interesting to consider a hypothetical city where the area of price-inflated rent becomes so large that basic upkeep from low-paying jobs that &quot;make the world go 'round&quot; is no longer feasible. Is this a real threat to the success of these cities? That is to say, is a labor market correction likely to drive wages up enough to sustain a workforce of extremely long-distance commuters?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Bonus:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assuming this is a real threat, are rent regulation (San Francisco), high-quality public transit (New York), or anything else effective long term solutions? &lt;/p&gt;&#xA;" OwnerUserId="16117" LastActivityDate="2019-05-30T02:11:35.503" Title="Are expensive cities economically threatened by an inability to house low-income workers?" Tags="&lt;labor-economics&gt;&lt;wages&gt;&lt;housing&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20387" PostTypeId="2" ParentId="20386" CreationDate="2018-02-01T20:22:12.047" Score="0" Body="&lt;p&gt;If it was not feasible, then the residents of the city would bid up the price of the services provided by the low-paying jobs until the induced rise in wages (and the fall in rents) would make housing affordable enough for people who are supposed to provide the &quot;make the world go round&quot; services. It's important to note that this process can't create housing units out of nothing; so the restricted supply of housing still leads to inefficiency - if no new houses are constructed, people who are dissatisfied with the lack of affordable basic services have to move out of the city until enough housing is freed up for workers who are going to provide these services. This leads to inefficient allocation of labor, etc etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;Labor market corrections&quot; or rent regulation don't solve the underlying problem, which is a shortage of housing units in areas which offer higher productivity to workers. Public transit could help, but how exactly do we make it &quot;high quality&quot;? The best way to improve the quality of public transit is probably to build more roads to alleviate traffic problems during peak times, and these construction projects usually run into the same barriers that housing construction projects do.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The solution I would recommend is to reform some of the environmental regulation, zoning laws and the government's internal review processes which make it so hard to build new housing units, high-speed trains, roads, etc. If the problem is a lack of housing and transportation infrastructure, the correct response should be to remove the supply-side barriers which are contributing to the shortage. &lt;/p&gt;&#xA;" OwnerUserId="13743" LastActivityDate="2018-02-01T20:22:12.047" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="20388" PostTypeId="1" AcceptedAnswerId="20390" CreationDate="2018-02-01T20:33:33.697" Score="2" ViewCount="1258" Body="&lt;p&gt;The &lt;a href=&quot;https://en.wikipedia.org/wiki/Constant_elasticity_of_substitution&quot; rel=&quot;nofollow noreferrer&quot;&gt;Constant Elasticity of Substitution&lt;/a&gt; production function is defined as:&lt;/p&gt;&#xA;&lt;p&gt;(&lt;em&gt;Taken from Wikipedia&lt;/em&gt;)&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$Q=F \boldsymbol{\cdot}\left(a\boldsymbol{\cdot}K^r+(1-a)\boldsymbol{\cdot}L^r \right)^{1\over{r}}$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;Where:&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$Q=$&lt;/span&gt; the quantity of output&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$F=$&lt;/span&gt; &lt;a href=&quot;https://en.wikipedia.org/wiki/Total_factor_productivity&quot; rel=&quot;nofollow noreferrer&quot;&gt;factor productivity&lt;/a&gt;&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$a=$&lt;/span&gt; Share parameter (i.e. &lt;span class=&quot;math-container&quot;&gt;$0 &amp;lt; a &amp;lt;1$&lt;/span&gt;)&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$K, L=$&lt;/span&gt; Quantities of production factors&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$r= {\left(s-1 \right)\over{s}}$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$s= {1\over{1-r}}=$&lt;/span&gt; Elasticity of subsitution&lt;/p&gt;&#xA;&lt;h1&gt;My question:&lt;/h1&gt;&#xA;&lt;p&gt;Though this is a quite elegant formula, how is it derived?&lt;/p&gt;&#xA;" OwnerUserId="6629" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2018-02-02T00:45:09.777" Title="How was the CES production function derived?" Tags="&lt;mathematical-economics&gt;&lt;production-function&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="20389" PostTypeId="2" ParentId="20362" CreationDate="2018-02-02T00:30:17.233" Score="0" Body="&lt;p&gt;Yes. While producer and consumer surplus rise, the total cost to government exceeded the increase, leaving deadweight loss. &lt;/p&gt;&#xA;" OwnerUserId="15781" LastActivityDate="2018-02-02T00:30:17.233" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20390" PostTypeId="2" ParentId="20388" CreationDate="2018-02-02T00:45:09.777" Score="6" Body="&lt;p&gt;The CES function can be derived directly from the condition of constant elasticity of substitution.  There are various ways to do this, but the simplest derivation occurs for a homothetic production function.  Suppose we start with a homothetic production function $Q = f^*(K, L)$ and we rewrite this in intensive form as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\begin{matrix} q = f(k) &amp;amp; &amp;amp; q \equiv Q/L &amp;amp; &amp;amp; k \equiv K/L. \end{matrix}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For this case the elasticity of substitution $s$ can be shown to be:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$s = - \frac{f'(k)(f(k) - kf'(k))}{kf(k)f''(k)}.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Letting $r \equiv (s-1)/s$ and re-arranging this equation gives the second-order differential equation:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{kf(k)f''(k)}{1-r} + f'(k)(f(k) - kf'(k)) = 0.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This equation has general solution $q = f(k) =  c_0 (1 + c_1 k^r)^{1/r}$ where $c_0$ and $c_1$ are constants.  Parameterising with $a \equiv c_1$ and $F \equiv c_0 \cdot c_1^{1/r}$ and substituting to obtain the extensive form gives:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\begin{equation} \begin{aligned}&#xA;Q = Lq = Lf(K/L) &amp;amp;= c_0 L \left( \left( 1 + c_1 \frac{K}{L} \right)^r \right)^{1/r} \\&#xA;&amp;amp;= c_0 \left(c_1 K^r + L^r \right)^{1/r} \\&#xA;&amp;amp;= F \left(a K^r + (1-a) L^r \right)^{1/r}.  &#xA;\end{aligned} \end{equation}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The parameter $a$ can be interpreted as the capital intensity in production and the parameter $F$ can be interpreted as the overall efficiency of production.&lt;/p&gt;&#xA;" OwnerUserId="16120" LastActivityDate="2018-02-02T00:45:09.777" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20391" PostTypeId="1" CreationDate="2018-02-02T05:19:55.437" Score="-1" ViewCount="209" Body="&lt;p&gt;In USA, more than 1 in 5 persons in working age are unemployed (that includes people looking for jobs, and also the ones not looking for jobs, so is not just the officially unemployed population).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That number is taken from private sources (like &lt;a href=&quot;http://www.shadowstats.com/alternate_data/unemployment-charts&quot; rel=&quot;nofollow noreferrer&quot;&gt;this one&lt;/a&gt;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question is: What is the source of income for that people?&#xA;Is there any data on it?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;They cannot all live from welfare (for a decade). A large percentage had work until 2009.&#xA;They live off rents?&#xA;From family support?&#xA;Are most of them beggars?&lt;/p&gt;&#xA;" OwnerUserId="16122" LastActivityDate="2018-02-02T14:07:19.080" Title="Unemployment. What is the source of income?" Tags="&lt;unemployment&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20392" PostTypeId="2" ParentId="20362" CreationDate="2018-02-02T09:12:18.973" Score="0" Body="&lt;p&gt;Actually, I worked it out, there is DWL when it is not subsidised. When the government subsidises the production with a unit subsidy valued at the external effect. Then there will be DWL gain and loss at the same time, thus leaving us at a socially optimal point.&lt;/p&gt;&#xA;" OwnerUserId="15548" LastActivityDate="2018-02-02T09:12:18.973" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20393" PostTypeId="1" CreationDate="2018-02-02T11:23:06.320" Score="0" ViewCount="187" Body="&lt;p&gt;The first theorem of welfare economics states that &quot;Every Walrasian Equilibrium (WE) is Pareto Efficient (PE)&quot; - &lt;a href=&quot;https://rads.stackoverflow.com/amzn/click/1111525536&quot; rel=&quot;nofollow noreferrer&quot;&gt;Microeconomic Theory Nicholson, Synder 11th ed. p477&lt;/a&gt;. But PE is quite a weak condition. Is WE a stronger condition or is does WE just mean &lt;em&gt;any&lt;/em&gt; PE allocation?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I was specifically wondering; suppose we have an exchange economy with agents $N$, and there is a unique competitive equilibrium (WE) solution, $q^*$. Does this also maximize aggregate social welfare amongst possibly many PE outcomes? Where aggregate social welfare is defined as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;  SW(q^*) = \sum_i^N U_i(q_i^*)&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To ask this question only makes sense if WE $\subset$ PE allocations, because if there is a single PE allocation then it must by definition maximize aggregate social welfare, because there is no other feasible solutions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any solution maximizing social welfare has to be PE, but not all PE solutions are SW maximizing. For example, at a given PE allocation agent $i$ could lose 1 util in exchange for agent $j$ gaining 2.&lt;/p&gt;&#xA;" OwnerUserId="16125" LastEditorUserId="16125" LastEditDate="2018-02-03T23:41:15.010" LastActivityDate="2018-02-03T23:41:15.010" Title="The social welfare of a unique general competitive equilibrium in an exchange economy" Tags="&lt;microeconomics&gt;&lt;general-equilibrium&gt;&lt;pareto-efficiency&gt;&lt;social-welfare&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="20394" PostTypeId="2" ParentId="20393" CreationDate="2018-02-02T11:43:24.033" Score="1" Body="&lt;p&gt;Using the 'utility monster' critique of aggregate utility maximization it is pretty easy to show that gen. comp. eq. does not always maximize aggregate utility.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Imagine a pure exchange economy with two agents, $A$ and $B$ and two types of goods, $x_1$ and $x_2$. Agent $A$ has nothing whereas agent $B$ has one unit of each good. The agents respective utility functions are&#xA;$$&#xA;U_A(x_1^A,x_2^A) = 2x_1^A + 2x_2^A \hskip 20pt U_B(x_1^B,x_2^B) = x_1^B + x_2^B.&#xA;$$&#xA;Trivially the initial distribution is a competitive equilibrium and also trivially it does not maximize aggregate utility.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;EDIT:&#xA;&lt;br&gt;&#xA;I am not sure I understand @spinkus's comment, as obviously not every solution maximizes the aggregate utility, but I will address the other point: Not trading. That is not at all important for me, I just wanted to make the example trivial.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose given some strictly monotonic utility functions $U_A,U_B$ and some initial endowments $w_A,w_B$ some allocation $a^*$ is a competitive equilibrium. If this allocation does not maximize aggregate utility we are done. If it does, consider the following monotonic transformation of $U_B$:&#xA;$$&#xA;\hat{U}_B \triangleq c \cdot U_B&#xA;$$ where $c$ is a positive number. In a pure exchange economy with $U_A,\hat{U}_B$, initial endowments $w_A,w_B$ the competitive equilibrium will again be $a^*$ as the preferences are unchanged. Yet even if $a^*$ maximized $U_A+U_B$, it clearly will not maximize $U_A + \hat{U}_B$ if $c$ is small enough.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2018-02-02T13:43:02.730" LastActivityDate="2018-02-02T13:43:02.730" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="20395" PostTypeId="2" ParentId="20391" CreationDate="2018-02-02T13:31:56.393" Score="2" Body="&lt;p&gt;If the true unemployment rate were 20%, things would be very difficult. We would have a situation similar to the Great Depression, and there would be very large numbers of people camping out looking for work. Although there are tent cities around major cities, they are much smaller than was the case during the Great Depression. This tells us that the 20% unemployment rate you give is incorrect. This is not surprising, as the source you cite is well known as being unreliable. It makes money by selling questionable statistics to people who are convinced the the government is lying to them. I only looked at the CPI data on that site, and they implied outcomes that were obviously not consistent with any other public or private data source. I will not pursue that discussion further here; if you wish, ask another question specifically on that topic (“Is the US unemployment rate really 20%?)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The official statistics are consistent with what we know about the economy, although one also needs to understand the official methodology. There is a large amount of underemployment, which shows up in the U-6 unemployment rate, and some ancillary series. However, people who are underemployed are still working, and have some income.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One thing to keep in mind is that the unemployment rate is a survey, like an opinion poll (but a much larger and better-designed sample). &lt;a href=&quot;https://www.bls.gov/cps/cps_htgm.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;This document provides a summary of the BLS methodology.&lt;/a&gt; Since the BLS needs to sample the same people for 4 months in two years, I believe that they cannot include homeless people in the sample (that is a guess on my part). So yes, the people in tent cities are likely invisible in the employment data (although they mught show up in the census; I do not know). You would need to go to other sources to find estimates for the homeless population; I would not suggest the source you originally cited.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, the government cannot track illegal activity on a high frequency basis - by definition. Therefore, there are no monthly estimates of the number of people earning money with criminal activity, nor working “under the table.” In some European countries with generous welfare states, it is suspected that a good number of “unemployed” people were working in construction before the Financial Crisis. Once again, you would need to track down estimates from other sources.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Otherwise, they either have to live off savings, credit, or family and friends; they could have a partner that is working (which is fairly common). The phenomenon of grown children coming back to live in their parents’ basement is well known. Also, student loans are widely available, allowing people to drop out if the labour force and pursue training/education. Also, food bank usage is quite high, and so that reduces required spending.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastEditorUserId="12891" LastEditDate="2018-02-02T14:07:19.080" LastActivityDate="2018-02-02T14:07:19.080" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="20396" PostTypeId="2" ParentId="20315" CreationDate="2018-02-02T14:47:50.230" Score="1" Body="&lt;p&gt;We need to distinguish between theory and the real world.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In theory, anything can happen. You would need a model that incorporates something that resembles an oil price (many standard models just have a single aggregated good). What then happens depends upon what other assumptions you stick into the model. Whether any of these models have any relationship to the real world is unclear. In any event, you would need to fix a particular model, and as a new question about its behaviour. (E.g., “What is the effect of an oil price rise in {Model X}?”)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the real world, we need to distinguish the measured unemployment rate, and the “natural rate.” There are a number of ways of estimating the natural rate of unemployment, and what happens to them depends on all of the inputs into the estimation procedure.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What really matters in the real world is what happens to the measured unemployment rate (which may flow into the estimates of the “natural unemployment rate”, as many of the estimation procedures resemble low pass filters). I think the answer is a definite “it depends.”&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Firstly, it depends on what country you are talking about. For an oil producer, falling oil prices can easily be a disaster for employment. Many oil producing countries have government revenues that are highly sensitive to oil prices, and so they may be forced to cut back spending. However, they generally have financial reserves, and so can handle limited price falls with limited disruption. Therefore, you need to look at each involved country separately.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For an oil consumer, a rapid rise in oil prices is disruptive; the 1970s experience could be used as an example. Consumers have to spend more on energy, making some products and services unviable. Meanwhile, the increased income is flowing to overseas producers. There is a “terms of trade” shock. The economy will eventually adjust to the new pattern of activity that incorporates higher oil prices, but in practice, the adjustment implies higher unemployment in the near run.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the fall in oil prices is reversing a previous spike, this will presumably undo the previous disruption. However, if prices were previously stable, effects may be less dramatic. The effects on the economy will depend on how consumers react to the fall in energy prices. If they use the energy savings to buy domestically-produced goods and services, the total volume of domestic production rises, and so firms would presumably need to hire extra workers to produce the greater volume of output. However, the energy savings could just lead to higher savings, leading to no change in domestic production, and presumably employment (in the near run, at least).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The key is that falling input prices are generally not enough to cause increased production by itself; the firm needs to sell a greater quantity of goods, or else the extra production would just represent an undesired increase in inventories. (Since firms have to project demand, they could ramp up production (and hence, employment) to meet projected demand, but if that demand is not realised, they would have to reverse that decision.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a country that is both a consumer and importer of oil (such as the United States) there is a trade-off between the benefit to consumers versus the potential loss of fixed investment in energy production. Therefore, it could go either way; you would need to do a fairly detailed model to get an estimate.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastEditorUserId="12891" LastEditDate="2018-02-02T14:57:40.040" LastActivityDate="2018-02-02T14:57:40.040" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20399" PostTypeId="1" CreationDate="2018-02-02T17:27:52.563" Score="3" ViewCount="27" Body="&lt;p&gt;Can anyone provide references for research that focuses on coordination between groups of decision makers rather than within group coordination with individual decision makers? \&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edits given the questions posted in comments: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;1 - I am interested in behavioral/experimental work. &#xA;2 - Coordination/Cooperation between groups within any context. So...could be groups as groups, groups as nations, etc. &lt;/p&gt;&#xA;" OwnerUserId="1655" LastEditorUserId="1601" LastEditDate="2018-02-02T22:11:24.930" LastActivityDate="2018-02-02T22:11:24.930" Title="References? -- Coordination Between Groups" Tags="&lt;reference-request&gt;&lt;behavioral-economics&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="20400" PostTypeId="2" ParentId="20267" CreationDate="2018-02-02T17:30:53.830" Score="0" Body="&lt;p&gt;Here is a basic answer for anyone too uninterested to read the long answers: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) ML focuses on prediction and not on causality (as does metrics) &#xA;2) ML is powerful for parameter selection and model validation &#xA;3) Many ML algs. are incredibly similar to basic metrics approaches. For example, ridge regressions and LASO are both just small extensions of OLS. &lt;/p&gt;&#xA;" OwnerUserId="1655" LastActivityDate="2018-02-02T17:30:53.830" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20401" PostTypeId="1" CreationDate="2018-02-02T20:16:48.500" Score="0" ViewCount="76" Body="&lt;p&gt;We all know that the US stock market(s) collapsed in price in 2008, see &lt;a href=&quot;https://en.wikipedia.org/wiki/United_States_bear_market_of_2007%E2%80%9309&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://en.wikipedia.org/wiki/United_States_bear_market_of_2007%E2%80%9309&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I was wondering what countries' stock markets went up throughout this period.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Include things like frontier markets and not just developed countries.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I cannot find a data source online.&lt;/p&gt;&#xA;" OwnerUserId="5515" LastActivityDate="2021-03-02T12:02:10.203" Title="World Stock Markets that went up in 2008" Tags="&lt;finance&gt;&lt;stock-market&gt;&lt;financial-markets&gt;" AnswerCount="1" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="20402" PostTypeId="2" ParentId="20382" CreationDate="2018-02-02T21:26:53.267" Score="2" Body="&lt;p&gt;The fear is that higher interest rates would damage the economy. The problem with that worry is that the Federal Reserve could buy bonds itself, to cancel out the foreign selling.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The hidden assumption is that this selling would have to be very rapid. If the foreign reserves managers liquidated their Treasury holdings over five years (for example), the selling would be easily absorbed by other bond market particpants, and nothing much would happen. So, we have to imagine concentrated selling over a span like a week, and the foreign reserves manager is for some reason unconcerned about the price (yield) it sells at.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question asks: how would they sell? That is the real issue. It is very difficult to see how such sales would represent the national interest of those countries.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the foreign central bank sells their Treasury bonds, they end up with US dollar cash. They need to do something with that cash. What can they do with the US cash?&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;They could buy risk assets (equities, real estate) in the United States. However, countries generally do not want to buy too large positions in risky assets with their foreign currency reserves, and they would face questioning by the US government if they tried. In any event, US risk asset prices would rise, and everyone in the business press would happy, not panicking. Not a plausible option.&lt;/li&gt;&#xA;&lt;li&gt;They could buy commodities (or goods). This is equivalent to blowing all their foreign currency reserves to buy imports. If there was a global scramble to buy commodities, such an outcome is possible. However, to do this all at once would be expensive. They would more likely want to spread purchases out over time, so that they do not drive up the price of whatever they are buying. (Furthermore, if they buy oil, the dollars would go to oil producers, who would likely reinvest back into dollars.)&lt;/li&gt;&#xA;&lt;li&gt;They could buy other foreign currencies (third party countries). The problem is that few countries have the capacity to absorb a huge wave of inflows, and their currency would become very strong versus the US dollar. (The euro is the only plausible candidate, and most foreign reserves managers already own a lot of euros.) The involved foreign country could get mad, and freeze the assets of the foreign central bank that is moving into their currency. Countries diversify their foreign currency reserves, but try to avoid causing disruptions.&lt;/li&gt;&#xA;&lt;li&gt;It is possible that entities in the private sector want to sell their local currency, and buy US dollars. For example, we see wuch behaviour during financial crises. The foreign reserve manager would lean against this, selling US dollars to buy back their local currency. This effectively creates a shift between the reserves portfolio (which sells Treasurys) and the private sector portfolio (which is buying US dollar assets), and the net effect on the Treasury market is ambiguous. However, the usual response to a financial crisis in the Treasury market is for yields to fall (e.g., LTCM Crisis, Financial Crisis).&lt;/li&gt;&#xA;&lt;li&gt;If they buy their own currency, and the are no corresponding capital outflows, their currency would get extremely strong, and/or their trade balance would have to shift into a deficit. If they buy their currency, someone has to sell. This counter-acts the reason why they have US dollars in the first place - to keep their currency cheap, to develop their export sector. (For example, see the discussion of the “Bretton Woods II” system - &lt;a href=&quot;http://www.nber.org/papers/w14731&quot; rel=&quot;nofollow noreferrer&quot;&gt;link to NBER paper by Dooley, Folkerts-Landau, and Garber&lt;/a&gt;.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;In summary, it might be possible to find a scenario where such sales make sense, but they probably require something else to go wrong for the United States. Something has to cause foreigners to want to dump their dollar holdings, without worrying about their own trade position. &lt;/p&gt;&#xA;" OwnerUserId="12891" LastEditorUserId="12891" LastEditDate="2018-02-03T18:29:39.087" LastActivityDate="2018-02-03T18:29:39.087" CommentCount="10" ContentLicense="CC BY-SA 3.0" />
  <row Id="20403" PostTypeId="2" ParentId="20401" CreationDate="2018-02-02T22:41:59.083" Score="0" Body="&lt;p&gt;Google is your friend. E.g Australia did very well in the crisis of 2008&lt;/p&gt;&#xA;&#xA;&lt;p&gt;See: &lt;a href=&quot;https://en.m.wikipedia.org/wiki/Financial_crisis_of_2007%E2%80%932008#&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://en.m.wikipedia.org/wiki/Financial_crisis_of_2007–2008#&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="14207" LastActivityDate="2018-02-02T22:41:59.083" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="20404" PostTypeId="1" CreationDate="2018-02-03T01:04:28.663" Score="2" ViewCount="36" Body="&lt;p&gt;There is an ongoing political battle in Canada about the &lt;a href=&quot;https://en.wikipedia.org/wiki/Kinder_Morgan_Trans_Mountain_Pipeline_System#Expansion_project&quot; rel=&quot;nofollow noreferrer&quot;&gt;proposed expansion&lt;/a&gt; of the Kinder Morgan Trans Mountain pipeline.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One argument in favour of the expansion that is repeated by just about every news article on the topic (&lt;a href=&quot;http://www.cbc.ca/news/business/wti-wcs-gmp-dwarkin-rseg-oil-1.4491527&quot; rel=&quot;nofollow noreferrer&quot;&gt;example&lt;/a&gt;) is that the lack of pipeline capacity to get Canadian oil to market is causing Canadian oil to sell at a discount compared to US oil.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'd like to understand this connection between pipeline capacity and oil price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Naively, I would think that if pipeline capacity is scarce and the oil has to be transported by more expensive means like rail, its price would be &lt;strong&gt;higher&lt;/strong&gt; to reflect the increased cost.&lt;/p&gt;&#xA;" OwnerUserId="16131" LastActivityDate="2018-02-03T03:05:38.100" Title="Why does a lack of pipelines cause Canadian crude oil to trade at a discount compared to US crude oil?" Tags="&lt;price&gt;&lt;oil&gt;&lt;canada&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20405" PostTypeId="2" ParentId="20404" CreationDate="2018-02-03T03:05:38.100" Score="2" Body="&lt;p&gt;If you take the oil price as a given, meaning not set by Canada but by the market, then the costs of more expensive transport will eat the profit margins. For example, if the price of the oil is 100 USD per barrel, 20 USD would be costs for Canada, while for US producers the cost is, for instance, only 10$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Keep in mind that a project investment analysis should take in account the cost of the pipeline divided by the number of years that it will be used to deliver that oil, adjusted for potential changes in oil demand, and including costs of insurance and removal at the end on the life of the pipeline. When all is taken in account, it might be that the oil will always be sold at discount when coming from Canada, and building the pipeline is not such a good investment after all - but only a full analysis would tell.&lt;/p&gt;&#xA;" OwnerUserId="12304" LastActivityDate="2018-02-03T03:05:38.100" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20407" PostTypeId="1" CreationDate="2018-02-03T06:26:36.090" Score="1" ViewCount="50" Body="&lt;p&gt;When micro-economists refer to &quot;social welfare&quot; as measure of an outcome of a competitive equilibrium economic model, or &quot;welfare economics&quot; in general, is this taken to include a measure of the supply side's &quot;welfare&quot; too? Every description of this term / concept that I've found leaves room for doubt.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I mean Production side is part of a society and part of the economic models of societies. They have an objective and a payoff for participating in the economy. So why shouldn't their welfare be included? &lt;/p&gt;&#xA;" OwnerUserId="16125" LastActivityDate="2018-02-03T06:26:36.090" Title="Is production side (or so called &quot;firms&quot;) considered in &quot;social welfare&quot;?" Tags="&lt;microeconomics&gt;&lt;social-welfare&gt;" AnswerCount="0" CommentCount="9" ContentLicense="CC BY-SA 3.0" />
  <row Id="20410" PostTypeId="2" ParentId="12827" CreationDate="2018-02-03T13:58:20.747" Score="1" Body="&lt;p&gt;I’d go with (2j, something with how they calculate exchange rates. If you note the scale, the blips are abeolutely small, so there was just some small glitches.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am only somewhat familiar with currencies, but the spot markets use market makers. (Currency futures are traded on exchanges, but the chart should be labelled as futures if that were the case.) Series like this are based on some kind of “average” of quotes. The period shown is outside “normal” trading hours (currency markets are global, so trading hours reflect that), and there is no reason to update quotes, so the level is mainly stable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any number of things could cause the small glitches. For example, if one of the dealers shuts down their system temporarily, it could move the average. Or there could have been some out-of-hours activity that caused one dealer to move quotes, and then snap back into line with the other dealers after the activity passed.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2018-02-03T13:58:20.747" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20413" PostTypeId="1" CreationDate="2018-02-03T21:05:59.420" Score="1" ViewCount="51" Body="&lt;p&gt;If $a_{t}$ is the asset at time $t$, $c_{t}$ the consumption at time $t$, and $r$ the interest rate, then $a_{t+1} - a_{t} = ra_{t} - c_{t}$ is the flow of $a$. But it seems that in macroeconomics people just write $\dot{a}_{t} = ra_{t}-c_{t}$ instead in continuous time setting. I do not see the passage from $a_{t+1}-a_{t}$ to $\dot{a}_{t}$ in general. I can justify it in some special cases. For instance, if $a_{t+1}-a_{t} = r$ for some $r$, all $t$, then $a_{t+h}-a_{t} = hr$, so taking limit of the difference quotient leads us to $\dot{a}_{t} = r$. But this depends on the fact that the right-hand-side term is linear in $t$. &lt;/p&gt;&#xA;" OwnerUserId="11843" LastActivityDate="2018-02-04T21:34:03.550" Title="Flow and Time derivative?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20419" PostTypeId="1" CreationDate="2018-02-04T04:13:45.773" Score="3" ViewCount="490" Body="&lt;p&gt;What are the necessary and sufficient conditions on a utility function for gross substitutes? Gross substitutes is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;  \frac{dx^*_i}{dp_j} \ge 0\ \ \forall_{i,j}\ i \ne j&#xA;$$&lt;/p&gt;&#xA;" OwnerUserId="16125" LastActivityDate="2018-02-06T05:14:16.467" Title="What are the necessary and sufficient conditions on a utility function for gross substitutes?" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="20420" PostTypeId="2" ParentId="19931" CreationDate="2018-02-04T05:09:20.530" Score="2" Body="&lt;p&gt;In terms of modelling, this could reasonably be represented as a signalling effect (signalling his wealth to others by buying goods with higher prices), or as a situation where there is an unobserved, or imperfectly observed, &quot;quality&quot; element, and he is using price as a basis for inferring higher quality.  Neither of these is necessarily &quot;irrational&quot; since they may come with either social gains or quality gains, at the expense of greater cost.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To differentiate these effects it would be necessary to observe how he acts in cases where the quality of two items is known to be equal, and whether he has a greater tendency to do this with goods that are observed by others.  (Of course, here there is a sampling problem, since you only observe him when he is able to be observed by others!)&lt;/p&gt;&#xA;" OwnerUserId="16120" LastActivityDate="2018-02-04T05:09:20.530" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20421" PostTypeId="2" ParentId="19952" CreationDate="2018-02-04T08:15:48.403" Score="0" Body="&lt;p&gt;The thing to understand is &lt;strong&gt;every shift in a supply curve (and also in a demand curve) can be interpreted in two ways&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;A leftward shift of the supply curve is also an upward shift of the supply curve:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Leftward shift: At every price, producers are willing to produce and sell fewer units of the good.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Upward shift: In order to get producers to sell any given number of units of the good, we must offer them a higher price.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Similarly, &lt;strong&gt;a rightward shift of the supply curve is also a downward shift of the supply curve:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Rightward shift: At every price, producers are willing to produce and sell more units of the good.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Downward shift: In order to get producers to sell any given number of units of the good, we can offer them a lower price.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;There are thus two complementary (and equally correct) ways to interpret any  shift in the supply curve. (And likewise for demand curves.)&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Note: Your textbook here is simply wrong or at the very least deeply confusing. (The text says &quot;supply will shift to the left&quot; and refers to the diagram, but the diagram shows upward arrows.) The writer may have been thinking of the above, but did a bad and confusing job explaining himself. So let's just ignore your textbook altogether.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2018-02-04T08:15:48.403" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20422" PostTypeId="2" ParentId="20413" CreationDate="2018-02-04T21:23:53.780" Score="1" Body="&lt;p&gt;I am unsure how economists deal with the transition from continuous time to discrete time. My background is in systems engineering/applied mathematics, and the economics literature I am familiar with is either discrete time or continuous time. Unfortunately, I have no good references on the conversions from discrete to continuous time from the systems engineering literature (got rid of the textbooks).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The key in this case is that the “a” coefficient in these systems do not necessarily correspond to the same number. We need to adjust it so that behaviour lines up.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we are transitioning from continuous time to discrete time, we effectively are sampling the continuous time system. The frequency we sample at matters.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is easy to see. Imagine that a continuous variable grows by 1% in six months. If the discrete time step is six months, the variable grows by 1.01 each period. However, if we our sample is annual, we get a transition growth step of $(1.01)^2$ per period. Essentially, the formula to convert the growth coefficient is similar to changing interest rate quote conventions from continuous compounding to a bond yield equivalent.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Although a continuously growing variable (like a compunding deposit) is relatively straightfoward to deal with, something like consumption series is more difficult to specify. If we want the discrete time to correspond to the sampled values of the continuous time version, we need to pin down the continuous time dynamics in some fashion. Is it constant during the time interval, or is it also growing in an exponential fashion (which would be the case if it were an endogenous variable inside a linear model)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Going from discrete time to continuous time is more awkward. A continuous time system contains much more information than a discrete time system. There is an infinite number of continuous time systems that can generate the same discrete time system. We need a machanism to pin down the dynamics of the continuous time version, but the decision can be viewed as arbitrary. This is a topic that is not heavily studied in systems engineering, as physical systems are already truly operating in continuous time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A simple economic example of the loss of information is as follows. Imagine that we have a quarterly model frequency, but a household receive a cash flow at some point during the quarter. Interest compounds daily (like a bank deposit). The final amount held at the end of the quarter depends upon the length of the holding period, which could be from 0-3 months in length. Since the discrete time model has no notion of times in between the quarterly sample periods, it has no way of modelling this timing effect that is a property of the continuous time model. This means that a discrete time model is likely only going to approximate a continuous time model.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastEditorUserId="12891" LastEditDate="2018-02-04T21:34:03.550" LastActivityDate="2018-02-04T21:34:03.550" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20424" PostTypeId="2" ParentId="20313" CreationDate="2018-02-04T22:47:49.443" Score="1" Body="&lt;p&gt;It sounds like you want to sell a product: &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;At price less than the market value &lt;/li&gt;&#xA;&lt;li&gt;The product is frequently sold at a monentary loss anyway.  &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Initial thoughts: You are trying to establish a &lt;em&gt;price ceiling&lt;/em&gt; for your members under the market price. You will take an economic loss on this product - it is unavoidable once you consider the &lt;em&gt;opportunity cost&lt;/em&gt;, that this product could be sold in the market for a higher price. Sorry for the bad news.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, the good news is that the economic loss you take is roughly equal to the discount you are providing your members.  Most organizations levy taxes or membership fees to provide similar services.  You seem to want to operate more efficiently. Here are some simple ideas.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;You can reduce your costs by assigning production to members who benefit from the task (need to level that particular skill).  They will be cheaper sources of labor.  &lt;/li&gt;&#xA;&lt;li&gt;It may also be worth considering those with higher skill level can produce faster. In which case you may want to compare the output/$ of low and high skill laborers. &lt;/li&gt;&#xA;&lt;li&gt;You may be able to decrease costs further by providing some sort of public equipment for your organization (perhaps anvils and furnaces for crafting, or double-effectiveness consumables). This will allow workers to produce more effectively at lower cost.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="4185" LastActivityDate="2018-02-04T22:47:49.443" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20425" PostTypeId="1" CreationDate="2018-02-04T22:51:21.033" Score="4" ViewCount="226" Body="&lt;p&gt;I took out a book from my university library called Econometric Modelling with Time Series: Specification Estimation and Testing in an attempt to understand the importance of MLE in Econometrics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is a small note mentioning a production function I've never seen before called the &lt;strong&gt;Zellener-Revankar Production Function (ZRPF)&lt;/strong&gt;. Its a non-linear production function relating to output, capital and labor defined as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\ln y_t+\alpha y_t=\beta_0+\beta_1 \ln k_t+ \beta_2 \ln l_t + u_t$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The left hand side makes sense, however the right hand side seems odd. What kind of production it is trying to represent and more fundamentally, how this is mathematically considered a function give that there are two dependents on the left hand side?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ive looked at the relevant paper work namely:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;ul&gt;&#xA;  &lt;li&gt;&lt;p&gt;&lt;a href=&quot;http://www.accessecon.com/pubs/EB/2007/Volume3/EB-06C60008A.pdf&quot; rel=&quot;noreferrer&quot;&gt;Estimation of Zellner-Revankar production function revisited&lt;br&gt;&#xA;  SK Mishra,&#xA;  Department of Economics,&#xA;  North-Eastern Hill University&lt;br&gt;&#xA;  Shillong (India) &lt;/a&gt;&lt;/p&gt;&lt;/li&gt;&#xA;  &lt;li&gt;&lt;p&gt;&lt;a href=&quot;http://ageconsearch.umn.edu/record/198658/files/agecon-cal-832.pdf&quot; rel=&quot;noreferrer&quot;&gt;ALTERNATIVE FUNCTIONAL FORMS FOR PRODUCTION,&#xA;  COST AND RETURNS TO SCALE FUNCTIONS&#xA;  by&#xA;  Arnold Zenner and Hang Ryu&lt;/a&gt;&lt;/p&gt;&lt;/li&gt;&#xA;  &lt;/ul&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated in terms of understanding what type of process this is coming to represent would be helpful.&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2018-02-11T05:35:53.660" Title="Understanding the Zellener-Revankar Production Function" Tags="&lt;econometrics&gt;&lt;mathematical-economics&gt;&lt;production-function&gt;" AnswerCount="1" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="20426" PostTypeId="1" CreationDate="2018-02-05T02:40:01.763" Score="2" ViewCount="85" Body="&lt;p&gt;I've been looking how I can motivate the model I want to estimate using a utility optimization framework. Basically, I want to write a model using two goods: x and y, in two periods: 1 and 2, where the optimal amount of $x_2$ is negatively affected by the amount $x_1$ that was consumed in the previous period. For example, a person's preference between Italian (x) and Thai (y) restaurant at period t should depend on whether or not a person Italian food at period t-1, so consuming $Italian_{t-1}$ should negatively affect the optimal amount of $Italian_{t}$ by some proportional amount. The nature of the problem rules out the Discounted Utility Model because it assumes consumption independence. I read about alternative such as habit forming models,but these models describe the opposite of what I want and can lead to intractable. Any reference or help will be greatly appreciated.&lt;/p&gt;&#xA;" OwnerUserId="11030" LastEditorUserId="11030" LastEditDate="2018-02-05T02:55:03.233" LastActivityDate="2018-12-20T20:02:00.393" Title="How can I motivate a dynamic model using utility and consumer preference where only one good is affected by past consumption?" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;consumer-theory&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20427" PostTypeId="2" ParentId="19590" CreationDate="2018-02-05T09:36:57.877" Score="1" Body="&lt;p&gt;You can think of the capital account as &quot;exports of liabilities&quot; - a capital account surplus means that a country is exporting liabilities (borrowing) from abroad to pay for imports of goods and services and/or for income transfers abroad (a current account deficit). An increase in foreign assets owned by the US is an &lt;em&gt;import&lt;/em&gt; of liabilities: the US is buying liabilities from rest of the world by sending them goods and services (or reinvesting the returns from the assets they already own). The increase in foreign asset holdings corresponds to a current account surplus (as it must), but they are not the same thing. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The capital account and the current account of the balance of payments measure the same thing: the absolute change in the external debt stock (defined generally to include all liabilities, equity is in here as well) of a country. They just go about the measurement in different ways: the capital account measures the change in the external debt stock directly by looking at financial asset holdings, whereas the current account notes that an increase in the external liability stock of a country has to come from either a net import of goods and services or income transfers (interest payments, dividends, etc), so it measures these instead. In practice, measurement errors mean that the two come out to be different, but as a matter of accounting they have to be equal.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reason increases in holdings of foreign assets is in the capital account is simply because that's what the capital account measures, and it's not in the current account because that's not what the current account measures. The question is a bit like asking &quot;Why is rental income not in the expenditure method for calculating GDP?&quot; Rental income is in there, but due to the way the expenditure method measures GDP, it is measured implicitly as part of expenditures. &lt;/p&gt;&#xA;" OwnerUserId="13743" LastActivityDate="2018-02-05T09:36:57.877" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20428" PostTypeId="2" ParentId="20426" CreationDate="2018-02-05T10:49:33.943" Score="0" Body="&lt;p&gt;Habit forming models should work fine for this if you just switch the sign with which the habit enters the utility function of the consumer. The usual habit model looks something like&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \Delta X_t = \phi (C_t - X_t) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;with $ \phi &amp;gt; 0 $ where $ X_t $ is the consumer's habit at time $ t $ and $ C_t $ is consumption. Habit forming models usually take a standard utility function $ u $ and say that consumer's time $ t $ utility from consumption is given by $ u(C_t - X_t) $. For your purposes, assuming the utility from consumption at time $ t $ is given by $ u(C_t + X_t) $ will do. With multiple goods instead of one, you may specify a moving habit for each good and put each habit in the same way into the multivariate utility function. Habit models may also assume that habit formation is &quot;external&quot;, i.e the consumer makes decisions without taking into account that consumption decisions affect the habit process. For your purposes, you want the exact opposite: the consumer should notice the effect consumption decisions have on habit formation and act accordingly.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The point of this modification is that for large values of $ X_t $ it reduces the marginal utility of consumption, so (for instance) if the consumer has to work and suffer some marginal disutility to acquire income and there are no savings, they will work less in times of high $ X_t $ compared to times of low $ X_t $. If there are savings, then the consumer will still consume less in times of high $ X_t $, because the marginal utility gain from doing so is small.&lt;/p&gt;&#xA;" OwnerUserId="13743" LastActivityDate="2018-02-05T10:49:33.943" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20429" PostTypeId="2" ParentId="19904" CreationDate="2018-02-05T12:13:06.693" Score="3" Body="&lt;p&gt;[I can't possibly compete with the credentials of &lt;a href=&quot;https://economics.stackexchange.com/users/12891/brian-romanchuk&quot;&gt;Brian Romanchuk&lt;/a&gt; so I write this answer simply to continue the discussion.]&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Isn't there an argument based on maturity transformation?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Maturity transformation is that process by which banks create long terms loans from short term deposits.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, equity share price analysts will take about how a steeper yield curve is good for the profits of banks because banks pay interest at a 90-day rate whilst making loans at a longer rate, say 10yr on average (think of a mix of 5yr personal loans and up to 30 yr mortgages).  When the yield curve flattens, i.e. when long rates minus short rates falls then making loans becomes less profitable.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;If the yield curve inverts and shorter rates are more expensive than longer rates then (ceterus paribus) what is the incentive for banks to make an unprofitable loan?&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Further, at any given time loans are being paid off and loans are being created, if there is a cessation of new loans whilst old loans are being paid off then one can see how there will be a drop in M3 (the higher money supply indicators).  This is &lt;em&gt;capital shallowing&lt;/em&gt; aka. &lt;em&gt;disinvestment&lt;/em&gt; and that would (could?) cause a recession.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So there are issues with this theory.  Loans do not take place at the risk free rate, each borrower pays a rate higher based on counterparty risk.  Other factors include corporate strategy where one bank intends to drive competitors out of business with deliberately predatory (and unprofitable) pricing.  That is why I added &lt;em&gt;ceterus paribus&lt;/em&gt; in the italicised paragraph above.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is my pet theory; I have not read it in a textbook.  Yield curve flattening and potential yield curve inversion arises recurrently on business television but they hardly ever explain the transmission mechanism to a recession (if one exists).  Recently, I heard one economist propose my theory on Bloomberg but he was disputed by another economist, so this is not orthodox economics view.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'd love to know the real answer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;UPDATE: In this interview with Bloomberg Ray Dalio says a &quot;&lt;a href=&quot;https://www.bloomberg.com/news/articles/2018-01-24/billionaire-dalio-says-bond-market-has-moved-into-bear-phase&quot; rel=&quot;nofollow noreferrer&quot;&gt;flatter yield curve causes a constraint in the economy and a constraint in lending&lt;/a&gt;&quot; ~4:10 to ~4:50.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;UPDATE2: New Fed Chair Jerome Powell in his first press conference says &lt;a href=&quot;https://www.youtube.com/embed/RxNXxVqTNVg?start=2520&amp;amp;end=2545&quot; rel=&quot;nofollow noreferrer&quot;&gt;the effects of inverted yield curve on inter-mediation are hard to find in the research data but nonetheless those are issues that they'll be watching carefully.&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="11622" LastEditorUserId="11622" LastEditDate="2018-03-21T23:19:07.600" LastActivityDate="2018-03-21T23:19:07.600" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="20430" PostTypeId="1" CreationDate="2018-02-05T13:06:53.223" Score="1" ViewCount="29" Body="&lt;p&gt;Suppose I earn factor wage ₹1000 in the year 2018 and I pay a tax of ₹100 to the government. So GDP by income method is ₹1000 as we ignore transfer payments.&#xA;Now if I spent all my 900 on domestic consumption good but government expenditure is zero. So GDP by expenditure method is ₹900.&#xA;What am I missing?&lt;/p&gt;&#xA;" OwnerUserId="14617" LastActivityDate="2018-02-05T13:06:53.223" Title="How GDP by expenditure and GDP by income method are same in this case?" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;&lt;national-income&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20431" PostTypeId="1" AcceptedAnswerId="20432" CreationDate="2018-02-05T16:57:30.730" Score="6" ViewCount="218" Body="&lt;p&gt;In the standard models of trade, such as Ricardo or Hecksher-Ohlin, I know that openness to trade will lead to increased consumption as (roughly) the consumption possibility frontier expands beyond the PPF. However, does this mean that the countries will grow? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Technically, consumption expands because the relative price of the goods in which you won't specialize will decrease. Therefore, I don't see how I could infer from this increased consumption that there has been economic growth.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am asking because I have seen many lectures jump from the classic diagrams of international trade to the idea that the baseline theory suggests that trade is benefitial to economic growth.  &lt;/p&gt;&#xA;" OwnerUserId="14708" LastActivityDate="2021-04-02T14:35:27.880" Title="Does trade lead to economic growth in the most basic models of trade?" Tags="&lt;economic-growth&gt;&lt;international-trade&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20432" PostTypeId="2" ParentId="20431" CreationDate="2018-02-05T20:21:59.790" Score="5" Body="&lt;p&gt;It depends on how you define &quot;growth&quot;. Trade models have multiple goods in them, so there's no unique way to define &quot;growth&quot; - you are just moving along a fixed production possibility frontier. You can calculate nominal GDP, but then you have to come up with a measure of inflation so that you can deflate the nominal figure into something real. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;One of the results here is that if your economy which produces $ n $ goods has a production possibility frontier given by the zero set of a $ C^2 $ function $ Q : \mathbb R^n \to \mathbb R $ (with the usual properties, i.e increasing in each coordinate and with positive definite Hessian at every point), then a simple application of the chain rule gives (here the $ dx $ notation denotes derivatives with respect to time, so we're assuming that the economy shifts continuously along the ppf instead of a unit step jump from one point to another - this assumption is important, otherwise we can't lose the higher order terms in the Taylor expansion of $ Q $...)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ 0 = dQ = \sum_{k=1}^{n} \frac{\partial Q}{\partial x_k} dx_k $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;if you're moving along the ppf, so that the value of $ Q $ is conserved. However, we also know from the first order conditions of producers in a competitive market that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{\partial Q/\partial x_i}{\partial Q / \partial x_j} = \frac{p_i}{p_j} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $ p_i, p_j $ are the nominal prices of good $ i $ and good $ j $ respectively. Substituting this into the above identity gives&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ 0 = \sum_{k=1}^n p_k dx_k $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is an important result: it says that if you calculate growth by looking at changes in production and hold the prices fixed, then you will detect no growth if the economy moves along a fixed production possibility frontier. Furthermore, this identity combined with the identity&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ NGDP = \sum_{k=1}^{n} p_k x_k $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;gives, using the product rule, that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ d(\log(NGDP)) = \frac{1}{NGDP} \sum_{k=1}^n x_k d p_k = \textrm{GDP deflator} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words, if we deflate GDP by using the GDP deflator which is defined as the percent change in the price of a basket of goods weighted by the share of total production they represented in a given time period, we will measure zero RGDP growth so long as the economy remains along the same production possibility frontier $ Q(x_1, x_2, \ldots, x_n) = 0 $. The results hold true in autarky as well as in an environment of free trade, so in this sense free trade does not lead to &quot;more growth&quot;, at least not due to the effects present in Heckscher-Ohlin.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can get away from this result if we choose to deflate nominal GDP by an alternative measure, but I think this should be enough illustration that you should be thinking about the &lt;em&gt;welfare&lt;/em&gt; effects of trade and not about the &quot;growth&quot; effects. If you do come up with an appropriate notion of CPI inflation in a model, it will most likely be a &quot;cost of living index&quot; of the kind you find in Dixit-Stiglitz type models, so you will still indirectly be measuring welfare. The basic proof of the first welfare theorem carries over to the case of international free trade vs autarky, so under the usual assumptions (locally nonsatiated preferences and such) free trade outcomes are Pareto optimal, whereas autarky outcomes are in general not Pareto optimal.&lt;/p&gt;&#xA;" OwnerUserId="13743" LastEditorUserId="13743" LastEditDate="2018-02-05T20:44:23.110" LastActivityDate="2018-02-05T20:44:23.110" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20435" PostTypeId="2" ParentId="20431" CreationDate="2018-02-05T23:21:45.147" Score="2" Body="&lt;p&gt;It's important here to distinguish two questions about trade and growth:&lt;/p&gt;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Suppose a country which has been in equilibrium in a state of autarky opens itself to trade, with consequent specialisation in production of goods in which it has a comparative advantage.  In moving to a new static equilibrium in which it achieves all the gains from trade that are available to it at the time of opening itself to trade, does it experience growth?&lt;/li&gt;&#xA;&lt;li&gt;Having achieved all available gains from trade as in 1 above, will  the country be better placed to achieve future growth via capital accumulation and technical progress than it would have been if it had specialised in other sectors?&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&lt;p&gt;As explained in Ege Erdil's answer, question 1 raises the issue of how growth in real GDP should be measured when, as a consequence of exploiting the gains from trade, the composition of the country's output is changing; hence in that context it may be helpful to focus on the effects of trade and specialisation not on growth but on welfare.&lt;/p&gt;&#xA;&lt;p&gt;Re question 2, the country will &lt;em&gt;not necessarily&lt;/em&gt; be better placed to achieve growth via capital accumulation and technical progress.  The potential problem is that, even if a country at a certain time has a comparative advantage in production of a good, it may not have much potential to improve productivity of that good through technical progress and investment in capital embodying improved techniques.&lt;/p&gt;&#xA;&lt;p&gt;That could be because the nature of the good itself offers, at the time, limited scope for improvement in productivity.  Considering Ricardo's famous example from c 1800 of Britain specialising in the manufacture of cotton textiles and Portugal in  the production of wine, the former had been largely mechanised by 1850 (&lt;a href=&quot;https://www.cambridge.org/core/journals/journal-of-economic-history/article/abs/lancashire-cotton-industry-and-the-introduction-of-the-powerloom-18151850/2EF6CFC92C7BB2298108AF57AC8637C9&quot; rel=&quot;nofollow noreferrer&quot;&gt;Lyons 2010&lt;/a&gt;), while the technology for mechanisation of grape harvesting (anywhere in the world) only began to become available c 1950 (&lt;a href=&quot;https://www.ajevonline.org/content/8/4/182&quot; rel=&quot;nofollow noreferrer&quot;&gt;Winkler et al 1957&lt;/a&gt;).&lt;/p&gt;&#xA;&lt;p&gt;It could also be because, although the good offers scope for improved productivity, the country is not as well-placed as other countries to improve its productivity of the good, eg because it lacks scientists and engineers with the necessary skills, or lacks access to a natural resource required by a new technique.  According to &lt;a href=&quot;https://www.princeton.edu/%7Ereddings/pubpapers/DCAOEP1999.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Reddings (1999)&lt;/a&gt;:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Specialisation according to current comparative advantage results in the standard static gains from trade. However, if agents fail to fully internalise the potential for productivity growth in each sector, it may also mean that an economy fails to specialise in sectors where its potential for productivity growth is large relative to its trading partners.  As a result, free trade will induce dynamic welfare losses.  If sufficiently large, these may outweigh the standard static welfare gains ...  (pp 35-6)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="1417" LastEditorUserId="1417" LastEditDate="2021-04-02T14:35:27.880" LastActivityDate="2021-04-02T14:35:27.880" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="20436" PostTypeId="1" CreationDate="2018-02-05T23:31:25.060" Score="3" ViewCount="134" Body="&lt;p&gt;I am trying to understand the way Smith demonstrates that the general solution to his equation (12) is (13) (see page 6). &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;(12) \begin{eqnarray}&#xA;\dot{z} &amp;amp;=&amp;amp; (1- \alpha)\left[1-\left(\delta + \frac{\bar{x}}{1+\bar{x}Ae^{\bar{x}t}}\right)z\right]&#xA;\end{eqnarray}&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;In the Appendix I demonstrate that the general solution to Equation (12) is:&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;(13)\begin{eqnarray}&#xA;z &amp;amp;=&amp;amp; \frac{1}{\bar{x}+\delta} 2F1(1-\alpha,1,d;\omega)+B\bar{x}^{\alpha-1}e^{-(1-\alpha)(\bar{x}+\delta)t}(1+\bar{x}Ae^{\bar{x}t})^{1-\alpha}&#xA;\end{eqnarray}&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The Appendix:&#xA;  A.1&#xA;  \begin{eqnarray}&#xA;\dot{z} &amp;amp;=&amp;amp; -(1- \alpha)\left(\delta + \frac{\bar{x}}{1+\bar{x}Ae^{\bar{x}t}}\right)z&#xA;\end{eqnarray}&#xA;  This can be integrated to find the complementary solution:(A.2)&#xA;  \begin{eqnarray}&#xA;z_c &amp;amp;=&amp;amp; \bar{x}^{\alpha-1}e^{-(1-\alpha)(\bar{x}+\delta)t}(1+\bar{x}Ae^{\bar{x}t})^{1-\alpha}&#xA;\end{eqnarray}&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;To find the particular solution to equation (12), I will use the method of variation of parameters. Conjecture that the particular solution is $z_p$ $=$ $z_c$$\Psi$, where $\Psi$ is an unknown function of time. Substituting this conjecture into equation (12), it follows that:&#xA;  (A.3)&#xA;  \begin{eqnarray}&#xA;\dot{\Psi} &amp;amp;=&amp;amp; \frac{1-\alpha}{z_c} &amp;amp;=&amp;amp; (1-\alpha)\bar{x}^{1-\alpha}e^{(1-\alpha)(\bar{x}+\delta)t}(1+\bar{x}Ae^{\bar{x}t})^{\alpha-1}&#xA;\end{eqnarray}&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;First, is (A.2) then just an integrated version of (A.1) or are there any other steps involved?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Second, I really do not see how he substituted the conjecture into 12 and how can he obtain (A.3) from this substitution? Especially here I am really lost and am lacking the imagination how he came up with $\dot{\Psi}$. Did he substitute $z_p$ for $\dot{z}$ or $z$ in (12)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Citation: [Smith, William. (2006). A Closed Form Solution to the Ramsey Model. Contributions to Macroeconomics. 6.]&lt;/p&gt;&#xA;" OwnerUserId="5720" LastEditorUserId="61" LastEditDate="2018-02-06T01:02:45.817" LastActivityDate="2018-05-07T12:40:48.637" Title="Solution method in Smith (2006) A Closed Form Solution to the Ramsey Model" Tags="&lt;economic-growth&gt;&lt;optimal-control&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="20437" PostTypeId="1" CreationDate="2018-02-06T01:19:07.033" Score="1" ViewCount="53" Body="&lt;p&gt;Why did American share prices fall sharply on February 5, 2018? What are the major contributing factors to this?&lt;/p&gt;&#xA;" OwnerUserId="8639" LastActivityDate="2018-02-06T01:19:07.033" Title="U.S. stock market 2/5/18" Tags="&lt;stock-market&gt;&lt;united-states&gt;" AnswerCount="0" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="20438" PostTypeId="1" CreationDate="2018-02-06T03:04:41.013" Score="1" ViewCount="57" Body="&lt;p&gt;I was looking at the market (DOW) performance today and noticed an oddity:  Beginning late in 2016 trading activity roughly tripled.  The change was sudden and remarkably consistent.  What would cause such a marked change in market behavior?&lt;a href=&quot;https://i.stack.imgur.com/ODkfz.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/ODkfz.jpg&quot; alt=&quot;Source http://money.cnn.com/data/markets/dow/&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Source: &lt;a href=&quot;http://money.cnn.com/data/markets/dow/&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://money.cnn.com/data/markets/dow/&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'll note that Yahoo displays essentially the same phenomenon, so it's not just something wonky with CNN:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/ghDH5.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/ghDH5.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Source: &lt;a href=&quot;https://finance.yahoo.com/&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://finance.yahoo.com/&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;While the NASDAQ doesn't show this effect, the S&amp;amp;P 500 does:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/aL1Xg.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/aL1Xg.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Source: &lt;a href=&quot;http://money.cnn.com/data/markets/sandp/&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://money.cnn.com/data/markets/sandp/&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="12218" LastEditorUserId="12218" LastEditDate="2018-02-16T01:36:08.860" LastActivityDate="2018-02-16T01:36:08.860" Title="What caused the increased market trading since late 2016?" Tags="&lt;stock-market&gt;" AnswerCount="0" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="20439" PostTypeId="1" CreationDate="2018-02-06T03:36:37.963" Score="1" ViewCount="999" Body="&lt;p&gt;I am a newbie at economics and would appreciate help from the community. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Question&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Use the model of supply and demand to explain&#xA;how a fall in the price of frozen yogurt would&#xA;affect the price of ice cream and the quantity of&#xA;ice cream sold. In your explanation, identify the&#xA;exogenous and endogenous variables.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My Answer&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A fall in prices should cause the supply of the frozen yogurt to increase so a higher quantity of frozen yogurt demanded at a lower price. Here I assume supply curve shifts to the right and demand curve doesn't change. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The fall in yogurt prices should cause demand for ice-cream to decrease(here i assume that they are somewhat replaceable), do the demand curve should shift to the left and cause lower quantity of ice-cream to be demanded at a lower price. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;em&gt;Is my analyis correct or did I miss something or I can improve it in some way.&lt;/em&gt;&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="16151" LastEditorUserId="16151" LastEditDate="2018-02-06T09:02:54.053" LastActivityDate="2018-02-06T09:02:54.053" Title="How price and quantity of ice cream sold changes when the price of yogurt reduces?" Tags="&lt;macroeconomics&gt;&lt;supply-and-demand&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="20441" PostTypeId="2" ParentId="20419" CreationDate="2018-02-06T05:14:16.467" Score="2" Body="&lt;p&gt;The &lt;a href=&quot;https://www.sciencedirect.com/science/article/pii/0022053172901640&quot; rel=&quot;nofollow noreferrer&quot;&gt;paper&lt;/a&gt; @Henry referred to in comments pretty much answers this question. For closure, and to summarize the jist, the paper opens:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;As is very well known, the case in which all excess demands have the gross substitute property is one in which very strong results can be obtained concerning the uniqueness and stability of general equilibrium. Considering how long this has been known it is perhaps remarkable that we apparently do not possess a convenient characterization of the class of utility functions which yield individual demand functions with the gross substitute property.&lt;/em&gt; ... &lt;em&gt;[This] note provides a characterization of the entire class of utility functions having the gross substitute property. Since the primary interest in that property is in the analysis of general equilibrium, we shall mainly concern ourselves with the demand functions which arise in a condition of exchange rather than with those that arise when income is fixed, independent of prices. The extension of the results to the latter case being given at the end of the paper.&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;The main result is, in an exchange market, for any initial endowments (quoting directly):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;A necessary and sufficient condition for $U(x)$ to have GS is that for every $i, j = 1,...,n, j \ne i$, positive income $Y$, and strictly positive price vector $p$:&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;  \eta_{ij} &amp;gt; max(e_i, e_j, e_i(1 - \frac{1}{\alpha_j}), e_j(1 - \frac{1}{\alpha_i}))&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Where:&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;$e_i$ is the income elasticity of the &lt;em&gt;i-th&lt;/em&gt; commodity, $\frac{\partial x_i}{\partial Y}/\frac{Y}{x_i}$.&lt;/li&gt;&#xA;&lt;li&gt;$\alpha_i$ is the proportion of expenditure devoted to the &lt;em&gt;i-th&lt;/em&gt; commodity, $\alpha_i = \frac{p_ix_i}{Y}$.&lt;/li&gt;&#xA;&lt;li&gt;$\eta_{ij}$ is the elasticity of substitution &lt;em&gt;i-th&lt;/em&gt; to &lt;em&gt;j-th&lt;/em&gt; of the so called &quot;Allen-Uzara&quot; kind (what ever that is - see paper).&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;There are some corollaries.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The main complication with all this is you &lt;em&gt;have&lt;/em&gt; to take income or rather income elasticity, into consideration. Some broad classes of utility functions that are &lt;em&gt;sufficient&lt;/em&gt; for GS regardless, are only very briefly mentioned in the intro of paper. &lt;/p&gt;&#xA;" OwnerUserId="16125" LastActivityDate="2018-02-06T05:14:16.467" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20442" PostTypeId="1" AcceptedAnswerId="20444" CreationDate="2018-02-06T05:22:29.517" Score="1" ViewCount="3021" Body="&lt;p&gt;This was mentioned in my textbook &lt;em&gt;Macroeconomics-Gregory Mankiw&lt;/em&gt;. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;If the production function has the property of constant returns to scale, as is often thought to be the case, then economic profit must be zero. That is, nothing is left after the factors of production are paid.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It was mentioned that this comes out as a result of &lt;em&gt;Euler's Theorem&lt;/em&gt;, but I don't quite understand it, can anyone please clarify this? &lt;/p&gt;&#xA;" OwnerUserId="16151" LastActivityDate="2018-02-06T08:58:02.517" Title="How constant returns to scale leads to zero economic profit?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20444" PostTypeId="2" ParentId="20442" CreationDate="2018-02-06T08:58:02.517" Score="3" Body="&lt;p&gt;The argument is that if there are constant returns to scale then the marginal product of each factor of production is constant as total quantity changes. This makes the production function homogeneous in the first degree and it will look something like &#xA;$$Q=\dfrac{\partial Q}{\partial A}A +\dfrac{\partial Q}{\partial B}B +\dfrac{\partial Q}{\partial C}C$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then if each factor of production is paid at a rate equal to its marginal product, the complete value of the production will be distributed to the factors of production, since &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$PQ-\left(P\dfrac{\partial Q}{\partial A}A +P\dfrac{\partial Q}{\partial B}B +P\dfrac{\partial Q}{\partial C}C\right)=0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;so there will be no economic rent or profit&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The practical problem with this is that constant returns to scale is a very strong assumption.  The theoretical problem (at least for marginalist theories) is that there is no natural equilibrium for the level of production&lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2018-02-06T08:58:02.517" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="20446" PostTypeId="1" AcceptedAnswerId="20448" CreationDate="2018-02-06T09:55:33.950" Score="0" ViewCount="109" Body="&lt;p&gt;If not, what type of trade financing do Chilean exporters or importers get? Is it all from private banks and insurers?&lt;/p&gt;&#xA;" OwnerUserId="6486" LastActivityDate="2018-02-06T10:59:54.320" Title="Does Chile have a government owned Export Import bank like the US or India?" Tags="&lt;finance&gt;&lt;international-trade&gt;&lt;credit&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20447" PostTypeId="1" CreationDate="2018-02-06T10:54:24.120" Score="2" ViewCount="125" Body="&lt;p&gt;What are the key differences between (i) a model which features a &quot;Kiyotaki-Moore collateral constraint&quot;; and (ii) a model which incorporates a &quot;financial accelerator&quot; (a la Bernanke-Gertler-Gilchrist)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Both have impulse responses which fluctuate due to borrowing being tied to the net worth (or collateral) of borrowers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So would there be any difference between their modelling outcomes?&lt;/p&gt;&#xA;" OwnerUserId="16113" LastActivityDate="2018-02-06T10:54:24.120" Title="Kiyotaki-Moore v.s. Bernanke-Gertler-Gilchrist - what's the difference?" Tags="&lt;macroeconomics&gt;&lt;financial-economics&gt;&lt;new-keynesian-economics&gt;&lt;business-cycles&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20448" PostTypeId="2" ParentId="20446" CreationDate="2018-02-06T10:59:54.320" Score="3" Body="&lt;p&gt;Chile joined the OECD in 2010 but does not have an official export credit agency listed by the OECD in its involved in the &lt;a href=&quot;http://www.oecd.org/tad/xcred/eca.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;Export Credit Group&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Inter-American Development Bank is &lt;a href=&quot;https://www.iadb.org/en/news/news-releases/2017-11-09/chile-to-boost-global-export-services%2C11947.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;lending US$27 million&lt;/a&gt; to the Chilean Finance Ministry to support export promotion and services, but this does not look like financing &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So I would assume that financing comes from private sources (in particular Chile has large private pension systems) and foreign export credit agencies, plus the usual market operations of the Chilean central bank to ensure monetary stability and liquidity in the context of a floating exchange rate significantly affected by the world price of copper   &lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2018-02-06T10:59:54.320" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20450" PostTypeId="1" AcceptedAnswerId="20499" CreationDate="2018-02-06T11:43:19.113" Score="2" ViewCount="178" Body="&lt;p&gt;Nationalization of industries has always been anathema to foreign investment yet Bolivia now has the highest foreign direct investment despite Evo Morales' policies. Also not that it is always bad but in many countries like the Philippines, Korea, Peru and Chile, it was nationalization that stagnated their economies and it was privatization that saved them from stagnation and unlocked huge economic growth. In my simple understanding, this is because privatization removes the corruption inherent in nationalized industries as well as attract foreign investors that provide new capital. President Evo Morales' economic policies were the opposite of this. I even remember reading  that he had a confrontation with foreign investors threatening to pull out of Bolivia because of his policies. Yet somehow and someway he was not only able to keep foreign investment but he was also able to increase it. Bolivian growth also experience widespread growth. This is in widespread contrast with Venezuela where similar policies under Chavez and Maduro is currently causing an economic crisis. How is Evo Morales and Bolivia achieving this growth contrary to Neoliberal and free market capitalism teaching?&lt;/p&gt;&#xA;" OwnerUserId="16153" LastActivityDate="2018-02-10T17:39:14.663" Title="How does Bolivia maintain its high economic growth and the highest direct foreign investment in South America, despite its economic policies?" Tags="&lt;macroeconomics&gt;&lt;economic-growth&gt;&lt;investment&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20451" PostTypeId="2" ParentId="20436" CreationDate="2018-02-06T11:50:07.213" Score="1" Body="&lt;p&gt;Let's solve the differential equation (12).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a first step, we look for a &quot;simpler&quot; differential equation, namely (A.1).&#xA;(A.1) can be written&#xA;$$\frac{\dot{z}}{z}=-(1-\alpha)\left(\delta+\frac{\bar{x}e^{-\bar{x}t}}{e^{-\bar{x}t}+\bar{x}A}\right)$$&#xA;On the left-hand side, you have the derivative of $\ln(z)$. You can integrate to obtain the form of any solution $z_c$: &#xA;$$\ln(z_c)=-(1-\alpha)\left(\delta t-\ln(e^{-\bar{x}t}+\bar{x}A)\right)+ constant$$&#xA;You obtain $z_c=\kappa e^{-(1-\alpha)\delta t}\left(e^{-\bar{x}t}+\bar{x}A\right)^{1-\alpha}$, where $\kappa$ is the exponential of the constant in the previous equation.&#xA;This equation is equivalent to (A.2) for a particular constant, such that $\kappa=\bar{x}^{\alpha-1}$. This choice of the constant comes from some boundary conditions on $z$ (which should be stated in the paper).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a second step, we use the method of variation of parameters, meaning we are looking for a solution of (12), $z_p$, that has a particular form, $z_p=z_c.\Psi$. If we find an expression for $\Psi$, then we have found a solution of (12).&#xA;We substitute $z_p$ in (12):&#xA;$$\dot{z_c}.\Psi+z_c.\dot{\Psi}=(1-\alpha)\left[1-\left(\delta+\frac{\bar{x}}{1+\bar{x}Ae^{\bar{x}t}}\right)z_c.\Psi\right]$$&#xA;This expression simplifies since $z_c$ satisfies (A.1):&#xA;$$z_c.\dot{\Psi}=(1-\alpha)$$&#xA;This is (A.3).&#xA;Then, I guess you we have to find a solution $\Psi$ of this equation, and we are done.&lt;/p&gt;&#xA;" OwnerUserId="4094" LastActivityDate="2018-02-06T11:50:07.213" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20453" PostTypeId="1" CreationDate="2018-02-06T14:35:50.470" Score="-6" ViewCount="222" Body="&lt;p&gt;Feminist economics? What kind of &quot;field&quot; is that?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Just the existence of such a field seems ridiculous to me...&lt;/p&gt;&#xA;" OwnerUserId="16156" LastEditorUserId="8815" LastEditDate="2018-02-26T00:41:22.547" LastActivityDate="2018-02-26T00:41:22.547" Title="What is feminist economics?" Tags="&lt;labor-economics&gt;&lt;schools-of-thought&gt;" AnswerCount="2" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="20455" PostTypeId="2" ParentId="20453" CreationDate="2018-02-06T15:35:51.217" Score="2" Body="&lt;p&gt;Theres a book called &lt;a href=&quot;https://www.amazon.ca/Models-Political-Economy-Guide-Arguments/dp/0931477549&quot; rel=&quot;nofollow noreferrer&quot;&gt;Models In Political Economy: A Guide To the Arguements by Michael Barratt Brown&lt;/a&gt; which provides a basic overview of the many economic schools of thought. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is a whole chapter which discusses this whole concept of feminist economics, however there is one section which helped me understand the point of view.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot; Charlottee Perkins Gilman was perhaps the first to make the point that it is possible that a man could buy each of the services of the services of his wife supplies but it would be exceedingly costly.... The only other reference to housework I could find from my texts is a jocular reference by Sir John Hicks in &lt;em&gt;The Social Framework&lt;/em&gt; (4th edn) to the reduction in the national income would be if man were to marry his housekeeper.&quot; (Page 96)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Classically the philosophy primarily advocates for changing the measures of how we view productivity to include house work.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The benefits, which this philosophy argues, is that we would then make policies with reference to both men and women since we are including household labor as apart of our economic measures. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, I've tried understanding how they avoid the issue of double counting and counting intermediate goods and services but have found anything. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems like it can be analytical, however It is too incomplete and fraught with measurement issues to practically use.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope this helps.&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="8815" LastEditDate="2018-02-07T13:50:00.457" LastActivityDate="2018-02-07T13:50:00.457" CommentCount="11" ContentLicense="CC BY-SA 3.0" />
  <row Id="20456" PostTypeId="1" CreationDate="2018-02-06T15:53:38.647" Score="1" ViewCount="43" Body="&lt;p&gt;If the technology improves how does the price of labour and capital change. We take the neo-classical assumption that demand for each factor depends on it's marginal productivity, and demand and supply are in balance. The exact change should depend on the production function, right? So how can we say what will happen. &lt;/p&gt;&#xA;" OwnerUserId="16151" LastActivityDate="2018-02-06T15:53:38.647" Title="How change in technology affects the price of labour and capital?" Tags="&lt;macroeconomics&gt;&lt;supply-and-demand&gt;&lt;production-function&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="20458" PostTypeId="1" AcceptedAnswerId="20459" CreationDate="2018-02-06T19:16:53.447" Score="3" ViewCount="48" Body="&lt;p&gt;$p(0)\geq c'(0)$ is assumed so that the inverse demand curve originates above the marginal cost curve.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But what is the intuition behind this assumption? The highest willing-to-pay consumer is more than the marginal cost of producing the first unit? Is this going to be the variable cost of producing the first unit?&lt;/p&gt;&#xA;" OwnerUserId="8560" LastActivityDate="2018-02-06T19:59:25.673" Title="$p(0)\geq c'(0)$ in monopoly" Tags="&lt;monopoly&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20459" PostTypeId="2" ParentId="20458" CreationDate="2018-02-06T19:59:25.673" Score="3" Body="&lt;p&gt;You intuition about the assumption is correct. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given the usual assumptions of downward sloping demand curve ($p'(q)&amp;lt;0$) and non-decreasing supply curve ($c''(q)\ge0$), if $p(0)&amp;lt;c'(0)$, then demand would lie entirely below supply. This means the equilibrium quantity must be zero---as if the market did not exist. Therefore, for the analysis to be non-trivial, the assumption of $p(0)\ge c'(0)$ is maintained. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;With the use of calculus, we are assuming implicitly that quantities are infinitely divisible. Thus $c'(0)$ can be roughly interpreted as the cost of producing the &quot;first infinitesimal unit&quot; of the good. Mathematically, &#xA;\begin{equation}&#xA;c'(0)=\frac{\mathrm d\, TC(q)}{\mathrm d\,q}\Bigg\vert_{q=0}=\frac{\mathrm d\,(FC+VC(q))}{\mathrm d\,q}\Bigg\vert_{q=0}=\frac{\mathrm d\,VC(q)}{\mathrm d\,q}\Bigg\vert_{q=0}.&#xA;\end{equation}&#xA;Thus $c'(0)$ is the derivative of the variable cost function, evaluated at $q=0$. &lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2018-02-06T19:59:25.673" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20461" PostTypeId="2" ParentId="20453" CreationDate="2018-02-06T20:44:03.297" Score="6" Body="&lt;p&gt;&lt;a href=&quot;https://www.economist.com/blogs/economist-explains/2015/10/economist-explains-17&quot; rel=&quot;noreferrer&quot;&gt;Feminist Economics&lt;/a&gt; is a broad field covering, broadly, how gender relates to the trade-offs involved in circumstances of scarcity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Economics as a field was dominated by men for a long time. As a result, the questions that were asked were artificially limited, as were the answers that came.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Feminist Economics sets about correcting these historical gaps, and the power imbalances that result from them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As it progresses, the work it establishes just becomes known as economics: it gets incorporated into the mainstream of economics. For example, see the work being done one measuring progress as something much more comprehensive than merely the sum of all monetary incomes.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2018-02-06T20:44:03.297" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="20463" PostTypeId="1" AcceptedAnswerId="20475" CreationDate="2018-02-06T23:56:55.117" Score="1" ViewCount="9382" Body="&lt;p&gt;Mankiw defines real money balances, $\frac{M}{P}$, to be the quantity of goods and services a given amount of money can buy. On page 88 of Macroeconomics 7th edition, he illustrates the concept with the following example:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Real money balances measure the purchasing power of the stock of&#xA;  money. For example, consider an economy that produces only bread. If&#xA;  the quantity of money is $\$10$, and the price of a loaf is $\$0.50$, then&#xA;  real money balances are $20$ loaves of bread. That is, at current&#xA;  prices, the stock of money in the economy is able to buy $20$ loaves.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It is very clear to me what real balances represent in such a simple example. However, I suppose in real life $P$ would be expressed as some index, right? If $P=1.52$ is the implicit price deflator for GDP in some year, for instance, and the quantity of money in the economy is $\$1.000$, what exactly does $\frac{M}{P}=\frac{1000}{1.52}\approx657.9$ represent? How do we interpret that number? Thanks in advance. &lt;/p&gt;&#xA;" OwnerUserId="15052" LastEditorUserId="15052" LastEditDate="2018-02-19T22:12:44.563" LastActivityDate="2018-02-19T22:53:23.953" Title="Doubt on the meaning of real money balances" Tags="&lt;macroeconomics&gt;&lt;inflation&gt;&lt;quantity-theory-of-money&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20464" PostTypeId="1" CreationDate="2018-02-07T01:35:42.130" Score="1" ViewCount="13558" Body="&lt;p&gt;I wanted to get my avaerage buy price for some stocks I bought and see if I made money.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So far for just buying and then later selling I have been calculating the avaege buy price using this formula&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;((stockamount * price) + (stockamount * price)) / (stockamount + stockamount)&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;so If I buy 10 shares at 2.00 and 5 shares at 3 I would get average buy price of&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;((10 * 2.00) + (5 * 3.00)) / (10 + 5) = 2.33&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;This is how I have calculated the average sell price as well.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Recently I have bought some shares, sold them at a higher cost, and then re bought some when they slightly went under what I sold them at.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have no idea how to figure out my average buy price in this situation because I re bought some.&#xA;here is sample data&#xA;bought 10 @ 2.00&#xA;sold 7 @ 3.00&#xA;bought 2 @ 2.50&#xA;I thought maybe doing something like this&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;((10 * 2.00) - (7 * 3.00) + (2 * 2.50)) / (10 - 7 + 2) = 0.8&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;It does not make any sense that my average buy was 0.8&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have searched but cant find the answer to a buy, sell and rebuy. if someone knows what the correct formula is to calculate the average buy price when you buy, sell and rebuy please let me know.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks!&lt;/p&gt;&#xA;" OwnerUserId="16162" LastActivityDate="2021-01-08T06:22:42.483" Title="How to calculate average buy price when you buy, sell and rebuy" Tags="&lt;finance&gt;&lt;stock-market&gt;&lt;financial-markets&gt;&lt;price&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20465" PostTypeId="1" AcceptedAnswerId="20470" CreationDate="2018-02-07T02:54:29.550" Score="1" ViewCount="40" Body="&lt;p&gt;Let's say we have ethanol and chips, both of which are made off of corn. If the production of ethanol is subsidized by the government, what happens to the supply of chips? The way I see this, more ethanol will be produced and more corn will be consumed, and so less corn will be reserved for chips, and so the supply of chips decreases. Am I right in this train of thought?&lt;/p&gt;&#xA;" OwnerUserId="16163" LastActivityDate="2018-02-07T13:10:04.387" Title="Simple Determinant of Supply Question" Tags="&lt;supply-and-demand&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20466" PostTypeId="2" ParentId="20464" CreationDate="2018-02-07T02:55:32.647" Score="2" Body="&lt;p&gt;I am a Canadian, and under Canadian tax laws, I think there are at least two ways of determining your cost basis for shares. I am not going to get into the details of tax accounting; please see a qualified tax professional for advice.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, if you just want to track your profit and loss for analysis purposes, the standard way of determining the book value of your positions is to track the average cost. You track the number of shares you own, and their total cost. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;When you buy more shares,&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;the total cost goes up by the total you paid in the transaction (=(# shares in the transaction) * (transaction price)),&lt;/li&gt;&#xA;&lt;li&gt;the number of shares increases by the amount in the transaction&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;You get the average cost by dividing the total cost by the number of shares.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When you sell, the price you sell at does not matter for the determination of your average cost. You reduce the number of shares by the number of shares in the transaction, and you reduce the total cost by the (average price)*(number of shares in the transaction). This means that selling does not change the average price, just the number of shares.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your profit on selling is based on comparing the selling price to the average cost. This would be the “cost of goods sold” in inventory accounting. (If you want more details on this subject, you could look for primers on inventory accounting on the internet.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What you appear to want to do is to roll the profits or losses from a sale into the total cost. That is, if you made a profit, use that to lower the “total cost” of the shares so that you can compare that average of that “total cost” to the market price, and quickly tell if you are profitable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Although that might be convenient, it probably would not be acceptable under most accounting conventions (so no textbook will tell you to do it that way). It also would give some strange-looking results. If you made \$1 million profit on some shares, and then sold all but one of those shares, you would have a “cost” of about -\$1 million for that one share. Most people would look at you funny if you showed them that number on a spreadsheet.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2018-02-07T02:55:32.647" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="20469" PostTypeId="1" CreationDate="2018-02-07T10:21:30.773" Score="0" ViewCount="640" Body="&lt;p&gt;If we have Hicksian (compensated) demand functions, how can we determine the income elasticity and own price elasticity?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is the procedure the same as for Marshallian (uncompensated) demands?&lt;/p&gt;&#xA;" OwnerUserId="16166" LastActivityDate="2018-02-07T18:30:52.240" Title="Determining the elasticity of Hicksian Demands" Tags="&lt;utility&gt;&lt;supply-and-demand&gt;&lt;optimization&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20470" PostTypeId="2" ParentId="20465" CreationDate="2018-02-07T12:27:27.093" Score="2" Body="&lt;p&gt;The supply of chips will probably decrease, although the situation is a bit more complicated than you describe.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The subsidy will tend to increase demand for corn by ethanol producers, both existing producers expanding production and new producers entering the industry. Increased demand for corn for ethanol production may have two effects:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;More corn will be sold to ethanol producers.  If total corn production were unchanged, less corn would be sold to chip producers and the supply of chips would decrease.&lt;/li&gt;&#xA;&lt;li&gt;However, total corn production will probably increase because the increased demand for corn for ethanol production will increase the profitability of growing corn relative to that of other crops or other land uses.  So the likely effect will be that corn is grown on land previously used for other crops, or possibly more land is brought into cultivation. In the medium term (since changes in land use take time) this could partly offset any decrease in the supply of chips.  &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="1417" LastEditorUserId="1417" LastEditDate="2018-02-07T13:10:04.387" LastActivityDate="2018-02-07T13:10:04.387" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20471" PostTypeId="1" AcceptedAnswerId="20473" CreationDate="2018-02-07T14:50:22.153" Score="0" ViewCount="137" Body="&lt;p&gt;When liberalising trade with developing economies like China, states like the UK seek to benefit from the comparative advantage of cheaper imports.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Cheap imports undercut some native industries (eg. steel making, ship building, pottery) causing (at least in the short term) joblessness and associated negative social outcomes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The thinking (IIUC) is that those displaced from the marketplace by the imports should move to higher-value-add industries, but in many cases this does not happen. For example towns like Stoke on Trent in the UK whose native industry was decimated (at least in part) by overseas competition, are characterised by chronic joblessness and associated social problems.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a welfare state like the UK, the cost of those social problems are then borne by the state.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To what extent does this undermine the comparative advantage seen by the UK from cheap imports?&lt;/p&gt;&#xA;" OwnerUserId="5505" LastEditorUserId="12910" LastEditDate="2018-07-12T09:02:04.660" LastActivityDate="2018-07-12T09:02:04.660" Title="Is comparative advantage undermined by a welfare state?" Tags="&lt;welfare&gt;&lt;comparative-advantage&gt;" AnswerCount="1" CommentCount="9" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20473" PostTypeId="2" ParentId="20471" CreationDate="2018-02-07T16:37:28.187" Score="4" Body="&lt;p&gt;The basic result about the effect of trade on income distribution is Stolper-Samuelson in the Heckscher-Ohlin model, which says that trade liberalization is associated with a rise in the prices of the factors of production that are used intensively in the production of goods the country has a comparative advantage in, and vice versa. If you take &quot;skilled&quot; and &quot;unskilled&quot; labor to be two different factors of production, for instance, Stolper-Samuelson says that a country with abundant skilled labor lifting trade barriers should lead to an increase in income inequality. A welfare state committed to keeping relative incomes of workers within a certain range may need to raise distortionary taxes to expand various income transfer programs to &quot;unskilled&quot; workers in this case, which could lead to inefficiency for various reasons. (Even if the taxes used to finance the income transfer are lump-sum, as long as the benefits phase out this leads to high effective marginal tax rates on the lower end of the income scale, i.e a disincentive to work and to acquire new skills.) In this sense, it's indeed true that a generous welfare state can reduce the efficiency gains from free trade. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The rest of the answer is a rant about the concept of &quot;strategic market dumping&quot; that was brought up in the comments, so if you're not interested you can skip that part.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Things like &quot;strategic market dumping&quot; are ill-defined concepts that are usually used to justify tariff increases without having much backing in theory. If &quot;dumping&quot; is expected to go on for a finite period of time and the associated good can be stored at no cost, for instance, then in a perfect foresight world there's an arbitrage bound on the price of the good today which forces it to grow at a rate less than or equal to the real interest rate available in the broader economy. Adding storage costs does not change the basic result very much. In that case, &quot;dumping&quot; is not a good strategy to begin with - if you try to do this, people will buy up the goods you're selling at low prices, hold them until you reverse your policy, and then flood the market with goods they have stored up in their inventories once you stop the &quot;dumping&quot;, leaving you worse off. To justify a policy of industry protection, you have to argue that the government can see the reversal of the dumping policy coming and private agents can't - in this case, the real return on an investment in producing and storing oil would be higher than the market real interest rate is saying it will be, so the market outcome will be suboptimal. It's easy to justify any government intervention by saying that the government is clairvoyant and private agents are not, however.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What about labor market (or, more generally, factor market) frictions? Isn't the point of &quot;dumping&quot; to eliminate your competitors through &quot;artificially low&quot; prices which force them to go out of business? Well, here you're making the mistake of assuming that the government knows about labor market frictions and the private sector doesn't, therefore the government should do something about the situation. In real life, the private sector is well aware of the search frictions in the labor market, the difficulty of firing workers in some countries, etc. This means that if they expect the &quot;dumping&quot; strategy to be reversed in the future, they will choose to borrow money or raise capital to stay in business. They will downsize in response to the &quot;dumping&quot; policy, but not as much as you think they would, and certainly not as much to make a government &quot;protection&quot; of the industry a good policy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does this mean markets can never allocate resources poorly? Of course not - if the country doing the dumping manages to fool private agents into thinking their &quot;dumping&quot; policy was permanent while it was temporary, then the market allocation will be suboptimal. However, in hindsight every price and every allocation is wrong. We certainly don't expect market allocations to be optimal &lt;em&gt;ex post&lt;/em&gt;, so it's not surprising to see cases where it seems like the market allocation was poor and led to many workers being stuck in jobs where wages fell due to international price changes of goods. In fact, this would happen in a stochastic world where markets were functioning perfectly and giving you an &lt;em&gt;ex ante&lt;/em&gt; Pareto optimal allocation of resources. Even a social planner with access to all information available at a given date and the mental capacity to solve the associated economic calculation problem would act in ways that sometimes seem foolish &lt;em&gt;ex post&lt;/em&gt;. This doesn't mean the social planner is not doing his job properly, it just means there are things about the future that even a social planner can't know with perfection. The argument is no different for market allocations - allocations that are poor &lt;em&gt;ex post&lt;/em&gt; do not justify government intervention &lt;em&gt;ex ante&lt;/em&gt;.&lt;/p&gt;&#xA;" OwnerUserId="13743" LastActivityDate="2018-02-07T16:37:28.187" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="20474" PostTypeId="2" ParentId="20469" CreationDate="2018-02-07T18:30:52.240" Score="2" Body="&lt;p&gt;Let variable $y$ be determined as a function of variable $x$: $y=f(x)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then the &quot;$x$-elasticity of $y$&quot; is computed as $$\frac{\partial y}{\partial x}\frac{x}{y}.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We are used to seeing the &quot;price-elasticity of demand&quot; where $y$ is the quantity demanded, $f$ is the Marshallian demand function, and $x$ is the price. But the same concept can be applied more generally.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, if $x$ is income, $y$ is quantity, and $f$ is the Hicksian demand function then we could compute the &quot;income elasticity of Hicksian demand&quot; using the above formula.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2018-02-07T18:30:52.240" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20475" PostTypeId="2" ParentId="20463" CreationDate="2018-02-07T21:53:08.990" Score="1" Body="&lt;p&gt;The level of a price index (like the GDP deflator) is essentially arbitrary. The usual choice is to set the reference date to 100, but it could just as easily be set to 1. So the level of the real money balance is essentially an arbitrary number. If you were using it in an economic model, you would need to adjust the scaling in the functions to account for this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For an interpretation, pick a base time $t$. You then divide the monetary aggregate $M(t)$ by annualised nominal GDP at time $t$. This converts the money holding into a fraction of annual GDP. Since GDP is a flow, it has units of \$/(year), and the money number has units of \$. The ratio of the division has units of years. The interpretation is that the ratio is the number of years worth of the goods and services that go into the “GDP basket” that the monetary aggregate could buy. (For example, if the monetary aggregate was 0.5 of annual nominal GDP, it can buy 6 months worth of whatever goes into GDP.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let us fix the base period $t$. If we rebase the deflator $P(t)$ so that it equals annualised nominal GDP at time $t$, the “real money balance” using that deflator gives us that same ratio discussed above. (Since the level of the deflator is arbitrary, we can multiply the the entire time series by a constant, and nothing much changes. So in this case, set the scaling constant to be equal to the level of nominal GDP at tine $t$ divided by the value of the original deflator at time $t$. The result is that the new deflator is equal to nominal GDP at time $t$.) So we have an interpretation for the real money balance for period $t$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we go to the next period ($t+1$), the interpretation gets more complicated. The problem is that the mix of goods and services in GDP changes. So it may be that I am over-simplifying things here. (This does not happen for bread, which is presumed to be uniform over time.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My interpretation of the real money balance is that it is volume of real GDP (in years) that can be purchased by the money balance $M(t+1)$ using the prices prevailing at time $(t+1)$, but using the time $t$ real GDP basket. So if moves to 0.75, that means that the money balance at time $t+1$ could buy 9 months worth of the goods and services that were produced at time $t$. However, this will probably not correspond to 9 months worth of the annualised production at time $t+1$, since real GDP may itself have grown (or shrunk, if there was a recession).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One can argue that this interpretation is complicated, but it reflects the difficulties with the definition.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastEditorUserId="12891" LastEditDate="2018-02-19T22:53:23.953" LastActivityDate="2018-02-19T22:53:23.953" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20476" PostTypeId="1" CreationDate="2018-02-07T22:18:53.377" Score="1" ViewCount="17" Body="&lt;p&gt;Any pointers to reviews or data-sets or meta-analyses looking at the relationship between household fertility rate and family income/wealth (possibly with other factors like education and geographical region also measured) ? I assume there is some US census data with these values ? Perhaps also from other countries ?&lt;/p&gt;&#xA;" OwnerUserId="6052" LastEditorUserId="1601" LastEditDate="2018-02-08T05:46:04.527" LastActivityDate="2018-02-08T05:46:04.527" Title="*Within-country* Fertility vs. income" Tags="&lt;econometrics&gt;&lt;reference-request&gt;&lt;data-request&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20479" PostTypeId="1" CreationDate="2018-02-08T05:28:57.603" Score="2" ViewCount="68" Body="&lt;p&gt;The quantity theory of money is stated as a simple equation which states that the general price level of goods and services is directly proportional to the amount of money in circulation. This is written as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\text{MV}=\text{PQ}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I got interested in testing this relationship econometric relationship however found that this neat equation got alot &lt;del&gt;messier&lt;/del&gt; more complected in applied work using VARs and the like to test it.&lt;sup&gt;(1)&lt;/sup&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How can such a simple equation be presented? Any help would be appreciated.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;sub&gt;(1)see:&lt;br&gt; a)&lt;a href=&quot;http://www.bu.edu/econ/files/2011/01/Lucas2illustrations1.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.bu.edu/econ/files/2011/01/Lucas2illustrations1.pdf&lt;/a&gt;&lt;br&gt;b)&lt;a href=&quot;https://www.researchgate.net/profile/Erdal_Ozmen/publication/233505652_Testing_the_quantity_theory_of_money_in_Greece/links/53f32d400cf2da8797445547/Testing-the-quantity-theory-of-money-in-Greece.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.researchgate.net/profile/Erdal_Ozmen/publication/233505652_Testing_the_quantity_theory_of_money_in_Greece/links/53f32d400cf2da8797445547/Testing-the-quantity-theory-of-money-in-Greece.pdf&lt;/a&gt; &lt;br&gt; c)&lt;a href=&quot;https://pdfs.semanticscholar.org/377f/13a3e57742d5f279c097835266d43db16c0d.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://pdfs.semanticscholar.org/377f/13a3e57742d5f279c097835266d43db16c0d.pdf&lt;/a&gt;&lt;/sub&gt;&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2018-02-08T05:28:57.603" Title="Static and Dynamic models: Testing the Quantity Theory of Money" Tags="&lt;applied-econometrics&gt;&lt;quantity-theory-of-money&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="20481" PostTypeId="1" AcceptedAnswerId="20484" CreationDate="2018-02-08T09:18:09.737" Score="23" ViewCount="8673" Body="&lt;p&gt;Recently, I witnessed two acquaintances of mine engaging in bartering, where one traded his services for the services of the other. Both services had about the same value. By trading them directly, they didn't pay VAT or tax on income, as no money or even goods were involved here. That wasn't the reason for the barter, but it's an interesting aspect. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm not pushing this behaviour, but it makes me wonder why there's not more people doing this, as it is an easy way to save money by leaving out money and thus taxes. AFAIK, this is legal, or at least a 'grey area'. I suppose in most countries some law exists to prevent this happening on a large scale, but it would be impossible to enforce it everywhere or on a small scale. Especially since goods can still be valued in terms of money, but it is much harder to do so with services. And their presence and traceability is volatile, unlike with goods.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I live in a rather small village where locals often (have to) make use of each others service, often requiring the service more than once. Taxes and VAT are high here in the Netherlands, so it would make a significant difference. I'd expect them to barter the service to save money, but they just pay by the bill. I did witness two people bartering once, but never before. I haven't heard it to be common in other modern countries either. Why is it not more common?&lt;/p&gt;&#xA;" OwnerUserId="16173" LastEditorUserId="8481" LastEditDate="2018-02-10T04:29:33.447" LastActivityDate="2018-02-10T04:29:33.447" Title="Why is bartering uncommon in modern countries?" Tags="&lt;taxation&gt;&lt;money&gt;&lt;law&gt;&lt;bargaining&gt;&lt;trading&gt;" AnswerCount="4" CommentCount="9" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20484" PostTypeId="2" ParentId="20481" CreationDate="2018-02-08T10:15:20.507" Score="23" Body="&lt;p&gt;The main likely reasons why barter is not more common are:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;The inconvenience of having to find another party who &lt;em&gt;both&lt;/em&gt; offers what you want and wants what you offer.  &lt;/li&gt;&#xA;&lt;li&gt;Even if such a party can be found, the possible complexity of negotiating a &quot;fair&quot; transaction (eg I'll do your electrical job if you'll clean my windows monthly for the next 3 months).&lt;/li&gt;&#xA;&lt;li&gt;I don't want to encourage it, but for those seeking to evade tax, the comparative ease in many circumstances of doing so via a normal monetary transaction, but with payment in cash.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;A further point is that most countries with VAT have a significant &quot;VAT threshold&quot;, that is, a minimum value of annual sales at which businesses are required to register for VAT and charge VAT (where applicable) on their sales.  In the UK, for example, the threshold is currently £85,000. So an individual could provide services not exceeding that amount in any year and would not have to charge VAT.  If two such individuals were to enter into a barter arrangement, there would be no VAT saving. The Netherlands is atypical in that its VAT threshold is unusually low: 1,345 Euros (see &lt;a href=&quot;https://www.ibfd.org/sites/ibfd.org/files/content/pdf/ivm_2017_06_int_2.pdf&quot; rel=&quot;noreferrer&quot;&gt;here&lt;/a&gt;, table on p 2).&lt;/p&gt;&#xA;" OwnerUserId="1417" LastEditorUserId="1417" LastEditDate="2018-02-08T12:05:58.407" LastActivityDate="2018-02-08T12:05:58.407" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="20485" PostTypeId="1" CreationDate="2018-02-08T10:21:50.503" Score="0" ViewCount="2125" Body="&lt;p&gt;I can understand that real wage will equal MPL(marginal product of labor) when MPL is diminishing, because firms will employ more labor until MPL falls to real wage.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;While, if MPL is constant, implied by constant return to scale, MPL will be predetermined as well as real wage, which won't be affected by firms' behaviors. How can we affirm that MPL equals real wage when they are irrelevant? Not to mention the conclusion of zero economic profit.&lt;/p&gt;&#xA;" OwnerUserId="15769" LastActivityDate="2018-03-15T06:20:02.600" Title="Why real wage equals marginal product of labor when return to scale is constant?" Tags="&lt;macroeconomics&gt;&lt;labor-economics&gt;&lt;wages&gt;&lt;marginal&gt;&lt;national-income&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20486" PostTypeId="1" AcceptedAnswerId="20487" CreationDate="2018-02-08T11:00:05.890" Score="1" ViewCount="40" Body="&lt;p&gt;I wonder what the term &quot;value&quot; of a company, currency, etc could mean. The most obvious, to me, is market capitalization (related: &lt;a href=&quot;https://economics.stackexchange.com/q/17724&quot;&gt;Clarifying the meaning of market capitalization&lt;/a&gt;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there also something like measuring how much money has been spent for the shares that are currently circulating.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;E.g. there is an IPO for 1000 shares each at 1\$, all of them are sold. Then the price rises to 2\$ and 500 of the shares get traded for this value. Then the classical market cap would be 2000\$, and the measure I wonder about would be 1500\$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does this have a name?&lt;/p&gt;&#xA;" OwnerUserId="16178" LastActivityDate="2018-02-08T13:30:15.453" Title="Alternative measure for market capitalization, company &quot;value&quot;" Tags="&lt;stock-market&gt;&lt;value&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20487" PostTypeId="2" ParentId="20486" CreationDate="2018-02-08T13:30:15.453" Score="1" Body="&lt;p&gt;This is the reverse of the accounting procedure discussed in my answer to this question: &lt;a href=&quot;https://economics.stackexchange.com/questions/20464/how-to-calculate-average-buy-price-when-you-buy-sell-and-rebuy/20466#20466&quot;&gt;link to question&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What you want is the average cost basis for all holders of company.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is no practical way that this could be calculated for a public firm. Nobody is required to report that information, and not everyone uses that accounting method for equities for taxes. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It would also be highly biased against firms where the founders hold a significant portion of shares. In an IPO, only a portion of the total number of shares are sold, sometimes only 10% of the firm. (Your example implies that 100% of the shares are sold in the IPO, which is misleading.) it is entirely possible for a founder of a company to retain control of a large percentage of the shares for decades. This method would assign almost no value to that portion of the company, which makes the valuation given meaningless for analysis.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2018-02-08T13:30:15.453" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20488" PostTypeId="1" CreationDate="2018-02-08T13:33:01.720" Score="1" ViewCount="68" Body="&lt;p&gt;State-sanctioned militias in the state of Louisiana were an important part of the state's natural disaster response. Tiny boats went off into flooded areas to rescue people. These rescuers may have broken some laws but were allowed to do it because of the broader humanitarian interest they served. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Question: How to incentivize people to get a permit?&#xA;The incentives to get a license to become a member of a Cajun navy would be in times of peril---such as hurricanes--- to get to the disaster area quicker. But, this is not a great one. What could the state do to register people in times of non-crises? Tax-breaks? I am not sure&lt;/p&gt;&#xA;" OwnerUserId="16180" LastEditorUserId="69" LastEditDate="2018-04-10T13:07:22.650" LastActivityDate="2018-04-10T13:07:22.650" Title="How can we incentivize volunteer rescue forces like the Cajuan Navy which assisted in Louisiana?" Tags="&lt;microeconomics&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20489" PostTypeId="1" AcceptedAnswerId="20491" CreationDate="2018-02-08T13:35:22.573" Score="2" ViewCount="130" Body="&lt;p&gt;I am reading the definition of a price equilibrium with transfer in MWG on page 548, 524-5.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider two-consumer exchange economy. If social planner wants to transfer wealth, how does she achieve this?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Two consumers are born with some apples and oranges. So, the social planner lets these consumers sell at the going market place of what they are endowed with.  Then, does she collect taxes and transfer wealth in this way?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems like this wealth transfer can be achieved also by directly reallocating the apples and oranges distributed among consumers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am not exactly getting the terms like &quot;there be some wealth distribution&quot; or &quot;equilibrium with transfers&quot;, &quot;wealth transfers&quot;. What does it mean to say, &quot;there is an assignment of wealth levels with ....&quot;?&lt;/p&gt;&#xA;" OwnerUserId="8560" LastActivityDate="2018-02-08T15:26:12.057" Title="Wealth transfer by Social Planner in GE" Tags="&lt;general-equilibrium&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20490" PostTypeId="2" ParentId="20481" CreationDate="2018-02-08T13:38:34.027" Score="17" Body="&lt;p&gt;In the countries that I am familiar with (such as Canada), using barter to avoid taxes is definitely illegal. You are required to report the dollar value of the exchange as revenue. It is treated as an implicit trade of cash along with the trade of goods. Since I am not going to give tax advice to random strangers on the internet, please consult the tax laws of your jurisdiction.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Canada Revenue Agency guidance on barter: &lt;a href=&quot;https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/it490/archived-barter-transactions.html&quot; rel=&quot;noreferrer&quot;&gt;link to CRA page&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are exemptions, such as for little kids trading cards on the playground. The idea is that you cannot be earning a livelihood.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The authorities can detect this activity the same ways that they can detect people working for cash. It’s not easy, but it can be done. They can have undercover agents, get tips from whistleblowers (e.g., a bitter divorce), or just show that a person is living a lifestyle that is not in line with their declared income. Advertising that you accept barter is a pretty good method to ensure that you will eventually get a visit from an undercover inspector, or just a tax official who sees your advertisement.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since tax evasion this way has to be hidden, an outsider cannot tell if it is going on. So it is obviously hard to judge its extent, other than by looking at successfully prosecuted cases.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since businesses need to pay taxes (and most expenses) with money, barter does not help them meet those obligations. However, it has its uses. For example, a new firm will likely not be profitable for some time, so it will have no tax payments due. It might use barter transactions to preserve cash. Established suppliers might agree, as they want a new potential customer to succeed. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But since retail firms have to pay value-added taxes (sales taxes) with money, they have no incentive to offer customers the ability to barter. Furthermore, those customers could be tax inspectors.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A value-added-tax (VAT) also does a good job of providing a disencentive for such activity. An intermediary firm can get a refund on the VAT it paid for inputs by matching the inputs to the VAT paid on outputs. (That is why it is called a value-added tax.) Your ability to match the taxes is eliminated by tax evasion. And inspectors can tell whether retail firms (the usual end of the value-added chain) are charging households VAT. (In Quebec, the authorities made restaurants install new cash register systems that made it extremely difficult to run two sets of books, which was a common practice.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some added points on incentives.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;For a firm, all cash outlays (other than dividends) will eventually be expensed against income tax. Barter is not really advantageous. It has legitimate business purposes, and there was a niche industry in building barter internet hubs. However, there will still be a paper trail.&lt;/li&gt;&#xA;&lt;li&gt;When dealing with individuals, there is the “double coincidence of wants” problem. If a plumber comes to my house to fix a leaky valve, what exactly can I offer in return? If he wants to avoid tax, he will normally just ask for cash. Barter certainly happens among individuals, but it requires that they have a reciprocal need for the other’s services. &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="12891" LastEditorUserId="12891" LastEditDate="2018-02-08T14:49:00.887" LastActivityDate="2018-02-08T14:49:00.887" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="20491" PostTypeId="2" ParentId="20489" CreationDate="2018-02-08T15:17:38.937" Score="3" Body="&lt;p&gt;We have an allocation $(x^*,y^*)$ and a price system $p$ forming a price equilibrium with transfers.The assignment of wealth levels $(w_1,\ldots,w_I)$ has to satisfy $$\sum_i w_i=p\cdot\bar{\omega}+\sum_j p\cdot y_j^*.$$&#xA;One way to interpret the wealth levels is that the planner hands out coupons that can be traded at existing prices for commodities and chooses the production plans of the economy. But one can interpret the wealth distribution also as a distribution of the initial endowments and of firm shares. Let $w=\sum_i w_i$ and for each consumer $i$, let $m_i=w_i/w$, which is just the share consumer $i$ has in the aggregate wealth. Now give each consumer an endowment $\omega_i$ of $m_i \bar{\omega}$ and for each firm $j$ a share $\theta_{ij}$ equal to $m_i$. For the resulting private ownership economy, $(x^*,y^*)$ and $p$ constitute a Walrasian equilibrium, so one has reduced redistributing wealth to redistributing endowments and shares in firms. To see that everything works out, note that&#xA;$$w_i=m_i w=m_i\bigg(p\cdot\bar{\omega}+\sum_j p\cdot y^*_j\bigg)=p\cdot m_i\bar{w}+\sum_j m_i p\cdot y_j^*=p\cdot \omega_i+\sum_j\theta_{ij} p\cdot y_j^*.$$&lt;/p&gt;&#xA;" OwnerUserId="1442" LastEditorUserId="1442" LastEditDate="2018-02-08T15:26:12.057" LastActivityDate="2018-02-08T15:26:12.057" CommentCount="11" ContentLicense="CC BY-SA 3.0" />
  <row Id="20492" PostTypeId="2" ParentId="16923" CreationDate="2018-02-08T15:33:20.683" Score="1" Body="&lt;p&gt;There is a &lt;a href=&quot;https://academic.oup.com/reep/article-abstract/4/1/3/1576621&quot; rel=&quot;nofollow noreferrer&quot;&gt;very good review article by Richard Carson&lt;/a&gt; in the review of environmental economics and policy, which (perhaps unfortunately) shows that much of the empirical evidence for an environmental Kuznet's curve is weak at best.&lt;/p&gt;&#xA;" OwnerUserId="12186" LastActivityDate="2018-02-08T15:33:20.683" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20493" PostTypeId="1" CreationDate="2018-02-08T15:40:37.063" Score="1" ViewCount="61" Body="&lt;p&gt;So I am currently stuck on the following problem:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider a representative agent model where the representative consumer has preferences given by $$\sum_{t=0}^{\infty} \beta^t \ln(c_t)$$ where $0&amp;lt;\beta&amp;lt;1$ is the consumer's subjective time rate of preference and $c_t$ is consumption at time $t$. The consumer is endowed with one unit of consumption good at $t = 0$. The consumption good can be stored costlessly across time. That is, consumption at $t$ follows $$x_{t+1} = x_t - c_t$$ where $x_t$ is the available consumption at the beginning of $t$ and $x_0=1$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Solve for the equilibrium sequence of $[c_t]_{t=0}^\infty$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now the first thing that throws me off that is away from a traditional model is that leisure is completely missing from the consumer's preferences. Next I rearranged to find for $c_t$ which is seen from $$x_{t+1} = x_t - c_t$$ $$x_{t+1} - x_t = -c_t$$ $$x_t - x_{t+1} = c_t$$ $$-{\mathit{\Delta}}x_t = c_t,$$ but given the negativity are we summing negative values? &lt;/p&gt;&#xA;" OwnerDisplayName="user16020" LastEditorUserId="42" LastEditDate="2018-02-08T16:12:13.990" LastActivityDate="2018-02-08T16:12:13.990" Title="Equilibrium Sequence of {c(t)}" Tags="&lt;macroeconomics&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="20495" PostTypeId="2" ParentId="16110" CreationDate="2018-02-08T17:10:14.717" Score="1" Body="&lt;p&gt;Actually quite a few countries with a non stable / non trusted currency use a foreign one. It's not even so obvious some times, like when bills are in the local currency but their value is actually based on say the euro exchange rate at the day of billing.&lt;/p&gt;&#xA;" OwnerUserId="16183" LastActivityDate="2018-02-08T17:10:14.717" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20496" PostTypeId="1" CreationDate="2018-02-08T18:06:52.230" Score="2" ViewCount="697" Body="&lt;p&gt;I’m currently undergraduate student studying economics and mathematics. I took econometric class and mathematical statistics class last semester. So during the vacation, I decided to study econometrics more because I’m planning to do Phd in economics in the future and I thought it will be helpful. But, come to think of it, I feel like I made a wrong choice. I don’t know what the exact reason is, but whenever I study econometrics, I find that I’m just ‘reading’ a book. And I think that’s because of my lack of statistics and other math ability. So now I’m considering to study mathematical statistics more deeply and other maths, and postpone studying econometrics. One of my professor said that it’s fine not to study econometrics now deeply because I will study during Phd course, but it’s crucial to fully study and understand maths, statistics before Phd. What do you think?  &lt;/p&gt;&#xA;" OwnerUserId="16188" LastActivityDate="2018-02-10T23:29:40.110" Title="About studying econometrics in undergraduate" Tags="&lt;econometrics&gt;&lt;statistics&gt;" AnswerCount="4" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20497" PostTypeId="1" CreationDate="2018-02-08T21:17:57.837" Score="4" ViewCount="128" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/fKVod.jpg&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/fKVod.jpg&quot; alt=&quot;&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;if the double arrows show that X and the error term are correlated, but that neither variable affects Y, is endogeneity a problem in this scenario? Why or why not?&lt;/p&gt;&#xA;" OwnerUserId="16192" LastEditorUserId="16192" LastEditDate="2018-02-08T21:22:58.470" LastActivityDate="2018-02-10T07:12:16.767" Title="Does endogeneity matter when neither independent variable nor error term are correlated with dependent variable?" Tags="&lt;econometrics&gt;&lt;regression&gt;&lt;endogeneity&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20498" PostTypeId="2" ParentId="20496" CreationDate="2018-02-08T21:27:32.427" Score="0" Body="&lt;p&gt;Econometrics in undergraduate curriculum is often presented as a black box. &quot;Run these regressions in R and check the results&quot;. If you really want to understand what you're doing with econometrics, then yes you should approach it from the bottom up. Learn the math so you can understand the black boxes.&lt;/p&gt;&#xA;" OwnerUserId="13698" LastActivityDate="2018-02-08T21:27:32.427" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20499" PostTypeId="2" ParentId="20450" CreationDate="2018-02-08T21:36:57.890" Score="0" Body="&lt;p&gt;This is what I gathered during my research of this topic:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Evo Morales' policies are more centered on economy than they appear. See, for example, &lt;a href=&quot;https://panampost.com/editor/2017/05/10/conservative-bolivia-evo-morales/&quot; rel=&quot;nofollow noreferrer&quot;&gt;an article from May 2017&lt;/a&gt;, which praises them for being fiscaly conservative and austere, despite socialist and anti-imperialist rhetoric.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Even though Evo Morales is a self-described socialist, and (in theory)&#xA;  one of the most left-wing of Latin America’s Bolivarian wave, it was a&#xA;  shock when the Bolivian president embraced fiscal discipline.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;While the Morales government nationalized several oil and gas&#xA;  companies, they simultaneously developed a good enough relationship&#xA;  with the private sector. Overall, the government has been surprisingly&#xA;  fiscally conservative.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Institutions like the IMF and World Bank, of which Morales is a strong&#xA;  critic, have praised his austerity.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;[...]&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Even if Morales rails against neoliberalism, he is not moving the&#xA;  country toward a Marxist revolution. The fact is that he understands&#xA;  the role of the market in improving people’s lives, especially&#xA;  indigenous groups, since they are the most involved in informal&#xA;  economic activities.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;[...]&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In general, Morales has a better relationship with both business&#xA;  leaders and social movements than other governments in the region&#xA;  could dream of, proving he’s not as far left as many might think.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It should be mentioned, however, that the public spending increased over 750% from 2006 to 2017 (&lt;a href=&quot;https://www.telesurtv.net/english/news/Socialism-Not-Neoliberalism-Creates-Stability-Bolivias-Evo-20170315-0038.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;source&lt;/a&gt;). The crucial difference is that this effect was not solely dependent on the price of oil, as in case of Venezuela, and the budget was more balanced (Venezuela deficit grew up to nearly 20% of GDP in 2014, prior to drop in oil prices), but with other factors, like:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;investments in increase in production from natural gas (hydrocarbon gas, polyethylene),&lt;/li&gt;&#xA;&lt;li&gt;social bonds,&lt;/li&gt;&#xA;&lt;li&gt;strengthening internal demand (increase in internal consumption).&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;On the other hand, Bolivia's growth of GDP is not that signifficant. In fact, the four quarters average of GDP growth does not exeede 2,5% (it dropped below 0% after 2015) (&lt;a href=&quot;https://tradingeconomics.com/bolivia/gdp-growth&quot; rel=&quot;nofollow noreferrer&quot;&gt;source&lt;/a&gt;). Bolivia's economy is much smaller than Peru and Chile (according to &lt;a href=&quot;https://www.cia.gov/library/publications/the-world-factbook/&quot; rel=&quot;nofollow noreferrer&quot;&gt;CIA World Factbook&lt;/a&gt;, Bolivia GDP is about 83 bln USD, while Peru GDP is 424 bln USD, Chile is 452 bln USD), so there is some kind of 'base effect' as regards measuring the GDP growth in relative values&lt;/p&gt;&#xA;&#xA;&lt;p&gt;All in all, the last ten years were preety good for the global economy. In the age of low interest rates the capital was looking for developing countries like Bolivia to invest in. The real test for the Bolivia economy will come, when the bull market ends.&lt;/p&gt;&#xA;" OwnerUserId="15240" LastActivityDate="2018-02-08T21:36:57.890" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20500" PostTypeId="2" ParentId="20497" CreationDate="2018-02-08T22:08:05.247" Score="1" Body="&lt;p&gt;In a typical OLS model, $Y=\alpha+\beta X+\epsilon$, endogeneity exists when $E[\epsilon\,|\,X]\ne 0$, which results from $X$ and $\epsilon$ being correlated with one another. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In your case, $Y$ uncorrelated with $\epsilon$ implies only that $E[\epsilon]=0$, which is not the same as the exogeneity condition $E[\epsilon\,|\,X]= 0$.  Moreover, $Y$ uncorrelated with $X$ just means that $\beta=0$. Again, this does not save you from the endogeneity problem. Actually, in addition to endogeneity, you now have another (bigger?) problem to deal with; that is, using a regressor that is a very poor predictor of the dependent variable. &lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2018-02-08T22:08:05.247" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20501" PostTypeId="1" CreationDate="2018-02-08T22:17:54.270" Score="2" ViewCount="92" Body="&lt;p&gt;So I am currently trying to write a paper estimating the Constant Elasticity of Substitution Production Function of the USA. I am using the simple version with two inputs capital and labour. Since the estimation is at the aggregate level I thought of using the perpetual inventory method to create the data for aggregate capital, but I wasnt sure what kind of data I need for aggregate labour. Maybe the number of employed people, work force, in the USA? I'd be glad if someone could help me out.&lt;/p&gt;&#xA;" OwnerUserId="13030" LastEditorUserId="42" LastEditDate="2018-02-08T22:19:42.673" LastActivityDate="2018-02-08T22:43:21.537" Title="Choosing Data for CES Production Function" Tags="&lt;econometrics&gt;&lt;data-request&gt;&lt;production-function&gt;&lt;usa&gt;&lt;ces-function&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20502" PostTypeId="2" ParentId="20497" CreationDate="2018-02-08T22:22:53.803" Score="3" Body="&lt;p&gt;Assume the simplest linear regression model&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$y = bx + u$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The OLS etimator for $b$ is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\hat b_{OLS} = \frac {\sum x_iy_i}{\sum x_i^2} = b + \frac {\sum x_ie_i}{\sum x_i^2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Whatever the true $b$ is (it is zero in your case, as another answer pointed out) , the fact is that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\text{plim} \frac {n^{-1}\sum x_ie_i}{n^{-1}\sum x_i^2} \neq 0 $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and so the OLS estimator will be inconsitent (and also, biased too).&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2018-02-08T23:42:48.070" LastActivityDate="2018-02-08T23:42:48.070" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20503" PostTypeId="2" ParentId="20501" CreationDate="2018-02-08T22:43:21.537" Score="2" Body="&lt;p&gt;The &lt;a href=&quot;http://cid.econ.ucdavis.edu/pwt.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Penn Wolrd Tables&lt;/a&gt; have the data you need.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2018-02-08T22:43:21.537" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="20504" PostTypeId="2" ParentId="20496" CreationDate="2018-02-08T22:50:28.187" Score="1" Body="&lt;p&gt;If you are looking to understand how Econometrics are and &lt;em&gt;should&lt;/em&gt; be grounded in Statistics, read Aris Spanos &quot;&lt;a href=&quot;https://rads.stackoverflow.com/amzn/click/0521424089&quot; rel=&quot;nofollow noreferrer&quot;&gt;Probability Theory and Statistical Inference: Econometric Modeling with Observational Data&lt;/a&gt;&quot;. Be prepared for a bit of a shock.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for Mathematical Statistics, they are a difficult subject, and there is no magical textbook that has ever succeeded in making them &quot;accessible&quot;.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2018-02-08T22:50:28.187" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20506" PostTypeId="1" CreationDate="2018-02-09T01:11:07.967" Score="0" ViewCount="89" Body="&lt;p&gt;For those who advocate a \$15 minimum wage, would the benefits espoused also come from an \$8 minimum?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reason I ask, is that it’s often said that the minimum wage needs to be updated as it was legislated years ago, and hasn’t kept up with inflation. But, given the fact that the wage was last increased in 2009, the rate of inflation is only 14.1%.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus we see a marked difference between the ostensible goal of modernizing the wage (\$8) and the \$15 wage frequently talked about.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are the problems reformers seek to address only addressable via a \$15 minimum, or is it simply that the wage hasn’t kept up with inflation, in which case \$8.26 would suffice?&lt;/p&gt;&#xA;" OwnerUserId="15955" LastEditorUserId="15955" LastEditDate="2018-02-09T11:52:21.913" LastActivityDate="2021-04-13T21:53:51.037" Title="Would an $8 National Minimum Wage Work in the US?" Tags="&lt;inflation&gt;&lt;labor-economics&gt;&lt;minimum-wage&gt;" AnswerCount="1" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="20507" PostTypeId="1" CreationDate="2018-02-09T01:44:03.860" Score="0" ViewCount="73" Body="&lt;p&gt;The expectations for inflation and fear of accelerated rate hikes on the part of the Fed seem to be driving the &lt;a href=&quot;https://www.nytimes.com/2018/02/08/business/stock-market-activity.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;stock market correction in the US this February, 2018&lt;/a&gt;, and as a result of the &lt;a href=&quot;http://money.cnn.com/2018/02/02/news/economy/january-jobs-report-2018/index.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;jobs report on Friday, February 2&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a measure of inflation, the 10 year Treasury notes yields are inching higher, close now to 2.9 percent.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;I want to ask what is the connection between inflation expectations and the &lt;a href=&quot;https://www.wsj.com/articles/u-s-government-bonds-fall-led-by-supply-concerns-1518107468&quot; rel=&quot;nofollow noreferrer&quot;&gt;&quot;tepid demand&quot; for Treasuries in the most recent auctions (10 year notes)&lt;/a&gt;.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Presumably yields at the auctions are perfectly fine-tuned to meet supply and demand. Therefore, if the issue was simply an expectation of higher yields in the near future, this would have been factored in at the time of the auctions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At this point the &lt;a href=&quot;https://www.washingtonpost.com/news/wonk/wp/2018/02/03/the-u-s-government-is-set-to-borrow-nearly-1-trillion-this-year/?utm_term=.334c70318071&quot; rel=&quot;nofollow noreferrer&quot;&gt;fiscal hole of $1 trillion&lt;/a&gt; created by the &lt;a href=&quot;https://en.wikipedia.org/wiki/Tax_Cuts_and_Jobs_Act_of_2017&quot; rel=&quot;nofollow noreferrer&quot;&gt;recently enacted tax cuts&lt;/a&gt; is already known. Presumably, economists still see US Treasuries as risk free. And there is the &quot;flight-to-safety&quot; effect, which would anticipate investors fleeing the stock market to seek refuge in US Treasuries, and is seemingly absent here...&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;So what is behind the &quot;tepid demand&quot;? Is it in some way connected to the main issue of inflation concerns at a technical level, or is it a parallel topic (e.g. institutional trust)?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I am not asking for an opinion-based answer, but a beginner's account of the technical connections between these concepts to the extent that this is possible.&lt;/p&gt;&#xA;" OwnerUserId="11778" LastEditorUserId="11778" LastEditDate="2018-02-09T02:00:03.030" LastActivityDate="2018-02-10T13:35:20.000" Title="Connection between low demand for US Treasuries and expectation of inflation" Tags="&lt;inflation&gt;&lt;interest-rate&gt;&lt;government-debt&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20508" PostTypeId="1" CreationDate="2018-02-09T03:11:09.667" Score="4" ViewCount="211" Body="&lt;p&gt;Since 14th Dec 2017, the Federal Reserve Bank has &lt;a href=&quot;https://fred.stlouisfed.org/series/IOER&quot; rel=&quot;nofollow noreferrer&quot;&gt;paid 1.50% interest on excess reserves&lt;/a&gt;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So why do depositors' interest rates still remain so low? According to &lt;a href=&quot;https://www.bankrate.com/banking/savings/rates/&quot; rel=&quot;nofollow noreferrer&quot;&gt;BankRate&lt;/a&gt;, across the US, the national average savings account interest rate is &lt;strong&gt;0.09%&lt;/strong&gt; and only a handful of banks offer 1.50% or more.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Econ 101 story would go something like this:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;If Bank A offers 1% and Bank B offers 1.3%, then consumers will move all their savings to Bank B. Bank A will then compete by raising its rate to 1.31%, which is still profitable since it can deposit its money at the Fed for 1.50%. Bank B will then raise to 1.32%, etc. Competition will ensure that the interest rate is driven up towards 1.50%.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I imagine there are some transaction and administrative costs, but I don't see how these could explain the huge gap between the national average savings interest rate (0.09%) and the interest rate paid by the Fed to banks (1.50%). I do believe also that there is no limit to the reserves that banks can place with the Fed (though please correct me if I'm mistaken on this point).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What am I missing here? Or: Why does this market deviate markedly from the perfectly competitive ideal?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some possible general explanations off the top of my head (but I suspect there may be other more specific institutional factors that I'm not aware of):&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Consumer ignorance. (Similar to this &lt;a href=&quot;http://www.nber.org/papers/w24161&quot; rel=&quot;nofollow noreferrer&quot;&gt;recent working paper&lt;/a&gt; which documents that people fail to pay off those credit card debts that charge the highest interest, and instead adopt some sub-optimal &quot;balance-matching&quot; heuristic.)&lt;/li&gt;&#xA;&lt;li&gt;Consumers face transaction/psychic costs moving their money about, setting up new accounts. &lt;/li&gt;&#xA;&lt;li&gt;Banks offer other services, so consumers may still prefer to save with a bank despite its lower interest rate.&lt;/li&gt;&#xA;&lt;li&gt;Menu costs - it's somehow costly or maybe bad publicity to frequently change the bank's savings rate.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerDisplayName="user18" LastEditorDisplayName="user18" LastEditDate="2018-02-09T03:30:55.687" LastActivityDate="2018-02-09T13:52:53.610" Title="The Fed pays 1.50% interest on reserves; so why are interest rates so low?" Tags="&lt;microeconomics&gt;&lt;interest-rate&gt;&lt;federal-reserve&gt;&lt;united-states&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="20510" PostTypeId="1" AcceptedAnswerId="20515" CreationDate="2018-02-09T03:55:00.843" Score="0" ViewCount="35" Body="&lt;p&gt;According to &lt;a href=&quot;https://data.oecd.org/price/price-level-indices.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;OECD&lt;/a&gt; the price level of India is 29, and that of united states is 113, and nominal exchange rate is 64-1(INR-$). So what is the real exchange rate? &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Is it $$RER = NER\times\frac{US_{PriceLevel}}{INR_{PriceLevel}}=273 \\ or \\RER = NER\times\frac{INR_{PriceLevel}}{US_{PriceLevel}}=16$$&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;I believe it should be the second one, because the price level in India is less than that in US so buying power of dollar should be less. Is this reasoning correct?&lt;/p&gt;&#xA;" OwnerUserId="16151" LastActivityDate="2018-02-09T09:23:02.220" Title="Real exchange rate of India and United State?" Tags="&lt;exchange-rates&gt;&lt;price-level&gt;" AnswerCount="1" CommentCount="9" ContentLicense="CC BY-SA 3.0" />
  <row Id="20511" PostTypeId="2" ParentId="20488" CreationDate="2018-02-09T04:13:06.607" Score="2" Body="&lt;p&gt;The United States Code provides for such a force and I believe Louisiana has one.  They are usually called &quot;state defense forces.&quot;  They are a parallel state force with the state components of the National Guard.  They are not subject to call up by the President and serve in policing and emergency management roles in the states.  Not all states have them.  In some states they are both voluntary and require you to provide your own equipment, in others, they are fully funded.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I believe the Military Department of Louisiana has or had such a structure.  Nothing prevents the State of Louisiana from providing either pay or tax incentives to organize and manage the membership and to permit it to exist broadly.  Considering the frequency of natural disasters in Louisiana adding formal training and incentives to such a force would benefit all parties involved.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Imagine the effectiveness of the Cajun Navy if it had received formal training and worked within a planned response.  In most states, these are token forces primarily made up of ex-military who wish to continue service, but no longer wish to be in a potential combatant role.  They serve a small, but often important role, in mitigating the immediate effect of a disaster, but I don't think the states actually think of organizing any large number of people.  Most likely this is because they exist, but are so small that legislators forget they exist and don't expect much from them.&lt;/p&gt;&#xA;" OwnerUserId="11321" LastActivityDate="2018-02-09T04:13:06.607" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20513" PostTypeId="1" CreationDate="2018-02-09T05:21:48.297" Score="1" ViewCount="59" Body="&lt;p&gt;According to the Expenditure method of measuring price elasticity of demand, if the two expenditures in comparison are constant (in spite of changes in price), the demand is considered to be unitary elastic. &#xA;However, there are several examples where this does not seem to hold true. &#xA;For instance, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Price: 10 ; Demand: 12 ; Expenditure: 120&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Price: 08 ; Demand: 15 ; Expenditure: 120&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here, though the expenditure is equal, if we calculate the percentage changes in price and demand, they come to be 20% and 25% respectively. So as per the ratio (or percentage method), the elasticity would be equal to 25% / 20%, which is not equal to 1. Then, how can we conclude that the expenditure method gives the right results? &lt;/p&gt;&#xA;" OwnerUserId="16198" LastActivityDate="2018-02-09T10:16:36.513" Title="Is there a discrepancy between the ratio and total expenditure methods of measuring elasticity?" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20515" PostTypeId="2" ParentId="20510" CreationDate="2018-02-09T09:23:02.220" Score="1" Body="&lt;p&gt;Presumably one bundle of goods and services which costs about USD 113 in the United States would cost about USD 29 in India&lt;/p&gt;&#xA;&#xA;&lt;p&gt;so the bundle which costs about USD 113 in the United States would cost about INR 18546 in India at a market exchange rate of 64:1&lt;/p&gt;&#xA;&#xA;&lt;p&gt;suggesting a purchasing power parity of about INR 16.4 : USD 1&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &lt;a href=&quot;https://data.oecd.org/conversion/purchasing-power-parities-ppp.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;OECD calculations of PPPs&lt;/a&gt; suggest about 17:1 recently for India so this is the correct order of magnitude&lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2018-02-09T09:23:02.220" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20516" PostTypeId="2" ParentId="20513" CreationDate="2018-02-09T10:16:36.513" Score="2" Body="&lt;p&gt;If something rises by $25\%$ then you then need a $20\%$ reduction in the new larger number to get back where you started: $1.25 \times 0.8=1$. This asymmetry means comparing large percentage changes can produced oddities&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another approach, closer to the idea of approaching the derivative as a limit, is to use logarithms and calculate the elasticity as a ratio of logarithms, something like $$\frac{\log\left(\frac{Q_2}{Q_1}\right)}{\log\left(\frac{P_2}{P_1}\right)}= \frac{\log(Q_2)-\log(Q_1)}{\log(P_2)-\log(P_1)}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and with your example this would give $\frac{\log(15)-\log(12)}{\log(8)-\log(10)} = \frac{\log(1.25)}{\log(0.8)} =-1$ as expected&lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2018-02-09T10:16:36.513" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20517" PostTypeId="2" ParentId="20508" CreationDate="2018-02-09T11:56:24.700" Score="4" Body="&lt;p&gt;There are several issues here:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;There are banks offering close to $1.5\%$, some well-known such as Goldman Sachs and American Express &lt;/li&gt;&#xA;&lt;li&gt;Most banks currently have excess reserves deposited in the Federal Reserve System which they could use for lending if they wanted to, so they are not missing profitable commercial lending opportunities due to lack of deposits&lt;/li&gt;&#xA;&lt;li&gt;Many customers are leaving their money in very low interest accounts, possibly through inertia or the attraction of other banking services, and so banks have less incentive to push up interest rates.  If customers want more, they can go for longer-term certificates of deposit yielding over $2\%$&lt;/li&gt;&#xA;&lt;li&gt;In eras of &quot;normal interest rates&quot;, banks took a margin.  For example the old anecdotal &lt;a href=&quot;https://en.wikipedia.org/wiki/3-6-3_Rule&quot; rel=&quot;nofollow noreferrer&quot;&gt;3-6-3 rule&lt;/a&gt; for bankers (pay $3\%$ percent interest on deposits, lend money out at $6\%$, and tee off at the golf course at $3$ p.m.) might have been associated with a base prime rate of around $4-5\%$ percent and a default rate of around $1-2\%$.  So with a base rate of $1.5\%$, short-term savings rates should not be expected to be close to this.  Earlier in the cycle when Fed interest on excess reserves rates were $0.25\%$, this margin was not compatible with positive savings rates; only now are banks able to restore their margins&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2018-02-09T11:56:24.700" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="20518" PostTypeId="2" ParentId="20508" CreationDate="2018-02-09T13:52:53.610" Score="1" Body="&lt;p&gt;Interest on reserves is not that significant a factor in a low interest rate regime. If the bank did not hold reserves, it would hold Treasury bills as a liquidity buffer, and they pay about the same amount as the policy rate. I believe the reserve ratio is 10%, so the difference between paying and not paying interest on reserves is worth 15 basis points (.15%) if the policy rate is 1.5%. So the interest spread might be a bit tighter than was the case when interest was not paid on reserves.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The net interest margin and fees are how banks pay expenses, and earn a profit. In order for a bank to offer banking services, it needs an interest advantage on deposits versus short-term wholesale borrowing. Otherwise, it can be replaced by a non-bank financial intermediary that grants loans and funds itself entirely in the money and bond markets. Since banks of the same size have a similar cost structure, their target interest margin is similar.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I believe that the idea behind a perfect equilbrium is that there is a potentially infinite number of new entrants to compete away profits. That is obviously impossible in the banking industry; you need capital, and there is a large time commitment to getting a banking license. Furthermore, you will have large fixed costs (branch, personnel, capital) that have to be covered in order to be viable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is not hugely surprising that customers are not too sensitive to posted rates on deposits. The availability of services and other fees may be far more significant than what they earn. Where there is competition for deposits is in the certificate of deposit (CD) market. (I believe, I am Canadian, but I believe that our GIC’s operate similarly to CD’s.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A major factor for customer stickiness (on top of what you mention in the question) is a significant number of households and firms have debts with banks. It would be awkward to have your deposits with one bank, and your mortgage with another. Since the bank sees all your cash flows, it is presumably easier to negotiate new borrowing with your existing bank.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2018-02-09T13:52:53.610" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20519" PostTypeId="2" ParentId="20507" CreationDate="2018-02-09T14:37:31.433" Score="1" Body="&lt;p&gt;There’s a few points to cover in this question.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;The description of market events in newspapers is not necessarily reliable. The job of a newspaper editor is to sell newspapers. Readers of the business press like to hear that government borrowing raises interest rates, and so the editors give them that story - a lot. Financial market analysts are paid to give good forecasts, and their explanations are often quite different. (That assertion is based on my experience of writing and reading interest rate commentary.) In this case, the newspaper account may be an accurate reading, but you must keep in mind the prior knowledge that they blame practically every tick up in yields on fiscal policy.&lt;/li&gt;&#xA;&lt;li&gt;Treasury bond auctions are announced in advance, with the amounts fixed. (They move around money market auctions to deal with fluctuations in cash.) the sizes are based on a lot of consultations with the Primary Dealers and investors, and internal analysis. However, since they fixed the quantity, the price (yield) has to swing. If investors think the yield is too low, it will affect the bids at auction. Going into the auction, there is “when issued” trading, which is based on where dealers think the auction will clear. If they are wrong about demand, actual yields will not end up where the “when issued” pricing was, and the whole curve moves. (Dealers will end up receiving more bonds than they expected, and so will have to trade out of their larger-than-desired duration position.) This dynamic is behind the legitimate stories about tepid auction demand.&lt;/li&gt;&#xA;&lt;li&gt;The best approximation of inflation expectations is to look at the spread between conventional bonds and TIPS (inflation-linked Treasury securities). The spread roughly equals the future rate of inflation that gives the two securities equal returns. E.g., if the 10-year nominal yield is 4%, and the 10-year TIPS yield is 2%, an inflation rate of 2% results in the two securities having the same return. (One can argue that there are risk premia that drives this breakeven inflation rate away from the true expectation.) There is no guarantee that inflation expectations (by this measure) and nominal interest rates move in the same direction, so one should not use the concepts interchangeably.&lt;/li&gt;&#xA;&lt;li&gt;The usual explanation for the linkage between higher future deficits and higher nominal interest rates is that “all else equal”, a relaxation of fiscal policy would result in higher nominal GDP (with higher inflation). The presumption is that the Federal Reserve would raise interest rates to keep inflation near its implicit target (offsetting fiscal policy). The expected change in the policy rate affects nominal bond pricing. The exact mix of what happens depends on the specifics of the change to fiscal policy, and your beliefs how fiscal policy works. In any event, all the bond market participants care about is what the Fed does. Otherwise, stories that increasing fiscal deficits raise interest rates run into the counter-example of modern Japan. The debate about that effect is highly political. See also this question: &lt;a href=&quot;https://economics.stackexchange.com/questions/20370/impact-on-interest-rates-of-massive-government-spending&quot;&gt;link to question on interest rates and deficits&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="12891" LastEditorUserId="12891" LastEditDate="2018-02-10T13:35:20.000" LastActivityDate="2018-02-10T13:35:20.000" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="20520" PostTypeId="1" CreationDate="2018-02-09T14:53:43.513" Score="5" ViewCount="97" Body="&lt;p&gt;Romer has once said, that the growth economics has not had a breakthrough after his work of endogenous model of 1990's. What could somehow prove his saying is that we rarely see the theoretical invention in growth economics area in the recent years but large quantity of empirical study, with a portion of which is just going through the similar old way of the empirical works of 1990's. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is, where is the research of growth economics heading to ? What could be the next breakthrough specifically in this area ?  &lt;/p&gt;&#xA;" OwnerUserId="15879" LastActivityDate="2018-04-12T01:58:59.263" Title="The Next Breakthrough of Growth Economics" Tags="&lt;economic-growth&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="20521" PostTypeId="2" ParentId="20481" CreationDate="2018-02-09T15:20:17.917" Score="2" Body="&lt;p&gt;It doesn't save money.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Keep in mind that revenue taxes are calculated after deduction of expenses. So if I sell something for 50€, and buy something for 50€, the total earnings of my company have not changed, so neither have my taxes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At the same time, the rules for what a company can claim as business expenses might be wildly different between them, but normally that is also in the favor of accounting properly.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, when a catering company provides food to an advertising studio, and the studio provides advertising materials, it makes sense to invoice each other because the other's services are deductible, while the advertising company would have a hard time explaining why they are buying food.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So between companies, there is usually no point in barter.&lt;/p&gt;&#xA;" OwnerUserId="16207" LastActivityDate="2018-02-09T15:20:17.917" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="20522" PostTypeId="2" ParentId="5327" CreationDate="2018-02-09T15:27:34.427" Score="0" Body="&lt;p&gt;As an economics researcher or a finance oriented professional, it is never enough to know only one language. Here is why : &lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) Researchers or experts of different generation ( think about your colleague or the professor or the people working in the high level of position in financial institution) have different habit of using the language. If you would like to partner with them or learn from them, learn their communication language is the only way. For example, Attilio Meucci, an expert in asset allocation, only published his work on Matlab forum. And most of the professors will only use Stata. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) R is not perfect even it is a hit among the data scientist or statistician for the reason that it's free. Yes, open source and being free is both its good and bad side, the bad point is you need to check very carefully the source code with respect to a complex algorithm, e.g Panel GMM in econometrics. However, the Stata is more user-friendly as it is maintained by a company and can efficiently fix the problem from users' feedback, most of which are professors. As far as I have known, economist such as Barro and Wooldrige all use Stata. I don't see the reason why you cannot learn both.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;3) Expert of R could have a more efficient leaning curve than others who are not. I learn R first, and catched on learning Stata easily in the econometrics course when I was an undergraduate student. The programming essence is similar. Some might say that Stata is easier to learn than R. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So my advice is, go for languages you need. I see lately Professor Sargent starting to learn Python as an old man of around 70 years old. I think you can too being way younger as a graduate student. Good luck.  &lt;/p&gt;&#xA;" OwnerUserId="15879" LastEditorUserId="15879" LastEditDate="2018-02-09T15:46:49.840" LastActivityDate="2018-02-09T15:46:49.840" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20523" PostTypeId="1" CreationDate="2018-02-09T16:03:10.133" Score="4" ViewCount="44" Body="&lt;p&gt;If every stock transaction is &quot;balanced&quot; (1 sell = 1 buy), then what does a &quot;sell-off&quot; actually mean and how does it move the price of a stock? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ex. If millions of people sell a stock, there's necessarily an equal millions of buys of that stock.&lt;/p&gt;&#xA;" OwnerUserId="16209" LastActivityDate="2018-02-10T02:24:20.397" Title="What does a &quot;sell-off&quot; mean if every stock transaction is balanced?" Tags="&lt;supply-and-demand&gt;&lt;stock-market&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20524" PostTypeId="2" ParentId="20523" CreationDate="2018-02-09T16:06:25.513" Score="0" Body="&lt;p&gt;I have seen this question asked many times recently and would like to provide an answer. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You are exactly correct that every transaction is &quot;balanced&quot;. Every 1 stock bought = 1 stock sold, and vice-versa. Sell-offs (and buying frenzies) are a matter of supply-and-demand.  In a sell-off, the market for a stock is flooded with a supply of sellers, and the price necessarily has to fall to meet the lesser demand. Likewise, in a buying frenzy, the market for a stock is flooded with buyers, and the price necessarily has to increase for the supply of sellers to meet demand. &lt;/p&gt;&#xA;" OwnerUserId="16209" LastEditorUserId="16209" LastEditDate="2018-02-09T16:12:59.170" LastActivityDate="2018-02-09T16:12:59.170" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="20525" PostTypeId="1" AcceptedAnswerId="20531" CreationDate="2018-02-09T16:27:06.913" Score="4" ViewCount="194" Body="&lt;p&gt;I am working on my Master thesis based on bounded rationality in behavioral game theory models, I wanted to know if QRE(Quantal Response Equilibrium) can be applied to games where players have different strategy sets as opposed to what I have seen in resource allocation games, if yes, how?&lt;/p&gt;&#xA;" OwnerUserId="16181" LastEditorUserId="16181" LastEditDate="2018-02-09T17:31:14.403" LastActivityDate="2018-03-03T17:46:41.857" Title="Bounded rationality with Quantal Response Equilibrium model for an Extensive Form game" Tags="&lt;game-theory&gt;&lt;behavioral-economics&gt;&lt;bounded-rationality&gt;" AnswerCount="1" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20526" PostTypeId="2" ParentId="20506" CreationDate="2018-02-09T16:53:50.137" Score="0" Body="&lt;p&gt;The labor market is missing one of the criteria of a free market, the ability of participants to decline a transaction if they only receive disadvantageous offers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is not a problem as long as there are more open jobs than applicants; market forces provide sensible price points (different for different skill sets) here. If there are more applicants than jobs however, prices fall quickly as there is no supply elasticity, and the gradient is basically given by the cost of the commute.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The two major ideas to counteract this market failure are a minimum wage, and a Universal Basic Income (UBI).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The minimum wage approach tries to change as little as possible. Competition for low-skilled jobs is still fierce, but at least the holders of these jobs are able to live in houses, get proper nutrition and possibly also have free time in which to improve their skill set, which will enable them to enter a different market segment, reducing pressure at the bottom. Upward mobility is greater when there is a bigger surplus in workers' wages after cost of living, because it allows for better learning conditions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From a government perspective, we want everyone to be upwardly mobile, as we can expect that low-skilled building and manufacturing jobs to become even more scarce in the future, while at the same time, we need lots of specialists (to the extent that the US still has special visa for skilled workers).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The \$15 figure is pretty much arbitrary, but a full time (40h/wk) worker should come out at roughly \$28,000 before taxes, which is not great, but should be sufficient for rent, transportation, food and further education; at the same time the number isn't so high that it leads to competition with skilled jobs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Going with \$8.26 would still avoid the &quot;race to the bottom&quot; in wages, but leaves workers nothing above subsistence level, diminishing their education opportunities and thus worsening the situation as more low-skilled workers enter the market than leave it, so unemployment remains long term and workers remain low-skilled until retirement, which is not sustainable especially in light of technological advance.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For completeness, the UBI approach simply corrects the missing part of the free market by allowing everyone to reject bad offers. This would be easier to police than a minimum wage as it removes the requirement to look at individual contracts, and just goes with equilibrium prices.&lt;/p&gt;&#xA;" OwnerUserId="16207" LastActivityDate="2018-02-09T16:53:50.137" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20527" PostTypeId="1" AcceptedAnswerId="22578" CreationDate="2018-02-09T17:32:10.797" Score="1" ViewCount="88" Body="&lt;p&gt;I hear about the extremely long work hours in the army. I understand it hardens them for readiness for combat situations. With the technology and increase of intelligence need to operate it would a more normal work schedule be more efficient and less mistakes? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;How much more would it cost the military to have union like rules? &lt;/p&gt;&#xA;" OwnerUserId="15570" LastEditorUserId="8815" LastEditDate="2018-02-09T18:00:36.773" LastActivityDate="2018-06-26T11:32:36.173" Title="Would the military be more efficiant if they were unionized?" Tags="&lt;labor-economics&gt;&lt;political-economy&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="20528" PostTypeId="1" AcceptedAnswerId="20530" CreationDate="2018-02-09T20:18:09.877" Score="4" ViewCount="69" Body="&lt;p&gt;We need to make statements about the sequential rationality of players who are in information sets that are not singletons. In these non-trivial information sets, we need to be able to say something like ...&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;In this information set, player 2 is not playing a best response, and therefore his behavior is not sequentially rational&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;But how does this motivate us to develop the system of beliefs? I don't exactly see why making every player to have a well-defined belief over where she is in each of her information sets do in dynamic games of incomplete information.&lt;/p&gt;&#xA;" OwnerUserId="8560" LastEditorUserId="8595" LastEditDate="2018-02-10T18:10:55.683" LastActivityDate="2018-02-10T18:10:55.683" Title="Why system of beliefs, $\mu(x)$, needed in dynamic incomplete information games" Tags="&lt;game-theory&gt;&lt;bayesian-game&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20529" PostTypeId="2" ParentId="20481" CreationDate="2018-02-09T21:03:32.293" Score="4" Body="&lt;p&gt;The same reason why money became popular in the first place: bartering doesn't scale well. Even if you're able to evade taxes by bartering, the inconvenience makes it difficult to take advantage of this on a large scale. It's only really feasible for casual transactions among family and acquaintenances, not real businesses. When you do barter with these people, you don't usually worry about the precise values of what you're trading, it's very informal; for instance, you might pick up the check when you go out to dinner with friends one night, and next time they do, but no one checks that the prices were the same. Businesses can't really operate in such informal ways.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The benefits that money provides are that it's fungible and has an unlimited shelf life (outside hyper-inflation -- I think it's likely that bartering is resurrected in such conditions). You can buy anything with money, you don't have to have a product/service that the seller wants in return.&lt;/p&gt;&#xA;" OwnerUserId="15635" LastActivityDate="2018-02-09T21:03:32.293" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20530" PostTypeId="2" ParentId="20528" CreationDate="2018-02-09T21:47:04.130" Score="3" Body="&lt;p&gt;In some ways, beliefs are a more natural way of interpreting solution concepts like Nash equilibrium and its refinements.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, consider a simple simultaneous-move coordination game as follows: &#xA;\begin{equation}&#xA;\begin{array}{c|cc}&#xA;&amp;amp;L&amp;amp;R\\\hline&#xA;T&amp;amp;1,1&amp;amp;0,0\\&#xA;D&amp;amp;0,0&amp;amp;2,2&#xA;\end{array}&#xA;\end{equation}&#xA;We say that $(D,R)$ is a Nash equilibrium because $D$ is a best response to $R$ and vice versa. But this is a &lt;em&gt;simultaneous-move&lt;/em&gt; game; how does player 1 &lt;strong&gt;&lt;em&gt;know&lt;/em&gt;&lt;/strong&gt; that player 2 will choose $R$? Well, she doesn't need to know, she just need to &lt;strong&gt;&lt;em&gt;believe&lt;/em&gt;&lt;/strong&gt; that player 2 will choose $R$ (with sufficiently high probability), and such a belief alone can justify the play of $D$ as a best response. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, we can think of a Nash equilibrium as one in which every player is &lt;strong&gt;&lt;em&gt;best responding to their beliefs&lt;/em&gt;&lt;/strong&gt; about what other players will do, and that their &lt;strong&gt;&lt;em&gt;beliefs are correct&lt;/em&gt;&lt;/strong&gt;, in the sense that other players choices confirm their beliefs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To the extent that a simultaneous-move game can be modeled using a game tree with imperfect information, we can talk about beliefs at non-trivial information sets where a player is uncertain about which strategy the previous player has chosen. Furthermore, this framework can be generalized to include incomplete information games if we let this previous player be Nature/Chance. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;By dividing Nash equilibrium into these two elements --- (i) best response to one's belief and (ii) beliefs are correct --- we obtain a more nuanced understanding of the concept, which in turn shed light on the ways we can refine this solution concept by placing restrictions on either or both elements. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Solution concepts like the (weak) perfect Bayesian equilibrium and sequential equilibrium require that beliefs off-equilibrium path cannot be arbitrary (they must follow Bayes' rule whenever possible). &#xA;Others such as quantal response equilibrium maintain the requirement that players have correct beliefs but relaxes the supposition that people always best respond to their (correct) beliefs. &lt;/p&gt;&#xA;" OwnerUserId="42" LastEditorUserId="1601" LastEditDate="2018-02-09T22:04:18.560" LastActivityDate="2018-02-09T22:04:18.560" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="20531" PostTypeId="2" ParentId="20525" CreationDate="2018-02-09T22:15:25.310" Score="2" Body="&lt;p&gt;I'm not sure what capacity allocation games you're applying QRE to. But here's a very stylized example where QRE is applied to an asymmetric game where the strategy spaces of the two players are (nominally) different: &#xA;\begin{array}{c|cc}&#xA;&amp;amp;L&amp;amp;R\\\hline&#xA;T&amp;amp;1,0&amp;amp;0,9\\&#xA;D&amp;amp;0,1&amp;amp;1,0&#xA;\end{array}&#xA;This game can be easily represented in the extensive form as well.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the standard formulation of QRE, each player $i$ plays a mixed strategy $\sigma_i$, where the probability of pure strategy $s_i$ being played is determined by the following formula: &#xA;\begin{align}&#xA;\sigma_i(s_i)&amp;amp;=\frac{\exp(\lambda u_i(s_i,\sigma_{-i}))}{\sum_{s_i'\in S_i}\exp(\lambda u_i(s_i',\sigma_{-i}))},&#xA;\end{align}&#xA;where $\lambda\in[0,\infty)$ measures the precision of the response; the larger the $\lambda$ the more precise the response. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Applying to the game above, let $p$ be the probability that player 1 chooses $T$, and $q$ the probability that player 2 chooses $L$. Note that $p$ and $q$ parameterize the two players' respective mixed strategy. Then, player 1's &lt;strong&gt;quantal response&lt;/strong&gt; to &lt;em&gt;any given mixed strategy by player 2&lt;/em&gt; (parameterized by $q$) is to play $T$ with probability $p$ and $D$ with $1-p$, where&#xA;\begin{equation}&#xA;p=\frac{\exp(\lambda\cdot (1q+0(1-q)))}{\exp(\lambda\cdot(1q+0(1-q)))+\exp(\lambda\cdot(0q+1(1-q)))}.\tag{1}&#xA;\end{equation}&#xA;Similarly, player 2's &lt;strong&gt;quantal response&lt;/strong&gt; to &lt;em&gt;any given mixed strategy by player 1&lt;/em&gt; (parameterized by $p$) is to play $L$ with probability $q$ and $R$ with $1-q$, where &#xA;\begin{equation}&#xA;q=\frac{\exp(\lambda\cdot(0p+1(1-p)))}{\exp(\lambda\cdot(0p+1(1-p)))+\exp(\lambda\cdot(9p+0(1-p)))}.\tag{2}&#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a &lt;strong&gt;quantal response &lt;em&gt;equilibrium&lt;/em&gt;&lt;/strong&gt;, $(\sigma_1,\sigma_2)$, the two player's strategies must be quantal responses to each other; that is,&#xA;\begin{align}&#xA;\sigma_1(T)&amp;amp;=\frac{\exp(\lambda \cdot \sigma_2(L))}{\exp(\lambda\cdot\sigma_2(L))+\exp(\lambda(1-\sigma_2(L)))}&amp;amp;\sigma_1(D)&amp;amp;=1-\sigma_1(T)\\[12pt]&#xA;\sigma_2(L)&amp;amp;=\frac{\exp(\lambda\cdot(1-\sigma_1(T)))}{\exp(\lambda\cdot(1-\sigma_1(T)))+\exp(9\cdot\lambda\cdot\sigma_1(T))}&amp;amp;\sigma_2(R)&amp;amp;=1-\sigma_2(L)&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the following graphs, the dashed lines plot the best responses of each player; the solid curves represent the quantal responses under different levels of precision. That is, the solid curves plots equations $(1)$ and $(2)$ above. The intersection of the two solid curves is the quantal response equilibrium point, described by the last set of equations above.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/grfzm.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/grfzm.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&#xA;&lt;a href=&quot;https://i.stack.imgur.com/MBf5s.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/MBf5s.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&#xA;&lt;a href=&quot;https://i.stack.imgur.com/4dL9x.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/4dL9x.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="42" LastEditorUserId="42" LastEditDate="2018-03-03T17:46:41.857" LastActivityDate="2018-03-03T17:46:41.857" CommentCount="11" ContentLicense="CC BY-SA 3.0" />
  <row Id="20532" PostTypeId="1" CreationDate="2018-02-10T01:36:51.610" Score="1" ViewCount="71" Body="&lt;p&gt;I am wondering the best way to find a numerical solution to a finite general equilibrium model with Matlab. The model is a basic neoclassical growth model with equilibrium equations:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$c_t+k_{t+1}=k_t(1-\delta)+k_t^{\alpha}$(budget constraint)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$c_t^{-\gamma}=\beta c_{t+1}^{-\gamma}(1-\delta+\alpha k_{t+1}^{1-\alpha})$(Euler equation)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is on a 500 time step time horizon. I tried to solve this using fsolve, but the program does not like the negative exponents in the expression. Is there another way in Matlab to program these? Also there are boundary conditions, let's just say they are $k_1=1$ and $k_{500}=0$.&lt;/p&gt;&#xA;" OwnerUserId="14578" LastEditorUserId="14578" LastEditDate="2018-02-10T01:42:54.720" LastActivityDate="2018-02-10T01:42:54.720" Title="How To Program Finite General Equilibrium Models" Tags="&lt;macroeconomics&gt;&lt;numerical-methods&gt;" AnswerCount="0" CommentCount="5" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20533" PostTypeId="2" ParentId="20523" CreationDate="2018-02-10T02:24:20.397" Score="1" Body="&lt;p&gt;The Cambridge English dictionary has a definition here: &lt;a href=&quot;https://dictionary.cambridge.org/dictionary/english/sell-off&quot; rel=&quot;nofollow noreferrer&quot;&gt;link to definition&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I will paraphrase their definition: a sale of equity shares that causes its price to fall.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As the question notes, that appears to make little sense, if for every buyer, there is a seller. If stock prices were negotiated by individual verbal contracts, the implication was that the seller was more morivated to sell than the buyer to buy, and so the price had to be adjusted lower.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, the common usage of “sell off” in the financial press is different: it is a synonym for a stock price (or stock index) experiencing a price fall on a day versus the previous day. The implication is that all the sellers were motivated than buyers, and so the price fell, like in the verbal contract.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, if the observed price on the exchange is lower, we only know two things:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;For every buyer, there is a seller.&lt;/li&gt;&#xA;&lt;li&gt;The price of the transactions on the current day is lower than the previous day.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;There’s any number of ways the price can end up lower, and short of questioning everyone involved in trading that day, we have no idea what really happened.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I will now give an example how intuition about supply and demand can be misleading. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Imagine that Acme Inc. traded yesterday at \$10. The next day, market makers set the price around that price, with a bid-offer spread. There is no trading.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then imagine that at 10 am, Acme announces a successful lawsuit against it by the plaintiff Wile E. Coyote. The market makers are shocked, and drop the mid of the bid/offer prices to \$5, and still there is no trading.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Meanwhile, retail stock traders who did not know about the lawsuit saw the new price, and rushed to buy. 100 customers buy 100 shares each for the market makers, who are happy to sell out of inventory.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From the persepctive of an outside observer, we saw 100 retail traders rush to buy shares - and the price fell by half.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2018-02-10T02:24:20.397" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20535" PostTypeId="1" CreationDate="2018-02-10T06:11:50.640" Score="0" ViewCount="97" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;The current term structure is flat at 2%. You have a liability of $500,000 per year for the next five years. You decide to form an immunized portfolio.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;a) Describe your exact strategy if you invest in one through five-year zero-coupon bonds.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;What I did is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;D_{\rm funding}=w_1(1)+w_2(2)+w_3(3)+w_3(3)+w_4(5)+w_5(5)&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;but does $D_{\rm funding}$ equal to 5? what does it equal to and how do I solve this equation&lt;/p&gt;&#xA;" OwnerUserId="16216" LastEditorUserId="14419" LastEditDate="2018-02-10T17:38:14.730" LastActivityDate="2018-05-11T18:56:05.823" Title="Flat Term Structure and Immunized Portfolio Strategy" Tags="&lt;interest-rate&gt;&lt;bonds&gt;&lt;portfolio-theory&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20536" PostTypeId="2" ParentId="20497" CreationDate="2018-02-10T06:16:27.447" Score="0" Body="&lt;p&gt;Watch out!!! This problem is very subtle.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The unobserved term $\epsilon$ cannot be the regression error term if $\epsilon$ is uncorrelated with $Y$. In the model $Y=\beta_0 + \beta_1 X + U$, the error term $U$ is a part of $Y$, and thus $U$ is 100% correlated with $Y$. In your case, $\epsilon$ is uncorrelated with $Y$, so it is &lt;strong&gt;not&lt;/strong&gt; the error term unless $\epsilon = 0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;[Edited from here]&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The issue of endogeneity has nothing to do with whether $X$ and $Y$ are correlated. If $Y = \beta_0 + \beta_1 X + U$, $\beta_1 = 0$ and $X$ and $U$ are correlated, then $X$ is correlated with $Y$. On the other hand, if $\beta_1 \ne 0$ and $X$ and $U$ are &quot;exactly&quot; correlated, then it is possible that $X$ and $Y$ are uncorrelated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question only says that $X$ and $Y$ are uncorrelated. (It also says that $Y$ and $\epsilon$ are uncorrelated, but this information is irrelevant because it does not explain what $\epsilon$ means other than that it is unobserved.) So, endogeneity matters, not because $X$ and $\epsilon$ are correlated or whatever but because it says nothing about how $X$ and the error term are correlated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If $\epsilon$ is the error term, then it is implied that $\epsilon = 0$ so we have a perfect fit and no regressor-error correlation.&lt;/p&gt;&#xA;" OwnerUserId="10775" LastEditorUserId="10775" LastEditDate="2018-02-10T07:12:16.767" LastActivityDate="2018-02-10T07:12:16.767" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20538" PostTypeId="2" ParentId="20535" CreationDate="2018-02-10T13:31:49.983" Score="1" Body="&lt;p&gt;Note: This answer is preliminary, as I am unsure about some components of the question. I will note that it is a very long time since I studied portfolio immunization, and so I am describing how this would be looked at in the industry.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The simplest strategy for immunization in this case is to purchase five zero coupon bonds, each with a principal value of \$500,000. This means that your portfolio generates cash flows that exactly match the liability.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(That part of the question is unclear to me. One could attempt to duration match the liability, which would make the answer more complicated.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The price for \$1 for the &lt;em&gt;i&lt;/em&gt;-th zero coupon is: $\frac{1}{(1.02)^i}$, (the zero coupon price formula, using a simple interest rate convention).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The cost for the immunization is the sum of the five costs. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The market value weight of each bond is its market value divided by the sum.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2018-02-10T13:31:49.983" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20539" PostTypeId="2" ParentId="17117" CreationDate="2018-02-10T13:47:06.477" Score="1" Body="&lt;p&gt;This sentence says something very simple: If labor supply is a function of many arguments, not just the wage, $L^s = f(w,X,Y,...)$, then the supply curve, which is a line in a two-dimensional space of $(L^s,w)$ keeping everything else constant, will shift as a whole(&quot;bodily&quot;) if these $X's$ and $Y's$ change. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What could these &quot;$X$'s and $Y$'s&quot; be? First, if the author defined labor supply as a function of nominal wages, then certainly, a change in prices of consumption goods would shift the labor supply curve.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But even if the labor supply is defined as a function of real wages already, then there are other &quot;$X$'s and $Y$'s&quot; that may shift the whole curve, even if the real wage has not changed: for example, direct transfers from the Government (not as a windfall, but as a systematic policy). Since we assume that working is a &quot;bad&quot;, people will want to work less for every real wage level, if they get an increased supplementary income through the Government.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2018-02-10T13:47:06.477" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20541" PostTypeId="1" AcceptedAnswerId="20544" CreationDate="2018-02-10T14:36:10.973" Score="0" ViewCount="986" Body="&lt;p&gt;Consider a game in which, simultaneously, player $1$ selects any real number $x$ and player $2$ selects any real number $y$. The payoffs are given by:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$u_1 (x, y) = 2x − x^2 + 2xy$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$u_2 (x, y) = 10y − 2xy − y^2.$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(a) Calculate each player’s best-response function as a function of the opposing player’s pure strategy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(b) Find and report the Nash equilibria of the game.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(c) Determine the rationalizable strategy profiles for this game.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I got the first two part &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\partial u_1 / \partial X = 0 \implies 2 – 2X + 2Y = 0$ $\implies$ Best Response of Player $1 = 1 + Y$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\partial u_2/ \partial Y = 0 \implies 10 – 2Y – 2X = 0$ $\implies$ Best Response of Player $2 = 5 – X$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Nash Equilibrium&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$BR_2 = 5-(1+Y)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;so that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$Y^* = 2$ and $X^* = 3$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Nash equilibrium is $(3,2)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am unsure abut rationalizable strategy. I think it is rationalizable strategy for both players are all real numbers because there is no single number that is strictly dominated by another number. For example, if player 2 chooses 10, 11 is the best strategy for player 1 and dominated other number. But, if player 2 chooses 11, 12 is the best strategy for player 1 and 12 dominated 11 in this case. This logic then applies to all real numbers. I am unsure if this logic is correct. Any help is greatly appreciated.&lt;/p&gt;&#xA;" OwnerUserId="16095" LastEditorUserId="42" LastEditDate="2018-02-11T03:21:32.443" LastActivityDate="2018-02-11T03:21:32.443" Title="Rationalizable strategies in a game" Tags="&lt;game-theory&gt;&lt;nash-equilibrium&gt;&lt;self-study&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="20542" PostTypeId="1" CreationDate="2018-02-10T15:30:29.890" Score="2" ViewCount="18" Body="&lt;p&gt;I am currently analyzing the IVOL puzzle and I find in a single sort that the higher the IVOL the lower the return. Additionally I do a double sort, first sorting on skew and then on IVOL. I find that after controlling for slew the IVOL puzzle disappears. After that I do another double sort, first sorting on return of the previous month and then on IVOL. Here also, the IVOL puzzle disappears.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now I am wondering if it is the lottery preferences (investors seeking highly skewed stocks) that explain the IVOL puzzle or the return reversal? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Would it be now correct to do a Fama macbeth Regression ret ~ IVOL + RET(t-1)? Because this show me that only RET(t-1) has a significantly negative influence on returns.&lt;/p&gt;&#xA;" OwnerUserId="16155" LastActivityDate="2018-02-10T15:30:29.890" Title="What drives the Idiosyncratic Volatility puzzle?" Tags="&lt;finance&gt;" AnswerCount="0" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20543" PostTypeId="2" ParentId="20450" CreationDate="2018-02-10T17:39:14.663" Score="-1" Body="&lt;p&gt;I would dare say that Bolivia maintains its high economic growth not despite its economic policies, but &lt;strong&gt;because&lt;/strong&gt; of them.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Nationalization of industries has always been anathema to foreign&#xA;  investment yet Bolivia now has the highest foreign direct investment&#xA;  despite Evo Morales' policies.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I don't think that nationalisation of industry is necessarily anathema. If the bulk of value is not added in direct production, but elsewhere, capital is not necessarily uncomfortable with nationalisation (think of outsourcing: companies do not shy from getting rid from activities that are less lucrative by contracting them with smaller companies. Other than political risk, why should they automatically reject such kind of transference to local State companies?)&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Also not that it is always bad but in many countries like the&#xA;  Philippines, Korea, Peru and Chile, it was nationalization that&#xA;  stagnated their economies and it was privatization that saved them&#xA;  from stagnation and unlocked huge economic growth.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I am not familiar with the cases of Philippines, Korea, or Peru, but the Chilean case is more complicated than that and involved nationalisation or renationalisation of companies to put an end to the crisis the ultra-liberal first fase of Pinochet's dictatorship had caused.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In my simple understanding, this is because privatization removes the&#xA;  corruption inherent in nationalized industries as well as attract&#xA;  foreign investors that provide new capital.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I fear that corruption is inherent in any capitalist economy, regardless of nationalisation or privatisation. And to attract foreign investors, a country needs to have a reasonable infrastructure, which will not be developed by private companies - which, in conditions of natural monopolies, tend to be even more corrupt than public companies.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;President Evo Morales' economic policies were the opposite of this. I&#xA;  even remember reading that he had a confrontation with foreign&#xA;  investors threatening to pull out of Bolivia because of his policies.&#xA;  Yet somehow and someway he was not only able to keep foreign&#xA;  investment but he was also able to increase it.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;If foreign companies are investing in Bolivia, it must be because they are making profits there. Which means that Morales policies are providing an institutional environment favourable to that.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As an educated guess, I suppose that his policies have been deconcentrating wealth and consequently widening the internal market, resulting in a more attractive environment for foreign companies.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Bolivian growth also experience widespread growth. This is in&#xA;  widespread contrast with Venezuela where similar policies under Chavez&#xA;  and Maduro is currently causing an economic crisis. How is Evo Morales&#xA;  and Bolivia achieving this growth contrary to Neoliberal and free&#xA;  market capitalism teaching?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Well, a patient with a common headache will respond favourably to treatment with aspirins, while a patient with brain cancer will not. So even if the policies of Morales and Maduro are really similar, the results can differ widely if the initial conditions of each country are different. Notably, Venezuela's economy is much more dependent on a sole export commodity (oil) than Bolivia's. About 95% of Venezuela's exports are oil, which makes it a stronger possibility of Dutch disease than Bolivia. And so, even if the policies were otherwise the same, just paying more attention to keeping a diverse economy would probably result in different outcomes in each country.&lt;/p&gt;&#xA;" OwnerUserId="15747" LastActivityDate="2018-02-10T17:39:14.663" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20544" PostTypeId="2" ParentId="20541" CreationDate="2018-02-10T18:31:16.200" Score="3" Body="&lt;p&gt;Your calculation gives you all Nash equilibria in pure strategies. The unique Nash equilibrium in pure strategies is indeed the only Nash equilibrium, but this requires an argument. A careful look at the payoff functions shows that it is irrelevant for player 1 whether player 2 plays the pure strategy $y$ or a mixed strategy with expectation $y$. A similar argument applies to the other side. But then the calculation gives us that every player has a unique best response in pure strategies to every mixed strategy of the other. Moreover, mixed best responses must randomize over pure best responses, so all best responses must be in pure strategies. In particular, every Nash equilibrium must be in pure strategies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now rationalizable strategies are the strategies that survive iterated elimination of never best responses. Every strategy is a best response here and does never get eliminated, so every pure strategy profile is rationalizable. If you define rationalizability in terms of mixed strategies, the argument above shows you that you still get only the pure strategies as rationalizable strategies. There are some subtleties in how one defines rationalizability with infinite action spaces, but they are all irrelevant here.&lt;/p&gt;&#xA;" OwnerUserId="1442" LastActivityDate="2018-02-10T18:31:16.200" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="20547" PostTypeId="2" ParentId="20520" CreationDate="2018-02-10T21:17:16.257" Score="1" Body="&lt;p&gt;I'm no expert, I'm just now researching this topic for my Master's thesis, and I might miss a bunch of important stuff, but in my opinion, a huge breakthrough might come from the ecological economics side of the debate.&#xA;A new (to my knowledge) way of integrating resources and energy into economic growth is to use the so called Exergy (usefull energy) variable in the model. When you use this Exergy (&lt;em&gt;as opposed to simply &lt;strong&gt;cost&lt;/strong&gt; of energy&lt;/em&gt;) variable in growth accounting, (again, to my knowledge) it explains away most of the Solow residual. So, ideas, human capital, physical capital and institutions start looking as a really minor factor when you compare them to the amount of calories/watts that we have been using to our advantage throughout the 20-th century...&#xA;The implications of the model (I'm speculating a bit here, people who know better could correct me, if I'm wrong) are that it's not that the physical capital per se drives growth, but rather the ability of the capital to extract natural (renewable and expendable) energy resources AND, most importantly, convert those resources into useful work.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can look up works by &lt;em&gt;Steve Keen&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and this &lt;a href=&quot;http://www.esee2015.org/wp-content/uploads/2015/10/0738.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;paper&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Aggregate production functions: How does the Solow Residual change when introducing quality-adjusted values for capital, labour, and energy?&lt;/strong&gt;&#xA;Authors: João Santosa; Matthew Kuperus Heunb, Paul E. Brockwayc, Marco Sakaic; Tiago Domingosa&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Adding: a quote from Steve Keen &quot;Capital without energy is a statue, labour without energy is a corpse.&quot;&lt;/p&gt;&#xA;" OwnerUserId="15936" LastEditorUserId="15936" LastEditDate="2018-02-11T01:06:55.343" LastActivityDate="2018-02-11T01:06:55.343" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20549" PostTypeId="1" CreationDate="2018-02-10T21:25:21.517" Score="1" ViewCount="99" Body="&lt;p&gt;I need some help with a proof.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Assume η = 2 and there are just two goods.  Verify that the following utility function exhibits Love for Variety tastes, show that:&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;u(λa + [1 − λ]b, λb + [1 − λ]a) &gt; u(a, b) for 1 &gt; λ &gt; 0 &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Additionally, I am given the utility function:&#xA;  $$&#xA;\\u(q_1,q_2, ...q_n) = \sum_1^N \sqrt[η]{q_i}\,&#xA;$$&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In the lead up to the question, I am given a different problem to prove that should help me solve the above one.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It uses the same utility function, and I have to prove that the consumer wants a variety of two firms, rather than just one firm, I think I figured it out but I don't know how to apply what I did in the above proof, I have to prove that sqrt(x) + sqrt(y) &gt; sqrt(x + y):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\sqrt{x} + \sqrt{y} &amp;gt; \sqrt{x+y},&#xA;$$&#xA;$$&#xA;(\sqrt{x} + \sqrt{y})^2 &amp;gt; (\sqrt{x + y})^2&#xA;$$&#xA;$$&#xA;2\sqrt{xy} + x + y &amp;gt; x + y&#xA;$$&#xA;$$&#xA;2\sqrt{xy} &amp;gt; 0&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help is sincerely appreciated.&lt;/p&gt;&#xA;" OwnerUserId="16221" LastActivityDate="2019-05-22T03:03:15.580" Title="Help with Monopolistic Competition Proof, Prove Love for Variety" Tags="&lt;industrial-organisation&gt;&lt;proof&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="20551" PostTypeId="2" ParentId="20496" CreationDate="2018-02-10T22:21:40.007" Score="1" Body="&lt;p&gt;A really good textbook for introductory econometrics for me was Essentials of Econometrics by Damodar Gujarati. The problem is, it is quite old (mine was from 1992), so it does not even mention some of the more recent breakthroughs like cointegration analysis. But it really gets you into the subject.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would say that for me at least, study of econometrics looks relatively useful and interesting precisely because I have moderate knowledge of different economic theories, so I know how and where to put those methods to good use (to test wether models based on one or other theory fits the real world data better).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Other than that, stats and math is also important to grasp the deeper aspects of econometric methods.&lt;/p&gt;&#xA;" OwnerUserId="15936" LastActivityDate="2018-02-10T22:21:40.007" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20553" PostTypeId="2" ParentId="20496" CreationDate="2018-02-10T23:29:40.110" Score="0" Body="&lt;p&gt;Econometrics at the PhD level requires a few specific skills you should really cultivate. First, extensive undergraduate training in Probability Theory and Mathematical Statistics is essential. Applied statistics courses are not going to help you because they take the underlying econometrics as given and just tell you how to push the buttons. You should take Linear Algebra and study it as hard as you can- I just did the bare minimum in LA and I really, really regretted it. You want to be able to eat,sleep, and breathe:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Matricies and Matrix Operations, especially rank and determinant conditions, and inversion.&lt;/li&gt;&#xA;&lt;li&gt;Linear Projection- understand the geometry of this thoroughly, not just in the tiny little bites you'll get in most books. You should be extremely comfortable with projections and orthogonal complements.&lt;/li&gt;&#xA;&lt;li&gt;Summation Operators- you should feel extremely comfortable manipulating summations, breaking things into double summations, etc.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Econometrics I usually consists of a very thorough coverage of linear techniques (linear in parameters, that is). Metrics II generally goes into MLE, Logit, Probit, and other more advanced techniques. You will also have a graduate stat course prior to this, which covers much of the same material as Prob Theory at a higher level. To get a taste of this, my stats class used &quot;Statistical Inference&quot; by Casella and Berger, and my Econometrics class used Bruce Hansen's Econometrics text, available on his site here: &lt;a href=&quot;https://www.ssc.wisc.edu/~bhansen/econometrics/&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.ssc.wisc.edu/~bhansen/econometrics/&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A word of advice- self study is only ever effective toward a specific end. You need a fire under your proverbial behind. I taught myself a lot of convex analysis- but only after I realized I needed it to prove something in my first project. Your brain is designed to forget that which is not used. If you really want to learn it, you should do each and every practice problem, and be hard on yourself about getting them wrong- a live and let live attitude of &quot;it doesn't matter really because this isn't a class&quot; tells your brain not to remember.&lt;/p&gt;&#xA;" OwnerUserId="16229" LastActivityDate="2018-02-10T23:29:40.110" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20555" PostTypeId="2" ParentId="20425" CreationDate="2018-02-10T23:43:10.247" Score="2" Body="&lt;p&gt;Caution: Heavy citing&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;In his doctoral dissertation &lt;em&gt;Revankar&lt;/em&gt; (1967) expounded his generalized&#xA;production functions that permit variability to &lt;em&gt;returns-to-scale&lt;/em&gt; as well as &lt;em&gt;elasticity of substitution&lt;/em&gt;. In contrast with the production functions that (rather unrealistically) assume the same returns to scale at all levels of output, &lt;strong&gt;Zellner and Revankar (1969)&lt;/strong&gt; found a procedure to generalize &lt;strong&gt;any given (neoclassical)&lt;/strong&gt; production function with specified &lt;em&gt;constant&lt;/em&gt; or &lt;em&gt;variable elasticities of substitution&lt;/em&gt; such that the resulting production function &lt;strong&gt;retains its specification as to the elasticities of substitution&lt;/strong&gt; all along but &lt;strong&gt;permits returns- to-scale to vary&lt;/strong&gt; with the scale of output. Their Generalized Production Function (GPF) is given as&#xA;\begin{equation}&#xA;\ Pe^{\theta P} = c^h f^h&#xA;\end{equation}&#xA;where f is the basic function (e.g. &lt;strong&gt;Cobb-Douglas, CES&lt;/strong&gt;, etc) as the&#xA;object of generalization, c is the constant of integration and &lt;em&gt;θ, h&lt;/em&gt;&#xA;relate to parameters&#xA;associated with the returns-to-scale function. In particular, if the Cobb-Douglas production function is generalized, we have&#xA;\begin{equation}&#xA;\ Pe ^{\theta P}= AK^{\rho\alpha} L^ {\rho (1- \alpha )} &#xA;\end{equation}. This function is &lt;em&gt;interesting&lt;/em&gt;&#xA;from the viewpoint of &lt;strong&gt;estimation&lt;/strong&gt; also. It has to be estimated so as to &lt;em&gt;maximize&lt;/em&gt; the &lt;strong&gt;likelihood function&lt;/strong&gt; since the Least Squares and Max Likelihood estimators of parameters do not coincide. The return to scale function is given by &#xA;\begin{equation}&#xA;\rho (P) = \rho /(1 + \theta P) &#xA;\end{equation} . Depending on θ the sign of θ , the returns-to-scale function monotonically increases or decreases with&#xA;increase in P. However, as we know, the returns to scale first increases with output, remains more or less constant in a domain and then begins falling. This fact is not captured by the Zellner-Revankar function since it gives us a linear returns-to-scale function.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;from &lt;strong&gt;A Brief History of Production Functions&lt;/strong&gt; by &lt;em&gt;SK Mishra&lt;/em&gt; 2007&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, I would guess, the  \begin{equation}  \alpha  \end{equation} parameter &#xA;in your log-linearized function would have something to do with returns-to-scale.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regarding estimation, I'm way too much of a newb. But this might be something at least similar to what you are looking for: &lt;a href=&quot;https://link.springer.com/chapter/10.1007/3-540-28556-3_2&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://link.springer.com/chapter/10.1007/3-540-28556-3_2&lt;/a&gt; &#xA;&lt;strong&gt;Variable Elasticity of Substitution and Economic&#xA;Growth: Theory and Evidence&lt;/strong&gt; by &#xA;&lt;em&gt;Giannis Karagiannis,&#xA;Theodore Palivos,&#xA;and Chris Papageorgiou&lt;/em&gt;,&#xA;2005&lt;/p&gt;&#xA;" OwnerUserId="15936" LastEditorUserId="15936" LastEditDate="2018-02-11T05:35:53.660" LastActivityDate="2018-02-11T05:35:53.660" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20556" PostTypeId="2" ParentId="19060" CreationDate="2018-02-11T01:57:53.993" Score="-1" Body="&lt;p&gt;I came across the answer to the validity of univariate modelling in economics (albet indirectly) from the book called &lt;a href=&quot;http://press.uchicago.edu/ucp/books/book/chicago/R/bo5947912.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;A Rational Expectations Approach to Macroeconometrics&lt;/a&gt;. This answer is based on the material in the book, for a better understanding I reccomend actually going through it.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In short the validity of ARIMA models is based on the assumption that the market is always in equilibrium or &lt;strong&gt;efficient&lt;/strong&gt;&lt;sup&gt;1&lt;/sup&gt;.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In order to understand how use of ARIMA models in Econometrics is a valid way to forecast economic variables, we must understand models which considers the case of for &lt;strong&gt;rational expectations&lt;/strong&gt; (other wise referred to as &lt;strong&gt;efficient markets&lt;/strong&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;your standard efficient markets model is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$y_t=\tilde{y}_t+\sum_{i=0}^N\beta_i(X_{t-i}-X_{t-i}^e)+\epsilon_t$$&#xA;where:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;$y_t=$ Economic variable of interest at time $t$ like unemployment or real output.&lt;/li&gt;&#xA;&lt;li&gt;$\tilde{y}_t=$Natural rate or equilibrium of economic variable at time $t$&lt;/li&gt;&#xA;&lt;li&gt;$\beta_i=$ coefficents.&lt;/li&gt;&#xA;&lt;li&gt;$X_{t-i}=$ an aggreagte demand variable like money growth, Inflation or Nominal GDP growth.&lt;/li&gt;&#xA;&lt;li&gt;$X^e_{t-i}=$ Anticipated aggregate demand conditional on knowing all  information at point $t-i$&lt;/li&gt;&#xA;&lt;li&gt;$\epsilon_t=$ an error term&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;This model accounts for variability that can be present when a market does not have all information pertaining to $y_t$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;combining this formula using a specification used with the Lucas supply function:&#xA;$$\tilde{y}=\sum_{i=1}^N\lambda_iy_{t-i}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;combining the two equations we get:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$y_t=\sum_{i=1}^N\lambda_iy_{t-i}+\sum_{i=0}^N\beta_i(X_{t-i}-X_{t-i}^e)+\epsilon_t$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This model tells us that if rational expectations hold,the relationship of  $y_t=\sum_{i=1}^N\lambda_iy_{t-i}$, thus providing validity for the use of uni variate models in economics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For more reading on this topic, below is posted links to the three chapters which helped me:&lt;br&gt;&#xA;1)&lt;a href=&quot;http://www.nber.org/chapters/c10241.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.nber.org/chapters/c10241.pdf&lt;/a&gt;&lt;br&gt;&#xA;2)&lt;a href=&quot;http://www.nber.org/chapters/c10243.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.nber.org/chapters/c10243.pdf&lt;/a&gt;&lt;br&gt;&#xA;3)&lt;a href=&quot;http://www.nber.org/chapters/c10244.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.nber.org/chapters/c10244.pdf&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;UPDATE:&lt;/strong&gt; Upon Contacting &lt;a href=&quot;https://twitter.com/MyProgDirector/status/971261126657888256&quot; rel=&quot;nofollow noreferrer&quot;&gt;Dr. Paul Middleditch on Twitter&lt;/a&gt; he says that the RHS variables must be replaced with a proxy which is normally the value of the previous period. ARIMA methodology satisfies such constraints.&lt;sup&gt;2&lt;/sup&gt;&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;sub&gt;1. Mathematically this statement can be written as:&#xA;$$\mathbb{E}_m(X_t|\phi_{t-1})=\mathbb{E}(X_t|\phi_{t-1})$$&lt;/sub&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;sub&gt; where the expected value given by the market of $X_t$ conditional on $\phi_{t-1}$ the set of all available information at time $t-1$, is equal to the true expected value of $X_t$&lt;/sub&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;sub&gt;It follows logically that $\mathbb{E}[X_t-\mathbb{E}_m(X_t)|\phi_{t-1}]=0$ &lt;/sub&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;sub&gt;2. a Youtube series he prodouced on rational expectations &lt;br&gt;&#xA;&lt;a href=&quot;https://www.youtube.com/watch?v=hMaJ0CMRNlk&amp;amp;list=PL1BUBmE-wKq_McDWvrAsiMygpupxOpvpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.youtube.com/watch?v=hMaJ0CMRNlk&amp;amp;list=PL1BUBmE-wKq_McDWvrAsiMygpupxOpvpg&lt;/a&gt; &lt;/sub&gt;&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="8815" LastEditDate="2018-03-07T22:07:55.537" LastActivityDate="2018-03-07T22:07:55.537" CommentCount="10" ContentLicense="CC BY-SA 3.0" />
  <row Id="20558" PostTypeId="1" AcceptedAnswerId="20559" CreationDate="2018-02-11T12:31:31.787" Score="0" ViewCount="51" Body="&lt;p&gt;The source below says &#xA;&quot;According to this document from the US Treasury, SWIFT handles about \$5 trillion per day, or given about 250 business days per year, about \$1.25 quadrillion dollars a year.&quot;.&#xA;&lt;a href=&quot;https://economics.stackexchange.com/questions/9165/how-much-money-is-wire-transferred-every-year-worldwide/9184?newreg=3e1caab94de140b08a76905724b69f70&quot;&gt;How much money is wire transferred every year worldwide?&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However this source below says &#xA;&quot;Worldwide, 230 million people send \$500 billion in remittances each year&quot;.&#xA;&lt;a href=&quot;https://qz.com/775159/theres-a-500-billion-remittance-market-and-bitcoin-startups-want-in-on-it/&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://qz.com/775159/theres-a-500-billion-remittance-market-and-bitcoin-startups-want-in-on-it/&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why is the annual transferred money worldwide quite different?&#xA;Could you tell me the correct figure?&lt;/p&gt;&#xA;" OwnerUserId="16233" LastEditorUserId="1601" LastEditDate="2018-02-11T13:04:48.973" LastActivityDate="2018-02-11T13:11:57.880" Title="Why is the annual transferred money worldwide quite different?" Tags="&lt;money&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20559" PostTypeId="2" ParentId="20558" CreationDate="2018-02-11T13:11:57.880" Score="1" Body="&lt;p&gt;There is no contradiction here as not every transfer is a remittance.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&lt;a href=&quot;https://www.google.com/search?q=remittance%20etymology&amp;amp;oq=remittance%20ety&amp;amp;aqs=chrome.0.0j69i57.7174j1j4&amp;amp;sourceid=chrome&amp;amp;ie=UTF-8&quot; rel=&quot;nofollow noreferrer&quot;&gt;remit&lt;/a&gt;&lt;/em&gt; &lt;br&gt;&#xA;  late Middle English: from Latin remittere ‘send back, restore’&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It is my understanding that the word remittance is usually used to describe transfers by foreign workers to their home countries. From &lt;a href=&quot;https://en.wikipedia.org/wiki/Remittance&quot; rel=&quot;nofollow noreferrer&quot;&gt;Wikipedia&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;A remittance is a transfer of money by a foreign worker to an individual in his or her home country.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;These transfers may be conducted via SWIFT. As such they make up a small part of all SWIFT traffic, which would also include domestic payments, international business transfers, etc. So it is quite possible that the yearly volume of remittances is $\$5 \cdot 10^{11} $ whereas the yearly volume of SWIFT transfers is $\$1.25 \cdot 10^{15} $.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2018-02-11T13:11:57.880" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20560" PostTypeId="1" CreationDate="2018-02-11T14:08:27.757" Score="1" ViewCount="35" Body="&lt;p&gt;I'm a little confused about the terminology used in economics literature while describing iterative and continuous auctions. Have I understood the difference correctly?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Iterative Auction: The auctioneer repeats the auction and the traders submit bids/asks until a purpose (welfare maximization etc.) is reached.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Continous Auction: The auction does not happen only once and there are different rounds of auction happening continuously.&lt;/p&gt;&#xA;" OwnerUserId="16177" LastActivityDate="2018-02-11T14:08:27.757" Title="Iterative versus continuous auctions" Tags="&lt;auctions&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20563" PostTypeId="1" CreationDate="2018-02-11T18:53:46.160" Score="2" ViewCount="45" Body="&lt;p&gt;The paper says:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Smaller $\theta$ implies more heterogeneity, and thus larger&#xA;  comparative advantage, and hence stronger force for trade relative to&#xA;  resistance $d_{ni}$.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Would it be correct to therefore infer that geographical barriers are less important when $\theta$ is smaller? Or is this &quot;technically incorrect&quot;?&lt;/p&gt;&#xA;" OwnerUserId="15828" LastActivityDate="2018-02-11T18:53:46.160" Title="Eaton &amp; Kortum - Technology, Geography, and Trade - How theta impacts geographical barrier" Tags="&lt;international-trade&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20565" PostTypeId="1" CreationDate="2018-02-11T23:49:23.660" Score="4" ViewCount="258" Body="&lt;p&gt;&lt;a href=&quot;http://people.laps.yorku.ca/people.nsf/researcherprofile?readform&amp;amp;shortname=gfallis&quot; rel=&quot;nofollow noreferrer&quot;&gt;Professor George Fallis&lt;/a&gt; in his book &lt;a href=&quot;https://www.amazon.ca/Housing-Economics-George-Fallis/dp/1483176754&quot; rel=&quot;nofollow noreferrer&quot;&gt;&amp;quot;Housing Economics&amp;quot;&lt;/a&gt; writes:&lt;/p&gt;&#xA;&lt;p&gt;(&lt;em&gt;Chapter 4 pg. 78&lt;/em&gt;)&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;The (home)owners will establish a pricing strategy depending on how they believe demanders are behaving; and the search strategy of demanders will depend upon the pricing behaviour of the (home)owners. The elegant separation of the demand side and the supply side is no longer possible. The modelling of such a market will be extremely complex, and the idea of equilibrium will have to be rethought.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;This being said there is one thing that comes to mind when wanting to model house pricing based on this reality: &lt;em&gt;Game Theory&lt;/em&gt;.&lt;/p&gt;&#xA;&lt;h1&gt;My Question:&lt;/h1&gt;&#xA;&lt;p&gt;Is there any (famous or otherwise) papers which discuss the nature of Game Theory in the housing market?&lt;/p&gt;&#xA;&lt;p&gt;(Papers with computer simulations of the housing market are additionally helpful!)&lt;/p&gt;&#xA;" OwnerUserId="6629" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2019-02-12T22:46:14.187" Title="Papers on Game Theory and the Housing Market" Tags="&lt;reference-request&gt;&lt;game-theory&gt;&lt;housing&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="20567" PostTypeId="1" CreationDate="2018-02-12T08:03:33.750" Score="0" ViewCount="230" Body="&lt;p&gt;I'm really confused about the concept of the circular flow of income. Specifically, I'm confused about the following situation:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Imagine a simple economy where households don't save their income, so they spend it entirely on goods/services. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now imagine there is only one firm in the economy producing a single good, say chocolates. Let's assume the firm has $5000 in total at first (obtained from all households, none of whom have any income at the moment). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's say the firm buys raw materials from households and pays households their wages, and let's assume altogether it costs the firm all \$5000. And now the firm decides to sell all chocolates produced at a price such that in total, the prices add up to \$6000, so that the firm earns \$1000 in profit. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But here I find a problem: no one can buy all \$6000 worth of chocolates because only \$5000 is in the economy at the moment. So firms can only sell a total of \$5000 worth of chocolates and thus never earn any profit. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where did I go wrong? Did I go wrong? I'm assuming I did because to me the result I got is nonsensical.&lt;/p&gt;&#xA;" OwnerUserId="16243" LastEditorUserId="12304" LastEditDate="2018-02-12T10:59:24.880" LastActivityDate="2020-09-11T12:57:46.567" Title="Macroeconomics, the circular flow of income and profits" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20568" PostTypeId="1" CreationDate="2018-02-12T08:12:50.020" Score="6" ViewCount="264" Body="&lt;p&gt;The book &lt;a href=&quot;https://www.springer.com/us/book/9783319088129&quot; rel=&quot;noreferrer&quot;&gt;Understanding Auctions&lt;/a&gt; states:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The term auction covers a wide range of market mechanisms that are used to exchange products and services by determining who receives an item and how much is paid for it. Although there are different auction designs, all of them share two properties. First, they are universal, that is, they can be used to sell (or buy) anything. Second, auctions are anonymous, which means that the identities of the participants do not affect the outcome of the auction.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It then goes on to describe a wide range of mechanisms that facilitate the exchange at some agreed price, all classified as types of auctions, including:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;dynamic vs sealed bid auctions&lt;/li&gt;&#xA;&lt;li&gt;single item vs multi item auctions&lt;/li&gt;&#xA;&lt;li&gt;sequential vs simulataneous auctions&lt;/li&gt;&#xA;&lt;li&gt;clearing vs continuous double auctions&lt;/li&gt;&#xA;&lt;li&gt;combinatorial auctions&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Combinations of two or more of the above are also possible and still auctions. I'm struggling to think of a market mechanism that is not an auction! So my question is what other types of market mechanisms can be said to exist?! Can someone point me to a good taxonomy of &quot;market mechanisms&quot;?&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Aside; &lt;a href=&quot;http://homepages.abdn.ac.uk/w.w.vasconcelos/pages/pubs/CS5820/sandholm99distributed.pdf&quot; rel=&quot;noreferrer&quot;&gt;this paper&lt;/a&gt; discusses &quot;negotiation protocols&quot; and distinguishes between:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Voting&lt;/li&gt;&#xA;&lt;li&gt;Auctions&lt;/li&gt;&#xA;&lt;li&gt;Bargaining&lt;/li&gt;&#xA;&lt;li&gt;General Equilibrium Market Mechanisms&lt;/li&gt;&#xA;&lt;li&gt;Contract Nets&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;But this paper is from 1999, and the author classifies 'auctions' only the conventional type - what would be single item, monopolistic forward auctions in the first authors taxonomy. &quot;General Equilibrium Market Mechanisms&quot; kind of seems different but, it could also be interpreted as a multi-item, simultaneous, dynamic, clearing double auction. In fact a well known mechanism used to solve for a general competitive equilibrium is the &lt;a href=&quot;https://en.wikipedia.org/wiki/Walrasian_auction&quot; rel=&quot;noreferrer&quot;&gt;Walrasian Auction&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="16125" LastEditorUserId="16125" LastEditDate="2018-02-18T23:19:33.223" LastActivityDate="2018-06-19T01:28:49.953" Title="What types of 'market mechanisms' are said to exist besides auctions?" Tags="&lt;microeconomics&gt;&lt;auctions&gt;&lt;mechanism-design&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20569" PostTypeId="2" ParentId="20568" CreationDate="2018-02-12T08:31:26.670" Score="4" Body="&lt;p&gt;Other methods or mechanisms by which goods are traded in a market economy: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;1. Seller posts price.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Probably the most familiar method to most people. Examples: McDonald's posts a price of \$1 for a hamburger, an airline posts a price of \$400 for a ticket, etc. Anyone who's willing and able to pay the posted price gets the good.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;2. Buyer posts price.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Previously somewhat uncommon, but thanks to the internet most people are now familiar with this method. Example: Buyer of a ticket to tonight's game posts the price he's willing to pay on craigslist. Anyone who's willing and able to sell at the posted price gets to sell.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;3. Seller and buyer both post prices.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Mr X announces he's willing to sell one Berkshire Hathaway share for \$300,000. Mr Y announces he's willing to buy one for \$300,000. The New York Stock Exchange (the intermediary) then matches them together and executes the trade.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;4. Bargaining.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;No prices posted. Typically, the buyer approaches the seller, the seller sizes up the buyer, offers a price, and the two then higgle and haggle till a mutually agreeable price is reached. Such bargaining could be over a US\$0.20 bottle of water on the streets of Hanoi or a billion-dollar takeover deal on Wall Street.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;I'm not sure if your book's characterization of auctions is quite right. For example, a trade on the NYSE is quite anonymous but I don't think we could consider it an auction. (Of course, one can &lt;em&gt;define&lt;/em&gt; an auction so as to subsume all of the above mechanisms, but in that case we have wasted the word &lt;em&gt;auction&lt;/em&gt;.)&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastEditorDisplayName="user18" LastEditDate="2018-02-12T08:39:45.543" LastActivityDate="2018-02-12T08:39:45.543" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="20570" PostTypeId="2" ParentId="20567" CreationDate="2018-02-12T11:09:13.170" Score="0" Body="&lt;p&gt;In your example there would be no growth, because you are playing a zero sum game, which is a flawed assumption. You assume that households are purely composed of paid employees, which happen to hold a sterile amount of raw materials. In reality, the raw materials (milk, sugar, cocoa) keep growing from nature with time passing by, which is the first source of growth.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Countries are rarely isolated from the markets (examples today are North Korea and a few other countries). By participating in the international trade, nations (as a whole) get a chance to grow faster. Using your example, some countries would produce the raw materials and export them, while others transform it in chocolate, and export it back. Reading &lt;a href=&quot;http://policonomics.com/ricardian-trade-theory/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Ricardian trade theory&lt;/a&gt; on international comparative advantage is a good start, if you want to learn more.&lt;/p&gt;&#xA;" OwnerUserId="12304" LastActivityDate="2018-02-12T11:09:13.170" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20571" PostTypeId="1" CreationDate="2018-02-12T11:41:02.260" Score="2" ViewCount="95" Body="&lt;p&gt;When it comes to proving that a mechanism e.g. auction is incentive compatible this is the approach I'm using:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I break down all the cases that might happen if the agent reports an untruthful value to achieve higher utility. Then I show that by lying about the valuation an agent will achieve a lower or at best the same utility as of truthful valuation reporting. I call this weakly dominant strategy truthfulness.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now my question is that what is the difference between weakly dominant strategy and Nash equilibrium? I know that a strong dominant strategy equilibrium is stronger than the nash equilibrium. But what about the weakly dominant strategy equilibrium?&lt;/p&gt;&#xA;" OwnerUserId="16177" LastEditorUserId="16177" LastEditDate="2018-02-12T13:11:26.903" LastActivityDate="2018-03-14T22:19:47.787" Title="Incentive compatibility: Weakly dominant strategy versus Nash equilibrium?" Tags="&lt;nash-equilibrium&gt;&lt;auctions&gt;&lt;mechanism-design&gt;&lt;dominant-strategy&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20572" PostTypeId="2" ParentId="20567" CreationDate="2018-02-12T11:41:10.490" Score="1" Body="&lt;p&gt;The firm broke the circular flow of income in your example; profits went into a black hole.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Imagine that the firm instead distributes all profits to the owner, who spends all proceeds.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The firm gets \$6000 in revenue, pays \$5000 in wages, and pays \$1000 in dividends. The wages and dividends are enough to provide the revenue.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am ignoring the issue of the initial money holdings. There is a number of ways these transactions can be supported: credit, or the \$1000 dividend was paid out revenue as it came in. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In order to respect the initial money holdings, and have sales of \$5000, what happens is that the firm has excess inventory (with a sales value of \$1000). That is, the workers could not afford to buy all of the output. The firm would be profitable, but with zero cash flow. Since the cash used to pay the workers returned to the firm, it would be able to then pay a dividend out of profits. That dividend could then be used by the owner to buy the remaining inventory.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is not obvious how the firm can forecast its profits exactly in this fashion, but that would be covered up in an economic model by solving for all flows simultaneously. If all cash flows are settled simultaneously, we actually cannot see how the money flows work; we only see the net movement.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastEditorUserId="12891" LastEditDate="2018-02-13T04:30:30.927" LastActivityDate="2018-02-13T04:30:30.927" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="20573" PostTypeId="1" CreationDate="2018-02-12T13:49:40.123" Score="2" ViewCount="110" Body="&lt;p&gt;I know that the linearization of a CES (constant elasticity of substitution) funtion is a bit complicated. There is even an R package dedicated just for that - the econometric estimation and calculation of a CES function (of wich Cobb-Douglas, Leontief and linear production functions are special cases) - micEconCES. However, I can't find anything about the econometric estimation of a VES (variable elasticity of substitution) production function. &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Is it (linearisation and/or econometric estimation) possible at all, or do the characteristics of the function not permit linearisation?&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;P.S. I'm aware that there are different forms of the VES function. &lt;/p&gt;&#xA;" OwnerUserId="15936" LastActivityDate="2018-02-12T13:49:40.123" Title="Linearization of VES production funtions" Tags="&lt;production-function&gt;&lt;elasticity-of-substituion&gt;&lt;aggregate-production&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20575" PostTypeId="1" CreationDate="2018-02-12T14:36:08.617" Score="1" ViewCount="26" Body="&lt;p&gt;I know about the psychology behind prices that end in 9 or 99, but I'm starting to notice that some prices contain the same digit (not 9) repeated two, three or even four times.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, in this week's leaflet a popular German supermarket is advertising tangerines for €1.11, plum tomatoes for €0.88 and onions for €0.66, but nearly all their other prices end with a 9. I remember seeing this pattern also in other circumstances, like a restaurant offering sandwiches for €7.77, and in phone rates.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is the point of having prices like that? Do they make the product more interesting in any way?&lt;/p&gt;&#xA;" OwnerUserId="16245" LastActivityDate="2018-02-12T14:36:08.617" Title="Why do some prices contain a sequence of a digit repeated several times?" Tags="&lt;pricing&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="20576" PostTypeId="1" CreationDate="2018-02-12T14:40:19.547" Score="1" ViewCount="149" Body="&lt;p&gt;Exogenous economic growth models (mostly those that take technological progress, or change in TFP as exogenous and random) are rather easy to estimate econometrically. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But how about endogenous growth models? &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;I've looked at a few papers with endogenous growth models, but they look more like small instances of CGE (computable general equilibrium) models than simple production functions with restrictions and assumptions.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;My question is: what's the basic difference in parameter estimation of those models?&lt;/p&gt;&#xA;" OwnerUserId="15936" LastActivityDate="2018-02-12T14:40:19.547" Title="Estimating Endogenous vs Exogenous growth models" Tags="&lt;economic-growth&gt;&lt;production-function&gt;&lt;endogenous-growth&gt;&lt;growth-accounting&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20577" PostTypeId="1" AcceptedAnswerId="20580" CreationDate="2018-02-12T15:49:56.333" Score="2" ViewCount="195" Body="&lt;p&gt;In light of the recent unease about interest rate rise, I've been taking a growing interest in how our economy actually works, something I've been trying to avoid.&#xA;So this forum is a way for me to clarify my (mis)understanding, so for some of you, I'm sorry for stating the bloody obvious.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Banks stopped borrowing money when people or corporations or even other banks defaulted on their loans. Banks even stopped lending to each other. As a result the economy wasn't growing. So to avoid another recession (or encourage spending in the current recession), the Feds decide to experiment with QE.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With their unlimited power, they created new money into being, and bought these debts, even bad debts (bonds) and equities/assets from these banks.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My focus is on the bonds that the Feds bought, and this is where my understanding starts to get fuzzy and wtfs/minute grows exponentially....&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So these banks sold their bonds to the feds, and with this new loan they received, they can start lending back to people or corporations. But this also means they are paying interest rates to the Feds, but hopefully they are making good investments on the new loan (but what if they default on this new loan, rinse and repeat???)?&#xA;Because Feds have been introducing these magical money for years, bond prices were up, and thus interest rates decrease...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Quantitative tightening...&#xA;But cheap money is unsustainable and cannot go on forever (I'm still unclear on this but I will research more on this later).&#xA;So now the Feds are thinking of selling back the bonds (and presumably equities) they bought from the banks that sold it to them. Now, bonds price will plummet but interest rates will rise...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question for now is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Will the Feds now pay the banks interest rates on money that &lt;em&gt;THEY magically created&lt;/em&gt; or are they exempt from this?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Do banks really really have to buy these bonds bank? Then interest rates just won't rise and the Feds are stock with bad debt until maturity, and it's essentially paid for, more or less.. What am I not understanding?&lt;/p&gt;&#xA;" OwnerUserId="16246" LastActivityDate="2018-02-13T11:44:21.680" Title="In quantitative tightening do banks have no choice in refusing to buy bonds from Central Banks (mainly Federal Reserve)" Tags="&lt;federal-reserve&gt;&lt;bonds&gt;&lt;quantitative-easing&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="20579" PostTypeId="1" CreationDate="2018-02-12T16:26:46.937" Score="1" ViewCount="1531" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Find the Nash equilibrium of Cournot’s game when there are two firms, the inverse demand function is P(Q) = α – Q when α ≥ Q and 0 otherwise, and the cost function of each firm I is Ci(qi) = qi2. If the firms collude in this situation to create a cartel to maximize their profits, how much would each firm produce?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I'm able to find the Nash equilibrium quantities when there is no collusion - however, I'm stuck on the cartel part.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We want to find &lt;em&gt;joint&lt;/em&gt; profit maximizing quantities under collusion here. When the marginal cost to each firm is constant this is easy to do, since $C(Q) = C(q_1) + C(q_2)$. However, in this case, $C(Q) = q_1^2 + q_2^2$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, our joint profits are $\pi(Q) = Q(\alpha - Q) - (q_1^2 + q_2^2) \neq Q(\alpha - Q) - Q^2$. I'm not sure how to take this first order condition (with respect to $Q = (q_1 + q_2)$) given the non-linearity of the cost functions. Any ideas as to how to solve this would be greatly appreciated (not looking for a direct answer; simply a nudge in the right direction).&lt;/p&gt;&#xA;" OwnerUserId="14527" LastActivityDate="2018-02-12T22:31:54.373" Title="Cartel profit maximizing quantity question (Cournot game)" Tags="&lt;game-theory&gt;&lt;profit-maximization&gt;" AnswerCount="1" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="20580" PostTypeId="2" ParentId="20577" CreationDate="2018-02-12T18:28:02.117" Score="2" Body="&lt;p&gt;The question as it stands now contains points that are debatable. So I will just attempt to answer a similar question; the question could be revised in response.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are a number of other questions on QE that offer some background.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://economics.stackexchange.com/questions/14697/whats-the-difference-between-quantitative-easing-and-regular-central-bank-opera&quot;&gt;Difference between QE and regular monetary operations&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://economics.stackexchange.com/questions/11698/limits-to-quantitative-easing-programmes&quot;&gt;Limits to QE&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;My revised version of the question is: “In quantitative tightening, the Federal Reserve sells bonds on its balance sheet. Can banks refuse to buy these bonds?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The answer to that question is yes, but it does not matter. Note that my description here is highly simplified, technical details are being skated over.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let’s assume that Betty is an investment dealer, but not a bank. She has a bank account at Acme Bank. The Federal Reserve has an auction to sell bonds. Acme Bank refuses to participate for some reason or other, but Betty buys \$1 million in bonds from the Federal Reserve.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Betty transfers the money on deposit at Acme Bank to the Federal Reserve. What then happens.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Acme Bank reduces Betty’s deposit balance (at Acme) by \$1 million.&lt;/li&gt;&#xA;&lt;li&gt;Acme Bank transfers the funds to the Federal Reserve by losing \$1 million of reserves it had on deposit at the Federal Reserve. This eliminates \$1 million of excess reserves in the system.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;These operations are neutral for Acme itself. It loses an asset (the reserves), but also loses a liability (Betty’s deposit).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That is, bank reserves are just deposits by banks at the Federal Reserve. A central bank is called a central bank for a reason - most banks have deposits there. It’s just that in American banking jargon, these deposits are called “reserves”. Other countries (like Canada) have abolished resserve requirements, and these deposits are just called “settlement balances.”&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Reserves are destroyed by anyone transferring money to the Federal Reserve. The only way a bank could stop it is by not transferring the money, which would be a breach of some law or another.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The only way that quantitative tightening could be stopped is if nobody was willing to buy Treasury bonds at any price. Unless the Treasury was on the verge of default, we normally do not see such behaviour.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastEditorUserId="12891" LastEditDate="2018-02-13T11:44:21.680" LastActivityDate="2018-02-13T11:44:21.680" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20581" PostTypeId="1" CreationDate="2018-02-12T19:29:04.950" Score="0" ViewCount="3029" Body="&lt;p&gt;I'm a student and I want to determine the demand for a product (and consequently determine what will happen if the price of the product increases). I don't have access to any businesses that can provide the data for me (price and demand at that price?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How do I estimate the demand curve or function by surveying people? What I currently have in mind is to ask people what amount of the product they'll demand at a given price and extrapolate this data for a city or a region. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Additionally, what'd be a good sample size for such a survey?&lt;/p&gt;&#xA;" OwnerUserId="6486" LastActivityDate="2020-10-14T20:58:41.310" Title="How do I determine the demand curve of a product through a survey?" Tags="&lt;supply-and-demand&gt;" AnswerCount="3" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="20582" PostTypeId="2" ParentId="20549" CreationDate="2018-02-12T20:00:52.070" Score="1" Body="&lt;p&gt;You have &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \begin{align} u(\lambda a + (1 - \lambda) b, \lambda b + (1 - \lambda)a) &amp;amp;= \sqrt{\lambda a + (1 - \lambda)b} + \sqrt{\lambda b + (1 - \lambda)a} \\ &#xA;&amp;amp;\geq \lambda\sqrt{a} + (1 - \lambda)\sqrt{b} + \lambda\sqrt{b} + (1 - \lambda)\sqrt{a} \\ &amp;amp;=  \sqrt{a} + \sqrt{b} \\ &amp;amp;= u(a, b) \end{align}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The inequality in the second line follows from Jensen's inequality for concave functions. I don't think you need to prove Jensen but you can even do that moderately easy with the AM-GM inequality if you want to. &lt;/p&gt;&#xA;" OwnerUserId="7711" LastActivityDate="2018-02-12T20:00:52.070" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20583" PostTypeId="2" ParentId="20571" CreationDate="2018-02-12T21:13:47.763" Score="3" Body="&lt;p&gt;A Nash equilibrium that consists of weakly dominant strategies is a stronger solution concept than a NE itself. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider the following simple matrix game where best replies have been marked with *&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{array}{c|cc}&#xA;P1/P2&amp;amp;\text{left}&amp;amp;\text{right}\\&#xA;\hline&#xA;\text{Up}&amp;amp;1^*,1^*&amp;amp;0^*,0\\&#xA;\text{Down}&amp;amp;0,0^*&amp;amp;0^*,0^*&#xA;\end{array}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Both Up and left are weakly dominant strategies. They are always at least as good as Down and right respectively. That does not rule out, however that there are no other Nash equilibria as the game shows. The combination (Down, right) is also a Nash equilibrium because there is no gain from unilateral deviation. By deleting weakly dominated strategies we lose the latter Nash equilibrium so a Nash equilibrium that consists of weakly dominant strategies is a stronger solution concept.&lt;/p&gt;&#xA;" OwnerUserId="12186" LastEditorUserId="42" LastEditDate="2018-02-12T22:01:24.413" LastActivityDate="2018-02-12T22:01:24.413" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20584" PostTypeId="2" ParentId="20579" CreationDate="2018-02-12T22:22:28.597" Score="2" Body="&lt;h1&gt;Hint&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;By colluding, presumably the two firms would like to figure out the least costly way to produce in order to maximize profit. Treat the two firms as two production plants of a single &quot;parent company&quot;. The total cost of the cartel can then be found by solving &#xA;\begin{equation}&#xA;C_\text{cartel}(Q)=\min_{q_1,q_2}\;[C_1(q_1)+C_2(q_2)],\quad\text{s.t.}\quad q_1+q_2=Q.&#xA;\end{equation}&#xA;This will give you a the optimal way of distributing production across the two firms, $q_i^*(Q)$, as a function of aggregate output $Q$. Then the cartel's total cost is just the sum of the member firms' costs evaluated at the optimum: $C_\text{cartel}(Q)=\sum_i C_i(q_i^*(Q))$.&lt;/p&gt;&#xA;" OwnerUserId="42" LastEditorUserId="42" LastEditDate="2018-02-12T22:31:54.373" LastActivityDate="2018-02-12T22:31:54.373" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20586" PostTypeId="1" CreationDate="2018-02-13T00:53:38.890" Score="1" ViewCount="235" Body="&lt;p&gt;I've been reading up on the topic of Rational expectations  econometrics, and have really been wondering if it is a theory useful for prediction or just used to &quot;fit&quot; a model.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your standard rational expectations model (otherwise referred to as efficent markets model):&#xA;$$y_t=\tilde{y}+\sum_{i=1}^n\beta_i(X_{t-i}-X^e_{t-i})+\epsilon$$&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;$y_t=$ Economic variable of interest at time $t$ like unemployment or real output.&lt;/li&gt;&#xA;&lt;li&gt;$\tilde{y}_t=$Natural rate or equilibrium of economic variable at time $t$&lt;/li&gt;&#xA;&lt;li&gt;$\beta_i=$ coefficents.&lt;/li&gt;&#xA;&lt;li&gt;$X_{t-i}=$ an aggreagte demand variable like money growth, Inflation or Nominal GDP growth.&lt;/li&gt;&#xA;&lt;li&gt;$X^e_{t-i}=$ Anticipated aggregate demand conditional on knowing all  information at point $t-i$&lt;/li&gt;&#xA;&lt;li&gt;$\epsilon_t=$ an error term&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Where the property of &quot;rational expectations&quot; is defined as the true expected value of $X_t$ is equal to the markets expected value of $X_t$. Mathematically written as:&#xA;$$\mathbb{E}(X_{t}|\phi_{t-1})=\mathbb{E}_m(X_t|\phi_{t-1})$$&#xA;$$\mathbb{E}(X_{t}-\mathbb{E}_m(X_t)|\phi_{t-1})=0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If rational expectations hold, we should observe when expectations are taken:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$y_t=\tilde{y}_t$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;that is $y_t$ should always be in equilibrium/ be forecasted based on its equilibrium values/growth process (providing rationale for the use of Univariate models in economics).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My Question:&lt;/strong&gt; Are the use of expectations augmented models useful for forecasting or is it just a way to explain forecast error?&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2018-02-14T21:04:54.823" Title="Rational expectations econometrics: a theory or an excuse?" Tags="&lt;macroeconomics&gt;&lt;econometrics&gt;" AnswerCount="2" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20587" PostTypeId="1" CreationDate="2018-02-13T01:48:36.890" Score="0" ViewCount="65" Body="&lt;p&gt;To the best of my knowledge, no bank will allow a borrower to provide crypto as collateral for a loan.  So, if the price of crypto crashes to zero, there shouldn't be any liquidity issues because no fiat backed by crypto had been created.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;All that would happen with a crash would be a redistribution of wealth: the people who sell first get the most, and the people who sell last get nothing.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, why are bankers claiming a crash would cause liquidity problems for the financial sector? &lt;/p&gt;&#xA;" OwnerUserId="15706" LastActivityDate="2018-05-14T15:06:21.290" Title="How can a crypto currency crash affect liquidity?" Tags="&lt;cryptocurrency&gt;&lt;liquidity&gt;" AnswerCount="1" CommentCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="20589" PostTypeId="1" AcceptedAnswerId="20606" CreationDate="2018-02-13T03:54:10.433" Score="4" ViewCount="72" Body="&lt;p&gt;I have a colleague who is a mathematician by training and currently works in Risk Analysis. He has issues with current Economic theory and I have debated him over coffee a couple of times.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One question he asked stood out to me as I could not answer it.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;In terms of economic measurement, how does one know if the variables economists are looking at are relevant to the economic health of a country in a post industrial economy?&lt;/strong&gt;&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;i.e.people and firms consume and produce many services that barely make a dent in the GDP, like how some medications and computers today are much cheaper today than when they first arrived on the market.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="6629" LastEditDate="2018-02-14T05:31:10.180" LastActivityDate="2018-02-15T09:26:55.190" Title="Soft Question: Economic measurement in a post-industrial economy" Tags="&lt;soft-question&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="20590" PostTypeId="2" ParentId="8397" CreationDate="2018-02-13T04:02:21.183" Score="0" Body="&lt;p&gt;I recently produced a paper deriving the distribution of returns for all asset and liability classes.  The log-normal return only appears in two cases.  The first is with single period discount bonds, the second with cash-for-stock mergers.  It comes from an assumption, I believe originally by Boness to eliminate the problem in Markowitz of infinitely negative prices.  While it was logically derived, it has a critical assumption that makes it generally untrue.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Most finance models assume that the parameters are known with probability one.  You do not need to estimate $\mu$ with $\bar{x}$ because it is assumed to be known.  On the surface, this is not a problem because this is the general methodology of null hypothesis based methods.  You assert a null is true and hence the parameters are known and a test is made against this null.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The difficulty happens when the parameters are not known.  It turns out the proof collapses without that assumption, in general.  The same is true for Black-Scholes.  I am presenting a paper at the SWFA conference this spring where I argue that if the assumptions of the Black-Scholes formula are literally true, then there cannot exist an estimator that converges to the population parameter.  Everyone just assumed the formula under perfect knowledge equaled the parameter estimator.  No one ever actually checked its properties.  In their initial paper, Black and Scholes empirically tested their formula and they reported that it didn't work.  Once you drop the assumption that the parameters are known, the math comes out differently.  Different enough to not be able to think about it the same way.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let us consider a case of an NYSE traded equity security.  It is traded in a double auction so the winner's curse does not obtain.  Because of this, the rational behavior is to create a limit order whose price is equal to $\mathbb{E}(p_t),\forall{t}$.  There are many buyers and sellers so the limit book should be statically normal, or at least it will become so as the number of buyers and sellers go to infinity.  So $p_t$ is statically normal about $p_t^*$, the equilibrium price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course, we have ignored the distribution of $(q_t,q_{t+1})$.  If you ignore splits and stock dividends, then it either continues to exist or it does not.  So you have to create a mixture distribution for stock-for-stock returns, cash-for-stock returns, and bankruptcy.  We will ignore these cases for simplicity, although doing so precludes the ability to solve an option pricing model.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, if we restrict ourselves to $r_t=\frac{p_{t+1}}{p_t}$ and assume away all dividends, then our returns will be the ratio of two normals about the equilibrium.  I am excluding dividends because they create a mess and I am excluding cases such as the 2008 financial crisis because you get a weird result that would consume page after page after page of text.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now simplify our derivation, if we translate our data from $(p_t^*,p_{t+1}^*)$ to $(0,0)$ and define $\mu=\frac{p_{t+1}^*}{p_t^*}$ we can easily see the distribution.  In the absence of a limitation on liabilities or an intertemporal budget constraint, by well-known theorem, the density of returns must be the Cauchy distribution, which has neither a mean nor a variance.  When you translate everything back to price space, the density becomes $$\frac{1}{\pi}\frac{\sigma}{\sigma^2+(r_t-\mu)^2}.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since there is no mean, you cannot take expectations, perform a t or F test, use any form of least squares.  Of course, this would be different if it were an antique instead.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If it were an antique at an auction the winner's curse obtains.  The high bidder wins the bid and the limiting density of high bids is the Gumbel distribution.  So you would solve the same problem but as the ratio of two Gumbel distributions instead of two normal distributions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem is not actually this simple. The limitation of liability truncates all underlying distributions.  The intertemporal budget constraint skews all underlying distributions.  There is a different distribution for dividends, mergers for cash, mergers for stock or property, bankruptcy, and a truncated Cauchy distribution for going concerns as above.  There are six types of distributions present for equity securities in a mixture.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Different markets with different rules and different existential states create different distributions.  An antique vase has the case where it is dropped and shatters.  It also has the case of wear and tear or some other change in intrinsic quality.  Finally, it also has the case that if enough similar vases are destroyed that the center of location moves.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, because of truncation and the lack of a sufficient statistic for the parameters, there does not exist a computable and admissible non-Bayesian estimator.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can find a derivation of the ratio of two normal variates and an explanation at &lt;a href=&quot;http://mathworld.wolfram.com/NormalRatioDistribution.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://mathworld.wolfram.com/NormalRatioDistribution.html&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can also find what appears to be the first paper on the topic at&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Curtiss, J.H. (1941) On the Distribution of the Quotient of Two Chance Variables. Annals of Mathematical Statistics, 12, 409-421.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;There is also a follow-up paper at&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Gurland, J. (1948) Inversion Formulae for the Distribution of Ratios. The Annals of Mathematical Statistics, 19, 228-237&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;For the autoregressive form for Likelihoodist and Frequentist methods at&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;White, J.S. (1958) The Limiting Distribution of the Serial Correlation Coefficient in the Explosive Case. The Annals of Mathematical Statistics, 29, 1188-1197,&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;and its generalization by Rao at&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Rao, M.M. (1961) Consistency and Limit Distributions of Estimators of Parameters in Explosive Stochastic Difference Equations. The Annals of Mathematical Statistics, 32, 195-218&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;My paper takes these four and other papers, such as a paper by Koopman and one by Jaynes, to construct the distributions if the true parameters are unknown.  It observes that the above White paper has a Bayesian interpretation and permits a Bayesian solution even though no non-Bayesian solution exists.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Do note that $\log(R)$ has a finite mean and variance, but no covariance structure.  The distribution is the hyperbolic secant distribution.  This is also by a well-known result in statistics.  It cannot really be a hyperbolic secant distribution because of the side cases such as bankruptcy, mergers and dividends.  The existential cases are additive, but the log implies multiplicative errors.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can find an article on the hyperbolic secant distribution at&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Ding, P. (2014) Three Occurrences of the Hyperbolic-Secant Distribution. The American Statistician, 68, 32-35&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;My article is at&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Harris, D. (2017) The Distribution of Returns. Journal of Mathematical Finance, 7, 769-804&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Before you read mine, you should read the above four papers first.  It also wouldn't hurt to read E.T. Jaynes tome as well.  It is, unfortunately, a polemical work, but it is rigorous nonetheless.  His book is:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Jaynes, E.T. (2003) Probability Theory: The Language of Science. Cambridge University Press, Cambridge, 205-207&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="11321" LastActivityDate="2018-02-13T04:02:21.183" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20591" PostTypeId="2" ParentId="20586" CreationDate="2018-02-13T04:39:26.617" Score="1" Body="&lt;p&gt;If you prefer, think of the rational expectations framework as a benchmark -- much in the same way that perfect competition is a benchmark.  It's not about whether the benchmark is wrong, so much as what the benchmark allows us to conclude when it is wrong.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The canonical example for rational expectations is the Barro-Gordon model of central banking (or more generally, the Kydland-Prescott model of policy-making), which essentially couches monetary policy in the framework of an infinitely repeated game.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The idea there was to consider the question of whether it is better to have a central bank that sets monetary policy &quot;by discretion&quot; or by adhering to a stated rule.  In this case, the idealized assumption being made is that agents are rational and possess full information about the past behavior of the central bank (as well as the true value of pertinent measures like inflation &amp;amp; unemployment).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the model, the bank's objective function implies a tradeoff between unemployment and inflation via the Phillips Curve.  Both inflation and unemployment are costly, but setting both to the equilibrium value is not feasible.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a one-shot game, the bank can improve the value of its objective function by &quot;inflation surprises&quot; -- basically, by injecting money into the economy without announcing it, so that in the short-run there is an increase to employment but no impact on inflation.  But since realized inflation is a function of inflation expectations (because if people expect their money to be worth less tomorrow, they will spend more of it today, thus leading to increased consumption demand which drives up prices and makes the expectation self-fulfilling), in the iterated game setting rational economic agents will come to expect the central bank to generate &quot;inflation surprises&quot;.  What is interesting about the Barro-Gordon model is that this leads to an &quot;inflation bias&quot; -- realized inflation is always higher than the optimal value when the bank's actual policy targets don't match with the expectations they set out through statements, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So rational expectations predicts that central banking done according to a rule is more efficient, because it keeps policy inflation in line with expectations and avoids this bias.  In the literature one hears about &quot;credible banks&quot; and this is essentially what this is about.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Getting back to your question, is this used to &quot;explain&quot; forecast error?  In a sense, yes:  if the model predicts a certain value of inflation under rational expectations, and that value of inflation isn't realized, then one either questions the rational expectation model itself or (more likely) that one or more of the assumptions behind it is violated.  Usually, this is the assumption of complete information, although one should also consider the possibility of additional shocks not accounted for explicitly in the model.&lt;/p&gt;&#xA;" OwnerUserId="16199" LastEditorUserId="16199" LastEditDate="2018-02-14T21:04:54.823" LastActivityDate="2018-02-14T21:04:54.823" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="20592" PostTypeId="2" ParentId="20485" CreationDate="2018-02-13T05:39:38.350" Score="2" Body="&lt;p&gt;Consider that the following production function $Y=F(K,L)$ excibits constant returns to scale ie $F(x K, x L)=x F(K,L)$, for any arbitrary scalar $x$. This means in plain English that eg for $x=2$, doubling the inputs will produce double the output. The intuition behind constant returns to scale is that inputs and outputs are directly proportionate. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In technical terms, an $F$ like that, is called &lt;em&gt;linearly homogeneous&lt;/em&gt;. Such functions display the following characteristic, by virtue of their definition: $Y=K\frac{\partial F}{\partial K}+L\frac{\partial F}{\partial L}$. The total value of F can be decomposed into a sum of products; each product is made up of the quantity of the relevant factor and its corresponding marginal product.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now consider how a firm that is using a constant returns to scale technology and is also a pricetaker in product and labor markets will solve its profit maximization problem; standard treatment proposes that it will find it profitable to employ each production factor up to the point where the &lt;em&gt;value marginal product&lt;/em&gt; equals the factor's price or $P_Y MP_X = P_X$, where $X=K,L$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, under constant returns to scale and price taking behaviour, linear homogeneity will ensure that (the value) of (optimaly produced) output is exactly offset by payments to production factors hence we are left with zero economic profits.&lt;/p&gt;&#xA;" OwnerUserId="15762" LastActivityDate="2018-02-13T05:39:38.350" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20593" PostTypeId="2" ParentId="17343" CreationDate="2018-02-13T09:15:23.627" Score="1" Body="&lt;p&gt;Copyright as a private contract is an entirely different thing than the concept of &quot;intellectual property&quot;. While it is difficult to quote a single, unified view on the issue, I would think most Austrians reject &quot;intellectual property&quot; for the following two reasons: 1. the concept is defined and enforced by a state authority; 2. Austrians do not consider a concept or an idea itself as property.&lt;/p&gt;&#xA;" OwnerUserId="16258" LastActivityDate="2018-02-13T09:15:23.627" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="20594" PostTypeId="1" AcceptedAnswerId="27524" CreationDate="2018-02-13T10:52:44.923" Score="5" ViewCount="154" Body="&lt;p&gt;I have a double auction mechanism in which the valuations of the agents for the items are drawn from a known random distribution. To be precise, the valuations are the probability of each agent utilizing the items, i.e. in the range [0,1]. So I guess this is a Bayesian mechanism!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First: Why is it necessary to show that the mechanism is prior free?&#xA;Second: How could I prove that?&lt;/p&gt;&#xA;" OwnerUserId="16177" LastActivityDate="2019-03-29T13:27:58.647" Title="Bayesian Mechanism vs Prior-free Mechanism" Tags="&lt;auctions&gt;&lt;bayesian-game&gt;&lt;mechanism-design&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20595" PostTypeId="2" ParentId="20594" CreationDate="2018-02-13T11:13:59.913" Score="0" Body="&lt;p&gt;First, I do not see why this is a Bayesian construction.  Indeed, if you do mean that the density is known, it cannot possibly be a Bayesian construction.  Consider the case where $f(x)=280{x^3}(1-x)^4,x\in[0,1]$,.  There is no unknown parameter here.  This is both your prior and your posterior as no amount of data will alter anything.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If this were a Bayesian construction then there would have to be some uncertain parameter, but there is no uncertain parameter.  This is a beta distribution with $\alpha=5$ and $\beta=4$  The prior is forced to be $\Pr(\alpha=5;\beta=4)=1$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question is &quot;what is x?&quot;  The only uncertainty is in the valuation.  This is a Frequentist problem.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;EDIT&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the case where it is drawn from an unknown distribution, you are facing two options, even if the distribution is known with certainty to the actors.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first is to use Bayesian non-parametric methods, the second is to use Frequentist non-parametric methods.  Depending on what I wanted to accomplish, I would choose one or the other.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Bayesian method will be coherent and so you could place gambles on it.  It will also likely be very difficult to implement.  There cannot be a Bayesian solution that is free of its prior.  Such a thing does not exist.  It might be that it is uninformative, but it must exist.  The alternative is to use Fisher's failed method of fiducial statistics.  The Frequentist method will minimize the maximum loss you could experience from making a choice based on the data by using an incorrect inference.  It will also allow you to control for power.  It will usually be far simpler to implement.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Bayesian non-parametric methods are potentially infinite dimensional constructions and you would need to do a bit of reading on them.  A simple approximation though would be to use the beta distribution because of its incredible flexibility, although you could use any high degree polynomial that stays above the axis since your bounding guarantees that a constant of integration exists.  You would then perform model selection. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As long as you believe it is unimodal, the bounding on both sides guarantees that a mean exists.  Even though your distribution is unknown, it is guaranteed to have moments.  The t-test is probably inappropriate because of the bounding is so tight, but you could use the empirical quantiles to test significance.  If you felt you needed the higher moments, the method of moments is always available.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, in either case, you have kernel methods available to you.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You cannot avoid a prior using Bayesian methods, but the greatest advantage of Frequentist statistics is to be able to solve problems when you cannot form a prior.&lt;/p&gt;&#xA;" OwnerUserId="11321" LastEditorUserId="11321" LastEditDate="2018-02-13T15:58:22.473" LastActivityDate="2018-02-13T15:58:22.473" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="20596" PostTypeId="2" ParentId="5368" CreationDate="2018-02-13T11:22:34.413" Score="0" Body="&lt;p&gt;A fairly informative answer to this question cropped up in a BBC Newsnight interview in September 2017.  Mervyn King, (Govenor of the Bank of England 2003-2013), replying to the question:-&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.youtube.com/watch?v=cgtFG4WNbNU&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.youtube.com/watch?v=cgtFG4WNbNU&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Segment: 6 mins 8 secs to 7 mins 27 secs&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;One of the consequences ... of the financial crash is the rise of&#xA;  populist forces, on the left and the right.  Do you see anything ...&#xA;  that will constructively address the anger and annoyance of the public&#xA;  at what happened a decade ago?&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;No, I think the problems are very much deeper, and I'm not sure that&#xA;  any one country will find it easy to find a route out of the problems&#xA;  that we face.  I think we'll need more international cooperation.  But&#xA;  the problems go back before the financial crisis, to the enormous&#xA;  influx of people working in manufacturing around the world, to the&#xA;  enormous amount of savings that were placed in the world economy, to&#xA;  &lt;strong&gt;the reduction of interest rates, which was the main factor pushing up&#xA;  the prices of houses and assets of all kinds&lt;/strong&gt;, which led to the&#xA;  expansion of the banking system and its ultimate collapse.  So I think&#xA;  these are deeper factors and I don't think any one country will find a&#xA;  simple solution and I don't think that the solutions we've seen are&#xA;  actually likely to bring about a resolution of these problems.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So taking a look at the interest rates.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;source: &lt;a href=&quot;https://www.economicshelp.org/blog/1485/interest-rates/historical-real-interest-rate/&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.economicshelp.org/blog/1485/interest-rates/historical-real-interest-rate/&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/2MNZ3.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/2MNZ3.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;&lt;em&gt;The highest period of interest rates was in the late 1970s, when the government were fighting high inflation caused by oil prices and rising wages.&lt;/em&gt;&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And looking at the house prices rising from the 1970s.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;source: &lt;a href=&quot;https://www.economicshelp.org/blog/5709/housing/market/&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.economicshelp.org/blog/5709/housing/market/&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/9JlPW.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/9JlPW.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And also taking a look at what was going on with the price of oil.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;source: &lt;a href=&quot;http://uk.businessinsider.com/timeline-155-year-history-of-oil-prices-2016-12&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://uk.businessinsider.com/timeline-155-year-history-of-oil-prices-2016-12&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/YvrUJ.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/YvrUJ.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The 1973 embargo and 1978 Iranian export cuts hiked the price in the 1970s.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;While no doubt it is a complex picture, not just oil and interest rates, the interest rate factor is revealing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally another quote from Mervyn King:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;source: &lt;a href=&quot;https://www.bis.org/review/r060215a.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.bis.org/review/r060215a.pdf&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;There are broadly two types of explanation for the fall in long-term&#xA;  real rates around the world. The first explains low interest rates as&#xA;  the outcome of an increased propensity to save and lower willingness&#xA;  to invest in the world as a whole. The second explains them as the&#xA;  result of rapid growth in money and credit which, in a “search for&#xA;  yield”, drives asset prices up and interest rates down.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Perhaps this “search for yield” could also be linked back to the &quot;monetary system's debt requirement&quot; which I mentioned in the question.&lt;/p&gt;&#xA;" OwnerUserId="4544" LastActivityDate="2018-02-13T11:22:34.413" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20597" PostTypeId="2" ParentId="20586" CreationDate="2018-02-13T11:36:13.987" Score="1" Body="&lt;p&gt;I would argue the answer to &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Are the use of expectations augmented models useful for forecasting or is it just a way to explain forecast error?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;is neither.  There is nothing intrinsic to expectations that makes forecasting better unless a squared loss function makes sense under the circumstances.  In that case, it isn't &quot;useful,&quot; so much as background information.  For some things such as stocks, it isn't possible to define a problem in terms of squared loss because the integrals diverge.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It also isn't a way to explain forecast error.  It may be the case that in a particular problem model errors naturally converge to quadratic loss.  In that case, it doesn't explain the errors, it just describes them.  If a quadratic loss function was inappropriate, as would be the case of stocks which naturally follow an all-or-nothing loss function, it would make understanding the errors more difficult.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Expectations are misused in economics as it implies all problems are quadratic loss problems.  All problems relevant to a particular research line may be, but that isn't mandatory and doesn't work for all distributions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Expectations are one way to remove the stochastic component when they are defined for the density involved.  This allows differentiation because stochastic functions are not smooth even though they are continuous.  The use of expectations was an attempt to create a smooth curve over a random process.  If the first moment is defined, which it isn't for things like stocks, then you can construct a smooth path that is a function of time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For stocks, you have to define the parameters as a function of time and minimize over the all-or-nothing loss function over a neighborhood of $\theta_t\pm\epsilon_t$, where $\theta_t$ is a parameter and $\epsilon_t$ is small where the loss is 1 outside the neighborhood and 0 in the neighborhood.  I am presenting this in a paper on generalized anticipation operators.&lt;/p&gt;&#xA;" OwnerUserId="11321" LastActivityDate="2018-02-13T11:36:13.987" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20599" PostTypeId="2" ParentId="20587" CreationDate="2018-02-13T13:37:46.500" Score="1" Body="&lt;p&gt;As an initial note, I have not seen any plausible claims that a crypto crash would cause liquidity problems for the financial system. As a reult, I would need to guess to the mechanism.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I do not think “liquidity” is what anyone should worry about right now. For a firm we need to distinguish between illiquid and insolvent.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Illiquid: the firm does not have enough short-term assets (“cash”) to meet short-term liabilities.&lt;/li&gt;&#xA;&lt;li&gt;Insovent: the net worth (equity) of the firm drops below zero.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;A bank loan is an illiquid asset. As a result, loan losses do not directly cause illiquidity; they cause insolvency. Of course, people will not normally lend short-term to an insolvent bank, so it will be illiquid later. (If the concern is about money creation, impaired deposit growth would only be a consequence of insolvency.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can a crypto crash cause a general wave of insolvencies? That is difficult to answer, but we can look at the possibilities.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The credit risk at the time of writing appears to from individual investors borrowing to buy cryptocurrencies. The only business borrowing that I am aware of is by the crypto exchanges - they borrow to support customer borrowering. Such loans are covered by two parties - the customer, and the exchange. We cannot double-count these debts as a result.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for customers, banks either lend against collateral, or cash flow.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;No sensible bank would lend against most crypto-currency collateral: most of the cryptocurrencies are designed so that authorities cannot seize them. Unless there is an exchange-traded fund (which can be used for margin debt), such crypto-based lending will be negligible.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Banks could lend against other collateral, such as a second mortgage. However, such loans are backed by both the home as well as household cash flow. People take out second mortgages to go on vacation or to fund small businesses (which mainly fail); there is always a safety margin for the banks in such lending.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Unsecured lending is lending against income. The recent wave of banks blocking cryptocurrency purchases via credit cards is a sign that some are getting uncomfortable with such risks. However, losses would only materialise if the involved investors are cash-flow impaired (lose their job in most cases). Although such cases will happen, any losses need to be looked at in the context of other sources of loss, such as those caused by medical emergencies in the United States.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In order for these losses to pose a systemic risk, it would probably require large job losses, which by itself poses a risk.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2018-02-13T13:37:46.500" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20600" PostTypeId="5" CreationDate="2018-02-13T13:51:14.270" Score="0" Body="" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2018-02-13T13:51:14.270" LastActivityDate="2018-02-13T13:51:14.270" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20601" PostTypeId="4" CreationDate="2018-02-13T13:51:14.270" Score="0" Body="Topics related to demographics (including population, marriage, fertility, family economics). Covers JEL code J1." OwnerUserId="108" LastEditorUserId="108" LastEditDate="2018-02-13T13:51:14.270" LastActivityDate="2018-02-13T13:51:14.270" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20604" PostTypeId="1" CreationDate="2018-02-13T16:48:11.453" Score="0" ViewCount="23" Body="&lt;p&gt;I have heard that fund managers who invest clients' wealth are usually compensated according to how well they perform against a benchmark.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What exactly is the (most typical) payoff function for fund managers as compensated against benchmark? E.g. the 20, 2 rule for hedge funds, what is the exact number over which they get 20 percent? Is it the amount that they earned more compared to what they would have earned if they just inveated in a benchmark index?&lt;/p&gt;&#xA;" OwnerUserId="11146" LastActivityDate="2018-02-13T23:04:49.660" Title="How are fund managers usually compensated against benchmark?" Tags="&lt;finance&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20606" PostTypeId="2" ParentId="20589" CreationDate="2018-02-13T17:23:30.653" Score="5" Body="&lt;p&gt;Your friend is right that GDP and similar measures are flawed—or, at least, &lt;em&gt;incomplete&lt;/em&gt;. But this isn't exactly news to economists!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, Richard Easterlin &lt;a href=&quot;https://en.wikipedia.org/wiki/Easterlin_paradox&quot; rel=&quot;nofollow noreferrer&quot;&gt;was arguing in the 1970s&lt;/a&gt; that GDP is a poor measure of national well-being. The specific issues with GDP that you point out in your question (failure to account for the value of innovations or for free products, etc.) are so well-known that they now make it into &lt;a href=&quot;https://www.tutor2u.net/economics/reference/10-flaws-in-gdp-as-a-measure-of-living-standards&quot; rel=&quot;nofollow noreferrer&quot;&gt;tutorials aimed at high school students&lt;/a&gt;. For a more recent take on the issue, here is a &lt;a href=&quot;https://www.escoe.ac.uk/wp-content/uploads/2017/02/ESCoE-DP-2017-01-1.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;discussion paper&lt;/a&gt; on the topic of technology and GDP measurement (the author also has a book on the topic of GDP as a measure).&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;To be a little bit more concrete about &lt;strong&gt;how&lt;/strong&gt; economists know the measure is flawed, let's look at how economic theory helps us to set objectives and guides us in measuring our performance in a simple example.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Economics as a body of knowledge suggests variables of interest to a policymaker. Suppose, for the sake of illustration, we are concerned only with maximising peoples' material well-being. We know that we can get a measure of material welfare by computing the area bounded by the general equilibrium demand curve and supply function. So, in an ideal world, we would just measure this total surplus and pursue policies that increase it. For a variety of reasons, this quantity is difficult to measure—especially at the aggregate level over time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The 'next best' alternative is to use the economic model to tell us what variables influence this surplus, and then try to measure those variables instead. Obvious examples of such variables are income (which expands demand possibilities) and technology (which expands production possibilities). Broadly speaking, if income is going up and technology is improving then the surplus (which is what we are actually interested in) should also be increasing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is important to keep an eye on both variables because the theory tells us that surplus can rise as income falls if, for example, technology is improving fast enough (just think about the extreme case where technology is so good that we can produce everything costlessly; then price and income would be zero, but surplus from consumption would nevertheless be very high).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With this framework in mind, it is very natural to look at GDP and say: &quot;This is a measure of income, which is a part of the picture. But it is missing another component (technology) that we know, from theory, is also important.&quot;&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;If measures like GDP are known to be so flawed, why are they used? It is important to understand that no serious economist cares about GDP per se. Instead, economists stress the importance of a portfolio of policies that work together to improve overall well-being of the populace. There are many factors that weigh on well-being. These include income and productivity (which will show up in GDP), but also technological innovation, environmental improvement, improved health outcomes, reduced inequality, and so on. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given these objectives, some way is needed to measure the efficacy of policy. Because the agenda is multi-faceted, we need enough indicators to measure the various dimensions we are interested in. GDP is useful because it is a widely-available measure of one part of what economists are interested in (material wellbeing). But this should not be confused with a situation where GDP is the objective in its own right. Nor should it be thought that economists have no interest in improving upon this measure.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The monomaniacal fixation with GDP is really a trait of the media and politics rather than practicing economists. &lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2018-02-15T09:26:55.190" LastActivityDate="2018-02-15T09:26:55.190" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="20607" PostTypeId="1" AcceptedAnswerId="20608" CreationDate="2018-02-13T19:38:26.417" Score="2" ViewCount="249" Body="&lt;p&gt;Let $\delta\in(0,1)$ be the discount factor. Consider the stage game in the infinitely repeated prisoner's dilemma game:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/daEMm.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/daEMm.png&quot; alt=&quot;stage game&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The goal is to derive conditions on $\delta$ such that the symmetric tit-for-tat strategy profile is a Nash equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To recall, tit-for-tat is when a player cooperates (here plays Yield, $Y$) the first round and then every round after copies the action of their opponent the second round.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am told that if A is playing tit-for-that then B's best possible replies would be to alternate between $N$ and $Y$ (playing $N$ first), to always play $N$, or to play tit-for-tat himself resulting in both players always playing $Y$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We compute the expected payoffs of each depending on $\delta$ and then figure conditions on $\delta$ so that $B$ should play tit-for-tat. As the payoffs are symmetric, these conditions provide $A$ should also play tit-for-tat given $B$ is and we have a Nash.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My only question is why it must be that these are the only best possible replies. Why might not $B$ have some periods where he plays $N$ for a while then switches to only cooperating? Or vice versa. Or anything outside of these three.&lt;/p&gt;&#xA;" OwnerDisplayName="user16268" LastEditorDisplayName="user16268" LastEditDate="2018-02-14T01:03:57.310" LastActivityDate="2018-02-14T01:03:57.310" Title="Tit-For-Stat Strategy Best Replies" Tags="&lt;game-theory&gt;&lt;nash-equilibrium&gt;&lt;repeated-games&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="20608" PostTypeId="2" ParentId="20607" CreationDate="2018-02-13T20:29:05.640" Score="0" Body="&lt;p&gt;Instead of calling the three strategies you named the &quot;best possible replies&quot;, I would say that they are the &lt;em&gt;most salient replies&lt;/em&gt;. As you mentioned, there are many other potential responses to a tit-for-tat strategy. It turns out that what best responds to a tit-for-tat strategy is also a tit-for-tat strategy. Every other strategy will produce a lower payoff than using the tit-for-tat. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider the sequence of outcomes generated by each of the three strategies you mentioned (played by $i$ against the other player's tit-for-tat): &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Tit-for-tat ($s_i^T$): $(Y,Y)$, $(Y,Y)$, $(Y,Y)$,  $\dots$ &lt;/li&gt;&#xA;&lt;li&gt;Alternating ($s_i^A$): $(Y,N)$, $(N,Y)$, $(Y,N)$, $\dots$ &lt;/li&gt;&#xA;&lt;li&gt;Always $N$ ($s_i^N$): $(Y,N)$, $(N,N)$, $(N,N)$, $\dots$ &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Note that all four possible stage-game outcomes are observed. As a result, if a player $i$ is playing any other strategy $s_i^O$, her payoff $u_i(s_i^O,s_j^T)$ can be expressed as some convex combination of the payoffs from playing either of the above three strategies. That is, there exists $\alpha,\beta\in[0,1]$ with $\alpha+\beta\le1$ such that, for any $s_i^O\in S_i$,&#xA;\begin{equation}&#xA;u_i(s_i^O,s_j^T)=\alpha u_i(s_i^T,s_j^T) +\beta u_i(s_i^A,s_j^T) +(1-\alpha-\beta)u_i(s_i^N,s_j^T).&#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now if you established that $u_i(s_i^T,s_j^T)\ge u_i(s_i^A,s_j^T)$ and $u_i(s_i^T,s_j^T)\ge u_i(s_i^N,s_j^T)$, which I assume you have done, it must follow that $u_i(s_i^T,s_j^T)\ge u_i(s_i^O,s_j^T)$ for any other strategy $s_i^O$.&lt;/p&gt;&#xA;" OwnerUserId="42" LastEditorUserId="42" LastEditDate="2018-02-13T23:48:23.870" LastActivityDate="2018-02-13T23:48:23.870" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="20609" PostTypeId="2" ParentId="20604" CreationDate="2018-02-13T23:04:49.660" Score="1" Body="&lt;p&gt;The format varies. Many firms just charge a straight fee as a percentage of assets, and/or as a percentage of in/outflows e.g., mutual funds.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For fund managers that are not hedge funds, returns are compared to index returns if there are any incentive bonuses. Individual fund manager’s bonuses are often based on this relative performance, even if the client is not charged. Better returns presumably brings in more clients for the fund, and so the fund firm is more profitable, even if it does not charge performance fees.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The hedge fund 2/20 model was 2% of net asset value, plus 20% of returns in excess of some target (discussed next). There would be other mechanisms, such as a “high water mark” rule, which would means that the variable compensation would not be paid until any losses are recovered. The 2% fixed fee always needed to be charged to keep the expensive hedge fund operation going. Since hedge funds typically used leverage, the 2% would have been smaller as a percentage of assets.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The exact terms would be negotiated, the stories that I have seen is that typical terms are now less generous than the 2/20 numbers, but that varies from fund to fund. Very popular hedge funds might charge more.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hedge funds were supposed to diversify from equity market risk, so the return target was often either fixed (e.g., 8%), or a money market rate plus a spread (e.g. Treasury bill returns plus 5%). That would change based on the structure of the fund.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As an example, if the target rate of return is 8%, and the fund returned 13% (5% more), the fund would get 20% of the 5%, which is 1%.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2018-02-13T23:04:49.660" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20610" PostTypeId="1" AcceptedAnswerId="20621" CreationDate="2018-02-13T23:21:21.617" Score="2" ViewCount="63" Body="&lt;p&gt;What macroeconomic indicators are meaningful to distinguish whether a country leans towards socialism or capitalism (and where to find such data, specifically for european countries)?&lt;/p&gt;&#xA;" OwnerUserId="16269" LastEditorUserId="16269" LastEditDate="2018-02-13T23:27:03.113" LastActivityDate="2018-02-14T23:42:29.790" Title="What metrics can be used to distinguish between capitalistic and socialistic economies?" Tags="&lt;macroeconomics&gt;&lt;econometrics&gt;&lt;data-request&gt;&lt;capitalism&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20612" PostTypeId="1" CreationDate="2018-02-14T02:59:18.997" Score="4" ViewCount="257" Body="&lt;p&gt;Consider the stage game:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/hDfJ3.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/hDfJ3.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $\delta\in(0,1)$ be the discount factor. Let $G$ be the symmetric grim trigger strategy profile. The payoffs are then&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$E_{A}(G) = E_{B}(G) = \sum_{i=0}^{\infty}3\delta^{i} = \frac{3}{1-\delta}. $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If a player were to defect from $G$ at time $n$, they would be playing $N$ at time $n$ and every round after they would play $Y$ because that would maximize their stage game payoff given the other player is going to play $N$ forever. Let $G_{n}^{A}$ and $G_{n}^{B}$ be the strategy profiles were $A$ and $B$, respectively, defect from $G$ at time $n$ in this way. By symmetry, we have&#xA;\begin{align*}&#xA;E_{A}(G_{n}^{A}) = E_{B}(G_{n}^{B}) = \sum_{i=0}^{n-1}3\delta^{i} + 7\delta^{n} + \sum_{i=n+1}^{\infty}\delta^{i} &amp;amp;= 3\frac{1-\delta^{n}}{1-\delta} + 7\delta^{n} + \frac{1}{1-\delta} - \frac{1-\delta^{n+1}}{1-\delta} \\&#xA;&amp;amp;= \frac{3+\delta^{n}(4-6\delta)}{1 - \delta}.&#xA;\end{align*}&#xA;If $\delta \geq \frac{2}{3}$, then $E_{A}(G_{n}^{A}) \leq E_{A}(G)$ (and $E_{B}(G_{n}^{B}) \leq E_{B}(G)$) for all $n$ so it's not clear to me why the symmetric grim trigger strategy profile is not a Nash in this case.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My professor claims that $G$ is not a Nash for any $\delta$. I do not believe it.&lt;/p&gt;&#xA;" OwnerDisplayName="user16268" LastActivityDate="2018-02-15T03:18:24.657" Title="Why is the symmetric grim trigger not a Nash?" Tags="&lt;game-theory&gt;&lt;nash-equilibrium&gt;&lt;repeated-games&gt;" AnswerCount="0" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="20615" PostTypeId="1" AcceptedAnswerId="20620" CreationDate="2018-02-14T09:57:21.427" Score="1" ViewCount="275" Body="&lt;p&gt;Please look at the following. Question which I posted. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I did not understand the answer for the part b - Pareto efficient. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am happy if you explain it in more details. Thank you. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/zMTsC.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/zMTsC.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also please explain which equilibrium Pareto efficient / dominant or optimal? How can I decide whether a equilibrium is Pareto efficient/optimal/dominate ?  Thank you &lt;/p&gt;&#xA;" OwnerUserId="6134" LastActivityDate="2018-02-14T23:10:12.987" Title="Pareto efficient adverse selection" Tags="&lt;microeconomics&gt;&lt;game-theory&gt;&lt;self-study&gt;&lt;pareto-efficiency&gt;&lt;adverse-selection&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20616" PostTypeId="5" CreationDate="2018-02-14T16:48:40.147" Score="0" Body="" OwnerUserId="-1" LastEditorUserId="-1" LastEditDate="2018-02-14T16:48:40.147" LastActivityDate="2018-02-14T16:48:40.147" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20617" PostTypeId="4" CreationDate="2018-02-14T16:48:40.147" Score="0" Body="The simultaneous buying and selling of securities, currencies, or commodities in different markets in order to take advantage of differing prices for the same asset." OwnerUserId="8481" LastEditorUserId="8481" LastEditDate="2018-02-14T23:14:33.730" LastActivityDate="2018-02-14T23:14:33.730" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20618" PostTypeId="1" AcceptedAnswerId="20619" CreationDate="2018-02-14T17:17:48.360" Score="0" ViewCount="364" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/ZnIVu.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/ZnIVu.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Above is an image of what I’m referring to. The top ‘rule of thumb’ is derived using calculus, and hence is only valid for infinitesimal changes in t. However, this equation is considered over the period of a year, which is a large unit of time. How can this equation be justified?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've put a derivation of the 'rule of thumb' below (in case you weren't sure how it was derived). I've derived the product case, but it can be used to show the quotient case, which is what I put at the very bottom. Please excuse my naff handwriting!!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/E2Na1.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/E2Na1.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="16275" LastEditorUserId="16275" LastEditDate="2018-02-14T18:07:51.370" LastActivityDate="2018-02-15T10:07:11.553" Title="Debt accumulation equation derivation: valid given that it rests on calculus and the time period is a year? (nowhere near infinitesimal?)" Tags="&lt;macroeconomics&gt;&lt;mathematical-economics&gt;&lt;fiscal-policy&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20619" PostTypeId="2" ParentId="20618" CreationDate="2018-02-14T18:07:26.070" Score="2" Body="&lt;p&gt;$$\frac {\Delta d_{t+1}}{d_t} = \frac {\frac {D_{t+1}}{Y_{t+1}}-\frac {D_{t}}{Y_{t}}}{\frac  {D_{t}}{Y_{t}}} = \frac {D_{t+1}Y_{t}-D_{t}Y_{t+1}}{D_{t}Y_{t+1}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$=\frac {D_{t+1}Y_{t}}{{D_{t}Y_{t+1}}}-1 = \frac{Y_{t}}{Y_{t+1}}\cdot \left[{\frac {D_{t+1}}{D_{t}}   -\frac {Y_{t+1}}{{Y_{t}}}}\right]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$=\frac{Y_{t}}{Y_{t+1}}\cdot \left[{\frac {\Delta D_{t+1}}{D_{t}}   -\frac {\Delta Y_{t+1}}{{Y_{t}}}}\right]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the &quot;rule of thumb&quot; deviates from the above exact expression by (multiplicatively) $Y_{t}/Y_{t+1}$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, we are talking about the growth &lt;em&gt;rate&lt;/em&gt; of the Debt/GDP &lt;em&gt;ratio&lt;/em&gt;. Say the ratio was $120\text{%}$ and it went to what? in one year? Say it went to $D_{t+1} /Y_{t+1} =  130\text{%}$. Then its exact growth rate is $130/120 -1 = 8.33\text{%}$ Assume also that GDP grew at 5% yearly rate, so $Y_{t}/Y_{t+1} = 0.95238$.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this numerical example, the &quot;rule of thumb will give as Debt/GDP ratio growth rate $8.33\text{%} \times 0.95238 = 7.933 \text{%}$, or less than half percentage point underestimation. This is considered a small inaccuracy in the real world, &lt;em&gt;when one discusses broadly these magnitudes&lt;/em&gt;. And in general the above numerical example exaggerates, in most cases the growth rate of the GDP and of the Debt/GDP ratio are smaller than above, so the inaccuracy will be even smaller. Hence, the &quot;rule of thumb&quot; becomes acceptable in general also in theoretical models. &lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2018-02-15T10:07:11.553" LastActivityDate="2018-02-15T10:07:11.553" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="20620" PostTypeId="2" ParentId="20615" CreationDate="2018-02-14T23:10:12.987" Score="1" Body="&lt;p&gt;First: Pareto efficiency, optimality and dominance don't all describe equilibria.  Loosely, they mean the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A Pareto-efficient outcome is an outcome that satisfies the condition that no agent is worse off, and at least one agent is better off, as a result of the change.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A Pareto-dominant outcome is an outcome that is both Pareto-efficient and increases overall welfare with respect to an alternative.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, an outcome is Pareto-optimal if it is Pareto-efficient and is not Pareto-dominated by some other outcome.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Only the last definition has something to do with equilibria.  By the First Fundamental Welfare Theorem, perfectly competitive market equilibria are Pareto-optimal.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As others have said, we might need to know more about the model 13.B to help you, but roughly speaking, if the wage incentives in your model are such that by part a) nobody is willing to work, then nobody acts.  Likely, within your model, if nobody acts, nobody incurs a cost, and so nobody is worse off.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, to understand b), we need to be able to see whether at least one agent is better off if nobody works.&lt;/p&gt;&#xA;" OwnerUserId="16199" LastActivityDate="2018-02-14T23:10:12.987" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20621" PostTypeId="2" ParentId="20610" CreationDate="2018-02-14T23:42:29.790" Score="2" Body="&lt;p&gt;My opinion is that “capitalism” and “socialism” in this context is in the eye of te beholder. The European countries are mixed economies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One standard metric is the size of government expenditures as a percentage of GDP. One issue is that different countries have different ways of measuring national accounts data.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The IMF World Economic World Economic Outlook (WEO) has a database that is standardised across countries. For any one country, the national accounts data would probably be a better source, but the key to the WEO is that they worked on comparability for you already.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Link to the data: &lt;a href=&quot;http://www.imf.org/external/ns/cs.aspx?id=28&quot; rel=&quot;nofollow noreferrer&quot;&gt;link to IMF WEO data page&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One series to look for is “general government expenditures as a percentage of GDP.” You want “general government” (and not something just like the central government) as countries like Canada have large sub-sovereign governments.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Expenditures gives us a rough idea of the footprint of the government in the economy. However, it will miss things like the effect of regulations. Instead of the government directly taking over some activity, it could force the private sector to follow a very specific set of rules. Whether that is “socialism” or a “properly regulated economy” turns into a political debate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you are only interested in European data, Eurostat would likely be your source. Eurostat has worked on getting European countries’ data to follow similar standards, so there is good cross-country comparability for now. I do not know what series to look for there, so you would have to dig. &lt;a href=&quot;http://ec.europa.eu/eurostat&quot; rel=&quot;nofollow noreferrer&quot;&gt;Link to Eurostate website.&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The only other sort of data  to work with are various “ease of doing business” indices. The quality of those data series can be debated; there was some recent controversy with some World Bank data of this type in the news. The concern is that it is unclear what to include in these indices, and many of the inputs are qualitative. As may be obvious, I am not a fan of these series, so I do not have any recommendations (you can either search or someone else can give an answer).&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2018-02-14T23:42:29.790" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20623" PostTypeId="2" ParentId="20581" CreationDate="2018-02-15T04:56:09.577" Score="0" Body="&lt;p&gt;If you are designing a survey to calculate demand for a product you would need to ask just 2 questions to your sample population:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;1) How much of product X do you consume per month&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;2) How much do you pay for each unit of product X&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;These questions are important because it allows you to build a demand curve  using simple linear regression.&#xA;$$p=\beta_0+\beta_1 q+\epsilon$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $p$ is price and $q$ is the amount of product X.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Using this framework you can obtain appropriate data from your survey for calculating demand for a given product.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope this helps.&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2018-02-15T04:56:09.577" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="20626" PostTypeId="1" AcceptedAnswerId="20633" CreationDate="2018-02-15T13:40:04.480" Score="0" ViewCount="36" Body="&lt;p&gt;I have historic monetary values given in different currencies and stemming from different points in time. I want to be able to compare them, and for that all must be given in the same currency, and inflation between the points in time must be considered as well. Eventually, all values should be given, for example, in US Dollar 2018.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is the right way of achieving comparability in the above mentioned way? Does the base currency and the base year impact the method and/or the result, or are those independent of the choice of base currency and base year?&lt;/p&gt;&#xA;" OwnerUserId="16280" LastActivityDate="2018-05-17T00:18:54.850" Title="Normalise historic values given in different currencies" Tags="&lt;inflation&gt;&lt;currency&gt;&lt;exchange-rates&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20627" PostTypeId="1" AcceptedAnswerId="20632" CreationDate="2018-02-15T14:59:19.323" Score="0" ViewCount="37" Body="&lt;p&gt;As I see the WSJ front page, I saw 10-YR TREAS 21/32 yield 2.913%.&#xA;I know what the yield means but I don't know what the 21/32 means and how it relates to the yield. Could you please tell me?&lt;/p&gt;&#xA;" OwnerUserId="16283" LastActivityDate="2018-03-18T00:23:25.143" Title="Interpreting 10-YR TREAS 21/32 yield 2.913%" Tags="&lt;finance&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20629" PostTypeId="2" ParentId="20581" CreationDate="2018-02-15T16:51:58.923" Score="4" Body="&lt;p&gt;If it is a small project, you may benefit from reading &lt;a href=&quot;http://www.econ.jku.at/members/WinterEbmer/files/Teaching/managerial/ws14-15/estimating.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;this&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At most, you can estimate price elasticity of demand using your survey data to make predictions/forecasts. For this you need to estimate a demand function as @EconJohn suggested, but you need to include additional variables such as income, price of a substitute or complement etc. to hold them constant (i.e. ceteris paribus). Note that the demand function does not allow you to draw the downward sloping demand curve (like the one in textbooks). It is very hard, in practice, to draw actual demand curves using survey data. Even when you have the most complete data, without including the suply function in your estimation, you face so called identification problem. In short, econometric estimation of demand curve does not allow you to draw a downward sloping curve of the type you see in textbooks.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The link above has a good explanation about this point, and it can be used as a guide for your project. &lt;/p&gt;&#xA;" OwnerUserId="6009" LastActivityDate="2018-02-15T16:51:58.923" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20630" PostTypeId="1" AcceptedAnswerId="20636" CreationDate="2018-02-15T21:28:50.420" Score="1" ViewCount="72" Body="&lt;p&gt;In running any regression on demand based on parameters derived from theory, I'm having some confusion in some order of operations when the results come out inconsistent. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For instant in the case of multi-collinearity and having to drop parameters -- what is the case when parameters of equal importance to theory (like price's) have perfect collinearity? They can't be indexed or made into any ratio, so must be dropped. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My default is to discriminate between the parameters on their explanatory power -- R squared. But what about F-test of significance? If one is higher R than the other but may be nullified by the insignificant F test. Would the 'normal' protocol still be to include the parameter that results with that same higher R-squared despite the F-test being insignificant. &#xA;-- Or is it even not possible given the parameters are in the same model the F-test is being ran on? &lt;/p&gt;&#xA;" OwnerUserId="15847" LastEditorUserId="108" LastEditDate="2018-02-16T15:24:33.963" LastActivityDate="2018-02-16T19:15:37.230" Title="Basic Fundamentals question on regression analysis based on economic theory:" Tags="&lt;econometrics&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20631" PostTypeId="1" CreationDate="2018-02-15T21:50:48.757" Score="1" ViewCount="482" Body="&lt;p&gt;I am looking for good econometrics books for self-study. &#xA;I am strongly interested in macroeconomics and monetary economics/policy, so that I try to build up knowledge in econometrics especially for these fields. &#xA;At first I am looking for a basic introductory book but also for a book, which covers time series methods, VAR and so on (so macroeconometrical topics in general, I guess). &#xA;Applications are more interesting for me than pure theory, so the book(s) shouldn't be too theoretical. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some more information about me: I study mathematical economics on graduate level and I bring prior knowledge in (measure theory based) probability theory. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Maybe one of you guys could help me :) &#xA;Thanks in advance!&lt;/p&gt;&#xA;" OwnerUserId="16240" LastEditorUserId="16240" LastEditDate="2018-02-16T08:35:30.060" LastActivityDate="2019-06-03T17:52:31.463" Title="(Macro)econometrics book recommendation" Tags="&lt;macroeconomics&gt;&lt;econometrics&gt;" AnswerCount="4" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="20632" PostTypeId="2" ParentId="20627" CreationDate="2018-02-15T22:29:48.900" Score="0" Body="&lt;p&gt;I have not seen the page, but it is likely to either be the price change or part of the price of a $10$ year benchmark US Treasury bond (probably with a par value of $\$100$ and possibly with an nominal yield of $2.75\%$)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So either the price of this benchmark bond changed by $\$21/32= \$0.65625$ or the price was $\$98\; 21/32=\$98.65625$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why US markets use eighths or sixteenths or thirty-seconds of a dollar when they have perfectly usable tenths and twentieths and hundredths (i.e. dimes, nickels and cents) to price bonds is another question.  &lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2018-02-15T22:29:48.900" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="20633" PostTypeId="2" ParentId="20626" CreationDate="2018-02-15T22:58:05.210" Score="1" Body="&lt;p&gt;If you have a single country, using the CPI to deflate values does not create a serious issue with the base year. Changing the base just changes the levels of the numbers, but they are are multiplied by the same amount. This means that rankings of prices are the same.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you convert to a single currency, which one you pick does not matter for ordering the prices. For example, it does not matter whether you choose to convert all prices to Canadian dollars or US dollars, if the price is more expensive in one country in one currency, it will also be more expensive in the other.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This equivalence breaks down when you want to inflation adjust across countries. The choice of the currency for the inflation index affects the comparability. For example, imagine that the exchange rate between two countries in unchanged between two periods, yet the inflation rate is different. The scaling ratio between the two time periods depends on which country’s inflation index you choose. (I don’t think the choice of base year matters other than by applying a scaling factor.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(If exchange rates followed relative inflation exactly, the country for the inflation index would not matter.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are different approaches you could try. I’ve never run into this kind of comparison before, so I have no idea what the accepted practice is. I would look at what you are trying to compare, and see what the best basis of comparison is. One approach is to not use a CPI index, and instead use a particular price to scale quantities, such as an average hourly wage. (This would imply that all prices are converted to the equivalent number of hours of wages that the price represents.) This converts prices to a meaningful unit, and not some arbitrary CPI indexation factor.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2018-02-15T22:58:05.210" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20634" PostTypeId="2" ParentId="20630" CreationDate="2018-02-15T23:25:42.710" Score="1" Body="&lt;p&gt;You never consider either $r^2$ or significance in choosing a model.  $r^2$ is non-decreasing in the number of parameters.  You can improve $r^2$ quite often by adding a set of unrelated variables, such as the rainfall in Quebec to estimates of the price of diamonds in Singapore.  Significance assumes you believe the null is true.  If you have multiple models, then you obviously do not believe one to be true.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When using Frequentist methods, model selection should be done with something similar to the Akaike Information Criterion or the Bayesian Information Criterion.  Both are summary point estimates of a stylized Bayesian posterior density over the model space.  Only use one, don't use both.  There are also a few other similar methods.  The information criterion are essentially Bayesian solutions with slightly different prior mass functions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You should write software to go through each combination of variable, excluding variables that are collinear, and run either the AIC or the BIC.  The AIC and the BIC measure how close a model is to the data generating function.  This is not like significance an doesn't imply significance.&lt;/p&gt;&#xA;" OwnerUserId="11321" LastActivityDate="2018-02-15T23:25:42.710" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20636" PostTypeId="2" ParentId="20630" CreationDate="2018-02-16T01:48:03.603" Score="1" Body="&lt;p&gt;You don't drop parameters - you drop explanatory variables. Perfect colinearity is first and foremost a &lt;em&gt;sample&lt;/em&gt; problem, it relates to the actual data series you have, not to the theoretical relation between two regressors, although, if you have a large enough sample, it is valid to think that the colinearity property may hold at population level also.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume the model&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$y = b_0 + b_1x_1 + b_2x_1 +u$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Say that you try to run OLS and you get a message of perfect or near-perfect co-linearity between $x_1$ and $x_2$. This means that the data tell you that an affine relation exists like&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$x_2 =\delta_0 + \delta x_1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But this means that the regression specification is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$y = b_0 + b_1x_1 + b_2(\delta_0 + \delta x_1) +u$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies y = \gamma_0 + \gamma_1x_1 +u$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\gamma_0 = b_0 + b_2\delta_0,\;\;\; \gamma_1=b_1 +b_2\delta_1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This does not negate or contradict the theory. You just found out that the two variables are in such a relation between them, that their effect on the dependent variable cannot be separately estimated using linear methods like least-squares. You didn't find out that one of them has no effect.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2018-02-16T19:15:37.230" LastActivityDate="2018-02-16T19:15:37.230" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20637" PostTypeId="2" ParentId="20631" CreationDate="2018-02-16T04:14:33.190" Score="2" Body="&lt;p&gt;I definately reccomend &lt;a href=&quot;http://www.afriheritage.org/TTT/3%20Brooks_Introductory%20Econometrics%20for%20Finance%20(2nd%20edition).pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Introductory Econometrics for Finance&lt;/a&gt; by Chris brooks. a little more finance focused in its case studies, however it is an excellent primer to forecasting in economics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Builds up from univariate modelling methods to VARs and VECMs, it has lots of case studies. I found it very useful.&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2018-02-16T04:14:33.190" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20639" PostTypeId="1" CreationDate="2018-02-16T06:39:44.997" Score="1" ViewCount="93" Body="&lt;p&gt;It has been suggested that a &lt;em&gt;strong&lt;/em&gt; economy will raise wages for all.  However, I suspect that this can occur in only a few ways.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, assume that the wealth distribution in the U.S. is such that a few people have much of the wealth.  For the middle class to become wealthier (i.e. they have more disposable income compared to their expenses)&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Wealthy must purchase goods / services such that their wealth diminishes and the money exchanged goes to the middle class (e.g. shine my shoes and you'll get my money)&lt;/li&gt;&#xA;&lt;li&gt;Wealthy must be taxed and income redistributed to the middle class by tax credits / offsets / reductions in income taxes&lt;/li&gt;&#xA;&lt;li&gt;Money supply must be increased (e.g. prime rate goes down) and the middle class takes out the loans at a lower interest rate and therefore the money is supplied to the middle class&lt;/li&gt;&#xA;&lt;li&gt;Inflation occurs such that the wages of the middle class grows faster than the prices of goods / services consumed by the middle class&lt;/li&gt;&#xA;&lt;li&gt;The middle class sells goods / services to other countries such that the middle class receives money from outside the country&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;A few things &lt;em&gt;do not&lt;/em&gt; seem to increase wages of the middle class&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Changing jobs types without a change in wages.  For example, if people change jobs from retail sales to accounting and do not change their salary, then there is no gain in wealth.&lt;/li&gt;&#xA;&lt;li&gt;Efficiency changes in the economy with a net zero change in the average wage.  For example, there is an increase in efficiency in healthcare so the number of workers decreases, but those people just change jobs to become human resources workers with the same wages.&lt;/li&gt;&#xA;&lt;li&gt;Increase in wages of the middle class with a commensurate increase in inflation.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;A few more assumptions:&#xA; - Federal economic policy is to &lt;em&gt;always avoid deflation&lt;/em&gt;, then static wages can &lt;em&gt;never&lt;/em&gt; result in an increase in wealth.&lt;br&gt;&#xA; - Mild inflation is perceived as &lt;em&gt;good&lt;/em&gt; in the U.S. economy&#xA; - The U.S. is a consumer based economy, so there is an incentive to purchase goods / services as opposed to saving money&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, is there any way for the &lt;em&gt;overall&lt;/em&gt; middle class to increase its wealth without wages increasing at a rate faster than inflation?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a corollary, isn't it impossible for wealth in the middle class to increase based solely based upon economic efficiency?  Isn't it true that increasing the efficiency of goods / services will not increase wealth because the overall price of goods / services (total combined food / fuel / housing / healthcare / services) cannot go down in the U.S. economy &lt;em&gt;en masse&lt;/em&gt; because federal monetary policy discourages deflation?&lt;/p&gt;&#xA;" OwnerUserId="16289" LastActivityDate="2018-02-16T06:39:44.997" Title="Can real wages increase (practically) without inflation?" Tags="&lt;inflation&gt;&lt;wages&gt;&lt;deflation&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20642" PostTypeId="1" CreationDate="2018-02-16T17:05:04.007" Score="2" ViewCount="124" Body="&lt;p&gt;Given the large amount of commentary on the state of the economy, I've found that most of the time the theme of the articles are always that there is something wrong/ abnormal with regards to the economy.There seems to be call for change of policy all the time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With all this noise its often difficult to know when a &quot;business as usual&quot; policy should be implemented (i.e nothing should be changed or advanced). When is it possible that we should change nothing in an macroeconomy (i.e no changes in interest rates, domestic taxes or trade taxes)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What properties would a country with a stable economy posess?&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2018-03-19T14:34:50.527" Title="What properties does a stable economy possess?" Tags="&lt;macroeconomics&gt;&lt;soft-question&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="20643" PostTypeId="1" CreationDate="2018-02-17T08:08:26.533" Score="1" ViewCount="22" Body="&lt;p&gt;my name is Nick and I'm from Sydney, Australia.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the last 5 years, our big cities such as Sydney and Melbourne has experienced rapid property price growth, they went so high and so fast that Sydney has been catapulted to top 5 least affordable cities. This rapid price growth has been accompanied by the extremely high quantity of mortgages issued by the various private banks, in fact, Australian banks are the most profitable banks in the world and currently, their main assets are home loans. I'm wondering of the correlation between high quantity of bank home loans and property prices.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As well how the inflation is influenced by the bank credits? Can the bank borrow more money in example from the overseas and therefore increase the money supply without increasing the actual production and purchasing power and driving the inflation upwards? Can same be applied to the property prices?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are the prices rising so high as a result of increasing amount of affordable loans or vice versa, the demand for property has driven the supply of cheap loans?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As I understand this is actually a problem of the central bank (not corporate banks) not increasing the interest rates, they are at record level low right now. Actually, because the wages are as well at record level low as a percentage of GDP and stagnate the central bank afraid to increase the rates because people won't be able to repay the mortgage.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regards,&#xA;Nick&lt;/p&gt;&#xA;" OwnerUserId="16298" LastActivityDate="2018-09-16T00:01:04.343" Title="Effect of the Bank Home Loans of Property Prices" Tags="&lt;banking&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20644" PostTypeId="1" CreationDate="2018-02-17T09:25:32.303" Score="1" ViewCount="56" Body="&lt;p&gt;I will give an example of what I mean and please tell me what I'm missing because this can't be correct. For the sake of simplicity I will only use USD and EUR.&#xA;So let's say that the central bank in the US raises interest rates. You buy USD with EUR and leave it there for let's say 1 year. You get your nice interest, and decide you want to buy a house in Europe, so you need euros.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now what happened with the price in that time? Let's suppose the initial ratio was eur/usd=1. Because of the high interest rates on usd, it's value appreciated and eventually the ratio became say eur/usd=0.5. At that point you decide to sell your dollars for euros. Now, not only did you earn money because of the interest you got on USD, but now the exchange ratio also went your way, so isn't this a double whammy?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To use some numbers:&#xA;you have 100 euros, you buy 100 usd.&#xA;Interest is 100%, now you have 200usd. You earned money.&#xA;You decide to buy euros again. Since eur/usd=0.5, with 200usd you buy 400 euros. You earn money again!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know this is oversimplified but I would like to know the key point that I'm missing. Is it the uncertainty? &lt;/p&gt;&#xA;" OwnerUserId="16299" LastActivityDate="2018-04-18T14:23:44.400" Title="Isn't buying currency with high interest rates a double whammy?" Tags="&lt;interest-rate&gt;&lt;money&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20645" PostTypeId="1" AcceptedAnswerId="24051" CreationDate="2018-02-17T09:34:42.217" Score="5" ViewCount="127" Body="&lt;p&gt;I am a new faculty teaching MBA courses. Presently, I am teaching International Financial Management (IFM) and Macroeconomics. I have prepared the syllabus of macroeconomics based on first 9 chapters of the core module in &quot;&lt;a href=&quot;https://www.pearson.com/us/higher-education/program/Blanchard-Macroeconomics-7th-Edition/PGM333935.html&quot; rel=&quot;noreferrer&quot;&gt;Macroeconomics, Blanchard and Johnson, 6/E, Pearson, 2017, 9789332587601&lt;/a&gt;&quot;. The idea is to keep mathematical exposition to the minimum while building a base for the discussion of open-economy macroeconomics based on chapter 20 &amp;amp; 21 in the above-mentioned book during IFM course. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would also be teaching microeconomics. &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;How do I form the syllabus for microeconomics to support my teaching of Macroeconomics and IFM while focusing on intuition rather than extensive mathematical exposition? Suggest some appropriate textbooks for this purpose.&lt;/li&gt;&#xA;&lt;li&gt;Any suggestions to enhance my research (maybe in Macro-Finance) based on the teaching of above subjects.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="2983" LastActivityDate="2018-08-09T17:50:46.450" Title="Teaching: from Microeconomics to Open-economy macro" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;open-economy-macro&gt;&lt;teaching&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20646" PostTypeId="1" CreationDate="2018-02-17T10:35:26.703" Score="3" ViewCount="152" Body="&lt;p&gt;Does the OLS (ordinary least squares) method of regression consider only one sample value in calculating the sample regression function (SRF)? If not, then how is the SRF created when there is more than one observation per $X_{i}$?&lt;/p&gt;&#xA;" OwnerUserId="16133" LastEditorUserId="69" LastEditDate="2018-08-15T13:52:57.593" LastActivityDate="2020-04-06T18:02:50.330" Title="Sample used in calculating the sample regression function" Tags="&lt;econometrics&gt;&lt;regression&gt;" AnswerCount="3" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="20648" PostTypeId="2" ParentId="20646" CreationDate="2018-02-17T12:31:26.283" Score="1" Body="&lt;p&gt;It is not very clear what you're asking, but if the model is of the form&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;y_i = \beta_0 + \beta_1 x_i + \epsilon_i \tag{1}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then the sample regression function (SRF)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\hat{y}_i = \beta_0 + \beta_1 x_i \tag{2}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;indeed only considers one value of $x_i$ at the time. If you have a situation in which several observations $y$ are associated with the same value $x_i$, then a linear model is perhaps not appropriate for describing your data&lt;/p&gt;&#xA;" OwnerUserId="14419" LastActivityDate="2018-02-17T12:31:26.283" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="20649" PostTypeId="1" AcceptedAnswerId="20658" CreationDate="2018-02-17T12:32:33.510" Score="3" ViewCount="88" Body="&lt;p&gt;I have heard a rather outlandish claim that during the peak of the real estate bubble in Japan (I think that was in the 70's and 80's), one sky scraper in Tokyo was worth more than the entire state of California! Seeing as California's economy is larger than even some entire nations, I couldn't wrap my head around how high the bubble in Japan was. Then again, it reminded me of the Dutch Tulip crisis, and we all know how expensive those flowers were... so maybe the Tokyo skyscraper claim was legit? I'm just not sure.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Question:&lt;/strong&gt; Is this statement true? I wonder if there is any data that is readily accessible; I'd like to plot it on a line graph. Also, if the statement &lt;em&gt;is&lt;/em&gt; true, it would be neat to know how long it lasted. Was 1 Tokyo sky scraper out valuing California a momentary apex before it all imploded, or was this the way it was for an extended period of time (months, years)?&lt;/p&gt;&#xA;" OwnerUserId="12212" LastEditorUserId="12212" LastEditDate="2018-02-17T12:37:33.590" LastActivityDate="2018-02-17T20:29:55.827" Title="True or False: During the Japan Bubble, one sky scraper in Tokyo was worth more than the entire state of california?" Tags="&lt;macroeconomics&gt;&lt;economic-bubble&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20650" PostTypeId="2" ParentId="20642" CreationDate="2018-02-17T12:43:42.640" Score="1" Body="&lt;p&gt;I’ll cover two of the possible policies that can be stable: interest rates and fiscal policy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I will assume that a “stable” interest rate policy is to keep the policy rate (e.g. Fed Funds in the United States) unchanged. This is is a case discussed in “mainstream” economics, and the argument is that such a policy leads to inflation drifting at random. (As in Section 2.4.1 of “Monetary Policy, Inflation, and the Business Cycle” by Jordi Galí.) In other words, if you lose monetary policy, you lose control of inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course, the policy rate has been at the same level for years in many countries, and not much happened. The reason why the policy rate was stable was usually that the economy was growing slowly, and no inflation risk was seen. That is, the economy was in a sense (temporarily) “stable”, and policy rate reflectd that.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Even if the central bank says it will not change short rates, bond yields would likely still move around on the basis that the policy will not be sustained. So things like mortgage rates would still move.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some critics of “mainstream” economics think that the models that lead to this inflation instability are incorrect. In particular, some proponents of Modern Monetary Theory argue in favour of locking the policy rate at 0% forever. That is very much a minority position.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we turn to fiscal, I am unaware of any formal theory. In basic “mainstream” models, fiscal policy is often left unchanged. However, this was not viewed as having much if an effect, since monetary policy is believed to be the main policy variable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We have seen unchanged tax rates for years in many countries, and I do not believe anything unusual was associated with that. However, taxe rates are only part of fiscal policy. Spending changes from year-to-year, and in the real world, that is unlikely to change. For example, the Canadian Federal Government is helping pay for a bridge near where I live. That spending will hopefully cease when that construction is complete. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To top it off, the dollar amounts of deficits vary based on the business cycle. If people lose jobs, they pay less taxes and end up receiving more governmental assistance. So if someone defines fiscal policy “stability” as an unchanged fiscal deficit, that is almost guaranteed to never happen. However, these changes to the deficit are believed by some economists to help dampen the business cycle (the “automatic stabilisers”). (I see little discussion of automatic stabilisers in modern “mainstream” theory, but it was discussed more by the old Keynesians.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In summary, “stable” policy settings imply that the government cannot lean against fluctuations like recessions, or control inflation. Economists of the Keynesian persuasion would likely argue that this will result in deep depressions, such as in the 1800s. Many non-Keynesians would dispute that.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2018-02-17T12:43:42.640" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20651" PostTypeId="1" CreationDate="2018-02-17T13:03:34.707" Score="0" ViewCount="194" Body="&lt;p&gt;An open market purchase of securities lead to increase in bank reserves ( Liability side) and increase in assets(asset side) of central bank balance sheet.&#xA;My doubt is why it leads to increase in Reserves?&lt;/p&gt;&#xA;" OwnerUserId="15539" LastEditorUserId="15539" LastEditDate="2018-02-17T13:13:23.523" LastActivityDate="2018-02-17T13:28:14.907" Title="Open market purchase of securities and it's effect on balancesheet" Tags="&lt;macroeconomics&gt;&lt;banking&gt;&lt;central-banking&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20652" PostTypeId="2" ParentId="20644" CreationDate="2018-02-17T13:11:07.290" Score="1" Body="&lt;p&gt;Yes, it’s the uncertainty. If you tried hedging the currency, the hedge would be generally such that there would be a loss that offsets the interest advantage. (This is known as covered interest rate parity. In oractice, there is a spread that causes behaviour to deviate from that -the currency basis. So you can lock in a small spread, but it is typically on the order of 10 basis points or less. During a financial crisis, the basis can get relatively large.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you do not hedge, the volatility in the currency rates over one year is normally greater than the interest rate differential. Buying a high interest rate currency is known as a carry trade. It is profitable until it isn’t. For an example, look at the Japanese yen in the early to mid-2000s. In that period, Japanese interest rates were the lowest in the developed world. It was thus a popular currency to short. It would then have periodic bursts where its value would shoot up, forcing shorts to cover.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2018-02-17T13:11:07.290" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20653" PostTypeId="2" ParentId="20651" CreationDate="2018-02-17T13:28:14.907" Score="1" Body="&lt;p&gt;When the central bank buys anything, it transfers a deposit (reserves) to the reserves account of the bank of the seller. (The seller could be the bank itself, or a customer of the bank.) This keeps everyone’s balance sheet in balance.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Until the central bank does something to destroy reserves (e.g. sell something), all the bank can do is transfer the reserves to other banks. That is, the reserve increase is “permanent,” even if the initial bank gets rid of them.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2018-02-17T13:28:14.907" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20654" PostTypeId="2" ParentId="20649" CreationDate="2018-02-17T13:36:10.620" Score="1" Body="&lt;p&gt;Clearly false.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Toranomon_Hills&quot; rel=&quot;nofollow noreferrer&quot;&gt;One of the largest skyscrappers in Tokyo&lt;/a&gt; has an area of 2,630,300 square feets. Estimating value per square feet to be &lt;a href=&quot;http://www.cityam.com/267738/most-expensive-skyscrapers-world-hong-kong-tokyo-new-york&quot; rel=&quot;nofollow noreferrer&quot;&gt;\$5000&lt;/a&gt;, its value is less than $15 billion.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The houses in Los Angles alone were worth an &lt;a href=&quot;http://www.laweekly.com/news/la-is-america-s-most-valuable-housing-market-7771430&quot; rel=&quot;nofollow noreferrer&quot;&gt;estimated $2.5 trillion&lt;/a&gt; this year. Assuming that both estimates are off by a factor of 10, and the skyscrapper &lt;a href=&quot;http://media.economist.com/sites/default/files/cf_images/20020330/CSF597.gif&quot; rel=&quot;nofollow noreferrer&quot;&gt;was once worth ten times as much&lt;/a&gt; while the LA homes were worth ten times less, the skyscrapper's value would be still less. And the comparison was just with the value of LA homes, not the entire state of California.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;@BrianRomanchuk's version may be much closer to the truth. To be honest I still find it hard to believe. Perhaps they measured net worth of California.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2018-02-17T13:36:10.620" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20655" PostTypeId="1" CreationDate="2018-02-17T14:33:03.097" Score="0" ViewCount="27" Body="&lt;p&gt;In US treasury auction (for bonds and notes), my understanding is that the highest bidder's price (and rate) is applied for all the buyers. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume a buyer 'A' who plans to buy a smaller number of bond shares. Let two other players 'B' and 'C' invest heavily compared to 'A. Let 'B' and 'C' be competitors of 'A'.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is it possible for 'A' to invest low but bid high thus play spoilsport for 'B' and 'C'?  &lt;/p&gt;&#xA;" OwnerUserId="16301" LastEditorUserId="16301" LastEditDate="2018-02-17T16:02:25.997" LastActivityDate="2018-02-17T19:28:31.713" Title="In US gov treasury auction, can the highest bidder force high prices for all others" Tags="&lt;bonds&gt;&lt;auctions&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="20657" PostTypeId="2" ParentId="20655" CreationDate="2018-02-17T18:05:25.637" Score="2" Body="&lt;p&gt;No. The auction uses the highest &lt;em&gt;yield&lt;/em&gt;, which means the lowest &lt;em&gt;price&lt;/em&gt; (for the same coupon). That is, for bonds, price up -&gt; yield down (and vice versa). (The only tricky bit is that the coupon is not known until the auction concludes.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a discussion of U.S. Treasury bond structure: &lt;a href=&quot;https://www.treasurydirect.gov/instit/research/faqs/faqs_auct.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;link to TreasuryDirect.&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Not all bonds are issued via an auction process (one alternative is “tapping” issues). Sweden is an example of using a multi-price auction - &lt;a href=&quot;https://www.riksgalden.se/en/For-investors/policy_regulations/Policy-and-sales/Auction-procedure/&quot; rel=&quot;nofollow noreferrer&quot;&gt;link to Swedish auction description.&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="12891" LastEditorUserId="12891" LastEditDate="2018-02-17T19:28:31.713" LastActivityDate="2018-02-17T19:28:31.713" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20658" PostTypeId="2" ParentId="20649" CreationDate="2018-02-17T20:29:55.827" Score="6" Body="&lt;p&gt;Brian is right. The claim was that, if you took the cost per square meter of land area in Tokyo based on market rates, the Imperial Gardens in Tokyo were worth more than California. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Source: &lt;a href=&quot;http://articles.chicagotribune.com/1989-11-19/business/8903110641_1_land-prices-national-land-agency-rockefeller-center&quot; rel=&quot;noreferrer&quot;&gt;http://articles.chicagotribune.com/1989-11-19/business/8903110641_1_land-prices-national-land-agency-rockefeller-center&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Obviously, this is a classic example of a fallacy that arises from extrapolation— if that additional land area had been made available for sale, it would have significantly increased supply and caused prices to drop accordingly.&lt;/p&gt;&#xA;" OwnerUserId="264" LastActivityDate="2018-02-17T20:29:55.827" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20659" PostTypeId="1" CreationDate="2018-02-17T20:36:08.107" Score="0" ViewCount="27" Body="&lt;p&gt;I can't understand how it makes sense. From what I've read, corn producers (for example) sell their corn at current price but deliver the corn later, in order to protect themselves from decline in corn prices. &#xA;On the other hand, those who buy corn agree to current price in order to protect themselves from potential increase of corn prices.&#xA;But in the end, one of them is going for profit from this (corn producer if prices fall, buyer if prices raise).&#xA;Let's say price of corn rose. Essentially, the producer of corn didn't protect himself - he just lost money on that trade.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The only way I see this work for the producer is if there is &gt;50% chance that price of corn will decline, but if that's the case then buyers of corn wouldn't agree to that trade.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So in the end, doesn't it all even out? Sometimes the producer will make money sometimes he will 'lose'.&lt;/p&gt;&#xA;" OwnerUserId="16299" LastActivityDate="2018-02-17T21:50:43.220" Title="How does hedging using futures work?" Tags="&lt;finance&gt;&lt;production-function&gt;&lt;money&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20660" PostTypeId="2" ParentId="20643" CreationDate="2018-02-17T20:54:16.873" Score="1" Body="&lt;p&gt;This is a big question. I will just comment on one aspect.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Are the prices rising so high as a result of increasing amount of&#xA;  affordable loans or vice versa, the demand for property has driven the&#xA;  supply of cheap loans?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;We know that people can pay for a house in a few ways:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Use proceeds of the house that they are selling.&lt;/li&gt;&#xA;&lt;li&gt;Use savings from wages and salary.&lt;/li&gt;&#xA;&lt;li&gt;Sell other assets (e.g., equities) and use proceeds.&lt;/li&gt;&#xA;&lt;li&gt;Get a mortgage.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Unless the other sources of cash (1-3) rise enough to cover higher house prices, mortgage lending &lt;em&gt;has&lt;/em&gt; to rise. One can try to do a lot of statistical analysis, but the usual relationship is that mortgage borrowing rises at the same time as house prices going up.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Returning to the part of the question I highlighted above, one could argue either way. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;One argument is that house prices rose (for some reason), and so mortgage borrowing has to rise in response. In this view, the amount of mortgage loans is not a driver of anything, it is just a mechanical response to higher house prices.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Going the other way is possible. However, we need to remember that mortgages are inanimate objects - in what sense can they drive behaviour? It is safer to say that some humans have changed their behaviour, and the rising loans is a consequence of that behavioural change. The &lt;em&gt;driver&lt;/em&gt; is the behaviour change (a possibility not covered in the question.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The likely suspect is that the behaviour of bankers has changed. Their &quot;effective lending standards&quot; have changed for any number of reasons, and so households can borrow more. (One possible factor is lower interest rates; although formal lending standards may not have changed, the same household can qualify to borrow more under the existing standard.) This extra mortgage borrowing capacity allows households to bid up the price of houses.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I do not think I have fully answered the question, but this discussion may help you rethink how to pose the question.  This website has a difficult time with extremely broad questions, so you may get more responses if you ask a few very specific questions.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2018-02-17T20:54:16.873" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20661" PostTypeId="2" ParentId="20659" CreationDate="2018-02-17T21:50:43.220" Score="2" Body="&lt;p&gt;Producers of corn may not be able to afford a decrease in prices.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Remember that farmers are (usually) not speculating and not “investing”. They are producing a product that they need to offload in order to make money. They have zero interest in uncertainty (again, assuming that most are not speculating). The future price they can receive today may be better than the spot price in 6 months, or it may be worse - you really have no idea, but at least you can lock it in, so that you know what to plan for.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Remember that farmers have two uncertainties about their product when laying the first seed: 1) quantity and 2) price. By hedging the price on some quantify you can reduce your risk significantly (and hence also your upside) which may be far more appealing then the risk of losing everything. &lt;/p&gt;&#xA;" OwnerUserId="14207" LastActivityDate="2018-02-17T21:50:43.220" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20662" PostTypeId="1" CreationDate="2018-02-17T22:07:08.427" Score="4" ViewCount="86" Body="&lt;p&gt;How plausible is the idea of the central banks function becoming automated. Central Banks seem to function as a feedback depending on the flow of money, inflation and fractional reserve. If the plausibility of automatizing the central bank, what kind of electronic data will it need - will it look something like blockchain technology where there is a ledger for each transaction?&lt;/p&gt;&#xA;" OwnerUserId="16303" LastActivityDate="2018-02-18T14:08:06.083" Title="Can the function of the Central bank become automated?" Tags="&lt;monetary-policy&gt;&lt;bitcoin&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20663" PostTypeId="2" ParentId="19744" CreationDate="2018-02-18T00:22:50.667" Score="0" Body="&lt;p&gt;See also Angus Maddison, Jan 2018 update:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.rug.nl/ggdc/historicaldevelopment/maddison/releases/maddison-project-database-2018&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.rug.nl/ggdc/historicaldevelopment/maddison/releases/maddison-project-database-2018&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It has Estonia, Latvia, and Lithuania for the years 1973 and 1980–2016.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2018-02-18T00:22:50.667" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20664" PostTypeId="2" ParentId="20662" CreationDate="2018-02-18T07:47:34.727" Score="2" Body="&lt;p&gt;It is conceivable that one of the functions of a Central Bank, of being a regulator of money supply, could ultimately be automated, if artificial intelligence were to advance enough. However, that role is much more complicated than merely feedbacks on flow of money, inflation and fractional reserve. So for the foreseeable future, that's a role filled by a panel of human experts.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And no, it will not be a distributed ledger,  because that's a hopelessly inefficient way to record Central Bank transactions. The Central Bank maintains its own ledgers, and will continue to do so. It is not the case that each transaction creates a new ledger. Instead, each transaction creates corresponding &lt;em&gt;entries&lt;/em&gt; in two ledgers - that is the essence of &lt;a href=&quot;http://www.dummies.com/business/accounting/the-basics-of-double-entry-bookkeeping/&quot; rel=&quot;nofollow noreferrer&quot;&gt;double-entry book-keeping&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="44" LastEditorUserId="44" LastEditDate="2018-02-18T10:29:13.590" LastActivityDate="2018-02-18T10:29:13.590" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20666" PostTypeId="1" CreationDate="2018-02-18T09:35:50.603" Score="1" ViewCount="116" Body="&lt;p&gt;I'm trying to understand how the solutions of a DSGE model can be seen as VAR or VARMA.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can you give examples of DSGE model solutions which can be seen as such? Also, does this only happen when we use linear methods, or also with non-linear methods?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="118" LastEditDate="2018-02-20T19:23:33.623" LastActivityDate="2020-08-18T16:06:10.710" Title="DSGE Model Solutions as a Vector Time-Series process. Examples?" Tags="&lt;macroeconomics&gt;&lt;econometrics&gt;&lt;time-series&gt;&lt;dsge&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="20669" PostTypeId="2" ParentId="20662" CreationDate="2018-02-18T14:08:06.083" Score="1" Body="&lt;p&gt;There is an existing body of economic thought that looks at this issue - the analysis of rules-based policy. One earlier suggestion was the monetary growth rules of the Monetarists. Currently, “Taylor Rules” are a popular research topic. (There are a number of other questions about Taylor rules on this website. One that touches on similar issues is here: &lt;a href=&quot;https://economics.stackexchange.com/questions/14737/taylor-rule-and-optimal-monetary-policy/14769#14769&quot;&gt;link to question on Taylor rules and optimal monetary policy&lt;/a&gt;.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are many variants of Taylor rules at present. Inputs can include the output gap, inflation expectations, and an estimate of the “natural rate of interest” (r*). I will just comment on the output gap. The output gap can be estimated in a few ways, and is a measure whether the economy is “hitting capacity constraints.” However, there is considerable uncertainty in the statistical estimates, and so policymakers have to end up exercising judgement about its true level.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Similar problems appear for the other inputs to the Taylor rule. This means that even if policymakers try to follow such a rule, there is discretion on what the input variables are.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Adding huge amounts of transactions to the central bank’s databases would only add limited information. What matters most is how entities view the future, and not the details of what they did today. For example, we only have limited interest in the details of the wage payments of a factory owner made today. What we are interested in is whether the factory will be expanded, or whether the owner is planning to raise prices on the output.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, an important part of the central bank’s functions is regulation and lender-of-last-resort operations. These functions are critical to backstop the system, and require human judgement.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2018-02-18T14:08:06.083" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20670" PostTypeId="1" CreationDate="2018-02-18T15:03:32.683" Score="1" ViewCount="36" Body="&lt;p&gt;I am considering instrumenting HIV with ODA, to evaluate the impact of HIV on gold mining. There is a clear relationship between HIV and ODA, however it may easily be argued this is an endogenous relationship. There is nothing I have found in the literature to say this would invalidate the instrument - we would use this instrument to assess the exogenous impact of HIV on gold. There is no relationship between ODA and gold production. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Has anyone come across a paper that addresses such an issue with their choice of instrument? I think it could possibly impact the interpretation of the sign of the first stage coefficient. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks.&lt;/p&gt;&#xA;" OwnerUserId="16311" LastActivityDate="2018-02-18T15:03:32.683" Title="Using an instrument in IV that is not strictly exogenous to the variable it is instrumenting?" Tags="&lt;instrumental-variable&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="20671" PostTypeId="1" CreationDate="2018-02-18T15:23:44.023" Score="1" ViewCount="1057" Body="&lt;p&gt;For $Y=F(K,L)= 2L$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I multiply them by an constant $z$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$Y= F(zK,zL0)$, i'll get $2(zL) = z(2L)$. Inputs increase proportionally therefore constant returns to scale.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This doesnt seem right because the outputs are determined by one variable.&lt;/p&gt;&#xA;" OwnerUserId="16312" LastEditorUserId="1655" LastEditDate="2018-02-18T16:14:07.923" LastActivityDate="2018-02-18T20:18:22.200" Title="Is it constant returns to scale if the output of a production function is purely a function of one variable?" Tags="&lt;production-function&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20672" PostTypeId="2" ParentId="20671" CreationDate="2018-02-18T16:13:27.230" Score="4" Body="&lt;p&gt;Returns to scale is a concept that we use to think about how output changes as we continually add more inputs. It does not matter if your production function takes one input or $N$ inputs. All that matters is how inputs behave within the function itself. Another way to think about this is to consider that a production function with a single input can exhibit decreasing, constant, or increasing returns to scale. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example: &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;$f(L) = L^2$ exhibits increasing returns to scale. &lt;/li&gt;&#xA;&lt;li&gt;$f(L) = L$ exhibits constant returns to scale&lt;/li&gt;&#xA;&lt;li&gt;$f(L)= L^{\frac{1}{2}}$ exhibits decreasing returns to scale&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Your production function is linear in its one input [case number 2 above] and so it exhibits constant returns to scale. That is, the answer to your question is yes. &lt;/p&gt;&#xA;" OwnerUserId="1655" LastActivityDate="2018-02-18T16:13:27.230" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20675" PostTypeId="2" ParentId="20671" CreationDate="2018-02-18T20:18:22.200" Score="0" Body="&lt;p&gt;Return to scale is a long run concept and as underlying production function is dependent upon a single variable i.e. labour so there must be discussion upon whether it is a increasing returns to a factor or constant return to a factor. Because it is only short run in which we have one input and other inputs are fixed.&lt;/p&gt;&#xA;" OwnerUserId="16133" LastActivityDate="2018-02-18T20:18:22.200" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20679" PostTypeId="1" AcceptedAnswerId="20684" CreationDate="2018-02-19T14:01:03.357" Score="0" ViewCount="33" Body="&lt;p&gt;I am learning about the auction and bidding process of US 30 year treasury bonds. I am unable to locate the face (par) value of the bonds in official announcements (PDFs). For reference, here is a link to a recent 30-year bond announcement - &lt;a href=&quot;https://www.treasurydirect.gov/instit/annceresult/press/preanre/2018/A_20180104_5.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;PDF announcement, dated Feb 8, 2018&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="16301" LastActivityDate="2018-02-20T12:24:34.793" Title="Where to find the face value in a US treasury bond announcement" Tags="&lt;bonds&gt;&lt;united-states&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="20680" PostTypeId="1" CreationDate="2018-02-19T17:02:40.370" Score="4" ViewCount="40" Body="&lt;p&gt;I was wondering if there are any standard methods that are employed to obtain insight of the economic value of tree cover in a particular area. I assumed using negative &lt;a href=&quot;https://en.wikipedia.org/wiki/Normalized_difference_vegetation_index&quot; rel=&quot;nofollow noreferrer&quot;&gt;difference vegetation index&lt;/a&gt; coupled with economic value of ground cover as proxy but this is not supported by any literature in my search.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So if there any datasets (preferably free) that show the spatial value variations for green spaces, their suggestion would be appreciated. &lt;/p&gt;&#xA;" OwnerUserId="7379" LastEditorUserId="7379" LastEditDate="2018-02-25T04:18:00.873" LastActivityDate="2018-02-25T04:18:00.873" Title="Economic valuation of green spaces using GIS" Tags="&lt;value&gt;&lt;environmental-economics&gt;&lt;public-goods&gt;" AnswerCount="0" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20684" PostTypeId="2" ParentId="20679" CreationDate="2018-02-20T12:24:34.793" Score="2" Body="&lt;p&gt;The entry “offering amount” is the total par value that is being auctioned. (In the example given, this is a reopening of an existing issue, so it is the increase of par value for the issue.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From the perspective of a bidder, the “par value” is what they are awarded, which will only be a portion of the total par value of the issue. (There is a maximum bid size specified, which prevents a single bidder from taking down the entire offering.)&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2018-02-20T12:24:34.793" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20685" PostTypeId="1" AcceptedAnswerId="20688" CreationDate="2018-02-20T14:46:01.073" Score="1" ViewCount="2249" Body="&lt;p&gt;I am constructing a diagram for an indirect tax (specific) imposed to correct a negative externality of consumption. &#xA;&lt;a href=&quot;https://i.stack.imgur.com/NB4r4.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/NB4r4.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is a deadweight welfare loss from the externality (represented in blue) because, although it is reduced,the tax does not achieve to shift the supply curve to a point where MSB=MSC (Qm).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, the tax itself also should produce a deadweight welfare loss (represented in green). Is it correct that there are two deadweight welfare losses in this situation or is there no deadweight welfare loss associated with a Pivogian tax?&lt;/p&gt;&#xA;" OwnerUserId="16322" LastEditorUserId="42" LastEditDate="2018-02-20T19:26:04.930" LastActivityDate="2018-02-20T19:26:04.930" Title="Are there two deadweight welfare losses associated with a Pigovian tax?" Tags="&lt;microeconomics&gt;&lt;pigouvian-taxes&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20688" PostTypeId="2" ParentId="20685" CreationDate="2018-02-20T17:10:42.843" Score="1" Body="&lt;p&gt;The Pigovian tax is responsible for neither of the deadweight losses in your diagram.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Pigovian tax has partially, but not wholly, corrected a deadweight loss that was caused by the negative externality.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is a deadweight loss associated with Pigovian taxes: that is the administrative cost of collecting the tax. This is not pictured in your diagram.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2018-02-20T17:10:42.843" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20689" PostTypeId="1" AcceptedAnswerId="20693" CreationDate="2018-02-21T00:44:30.580" Score="3" ViewCount="150" Body="&lt;p&gt;Say a natural disaster strikes. People were killed but the losses were small relative to the size of the work force. However, many buildings and infrastructures have been severely damaged. I'm thinking how would such an event impact the shape of the production function. Assume the production function is of Cobb-Douglas form.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On one hand, I'm compelled to say that the production function shifted down. The labor force is still there but there are now perhaps too many people to work the reduced amount of capital, so productivity of labor decreases, shifting the function downwards.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, I also feel like it's just a movement. The technological level remains the same. We would just move further down the function as capital decreases.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Those are my thoughts. I'm having trouble thinking this through.&lt;/p&gt;&#xA;" OwnerUserId="16326" LastEditorUserId="16326" LastEditDate="2018-02-21T03:44:52.607" LastActivityDate="2018-02-21T10:27:16.367" Title="Impact of Natural Disaster on Production Function" Tags="&lt;macroeconomics&gt;&lt;production-function&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20692" PostTypeId="1" CreationDate="2018-02-21T06:19:57.687" Score="1" ViewCount="93" Body="&lt;p&gt;If I have a startup that produces a product that I estimate to sell 100/per month, with 50%profit, and $200 is the customer price of each product, How can I evaluate this business to find investors?&lt;/p&gt;&#xA;" OwnerUserId="16332" LastEditorUserId="12891" LastEditDate="2018-02-21T15:16:34.853" LastActivityDate="2018-02-23T07:35:11.807" Title="How should I evaluate my startup?(specific question)" Tags="&lt;asset-pricing&gt;&lt;corporate-finance&gt;" AnswerCount="4" CommentCount="11" ContentLicense="CC BY-SA 3.0" />
  <row Id="20693" PostTypeId="2" ParentId="20689" CreationDate="2018-02-21T10:27:16.367" Score="3" Body="&lt;p&gt;Suppose the Cobb-Douglas production function is $Y = AK^{\alpha}L^{\beta}$, and the effect of the disaster is to reduce $K$ from $K_0$ to $K_1$. If any change in $A$ and $L$ is insignificant, then you can look at this in two ways:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Focusing on a partial production function in terms of $L$ only (that is, treating $A$ and $K_i$ as fixed parameters in the short term), there has been a change from $Y=AK_0^{\alpha}L^{\beta}$ to $Y=AK_1^{\alpha}L^{\beta}$. With $K_1&amp;lt;K_0$, that implies a shift downwards, with labour productivity having decreased.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;However, the full production function in terms of $K$ and $L$ is unchanged, and there has been a movement on the &lt;em&gt;surface&lt;/em&gt; defined by the function. If the function were plotted in three dimensions, with $K$ and $L$ on horizontal axes and $Y$ vertical, then this would be a movement downward (and along the $K$ dimension). &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;These are both valid ways of describing the situation: which is more useful would depend on what you are trying to do.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One caveat. Although production functions often suggest otherwise, labour is not homogeneous. Even if only a few people are killed, the effect on production could be significant if those people happen to have key skills that are in short supply, or knowledge the loss of which would affect the technological level.  &lt;/p&gt;&#xA;" OwnerUserId="1417" LastActivityDate="2018-02-21T10:27:16.367" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20701" PostTypeId="1" CreationDate="2018-02-22T02:42:49.563" Score="0" ViewCount="179" Body="&lt;p&gt;I'm new to economics. I want to ask that what remedies that the government can actually employ to address the deficit/surplus in the fish trade balances over time?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My attempt,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Trade deficit&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(i) The government can strengthen the diplomatic relationship with foreign countries by signing five to ten years contract with the purpose of buying more Malaysia’s fish commodities but at a lower price. This action can increase the export of our country’s fish commodities and earn a long term profit. &#xA;(ii) Provide the export incentive to local fish industries in order to help them remain competitive in the global market by exporting more fish commodities. Export incentive will reduce the cost of export and therefore increase the competitive force of local industry in global market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Trade surplus &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(i) the government can eliminate the trade tariff in order to induce foreign countries to import more fish commodities in our country. This will make the import and export of Malaysia equivalence.&#xA;(ii) The government can buy the fish commodities surplus of local fish industries and store them to reduce the export.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is my answers correct? Is there better solution? Thanks in advance.&lt;/p&gt;&#xA;" OwnerUserId="8555" LastActivityDate="2021-04-03T15:04:15.413" Title="Balance of Trade ( Surplus and Deficit)" Tags="&lt;macroeconomics&gt;&lt;self-study&gt;&lt;balance-of-trade&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20702" PostTypeId="1" AcceptedAnswerId="20790" CreationDate="2018-02-22T05:02:36.410" Score="4" ViewCount="1486" Body="&lt;p&gt;The definition of term &quot;Structural Equation&quot; in Economics as defined in &lt;a href=&quot;http://economics.ut.ac.ir/documents/3030266/14100645/Jeffrey_M._Wooldridge_Introductory_Econometrics_A_Modern_Approach__2012.pdf&quot; rel=&quot;noreferrer&quot;&gt; Introductory Econometrics: A Modern. Approach, Fifth Edition. Jeffrey M. Wooldridge.&lt;/a&gt; (page 859)&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;Structural Equation:&lt;/strong&gt; An equation derived from economic theory or from less formal economic reasoning&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;However upon reading earlier works in &lt;a href=&quot;https://cowles.yale.edu/sites/default/files/files/pub/mon/m14-all.pdf&quot; rel=&quot;noreferrer&quot;&gt;Studies in Econometric Method&lt;/a&gt; I find that structural equations are far from informal. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this passage of chapter 3 (page 86 in the PDF) by Herbert Simon, he makes a distinction between structural and non-structural equations which I don't fully understand.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/2d5fD.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/2d5fD.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;How does identifiablity define whether an equation is structural or not? does this mean structural equations assume causality?&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="8815" LastEditDate="2018-02-22T05:15:33.537" LastActivityDate="2018-02-26T22:00:00.470" Title="Definition of &quot;Structural Equation&quot; In Economics" Tags="&lt;econometrics&gt;&lt;reference-request&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20703" PostTypeId="2" ParentId="20692" CreationDate="2018-02-22T05:59:43.333" Score="-1" Body="&lt;p&gt;Simple, you have a perpetuity, thus will need to discount all future cash flows to find Net Present Value, which essentially is the net worth of your company:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;100 * 200$ * 12 months * 50% = 120,000$&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;You will then divide that by your interest rate, perhaps your average weighted cost of capital, WACC. Let’s say it is 5%.&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;120,000 / 0.05 = 2,400,000$&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Which would be the Net Present Value of all your future cashflows; given the information you provided.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is true because you specified a specific cashflow without growth for all eternity, hence the value of your cash flow in year 50 is going to be worth very little in today’s money.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT: Forgot to take into account that there are 12 months in a year; answer has been updated.&lt;/p&gt;&#xA;" OwnerUserId="14207" LastEditorUserId="14207" LastEditDate="2018-02-22T20:43:19.937" LastActivityDate="2018-02-22T20:43:19.937" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="20705" PostTypeId="1" CreationDate="2018-02-22T09:15:05.603" Score="0" ViewCount="120" Body="&lt;p&gt;I'm taking a basic course in economics and I'm trying to understand what the term &quot;resources&quot; really mean in this context.&lt;br&gt;&#xA;Reading this &lt;a href=&quot;https://en.wikipedia.org/wiki/Resource#cite_note-autogenerated2004-5&quot; rel=&quot;nofollow noreferrer&quot;&gt;article&lt;/a&gt;, I found out that in classical economics, resources are usually divided in 3 categories: Land, Labour and Capital.&lt;br&gt;&#xA;Anyway, while watching some videos, often I see enterpreneurs as another possibile type of resource.&lt;br&gt;&#xA;Now, is this an addition of modern/present economics?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;**I've seen that often &quot;modern&quot; and &quot;classical&quot; economics are interchangable attributes referring to the same thing: the view of economics started with the works of Adam Smith&lt;/p&gt;&#xA;" OwnerUserId="16118" LastActivityDate="2018-02-23T01:26:36.477" Title="What are exactly considered resources in modern economics?" Tags="&lt;resource-economics&gt;&lt;capital&gt;&lt;classical-economics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20707" PostTypeId="2" ParentId="18310" CreationDate="2018-02-22T11:11:55.903" Score="0" Body="&lt;p&gt;Here is my attempt, where I assume an absolute upper limit on the support of $F$, $F(\overline{w})=1$, for simplicity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Rewrite the first equation as&#xA;\begin{equation}&#xA;rV_1(w)=&#xA;w+\lambda_1\int_w^{\overline{w}}V_1(\tilde{x})dF(\tilde{x})&#xA;+\underbrace{\lambda_1\int_0^{w}V_1(w)dF(\tilde{x})}_{I}&#xA;-\lambda_1\int_0^{\overline{w}}V_1(w)dF(\tilde{x})&#xA;+\delta[V_0-V_1(w)] \ ,&#xA;\end{equation}&#xA;whereby&#xA;\begin{equation}&#xA;-\lambda_1\int_0^{\overline{w}}V_1(w)dF(\tilde{x})=&#xA;-\lambda_1\int_w^{\overline{w}}V_1(w)dF(\tilde{x})&#xA;-\underbrace{\lambda_1\int_0^{w}V_1(w)dF(\tilde{x})}_{II} \ .&#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The terms $I$ and $II$ cancel out, so that arranging gives&#xA;\begin{equation}&#xA;(\delta +r)V_1(w)=&#xA;w+\lambda_1\int_w^{\overline{w}}[V_1(\tilde{x})-V_1(w)]dF(\tilde{x})&#xA;+\delta V_0 \ .&#xA;\end{equation}&#xA;If we apply Leibniz' rule know, we get&#xA;\begin{equation}&#xA;(\delta +r)V_1'(w)=&#xA;1-\lambda_1\int_w^{\overline{w}}V_1'(w)dF(\tilde{x})=1-\lambda_1V_1'(w)[1-F(w)] \ ,&#xA;\end{equation}&#xA;whereby the last equality follows from $F(\overline{w})=1$. Solving for $V_1'(w)$ gives the desired solution.&lt;/p&gt;&#xA;" OwnerUserId="16341" LastActivityDate="2018-02-22T11:11:55.903" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20708" PostTypeId="1" AcceptedAnswerId="20709" CreationDate="2018-02-22T11:59:17.210" Score="0" ViewCount="88" Body="&lt;p&gt;So my question is about maturity mismatch and what is the appropriate method to calculate it. I have seen some simplified examples in academic books but, when I tried to approach it in a holdings bank, I could not really find a solution. Do I do a duration gap analysis? Cause for example in the balance sheet I am looking, the liabilities are less 1 year, between 1 and 5 years, and more than 5 years. Do I just look for the short term A-L ? Can you suggest me to an approach?  &lt;/p&gt;&#xA;" OwnerUserId="16343" LastEditorUserId="27" LastEditDate="2018-02-22T13:37:05.043" LastActivityDate="2018-02-22T15:20:09.720" Title="Bank maturity mismach" Tags="&lt;finance&gt;&lt;banking&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20709" PostTypeId="2" ParentId="20708" CreationDate="2018-02-22T13:24:31.697" Score="0" Body="&lt;p&gt;There’s two things of interest: interest rate risk, and liquidity risk.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For liquidity risk, you could compare short-term liabilities to short-term assets. This would be just a ratio. The long-term buckets (1-5) and (5+) aren’t going to add much information. Banks are in the business of rolling over 1-5 year term deposits, so that bucket will always be big. And since bank loans are often amortising, while the deposits have a bullet maturity, the mismatch between a 5-year deposit (bank liability) and a 10-year loan (bank asset) is much smaller than the maturity date suggests. This is why I would just look at ratios with the mid-long buckets merged.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For interest rate risk, the duration gap is what matters (plus interest rate shock simulations; see below). (Although I write duration, that is just habit. Technically, you need something like a DV01: how much money is gained/lost on a 1 basis point rise in yields? This can be inferred from an estimated duration.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A part of the question is unclear - you are looking at a financial report of a real world bank? There might be a memo item buried in the notes on the financial statement that gives the exact mismatch. The bank and the regulators know what the mismatch is, it is unclear whether that is public information. Since it is sensitive commercial information, it is highly possible that the net duration information is not public. (I obviously do not know.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You could try approximating the duration for each bucket of assets and liabilities, and then add them up. The problem is that this answer could easily be wildly incorrect, and the exercise is probably a waste of time.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;It ignores the optionality of mortgages (for a US bank). So straight duration is somewhat misleading, you also need to look at large shifts in the yield curve (which is another standard stress test applied by regulators and the bank’s risk management.)&lt;/li&gt;&#xA;&lt;li&gt;A bank can own or issue long-term floating debt. So even if the maturity is 10 years, the duration is at money market length.&lt;/li&gt;&#xA;&lt;li&gt;It ignores the fact that banks use interest rate derivatives (swaps) to hedge their duration risk.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;If you dig into the regulator’s documentation (obviously depends on the bank’s jurisdiction), they should publish the risk limits for interest rates that they allow. Obviously, the bank’s internal models will give a number within the limits, as even the most incompetent regulator would notice a deviation. It may be that the bank has some exotic interest rate risk that does not show up on those stress tests, but you would never know by looking at public information anyway.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastEditorUserId="12891" LastEditDate="2018-02-22T15:20:09.720" LastActivityDate="2018-02-22T15:20:09.720" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="20712" PostTypeId="2" ParentId="19438" CreationDate="2018-02-22T14:48:41.480" Score="0" Body="&lt;p&gt;The paragraph is true.&#xA;In August, she is willing to work but cannot find a job; so, she is unemployed.&#xA; In September, she intentionally stopped searching for job; so, she is not counted in the labour force&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Whether in August she is frictional or cyclical (I assume you mean “cyclical” instead of “seasonal”) let's go back to the definition.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;From wikipedia: Frictional unemployment is the unemployment that results from time spent between jobs when a worker is searching for, or transitioning from one job to another.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the case, it was not related to any imperfect information of the market, and it is not related to structural unemployment. Instead, it should be treated as cyclical unemployment.&lt;/p&gt;&#xA;" OwnerUserId="16339" LastEditorUserId="27" LastEditDate="2018-02-23T13:02:54.970" LastActivityDate="2018-02-23T13:02:54.970" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20713" PostTypeId="2" ParentId="15407" CreationDate="2018-02-22T14:51:59.787" Score="2" Body="&lt;p&gt;From a Marxist perspective, capital is a social relation. Essentially, it is money that begets more money. As such, it only becomes more or less synonim with &quot;means of production&quot; once it takes over production, ie, once society becomes capitalist.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a feudal society, tools and land are not capital, albeit being means of production. The money of money lenders, on the contrary, is not a means of production, albeit being (a primitive form of) capital.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a capitalist society, capital is in flux. A capitalist has money that he wants to invest for a profit; that money is capital. He then buys the labour power of a few workers. The money, that was capital in his hands, becomes something different - a mere fund of consumption - in the hands of those workers. Their labour power, conversely, which was not capital when it belonged to them, becomes capital in the hands of the capitalist. Now those workers produce some commodity - let's say bread. Such bread is capital in the hands of the capitalist. The capitalist then sells the bread to workers in general, against their consumption funds. In the hands of the workers, bread is no longer capital. Their money, conversely, which was merely a consumption fund in their hands, again becomes capital in the hands of the capitalist. This view avoid the classic confusion that classic economists indulge in when discussing the subject.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can we create capital by not consuming? Normally, workers' savings are paid a small interest so that they can be put at the disposal of actual capitalists. In that sense, those savings become capital, but not the workers' own capital. Macroeconomically, if workers are saving, then the wages are too high, and will be reduced.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Retained profits are &quot;internally generated capital&quot;? It certainly can be described in this way. To Marxists, it is &quot;capitalised surplus value&quot;. &quot;External capital&quot; comes from household savings? In part; I suppose industrial (and commercial, and agrarian) companies also place their money in banks, for protection and ease of transference, and that money becomes capital at the hands of bankers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Do Austrians criticise Keynesians for the lack of a theory of capital? I don't know; probably. If so, they may be &quot;right&quot; that Keynesians lack such theory; I suspect Keynesians are &quot;right&quot; in dispensing with such theory - a coherent theory of capital is probably incompatible with apologetical economics.&lt;/p&gt;&#xA;" OwnerUserId="15747" LastActivityDate="2018-02-22T14:51:59.787" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20714" PostTypeId="1" CreationDate="2018-02-22T15:02:21.497" Score="1" ViewCount="77" Body="&lt;p&gt;How is the Quantal response equilibrium model influenced by the Luce choice axiom since Quantal Response equilibrium takes into account the rationality parameter &lt;strong&gt;ß&lt;/strong&gt; and I dont see the mention of rationality perturbation in Luce Choice Axiom? And it would be of great help if anyone could post an example application of the Luce Choice Axiom. Thank You.&lt;/p&gt;&#xA;" OwnerUserId="16181" LastActivityDate="2018-02-23T20:47:25.517" Title="Luce Choice Axiom, Quantal Response Equilibrium" Tags="&lt;game-theory&gt;&lt;general-equilibrium&gt;&lt;behavioral-economics&gt;&lt;bounded-rationality&gt;" AnswerCount="1" CommentCount="3" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20715" PostTypeId="2" ParentId="20692" CreationDate="2018-02-22T15:10:11.583" Score="0" Body="&lt;p&gt;At the time of writing this answer, the question is missing key information: the amount of capital needed, and the lifetime of the equipment bought. Based in the comments, the amount to be invested is \$150,000, and I will leave the equipment lifetime to be a free parameter.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Initial comments.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Before starting a small company, look into statistics for business failure; most do. I believe that lack of business knowledge is a common cause of failure.&lt;/li&gt;&#xA;&lt;li&gt;Your first stop should be a business development bank; in Canada, it is a government-run agency. Even if you do not get funding, they will tell you how to set up a business plan.&lt;/li&gt;&#xA;&lt;li&gt;If entering into a private contract, you need a lawyer. A good small business lawyer probably knows a lot about valuation.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Until you have cash flows, or the asset purchased with the \$150,000 holds its value (very unlikely) debt finance is not an option. If you have a proven revenue pipeline, you will have an easier time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So you are looking at equity finance. You effectively own 100% of the business, what percentage of the firm’s equity do you give up in exchange for the \$150,000 investment? That is going to depend on what you can negotiate. If you are not putting in any of your own capital, the starting position is that you get 0% of the equity. There has to be some reason why you are getting a bigger piece. That’s for your business case to explain.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, you need to offer a return to the investor that is greater than the his/her hurdle rate. Small businesses are risky, and so the hurdle rate is very high.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The minimal ownership percentage is:&#xA;Ownership % $\geq$ (Target \$ return)/(Expected total firm profit).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that if the investor expects a lower profit than you, the percentage of the frm demanded woukd increase.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your numbers indicate that you will have an annual net profit of 12*100*\$100 = \$120,000.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The simplest hurdle rate technique is that the investor wants to be paid back in a fixed time, often 2-3 years. So that would imply an annual return of \$75,000 - \$50,000. If the investor accepts your profit projection, that would imply getting around half of the equity (at the minimum).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The next way would be to use a discounted cash flow technique. In Microsoft Excel, this can be done with the PMT() (payment) function. (Presumably other spreadsheet packages have the same function; it is built into financial calculators.) You can experiment with the parameters.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The most generous valuation I could come up with is a target return  of \$55,800, using parameters:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Rate = 25%&lt;/li&gt;&#xA;&lt;li&gt;nper (number of periods) = 5&lt;/li&gt;&#xA;&lt;li&gt;PV (initial investment) = -150,000&lt;/li&gt;&#xA;&lt;li&gt;FV (future value) = 0.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;This is saying that the investor wants an internal rate of return of 25%, and paid back over 5 years (which is assumed to be shorter than the lifetime of the equipment).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Once again, these are the minimal profits levels needed to even start negotiations,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Unless you can find an understanding investor, the easiest course of action might be to clamp down on your personal expenses and build up a stock of financial assets to put into the business.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2018-02-22T15:10:11.583" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20716" PostTypeId="2" ParentId="20705" CreationDate="2018-02-22T16:46:59.287" Score="2" Body="&lt;p&gt;What I think you want to consider to be grouped with land, labour and capital is another factor to be considered with labor- &lt;strong&gt;technology&lt;/strong&gt; (A.K.A &quot;Knowledge*).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The term &quot;technology&quot; here means an augmenting factor which is external to the present amount of labour. This can mean improved machinery to produce goods and services or alternatively, this can be viewed as a improvement in &lt;a href=&quot;https://en.wikipedia.org/wiki/Human_capital&quot; rel=&quot;nofollow noreferrer&quot;&gt;human capital&lt;/a&gt; which is what training employees can be viewed as in terms of technology.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For more information about the effect of technology/improved human capital in economics, I would recommend checking out the &lt;a href=&quot;http://economics.wikia.com/wiki/Solow_Growth_Model&quot; rel=&quot;nofollow noreferrer&quot;&gt;Solow Model&lt;/a&gt; and the &lt;a href=&quot;https://economics.mit.edu/files/7708&quot; rel=&quot;nofollow noreferrer&quot;&gt;Skill premium Model&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope this is helpful!&lt;/p&gt;&#xA;" OwnerUserId="6629" LastActivityDate="2018-02-22T16:46:59.287" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20717" PostTypeId="1" CreationDate="2018-02-22T19:20:03.630" Score="2" ViewCount="192" Body="&lt;p&gt;In view of the upcoming Italian general election, I've been reading the program of a party (please let me know in the comments whether I can/should mention its name), and in a section of it they propose a freeze of the public spending for the next 5 years in order to face the gigantic public debt. Not having a solid understanding of Economics, I thought of asking about it here.&lt;/p&gt;&#xA;&lt;p&gt;Here's the translation of the relevant passage:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;The Italian government debt, stabilised over the last few years around 132% of GDP, has become an unsustainable weight for the country's economy.&#xA;Interest expenditure, equal to 66 billion euros (around 8% of the total expenditure), is a huge weight on the national budget that determines a displacement of resources in the economy. Besides, the high stock of debt is a threat to the stability of the whole euro area and one of the major obstacles to the process of integrating budgetary policies at European level.&lt;/p&gt;&#xA;&lt;p&gt;To face the problem we propose a freeze of the public expenditure in nominal terms for the duration of the next parliamentary term, as well as a redesign of taxation with cuts to the tax rates on income of people and companies, and a reduction of fiscal expenditure: thus there would be a redistribution of resources from the public to the private, from income to productive economy.&lt;/p&gt;&#xA;&lt;p&gt;To freeze nominal expenditure means to establish an insurmountable limit for five years, which entails a reduction of public spending as a share of GDP if inflation and economic growth are positive. It is therefore necessary to reduce current outlay and tax benefits in order to compensate for the inertial increase of pension costs, by acting on current expenditure on the basis of the guidelines set by the former commissioners for the spending review.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;I have seen critics to this strategy: according to Dr Domenico Moro, a lecturer in Economics at Birmingham Business School, debt growth does not depend on public primary expenditure. Indeed he states that in Italy it was below the European average in 2016, whereas the problem is interest expenditure (4% in Italy vs 1.8% in the EMU). He also points at wrong choices made by the Treasury Department over the last few years.&lt;/p&gt;&#xA;&lt;p&gt;But in fact he adds that reducing public spending wouldn't be only useless, but even counterproductive: in a context of weak recovery and most of the new workers having a temporary contract and being underemployed, it would result in a drop of aggregate demand. This notoriously has a downward effect on GDP growth, and in turn an upward effect on public debt - since it is calculated as a percentage of GDP.&lt;/p&gt;&#xA;&lt;p&gt;He then concludes the other proposal, i.e. the reduction of the company tax rate accompanied by the VAT increase, would make it worse: prices would rise and workers' income would drop proportionally; this would yield a further decrease of aggregate demand, especially of consumer goods rather than luxury ones, and consequently a decrease of GDP.&lt;/p&gt;&#xA;&lt;p&gt;&lt;strong&gt;Question:&lt;/strong&gt; is Moro's analysis completely sound? Did he really demolish the economic agenda of this political party?&lt;/p&gt;&#xA;" OwnerUserId="16328" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2018-08-22T18:01:39.990" Title="Can a spending freeze solve the problem of the Italian enormous government debt?" Tags="&lt;gdp&gt;&lt;taxation&gt;&lt;government-debt&gt;&lt;public-economics&gt;&lt;government-spending&gt;" AnswerCount="1" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="20718" PostTypeId="1" CreationDate="2018-02-22T20:51:36.133" Score="1" ViewCount="52" Body="&lt;p&gt;First I am not economist, so sory if I am not using economicaly correct language. But this is a real life situation.&#xA;I would like to know what are the buy out strategies for investor when he has to deal with multiple collective owners of large real estate that is impossible to be divided amongst them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also if someone is a collective owner in such estate and there is a buyer that is buying out the shares. What should be his best strategy to get most money out of this property ? Should he be one of the first to sell his shares or one of the last.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It should be takein into account that the communication level in between the shareholders is terrible due to mutual hatered :D&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am interested in the strategies for both investor to get the best deal but also for the single shareholder how to get the best deal. What behaviour is needed from both sides.&lt;/p&gt;&#xA;" OwnerUserId="16351" LastEditorUserId="16351" LastEditDate="2018-02-22T21:57:12.717" LastActivityDate="2018-02-22T21:57:12.717" Title="Best strategy for investing and buying out property with many owners(20+)" Tags="&lt;microeconomics&gt;&lt;investment&gt;" AnswerCount="0" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="20719" PostTypeId="1" CreationDate="2018-02-22T21:31:26.370" Score="1" ViewCount="23" Body="&lt;p&gt;Banks need to maintain certain minimum capital as per Basel norms but where does this money lie. If it lies in a bank account, what would happen if that bank goes bankrupt?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Say, SBI keeps its Tier1 capital in HDFC, what would happen if HDFC goes bankrupt? Or if RBI keeps it with itself, can it loan it out as per fractional reserve system?&lt;/p&gt;&#xA;" OwnerUserId="16352" LastActivityDate="2018-02-23T02:18:04.287" Title="Where does bank’s Tier1 capital lie" Tags="&lt;banking&gt;" AnswerCount="1" CommentCount="2" ClosedDate="2018-02-23T23:46:25.780" ContentLicense="CC BY-SA 3.0" />
  <row Id="20720" PostTypeId="1" AcceptedAnswerId="20724" CreationDate="2018-02-23T01:12:01.370" Score="1" ViewCount="602" Body="&lt;p&gt;I know that in the 2-good world it is easy to derive the demand functions from a utility function for imperfect substitutes or complements, but what if I have N goods that include many combinations of substitutes and complements?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example if you have hot dogs $D$, hamburgers $H$ (substitutes of each other), and mustard $M$, mayo $Y$ (substitutes of each other, complements with hot dogs and hamburgers), I can try something like this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;U(D, H, M, Y) = (D^{0.5} + H^{0.5})(M^{0.5} + Y^{0.5})&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Unfortunately the math gets pretty hairy for this one pretty quickly. Before I dive in much further with solving these equations, is there a well-known function that is used in the literature for this type of analysis?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note: I am interested in the more general N-good case, not just the 4-good one.&lt;/p&gt;&#xA;" OwnerUserId="16349" LastActivityDate="2018-02-23T05:07:06.773" Title="Derive utility function with both substitutes and complements" Tags="&lt;utility&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20721" PostTypeId="2" ParentId="20705" CreationDate="2018-02-23T01:26:36.477" Score="1" Body="&lt;p&gt;The broad definition I use is this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;em&gt;A&lt;/em&gt; resource &lt;em&gt;is anything that's used to produce goods.&lt;/em&gt;&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(I treat the terms &lt;strong&gt;resource&lt;/strong&gt;, &lt;strong&gt;factor of production&lt;/strong&gt;, &lt;strong&gt;means of production&lt;/strong&gt;, and &lt;strong&gt;input&lt;/strong&gt; as interchangeable.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I neatly divide all resources into three categories:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/73u0E.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/73u0E.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, labor refers to human beings (or more correctly, the services thereof). Examples: (the services of) a farmer, a lawyer, or a janitor.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Natural resources are any non-human resources that are not produced by human beings. Examples: A piece of land, an oil field, a coal mine, a lake.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Capital or capital goods are any non-human resources that are produced by human beings. Examples: A factory building, a copy of Microsoft Word installed on an office computer, a shipping container, a restaurant kitchen knife. &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Notes.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Classically, Land took the place of Natural resources, but these days it is probably better to speak of the broader term Natural resources.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The above is an example of a &lt;strong&gt;model&lt;/strong&gt;. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;The real world is extremely complex and so to understand it better, economists make simplifications that they call models.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A successful model succeeds in helping us understand and explain the world better. Hopefully, the above model is at least somewhat successful.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We should however be keenly aware that the above model is not perfect and certainly not realistic. Instead, it is merely an aid to our understanding of the world.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, in the real world, &quot;resources&quot; cannot be so easily divided into the above three categories. Example: Is a flock of sheep categorized under Capital or Natural resources? It turns out that by convention, we categorize a flock of sheep under Capital, the justification being that a flock of sheep must be bred by human beings. One could however quibble with this justification.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And, as you mention, some economists might insist that we include as a fourth and distinct resource &lt;strong&gt;Entrepreneurship&lt;/strong&gt;. There is merit to this view, but for simplicity, in my above model, I simply subsume this under Labour.&lt;/p&gt;&#xA;" OwnerDisplayName="user16354" LastActivityDate="2018-02-23T01:26:36.477" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20722" PostTypeId="2" ParentId="20719" CreationDate="2018-02-23T02:18:04.287" Score="1" Body="&lt;p&gt;“Capital” is not an asset (as that would be on the right hand side of the balance sheet) they are long maturity instruments on the right hand side of the balance sheet.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Common equity is one major component. It’s the residual you get after you subtract all other items on the right hand side of the balance sheet from total assets - which is what forces the balance sheet to balance. (There are presumably some accounting details I am skipping over.) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we simplify things, it’s how much more its assets are worth than its liabilities, and so it cannot get put anywhere. All that can happen is that assets it owns (a loan to another bank) can lose value, and so the credit loss reduces equity (and hence capital).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(I think perpetual preferred shares are the other major component of Tier 1 Capital. These are issued by the bank in question, and so the failure of another bank has no effect on them.)&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2018-02-23T02:18:04.287" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20723" PostTypeId="2" ParentId="20692" CreationDate="2018-02-23T04:43:57.317" Score="1" Body="&lt;p&gt;First of all, valuation, especially for startups, is a topic without much consensus on the single way to do it. You can take several approaches, such as DCF, multiplayer, prepetuity and EVA (or residual income).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One frequently used way to make a valuation of projects and businesses is to use the &lt;a href=&quot;https://en.wikipedia.org/wiki/Discounted_cash_flow&quot; rel=&quot;nofollow noreferrer&quot;&gt;Discounted Cash-Flow model&lt;/a&gt;, where you estimate the profits and losses for each year, including the financing and the depreciation you would have from the initial investments. This will give you the expected net result of the project, discounted to today (the net present value).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As some startups have difficulties in projecting costs and revenues, alternatives such as the multiplier method are used by some entrepreneurs &amp;amp; investors. I do not consider this method very accurate, as it is easily manipulated by the choice of multiplayer.&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Go beyond the numbers&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;If you're looking for investors to fund your large initial investment, you usually need to provide proof that you can actually sell to your customers. If you could get customers to sign already a future commitment to buy this would help investors trust you and fund you.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can also try to resort to debt or public grants for starting a business, or try to anticipate some sales revenue to finance your startup. Get legal advice  before signing with an investor, this is critical to ensure you still get a fair share of the deal.&lt;/p&gt;&#xA;" OwnerUserId="12304" LastActivityDate="2018-02-23T04:43:57.317" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20724" PostTypeId="2" ParentId="20720" CreationDate="2018-02-23T05:07:06.773" Score="3" Body="&lt;p&gt;The general way to do this would be using a nested CES Function.  &lt;a href=&quot;https://en.wikipedia.org/wiki/Constant_elasticity_of_substitution&quot; rel=&quot;nofollow noreferrer&quot;&gt;CES Wikipedia&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For your example you could define the utility of sandwiches (S) and condiments (C) to be &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ U(D,H,M,Y) = (a_1 S^{\frac{s-1}{s}} + a_2 C^{\frac{s-1}{s}})^{\frac{s}{s-1}} $$&#xA;then you can define $S$ and $C$ &quot;nests&quot; as&#xA;$$ S = (b_1 D^{\frac{\rho-1}{\rho}} + b_2 H^{\frac{\rho-1}{\rho}})^{\frac{\rho}{\rho-1}} $$&#xA;$$ C = (c_1 M^{\frac{\eta-1}{\eta}} + c_2 Y^{\frac{\eta-1}{\eta}})^{\frac{\eta}{\eta-1}} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$s$ determines whether S and C are complements ($s \rightarrow 0$) or substitutes ($s \rightarrow \infty$), or neither ($s=1$).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The same holds for $\rho$ and $\eta$ in the &quot;nests&quot;.  $a$, $b$, and $c$ establish the relative importance of each item within a nest. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Extending this to $N$ you can have an arbitrary number of nests and an arbitrary number of elements within each nest.  This way may look complicated, but it has a lot of flexibility and gives you nice derivatives when solving maximization problems.&lt;/p&gt;&#xA;" OwnerUserId="16356" LastActivityDate="2018-02-23T05:07:06.773" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="20725" PostTypeId="2" ParentId="20692" CreationDate="2018-02-23T07:35:11.807" Score="0" Body="&lt;p&gt;I would evaluate your start up based primarily on 2017's net revenue. Outside of that your idea is only worth something to a person who happens to put value there which apparently is a small percentage of population. So basically start looking for start up capital is your question preferably reducing personal liability which will likely being a trade off and terms for the venture to generate investment.&lt;/p&gt;&#xA;" OwnerUserId="14431" LastActivityDate="2018-02-23T07:35:11.807" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20728" PostTypeId="1" CreationDate="2018-02-23T14:15:00.120" Score="1" ViewCount="46" Body="&lt;p&gt;I'm currently researching for a school project about Thailand.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I found the wonderful Observatory of Economic Complexity Website.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are two visualizations I don't quite understand: &lt;br&gt;&#xA;&lt;a href=&quot;https://atlas.media.mit.edu/en/visualize/tree_map/hs92/export/tha/all/show/2015/&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://atlas.media.mit.edu/en/visualize/tree_map/hs92/export/tha/all/show/2015/&lt;/a&gt; &lt;br&gt;&#xA;&lt;a href=&quot;https://atlas.media.mit.edu/en/visualize/stacked/hs92/export/tha/all/show/1995.2016/&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://atlas.media.mit.edu/en/visualize/stacked/hs92/export/tha/all/show/1995.2016/&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;How can it be that Animal products (light yellow) are only 1.3% of total exports but make the most money.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Maybe I didn't understand the Stacked Visualization right. So maybe that's my mistake. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT: OK; I just found out that I misread the chart. I was a little bit confused obviously. These stacked line charts are completely unlogical to me&lt;/p&gt;&#xA;" OwnerUserId="16358" LastEditorUserId="16358" LastEditDate="2018-02-23T14:27:23.980" LastActivityDate="2018-02-25T03:48:58.753" Title="Exports: How can a small amount of export make really high income" Tags="&lt;international-trade&gt;" AnswerCount="2" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="20729" PostTypeId="2" ParentId="20717" CreationDate="2018-02-23T16:10:42.133" Score="2" Body="&lt;p&gt;This question is somewhat political, and runs into the area of “opinion-based,” which this site has to avoid. I am only going to attempt to discuss part of it. There’s some long-running economic debates involved, so I will try to describe the debates. I obviously have my own opinions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One side issue: it is unclear in what sense is an “enormous” debt a “problem”, other than the technical issue of the European treaties? But since those treaties exist, I will put that aside.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As background information, we normally think about the size of the government as a percentage of GDP. So if nominal GDP is growing in steady state, so would government spending. Therefore, a “freeze” in euro terms, although that might be interpreted as unchanged, would be thought of as shrinking government spending relative to trend. In commonly used terms, it would be viewed by many as a mild austerity policy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This leads us to the debate about expansionary austerity. Alberto Alesina is the economist most associated with the revival of this policy. I am not familiar with the more recent literature, but this paper by the IMF was critical of idea of expansionary austerity - &lt;a href=&quot;https://www.imf.org/external/pubs/ft/wp/2011/wp11158.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;IMF paper link.&lt;/a&gt; I would summarise the conclusions that there was a mild depressing effect on growth (“contractionary” versus “expansionary”), but one may note that this is just reducing the growth rate of an already growing economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am not going to claim to give the “correct” answer, but the debate is this: will the cut in spending reduce growth, so that the effect on the denominator of the debt/GDP ratio of reduced spending is cancelled out? Realistically, it probably depends on the state of the cycle. Cutting spending right after a crisis when confidence is low may have a more dampending effect than when the economy is starting to grow more rapidly. In Italy’s case, one would need to do a detailed forecasting exercise to see how large the margin of safety is. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, freezing spending would only reduce the deficit if the tax take rises along with nominal GDP. The suggested policy is to &lt;em&gt;cut&lt;/em&gt; tax rates. That enters into another bitter debate in economics, the supply side effect of tax cuts.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(As an immdiate disclaimer, it is possible to redesign the tax system so that a lower tax rate will imply a higher tax take; for example, eliminate a popular deduction. It does not sound like that is the case here.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The original supply side debate was very strong in the era of Ronald Reagan, the “Laffer Curve” (an idea of economist Art Laffer) was that very high tax rates were counter-productive. Cutting taxes would raise incomes through growth, and so revenues would increase. In 2018, I do not know of anyone who would argue that this would happen right now &lt;em&gt;in the short term&lt;/em&gt; (one or two years, say). I &lt;em&gt;believe&lt;/em&gt; the consensus is that the improved growth will appear on a longer horizon. In the United States, there is a debate about “dynamic scoring” that discusses this. There are plenty of resources for dynamic scoring on the internet, this is a recent presentation by the CBO - &lt;a href=&quot;https://www.cbo.gov/publication/50730&quot; rel=&quot;nofollow noreferrer&quot;&gt;link to CBO presentation&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So one could expect that such a policy might result in a higher deficit in the short term (1-2 years), but will the tax cut lead stimulate enouh new activity on a longer horizon - that leads to a falling debt-to-GDP ratio? That question would either require analysis by experts on the Italian economy, or it would be largely opinion-based.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2018-02-23T16:10:42.133" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20730" PostTypeId="1" CreationDate="2018-02-23T16:11:04.540" Score="0" ViewCount="45" Body="&lt;p&gt;Economic problem from my textbook (here is my translation from Russian):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is a firm that is both monopoly and monopsony. It's monopoly on market of its product and it's monopsony on labor market (i.e. one and only employer). Demand function for its product is $ P=160-Q $ , its production function is $ Q=2L $ . Labor supply is $ L=W - 140 $ , where $ L $ is number of person-hours and $ W $ is price of one person-hour. You need to find such $ L $, that it would maximaze profit of the firm.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I tried to solve the problem, but it seems like something is wrong with my solution. I tried to use $ MRP_L=MC_L $ and solution in the book uses the same formula. $ MC_L $ is the first derivative of $ TC_L $ , and $ TC_L $ is $ L * W $. Thus $ TC_L=L * W=L *(L+140)=L^2+140L $ (I used the labor supply formula to express W). Therefore $ MC_L=(TC_L)'=(L^2+140L)'=2L+140 $. The solution in my texbook agrees that $ MC_L=2L+140 $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Things started to be messy when I tried to calculate $ MRP_L $.  My textbook says that $ MRP_L=MR * MP_L $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I found $ MR $ as the first derivative of $ TR$, $TR=P*Q=(160-Q)*Q=160Q-Q^2$ therefore $ MR=(TR)'=(160Q-Q^2)'=160-2Q $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for $ MP_L $, I found it as the first derivative of the production function, $(2L)'=2$. Thus $ MP_L=2 $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From this I can conclude that $ MRP_L=MR*MP_L=(160-2Q)*2=320-4Q=320-8L $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Yet in the solution it's said that $ MRP_L=160-8L $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have no idea how they got this.&lt;/p&gt;&#xA;" OwnerUserId="4979" LastEditorUserId="4979" LastEditDate="2018-02-23T21:22:15.087" LastActivityDate="2018-02-23T21:22:15.087" Title="How to find right MRP_L in this economic problem?" Tags="&lt;labor-economics&gt;&lt;monopoly&gt;&lt;profit-maximization&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="20732" PostTypeId="2" ParentId="20188" CreationDate="2018-02-23T18:36:21.620" Score="1" Body="&lt;p&gt;Macroeconomics nowadays tend to require &lt;a href=&quot;https://en.wikipedia.org/wiki/Microfoundations&quot; rel=&quot;nofollow noreferrer&quot;&gt;microfoundations&lt;/a&gt;. As a result, general equilibrium are more of a topic for macro than micro analysis. The &lt;a href=&quot;https://en.wikipedia.org/wiki/Dynamic_stochastic_general_equilibrium&quot; rel=&quot;nofollow noreferrer&quot;&gt;dynamic stochastic general equilibrium (DSGE)&lt;/a&gt; model and its variants underlie much of macroeconomic analysis nowadays.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Standard texts:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://rads.stackoverflow.com/amzn/click/0674750969&quot; rel=&quot;nofollow noreferrer&quot;&gt;Stokey and Lucas (1989) &lt;em&gt;Recursive Methods in Economic Dynamics&lt;/em&gt;&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://rads.stackoverflow.com/amzn/click/026212274X&quot; rel=&quot;nofollow noreferrer&quot;&gt;Ljungqvist and Sargent (2004) &lt;em&gt;Recursive Macroeconomic Theory&lt;/em&gt;&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="42" LastEditorUserId="42" LastEditDate="2018-02-23T18:41:36.503" LastActivityDate="2018-02-23T18:41:36.503" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20734" PostTypeId="2" ParentId="20714" CreationDate="2018-02-23T20:47:25.517" Score="2" Body="&lt;p&gt;A few quotes from &lt;a href=&quot;https://www.sciencedirect.com/science/article/pii/S0022249615000589&quot; rel=&quot;nofollow noreferrer&quot;&gt;Jessie and Saari (2015)&lt;/a&gt; may be of interest. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regarding Luce Choice Axiom (LCA):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The effect of LCA is to endow each alternative with an intrinsic level of likelihood that is independent of the particular set from which it is chosen. Mathematically speaking, in Luce’s formulation, the choice axiom implies the existence of a weight function $v(A)$ for an alternative $A$ in which the probability of selecting $A$ can be written as&#xA;  \begin{equation}&#xA;P_T(A)=\frac{e^{v(A)}}{\sum e^{v(B)}}\tag{1}&#xA;\end{equation}&#xA;  where the sum in the denominator is taken over all alternatives in $T$ (Luce, 1959). Because function $v(\cdot)$ does not depend upon the set $T$, it defines an intrinsic weight of the alternative. An important special case is when $v(\cdot)$ is a linear function; here Eq. (1) defines the multinomial logit model.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Regarding Quantal Response Equilibrium (QRE) [in a $2\times2$ normal form game, where Row player chooses between Top and Bottom]: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Instead of perfectly observing the payoffs for a given strategy, assume that the subjects perceive the expected value plus a stochastic term $\frac{\epsilon}{\lambda}$, where $\epsilon$ is a random variable and $\lambda$ is a magnitude parameter. In this framework, Row strategically chooses Top if&#xA;  \begin{equation}&#xA;E(\text{Top})+\frac{\epsilon_1}{\lambda}&amp;gt;E(\text{Bottom})+\frac{\epsilon_2}{\lambda} &#xA;\;\Leftrightarrow\; \lambda[E(\text{Top})-E(\text{Bottom})]&amp;gt;\epsilon_1-\epsilon_2. \tag{4}&#xA;\end{equation}&#xA;  That is, Row’s choice of a probabilistic strategy combines the actual expected values with a measure of how it is recognized. A common assumption about $\epsilon_i$ is that they are independent and identically distributed type-I extreme value random variables. In the general case of several strategies, the probability $p_i$ that strategy $s_i$ is chosen is given by&#xA;  \begin{equation}&#xA;p_i=\frac{e^{\lambda E(s_i)}}{\sum_j e^{\lambda E(s_j)}}.\tag{5}&#xA;\end{equation}&#xA;  This expression is identical to the LCA multinomial logit expression in Eq. (1) with  being a strategy’s expected payoff, with an emphasis on preserving the LCA structure.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The $\frac{\epsilon}{\lambda}$ form of the stochastic term in Eq. (4) makes it reasonable to treat $\lambda$ as a measure of “rationality”. This is because with small $\lambda$ values, the random terms dominate; indeed, with $\lambda=0$ (Eq. (5)), the subjects are completely insensitive to differences in expected value, so strategies are selected from a uniform distribution. In contrast, the effect of the random terms diminish as $\lambda\to\infty$, which means that the subjects become increasingly responsive to payoff differences; in the limit they reach the Nash equilibrium.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="42" LastActivityDate="2018-02-23T20:47:25.517" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20735" PostTypeId="2" ParentId="20631" CreationDate="2018-02-23T21:15:46.947" Score="3" Body="&lt;p&gt;For a first look at econometrics, I would recommend Stock and Watson, &lt;a href=&quot;https://rads.stackoverflow.com/amzn/click/com/0133595420&quot; rel=&quot;nofollow noreferrer&quot; rel=&quot;nofollow noreferrer&quot;&gt;Introduction to Econometrics&lt;/a&gt;. Not only does this book cover the basics well, it gives good, clear treatment of causal inference in econometrics. It covers time series topics, including VARs. For more advanced treatments, I would suggest Fumio Hayashi's &lt;a href=&quot;https://rads.stackoverflow.com/amzn/click/com/0691010188&quot; rel=&quot;nofollow noreferrer&quot; rel=&quot;nofollow noreferrer&quot;&gt;Econometrics&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you feel like you have a grasp on these, you could then look at econometrics books that deal more specifically with macroeconomics. I like the book &lt;a href=&quot;https://rads.stackoverflow.com/amzn/click/com/069115287X&quot; rel=&quot;nofollow noreferrer&quot; rel=&quot;nofollow noreferrer&quot;&gt;Structural Macroeconometrics&lt;/a&gt;. Others include &lt;a href=&quot;https://rads.stackoverflow.com/amzn/click/com/0691115044&quot; rel=&quot;nofollow noreferrer&quot; rel=&quot;nofollow noreferrer&quot;&gt;Methods for Applied Macroeconomic Research&lt;/a&gt; and &lt;a href=&quot;https://rads.stackoverflow.com/amzn/click/com/0198296851&quot; rel=&quot;nofollow noreferrer&quot; rel=&quot;nofollow noreferrer&quot;&gt;Applied Macroeconometrics&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="59" LastEditorUserId="4816" LastEditDate="2019-06-03T05:19:08.267" LastActivityDate="2019-06-03T05:19:08.267" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="20737" PostTypeId="1" CreationDate="2018-02-23T23:39:58.090" Score="-1" ViewCount="73" Body="&lt;p&gt;My textbook says, &quot;Some of the best indicators of living standards are the average life expectancies and infant mortality rates already mentioned.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How does babies not dying within their first year necessarily indicate that a country has high living standards? It just means that the babies had good parents and adequate access to healthcare.&lt;/p&gt;&#xA;" OwnerUserId="16105" LastActivityDate="2018-02-24T15:01:00.213" Title="How is infant mortality rate an indicator of living standards?" Tags="&lt;poverty&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20738" PostTypeId="2" ParentId="20631" CreationDate="2018-02-23T23:59:32.273" Score="0" Body="&lt;p&gt;This answer is built on the answer by jmbejara.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I really like the books he recommended in the last paragraph. They give you an general overview of the landscape on the mathematics involved in macroeconomics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And immediately you get the following feeling. Economists do not have the background enough to really understand most of the methods they use. They take a more pragmatical, albeit superficial, view of mathematics. Just see the disparity of mathematical areas are crammed into any of those books. From measure theory, to PDE, ODE, Stochastic Calculus/Optimization  - these for the solving of the models;   Bayesian Statistics, Multivariate Time Series, etc. (for the more empirical part of the work, like model simulation, calibration, etc.). Intersect them all, and right there in the middle, you'll find the mathematics of macroeconomics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's almost impossible for economists to have a barely decent understanding of a so many diverse fiels, with their background which more than probably just consists of 2 calculus courses, 2 statistics courses and 2 to 3 econometric courses. Just watch any webcast from AEA with renown researchers, and you'll be amazed at the lack of precision, and exactly wonder how they are able to use some mathematical methods when they understanding of it is so superficial...&#xA; I know I'm venting a bit out my accumulated frustration, but since it seems that you're relatively inexperienced in the area, I thought my personal point of view might help you, even though I usually study by myself. Maybe with a formal education, things would be different, but I seriously doubt it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'll give two book recommendations for Time Series:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For univariate and small intro to multivariate, you have a great introductory book by Brockwell and Davis. For multivariate time series, choose Lütkepohl, it's the best of the whole group.&lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="118" LastEditDate="2018-02-25T15:30:51.133" LastActivityDate="2018-02-25T15:30:51.133" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20739" PostTypeId="1" AcceptedAnswerId="20763" CreationDate="2018-02-24T00:43:32.163" Score="0" ViewCount="285" Body="&lt;p&gt;Problem:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A firm wants to buy a machine for its factory. It will work for two years. During the first year it will yield 240 thousand roubles and during the second year it will yield 200 thousands roubles. We need to caclulate maximum price that the firm will agree to pay for the machine. And one important thing: instead of investing money in the machine the firm can put said money in a bank, interest rate per year is 20%.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I concluded that the maximum price for machine is about 306 thousand roubles. My reasoning was following: If the firm will make the investment it will get 440 thousands of roubles in total (240+200=440). If instead of buying the machine the firm will put 306 thousand roubles in its bank account, then after 2 years it will get about 440 thousands of roubles. Such price makes the firm indifferent between said two options. But if the price will be higher than 306 thousand roubles, then it will make more sense to put the money in a bank account.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I got about 306 thousand of roubles by using this formula:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/UlIo0.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/UlIo0.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where $ F_v $ is total sum of money in the future, $i$ is interest rate, $t$ is number of years and $P_v$ is initial sum of money that we need to put in our bank account in order to yield $F_v$ after $t$ years.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/0rQnn.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/0rQnn.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But solution in my textbook says that maximum price is 338.9 thousands roubles and that I must calculate it by using this formula:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/hucfO.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/hucfO.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where $π_t$ is revenue for given year and $i$ supposedly means something like &quot;rate of inflation&quot; (i.e. how fast money lose their value)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/LZr6o.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/LZr6o.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But such solution doesn't make sense to me. Firstly, here $i$ means different thing, it's rate of devaluation of money, not interest rate. Secondly, with price equal to 338.9 thousand roubles it's clearly more profitable to put the money in a bank, because we will get about 488 thousand roubles after two years, instead of 440 thousand roubles.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;UPDATE 01:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we take all revenue that the machine yields at the end of the first year and put them in bank, then our total revenue after two years will be 488 thousand roubles instead of 440 thousand roubles. Considering this, now I agree that 338.9 thousand roubles is maximum price. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But I still don't see why we need NPV to calculate this and why $i$ must mean inflation, when it means annual percentage rate&lt;/p&gt;&#xA;" OwnerUserId="4979" LastEditorUserId="4979" LastEditDate="2018-02-27T13:13:15.280" LastActivityDate="2018-06-27T15:47:53.093" Title="Did I calculate maximum price of machine correctly?" Tags="&lt;inflation&gt;&lt;interest-rate&gt;&lt;price&gt;&lt;opportunity-cost&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20741" PostTypeId="2" ParentId="15467" CreationDate="2018-02-24T02:05:34.417" Score="2" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;I am asking whether or not it fully expounds some first cause of human&#xA;  action from which we can deduce answers to other questions about human&#xA;  economic behavior?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;What it is getting at:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Praxeology [the science of human action] says that all economic propositions which claim to be true must be shown to be deducible by means of formal logic from the incontestably true material knowledge regarding the meaning of action. Specifically, all economic reasoning consists of the following:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;an understanding of the categories of action and the meaning of a change occurring in such things as values, preferences, knowledge, means, costs, etc;&lt;/li&gt;&#xA;&lt;li&gt;a description of a world in which the categories of action assume concrete meaning, where definite people are identified as actors with definite objects specified as their means of action, with some definite goals identified as values and definite things specified as costs. Such description could be one of a Robinson Crusoe world, or a world with more than one actor in which interpersonal relationships are possible; of a world of barter exchange or of money and exchanges that make use of money as a common medium of exchange; of a world of only land, labor, and time as factors of production, or a world with capital products; of a world with perfectly divisible or indivisible, specific or unspecific factors of production; or of a world with diverse social institutions, treating diverse actions as aggression and threatening them with physical punishment, etc; and&lt;/li&gt;&#xA;&lt;li&gt;a logical deduction of the consequences which result from the performance of some specified action within this world, or of the consequences which result for a specific actor if this situation is changed in a specified way.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Provided there is no flaw in the process of deduction, the conclusions that such reasoning yield must be valid a priori because their validity would ultimately go back to nothing but the indisputable axiom of action. If the situation and the changes introduced into it are fictional or assumptional (a Robinson Crusoe world, or a world with only indivisible or only completely specific factors of production), then the conclusions are, of course, a priori true only of such a “possible world.” If, on the other hand, the situation and changes can be identified as real, perceived and conceptualized as such by real actors, then the conclusions are a priori true propositions about the world as it really is. [19]&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Such is the idea of economics as praxeology. And such then is the ultimate disagreement that Austrians have with their colleagues: Their pronouncements cannot be deduced from the axiom of action or even stand in clear-cut contradiction to propositions that can be deduced from the axiom of action.&#xA;— Hans-Hermann Hoppe, Economic Science and the Austrian Method, pg 25.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;What are the known refutations of Mises' Axiom of Human Action?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;There aren't any that have been successful... &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;All of these categories which we know to be the very heart of economics—&lt;em&gt;values, ends, means, choice, preference, cost, profit and loss&lt;/em&gt;—are implied in the axiom of action. Like the axiom itself, they are not derived from observation. Rather, that one is able to interpret observations in terms of such categories requires that one already knows what it means to act.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;No one who is not an actor could ever understand them, as they are not “given,” ready to be observed, but observational experience is cast in these terms as it is construed by an actor. And while they and their interrelations were not obviously implied in the action axiom, once it has been made explicit that they are implied, and how, one no longer has any difficulty recognizing them as being a priori true in the same sense as the axiom itself is.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For any attempt to disprove the validity of what Mises has reconstructed as implied in the very concept of action would have to be aimed at a &lt;em&gt;_goal_&lt;/em&gt;, requiring &lt;em&gt;_means_&lt;/em&gt;, excluding other courses of action, incurring &lt;em&gt;_costs_&lt;/em&gt;, subjecting the actor to the possibility of achieving or not achieving the desired goal and so leading to a &lt;em&gt;_profit_&lt;/em&gt; or a &lt;em&gt;_loss_&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, it is manifestly impossible to ever dispute or falsify the validity of Mises’s insights. &lt;strong&gt;In fact, a situation in which the categories of action would cease to have a real existence could itself never be observed or spoken of, since to make an observation and to speak are themselves actions.&lt;/strong&gt;&#xA;— Hans-Hermann Hoppe, ESAM&lt;/p&gt;&#xA;" OwnerUserId="16363" LastActivityDate="2018-02-24T02:05:34.417" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20742" PostTypeId="2" ParentId="15900" CreationDate="2018-02-24T02:31:42.360" Score="-1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Why is it that different economic schools of thought are still taught&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;There is really on two kinds...&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;&lt;strong&gt;The Nature of Economics&lt;/strong&gt;&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;It is well-known that Austrians disagree strongly with other schools of economic thought, such as the Keynesians, the Monetarists, the Public Choicers, Historicists, Institutionalists, and Marxists… The ultimate difference from which all disagreements at the levels of economic theory and economic policy stem… concerns the answer to the very first question that any economist must raise: &lt;em&gt;What is the subject matter of economics, and what kind of propositions are economic theorems?&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Mises’s answer is that economics is the science of human action… It is this assessment of economics as an a priori science, a science whose propositions can be given a rigorous logical justification, which distinguishes Austrians, or more precisely Misesians, from all other current economic schools. All the others conceive of economics as an empirical science, as a science like physics, which develops hypotheses that require continual empirical testing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The views of Mises’s predecessors, Menger, Böhm-Bawerk, and Wieser, are the same: They, too, describe economics as a discipline whose propositions can in contrast to those of the natural sciences be given some ultimate justification.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But Mises by no means merely notices this rather obvious difference between economics and the empirical sciences. He makes us understand the nature of this difference and explains how and why a unique discipline like economics, which teaches something about reality without requiring observations, can possibly exist. It is this achievement of Mises’s which can hardly be overrated. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;— Hans Hermann-Hoppe, ESAM.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now why is this school of thought (what used to be indistinguishable from the orthodox) no longer so mainstream?&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;&lt;strong&gt;Why Academics Hate A priori&lt;/strong&gt;&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;University instruction in an a priori science presents special problems if we are to adhere to the principle that an instructor ought to be a researcher as well. In every field there are very few who can make actual contributions to its intellectual treasury. In the a posteriori sciences, however, pioneers and followers work together with the same told, and there exists no outward distinction between them. In his laboratory, every professor of chemistry can compare himself with the great pioneer. Although his contribution may be modest, his research methods are the same.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Things are different in philosophy, in economics, and in a certain sense, in mathematics. If academic positions were contingent upon independent contributions to economics, barely a dozen professors could be found throughout the world. If positions are awarded only to those researchers who had made original contributions, care must be taken to take into account research done in related areas. In effect, this makes the appointment to academic positions dependent upon scholarly activity in other areas: the history of ideas and doctrine, history of economics, and especially the economic history of the most recent past, which is often erroneously labeled economic problems of the present.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The fiction perpetrated in scholarly circles that all professors are equal does not permit professors of economics to be divided into two classes: those who work independently as theorists, and those whose work consists of economic history and description. The inferiority complex of these “empiricists” has led to a campaign against theory.&#xA;          —  Ludwig von Mises, Memoirs&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;in spite of the fact that we now have data to test their ideas and&#xA;  philosophies of the economy and see if they really line up with&#xA;  reality?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Mises’s great insight was that economic reasoning has its foundation in just this understanding of action; and that the status of economics as a sort of applied logic derives from the status of the action-axiom as an a priori-true synthetic proposition.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The laws of exchange, the law of diminishing marginal utility, the Ricardian law of association, the law of price controls, and the quantity theory of money—all the examples of economic propositions which I have mentioned—can be logically derived from this axiom. And this is why it strikes one as ridiculous to think of such propositions as being of the same epistemological type as those of the natural sciences.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;To think that they are, and accordingly to require testing for their validation, is like supposing that we had to engage in some fact-finding process without knowing the possible outcome in order to establish the fact that one is indeed an actor. &lt;em&gt;In a word: It is absurd.&lt;/em&gt;&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;— Hans Hermann Hoppe&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/XmvT6.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/XmvT6.jpg&quot; alt=&quot;Testin&amp;#39;&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To use an analogy; it is as if one wanted to establish the theorem of Pythagoras by actually measuring sides and angles of triangles. Just as anyone would have to comment on such an endeavor, mustn’t we say that to think economic propositions would have to be empirically tested is a sign of outright intellectual confusion?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But Mises by no means merely notices this rather obvious difference between economics and the empirical sciences. He makes us understand the nature of this difference and explains how and why a unique discipline like economics, which teaches something about reality without requiring observations, can possibly exist. It is this achievement of Mises’s which can hardly be overrated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;— Hans Hermann Hoppe&lt;/p&gt;&#xA;" OwnerUserId="16363" LastActivityDate="2018-02-24T02:31:42.360" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20744" PostTypeId="1" AcceptedAnswerId="20762" CreationDate="2018-02-24T06:49:28.690" Score="2" ViewCount="124" Body="&lt;p&gt;Can the supply curve shift left while the PPF remains unchanged? For example, if I am a blue berry farmer and I injure my leg, I can no longer pick as many blue berries. So in the blue berry market, the supply curve for any price would shift to the left.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The number of blue berries I have available to pick hasn't changed, therefore the PPF NOT shift but instead I wouldn't be producing along the PPF but inside the PPF. So, the supply curve has shifted left, and my position on the PPF is on the inside of the curve, but the PPF itself hasn't shifted. Is that correct?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If so, my follow up question of the same topic is: is it true that the PPF does NOT concern itself with the method of using resources, just the resources themselves? E.g. if a factory burns down but the stock of resources that goes through the factory remains unaffected, the supply curve would shift and the PPF would remain unchanged. Correct?&lt;/p&gt;&#xA;" OwnerUserId="16366" LastActivityDate="2018-02-25T18:19:09.427" Title="Can the supply curve shift while the PPF does not shift?" Tags="&lt;microeconomics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20745" PostTypeId="1" CreationDate="2018-02-24T10:49:33.830" Score="1" ViewCount="27" Body="&lt;p&gt;I want to know the &lt;strong&gt;cost of milk&lt;/strong&gt; on a &lt;strong&gt;year by year basis&lt;/strong&gt;, say for the last 10 or 20 years. similarly I may want to know price of other items also (petrol, rice, biryani, etc). I just need the average values. What is the best source of knowing these things. I'm &lt;strong&gt;particular about India&lt;/strong&gt;. Please give me any website name or so that provides such statistical data.&lt;/p&gt;&#xA;" OwnerUserId="16367" LastEditorUserId="42" LastEditDate="2018-02-24T16:52:57.037" LastActivityDate="2018-02-25T05:48:34.390" Title="Prices on year by year basis" Tags="&lt;inflation&gt;&lt;data-request&gt;&lt;price&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20746" PostTypeId="1" AcceptedAnswerId="20748" CreationDate="2018-02-24T12:30:35.530" Score="1" ViewCount="45" Body="&lt;p&gt;I am completely new to economics and I have troubles understanding how the government debt of countries is computed.&#xA;Imagine government of country A issue some 10 years bond of the value of 100 dollars with fixed interest rate of 5%, and government of country B issue some 10 years bond at 10 year of the value of 100 dollars with fixed interest rate of 7%. Is the government debt of the two country going to increase of 100$ each or the difference between the two interest rates is taken into account?&lt;/p&gt;&#xA;" OwnerUserId="16368" LastEditorUserId="16368" LastEditDate="2018-11-13T22:21:58.450" LastActivityDate="2018-11-13T22:21:58.450" Title="Are interest included in the computation of government debt" Tags="&lt;government-debt&gt;&lt;bonds&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="20747" PostTypeId="2" ParentId="20744" CreationDate="2018-02-24T13:41:08.650" Score="2" Body="&lt;p&gt;Edited.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;PPF is the maximum &lt;strong&gt;potential output&lt;/strong&gt; that a country could produce using its resources and technology. No, the PPF should shrink due to the loss of labour (from leg injury).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;No, factory is a stock of capital, thus, ppf should shrink due to loss of capacity. It is also affected by the technology of production i.e. methods of production. It moves outwards due to technological progress.&lt;/p&gt;&#xA;" OwnerUserId="6009" LastEditorUserId="6009" LastEditDate="2018-02-25T10:32:16.887" LastActivityDate="2018-02-25T10:32:16.887" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20748" PostTypeId="2" ParentId="20746" CreationDate="2018-02-24T14:38:09.483" Score="2" Body="&lt;p&gt;As originally written, parts of the question are unclear. We do not normally calculate the government debt of two countries together, they are calculated independently. Adding up debts across countries can be done, but the debts are quite oftenly in different currencies, so that would need to be taken into account.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The standard for government debt calculations is to add up the face value of all debt emitted. Yes, this does not take into account the differing interest rates, but one can usually find out the average interest rate. So in your example, both countries have debts of \$100.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(As an example, the U.S. Treasury has a webpage on “The Debt to the Penny”, with the total face value of debt; &lt;a href=&quot;https://www.treasurydirect.gov/govt/resources/faq/faq_publicdebt.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;Link to FAQ&lt;/a&gt;. Per issue data is found in the reports available here: &lt;a href=&quot;https://www.treasurydirect.gov/govt/reports/pd/mspd/mspd.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;link to Monthly Statement of the public debt.&lt;/a&gt;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One could look at the market value of government debt, but these data are not usually provided by national statistics offices. Financial data providers (bond indices) have this, but the data often misses out short-term debt, and non-marketable debt.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastEditorUserId="12891" LastEditDate="2018-02-27T13:25:19.823" LastActivityDate="2018-02-27T13:25:19.823" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="20749" PostTypeId="2" ParentId="20737" CreationDate="2018-02-24T14:54:31.130" Score="2" Body="&lt;ul&gt;&#xA;&lt;li&gt;I am just guessing at this, but I have not heard of any evidence that any culture had a large percentage of parents that wanted their babies to die. Thus the “good parent” ratio is probably not changing a lot across societies, at least when compared to the differentials in infant mortality that exist across countries and time.&lt;/li&gt;&#xA;&lt;li&gt;“Access to health care” is part of living standards.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Usual causes of high infant mortality are due to diseases that result from inadequate nutrition, lack of clean water, or diseases that might be caused by inadequate sanitation. These are all obviously related to living standards.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I believe the reason why it is useful is that it is a quantitative metric that is easily tracked, and has been tracked for a long time (birth/death records). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;One can imagine more powerful descriptions of “living standards”: but is there any way to measure them, particularly in historical data? That’s why we have to find indicators that can be reliably calculated, and which are expected to correlate with fuller descriptions.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastEditorUserId="12891" LastEditDate="2018-02-24T15:01:00.213" LastActivityDate="2018-02-24T15:01:00.213" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20750" PostTypeId="1" CreationDate="2018-02-24T15:28:32.203" Score="1" ViewCount="52" Body="&lt;p&gt;Assume a certain market can be described by&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Demand Function: $$Q_{d, t} = \alpha_0 + \alpha_1 P_t + \mu_{1, t}$$&lt;/li&gt;&#xA;&lt;li&gt;Supply Function: $$Q_{s, t} = \beta_0 P_t + \mu_{2, t}$$&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The price in this market is determined by the &lt;strong&gt;&lt;em&gt;equilibrium point&lt;/em&gt;&lt;/strong&gt;, that is $Q_d$ = $Q_s$ = $Q_t$ . Now let $\alpha_1$ be &lt;em&gt;0&lt;/em&gt;, so that the demand is perfectly inelastic.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now - is it possible to model the $P_t$ as a linear regression function of $Q_t$ so that: $$ P_t = \gamma_0 + \gamma_1 Q_t + \epsilon_t.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The standard simultaneous equation model problem is not present because of the perfectly inelastic demand. Yet I am unsure wether it is possible to model the price like this - several scientific papers I read did exactly that. Yet, Since the Price is still determined by an equilibrium situation and I can determine which $Q_t$ is present by looking at the given value of $P_t$ and the other way around I am of the opinion that there still is some sort of reverse causality present, which in turn implies that I have to replace $Q_t$ by an exogenous regressor so that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ P_t = \gamma_0 + \gamma_1 (regressor) + \epsilon_t.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Am I right? Or does the assumption of perfect inelasticity &quot;dismantle&quot; the issue of simultaneous equations in the regression context.&lt;/p&gt;&#xA;" OwnerUserId="15027" LastActivityDate="2018-02-24T15:28:32.203" Title="Econometrics - Simultaneous Equations and Perfect Inelasticity in the Context of Regression" Tags="&lt;econometrics&gt;&lt;regression&gt;" AnswerCount="0" CommentCount="10" ContentLicense="CC BY-SA 3.0" />
  <row Id="20751" PostTypeId="2" ParentId="20728" CreationDate="2018-02-25T01:45:40.127" Score="3" Body="&lt;p&gt;What you're asking&lt;sup&gt;1&lt;/sup&gt; stems from a more general question&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;How can such a small amount of some export $Q$ make the most money out of all the exports?&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;To that the answer is to simply recall the standard formula for &lt;a href=&quot;https://en.wikipedia.org/wiki/Total_revenue&quot; rel=&quot;nofollow noreferrer&quot;&gt;Total Revenue&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;i.e.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$TR=P \times Q$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Even though the quantity of export $Q$ is small it could be that the price for $Q$ (be that for whatever reason) be the cause for why it makes more revenue relative to the countries other exports. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope this is helpful!  &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;sub&gt;&lt;sup&gt;1&lt;/sup&gt; I could be wrong&lt;/sub&gt;&lt;/p&gt;&#xA;" OwnerUserId="6629" LastEditorUserId="12304" LastEditDate="2018-02-25T03:28:53.723" LastActivityDate="2018-02-25T03:28:53.723" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20752" PostTypeId="1" AcceptedAnswerId="20754" CreationDate="2018-02-25T03:33:01.713" Score="7" ViewCount="741" Body="&lt;p&gt;Conventionally both demand and supply for goods and services are both more elastic in the long run than in the short run.&lt;/p&gt;&#xA;&lt;h1&gt;My Question&lt;/h1&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;&lt;em&gt;Is there ever an instance where demand and/or supply for a given good be more elastic in the short run than in the long run?&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;That being said if there is never such an instance, does there exist a general proof refuting such an instance?&lt;/p&gt;&#xA;" OwnerUserId="6629" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2018-02-25T06:54:43.230" Title="Are there any instances where short run demand/supply is more elastic than long run cases?" Tags="&lt;microeconomics&gt;&lt;supply-and-demand&gt;&lt;theory&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20753" PostTypeId="2" ParentId="20728" CreationDate="2018-02-25T03:48:58.753" Score="2" Body="&lt;p&gt;In the case of Animal products, you can see in the chart that the corresponding yellow bar is quite small (1,3% of the visual space). It starts at 228B and finishes at 231B, thus ~3B is the amount of animal exports.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These stacked bars charts help to understand visually the contribution of each sector in the economy. Each line should be read as &quot;How much is this sector adding to the GDP?&quot; It helps to imagine that you would get all the money from the exports, wrap it in different colours and stack it up in a room - the end result would look like this chart.&lt;/p&gt;&#xA;" OwnerUserId="12304" LastActivityDate="2018-02-25T03:48:58.753" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20754" PostTypeId="2" ParentId="20752" CreationDate="2018-02-25T03:57:05.423" Score="8" Body="&lt;p&gt;It is possible.  We normally think demand and supply are more elastic in the long run because consumers/firms have more options in the long run.  For example if gas becomes more expensive consumers can buy more more fuel efficient cars.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So what if consumers or firms are more constrained in the long run?  This could be the case when goods are storable.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose I need to drink coffee every day or I get a headache.  At home I have a canister of coffee that I use every day.  If coffee doubles in price I can hold off buying and hope the price comes down, so I am fairly elastic.  In the longer term though I'll run out of coffee and I'll need to buy more regardless of the price.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course in the even longer term maybe I can stop my caffeine addiction so I become more elastic again.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This maybe isn't the best example, but the key thing to think about is how constrained the agent is at each point in time.  &lt;strong&gt;When people are more constrained in their options they are less elastic.&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="16356" LastActivityDate="2018-02-25T03:57:05.423" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20755" PostTypeId="2" ParentId="20752" CreationDate="2018-02-25T04:36:01.680" Score="0" Body="&lt;p&gt;I think of a case of transport selection. Say there are two islands connected only with a congested bridge in the past, and now a newly built tunnel having the same function emerges. Both roads charge toll fees.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the short term, people are not informed about the congestion level of the two roads, but they can observe the differences of the toll fees. In other words, the full cost of traveling between the two islands is composited mainly by the toll fee.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the longer term, after trials and errors, people realize the full cost to be the money value of average time of travel plus the toll fee. So even if the “cheaper” but congested road reduce further the toll fee, some people care about time cost are unlikely to switch.&lt;/p&gt;&#xA;" OwnerUserId="16339" LastActivityDate="2018-02-25T04:36:01.680" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20756" PostTypeId="2" ParentId="20745" CreationDate="2018-02-25T05:48:34.390" Score="1" Body="&lt;p&gt;You might want to try the Indian &lt;strong&gt;Government's&lt;/strong&gt; open data website &lt;a href=&quot;https://data.gov.in/&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://data.gov.in/&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am not sure if all your requirement will be met, but this is a good place to begin your research.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To find the data you require, you might want to use the &quot;search box&quot; on the header.When I searched for &quot;retail milk price&quot; (keywords), I could find several datasets for different timeframes. &lt;/p&gt;&#xA;" OwnerUserId="16301" LastActivityDate="2018-02-25T05:48:34.390" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20757" PostTypeId="2" ParentId="20752" CreationDate="2018-02-25T06:54:43.230" Score="1" Body="&lt;p&gt;In practice, there are many variables to it. I know such theories have extended lists of &lt;em&gt;ceteris paribus&lt;/em&gt; (with everything else held equal). Hold enough things equal and elasticity can always be higher in the long run. I'd like to add a few examples to the ones dsmithecon provided.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When people's buying power drops in the short term due to some crisis. One can switch from driving a car to a bicycle during tough times and then go back to driving the car when income goes back up.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;New substitutes can become available in the short term. Same example, a bicycle would never be considered by some if they could afford a car. Historically this happened even to staples such as bread during famines when people would start eating stuff they never ate before. It was especially acute before central banks figured out to ease monetary policy during crises or there were no central banks at all. Or gold or strictly limited commodity or currency of another country was used as a currency, or still is in some places. Or there are constraining regulations in place. Or a command economy entirely. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I could probably extend this list even more, but the point is as far as I know there isn't an economic theory that exists without assumptions and can have a general proof or be completely refuted. If something is challenged, it is often added as an assumption and the theory may look sound again. It doesn't imply economic theories are wrong or even flawed. Economics, as all social sciences, deal with so many variables there is just no way to control them all and come up with something general, proven, and irrefutable. &lt;/p&gt;&#xA;" OwnerUserId="6231" LastActivityDate="2018-02-25T06:54:43.230" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20759" PostTypeId="2" ParentId="18222" CreationDate="2018-02-25T13:18:43.023" Score="3" Body="&lt;p&gt;On the one hand, every preference represented by a continuous utility function must be continuous. This follows from the fact that, for every $x \in X$, the &quot;not-better-than&quot; and &quot;not-worse-than&quot; sets can be written as&#xA;$$\left\{y\in X \middle| x \succsim y\right\} = u^{-1}\left(\left(-\infty,u(x)\right]\right),$$&#xA;and&#xA;$$\left\{y\in X \middle| y \succsim x\right\} = u^{-1}\left(\left[u(x),+\infty\right)\right),$$&#xA;where $u:X\to\mathbb{R}$ is any utility representation of $\succsim$. Then, if $u$ happens to be continuous, these sets have to be closed (as they are the inverse images of closed subsets of $\mathbb{R}$).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand, there are discontinuous preferences that admit a (discontinuous) utility representation. For an example, consider the (rational) preference on $[0,1]$ defined by $u(0)=0$, $u(x)=1$ for $x&amp;gt;0$. This preference is not continuous, but it can obviously be represented (by $u$).&lt;/p&gt;&#xA;" OwnerUserId="16378" LastEditorUserId="16378" LastEditDate="2018-02-26T16:40:44.267" LastActivityDate="2018-02-26T16:40:44.267" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20760" PostTypeId="2" ParentId="18232" CreationDate="2018-02-25T13:22:45.277" Score="4" Body="&lt;p&gt;Consider the (rational) preference on $[0,1]$ defined by $u(0)=0$, $u(x)=1$ for $x&amp;gt;0$. It is not continuous, but it can obviously be represented (by $u$).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In fact, many preferences that fail to be continuous are representable. This is due to a variety of well known representation results that do not require continuity. For instance, the following general result accomodates the example above:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Theorem&lt;/strong&gt;. Let $X$ be a topological space with a countable base. Then, every preference on $X$ that has closed &quot;not-better-than&quot; sets is representable by a utility function.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course, if $X$ is a separable metric space, then the topological condition holds automatically. This result is essentially Theorem 1 in the following paper:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Rader, T. (1963) &quot;The Existence of a Utility Function to Represent Preferences&quot; &lt;em&gt;Review of Economic Studies&lt;/em&gt;, 30, 229-232.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(the only difference is that Rader proves it for &quot;not-worse-than&quot; sets and I would have to &quot;reverse&quot; the preference in the example above).&lt;/p&gt;&#xA;" OwnerUserId="16378" LastEditorUserId="16378" LastEditDate="2018-02-26T12:26:35.637" LastActivityDate="2018-02-26T12:26:35.637" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="20762" PostTypeId="2" ParentId="20744" CreationDate="2018-02-25T16:59:47.530" Score="1" Body="&lt;p&gt;The supply curve can shift left while the PPF remains unchanged, but your example isn't an instance of that.  &lt;strong&gt;The key to getting a good example is to recognize that the supply curve depends on prices of inputs while the PPF does not.&lt;/strong&gt;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose I hire someone to water my blueberry trees and for some reason the wages of that person increase.  Now since my costs increase I must charge a higher price for any quantity.  That means my supply curve shifts to the left.  However, the PPF is unchanged.  I can still produce the exact same number of blueberries as before.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In your example due to the injury (or factory burning down) I cannot produce the same number of blueberries as before so the PPF shifts as well.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT: This answer is a partial equilibrium response.  In a general equilibrium analysis you would consider why wages shifted.  If that was because of changes in the scarcity of resources (there are fewer blueberry tree waters that I can hire) then the PPF would shift as well.&lt;/p&gt;&#xA;" OwnerUserId="16356" LastEditorUserId="16356" LastEditDate="2018-02-25T18:19:09.427" LastActivityDate="2018-02-25T18:19:09.427" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="20763" PostTypeId="2" ParentId="20739" CreationDate="2018-02-25T17:19:43.560" Score="1" Body="&lt;p&gt;The thing you are missing in your calculation is that the roubles the machine produces in year 1 are more valuable than those in year 2.  Think about 2 different machines with different production schedules&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Machine 1 - 440 roubles year 1, 0 in year 2&lt;/li&gt;&#xA;&lt;li&gt;Machine 2 - 0 in year 1, 440 in year 2&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Using your calculation the value of both of those machines would be the same about 306 roubles, but machine 1 produces the goods in year 1.  So in year 2 you can put those roubles in the bank and earn 20 percent interest on them.  So at the end of 2 years you actually have 528 roubles instead of 440.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What the NPV calculator is doing is taking into account the production in year 1 is worth more than the production in year 2 by dividing it by a smaller number, $(1+0.2)$ instead of $(1+0.2)^2$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regarding the part about $i$ meaning different things.  $i$ is how we tell how muc we value a dollar today relative to tomorrow.  In the real world inflation makes things in the future cost more so we discount future dollars by that amount.  In your problem a dollar I save today is worth 1.20 tomorrow so if I invest that money in a machine I better earn at least that much otherwise I'd rather put it in the bank.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Explanation of NPV:&#xA;Think of there being 2 different machines.  One gets you 240 in one year.  The second gives you nothing in the first year but 200 in the second.  Using your calculations you would say you'd pay &#xA;$$ \frac{240}{(1+0.2)} = 200 $$ &#xA;for machine 1 and &#xA;$$ \frac{200}{(1+0.2)^2} \sim 138.9 $$&#xA;for machine 2.  Thus you better be willing to pay 338.9 for a machine that does the work of machine 1 and machine 2. That is all NPV is doing here.&lt;/p&gt;&#xA;" OwnerUserId="16356" LastEditorUserId="16356" LastEditDate="2018-02-27T15:13:33.937" LastActivityDate="2018-02-27T15:13:33.937" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="20765" PostTypeId="1" CreationDate="2018-02-25T17:51:45.223" Score="2" ViewCount="548" Body="&lt;p&gt;I'm having trouble seeing &lt;em&gt;why&lt;/em&gt; an agent is said to exhibit &quot;prudence&quot; when u'''($\cdot$) &gt; 0. How does having a utility function with a strictly positive third derivative make an agent act &quot;prudently&quot;? Thanks in advance. &lt;/p&gt;&#xA;" OwnerUserId="16384" LastActivityDate="2018-02-26T01:40:32.857" Title="Intuition Behind the Definition of Prudence?" Tags="&lt;macroeconomics&gt;&lt;utility&gt;&lt;saving&gt;&lt;definition&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20766" PostTypeId="2" ParentId="20765" CreationDate="2018-02-25T18:00:47.260" Score="5" Body="&lt;p&gt;From the &lt;a href=&quot;https://en.wikipedia.org/wiki/Prudence#In_economics&quot; rel=&quot;nofollow noreferrer&quot;&gt;Wikipedia&lt;/a&gt; article:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Economists describe a consumer as &quot;prudent&quot; if he or she saves more when faced with riskier future income. This additional saving is called precautionary saving.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;For risk averse consumers with thrice differentiable utility  $u^{\prime\prime\prime}&amp;gt;0$ is a &lt;a href=&quot;https://www.jstor.org/stable/2296725&quot; rel=&quot;nofollow noreferrer&quot;&gt;necessary and sufficient condition&lt;/a&gt; for consumers to save more for tomorrow when they are really unsure what is going to happen in the future.&lt;/p&gt;&#xA;" OwnerUserId="16356" LastEditorUserId="16356" LastEditDate="2018-02-26T01:40:32.857" LastActivityDate="2018-02-26T01:40:32.857" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="20767" PostTypeId="1" CreationDate="2018-02-25T18:27:33.057" Score="-1" ViewCount="55" Body="&lt;p&gt;Consider the utility function $ν(c_1, c_2) = u(c_1) + \beta u(c_2)$, $0 &amp;lt; \beta &amp;lt; 1$, defined for $c_1 ≥0$ and $c2 ≥0$. Assume $ν′(c)&amp;gt;0$ and $ν′′(c)&amp;lt;0$ for all $c&amp;gt;0$ ; if you like, you can also assume that ν(0) = 0. An indifference curve for such an agent consists of points $(c_1, c_2)$ such that $ν(c_1, c_2) = C$, where $C$ is a constant.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider two consumption profiles $(c_1 , c_2 )$ and $(c_1^′ , c^′_2 )$, where $c_1 + c_2 =&#xA;c^′_1 + c^′_2$. The first profile can be described as smoother than the second if&#xA;there is smaller discrepancy between $c_1$ and $c_2$ than between $c^′_1$ and $c^′_2$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To make this more precise, let $c = (c_1+c_2)/2 = (c^′_1+c^′_2)/2$, and then define $\delta$ and $\delta^′$ according to $c_1 =c+\delta$ and $c_2 =c−\delta$ and $c^′_1=c+\delta^′$ and $c^′_2=c−\delta^′$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then the first profile is smoother than the second if $|\delta| &amp;lt; |\delta^′|$. Does an agent with utility function $ν(c_1, c_2) = u(c_1) + \beta u(c_2)$ always prefer consumption profiles that are more smooth rather than profiles that are less smooth? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This agent's preference is strictly convex. I get the idea of smooth profile in this question, but what does that mean? How can I do this problem? I think I need to maximize the utility over the constraint $c_1+c_2=constant$.&lt;/p&gt;&#xA;" OwnerUserId="14857" LastEditorUserId="16356" LastEditDate="2018-02-25T19:39:38.987" LastActivityDate="2018-04-27T15:39:43.553" Title="asset-pricing problem" Tags="&lt;macroeconomics&gt;&lt;asset-pricing&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20768" PostTypeId="2" ParentId="18232" CreationDate="2018-02-25T19:18:39.577" Score="3" Body="&lt;p&gt;denesp's answer above asks:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;How large is the class of preferences that are not continuous but have a utility representation?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This is answered by proposition 1.12 in Kreps, Microeconomic Foundations I. I believe the result is originally due to Debreu. Here is the (verbatim) statement:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Suppose $\succsim$ is a complete and transitive preference relation on a set $X$. The relation $\succsim$ can be represented by a utility function if and only if some countable subset $X^*$ of $X$ has the property that if $x \succ y$ for $x$ and $y$ from $X$, then $x \succsim x^* \succ y$ for some $x^* \in X^*$.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="8595" LastActivityDate="2018-02-25T19:18:39.577" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20769" PostTypeId="1" CreationDate="2018-02-25T20:05:35.807" Score="4" ViewCount="141" Body="&lt;p&gt;The Diewert cost function (as described in &lt;a href=&quot;http://virtualpanic.com/anonymousftplistings/ebooks/ECONOMICS/Economics.Microeconomic%20Analysis%203d%20Hal%20Varian.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Microeconomic Analysis by Hal Varian 3rd Edition&lt;/a&gt;) takes the form of:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$c(w,y)=y\sum_{i=1}^k\sum_{j=1}^kb_{ij}\sqrt{w_iw_j}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Varian goes on to say (page 209)&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;For this functional form, we require that $b_{ij}=b_{ji}$. Note we can also write this form as:&#xA;  $$c(w,y)=y\left[\sum_{i=1}^kb_{ii}w_i+\sum_{i\neq j}\sum_{j \neq i}b_{ij}\sqrt{w_iw_j}\right]$$&#xA;  Since the first part of the equation has the form of a Leontief cost function. this form is also known as a &lt;strong&gt;generalized  Leontief cost function&lt;/strong&gt;.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;What phenomenon is this cost function coming to describe? Is there an example of what this cost function represents?&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2018-02-25T20:05:35.807" Title="Understanding the Diewertt Cost Function" Tags="&lt;microeconomics&gt;&lt;cost-functions&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20770" PostTypeId="1" CreationDate="2018-02-25T20:22:58.600" Score="2" ViewCount="73" Body="&lt;p&gt;in general the Leontief cost function is represented as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$c(w,y)=y\sum_{i=1}^kw_ix_i$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where:&#xA; $$y=\min\left[{\frac{x_1}{\alpha_1},...,\frac{x_n}{\alpha_n}}\right]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How does one go about estimating this econometrically if one does not know the underlying production function a firm exhibits (i.e we know the amount of $y$ produced however we don't know if the production technology is $\min\left[{\frac{x_1}{\alpha_1},...,\frac{x_n}{\alpha_n}}\right]$)?&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="8815" LastEditDate="2018-02-26T00:35:22.227" LastActivityDate="2018-02-26T00:35:22.227" Title="Econometrically estimating the Leontief cost function" Tags="&lt;microeconomics&gt;&lt;econometrics&gt;&lt;cost-functions&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20774" PostTypeId="2" ParentId="15719" CreationDate="2018-02-26T04:34:43.577" Score="1" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/80pPR.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/80pPR.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Graphical representation&lt;/strong&gt;: in the pre-tax situation:- demand curve is D and marginal revenue curve is MR, optimum is $e_1$ , output is $Q_1$ and price is $P_1$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Case 1:&lt;/strong&gt; Specific tax (τ):- After tax demand curve is represented by the dotted demand curve $D^s$ and the corresponding marginal revenue curve $MR^s$. Intersection with MC gives the optimum $e_2$ where price is $P_2$ and quantity is $Q_2$. Revenue is area A=τ$Q_2$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Case 2:&lt;/strong&gt; Ad valorem tax (α) :- After tax demand curve is represented by the demand curve $D^a$ and the corresponding marginal revenue curve $MR^a$. Let α be so chosen that the corresponding marginal revenue curve intersects the cost curve at $Q_2$. Observe that although it reduces output by same amount, in this case, it raises higher revenue, i.e, area A+B=α$P_2$$Q_2$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Clearly, from here we can conclude that had we imposed an ad valorem tax that collects the same revenue as the specific tax, reduction in output would be less.&lt;/p&gt;&#xA;" OwnerUserId="16387" LastActivityDate="2018-02-26T04:34:43.577" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20775" PostTypeId="1" CreationDate="2018-02-26T05:32:28.143" Score="-1" ViewCount="73" Body="&lt;ol&gt;&#xA;&lt;li&gt;Assume that the annual growth GDP per capita is 2%, how much will the real GDP per capita increase in 10 years.&#xA;I know the manual way is to take 2 percent every years. &#xA;For example after 1 year would be (100 x 2 )/100 = 2. So it would be a total of 102. Is there a formula to calculate the percent after 10 years? &lt;/li&gt;&#xA;&lt;li&gt;Let’s say that China’s per capita GDP grow 9% a year for the next 16 years and 6% a year for the next 24 years. What is China’s per capita GDP in 40 years&#xA;Well this one is kind of the same with the first one, is there a formula to calculate the percentage only.&#xA;Thank you&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="16377" LastActivityDate="2018-02-27T10:14:26.073" Title="Calculate real GDP" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20776" PostTypeId="2" ParentId="20775" CreationDate="2018-02-26T06:48:43.457" Score="0" Body="&lt;p&gt;Value of GDP every year is in geometric progression with common ratio being 102/100&#xA;For value of gdp per capita in nth year, just find the value of (n-1)th term in the geometric progression.&lt;/p&gt;&#xA;" OwnerUserId="16222" LastActivityDate="2018-02-26T06:48:43.457" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20779" PostTypeId="1" CreationDate="2018-02-26T12:57:17.430" Score="5" ViewCount="344" Body="&lt;p&gt;In wikipedia, the main difference between GMM and &lt;a href=&quot;https://en.wikipedia.org/wiki/Method_of_simulated_moments&quot; rel=&quot;noreferrer&quot;&gt;MSM(Method of simulated Moments)&lt;/a&gt; is in the former the moment/orthogonality conditions can be evaluated analytically, while in the latter they cannot and we have to use sample analogues. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, in &lt;a href=&quot;https://en.wikipedia.org/wiki/Generalized_method_of_moments&quot; rel=&quot;noreferrer&quot;&gt;wikipedia&lt;/a&gt; and other texts, with GMM we also use sample analogues.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, what is the difference between both methods?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="118" LastActivityDate="2018-02-26T19:50:21.587" Title="Differences between GMM and MSM?" Tags="&lt;econometrics&gt;&lt;dsge&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20783" PostTypeId="2" ParentId="20767" CreationDate="2018-02-26T15:23:23.153" Score="1" Body="&lt;p&gt;The agent doesn't always prefer consumption profiles that are more smooth.  It depends on the curvature of $u$ and the maginitude of $\beta$.  Consider the following example.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $u(c) = c^{1/2}$. Then $v(c_1,c_2) = c_1^{1/2} + \beta c_2^{1/2}$ satisfies $v^\prime(c)&amp;gt;0$ and $v^{\prime\prime}(c)&amp;lt;0$ for all $c_1,c_2&amp;gt;0$. &lt;em&gt;Note: I'm assuming by $v^{\prime\prime}(c)&amp;lt;0$ you mean that $v$ is concave.  It is a little unclear what v^{\prime\prime}(c) is because $c$ is a vector.&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider the bundles $a=(1,0)$ and $b=(.5,.5)$.  $b$ is smoother than $a$, but the agent only prefers $b$ to $a$ if &#xA;$$1^{1/2} + \beta 0^{1/2} &amp;lt; .5^{1/2} + \beta .5^{1/2}$$&#xA;This occurs only if $\beta &amp;gt; .414$.  Since the assumption was only that $0&amp;lt;\beta&amp;lt;1$ then the agent doesn't always prefer more smooth profiles to less. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;The intuition here is that the agent needs to care about the future enough.&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="16356" LastActivityDate="2018-02-26T15:23:23.153" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20786" PostTypeId="2" ParentId="20779" CreationDate="2018-02-26T17:51:47.040" Score="2" Body="&lt;p&gt;While in GMM one uses theoretical analytical moments, in MSM one uses simulated theoretical moments instead. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For &lt;strong&gt;G&lt;/strong&gt;MM,&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;[t]he method requires that a certain number of moment conditions were specified for the model. These moment conditions are functions of the model parameters and the data, such that their expectation is zero at the true values of the parameters. The GMM method then minimizes a certain norm of the sample averages of the moment conditions. (&lt;a href=&quot;https://en.wikipedia.org/wiki/Generalized_method_of_moments&quot; rel=&quot;nofollow noreferrer&quot;&gt;Wikipedia&lt;/a&gt;)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Crucially,&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In order to apply GMM, we need to have &quot;moment conditions&quot;, i.e. we need to know a vector-valued function $g(Y,\theta)$ such that $m(\theta_{0})\equiv \mathbb{E}[\,g(Y_{t},\theta _{0})\,]=0$.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;For &lt;strong&gt;S&lt;/strong&gt;MM, values of functions of the data and the parameters are too difficult to calculate analytically. Essentially, we cannot calculate what the moments of the data are given the parameters; for example, we cannot calculate $\mathbb{E}(XY)$. Instead we simulate a large sample of $X$s and $Y$s and calculate $\frac{1}{n}\sum_{i=1}^{n}X_i Y_i$ (simulated sample, not the actual sample) to replace the theoretical $\mathbb{E}(XY)$. The rest is the same.&lt;/p&gt;&#xA;" OwnerUserId="4230" LastEditorUserId="4230" LastEditDate="2018-02-26T19:50:21.587" LastActivityDate="2018-02-26T19:50:21.587" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="20787" PostTypeId="1" CreationDate="2018-02-26T21:10:50.690" Score="1" ViewCount="69" Body="&lt;p&gt;What is the estimated propensity to consume out of wealth, and how does it depend on income levels?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To make sure we are talking about the same thing: I am asking what estimates we have on what percentage of their wealth people turn into spending (on pure consumption - not investment) annually. And I want to know how it depends on income levels. Do poor people have a higher percentage than others, since otherwise they'd starve? Do middle income people have a higher or lower percentage than high income people? And how big is that difference, if it exists?&lt;/p&gt;&#xA;" OwnerUserId="16396" LastEditorUserId="42" LastEditDate="2018-02-26T21:12:50.410" LastActivityDate="2018-12-25T01:01:30.323" Title="What is the estimated propensity to consume out of wealth, and how does it depend on income levels?" Tags="&lt;data-request&gt;&lt;consumption&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="20788" PostTypeId="2" ParentId="19060" CreationDate="2018-02-26T21:18:10.860" Score="3" Body="&lt;p&gt;In short, for the purposes of forecasting, it is often convenient and even beneficial to ignore economic theory. The restrictions implied by economic theory is necessary for inference when the question of interest is causal in nature (e.g., when you want to understand the underlying causal relationships). However, if the forecast you're interested is more of the variety of a sophisticated extrapolation, then something simple like ARIMA may be more helpful and more accurate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think the following are helpful references. &lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Why would I not be interested in the underlying causal relationship?&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Consider the following example from &quot;Introduction to Econometrics&quot; (3rd Edition), by Stock and Watson (p. 517).&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The simplest regression model in Chapter 3 related test scores to the&#xA;  student-teacher ration (STR): \begin{equation} \widehat {Test Score} = 989.9 - 2.28 \times STR \tag{14.1} \end{equation} As was discussed in Chapter 6, a school superintendent, contemplating hiring more teachers&#xA;  to reduce class sizes, would not consider this equation to be very&#xA;  helpful. The estimated slope coefficient in Equation (14.1) fails to&#xA;  provide a useful estimate of the causal effect on test scores of the&#xA;  student-teacher ratio because of probable omitted variable bias&#xA;  arising from omission of school and student characteristics that are&#xA;  determinant of test scores and that are correlated with the&#xA;  student-teacher ratio.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;In contrast, as was discussed in Chapter 9, a parent who is&#xA;  considering moving to a school district might find Equation (14.1)&#xA;  more helpful. Even though the coefficient does not have a causal&#xA;  interpretation, the regression could help the parent forecast test&#xA;  scores in a district for which they are not publicly available. More&#xA;  generally, a regression model can be useful for forecasting even if&#xA;  none of its coefficients has a causal interpretation. From the&#xA;  perspective of forecasting, what is important is that the model&#xA;  provides as accurate a forecast as possible.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Along these same lines, this is a point that is brought up frequently&#xA;when discussing Machine Learning. Machine Learning may not be so useful in helping to understand underlying causal relationships. However, often we are more interested in the predictions/forecasts. &lt;a href=&quot;https://www.youtube.com/watch?v=xl3yQBhI6vY&quot; rel=&quot;nofollow noreferrer&quot;&gt;Sendhil Mullainathan in this talk&lt;/a&gt; on &quot;Machine Learning and Prediction in Economics and Finance&quot; gives the useful &quot;rule of thumb&quot; rubric---are you more interested in the $\hat y$ or the $\hat beta$?&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Why would something like ARIMA forecast better than a model that better reflected economic theory?&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Consider this useful passage from &quot;A Guide to Econometrics&quot; (6th Edition) by Peter Kennedy (p. 333). &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The main competitors to econometric models for forecasting purposes&#xA;  are Box-Jenkins, or ARIMA (autoregressive integrated moving average),&#xA;  models explained in some detail in chapter 19. Univariate Box-Jenkins&#xA;  models are sophisticated extrapolation methods, using only past values&#xA;  of the variable being forecast to generate forecasts; they ignore the&#xA;  many explanatory variables that form the foundation of econometric&#xA;  models. There are several reasons why forecasters should be interested&#xA;  in these naive models: thanks to improved computer software, they are&#xA;  easy and cheap to produce; the extra information required to estimate&#xA;  a proper econometric model may be expen­sive to obtain ; forecasts&#xA;  from such models can serve as a useful benchmark for com­parison&#xA;  purposes; forecasts from this process can be combined with other&#xA;  forecasts to produce improved forecasts ; and they are useful as a&#xA;  preliminary step for further modeling---they clarify the nature of the&#xA;  data and make clear what behavior patterns require explanation.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;During the 1970s controversy raged over the relative forecasting&#xA;  merits of econo­metric models and ARIMA models, prompted by studies&#xA;  claiming the superiority of the ARIMA models. As noted in chapter 19,&#xA;  this led to a synthesis of the two approaches, and prompted the&#xA;  development of models, such as error-correction models (ECMs), which&#xA;  paid more attention to dynamics. In retro spect, the reason why&#xA;  econometric models performed so poorly in these comparisons was&#xA;  because of misspecification errors in the econometric models,&#xA;  primarily with respect to their dynamic structure. It is generally&#xA;  acknowledged that whenever specification or conditioning errors&#xA;  ren­der econometric models impractical (which some claim is most of&#xA;  the time), the Box-Jenkins approach has considerable merit for&#xA;  forecasting. It is also recognized that if an econometric model is&#xA;  outperformed by an ARIMA model, this is evidence that the econometric&#xA;  model is misspecified.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;h2&gt;Can a univariate model like ARIMA represent a rational expectations equilibrium?&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Not really. Most economics theory employ rational expectations that lead to a nonlinear system of equations (in multiple variables) that describe the model's dynamics. Often, these are approximated (e.g., log-linear approximation), so that they can be solved and estimated using something like a &lt;a href=&quot;https://lectures.quantecon.org/py/linear_models.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;linear state space model&lt;/a&gt;---but many still require multiple variables (here, arranged in a vector) to describe the full dimensionality of the model. For an example of one particular model that uses rational expectations, see p. 30 of &quot;Recursive Models of Dynamic Linear Economics&quot; by Hansen and Sargent. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Consider a stochastic process $\{p_t\}$ related to a stochastic process $\{m_t\}$ via &#xA;  \begin{equation}&#xA;p_t = \lambda E_t p_{t+1} + \gamma m_t \tag{(2.4.38)}&#xA;\end{equation}&#xA;  where&#xA;  \begin{equation}&#xA;m_t = G x_t \tag{(2.4.39)}&#xA;\end{equation}&#xA;  and $x_t$ is governed by&#xA;  $$&#xA;x_{t+1} = A x_t + C w_{t+1}, \text{ for } t = 0,1,2,...&#xA;$$&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;... &#xA;  Collecting results, we have that $(p_t, m_t)$ satisfies&#xA;  \begin{align*}&#xA;\begin{bmatrix}{p_t \\ m_t }\end{bmatrix} &#xA;&amp;amp;= &#xA;\begin{bmatrix}&#xA;\gamma G(I - \lambda A)^{-1} \\ G&#xA;\end{bmatrix}&#xA;x_t&#xA;\\&#xA;x_{t+1} &amp;amp;= A x_t + C w_{t+1}.&#xA;\end{align*}&#xA;  [This system] embodies the cross-equation restrictions associated with&#xA;  rational expectations models: note that the same parameters in $A,G$ that pin &gt; down the stochastic process for $m_t$ also enter the equation that determines &gt; $p_t$ as a function of the state $x_t$.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This equation, written flexibly, allows for many state variables and many (possibly orthogonal) shocks. As such, this cannot be represented by a simple univariate model like ARIMA.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Many other examples can be found in &quot;Structural Econometrics&quot; by Dejong and Dave or more in &quot;Recursive Models of Dynamic Linear Economics&quot;, by Hansen and Sargent. Some will only have a single dimensional state space. Some will have much larger state spaces.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, again, describing the model in full may not be necessary if you're only interested in simple forecasting. Hence, something like ARIMA is an attractive option.&lt;/p&gt;&#xA;" OwnerUserId="59" LastEditorUserId="59" LastEditDate="2018-02-27T00:40:17.220" LastActivityDate="2018-02-27T00:40:17.220" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="20790" PostTypeId="2" ParentId="20702" CreationDate="2018-02-26T22:00:00.470" Score="2" Body="&lt;p&gt;First, &lt;strong&gt;structural equations assume causality&lt;/strong&gt;. The following quotation is from Cameron and Trivedi's textbook &lt;em&gt;Microeconometrics: Methods and Applications&lt;/em&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;At one end of the spectrum can be found very highly structured models,&#xA;  derived from detailed specification of the underlying economic&#xA;  behavior, that analyze causal (behavioral) or structural relationships&#xA;  for interdependent microeconomic variables. At the other end are&#xA;  reduced form studies that aim to uncover correlations and associations&#xA;  among variables, without necessarily relying on a detailed&#xA;  specification of all relevant interdependencies.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Second, &lt;strong&gt;identifiability does not exactly define whether an equation is structural or not&lt;/strong&gt;. I would rather say that identifiability is the reason why we are forced to work with nonstructural equations. Parameters in structural equations cannot be identified most of the time. What can be estimated instead are reduced-form (or nonstructural) parameters. For instance, take the following simulatenous equation model&#xA;\begin{align*}&#xA;	x_i =\alpha_0 y_i +\alpha_1 z_i +\epsilon_i\\&#xA;	y_i = \beta_0 x_i+ \beta_1 z_i +\mu_i&#xA;\end{align*}&#xA;with two endogenous variables $x$ and $y$, an exogenous variable $z$, and $\epsilon$ and $\mu$ as error terms (suppose also $\alpha_0\beta_0\neq 1$).&#xA;These two equations are structural. They may correspond to demand and supply equations of a given good, with $x$ the quantity and $y$ the price for instance. Without more assumptions, the coefficients are not identified and cannot be estimated. We can however estimate the parameters $\zeta$ and $\gamma$ of the reduced-form equation:&#xA;\begin{align*}&#xA;	x_i = \zeta z_i + e_i\\&#xA;	y_i = \gamma z_i  +u_i&#xA;\end{align*}&#xA;with $\zeta=\frac{\alpha_1+\alpha_0\beta_1}{1-\alpha_0\beta_0}$ and $\gamma=\frac{\beta_1+\alpha_1\beta_0}{1-\alpha_0\beta_0}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the second paragraph of the extract, the point is that identifiability (of the structural equations) is not necessary &quot;as long as the structure remains unaltered&quot;. For instance, you can well predict the values of $x$ given the knowledge of $z$ and a good estimate of the nonstructural parameters $\zeta$. The last sentence illustrates the fact that, &lt;em&gt;in our case&lt;/em&gt;,  i) we do not need to know the causal structure to make a good prediction, ii) it does not help to distinguish between structural and nonstructural equations, and iii) we do not care about identifiability of the structural model.&lt;/p&gt;&#xA;" OwnerUserId="4094" LastActivityDate="2018-02-26T22:00:00.470" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20791" PostTypeId="1" AcceptedAnswerId="20894" CreationDate="2018-02-27T02:04:47.253" Score="2" ViewCount="786" Body="&lt;p&gt;In my book, the quantity equation is presented as&#xA;$$M\bar{V}=PY$$&#xA;And on the next page, the author presents its percentage-change form:&#xA;$$\% \ \text{Change in}\ M + \% \ \text{Change in}\ V = \% \ \text{Change in}\ P + \% \ \text{Change in}\ Y$$&#xA;My question is: where exactly does the second equation come from? I've tried manipulating the original equation to see if I could get the percentage-change form, but I didn't get anywhere. Any help will be appreciated. Thanks.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;@edit&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've actually found an explanation in a footnote in another chapter of the book (see below), but there's still one thing I don't understand: what are we differentiating with respect to? If it's $Y$, then $d(PY)=P$; if it's $P$, then $d(PY)=Y$; unless we're actually differentiating with respect to some third variable of which $P$ and $Y$ are both functions. In this case, what would that variable be? (I may be misunderstanding it too). Thanks. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here's the explanation (Mankiw Macroeconomics 7th edition, page 26):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The proof that this trick works begins with the product rule from&#xA;  calculus: $$d(PY)=Y \ dP+P \ dY$$ Now divide both sides of this&#xA;  equation by PY to obtain: $$d(PY)/PY)=dP/P+dY/Y$$ Notice that all&#xA;  three terms in this equation are percentage changes.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="15052" LastEditorUserId="15052" LastEditDate="2018-02-27T15:24:28.643" LastActivityDate="2018-03-07T06:41:13.440" Title="How to get the percentage-change form of the quantity equation?" Tags="&lt;macroeconomics&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20792" PostTypeId="2" ParentId="20791" CreationDate="2018-02-27T02:46:47.690" Score="4" Body="&lt;p&gt;I think the author is just taking logs of the original equation.  The natural log approximates percent changes for small changes.  More info &lt;a href=&quot;https://stats.stackexchange.com/questions/244199/why-is-it-that-natural-log-changes-are-percentage-changes-what-is-about-logs-th&quot;&gt;here&lt;/a&gt;.  Using that and properties of the log, $\ln(ab)=\ln(a)+\ln(b)$, you get that formula.&lt;/p&gt;&#xA;" OwnerUserId="16356" LastActivityDate="2018-02-27T02:46:47.690" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="20794" PostTypeId="1" CreationDate="2018-02-27T05:55:25.323" Score="4" ViewCount="96" Body="&lt;p&gt;I was studying chapter 1 of the book &quot;Equilibrium Unemployment Theory&quot; and I got confused about the way Pissarides has defined the probability of a firm not finding a worker in a short time interval $δt$ as $1-q(θ)δt$  (page 7 of the book). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first reason I got confused is that, to me that cannot represent the probability because if we take $δt$ large enough, the result can be negative.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Second, if we take $q(θ)δt$ as the rate (NOT the probability) of a firm finding a match in a time interval $δt$, then the rate of the firm not finding a match in the same time interval shouldn't be $[1-q(θ)]δt$ instead of $1-q(θ)δt$?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be much appreciated.&lt;/p&gt;&#xA;" OwnerUserId="15031" LastEditorUserId="2938" LastEditDate="2018-08-27T16:01:41.503" LastActivityDate="2018-10-03T15:16:04.253" Title="A confusion regarding search and matching model in Pissarides's &quot;Equilibrium Unemployment Theory&quot; book" Tags="&lt;macroeconomics&gt;&lt;labor-economics&gt;&lt;unemployment&gt;&lt;search-and-matching&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="20795" PostTypeId="2" ParentId="20794" CreationDate="2018-02-27T09:31:51.153" Score="0" Body="&lt;p&gt;Looking at eq. (1.1) in the previous page of the book $m\cdot L$ is the number of matches, &quot;per one unit of time&quot; as the author writes. This is a discrete-time setup. Then $m \equiv \frac {mL}{L}$ is a straightforward proportion &quot;number of matches divided by number of workers seeking to work, per one unit of time&quot;. &#xA;It can very well represent a probability &lt;em&gt;per one unit of discrete time&lt;/em&gt;. Formally,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Prob (\text{match per unit of time}) = m $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What the author wants is to consider continuous time. Continuous time is a difficult concept. Still, think about breaking the time-interval (it may be a year or a day) that has been &quot;standardized&quot; to have length $1$, in &quot;infinite&quot; small intervals (say milli-seconds), each having essentially zero length but all together summing up to unity (I said it is a difficult concept). &#xA;We represent these infinitesimal intervals by $\delta t$ or $dt$. So this symbol is &lt;em&gt;never&lt;/em&gt; allowed to be &quot;large enough&quot;, it is explicitly used to denote only something infinitesimal, of virtually no length. Then the probability in this almost non-existent interval is the corresponding &lt;em&gt;fraction&lt;/em&gt; of the probability for a whole unit of time, so naturally,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Prob (\text{match per infinitesimal length of time}) = m \cdot dt$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Summing up these minuscule probabilities over the domain, i.e. integrating in $[0,1]$ we verify this&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\int_0^1 m dt = m\int_0^1 dt = m\cdot (1-0) = m$$&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2018-02-27T09:31:51.153" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="20796" PostTypeId="2" ParentId="20775" CreationDate="2018-02-27T10:14:26.073" Score="0" Body="&lt;p&gt;A hint for part 2.  To obtain an approximate answer, it's convenient to use the rule that the doubling time $D$ in years of a quantity growing exponentially at a constant annual rate $r$ is given approximately by the &lt;a href=&quot;https://en.wikipedia.org/wiki/Rule_of_72&quot; rel=&quot;nofollow noreferrer&quot;&gt;rule of 72&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$D = \frac{72}{r}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given the assumptions in your question the numbers work out very neatly.&lt;/p&gt;&#xA;" OwnerUserId="1417" LastActivityDate="2018-02-27T10:14:26.073" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20797" PostTypeId="1" CreationDate="2018-02-27T10:32:38.397" Score="1" ViewCount="22" Body="&lt;p&gt;5 years ago a casual internet connection with 10 Mbit and telephone connection cost about 20 € per month in Germany.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Today, the chepest contract that I could find in Germany is an internet connections with 16 Mbit and telephone flat for landline, which costs monthly 30 €. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why did the price rise about 50%? The infrastructure has already been build and the difference between 16 Mbit and 10 Mbit isn't that big.&lt;/p&gt;&#xA;" OwnerUserId="16404" LastActivityDate="2018-02-27T10:32:38.397" Title="Why did the internet price rise in the last 5 years in Germany?" Tags="&lt;price&gt;&lt;germany&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20799" PostTypeId="1" AcceptedAnswerId="20801" CreationDate="2018-02-27T12:04:49.163" Score="0" ViewCount="69" Body="&lt;p&gt;I'm doing my master thesis about the renewable energies. So my goal is to calculate how much it will cost to switch our fuel based energy generation to renewable energy generation. So my first thought was I use the levelized cost of electricity. I found some forecasts of how they will develop to 2050. So I made different scenarios in my thesis on of fast/slow the switch will be and now wanted to calculate the cost of them. So what I wanted to do is take those levelized costs of electricity (LCOE) and multiply it with the amount of electricity production different technologies have in my scenarios. After I did all those calculations I started to become sceptical if this all makes sense at all. Because I thought to myself if I look at the formula of LCOE, if you would change the amount of generated electricity it will also effect your LCOE, so lets say I produce more electricity through coal, this will decrease my LCOE and so on.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am kinda stuck in the middle of nowhere now, because one part in me tells me that this are basically the costs per unit so it makes sense what I did and the other thoughts I have is, it makes no sense.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;in other words:&#xA;&lt;strong&gt;Can I use the LCOE forecast of 2030 from those studies and multiply that with the amount of electricity produced for example in my 'scenario B' in the year 2030 ?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;sidenote: scenario A, B, C and D have a different approach of how fast/slow the switch should be done, so lets say in scenario B I decided that in 2030 there will be already 60% of renewable energy, while scenario C is more conservative and the renewable energy is still beyond 20% of the whole generation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can someone please help me with my logical dilemma ?&lt;/p&gt;&#xA;" OwnerUserId="16406" LastEditorUserId="44" LastEditDate="2018-02-27T16:30:34.220" LastActivityDate="2018-02-27T16:30:34.220" Title="Levelized cost of electricity, to calculate the absolute costs?" Tags="&lt;mathematical-economics&gt;&lt;energy-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20800" PostTypeId="1" CreationDate="2018-02-27T12:24:52.953" Score="1" ViewCount="123" Body="&lt;p&gt;Economists normally calculate TFP as the residual of a regression on output against K, L, and maybe other variables.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, a well behaved regression is expected residuals to be normal (&lt;a href=&quot;https://en.wikipedia.org/wiki/Normality_test&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://en.wikipedia.org/wiki/Normality_test&lt;/a&gt;). This is at odds with a situation where TFP increases over time, as in real economies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is then the method of residuals flawed? What are some adjustments made to overcome this problem? Maybe adding a trend?&lt;/p&gt;&#xA;" OwnerUserId="16407" LastActivityDate="2018-02-28T20:52:00.520" Title="TFP estimation as residual and normality of errors" Tags="&lt;econometrics&gt;&lt;productivity&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20801" PostTypeId="2" ParentId="20799" CreationDate="2018-02-27T12:56:05.947" Score="0" Body="&lt;p&gt;In general, an LCoE forecast &lt;strong&gt;for a year&lt;/strong&gt;, is the unit cost of electricity for generators that come online &lt;strong&gt;in that particular year&lt;/strong&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Whereas, for a given year's (e.g. 2030) forecast of the cost of electricity, the average unit cost of electricity is a volume-weighted arithmetic average of the levelised costs of all the generators that have been built previously, that are operating in the forecast year. Typically, those generators will have been built in the previous 20 years.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That's not the only challenge:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;you will need to check the actual definition of the LCoE data that you have. It might be the unit cost for generators that get their &lt;strong&gt;Final Investment Decision in that year&lt;/strong&gt; (and so will come online sometime later, probably in the range of 1-15 years)&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;usually (but not always), changes to the underlying cost will affect total demand, so you've got a two-way feedback mechanism between quantity and price.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;that rate at which things are deployed, and the consistency of speed with which they are deployed, affects their LCoE. There are chokepoints in various supply chains, there's exogenous and endogenous cost reductions from learning by doing, and so on.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;merely averaging all the individualised costs of energy, omits the costs that are borne by the system itself: the cost of transmission and distribution networks, the costs of storage, and the costs of mechanisms to keep demand and supply in perfect balance every 20 milliseconds (or so) of the year.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;So you can take historic LCoE, and multiply it by the quantity of electricity demanded in a year, to calculate total cost of electricity consumed in that year, subject to the above caveats. Note that that will give you a different answer to the amount of capital investment needed.&lt;/p&gt;&#xA;" OwnerUserId="44" LastEditorUserId="44" LastEditDate="2018-02-27T15:33:39.267" LastActivityDate="2018-02-27T15:33:39.267" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="20802" PostTypeId="2" ParentId="20800" CreationDate="2018-02-27T13:10:59.807" Score="1" Body="&lt;p&gt;TFP is not simply a residual value in a regression as you have assumed, it is called residual because it is observed rather than measured. That is what probably causes your confusion.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is what is left after the Labour and Capital inputs have been accounted for. Normally you can break TFP down further into components of technological progress, scale effect and technical efficiency. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is plenty of literature and sometimes conflicting views on the measurement of TFP and growth accounting on the web. Perhaps the below links can serve as a starting point. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www1.worldbank.org/prem/PREMNotes/premnote42.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Measuring TFP growth&lt;/a&gt; and &lt;a href=&quot;http://www.people.hbs.edu/dcomin/def.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;TFP overview&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="2832" LastActivityDate="2018-02-27T13:10:59.807" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20803" PostTypeId="1" CreationDate="2018-02-27T15:01:54.583" Score="1" ViewCount="83" Body="&lt;p&gt;In all textbooks I've seen profits is written as: $$\pi=py-wL-rK$$ It is evident here that w and r are &lt;strong&gt;operational costs&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But unless there is no depreciation and the level of capital is to remain fixed, there is a cost of investment! Why is this not taken into account for calculating profits? Is it some sort of assumption of &quot;steady state&quot; involved?&lt;/p&gt;&#xA;" OwnerUserId="16408" LastEditorUserId="8815" LastEditDate="2018-02-28T03:48:23.470" LastActivityDate="2018-02-28T22:01:30.727" Title="Why is investment not a cost in firms profit functions?" Tags="&lt;investment&gt;&lt;profits&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20805" PostTypeId="1" AcceptedAnswerId="20807" CreationDate="2018-02-27T15:50:46.983" Score="2" ViewCount="777" Body="&lt;p&gt;Suppose a town is building a bridge, and it costs $B$.&#xA;There are $n$ villagers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Each village's valuation of the bridge is private information, $v_i$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is common knowledge that this valuation is drawn from a uniform distribution $[0,1]$. $B\in[0,1]$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Villager can only submit $0$ or $B$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If one villager submits $B$, then the bridge is built and every other villager pays their submission.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If no bridge is built, everyone gets $0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How do I construct an expected payoff a village $i$?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I got down to is having 2 scenarios: $v_i&amp;gt;B$ and $v_i\leq B$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But in each case, I have two possible payoffs. For the former case,&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;if every other player submits $0$, $i$ should submit B, because $v_i-B&amp;gt;0$.&#xA;  &lt;br/&gt;if someone pays $B$, $i$ should submit 0, because she gets $v_i$.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;You get a similar type of for the other scenario.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But how would I incorporate this into expected payoff of $i$ and how should I go about constructing a social welfare function?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I feel like this is just a variation of all-payout auction with discrete action space for each $i$.&lt;/p&gt;&#xA;" OwnerUserId="8560" LastEditorUserId="8560" LastEditDate="2018-03-01T00:48:12.850" LastActivityDate="2018-03-01T00:48:12.850" Title="Free rider problem in game theory" Tags="&lt;game-theory&gt;&lt;public-goods&gt;" AnswerCount="1" CommentCount="4" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="20806" PostTypeId="2" ParentId="20787" CreationDate="2018-02-27T18:33:03.173" Score="-1" Body="&lt;p&gt;This is the &quot;wealth effect&quot;. It has been shown empirically that as one's assessment of their wealth increase, the more they spend. An important point to be made is that this may be disconnected from actual wealth. If you are counting on a big inheritance that may lead you to spend a higher % of your wealth now in expectation of the future payoff.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There's a good &lt;a href=&quot;https://pdfs.semanticscholar.org/1a5e/0d67042512440a4d2c1035ae3ae3b076ffe8.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;paper&lt;/a&gt; that empirically looks at the correlation between wealth and spending but it's important to understand that the factors that influence an individual to spend money are numerous and it's virtually impossible to completely remove the signal from the noise.&lt;/p&gt;&#xA;" OwnerUserId="10245" LastActivityDate="2018-02-27T18:33:03.173" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20807" PostTypeId="2" ParentId="20805" CreationDate="2018-02-27T20:30:36.033" Score="2" Body="&lt;p&gt;Let $b_i\in\{0,B\}$ be $i$'s strategy. Then $i$'s payoff depends on the strategy profile $(b_i,b_{-i})$, where $b_{-i}=(b_j)_{j\ne i}$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{equation}&#xA;u_i(b_i,b_{-i})=&#xA;\begin{cases}&#xA;v_i&amp;amp;\text{if $b_i=0$ and $b_j=B$ for some $j\ne i$}\\&#xA;0&amp;amp; \text{if $b_i=0$ and $b_j=0$ for all $j\ne i$}\\&#xA;v_i-B&amp;amp;\text{if $b_i=B$}&#xA;\end{cases}&#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, $b_i=B$ is a best response if &#xA;\begin{equation}&#xA;u_i(B,b_{-i})\ge u_i(0,b_{-i})&#xA;\quad\Leftrightarrow\quad &#xA;v_i-B\ge (1-\Pr(b_j=0,\;\forall j\ne i))v_i.\tag{1}&#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since the game is &lt;em&gt;ex ante&lt;/em&gt; symmetric, we could further assume that every $i$ adopts a threshold strategy, i.e. &#xA;\begin{equation}&#xA;b_i=\begin{cases}&#xA;0&amp;amp;\text{if $v_i\le\overline v$}\\&#xA;B&amp;amp;\text{if $v_i&amp;gt;\overline v$}&#xA;\end{cases}\tag{2}&#xA;\end{equation}&#xA;where $\overline v$ is some common threshold value. Then, the probability in $(1)$ can be written as &#xA;\begin{equation}&#xA;\Pr(b_j=0,\;\forall j\ne i)=\Pr(v_j\le \overline v,\;\forall j\ne i)=(\overline v)^{n-1},\tag{3}&#xA;\end{equation}&#xA;where the last equality is obtained from the assumption that $v_j$'s are i.i.d. and $v_j\sim U[0,1]$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consolidating $(1)$ to $(3)$, we can solve for the cutoff value $\overline v=B^{1/n}$. &lt;/p&gt;&#xA;" OwnerUserId="42" LastEditorUserId="42" LastEditDate="2018-02-27T20:35:42.417" LastActivityDate="2018-02-27T20:35:42.417" CommentCount="16" ContentLicense="CC BY-SA 3.0" />
  <row Id="20810" PostTypeId="1" CreationDate="2018-02-27T23:58:46.743" Score="2" ViewCount="2054" Body="&lt;p&gt;&lt;a href=&quot;http://people.laps.yorku.ca/people.nsf/researcherprofile?readform&amp;amp;shortname=gfallis&quot; rel=&quot;nofollow noreferrer&quot;&gt;Professor George Fallis&lt;/a&gt; in his book &lt;a href=&quot;https://www.amazon.ca/Housing-Economics-George-Fallis/dp/1483176754&quot; rel=&quot;nofollow noreferrer&quot;&gt;&amp;quot;Housing Economics&amp;quot;&lt;/a&gt; writes when discussing the notion of a &lt;a href=&quot;https://www.investopedia.com/terms/p/paretoimprovement.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;Pareto improvement&lt;/a&gt;&lt;/p&gt;&#xA;&lt;p&gt;(&lt;em&gt;Page 123&lt;/em&gt;)&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;&lt;em&gt;In the real world, almost all policies recommended by economists are potential Pareto improvements, not actual Pareto improvements.&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;h1&gt;My Question&lt;/h1&gt;&#xA;&lt;p&gt;Are there any real world examples (from the past and/or present) of policy recommendations by economists which are potential Pareto improvements? If so, how?&lt;/p&gt;&#xA;" OwnerUserId="6629" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2018-02-28T01:07:32.200" Title="Are there any real world examples of potential Pareto improvements?" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;reference-request&gt;&lt;pareto-efficiency&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20811" PostTypeId="2" ParentId="20810" CreationDate="2018-02-28T01:07:32.200" Score="4" Body="&lt;p&gt;By &quot;potential Pareto improvement&quot;, what Fallis means is a &quot;Kaldor-Hicks improvement&quot; or more simply an overall increase in wealth. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The argument by Kaldor (1939) and Hicks (1939) was that if there is an overall increase in wealth, then we could &lt;em&gt;potentially&lt;/em&gt; compensate the losers, so that there is &lt;em&gt;potentially&lt;/em&gt; a Pareto improvement. Therefore, a &quot;potential Pareto or Kaldor-Hicks improvement&quot; (i.e. an increase in wealth) is &quot;just like&quot; an &quot;actual Pareto improvement&quot;.†&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, a free-trade agreement is a &quot;potential Pareto&quot; or &quot;Kaldor-Hicks&quot; improvement so long as it boosts our country's GDP. However, it is probably not an &quot;actual Pareto improvement&quot; because there will likely be at least one person in our country who suffers a loss due to the free-trade agreement.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And so, as you can tell and as Fallis says, most policy recommendations by economists are &quot;potential Pareto&quot; or &quot;Kaldor-Hicks&quot; improvements, but not &quot;actual Pareto improvements&quot;.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;†Note that this argument by Kaldor and Hicks is controversial, but is also one that most economists have gleefully latched on to, precisely because it is nearly impossible to ever have an actual Pareto improvement. Further reading: &lt;a href=&quot;http://www.brown.edu/Departments/Economics/Faculty/Allan_Feldman/AMF%20Significant%20Published%20Papers/Kaldor-Hicks%20Compensation.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Feldman, 1998, &quot;Kaldor-Hicks compensation&quot;&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2018-02-28T01:07:32.200" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20812" PostTypeId="2" ParentId="20803" CreationDate="2018-02-28T02:12:47.273" Score="4" Body="&lt;p&gt;Both in Economics and in Accounting, there is the following fundamental principal: we have to subtract revenues generated &lt;em&gt;in a given time period&lt;/em&gt; from costs incurred &lt;em&gt;in the same time period&lt;/em&gt; (because this is what makes basic sense).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, &quot;cost&quot; is the value of productive resources absorbed into production, in the given time period. The total value of an &quot;Investment&quot; is &lt;em&gt;not&lt;/em&gt; absorbed in the usual time period where firms record their profits (month, quarter, year). &#xA;When we buy a machine, we use it for many years. &#xA;So only a part of &quot;Investment&quot; is absorbed in a period (essentially what constitutes an &quot;investment&quot; and what an &quot;(operating) expense&quot; is based on this criterion exactly -whether it is fully absorbed in production in one time period or not). The total value of Investment done in say one year is an outflow in the Cash-Flow statement, but it is not a Cost in the Profit and Loss statement.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And, as you mentioned, that part of the Investment that was absorbed in production during the period, is reflected in the calculated Depreciation, which is chraged as a cost to the Profit and Loss statement.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2018-02-28T22:01:30.727" LastActivityDate="2018-02-28T22:01:30.727" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="20815" PostTypeId="1" CreationDate="2018-02-28T12:26:12.233" Score="4" ViewCount="123" Body="&lt;p&gt;I'm currently writing my master's thesis where I'm applying a multinomial logit regression with interactions effect. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The model I'm using is &#xA;$$&#xA;P(y=j) = exp(xb_j)/(1+∑exp(xb_h))&#xA;$$ &#xA;where &#xA;$$&#xA;xb_j =x_1b_{ij} + x_2b_{2j} + x_1x_2b_{3j} + XB + \epsilon&#xA;$$&#xA;  $x_1$ and $x_2$ are dummy variables ($x_1$ is coded 0/1 for man/woman).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I use marginal (or incremental) effects to report my results, since I'm interested in the effect of a unit change on the probability of af given outcome of my y-variable. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is regarding my results, where I get an insignificant marginal effect of the interaction term, which I guess indicates that there is no difference between how men and women are affected by a unit change in $x_2$. But when I look separately at men and women, I get that the marginal effect of $x_2$ is significant for men ($\frac { \partial P(y=j) } {\partial x_2 }$ when $x_1=0$) and insignificant for women ($\frac { \partial P(y=j) } {\partial x_2 }$ when $x_1=1$). (I use three different significance levels (0.1, 0.05 and 0.01))&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How do I interpret an insignificant effect from the interaction, but significant in a subgroup (men)? &lt;/p&gt;&#xA;" OwnerUserId="16416" LastEditorUserId="6168" LastEditDate="2018-04-03T05:10:39.467" LastActivityDate="2021-04-17T17:44:43.857" Title="Insignificant Interaction effect in applied econometrics (multinomial logit regression)" Tags="&lt;applied-econometrics&gt;" AnswerCount="1" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20816" PostTypeId="1" CreationDate="2018-02-28T16:41:55.870" Score="7" ViewCount="98" Body="&lt;p&gt;I am trying to replicate the results of &lt;a href=&quot;https://faculty.chicagobooth.edu/john.cochrane/research/papers/macroann.pdf&quot; rel=&quot;noreferrer&quot;&gt;Cochrane, 1998&lt;/a&gt;. Most of the paper is just describing the theory behind The Fiscal Theory of the Price Level. But from p. 42 he begins the econometrics aspect.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Cochrane uses a frictionless model so the government's flow budget constraint can be written as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$v_{t} = \frac{1}{r_{t+1}}(s_{t+1} + v_{t+1})$ (1)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $v_{t} = \frac{B_{t-1}(t)}{p_{t}}$ i.e, the real value of a bond issued in $t-1$ and matures in $t$. $s_{t}$ is the real primary surplus and $r_{t}$ is the real rate of return on government bonds.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For theoretical reasons he deflates the variables by consumption (as opposed to output) and writes the flow constraint as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac{v_{t}}{c_{t}} = \frac{1}{r_{t+1}}\frac{c_{t+1}}{c_{t}} (\frac{s_{t+1}}{c_{t+1}} + \frac{v_{t+1}}{c_{t+1}})$. If we define $\beta = \frac{1}{r_{t+1}} \frac{c_{t+1}}{c_{t}}$, the flow constraint can be iterated forward and expressed as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$vc_{t} = E_{t} \sum_{j=1}^{\infty} \beta^{j} sc_{t+j}$ (2)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that $vc_{t}$ and $sc_{t}$&#xA; and just $vc_{t} = \frac{v_{t}}{c_{t}} - E(\frac{v_{t}}{c_{t}})$  and $sc_{t} = \frac{s_{t}}{c_{t}} - E(\frac{s_{t}}{c_{t}})$. Here is my first source of confusion: Why does he subtract the mean from each series? I understand that this is &quot;deviations from the mean&quot; but surely the flow constraint could be iterated forward even without subtracting the means?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A key aspect of the fiscal theory is that primary surpluses evolve exogenously. Thus, Cochrane defines the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$sc_{t} = a_{t} + z_{t}$ (3) where&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$a_{t} = \phi_{a}a_{t-1} + \epsilon_{at}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$z_{t} = \phi_{z} z_{t-1} + \epsilon_{zt}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;note that $a_{t}$ and $z_{t}$ are unobserved variables.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Substituting this into equation (2) we find that:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$vc_{t} = \frac{\beta \phi_{a}}{1 - \beta \phi_{a}} a_{t} + \frac{\beta \phi_{z}}{1 - \beta \phi_{z}} z_{t} $ (4)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So equation (3) and (4) describe the observed variables (sc,vc) in terms of the unobserved ones (a,z). We can put this in state-space form:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $Y_{t} = (sc_{t}, vc_{t})'$ be the vector of observed variables and let $X_{t} = (a_{t},z_{t})'$ be the vector of unobserved variables. Then the system can be represented as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$Y_{t} = BX_{t}$ and $X_{t} = AX_{t-1} + \epsilon_{t}$ where&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$ B =\begin{bmatrix}&#xA;1 &amp;amp; 1 \\ &#xA; \frac{\beta \phi_{a}}{1 - \beta \phi_{a}}&amp;amp;  \frac{\beta \phi_{z}}{1 - \beta \phi_{z}} &#xA;\end{bmatrix}$, $A = \begin{bmatrix}&#xA;\phi_{a} &amp;amp; 0 \\ &#xA; 0&amp;amp; \phi_{z} &#xA;\end{bmatrix}$,  $\epsilon_{t} = (\epsilon_{at}, \epsilon_{zt})'$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This can be expressed as &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$Y_{t} = B(AX_{t-1} + \epsilon_{t}) =BA \underbrace{B^{-1}Y_{t-1}}_{\text{$X_{t-1}$}} + \underbrace{e_{t}}_{\text{$B\epsilon_{t}$}}$ (5)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So (5) is a reduced form equation which can be estimated. I have estimated the model and obtained $\phi_{a}$ and $\phi_{z}$ as well as the reduced form covariance matrix from which I was able to infer the &quot;structural&quot; covariance matrix. You can find Cochrane's results on p.43.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The next part is where I am very confused, he says:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The government chooses debt so that inflation is a function of the two state variables z, a&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;$dp_{t} = \Delta ln(p_{t}) - E(\Delta ln(p_{t})) = [\alpha_{a} \quad \alpha_{z}] [a_{t} \quad z_{t}]'$ (6)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is the structural model. Cochrane then says&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;I choose the parameters $\alpha$ so that &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;$dp_{t} = [1 \quad -0.21] [sc_{t} \quad vc_{t}]'$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And lastly, he goes on to simulate this model. I am able to follow up until he introduces the price level ($dp_{t}$). My two questions are:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Why do I need to subtract the means from both series? I.e why even introduce $vc_{t}$ and $sc_{t}$ and not just stick with $v_{t}$ and $s_{t}$. And how do I actually calculate these values? Should I simply subtract the sample mean from each observation? &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;I don't understand how to incorporate the price level in to the model. I somewhat understand the structural model, equation (6). But how do I use this to make simulations? I was able to find the AR(1) coefficients and the structural covariance matrix. But how do I use these to simulate the model as Cochrane did.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;I apologise for the long post, if you want further information I recommend p.42-46 from the paper.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any feedback would be greatly appreciated.&lt;/p&gt;&#xA;" OwnerUserId="16418" LastActivityDate="2018-02-28T16:41:55.870" Title="Replicating a state-space model" Tags="&lt;macroeconomics&gt;&lt;time-series&gt;&lt;simulations&gt;" AnswerCount="0" CommentCount="2" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="20817" PostTypeId="1" CreationDate="2018-02-28T19:53:37.910" Score="0" ViewCount="30" Body="&lt;p&gt;In my textbook I was given this formula for auctions:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/fd3Nl.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/fd3Nl.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As far as I understand, $N$ is number of people who place bets, $P_{personal}$ means my subjective value of the current lot (it's also assumed that it's the highest subjective value among people placing their bets), $P_{max1}$ is maximum price (not sure what it means).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My textbook seems to imply, that in order to avoid &quot;Winner's curse&quot; our bet must be equal to $P_{max2}$ because it reflects the true value of a traded lot. Otherwise, after such victories we will go broke. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In order to calculate $P_{max2}$ we use following formula:&#xA;&lt;a href=&quot;https://i.stack.imgur.com/EBcy6.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/EBcy6.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My difficulties are with formula for $P_{max1}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1.For what kinds of auctions can I use this formula?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2.What is the difference between $P_{personal}$ and $P_{max1}$?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;3.Why is $P_{max2}$ supposed to be the real value of the traded lot?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;4.What to do if I'm &lt;strong&gt;not&lt;/strong&gt; sure that my subjective value of this lot is the highest among participants?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;5.Let's suppose that I want to win the lot in order to resell it for higher price. On one hand, if I don't place high enough bet, then it will mean that I will win less frequently. And it can be painful because I can have fixed costs to be paid, no matter if I win or lose. On the other hand, by increasing my bet I decrease my profit margin. So it's unclear for me how to calculate my $P_{personal}$ in this case.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;6.Please, give me the name of this formula, if it has name.&lt;/p&gt;&#xA;" OwnerUserId="4979" LastActivityDate="2018-02-28T19:53:37.910" Title="Not sure how to use this formula for auctions" Tags="&lt;auctions&gt;" AnswerCount="0" CommentCount="5" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20822" PostTypeId="1" AcceptedAnswerId="20829" CreationDate="2018-02-28T22:30:16.550" Score="0" ViewCount="173" Body="&lt;p&gt;I am currently using Mishkin's textbook &quot;Economics of Money, Banking and Financial Markets.&quot; The chapter on financial crises starts with the causes of financial crises.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One reason given is the &lt;strong&gt;Unanticipated Decline in the Price Level&lt;/strong&gt;. I quote &quot;In economies with moderate inflation, which characterize most industrialized countries, many debt contracts with fixed interest rates are typically of fairly long maturity (ten years or more). In this institutional environment, unanticipated declines in the aggregate price level also decrease the net worth of firms. Because debt payments are contractually fixed in nominal terms, an unanticipated decline in the price level raises the value of borrowing firms' liabilities in real terms, but does not raise the real value of firms' assets.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I get that as the value of money is increasing over time (deflation), the real value of the debt is increasing.  What is the reason for asset values to not be rising? If the nominal value of the assets stay the same, then assets will be rising in real value (as money is becoming more valuable). Am I missing something obvious?&lt;/p&gt;&#xA;" OwnerUserId="5233" LastActivityDate="2018-03-01T15:12:47.700" Title="Asset Market Effects on Balance Sheets" Tags="&lt;financial-crises&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20823" PostTypeId="1" CreationDate="2018-02-28T22:35:53.867" Score="0" ViewCount="90" Body="&lt;p&gt;I am using Mishkin's textbook &quot;Economics of Money, Banking and Financial Markets.&quot; On the chapter on financial crises, the authors list a number of factors that could trigger a crises. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;One factor is &lt;strong&gt;An Unanticipated Decline in the Value of the Domestic Currency&lt;/strong&gt;. I quote &quot;Because of uncertainty about the future value of the domestic currency in developing countries (and in some industrialized countries), many nonfinancial firms, banks, and governments in developing countries find it easier to issue debt denominated in foreign currencies rather than their own currency. This can lead to a financial crisis in a similar fasahion to an unanticipated decline in the price level.  With debt contracts denominated in foreign currency when there is an unanticipated decline in the value of the domestic currency, the debt burden of domestic firms increases.• Since assets are typically denominated in domestic currency, there is a resulting deterioration in firms' balance sheets and a decline in net worth, which then increases adverse selection and moral hazard problems along the lines just described.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't get the logic. The authors are a bit vague: a decline in the value of the domestic currency perhaps means a depreciation relative to other currencies. Now, if that is correct, if there is uncertainty about the future value of the domestic currency, why would firms issue debt denominated in foreign currencies? If domestic currency is expected to appreciate, then only does it make sense (forgetting uncovered interest parity for now). Am I thinking correctly about this?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks!&lt;/p&gt;&#xA;" OwnerUserId="5233" LastActivityDate="2018-03-31T14:44:31.090" Title="Decline in the Value of the Domestic Currency" Tags="&lt;financial-crises&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20824" PostTypeId="1" CreationDate="2018-02-28T23:34:39.363" Score="6" ViewCount="459" Body="&lt;p&gt;This is Kahneman's value-plot on prospect theory:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/zqmCA.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/zqmCA.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;QUESTION: Why is the Marginal Utility of &lt;strong&gt;losses&lt;/strong&gt; deminishing? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;CONTEXT:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;I fully understand that the Marginal Utility of gains deminishes: 100 dollar gains has less utility to me when I am rich than when I am poor.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;But to me it is different with losses: If I can choose to lose 100 dollar for sure or a 50% chance to lose 200 dollar I would definately not go for the bet! Why would I risk losing even more? After all, like most people, &lt;strong&gt;I am risk-averse&lt;/strong&gt;. My reference point would be that I already lost 100 euro's.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Furthermore: If all I own should be 200 dollar I might regret losing 100 dollar very much, but I will regret losing a second 100 dollar even more because then I would be left with nothing and I can't buy any food...&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;In other words: I guess my reference point is always zero and compared to that I will always be risk-averse... but isn't that what most people do or should do?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;UPDATE: This article shows that the Value-curve can also be shaped differently, for example under time-pressure: &lt;a href=&quot;https://www.sciencedirect.com/science/article/pii/S0749597815000722&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.sciencedirect.com/science/article/pii/S0749597815000722&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="16423" LastEditorUserId="16423" LastEditDate="2018-03-05T12:11:19.710" LastActivityDate="2018-03-05T12:11:19.710" Title="Why is the Marginal Utility of losses deminishing in Prospect Theory?" Tags="&lt;decision-theory&gt;&lt;risk-aversion&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20825" PostTypeId="2" ParentId="20824" CreationDate="2018-03-01T00:03:04.450" Score="4" Body="&lt;p&gt;The value function used in Kahneman's prospect theory (which your plot shows) is supposed to capture empirically observed behavior of people's attitudes towards gains/losses as well as to risks in those domains.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the domain for gains, people are usually risk averse. However, in the domain for losses, people do tend to take larger risks. A nice illustration is the observation that when a gambler is losing money (relative to the amount he came to the casino with), he tends to wager on higher stakes (larger risks), perhaps in an attempt to &quot;win back&quot; the losses. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the convex curvature in the domain of losses is meant to capture this type of behavior. &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;In fact, prospect theory's treatment of people's risk attitude is even more nuanced than the above. In addition to the S-shaped value function you showed, it also has a component that allows for non-linear probability weighting. Together, the value function and non-linear probability weighting generate the following four-fold classification of risk attitudes: &#xA;\begin{array}{c|cc}&#xA;&amp;amp;\text{gains}&amp;amp;\text{losses}\\\hline&#xA;\text{low probability}&amp;amp;\text{risk loving}&amp;amp;\text{risk averse}\\&#xA;\text{high probability}&amp;amp;\text{risk averse}&amp;amp;\text{risk loving}&#xA;\end{array}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;See &lt;a href=&quot;http://cemi.ehess.fr/docannexe/file/2780/tversjy_kahneman_advances.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Kahneman and Tversky (1992)&lt;/a&gt; for more detail.&lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2018-03-01T00:03:04.450" CommentCount="16" ContentLicense="CC BY-SA 3.0" />
  <row Id="20828" PostTypeId="2" ParentId="20823" CreationDate="2018-03-01T14:39:45.187" Score="1" Body="&lt;p&gt;Your question appears to be just: why would they issue foreign currency debt?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If an emerging country is growing rapidly, it often attracts capital flows. This is typically associated with a strengthening currency. Firms and investors extrapolate this tendency, and so they lend to the country in the currency of a developed economy (typically the U.S. dollar). If the local currency continues to appreciate against the U.S. dollar, it should be easier to cover the payments (since local currency earnings are worth more). Things break down if this extrapolation fails, as discussed in the question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In terms of an example, you could look at the developing Asian countries ahead of the Asian Crisis of 1997. Borrowing in U.S. dollars by local forms was the root of the problem. The post-1997 tendency to accumulate large foreign currency reserves by central banks in countries pursuing an export-led growth strategy was a reaction to that experience.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2018-03-01T14:39:45.187" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20829" PostTypeId="2" ParentId="20822" CreationDate="2018-03-01T15:12:47.700" Score="0" Body="&lt;p&gt;The textbook assumes that assets are real assets (inventory, equipment, etc.) that are falling in nominal value along with the price level. However, this will not be the case for financial firms, as their assets are almost always fixed nominal loans. So there is an embedded assumption that this only refers to non-financial firms, which is not specified in the quote provided. (Note that “borrowers” does not imply non-financial, since financial firms are major borrowers.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, this is a questionable reason to explain a financial crsis. No firm revalues assets or liabilities based on changes to the price level. The real concern is that falling prices imply falling nominal revenues, which are matched against fixed nominal debt payments. So it’s not really the balance sheet value, rather the prospective value based on future profits that are shrinking. In other words, the problem shows up in the income statement, not the balance sheet.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On paper, accounting values are supposed to reflect prospective profits, but in practice, continuous revaluations are not part of accepted accounting procedures. An asset has to be obviously impaired before being written down. Therefore, balance sheet revaluations (other than loan losses) are not the driver of a financial crisis.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2018-03-01T15:12:47.700" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20830" PostTypeId="2" ParentId="8697" CreationDate="2018-03-01T15:50:54.603" Score="2" Body="&lt;p&gt;As with inflation, so long as deflation is expected, there is no distortion. The expected deflation is simply built into interest rates.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, if I expect deflation to be 1% per year and I am looking for a 5% real return on an investment, then I'll look for investments with a 4% nominal return.&lt;/p&gt;&#xA;" OwnerUserId="16430" LastActivityDate="2018-03-01T15:50:54.603" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20832" PostTypeId="1" CreationDate="2018-03-01T16:39:16.390" Score="1" ViewCount="41" Body="&lt;p&gt;We often hear that the GDP grew 2 % the past quarter, or something like that.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But we are also told the GDP grows annually about 2-3 % every year.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How can both be true? If the GDP grows 2 %  in just one quarter, surely annual growth rate should be closer to 8-10 %?&lt;/p&gt;&#xA;" OwnerUserId="16432" LastActivityDate="2018-03-01T17:20:24.603" Title="How are GDP rates calculated?" Tags="&lt;gdp&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20833" PostTypeId="2" ParentId="20832" CreationDate="2018-03-01T17:20:24.603" Score="1" Body="&lt;p&gt;This question overlaps with the question: &lt;a href=&quot;https://economics.stackexchange.com/questions/8219/what-is-the-difference-between-quarterly-gdp-and-annual-gdp&quot;&gt;link to question on quarterly/annual GDP.&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since you are referring to news commentary, I just want to add that the standard in the United States is to quote annualised quarterly GDP figures (e.g. 2.0% annualised roughly equals 0.5% on the quarter), while European countries (e.g., Germany) often quote the non-annualised quarterly growth rate. (These are the conventions used by the national statistical agencies when quoting growth rates, and the business press usually follows the local convention when reporting on the results.) This difference sometimes can cause confusion in international comparisons.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2018-03-01T17:20:24.603" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20834" PostTypeId="1" CreationDate="2018-03-01T17:25:16.747" Score="1" ViewCount="18" Body="&lt;p&gt;&lt;strong&gt;Model 1&lt;/strong&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The tax rate $\tau$ which maximizes tax revenue equals $\frac{1}{1 + a\epsilon}$ where $\epsilon$ is the elasticity of how taxable income responds to changes in the tax rate across and $a$ is some parameter. See this paper: &lt;a href=&quot;https://eml.berkeley.edu/~saez/saez-slemrod-giertzNBER09.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://eml.berkeley.edu/~saez/saez-slemrod-giertzNBER09.pdf&lt;/a&gt; (see page 6)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can estimate $a$ to be about 1.5 and $\epsilon$ to be about 0.4 or less, hence the maximizing rate is about 60 % or more.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Model 2:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Tax revenue is $\tau Y(\tau)$ where $Y(\tau)$ is total production which depends on the tax rate. If we say that a 1 % increase in the tax rate leads to a 2.5 % decrease in total output, we get that $Y'(\tau) = -2.5Y(\tau)$. So, $Y(\tau) = Ce^{-2.5\tau}$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So revenue is $\tau C e^{-2.5\tau}$. Maximizing this simple equation in $\tau$ gives a tax maximizing rate of 40 %.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;These two models give highly different results. Which one makes more &quot;sense&quot;? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Model 2 is simple to understand, but I have not read the paper which uses Model 1, it seems a bit advanced for me. &lt;/p&gt;&#xA;" OwnerUserId="16432" LastActivityDate="2018-03-01T17:25:16.747" Title="Which model produces the correct revenue-maximizing rate?" Tags="&lt;taxation&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="20835" PostTypeId="2" ParentId="13292" CreationDate="2018-03-01T18:30:00.523" Score="4" Body="&lt;p&gt;Taken directly from &lt;a href=&quot;https://en.wikipedia.org/wiki/Complete_information&quot; rel=&quot;nofollow noreferrer&quot;&gt;Wikipedia&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;A game with perfect but incomplete information&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Examples of games with incomplete but perfect information are&#xA;  conceptually more difficult to imagine. Suppose you are playing a game&#xA;  of chess against an opponent who will be paid some substantial amount&#xA;  of money if a particular event happens (an arrangement of pieces, for&#xA;  instance), but you do not know what the event is. In this case you&#xA;  have perfect information, since you know what each move of the&#xA;  opponent is. However, since you do not know the payoff function of the&#xA;  other player (which will affect its behavior even if it does not alter&#xA;  your own victory conditions), it is a game of incomplete information.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;A game with complete but imperfect information&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Examples of games with imperfect but complete information card games, &#xA;  where each player's cards are hidden from other players but&#xA;  objectives are known, as in contract bridge and poker.[3][4] The&#xA;  latter claim assumes that all players are risk-neutral and thus only&#xA;  maximizing their expected outcome. However, since each individual&#xA;  might respond differently to risk, one cannot generally know the exact&#xA;  form of the objective function the other players are trying to&#xA;  maximize and thus the way they will respond to different situations.&#xA;  Thus, from a purely theoretical perspective, these games should&#xA;  generally be considered as having imperfect and (slightly) incomplete&#xA;  information.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="16424" LastEditorUserId="16424" LastEditDate="2018-03-02T21:49:51.657" LastActivityDate="2018-03-02T21:49:51.657" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20836" PostTypeId="1" CreationDate="2018-03-01T19:12:48.590" Score="0" ViewCount="40" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/73GQw.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/73GQw.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is from: &lt;a href=&quot;https://eml.berkeley.edu//~dromer/papers/RomerandRomer.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://eml.berkeley.edu//~dromer/papers/RomerandRomer.pdf&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What does it mean that we are looking at a &quot;tax increase of 1 % of GDP&quot;. What does a tax increase have to do with the GDP? If the tax is 20 %, and we raise it to 22 %, that's an increase of 2 percentage points, or 2/20 = 10 percent. What does GDP have anything to do with it?&lt;/p&gt;&#xA;" OwnerUserId="16433" LastActivityDate="2018-03-01T22:14:32.550" Title="What is this graph saying?" Tags="&lt;taxation&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20838" PostTypeId="2" ParentId="20836" CreationDate="2018-03-01T22:14:32.550" Score="1" Body="&lt;p&gt;The tax increase is first measured in dollars. Since the dollar amounts are large, and not comparable across countries, they divide by the size of nominal GDP. This is standard practice in discussing macroeconomic policy. This way, we can quickly judge the relative size of a quantity without having to run to an economic database to see statistics on the size of the economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this case, they are looking at a tax increase that is assumed to equal 1% of nominal GDP. That is, if nominal GDP were \$100 billion, that is a tax increase of \$1 billion.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2018-03-01T22:14:32.550" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20839" PostTypeId="1" AcceptedAnswerId="20851" CreationDate="2018-03-02T04:00:32.270" Score="0" ViewCount="431" Body="&lt;p&gt;can someone explain me why in some books the Demand and marginal revenue moves and but in other books is the marginal cost that moves. Is this like taxing the demand vs taxing the supply? so the economic incidence is the same?. Thank you.&#xA;&lt;a href=&quot;https://mnmeconomics.files.wordpress.com/2011/09/specifictax.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://mnmeconomics.files.wordpress.com/2011/09/specifictax.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But in other books&#xA;&lt;a href=&quot;https://i.stack.imgur.com/rbyeh.gif&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/rbyeh.gif&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sources &lt;a href=&quot;http://www2.econ.iastate.edu/classes/econ101/choi/ch13monD.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www2.econ.iastate.edu/classes/econ101/choi/ch13monD.htm&lt;/a&gt;&#xA;&lt;a href=&quot;http://www2.econ.iastate.edu/classes/econ101/choi/ch13monD.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www2.econ.iastate.edu/classes/econ101/choi/ch13monD.htm&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="10240" LastEditorUserId="108" LastEditDate="2018-03-02T07:46:41.853" LastActivityDate="2018-03-02T20:47:17.847" Title="Taxing a monopoly" Tags="&lt;taxation&gt;&lt;monopoly&gt;&lt;self-study&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20840" PostTypeId="1" AcceptedAnswerId="20842" CreationDate="2018-03-02T08:33:48.813" Score="0" ViewCount="361" Body="&lt;p&gt;I had a confusion about opportunity cost.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose I have three alternatives which can be completed in same time, and can provide me the value of \$30, \$10 or \$40. If I choose the one with \$10 then, the opportunity cost will be \$40 as it is the best alternative that could have been done in the same time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What if I choose the work with \$40. What will be its opportunity cost in this case as there is no better alternative here.&lt;/p&gt;&#xA;" OwnerUserId="16437" LastActivityDate="2018-03-02T09:20:28.727" Title="What is the opportunity cost if I choose the option of highest value" Tags="&lt;microeconomics&gt;&lt;opportunity-cost&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20841" PostTypeId="1" CreationDate="2018-03-02T08:42:28.410" Score="1" ViewCount="358" Body="&lt;p&gt;I have a question regarding the difference between stock and flow variables. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know that a stock variable is measured at a specific point in time $t$ and the flow of this variable is measured over time, for example from $t-1$ to $t$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;When economists compute the ratio between a stock and a flow variable in some cases they use the geometric mean for the flow variable and the unchanged stock variable. Let's take an example: &#xA;A very popular ratio nowadays is &quot;credit-to-gdp&quot;. Nearly all studies compute the credit-to-gdp ratio for year $t$ by using the stock variable of credit at $t$ and the geometric mean of gdp from $t-1$ and $t$ (for example &lt;a href=&quot;http://www.nber.org/papers/w14049.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Mendoza &amp;amp; Terrones, 2008&lt;/a&gt; or &lt;a href=&quot;https://www.sciencedirect.com/science/article/pii/S1572308913000429&quot; rel=&quot;nofollow noreferrer&quot;&gt;Dell'Ariccia et al., 2012&lt;/a&gt;). But why are they doing this? I know the difference between the two concepts but the question for me still remains &quot;so what?&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider a counter example: income per capita. Income is obviously a flow variable while the number of people in an economy is a stock variable. But as far as I know nobody is even considering using the geometric mean or something like this. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is it just a habit, a practical issue (if we have the data we do it if not we don't) or is there really a logical (mathematical) reason behind this approach? So far I was not able to find a convincing answer and I get the feeling that this is just a method to smooth the data a little bit.   &lt;/p&gt;&#xA;" OwnerUserId="16436" LastEditorUserId="16436" LastEditDate="2018-03-02T09:43:35.830" LastActivityDate="2018-03-02T09:43:35.830" Title="Why use geometric mean for GDP when calculating the credit-to-gdp ratio?" Tags="&lt;macroeconomics&gt;&lt;econometrics&gt;&lt;mathematical-economics&gt;" AnswerCount="0" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="20842" PostTypeId="2" ParentId="20840" CreationDate="2018-03-02T09:20:28.727" Score="1" Body="&lt;p&gt;The opportunity cost of any decision is &lt;strong&gt;the value of the next-best alternative forgone&lt;/strong&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So in this case, if you choose \$40, your opportunity cost is \$30, because that's the value of the next-best alternative forgone. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Implicit assumption: These are your only three alternatives and you must choose one of these three.) &lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2018-03-02T09:20:28.727" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20844" PostTypeId="2" ParentId="17149" CreationDate="2018-03-02T12:54:11.653" Score="1" Body="&lt;p&gt;Concerning austrians and their general attitude towards prices: &lt;a href=&quot;https://mises.org/library/source-prices&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://mises.org/library/source-prices&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In short Mises says that &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The ultimate source of the determination of prices is the value judgments of the consumers.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;If the value of judgement of consumers  is higher than the cost of production, producers know it is worthwhile to produce that good.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This way producers are informed what to produce and more importantly what not to produce, in order for the produced goods to be useful to people.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Mises even suggested communist central planning would be far less efficient if the planners didn't look at capitalistic prices.&#xA;&lt;a href=&quot;https://en.m.wikipedia.org/wiki/Economic_calculation_problem?wprov=sfla1&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://en.m.wikipedia.org/wiki/Economic_calculation_problem?wprov=sfla1&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Whenever austrians talk about unrealistic prices, they are referring to price bubbles, an essential element in the ABCT&#xA;&lt;a href=&quot;https://en.wikipedia.org/wiki/Austrian_business_cycle_theory?wprov=sfla1&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://en.wikipedia.org/wiki/Austrian_business_cycle_theory?wprov=sfla1&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In short many austrians believe the primary cause of these bubbles to be the monetary policy of the central bank. The central bank's interest rate is not a market price, and therefore leads producers to believe more goods are wanted right now and less in the future, supposing a lower central bank interest rate. This leads to bubbles, which are then called unrealistic prices by Austrian economists.&lt;/p&gt;&#xA;" OwnerUserId="11032" LastActivityDate="2018-03-02T12:54:11.653" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20845" PostTypeId="1" CreationDate="2018-03-02T14:35:18.510" Score="-1" ViewCount="35" Body="&lt;p&gt;why does an increase in money supply , lower the interest rate and shift the LM curve down.?&lt;/p&gt;&#xA;" OwnerUserId="16225" LastActivityDate="2018-03-02T15:51:36.803" Title="Macroeconomics- money supply LM model" Tags="&lt;macroeconomics&gt;&lt;keynesian-economics&gt;" AnswerCount="1" CommentCount="1" ClosedDate="2018-03-13T18:41:23.130" ContentLicense="CC BY-SA 3.0" />
  <row Id="20846" PostTypeId="1" CreationDate="2018-03-02T14:40:36.437" Score="2" ViewCount="450" Body="&lt;p&gt;A fictional country has 100 people. The total printed money is &lt;code&gt;$2000&lt;/code&gt;. Ten rich people own half of it (&lt;code&gt;$100&lt;/code&gt; each), the remaining 90 are comparatively poor : ($\$2000 = 10  \times \$100 + 90 \times \$11.11 $)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To make things more even, the government decides to print another &lt;code&gt;$2000&lt;/code&gt; (no independent Central Bank here) and give them to all inhabitants, &lt;code&gt;$20&lt;/code&gt; each. Surely, this triggers inflation, prices double. But the net result is a redistribution of wealth, the poor are now less poor than before. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This looks as a simple progressive tax scheme which is beneficial to the poorest people. It could even be applied in some periodical and predictable way.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course, this is utterly stupid and cannot work - I guess. Why?&lt;/p&gt;&#xA;" OwnerUserId="16438" LastActivityDate="2018-05-08T23:50:04.763" Title="Printing money to redistribute wealth" Tags="&lt;monetary-policy&gt;&lt;money&gt;&lt;wealth&gt;" AnswerCount="4" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20848" PostTypeId="1" CreationDate="2018-03-02T15:25:36.257" Score="0" ViewCount="95" Body="&lt;p&gt;I have a micro dataset of firms' financial liabilities for 15 years. I would like to plot the contributions to change in leverage, decomposing the single contribution of bank loans, bonds and equity variations.&#xA;Leverage is built as:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;Leverage=(Loans+Bonds)/(Loans+Bonds+Equity)&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Therefore contributions to growth are positive if financial debt (Bank Loans or Bonds) increases or if its sum with capital decreases and vice versa.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would be able to decompose with logarithm a simple ratio a/b but I have no clue on how to do it with 3 components. Any idea? Thanks&lt;/p&gt;&#xA;" OwnerUserId="16439" LastActivityDate="2018-03-04T19:09:48.897" Title="Contribution to change of a ratio with 3 terms" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20849" PostTypeId="2" ParentId="20845" CreationDate="2018-03-02T15:39:29.220" Score="3" Body="&lt;p&gt;In the standard LM Model money supply is a vertical line and money demand is a decreasing function (in the interest rate - money framework). An increase in the money supply curve shifts the supply curve to the right which ceteris paribus decreases the intersect with the demand curve which leads to a lower interest rate. &lt;/p&gt;&#xA;" OwnerUserId="16436" LastEditorUserId="16436" LastEditDate="2018-03-02T15:51:36.803" LastActivityDate="2018-03-02T15:51:36.803" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20850" PostTypeId="2" ParentId="20846" CreationDate="2018-03-02T17:13:50.267" Score="2" Body="&lt;p&gt;The main problem is that wealth does not equal cash. Those ten rich people probably have most of their wealth in real estate and stocks. Imagine all you own is a Lamborghini, then the government prints a lot of money, does that impact you?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Depending on the situation the money printing may be progressive or regressive. And the cost are high: There will not just be one inflationary moment, there will be inflation because the initial inflation breeds an expectation of even more inflation leading to hyperinflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally when you've done this once, nobody will ever want to hold your currency again because they distrust you. Leading to a number of other problems.&lt;/p&gt;&#xA;" OwnerUserId="11032" LastEditorUserId="11032" LastEditDate="2018-03-02T21:55:13.473" LastActivityDate="2018-03-02T21:55:13.473" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20851" PostTypeId="2" ParentId="20839" CreationDate="2018-03-02T20:47:17.847" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Is this like taxing the demand vs taxing the supply?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Yes.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Taxing consumers reduces their willingness to pay. Therefore demand curve shifts down. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Taxing producers raises their cost of production. Hence the marginal cost curve shifts up. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As long as it's the same amount of per unit tax, the tax creates the same wedge between MR and MC curves, regardless of whether it's on consumers or producers. So the tax incidence is the same.&lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2018-03-02T20:47:17.847" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20853" PostTypeId="2" ParentId="20846" CreationDate="2018-03-02T21:23:49.937" Score="2" Body="&lt;p&gt;It is &quot;stupid&quot; only to the extent that it doesn't take into account the socio-economic and political realities. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It appears the government tries to make the plan acceptable by giving to everybody, rich and poor, the same &lt;em&gt;nominal&lt;/em&gt; amount of money. So it seems this is not &quot;in favor of the poor against the rich&quot; so why would the rich people react against it?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Well, because their purchasing power will get a massive hit, and poor or rich, I haven't encountered many people that will take that lightly.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Under the implied assumption that the economy is at full capacity (an assumption that is needed so that the full effect of the increase in the money supply to be reflected in inflation, otherwise this will not be the case), total output will be the same but the price level will indeed double. Setting the price level before the transfers at $P=1$, we have :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;FOR each POOR person&lt;/strong&gt;&lt;br&gt;&#xA;The real value of money holdings (i.e. in units of goods) was $11.11$ and now it will be&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$(11.11 + 20.00) /2 = 15.555 &amp;gt; 11.11$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;an increase of $40$% in real purchasing power. This means that each poor person will be able to consume $40$% actual units of goods more than before.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;FOR each RICH person&lt;/strong&gt;&lt;br&gt;&#xA;The real value of money holdings (i.e. in units of goods) was $100$ and now it will be&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$(100 + 20.00) /2 = 60 &amp;lt; 100$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;a &lt;em&gt;decrease&lt;/em&gt; of $40$% in purchasing power. This means that each rich person will be able to consume $40$% fewer units of goods than before.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Do you imagine the rich will stay quiet faced with such large decline in their living standards?&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;This does not mean that historically governments have not used increases in the money supply to hand out transfers to the poorer segments of the population. They have, but it wasn't implemented in such a &quot;grand redistribution scheme&quot; style, and it wasn't so widespread that it would seriously affect the purchasing power of the rest.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2018-03-02T21:23:49.937" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20854" PostTypeId="2" ParentId="20846" CreationDate="2018-03-02T22:21:08.690" Score="-1" Body="&lt;p&gt;@JFugger_jr 's answer seems quite all right but I have one addition:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In most economies, the money supply has vastly increased over the years (&lt;a href=&quot;http://sdw.ecb.europa.eu/home.do?chart=t1.2&quot; rel=&quot;nofollow noreferrer&quot;&gt;around 5% yearly for the euro&lt;/a&gt;), yet people are not massively fleeing from the currency. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As @JFugger_jr said: The more assets you have outside of the currency, the less you will be penalised by the expansion of the money supply (regardless of who gets the new currency). Thus the 'strategical' choice for a currency holder to make in the current is exactly the same as in the system you are proposing. Flee the currency, or you will experience &lt;a href=&quot;https://en.wikipedia.org/wiki/Demurrage_(currency)&quot; rel=&quot;nofollow noreferrer&quot;&gt;demurrage&lt;/a&gt;.  Yet people are not completely abandoning the currencies of these economies (in most cases), as they have to pay taxes in them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If it isn't clear: My argument is that the arguments against an 'equal distribution of minted money' are just as valid against the current system, where money is created through methods like &lt;a href=&quot;https://www.investopedia.com/terms/o/openmarketoperations.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;open market operations&lt;/a&gt; or &lt;a href=&quot;https://www.investopedia.com/terms/q/quantitative-easing.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;quantitative easing&lt;/a&gt;. &lt;/p&gt;&#xA;" OwnerUserId="16441" LastActivityDate="2018-03-02T22:21:08.690" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20855" PostTypeId="1" CreationDate="2018-03-03T02:58:15.227" Score="0" ViewCount="112" Body="&lt;p&gt;I have a data about customers and their activity on a website for a two-year period. Also, I have a customer support work evaluation data for a shorter period of that two-year period. The question is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;How to find out if inefficient customer support affected loyalty of customers and, in particular, how many customers were lost due to this factor?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So far, I just made a simple comparison on how many customers kept using the website after leaving the negative (unsatisfactory) or positive (satisfactory) evaluation of the customer support work. The comparison shows that the customer retention rate for customers who left negative feedback is lower than for those who provided positive (satisfactory) feedback.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm not an economist, but I'm sure there's a more scientific way to estimate the influence of one factor on another using statistical analysis.&lt;/p&gt;&#xA;" OwnerUserId="16442" LastActivityDate="2021-04-17T20:49:20.703" Title="How to estimate loss of customers due to customer support inefficiency?" Tags="&lt;microeconomics&gt;&lt;time-series&gt;&lt;applied-econometrics&gt;&lt;causality&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20858" PostTypeId="1" CreationDate="2018-03-03T14:51:17.123" Score="7" ViewCount="1714" Body="&lt;p&gt;Nations have imposed tariffs on goods for many reasons throughout the ages.  Are there any examples of a tariff actually succeeding at its intended goals?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When I research tariffs, I find &lt;em&gt;countless&lt;/em&gt; arguments that they never one have worked, and I find a lot of current events documents arguing why particular tariffs wont work, but I'm having it hard finding any economist pointing to a tariff that worked as intended.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Bonus points if the tariff worked as intended &lt;strong&gt;and&lt;/strong&gt; was not considered to be a net loss for the country that imposed it.&lt;/p&gt;&#xA;" OwnerUserId="9032" LastActivityDate="2018-03-08T18:46:51.167" Title="Are there any examples of tariffs working?" Tags="&lt;monetary-policy&gt;&lt;tariffs&gt;" AnswerCount="3" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20860" PostTypeId="1" AcceptedAnswerId="20869" CreationDate="2018-03-03T17:28:45.980" Score="0" ViewCount="702" Body="&lt;p&gt;I was looking on historical sovereign bond yields for a project.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I was wondering what is meant by &quot;generic bond yields&quot; mentioned on bloomberg. Somewhere else i found data about the same country but not entitled as &quot;generic&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Could someone please share his knowledge on the matter?&lt;/p&gt;&#xA;" OwnerUserId="15252" LastActivityDate="2018-03-04T13:13:10.647" Title="Generic bond yileds" Tags="&lt;macroeconomics&gt;&lt;international-economics&gt;&lt;bonds&gt;&lt;government&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20861" PostTypeId="1" CreationDate="2018-03-03T18:38:24.777" Score="0" ViewCount="68" Body="&lt;p&gt;I can do average return, I don't know what is annualized thou. can somebody say where (in a textbook hopefully) can I read about this? thanks!&lt;/p&gt;&#xA;" OwnerUserId="15803" LastActivityDate="2018-06-07T14:12:24.480" Title="how to calculate the average annualized return?" Tags="&lt;econometrics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20862" PostTypeId="2" ParentId="20815" CreationDate="2018-03-03T19:06:42.373" Score="0" Body="&lt;p&gt;It is not 100% clear what procedure you used to do the subgroup tests, so I will cover a few bases. Below, I suggest exploratory tests to better understand the results. The logic in this response is the same as you would follow in a linear model. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you are taking the results from the single model and doing post hoc tests of the coefficents, be sure that you are interpreting the model correctly. Because men are the implicit reference category, the constant represents the men's average (ceteris paribus) and the constant plus b1 is the women's average. Similarly, b2 is men's &quot;slope&quot; with respect to x2, while b2 + b3 is women's &quot;slope&quot; with respect to x2. So, to test whether x2 matters at all for women, you would have to test b2 AND b3 together. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;That said, it sounds to me like, after running the full model, you ran the model separately for men and women (minus the sex-related terms) to investigate further. Here's a few things to investigate:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;How different are the other parameters for men and women in the separate models from the main model? &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Are there similar point estimates?&lt;/li&gt;&#xA;&lt;li&gt;Are the same variables significant?&lt;/li&gt;&#xA;&lt;li&gt;Do the models have comparable model fit?&lt;/li&gt;&#xA;&lt;/ul&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;What kind of variation do you have in your data? You can do descriptive and exploratory analyses to understand this.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Present a descriptive table of the frequencies by sex, x2, and j. If every &quot;cell&quot; created in this way had exactly the same count, you would be rather unlikely to get a disparity between the subgroup models and the full model (unless the data generating processes for men and women are entirely different, and/or there is heteroskedasticity by sex).&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;That is, my hunch is that you have &lt;a href=&quot;http://davegiles.blogspot.com/2011/09/micronumerosity.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;&quot;micronumerosity&quot;&lt;/a&gt; for some of the women in certain outcomes, and thus you cannot get a small enough standard error to distinguish the interaction term.&lt;/li&gt;&#xA;&lt;li&gt;Another way of looking at this is figuring out the &lt;a href=&quot;https://stats.stackexchange.com/questions/50635/do-we-need-overlap-common-support-in-case-of-a-parametric-regression&quot;&gt;realm of common support&lt;/a&gt; for your model.&lt;/li&gt;&#xA;&lt;/ul&gt;&lt;/li&gt;&#xA;&lt;li&gt;Run descriptive statistics (mean, SD) on the other variables separately for men and women and look for discrepancies. If there are substantial differences, it could mean something other than sex is driving the difference, and/or that collinearity between that other variable and sex is complicating the estimation. &#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;If the covariates are normally distributed, you could run a series of t-tests in addition to eyeballing the means. (If you wanted to be more formal about this and take into account multiple hypothesis testing, you could do various kinds of &lt;a href=&quot;https://stats.stackexchange.com/questions/230525/procedure-for-testing-covariate-balance-for-generalized-propensity-score-estimat/230900&quot;&gt;balance checks&lt;/a&gt;, essentially using the x variables to predict sex.)&lt;/li&gt;&#xA;&lt;/ul&gt;&lt;/li&gt;&#xA;&lt;li&gt;Graphs of the area of common support or distributions of other variables conditional on sex can help show what you find.&lt;/li&gt;&#xA;&lt;/ul&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;To write up the results, I'd suggest presenting a table with the coefficients for the full model without the interaction, the full model with the interaction (showing the interaction is not significant), and the models by gender. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the discussion section, you can mention that you looked into the role of the interaction term. You can show your results about micronumerosity and covariate balance by sex (whether or not they seem to explain the problem). All of these are exploratory analyses, and so they can't stand on their own as definitive explanations. But they help you address what should be done in future analyses (e.g. that a larger N overall is needed or that oversampling people in small cells would help, or finding other ways to increase the precision of the model).&lt;/p&gt;&#xA;" OwnerUserId="16445" LastActivityDate="2018-03-03T19:06:42.373" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="20863" PostTypeId="2" ParentId="20861" CreationDate="2018-03-03T22:03:14.053" Score="1" Body="&lt;p&gt;Annualized return simply means average amount of money that a investment earns each year over a given amount of time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the compounding rates are the gains you've earned on your investment, The annualized return is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$AR = (1+totalreturn)^{\left({1\over{n}} \right)}-1$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This equation shows the return each year over a full span of time.  Total return is the total change in the variable over all periods.&lt;/p&gt;&#xA;" OwnerUserId="16446" LastEditorUserId="17918" LastEditDate="2018-06-07T14:12:24.480" LastActivityDate="2018-06-07T14:12:24.480" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="20864" PostTypeId="2" ParentId="20855" CreationDate="2018-03-03T22:14:21.043" Score="0" Body="&lt;p&gt;The best way would be to use a regression analysis, What i would do as an economic major would be use two independent variables such as in your case level of customer support, customer feedback to see if the dependent variable &quot;customer retention rate&quot;. also you need to use parameters for customer support evaluation, customer feed back and customer retention rate for the years. Then run a regression analysis to find if the independent variable are co-related to your dependent variable, thus you can arrive at a statistical justification for your problem.&lt;/p&gt;&#xA;" OwnerUserId="16446" LastActivityDate="2018-03-03T22:14:21.043" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20865" PostTypeId="2" ParentId="20858" CreationDate="2018-03-03T22:25:27.043" Score="-1" Body="&lt;p&gt;I think Germany is good example but not perfect, they have a strong system of trade and has high regulation when it comes to tariffs but still they are the 3rd largest exporting economy in the world.&#xA;&lt;a href=&quot;https://atlas.media.mit.edu/en/profile/country/deu/&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://atlas.media.mit.edu/en/profile/country/deu/&lt;/a&gt;&#xA;&lt;a href=&quot;https://2016.export.gov/germany/marketresearchongermany/countrycommercialguide/traderegulationsandstandards/index.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://2016.export.gov/germany/marketresearchongermany/countrycommercialguide/traderegulationsandstandards/index.asp&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="16446" LastActivityDate="2018-03-03T22:25:27.043" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="20866" PostTypeId="2" ParentId="15021" CreationDate="2018-03-03T22:28:34.053" Score="1" Body="&lt;p&gt;The price of the tariff will be passed along to the consumer.   This is because of lack of domestic sources for the raw materials that comprise the  constitution or fundamental of the good will need to remain from non domestic sources  ie. steel, solar panels, aluminum, washing machines.  This is because the natural resources on domestic side are tapped out/depleted/exhausted.  However, the demand for said goods by the domestic consumer remains unchanged.  US domestic is not a producer of raw iron for steel or aluminum.  Ergo price increases.&lt;/p&gt;&#xA;" OwnerUserId="16447" LastEditorUserId="16447" LastEditDate="2018-03-03T22:40:11.930" LastActivityDate="2018-03-03T22:40:11.930" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20867" PostTypeId="2" ParentId="20858" CreationDate="2018-03-04T06:47:08.790" Score="13" Body="&lt;p&gt;I interpret your question more broadly as one about whether &lt;strong&gt;protectionism&lt;/strong&gt; has ever &quot;worked&quot;. Two economists that think it has are Chang Ha-Joon and Dani Rodrik. You can therefore look up their work.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Two arguments they use are:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;strong&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Infant_industry_argument&quot; rel=&quot;noreferrer&quot;&gt;The infant industry argument&lt;/a&gt;&lt;/strong&gt;.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;In a &lt;a href=&quot;http://www.independent.co.uk/news/business/comment/ha-joon-chang-protectionism-the-truth-is-on-a-10-bill-5334137.html&quot; rel=&quot;noreferrer&quot;&gt;2007 article&lt;/a&gt;, Chang gives various examples of protectionism &quot;working&quot;, including the US in the 19th century:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;the US shifted to protectionism after the Anglo-American War of 1812. By the 1830s, its industrial tariff rate, at 40-50 per cent, was the highest in the world, and remained so until the Second World War.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The other oft-cited examples are East Asian economies like Japan, Korea, and Taiwan in the postwar era.&lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;2&quot;&gt;&#xA;&lt;li&gt;&lt;strong&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Theory_of_the_second_best&quot; rel=&quot;noreferrer&quot;&gt;The second-best argument&lt;/a&gt;&lt;/strong&gt;.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;The world is a second-best place and so movements towards seemingly-freer trade may not always be a good thing. Classic example as told by Rodrik (&lt;a href=&quot;https://books.google.com/books?id=TOlwBgAAQBAJ&amp;amp;pg=PT30&amp;amp;lpg=PT30&amp;amp;dq=%22imagine%20that%20beef%20is%20supplied%20by%20the%20United%20States%20to%20Germany%20at%20a%20price%20of%20$100%22&quot; rel=&quot;noreferrer&quot;&gt;2015&lt;/a&gt;):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;imagine that beef is supplied by the United States to Germany at a price of \$100. Assume that Germany imposes a tariff of 20 percent, raising the consumer price of US beef in the German market to \$120. France, meanwhile, can supply beef of equivalent quality only at a price of \$119. Prior to the preferential agreement between France and Germany, French suppliers, facing the same tariff rate as US producers, were outcompeted. Now consider what happens when Germany eliminates its tariffs on imports from France but keeps in place those on the United States. French-supplied beef suddenly becomes cheaper in Germany (\$119 versus \$120), and imports from the United States collapse. German consumers are better off by \$1, but the German government forfeits \$20 of tariff revenue previously collected on US beef (which could have been handed back to consumers or used to reduce other taxes in Germany). On balance, Germany gets a raw deal.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Two footnotes.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Evaluating whether something has ever &quot;worked&quot; is fiendishly difficult in economics. &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;First we have to decide what the goals of the policies were and what would count as &quot;working&quot;. Then we have to do the empirical analysis and evaluate quantitatively the degree to which the policies &quot;worked&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So while Chang and Rodrik might give examples of protectionism &quot;working&quot; (19th-century US, Japan, Korea, Taiwan), other economists might disagree that protectionism really &quot;worked&quot; in these cases. Indeed, I am not aware that Chang or Rodrik has actually conducted any empirical analyses on this matter.&lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;2&quot;&gt;&#xA;&lt;li&gt;Chang and Rodrik merely try to argue against the extreme position that free trade is &lt;em&gt;always&lt;/em&gt; a good thing for &lt;em&gt;everybody&lt;/em&gt; and in favor of the modest position that protectionism has &lt;em&gt;sometimes&lt;/em&gt; &quot;worked&quot;.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Most (all?) economists, including Chang and Rodrik, would agree with the following statements:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Free trade is generally a good thing for most people.&lt;/li&gt;&#xA;&lt;li&gt;Tariffs are generally a bad thing for most people.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;In contrast, a significant portion of the general public would disagree.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2018-03-04T06:47:08.790" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="20869" PostTypeId="2" ParentId="20860" CreationDate="2018-03-04T13:13:10.647" Score="0" Body="&lt;p&gt;The data provider may have more information on the series. The following is what I believe is the usual definition.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The generic bond yield is associated with a maturity point, for example, a “generic 10-year yield.” For each trading day, the data provider fixes a particular bond from that issuer that has a maturity that is close to the chosen maturity point. The “generic yield” is the yield on that bond for that date. The key to the definition is the rule that picks the bond each day. The series will likely jump when the bond chosen changes (called a rollover).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An alternative is a “fitted yield.” For such yields, the data provider fits a curve through all observed bond prices for the issuer using some algorithm. The fitted yield at a maturity point is then read off the curve. The advantage is that the curve only moves if most of the traded bonds move, so there is no artificial jump on rollover. The Fed H.15 series are well-known fitted curves.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Bloomberg also refers to “current” bonds. This is a time series of the current benchmark bond/note of that maturity; the time series starts as soon as there is yield data available for that issuers. There is no rollover, but the time series is obviously short.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2018-03-04T13:13:10.647" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20870" PostTypeId="1" CreationDate="2018-03-04T14:14:26.833" Score="3" ViewCount="115" Body="&lt;p&gt;Why US growth is stagnant even though unemployment is significantly low . Not only US but all developed nations are facing this problem. Is limited population the cause of this , I mean lower human resources.&lt;/p&gt;&#xA;" OwnerUserId="16133" LastActivityDate="2018-11-04T00:00:02.997" Title="US economy stagnant growth" Tags="&lt;macroeconomics&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20872" PostTypeId="1" AcceptedAnswerId="20881" CreationDate="2018-03-04T18:24:53.970" Score="3" ViewCount="349" Body="&lt;p&gt;Currently reading David Adler's text on distributional weights in benefit-cost analysis (&lt;a href=&quot;https://scholarship.law.duke.edu/faculty_scholarship/3110/&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://scholarship.law.duke.edu/faculty_scholarship/3110/&lt;/a&gt;), I cannot manage to fully grasp the definition of the anonymity axiom. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The isoelastic/Atkinson social welfare function (SWF) allows for an inequality aversion parameter; greater weight is put on changes affecting worse-off individuals. Adler states that this function satisfies the anonymity/impartiality axiom, defined here as &quot;meaning indifference between any given utility vectora and all rearrangements of component numbers&quot;. I understand this, broadly, as meaning that the levels of utility, and not the persons enjoying those levels, are what counts. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can't manage to reconcile the fact that the &quot;anonymity/impartial SWFs focus only on the patern of well-being, and not on the identities of the people who end up at particular well-being levels&quot; (page 267 of the text) with the use of an inequality aversion parameter, which, by definition, treats individuals differently. Would this not mean focusing &quot;on the identities of the people who end up at particular well-being levels&quot;?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What am I missing ? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any links towards readings on this subject would be much appreciated as well. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Many thanks.&lt;/p&gt;&#xA;" OwnerUserId="16458" LastEditorUserId="16458" LastEditDate="2018-03-04T18:37:38.553" LastActivityDate="2018-03-08T19:38:03.693" Title="Anonymity in social welfare function" Tags="&lt;social-welfare&gt;&lt;social-choice&gt;" AnswerCount="2" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="20873" PostTypeId="2" ParentId="20870" CreationDate="2018-03-04T18:27:12.673" Score="0" Body="&lt;p&gt;Growth rates tend to fall down or become stagnant , once a country reaches certain stage of development. Developing countries have higher growth rater because they are catching up with the developed countries. &lt;/p&gt;&#xA;" OwnerUserId="16456" LastActivityDate="2018-03-04T18:27:12.673" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20874" PostTypeId="2" ParentId="20848" CreationDate="2018-03-04T19:09:48.897" Score="3" Body="&lt;p&gt;Suppose we want to find the contributions of the variables to the given function:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$f(x,y)= {x\over{y}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To find the growth rates of the given variables first take the logarithm of the function $f(x,y)$:&#xA;$$ln(f(x,y))=ln\left({x\over{y}}\right)=ln(x)-ln(y)$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And then take the partial derivative of the variable you would like to analyze:  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$${\partial ln\left({x\over{y}}\right)\over{\partial x}}={\dot{x}\over{x}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$${\partial ln \left({x \over{y}} \right)\over{\partial y}}=-{\dot{y}\over{y}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where $\dot{x}$ and $\dot{y}$ are the derivatives of $x$ and $y$ respectively&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus in your case if you would like to find the contributions to growth to leverage you can simply do the same thing as above. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;i.e.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\mathfrak{L}={{l+b}\over{l+b+e}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\mathfrak{L}=$ leverage&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$l=$ loans&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$b=$ bonds&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$e=$ equity&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ln \left( \mathfrak{L} \right)= ln(l+b) -ln(l+b+e)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;you can thus find the contributions to growth by the variables involved by taking the partial derivative of the variable you wish to examine. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope this is helpful!!  &lt;/p&gt;&#xA;" OwnerUserId="6629" LastActivityDate="2018-03-04T19:09:48.897" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20875" PostTypeId="1" CreationDate="2018-03-04T19:32:15.870" Score="-1" ViewCount="550" Body="&lt;p&gt;How might a government or business attempt to reduce the natural rate of unemployment? Is it just supply side policies or does anyone have anything more sophisticated?&lt;/p&gt;&#xA;" OwnerUserId="16461" LastActivityDate="2018-03-05T19:29:07.073" Title="Methods of reducing the natural rate of unemployment?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20876" PostTypeId="1" CreationDate="2018-03-04T20:30:51.037" Score="4" ViewCount="33" Body="&lt;p&gt;In «New Introduction to Multiple Time Series», page 90, we have the following formulas for the ML estimators of a stable Gaussian VAR$(p)$ process:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/86d0u.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/86d0u.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $\tilde \alpha = vec(\tilde A_1,...,\tilde A_p)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And here is exactly where my doubt resides. If for $\tilde \alpha$ estimator, I need $\tilde \mu$ estimator, but then for $\tilde \mu$ I'm going to need also $\tilde \alpha$. So, how is this dependence broken, or is this solved by an iterative algorithm that will reach a fixed point?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've also posted &lt;a href=&quot;https://stats.stackexchange.com/questions/331104/mle-in-a-stable-gaussian-varp-process-are-the-lutkepohl-formulas-correct&quot;&gt;this question in CV&lt;/a&gt;, but I didn't get any answer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="118" LastEditDate="2018-03-05T21:12:50.360" LastActivityDate="2018-03-05T21:12:50.360" Title="Max Likelihood Estimators of a stable Gaussian VAR$(p)$ process. Are the Lutkepohl formulas correct?" Tags="&lt;econometrics&gt;&lt;time-series&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="20877" PostTypeId="2" ParentId="19551" CreationDate="2018-03-04T20:44:03.127" Score="4" Body="&lt;p&gt;In first world countries, the price of a bottle of water is set by a well-established market. There are millions of prospective buyers of a bottle of water and thousands of prospective suppliers, and while many suppliers are able to achieve brand differentiation, for the most part their water is fungible. Moreover, the supply and demand curves of water are reasonably stable, and water companies have the excess capital to hold inventory stockpiles that further reduce the volatility of prices. There is little information asymmetry. Customers can easily comparison shop, and price discrimination is very difficult. Suppliers are generally large corporations, which means that allowing bargaining would introduce massive headaches, such as agent-principal issues. There's also a feedback effect: once an economy and culture are built around fixed prices, it's more difficult to introduce bargaining. Water companies are in a low-margin business where their money comes from high volume. Spending resources bargaining would destroy those margins.&lt;/p&gt;&#xA;" OwnerUserId="16462" LastActivityDate="2018-03-04T20:44:03.127" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20878" PostTypeId="1" AcceptedAnswerId="20879" CreationDate="2018-03-04T20:44:48.817" Score="1" ViewCount="245" Body="&lt;p&gt;The Ministry of Health and Family Welfare answered in the upper house to a question that India has a fertility rate of 2.2 (link &lt;a href=&quot;http://164.100.47.234/question/annex/242/Au2958.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;). The replacement fertility level is usually given at 2.1 to 2.2. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;These sources suggest that India's population is projected to grow at least until 2060 (2050 in some sources): &lt;a href=&quot;https://qz.com/1051533/india-is-unprepared-for-a-near-future-when-it-will-be-the-worlds-most-populous-country/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Quartz&lt;/a&gt;, &lt;a href=&quot;http://www.thehindu.com/news/national/indias-fertility-rate-more-than-halves-over-40-years/article19124554.ece.&quot; rel=&quot;nofollow noreferrer&quot;&gt;The Hindu&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Quartz article even cits UN population projects and says: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Even under the instant-replacement fertility variant, with the country’s fertility assumed to fall immediately to 2.1 births per woman, India’s population would reach 1.9 billion by the century’s close.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.ncbi.nlm.nih.gov/pubmed/7834459&quot; rel=&quot;nofollow noreferrer&quot;&gt;This source&lt;/a&gt; defines the replacement fertility level as: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Replacement level fertility is the level of fertility at which a population exactly replaces itself from one generation to the next. In developed countries, replacement level fertility can be taken as requiring an average of 2.1 children per woman.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;What I don't understand is: how can India's population be projected to grow until 2060 if it has already reached replacement fertility level in 2017? A 'generation' is usually 25 years. Even if we take it as 30 years, India's population should stop growing in a couple of decades. How does the UN project that it'll grow until 2060?&lt;/p&gt;&#xA;" OwnerUserId="6486" LastEditorUserId="8481" LastEditDate="2020-05-04T10:09:51.847" LastActivityDate="2021-04-04T11:31:25.940" Title="How long can a population grow once it has reached the replacement fertility rate?" Tags="&lt;population-economics&gt;&lt;demographics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="20879" PostTypeId="2" ParentId="20878" CreationDate="2018-03-04T20:51:54.673" Score="2" Body="&lt;p&gt;Population size isn't just about birth rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's also about death rate and net migration.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the health of India's population continues to improve, then life expectancy will increase, and population size will continue to grow until life expectancy stops increasing, assuming zero net migration.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Net inward migration would also increase the population size.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2018-03-04T20:51:54.673" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="20880" PostTypeId="1" AcceptedAnswerId="20882" CreationDate="2018-03-04T20:52:32.440" Score="2" ViewCount="2393" Body="&lt;p&gt;On a graph where there is a shift in either the demand or supply curve, there is often a deadweight loss, but which triangle is correct? For instance in this image the DWL is the green triangle, but what about the white triangle beneath it? They have the same area, so are both of them equally valid? If not, how can I determine which triangle is DWL? Thanks! &lt;a href=&quot;https://i.stack.imgur.com/mvj3r.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/mvj3r.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="16463" LastActivityDate="2018-03-04T22:11:59.047" Title="How to determine which triangle is DWL?" Tags="&lt;supply-and-demand&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20881" PostTypeId="2" ParentId="20872" CreationDate="2018-03-04T22:03:27.423" Score="3" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Anonymous/impartial SWFs focus only on the pattern of well-being,&#xA;  and not the identities of the people who end up at particular well-being levels.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Identities&lt;/em&gt; here simply means names. When applying an impartial SWF, one only looks at the profile of utilities, not &lt;em&gt;who&lt;/em&gt; those utilities are associated with. Consider the following two cases: &#xA;\begin{array}{ccc}&#xA;&amp;amp;U_{\text{President}}&amp;amp;U_{\text{CEO}}&amp;amp;U_{\text{Farmer}} \\\hline&#xA;\text{Case 1}&amp;amp; 100 &amp;amp; 80 &amp;amp; 10\\&#xA;\text{Case 2}&amp;amp; 10 &amp;amp; 100 &amp;amp; 80&#xA;\end{array}&#xA;The &lt;strong&gt;&lt;em&gt;patterns&lt;/em&gt;&lt;/strong&gt; of the distribution of well-being/utility in the two cases are essentially the same, and yet they differ in &lt;strong&gt;&lt;em&gt;who&lt;/em&gt;&lt;/strong&gt; is better/worse off. An impartial SWF would generate the same outcome in both cases, since it only focuses on the pattern (i.e. the utility numbers) of the well-being distribution and &lt;em&gt;not&lt;/em&gt; on who (i.e. the identity) has which level of utility. In particular, the fact that the President is the happiest person in Case 1 but the most miserable in Case 2 has no impact whatsoever on the outcome of the impartial SWF. &lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2018-03-04T22:03:27.423" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20882" PostTypeId="2" ParentId="20880" CreationDate="2018-03-04T22:11:59.047" Score="6" Body="&lt;p&gt;Here's a quick and dirty trick: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;DWL is the triangle that points (horizontally) towards the efficient quantity. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;If equilibrium quantity is lower than the efficient quantity, DWL should point rightward, and it represents the amount of unrealized gains from trade. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If equilibrium quantity is higher than the efficient quantity, DWL should point leftward, and it represents the amount of social loss due to over-production/consumption (when social marginal cost is greater than social marginal benefit). &lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2018-03-04T22:11:59.047" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20883" PostTypeId="2" ParentId="20878" CreationDate="2018-03-04T23:07:55.910" Score="2" Body="&lt;p&gt;The UN Population Division's &lt;a href=&quot;https://population.un.org/wpp/Graphs/Probabilistic/POP/TOT/356&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;median&lt;/em&gt; projection for India&lt;/a&gt; shows population growing until around 2060.  Continuing growth despite replacement level fertility is a consequence of the  age structure of the population which, following common practice, the UN represents by a &lt;a href=&quot;https://population.un.org/wpp/Graphs/DemographicProfiles/Pyramid/356&quot; rel=&quot;nofollow noreferrer&quot;&gt;population pyramid&lt;/a&gt;. At present, India's population in groups up to age 40 is larger than in the 40-50 groups and much larger than in groups over 50.  That is partly due to deaths among older groups but to a considerable extent it reflects past population growth, with each 5 year age group (until the under 10 groups) being larger than the one before.&lt;/p&gt;&#xA;&lt;p&gt;With replacement level fertility, future births will result in 5 year groups of about the same size as those in the current 0 to 40 range.  But population growth can still occur as the current 0 to 40 groups become older.  In 40 years time the 0 to 40 groups will have become the 40-80 groups, and barring a huge increase in death rates will be much larger than the current 40-80 groups.&lt;/p&gt;&#xA;&lt;p&gt;This phenomenon is known as population momentum (for further explanation see &lt;a href=&quot;https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3987379/pdf/FVVinObGyn-5-281-291.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Bavel 2013&lt;/a&gt; pp 288-9).&lt;/p&gt;&#xA;" OwnerUserId="1417" LastEditorUserId="1417" LastEditDate="2021-04-04T11:31:25.940" LastActivityDate="2021-04-04T11:31:25.940" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="20885" PostTypeId="1" AcceptedAnswerId="20891" CreationDate="2018-03-05T16:48:01.930" Score="1" ViewCount="129" Body="&lt;p&gt;I have been studying the area of unsecured consumer credit (consumer loans and credit cards) and credit scoring. My question is: can we have a utility function (either a lender's or borrower's utility) that can take both the borrower's credit score (probability of repayment) and loan limit (amount) as arguments in an explicit manner? What I have managed to get on the web are implicit functions of the form $f(x,y)$ e.g. on equation (1) in the article &lt;a href=&quot;https://pdfs.semanticscholar.org/3207/55db4a277766043b5a1cb73f3b84df9cb613.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://pdfs.semanticscholar.org/3207/55db4a277766043b5a1cb73f3b84df9cb613.pdf&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="16470" LastEditorUserId="42" LastEditDate="2018-03-05T17:24:26.257" LastActivityDate="2018-03-06T20:53:20.360" Title="Utility Function in Consumer Credit" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;consumer-credit&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="20886" PostTypeId="2" ParentId="20875" CreationDate="2018-03-05T19:29:07.073" Score="1" Body="&lt;p&gt;Recall the steady state level of unemployment   is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$u^*={q\over{q+f}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where: $q=$ job separation rate&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\space\space\space\space\space\space\space\space\space\space f=$ job finding rate&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, to try to lower the natural rate of unemployment would man to try to reduce the job separation rate $q$ and increase the job finding rate $f$.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Examples of methods for increasing the job finding rate are:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Government employment agencies:&lt;/strong&gt; disseminate info about job openings to better match workers and jobs. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Public Job training programs:&lt;/strong&gt; help workers displaced from declining industries get skills needed for jobs in growing industries.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An example which can be used to reduce job separation rate is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Labor unions:&lt;/strong&gt; Unions exercise monopoly power to secure higher wages, better working conditions etc. for their members.This in turn can help reduce the job separation rate by providing conditions which would be more suitable for for members employed to want to still hold onto their present jobs.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope this is helpful!!&lt;/p&gt;&#xA;" OwnerUserId="6629" LastActivityDate="2018-03-05T19:29:07.073" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20887" PostTypeId="1" CreationDate="2018-03-06T14:10:06.697" Score="3" ViewCount="22" Body="&lt;p&gt;Im working on a model examining the effect of minimum wages on employment over the 10 provinces using a panel data set. I have used the Hausman test to decide to use RE or FE, in which it recommended RE. However, my concern is that is may not be a appropriate assumption that the 10 provinces (error term) are a random sample from a larger population which the RE model assumes. Thoughts? should I use the FE instead? &lt;/p&gt;&#xA;" OwnerUserId="15064" LastActivityDate="2018-03-06T14:10:06.697" Title="Random effect Vs Fixed effect with the 10 CAN provs as cross sections" Tags="&lt;econometrics&gt;&lt;fixed-effects&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20888" PostTypeId="2" ParentId="20870" CreationDate="2018-03-06T16:33:35.383" Score="1" Body="&lt;p&gt;Not necessarily. One has to distinguish between (output - I just assume that you mean output, i. e. gdp) growth and per capita growth. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In (very) simple terms: Growth is the result of either population growth, capital accumulation (more investment) or technological progress. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So one reason for the low US growth could be limited population growth and looking at the data this is a possibility (&lt;a href=&quot;https://www.google.de/publicdata/explore?ds=d5bncppjof8f9_&amp;amp;met_y=sp_pop_grow&amp;amp;hl=en&amp;amp;dl=en#!ctype=l&amp;amp;strail=false&amp;amp;bcs=d&amp;amp;nselm=h&amp;amp;met_y=sp_pop_grow&amp;amp;scale_y=lin&amp;amp;ind_y=false&amp;amp;rdim=region&amp;amp;idim=country:USA&amp;amp;ifdim=region&amp;amp;tdim=true&amp;amp;hl=en_US&amp;amp;dl=en&amp;amp;ind=false&quot; rel=&quot;nofollow noreferrer&quot;&gt;Population Growth Rate US&lt;/a&gt;)&lt;br&gt;&#xA;Another possibility might be the &quot;unusability&quot; of technical progress. While a lot of research is done and we discover lots of new things not everything can be used in the production progress and is therefore not reflected in gdp growth. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;One way to check this possibility is to development a new measure of technical progress - I think Daron Acemoglu and some coauthors are working on a new index. Another possibility is that this technical knowledge is just worthless. Consider the internet rush around 2000 which was at that time considered as technical progress which would increase the productivity of the whole economy... Well most of this was wrong and this technical progress did not lead to an increase in productivity - an argument often used by Robert Solow.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the question: &quot;Why is a nation not growing&quot; is pretty difficult and not easy to answer or even understand.&lt;/p&gt;&#xA;" OwnerUserId="16436" LastActivityDate="2018-03-06T16:33:35.383" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="20891" PostTypeId="2" ParentId="20885" CreationDate="2018-03-06T20:53:20.360" Score="0" Body="&lt;p&gt;Below is an example based on the general formulation in your linked article. &lt;em&gt;This will very likely need a lot more fine-tuning.&lt;/em&gt; Moreover, the following example does not necessarily satisfy the theoretical properties laid out in footnote 16 of the paper. (You should check this.) Nevertheless I hope this could at least give you an idea of how to think about writing down an appropriate utility function that suits your purpose. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider &#xA;\begin{equation}&#xA;\Pi(d,q,\theta)=&#xA;\underbrace{\left[1+\mathrm e^{-(\alpha_0+\alpha_1 d+\alpha_2q+\alpha_3\theta)}\right]^{-1}}_{G(d,q,\theta)}&#xA;\biggl[d+\underbrace{\frac{a+bq-d}{\theta T}\left(\frac{1-(1+r)^{-\theta T}}{r}\right)^{\!\!-1}}_{M(L,q,\theta)}-q^2\biggr]\,,&#xA;\end{equation}&#xA;where&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;$d=$ down payment; $q=$ car quality; $\theta=$ creditworthiness; $L=$ loan amount&lt;/li&gt;&#xA;&lt;li&gt;car with quality $q$ is priced at $p(q)=a+bq$, where $a,b$ are parameters to be estimated/calibrated&lt;/li&gt;&#xA;&lt;li&gt;loan amount: $L=p(q)-d=a+bq-d$&lt;/li&gt;&#xA;&lt;li&gt;probability of purchase $G(d,q,\theta)$ is modeled by a &lt;a href=&quot;https://en.wikipedia.org/wiki/Logistic_distribution&quot; rel=&quot;nofollow noreferrer&quot;&gt;logistic distribution&lt;/a&gt;, which is parameterized by the variables of interest, and the $\alpha_i$'s are parameters to be estimated/calculated &lt;/li&gt;&#xA;&lt;li&gt;$\theta T$ is the term of the loan, which is increasing in $\theta$&lt;/li&gt;&#xA;&lt;li&gt;assuming repayment in each period is the same, i.e. $L/\theta T$, the &lt;a href=&quot;https://en.wikipedia.org/wiki/Present_value#Present_value_of_an_annuity&quot; rel=&quot;nofollow noreferrer&quot;&gt;PV of loan payment&lt;/a&gt; is $M(L,q,\theta)$, where $r$ is the periodic interest rate&lt;/li&gt;&#xA;&lt;li&gt;cost of producing a car with quality $q$ is modeled by $c(q)=q^2$&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="42" LastActivityDate="2018-03-06T20:53:20.360" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20892" PostTypeId="1" CreationDate="2018-03-06T23:53:44.460" Score="3" ViewCount="62" Body="&lt;p&gt;I study an economy with two goods ($x$ and $y$) and two consumers ($A$ and $B$). First there is no trade between $A$ and $B$, so they consume their endowments $e^A_x$ and $e^B_x$ and reach utility levels $u^A_1$ and $u^B_1$. Thereafter, trade develops between $A$ and $B$ and they reach utility levels $u^A_2$ and $u^B_2$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I now want to find how much better off each consumer has become due to trade. I understand that looking at the increase in utility does not give any meaning, since the utility function is an ordinal function. From what I can gather, the correct way of doing this is to calculate the compensating variation $CV$ - how much more of the nominal good they need in autarchy in order to reach $u^A_2$ and $u^B_2$, respectively. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, whouldn't comparing the value of each consumer's endowments (i.e. their autarchy consumption) and the value of the goods they end up consuming after trade also tell us how much better off they are after trade?&lt;/p&gt;&#xA;" OwnerUserId="16480" LastActivityDate="2019-08-30T05:03:05.473" Title="Compensating variation versus change in value of goods consumed?" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20893" PostTypeId="1" CreationDate="2018-03-07T02:37:22.673" Score="1" ViewCount="114" Body="&lt;p&gt;I have the utility function $U^A=\alpha ln(x^A)+\beta ln(y^A)$ for consumer $A$ and $U^B=\gamma ln(x^B)+\phi ln(y^B)$ for consumer $B$. They are endowed with $\omega^h_x$ and $\omega^h_y$ of $x$ and $y$, where $h=A,B$. $p_y = 1$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;They are allowed to trade and I have solved for the Walrasian equilibrium price $p^*_x$ and found that this is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ p^*_x=\frac{\alpha \omega^A_y+\gamma \omega^B_y}{\beta \omega^A_x+\phi \omega^B_x}&#xA;$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I believe that I'm missing out on some basic intuition here. What is the significance of $\alpha$ being swapped from good $x$ (in the utility function) to $y$ (in the price), for instance? There also seems to be a link here to the MRS? It seems like the first term in the nominator divided by the first term in the denominator yields the MRS for $A$ and the same for the second terms for $B$?&lt;/p&gt;&#xA;" OwnerUserId="16482" LastActivityDate="2018-03-07T02:37:22.673" Title="MRS in Walrasian equilibrium price expression?" Tags="&lt;microeconomics&gt;&lt;cobb-douglas&gt;&lt;walrasian&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="20894" PostTypeId="2" ParentId="20791" CreationDate="2018-03-07T06:41:13.440" Score="0" Body="&lt;p&gt;In short the answer is: &lt;strong&gt;time&lt;/strong&gt; - all variables depend on time and what you call &quot;% change in M&quot; is better called &quot;growth rate&quot; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For simplicity let's consider only one the right side of the quantity equation and donate this side with $Z=Y P$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The growth rate of $Z$ equals ${dZ\over dt} {1\over Z} = {\dot Z \over Z}$ with $dZ \over dt $ as the total derivative of $Z$ with respect to time $t$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's do some math with the above formula for $Z$ where $Z$ depends on $Y$ and $P$ which both again depend on $t$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;${dZ\over dt} {1\over Z}$ = $({dZ \over dY} {dY \over dt}+{dZ \over dP} {dP \over dt}) {1 \over Z }$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;${dZ\over dt} {1\over Z}$ = $({dYP \over dY} {dY \over dt}+{dYP \over dP} {dP \over dt}) {1 \over YP }$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;${dZ\over dt} {1\over Z}$ = $({P} {dY \over dt}+{Y} {dP \over dt}) {1 \over YP }$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;${dZ\over dt} {1\over Z}$ = $({P} {dY \over dt}+{Y} {dP \over dt}) {1 \over YP }$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;${dZ\over dt} {1\over Z}$ = ${dY \over dt} {1 \over Y} +{dP \over dt} {1 \over P}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which is the same as the sum of the growth rates with ${\dot Z \over Z}={\dot Y \over Y}+{\dot P \over P}$ which is for small values pretty close to taking logs which was already pointed out. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The same argument applys the the left side of the euqation.   &lt;/p&gt;&#xA;" OwnerUserId="16436" LastActivityDate="2018-03-07T06:41:13.440" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20895" PostTypeId="1" AcceptedAnswerId="24327" CreationDate="2018-03-07T06:41:49.980" Score="4" ViewCount="260" Body="&lt;p&gt;I came across a very thought-provoking quote by &lt;a href=&quot;https://en.wikipedia.org/wiki/John_Kenneth_Galbraith&quot; rel=&quot;nofollow noreferrer&quot;&gt;JK Galbraith&lt;/a&gt; concerning supply-side economics. The quote is as follows:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The poor don't work because they have too much money. The rich don't&#xA;  work because they don't have enough money. If you believe that, you'll&#xA;  believe anything. -- J.K. Galbraith&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;With famous titles like: &lt;em&gt;The Affluent Society&lt;/em&gt;, Galbraith was a expert in economics. Also he is very witty, and between these qualities I'm having a hard time connecting the dots for myself. I'm not sure how much of his explanation/comment is sarcasm and how much is genuine.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Question:&lt;/strong&gt; Is there any notion/assumption/principle in supply-side economics that could legitimately be alluded to in Galbraith's remark here? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words, he must have phrased it this way for a reason; and let's not forget, this is in the context of supply-side economics. So by juxtaposing these false statements with our intuitive understanding of supply and demand, it's as though he's mocking that school of thought. So what is the original concept of the supply-side school of thought that he his mocking? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Surely there is something he thought was paradoxical in supply-side theory that made him say this comment. &lt;/p&gt;&#xA;" OwnerUserId="12212" LastEditorUserId="12212" LastEditDate="2018-03-07T07:30:30.653" LastActivityDate="2018-08-31T18:30:23.730" Title="JK Galbraith Quote: How to interpret?" Tags="&lt;macroeconomics&gt;&lt;supply-and-demand&gt;&lt;labor-economics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20896" PostTypeId="2" ParentId="20895" CreationDate="2018-03-07T07:09:45.373" Score="3" Body="&lt;p&gt;Here is the quote, rephrased:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is a false statement: (A) the poor don't work because they have too much money.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is also a false statement: (B) the rich don't work because they don't have enough money.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you believe those false statements (A) and (B), you are very credulous.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The poor have a much higher marginal value of money than the rich, so their incentive to work, to earn more money, is very high. For the rich, it's the other way around.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ken is making explicit two assumption that are fairly common (in that school of thought and some other Conservative groups), but rarely spoken so plainly, and rarely spoken together. When they made explict and are put together, it makes it much clearer that to hold both of them at the same time is absurd.&lt;/p&gt;&#xA;" OwnerUserId="44" LastEditorUserId="1601" LastEditDate="2018-03-07T11:46:23.430" LastActivityDate="2018-03-07T11:46:23.430" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="20898" PostTypeId="1" AcceptedAnswerId="20903" CreationDate="2018-03-07T15:58:57.560" Score="4" ViewCount="287" Body="&lt;p&gt;Under standard assumptions on the domain of bargaining problems like &lt;em&gt;Pareto Optimality, Symmetric, Scale Invariance and Independent of Irrelevant Alternatives / Individual Monotonicty&lt;/em&gt;, in which conditions (on feasible set S, or disagreemnt point d) that characterize &lt;strong&gt;the domain in which Kalai-Smorodinsky and Nash solutions coincide&lt;/strong&gt;?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My idea is that when feasible set is symmetric, both solutions should coincide but it should be other cases..?&lt;/p&gt;&#xA;" OwnerUserId="12387" LastActivityDate="2018-04-07T00:27:20.423" Title="Axiomatic Bargaining: Kalai-Smorodinsky and Nash solutions coincide" Tags="&lt;game-theory&gt;&lt;bargaining&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20902" PostTypeId="1" AcceptedAnswerId="20904" CreationDate="2018-03-07T22:30:03.827" Score="7" ViewCount="157" Body="&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/David_Romer&quot; rel=&quot;noreferrer&quot;&gt;David Romer&lt;/a&gt; in his textbook &lt;a href=&quot;https://rads.stackoverflow.com/amzn/click/com/B004HP3V5U&quot; rel=&quot;noreferrer&quot; rel=&quot;nofollow noreferrer&quot;&gt;Advanced Macroeconomics (&lt;em&gt;Third Edition&lt;/em&gt;)&lt;/a&gt; writes regarding the speed of convergence of the &lt;a href=&quot;https://en.wikipedia.org/wiki/Overlapping_generations_model&quot; rel=&quot;noreferrer&quot;&gt;Diamond model&lt;/a&gt; the following:&lt;/p&gt;&#xA;&lt;p&gt;(&lt;em&gt;Pg. 83&lt;/em&gt;)&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;&lt;em&gt;Equation (2.60) [&lt;span class=&quot;math-container&quot;&gt;$k_{t+1}={1\over{(1+n)(1+g)}}{1\over{2+\rho}}(1-\alpha)k_t^\alpha$&lt;/span&gt;] gives &lt;span class=&quot;math-container&quot;&gt;$k_{t+1}$&lt;/span&gt; as a function of &lt;span class=&quot;math-container&quot;&gt;$k_t$&lt;/span&gt;. The economy is on its balanced growth path when these two are equal, that is &lt;span class=&quot;math-container&quot;&gt;$k^*$&lt;/span&gt; is defined by&lt;/em&gt;&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$k^*={1\over{(1+n)(1+g)}}{1\over{2+\rho}}(1-\alpha)k^{* \alpha}\space\space\space\space\space\space\space\space\space\space\space\space$&lt;/span&gt; (2.61)&lt;/p&gt;&#xA;&lt;p&gt;&lt;em&gt;Solving this expression for &lt;span class=&quot;math-container&quot;&gt;$k^*$&lt;/span&gt; yields&lt;/em&gt;&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$k^*=\left[{(1-\alpha)\over{(1+n)(1+g)(2+\rho)}}\right]^{1 \over{1-\alpha}}\space\space\space\space\space\space\space\space\space\space\space\space\space\space\space\space\space\space\space\space$&lt;/span&gt; (2.62)&lt;/p&gt;&#xA;&lt;p&gt;&lt;em&gt;[...] We can also find out how quickly the economy converges to the balanced growth path. To do this, we again linearize around the balanced growth path. [...] Thus:&lt;/em&gt;&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$k_{t+1} \simeq k^*+\left( {{dk_{t+1}}\over{dk_t}}\Big{|}_{k_t=k^*}\right) \left(k_t-k^*\right)\space\space\space\space$&lt;/span&gt; (2.64)&lt;/p&gt;&#xA;&lt;p&gt;&lt;em&gt;Let &lt;span class=&quot;math-container&quot;&gt;$\lambda$&lt;/span&gt; denote &lt;span class=&quot;math-container&quot;&gt;$dk_{t+1}/dk_t$&lt;/span&gt; evaluated at &lt;span class=&quot;math-container&quot;&gt;$k_t=k^*$&lt;/span&gt;. With this definition, we can rewrite (2.64) [...]&lt;/em&gt;&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$k_t-k^* \simeq \lambda^t (k_0-k^*)\space\space\space\space\space\space\space\space\space\space\space\space\space\space\space\space\space\space\space\space\space\space\space\space\space\space$&lt;/span&gt; (2.65)&lt;/p&gt;&#xA;&lt;p&gt;&lt;em&gt;Where &lt;span class=&quot;math-container&quot;&gt;$k_0$&lt;/span&gt; is the initial value of &lt;span class=&quot;math-container&quot;&gt;$k$&lt;/span&gt;&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;h1&gt;My Question&lt;/h1&gt;&#xA;&lt;p&gt;(&lt;em&gt;Pg 84&lt;/em&gt;)&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;&lt;em&gt;[...] if &lt;span class=&quot;math-container&quot;&gt;$\lambda$&lt;/span&gt; is greater than 1, the system explodes&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;What does it mean the system explodes when &lt;span class=&quot;math-container&quot;&gt;$\lambda$&lt;/span&gt; is greater than 1? Why does it explode when &lt;span class=&quot;math-container&quot;&gt;$\lambda$&lt;/span&gt; is greater than 1?&lt;/p&gt;&#xA;" OwnerUserId="6629" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2018-03-11T17:13:36.450" Title="&quot;If $\lambda$ is greater than than 1, the system explodes.&quot; Why does the system explode?" Tags="&lt;macroeconomics&gt;&lt;steady-state&gt;&lt;olg&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20903" PostTypeId="2" ParentId="20898" CreationDate="2018-03-07T22:44:36.963" Score="4" Body="&lt;p&gt;Another sufficient condition for the two solutions to coincide, which is not necessarily the same as symmetry, is that the feasible set $S$ be rectangular. That is, &#xA;\begin{equation}&#xA;S=\text{convex hull}\{(d_1,d_2),(d_1,\overline x_2),(\overline x_1,d_2),(\overline x_1,\overline x_2)\},&#xA;\end{equation}&#xA;where $d_i$ is $i$'s reservation utility and $\overline x_i$ is $i$'s best possible utility from the bargaining. Both Nash and KS solutions are at $(\overline x_1,\overline x_2)$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Using the property that the KS solution can be obtained at the intersection of a ray from the disagreement point $d$ and the (northeast) boundary of the feasible set $S$, we can derive the following necessary condition for KS and Nash solutions to match: let $(x_1^N,x_2^N)$ denote the Nash solution to bargaining problem $(S,d)$; the KS solution $(x_1^{KS},x_2^{KS})=(x_1^N,x_2^N)$ only if &#xA;\begin{equation}&#xA;\frac{x_2^N-d_2}{x_1^N-d_1}=\frac{\overline x_2-d_2}{\overline x_1-d_1}.&#xA;\end{equation}&lt;/p&gt;&#xA;" OwnerUserId="42" LastEditorUserId="42" LastEditDate="2018-03-07T23:21:12.637" LastActivityDate="2018-03-07T23:21:12.637" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20904" PostTypeId="2" ParentId="20902" CreationDate="2018-03-07T22:48:34.460" Score="10" Body="&lt;p&gt;Eq. (2.64) can be written as (at first order)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;k_{t+1} - k^* = \lambda (k_t - k^*) \tag{1a}&#xA;$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Define the quantity $\kappa_t$ as &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\kappa_t \stackrel{\rm def}{=} k_t - k^* \tag{2}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\kappa_{t+1} = \lambda \kappa_t \tag{1b}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This can be solved very easy by realizing that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{eqnarray}&#xA;\kappa_1 &amp;amp;=&amp;amp;\lambda \kappa_0 \\&#xA;\kappa_2 &amp;amp;=&amp;amp;\lambda \kappa_1 = \lambda(\lambda\kappa_0) = \lambda^2\kappa_0 \\&#xA;&amp;amp;\vdots&amp;amp; \\&#xA;\kappa_t &amp;amp;=&amp;amp; \lambda^t \kappa_0 \tag{3}&#xA;\end{eqnarray}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the dynamics is $\kappa$ is driven by the value $\lambda^t$. You can see that if $\lambda = 1$ then $\lambda^t=\lambda$ for each $t$ and $\kappa$ remains constant. However, if $\lambda &amp;gt; 1$ the values $k^t$ will become increasingly large (&lt;em&gt;explodes&lt;/em&gt;) as $t$ increases, that is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\lim_{t\to \infty} \kappa_t \stackrel{\lambda &amp;gt; 1}{=} \infty&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Similarly&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\lim_{t\to \infty} \kappa_t \stackrel{0&amp;lt; \lambda &amp;lt; 1}{=} 0&#xA;$$&lt;/p&gt;&#xA;" OwnerUserId="14419" LastEditorUserId="14419" LastEditDate="2018-03-11T15:25:34.940" LastActivityDate="2018-03-11T15:25:34.940" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20905" PostTypeId="2" ParentId="20892" CreationDate="2018-03-07T23:19:37.777" Score="1" Body="&lt;p&gt;It wouldn't.  The value of consumer's endowments and the value after they trade should be the same.  i.e. Neither consumer becomes richer in terms of money.  They just allocate their money towards buying goods they value more.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Additionally, prices are a function of both consumers' demands while CV only depends on the demands of one consumer.  Consider the following example&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In autarky consumer 1 has endowment, $e_1=(1,1)$ and utility &#xA;$$u_1(x,y) = x + 2y $$ &#xA;so $u_1(1,1)=3$&#xA;Now there is trade where consumer 2 has endowment, $e_2=(1,1)$ and utility &#xA;$$u_2(x,y) = 2x + y $$&#xA;When the consumers trade the equilibrium price is $p_x = p_y$  and equilibrium consumption bundles are that consumer 1 gets $(0,2)$ and consumer 2 gets $(2,0)$.  The value of both consumers' endowments and equilibrium allocations is $2p_x$.  But in terms of compensating variation (with $x$ as the nominal good) consumer 1 would require 2 units of $x$ to move from free trade to autarky while consumer 2 would require 1 unit of $x$.&lt;/p&gt;&#xA;" OwnerUserId="16356" LastActivityDate="2018-03-07T23:19:37.777" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20906" PostTypeId="1" AcceptedAnswerId="20922" CreationDate="2018-03-08T05:06:05.183" Score="0" ViewCount="214" Body="&lt;p&gt;I figured out how the economic order quantity (EOQ) formula comes out. I know it is quite similar with economic batch quantity (EBQ), sometimes termed economic production quantity (EPQ). I just don't understand why they are different. What makes the difference in holding cost part?&lt;/p&gt;&#xA;" OwnerUserId="16494" LastEditorUserId="1417" LastEditDate="2018-03-08T21:43:33.197" LastActivityDate="2018-03-08T21:43:33.197" Title="How does the EBQ formular come out?" Tags="&lt;cost&gt;&lt;accounting&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20907" PostTypeId="2" ParentId="20906" CreationDate="2018-03-08T07:07:26.210" Score="0" Body="&lt;p&gt;In a way EBQ (also known as EPQ) EPQ is an extension of the EOQ model, the difference being&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;In EPQ the company will produce its own parts&lt;/li&gt;&#xA;&lt;li&gt;In EOQ parts are produced by another company&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Note that if you produce stuff you need to store it somewhere, which comes at a cost. This is explicitly included in the EPQ model via the &lt;em&gt;holding cost&lt;/em&gt; variable&lt;/p&gt;&#xA;" OwnerUserId="14419" LastActivityDate="2018-03-08T07:07:26.210" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20908" PostTypeId="1" CreationDate="2018-03-08T14:47:25.867" Score="3" ViewCount="3803" Body="&lt;p&gt;Suppose you have 2 activities, A and B. Doing activity A gives a return of 100 dollars, doing activity B gives a return of -50 dollars. What would be the opportunity cost of choosing activity B? 100 dollars or 150 dollars.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Oxford American Dictionary gives a pretty standard definition of opportunity cost: &quot;the loss of potential gain from other alternatives when one alternative is chosen&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Looking at it one way, the loss of potential gain by picking B is 100 dollars, as that is the gain that would be had from doing A. However, by choosing B, not only are you missing out on 100 dollars, you're also losing 50 dollars by doing B itself. The difference in the gain between the two activities is 100 - - 50 = 150 dollars. This is the foregone value when activity B is chosen, and seems to give the full picture as to what is lost by choosing B. This term &quot;The value foregone..&quot; seems to appear in many definitions of opportunity cost online as well.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Different sites and sources seem to fall on either one side or the other. There are example questions and solutions online which show both methods of approach.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, in an assignment which requires calculations of opportunity cost, which definition of opportunity cost will get me the marks- the value of the next best alternative, or the difference between the value of the next best alternative and the value of the chosen activity? Or both?&lt;/p&gt;&#xA;" OwnerUserId="16497" LastEditorUserId="16356" LastEditDate="2018-03-08T20:14:36.733" LastActivityDate="2018-03-10T15:50:04.023" Title="What is Opportunity Cost?" Tags="&lt;definition&gt;&lt;opportunity-cost&gt;" AnswerCount="3" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="20909" PostTypeId="1" CreationDate="2018-03-08T16:48:32.890" Score="2" ViewCount="291" Body="&lt;p&gt;The EU has about a 50% tariff on US beef and higher tariffs on US liquor (typical EU bureaucracy has many categories and quotas, so a single number is impossible). So why is a relatively low US tariff on 2 materials, (the EU has tariffs on about 100 materials from the US) make so much news time?&lt;/p&gt;&#xA;" OwnerDisplayName="blacksmith37" LastEditorUserId="15230" LastEditDate="2018-03-09T20:00:37.753" LastActivityDate="2018-03-10T13:16:35.810" Title="What causes the US media obsession with tariffs; The EU and others have charged tariffs on US stuff forever?" Tags="&lt;international-trade&gt;" AnswerCount="2" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="20910" PostTypeId="1" AcceptedAnswerId="20946" CreationDate="2018-03-08T18:33:15.093" Score="5" ViewCount="1480" Body="&lt;p&gt;The &lt;a href=&quot;https://en.wikipedia.org/wiki/Efficient-market_hypothesis&quot; rel=&quot;noreferrer&quot;&gt;efficient-market&lt;/a&gt; and &lt;a href=&quot;https://en.wikipedia.org/wiki/Random_walk_hypothesis&quot; rel=&quot;noreferrer&quot;&gt;random-walk hypotheses&lt;/a&gt; are often discussed together as formalizations of the idea that &quot;you can't consistently beat the stock market&quot;. But in my experience, they're often used interchangeably, and I've never seen anyone carefully explain the difference. (For example, Wikipedia says that &lt;em&gt;A Random Walk Down Wall Street&lt;/em&gt; &quot;argues that asset prices typically exhibit signs of random walk and that one cannot consistently outperform market averages. The book is frequently cited by those in favor of the efficient-market hypothesis.&quot; The Wikipedia article on the EMH says &quot;there is a very close link between EMH and the random walk hypothesis&quot; and the one on the RWH says that it &quot;is consistent with the efficient-market hypothesis&quot;, but neither spells out a precise relationship.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is the exact distinction? Is either hypothesis a special case of the other? Put another way, could one imagine a stock market in which either hypothesis holds but the other does not? The EMH page says &quot;Samuelson published a proof showing that if the market is efficient prices will show random-walk behavior&quot;, which seems to imply that the EMH is a special case of the RWH - so that one could imagine a stock market in which RWH holds but not EMH, but not the opposite. Is this correct?&lt;/p&gt;&#xA;" OwnerUserId="14832" LastActivityDate="2018-03-10T05:38:44.390" Title="What is the exact relationship between the efficient-market and random-walk hypotheses?" Tags="&lt;stock-market&gt;&lt;efficient-markets&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="20911" PostTypeId="2" ParentId="20858" CreationDate="2018-03-08T18:46:51.167" Score="1" Body="&lt;p&gt;While overall effects to the economy may be argued as negative, in cases where there is limited state capacity to collect income taxes or sales taxes, border tariffs on both imports and exports may be an effective means of financing necessary expenditures of the state. For example, in such a situation, border tariffs may help to finance a basic military to deter invasion, to build roads, to operate a basic education system, or to expend resources on longer-term development of capacity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Such situations where tariffs are basically necessary to ensure the basic functioning of the state are extremely different from the present situation in the USA where diverse attempts are being made to defend proposals of paranoia-inducing tariffs on steel and aluminum, both of which are used as inputs in producing tanks and jets in a country which already has the largest military in the history of the planet. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the case of Canadian dairy, there is a tariff on some dairy products. Since many Canadian consumers prefer not to be exposed to inferior production conditions in the USA, many consider this to be an overall gain. However, others would prefer access to those same US products, and also cheaper access to high quality artisan imports such as in cheeses.&lt;/p&gt;&#xA;" OwnerUserId="16499" LastActivityDate="2018-03-08T18:46:51.167" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20912" PostTypeId="2" ParentId="12068" CreationDate="2018-03-08T18:55:51.140" Score="0" Body="&lt;p&gt;Rights to good working conditions and a decent environment costs money. Which is good, because yourself and/or other people get to enjoy those rights. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, that also applies to Germany, France and Sweden. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Real estate is expensive in the UK, perhaps related to having higher population density than any of the other countries mentioned. That's probably the main cause of the difference (however, I have no idea). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, depending on how project costs are calculated it can be difficult to compare -- for example, one project might announce costs which fully account for maintenance over a 10 or 20 year period (or insurance of some sort similarly covering that), whereas in another case the announced cost may exclude a lot of things that in the end have to be paid for. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If that doesn't explain everything, maybe it's possible to find something dodgy about the conditions surrounding the contract being awarded? &lt;/p&gt;&#xA;" OwnerUserId="16499" LastActivityDate="2018-03-08T18:55:51.140" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="20913" PostTypeId="2" ParentId="20909" CreationDate="2018-03-08T18:59:47.887" Score="-2" Body="&lt;p&gt;Steel and aluminum are used to make tanks and jets. The US already has the largest military in history. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Because this will make other countries justifiably paranoid, it could start an arms race and a) waste a lot of everyone's money everywhere and b) possibly be a step toward some war of aggression. Both of these factors could force realignments among other countries that they might prefer not to have to make, in order to ensure that things cannot get too crazy. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Even if it's just Mr. Tough Guy being an idiot, other people have to plan for that. Due to the theoretical possibility that it's planning for some war of aggression, presumably those who disagree with wars of aggression will prefer to purchase media outputs from companies who provide sufficient information and perspective toward prevention of such things coming to pass. &lt;/p&gt;&#xA;" OwnerUserId="16499" LastActivityDate="2018-03-08T18:59:47.887" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="20915" PostTypeId="2" ParentId="17834" CreationDate="2018-03-08T19:13:30.090" Score="2" Body="&lt;p&gt;So they can set their own monetary policy for good reasons such as to improve macroeconomic stability. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So they can set their own monetary policy for bad reasons such as to print increasingly devalued money instead of engaging in better macro management. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So corrupt people can print and/or otherwise control monetary within their country.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So other countries will not control the value of the monetary instruments used in the country.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Because they don't like Uncle Sam or the Fed. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Because they don't trust EU bankers.&lt;/p&gt;&#xA;" OwnerUserId="16499" LastEditorUserId="16499" LastEditDate="2018-03-09T05:59:18.190" LastActivityDate="2018-03-09T05:59:18.190" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20916" PostTypeId="2" ParentId="20870" CreationDate="2018-03-08T19:20:30.437" Score="0" Body="&lt;p&gt;Possibly, eternal rapid growth is not possible. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Possibly, 1% growth in real GDP per capita (correcting for population size and inflation) is an achievement when you're already rich.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, in the sense that some might expect growth to be slower, it can be pointed out that a large number of workers are not trained for post-industrial jobs, and this limits the possibility of the various companies in the economy to effectively deploy those available human resources. These workers may become &quot;discouraged&quot; (stop looking for work) not be counted among those actively seeking employment. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, there is an argument that rapidly reduced cost of leisure is causing many men to play video games (for example) and work less. If they are not actively seeking work, they are not counted as &quot;unemployed&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, increasing industrial concentration tends to reduce competition, which negatively impacts the competitiveness of those firms internationally, thus negatively affecting both employment and growth (while positively impacting profits, at least in the short-run).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Other similar arguments are at times packaged together under &quot;situations in which higher inequality is bad for growth&quot;.&lt;/p&gt;&#xA;" OwnerUserId="16499" LastActivityDate="2018-03-08T19:20:30.437" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20917" PostTypeId="2" ParentId="17731" CreationDate="2018-03-08T19:29:52.220" Score="-1" Body="&lt;p&gt;Because that's the law as written. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's related to the ability of the US to disallow international financial institutions to interact with the US market unless they play by the rules of the US market. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This extends way beyond the question of transacting in USD, and includes many requirements such as ability to flag transactions of types that may be involved in money laundering, terrorism financing, etc. &lt;/p&gt;&#xA;" OwnerUserId="16499" LastActivityDate="2018-03-08T19:29:52.220" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="20918" PostTypeId="2" ParentId="20910" CreationDate="2018-03-08T19:31:52.810" Score="2" Body="&lt;p&gt;As you say the RWH is an implication of the EMH, but the other way doesn't necessarily hold.  Consider the problem of predicting the value, $X$, of the stock market at time $t+1$.  The random walk hypothesis says $$ X_{t+1} = X_{t} + \epsilon_t $$&#xA;where $X_t$ is the value today and $\epsilon_t$ is a random variable.  The EMH says the value tomorrow is the value today plus some random variable that is uncorrelated across $t$.   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The EMH is about the $X_t$.  It says that all available information is already captured in $X_t$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But you could imagine a separate example where all people overvalue the stock market by 10 percent for some reason.  Let's assume you know with certainty this is going to continue into the future.  Then the EMH doesn't hold, stocks are overvalued by 10 percent, but the RWH does.  That is, the value of the stock market follows a random walk, but the EMH doesn't hold.&lt;/p&gt;&#xA;" OwnerUserId="16356" LastEditorUserId="1655" LastEditDate="2018-03-09T21:44:48.820" LastActivityDate="2018-03-09T21:44:48.820" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="20919" PostTypeId="2" ParentId="20872" CreationDate="2018-03-08T19:38:03.693" Score="0" Body="&lt;p&gt;Compare a) A social planner who prefers the gains to go to one group instead of another, and b) A social planner who equally values a gain regardless of who got it. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In terms of &quot;inequality aversion&quot;, consider the specific mathematical definitions. The Gini index, for example, does not correct for whether the identities of the individuals are Mrs. Smith or Mr. Lee.&lt;/p&gt;&#xA;" OwnerUserId="16499" LastActivityDate="2018-03-08T19:38:03.693" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20922" PostTypeId="2" ParentId="20906" CreationDate="2018-03-08T21:41:03.773" Score="0" Body="&lt;p&gt;The models underlying the economic order quantity (EOQ) and economic production quantity (EPQ) formulae assume (realistically in many circumstances) that an order for $Q$ units of a good is delivered all at the same time, whereas production of a batch of $Q$ units occurs over a period.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the case of ordering, immediately after an order has been delivered the stock is $Q$, and the stock then falls gradually to zero when (assuming timely ordering) the next order is delivered. The average stock is therefore simply $Q/2$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the case of production, however, the stock rises during production of a batch, and falls once production of the batch has been completed.  Suppose annual demand for use of the good is $D$ and annual production (&lt;em&gt;if it were continuous&lt;/em&gt;) is $P$, with $P&amp;gt;D$.  Immediately after completion of a batch the stock will be $Q(1-D/P)$.  It won't just be $Q$ because (assuming uniform demand), units of stock will be withdrawn for use not only after the batch is completed but also while it is being produced.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, writing $K$ for the fixed order cost and $h$ for the unit holding cost per year, to find the EOQ we find $Q$ that minimises total annual cost $C$ where:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$C = \frac{DK}{Q} + \frac{hQ}{2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first term on the right is the total of the fixed costs of placing orders, $D/Q$ being the number of orders in a year, and the second term is the total holding cost over a year.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To find the EPQ, however, we need to minimise (interpreting $K$ now as the fixed production setup cost):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$C = \frac{DK}{Q} + \frac{hQ}{2}\Bigg(1-\frac{D}{P}\Bigg)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The respective economic quantities may then be found by differential calculus.&lt;/p&gt;&#xA;" OwnerUserId="1417" LastActivityDate="2018-03-08T21:41:03.773" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20925" PostTypeId="2" ParentId="20908" CreationDate="2018-03-09T00:35:23.073" Score="1" Body="&lt;p&gt;Opportunity cost is what you forgo for choosing something else. &lt;a href=&quot;https://www.investopedia.com/terms/o/opportunitycost.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;Commonly thought of&lt;/a&gt; in economic terms as follows:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Opportunity cost refers to a &lt;strong&gt;benefit that a person could have received, but gave up, to take another course of action.&lt;/strong&gt; Stated differently, an opportunity cost represents an alternative given up when a decision is made. This cost is, therefore, most relevant for two mutually exclusive events. In investing, it is the difference in return between a chosen investment and one that is necessarily passed up. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The term is, as above, used when thinking about investments or purchases. Therefore, you can have a negative or positive investment return or outcome, or a monetary cost or gain.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you spent 50 dollars which meant that you could not gain 100 dollars, your opportunity cost is 100 dollars. If you gained 100 dollars but instead you did not lose 50 dollars, your opportunity cost is negative 50 dollars (there's no opportunity cost for taking the 100 dollars, as the opportunity cost is negative). It was worthwhile that you obviously didn't lose the 50 dollars. You may claim that it's of value to lose the most money and in that case having the largest negative opportunity cost is the best. But that's a bit nonsensical. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The total opportunity cost isn't 150 dollars because we’re only interested in the forgone investment or monetary opportunity (the 100 dollars or negative 50 dollars.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Opportunity cost is about what you could gain or lose (but what we could have gained is more often used when opportunity costs are calculated) because you sacrificed or spent money on something else. There's really an infinite number of things you could bring into the opportunity cost equation. You don't work so you can paint art; you buy a house but can’t go overseas on a trip; and so on. Not everything can be thought of in strict economic terms, so opportunity cost is best left to discussions about monetary investments. Otherwise, this discussion will tie into what you value, and what provides you with the most utility. In that sense, there’s no right or wrong to it. What you see as a gain may be an absolute ’waste’ to others; therefore, your opportunity cost and another persons opportunity cost may vary wildly. That's why, again, it’s clearest to only stick to monetary investments and purchases when thinking about economic opportunity cost. &lt;/p&gt;&#xA;" OwnerUserId="16503" LastActivityDate="2018-03-09T00:35:23.073" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20926" PostTypeId="2" ParentId="20908" CreationDate="2018-03-09T04:05:06.190" Score="2" Body="&lt;p&gt;&lt;strong&gt;Definition.&lt;/strong&gt; &lt;em&gt;The&lt;/em&gt; opportunity cost (OC) &lt;em&gt;of any alternative is the value you place on the best of the forgone alternatives.&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we adopt the above definition (and I do), the OC of $B$ is the value of $A$, which is simply $\$100$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;With the above definition, the alternative you choose ($B$ in this case) is &lt;strong&gt;completely irrelevant&lt;/strong&gt; when calculating its OC. All that matters is the best of the forgone alternatives.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To illustrate this point, consider this pair of examples:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;Example #1.&lt;/strong&gt; $A$ and $B$ are the only two alternatives. $A$: &quot;Pay $\$500$ to get back $\$600$ in return.&quot; $B$: &quot;Pay $\$500$ to get back $\$450$ in return.&quot; The OC of $B$ is the value of $A$, which is $\$100$.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&lt;strong&gt;Example #2.&lt;/strong&gt; Everything is exactly the same as before, except that now $B$ is changed to &quot;Pay $\$500$ to get back $\$1,000$ in return.&quot; The OC of $B$ is again the value of $A$, which is $\$100$.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In the above examples, the value of $B$ changes (from $-\$50$ to $\$500$) but that of $A$ doesn't. And so, the OC of $B$ is $\$100$ in both examples. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;An alternative's value is completely irrelevant to its OC. What's relevant is the value of the best alternative forgone.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Notes.&lt;/strong&gt; &quot;What exactly is OC?&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This seemingly-simple question was discussed in the past (see e.g. &lt;a href=&quot;https://www.encyclopedia.com/social-sciences-and-law/sociology-and-social-reform/sociology-general-terms-and-concepts/cost&quot; rel=&quot;nofollow noreferrer&quot;&gt;Alchian, 1968&lt;/a&gt;). Then like many of the most important questions in economics, it was then forgotten/glossed over until &lt;a href=&quot;https://econpapers.repec.org/article/bpjbejeap/v_3acontributions.4_3ay_3a2005_3ai_3a1_3an_3a7.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;Ferraro &amp;amp; Taylor (2005)&lt;/a&gt; and the susbequent literature spawned (see in particular the &lt;a href=&quot;https://www.tandfonline.com/toc/vece20/47/1?nav=tocList&quot; rel=&quot;nofollow noreferrer&quot;&gt;2016 JEE Symposium&lt;/a&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It all boils down to which definition you use. My view (and I believe also that of Alchian and &lt;a href=&quot;https://link.springer.com/chapter/10.1007/978-1-349-21315-3_69&quot; rel=&quot;nofollow noreferrer&quot;&gt;Buchanan, 1987&lt;/a&gt;) is that the above definition is the &quot;most correct&quot; one that &quot;everyone should use&quot;. Of course, whoever's marking your homework may disagree.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2018-03-09T04:05:06.190" CommentCount="9" ContentLicense="CC BY-SA 3.0" />
  <row Id="20927" PostTypeId="2" ParentId="17066" CreationDate="2018-03-09T06:16:06.750" Score="0" Body="&lt;p&gt;This could happen in fairly special conditions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm not sure that there would be much value in trying to state the conditions in a mathematical theoretical statement for a situation like that in Amsterdam. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other situations, the existence of positive externalities and network effects, a la Silicon Valley, can be stated concisely in a way that is relevant. But even if you can establish a mathematical theoretical statement expressing something to the effect of &quot;once it's sufficiently up and coming with hipness, then prices may continue to rise even if supply increases faster than the number of incoming residents&quot;, it's hard to see what use that would be.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some fairly practical possible explanations which don't require anything complicated: maybe a lack of alternative investments caused people to invest more in their houses, driving up prices (demand being comprised in units of monetary instruments and not number of residents); perhaps the average newcomer was quite wealthy compared to previous residents (some of whom may cash in and move to cheaper suburbs); a low interest rate environment could result in the monthly rental rate of property being equivalent to a higher price. &lt;/p&gt;&#xA;" OwnerUserId="16499" LastActivityDate="2018-03-09T06:16:06.750" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20928" PostTypeId="2" ParentId="19551" CreationDate="2018-03-09T06:32:09.063" Score="2" Body="&lt;p&gt;Time is money&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When the average daily wage is 5 dollars, and many others survive on 1-2 dollars a day, it's worth it to many people to take a few minutes to try to get an extra nickel or dime out of the sale. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, with high unemployment (especially in cities, since in rural areas there is the availability of subsistence farming as an alternative), the opportunity cost to taking time to negotiate can be zero. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another point worth mentioning is related to &quot;repeated games&quot;. If you're visiting some place and will only ever buy one bottle of water from that person, they may rationally try to get the highest possible price. (This ignores that visitors may eventually be driven away from bringing money into the local economy ...). But if you live there (and ignoring that you would know what the market price was anyways, since you live there and all) then they will be less likely to try to take advantage of a buyer, because you might decide never to do business with that person again.&lt;/p&gt;&#xA;" OwnerUserId="16499" LastActivityDate="2018-03-09T06:32:09.063" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20929" PostTypeId="2" ParentId="13338" CreationDate="2018-03-09T06:52:17.857" Score="-1" Body="&lt;p&gt;Yes, it increases the benefit of selling and buying investment goods which will increase the demand for labor. Employers find that they can increase output at relatively lower cost. For e.g., if you hold the marginal productivity of labor constant, and are a producer, then you can now produce more with higher profits because the MPL's diminishing returns can be compensated via higher prices.&lt;/p&gt;&#xA;" OwnerUserId="16505" LastActivityDate="2018-03-09T06:52:17.857" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20930" PostTypeId="1" CreationDate="2018-03-09T07:46:10.347" Score="0" ViewCount="70" Body="&lt;p&gt;I'm trying to understand national debt. I gather that the United States, and other nations with central banks, accrue debt basically by printing new money at their central bank. This, I hypothesize, is to avoid giving private banks too much power. What I'm having trouble with is understanding the interest rate on these &quot;loans&quot;. Given the peculiar circumstance of the arrangement, the national debt provides a way to monitor the possible inflationary effects of printing new money. It is paid back only as a way to take money out of circulation, and/or to allow the government to solidify wealth created by the economic stimulus, and to invest it abroad. But there's no apparent reason for one part of the government to charge another part of the government interest, so far as I can tell -- unless it represents something else. So what is the interest rate doing? And is there something I'm missing in my explanation?&lt;/p&gt;&#xA;" OwnerUserId="16506" LastActivityDate="2018-03-09T09:32:32.177" Title="How does national debt work?" Tags="&lt;interest-rate&gt;&lt;central-banking&gt;&lt;government-debt&gt;&lt;federal-reserve&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20931" PostTypeId="2" ParentId="20930" CreationDate="2018-03-09T09:32:32.177" Score="4" Body="&lt;p&gt;Your understanding is wrong.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Nations accrue debt by selling bonds. They pay interest on those bonds to the bond-holders.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2018-03-09T09:32:32.177" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="20932" PostTypeId="1" AcceptedAnswerId="20936" CreationDate="2018-03-09T12:36:33.817" Score="-1" ViewCount="67" Body="&lt;p&gt;In  light of its Reserve currency status, How does the USA maintain the value of it currency in light of $\$800$ billion trade deficits that have accumulated to over $\$12$ trillion as pointed out by President Trump.  How does it still manage to keep its reserve currency status&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://twitter.com/realDonaldTrump/status/969991653393039361&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://twitter.com/realDonaldTrump/status/969991653393039361&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;The United States has an $800 Billion Dollar Yearly Trade Deficit because of our “very stupid” trade deals and policies. Our jobs and wealth are being given to other countries that have taken advantage of us for years. They laugh at what fools our leaders have been. No more!&lt;/p&gt;&amp;mdash; Donald J. Trump (@realDonaldTrump) &lt;a href=&quot;https://twitter.com/realDonaldTrump/status/969991653393039361?ref_src=twsrc%5Etfw&quot; rel=&quot;nofollow noreferrer&quot;&gt;March 3, 2018&lt;/a&gt;&#xA;&#xA;&#xA;" OwnerUserId="13272" LastEditorUserId="13272" LastEditDate="2018-03-09T15:09:49.267" LastActivityDate="2018-03-09T15:17:35.153" Title="how does the USA maintain the value of it currency in light of $800 billion trade deficits" Tags="&lt;currency&gt;" AnswerCount="1" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="20934" PostTypeId="2" ParentId="17313" CreationDate="2018-03-09T13:26:20.623" Score="0" Body="&lt;p&gt;You seem to be referring to the section titled Income heterogeneity, in Chapter 2 of the book you mention (pp. 33-40).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$p''(d)=\frac{t(y)H'(y)-H(y)t'(y)}{y'(d)}$ is in this case based on &quot;a simpler version of the model [that] assumes that housing consumption equals $H(y)$ and is a function of income but not price or distance&quot; (p. 35). In other words, when taking the (first- or second order) derivative of $p$ w.r.t $d$, you can treat $H(y)$ as a constant.&lt;/p&gt;&#xA;" OwnerUserId="14923" LastActivityDate="2018-03-09T13:26:20.623" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20935" PostTypeId="1" CreationDate="2018-03-09T14:47:42.843" Score="8" ViewCount="175" Body="&lt;p&gt;When using public transport, we often need to transfer to a different route during of the journey. These transfers have costs – I can think of the following, but there may be more.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;If we're reading, working, etc. on board, we need to stop, losing flow.&lt;/li&gt;&#xA;&lt;li&gt;We spend time moving from one route to the next.&lt;/li&gt;&#xA;&lt;li&gt;We spend time waiting for the next departure.&lt;/li&gt;&#xA;&lt;li&gt;There are lots of passengers moving between routes. They take up space and cause queues when on- and off-boarding. This also increases the risk of accidents.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;As far as I can understand, we could decrease the necessity of transfers by having multiple routes to the terminals (final stations).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've reviewed the subway maps of London, New York and Oslo, finding that none of them do this to any significant degree – the terminals usually have just one route leading to them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As an example, let's look at Oslo, the simplest of the three:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/4OOP2.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/4OOP2.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Imagine that you're travelling from Østerås (orange, left) to Ellingsrudåsen (orange, right). No transfers required – route 2 takes you all the way.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But if you're travelling from Østerås to Mortensrud (purple, bottom right), you would have to transfer from route 2 to route 3 at some point.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's imagine that we take some of the capacity from routes 2 and 3 to serve routes 6 and 7. Route 6 (gray) serves Østerås-Mortensrud, and route 7 (brown) serves Kolsås-Ellingsrudåsen:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/AtDvE.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/AtDvE.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With this design, some transfers could be avoided. If we added enough routes, many more transfers could be avoided. Granted, we would have to wait longer for a route that went exactly to the station we want to go, but we would always have the option of taking the first train and then changing like before.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Note that I'm not suggesting adding new infrastructure, just using the existing one differently.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, I've been asking myself, why don't public transport authorities do this? These are the reasons I can think of:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Simplicity for passengers: When only one route serves a particular station, you don't have to think about which route you'll board. Also, the maps are simpler with fewer routes.&lt;/li&gt;&#xA;&lt;li&gt;Simplicity for transport providers: More routes would mean more difficult (and therefore costly) planning and management.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;From my (admittedly ignorant) perspective, the above reasons don't seem sufficient to outweigh the advantages of fewer transfers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Have I overlooked some problems with adding more routes? Or am I underestimating the costs and/or overestimating the benefits of more routes?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that I &lt;a href=&quot;https://engineering.stackexchange.com/questions/19689/why-dont-public-transport-networks-have-more-routes-to-each-terminal&quot;&gt;have previously asked this question on Engineering Stack Exchange&lt;/a&gt;. I'm asking it again here because I didn't get satisfactory answers, and because I think it's more of an Economics question. &lt;/p&gt;&#xA;" OwnerUserId="16455" LastActivityDate="2018-03-11T13:17:59.137" Title="Why don't public transport networks have more routes to each terminal in order to reduce the number of transfers?" Tags="&lt;microeconomics&gt;&lt;cost&gt;&lt;public-economics&gt;&lt;infrastructure&gt;" AnswerCount="2" CommentCount="5" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20936" PostTypeId="2" ParentId="20932" CreationDate="2018-03-09T15:17:35.153" Score="2" Body="&lt;p&gt;Trade deficits enable to export USD-denominated debt which is held by others, which is extremely linked to the ability to maintain reserve currency status. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the US were to pay off all its debt, or otherwise recall all USD-denominated debt to the US, or stop other means of exporting USD, then there would be less volume and liquidity of the USD. This would tend to reduce the importance of the USD in the international system, and thus reduce its use as a reserve currency.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for the exchange rate itself, various indicators and metrics are presumably of differing relevance in different times and contexts. But surely they can be more or less summed up by some notion of a) demand to hold/use USD and b) supply of USD-denominated financial instruments.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In sum, trade deficits help to export USD which ensures volume and liquidity that underlies the reserve status, and that liquidity itself provides a stability which underlies much demand to hold and use USD. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Also, yes, please, check your numbers.)&lt;/p&gt;&#xA;" OwnerUserId="16499" LastActivityDate="2018-03-09T15:17:35.153" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="20938" PostTypeId="1" CreationDate="2018-03-09T18:02:47.353" Score="1" ViewCount="33" Body="&lt;p&gt;According to conventional analysis, a key factor in exchange rate determination is the state of the balance of payments. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;An increase in imports gives rise to an increase in a demand for foreign currency. To obtain the foreign currency importers will sell the domestic currency for it. Obviously, this will lead to the strengthening in the exchange rate of the foreign currency against the domestic currency.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Conversely, if there is an increase in exports, all other things being equal, then once the exporters exchange their foreign currency earnings for domestic currency this sets in motion a strengthening in the domestic currency exchange rate against the foreign currency.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there any model which relates the changes in exchange rate with balance of payment &lt;strong&gt;quantitatively&lt;/strong&gt;?   &lt;/p&gt;&#xA;" OwnerUserId="14062" LastActivityDate="2018-03-09T18:02:47.353" Title="Is there a quantitative model demonstrating the relationship between balance of payments and exchange rate?" Tags="&lt;exchange-rates&gt;&lt;balance-of-payments&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20939" PostTypeId="1" AcceptedAnswerId="20940" CreationDate="2018-03-09T18:40:19.940" Score="0" ViewCount="75" Body="&lt;p&gt;We can consider only finite games if it makes a difference, but are there nash equilibria that can't be characterized as mixed equilibria?&lt;/p&gt;&#xA;" OwnerUserId="16515" LastActivityDate="2018-03-09T23:01:39.233" Title="Are there Nash Equilibria that aren't mixed strategies?" Tags="&lt;game-theory&gt;&lt;nash-equilibrium&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="20940" PostTypeId="2" ParentId="20939" CreationDate="2018-03-09T18:45:14.327" Score="4" Body="&lt;p&gt;Nope, every pure strategy equilibrium can be characterized as a degenerate mixed strategy equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That is, it is a mixed strategy in which a pure strategy is played with probability $1$.&lt;/p&gt;&#xA;" OwnerDisplayName="user11305" LastEditorDisplayName="user11305" LastEditDate="2018-03-09T23:01:39.233" LastActivityDate="2018-03-09T23:01:39.233" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="20941" PostTypeId="2" ParentId="20910" CreationDate="2018-03-09T21:35:04.863" Score="5" Body="&lt;p&gt;They don't have anything to do with each other.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Use the superscript $e$ to denote &quot;anticipated value&quot; &lt;em&gt;in whatever way it is formed&lt;/em&gt;. Then the Efficient Market Hypothesis states&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$X^e_{t+1,market} = E(X_{t+1}\mid I_t)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In words, the value anticipated &quot;by the market&quot; equals the &lt;em&gt;true&lt;/em&gt; expected value conditional on &lt;em&gt;all&lt;/em&gt; information available at time $t$. So first and foremost, the EMH is about &lt;em&gt;what is the predictor that reflects the anticipation of &quot;the market&quot;&lt;/em&gt;, and it asserts that it is the conditional expected value based on all information available (to state the obvious, there are many other predictors of future values. We can use the median, the mode, etc etc etc).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;By the properties of the conditional expectation we have that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$X_{t+1} = E(X_{t+1}\mid I_t) + u_{t+1},\;\;\; E(u_{t+1}\mid I_t)=0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore the EMH claims that the value anticipated by the market, is off-target only by something ($u_{t+1}$) that cannot be predicted as anything other than zero, given the information available. But that is what it means to &quot;use the information efficiently&quot;: to extract from it everything that it can possibly tell you.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &quot;cannot beat the market&quot; assertion is reflected in the part of the EMH that &quot;the market&quot; forms an expectation as though it was a single mind having available, again, &lt;em&gt;all&lt;/em&gt; information. This implies that while &quot;inside&quot;, &quot;private&quot; information may matter for what individual agents do and accomplish, if we somehow &quot;average/combine&quot; over those individuals each having a different information set, we will obtain the conditional expected value we would have obtained if we have collected all information in one Information set. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Nowhere in the above do we mention, or need to mention, what is the Data Generating Mechanism for $X$. It can be anything.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2018-03-09T21:35:04.863" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20943" PostTypeId="1" CreationDate="2018-03-09T22:15:56.317" Score="1" ViewCount="32" Body="&lt;p&gt;Can someone explain how to solve the following problem in a spatial auoregressive model. &#xA;The form is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/6EYwg.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/6EYwg.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where p is the SAR coefficient and W is a distance-weighting matrix with a 0-diagonal.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The world only consists of Poland, Germany, and Austria. The weighting matrix is such that a country with a land border receives a w=1 and 0 otherwise. So the Matrix looks as follows:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/cMTPs.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/cMTPs.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;p = 0.5 and there is a shock to FDI in Poland of size 10. How much would FDI increase in Germany? I cannot make a hold how to make use of W. Thanks!&lt;/p&gt;&#xA;" OwnerUserId="16517" LastActivityDate="2018-06-07T19:49:52.757" Title="How do I apply the distance-weighting matrix in a spatial autoregressive model" Tags="&lt;autoregressive&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20945" PostTypeId="1" AcceptedAnswerId="20952" CreationDate="2018-03-10T00:44:13.760" Score="2" ViewCount="69" Body="&lt;p&gt;Does an increase in GDP result in a direct increase in production? For example, a 5% increase in GDP results in a 5% increase in production for a country? &lt;/p&gt;&#xA;" OwnerUserId="16519" LastActivityDate="2018-03-12T10:19:39.073" Title="GDP and production" Tags="&lt;macroeconomics&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20946" PostTypeId="2" ParentId="20910" CreationDate="2018-03-10T05:38:44.390" Score="5" Body="&lt;p&gt;I just want to build on @Alecos's nice answer. I'll restate some of what he said and add a few other details.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;tl;dr&lt;/h2&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;strong&gt;They don't have anything to do with each other.&lt;/strong&gt; The assumption of efficient markets does not imply that asset prices follow a random walk and the random-walk assumption does not imply efficient markets.&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;Due the &quot;joint hypothesis theorem,&quot; the efficient markets hypothesis (EMH) doesn't actually have any testable content.&lt;/strong&gt; This means that the EMH not only doesn't imply that prices are a random walk, but it means that the EMH doesn't imply much of anything at all!&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;In the following, &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;I'll formalize what the EMH says, &lt;/li&gt;&#xA;&lt;li&gt;use this formulation to describe the &quot;joint hypothesis theorem,&quot; &lt;/li&gt;&#xA;&lt;li&gt;talk about the difference between prices &quot;containing all information&quot; and prices &quot;reflecting all information,&quot;&lt;/li&gt;&#xA;&lt;li&gt;and talk about how conditional probabilities relate to random walks.&lt;/li&gt;&#xA;&lt;li&gt;I'll also discuss how the concept of a random walk &lt;em&gt;does&lt;/em&gt; show up when we make additional assumptions. &lt;/li&gt;&#xA;&lt;li&gt;However, as we'll see, this still does not imply that, say, stock returns are unpredictable.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;h2&gt;1. What does the Efficient Markets Hypothesis formally say?&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;In this section, I draw from Fama's papers directly. Here, I pull from his book &quot;Foundations of Finance.&quot; To get the full story, check out Fama's &lt;a href=&quot;http://faculty.chicagobooth.edu/eugene.fama/research/&quot; rel=&quot;noreferrer&quot;&gt;website&lt;/a&gt;. You'll find some links to some books of his. The following comes from the first two sections of &lt;a href=&quot;http://faculty.chicagobooth.edu/eugene.fama/research/Foundations%20of%20Finance/Chapter%205%20Efficient%20Capital%20Markets.pdf&quot; rel=&quot;noreferrer&quot;&gt;chapter 5 of his book, &quot;Foundations of Finance.&quot;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The EMH is about information. This can be formally represented by information sets that, in probability theory, are represented by &quot;sigma-algebras.&quot; Suppose that all information at time $t-1$ is contained in the information set $I_{t-1}$ and let the information set possessed by the market be $I^m_{t-1}$. By definition, all we can say is that the information set possessed by the market is less than (a subset of) all information available at that time. That is, $I^m_{t-1} \subset I_{t-1}$. The EMH posits, however, that these two information sets are in fact equal---that $I^m_{t-1} = I_{t-1}$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;With this definition in mind, it is still not quite clear what this implies. This is made more clear in the &quot;joint hypothesis theorem&quot; (or, joint hypothesis problem).&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;2. What is the Joint Hypothesis Theorem?&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;The joint hypothesis theorem (JHT), loosely stated, is a theorem that states that you cannot test market efficiency without describing how the market uses its information (e.g., to form prices). That is, you can test market efficiency by simply assuming that the market behaves a certain way. Or, you can assume that markets are efficient and infer how markets behave. But, you cannot do both. Testing one requires assuming the other. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have discussed this theorem to in &lt;a href=&quot;https://economics.stackexchange.com/a/1908/59&quot;&gt;another post on this site&lt;/a&gt;. I will reproduce some (a lot?) of it here.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Tests of the efficient markets hypothesis must always include a model&#xA;  of how the market forms prices. One of Fama's big contributions was&#xA;  that you cannot separate these two things in a test. Tests of&#xA;  efficient markets and models of price formations are inherently&#xA;  linked. So, in this case, the assumption of constant real interest&#xA;  rates is merely an assumption of how the market forms prices. Only&#xA;  after assuming this, can we test market efficiency. You might disagree&#xA;  with the model---more sophisticated models will repeat this experiment&#xA;  in that way---but the point is that you &lt;em&gt;have&lt;/em&gt; to assume some model&#xA;  for price formation.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The argument that he makes in that chapter is approximately the&#xA;  following (borrowing his notation, but changing $\phi$ to $I$). The&#xA;  point that he makes is that we want to test if the information sets&#xA;  are equal $I_{t-1}^m = I_{t-1}$, where $I_{t-1}^m$ is the information&#xA;  that the market possesses. But because we can't test this directly, we&#xA;  would like to test whether the distributions of prices are the same &#xA;  $$ f_m(p_1,...,p_n \mid I_{t-1}^m) = f(p_1,..., p_n \mid I_{t-1}). $$&#xA;  However, this is impossible too. The equality possesses no testable&#xA;  content because we only observe $f(p_1,..., p_n \mid I_{t-1})$ and not&#xA;  $f_m(p_1,...,p_n \mid I_{t-1}^m)$ (see the top of page 137 of the&#xA;  linked chapter). I do not observe the latter because I do not know&#xA;  what $I_{t-1}^m$, except that $I_{t-1}^m \subseteq I_{t-1}$, and I do&#xA;  not know how the market uses this information. For this reason, we&#xA;  specify a model for how the market takes information and turns it into&#xA;  prices. Thus, we specify $f_m$ ourselves (in turn, also specifying&#xA;  what information $I_{t-1}^m$ the market uses). That is, we specify&#xA;  what data the market uses and the way in which it uses that data.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;On page 134, Fama says&lt;/p&gt;&#xA;  &#xA;  &lt;blockquote&gt;&#xA;    &lt;p&gt;the statement that prices in an efficient market &quot;fully reflect&quot; available information conveys the general idea of what is meant by&#xA;    market efficiency, but the statement is too general to be testable.&#xA;    Since the goal is to test the extent to which the market is efficient,&#xA;    the proposition must be restated in a testable form. ... this requires&#xA;    a more detailed specification of the process of price formation, one&#xA;    that gives testable content to the term &quot;fully reflect.&quot;&lt;/p&gt;&#xA;  &lt;/blockquote&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The key take-away from this is that the EMH is about information. But it doesn't tell use about the way the market uses that information to determine prices (of $n$ assets $p_1, ..., p_n$). The behavior is given by $f_m$, which we have not specified. The assumption of a random walk in prices is, in part, as assumption about $f_m$. It is not so much an assumption about $I^m_{t-1}$. To get to something resembling the random walk theory, we need to add assumptions about the market being competitive. &lt;/p&gt;&#xA;&#xA;&lt;h2&gt;3. Is there a difference between a price &quot;reflecting all information&quot; and &quot;containing all information&quot;?&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Sure, this is a somewhat arbitrary semantic difference. Nonetheless, I think that there is an important point to be made here. So let's try to be a little more formal with it. Let's take a look a version the random walk hypothesis. Consider the model&#xA;$$&#xA;p_t = d + p_{t-1} + \epsilon_{t},&#xA;$$&#xA;where $d$ is a fixed drift rate and $\epsilon_t$ is a sequence of mean zero iid shocks. I believe that it is a common mistake to claim that the EMH implies that&#xA;$p_{t-1}$ &quot;contains all available information.&quot; Why? Because this claim seems to imply that the information set $I_{t-1}$ can be spanned by (or generated by) the single variable $p_{t-1}$. However, as we discussed in the previous sections, the EMH does not make this claim. Instead, the EMH makes the claim that the price $p_{t-1}$ &quot;reflects all information&quot; in the sense that the behavior of prices is determined by $f_m$ conditioned on $I_{t-1}$. That is, the distribution of $n$ assets over the next period is $f_m(p_1,..., p_n | I^m_{t-1})$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;With this in mind, it seems clear and likely in many situations that for most random variables $X_t$, including future prices, &#xA;$$&#xA;E[X_t | p_{t-1}] \neq E[X_t | I_{t-1}^m].&#xA;$$&#xA;However, this ultimately depends, again, on how the market uses the information to form prices, as encoded in $f_m$. It very well may be that under some assumptions about $f_m$ that&#xA;$$&#xA;E[p_t | p_{t-1}] = E[p_t | I_{t-1}^m].&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;4. What about the point that expectations conditional on all available information is the best predictor (in the sense on minimizing mean squared errors)?&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Suppose the market were to compute the conditional expectation of tomorrows prices based on all available information. Then we could write that $p_t = E[p_t | I^m_{t-1}] + u_t$, where $E[u_t | I^m_{t-1}] = 0$. If we assume the EMH, then $I_{t-1} = I^m_{t-1}$ and thus $E[u_t | I_{t-1}] = 0$ as well.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is true. However, this shouldn't be taken to mean that (1) any one person has all the information of the market necessary to make this calculation or (2) that this implies anything about the behavior of prices in the market. This is simply a calculation of a conditional expected value. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the first point (1), recall that the EMH, like the assumption of Rational Expectations , is an assumption about aggregates. &lt;a href=&quot;https://en.wikipedia.org/wiki/Efficient-market_hypothesis#Theoretical_background&quot; rel=&quot;noreferrer&quot;&gt;From Wikipedia&lt;/a&gt;, it assumes &quot;that on average the population is correct (even if no one person is). The markets are a machine that aggregates individual's &lt;em&gt;incomplete&lt;/em&gt; information and produces something that reflects &lt;em&gt;all&lt;/em&gt; information. &lt;a href=&quot;https://economics.stackexchange.com/a/141/59&quot;&gt;See also this answer about Rational Expectations.&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the second point (2), the calculation of this conditional expectation is just that. A calculation. It doesn't say anything about how the market behaves or what it will do with this calculation. This behavior is encoded in $f_m$.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;5. The random walk hypothesis does show up under the assumption of competitive markets (e.g., no arbitrage).&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;If we assume that there is no arbitrage (type 1 and type 2), this implies the existence of a strictly positive stochastic discount factor $\{\Lambda_t\}$ (state prices). Together with the EMH, we get&#xA;$$&#xA;\Lambda_t p_t = E\left[ \sum_{\tau=t+1}^\infty \Lambda_\tau d_\tau | I_t \right].&#xA;$$&#xA;We can rewrite this as&#xA;$$&#xA;\Lambda_t p_t = E[\Lambda_{t+1}(p_{t+1} + d_{t+1})| I_t].&#xA;$$&#xA;That is, &lt;em&gt;discounted price changes, after correction for dividends&lt;/em&gt; are unpredictable. Note, however, that this leaves the door open for the possibility that prices or returns themselves can be predictable. And, as a matter of fact, returns do seem to be predictable to substantial degree at business cycle frequencies. See the paper &lt;a href=&quot;https://faculty.chicagobooth.edu/john.cochrane/research/papers/discount_rates_jf.pdf&quot; rel=&quot;noreferrer&quot;&gt;&quot;Discount Rates,&quot;&lt;/a&gt; by John Cochrane. (&lt;a href=&quot;https://youtu.be/ZDsOiftolUI?t=8m32s&quot; rel=&quot;noreferrer&quot;&gt;Click here for the YouTube presentation cued to the right spot.&lt;/a&gt;) However, under these assumptions, &lt;em&gt;discounted price changes, after correction for dividends&lt;/em&gt; cannot be predicted.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;6. Under the Efficient Markets Hypothesis and the assumption of no arbitrage, can changes in the stock price be predictable?&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;As we discussed, &lt;em&gt;discounted price changes, after correction for dividends&lt;/em&gt; are unpredictable under these assumptions. However, it is still possible for returns to be predictable. I'm going to leave most of this discussion to the following three YouTube videos by John Cochrane (from his former Coursera course):&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://youtu.be/mhGQeJyKVvU&quot; rel=&quot;noreferrer&quot;&gt;Three Facts About Return Predictability&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://youtu.be/wLn9rzCdpAw&quot; rel=&quot;noreferrer&quot;&gt;One Period Identities&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://youtu.be/CIMMkDWiqRE&quot; rel=&quot;noreferrer&quot;&gt;The Campbell-Shiller Present Value Formula&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;To keep things short, the idea behind predictability can be seen by an approximation of a special case (here we use a simple version of the Consumption Capital Asset Pricing model). This is from p.23 of Cochrane's book &lt;em&gt;Asset Pricing&lt;/em&gt; (Revised Edition).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/NKtJP.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/NKtJP.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this picture, $R$ are returns $R^f$ is the risk-free rate, $m_t$ is the stochastic discount factor, and $\gamma_t$ is risk aversion at time $t$. The conditional expected returns of future returns varies. It could vary based on any of the right-hand side variables. Empirical evidence seems to indicate that the variation is most plausibly coming from changes in risk aversion $\gamma_t$. If people become more risk averse, which they appear to do during recessions (seemingly for good reason), then they will demand higher expected returns per unit of risk that they take on. This means that information about the variables that determine risk aversion today give us information about tomorrow's returns.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that this doesn't imply a violation of no arbitrage. Sure, we can predict higher returns. But this simply reflects the fact that the &quot;price of risk&quot; has gone up. The amount of returns that I demand per unit of risk is changing. My prediction of higher returns is not gaining me any free lunch. It's just reflecting changes in my preferences.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Extra&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;For a nice discussion of the efficient market's hypothesis, the joint hypothesis problem, and how it fits into the modern stochastic discount framework, check out the book &lt;a href=&quot;https://johnhcochrane.blogspot.com/2018/03/fama-portfolio.html&quot; rel=&quot;noreferrer&quot;&gt;&quot;The Fama Portfolio.&quot;&lt;/a&gt; I drew partly from the essay &lt;a href=&quot;http://faculty.chicagobooth.edu/john.cochrane/research/papers/Fama.Portfolio-Efficient-Markets-and-Empirical-Finance_Cochrane-Moskowitz.pdf&quot; rel=&quot;noreferrer&quot;&gt;&quot;Efficient Markets and Empirical Finance.&quot;&lt;/a&gt; In this essay, among other things, they talk about how, in the stochastic discount framework (SDF),&#xA;$$&#xA;\Lambda_t p_t = E[\Lambda_{t+1}(p_{t+1} + d_{t+1})| I_t] = \sum_s \pi(s) \Lambda_{t+1}(s)(p_{t_1}(s) + d_{t+1}(s)),&#xA;$$&#xA;the efficient markets hypothesis is about the probabilities $\pi(s)$ and the market behavior is encapsulated in SDF $\Lambda_{t+1}(s)$. This makes the joint hypothesis problem clear---we cannot test this theory without assuming something about one or the other.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/Apfsd.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Apfsd.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="59" LastActivityDate="2018-03-10T05:38:44.390" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="20947" PostTypeId="1" CreationDate="2018-03-10T06:37:59.077" Score="0" ViewCount="79" Body="&lt;p&gt;Is there a standard term for a game that has both simultaneous and sequential parts? Is it a mixed game? A combined game?&lt;/p&gt;&#xA;" OwnerUserId="6231" LastActivityDate="2018-03-10T09:16:01.633" Title="What do you call a game that is both simultaneous and sequential?" Tags="&lt;game-theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20949" PostTypeId="2" ParentId="20947" CreationDate="2018-03-10T09:16:01.633" Score="1" Body="&lt;p&gt;A sequential game with imperfect information?&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2018-03-10T09:16:01.633" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20951" PostTypeId="2" ParentId="20909" CreationDate="2018-03-10T13:16:35.810" Score="4" Body="&lt;p&gt;Nations frequently have tariffs between each other. However, the trend since WW2 has been fewer tariffs and other trade barriers. For example, even recently the EU has significantly reduced &lt;a href=&quot;http://ec.europa.eu/eurostat/statistics-explained/index.php/File:Tariffs_applied_to_the_value_of_imports,_by_processing_stage,_world_average,_2002-2015_(%25)_GL17.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;tariffs.&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Likewise, the US has also both practiced and preached free trade, reducing tariff rates. &lt;a href=&quot;https://i.stack.imgur.com/G6VEw.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/G6VEw.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Economists have strong consensus that tariffs are bad. This isn't dependent on political leanings, it has wide agreement. &lt;a href=&quot;https://www.cato.org/blog/super-majority-economists-agree-trade-barriers-should-go&quot; rel=&quot;nofollow noreferrer&quot;&gt;&quot;The economics profession continues to show a consensus in favor of unfettered international trade, as 83 percent agree and only 10 percent disagree that the United States should eliminate remaining tariffs and other barriers.&quot;&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reason the new tariffs are reported by the US media are because they are a new policy change which oppose the existing trends and expert opinion, although they do have public suport &lt;a href=&quot;https://i.stack.imgur.com/jNQra.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/jNQra.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="16526" LastActivityDate="2018-03-10T13:16:35.810" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20952" PostTypeId="2" ParentId="20945" CreationDate="2018-03-10T13:46:33.830" Score="1" Body="&lt;p&gt;Gross Domestic Product measures production &lt;em&gt;in terms of value&lt;/em&gt; (usually &quot;GDP&quot; alone refers to GDP in real terms, while we add the qualifier &quot;nominal GDP&quot; to indicate that we use current prices).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As such an increase in GDP may not be accompanied  by an increase in production as measured in &lt;em&gt;quantity&lt;/em&gt;, if this is what the OP asks.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Even if we take out the effect of price inflation, we may have changes in what is produced, such that fewer units are produced but each of a higher value -higher enough so as the overall effect to be an increase in GDP (i.e. in value terms).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Think of a country that produced grain of a given quality. Next year it switches grain variety, and it now cultivates a variety that produces fewer tons of product but it is priced higher because it is considered more healthy. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or think of car production, where we produce 1 million small cheap cars, and next year we switch to high-end cars. We may now produce a much lower quantity of cars, but each cars costs/is priced much more, and overall we may see an increase in the value of GDP (always speaking in real terms here). But if we want to count the number of end-product units, it has decreased.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2018-03-10T13:46:33.830" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20953" PostTypeId="2" ParentId="20908" CreationDate="2018-03-10T15:50:04.023" Score="1" Body="&lt;p&gt;As other answers clarified, the Opportunity Cost &lt;em&gt;has been defined&lt;/em&gt; as the value of the best alternative foregone.&lt;br&gt;&#xA;Assume that the gain in activity B will be positive, say USD 20. This too does not affect the Opportunity Cost, it does not make it equal to $100-20 = 80$.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words, the Opportunity Cost does NOT reflect the &quot;net change of financial position if a switch from my current choice to the alternative&quot;. This would be, well, &quot;net change in financial position&quot;, not opportunity cost. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course, these are labels, and one could conceivably go on and &lt;em&gt;define&lt;/em&gt; &quot;opportunity cost&quot; in some other way. What I am writing here is what is its historically established definition in Economics. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is it a &quot;reasonable&quot; definition? It is, if one realizes that it essentially respects the distinction between &quot;cost (foregone direct gain) from NOT undertaking activity A&quot;, and &quot;direct cost/gain by undertaking activity B&quot;. These are two different things conceptually, so it is reasonable to have a concept that does not net their effect. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, again, It is NOT the full/net cost/gain of a choice. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Think also about the following: assume that there are only these two activities, and you &lt;em&gt;can&lt;/em&gt; undertake both. What is the Opportunity Cost of choosing both? Answer: Zero. &#xA;What is the total cost/gain of undertaking both? Answer 100-50 = 50.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2018-03-10T15:50:04.023" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20954" PostTypeId="2" ParentId="12068" CreationDate="2018-03-10T16:46:22.577" Score="6" Body="&lt;p&gt;The following information comes from this &lt;a href=&quot;https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/192588/cost_review_main211210.pdf&quot; rel=&quot;noreferrer&quot;&gt;report&lt;/a&gt;, which was published by the British Government. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm not going to summarise the whole thing, but go over the major points. However if you are interested in the topic I suggest you read the whole thing, or even take a look at the more technical version which can be found &lt;a href=&quot;https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/192589/cost_study_technicalnote211210.pdf&quot; rel=&quot;noreferrer&quot;&gt;here&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The report breaks down the higher costs into three issues:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Policy and systemic issues&lt;/li&gt;&#xA;&lt;li&gt;Funder/client issues&lt;/li&gt;&#xA;&lt;li&gt;Supply chain delivery issues&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Policy and Systemic Issues:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;em&gt;Urban Density&lt;/em&gt;: The report indicates that high urban density coupled with high land costs has driven up the price of infrastructure in the UK, however it says that it does not adequately explain the whole problem.&lt;/li&gt;&#xA;&lt;li&gt;&lt;em&gt;Planning and consultation process:&lt;/em&gt; Inconsistency between how planning works with different areas of the country as well as general constrains placed on the early planning process has been marked as a key driver of higher costs in the UK than Europe.&lt;/li&gt;&#xA;&lt;li&gt;&lt;em&gt;Regulatory Compliance&lt;/em&gt;: The report indicates that high environmental and safety regulation has led to what some contractors call &quot;not cost effective&quot;. However the report also mentions that the UK has the best safety record in Europe. So it would be a tradeoff to lose such regulations.&lt;/li&gt;&#xA;&lt;li&gt;&lt;em&gt;Wider construction market issues:&lt;/em&gt; The UK has the smallest construction market of the big five countries in Europe which has seen a shift from fixed to variable resources. This means there are less firms investing in construction which leads to higher levels of subcontracting and supply chain specialisation. The report argues that this leads to higher transaction costs along the supply chains.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Funder and Client Issues&lt;/strong&gt;:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;em&gt;Stop and start investment&lt;/em&gt;: The report makes a very interesting argument here whereby it says that the UK's short term investment plan compared to Germany and Frances long term investment plans, allows the latter countries to reduce costs. This is because it allows for opportunity for innovation and the ability to plan work more efficiently. As well as the fact that it generates investor certainty as the projects are more long term.&lt;/li&gt;&#xA;&lt;li&gt;&lt;em&gt;Poor governance and ineffective incentivisation of cost control:&lt;/em&gt; The report argues that the tender process is not focused on cost minimization and there are not enough ways to incentivise it. As most projects work through a quoted budget as opposed to aiming for the lowest cost for a required peformance.&lt;/li&gt;&#xA;&lt;li&gt;&lt;em&gt;Poor asset information and cost data&lt;/em&gt;: The report argues that lack of information about infrustructure costs makes for poor descion making.&lt;/li&gt;&#xA;&lt;li&gt;&lt;em&gt;Commercial issues and procurement processes&lt;/em&gt;: The UK relies heavily on bespoke specifications and contracts, where out of the box solutions would often suffice. Many western european countries have the nature of these contracts codified in law, whereas the UK doesn't.&lt;/li&gt;&#xA;&lt;li&gt;&lt;em&gt;Insurance:&lt;/em&gt; More expensive in the UK&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Supply chain delivery issues&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;There is poor supply chain integration in the UK&lt;/li&gt;&#xA;&lt;li&gt;There is high fragmentation among construction industries in the UK leading to inefficincies&lt;/li&gt;&#xA;&lt;li&gt;Large skills gap&lt;/li&gt;&#xA;&lt;li&gt;Lower productivity&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;tl;dr&lt;/em&gt; &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;There is no single overriding factor driving higher costs. However,&#xA;  the investigation has identified that higher costs are mainly&#xA;  generated in the early project formulation and pre-construction phase&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="16530" LastActivityDate="2018-03-10T16:46:22.577" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20955" PostTypeId="2" ParentId="20945" CreationDate="2018-03-10T18:03:58.050" Score="1" Body="&lt;p&gt;GDP is a statistical indicator which is an estimate of production that has already occurred, or an estimate of the current or future level of production. The units are generally nominal, or adjusted by some variety of methods to correct for different changes in price levels across a changing production structure (e.g., more smartphones, less typewriters). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So I'm not sure if this involves confusion or disagreement about the precise meaning of &quot;GDP&quot;, or a misunderstanding about the sequential order of logic. Specifically, the order in time is 1) production occurs, 2) there is a measurement indicator intended to reflect the production which actually occurred. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For an example of how this could be important, consider the following example. Production increases equally across all sectors by 5%. However, a change in price levels can differ from one sector to another. So using some methods the statistical indicator called &quot;GDP&quot; will increase by precisely the same 5%, and according to other methods of calculating GDP it could be different from 5%.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Conceptually, differences in these methods might be straightforward to understand in principle, but implementing the methods can become complicated, and there is liable to be some &quot;art&quot; in determining which method is most appropriate for measurement, or for the use of the statistical indicator called &quot;GDP&quot; depending on the specific application. For example, if exchange rates are very important, such as in trade analysis, &quot;real GDP&quot; could be less important for knowing the effects on the overall budget situation of the government or the cost of capital in the financial system.&lt;/p&gt;&#xA;" OwnerUserId="16499" LastActivityDate="2018-03-10T18:03:58.050" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20956" PostTypeId="2" ParentId="20935" CreationDate="2018-03-10T18:20:43.157" Score="0" Body="&lt;p&gt;The people who do the planning explicitly account for 1) their cost of planning, 2) the cost of wages for transit operators, 3) the cost of infrastructure and 4) the cost of equipment (buses, etc.) ... etc. However, they might not account for the value of time or convenience to transit users. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The value of time of transit users may be represented in some manner through the political process, but in the economic modelling it is easier to ignore this than to try to motivate a specific number (or series of numbers weighted across types of transit users) for use in modelling costs and benefits. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;One way to correct for this is to take surveys to try to find out how people value differences in commute times, although this may face legitimate disagreement about whether maximizing (for example) social welfare or production should be the primary objective in making use of such an estimation. &lt;/p&gt;&#xA;" OwnerUserId="16499" LastActivityDate="2018-03-10T18:20:43.157" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="20957" PostTypeId="1" CreationDate="2018-03-10T19:32:01.170" Score="0" ViewCount="2465" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/sYO4A.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/sYO4A.png&quot; alt=&quot;This is the problem.&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For this question, I believe Albus has 3 strategies: N, E, and S, and Minerva has 8: aaa, aab, aba, abb, baa, bab, bba, and bbb.&#xA;I've also found the rollback equilibrium to be the case in which Albus chooses N and Minerva chooses b. However, I'm not sure how to represent this equilibrium (equilibria?).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Do we say that the &lt;em&gt;unique&lt;/em&gt; equilibrium is simply (N, b), since those are the choices made by the players, or do we say there are 4 equilibria: (N, baa), (N, bab), (N, bba), (N, bbb) since Minerva's choices are in reality a set of strategies, all of which result in her choosing b in response to Albus playing N?&lt;/p&gt;&#xA;" OwnerUserId="14527" LastActivityDate="2018-03-12T13:47:14.567" Title="Sequential Game Rollback Equilibria Question" Tags="&lt;game-theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20958" PostTypeId="2" ParentId="20935" CreationDate="2018-03-10T20:51:45.697" Score="5" Body="&lt;p&gt;The people who do the planning do explicitly account for the value of time and convenience to transit users. At least, in all the systems I've worked on. (source: I have had jobs where I worked on exactly this, for London, for the Netherlands, and for international train travel)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Interchanges are modelled with penalties which cover:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;the time taken to move from one platform to the other&lt;/li&gt;&#xA;&lt;li&gt;the time to wait for the connecting train&lt;/li&gt;&#xA;&lt;li&gt;and a penalty to reflect the inconvenience, which is calibrated through Stated Preference surveys.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Here's an example from the &lt;a href=&quot;https://www.whatdotheyknow.com/request/197881/response/495035/attach/3/Business%20Case%20Development%20Manual%20May%202013%20Redacted.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Business Case Development Manual used for evaluating costs and benefits for transport schemes in Greater London&lt;/a&gt;, page E-10, showing a penalty just for the interchange itself of 3.5 minutes of travel time. That's in addition to valuing the waiting and walking time at the interchange:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/MdSYW.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/MdSYW.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(disclosure: I developed some of the methods, and calibrated some of the numbers, in that manual)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, why aren't the lines designed for switching between tracks?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Well, sometimes they are: London's Circle, District and Hammersmith &amp;amp; City lines work very much on this basis: similar rolling stock on the same tracks, connecting different termini. London's Northern line works similarly, with two northern termini, two southern termini, and two branches in the middle, with trains switching between them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At peak times, there is much less switching on the branches on the Northern Line. And the Circle line was recently redesigned so that it is no longer a circle.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reasons for those two things, are the reasons why it isn't done more often.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The switching reduces the vehicle-capacity of the network. So it can move fewer passengers per hour. Which adds delays to everyone, at rush hour.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Trains are kept a minimum distance apart, in the interests of safety. Where two branches join, as they do at switch-points, that means that trains on both branches have to be kept that distance apart from trains after the switch-point. And the switch-point becomes a bottleneck, reducing the capacity of the two branches: the switch itself has a lower capacity than the sum of the capacity of the two branches.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, during the busiest periods, there is less switching, and that minimises the overall system aggregated generalised cost. And that generalised cost includes the bullet points that I mentioned at the top of this answer. And when new lines are designed, the value of switching routes to different termini usually adds too much of a penalty to network capacity, to make it worth while: overall system utility is typically maximised with dedicated routes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And if you don't want to do switching of vehicles on tracks, then you have to build additional grade-separated tracks to do the switching instead, and that's really really expensive, and isn't justified by the reduced generalised cost that arises from fewer passenger interchanges.&lt;/p&gt;&#xA;" OwnerUserId="44" LastEditorUserId="44" LastEditDate="2018-03-11T13:17:59.137" LastActivityDate="2018-03-11T13:17:59.137" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="20959" PostTypeId="2" ParentId="20846" CreationDate="2018-03-11T00:55:21.683" Score="0" Body="&lt;p&gt;It would be tedious, not to say impossible, to empirically address your question without describing &lt;a href=&quot;https://en.m.wikipedia.org/wiki/Computable_general_equilibrium&quot; rel=&quot;nofollow noreferrer&quot;&gt;incomes' formation and circuit&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Indeed, what will be a &lt;a href=&quot;https://en.m.wikipedia.org/wiki/Real_versus_nominal_value_(economics)&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;real&lt;/em&gt;&lt;/a&gt; change for a given person, may be &lt;a href=&quot;https://en.m.wikipedia.org/wiki/Real_versus_nominal_value_(economics)&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;nominal&lt;/em&gt;&lt;/a&gt; for another depending on how their respective &quot;dividends&quot; inflate in parallel. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To illustrate this need for such a description, let's consider, in the schematic and highly simplifying world you describe, the (as schematic) following &lt;strong&gt;&lt;em&gt;closed&lt;/em&gt;&lt;/strong&gt; economy -- incidentally the world economy is a closed econony:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Say that the (only one) dividend-generating sector is equitably owned by &quot;richs&quot;. Printing money as you suggest would at first &lt;em&gt;directly&lt;/em&gt; increase poors' income. But will they keep this wealth for real over the long term? Put differently, will this increase be &lt;em&gt;nominal&lt;/em&gt; or &lt;em&gt;real&lt;/em&gt;? If they save it -- which they empirically don't --, chances are that they will get richer. But if they consume goods/services produced by the owned-by-rich sector whose supply stay constant, it will generate inflation, which in turn will make poor's income-increase be nominal. Where will then be this injected money? In richs' pockets. The government's (potentially infinite) solvency will just be transfered to richs... That being said, note that if quantitative easing is strong enough -- putting aside the discussion about bubbles since the present example is monosector --, the supply may increase and (generate jobs and) stimulate GDP with a growth rate higher than that of inflation: which means &lt;em&gt;real&lt;/em&gt; growth...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;hr&gt;&#xA;But in reality, strong monetary policies, which (stimulate demands here and there and thus) disturb markets' equilibria in an unpredictable manner are rarely, not to say never applied, because those who sharehold markets do (not like free volatility an do) not &quot;take that lightly&quot;.&lt;/p&gt;&#xA;" OwnerUserId="10247" LastEditorUserId="10247" LastEditDate="2018-05-08T23:50:04.763" LastActivityDate="2018-05-08T23:50:04.763" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="20960" PostTypeId="2" ParentId="18232" CreationDate="2018-03-11T02:22:19.017" Score="3" Body="&lt;p&gt;@denesp  answer for this question( that was accepted) is &lt;strong&gt;not&lt;/strong&gt; correct. It is not true that a non continuous utility function imply a non continuous preference relation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Looking at the example given in the answer: let $U(x,y)$ be a utility representation of rational and continuous preferences over $\mathbb{R}^2$ , $x^* \in \mathbb{R}^2 $and $H$ = $ \{ x \in \mathbb{R}^2: x \succsim x^*\} $ then $H$ is closed by continuity of $\succsim$. Define $\hat{U}(x,y)$ as before:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA; \hat{U}(x,y)&#xA;=&#xA;\left\{&#xA;\begin{array}{ll}&#xA;U(x,y) &amp;amp; \mbox{if} (x,y) \notin H \\&#xA;\\&#xA;U(x,y)+1 &amp;amp; \mbox{if} (x,y) \in H.&#xA;\end{array}&#xA;\right.&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then  $\hat{U}(x,y)$ represents the same preferences  of $U(x,y)$ that are, indeed, continuous. The main point is &lt;strong&gt;you can represent continuous preferences with discontinuous functions&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Getting back to the question: you could, of course, use the same method to find a really discontinuous preference relation. Just choose $H$ to be a set consisting of only one point $h$ in $\mathbb{R^2}$ whose strictly upper contour set is not empty. That is a finite set and so is closed. The resulting utility function modified as before would result in discontinuous preferences. That would work because we can create a sequence $h_n$ in the lower contour set that is converging to $h$ and another sequence in the strictly upper contour set that is only the repetition of the point $h'$ such that $U(h_n) &amp;lt; U(h')   \,\,\forall \, n \in \mathbb{N}$ but $\hat{U}(h') = U(h')  &amp;lt; \hat{U}(h)$.&lt;/p&gt;&#xA;" OwnerUserId="16528" LastActivityDate="2018-03-11T02:22:19.017" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20963" PostTypeId="1" CreationDate="2018-03-11T08:44:06.723" Score="2" ViewCount="45" Body="&lt;p&gt;Where can I find price-to-rent ratio data for housing real estate in any major nation? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any G-20 country or any &lt;a href=&quot;https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)&quot; rel=&quot;nofollow noreferrer&quot;&gt;top-10 country by GDP&lt;/a&gt; would be good for me, as long as it's official data like from a country's census or statistical bureau.&lt;/p&gt;&#xA;" OwnerUserId="4297" LastEditorUserId="4297" LastEditDate="2018-03-22T17:00:14.787" LastActivityDate="2018-03-22T17:00:14.787" Title="Where to find official sources for price-to-rent ratio?" Tags="&lt;data-request&gt;&lt;property&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="20964" PostTypeId="1" AcceptedAnswerId="20977" CreationDate="2018-03-11T10:01:14.390" Score="1" ViewCount="52" Body="&lt;p&gt;Let's say we have this Product A and it costs $1000, it's incredibly useful so it's in high demand, and we got it from a very-short limited-time &quot;event&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But then it goes available again in high supply for another same &quot;event&quot; but a bit more longer so now prices drop to let's say $400 and we have high supply of it now&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is the most probable way that it will rise in price again, if it just takes time how long do you think would it increase price. Let's just say the product is incredibly useful and alot of people really want it.&lt;/p&gt;&#xA;" OwnerUserId="16540" LastActivityDate="2018-03-15T03:53:47.137" Title="What happens if an expensive thing goes into high supply for a limited time?" Tags="&lt;supply-and-demand&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20967" PostTypeId="2" ParentId="4686" CreationDate="2018-03-11T15:46:13.197" Score="-1" Body="&lt;p&gt;There's only two fundamental resources, time and work-capable energy. Everything else can be measured as a function of these. At some point we may have currencies based on them, but in order for energy to be both an effective and safe currency, it will require banning fossil fuels and having extremely efficient storage systems. While the latter is at least on the horizon (Musk's battery factory), the former is unlikely to happen, and without it we would just be handing more power to oil (etc.). Also, not being able to control the monetary supply might be problematic. Or, it might avoid bubbles like the current one. Either way, it takes power from the central gov't, so it ain't gonna happen outside of cryptocurrency in niche applications like powerledger.&lt;/p&gt;&#xA;" OwnerUserId="16545" LastActivityDate="2018-03-11T15:46:13.197" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20968" PostTypeId="2" ParentId="20902" CreationDate="2018-03-11T17:13:36.450" Score="5" Body="&lt;p&gt;A system is explosive if its coefficients are non-stationary. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Stationary is an important property to have in dynamic models as it tells us that an equilibrium value is obtainable (which is important in finding the BGP). If your system is explosive no equilibrium (and BGP) exists.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In your example where you have the equality:&#xA;$$k_t-k^* \simeq \lambda^t (k_0-k^*)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If $\lambda\le1$, then as time progresses ($t=1,2,...,n$) the impact of a policy change approaches a new equilibrium and BGP.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However if $\lambda&amp;gt;1$ then your system is explosive and equilibrium will not be reached, thus making the system unsolvable as $t$ tends to $\infty$.&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2018-03-11T17:13:36.450" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20969" PostTypeId="1" AcceptedAnswerId="20972" CreationDate="2018-03-11T17:29:27.390" Score="2" ViewCount="75" Body="&lt;p&gt;Let $x \in [0,1]$ denote some state (e.g. market share).&#xA;Let $i \in \{1,2\}$ denote an agent (e.g. firm).&#xA;Im considering a model where payoffs $F_i(x)$ are perfectly invertible in the sense that the payoff functions can be mirrored along the line $x = \frac{1}{2}$ with $F_1(x) = F_2(1-x)$. Take $F_1(x) = x$ and $F_2(x) = 1 - x$ for instance.&#xA;Is there a fixed term for these kind of games. It has somewhat a zero sum flavor, because preferences are perfectly opposing. Firm one wants increase its market share, and firm 2 wants to decrease the market share of firm 1 in the same manner.&#xA;I can think of Hotelling or a linear city. But is this the most generic characterization?&lt;br&gt;&#xA;Or, even better, is there a mathematical term for this kind of functions which are mirrored along a fixed line?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Edit: Example&lt;/strong&gt; Consider the following advertising differential game defined by $(x,u_1,u_2) \in [0,1] \times \mathbb R_+ \times \mathbb R_+$&#xA;\begin{align}&#xA;&amp;amp;v_1(x_0) = \max_{u_1}\int_0^\infty{e^{-t}(x - u_1^2/2)dt}\\&#xA;&amp;amp;v_2(x_0) = \max_{u_2}\int_0^\infty{e^{-t}(1 - x - u_2^2/2)dt}\\&#xA;\text{s.t.}\quad &amp;amp; \dot x = u_1 - u_2&#xA;\end{align}&#xA;$x$ is the market share of firm 1, and $u_i$ is the respective advertising effort.&#xA;A stationary feedback Nash equilibrium $(\phi_1(x), \phi_2(x))$ solves a coupled system of Hamilton-Jacobi-Bellman equations&#xA;\begin{align}&#xA;&amp;amp;v_1(x) = \max_{u_1}\{x - u_1^2/2 + v'_1(x)(u_1-\phi_2(x))\}\\&#xA;&amp;amp;v_2(x) = \max_{u_2}\{1 - x - u_2^2/2 + v'_2(x)(\phi_1(x)-u_2)\}&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It turns out that $(\phi_1(x), \phi_2(x)) = (1,-1)$ is the unique Nash equilibrium with associated values &#xA;\begin{align}&#xA;&amp;amp;v_1(x) = x - \frac{1}{2}\\&#xA;&amp;amp;v_2(x) = \frac{1}{2}-x\\&#xA;\Longrightarrow \quad &amp;amp;v_1(x) = v_2(1-x).&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;How would one characterize the class of games in general? Symmetric antagonistic?&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I may propose the following definition:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Let $(\phi_1(x), \phi_2(x))$ solve&#xA;  \begin{align}&#xA;&amp;amp;v_1(x) = \max_{u_1}\{F_1(x,u_1,\phi_2(x)) + v'_1(x)f(x,u_1,\phi_2(x))\}\\&#xA;&amp;amp;v_2(x) = \max_{u_2}\{F_2(x,\phi_1(x),u_2) + v'_2(x)f(x,\phi_1(x),u_2)\}.&#xA;\end{align}&#xA;  A differential game is symetrically antagonistic if&#xA;  \begin{align}&#xA;v_1(x) = v_2(\overline x - x) \quad \forall x \in X &#xA;\end{align}&#xA;  where $\overline x := \max X$.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="4266" LastEditorUserId="4266" LastEditDate="2018-03-13T05:39:04.217" LastActivityDate="2018-06-11T07:43:18.043" Title="Term for perfect symmetric asymmetry" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;game-theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20972" PostTypeId="2" ParentId="20969" CreationDate="2018-03-11T20:11:42.990" Score="0" Body="&lt;p&gt;A game where the payoff function $F_1,F_2$ are such that for any two strategy profiles $s,s'$&#xA;$$&#xA;F_1(s) &amp;gt; F_1(s') \Leftrightarrow F_2(s) &amp;lt; F_2(s')&#xA;$$&#xA;is called an antagonistic game. Sounds like what you want is a symmetric antagonistic game?&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2018-03-11T20:11:42.990" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20973" PostTypeId="1" CreationDate="2018-03-11T20:52:52.873" Score="3" ViewCount="156" Body="&lt;p&gt;This may be a very rudimentary question but I am trying to discern the difference between purchasing power parity and the international dollar. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am starting to work on a project where we are trying to look at infant mortality rates and their relation to GDP along with some other indicators from different countries. I have started to look for different data through &lt;a href=&quot;https://www.gapminder.org/data/&quot; rel=&quot;nofollow noreferrer&quot;&gt;GapMinder&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Reading some of the variable descriptions they claim to have the GDP in PPP and then some other reference GDP PPP in international dollars. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So I then took to the internet looking for the difference. The Wikipedia artilce on the &lt;a href=&quot;https://en.wikipedia.org/wiki/Geary%E2%80%93Khamis_dollar&quot; rel=&quot;nofollow noreferrer&quot;&gt;Geary–Khamis dollar&lt;/a&gt; is leading me to believe they are the same thing if i am using USD as my base dollar unit?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So my question ultimately would be: What is the difference between the international dollar and PPP?&lt;/p&gt;&#xA;" OwnerUserId="16547" LastEditorUserId="42" LastEditDate="2018-03-11T21:01:21.863" LastActivityDate="2021-05-04T10:39:21.613" Title="Difference between the International Dollar and PPP" Tags="&lt;macroeconomics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20977" PostTypeId="2" ParentId="20964" CreationDate="2018-03-12T10:14:15.703" Score="1" Body="&lt;p&gt;a lot of factors go into this. If a product in low supply and high demand suddenly becomes high in supply, with the same level of demand, as you mentioned, the price will in theory drop from \$1,000 to \$400. But the issue is the elisticity of demand, and the opportunity cost of selling the product at a lower price when demand rises. If the price is at \$400, and demand increases as supply dwindles, but there are substitutes to the product, consumers will simply buy the substitute. If there is no substitute however, demand is high, and price elasticity is high, the price can rise fairly quickly in that scenario. &lt;/p&gt;&#xA;" OwnerUserId="16329" LastEditorUserId="27" LastEditDate="2018-03-12T12:57:11.863" LastActivityDate="2018-03-12T12:57:11.863" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20978" PostTypeId="2" ParentId="20945" CreationDate="2018-03-12T10:19:39.073" Score="0" Body="&lt;p&gt;An issue that one must consider is inflation. If an event occurs in a country, (a debt crisis for example) inflation could rise to that extent that in nominal terms GDP increases by 5%. We have seen this in Venezuela over there years where the nominal increase in GDP is irrelevant because it is mostly due to inflation. In that scenario, production in terms of the quantity of goods produced can drop due to input costs, but nominal GDP can rise due to a devaluation of the currency. So GDP does not have to increase as a result of production. But all things being equal, a higher production rate CAN correspond with a higher GDP. The quantity of goods sold leading to an increase in GDP. &lt;/p&gt;&#xA;" OwnerUserId="16329" LastActivityDate="2018-03-12T10:19:39.073" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20979" PostTypeId="1" AcceptedAnswerId="21048" CreationDate="2018-03-12T11:43:11.277" Score="-3" ViewCount="80" Body="&lt;p&gt;Is the merit to the argument of reducing the US trade deficit and the inequitable tariff regime imposed by its trading partners that works unfavorably towards the US.  Does this give merit to the argument of comparative advantage if its trading partners are going to charge higher tariffs on US goods entering their countries yet the US charges lower tariffs on the same goods entering the US from those countries e.g US charges 2.5% tariffs on Chinese cars yet China charges a 15% tariff on US cars entering China.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does this trade imbalance that evidently results in trade deficits, quantities aside or better,  less revenue and quantities sold for US companies. Does it merit having to support the US dollar as the reserve currency, a drop in potential profit growth wage growth and wealth growth.  In essence do trade deficits support the reserve currency status of the US dollar or do they suppress or diminish it?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I gather a country with trade surpluses would have a stronger currency, because its goods enjoy the largest demand and so it is always desirable to hold that currency as a reserve in order to buy those goods.  How can trade deficits ever be desirable?&lt;/p&gt;&#xA;" OwnerUserId="13272" LastActivityDate="2018-03-15T09:14:07.853" Title="Is there merit to the argument of reducing the US trade deficit" Tags="&lt;currency&gt;&lt;international-trade&gt;&lt;central-banking&gt;" AnswerCount="2" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="20980" PostTypeId="1" AcceptedAnswerId="20982" CreationDate="2018-03-12T11:43:19.697" Score="2" ViewCount="2417" Body="&lt;p&gt;In the Solow model, we have the Solow residual often referred to as the level of technology &lt;em&gt;A&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;More particularly : \begin{equation} Y(t) = [K(t)]^{\alpha}  [A(t)L(t)]^{1-\alpha} \end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.people.hbs.edu/dcomin/def.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Here&lt;/a&gt; it is defined as &quot;is the portion of output not explained by the amount of&#xA;inputs used in production&quot; though there's an explanation of its fluctuations, I still do not understand how it is calculated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.nbb.be/doc/oc/repec/reswpp/wp271en.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;This paper from the National Bank of Belgium&lt;/a&gt; does leave me a bit confused because several measurements are said to be used but it sometimes sounds as if one took the total output for a year and substracted what wasn't explained directly by labour and capital, to obtain the residual?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm not really sure how it is measured and where said measurements even come from,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can someone point me to an answer?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks for your time,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Nate&lt;/p&gt;&#xA;" OwnerUserId="13419" LastActivityDate="2018-03-12T15:50:58.917" Title="How is the Solow residual measured?" Tags="&lt;macroeconomics&gt;&lt;solow&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20981" PostTypeId="2" ParentId="20957" CreationDate="2018-03-12T13:47:14.567" Score="1" Body="&lt;p&gt;You're correct on the definition of the strategies: Albus' strategy set is $S_{A} = \big\{N,E,S\big\}$, and Minerva's is $S_{M} = \big\{a, b\big\} \times \big\{a, b\big\} \times \big\{a, b\big\}$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Remember, a strategy is a &lt;em&gt;contingent plan&lt;/em&gt; that prescribes an action at every possible node at which a player plays.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, the unique equilibrium (via Backward Induction) is $(N, b, a, b)$. The others you mention are not equilibria, because they involve &lt;em&gt;incredible threats&lt;/em&gt;, e.g. if Minerva found herself at the decision node following a choice of $E$ by Albus, she would never choose $b$.&lt;/p&gt;&#xA;" OwnerDisplayName="user11305" LastActivityDate="2018-03-12T13:47:14.567" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20982" PostTypeId="2" ParentId="20980" CreationDate="2018-03-12T15:50:58.917" Score="3" Body="&lt;p&gt;Below please find a portion of a lecture slide a professor of mine used last year. Please note that $\gamma_{\tilde{y}}$ denotes per-capita output growth, $\gamma_{\tilde{k}}$ denotes per-capita capital growth and $\alpha(t)$ denotes the income share of capital. $R(t)$ - the Solow residual - can then be easily computed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The production function you have stated was the one we used for this example. So it can be applied here directly.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/dQoHL.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/dQoHL.jpg&quot; alt=&quot;Lecture Slides&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Source: &quot;Growth and Business Cycles&quot; lecture by Professor Gerhard Sorger, University of Vienna&lt;/p&gt;&#xA;" OwnerUserId="15806" LastActivityDate="2018-03-12T15:50:58.917" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="20984" PostTypeId="1" CreationDate="2018-03-12T18:04:44.617" Score="2" ViewCount="117" Body="&lt;p&gt;Some time ago, I came across a term describing a specific phenomenon observed in free markets. I'm now looking for this term.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When comparing prices of certain staples in some countries, one quickly notices that their prices are exactly the same in different supermarkets and discounters. For example, in Germany, the cheapest price for 1 kg of sugar in any supermarket or discounter is 65 ¢. I have never seen a different price for this for years. The exact brand of sugar is different for different supermarkets or discounters, but the cheapest offer is always 1 kg for 65 ¢. It's the same for eggs, milk, flour, yeast, salt, curd, and many other staples.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This price does not change as its in every competitor's interest to keep it exactly where it is:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;If a market participant increases the price to make more money off the specific product, many people will avoid the supermarket or discounter because their prices are perceived to be higher in general as the staple in question serves as a price comparison between shops for many people.&lt;/li&gt;&#xA;&lt;li&gt;If a market participant decreases the price to attract more customers, any competitor will decrease the price of their equivalent product to not appear to have higher prices than the participant that decreased their price.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;This phenomenon results in supermarkets and discounters limiting the amount of a product customers can buy rather than increasing prices when running short of resupply or taking losses.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that I'm not looking for the term &quot;price collusion&quot;. The term describes the exact phenomenon described above and does not suggest that price collusion is happening.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm not 100% sure this term exists in English. I only know that it exists in German because I read about this phenomenon on the German version of Wikipedia, but no one I asked in real life can tell me what it is. I guess that it exists in English, too, as it is an economic phenomenon not limited to any specific geographic region. Now I need the English term (if it exists) for usage in an English document.&lt;/p&gt;&#xA;" OwnerUserId="16558" LastActivityDate="2018-04-11T19:54:33.310" Title="Phenomenon of equal prices without price collusion" Tags="&lt;pricing&gt;&lt;price-theory&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="20985" PostTypeId="2" ParentId="20984" CreationDate="2018-03-12T18:29:27.037" Score="2" Body="&lt;p&gt;I know you are at pains to say you are not looking for 'collusion' as an answer, but what you describe sounds very much like &lt;strong&gt;tacit collusion&lt;/strong&gt;. Here's a quote from &lt;em&gt;&lt;a href=&quot;http://www.cambridge.org/gb/academic/subjects/economics/industrial-economics/competition-policy-theory-and-practice?format=PB&amp;amp;isbn=9780521016919#EqMvEQ8RIKiLAOrs.97&quot; rel=&quot;nofollow noreferrer&quot;&gt;Competition Policy&lt;/a&gt;&lt;/em&gt; by Massimo Motta (pp138–140):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;I briefly characterise the concept of collusion from the point of view of industrial economics. Note that here I will not use the term &quot;collusion&quot; as a synonym for &quot;collusive agreement that should be outlawed&quot;. Indeed, one of the main themes of this chapter is that whereas in economic theory collusion is defined as a market outcome (i.e., &quot;high prices&quot;, in a sense to be specified further below), anti-trust authorities and judges should consider as illegal only practices where firms explicitly coordinate their actions to achieve a collusive outcome.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;[...]&#xA;  In economics, collusion is a situation where firms' prices are higher than some competitive benchmark. [...] In any case, in economics collusion coincides&#xA;  with an outcome (high-enough price), and not with the specific form through&#xA;  which that outcome is attained.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;[...] It is important to stress that [colluding firms need] not talk to each other, neither directly nor through intermediaries: collusive prices will arise through purely non-co-operative behaviour of the sellers. In other words, if detection of deviations is rapid, and if (market) punishments of deviations are likely and credible, then tacit collusion can arise: firms do not necessarily have to talk to each other, let alone agree on complicated schemes, for a collusive outcome to be sustainable. All that is needed is the awareness that a deviation will be identified, and that a &quot;punishment&quot; will follow.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The 'punishment' that Motta refers to is exactly the idea that, if one firm cuts its price to break the tacitly collusive status quo, other firms will 'punish' it by responding with a price cut of their own.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sometimes, tacit collusion is known by the alternative name &lt;strong&gt;conscious parallelism&lt;/strong&gt; to reflect the idea that firms are consciously mimicking each others' strategies. Particularly among legal scholars, the term conscious parallelism is used to mean coordination of prices &lt;em&gt;without&lt;/em&gt; an agreement, whereas the term collusion is reserved specifically for the case in which an agreement has taken place. Among economists, as Motta explains above, both practices are known as (respectively, tacit and explicit) collusion and the conscious parallelism terminology is less common.&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2018-03-12T18:34:55.907" LastActivityDate="2018-03-12T18:34:55.907" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="20986" PostTypeId="1" CreationDate="2018-03-12T19:17:08.757" Score="3" ViewCount="63" Body="&lt;p&gt;Most models I have seen use expected values. Why is this a better economic model than uncertainty and economic agents thus having to make 'best guesses', with the result of 'animal spirits' playing a large role. For example, it seems like no one knows where bitcoin would head for sure, hence the rife animal spirits-eqsue speculation involved and variable price.&lt;/p&gt;&#xA;" OwnerUserId="16557" LastActivityDate="2018-04-14T04:21:09.977" Title="Expected values vs uncertainty" Tags="&lt;expected-utility&gt;&lt;keynes&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20987" PostTypeId="2" ParentId="20986" CreationDate="2018-03-12T19:58:33.210" Score="1" Body="&lt;p&gt;One can distinguish between probabilistic randomness (which can be quantified) and uncertainty. This article by a Fed Researcher discusses this: &lt;a href=&quot;https://www.stlouisfed.org/publications/regional-economist/july-2002/the-stock-market-beyond-risk-lies-uncertainty&quot; rel=&quot;nofollow noreferrer&quot;&gt;“The Stock Market: Beyond Risk Lies Uncertainty” (Frank Schmid)&lt;/a&gt;. As the tag to the question suggests, this is associated with Keynes, and post-Keynesian economics at present. Therefore, if you look at the post-Keynesian literature, you will see more discussion of uncertainty.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;“Mainstream” economics and finance focus on quantifiable models. As a result, they rely on probability theory, and expected values are very common. However, option pricing theory does take into account the whole probability distribution, and so “uncertainty” might be thought of as the properties of the tail of the distribution. Rather than describing the price of bitcoin as uncertain, the tendency would be to find a model (such as a “rational bubble”) that might fit observed data. That is, one can argue that it is possible to analyse bitcoin using a standard probabilistic framework.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Whether the probabilistic approach or the more qualitative post-Keynesian approach is “better” is going to be opinion-based, and so I do not want to pursue that. (As a disclaimer, I am in the post-Keynesian camp.)&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2018-03-12T19:58:33.210" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20988" PostTypeId="1" AcceptedAnswerId="20989" CreationDate="2018-03-12T21:32:41.940" Score="0" ViewCount="2490" Body="&lt;p&gt;Are those things mean the same thing or they are actually different?&lt;/p&gt;&#xA;" OwnerUserId="16518" LastActivityDate="2018-03-12T22:21:38.760" Title="What is the difference between budget constraint and budget line?" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20989" PostTypeId="2" ParentId="20988" CreationDate="2018-03-12T22:21:38.760" Score="6" Body="&lt;p&gt;One is an algebraic formula, the other is the geometric representation of that formula.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;They are the same as much as a straight line and the equation describing said line are the same.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2018-03-12T22:21:38.760" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20991" PostTypeId="1" AcceptedAnswerId="21000" CreationDate="2018-03-12T23:33:50.183" Score="3" ViewCount="2655" Body="&lt;p&gt;What is the difference between hidden information and moral hazard?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I cannot understand these two terms mainly. Please explain. Thank you. &lt;/p&gt;&#xA;" OwnerUserId="15030" LastActivityDate="2019-04-27T08:00:21.240" Title="Moral hazard vs hidden information." Tags="&lt;microeconomics&gt;&lt;game-theory&gt;&lt;self-study&gt;&lt;adverse-selection&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20992" PostTypeId="1" AcceptedAnswerId="20998" CreationDate="2018-03-12T23:58:34.100" Score="77" ViewCount="15827" Body="&lt;p&gt;What are some results in Economics that are both a consensus between most economists and far from common sense? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would also welcome suggestions of clear definitions for what we should mean as &lt;em&gt;consensus&lt;/em&gt; , specially considering that economics is an area with a lot of methodological divergence. Let me try first, a suggested definition for &lt;em&gt;consensus&lt;/em&gt; in this setting would be:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;the existence of a group of experts that would claim that the result&#xA;  is certainly true.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="16561" LastActivityDate="2021-02-12T14:03:39.567" Title="What are some results in Economics that are both a consensus and far from common sense?" Tags="&lt;reference-request&gt;" AnswerCount="19" CommentCount="13" FavoriteCount="46" CommunityOwnedDate="2018-03-20T22:54:24.770" ContentLicense="CC BY-SA 3.0" />
  <row Id="20993" PostTypeId="1" CreationDate="2018-03-13T00:32:51.470" Score="4" ViewCount="2709" Body="&lt;p&gt;In Mankiw's Macroeconomics 7th edition, on page 99, there is the following equation, which states that &quot;the price level depends not only on today’s money supply but also on the money supply expected in the future&quot;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$M/P=L(r+E_{\pi},Y)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $L$ stands for the demand for real money balances and $r$ for the real interest rate. The author then poses the following thought experiment:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Suppose the Fed announces that it will increase the money supply in&#xA;  the future, but it does not change the money supply today. This&#xA;  announcement causes people to expect higher money growth and higher&#xA;  inflation. Through the Fisher effect, this increase in expected&#xA;  inflation raises the nominal interest rate. The higher nominal&#xA;  interest rate increases the cost of holding money and therefore&#xA;  reduces the demand for real money balances. Because the Fed has not&#xA;  changed the quantity of money available today, the reduced demand for&#xA;  real money balances leads to a higher price level.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;My question is: I understand that, by the above equation, considering that $M$ is fixed, a decrease in the demand for real balances should lead to an increase in $P$. However, what exactly happens in the real world that causes the price level to rise as a result of people trying to get rid of the excess money they are holding? I can see that, if they were spending those &quot;extra&quot; balances on consumption, that would increase the demand for goods and services, which in turn would lead to higher prices. But since the reduction in $L$ was motivated by a rise in the interest rate, it is savings that is increasing, and not consumption. So, what is going on here? Thanks in advance.&lt;/p&gt;&#xA;" OwnerUserId="15052" LastEditorUserId="15052" LastEditDate="2018-03-15T18:16:03.780" LastActivityDate="2018-03-15T20:32:02.383" Title="Confusion about the effect of an increased expected inflation on the price level" Tags="&lt;macroeconomics&gt;&lt;inflation&gt;&lt;monetary-policy&gt;&lt;interest-rate&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="20994" PostTypeId="1" AcceptedAnswerId="21029" CreationDate="2018-03-13T01:04:53.637" Score="4" ViewCount="215" Body="&lt;p&gt;Economics is known to import mathematical methods that were proven to be useful in other areas.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is any important result in mathematics that was first developed in the context of Economics research and then explored in other applied fields such as Physics or Engineering? &lt;/p&gt;&#xA;" OwnerUserId="16561" LastActivityDate="2018-03-14T10:49:36.180" Title="What are some important mathematics results that were first developed in Economics?" Tags="&lt;reference-request&gt;&lt;mathematical-economics&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20995" PostTypeId="2" ParentId="20986" CreationDate="2018-03-13T02:07:12.733" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Why is this a better economic model than uncertainty and economic agents thus having to make 'best guesses', with the result of 'animal spirits' playing a large role? &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Your question is ill-posed, but I will try and answer what I think you are struggling with.  Let us go very simple to coin tosses.  We are going to simplify it even further in that our coin will be &quot;fair.&quot;  You have two choices.  If you bet \$1,000, then you will either win \$1,000 or lose the $1,000 you bet.  We will ignore why someone would offer this bet.  We will assume the offer has positive marginal utility to the offeror.  Your alternative is not to bet.  We will also assume linear utility of wealth.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We will denote $\delta_a$ as the decision to bet and $\delta_b$ the decision to not bet.  You must solve $$\max_{\{\delta_a,\delta_b\}}\tilde{w}$$ subject to $$\tilde{w}=1,000\text{ dollars, if }\delta_b,$$ otherwise $$\tilde{w}=2,000\text{ if }\delta_a\text{ and coin is &quot;heads&quot;}$$ and $$\tilde{w}=0\text{ if }\delta_a\text{ and coin is &quot;tails.&quot;}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem has no solution.  It isn't the nature of the bet.  It is also not due to the nature of the utility function.  It isn't even because the actor is indifferent between betting and not betting.  It is due to the fact that to maximize utility you have to know now how the coin toss will come out.  If it is heads, then you must bet.  If it is tails, then you must not bet.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since you cannot know the outcome before you bet, you cannot solve the problem at all as posed here.  Now let us consider a more &quot;real&quot; utility function such as $U(\tilde{w})=\log(\tilde{w})$.  It still cannot be solved, but something else can be solved.  That something is minimizing the cost of being wrong.  For the coin tossing example, the lowest risk method of calculating the solution happens to be to minimize the squared loss.  Other solutions have a greater amount of risk.  If you want to know why then you should look at &lt;a href=&quot;https://www.stat.washington.edu/~pdhoff/courses/581/LectureNotes/admiss.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.stat.washington.edu/~pdhoff/courses/581/LectureNotes/admiss.pdf&lt;/a&gt; or &lt;a href=&quot;https://en.wikipedia.org/wiki/Admissible_decision_rule&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://en.wikipedia.org/wiki/Admissible_decision_rule&lt;/a&gt;.  Expected utility, in this case, is the risk-minimizing rule.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can solve $$\max_{\{\delta_a,\delta_b\}}\mathbb{E}(\log(\tilde{w})),$$ subject to the above constraints.  Your utility of wealth is concave and so the utility of uncertainty should be concave.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now let's assume you want to include uncertainty in an explicity manner.  To do this you would not assume the coin is &quot;fair,&quot; but rather the coin is biased in an unknown manner.  You would still solve this problem with expectations, but it would now be based on a Bayesian rather than Frequentist model.  Frequentist models lack uncertainty because they condition on the null hypothesis.  All effects are due to chance alone.  Bayesian methods condition on the data and so there is no such thing as chance, there is only uncertainty.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A discussion of Bayesian analysis is too complex to post here.  It is a very different style of question.  However, there is a decent comparison of Frequentist confidence intervals and Bayesian credible intervals at &lt;a href=&quot;https://stats.stackexchange.com/questions/2272/whats-the-difference-between-a-confidence-interval-and-a-credible-interval&quot;&gt;Keith Winstein's cookie intervals&lt;/a&gt;.  There would be a lot of additional math you would have to learn beyond what you likely know.  I am basing that assumption on the way you are asking the question as it doesn't appear you have approached this issue and this issue is at the base of any discussion of probability.  If you are interested in Bayesian analysis of economic questions, then I would suggest reading &lt;a href=&quot;https://www.stata.com/manuals14/bayesintro.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Stata's primer on Bayesian methods&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;For example, it seems like no one knows where bitcoin would head for sure, hence the rife animal spirits-eqsue speculation involved and variable price.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In this question you are confusing the short-run behavior and the limiting behavior.  An expectation is a calculus concept.  It is a discussion of how people would behave at the limit, but not in any specific instance.  I haven't derived the density for Bitcoin, but for stocks that are not merged out of existence or going bankrupt, the density is $$\left[\frac{\pi}{2}+\tan^{-1}\left(\frac{\mu}{\sigma}\right)\right]^{-1}\left(\frac{\sigma}{\sigma^2+(x-\mu)^2}\right).$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;While the distribution has no expectation, the log of the distribution does have an expectation.  Further, 99.99\% of the mass is within $\pm{636}\sigma.$  That is an incredibly wide range of behavior.  At the limit, the behavior should revolve around expected utility, in the immediate case there is no such boundary condition.  Wide swings of behavior are not inconsistent with an expected utility hypothesis.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You should note that expectations are not always the risk-minimizing choice.  Expectations do tend to get overused or inappropriately used.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Adding uncertainty to models can be a material improvement in many cases, but it comes at a cost.  Not only do you have the uncertainty of movements in prices and volumes, but an additional uncertainty to the nature of the parameter.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Instead of a fair coin as above, consider the case where there are two types of casinos.  The first kind always engages in fair bets.  The other one says it is, but you are suspicious because the croupiers go by names such as &quot;Mandrake the Magician,&quot; and &quot;Slick Eddy.&quot;  If it is not a fair coin, it is probably close to fair or people would easily notice.  Now you need to solve both the distribution given a density with parameters, and the distribution of the parameters.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is a ready math to solve this type of problem, but you will likely land back in the land of expectations.&lt;/p&gt;&#xA;" OwnerUserId="11321" LastActivityDate="2018-03-13T02:07:12.733" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20996" PostTypeId="2" ParentId="20994" CreationDate="2018-03-13T02:32:24.297" Score="5" Body="&lt;p&gt;The Envelope theorem is arguably one, &lt;a href=&quot;https://en.wikipedia.org/wiki/Envelope_theorem&quot; rel=&quot;noreferrer&quot;&gt;https://en.wikipedia.org/wiki/Envelope_theorem&lt;/a&gt; . I would say Blackwell's papers on comparisons of experiments are a significant mathematical contribution--extending Hardy,Littlewood and Polya's earlier results, and paving the way for further investigation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Econometricians have made statistical contributions as well; see e.g. &lt;a href=&quot;https://en.wikipedia.org/wiki/Heckman_correction&quot; rel=&quot;noreferrer&quot;&gt;https://en.wikipedia.org/wiki/Heckman_correction&lt;/a&gt; .&lt;/p&gt;&#xA;&#xA;&lt;p&gt;More recently, I saw a paper presented last year on how a certain type of stochastic PDE could be solved by reinterpreting it as a (stochastic) differential &lt;em&gt;game&lt;/em&gt;. I would expect to see more related to this (the relationship between differential games and stochastic pdes) in the coming years, especially given the recent surge of interest in mean-field games.&lt;/p&gt;&#xA;" OwnerDisplayName="user11305" LastActivityDate="2018-03-13T02:32:24.297" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="20997" PostTypeId="2" ParentId="20991" CreationDate="2018-03-13T02:52:39.043" Score="3" Body="&lt;p&gt;In your basic introduction to information economics, the two classic interpretations of screening with hidden information correspond to monopolistic screening or a principal agent problem.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Viewing the situation through the lens of the principal agent problem; there is a firm who wants an agent to produce a good, and the agent has private information as to how costly it is to her to produce a good of a certain quality. That is there are multiple types of agents--if there is just one type, this is just the full information (first-best) case, and the screening problem is trivial. The producer's problem is to design a contract in order to  maximize expected social value while minimizing the agent’s rent. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The basic problem with moral hazard, on the other hand, need not concern an agent with multiple types. Instead, the agent has multiple choices of &lt;em&gt;effort&lt;/em&gt;. Now, the principal's problem is to choose the optimal level of effort and the best contract with which to elicit that effort level.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To sum up, in the hidden information (screening problem), there is an agent with a private type, and the principal designs a contract in order to maximize some objective, given this information asymmetry. In the moral hazard problem the principal chooses a contract in order to elicit the optimal level of effort.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, as a caveat, this distinction is only clear at the introductory level, where the problems are very basic. One can easily have more complicated mechanism design problems that incorporate elements of both.&lt;/p&gt;&#xA;" OwnerDisplayName="user11305" LastActivityDate="2018-03-13T02:52:39.043" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="20998" PostTypeId="2" ParentId="20992" CreationDate="2018-03-13T03:28:28.867" Score="104" Body="&lt;p&gt;&lt;strong&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Comparative_advantage&quot; rel=&quot;noreferrer&quot;&gt;The principle of comparative advantage&lt;/a&gt;&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As Paul Samuelson (&lt;a href=&quot;https://books.google.com/books?id=_NbrAAAAMAAJ&amp;amp;q=%22thousands%20of%20important%20and%20intelligent%20men%22&quot; rel=&quot;noreferrer&quot;&gt;1969&lt;/a&gt;) put it:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;thousands of important and intelligent men ... have never been able to grasp the doctrine [of comparative advantage] for themselves or to believe it after it was explained to them.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Example&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Imagine that an American worker who devotes all his time to soybean production can produce up to 100 tons of soybeans per year. And if he devotes all his time to steel production, he can produce up to 4 tons of steel per year.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;In contrast, the corresponding figures for a Chinese worker are 30 tons of soybeans or 3 ton of steel.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;Maximum possible production&#xA;&#xA;          American  Chinese&#xA;Soybeans     100      30&#xA;Steel         4        3&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;A layperson could reason:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;An American worker is literally more productive than a Chinese worker at &lt;em&gt;everything&lt;/em&gt;. So why aren't we simply producing all of our own soybeans and steel?&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Instead, we're doing the foolish thing of importing steel from China!&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This reasoning is &quot;common sense&quot;. It is also wrong.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Although the American worker is &quot;better at everything&quot; (we say he has the &lt;strong&gt;absolute advantage&lt;/strong&gt; in producing both soybeans &lt;em&gt;and&lt;/em&gt; steel), the Chinese worker has the &lt;strong&gt;comparative advantage (CA)&lt;/strong&gt; in producing steel. This is because by producing 1 ton of steel, the American forgoes 25 tons of soybeans, while the Chinese forgoes only 10 tons.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And so, by the principle of CA, the American should focus on producing soybeans and the Chinese on producing steel. The two can then trade to mutual benefit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Numerical example:&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Say that without trade, the American spends a quarter of his time producing steel and the rest producing soybeans. The Chinese spends half his time on each. Hence:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;1. Consumption without trade&#xA;&#xA;          American  Chinese&#xA;Soybeans     75       15&#xA;Steel         1       1.5&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;But they can do better by specializing and trading. The American, whose CA is in soybean production, should specialize in soybeans. And the Chinese, whose CA is in steel production, should specialize in steel.&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;2. Production after specialization but before trade&#xA;&#xA;          American  Chinese&#xA;Soybeans     100       0&#xA;Steel         0        3&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;The American can then trade, say, 20 tons of soybeans for 1.2 tons of steel. End result:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;3. Consumption after specialization and trade&#xA;&#xA;          American  Chinese&#xA;Soybeans     80       20&#xA;Steel        1.2      1.8&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Comparing Scenarios #1 and #3, we see that with specialization and trade, &lt;strong&gt;both&lt;/strong&gt; the American and Chinese workers are strictly better off.  Remarkably, each gets to consume more of &lt;strong&gt;both&lt;/strong&gt; soybeans and steel than they did without trade.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, even though the American is &quot;better at everything&quot;, the principle of CA offers a powerful rationale for why he should still import steel from China and be &quot;dependent&quot; on the Chinese worker.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastEditorUserId="8815" LastEditDate="2018-03-21T16:55:03.243" LastActivityDate="2018-03-21T16:55:03.243" CommentCount="0" CommunityOwnedDate="2018-03-20T22:54:24.770" ContentLicense="CC BY-SA 3.0" />
  <row Id="20999" PostTypeId="2" ParentId="20992" CreationDate="2018-03-13T04:05:16.267" Score="44" Body="&lt;p&gt;Most theorems in economics would satisfy the consensus requirement. However, depending on what you consider to be common sense, different results will qualify. The following are two results that I found sufficiently hard to believe when I first encountered them. &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;The &lt;a href=&quot;https://en.wikipedia.org/wiki/Revenue_equivalence&quot; rel=&quot;noreferrer&quot;&gt;&lt;strong&gt;revenue equivalence theorem&lt;/strong&gt;&lt;/a&gt;, which, according to Wikipedia, implies that &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;any single-item auction which unconditionally gives the item to the highest bidder is going to have the same expected revenue.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Arrow%27s_impossibility_theorem&quot; rel=&quot;noreferrer&quot;&gt;&lt;strong&gt;Arrow's impossibility theorem&lt;/strong&gt;&lt;/a&gt;, which, according to Wikipedia, suggests that &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;no rank-order electoral system can be designed that always satisfies these three &quot;fairness&quot; criteria:&lt;/p&gt;&#xA;  &#xA;  &lt;ul&gt;&#xA;  &lt;li&gt;If every voter prefers alternative X over alternative Y, then the group prefers X over Y.&lt;/li&gt;&#xA;  &lt;li&gt;If every voter's preference between X and Y remains unchanged, then the group's preference between X and Y will also remain unchanged (even if voters' preferences between other pairs like X and Z, Y and Z, or Z and W change).&lt;/li&gt;&#xA;  &lt;li&gt;There is no &quot;dictator&quot;: no single voter possesses the power to always determine the group's preference.&lt;/li&gt;&#xA;  &lt;/ul&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="42" LastActivityDate="2018-03-13T04:05:16.267" CommentCount="12" CommunityOwnedDate="2018-03-20T22:54:24.770" ContentLicense="CC BY-SA 3.0" />
  <row Id="21000" PostTypeId="2" ParentId="20991" CreationDate="2018-03-13T05:06:28.640" Score="6" Body="&lt;p&gt;Hidden information concerns &lt;strong&gt;characteristics that are unobservable&lt;/strong&gt; by one side of the market. For example, a consumer's willingness to pay, a worker's productivity, the quality of a used car all fall under this category. The characteristics in question are typically assumed to be fixed or very costly to modify. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Moral hazard concerns &lt;strong&gt;actions that are unobservable&lt;/strong&gt; by one side of the market. For example, the effort that a CEO puts into managing a company and the care that an insured driver takes to maintain the condition of his car both fall under this category. By their very nature, the (unobservable) actions can be easily changed to suit the incentive structure of the problem. &lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2018-03-13T05:06:28.640" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="21001" PostTypeId="1" CreationDate="2018-03-13T05:22:59.793" Score="2" ViewCount="114" Body="&lt;p&gt;I’m naturally against tariffs as they impede on free trade, and end up hurting the consumer by inadvertently becoming a tax on imports as well as raising the cost of goods. So I'm trying to challenge my natural assumptions as best I can.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know the Hayekian school of thought is that the cheaper and more widely available products/materials are the better for the consumer, but I wanted to pose the question that if cheaper doesn't necessarily equal quality why is cheaper always being preferred ? For instance with Steel, I've read numerous publications citing American Steel &amp;amp; Aluminum to be of far greater strength and quality than overseas Steel. Does it all boil down to the freedom to choose as Milton Friedman says ? What is the cost / benefit analysis on something like a Tariff on Steel &amp;amp; Aluminum if its a far better product which might require us to buy less of it over-time ? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I remember growing up my father would say that he didn’t care that he could buy a microwave for 30$, and that he would gladly pay triple or quadruple for a superior product that would last a lifetime. Do we rely too heavily on affordability ? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sub-Question : I’ve noticed prominent speakers like Victor Davis Hanson say that these Tariffs are so minuscule no one will notice them. Apparently 70% of steel used in the United States is American Steel and China is actually 11th on the list of steel &amp;amp; aluminum providers. Is there too much hyperbole that a steel &amp;amp; aluminum tariff will cause a trade war ?&lt;/p&gt;&#xA;" OwnerUserId="16565" LastEditorUserId="6168" LastEditDate="2018-03-17T07:22:03.043" LastActivityDate="2018-03-17T07:22:03.043" Title="Value vs. Price and its relation to tariffs" Tags="&lt;macroeconomics&gt;&lt;international-trade&gt;&lt;free-trade&gt;&lt;tariffs&gt;&lt;free-market&gt;" AnswerCount="4" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21002" PostTypeId="2" ParentId="21001" CreationDate="2018-03-13T07:35:13.633" Score="0" Body="&lt;p&gt;Let me answer to the sub-question and the potential &lt;strong&gt;trade war&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Chad Bown in a recent &lt;a href=&quot;https://voxeu.org/article/potential-retaliation-against-trumps-steel-and-aluminium-tariffs&quot; rel=&quot;nofollow noreferrer&quot;&gt;Vox CEPR column&lt;/a&gt; estimates that Trump's steel and aluminium tariffs would impose trade losses on partners equal to \$14.2 billion per year, an amount establishing the collective permissible retaliation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The countries hit the hardest by Trump's tariffs would be Canada (\$3.2 billion), the EU (\$2.6 billion), South Korea (\$1.1 billion), and Mexico (\$1.0 billion). If those estimates are correct trading partners would be permitted to retaliate by a collective amount of $14.2 billion per year under WTO dispute settlement. &lt;/p&gt;&#xA;" OwnerUserId="6168" LastEditorUserId="6168" LastEditDate="2018-03-13T08:08:10.613" LastActivityDate="2018-03-13T08:08:10.613" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21003" PostTypeId="2" ParentId="21001" CreationDate="2018-03-13T07:50:07.240" Score="1" Body="&lt;p&gt;You asked &quot;why is cheaper always being preferred&quot;. Well, it's not. People routinely pay more for quality. Cheaper is almost always preferred &lt;b&gt;for identical products&lt;/b&gt;. But cheaper is not always preferred for goods that are only &lt;b&gt;partial&lt;/b&gt; substitutes. For example, a well-made pair of shoes that will last ten years, will cost more than an equally-comfortable pair that will last one year. But will cost less than ten times as much, and many people who can afford the well-made pair, will buy them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;I've read numerous publications citing American Steel &amp;amp; Aluminum to be of far greater strength and quality than overseas Steel&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are &lt;a href=&quot;https://en.wikipedia.org/wiki/SAE_steel_grades&quot; rel=&quot;nofollow noreferrer&quot;&gt;many different grades of steel&lt;/a&gt;. These guarantee certain proportions of metals, that in turn guarantee certain physical properties. And they come at different costs, and thus different prices. It doesn't make sense to say &quot;this country's steel is better than that country's steel&quot; - that's jingoism, not economics, not materials science. What matters is the grade of steel being produced, and its price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;these Tariffs are so minuscule no one will notice them&quot;: if that was the case, there'd be no point in flouting international agreements to implement them. The big issue is that this signals an administration that is willing to cause itself and other countries economic harm, in the interest of pursuing an ignorant, silly ideology.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2018-03-13T07:50:07.240" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21004" PostTypeId="2" ParentId="20994" CreationDate="2018-03-13T07:57:41.650" Score="1" Body="&lt;p&gt;I would like to add two additional points: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Arrow-Endhoven-Theorem which is clearly based on economic considerations and a stronger version of the Karush-Kuhn-Tucker Theorem (which is not based on economics). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another contribution which is at least partly based on economics (but not based on a pure economist) is the proof of the Mini-Max-Theorem by von Neumann (but as far as I know this result is widely ignored today - or not?).    &lt;/p&gt;&#xA;&#xA;&lt;p&gt;p. s. I don't want to argue about the Envelope Theorem but I think I saw a statement somewhere that the basic theorem has it's origin somewhere else. I will look into this later on.   &lt;/p&gt;&#xA;" OwnerUserId="16436" LastActivityDate="2018-03-13T07:57:41.650" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21006" PostTypeId="2" ParentId="20992" CreationDate="2018-03-13T10:41:55.413" Score="28" Body="&lt;p&gt;In an open economy, &lt;a href=&quot;https://en.wikipedia.org/wiki/Saving-investment_balance&quot; rel=&quot;noreferrer&quot;&gt;&lt;strong&gt;the balance of payments current account equals net saving&lt;/strong&gt;&lt;/a&gt;. This is often represented as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$S - I = X - M$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $S$ is saving, $I$ is investment, $X$ is exports and $M$ is imports.&#xA;That is admittedly a slight over-simplification as current account includes not only exports and imports of goods and services but also other items such as income from foreign investments or employment abroad, and foreign aid.  For many countries, however, the net amount of these other items is relatively small so that the balance on trade in goods and services approximates fairly closely to net saving.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This appears to diverge from common sense since, if a country has a trade deficit, most non-economists looking for explanations will consider possibilities such as:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;lack of competitiveness of domestic firms;&lt;/li&gt;&#xA;&lt;li&gt;'dumping' by foreign producers;&lt;/li&gt;&#xA;&lt;li&gt;'unfair' international trade agreements;&lt;/li&gt;&#xA;&lt;li&gt;an overvalued exchange rate.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Very rarely will a non-economist suggest that a trade deficit has anything to do with levels of saving and investment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that saving and investment here include those of both the private and the government sectors. So one implication of the above is that a government deficit, unless offset by private sector net saving, will be associated with a trade deficit (just 'associated' because the direction of causation is a further question).&lt;/p&gt;&#xA;" OwnerUserId="1417" LastEditorUserId="1417" LastEditDate="2018-03-16T22:31:49.923" LastActivityDate="2018-03-16T22:31:49.923" CommentCount="8" CommunityOwnedDate="2018-03-20T22:54:24.770" ContentLicense="CC BY-SA 3.0" />
  <row Id="21007" PostTypeId="1" CreationDate="2018-03-13T11:05:58.463" Score="1" ViewCount="22" Body="&lt;p&gt;There are articles such as 'European shares crawl higher as investors eye US inflation data'. Is this just put down to Americans may have more money to spend overseas so investors speculate higher earnings or is there another relationship?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.reuters.com/article/us-europe-stocks/u-s-jobs-report-boosts-european-stocks-idUSKCN1GL0ZU&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.reuters.com/article/us-europe-stocks/u-s-jobs-report-boosts-european-stocks-idUSKCN1GL0ZU&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit: Added article link for clarification.&lt;/p&gt;&#xA;" OwnerUserId="7971" LastEditorUserId="7971" LastEditDate="2018-03-14T05:38:31.007" LastActivityDate="2018-03-14T05:38:31.007" Title="Why does US jobs and inflation have an affect on European equities?" Tags="&lt;inflation&gt;&lt;stock-market&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="21008" PostTypeId="1" AcceptedAnswerId="21020" CreationDate="2018-03-13T12:06:52.660" Score="-1" ViewCount="44" Body="&lt;p&gt;Statement: &quot;Indifference curve analysis is based on the assumption of diminishing marginal rate of substitutiins. This means that as the consumer substitutes more and more of one commodity (say X) for another commodity (say Y), he/she will be prepared to give up lesser units of the later (Y) for each additional unit of the former (X).&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Shouldn't the consumer be more willing to give up Y for X, now that she has more of Y? Also, under the topic 'Properties of an Indifference Curve', we are told (in our textbook) that the IC curve is based on the diminishing marginal rate of substitution because &quot;the lesser is the amount of one commodity consumed by a household, the lesser willing the household will be to give up a unit of that commodity to obtain an additional unit of the other commodity&quot;. Doesn't that kind of contradict the statement I quoted earlier? PLEASE HELP! &lt;/p&gt;&#xA;" OwnerUserId="16570" LastEditorUserId="16570" LastEditDate="2018-03-15T14:22:29.797" LastActivityDate="2018-03-15T14:22:29.797" Title="Will a consumer be more, or less willing to give up a commodity (for the other) for which they have been substituting another?" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;" AnswerCount="1" CommentCount="0" ClosedDate="2018-03-15T12:57:26.580" ContentLicense="CC BY-SA 3.0" />
  <row Id="21009" PostTypeId="1" CreationDate="2018-03-13T13:45:25.973" Score="1" ViewCount="15" Body="&lt;p&gt;I am investigating the impact of enforcing the Basel III liquidity requirements with a focus on the LCR. I have found some information about regulations in fore prior to Basel III in Sweden and Germany. However, it would be very interesting to know if there were any European countries where there were &lt;strong&gt;no&lt;/strong&gt; or &lt;strong&gt;very little&lt;/strong&gt; liquidity requirements prior to Basel III.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Do you know of any such examples?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Many thanks!&lt;/p&gt;&#xA;" OwnerUserId="16573" LastActivityDate="2018-03-13T13:45:25.973" Title="What were the liquidity requirements prior to Basel III?" Tags="&lt;banking&gt;&lt;risk&gt;&lt;regulation&gt;&lt;liquidity&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21011" PostTypeId="1" CreationDate="2018-03-13T14:09:37.713" Score="1" ViewCount="12471" Body="&lt;p&gt;The current situation is the automobile industry is an oligopoly as there are few big firms and massive barriers to entry due to cost.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, The industry seems like it is changing to a monopolist competition structure as new firms join the industry (Apple, Google). This is as a result of bigger differentiation’s in cars product (due to software) &lt;/p&gt;&#xA;" OwnerUserId="16576" LastActivityDate="2018-04-14T13:21:27.467" Title="Is the global Automobile Industry changing from an oligopoly to monopolistic competition?" Tags="&lt;oligopoly&gt;&lt;monopolistic-competition&gt;" AnswerCount="2" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21013" PostTypeId="1" AcceptedAnswerId="21024" CreationDate="2018-03-13T17:59:12.093" Score="2" ViewCount="28" Body="&lt;p&gt;I have the following regression:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;wage = constant + (beta1)*michigan+ (beta2)*california+...+(beta49)florida+(beta50)education + u&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where michigan is equal to one if the person is from michigan and zero otherwise, and so on for all of the next state variables.&#xA;education is equal to the number of years of education of the person.&#xA;The base case is South Dakota, which is the state that does not appear in the regression, that is why the coefficient for florida is 49 and not 50.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I want to get the effect of being from south dakota against any other state in wage. My idea is to run this regression, and then add up betas for all other states (beta1 to beta49). If the sum is positive that would mean that people from any other state earn on average more, and the opposite if the sum is negative. Is this correct? if so , why? if not, why not? and what would be the right way to do it?&lt;/p&gt;&#xA;" OwnerUserId="13920" LastActivityDate="2018-03-14T04:54:00.220" Title="How to get the effect of one dummy variable against many others?" Tags="&lt;econometrics&gt;&lt;regression&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21014" PostTypeId="2" ParentId="20992" CreationDate="2018-03-13T18:00:04.743" Score="23" Body="&lt;p&gt;The &lt;strong&gt;Giffen Paradox&lt;/strong&gt; - increasing prices can lead to higher demand even if the goods are considered inferior.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;General consensus is increasing prices lead to less demand - if it's more expensive, people will buy less.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In some cases, increasing the price will make consumers perceive a good to be of higher quality, or more desirable, thereby increasing demand. (Example - if iPhones cost only one third of what they do, nobody would spend their money on a phone that doesn't even run Android).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, even with inferior goods, rising prices can lead to higher demand. This paradox was first observed by Giffen in the 19th century, when rising potato prices meant poorer people weren't able to afford the occasional egg or piece of meat anymore, buying more potatoes instead.&lt;/p&gt;&#xA;" OwnerUserId="16578" LastEditorUserId="4816" LastEditDate="2018-03-15T12:03:28.223" LastActivityDate="2018-03-15T12:03:28.223" CommentCount="4" CommunityOwnedDate="2018-03-20T22:54:24.770" ContentLicense="CC BY-SA 3.0" />
  <row Id="21015" PostTypeId="2" ParentId="20992" CreationDate="2018-03-13T18:09:43.123" Score="10" Body="&lt;p&gt;&lt;strong&gt;Lowering income tax rates can in some circumstances increase revenue&lt;/strong&gt;.  A simplistic view would assume higher taxes = higher revenue, but it doesn’t account for the fact that different tax rates alter behavior.  It becomes obvious when you look at the extreme end — with a 100% income tax rate, nobody would bother having a job, because they don’t get to keep any of their wages. Government income from the tax would plummet.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The overall concept is described in a theory called The Laffer Curve&lt;/p&gt;&#xA;" OwnerUserId="16579" LastEditorUserId="16579" LastEditDate="2018-03-13T21:12:31.540" LastActivityDate="2018-03-13T21:12:31.540" CommentCount="10" CommunityOwnedDate="2018-03-20T22:54:24.770" ContentLicense="CC BY-SA 3.0" />
  <row Id="21018" PostTypeId="1" AcceptedAnswerId="21073" CreationDate="2018-03-13T20:20:29.163" Score="1" ViewCount="122" Body="&lt;p&gt;Giving background to my question: a prominent economist was discussing the problems of the US currency and predicting it's collapse, said the following: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;&lt;strong&gt;&lt;em&gt;...a currency is a store of value, it's a promise of a government to repay&lt;/em&gt;&lt;/strong&gt;&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;He continued as follows: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;People are eventually going to realise, with the US issuing even more debt, historic amounts of debt, the dollar has to go down, because we can never repay the debt...we have 250-260 trillion dollars in debt when you include all the obligations that we have in terms of social welfare entitlement programs, medicare, medicaid and it just keeps going up and up and up, and eventually the dollar is going to go down and down and down...because people are going to realise they are worthless...&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, my question is in 2 parts as follows: As the US uses fiat currency with no physical commodity attached to it (since 1971)... &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(i) How does the economist link the total national US debt of 250 trillion dollars &lt;strong&gt;with&lt;/strong&gt; the US governments &lt;em&gt;promise to repay&lt;/em&gt; when defining currency?  In other words, what has '&lt;strong&gt;a promise to repay&lt;/strong&gt;' definition part of the currency got to do with the huge US debt?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(ii) The explanation of what the economist means when he defined the US currency as a &quot;&lt;strong&gt;promise of a government to repay&lt;/strong&gt;&quot;?  I mean, what is there to repay when a currency has no physical commodity attached to it other than swapping it for another dollar?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Note&lt;/strong&gt;: &lt;em&gt;The link to that programme on youtube (please fast forward to position 15:33) is &lt;a href=&quot;https://www.youtube.com/watch?v=ZyC4nQvdgIw&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;.&lt;/em&gt;&lt;/p&gt;&#xA;" OwnerUserId="16582" LastActivityDate="2018-03-16T10:56:39.797" Title="The link between US debt of $250 Trillion dollars and &quot;Promise to pay&quot; on US Dollar currency" Tags="&lt;finance&gt;&lt;currency&gt;&lt;data-request&gt;&lt;government-debt&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="21019" PostTypeId="2" ParentId="20992" CreationDate="2018-03-13T22:16:36.313" Score="22" Body="&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;The fact that the burden of a tax on sellers can by borne by buyers, and vice versa. More generally, the fact that true tax incidence is largely or completely unrelated to who is nominally being taxed (e.g. taxes on yacht purchases can in principle hurt the poor more than the rich, etc.).&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The fact that in a perfectly competitive market with free entry and exit, all firms make zero profits in the long run (if opportunity costs are taken into account).&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Coase_theorem&quot; rel=&quot;noreferrer&quot;&gt;Coase's theorem&lt;/a&gt;: &quot;if trade in an externality is possible and there are sufficiently low transaction costs, bargaining will lead to a Pareto efficient outcome regardless of the initial allocation of property&quot;. (E.g. under a cap-and-trade system for pollution permits with sufficiently low transaction costs, the final allocation of permits is independent of the initial allocation, even if some permits are sold and others are arbitrarily given away for free.)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;This one's a bit more &quot;in the weeds&quot;, but the difficulty of eliminating the &lt;a href=&quot;https://en.wikipedia.org/wiki/Marriage_penalty&quot; rel=&quot;noreferrer&quot;&gt;marriage penalty&lt;/a&gt;: &quot;it is mathematically impossible for a tax system to have all of (a) marginal tax rates that increase with income, (b) joint filing with income splitting for married couples, and (c) combined tax bills that are unaffected by two people's marital status.&quot;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="14832" LastEditorUserId="14832" LastEditDate="2018-03-13T23:48:46.447" LastActivityDate="2018-03-13T23:48:46.447" CommentCount="11" CommunityOwnedDate="2018-03-20T22:54:24.770" ContentLicense="CC BY-SA 3.0" />
  <row Id="21020" PostTypeId="2" ParentId="21008" CreationDate="2018-03-13T22:33:51.717" Score="0" Body="&lt;p&gt;Here's how it works:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We assume that marginal utility is diminishing for both goods.  Then, as a consumer consumes a higher level of Y, he is willing to give up more Y to get a unit of X.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So you are correct; the first statement is wrong.  As you noted, the second statement (less Y, less willingness to give up Y for X) contradicts the first, and the second is true.&lt;/p&gt;&#xA;" OwnerUserId="16584" LastActivityDate="2018-03-13T22:33:51.717" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21021" PostTypeId="2" ParentId="20992" CreationDate="2018-03-14T01:54:55.187" Score="9" Body="&lt;p&gt;There is the monetary &lt;a href=&quot;https://en.wikipedia.org/wiki/Impossible_trinity&quot; rel=&quot;nofollow noreferrer&quot;&gt;Impossible trinity&lt;/a&gt; concept in international economics:&lt;/p&gt;&#xA;&lt;p&gt;The impossible trinity (also known as the &amp;quot;trilemma&amp;quot; ...) is which states that it is impossible to have all three of the following at the same time:&lt;/p&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;a fixed foreign exchange rate&lt;/li&gt;&#xA;&lt;li&gt;free capital movement (absence of capital controls)&lt;/li&gt;&#xA;&lt;li&gt;an independent monetary policy&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;p&gt;Granted there may not be much &amp;quot;common sense&amp;quot; thinking on such an esoteric concept. But the Economist magazine thinks it is pretty important &lt;a href=&quot;https://www.economist.com/news/economics-brief/21705672-fixed-exchange-rate-monetary-autonomy-and-free-flow-capital-are-incompatible&quot; rel=&quot;nofollow noreferrer&quot;&gt;according to &lt;em&gt;The Economist&lt;/em&gt;&lt;/a&gt;. Also, more people are becoming aware of such things since the blockchain and cryptocurrency popularity surge in late 2017.&lt;/p&gt;&#xA;" OwnerUserId="16588" LastEditorUserId="6210" LastEditDate="2021-02-12T12:00:03.183" LastActivityDate="2021-02-12T12:00:03.183" CommentCount="1" CommunityOwnedDate="2018-03-20T22:54:24.770" ContentLicense="CC BY-SA 4.0" />
  <row Id="21022" PostTypeId="1" CreationDate="2018-03-14T02:05:46.697" Score="1" ViewCount="272" Body="&lt;p&gt;I'm looking at the &lt;a href=&quot;https://www.rug.nl/ggdc/docs/pwt90.dta&quot; rel=&quot;nofollow noreferrer&quot;&gt;Penn World Table 9.0 data&lt;/a&gt;, and find that the &quot;Share of merchandise imports at current PPPs&quot; (&lt;code&gt;csh_m&lt;/code&gt;) can be negative. For example,&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;   country  year  csh_m&#xA;   &amp;lt;chr&amp;gt;   &amp;lt;dbl&amp;gt;  &amp;lt;dbl&amp;gt;&#xA; 1 Aruba   1970. -0.485&#xA; 2 Aruba   1971. -0.459&#xA; 3 Aruba   1972. -0.436&#xA; 4 Aruba   1973. -0.441&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;My initial thought is that the share of import (&lt;code&gt;csh_m&lt;/code&gt;) here actually means &quot;net import as share of GDP.&quot; However, this is not correct, because share of import (&lt;code&gt;csh_m&lt;/code&gt;) and share of export (&lt;code&gt;csh_x&lt;/code&gt;) don't have the same magnitude.&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;   country  year  csh_m csh_x&#xA;   &amp;lt;chr&amp;gt;   &amp;lt;dbl&amp;gt;  &amp;lt;dbl&amp;gt; &amp;lt;dbl&amp;gt;&#xA; 1 Aruba   1970. -0.485 0.427&#xA; 2 Aruba   1971. -0.459 0.435&#xA; 3 Aruba   1972. -0.436 0.441&#xA; 4 Aruba   1973. -0.441 0.477&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Where can I find documentation explaining the construction of &lt;code&gt;csh_m&lt;/code&gt; and &lt;code&gt;csh_x&lt;/code&gt; from the Penn World Table?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;If a want to construct a variable of trade openness, should I add the absolute values of &lt;code&gt;csh_m&lt;/code&gt; and &lt;code&gt;csh_x&lt;/code&gt;?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="2819" LastActivityDate="2019-04-13T03:12:54.867" Title="How can the &quot;Share of merchandise imports at current PPPs&quot; be negative?" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;&lt;international-trade&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="21023" PostTypeId="2" ParentId="20992" CreationDate="2018-03-14T04:39:32.290" Score="2" Body="&lt;p&gt;The assumption of the rationality of the agents is a consensus on neoclassical economics and other schools, that is often badly translated to real world examples by economists, due to the difficulty of measuring utility. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &lt;a href=&quot;https://en.wikipedia.org/wiki/Dictator_game&quot; rel=&quot;nofollow noreferrer&quot;&gt;dictator game&lt;/a&gt; translates this idea quite clearly: &lt;s&gt;game theorists&lt;/s&gt; some economists claim humans often act “irrationally” when making offers larger than zero. Their mistake is to assume the utility outcome of the player is equal to the monetary outcome. &lt;/p&gt;&#xA;" OwnerUserId="12304" LastEditorUserId="12304" LastEditDate="2018-03-18T23:41:14.797" LastActivityDate="2018-03-18T23:41:14.797" CommentCount="3" CommunityOwnedDate="2018-03-20T22:54:24.770" ContentLicense="CC BY-SA 3.0" />
  <row Id="21024" PostTypeId="2" ParentId="21013" CreationDate="2018-03-14T04:54:00.220" Score="3" Body="&lt;p&gt;If you only want to test whether the mean wages of South Dakotans is higher than for residents of other states, run:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://latex.codecogs.com/gif.latex?y_%7Bi%7D&amp;space;=&amp;space;%5Cbeta_0&amp;space;&amp;plus;&amp;space;%5Cbeta_1&amp;space;%5Ctext%7BSouth&amp;space;Dakota%7D_%7Bi%7D&amp;space;&amp;plus;&amp;space;%5Cepsilon_i&quot; title=&quot;y_{i} = \beta_0 + \beta_1 \text{South Dakota}_{i} + \epsilon_i&quot; /&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where South Dakota is a dummy variable like the one you've described earlier. I'm assuming you simply have a cross-section of wages at a single point in time, but if you have either repeat observations of individuals or a repeated cross-section, then you can include a t subscript for each of the variables and include time controls.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If &lt;img src=&quot;https://latex.codecogs.com/gif.latex?%5Cbeta_1&quot; title=&quot;\beta_1&quot; /&gt; is positive and significant, it would be interpretable as the level or percent (if the model is run in log wages) increase in mean wages for a resident of South Dakota compared to the mean for the pool of residents of all other states. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If instead you wanted to perform pair-wise comparisons between South Dakotans and residents of an individual state, you could include a dummy for that state and then run a command like &lt;em&gt;lincom&lt;/em&gt; in Stata to perform hypothesis tests between those states' coefficients.   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you wanted to compare South Dakota against &lt;strong&gt;every single other state&lt;/strong&gt;, then make South Dakota the omitted category in your regression, and you could run the model you described of including dummies for all non-South Dakota states. The big issue with this approach is the massive multiple hypothesis testing issue you will encounter, which could be addressed through Bonferroni correction. &lt;/p&gt;&#xA;" OwnerUserId="16592" LastActivityDate="2018-03-14T04:54:00.220" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21025" PostTypeId="1" CreationDate="2018-03-14T06:03:06.597" Score="1" ViewCount="39" Body="&lt;p&gt;India has around 470 billion USD in debt and has around 400 billion USD in forex reserves. So why should India or any other nations shouldn't use their forex reserves to pay off their external debt ?&lt;/p&gt;&#xA;" OwnerUserId="16594" LastActivityDate="2018-03-15T02:52:12.023" Title="Why shouldn't governments use Forex reserve to pay their debts?" Tags="&lt;international-economics&gt;&lt;government-debt&gt;&lt;debt&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21026" PostTypeId="2" ParentId="20992" CreationDate="2018-03-14T08:30:38.533" Score="7" Body="&lt;p&gt;&lt;strong&gt;(Tradeable) Permits&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The fact that you can correct for externalities with (tradeable/marketable) permits seems to be a consensus with economists. But considering the existing applications, the theory appears to be not common sense.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Example:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The EU/countries in the EU have implemented a &lt;a href=&quot;https://en.wikipedia.org/wiki/Carbon_emission_trading&quot; rel=&quot;nofollow noreferrer&quot;&gt;Carbon Emission Trading scheme&lt;/a&gt; while nations within the EU continue with other regulation like promotion of solar/wind, etc. When the point of a permit trading scheme is for the market to allocate the efforts to that place where you can save CO2 most efficiently. The added regulation only distorts the permit market without actually helping to reduce the CO2 produced, as the amount of CO2 produced is set by the amount of permits issued. And by funding solar, you just make permits cheaper and increase pollution in another sector.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another quirk is, that permits are grandfathered to companies to keep the prices down, when the gifted permits result in an opportunity cost of using them (since you could sell them at the same price), making the price rise at just the same rate as if the company had bought them. The only result of grandfathering being that it gifts money to established companies, distorting the market. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To address some further concerns in the comments: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the amount of issued permits were to high this would still be an example of policy makers not understanding the theory of permits. The thing is, either you base your CO2 reduction policy completely on permits or not at all. If you issue too many of them, then they don't have an effect and the only reduction comes from other measures so the implementation of permits is bad. But if they are actually binding (i.e. there are less permits than people want to produce) then all the other measures have no effect as they only shuffle around where the CO2 gets produced. So the implementation of other measures is bad.&#xA;In either case there seems to be a lack of understanding of how permits work. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And I also want to argue that there are not too many permits anymore, the surplus was due to the crisis in 2008. And while I would still argue that the amount issued is still too high, the price is high enough above zero, that a reduction of CO2 in one place would probably lead to an increase in a different place. But again, it does not really matter. The issue is, that they did not implement a theory in a way that it actually works properly.&lt;/p&gt;&#xA;" OwnerUserId="15245" LastEditorUserId="15245" LastEditDate="2018-03-20T20:26:02.043" LastActivityDate="2018-03-20T20:26:02.043" CommentCount="5" CommunityOwnedDate="2018-03-20T22:54:24.770" ContentLicense="CC BY-SA 3.0" />
  <row Id="21027" PostTypeId="1" CreationDate="2018-03-14T08:34:00.710" Score="-1" ViewCount="25" Body="&lt;p&gt;For example:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's suppose that at the end of the first year I got \$8 000  of revenue (like I have a business or something). I put the money in a bank at the beginning of the second year, annual percentage rate was 10% (from now on I assume that the annual percentage rate will remain the same). At the end of the second year there were \$8 800 on my bank account, but I added \$8 000 to it at the beginning of the third year, thus at the end at the end of the third year I had \$18480 on my bank account, instead of \$9680. I continue to replenish my bank account every year by \$8 000 (inflation is ignored), until the beginning of year number N, when I will do it for the last time. I want to know what sum of money I will have at the end of year number N.&lt;/p&gt;&#xA;" OwnerUserId="4979" LastActivityDate="2018-03-14T16:27:27.730" Title="I want formula for compund interest with regular and fixed replenishments" Tags="&lt;interest-rate&gt;" AnswerCount="1" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="21028" PostTypeId="1" CreationDate="2018-03-14T09:32:45.527" Score="0" ViewCount="78" Body="&lt;p&gt;I have the following function:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\Pi =\int_{0}^{z}[x_{1} + \alpha y + \alpha \frac{N-2}{2}y - \beta(z) - \gamma ( \beta(z) - \beta(y))](N-1)y^{N-2} dy $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first derivative with respect to $z$ is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\frac{\partial \Pi}{\partial z}=[ x_{1} + \alpha z + \alpha \frac{N-2}{2}z - \beta(z)] (N-1) z^{N-2} - (1 + \gamma) \beta'(z)z^{N-1}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;at $z = x_{1}$ it must be zero so that:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;[ x_{1} + \alpha x_{1} + \alpha \frac{N-2}{2} x_{1} - \beta(x_{1})] (N-1)  - (1 + \gamma) \beta'(x_{1})x_{1} = 0&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The solution is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\beta(z) = \frac{(N \alpha + 2)(N-1)}{2(N + \gamma)}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I want to prove is that the function $\Pi$ have a global maximum in $x_{1}$. Until now I think I've only obtained a necessary condition. Can you suggest me a way to prove it?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT: $\beta(\cdot)$ is an increasing function.&lt;/p&gt;&#xA;" OwnerUserId="16391" LastEditorUserId="16391" LastEditDate="2018-03-14T14:22:44.673" LastActivityDate="2018-03-15T15:41:27.740" Title="How to prove that a point is a maximum point" Tags="&lt;microeconomics&gt;&lt;optimization&gt;&lt;auctions&gt;&lt;profit-maximization&gt;" AnswerCount="1" CommentCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="21029" PostTypeId="2" ParentId="20994" CreationDate="2018-03-14T10:49:36.180" Score="5" Body="&lt;p&gt;I know a lot of examples of mathematical results that have been first developed in economics, mostly result in set-valued analysis and convex analysis. My ignorance of engineering and physics keeps me from listing many examples there. Many results in &lt;a href=&quot;https://en.wikipedia.org/wiki/Transportation_theory_(mathematics)&quot; rel=&quot;noreferrer&quot;&gt;optimal transport&lt;/a&gt; have certainly been used in many other areas.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Kakutani fixed-point theorem should also make the list in my humble opinion. Now Shizuo Kakutani was a pure mathematician who published this purely mathematical result in a pure math journal:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Kakutani, Shizuo. &quot;A generalization of Brouwer’s fixed point theorem.&quot;&#xA;  Duke mathematical journal 8.3 (1941): 457-459.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So why should it count? Well, the Kakutani fixed point theorem is largely a variant (with a simplified proof) of a Lemma John von Neumann introduced in Karl Menger's mathematical colloquium in order to solve an economic growth model.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Von Neumann, John. &quot;Uber ein ökonomisches Gleichungssystem.&quot; Ergebn.&#xA;  Math. Kolloq. Wien. Vol. 8. 1937.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;One can actually show the existence of solutions to the model by simpler methods, as David Gale eventually did, but here is the result of von Neumann in modern language:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Theorem:&lt;/strong&gt; Let $C$ and $K$ be nonempty convex and compact subsets of Euclidean spaces (of not necessarily the same dimension). Let $E$&#xA;   and $F$ be closed subsets of $C\times K$ such that for each $x\in C$,&#xA;   the set $E_x=\{y\in K\mid (x,y)\in E\}$ is nonempty, convex, and compact&#xA;   and such that for each $y\in K$, the set $F^y=\{x\in C:(x,y)\in F\}$&#xA;   is nonempty, convex, and compact. Then $E\cap F\neq\emptyset$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That Kakutani's fixed point theorem implies the result of von Neumann is shown in Kakutani's paper. But Kakutani's fixed point theorem is also an easy consequence of von Neumann's theorem. If $C=K$, then the assumptions on $E$ say that $E$ is the graph of an upper hemicontinuous correspondence with nonempty, convex, and compact values from $C$ to itself. That this correspondence has a fixed-point is equivalent to a point of the form $(x,x)$ being in the graph. Now if we let $F$ being the diagonal of $C$, that is $F=\{(x,x)\mid x\in C\}$, then $E$ and $F$ satisfy the conditions of von Neumann's result, so the intersection must be empty and the correspondence with graph $E$ must have a fixed-point.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A reprint of von Neumann's paper can be found in &lt;a href=&quot;http://www.springer.com/in/book/9783709173305&quot; rel=&quot;noreferrer&quot;&gt;this book&lt;/a&gt;. An English translation can be found &lt;a href=&quot;http://piketty.pse.ens.fr/files/VonNeumann1945.pdf&quot; rel=&quot;noreferrer&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="1442" LastActivityDate="2018-03-14T10:49:36.180" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21030" PostTypeId="2" ParentId="21027" CreationDate="2018-03-14T12:44:03.880" Score="1" Body="&lt;p&gt;What you need is the future value of an annuity. If you have a payment P paid for N years, compounding at an interest rate i, the future value of that is: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$FV=P*( (1+i)^N - 1)/i$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This will give you the future value at the beginning of the year. To get it for the end you multiply with (1+i). In your example filling in P=8000, i=10%, and N=2 gives you 16800, which when multiplied with 1.1 gives you the desired 18480.&lt;/p&gt;&#xA;" OwnerUserId="12186" LastEditorUserId="12186" LastEditDate="2018-03-14T16:27:27.730" LastActivityDate="2018-03-14T16:27:27.730" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="21031" PostTypeId="1" CreationDate="2018-03-14T12:51:08.747" Score="1" ViewCount="55" Body="&lt;p&gt;The government regulates some of the behavior of financial markets. Understandably, especially considering the crisis.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But would it not be easier if the government overtook some of the aspects of the financial markets? In that case, regulation would not be necessary, since the government was in charge of that particular aspect. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, say the government overtook the business of giving out mortgages to house buyers. In this case, the government would not have to worry about banks giving out subprime mortgages, securitizing them, and selling them off, the government would be in charge of the entire process and since the government does not seek profit-maximization, it would make sure to do it right.&lt;/p&gt;&#xA;" OwnerUserId="16601" LastActivityDate="2018-03-15T01:30:35.380" Title="Why regulate the financial world rather than take over some of the services?" Tags="&lt;financial-economics&gt;&lt;government&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="21034" PostTypeId="1" AcceptedAnswerId="21051" CreationDate="2018-03-14T15:57:32.007" Score="0" ViewCount="44" Body="&lt;p&gt;Until early 2016, India’s growth had been accelerating when growth in other countries was decelerating. But then the converse happened. The world economy embarked on a synchronous recovery, but India’s GDP growth—and indeed a number of other indicators such as industrial production, credit, and investment—decelerated. There are five reasons for this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;• First, India’s monetary conditions decoupled from the rest of the world. Until the middle of 2016, real policy interest rates were following the global trend downwards. Since then, the downward drift has continued in most other countries, with rates falling. But in India, for the same period, average real interest rates increased. This tightening of monetary conditions contributed to the divergence in economic activity in two ways. First, it depressed consumption and investment compared to that in other countries. Second, it attracted capital inflows especially into debt instruments, which caused the increase in demand for rupee and consequently rupee appreciates which causes dampening of exports.&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Can anyone please explain what is written in bold in layman's terms?&lt;/em&gt;&lt;/p&gt;&#xA;" OwnerUserId="13876" LastActivityDate="2018-03-15T09:39:11.043" Title="Meaning of a paragraph related to economics" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21035" PostTypeId="2" ParentId="20992" CreationDate="2018-03-14T16:21:34.537" Score="-1" Body="&lt;p&gt;The best answer to this question has to be pricing. It is agreed in economics that pricing reflects the supply and demand and it depends on these on a free market. Still, you'd often hear people how some product is too expensive because it is just some &lt;em&gt;raw material&lt;/em&gt; plus some &lt;em&gt;working hours&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Even worse, you sometimes see business owners billing their service or products by some amount of material and some hours of labour. For e.g. a carpenter who sells some closet for 1.2 cubic meter of wood at 800\$/cubic meter + 30 hours of work at 90\$ per hour, giving a grand total of nobody cares. Because if someone comes in and says I want that closet for 1 million euros and you're willing to give it for that money, that's PRECISELY what it's worth. Exactly in the same way as if someone comes in and wants to pay you 100 euros for the closet, you can't claim it's worth at least the material+labour, because nobody is willing to pay that money, so it's not worth that much, but PRECISELY 100 euros.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a nutshell, it is a consensus in Economics that prices are driven by supply and demand on free market, but for some reason people very widely believe that it's common sense that prices are driven by production costs.&lt;/p&gt;&#xA;" OwnerUserId="16608" LastActivityDate="2018-03-14T16:21:34.537" CommentCount="10" CommunityOwnedDate="2018-03-20T22:54:24.770" ContentLicense="CC BY-SA 3.0" />
  <row Id="21036" PostTypeId="1" CreationDate="2018-03-14T19:10:34.140" Score="0" ViewCount="138" Body="&lt;p&gt;China and the US alone have a staggering 15 trillion dollars in debt. Is there any country which has no external debt and if so, then when did they pay back their debt? &lt;/p&gt;&#xA;" OwnerUserId="16594" LastEditorUserId="16631" LastEditDate="2018-03-15T20:45:57.453" LastActivityDate="2018-03-15T20:45:57.453" Title="Is there any nation which doesn't have any external debt?" Tags="&lt;government-debt&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="21037" PostTypeId="1" CreationDate="2018-03-14T21:31:40.350" Score="0" ViewCount="102" Body="&lt;p&gt;I am struggling a bit with understanding the meaning of capital ratios, and bank profitablity. It seems to me that capital requirements stipulate that a certain fraction of banks' risk weighted assets have to be held as equity. I get why that is the case: for any given value of assets, having more capital serves as a cushion against their falling values. The definition of bank capital is: $$E=A-L$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where E represents bank capital. Now, from a textbook I am reading, it says that banks don't like having high amounts of capital, as it reduces their potential profits. I don't understand what that means- doesn't having high amounts of capital mean that the bank is indeed very profitable (maximizing difference between assets and liabilities?)&lt;/p&gt;&#xA;" OwnerUserId="5233" LastActivityDate="2018-03-15T03:56:37.903" Title="Bank Capital and Profit" Tags="&lt;finance&gt;&lt;banking&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21038" PostTypeId="2" ParentId="21037" CreationDate="2018-03-14T21:53:06.790" Score="1" Body="&lt;p&gt;Two things:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Capital not being put to work reveals no profit. This capital could have been invested into something else which may (or may not) have resulted in profit for the bank. Opportunity cost of capital could be rather big. This means that the bank is actually loosing out on potential profits.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Capital (in form of equity) does not necessarily mean the company is profitable. Many (often smaller) companies are 100% equity financed - this has no relation to profitability what so ever. Increasing the equity/debt ratio does not say anything about if the company is profitable. It could be because the company has build up equity (yay, this means profits), but it could also be because the company has gotten a capital injection (not affecting profits). It works other ways as well - perhaps a company is very profitable (building equity and not paying dividends), but at the same time they increase their debt, keeping the ratio constant; in this case you cannot see if it is profitable or not. Debt is not the same as “not profitable”. Actually most companies have debt because they may be able to invest the debt at a better rate than their interest rate (eg in machinery to increase production resulting in profits).&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Increasing the gap between assets and liabilities is exactly the same as described above. Assets = (Equity + Liabilities).&lt;/p&gt;&#xA;" OwnerUserId="14207" LastActivityDate="2018-03-14T21:53:06.790" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21039" PostTypeId="2" ParentId="21031" CreationDate="2018-03-15T01:30:35.380" Score="1" Body="&lt;p&gt;Governments do offer financial services. It varies from country to country, and changes over time. The political drift has been to reduce the role of government since the 1980s, so this role has generally shrunken.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, some countries had postal banking - citizens had basic banking functions offered at post offices.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I will just use some Canadian examples; other countries have similar programmes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Canadian government has a Business Development Bank, which helps new firms develop (&lt;a href=&quot;https://www.bdc.ca/en/pages/home.aspx&quot; rel=&quot;nofollow noreferrer&quot;&gt;website&lt;/a&gt;). It is taking on risks that commercial banks would be reluctant to take. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Canada Mortgage and Housing Corporation (CMHC - &lt;a href=&quot;https://www.cmhc-schl.gc.ca&quot; rel=&quot;nofollow noreferrer&quot;&gt;website&lt;/a&gt;) has a programme of mortgage insurance that is compulsory for all high loan-to-value mortgages in Canada (“subprime”). The loans have to meet minimum risk standards, but the loan guarantee means that the private banks are not exposed to the risk of the mortgages. The Canadian housing market slowed down during the Financial Crisis, but fared better than the United States. The fact that the Canadian banks were insulated from the credit risk of risky mortgages was certainly a factor.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Returning to your question - why not expand the programme, and have the government completely take over the mortgage lending role? One obvious advantage for the government is that it is not forced to justify lending decisions to citizens - that is being done in the private sector. People could easily be concerned about favouritism in lending decisions if the government controlled all mortgage lending. For example, if the child of a politician gets a big mortgage when other people are being refused, it could easily turn into a political scandal. On top of this, there is the ongoing political argument between government control versus free markets. The objective of this website is to avoid opinion-based answers, so I will not dwell on that political debate. &lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2018-03-15T01:30:35.380" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21040" PostTypeId="2" ParentId="21037" CreationDate="2018-03-15T02:18:08.677" Score="0" Body="&lt;p&gt;Let's say the bank holds 100 dollars in deposits.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If they are required to hold 5% in equity (or any other asset class that contributes to the requirement), then they can loan out 95 dollars of the 100 dollars. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If they are required to hold 20% in equity (or any other asset class that contributes to the requirement), then they can only loan out 80 dollars of the 100 dollars. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A relevant concept is &quot;risk-weighted assets&quot;, where a highly rated asset (lower risk) contributes more to the requirement than a lowly rated asset (higher risk). If you read up on Basel III in Wikipedia, you can find out more about different types of capital requirements and other stuff that goes with that, in addition to other relevant concepts such as liquidity requirements, etc. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sometimes the main idea is to prevent a minor run on the bank from turning to catastrophe (maybe a depositor takes their 10 dollars out of the bank, and the bank is left with minus 5 dollars, and cannot meet the ongoing financing requirements of an investment project that they had previously committed to). Other times, it may prevent a small economic downturn from causing havoc in the financial system (maybe several loans are not repaid until later, and the bank has no additional liquidity to finance any new investment projects, causing investment in the economy to collapse). In both cases, the higher capital requirement provides protection against a small problem with one or two banks turning into an economy-wide catastrophe (although it is possible for the requirement to be &quot;too high&quot;.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other cases, a central bank may use capital requirements to influence overall credit in the financial system, similar to how central banks manage interest rates to influence inflation and thereby other macro variables.&lt;/p&gt;&#xA;" OwnerUserId="16499" LastEditorUserId="16499" LastEditDate="2018-03-15T03:56:37.903" LastActivityDate="2018-03-15T03:56:37.903" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21041" PostTypeId="2" ParentId="21025" CreationDate="2018-03-15T02:52:12.023" Score="3" Body="&lt;p&gt;If you had 12,000 dollars owing on a loan, 10,000 dollars cash in the bank and 1000 dollars monthly expenses, but you weren't sure if incoming cash flow could stop for 6 or 12 months, any time, with no notice, would you deplete your entire cash stock to reduce debt? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;At that point, if your next paycheque was a week late, you would go hungry. Or, assuming that you had assured your basic subsistence, you might find yourself with no money to buy some other basic things that make your life a lot easier or more efficient.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Otherwise stated, there's a reason that a common measure of forex reserves is &quot;Total reserves in months of imports&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Basically, if India used all of its forex to pay off external debt, then on a moment's notice it could have zero (or at least highly constrained) ability to access critical inputs into production processes. The highly negative impact that autarky or excessive focus on self sufficiency (beyond subsistence needs) could be highlighted in the context of this explanation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also (among other things), while a lot of economists disagree that using forex to manage an exchange rate in a situation of short-term crisis is a good idea, it is logically true that if you have no forex then this option simply does not exist.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a specific example of how this can be a problem, you could refer to the story of the 1997 Asian Financial Crisis. In response to this crisis, most central banks in Asia undertook to substantially increase their forex holdings in order to not suffer a repeat of such a crisis. &lt;/p&gt;&#xA;" OwnerUserId="16499" LastActivityDate="2018-03-15T02:52:12.023" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21042" PostTypeId="1" CreationDate="2018-03-15T01:55:44.360" Score="4" ViewCount="194" Body="&lt;p&gt;Could someone please provide pointers on how to solve the below? If any theoretical approximations are possible, that would be very helpful. If numerical solutions are the right approach, could you suggest how we can do this in R (restricted to free software due to limited, actually zero, funding; hence R pointers would be most welcome)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Bellman equation to be solved is given by, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;V_{t}\left(Y_{t-1},Z_{t}\right)=\underset{\left\{ X_{t}\right\} }{\min}\:E_{t}\left[\max\left\{ \left(Y_{t}-Y_{t-1}\right),0\right\} Z_{t}+V_{t+1}\left(Y_{t},Z_{t+1}\right)\right]&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here, the notation stands for,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$V_{t}\left(Y_{t-1},Z_{t}\right)$ is the value function at time $t$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$E_{t}$ is the Expectation taken at time $t$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$X_{t}$, is the quantity or amount of goods acquired in period $t$ at price $Y_{t}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$Z_{t}$, is the number of units that we still need to acquire at time $t$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\bar{X}$ =$Z_{1}$, the total quantity of the good that is required.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$T$, the total number of time periods.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$X_{1},...,X_{T}$ is the list of acquisitions that we want to make and needs to be determined.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A simple law of price motion is assumed as below,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;Y_{t}=Y_{t-1}+\theta X_{t}+\varepsilon_{t}\;,\theta&amp;gt;0\:,E\left[\varepsilon_{t}\left|X_{t},Y_{t-1}\right.\right]=0\;,\;\varepsilon_{t}\sim N\left(0,\sigma_{\varepsilon}^{2}\right)&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$N\left(0,\sigma_{\varepsilon}^{2}\right)$ is a normal distribution with mean zero and variance $\sigma_{\varepsilon}^{2}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, the following properties hold,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\sum_{t=1}^{T}X_{t}=\bar{X}\;,X_{t}\geq0\;,Z_{1}=\bar{X},\;Z_{T+1}=0\;,\;Z_{t}=Z_{t-1}-X_{t-1}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;PS: Please note, this is not posted on the Mathematics website to solicit answers from a wider audience.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://math.stackexchange.com/questions/2694694/solution-to-dynamic-programming-bellman-equation-problem&quot;&gt;https://math.stackexchange.com/questions/2694694/solution-to-dynamic-programming-bellman-equation-problem&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="16617" OwnerDisplayName="user249613" LastEditorUserId="16617" LastEditDate="2018-03-17T07:43:01.323" LastActivityDate="2018-03-17T07:43:01.323" Title="Solution to Dynamic Programming (Bellman Equation) Problem" Tags="&lt;optimization&gt;&lt;dynamic-programming&gt;&lt;numerical-methods&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21043" PostTypeId="2" ParentId="21001" CreationDate="2018-03-15T03:25:06.383" Score="1" Body="&lt;p&gt;At a market equilibrium, marginal cost and marginal utility are equal. This does not mean that the cheaper good is preferred.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that the US imports primarily higher quality steel at a higher price, and not lower quality steel at a lower price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regarding the subquestion: As for how it could cause a trade war, this is probably related to a belief that if allies and trading partners do not commit to reciprocal measures, then more of the same unfriendliness will be delivered. For example, when the EU proposed a monetarily equivalent level of retaliatory tariff, Trump suggested he might enormously hike tariffs on EU automobiles. Otherwise stated, people don't like to be threatened, and might prefer to burn cash than to have the bully make off with their lunch money. In the meantime, it could be worth asking who'd like to see economic harm occur to Western countries, at their own hands (the context being one where China probably does not want to have tariffs on their steel exports or additional trade restrictions related to EU or Japanese responses).&lt;/p&gt;&#xA;" OwnerUserId="16499" LastActivityDate="2018-03-15T03:25:06.383" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21044" PostTypeId="2" ParentId="20986" CreationDate="2018-03-15T03:42:28.300" Score="0" Body="&lt;p&gt;Because it is easier to model. If the main point were the role of risk preferences, or if risk preferences would affect the conclusions in some important way, further extensions would presumably be provided.&lt;/p&gt;&#xA;" OwnerUserId="16499" LastActivityDate="2018-03-15T03:42:28.300" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21045" PostTypeId="2" ParentId="20979" CreationDate="2018-03-15T03:47:08.050" Score="1" Body="&lt;p&gt;Just because you have a trade deficit with the grocery store does not mean you would be better off growing your own food. &lt;/p&gt;&#xA;" OwnerUserId="16499" LastActivityDate="2018-03-15T03:47:08.050" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21046" PostTypeId="2" ParentId="20964" CreationDate="2018-03-15T03:53:47.137" Score="1" Body="&lt;p&gt;It depends if it's expensive to warehouse or stockpile it. It depends if it will be just as useful in 1 year or 5 years time. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, you can stock a lot of iPhones in a small space, but no one wants to buy last year's iPhone. Whereas iron ores might be very useful in 5 years' time, but it would cost a lot to stock any relevant amount.&lt;/p&gt;&#xA;" OwnerUserId="16499" LastActivityDate="2018-03-15T03:53:47.137" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21047" PostTypeId="1" AcceptedAnswerId="21074" CreationDate="2018-03-15T09:11:03.530" Score="1" ViewCount="68" Body="&lt;p&gt;In times of low yields and the prospect of rising yields, I asked myself if the european countries can ceteris-paribus cope with rising yields. Is there a way to calculate the effect of rising yields (ignore growth etc. for the time beeing), calculate a break-even yield where the debt burden becomes to much to cope. I thought about calculating the effect via government bond indices and the primary budget. Are there research papers about this?&lt;/p&gt;&#xA;" OwnerUserId="16620" LastActivityDate="2018-03-18T04:12:51.330" Title="Debt bearing capacity" Tags="&lt;gdp&gt;&lt;government-debt&gt;&lt;debt&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21048" PostTypeId="2" ParentId="20979" CreationDate="2018-03-15T09:14:07.853" Score="1" Body="&lt;p&gt;Trade deficits can be desirable if people are still willing to purchase your currency. Why would they be willing to purchase your currency? For multiple reasons. The US is still relatively stable, it has the reserve currency, and the strength and stability of the United States give governments and investors confidence in investing here, buying bonds, and stacking dollars. In the United States scenario, it has been desirable to increase deficits in the short-term, because it has led to the ability to consume without producing in proportion. We can essentially live beyond our means in the United States without experiencing severe inflation in the short-term. How this all ends is a debate for economists more advanced than me, but based off of modern economic theory, deficits can be desirable if the consequences of inflation or offset.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The tariff on the other hand has negative and positive consequences. In the short-run, it can benefit the steel industry by increasing the price of steel, and forcing American companies to buy American. However, the marginal cost is how much much more it costs every other industry to buy the steel, which may outweigh the marginal benefit of the increased price of steel for the steel industry. This can also lead to less steel being demanded, which will eventually hurt the steel industry itself. A tarrif in this situation has marginal benefits (increased steel prices in the short-run) and marginal costs(the cost of steel to every other industry). &lt;/p&gt;&#xA;" OwnerUserId="16329" LastActivityDate="2018-03-15T09:14:07.853" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21049" PostTypeId="2" ParentId="21001" CreationDate="2018-03-15T09:23:07.277" Score="0" Body="&lt;p&gt;Cheaper can be a preference but is not always a preference. Consider a company that is building a new building on leverage. They expect profits in the future, but are currently not profitable. They may obviously prefer cheaper steel, as you know, because they are simply limited on funds. It is like when I was in college, i’d Buy cheaper batteries, knowing that they wouldn’t last as long, because I was short on money, and got paid sporadically. Due to my income schedule, I chose cheaper, even though it cost more in the long-run. It was a preference due to complex circumstances based on when I got paid, and how much I had available at a given time. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If steel costs so much that the marginal benefit of having steel last for 10 additional years does not offset the marginal cost of paying 50% more for the steel, it would make sense that one would buy the cheaper steel (from China) if they are thinking at the margin (which most firms do). The tarrif would make those countries even more likely to buy Chinese steel, because the marginal cost of a unit of American steel has just risen. As you wisely noted, this is not a good thing. A tax obviously will decrease demand, further depressing the steel industry. The only way to improve the steel industry is to produce more at a lower cost. Similar to the farming industry, our output boomed in spite of fewer farmers. This was a net benefit to society even though it created fewer farmers. My girlfriends brother doesn’t HAVE to be a farmer precisely because of this dynamic. He can do something else and have a higher standard of living. It is not “bad” that he can do something that his grandfather did not do. It means we got more efficient and improved our living standards. This is why I believe Trump’s policy is suspect. &lt;/p&gt;&#xA;" OwnerUserId="16329" LastActivityDate="2018-03-15T09:23:07.277" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21050" PostTypeId="2" ParentId="21047" CreationDate="2018-03-15T09:29:58.363" Score="-2" Body="&lt;p&gt;The break even point that I remember from the Japanese debt crisis was at the point that the interest on debt surpassed tax receipts. If there is a point at which you can calculate expected tax receipts and yearly interest on debt, that would be a breaking point. I’d also note (less precisely) That when the inflation rates surpasses the interest on debt for a period, that will also lead to higher yields making the issue worse, so inflation has to be a consideration in this analysis of WHEN the breaking point will come. For example, if inflation is excepted to be 4% in an EU country with massive debt in 2030, and a 4% yield would be more of a debt payment than projected tax receipts, that is a breaking point. The only two options are an inflation crises, or missing a debt payment. &lt;/p&gt;&#xA;" OwnerUserId="16329" LastActivityDate="2018-03-15T09:29:58.363" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="21051" PostTypeId="2" ParentId="21034" CreationDate="2018-03-15T09:39:11.043" Score="3" Body="&lt;p&gt;This means that interest rates rose in India at the same time that they stayed relatively low in other areas of the world. The fact that investors could get a higher yield in India led to an increase in demand for their currency (if I can get a 5% yield on Indian bonds, why would I get a 2% yield on US bonds?) This led to an increase in demand for their currency so that investors could buy Indian bonds/Invest in India at higher yields. The appreciation of the rupee (increase in value) led to India’s goods costing more (it took more dollars to buy Indian goods for example due to the currencies rise in value). This led to fewer goods being demanded (higher prices decrease demand). So Indias exports declined. &lt;/p&gt;&#xA;" OwnerUserId="16329" LastActivityDate="2018-03-15T09:39:11.043" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="21053" PostTypeId="1" AcceptedAnswerId="21054" CreationDate="2018-03-15T10:43:13.807" Score="0" ViewCount="88" Body="&lt;p&gt;I remember reading this really interesting idea by some economist that a government need not issue fixed-term debt such as bonds, notes or bills. Instead all it could do is print money and use it to pay for everything, thereby borrowing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It would repay by levying taxes, which it would vary based on the rate of inflation. I. e. if the rate of inflation would be too high, it would increase tax rates to bring it down and vice versa.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is -- who was this economist? I need to cite this idea and need a name or better yet a citation to a paper.&lt;/p&gt;&#xA;" OwnerUserId="16625" LastActivityDate="2019-10-28T21:48:01.787" Title="Which economist suggested solely printing money to borrow and not have bonds?" Tags="&lt;monetary-policy&gt;&lt;taxation&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21054" PostTypeId="2" ParentId="21053" CreationDate="2018-03-15T11:09:13.100" Score="2" Body="&lt;p&gt;I think that Stephanie Kelton is an economist who has mentioned this before. From my research, it is based on the MMT. Some practitioners of the MMT believe that the government should not issue bonds, but can instead print money. I think that I may have heard Kelton mention this a few years ago, but I am not that into the MMT. I would do some research on the MMT however, and Kelton, and that can likely lead you to the answer you're looking for. &lt;/p&gt;&#xA;" OwnerUserId="16329" LastActivityDate="2018-03-15T11:09:13.100" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="21055" PostTypeId="2" ParentId="19511" CreationDate="2018-03-15T11:17:13.407" Score="2" Body="&lt;p&gt;The government does this currently. They can essentially print money, put it into the real economy, and then borrow it back from individuals who buy bonds. The issue is when individuals do not want to buy bonds (for one reason or another). Then you end up with excess money in the money supply, leading to an inflation crisis. Currently, the US can get away with this because there is high demand for US treasuries, AND that also creates a scenario in which there is high foreign demand for US dollars. That demand raises the currencies value, and thus restricts inflation. When you think about the cycle of money however, a government prints money, spends it, you and I eventually see that money in some form, and then we are taxed or buy bonds. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;An illustration of this is if a man named Sam (uncle Sam) goes up to Jane (a citizen) and offers to give her money. He does, and she spends it. Sam gave other people money, and they spend it, so Jane's wages can be a combination of what Sam gave her, and a combination of what Sam gave other people. When Sam needs more money he taxes her. This is essentially interest free. When Sam wants to spend more, he issues bonds, which in essence lowers the money supply in the economy until the money is injected back into the economy. Hopefully sams payments to Jane made her and others more productive, because the increase in the quantity of goods (supply) can offset the inflation (money supply expansion) that Sam has created.&lt;/p&gt;&#xA;" OwnerUserId="16329" LastActivityDate="2018-03-15T11:17:13.407" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21056" PostTypeId="2" ParentId="21011" CreationDate="2018-03-15T11:26:54.633" Score="-1" Body="&lt;p&gt;There are still a number of car makers, so at this point it is NOT a monopolistic sector. Barriers to entry are also reduced globally (Asia) due to a decrease in the cost to make a car. I do understand your point on new software, however, the cost of vehicles with the newest and best software is still high to the extent that there is a semi competitive market for individuals who can't afford the newest software. At this point, we an oligopoly. Even if you consider new electric vehicles, multiple players (BMW, AUDI, GM, obviously TESLA, and some Asian companies) are even getting into that market, and the costs are sky high. As costs fall, you will see a scenario in which the marginal cost to entering the market will begin to come closer to the marginal benefit, which will lead more players into the market, which is what happened post model T. It is a similar scenario, just with 21st century technology. The economics are the same. Instead of the model t, we have teslas model s coming, but just like with the model t, we could predict that the market will become more saturated, resembling more of an oligopoly. Google, Microsoft, and Apple are not comparable in that regard. I can only do so many things with a MAC until I HAVE TO GET a Microsoft (as a programmer). However, a car is a car. Slightly different software won't give you a monopoly, because of how individuals use software, compared to how individuals use a vehicle. There are relative substitutes to a model S. There is no substitute to C# with Microsoft if I have to use C#. There is no substitute to SWIFT on IOS if I HAVE TO USE Swift. &lt;/p&gt;&#xA;" OwnerUserId="16329" LastActivityDate="2018-03-15T11:26:54.633" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21057" PostTypeId="2" ParentId="20992" CreationDate="2018-03-15T12:27:00.467" Score="11" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Price discrimination can make consumers better-off&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This can happen in a variety of ways. For example, suppose that 50% of consumers are 'loyal' to firm A and 50% loyal to firm B. A consumer is willing to pay $v$ for one unit and incurs a switching cost $s\in(v/2,v)$ if they buy from a firm other than the one to which they are loyal. Consumers buy from the firm offering the highest utility, breaking indifference in favour of the firm to which they are loyal.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If firms must offer the same $p$ to all consumers then, the only pure strategy equilibrium has $p_A=p_B=v$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we allow firms to price discriminate by offering different prices to loyal and non-loyal consumers then $p_i=v$ is never an equilibrium and there is an equilibrium in which $p_i^{\text{loyal}}=s$, $p_i^{\text{non-loyal}}=0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Without price discrimination firms don't compete to attract the rival's consumers. Intuitively, it takes a price cut of at least $s$ to do so, but that means also losing $s$ units of profit from loyal consumers who also benefit from the price cut. With price discrimination, on the other hand, a firm can fight for its rival's loyal without sacrificing any profit on its own. But this goes in both firections so both firms end up having to fight for their loyals against a rival that is trying to poach them.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Another ways that price discrimination can benefit consumers is by giving a firm enough profit to make a product viable (otherwise the product wouldn't get produced at all, leaving consumers with zero surplus).&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2018-03-15T12:27:00.467" CommentCount="0" CommunityOwnedDate="2018-03-20T22:54:24.770" ContentLicense="CC BY-SA 3.0" />
  <row Id="21058" PostTypeId="2" ParentId="20992" CreationDate="2018-03-15T12:44:47.453" Score="15" Body="&lt;p&gt;Best price clauses and, to a lesser extent, price-matching guarantees have been the subject of intense regulatory activity in recent years. Here's a fact that is surprising to many, despite there being a significant consensus in the economics profession:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Best price clauses and price-matching guarantees can harm competition and consumers&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;A &lt;strong&gt;best price clause&lt;/strong&gt;/most favored nation clause/price-parity clause requires a seller listing a price via one venue (e.g. a price comparison website) to ensure that the price listed there is no higher than that available through other similar venues. It is often imposed by venue operators to ensure their venue will attract customers. Common sense suggests that a clause requiring a vendor to be offered the &lt;em&gt;lowest&lt;/em&gt; available price should be, at worst, neutral for consumers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose there are two venues, $A$ and $B$, that a seller can sell through. Suppose both are large suppliers of business to sellers, so simply quitting one of the venues is not a viable option.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here's the problem: if venue $A$ charges a commission of $c_A$ to sellers who sell through its platform and venue $B$ charges commission $c_B&amp;gt;c_A$ then sellers will set a lower price on $A$ than on $B$ to try to steer consumers to buy through venue $A$ (where it pays lower commission). Thus, a venue can have consumers steered towards it by cutting its commission--venues compete in commission. Moreover, lower commissions (which are essentially a variable cost for the seller) are passed-through to consumers in the form of lower prices.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now suppose there are best price clauses in effect. If $c_A&amp;lt;c_B$ then sellers can't steer consumers towards $A$ by setting a lower price on $A$ because $B$'s best-price clause requires the price on $B$ to be no higher than that on $A$. Thus, $A$ can no longer attract customers by cutting its commission, and so has no incentive to compete in its choice of $c$. This results in higher $c$s and higher consumer prices. This effect is theoretically robust and empirically well-validated.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;A &lt;strong&gt;price matching guarantee&lt;/strong&gt; is a promise from a seller to a consumer of the form &quot;If you find the same product at a lower price elsewhere, I'll beat that better price&quot;. Common sense suggests a guarantee to beat the lowest price in the market should be good for consumers. Not necessarily so.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here's a rough illustration of why: Suppose sellers A and B both have price-matching guarantees and consumers have a preferred seller from whom they buy by default unless the other seller offers a better deal. Normally, sellers would cut their prices to try to attract consumers from their rival. But here that doesn't work! If A cuts its price then the consumers whose default is B can just go to B and get it to match A's reduced price. But this means A has no benefit from lowering its price and will just stick with the same high price that it had all along. The price-matching guarantee has completely killed price competition!&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2018-03-15T12:44:47.453" CommentCount="3" CommunityOwnedDate="2018-03-20T22:54:24.770" ContentLicense="CC BY-SA 3.0" />
  <row Id="21059" PostTypeId="2" ParentId="20992" CreationDate="2018-03-15T12:52:53.700" Score="2" Body="&lt;p&gt;The &quot;single monopoly profit theory&quot; is often viewed as quite counter-intuitive:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Leverage of market power cannot be used to profitably foreclose a rival.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Suppose there are two products, A and B. A is monopolised and produced only by firm 1; B is supplied competitively by both firm 1 and firm 2. Common sense presents to following concern: firm 1 might try to use its market power in A to become a monopolist in B and foreclose competition from firm 2. One way to do this would be to bundle A and B1 together. Everyone who buys A would also be forced to buy B1, even if B2 were the better product. This would make it difficult or impossible for 2 to achieve any sales.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This logic is flawed, as the Chicago school pointed out. Suppose consumers will pay $v$ for A, $v$ for B1, or $v+\Delta$ for B2 (so $\Delta$ is firm 2's quality advantage). Suppose that A and B1 are bundled and that consumers buy the bundle. In a desparate attempt to win business, 2 will cut the price of B2 to zero (this is the usual Bertrand logic). Thus, consumers will buy the bundle if&#xA;$$2v-p_1\geq v+\Delta\implies p_1\leq v-\Delta.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, the best 1 can do through bundling is to earn $v-\Delta$ from each sale of A and B1. But it could do better simply by selling A at a price of $v$ and giving $B_1$ away for free. Thus, the claim that bundling/leverage of market power is a profitable way to foreclose competition turns out to be logically flawed.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Addendum: subsequent work has shown that leverage of market power is possible in various situations. But the conditions needed for it to work are more intricate than suggested by common intuition.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2018-03-15T12:52:53.700" CommentCount="0" CommunityOwnedDate="2018-03-20T22:54:24.770" ContentLicense="CC BY-SA 3.0" />
  <row Id="21060" PostTypeId="2" ParentId="21011" CreationDate="2018-03-15T13:11:26.037" Score="1" Body="&lt;p&gt;The automotive industry is being disrupted by new trends such as electric vehicles and self-driving cars. These, still, represent a minor part of the market. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the answer would be &lt;strong&gt;no&lt;/strong&gt;, for the moment besides media attention, there weren't gigantic shifts in the industry as to have monopolies. Looking at the last years data it seems to remain an oligopoly with &lt;a href=&quot;https://www.statista.com/statistics/271608/global-vehicle-sales-of-automobile-manufacturers/&quot; rel=&quot;nofollow noreferrer&quot;&gt;4 very large manufacturers&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you need further info this is usually not free - look for the automotive industry in business databases such as IBIS world, or get a report from a consulting firm such as &lt;a href=&quot;https://www.pwc.com/gx/en/industries/automotive/autofacts/analyst-briefings/global-briefing.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;this one&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="12304" LastActivityDate="2018-03-15T13:11:26.037" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21062" PostTypeId="2" ParentId="21028" CreationDate="2018-03-15T15:41:27.740" Score="2" Body="&lt;p&gt;The first order condition results in a differential equation in $\beta(x_1)$, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\left[ x_{1} + \alpha x_{1} + \alpha \frac{N-2}{2} x_{1} - \beta(x_{1})\right] (N-1)  - (1 + \gamma) \beta'(x_{1})x_{1} = 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies (1 + \gamma) x_{1}\beta'(x_{1}) = -(N-1)\beta(x_{1}) + (N-1)\left(1+a \frac{N}{2}\right)x_1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;or generically $$g(x_1) y' = f_1(x_1)y + f_0(x_1)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where $y \equiv \beta(x_1)$ and the other obvious mappings.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This has general solution &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$y= \beta(x_1) = C\cdot  \exp \{F\} + \exp\{F\}\int \exp\{-F\} \frac{f_0(x_1)}{g(x_1)} dx_1, \;\;\; F\equiv \int \frac{f_1(x_1)}{g(x_1)}dx_1 $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and doing the work results in &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \beta(x_1) = \beta(z^*) = Cx_1^{-(N-1)/(1+\gamma)} + \frac{(N \alpha + 2)(N-1)}{2(N + \gamma)}x_1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I guess there exists a condition in the model that leads to $C=0$ so that we get the linear expression for the $\beta$ function&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \beta(z^*) = \frac{(N \alpha + 2)(N-1)}{2(N + \gamma)}x_1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regarding whether $\Pi(z)$ has a global maximum at the stationary point $z^* = x_1$, working the 2nd derivative with respect to $z$, and evaluating it at $z^*=x_1$ is what one can do.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, if I haven't done any trivial mistake, it appears that a necessary condiiton for the second derivative to be negative at $z^* = x_1$ is that $\alpha(1+\gamma) &amp;lt;1$ and, given this, the condition for a global maximum at $z^*=x_1$is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$N  &amp;gt; \frac{2+\gamma}{1-\alpha(1+\gamma)}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which appears to put a lower bound in the number of participants in the auction, which I guess is what $N$ measures. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But this is the 2nd time I had to guess (and a third guess is that parameters are positive), validating @denesp comment that even though the OP issue is mathematical, providing context and information on what the various symbols stand for, is needed if one is to have a good-quality question to work with. After all, this context is what would make this an economics question and not a math question.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2018-03-15T15:41:27.740" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21066" PostTypeId="2" ParentId="21036" CreationDate="2018-03-15T16:34:01.713" Score="1" Body="&lt;p&gt;The simplest answer is that yes, there are a few countries without external debt, all small.  &lt;a href=&quot;https://en.wikipedia.org/wiki/List_of_countries_by_external_debt&quot; rel=&quot;nofollow noreferrer&quot;&gt;Wikipedia has a list of the external debt of countries.&lt;/a&gt;  For instance &lt;a href=&quot;https://en.wikipedia.org/wiki/Niue#Debt&quot; rel=&quot;nofollow noreferrer&quot;&gt;Niue finished paying off its debt in October 2016&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="16631" LastActivityDate="2018-03-15T16:34:01.713" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="21067" PostTypeId="2" ParentId="20992" CreationDate="2018-03-15T20:16:03.980" Score="11" Body="&lt;p&gt;I’m going to toss my hat into the ring with &lt;em&gt;the very notion of&lt;/em&gt;&lt;/p&gt;&#xA;&lt;h1&gt;Opportunity Cost&lt;/h1&gt;&#xA;&lt;p&gt;Who hasn’t argued with someone who “likes” A, which has an opportunity cost B, and have that person adamantly refuse to consider the loss of B as a cost for A or in any way relevant to the choice to get A? If you’ve ever tried to persist in such a situation, I’m sure you also quickly found the other person getting offended, as if you were insulting A and/or them for liking A.&lt;/p&gt;&#xA;&lt;p&gt;A large part of the problem is, of course, the not-so-subtle verb substitution I used: the person in question here is talking about, and thinking about, “liking” A. The speaker, you or I in the hypothetical, is instead talking about the decision of whether or not to procure A. The argument is, fundamentally, that A can be good, worth “liking,” but not worth it—because of the opportunity cost B. And if anyone knows of a good way to explain that and assuage hurt emotions over feeling attacked for liking A, I’m all ears! Recognizing the problem does not itself produce a solution to it.&lt;/p&gt;&#xA;&lt;p&gt;Anyway, unlike a lot of other issues on this page, which are important but not a daily concern, opportunity cost is, or at least could be, at the heart of just about every decision every person makes. It is relevant to all people, but a lot of people seem to not just ignore it, but to actively disdain the very concept. Therefore it seems, to me, like a strong contender here.&lt;/p&gt;&#xA;" OwnerUserId="13799" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2018-03-15T20:21:55.447" CommentCount="5" CommunityOwnedDate="2018-03-20T22:54:24.770" ContentLicense="CC BY-SA 3.0" />
  <row Id="21068" PostTypeId="2" ParentId="20993" CreationDate="2018-03-15T20:32:02.383" Score="1" Body="&lt;p&gt;From what I understand, everything here has been expressed in real terms. With the announcement, people now expect higher money growth and 'higher inflation'. True that the nominal interest rate rises, they earn greater return on savings, yet it is of no use to them if price level rises. Note that, here, only real rise in interest rate would induce people to save more. Thus now, according to the author, consumption tends to rise and how that might lead to rise in price level is clear.&lt;/p&gt;&#xA;" OwnerUserId="14458" LastActivityDate="2018-03-15T20:32:02.383" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21071" PostTypeId="1" CreationDate="2018-03-16T08:37:00.730" Score="1" ViewCount="54" Body="&lt;p&gt;I am trying to program a numerical solution for Hotellings locational model (with regards to the firms' respective locations). However, I have very little experience with numerical techniques. Let's assume that we are analyzing a duopoly where the firms:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;choose locations in the first stage&lt;/li&gt;&#xA;&lt;li&gt;compete in prices in the second stage&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Model Specifics:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Notation:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$P_i=prices $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$x_i=locations$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Demand functions&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$F({D_1}) ={ {\frac{{{P_2} - {P_1}}}{{2t({x_2} - {x_1})}} + \frac{{{x_2} + {x_1}}}{2}} }$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$F({D_2}) ={1- [{\frac{{{P_2} - {P_1}}}{{2t({x_2} - {x_1})}} + \frac{{{x_2} + {x_1}}}{2}}] }$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Profit functions&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{array}{l}&#xA;{\pi _1} = {P_1}F({D_1})\\&#xA;{\pi _2} = {P_2}F({D_2})\\&#xA;\end{array}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Solving through backward induction.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First-order conditions:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$FO{C_1} =\frac{-2\,P_1+P_2+\left(x1+x2\right)\,\operatorname{t}\left(- x1+x2\right)}{2\,\operatorname{t}\left(- x1+x2\right)}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$FO{C_2} =\frac{P_1-2\,P_2+\left(- x1-x2+2\right)\,\operatorname{t}\left(- x1+x2\right)}{2\,\operatorname{t}\left(- x1+x2\right)}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Equilibrium prices:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$P_1=\frac{\left(x1+x2+2\right)\,\operatorname{t}\left(- x1+x2\right)}{3}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$P_2=\frac{\left(- x1-x2+4\right)\,\operatorname{t}\left(- x1+x2\right)}{3}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First-stage profit functions:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$${\pi _1}=\frac{\left(x1+x2+2\right)^2\,\operatorname{t}\left(- x1+x2\right)}{18}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$${\pi _2}=\frac{\left(x1+x2-4\right)^2\,\operatorname{t}\left(- x1+x2\right)}{18}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am looking for a numerical solution to find the Nash equilibrium for the problem. That is, how do I solve for the optimal locations on the [0,1] interval using numerical analysis? Do you have any tips to which methods I might use to solve it?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated!&lt;/p&gt;&#xA;" OwnerUserId="16644" LastEditorUserId="16644" LastEditDate="2018-03-20T11:33:09.817" LastActivityDate="2018-03-20T11:33:09.817" Title="Employing numerical techniques for Hotellings location model" Tags="&lt;numerical-methods&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21073" PostTypeId="2" ParentId="21018" CreationDate="2018-03-16T10:56:39.797" Score="3" Body="&lt;p&gt;I looked at that video only briefly. Trying to interpret what that interviewee said would be an opinion-based answer, which this site wants to avoid. I will instead try to answer the question without referring to his comments. In my &lt;em&gt;opinion&lt;/em&gt;, I have serious doubts that the economist in the video could offer a convincing explanation of what he said.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note: it is incorrect to refer to future entitlement spending as a “debt”. At most, it is a “contingent liability.” A debt is a financial claim, held by an owner. An inability to distinguish between debts and contingent liabilities is a signal that he is an ideologue, and not a reliable source. This also means that the 200+ trillion debt is a worthless figure, as it would need to be held in context against future tax revenues as a capitalised asset - which will also run into the hundreds of trillions of dollars.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(1) The linkage between “the promise to pay” on currencies large existing debts and contingent liabilities is presumably the threat of inflation or hyperinflation. In the case of a hyperinflation, a currency is often withdrawn from circulation, and so it cannot be used to pay for things. However, I cannot name a serious body of economists that treats hyperinflation in the US as a possibility under current policy settings.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(2) A promise to repay on currency is just a promise that it will be redeemed at par value by the US government. This means that banks can convert currency to deposits at the Fed (“reserves”) at par. Although this is just converting one US government liability for another, it does distinguish currency from other tokens that might circulate (foreign currency, gift cards, etc.). For an individual, since they do not bank at the Federal Reserve, it gives them a right to exchange currency at par for a bank deposit - or to settle tax payments.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From the perspective of Chartalism (or neo-Chartalism), the “promise to repay” derives its importance from the fact that currency will be accepted at par to settle future taxes. The prospect of the need to settle taxes is what gives currency its value. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Although settlement at par seems natural, it was not always the case. Pre-Federal Reserve, cheques (check in American spelling) drawn on other banks with weaker reputations would not settle at par. That is, you might need to write a cheque of \$110 to settle a debt of \$100 at another bank. The “promise to repay” (and payment system regulations) mean that these “internal exchange rates” disappear.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2018-03-16T10:56:39.797" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21074" PostTypeId="2" ParentId="21047" CreationDate="2018-03-16T11:26:41.953" Score="2" Body="&lt;p&gt;There’s a huge literature on this topic. I would start by looking at the IMF Fiscal Monitor, and see what is interesting. Their research papers will refer to other papers that can be pursued. &lt;a href=&quot;http://www.imf.org/en/publications/fm&quot; rel=&quot;nofollow noreferrer&quot;&gt;IMF Fiscal Monitor page.&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Otherwise, you can search for papers on “fiscal sustainability.” As a disclaimer, I am not a fan of most the literature. This paper by Scott Fulwiler discusses interest rates and sustainability, and it critiques some of the technical issues in the literature - &lt;a href=&quot;http://www.cfeps.org/pubs/wp-pdf/WP53-Fullwiler.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;link to paper.&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In any event, there is no “magic tipping point” for default. It is up to the government involved to decide at what point interest costs are excessive, and whether they will default rather than keep going. There have been almost no default of floating currency sovereigns, so there is no data set to work with. (Most sovereign defauits have occurred when they borrow in another currency; the euro area is discussed below.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The euro area countries face a particular problem that is not really an issue for other developed countries: they do not have control of their domestic interest rates. Their debt may be issued at high spreads versus other euro interest rates, and so a default becomes a self-fulfilling prophecy (as seen in Greece). Most of the “fiscal sustainability” literature assumed that a country controls the interest rate it borrows at, so the situation is much less risky.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2018-03-16T11:26:41.953" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="21076" PostTypeId="2" ParentId="20992" CreationDate="2018-03-16T13:47:30.190" Score="8" Body="&lt;h1&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Jevons_paradox&quot; rel=&quot;noreferrer&quot;&gt;Jevons Paradox&lt;/a&gt;&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;Let's say current engine technology allows vehicles to go one mile on a gallon of gas. Improving engine technology to achieve 10 MPG must decrease the amount of gas used, right?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Actually it depends. Increased efficiency has two effects. One effect is that per unit of distance, less gas is consumed. Another effect is that driving one unit of distance is now cheaper, increasing travel. How much travel increases depends on how much the demand curve rises moving from the old unit price to the new unit price. In fact &lt;em&gt;travel can increase by a larger factor than efficiency increases&lt;/em&gt;, leading to more fuel consumption.&lt;/p&gt;&#xA;" OwnerUserId="16649" LastEditorUserId="16649" LastEditDate="2018-03-16T19:22:24.847" LastActivityDate="2018-03-16T19:22:24.847" CommentCount="4" CommunityOwnedDate="2018-03-20T22:54:24.770" ContentLicense="CC BY-SA 3.0" />
  <row Id="21077" PostTypeId="2" ParentId="19725" CreationDate="2018-03-16T20:13:53.383" Score="2" Body="&lt;p&gt;Maybe this helps: The interest rate is the price of money. If the supply of something goes down, while the demand stays the same, the price moves up. So if the supply of money were to go down, the interest rate would go up, if the demand for money stays the same. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, to reduce the money supply and with that to keep an economy from overheating, the central bank could just collect dollar bills and keep them in a vault for later use. Less money, means higher interest rates, means less investment, means less heat in the economy. However, it is easier for the central bank to simply change the price it charges banks borrowing from it overnight. This is just one of &lt;a href=&quot;https://www.investopedia.com/articles/08/fight-recession.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;three policy tools&lt;/a&gt; that the bank uses, the other two being open market operations and reserve requirements. By increasing the price of money, the effect is similar to a change in the money supply, so that the central bank effectively reduces the money supply. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope this helps. Have fun studying this! I really enjoy the topic, even though I still know way too little about it!&lt;/p&gt;&#xA;" OwnerUserId="16657" LastActivityDate="2018-03-16T20:13:53.383" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21078" PostTypeId="1" AcceptedAnswerId="21084" CreationDate="2018-03-16T20:30:14.067" Score="4" ViewCount="193" Body="&lt;p&gt;Who can recommend any good blogs or other news sources on economics with a European view. I'm looking for something in the vein of FT, which is already an extremely good source, but I'd like to broaden my intake.&lt;/p&gt;&#xA;" OwnerUserId="16657" LastEditorUserId="4988" LastEditDate="2018-03-22T18:55:20.157" LastActivityDate="2020-08-19T12:14:16.713" Title="Good Europe focused economics blogs" Tags="&lt;reference-request&gt;&lt;financial-economics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21079" PostTypeId="2" ParentId="18785" CreationDate="2018-03-16T22:23:57.660" Score="1" Body="&lt;p&gt;This is going to be an answer with a lot of caveats and definitely not a binding investment recommendation. It is simply intended to show the mechanisms usually employed. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You are right that the cash you hold would lose value. However, if you right now hold the funds to buy the house in the future, it would make sense to invest in a savings account or invest in a portfolio of stocks (exchange traded fund) that compensates you for that inflation and actually yields a positive interest rate as well. The interest rates in either country would theoretically compensate you for the loss in value that you would experience from inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Theoretically, the combination of interest rate, inflation and exchange rate should stack up to basically the same amount in 10 years no matter what the exchange rates are right now.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That is theoretically. Whether that theory holds depends 100% upon whether your expectations about inflation rates and exchange rates are accurate. &lt;/p&gt;&#xA;" OwnerUserId="16657" LastActivityDate="2018-03-16T22:23:57.660" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21081" PostTypeId="1" CreationDate="2018-03-17T00:58:40.687" Score="0" ViewCount="258" Body="&lt;p&gt;Suppose that you live on an island with 100 units of currency. The cultural beliefs of the islanders discourage an excess focus on commerce, which has created two important rules of commerce. First, you are legally permitted to do 10 transactions per year. Second, the maximum permitted value of each transaction is $10, expressed in USD.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With these assumptions, can you solve for the maximum legal FX rate of the islander's currency expressed in US dollars? I feel like you should be able to do this with some kind of simple, recursive calculation, but for some reason I just can't figure it out right now. GDP is obviously $100 USD per islander and I feel like you can know velocity by knowing the number of transactions per year, but I am not sure how.&lt;/p&gt;&#xA;" OwnerUserId="16661" LastEditorUserId="42" LastEditDate="2018-03-18T18:09:11.383" LastActivityDate="2018-04-22T05:57:15.020" Title="Difficult quantity theory of money question" Tags="&lt;macroeconomics&gt;&lt;quantity-theory-of-money&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21082" PostTypeId="2" ParentId="21081" CreationDate="2018-03-17T02:29:06.927" Score="1" Body="&lt;p&gt;The velocity should just be the amount of times the average unit of currency exchanges hands per year. That is $10$ if we take the highest possible number. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Money supply is $100$ units of island currency ($IC$), so that the left side of&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$MV=PY $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;turns into $100*10$ Nominal GDP, &#xA;so $YP$, is \$$100$ per Islander, or &#xA;$$\$100/XR*n $$ in $IC$, &#xA;where $XR$ is the exchange rate of $USD/IC$ and $n$ is the amount of people. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then we get &#xA;$XR=1/10*n$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, I'm a bit lost for what $n$ would be in this case. I'm guessing you got this far yourself?&lt;/p&gt;&#xA;" OwnerUserId="16657" LastEditorUserId="12304" LastEditDate="2018-04-22T05:57:15.020" LastActivityDate="2018-04-22T05:57:15.020" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21083" PostTypeId="1" CreationDate="2018-03-17T03:51:37.103" Score="6" ViewCount="740" Body="&lt;p&gt;The principle of comparative advantage says that, in a free market, any agent should produce more of the goods for which they have a comparative advantage. The model is usually applied to advocate for the benefits of international trade. This &lt;a href=&quot;https://economics.stackexchange.com/a/20998/16561&quot;&gt;answer&lt;/a&gt; to another question has a great explanation of the theory. In the same answer, some commenters criticized the application of the principle to international trade as misleading.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I got curious about that critiques, so decided to ask a new question: what are some critiques of that model?&lt;/p&gt;&#xA;" OwnerUserId="16561" LastEditorDisplayName="user18" LastEditDate="2018-03-18T01:23:52.573" LastActivityDate="2018-03-21T02:53:21.060" Title="What are some critiques to the principle of comparative advantage?" Tags="&lt;international-trade&gt;" AnswerCount="3" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21084" PostTypeId="2" ParentId="21078" CreationDate="2018-03-17T06:46:08.010" Score="6" Body="&lt;p&gt;With a European view:&lt;/p&gt;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;The &lt;a href=&quot;https://voxeu.org/&quot; rel=&quot;nofollow noreferrer&quot;&gt;CEPR VOX EU&lt;/a&gt;: an economics blog created by the Centre for Economic Policy Research, which promotes research excellence and policy relevance in European economics. It covers a diverse range of research based analyses on policy and economic issues.&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.economist.com/&quot; rel=&quot;nofollow noreferrer&quot;&gt;The Economist&lt;/a&gt; a global scope with a European perspective.&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://www.economicsuk.com/blog/&quot; rel=&quot;nofollow noreferrer&quot;&gt;EconomicsUK&lt;/a&gt;: personal website of The Sunday Times' Economics Editor. A perfect blog to learn about European economics.&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://www.clausvistesen.com/alphasources-blog/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Alpha.sources&lt;/a&gt;: personal website of a Eurozone Economist. Covers macroeconomic issues.&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://piketty.blog.lemonde.fr/category/in-english/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Thomas Piketty's Blog&lt;/a&gt;: Economist views on current social and political issues in France, Europe and the world.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="6168" LastEditorUserId="6168" LastEditDate="2020-08-19T12:14:16.713" LastActivityDate="2020-08-19T12:14:16.713" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21085" PostTypeId="2" ParentId="3194" CreationDate="2018-03-17T10:45:30.530" Score="1" Body="&lt;p&gt;As other posts have pointed out, endogenous regressors may contaminate all parameter estimates in regression when regressors are correlated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Moreover, it may seem difficult to conceive a situation where, say, $X_1$ and $X_2$ are correlated and $X_2$ is endogenous but $X_1$ is not.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, less than that is required to guarantee consistency of $\hat{\beta}_1$ even when $X_2$ is endogenous and $X_1$ and $X_2$ are correlated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider the following model (analogous to @jmbejara's notation)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{equation*}&#xA;	y=X_1\beta_1+X_2\beta_2+Z\gamma+\varepsilon,&#xA;\end{equation*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$Z$ unobserved, with the usual exogeneity assumptions w.r.t. $\varepsilon$, i.e., $\frac{1}{n}{x_1^{(k)\prime}}\varepsilon\overset{p}{\rightarrow}0$ and $\frac{1}{n}x_2^{(k)\prime}\varepsilon\overset{p}{\rightarrow}0$ for all $k$ regressors. $X_2$ is endogenous in the sense that $\frac{1}{n} x_{1}^{(k)\prime}z^{(l)} \overset{p}{\not\rightarrow}0$ for some pair of variables $(k,l)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Now if $X_2$ is endogenous but $X_1$ is not in the sense that all correlation between $X_1$ and $Z$ will be gone after controlling for $X_2$&lt;/strong&gt;, i.e.,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{equation}&#xA;	\frac{1}{n} x_1^{(k)\prime}Q_{X_2}z^{(l)} \overset{p}{\rightarrow}0&#xA;\end{equation}&#xA;for all $(k,l)$, where $Q_{X_2}$ is the projection onto the null space of $X_2$ (the ``residual maker''), i.e. $Q_{X_2}\equiv [I_n - X_2(X_2'X_2)^{-1}X_2']$ then we are fine. The reason is seen from the following two-step estimator of $\beta_1$ (e.g. Amemiya, 1985, pp. 6-7):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{align*}&#xA;	\hat{\beta}_1 &amp;amp;= (X_1'Q_{X_2}X_1)^{-1}X_1'Q_{X_2}y \\&#xA;	&amp;amp;= \beta_1 +  (X_1'Q_{X_2}X_1)^{-1}X_1'\underbrace{Q_{X_2}X_2}_{\overset{p}{\rightarrow}0}\beta_2\\&#xA;	&amp;amp;+ (X_1'Q_{X_2}X_1)^{-1}\underbrace{X_1'Q_{X_2}Z}_{\overset{p}{\rightarrow}0}\gamma  \\&#xA;	&amp;amp;+ (X_1'Q_{X_2}X_1)^{-1}\underbrace{X_1'Q_{X_2}\varepsilon}_{\overset{p}{\rightarrow}0}&#xA;\end{align*}&#xA;QED. The third line here is key, and it also shows why we are safe when $X_1$ and $X_2$ are uncorrelated/orthogonal. Happy endogenous regressions. &lt;/p&gt;&#xA;" OwnerUserId="16669" LastEditorUserId="16669" LastEditDate="2018-03-17T13:10:42.927" LastActivityDate="2018-03-17T13:10:42.927" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21086" PostTypeId="2" ParentId="21083" CreationDate="2018-03-17T14:34:42.993" Score="7" Body="&lt;p&gt;One of the most common critiques is that the standard model is a static analysis.  While a country might be better off today by focusing on its comparative advantage, its longer term prospects depend on the future of that industry, particularly on how quickly productivity can be improved.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For instance, in &lt;a href=&quot;http://www.econlib.org/library/Ricardo/ricP.html&quot; rel=&quot;noreferrer&quot;&gt;David Ricardo's original example&lt;/a&gt;, comparative advantage recommended that Portugal should produce wine while England produced cloth.  Maybe that's okay as a static analysis, but over time the productivity of wine production improved slowly whereas for England,&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/David_Ricardo#cite_ref-20&quot; rel=&quot;noreferrer&quot;&gt;exports of cotton cloth led to accumulation, mechanisation and the whole spiralling growth of the industrial revolution.&lt;/a&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The idea that a country should temporarily distort free trade in order to establish industries in which it wants to develop a comparative advantage is often known as &quot;dynamic comparative advantage&quot;.  The East Asian economies are frequently referred to as a good example of countries using these ideas successfully.  South Korea didn't start out with a comparative advantage in steel, for instance -- it created one through extensive state intervention.&lt;/p&gt;&#xA;" OwnerUserId="16631" LastActivityDate="2018-03-17T14:34:42.993" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21087" PostTypeId="2" ParentId="21047" CreationDate="2018-03-18T04:12:51.330" Score="0" Body="&lt;p&gt;I see various forms of a general question of trying to understand the government debt. To me it really seems nonsensical to think the gov is in debt. The gov issues money and is soul source of it. So if at any point the gov has a balanced budget, it printed it. So it's one in the same thing if budget paid or simply wiped away.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now I consider the 1985 time frame where the gov issues bonds at high interest essentially a sink of m0 from the interest paid on the coupons. In the next 15 years or so we saw a rapid globalization and growth in world economy and use of dollar. A balanced budget or surplus was the result of the increased m0 with relation to relatively static or lagging tax rate. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So from this perspective provided there is an abundant and flourishing real economy where resource and value is ready and abundant, the gov budget is simply a vital tool in accounting for expenditures and prevention of financial corruption in the government and institutions which interface it. So these are the primary issues here. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ultimately the issues are outside of money. Pertaining to the exchange of goods be it, college education and IP for cars and computers, labor. The dollar is just the fluid or coordinate system for measure, for these goods to be exchanged. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think the real issues arent the gov deficit. That is merely a tax rate issue or even perhaps a money supply issue. Considering the technology we have today, the capabilities of the underlying real economy to produce goods and products should be healthy perhaps better off than ever before. It seems there are or must be very real political, social, and economic forces (maybe even monetary policy) choking or holding up trade. These could be due to environmental reasons, governance reasons, or basically we just want to go forward in a good direction and not some random one. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;We need to consider what the future 10,20 years and beyond look like. We have near come up on the limits of Moore's law. The state of the art of physics and math really aren't to clear even to experts. Coming off exponential expansion could be turbulent and left with voids and pockets of retraction.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think these are the real issues which already are shaping things. Again while the large gov debt makes financial responsibility less clear, I think it can be fixed with a tax plan, and money supply adjustments through the bond rates we've seen. The issue will be how to constrain these variables with a monetary policy that guards against uncertainty and flattening out of technological and scientific growth.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for Europe, they have some what complimentary issues, guarding against inflation from a euro supply that up until a few years ago included Brittain in its design.&lt;/p&gt;&#xA;" OwnerUserId="14431" LastActivityDate="2018-03-18T04:12:51.330" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21088" PostTypeId="2" ParentId="20992" CreationDate="2018-03-18T07:41:59.307" Score="1" Body="&lt;p&gt;Nice question! I would like to add a few elusive ones that I think are important.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Natural_selection&quot; rel=&quot;nofollow noreferrer&quot;&gt;Natural selection&lt;/a&gt; does not require intelligence. It is more of a biology theory, but its economic implications are vast. &lt;a href=&quot;https://en.wikipedia.org/wiki/The_Evolution_of_Cooperation&quot; rel=&quot;nofollow noreferrer&quot;&gt;Evolution of cooperation&lt;/a&gt; is very useful but often ignored by economists and politicians as it goes against some common sense rules.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The entire theory of probability is counter-intuitive and has plenty of traps in economics for those who use only common sense. One example is a &lt;a href=&quot;https://en.wikipedia.org/wiki/Monty_Hall_problem&quot; rel=&quot;nofollow noreferrer&quot;&gt;Monty Hall paradox&lt;/a&gt;: once you made your decision with limited information, you will gain by changing your decision when you get more information. A common fallacy of &quot;throwing good money after bad&quot; stems from ignoring this principle. Literally everyone has been guilty of it.&lt;/p&gt;&#xA;" OwnerUserId="6231" LastActivityDate="2018-03-18T07:41:59.307" CommentCount="1" CommunityOwnedDate="2018-03-20T22:54:24.770" ContentLicense="CC BY-SA 3.0" />
  <row Id="21089" PostTypeId="1" AcceptedAnswerId="21116" CreationDate="2018-03-18T12:01:20.787" Score="3" ViewCount="1517" Body="&lt;p&gt;I was analysing, free of specificities, the effects of an increase in the real interest rate on labour supply in a two period setting. The obvious effect on leisure is the intertemporal substitution effect as leisure in the present becomes more expensive than leisure in the future. Nevertheless, all the books I have looked at do not mention any income effect from this. Shouldn't the latter one exist as well? The increase in interest rates, if one is a net lender, allows one to increase leisure in both periods.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now looking at the typical optimization FOC: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\frac{\partial U}{\partial l}}{\frac{\partial U}{\partial l'}}=\frac{(1+r)w}{w'}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(1+r) increases, thus, the ratio needs to increase. Nevertheless, that can happen by increasing both levels of leisure, but by different amounts. Am I reasoning incorrectly? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;{Please disregard from mentioning all other intertemporal and cross effects, ex. consumption and leisure as I am aware of them}&lt;/p&gt;&#xA;" OwnerUserId="10953" LastActivityDate="2020-04-08T16:02:10.283" Title="Interest rate Effects on labour supply" Tags="&lt;macroeconomics&gt;&lt;labor-economics&gt;&lt;interest-rate&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21090" PostTypeId="1" CreationDate="2018-03-18T12:57:18.130" Score="1" ViewCount="19" Body="&lt;p&gt;There is a relatively simple equation for options price given certain assumptions known as the black schoels equation. According to Wikipedia it is surprising that an options price is completely determined given some variables such as variation of the underlying asset's annual return. Alternatively one can deduce the variation of the asset from options price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I wonder that given now we are forced to exercise the option if things are as simple? (Also I'm simply asking from the same theoretical grounds that B.S. is valid. I don't care at this point about irregularities in real future derivatives, however if one feels they have thoroughly tackled the simpler theoretical grounds in their answer, then feel free to discuss any short comings if compelled.)&lt;/p&gt;&#xA;" OwnerUserId="14431" LastActivityDate="2018-03-18T12:57:18.130" Title="Is there a B.S. for futures?" Tags="&lt;black-scholes-model&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="21091" PostTypeId="2" ParentId="21089" CreationDate="2018-03-18T13:53:50.363" Score="0" Body="&lt;p&gt;Yes, there is an income effect, as the individual needs to work less in order to obtain the same amount in the numerator (relative to before the increase in exchange rate). The assumption is that the substitution effect dominates the income effect here, regardless of whether the individual is a borrower or a lender. &lt;/p&gt;&#xA;" OwnerUserId="5233" LastActivityDate="2018-03-18T13:53:50.363" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21092" PostTypeId="1" CreationDate="2018-03-18T15:13:11.047" Score="1" ViewCount="466" Body="&lt;p&gt;The Fisher effect says that highter inflation rate leads to a higher nominal rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I found an interesting explanation about the interest rates:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lower interest rates translate to more money available for borrowing, making consumers spend more. The more consumers spend, the more the economy grows, resulting in a surge in demand for commodities, while there’s no change in supply. An increase in demand which can’t be met by supply results in inflation.&#xA;Higher interest rates make people cautious and encourage them to save more and borrow less. As a result, the amount of money circulating in the market reduces. Less money, of course, would mean that consumers find it more difficult to buy goods and services. The demand is less than the supply, the hike in prices stabilise, and sometimes, prices even come down.&#xA;So when we have inflation, this could mean that the money supply has increased. So when the money supply has increased and we have an inflation, according to the fisher effect there has to be a higher nominal rate. In the above explanation, they say that lower interest rates translato to more money available. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can't understand now, does it lead to higher or lower interest rate?&lt;/p&gt;&#xA;" OwnerUserId="17690" LastActivityDate="2018-03-18T16:33:33.200" Title="The fisher effect" Tags="&lt;money&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21093" PostTypeId="1" AcceptedAnswerId="21095" CreationDate="2018-03-18T15:41:46.107" Score="2" ViewCount="753" Body="&lt;p&gt;If I understand it right, correct term for such situation is bilateral oligopoly.&lt;/p&gt;&#xA;" OwnerUserId="4979" LastActivityDate="2018-03-18T16:13:59.473" Title="How does market work when there are few buyers and few sellers at the same market?" Tags="&lt;microeconomics&gt;&lt;oligopoly&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21094" PostTypeId="2" ParentId="21093" CreationDate="2018-03-18T15:51:15.907" Score="0" Body="&lt;p&gt;Yes, that is correct. In an oligopoly there are many buyers and few sellers, so buyers are more passive when it comes to prices. The few suppliers can also engage in price discrimination because there are many buyers with a higher demand level for a given good. However, you are correct in that what you described is a bilateral oligopoly. You can relate this to the fact that the few buyers have NEGOTIATING POWER. For example, Boeing is a large purchaser of jet engines, so they do have negotiating power over the three major jet engine suppliers because they are one of the few consumers in the market place. That’s how I personally relate the idea and commit it to memory. &lt;/p&gt;&#xA;" OwnerUserId="16329" LastActivityDate="2018-03-18T15:51:15.907" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="21095" PostTypeId="2" ParentId="21093" CreationDate="2018-03-18T16:13:59.473" Score="1" Body="&lt;p&gt;&lt;a href=&quot;https://www.mcafee.cc/Papers/PDF/Concentration.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Hendricks and McAfee (2007)&lt;/a&gt; offer a theory of &lt;strong&gt;bilateral oligopoly&lt;/strong&gt;. They consider the example of the wholesale gasoline market on the west coast of the United States, which is composed of a small number of large sellers and large buyers who compete against each other in the downstream retail market. They are specifically interested in the effect of a merger of vertically integrated firms on the whole sale and retail markets. They discuss price and cost formation. They also offer a review of the literature.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The extreme case is &lt;strong&gt;bilateral monopoly&lt;/strong&gt; with one buyer and one seller. Tirole's &lt;a href=&quot;https://mitpress.mit.edu/books/theory-industrial-organization&quot; rel=&quot;nofollow noreferrer&quot;&gt;Industrial Organization&lt;/a&gt;  textbook (pp. 21-25) offers a nice discussion of how this market works and in particular price behavior under bargaining and contracting.&lt;/p&gt;&#xA;" OwnerUserId="6168" LastActivityDate="2018-03-18T16:13:59.473" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21096" PostTypeId="2" ParentId="21092" CreationDate="2018-03-18T16:33:33.200" Score="1" Body="&lt;p&gt;The issue is that in the macroeconomy a lot of things happen at the same time and many effects go both ways. When we talk about certain effects, we often make the &quot;ceteris paribus&quot; assumption, which means &quot;all else being equal&quot;. This is to isolate each effect from all the other things going on. What you observe in equilibrium is then the interplay of all effects. Furthermore, it is important to distinguish the timing of effects, as they do not all occur simulataneously and instantaneously.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, the fisher effect you describe says that higher inflation leads to higher interest rates.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The passage you cited says that lower interest rates can lead to higher inflation. However, this effect often takes some time to occur.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Both these things are true. They describe different directions of effects.  Of course, it follows that lower interest rates lead to higher inflation, which then increases the interest rate later on. Where the whole process of back and forth effects stops, is the equilibrium. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This shows the importance of knowing what is driving the effects, because whether the &quot;ceteris paribus&quot; assumption applies to a certain effect depends on what is causing it. It is important to distinguish whether we are analyzing an &quot;exogenous&quot; shock that increased inflation or that reduced interest rates, in order to distinguish which effects are second round. Depending on what started the chain of events in the macroeconomy, you may expect different things to happen.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The effects can also depend on whether we look at the economy in the short run or the long run. Some effects (like an increase in inflation) take longer to occur than others.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The nominal interest rate is equal to the real interest rate plus inflation: $i = r + \pi $. Here $i$ is the nominal rate, $r$ is the real rate and $\pi$ is the inflation rate. If you lend money, there is a certain &quot;real&quot; return that you expect, which is $r$. However, if there is inflation, then the face value of the money you receive when you get paid back is less than what you lent, due to inflation, so you adjust for that as well. That's why inflation increases interest rates.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you lower the interest rate, then as you describe in your question, the inflation rate may increase over time.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastActivityDate="2018-03-18T16:33:33.200" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21098" PostTypeId="1" CreationDate="2018-03-18T19:43:26.517" Score="0" ViewCount="106" Body="&lt;p&gt;For my thesis I will run some regression (OLS and ML: Probit). I like to distingish between variables in growth rates and variables in level form, if there is any important issue that I have to consider.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I will regress the cyclical component of the GDP on a business survey variable in order to have some short term forecasts. A feature of the cyclical component of the GDP is that it is already stationary.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question is: What form is recommended for the GDP? Level, log of Level, growth rate, difference.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reason I am asking is that I would like to limit the number of regressions so that I do not have to regress with both rate and level form. This is not an issue of saving work but rather of deciding for the best (or appropriate) procedure before the analysis. That is just to make sure that the theoretical and logical thoughts on the right variable form match the analysis.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, I will need a literature linked that explains that problem.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks so far.&lt;/p&gt;&#xA;" OwnerUserId="17695" LastActivityDate="2019-12-10T08:00:45.127" Title="rates vs. level" Tags="&lt;gdp&gt;&lt;time-series&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21099" PostTypeId="1" CreationDate="2018-03-18T23:26:25.587" Score="1" ViewCount="414" Body="&lt;p&gt;The &lt;a href=&quot;https://en.wikipedia.org/wiki/Coase_theorem&quot; rel=&quot;nofollow noreferrer&quot;&gt;wikipedia page&lt;/a&gt; has a good summary:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Coase developed his theorem when considering the regulation of radio frequencies. Competing radio stations could use the same frequencies and would therefore interfere with each other's broadcasts. The problem faced by regulators was how to eliminate interference and allocate frequencies to radio stations efficiently. What Coase proposed in 1959 was that as long as property rights in these frequencies were well defined, it ultimately did not matter if adjacent radio stations interfered with each other by broadcasting in the same frequency band. Furthermore, it did not matter to whom the property rights were granted. His reasoning was that the station able to reap the higher economic gain from broadcasting would have an incentive to pay the other station not to interfere. In the absence of transaction costs, both stations would strike a mutually advantageous deal. It would not matter which station had the initial right to broadcast; eventually, the right to broadcast would end up with the party that was able to put it to the most highly valued use.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This makes sense if you take the view that everyone broadcasting is only doing so to perform a legitimate service. However, if the practice of paying people not to interfere was prevalent, it would be very profitable to simply buy the most powerful transmitter available and set it up next to the most profitable radio station around and wait to get paid off. It's almost like saying that a gangster who demands protection money is simply operating under the Coase theorem and bargaining with shop owners who would like avoid the negative externalities of bricks thrown through their windows.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does Coase somehow analyze this in his essay, and I'm missing it, or am I missing something else more fundamental that makes this irrelevant?&lt;/p&gt;&#xA;" OwnerUserId="17696" LastActivityDate="2018-03-20T00:01:30.017" Title="Does the Coase Theorem account for malicious externalities?" Tags="&lt;coasian-bargaining&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="21101" PostTypeId="2" ParentId="21081" CreationDate="2018-03-19T09:14:00.327" Score="1" Body="&lt;p&gt;Even in simplest of models I don't think it is enough info to constrain the fx rate. Even if velocity can be worked out we can't get m0. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the simplest model all islanders are equally capable or some equilibrium arises where everyone gets the same proportions of resource. Then if resource x has $a$ units per person and total of all resources or sum of all units of the different resources is $s$ the price of each resource $x$ is simply $\frac{100a}{s}$. If the price of a resource is known in a foreign currency then one can theoretically obtain the foreign currency by selling goods in the foreign currency. In this simple theory any difference in resources would be arbitrage opportunities seeking to balance or distribute resources till they have the same abundance.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is very simple theory. If one resource is short one place and another resource short some where's else there may be no arbitrage and thus do not cancel out.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So we assume eventually or in long run of existence of island nation, absent of any kind of trade barriers, there is no more arbitrage. Now we have $$\frac{m_a a}{s_a}=\frac{m_b b}{s_b}$$ &#xA;Assuming resources eventually are evenly distributed, or even that the ratios of such resources are same, the then we see that one unit of currency equals $1_{unit \ a} =\frac{1_{unit \  b} m_b}{m_a}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So in this model if islanders have $m_a=100$ and u.s. have $m_b=30000$ then one island currency would be worth $\frac{30000}{100}=300$ USD.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So we see a lot of assumptions are made here. Also maybe this is too granular. Probably more needs to be considered about resource pricing. In reality there are different levels of abundance of resource and that is the primary motivating factor here. &lt;/p&gt;&#xA;" OwnerUserId="14431" LastEditorUserId="14431" LastEditDate="2018-03-19T10:20:04.533" LastActivityDate="2018-03-19T10:20:04.533" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21103" PostTypeId="2" ParentId="21083" CreationDate="2018-03-19T13:26:48.597" Score="2" Body="&lt;p&gt;The answer from Dan is a good one, but I would like to add on the following criticism, which is apposite at least in the context of international trade. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Dynamic concerns notwithstanding (again see Dan for commentary on those), free trade between countries is welfare increasing for the countries trading (it must be so because under free trade voluntary autarky is always an option). However, the efficiency gains within each countries are not equally spread and so there may be winners and losers, despite an overall economic improvement.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the US, the losers are typically those employed in manufacturing, and it is documented that as a result of trade this sector suffers significant job losses:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://economics.mit.edu/files/9811&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://economics.mit.edu/files/9811&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;``Our central estimates suggest job losses from rising Chinese import competition over 1999–2011 in the range of 2.0–2.4 million.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;See also, &lt;a href=&quot;https://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.9.3.57&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.9.3.57&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In short, international trade is beneficial, but &lt;em&gt;not to everyone&lt;/em&gt;.&lt;/p&gt;&#xA;" OwnerDisplayName="user11305" LastActivityDate="2018-03-19T13:26:48.597" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="21104" PostTypeId="1" CreationDate="2018-03-19T13:57:26.753" Score="4" ViewCount="83" Body="&lt;p&gt;Globally, labor-productivity growth in construction has averaged only 1 percent a year over the past two decades, compared with growth of 2.8 percent for the total world economy and 3.6 percent in the case of manufacturing (McKinsey, 2017).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The most common market failures / problems in the construction industry are:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;asymmetric information &lt;/li&gt;&#xA;&lt;li&gt;corruption &lt;/li&gt;&#xA;&lt;li&gt;industry fragmentation &lt;/li&gt;&#xA;&lt;li&gt;ismatch between the agents of risk allocations &amp;amp; rewards&lt;/li&gt;&#xA;&lt;li&gt;dependence on public-sector demand.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I found many organizational answers to this question: improve communication between agents, introduce shorter contracts, improve on-site execution, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, I personally think internalization would be a great choice: bringing together the agents (like Elon Musk did at Tesla). Then the agents could optimize on a vaster decision set, and the result would be Pareto-efficient. The big question is: how?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My question is: how can a decision maker improve the construction productivity? What would be the answer from an Economist point of view?&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="5017" LastActivityDate="2021-04-03T13:04:50.463" Title="How to improve the underperforming construction productivity by correcting its market failures?" Tags="&lt;productivity&gt;&lt;producer-theory&gt;&lt;mechanism-design&gt;&lt;market-failure&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21105" PostTypeId="2" ParentId="21099" CreationDate="2018-03-19T17:40:58.853" Score="0" Body="&lt;p&gt;The key is about ownership of the &lt;em&gt;right&lt;/em&gt; to broadcast through a certain frequency. If station A  has the right to broadcast and B interferes in the way you described, then instead of paying B not to do so, A would simply bring B to court. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, if B is a more profitable station but cannot realize such profit unless it uses the channel that A owns, then B would have to pay A to relinquish its right to use the channel. The amount paid would have to be at least what A can make were it to use the channel itself. Since B is more profitable, it can afford to say such an amount while while retaining nonnegative profit for itself. &lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2018-03-19T17:40:58.853" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21106" PostTypeId="2" ParentId="16895" CreationDate="2018-03-19T19:19:40.063" Score="0" Body="&lt;p&gt;First, You may model the sale or demand as a function of price. You can use a regression model to control for controls. This regression will provide you with price elasticity of demand which show how your demand is sensitive to a change in price.&#xA;Then, you may use the above relationship to plug in for sale in the optimization step. This way you only solve for the optimum price.&lt;/p&gt;&#xA;" OwnerUserId="17711" LastActivityDate="2018-03-19T19:19:40.063" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21107" PostTypeId="2" ParentId="21098" CreationDate="2018-03-19T20:48:35.750" Score="1" Body="&lt;p&gt;It doesn't much matter as far as the mechanics/results of the regression. &lt;strong&gt;However, your interpretation will change depending on which dependent variable you use.&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that your interpretation of the coefficient(s) of interest will be in the units of your dependent variable. For example, if you use levels, your interpretation is something like: &quot;A 1 unit increase in X results in a \$ $\beta_1$ increase in GDP&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Think about the context of your research question an ask yourself what kind of interpretation makes the most sense. &lt;/p&gt;&#xA;" OwnerUserId="17713" LastActivityDate="2018-03-19T20:48:35.750" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="21108" PostTypeId="2" ParentId="18418" CreationDate="2018-03-19T20:53:38.853" Score="1" Body="&lt;p&gt;What about a meme agent? (e.g. an agent mimics the qualities of another agent to &quot;fool&quot; regulators, competitors, consumers.)&lt;/p&gt;&#xA;" OwnerUserId="17713" LastActivityDate="2018-03-19T20:53:38.853" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21111" PostTypeId="2" ParentId="21099" CreationDate="2018-03-19T23:54:58.447" Score="3" Body="&lt;p&gt;The problem you raise (you call it &quot;malicious externalities&quot;) is perhaps better known as the &lt;strong&gt;extortion&lt;/strong&gt; or &lt;strong&gt;blackmail problem&lt;/strong&gt;. &lt;a href=&quot;https://www.cambridge.org/core/journals/journal-of-institutional-economics/article/magnificent-business-prospect-the-coase-theorem-the-extortion-problem-and-the-creation-of-coase-theorem-worlds/3271BECDE64F698972E33F8FCAFAD0B0&quot; rel=&quot;nofollow noreferrer&quot;&gt;Medema (2014)&lt;/a&gt; reviews the history of this critique. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Those who raised the extortion critique.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Kneese (&lt;a href=&quot;https://books.google.com/books?id=XBsuAgAAQBAJ&amp;amp;pg=PA58&amp;amp;dq=%22an+industrial+enterprise+may+find+it+profitable+to+adopt+processes+which+generate+much+waste+in+order+to+be+able+to+accept+payment+for+reducing+discharge%22&quot; rel=&quot;nofollow noreferrer&quot;&gt;1964&lt;/a&gt;):&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;an industrial enterprise may find it profitable to adopt processes which generate much waste in order to be able to accept payment for reducing discharge.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Wellisz (&lt;a href=&quot;https://www.jstor.org/stable/2550514&quot; rel=&quot;nofollow noreferrer&quot;&gt;1964&lt;/a&gt;):&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;any activity can be turned to profit as long as it is sufficiently annoying to someone else.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Kneese and Bower (&lt;a href=&quot;https://books.google.com/books?id=0duOAQAAQBAJ&amp;amp;pg=PA104&amp;amp;dq=%22would%20of%20course%20be%20an%20open%20invitation%20to%20extortion%22&quot; rel=&quot;nofollow noreferrer&quot;&gt;1968&lt;/a&gt;):&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The administrative authority would have to stand ready to make payments to industrial plants which never do locate in the area but which would do so if a payment reflecting the costs their effluents would impose were not made. Payments on this basis would of course be an open invitation to extortion.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Rothenberg (&lt;a href=&quot;https://www.jstor.org/stable/1815795&quot; rel=&quot;nofollow noreferrer&quot;&gt;1970&lt;/a&gt;):&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;If external diseconomies against others can be expected to lead to bribes by victims to desist, then the production of negative externalities becomes a valid by-product of primary production. Profitability is enhanced whenever any firm can select from among its inputs and/or output alternatives those which cause substantial damage to third parties. Resource use will tend to become specialized toward much-augmented third-party interference. The new legal industry of selling protection against disturbance will be highly profitable.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Shoup (&lt;a href=&quot;https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1465-7295.1971.tb01648.x&quot; rel=&quot;nofollow noreferrer&quot;&gt;1971&lt;/a&gt;)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Once it became apparent that polluters could extract payments for pollution reduction, there would be an incentive for entrepreneurs to &lt;em&gt;threaten&lt;/em&gt; to undertake production activities with external pollution costs simply to be bribed &lt;em&gt;not&lt;/em&gt; to undertake them.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Mumey (&lt;a href=&quot;https://www.jstor.org/stable/1882278&quot; rel=&quot;nofollow noreferrer&quot;&gt;1971&lt;/a&gt;) makes the distinct point that contrary to some defenses of Coase against the extortion problem (below), in a frictionless world with costless communication, the problem of extortion or &quot;malicious damages&quot; is actually exacerbated.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Daly (&lt;a href=&quot;https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1465-7295.1974.tb00240.x&quot; rel=&quot;nofollow noreferrer&quot;&gt;1974&lt;/a&gt;) makes another distinct point: &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;the simultaneous existence of competition and of small numbers of externally affected and effecting parties are mutually inconsistent phenomena. If the large numbers generally associated with competition are present there will exist the acknowledged prohibitive transactions costs. In the absence of such competition, however, market solutions are burdened with complex, game theoretic bargaining situations which involve a substantial likelihood of counterproductive (costly) activity and for which the achievement of efficient outcomes cannot be assured.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;See also Daly and Giertz (&lt;a href=&quot;https://www.jstor.org/stable/1806636&quot; rel=&quot;nofollow noreferrer&quot;&gt;1975&lt;/a&gt;, &lt;a href=&quot;https://www.jstor.org/stable/1808947&quot; rel=&quot;nofollow noreferrer&quot;&gt;1978&lt;/a&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Those who defended against the extortion critique.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Demsetz (&lt;a href=&quot;https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1465-7295.1971.tb01688.x&quot; rel=&quot;nofollow noreferrer&quot;&gt;1971&lt;/a&gt;):&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Under competition the price of a good, or of an agreement, is held to its cost. ... In the competitive regime, rivalry between “extortionists” would push to zero the price they receive not to undertake these excessive activity levels. Thus, &lt;em&gt;competing&lt;/em&gt; “extortionists” would offer to refrain from extortionist activities for smaller, and ultimately for zero, payment.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Also:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The concept of extortion is legal, not economic. All transactions are transfers of rights involving exactly what Shoup has called extortion with the possible exception of perfectly competitive ones, whatever they are. All transactions are preceded by attempts to gain information about the other party’s reservation price. A variety of techniques are used to do this. From the viewpoint of economic analysis, none of these differ. The use of the legal term “extortion” in economic analysis is likely to result in confusion and to hide implicit value judgments. There are &lt;em&gt;some&lt;/em&gt; wealth transfer activities which, as citizens, we would seek to discourage through legal arrangements. But until we have formed a clearer notion of the criterion to be used to separate these from other “approved” wealth distributing activities, the use of terms such as “extortion” in economic discussions is laden with difficulties. Thus, if without any more valuable alternatives, Professor Shoup were to threaten to leave the University of Michigan unless he were paid more, thus threatening to impose real costs on that institution by depriving it of all the advantages of employing him, would that constitute an analytical use of the word “extortion”?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;See also Demsetz (&lt;a href=&quot;https://www.jstor.org/stable/724010&quot; rel=&quot;nofollow noreferrer&quot;&gt;1972&lt;/a&gt;, &lt;a href=&quot;http://www.jstor.org/stable/1805274&quot; rel=&quot;nofollow noreferrer&quot;&gt;1978&lt;/a&gt;).&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Zerbe (&lt;a href=&quot;https://onlinelibrary.wiley.com/doi/full/10.1111/j.1465-7295.1971.tb01649.x&quot; rel=&quot;nofollow noreferrer&quot;&gt;1971&lt;/a&gt;): extortion &quot;does not occur ... because of high transactions costs, symmetrical possibilities of extortion [One man’s threat to raise chickens is countered by his neighbor’s threat to raise pigs], and the operation of the legal system in holding certain forms of extortion illegal [With costless bargaining, undoubtedly my neighbors would pay more for me not to grow pigs than I could make growing pigs. Hence, the law forbids my raising pigs in Chicago and in most cities].&quot;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Zerbe also raises a separate point similar to Demsetz's second point:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Extortion does occur, however, and it is not necessarily undesirable. The general economic rule governing extortion would seem to be that extortion rights should go to those who are willing to pay the most. This rule illumines the close relationship between extortion and market transaction. Indeed it is difficult to separate extortion from other production activities. Payments required to attract factors of production are also payments to ensure that these factors will not do something else. Consider Shoup’s case of the polluting oil company that threatens towns A, B, and C with location in them. This situation is similar to the case of a desirable company, say a computer company, also choosing among towns A, B, and C. The computer company chooses the town that offers the deal with the least amount of extortion money. In this way both end up in the right location. In this sense extortion is a method for achieving results and may or may not be desirable, depending on what other methods are available and whether or not extortion interferes with more desirable methods. In actuality, towns generally offer companies tax and other incentives and disincentives that reflect the town’s desire for the company. Here the cases become wholly symmetrical. Both the oil and computer companies choose the location for which the location price, &lt;em&gt;ceteris paribus&lt;/em&gt;, is the least. At some price, the oil company becomes attractive to a town. It is not surprising then that there is a problem in distinguishing between legal and illegal extortion, and at this point an extensive legal-economic discussion of extortion is called for but is provided neither by this note, by Shoup, nor by my original article.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Jaffe (&lt;a href=&quot;https://academic.oup.com/qje/article-abstract/89/4/660/1860174&quot; rel=&quot;nofollow noreferrer&quot;&gt;1975&lt;/a&gt;): With zero transaction costs, we will always arrive at the most efficient allocation:&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;imagine that B can increase the destructive potential of his resource by physical investment. We further assume that the degree of destructive potential is an increasing function of physical investment. This function is known to both A and B.5 As B can now increase the potential of his resource, he may be able to exact an even greater bribe from A. However, applying the same rationality assumption used by Coase, no additional investment in the resource will actually be undertaken by B. Merely B's potential to create a more destructive resource should be enough to force A into a more generous bargain.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Coase (&lt;a href=&quot;https://chicagounbound.uchicago.edu/cgi/viewcontent.cgi?article=1003&amp;amp;context=occasional_papers&quot; rel=&quot;nofollow noreferrer&quot;&gt;1988&lt;/a&gt;) himself: &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;When I referred to the problem of blackmail in &quot;The Problem of Social Cost,&quot; it was simply to show that, however rights were defined, there would always be opportunities for this type of blackmail. I pointed this out in the section of the article in which it was assumed that transactions were costless and in which therefore no resources were absorbed in bargaining. In such a world, it is not clear what the objection would be to this type of blackmail. The position is, however, very different if we make the realistic assumption that transaction costs are positive. It is obviously undesirable that resources should be devoted to bargaining which produces a situation no better than it was previously.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;There is no such thing as the Coase Theorem.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or as Coase stated repeatedly, including in &lt;a href=&quot;https://youtu.be/04zFygmeCUA?t=47&quot; rel=&quot;nofollow noreferrer&quot;&gt;this 2012 interview&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;It's not about my work at all!&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Coase's goal was to illustrate that:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;institutions matter, and that understanding how and why they matter, and the implications of this for economic analysis and policy may require a re-orientation of the ways in which economists practiced their trade. Here, too, transaction costs occupy center stage. (Medema, 2014.)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Most of all, his goal was to direct economists' attention to &lt;strong&gt;the world of positive transaction costs&lt;/strong&gt;.†&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ironically, economists became fixated with the simplistic world of zero transaction costs, where they could churn out a variety of clever &quot;Coase Theorems&quot; and avoid having to study the messier real world of positive transaction costs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I — and probably also Coase, Medema, and McCloskey — would say is this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The extortion problem is worthy of our attention and analysis. However, we should study it not in the context of the economist's utopian world of zero transaction costs, but in the context of Coase's very real world of positive transaction costs. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;We should study how and why, given the very real fact of transaction costs, institutions ameliorate (or fail to ameliorate) the extortion or blackmail problem. I think Coase (1988), Zerbe (1971), and Demsetz (1971) went some way towards initiating this discussion, but there is much more to be done.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;† D. McCloskey has also repeatedly made the same point and stated the Coase Theorem (&lt;a href=&quot;http://www.deirdremccloskey.com/docs/price.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;1985&lt;/a&gt;, p. 336) as:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In the presence of transaction costs the location of a pollution tax or of other liability for damages &lt;em&gt;does&lt;/em&gt; matter for efficiency.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerDisplayName="user10735" LastEditorDisplayName="user10735" LastEditDate="2018-03-20T00:01:30.017" LastActivityDate="2018-03-20T00:01:30.017" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21113" PostTypeId="2" ParentId="21104" CreationDate="2018-03-20T03:03:18.437" Score="0" Body="&lt;p&gt;A great many things can be said on the question. But it might be worth pointing out that people have been building stuff for a very very long time, so maybe 1% productivity growth is not a bad result.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The most difficult is anti-corruption. You could compare the free press + independent judiciary + empowered investigative authorities within specified limits + free elections ... with the approach of President Xi, whose name is now entrenched in the Chinese constitution. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, it seems that you're more interested to motivate a specific theory. So perhaps you could develop that and come back with a question that is more aligned to what you want to know. For example, you could be additionally descriptive about what it is about Tesla's operations that might have broader lessons in construction? (Note that Tesla makes cars, not ports, not bridges and not roads.) &lt;/p&gt;&#xA;" OwnerUserId="16499" LastActivityDate="2018-03-20T03:03:18.437" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21114" PostTypeId="1" AcceptedAnswerId="21117" CreationDate="2018-03-20T04:19:15.670" Score="0" ViewCount="34" Body="&lt;p&gt;On the terms:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Disruption is when new players earn say 1m but take over of a 100m market segment, causing damage to well established but less innovative businesses&lt;/li&gt;&#xA;&lt;li&gt;economic growth is what we read about growing markets and iverall economy&lt;/li&gt;&#xA;&lt;li&gt;Inflation is when money gets less worth&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Are all these three somehow interconnected, correlated or rather independent? Are there established works on that?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, could major diruption outpace economic growth and emphasize inflation?&lt;/p&gt;&#xA;" OwnerUserId="13716" LastActivityDate="2018-03-20T16:13:39.577" Title="Disruption vs economic growth vs inflation" Tags="&lt;reference-request&gt;&lt;inflation&gt;&lt;economic-growth&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21115" PostTypeId="1" CreationDate="2018-03-20T05:16:47.190" Score="-3" ViewCount="152" Body="&lt;p&gt;I've been working on solving a table for the past hour or so, I'm completely lost as it appears the values aren't quite correct, this is what we've been given to solve:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/nbRI8.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/nbRI8.png&quot; alt=&quot;total cost table&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We've been given that the market price is $7/unit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I attempted to solve for Variable Cost first, however when I proceeded to try to get ATC once I had this, it resulted in incorrect answers, here is what I had before (given in the previous picture is bolded in the following):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/T5Mvg.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/T5Mvg.png&quot; alt=&quot;attempted solution of total cost table&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm just not exactly sure where I am going wrong, any advice would be appreciated. I am not expecting answers, but at least a bit of guidance on whether I was going the right direction already, or where I made the mistake.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you!&lt;/p&gt;&#xA;" OwnerUserId="17716" LastActivityDate="2019-12-12T10:23:00.920" Title="Where to begin with solving this table on Total Cost analysis?" Tags="&lt;microeconomics&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21116" PostTypeId="2" ParentId="21089" CreationDate="2018-03-20T09:02:52.697" Score="0" Body="&lt;p&gt;Yes, there is an income effect. It's unclear why books wouldn't mention that, perhaps it was not a complete treatment. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Clearly, for individuals with zero assets, the income effect is zero, and goes to +- infinity as assets go to plus/minus infinity. Hence, @ChinG's presumption, that the substitution effect would always dominate, is not clearly true for me. That might be the case under some particular assumptions onto assets and preferences, but not in general.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Unless books clearly express that there is no income effect [in which case you're free to update the question], I'd assume that it's just not a complete exposition.&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2018-03-20T09:02:52.697" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21117" PostTypeId="2" ParentId="21114" CreationDate="2018-03-20T16:13:39.577" Score="1" Body="&lt;p&gt;They are interconnected. For example, disruption could lead to deflation, because someone (such as Amazon) can come into the market and sell goods at a lower cost, while increases the quantity of goods. This could grow real GDP (in terms of economic output), while decreasing nominal GDP when adjusting for the deflator (hypothetical scenario). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Economics growth can also lead to nominal price inflation (connection), as more goods and services are sold throughout the economy. Economic growth can also occur with disruption (connection), if the disrupting firms are more efficient in terms of economic output. This would simply increase societies production possibilities frontier. &lt;/p&gt;&#xA;" OwnerUserId="16329" LastActivityDate="2018-03-20T16:13:39.577" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21120" PostTypeId="1" AcceptedAnswerId="21121" CreationDate="2018-03-20T20:48:46.723" Score="1" ViewCount="192" Body="&lt;p&gt;I was thinking recently how economic theories (the stuff they teach you in college) affects real-life decisions. I found some examples (see below), but most of them are from the past and many of those theories are not &quot;established&quot;/respected today. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What are examples from the present or recent past, when an established economic theory affects real-life decisions, preferably on a large scale?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm interested in cases when some organization or individual decides what to do based on such theories and their decisions affect many people (e. g. it is known that the central bank of country X uses some monetary economics theory to decide what the interest rate should be). I'm looking for examples of established economic theories being widely used &quot;in the wild&quot; (in the real world).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Examples from the past:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Vulgar liberalism: Economic reforms in the post-Soviet Russia in the 1990es.&lt;/li&gt;&#xA;&lt;li&gt;Marxism-Leninism: Soviet Russia&lt;/li&gt;&#xA;&lt;li&gt;In the late 1990es many people believed that free trade between the US and China would benefit both sides. This belief was based on the experience with trade between the US and European countries (Germany, France). The US &lt;a href=&quot;http://edition.cnn.com/2001/WORLD/asiapcf/east/04/05/china.WTO/&quot; rel=&quot;nofollow noreferrer&quot;&gt;helped&lt;/a&gt; China join the WTO in 2001. 17 years thereafter it turned out that free trade with China was harmful to the US economy because China is very different from Germany and France. The methodology used by those economists was wrong and the decisions based on it affected about 400 000 people in the American manufacturing sector (&lt;a href=&quot;http://freakonomics.com/podcast/china-eat-americas-jobs/&quot; rel=&quot;nofollow noreferrer&quot;&gt;source&lt;/a&gt;, passage starting with &quot;We would conservatively estimate...&quot;).&lt;/li&gt;&#xA;&lt;li&gt;Chicago school of economics: Milton Friedman's ideas &lt;a href=&quot;https://en.wikipedia.org/wiki/Milton_Friedman#Estonia&quot; rel=&quot;nofollow noreferrer&quot;&gt;influenced&lt;/a&gt; how Estonia's economy was reformed in post-Soviet times.&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Input%E2%80%93output_model&quot; rel=&quot;nofollow noreferrer&quot;&gt;Input-output models&lt;/a&gt; were used, among other things, in the Soviet planning economy.&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Linear_programming&quot; rel=&quot;nofollow noreferrer&quot;&gt;Linear programming&lt;/a&gt;/Operations research was used to optimize the output of factories (&lt;a href=&quot;https://youtu.be/V9XeyBd_IuA?t=3m3s&quot; rel=&quot;nofollow noreferrer&quot;&gt;allegedly&lt;/a&gt; both in socialist and capitalist countries).&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Demurrage_(currency)&quot; rel=&quot;nofollow noreferrer&quot;&gt;Demurrage&lt;/a&gt; proposed by &lt;a href=&quot;https://en.wikipedia.org/wiki/Silvio_Gesell&quot; rel=&quot;nofollow noreferrer&quot;&gt;Silvio Gesell&lt;/a&gt; was used in, among other things, the Austrian city of &lt;a href=&quot;https://de.wikipedia.org/wiki/W%C3%B6rgl#W%C3%B6rgler_Schwundgeld_(Freigeld)&quot; rel=&quot;nofollow noreferrer&quot;&gt;Wörgl&lt;/a&gt; (German) in 1932.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerDisplayName="user17726" LastActivityDate="2018-11-05T13:55:18.210" Title="What are modern examples of established economic theories being used on a large scale in real life?" Tags="&lt;history&gt;" AnswerCount="3" CommentCount="5" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21121" PostTypeId="2" ParentId="21120" CreationDate="2018-03-20T22:16:05.710" Score="0" Body="&lt;p&gt;There’s an argument in modern economic theory (Macroeconomics Mankiw 5th edition) that a society is only as wealthy as its GDP, or the goods and services within the economy, adjusted for inflation (not nominal GDP). This would highlight if we use deductive logic that our trade agreements with Germany, AND France were not good agreements because the Trade was one sided (not a mutual flow). They produce a car for example, we produce nothing. Modern economic theory teaches us that society faces a trade off between production and consumption. Consume a lot now, consume much less later, because you must produce to increase your future consumption. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;All of this is relevant to your question because trade agreements with China AND Germany led to a similar issue. The United States consumed and did not produce proportionately (severe trade imbalances). For a while it feels good to produce without consuming (Mankiw uses an illustration of an economy that can produce robots or pizza’s), but as you can see, the lack of production leaves you with no resources over time to increase consumption. Real GDP is higher in the long-run if you produce at an accelerated rate, than if you consume without an increase in production. The real world result is that you’d expect the exact outcome that we got from “free trade” with China. They can simply produce cheaper and more goods, we don’t produce as much or as efficiently, and the outcome is what we see today if we follow modern (college) economic theory. &lt;/p&gt;&#xA;" OwnerUserId="16329" LastActivityDate="2018-03-20T22:16:05.710" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21125" PostTypeId="1" CreationDate="2018-03-21T02:08:19.683" Score="1" ViewCount="72" Body="&lt;p&gt;I would really appreciate if anyone of you could guide me as to whether I my solution is right or not.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Q. Consider the following consumption function:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;C=a+b(Y-T)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assuming a&gt;0, show using calculus that APC falls as the disposable income increases.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also show from the answer to above that APC&gt;MPC&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My take:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;MPC = dC/dy&#xA;    = b&#xA;(I have expanded the consumption function and taken derivative with respect to Y)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;APC = C/Y&#xA;    = a+bY-bT/Y&#xA;    =a/Y -bt/Y + b&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now taking derivative of the APC derived above&lt;/p&gt;&#xA;&#xA;&lt;p&gt;i.e. dAPC/dY= -a/Y^2 + bt/Y^2 &lt;/p&gt;&#xA;&#xA;&lt;p&gt;as it has negative sign it is &amp;lt; 0&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks.&lt;/p&gt;&#xA;" OwnerUserId="15509" LastActivityDate="2018-03-21T02:08:19.683" Title="Consumption Function" Tags="&lt;macroeconomics&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21126" PostTypeId="2" ParentId="21083" CreationDate="2018-03-21T02:53:21.060" Score="2" Body="&lt;p&gt;To complement the answers from Dan and Waitakere, protecionism is often justified by strategic interest. Regardless of the gains of comparative advantage, a country or region might want to retain certain industries. Usual explanations are to &lt;strong&gt;avoid external dependence&lt;/strong&gt; or to &lt;strong&gt;retain jobs&lt;/strong&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This kind of thinking is one of the justifications for the high levels of protection that the EU has on its agricultural industry: the losses in jobs and the risk with external dependence wouldn't be offset by the gains of lower food costs. &lt;a href=&quot;http://ageconsearch.umn.edu/bitstream/230031/2/2016SAEA_AgEconSearch_manuscript_AgriculturalTrade_SanAntonio_January22_2016.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;This paper&lt;/a&gt; talks about it, if you want to read more.&lt;/p&gt;&#xA;" OwnerUserId="12304" LastActivityDate="2018-03-21T02:53:21.060" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21127" PostTypeId="1" CreationDate="2018-03-21T06:37:42.983" Score="5" ViewCount="165" Body="&lt;p&gt;My setting is the following.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have a sequence of  games $\lbrace G_n \rbrace$ in which the strategy space is $S=[0,1]^2$, there are two players $(I=\lbrace 1,2 \rbrace)$, and payoff functions are given by the continuous (no other restrictions so far) functions $U_i^n(x_1,x_2)$ for each player $i=1,2$. That is, each game is  defined by $G_n = (U^n, S,I)$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, I know that the payoff functions $U_i^n$ converge pointwise to a (discontinuous) limit $U_i$. I therefore write down the 'limit game' $G = (U,S,I). $ We can write down a correspondence that maps a game to its nash equilibria. Call that correspondence $EQ$, and we define, for a particular game $G_n$, that $EQ(G_n) = \lbrace (s_{n1}^*, s_{n2}^*), (s_{n1}^{**},s_{n2}^{**}) \dots\rbrace $ where the right hand side is the set of (potentially infiite) nash equilibria for the game $G_n$ and, generically, we allow each equilibrium strategy $s_{ni}$ to be a mixed strategy. That is, a probability measure over $[0,1].$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I then analysed the limit game, and have found a unique mixed strategy nash equilibria in that game. That is, $EQ(G) = \lbrace (s_1^*, s_2^*) \rbrace$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I do not have closed form solutions for the equilibria, $\lbrace (s_{n1}^*, s_{n2}^*), (s_{n1}^{**},s_{n2}^{**}) \dots\rbrace $, of the games in the sequence $\lbrace G_n \rbrace$. Naturally, though, I would like to say something about how the equilibria converge to the equilibrium of the limit game.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My questions are (to start) as follows. &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Given the pointwise convergence of payoff functions $U^n \rightarrow U$, in what sense can I say the games $\lbrace G_n \rbrace $ converge to the limit game $G$? &lt;/li&gt;&#xA;&lt;li&gt;What conditions do I need on the equilibrium correspondence $EQ$ so that I can say something about the convergence of the equilibrium strategies? That is, am I able, with some argument, to establish that there exists a sequence of equilibria that converges to the equilibrium of the limit game in some sense. That is, $\lbrace (s_{n1}^*, s_{n2}^*)\rbrace_{n=1}^\infty \rightarrow \lbrace (s_{1}^*, s_{2}^*)\rbrace$, perhaps in the weak sense, perhaps in the strong sense, or perhaps in some other sense.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Any help or references are greatly appreciated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit: clarified the notation and question.&lt;/p&gt;&#xA;" OwnerUserId="17731" LastEditorUserId="42" LastEditDate="2018-03-26T17:43:34.000" LastActivityDate="2018-03-26T17:43:34.000" Title="Nash equilibrium of sequence of games" Tags="&lt;game-theory&gt;&lt;nash-equilibrium&gt;" AnswerCount="1" CommentCount="7" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21132" PostTypeId="1" CreationDate="2018-03-21T17:15:18.637" Score="1" ViewCount="28" Body="&lt;p&gt;I'm just curious whether there are any historical examples of a currency crisis in a country (speculative attacks leading causing a sudden devaluation of currency) leading directly to a debt crisis? &lt;/p&gt;&#xA;" OwnerUserId="16135" LastActivityDate="2018-03-21T17:15:18.637" Title="Can a currency crisis be the proximate cause of a debt crisis?" Tags="&lt;currency&gt;&lt;debt&gt;&lt;economic-crisis&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="21134" PostTypeId="1" AcceptedAnswerId="21149" CreationDate="2018-03-21T21:07:22.763" Score="0" ViewCount="90" Body="&lt;p&gt;In a discussion with a friend, he mentioned that a new company may fail to gain profits for several years before it becomes profitable. I asked him for examples but he did not know any. I though of Amazon, but I think they made &quot;some&quot; profit in their first year. Could you please tell me What famous company name that turned a loss at its first year(s) but then became profitable? It would be great if you have an easy reference for me to refer to. I am not in financial business.&lt;/p&gt;&#xA;" OwnerUserId="17744" LastActivityDate="2018-03-22T14:43:59.147" Title="What famous company that turned a loss at its first year(s) but then became profitable?" Tags="&lt;profits&gt;" AnswerCount="1" CommentCount="4" ClosedDate="2018-04-19T11:44:37.253" ContentLicense="CC BY-SA 3.0" />
  <row Id="21135" PostTypeId="2" ParentId="19897" CreationDate="2018-03-21T21:47:37.233" Score="2" Body="&lt;p&gt;If the company has excess cash or excess liquidity that it cannot effectively deploy in capital investments, and it has reason to believe that the expected value of returns from purchasing shares will be higher than alternatives (such as buying equities or financial instruments), this would be legitimate, where &quot;legitimate&quot; can be defined as an increase in the long-term value for anyone holding shares in the company.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for determining how often this is done &quot;legitimately&quot;, as opposed to being done manipulatively in order for inside traders to profit from reducing the supply of shares and thus illegitimately driving up prices, that's a different question. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question of whether it is &quot;legitimate&quot; in terms of share buybacks giving the executive board control out of proportion to shares held, this should be considered separately from the question of whether excess cash legitimizes the buyback from a long-term profit maximization perspective.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for the question of whether excess cash that cannot be deployed effectively is a sign of a &quot;healthy economy&quot; or not, this need not be determined by the observation of excess cash of a specific corporation considering share buybacks. For example, one company may have excess cash that it cannot deploy effectively in a situation where it expects to earn higher returns from a share buyback than investing in alternative financial assets or securities, without this necessarily applying on an economy-wide basis (which would contradict a variety of theoretical assumptions about financial markets always efficiently reallocating capital to its most profitable use ... but that could happen.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Relevant regulatory approaches to &quot;illegitimate&quot; share buybacks could fall under shareholder rights (other shareholders would be poorly represented by executives deciding on share buybacks to temporarily inflate share prices for their personal profit), or possibly in some cases insider trading. The regulatory framework, and its application, varies across jurisdictions.&lt;/p&gt;&#xA;" OwnerUserId="16499" LastActivityDate="2018-03-21T21:47:37.233" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21136" PostTypeId="2" ParentId="19745" CreationDate="2018-03-21T22:02:38.267" Score="-1" Body="&lt;p&gt;It is common that very poor countries also have very low unemployment rates. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A typical reason for this is that a large share of the population can always engage in subsistence agriculture, in which case they are both employed and also poor. However, despite the presence of near-subsistence agriculture in some regions, Mexico is a middle income country and not a &quot;very poor&quot; country, so without looking deeply into the data I would not assume this to explain even close to all of the observation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It could also be related to a) how poverty is defined and the effects that income inequality can have in the context of the specific definition (e.g., a large share of the population earning less than 1/2 of mean or median income, but still able to access basic housing, nutrition, communications, education and health services), b) the minimum wage, for example if it is very low you might have a lot of people working but at a very low wage (consider this in an ideologically neutral sense, since even if literate this does not necessarily imply that skills matching in the labour market can &quot;handle&quot; a higher minimum wage), c) whether a national poverty rate is applied to areas where housing expectations are met at a much lower cost compared to the capital city (or any other major cost differentials that are not adjusted for due to using a national poverty line instead of adjusting for regional cost variations), ... &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, consider that the stats are usually for market income, without imputing the value of public services such as health and education. This is among some variety of reasons to prefer consumption indicators of wellbeing instead of market income, despite the shortcoming that there is always some subjective element in the evaluation. &lt;/p&gt;&#xA;" OwnerUserId="16499" LastActivityDate="2018-03-21T22:02:38.267" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="21137" PostTypeId="1" AcceptedAnswerId="21141" CreationDate="2018-03-22T05:12:01.520" Score="1" ViewCount="51" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Until last year, the Chinese government set 8 percent annual growth as a goal, and the economy frequently delivered several percentage points more than that.&#xA;  Then last March, the government pared the goal to 7.5 percent, and actual growth seems likely to be little higher.&#xA;  “The potential growth rate of the economy has come down,” Stephen Green, a China economist in the Hong Kong offices of Standard Chartered, said Sunday. “&lt;strong&gt;You don’t have to be in the double digits to get inflation&lt;/strong&gt;.”&#xA;  Prices rose faster in December, according to government data released Friday. Consumer prices rose 2.5 percent from the level of a year earlier, their fastest pace since May.&#xA;  &lt;a href=&quot;http://www.nytimes.com/2013/01/14/business/global/as-chinas-economy-revives-so-do-fears-of-inflation.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;China Again Is Growing, More Slowly&lt;/a&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Hi, I read this article and I do not understand what &quot;be in the double digits&quot; means here.&#xA;Could you please help me?&#xA;Thank you. &lt;/p&gt;&#xA;" OwnerUserId="17688" LastActivityDate="2018-03-22T07:33:21.620" Title="What does &quot;to be in the double digits to get inflation&quot; mean?" Tags="&lt;inflation&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21141" PostTypeId="2" ParentId="21137" CreationDate="2018-03-22T07:33:21.620" Score="1" Body="&lt;p&gt;Economists believe that higher growth rates tend to also mean higher inflation rates.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So in this case what Mr. Green means is that&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;You don't need a GDP growth rate of over 10% to get inflation.&lt;/strong&gt; (Even GDP growth of 7.5% or 8% will be enough for the return of high inflation.)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2018-03-22T07:33:21.620" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21142" PostTypeId="2" ParentId="19777" CreationDate="2018-03-22T09:01:59.170" Score="0" Body="&lt;p&gt;There is no contradiction between PVM and Fischer effect.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Perhaps you are misinterpreting what &quot;expected nominal return&quot; means.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Expected nominal return is the return an investor expects from his investment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The theory does not imply that incresead inflation will automatically increase company profits by the same amount. Instead the value of the stock is reduced, just as the NPV calculation implies.&lt;/p&gt;&#xA;" OwnerUserId="11805" LastActivityDate="2018-03-22T09:01:59.170" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21143" PostTypeId="1" AcceptedAnswerId="21153" CreationDate="2018-03-22T09:36:02.367" Score="2" ViewCount="143" Body="&lt;p&gt;Yesterday the Fed increased the interest rate of the Dollar yet it's value decreased against various currencies (&lt;a href=&quot;https://www.cnbc.com/2018/03/20/forex-dollar-in-focus-as-market-looks-to-fed-for-rate-hike-outlook.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Source&lt;/a&gt;). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;According to this article it should be the other way around :&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In economic theory, if the interest rates in one country increase, then the currency value of that country will increase as a reaction. If the interest rates decrease, then the opposite effect of depreciating currency value will take place.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://bizfluent.com/about-6453379-relationship-between-interest-rates-currency-.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Source&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So why did the value of the Dollar decrease?&lt;/p&gt;&#xA;" OwnerUserId="17752" LastActivityDate="2018-03-22T19:56:44.760" Title="Why did the Dollar weaken after interest rate increase?" Tags="&lt;interest-rate&gt;&lt;federal-reserve&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21144" PostTypeId="1" CreationDate="2018-03-22T10:54:10.117" Score="1" ViewCount="96" Body="&lt;p&gt;Do payroll and income tax create different incentives? Is there any difference at all economically speaking? &#xA;I suppose different tax deductions and tax rates may or may not apply. If so, what deductions, rates. Are there any books/research on the topic?&lt;/p&gt;&#xA;" OwnerUserId="11032" LastActivityDate="2018-03-26T09:28:51.837" Title="Incentive differences payroll and income tax" Tags="&lt;taxation&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21149" PostTypeId="2" ParentId="21134" CreationDate="2018-03-22T14:43:59.147" Score="4" Body="&lt;p&gt;It is very common for a company to have a loss (i.e. expenses &gt; revenue) in the first year. Amazon is actually a very good example of that. It’s also a good example of ‘growth before profit’ strategy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Amazon was incorporated on July 5, 1994, and begun service in July 1995. This means that not only it did not generate profit in its first year, there were also no sales. &lt;a href=&quot;http://faculty.london.edu/chigson/casestudies/pdfs/Amazon.pdf&quot; rel=&quot;noreferrer&quot;&gt;Even after the launch the company generated loss&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Amazon had stated from the outset that it did not expect to turn a&#xA;  profit for four to five years, and it duly delivered on its promise.&#xA;  The firm grew quickly but failed to generate profit, making a net loss&#xA;  of USD -303,000 on net sales of USD 511,000 during its first six months of&#xA;  trading. At the beginning of 1996, Amazon employed eleven people and&#xA;  moved out of Bezos’s home to a small warehouse nearby. By the end of&#xA;  the year, Amazon.com offered 2.5m titles online, although it still&#xA;  carried only a minimal inventory. By this point, the firm had 151&#xA;  employees and relocated once again to accommodate its growing&#xA;  workforce. Sales for 1996 were USD 15.7m, with the company making a net&#xA;  loss of USD 5.7m.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Please see below historic results from Amazon’s &lt;a href=&quot;https://www.slideshare.net/matthbrody/amazon-annual-report-1997&quot; rel=&quot;noreferrer&quot;&gt;first public annual report&lt;/a&gt; from 1997 (the year of IPO):&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;                           1997 |   1996  | 1995|   5 Jul 1994 - 31 Dec 1994&#xA;&#xA;(1) net sales            147758 |   15746 | 511 |   0&#xA;(2) cost of sales        118945 |   12287 | 409 |   0&#xA;(1+2) gross profit        28813 |    3459 | 102 |   0&#xA;                            ---       ---   ---     --&#xA;(4) total operating&#xA;expenses                  58022 |    9438 | 406 |   52&#xA;(5) profit from interest   1619 |     202 |   1 |   0&#xA;                            ---       ---   ---     --&#xA;(1+2+5-4) net loss        27590 |   5777 |  303 |   52&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;As for an easy reference, &lt;strong&gt;@denesp&lt;/strong&gt; cited &lt;a href=&quot;https://revenuesandprofits.com/amazon-vs-walmart-revenues-profits-1995-2015/&quot; rel=&quot;noreferrer&quot;&gt;an interesting source&lt;/a&gt; on this. There are some slight differences in the data, so I thought I would cite it alongside with annual report data, which is more precise.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/DHRoy.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/DHRoy.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="15240" LastActivityDate="2018-03-22T14:43:59.147" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21150" PostTypeId="2" ParentId="21144" CreationDate="2018-03-22T16:53:52.260" Score="1" Body="&lt;p&gt;Payroll taxes tend to have specific benefits accruing to the workers who pay them, and thus also benefit employers via impacts on labour supply. For example, there is a difference between taking a percentage from wages and having zero additional/marginal benefit to a worker (the case of income tax), as compared to taking the same percentage from wages and these amounts accruing to a personal account in a mandatory pooled pension managed by the government.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, even if it increases the cost of hiring someone for a given (hourly equivalent) wage, the aspect of specific benefits accruing to a specific worker will positively impact the ability to attract and retain talent.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the case of income taxes, the amount paid in taxes has no relation to benefits accruing to the workers who pay them, and hence there is no effect which would positively impact labour supply or demand in relation to an increase in income taxes (ignoring that it enables to fund activities which the market may underprovide).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The above refers to the benefits side of the question, considering that the question pertains to incentives. The cost side of the question is extremely easy to calculate (ignoring questions of whether employer or employee ultimately face more of the cost), being some specific percentage of the paycheque. It is not implied that the overall cost of the mandatory pension amounts, employment insurance, injury insurance or others are, therefore, worth more or less to the employee than an equivalent cash amount, just for the fact of noting that there is a positive incentive involved.&lt;/p&gt;&#xA;" OwnerUserId="16499" LastActivityDate="2018-03-22T16:53:52.260" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21151" PostTypeId="1" CreationDate="2018-03-22T16:57:22.577" Score="1" ViewCount="74" Body="&lt;p&gt;I want to estimate the distribution/variance of the ratio $WTP=\frac{\gamma}{\alpha}$. The problem is, both $\gamma$ and $\alpha$ are random coefficients.  In other words, both are random to begin with (please note that here their true values are random; this is different from the usual regression models where the true values are fixed constants but the estimators are random). For those interested, the model in mind is a random coefficients model (BLP).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume $\gamma \sim F(\mu_{\gamma},\sigma_{\gamma})$ and $\alpha \sim G(\mu_{\alpha},\sigma_{\alpha})$.  Assume that $\alpha$ is bounded away from zero so that we do not worry about 0 in the denominator.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;When we estimate the model, the estimation package produces $\hat{\mu}_{\gamma}$, $\hat{\sigma}_{\gamma}$, $\hat{\mu}_{\alpha}$, and $\hat{   \sigma}_{\alpha}$, plus their standard errors $\mbox{se}(\hat{\mu}_{\gamma})$, $\mbox{se}(\hat{\sigma}_{\gamma})$, $\mbox{se}(\hat{\mu}_{\alpha})$, and $\mbox{se}(\hat{\sigma}_{\alpha})$.  For simplicity, assume all estimators follow normal distributions. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If $\gamma$ and $\alpha$ are not random coefficients, once I estimate the parameters I can simply use the Delta method or the Krinsky-Robb method to obtain the variance of WTP.  When they are random coefficients, things get complicated. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To obtain the variance or distribution of WTP, &lt;a href=&quot;https://link.springer.com/article/10.1007/s11116-011-9331-3&quot; rel=&quot;nofollow noreferrer&quot;&gt;Daly, Stephane Hess, and Train (2011)&lt;/a&gt; and &lt;a href=&quot;https://ideas.repec.org/p/soz/wpaper/0912.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Rischatsch (2009)&lt;/a&gt; seem to suggest taking random draws $\gamma \sim F(\hat{\mu}_{\gamma},\hat{\sigma}_{\gamma})$ and $\alpha \sim G(\hat{\mu}_{\alpha},\hat{\sigma}_{\alpha})$. But I think this is wrong, because this completely ignores the sampling error in the estimated parameters of the distributions. In other words, this procedure ignores $\mbox{se}(\hat{\mu}_{\gamma})$, $\mbox{se}(\hat{\sigma}_{\gamma})$, $\mbox{se}(\hat{\mu}_{\alpha})$, and $\mbox{se}(\hat{\sigma}_{\alpha})$ (by assuming they are all zeros).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To me, a &quot;correct&quot; simulation approach would require some sort of &lt;strong&gt;double randomization&lt;/strong&gt;: &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;First randomly draw $\mu_{\gamma}^m$ from $N(\hat{\mu}_{\gamma},\mbox{se}(\hat{\mu}_{\gamma}))$ and ${\sigma}_{\gamma}^m$ from $N(\hat{\sigma}_{\gamma},\mbox{se}(\hat{\sigma}_{\gamma}))$.&lt;/li&gt;&#xA;&lt;li&gt;Then randomly draw $\gamma_i$ from $F(\mu_{\gamma}^m,\sigma_{\gamma}^m)$.&lt;/li&gt;&#xA;&lt;li&gt;Do the same for $\alpha_i$.  Obtain the ratio.&lt;/li&gt;&#xA;&lt;li&gt;Repeat this process to get a distribution of WTP. &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;The &quot;typical&quot; simulation approach to find the distribution of WTP seems to ignore step 1 and thus underestimate the variance of WTP by treating the estimated quantities as true ones. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Anybody can shed light on whether my approach is right or wrong? And are the approaches in the two references right or wrong? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks in advance. &lt;/p&gt;&#xA;" OwnerUserId="17758" LastActivityDate="2018-03-22T16:57:22.577" Title="To obtain the distribution/variance of two random coefficients" Tags="&lt;econometrics&gt;" AnswerCount="0" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21152" PostTypeId="2" ParentId="18418" CreationDate="2018-03-22T17:17:17.320" Score="0" Body="&lt;p&gt;Unethical applications: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Misleading advertising&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Deceptive marketing&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;your suggestion of &quot;bait and switch&quot; seems easily understood for some cases&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;This terminology is used for cases which may constitute a violation of civil and/or criminal law, depending on the specifics. I don't think &quot;fraud&quot; would necessarily apply, because the facts of a &quot;bait and switch&quot; tactic does not imply that a &quot;fraud&quot; (in the legal sense) would necessarily follow, even if the consumer had ultimately been manipulated in some way that was illegal under laws pertaining to (among other possibilities) misleading advertising. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ethical applications:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't see that there is a need for a specific term involving ethical applications (or applications where the ethics are ambiguous, as opposed to unambiguously unethical). For example, a fundamentally honest communication can be made to the target market without implying that they are lying or misrepresenting themselves to the target audience.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Maybe something under &quot;information economics&quot; would lead to some theoretical structures or vocabulary which could assist in achieving an appropriate level of directness and/or nuance with respect to both a) very generalized treatment and also b) more discerning typologies of retailers/sellers that are in some manner not forthright in their overt presentation in order to gain access to a market.&lt;/p&gt;&#xA;" OwnerUserId="16499" LastEditorUserId="16499" LastEditDate="2018-03-22T17:57:45.893" LastActivityDate="2018-03-22T17:57:45.893" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21153" PostTypeId="2" ParentId="21143" CreationDate="2018-03-22T19:55:10.117" Score="3" Body="&lt;p&gt;It is correct that higher rates should strengthen the dollar... IF&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;the increase in interest rates is &lt;em&gt;unexpected&lt;/em&gt; and&lt;/li&gt;&#xA;&lt;li&gt;&lt;em&gt;all else equals&lt;/em&gt;. &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;I haven't followed this particular rate hike, but here is a basic explanations why the dollar might weaken after an increase in interest rates:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The rate hike was widely expected and &lt;strong&gt;already priced in&lt;/strong&gt; by the market, As a result, it didn't have much of an effect on the exchange rate. Keep in mind that the dollar can fluctuate quite significantly even on days without a Fed decision.  The move you refer to might be one of these fluctuations and have nothing to do with the rate hike. Or a small move due to the rate hike might have been overshadowed by a bigger move due to a different factor.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's worth keeping in mind that it's not the events themselves that matter for exchange rates (or stock prices), but how these events turn out relative to expectations -- &lt;strong&gt;markets are forward-looking&lt;/strong&gt;.&lt;/p&gt;&#xA;" OwnerUserId="14137" LastActivityDate="2018-03-22T19:55:10.117" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21154" PostTypeId="2" ParentId="21143" CreationDate="2018-03-22T19:56:44.760" Score="2" Body="&lt;p&gt;Yes, that may be a long-term pattern, unless their is a fear of inflation, or a slowdown in the economy. For example, if investors have fear that the rise in interest rates could actually lead to an economic slow-down, the currency can decrease in value in the short-term. As you know, rising interest rates are recessionary in theory (and slow the increase in M2 in many cases). If traders have fear that they rise in interest rates will cause the economy to slow, and are concerned that a central bank may respond to the slowdown by issuing more currency in the future, they may become short-term sellers of the currency. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another issue is trading. Look at the stock market today. In order for foreigners to trade they must use US dollars. This increases the demand for dollars. However, if there is fear of a stock market decline, that will decrease the demand for dollars in the short-term, and in the short-term can lead to a falling stock market. &lt;/p&gt;&#xA;" OwnerUserId="16329" LastActivityDate="2018-03-22T19:56:44.760" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21155" PostTypeId="1" CreationDate="2018-03-23T06:31:34.567" Score="2" ViewCount="565" Body="&lt;p&gt;Is a policy of abolishing tariffs without expecting other countries do so a sustainable economic policy? What are the arguments for or against it?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Fear of imports is very common among people. Money going out and products coming in is not a loss of anything, since products and services are just as valuable as fiat money, or any medium of exchange.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a country with trade deficit, I should expect depreciation of the domestic currency in short term. Devaluing currency is supposed to encourage exports, and exporters but things they need for cheaper too, so it should cause some growth in exports. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If abolishing tariffs is &quot;such a good idea&quot;, why do politicians try to push for trade agreements instead of abolishing tariffs within their countries and benefit from the results?&lt;/p&gt;&#xA;" OwnerUserId="16638" LastEditorUserId="16638" LastEditDate="2018-03-23T06:32:56.010" LastActivityDate="2018-03-25T18:09:32.663" Title="Abolishing all tariffs without reciprocity" Tags="&lt;international-trade&gt;&lt;balance-of-trade&gt;&lt;foreign-exchange&gt;&lt;free-trade&gt;&lt;tariffs&gt;" AnswerCount="2" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21157" PostTypeId="2" ParentId="21144" CreationDate="2018-03-23T08:07:43.620" Score="1" Body="&lt;p&gt;Concering the actual 'tax tariff', there is a huge difference between those two. Income taxation usually feature lots of deductions and a progressive tariff, while deductions for payroll taxes are very limited. Beyond, payroll taxes are often defined by a fixed proportion, possibly with some maximum amount, implying an overall regressive distributional impact. A good overview on income taxes are provided in the regular. &lt;a href=&quot;https://www.oecd.org/ctp/tax-policy/taxing-wages-20725124.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;OECD Taxing Wages&lt;/a&gt; publications.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To add to nathanwww's Answer: If payroll taxes are associated with higher pension claims in the future, individuals might rather be willing to pay them. Whether everybody does so (i.e. whether everybody has this foresight) is in my view at least debatable. Beyond, if we talk about contributions to public health insurance, payroll taxes work more like an ordinary income tax. Unlike old-age pensions, the benefit I receive from the health insurance is not related to my payments. &lt;/p&gt;&#xA;" OwnerUserId="17735" LastEditorUserId="17735" LastEditDate="2018-03-25T08:18:29.030" LastActivityDate="2018-03-25T08:18:29.030" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="21160" PostTypeId="1" AcceptedAnswerId="21175" CreationDate="2018-03-23T12:06:56.280" Score="3" ViewCount="38" Body="&lt;p&gt;I am looking for a recent literature review of consumer demand theory and its empirical applications. I have tried common places (google scholar, jel and jep papers) but no success. Any help is really appreciated.&lt;/p&gt;&#xA;" OwnerUserId="8081" LastActivityDate="2018-03-24T10:17:21.713" Title="Reference Request on consumer theory" Tags="&lt;microeconomics&gt;&lt;reference-request&gt;&lt;consumer-theory&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="21161" PostTypeId="2" ParentId="21078" CreationDate="2018-03-23T13:01:03.507" Score="2" Body="&lt;p&gt;I'd like to add &lt;a href=&quot;http://bruegel.org/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Bruegel&lt;/a&gt; which is an economics think tank with interesting insights.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &lt;a href=&quot;http://www.oecd.org/eco/&quot; rel=&quot;nofollow noreferrer&quot;&gt;economics department of the OECD&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The website &lt;a href=&quot;https://ec.europa.eu/commission/index_en&quot; rel=&quot;nofollow noreferrer&quot;&gt;of the european commission&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="13419" LastActivityDate="2018-03-23T13:01:03.507" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21162" PostTypeId="1" CreationDate="2018-03-23T14:02:24.480" Score="5" ViewCount="119" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Let $f_1, f_2$ be two smooth strictly-quasiconcave functions.&#xA;  Do there always exist monotone transformations $g_1,g_2$ such that the sum&#xA;  $g_1\circ f_1 + g_2 \circ  f_2$ is ​a strictly-​quasiconcave function?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;While this question is mathematic, its motivation is economic. Given two people with strictly-convex preferences, we would like to represent their common preferences by a social welfare function. One natural way to do this is to represent each person's preferences by some strictly-quasiconcave function and take their sum. However, the sum of strictly-quasiconcave functions is not necessarily quasiconcave. So it is interesting whether we can always find specific representative functions such that the sum &lt;em&gt;is&lt;/em&gt; quasiconcave?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I already know that, without the &quot;strictly&quot;, the answer is no. Here is an example:&#xA;&lt;a href=&quot;https://i.stack.imgur.com/BAbk7.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/BAbk7.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Both functions are weakly-quasiconcave. When one function is increasing, the other is flat, and when the other is decreasing, the first is flat. Therefore, regardless of what transformations we apply to them, the sum will look like a wave and will  not be quasaiconcave.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;sub&gt;&#xA;Note: I asked this question &lt;a href=&quot;https://mathoverflow.net/questions/292548/can-the-sum-of-quasiconcave-functions-always-be-made-quasiconcave&quot;&gt;on MathOverflow&lt;/a&gt; some time ago. Taneli Huuskonen came up with the negative example for weakly-quasiconcave function, but the question for strictly-quasiconcave function is still open. Due to the economic importance of quasiconcave functions, I thought someone here might have an answer.&#xA;&lt;/sub&gt;&lt;/p&gt;&#xA;" OwnerUserId="385" LastEditorUserId="385" LastEditDate="2018-03-25T04:46:34.580" LastActivityDate="2018-09-29T04:19:09.410" Title="Quasiconcavification" Tags="&lt;mathematical-economics&gt;&lt;preferences&gt;" AnswerCount="1" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21163" PostTypeId="1" CreationDate="2018-03-23T17:12:14.880" Score="3" ViewCount="167" Body="&lt;p&gt;Why is Mises &quot;permitted&quot; to define &quot;Economics is an a priori science&quot;, if a priori is not trustworthy?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In philosophy of science and natural sciences &lt;em&gt;a priori&lt;/em&gt; as a method of knowing has long been identified to be sufficient only in special cases and more broadly mainly just among the formal sciences (mathematics, ...). By sufficiency I mean that it's sufficient for obtaining enough information in order to make empirically accurate predictions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since economics is about empirical things (people, resources etc.), then defining economics as an a priori science just seems very naive, if not even dangerous, because when combined with politics, such economics could propose anything and then claim validity to it, because &quot;well it's an a priori science&quot;. What if one claimed that &quot;Islam is an a priori science&quot;?&lt;/p&gt;&#xA;" OwnerUserId="6848" LastEditorUserId="19898" LastEditDate="2018-11-13T07:32:43.857" LastActivityDate="2020-11-22T00:04:12.890" Title="Why is Mises &quot;permitted&quot; to define &quot;Economics is an a priori science&quot;, if a priori is not trustworthy?" Tags="&lt;political-economy&gt;&lt;austrian&gt;&lt;scientific-method&gt;&lt;methodology&gt;" AnswerCount="3" CommentCount="10" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="21164" PostTypeId="2" ParentId="21163" CreationDate="2018-03-23T18:42:43.833" Score="2" Body="&lt;p&gt;Mathematics has axioms. The study of Logic, as a formal subject in itself, has axioms. Empirical sciences do not have axioms. The physical sciences don't have axioms.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Pretending economics was an &lt;em&gt;a priori&lt;/em&gt; science was an act of intellectual dishonesty, in order to provide a pseudo-intellectual basis for the counter-empirical work of the Austrians.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2018-03-23T18:42:43.833" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21165" PostTypeId="2" ParentId="21155" CreationDate="2018-03-23T19:51:52.973" Score="2" Body="&lt;p&gt;You get cheaper access to inputs. For a large advanced economy that is relatively diversified, it is possible that unilateral tariff reductions across many or all sectors can be good for the economy by freeing up resources presently occupied in low-value activities with few prospects to contribute to technological progress. The additional ease of doing business in that country may also attract additional financial investments and human resources talent from abroad, which would tend to increase technological progress and productivity at the same time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a small economy that specializes in some specific sector (e.g., tourism, finance), a unilateral tariff reduction may improve the competitiveness of the sector they specialize in, and therefore be good for the economy and/or technological progress over both short and long time frames.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These are somewhat special conditions, and most often countries do not see benefit in unilateral tariff reductions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for what politicians do, this is a somewhat different question and should be considered separately from the economics argumentation about unilateral tariff reduction. It is very straightforward to argue that some concentrated interest(s) in just one or two industries could be major campaign contributors in a winning campaign, leading the politician to try to impose tariffs which benefit specific industries while causing overall negative impacts across the entire economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Theoretically, it would be possible to be in a situation where both a) unilateral tariff reductions could benefit the economy and b) at the same time concentrated interests could legally and/or illegally obtain political influence which resulted in an increase in their own profits at a cost to the overall economy.&lt;/p&gt;&#xA;" OwnerUserId="16499" LastActivityDate="2018-03-23T19:51:52.973" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21166" PostTypeId="2" ParentId="18418" CreationDate="2018-03-23T20:39:08.133" Score="0" Body="&lt;p&gt;To me, the metaphor that seems to provide the best fit to your examples is the expression &lt;strong&gt;&quot;Trojan horse&quot;&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;During the endless Trojan war, Greeks pretended to leave the battlefield and gave a celebrative gift to their enemies: the gift was a a gigantic wooden horse, which actually contained a commando of Greek warriors in the inside. The Trojans accepted the gift, let the horse in their city walls, and celebrated. At night time, however, the Greek commando got out of the horse and facilitated the entry of the rest of their army into the city of Troy.&lt;/p&gt;&#xA;" OwnerUserId="17770" LastEditorUserId="17770" LastEditDate="2018-05-18T09:00:19.727" LastActivityDate="2018-05-18T09:00:19.727" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="21168" PostTypeId="1" AcceptedAnswerId="21171" CreationDate="2018-03-24T03:55:10.127" Score="0" ViewCount="37" Body="&lt;p&gt;I thought it would mean more sales thus more production and more profit, so why does nvidia and amd simply dont ramp up production if the trend has been now quite a long one?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And as far as I can see it's the retailers that are upping the prices, not the manufacturers so the manufacturers could easily adapt to demand within a month or two.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Am I missing something?&lt;/p&gt;&#xA;" OwnerUserId="17773" LastActivityDate="2018-03-24T08:09:09.467" Title="Why do graphic card prices rise due to bitcoin miners?" Tags="&lt;markets&gt;&lt;bitcoin&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21169" PostTypeId="1" CreationDate="2018-03-24T04:16:03.257" Score="1" ViewCount="1383" Body="&lt;p&gt;Could they be interchangeably used? Or, is one subset of the other?&lt;/p&gt;&#xA;" OwnerUserId="14660" LastActivityDate="2018-03-24T04:55:32.457" Title="Difference between pigovian tax and sin tax?" Tags="&lt;taxation&gt;&lt;pigouvian-taxes&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21170" PostTypeId="2" ParentId="21169" CreationDate="2018-03-24T04:55:32.457" Score="2" Body="&lt;p&gt;A pigouvian tax is on goods or services that are known to have negative externalities, and for which some estimation of the economic value of those negative externalities can be made, and is there to correct the market failure. Its goal is to improve economic efficiency.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A sin tax is on goods or services judged to be morally negative. Its goal is to reduce consumption and/or appease the moralists and/or raise revenue in a way that is less likely to be successfully opposed.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2018-03-24T04:55:32.457" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="21171" PostTypeId="2" ParentId="21168" CreationDate="2018-03-24T06:49:44.407" Score="2" Body="&lt;p&gt;I thought someone would have answered this by now. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Folks will argue but bitcoin is still a relatively new currency. A couple of regulations here, some stolen money there, and a lot of people may stop using it. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;NVidia and AMD's target market (gamers and graphics designers) have a fairly predictable demand. This bitcoin thing is a new category and no one knows where it will be a few years now. Chip manufacturing (unlike say software development) is a heavy investment industry. Investment in factories, people and minerals. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It takes a while to ramp up production in order to satisfy the demand of this new category of coin miners. What if, by the time, the ramp up is completed, the miners have left? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This uncertainty is probably why they are taking it slow. let the market adjusts itself while they ramp up slowly. &lt;/p&gt;&#xA;" OwnerUserId="14380" LastEditorUserId="12304" LastEditDate="2018-03-24T08:09:09.467" LastActivityDate="2018-03-24T08:09:09.467" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="21173" PostTypeId="1" CreationDate="2018-03-24T09:15:44.407" Score="1" ViewCount="67" Body="&lt;p&gt;How much of previous economics (historically) is still relevant today?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How is it determined?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is e.g. 18th century economics still relevant today? Is it accurate/useful to cite Adam Smith for example?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's clear that people still cite e.g. Smith or Marx, but one could question, whether such citing serves a &quot;purposeful&quot; description of contemporary reality or whether it's merely made plausible to &quot;apply Marx today&quot;, because one can.&lt;/p&gt;&#xA;" OwnerUserId="6848" LastActivityDate="2018-03-24T09:15:44.407" Title="How much of previous economics (historically) is still relevant today?" Tags="&lt;history-economic-thought&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21175" PostTypeId="2" ParentId="21160" CreationDate="2018-03-24T10:17:21.713" Score="5" Body="&lt;p&gt;There is a very nice survey by Aviv Nevo on &lt;a href=&quot;http://faculty.wcas.northwestern.edu/~ane686/research/ARE2011.pdf&quot; rel=&quot;noreferrer&quot;&gt;Empirical Models of Consumer Behavior&lt;/a&gt;. He surveys some of the models used in the literature. In particular, he discusses two commonly used demand systems: multi-stage budgeting approaches and discrete choice models. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;We may also find interesting &lt;a href=&quot;http://aguirregabiria.net/wpapers/worldcongress_aguirregabiria_nevo_final_090112.pdf&quot; rel=&quot;noreferrer&quot;&gt;Recent Developments in Empirical IO: Dynamic Demand and Dynamic Games&lt;/a&gt; by Victor Aguirregabiria and Aviv Nevo.&lt;/p&gt;&#xA;" OwnerUserId="6168" LastActivityDate="2018-03-24T10:17:21.713" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21176" PostTypeId="1" AcceptedAnswerId="21179" CreationDate="2018-03-24T13:37:56.550" Score="1" ViewCount="784" Body="&lt;p&gt;From what I've read only price-elasticity of demand (PED) (not price-elasticity of supply (PES)) affects the burden of tax on the consumer/producer. However, my graphs suggest PES &lt;strong&gt;does&lt;/strong&gt; affect it. Why is this??&#xA;&lt;a href=&quot;https://i.stack.imgur.com/tESBJ.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/tESBJ.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&#xA;&lt;em&gt;(The red lines represent the supply curves of firms with elastic PES and the blue lines are for inelastic PES. The S1 lines show supply before tax and S2 shows supply post tax. I have used a demand curve with unitary PED.)&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;According to the graph the proportion of tax paid by the consumer on goods with price elastic supply (P1P2AB out of P3P2AC)is significantly greater than the proportion paid on goods with inelastic PES (P1P2DE out of P3P2DF. Why is this?&lt;/p&gt;&#xA;" OwnerUserId="17778" LastEditorUserId="17778" LastEditDate="2018-03-27T11:18:07.303" LastActivityDate="2018-03-27T11:18:07.303" Title="How does price-elasticity of supply affect the incidence of tax on consumer and producer" Tags="&lt;microeconomics&gt;&lt;supply-and-demand&gt;&lt;elasticity&gt;&lt;taxation&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21177" PostTypeId="1" AcceptedAnswerId="21218" CreationDate="2018-03-24T14:13:08.780" Score="2" ViewCount="353" Body="&lt;p&gt;I am interested to see how the &amp;quot;&lt;a href=&quot;https://en.wikipedia.org/wiki/Business_cycle&quot; rel=&quot;nofollow noreferrer&quot;&gt;business cycle&lt;/a&gt;&amp;quot; is associated with our firms sales. The hope is that if we can show that our sales line up with the business cycle then we can make decisions accordingly.&lt;/p&gt;&#xA;&lt;p&gt;If, for example, our sales have historically been hurt when in a recession, then it would be good to keep a pulse on this macroeconomic factor to know when we should increase or decrease spend.&lt;/p&gt;&#xA;&lt;p&gt;The problem is that I am not sure how to identify the business cycle. I am not an economist by trade. I have been pulling some data from &lt;a href=&quot;https://fred.stlouisfed.org/&quot; rel=&quot;nofollow noreferrer&quot;&gt;FRED&lt;/a&gt;, but I am not sure which indicators to look at for identifying the business cycle. I have two hypothesis:&lt;/p&gt;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;https://fred.stlouisfed.org/series/UNRATE&quot; rel=&quot;nofollow noreferrer&quot;&gt;Unemployment&lt;/a&gt;. Record low unemployment may be an indicator for a recession. I think that this is getting slightly more convoluted these days as I think that employment takes into account people with either W-2s or 1099s, but as the people who rely solely on 1099s increase I think that the meaning of unemployment changes. Something like a gig economy effect. This makes this metric maybe less reliable than it used to be as the &lt;a href=&quot;https://www.newyorker.com/magazine/2017/05/15/is-the-gig-economy-working&quot; rel=&quot;nofollow noreferrer&quot;&gt;gig economy&lt;/a&gt; becomes a reality.&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;https://fred.stlouisfed.org/graph/?g=f1cZ&quot; rel=&quot;nofollow noreferrer&quot;&gt;% difference in real vs potential gdp&lt;/a&gt; This metric seems to ask, 'Is real gdp exceeding potential gdp'. I don't understand how it is possible to have gdp exceed potential gdp, but I am not an economist so I don't need to worry about that ;). This does seem like an okay metric to represent the business cycle since it seems to quantify if real gdp is too high.&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&lt;h1&gt;Edit&lt;/h1&gt;&#xA;&lt;p&gt;My above thoughts simplify to the following question:&lt;/p&gt;&#xA;&lt;p&gt;If someone asked you to show him/her the the business cycle, what graph --- on FRED --- would you show that person?&lt;/p&gt;&#xA;" OwnerUserId="17779" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2018-03-27T14:48:16.580" Title="Using metrics provided by FRED to identify the business cycle" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;&lt;business-cycles&gt;&lt;firm&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21178" PostTypeId="1" CreationDate="2018-03-24T14:20:07.933" Score="1" ViewCount="146" Body="&lt;p&gt;What purpose does general equilibrium serve in practice?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How is it useful for people (since economics is supposed to assist politics, which is supposed to benefit people)?&lt;/p&gt;&#xA;" OwnerUserId="6848" LastEditorUserId="6848" LastEditDate="2018-03-24T18:40:05.417" LastActivityDate="2018-03-25T09:29:13.797" Title="What purpose does general equilibrium serve in practice?" Tags="&lt;general-equilibrium&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21179" PostTypeId="2" ParentId="21176" CreationDate="2018-03-24T18:42:34.060" Score="2" Body="&lt;p&gt;You are right: both the price-elasticity of demand and the price-elasticity of supply affect the respective proportions for producers and consumers of the burden of a per unit tax imposed on sales by producers.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The proportions depend on the relative slopes, which reflect price-elasticities, of the demand and supply curves. Considering the elastic supply case in your diagram, the slope of the demand curve between points AE is much steeper than that of the supply curve between CE.  Hence E is much closer, in the vertical (price) dimension, to C than to A. Thus the post-tax price to consumers (p2 corresponding to A) is much further from the pre-tax price (p1 corresponding to E) than is the post-tax price to producers (p3 corresponding to C),and so most of the burden falls on consumers.  For the inelastic supply case the position is reversed.  A detailed explanation may be found in &lt;a href=&quot;http://www.ntrc.gov.ph/images/journal/j20121112a.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;this NTRC paper&lt;/a&gt; (see section III).&lt;/p&gt;&#xA;" OwnerUserId="1417" LastActivityDate="2018-03-24T18:42:34.060" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21181" PostTypeId="1" AcceptedAnswerId="21183" CreationDate="2018-03-24T20:25:09.280" Score="1" ViewCount="676" Body="&lt;p&gt;Under WTO domestic support norms, blue box measures include:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Direct payments under production limiting programmes (often referred to as “Blue Box” measures) are exempt from commitments if such payments are made on fixed areas and yield or a fixed number of livestock. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;These are also referred to as production limiting subsidies? Why would governments want to limit production? And isn't subsidy usually aimed at increasing production?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Reference: &lt;a href=&quot;https://www.wto.org/english/tratop_e/agric_e/ag_intro03_domestic_e.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.wto.org/english/tratop_e/agric_e/ag_intro03_domestic_e.htm&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="14660" LastActivityDate="2018-03-25T09:54:57.630" Title="What are production limiting programmes?" Tags="&lt;international-trade&gt;&lt;subsidies&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21182" PostTypeId="2" ParentId="21178" CreationDate="2018-03-25T05:31:41.123" Score="5" Body="&lt;p&gt;Daron Acemoglu, in a paper called &lt;a href=&quot;https://economics.mit.edu/files/5608&quot; rel=&quot;nofollow noreferrer&quot;&gt;Theory, General Equilibrium and Political Economy in Development Economics&lt;/a&gt;, discusses the role of economic theory in empirical work in development economics, which investigates the causes of poverty and low incomes. He puts a special emphasis on &lt;strong&gt;general equilibrium&lt;/strong&gt; considerations. He discusses why counterfactual analysis based on microdata that ignores general equilibrium issues may lead to misleading conclusions. In particular, depending on magnitudes of various effects, general equilibrium interactions can offset or even reverse sensible partial equilibrium conclusions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;The importance of general equilibrium effects in theory&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Acemoglu considers three important types of general equilibrium effects, which are usually not estimated in partial equilibrium comparisons: &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;In response to large policy interventions or shocks, imperfect&#xA;substitution between factors and diminishing returns imply that&#xA;factor productivities and prices will change.  &lt;/li&gt;&#xA;&lt;li&gt;The same policy interventions or shocks can lead to endogenous technology responses. &lt;/li&gt;&#xA;&lt;li&gt;There may be composition effects resulting from equilibrium substitution of some factors or products for others.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;The importance of general equilibrium effects in practice&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Consider the large increase in the relative supply of college-educated workers in the United States starting in the late 1960s. Given technology, this change in relative supply should have reduced the college premium. As is well known, the opposite happened in practice, and the college premium increased sharply from the late 1970s onwards. This was a consequence of the endogenous response of technology to the relative abundance of more skilled workers.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;A large microeconometric literature shows that healthier individuals are more productive. On this basis, we would expect a greater aggregate productivity if health conditions improve. But one should take general equilibrium effects into account, since an increase in health conditions also increases population and longevity, and because of diminishing returns to capital and land, it may decrease labor productivity and may in fact reduce income per capita. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Other references&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://www.robertmtownsend.net/content/risk-and-insurance-village-india&quot; rel=&quot;nofollow noreferrer&quot;&gt;Townsend (2009)&lt;/a&gt; for a discussion of the role of general equilibrium analysis in development economics, with special emphasis on credit market issues;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://athena.sas.upenn.edu/petra/class792/hltarticle.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Heckman, Lochner and Taber (1998)&lt;/a&gt; for a discussion of general equilibrium issues in the analysis of the effects of technology on wage inequality.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="6168" LastEditorUserId="6168" LastEditDate="2018-03-25T09:29:13.797" LastActivityDate="2018-03-25T09:29:13.797" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="21183" PostTypeId="2" ParentId="21181" CreationDate="2018-03-25T09:54:57.630" Score="2" Body="&lt;p&gt;Subsidies are often primarily aimed at increasing the income of the agricultural sector  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;When subsidies lead to increases in production, this can cause the market price to fall with negative effects on agricultural incomes, with much of the benefit flowing through to consumers rather than farmers.  This then leads to calls for further subsidies&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To avoid a spiral of increasing subsidies, governments will often move to a stage which restricts production, and one possibility is to tie the subsidies to given levels of production (often based on previous levels of production or on fixed assumptions about areas and yields), either not paying subsidies on production above some stated level or, in more extreme cases, withdrawing subsidies if production exceeds a quota &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The aim of such production-limiting subsidies is to maintain subsidies at a level which is sustainable both in terms of market prices and government expenditure.  It is in fact a double distortion of the domestic market, both through the subsidies and through the production-limiting elements, but was deemed to be less distorting of international trade than unlimited production-based subsidies   &lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2018-03-25T09:54:57.630" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="21184" PostTypeId="1" CreationDate="2018-03-25T11:49:23.367" Score="2" ViewCount="56" Body="&lt;p&gt;I'm looking for economic data on China's main sectors (output, factor prices etc). I haven't really seen anything with a long sample -- with the possible exception of Cheremukhin/Golosov/Guriev/Tsyvinski (2015). The Economy of&#xA;People’s Republic of China from 1953. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does anyone know if there are any good sources available? thanks.&lt;/p&gt;&#xA;" OwnerUserId="17789" LastActivityDate="2018-03-26T07:05:04.017" Title="China: sectoral data" Tags="&lt;data-request&gt;&lt;china&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21185" PostTypeId="2" ParentId="21177" CreationDate="2018-03-25T12:01:59.133" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Prediction is difficult, especially about the future. &lt;em&gt;(Berra, Goldwyn, Bohr et al.)&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The problem with noting that recessions often occur immediately after low periods of unemployment is that you do not now at the time that it was a low rather than a pause.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are several occasions when unemployment appeared to stop falling but which were not immediately followed by recession.  Consider for example 1963, 1967, 1976, 1985, 1995, 2003 in your first linked FRED chart.  Once unemployment shoots up, you are probably in a recession and so do not need to predict &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Potential GDP is even harder to quantify meaningfully, as it is based on &lt;em&gt;&quot;the output the economy would produce with a high rate of use of its capital and labor resources.&quot;&lt;/em&gt;  So if unemployment falls below levels previously thought typical before leading to inflation and high interest rates, this can lead to a suggestion that GDP is exceeding its potential; unemployment is certainly now well below what the Federal Reserve recently thought was possible.  But this may merely mean that the judgement of what was typical was wrong: interest rates are still historically low, and inflation is not accelerating, while the fiscal position is loosening&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Looking at your second linked FRED chart, actual GDP exceeding potential GDP can happen several years before a recession, or immediately before, or even not happen at all.  So it is not a precise signal&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So you may be correct that a recession is looming, or you may be wrong and it is several years away.  Welcome to macroeconomic forecasting    &lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2018-03-25T12:01:59.133" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="21186" PostTypeId="1" CreationDate="2018-03-25T12:47:46.043" Score="2" ViewCount="96" Body="&lt;p&gt;In the &lt;a href=&quot;https://www.youtube.com/watch?v=jmsPn679o5k&quot; rel=&quot;nofollow noreferrer&quot;&gt;lecture&lt;/a&gt; given by Jon Gruber at MIT, he talks about the governmental regulations on monopolies, and he states that&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;(in short)&lt;/p&gt;&#xA;&lt;p&gt;for government to regulate a monopoly, it needs to know the price of&#xA;that good in the case of a perfectly competitive market.However, in&#xA;reality, the government does not know the demand and supply curve.&#xA;Nevertheless, to get the demand curve the government can do&#xA;experiments on the consumer and get the demand curve.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;If so, can't the government do experiment on the monopolist ? I mean, it can set a price first, and then change the price. Doing so, observing how much the firm produce, we can learn the supply curve of the monopolist. Of course, this would in some sense be not logical, but in the long run, you the government could set all the monopolies in the optimal price.&lt;/p&gt;&#xA;&lt;p&gt;Moreover, if we look from a broader picture, this can be accomplished more easily by cooperation of different governments on collecting the data.&lt;/p&gt;&#xA;" OwnerUserId="15670" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2018-03-25T17:26:20.863" Title="Can't government experiment on price in the case of a monopoly?" Tags="&lt;microeconomics&gt;&lt;monopoly&gt;&lt;government&gt;&lt;regulation&gt;" AnswerCount="1" CommentCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="21190" PostTypeId="1" CreationDate="2018-03-25T17:07:56.087" Score="1" ViewCount="27" Body="&lt;p&gt;It is my understanding that, while any entity can create dollar-denominated assets (stocks and bonds) and sell them on the open market, only banking institutions in the United States can engage in fractional reserve banking and thus truly increase the supply in US Dollar funds.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These funds are liabilities of the banking system as a whole to deposit holders and I am certain must be regulated in some way. What does an institution need to do to have this powerful ability to create new USD funds? Is it to be part of the Federal Reserve System? Is it to join the FDIC -- some state banks are outside the Federal Reserve System? Is it to be subject to other regulations and requirements to take deposits at all?&lt;/p&gt;&#xA;" OwnerUserId="17792" LastActivityDate="2018-03-25T17:07:56.087" Title="What qualifications does a bank need to create USD funds?" Tags="&lt;banking&gt;" AnswerCount="0" CommentCount="6" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21191" PostTypeId="2" ParentId="21163" CreationDate="2018-03-25T17:25:17.920" Score="5" Body="&lt;p&gt;Although I disagree with von Mises, he was reacting to what he saw as a very real problem, which was the use of relatively primitive statistical methods to describe behavior.  In fact, Leonard Jimmie Savage's work on probability and statistics should have been sufficient to meet his objections, although the computational speed would not have yet existed for that to have been worthwhile.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The challenge the Austrians have is that they are really arguing that no regularities exist in human behavior.  They do not see it that way, but probability and statistics are about the discovery of regularities.  Their position is that humans are too unique to be subject to statistical measurement.  All of economics could be solved axiomatically, in his understanding.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would agree with him, as long as you got every axiom correct and the set was complete and properly partitioned for all possible cases.  Of course, the only way you could know that would be empirically and that would defeat his argument.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Although other branches of economics use axiomatic assertions, they then check to see if the predicted behavior really happens that way.  If so the axioms are at least not disconfirmed.  Most assumptions are also things nobody would disagree with.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, there is a proposition that humans prefer some things to other things.  If you also assume that for any pairing of goods, we will call them x and y, then either y is not dispreferred to x or x is not dispreferred to y, or neither or dispreferred to each other. If you add transitivity where for all triples x,y,z then if x is not dispreferred to y and y is not dispreferred to z then z is not dispreferred to x.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If those conditions hold, then it can be shown by theorem that it must be true that a utility function exists such that if the utility of x is not less than the utility of y then y is not dispreferred to x.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If those assumptions do not hold, then something else is true, but if they do hold then the entire mathematical theory of functions opens up to economics.  With the addition of some other mild assumptions, then calculus becomes available.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These do not need empirical checking because it is the only possible outcome, by force of math.  To go much past this point, however, becomes tenuous.  For example, must some of these functions be concave or are there circumstances where they could be convex.  If they can be convex, do real-world examples of this convexity exist?  Do real-world examples of the concave case exist?  Are there forced implications from either case or the existence of both cases?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These questions can only be approached empirically.&lt;/p&gt;&#xA;" OwnerUserId="11321" LastActivityDate="2018-03-25T17:25:17.920" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21192" PostTypeId="2" ParentId="21186" CreationDate="2018-03-25T17:26:20.863" Score="1" Body="&lt;p&gt;If I understand your question correctly, you are proposing that the government sets prices and observes the behavior of market actors to elicit the demand and supply functions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I see two possible concerns: &lt;br&gt;&#xA;Unless the monopoly is obligated to serve all customers, the market may not be in equilibrium, full demand may not be observed.&#xA;Similarly the government would have to buy any unsold goods, otherwise&#xA;a too large $p$ could result supply being larger then demand, resulting in a loss for the monopoly.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The other concern is that the monopoly's behavior significantly affects the government's observations. It could potentially benefit by behaving suboptimally now and earning more in the regulated future. One way it could do that is to make the government believe it has higher costs by supplying lower quantities given any price $p$.&#xA;&lt;br&gt;-While I was writing this answer, @Dan has posted the same idea in a comment.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2018-03-25T17:26:20.863" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="21194" PostTypeId="2" ParentId="21155" CreationDate="2018-03-25T18:09:32.663" Score="1" Body="&lt;p&gt;It could be a sustainable economic policy.  It depends.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assuming your government doesn't have a big budget surplus, it will have to replace revenue lost from tariffs -- i.e. raise other taxes.  Most taxes are distortionary, i.e. discourage productive economic behaviour.  Especially for less developed countries and countries with weaker international transport links (including islands), tariffs tend to be cheaper and easier to collect than a lot of other taxes.  They also have an implicit progressive bias towards taxing luxuries, and can be given a more explicit one quite easily.  So the main and most obvious reason not to abolish tariffs is the difficulty of finding something better to replace them with.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As you say, there are benefits too: the inherent benefits of greater trade volumes, and the competitive benefit of cheaper imported inputs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When you ask your final question, this is really about the game theory of tariff reductions.  I'd suggest modelling the situation like this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your country gains a &lt;em&gt;small amount&lt;/em&gt; from abolishing its own tariffs (this is arguable but assume it for now).  It gains a &lt;em&gt;lot&lt;/em&gt; from your next door neighbour abolishing theirs, because that would help your export industries (this is not controversial).  You don't know whether your neighbour would gain or lose from abolishing its own tariffs, but you know they would benefit from you ditching yours.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What would you do in this situation?  Your main objective is to get your neighbour to get rid of their tariffs, and you know that their main objective is to persuade you to get rid of yours.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You could unilaterally abolish your tariffs, but there goes all your bargaining power.  You have no idea whether your neighbour will want to reciprocate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A better strategy is to offer to abolish your tariffs in exchange for your neighbour doing the same.  That's the history of bilateral trade agreements.  In a world with lots of countries, you might find this ends up being a lot of work, and wish there was some way of simplifying things.  That's GATT and the WTO.&lt;/p&gt;&#xA;" OwnerUserId="16631" LastActivityDate="2018-03-25T18:09:32.663" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21195" PostTypeId="2" ParentId="21184" CreationDate="2018-03-25T18:20:15.450" Score="1" Body="&lt;p&gt;Good data sources from China are hard to come by. For official data, you can find nearly all available data series through the company called &lt;a href=&quot;https://www.ceicdata.com/en&quot; rel=&quot;nofollow noreferrer&quot;&gt;CEIC&lt;/a&gt;, although this is somewhat expensive. In general, the history of many of these series doesn't go very far back either, since it is only in the last decade or two that China has really become serious about collecting economic data. If you want something that goes back to before 1990 or so, there are perhaps academic sources that do this (I don't know them), though this data will probably be based on very rough estimates in that case.&lt;/p&gt;&#xA;" OwnerUserId="16591" LastEditorUserId="42" LastEditDate="2018-03-26T07:05:04.017" LastActivityDate="2018-03-26T07:05:04.017" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="21196" PostTypeId="1" CreationDate="2018-03-25T21:32:20.083" Score="3" ViewCount="99" Body="&lt;p&gt;As an answer to &lt;a href=&quot;https://economics.stackexchange.com/questions/21137/what-does-to-be-in-the-double-digits-to-get-inflation-mean/21141#21141&quot;&gt;this question&lt;/a&gt;, it was stated that &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Economists believe that higher growth rates tend to also mean higher&#xA;  inflation rates.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;As a non macro-economist, I am wondering if this is true? Is there any clear evidence on this relationship?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Higher growth may lead to higher demand and inflation but I guess this happens only if supply does not adjust and prices are not sticky. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reverse causality running from &lt;a href=&quot;https://economics.stackexchange.com/questions/3317/inflation-and-economic-growth&quot;&gt;inflation to economic growth&lt;/a&gt; does not seem to have much empirical support due to identification issues. &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Moreover, &lt;a href=&quot;http://www.benoitmojon.com/pdf/Global-Inflation-REStat-proofs.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;this paper&lt;/a&gt; shows that inflation in industrialized countries is largely a global phenomenon. The results provide a good starting point for exploring the hypothesis that inflation should, to some extent, be modeled as a global rather than a local phenomenon. I would interpret these results as going against a connection between (local) economic growth and inflation.&lt;/p&gt;&#xA;" OwnerUserId="6168" LastEditorUserId="6168" LastEditDate="2018-03-26T20:15:07.223" LastActivityDate="2018-03-26T20:15:07.223" Title="Does Economic Growth Lead to Inflation?" Tags="&lt;macroeconomics&gt;&lt;inflation&gt;&lt;economic-growth&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21197" PostTypeId="2" ParentId="21184" CreationDate="2018-03-25T22:55:57.620" Score="0" Body="&lt;p&gt;If you check data.workdbank.org, then go to the &quot;databank&quot;, you can select &quot;World Development Indicators&quot; (WDIs). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then you can select China, and searching for &quot;value added&quot; within your browser you can get a variety of measures of agriculture, manufacturing, services and industry (e.g., % of GDP, in USD). The time series goes back long before 1990.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Even if not disaggregated enough for what you want to do, it could be useful as a point of comparison.&lt;/p&gt;&#xA;" OwnerUserId="16499" LastActivityDate="2018-03-25T22:55:57.620" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21198" PostTypeId="2" ParentId="5800" CreationDate="2018-03-26T03:07:24.777" Score="0" Body="&lt;p&gt;Machines are capital goods and are thus an investment by the firm.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are three ways to define GDP:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Expenditure approach:  The final products in this economy are cars and machines (which are capital goods); steel, and tires are intermediate products. So Consumption (of cars) is 5000. Of this amount, 1000 is exported (NX), so 4000 must be consumed domestically (C). Machines are capital goods and are thus an investment by the car firm. Hence I is 2000. There is no information about G, so we must assume it is zero. so GDP is 5000 + 2000= 7000&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Production approach (value added approach). The value added by a firm is obtained by subtracting the value of intermediate products from the transaction value (i.e. sales value of its product). The steel and tire producer are assumed to have no intermediates and so their value added is 4000 and 500. the machine producer sells the machine at 2000 but uses 1000 worth of steel in production. Therefore, its value added is 2000 - 1000 = 1000. The car producer sells its output at 5000 but its intermediates are steel worth 3000 and tires worth 500. Thus its value added is 1500. Aggregating the value added by each firm gives, 4000 + 500 +1000 + 1500 = 7000.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Income approach. Firms ultimately distribute their revenue back to households through factor payments (e.g. wages, profits etc). Thus the money left after firms pay for their intermediate goods is ALL paid to households as wages, profits and so on. Thus value of the income paid by a firm equals the value added. So aggregating the factor payments by each firm (i.e. household incomes) will still equal 7000.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that the above explanation gives you all the information you need to complete the table you mentioned.&lt;/p&gt;&#xA;" OwnerUserId="17794" LastEditorUserId="17794" LastEditDate="2018-03-26T03:32:50.973" LastActivityDate="2018-03-26T03:32:50.973" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21200" PostTypeId="1" CreationDate="2018-03-26T08:53:42.897" Score="1" ViewCount="10" Body="&lt;p&gt;i have a rather methodological question. I have a theoretical model and to test it I run some simulations. Because some parametervalues are not entirely clear or are up for debate I want to do a sensitivity analysis. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For this I use a one-at-a-time sensitivity analysis and change only one variable at a time. My question is the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When running such a sensitivity analysis is it acceptable to show the &quot;boundaries&quot; of the model parameters, i. e. as the question &quot;For which values are the results of the model in line with empirical research and for which values do I get unrealistic results?&quot; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And my second question (I use an example to make things clear): In my base Model I use a interest elasticity of -0.25 which is based on an empirical study by Chrinko et al. 1999. I know that there are a lot of studies on interest elasticity with results ranging between 0 and -1. Should I use the entire range of this results for my sensitivity analysis and is it bad if I show that my model works for some data (i. e. for -0.25 and -1 but not for 0?)          &lt;/p&gt;&#xA;" OwnerUserId="16436" LastActivityDate="2018-03-26T08:53:42.897" Title="Sensitivity Analysis" Tags="&lt;economic-methodology&gt;&lt;scientific-method&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21201" PostTypeId="2" ParentId="21144" CreationDate="2018-03-26T09:28:51.837" Score="2" Body="&lt;p&gt;Just to add a basic point not mentioned in other answers.  Payroll taxes relate specifically to circumstances involving employers and employees.  Income taxes apply to income from employment, but also to income from other sources which (depending on a country's tax rules) may include self-employment, pensions, savings and investments, property rents, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This makes a significant difference to the incentive effects of the two types of tax. In particular, a payroll tax can create an incentive for workers to become self-employed and/or for their 'employers' to encourage them to do so. As a consequence it makes it important for the authorities to define clearly the criteria under which a worker is deemed to be an employee or self-employed (in the UK for example the criteria are as outlined &lt;a href=&quot;https://www.gov.uk/employment-status/selfemployed-contractor&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;).&lt;/p&gt;&#xA;" OwnerUserId="1417" LastActivityDate="2018-03-26T09:28:51.837" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21204" PostTypeId="2" ParentId="179" CreationDate="2018-03-26T13:32:50.447" Score="1" Body="&lt;p&gt;&lt;strong&gt;Regarding income inequality:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Economists used to rely on household surveys in which individuals (or households) reported their earnings, social benefits, etc. Although this is still done, recent studies rely more and more on the income data recorded in the tax files due to its larger coverage and accuracy (especially at the top of the distribution).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can find the most complete historic series of income (&amp;amp; wealth) inequality based on tax records in the World Wealth and Income Inequality Database:&#xA;&lt;a href=&quot;http://wid.world/fr/accueil/&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://wid.world/fr/accueil/&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Other sources to compare income inquality and poverty levels across countries and time are:&#xA;- The World Bank: &lt;a href=&quot;https://data.worldbank.org/&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://data.worldbank.org/&lt;/a&gt;&#xA;- The UNU-WIDER World Income Inequality Database: &lt;a href=&quot;https://www.wider.unu.edu/project/wiid-world-income-inequality-database&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.wider.unu.edu/project/wiid-world-income-inequality-database&lt;/a&gt;&#xA;- The Standardized World Income Inequality Database&#xA;&lt;a href=&quot;http://fsolt.org/swiid/&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://fsolt.org/swiid/&lt;/a&gt;&#xA;- Branko Milanovic's data of Gini coefficients in 1950-2022 for 170 countries: &lt;a href=&quot;http://econ.worldbank.org/WBSITE/EXTERNAL/EXTDEC/EXTRESEARCH/0,,contentMDK:22301380~pagePK:64214825~piPK:64214943~theSitePK:469382,00.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://econ.worldbank.org/WBSITE/EXTERNAL/EXTDEC/EXTRESEARCH/0,,contentMDK:22301380~pagePK:64214825~piPK:64214943~theSitePK:469382,00.html&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For nice visualizations over time you can see Gap Minder:&#xA;- &lt;a href=&quot;https://www.youtube.com/watch?v=jbkSRLYSojo&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.youtube.com/watch?v=jbkSRLYSojo&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Regarding intergenerational income mobility (~social mobility):&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first studies of intergenerational income mobility (i.e. how income levels compare across several generations) relied on household surveys in which retrospective information about parents' income was collected. Then, panel surveys started to be used when they had a sufficient coverage (panel surveys  follow the same individuals -and often their children- over time). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some examples of long-panels available are: &#xA;- PSID for the US (1968-Today): &lt;a href=&quot;https://psidonline.isr.umich.edu/&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://psidonline.isr.umich.edu/&lt;/a&gt; &#xA;- BCS for the UK (1970-Today): &lt;a href=&quot;https://bcs70.info/&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://bcs70.info/&lt;/a&gt;&#xA;- BHPS for the UK (1991-Today): &lt;a href=&quot;https://www.iser.essex.ac.uk/bhps&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.iser.essex.ac.uk/bhps&lt;/a&gt;&#xA;- SOEP for Germany (1984-Today): &lt;a href=&quot;https://www.diw.de/en/soep&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.diw.de/en/soep&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the last decades some studies of intergenerational mobility have also used income data coming from tax records, linking the files of parents' and their children (see the pioneering work of Miles Corak (1999) for Canada). That is the kind of data that Chetty and coauthors have used.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Gregory Clark and coauthors have been relying on rare surnames and their over-representation in top institutions (e.g. Cambridge and Oxford) to track social mobility over centuries. You can check this work in his website.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Just mentioning that there are works looking at intergenerational mobility of other dimensions besides income, such as wealth (e.g. Clark and Cummins, 2015), educational attainment (e.g. Lindhal et al., 2015), or even attitudes (Dohmen et al., 2011).&lt;/p&gt;&#xA;" OwnerUserId="292" LastActivityDate="2018-03-26T13:32:50.447" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21205" PostTypeId="1" CreationDate="2018-03-26T13:40:14.500" Score="0" ViewCount="73" Body="&lt;p&gt;As far as I understand, the second welfare theorem says that all Pareto-optimal allocations can be reached by market equilibrium on free competitive markets.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Yet it seems that this understanding is not without problems. I will provide you with an example:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are two sides, Americans and British. Americans prefer airplanes over bombs and British prefer bombs over airplanes. There are no money, only barter between them. Let's suppose that initially Americans have 100 airplanes and 100 bombs, while British can suggest nothing in return because they have neither airplanes nor bombs. This is Pareto-optimal situation, yet it's unclear for me how we can end up here due to market equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;P.S. Americans receive positive utility from bombs and British receive positive utility from airplanes.&lt;/p&gt;&#xA;" OwnerUserId="4979" LastEditorUserId="4979" LastEditDate="2018-03-26T20:06:35.583" LastActivityDate="2018-03-26T20:06:35.583" Title="Do I understand the second welfare theorem correctly?" Tags="&lt;general-equilibrium&gt;&lt;pareto-efficiency&gt;&lt;welfare-economics&gt;&lt;competitive-equilibrium&gt;&lt;welfare&gt;" AnswerCount="0" CommentCount="5" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21206" PostTypeId="1" CreationDate="2018-03-26T14:23:19.077" Score="4" ViewCount="115" Body="&lt;p&gt;In the one-step binomial model...&lt;/p&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;&lt;strong&gt;Question 1:&lt;/strong&gt; What exactly is a '&lt;span class=&quot;math-container&quot;&gt;$\frac{d \mathbb Q}{d \mathbb P}$&lt;/span&gt;'?&lt;/p&gt;&#xA;&lt;p&gt;I think it's &lt;span class=&quot;math-container&quot;&gt;$\frac{d \mathbb Q}{d \mathbb P} = \frac{q_u}{p_u}1_u + \frac{q_d}{p_d}1_d$&lt;/span&gt;, so it's some asset with payoffs &lt;span class=&quot;math-container&quot;&gt;$\frac{q_u}{p_u}$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\frac{q_d}{p_d}$&lt;/span&gt;, expected value of 1 and replicating portfolio &lt;span class=&quot;math-container&quot;&gt;$(x,y)$&lt;/span&gt; of&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$x=\frac{1}{1+R}\frac{u(\frac{q_d}{p_d})-d(\frac{q_u}{p_u})}{u-d}$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$y=\frac{1}{S_0}\frac{\frac{q_u}{p_u}-\frac{q_d}{p_d}}{u-d}$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;This seems to be some replicating portfolio that is expected to payoff 1 at &lt;span class=&quot;math-container&quot;&gt;$t=1$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;p&gt;Well, &lt;span class=&quot;math-container&quot;&gt;$(x,y)=(\frac{1}{1+R},0)$&lt;/span&gt; seems to give the same payoff but with -100% lower risk&lt;/p&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;&lt;strong&gt;Question 2:&lt;/strong&gt; What exactly is a/an '&lt;span class=&quot;math-container&quot;&gt;$X\frac{d \mathbb Q}{d \mathbb P}$&lt;/span&gt;'?&lt;/p&gt;&#xA;&lt;p&gt;We could say that the price of X uses not&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$E[X] = X_up_u+X_dp_d$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;but rather&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$E^{\mathbb Q}[X] = E[X\frac{d \mathbb Q}{d \mathbb P}] = X_u\frac{q_u}{p_u}p_u + \frac{q_d}{p_d}p_d$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;I guess it's some asset that pays &lt;span class=&quot;math-container&quot;&gt;$X_u\frac{q_u}{p_u}$&lt;/span&gt; or &lt;span class=&quot;math-container&quot;&gt;$X_d\frac{q_d}{p_d}$&lt;/span&gt; then replicating portfolio is...then idk. Not sure we need one since we're using real world probabilities anyhoo&lt;/p&gt;&#xA;" OwnerUserId="4483" LastEditorUserId="4483" LastEditDate="2020-07-25T08:19:49.657" LastActivityDate="2020-07-25T08:19:49.657" Title="One-step Binomial model's Radon-Nikodym derivative" Tags="&lt;mathematical-economics&gt;&lt;finance&gt;&lt;probability&gt;&lt;asset-pricing&gt;&lt;stochastic-calculus&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="21207" PostTypeId="1" CreationDate="2018-03-26T11:50:20.670" Score="1" ViewCount="59" Body="&lt;p&gt;How can I calculate market risk for the US Stock Market (NYSE or NASDAQ) using only freely accessible data? I'm only interested in the market risk of the whole economy not of different industries, companies or sub-sectors. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Somebody suggested to me to download market index data and construct the volatility as a measure of market risk. But I can't find a proper explanation how I do this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you.    &lt;/p&gt;&#xA;&#xA;&lt;p&gt;p.s. Is the following procedure correct?:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I get data US Stock market (for example &lt;a href=&quot;https://fred.stlouisfed.org/series/SP500&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://fred.stlouisfed.org/series/SP500&lt;/a&gt;) calculate the growth rate and in the last step I compute the variance of the growth rate to get the market risk?&lt;/p&gt;&#xA;" OwnerUserId="16436" OwnerDisplayName="PAS" LastEditorUserId="16436" LastEditDate="2018-03-26T17:33:33.790" LastActivityDate="2018-03-28T07:09:30.697" Title="How to estimate market risk using only publicly available data?" Tags="&lt;finance&gt;&lt;risk&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="21208" PostTypeId="2" ParentId="21127" CreationDate="2018-03-26T17:04:46.683" Score="3" Body="&lt;p&gt;This is just an extended remark:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $\Delta$ be the space of Borel probability measures on $[0,1]$. An equilibrium can be represented as an element of $\Delta^2=\Delta\times\Delta$. A two player game with continuous payoff-functions with action spaces $[0,1]$ can be viewed as an element of $C[0,1]^2\times C[0,1]^2$, where $C[0,1]^2$ is the space of continuous functions (here representing payoff functions) from $[0,1]^2=[0,1]\times[0,1]$ to the reals, endowed with the topology of uniform convergence, given by the $\sup$-norm $\|\cdot\|_\infty$ defined by&#xA;$$\|f\|_\infty=\sup_{x\in [0,1]} |f(x)|=\max_{x\in [0,1]} |f(x)|.$$&#xA;One defines $C[0,1]$ similarly.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is also a well-behaved metrizable compact topology on $\Delta$, the topology of weak convergence (or weak*-topology); the coarsest topology such that the function $\mu\mapsto\int f~\mathrm d\mu$ is continuous for each $f\in C[0,1]$. In this context, convergence in this topology is convergence of cumulative distribution functions at continuity points. We let $\Delta^*$ be the set of Borel probability measures on $[0,1]\times [0,1]$, similarly endowed with the topology of weak convergence.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can then define an equilibrium correspondence $$\eta:C[0,1]^2\times C[0,1]^2\to 2^{\Delta\times\Delta}$$&#xA;such that $\eta(v,u)$ is the set of equilibria given the payoff-functions $u$ and $v$. The correspondence has nonempty values by a theorem of Glicksberg. Since $\Delta\times\Delta$ is compact, we can show that $\eta$ is upper hemicontinuous by showing it has a closed graph.  The function $p:\Delta\times\Delta\to\Delta^*$ that maps mixed strategies to their independent product is continuous (see Billingsley's book on weak convergence). It follows, using a bit of analysis, that the &quot;expected payoff&quot;-function $k_i:\Delta\times\Delta\times C[0,1]^2\to\mathbb{R}$ is continuous for $i=1,2$. Now for each $\mu\in\Delta$, let &#xA;$$E_\mu^1 \{(v,u,\nu,\tau)\in \Delta\times\Delta\times C[0,1]^2\times C[0,1]^2\mid k_1(\nu,\tau,v)\geq k_1(\mu,\tau,v)\}$$&#xA;and&#xA;$$E_\mu^2 \{(v,u,\nu,\tau)\in \Delta\times\Delta\times C[0,1]^2\times C[0,1]^2\mid k_2(\nu,\tau,u)\geq k_1(\nu,\mu,u)\}.$$ Each of these sets is closed and the graph of $\eta$ is simply&#xA;$$\bigcap_{\mu\in\Delta}E_\mu^1\cap \bigcap_{\mu\in\Delta}E_\mu^2,$$&#xA;a closed set, so $\eta$ is upper hemicontinuous.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now this doesn't tell us anything about what happens if payoff functions converge pointwise and not uniformly!!! The only useful information is that strategy spaces are compact, so there will still be a convergent subsequence. If you can show that this subsequence must converge to your candidate equilibrium- this will require making use of the details of the game, you should be good to go.&lt;/p&gt;&#xA;" OwnerUserId="1442" LastEditorUserId="42" LastEditDate="2018-03-26T17:41:47.817" LastActivityDate="2018-03-26T17:41:47.817" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21209" PostTypeId="1" AcceptedAnswerId="21213" CreationDate="2018-03-26T17:14:47.210" Score="0" ViewCount="59" Body="&lt;p&gt;&lt;a href=&quot;https://twitter.com/thesiriusreport/status/976166420596908032&quot; rel=&quot;nofollow noreferrer&quot;&gt;The Sirius Report tweets&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Surprises me how anyone imagines that #Russia only has 1800+ tons. &lt;strong&gt;Just look at the fact that they never export #gold production&lt;/strong&gt; and what they have annually produce for years. That is just for starters,&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Soviet Union aside, from &lt;a href=&quot;https://en.wikipedia.org/wiki/List_of_countries_by_gold_production&quot; rel=&quot;nofollow noreferrer&quot;&gt;wiki&lt;/a&gt;, we see that gold production in Russia (graph) seems to have stayed above 100 metric tons a year (minimum of 100 x 20 years would be 2000).  I can't find any support for &quot;Russia doesn't allow gold exports&quot; or that they've ever done this, though it's possible they did this during the Soviet Era.  I can find Russian gold coins (latest year) on GovMint, so it seems like they are allowing non-Russians to buy gold, or is this gold from other countries?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there any evidence that Russia does not allow gold exports and circumstances which may warrant exceptions?&lt;/p&gt;&#xA;" OwnerUserId="17807" LastActivityDate="2018-03-27T00:22:29.463" Title="Does Russia Prevent Gold Exports?" Tags="&lt;international-trade&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21212" PostTypeId="1" AcceptedAnswerId="21217" CreationDate="2018-03-26T20:20:47.223" Score="3" ViewCount="1285" Body="&lt;p&gt;Many firms in the United States file for bankruptcy every year, yet they still continue operating. Why would they do this instead of completely shutting down?&#xA;Well, obviously there's a reason behind this like it's less costly somehow. But I can't understand it completely, though. &#xA;Can anyone explain this, please?&lt;/p&gt;&#xA;" OwnerUserId="16518" LastActivityDate="2018-03-27T11:06:40.177" Title="Why bankrupt firms continue to operate?" Tags="&lt;microeconomics&gt;&lt;competition&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="21213" PostTypeId="2" ParentId="21209" CreationDate="2018-03-27T00:22:29.463" Score="1" Body="&lt;p&gt;No, there is no such evidence, because Russia does export gold, though it also adds to its reserves&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example Sputnik News (established by the Russian government-controlled news agency Rossiya Segodnya) &lt;a href=&quot;https://sputniknews.com/russia/201803061062261032-gold-exports-russia/&quot; rel=&quot;nofollow noreferrer&quot;&gt;reported&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Exports of fine gold from Russia increased 2,5 times to 56,6 tons (1,82 million oz) last year, compared to 22,4 tons in 2016, according to the Russian State Assaying Chamber under the Ministry of Finance.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;...&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Russia's precious metals refineries reportedly produced 306,9 tons (9,867 million oz) of gold in 2017, which is 6,4 percent more than 288,6 tons produced in 2016. 18,4 percent of all the gold produced in the country was exported, while the rest 224 tons of the metal were purchased by the Central Bank of Russia to add to the country's gold and foreign currency reserves, RIA Novosti reported.  &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;...&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&quot;The exports (of gold) in 2017 were not as high as they were in 2014 — 140 tons&quot;, the expert told RIA Novosti.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2018-03-27T00:22:29.463" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21217" PostTypeId="2" ParentId="21212" CreationDate="2018-03-27T11:06:40.177" Score="10" Body="&lt;p&gt;Declaring bankruptcy is a way to prevent creditors from seizing assets and pursuing lawsuits to recover what they are owed in a piecemeal fashion. It forces all parties to wait for a judgement that determines in what fashion various classes of creditors will be repaid.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the United States, there are two main ways a private firm goes bankrupt - known as Chapter 7 and Chapter 11 (chapters of the bankruptcy act).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a Chapter 11 bankruptcy, the firm aims to reorganise its debts. The typical outcome is that the original equity holders lose almost all control of the firm as subordinated debtors have their claims converted into equity claims. Other debtors may get paid only a percentage of their claim, or they are given new debt. What happens is determined by negotiation among the major creditors and firm management, overseen by the bankruptcy judge. By lowering the debt burden of the firm (and possibly eliminating pension obligations that cannot be sustained), the firm is hoped to then be profitable, and able to pay back the remaining debts.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Chapter 7 bankruptcy is a liquididation. All assets are sold, and then the proceeds are used to pay off debtors. However, the liquidation value of most assets is far below their carrying cost on the balance sheet, and so the recovery values are extremely low. The exceptions might be things like real estate, which another firm might be able to use in a more profitable fashion. From the prospective of creditors, the recovery value is typically much lower in a liquidation (barring special cases) - look at the prices for clothing in liquidation sales versus normal retail price. Industrial equipment is specialised, and the buyers know that this is a liquidation, and so they will only bid if prices are extremely cheap versus new equipment. However, if a firm tried Chapter 11 and fails to recover, it is more likely to give up and liquidate the next time.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2018-03-27T11:06:40.177" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21218" PostTypeId="2" ParentId="21177" CreationDate="2018-03-27T14:48:16.580" Score="1" Body="&lt;p&gt;Identifying business cycles or short/medium fluctuations of an economy can be quite hard.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In business cycle theory it's pretty common to use the Hodrick-Prescott-Filter to identify short term (cyclical) fluctuations in gdp. The Hodrick-Precsott-Filter is in principle a bandpass filter that separates short term and long term fluctuations from each other. At the end the trend (or potential) gdp is like a line drawn by hand through the raw data (at least this is what Hodrick and Prescott are saying). But the Hodrick-Prescott filter itself and the theory behind it is not undisputed and in most cases people just use the filter because other people do (at least thats my experience and I made this mistake myself countless times).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In general, there are other filters you could use that are often better than the Hodrick-PRescott Filter. For example the Baxter-King Filter, different kinds of Kalman-Filters or just a moving average. But if you don't want to spend a lot of time thinking about these things I would suggest some different methods/indicators.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;GDP:&lt;/strong&gt;&#xA;A basic rule of thumb for a recession is a decline in real GDP for more than two quarters; this is a not so official procedure used by the NBER (&lt;a href=&quot;http://nber.org/cycles/recessions_faq.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://nber.org/cycles/recessions_faq.html&lt;/a&gt;). Another method you could use would be this graph: &lt;a href=&quot;https://fred.stlouisfed.org/series/GDPC1#0&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://fred.stlouisfed.org/series/GDPC1#0&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Unemployment:&lt;/strong&gt; &#xA;In my opinion unemployment is not so good because it often increases after a recession for some months while.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Capital utilization:&lt;/strong&gt;&lt;br&gt;&#xA;In my opinion one of the best indicators: &lt;a href=&quot;https://fred.stlouisfed.org/series/TCU&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://fred.stlouisfed.org/series/TCU&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Smoothed U.S. Recession Probabilities&lt;/strong&gt; &#xA;&lt;a href=&quot;https://fred.stlouisfed.org/series/RECPROUSM156N&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://fred.stlouisfed.org/series/RECPROUSM156N&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Maybe I will increase the list in the next days. &lt;/p&gt;&#xA;" OwnerUserId="16436" LastActivityDate="2018-03-27T14:48:16.580" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21219" PostTypeId="1" CreationDate="2018-03-27T14:56:19.093" Score="-1" ViewCount="35" Body="&lt;p&gt;how do you calculate unemployment rate from wage rate?&lt;/p&gt;&#xA;" OwnerUserId="17813" LastActivityDate="2018-03-28T01:41:22.273" Title="how do you calculate unemployment rate from wage rate?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" ClosedDate="2018-03-28T21:00:17.053" ContentLicense="CC BY-SA 3.0" />
  <row Id="21220" PostTypeId="2" ParentId="21207" CreationDate="2018-03-27T20:26:35.587" Score="2" Body="&lt;p&gt;This paper on &lt;a href=&quot;https://people.stanford.edu/nbloom/sites/default/files/jep_uncertainty.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Fluctuations in Uncertainty&lt;/a&gt; may be helpful and relevant. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The  volatility  of  the  stock  market  or  GDP  is  often  used  as  a  measure  of  uncertainty  because  when  a  data  series  becomes  more  volatile  it is  harder  to  forecast.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Computing the variance or standard deviation of the growth rate of a variable is quite a common procedure to get volatility figures.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/wpwxc.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/wpwxc.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The above figure shows the &lt;strong&gt;VIX index&lt;/strong&gt; of 30-day implied volatility on the Standard &amp;amp; Poor's 500 stock market index. The  VIX  index  is  traded  on  the  Chicago Board Options Exchange. It is constructed based on the values of a range of  call  and  put  options  on  the  Standard  &amp;amp;  Poor's  500  index  and  represents  the  &lt;strong&gt;&lt;em&gt;market's  expectation  of  volatility  over  the  next  30  day&lt;/em&gt;&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Other  common  measures&lt;/strong&gt;  of  uncertainty  include  forecaster disagreement, mentions of &quot;uncertainty&quot; in news,  and the dispersion of productivity shocks  to  firms. Check Bloom's web page and his &lt;a href=&quot;http://www.policyuncertainty.com/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Economic Policy Uncertainty Index&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="6168" LastEditorUserId="6168" LastEditDate="2018-03-28T07:09:30.697" LastActivityDate="2018-03-28T07:09:30.697" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="21222" PostTypeId="2" ParentId="21219" CreationDate="2018-03-28T01:41:22.273" Score="1" Body="&lt;p&gt;You cant. It may be possible to predict the unemployment level based on some type of regression analysis on the wage rate but there is no way to determine one from the other.&lt;/p&gt;&#xA;" OwnerUserId="10245" LastActivityDate="2018-03-28T01:41:22.273" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21223" PostTypeId="1" CreationDate="2018-03-28T04:23:56.277" Score="1" ViewCount="81" Body="&lt;p&gt;According to the Joint Committee on Taxation's JCX-68-17 Distributional Effects Of The Conference Agreement For H.R.1, The &quot;Tax Cuts And Jobs Act&quot;, there will be a significant increase in income tax for tax brackets under $50,000. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the chart titled DISTRIBUTIONAL EFFECTS OF THE CONFERENCE AGREEMENT FOR H.R.1, THE &quot;TAX CUTS AND JOBS ACT&quot; on the fifth page, it claims that by 2027 the tax bracket at $20,000-30,000 will have a 26.6% increase in Federal Taxes. Does anyone know how this increase was calculated. I'm having trouble finding what was referenced in the H.R.1 — 115th Congress (2017-2018) resolution to come up with these values. &lt;/p&gt;&#xA;" OwnerUserId="17817" LastActivityDate="2018-03-28T04:23:56.277" Title="How did the Joint Committee on Taxation calculate the distribution of individual income tax rate increases for the Tax Cuts and Jobs Act of 2017" Tags="&lt;taxation&gt;&lt;united-states&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21224" PostTypeId="1" AcceptedAnswerId="21228" CreationDate="2018-03-28T05:20:48.527" Score="1" ViewCount="67" Body="&lt;p&gt;Maybe, my question is a little chaotic. I want a mathematical model to describe the  arbitrage of a single commodity. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As I know , if I have much money, I can buy out or buy most of some commodity, such as apple. Then, the price of apple will go up.  Next, I sell my apple at high price. Seemly, I can make profit by this method. But, in fact, there are some question. When I bulk sell my apple, the price will decline quickly, so, I make profit a little or loss.  But if I slowly sell my apple, the new apple will be produced, the price decline too, although decline slow, but I need more time to sell my apple, as time go on, the price will return to normal, so I still make profit little. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Obviously, this process has not a clear expression by language. So, I guess there must be  a mathematical model to describe this process. What is the relation of supply, demand, price, and what is the best method of arbitrage ?  What paper or book I should read ? &lt;/p&gt;&#xA;" OwnerUserId="17818" LastActivityDate="2018-03-28T22:32:49.507" Title="Simple arbitrage model of a single commodity" Tags="&lt;mathematical-economics&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="21225" PostTypeId="1" AcceptedAnswerId="21226" CreationDate="2018-03-28T15:07:06.937" Score="2" ViewCount="59" Body="&lt;p&gt;Does anyone know where I can get a translated copy of Selten's original work on subgame perfection? &lt;/p&gt;&#xA;" OwnerDisplayName="user16020" LastActivityDate="2018-03-28T15:31:44.387" Title="Translated Selten Subgame Perfect Eqm Paper" Tags="&lt;reference-request&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="21226" PostTypeId="2" ParentId="21225" CreationDate="2018-03-28T15:31:44.387" Score="2" Body="&lt;p&gt;Do you mean this article?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Selten, R. &lt;a href=&quot;https://link.springer.com/article/10.1007/BF01766400&quot; rel=&quot;nofollow noreferrer&quot;&gt;Reexamination of the perfectness concept for equilibrium points in extensive games&lt;/a&gt;, Int J Game Theory (1975) 4: 25.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2018-03-28T15:31:44.387" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="21227" PostTypeId="1" AcceptedAnswerId="21230" CreationDate="2018-03-28T21:25:53.623" Score="3" ViewCount="110" Body="&lt;p&gt;So the scenario is as follows: there are 3 agents and 4 alternatives, $a,b,c,$ and $d$. Society's ranking of the 4 alternatives is such that &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;the highest-ranked alternative is agent 1's highest-ranked&#xA;  alternative,&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The alternative that agent 2 ranks highest among the three remaining alternatives is ranked second highest by society &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The alternative that agent 3 ranks highest among the two remaining alternatives is ranked third highest by society. &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Society ranks the 4th alternative lowest.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So my interpretation of the ranking would look something like this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/05pRG.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/05pRG.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which of Arrow's four desirable properties is violated?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm guessing that the &quot;Unanimity&quot; preference would be violated, because agent 2 prefers $b$ over $c$, but this is not reflected in society's ranking?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The four desired properties I am referring to are:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1/ Complete and transitive preferences&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2/ Respect unanimity&lt;/p&gt;&#xA;&#xA;&lt;p&gt;3/ Non-dictatorial outcomes&lt;/p&gt;&#xA;&#xA;&lt;p&gt;4/ Independence of irrelevant alternatives&lt;/p&gt;&#xA;" OwnerUserId="6782" LastEditorUserId="6782" LastEditDate="2018-03-29T00:35:24.620" LastActivityDate="2018-03-29T12:32:01.030" Title="Which of Arrow's four desirable properties' is violated in this scenario?" Tags="&lt;social-choice&gt;" AnswerCount="1" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="21228" PostTypeId="2" ParentId="21224" CreationDate="2018-03-28T22:32:49.507" Score="2" Body="&lt;p&gt;As I noted in the comment, buying a major position in a commodity does not qualify as an arbitrage, rather it would be informally referred to as “cornering the market.”&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am unsure whether there is any theoretical work on such strategies. However, from a practical perspective, we can see that it is hard to characterise what would happen.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I will assume that we are talking about a physical commodity; things might be different for a financial asset.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Firstly, going into a market and trying to buy up the supply is difficult. There will be both physical commodities to buy, as well as derivatives (such as futures). How exactly can you get the physical inventories away from other commodities traders and consumers, when they see someone buying up all the other sources? You need to find a way to buy up the commodity ahead of time quietly, and then you need some event (such as a bad harvest) wiping out the holdings of the other commodity traders. Cornering a market has been done, but you need particular circumstances to make it work.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(I would recommend looking up the history of the Hunt Brothers and silver.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The next problem is your ability to take advantage of your high inventory position. The producers of the commodity will ramp up production (and demand may be destroyed) if you try to only sell at a high price. You could get stuck with a large inventory of a commodity that has fallen in price. If you borrowed to finance your position, you might be forced into distressed selling - and everyone will know about it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words, there are a lot of possibilities, and there is no easy way to characterise what will happen to the price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Things are different if you control the production of the commodity. That ends up just being te situation of a monopoly (or oligopoly). There is a large literature on monopolies in economics; I am not familiar with it.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2018-03-28T22:32:49.507" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21229" PostTypeId="1" CreationDate="2018-03-29T02:14:33.083" Score="1" ViewCount="25" Body="&lt;p&gt;I want to build some kind of two-stage Markov switching model but with two time-series. My general idea was to calculate some kind of dependence between two time-series in two different periods of time. For example, GNP and inflation in a period from 2000 till 2010. Let' assume that they were positively correlated between 2000 and 2005 and after the year of 2005 - negatively correlated. Maybe Markov switching can help me but I am very new to it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Standard Hamilton model operates only one time series finding regimes. But if we want to find any regime between two of them? Let's assume (just for an example) we want to find regimes in equations like:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;*DLOGGNP=C(1)*DLOGCPI + C(2) + [AR(1)=C(5)];&lt;/p&gt;&#xA;&#xA;&lt;p&gt;*DLOGGNP=C(3)*DLOGCPI + C(4) + [AR(1)=C(5)]&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Questions:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1)Can we use Markov switching in that example(to find regimes between some period of 2 series)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2)Can we use AR model in that example?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;3) This video describes that model in Eviews &lt;a href=&quot;https://www.youtube.com/watch?v=0nciNxV0xZ4&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.youtube.com/watch?v=0nciNxV0xZ4&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is it right? Can we use dependent and independent variables in order to build Markov switching between two time series (GNP and CPI, in video g and GPN)?&lt;/p&gt;&#xA;" OwnerUserId="17821" LastActivityDate="2018-03-29T02:14:33.083" Title="Markov switching" Tags="&lt;macroeconomics&gt;&lt;econometrics&gt;&lt;mathematical-economics&gt;&lt;markov-chain&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21230" PostTypeId="2" ParentId="21227" CreationDate="2018-03-29T08:22:41.537" Score="4" Body="&lt;p&gt;Note that an alternative being highest-ranked by an agent involves comparisons with all other alternatives, which raises doubts that your method satisfies &lt;em&gt;independence of irrelevant alternatives&lt;/em&gt;. Indeed, it does not.  Independence off irrelevant alternatives is actually the only property that is violated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here are two profiles, only the preferences of the first two agents matter in them, so I will not specify the preferences of the other agents. I only assume the other agents preferences are the same in both profiles.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Agent 1, Profile $1$: $a\succ b\succ c\succ d$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Agent 2, Profile $1$: $b\succ a\succ c\succ d$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In Profile 1, the social ranking of $a$ and $b$ is $a\succ b$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Agent 1, Profile $2$: $c\succ a\succ b\succ d$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Agent 2, Profile $2$: $b\succ a\succ c\succ d$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In Profile 2, the social ranking of $a$ and $b$ is $b\succ a$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since the relative ranking of $a$ and $b$ is the same in both profiles, independence of irrelevant alternatives is violated. &lt;/p&gt;&#xA;" OwnerUserId="1442" LastEditorUserId="1442" LastEditDate="2018-03-29T12:32:01.030" LastActivityDate="2018-03-29T12:32:01.030" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="21232" PostTypeId="1" AcceptedAnswerId="21235" CreationDate="2018-03-29T13:24:26.597" Score="3" ViewCount="134" Body="&lt;p&gt;Consider the following infinitely repeated hawk-dove game:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\hspace{1cm}\hspace{1cm}\hspace{1cm}$&lt;a href=&quot;https://i.stack.imgur.com/POeUE.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/POeUE.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For what discount rate $\delta$ can tit for tat sustain $D,D$? My professor says the answer is $\delta=1$ (discounts are applied by multiplication e.g. payoff of 1 in the next period yields $\delta$).&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;It seems to me like two cases need to be considered:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) Suppose we start with $D,D$, then tit-for-tat sustains this $\iff$ $\frac{4}{1-\delta}&amp;gt;8+\frac{\delta}{1-\delta} \iff \delta&amp;gt;4/7$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) Suppose we start at $H,H$, under tit-for-tat, player 1 would restore $D,D$ if $\frac{1}{1-\delta}&amp;lt;0+\frac{4\delta}{1-\delta} \iff \delta&amp;gt;1/4$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What am I doing wrong?&lt;/p&gt;&#xA;" OwnerUserId="17825" LastActivityDate="2018-03-29T17:50:06.533" Title="When can tit-for-tat be sustained?" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;game-theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21234" PostTypeId="1" CreationDate="2018-03-29T14:01:04.370" Score="5" ViewCount="303" Body="&lt;p&gt;Under the &lt;a href=&quot;https://en.wikipedia.org/wiki/Shapiro%E2%80%93Stiglitz_theory&quot; rel=&quot;noreferrer&quot;&gt;Shapiro-Stiglitz model&lt;/a&gt; the &lt;a href=&quot;https://en.wikipedia.org/wiki/Shapiro%E2%80%93Stiglitz_theory#No-shirking_condition&quot; rel=&quot;noreferrer&quot;&gt;No-Shirking Condition&lt;/a&gt; is:&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$w=\bar{e}+\left( \rho +\frac{\bar{L}}{\bar{L}-NL}b \right)\frac{\bar{e}}{q}$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;Where:&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\bar{e}=$&lt;/span&gt; exerted effort by employees&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\rho=$&lt;/span&gt; discount rate&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\bar{L}=$&lt;/span&gt; total number of workers&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$N\bar{L}=$&lt;/span&gt; number of employed workers&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$b=$&lt;/span&gt; job separation rate&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$q=$&lt;/span&gt; shirking detection rate&lt;/p&gt;&#xA;&lt;p&gt;(&lt;em&gt;From Romer's &lt;a href=&quot;https://rads.stackoverflow.com/amzn/click/com/B003F8DCQS&quot; rel=&quot;noreferrer&quot; rel=&quot;nofollow noreferrer&quot;&gt;Advanced Macroeconomics 3rd edition&lt;/a&gt;, pg. 453&lt;/em&gt;)&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;&lt;em&gt;[The no-shirking condition shows] the wage that firms must pay to induce workers to exert effort. When more workers are employed there are fewer unemployed workers and and more workers leaving their jobs; it is easier for unemployed workers to find employment. [...] &lt;strong&gt;At full employment, unemployed workers find work instantly, and so there is no cost to being fired and thus no wage can deter shirking&lt;/strong&gt;&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;h1&gt;My Question&lt;/h1&gt;&#xA;&lt;p&gt;The definition of full employment is:&lt;/p&gt;&#xA;&lt;p&gt;(Source from &lt;a href=&quot;https://www.investopedia.com/terms/f/fullemployment.asp&quot; rel=&quot;noreferrer&quot;&gt;Investopeida&lt;/a&gt;)&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;&lt;em&gt;Full employment is an economic situation in which all available labor resources are being used in the most efficient way possible. Full employment embodies the highest amount of skilled and unskilled labor that can be employed within an economy at any given time. &lt;strong&gt;Any remaining unemployment is considered to be frictional, structural or voluntary&lt;/strong&gt;&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Based on this definition is appears that even under full employment workers do not find work instantly under the Shapiro Stiglitz model. What exactly am I missing?&lt;/p&gt;&#xA;" OwnerUserId="6629" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2018-04-01T11:47:03.813" Title="The Shapiro-Stiglitz model. Why under full employment do unemployed workers find jobs instantly?" Tags="&lt;macroeconomics&gt;&lt;labor-economics&gt;&lt;unemployment&gt;" AnswerCount="1" CommentCount="4" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="21235" PostTypeId="2" ParentId="21232" CreationDate="2018-03-29T14:55:58.680" Score="4" Body="&lt;p&gt;History $(D,D)$ (Yes, this is with some abuse of notation.):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On Path: Each player gets an average payoff of $4$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Deviating: Say player $1$ deviates and instead chooses $H$. Then the resulting sequence of actions is the alternating sequence, $(H,D)$, $(D,H)$, $(H,D)$,...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Accordingly, player $1$’s sequence of payoffs is $(8,0)$, $(0,8)$, $8,0$... Player $1$'s average payoff is $(1-\delta)\big(8 + 0 + \delta^{2}8 + 0 + \delta^{4}8 + \cdots\big)$, which is $$(1-\delta)\frac{8}{1-\delta^{2}}=(1-\delta)\frac{8}{(1-\delta)(1+\delta)}=\frac{8}{1+\delta}$$&#xA;Hence, there is no profitable deviation here iff &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\begin{split}&#xA;4 &amp;amp;\geq \frac{8}{1+\delta}\\&#xA;4\delta &amp;amp;\geq 4\\&#xA;\delta &amp;amp;\geq 1&#xA;\end{split}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, $\delta \geq 1$ is a necessary condition (not necessarily sufficient because we still need to check that following tit-for-tat is still optimal for the other histories. I'll leave that to you!)&lt;/p&gt;&#xA;" OwnerDisplayName="user11305" LastEditorDisplayName="user11305" LastEditDate="2018-03-29T17:50:06.533" LastActivityDate="2018-03-29T17:50:06.533" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="21236" PostTypeId="2" ParentId="20794" CreationDate="2018-03-29T16:15:54.023" Score="1" Body="&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$q(\theta)$&lt;/span&gt; is defined as the job-filling rate. Note that market tightness &lt;span class=&quot;math-container&quot;&gt;$\theta$&lt;/span&gt; is not necessarily constant over time (Pissarides makes a dynamic analysis at some point). It may help to denote it &lt;span class=&quot;math-container&quot;&gt;$\theta_t$&lt;/span&gt;. &#xA;As an approximation, &lt;span class=&quot;math-container&quot;&gt;$q(\theta_t)\delta t$&lt;/span&gt; is a probability for a firm to meet a worker between &lt;span class=&quot;math-container&quot;&gt;$t$&lt;/span&gt; and  &lt;span class=&quot;math-container&quot;&gt;$t+\delta t$&lt;/span&gt; for &lt;span class=&quot;math-container&quot;&gt;$\delta t$&lt;/span&gt; small enough. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) If you choose a large &lt;span class=&quot;math-container&quot;&gt;$\delta t$&lt;/span&gt;, this approximation is not valid anymore. In other words, assuming a large &lt;span class=&quot;math-container&quot;&gt;$\delta t$&lt;/span&gt; prevent you from interpreting &lt;span class=&quot;math-container&quot;&gt;$q(\theta_t)\delta t$&lt;/span&gt; as a probability. To define an equilibrium, Pissarides will anyway take the limit &lt;span class=&quot;math-container&quot;&gt;$\delta t\to 0$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) &lt;span class=&quot;math-container&quot;&gt;$q(\theta_t)$&lt;/span&gt; is a rate (that is not constrained to be lower than 1), whereas &lt;span class=&quot;math-container&quot;&gt;$q(\theta_t)\delta t$&lt;/span&gt; is a probability. Thus, the probability of a firm not meeting a worker between time &lt;span class=&quot;math-container&quot;&gt;$t$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$t+\delta t$&lt;/span&gt;  is &lt;span class=&quot;math-container&quot;&gt;$1-q(\theta_t)\delta_t$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$1-q(\theta_t)$&lt;/span&gt; has no clear interpretation (it can even be negative). I guess (but I would like confirmation) that the rate of a firm not finding a worker cannot be defined in this case (or it would be &lt;span class=&quot;math-container&quot;&gt;$+\infty$&lt;/span&gt;). &lt;/p&gt;&#xA;" OwnerUserId="4094" LastEditorUserId="4094" LastEditDate="2018-10-03T15:16:04.253" LastActivityDate="2018-10-03T15:16:04.253" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21237" PostTypeId="1" CreationDate="2018-03-29T18:26:33.657" Score="0" ViewCount="48" Body="&lt;p&gt;I'm considering some question, and I'm not sure what it asks me to do:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Consider a two-bidder auction with two types of players, high type and&#xA;  low type ($v_h&amp;gt;v_l$). The probability of a low type is $0.3$. The high&#xA;  type plays a continuous mixed strategy with support&#xA;  $s\in[\underline{S},\overline{S}]$. For some bid $s$ the probability&#xA;  of winning is given by the&#xA;  cdf$$\frac{3}{4}\bigg(\frac{S-v_l}{v_h-S}\bigg)$$ &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;What is the value of the upper bound of the support $s$?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I guess the derivation should be roughly as follows. First, it is easy to verify that the chance of high valuation player to win against another high value player is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{S-v_l}{v_h-S},$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then we have something like this&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\big(\frac{3}{4}\bigg(\frac{S-v_l}{v_h-S}\bigg)+0.3\big)(v_h-S)=\frac{S-v_l}{v_h-S}$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which doesn't quite give the right answer. I suspect I need to weight some arguments by probabilities.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;If it helps, the answer is $$\overline{S}=\frac{7v_h+3v_l}{10}$$&lt;/p&gt;&#xA;" OwnerUserId="17825" LastEditorUserId="17825" LastEditDate="2018-03-29T22:17:38.083" LastActivityDate="2018-03-30T00:12:32.090" Title="Deriving support in bidding strategy" Tags="&lt;mathematical-economics&gt;&lt;game-theory&gt;&lt;auctions&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="21240" PostTypeId="2" ParentId="21237" CreationDate="2018-03-30T00:12:32.090" Score="1" Body="&lt;p&gt;I agree with the comments that suggest that the question is almost indecipherable. However, it should be easy, given the cdf, to derive the bounds. Why? Well we know for a cdf $F$, we must have $F(\underline{S}) = 0$ and $F(\overline{S})=1$. We can use the latter to work backwards from the upper bound i.e.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We guess that $F(s)$ is of the form&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$F(s) = k\bigg(\frac{S-v_l}{v_h-S}\bigg)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We must have $F(\overline{S}) = 1$ and using your solution, we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\begin{split}F(\overline{S}) = F\bigg(\frac{7v_h+3v_l}{10}\bigg) = k\bigg(\frac{\big(\frac{7v_h+3v_l}{10}\big)-v_l}{v_h-\big(\frac{7v_h+3v_l}{10}\big)}\bigg) &amp;amp;= 1\\&#xA;k\bigg(\frac{7v_h+3v_l}{10}\bigg)-kv_l &amp;amp;= v_h-\bigg(\frac{7v_h+3v_l}{10}\bigg)\\&#xA;\frac{7kv_h - 7kv_l}{10} &amp;amp;= \frac{3v_h-3v_l}{10}\\&#xA;7kv_h - 7kv_l &amp;amp;= 3v_h-3v_l\\&#xA;k &amp;amp;= \frac{3}{7}\end{split}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, I suspect that your mixed strategy for the high type is given by the cdf $$F(s) = \frac{3}{7}\bigg(\frac{S-v_l}{v_h-S}\bigg)$$&lt;/p&gt;&#xA;" OwnerDisplayName="user11305" LastActivityDate="2018-03-30T00:12:32.090" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21243" PostTypeId="1" CreationDate="2018-03-30T17:22:08.740" Score="4" ViewCount="59" Body="&lt;p&gt;Inflation in the advanced economies since the financial crisis has been surprisingly low. Yet at the same time we’re told that the US economy is losing its dynamism in recent decades. This is reflected in often massive firm concentration and rising markups. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are the two – persistently low inflation and oligopoly structures – not in contradiction with one another?&lt;/p&gt;&#xA;" OwnerUserId="17789" LastActivityDate="2018-04-01T22:25:12.627" Title="Firm Concentration and Low Inflation" Tags="&lt;inflation&gt;&lt;oligopoly&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21244" PostTypeId="2" ParentId="21243" CreationDate="2018-03-30T18:18:18.900" Score="3" Body="&lt;p&gt;Interesting!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A possible way to resolve this contradiction is by taking cost reducing technologies into consideration.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Perhaps (example with made up numbers follows) in 1960 a gallon of milk cost \$1 to produce, package and market. Due to strong competition, the consumer could get this for \$1.02, meaning a markup of only 2%. Today, due to technological advancements, the same gallon of milk's production, packaging and marketing cost could be lower, say \$0.80. However perhaps there is much less competition, and the markup is now 30%. This would make the consumer price of this gallon of milk \$1.04. The price jump from \$1.02 to \$1.04 seems negligible, something most people would call low inflation. (Especially if this took 60 years.)&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2018-03-30T18:43:39.260" LastActivityDate="2018-03-30T18:43:39.260" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21245" PostTypeId="2" ParentId="21234" CreationDate="2018-03-30T18:29:00.197" Score="2" Body="&lt;p&gt;I think that the confusion is caused by the different meaning of &quot;full employment&quot; in both contexts.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the Shapiro-Stiglitz model, full employment in the sense that $\bar{L}\rightarrow LN$ implies that the job finding rate $a\rightarrow \infty$, which means no frictional unemployment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the other definition, full employment is merely &lt;em&gt;defined&lt;/em&gt; by any remaining unemployment being only frictional (or structural/voluntary, not important here). Situations of no full employment could exist, for example, due to minimum wages, according to this definition. This view considers the unemployment arising from workers being laid off and waiting some time to find a new job (frictional unemployment) as a technological necessity that cannot be avoided so as to further increase efficiency.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Last but not least, please note that your quote from Romer concerns the labor supply curve only, while the employment rate will be determined in equilibrium.&lt;/p&gt;&#xA;" OwnerUserId="16669" LastEditorUserId="16669" LastEditDate="2018-04-01T11:47:03.813" LastActivityDate="2018-04-01T11:47:03.813" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21252" PostTypeId="1" CreationDate="2018-03-31T13:36:03.463" Score="1" ViewCount="30" Body="&lt;p&gt;From what I understand, GNI is published for the last year once the year has ended  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am trying to have a look at the GNI for Korea for the past couple of years  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The official GNI is published by Bank of Korea on their &lt;a href=&quot;http://ecos.bok.or.kr&quot; rel=&quot;nofollow noreferrer&quot;&gt;website&lt;/a&gt;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;10 days ago I checked the GNI, and the latest published GNI was for 2016, and it was 3198.40 * 10000 Won (about $30000)  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Today I checked the GNI again and the system shows the GNI for 2016 and 2017 as:  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;2016: 3212.40 * 10000 Won (higher than previous value of 3198.40)&#xA;2017: 3363.60 * 10000 Won  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why is the GNI for 2016 different after 10 days? How does this work? Does this mean the GNI for 2017 as published now is not final either? Can either of these GNI values change again?&lt;/p&gt;&#xA;" OwnerUserId="17844" LastActivityDate="2018-03-31T16:46:51.443" Title="Does GNI change once it has been published?" Tags="&lt;economic-growth&gt;&lt;national-income&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21253" PostTypeId="1" AcceptedAnswerId="21258" CreationDate="2018-03-31T16:05:20.707" Score="1" ViewCount="53" Body="&lt;p&gt;I'm trying to determine which strategy is stochastically stable.&lt;/p&gt;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/U1GYL.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/U1GYL.png&quot; alt=&quot;enter image description here&quot; /&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&lt;p&gt;In my lecture notes, we assign probabilities &lt;span class=&quot;math-container&quot;&gt;$a$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$b$&lt;/span&gt; &lt;span class=&quot;math-container&quot;&gt;$1-a-b$&lt;/span&gt; to player 2 strategies &lt;span class=&quot;math-container&quot;&gt;$T,M,B$&lt;/span&gt; resp.&lt;/p&gt;&#xA;&lt;p&gt;Hence we have the payoffs&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$u(t)=2a+1-a-b$$&lt;/span&gt; &lt;span class=&quot;math-container&quot;&gt;$$u(m)=b+2-2a$$&lt;/span&gt; &lt;span class=&quot;math-container&quot;&gt;$$u(b)=4-2b-3a$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;And it is inferred from this that &lt;span class=&quot;math-container&quot;&gt;$b,b$&lt;/span&gt; is stochastically stable. I tried using the utilities to derive a system of three equations, and showing that &lt;span class=&quot;math-container&quot;&gt;$B$&lt;/span&gt; yields the highest payoff for the largest range of &lt;span class=&quot;math-container&quot;&gt;$a$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$b$&lt;/span&gt;, but this did not seem to succeed.&lt;/p&gt;&#xA;" OwnerUserId="17825" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2018-03-31T23:53:55.317" Title="Finding a stable equilibrium" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;game-theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21254" PostTypeId="2" ParentId="21252" CreationDate="2018-03-31T16:46:51.443" Score="2" Body="&lt;p&gt;GNI is GDP plus net primary income from abroad&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any such numbers are subject to revision as more information is obtained; in many countries such numbers are typically revised every three months as part of a National Accounts and Balance of Payments update, with more substantial revisions annually.  Korea's latest update was published on 28 March&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The fact that you did not see 2017 data the first time and did see 2017 data the second time was a pointer to these two readings being across such a revision point   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Such numbers are typically never final, and potentially keep on changing, though after long periods revisions to numbers then tend to be affected more by methodology changes than by the arrival of new information   &lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2018-03-31T16:46:51.443" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21255" PostTypeId="1" CreationDate="2018-03-31T18:01:13.853" Score="1" ViewCount="88" Body="&lt;p&gt;Suppose there are players on the network illustrated on the right (with 1 player on each vertex). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/HHck0.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/HHck0.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are two players $H$ and $J$ that are on the ends of the green line. $H$ plays $A$ and player $J$ plays $B$. Players to the left of $H$ also play $A$ and to the right of $J$ each plays $B$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Player $H$ deviating won't infect those to the left of $H$ iff $$x+w&amp;gt;y+z$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Moreover, player $J$ defecting won't infect those to the right iff&#xA;$$4y+z&amp;gt;4w+x$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does this mean that $A$ is risk dominant for those to the left of $H$ and $B$ for those to the right of $J$?&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Risk dominance: if a player had a uniform prior&#xA;over other players’ plays - so an equal chance of each other player playing A or B, then the risk dominant strategy would be the best expected payoff maximising choice for the player. I guess this is both satisfied for each case considered above. In the first case, one connection plays $A$ and the other $B$, so this gives a $0.5$ probability, and the risk dominant strategy should be played.&lt;/p&gt;&#xA;" OwnerUserId="17825" LastEditorUserId="17825" LastEditDate="2018-03-31T18:06:17.743" LastActivityDate="2018-03-31T18:06:17.743" Title="Risk Dominance on a Network" Tags="&lt;mathematical-economics&gt;&lt;game-theory&gt;&lt;networks&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21256" PostTypeId="1" AcceptedAnswerId="21264" CreationDate="2018-03-31T20:35:14.523" Score="5" ViewCount="280" Body="&lt;p&gt;My textbook (&lt;em&gt;Economic Issues and Policy&lt;/em&gt; by Jacqueline Murray Brux) says:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In addition to health and environmental concerns about biotechnology,&#xA;  &lt;em&gt;the most likely economic effects will be large increases in world food production, causing lower prices of agricultural products and&#xA;  preventing poor farmers from succeeding in agriculture.&lt;/em&gt; And it is the&#xA;  latter outcome that may serve to increase, rather than decrease, world&#xA;  hunger.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This statement seems utterly nonsensical to me. Are we actually to believe that large increases in world food production may serve to increase world hunger? Poor farmers using outdated technology may be forced to upgrade or find other jobs, but the lower prices will surely help non-farmers. Thus they (non-farmers) will have more money and this will create new demand and thereby new jobs for farmers who have lost their jobs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Am I right? This isn't the first error I've encountered in this textbook.&lt;/p&gt;&#xA;" OwnerUserId="16105" LastActivityDate="2018-04-04T19:56:51.800" Title="Can biotechnology be a bad thing?" Tags="&lt;macroeconomics&gt;&lt;agriculture&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21257" PostTypeId="1" CreationDate="2018-03-31T20:45:08.573" Score="3" ViewCount="2547" Body="&lt;p&gt;The following is a list of data points on a PPF, answer questions regarding opportunity cost. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/BZeC2.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/BZeC2.jpg&quot; alt=&quot;! [Graph representation] (https://imgur.com/kZsgczw)&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/RH0zp.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/RH0zp.jpg&quot; alt=&quot;! [data points] (https://imgur.com/VSfZqFj)&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;What is the opportunity cost of producing the first 500 Toyota?&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;The opportunity cost of producing the first 500 Toyota is 600. &#xA;Calculations: 5000-4400&lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;2&quot;&gt;&#xA;&lt;li&gt;What is the opportunity cost of moving from producing 3725 Lexus to 3950 Lexus? &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Opportunity cost = 1500-1000 = 500 Toyotas&lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;3&quot;&gt;&#xA;&lt;li&gt;What is the opportunity cost of producing 5000 Lexus? &#xA;The opportunity cost of producing 5000 Lexus is 0.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;I am currently learning economics and I came across a homework question I am uncertain about my answers.&lt;/p&gt;&#xA;" OwnerUserId="17845" LastEditorUserId="6168" LastEditDate="2018-04-02T08:16:16.670" LastActivityDate="2020-08-20T00:05:45.693" Title="Production Possibility Frontier and Opportunity cost" Tags="&lt;opportunity-cost&gt;" AnswerCount="3" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="21258" PostTypeId="2" ParentId="21253" CreationDate="2018-03-31T21:39:33.527" Score="2" Body="&lt;p&gt;As a caveat, disclaimer, I am not too familiar with Evolutionary Game Theory and it is quite outside my research area/main areas of expertise. However, I can show here that range of $(a,b)$ for which $B$ is a best response is strictly greater than for either of the other two strategies. To that end,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can characterize the range of $(a,b)$ for which $B$ is a (strict) best response by solving the system&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\begin{split}&#xA;4−2b−3a &amp;amp;\&amp;gt; b+2-2a\\&#xA;4−2b−3a &amp;amp;&amp;gt; 1+a-b\\&#xA;\end{split}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\begin{split}&#xA;2 &amp;amp;&amp;gt; 3b + a\\&#xA;3 &amp;amp;&amp;gt; 4a + b\\&#xA;\end{split}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\begin{split}&#xA;a &amp;amp;&amp;gt; 7/11, b&amp;lt;3-4a\\&#xA;a &amp;amp;\leq 7/11, b&amp;lt;\frac{2-a}{3}\\&#xA;\end{split}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/4QJ1c.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/4QJ1c.jpg&quot; alt=&quot;Range for Strategy B&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can solve for the area of this quadrilateral:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\begin{split}&#xA;B &amp;amp;= \int_{0}^{7/11}\frac{2-a}{3}da + \int_{7/11}^{3/4}(3-4a)da\\&#xA;&amp;amp;= \frac{259}{726} + \frac{25}{968} = \frac{101}{264} \approx .382\bar{57}&#xA;\end{split}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Through similar analysis for $M$, we obtain&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\begin{split}&#xA;a &amp;amp;&amp;gt; 7/11, b&amp;gt;\frac{3a-1}{2}\\&#xA;a &amp;amp;\leq 7/11, b&amp;gt;\frac{2-a}{3}\\&#xA;\end{split}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/vePxA.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/vePxA.jpg&quot; alt=&quot;Range for Strategy M&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\begin{split}&#xA;M &amp;amp;= 1 - \int_{0}^{7/11}\frac{2-a}{3}da - \int_{7/11}^{1}\frac{3a-1}{2}da\\&#xA;&amp;amp;= 1 - \frac{259}{726} - \frac{32}{121} = \frac{25}{66} \approx .3\bar{78}&#xA;\end{split}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$T=1-\frac{25}{66}-\frac{101}{264} = \frac{21}{88} \approx .238\bar{63}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since $$\begin{split}&#xA;\frac{101}{264} &amp;amp;&amp;gt; \frac{25}{66}\\ \frac{101}{264} &amp;amp;&amp;gt; \frac{21}{88}&#xA;\end{split}$$&#xA;the result is shown.&lt;/p&gt;&#xA;" OwnerDisplayName="user11305" LastEditorDisplayName="user11305" LastEditDate="2018-03-31T21:45:55.023" LastActivityDate="2018-03-31T21:45:55.023" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21260" PostTypeId="1" AcceptedAnswerId="21262" CreationDate="2018-04-01T04:02:52.990" Score="0" ViewCount="47" Body="&lt;p&gt;There are only two firms that produce and sell hockey equipment, Abel Corporation (A) and Baker Company (B). They each sponsor special events to try to gain customers. As there are only 2 firms, the marketing of one firm clearly affects its own profits and the profits of the other firm too.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here are the (Gross) Profit Functions of each firm, related to the number of special events in a year, where A represents the number of events that Abel undertakes and В represents the number of events that Baker undertakes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;• Profits, Abel = 1000A -A^2 - 0.5AB&lt;/p&gt;&#xA;&#xA;&lt;p&gt;• Profits, Baker = 1000B - B^2 - 0.5ВA&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Each special event costs $160, which is NOT included in the Profit functions as shown above.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is Abel's Reaction Schedule (Best-Response Function)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here's how I've done this, I'm not sure if it's right, that's why I'd like your feedback.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Abel's Reaction Function:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1000 - 2A - 0.5B = 160   (differentiated the profits function and equated to 160)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A = 420 - 0.25B  (this is the reaction function I derived)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My confusion arises from the thought process that the profits function is essentially the difference between total revenue and total costs so should that be something i need to take into consideration when solving this? &lt;/p&gt;&#xA;" OwnerUserId="17849" LastActivityDate="2018-04-01T09:34:33.710" Title="Game Theory of Two Firms" Tags="&lt;game-theory&gt;&lt;oligopoly&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21262" PostTypeId="2" ParentId="21260" CreationDate="2018-04-01T09:34:33.710" Score="1" Body="&lt;p&gt;Your answer is correct. Given that you have a net profit function once you substract the costs of the events, the way to proceed is differentiating that profit function, taking the behaviour of the other firm as fixed and setting that to 0.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Profit maximization involves producing upto the point where &lt;strong&gt;marginal benefits&lt;/strong&gt; equal &lt;strong&gt;marginal costs&lt;/strong&gt; and that is exactly what you do by differentiating and setting to 0.&lt;/p&gt;&#xA;" OwnerUserId="12186" LastActivityDate="2018-04-01T09:34:33.710" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21263" PostTypeId="2" ParentId="21256" CreationDate="2018-04-01T10:20:03.237" Score="4" Body="&lt;p&gt;Making such sweeping statements about biotechnology in general is impossible if you ask me. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Even when limiting oneself to agrobiotechnology it is impossible to make such statements because there are so many different crops that have been developed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is true that first-generation biotech crops are mainly developed to increase productivity, for example to resist insects (Bt maize) or to be able to be used with herbicides (Roundup ready soybeans). And yes, that may push down prices but as you point out that may also free-up labor for e.g. other more valuable crops. And of course an important question is whether or not farmers will actually adopt or be able to adopt the crops. The final outcome is a general equilibrium question, that cannot be easily answered. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is quite a bit of research on the impact of individual crops in individual countries. See e.g. Qaim's: &lt;a href=&quot;https://www.annualreviews.org/doi/full/10.1146/annurev.resource.050708.144203&quot; rel=&quot;nofollow noreferrer&quot;&gt;The economics of genetically modified crops in the Annual Review of Resource Economic&lt;/a&gt;s or the &lt;a href=&quot;http://journals.plos.org/plosone/article?id=10.1371/journal.pone.0111629&quot; rel=&quot;nofollow noreferrer&quot;&gt;meta-analysis by Klümper and Qaim in Plos&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Moreover there are second generation crops that address other issues such as drought and vitamin deficiencies where studies argue that benefits far outweigh potential costs, e.g. &lt;a href=&quot;https://www.cambridge.org/core/journals/environment-and-development-economics/article/the-economic-power-of-the-golden-rice-opposition/F31EE0E5B6044B86B5223FF20C409158&quot; rel=&quot;nofollow noreferrer&quot;&gt;Wesseler and Zilberman's The economic power of the Golden Rice opposition in environmental and development economics&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now this is not to say there are no negative effects of GM crops, they do for example cross-over with local weeds, resulting in herbicide resistant weeds. Similarly the built-in pesticide in insect resistance of GM crops, may result in resistance of those insects to that pesticide, but then again resistance problems occur anyway, independent of we use &quot;normal&quot; pesticides, &quot;natural&quot; pesticides or GM crops. Reducing resistance probability requires careful planning, buffer zones and integrated pest management.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also the increased productivity may mean that land that was previously marginal can now be used for crop production at the expense of e.g. tropical rainforest. Then again the increased productivity also means that we need less land for the same production. Again the net effect is an empirical question.&lt;/p&gt;&#xA;" OwnerUserId="12186" LastActivityDate="2018-04-01T10:20:03.237" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21264" PostTypeId="2" ParentId="21256" CreationDate="2018-04-01T10:52:09.123" Score="6" Body="&lt;p&gt;You are right to be sceptical of this statement.  Let's take it step by step.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Will developments in biotechnology increase world food production?&lt;/strong&gt;  Almost certainly yes, provided other things are equal.  But the reality is that other things are not equal.  Climate change is likely, other things being equal to reduce agricultural productivity in some parts of the world. Whether the positive effect of biotechnology will more than offset the negative effect of climate change is unclear.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;If world food production increases, will prices of agricultural products fall?&lt;/strong&gt; Not necessarily.  Demand for food is rising due to rising population and to rising incomes in much of the world. Again, the net effect (of rising supply and rising demand) is unclear.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;If agricultural prices fall, could this increase hunger for some people?&lt;/strong&gt; Yes, this is certainly possible.  Those most at risk would be people in poor countries who have relied on farming for their income and, due to limited education and training and/or location, have limited opportunities for alternative employment or other income sources.  The book is right to imply that hunger is as much due to low incomes as to food supply.  But the argument that the overall effect of biotechnology will be to increase world hunger is unconvincing.&lt;/p&gt;&#xA;" OwnerUserId="1417" LastActivityDate="2018-04-01T10:52:09.123" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21266" PostTypeId="1" CreationDate="2018-04-01T17:16:12.377" Score="3" ViewCount="63" Body="&lt;p&gt;I am from non-economic study background.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I recently came across this line by J.C. Hosten &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;To Lower costs per unit of output, people usually increase the size of their operations&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I read the wiki page of the Economies of scale. &#xA;And saw the diagram that as the size of operation/production was increasing the cost a decreasing. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My Question is, Why it happens?&lt;/p&gt;&#xA;" OwnerUserId="17856" LastEditorUserId="1601" LastEditDate="2018-04-02T06:43:57.910" LastActivityDate="2018-04-02T12:20:43.183" Title="Economies of Scale explanation?" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21268" PostTypeId="2" ParentId="17149" CreationDate="2018-04-01T22:00:50.580" Score="1" Body="&lt;p&gt;Prices are easy to observe. However, they do not contain information about externalities (or other market imperfections), so while they are the most commonly used source of information by consumers and producers, it is debatable whether they are the &quot;best&quot; information.&lt;/p&gt;&#xA;" OwnerUserId="16499" LastActivityDate="2018-04-01T22:00:50.580" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21269" PostTypeId="2" ParentId="21266" CreationDate="2018-04-01T22:01:47.973" Score="8" Body="&lt;p&gt;The short answer is that average costs fall because fixed costs get averaged across more units.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;In more detail:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Costs have two components: fixed costs (which do not vary with produced quantity) and variable costs (which do vary with produced quantity). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, if you produce newspapers your costs might include&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;paying journalists to write and edit the content of the newspaper&lt;/li&gt;&#xA;&lt;li&gt;renting a building for the journalists to work in&lt;/li&gt;&#xA;&lt;li&gt;paying to print each copy of the newspaper.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Notice that you only have to pay the journalists and the rent once, no matter how many copies you print (so these are fixed costs). The cost of printing (paper and ink) will increase as you produce more copies of the paper because you will need more of these inputs, so these are variable costs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose it costs \$10,000 to pay a team of journalists to produce an issue of a newspaper (fixed cost), and \$1 to print a copy of that paper (variable cost).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you sell one thousand copies then the total cost is $$\$10,000+(1,000 \times \$1)=\$11,000.$$&#xA;That means the &lt;em&gt;average cost&lt;/em&gt; of producing each copy is $$\$11,000/1000=\$11.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now suppose production increases to 2,000 units. Now the cost is $$\$10,000+(2,000 \times \$1)=\$12,000.$$ The average cost per unit is $$\$12,000/2000=\$6.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So output increased and the result is that the &lt;em&gt;average cost per unit&lt;/em&gt; has fallen. This is a situation in which there are economies of scale. The reason this happens is that, as output increases, the fixed cost (here the \$10,000) gets spread over more units so that the average fixed cost per-unit decreases even if the variable cost does not. In particular, notice that in the first case the fixed cost gets averaged over 1000 units (a fixed cost of \$10 per unit), whereas in the second it is averaged over 2000 units (a fixed cost of \$5 per unit).&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2018-04-02T12:20:43.183" LastActivityDate="2018-04-02T12:20:43.183" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21270" PostTypeId="2" ParentId="21256" CreationDate="2018-04-01T22:13:27.090" Score="2" Body="&lt;p&gt;If a biotechnology advance lowers the production price of corn from 3.50 dollars a bushel to 3 dollars, then farmers who do not have access to this technology now must sell at 3 dollars without enjoying any of the productivity gain, a reduction in income of 50 cents a bushel.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In considering the potential truth in the statement in the textbook (with respect to the context of 2018), one must focus on the question of &quot;who is hungry?&quot; and not &quot;how much food is there?&quot; There would be more food, but the distributional effects would be negative on those most likely to be hungry. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Who is hungry? Many of the people who are most likely to be hungry are poor farmers, who would simply receive a lower price and thus have less economic resources to obtain goods and services on the market.&lt;/p&gt;&#xA;" OwnerUserId="16499" LastEditorUserId="16499" LastEditDate="2018-04-04T19:56:51.800" LastActivityDate="2018-04-04T19:56:51.800" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21271" PostTypeId="2" ParentId="21243" CreationDate="2018-04-01T22:25:12.627" Score="0" Body="&lt;p&gt;Domestic oligopolies could be charging uncompetitively high prices, while inflation remains low due to importing lower-priced goods in other sectors. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, paying $20 to download a 0 marginal cost film (a much higher price resulting from oligopoly), while buying cheap imports (which helps to keep down price levels).&lt;/p&gt;&#xA;" OwnerUserId="16499" LastActivityDate="2018-04-01T22:25:12.627" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21273" PostTypeId="2" ParentId="21257" CreationDate="2018-04-02T08:21:36.187" Score="0" Body="&lt;p&gt;Note that the concept of &lt;strong&gt;Opportunity Cost&lt;/strong&gt; is used in order to compare a choice to the direct benefit of alternative choices.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How do we go about using it in Economics? See &lt;a href=&quot;https://economics.stackexchange.com/questions/9036/have-any-economists-ever-argued-that-the-notion-of-opportunity-cost-should-be-do?rq=1&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regarding a convex Production Possibility Frontier and opportunity costs, you can find helpful examples on the Internet. &lt;a href=&quot;https://www.google.fr/imgres?imgurl=https%3A%2F%2Fimage.slidesharecdn.com%2Fchap1-110119221449-phpapp02%2F95%2Fchap1-21-728.jpg%3Fcb%3D1295476302&amp;amp;imgrefurl=https%3A%2F%2Fwww.slideshare.net%2FSusuJie%2Fchap1-6634447&amp;amp;docid=NZDyp7TU4juQ2M&amp;amp;tbnid=VNg4aPVkDIOUVM%3A&amp;amp;vet=10ahUKEwi16fbUjpvaAhVDvhQKHbhiDDAQMwhCKAMwAw..i&amp;amp;w=728&amp;amp;h=546&amp;amp;bih=720&amp;amp;biw=1600&amp;amp;q=convex%20ppf%20curve&amp;amp;ved=0ahUKEwi16fbUjpvaAhVDvhQKHbhiDDAQMwhCKAMwAw&amp;amp;iact=mrc&amp;amp;uact=8&quot; rel=&quot;nofollow noreferrer&quot;&gt;Here is one&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/HELSG.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/HELSG.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="6168" LastEditorUserId="6168" LastEditDate="2018-04-02T12:16:24.323" LastActivityDate="2018-04-02T12:16:24.323" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21275" PostTypeId="1" AcceptedAnswerId="21278" CreationDate="2018-04-02T15:38:03.353" Score="1" ViewCount="206" Body="&lt;p&gt;Say I'm given the production function of the form&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{equation*}&#xA;Y= F(K,L,A) = (\alpha K^{\epsilon} + (1 - \alpha)Y^{\epsilon})^{\frac{1}{\epsilon}}&#xA;\end{equation*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where $\epsilon, \alpha \in (0,1)$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now I need to check three things:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;That marginal products are positive and they are decreasing&lt;/li&gt;&#xA;&lt;li&gt;Inada conditions are satisfied&lt;/li&gt;&#xA;&lt;li&gt;Essentiality&lt;/li&gt;&#xA;&lt;li&gt;Linear homogeneity&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;The conditions 2 and 4 imply the condition 3 so no need to check for that. When taking derivatives with respect to $K$ I see that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{equation*}&#xA;F_K = \alpha  K^{\epsilon -1}(\alpha K^{\epsilon} + (1 - \alpha)Y^{\epsilon})^{\frac{1 - \epsilon}{\epsilon}} &amp;gt;0&#xA;\end{equation*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which is positive. Now I need to show that $F_{KK}&amp;lt; 0$. See:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{equation*}&#xA;F_{KK} = \alpha (\epsilon -1) K^{\epsilon -2}(\alpha K^{\epsilon} + (1 - \alpha)Y^{\epsilon})^{\frac{1 - \epsilon}{\epsilon}} + \alpha^2 K^{2\epsilon -2} \frac{1- \epsilon}{\epsilon} (\alpha K^{\epsilon} + (1- \alpha) L^{\epsilon})^{\frac{1}{\epsilon}-2}&#xA;\end{equation*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However I couldn't find a way to decide on the sign of this expression. Any help would be appreciated. Thanks.&lt;/p&gt;&#xA;" OwnerUserId="10922" LastActivityDate="2018-04-02T19:38:02.307" Title="How to check whether the production function below is neoclassical or not" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;economic-growth&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="21278" PostTypeId="2" ParentId="21275" CreationDate="2018-04-02T19:17:05.363" Score="3" Body="&lt;p&gt;C.E.S production functions are indeed tiresome to differentiate, and it is very easy to make a mistake. But hey, this (algebraic manipulation) is part of the job, and one needs to practice moving around symbols , creating common factors, etc. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;But there is another way to show that $F_{KK} &amp;lt;0$ in totally abstract terms.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;First,&lt;/strong&gt; prove 4. (linear homogeneity), it is easy.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Second&lt;/strong&gt;, exploit Euler's Homogeneous Function Theorem, and decompose $Y$ using the first derivatives and the variables (this is a very well known result).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Third&lt;/strong&gt;, re-arrange the previous to obtain an alternative abstract expression of the first derivative of say, capital.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Fourth&lt;/strong&gt;, differentiate what you got in step Three, to obtain an expression for $F_{KK}$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;All the above are done using abstract notation $F_K, F_{KK}$,etc and nowhere the actual C.E.S functional form. After step Four, you will need to calculate the cross-partial, which is easy, even for the C.E.S. function.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2018-04-02T19:38:02.307" LastActivityDate="2018-04-02T19:38:02.307" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21282" PostTypeId="1" AcceptedAnswerId="21283" CreationDate="2018-04-02T20:57:58.130" Score="2" ViewCount="1866" Body="&lt;p&gt;How could I decide from a variable exactly, that is &lt;code&gt;stock&lt;/code&gt; or &lt;code&gt;flow&lt;/code&gt; type?&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Variables, which are measured at a point of time are called stock&#xA;  variables whereas variables measured over a period of time are flow&#xA;  variables. This means that stocks are non-recurring in nature whereas&#xA;  flows are recurring in nature.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I found, that number of unemployed people is stock and amount of salary is flow. As I know, salary is a fixed amount of money, but number of unemployed people can be changed really fast.&lt;/p&gt;&#xA;" OwnerUserId="17866" LastActivityDate="2018-04-03T04:31:59.310" Title="Stock vs flow variables" Tags="&lt;microeconomics&gt;&lt;markets&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21283" PostTypeId="2" ParentId="21282" CreationDate="2018-04-02T21:13:44.530" Score="3" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;A &lt;strong&gt;stock&lt;/strong&gt; represents a quantity measured at one specific point in time, which  may have accumulated in the past.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;According to the Bureau of Labor Statistics, the US unemployment rate stood at 4.1 percent in February 2018. This represented a &lt;strong&gt;stock&lt;/strong&gt; of 6,706,000 unemployed workers in February 2018. But &lt;em&gt;from January to February&lt;/em&gt;, we observed a &lt;strong&gt;flow&lt;/strong&gt; of workers going in and out unemployment.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;A &lt;strong&gt;flow&lt;/strong&gt; variable is thus measured over an interval of time, e.g., hours, days, weeks, months or years. It has time dimension.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Because of inflows and outflows of workers going in and out unemployment, between January and February, the &lt;strong&gt;stock&lt;/strong&gt; of unemployed workers was a bit higher in January 2018 (=6,684,000). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A year before, in February 2017, the unemployment rate was about 4.7%, representing a stock of 7,486,000 unemployed workers at that particular time. This means that a net flow of 7,800 (=7,486,000 - 6,706,000) US workers went out unemployment between February 2017 and February 2018.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your wage in February 2018 is a flow because it's the money you earn between Feb 1st and Feb 28. (by the way, this amount is not necessarily fixed from one month to another).&lt;/p&gt;&#xA;" OwnerUserId="6168" LastEditorUserId="6168" LastEditDate="2018-04-03T04:31:59.310" LastActivityDate="2018-04-03T04:31:59.310" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21286" PostTypeId="2" ParentId="19267" CreationDate="2018-04-03T08:05:11.730" Score="1" Body="&lt;p&gt;In reality the world is much more complicated than those two equations, but the simple theory is that&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;&lt;em&gt;the current account net flow is the trade balance in that period plus net primary income in that period&lt;/em&gt;&lt;/strong&gt;, and net primary income is the return on investments abroad less the return on foreign investments at home.  The $i^wB_{t}$ term suggests net primary income can be modelled as an implicit rate of return or interest rate on the net investment stock and this implicit interest rate is the same worldwide for all kinds of investment income in both directions (reality is different, in that different types of invest in different places produce different returns)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;&lt;em&gt;the change in the International Investment Position net stock over a period should be equal to the net financial flow in that period&lt;/em&gt;&lt;/strong&gt; (reality is again different as there are also revaluations of the value of the components of existing investment positions, for exchange rate changes and other reasons, and these are not reflected in flows)       &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2018-04-03T08:05:11.730" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21291" PostTypeId="1" AcceptedAnswerId="25152" CreationDate="2018-04-03T15:57:50.533" Score="1" ViewCount="109" Body="&lt;p&gt;In a task-based model like the one developed in Acemoglu&amp;amp;Autor 2011 with two types of worker, can the low type have a higher wage with respect to the high type? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;More specifically: if the productivity of the &quot;high type&quot; is greater for &lt;strong&gt;each&lt;/strong&gt; task in the economy, can we say that, regardless of the aggregate supply of labor, the equilibrium relationship is $w_h&amp;gt;w_l$?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you in advance for any help!&lt;/p&gt;&#xA;" OwnerUserId="17875" LastActivityDate="2019-02-06T10:39:34.463" Title="Productivity and wages in a task-based model" Tags="&lt;macroeconomics&gt;&lt;labor-economics&gt;&lt;inequality&gt;&lt;productivity&gt;&lt;technology&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21294" PostTypeId="1" CreationDate="2018-04-03T19:50:50.263" Score="3" ViewCount="270" Body="&lt;p&gt;I'm reading &lt;a href=&quot;http://www.nuff.ox.ac.uk/users/klemperer/VirtualBook/07_Chapter1.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Klemperer's survey&lt;/a&gt; on auction theory (pages 17-18) which discusses the relation between traditional microeconomic price theory and the revenue equivalence result. Firstly, I don't quite understand the analogy: marginal revenue is the revenue due to additional quantity sold, but an auction might just sell a single non-divisible object.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In particular, it is helpful to focus on bidders’ ‘‘marginal revenues’’.&#xA;  Imagine a firm whose demand curve is constructed from an arbitrarily large&#xA;  number of bidders whose values are independently drawn from a bidder’s&#xA;  value distribution. When bidders have independent private values, a bidder’s&#xA;  ‘‘marginal revenue’’ is defined as the marginal revenue of this firm at the price&#xA;  that equals the bidder’s actual value.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I'm not sure why &quot;the marginal revenue of this firm at the price that equals the bidder’s actual value&quot;. Does this not assume that the bidder actually bids his actual value? This surely isn't the case for e.g. first-price auctions.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Bulow and Roberts follow Myerson to&#xA;  show that under the assumptions of the revenue equivalence theorem the&#xA;  expected revenue from an auction equals the expected marginal revenue of&#xA;  the winning bidder(s).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I'm confused with this (which probably stems from my confusion with the earlier parts): if you sell 1 item, then trivially the marginal revenue equals the expected revenue. Surely I am missing something here.&lt;/p&gt;&#xA;" OwnerUserId="17825" LastActivityDate="2019-04-16T21:01:35.347" Title="Marginal Revenue Interpretation of Auctions" Tags="&lt;microeconomics&gt;&lt;game-theory&gt;&lt;auctions&gt;&lt;mechanism-design&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21295" PostTypeId="1" CreationDate="2018-04-03T21:36:47.533" Score="1" ViewCount="85" Body="&lt;p&gt;I remember this came up around tariffs in the US on aluminum. They have a negligible effect on the price of an aluminum can, but aggregated across all the aluminum cans sold, it can have a significant impact for a handful of US aluminum producers.&lt;/p&gt;&#xA;" OwnerUserId="17879" LastEditorUserId="1417" LastEditDate="2018-12-13T11:56:03.480" LastActivityDate="2018-12-13T11:56:03.480" Title="What's the term for an economic policy that has negligible effect for most, but a significant effect for a few?" Tags="&lt;political-economy&gt;&lt;welfare-economics&gt;&lt;definition&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="21298" PostTypeId="1" CreationDate="2018-04-04T02:11:31.143" Score="1" ViewCount="116" Body="&lt;p&gt;I am new to economics in school and we are going over supply and demand.  This may sound like a very simple question, but I just need one thing clarified.  When quantity is mentioned in the graphs is that referring to our total inventory or just the number of units sold?  Thanks.&lt;/p&gt;&#xA;" OwnerUserId="17883" LastActivityDate="2018-11-01T17:22:18.313" Title="In Supply and Demand is Quantity the Amount of Inventory of the Amount of Units Sold?" Tags="&lt;supply-and-demand&gt;&lt;consumer-theory&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21299" PostTypeId="1" AcceptedAnswerId="21301" CreationDate="2018-04-04T04:01:24.467" Score="-1" ViewCount="1306" Body="&lt;p&gt;Rent seeking is often associated with lobbying.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.investopedia.com/terms/r/rentseeking.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;Investopedia's article on rent seeking&lt;/a&gt; states that rent seeking is gaining wealth without &quot;creating&quot; wealth. Is this the only commonly used definition?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is all lobbying rent seeking?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is voting a form of rent seeking?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What if I have a house and I rent the house to tenants? Am I rent seeking?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Obviously I am seeking tenants that, well, pay rent. Also if the house is empty then the house is not producing &quot;comfort&quot; and hence by getting the house rented I am increasing wealth.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Am I rent seeking?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is all lobbying rent seeking?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A good answer should provide samples of acts that are lobbying but not rent seeking or via versa. If there is no such thing, then an answer can say that all rent seeking is lobbying, for example. &lt;/p&gt;&#xA;" OwnerUserId="17884" LastEditorUserId="23023" LastEditDate="2019-05-18T10:39:04.800" LastActivityDate="2019-05-19T20:19:23.807" Title="What counts and doesn't count as rent seeking?" Tags="&lt;productivity&gt;" AnswerCount="2" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="21301" PostTypeId="2" ParentId="21299" CreationDate="2018-04-04T13:36:22.553" Score="5" Body="&lt;p&gt;The word rent has a general meaning, and a specific technical meaning within economics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As the article you've linked to states explicitly:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Rent-seeking occurs when an individual or business attempts to make money from its resources &lt;strong&gt;without using those resources to benefit to society or generate wealth&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It should be obvious that when an apartment is rented out, money is being made by using the resource of the apartment to benefit society.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The rent (in the lay sense) on the apartment is not the same as an &lt;a href=&quot;https://www.investopedia.com/terms/e/economicrent.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;economic rent&lt;/a&gt;, and at that link, we read:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Economic rent is an excess payment made to or for a factor of production over the amount required by the property owner to proceed with the deal. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The word rent has two different meanings.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One is the lay meaning: the price paid for the use of property for a fixed period of time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The specific technical meaning within the context of rent-seeking is as set out in the link in your question. This is a different meaning to the lay meaning. It is not the same meaning. It is different. The same word can be used to mean two different things. Even though it's the same word. One word, two different meanings. We use the &lt;strong&gt;context&lt;/strong&gt; to determine which is the appropriate meaning. As the context in your question is economics (something of which you are well aware, as you have posted this question on the Economics SE), then the technical meaning, as defined in the link you provided, is the relevant one. Not the lay meaning.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So rent-seeking, is about seeking economic rent (technical sense); it is not about charging the rent (lay sense) for the use of the property.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lobbying and rent-seeking are different things. Lobbying may or may not involve rent-seeking. Rent-seeking may or may not involve lobbying. It's like asking whether fish is the same thing as chips. You can have fish with or without chips. You can have chips with or without fish. Just because they often go together, does not mean they are the same thing.&lt;/p&gt;&#xA;" OwnerUserId="44" LastEditorUserId="44" LastEditDate="2018-04-08T00:27:38.520" LastActivityDate="2018-04-08T00:27:38.520" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="21302" PostTypeId="2" ParentId="4830" CreationDate="2018-04-04T14:44:51.920" Score="1" Body="&lt;p&gt;For a risk lover, r is negative. Making the term $-\frac{r}{2}Var(X)$ positive. Thus, as variance increases, $E(x)-\frac{r}{2}Var(X)$ increases, which means their utility increases.&lt;/p&gt;&#xA;" OwnerUserId="17889" LastActivityDate="2018-04-04T14:44:51.920" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21303" PostTypeId="1" CreationDate="2018-04-04T14:47:38.447" Score="2" ViewCount="113" Body="&lt;p&gt;In my own studies I have noticed that many of the constrained optimization type questions that are often covered in intermediate/advanced microeconomics courses are seldom seen in more empirical types of work.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;under what circumstances would I apply the use of the Legrangian multiplier to an real world problem?&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2018-04-04T21:10:13.547" Title="Use of the Lagrangian in empirical work" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="21304" PostTypeId="1" AcceptedAnswerId="21305" CreationDate="2018-04-04T16:32:12.903" Score="3" ViewCount="78" Body="&lt;p&gt;I'm currently solving a new Keynesian model with government spending. It's the basic model version, with constant returns to scale on the only production factor work.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Everything has worked out fine in terms of solving the model with Dynare, the only thing that I don't understand is the output regarding P(Price level, not inflation) and W(Wages, not in real terms).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;After the gov. spending shock hits, all variables move back into their steady state i.e. the impulse response functions return to zero as time goes on. This also is the case for &gt;real&#xA;&#xA;&lt;p&gt;The only variables that do not return to their steady state are P and W(nominal). They both spike upwards as the shock hits and then return to a state even higher than that, as the shock fades out.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Why is this the case, what is the economic intuition behind it?&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="17891" LastActivityDate="2018-04-04T17:12:43.977" Title="Basic New Keynesian Model - Price and Wage Level after shock" Tags="&lt;macroeconomics&gt;&lt;new-keynesian-economics&gt;&lt;price-level&gt;&lt;dsge&gt;&lt;real-business-cycles&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21305" PostTypeId="2" ParentId="21304" CreationDate="2018-04-04T17:12:43.977" Score="2" Body="&lt;p&gt;Try to give a look at what happens to inflation's IRF. If it stays positive for the whole horizon of the IRF then simply prices have increased over time at the inflation rate. I guess that any non-degenerate price level (nominal!) is compatible with such model structure, as its system is written down in growth rates, as that's what loglinearised variables are.&lt;/p&gt;&#xA;" OwnerUserId="5879" LastActivityDate="2018-04-04T17:12:43.977" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="21306" PostTypeId="1" AcceptedAnswerId="21309" CreationDate="2018-04-04T20:01:48.370" Score="6" ViewCount="496" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Consider a seller offering a single object for sale to two buyers with&#xA;  independent valuations – each bidder’s value is uniformly distributed&#xA;  on [0,1]. Assume that buyer 1 submits a bid that buyer 2 observes.&#xA;  Buyer 2 then has the ‘first refusal’ right to buy the object at that&#xA;  price. If she refuses, buyer 1 gets the object at the price he bid. What is the optimal strategy for buyer 1?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I have attempted the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\pi_1(v_1,v_2)=p(v_2&amp;lt;\beta(v_1))(v_1-\beta(v_1))$$&#xA;$$=(1-\beta(v_1))(v_1-\beta(v_1))$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If this is an equilibrium, we must have that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$=(1-\beta(v_1))(v_1-\beta(v_1)) \geq (1-\beta(w))(v_1-\beta(w))$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;for all $w\in[0,1]$. Hence,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\left.\frac{\partial \pi_1(v_1,v_2,w)}{\partial w}\right|_{w=v_1}=-v_1\beta'(v_1)-\beta'(v_1)+2\beta(v_1)\beta'(v_1)=0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\iff\beta(v_1)=\frac{1+v_1}{2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But this strikes me as clearly wrong, if $v_1=0$ why should the player overbid? What am I missing?&lt;/p&gt;&#xA;" OwnerUserId="17825" LastActivityDate="2018-04-04T20:59:52.530" Title="Bayes-Nash equilibrium in Auction" Tags="&lt;game-theory&gt;&lt;auctions&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21307" PostTypeId="2" ParentId="21298" CreationDate="2018-04-04T20:17:52.397" Score="-3" Body="&lt;p&gt;In a typical price-quantity graph, such as &lt;a href=&quot;https://upload.wikimedia.org/wikipedia/commons/thumb/e/ef/Monopoly-surpluses.svg/600px-Monopoly-surpluses.svg.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;this for a monopolist from Wikipedia&lt;/a&gt;, the quantity is the amount produced and sold&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/9vozQ.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/9vozQ.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2018-04-04T20:17:52.397" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21308" PostTypeId="1" AcceptedAnswerId="21311" CreationDate="2018-04-04T20:31:47.010" Score="0" ViewCount="28" Body="&lt;p&gt;Today I read:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;One of Britain’s chief exports is Banking Services.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Now I presume that doesn’t mean consumer savings accounts.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I presume it means investment loans to companies and equities holdings in foreign companies. (Some might argue these are similar)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But if a bank has holdings in a foreign company, is it really exporting Banking Services? Isn’t that just owning things?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is: &lt;strong&gt;What is the concrete meaning of Britain saying they export Banking Services?&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="8211" LastActivityDate="2018-04-04T22:37:49.723" Title="What is the concrete meaning of Britain saying they export Banking Services?" Tags="&lt;macroeconomics&gt;&lt;banking&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21309" PostTypeId="2" ParentId="21306" CreationDate="2018-04-04T20:59:52.530" Score="8" Body="&lt;p&gt;I think your one mistake was writing $\Pr(v_{2} &amp;lt; \beta(v_{1})$ incorrectly. It should be:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\begin{split}&#xA;\pi_1(v_1,v_2)&amp;amp;=\Pr(v_2&amp;lt;\beta(v_1))(v_1-\beta(v_1))\\&#xA;&amp;amp;=F_{2}(v_2&amp;lt;\beta(v_1))(v_1-\beta(v_1))\\&#xA;&amp;amp;= \beta(v_1)(v_1-\beta(v_1))\\&#xA;\end{split}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\begin{split}&#xA;\left.\frac{\partial \pi_1(w,v_{2})}{\partial w}\right|_{w=v_1} =v_1\beta'(v_1) - 2\beta(v_1)\beta'(v_1)&amp;amp;=0\\&#xA;\beta(v_1) &amp;amp;= \frac{v_{1}}{2}\end{split}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Loosely we can look at, say, type $1$ of player $1$. If he bids according to this strategy his expected payoff is $1/4$. Suppose he picks any other bid amount $a$. Then his expected payoff is $(1-a)F(a) = (1-a)a$. This is clearly maximized at $a = 1/2$.&lt;/p&gt;&#xA;" OwnerDisplayName="user11305" LastActivityDate="2018-04-04T20:59:52.530" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21311" PostTypeId="2" ParentId="21308" CreationDate="2018-04-04T22:37:49.723" Score="4" Body="&lt;p&gt;Exports of banking services  means that banks in the UK charge companies and people abroad for banking services, which might include for money transfer, foreign exchange and other broking, wealth and asset management, merger and acquisition services, and other things that banks do. It may include their interest rate margins between taking deposits and making loans, as an implicit fee for financial intermediation&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It does not include actual foreign investment, such as direct investment, portfolio investment or financial investment: those do not count as exports of services in the Balance of Payments though income from them do count as primary income in the Balance of Payments current account&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Nor does it take into account that many of the banks in London are in fact predominately foreign owned or that many of their staff are foreign.  If they operate from London then they are treated as British banks for these purposes, though their profits may then count as an outward flow to their owners in the Balance of Payments &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In 2017 UK exports of financial services (excluding insurance and pension services) were worth about £61 billion; imports of financial services were almost £11 billion&lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2018-04-04T22:37:49.723" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21312" PostTypeId="1" CreationDate="2018-04-04T23:54:15.590" Score="2" ViewCount="167" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Consider the buy-it-now price often included in online auctions. Suppose that 2 bidders in an ascending oral (English) auction bid for an object. Each has values i.i.d uniformly on &lt;span class=&quot;math-container&quot;&gt;$[0,1]$&lt;/span&gt;. Suppose the auction has a buy-it-now price of &lt;span class=&quot;math-container&quot;&gt;$B \ge 1/2$&lt;/span&gt;; either bidder can end the auction by paying &lt;span class=&quot;math-container&quot;&gt;$B$&lt;/span&gt;. Assume that there's an equilibrium when the bidding reaches &lt;span class=&quot;math-container&quot;&gt;$p(x)$&lt;/span&gt; that a bidder with value &lt;span class=&quot;math-container&quot;&gt;$x\geq B$&lt;/span&gt; will pay &lt;span class=&quot;math-container&quot;&gt;$B$&lt;/span&gt; (i.e. &lt;span class=&quot;math-container&quot;&gt;$p(x)$&lt;/span&gt; is the cutoff when a bidder with value &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; pays the buy it now price). Also assume also that &lt;span class=&quot;math-container&quot;&gt;$p'(x)&amp;lt;0$&lt;/span&gt;. i) What price, conditional on winning, does a buyer with valuation &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; expect to pay (as a function of &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$p(x)$&lt;/span&gt;)? &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It seems reasonable to assume that bidders will not bid more than &lt;span class=&quot;math-container&quot;&gt;$p(x)$&lt;/span&gt;. Hence, &lt;span class=&quot;math-container&quot;&gt;$b_1,b_2\in[0,p(x)]$&lt;/span&gt;. Then, it makes sense to consider two cases: where &lt;span class=&quot;math-container&quot;&gt;$x&amp;lt;p(x)$&lt;/span&gt;. Here the expected payment is simply the expected payment of the lower valuation bidder, namely, &lt;span class=&quot;math-container&quot;&gt;$\frac{p(x)}{2}$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Secondly, we should consider the case where &lt;span class=&quot;math-container&quot;&gt;$x&amp;gt;p(x)$&lt;/span&gt;: the expected payment is here, the probability of facing a below-&lt;span class=&quot;math-container&quot;&gt;$p(x)$&lt;/span&gt;-valuation opponent, times their bid, plus the probability of facing an above-&lt;span class=&quot;math-container&quot;&gt;$p(x)$&lt;/span&gt;-valuation opponent times the probability of winning (ties are broken randomly) times &lt;span class=&quot;math-container&quot;&gt;$p(x)$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$p(x)*\frac{p(x)}{2}+(1-p(x)*\frac{1}{2}*p(x))=\frac{1}{2}p(x)$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;ii) Assuming risk neutrality, using the fact that the expected payment&#xA;  with valuation &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; is the same without the buy-it-now option (namely,&#xA;  &lt;span class=&quot;math-container&quot;&gt;$1/2x$&lt;/span&gt;), what is &lt;span class=&quot;math-container&quot;&gt;$p(x)?$&lt;/span&gt; (Note: you should get a quadratic equation; one root will be &lt;span class=&quot;math-container&quot;&gt;$p(x)=x$&lt;/span&gt;, but this is not the solution, given &lt;span class=&quot;math-container&quot;&gt;$p'(x)&amp;lt;0$&lt;/span&gt;)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I'm not sure how to solve this part, and I'm doubting my answer to the first part given that I don't know how it enables me to derive &lt;span class=&quot;math-container&quot;&gt;$p(x)$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerUserId="17825" LastEditorDisplayName="user17900" LastEditDate="2019-03-22T09:31:51.323" LastActivityDate="2019-03-22T09:35:54.297" Title="Auction with &quot;buy-it-now&quot; option" Tags="&lt;game-theory&gt;&lt;auctions&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="21313" PostTypeId="1" AcceptedAnswerId="21316" CreationDate="2018-04-05T04:40:30.463" Score="2" ViewCount="64" Body="&lt;p&gt;I'm reading an article that is claiming that when the Euro was created, banks began lending more money to countries than before because as the Euro is a common currency across many countries one country can't devalue it. According to this article, &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;If you take 10 million Deutsche Marks from Frankfurt and you give it to a Spanish, Greek or Italian firm or bank - and that is prior to monetary union - and then suddenly there is a substantial devaluation of the currency of Spain, of Italy or Greece - something that was happening at regular intervals prior to monetary union - then you know that the capacity of the creditors to repay the loan shrinks. Because their income comes int he local currency, they will not be able to repay when the local currency is devalued.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Why does this matter? If a country was using the Euro, wouldn't they be getting(ignoring increase/decrease in exports and imports due to the devaluation) roughly the same amount of money but in Euros instead of the local currency? I would appreciate clarification on how and why this devaluation is different in terms of repayment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT: For context, the source I'm reading is as follows: Varoufakis, Yanis. &quot;CREDITORS UNINTERESTED IN GETTING THEIR MONEY BACK: DISSOLVING THE EUROZONE PARADOX.&quot; The Journal of Australian Political Economy, no. 77 (2016): 23-36.&lt;/p&gt;&#xA;" OwnerUserId="17892" LastActivityDate="2018-04-05T09:57:09.400" Title="Why would a common currency such as the Euro that can't be devalued be incentive for banks to lend money to a country?" Tags="&lt;currency&gt;&lt;currency-exchange&gt;&lt;eurodollar&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21315" PostTypeId="1" CreationDate="2018-04-05T06:44:43.900" Score="0" ViewCount="55" Body="&lt;p&gt;How can cpi 3.41 and Wpi 3.54 be interpreted? I know that cpi gives the inflation rate but what is it that we understand from these figures?&lt;/p&gt;&#xA;" OwnerUserId="7463" LastActivityDate="2018-04-05T12:12:01.813" Title="Interpretation of price indices" Tags="&lt;inflation&gt;&lt;price-index&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="21316" PostTypeId="2" ParentId="21313" CreationDate="2018-04-05T09:57:09.400" Score="2" Body="&lt;p&gt;When you lend Spain 10 million Deutsche marks, the loan is denominated in a foreign currency: they have to return you 10 million Deutsche Marks (ignoring interest for the moment). But the Spanish earn their income in local currency. If in the meantime their local currency depreciates relative to the Deutsche Mark, the value of the repayment becomes greater in terms of the proportion of their income (which is in local currency) and their ability to repay becomes smaller.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you lend them Euros and they receive their income in Euros, a devaluation doesn't affect the (local) value of the debt.  &lt;/p&gt;&#xA;" OwnerUserId="17895" LastActivityDate="2018-04-05T09:57:09.400" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="21317" PostTypeId="1" AcceptedAnswerId="22617" CreationDate="2018-04-05T10:41:03.733" Score="2" ViewCount="812" Body="&lt;p&gt;The HP Filter has two objectives, with the importance of each objective denoted by the user given value of lambda:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/Gz0c8.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Gz0c8.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Objective 1: minimize the $\tau_t$ in the term in the square brackets such that we minimize the changes in the estimated growth rate over time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Objective 2: We want to bring the $\tau_t$ to be as close as possible to $y_t$ to minimize the first sum in the equation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I am failing to understand is why these acts of minimization will help us discover what the cyclical component of GDP is? Is there a fundamental gap in my knowledge? &lt;/p&gt;&#xA;" OwnerUserId="16530" LastEditorUserId="8815" LastEditDate="2018-04-05T15:08:18.793" LastActivityDate="2018-06-29T12:40:08.980" Title="Understanding the HP Filter" Tags="&lt;macroeconomics&gt;&lt;business-cycles&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21318" PostTypeId="2" ParentId="21315" CreationDate="2018-04-05T12:12:01.813" Score="1" Body="&lt;p&gt;In itself, a price index for single period does not tell you much, as any index is, by definition, without dimension. Assuming that 3.41 is the annual change in the CPI (= Consumer Price Index), this would imply an inflation rate of 3.41%. To be specific, it implies that the total price of a representative commodity basket changed by 3.41%. The WPI (= Wholesale Price Index) covers different commodities and hence yields a different inflation rate. Which one to prefer depends on what you are interested in. Consumer Prices are more relevant to private households, but businesses care about wholesale prices.&lt;/p&gt;&#xA;" OwnerUserId="17735" LastActivityDate="2018-04-05T12:12:01.813" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21319" PostTypeId="2" ParentId="21291" CreationDate="2018-04-05T12:23:47.837" Score="2" Body="&lt;p&gt;I guess you are referring to a situation in which abundand supply of high-skilled workers decrease productivity such that individual &lt;span class=&quot;math-container&quot;&gt;$w_h &amp;lt; w_l$&lt;/span&gt;&#xA;Considering Equation (5) in &lt;a href=&quot;http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.308.299&amp;amp;rep=rep1&amp;amp;type=pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Acemoglu &amp;amp; Autor&lt;/a&gt;, &lt;span class=&quot;math-container&quot;&gt;$H$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$L$&lt;/span&gt; capture supply of both groups of workers. If &lt;span class=&quot;math-container&quot;&gt;$\frac{H}{L}$&lt;/span&gt; becomes sufficiently high, I don't see why the relation between both wages should not become lower than 1. &lt;/p&gt;&#xA;" OwnerUserId="17735" LastEditorUserId="17735" LastEditDate="2018-11-14T08:48:57.033" LastActivityDate="2018-11-14T08:48:57.033" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="21320" PostTypeId="1" AcceptedAnswerId="21330" CreationDate="2018-04-05T14:22:47.610" Score="4" ViewCount="43" Body="&lt;p&gt;&lt;a href=&quot;https://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.12.2.101&quot; rel=&quot;noreferrer&quot;&gt;Heckman (1998)&lt;/a&gt; argues that, if the bar for acceptance is high (so most applicants are rejected), then belonging to a group who quality has high variance tends to help you. The argument is something like this: if employers only hire people whose quality exceeds a certain cutoff, but most people fail the cutoff, then if your group's distribution of quality has higher variance it will have more mass above the cutoff.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://econ2.econ.iastate.edu/classes/econ321/rosburg/Aigner%20and%20Cain%20-%20Statistical%20Theories%20of%20Discrimination%20in%20Labor%20Markets.pdf&quot; rel=&quot;noreferrer&quot;&gt;Aigner and Cain (1977)&lt;/a&gt; also discuss variance based discrimination. Assuming that you send a signal equal to your group's mean, the only effect of higher variance is to dissuade risk averse employers to hire you. There is no Heckman style mechanism where high variance can help you if most people get rejected.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would be very grateful if someone could explain what leads to this contrast.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My (possibly confused) thoughts on this: the Heckman model makes sense if employers decide whether to grant an interview based on whether the probability that someone's quality is above a certain level exceeds a certain cutoff. But that is a crazy hiring rule! Instead, they should just look at whether expected quality exceeds a certain cutoff (to be fair to Heckman, this is supposed to be the hiring rule.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;OK suppose that this is the hiring rule: can high variance still help you (in the context of an audit/correspondence study)? Well, I can see how this works if the researcher perfectly controls on one dimension (e.g. what the auditors say) but doesn't control on another (e.g. attractiveness), and one group has higher variance on that second dimension, which means more of them get over the bar. But that logic totally breaks down in correspondence studies (supposedly also a target). Here the employer does not get to see some realisation from a distribution of quality that is unobserved by the researcher. At best, the employer can say: that group's high variance, so more likely to exceed the cutoff. But that brings us back to the crazy hiring strategy already discussed.&lt;/p&gt;&#xA;" OwnerDisplayName="user17900" LastActivityDate="2018-04-06T01:35:10.757" Title="Why can high variance help you in Heckman (1998) but not Aigner and Cain (1977)?" Tags="&lt;experimental-economics&gt;&lt;discrimination&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21325" PostTypeId="1" AcceptedAnswerId="21328" CreationDate="2018-04-05T19:21:13.790" Score="1" ViewCount="122" Body="&lt;p&gt;A while back I asked &lt;a href=&quot;https://economics.stackexchange.com/questions/14551/how-do-we-estimate-production-functions&quot;&gt;How do we estimate production functions?&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The answers given address cases when dealing with cross-sectional data, However most of the data I've been seeing is given by a time series.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example if we have a (logged) VAR(1) with two variables $x_{t,1}$ and $x_{t,2}$, the appropriate model is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$x_{t,1}=\alpha_1+\beta_{11}x_{t-1,1}+\beta_{12}x_{t-1,2}+\mu_{t,1}$$&#xA;$$x_{t,2}=\alpha_2+\beta_{21}x_{t-1,2}+\beta_{22}x_{t-1,1}+\mu_{t,2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How do we develop concise production functions from a set of equations like these?&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="8815" LastEditDate="2018-04-05T19:30:25.703" LastActivityDate="2018-04-06T01:16:46.797" Title="Estimating production functions with time series data" Tags="&lt;production-function&gt;&lt;applied-econometrics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21327" PostTypeId="1" AcceptedAnswerId="21338" CreationDate="2018-04-05T21:29:22.073" Score="1" ViewCount="2197" Body="&lt;p&gt;Suppose the Fed conducts an open market purchase by buying $10 million in Treasury bonds from Acme Bank. Sketch out the balance sheet changes that will occur as Acme converts the bond sale proceeds to new loans. The initial Acme bank balance sheet contains the following information: Assets – reserves 30, bonds 50, and loans 50; Liabilities – deposits 300 and equity 30.&lt;/p&gt;&#xA;" OwnerUserId="17903" LastActivityDate="2018-04-07T09:58:04.507" Title="Commercial bank balance sheet after Fed purchases $10 million in Treasury Bonds" Tags="&lt;macroeconomics&gt;" AnswerCount="2" CommentCount="9" ContentLicense="CC BY-SA 3.0" />
  <row Id="21328" PostTypeId="2" ParentId="21325" CreationDate="2018-04-05T22:11:51.493" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;How do we develop concise production functions from a set of equations&#xA;  like these?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It goes the other way around.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;VAR's are  a special group of models for time series data, developed mainly for atheoretical forecasting purposes. In a VAR approach we do not assume some structural economic model, we just want to use the past of a variable and its interelations with other variables, to form a good quality predictor (and it is for this reason that when they were first introduced and propagated by Sims,  they created a lot of controversy).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In general, estimating a production function of a single firm using time-series data does not alter the econometric approach described in the answer to your other question, only here the assumption we make is that the unknown parameters refer to a single firm (and not to many firms), and so stay constant across time (and not across firms on the same time period.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A new econometric issue is that with time series data we are forced to deal with the aspect of serial correlation (in a cross-sectional setting, &quot;serial&quot; correlation makes no sense because we can permutate the index without consequences). Serial correlation may emerge in two ways: a) In the regressors  b) in the error term.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A new economic issue in a production function setting is the intertemporal change in Total Factor Productivity.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2018-04-06T01:16:46.797" LastActivityDate="2018-04-06T01:16:46.797" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="21330" PostTypeId="2" ParentId="21320" CreationDate="2018-04-06T01:35:10.757" Score="1" Body="&lt;p&gt;Say you have two distributions, $G$ and $H$ with equal means supported on (say) $[0,1]$ and $H$ is second-order stochastically dominated by $G$. Then, for any concave increasing $u$, we'll have $$\int udG \geq \int udH$$ This would correspond to Aigner and Cain, where the risk averse firm would prefer to hire an agent from distribution G. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, now suppose that $G$ and $H$ are distributions of talent (with the same stochastic ordering i.e. $H \succ_{C} G$). One equivalent notion to this idea is that distribution $G$ can be obtained by ``fusing&quot; together part of the mass of $H$, i.e. by collapsing part of the mass to its respective barycenter. Given this, it is easy to see that there is always a cutoff $\eta \in [0,1]$ such that $H(\eta) \geq G(\eta)$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This corresponds to Heckman's result--if the job is sufficiently demanding, then it will be (at least weakly better) to be part of the high variance population. Moreover, note that this by no means depends on the expected quality of the agent. There are simply more of the highest quality people in the group with distribution $H$ than in the group with distribution $G$. They are not just more likely to exceed the cutoff, there are more of them that exceed the cutoff.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another way to think about the hiring problem is as follows: say a firm wants to hire one person but receives applications from $10$ applicants, $5$ from group $A$ and $5$ from group $B$. A candidate's quality is unknown and it it ranges from $[0,1]$ continuously. Suppose also for the sake of simplicity that the firm may observe the candidate's group (and so knows what distribution he/she is drawn from): the distribution of quality for group $A$ is given by $G$ and the distribution of quality for group $B$ is given by $H$. Interviewing a candidate fully reveals a candidate's type, but the firm has the budget to interview only $4$ candidates. Whom should they interview?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The answer is simple: all four candidates interviewed should be from group $B$ (which has distribution $H$). Why? Because we can think about a candidate's quality as a random variable $X_{i}$ and thus the firm wants to maximize $\mathbb{E}[Z]$ where $$Z:=\max\big\{X_{1},X_{2},X_{3},X_{4}\big\}$$ Since $H \succ_{C} G$, $$\mathbb{E}_{H^{4}}[Z] \geq \mathbb{E}_{G^{4}}[Z]$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note also that $H \succ_{C} G$ $\Rightarrow$ $Var(H) \geq Var(G)$ but not $\Leftarrow$. In this sort of thing, I think it is stochastic dominance and not variance that is the apposite metric.&lt;/p&gt;&#xA;" OwnerDisplayName="user11305" LastActivityDate="2018-04-06T01:35:10.757" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="21331" PostTypeId="1" CreationDate="2018-04-06T02:04:40.713" Score="1" ViewCount="2959" Body="&lt;p&gt;Most business borrow for financing their purchases of raw material and capital etc. Shouldn't a interest rate rise cause cost of production to increase, therefore shifting SRAS to left? Thanks in advance.&lt;/p&gt;&#xA;" OwnerUserId="11329" LastActivityDate="2020-12-21T19:08:10.740" Title="Will an increase in interest rate cause short run aggregate supply to shift?" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;&lt;interest-rate&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21333" PostTypeId="1" CreationDate="2018-04-06T05:34:33.293" Score="1" ViewCount="73" Body="&lt;p&gt;The article &lt;a href=&quot;https://www.economist.com/news/leaders/21739959-president-must-be-firm-not-arrogant-railway-strikes-test-macrons-reforms&quot; rel=&quot;nofollow noreferrer&quot;&gt;Railway strikes test Macron’s reforms - French strikes&lt;/a&gt; states that &quot;Mr Macron’s reform of SNCF is only part of a bigger effort to reshape the welfare state in a country where the public sector consumes 56% of GDP, the highest in the EU.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What country outside of the EU has the highest percentage of GDP in the public sector?&lt;/p&gt;&#xA;" OwnerUserId="8639" LastActivityDate="2018-04-06T15:13:55.523" Title="In what country outside of the EU is the public sector the highest percentage of GDP?" Tags="&lt;gdp&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21334" PostTypeId="2" ParentId="21331" CreationDate="2018-04-06T08:20:59.833" Score="-1" Body="&lt;p&gt;Yes, however a supply shift as a result of interest rates can be (sticky).this is why after a stock drop, a recession can take 1 year- 18 months to occur. So when we look at economic indicators over the past year, the 10-year approaching 3% has not led to a reduction in aggregate supply. It may not be until FY 18 Q4 that we see a drop a significant drop in in supply. Supply and interest rates do not have a “flexible” relationship, but instead a “sticky” one in which supply may not drop immediately, but over time your answer is correct. &lt;/p&gt;&#xA;" OwnerUserId="16329" LastActivityDate="2018-04-06T08:20:59.833" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="21336" PostTypeId="2" ParentId="21333" CreationDate="2018-04-06T10:30:57.910" Score="3" Body="&lt;p&gt;The answer seems to be Kiribati, with a whooping 92%.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Government_spending#As_a_Percentage_of_GDP&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://en.wikipedia.org/wiki/Government_spending#As_a_Percentage_of_GDP&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2018-04-06T10:30:57.910" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="21338" PostTypeId="2" ParentId="21327" CreationDate="2018-04-06T11:24:34.963" Score="1" Body="&lt;p&gt;The sale of the bonds (assets) will only affect the assets-side of the balance sheet.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If Acme bank did not lend out the money, your “bonds” would go 50-10 = 40. And your cash would go 0+10 = 10.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If they lend out the money, bonds still go to 40 and lending goes up by 10, so 50+10 = 60.&lt;/p&gt;&#xA;" OwnerUserId="14207" LastActivityDate="2018-04-06T11:24:34.963" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="21339" PostTypeId="2" ParentId="21333" CreationDate="2018-04-06T12:22:53.973" Score="3" Body="&lt;p&gt;Using the data in the wikipedia link provided by @denesp we have the following picture, based on (2014 I think) Public Spending as percentage of GDP. The first column is GDP percentage bands, the second is the number of countries that fall in each band, the third column is the relative frequency, and the fourth the cumulative relative frequency. Total number of countries is $180$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{array}{| r | r | r | r|}&#xA;  \hline                       &#xA;\text{%GDP range}   &amp;amp; \text {count} &amp;amp; \text{rel. freq} &amp;amp; \text{Cum. rel. freq}  \\&#xA;  \hline &#xA;\hline                      &#xA;   0-5	&amp;amp;0	&amp;amp; \text{0.0%} &amp;amp; \text{0.0%}&#xA;\\&#xA;  \hline                     &#xA;5-10	&amp;amp; 0	&amp;amp; \text{0.0%}&amp;amp; \text{0.0%}&#xA; \\&#xA;  \hline &#xA; 10-15	&amp;amp; 0	&amp;amp; \text{0.0%} &amp;amp; \text{0.0%}\\&#xA;\hline&#xA;15-20	&amp;amp;18	&amp;amp; \text{10.0%} &amp;amp; \text{10.0%}\\&#xA;\hline&#xA;20-25	&amp;amp;26	&amp;amp;\text{14.4%} &amp;amp;\text{24.4%}&#xA; \\&#xA;\hline&#xA;25-30	&amp;amp;31	&amp;amp;\text{17.2%} &amp;amp;\text{41.6%}&#xA; \\&#xA;\hline&#xA;30-35	&amp;amp;26	&amp;amp;\text{14.4%} &amp;amp;\text{56.0%}&#xA; \\&#xA;\hline&#xA;35-40	&amp;amp;29	&amp;amp;\text{16.1%}  &amp;amp;\text{72.1%}&#xA; \\&#xA;\hline&#xA;40-45	&amp;amp;17	&amp;amp;\text{9.4%} &amp;amp;\text{81.5%}&#xA; \\&#xA;\hline&#xA;45-50	&amp;amp;16	&amp;amp;\text{8.9%} &amp;amp;\text{90.4%}&#xA; \\&#xA;\hline&#xA;50-55	&amp;amp;9	&amp;amp;\text{5.0%} &amp;amp;\text{95.4%}&#xA; \\&#xA;\hline&#xA;55-60	&amp;amp;3	&amp;amp;\text{1.7%} &amp;amp;\text{97.1%}&#xA; \\&#xA;\hline&#xA;60-65	&amp;amp;1	&amp;amp;\text{0.6%} &amp;amp;\text{97.7%}&#xA; \\&#xA;\hline&#xA;65-70	&amp;amp;3	&amp;amp;\text{1.7%} &amp;amp;\text{99.4%}&#xA; \\&#xA;\hline&#xA;70-75	&amp;amp;0	&amp;amp;\text{0.0%} &amp;amp;\text{99.4%}&#xA; \\&#xA;\hline&#xA;75-80	&amp;amp;0	&amp;amp;\text{0.0%} &amp;amp;\text{99.4%}&#xA; \\&#xA;\hline&#xA;80-85	&amp;amp;0	&amp;amp;\text{0.0%} &amp;amp;\text{99.4%}&#xA; \\  &#xA;\hline  &#xA;85-90	&amp;amp;0	&amp;amp;\text{0.0%} &amp;amp;\text{99.4%}&#xA; \\&#xA;\hline  &#xA;90-95	&amp;amp;1	&amp;amp;\text{0.6%} &amp;amp;\text{100.0%}&#xA; \\&#xA;\hline  &#xA;95-100	&amp;amp;0	&amp;amp;\text{0.0%} &amp;amp;\text{100.0%}&#xA; \\&#xA;\hline &#xA;\end{array}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The data support a Gamma distribution with shape paramater $k=7.87$ and scale parameter $\theta = 4.29$, for which we have, ($X=$ Pubic spending as GDP %):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/lmYfB.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/lmYfB.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$E(X) = 33.76 ,\;\; SD(X) = 12.3, median \approx 32.3$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The empirical median is $32$ GDP percentage points.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that $90$% of the countries (163 entities in all) are below $50$% public spending as GDP percentage.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2018-04-06T15:13:55.523" LastActivityDate="2018-04-06T15:13:55.523" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="21340" PostTypeId="2" ParentId="21115" CreationDate="2018-04-06T13:56:19.653" Score="-2" Body="&lt;p&gt;As you've said, each unit costs $7. Also, Total Cost= Variable Cost + Fixed Cost. Therefore, when Q=0 TC=0=VC (because the company does not produce any products).&#xA;When Q=1 TC=7 and so on. Seeing your second table, you could easily calculate every TC in every production state by using TC=FC+VC. Now, if your second table is wrong follow my previous advice.&lt;/p&gt;&#xA;" OwnerUserId="16489" LastActivityDate="2018-04-06T13:56:19.653" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21341" PostTypeId="1" CreationDate="2018-04-06T14:15:41.673" Score="2" ViewCount="380" Body="&lt;p&gt;China has 1.2 trillion dollars worth of us treasuries. Why would it be a problem for them to get rid of all of them? Why would that destabilize the US economy?&lt;/p&gt;&#xA;" OwnerUserId="17915" LastActivityDate="2018-04-10T19:02:04.717" Title="Why is it a problem if China starts &quot;dumping&quot; US Treasuries? What does it mean to be dumping?" Tags="&lt;international-trade&gt;&lt;bonds&gt;" AnswerCount="4" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21343" PostTypeId="2" ParentId="21312" CreationDate="2018-04-06T14:43:13.507" Score="3" Body="&lt;p&gt;Here is how I would approach the first question:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;We are conditioning on the fact that you have won. Given the symmetry, this implies that your valuation &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; is greater than your opponent's valuation &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt;.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Given that you have won, you either pay the 'auction price' or &lt;span class=&quot;math-container&quot;&gt;$B$&lt;/span&gt;. If you don't pay &lt;span class=&quot;math-container&quot;&gt;$B$&lt;/span&gt;, you pay somewhere between &lt;span class=&quot;math-container&quot;&gt;$0$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$p(x)$&lt;/span&gt;. The expected auction price is the expected value of the second highest draw, so actually &lt;span class=&quot;math-container&quot;&gt;$p(x)/3$&lt;/span&gt; - not &lt;span class=&quot;math-container&quot;&gt;$p(x)/2$&lt;/span&gt; as you seem to be saying (intuitively, the expected valuation of the lowest bidder must be below the unconditional expected valuation).&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The probability that you pay the auction price is the probability that your opponent's valuation &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; is below your cutoff &lt;span class=&quot;math-container&quot;&gt;$p(x)$&lt;/span&gt;. This is because your opponent will drop out of the bidding as soon as the price exceeds her valuation. &lt;span class=&quot;math-container&quot;&gt;$Pr(y &amp;lt; p(x)) = p(x)$&lt;/span&gt; since &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; is uniform on &lt;span class=&quot;math-container&quot;&gt;$[0, 1]$&lt;/span&gt;.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Therefore, assuming you win, the probability that you pay &lt;span class=&quot;math-container&quot;&gt;$B$&lt;/span&gt; is &lt;span class=&quot;math-container&quot;&gt;$1 - p(x)$&lt;/span&gt;.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Putting these claims together, I conclude that your expected payment conditional on winning equals: &lt;span class=&quot;math-container&quot;&gt;$(p(x)/3)p(x) + B(1 - p(x))$&lt;/span&gt;.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;To check the plausibility of this, set &lt;span class=&quot;math-container&quot;&gt;$p(x) = 1$&lt;/span&gt; so effectively the buy it now option disappears, and yields an expected payment of &lt;span class=&quot;math-container&quot;&gt;$1/3$&lt;/span&gt;. This is the standard result for &lt;span class=&quot;math-container&quot;&gt;$2$&lt;/span&gt; buyers and a uniform distribution.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerDisplayName="user17900" LastEditorDisplayName="user17900" LastEditDate="2019-03-22T09:35:54.297" LastActivityDate="2019-03-22T09:35:54.297" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21345" PostTypeId="2" ParentId="21341" CreationDate="2018-04-06T16:47:24.420" Score="-1" Body="&lt;p&gt;The power of a currency comes from its usage and popularity. The dollar is strong and powerful currency because countries like China hold their state reserves in dollars. By following my statement previously that the power comes from popularity and usage, the problems and downfalls for a currency also come from its abandoning or as you would say - dumping. Abandoning currencies especially from big states that have great economic and influential power like China means distrust in the strength of that currency. In terms of money - distrust means failure of a currency and failure means - currency loses power therefore value. So to put it simply. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Before China dumps the dollar, the exchange rate between the dollar and the euro is (hypotetically) 1 dollar = 1 euro.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;After China dumps the dollar, the exchange rate between the dollar and the euro is (hypotetically) 20 dollars = 1 euro.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When you need more units of a currency to buy 1 unit of another one, means that the first one is weak. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I hope this explains something.&lt;/p&gt;&#xA;" OwnerUserId="17917" LastActivityDate="2018-04-06T16:47:24.420" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21346" PostTypeId="2" ParentId="21341" CreationDate="2018-04-06T16:57:48.920" Score="2" Body="&lt;p&gt;It would increase the total supply of US treasuries available at any point in time, which would require a higher interest rate for the market to clear. Higher interest rates would increase the cost of capital in the US economy, which in most conditions will reduce investment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, higher supply would also decrease the exchange rate of the USD, which could be beneficial for exports (which needs to be considered in a context of higher cost of consumer imports and higher cost of production inputs).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;Dumping&quot; would be fine as a descriptive word for many informal contexts, but &quot;dumping&quot; has specific meaning in an international legal context, such as in the WTO, and so regarding the specific question of what it would mean to unload large volumes of US treasuries at the same time, e.g. for the purpose of negatively impacting the US economy, &quot;dumping&quot; would not be the correct term.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It should also be mentioned that China would immediately lose significant financial assets if the 1.2 trillion in treasuries were to lose 100 billion or 200 billion dollars in equivalent value. Considering the relatively large volume of credit extended in the Chinese economy relative to financial assets, this implies a relatively major economic cost to China if it were to make such a move. On the matter of strategic reasons to hold large volumes of US treasuries, the face value argument of the Chinese government is legitimate, if not the complete story: What else should they be holding if not US treasuries?&lt;/p&gt;&#xA;" OwnerUserId="16499" LastActivityDate="2018-04-06T16:57:48.920" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21347" PostTypeId="1" AcceptedAnswerId="21350" CreationDate="2018-04-06T18:13:38.433" Score="1" ViewCount="107" Body="&lt;p&gt;I sell so called &quot;tokens&quot; for so called Ether.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I receive an arbitrary amount of Ether in a transaction. I sent back a calculated amount of tokens.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I want the price of a token increase as more tokens are sold.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At first I introduced the formula $t=\frac{e}{T+e}$ where $e$ is the amount of Ether received in this transaction, $T$ is the total amount of Ether received before this transaction, and $t$ is the amount of tokens sent back in this transaction.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This formula has the deficiency that the very first payment (that is when $T=0$) always sends back $1$ token, no matter how much Ether we receive in this transaction. This is silly.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Please propose any alternative formulas with less silly results.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Note that it is impossible to make the total amount of tokens received to be independent of whether the purchase is done in one big transaction or several smaller transactions, as I proved in my answer to &lt;a href=&quot;https://math.stackexchange.com/q/2709460/4876&quot;&gt;https://math.stackexchange.com/q/2709460/4876&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Despite the project is nonprofit (noncommercial), the main purpose of this is to receive as much Ether as we can.&lt;/p&gt;&#xA;" OwnerUserId="17919" LastEditorUserId="17919" LastEditDate="2018-04-06T18:32:14.297" LastActivityDate="2020-08-24T05:04:50.457" Title="How to increase price gradually?" Tags="&lt;price&gt;&lt;pricing&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21348" PostTypeId="1" AcceptedAnswerId="21365" CreationDate="2018-04-06T19:01:30.167" Score="1" ViewCount="65" Body="&lt;p&gt;This question began with rental housing (most people do not rent multiple apartments).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The demand for apartment units in any given period is limited to the number of people searching for units (not all searchers must match with a unit in each period--assuming that most begin searching while their current lease is active).  Supply in the rental market is also fixed in the short term.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I expect that using the normal axes (x: Q, y: P) there would be a kink with a vertical line to the X-axis at the lesser of A) the units available B) the number of searchers.  At a certain price all of the searchers/units are matched. Is this correct?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there a different unit to use on the X-axis other than quantity (count) when consumer typically only purchase 1x of an item?&lt;/p&gt;&#xA;" OwnerUserId="17918" LastActivityDate="2018-04-07T17:00:05.423" Title="Demand curve for items where consumers typically only buy a single product" Tags="&lt;supply-and-demand&gt;&lt;housing&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21349" PostTypeId="1" CreationDate="2018-04-06T20:21:21.913" Score="1" ViewCount="86" Body="&lt;p&gt;I found an interesting read in the &lt;a href=&quot;http://archive.is/Iw2Kr&quot; rel=&quot;nofollow noreferrer&quot;&gt;NYTimes&lt;/a&gt; today. It read:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The Chinese government also has much greater control over the economy, allowing it to shield the public from job cuts or factory closings by ordering banks to support industries suffering from American tariffs. It can spread the pain of a trade war while tolerating years of losses from state-run companies that dominate major sectors of the economy. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I could not understand what that meant. Could anybody explain it?&lt;/p&gt;&#xA;" OwnerUserId="17922" LastEditorDisplayName="user18" LastEditDate="2018-04-07T05:45:03.927" LastActivityDate="2018-04-08T18:57:09.767" Title="How can China shield its public from the effects of a trade war?" Tags="&lt;international-trade&gt;&lt;free-trade&gt;&lt;china&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21350" PostTypeId="2" ParentId="21347" CreationDate="2018-04-06T20:28:37.007" Score="0" Body="&lt;p&gt;The formula $t = \frac{e^2}{T^2 + e}$ does not scale linearly:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac{(ke)^2}{(kT)^2 + ke} \ne c \frac{e^2}{T^2 + e}$ for any constants $k$ and $c$. (Linear scaling is OK as this is just a denomination of money. Nonlinear scale is a kind of nonsense as it introduces the need to add arbitrary coefficients, without a hint how to choose particular numerical values.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So I choose the formula $t = \frac{e^2}{T + e}$.&lt;/p&gt;&#xA;" OwnerUserId="17919" LastActivityDate="2018-04-06T20:28:37.007" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21351" PostTypeId="1" AcceptedAnswerId="21352" CreationDate="2018-04-06T21:11:55.807" Score="2" ViewCount="159" Body="&lt;p&gt;One of the key assumption of the OLS is that the normality of the residual.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If this assumption is violated, how can we fix it generally? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Especially, I want to make predictions&lt;/p&gt;&#xA;" OwnerUserId="17923" LastEditorUserId="17923" LastEditDate="2018-04-06T21:56:05.453" LastActivityDate="2018-04-08T18:16:18.143" Title="Normality of residual is violated, How to fix it properly?" Tags="&lt;econometrics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21352" PostTypeId="2" ParentId="21351" CreationDate="2018-04-06T22:29:46.730" Score="2" Body="&lt;p&gt;Use Bayesian regression. It's much more flexible on its assumptions, and much more powerful in its outputs. You'll find that you have to be much more explicit about your assumptions, and you'll have to quantify them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's much harder work, and all the work you do, will be valuable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Normal regression makes it very easy for anyone to do really bad science.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Bayesian regression makes it harder to do anything, but makes it much easier to do good science.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2018-04-06T22:29:46.730" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="21354" PostTypeId="2" ParentId="21351" CreationDate="2018-04-07T03:05:43.977" Score="1" Body="&lt;p&gt;The assumption of normality is not a required assumption for OLS.  Further, the assumption is that the errors are normal, not the residuals.  Nonetheless, there can be a material concern when normality is violated because it depends upon why it was violated.  It only needs &quot;fixed&quot; if there is a reason that it was violated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are a few specific cases where it would be a problem and in those cases, you may need to switch to Bayesian methods, as mentioned above.  Let us imagine you were estimating the prices of automobiles.  There is no reason at all to believe the errors would be anything but normal.  On the other hand, if you were doing work on growth rates or financial assets then the errors couldn't possibly be normally distributed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To back up a little bit, there are three primary classes of estimators, the Frequentist, the Likelihoodist and the Bayesian.  Frequentist and Likelihoodist methods are null hypothesis methods.  Bayesian methods are not.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You were most likely taught the Frequentist method.  It seeks the minimum variance unbiased estimator.  In the general case, the method of ordinary least squares is the minimum variance unbiased estimator.  Under assumptions violations, it may be inconsistent or inefficient.  In that case, robust methods are advised such as Theil's regression or quantile regression.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The main alternative in economics is Fisher's Likelihoodist method.  The assumption of normality is &lt;em&gt;required&lt;/em&gt; to use ordinary least squares in regression with this school of thought.  You need to know the likelihood function to find the maximum likelihood function.  If it does not hold, then OLS is the &lt;em&gt;wrong&lt;/em&gt; estimator.  If you wanted to use the method of maximum likelihood and normality did not hold, then you would need to determine the likelihood function and take the first and second derivative to determine which method was actually correct.  The Frequentist estimator is never a more accurate estimator than the MLE, but it can be worse.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;BEGINNING OF EDIT&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A good example of where ordinary least squares would not be the maximum likelihood formula would be in the logarithmic approximation of the time series $X_{t+1}=RX_t+\epsilon_{t+1},R&amp;gt;1$.  In the log form as $x_{t+1}=rx_t+\varepsilon_{t+1}$ the likelihood function is $$\frac{1}{2\gamma}\text{sech}\left[\frac{\pi}{2}\left(\frac{x_{t+1}-\hat{\beta}x_t-\hat{\alpha}}{\gamma}\right)\right].$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ordinary least squares would be used because the MLE is not analytic and so Fisher's method isn't really viable.  Ordinary least squares is usable for any linear relationship where all the variables have a defined second moment.  An example where this would not be the case are returns on stocks which cannot have a variance, or a mean for that matter as they are the ratio of $$\frac{p_{t+1}q_{t+1}}{p_tq_t}-1,$$ where $p$ are prices and $q$ are shares. Assuming the firm did not go bankrupt or was merged out and ignoring liquidity, the likelihood function would be $$\left[\frac{\pi}{2}+\tan^{-1}\left(\frac{\mu}{\sigma}\right)\right]^{-1}\frac{\sigma}{\sigma^2+(r_t-\mu)^2}.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you perform the integration to find the expectation you will find it does not exist.  This can be derived from the fact that equity securities are sold in a double auction and that there are many potential buyers and sellers.  You can also verify this against the disaggregated trade data in CRSP.  If you control for liquidity, this will be your likelihood function.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;END OF EDIT&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The primary circumstance one would use either method is when there is no actual prior information about the true values for the coefficients in regression.  The methods minimize the maximum loss that could happen by using the estimators in the real world.  To use an analogy, using either of these two methods would minimize the risk of burning a house completely down to the ground from having a group of teenagers come over for a party.  Bayesian methods, conversely, minimize the average damage expected to the house from inviting a bunch of teenagers over for a party.  The Bayesian method doesn't minimize the specific risk of total loss but does minimize the risk of loss from all sources.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Bayesian methods will require you to look at the prior research on the topic and capture this prior knowledge in a probability distribution usually called &quot;the prior.&quot;  You would use both the information in your data and the knowledge in the literature to estimate the location of the parameters.  This tends to make Bayesian methods significantly more accurate than non-Bayesian methods, simply because there is more information included in the solution.  It also makes them difficult to use.  You should get supervision at first or do a lot of reading.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Bayesian methods operate in the parameter space and not the sample space as Frequentist and Likelihoodist methods do.  Data is not random, parameters are.  There is no null hypothesis.  You cannot falsify a null because there isn't one.  There can be infinitely many hypotheses and the set of hypotheses must be mutually exclusive and exhaustive of all cases.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Because you would be operating in the parameter space many problems that exist in non-Bayesian methods are not problems in the parameter space.  To give an example, autocorrelation is a serious issue for non-Bayesian methods and not an issue in Bayesian methods.  It doesn't make the estimate inefficient and it doesn't interfere with hypothesis testing.  Of course, as you have seen there are a different set of problems in Bayesian methods such as constructing the prior.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An important place where Bayesian methods shine is in prediction.  Frequentist predictions depend upon two things.  First, a pivotal value has to exist.  Second, the maximum likelihood estimator needs to be representative of the true value.  If both are true, then the Frequentist prediction can be as good as the Bayesian prediction, but if not will be far from reality.  The Bayesian estimator does not require either of these.  The Bayesian estimate is the distribution $$\Pr(\tilde{x}|\mathbf{X}).$$  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Notice that there are no parameter estimates in there or parameters.  It is not $\Pr(\tilde{x}|\beta;\mathbf{X})$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you have never used a Bayesian method before, begin with William Bolstad's &lt;em&gt;Introduction to Bayesian Statistics.&lt;/em&gt;  You will need to know calculus through integration.  This is because the estimate of the population mean, which is $\bar{x}$ in Frequentist methods is not the estimator of the population mean in Bayesian methods.  For example, the estimate of the mean of an exponentially distributed variable is: $$\Pr(\lambda|x_1\dots{x}_n)=\frac{\prod_{i=1}^n{\lambda{e}^{-\lambda{x_i}}}\Pr(\lambda)}{\int_0^\infty\prod_{i=1}^n{{\lambda{e}^{-\lambda{x_i}}}\Pr(\lambda)}{\mathrm{d}\lambda}},\forall\lambda\in\mathbb{R}^+$$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The $\Pr(\lambda),\forall\lambda\in\mathbb{R}^+$ is determined by your research about prior information on the location of $\lambda$.  As you can tell, this is not plug-n-play like you get for ordinary least squares.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I were you, until my skills in other methods developed, I would use quantile regression.  It is plug-n-play.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you want to provide a little more information about your problem, it might also be possible to tell you if the absence of normality is an issue.&lt;/p&gt;&#xA;" OwnerUserId="11321" LastEditorUserId="11321" LastEditDate="2018-04-08T18:16:18.143" LastActivityDate="2018-04-08T18:16:18.143" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="21355" PostTypeId="2" ParentId="21341" CreationDate="2018-04-07T03:37:24.843" Score="0" Body="&lt;p&gt;If China starts dumping u.s. currencies it simply raises the yield of bonds. It's happened before and is simply part of bond yield fluctuation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Normally when an institution owns a significant percent of a security and decides to try and reposition itself, it begins to sell the security preferably at some percentage of the daily volume or at a rate that the existing market makers can sustain a given price. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The way Treasuries work are that they are for 100 dollars each and they pay periodic coupons which are interest. So a bonds flat value is determined as 100 plus all the coupon payments it will pay yet. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If investments are typically earning a lot then under normal circumstances because you have to wait to collect the coupon payments, and to get the 100 back at maturity, (up to 30 years) the bond may sell for under 100 or at discount. So if you bought the bond for 90 dollars you get 10 plus all coupons as yield on it, giving the yield. Today's yields range from 2.7 to 3 percent roughly which is the same even though some bonds are discounted, some premium and have different coupons depending on issuance.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Binds are issued at auctions by fed, to primary banks. Bonds are then sold on secondary markets where they very in characteristics but sell and buy at a given yield.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If China floods market the bond yield will go up. This is because there aren't enough buyers to sustain given yield, so 100 dollar bond will have to sell for less or at a discount. This means if you buy the bond for under less you get more if you wait for it to mature, thus the yield goes up. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As far as I'm aware the sale and demand for bonds on the secondary markets are the primary factor in determining yield on bonds. If the yield is driven up on the secondary then when the fed issues new bonds they will bid higher coupons because they could otherwise buy more competitive bonds on secondary than at auction.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now considering that as far as I'm aware of the bond coupon is the only net faucet of m0 or newly minted currency. It would take up to 30 years for the new credits to be realized however it would have a net result of adding m0 or clean money to the economy mitigating the reliance on m2 which is currency generated from m0 but by banks in the form of loans and tied to interest. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now considering that banks can not know the deposited, loan terms of everyone else, there is nothing to insure that there is even enough free currency available to pay all outstanding loans and interest, thus defaults and bankruptcy could be simply necessary for it all to account. Additional m0 could lower default rate, and have positive benefits.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now considering that China and Japan have large supply of m0 generating bonds while U.S. uses much more costly and difficult m2, it seems to me this would not be likely course of events that bonds are dumped. But this last half I admit is a bit speculative.&lt;/p&gt;&#xA;" OwnerUserId="14431" LastActivityDate="2018-04-07T03:37:24.843" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21357" PostTypeId="1" CreationDate="2018-04-07T07:23:26.420" Score="-1" ViewCount="44" Body="&lt;p&gt;Could someone help with the following?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Company produces products of daily demand. It employs workers In number of 12 people (HER) Wages of workers. The costs of hiring and firing are 25 per employee, the duration of the working day (h) the Company plans to make organizational modernization (increase the size of service areas, the number of functions performed by each employee and n) and improve the efficiency of production, reducing the number of employees from 12 hours to 10 people. At the same time, it plans to reduce the number of employees to produce the same volume of production at the same cost level. Will this organizational modernization lead to an increase in labor productivity at the enterprise? How should the duration of the working day at the enterprise change as a result of productivity growth from this organizational modernization?&lt;/p&gt;&#xA;" OwnerUserId="17928" LastActivityDate="2021-01-07T15:08:30.857" Title="Productivity issue" Tags="&lt;labor-economics&gt;&lt;productivity&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21358" PostTypeId="2" ParentId="21357" CreationDate="2018-04-07T08:24:58.237" Score="0" Body="&lt;p&gt;We will donate production as y (output), labor as l (workers), and wages as w (compensation). In your example l (labor) is reduced from 12 to 10 which is a sign that productivity is improving because you say that y (output) remains constant. What can we expect? Well (n) decreases and output remains the same, profit increases (profit = (MPL * Price) - w). So the marginal product of labor increases, output stays constant, but wages remain constant in your example. This means that each worker is marginally more productive due to fewer workers (l) producing the same level out output (y), which increases profit. The modernization will be called technology and we can denote it as (k) for capital. The workday should also remain constant because the hours worked is offset by fewer workers (there is missing information in this question so this may not be precise). MPK (the marginal product of capital) is unknown in this problem however, which means the revenue from changes in capital, and the profit as a result of capital is unknown because we don’t know what r (the cost of capital, rent paid for machines) is. So it’s an incomplete question it appears.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In short, based on what you did ask, labor productivity per worker should increase, and work day duration should remain the same because the tech increase appears to be offset by fewer workers, which is why aggregate production (y fixed) remains the same, so we can expect hours to remain the same per worker, although aggregate hours worked fall.&lt;/p&gt;&#xA;" OwnerUserId="16329" LastActivityDate="2018-04-07T08:24:58.237" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21359" PostTypeId="2" ParentId="21349" CreationDate="2018-04-07T08:32:37.583" Score="0" Body="&lt;p&gt;The Chinese government can force banks to lend to factories experiencing job cuts, or to subsidize failing businesses. They can also shift production (due to their control) to sectors not impacted by the trade war. Spreading the pain however means that in order to do this, their central bank may need to increase liquidity, which can lead to an inflationary scenario. But instead of one sector impacted by the tariffs, the pain can be spread to everyone via inflation, which they feel is marginally better than an entire industry shutting down. So if a semi conductor firm is impacted by the tariffs for example, the government can issue loans to that firm to keep production going in-spite of the reduction in demand in America. The firm can find other buyers in other countries and can be sustained after the initial “shock” of the US tariffs. In America, it is unlikely that the government will force banks to lend money to failing industries, although it is still possible for our government to manipulate production obviously. We just don’t to the extent that China does. &lt;/p&gt;&#xA;" OwnerUserId="16329" LastActivityDate="2018-04-07T08:32:37.583" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21360" PostTypeId="2" ParentId="21349" CreationDate="2018-04-07T08:39:02.220" Score="1" Body="&lt;p&gt;&lt;a href=&quot;https://gps.ucsd.edu/faculty-directory/barry-naughton.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Barry Naughton&lt;/a&gt; is an authority on the Chinese economy. He offers evidence on &lt;strong&gt;China's government control over the economy&lt;/strong&gt; in a nice paper called &quot;&lt;a href=&quot;https://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.31.1.3&quot; rel=&quot;nofollow noreferrer&quot;&gt;Is China Socialist?&lt;/a&gt;&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;China's government controls an unusually large proportion of national income flows. He argues that these income streams have grown dramatically as a share of GDP since the mid-1990s. He shows how the &lt;strong&gt;Chinese  government steers  the  economy&lt;/strong&gt;  because it sees a strong economic performance as a core part of its political legitimacy. China's government has some &lt;strong&gt;tools&lt;/strong&gt; to &quot;shield the public from job cuts or factory closings&quot; because of American tariffs. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Beyond the tools of funding direct government programs and ownership, the Chinese system has two distinctive mechanisms through which it attempts to foster development: &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;a set of bureaucratic incentives that reward officials for growth (of GDP and revenue); &lt;/li&gt;&#xA;&lt;li&gt;planning that is centered on the national-level Five-Year Plans that propose a certain trajectory for growth.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Chinese Government's Control over National Income&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/189PP.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/189PP.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The above Figure illustrates an expanded concept of government revenues that includes four main components: &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;budgetary revenues (not including social security);  &lt;/li&gt;&#xA;&lt;li&gt;social insurance  premiums;  &lt;/li&gt;&#xA;&lt;li&gt;land  revenues;  &lt;/li&gt;&#xA;&lt;li&gt;net  income from  state-owned enterprises.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;These four components help Naughton providing an index of government control of resources, which tripled as a share of GDP between 1996 and 2013. This index gives an indication of the overall size of the Chinese government. For instance, all land in China is publicly owned: urban land is owned by the state, and housing is &quot;privately owned&quot; only in the sense that households hold long-term leases, typically of 50–70 years. The  &lt;strong&gt;financial system&lt;/strong&gt;  in  particular is overwhelmingly dominated by the state-owned banks, which generate substantial profits.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Summing all four components, the Chinese government had direct or indirect control  of  38%  of  GDP  in  2015.  Overall,  the  Chinese  government  is  large,  well-resourced,  and  potentially  highly  intrusive.  This  is  both a  distinctive  feature  of the Chinese economy in comparative context, and a dramatic change from the China of 20 years ago.&lt;/p&gt;&#xA;" OwnerUserId="6168" LastEditorUserId="6168" LastEditDate="2018-04-08T18:57:09.767" LastActivityDate="2018-04-08T18:57:09.767" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21361" PostTypeId="2" ParentId="21327" CreationDate="2018-04-07T09:58:04.507" Score="0" Body="&lt;p&gt;Like @ssn, I would be happier if the balance sheet balanced, so let's suppose the original question said &lt;em&gt;&quot;the initial Acme bank balance sheet contains the following information: Assets – reserves 30, bonds 50, and loans 50; Liabilities – deposits &lt;strong&gt;1&lt;/strong&gt;00 and equity 30&quot;&lt;/em&gt;, looking like:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt; Assets               Liabilities&#xA;&#xA; reserves  30         deposits  100&#xA; bonds     50         equity     30&#xA; loans     50             &#xA;          ---                   ---&#xA;          130                   130&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;The impact of the sale of 10 worth of bonds to the Fed is simple as Acme Bank will increase its reserves at the Fed&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt; Assets               Liabilities&#xA;&#xA; reserves  40         deposits  100&#xA; bonds     40         equity     30&#xA; loans     50             &#xA;          ---                   ---&#xA;          130                   130&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Perhaps Acme Bank then lends 10 to a customer, crediting that customer's deposit account&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt; Assets               Liabilities&#xA;&#xA; reserves  40         deposits  110&#xA; bonds     40         equity     30&#xA; loans     60             &#xA;          ---                   ---&#xA;          140                   140&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;The customer then spends the 10 on something (otherwise why borrow?), and presumably instructs Acme Bank to transfer 10 from the customer's deposit account to its supplier's bank, which Acme does by transferring some reserves at the Fed, making Acme's balance sheet look like &lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt; Assets               Liabilities&#xA;&#xA; reserves  30         deposits  100&#xA; bonds     40         equity     30&#xA; loans     60             &#xA;          ---                   ---&#xA;          130                   130&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2018-04-07T09:58:04.507" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21362" PostTypeId="1" CreationDate="2018-04-07T10:13:16.877" Score="1" ViewCount="362" Body="&lt;p&gt;Economies of scope: make it cheaper to produce a range of products together than produce each one on its own as company can share inputs (e.g marketing and finance) removing cost redundancy&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Would this come from horizontal or vertical integration? + example would be great!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, is economies of scope the same as synergy?&lt;/p&gt;&#xA;" OwnerUserId="17778" LastEditorUserId="17778" LastEditDate="2018-04-07T10:24:19.350" LastActivityDate="2019-08-07T14:02:20.293" Title="Do you get economies of scope from horizontal or vertical integration?" Tags="&lt;microeconomics&gt;&lt;economies-of-scale&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21363" PostTypeId="1" CreationDate="2018-04-07T11:04:34.717" Score="2" ViewCount="166" Body="&lt;p&gt;I'm studying Down's Median Voter Theorem which states that if voters have single-peaked preferences over &lt;strong&gt;two&lt;/strong&gt; alternatives arranged along a one-dimensional political spectrum, a majority rule voting system selects the outcome most preferred by the median voter.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As I understand it, single-peaked requires that each agent has an ideal choice, and for each agent, outcomes that are further from his ideal choice are preferred less. But isn't this trivially satisfied when two alternatives are considered (provided agents are not indifferent): If I prefer Clinton to Trump, then my preferences are single peaked over all possible choices.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;I understand that singele-peakedness is far from trivial in $N&amp;gt;2$ alternatives, but $N=2$ is required for MVT. From wikipedia:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The third assumption (3) is that voters are only choosing between two options. This is important because when there are more than two choices for voters, the median voter may not have voted for the most popular option.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="14078" LastActivityDate="2018-04-07T11:04:34.717" Title="Isn't it trivial that preferences are single-peaked over two alternatives?" Tags="&lt;microeconomics&gt;&lt;political-economy&gt;&lt;public-economics&gt;&lt;voting&gt;" AnswerCount="0" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="21365" PostTypeId="2" ParentId="21348" CreationDate="2018-04-07T17:00:05.423" Score="1" Body="&lt;p&gt;In the simplest case, to draw a two dimensional diagram, you need to assume that apartments are homogeneous.Suppose we go along with this. Then the market demand schedule can be written&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Q^d(p) = \sum_{j=1}^N I\{w_j\geq p\}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $N$ is the number of persons looking for an apartment, $p$ is the price and $w_j$ is searcher's $j$ &quot;willingness to pay&quot;. $I\{\}$ is the indicator function, taking the value $1$ if the condition in the curly brackets is satisfied, and the value $0$ otherwise.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So as long as the price is above its willingness to pay, a searcher won't &quot;demand&quot; an apartment (he won't be willing to rent at that price, that is).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Strictly speaking, this will make the demand schedule a collection of distinct points, rather than a line, since indeed, the quantity axis is in discrete values. But since the price variable is essentially continuous, we can imagine that there exists a price where the number of units demanded equals the number of units supplied. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, &lt;strong&gt;be careful with the assumption of a vertical supply curve.&lt;/strong&gt; Ιt does not just imply that the available units are fixed in the short run, it &lt;em&gt;also&lt;/em&gt; implies that apartment owners are willing to rent at &lt;em&gt;any price&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This does not appear to be the empirical case. If prices fall, owners are seen to &quot;withdraw&quot; their apartment from the market, waiting perhaps for better times. This means that while we can imagine that eventually, we will have a vertical segment in the supply curve, for lower price we will observe a rising supply curve as usual.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the rising part we will have analogously, for $M$ owners&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Q^s(p) = \sum_{j=1}^M I\{s_j\leq p\}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $s_j$ is the minimum acceptable rent by the owner. So an owner too is really &quot;active&quot; in the market and contributes to the supply only when the prevailing price is above that threshold (assumed possibly different for each owner).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A normal situation will be &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/ETU2L.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/ETU2L.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2018-04-07T17:00:05.423" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="21366" PostTypeId="1" AcceptedAnswerId="21373" CreationDate="2018-04-07T17:32:22.790" Score="2" ViewCount="55" Body="&lt;p&gt;I am currently studying an economics case study on protectionist measures but came across a measure which I have not heard off before, one which research has not shed any light on. The case study gives examples of protectionist measures from a range of countries, the one I am confused about reads:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Fuel for official cars in Argentina can only be bought from state-owned oil companies&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The protectionist measures such as tariffs and quotas do not seem to apply here. Further research gives &lt;a href=&quot;http://www.sanandres.esc.edu.ar/secondary/economics%20packs/international_economics/page_18.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;this&lt;/a&gt; list of protectionist measures, but this doesn't appear to fit in one of those categories either.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Several Google searches have turned up no results either.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My Question:&lt;/strong&gt; What type of protectionist measure is the example above?&lt;/p&gt;&#xA;" OwnerUserId="15286" LastEditorUserId="1601" LastEditDate="2018-04-07T17:50:15.250" LastActivityDate="2018-04-08T14:30:22.443" Title="What type of protectionist measure is this?" Tags="&lt;international-trade&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="21369" PostTypeId="1" AcceptedAnswerId="21370" CreationDate="2018-04-08T03:41:27.823" Score="3" ViewCount="181" Body="&lt;p&gt;What is the practical use of knowing a firms average cost curve?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reason why I ask is because computational problems that a firm faces are either with regards profit maximization or cost minimization and average cost curves are never used in computations. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I can refine the question, what economic theory is derived from the average cost curve that are not given by marginal cost curve?&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2018-04-08T13:58:42.290" Title="what results can be derived from the average cost curve?" Tags="&lt;microeconomics&gt;&lt;cost-functions&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21370" PostTypeId="2" ParentId="21369" CreationDate="2018-04-08T06:54:22.553" Score="3" Body="&lt;p&gt;Assuming a firm is a perfect competitor in input markets, the long-run average cost curve, which traces out the minimums of short-run average cost curves, can be used to characterize economies and diseconomies of scale for a firm. This is definitely a practical concept in business and IO. In an industry where the long-run average cost curve is always decreasing, a natural monopoly will tend to emerge due to the increasing cost-efficiency of larger firms.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a monopsony, the employing firm's average labor cost curve is equal to the supply of labor in the labor market. The marginal cost curve lies above the supply curve in this market because the firm's market power allows it to expressly set wages as a function of the quantity of labor. One reason this is practical is that it offers a potential theoretical explanation of why we do not see significant disemployment effects, or may even see an increase in employment, from establishing minimum wages in particular labor markets.&lt;/p&gt;&#xA;" OwnerUserId="14688" LastActivityDate="2018-04-08T06:54:22.553" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21372" PostTypeId="2" ParentId="21369" CreationDate="2018-04-08T13:58:42.290" Score="2" Body="&lt;p&gt;Short answer: whether a firm's maximum 'profit' at the point where marginal revenue equals marginal cost is positive or negative depends on whether average revenue exceeds average cost at that point.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To give a simple numerical example, suppose for a firm in a perfectly competitive market:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$MR = AR = 1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$TC = 2 + 0.4Q + 0.1Q^2$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $MR$ is marginal revenue, $AR$ is average revenue, $TC$ is total cost and $Q$ is quantity produced and sold (for a defined period).  Then marginal cost $MC$ is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$MC = 0.4 + 0.2Q$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and $MC = MR$ when:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$0.4+0.2Q=1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;implying $Q = 3$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At that point, however, average cost $AC$ is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$AC = \frac{TC}{Q} = \frac{2 + 0.4(3)+ 0.1(3^2)}{3} = \frac{4.1}{3} \approx 1.37 &amp;gt; 1 = AR$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the firm would make a loss of $4.1 - 3 = 1.1$ by producing at $Q=3$. In this case 'profit' at the point identified by equating $MC$ and $MR$ is only a &lt;em&gt;local maximum&lt;/em&gt; within the range $Q &amp;gt; 0$.  Note for example that the loss at $Q=2$ is $3.2-2=1.2$ and that at $Q=4$ is $5.2-4=1.2$. The &lt;em&gt;global maximum&lt;/em&gt; 'profit' within the range $Q\geq0$ is zero at $Q=0$, so (considering the period in isolation), the firm would do better not to produce at all.&lt;/p&gt;&#xA;" OwnerUserId="1417" LastActivityDate="2018-04-08T13:58:42.290" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21373" PostTypeId="2" ParentId="21366" CreationDate="2018-04-08T14:30:22.443" Score="2" Body="&lt;p&gt;Within the WTO framework, this would fall under the &lt;a href=&quot;https://www.wto.org/english/docs_e/legal_e/rev-gpr-94_01_e.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;government procurement agreement&lt;/a&gt;, as it is a restriction on who the government can buy from that limits opportunities for foreign firms.&lt;/p&gt;&#xA;" OwnerUserId="16631" LastActivityDate="2018-04-08T14:30:22.443" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21374" PostTypeId="1" AcceptedAnswerId="21375" CreationDate="2018-04-08T16:12:46.363" Score="1" ViewCount="47" Body="&lt;p&gt;Consider the case when some economic variable affects some another (for example, interest rate affects price index) because it involves human decisions. The effect is not immediate and would take some time to begin. I am searching for the name of this delayed effect and the formula or mathematical or statistical model behind.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am not economist, I just thought I would find an answer in economics realm&lt;/p&gt;&#xA;" OwnerUserId="4456" LastActivityDate="2018-04-08T16:31:26.123" Title="What is the name and the mathematical model of this effect" Tags="&lt;mathematical-economics&gt;&lt;statistics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21375" PostTypeId="2" ParentId="21374" CreationDate="2018-04-08T16:31:26.123" Score="1" Body="&lt;p&gt;I know that this is called price “stickiness”. Price “flexibility” is when something such as interest rates would bring prices to equilibrium quickly. Price stickiness in this case could have a delayed effect as you mentioned. We could also call this “elasticity”. For simple models rise over run can measure price elasticity. For example, a 5% change in interest rates, and it’s corresponding impact on prices could be measured by slope (rise/run). &lt;/p&gt;&#xA;" OwnerUserId="16329" LastActivityDate="2018-04-08T16:31:26.123" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21376" PostTypeId="1" CreationDate="2018-04-08T18:15:49.120" Score="2" ViewCount="53" Body="&lt;p&gt;I'm in the early stages of planning a research agenda in this area, which means studying the current literature with an eye for further research opportunities.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://link.springer.com/article/10.1023/A:1014382532639&quot; rel=&quot;nofollow noreferrer&quot;&gt;The Economics of Science and Technology, Audretsch et al&lt;/a&gt; (2002) is one paper which I've found to be valuable. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What are some essential readings on and related to this topic? &lt;/p&gt;&#xA;" OwnerUserId="16563" LastEditorUserId="16563" LastEditDate="2018-04-08T22:03:54.883" LastActivityDate="2018-04-08T22:03:54.883" Title="Reference Request: Primer on Relationship Economic Growth and Science / Technology" Tags="&lt;reference-request&gt;&lt;economic-growth&gt;&lt;technology&gt;&lt;technological-progress&gt;" AnswerCount="0" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21377" PostTypeId="1" CreationDate="2018-04-08T19:17:10.720" Score="1" ViewCount="72" Body="&lt;p&gt;I would like to quantify the importance of computing power for economic aggregate output in an economy in a &quot;simple&quot; GDP-to-installed-CPU ratio.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The idea is to calculate a measure similar to GDP-to-capital.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The challenge lies in quantifying installed CPU power in an economy. That is, to define an adequate (and feasible) measure of installed computational facilities and have an idea how to measure this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There have been objections to a previous version of this question on the basis that this is difficult. It might, in fact, be.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any suggestions on parts of this problem are highly welcome.&lt;/p&gt;&#xA;" OwnerUserId="16669" LastEditorUserId="16669" LastEditDate="2018-04-09T20:55:11.477" LastActivityDate="2018-06-12T02:14:00.023" Title="GDP per Installed Computing Facilities" Tags="&lt;gdp&gt;&lt;productivity&gt;" AnswerCount="3" CommentCount="10" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21381" PostTypeId="1" AcceptedAnswerId="21386" CreationDate="2018-04-09T02:44:22.220" Score="2" ViewCount="101" Body="&lt;p&gt;I am making an OLS model. Firstly, I want to confirm that checking heteroskedasticity. &#xA;How to check the presence of heteroskedasticity?&#xA;Is it just plot resid against independent variables, right? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Secondly, If the model does have heteroskedasticity, does it impact this OLS model prediction? &lt;/p&gt;&#xA;" OwnerUserId="17923" LastEditorUserId="17923" LastEditDate="2018-04-09T16:24:07.127" LastActivityDate="2018-04-11T00:45:16.110" Title="heteroskedasticity OLS model prediction" Tags="&lt;econometrics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21382" PostTypeId="1" AcceptedAnswerId="21383" CreationDate="2018-04-09T05:26:02.683" Score="3" ViewCount="733" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;&quot;An important indicator of low capital per head available in developing countries is the consumption of energy&quot;&lt;/strong&gt;. I could not decipher the concept.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="17944" LastActivityDate="2018-04-09T11:44:48.883" Title="How can energy consumption be an indicator of per capita availability of capital?" Tags="&lt;energy-economics&gt;&lt;capital&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21383" PostTypeId="2" ParentId="21382" CreationDate="2018-04-09T06:33:46.997" Score="7" Body="&lt;p&gt;In economics, &lt;strong&gt;capital&lt;/strong&gt; refers to things that are used to produce other things. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, capital includes tangible things like a delivery truck, an office building, or a factory. These are things which often require energy to run.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence, if a developing country has low capital per head, then it probably also has few delivery trucks, office buildings, and factories. And hence, it probably also has lower energy consumption.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastEditorDisplayName="user18" LastEditDate="2018-04-09T06:41:19.213" LastActivityDate="2018-04-09T06:41:19.213" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21386" PostTypeId="2" ParentId="21381" CreationDate="2018-04-09T08:57:35.263" Score="4" Body="&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;You can also statistically test heteroskedasticity (e.g., White's test: regress squared residuals from OLS on $\hat{y}$ and $\hat{y}^2$, or if you have a simple model, regress $\hat{u}^2$ on $x$ and $x^2$).&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;It's unclear what you mean by your &quot;model having heteroskedasticity&quot; (do you mean the error term is heteroskedastic?) and &quot;impacting the prediction&quot;. You can always &lt;em&gt;choose to&lt;/em&gt; ignore heteroskedasticity if you want. (You seem to do so, as you mentioned OLS.) Or you can have a different estimator (e.g., WLS) for a better (sometimes only slightly better) predictor using the same model. Or you can even have a model that incorporates heteroskedasticity explicitly as in, for example, GARCH models in time series. Please be more specific if you want more help. You might want to read this post for time series: &lt;a href=&quot;https://stats.stackexchange.com/questions/175360/forecasting-ar-arch-garch-models&quot;&gt;https://stats.stackexchange.com/questions/175360/forecasting-ar-arch-garch-models&lt;/a&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="10775" LastActivityDate="2018-04-09T08:57:35.263" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="21389" PostTypeId="2" ParentId="21382" CreationDate="2018-04-09T11:44:48.883" Score="1" Body="&lt;p&gt;Per capita availability of capital very strongly correlates with GDP per capita. GDP measures all economic activity and the capital is the input to this activity. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So your question is pretty much an extension of &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;How is energy consumption related to GDP?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Well, if not for differences in energy efficiency, GDP would be determined by energy consumption.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a globalized world most businesses and countries have similar energy efficiencies, and if they do differ, poor countries have consistently lower energy efficiency. This preserves a neat correlation between GDP and energy consumption.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is so much empirical evidence of it that it is pretty much a rule. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can browse &lt;a href=&quot;https://www.google.com/search?q=correlation+between+energy+consumption+and+gdp&amp;amp;dcr=0&amp;amp;source=lnms&amp;amp;tbm=isch&amp;amp;sa=X&quot; rel=&quot;nofollow noreferrer&quot;&gt;Google image search&lt;/a&gt; to see the evidence of it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Many poor countries lack statistical apparatus to measure their GDP and use data like electricity consumption to estimate their GDP every year.&lt;/p&gt;&#xA;" OwnerUserId="6231" LastActivityDate="2018-04-09T11:44:48.883" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21390" PostTypeId="1" AcceptedAnswerId="21462" CreationDate="2018-04-09T12:03:59.643" Score="1" ViewCount="2027" Body="&lt;p&gt;I'm currently learning the Mundell Fleming model, and so from my textbook and other sources I've figured out the effect of increase in money supply and government expenditure increase for the following conditions:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Fixed &amp;amp; floating exchange rates (perfect capital mobility / BP horizontal)&lt;/li&gt;&#xA;&lt;li&gt;Fixed &amp;amp; floating exchange rates (imperfect capital mobility, BP flatter than LM curve)&lt;/li&gt;&#xA;&lt;li&gt;Fixed exchange rate (imperfect capital mobility, BP steeper than LM curve)&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;I'm stuck at figuring out the effect of a fiscal expansion in the case of &lt;strong&gt;floating exchange rate with the BP curve steeper than the LM curve&lt;/strong&gt;. My textbook has not mentioned it but I'd like to how it'd turn out. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here's my guess:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/s6CcT.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/s6CcT.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The economy is initially at the point A. There is fiscal expansion:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;IS moves to the right (1 to 2)&lt;/li&gt;&#xA;&lt;li&gt;At B, there is a deficit in BOP, which causes the domestic currency to depreciate. &lt;/li&gt;&#xA;&lt;li&gt;This increases exports and decreases imports, which causes net exports to increase, which then causes Y to increase, which shifts IS further up (IS 3). &lt;/li&gt;&#xA;&lt;li&gt;At B, because of increase in net exports, BOP improve and so BP also shifts to the right. &lt;/li&gt;&#xA;&lt;li&gt;The economy settles at the new equilibrium C. &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Am I correct?&lt;/p&gt;&#xA;" OwnerUserId="6486" LastActivityDate="2018-04-13T10:14:17.687" Title="IS-LM-BP Model: How will income and interest rate change if government expenditure is increased?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21391" PostTypeId="1" CreationDate="2018-04-09T12:26:50.200" Score="0" ViewCount="47" Body="&lt;p&gt;Doctors average salary is around \$110,000 a year, whereas NBA stars salary may well cross \$5,000,000 a season. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why do sports players and television stars make more than doctors and politicians? &lt;/p&gt;&#xA;" OwnerUserId="17946" LastEditorUserId="1601" LastEditDate="2018-04-09T14:07:08.717" LastActivityDate="2018-04-10T10:03:34.347" Title="Incomes of different professions" Tags="&lt;labor-economics&gt;" AnswerCount="1" CommentCount="1" ClosedDate="2018-04-10T10:13:50.580" ContentLicense="CC BY-SA 3.0" />
  <row Id="21392" PostTypeId="2" ParentId="21391" CreationDate="2018-04-09T12:30:33.297" Score="0" Body="&lt;p&gt;NBA stars create more money (ticket prices, jersey sales, merchandising, branding). However, only few basketball players play in the NBA, the 99% of basketball players are amateurs. But all the doctors earn realitively well.&lt;/p&gt;&#xA;" OwnerUserId="5017" LastActivityDate="2018-04-09T12:30:33.297" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21393" PostTypeId="1" CreationDate="2018-04-09T13:27:57.063" Score="14" ViewCount="2355" Body="&lt;p&gt;We know that the fundamental economic problem is scarce resources relative to unlimited wants. **Does this apply to apps and Ebooks?**They are essentially virtual products who have in theory have unlimited supply. &lt;/p&gt;&#xA;" OwnerUserId="17946" LastEditorUserId="17946" LastEditDate="2018-04-09T16:47:42.650" LastActivityDate="2018-04-10T12:06:19.647" Title="The supply and demand of Virtual Products" Tags="&lt;microeconomics&gt;&lt;supply-and-demand&gt;&lt;price&gt;&lt;resource-economics&gt;" AnswerCount="5" CommentCount="1" FavoriteCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="21394" PostTypeId="2" ParentId="21393" CreationDate="2018-04-09T14:35:54.553" Score="3" Body="&lt;p&gt;Someone still has to build the app or ebook. In other words, these products are characterized by large fixed costs of production and low variable costs. The marginal cost is positive because there exists a small distribution cost (such as internet bandwidth or maintenance of a website).&lt;/p&gt;&#xA;" OwnerUserId="17940" LastActivityDate="2018-04-09T14:35:54.553" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21396" PostTypeId="2" ParentId="21393" CreationDate="2018-04-09T18:33:58.820" Score="14" Body="&lt;p&gt;The book &lt;a href=&quot;https://rads.stackoverflow.com/amzn/click/087584863X&quot; rel=&quot;noreferrer&quot;&gt;Information Rules&lt;/a&gt; by Google Chief Economist Hal Varian (with Carl Shapiro) deals with many issues raised by the particular features of the digital economy. In general, he finds you don't need new models, and that things are well approximated by high fixed and low or zero marginal cost of production.&lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2018-04-09T19:47:03.003" LastActivityDate="2018-04-09T19:47:03.003" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21397" PostTypeId="1" AcceptedAnswerId="21415" CreationDate="2018-04-09T20:37:21.247" Score="1" ViewCount="180" Body="&lt;p&gt;I would like to model a supply and demand cryptocurrency market, not necessarily for Bitcoin, but for any coin.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My difficulty is that I don't know what exponential factor might be realistic to do so.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, I was thinking to pick the exponential factor of e to the power of -10 increase per coin, this happens in case you exchange fiat money for crypto.  Same exponential factor applicable for decrease, in case that the reverse transaction is performed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I searched online, and I can't seem to find a value for this factor, or additionally if it is static or dynamic.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, with the above data, if the starting value of a coin is \$300 and someone invests \$300,000 to buy 1,000 coins, the value per coin goes to \$300.0457.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But if someones invests \$3,000,000 the value goes to \$345.7, I am wondering if it is realistic &lt;em&gt;given&lt;/em&gt; that the total coin supply is 8 Million for example?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can someone help and reason about the choices?&lt;/p&gt;&#xA;" OwnerUserId="17952" LastEditorUserId="12304" LastEditDate="2018-04-19T11:01:34.813" LastActivityDate="2018-04-19T11:01:34.813" Title="What is a suitable exponential to model a currency or cryptocurrency price increase?" Tags="&lt;supply-and-demand&gt;&lt;cryptocurrency&gt;" AnswerCount="2" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="21398" PostTypeId="2" ParentId="21393" CreationDate="2018-04-09T20:46:55.380" Score="8" Body="&lt;p&gt;Your broad idea is right. Since the marginal cost of reproducing digital goods is essentially zero, there is a sense in which is appears optimal to give the good to any consumer who has a positive value for it. In this sense, such goods are superficially non-scarce. However, there are some important caveats to this line of reasoning that results in the goods being scarce &lt;em&gt;in practice&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Fixed costs = scarce variety&lt;/strong&gt; Although producing copies of an existing digital good is almost costless, producing the first copy can be very expensive (e.g. \$XXX million for a Hollywood movie). While it is almost costless to distribute a movie to many viewers, it is extremely costly to produce many different movies. Thus, while copies of any given movie can be non-scarce, there remains a natural scarcity in the &lt;em&gt;variety&lt;/em&gt; of movies available and there is a non-trivial economic choice in which movies get produced.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Limited attention&lt;/strong&gt; Although it might be possible to distribute ebooks, music, apps, etc., at approximately zero marginal cost, the attention needed to consume these digital goods is fundamentally scarce (we all have only 24 hours in each day and can't pay attention to more than a couple of things at a time). Thus, even if we can distribute infinite quantities of these goods, we can only ever consume them in finite quantities and must make choices—just as for more traditional goods. Thus, there is a non-trivial economic choice in which digital goods we consume.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Intellectual property = monopoly&lt;/strong&gt; One feature of digital goods is that they can be reproduced at approximately zero marginal cost. But the initial cost of producing the first copy (i.e., the fixed cost) is comparatively large. This raises a problem: how can we allow sellers to cover their fixed cost when a competitive market (with $\text{price} = \text{marginal cost}\approx0$) would leave them with zero profit? The main approach society uses to do this is to grant intellectual property rights (such as copyright) to the authors of the first copy. But that makes the author a de facto monopolist in produciton of the digital good. Like any monopolists, they will have an incentive to ration supply in order to increase the price (and profit). Thus, even if it costs the seller almost zero to produce a copy, it will often cost the consumer a non-trivial sum to buy it. So protecting intellectual property automatically results in a kind of artificial scarcity.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2018-04-09T20:46:55.380" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21400" PostTypeId="1" AcceptedAnswerId="21404" CreationDate="2018-04-09T21:22:25.803" Score="2" ViewCount="119" Body="&lt;p&gt;Which academic paper does this diagram come from? Need to know for citation purposes. Apparently its King and Rebelo (2005) but doesn't seem to be the case.&lt;br&gt;&#xA;&lt;a href=&quot;https://i.stack.imgur.com/dOV86.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/dOV86.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="17955" LastActivityDate="2018-04-10T02:04:00.280" Title="Real Business Cycle Theory" Tags="&lt;macroeconomics&gt;&lt;labor-economics&gt;&lt;real-business-cycles&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21402" PostTypeId="2" ParentId="21397" CreationDate="2018-04-10T01:11:13.037" Score="4" Body="&lt;p&gt;If I understand correctly you are asking for a model of the price of bitcoin based on the number of transactions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is impossible for a number of reasons.&#xA;1) Theres not necessarily a relationship between those two variables&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) Even if there is a relationship between the two variables then there may be other variables which have an equal or stronger effect (very likely) making the variable a bad predictor.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;3) If there is a relationship, and that relationship is not causal then knowing the relationship would cause it to cease to exist as people begin to trade on arbitrage with that model which would cause it to stop being effective.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;4) If I could model the price of bitcoin I certainly wouldn't be telling you, instead I'd be living it up on some private island.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question makes no sense and is by far too complicated of a question. This is the type of topic that requires a research paper and will not necessarily provide results.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is why you are getting downvoted. Because there is no logical answer to what you are asking.&lt;/p&gt;&#xA;" OwnerUserId="10245" LastActivityDate="2018-04-10T01:11:13.037" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="21403" PostTypeId="1" AcceptedAnswerId="21405" CreationDate="2018-04-10T01:50:31.003" Score="2" ViewCount="725" Body="&lt;p&gt;I wonder how do I check heteroscedasticity in the OLS regression model using graph. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What kind of plot should I use? Plotting residual against what? Independent variables?&lt;/p&gt;&#xA;" OwnerUserId="17923" LastActivityDate="2018-04-10T05:04:31.553" Title="Graphically detecting heteroscedasticity in OLS" Tags="&lt;econometrics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21404" PostTypeId="2" ParentId="21400" CreationDate="2018-04-10T02:04:00.280" Score="5" Body="&lt;p&gt;It's from King and Rebelo (2000) &quot;Resuscitating Real Business Cycles&quot;. Here is a &lt;a href=&quot;http://www.nber.org/papers/w7534.pdf&quot; rel=&quot;noreferrer&quot;&gt;link to the NBER working paper version&lt;/a&gt;. The graph is in Figure 8 on p.94.&lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2018-04-10T02:04:00.280" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21405" PostTypeId="2" ParentId="21403" CreationDate="2018-04-10T04:19:28.900" Score="5" Body="&lt;p&gt;You can visually inspect for heteroscedasticity in the disturbances by plotting the regression residuals against the fitted values and then checking if you can discern some pattern to the spread of the residuals in the scatterplot. The idea here is that the variance (spread) of heteroscedastic errors $\varepsilon_i$, conditional on the explanatory variables $X_i$, is &lt;strong&gt;not&lt;/strong&gt; constant:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ Var(\varepsilon_i | X_i) \neq \sigma^2.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can also explicitly test for heteroscedasticity in a linear regression by using statistical tests such as Breusch-Pagan or White.&lt;/p&gt;&#xA;" OwnerUserId="14688" LastEditorUserId="14688" LastEditDate="2018-04-10T05:04:31.553" LastActivityDate="2018-04-10T05:04:31.553" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="21406" PostTypeId="1" AcceptedAnswerId="21407" CreationDate="2018-04-10T05:39:39.700" Score="0" ViewCount="66" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/yp4Ta.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/yp4Ta.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't know how to compute the average income and the average utility for the second case. It is confused because I have to consider two densities $[0,0.5]$ and $[0.5,1.2]$.Can anybody tell me how to compute this? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you in advance!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit: $\bar {z} =$ the average income, and $z_i$ = the income of an individual $i$. $U(\cdot) =$ utility function for all. &lt;/p&gt;&#xA;" OwnerUserId="17957" LastEditorUserId="17957" LastEditDate="2018-04-11T02:23:08.743" LastActivityDate="2018-04-11T02:23:08.743" Title="Compute the average income and the average utility" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="21407" PostTypeId="2" ParentId="21406" CreationDate="2018-04-10T08:56:50.553" Score="2" Body="&lt;p&gt;These are not two densities, but one density defined on the interval $[0,1.2]$, taking two different values. The average income is then the integral of the density function, i.e. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\int_0^{0.5} 1 x \, dx + \int_{0.5}^{1.25} \frac{2}{3} x \, dx = \frac{9}{16} = 0.5625&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In order to obtain the average income, you do the same with the Utility and $\bar{z} = \frac{9}{16}$.&lt;/p&gt;&#xA;" OwnerUserId="17735" LastActivityDate="2018-04-10T08:56:50.553" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="21408" PostTypeId="2" ParentId="21393" CreationDate="2018-04-10T09:12:20.863" Score="2" Body="&lt;p&gt;Joel Spolsky wrote an essay about this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.joelonsoftware.com/2004/12/15/camels-and-rubber-duckies/&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.joelonsoftware.com/2004/12/15/camels-and-rubber-duckies/&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As he owns and runs a software developer company, his angle was &quot;What price should I charge?&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;His main points:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Sunk cost is irrelevant, unless you go bankrupt. &lt;/li&gt;&#xA;&lt;li&gt;You are a monopoly and can maximize profit * sales rather than marginal price.&lt;/li&gt;&#xA;&lt;li&gt;Segmenting the market is a win. (Home/Professional/Enterprise Editions)&lt;/li&gt;&#xA;&lt;li&gt;Everything he has said so far is wrong, because psychology.&lt;/li&gt;&#xA;&lt;li&gt;What you &lt;em&gt;really&lt;/em&gt; want is a loyal customer base that stays with you and keeps paying a little for a long time.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I highly recommend reading the whole essay.  It is well written and has implications far beyond the software industry.&lt;/p&gt;&#xA;" OwnerUserId="13494" LastActivityDate="2018-04-10T09:12:20.863" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21411" PostTypeId="2" ParentId="21393" CreationDate="2018-04-10T11:37:59.113" Score="2" Body="&lt;p&gt;Another way to look at this is that for many virtual products, users only use them once. No single person needs 2 copies of the same e-book.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus there are many subscription style services for these, and traditional supply and demand applies directly to them:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Supply is determined by the cost of producing a constant stream of new material for the subscribers.&lt;/li&gt;&#xA;&lt;li&gt;Demand is determined by how much material each user watches per month.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="17959" LastActivityDate="2018-04-10T11:37:59.113" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21414" PostTypeId="2" ParentId="20488" CreationDate="2018-04-10T12:52:45.347" Score="0" Body="&lt;p&gt;One possibility is basing it on the bail bond system, paying a recovery fee for rescuing distressed people in certain circumstances.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The United States is unusual in having a private bounty hunting system. Under such a system, bounty hunters receive a bounty for carrying out arrests for those who have skipped bail. B&lt;a href=&quot;https://en.wikipedia.org/wiki/Bail_in_the_United_States&quot; rel=&quot;nofollow noreferrer&quot;&gt;ail is a kind of surety bond which you post to the court to go free between indictment and the outcome at trial&lt;/a&gt;. The bails are often large and therefore borrowed from bail bondsmen. If the defendant fails to show up for their trial then the bond is held until they do and eventually forfeited. Good conduct is often controlled through a licensing system. Problem here is such disasters may be infrequent enough that people won't bother having the license. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are also several &lt;a href=&quot;http://www.bornfreeusa.org/b4a2_bounty.php&quot; rel=&quot;nofollow noreferrer&quot;&gt;US states that have wildlife bounties, typically for vermin animals&lt;/a&gt;. For example, in Michigan hunters can receive \$0.10 per rat they kill. So you could just have a similar system for rescued people. This is a like the above suggestion, but without a licensing requirement. The worry here is that people may scheme to put themselves in harm's way to get the bounty paid to others.   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another possibility is something like a &quot;posse comitatus is the common-law or statute law authority of a county sheriff, or other law officer, to conscript any able-bodied man to assist him in keeping the peace or to pursue and arrest a felon.]&lt;a href=&quot;https://en.wikipedia.org/wiki/Posse_comitatus&quot; rel=&quot;nofollow noreferrer&quot;&gt;3&lt;/a&gt;&quot; In &lt;a href=&quot;https://scholarlycommons.law.northwestern.edu/cgi/viewcontent.cgi?referer=&amp;amp;httpsredir=1&amp;amp;article=7539&amp;amp;context=jclc&quot; rel=&quot;nofollow noreferrer&quot;&gt;Kopel (2015)&lt;/a&gt; (see starting page 71) many states compensate members of the posse and other deputized citizens for their service analogously to jury service. Under this model Cajuan Navy members would present themselves to law enforcement, show they had the proper equipment and preparation, and then be deputized to help, providing compensation and indemnification.  &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2018-04-10T12:52:45.347" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21415" PostTypeId="2" ParentId="21397" CreationDate="2018-04-10T16:28:22.853" Score="2" Body="&lt;p&gt;There are assumptions in your thinking that probably are not valid.  You are observing exponential growth in the short-run and assuming that the valid model is exponential.  There is plenty of theoretical reasons to believe that this is not true.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To give you a real counter-example where your observation would have failed you, you should consider the tulip bulb mania.  It began rationally enough.  A virus infected tulips in Holland and this caused some tulips to become multicolored rather than monochrome.  The multicolored tulips were in short supply because people felt they were pretty.  The price of a tulip bulb in Holland at the time would have been less than a current dollar.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This led people to buy out the bulbs because supply is perfectly inelastic in the short run.  So people put in advance orders for next year's crop.  They received receipts.  This state of affairs went on for a few years and then people began trading the receipts.  A futures market had developed.  Prices grew at an exponential rate because speculators entered into the market.  After all, nobody had ever lost money in the tulip bulb market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By the end of the speculation single bulbs were trading at what would be over a hundred thousand dollars per bulb.  Then it stopped.  You see a tulip bulb has pretty fixed real world utility.  It looks nice, but you can grow more.  The same thing is happening in cryptocurrencies.  While the approximate number of bitcoins, for example, is nearly perfectly inelastic in the short-run, you can always create a new cryptocurrency.  There are now hundreds of them.  If a central bank comes out with its own cryptocurrency, it will probably collapse all of the private ones as it will be backed by the state.  The state will also have an interest in profit maximizing by exhausting the demand for them.  If you are wondering about what happened to the tulip bulb market, well go to a greenhouse and buy one.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Prices are growing exponentially for a variety of reasons.  You mentioned one of them, which is well understood.  Prices grow or shrink, depending on whether you are buying or selling, exponentially in volume.  This is due to the fact that the party making a market in them has to charge the carrying cost of the inventory and so the rate of exponential mark-up is related to the half-life of the position, hence the exponential element.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That is true in the stock market, the bond market and the art market.  The carrying time of a position determines its price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the long run, the value of a cryptocurrency will be equal to the costs avoided.  If using a cryptocurrency allows you to avoid a cost created only when using lawful currencies, then that will determine the value of the cryptocurrency.  Some, like Etherium, allow you to engage in self-executing contracts.  The value of the currency will be based on the savings of using a credit card to do the same thing minus the inconvenience of having to buy and set up the accounts.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Cryptocurrencies are probably worth a very small amount of money.  When the speculators leave, it will be done.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the volume you are looking at a mark-up or mark-down of exp(m(t)*n) where n is volume and m(t) is the carrying cost adjusted for the half-life of the position.  If buying from the market maker you would multiply the price by this factor and if you were selling to the market maker you would divide by this amount.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This number is probably unstable at the moment and won't become stable until the market finally falls apart.  It won't be in the collapse that you will get a stable m(t), but rather probably a year later.  People make a market in tulip bulbs buying them from growers and selling them to retailers.  Their mark-up and mark-down do not look at all like the mark-ups or mark-downs during the mania.  I like tulips, but probably won't pay a hundred thousand dollars to buy a bulb.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One final note, money is a dominated asset.  It is always the least valuable asset in the system.  To understand why, open up your wallet and take out a dollar bill.  Is it earning you any interest?  Is it causing a car to be produced?  Can you eat it?  Would you prefer to use it for toilet paper or Charmin?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;US money holds its value only because the government requires people to pay their taxes with it.  Private money existed before the Civil War and the government ran the competition out.  Since you have to pay taxes with it, it would be helpful if it was useful for other purposes.  Since everyone has to pay taxes, everyone needs it, although only just enough of it.  Most people do not carry all their money wealth with them.  They put it in banks.  Banks are the sink for all these dominated assets because they sell them through loans to people who need them the most and buy them through deposits to those who have an excess amount.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since cryptocurrencies cannot be used to pay taxes and there are no deposit or loan relationships present, it is difficult to imagine how much value they could maintain in the long run.  Only a handful of private currencies exist in the United States, such as BerkShares.  They will hold as much value as possible when people can go to a bank and borrow them to pay for a car.  If that doesn't happen, then they will be even more dominated than cash.&lt;/p&gt;&#xA;" OwnerUserId="11321" LastActivityDate="2018-04-10T16:28:22.853" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="21418" PostTypeId="2" ParentId="21377" CreationDate="2018-04-10T18:19:39.147" Score="0" Body="&lt;p&gt;Without worrying about the precise numerical outputs, you could consider electronics purchases (perhaps subdivided by consumers, businesses and government) as a proxy for CPU consumption. (You could probably come up with some method to roughly indicate CPU power per dollar in different categories by manually figuring this out using whatever best data can substantiate that. E.g.: CPU power per dollar spent on a selection of commonly purchased TVs, laptops, phones, servers, etc.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, just do the analysis using electronics purchases, and don't treat the numerical outputs as important for precision, but instead for a general indication of direction of effect, or the relative size of the effect, e.g. for consumer, business and government sector electronics purchases.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Explain some rationale legitimizing the use of the proxy for the question of interest, then come up with an appropriate term to reflect the question of interest in consideration of what data in fact underlies it.&lt;/p&gt;&#xA;" OwnerUserId="16499" LastActivityDate="2018-04-10T18:19:39.147" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21419" PostTypeId="1" AcceptedAnswerId="21423" CreationDate="2018-04-10T18:43:44.873" Score="0" ViewCount="302" Body="&lt;p&gt;I am really confused and I hope you can help me.&#xA;I know NCO is equal to acquisition of foreign assets by residents – acquisition of domestic assets by nonresidents.&#xA;But I can't understand the transactions without purchases of goods.&#xA;For example, when an American buys a share of a foreign company, acquisiton of foreign assets by residents increases, and I think acquisition of domestic assets by nonresidents(American dollars) should also increase. So these changes should offset each other and the transaction shouldn't affect the net capital. But I know this transaction increases US NCO. &#xA;So, what am I missing ? &lt;/p&gt;&#xA;" OwnerUserId="17968" LastActivityDate="2018-04-10T21:26:23.670" Title="How does buying assets change net capital outflow?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21420" PostTypeId="2" ParentId="21341" CreationDate="2018-04-10T19:02:04.717" Score="0" Body="&lt;p&gt;Speaking as someone who has dealt with SAFE (China's State Administration of Foreign Exchange) I can confirm that they are extremely market savvy when it comes to market execution. They employ strategies such as political dealer influence, and timed volume execution to maximise their investments.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A &quot;dumping&quot; of US treasuries, i.e. selling them excessively, would easily be recognised by dealers as being different to their modus operandi. The more dealers SAFE used, the higher the risk of the information leaking, and it is probably a reasonably high risk in any case, but more dealers provides access to more liquidity so this would be an optimisation consideration. Even greater excessive selling would create a panic and a completely destabilising environment since the amount of influence China could exert is significant.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since US treasuries and the cash dollar effectively underpin the entire system of leverage and collateral in finance, when US treasuries are shunned due to declining values (higher yields) and client margins start going up every market would become much more irrational and incredibly more volatile since leveraged positions would have to be liquidated. As a feedback loop more volatility forces higher margins and more irrational stop-loss triggers. In non-linear dynamics this represents movement away from one equilibrium in a chaotic manner to some other equilibrium or worse no equilibrium - just complete destabilisation and financial collapse. It is also completely possible that such an action, which Chinese investment mangers are certainly capable of knowing the consequences of, would be considered a hostile act by the US government and further conflate the situation via worried investors.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I highly suspect, however that if China were ever to engage in such a policy it would not be on a whim. I can almost guarantee that the process would be carefully planned to last years. I would suggest that the optimum way of China reducing their exposure would be to use the process of holding bonds to maturity rather than direct selling in the secondary market, since there is no dealer required. To accelerate the process of bonds rolling to maturity SAFE would likely sell longer bonds and buy shorter dated ones. This is also helpful since it might disguise their true intent with dealers. China would not have to sell their entire holding to have significant impact, either, probably just a fraction. As an example China could slowly engineer their portfolio so that they amass many holding in a particular sector, eg 1-4 years and then over that period of time do not reinvest any of their maturities and sell their dollars as they came due.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for the exchange rate if China holds a bond to maturity and is repaid in dollars it then has two options; buys more US bonds (!) as a store of asset value (SAFE cannot simply deposit cash US dollars in a bank like you and I) or sell the USD for another currency. This process creates a supply a dollars and so the dollar would weaken, again enhancing the destabilising feedback loop.&lt;/p&gt;&#xA;" OwnerUserId="17969" LastActivityDate="2018-04-10T19:02:04.717" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21421" PostTypeId="2" ParentId="21377" CreationDate="2018-04-10T19:37:10.497" Score="2" Body="&lt;p&gt;I have electrical engineering training, and the focus on CPUs creates a technical issue. Before the early 1990s (when I did my degree), CPUs would have largely been only embedded in what are recognisably digital computers. Electronics would otherwise be implemented with simpler digital/analog circuits. Currently, the path of least resistance is to just use a CPU for practically everything. For example, cars have plenty of embedded CPUs, whereas back in the 1970s, many might have been almost entirely analog circuits (the radio being the only possible exception).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So any measure of CPUs per unit of GDP should be exploding higher. This is just a reflection of electrical engineers’ design preferences.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we just try to confine ourselves to CPUs in digital computers, we could try to compute some normalised computing capacity. (This raises problems: do we include phones? Game consoles? Tablets?) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The next problem is: so what? My computer CPUs have been getting faster over the decades, but at the same time, the bloated operating system chews up more of the resources. I end up doing roughly the same tasks in the same amount of time. Even without having any data, knowing what we know about computing power, my experiences are obviously be widely replicated. That is, real GDP is growing at around 2% per year in the developed countries, but installed CPU capacity has to be growing way faster than that, even if we take a narrow definition of “computer”.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Realistically, you might need to identify some industries that might show a correlation between their growth and CPU usage. It’s hard to see how adding server farms can increase the production of restaurants and barber shops.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastEditorUserId="12891" LastEditDate="2018-04-10T20:31:06.473" LastActivityDate="2018-04-10T20:31:06.473" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="21423" PostTypeId="2" ParentId="21419" CreationDate="2018-04-10T21:26:23.670" Score="0" Body="&lt;p&gt;Net capital outflows from the US would increase. Net capital inflows for the foreign country (investment) would increase. This keeps the accounting equation equal. For the US S-I would increase, thus creating a balance of trade surpluse (even though these are financial assets). For the country receiving the inflow S-I (savings-investment) would decrease, increasing their deficit (assuming the balance of trade began equal). This balances both sides of the trade. Our net capital outflows grow by an equal amount to their net capital inflows in this situation. &lt;/p&gt;&#xA;" OwnerUserId="16329" LastActivityDate="2018-04-10T21:26:23.670" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21426" PostTypeId="1" CreationDate="2018-04-11T05:19:40.167" Score="0" ViewCount="22" Body="&lt;p&gt;I want to find the GDP share of several companies, but I have their market share.&#xA;Now we know that these two are not equal, and the market share to GDP ratio represents general overvaluation or undervaluation of shares.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is it fair to assume that they are proportional though? That if a company has a high market share, it will also have a high GDP contribution?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What are the general trends regarding this?&lt;/p&gt;&#xA;" OwnerUserId="17972" LastActivityDate="2018-04-11T12:32:20.817" Title="Predicting GDP contribution from market share" Tags="&lt;gdp&gt;&lt;markets&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21427" PostTypeId="1" CreationDate="2018-04-11T08:50:39.447" Score="0" ViewCount="284" Body="&lt;p&gt;If a risk averse person is given the option of a certain amount of 2000 or playing a lottery game giving him 10000 with 25% probability, and 500 with 75%, then what would he do ?.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The bet here is not a fair one, so wouldn't his choice depend on the degree of his risk aversion ?. Can somebody please help me out.&lt;/p&gt;&#xA;" OwnerUserId="14574" LastEditorUserId="14574" LastEditDate="2018-04-20T09:27:29.880" LastActivityDate="2018-04-22T22:23:28.463" Title="Uncertainty in an unfair gamble" Tags="&lt;uncertainty&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21428" PostTypeId="1" CreationDate="2018-04-11T12:06:13.820" Score="1" ViewCount="44" Body="&lt;p&gt;Current unemployment rate in Canada is about 5.8% while countries such as the US, UK, Germany and the Netherlands have unemployment rates well below 5%. In addition, the current unemployment rate in Canada is the lowest on record. Why has it remained so high historically?&lt;/p&gt;&#xA;" OwnerUserId="10230" LastActivityDate="2018-04-11T12:06:13.820" Title="Why is Canada's unemployment rate higher than that of the US, UK, Germany and the Netherlands?" Tags="&lt;unemployment&gt;&lt;natural-rate-unemployment&gt;&lt;canada&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21429" PostTypeId="2" ParentId="21426" CreationDate="2018-04-11T12:32:20.817" Score="2" Body="&lt;p&gt;They are not necessarily proportional.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;GDP contribution is the value &lt;em&gt;added&lt;/em&gt; by a company. You need to deduct the cost of inputs that are either imported or bought from another entity that is included in the GDP.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Even if two companies seem similar the value added can differ.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's compare two imaginary sneaker companies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;CheaperSneaker&lt;/strong&gt; buys/manufactures sneakers from Asia for \$10 and sell them to department stores for \$20. \$3 are spent on labor and \$5 are used to buy various services from domestic companies. Profit is \$2. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sales: 20&#xA;GDP contribution: 5  (25% of sales)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;FancySneaker&lt;/strong&gt; also buys/manufactures sneakers from Asia. The cost is \$12 per pair. \$5 are spent on labor and \$20 are spent on domestic services (mostly ad campaigns and PR firms). The sneakers are sold to stores for \$50. Profit is \$13.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sales: 50&#xA;GDP contribution: 18  (36% of sales)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The GDP contribution is not the same.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a general rule of thumb, highly profitable companies and companies with high domestic labor costs contribute a higher proportion of revenue to GDP.&lt;/p&gt;&#xA;" OwnerUserId="11805" LastActivityDate="2018-04-11T12:32:20.817" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21430" PostTypeId="1" CreationDate="2018-04-11T13:03:39.910" Score="0" ViewCount="81" Body="&lt;p&gt;In 2017 some countries have adopted the Universal Basic Income as an alternative to Welfare Payments, my question is, &lt;strong&gt;is it economically feasible by governments?&lt;/strong&gt; &lt;/p&gt;&#xA;" OwnerUserId="17946" LastActivityDate="2018-04-11T15:26:30.737" Title="Universal Basic Income" Tags="&lt;macroeconomics&gt;&lt;welfare-economics&gt;&lt;fiscal-policy&gt;&lt;social-welfare&gt;&lt;welfare&gt;" AnswerCount="2" CommentCount="1" ClosedDate="2018-04-14T22:05:50.763" ContentLicense="CC BY-SA 3.0" />
  <row Id="21431" PostTypeId="2" ParentId="21430" CreationDate="2018-04-11T14:57:56.963" Score="0" Body="&lt;p&gt;Yes. It’s economically feasible because we have to consider where money comes from. The central bank can essentially create money out of thin air and buy back bonds. Or, banks can create more loans and increase bank deposits which can control the money supply. The government can then raise revenue from taxes, or borrowing. In theory the government can issue a basic income from the taxes it collects, based on the money supply that the federal reserve and central bank can manipulate. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Y = GDP, I = Investment, C = Consumption, G = Government spending &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If GDP is Y = (C + I + G) Now, disposable income is Y - T (taxes). And public savings is T - G. And private savings is Disposible income - Consumotion. As you can see, if savings are sufficient, the government can issue transfer payments (in this case a basic income) to its citizens. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You may ask “what if a country doesn’t have enough savings for the basic income?”. That’s where borrowing money comes in. If savings are insufficient, the government can borrow more money, increase the deficit, and still issue a transfer payment to each citizen for a basic income. The effects of either policy may or may not be bad. That is more of a normative statement. I’m simply illustrating through this model that it is “feasible”.&lt;/p&gt;&#xA;" OwnerUserId="16329" LastActivityDate="2018-04-11T14:57:56.963" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21432" PostTypeId="2" ParentId="21430" CreationDate="2018-04-11T15:26:30.737" Score="3" Body="&lt;p&gt;In my view, this is not a well defined question since it isn't very clear what you mean by 'feasible':&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;If you mean 'are developed countries in principle able to pay for a UBI?', then the answer is trivially yes.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Perhaps you mean 'politically feasible'? Obviously, that depends on the political constraints on redistribution, attitudes towards 'handouts', etc. - though I'm not sure this is the appropriate forum to discuss such issues.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Perhaps you mean 'A Good Thing'? Well, that's not really what feasible means...&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerDisplayName="user17900" LastActivityDate="2018-04-11T15:26:30.737" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21433" PostTypeId="1" CreationDate="2018-04-11T16:10:34.263" Score="-1" ViewCount="74" Body="&lt;p&gt;In a linear probability model, or any sort of regression, one can use fixed effect estimation by simply adding in a STATA code i.something. This &quot;something&quot; can be either a village, a county or a country. When doing so one look at variation within this geographical unit, as follow:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$Y_{ivt} = B_0 + B_1X_{it} + B_2X_{vt} + \alpha_v + \epsilon_{vit}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where indexes $_i$, $_v$ and $_t$ represent respectively individual, village and time dimensions. The term $a_v$ stands for village fixed effect thus any regression will look at within village variation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;STATA code (1) : reg Y Var1 Var2 i.village, vce(cluster village)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here I come to the point. In the set of covariates that I am using there is one categorical variable taking several different values. This categorical variable can represent colors, insurance company or ethnicity etc. In STATA I introduce this variable as i.categorical. Thus the STATA code becomes: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;STATA code (2) : reg Y Var1 Var2 i.categorical i.village, vce(cluster village)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have a hard time interpreting the implication of this regression. When running such regression, am I looking at variation within categories within village? That is looking at variation in Y for individuals belonging to the same category within a same village. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you!&lt;/p&gt;&#xA;" OwnerUserId="17977" LastActivityDate="2020-12-21T06:00:00.080" Title="Categorical variable as explanatory variable (right hand side)" Tags="&lt;microeconomics&gt;&lt;econometrics&gt;&lt;regression&gt;&lt;stata&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21436" PostTypeId="1" CreationDate="2018-04-11T18:36:18.167" Score="-1" ViewCount="44" Body="&lt;p&gt;Many natives don't prefer foreigners taking their jobs, &lt;strong&gt;is it actually a bad thing for the countries economy?&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="17946" LastActivityDate="2018-06-10T22:38:18.340" Title="Economic impacts of Migration on the Labour Market" Tags="&lt;macroeconomics&gt;&lt;labor-economics&gt;&lt;economic-growth&gt;&lt;international-trade&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21437" PostTypeId="2" ParentId="21436" CreationDate="2018-04-11T19:06:48.193" Score="0" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/4SPid.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/4SPid.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;It varies. Importing a pool of labor, if we are to consider labor costs can have an impact if the migrants are willing to take lower wages. We know that R(revenue) = (MPK + MPL) * Price, which simply means the marginal product of capital + the marginal product of labor times price equals a firms revenue. Let’s assume that the additional labor will take lower wages. That can reduce a firms labor cost which is L * W (Labor quantity * wages). As labor costs decrease a firms profit can increase if revenue remains the same. This increase in Revenue leads to higher savings, which leads to budget surpluses. Capitals share of Income will grow. So we know that firms and the owners of capital (typically shareholders) benefit. The consumers are either unharmed, or get lower prices if the firm can reduce prices due to the lower Labor costs. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So you may ask “who’s hurt?”. Well in the short-run the people who lost their jobs to the migrants who were likely to take lower wages for low skilled labor (based on ethnic wage rates) were hurt. Essentially, you’d expect owners of capital to prefer migrants, and for workers (labor) in the impacted sector where the migrants flow to hate it. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So to answer your question (is it actually bad for the countries economy), no. Not in it of itself. GDP would be expected to grow in real terms (output), or not be impacted much at all. You could end up with increased profits and savings as well, which can lead to a savings surplus. Now whether or not there are certain individuals who are negatively impacted is another question. &lt;/p&gt;&#xA;" OwnerUserId="16329" LastEditorUserId="16329" LastEditDate="2018-04-11T21:00:52.087" LastActivityDate="2018-04-11T21:00:52.087" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="21438" PostTypeId="1" AcceptedAnswerId="21440" CreationDate="2018-04-11T21:49:37.517" Score="8" ViewCount="225" Body="&lt;p&gt;I was reading &lt;a href=&quot;http://www.bbc.com/future/story/20160612-heres-the-truth-about-the-planned-obsolescence-of-tech&quot; rel=&quot;noreferrer&quot;&gt;this article&lt;/a&gt; on planned obsolescence, which states&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;On a macroeconomic scale, the rapid turnover of goods powers growth and creates reams of jobs&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In context, it's implied that this is good - it is good to have people working to design, market, make, and distribute goods to replace other goods that break after a short lifespan.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Naively, it seems very bad to me, compared to the option of having goods that last a long time. Those people working on making replacement goods are now not available to work at other jobs or use that time on other pursuits. If the goods lasted longer, we could spend far fewer resources, as a society, supplying everyone with goods. Then we would have many more resources (raw materials in the goods, human labor making the goods, time consumers spend comparing and purchasing new goods, etc.) available to solve other problems or take on other projects.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Yet, I almost always hear people refer to a project or industry hiring lots of people to work on it as an innately good thing, unlike all other forms of resource expenditure. (I never expect to hear that planned obsolescence has an upside because, &quot;look at all the copper it's using!&quot; or &quot;it really keeps our power plants busy providing electricity for the factories!&quot;.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why is &quot;jobs&quot; treated so differently as a resource, and should I change my naive approach to thinking about them?&lt;/p&gt;&#xA;" OwnerUserId="17979" LastActivityDate="2018-04-12T22:00:02.243" Title="Why is it good to create jobs?" Tags="&lt;macroeconomics&gt;" AnswerCount="4" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21440" PostTypeId="2" ParentId="21438" CreationDate="2018-04-12T02:14:23.823" Score="7" Body="&lt;p&gt;In general, it is not:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Despite the focus on ‘jobism’, jobs are a cost of production and&#xA;  consumption, not a benefit, and should be minimized&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.aei.org/publication/despite-the-focus-on-jobism-jobs-are-a-cost-of-production-and-consumption-not-a-benefit-and-should-be-minimized/&quot; rel=&quot;noreferrer&quot;&gt;Mark J. Perry @ AEI&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Public discourse tends to be carried out in terms of jobs, as if a great objective was to create jobs. Now that’s not our objective at&#xA;  all. There’s no problem about creating jobs. We can create any number&#xA;  of jobs in having people dig holes and fill them up again. Do we want&#xA;  jobs like that? No. Jobs are a price and we have to work to live.&#xA;  Whereas if you listen to the terminology you would think that we live&#xA;  to work. Now some of us do. There are workaholics just like there are&#xA;  alcoholics and some of us do live to work. But in the main, what we&#xA;  want is not jobs, but productive jobs. We want jobs that will be able&#xA;  to produce the goods and services that we consume at a minimum&#xA;  expenditure of effort. In a way, the appropriate national objective is&#xA;  to have the fewest possible jobs. That is to say, the least amount of&#xA;  work for the greatest amount of products.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.youtube.com/watch?time_continue=1239&amp;amp;v=QXkX4POxA0g&quot; rel=&quot;noreferrer&quot;&gt;Milton Friedman in a 1980 lecture&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Under most circumstances, wages paid to people employed on a project&#xA;  should not be counted as benefits, although this practice is&#xA;  disturbingly widespread. As mentioned above, the opportunity cost of&#xA;  labor used on a project is the output that that labor would have&#xA;  generated elsewhere, either in paid work or in household production.&#xA;  Including wages paid to labor on a project as a benefit implies that&#xA;  that labor would have produced nothing otherwise and that the agency&#xA;  making the wage payments does not have standing.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://rads.stackoverflow.com/amzn/click/1843768976&quot; rel=&quot;noreferrer&quot;&gt;Zerbe and Bellas&lt;/a&gt; (page 117-118):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I say in general, because there are some evidence that &quot;jobs are good for you&quot;, and if increasing jobs diminishes the number of long term unemployed, that might be considered a benefit, even though it diminishes the quantity of leisure and home production they consume. &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2018-04-12T02:14:23.823" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21441" PostTypeId="2" ParentId="21438" CreationDate="2018-04-12T02:23:17.573" Score="3" Body="&lt;p&gt;No economist believes that a job is a desirable end in and of itself.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Instead, a job is merely &lt;strong&gt;a means to an end&lt;/strong&gt;, the end being consumption (&quot;consumption&quot; broadly conceived).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You are correct that &quot;people&quot; (i.e. laypersons and in this case some writer for the BBC) often assume that creating lots of jobs is automatically a good thing. You are also correct that these &quot;people&quot; are wrong to assume so.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If in the future automation, the singularity, and all that bring about an unlimited cornucopia of abundance for everybody even while nobody has a job, then this will be a very good thing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Conversely, the Soviet Union and other communist states had, officially and technically, 0% unemployment. But life there was not necessarily good.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2018-04-12T02:23:17.573" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21442" PostTypeId="1" AcceptedAnswerId="21444" CreationDate="2018-04-12T03:45:33.360" Score="1" ViewCount="118" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/qSKrb.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/qSKrb.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand this part: $\int x^\prime (z)F(z) dz+\int x(z)f(z)dz=\int zf(z)dz \rightarrow \int \frac {dx}{dz} F(z) dz+\int x(z)\frac {dF(z)}{dz} dz=\int zf(z)dz \rightarrow x(z)F(z)= \int_{0}^z tf(t)dt$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, the author says obtain the following solution by integration by parts. &#xA;$x(z)=z-\frac {\int_0^zF(t)dt}{F(z)}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't know which term should I integrate so that I get to that result.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you in advance. &lt;/p&gt;&#xA;" OwnerUserId="17957" LastActivityDate="2018-04-12T09:18:39.160" Title="Microeconomics theory and integration by parts (proof)." Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="21443" PostTypeId="2" ParentId="21438" CreationDate="2018-04-12T08:21:10.497" Score="3" Body="&lt;p&gt;I agree with the previous posters that jobs themselves are not desirable in economic theory. Nevertheless, I believe jobs can be a good thing, in cases where theory does not apply to reality. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;More specifically, the assertion that jobs are not desirable rests on an implicit assumption: Distribution of wealth is not a concern.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Many basic economic models do not have room for natural unemployment. Arguing that wages paid to workers should not be counted as benefits, like in the Zerbe and Bellas quote, implies that workers could have found employment otherwise (which they admit). However, I do not know how realistic that assumption is today for low skilled workers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Unemployment itself, however, is not a concern, if lower labor grows the economy and we compensate the unemployed. This does not happen in reality. Nor is there the political will to do so in the future, with many countries looking to slash welfare payments and characterizing welfare recipients as parasites. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is true that we don't want jobs, but actually want goods and services. This ignores distributive issues, as we often do in basic economic theory, which is why there is a difference between what laypeople think and what theory tells us. In reality, however, distribution is extremely important and a major driver of recent political changes around the world.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is another theoretical reason we ignore distribution in many of our models.  Based on the second welfare theorem, we can try to maximize total welfare, which implies minimizing jobs and then give the jobless a share of that welfare to compensate them. While the theory behind this is solid, this rarely ever happens in practice. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Automation will reduce jobs, which overall is good for the economy, as the previous posters said. However, there will be winners and losers. Naturally, if the losers are not compensated (which they rarely are in practice) then losing jobs is not a Pareto improvement and therefore cannot unconditionally be supported by economic theory. The fact that those losers could be compensated in theory is of little importance to those people not being compensated in practice. &lt;/p&gt;&#xA;" OwnerUserId="5557" LastEditorUserId="5557" LastEditDate="2018-04-12T09:25:38.577" LastActivityDate="2018-04-12T09:25:38.577" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21444" PostTypeId="2" ParentId="21442" CreationDate="2018-04-12T09:18:39.160" Score="4" Body="&lt;p&gt;Integrate the $f(t)$ (a primitive of which is $F(t)$) and differentiate the $t$. This yields&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{align*} &#xA;x(z) F(z) &amp;amp; = \int_{0}^{z}{t f(t)dt} \\&#xA;&amp;amp; = \big[ t F(t) \big ]_{t=0}^{t=z}-\int_{0}^{z}{F(t)dt} \\&#xA;&amp;amp; = z F(z)-\int_{0}^{z}{F(t)dt}.&#xA;\end{align*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Dividing by $F(z)$ on both sides yields the result.&lt;/p&gt;&#xA;" OwnerUserId="4667" LastActivityDate="2018-04-12T09:18:39.160" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21445" PostTypeId="1" AcceptedAnswerId="21446" CreationDate="2018-04-12T10:25:41.017" Score="6" ViewCount="490" Body="&lt;p&gt;In a famous textbook example of a Bayesian-Nash equilibrium, there is a first-price auction with two independent players. Each player $i$ values the item as $v_i$, which is  distributed uniformly in $[0,1]$. It is assumed that the strategy of each player $i$ is to bid a fraction of his value, i.e:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ b_i(v_i) := a_i \cdot v_i$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;for some constant $a_i$. Then, we can conclude that, for every $a_1$, the best response of player 2 is to pick $a_2=1/2$. Hence, the only Bayes-Nash equilibrium of this form is $a_1=1/2, a_2=1/2$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, I tried to slightly generalize the example by assuming the values of the players are distributed uniformly in $[c,d]$, for some constants $d&amp;gt;c&amp;gt;0$. But I did not find an equilibrium. Suppose player 1 bids $ a_i \cdot v_i$ and player 2 bids $ $a_2 \cdot v_2$. Then the expected utility of player 2 is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ProbOfWinning(a_2)\cdot GainWhenWinning(a_2)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$=Pr[a_1 v_1 &amp;lt; a_2 v_2]\cdot (1-a_2)v_2$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$=\frac{(a_2 v_2 /a_1)-c}{d-c}\cdot (1-a_2)v_2$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Taking the derivative of this expression w.r.t $a_2$ gives that the best response of player 2 is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;a_2 = {1\over 2} + {a_1 c\over 2 v_2}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;so the best $a_2$ depends on $v_2$. This means that the function from value to action is not linear as I initially assumed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Do I have any mistake in the calculation? What is a Bayes-Nash equilibrium in this auction?&lt;/p&gt;&#xA;" OwnerUserId="385" LastEditorUserId="1601" LastEditDate="2018-04-12T11:09:07.343" LastActivityDate="2018-04-13T17:01:28.603" Title="Bayesian-Nash equilibrium in a first-price auction" Tags="&lt;nash-equilibrium&gt;&lt;auctions&gt;&lt;bayesian-game&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21446" PostTypeId="2" ParentId="21445" CreationDate="2018-04-12T11:05:11.170" Score="6" Body="&lt;p&gt;It is actually assumed that $b_i(v_i)$ is of the form $\alpha_i+\beta_i \cdot v_i$. So it is an affine function. Linearity only works if the bottom of the uniform distribution is 0.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A somewhat intuitive reasoning is that if the valuations are uniformly distributed over $[c,d]$ and $b_i(v_i)$ is a symmetric equilibrium, then $b_i(v_i)+k$ should define a symmetric equilibrium when valuations are uniform over $[c+k,d+k]$ as neither the probability of winning nor the gain changes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assuming a strategy of the form $\alpha_i+\beta_i \cdot v_i$ you get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;=Pr[\alpha_1 + \beta_1 \cdot v_1 &amp;lt; \alpha_2 + \beta_2 \cdot v_2] \cdot ((1- \beta_2) \cdot v_2 - \alpha_2) &#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;=Pr\left[v_1 &amp;lt; \frac{\alpha_2 - \alpha_1 + \beta_2 \cdot v_2}{\beta_1} \right] \cdot ((1- \beta_2) \cdot v_2 - \alpha_2) &#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;=\frac{\frac{\alpha_2 - \alpha_1 + \beta_2 \cdot v_2}{\beta_1}-c}{d-c}\cdot ((1- \beta_2) \cdot v_2 - \alpha_2)&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Taking derivative w.r.t. $\alpha_2$ and $\beta_2$ you get your first order conditions. Assuming symmetry you get a unique solution. If $c = 0$ then $\alpha_1 = \alpha_2 = 0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By the way, I prefer treating $b_2(v_2)$ as the decision variable, then you can&#xA;$$&#xA;\max_{b_2(v_2)} &#xA;Pr\left[v_1 &amp;lt; \frac{b_2(v_2) - \alpha_1}{\beta_1} \right] \cdot (v_2 - b_2(v_2)) &#xA;$$&#xA;and the last fraction is somewhat simpler.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2018-04-13T17:01:28.603" LastActivityDate="2018-04-13T17:01:28.603" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21447" PostTypeId="1" CreationDate="2018-04-12T11:21:25.840" Score="1" ViewCount="51" Body="&lt;p&gt;This may be a UK only thing but...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have noticed that it is very common to see current accounts that offer some interest on the first couple of thousand pounds deposited with them and then &lt;em&gt;less&lt;/em&gt; interest on sums over that amount. Why is this so? Surely they should offer &lt;em&gt;more&lt;/em&gt; interest due to economies of scale.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Examples: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.starlingbank.com/current-account/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Starling bank&lt;/a&gt; 0.5% up to 2,000 - 0.25% above&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.nationwide.co.uk/products/current-accounts/flexdirect/rates-fees-overdrafts#tab:Ratesfeesandampoverdrafts&quot; rel=&quot;nofollow noreferrer&quot;&gt;Nationwide FlexDirect&lt;/a&gt; 1% up to 2,500 - 0% over 2,500&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.tescobank.com/current-accounts/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Tesco current account&lt;/a&gt; 3% up to 3,000 - 0% above&lt;/p&gt;&#xA;" OwnerUserId="5081" LastEditorUserId="5081" LastEditDate="2018-04-12T13:51:25.547" LastActivityDate="2018-04-12T19:55:57.070" Title="Why do banks offer less interest on larger deposits?" Tags="&lt;interest-rate&gt;&lt;banking&gt;&lt;economies-of-scale&gt;" AnswerCount="2" CommentCount="3" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="21448" PostTypeId="1" AcceptedAnswerId="21452" CreationDate="2018-04-12T12:48:24.063" Score="1" ViewCount="39" Body="&lt;p&gt;My country has a whopping 25% annual inflation rate. As far as I know, high inflation implies higher consumption rates, but I was hearing lately that consumption is actually lowering, while inflation rates keep climbing. I had the feeling that lowering consumption could help reduce inflation, but apparently it doesn't always work like that.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does lowering consumption help reduce inflation rates?&lt;/p&gt;&#xA;" OwnerUserId="17984" LastActivityDate="2018-04-12T15:46:09.090" Title="Does lowering consumption help reduce inflation rates?" Tags="&lt;inflation&gt;&lt;consumption&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21451" PostTypeId="2" ParentId="13338" CreationDate="2018-04-12T15:35:16.167" Score="2" Body="&lt;p&gt;According to Keynes, the first fundamental postulate of the classical theory of employment&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;I. The wage is equal to the marginal product of labour&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;or&#xA;$$&#xA;W(N) = P \cdot \frac{dQ}{dN}(N)&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $W(N)$ is a money wage, $N$ is an employment level, $Q(N)$ is &lt;em&gt;a physical productivity of labour&lt;/em&gt; at that employment level and $P$ is a price of goods or as we call it today &lt;a href=&quot;https://en.wikipedia.org/wiki/Price_level&quot; rel=&quot;nofollow noreferrer&quot;&gt;price level&lt;/a&gt;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In accordance with the principle of &lt;a href=&quot;https://en.wikipedia.org/wiki/Diminishing_returns&quot; rel=&quot;nofollow noreferrer&quot;&gt;diminishing returns&lt;/a&gt;  $\frac{dQ}{dN}(N)$ is a decreasing function of an employment level $N$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$W(N)$ is a non-decreasing function for those who agree to work for a smaller wage are hired first.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then the money wage $W(N)$ is equal to $P_w \cdot W_r(N)$, where $P_w$ is a price of &lt;em&gt;wage-goods&lt;/em&gt; (or as we call it today &lt;em&gt;consumer or final goods&lt;/em&gt;) and $W_r(N)$ is &lt;em&gt;a real wage&lt;/em&gt;. Keynes uses it in the second postulate of classical theory:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;II.  The utility of the wage  when  a  given  volume of labour is employed is equal to the marginal disutility of that amount of employment.&lt;/em&gt;&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;That is to say, the real wage of an employed person is that which is just sufficient (in the estimation of the employed persons themselves) to induce the volume of labour ctually employed  to  be  forthcoming   &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Thus for a production of &lt;em&gt;wage-goods&lt;/em&gt; the first postulate can be written as $$ P_w \cdot W_r(N) = P_w \cdot \frac{dQ_w}{dN}(N)$$ &#xA;or&#xA;$$ W_r(N) = \frac{dQ_w}{dN}(N)\tag{1}\label{wg}$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $Q_w(N)$ is a physical production of wage-goods.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For &lt;em&gt;non-wage-goods&lt;/em&gt; (or as we call them today &lt;em&gt;investment goods&lt;/em&gt;) the equation will be different:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$W_r(N) = \frac{P_{n-w}}{P_{w}}\frac{dQ_{n-w}}{dN}(N)\tag{2}\label{nwg}$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $P_{n-w}$ and $P_{w}$ are  prices of non-wage-goods and wage-goods respectively.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Essentially we can't &quot;pay&quot; employees in &lt;em&gt;non-wage-goods&lt;/em&gt;!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now we can comprehend three out of &quot;four possible means of increasing employment:&quot;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;(b)  a  decrease  in  the  marginal  disutility  of  labour,  as  expressed  by  the  real  wage  for which additional labour is available, so as to diminish 'voluntary' unemployment; &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;i.e. $W_r(N)$ in equations $\eqref{wg}$ and $\eqref{nwg}$ is shifts down so intersection with the function on the right side of equations shifts to the right.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;(c)  an  increase  in  the  marginal  physical  productivity  of  labour  in  the  wage-goods industries &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;i.e. the function on the right side of $\eqref{wg}$ shifts up so intersection with the function on the left side of the equation shifts to the right.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And finally:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;(d) an increase in the price of non-wage-goods compared with the price of wage-goods &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;i.e. increase of the ratio $\frac{P_{n-w}}{P_{w}}$ in $\eqref{nwg}$ effectively shift the marginal product of labour for &lt;em&gt;non-wage goods&lt;/em&gt; expressed in &lt;em&gt;wage-goods&lt;/em&gt; $\frac{P_{n-w}}{P_{w}}\frac{dQ_{n-w}}{dN}$ up so the intersection with $W_r(N)$ will move again to the right. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Please note that Keynes aims to refute (some of) the above speculations.&lt;/p&gt;&#xA;" OwnerUserId="14062" LastEditorUserId="14062" LastEditDate="2018-04-15T08:18:48.833" LastActivityDate="2018-04-15T08:18:48.833" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21452" PostTypeId="2" ParentId="21448" CreationDate="2018-04-12T15:46:09.090" Score="0" Body="&lt;p&gt;Lowering consumption, and increasing savings can increase net exports. Since savings increase relative to consumption, there is more money to lend out to the world (in an open economy), and less investment domestically. The decrease in demand for your currency due to the reduction in investment and rise in savings can lead to a reduction in the real exchange rate for your currency relative to other currencies. NX (net exports) = S - I (Savings - Investment). S = Y-C-G (income - consumption - government spending). As you can see, the level of consumption directly impacts savings. A decrease in consumption increases savings, which in turn decreases the real exchange rate for your currency, which can make imports more expensive, creating nominal price inflation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another determinant of inflation however is also the money supply, and this is the biggest factor. The central bank in your country has the largest impact on money supply. This is because Y (output) is fixed based on the factors of production. % change in M (money supply) + % change in V (velocity of money) = % change in P (price level) + % change in Y (output). That is (% change M + % change V = % change P + % change Y). As you can see, the price level directly has to increase proportionately to the change in the money supply that the central bank can manipulate. So even if consumption decreases, nominal inflation rates will rise if the central bank is expanding the money supply. That is how it’s possible to see a decrease in consumption, and still potentially see inflation. &lt;/p&gt;&#xA;" OwnerUserId="16329" LastActivityDate="2018-04-12T15:46:09.090" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21453" PostTypeId="2" ParentId="21447" CreationDate="2018-04-12T19:01:53.380" Score="2" Body="&lt;p&gt;When you lend your money to a bank (by depositing it), they don't just make money off of lending out your money. They also make money out of charging you for banking services. If the bank makes more money off of offering you services then they can afford to pay you a higher rate of interest (all other things equal). Check out: How do banks make money? The fallacies of fee income (&lt;a href=&quot;https://core.ac.uk/download/pdf/6793025.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Rice and DeYoung (2004)&lt;/a&gt;) &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;But banks also earn substantial amounts of noninterest income by&#xA;  charging their customers fees in exchange for a variety of financial&#xA;  services. Many of these financial services are traditional banking&#xA;  services: transaction services like checking and cash management;&#xA;  safe-keeping services like insured deposit accounts and safety deposit&#xA;  boxes; investment services like trust accounts and long-run&#xA;  certificates of deposit (CDs); and insurance services like annuity&#xA;  contracts. In other traditional areas of banking-such as consumer&#xA;  lending and retail payments—the wide-spread application of new&#xA;  financial processes and pricing methods is generating increased&#xA;  amounts of fee income for many banks.... &lt;strong&gt;Remarkably, noninterest income now &#xA;  accounts for nearly half of all operating income generated by U.S. commercial  banks.&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;If spending on banking services increases more slowly than account balances and the sums involved don't make it worth the trouble of having multiple accounts then banks will be willing to offer higher rates on smaller balances. But, empirically, my impression is that this is atypical. It is more common to see higher rates on higher balances, because the transaction costs on serving one \$100k account are smaller than those of 10 \$10k accounts, and so they can pass some of those economies along as higher rates. &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2018-04-12T19:01:53.380" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21454" PostTypeId="2" ParentId="21447" CreationDate="2018-04-12T19:55:57.070" Score="0" Body="&lt;p&gt;You see that sometimes.  It isn't common, but it does happen.  A way to think about it is there being two different supply curves of deposits.  It is usually reversed and larger deposits earn more.  This is for two reasons.  First, wealthier investors have less tendency to let inertia determine where their accounts are and so are willing to more elastically supply funds and the variable costs of adding a single account are independent of the size of the account.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, there are environments where banking accounts are the single best investment option possible.  In that case, those large deposits cannot flee into the bond or stock markets.  Furthermore, the banks may be desirous to reduce their deposit levels, but not lose their customer base.  This would encourage wealthier depositors to consume their money rather than deposit it. Banks may want to reach target funding levels that are slightly lower than their current level.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, certain types of assets can imply certain preferred types of deposits.  For example, banks that offer a significant number of lines of credit, letters of credit or other forms of contingent funding usually carry a lot of demand deposits and fewer long term deposits.  Conversely, banks that carry longer term loans tend to carry longer term deposits.  The mix of banks assets may be changing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, Brexit will probably crush British commerce and if banking is preparing for this, they may be shortening their asset base and in doing so trying to shorten their deposit base to be flexible in the event that Brexit is as catastrophic as it could be.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Port of London is huge because the Industrial Revolution began there and so outflowing trade required it, but as other nations joined the process it became natural to use London as the nexus of trade between the Old World and the New World.  When the European customs union came into existence this substantially reduced the competitive value of ports such as Antwerp.  If customs duties are now present, it is unimaginable that customers selling to Europe from North or South America would even consider shipping through London to Europe, if the principal European ports were large enough to handle the traffic.  Because of history, they are not  yet, but when they become so all the supporting commerce such as warehouses, banks, trucking companies and makers of intermediate goods for final shipment to Europe should get crushed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Banks may be getting ready.&lt;/p&gt;&#xA;" OwnerUserId="11321" LastActivityDate="2018-04-12T19:55:57.070" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21455" PostTypeId="2" ParentId="21438" CreationDate="2018-04-12T22:00:02.243" Score="0" Body="&lt;p&gt;People here have made good points, but there are reasons people like to see jobs created. Lower unemployment reduces the tax burden due to &quot;scroungers&quot; (who are always treated as deliberately unemployed, even though this as a reason to praise a rise in labour demand is self-contradictory); it might increase revenues for the treasury; and those who already have jobs may see theirs become more secure and their wages rise due to an increase in demand for labour. There may be reasons this cetetis paribus logic is flawed, but it's what people have in mind when they praise jobs.&lt;/p&gt;&#xA;" OwnerUserId="10991" LastActivityDate="2018-04-12T22:00:02.243" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="21459" PostTypeId="1" AcceptedAnswerId="21464" CreationDate="2018-04-13T09:13:47.633" Score="1" ViewCount="35" Body="&lt;p&gt;I have problems in distinguishing among terms in the Balance of Payment / the international balance sheet of a nation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As far as I know, on Assets and Liabilities sides of BPM, there are &lt;strong&gt;Portfolio Equity, Portfolio Debt, FDI, Other Debts.&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is the difference between Portfolio Equity and Portfolio Debt? Is it true that Portfolio Equity is about stocks/shares, whereas Portfolio Debt is about Bonds?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Many thanks for your help.&lt;/p&gt;&#xA;" OwnerUserId="14729" LastActivityDate="2018-04-13T17:40:53.800" Title="Terms definition in Balance of Payment" Tags="&lt;macroeconomics&gt;&lt;international-trade&gt;&lt;international-economics&gt;&lt;open-economy-macro&gt;&lt;balance-of-payments&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21461" PostTypeId="1" AcceptedAnswerId="21467" CreationDate="2018-04-13T10:07:03.937" Score="1" ViewCount="132" Body="&lt;p&gt;Recently in a test I was asked to describe the modified IS-LM framework. I assumed I was being asked the IS-LM-BP model, since it modifies the traditional IS LM model by adding a BP curve. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I looked up on a couple of references (Macroeconomics by Dornbusch, and Macroeconomics by Olivier Blanchard) but they have no reference to it. Looking the term up on a search engine only throws results about papers that suggest a modification to the IS LM model. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What exactly is a modified IS-LM framework? &lt;/p&gt;&#xA;" OwnerUserId="6486" LastActivityDate="2019-01-13T18:09:23.900" Title="What is a &quot;modified IS-LM framework&quot;?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21462" PostTypeId="2" ParentId="21390" CreationDate="2018-04-13T10:14:17.687" Score="0" Body="&lt;p&gt;Yes, the diagram represented in the question is correct. Assuming imperfect capital mobility (with the BP curve steeper than the LM curve), an increase in G will:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Move the IS curve to the right. &lt;/li&gt;&#xA;&lt;li&gt;At this point (B), there will be a BOP deficit because the point is below the BP curve. &lt;/li&gt;&#xA;&lt;li&gt;Thus, the domestic currency will depreciate. &lt;/li&gt;&#xA;&lt;li&gt;Exports will rise, imports will decrease and thus net exports will rise. &lt;/li&gt;&#xA;&lt;li&gt;This will have two effects: (a) this will shift the IS curve further to the right (because net exports have risen, and so Y has risen) and (b) this will shift the BP curve to the right (because net exports have risen, improving the current account balance). &lt;/li&gt;&#xA;&lt;li&gt;The new equilibrium is at C.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;I found a better diagram illustrating this (the diagram includes two cases: one with the BP flatter than the LM and one steeper; the points and movements marked with an asterik (*) are the ones concerned with the case of BP being steeper than the LM). (Image Courtesy of Polinomics: &lt;a href=&quot;http://policonomics.com/is-lm-bp/&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://policonomics.com/is-lm-bp/&lt;/a&gt;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/q06Cl.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/q06Cl.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="6486" LastActivityDate="2018-04-13T10:14:17.687" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21463" PostTypeId="1" AcceptedAnswerId="21473" CreationDate="2018-04-13T11:48:01.700" Score="3" ViewCount="21" Body="&lt;p&gt;From &lt;a href=&quot;http://unctad.org/en/docs/wir2003light_en.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;World Investment Report 2003&lt;/a&gt;, in 2000, the US has &lt;strong&gt;12.4%&lt;/strong&gt; GDP as FDI inward stock and &lt;strong&gt;13.2%&lt;/strong&gt; GDP as FDI outward stock. These numbers are equivalent to &lt;strong&gt;1274720&lt;/strong&gt; million USD, and &lt;strong&gt;1356960&lt;/strong&gt; million USD. With GDP US in 2003 as &lt;strong&gt;10.28&lt;/strong&gt; billion USD.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From &lt;a href=&quot;http://unctad.org/en/docs/wir2007_en.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;World Investment Report 2007&lt;/a&gt;, in 2000, the shares above are &lt;strong&gt;12.8&lt;/strong&gt; and &lt;strong&gt;13.4&lt;/strong&gt;, respectively.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From &lt;a href=&quot;http://unctad.org/en/PublicationsLibrary/wir2017_en.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;World Investment Report 2017&lt;/a&gt;, however, in 2000, the US has &lt;strong&gt;2783235&lt;/strong&gt; million USD as FDI inward stocks, and &lt;strong&gt;2694014&lt;/strong&gt; million USD as FDI outward stock. If we measure in percentage as above, we would have &lt;strong&gt;27%&lt;/strong&gt; and &lt;strong&gt;26%&lt;/strong&gt; equivalently. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why are the numbers are so different? Do I forget something like the price levels or so?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Many thanks for your help.&lt;/p&gt;&#xA;" OwnerUserId="14729" LastActivityDate="2018-04-14T16:57:54.287" Title="Why FDI stock in the same year is different in the same reports?" Tags="&lt;macroeconomics&gt;&lt;data-request&gt;&lt;investment&gt;&lt;open-economy-macro&gt;&lt;balance-of-payments&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21464" PostTypeId="2" ParentId="21459" CreationDate="2018-04-13T17:30:52.883" Score="1" Body="&lt;p&gt;Your statement &lt;em&gt;&quot;Portfolio Equity is about stocks/shares, whereas Portfolio Debt is about bonds&quot;&lt;/em&gt; is essentially correct, with the associated income being dividends and coupons respectively&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Direct investment (FDI) has the associated income of profits, while other debts may have the associated income of interest (if any)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.imf.org/external/pubs/ft/bop/2007/pdf/chap6.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Chapter 6&lt;/a&gt; and other chapters of the &lt;a href=&quot;https://www.imf.org/external/pubs/ft/bop/2007/bopman6.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;IMF Balance of Payments Manual&lt;/a&gt; discuss these issues&lt;/p&gt;&#xA;" OwnerUserId="8891" LastEditorUserId="8891" LastEditDate="2018-04-13T17:40:53.800" LastActivityDate="2018-04-13T17:40:53.800" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21465" PostTypeId="1" AcceptedAnswerId="21466" CreationDate="2018-04-14T02:48:23.230" Score="6" ViewCount="2235" Body="&lt;p&gt;I know that if you have homothetic preferences and a utility function that represents it, then this utility function must present constant Marginal Rate of Substitution (MRS). My question is whether the opposite direction of implication is also true, to be very specific, is it true that a utility function that presets constant MRS always represents a homothetic preference?&lt;/p&gt;&#xA;" OwnerUserId="13237" LastActivityDate="2018-04-18T05:50:58.463" Title="Homothetic preferences and utility functions" Tags="&lt;utility&gt;&lt;marginal&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21466" PostTypeId="2" ParentId="21465" CreationDate="2018-04-14T06:54:20.387" Score="6" Body="&lt;p&gt;As noted in the comments, it is not true that homothetic preferences must have constant marginal rates of substitution.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To see this, recall that preferences given by the utility function&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ u(x,y) = x^\alpha y^{1-\alpha} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;are homothetic. (More generally, Cobb-Douglas preferences are homothetic.) However, the marginal rate of substitution is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \text{MRS}(x,y) = \frac{\alpha}{1-\alpha}\frac{y}{x}, $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which is not constant. However, the MRS is homogeneous of degree zero, since&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \text{MRS}(\lambda x, \lambda y) = \text{MRS}(x,y). $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Homogeneity of degree zero of the MRS is a general property of homothetic preferences. This follows from the fact that (continuous) homothetic preferences have a utility representation that is homogeneous of degree one.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Conversely, when the MRS is homogeneous of degree zero, preferences are homothetic. Hence, preferences that exhibit constant MRS are also homothetic. The proof is a little involved. For this, I refer to you lemma $1$ of &lt;a href=&quot;https://doi.org/10.1016/0022-0531(69)90024-6&quot; rel=&quot;nofollow noreferrer&quot;&gt;&quot;Duality and the Structure of Utility Functions&quot;&lt;/a&gt; by Lau (1970). (Note that Lau states a different definition of homotheticity than you do. However, the Lau's definition and yours are equivalent when preferences are continuous -- which they must be for the MRS to be well-defined.)&lt;/p&gt;&#xA;" OwnerUserId="8595" LastEditorUserId="8595" LastEditDate="2018-04-18T05:50:58.463" LastActivityDate="2018-04-18T05:50:58.463" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="21467" PostTypeId="2" ParentId="21461" CreationDate="2018-04-14T08:01:54.910" Score="1" Body="&lt;p&gt;There is no universal definition of a modified IS-LM framework. There are several modifications out there. Some such modifications include adjusting the model to capture the last financial crisis or opening the economy with the BP curve as you said, or more explicitly considering the role of banks. Another modification is the IS-MP model, which represents a more realistic version of monetary policy.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastEditorUserId="5557" LastEditDate="2019-01-13T18:09:23.900" LastActivityDate="2019-01-13T18:09:23.900" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="21469" PostTypeId="1" AcceptedAnswerId="21471" CreationDate="2018-04-14T10:10:52.837" Score="1" ViewCount="95" Body="&lt;p&gt;Income tax, Poll tax, Land tax, or VAT?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Georgist argue for land taxes. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think jizya is a form of poll tax.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;VAT? I don't know.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't like income tax but can't really articulate why it's so bad.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which one, for the same amount of revenue, reduces a country's GDP?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems that thrifty people will like VAT and spendthrift people will like income tax. Am I correct?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Would encouraging spending or encouraging investing a form of distortion?&lt;/p&gt;&#xA;" OwnerUserId="17694" LastActivityDate="2018-04-14T12:45:00.797" Title="Which one is most distortive?" Tags="&lt;taxation&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21471" PostTypeId="2" ParentId="21469" CreationDate="2018-04-14T12:45:00.797" Score="2" Body="&lt;p&gt;I think in this case the typical economist's answer prevails: it depends. Taxes are distortive in so far as they prevent valuable economic activity from taking place. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Income taxes make working less attractive and therefore reduce the supply of labour. In an economy that is already labour constrained the distortion of income taxes can thus be significant. If, in contrast, land is a valuable but scarce resource land taxes will be distortive as well.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You're right that VAT is a consumption tax, and thrifty people won't mind such taxes typically. It is not  true that non-thrifty people won't mind income taxes because if we tax away their income they have nothing to spend! Taxes on interest or capital on the other hand won't be a much of a direct problem for the non-thrifty consumers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Taxes on investment are distortive because they prevent valuable investments from taking place. This is the main argument put forward for lowering the taxes for the super rich in the US. As their income comes from investment lowering their taxes will spur investment. In how far this actually happens and whether the money is actually invested in the US is a different matter.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a final point: some taxes are actually improving things by preventing economic activity. Environmental taxes like a tax on CO2 should in principle curb CO2 emissions and in that way correct distortions rather than introduce them.&lt;/p&gt;&#xA;" OwnerUserId="12186" LastActivityDate="2018-04-14T12:45:00.797" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21473" PostTypeId="2" ParentId="21463" CreationDate="2018-04-14T16:57:54.287" Score="1" Body="&lt;p&gt;In note 1 of the &lt;a href=&quot;http://unctad.org/en/PublicationsLibrary/wir2017_en.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;World Investment Report 2017&lt;/a&gt; (page 39), it is mentioned that &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;FDI data may differ from one WIR issue to another as data are&#xA;  continually revised, updated and corrected by the responsible&#xA;  authorities, such as central banks and statistical offices, that&#xA;  provide FDI data to UNCTAD.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The last figures are the most accurate ones.&lt;/p&gt;&#xA;" OwnerUserId="6168" LastActivityDate="2018-04-14T16:57:54.287" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21474" PostTypeId="1" AcceptedAnswerId="26316" CreationDate="2018-04-14T17:26:05.130" Score="6" ViewCount="93" Body="&lt;p&gt;&lt;a href=&quot;https://www.jstor.org/stable/3149288?seq=1#page_scan_tab_contents&quot; rel=&quot;noreferrer&quot;&gt;Leontief (1953)&lt;/a&gt; showed that US exports in 1947 embodied considerably less capital and somewhat more labor than would be required for domestic production of competitive imports. \$2.55 million worth of capital was used to produce \$1 million (against $3.1 million for &quot;imports&quot;). What is being measured here is the &lt;em&gt;total&lt;/em&gt; capital stock which I guess exceeds that part of the capital stock that was used to produce exports that year. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Would it be more appropriate to measure the capital used that year by the depreciation on the total stock? Is there any reference on this?&lt;/p&gt;&#xA;" OwnerUserId="6168" LastEditorUserId="69" LastEditDate="2018-04-14T18:24:20.940" LastActivityDate="2019-01-07T19:04:44.117" Title="Leontief's Paradox and the amount of capital" Tags="&lt;reference-request&gt;&lt;international-trade&gt;&lt;leontief&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="21476" PostTypeId="1" AcceptedAnswerId="21479" CreationDate="2018-04-14T19:37:56.667" Score="3" ViewCount="795" Body="&lt;p&gt;I'm self studying intermediate macroeconomics by reading a textbook and I came across a relationship that I'm not quite sure how it is derived. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $F(K,L)$ be a production function where $K$ is capital stock and $L$ is the labor force. Assuming constant returns to scale, I'm not sure how to derive $$F(K,L) = F_K(K,L)K + F_L(K,L)L,$$ where $F_x$ denotes the partial derivative of $F$ with respect to $x$. &lt;/p&gt;&#xA;" OwnerUserId="18006" LastEditorUserId="18006" LastEditDate="2018-04-15T00:26:05.360" LastActivityDate="2018-04-15T00:26:05.360" Title="Why Constant Returns to Scale Suggests Certain Relation" Tags="&lt;macroeconomics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21477" PostTypeId="2" ParentId="21476" CreationDate="2018-04-14T20:05:44.787" Score="-2" Body="&lt;p&gt;Constant returns to scale simply means that if K and L are increases by 10%, Y will also be increases by 10%. Y will never be increases by more than F(K, L), so profit for additional labor is not possible in that simplified model. I’m assuming this textbook could be Macroeconomics by Mankiw because this concept looks familiar? So Fk and FL would increase by the same % and your output (Y) increases by the same percentage in a constant returns to scale model. &lt;/p&gt;&#xA;" OwnerUserId="16329" LastActivityDate="2018-04-14T20:05:44.787" CommentCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="21479" PostTypeId="2" ParentId="21476" CreationDate="2018-04-14T20:20:20.397" Score="5" Body="&lt;p&gt;The result follows from Euler's Theorem on homogenous equations. This theorem states that if a function $f(x,y)$ is homogeneous of degree $\lambda$ then the following holds:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\lambda f(x,y)= x \frac{\partial f}{\partial x} + y \frac{\partial f}{\partial y}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A (production) function with constant returns to scale is homogeneous of degree 1 by definition. The definition of constant returns to scale is basically the same as the definition of homogeneity of degree 1. That means $\lambda=1$, which proves the result you need.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastEditorUserId="5557" LastEditDate="2018-04-14T20:25:32.647" LastActivityDate="2018-04-14T20:25:32.647" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21482" PostTypeId="2" ParentId="19837" CreationDate="2018-04-15T02:47:01.990" Score="-1" Body="&lt;p&gt;Upon reviewing my copy of &lt;a href=&quot;https://rads.stackoverflow.com/amzn/click/0393957357&quot; rel=&quot;nofollow noreferrer&quot;&gt;Microeconomic Analysis&lt;/a&gt; I found that he mentions an unconstrained optimization problem (more specifically a formula with the constraint included)faced by the consumer in the context of welfare analysis.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;... Let $CS(x)=u(x)-px$ be the &lt;strong&gt;consumer's surplus&lt;/strong&gt; associated with a given level  of output; this measure the difference between the &quot;total benefits&quot; from the consumption of the x-good and the expenditure on x-good. Similarly let $PS(x)=px-c(x)$ be the profits or &lt;strong&gt;producer surplus&lt;/strong&gt; eared by the representative firm.&lt;br&gt;&#xA;  &amp;nbsp; Then the maximization of total surplus intails:&#xA;  $$\max_x  \ CS(x)+PS(x)=[u(x)-px]+[px-c(x)]$$&#xA;  or&#xA;  $$\max_x \ u(x)-c(x)$$&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;based on this excerpt, I think its safe to say the consumers &quot;profit function&quot; is consumer surplus maximization problem as defined by:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\max_x \ CS(x)=u(x)-px$$&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2018-04-15T02:47:01.990" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21483" PostTypeId="1" AcceptedAnswerId="21575" CreationDate="2018-04-15T02:51:42.870" Score="2" ViewCount="35" Body="&lt;p&gt;I have previously posted a very similar question on Stackoverflow, but based on responses there I have decided that the real nub of my question is economic. I will give a longish introduction, mainly to distinguish what I know (introduction) from what I am asking (last 3 paragraphs, skip to it if you like).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose I have a pdf &lt;code&gt;f(x)&lt;/code&gt; or a CDF &lt;code&gt;F(x)&lt;/code&gt; that represents the size distribution of income. Income is a flow of money (dollars or some unit of currency), per some unit of time, to particular individuals. I therefor think the proper unit of measurement is dollars per person-year.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In order for the probability to come out in dimensionless units, f(x) must be measured in person-years per dollar. Integrating this over x also yields a dimensionless share for the CDF because the units of an integral are the product of the units of the integrand &lt;code&gt;y = f(x)&lt;/code&gt;, here measured in person-years/dollar, and of the differential &lt;code&gt;dx&lt;/code&gt;, here measured in dollars/person-year.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Integrating &lt;code&gt;xf(x)&lt;/code&gt; therefore puts the units on the mean income in $/person-year; this seems reasonable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From this I have drawn conclusions on the units and interpretation of the quantile density function &lt;code&gt;q(y)&lt;/code&gt;, quantile function &lt;code&gt;Q(y)&lt;/code&gt;, and the integral of &lt;code&gt;yq(y)dy&lt;/code&gt; (i.e. the the inverse function analogue of the partial moment function of order 1) which if correct would be very helpful to me, but in which I have limited confidence. I’d be grateful if someone could confirm or deny these conclusions, perhaps in the context of some discussion/explanation of interpretation of dimensional analysis in the the context of distribution functions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I believe the units of the y axis and of q(y) are necessarily the same as those in the previous pdf/CDF analysis, i.e. the y values are still measured in person-years per dollar and x = q(y) is still measured in $/person-year. This implies that integrals of q(y) over some interval in general, and Q(y) (which is equal to the integral of q(y) from 0 to y) in particular, are both measured in unitless shares. However &lt;strong&gt;(uncertain interpretation #1)&lt;/strong&gt; &lt;code&gt;F(x)&lt;/code&gt; is in unitless shares of total income, while Q(y) is in unitless shares of the population for a year. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, &lt;strong&gt;(uncertain interpretation #2)&lt;/strong&gt; this would have the integral of &lt;code&gt;yq(y)dy&lt;/code&gt; in units of person-years per dollar. But I am having trouble interpreting this. The corresponding x quantity is the mean (or for a bounded x, the partial mean) of income per person-year. So this would be the mean number of person-years--for what? for a single dollar? for the mean income?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider the truncated version of this function, where the integral of &lt;code&gt;yq(y)dy&lt;/code&gt; from zero to &lt;code&gt;q*&lt;/code&gt; is divided by &lt;code&gt;F(q*)&lt;/code&gt;. The corresponding truncated function of x yields the mean for those with incomes of x* or less, and $/person-year seems like reasonable units for a mean income. But I want the the y version to come out in number of people, or number of person-years, corresponding to the share of person-years over the same interval, and the &quot;per dollar&quot; in the denominator, which I need to make the CDF(x) and Q(y) unitless, does not have an interpretation which is obvious to me.&lt;/p&gt;&#xA;" OwnerUserId="12668" LastActivityDate="2018-04-19T20:30:20.803" Title="Dimensional analysis for the qdf/quantile function corresponding to the pdf/CDF for the size distribution of income" Tags="&lt;statistics&gt;&lt;inequality&gt;&lt;probability&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21486" PostTypeId="1" AcceptedAnswerId="21500" CreationDate="2018-04-15T08:58:48.013" Score="1" ViewCount="70" Body="&lt;p&gt;Before regression (like fixed-effects, random-effects), for these two kinds of variables:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) Price levels (e.g. price level of capital formation)&#xA;They are usually ratios like 0.987, 1.022..., based on USA 2010=1&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) % of GDP (e.g. broad money as % of GDP)&#xA;They are also ratios (%) like 80.5, 99.7 (or in decimal form 0.805, 0.997)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Do I need to log transform them, and how can I log transform them?&lt;/p&gt;&#xA;" OwnerUserId="11772" LastEditorUserId="6168" LastEditDate="2018-04-15T20:29:09.790" LastActivityDate="2018-04-15T20:29:09.790" Title="Do I need to log transform these two kinds of variables?" Tags="&lt;applied-econometrics&gt;&lt;paneldata&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21489" PostTypeId="2" ParentId="20094" CreationDate="2018-04-15T11:04:15.157" Score="1" Body="&lt;p&gt;The equations you have are equilibrium conditions, while derivation (of course) starts with the demand equation and sets demand equal to supply. Then:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;$\varphi$ ($0&amp;lt;\varphi&amp;lt;1$) is the income elasticity of money demand - the responsiveness of demand with respect to income&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;$-\lambda$ ($-\lambda &amp;lt;0$) is the interest rate semi-elasticity of money demand - the responsiveness of demand to the change in interest rates.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Semi-elasticity means that we care how much Y changes in percentages when we increase $X$ by one (increase by one, not by one percentage point).&lt;/p&gt;&#xA;" OwnerUserId="18014" LastEditorUserId="6168" LastEditDate="2018-04-15T20:05:14.143" LastActivityDate="2018-04-15T20:05:14.143" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21495" PostTypeId="1" AcceptedAnswerId="21499" CreationDate="2018-04-15T16:09:53.580" Score="3" ViewCount="169" Body="&lt;p&gt;Suppose we have the following four lotteries:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$L_{1}=[(1,\$1)]$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$L_{2}=[(0.01,\$0),(0.89,\$1),(0.1,\$5)]$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$L_{3}=[(0.9,\$0),(0.1,\$5)]$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$L_{4}=[(0.89,\$0),(0.11,\$1)]$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If our agent says that he prefers $L_{1}$ to $L_{2}$ and prefers $L_{3}$ to $L_{4}$, then he is not following the expected utility assumption of independence (also known as substitutability).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Anyone know how to explain this?&lt;/p&gt;&#xA;" OwnerUserId="5936" LastActivityDate="2018-12-17T15:37:07.523" Title="Lotteries and expected utility" Tags="&lt;mathematical-economics&gt;&lt;expected-utility&gt;" AnswerCount="4" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21496" PostTypeId="2" ParentId="21495" CreationDate="2018-04-15T17:02:17.320" Score="-1" Body="&lt;p&gt;The expected utility of $L_1$ and $L_2$ are:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$E(L_1)=\sum_{i=1}^{n=1}{p_iu_i}=1*1= 1$ &lt;strong&gt;$&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$E(L_2)=\sum_{i=1}^{n=3}p_iu_i=0.01*0+0.89*1+0.1*5= 1.39$  &lt;strong&gt;$&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore if the agent says that he prefers $L_1$ to $L_2$ then he is not following the expected utility assumption of independence as $E(L_2) &amp;gt; E(L_1)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Similarly with $L_3$ and $L_4$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$E(L_3)=\sum_{i=1}^{n=2}p_iu_i=0.05$ &lt;strong&gt;$&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$E(L_4)=\sum_{i=1}^{n=2}p_iu_i= 0.11$ &lt;strong&gt;$&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Because $E(L_4)&amp;gt;E(L_3)$, if the agent says he prefers $L_3$ to $L_4$ then he is also not following the expected utility assumption on independence. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope this is helpful!&lt;/p&gt;&#xA;" OwnerUserId="6629" LastActivityDate="2018-04-15T17:02:17.320" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="21497" PostTypeId="2" ParentId="21495" CreationDate="2018-04-15T17:18:59.800" Score="2" Body="&lt;p&gt;I've been working on it and I believe this is the way to approach it:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Write the lotteries as follows:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$L_{1}=[(0.89,\$1),(0.11,\$1)]$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$L_{2}=[(0.89,\$1),(0.11,L')]$ where we compound $L'$ inside $L_{2}$ with $L'=[(\frac{1}{11},\$0),(\frac{10}{11},\$5)]$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$L_{3}=[(0.89,\$0),(0.11,L')]$ using the same $L'$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$L_{4}=[(0.89,\$0),(0.11,\$1)]$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We have $L_{1}$ is preferred to $L_{2}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, by the assumption of independence or substitutability, changing the lottery value from $(0.89,\$1)$ to $(0.89,\$0)$ with all else remaining constant, should not change our preferences. So, if the assumption is followed, we should have $L_{4}$ is preferred to $L_{3}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, $L_{3}$ is preferred to $L_{4}$, so it is not the case.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What do you think of this approach? Is it valid?&lt;/p&gt;&#xA;" OwnerUserId="5936" LastActivityDate="2018-04-15T17:18:59.800" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="21498" PostTypeId="1" CreationDate="2018-04-15T17:32:58.190" Score="3" ViewCount="107" Body="&lt;p&gt;We know that required reserves are the reserves that central bank requires banks to hold in reserves.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Reserves= Required Reserves +Excess reserves.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But I see that in 2017 Total Reserves (RESBALNS) = 2000 Billion whilst Required Reserves (RESBALREQ) are only 124 Billion. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If required reserves are so low how could changing it possibly effect anything? Am I not using the right indicators?&lt;/p&gt;&#xA;" OwnerUserId="18016" LastActivityDate="2018-04-15T20:34:33.083" Title="Why are required reserves so trivially low?" Tags="&lt;banking&gt;&lt;central-banking&gt;&lt;federal-reserve&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21499" PostTypeId="2" ParentId="21495" CreationDate="2018-04-15T20:07:09.553" Score="3" Body="&lt;p&gt;Your example is the classic &lt;a href=&quot;https://en.wikipedia.org/wiki/Allais_paradox&quot; rel=&quot;nofollow noreferrer&quot;&gt;Allais paradox&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think the best way to see how the preference pattern $L_1\succ L_2$ and $L_3\succ L_4$ violates independence is to visualize it geometrically. Consider the following figure: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/UKE6q.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/UKE6q.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Observe that &#xA;\begin{align}&#xA;L_2&amp;amp;=L_1+(0.01,-0.11,0.1)\\&#xA;L_3&amp;amp;=L_4+(0.01,-0.11,0.1).&#xA;\end{align}&#xA;Therefore, the indifference curves passing through $L_1$ and $L_4$ should be parallel. Since $L_1\succ L_2$, the latter lottery should lie below the IC through $L_1$. By implication of the parallelism of the ICs, $L_3$ should also lie below the IC through $L_4$. But we're given that $L_3\succ L_4$. This means that $L_4$ lies below the IC through $L_3$ (the blue dashed line). Since parallelism of ICs is a necessary condition of independence, the agent's preference is inconsistent with independence, because it can only be justified by a set of non-parallel ICs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Alternatively, you can think of the inconsistency between the agent's preference and expected utility theory in the following way.&#xA;Suppose expected utility theory holds. Then $L_1\succ L_2$ is equivalent to the inequality&#xA;\begin{equation}&#xA;u(\$1)&amp;gt;0.01u(\$0)+0.89u(\$1)+0.1u(\$5).&#xA;\end{equation}&#xA;Adding $0.89u(\$0)-0.89u(\$1)$ on both sides, we get &#xA;\begin{equation}&#xA;0.89u(\$0)+0.11u(\$1)&amp;gt;0.9u(\$0)+0.1u(\$5). &#xA;\end{equation}&#xA;But this second inequality is simply saying $L_4\succ L_3$, which is contradictory to the agent's preference.&lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2018-04-15T20:07:09.553" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21500" PostTypeId="2" ParentId="21486" CreationDate="2018-04-15T20:22:54.300" Score="0" Body="&lt;p&gt;You don't need to log transform these variables. Consider the following model&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;$\log y = \beta x.$&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Then, you can interpret $\beta$ as a &lt;strong&gt;semi-elasticity&lt;/strong&gt;, i.e., the percentage change in $y$ when $x$ increases by 1 unit. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To see this you can transform the previous equation as: &#xA;$y = \exp(\beta x),$ in which case $dy/dx = \beta \exp(\beta x)$. Thus, the percentage change in $y$ when $x$ changes is $\frac{dy/dx}{y} = \frac{\beta\exp(\beta x)}{\exp(\beta x)} = \beta$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note also that &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;$\Delta \log y = \beta \Delta x$ so $100.\Delta \log y = (100.\beta) \Delta x$&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It follows that &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;$\% \Delta y \approx (100.\beta) \Delta x$&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="6168" LastActivityDate="2018-04-15T20:22:54.300" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21501" PostTypeId="2" ParentId="21498" CreationDate="2018-04-15T20:34:33.083" Score="1" Body="&lt;p&gt;The world changed in 2008, and commercial banks substantially increased their reserves held at the central banks in many countries including the US, mainly because they did not want to lend to each other in the unsecured interbank market&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At that point, required reserves failed as a policy measure for fine-tuning money markets in many countries, since it amounted to pushing on a piece of string; the Bank of England removed them entirely in 2009.  Several central banks moved to alternative instruments, including:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;quantitative easing &lt;/li&gt;&#xA;&lt;li&gt;interest on excess reserves (in the US they were small and positive but some cases such as Euroland the equivalent could be negative)&lt;/li&gt;&#xA;&lt;li&gt;bank capital ratios, as a solvency regulation&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2018-04-15T20:34:33.083" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21504" PostTypeId="1" CreationDate="2018-04-15T22:23:57.057" Score="1" ViewCount="62" Body="&lt;p&gt;The following is my R code. I do not understand why for the same variable I have two estimated coefficient. &lt;strong&gt;How do I interpret Wife_age variable especially after exponentiate them?&lt;/strong&gt; I believe it requires some transformation.&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;mlogit.mod &amp;lt;- mlogit(Contraceptive_method_used ~ 1|Wife_age  + Wife_education， data=mydata)&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;h1&gt;Those are the stats, estimate, standard error, t- stats, p-value in that order&lt;/h1&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;Variable  &#xA;2:Wife_age                     -0.045815,   0.012060, -3.7988, 0.0001454 &#xA;&#xA;3:Wife_age                     -0.105979,   0.011256 -9.4150 &amp;lt; 2.2e-16&#xA;&#xA;2:Wife_education                0.881807,   0.114534,  7.6991, 1.377e-14 &#xA;&#xA;3:Wife_education                0.366726,   0.087486,  4.1918 2.767e-05&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;h2&gt;Confusion! This command will give me the odd ratio&lt;/h2&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;exp(coef(mlogit.mod))&#xA;&#xA;&amp;gt; 2:Wife_age   **0.95521852**&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;" OwnerUserId="17923" LastEditorUserId="13965" LastEditDate="2018-04-17T16:01:07.147" LastActivityDate="2018-04-17T16:01:07.147" Title="Interpretation of R result, the mlogit" Tags="&lt;econometrics&gt;" AnswerCount="0" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21505" PostTypeId="1" AcceptedAnswerId="21510" CreationDate="2018-04-15T22:59:55.650" Score="1" ViewCount="354" Body="&lt;p&gt;The iranian rial has been losing its value rapidly recently. The dollar went from 40,000 rials to 60,000 rials in less than 6 month, most of the loss of value happening in the last few weeks. Iran responded by banning the trade of its currency until further notice. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I wanted to ask the economists here their opinion on the implication of this ban? Also example of precedents of such bans by other nation states would be appreciated. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;news source: &#xA;&lt;a href=&quot;https://en.radiofarda.com/a/iran-ban-sale-foreign-currency-exchange-bureaus/29168476.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://en.radiofarda.com/a/iran-ban-sale-foreign-currency-exchange-bureaus/29168476.html&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="18018" LastActivityDate="2018-04-16T11:38:51.147" Title="What would happen if a country bans the trading of its currency against foreign currency?" Tags="&lt;currency&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21506" PostTypeId="2" ParentId="21495" CreationDate="2018-04-16T00:53:30.923" Score="1" Body="&lt;p&gt;This is just @Sadem's argument formalized. Note that we do not need to use any utility function representations, we can use just the preference over lotteries in conjunction with the axiom of independence.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The axiom of independence, formally stated is: $L'' \succeq L'$ $\Leftrightarrow$ $$\alpha L'' + (1-\alpha) L \succeq \alpha L' + (1-\alpha) L$$ $\forall L, L', L'' \in \mathcal{L}$ and $\forall \alpha \in (0,1)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Define $L'' := L_{1}$, $L' := \big((0,1/11), (5,10/11)\big)$, $L := L_{1}$, and $\alpha = .11$. Thus, the first statement implies $$\alpha L'' + (1-\alpha) L \succ \alpha L' + (1-\alpha) L$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, define $L''' := (0,1)$. Hence, the second statement implies $$\alpha L'' + (1-\alpha) L''' \prec \alpha L' + (1-\alpha) L'''$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus the independence axiom is violated.&lt;/p&gt;&#xA;" OwnerDisplayName="user11305" LastEditorDisplayName="user11305" LastEditDate="2018-04-16T04:40:31.167" LastActivityDate="2018-04-16T04:40:31.167" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="21507" PostTypeId="1" AcceptedAnswerId="21509" CreationDate="2018-04-16T09:56:34.943" Score="6" ViewCount="1198" Body="&lt;p&gt;Auction theory typically (always?) begins by assuming that each bidder's valuation is a random variable. Now, it might seem reasonable (at least from a Bayesian perspective) for you to treat &lt;strong&gt;other&lt;/strong&gt; people's valuations as random variables. After all, you don't know their valuations! However, what justification can there be for treating your &lt;strong&gt;own&lt;/strong&gt; valuation as a random variable when deciding on how to bid? And are there any approaches which do not begin with this assumption?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Edit:&lt;/strong&gt; Here's another way of posing the question. In the context of auction theory, people normally seem to define a strategy as a &lt;strong&gt;function&lt;/strong&gt; mapping from my (random) valuation to my bid. But assuming that I know my valuation, why not simply define my strategy as my bid?&lt;/p&gt;&#xA;" OwnerDisplayName="user17900" LastEditorDisplayName="user17900" LastEditDate="2018-04-16T13:16:02.873" LastActivityDate="2018-04-16T15:19:43.147" Title="In auction theory, why is my own valuation a random variable?" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;game-theory&gt;&lt;auctions&gt;" AnswerCount="2" CommentCount="5" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21508" PostTypeId="1" CreationDate="2018-04-16T10:34:49.600" Score="1" ViewCount="4154" Body="&lt;p&gt;When a country's economy is currently in recession (or has entered a recession), will the net export increase or decrease? What will happen to the major trade partner's net export (will it be the reverse, such that the country's net export decreases, the other's increases)? What is the reason behind the phenomenon?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My hypothesis right now is that recession will lead to a decrease of export (less production due to less demand and the high price of labor), which will lead to the rise of net export of its major trade partner (export - import, import reduces). The major argument against this is that the demand for imported goods in the country that undergoes recession will fall, leading to a fall in export of the trade partner country. &lt;/p&gt;&#xA;" OwnerUserId="15265" LastActivityDate="2018-06-18T06:20:08.553" Title="Recession and Net Export" Tags="&lt;macroeconomics&gt;&lt;supply-and-demand&gt;&lt;international-trade&gt;&lt;balance-of-trade&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21509" PostTypeId="2" ParentId="21507" CreationDate="2018-04-16T10:53:51.100" Score="6" Body="&lt;p&gt;In most of the literature I have read on private value auctions you do actually know your own valuation in the auction, it is your private information. It has a distribution from the point of view of others, who can only guess at your valuation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another interpretation would be that your valuation is actually random before getting detailed information on the object you are bidding on. How much would you pay for this bottle of wine that I have here on my shelf? Oh, it depends on the wine? Then without knowing the exact type of wine and assuming it has some random distribution your valuation is also a random variable. Once you learn the exact type of the wine you learn your own 'type', which is modeled as getting a private signal about your valuation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In case of noisy observation your valuation can actually be random. E.g. I tell you the type of wine but you have never had it before. Or in case of gas companies, they have an inexact estimate about the yield of a gas field. Their 'real' valuation depends on the 'real' yield, without knowing that they can only bid based on some expected values.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2018-04-16T10:53:51.100" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="21510" PostTypeId="2" ParentId="21505" CreationDate="2018-04-16T11:38:51.147" Score="2" Body="&lt;p&gt;This is quite a common response to an exchange rate crisis (which normally also suggests broader economic problems).  The consequences depend on how diligently the government applies the ban, the relationship between government and businesses that trade internationally and how far the official rate strays from the true (black market) rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, it is almost always possible to buy and sell currency on the black market, and perhaps legally in neighbouring countries.  The black market rate is likely to follow the downward trajectory of the currency prior to the ban.  Exchange controls create risk for currency traders, so buying and selling on the black market tends to be expensive (i.e. the rates for buying and selling move further apart).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Second, lots of businesses urgently need foreign currency to import inputs and goods for retail sale.  They will try and find a strategy for obtaining that currency.  They may be able to buy it on the black market.  If the government is able to sell some local currency at the official (overvalued) rate, it may also sell foreign currency at the official rate to firms it sees as a priority (e.g. oil importers or friends of the regime).  For instance, tourists entering East Germany were forced to buy a certain quantity of local currency per day of their visit at the official rate, giving the government a source of forex.  If these strategies are not possible, companies may try to create symmetry in their import/export businesses, so that they can use the foreign exchange they earn themselves to cover their imports.  Government may or may not intervene to prevent this.  Importing firms without a viable strategy are likely to fail.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;All in all it makes international trade more difficult and expensive, so prices of imported goods are likely to rise even more quickly than they were under the sliding exchange rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The most reasonable motivation for this type of exchange control is to prevent people and companies from shifting their savings into another currency, which could cause a general banking collapse.  If you see the exchange rate falling continuously, you would be tempted to convert your savings from local currency to dollars, which hold their value.  If everyone does this, the exchange rate slide accelerates, banks can't cover their liabilities, loans are called in, and banks and businesses may fold.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Soviet bloc is a common example of the use of official exchange rates but they've been used by governments in trouble all over the world, recently in various African countries, a few in South America and less recently in Asia.&lt;/p&gt;&#xA;" OwnerUserId="16631" LastActivityDate="2018-04-16T11:38:51.147" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21511" PostTypeId="1" CreationDate="2018-04-16T11:51:17.697" Score="0" ViewCount="270" Body="&lt;p&gt;Often borders can hold back different parts of the world and if they consolidated together they could succeed so much more. What would be the pros and cons If South America were to break down their borders and develop together as one country?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Would this make Soth America a superpower and a leading country in GDP?&lt;/p&gt;&#xA;" OwnerUserId="12019" LastActivityDate="2018-04-16T16:00:40.003" Title="If South America were to unite as one country would they become an economic superpower?" Tags="&lt;macroeconomics&gt;&lt;free-trade&gt;" AnswerCount="1" CommentCount="0" ClosedDate="2018-04-18T07:42:20.150" ContentLicense="CC BY-SA 3.0" />
  <row Id="21512" PostTypeId="2" ParentId="18667" CreationDate="2018-04-16T12:57:19.827" Score="1" Body="&lt;p&gt;I'm citing the first two lines of the article you refer to (emphasis mine):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The debate among researchers about &lt;strong&gt;the employment effects of minimum wages&lt;/strong&gt; remains intense and unsettled. There is clear variation in the magnitude of estimated employment effects across studies, with the debate often being between an elasticity for low-skilled groups equal to (or indistinguishable from) zero, or an elasticity in the range of −0.1 to −0.2. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Mechanically, you can always compute elasticities of any two variables w.r.t. each other at an initial point $b$, which is defined as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\eta_{a, b} = \frac{\partial a(b)}{\partial b}\frac{b}{ a(b)}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Simply googling &lt;code&gt;employment elasticity&lt;/code&gt; gives you &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\eta_{employment, X}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $X$ is the unknown. What is it, that employment is elastic towards?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The article makes clear that indeed, $a$ in this context is the employment rate, while $b$ is the level of the minimum wage.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Instead of googling, you could have looked at any of the studies cited in the article. The first sentence in &lt;a href=&quot;http://irle.berkeley.edu/files/2010/Minimum-Wage-Effects-Across-State-Borders.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Dube et al (2010)&lt;/a&gt; actually states that&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;We use policy discontinuities at state borders to identify the&#xA;  effects of minimum wages on earnings and employment in restaurants&#xA;  and other low-wage sectors.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So they're interested in two related elasticities, one of which was the one you initially suspected. Their table 2 will give you some estimates of those elasticities.&lt;/p&gt;&#xA;" OwnerUserId="43" LastActivityDate="2018-04-16T12:57:19.827" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21513" PostTypeId="1" AcceptedAnswerId="21514" CreationDate="2018-04-16T13:45:03.230" Score="4" ViewCount="45" Body="&lt;p&gt;Two siblings inherit equal shares of a house. To decide who gets to live in it, they each bid what they think the other half is worth. The person with the higher bid gets it, and pays the other sibling halfway in between the bids. Therefore, everyone gets better than their bid: the seller receives more and the buyer pays less. Does this scheme have a name?&lt;/p&gt;&#xA;" OwnerUserId="18028" LastEditorUserId="18028" LastEditDate="2018-04-16T13:52:49.343" LastActivityDate="2018-04-17T07:06:42.720" Title="What's the name of this pairwise price-setting scheme?" Tags="&lt;pricing&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21514" PostTypeId="2" ParentId="21513" CreationDate="2018-04-16T14:51:15.157" Score="4" Body="&lt;p&gt;This is known as the &quot;split-the-difference&quot; mechanism, originally due to Samuelson (1985). See Section 6 of &lt;a href=&quot;http://web.mit.edu/rgibbons/www/Gibbons_Cramton_Klemperer_Dissolving%20a%20Partnership%20Efficiently.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Gibbons et al. (1987)&lt;/a&gt; for a discussion of this rule. In particular,&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;this kind of rule only efficiently dissolves the partnership between the two siblings if they have equal (or sufficiently close to equal) shares in the house. Precisely, each sibling should own no more than 57.7\% of the house.&lt;/li&gt;&#xA;&lt;li&gt;such a mechanism does not typically induce an equilibrium with sincere bidding (i.e., the siblings will report less than their true value for the house).&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2018-04-17T07:06:42.720" LastActivityDate="2018-04-17T07:06:42.720" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21515" PostTypeId="1" AcceptedAnswerId="21517" CreationDate="2018-04-16T15:15:37.463" Score="1" ViewCount="55" Body="&lt;p&gt;Ca. 1970 the prices of real estate started skyrocketing in the US: &lt;a href=&quot;https://commons.wikimedia.org/wiki/File:Median_and_Average_Sales_Prices_of_New_Homes_Sold_in_the_US_1963-2010_Monthly.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;Real estate prices chart&lt;/a&gt;. Same with gold: &lt;a href=&quot;https://www.gold.org/data/gold-price&quot; rel=&quot;nofollow noreferrer&quot;&gt;Gold prices chart&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So my conclusion is that real estate did not increase in value, it was the USD that decrased its value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Further my theory is that Nixon taking US out of the gold standard in 1971 was what caused this. I assume that after this the US started printing a lot of dollars and paid down their foreign debt with the new less valuable dollars.&lt;/p&gt;&#xA;" OwnerUserId="18030" LastEditorUserId="18030" LastEditDate="2018-04-16T17:54:10.280" LastActivityDate="2018-04-16T17:54:10.280" Title="Did the Nixon shock cause skyrocketing real estate prices in the US?" Tags="&lt;government-debt&gt;&lt;federal-reserve&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21516" PostTypeId="2" ParentId="21507" CreationDate="2018-04-16T15:19:43.147" Score="-1" Body="&lt;p&gt;You seem to not understand the concept of &quot;random variable&quot;. The term &quot;random variable&quot; does not refer to a variable that is &lt;em&gt;unknown&lt;/em&gt;, it refers to a variable that has a nondeterministic relationship with other variables. For instance, when you draw cards in poker, the result is a random variable. Just because you end up knowing that you ended up getting particular cards doesn't make them not random variables. You can still ask what the probability of getting those cards is. And since your opponents' actions will be based on that probability, you'd better be able to figure out what that probability is. If you're thinking &quot;Well, I know that I have a pair of kings, so clearly the probability of having a pair of kings is 100%&quot;, you're probably not going to do well. To do Bayesian reasoning, you need to know what your &lt;em&gt;prior&lt;/em&gt; probability of getting a pair of kings is.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a more complicated example, suppose you have a population with mean $\mu$ and standard deviation $\sigma$. You then take a sample and calculate the sample mean. You then want to calculate the 95% confidence interval. This is an interval such that there is a 95% chance that your sampling procedure will result in a sample mean within the interval. This is often presented as &quot;I have this sample mean, and there's a 95% chance that the true mean is within this measurement error&quot;. But this is suggesting that the true mean is some random variable with some probability distribution. But it's not a random variable, it's a fixed parameter. It's the sample mean that is the random variable, and it's the sample mean that has a probability distribution. Just because you've already taken a sample, and know what its sample mean is, does not mean it's not a random variable. There is a nondeterministic process that turns a population mean and std into a sample mean. The sample mean depends on the population mean, but does so nondeterministically, and so is a random variable. Similarly, you valuation is being modeled as coming from particular parameters, but doing so nondeterministically. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Presumably, your bid will be based on how much value you think the good will generate for you. This will in turn be based on what information you have received about the good. And what information you receive can be modeled as a random process. Basically, you have a good space G. You have some data space D. You have some valuation function V. Given a particular g in G, there is some distribution of D: p(D=d|G=g). Given a particular d, there is some valuation v: v = V(d). You want a strategy, given v, of choosing a bid. v is a function of d, which is a nondeterminstic function of g, thus v is a random variable depending on g. Given a particular v and a prior on the distribution of G, and the conditional distributions of d on g, you can use Bayesian reasoning to find the distribution of g. You can then find the bid that maximizes expected value (i.e. the value for each g, weighted by their conditional probabilities).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for why the bid shouldn't just be your valuation: there's no reason to think that your valuation will be an unbiased estimator of the good's true value. Furthermore, the expected value of a bid has a complicated relationship between the bid and the good's true value. If you win the auction, then the value of your bid is the difference between the value and the bid, but the probability of winning the auction depends on your bid and the other participants'. Thus, even if you did have an unbiased estimator of the true value, you shouldn't use it as your bid; you need to take other participants' bids into account.&lt;/p&gt;&#xA;" OwnerUserId="16462" LastActivityDate="2018-04-16T15:19:43.147" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="21517" PostTypeId="2" ParentId="21515" CreationDate="2018-04-16T15:52:35.263" Score="1" Body="&lt;p&gt;Looking at gold values is simply cherry-picking. From 1970 to 1980, the &lt;a href=&quot;https://www.minneapolisfed.org/community/financial-and-economic-education/cpi-calculator-information/consumer-price-index-and-inflation-rates-1913&quot; rel=&quot;nofollow noreferrer&quot;&gt;CPI&lt;/a&gt; went from 38.8 to 82.4, an increase of 112%, and an annualized rate of 7.8%. Your chart shows housing prices increasing about 200%, an annualized rate of about 11.6%. So while most of the price increase was due to inflation, there are 3.8 percentage points that remain unexplained. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;One can also compare the dollar to other currencies. While the &lt;a href=&quot;http://www.miketodd.net/encyc/dollhist-graph2.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;$/£&lt;/a&gt; rate fluctuated a lot in this period, from 1970 to 1980, overall the dollar actually strengthened against the pound slightly, and from 1970 to 1976 its strength more than doubled. The &lt;a href=&quot;http://www.macrotrends.net/2550/dollar-yen-exchange-rate-historical-chart&quot; rel=&quot;nofollow noreferrer&quot;&gt;Yen&lt;/a&gt; exchange seems to show the opposite trend, however.&lt;/p&gt;&#xA;" OwnerUserId="16462" LastActivityDate="2018-04-16T15:52:35.263" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21518" PostTypeId="2" ParentId="21511" CreationDate="2018-04-16T16:00:40.003" Score="1" Body="&lt;p&gt;In answer to the narrower question of how significant an economy South America would be, here's a rough comparison of current (2016) GDP:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/Qu5bM.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Qu5bM.png&quot; alt=&quot;Current GDP of the USA, China, EU, Brazil, and all Latin American and Caribbean countries combined&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Caribbean is included in Latin America for good measure (and because that's the way the World Bank cut up the data).  The US is 3.5 times the size, the EU 3.1 times, and China 2.1 times.  The economic area would be almost 3 times the size of the Brazilian economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In terms of pros and cons, there are probably larger political than economic issues involved.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://data.worldbank.org/indicator/NY.GDP.MKTP.CD&quot; rel=&quot;nofollow noreferrer&quot;&gt;Source&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="16631" LastActivityDate="2018-04-16T16:00:40.003" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21520" PostTypeId="1" AcceptedAnswerId="21526" CreationDate="2018-04-16T18:19:47.627" Score="3" ViewCount="65" Body="&lt;p&gt;Consider the following regression model:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$y_{i1}=\beta_1 +u_{i1}$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$y_{i2}=\beta_{21}+\beta_{22}x_i+u_{i2}$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;If &lt;span class=&quot;math-container&quot;&gt;$E(x_i' u_{i1})\neq 0$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$E(x_i' u_{i2})=0$&lt;/span&gt;, will we get consistent estimators for &lt;span class=&quot;math-container&quot;&gt;$\beta_1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\beta_{21}$&lt;/span&gt; using GLS?&lt;/p&gt;&#xA;&lt;p&gt;I think we will not get consistent estimators for both, because the assumption &lt;span class=&quot;math-container&quot;&gt;$E(x_i\otimes u_i)=0$&lt;/span&gt; is violated. Please correct me if I am wrong. Thanks in advance!&lt;/p&gt;&#xA;" OwnerUserId="18034" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2018-04-17T09:26:55.503" Title="Constant Regressor in GLS" Tags="&lt;econometrics&gt;&lt;regression&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21522" PostTypeId="1" AcceptedAnswerId="21523" CreationDate="2018-04-16T20:12:19.250" Score="0" ViewCount="134" Body="&lt;p&gt;Consider a competitive firm with the short-run cost function $C(q) = 20 + 6q +5q^2$. The firm faces a market price of $p$ for its output.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(1) Find the firm's Profit Maximization problem.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(2) Find F.O.C and S.O.C.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm uncertain how to write the maximization problem up. As I understand competitive firm in short-run, we simple need to maximize profits minus cost by choosing the optimal quantity $q$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So my guess is that the answer is: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\max_{q} p-C(q)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assuming that is correct, I am then uncertain how to make sense of the S.O.C.&lt;/p&gt;&#xA;" OwnerUserId="17961" LastActivityDate="2018-04-16T21:21:11.573" Title="maximize profit of competitive firm in short-run" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="21523" PostTypeId="2" ParentId="21522" CreationDate="2018-04-16T21:21:11.573" Score="1" Body="&lt;p&gt;Is the cost given the marginal or cumulative cost? If it's the cumulative cost, then the profit is  pq-C(q): your price is money per item, so you have to multiply by the number of items to find the total gross revenue. The problem is then to maximize the profit, i.e. find $\max_{q} pq-C(q)$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If C(q) is the marginal cost, then the marginal profit is marginal revenue minus marginal cost, i.e. marginal profit = p-C(q).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The FOC is that the firm should keep selling the product until selling more would cause their marginal profit to go negative. For a continuous function to go from positive to negative, it has to go through zero. Thus, the FOC is that their marginal profit be zero.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;While the marginal profit going from positive to negative means that it's going through zero, going through zero doesn't necessarily mean that you're going from positive to negative; you still have to check which direction it's going. So the SOC is that the marginal profit be decreasing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;FOC: marginal profit = 0&lt;br&gt;&#xA;SOC: marginal profit decreasing&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the marginal profit is decreasing, then when it hits zero, it's going from positive to negative.&lt;/p&gt;&#xA;" OwnerUserId="16462" LastActivityDate="2018-04-16T21:21:11.573" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21525" PostTypeId="1" CreationDate="2018-04-17T04:33:35.260" Score="1" ViewCount="22" Body="&lt;p&gt;By most measures, most people who look at trade balance, but it might include a good chunk of services imports/exports who might not be as readily subjected to tariffs.&lt;/p&gt;&#xA;" OwnerUserId="8607" LastActivityDate="2018-04-17T04:33:35.260" Title="When finding targets in a trade war, does the goods balance or trade balance matter more?" Tags="&lt;international-trade&gt;&lt;international-economics&gt;&lt;balance-of-trade&gt;&lt;free-trade&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21526" PostTypeId="2" ParentId="21520" CreationDate="2018-04-17T09:26:55.503" Score="0" Body="&lt;p&gt;The equation-wise OLS estimators are consistent under the further normalization that $E(u_{i1})=0$ and $E(u_{i2})=0$, which are naturally assumed to be satisfied. For GLS, I don't know what you mean by GLS, but if you mean the SUR estimator, then I see no reasons why inconsistent. The fact that $E(x_i' u_{i1}) \ne 0$ is irrelevant because $x_i$ is not a regressor in the first equation.&lt;/p&gt;&#xA;" OwnerUserId="10775" LastActivityDate="2018-04-17T09:26:55.503" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21528" PostTypeId="1" CreationDate="2018-04-17T11:52:00.657" Score="1" ViewCount="81" Body="&lt;p&gt;Im currently doing a project to construct a demand function for Meat &amp;amp; Fish. My data indicates that Price of Fruit &amp;amp; Veg is individually statistically significant. &#xA;However, after a omitting this variable (as well as 3 other insignificant variables) the F-test result highlighted the failure to reject the Null (these four variables are jointly insignificant).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Should I therefore omit Fruit &amp;amp; Veg variable, despite it being individually significant and also making intuitive sense for inclusion into my demand function. &lt;/p&gt;&#xA;" OwnerUserId="17955" LastActivityDate="2018-04-19T15:56:38.343" Title="Econometrics: Omitting a significant variable" Tags="&lt;microeconomics&gt;&lt;econometrics&gt;&lt;statistics&gt;&lt;stata&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21529" PostTypeId="2" ParentId="21528" CreationDate="2018-04-17T15:32:35.370" Score="2" Body="&lt;p&gt;You should do none of the above.  This is an invalid decision-making process.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the best of all possible worlds, create a series of do loops and go through the set of all possible combinations of variables.  Calculate the AIC or the BIC.  If you know nothing about either, just pick one as they usually give the same result.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The model with the lowest AIC or BIC is the model that is probably the closest to the true model in nature.  Statistical significance does &lt;em&gt;not&lt;/em&gt; matter at all.  If the best model is also not significant, then it is not significant.  It could just mean the other models have a spurious significance.  Likewise, if the model chosen is significant under the F-test, but has non-significant variables, then you cannot change them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you do not know how to write do loops or for-next loops, then find a package with step-wise regression.  It will not cover all the models, but it will cover many.  Use the same criterion either the AIC or the BIC.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Because you are asserting the null is true, you cannot have more than one null.  It means nothing if you add or subtract variables because you are changing the null every time and you cannot do that.  The AIC or BIC are non-Frequentist methods of estimating the true model and so the solution of using either bypasses the question of significance until after the model is chosen.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;EDIT&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I thought I would provide an edit to cover the statements in the comment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For starters, I agree with the comment.  I thought I should ground the above statement better as to the logic behind it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The various information criteria, the AIC, the BIC, the DIC and so forth, can either be grounded in information theory or in Bayesian theory.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;From an information theoretic perspective, if you have outside information about which models should be included or excluded either from theory or experience then that information needs to be incorporated.  Since there is no direct method to merge them together, you should use judgment in which models to look at.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From a Bayesian perspective, the various information criteria are stylized point approximations of the Bayesian posterior under somewhat restrictive assumptions.  In many respects, they are not good proxies because the smaller the posterior density, the less likely it is to be true, whereas the reverse is true in the criterion.  It is best to think of them as both being rankings and they would provide the same ordering of rankings.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now there are two Bayesian issues present.  First comes from the fact that you can construct Bayesian theory from Cox's axioms.  Cox's axioms are built around Aristotelian logic.  You would use Bayesian methods to assess logical statements.  If some statements do not need assessing or could be excluded by logic, then they should be excluded from consideration.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The second comes from the nature of the prior density.  If you have prior knowledge that some cases cannot be true, then you should give them zero prior weight.  This would exclude them from consideration at all.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Nonetheless, the combinatoric method should be considered because it maps to a Bayesian argument and the information criterion are non-Frequentist constructions and so you shouldn't be using Frequentist criteria in making this type of decision.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Bayesian hypotheses are combinatoric.  If you are testing the model $$y=\beta_0+\beta_1x_1+\beta_2x_2+\beta_3x_3+\varepsilon$$ and you have no logical reason to exclude any case, then you are going to have to test eight hypotheses, removing one, two or three variables at a time.  This is the practical equivalent to the Frequentist hypothesis that $\beta_i=0$ which cannot be tested in Bayesian methods because it is a sharp null hypothesis and of measure zero.  Removing a variable and assuming its coefficient is zero is the same thing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Because Bayesian methods lack a null hypothesis, which is both a strength and a shortcoming, no one hypothesis gets special treatment or special weight, absent material external information.  You test the posterior probability of each possible model as part of your process.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, this is where a legitimate objection does come in.  Information criteria are stylized approximations of the actual posterior.  In some cases, they are perfect approximations but they can be poor approximations in other cases.  In the perfect approximation case, you should be using the information criterion that is appropriate for your problem and your worry is not about the criterion, but rather the representativeness of your data.  In the poor approximation case, close differences could, in fact, be reversed if the posterior was actually computed.  As you multiply your combinations, the greater the probability of a single pairwise mistake will happen.  Nonetheless, since you are not doing model averaging, but model selection it will probably not be the highest two pairs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Using tools like the information criterion does highlight a problem in data-based measures over a true null hypothesis based methods, the combinations show how little &lt;em&gt;independent&lt;/em&gt; data that you may have.  If you are not model hunting, but instead testing the one true model, then you will lose a few degrees of freedom and unless you have collinearity problems, then you are fine if your sample is of reasonable size.  In my example above, it is quite like dividing your sample by eight.  It isn't a subtractive process as one would see with degrees of freedom, it is more like a process of division.  Add into that the internal correlations and there may not be much in the way of independent information in your set.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Still, it didn't seem to me like you felt you had a mental model of how the relationships should be, so I would still recommend either the combinatoric or the step-wise solution.&lt;/p&gt;&#xA;" OwnerUserId="11321" LastEditorUserId="11321" LastEditDate="2018-04-19T15:56:38.343" LastActivityDate="2018-04-19T15:56:38.343" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="21530" PostTypeId="1" AcceptedAnswerId="21549" CreationDate="2018-04-17T16:16:16.763" Score="2" ViewCount="44" Body="&lt;p&gt;In rich countries, people are expensive.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Even taxi driver in Singapore earns $6k per month.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, the &quot;market&quot; tend to correct it self.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If something is expensive, and it's marginal productivity is low, then the &quot;market&quot; would produce less of that thing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The market produces far more computer than abacus for obvious reason. Once the market produces more and more computer abacus become obsolete and too expensive.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The same way with humans. Humans are getting more and more expensive. So the market produce less of them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And that's why rich countries produce less and less of them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, I have many doubt about this theory. After all, the number of children you have is not up to the market fully.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It depends on how well you can attract mates to knock up. Yes. That would be market mechanism.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, there are many government rules that sort make this not market mechanism. Polygamy tend to be illegal. Government tend to subsidize children of the poor with public schools and welfare. Minimum wage means poor people's salary are set by government. Child support laws are set proportional to man's wealth.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But still, market &quot;distortion&quot; may not be that &quot;big&quot;. The market may still handle it. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And overall, things still follow market mechanism. The market, decides that we have too many humans. The market stop producing it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Poor men, for example, can't get a girlfriend. Or poor people think that cost of raising children is too high they decided not to produce children and so on. Those seem like the way the market handles things.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Am I right? Wrong? Anyone study this? &lt;/p&gt;&#xA;" OwnerUserId="17694" LastActivityDate="2018-04-21T17:37:40.030" Title="Can number of children in rich country is small due to this simple economic factor?" Tags="&lt;expected-utility&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21531" PostTypeId="1" CreationDate="2018-04-17T16:34:12.263" Score="2" ViewCount="61" Body="&lt;p&gt;I am interested in the size of what I call the &lt;strong&gt;regulatory/supervisory sector&lt;/strong&gt; in Western economies. A regulatory/supervisory (R&amp;amp;S) activity involves either:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Determining a set of rules economic agents must comply with under penalty of retaliatory action (regulation).&lt;/li&gt;&#xA;&lt;li&gt;Monitoring and enforcing the compliance of economic agents with a set of rules (supervision).&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;These functions can be accomplished either by public or private actors: for example, in the UK the Financial Conduct Authority is responsible for regulating and supervising the behavior of individuals working in the financial sector; on the other hand, auditing companies such as EY and PwC are hired to monitor whether companies comply with accounting standards. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Is there any paper which studies the size of the R&amp;amp;S sector in the economy or its impact of the economy? Is there any economist which specializes in this?&lt;/strong&gt; These can also be old economists from XIXth or XXth Century which thought and wrote about it. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Why do I ask this?&lt;/strong&gt; Roughly speaking, as economies (such as countries or regions) grow over time, their economic fabric becomes more complex and sophisticated as they transition to activities with higher value added. My impression is that &lt;em&gt;economies will experience a continuous, long-term upward trend in the number of R&amp;amp;S jobs both in the public as well as in the private sector&lt;/em&gt;, with the portion of economic activity belonging to the R&amp;amp;S sector converging towards some sort of equilibrium point (I do consider the existence of R&amp;amp;S cycles). The need for these positions comes from different structural factors, among which:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;As economies become more complex and sophisticated, certain systemic risks gradually emerge and R&amp;amp;S jobs are needed to monitor and control these risks (&lt;em&gt;e.g.&lt;/em&gt; the development of the banking systems in Western countries has generated the risk of systemic financial instability, as seen in the numerous banking crisis throughout the last centuries);&lt;/li&gt;&#xA;&lt;li&gt;Growth often comes through innovation, which brings disruption through the formation of new sectors of activity which tend to replace or substitute old ones. As these new sectors grow and become more mature, the limitations and risks they pose become gradually apparent to society which will ultimately demand to regulate and supervise them either through private or public action (&lt;em&gt;e.g.&lt;/em&gt; the current debate around the use of personal data by social networks and the need to regulate it);&lt;/li&gt;&#xA;&lt;li&gt;Rogue economic actors can exploit institutional loopholes or lack of oversight to perform illegal or borderline illegal activities for their profit. Once society identifies these shortcomings, R&amp;amp;S is improved to avoid repetition of these unfair practices (&lt;em&gt;e.g.&lt;/em&gt; the Enron scandal and the resulting Sarbanes-Oxley Act in the US).&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;On the other hand, it could be argued that the size of R&amp;amp;S activity is not intrinsically increasing: for example, regarding point 2 above, it can be argued that as new industries replace old ones, so too do new R&amp;amp;S roles replace old roles. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given I believe the R&amp;amp;S sector can only grow in relative size over the long term, I am logically interested in understanding &lt;em&gt;how this sector influences the economy and how an economy evolves as a consequence of the increasing importance of regulation and supervision&lt;/em&gt;. For example, it might be the case that an outsized R&amp;amp;S sector has similar negative effects to those due to the proliferation of rent-seeking activities. &lt;/p&gt;&#xA;" OwnerUserId="12770" LastActivityDate="2018-04-17T16:34:12.263" Title="Size and influence of the regulatory/supervisory sector" Tags="&lt;reference-request&gt;&lt;economic-growth&gt;&lt;regulation&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21532" PostTypeId="2" ParentId="9994" CreationDate="2018-04-17T16:34:34.050" Score="-1" Body="&lt;p&gt;Who says humans need to work to earn a living?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The economy needs productivity. The economy do not need your work. It needs productive works.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Do you know what is the greatest source of productivity?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Work?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Think about it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Alice salary is USD 10 an hour. Bob, an immigrant, or android, cost USD 1 an hour. Government prohibits Bob from replacing Alice. Did the economy improves?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The way I see it is Alice is still not productive even though she is working. Government act of prohibiting Bob from replacing Alice cost the whole economy $9 an hour.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That means customers must pay for more expensive service, yada yada yada.....&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If work is not the main source of productivity, what is the main source  of productivity? What makes a country wealthy?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;FREEDOM (imagine Mel Gibson voice at the end of brave heart)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Most inefficiency in economy happens because governments disrespect individual freedom.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why not just &quot;bribe&quot; the voters so that they embrace freedom?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Think about it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;See that programmer in California? A few LSD and he can build another facebook. But it's illegal. So? Tax LSD. Money.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Look at rich billionaire buying expensive branded items leaving in expensive suburb. Surely they want to stay that way and save. Tax land. Tax expensive items. Tax luxury.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Oh look at Bob, a billionaire with no children. What would all his money go when he died? Legalize prostitution. Let Bob hire women to breed and breed and breed. Bob can give $1 million to each of his descendant. Bob produce 1000 descendants. Then?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Tax children. Each children dilute value of citizenship. Tax them. And only the productive have children. Tada. Less unemployment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Give the money as citizen dividend for all adult citizens.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then? Then voters and the mobs will have strong incentive to make the land free and save.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It'll be what the libertarian wish except that there are some small regressive tax on consumption or leaving in expensive land.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are many many solutions to automation is taking our job. Think abundance. &lt;/p&gt;&#xA;" OwnerUserId="17694" LastActivityDate="2018-04-17T16:34:34.050" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21533" PostTypeId="1" CreationDate="2018-04-17T17:16:11.353" Score="2" ViewCount="81" Body="&lt;p&gt;I can't get my head around the concept.&lt;br&gt;&#xA;&lt;a href=&quot;https://economics.stackexchange.com/questions/20930/how-does-national-debt-work&quot;&gt;This question&lt;/a&gt; didn't help much either.&lt;br&gt;&#xA;Could you please explain what it really means? and why is it bad to pay it off and have zero national debt?&lt;br&gt;&#xA;Thanks.&lt;/p&gt;&#xA;" OwnerUserId="18041" LastActivityDate="2018-04-18T03:01:29.573" Title="What does national debt really mean? and why is it bad to pay it off?" Tags="&lt;macroeconomics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21534" PostTypeId="1" CreationDate="2018-04-17T17:40:14.277" Score="1" ViewCount="160" Body="&lt;p&gt;A  monopolist faces a demand curve given by $P=60-2Q$ and has total costs given by $TC=Q^2$. Now suppose that the country in which this monopolist is located decides to engage in international trade. The world price of the product produced by the monopolist is $10. What is the firm's profit-maximizing output level?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My attempt:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$P=60-2Q$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$P=10\implies 10=60-2Q\implies 2Q=50\implies Q=25$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Unfortunately, this isn't the right answer. How do I solve this problem?&lt;/p&gt;&#xA;" OwnerUserId="16105" LastActivityDate="2018-04-18T01:54:21.163" Title="Monopolist engaging in international trade" Tags="&lt;microeconomics&gt;&lt;monopoly&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21537" PostTypeId="1" CreationDate="2018-04-17T21:12:18.870" Score="4" ViewCount="83" Body="&lt;p&gt;I want to prove that if a utility function that represents $\succsim$ has constant marginal elasticity of substitution (MRS) in proportional expansions along rays, that is:&#xA;$$&#xA;MRS(x,y) = MRS(\alpha x, \alpha y), \ \forall \alpha &amp;gt; 0&#xA;$$&#xA;then $\succsim$ is homothetic. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The definition of homothetic preferences that I'm using is the one found in Mas-Colell et al.:  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Definition 3.B.6&lt;/strong&gt;: A monotone preference relation $\succsim$ on $X=\mathbb{R}^L_+$ is homothetic if all indifference sets are related by proportional expansion along rays; that is, if $x \sim y$ then $\alpha x \sim \alpha y$ for any $\alpha \ge 0$.&lt;/p&gt;&#xA;" OwnerUserId="13237" LastActivityDate="2018-04-17T21:12:18.870" Title="Homothetic preferences" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;theory&gt;" AnswerCount="0" CommentCount="1" ClosedDate="2018-04-18T20:30:25.907" ContentLicense="CC BY-SA 3.0" />
  <row Id="21539" PostTypeId="1" AcceptedAnswerId="21540" CreationDate="2018-04-18T00:46:15.367" Score="0" ViewCount="57" Body="&lt;p&gt;I have been reading a paper by &lt;a href=&quot;http://journals.sagepub.com/doi/abs/10.1177/0022343311418265&quot; rel=&quot;nofollow noreferrer&quot;&gt;Bove &amp;amp; Elia&lt;/a&gt; (2011), where they quote a definition of the value of statistical life from &lt;a href=&quot;https://www.ncbi.nlm.nih.gov/pubmed/19100640&quot; rel=&quot;nofollow noreferrer&quot;&gt;Bellavance, Dionne &amp;amp; Lebeau&lt;/a&gt; (2009). I have tried making my peace with the necessity of this concept, but I have been rather confused by the used definition. It says that the value of a statistical life is a function of the willingness to pay to reduce the risk of death and the risk of death itself. However, the risk of death reduces the value of a statistical life. Why would it do that? Is it a weight as in an NPV calculation, where the risk of default reduces the expected cash flow?&lt;/p&gt;&#xA;" OwnerUserId="16657" LastEditorDisplayName="user18" LastEditDate="2018-04-18T01:11:53.107" LastActivityDate="2018-04-18T01:20:02.473" Title="Value of Statistical Life and Risk" Tags="&lt;econometrics&gt;&lt;risk&gt;&lt;value&gt;&lt;risk-aversion&gt;&lt;vsl&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21540" PostTypeId="2" ParentId="21539" CreationDate="2018-04-18T01:08:53.357" Score="3" Body="&lt;p&gt;If you're willing to pay \$10 to reduce your risk of death by 1 in 1M, then your VSL is \$10M.†&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Example.&lt;/strong&gt; Say there are two bike helmets. One costs \$20 while the other costs \$30. The two helmets are exactly identical, except that the more expensive one has been proven to reduce your risk of death by an additional 1 in 1M.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you're willing to buy the more expensive helmet, then your VSL is (at least) \$10M. (If you're exactly indifferent about buying the more expensive helmet, then your VSL is exactly \$10M.)&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;I'm not sure what you mean by &quot;the risk of death reduces the value of a statistical life.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;†At least under the simplest approach, which ignores other important considerations like risk aversion and the discrepancy between willingness-to-pay and willingness-to-accept.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastEditorDisplayName="user18" LastEditDate="2018-04-18T01:20:02.473" LastActivityDate="2018-04-18T01:20:02.473" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="21541" PostTypeId="5" CreationDate="2018-04-18T01:12:49.617" Score="0" Body="" OwnerUserId="-1" LastEditorUserId="-1" LastEditDate="2018-04-18T01:12:49.617" LastActivityDate="2018-04-18T01:12:49.617" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21542" PostTypeId="4" CreationDate="2018-04-18T01:12:49.617" Score="0" Body="Anything related to the concept of the Value of a Statistical Life (VSL)." OwnerDisplayName="user18" LastEditorDisplayName="user18" LastEditDate="2018-05-06T14:44:25.773" LastActivityDate="2018-05-06T14:44:25.773" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21543" PostTypeId="2" ParentId="21533" CreationDate="2018-04-18T01:44:07.287" Score="1" Body="&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;You borrow \$100 from John, at 3% interest per annum. You are indebted to John, to the tune of \$100.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The Wakanda government borrows \$100M from the public, at 3% interest per annum. The Wakanda government is indebted to the public, to the tune of \$100M.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Conceptually there is no difference between (1) and (2).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But in practice, (1) is more likely to be informal. Maybe the agreement between you and John is not even written down and is simply verbal. Or maybe it is casually scrawled on a scrap of paper.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Whereas (2) is more likely to be formal. Indeed, officially, governments don't call it &quot;borrowing&quot;. Instead, they say that they &quot;issue bonds&quot;. Anyone in the &quot;public&quot; (including Joe on the street or the Chinese government) is free to buy these bonds. If say the bonds are one-year bonds that pay 3% interest per annum, then the government promises to repay the bond-holders $103M in a year's time.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;why is it bad to pay it off and have zero national debt?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I don't think any economist believes it is &quot;bad to pay it off and have zero national debt&quot;. Instead, as with most questions in economics, the answer is &quot;It depends.&quot; You can have too much debt or too little debt. Having zero national debt is neither always ideal nor always bad.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But in practice (i.e. in the real world), many governments tend to err on the side of having too much debt.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastEditorDisplayName="user18" LastEditDate="2018-04-18T02:00:29.770" LastActivityDate="2018-04-18T02:00:29.770" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="21544" PostTypeId="2" ParentId="21534" CreationDate="2018-04-18T01:54:21.163" Score="1" Body="&lt;p&gt;Because the monopolist is only a monopolist in its own country, it is basically in perfect competition in the international market and cannot influence the world price. Therefore, it will have to use the condition that price is equal to marginal cost. His marginal cost (MC) is the first derivative of total cost, i.e. TC'=2Q=MC. If MC=P, then 2Q=10. Therefore, Q=5. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is that the correct answer from your solutions?&lt;/p&gt;&#xA;" OwnerUserId="16657" LastActivityDate="2018-04-18T01:54:21.163" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21545" PostTypeId="2" ParentId="21533" CreationDate="2018-04-18T03:01:29.573" Score="1" Body="&lt;p&gt;The concept makes more sense when you consider taxation and how that plays into the national debt. For example, if the government intends to spend 100 dollars, and only collects 50 dollars in taxes, the government has a deficit of 50 dollars. If the government does the exact same thing the next year, it has another deficit of 50 dollars. That brings the total national debt to 100 dollars. It makes even more sense when you consider the fact that the government can issue bonds to fund whatever it did not collect in taxes. A central bank can also buy bonds from bond holders if it wants to expand the money supply (stimulus), and allow the government to potentially spend more money that it does not collect directly from taxation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know that this is a simplified model, but it explains the broader concept, that whatever a government does not collect in taxes, it must borrow. When it borrows, it must repay. When it has liabilities to repay, we can call that debt. When it does not want to raise taxes to repay those liabilities, the federal reserve can step in and buy bonds which increases the money supply, and can create an inflationary scenario. &lt;/p&gt;&#xA;" OwnerUserId="16329" LastActivityDate="2018-04-18T03:01:29.573" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21546" PostTypeId="1" CreationDate="2018-04-18T05:24:01.243" Score="1" ViewCount="19" Body="&lt;p&gt;Imagine all incomes being spent on consumption would such a system be in a position of no change.&lt;/p&gt;&#xA;" OwnerUserId="18044" LastActivityDate="2018-04-18T07:04:27.510" Title="if all income is spent on consumption how will it change or affect the economy" Tags="&lt;consumption&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ClosedDate="2018-04-18T16:05:29.903" ContentLicense="CC BY-SA 3.0" />
  <row Id="21548" PostTypeId="2" ParentId="21546" CreationDate="2018-04-18T07:04:27.510" Score="0" Body="&lt;p&gt;No, at least not if you mean &quot;final consumption&quot;, that is spent on goods and services solely for our own enjoyment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We produce goods and services with capital and labour (and natural resources and technology and human capital, but for simplicity let's put those under capital as well). The thing is that capital detoriates over time. My computer at my work place will have to be replaced at some point. The plough of the farmer will break down eventually. The natural gas that I use to heat my house will run out eventually, although potentially not during my life time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To make up for these losses we need to invest some money in replacing the lost capital and finding replacements for non-natural resources. That is we need to invest money. If we'd only spend all our money on final consumption goods eventually we'd run out of capital and wouldn't be able to produce all those goods. &lt;/p&gt;&#xA;" OwnerUserId="12186" LastActivityDate="2018-04-18T07:04:27.510" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21549" PostTypeId="2" ParentId="21530" CreationDate="2018-04-18T07:37:49.673" Score="1" Body="&lt;p&gt;Let me fist answer that individual decisions on whether to try to have children or not is a decision that is not driven by economics alone. There are many other factors that influence these decisions such as individual experiences and preferences and social norms.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That being said there is a relatively large literature on the economics of families and children. Some of the arguments as to why people have fewer children in developed countries include:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The costs of children are higher and the direct economic benefits are lower in developed countries. In developing countries children constitute extra labour (although they also need to be fed) and they require little education and other investments. In developed countries children typically do not contribute towards family income, and need large investments in terms of education and raising. A related argument that was put forward by &lt;a href=&quot;https://www.journals.uchicago.edu/doi/10.1086/260536&quot; rel=&quot;nofollow noreferrer&quot;&gt;Becker and Tomes&lt;/a&gt; is that there is a trade-off between the &quot;quality&quot; and the quantity of children, and in developed countries there is a larger demand for quality as opposed to quantity of children.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another argument is that the need for a large number of children is lower in developed countries. In developing countries children are your old-age insurance policy, and infant mortality is high. In developed countries we have pension systems, good (partly) public health care and elderly homes, all of which reduce the necessity of having many children. The good health care system reduces the infant mortality so you don't need more children to be sure that you'll have a few when you get old. The pension systems, good public health care system and elderly homes mean you have to rely less on your children for income and care when you get old.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A final argument that has been made is that the opportunity costs of children are larger in developed countries. Most people are highly educated, and receive a relatively high salary. If they have to reduce their working hours to provide care to children, the opportunity costs are higher (all else being equal). &lt;/p&gt;&#xA;" OwnerUserId="12186" LastEditorUserId="12186" LastEditDate="2018-04-21T17:37:40.030" LastActivityDate="2018-04-21T17:37:40.030" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21550" PostTypeId="1" AcceptedAnswerId="21567" CreationDate="2018-04-18T08:04:23.210" Score="2" ViewCount="157" Body="&lt;p&gt;In the description of so-called money market, we have demand,&lt;strong&gt;Md&lt;/strong&gt;, for liquid money from individuals (and firms) and supply,&lt;strong&gt;Ms&lt;/strong&gt;, of liquid money, likely from central banks. Now it is assumed that if interest rate,&lt;strong&gt;r&lt;/strong&gt;, would increase, the demand for money,&lt;strong&gt;Md&lt;/strong&gt;, would decrease due to people's preference of bonds(or other high yield securities) over money at high interest rate. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This doesn't make sense; whereas it is true that &quot;households&quot; would buy bonds in exchange for money at higher &lt;strong&gt;r&lt;/strong&gt;, bonds are simply transfers of money, from households to firms or governments. So the aggregate money in the economy remains constant, as firms/governments would utilize the bonds' money in the economy. Thus, if we consider the economy as a whole, the &quot;demand&quot; for money does not change with people opting for bonds.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we only consider the households' demand for money, then the analysis in money theory and LM curve would be inaccurate; In the discussion of LM curve, we have &lt;strong&gt;MV=PY&lt;/strong&gt; and &lt;strong&gt;M/P =Md(Y,r)&lt;/strong&gt;. &lt;strong&gt;M/P&lt;/strong&gt; essentially denote the &quot;real money&quot; supply from central bank. In the first formula &lt;strong&gt;MV=PY&lt;/strong&gt; derived from money theory, If &lt;strong&gt;M/P&lt;/strong&gt; hold constant, &lt;strong&gt;Y&lt;/strong&gt;, also known as the aggregate income, is also constant; This is consistent if we consider the economy as a whole. However, in the second formula, It is understood that the money demand &lt;strong&gt;Md(Y,r)&lt;/strong&gt; account for only the &quot;households&quot;. It is unreasonable to discuss the dynamic between money supply and money demand when we have the whole economy in consideration on one hand and have only a sector of the economy weighted on another hand. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To sum up, I can understand that higher interest rate could encourage people to save up, thus effectively reduced the amount of money in circulation so reducing the &quot;demand&quot; but I do not see how opting for bonds decrease the demand for money unless only a sector of the economy is taken into consideration. Can someone provide some insight into this?&lt;/p&gt;&#xA;" OwnerUserId="18047" LastActivityDate="2018-04-20T12:52:36.360" Title="Why investing in bonds imply a decrease in money demand?" Tags="&lt;macroeconomics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21551" PostTypeId="1" CreationDate="2018-04-18T08:50:14.410" Score="1" ViewCount="2445" Body="&lt;p&gt;Basically, I'm trying to understand why the total surplus is maximized at the equilibrium and what happens if the price isn't at the equilibrium. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Say the price of a good is the equilibrium price. Now make it more expensive. I know that after a while the price will adjust to the equilibrium again, but what will happen before that? I'm trying to use an example but there are things I can't fill in:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The equilibrium price of the good is \$20 and the equilibrium quantity is 20. Given a straight demand and supply curve and a maximum buyer's imposed value of \$40, the consumer surplus is $\frac{1}{2}(40-20)\cdot20=200$ and the producer surplus is $\frac{1}{2}(20-0)\cdot20=200$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now make the good \$30. The quantity demanded falls to 15 and the quantity supplied rises to 25. Now, the consumer's surplus is the triangle I marked in blue, $\frac{1}{2}(40-30)\cdot15=75$ (because only 15 items will be sold), but what about the producer's surplus? Is this the triangle I marked in red? I think not, because that seems to imply that the price is only \$10. But if not, what &lt;em&gt;is&lt;/em&gt; the producer's surplus, and why?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/3mte9.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/3mte9.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks in advance and my apologies for the possibly confusing phrasing.&lt;/p&gt;&#xA;" OwnerUserId="18049" LastActivityDate="2020-11-01T02:33:53.080" Title="What are the (immediate) effects of changing a good's price on consumer and producer surplus?" Tags="&lt;microeconomics&gt;&lt;supply-and-demand&gt;&lt;price&gt;&lt;consumer-surplus&gt;&lt;producer-surplus&gt;" AnswerCount="3" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="21552" PostTypeId="2" ParentId="9329" CreationDate="2018-04-18T09:13:29.397" Score="1" Body="&lt;p&gt;You can take a look at the approach that insurances uses to pay out life insurance:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In life insurance parlance, &quot;Human Life Value&quot; or HLV, represents the amount that ensures a family's standard of living does not get affected if the one who earns for the family dies or is unable to continue earning.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.insuranceqna.com/life-insurance/how-to-calculate-the-human-life-value.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;This source&lt;/a&gt; has several links for different methods (such as the income replacement method or the needs-based method).&lt;/p&gt;&#xA;" OwnerUserId="12304" LastActivityDate="2018-04-18T09:13:29.397" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21553" PostTypeId="1" AcceptedAnswerId="21563" CreationDate="2018-04-18T18:57:49.710" Score="1" ViewCount="57" Body="&lt;p&gt;I have to write my bachelor thesis in the coming months and I was planning on replicating one of the leading papers of the last years in the field of macro economics. Problem is that I am insufficiently acquainted with the literature and my supervisor does not want to help me in any way with regards to the topic/research question. My hope is that the community could advise me on what the most important/influential papers have been the last 5 or so years in the field. Any help is appreciated. &lt;/p&gt;&#xA;" OwnerUserId="18052" LastEditorUserId="12304" LastEditDate="2018-04-19T08:42:50.263" LastActivityDate="2018-04-19T08:42:50.263" Title="Advice for finding literature for thesis" Tags="&lt;macroeconomics&gt;&lt;fiscal-policy&gt;&lt;research&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="21554" PostTypeId="1" CreationDate="2018-04-18T20:04:47.310" Score="4" ViewCount="83" Body="&lt;p&gt;My macroeconomic homework contains the question below, and I'm not sure what graphs we're suppose to use to solve it. I believe I can answer the whole question using the IS-MP Diagram, but do I need another? Is the AS/AD question just referring to the changes in demand for funds when the new interest rate is applied in the IS-MP Diagram?&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;ol start=&quot;4&quot;&gt;&#xA;&lt;li&gt;In the late 1990s and early 2000s, inflation was actually negative in Japan. I want you to consider a policy to achieve a higher inflation rate. Consider an economy that beings with output at potential and an inflation rate of ̅, so that the economy begins in steady state. A new chair of the central bank decides to raise the long-run inflation target to ̅2 (greater than the original ̅). Show how the economy responds over time using the AD/AS framework. Comment on your results. &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="16175" LastActivityDate="2021-04-03T14:06:25.637" Title="Negative Inflation, AS/AD framework, What Graph to use?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21555" PostTypeId="1" CreationDate="2018-04-18T20:08:59.513" Score="4" ViewCount="6848" Body="&lt;p&gt;What is the MSNE for the following game?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/AocPc.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/AocPc.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;I think you can eliminate strategies $A$ for player 1 and $C$ for player $2$, as these will are weakly dominated by all other strategies. Then, the game becomes a 2x2 game with $B,C$ for $1$ and $A,B$ for $2$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;let $q$ and $1-q$ be the probability $2$ plays $A$ and $B$ resp, and $p$, $1-p$ the probability $1$ plays $B$ and $C$. Then in equilibrium $q=1/4$ and $p=1/3$. Then the equilibrium is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$(0,1/3,2/3); (1/4,3/4,0).$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this correct?&lt;/p&gt;&#xA;" OwnerUserId="14357" LastActivityDate="2018-04-18T22:02:31.727" Title="Mixed strategy Nash equilibrium in 3x3 game" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;game-theory&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21557" PostTypeId="2" ParentId="21555" CreationDate="2018-04-18T22:02:31.727" Score="6" Body="&lt;p&gt;The general procedure to solve for a MSNE in a 3-by-3 (or larger) game is always a bit tricky and involves some trial and error&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Step 1: Conjecture (i.e. guess) a subset of strategies that will be used in equilibrium&lt;/li&gt;&#xA;&lt;li&gt;Step 2: Calculate their probabilities using the indifference condition&lt;/li&gt;&#xA;&lt;li&gt;Step 3: Verify that the equilibrium payoff cannot be unilaterally improved upon; that is, no player has a strict incentive to deviate to another strategy &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Suppose your conjectured strategies are $\{B,C\}\times\{A,B\}$ (it doesn't really matter what the basis for your conjecture is; you're going to find out one way or another whether that's correct). Next, calculate the probabilities using players' indifference conditions. Let $p=\sigma_1(B)$ and $q=\sigma_2(A)$, we have &#xA;\begin{align}&#xA;-3p&amp;amp;=-1&amp;amp;&amp;amp;\Rightarrow\quad p=1/3\\&#xA;3q+1-q&amp;amp;=1-q&amp;amp;&amp;amp;\Rightarrow\quad q=0.&#xA;\end{align}&#xA;[This suggests that your calculation for $q$ was incorrect.] &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lastly (this is the most easily forgotten step), check that no one has an incentive to deviate from this equilibrium. In this case, player 1's payoff is $1$, which is already highest given player 2's strategy of choosing $B$ with probability 1. He'd be indifferent between mixing in other proportions over $B$ and $C$, and his payoff is strictly lower if he plays $A$ with positive probability. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Player 2's expected payoff in this equilibrium is $-1$, which is also the highest given player 1's mixed strategy. She's indifferent between mixing over $A$ and $B$ with any other proportions and is strictly worse off if $C$ is played with positive probability. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, one MSNE is $((0,1/3,2/3),(0,1,0))$. This is only borderline consistent with your initial conjecture because $\sigma_2(A)=0$. But it's nonetheless a MSNE. In fact, there are infinitely many MSNEs of this form: $((0,p,1-p),(0,1,0))$ where $p\ge1/3$. This is a full description of all equilibria (including the pure one) in this game.&lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2018-04-18T22:02:31.727" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21558" PostTypeId="2" ParentId="21554" CreationDate="2018-04-19T02:25:42.457" Score="0" Body="&lt;p&gt;It seems that your teacher wants you to analyze the effects a higher inflation rate might have on the level of aggregate output based on whatever policy you might choose, i.e. drawing an AD/AS graph in long run equilibrium and demonstrating some shift as a result of the inflation-increasing policy.&lt;/p&gt;&#xA;" OwnerUserId="18054" LastActivityDate="2018-04-19T02:25:42.457" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21559" PostTypeId="2" ParentId="21550" CreationDate="2018-04-19T02:41:36.603" Score="0" Body="&lt;p&gt;One thing to consider is that, when the Federal Reserve in the United States tries to manipulate the money supply, it does so through either putting more of its money into the market through bond purchases (supplying banks with money to lend) or holding money from the market through bond sales (leaving the money essentially dormant). It is not so much that bond creators receive money when people turn to bonds with higher interest rates but rather that the bonds change hands to people (households, firms, banks) who would have actually circulated money in some way if they held it in liquid form. The missing link is the central bank's money holdings.&lt;/p&gt;&#xA;" OwnerUserId="18054" LastActivityDate="2018-04-19T02:41:36.603" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="21561" PostTypeId="2" ParentId="21508" CreationDate="2018-04-19T03:18:02.440" Score="1" Body="&lt;p&gt;Considering that modern economies rarely experience recessions due to supply shocks (such as spiking oil prices), we should look at this from the perspective of a demand shock, a decrease in spending. This should not have too significant of an impact on the supply of exports. The supply for these depends on foreign demand, theoretically unaffected by the recession in this country thus far. Some firms may produce both for export and for domestic demand, and some of these might need to shut down if prices drop below a certain level, but this should not occur on a large scale. The fall in domestic demand may even be largely compensated for by foreign demand, with a slight fall in price. The &quot;high wages&quot; would be no different from before the recession, and they would eventually fall as the economy comes back to potential output.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In contrast, net imports will definitely fall if aggregate demand does. Considering that spending on these is tied to, well, the same factors influencing aggregate demand, anything which might have induced a contraction of spending on domestic goods would similarly decrease demand for imports.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given an at worst moderately impacted supply of exports and a massively impacted demand for imports, the net export of the recessionary country would certainly fall (though this may be more ambiguous if there is expansionary monetary policy to counteract the recession, but this might work in the same direction). The major trade partner would, of course, see its net export move in the opposite direction, importing at similar levels and exporting less. The key thing here is that &lt;em&gt;the target country's demand for imports would not be modified.&lt;/em&gt;&lt;/p&gt;&#xA;" OwnerUserId="18054" LastActivityDate="2018-04-19T03:18:02.440" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21562" PostTypeId="2" ParentId="20701" CreationDate="2018-04-19T03:24:02.407" Score="0" Body="&lt;p&gt;Your first response to the trade deficit would seem to increase imports and not exports, unless I'm misunderstanding and you are writing from the perspective of Malaysia. In that case, the policy might be otherwise flawed due to the lower amount a fisher would supply given a lower price for exportation. While you may reach an agreement with other countries to import fish, your fishers must still, as private individuals, be incentivized to supply fish for this trade. I believe a better solution would just be the opposite of that in your first trade surplus answer, raising tariffs.&lt;/p&gt;&#xA;" OwnerUserId="18054" LastActivityDate="2018-04-19T03:24:02.407" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21563" PostTypeId="2" ParentId="21553" CreationDate="2018-04-19T08:41:03.300" Score="1" Body="&lt;p&gt;Your supervisor might want for you to come up with a research question yourself, maybe because that's part of the assignment. At the thesis, you should be able to demonstrate independent thinking rather than being told what to do for an assignment, and your supervisor might want you to do some more research on your own. However, it is also part of his/her job to give you guidance on the relevant fields where s/he considers your skills fit best. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since you want to research on macro, check which papers were part of the recommended readings for that subject and ask your supervisor if s/he would recommend you to start there. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another way to get ideas is to scout the papers in economics search engines. The &lt;a href=&quot;https://ideas.repec.org/cgi-bin/htsearch?form=extended&amp;amp;wm=wrd&amp;amp;dt=range&amp;amp;ul=%25%2Fp%2F%25&amp;amp;q=Macroeconomics&amp;amp;cmd=Search%21&amp;amp;wf=0F00&amp;amp;s=C&amp;amp;db=01%2F01%2F2008&amp;amp;de=31%2F12%2F2018&quot; rel=&quot;nofollow noreferrer&quot;&gt;IDEAS/RePEc&lt;/a&gt; can be a good starting point. You can look for topics and sort by citations.&#xA;Elsevier also has a list of &lt;a href=&quot;https://www.journals.elsevier.com/research-in-economics/most-cited-articles&quot; rel=&quot;nofollow noreferrer&quot;&gt;most cited work in economics since 2013&lt;/a&gt;. Keep in mind that importance in academic terms is usually often measured by number of citations. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you want a more mainstream reading, I'm sure a google search will also help you find articles like this &lt;a href=&quot;https://qz.com/1158930/13-economists-on-the-best-research-of-2017/&quot; rel=&quot;nofollow noreferrer&quot;&gt;list of 2017's most important researches&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="12304" LastActivityDate="2018-04-19T08:41:03.300" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21564" PostTypeId="2" ParentId="21528" CreationDate="2018-04-19T09:29:05.233" Score="2" Body="&lt;p&gt;It is important to recognize that there are path dependencies to removing different variables from your model. This is due to the fact that variables can be highly correlated (positively or negatively) with one another so that by removing an insignificant variable then other variables can become statistically significant or insignificant. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are very different approaches towards dealing with this. As the previous commenter mentioned you can use some sort of model selection procedure to try and explore the space of the variables you have included. There are many different approaches to doing this (AIC, BIC, SIC, Lasso, Gets...), but ultimately interpretation of the selected model assumes that your original model encompassed the true data generating process. If this is not the case, then selecting from your original model could give you inconsistent parameter estimates.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Alternatively you can stick with a purely theoretical approach and specify what you think the important variables are ahead of time (i.e. what you think the  DGP is) and then only include those in your model. That way you don't add or remove any variables and you just interpret the estimated model based on your theory of what the true model is. Interpretation also relies on the assumption that your proposed model is in line with the underlying DGP.&lt;/p&gt;&#xA;" OwnerUserId="6844" LastActivityDate="2018-04-19T09:29:05.233" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21567" PostTypeId="2" ParentId="21550" CreationDate="2018-04-19T12:16:40.673" Score="0" Body="&lt;p&gt;There are a few sub-questions in this question, and I will not attempt to answer all of them. These “economics 101” models are extremely abstract, and it takes a lot of effort to relate them to observed economic behaviour. (I worked in fixed income research for 15 years, and cannot recall industry research ever referring to them.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;“Households” stand in for the entire private sector. (In these models, firms’ financial asset holdings are normally assumed to be zero, as otherwise, they would also have to solve a multi-period optimisation to maximise profits. This breaks the models, as there are then two sectors with competing multi-period optimisations.) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Financial assets are issued by the government sector (Treasury/central bank), although the models may allow reverse borrowing by households by allowing them to have negative bond holdings (which little literal sense in the real world).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since you asked about it in comments, I will add some details to the institutional structure. In these models, like in the real world, the Treasury is the financial arm of the government. (In some countries, labelled the Ministry of Finance.) It owns the central bank, and leaves its cash on deposit at the central bank. Since this deposit is a liability between two related entities, it does not show up in the money supply numbers. If we consolidate the accounting, the deposit is money the entire government owes to itself, and so it disappears from the balance sheet. And to repeat: this is not just a model simplification, it is how real world statistical agencies do the accounting for the money supply. Note that governmental liabilities are only the narrowest components of the money supply (“M0”), wider aggregates (“M3”) include private sector instruments - which do not appear in this class of models. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The household money demand equation is just a portfolio allocation decision: given a portfolio size, what is the breakdown between money and bonds? The greater the interest rate, the greater the percentage held in bonds.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The central bank is the counterparty to the household sector portfolio decision. When it buys bonds, money returns to the central bank. Since money is a liability of the central bank, it does not hold it as an asset, so the money is “destroyed” - the stock of money contracts.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The money cannot go to the Treasury or firms, since the model construction does not allow for it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This site wants to keep opinions out of answers. However, it is clear that there are a lot of issues with how (neo-)classical models handle “money”, as most “money” (broad money supply aggregates) are private sector liabilities (e.g., bank deposits). There is a large post-Keynesian literature on money and finance, the key words to look for is “endogenous money”. These critiques of the classical models might help you relate them to real world behaviour, as the post-Keynesians like to explain the deficiencies of the classical models. I cannot think of any immediate reference, but you could search. In anymevent, it would be easier to find an existing critique than attempt to re-invent your own monetary theory.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastEditorUserId="12891" LastEditDate="2018-04-20T12:52:36.360" LastActivityDate="2018-04-20T12:52:36.360" CommentCount="19" ContentLicense="CC BY-SA 3.0" />
  <row Id="21568" PostTypeId="1" CreationDate="2018-04-19T12:19:56.410" Score="0" ViewCount="42" Body="&lt;p&gt;Are there formulas or rules when keeping a vehicle is no longer financially beneficial?&#xA;I understand the below needs to be considered:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Every time a purchase is made, sales tax will need to be paid.&#xA;Keeping a vehicle longer reduces the number of sales tax&#xA;transactions.&lt;/li&gt;&#xA;&lt;li&gt;A vehicle, especially new vehicles of certain models,&#xA;depreciate quickly - exponential depreciation.&lt;/li&gt;&#xA;&lt;li&gt;The retail book value comes into play as well as the age of vehicle on whether a repair should be made; 10%, 20%, not certain.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="18029" LastActivityDate="2019-12-10T21:02:15.233" Title="Formulas or rules regarding End of Life for vehicle" Tags="&lt;information&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21569" PostTypeId="2" ParentId="21568" CreationDate="2018-04-19T14:03:19.743" Score="1" Body="&lt;p&gt;There is no one general standardized formula for the value of a car. That is not how prices work. The price of a used car is going to depend on what other people are willing to pay for it, not some depreciation formula that you can just plug numbers into. This inherently means there is some uncertainty in trying to determine the value of a used car.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With that said there are resources out there to approximate what people generally are able to buy/sell a used car for such as the &lt;a href=&quot;https://www.autotrader.com/car-values/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Kelley Blue Book&lt;/a&gt; which records the average selling price for models of used cars after a certain number of years. These resources should give you an approximation for what a used car could go for but it will never be exact and is location and time dependent.&lt;/p&gt;&#xA;" OwnerUserId="10245" LastActivityDate="2018-04-19T14:03:19.743" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21570" PostTypeId="2" ParentId="11846" CreationDate="2018-04-19T14:46:11.370" Score="1" Body="&lt;p&gt;This may be rather late, but it seems from &lt;a href=&quot;http://money.cnn.com/2016/05/17/investing/oil-crude-prices-rally/index.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;an article at the time&lt;/a&gt; that this was due to supply disruptions in Canada, Nigeria, and Venezuela. Canada was experiencing wildfires which shut down oil production, Nigeria suffered from attacks in the Niger Delta (the main source of Nigerian oil), and Venezuela was experiencing severe political crisis. With a supply decrease, oil prices were bid up.&lt;/p&gt;&#xA;" OwnerUserId="18054" LastActivityDate="2018-04-19T14:46:11.370" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21571" PostTypeId="1" CreationDate="2018-04-19T14:52:29.207" Score="1" ViewCount="66" Body="&lt;p&gt;Is there any great economic structural reforms, which date back to the Middle Ages or to the Ancient times?&lt;/p&gt;&#xA;" OwnerUserId="5017" LastActivityDate="2018-04-19T14:52:29.207" Title="What are some great economic reforms from the Middle Ages / the Ancient History?" Tags="&lt;history&gt;&lt;history-economic-thought&gt;&lt;economic-history&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="21573" PostTypeId="1" AcceptedAnswerId="21576" CreationDate="2018-04-19T20:10:59.313" Score="3" ViewCount="391" Body="&lt;p&gt;Consider the game of Rock, Paper, Scissors (RPS), with payoffs given as follows: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/jG8wE.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/jG8wE.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there a correlated equilibrium in this game?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider, for example the signal given to both players not to play the third strategy. In this case, the game (conditional upon one's opponent following the signal) becomes:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/yrO3q.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/yrO3q.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which has a NE of playing the second strategy for both. This seems like a correlated equilibrium? On the other hand, if you know that your opponent follows the signal and plays the second strategy, you should respond by playing the third strategy. Hence, intuitively, as the signal reveals information on your opponent's play (conditional upon her following it) you should be able to exploit that by violating correlated equilibrium. &lt;/p&gt;&#xA;" OwnerUserId="14357" LastActivityDate="2018-04-20T07:27:18.307" Title="Correlated Equilibrium for Rock Paper Scissors" Tags="&lt;mathematical-economics&gt;&lt;game-theory&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21574" PostTypeId="1" CreationDate="2018-04-19T20:27:11.377" Score="1" ViewCount="42" Body="&lt;p&gt;Presuming the consequence is holding cash somewhere else: I'm really interested in the objective effect of this from a global value creation perspective. I'm less interested in the money itself and more interested in how it impacts the profile and efficiency of creating value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Capitalistically speaking, does it have the effect of making our economy less efficient?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does it add value or efficiency anywhere else e.g. the countries who act as host for the cash?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is the holding of cash a negative effect on value creation?&lt;/p&gt;&#xA;" OwnerUserId="7046" LastActivityDate="2018-04-19T22:03:20.773" Title="When people talk about “Companies Hiding Money Overseas” to avoid taxes, what does this really mean?" Tags="&lt;taxation&gt;&lt;capitalism&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21575" PostTypeId="2" ParentId="21483" CreationDate="2018-04-19T20:30:20.803" Score="1" Body="&lt;p&gt;Your random variable is $X$ = &quot;Yearly Income per capita measured in dollars&quot;. So $X$ is a real-valued function. Its &lt;em&gt;domain&lt;/em&gt; is usually left unspecified, while its &lt;em&gt;range&lt;/em&gt; is measured in &quot;dollars per person-year&quot;, as the OP writes it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The density and the distribution (pdf/cdf) functions of $X$ ,say $f_X,F_X$ have as &lt;em&gt;their&lt;/em&gt; domain the &lt;em&gt;range&lt;/em&gt; of $X$. So the &lt;em&gt;domain&lt;/em&gt; of $f_X,F_X$ is a set that carries the unit of measurement &quot;dollars per person-year&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Being strict in dimensional analysis, indeed we could say that the &lt;strong&gt;density&lt;/strong&gt; must then be measured in &quot;person-years per dollar&quot; (irrespective of whether this is meaningful or not). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the expected value that is the integral $\int_0^{\infty} x f_X(x) dx$ keeps having &quot;dollars&quot; as a measurement unit (I just assumed $X$ is non-negative), applying the rule the OP states (the one unit is the reciprocal of the other, and we are left with the third which is again &quot;dollars per person-year&quot;). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Moreover the integral that is the &lt;strong&gt;cdf&lt;/strong&gt; $F_x(x) = \int_0^x f_X(s) ds$ has a range that comes out &quot;dimensionless&quot;, since probability is a relative measure.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(&lt;em&gt;Digression&lt;/em&gt;: Note that by definition, the distribution function of a random variable measures the probability of the random variable being smaller or equal than a threshold, $F_X(x): = Prob(X \leq x)$. Additional assumptions are required to &quot;tranlsate&quot; this probability as representing also &quot;income shares&quot;, meaning I guess &quot;percentage of population with per capita income below or equal to $x$&quot;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Turning to the &lt;strong&gt;Quantile function&lt;/strong&gt;, it is defined as the inverse of the distribution function (generalized inverse to cover all cases, but let's keep it simple). Being the inverse, it uses as its domain the range of $F_X(x)$, so the domain of $Q(p)$ carries &quot;probability&quot; as unit of measurement, while its range is the domain of $F_X$. And the domain of $F_x$ is the range of $X$: the Quantile function has the same range as $X$ and so it is measured in &quot;dollars per person-year&quot; too (i.e. its range caries the &quot;dollars per person-year&quot; unit of measurement).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;it follows that the derivative of $Q(p)$&quot;, $q(p) = dQ(p)/dp$ has the same units of measurement as $Q(p)$, while the integral $\int_0^1 pq(p)dp$ is measured in &quot;dollars per person-year&quot; also.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2018-04-19T20:30:20.803" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21576" PostTypeId="2" ParentId="21573" CreationDate="2018-04-19T21:44:54.670" Score="6" Body="&lt;p&gt;No, the unique Nash equilibrium is the unique correlated equilibrium by a general property of two-player zero-sum games pointed out in:  &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Forges, Françoise. &quot;Correlated equilibrium in two-person zero-sum&#xA;  games.&quot; Econometrica (1986-1998) 58.2 (1990): 515.,&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;For every action of player 2 that is played with positive probability, the conditional distribution over player 1's actions is an optimal strategy for player 1 and vice versa. Since optimal strategies are unique in RPS, the conclusion follows.&lt;/p&gt;&#xA;" OwnerUserId="1442" LastActivityDate="2018-04-19T21:44:54.670" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="21577" PostTypeId="1" CreationDate="2018-04-19T21:49:43.707" Score="1" ViewCount="22" Body="&lt;p&gt;If a student successfully completes an MBA program in 2 years, he will earn $50,000 more than what he could earn without the degree for his lifetime. Calculate the present value of this perpetual rise in his income associated with the degree. The rate of interest in the market is 10%.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My attempt:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;He will earn \$50,000 more at the end of his 1st year at the job. Let the present value of this increase be $PV_1$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\displaystyle 50,000=PV_1\left(1+\frac{10}{100}\right)^3$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The exponent is 3 because he will spend the next 2 years attending the MBA program and be paid at the end of the 3rd year. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\implies 50,000=PV_1\times(1.1)^3$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\displaystyle PV_1=\frac{50,0000}{(1.1)^3}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\displaystyle PV_2=\frac{50,000}{(1.1)^4}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and so on.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\begin{aligned}[t]&#xA;PV&amp;amp;=PV_1+PV_2+\ldots \\&#xA;&amp;amp;=\frac{50,000}{(1.1)^3}+\frac{50,000}{(1.1)^4}+\ldots \\&#xA;&amp;amp;=\frac{50,000}{(1.1)^3}\times\frac{1}{1-\frac{1}{1.1}} \\&#xA;&amp;amp;=\frac{50,000}{(1.1)^3}\times\frac{1.1}{0.1} \\&#xA;&amp;amp;=\frac{500,000}{(1.1)^2} \\&#xA;\end{aligned}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The answer given by the professor is &quot;PV of lifetime increase in salary is $500,000.&quot; Where have I gone wrong?&lt;/p&gt;&#xA;" OwnerUserId="16105" LastEditorUserId="16105" LastEditDate="2018-04-19T22:59:32.707" LastActivityDate="2018-04-19T22:59:32.707" Title="Present value of perpetual rise in income" Tags="&lt;microeconomics&gt;&lt;financial-economics&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21578" PostTypeId="2" ParentId="21574" CreationDate="2018-04-19T22:03:20.773" Score="3" Body="&lt;p&gt;Re: main question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It can range from a) companies fraudulently charging above/below market prices among departments/subsidiaries in order to fraudulently lower tax liabilities in a particular jurisdiction, to b) companies retaining profits and associated capital in the foreign country that the profits were earned in. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Most often, it refers to locating headquarters in a lower-tax jurisdiction regardless of whether the corporation has a substantial presence in that jurisdiction for its main area of business activity. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The other questions are all very complex and can have extremely numerous caveats and/or special cases, etc. The questions are also prone to predictable divisions along ideological lines. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, here are some general points relating to each: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) An empirical point of reference on the role of taxation in governmental capacity to address market imperfections: Somalia's tax-to-GDP ratio is about 10% (too low), while the tax-to-GDP ratio of the USA is above 30% (too high or too low?) and that of France approaches 50% (commonly viewed as too high). If all profits go overseas and are not taxed domestically, this could reduce the ability of government to correct market imperfections.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) Does it add value elsewhere? Here you could enter into debates about what does it mean to &quot;add value&quot; (the most obvious assumption would be that you refer to &quot;value added&quot; as determined by monetary amounts representing value at different stages of production) or different views on &quot;efficiency&quot; (e.g., profit maximization of firms as compared to social welfare maximization in a society). I think you'd really have to get a handle on the main positions of the debate about those concepts, in addition to their most commonly used statistical indicators, in order to be sure of what exactly you're asking and/or want to ask.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;3) Ignoring useful theories about things happening instantaneously and always equaling out in a way that is optimal across all uses: a) liquidity is needed both to undertake any investment opportunity that arises (including buying rivals for the purpose of enjoying monopoly profits or possibly for cost savings) and also to protect against liquidity shocks such as those related to a major fall in the value of capital assets across an economy (e.g., 2008-09); b) the case of holding a lot of cash should be compared to opportunities which exist for them to deploy liquidity to earn profit - for example, corporations should not be expected to engage in explicitly redistributive zero-value digging and filling of ditches (leaving specifically redistributive questions to the larger tax pool via government, which can more easily re-capture the value of human capital growth), and it is not desirable to &quot;excessively&quot; promote companies to deploy cash holdings in a pro-monopoly anti-competition manner.&lt;/p&gt;&#xA;" OwnerUserId="16499" LastActivityDate="2018-04-19T22:03:20.773" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="21579" PostTypeId="1" AcceptedAnswerId="21837" CreationDate="2018-04-19T23:04:42.070" Score="0" ViewCount="949" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/DUh6D.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/DUh6D.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hi everyone, I am learning about the partial production function. I don't understand why a tangent it drawn next to the curve; I get that it shows the MPL. Does this mean diminishing marginal product of labour will be reached eventually? Also, it is always assumed that K0 is constant in partial production function? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you&lt;/p&gt;&#xA;" OwnerUserId="18061" LastActivityDate="2018-05-05T20:17:36.013" Title="Partial production function question" Tags="&lt;macroeconomics&gt;&lt;production-function&gt;" AnswerCount="1" CommentCount="6" ContentLicense="CC BY-SA 3.0" />
  <row Id="21580" PostTypeId="1" CreationDate="2018-04-20T02:16:10.057" Score="2" ViewCount="90" Body="&lt;p&gt;What is the difference between $\hat{e}^2_i$ and $\sigma^2_i$?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In regression, we assume that $var(e_i)=E(e_i^2)=var(y_i)=\sigma_i^2$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does this imply that $\sigma_i^2$(the sample variance) is equal to $\hat{e}_i^2$?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When we calculate FGLS (feasible generalized least squres), we consider $\ln(\hat{e}_i^2)=\ln(\sigma_i^2)+v_i$, where $v_i$ is just the error term. This seems that we distinguish $\sigma_i^2$ from $\hat{e}_i^2$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But, when we calculate the robust robust standard error, we simply repalce $\sigma_i^2$ with $\hat{e}_i^2$. Thus, theses two are considered to be equal. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am confused with these two terms. Can anybody clarify this?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you in advance. &lt;/p&gt;&#xA;" OwnerUserId="17957" LastActivityDate="2018-04-20T18:22:20.243" Title="the difference between $\hat{e}^2_i$ and $\sigma^2_i$" Tags="&lt;econometrics&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21582" PostTypeId="2" ParentId="21573" CreationDate="2018-04-20T07:27:18.307" Score="5" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Is there a correlated equilibrium in this game?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Michael has a great answer, but I just want to answer the question I quote above more generally.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any Nash equilibrium is a correlated equilibrium, so a correlated equilibrium always exists whenever a Nash equilibrium exists. (And we know NE always exist in finite games like RPS.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course, a game with no Nash equilibria &lt;em&gt;may&lt;/em&gt; have a correlated equilibrium, but I'm not aware of any simple examples where this is the case.&lt;/p&gt;&#xA;" OwnerUserId="8595" LastActivityDate="2018-04-20T07:27:18.307" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21583" PostTypeId="1" AcceptedAnswerId="21584" CreationDate="2018-04-20T08:01:23.460" Score="5" ViewCount="1222" Body="&lt;p&gt;In &lt;a href=&quot;https://economics.stackexchange.com/a/21582/1601&quot;&gt;this answer&lt;/a&gt; there is the offhand remark&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Of course, a game with no Nash equilibria may have a correlated&#xA;  equilibrium, but I'm not aware of any simple examples where this is&#xA;  the case.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Can anyone provide an example of such a game?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The game should allow for mixed strategies, otherwise correlation would be meaningless. Because of this finite games are out, since their mixed extensions always have a Nash equilibrium.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2018-04-20T09:35:19.847" Title="Example of a game with no Nash equilibria but at least one correlated equilibrium" Tags="&lt;game-theory&gt;&lt;nash-equilibrium&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21584" PostTypeId="2" ParentId="21583" CreationDate="2018-04-20T09:35:19.847" Score="6" Body="&lt;p&gt;There are three players, 1,2,3, and the action spaces of players 1 and 2 are both $[0,1]\times\mathbb{N}$, the action space of player 3 is $[0,1]$.&#xA;The generic action of player 1 is written as $(x,m)$, the generic action of player 2 is written as $(y,n)$, and the generic action of player 3 is written as $(x')$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The payoff of player 3 is simply $1$ if $x'=x$ and $0$ otherwise. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The payoffs of players 1 and 2 are more complicated. The payoff of player 1 and 2 is both $2$ if $y=x\neq x'$, and both $-2$ if $x=x'$. In the case that $y\neq x\neq x'$, the player with the highest number in the second coordinate gets a payoff of $1$ and the one with the lower number gets $-1$. If they pick the same number, they get both $0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This game has no Nash equilibrium. Suppose there were one. If player 1 would not randomize in equilibrium, player 3 can match them for a lousy payoff of $-2$. By randomizing the payoff will be higher, but it will also be the case that with positive probability $y\neq x\neq x'$, since the behavior of all players is stochastically independent. But then both 1 and 2 have to play the game of picking a higher number and that game has no equilibrium even in mixed strategies (if mixed strategies must be countably additive).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But there is a correlated equilibrium in which the behavior of 1 and 2 is given by a distribution on the diagonal $D=\{(x,y)\mid x=y\}$ without mass points, and player 3 plays anything stochastically independent. Player 1 and 2 can clearly do no better and there is no way for 3 to match 1 with positive probability.&lt;/p&gt;&#xA;" OwnerUserId="1442" LastActivityDate="2018-04-20T09:35:19.847" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21587" PostTypeId="1" CreationDate="2018-04-20T13:28:01.667" Score="2" ViewCount="115" Body="&lt;p&gt;For a paper I was using the micEconCES package to estimate the CES production function for a country at the aggregate. For a two-input function with capital and labour I used for the variables the Perpetual Inventory Method to construct aggregate capital, labour hours and GDP for output. I used methods provided in the package to do the estimation. But now I am kind of unsure, what I have to check the data for f.e. autocorrelation, multicollinearity etc. or do I even have to check for that?&lt;/p&gt;&#xA;" OwnerUserId="13030" LastActivityDate="2019-04-16T00:03:05.593" Title="CES function estimation" Tags="&lt;macroeconomics&gt;&lt;econometrics&gt;&lt;elasticity&gt;&lt;ces-function&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21589" PostTypeId="2" ParentId="21587" CreationDate="2018-04-20T15:58:08.733" Score="2" Body="&lt;p&gt;You should always validate statistically your model, running various model diagnostics. It appears you work with time series (single country?).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here, certainly autocorrelation may be an issue. After all, your series for capital is by construction an autoregressive equation with a forcing factor (investment).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Software packages usually warn for signs of multicollinearity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, a serious issue could be that of endogeneity of regressors.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2018-04-20T15:58:08.733" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="21590" PostTypeId="2" ParentId="21580" CreationDate="2018-04-20T16:15:11.960" Score="2" Body="&lt;p&gt;Certainly the true variance is not equal to the squared residual.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the case or robust standard errors, it has been proven that if we use $\hat{e}^2_i$ we obtain a consistent estimator &lt;strong&gt;of the variance-covariance matrix as a whole&lt;/strong&gt;, &lt;em&gt;even though&lt;/em&gt; $\hat{e}^2_i$ is not equal to $\sigma^2_i$ and &lt;em&gt;even though&lt;/em&gt;  each single $\hat{e}^2_i$ does &lt;em&gt;not&lt;/em&gt; converge in probability to $\sigma^2_i$ (it converges to the true squared error, which is a random variable). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The fundamental reason for this result is that &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$E(\hat{e}^2_i) \to_{n \to \infty} E(e^2_i) =\sigma^2_i$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the OP's phrase &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;When we calculate the robust robust standard error, we simply repalce&#xA;  $\sigma^2_i$ with $\hat{e}^2_i$. &lt;strong&gt;Thus, theses two are considered to be equal.&lt;/strong&gt;&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;is simply wrong.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2018-04-20T18:22:20.243" LastActivityDate="2018-04-20T18:22:20.243" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21592" PostTypeId="1" CreationDate="2018-04-20T19:19:55.007" Score="1" ViewCount="18" Body="&lt;p&gt;In Smets and Wouters 2003, we first have a capital accumulation of the form $K_t= \text{some terms}+ f(I_t)$. &#xA;Later on when linearising the model, they get $\hat K_t= \text{other terms}+ \hat f(I_{t-1})$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The hat means log deviations from steady-state.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="118" LastEditDate="2018-04-23T09:09:45.840" LastActivityDate="2018-04-23T09:09:45.840" Title="Can linearization change the time index?" Tags="&lt;macroeconomics&gt;" AnswerCount="0" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="21593" PostTypeId="2" ParentId="21427" CreationDate="2018-04-20T20:33:09.497" Score="1" Body="&lt;p&gt;So let's decided that decision A is taking the certain sum and decision B is taking the risky sum, where $\bar{w}$ is current wealth and $\mathcal{U}$ is a utility function where $\mathcal{U}'&amp;gt;0$ and $\mathcal{U}''&amp;lt;0$, then you have two potential outcomes in utility.  The first is $$\mathcal{U}(A)=\mathcal{U}(\bar{w}+2000)$$ and the second is $$\mathcal{U}(B)=\frac{\mathcal{U}(\bar{w}+10000)+3\mathcal{U}(\bar{w}+500)}{4}.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given only this information, the decision depends upon $\bar{w}$, the shape of $\mathcal{U}$, the payoff outcomes, and the probabilities involved.  If you wanted to determine how sensitive a decision would be to change, you could treat the currently fixed factors as variable factors one at a time.  To provide an example, you could create a new variable $\pi$ so that option A would become $$\mathcal{U}(\bar{w}+\pi).$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You could also do this to substitute for $\bar{w}$, the other payoffs, or the odds.  If you added the assumption that the actors were indifferent, then you could also use the Envelope Theorem to look at local sensitivity.&lt;/p&gt;&#xA;" OwnerUserId="11321" LastActivityDate="2018-04-20T20:33:09.497" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21597" PostTypeId="1" CreationDate="2018-04-21T13:47:52.307" Score="-1" ViewCount="59" Body="&lt;p&gt;Suppose that a binary relation satisfies only:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Independence axiom: $L≿L′⟺α\circ L+(1−α)\circ L′′≿α\circ L′+(1−α) \circ L′′$&#xA; Reduction to simple lotteries: For all $g$, $g~g'$, $g'$ is the simple lotteries associated with g.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can i state the following relation:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$(P1 \circ h1,P2\circ g2, P3\circ g3...PK\circ gk) \sim (P2\circ g2, ((1-P2)\circ ((P1/1-P2)\circ h1,(P3/1-P2)\circ g3,..,(PK/1-P2)\circ gk))$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $h1$ to hk and $g1$ to $gk$ are lotteries, and $P1$ to $Pk$ are probabilities.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I tried to show this only using reduction to simple lotteries, but i dont know if im doing another assumption when i write the second lotterie as &#xA;$(P2\circ g2, P1\circ h1,P3 \circ g3,....,PK\circ gk))$&lt;/p&gt;&#xA;" OwnerUserId="18070" LastEditorUserId="18070" LastEditDate="2018-04-22T22:24:49.303" LastActivityDate="2018-04-23T19:34:32.037" Title="Indiference between two lotteries" Tags="&lt;preferences&gt;&lt;uncertainty&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21599" PostTypeId="1" CreationDate="2018-04-21T21:36:50.447" Score="4" ViewCount="72" Body="&lt;p&gt;I was going through the proof of existence of a Nash Equilibria in finite normal form games (Proof via Brouwer’s theorem) and got a question regarding the requirement of finiteness for the number of &lt;strong&gt;actions&lt;/strong&gt; a player can play. In particular, the proof hints at the update equations where players &quot;compute&quot; their payoffs/utility of playing a best response, before going deeper into Brouwer's. I would think that, in this framework, the number of actions needs to be finite otherwise it would be impossible to compute those &quot;utility-updates&quot;... but is it the main point? Or am I missing something?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit: The proof I am looking at is: &lt;a href=&quot;https://www.cs.ubc.ca/cgi-bin/tr/2007/TR-2007-25.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.cs.ubc.ca/cgi-bin/tr/2007/TR-2007-25.pdf&lt;/a&gt;. The update rules are in &quot;Theorem 23&quot;.&lt;/p&gt;&#xA;" OwnerUserId="18071" LastEditorUserId="18071" LastEditDate="2018-04-22T08:34:42.050" LastActivityDate="2018-04-22T08:34:42.050" Title="Existence of nash equilibria in finite games" Tags="&lt;game-theory&gt;&lt;nash-equilibrium&gt;" AnswerCount="0" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21601" PostTypeId="1" AcceptedAnswerId="21615" CreationDate="2018-04-22T05:55:12.337" Score="0" ViewCount="160" Body="&lt;p&gt;For the below let's assume domestic currency is ₹ and foreign capital is in \$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Foreign Capital Inflow =&gt; ₹ Appreciates (Because of more \$)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But consider this,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Foreign Capital Inflow =&gt; More ₹ in circulation (Since \$ have to be exchanged into ₹ before actually using in India) =&gt; More Inflation =&gt; ₹  Depreciation&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is wrong in this second reasoning?&lt;/p&gt;&#xA;" OwnerUserId="14660" LastEditorUserId="44" LastEditDate="2018-04-22T06:57:43.537" LastActivityDate="2019-07-23T18:23:10.690" Title="Interrelationship between inflation and foreign capital flow" Tags="&lt;inflation&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21603" PostTypeId="1" CreationDate="2018-04-22T15:15:25.883" Score="0" ViewCount="341" Body="&lt;p&gt;the multiplier $= \frac{1}{(1-MPC)}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and &lt;/p&gt;&#xA;&#xA;&lt;p&gt;the multiplier $= \frac{1}{MPW} = \frac{1}{MPS+MPM+MPT}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now since $MPC + MPS = 1$ it follow that $1-MPC = MPS$,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;therefore the multiplier = $\frac{1}{(MPS+MPM+MPT)} = \frac{1}{MPS}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and so $MPS = MPS + MPM + MPT$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;from this, we can see that $MPM = -MPT$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, Marginal Propensity to Import = negative Marginal Propensity to Tax&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am unable to see what the flaw in the logic is or if there is something I am missing. Any explanation or help would be great.&lt;/p&gt;&#xA;" OwnerUserId="15692" LastEditorUserId="6168" LastEditDate="2018-04-29T13:08:44.847" LastActivityDate="2021-04-14T01:58:06.437" Title="Does the Marginal Propensity to Import = negative Marginal Propensity to Tax?" Tags="&lt;marginal&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21604" PostTypeId="1" CreationDate="2018-04-22T16:14:02.263" Score="6" ViewCount="195" Body="&lt;p&gt;I'm working through an old problem set (that sadly I don't have solutions for) and I got stuck. It is a dynamic model of entrepreneurship and invention. &lt;strong&gt;I'm looking for guidance on this model as well as references or papers that discuss it.&lt;/strong&gt; Here's the model.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Every period you can choose to start a business. The choice in period $t$ is $b_t \in \{0, 1\}$, where $b_t=1$ is trying to invent something, so it's a discrete choice problem. You have some skill parameter $p$. In every period that you invent, your invention ``succeeds'' with probability $p$ and you get $v=1$. Otherwise it fails and you get $v=0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you don't invent in period $t$ you work and get some wage $w$. The person has linear lifetime utility like this&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{equation}&#xA;\sum_{t=0}^\infty \beta^t [b_t I\{\text{successful invention}\} + (1 - b_t)w]&#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$I$ is the indicator function. The problem is &lt;em&gt;we (and the agent) don't know $p$&lt;/em&gt;. They just know its distributed with a &lt;a href=&quot;https://en.wikipedia.org/wiki/Beta_distribution&quot; rel=&quot;noreferrer&quot;&gt;beta distribution&lt;/a&gt; with parameters $a$ and $b$ and they have to learn about it over time. I know how to &lt;a href=&quot;https://en.wikipedia.org/wiki/Conjugate_prior#Example&quot; rel=&quot;noreferrer&quot;&gt;update the prior&lt;/a&gt; depending on if the invention succeeds or not (if the person chose to invent in period $t$).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;The problem set asks me to set up the Bellman equation and use value function iteration to solve the problem numerically, but that's where I got stuck. Can someone give me a push in the right direction for how to start?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;The general Bellman equation is something like this&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{equation}&#xA;V(b) = \max_{b'} (u(b) + \beta E V(b'))&#xA;\end{equation}&#xA;$b$ is the agent's choice in the current period and $b'$ is the agents choice in the next period. I can't figure out how to incorporate the Bayesian updating of the prior into the expectation, though, since the value of the prior going into period $t$ and thus the value of the posterior at the end of that period depends on the history of successful or failed inventions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For ex. the person starts out with the prior on $p$ as just the mean of the beta distribution, which is $a/(a+b)$, but if they choose to invent in the next period and are successful, the &lt;a href=&quot;https://en.wikipedia.org/wiki/Conjugate_prior#Example&quot; rel=&quot;noreferrer&quot;&gt;beta distribution updates to the posterior that has mean $(a+1)/(a+1 + b)$&lt;/a&gt;. Etc.&lt;/p&gt;&#xA;" OwnerUserId="1506" LastEditorUserId="1506" LastEditDate="2018-04-22T16:27:32.397" LastActivityDate="2019-04-19T03:03:40.543" Title="How do I begin to approach this dynamic discrete choice model?" Tags="&lt;self-study&gt;&lt;dynamic-programming&gt;&lt;structural-estimation&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21605" PostTypeId="1" AcceptedAnswerId="21706" CreationDate="2018-04-22T18:10:30.267" Score="9" ViewCount="4565" Body="&lt;p&gt;I've been reviewing some of my microeconomics theory and have been reading up on Roy's Identity. Recall that Roy's identity is defined  as:&#xA;$$x^*_{i}(\text{p},m)=-\frac{\frac{\partial v}{\partial p_{i}}}{\frac{\partial v}{\partial m}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;being that the indirect utility function is just the utility function evaluated at the appropriate Marshallian demands, this result is not surprising. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is an important application of roy's identity that I wouldn't know from just solving for marshallian demands?&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2018-04-27T23:37:20.580" Title="Why is Roy's Identity so important?" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21606" PostTypeId="2" ParentId="21427" CreationDate="2018-04-22T22:23:28.463" Score="1" Body="&lt;p&gt;Dave Harris gave a great mathematical explanation but I wanted to give a more intuitive version of what he's saying.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you assume that the safe option is option A and the risky option is option B then you first need to determine the expected value for each option.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Option A's expected value is &lt;code&gt;$2,000&lt;/code&gt;, meaning no matter what the benefit of option A is &lt;code&gt;$2,000&lt;/code&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Option B's expected value is &lt;code&gt;(10000 * .25) + (500 * .75) = 2875&lt;/code&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the individual was risk neutral they would clearly choose option B because it has a $875 higher expected value than option A.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This individual is risk adverse meaning they put some value on not facing risk or facing less risk. This value that they place on avoiding the risk is referred to as the risk-premium. The value of the risk premium depends on the factors mentioned by Dave Hariss but in essence it is the amount of additional money they most receive to take the risk.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In your example, for the individual to choose the safe option, their risk premium for this situation must be &gt; 875. Otherwise they will choose the risky option despite being risk adverse.&lt;/p&gt;&#xA;" OwnerUserId="10245" LastActivityDate="2018-04-22T22:23:28.463" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21607" PostTypeId="2" ParentId="21604" CreationDate="2018-04-22T23:54:02.180" Score="1" Body="&lt;p&gt;$b_t$ is the decision variable, and the value function is formulated as a function of the &lt;em&gt;state&lt;/em&gt; variable of the problem. In your case, the role of the state variable is played by the $p$ parameter, which may change in each period (updated). So your Bellman equation is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$V(p_t) = \max_{b_t} \{u(b_t) + \beta E [V(p_{t+1})\mid t]\}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and I guess now you see where the updating of $p$ enters the picture.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On &quot;Value function iteration&quot;, or &quot;iteration on the Bellman equation&quot;, the book &quot;&lt;a href=&quot;https://www.theigc.org/wp-content/uploads/2016/06/LS-RMT2ed-04.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Recursive Macroeconomic Theory&lt;/a&gt;&quot; of Ljungqvist &amp;amp; Sargent contains clear and practical guidance.  &lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2018-04-23T21:39:35.500" LastActivityDate="2018-04-23T21:39:35.500" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21608" PostTypeId="1" AcceptedAnswerId="21613" CreationDate="2018-04-23T01:30:26.480" Score="3" ViewCount="220" Body="&lt;p&gt;I am rather new to economics in general and to the Neoclassical Growth Model in particular and I was wondering if there was a way to get the Euler equation for consumption without using the Lagrangian multiplier? Assuming no corner solutions, let's say the agent solves  $$\max_{c_t, k_t} \sum_{t=0}^{\infty} \beta^t U(c_t)$$  subject to $$c_t + k_{t+1} \leq f(k_t) \\ c_t \geq 0 \quad \forall t \\ k_{t+1} \geq 0 \quad \forall t$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Lagrangian is given by $$L = \beta^t [U(c_t) + \lambda_t ( f(k_t)- c_t - k_{t+1})]$$ which can then be solved for the Euler equation $U'(c_t) = \beta U'(c_{t+1})f'(k_{t+1})$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why is that if I try to use the tangency condition of the gradient of $U$ and the resource constraint I don't get the same EE? Taking partials with respect to consumption and investment ($\delta =0$ so $k_{t+1}=i_t$)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\nabla U = \langle \beta^tU'(c_t), 0\rangle$ and &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\nabla RC = \langle -\beta^t,  -\beta^t+\beta^{t+1}f'(k_{t+1})\rangle$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Using tangency I should get $\frac{U'(c_t)}{-1} = \frac{0}{\beta f'(k_{t+1})-1} \Rightarrow U'(c_t) = \beta U'(c_{t})f'(k_{t+1})$. Clearly my time subscript is off. Can someone tell me if my approach is wrong? or if I made a mistake in the algebra? I think the optimizing condition should hold with tangency so its not obvious to me why this approach gives a result different from the Lagrangian. &lt;/p&gt;&#xA;" OwnerUserId="18078" LastEditorUserId="8595" LastEditDate="2018-04-23T01:51:03.807" LastActivityDate="2019-04-02T13:58:45.720" Title="Euler equation through tangency conditions" Tags="&lt;macroeconomics&gt;&lt;mathematical-economics&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21609" PostTypeId="2" ParentId="19738" CreationDate="2018-04-23T06:47:34.707" Score="1" Body="&lt;p&gt;There are already 3 good answers to this question, but I'll try to complement it a bit further with the issues that make Economists disagree.&lt;/p&gt;&#xA;&lt;h2&gt;What is the purpose of economics? Does it have predictive power?&lt;/h2&gt;&#xA;&lt;p&gt;Economics as a social science is grounded in the positivism paradigm, best described according to &lt;a href=&quot;https://books.google.com.au/books?id=i5bHlhTUApQC&amp;amp;printsec=frontcover&amp;amp;hl=pt-PT#v=onepage&amp;amp;q=ultimately%20to%20establish%20universal&amp;amp;f=false&quot; rel=&quot;nofollow noreferrer&quot;&gt;Gunter (2000)&lt;/a&gt;:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;The &amp;quot;overryding objective&amp;quot; of the positivism paradigm is to &amp;quot;prove or disprove hypotheses and ultimately to establish universal laws of behaviour through the use of numerically defined and quantifiable measures analogous to those used by the natural sciences&amp;quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;The point of economics is agreed by most to be finding the universal laws of economic behaviors.&lt;/p&gt;&#xA;&lt;p&gt;Given that most real-life situations are very complex, there are often competing views and theories on what the outcome will be. This is rooted in a &lt;strong&gt;series of issues&lt;/strong&gt;:&lt;/p&gt;&#xA;&lt;h3&gt;Logic and Math over empirical proof&lt;/h3&gt;&#xA;&lt;p&gt;Several models, particularly the classics, have been created from mathematical and logical thinking, before the availability of data. These theories and models are logically and mathematically very sound. The issue here is the applicability to solve real-life problems, which becomes a topic for disagreement between economists.&lt;/p&gt;&#xA;&lt;p&gt;One of the examples is Ricardo's theory of &lt;a href=&quot;https://en.wikipedia.org/wiki/Comparative_advantage&quot; rel=&quot;nofollow noreferrer&quot;&gt;comparative advantage&lt;/a&gt;, which is used as a basis for major consensus in the economics profession, and a key driver of the free trade movement, was prepared before the existence of large scale trade data. Nowadays, we have several empirical studies that disprove the applicability of comparative advantage theories for international development: African countries with free trade have not developed near as fast as Asian countries with import tariffs and export subsidies (&lt;a href=&quot;https://en.wikipedia.org/wiki/Capital_in_the_Twenty-First_Century&quot; rel=&quot;nofollow noreferrer&quot;&gt;Piketty 2014&lt;/a&gt;, &lt;a href=&quot;https://en.wikipedia.org/wiki/The_Predator_State&quot; rel=&quot;nofollow noreferrer&quot;&gt;Galbraith 2008&lt;/a&gt;) The theory of comparative advantage is so broadly accepted that one could compare it to a &amp;quot;law&amp;quot; in economics, but other sciences would reject any law which is, at least once, proven to be wrong.&lt;/p&gt;&#xA;&lt;p&gt;&lt;a href=&quot;https://bradlittlejohn.com/2014/05/23/2014523piketty-notes-and-quotes-3-a-childish-passion-for-mathematics/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Piketty describes this issue&lt;/a&gt; very elegantly:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;To put it bluntly, the discipline of economics has yet to get over its childish passion for mathematics and for purely theoretical and often highly ideological speculation, at the expense of historical research and collaboration with the other social sciences.  Economists are all too often preoccupied with petty mathematical problems of interest only to themselves.&lt;/p&gt;&#xA;&lt;p&gt;This obsession with mathematics is an easy way of acquiring the appearance of scientificity without having to answer the far more complex questions posed by the world we live in.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;h3&gt;Problem of Aggregation&lt;/h3&gt;&#xA;&lt;p&gt;Conclusions taken for one single individual cannot always be translated to aggregate terms (multiple individuals). This means that microeconomic results are not necessarily transferable to macro terms, and this can create disagreement among economists. &lt;a href=&quot;https://www.jstor.org/stable/pdf/2296051.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Preston (1959)&lt;/a&gt; makes a good overview of the problem in the first page, or check the &lt;a href=&quot;https://en.wikipedia.org/wiki/Aggregation_problem&quot; rel=&quot;nofollow noreferrer&quot;&gt;wikipedia page&lt;/a&gt;.&lt;/p&gt;&#xA;&lt;h3&gt;Researcher bias&lt;/h3&gt;&#xA;&lt;p&gt;Economics research is highly vulnerable to bias. Even if methodologically the studies can be well grounded in logic and data, the point of view of the researcher can be influenced by one's own ideology or by political influence.&#xA;A recent study on 159 economic literatures found &amp;quot;half of the research areas have nearly 90% of their results under‐powered&amp;quot; and &amp;quot;nearly 80% of the reported effects in these empirical economics literatures are exaggerated&amp;quot;(&lt;a href=&quot;https://onlinelibrary.wiley.com/doi/full/10.1111/ecoj.12461&quot; rel=&quot;nofollow noreferrer&quot;&gt;Ioannidis, Stanley, Doucouliagos 2017&lt;/a&gt;)&lt;/p&gt;&#xA;&lt;p&gt;&lt;a href=&quot;http://crookedtimber.org/2011/03/17/a-simple-model-of-disagreement-among-economists/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Henry Farrell&lt;/a&gt; wrote an interesting model on the disagreement between economists based on things such as political influence and level of consensus.&lt;/p&gt;&#xA;&lt;h3&gt;More like Pharma, less like Physics&lt;/h3&gt;&#xA;&lt;p&gt;Although the predictive power is often expected to be as advanced as Physics, Economics is a relatively recent science compared to most natural sciences. I like to think of it closer to Pharmaceutical studies than physics: there is a lot of experimentation, and we slowly learn what effects certain things have in the system, but we often only realize the secondary effects much later. Pharma is a subsection of Chemistry, and in the same way, I see Economics as a subsection of Sociology.&lt;/p&gt;&#xA;" OwnerUserId="12304" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2018-04-24T02:34:44.117" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="21612" PostTypeId="1" CreationDate="2018-04-23T09:55:57.263" Score="0" ViewCount="106" Body="&lt;p&gt;precursor: &lt;a href=&quot;https://bitcoin.stackexchange.com/questions/1851/how-to-generate-a-valid-bitcoin-address-for-destroying-bitcoins#comment85883_1852&quot;&gt;bitcoin.stackexchange.com/q/1851&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How can it be economically responsible to destroy property which has value?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If a property is destroyed (which is the right of the property holder in most cases, I do not dispute that) then, the holder robs themselves of the economic benefit of otherwise disposing of the property which has value and that they no longer want, rob the economy also of that passed on benefit or, at least their heirs and the future economy are robbed of the benefit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How can this be economically responsible dominion over property?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I take it that under most jurisdictions a company would be prevented from doing the same as it is not in the best interests of the company, a principle which the directors must uphold.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I wish to gain an economic view of flaw/benefit this practice.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can this even be justified in such extreme circumstance as; I possess the only ten copy Picasso's, they are validated and dated and, there is no surviving original. I destroy nine of the ten copies.&lt;/p&gt;&#xA;" OwnerUserId="18080" LastEditorUserId="18080" LastEditDate="2018-04-23T10:17:12.043" LastActivityDate="2018-04-27T07:23:50.440" Title="How is it economically responsible to destroy proprty which has value?" Tags="&lt;reference-request&gt;&lt;mathematical-economics&gt;&lt;labor-economics&gt;&lt;monetary-policy&gt;&lt;property&gt;" AnswerCount="1" CommentCount="9" ClosedDate="2018-05-01T09:11:34.113" ContentLicense="CC BY-SA 3.0" />
  <row Id="21613" PostTypeId="2" ParentId="21608" CreationDate="2018-04-23T11:26:24.573" Score="1" Body="&lt;p&gt;In answer to your first question (can you get the Euler equation without a Lagrangean?), the answer is 'yes'. At least, there are less formal ways of deriving it. In general, assuming that a consumer chooses to consume strictly positive quantities of two perfectly divisible goods &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt;, then it must be that:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\frac{MU_x}{MU_y} = \frac{p_x}{p_y}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(If this were not true, then the consumer could increase their utility by shifting spending a little more on one good and a little less on the other.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The so-called 'Euler equation' is nothing more than an application of this result, viewing the 'goods' and &lt;span class=&quot;math-container&quot;&gt;$C_t$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$C_{t+1}$&lt;/span&gt;. If you delay your consumption by one period, you put your cash in the bank for one period, earning real interest at rate &lt;span class=&quot;math-container&quot;&gt;$r_{t+1}$&lt;/span&gt;. Hence, if we normalise &lt;span class=&quot;math-container&quot;&gt;$P_t = 1$&lt;/span&gt;, then effectively &lt;span class=&quot;math-container&quot;&gt;$P_{t+1}=1/(1+r_{t+1})$&lt;/span&gt;. Consumption tomorrow is cheaper than consumption today (assuming &lt;span class=&quot;math-container&quot;&gt;$r_{t+1} &amp;gt; 0$&lt;/span&gt;) since delaying your consumption allows you to earn some interest.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We assume that utility is constant, time-separable and exponentially discounted (as in your set-up). Thus, we need to remember to put a &lt;span class=&quot;math-container&quot;&gt;$\beta$&lt;/span&gt; before &lt;span class=&quot;math-container&quot;&gt;$MU_{t+1}$&lt;/span&gt;. We now write &lt;span class=&quot;math-container&quot;&gt;$u'(c_t)$&lt;/span&gt; for &lt;span class=&quot;math-container&quot;&gt;$MU_x$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$\beta u'(c_{t+1})$&lt;/span&gt; for &lt;span class=&quot;math-container&quot;&gt;$MU_y$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$(1+r_{t+1})$&lt;/span&gt; for the price ratio.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, observe that if firms maximise profits taking the cost of capital &lt;span class=&quot;math-container&quot;&gt;$r_{t+1}$&lt;/span&gt; as given with total depreciation (as you assume), they hire capital until &lt;span class=&quot;math-container&quot;&gt;$f'(k_{t+1})=1+r_{t+1}$&lt;/span&gt;. Plugging in yields the Euler equation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In answer to your second question (how can you derive it with a Lagrangean?), I would recommend that you try the following steps:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;First of all, you should really have a summation before your Lagrangean (summing over an infinite number of periods). This is a dynamic problem.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Differentiate the objective function with respect to &lt;span class=&quot;math-container&quot;&gt;$c_t$&lt;/span&gt;.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Roll forward by one period and combine the equations. You should get:&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$u'(c_t)/\beta u'(c_{t+1}) = \lambda _t/\lambda _{t+1}$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Then differentiate the objective function with respect to &lt;span class=&quot;math-container&quot;&gt;$k_{t+1}$&lt;/span&gt;. &lt;strong&gt;Don't forget the &lt;span class=&quot;math-container&quot;&gt;$f(k_t)$&lt;/span&gt; term!&lt;/strong&gt; This may look irrelevant, but the Lagrangean should be an infinite sum so it shows up when you 'roll forward' by one period. This should give you:&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\lambda _t = \lambda _{t+1}f'(k_{t+1})$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Plug that in and you have it! The equation on which so much pointless macroeconomics built.&lt;/p&gt;&#xA;" OwnerDisplayName="user17900" LastEditorDisplayName="user17900" LastEditDate="2019-04-02T13:58:45.720" LastActivityDate="2019-04-02T13:58:45.720" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="21614" PostTypeId="1" AcceptedAnswerId="21617" CreationDate="2018-04-23T11:42:24.757" Score="9" ViewCount="4865" Body="&lt;p&gt;My understanding of conventional wisdom is that average long-term growth of advanced economies is expected to be significantly lower than the average long-term growth of the value of the largest firms in the stock market (e.g. the total value of the FTSE 100).  I also accept &lt;a href=&quot;https://economics.stackexchange.com/a/17307/16631&quot;&gt;Kenny LJ's argument&lt;/a&gt; that GDP (and the stock market) can grow exponentially, indefinitely.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But if the largest firms in the stock market, taken as a group, always grow &lt;em&gt;faster&lt;/em&gt;, doesn't that suggest either&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;an unsustainable trend, or&lt;/li&gt;&#xA;&lt;li&gt;a fundamental restructuring of the economy is in progress?&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Is there any limit to how many times larger FTSE 100 firms could be than the output of the entire economy, for instance?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT: To be completely clear, I am &lt;em&gt;not&lt;/em&gt; using the FTSE as a proxy for the wider stock market or private sector more generally, so I'm pretty sure survivor (or selection) bias is nothing to do with the answer.  I am literally asking about the size of the group of the largest $x$ companies listed today relative to the total economy.&lt;/p&gt;&#xA;" OwnerUserId="16631" LastEditorUserId="16631" LastEditDate="2018-04-24T10:29:45.163" LastActivityDate="2019-11-28T03:06:19.763" Title="Can the stock market grow faster than GDP indefinitely?" Tags="&lt;economic-growth&gt;&lt;stock-market&gt;&lt;theory&gt;&lt;long-run&gt;" AnswerCount="5" CommentCount="1" FavoriteCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="21615" PostTypeId="2" ParentId="21601" CreationDate="2018-04-23T11:46:14.740" Score="1" Body="&lt;p&gt;I think the flaw in your reasoning is expecting that foreign capital inflow would lead to more ₹ in circulation.  When investors bring in capital, they are buying ₹ that were previously in circulation.  This additional demand without additional supply is exactly what drives the price of the ₹ up.  There is no increase in the quantity of ₹ circulating unless the government/central bank responds in some way.&lt;/p&gt;&#xA;" OwnerUserId="16631" LastActivityDate="2018-04-23T11:46:14.740" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21616" PostTypeId="2" ParentId="21603" CreationDate="2018-04-23T13:13:34.853" Score="0" Body="&lt;p&gt;Hint. Is it always the case that MPC + MPS = 1?  Or does this hold only in a certain type of model with assumptions that simplify from reality?&lt;/p&gt;&#xA;" OwnerUserId="1417" LastActivityDate="2018-04-23T13:13:34.853" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21617" PostTypeId="2" ParentId="21614" CreationDate="2018-04-23T14:40:25.880" Score="7" Body="&lt;p&gt;There are trends that has allowed stock markets in advanced economies to grow faster than GDP for a long time:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Branching out abroad. This gives access to faster growing markets in developing countries. This trend will end when all countries are advanced economies.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Fewer private companies. This trend will end when most of GDP is generated by companies listed on the stock market.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Multiple Expansion. Reduced interest rates and increased money supply can reduce returns expectations and increases PE multiples. This trend has worked both ways through time but for the last 10-20 years it has generally acted in an expansive capacity.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;In addition, there is a way for the stock market to generate a higher return  without an increase in stock market value:&lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;4&quot;&gt;&#xA;&lt;li&gt;Dividends. Dividends increase stock market return without increasing its value. Though not really considered growth, dividends are often included when comparing stock market growth with GDP growth. &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="11805" LastActivityDate="2018-04-23T14:40:25.880" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21619" PostTypeId="1" AcceptedAnswerId="21625" CreationDate="2018-04-23T15:18:47.153" Score="7" ViewCount="107" Body="&lt;p&gt;I have heard that people often handle uncertainty using point estimates not probability distributions. However, I have been unable to find any evidence for this in the heuristics and biases literature. I was wondering if anyone could point me to some relevant papers?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To clarify, there is no question whether some people have some beliefs about the higher moments of distributions. However, it would not shock to me to learn that when (for example) considering by how much the stock market will rise tomorrow, people form a point estimate (perhaps using historic averages) but do really not think about the uncertainty surrounding their estimate.&lt;/p&gt;&#xA;" OwnerDisplayName="user17900" LastActivityDate="2018-04-24T16:49:04.397" Title="Do people really care about higher moments?" Tags="&lt;econometrics&gt;&lt;statistics&gt;&lt;behavioral-economics&gt;&lt;bounded-rationality&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21620" PostTypeId="1" CreationDate="2018-04-23T15:47:45.160" Score="2" ViewCount="23" Body="&lt;p&gt;Just looking to see if anyone has any knowledge of original work for pareto refinement of NE under strategic form. I want to give credit to the refinement in a paper I am writing. I pulled the refinement from Nachbar's notes on &quot;Topics in Advanced Game Theory&quot;, but obviously that is not a reliable source to cite.&lt;/p&gt;&#xA;" OwnerDisplayName="user16020" LastActivityDate="2018-04-23T16:11:31.527" Title="Original Work for Pareto Refinement of NE under Strategic Form" Tags="&lt;reference-request&gt;&lt;game-theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21621" PostTypeId="2" ParentId="21620" CreationDate="2018-04-23T16:11:31.527" Score="3" Body="&lt;p&gt;I think you're referring to the criterion of &lt;strong&gt;payoff dominance&lt;/strong&gt; in equilibrium selection. This idea can be attributed to Harsanyi and Selten (1988): &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;John C. Harsanyi and Reinhard Selten. 1988. &lt;em&gt;A General Theory of Equilibrium Selection in Games&lt;/em&gt;, MIT Press. &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="42" LastActivityDate="2018-04-23T16:11:31.527" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21622" PostTypeId="2" ParentId="21614" CreationDate="2018-04-23T16:27:47.817" Score="1" Body="&lt;p&gt;If survivor bias means that more successful firms more typically list on a public exchange and less successful firms do so less often, then it would be possible for &quot;the stock market&quot; to grow faster than GDP indefinitely. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Perhaps trivially, and ignoring survivor bias implicit in stock market indices per se: you might also assert some condition where the share of capital grows in the economy by, say, 0.000000000000001% per year, or any other sufficiently small number, for NPV of profits from economywide capital to perpetually increase faster than GDP. This would be more likely if taking sufficiently long periods of analysis - for example, it is unlikely to hold in each and every single quarter, but it could hold in each and every decade.&lt;/p&gt;&#xA;" OwnerUserId="16499" LastActivityDate="2018-04-23T16:27:47.817" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21623" PostTypeId="1" CreationDate="2018-04-23T17:47:22.980" Score="4" ViewCount="77" Body="&lt;p&gt;In a &lt;a href=&quot;https://pubs.aeaweb.org/doi/pdfplus/10.1257/app.20160213&quot; rel=&quot;nofollow noreferrer&quot;&gt;recent paper&lt;/a&gt;, Edelman et al. examine (amongst other things) how discrimination on AirBnB varies with the characteristics of hosts. First, they conduct a field experiment which involves sending a large number of fictitious applications, some of which are associated with African-American names and some of which are not. Then, they regress whether an applicant is accepted on the guest race, a host characteristic and the interaction. For example, they regress acceptance on guest race, host race and the interaction of the two. The idea is that if African-American hosts (for instance) are less likely to discriminate, then the coefficient on the interaction term should be non-zero since the effect of receiving an application from an African-American should depend on whether the host is African-American.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So far, so good. However, given that host characteristics are not randomly assigned, we should control for them. Otherwise, we might find that African-Americans are less likely to discriminate even though the real explanation is that they tend to offer expensive properties, and people who offer expensive properties are less likely to discriminate (made up example to illustrate the point). They seem aware of this, since they throw in various host and location characteristics as controls. But wouldn't it have been better to use the &lt;strong&gt;interactions&lt;/strong&gt; of these covariates with applicant ethnicity as the controls? After all, we want to control for the fact that people with certain characteristics might respond to African-American applicants differently, and this means controlling for interaction effects.&lt;/p&gt;&#xA;" OwnerDisplayName="user17900" LastActivityDate="2018-04-26T07:35:43.823" Title="Controlling for interaction effects" Tags="&lt;econometrics&gt;&lt;applied-econometrics&gt;&lt;regression&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="21624" PostTypeId="2" ParentId="21605" CreationDate="2018-04-23T18:04:22.863" Score="7" Body="&lt;p&gt;When working with assumed functional forms, then you could be justified supposing that there is not much added value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, when you try to model behavior without functional forms, you will need all the help you can get in terms of results like Roy's identity to prove your results. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;One important application of Roy's identity is in deriving the Ramsey Rule for optimal commodity taxation. A derivation can be found &lt;a href=&quot;http://public.econ.duke.edu/~hf14/teaching/econ681b_spring03/tax.pdf&quot; rel=&quot;noreferrer&quot;&gt;here&lt;/a&gt; on page 14.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastActivityDate="2018-04-23T18:04:22.863" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21625" PostTypeId="2" ParentId="21619" CreationDate="2018-04-23T18:48:20.057" Score="4" Body="&lt;p&gt;Perhaps there is some evidence toward your claim, but I would argue that in most situations, people do &lt;em&gt;not&lt;/em&gt; use point estimates (although some &quot;smoothing&quot; likely occurs). In particular, there is no doubt that people care about the second movement (variance). The commonly employed, and robustly empirically documented, notion of risk aversion captures exactly this. Given two risky prospects with the same expectation (say different assets) it seems that most people prefer the one with lower variance (i.e., the less risky prospect). Think: which would you chose when given the option between \$50 for sure or a 50/50 toss up between \$0 and \$100? The difference between these two options is entirely in their second moment. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The evidence for this is so vast and varied it is hard to even give an encompassing reference; but since you ask about the stock market, it is worth pointing out that one of the key explanations for why stocks have a higher average return than bonds is that they are more risky. I imagine a google scholar search of 'risk aversion in the stock market&quot; will be fruitful. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is worth noting that there is also empirical evidence that people care about the third moment (skewness). &lt;a href=&quot;https://docs.google.com/viewer?a=v&amp;amp;pid=sites&amp;amp;srcid=ZGVmYXVsdGRvbWFpbnxjb2xsaW5icmF5bW9uZHxneDo1NmFlNzBlYmZhN2E2MGU3&quot; rel=&quot;noreferrer&quot;&gt;This working paper by Yusufcan Masatlioglu, A Yesim Orhun, and Collin Raymond&lt;/a&gt; is an experiment in which subjects &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;reveal a strong preference for positive skew over negative skew; in other words for ruling out more uncertainty about the desired outcome (and tolerating uncertainty about the undesired outcome) compared to ruling out more uncertainty about the undesired outcome (and tolerating uncertainty about the desired outcome).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;As for even higher moments, the jury is out, but I would imagine their importance diminishes rather quickly. The complexity of the distributions needed to generate differential higher moments increases and I would think heuristics would start to kick in.&lt;/p&gt;&#xA;" OwnerUserId="398" LastActivityDate="2018-04-23T18:48:20.057" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21626" PostTypeId="1" CreationDate="2018-04-23T19:08:56.000" Score="3" ViewCount="67" Body="&lt;p&gt;I'm not an ecomonist, but have been tossing around some ideas in my head for a long time and thought I might ask here what resources or existing work might be out there.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are a lot of market sectors where the cost of manufacturing one additional unit of a good is essentially zero. Almost all (or nearly all) of the cost is in development. It seems to me that the efficient market hypothesis must break down in this regime, since efficiency could always be increased by not redistributing goods but rather cloning them at no cost. I believe Pareto efficiency may not even apply in these markets. This is potentially a problem/opportunity for sectors such as software, music, news, website content in general, customer data, and more.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We see a variety of methods that have been adopted to help create more efficient markets. Subscription-based services, open-source software (the main currency there is not money), crowd-funding, snowdrift coop, and more. But I'm curious if there might exist a theoretical market economy that maintains some version of efficiency into this regime? Is there some modification to our current systems or some new form of currency that could be introduced that would self-regulate and optimize here? I'm not much concerned with practicality, just theory.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An alternative way of looking at this issue is that producing some types of goods necessarily benefits people who are not buyers or would not ordinarily be. From this perspective there might be other industries to consider such as public infrastructure, basic research, or military. Normally these are government-regulated, not market-regulated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Anyway, that's the general scope of problems I've been thinking about. Is this even a real or recognized problem? Can it be measured? (I feel like the advertising industry may hold a key to measuring this, but I can't figure out how or even quite why.) How else is this effect characterized? What measures of efficiency have been proposed? Are there any solutions? I know I'm going to need additional education in this field, but I don't yet know which direction to head in. I feel like I might make some progress given some new definitions of efficiency and coding up simulations. (My background is in particle physics.) Existing terminology might help me search through literature.&lt;/p&gt;&#xA;" OwnerUserId="18084" LastEditorUserId="18084" LastEditDate="2018-04-24T18:17:25.147" LastActivityDate="2018-04-24T18:17:25.147" Title="Market efficiency in software, music, news, etc" Tags="&lt;theory&gt;&lt;software&gt;&lt;efficient-markets&gt;" AnswerCount="0" CommentCount="6" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21627" PostTypeId="2" ParentId="21597" CreationDate="2018-04-23T19:34:32.037" Score="0" Body="&lt;p&gt;I am not sure what exactly you are asking because of notational clutter, but I can take a stab. As I see it, there is no reason for the $g$'s and the $h$'s since they are never exchanged. So lets just use $g_1 \ldots g_k$ and $P_1 \ldots P_k$ as our lotteries (over a set $X = \{x,y\ldots\}$) and probabilities. Further, there is no reason make the second index be the odd one out.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, reduction of compound lotteries says that if we have $n$ lotteries $g_1 \ldots g_n$ and $\sum P_i = 1$ and $P_i \geq 0$ then we can identify $P_1g + \ldots + P_ng'$ with the lottery that assigns $P_1g(x) + \ldots + P_ng_n(x)$ to each $x \in X$. We only care about the total probability assigned to final consumption outcomes and not how we got there--for example, we do not care about the timing of the resolution of uncertainty.$^1$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $P_1g_1 + \ldots + P_kg_k$ by a lottery of size $k$. From our reduction principle this is the lottery that assigns &#xA;\begin{equation}&#xA;\tag{1}&#xA;P_1g_1(x) + \ldots + P_kg_k(x)&#xA;\end{equation}&#xA;to each $x \in X$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then consider the lottery $$g^* = \frac{P_2}{1-P_1}g_2 + \ldots + \frac{P_k}{1-P_2}g_k.$$ (Make sure you see why is this a well defined lottery, in other words why do the probabilities necessarily sum to 1?). We can, by the reduction principle treat this as the lottery that assigns&#xA;\begin{equation}&#xA;\tag{2}&#xA;g^*(x) = \frac{P_2}{1-P_1}g_2(x) + \ldots + \frac{P_k}{1-P_2}g_k(x)&#xA;\end{equation}&#xA;to each $x \in X$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, what if we mix this new reduced lottery with $g_1$? Take a look at $g^{**} = P_1g_1 + (1-P_1)g^*$. Well, this is the lottery that assigns&#xA;$$g^{**}(x) =  P_1g_1(x) + (1-P_1)g^*(x)$$ to each $x \in X$. Look: this in the lottery of interest (if I read your question correctly)! From equation (2) we can re-write this as&#xA;$$g^{**}(x) =  P_1g_1(x) + (1-P_1)\big(\frac{P_2}{1-P_1}g_2(x) + \ldots + \frac{P_k}{1-P_2}g_k(x)\big).$$&#xA;Of course this is a garden variety real valued equation, so lets go ahead a cancel the $(1-P_1)$'s leaving us with exactly equation (1). So these two lotteries are indeed the same.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;[1] If you are asking how to move from a definition of reduction that only uses 2 lotteries at a time to the (equivalent) one above, this is a different question. Hint: the proof is by induction and the base case is the definition. In spirit its whats going on below.&lt;/p&gt;&#xA;" OwnerUserId="398" LastActivityDate="2018-04-23T19:34:32.037" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21628" PostTypeId="1" AcceptedAnswerId="21663" CreationDate="2018-04-23T21:03:11.117" Score="0" ViewCount="119" Body="&lt;p&gt;I wanted to use STATA for a kalman filter simulation and wanted to go about it the following way&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;1. Generate iid error terms &#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;$$ &#xA;{e_t}, {n_t}, {u_t} &#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;2. Generate three AR1 process like so&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;$$ &#xA;             \beta_t  = a*b_{t-1} + u_t &#xA;$$&#xA;$$&#xA;             x_t = c_0 + c_1*x_{t-1} + n_t&#xA;$$&#xA;$$&#xA;             y_t = b_t*x_t + e_t&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt; 3. use Kalman filter to predict b_hat&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;I have been able to use rnorm() to generate the iid error terms, but I am stuck at the second step. I know how to run a state space model to get the kalman filter estimates but AR1 has really tripped me up.&lt;/p&gt;&#xA;" OwnerUserId="18087" LastEditorUserId="18087" LastEditDate="2018-04-23T21:24:29.533" LastActivityDate="2018-04-25T21:32:01.590" Title="AR 1 Process simulation" Tags="&lt;econometrics&gt;&lt;stata&gt;&lt;simulations&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21630" PostTypeId="2" ParentId="5369" CreationDate="2018-04-23T21:45:05.497" Score="2" Body="&lt;p&gt;Open-source software development is done for diverse reasons, but it's a common misunderstanding that it's done primarily by hobbyists or professionally but as a side-project. I'm answering this question for open-source in general, not GNU-licensed software in particular. But my answer is inclusive.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's say I'm a software developer (I am), and I'm working on a complex software project (I am). Good architecture breaks a problem down into independent pieces, and as development proceeds the developers will often recognize that some piece they need is one that's common to a lot of problems. Here are some typical paths forward:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;They develop that piece themselves and it becomes property of the company. Or they buy a closed-source solution from another company.&lt;/li&gt;&#xA;&lt;li&gt;They find an open-source project that solves this problem and it's a perfect fit and the license is suitable. They just incorporate it into their project, which may or may not need to be open-sourced depending on the license and how it's used. They don't contribute back to the project.&lt;/li&gt;&#xA;&lt;li&gt;They find an open-source project that almost solves this problem but has either defects or deficiencies. They improve on it and they may contribute those improvements back to the base project.&lt;/li&gt;&#xA;&lt;li&gt;They don't find anything they like enough, so they start their own project and decide to open-source it.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;The advantages of 2-4 are that more people end up contributing to both the design and the code of the project, and it goes into a kind of ecosystem where strong ideas survive (by procreation if you will) and weak ones don't. Bugfixing and feature addition become community efforts. In scenarios #2 and 3, the developers adopting the project benefit from sound engineering principles and mature code. 3 and 4 are correlative. In scenario #4, the developers benefit when other people adopt and improve the code and give back (#3). It's advantageous to contribute back to the project so that your improvements get cemented in as other fixes and improvements go in on top of them, which you continue to benefit from. In my experience, all of these scenarios are commonplace.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On my current software project, I'm one of about 12 developers and have worked on a system for about two years. We have incorporated about 5,000 open-source projects! We have spawned only a few new FOSS projects, and contributed back to maybe half a dozen. We aren't particularly good citizens in this case (other companies are much better), but this shows you the sheer scale of how this all works. Even on small projects, contributions from open-source can easily number in the dozens or hundreds. If we did not use any open-source software, development costs would balloon by a factor of 100-10,000.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Scalability happens because of modularity of design and also through this kind of survival-of-the-fittest process where code can get refactored, forked, and so on. Survivability is usually better than proprietary alternatives because even if the code is no longer maintained, it's out there and other people who find value in it can maintain their own fork of it. Companies come and go and employees are hired and quit even faster. If you add a software dependency that you don't have the source code for or have only a small in-house team to maintain, you have incurred substantial risk. Big projects like the Linux kernel, gcc, Android and others often have a large number of companies actively contributing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's not true that it's easier to write good and correct code than it is to read it (in most cases). Nor do you have to read all of the software you're using even if you are making modifications. You have to dive deeply into sections of it and read a lot, but not the whole. I could say more here about unit tests, but will omit that for brevity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The majority of open-source software is not developed by people in their free time. The practice is so phenomenally beneficial that it works without an optimizing marketplace. I personally suspect some kind of market-driven approach would greatly help, but I don't know what that approach might look like. People argue that there is a marketplace where reputation is the currency, but I don't think that's an accurate model. One currency at work is the time it takes to adopt a new piece of software. You want to find and use something that is active, simple, has good documentation, etc. So like a shopper you're looking for the best quality product for the least amount of time invested.&lt;/p&gt;&#xA;" OwnerUserId="18084" LastEditorUserId="18084" LastEditDate="2018-04-24T21:03:41.360" LastActivityDate="2018-04-24T21:03:41.360" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21631" PostTypeId="2" ParentId="21623" CreationDate="2018-04-23T21:49:01.903" Score="1" Body="&lt;p&gt;I leave for another thread the issue &quot;&lt;em&gt;What is the justification of using the arithmetic operation of multiplication and so the product of two variables in order to model the concept of interaction?&lt;/em&gt;&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Practically, product-terms come from the tradition of the Translog regression specification, which is a second-order approximation to any actual specification, and produces such products.&#xA;They are therefore considered &quot;second-order&quot; effects, meaning that they are included in a specification alongside the stand-alone variables. This means that their importance is judged after the effect of the stand-alone variables has been taken into account.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have not seen in the literature a situation where &quot;interaction terms&quot; are included alone, without the stand-alone presence of the two variables forming the product.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So for the specific study mentioned by the OP, conventional practice would ask &quot;why not include &lt;em&gt;also&lt;/em&gt; interaction terms?&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Nevertheless, it appears intriguing to argue convincingly that in a certain case, we should only include the &quot;interaction term&quot; of two variables.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2018-04-23T21:49:01.903" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21632" PostTypeId="2" ParentId="21614" CreationDate="2018-04-23T23:51:41.517" Score="2" Body="&lt;p&gt;Investing in the stock market gives you access to two things:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;A stake in the companies whose shares you own, including income that they generate and reinvest in new internal projects.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Access to a stream of income generated by these companies, which they distribute to shareholders through dividends, share-buybacks ect.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;As you suggest, it is impossible for the growth of 1 to significantly exceed the growth in GDP indefinitely. However, an individual's portfolio return is made up of the growth of 1 + the returns of 2.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, suppose Apple makes a profit equal to 5% of it's market value each year (accounting for inflation, and depreciation of current assets). They can (1) - reinvest these profits in the company - buying new equipment, office space, intellectual property ect. (2) - pay it out to their shareholders, who can then spend/invest this money somewhere different. If the economy grows at 2% / year, and Apple allocates 40% of these profits to internal investment, it's share of GDP will not rise. However, an investor that reinvests the additional  dividend (equal to 3% of their investment) in other opportunities will see their share of the economy rise each year.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Indeed, in an uncertain world made up of inpatient investors, they can be offered be offered a positive real return in exchange for forgoing consumption in the present that may well be higher than their economy's long-run growth-rate. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This means that net owners of shares can acquire a greater and greater proportion of GDP as time goes on. Thomas Piketty finds some empirical evidence for this over the last 200 years, which he names 'R &gt; G'. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Capital_in_the_Twenty-First_Century&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://en.wikipedia.org/wiki/Capital_in_the_Twenty-First_Century&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="18089" LastEditorUserId="18089" LastEditDate="2018-04-28T11:46:57.160" LastActivityDate="2018-04-28T11:46:57.160" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="21633" PostTypeId="2" ParentId="21614" CreationDate="2018-04-24T02:14:15.003" Score="4" Body="&lt;ul&gt;&#xA;&lt;li&gt;&lt;strong&gt;Survivorship bias.&lt;/strong&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;(Credit to @nathanwww's answer. Here I merely add a few details.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Dow Jones Industrial Average (DJIA) was first published at &lt;a href=&quot;https://www.loc.gov/rr/business/businesshistory/May/djia.html&quot; rel=&quot;noreferrer&quot;&gt;40.94&lt;/a&gt; on 1896-May-26. It closed at &lt;a href=&quot;https://fred.stlouisfed.org/series/DJIA&quot; rel=&quot;noreferrer&quot;&gt;24,448.69&lt;/a&gt; on 2018-Apr-23. Let's call that 122 years. That's a &lt;a href=&quot;https://www.google.com/search?q=%20%2824%2C448.69%2F40.94%29%5E%281%2F122%29-1&quot; rel=&quot;noreferrer&quot;&gt;5.4%&lt;/a&gt; annual compound growth rate — certainly faster than the US GDP growth rate over that 122-year period.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, the list of constituent companies that go into the computation of the DJIA has changed over time. The initial list contained just 12 companies, of which only one (General Electric) still survives.†&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Almost by definition, the stock market consists of only companies that haven't completely failed. And so the average company listed on a stock market is more successful than the economy's average company.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Even if we look at broader indices or even a country's entire stock market capitalization, we will find that the same is true (albeit to a lesser extent) — in most countries, over long periods of time, the stock market grows faster than the country's GDP.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(The above is just 20 minutes worth of &quot;research&quot;. I'd be interested to know what estimates researchers have come up with to quantify such survivorship bias and explaining the gap between GDP and stock market growth.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Related point:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;strong&gt;Selection bias.&lt;/strong&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The stock market is not a representative sample of the entire economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, it is perfectly possible that one neighborhood of a city consistently gets richer faster than the rest of the city, perhaps because ever-richer folks keep moving into that neighborhood.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is likewise possible that the stock market (which does not exactly reflect the entire economy) consistently attracts ever-more-successful companies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(This is just one possible reason for selection bias; there may be others.)&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;† The 12 companies initially listed on the DJIA were (&lt;a href=&quot;https://www.loc.gov/rr/business/businesshistory/May/djia.html&quot; rel=&quot;noreferrer&quot;&gt;source&lt;/a&gt;):&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;American Cotton Oil Company&lt;/li&gt;&#xA;&lt;li&gt;American Sugar Company&lt;/li&gt;&#xA;&lt;li&gt;American Tobacco Company&lt;/li&gt;&#xA;&lt;li&gt;Chicago Gas Company&lt;/li&gt;&#xA;&lt;li&gt;Distilling &amp;amp; Cattle Feeding Company&lt;/li&gt;&#xA;&lt;li&gt;General Electric&lt;/li&gt;&#xA;&lt;li&gt;Laclede Gas Company&lt;/li&gt;&#xA;&lt;li&gt;National Lead Company&lt;/li&gt;&#xA;&lt;li&gt;North American Utility Company&lt;/li&gt;&#xA;&lt;li&gt;Tennessee Coal &amp;amp; Iron&lt;/li&gt;&#xA;&lt;li&gt;U.S. Leather Company (preferred)&lt;/li&gt;&#xA;&lt;li&gt;U.S. Rubber Company&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Here's a &lt;a href=&quot;https://www.fool.com/investing/general/2013/04/09/what-happened-to-the-first-12-stocks-on-the-dow.aspx&quot; rel=&quot;noreferrer&quot;&gt;brief article&lt;/a&gt; stating what happened to each of the above companies. It is probably safe to say that if the DJIA stuck to these 12 companies and no matter what method we use to measure the present-day value of these 12 companies, the DJIA would be much lower than its current value of 24,000+.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Today's &lt;a href=&quot;https://www.cnbc.com/dow-components/&quot; rel=&quot;noreferrer&quot;&gt;list of 30 companies that make up the DJIA, according to CNBC&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastEditorDisplayName="user18" LastEditDate="2018-04-24T02:21:07.740" LastActivityDate="2018-04-24T02:21:07.740" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="21634" PostTypeId="1" CreationDate="2018-04-24T06:54:44.363" Score="1" ViewCount="48" Body="&lt;p&gt;How does a country set an optimum minimum wage, i have went through loads of website but none of them give me a satisfied answer. For example, median of a country's income, percentage of GDP and such seem too shallow and unfair as a medium of calculation.&lt;/p&gt;&#xA;" OwnerUserId="18092" LastActivityDate="2018-04-24T11:06:14.617" Title="How to set a minimum wage" Tags="&lt;labor-economics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21635" PostTypeId="2" ParentId="21634" CreationDate="2018-04-24T08:03:52.450" Score="1" Body="&lt;p&gt;What criteria define an optimum minimum wage? Is there even such a thing?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reason why you haven't found a satisfactory answer is that there isn't &lt;strong&gt;one&lt;/strong&gt;. There are several and depending on who you ask you will get a different answer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some people will say that the optimum minimum wage is 0 and that the state should note interfere in the matter. Laissez-faire. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some people wants the minimum wage to cover basic living expenses. What that entails varies widely but is usually connected to the general economic level of the country. In some countries it covers only the cost of basic food for 1-2 people. In others it covers rent, utilities, food, a tv, a mobile phone.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some people want the minimum wage to be as high as possible. Some unions.&lt;/p&gt;&#xA;" OwnerUserId="11805" LastActivityDate="2018-04-24T08:03:52.450" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21638" PostTypeId="2" ParentId="21634" CreationDate="2018-04-24T11:06:14.617" Score="1" Body="&lt;p&gt;Klas is right in saying that there is no neat economic theory that allows you to calculate the optimum minimum wage.  So here is how an economic analyst might guide the process of a country setting a new minimum wage:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Pick a range of possible minimum wages to analyse, perhaps based on cost of living estimates, 90th centile wages, union demands, benefit payments, previous minimum wages, etc.&lt;/li&gt;&#xA;&lt;li&gt;For each possible minimum wage, attempt to model the likely impacts on (a) the wellbeing of people affected by wage increases (e.g. decline in poverty), (b) the overall level of knock-on wage increases throughout the economy, and their effect on inflation and tax revenue, and (c) unemployment.  Perhaps also expected rates of compliance and any enforcement costs (though enforcement is often minimal).&lt;/li&gt;&#xA;&lt;li&gt;Present this information in an easily accessible way and offer politicians a choice of a few reasonable options.  Unless you're talking about a small change (say, increasing the minimum wage 5%), a final decision is likely to be made by cabinet, based on the expected effect on the ruling party's electability.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;That is how an analyst is likely to approach it; in reality, if the private sector and/or unions have a strong voice in government, the process might resemble more of a negotiation between two sides.&lt;/p&gt;&#xA;" OwnerUserId="16631" LastActivityDate="2018-04-24T11:06:14.617" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21639" PostTypeId="2" ParentId="21619" CreationDate="2018-04-24T16:49:04.397" Score="1" Body="&lt;p&gt;I think there is a missing concept in your question.  If you are discussing simple gambles and not things like the stock market, then the distributions that are involved usually have &lt;em&gt;sufficient&lt;/em&gt; statistics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A statistic is sufficient for a parameter if the point estimate could be substituted for the data itself with no loss in information.  A statistic, $t$, is said to be sufficient for $\theta$ if $\Pr(\mathbf{x}|\theta)=\Pr(t|\theta)$, where $\mathbf{x}$ is a vector of data.  What this implies is that the implied distribution from an observed set of data has a perfect substitute in the vector of point statistics when sufficiency holds.  They are indistinguishable concepts mathematically.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you are talking about the stock market, then those distributions lack both moments and sufficient statistics and people need to use the distribution or fully process the uncertainty of the parameters using Bayesian methods as Frequentist solutions do not exist that are admissible in the general case.  The reason is relatively simple.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider a stock traded on the NYSE.  It is sold in a double auction with many potential buyers and many potential sellers.  Since the stock is sold in a double auction it follows that the winner's curse does not obtain.  Since the winner's curse does not obtain, it follows that the rational behavior is to bid your expectation regarding the price.  Since there are many &lt;em&gt;potential&lt;/em&gt; buyers and sellers, the limiting distribution of those prices is the normal distribution from the central limit theorem.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we assume we are in equilibrium, then the purchase price and the selling price are both normally distributed ignoring bankruptcies, mergers and liquidity costs.  Those do not change the general principle here, but do radically alter the mixture distribution.  Nonetheless, if we center our graph around $(p_t^*,p_{t+1}^*)$ then we could also think of it as being $(0,0)$ in the error space.  The return can be operationally defined as $$r_t=\frac{p_{t+1}}{p_t}-1,$$ so it follows that returns are the ratio of two normal distributions.  In error space, the distribution of two normals centered around zero is the Cauchy distribution.  If you then translate the distribution back to price space and truncate due to the limit of liability your distribution of returns must be $$\left[\frac{\pi}{2}+\tan^{-1}\left(\frac{\mu}{\sigma}\right)\right]^{-1}\frac{\sigma}{\sigma^2+(r_t-\mu)^2}.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Although you could manually verify the absence of statistics by the Neyman Fisher Factorization Theorem, it is well known that the statistics from this distribution are not sufficient.  This can also be seen from the Pitman–Koopman–Darmois theorem which basically states that only distributions in the exponential family of distributions, such as the normal, have sufficient statistics.  Joint sufficiency does exist for purposes of inference, but not for projective purposes which are what matter here.  As such, any point estimator not constructed from the Bayesian posterior predictive density will lose information, this is amplified by the truncation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Bayesian posterior predictive distribution can be used because it is defined as $\Pr(\tilde{x}|\mathbf{x})$.  Notice that there are no parameters at all in that probability statement.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem with this distribution is that neither skew nor kurtosis are even defined for it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consequently, higher moment discussions with stocks are deeply flawed as the above distribution has no moments at all.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Old articles such as &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;SCOTT, R. C. and HORVATH, P. A. (1980), On The Direction of Preference for Moments of Higher Order Than The Variance. The Journal of Finance, 35: 915-919.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;depend upon the existence of moments in the distributions at all.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Unfortunately, I couldn't find specific literature to what you are talking about outside the finance literature and most of it is built on flawed assumptions.  It would be interesting to see how people respond to skewed distributions like waiting time models that possess sufficiency.  I couldn't find an example.&lt;/p&gt;&#xA;" OwnerUserId="11321" LastActivityDate="2018-04-24T16:49:04.397" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21640" PostTypeId="2" ParentId="20426" CreationDate="2018-04-24T16:53:18.457" Score="1" Body="&lt;p&gt;I just wanted to clarify on Starfall's comment a bit. $\phi$ can be a bit confusing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let me appeal to Chris Carroll who uses the CRRA utility function $v(\frac{c}{x^{\gamma}})$ where $c$ is consumption, $x$ is the habit, and $\gamma$ is the &quot;importance&quot; of habits. In this framework, $\phi$ can be seen as the speed at which habits catch up to consumption. If $\phi = 0$, then the consumer is constantly maximizing their utility with a constant multiplicative factor in the denominator of the function's argument. If $\phi=1$, then habits collapse to last period's consumption.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are a number of interesting features from this model. For instance, if persistence is low enough then the intertemporal elasticity of substitution tends to zero. It is used famously in the asset pricing literature to explain the excess return premium puzzle. The development of habit formation theory in microeconomics (both theory and econometrics) is slow but finally arriving. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Resources:&#xA;&lt;a href=&quot;http://www.econ2.jhu.edu/people/ccarroll/HabitsEconLett.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.econ2.jhu.edu/people/ccarroll/HabitsEconLett.pdf&lt;/a&gt;&#xA;&lt;a href=&quot;http://www.isaacbaley.com/uploads/6/7/3/5/6735245/lecture_7_baley.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.isaacbaley.com/uploads/6/7/3/5/6735245/lecture_7_baley.pdf&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="8040" LastActivityDate="2018-04-24T16:53:18.457" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21642" PostTypeId="2" ParentId="13056" CreationDate="2018-04-24T17:51:25.727" Score="1" Body="&lt;p&gt;I assume you mean openness to international trade, and that you're interested in both policy choices (does the country &lt;em&gt;want&lt;/em&gt; to be open) and physical constraints (&lt;em&gt;can&lt;/em&gt; they be open).  The main factors that come to mind are:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;strong&gt;Size&lt;/strong&gt;: the smaller you are, the more you are forced to rely on international trade, as it simply isn't feasible to complete many economic operations entirely within your borders.  Lichtenstein and Andorra are much more open than the US or Russia primarily for this reason.&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;Remoteness and transport costs&lt;/strong&gt;: if you're tiny, but in the middle of nowhere, like Tuvalu, the cost of trading internationally means that anything you can feasibly produce domestically will be cheaper than imported goods.  There is little point in trying to protect your domestic market because transport costs already provide more protection than you're likely to want.  This also applies to a lot of small landlocked countries, like Burundi.  Some dependencies of more advanced countries overcome this by massively subsidising transport, often linked to military bases.  E.g. consider &lt;a href=&quot;https://en.wikipedia.org/wiki/Saint_Helena_Airport&quot; rel=&quot;nofollow noreferrer&quot;&gt;the money the UK has spent on an airport in St Helena&lt;/a&gt;.&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;Taxation capacity&lt;/strong&gt;: this matters very little to rich countries, but developing countries often have a small tax base, large informal sector, and find it hard to replace tariffs with alternatives (VAT, income tax, etc).  Some would like to encourage international trade, but are constrained in how quickly they can remove tariffs.&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;Proximity to the technological frontier&lt;/strong&gt;: &lt;a href=&quot;http://fpif.org/kicking_away_the_ladder_the_real_history_of_free_trade/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Ha Joon Chang&lt;/a&gt; would argue that the history of protectionism in countries like the UK and US make this point very clearly.  If you lag behind your competitors, you're more likely to protect industries you want to catch up.  If you're ahead, you are more likely to advocate for free trade, knowing that the more unconstrained international competition is, the more you will gain.&lt;/li&gt;&#xA;&lt;li&gt;Relatedly, &lt;strong&gt;supply capacity&lt;/strong&gt; is perhaps the equivalent for developing countries far from the technological frontier.  Some countries have very weak technology but so much cheap labour that they ought to be able to compete in global markets for simple manufactured goods, but lack critical elements necessary to develop successful firms in these areas.  These constraints come in many forms, a couple of the most common are poor physical infrastructure and weak financial services.  If you have supply capacity you will be keener to promote international trade.  This is not an issue for rich countries.&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;Comparative advantage&lt;/strong&gt; will tell you what your country is likely to produce and export if very open.  As I explained in &lt;a href=&quot;https://economics.stackexchange.com/a/21086/16631&quot;&gt;this answer&lt;/a&gt;, you will be more keen to rely on your comparative advantage if it is in an industry that is experiencing rapid improvements in productivity.  If your advantages are all in stagnant industries, you'll be more tempted to use protection and other state intervention to shift your comparative advantage, and &lt;em&gt;then&lt;/em&gt; open your markets.  This is a bigger issue for poorer countries.&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;Political culture&lt;/strong&gt;: many countries have attitudes to openness that are not entirely or directly driven by economics.  For instance, some would argue that European economic integration in the late 20th Century was primarily an attempt to reduce continental violent conflict.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="16631" LastActivityDate="2018-04-24T17:51:25.727" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21643" PostTypeId="1" AcceptedAnswerId="22093" CreationDate="2018-04-24T17:57:13.457" Score="2" ViewCount="168" Body="&lt;p&gt;What's a singular model in economics? I've tried google, but I didn't find a definition...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In an article by &lt;a href=&quot;https://econpapers.repec.org/article/eeemoneco/v_3a34_3ay_3a1994_3ai_3a3_3ap_3a415-428.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;Ingram et al (1994)&lt;/a&gt;, they state:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;This linear model is &lt;em&gt;singular&lt;/em&gt; because it predicts that the current value of consumption is an exact(non-stochastic) function of current output and lagged consumption.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Also, the paper says that any model (RBC and extensions) with a number of shocks smaller than the number of observable endogenous variables, has this particular behaviour. So, the models are not 'singular' as a dictionary definition.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From this I get that any stochastic model, which determines some observable endogenous variable to follown a non-stochastic path, then I can call it singular. Is this correct?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, does this definition have any relation to bifurcation? In ODE we have a 'bifurcation' of solutions, when&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\dot x = F(x,\mu)$, and at $\mu=\mu^*$, $DF(x,\mu^*)$ is singular, but non-singular at every other value of $\mu$. The equilibrium will depend continuously on $\mu$ and 'after' stability is lost, new stable equilibria will appear. (this lacks mathematical precision, but I think it suits the purpose of stating the intuition of bifurcation)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="118" LastEditDate="2018-04-25T10:09:44.970" LastActivityDate="2018-05-22T08:14:38.297" Title="What's a singular model in economics?" Tags="&lt;macroeconomics&gt;" AnswerCount="3" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21644" PostTypeId="2" ParentId="21643" CreationDate="2018-04-24T19:40:37.863" Score="-4" Body="&lt;h1&gt;singular&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;adjective&lt;/em&gt;: unusual and easily noticed:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;His campaign was singular because he talked about issues and did not attack his opponents' personal lives.&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://dictionary.cambridge.org/us/dictionary/english/singular&quot; rel=&quot;nofollow noreferrer&quot;&gt;Cambridge Dictionary Link&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Without further context to consider, it is most probable that the use of the word is not with regard to the field of Economics or Mathematics, but rather it is used as an adjective to denote how remarkable the linear model is, similar to the example above.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, it is illogical to conclude that one may refer to &lt;strong&gt;&quot;any stochastic model, which determines some observable endogenous variable to follown [sic] a non-stochastic path&quot;&lt;/strong&gt; as &quot;singular&quot; based on this use of the word alone.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Likewise, it is doubtful that the statement bears any effect on your understanding or use of &lt;strong&gt;bifurcation&lt;/strong&gt;.&lt;/p&gt;&#xA;" OwnerUserId="18100" LastActivityDate="2018-04-24T19:40:37.863" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="21646" PostTypeId="1" CreationDate="2018-04-24T22:11:02.077" Score="1" ViewCount="81" Body="&lt;p&gt;We also know that for a competitive market, the supply curve is the sum of the marginal cost curves. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can one make an extension of this idea to having the demand curve being equal to the sum of marginal revenue curves with its slope coefficient doubled? &lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2018-04-24T22:11:02.077" Title="Using aggregate marginal revenue as a way to estimate demand" Tags="&lt;microeconomics&gt;" AnswerCount="0" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="21647" PostTypeId="1" CreationDate="2018-04-24T23:25:48.030" Score="0" ViewCount="26" Body="&lt;p&gt;According to Tech Tour Growth 50, an organization that identifies the. young firms valued between one hundred millions and one billion dollars and which benefits (&quot;chiffre d'affaires&quot; increase by 50% a year) there 284 of such firms in Europe and 833 in United States where the injected funds are five times higher. If 5*284&gt;833 does it means that the return on investing in Europe is greater than in United States ?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am not sure about the title I have to my question&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Information provided by &quot;&lt;a href=&quot;https://business.lesechos.fr/entrepreneurs/financer-sa-creation/0301426561230-l-europe-le-continent-au-plus-fort-potentiel-de-licornes-319429.php&quot; rel=&quot;nofollow noreferrer&quot;&gt;l'Europe, le continent au plus fort potentiel de licornes&lt;/a&gt;&quot; from &lt;em&gt;Les Echos&lt;/em&gt;, a French newspaper about Economy&lt;/p&gt;&#xA;" OwnerUserId="7588" LastEditorUserId="7588" LastEditDate="2018-04-25T10:12:02.080" LastActivityDate="2018-06-24T14:44:54.747" Title="Determining the capital return from the investment in dynamic firms and their growth" Tags="&lt;capital-returns&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="21648" PostTypeId="1" AcceptedAnswerId="21651" CreationDate="2018-04-24T23:36:58.927" Score="3" ViewCount="99" Body="&lt;p&gt;Do countries have to run on deficits? Is their future to behave and act like big companies that produce goods and services?&lt;/p&gt;&#xA;" OwnerUserId="13626" LastActivityDate="2018-04-25T20:43:22.657" Title="Do countries have to run on deficits? What is their possible economic future?" Tags="&lt;macroeconomics&gt;&lt;government-debt&gt;&lt;government-spending&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21650" PostTypeId="1" CreationDate="2018-04-25T03:31:07.963" Score="2" ViewCount="572" Body="&lt;p&gt;I'm working on a Ramsey problem for taxation, and am a little confused on the meaning/intuition behind the transversality conditions below:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\lim_{T \to \infty} \lambda_T b_{T+1}  =  0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\lim_{T \to \infty} \lambda_T K_{T+1}  =  0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These are coming from substituting the FOCs for $b_{t+1}$ and $K_t+1$ into the HH budget constraint and iteratively forward substituting.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;BC: $(1-\tau^w_t)w_tL_t + (1-\tau^K_t)R_tK_t + (1+(1-\tau^K_t)r_t)b_t = c_t b_{t+1} +K_{t+1} -(1-\delta)K_t$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;FOC:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;[$b_{t+1}$] $\lambda_t = \lambda_{t+1}(1+(1-\tau^K_{t+1})r_{t+1})$&#xA;[$K_{t+1}$] $\lambda_t = \lambda_{t+1}(1-\tau^K_{t+1})R_{t+1} + (1-\delta))$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;After forward substituting and forward iterating to t=T I get:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\lambda_T(K_{T+1} + b_{T+1}) = \sum_{t =0}^T \{\lambda_t((1-\tau^w_t)w_tL_t - c_t\} + \lambda_{-1}(K_0 + b_0)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Taking the limit as T-&gt; $\infty$ you get the sum to $\infty$ and the TVC. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know the transversality conditions have to hold, but what are their meanings/what is the intuition? I can't seem to figure it out.&lt;/p&gt;&#xA;" OwnerUserId="12936" LastActivityDate="2018-04-25T03:31:07.963" Title="Meaning of Transversality Conditions in Ramsey Problem" Tags="&lt;macroeconomics&gt;&lt;taxation&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21651" PostTypeId="2" ParentId="21648" CreationDate="2018-04-25T08:23:41.383" Score="1" Body="&lt;p&gt;One of the main reasons for the general tendency to run deficits is political economy. Governments are elected for a limited period and try to stay in power by benefiting their electorate. An alternative explanation is that high debts reduce the scope for the subsequent government. So there are good reasons to impose some restrictions to the deficit into the constitution.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I find the comparison to big companies misplaced. Governments fulfil different purposes than companies. Many of their 'products' are public goods (public infrastructure, education, defense, social security) which cannot be provided by private actors due to external effects. A strictly profit-oriented view of public services therefore falls short of what governments are supposed to do (which does not say there is probably lots scope for efficency-enhancing in most administrations). As a sidenote, running huge deficits is not uncommon to big companies, especially in digital services. As long as creditors are convinced these debts will be paid, companies can be run on losses for quite a while.&lt;/p&gt;&#xA;" OwnerUserId="17735" LastActivityDate="2018-04-25T08:23:41.383" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="21652" PostTypeId="1" CreationDate="2018-04-25T09:06:58.677" Score="8" ViewCount="95" Body="&lt;p&gt;Consider the following claims:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;less competitive markets deliver worse outcomes for consumers,&lt;/li&gt;&#xA;&lt;li&gt;less competitive markets deliver lower social welfare,&lt;/li&gt;&#xA;&lt;li&gt;less competitive markets deliver higher prices/lower quality.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;These might be considered fairly canonical claims in the sense that they emerge naturally from many 'textbook' models from introductory economics or industrial organization. That means that many students of economics are exposed to such claims through the lens of theory. I would like to supplement this with empirical evidence.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am looking for references to empirical work that supports or refutes one or more of the abovee claims (or close variants of them). Particularly welcome would be survey articles covering literatures that address them.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2019-03-01T10:28:42.767" Title="Competition and welfare - empirical evidence" Tags="&lt;reference-request&gt;&lt;industrial-organisation&gt;&lt;competition&gt;&lt;empirical-evidence&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="21654" PostTypeId="1" CreationDate="2018-04-25T10:45:11.607" Score="3" ViewCount="154" Body="&lt;p&gt;I am working on a project regarding the refranchising strategy of McDonald's and came across this piece of data in their 2014 annual report. My understanding of minimum rent is that its a fixed amount to be paid by franchisees to McDonald's as the franchisees are leasing a restaurant location from McDonald's. Hence, I have no idea why its decreasing. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/TYDth.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/TYDth.png&quot; alt=&quot;Minimum rent McDonald&amp;#39;s&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="18110" LastEditorUserId="61" LastEditDate="2018-04-26T19:44:26.593" LastActivityDate="2019-08-20T05:02:10.247" Title="Why would minimum rent under franchise arrangements for McDonald's decrease year by year?" Tags="&lt;microeconomics&gt;&lt;reference-request&gt;&lt;finance&gt;&lt;accounting&gt;" AnswerCount="2" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="21655" PostTypeId="1" CreationDate="2018-04-25T10:54:44.490" Score="0" ViewCount="1194" Body="&lt;p&gt;$f(x_1,x_2) = min \{x_1,x_2\} + x_2$ if that was the production, what would the isoquant be? &#xA;Would it simply follow $x_1 = x_2$? I'm not entirely sure what it the graph would look like. &lt;/p&gt;&#xA;" OwnerUserId="18111" LastEditorUserId="13965" LastEditDate="2018-04-26T08:33:50.137" LastActivityDate="2020-09-16T09:03:55.373" Title="Perfect complement graph and isoquant" Tags="&lt;production-function&gt;&lt;perfect-complements&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21656" PostTypeId="2" ParentId="12444" CreationDate="2018-04-25T12:09:30.030" Score="1" Body="&lt;p&gt;Economists are generally more interested in the aggregate output of different sectors of the economy rather than the number of firms or outlets.  The difference between lots of small shops and a few large shops is quite different to the difference between the majority of GDP coming from industry or services.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If a country has a lot of small retail outlets and a few large manufacturing firms, that suggests that there are much larger &lt;a href=&quot;https://en.wikipedia.org/wiki/Economies_of_scale&quot; rel=&quot;nofollow noreferrer&quot;&gt;economies of scale&lt;/a&gt; in manufacturing than retail.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The aggregate output of agriculture, industry and services are normally reported in GDP tables (&lt;a href=&quot;https://www.bnr.rw/fileadmin/AllDepartment/Statistics/External/GDP_by_kind_of_activity_at_current_prices.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here's an example for Rwanda&lt;/a&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A larger services sector is normally associated with richer, more advanced countries.  These images compare countries based on the relative size of industry, services and agriculture, and the proportion of the labour force working in each:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/ghWnd.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/ghWnd.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In poorer countries, agriculture tends to be lower productivity than other sectors, so those countries tend to show up as greener in the labour share than the GDP chart.&lt;/p&gt;&#xA;" OwnerUserId="16631" LastActivityDate="2018-04-25T12:09:30.030" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21657" PostTypeId="2" ParentId="21655" CreationDate="2018-04-25T12:52:17.240" Score="1" Body="&lt;p&gt;&lt;strong&gt;An isoquant&lt;/strong&gt; is a contour line drawn through the set of points at which the same quantity of output is produced while changing the quantities of two or more inputs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Having production function: $f(x_1, x_2) = min \{x_1, x_2 \} + x_2$ for $x_i \in [1, 10]$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can produce &lt;strong&gt;isoquants&lt;/strong&gt; for varying number of inputs. Below you will find 10 isoquants for quantities ranging from 1 to 10 (keep in mind that $Q = 1$ and $Q = 2$ are overlapping). I hope it helps to visualize the problem. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/8ibBN.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/8ibBN.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="13965" LastEditorUserId="13965" LastEditDate="2018-04-26T07:41:06.843" LastActivityDate="2018-04-26T07:41:06.843" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21659" PostTypeId="2" ParentId="21647" CreationDate="2018-04-25T13:53:21.767" Score="1" Body="&lt;p&gt;I put the article through translate and it appears that this is the (translated) section you are talking about:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;To achieve this selection of 50 nuggets, the Tech Tour did not scan only the continent, but the whole world. The overall result for Europe is very encouraging since there are 284 companies (including 38 French) , compared to 121 in 2015. They are 181 in China, and 833 in the United States, a country where, nevertheless, injected are five times higher than those irrigating European nuggets.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The criteria for a &quot;nugget&quot; seems to be a company valued between &lt;code&gt;$100 mm and $1 B&lt;/code&gt; with annual growth &gt; 50%. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The fact that the U.S. has more of these companies is not surprising. The US economy is equal to that in size of the EU but the tech sector in the US is much more robust. In the US there are &lt;a href=&quot;https://www.selectusa.gov/software-and-information-technology-services-industry-united-states&quot; rel=&quot;nofollow noreferrer&quot;&gt;100,000 software and IT companies&lt;/a&gt; with less than 500 employees which would put them in this category. US tech makes up 25% of the global marketplace. The fact that there are more US companies that fall into this specific criteria is not surprising.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Whether or not this makes the US a better investment is a different question. The number of investable firms has nothing to do with return on investment. If all the European companies grew in value at an average of 10% and the US companies grew at an average of 5% then the European companies would be a better investment in terms of expected value. It may be that the European companies are much riskier and more likely to default which would offset that number. The number of companies that falls into this arbitrary and narrow criteria has nothing to do about the benefit of investing in either in Europe or the US.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Investment decisions are based on a multitude of factors. European regulatory risk, political stability, etc. may all be factors to consider when investing in a European company but it's difficult if not impossible to make a blanket statement about the quality of a country's investment opportunities.&lt;/p&gt;&#xA;" OwnerUserId="10245" LastActivityDate="2018-04-25T13:53:21.767" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="21660" PostTypeId="2" ParentId="21643" CreationDate="2018-04-25T14:09:54.567" Score="1" Body="&lt;p&gt;I have tried to grab the article to read it, but my library apparently doesn't subscribe to JME as full text.  However, when I have seen the word &lt;em&gt;singular&lt;/em&gt; used in economics it is usually in the framework of a singular matrix.  As this article appears to be a criticism of another model, it would appear they are arguing the other model would not give rise to an invertible matrix.  In the above set of comments, it is implying that the stochastic component is vanishing and that the model is deterministic, despite the fact, there are no actual deterministic models in economics if you have to measure things.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My guess is that they are criticizing the other model by showing it can't work.&lt;/p&gt;&#xA;" OwnerUserId="11321" LastActivityDate="2018-04-25T14:09:54.567" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21661" PostTypeId="2" ParentId="21648" CreationDate="2018-04-25T20:22:01.470" Score="-2" Body="&lt;p&gt;According to Keynesian theory, if a country does not run a budget deficit of at least 1 percentage point greater than GDP growth, this will cause sunspots to appear, thus causing their economic future to be bleak. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This can be contrasted with private markets where saver/borrower status of non-governmental agents is assured to enable rational optimization without succumbing to animal spirits.&lt;/p&gt;&#xA;" OwnerUserId="16499" LastActivityDate="2018-04-25T20:22:01.470" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21662" PostTypeId="2" ParentId="21648" CreationDate="2018-04-25T20:43:22.657" Score="1" Body="&lt;p&gt;Based on modern macroeconomic theory a country does not have to run deficits, but often chooses to. From a Macroeconomic perspective, a country runs a deficit when G is greater than T (Government purchases outweighs Tax revenue). This is not limited to the public sector (Government), but private individuals can also run deficits when consumption outweighs private savings such as in the United States. When a country has both private and public deficits we call these “twin” deficits, such as in countries like the United States. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In theory a country can run a surplus or a deficit, so to answer your question “no a country does not have to run a deficit”. A country can increase savings, reduce investment, and have positive NX (net exports). Of course, the reduction in investment means less consumption in the short-term, which is not politically desirable. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The impact of public and private deficits is theoretically less consumption in the future. This is why economists call running large deficits “borrowing from the future.” At some point, the money borrowed to finance the deficit must be paid back, which will reduce future consumption, raise interest rates, and force more savings. Another impact of deficits is a crowding out effect if the government is running the deficit. This decreases savings, which decreases the pool of savings for private parties to borrow. A surplus on the other hand can lead to an increased pool of savings that can be drawn down upon in the future for consumption. &lt;/p&gt;&#xA;" OwnerUserId="16329" LastActivityDate="2018-04-25T20:43:22.657" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21663" PostTypeId="2" ParentId="21628" CreationDate="2018-04-25T21:32:01.590" Score="0" Body="&lt;p&gt;Since you are stuck at just estimating &lt;code&gt;AR(1)&lt;/code&gt; models I can show you some example code for estimating the equations you gave. Keep in mind that I did not set slopes: $a$ and $c_1$ in the &lt;code&gt;random walk&lt;/code&gt; and  &lt;code&gt;random walk with drift&lt;/code&gt;. Furthermore, the example code is in &lt;code&gt;Python&lt;/code&gt;, however it should be self-explanatory and reproducible in &lt;code&gt;STATA&lt;/code&gt;. &lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;import numpy as np&#xA;import matplotlib.pyplot as plt&#xA;&#xA;# Setting sample size&#xA;sample_size = 100&#xA;&#xA;# Vectors with variables of interest&#xA;b = np.zeros(sample_size)&#xA;x = np.zeros(sample_size)&#xA;y = np.zeros(sample_size)&#xA;&#xA;# IID random errors (normally distributed)&#xA;u = np.random.normal(size = sample_size)&#xA;n = np.random.normal(size = sample_size)&#xA;e = np.random.normal(size = sample_size)&#xA;&#xA;# Drift&#xA;c_0 = 2&#xA;&#xA;# Simulating each series&#xA;for t in range(sample_size):&#xA;    b[t] = b[t-1] + u[t]&#xA;    x[t] = c_0 + x[t-1] + n[t]&#xA;    y[t] = b[t] * x[t] + e[t]&#xA;&#xA;# Plotting the results    &#xA;plt.rcParams[&quot;figure.figsize&quot;] = [10,10]&#xA;&#xA;plt.subplot(321)    &#xA;plt.plot(b)&#xA;plt.title('Random walk: $b_t = b_{t-1} + u_t$')&#xA;&#xA;plt.subplot(322)&#xA;plt.plot(x)&#xA;plt.title('Random walk with drifft: $x_t = c_0 + x_{t-1} + n_t$')&#xA;&#xA;plt.subplot(323)&#xA;plt.plot(y)&#xA;plt.title('$y_t = b_t * x_t + e_t$')&#xA;&#xA;plt.show()&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/bh428.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/bh428.png&quot; alt=&quot;AR(1) process simulation&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="13965" LastActivityDate="2018-04-25T21:32:01.590" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21664" PostTypeId="1" CreationDate="2018-04-25T23:55:30.517" Score="0" ViewCount="287" Body="&lt;p&gt;What does it mean in the context of a budget to “freeze spending in real terms”? And how would this differ from freezing spending in “nominal terms”? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am looking to understand how this would be implemented and the broader macro relevance &lt;/p&gt;&#xA;" OwnerUserId="18115" LastActivityDate="2018-04-26T07:00:35.340" Title="Fiscal budget: spending in real vs nominal terms" Tags="&lt;macroeconomics&gt;&lt;inflation&gt;&lt;fiscal-policy&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21667" PostTypeId="2" ParentId="21655" CreationDate="2018-04-26T06:16:47.827" Score="1" Body="&lt;p&gt;$f(x_1,x_2) = \min(x_1,x_2) + x_2 = \begin{cases} x_1 + x_2 &amp;amp; \text{if } x_1 \leq x_2 \\ 2x_2 &amp;amp; \text{if } x_1 &amp;gt; x_2 \end{cases}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is the isoquant map for the production function :&#xA;&lt;a href=&quot;https://i.stack.imgur.com/SAO6B.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/SAO6B.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="11824" LastActivityDate="2018-04-26T06:16:47.827" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21668" PostTypeId="1" AcceptedAnswerId="21671" CreationDate="2018-04-26T06:26:44.947" Score="1" ViewCount="87" Body="&lt;p&gt;I would like to know if it is possible to have constant marginal costs (MC) in a business that is operating on a market, that is defined by monopolistic competition?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The company is a construction company, more specific a scaffolding company. My assumption is based on:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;They have invested in their building materials &lt;strong&gt;&lt;em&gt;one&lt;/em&gt;&lt;/strong&gt; time. This means that they have a natural limit on how much work they can do. &lt;/li&gt;&#xA;&lt;li&gt;They don't expect to buy more building materials in order to do more work, since they are also limited by number of employees.&lt;/li&gt;&#xA;&lt;li&gt;All employees are on a fixed salary.&lt;/li&gt;&#xA;&lt;li&gt;The only variable cost that is associated with each construction job is the transporation to/from site.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Since there is only one variable cost - the transportation, I am assuming that the marginal costs are constant, since transportation doesn't cost more whether they have 1 site (Q) or 10 sites (Q) to maintain.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this a valid assumption? Is it possible to have a constant MC such a market?&lt;/p&gt;&#xA;" OwnerUserId="11766" LastEditorUserId="5557" LastEditDate="2018-04-26T12:17:33.250" LastActivityDate="2018-04-26T12:17:33.250" Title="Constant MC - Monopolstic Competition" Tags="&lt;optimization&gt;&lt;marginal&gt;&lt;monopolistic-competition&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21669" PostTypeId="2" ParentId="21664" CreationDate="2018-04-26T07:00:35.340" Score="2" Body="&lt;p&gt;If there is no inflation then the two phrases would mean the same&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But if there is positive inflation, then &lt;em&gt;&quot;freezing spending in nominal terms&quot;&lt;/em&gt; would involve spending the same amount of money, and since prices are rising, would involve buying less.  Meanwhile &lt;em&gt;&quot;freezing spending in real terms&quot;&lt;/em&gt; would involve spending an increased amount of money corresponding to the increase in prices, with the effect after taking price changes into account of buying the same amount.  &lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2018-04-26T07:00:35.340" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21670" PostTypeId="1" CreationDate="2018-04-26T12:00:06.513" Score="2" ViewCount="30" Body="&lt;p&gt;I'm quite confused by these two terms because different websites define them differently.&lt;/p&gt;&#xA;" OwnerUserId="18110" LastActivityDate="2018-04-26T12:34:37.713" Title="Is profit margin the same as net profit margin?" Tags="&lt;reference-request&gt;&lt;finance&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21671" PostTypeId="2" ParentId="21668" CreationDate="2018-04-26T12:17:24.027" Score="2" Body="&lt;p&gt;It is possible for firms to have constant marginal costs in monopolistic competition in theory. Nevertheless, they must also have fixed costs. The fixed costs prevent firms from entering in sufficient numbers such that you would have perfect competition. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As to whether constant marginal costs are realistic in you scenario, that depends on what you believe about the industry in practice. That would require detailed knowledge and expertise of this specific industry, which you are unlikely to find on this site.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note, however, that just because the company has already bought the materials does not neessarily mean that these costs do not matter. For example, the company may still want to use less material per production output, because it could resell the unused materials. So the company in that case still cares about the costs associated with the use of each unit of material.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is a bit unclear in your example what this company actually produces. However, if you think the costs of producing one extra unit are the same, regardless of how many units you have already produced, then you are justified in assuming constant marginal costs.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastActivityDate="2018-04-26T12:17:24.027" CommentCount="8" ContentLicense="CC BY-SA 3.0" />
  <row Id="21672" PostTypeId="2" ParentId="21670" CreationDate="2018-04-26T12:34:37.713" Score="1" Body="&lt;p&gt;Profit margin is profit after the cost of sales. If you review an income statement, you will see revenue, and then typically a data field called “cost of selling goods”. Revenue - Cost of sales is profit margin. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Net profit margin is Revenue - all expenses. So this includes taxes, interest expense, administrative expenses, and ALL expenses. An easy way to remember this is that profit margin is simply revenue - the cost of selling products, and net profit margin is revenue - ALL costs. &lt;/p&gt;&#xA;" OwnerUserId="16329" LastActivityDate="2018-04-26T12:34:37.713" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21673" PostTypeId="1" CreationDate="2018-04-26T12:47:54.977" Score="1" ViewCount="23" Body="&lt;p&gt;Papers such as de la Grandville (1989) and Klump/de la Grandville (2000) have shown that a higher elasticity of substitution leads to higher economic growth. My question is, if there is a way to increase the elasticity of substitution through policy measures for a simple case of a two-input (capital and labour) CES production function.&lt;/p&gt;&#xA;" OwnerUserId="13030" LastActivityDate="2018-04-26T12:47:54.977" Title="Raising the elasticity of substitution in an economy" Tags="&lt;economic-growth&gt;&lt;elasticity&gt;&lt;elasticity-of-substituion&gt;&lt;ces-function&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="21676" PostTypeId="1" AcceptedAnswerId="21689" CreationDate="2018-04-26T16:19:45.673" Score="2" ViewCount="63" Body="&lt;p&gt;1) I make widgets and sell them for $10.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) The government reduces the value of my currency by 10%.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;3) The market value of my widgets is the same as before, so I raise my&#xA;prices to $11 and I can still sell them them because the (real) value hasn't changed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Following this chain of reasoning means that devaluation of a currency wouldn't encourage exports, but that's not true.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An increase in the value of another currency relative to mine may allow you to buy more of MY dollars, but the market value of my goods is still the same.  The only people who would notice a difference when this happens would be those holding currency and not assets.  Are those people the target of currency devaluation/appreciation, or is there something wrong with my reasoning?&lt;/p&gt;&#xA;" OwnerUserId="18120" LastEditorUserId="18120" LastEditDate="2018-04-26T19:49:45.660" LastActivityDate="2018-04-27T08:44:54.680" Title="Why does changing the value a currency help/hurt exports if sellers can just inflate/deflate prices to match the change?" Tags="&lt;macroeconomics&gt;&lt;monetary-policy&gt;&lt;money-supply&gt;&lt;money&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21680" PostTypeId="2" ParentId="21654" CreationDate="2018-04-26T19:43:18.740" Score="0" Body="&lt;p&gt;The specific table appears to be part of the obligatory disclosures under applicable Accounting Standards, so that users of the company's financial statement have information of future obligations/claims the company may have based on existing long-term contracts. This is why it refers to future years.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Moreover, it is not an estimate or a projection, but it is based solely on existing contracts. This is why contractually guaranteed rent &lt;strong&gt;in total&lt;/strong&gt; gets lower as we move into the future: some of the franchisee contracts expire earlier than others. The fact that there is a probability that they will be renewed-extended, is not taken into account.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2018-04-26T19:43:18.740" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21681" PostTypeId="1" CreationDate="2018-04-26T21:05:04.960" Score="2" ViewCount="182" Body="&lt;p&gt;I have been searching around online, but cannot really find an answer to my question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can find a lot of material covering wealth inequality and how it has developed over time, but haven’t found any material to support my theory (or the opposite).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is: Is wealth inequality actually a problem? With this I mean the super wealthy vs the rest (if that makes a difference).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I will try to explain my thinking as good as possible. My theory is, that super wealthy people tend to not spend all of their money, they may invest it or set it aside.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider a scenario where an individual owns 99% of all the wealth &lt;em&gt;(i.e. money, disregard stocks, bonds etc in this scenario)&lt;/em&gt; in an economy, but spends roughly the same as everyone else in the same economy, effectively “disabling” a huge portion of the wealth. Would the “poor” actually be affected by this negatively? Would prices on goods reflect that “effective” wealth, or the total wealth in said economy?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another scenario could be where one person owns most or all shares in all companies in the economy, and everyone else living of of salary. Would this actually be a problem? I imagine that it is same as above scenario.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Obviously these are silly extreme scenarios, I was just trying to paint a bit clearer picture of where I am coming from.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the super rich (or perhaps top 1%) have an average spending similar to everyone else in an economy, with the only difference that they own more wealth, would that actually be a problem; or perhaps in reality a smaller problem than how it is depicted in the media?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am not looking for political standpoints, but a more fact based answer. &lt;/p&gt;&#xA;" OwnerUserId="14207" LastActivityDate="2018-04-28T11:09:22.467" Title="Is wealth inequality actually a problem" Tags="&lt;macroeconomics&gt;&lt;inequality&gt;&lt;wealth&gt;" AnswerCount="4" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21682" PostTypeId="2" ParentId="21681" CreationDate="2018-04-26T23:19:50.733" Score="3" Body="&lt;p&gt;I think that you are more or less than correct in thinking that cash that is never spent (nor expected to be) may as well not exist. Thought experiment: suppose that, unbeknownst to you and everyone else, £1 million suddenly appears under your mattress. If you never discover the money, it is hard to see how it could change anything in a meaningful way.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are some caveats, however. First, a game theoretic point: even if rich people never spend their money, threats to spend their money might influence outcomes. For example, they could pledge to donate lots of money to the political opposition unless the government does what they say. If this threat works, they will never need to pay out.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Second, a ‘non-economic’ point: money gives you options, and people might enjoy having options in itself (even if they don’t spend the money). One might object to the kind of ‘options inequality’ brought about by an unequal wealth distribution even if rich people never spend their cash.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Third, to bring us back to the real world, we should stress that, usually, rich people do consume more than poorer people. So while it might be interesting to discuss wealth inequality without consumption inequality, this is not a phenomenon which we are actually facing today.&lt;/p&gt;&#xA;" OwnerDisplayName="user17900" LastActivityDate="2018-04-26T23:19:50.733" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21684" PostTypeId="2" ParentId="21681" CreationDate="2018-04-27T00:05:03.943" Score="2" Body="&lt;p&gt;Too much inequality is probably still bad even in a simple model.  Too much equality is probably not good either.  A balance has to be found. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's say every enterprise consisting of production of goods/services, middlemen, etc. distributes 99% of its profits to that one individual. Then the consumer is paying a price that reflects that and its effectively like a tax on that good/service.  If that individual wasn't there, there's two ways the market could correct: prices could fall, facilitating more economic transactions, or they stay the same and the wealth gets redistributed. (Or most likely, somewhere in between).  I have a hard time believing in the latter case that both the spending rate and prices would remain unchanged, but lets assume it does in this model.  You'd still have negative effects in the unequal case, primarily relating to monopolistic business practices and some amount of stifling of innovation.  Ultimately a great deal of economic success can be attributed to intellectual innovation that relies on that capital.  Competition is good as well because it drives innovation.  If the control of capital is too consolidated, it can stagnate things: there is little incentive for an indentured servant to try and better themselves if there is no way to do so, and there's little reason for the feudal lord to educate and facilitate those serfs into competitors.  There's likely a bit of a balance though.  As income inequality goes down, you're likely to see a more educated workforce.  There's a limit to how far that can go though, since we need unskilled labor to function.   Again, there also might be limited incentive to innovate if any extra income you make is likely to be appropriated. &lt;/p&gt;&#xA;" OwnerUserId="18122" LastActivityDate="2018-04-27T00:05:03.943" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21685" PostTypeId="1" AcceptedAnswerId="21690" CreationDate="2018-04-27T03:20:39.640" Score="2" ViewCount="388" Body="&lt;p&gt;&lt;strong&gt;Disclaimer:&lt;/strong&gt; I dont know i'm getting confused with basic microeconomic prodoucer theory (note: Ive been watching some &lt;a href=&quot;https://www.youtube.com/watch?v=Zj165wWC5Wc&amp;amp;list=PLa71hPrarxLghw22PziNQbA7oGBtxLO1w&quot; rel=&quot;nofollow noreferrer&quot;&gt;Hak Choi Videos&lt;/a&gt; on youtube),but this is my overall thought process.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We know that the standard profit maximization problem can be described as:&#xA;$$\max\pi=py(x)-wx$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;let $y(x)=x^\alpha$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;it follows that the optimal $x^*$ from such a formula is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\partial\pi}{\partial x}=p\alpha x^{\alpha-1}-w=0$$&#xA;$$x^*=\left(\frac{w}{p\alpha}\right)^{\frac{1}{\alpha-1}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;it follows that the optimal $y^*$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$y^*=\left(\frac{w}{p\alpha}\right)^{\frac{\alpha}{\alpha-1}}$$&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;however, isn't the profit maximization problem also just a revenue maximization problem subject to a constraint?&lt;/strong&gt;&#xA;$$\max py(x) $$&#xA;$$s.t.\bar{C}(x)=wx $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;let &#xA;$y(x)=x^\alpha$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It follows that our Lagrangian for this problem is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$L=py(x)+\lambda(\bar{C(x)}-wx)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;taking the derivative of our Lagrangian With respect to $x$ we find&#xA;$$\frac{\partial L}{\partial x}=p\alpha x^{\alpha-1}-\lambda w=0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$x^*=\left(\frac{\lambda w}{p\alpha}\right)^{\frac{1}{\alpha-1}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;it follows:&#xA;$$y^*=\left(\frac{\lambda w}{p\alpha}\right)^{\frac{\alpha}{\alpha-1}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I find that there is a great deal of similarity between these two problems and their solutions are also very similar. based on this reason I ask, is this an appropriate way to solve for the input and out of a profit maximizing firm? if so what happens to $\lambda$ in the profit function?&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="1601" LastEditDate="2018-04-27T09:02:40.127" LastActivityDate="2018-04-27T09:06:44.370" Title="Profit Function: Just revenue maximization subject to constraint? if so where is $\lambda$?" Tags="&lt;microeconomics&gt;&lt;profit-maximization&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="21687" PostTypeId="1" CreationDate="2018-04-27T06:20:54.453" Score="0" ViewCount="45" Body="&lt;p&gt;Can the amount of loans and deposits in entire banking system differ significantly?&#xA;When regarding the entire banking system, what factors impact the loans to deposits ratio?  Is it roughly constant or can change dramatically? Dose the amount of nonperforming loans play a rule in its determination? Can a straightforward equation be drawn for difference between the amount of loans and deposits in entire banking sector by variable like money supply, base money etc.?&#xA;Based on my understanding of money multiplier concept, there must be a one-to-one relationship between amount of loans and deposits in entire banking system and so the loan to deposit ratio must be roughly constant. Is it true? &lt;/p&gt;&#xA;" OwnerUserId="15867" LastActivityDate="2018-04-30T10:57:20.137" Title="Can the amount of loans and deposits in entire banking system differ significantly?" Tags="&lt;banking&gt;&lt;money-supply&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="21688" PostTypeId="2" ParentId="21612" CreationDate="2018-04-27T07:23:50.440" Score="1" Body="&lt;p&gt;The general answer would be that &lt;strong&gt;it is wasteful and selfish to destroy assets with value&lt;/strong&gt;. I'm referring to assets as something you own, as property can be confused with land or real estate properties.&lt;/p&gt;&#xA;&lt;p&gt;Still, I tried to list a few motives for destruction of assets&lt;/p&gt;&#xA;&lt;h3&gt;Responsible destruction&lt;/h3&gt;&#xA;&lt;p&gt;The only cases that come to mind as &amp;quot;responsible&amp;quot; destruction of assets, are when the assets in cause can harm others. Disarmament is a good example here: arms have value, but its destruction reduces the potential arm they can cause.&lt;/p&gt;&#xA;&lt;h3&gt;Destruction for personal gain&lt;/h3&gt;&#xA;&lt;p&gt;The case you provided goes more in the direction on &amp;quot;in which cases can you destroy value for self gain&amp;quot;. The Art example you provide is a good one: increasing the scarcity could be economically profitable, when one is sure that the increase in value for the remaining asset is larger than the loss of value from the destroyed asset. If you consider fraud, burning your own house or car for claiming insurance is another example.&lt;/p&gt;&#xA;&lt;h3&gt;Irrational destruction&lt;/h3&gt;&#xA;&lt;p&gt;As many referred, you need to consider that humans don't always act &amp;quot;rationally&amp;quot;, and in times of frustration and desperation people feel like destroying stuff. An historical example from the US: In the great depression in 1929, farmers were destroying their own production as the price of crops was below the cost of producing it. At the same time there was hunger around the whole US (&lt;a href=&quot;https://books.google.com.au/books?id=FcxMAgAAQBAJ&amp;amp;lpg=PA84&amp;amp;ots=B1wZDXq80c&amp;amp;dq=dumped%20thousands%20of%20gallons%20of%20milk%20and%20destroyed%20crops&amp;amp;hl=pt-PT&amp;amp;pg=PA84#v=onepage&amp;amp;q=dumped%20thousands%20of%20gallons%20of%20milk%20and%20destroyed%20crops&amp;amp;f=false&quot; rel=&quot;nofollow noreferrer&quot;&gt;source&lt;/a&gt;).&lt;/p&gt;&#xA;&lt;h3&gt;Creative destruction&lt;/h3&gt;&#xA;&lt;p&gt;As you tagged this question as reference-request, I believe that you might be interested to read the &lt;a href=&quot;https://en.wikipedia.org/wiki/Creative_destruction#In_Marx%27s_thought&quot; rel=&quot;nofollow noreferrer&quot;&gt;Wikipedia article on creative destruction&lt;/a&gt;, a term coined by Schumpeter, described as&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;&lt;em&gt;The process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one.&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Although this doesn't answer your question per se, is the only reference I could think of on the topic of &amp;quot;destruction&amp;quot;.&lt;/p&gt;&#xA;" OwnerUserId="12304" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2018-04-27T07:23:50.440" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21689" PostTypeId="2" ParentId="21676" CreationDate="2018-04-27T08:44:54.680" Score="3" Body="&lt;p&gt;What is missing in your reasoning is the effect of devaluation on the seller's profit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To keep things simple, assume that the inputs needed to produce the widgets are all bought domestically. Then costs will not change following devaluation.  But prices in terms of domestic currency can increase, without as you say increasing the cost to foreign buyers in terms of their currency.  So profits per widget - selling price less costs per widget, both in terms of domestic currency - can increase.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is another possibility.  A seller might take advantage of devaluation to try to increase total profits by increasing the volume of exports. If so, they could increase the price in terms of domestic currency by less than 10%, or perhaps not at all, with the effect of &lt;em&gt;reducing&lt;/em&gt; the price to foreign buyers.  Unless demand is perfectly inelastic, this will increase the volume of export sales and, if domestic sales are unchanged, the total volume of sales.  An increased production volume may in the long run permit economies of scale, reducing costs per widget.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Either of these strategies could yield an increase in total profits.  Which yields the larger increase will depend on both the elasticity of foreign demand and the scope for economies of scale. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Through the profit motive, therefore, devaluation can certainly encourage firms to increase the value and/or volume of their exports.&lt;/p&gt;&#xA;" OwnerUserId="1417" LastActivityDate="2018-04-27T08:44:54.680" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21690" PostTypeId="2" ParentId="21685" CreationDate="2018-04-27T09:06:44.370" Score="6" Body="&lt;p&gt;The problem&#xA;$$\max py(x) $$&#xA;$$s.t. wx \leq \bar{C} $$&#xA;could be interpreted as revenue maximization subject to an operational budget contraint. However the solution of this can differ from the solution of the profit maximization problem, as costs do not appear in the goal function. $\lambda$ here would show by how much an additional dollar spent on operational costs would increase profits. If $y$ is strictly increasing in $x$ the entire budget would be spent even when $\lambda &amp;lt; 1$. However with such a low $\lambda$ a dollar spent earns less than a dollar, so it should not be spent if the goal is to maximize profits.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In fact, if the goal is profit maximization then and there are diminishing returns then dollars should be spent exactly if they earn at least one dollar.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If $y(x)$ is strictly increasing and strictly concave in $x$ and you set $\bar{C}$ at such a level that the Lagrangian's solution yields $\lambda = 1$, then the solution of the above problem would also solve the profit maximization problem.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Lagrangian is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$L=py(x) - \lambda(wx - \bar{C})$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The equation system solving the Lagrangian is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\begin{align*}&#xA;pMP(x) -\lambda w &amp;amp; = 0 \\&#xA;wx - \bar{C} &amp;amp; = 0 &#xA;\end{align*}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Getting $x = \bar{C}/w$ from the second equation one and plugging it into the second equation one has&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;\frac{p}{w}MP\left( \bar{C}/w \right) = \lambda.&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So $\bar{C}$ determines $\lambda$. If $\bar{C}$ is set at such a level that $\lambda = 1$ then the first order condition&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;pMP(x) -\lambda w = 0&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;becomes&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$pMP(x) - w = 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which is also what you would get by solving the unconstrained profit maximization problem.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2018-04-27T09:06:44.370" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="21691" PostTypeId="1" AcceptedAnswerId="21708" CreationDate="2018-04-27T09:08:29.787" Score="1" ViewCount="237" Body="&lt;p&gt;I´m trying to find siutable econometrics model for explaining inflation during financial crisis and after. My final model shows that if NEERnominal effective exchange rate) increases, the inflation increases too. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;NEER is undertaken from Eurostat when increase of NEER means appreciation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I´m not sure if this means increase above 100-&gt; appreciaton. Or if any increase (for example from 78 to 80) means appreciaton. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don´t know how to explain this model. Do anybody have any idea how the NEER works and why there is positive relationship between NEER and Inflation? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks for any advice.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here are my quarterly data for NEER: &lt;a href=&quot;http://appsso.eurostat.ec.europa.eu/nui/show.do?query=BOOKMARK_DS-053366_QID_6991CCFB_UID_-3F171EB0&amp;amp;layout=TIME,C,X,0;GEO,L,Y,0;EXCH_RT,L,Z,0;UNIT,L,Z,1;INDICATORS,C,Z,2;&amp;amp;zSelection=DS-053366INDICATORS,OBS_FLAG;DS-053366EXCH_RT,NEER_IC37;DS-053366UNIT,I10;&amp;amp;rankName1=UNIT_1_2_-1_2&amp;amp;rankName2=INDICATORS_1_2_-1_2&amp;amp;rankName3=EXCH-RT_1_2_-1_2&amp;amp;rankName4=TIME_1_0_0_0&amp;amp;rankName5=GEO_1_0_0_1&amp;amp;sortR=ASC_-1_FIRST&amp;amp;sortC=ASC_-1_FIRST&amp;amp;rStp=&amp;amp;cStp=&amp;amp;rDCh=&amp;amp;cDCh=&amp;amp;rDM=true&amp;amp;cDM=true&amp;amp;footnes=false&amp;amp;empty=false&amp;amp;wai=false&amp;amp;time_mode=NONE&amp;amp;time_most_recent=false&amp;amp;lang=EN&amp;amp;cfo=%23%23%23%2C%23%23%23.%23%23%23&quot; rel=&quot;nofollow noreferrer&quot;&gt;eurostat&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="17912" LastEditorUserId="1601" LastEditDate="2018-04-27T09:22:16.720" LastActivityDate="2018-04-28T16:20:16.767" Title="Can increase of NEER cause higher inflation?" Tags="&lt;inflation&gt;&lt;exchange-rates&gt;&lt;currency-exchange&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="21694" PostTypeId="1" AcceptedAnswerId="21703" CreationDate="2018-04-27T18:01:10.507" Score="4" ViewCount="684" Body="&lt;p&gt;Hotelling's lemma is stated as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\partial \pi}{\partial p}=y$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;knowing however that on the more basic level, output $y$ is determined by the input(s) $x(p,w)$,let the profit function be defined as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\pi=py(x(p,w))-wx(p,w)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;taking the derivative with respect to $p$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\partial\pi}{\partial p}=y(x(p,w))+p\frac{\partial y(x(p,w))}{\partial x(p,w)}\frac{\partial x(p,w)}{\partial p}-w \frac{\partial x(p,w)}{\partial p}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Wouldn't this be a more accurate definition of hotelling's lemma?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm speculating considering some of the critsisim I read on hotelling's lemma in applied work. Namely: &lt;a href=&quot;https://core.ac.uk/download/pdf/7043885.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Duality, Optimization, and Microeconomic Theory: Pitfalls for the Applied Researcher&lt;/a&gt; &lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="8815" LastEditDate="2018-04-27T21:11:40.157" LastActivityDate="2018-04-28T12:06:44.493" Title="Modifying Hotelling's lemma: Is this valid?" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21695" PostTypeId="1" AcceptedAnswerId="25763" CreationDate="2018-04-27T18:51:42.627" Score="2" ViewCount="533" Body="&lt;p&gt;Basically I'm interested in solving tricky thought provoking exercises based on National income and on IS LM model. I've read mankiw but it didn't satisfy my needs.&lt;/p&gt;&#xA;" OwnerUserId="14617" LastActivityDate="2019-10-24T00:00:07.667" Title="Book recommendations: National income accounting and IS-LM model" Tags="&lt;reference-request&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21696" PostTypeId="1" CreationDate="2018-04-27T18:55:11.877" Score="2" ViewCount="28" Body="&lt;p&gt;Everybody buys oil and everybody borrows money. If the price of oil goes up, we call that inflation and the central bank uses monetary policy (rising interest rates) to reduce inflation. Why is the price of money (i.e. interest rates) different from the price of any other commodity in regards to its impact on inflation? Does not a rising price of oil in itself cool the economy in the same way as a rising price of money?  If we need to spend more to drive our cars, then we can spend less on televisions? &lt;/p&gt;&#xA;" OwnerUserId="18132" LastActivityDate="2018-04-27T23:17:21.773" Title="Why is the rising price of a commodity inflationary, while the rising price of money is disinflationary?" Tags="&lt;monetary-policy&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21698" PostTypeId="1" AcceptedAnswerId="21729" CreationDate="2018-04-27T19:31:21.577" Score="4" ViewCount="898" Body="&lt;p&gt;In Wooldridge's book (Page 452), it says&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;When linear absolute deviation (LAD) methods are applied alongside OLS, thre are often reasons to think a priori that OLS and LAD will not produce similar slope estimates. (in fact, it is unlikely that the conditional mean and conditional median are both linear in $x_i$).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I understand that LAD estimates and OLS estimates are generally different, but the words in parentheses confuse me. Why they cannot be both linear? Could anyone give me an example? &lt;/p&gt;&#xA;" OwnerUserId="18034" LastActivityDate="2018-04-29T13:53:01.917" Title="conditional mean and conditional median" Tags="&lt;econometrics&gt;&lt;regression&gt;" AnswerCount="2" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="21699" PostTypeId="2" ParentId="21694" CreationDate="2018-04-27T20:05:01.630" Score="1" Body="&lt;p&gt;With subjects like Hotelling's lemma precise notation is crucial.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The function $\Pi(a,b,c,d)$ is defined as&#xA;$$&#xA;\Pi(a,b,c,d) \triangleq a \cdot c - b \cdot d.&#xA;$$&#xA;Now if we want to make this the profit function&#xA;$$&#xA;\Pi (p,w,y(p,w),x(p,w)) = p \cdot y(p,w) - w \cdot x(p,w),&#xA;$$&#xA;we should use the input where $y(p,w)$ and $x(p,w)$ are solutions of the constrained optimization problem&#xA;$$&#xA;\begin{align*}&#xA;\max_{y,x} \ &amp;amp; p \cdot y - w \cdot x \\&#xA;s.t. \ &amp;amp; f(x) = y &#xA;\end{align*}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is difference between &#xA;$$&#xA;\frac{\text{d}\Pi (p,w,y(p,w),x(p,w))}{\text{d}p}&#xA;$$&#xA;and&#xA;$$&#xA;\frac{\partial\Pi (p,w,y(p,w),x(p,w))}{\partial p}.&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You seem to be doing&#xA;$$&#xA;\frac{\text{d}\Pi (p,w,y(p,w),x(p,w))}{\text{d}p}&#xA;=&#xA;y(p,w) + p\frac{\partial y(p,w)}{\partial p} -w \frac{\partial x(p,w)}{\partial p}&#xA;$$&#xA;whih is not trivially the same as&#xA;$$&#xA;\frac{\partial \Pi (p,w,y(p,w),x(p,w))}{\partial p}&#xA;=&#xA;y(p,w).&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;A trivial example to illustrate the difference:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let the function $A(x,y) \triangleq x \cdot y$ measure the area of a rectangle with sides the length of $x$ and $y$. Then the partial derivate w.r.t. $x$&#xA;$$&#xA;\frac{\partial A(x,y)}{\partial x} = y&#xA;$$&#xA;measures how much the size of the rectangle would increase if I were to increase size x.&#xA;Now imagine that I am interested in squares specifically, so I look at rectangles where if one size has length $x$, the length $y$ of the other size is $y(x) = x$. Then the function becomes&#xA;$$&#xA;A(x,y(x)) = x \cdot y(x) = x^2.&#xA;$$&#xA;If I now consider how much the size of the square would increase if I were to increase only one side, the answer is still&#xA;$$&#xA;\frac{\partial A(x,y(x))}{\partial x} = y(x) = x.&#xA;$$&#xA;(This is the definition of partial derivatives.)&#xA;But if I want to consider how much the area of the square would change if I were to increase the parameter determining the length of both sides I should take the full derivative&#xA;$$&#xA;\frac{\text{d} A(x,y(x))}{\text{d} x} = \frac{\text{d} x^2}{\text{d} x} = 2x.&#xA;$$&#xA;Notice that in this case&#xA;$$&#xA;\frac{\text{d} A(x,y(x))}{\text{d} x} \neq \frac{\partial A(x,y(x))}{\partial x}.&#xA;$$&#xA;&lt;a href=&quot;https://en.wikipedia.org/wiki/Envelope_theorem#Applications_to_producer_theory&quot; rel=&quot;nofollow noreferrer&quot;&gt;Hotelling's lemma&lt;/a&gt; tells you that some types of constrained optimization problems are magic because there this equation holds.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2018-04-28T12:06:44.493" LastActivityDate="2018-04-28T12:06:44.493" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21700" PostTypeId="1" CreationDate="2018-04-27T20:09:44.010" Score="0" ViewCount="63" Body="&lt;p&gt;For my exmaple, we have machine A with an initial cost of 15K and O&amp;amp;M of 2k per year for the next 4 years. After 4 years, the O&amp;amp;M rise to $2.7k per year. No salvage value and life span of 20 years. 10% interest. What's the present worth of machine A?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is easier for me to understand the problem by first stating that all cost out of pocket is negative. Since we do not have any salvage value in this problem, it will all be negative.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here are my thoughts:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The cost of purchase the machine is out of pocket. 2k per year of O&amp;amp;M for first 4 year, at an uniform rate which is annual. 2.7k after the 4 years. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My equation came out to : &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Present (A) = -15k - 2k (P/A, 10%, 4) - 2.7k (P/A, 10%, 16)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However at the solution, they added one more variable that I do not understand why.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Present (A) = 15k + 2k (P/A, 10%, 4) + 2.7k (P/A, 10%, 16) * (P/F,10%,4)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Please explain to me why do we need the last part (P/F,10%,4)? to get the present value of machine A. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;thanks&lt;/p&gt;&#xA;" OwnerUserId="14731" LastEditorUserId="16657" LastEditDate="2018-04-28T08:50:56.017" LastActivityDate="2019-08-21T14:02:20.303" Title="Present Value Analysis" Tags="&lt;macroeconomics&gt;&lt;finance&gt;&lt;corporate-finance&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21701" PostTypeId="2" ParentId="21700" CreationDate="2018-04-27T20:36:19.310" Score="1" Body="&lt;p&gt;You need the last part because you want the present value. If you were to only use the 16 you‘d get to 4 years in the future, or you‘d be calculating the PV for 4 year operating cost of 2000 and concurrent 16 year cost of 2700. without the last part you‘d basically have two operating costs (one of 2000 and one of 2700) for the next four years and then 1  operating cost of 2700 for the next twelve years.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is the way you can think of the cost in more granular terms&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Purchasing cost: $15k$ no discount because purchased today.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1st four years overhead:&#xA;$&#xA;\sum^4_t{2'000\over(1+r)^t}&#xA;$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;2nd 16 years of overhead: $ {\sum^{16}_t{2'000\over(1+r)^t}}\over(1+r)^4 $ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first part gives you the PV of the 16 periods, but because this would only start 4 years in the future you'd need to take the PV of the PV in a way.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The total of the cash flow is then the following:&#xA;$15'000 + \sum^4_t{2'000\over(1+r)^t} +{{\sum^{16}_t{2'000\over(1+r)^t}}\over(1+r)^4}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Alternatively you could write&#xA;$15'000 + \sum^4_t{2'000\over(1+r)^t} +{{\sum^{20}_{t=4}{2'000\over(1+r)^t}}}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope this helps.&lt;/p&gt;&#xA;" OwnerUserId="16657" LastEditorUserId="16657" LastEditDate="2018-04-27T20:57:10.477" LastActivityDate="2018-04-27T20:57:10.477" CommentCount="5" ContentLicense="CC BY-SA 3.0" />
  <row Id="21703" PostTypeId="2" ParentId="21694" CreationDate="2018-04-27T21:57:06.903" Score="4" Body="&lt;p&gt;You are basically on the right track but might have been carried away by not writing down function arguments. The profit function $\pi$ has arguments $p$ and $w$; don't drop them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In Hotelling's lemma, $y$ is the output. On the other hand, you write $y$ for the production function. Let's make things clear by writing neutrally $f$ for the production function. The profit-maximizing input choice is $x(p,w)$, so the quantity produced is $f\big(x(p,w)\big)$, the correct meaning of $y$ in Hotelling's lemma. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hotelling's lemma then becomes&#xA;$$\frac{\partial \pi(p,w)}{\partial p}=f\big(x(p,w)\big).$$&#xA;The profit function is given by &#xA;$$\pi(p,w)=pf\big(x(p,w)\big)-wx(p,w).$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Taking the derivative with respect to $p$ gives us&#xA;$$\frac{\partial \pi(p,w)}{\partial p}=f\big(x(p,w)\big)+pf'\big(x(p,w)\big)\frac{\partial x(p,w)}{\partial p}-w\frac{\partial x(p,w)}{\partial p}.$$&#xA;This is pretty much what you got there above. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now $x(p,w)$ is by definition a maximizer of $pf(x)-wx$. We have the first order condition &#xA;$pf'(x^*)=w$. Therefore, &#xA;$$pf'\big(x(p,w)\big)-w=0,$$&#xA;which implies $$pf'\big(x(p,w)\big)\frac{\partial x(p,w)}{\partial p}-w\frac{\partial x(p,w)}{\partial p}=0$$&#xA;This reduces our expression for ${\partial \pi(p,w)}/{\partial p}$ to Hotelling's lemma. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This tell's us also what the important message of Hotelling's lemma is: Indirect effects don't matter. A marginal change in prices has a direct effect on profits since the output gets multiplied by a different number. There is also an indirect effect that comes from firms adjusting how much to produce. Hotelling's lemma just tells us that the latter effect is zero for a profit-maximizing firm, which need not do much adjusting. At a profit maximum, the marginal effect of adjusting production on profits is zero.&lt;/p&gt;&#xA;" OwnerUserId="1442" LastActivityDate="2018-04-27T21:57:06.903" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21704" PostTypeId="2" ParentId="21696" CreationDate="2018-04-27T22:42:29.880" Score="0" Body="&lt;p&gt;While money can be considered a commodity, the comparison you are making with oil prices is not exactly accurate. The price of a commodity increases inflation, because it goes into the cost of what people consume. The price of money is deflationary, because it decreases the amount of money available to people and companies to pay wages and investment. Think about an oil company in a small country. The oil company raises the price of the commodity it produces, gets more money in its account, can pay its employees higher wages, who then go out and consume more. If the company wants to invest and the interest rate is high though, it will need to pay more interest, i.e. pay more to get the money to make the investment. The higher price makes it less likely for the company to invest. It may not choose to do so, wherefore the companies it would have paid to build, for example a new oil well, do not make money and won't be able to pay their employees higher wages, who then won't have the ability to consume more.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Money is not something people consume in and of itself. It is a means of consumption, whereas commodities are consumed. That is why one increases and the other decreases inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope this helps! Happy to answer questions in the comments obviously.&lt;/p&gt;&#xA;" OwnerUserId="16657" LastActivityDate="2018-04-27T22:42:29.880" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21705" PostTypeId="2" ParentId="21696" CreationDate="2018-04-27T23:17:21.773" Score="2" Body="&lt;p&gt;If everybody borrows money, where can you borrow money from? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In what unit do you denote the price of oil, chocolate, or cows? Well, in units of money. So calling interest rates the price of money doesn't quite make much sense. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can think about it as the price of money today in terms of future money though. So an increase in interest rates makes money today more expensive in terms of future money, which is the same thing as making future money cheaper in terms of money today. And if future money gets cheaper, more people might &quot;buy&quot; future money (usually, we call that saving). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The more future money people buy with money today, the less money they have left for oil, chocolate, and cows. But we already have all the oil, chocolate, and cows around. So that people still buy these things, oil, chocolate, and cows have to get cheaper and the price level for goods and services measured in money today goes down. Less inflation.&lt;/p&gt;&#xA;" OwnerUserId="1442" LastActivityDate="2018-04-27T23:17:21.773" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="21706" PostTypeId="2" ParentId="21605" CreationDate="2018-04-27T23:37:20.580" Score="4" Body="&lt;p&gt;It is not that surprising if you have the right intuition, but let's make sure we consider it unsurprising for the right reasons. Roy's identity can be rewritten as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$x^*_{i}(\text{p},m)\frac{\partial v}{\partial m}=-\frac{\partial v}{\partial p_{i}}.$$&#xA;The right-hand side is the marginal utility loss from a price increase. The left-hand side is the amount of good $i$ consumed times the marginal utility of money. If the consumer were forced to consume exactly $x^*_{i}(\text{p},m)$ units of good $i$, this would be obvious. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The consumer has to pay proportionally more of the income on buying good $i$, and cannot spend it on other things whose marginal utility equals the marginal utility of money. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course, the consumer can make adjustments and is not forced to hold the amount fixed. But, similar as in Hotelling's lemma, the consumer who is at an optimum need not do any adjusting, indirect effects are negligible. And showing the latter is more than just evaluating utility at the appropriate Marshallian demands.&lt;/p&gt;&#xA;" OwnerUserId="1442" LastActivityDate="2018-04-27T23:37:20.580" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21707" PostTypeId="2" ParentId="21681" CreationDate="2018-04-27T23:52:49.627" Score="3" Body="&lt;p&gt;Scrooge McDuck likes swimming in money, which is why he accumulates a lot of it without any intention of ever spending it. If you think bringing in Scrooge McDuck is far-fetched and irrelevant, you are right. People do not generally accumulate wealth with no intention of ever spending it. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But suppose there were such people and, to make things concrete, their wealth is in terms of houses. They don't live in these houses or use them in any way- otherwise, they would have consumption patterns very different from the rest of us. So there are a lot of unused houses standing around. You may consider such unused resources a problem.&lt;/p&gt;&#xA;" OwnerUserId="1442" LastActivityDate="2018-04-27T23:52:49.627" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21708" PostTypeId="2" ParentId="21691" CreationDate="2018-04-28T00:34:30.233" Score="0" Body="&lt;p&gt;An increase in the index from one point in time to a later point indicates a nominal appreciation over that period &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Standard economic theory might suggest that would lead to lower prices than without such an appreciation, since imports would be cheaper and demand for exports could reduce &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Czech Krona was devalued at the end of 2013.  &lt;a href=&quot;https://www.cnb.cz/en/public/media_service/interviews/media_2015/cl_15_150108_holub_doing_business.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;An article published a year later by the Czech National Bank&lt;/a&gt; suggests it thought it achieved the aims, saying &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Without having depreciated the exchange rate, deflation would have been significant, at least -1%, meaning that the Czech economy would already have entered deflation for an extended period. However, thanks to the exchange rate depreciation, the threat of deflation caused by a lack of demand and a downturn in the economy passed. Despite a significantly greater anti-inflationary effect abroad than was expected at the end of 2013, core inflation returned to positive values after nearly five years.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;and this is consistent with standard economic theory&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But if you want a rationalisation of why a currency appreciation may not have happened during a financial crisis, try thinking of a world where interest rates are tumbling worldwide and where carry-trade investors looking for nominal yield invest in countries where nominal interest rates are higher, possibly caused by higher inflation.  Such a country might see higher inflation than other countries and at the same time an appreciating currency.  The appreciating currency may then attract momentum investors, with the flood of money pushing interest rates lower than would be suitable to control inflation (especially if the country wanted to keep its exchange rates more stable), and the combination of more money and reducing interest rates could lead to higher inflation   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To a small degree this may be what has happened in the Czech Republic more recently: it had slightly positive interest rates (until summer 2017, when they started to be increased) while the Euro area has had zero or negative short-term interest rates, and has seen an appreciation in the Krona against the Euro.  There could be other explanations &lt;/p&gt;&#xA;" OwnerUserId="8891" LastEditorUserId="8891" LastEditDate="2018-04-28T16:20:16.767" LastActivityDate="2018-04-28T16:20:16.767" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="21709" PostTypeId="2" ParentId="21681" CreationDate="2018-04-28T02:19:17.357" Score="-2" Body="&lt;p&gt;Wealth inequality, if earned through merit and productivity have no economic problems.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.hedweb.com/bgcharlton/evolpsych.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.hedweb.com/bgcharlton/evolpsych.html&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However it have certain biological problems.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Humans instinctively want to be &quot;richer&quot; than the rest. Your girlfriend, pick the richer guys.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other word, if your girlfriend want to choose between you and Bob, all the money that Bob earns reduce your happiness.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence, a lot of what happens in politic, is people complaining about inequality without even bother pointing out how they are made worse off.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;They are not made worse off in anyway economically. However, instinctively, their ancestors have a hard time getting laid because someone else' are even richer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Wealth inequality may lead to power inequality. Here, the rich don't just stay idle with money. They use their money to sponsor politicians that give them favor makes it even richer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Samples:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;US founding fathers say that people shouldn't inherit wealth (I think there is a question about it in politic stackexchange)&#xA;Ming emperor preventing merchants from sailing overseas because he fears merchants can end up being richer than him. Again, the emperor is not made worse off by those merchants. However, he prohibits anyway.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I strongly suspected that income taxes are made to create poverty instead of to pay for anything.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some answers point out that many rich people don't spend their cash.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That is wrong. Rich people invest their cash. That cash is then lent to another people that use their cash. So all cash is always used.&lt;/p&gt;&#xA;" OwnerUserId="17694" LastEditorUserId="17884" LastEditDate="2018-04-28T11:09:22.467" LastActivityDate="2018-04-28T11:09:22.467" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="21713" PostTypeId="1" AcceptedAnswerId="21723" CreationDate="2018-04-28T09:24:09.393" Score="3" ViewCount="83" Body="&lt;p&gt;I tried to do following question but I am not sure about my solution.  Please tell me your opinions&lt;/p&gt;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/iHUcN.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/iHUcN.jpg&quot; alt=&quot;enter image description here&quot; /&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&lt;p&gt;Since gross profit is strictly concave, I can say that &lt;span class=&quot;math-container&quot;&gt;$R’’(y)-C’’(y) &amp;lt;0$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;Now I maximize the net profit and&lt;/p&gt;&#xA;&lt;p&gt;FOC is &lt;span class=&quot;math-container&quot;&gt;$R’(y)-C’(y) -t=0$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;SOC is hold because of strict concavity in y.&lt;/p&gt;&#xA;&lt;p&gt;That is &lt;span class=&quot;math-container&quot;&gt;$MR(y)=MC(y)+t$&lt;/span&gt; from FOC.&lt;/p&gt;&#xA;&lt;p&gt;Now show that the implicit relationship btw y and t can be solved for the explicit choice function&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$y=y^*(t)$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;FOC with respect to y combine with above function&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$R’(y^*(t))-C’(y^*(t)) -t=0$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;Derivative wrt t&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$R’’(y) (dy^*/dt)-C’’(y) (dy^*/dt)-1=0$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\frac{dy^*}{dt}=\frac{1}{R’’-C’’}&amp;lt;0$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;which means that the output will decrease as the tax goes up.&lt;/p&gt;&#xA;&lt;p&gt;Think again gross profit&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$G\pi =R(y^*(t))-C(y^*(t))$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;h2&gt;I am not sure about my solution after this point especially.&lt;/h2&gt;&#xA;&lt;p&gt;Suppose the firm is price taker then &lt;span class=&quot;math-container&quot;&gt;$R(y)=py$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;So&#xA;&lt;span class=&quot;math-container&quot;&gt;$$G\pi =py^*(t)-C(y^*(t))$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;That is, since the output will decrease as tax rises, revenue &lt;span class=&quot;math-container&quot;&gt;$R(y) $&lt;/span&gt; will decrease as well. Accordingly gross profit will decrease.&lt;/p&gt;&#xA;&lt;p&gt;———————&lt;/p&gt;&#xA;&lt;p&gt;I am not sure about the last part especially. Thank you.&lt;/p&gt;&#xA;" OwnerUserId="15030" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2018-04-28T23:04:48.687" Title="The relationship between gross profit and tax" Tags="&lt;taxation&gt;&lt;self-study&gt;&lt;profit-maximization&gt;&lt;profits&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21714" PostTypeId="1" CreationDate="2018-04-28T09:34:11.043" Score="4" ViewCount="45" Body="&lt;p&gt;I'm looking to see if someone can help improve my understanding of sterilized intervention in FX markets.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My intuition/understanding is: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Assume that the &lt;em&gt;domestic currency is depreciating&lt;/em&gt;, perhaps due to a trade deficit (let's say temporary for now) - if the domestic central bank wants to avoid depreciation, they use some of their foreign reserves (of the foreign currency) to buy domestic currency. &lt;/li&gt;&#xA;&lt;li&gt;This would &lt;em&gt;increase supply of the foreign currency&lt;/em&gt;, &lt;em&gt;decrease supply of the domestic&lt;/em&gt; and therefore help &lt;em&gt;prop up the domestic currency&lt;/em&gt;.&lt;/li&gt;&#xA;&lt;li&gt;&lt;em&gt;However&lt;/em&gt;, this would reduce the monetary base of the domestic currency (as some of it has now disappeared into the central bank which doesn't participate in the economy, and hence doesn't count towards supply).&lt;/li&gt;&#xA;&lt;li&gt;Therefore, a &lt;strong&gt;sterilized&lt;/strong&gt; intervention occurs when the central bank uses its newly acquired domestic currency to buy domestic bonds, which re-injects the domestic currency back into the money supply. &lt;/li&gt;&#xA;&lt;li&gt;This leaves &#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;the &lt;em&gt;foreign currency supply higher than when we started&lt;/em&gt; and&lt;/li&gt;&#xA;&lt;li&gt;the &lt;em&gt;domestic supply unchanged&lt;/em&gt; from the start.&lt;/li&gt;&#xA;&lt;/ul&gt;&lt;/li&gt;&#xA;&lt;li&gt;Therefore, this increased supply of the foreign currency devalues the foreign currency and hence helps prevent the domestic currency from depreciating.&lt;/li&gt;&#xA;&lt;li&gt;To have the same level of effect on exchange rate as an unsterilized intervention, one may have to intervene to a greater extent (since only the foreign supply is increasing).&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Is the above roughly correct? Is there some other reason / mechanism via which the exchange rate is being maintained? The main thing I'd like to understand is whether it is really this increased supply of foreign currency that is causing the effect or whether this is some other mechanism.&lt;/p&gt;&#xA;" OwnerUserId="11401" LastEditorUserId="11401" LastEditDate="2018-04-28T11:59:17.750" LastActivityDate="2018-04-28T11:59:17.750" Title="Mechanics of Sterilized Intervention?" Tags="&lt;macroeconomics&gt;&lt;exchange-rates&gt;&lt;foreign-exchange&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21715" PostTypeId="1" CreationDate="2018-04-28T11:15:41.583" Score="0" ViewCount="21" Body="&lt;p&gt;This is an example taken from Krugman's book:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider the case where the international relative price (of cloth in terms of wine) is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac{p_{c}}{p_{w}} = \frac{a_{lc}}{a_{lw}}$. Where $a_{lc}$ and $a_{lw}$ are the unit labor requirements for the production of cloth and wine respectively (think of these as being the inverse of productivity in each sector). These prices are below $\frac{a_{lc}^*}{a_{lw}^*}$. The Home country has a lower opportunity cost in the production of cloth.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So given these prices, i.e., $\frac{p_{c}}{p_{w}} = \frac{a_{lc}}{a_{lw}}$ and $\frac{p_{c}}{p_{w}} &amp;lt; \frac{a_{lc}^*}{a_{lw}^*}$, I understand that Home will produce both goods (i.e., not specialise) while Foreign finds better to specialise in wine (since the relative price of wine is higher than the opportunity cost). But how does Foreign obtain cloth? Since Home is not exporting any cloth and there are only two countries, how can one of them be an autarky while the other specialises in one of the goods?&lt;/p&gt;&#xA;" OwnerUserId="11767" LastActivityDate="2018-04-28T11:15:41.583" Title="Ricardian Trade Model" Tags="&lt;international-trade&gt;" AnswerCount="0" CommentCount="4" ClosedDate="2018-04-28T19:05:40.880" ContentLicense="CC BY-SA 3.0" />
  <row Id="21716" PostTypeId="2" ParentId="21698" CreationDate="2018-04-28T11:37:32.737" Score="2" Body="&lt;p&gt;To be fair to the author, the quote says that &quot;it is unlikely&quot;, not that &quot;it is impossible&quot;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But apart from that, the link between &quot;same estimates&quot; and &quot;linearity of the conditional relations&quot; is misleading. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Example: assume that for an unconditional distribution, the median $m$ is a linear function of the mean $\mu$ : &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$m = c\mu$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(this is for example approximately the case &lt;a href=&quot;https://en.wikipedia.org/wiki/Gamma_distribution#Median_calculation&quot; rel=&quot;nofollow noreferrer&quot;&gt;for the Gamma distribution&lt;/a&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume that we model the conditional distribution of $Y$ given $X$ as a Gamma distribution, with &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$E(Y\mid X) = bX$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It then follows that the conditional median will be&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$m(Y\mid X) = c(bX) = (cb)X = \delta X, \delta \neq b$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here, the conditional median can be modeled as a linear function of the conditioning variables also, but we expect that the estimates we will obtain will be different.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2018-04-28T11:37:32.737" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21718" PostTypeId="1" AcceptedAnswerId="21721" CreationDate="2018-04-28T15:25:58.107" Score="1" ViewCount="60" Body="&lt;p&gt;What are called goods, whose maintenance expenses are higher than initial price tag. There is a specific term for that, but I can't find it. &lt;/p&gt;&#xA;" OwnerUserId="18139" LastEditorUserId="12304" LastEditDate="2018-04-28T17:18:12.037" LastActivityDate="2018-04-28T20:12:45.100" Title="Economics term for unfavorable goods" Tags="&lt;microeconomics&gt;&lt;definition&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 3.0" />
  <row Id="21720" PostTypeId="1" CreationDate="2018-04-28T18:01:33.563" Score="4" ViewCount="86" Body="&lt;p&gt;Suppose the government introduces a simultaneous tax and subsidy on a consumption good, which is produced under perfect competition. If the tax and the subsidy are equal, then there will be no distortion, but also no tax revenue. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Similarly, a policy combining taxes and subsidies on a good can only raise revenue if it reduces the equilibrium amount of the good, i.e. if it introduces distortion. In other words, there is no possibility to raise tax revenue through taxes and subsidies on consumption (no lump sum taxes) without distorting the market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What were the (first) papers to analyze this problem? Could someone provide a reference for such a result? I would prefer an academic paper with such an analysis to lecture slides. As a bonus, any exception to this line of argument would also be interesting.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I remember reading somewhere that combining taxes and subsidies used to be a real policy proposal in order to have taxation without distortion until a paper came along showing that such a policy cannot raise revenue. Unfortunately, I can't remember where I read that.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastEditorUserId="5557" LastEditDate="2018-04-29T09:17:26.420" LastActivityDate="2018-04-29T09:17:26.420" Title="Simultaneous consumption tax and subsidy" Tags="&lt;reference-request&gt;&lt;taxation&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21721" PostTypeId="2" ParentId="21718" CreationDate="2018-04-28T20:12:45.100" Score="0" Body="&lt;p&gt;You might be thinking about &lt;code&gt;Demerit goods&lt;/code&gt;. This type of goods have negative externality (cost) that are usually ignored by or unknown to the consumer. &#xA;As a result, &lt;strong&gt;initial cost&lt;/strong&gt; of the good is relatively low, when compared to the &lt;strong&gt;long term cost&lt;/strong&gt; for the consumer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Simple example of a &lt;code&gt;demerit goods&lt;/code&gt; are &lt;strong&gt;cigarettes&lt;/strong&gt;, since they have to fulfil two criteria:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;be harmful, unhealthy to the individual consumer: smoking is accepted as an unhealthy habit.&lt;/li&gt;&#xA;&lt;li&gt;have negative externalities, cost to third parties: secondhand smoke.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Finally, it is important to notice that classification of &lt;code&gt;demerit goods&lt;/code&gt; is &lt;strong&gt;normative&lt;/strong&gt; contrary to usual &lt;strong&gt;positive&lt;/strong&gt; economic approach when we classify goods based on their price or income elasticity e.g. ordinal, inferior, luxury.&lt;/p&gt;&#xA;" OwnerUserId="13965" LastActivityDate="2018-04-28T20:12:45.100" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21722" PostTypeId="1" CreationDate="2018-04-28T21:03:50.560" Score="1" ViewCount="48" Body="&lt;p&gt;So, following a discussion I had today, I have the following question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we use the return on investment (ROI) to describe the gain of an investment is there a similar concept not for a company but the state as whole. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The idea is the following: if a state 'invests' (is this the correct word in the sense of a state?!) in infrastructure, education, healthcare, there is a 'return' on the spent money. For example, return on infrastructure would be companies using faster internet or streets to be more efficient, making more money, in the last run paying more taxes, money spent for education would give educated people earning more money, paying more taxes; and finally, healthcare would lead to more people paying longer taxes. I think you get the idea.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Unfortunately I am no economist and do not really know where or how to look, whether such a concept exists.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you and appreciate your answers.&lt;/p&gt;&#xA;" OwnerUserId="14182" LastActivityDate="2018-04-28T21:03:50.560" Title="Concept of return on investment but for the state instead a firm" Tags="&lt;macroeconomics&gt;&lt;investment&gt;&lt;social-welfare&gt;&lt;capital-returns&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21723" PostTypeId="2" ParentId="21713" CreationDate="2018-04-28T23:04:48.687" Score="2" Body="&lt;p&gt;Most of what you have done was correct. Here are the steps to finish the argument. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Evaluating the profits at the optimum, you get &#xA;\begin{equation}&#xA;\pi_G=R(y^*(t))-C(y^*(t))&#xA;\quad\text{and}\quad &#xA;\pi_N=R(y^*(t))-C(y^*(t))-ty^*(t).&#xA;\end{equation}&#xA;Differentiate the net profits with respect to $t$:&#xA;\begin{align}&#xA;\frac{\mathrm d\pi_N}{\mathrm dt}&amp;amp;=R'(y^*)\frac{\mathrm dy^*}{\mathrm dt}-C'(y^*)\frac{\mathrm dy^*}{\mathrm dt}-t\frac{\mathrm dy^*}{\mathrm dt}-y^*\\&amp;amp;=\underbrace{[R'(y^*)-C'(y^*)-t]}_{=0 \text{ due to FOC}}\frac{\mathrm dy^*}{\mathrm dt}-y^*&amp;lt;0, &#xA;\end{align}&#xA;which is true assuming $y^*&amp;gt;0$. &#xA;Differentiate the gross profits with respect to $t$: &#xA;\begin{align}&#xA;\frac{\mathrm d\pi_G}{\mathrm dt}&amp;amp;=R'(y^*)\frac{\mathrm dy^*}{\mathrm dt}-C'(y^*)\frac{\mathrm dy^*}{\mathrm dt}=[R'(y^*)-C'(y^*)]\frac{\mathrm dy^*}{\mathrm dt}&amp;lt;0. &#xA;\end{align}&#xA;This is true because from the FOC, we know that for any positive tax, $R'(y^*)-C'(y^*)&amp;gt;0$, and since you've correctly derived $\frac{\mathrm dy^*}{\mathrm dt}&amp;lt;0$, their product must be negative. &lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2018-04-28T23:04:48.687" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21724" PostTypeId="1" CreationDate="2018-04-29T01:17:27.863" Score="4" ViewCount="176" Body="&lt;p&gt;Consider a town with consumers represented by a closed interval $[0,2]$ with the consumers spread continuously and uniformly. There are two stores, $A$ and $B$ who sell the same product at $p_A$ and $p_B$ at no cost. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A consumer has a gross utility of 4 from having the product which is reduced by price paid and travel costs, which is determined as distance traveled. Each consumer only buys 1 unit of the product, and if the consumer does not buy from either store, he has a utility of 0. For example, if a consumer is located at $x=1.5$ and buys from store B at $p_B=1$ which is located at $x_B=2$, then his utility is $4-1-|2-1.5| = 2.5$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose that $A$ is located at $x_A=0$ and $B$ is located at $x_B=2$. Also, suppose stores much charge at $p \le 4$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose stores are profit maximizers. What are the equilibrium prices, quantities, and profits for both stores?&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;My initial thoughts are that, in this scenario, the profit functions for each store is denoted as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \pi_A=p_A+p_A(\frac{p_B-p_A}{2}) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \pi_B=p_B-p_B(\frac{p_B-p_A}{2}) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can take the first order condition for each, to get the maximizing profit. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{\partial \pi_A}{p_A} = 1 + \frac{p_B}{2} - p_A = 0 \implies p_A = \frac{p_B}{2} + 1 $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{\partial \pi_B}{p_B} = 1 - p_B + \frac{p_A}{2} = 0 \implies p_B = 1 + \frac{p_A}{2} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By substituting one into the other, we have that $p_A=p_B=2$, $q_A=q_B=1$ and $\pi_A=\pi_B=2$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm not very sure about this solution or the direction I took to solve it. Any advice here would be appreciated on what other direction I should try.&lt;/p&gt;&#xA;" OwnerUserId="18143" LastActivityDate="2021-05-26T14:08:50.787" Title="Nash equilibrium for Bertrand Model with Spatial Differentiation" Tags="&lt;game-theory&gt;&lt;nash-equilibrium&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21725" PostTypeId="1" CreationDate="2018-04-29T09:24:02.443" Score="4" ViewCount="392" Body="&lt;p&gt;After reading &quot;Thinking Fast and Slow&quot; and half a day of internet search on this topic I resort now to asking this question here.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Prospect Theory seems to only attribute value to changes in wealth. The reference point in wealth is only used to calculate the change in wealth. The change is then valued according to a value function where losses weigh heavier than gains and both have diminishing marginal utility (see figure below). It seems to me however that the absolute value of the reference point matters, but is ignored. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The diminishing marginal utility of wealth from expected utility theory is still a valid concept, as is the utility of change of wealth from prospect theory. In my view they should be combined. Losses weigh heavier than gains and the size of your reference wealth influences how you weigh the loss/gain. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words, this is a typical value function in Prospect Theory:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/T21Bf.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/T21Bf.jpg&quot; alt=&quot;Prospect Theory value function&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think it needs a third axis for the reference wealth value. Higher reference wealth values lead to flatter curves while lower reference wealth values lead to taller curves. A rich person has a different value function than a poor(er) person. They value the loss (or gain) of 500 euro differently.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To illustrate this think of the following &quot;Thinking Fast and Slow&quot;-style problems:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Anna had 1500 euro yesterday. Today she wakes up with 1000 euro.&lt;/li&gt;&#xA;&lt;li&gt;Ben had 20000 euro yesterday. Today he wakes up with 19500 euro.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;It seems to me Anna and Ben would not attribute the same (negative) value to their loss. Prospect Theory seems to claim they would. They incur the same loss (-500 euro) with the same (weighted) probability and value it using the same value function. I haven't found an explanation of Prospect Theory where absolute wealth influences the value function. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In Thinking Fast and Slow, Kahneman does allure to an influence of your reference wealth (page 284):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;All bets are off, of course, if the possible loss is potentially ruinous, or if your lifestyle is threatened.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;But this seems a sidenote covering an exception rather than a intrinsic part of the theory. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does prospect theory ignore the influence of reference wealth size on the value curve? And if it does, why is that valid to do?&lt;/p&gt;&#xA;" OwnerUserId="18145" LastEditorUserId="18145" LastEditDate="2018-04-29T12:07:42.433" LastActivityDate="2018-04-30T12:52:07.270" Title="Does the Prospect Theory value curve change according to reference wealth size?" Tags="&lt;expected-utility&gt;&lt;decision-theory&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21728" PostTypeId="1" AcceptedAnswerId="21754" CreationDate="2018-04-29T12:51:21.253" Score="2" ViewCount="75" Body="&lt;p&gt;I'm studying Mathematical Economics and there's this question that I'm unable to understand.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Q. Suppose a firm faces a demand curve for its product $P = 32 - 2Q$, and the firm's costs of production and marketing are $C(Q) = 2Q^2$. Find the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(f) What would the competitive price and quantity be, assuming $C(Q) = 2Q^2$ represented the industry cost function?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Actually the question has 5 more parts but I was only stuck on this last one (f). In the other parts I calculated Profit formula, price and quantity that maximize total revenue and the price and quantity that maximize profit (if by any chance these are related to the last part)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help will be appreciated!&lt;/p&gt;&#xA;" OwnerUserId="18148" LastEditorUserId="6168" LastEditDate="2018-04-29T13:11:04.097" LastActivityDate="2018-07-09T18:57:16.137" Title="Mathemtical Economics Question regarding Profit Maximization" Tags="&lt;competition&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="21729" PostTypeId="2" ParentId="21698" CreationDate="2018-04-29T13:53:01.917" Score="3" Body="&lt;p&gt;In Alecos Papadopoulos's answer, both the conditional mean and the conditional median are linear in $X$. In the following example, the conditional mean is linear in $X$ while the conditional median is quadratic in $X$. This example is a constructed toy but it touches the heart of the issue.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Example:&lt;/strong&gt; Suppose that $y = \beta_0 + \beta_1 x + u$ and $u = x^2 (w - 1)$, where $w \sim \chi_1^2$ and $x$ and $w$ are mutually independent. Then, as the R command &lt;code&gt;qchisq(0.5,1)&lt;/code&gt; gives, $med(w) \doteq 0.455$ so that $med(u|x) = x^2 (-0.545)$, while $E(u|x) = 0$.  We thus have&#xA;\begin{equation}&#xA;  E(y|x) = \beta_0 + \beta_1 x, ~~\text{ while }~~ med(y|x) = \beta_0 + \beta_1 x - 0.545 x^2.&#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Note:&lt;/strong&gt; Asymmetry of the error distribution and the dependence of $u$ on $x$ are both important. If the error distribution is symmetric, then the conditional mean function and the conditional median function coincide. Also, if the distribution of $u$ is independent of $x$, then $med(u|x)$ is nonzero but constant and thus $med(y|x)$ is again linear in $x$.&lt;/p&gt;&#xA;" OwnerUserId="10775" LastActivityDate="2018-04-29T13:53:01.917" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21731" PostTypeId="1" CreationDate="2018-04-29T14:28:34.887" Score="1" ViewCount="36" Body="&lt;p&gt;How can I test in a multiple regression model whether a drop of 1% in $x_1$ will cause a larger effect than a 1% drop in $x_2$, given that I used the growth rates of my dependent and independent variables?&lt;/p&gt;&#xA;" OwnerUserId="18149" LastEditorUserId="6168" LastEditDate="2018-04-29T14:44:29.887" LastActivityDate="2018-04-29T15:51:48.290" Title="Multiple regression" Tags="&lt;regression&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21732" PostTypeId="2" ParentId="21725" CreationDate="2018-04-29T14:51:46.860" Score="0" Body="&lt;p&gt;In &lt;a href=&quot;http://people.hss.caltech.edu/~camerer/Ec101/ProspectTheory.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Kahneman and Tversky's original paper&lt;/a&gt;, they write the following (pdf page 16):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The emphasis on changes as the carriers of value should not be taken to imply&#xA;  that the value of a particular change is independent of initial position. Strictly speaking, value should be treated as a function in two arguments: the asset position that serves as reference point, and the magnitude of the change (positive or negative) from that reference point. An individual's attitude to money, say, could be described by a book, where each page presents the value function for changes at a particular asset position. Clearly, the value functions described on different pages are not identical: they are likely to become more linear with increases in assets. However, the preference order of prospects is not greatly altered by small or even moderate variations in asset position. The certainty equivalent of the prospect (1,000, .50), for example, lies between 300 and 400 for most people, in a wide range of asset positions. Consequently, the representation of value as a function in one argument generally provides a satisfactory approximation.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Thus, they realized &quot;the asset position&quot; is indeed a factor in defining the outcome of the value function, next to &quot;the magnitude of change&quot;. &#xA;However, generally it's not needed to include asset position as a parameter to the value function because &quot;the preference order of prospects is not greatly altered by small or even moderate variations in asset position&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I also see that the valuations of Anna and Ben could be very different, while giving the same prospect order. So Kahneman and Tversky's argument for using only change as a parameter works when comparing options (i.e. what they do in decision theory ; )), not when evaluating and comparing raw utilities.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I wonder if more research has been done in the influence of leaving out the &quot;asset position&quot; parameter to the value function? Is its effect always negligible? &#xA;Does anyone know of a source for typical value functions for different asset positions?&lt;/p&gt;&#xA;" OwnerUserId="18145" LastEditorUserId="18145" LastEditDate="2018-04-29T17:17:00.550" LastActivityDate="2018-04-29T17:17:00.550" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21734" PostTypeId="2" ParentId="21731" CreationDate="2018-04-29T15:51:48.290" Score="1" Body="&lt;p&gt;Let me give you a hint since this question seems to be a kind of homework question. Suppose the following model: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\ln y = \beta_1 \ln x_1 + \beta_2 \ln x_2 + \epsilon$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this model, $\beta_1$ and $\beta_2$ are elasticities and one can be tested against the other with a $F$ statistic. &lt;/p&gt;&#xA;" OwnerUserId="6168" LastActivityDate="2018-04-29T15:51:48.290" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21735" PostTypeId="1" CreationDate="2018-04-29T19:31:51.290" Score="1" ViewCount="30" Body="&lt;p&gt;Pilbeam's textbook on International Finance (p. 106) says:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;(...) the immediate effect of a devaluation of exchange rate from $S_1$ to $S_2$ is to make domestic good competitive (...)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;How can be possibile that an exchange rate &lt;em&gt;devaluate&lt;/em&gt; from $S_1=\frac{p_1}{p^*}$ to $S_2=\frac{p_2}{p^*}$ with $S_2&amp;gt;S_1$? Here $p_1$ and $p_1$ are domestic prices and $p^*$ is a foreign country prices.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Shouldn't be the otherwayround instead, since the domestic currency is gaining value against $p^*$ ($\uparrow{S} \rightarrow \uparrow{p} $ via $S\cdot p^*=p $)?&lt;/p&gt;&#xA;" OwnerUserId="18155" LastActivityDate="2018-04-29T19:31:51.290" Title="Devaluation of exchange rate meaning" Tags="&lt;macroeconomics&gt;&lt;international-economics&gt;&lt;purchasing-power-partity&gt;&lt;balance-of-payments&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21736" PostTypeId="1" CreationDate="2018-04-29T20:31:06.117" Score="5" ViewCount="79" Body="&lt;p&gt;To pre-face this, I am not an economist by education. Recently I have read a significant number of policy papers concerning climate change that make the claim, a priori, that a universal carbon price is the most efficient method for decarbonising the economy. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am looking for a justification of this claim? &lt;/p&gt;&#xA;" OwnerUserId="18156" LastEditorUserId="8815" LastEditDate="2018-04-29T22:06:13.467" LastActivityDate="2018-04-30T15:59:45.603" Title="Universal carbon price" Tags="&lt;environmental-economics&gt;&lt;climate-change&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21737" PostTypeId="1" CreationDate="2018-04-29T20:55:03.077" Score="1" ViewCount="1057" Body="&lt;p&gt;I am stuck on a multiple choice question that came up on a Micro university past papers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question is: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Marshallian demand curves derived from utility function: $U = log(x) +&#xA;log (y)$. What is the own price elasticity, cross price elasticity,&#xA;  and income elasticity?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The answers are -1, 0, and 1 respectively, yet I don't understand how.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Many thanks!&lt;/p&gt;&#xA;" OwnerUserId="18157" LastEditorUserId="13965" LastEditDate="2018-04-30T07:19:00.220" LastActivityDate="2018-04-30T07:19:00.220" Title="Marshallian demand curve elasticities" Tags="&lt;elasticity&gt;" AnswerCount="1" CommentCount="1" ClosedDate="2018-05-17T19:51:13.377" ContentLicense="CC BY-SA 3.0" />
  <row Id="21738" PostTypeId="2" ParentId="21737" CreationDate="2018-04-29T22:47:06.567" Score="1" Body="&lt;p&gt;as you see that is a Cobb Douglas function(Monotonous transformation), I will assume you already know how to get the X* and Y* Marshallian . &quot;w&quot; is the wealth of the consumer. In case you dont know how to get the marshallians you have to maximize the utility ( &quot;U = log(x) + log (y)&quot;) subject to the constrain budget (w = Xpx+Ypy)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$ X(*) = w/2px $ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$ Y(*) = w/2py $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So let's start with the income elasticity, we want to know how the consumption of X will change when the income//price of x (own-price) //   (cross price )price of y changes, but we want it in terms of percentage/relative ( that's why we want elasticities ) . &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the income elasticity is :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$(\frac{\partial X}{\partial w})*(\frac{w}{X}) =(\frac{1}{2px} )(\frac{w}{\frac{w}{2px}})\ = 1 $ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;cross price elasticity:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$(\frac{\partial X}{\partial py})*(\frac{py}{X}) =(0)(\frac{py}{\frac{w}{2px}}) = 0 $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;own price elasticity :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$ (\frac{\partial X}{\partial px})*(\frac{px}{X}) =(\frac{-w}{2px^{2}} )(\frac{px}{\frac{w}{2px}}) = -1 $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I will let you search what means that numbers! :D &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope this helps you!&lt;/p&gt;&#xA;" OwnerUserId="18158" LastActivityDate="2018-04-29T22:47:06.567" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21739" PostTypeId="1" CreationDate="2018-04-29T23:49:37.237" Score="4" ViewCount="171" Body="&lt;p&gt;&lt;strong&gt;Disclaimer:&lt;/strong&gt; I've been doing some simulation with excel to see how Hotelling's Lemma behaves when allowing another parameter to vary. I did this by producing 150 randomly generated profit functions (based on normal distributions) and allowed them to vary in the parameters of interest. The goal is to learn about how far I can apply use of Hotelling's lemma outside of ideal conditions (like when wage varies as well).&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Recall that  what Hotelling's Lemma tells us (essentially) is that the change in profit from a change in price is proportional to the quantity produced,meaning that the profit function increases/decreases linearly when price changes holding all else fixed. This is exactly the  result I got  when simulating it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/FqaHw.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/FqaHw.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I then asked If we allow wage rate to vary as well, I found some neat and messier structures of how Hotelling's Lemma changes. In this case the dermination of price and wage are sampled from a normal distribution such that $\mathcal{N}(5,2)$ and inputs and outputs are sampled from a normal distribution such that $\mathcal{N}(50,25)$. These are my results:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/6dQ3B.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/6dQ3B.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&#xA;&lt;a href=&quot;https://i.stack.imgur.com/IXpS6.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/IXpS6.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&#xA;&lt;a href=&quot;https://i.stack.imgur.com/mKDd5.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/mKDd5.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&#xA;&lt;a href=&quot;https://i.stack.imgur.com/ODTjh.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/ODTjh.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&#xA;&lt;a href=&quot;https://i.stack.imgur.com/hH9b5.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/hH9b5.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Though, this method is (clearly) unscientific and violates the strict definition of the lemma, can we use hotelling's lemma as a rule of thumb when variability in wage rate is small?. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Display of excel code/setup available upon request.&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="8815" LastEditDate="2018-04-30T03:58:50.293" LastActivityDate="2018-04-30T08:20:25.103" Title="Can we use hotelling's lemma as a rule of thumb when wage rate can vary?" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;simulations&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21741" PostTypeId="1" CreationDate="2018-04-30T03:57:57.900" Score="6" ViewCount="74" Body="&lt;p&gt;Links analysis algorithms on the web take the incoming links to a webpage as a sign of its popularity. Given this, can we consider web hyperlinks, in aggregate, as a kind of public good? I am curious if anyone has looked at it from this perspective.&lt;/p&gt;&#xA;" OwnerUserId="5591" LastActivityDate="2018-05-01T21:44:47.730" Title="Is a hyperlink a kind of informational public good?" Tags="&lt;information&gt;&lt;public-goods&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="21743" PostTypeId="2" ParentId="21739" CreationDate="2018-04-30T08:20:25.103" Score="1" Body="&lt;p&gt;I don't quite know what it means to apply a mathematical result to a situation in which the assumptions are violated, but the same idea as in the classical version of Hotelling's lemma can be used to understand the marginal effect of wage changes and you can combine the two to understand what happens on the margin if you change both prices and wages.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The underlying logic of Hotelling's lemma was that for a profit-maximizing firm, the marginal effect of adjustment outputs (and therefore inputs) is zero. This tells us that the marginal effect of wage changes on profits should be proportional to inputs used, that is&#xA;$$\frac{\partial \pi(p,w)}{\partial w}=-x(p,w),$$&#xA;with $x(p,w)$ the optimal input bundle. This is indeed true and the proof is &lt;a href=&quot;https://economics.stackexchange.com/a/21703/1442&quot;&gt;exactly the same&lt;/a&gt; as for the marginal effect of $p$, just replace the derivative with respect to $p$ by the derivative with respect to $w$. If $f$ is the production function, the profit function is given by&#xA;$$\pi(p,w)=pf\big(x(p,w)\big)-wx(p,w).$$ &#xA;Taking the derivative with respect to $w$ now gives us&#xA;$$\frac{\partial \pi(p,w)}{\partial w}=pf'\big(x(p,w)\big)\frac{\partial x(p,w)}{\partial w}- x(p,w)-w\frac{\partial x(p,w)}{\partial w}.$$&#xA;The first order condition for $x(p,w)$ being a maximizer of $pf(x)-wx$ implies&#xA;$$pf'\big(x(p,w)\big)- x(p,w)-w=0$$ and therefore&#xA;$$pf'\big(x(p,w)\big)\frac{\partial x(p,w)}{\partial w}-w\frac{\partial x(p,w)}{\partial w}=0.$$&#xA;Substituting this in, we get&#xA;$$\frac{\partial \pi(p,w)}{\partial w}=-x(p,w).$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The envelope theorem generalizes the underlying idea that marginal benefits of adjustments for optimizing agents are zero for more general parameterized optimization problems.&lt;/p&gt;&#xA;" OwnerUserId="1442" LastActivityDate="2018-04-30T08:20:25.103" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21744" PostTypeId="2" ParentId="21741" CreationDate="2018-04-30T09:05:06.830" Score="5" Body="&lt;p&gt;In the Samuelson's definition of public good, the good must be &lt;strong&gt;non-excludable&lt;/strong&gt; and &lt;strong&gt;non-rivalrous&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hyperlinks (if public and pointing to public pages) are &lt;strong&gt;non-excludable&lt;/strong&gt;, and --to the condition of not overloading the hosted content-- &lt;strong&gt;non-rivalrous&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The frequency of publication (and other criterions) of hyperlinks pointing to specific pages/domain, is used by ranking algorithms as a proxy of relevance for the users. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hyperlinks through ranking algorithms create a &lt;strong&gt;positive externality&lt;/strong&gt; (i.e. access to more relevant web-pages). &#xA;To the extent that the access to the result of those ranking algorithms is not excludable (you don't need to log in the use google, duckduckgo, etc), you can say that the result of this positive externality is a public good.&lt;/p&gt;&#xA;" OwnerUserId="6706" LastEditorUserId="6706" LastEditDate="2018-05-01T21:44:47.730" LastActivityDate="2018-05-01T21:44:47.730" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21745" PostTypeId="2" ParentId="21687" CreationDate="2018-04-30T10:57:20.137" Score="1" Body="&lt;p&gt;The only thing we know for sure is that for banks, the two sides of the balance sheet balance. That is, assets = liabilities + equity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In simplistic money multiplier discussions, the only bank assets are loans, the only liabilities are deposits, and there is no equity. So in that case, loans = deposits.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the real world, equity is fairly small as a percentage. However, there are other large entries on the balance sheets.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;On the asset side, banks hold securities for liquidity management, have fixed assets (buildings and computers, etc.).&lt;/li&gt;&#xA;&lt;li&gt;Deposits are not the only liabilities (and we would need to distinguish between demand deposits and term deposits). Banks issue bonds and short-term debt.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;As the mix of assets and liabilities change, so will the loan/deposit ratio.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2018-04-30T10:57:20.137" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21746" PostTypeId="1" CreationDate="2018-04-30T11:49:51.443" Score="3" ViewCount="79" Body="&lt;p&gt;A firm has received an order at time $0$ for $M$ units of product to be delivered by time $T$. It seeks a production schedule for filling this order at minimum cost. Let $x(t)$ denote inventory accumulated by time $t$, hence $x’(t)$ denotes the firm’s production at time $t$. There are two sources of cost: cost of production is $[x’(t)]^2$, the cost of holding $x(t)$ is $2x(t)$. Assume the firm discounts future costs with a discount rate $r &amp;gt; 0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am trying to formulate the Hamiltonian for this firm problem. However, I want to make sure my objective and constraints are correct:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is the problem of the form: $$min \int_{0}^{T} e^{-rt} [2x(t)+[x’(t)]^2]dt$$ i.e. $$-max \int_{0}^{T} e^{-rt} [2x(t)+[x’(t)]^2]dt$$ Is this the proper objective or am I completely off tanget?&lt;/p&gt;&#xA;" OwnerDisplayName="user16020" LastEditorDisplayName="user16020" LastEditDate="2018-04-30T13:48:36.477" LastActivityDate="2018-04-30T13:48:36.477" Title="Firm Dynamic Optimization Problem" Tags="&lt;microeconomics&gt;&lt;industrial-organisation&gt;&lt;self-study&gt;&lt;dynamic-optimization&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="21747" PostTypeId="2" ParentId="21725" CreationDate="2018-04-30T12:47:03.237" Score="2" Body="&lt;p&gt;You are certainly right that Kahneman and Tversky neglect the importance of levels in their model (even though they do acknowledge the importance of levels informally, as in the quote you reference). However, this situation has now been rectified by &lt;a href=&quot;http://www.personal.ceu.hu/staff/Botond_Koszegi/refdep.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Kosegi and Rabin&lt;/a&gt;, who include both 'levels' utility (i.e.'consumption utility') &lt;strong&gt;and&lt;/strong&gt; 'gain/loss' utility (they also generalise Prospect Theory to handle many goods, and endogenise the reference point).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As I understand it, the point of the Anna/Ben story is that marginal utility is a decreasing function of wealth. I would think that this is adequately captured by Kosegi and Rabin, assuming that we specify that levels utility is a strictly concave function of consumption, as is standard.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course, a different route would be to allow the curvature of the Prospect Theory value function to depend on wealth (as you propose). However, I'm not sure what this would buy us above and beyond the Kosegi and Rabin approach. Moreover, the theory would still be missing the rather obvious fact that people do care about absolute levels of wealth, at least to some extent.&lt;/p&gt;&#xA;" OwnerDisplayName="user17900" LastEditorDisplayName="user17900" LastEditDate="2018-04-30T12:52:07.270" LastActivityDate="2018-04-30T12:52:07.270" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21750" PostTypeId="1" AcceptedAnswerId="21773" CreationDate="2018-04-30T15:51:22.187" Score="0" ViewCount="40" Body="&lt;p&gt;The Marshall Lerner condition and the J curve made sense until one day I noticed that to make sense of all of this , we considered two different currencies. I was told for e.g. in the short run, export revenue would deteriorate since demand would be inelastic. But prices for exports only fell for the foreign buyer, not for domestic firms. If quantity being sold rose even by little, won't revenue earned by local producers have increased? Similarly, we considered effect on imports but this time considering domestic currency. My question is that when we look at trade balance , which currency do we use for analysis.&lt;/p&gt;&#xA;" OwnerUserId="18163" LastActivityDate="2018-05-02T01:13:41.837" Title="Which currency do we consider when talking about trade balance ?" Tags="&lt;international-trade&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21751" PostTypeId="2" ParentId="21736" CreationDate="2018-04-30T15:59:45.603" Score="5" Body="&lt;p&gt;The justification goes back to the work of Pigou in the early 20th century. The essence is this: the burning of fossil fuels creates a negative externality: a cost that is incurred, but not by that consumer, but by the general population, and for a century or so.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This in essence creates a kind of &lt;a href=&quot;https://skeptics.stackexchange.com/a/39965/6236&quot;&gt;&quot;social subsidy&quot;&lt;/a&gt;: the price does not fully reflect the costs. This means that fossil fuels are over-consumed, relative to the economically efficient quantity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As I wrote on that other answer: the &lt;a href=&quot;https://www.economicshelp.org/micro-economic-essays/marketfailure/negative-externality/&quot; rel=&quot;noreferrer&quot;&gt;&quot;Economics Help&quot; site explains the issue&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/dRZuY.jpg&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/dRZuY.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The deadweight loss from fossil fuel consumption is the red striped triangle: this comes about because fossil fuel producers do not have to pay for their pollution, leading to a competitive advantage, and an artificially high quantity sold Q1 at price P1.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This inefficiency can be corrected (in long-run equilibrium) if the externality is priced back in - which is what the carbon price is intended to do.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given the presence of fossil-fuel incumbents, their lobbying power, and their decades of direct and indirect subsidies, it is highly likely that a carbon price set at the marginal social cost of carbon would be an insufficient signal. A very helpful one, but insufficient on its own.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2018-04-30T15:59:45.603" CommentCount="3" ContentLicense="CC BY-SA 3.0" />
  <row Id="21754" PostTypeId="2" ParentId="21728" CreationDate="2018-04-30T23:07:04.843" Score="1" Body="&lt;p&gt;Well, it's very straightforward question. You have a cost function, from which you can get a Supply Curve, by taking its first derivative. You'll find competitive price and quantity when the supply curve you got meets the demand curve. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, our supply curve: $$P = 4Q$$&#xA;Then, the demand curve:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ P = 32- 2Q$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Competitive $Q$ is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ 32 - 2Q = 4Q $$&#xA;$$Q = \frac{32}{6} \approx 5.333$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, competitive price is: &#xA;$$ P = 32 - 2 * 5.333 \approx 21.333$$&lt;/p&gt;&#xA;" OwnerUserId="18167" LastEditorUserId="18167" LastEditDate="2018-07-09T18:57:16.137" LastActivityDate="2018-07-09T18:57:16.137" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="21755" PostTypeId="2" ParentId="21695" CreationDate="2018-04-30T23:16:37.167" Score="1" Body="&lt;p&gt;I think &quot;Macroeconomics in a Global Economy&quot;, by Sachs and Larrain is a good reference for you. It has a lot more math in it and a great exposition of the IS-LM model.&lt;/p&gt;&#xA;" OwnerUserId="18167" LastActivityDate="2018-04-30T23:16:37.167" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21756" PostTypeId="1" CreationDate="2018-04-30T23:52:19.227" Score="6" ViewCount="421" Body="&lt;p&gt;Can anyone explain to me why Algeria, a country of 40 million people is importing almost half as much milk powder as China?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/xEAce.jpg&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/xEAce.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Turkey has 80 million people yet it apparently doesn't import milk powder, or very little. Likewise for Libya, which is right next to Algeria, although it has only 6 million people. Egypt has about 100 million people and is similar to Algeria in some respects, yet it imports no milk powder.&lt;/p&gt;&#xA;" OwnerUserId="1448" LastEditorUserId="1448" LastEditDate="2018-05-01T00:32:42.980" LastActivityDate="2018-05-01T07:55:22.383" Title="Why is Algeria the #2 milk powder importer in the world?" Tags="&lt;international-trade&gt;&lt;agriculture&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="21757" PostTypeId="2" ParentId="21756" CreationDate="2018-05-01T00:37:43.213" Score="5" Body="&lt;p&gt;Four-fifths of Algeria is just desert --which leaves no room for agriculture.  The Algerian economy is mostly powered just by the oil industry, which contribute about ~70% of government revenues. Oil and oil related products constitute more than 80% of Algeria's exports. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, Turkey has twice the population of Algeria but it has more than 7.5 times the cattle Algeria has. (&lt;a href=&quot;https://www.google.com/url?q=https://gain.fas.usda.gov/Recent%2520GAIN%2520Publications/Livestock%2520and%2520Products%2520Annual_Ankara_Turkey_8-15-2017.pdf&amp;amp;sa=U&amp;amp;ved=0ahUKEwj55Z_woePaAhWLRY8KHYqcDqQQFggSMAI&amp;amp;usg=AOvVaw27ccAyb6380HDWs5YyTmc0&quot; rel=&quot;nofollow noreferrer&quot;&gt;14.2 in Turkey&lt;/a&gt; vs &lt;a href=&quot;https://www.google.com/url?q=https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3647101/&amp;amp;sa=U&amp;amp;ved=0ahUKEwiBnqa6oePaAhXGLI8KHbZnB8wQFggeMAc&amp;amp;usg=AOvVaw2f-bmuntrUmY71hIbg_G1D&quot; rel=&quot;nofollow noreferrer&quot;&gt;1.6 in Algeria&lt;/a&gt;). So the short answer is that Algeria isn't just suited for Agriculture.&lt;/p&gt;&#xA;" OwnerUserId="6486" LastEditorUserId="6486" LastEditDate="2018-05-01T07:55:22.383" LastActivityDate="2018-05-01T07:55:22.383" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21758" PostTypeId="1" AcceptedAnswerId="21779" CreationDate="2018-05-01T00:50:14.027" Score="2" ViewCount="2622" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Consider a consumer whose preferences can be represented by the following utility function: $$u(x_1,x_2)=\dfrac{x_2}{(1+x_1)^2}.$$&lt;/p&gt;&#xA;  &#xA;  &lt;ol start=&quot;4&quot;&gt;&#xA;    &lt;li&gt;Assume the agent's income is $y=5$. The price of one unit of good $1$ is $p_1=1$. For each unit of good $1$ the agent buys, he qualifies to buy up to one unit of good $2$ at an additional price of $p_2=1$. In other words, to buy one unit of good $2$ the agent has to first buy one unit of good $1$. The agent must consume everything he buys. Using this information, sketch the feasible set. Is it convex? Derive the utility maximizing bundle.&lt;/li&gt;&#xA;    &lt;li&gt;How does your answers to question 4. change if the agent does not have to consume everything he buys (&quot;free disposal&quot;)?&lt;/li&gt;&#xA;    &lt;/ol&gt; &#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;For question (4)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The budget constraint is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$x_1p_1+x_2(p_1+p_2)=y$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/uy0Lb.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/uy0Lb.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) my budget constraint is true? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) what is the difference when budget constraint allow free disposal and not allow?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don’t understand the part (5). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My solution also is posted. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks a lot. &lt;/p&gt;&#xA;" OwnerUserId="6134" LastActivityDate="2018-05-03T11:11:08.433" Title="Utility maximization question setting up." Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;optimization&gt;&lt;self-study&gt;&lt;profit-maximization&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="21759" PostTypeId="1" CreationDate="2018-05-01T01:01:39.067" Score="2" ViewCount="32" Body="&lt;p&gt;I am wondering if there are literature which studies specific properties of the set of utilitarian weights? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To be more specific, when we have some axioms that characterize the preference of a social planner (and  gives a utility representation), we can usually say the set of utilitarian weights is convex and closed. But are there previous papers studying more properties about the set?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am grateful if some one can point me out some related paper regarding properties of set of utilitarian weights.&lt;/p&gt;&#xA;" OwnerUserId="2801" LastEditorUserId="2801" LastEditDate="2018-05-01T01:16:55.963" LastActivityDate="2018-05-01T06:53:31.653" Title="Set of utilitarian weights" Tags="&lt;microeconomics&gt;&lt;social-welfare&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21760" PostTypeId="2" ParentId="21756" CreationDate="2018-05-01T03:56:43.120" Score="5" Body="&lt;p&gt;To complement WorldGov's great points, there are milk subsidies provided in Algeria, which might have been abused for re-sale in other countries:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;[These measures of “market saturation” will be accompanied by]&lt;/em&gt; “the firm application of the law against all the authors of diversion of milk powder heavily subsidised by the state for the benefit of consumers.”&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.middleeastmonitor.com/20180413-algeria-to-increase-milk-powder-to-counter-milk-shortages/&quot; rel=&quot;noreferrer&quot;&gt;Source&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="12304" LastActivityDate="2018-05-01T03:56:43.120" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21761" PostTypeId="2" ParentId="21759" CreationDate="2018-05-01T06:46:50.010" Score="2" Body="&lt;p&gt;One is &lt;strong&gt;Relative Utilitarianism (RU)&lt;/strong&gt;. Under the axioms below, society's preference can be represented by the simple sum of individuals' vNM utilities (each normalized to between $0$ and $1$). That is, every individual is given equal weight.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;strong&gt;Pareto Axiom.&lt;/strong&gt; (This is just the usual: If everyone prefers lottery $p$ to $q$, then so too does society. And if everyone strictly prefers lottery $p$ to $q$, then so too does society.)&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;Separability.&lt;/strong&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;Invariance.&lt;/strong&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;Anonymity.&lt;/strong&gt; (Again, this is just the usual, though a small technical adjustment may be necessary.)&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;The original papers on RU are &lt;a href=&quot;https://www.jstor.org/stable/41106277&quot; rel=&quot;nofollow noreferrer&quot;&gt;Dhillon (1998)&lt;/a&gt; and &lt;a href=&quot;http://rangevoting.org/DhillonMrelUtil.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Dhillon &amp;amp; Mertens (1999)&lt;/a&gt;. However, the first contains fatal mistakes and the second is indecipherable. See &lt;a href=&quot;http://www-personal.umich.edu/~tborgers/RRURevised.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Börgers &amp;amp; Choo (2017)&lt;/a&gt; for a simple and correct exposition/proof of RU.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Of course, the literature on utilitarianism and what you ask is vast. This is just one small example.)&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastEditorDisplayName="user18" LastEditDate="2018-05-01T06:53:31.653" LastActivityDate="2018-05-01T06:53:31.653" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21762" PostTypeId="1" AcceptedAnswerId="21766" CreationDate="2018-05-01T10:17:00.657" Score="8" ViewCount="256" Body="&lt;p&gt;Consider an Anscombe-Aumann setting, and assume that a preference relation satisfies all original Anscombe-Aumann's axioms (rationality, continuity, independence, and monotonicity).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we restrict attention to pure horse races (that is, acts without any objective uncertainty), the Anscombe-Aumann model boils down to a Subjective Expected Utility representation a la Savage. Therefore, over pure horse races, the decision-maker satisfies all of Savage's axioms, notably the Sure-Thing Principle (P2 in Savage's terminology).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I fail to see the direct connection between Anscombe-Aumann's axioms and the Sure-Thing Principle. Does anyone see how the Sure-Thing Principle is implied by Anscombe-Aumann's axioms? In particular, does it result from Independence only, or are Independence AND Monotonicity required?&lt;/p&gt;&#xA;" OwnerUserId="4667" LastEditorUserId="4667" LastEditDate="2018-05-01T10:24:33.830" LastActivityDate="2018-05-03T12:36:01.387" Title="Which of Anscombe-Aumann's axioms imply the Sure-Thing principle?" Tags="&lt;decision-theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21763" PostTypeId="1" AcceptedAnswerId="21845" CreationDate="2018-05-01T11:29:34.067" Score="2" ViewCount="101" Body="&lt;p&gt;&lt;em&gt;This is not a homework question.  I am merely interested.&lt;/em&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As an academic discipline, Economics refers to various laws and widely held beliefs including, but not exclusive to;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Production precedes consumption&lt;/li&gt;&#xA;&lt;li&gt;Value is subjective&lt;/li&gt;&#xA;&lt;li&gt;Production has cost&lt;/li&gt;&#xA;&lt;li&gt;Money is not wealth&lt;/li&gt;&#xA;&lt;li&gt;Supply and demand &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Etc etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is the rise of cryptocurrency refuting or violating any typically held economic beliefs?  &lt;strong&gt;Or, inversely, are cryptocurrencies/society acting exactly as Economics would logically predict?&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="12486" LastActivityDate="2019-03-22T17:26:00.003" Title="Is any aspect of the cryptocurrency adoption violating a widely held economic tenet?" Tags="&lt;cryptocurrency&gt;" AnswerCount="4" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21764" PostTypeId="2" ParentId="21763" CreationDate="2018-05-01T12:35:47.147" Score="-1" Body="&lt;p&gt;To date, they're behaving exactly as we'd expect them to, given their nature as ponzi schemes in a speculative bubble.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Cryptocurrency adoption is not violating any widely held economic tenets: these ponzi schemes are behaving in line with the economic tenets that cover these things.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The speculative bubble of cryptocurrencies is very much in line with our understanding within behavioural economics of how foolish people with money behave when faced with a superficially appealing proposition that they don't fully understand.&lt;/p&gt;&#xA;" OwnerUserId="44" LastEditorUserId="44" LastEditDate="2018-05-02T09:30:12.233" LastActivityDate="2018-05-02T09:30:12.233" CommentCount="8" ContentLicense="CC BY-SA 4.0" />
  <row Id="21765" PostTypeId="1" CreationDate="2018-05-01T14:05:50.973" Score="2" ViewCount="35" Body="&lt;p&gt;In the Dornbush model, when we separate short and long run equilibrium. This is what I apparently have understood:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;SR1: an increase in Money Supply ($M_s$) leads to a fall in domestic interest rates ($i$) since price are considered &lt;em&gt;sticky&lt;/em&gt; in the short-run. Indeed, an excess in money supply will result in a rise in domestic bond demand, hence in bond prices i.e. an fall in interest rates. This is the same reasoning used in ISLM model, where money and bonds are perfect substitutes.&lt;/li&gt;&#xA;&lt;li&gt;SR2: the fall in domestic interest rates means international investors (e.g. from U.S.) would require an appreciation of the domestic currency, so that they would exchange a reduced amount of £ received in interests for more \$ than before, so that at the very ending the still receive the same amount of \$ they received before. Therefore they expect the exchange rate $S_{£/\$}=\frac{£}{\$}$ to fall ($S_{\$/£}=\frac{\$}{£}$ to rise) in the near future.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;However my textbook says:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;As the domestic interest rates would be lower than the world interest rate, this means that speculators would require an expected &lt;em&gt;appreciation&lt;/em&gt; of the domestic currency to compensate. For this reasons the domestic currency jump depreciates at time $t_1$ from $S_1$ to $S_2$ overshooting its long run equilibrium $\bar{S}$.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Where am I wrong? Why $S_{£/\$}=\frac{£}{\$}$ is rising?&lt;br&gt;&#xA;Why also in the long run $\bar{S}_{£/\$}$ is rising?&lt;/p&gt;&#xA;" OwnerUserId="18155" LastEditorUserId="18155" LastEditDate="2018-05-01T14:36:51.420" LastActivityDate="2018-05-01T14:36:51.420" Title="Dornbush model - relationship between i and S" Tags="&lt;macroeconomics&gt;&lt;exchange-rates&gt;&lt;international-economics&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 3.0" />
  <row Id="21766" PostTypeId="2" ParentId="21762" CreationDate="2018-05-01T14:50:50.527" Score="8" Body="&lt;p&gt;As a first remark: the Anscombe-Aumann axioms, in particular Independence, are defined over acts taking the state space to a linear space (generally simple lotteries over consumption objects). Even when we consider the restriction of the model to purely subjectively uncertain acts, we still need to employ the full model or we will lose information. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;That being said: Lets let $S$ be a finite state space, and $X$ a finite set of alternatives. Let $\Delta(X)$ denote all the lotteries over $X$ and $f: S \to \Delta(X)$ is an act. For an event $E \subseteq S$, let $f_{-E}g$ be the act defined by&#xA;$$f_{-E}g \begin{cases} f(s) \text{ if } x \in E \\ g(s) \text{ if } x \notin E. \end{cases}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, we can say that our model satisfies the &lt;strong&gt;sure thing principle&lt;/strong&gt; if $f_{-E}h \succsim g_{-E}h$ and $f_{-E^c}h \succsim g_{-E^c}h$ then $f \succsim g.$ This definition is valid for all acts, not just ones without objective risk, but clearly you can consider only the relevant projection.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume the antecedent of the STP. From $f_{-E}h \succsim g_{-E}h$ and independence we have that &#xA;$$\frac12 f_{-E}h + \frac12 f_{-E^c}h \succsim \frac12 g_{-E}h + \frac12 f_{-E^c}h.$$ &#xA;Notice we can rewrite this as&#xA;$$\frac12 f + \frac12 h \succsim \frac12 g_{-E}f + \frac12h$$&#xA;and, applying independence again, we get&#xA;\begin{equation}&#xA;\tag{1}&#xA;f \succsim g_{-E}f.&#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In an analogous fashion, from $f_{-E^c}h \succsim g_{-E^c}h$ and independence we have that &#xA;$$\frac12 f_{-E^c}h + \frac12 g_{-E}h \succsim \frac12 g_{-E^c}h + \frac12 g_{-E}h.$$ &#xA;Again, we can rewrite as&#xA;$$\frac12 g_{-E}f + \frac12 h \succsim \frac12 g + \frac12h$$&#xA;and, applying independence again, we get&#xA;\begin{equation}&#xA;\tag{2}&#xA;g_{-E}f \succsim g.&#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Combining (1) and (2) via transitivity yields the desired relations. Going back to the prefatory remark, notice that to apply independence, we need to mix acts, appealing to objective risk. Thus, even when $f$, $g$, and $h$ have no objective risk, we still need risky acts to serve as an intermediary in the proof. In a sense, this is the grand insight to the whole AA framework---using objective risk to get around the necessity of an infinite state space by using the linearity of expectations to force the STP.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Notice only independence and transitivity were used. This should indicated that even state-dependent EU (where monotonicity / state-independence fails) or Bewley EU (where completeness is relaxed)  will still satisfy the STP. &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Edit&lt;/strong&gt; in response to a comment: Lets call the above notion of the Sure Thing Principle &lt;strong&gt;STP1&lt;/strong&gt; and say the preference satisfies &lt;strong&gt;STP2&lt;/strong&gt; if $f_{-E}h \succsim g_{-E}h \iff f_{-E}h' \succsim g_{-E}h'$ for all $f,g,h,h'$. Then if  $\succsim$ is a preorder, it satisfies STP1 if and only if it satisfies STP2. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;First assume STP2 holds and that $f_{-E}h \succsim g_{-E}h$ and $f_{-E^c}h \succsim g_{-E^c}h$. Then by STP2 we have &#xA;$$f = f_{-E}f \succsim g_{-E}f \qquad \text{ and } \qquad g_{-E}f = f_{-E^c}g \succsim g.$$ &#xA;Transitivity implies $f \succsim g$; STP1 holds.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Next, assume STP1 holds and $f_{-E}h \succsim g_{-E}h$. Define $\hat f = f_{-E}h'$ and $\hat g$ analogously. By definition &#xA;$$\hat f_{-E}h = f_{-E}h \qquad \text{ and } \qquad \hat g_{-E}h = g_{-E}h,$$&#xA;so our assumption is identically that &#xA;\begin{equation}&#xA;\tag{3}&#xA;\hat f_{-E}h \succsim \hat g_{-E}h.&#xA;\end{equation}&#xA;Further $\hat f_{-E^c}h = \hat g_{-E^c}h = h'_{-E}h$ so we have, by the reflexivity of preference, that&#xA;\begin{equation}&#xA;\tag{4}&#xA;\hat f_{-E^c}h \succsim \hat g_{-E^c}h.&#xA;\end{equation}&#xA;Now we can apply STP1 to (3) and (4) to obtain that $\hat f \succsim \hat g$, which, given their definition, exactly what we need to show for STP2 to hold.&lt;/p&gt;&#xA;" OwnerUserId="398" LastEditorUserId="398" LastEditDate="2018-05-01T19:26:23.993" LastActivityDate="2018-05-01T19:26:23.993" CommentCount="7" ContentLicense="CC BY-SA 3.0" />
  <row Id="21767" PostTypeId="1" CreationDate="2018-05-01T17:18:12.407" Score="1" ViewCount="675" Body="&lt;p&gt;Suppose that a change in government regulations allows banks to start paying &#xA;interest on checking accounts. The money stock is the sum of currency and demand &#xA;deposits, including checking accounts.&#xA;(a) How does this change affect the demand for money?&#xA;(b) What happens to the velocity of money?&#xA;(c) What will happen to the LM curve? &#xA;(d)If the price level is fixed, what will happen to the output and interest rate? Use the &#xA;IS-LM framework to explain your answer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This was the question given. According to my understanding:&#xA;(a) interest on checking accounts means lower cost of holding money so money demand goes up.&#xA;(c)Since demand for money has gone up interest rate will go up, hence LM curve shifts to the left.&#xA;(d) due to the leftward shift of LM curve interest rate go up and output goes down.&#xA;Are my answers correct? How do I insert velocity of money in ISLM model?&lt;/p&gt;&#xA;" OwnerUserId="14617" LastActivityDate="2021-04-19T08:49:04.717" Title="What will be the effect on velocity of money when demand for real money increases?" Tags="&lt;macroeconomics&gt;&lt;keynesian-economics&gt;&lt;national-income&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 3.0" />
  <row Id="21768" PostTypeId="2" ParentId="21763" CreationDate="2018-05-01T17:29:23.503" Score="5" Body="&lt;p&gt;There is quite a bit of research on it and a good argument as to why central banks should not issue cryptocurrencies, but should issue electronic money.  I would recommend reading &lt;a href=&quot;https://research.stlouisfed.org/publications/review/2018/02/13/the-case-for-central-bank-electronic-money-and-the-non-case-for-central-bank-cryptocurrencies/&quot; rel=&quot;noreferrer&quot;&gt;https://research.stlouisfed.org/publications/review/2018/02/13/the-case-for-central-bank-electronic-money-and-the-non-case-for-central-bank-cryptocurrencies/&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://research.stlouisfed.org/publications/review/2018/02/13/blockchain-what-it-is-what-it-does-and-why-you-probably-dont-need-one/&quot; rel=&quot;noreferrer&quot;&gt;https://research.stlouisfed.org/publications/review/2018/02/13/blockchain-what-it-is-what-it-does-and-why-you-probably-dont-need-one/&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://research.stlouisfed.org/publications/review/2018/02/13/is-bitcoin-a-waste-of-resources/&quot; rel=&quot;noreferrer&quot;&gt;https://research.stlouisfed.org/publications/review/2018/02/13/is-bitcoin-a-waste-of-resources/&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Nothing about cryptocurrencies is surprising to me.  Indeed, the separate parts have been in use, in some cases, for hundreds of years.  Bitcoin is a clever combination of things that have long existed.  The other cryptocurrencies, such as Etherium, also offer self-executing contracts.  Those are also very old.  The simplest that you may physically see are sight drafts, which are common in the southeastern United States.  It is a draft printed on an envelope and is payable only when the envelope contains a properly executed document.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is nothing surprising to me about how cryptocurrencies are behaving, but they cannot continue like this and they won't.  You should read &quot;Good Money,&quot; by George Selgin, who writes about the creation of private money in Britain by button makers to meet an unfilled demand.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What you are seeing is a process by which people learn.  If you think this whole process through, you will find that you will not want to participate in this little revolution until supply and demand intersect.  By limiting the number of coins the various firms have created artificial scarcity.  However, we now have 759 cryptocurrencies and growing.  Each one makes the others just a little less valuable.  Although there is an argument against a central bank entering the market, if one did, the private money would vanish if the official money could be exchanged at a 1 to 1 rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Imagine the impact on Bitcoin prices if the Chinese or British central bank allowed people to walk in the door and exchange their cyptocurrency directly for cash?  No trading costs?  Think about how easy it would be to pop this bubble.  What if Bank of America were to offer one instead of an unknown, small, private company?  What if they allowed direct deposits and withdrawals?  What if they paid the mining costs to their own computers?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You are looking at the modern version of the South Sea Bubble or the Tulip Bubble.  When people are learning and making money, they do funny things.&lt;/p&gt;&#xA;" OwnerUserId="11321" LastActivityDate="2018-05-01T17:29:23.503" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="21769" PostTypeId="1" CreationDate="2018-05-01T19:08:40.310" Score="1" ViewCount="56" Body="&lt;p&gt;Consumer debt is the obligation to pay for the credit that the customers have used. But, how can tapping out more credits make business more vulnerable?&lt;/p&gt;&#xA;" OwnerUserId="18177" LastEditorUserId="16631" LastEditDate="2018-10-30T15:07:06.383" LastActivityDate="2018-10-30T15:07:06.383" Title="What is consumer debt and how could it make businesses vulnerable?" Tags="&lt;debt&gt;&lt;credit&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="21770" PostTypeId="1" CreationDate="2018-05-01T19:31:01.150" Score="6" ViewCount="203" Body="&lt;p&gt;I am trying to write a paper dealing with minimum wages and employment.  I understand there is simultaneity bias between these two variables so I must come up with an instrument.  Does anyone have any ideas for instruments?  I am also wondering if it is feasible to do a cross-sectional study instead of a time-series one in this scenario.  *Note:  The class requires using IVs and I am open to suggestions for other topics.  &lt;/p&gt;&#xA;" OwnerUserId="18178" LastEditorUserId="4251" LastEditDate="2019-01-03T01:14:23.893" LastActivityDate="2019-06-02T02:03:05.407" Title="Instrumental Variable Paper for Minimum Wage" Tags="&lt;labor-economics&gt;&lt;minimum-wage&gt;&lt;instrumental-variable&gt;" AnswerCount="2" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="21771" PostTypeId="2" ParentId="21758" CreationDate="2018-05-01T19:47:46.273" Score="2" Body="&lt;p&gt;Hi this seems and interesting question ! What I would do is this &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$ Max $&#xA;$ u(x_1,x_2)=\frac{x_2}{(1+x_1)^2} $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;subject to :&#xA;$p_1*x_1+p_2*x_2 = y$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$ x_1 = x_2 $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The intuition I feel is, as you see the utility, the good 1 is bad, he doesn't want to buy and consume it as he gets more of it, his utility will decrease, but in this case, he has to buy it in order to consume the good 2. so for every unit he bought from the good 1 he wants immediately to buy good 2 since good 2 increase his utility, that's why I put (x1=x2). For other instance, when you put $p_1*x_1+p_2*x_2+p_1*x_2 = y$, I feel you are saying you have to pay twice the price of good 1 if you want to get the good 2, and that's not true.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the second answer, he will not consume the good 1, just the good 2, but the optimum will be the one you find in the first problem maximization but in this case $x_1 = 0 $. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope this convince you ! :) , maybe its wrong what i said, but intuitively I feel is ok .&lt;/p&gt;&#xA;" OwnerUserId="18158" LastActivityDate="2018-05-01T19:47:46.273" CommentCount="2" ContentLicense="CC BY-SA 3.0" />
  <row Id="21773" PostTypeId="2" ParentId="21750" CreationDate="2018-05-02T01:13:41.837" Score="1" Body="&lt;p&gt;My reading of the &lt;a href=&quot;https://en.wikipedia.org/wiki/Marshall%E2%80%93Lerner_condition&quot; rel=&quot;nofollow noreferrer&quot;&gt;Marshall-Lerner condition&lt;/a&gt; is that it assumes the price of exports is constant in the domestic currency and the price of imports is constant in the foreign currency.  Analysis is conventionally done in the domestic currency&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But, initially after devaluation, volumes are assumed to stay the same (short-term inelasticity) and measured in the domestic currency the values of exports stays the same while the value of imports rises, leading to a deterioration in the measured trade balance; this is the immediate &lt;em&gt;cost effect&lt;/em&gt; of devaluation. If you were to measure in the foreign currency, the short-term value of exports would fall while the short-term value of imports would stay the same, again leading to a deterioration in the measured trade balance &lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2018-05-02T01:13:41.837" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="21774" PostTypeId="1" CreationDate="2018-05-02T04:10:33.727" Score="1" ViewCount="489" Body="&lt;p&gt;I've read that liquidity trap means interest rate is at its minimum and increase in real money stock will not lead to fall in interest rate because people will be demanding whatever the amount is being supplied at that minimum interest rate. Now in books they say that in this situation when government expenditure rises leading to a rise in income and hence a rise in money demand would not lead to a change in interest rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But according to me when the demand for money goes up it shifts the money demand curve to the right and above. Given the money supply and fixed price, this should lead to a rise in interest rate. &#xA;Same confusion arises when we reduce the real money supply under the liquidity trap situation. Book says that interest rate will not go down when money supply goes up but it says nothing about money supply going down.&lt;/p&gt;&#xA;" OwnerUserId="14617" LastActivityDate="2021-04-17T08:52:39.890" Title="What is the effect of expansionary fiscal policy in case liquidity trap situation?" Tags="&lt;macroeconomics&gt;&lt;monetary-policy&gt;&lt;money-supply&gt;&lt;fiscal-policy&gt;&lt;quantity-theory-of-money&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="21775" PostTypeId="1" AcceptedAnswerId="21778" CreationDate="2018-05-02T04:30:41.477" Score="6" ViewCount="66" Body="&lt;p&gt;I have a regression of wage on several variables, such as education, marriage and so on. I want to explain that it would be a better idea to use cluster errors, since we expect the wage to be correlated with abilities for each person, but I want to do so using a graph, what graph would you recommend me to use and why? When you have one regressor it is obvious, but here how to decide what variables to plot?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since I am using stata I would appreciate if you could help me with an example of the code for the graph.&lt;/p&gt;&#xA;" OwnerUserId="13920" LastEditorUserId="13920" LastEditDate="2018-05-02T13:01:01.860" LastActivityDate="2018-07-18T12:46:04.520" Title="What type of graph can be hepful to explain the type of errors that should be used?" Tags="&lt;econometrics&gt;&lt;applied-econometrics&gt;&lt;stata&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21777" PostTypeId="2" ParentId="21774" CreationDate="2018-05-02T09:39:06.663" Score="0" Body="&lt;p&gt;If I've understood correctly (it's not entirely clear from the question), you're asking about a policy of fiscal expansion in a depressionary environment, accompanied by a monetary expansion.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is conceivable that an increase in money supply, coupled with an increase in money demand, would lead to unchanged interest rates, if those two opposing forces balanced out.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2018-05-02T09:39:06.663" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21778" PostTypeId="2" ParentId="21775" CreationDate="2018-05-02T11:49:36.207" Score="1" Body="&lt;p&gt;You are saying: $y$ is regressed on $x_1$ and $x_2$, say, and you think it would be better to use &lt;em&gt;cluster errors&lt;/em&gt; since you expect $y$ is correlated with abilities for each person.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, $y$ is naturally correlated with the error term $u$ (if you mean the error term by &quot;abilities&quot;) because $u$ is a part of $y$. You have no problems with that; $y$ is always strongly correlated with $u$. It also has nothing to do with &lt;em&gt;cluster errors&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you happen to mean &lt;em&gt;cluster standard errors (SE)&lt;/em&gt; by &quot;cluster errors&quot;, and if you are saying that you would use cluster SE because $x_1$ is correlated with $u$, I would say that the regressor-error correlation (endogeneity) has nothing to do with cluster SE, what so ever. Cluster SE provides valid inference when the the error term show within-cluster (auto)correlation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Please enlighten me if I misinterpreted your question.&lt;/p&gt;&#xA;" OwnerUserId="10775" LastEditorUserId="10775" LastEditDate="2018-07-18T12:46:04.520" LastActivityDate="2018-07-18T12:46:04.520" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21779" PostTypeId="2" ParentId="21758" CreationDate="2018-05-02T12:16:42.040" Score="3" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Consider a consumer whose preferences can be represented by the following utility function: $$u(x_1,x_2)=\dfrac{x_2}{(1+x_1)^2}.$$&lt;/p&gt;&#xA;  &#xA;  &lt;ol start=&quot;4&quot;&gt;&#xA;    &lt;li&gt;Assume the agent's income is $y=5$. The price of one unit of good $1$ is $p_1=1$. For each unit of good $1$ the agent buys, he qualifies to buy up to one unit of good $2$ at an additional price of $p_2=1$. In other words, to buy one unit of good $2$ the agent has to first buy one unit of good $1$. The agent must consume everything he buys. Using this information, sketch the feasible set. Is it convex? Derive the utility maximizing bundle.&lt;/li&gt;&#xA;    &lt;li&gt;How does your answers to question 4. change if the agent does not have to consume everything he buys (&quot;free disposal&quot;)?&lt;/li&gt;&#xA;    &lt;/ol&gt; &#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;For Q 4 :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Utility maximization problem of the consumer is :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{eqnarray*} \max_{x_1, x_2} &amp;amp; \ \ \frac{x_2}{(1+x_1)^2} \\ \text{s.t.} &amp;amp; \ \ x_1+x_2 \leq 5 \\ \text{and} &amp;amp;  \ \ 0 \leq x_2 \leq x_1  \end{eqnarray*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is the constraint set of the consumer, along with a few indifference curves:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/MW3cw.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/MW3cw.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Observe that the constraint set is convex and the consumer does not spend all his income in optimum. His optimal consumption bundle is $(x_1, x_2) = (1,1)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For Q 5 :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Utility maximization problem (with free disposal) of the consumer is :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{eqnarray*} \max_{x_1, x_2, b_1, b_2} &amp;amp; \ \ \frac{x_2}{(1+x_1)^2} \\ \text{s.t.} &amp;amp; \ \ b_1+b_2 \leq 5 \\  &amp;amp;  \ \ 0 \leq b_2 \leq b_1  \\ \text{and} &amp;amp;  \ \ 0 \leq x_1 \leq b_1, 0 \leq x_2 \leq b_2\end{eqnarray*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here $b_1$, $b_2$ denotes the amount of the two commodities bought by the consumer, and $x_1$, $x_2$ denotes the amount consumed. In this case, the consumer will try and maximize his consumption of commodity 2 $(x_2)$ by buying as much amount of commodity 2 $(b_2)$ as he can. Clearly, the solution to this utility maximization problem is&#xA;$b_1 = b_2 = x_2 = 2.5, x_1 = 0$.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;For Q 4, here is a way to solve the optimization problem using Lagrangian method :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given the utility maximization problem of the consumer :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{eqnarray*} \max_{x_1, x_2} &amp;amp; \ \ \frac{x_2}{(1+x_1)^2} \\ \text{s.t.} &amp;amp; \ \ x_1+x_2 \leq 5 \\ \text{and} &amp;amp;  \ \ 0 \leq x_2 \leq x_1  \end{eqnarray*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We set up the Lagrangian as follows:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\mathcal{L}(x_1, x_2) = \dfrac{x_2}{(1+x_1)^2} - \lambda(x_1+x_2-5)  +\mu_1(x_1-x_2)+ \mu_2x_2 $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Necessary conditions for optimality are as follows :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\dfrac{\partial \mathcal{L}}{\partial x_1} = \dfrac{-2x_2}{(1+x_1)^3} - \lambda + \mu_1 = 0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\dfrac{\partial \mathcal{L}}{\partial x_2} = \dfrac{1}{(1+x_1)^2} -\lambda - \mu_1 + \mu_2 = 0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$x_1+x_2 \leq 5$, $\lambda \geq 0$ and $\lambda(x_1+x_2-5) = 0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$x_1 \geq x_2$, $\mu_1 \geq 0$ and $\mu_1(x_1-x_2) = 0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$x_2 \geq 0$, $\mu_2 \geq 0$ and $\mu_2x_2 = 0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Solving the above system, we get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$x_1 = 1$, $x_2 = 1$, $\mu_1 = \frac{1}{4}$, $\mu_2=0$, $\lambda = 0$&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Alternatively for Q 4, the problem can also be converted to a single variable optimization problem. This is because the individual will always consume equal amounts of $x_1$ and $x_2$ in equilibrium. Substituting $x_2=x_1$ yields :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{eqnarray*} \max_{x_2} &amp;amp; \ \ \frac{x_2}{(1+x_2)^2} \\ \text{s.t.}  &amp;amp;  \ \ 0 \leq x_2 \leq 2.5  \end{eqnarray*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Differentiating $\dfrac{x_2}{(1+x_2)^2}$ with respect to $x_2$ gives the following necessary condition&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\dfrac{(1+x_2)^2 - 2(1+x_2)x_2}{(1+x_2)^4} = \dfrac{1-x_2^2}{(1+x_2)^4} = 0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which yields $x_2 = 1$, and the corresponding value of $x_1 = 1$.&lt;/p&gt;&#xA;" OwnerUserId="11824" LastEditorUserId="11824" LastEditDate="2018-05-03T11:11:08.433" LastActivityDate="2018-05-03T11:11:08.433" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="21780" PostTypeId="2" ParentId="21769" CreationDate="2018-05-02T12:38:15.603" Score="2" Body="&lt;p&gt;In the long run, consumers cannot spend more than they earn. In the short run they can spend more, increasing consumer debt, or they can spend less, decreasing consumer debt.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is a limit to how much consumers are allowed to borrow. The limit is determined by consumer income and the interest rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If consumer debt increases faster than consumer income then eventually consumer debt will peak; bank and credit companies will stop lending more money causing a halt to the spending spree.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that consumer credit tends to increase market fluctuations. When times are good more people have jobs and consumers with jobs are allowed increased credit. When times are bad you see the opposite. &lt;/p&gt;&#xA;" OwnerUserId="11805" LastActivityDate="2018-05-02T12:38:15.603" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21781" PostTypeId="1" CreationDate="2018-05-02T12:45:52.103" Score="0" ViewCount="95" Body="&lt;p&gt;I am thinking about the first of the month. I spend more of my money on superior goods and, because of that decision, less on normal and inferior goods. Are income and substitution effects enough to explain this or not?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am thinking about a hypothesis for why people change their types of goods given that budgets change according to pre-decisions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I will not misguide you: this is not only a goods decision or money constraint; it is also related to the time constraint and time-involved work.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, an agent has a given time constraint, T, to work on his given projects over a time period, t, which requires only T-r amounts of time for the period t+1. Hence he spends the time r to do other things according to opportunity cost theory. Therefore, he spends his time working on this project only at amounts equivalent to T-r and the opportunity cost of this project decreases as time approaches t+1.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So at this point, if he is an expert at this job, everything will go smoothly but, if not, this is a false prediction and the agent has to face his false decision and survive on his present condition. The hypothesis starts here: &lt;strong&gt;1.&lt;/strong&gt; Will he increase his purchasing power (i.e., sleep less to increase the time constraint)? &lt;strong&gt;2.&lt;/strong&gt; Will he bargain with his boss to increase his time constraint? Why?&lt;/p&gt;&#xA;" OwnerUserId="17897" LastEditorUserId="18704" LastEditDate="2018-07-02T14:27:48.300" LastActivityDate="2018-12-29T19:01:50.373" Title="What economics theory explains changes in purchasing different types of goods?" Tags="&lt;microeconomics&gt;&lt;behavioral-economics&gt;" AnswerCount="1" CommentCount="8" FavoriteCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21783" PostTypeId="2" ParentId="21767" CreationDate="2018-05-02T17:38:02.413" Score="0" Body="&lt;p&gt;(a) The effect of this policy change sounds theoretically ambiguous to me. It ultimately depends on the consumers' preferences. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;An increase in interest payments lowers the opportunity cost of having cash, which might make some consumers better off by saving more and some might see this is a relief and hold more cash. We need an utility function in order to know how consumers would react to the policy change.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(b) Again, ambiguous. It depends on the liquid effect of the policy change on money demand. Let's first remember the Equation of Exchange:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$MV=PQ$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If consumers deposit more money on checking accounts, money supply goes up. Given the price level and output are fixed (we're in the short run), an increase in $M$ makes the money velocity $V$ decrease. On the other hand, if consumers deposit &lt;em&gt;less&lt;/em&gt; on checking accounts, money supply goes down and velocity of money increases. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(c) The correct answer - at least in my understanding - is that it's ambiguous. If the money supply increases, the LM shifts to the right and if it decreases, to the left.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(d) If the LM shifts to the right and the price level is fixed, output goes up and interest rates go down, if it shifts to the left, output goes down and interest rates go up.&lt;/p&gt;&#xA;" OwnerUserId="18167" LastActivityDate="2018-05-02T17:38:02.413" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21784" PostTypeId="2" ParentId="21781" CreationDate="2018-05-02T17:53:57.023" Score="1" Body="&lt;p&gt;If you research &quot;discount rates&quot;, &quot;time preference&quot; or similar, you'll find all sorts of stuff about seemingly inconsistent decisions, some of which can in fact be explained quite well and some of which show some ways that people can be dumb sometimes. You'll find lots of approaches to modelling comparisons involving things like someone revealing an implicit interest rate of over 100% per annum in one situation while accepting 5% as a good return in another situation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I wouldn't focus too much on any specific paper. Check the bibliographies and see the variety of what's out there, and maybe narrow in on a handful of most-promising conceptualizations afterwards.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a point of contrast, you could introduce the lifetime income hypothesis of Friedman as discussed in many 1st and 2nd year textbooks.&lt;/p&gt;&#xA;" OwnerUserId="16499" LastActivityDate="2018-05-02T17:53:57.023" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="21785" PostTypeId="1" AcceptedAnswerId="21801" CreationDate="2018-05-02T18:01:36.010" Score="2" ViewCount="100" Body="&lt;p&gt;All the discussions of the velocity of money that I've come across (e.g. &lt;a href=&quot;https://en.wikipedia.org/wiki/Velocity_of_money&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;, &lt;a href=&quot;https://fredblog.stlouisfed.org/2014/08/m2-velocity-and-inflation/&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;, and &lt;a href=&quot;https://fred.stlouisfed.org/series/M2V&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;) only display relative changes in the velocity of the money (e.g. by normalizing it by an unspecified value). I've never seen any source report an actual numerical value (with the units of inverse time) for a given point in time, for any choice of money supply. Does anyone have a reference for such a value?&lt;/p&gt;&#xA;" OwnerUserId="14832" LastActivityDate="2018-05-03T22:28:37.927" Title="What is the actual numerical value of the velocity of money?" Tags="&lt;money-supply&gt;&lt;money&gt;" AnswerCount="1" CommentCount="8" ContentLicense="CC BY-SA 4.0" />
  <row Id="21786" PostTypeId="1" CreationDate="2018-05-02T18:56:57.783" Score="0" ViewCount="33" Body="&lt;p&gt;This question only considers federal taxes in the United States. Also, by &quot;capital income&quot; I am including dividends, interest, capital gains, corporate incomes and estates.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Chamley-Judd result states that under certain assumptions, capital income should be untaxed to maximize economic efficiency. More recently work has called some of those assumptions into question and suggested that a positive capital income tax is optimal, but I believe that there is more or less of a consensus across economists that from a pure economic efficiently standpoint, capital income taxes should be significantly lower than they currently are.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Nevertheless, many economists oppose lowering the capital income tax rate (possibly offset by a uniform increase in the ordinary income rates) on fairness/distributive grounds, as people who earn capital income tend to be wealthier than average, so the capital gains tax is significantly progressive (at least in the short term, when we can neglect changes in economic growth), and so such a change would probably be regressive.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Opponents of capital income taxation &lt;a href=&quot;http://www.thebigquestions.com/2011/09/07/the-romney-plan/&quot; rel=&quot;nofollow noreferrer&quot;&gt;respond&lt;/a&gt; that any decrease in the overall progressivity of the federal tax system brought about by eliminating capital income taxation can simply be compensated for by making the ordinary income tax rates more progressive. While there would certainly be individual winners and losers under such a change (e.g. people who earn significantly more or less of their income from capital than most people &lt;em&gt;at their same income level&lt;/em&gt;), in principle the distribution of effective overall federal tax rates across the entire US population could be left completely unchanged by sufficiently precise tweaks to the ordinary income brackets. Such a change would boost the tax code's efficiency while leaving its progressivity unchanged. (I'm assuming that everyone pays their taxes honestly and neglecting any changes in tax evasion that this change might cause.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If all capital income taxation were eliminated in the US, how would the ordinary income tax brackets need to change in order to keep the federal tax system's overall progressivity the same?&lt;/p&gt;&#xA;" OwnerUserId="14832" LastEditorUserId="14832" LastEditDate="2018-05-02T23:41:44.593" LastActivityDate="2018-05-02T23:41:44.593" Title="If US capital income taxation were eliminated, which ordinary income tax brackets would be equally progressive?" Tags="&lt;taxation&gt;&lt;pareto-efficiency&gt;&lt;capital-returns&gt;&lt;optimal-taxation&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="21789" PostTypeId="1" AcceptedAnswerId="21791" CreationDate="2018-05-03T06:43:52.230" Score="1" ViewCount="46" Body="&lt;p&gt;I have a conceptual econometrics question I was hoping to get some help with.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have a panel of 100 individual firms over time (10 years) at the quarterly frequency across 10 countries. One of the questions I'm interested in is about whether there are fixed differences across countries with respect to the dependent variable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The initially obvious way to me of looking at this is to drop the firm fixed effects in my regression and include country dummies instead.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But I was wondering if it's feasible/makes sense to get at the same question by averaging the firm fixed effect parameters in some way within country groups. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And if so, would this be unambiguously better (considering that the Hausman test points to the value of including firm fixed effects)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks for your help and let me know if anything is unclear. This is my first post&lt;/p&gt;&#xA;" OwnerUserId="18188" LastActivityDate="2018-05-03T13:12:42.480" Title="Extracting group effects from individual fixed effects" Tags="&lt;econometrics&gt;&lt;paneldata&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21790" PostTypeId="1" AcceptedAnswerId="21830" CreationDate="2018-05-03T07:12:01.243" Score="2" ViewCount="175" Body="&lt;p&gt;Della’s utility is $U(G,R)$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;G is the consumption of gasoline per week&lt;/p&gt;&#xA;&#xA;&lt;p&gt;R is the the consumption of other goods &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/W3rxD.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/W3rxD.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Just help me to write down budget constraint. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think that &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$R*1+(G-20)*10+20*1=1000+10*X$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where &lt;/p&gt;&#xA;&#xA;&lt;p&gt;X is the amount of the gasoline that she sell on the black market. &lt;/p&gt;&#xA;" OwnerUserId="6134" LastActivityDate="2018-05-05T00:47:07.117" Title="How to write budget constraint if the agent sell the goods that buy" Tags="&lt;microeconomics&gt;&lt;game-theory&gt;&lt;utility&gt;&lt;consumer-theory&gt;&lt;self-study&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="21791" PostTypeId="2" ParentId="21789" CreationDate="2018-05-03T13:12:42.480" Score="0" Body="&lt;p&gt;Good question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You observe $y_{ijt}$ ($i$: firm, $j$: country, $t$: time). Let us not consider time effects as they are irrelevant to our discussion. You are considering identifying &quot;country effects&quot; using two approaches.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In short, the two are as different as RE vs FE in standard 2D panel models, with the main difference being in what you assume about the correlation of the explanatory variables and the firm effects within country groups. (i) Dropping firm-effects and using country dummies gives consistency if firms within the same country have no fixed effects [1]. (ii) Defining country effects by the averages of firm fixed-effects allows for firm-level fixed effects [1] correlated with the regressor levels.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;More detailed discussions follow.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your first approach (of having country dummies and no firm effects) is represented by the model $y_{ijt} = c_j + X_{ijt}\beta + v_{ijt}$, with $E(v_{ijt})=0$ and $X_{ijt}$ being uncorrelated with $v_{ijt}$. If there is no firm-level correlation of $X$ and $v$ within country groups (that is, if $X_{ijt}$ is exogenous to the error $v_{ijt}$), the random-effects regression (POLS or FGLS or whatever) of this model gives consistent estimators. However, if $v_{ijt}$ contains firm-level fixed effects (say, $\mu_{ij}$) that are correlated with the level of $X_{ijt}$, this approach leads to inconsistency.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The model corresponding to your second approach is $y_{it} = c_j + \mu_{ij} + X_{ijt}\beta + e_{ijt}$, where $E(e_{ijt} | X_{ij1}, \ldots, X_{ijT})=0$ for all $t$. What is important here is that $c_j$ and $\mu_{ij}$ are not separately identified without further restrictions even under this strict exogeneity of $X_{ijt}$ (because you can add a constant to $\mu_j$ and subtract the same constant from $\mu_{ij}$). You are proposing to define $c_j$ by the further restriction that $n_j^{-1} \sum_{i=1}^{n_j} \mu_{ij}=0$, which is fine.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is the real difference between the two approaches? For the model $y_{it} = c_j + \mu_{ij} + X_{ijt}\beta + e_{ijt}$, the difference is that the first assumes that $X_{ijt}$ is exogenous to $\mu_{ij} + e_{ijt}$ while the second assumes that $X_{ijt}$ is exogenous to $e_{ijt}$. Under the assumption that $X_{ijt}$ is strictly exogenous to $e_{ijt}$, the difference is reduced to whether $X_{ijt}$ is correlated with $\mu_{ij}$. If, within a country, a firm with high $X_{ijt}$ level has higher $\mu_{ij}$, then only the second approach gives a consistent estimator. It is all the same as any RE vs FE considerations in standard (2D) panel data models.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;[1] &quot;Fixed effects&quot; above mean time-invariant effects that are possibly correlated with the levels of the explanatory variables.&lt;/p&gt;&#xA;" OwnerUserId="10775" LastActivityDate="2018-05-03T13:12:42.480" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="21792" PostTypeId="1" CreationDate="2018-05-03T13:33:23.380" Score="1" ViewCount="46" Body="&lt;p&gt;I'm highly interested in theories and models which explain how do social conflicts influence economic growth. &#xA;What papers on the topic can you recommend? I was searching for some seminal and most important articles just to get into, but there is so much of them. &#xA;Would it be okay to start from: Benhabib J., &quot;Social conflict and growth&quot;? &#xA;Thank you.&lt;/p&gt;&#xA;" OwnerUserId="16083" LastEditorUserId="12304" LastEditDate="2018-05-05T15:04:24.613" LastActivityDate="2018-05-05T15:04:24.613" Title="Social conflicts in economic growth models" Tags="&lt;macroeconomics&gt;&lt;reference-request&gt;&lt;economic-growth&gt;&lt;social-welfare&gt;&lt;social-choice&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="21793" PostTypeId="2" ParentId="21770" CreationDate="2018-05-03T15:28:54.737" Score="-1" Body="&lt;p&gt;You want something that correlates with minimum wages but not other determinants of employment. It will be difficult to find something that is really convincing. You could try variables related to politics, for instance democratic/republican party state governments or something in that direction.&lt;/p&gt;&#xA;" OwnerUserId="11216" LastActivityDate="2018-05-03T15:28:54.737" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="21794" PostTypeId="1" CreationDate="2018-05-03T16:24:03.577" Score="1" ViewCount="214" Body="&lt;p&gt;Friedman has stated in his &quot;&lt;a href=&quot;https://en.m.wikipedia.org/wiki/Friedman%27s_k-percent_rule&quot; rel=&quot;nofollow noreferrer&quot;&gt;k-precent rule&lt;/a&gt;&quot; that the money supply should &lt;strong&gt;increase&lt;/strong&gt; by a fixed percentage each year.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand, the &quot;&lt;a href=&quot;https://en.m.wikipedia.org/wiki/Friedman_rule&quot; rel=&quot;nofollow noreferrer&quot;&gt;Friedman rule&lt;/a&gt;&quot; states that the nominal interest rate should be 0, (which would cause &lt;strong&gt;deflaction&lt;/strong&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Am I correct in thinking that Friedman is contradicting himself here?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Something else that seems to contradict the Friedman rule: he at a different point has stated that he would be in favor of a gold standard, which would effectively mean that the money supply would grow by an amount that depends on whatever gold production is, which is generally a small percentage.&lt;/p&gt;&#xA;" OwnerUserId="11146" LastEditorUserId="11146" LastEditDate="2018-05-03T18:07:53.660" LastActivityDate="2018-05-03T18:07:53.660" Title="Friedman rule vs Friedman's k-percent rule" Tags="&lt;monetary-policy&gt;&lt;friedman&gt;" AnswerCount="0" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="21795" PostTypeId="1" CreationDate="2018-05-03T16:46:11.483" Score="2" ViewCount="168" Body="&lt;p&gt;I am interested in a (reasonably) quantified explanation of why the work week in most of the world is 40 hrs and not for example 20? How did we arrive to the number 40.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another question is, and here I understand I can't expect quantification so much, is why there are more part time jobs available in the low income range (menial work) but not so much among knowledge workers? For example, I am a software engineer living in a major metropolitan area, still finding part-time work is very hard. Seems like everyone wants full-time employees or at least contractors.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am perplexed by this state of the labor market and would like to learn some perspectives on this from schooled economists.&lt;/p&gt;&#xA;" OwnerUserId="4699" LastEditorUserId="12304" LastEditDate="2018-05-04T03:42:46.110" LastActivityDate="2018-05-06T11:45:06.443" Title="How did we arrive to 40 hr work week?" Tags="&lt;labor-economics&gt;" AnswerCount="2" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="21796" PostTypeId="1" CreationDate="2018-05-03T17:50:24.117" Score="2" ViewCount="317" Body="&lt;p&gt;I'm not sure how to determine the range for which a shadow price is valid.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;You might be able to skip straight to the question here.&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've been introduced to it using the following approach in 2D.&lt;/p&gt;&#xA;&#xA;&lt;h1&gt;Context&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;Given an optimal solution which is at a corner, there are two intersecting&#xA;lines. Say that these lines represent the following inequalities&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{equation}&#xA;  \begin{aligned}&#xA;    2K + 3S &amp;amp; \leq 10 \\&#xA;    K + 2S &amp;amp; \leq 6 \\&#xA;    Z &amp;amp; = 30K  +  50S&#xA;  \end{aligned}&#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then the shadow price is the change in the objective function, $Z$, when the&#xA;right hand side of an inequality is changed by one unit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Computing this for the second equation is done as follows:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{equation}&#xA;  \begin{aligned}&#xA;    2K + 3S &amp;amp; \leq 10 \\ &#xA;    K + 2S &amp;amp; \leq 6 + \Delta\\&#xA;  \end{aligned}&#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then subtracting the second equation from the first twice&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{equation}&#xA;  \begin{aligned}&#xA;    S &amp;amp; = 2 +  2 \Delta&#xA;  \end{aligned}&#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore &lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{equation}&#xA;  \begin{aligned}&#xA;    K &amp;amp;= 2 - 3 \Delta&#xA;  \end{aligned}&#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And the objective function can be written as &lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{equation}&#xA;  \begin{aligned}&#xA;    30K + 50S &amp;amp;= 30(2 - 3 \Delta) + 50(2 + 2\Delta) \\&#xA;    &amp;amp;= 160 + 10 \Delta&#xA;  \end{aligned}&#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And the shadow price is found from $z(1) - z(0)$, where $z(\Delta) = 160 + 10&#xA;\Delta$ which gives $10$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Therefore the shadow price is 10.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But how do I compute the range for which this is valid? I can get through the&#xA;algebra here pretty easily, but there's little meaning to it.&lt;/p&gt;&#xA;&#xA;&lt;h1&gt;Question&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;How do I determine the range for which I can adjust the second inequality such&#xA;that the difference made to the objective function is $10 \times&#xA;\text{adjustment}$.&lt;/p&gt;&#xA;" OwnerUserId="18193" LastActivityDate="2018-05-17T19:48:10.407" Title="Linear programming, shadow price range" Tags="&lt;optimization&gt;&lt;linear-programming&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21798" PostTypeId="1" CreationDate="2018-05-03T20:39:13.540" Score="-2" ViewCount="218" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/8YFbd.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/8YFbd.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some help with this would be appreciated. &lt;/p&gt;&#xA;" OwnerUserId="18195" LastActivityDate="2018-05-04T21:41:16.800" Title="Production function question" Tags="&lt;macroeconomics&gt;&lt;production-function&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21801" PostTypeId="2" ParentId="21785" CreationDate="2018-05-03T22:28:37.927" Score="0" Body="&lt;p&gt;(It appears that the answer was supplied in the original question. The third link was to the time series for the M2 velocity for the United States. This answer is just taking text out of the comments.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The linked chart &lt;a href=&quot;https://fred.stlouisfed.org/series/M2V&quot; rel=&quot;nofollow noreferrer&quot;&gt;link to FRED website&lt;/a&gt; is of the ratio: (nominal GDP at an annual rate) divided by M2 (for the United States).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The units for annualised GDP are \$ per year, and the units for M2 are \$; the \$ cancels and we end up with 1/years as units. (This is tracking units the way that is done in the physical sciences.) If we took non-annualised quarterly GDP, the ratio would be 1/4 as large.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some economics charts can be confusing from the perspective of physical sciences, because the inverse time units for flows are suppressed. This is a convention that has held for decades; you just have to know what is being done. It probably causes problems because people often look at mixes of stock and flow variables, such as the infamous debt-to-GDP ratio. &lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2018-05-03T22:28:37.927" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="21802" PostTypeId="2" ParentId="21795" CreationDate="2018-05-04T04:10:34.583" Score="8" Body="&lt;p&gt;The 40-week comes started with the movement of the 8h working day. The &lt;a href=&quot;https://en.wikipedia.org/wiki/Eight-hour_day&quot; rel=&quot;noreferrer&quot;&gt;wikipedia article&lt;/a&gt; makes a quick summary of the historical progress of thinking from 12h work days in Britain during the industrial revolution to the nowadays 8h/day.&lt;/p&gt;&#xA;&lt;p&gt;The quick summary is that after the first world war, the International Labour Organization (ILO) was formed and its first convention was defining limits for the work day:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Having decided (...) the &amp;quot;application of the principle of the 8-hours day or of the 48-hours week&amp;quot; which is the first item in the agenda&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;From &lt;em&gt;&lt;a href=&quot;http://www.ilo.org/dyn/normlex/en/f?p=NORMLEXPUB:12100:0::NO::P12100_ILO_CODE:C001&quot; rel=&quot;noreferrer&quot;&gt;Convention Limiting the Hours of Work in Industrial Undertakings to Eight in the Day and Forty-eight in the Week (ILO, 1919)&lt;/a&gt;&lt;/em&gt;&lt;/p&gt;&#xA;&lt;p&gt;This meant that generally workers would work 8h/day as a maximum, with 1 day of rest per week. 52 countries have ratified this convention, although &lt;a href=&quot;http://www.ilo.org/dyn/normlex/en/f?p=1000:11300:0::NO:11300:P11300_INSTRUMENT_ID:312146&quot; rel=&quot;noreferrer&quot;&gt;not immediately&lt;/a&gt;.&lt;/p&gt;&#xA;&lt;p&gt;The change for the 40h week came in 1935, with another ILO convention, which explains the motivations in its preamble:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Considering that unemployment has become so widespread and long continued that there are at the present time many millions of workers throughout the world suffering hardship and privation for which they are not themselves responsible and from which they are justly entitled to be relieved;&lt;/p&gt;&#xA;&lt;p&gt;Considering that it is desirable that workers should as far as practicable be enabled to share in the benefits of the rapid technical progress which is a characteristic of modern industry; and&lt;/p&gt;&#xA;&lt;p&gt;Considering that in pursuance of the Resolutions adopted by the Eighteenth and Nineteenth Sessions of the International Labour Conference it is necessary that a continuous effort should be made to reduce hours of work in all forms of employment to such extent as is possible;&lt;/p&gt;&#xA;&lt;p&gt;adopts (...) the following Convention, which may be cited as the Forty-Hour Week Convention, 1935:&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;From: &lt;a href=&quot;http://www.ilo.org/dyn/normlex/en/f?p=NORMLEXPUB:12100:::NO:12100:P12100_ILO_CODE:C047:NO&quot; rel=&quot;noreferrer&quot;&gt;&lt;em&gt;ILO Forty-Hour Week Convention, 1935 (No. 47)&lt;/em&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&lt;p&gt;This later convention has been ratified by &lt;a href=&quot;http://www.ilo.org/dyn/normlex/en/f?p=1000:11300:0::NO:11300:P11300_INSTRUMENT_ID:312192&quot; rel=&quot;noreferrer&quot;&gt;15 countries&lt;/a&gt; only.&lt;/p&gt;&#xA;&lt;p&gt;Further recommendations on the reduction of hours were made in 1962 (&lt;a href=&quot;http://www.ilo.org/dyn/normlex/en/f?p=NORMLEXPUB:12100:::NO:12100:P12100_ILO_CODE:R116:NO&quot; rel=&quot;noreferrer&quot;&gt;source ILO&lt;/a&gt;). The ILO also has a page summarizing the work done in the last 100 years on &lt;a href=&quot;http://www.ilo.org/global/standards/subjects-covered-by-international-labour-standards/working-time/lang--en/index.htm&quot; rel=&quot;noreferrer&quot;&gt;working time&lt;/a&gt;, which is a great resource to learn more.&lt;/p&gt;&#xA;" OwnerUserId="12304" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2018-05-04T04:10:34.583" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21804" PostTypeId="2" ParentId="21798" CreationDate="2018-05-04T04:17:35.007" Score="-1" Body="&lt;p&gt;I just have one answer :&#xA;You take into account the real wage cause you want to simplify the model. If you put the inflation then the model will have the Cost Inversion ( which have the inflation).&lt;/p&gt;&#xA;" OwnerUserId="18158" LastActivityDate="2018-05-04T04:17:35.007" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21805" PostTypeId="1" CreationDate="2018-05-04T04:28:58.190" Score="1" ViewCount="61" Body="&lt;p&gt;I work a lot with Harmonised System Codes (&lt;a href=&quot;https://en.wikipedia.org/wiki/Harmonized_System&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://en.wikipedia.org/wiki/Harmonized_System&lt;/a&gt;). In a nutshell, the Harmonised System (HS) provides a way to record all goods based trade in and out of a country. Countries also impose tariffs (taxes) and other conditions on goods based off the HS system.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem with the HS system is that some of the groupings are not &quot;free standing&quot;, meaning that they have words such as &quot;not elsewhere specified&quot;, or &quot;includes goods other than those under this HS code.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a consequence, some analyst will introduce a grouping system on top of the HS. For example, they say that this chunk of HS codes will be summarised as &quot;beef and veal&quot;, these codes as &quot;cars&quot; etc. However, many analyst also don't declare what the groupings mean when they publish their research.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is a Standard International Trade Classification (SITC)(&lt;a href=&quot;https://en.wikipedia.org/wiki/Standard_International_Trade_Classification&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://en.wikipedia.org/wiki/Standard_International_Trade_Classification&lt;/a&gt;) but this does not match well with the HS codes.  This means I can't group HS codes by SITC, report the trade values and tariffs in a database.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question whether the community has come across any grouping system that works with the HS coding system? From my research, I noticed that DG Agri has this system but it is only for agricultural products.&lt;br&gt;&#xA;&lt;a href=&quot;https://ec.europa.eu/agriculture/sites/agriculture/files/trade-analysis/statistics/outside-eu/2015/product-classes-details_en.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://ec.europa.eu/agriculture/sites/agriculture/files/trade-analysis/statistics/outside-eu/2015/product-classes-details_en.pdf&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also on agriculture, the World Trade Organization has a single grouping for &quot;Agriculture&quot; (using Annex 1 of the Agreement on Agriculture) but doesn't split the groupings any further.&lt;/p&gt;&#xA;" OwnerUserId="18199" LastActivityDate="2021-05-08T12:03:05.407" Title="Categorisation of Harmonised System codes for economic analysis" Tags="&lt;international-trade&gt;&lt;paneldata&gt;&lt;agriculture&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21806" PostTypeId="1" AcceptedAnswerId="21985" CreationDate="2018-05-04T06:12:37.070" Score="1" ViewCount="74" Body="&lt;p&gt;Hi All: I have the Lucas, 1972b paper &quot;Econometric Testing Of the Natural Rate Hypothesis&quot; but unfortunately not as a pdf. ( it's from a book that contains a lot of Lucas' papers called &quot;studies in business cycle theory&quot;).  Assuming that someone reading this question has read that paper and understood it, could you explain how equations 11) and 12) come about. Thank you very much for your help.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;ADDENDUM TO ORIGINAL QUESTION:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am going to write the equations that lead up to the two equations &#xA;that I don't follow the derivation of. My hope is that not many people have&#xA;the pdf of the file so  the equations will obviously help.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) $y_t = a(P_{t} - P^{*}_{t})$  (aggregate supply function ).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;7) $y_{t} + P_{t} = x_{t}$ ( aggregate demand schedule )&lt;/p&gt;&#xA;&#xA;&lt;p&gt;8) $x_{t} =\rho_{1} x_{t-1} + \rho_{2} x_{t-2} + \epsilon_{t}$ ( AR(2) for $x_{t}$ ). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;9)  $ P_{t}^{*} = E(P_{t+1}| x_{t}, x_{t-1}, \eta_{t}) + \eta_{t} $ &#xA;( Definition of agent's expectation of the price at time $t+1$. )&lt;/p&gt;&#xA;&#xA;&lt;p&gt;10) $ (1+a) P_{t} - a P^{*} _{t} = x_{t} $ &#xA;(obtained by straightforward algebraic manipulation of  (1) and (7). )&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Meanings of variables:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) $P_{t}$ is the price level at time t.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) $P^{*}_{t}$ is the expected price level at time t+1 where the expectation is taken at time t. ( the agent's expectation of price level ). Essentially, $P_{t+1}$ is the next period's price level, the variable of which, $P^{*}_{t}$, is a forecast. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;3) $y_{t}$ is the output at time t.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;4) $x_{t}$ is the log of the money supply and is a shift parameter. It is part of a policy rule which gives the current value of $x_{t}$ as a function of the state of the system.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;After these equations are explained,&#xA;the author then says: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;We shall seek linear solutions $P_{t}$ and $P^{*}_{t}$ to equations 9 and 10: &quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;11) $P_{t} = \pi_{1} x_{t} + \pi_{2} x_{t-1} + \pi_{3} \eta_{t} $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;12)  $ P^{*}_{t} = \pi_{4} x_{t} + \pi_{5} x_{t-1} + \pi_{6} \eta_{t} $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Equations 11) and 12) are the equations whose derivation escapes me totally. Thanks a lot for your help.&#xA;                                               Mark&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;                                                     Mark&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;P.S: For any newbies wrestling with the theory behind RE, this paper is the clearest and simplest that I have found, aside from the derivation of 11) and 12). I highly recommend it. I only found the book recently and have decided that out of all the top RE people, Lucas really stands out as far as the clarity of his writings. &lt;/p&gt;&#xA;" OwnerUserId="18201" LastEditorUserId="18201" LastEditDate="2018-05-04T20:21:14.630" LastActivityDate="2018-05-14T07:42:59.510" Title="question regarding econometric testing of the natural rate hypothesis" Tags="&lt;natural-rate-unemployment&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="21807" PostTypeId="2" ParentId="13743" CreationDate="2018-05-04T06:34:56.250" Score="1" Body="&lt;p&gt;The best place for this information is WTO TAO. The data does require a little cleaning but you have information on a countries' mfn&lt;/p&gt;&#xA;" OwnerUserId="18199" LastActivityDate="2018-05-04T06:34:56.250" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21808" PostTypeId="2" ParentId="10282" CreationDate="2018-05-04T06:38:56.307" Score="0" Body="&lt;p&gt;I know this is a little late, (just joined this forum two hours ago) but if it is still relevant. You should look at the Australian Department of Foreign Affairs and Trade TRIEC system (Google &quot;DFAT TRIEC&quot;) It is an established system and useful for high level groupings. You might try to use their groupings and hopefully be able to answer the questions from the analysis.&lt;/p&gt;&#xA;" OwnerUserId="18199" LastActivityDate="2018-05-04T06:38:56.307" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21809" PostTypeId="1" AcceptedAnswerId="21811" CreationDate="2018-05-04T08:20:35.493" Score="2" ViewCount="44" Body="&lt;p&gt;$\int_a^b u(x)dF(x)$ (1)$ = u(t)F(t)|_a^b - \int_a^b F(t)u^\prime(t)dt$ (2)$ = u(b)-\int_a^b F(t)u^\prime(t)dt$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$= u(b)-(\Phi(t)u^\prime(t)|_a^b-\int_a^b \Phi(t)u^{\prime\prime}(t)dt=u(b)-\Phi(b)u^\prime(b)+\int_a^b \Phi(t)u^{\prime\prime}(t)dt$.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;From (1) to (2), I know that it is a partial derivative, but shoudn't it be $u(t)F(t)|_a^b - \int_a^b F(t)u^\prime(t)dF(t)$?? How can we transform $dF(t)$ to $dt$?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I also want to know why $\Phi(b)$ is not equal to 1. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I attach the original paper in case the information is not enough. &lt;a href=&quot;https://i.stack.imgur.com/QCWkQ.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/QCWkQ.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="17957" LastActivityDate="2018-05-04T19:12:15.737" Title="understanding the proof of stochastic dominance." Tags="&lt;microeconomics&gt;&lt;theory&gt;&lt;probability&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21811" PostTypeId="2" ParentId="21809" CreationDate="2018-05-04T10:46:10.083" Score="5" Body="&lt;p&gt;That's just a question of notation. Note that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\mathcal{d}F(t) = f(t)\mathcal{d}t$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then the proof should be easy to understand.&lt;/p&gt;&#xA;" OwnerUserId="18192" LastActivityDate="2018-05-04T10:46:10.083" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21815" PostTypeId="1" CreationDate="2018-05-04T13:12:33.017" Score="0" ViewCount="116" Body="&lt;p&gt;I understand that you measure inflation by first measuring what the average person buys. Then you compare the total cost of these goods in year x with year y to get the inflation (from x to y).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem: Not only the cost of goods, but also the quantity that people buy changes all the time. Things go out of fashion or are replaced by different (better?) things. When you calculate inflation, you implicitly assume that the amount of goods people buy is constant (during the measurement period, say one year). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I do not doubt that this is reasonable from the practical perspective. But I doubt that today's inflation measurement approximates a well-defined concept. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume you know for every day/month/year how much people buy from each product and what it costs, what would be the formula for inflation? How do you incorporate the fact that people might by apples at 1\$ in May and oranges at 2\$ in June, i.e. that costs and quantities change all the time?&lt;/p&gt;&#xA;" OwnerUserId="18207" LastEditorUserId="10402" LastEditDate="2018-05-06T09:15:07.800" LastActivityDate="2018-05-06T09:15:07.800" Title="What really is inflation?" Tags="&lt;inflation&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="21816" PostTypeId="1" AcceptedAnswerId="21821" CreationDate="2018-05-04T14:12:30.407" Score="1" ViewCount="125" Body="&lt;p&gt;My country has major economical headaches each 10 years or so, like hyperinflation or defaults or things like that. It's been 17 years since the last major crisis (a larger crisis than the 1930's crisis) but it looks like we are aiming again towards the same. Usually we have trade imbalances or fiscal deficits which causes my country being unable to sustain the current money exchange rate, the goverment devaluates the currency and that leads people to increase the price of the goods in the same rate &quot;just in case other prices increase the same rate&quot;, that usually is the cause of a snowball inflation. &#xA;I was taking a look at our current imports. Usually I can't get a detailed list but we have a trade imbalance deficit record of 8,47 billions last year (2017) and the car imports increased in 2 billions in one year, being 6,3 billion total the amount of imported cars. My question is, being the trade imbalance a major cause in the inflation we have, why we just can't stop importing cars, at least in the proportion it creates imbalances? Why we can't live with new cars or imported (non national) cars? Could there be any serious consequences to this or we are just paying the consequences of some people wanting to live with goods/cars which signals their high social status?  &lt;/p&gt;&#xA;" OwnerUserId="8165" LastEditorUserId="8165" LastEditDate="2018-05-04T14:22:01.650" LastActivityDate="2018-05-04T18:01:55.547" Title="Which economical consequences could happen to a country if it forbiddes importing cars?" Tags="&lt;inflation&gt;&lt;balance-of-trade&gt;&lt;free-trade&gt;&lt;free-market&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="21817" PostTypeId="1" AcceptedAnswerId="21818" CreationDate="2018-05-04T15:00:43.187" Score="1" ViewCount="16" Body="&lt;p&gt;Countries all the time takes measures at national level, and several times they create disasters. For example, they believe adding or removing a new tax will be positive for the overall economy, and it turns out to be bad and it causes a big problem. Are there examples of countries taking measures at city level, to see if that measure could succeed or fail nation wide? For example, trying how a tax affects economy in a small town first, if it impacts positively, trying it in a city, if it fails, restore the town's economy to its original state (since it is a small town a country with all its resources can fix economical mistakes in a town) and if it goes well scalate the measure, after the town, trying in a city, later in a county or deparment, later in a province or state, to finally reach nation wide. Do countries ever do things like that, is there any example of a country doing such thing?&lt;/p&gt;&#xA;" OwnerUserId="8165" LastActivityDate="2018-05-04T15:08:15.423" Title="Have countries ever tested economical measures at city level?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21818" PostTypeId="2" ParentId="21817" CreationDate="2018-05-04T15:08:15.423" Score="2" Body="&lt;p&gt;Yes, there are lots of examples of countries piloting new economic measures before they are rolled out nationwide.  A couple of recent examples are of &lt;a href=&quot;https://www.theguardian.com/world/2017/jan/03/finland-trials-basic-income-for-unemployed&quot; rel=&quot;nofollow noreferrer&quot;&gt;Finland piloting universal basic income&lt;/a&gt; and the &lt;a href=&quot;https://www.gov.uk/government/publications/universal-credit-implementation-findings-from-local-authority-pilots&quot; rel=&quot;nofollow noreferrer&quot;&gt;UK piloting universal credit&lt;/a&gt; in 12 local authorities, which was then &lt;a href=&quot;https://www.entitledto.co.uk/help/Universal-Credit-Pilot&quot; rel=&quot;nofollow noreferrer&quot;&gt;extended nationwide in a number of stages&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="16631" LastActivityDate="2018-05-04T15:08:15.423" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21821" PostTypeId="2" ParentId="21816" CreationDate="2018-05-04T17:42:20.347" Score="2" Body="&lt;p&gt;1- Some basic macroeconomic fundamentals&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I highly doubt a trade imbalance is causing high inflation. The trade deficit is likely happening because of economists call &quot;Twin Deficits&quot;. I'll spare you the accounting that leads to this equation and present you a setorial balances identity. Let $S$ be private savings, $I$ be capital formation, $G$ be government spending, $T$ be government revenue (in taxes), $X$ be exports and $M$, imports. We have:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$(S-I) + (T-G) = (X-M)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In intuitive terms, the private sector balance plus the public sector balance, which is basically the domestic balance, must equal the trade balance. This happens due to sheer accounting, it's not a &quot;theory&quot;. This is the same in the US, Venezuela, China and in a tribe of herdsman.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When $(T-G)$ is negative, we have a budget deficit - your country's case. Assuming people are saving the same amount, investment must fall or imports must go up. The more realistic scenario is that both things happen. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And we also have the Long-Run Fiscal Equilibrium condition. Let $M^s$ be money supply, $B$ be government debt, $P$ the price level, $r$ be the real interest rate and $t$ be time, we have:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{M^s + B}{P} = \sum_{t=0}^{\infty} \frac{(T_t - G_t)}{(1+r)^t}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This basically means that real government passive must equal the liquid present value of expected government savings. If people expect the government to continue to have budget deficits, either interest rates or the price level must go up. That's what's causing inflation. This also means that if the government increases the money supply without credibly signalling it will save more in the future, it will also implicate an increase in the price level, inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2- Some basic microeconomic fundamentals&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If importing cars gets prohibited, the supply of cars will go down. The supply curve shifts to the left. This means less cars available and more expensive ones.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Higher car prices signal domestic producers to make more cars. Supply goes up again and prices tend to converge to a new equilibrium. The problem is making cars domesctically might no be very efficient. Your country employs more capital and labor in other activities because it is more productive to do so. If it weren't and there was an easy opportunity to make money by producing cars, people would just do it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Restricting imports is basically making your country poorer by forcing it to have less goods and services available and allocating precious capital and labor to activities that aren't as productive. It's a &lt;em&gt;very&lt;/em&gt; bad idea.&lt;/p&gt;&#xA;" OwnerUserId="18167" LastEditorUserId="18167" LastEditDate="2018-05-04T18:01:55.547" LastActivityDate="2018-05-04T18:01:55.547" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="21823" PostTypeId="2" ParentId="21815" CreationDate="2018-05-04T18:23:05.117" Score="1" Body="&lt;p&gt;This is a really big topic and you're essentially questioning why don't we calculate price levels using Paasche's indexes instead of Laspeyre's. Well, one &quot;simple&quot; answer is that's it's very expensive to maintain a detailed account of what a representative consumer basket should be. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There's people trying alternatives to this, like the &lt;a href=&quot;http://www.thebillionpricesproject.com/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Billion Prices Project&lt;/a&gt;, but their estimated inflation is very close to the one we estimate through traditional, constant consumer basket method.&lt;/p&gt;&#xA;" OwnerUserId="18167" LastActivityDate="2018-05-04T18:23:05.117" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="21824" PostTypeId="1" CreationDate="2018-05-04T19:04:26.017" Score="0" ViewCount="27" Body="&lt;p&gt;Is quantitative easing part of the ECB's and Fed's mandates or is it an exceptional policy that they used, especially in the financial crisis 2007-2008?&lt;/p&gt;&#xA;" OwnerUserId="12280" LastActivityDate="2018-07-06T03:04:48.550" Title="Is quantitative easing part of the ECB's and Fed's mandates?" Tags="&lt;macroeconomics&gt;&lt;financial-crises&gt;&lt;economic-crisis&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="21825" PostTypeId="2" ParentId="21809" CreationDate="2018-05-04T19:12:15.737" Score="2" Body="&lt;p&gt;Your first question was addressed in another answer. For the second question (why $\Phi(b) \ne 1$), you are confusing the cdf and the density. It is true that $\int_{a}^{b}{f(t)dt}=1$ but not that $\int_{a}^{b}{F(t)dt}=1$. Think for instance of $[a,b]=[0,1]$ and the uniform distribution ($f(t)=1,F(t)=t$ for all $t \in [0,1]$).&lt;/p&gt;&#xA;" OwnerUserId="4667" LastActivityDate="2018-05-04T19:12:15.737" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21826" PostTypeId="1" CreationDate="2018-05-04T20:27:45.107" Score="0" ViewCount="20" Body="&lt;p&gt;We have a client that aims to ship his product internationally. (I think right now it mostly aims to be US and Canada, but the system would be open to people from all over the world to be bought)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thing is, I can't seem to find a clear and definitive answer: Are taxes supposed to be calculated depending on the Buyers location, or the Sellers Location?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Examples:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If Seller is in the US, and Buyer is in BC, Canada; do I have to charge the BC GST/PST (about 12% on the price)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If Seller is in QC, Canada and buyer is in the US, do I have to charge TPS/TVQ (about 15%)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, in this case, there's a physical product being shipped, this isn't a webservice or something like that.&lt;/p&gt;&#xA;" OwnerUserId="18209" LastActivityDate="2018-05-04T23:13:03.200" Title="Are taxes supposed to be calculated depending on the seller, or the buyer?" Tags="&lt;taxation&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="21827" PostTypeId="2" ParentId="21798" CreationDate="2018-05-04T21:41:16.800" Score="-1" Body="&lt;p&gt;Nominal output is simply P*Y. Usually, with the Solow model you are interested in real quantities, i.e. the number of goods produced. The intensive form of the production function is obtained by divided through by labor, you would get y = f(k), where y = Y/L and k = K/L.&lt;/p&gt;&#xA;" OwnerUserId="6932" LastActivityDate="2018-05-04T21:41:16.800" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21828" PostTypeId="1" CreationDate="2018-05-04T21:47:27.027" Score="2" ViewCount="110" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/gYcAd.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/gYcAd.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By 'given the price set by other firm' does this mean the firm knows its competitor's exact output? I had read 3 textbooks, but one describes that they have a precise expectation of what their competitor's output might be but this sentence here sounds as though the firm is informed about their competitor's exact output. Could someone explain? Thanks&lt;/p&gt;&#xA;" OwnerUserId="18061" LastEditorUserId="16631" LastEditDate="2018-05-04T23:25:55.313" LastActivityDate="2018-05-05T11:14:11.157" Title="How exactly is a Bertrand equilibrium defined?" Tags="&lt;microeconomics&gt;&lt;oligopoly&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="21829" PostTypeId="2" ParentId="21826" CreationDate="2018-05-04T23:13:03.200" Score="1" Body="&lt;p&gt;The most generic answer is that governments can basically tax whatever they want, according to whatever rules they choose to invent.  I have seen situations in which goods or services have been taxed by both the importing and exporting governments.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Having said that, there is a clear international norm that taxes such as VAT (the equivalent of sales tax in the vast majority of countries) apply in the importing country, after import duties (so you pay tax on the import duty and transport costs).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't know about the specifics of the US and Canada; I believe in particular US state sales taxes don't follow international norms.  NAFTA may also specify.&lt;/p&gt;&#xA;" OwnerUserId="16631" LastActivityDate="2018-05-04T23:13:03.200" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21830" PostTypeId="2" ParentId="21790" CreationDate="2018-05-05T00:47:07.117" Score="3" Body="&lt;p&gt;Agent is a buyer of gasoline in the black market if his consumption of gasoline exceeds 20 i.e. $G &amp;gt; 20$, and he buys $(G-20)$ units from the black market in this case. So, his budget constraint is $R + 20 + 10(G-20)=100$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Likewise, agent is a seller of gasoline in the black market if his consumption of gasoline is below 20 i.e. $G \leq 20$. In this case, he sells $(20-G)$ units in the black market. So, his budget constraint is $R + 20=100 + 10(20-G)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To conclude, his budget constraint (in all cases) is $R + 20 + 10(G-20)=100$.&lt;/p&gt;&#xA;" OwnerUserId="11824" LastActivityDate="2018-05-05T00:47:07.117" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="21831" PostTypeId="1" CreationDate="2018-05-05T03:55:51.423" Score="2" ViewCount="120" Body="&lt;p&gt;I am trying to calculate a statistic for inequality at the zip code or county level in order to merge with another data set. I am using IRS SOI data, but the data given is returns by AGI bin (i.e., 1-25k, 25-50k,..., 200k+)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This does not seem specific enough to calculate a Gini coefficient because there is no microdata available to the general public and percentile shares are not given.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;How could I calculate a measure of inequality from the data in the IRS SOI datasets?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Are there better methods to approach this problem? &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="18210" LastActivityDate="2019-05-01T03:03:00.480" Title="Measuring inequality at the zip code or county level in the United States?" Tags="&lt;taxation&gt;&lt;inequality&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21832" PostTypeId="1" CreationDate="2018-05-05T07:38:00.087" Score="1" ViewCount="32" Body="&lt;p&gt;I am a student taking H2 economics at the 'A' levels. Recently, in one of our case study questions in one of the tutorials on the price mechanism and its applications, we covered the food crisis. As I was taught, two features define a food crisis:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Shortage of food&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Prices of food going up&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;The case study covered the different strategies employed by governments to tackle the crisis. These strategies included having food reserves, giving subsidies to the producers of food crops and making investments in research and development. My teacher only discussed the latter two but not the first one. It is the first strategy (having food reserves) that I am rather interested in. Upon some researching online, I've found out that having food reserves has been a strategy which has received mixed attitudes from the people over the past few decades.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a more chaotic and less secure world, governments pursued the strategy of having food reserves as it would act as a buffer in times of crisis, preventing price from going up too much. In a more secure and peaceful global climate, governments did not pursue this strategy so rigorously as there was no incentive to do so because governments relied on the fact that they could draw on global reserves in times of shortage.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would like to understand this policy in more detail. Why has it received criticisms by academics and why is it encouraged in today's global climate?&lt;/p&gt;&#xA;" OwnerUserId="18212" LastEditorUserId="24799" LastEditDate="2020-06-06T10:20:06.710" LastActivityDate="2020-06-06T10:20:06.710" Title="Government efforts in tackling the food crisis" Tags="&lt;government&gt;&lt;price-theory&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21833" PostTypeId="1" AcceptedAnswerId="21835" CreationDate="2018-05-05T08:48:54.810" Score="2" ViewCount="92" Body="&lt;p&gt;let's say we have a consumer with a demand curve &lt;span class=&quot;math-container&quot;&gt;$q^d(p)=10-p$&lt;/span&gt; and the good its price is &lt;span class=&quot;math-container&quot;&gt;$5$&lt;/span&gt;. So the consumer will consume 5 units. The surplus of the consumer would then be equal to &lt;span class=&quot;math-container&quot;&gt;$(10-5)+(9-5)+(8-5)+(7-5)+(6-5) = 5+4+3+2+1 = 15$&lt;/span&gt;. However, when solving this in the conventional manner it gives me &lt;span class=&quot;math-container&quot;&gt;$(10-5)\times 5/2 = 12.5$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;What am I doing wrong? Or is surplus just an approximation?&lt;/p&gt;&#xA;" OwnerUserId="18214" LastEditorUserId="18214" LastEditDate="2021-05-25T19:22:11.453" LastActivityDate="2021-05-25T19:22:11.453" Title="is surplus just an approximation?" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21834" PostTypeId="2" ParentId="21828" CreationDate="2018-05-05T09:07:35.177" Score="3" Body="&lt;p&gt;&lt;strong&gt;What do we mean by &quot;makes the best decision based on what the other player has decided to do&quot;&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your question touches a little bit on the philosophical foundations for Nash Equilibrium. As you know, a Nash Equilibrium occurs when each player chooses the best response to the strategies chosen by others. In other, words, they act &lt;strong&gt;as if&lt;/strong&gt; they know what the strategies of the other players will be, and play the best response accordingly—even if all strategies are chosen simultaneously.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why does it make sense to model people behaving as if they knew everyone else's strategy? The whole point of looking for an equilibrium of a game is to try to find a way to 'solve' the game such that the solution gives a plausible prediction about how people might play the game. Suppose we have identified a way to compute the solution. If we can compute the solution then the players can compute the solution too (using the same method), and figure out what everyone's equilibrium strategy will be. If the players compute the solution and discover that their equilibrium behavior in the solution does &lt;em&gt;not&lt;/em&gt; maximise their own payoff then they will refuse to play the solution! So any solution concept that (a) players can use to solve the game and (b) has one or more players behaving sub-optimally will be self-defeating. Flipped on its head, any solution concept that players are actually willing to go along with must necessarily involve them playing a best response—i.e must be a Nash Equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One concise way to phrase this is that a player's strategy can be accurately predicted by the other players (using the same solution concept we are using the solve the game)! Note that this is slightly different to what you wrote in a comment (&quot;the competitor's action can be accurately predicted&quot;). We can use the equilibrium to predict strategies, but might not be able to predict actions (because the strategy might be a mixed strategy, meaning the action is random).&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;What is a Bertrand Equilibrium&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Recall that to set up a static game of complete information we need to know (1) the players, (2) the actions, and (3) payoffs. To turn to your question, a Bertrand Equilibrium is just another name for the Nash Equilibrium of the following particular static game of complete information:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;There are N firms (players)&lt;/li&gt;&#xA;&lt;li&gt;Each firm's action is to choose a price, $p_i$&lt;/li&gt;&#xA;&lt;li&gt;The payoffs are that the lowest price firm serves all consumers and earns $p_i-c$ per-consumer (where $c$ is the marginal cost). If $m$ firms tie at the lowest price then each of them serves $1/m$ of the consumers. firms that serve no consumers earn zero profit.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;So, in a Bertrand equilibrium, using the principle of Nash, each firm acts as if it knows the others' price and chooses the best price in response. &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Characterising the Bertrand Equilibrium?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To find the Nash (&quot;Bertrand&quot;) equilibrium of this game, we have to find a set of strategies (prices) such that each firm is playing a best response (i.e., such that no firm could profit by changing its price).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Claim&lt;/strong&gt; There is no equilibrium in which the lowest firm's price is bigger than $c$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To prove this claim, suppose on the contrary that $\min p_i&amp;gt;c$. We will show that at least one firm can profitably change its strategy (and is therefore not playing a best response). Order the firms so that $p_1\leq p_2\leq p_3\leq\ldots\leq p_n$. There are two possibilities: &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;All firms charge the same price (so $n$ ties at the lowest price). Then $n$'s profit is $(p_n-c)/m$. But suppose $n$ reduced its price by some amount $\Delta$. Then it would have a price strictly below anyone else and earn profit $p_n-\Delta-c)$. If $\Delta$ is small enough, this is a strict increase in $n's$ profit.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;$p_n&amp;gt;p_1$ so $n$ does not attract any consumers. $n$'s profit is zero. But $n$ could deviate to choosing a price of $p_1-\Delta$, yielding a profit of $(p_1-\Delta-c)$. Provided $\Delta$ is small enough, this is positive so $n$'s profit has increased. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Claim&lt;/strong&gt; At least two firms must set $p=c$ in equilibrium. All firms earn zero profit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To prove this claim, start by noticing that if some firm sets $p_i&amp;lt;c$ then at least one firm will make negative profits and would prefer to deviate to $p=c$ (thus guaranteeing zero profit).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose that fewer than two firms set $p=c$. By the previous claim, we know at least one firm sets $p=c$. This means precisely one firm sets $p=c$, while all others set $p&amp;gt;c$. But then the firm that sets $p=c$ earns profit $(p-c)=0$, but could get positive profit by increasing $p$ (just a little so it is still the cheapest firm). Because there is a profitable deviation, we can't have an equilibrium with fewer than two firms setting $p=c$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lastly, we know the firms that set $p=c$ earn zero profits. We also know that no firm sets $p&amp;lt;c$ so any firm not setting $p=c$ must set $p&amp;gt;c$, meaning it attracts no consumers and also makes zero profit.&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2018-05-05T11:14:11.157" LastActivityDate="2018-05-05T11:14:11.157" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="21835" PostTypeId="2" ParentId="21833" CreationDate="2018-05-05T12:49:15.923" Score="5" Body="&lt;p&gt;Your second answer is correct. The problem your first approach has, is that you assume that you may only buy a discrete amount of goods. However, your demand curve is continuous and the usual assumption in microeconomics is that you can consume any amount of this good, for instance $1.478926574$ units. Thus, your first calculation for the surplus is not correct, the correct way to do it is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$CS = \int_{5}^{10} (10-p) \mathcal{d}p = 10p-\dfrac{p^{2}}{2}|^{10}_{5} = 100-50-50+12.5=12.5$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This result is equal to the second calculation of yours simply by the fact that it is a triangle. If demand wouldn't be linear, you'd have to use the integral form to calculate CS.&lt;/p&gt;&#xA;" OwnerUserId="18192" LastActivityDate="2018-05-05T12:49:15.923" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="21836" PostTypeId="1" AcceptedAnswerId="21838" CreationDate="2018-05-05T17:59:22.680" Score="0" ViewCount="4119" Body="&lt;p&gt;This is very simple, however, I have the following setup&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Suppose that the company ABC has a product that shows a constant&#xA;annual demand rate of 3600 items. One item costs £3.&#xA;Ordering cost is £20 per order and holding cost is 25% of the value of inventory.&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I want to do is calculate the &lt;strong&gt;EOQ&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;EOQ = \sqrt{\frac{2DS}{H}}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;D = annual demand (here this is 3600)&lt;/li&gt;&#xA;&lt;li&gt;S = setup cost (here that's £20)&lt;/li&gt;&#xA;&lt;li&gt;H = holding cost&lt;/li&gt;&#xA;&lt;li&gt;P = Cost per unit (which is £3 here) &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I figured that I would have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;H = 0.25 \times 3 = 0.75&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm sceptical about this result though. &lt;/p&gt;&#xA;" OwnerUserId="18193" LastActivityDate="2018-05-06T14:59:50.230" Title="EOQ - how to calculate holding cost" Tags="&lt;cost&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="21837" PostTypeId="2" ParentId="21579" CreationDate="2018-05-05T20:17:36.013" Score="0" Body="&lt;p&gt;The tangent lines are drawn because they are trying to get you to think about the magnitude of the slope at each point on the production function. The marginal product of labour is the derivative of the production function, and will look like a decreasing function when drawn graphically, starting off with high values for low levels of labour, then decreasing to low values for high levels of labour. This corresponds to how the slope of the production function starts off steep and then gets flatter. Because the gradient decreases, this is called 'diminishing' returns.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We assume capital is constant when looking at this graph. &lt;/p&gt;&#xA;" OwnerUserId="175" LastActivityDate="2018-05-05T20:17:36.013" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21838" PostTypeId="2" ParentId="21836" CreationDate="2018-05-05T20:32:46.570" Score="1" Body="&lt;p&gt;So your EOQ expression is suggesting that the optimal order size is for about $438$ items each time.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can check the result if you wish.  Suppose you order in batches of $Q$: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;The average annual number of batches ordered is $\dfrac{3600}{Q}$ so the average annual cost of ordering is $£\dfrac{72000}{Q}$&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The average number of items held in inventory is $\dfrac Q2$ worth $£\dfrac{3Q}{2}$ at a holding cost of $£\dfrac{3Q}{8}$ &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;So the combined ordering and holding cost is  $£\dfrac{72000}{Q}+£\dfrac{3Q}{8}$&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;For $Q=437$ this gives about $£328.6347$; for $Q=438$ this gives about $£328.6336$; for $Q=439$ this gives about $£328.6341$. This suggests that $438$ may indeed be the best order size&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;You can check the calculus: the derivative of $\dfrac{72000}{Q}+\dfrac{3Q}{8}$ is $\dfrac{3}{8} - \dfrac{72000}{Q^2}$ which is a increasing function of $Q$ and is zero when $Q^2=192000$ i.e. $Q \approx 438.178$, and this would minimise the combined cost&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="8891" LastEditorUserId="8891" LastEditDate="2018-05-06T14:59:50.230" LastActivityDate="2018-05-06T14:59:50.230" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21839" PostTypeId="2" ParentId="21433" CreationDate="2018-05-05T20:44:21.597" Score="0" Body="&lt;p&gt;Your interpretation of the coefficient on Var1 or Var2 is the effect that variable has on Y &lt;strong&gt;if the person is in the base category&lt;/strong&gt;. I.e., if all the categorical variable dummies were 0.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You are not looking at variation within each category. You are assuming that two observations within the same category but different villages &lt;strong&gt;are&lt;/strong&gt; independent, unlike what you assume for two observations within the same village.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The categorical dummies are there to hold them constant as you look at the other variables.&lt;/p&gt;&#xA;" OwnerUserId="175" LastActivityDate="2018-05-05T20:44:21.597" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21840" PostTypeId="2" ParentId="21831" CreationDate="2018-05-05T21:00:03.553" Score="2" Body="&lt;p&gt;I'm not sure specifically what data you have but it sounds like you have enough data to calculate a rough gini estimate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Gini is equal to: (The average variance for incomes) / (2 * the mean)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since Gini is a standardized indicator and not dependent on the level of income, just the variance, you can construct a rough gini metric using your data.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you assume 0-25K = 0, 25K-50K = 1, 50K-75K = 2 etc. You can treat the buckets as incomes. You can then calculate the average variance between the incomes weighted by the number of individuals in each bucket and divide it by 2 X the average income (bucket). In doing so you've created a rough gini coefficient for each zipcode.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You should note that this statistic is rough and not perfectly accurate since it ignores any variation in distribution of income within the bucket. It may be that the 25K-50K bucket has most of its individuals at 40K income and few in the 25K income which would negatively bias your gini estimate. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assuming this is for a research paper this methodology should be discussed and the possible flaws with this estimate should be disclosed. It does however provide the best approximation for inequality given the information you have.&lt;/p&gt;&#xA;" OwnerUserId="10245" LastActivityDate="2018-05-05T21:00:03.553" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21842" PostTypeId="1" AcceptedAnswerId="21843" CreationDate="2018-05-05T22:29:58.827" Score="2" ViewCount="313" Body="&lt;p&gt;This question is bothering me a lot... I think the answer must be really simple, but I haven't been able to answer it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a monopoly, $p=\frac{c}{1-1/|\epsilon|}$, where $p$ is price of the good, and $c$ is the constant marginal cost, and $|\epsilon|$ is the absolute value of price elasticity of demand.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why is this equality not valid for inelastic demand $|\epsilon|&amp;lt;1$ ? If $|\epsilon|&amp;lt;1$, then we get a negative price... Where in the deduction of this formula, from the profit maximization firm's problem, do we have to assume that $|\epsilon|&amp;gt;1$?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit: So for the FOC we need $|\epsilon|&amp;gt;1$, but where in the description of the profit maximization firm's problem do we need implicitely the condition?&lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="118" LastEditDate="2018-05-05T22:35:14.393" LastActivityDate="2018-05-06T00:41:30.733" Title="The monopoly markup with inelastic demand?" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21843" PostTypeId="2" ParentId="21842" CreationDate="2018-05-06T00:41:30.733" Score="4" Body="&lt;p&gt;The expression $p=\frac{c}{1-1/\epsilon}$ is derived on the assumption that an interior solution is feasible, i.e. FOC is set to equal zero. But inelastic demand curve may not yield an interior solution at all, i.e. it may be impossible to set FOC equal to zero.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Perhaps this example will help. Consider a demand curve that features constant price elasticity: $q=p^{-\epsilon}$, or its inverse $p=q^{-1/\epsilon}$, where $\epsilon$ captures the price elasticity of demand. We set $\epsilon&amp;lt;1$, so that the demand is inelastic everywhere. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assuming constant MC at $c$, let's maximize the profit of a monopolist facing this demand: &#xA;\begin{equation}&#xA;\max_q\; pq-cq=q^{1-1/\epsilon}-cq.&#xA;\end{equation}&#xA;The FOC is &#xA;\begin{equation}&#xA;\left(1-\frac1\epsilon\right)q^{-1/\epsilon}-c&amp;lt;0.&#xA;\end{equation}&#xA;Note that since $\epsilon&amp;lt;1$, the entire LHS is negative, and therefore we cannot have an interior solution. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;On a more intuitive level, when a monopolist is operating at a point on the demand curve that is inelastic, it could always increase profit by raising price (or lowering quantity):&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;since demand is inelastic, 1% increase in price will cause a less than 1% reduction in quantity, so total revenue will go up;&lt;/li&gt;&#xA;&lt;li&gt;with less quantity, total cost will also go down.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;With more revenue and less cost, the monopolist will simply not be content at operating on the inelastic segment of the demand. &lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2018-05-06T00:41:30.733" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21844" PostTypeId="1" CreationDate="2018-05-06T07:15:16.697" Score="0" ViewCount="711" Body="&lt;p&gt;I am doing an essay on how a sovereign debt rating downgrade to junk status affects the economy. I wanted to use a theoretical framework to think about it, and seeing as an increase in the interest rate is involved, I decided to use the IS-LM model. Please tell me if the following is correct or not. I think it's a bit unconventional to shift the LM curve when money demands shifts, but the reason why I do that is because output was not the driving force of the shift in money demand. As I understand it, if output increases, that increases money demand, which is a movement &lt;em&gt;along&lt;/em&gt; the LM curve. However, in this case, investor confidence affects the interest rate directly, without an initial effect on output. That is why I have shifted the LM curve upwards. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I presented the model as follows. Investor confidence drops with the news of a rating downgrade, so financial investors sell their bonds, which increases the demand for money, and decreases the prices of bonds. Because the prices of bonds decrease, interest rates on those bonds increase. Also, new bonds will have higher interest rates because they are seen as more risky. This is shown graphically in the money market model below as the first increase in money demand from $D_{M_1}$ to $D_{M_2}$. (I find it a bit confusing to think about foreign investors demanding more money (like M1), because I think they would want to sell the rand in exchange for their own currency, but I think this is true for the domestic economy.) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/oyc5R.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/oyc5R.jpg&quot; alt=&quot;My IS-LM model&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Because the money market is the basis of the LM relation, this shifts the LM curve upwards as the interest rate increases (shown as the increase from $LM_1$ to $LM_2$). Higher interest rates lead to lower real investment (i.e. investment in capital, land, labour and enterprise), government spending and consumption. This is equivalent to a movement upwards along the IS curve. The IS relation shows equilibrium in the goods market, which is given by $Y=C+I+G$. $I(i)$ is a (decreasing) function of the interest rate, and the interest rate increasing is what causes real investment to drop. It is a negative relationship because higher interest rates make it harder to borrow money to finance investments. In our situation, government spending decreases because the cost of credit for them increases, but rising Treasury bond interest rates also raises other interest rates throughout the economy due to competition, which then reduces private investment. The result is a decrease in the growth rate of output. The drop in output actually dampens the increase in the demand for money, because income decreases. So, the hike in interest rates is attenuated as output growth slows down. This can be reflected in the money market as a downwards shift in the demand for money curve from $D_{M_2}$ to $D_{M_3}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another thing I want to check is if it is fine to think of there being only one interest rate in the graph on the left, due to the way central bank interest rate and other financial instrument interest rates rise due to arbitrage. The interest rate on Treasury bills is obviously what is affected, so is it fine to think of the demand for 'money' (is that demand for all the money in the entire economy?) as interacting with that interest rate?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I presume that reduced investor confidence is a fairly standard problem to model, yet I'm not so sure about how I've done it.&lt;/p&gt;&#xA;" OwnerUserId="175" LastActivityDate="2019-04-13T17:02:35.563" Title="How does IS-LM model reduced investor confidence?" Tags="&lt;government-debt&gt;&lt;investment&gt;&lt;financial-markets&gt;&lt;bonds&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21845" PostTypeId="2" ParentId="21763" CreationDate="2018-05-06T07:42:48.223" Score="3" Body="&lt;p&gt;Cryptocurrencies can be analysed from different perspectives: from the &lt;strong&gt;monetary perspective&lt;/strong&gt; or from the &lt;strong&gt;asset &amp;amp; security&lt;/strong&gt; perspective. The difference is: a digital asset is a good with some value which can be used/consumed for something, while currency is used as a store of value and mean of trade. I would say that currently is mostly being traded as an investment and not as currency, because it is bought to be sold for an higher price later, not to pay for goods and services.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Analysing it as an asset there is little surprise, as &lt;a href=&quot;https://economics.stackexchange.com/users/11321/dave-harris&quot;&gt;Dave Harris&lt;/a&gt; explained: they are an asset being traded speculatively, acting as expected in these conditions. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I haven't found analysis of it as currency, I assume because there is little evidence of it being used as such for legal purposes (most legal payments are not done with bitcoin). From what we know until now, there is little evidence of unexpected behaviour from a monetary perspective.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For further reading, take a look at this &lt;a href=&quot;https://blockchainlibrary.org/2017/10/most-cited-cryptocurrency-publications/&quot; rel=&quot;nofollow noreferrer&quot;&gt;list of most cited crypocurrency publications&lt;/a&gt;. &lt;/p&gt;&#xA;" OwnerUserId="12304" LastEditorUserId="12304" LastEditDate="2018-05-06T08:29:39.220" LastActivityDate="2018-05-06T08:29:39.220" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21846" PostTypeId="1" CreationDate="2018-05-06T10:14:19.257" Score="3" ViewCount="904" Body="&lt;p&gt;I have at hand a two period game. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In period 1, Union decides wage offer $w$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In period 2, firm decides on L, given wage. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Union maximizes $wL$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Firm maximizes $=(L(100-L) - wL) \quad if \quad L&amp;lt;=50 \quad or\quad (2500 - wL) \quad if \quad L&amp;gt;50 $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An SPNE of this game is: w = 50, L = 25. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I need to compute a PO allocation. I know it exsits, but I'm unsure about how to derive it from the payoffs. (Example: w = 40, L = 40. Gives both firm and union strickly greater payoffs.) But, how do I compute the set of PO outcomes from the gives functions? Or even a single PO outcome, without guesswork? &lt;/p&gt;&#xA;" OwnerUserId="18219" LastActivityDate="2018-05-07T05:21:01.783" Title="How to calculate Pareto Optimal outcome in a game with a Nash Equilibrium" Tags="&lt;game-theory&gt;&lt;pareto-efficiency&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="21847" PostTypeId="1" CreationDate="2018-05-06T11:00:17.597" Score="1" ViewCount="1096" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/7fhCG.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/7fhCG.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What does the dotted line in the diagram show and what are they called? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am also wondering why the steepness of the isoquants changes at Q=3 for the third diagram. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks&lt;/p&gt;&#xA;" OwnerUserId="18061" LastActivityDate="2018-08-06T14:02:15.357" Title="Question on returns of scale in isoquants" Tags="&lt;microeconomics&gt;&lt;production-function&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21848" PostTypeId="2" ParentId="21795" CreationDate="2018-05-06T11:45:06.443" Score="4" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;I am interested in a (reasonably) quantified explanation of why the&#xA;  work week in most of the world is 40 hrs and not for example 20? How&#xA;  did we arrive to the number 40.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Both current 40 hour workweek and its predecessor, 48 hours workweek with 6 days of work are a result of 8 hours workday. 8 hours comes from the division of 24 hours into three equal parts: 8h sleep, 8h rest and 8h work.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;JoaoBotelho and Brian Romanchuk are right - it was direct result of the XIX and early XX century organized labour’s struggles, which was based on employees observations of their work fatigue rather than a result of a scientific research. Perhaps the first, who tried to measure the effect of a 8h workday from the productivity standpoint was Henry Ford, who introduced 8 hour-workday in 1914.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;[...] Ford said, “We have settled on the eight-hour day ... because it&#xA;  so happens that this is the length of time which we find gives the&#xA;  best service for men, day in and day out.” This notion that the&#xA;  institution of the eight-hour day was a matter of “proven” efficiency,&#xA;  &lt;em&gt;was based on no solid calculation showing the specific superiority of&#xA;  eight hours&lt;/em&gt;. Still, Ford could point to several ways in which the new&#xA;  schedule served the company. The switch from two nine-hours to three&#xA;  eight-hour shifts provided for an extra six hours of production. [...]&#xA;  Ford and his advisors also saw efficiency as served by the eight-hour,&#xA;  five-dollar day in that the new labor policy decreased turnover and&#xA;  absenteeism and increased labor discipline. [...] Labor turnover&#xA;  dropped by 90 percent, and absenteeism was at least halved. According&#xA;  to some figures it plummeted from 10 percent to .3 percent per day.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;(source: &lt;a href=&quot;https://books.google.pl/books?id=h8P-uuyYe_YC&amp;amp;pg=PA351&amp;amp;lpg=PA351&amp;amp;dq=Ford%20News%20october%201926&amp;amp;source=bl&amp;amp;ots=xI6bc1C6tr&amp;amp;sig=RXA9VFKYkXRJK1zkq5Ze_2Y5Gtg&amp;amp;hl=pl&amp;amp;sa=X&amp;amp;ved=0ahUKEwi9zoym8fDaAhVCDCwKHSr8DooQ6AEIXTAJ#v=onepage&amp;amp;q&amp;amp;f=false&quot; rel=&quot;nofollow noreferrer&quot;&gt;Our Own Time: A History of American Labor and the Working Day, David R. Roediger, Philip Sheldon Foner&lt;/a&gt; - please refer to this source for broader context and more information on the 40 hours workweek in the U.S.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Around the time of the I Word War, legislators started introducing 8 hour-workday (both in 40 and 48 hours-a-week model) pressed by workers movements, but there weren’t any hard calculations on this issue.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Later studies confirmed employees and Ford’s observations: there is a workhour-health limit of around 40 hours &lt;em&gt;on average&lt;/em&gt;. The last research I know of, &lt;a href=&quot;https://www.sciencedirect.com/science/article/pii/S027795361730031X&quot; rel=&quot;nofollow noreferrer&quot;&gt;Hour-glass ceilings: Work-hour thresholds, gendered health inequities (Social Science &amp;amp; Medicine, 2017 vol. 176)&lt;/a&gt;, calculated this limit to 43.5 h per week for men and 38 h per week for woman.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As to your second question, please make it into a different post and we'll answer it.&lt;/p&gt;&#xA;" OwnerUserId="15240" LastActivityDate="2018-05-06T11:45:06.443" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21849" PostTypeId="1" CreationDate="2018-05-06T13:42:59.187" Score="3" ViewCount="273" Body="&lt;p&gt;I have a question regarding the multiplier and accelerator effects. The way I see it, the value of the multiplier tends to be lower as the economy approaches full capacity. I would therefore expect growth to be slower as full capacity is reached. The accelerator effect works best when there is no excess capacity as an increase in aggregate demand would mean producers use their already existing idle fixed capital. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However the accelerator is based on past increases in consumption and output; for the investment to increase, growth must therefore increase at an an increasing rate. If at long run full capacity, growth is slower due to a lower multiplier value and the inability of firms to expand output, how can the accelerator effect come into existence???&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am sorry that this was long but I am unsure as to whether I have made a mistake early in my &quot;chain of reasoning&quot;...&lt;/p&gt;&#xA;" OwnerUserId="18220" LastActivityDate="2019-01-01T20:02:50.577" Title="Accelerator and Multiplier effects at full employment" Tags="&lt;macroeconomics&gt;&lt;long-run&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21850" PostTypeId="2" ParentId="21805" CreationDate="2018-05-06T14:01:11.833" Score="0" Body="&lt;p&gt;If you are looking for classification like Agri-food trade presentation that covers products other than agricultural, you should check out the Combined Nomenclature (CN) of the European Union and its Explanatory Notes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is established on the basis of the Harmonized System and it covers all the products that can be subject to customs and tariffs in the EU. Seek Annex I to the the basic CN Regulation (Council Regulation (EEC) No 2658/87 on the tariff and statistical nomenclature and on the Common Customs Tariff). Be sure to use the latest version, though, as it is updated on a yearly basis. Here's a link to &lt;a href=&quot;http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32017R1925&amp;amp;qid=1525614072069&amp;amp;from=PL&amp;amp;lang3=choose&amp;amp;lang2=choose&amp;amp;lang1=EN&quot; rel=&quot;nofollow noreferrer&quot;&gt;2018 version&lt;/a&gt;, but if you want to be accurate, you should also include amendments (there were &lt;a href=&quot;http://eur-lex.europa.eu/legal-content/EN/ALL/?qid=1525614072069&amp;amp;uri=CELEX%3A31987R2658&quot; rel=&quot;nofollow noreferrer&quot;&gt;five of those&lt;/a&gt; since publication of 2018 verion). Perhaps the most readable is of course Explanatory Notes to the CN (so something like &lt;a href=&quot;http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=OJ:C:2015:076:FULL&amp;amp;from=EN&quot; rel=&quot;nofollow noreferrer&quot;&gt;this&lt;/a&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you are interested in jurisdictions other than EU, please find links to cusoms nomenclature under Harmonized System's wikipedia page, you've posted. I'm sure all of them will have the same problems as Harmonized System. It is simply impossible to explicitly list all the products in the World and such listings will always be half open with use of phrases like 'not elsewhere specified'.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope that helps.&lt;/p&gt;&#xA;" OwnerUserId="15240" LastActivityDate="2018-05-06T14:01:11.833" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="21851" PostTypeId="2" ParentId="21849" CreationDate="2018-05-06T15:30:39.063" Score="1" Body="&lt;p&gt;Grigory, I am glad you are skeptical of this 'theory'.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am not sure I understand you line of argument correctly, but given the assumptions it seems to be correct. Accelerator cannot be sustained in long-run due to fixed factors of production (think land, labor force, etc). Accelerator theory is the sense you are presenting it is not present in modern macroeconomic literature or graduate curriculum. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's then turn our attention to the assumption that 'multiplier' at full capacity. The old Keynesian theory indeed assumed that the multiplier is higher when there is high unemployment. Indeed, this was a reason for advocating for public spending during recessions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, modern evidence do not seem to support this view. For example Ramey &amp;amp; Zubairy (2018, Journal of Political Economy), show that the multiplier does not vary significantly with the business cycle if one controls for expectations. Keep in mind, however, that those things are notoriously hard to measure. An ideal experiment, that would allow us, economists to measure the multiplier, would consist of an unexpected debt-financed government spending in the absence of central bank. You can see that all of these assumptions are typically violated (taxes and central bank's action matter in particular).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the bottom line is, always take simple, undergraduate-level models with a pinch of salt. Some are logically inconsistent and most (if not all) are consistent with data.  &lt;/p&gt;&#xA;" OwnerUserId="11693" LastActivityDate="2018-05-06T15:30:39.063" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21852" PostTypeId="1" AcceptedAnswerId="21854" CreationDate="2018-05-06T15:31:43.057" Score="0" ViewCount="168" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/eYkNc.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/eYkNc.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When you are only told in the question that the price level of the inferior good decreases, how can you draw the indifference curve accurately? The size of Substitution effect depends on the curviness of the curve. Thus when I draw my diagram, it is not matching with the one in the textbook. &#xA;&lt;a href=&quot;https://i.stack.imgur.com/pbMXq.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/pbMXq.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&#xA;When do you prevent this when no figures about the exact consumption is given? &#xA;Thanks &lt;/p&gt;&#xA;" OwnerUserId="18061" LastActivityDate="2018-05-06T17:12:58.737" Title="Income effect for inferior goods question" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21853" PostTypeId="1" AcceptedAnswerId="21855" CreationDate="2018-05-06T15:36:34.820" Score="-1" ViewCount="517" Body="&lt;p&gt;Specifically, when a short run AS curve is positive, how does a decrease in money supply affect price levels and Real GDP in the short run?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you!&lt;/p&gt;&#xA;" OwnerUserId="18196" LastActivityDate="2018-05-06T16:07:15.583" Title="How does a decrease in money supply affect price levels and Real GDP in the short run?" Tags="&lt;gdp&gt;&lt;money-supply&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21854" PostTypeId="2" ParentId="21852" CreationDate="2018-05-06T15:38:49.803" Score="1" Body="&lt;p&gt;Could you clarify what your your question is? If Ramen is inferior then an increase in wealth (parallel shift of the budget line) should cause the consumption of ramen to go down. Hence $B$ should be to the left of $A'$. Then income effect is the distance on the x-axis from $A'$ to $B$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Edit in response to the comment)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let me try.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The slope of the budget line is related to ratio of prices. So $A'$ is the point of tangency of between the old indifference function and a budget line with a new ratio of prices. Essentially what it is saying is what would be your basket if the price of ramen was reduced but some of your money was taken away, so that you are no better and no worse off. The change from A to A' is pure substitution effect. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, since your money was not actually taken away from you, you have to consider income effect. This is achieved by shifting the dased line upwards. So A -&gt; A' is substitution effect. A' -&gt; B is income effect.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Direction of substitution effect is always the same. Higher relative price means less consumption. Direction of income effect depends on the type of goods.&lt;/p&gt;&#xA;" OwnerUserId="11693" LastEditorUserId="11693" LastEditDate="2018-05-06T17:12:58.737" LastActivityDate="2018-05-06T17:12:58.737" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="21855" PostTypeId="2" ParentId="21853" CreationDate="2018-05-06T16:07:15.583" Score="1" Body="&lt;p&gt;Real GDP&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A household with an income of $10,000   per   month is likely to demand a larger&lt;/p&gt;&#xA;&#xA;&lt;p&gt;quantity of money than a household with an income of $1,000 per month. That relationship suggests that money is a normal good: as income increases, people demand more money at each interest rate, and as income falls, they demand less.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An increase in real GDP increases incomes throughout the economy. The demand for money in the economy is therefore likely to be greater when real GDP is greater.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Price Level&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The higher the price level, the more money is required to purchase a given quantity of goods and services. All other things unchanged, the higher the price level, the greater the demand for money. &lt;a href=&quot;https://open.lib.umn.edu/principleseconomics/chapter/25-2-demand-supply-and-equilibrium-in-the-money-market/&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://open.lib.umn.edu/principleseconomics/chapter/25-2-demand-supply-and-equilibrium-in-the-money-market/&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="18222" LastActivityDate="2018-05-06T16:07:15.583" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="21856" PostTypeId="2" ParentId="21846" CreationDate="2018-05-06T17:52:57.603" Score="4" Body="&lt;p&gt;For Pareto optimality, you can ignore the timing. Also, anything you know about Nash equilibria in this game is irrelevant.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $v_F(w, L)$ be the payoff of the firm and $v_U(w, L)$ be the payoff of the union given $(w, L)$. What you are looking for are pairs $(w, L)$ such that neither the firm nor the union can have a higher payoff without the other side having a lower payoff. Equivalently, you want to the payoff of the firm to be as large as possible under the constraint that the union cannot have a lower payoff and you want the payoff of the union to be as large as possible under the constraint that the firm cannot have a lower payoff. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This means that $(w,L)$ is Pareto optimal if and only if it solves the following two maximization problems:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\max_{(w',L')} v_F~\text{ s.t.}~v_U(w',L')\geq v_U(w,L).$$&#xA;$$\max_{(w',L')} v_U~\text{ s.t.}~v_F(w',L')\geq v_F(w,L).$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now if you just have to find one Pareto optimum and not all Pareto optima, you can just maximize $v_F+v_U$.  &lt;/p&gt;&#xA;" OwnerUserId="1442" LastActivityDate="2018-05-06T17:52:57.603" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="21859" PostTypeId="1" CreationDate="2018-05-06T23:28:37.497" Score="1" ViewCount="83" Body="&lt;p&gt;If I computed an elasticity of substitution of f.e. 0.9 between capital and labour, does this implicate that the factors are rather well substitutable or not? Since for 0 they are perfect complements and for infinity perfect substitutes. So lets say if price for capital sinks there will still be some substitution between capital and labour right?&lt;/p&gt;&#xA;" OwnerUserId="13030" LastEditorUserId="13030" LastEditDate="2018-05-07T01:11:21.707" LastActivityDate="2018-05-07T01:11:21.707" Title="Elasticity of substitution meaning" Tags="&lt;elasticity&gt;&lt;elasticity-of-substituion&gt;&lt;perfect-complements&gt;&lt;ces-function&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21860" PostTypeId="2" ParentId="21847" CreationDate="2018-05-07T00:27:20.140" Score="1" Body="&lt;p&gt;I've computed &lt;a href=&quot;https://www.wolframalpha.com/input/?i=f(K,L)%3DK%5E(0.4)+*+L%5E(0.6)&quot; rel=&quot;nofollow noreferrer&quot;&gt;this&lt;/a&gt; in WolframAlpha and I think it'll help you understand just what exactly a production function is. Remember, the production function $Y=f(K,L)$ is defined by $f:\mathbb{R}^2 \to \mathbb{R}$. When you see a graph with axis in $K$ and $L$, you`re seeing a part of a 3D object, the surface that a function with domain in $\mathbb{R}^2$ generates. The isoquants are just contour lines of it. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The change in the isoquant's steepness is a consequence of the shape a Cobb-Douglas Produtcion Function's surface. The non-linear nature of Cobb-Douglas model makes its contour lines change steepness as $f(K,L)$ gets bigger, as production goes up. There's an interesting economic intuition behind it. The more inputs a firm employs in its production process, the smaller the marginal rate of technical substitution of the optimal plant is because of diminishing marginal returns. As a firm employs more of an input, the smaller is that input`s marginal productvity. As a firms employs more and more of &lt;em&gt;two&lt;/em&gt; inputs, capital and labor, both the marginal productivity of capital and labor get smaller, meaning a smaller marginal rate of technical substitution.&lt;/p&gt;&#xA;" OwnerUserId="18167" LastEditorUserId="18167" LastEditDate="2018-05-07T01:10:58.027" LastActivityDate="2018-05-07T01:10:58.027" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21861" PostTypeId="2" ParentId="21824" CreationDate="2018-05-07T01:53:00.563" Score="2" Body="&lt;p&gt;It’s a means to an end, and to the mandate that these institutions imposed on themselves. We could also call it an “unofficial” mandate since politicians would likely put pressure on them in indirect ways to uphold their primary mandate. That primary mandate is a 2% inflation target. QE of course expands the money supply which can expand the velocity of money and keep prices relatively stable, as we already know. So QE is a means to that mandate end so that prices don’t fall sharply as we were beginning to see following the financial crisis. QE in it of itself is not a mandate.&lt;/p&gt;&#xA;" OwnerUserId="16329" LastActivityDate="2018-05-07T01:53:00.563" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21862" PostTypeId="2" ParentId="21846" CreationDate="2018-05-07T03:03:59.353" Score="2" Body="&lt;p&gt;To find the Pareto optimal outcomes, simply maximize the total income of the labor and the firm.&#xA;\begin{eqnarray*} \max_{L} \ \ \begin{cases}  L(100-L) &amp;amp; \text{if } L \leq 50 \\ 2500 &amp;amp; \text{if } L &amp;gt; 50 \end{cases}\end{eqnarray*}&#xA;Solution to the above problem is any $L \geq 50$. The corresponding maximum total income is 2500, which can now be divided among the labor and the firm in any way, thus yielding all Pareto optimal allocations. Therefore, set of all Pareto optimal outcomes where both the firm and the labor get non-negative payoffs is : $\{(w, L) \in \mathbb{R}^2_+ : L \geq 50, wL \leq 2500 \}$&lt;/p&gt;&#xA;" OwnerUserId="11824" LastEditorUserId="11824" LastEditDate="2018-05-07T03:10:44.137" LastActivityDate="2018-05-07T03:10:44.137" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="21867" PostTypeId="1" AcceptedAnswerId="21881" CreationDate="2018-05-07T14:27:33.513" Score="1" ViewCount="67" Body="&lt;p&gt;I realize that it's the political pundits that are saying it, but they never seem to provide evidence that the  economy is &quot;booming&quot;.  The dictionary definition of &quot;booming&quot; is &lt;strong&gt;having a period of great prosperity or rapid economic growth&lt;/strong&gt;.&lt;/p&gt;&#xA;" OwnerUserId="14587" LastActivityDate="2018-05-08T06:38:58.457" Title="Is there objective evidence that the US economy is &quot;booming&quot;?" Tags="&lt;gdp&gt;&lt;economic-growth&gt;&lt;united-states&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21868" PostTypeId="1" CreationDate="2018-05-07T14:55:00.223" Score="1" ViewCount="73" Body="&lt;p&gt;Quoting Milton Friedman on the inflationary period shortly following the American Gold Rush in California:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;Because there was more gold, they had to pay a little more gold to&#xA;  buy goods and services. The prices of things in terms of gold went&#xA;  up.&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Question:&lt;/strong&gt; Is the Gold Rush period's inflation an example of a fundamental economic axiom, something to which we have little to no control over? Or could it have been avoided with modern fiscal policies?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Example:&lt;/strong&gt; One example that comes to mind is how much money was printed during Quantitative Easing 1-3. Despite the sheer amount of money printed, we didn't undergo inflation, because the QE money never made it to circulation. One could argue that as we avoided inflation, that is evidence of our current cleverness, but at the same time I also see this example as cautionary tale: &quot;Don't let ANY money get into the hands of the public, or we will be doomed to repeat the Gold Rush.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You may feel free to follow up with my example above, or provide your own examples.&lt;/p&gt;&#xA;" OwnerUserId="12212" LastActivityDate="2018-05-07T14:55:00.223" Title="Could the inflation following the Gold Rush have been avoided, are we any &quot;wiser&quot; on inflation now?" Tags="&lt;macroeconomics&gt;&lt;inflation&gt;&lt;fiscal-policy&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="21870" PostTypeId="1" AcceptedAnswerId="21873" CreationDate="2018-05-07T16:50:33.137" Score="0" ViewCount="126" Body="&lt;p&gt;Can someone give me a mathematical proof of this statement? &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;If a bond trades at a discount, its yield to maturity will exceed its&#xA;  coupon rate.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="16105" LastActivityDate="2018-05-07T21:22:04.627" Title="Prove that if a bond trades at a discount, its yield to maturity will exceed its coupon rate" Tags="&lt;financial-economics&gt;&lt;bonds&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21871" PostTypeId="1" CreationDate="2018-05-07T17:29:53.237" Score="1" ViewCount="69" Body="&lt;p&gt;Elasticity of subsitution is a measure of the curvature of an isoquant&lt;sup&gt;1&lt;/sup&gt; and can provide us information regarding the nature of the production functions we are dealing with. this is visualized in &lt;a href=&quot;https://rads.stackoverflow.com/amzn/click/0273731912&quot; rel=&quot;nofollow noreferrer&quot;&gt;Advanced Microeconomic Theory &#xA;by Geoffrey A. Jehle (Author), Philip J. Reny &lt;/a&gt; (page 130 in the book) as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/OvlZN.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/OvlZN.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However I wonder, isn't this information regarding the curvature of a isoquant given by the production function? what novel information does the calculation of elasticity of substitution provide us with? &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;sub&gt;1. I'm aware that elasticity of substitution can also be applied to consumer theory, just that its dominant in producer theory. &lt;/sub&gt;&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="8815" LastEditDate="2018-06-07T13:33:19.163" LastActivityDate="2018-06-07T13:33:19.163" Title="Elasticity of subsitution: a redundant calculation?" Tags="&lt;microeconomics&gt;&lt;elasticity&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="21872" PostTypeId="1" AcceptedAnswerId="21878" CreationDate="2018-05-07T17:55:53.563" Score="4" ViewCount="77" Body="&lt;p&gt;Consider the following game: Let $N := \{1,2,3,4\}$ denote a set of agents.&#xA;Going from 1 to 4 each agent can decide how many of the remaining agents he wants to integrate into a coalition.&#xA;The strategy sets are given by $S_1 := \{1,2,3,4\}$, $S_2 := \{1,2,3\}$, $S_3 := \{(1,1),(1,2),(2,1),(2,2)\}$ and $S_4 := \{(1,1,1)\}$. &#xA;I want to generalize the game for  $|N| = n$. So basically agent 1 picks a number $s_1 \in N$. Then agent $1 + s_1$ picks a number $s_{1+s_1} \in \{1,\ldots,n-s_1\}$ and so forth. Eventually there exists an agent who integrates all the remaining agents $\exists j \in N : s_j = 1+n-j$.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;What's a proper definition of this simple game? What are the strategy sets? &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="4266" LastEditorUserId="1601" LastEditDate="2018-05-07T18:21:43.167" LastActivityDate="2018-05-09T12:13:26.193" Title="Proper definition of extensive form game" Tags="&lt;game-theory&gt;&lt;extensive-games&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="21873" PostTypeId="2" ParentId="21870" CreationDate="2018-05-07T18:07:10.060" Score="1" Body="&lt;p&gt;If a bond trades at a discount, $P&amp;lt;FV$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\displaystyle\implies CPN\times\frac{1}{YTM_n}\left(1-\frac{1}{(1+YTM_n)^n}\right)+\frac{FV}{(1+YTM_n)^n}&amp;lt;FV$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\displaystyle\implies CPN\times\frac{1}{YTM_n}\left(1-\frac{1}{(1+YTM_n)^n}\right)&amp;lt;FV-\frac{FV}{(1+YTM_n)^n}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\displaystyle\implies CPN\times\frac{1}{YTM_n}\left(1-\frac{1}{(1+YTM_n)^n}\right)&amp;lt;FV\left(1-\frac{1}{(1+YTM_n)^n}\right)$ --------------(1)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\displaystyle YTM_n&amp;gt;0\implies 1+YTM_n&amp;gt;1\implies(1+YTM_n)^n&amp;gt;1\implies\frac{1}{(1+YTM_n)^n}&amp;lt;1\implies 1-\frac{1}{(1+YTM_n)^n}&amp;gt;0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, we divide both sides of (1) by $\displaystyle 1-\frac{1}{(1+YTM_n)^n}$ to get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\displaystyle CPN\times\frac{1}{YTM_n}&amp;lt;FV$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\displaystyle\implies\frac{CPN}{FV}&amp;lt;YTM_n$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\displaystyle\implies r&amp;lt;YTM_n$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\displaystyle\implies YTM_n&amp;gt;r$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;QED&lt;/p&gt;&#xA;" OwnerUserId="16105" LastActivityDate="2018-05-07T18:07:10.060" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="21874" PostTypeId="2" ParentId="21871" CreationDate="2018-05-07T18:20:20.650" Score="-1" Body="&lt;p&gt;Why would one need to graph the function? Isn't any information in the graph already given in the function?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In  a certain sense &lt;em&gt;all&lt;/em&gt; calculations are redundant as they are mathematical tautologies. Yet these indices make some things more clear, which is obviously useful.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2018-05-07T20:09:27.747" LastActivityDate="2018-05-07T20:09:27.747" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="21875" PostTypeId="2" ParentId="21870" CreationDate="2018-05-07T21:22:04.627" Score="0" Body="&lt;p&gt;The tricky part of this question is that it does not specify that we are on a coupon date. If we are away from a coupon date, we normally assume that if we say that a bond “is trading at a discount”, we are talking about the clean price (which excludes accrued interest).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On a coupon date, we can use a simplified pricing formula and derive the relationship (as seen in another answer here).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The exact formula for the clean price will depend on the market convention. However, we could use the following structure for all market conventions.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Show that the clean price falls as yield increases, and vice-versa (by inspection of the clean price definition).&lt;/li&gt;&#xA;&lt;li&gt;Show that the relationship between price and yield is one-to-one, i,e., for any yield, there is a single price. (This is not obvious, but I think this is a standard result for discounted cash flows where all future cash flows have the same sign.)&lt;/li&gt;&#xA;&lt;li&gt;Show that if the yield on the bond equals the coupon rate, the clean price is par (for any date). Yield/price conventions were chosen precisely to get this behaviour, but one would have to validate depending on the convention. We should see that a lot of terms cancel out to get the desired result. This step requires the most algebra.&lt;/li&gt;&#xA;&lt;li&gt;We turn to your original statement. We assume that the clean price is below par. (We use (2) to show that this price is associated with a unique yield. Not sure whether this step would be necessary.) This is less than the price when it is trading at par; we apply (1) to show that this implies that the yield is greater than the coupon rate.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2018-05-07T21:22:04.627" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21877" PostTypeId="2" ParentId="17731" CreationDate="2018-05-07T23:10:36.240" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Are really 90 % of all foreign exchange trades dealt in USD?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The actual rate for the most recent year(2016) we have data is 88%.  This comes from the Bank for International Settlements.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Why does every electronic transaction of USD legally take place on American territory? What laws/processes are responsible? &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This isn't true.  The US handles about 20% of all FX trades and the UK about 40%, most of which are dollar trades.  However, it is probably the case that most trades in dollars could be considered regulated by the United States.  This is a practical result of several sets of laws and not one specific law.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, the US asserts jurisdiction over the entire world for its citizens.  If an American engages in some action that is legal in the country they are standing in, but not legal in the United States, then it is a crime in the US.  If they commit a crime in another country it can also be enforced in the United States.  For corporations, if they do any business in or with the United States then the United States acquires legal and regulatory jurisdiction.  Since the banks which trade foreign currency generally have offices in the United States, they are subject to US jurisdiction.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Additionally, while there are several wire and exchange firms, they end up being required to follow US law and to interact with the Federal Reserve System if they have any nexus with America.  As such anything that is fraudulent, that uses any form of wire, becomes liable under US wire fraud laws.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The statement isn't probably literally true, but since people don't have any physical control over which networks the institutions use, it is safe to assume the US has jurisdiction over the transaction along with any other countries that are directly or incidentally involved.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;What about non-electronic transactions in USD?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Non-electronic transactions in paper USD do not create US jurisdiction unless one of the parties has a tie to the United States.  All American fall under US jurisdiction at all times, everywhere.  The only paper transactions which would have automatic US involvement would be in counterfeiting.  If a Bolivian and an Argentian are standing in London and one buys a hamburger from another for a paper dollar, the US has no standing if a crime were committed.&lt;/p&gt;&#xA;" OwnerUserId="11321" LastActivityDate="2018-05-07T23:10:36.240" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21878" PostTypeId="2" ParentId="21872" CreationDate="2018-05-07T23:15:30.283" Score="2" Body="&lt;p&gt;Let the set of players be $N=\{1,\dots,n\}$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;According to my understand your description of the game, I take the following statements to be true: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Each player chooses a &lt;strong&gt;number&lt;/strong&gt; of players to integrate, not players with specific identities. As a result, the player making the choice may or may not be included in the coalition.&lt;/li&gt;&#xA;&lt;li&gt;Each player has to choose at least 1 player, if still available. &lt;/li&gt;&#xA;&lt;li&gt;Each player moves exactly once.&lt;/li&gt;&#xA;&lt;li&gt;The game is with perfect information.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Under the above interpretation, player $i$'s ($i\ge2$) action space would be $A_i=\{0,1,\dots,n+1-i\}$, as, in principle, $i$ could choose at most $n+1-i$ other players (when all players $j&amp;lt;i$ chose $1$) and at least $0$ (when all previous players have exhausted the player list). An exception applies to the first player, where the option $0$ is not feasible. Thus $A_1=\{1,\dots,n\}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Player 1's strategy space would be $S_1=\{1,\dots,n\}$. Player 2's would be $S_2=\{1,\dots,n-s_1\}$, since after $s_1$ players are picked by player 1, there are only $n-s_1$ players left to be picked by player 2. Carrying this argument forward, player $i$'s strategy space would be $S_i=\{1,\dots,n-s_1-\cdots-s_{i-1}\}$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Generalizing from the above reasoning and taking into account boundary cases, let history at stage $i$ be $h^i=(s_0,s_1,\dots,s_{i-1})$, where we set $s_0=0$. (In general, though, stages should be indexed by a parameter different from the player index. But in your game, since each player moves exactly once, we can use the same index for stages as well as players to economize notation.) The history dependent strategy space for player $i$ would thus be &#xA;\begin{equation}&#xA;S_i(h^i)=&#xA;\begin{cases}&#xA;\{1,\dots,n-\sum_{j=0}^{i-1}s_j\} &amp;amp; \text{if } n-\sum_{j=0}^{i-1}s_j\ge 1 \\&#xA;\{0\} &amp;amp; \text{otherwise}.&#xA;\end{cases}&#xA;\end{equation}&lt;/p&gt;&#xA;" OwnerUserId="42" LastEditorUserId="42" LastEditDate="2018-05-07T23:59:07.387" LastActivityDate="2018-05-07T23:59:07.387" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21879" PostTypeId="1" AcceptedAnswerId="21894" CreationDate="2018-05-08T02:33:47.607" Score="1" ViewCount="335" Body="&lt;p&gt;Consider a world of complete information with two agents X and Y and two time periods 1 and 2. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Person X only lives in second period. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Person Y lives in 1st and 2nd periods both. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;X and Y are each endowed with and exogenous income I which can be allocated between consumption in both periods. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$s_Y$ = Y’s saving and  $0\le s_Y \le I$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$c_{1Y} $ and $c_{2Y} $ are the agent Y’s first and second period consumptions respectively. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The A gent X’s preferences are altruistic for Y. After observing the saving of Y, $sY$,X determine how much his endowment $tX$ to transfer to Y for $t_x\in [0,I]$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$c_{2X}$ the agent X’s consumption in period 2.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Utility functions Y and X are respectively &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$V_Y= ln(C_{1Y}) + bln(C_{2Y})$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$V_X=ln(C_{2X})+a *V_Y$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where a is positive and $a*b\ge 1$ and $b\in (0,1)$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is the su game perfect equilibrium levels for $t_X$ and $s_Y$?&lt;/p&gt;&#xA;" OwnerUserId="6134" LastEditorUserId="6134" LastEditDate="2018-05-08T09:32:51.730" LastActivityDate="2018-05-08T14:10:05.483" Title="Question on subgame perfect equilibrium" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;game-theory&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="21880" PostTypeId="1" CreationDate="2018-05-08T04:49:12.267" Score="8" ViewCount="2651" Body="&lt;p&gt;One of my microeconomics fellow students asked this and it got me thinking. The leisure demand curve is a mirror of the labour supply curve. In the section where the Income Effect is greater than the Substitution Effect, would leisure be considered a Giffen good as well as an inferior good? Because the price of undertaking leisure is your wage.&lt;/p&gt;&#xA;" OwnerUserId="8718" LastEditorUserId="1601" LastEditDate="2018-08-10T18:35:52.277" LastActivityDate="2018-08-10T18:35:52.277" Title="Could leisure be considered a Giffen good?" Tags="&lt;microeconomics&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="21881" PostTypeId="2" ParentId="21867" CreationDate="2018-05-08T05:57:55.020" Score="2" Body="&lt;p&gt;A fairly standard measure to use would be Gross Domestic Product (GDP). Over the past 30 years, US GDP has been growing at approximately 2.5%.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;According to trading economics&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The US economy expanded an annualized 2.3 percent on quarter in the first quarter of 2018, below 2.9 percent in the previous period but beating market expectations of 2 percent&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Using this measure, calling it a boom is a bit much.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another way to cut the data is by comparing it to the ten-year trend of about 1.5%. Growing 80bps above trend looks a bit better.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, to answer your question, depending on how you cut the data, it could be considered booming but I wouldn't.&lt;/p&gt;&#xA;" OwnerUserId="40" LastActivityDate="2018-05-08T05:57:55.020" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21882" PostTypeId="1" AcceptedAnswerId="22090" CreationDate="2018-05-08T06:15:13.040" Score="0" ViewCount="252" Body="&lt;p&gt;I have game table posted below:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\begin{matrix} &amp;amp;\#2 \\ \#1 &amp;amp;&#xA;\begin{array}{c|c|c|c}&#xA;&amp;amp;D &amp;amp;E &amp;amp;F \\ \hline&#xA;A &amp;amp;4,4 &amp;amp;6,6 &amp;amp;2,6 \\ \hline&#xA;B &amp;amp;6,4 &amp;amp;2,2 &amp;amp;0,4 \\ \hline&#xA;C &amp;amp;2,6 &amp;amp;8,4 &amp;amp;0,0&#xA;\end{array}&#xA;\end{matrix}&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are there any Nash equilibrium where the agent 1 mixes between &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(i) A &amp;amp; B&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(ii) A and C&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(iii) B &amp;amp; c?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I did is that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example I did first one &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I calculate its expected utilities &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$u1(A, p2)= 4p_D+ 6 p_E+ 2+(1-p_D-p_E)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$u1(B,p)=6p_D+2p_E$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since first payoff is higher than the second payoff, there is no such a mixed Nash equilibrium. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think this approach to such a question seems wrong. Therefore I ask this question. What is your idea about the solution? &lt;/p&gt;&#xA;" OwnerUserId="18231" LastEditorUserId="18231" LastEditDate="2018-05-18T07:05:25.363" LastActivityDate="2018-05-22T06:43:53.660" Title="Mixed Nash equilibrium" Tags="&lt;microeconomics&gt;&lt;game-theory&gt;&lt;nash-equilibrium&gt;&lt;self-study&gt;" AnswerCount="1" CommentCount="9" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="21884" PostTypeId="1" CreationDate="2018-05-08T06:51:01.630" Score="0" ViewCount="27" Body="&lt;p&gt;As a small part of a project, I have been asked to tailor a large panel dataset I have built into a form that is more comparable to one specific country.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So I have done the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Look at the ranges of my dependent variable, explanatory variables and controls for the country of interest. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Drop any firm-time observations that fall outside the ranges of any of these variables.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Run my regression on the truncated sample.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I was wondering whether there are any serious cons of this approach - particularly given that my method will include only a subset of the observations for some firms. Bear in mind that this is meant to provide a rough and ready indication rather than be a super robust exercise.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Many thanks for your help.&lt;/p&gt;&#xA;" OwnerUserId="18188" LastActivityDate="2018-05-31T14:08:19.573" Title="Creating a tailored sample from panel data" Tags="&lt;econometrics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21886" PostTypeId="1" CreationDate="2018-05-08T08:40:30.727" Score="1" ViewCount="29" Body="&lt;p&gt;I'm comparing the volatility of capital flows using a panel data regression. I would like to examine changes in volatility over different periods (e.g. before financial crisis, financial crisis, unconventional monetary policy and tentative recovery periods) using dummies. However, this periods are of unequal length, would this do anything to invalidate this comparison?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any ideas would be much appreciated !&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Kind regards&lt;/p&gt;&#xA;" OwnerUserId="18234" LastActivityDate="2018-05-08T08:40:30.727" Title="Indicator variables over unequal periods?" Tags="&lt;time-series&gt;&lt;regression&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21887" PostTypeId="1" AcceptedAnswerId="21893" CreationDate="2018-05-08T09:24:22.363" Score="1" ViewCount="162" Body="&lt;p&gt;Assume that the player I select $x_i \ge 0$ at constant cost level $c&amp;gt;0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The payoff function for player i is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$v(x_i,t)-cx_i$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $t$ is technology parameter. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The function v(.)is twice continuously differentiable increasing and strictly concave in $x_i$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$v(0,t)=0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\partial v(0,t)/\partial _i&amp;gt;c$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\partial v(x_i,t)/\partial _i&amp;lt;c$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I want to maximize this payoff with respect to $x_i$. But the question strictly emphasize to use Kuhn Tucker method and to state and discuss the slackness conditions. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And I need to find the solution of this problem, say $x^*$&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My solution:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ L= v(x_i,t)-cx_i +\mu [x_i-0]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First order condition &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$(\partial v(x_i,t)/\partial _i)-c+\mu=0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Kuhn Tucker condition&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\mu [x_i-0]=0$$ for $\mu \ge 0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Case 1&lt;/em&gt;: $\mu \ge 0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, $x_i=0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Case 2&lt;/em&gt;: $\mu = 0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then,  $x_i=0$&#xA;$$(\partial v(x_i,t)/\partial _i)-c=0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, the question gives that $$(\partial v(x_i,t)/\partial _i)-c&amp;lt;0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is a contradiction I think. Therefore, I don’t think my solution is true. And I cannot write the $L$ function with two constraints but I know that Kuhn Tucker method requires at least two constraints. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Please share your ideas with me. Thanks a lot. &lt;/p&gt;&#xA;" OwnerUserId="6134" LastEditorUserId="6134" LastEditDate="2018-05-08T09:38:11.243" LastActivityDate="2018-05-08T13:12:55.023" Title="Kuhn Tucker optimization problem" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;consumer-theory&gt;&lt;self-study&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21888" PostTypeId="1" CreationDate="2018-05-08T09:58:20.927" Score="1" ViewCount="195" Body="&lt;p&gt;I am studying master in Economics and currently taking the compulsory course of Econometrics in which I have problem in understanding the materials. It is a must for me to pass this course in current semester, but I have little confidence to succeed it with my knowledge at this time. The book used in the course is &quot;Econometric Analysis of Cross Section and Panel Data&quot; by Jeffrey Wooldridge.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't have the proper basic understanding of first three chapters in the book consisted of The Stochastic Setting and Asymptotic Analysis, Conditional Expectations and Related Concepts in Econometrics, and  Basic Asymptotic Theory. Therefore, it would be tougher to understand the following chapters.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So what is your suggestion for me to figure out this? Perhaps the beginner-friendly books of Statistics or Econometrics? Or other tips and trics?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Maybe some of you have experienced the same situation in the past, then you can share how you figured out and have done with this problem. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I appreciate for your help. Thanks in advance!&lt;/p&gt;&#xA;" OwnerUserId="11708" LastEditorUserId="11708" LastEditDate="2018-05-08T10:15:32.223" LastActivityDate="2020-01-01T03:02:16.203" Title="Learning Suggestion to better understanding on Advanced Microeconometrics (Master Degree Level)" Tags="&lt;econometrics&gt;&lt;statistics&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="21889" PostTypeId="1" CreationDate="2018-05-08T10:42:15.387" Score="1" ViewCount="17" Body="&lt;p&gt;Intuitively I would guess that real interest rates are highly related to investment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But there is a very low interest rate volatility, compared to investment:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;log investment is about 20 times more volatile than real interest rates&lt;/strong&gt;. The standard deviation of interest rates is about 0.15 of that of log gdp, while investment is about 3 times as much.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What explains this massive difference?&lt;/p&gt;&#xA;" OwnerUserId="11146" LastEditorUserId="11146" LastEditDate="2018-05-08T12:02:27.867" LastActivityDate="2018-05-08T12:02:27.867" Title="Why are real interest rates so non-volatile compared to investment?" Tags="&lt;interest-rate&gt;&lt;business-cycles&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="21890" PostTypeId="2" ParentId="21889" CreationDate="2018-05-08T11:14:25.673" Score="1" Body="&lt;p&gt;In most countries, interest rates are actively managed by the government or central bank in pursuit of various policy objectives (some closely linked to investment, some, like stable foreign exchange markets, not).  Investment in turn is determined by a wide range of factors other than interest rates.  Basically I don't think that your assumption of a close link is valid.&lt;/p&gt;&#xA;" OwnerUserId="16631" LastActivityDate="2018-05-08T11:14:25.673" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="21891" PostTypeId="1" CreationDate="2018-05-08T12:27:09.540" Score="5" ViewCount="1375" Body="&lt;p&gt;There are valuable resources on the lexicon of types of variables quickly accessible, such as &lt;a href=&quot;http://www.indiana.edu/~educy520/sec5982/week_2/variable_types.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;. However, some of these concepts appear side-by-side often enough to make them confusing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, Wikipedia mentions &lt;a href=&quot;https://en.wikipedia.org/wiki/Endogeneity_(econometrics)&quot; rel=&quot;nofollow noreferrer&quot;&gt;two causes for endogeneity&lt;/a&gt;: &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;strong&gt;Uncontrolled confounder&lt;/strong&gt; (omitted variable bias); &lt;/li&gt;&#xA;&lt;li&gt;Loops of causality between dependent and independent variables (simultaneity).&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;This is in line with the &lt;a href=&quot;https://www.elsevier.com/books/encyclopedia-of-health-economics/culyer/978-0-12-375678-7&quot; rel=&quot;nofollow noreferrer&quot;&gt;Encyclopedia of Health Economics&lt;/a&gt; formulation&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Y=X_1β_1+X_2β_2+C_oβ_o+C_uβ_u+\varepsilon\tag 1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where the generating true model in the equation is opaque to the researcher because of $C_u$ - an unobservable confounding variable which, unlike $C_o,$ may be suspected, but cannot be controlled for, resulting in a flawed $Y=X_1\beta_1+X_2β_2+C_o\beta_o+e$ model. In this case, if $X_1$ was correlated with $C_u,$ we could say that $X_1$ is endogenous because of the presence of an &lt;strong&gt;unobservable confounder&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Based on this, should &lt;a href=&quot;https://en.wikipedia.org/wiki/Confounding&quot; rel=&quot;nofollow noreferrer&quot;&gt;confounding variables&lt;/a&gt; be considered a type of endogenous variable? &lt;code&gt;Endogenous &amp;gt; Confounding&lt;/code&gt;?&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;But, then in &lt;a href=&quot;https://blog.stata.com/2016/05/23/understanding-omitted-confounders-endogeneity-omitted-variable-bias-and-related-concepts/&quot; rel=&quot;nofollow noreferrer&quot;&gt;this Stata blog&lt;/a&gt; it seems to have a different mathematical formulation as compared to confounders and OVB. In this linked document $X_1$ would be endogenous if &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\begin{align}&#xA;Y &amp;amp;= X_1\beta_1 + X_2\beta_2+\varepsilon\\[2ex]&#xA;&amp;amp;\mathbb E(\varepsilon \vert X_1)\neq0\\[2ex]&#xA;&amp;amp;\mathbb E(\varepsilon \vert X_2)=0&#xA;\end{align}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is evident that this may just be a different mathematical formulation of the same concept in equation (1): the omitted unobservable confounder manifests itself through residual lack of independence of $X_1$ and $\varepsilon,$ a rather theoretical mathematical equation since $\varepsilon$ cannot be directly measured, and the actual residuals are orthogonal to the model matrix by construction.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;According to this blog, confounders and endogenous variables are &lt;code&gt;two separate issues&lt;/code&gt;.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Perhaps the true understanding of the differences comes from &lt;a href=&quot;https://www.researchgate.net/publication/278717528_Graphical_Causal_Models#pf4&quot; rel=&quot;nofollow noreferrer&quot;&gt;graphical causal models&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;one only needs to consider the three elementary causal structures from which all DAGs can be constructed: chains $A\to C\to B$ (and its contraction $A\to B$), forks $A\leftarrow C\to B,$ and inverted forks $A\to C \leftarrow B.$ Conveniently, these structures correspond exactly to causation, confounding, and endogenous selection. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Here, &lt;code&gt;confounder = common cause while endogenous selection = common outcome&lt;/code&gt;.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;There may be some field dependency. &lt;a href=&quot;https://www.otago.ac.nz/wellington/otago020418.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;From J Epidemiol Community Health 2008;62;858-861 F Imlach Gunasekara, K Carter and T Blakely&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Endogenous explanatory variable: An explanatory variable in a&#xA;  multiple regression model that is correlated with the error term,&#xA;  either because of an omitted variable, measurement error, or&#xA;  simultaneity.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;...&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;When endogeneity is discussed in biostatistics texts with&#xA;  respect to longitudinal data it is mainly a factor of reverse&#xA;  causation. An endogenous exposure variable is a predictor of&#xA;  the outcome at time $t$ and is also predicted by the outcome at&#xA;  time $t–1.$ This can be controlled for by adding time-lagged&#xA;  variables to the model.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;QUESTION:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Could we precisely define the differences and overlapping features of these two types of variables with emphasis on any hierarchical structure? Can we formulate their respective definitions in a precise (linear) algebraic equation, or through directed acyclic graphs (DAGs)?&lt;/p&gt;&#xA;" OwnerUserId="11778" LastEditorUserId="11778" LastEditDate="2018-05-09T02:44:28.053" LastActivityDate="2018-05-09T21:16:56.980" Title="Confounding versus endogenous variables. What is their relative hierarchical position?" Tags="&lt;regression&gt;&lt;instrumental-variable&gt;&lt;endogeneity&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="21892" PostTypeId="2" ParentId="21847" CreationDate="2018-05-08T12:49:26.500" Score="1" Body="&lt;p&gt;The dotted line is just to help you read the scale and compare the isoquantas at each production level. It touches all the isoquantas at the point where you have equal inputs of labour and capital.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The rest of the explanation is on the figure itself - it's just an example of increasing / constant / decreasing returns to scale.&lt;/p&gt;&#xA;" OwnerUserId="12304" LastActivityDate="2018-05-08T12:49:26.500" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21893" PostTypeId="2" ParentId="21887" CreationDate="2018-05-08T13:12:55.023" Score="1" Body="&lt;p&gt;Here is the Lagrangian function for the stated optimization problem:&#xA;$$\mathcal{L}(x_i, t) = v(x_i, t) - cx_i + \mu x_i$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Necessary conditions for optimality:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\partial\mathcal{L}}{\partial x_i} =\frac{\partial v}{\partial x_i} - c + \mu = 0 $$&#xA;and&#xA;$$x_i\geq 0, \ \mu \geq 0, \ \mu x_i = 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To solve it, consider the following cases :&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;$x_i &amp;gt; 0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$x_i &amp;gt; 0 \rightarrow \mu = 0 \rightarrow \dfrac{\partial v}{\partial x_i} - c = 0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If there exists $x_i^* &amp;gt; 0$ such that $\dfrac{\partial v}{\partial x_i}\Big\vert_{x_i=x_i^*} - c = 0$, then $x_i = x_i^*$ solves the problem.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;$x_i = 0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$x_i = 0 \rightarrow \mu = c - \dfrac{\partial v}{\partial x_i}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If $c - \dfrac{\partial v}{\partial x_i}\Big\vert_{x_i=0} \geq 0$, then $x_i = 0$ solves the problem.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="11824" LastActivityDate="2018-05-08T13:12:55.023" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="21894" PostTypeId="2" ParentId="21879" CreationDate="2018-05-08T14:10:05.483" Score="2" Body="&lt;p&gt;If $S_Y$ is the amount saved by $Y$ in the first period, and $T_X$ is the amount transferred by $X$ to $Y$ in the second period, then $X$'s payoff as function of his choice $T_X$, taking as given $Y$'s choice $S_Y$ is&#xA;$$\ln(I - T_X) + a\left(\ln(I-S_Y) + b\ln(S_Y+T_X)\right)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$X$ will choose $T_X$ by solving the following problem :&#xA;$$\max_{T_X \geq 0} \ \ \ln(I - T_X) + a\left(\ln(I-S_Y) + b\ln(S_Y+T_X)\right)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First-order condition for optimality is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{1}{I-T_X} =\frac{ab}{S_Y + T_X} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Solving it for $T_X$ we get,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$T_X = \frac{abI-S_Y}{ab+1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is the best response transfer function of $X$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now we solve $Y$'s utility maximization problem in period 1, taking as given $X$'s best response function of period 2.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{eqnarray*} \max_{S_Y\geq 0} &amp;amp; &amp;amp; \ln(I - S_Y) + b\ln\left(S_Y + \frac{abI-S_Y}{ab+1}\right)\end{eqnarray*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which can be rewritten as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{eqnarray*} \max_{S_Y \geq 0} &amp;amp; &amp;amp; \ln(I - S_Y) + b\ln\left(I+S_Y\right) + b \ln\left(\frac{ab}{ab+1}\right)\end{eqnarray*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Solving it we get&#xA;$$S_Y^* = \max\left(\frac{(b-1)I}{b+1}, 0\right) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since $b \in (0, 1)$,&#xA;$$S_Y^* = 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consequently,&#xA;$$T_X^* = \frac{abI}{ab + 1}$$&lt;/p&gt;&#xA;" OwnerUserId="11824" LastActivityDate="2018-05-08T14:10:05.483" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="21895" PostTypeId="1" CreationDate="2018-05-08T15:02:00.970" Score="0" ViewCount="29" Body="&lt;p&gt;I am looking for import/exports data by sector and country, with partner countries. The goal is to get a picture of overall imports/exports to/from a specific country with (possibly) all of its partners, for any particular sector/year.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So for example: For 2017, oil imports and exports for China with Russia, Angola, Saudi Arabia, etc.&lt;/p&gt;&#xA;" OwnerUserId="7025" LastActivityDate="2018-05-08T16:20:39.153" Title="Import/export by sector/country data source" Tags="&lt;macroeconomics&gt;&lt;international-trade&gt;&lt;data-request&gt;&lt;balance-of-trade&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21896" PostTypeId="2" ParentId="21895" CreationDate="2018-05-08T16:20:39.153" Score="1" Body="&lt;p&gt;I believe that the &lt;a href=&quot;https://comtrade.un.org/&quot; rel=&quot;nofollow noreferrer&quot;&gt;UN Comtrade database&lt;/a&gt; is the main data source for this kind of query with substantial country coverage.  It's broken down by &lt;a href=&quot;https://en.wikipedia.org/wiki/Harmonized_System&quot; rel=&quot;nofollow noreferrer&quot;&gt;HS code&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It has its issues.  Reporting is based on national authorities, so you should usually expect data on imports to be more accurate than exports because of the tax implications (so Uganda's imports from Kenya are likely to be more accurate than Kenya's exports to Uganda).&lt;/p&gt;&#xA;" OwnerUserId="16631" LastActivityDate="2018-05-08T16:20:39.153" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="21897" PostTypeId="1" AcceptedAnswerId="21913" CreationDate="2018-05-08T18:29:49.673" Score="4" ViewCount="181" Body="&lt;p&gt;Consider two countries: Home and Foreign that produce two goods, cars and wheat. The production technologies are such that:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$q_{c} = K_{c}^{0.5} L_{c}^{0.5}$ and $q_{w} = 0.5 K_{w}^{0.5}L_{w}^{0.5}$ for Home. And for Foreign:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$q_{c}^{*} = 0.5 K_{c}^{0.5*} L_{c}^{0.5*}$ and $q_{w} = K_{w}^{0.5*}L_{w}^{0.5*}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$K_{c}$ denotes the amount of capital used in the production of cars.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The asterix denotes the Foreign country. The endowments are: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$K_{c} + K_{w} = K_{c}^{*} + K_{w}^* = 1$ and  $L_{c} + L_{w} = L_{c}^{*} + L_{w}^* = 1$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Preferences are homothetic and identical between the countries and given by $\frac{D_{c}}{D_{w}} = \frac{p_{w}}{p_{c}}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So both countries have the same endowments but their production technologies differ.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first question is to find the autarky quantities and relative prices. This I have managed to do by setting up the profit maximisation problem in each sector, then finding the wage-rental ratio. And seeing as the Cobb-Douglas exponents are the same, I know that equal amounts of labor and capital will be used in the production of each good. I won't include the algebra but here are my wages and rental rates in each sector. For cars:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$w = 0.5 p_{c} (\frac{K_{c}}{L_{c}})^{0.5}$ $\quad$ (1)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$r = 0.5 p_{c} (\frac{L_{c}}{K_{c}})^{0.5}$  $\quad$ (2)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$w^* = 0.25 p_{c}^{*} (\frac{K_{c}^*}{L_{c}^*})^{0.5}$ $\quad$(3)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$r^* = 0.25 p_{c} (\frac{L_{c}^*}{K_{c}^*})^{0.5}$ $\quad$ (4)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And for the wheat sector:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$w = 0.25 p_{w} (\frac{K_{w}}{L_{w}})^{0.5}$ $\quad$ (5)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$r = 0.25 p_{w} (\frac{L_{w}}{K_{w}})^{0.5}$  $\quad$ (6)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$w^* = 0.5 p_{w}^{*} (\frac{K_{w}^*}{L_{w}^*})^{0.5}$ $\quad$(7)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$r^* = 0.5 p_{w} (\frac{L_{w}^*}{K_{w}^*})^{0.5}$ $\quad$ (8)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the autarky case, dividing (1) by (3) and setting $K_{c} = L_{c}$ shows that for Home, the relative price, $\frac{p_{c}}{p_{w}} = 0.5$. Similarly for Foreign, $\frac{p_{c}^*}{p_{w}^*} = 2$. And using the preference function I can find the quantities of each good produced.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is finding the free-trade relative price and quantities that is causing me some trouble. I know that in free-trade factor and output prices equalise and that world demand equals world production. I also know that Home has a comparative advantage in cars and Foreign in wheat (given the autarky relative prices). But I have tried for hours now to manipulate (1)-(8) but without much progress.  Any suggestions as to how I can proceed?&lt;/p&gt;&#xA;" OwnerUserId="11767" LastActivityDate="2018-05-09T14:19:02.840" Title="Heckscher-Ohlin with different technologies" Tags="&lt;international-trade&gt;&lt;cobb-douglas&gt;" AnswerCount="1" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="21898" PostTypeId="1" CreationDate="2018-05-08T20:17:33.770" Score="2" ViewCount="31" Body="&lt;p&gt;As part of an RCT, I am looking for Software to record digitally the answers some survey questionnaires. The questionnaire is somewhat long,  ~100 questions  divided into 10 blocks.&#xA;We will collect  3 rounds (baseline, follow-up 1 and 2) of 600 surveys. Surveyors have access to a windows laptop and perhaps an Android or iPhone. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Desired features:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Must function online and offline (as in some places there won´t be internet access).&lt;/li&gt;&#xA;&lt;li&gt;Must have a functionality to skip questions. Ex: if q1=no, then skip to question 7&lt;/li&gt;&#xA;&lt;li&gt;Preferably multi-platform (Android, OS and Windows)&lt;/li&gt;&#xA;&lt;li&gt;Fast to set-up infrastructure and create the questionnaire&lt;/li&gt;&#xA;&lt;li&gt;Free or reasonably cheap service&lt;/li&gt;&#xA;&lt;li&gt;Ability to record GPS coordinates (in case of phone survey)&lt;/li&gt;&#xA;&lt;li&gt;Ability to add Pictures (in case of phone survey)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;What do most working on RCTs use?&#xA;Do JPAL, IPA and similar outfits have any recommendations on this front?&lt;/p&gt;&#xA;" OwnerUserId="18242" LastEditorUserId="18242" LastEditDate="2018-05-08T20:25:36.587" LastActivityDate="2018-05-09T06:20:10.020" Title="Software for field work: collecting survey data (multi-platform, on-line and off-line)" Tags="&lt;software&gt;&lt;randomized-experiment&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="21899" PostTypeId="1" CreationDate="2018-05-08T21:50:34.343" Score="2" ViewCount="94" Body="&lt;p&gt;In the linear regression model $E(y|X)=x'\beta$, and so we're capable of interpreting a $\beta_i$ as $\Delta E(y|\text{all fixed except } x_i)=\beta_i \Delta x_i$. I'm thinking in discrete changes.&#xA;Hence, we're able to interpret the estimator of $\beta_i$ as an estimation of what happens on average.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I was wondering if this interpretation of the coefficients' estimators is also preserved when we have a log-log model... $ E(\%\Delta y|\text{all fixed except } x_i)\approx \beta_i \%\Delta x_i$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="118" LastEditDate="2018-05-09T08:42:08.797" LastActivityDate="2018-05-09T11:02:02.720" Title="On the interpretation of the coefficients in a log-log model as an average" Tags="&lt;econometrics&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="21900" PostTypeId="2" ParentId="21898" CreationDate="2018-05-09T03:31:28.900" Score="1" Body="&lt;p&gt;I've worked in 2015 on a survey collecting ~300 answers from 130 different countries. We had similar requirements to what you described, with multilanguage functionality on top. it was not a RCT (Randomized Controlled Trial), we were surveying on conditions of work. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;We ended up using SurveyMonkey which costed 900€ and had only the online functionality, which is a mobile optimized web page survey (compatible with any system), very fast to set up and with the ability to skip questions and add pictures. We could not capture GPS data (never heard of surveys doing that), but we could get the IP address of respondents, which can be a proxy for their location. Pictures were also possible to add, but we used it only to brand the survey.&#xA;We used Word-files via email for &quot;offline answers&quot;, which we then manually inserted back on the website. We didn't have much field work, but I know it would have worked great to fill the survey in a phone or tablet easily, as long as there was internet access.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The main thing that made us take SurveyMonkey vs using self-hosted open-source software like LimeSurvey was: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;The ability to set up quickly (your survey is up as soon as you insert the questions, no IT configuration time needed),&lt;/li&gt;&#xA;&lt;li&gt;Speed of connection for respondents: our server in Europe would mean long loading times for the respondents in other continents, and SurveyMonkey has powerful servers everywhere&lt;/li&gt;&#xA;&lt;li&gt;Text mining features for open-answers and pre-made dashboards to share quick and high-level results &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;If you want to look at other providers, most of the surveys I've seen recently used Qualtrics, Typeform, SurveyMonkey or GoogleDocs.&lt;/p&gt;&#xA;" OwnerUserId="12304" LastEditorUserId="12304" LastEditDate="2018-05-09T06:20:10.020" LastActivityDate="2018-05-09T06:20:10.020" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21901" PostTypeId="1" CreationDate="2018-05-09T03:38:35.490" Score="1" ViewCount="139" Body="&lt;p&gt;Two cell phone companies A and V are located at the extremes of a line of&#xA;length &lt;strong&gt;one&lt;/strong&gt; and transportation cost &lt;strong&gt;t = 4&lt;/strong&gt;. Consider an initial situation where both firms offer a generic phone that consumers value the same (except obviously&#xA;for the transportation cost.) Marginal cost is &lt;strong&gt;zero&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;*N = 800&lt;/strong&gt; denote the total population,&#xA;show that profits for each firm will be &lt;strong&gt;1600&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How do I interpret the demand function for this example?&lt;/p&gt;&#xA;" OwnerUserId="8021" LastEditorUserId="8021" LastEditDate="2018-05-09T04:07:03.720" LastActivityDate="2018-06-08T12:41:28.517" Title="Finding Bertrand equilibrium with no demand function explicitly given" Tags="&lt;microeconomics&gt;&lt;game-theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21902" PostTypeId="1" AcceptedAnswerId="21932" CreationDate="2018-05-09T04:18:08.417" Score="4" ViewCount="566" Body="&lt;p&gt;Consider a game with two players where each player $i=1,2$ has preferences $u_i=s_i^a c_i^{1−a}$, where $c_i$ is consumption and $s_i$ is social interaction. $s_i$ is given by $s_i=t_i+t_{ij}\times t_{ji}$ , where $t_i$ is the time spent by player $i$ alone and $t_{ij}$ is the time player $i$ spends with player $j$. Player $i$ has to decide how much of his or her time $T$ to allocate between work, having time alone, $t_i$, and social interaction $t_{ij}$. Assume that for each hour, player $i$ works, that he or she earns the wage $w$ and assume that the price of the consumption good $c_i$ is normalized to $p=1$.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Carefully define the optimization problem for player 1. Write down the Kuhn-Tucker conditions and discuss these conditions. Explain why player 1 faces a strategic situation. Find the best-response functions for player 1 and 2. Graph these functions.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My solution :&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$L = s_i^a c_i^{1-a}  - \lambda(c_i + s_i - (T-s_i)w) + \mu (c_i + s_i - T)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;FOC: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac{\partial L}{\partial \lambda} =  c_i + s_i - (T - s_i)w = 0$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac{\partial L}{\partial s_i} = a s_i^{a-1} c_i^{1-a} - \lambda(1+w) +\mu = 0$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac{\partial L}{\partial c_i} = (1-a) s_i^a c_i^{-a} - \lambda +\mu = 0$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac{\partial L}{\partial \mu} = c_i + s_i - T  = 0 $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By following this procedure, I cannot come to the solution. &#xA;Please share your ideas with me.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Solving that I obtain :&lt;a href=&quot;https://i.stack.imgur.com/rd69m.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/rd69m.png&quot; alt=&quot;Exercise&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="18244" LastEditorUserId="18244" LastEditDate="2018-06-13T13:31:15.463" LastActivityDate="2018-06-13T15:39:02.810" Title="Optimization problem with Kuhn-Tucker conditions" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;consumer-theory&gt;&lt;self-study&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="21903" PostTypeId="1" CreationDate="2018-05-09T04:25:24.483" Score="4" ViewCount="615" Body="&lt;p&gt;I have read technical books about the (baseline) RBC and New Keynesian models. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, these books tend not to explain very intuitively the propagation mechanisms of shocks between the two models, or the difference between them. I am referring to the mechanisms by which a shock to one variable affects the other variables. Since the baseline NK model does not contain any endogenous persistence, I'm primarily interested in how these effects play out &lt;strong&gt;within one time period&lt;/strong&gt;. That is: what are all the mechanisms through which a shock propagates through the system and determines a new equilibrium $E^*$ (as opposed to the equilibrium $E$ that &lt;em&gt;would have&lt;/em&gt; happened in that time period without the shock.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So I'm looking for an intuitive paper/article on the internal (propagation) mechanisms in RBC and New Keynesian models. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note again, that I am interested in a &lt;strong&gt;primarily intuitive/economic explanation&lt;/strong&gt; of these mechanisms, &lt;strong&gt;rather than an overly mathematical one&lt;/strong&gt; since the latter I have already found in textbooks. &lt;/p&gt;&#xA;" OwnerUserId="11146" LastEditorUserId="11146" LastEditDate="2018-05-25T14:26:57.417" LastActivityDate="2018-05-25T15:09:30.627" Title="Good paper/article on the mechanisms in RBC vs New Keynesian models" Tags="&lt;new-keynesian-economics&gt;&lt;dsge&gt;&lt;rbc&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="21904" PostTypeId="1" CreationDate="2018-05-09T05:45:08.923" Score="1" ViewCount="19" Body="&lt;p&gt;&lt;a href=&quot;https://medium.com/s/story/why-we-hate-working-for-big-companies-9e6c787a32ac&quot; rel=&quot;nofollow noreferrer&quot;&gt;See why we hate working for big companies&lt;/a&gt; &#xA;What do you think of the proposition that Modern capitalism raises the flag of the free market while pitting centrally planned organisations against each other?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Could firms introduce a free market internally? What would be the benefits and problems?&lt;/p&gt;&#xA;" OwnerUserId="18247" LastActivityDate="2018-05-09T05:45:08.923" Title="Are corporations free market on the outside and communist dictatorships on the inside?" Tags="&lt;markets&gt;&lt;theory-of-the-firm&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="21905" PostTypeId="1" AcceptedAnswerId="21942" CreationDate="2018-05-09T05:53:27.200" Score="0" ViewCount="97" Body="&lt;p&gt;I have learned economics so far, the most astonishing economics' thing is its though which is talkable and visually in the real world or the abstract world that is worth researching and talking. What I see in common is the abstract ideas that are generated from philosophy and economics is the social science study, I am interested in both philosophy and economics but what I only know and read is economics' side, not philosophy's side.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does anyone recommend any book worth for spending the time to gain both sides of knowledge?&lt;/p&gt;&#xA;" OwnerUserId="17897" LastEditorUserId="17897" LastEditDate="2018-05-09T07:22:39.513" LastActivityDate="2018-05-11T13:29:28.753" Title="Philosophy books for decision theory and economics idea" Tags="&lt;reference-request&gt;&lt;self-study&gt;&lt;decision-theory&gt;&lt;philosophy-of-economics&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="21906" PostTypeId="1" AcceptedAnswerId="21966" CreationDate="2018-05-09T11:00:27.670" Score="2" ViewCount="1531" Body="&lt;p&gt;I have a budget set&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$B=\{x=(x_1,x_2)\in R^2_+ \mid 2\sqrt{x_1}+x_2\le y\}$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;where &lt;span class=&quot;math-container&quot;&gt;$y&amp;gt;0$&lt;/span&gt; is income.&lt;/p&gt;&#xA;&lt;p&gt;Assuming the preferences are strictly monotonic and convex, I want to show that first order conditions are necessary and sufficient for an interior solution to the utility maximization problem&lt;/p&gt;&#xA;&lt;p&gt;**My solution **&lt;/p&gt;&#xA;&lt;p&gt;First step : I maximize utility subject to the given budget set&lt;/p&gt;&#xA;&lt;p&gt;Second step: I calculate first order conditions&lt;/p&gt;&#xA;&lt;p&gt;Third step : I use hessian matrix.&lt;/p&gt;&#xA;&lt;p&gt;If the determinant of this hessian matrix H is negative, then I can say that the FOCs are necessary is sufficient. (Is this true?)&lt;/p&gt;&#xA;&lt;p&gt;My solution is like that &lt;a href=&quot;https://i.stack.imgur.com/iFxvM.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/iFxvM.jpg&quot; alt=&quot;enter image description here&quot; /&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&lt;p&gt;where &lt;span class=&quot;math-container&quot;&gt;$$u_{11}={\partial^2 u(x_1, u_2)\over \partial x_1^2}$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$u_{22}={\partial^2 u(x_1, u_2)\over \partial x_2^2}$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$u_{12}={\partial^2 u(x_1, u_2)\over \partial x_1 \partial x_2}$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$u_{21}={\partial^2 u(x_1, u_2)\over \partial x_1 \partial x_2}$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;I don’t know this answer is enough and correct. Because this solution seems not to be sufficient. Please share me your ideas about my solution.&lt;/p&gt;&#xA;&lt;p&gt;Thanks a lot.&lt;/p&gt;&#xA;" OwnerUserId="18231" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2018-05-18T07:02:17.190" Title="Show that First order conditions are necessary and sufficient for utility maximization" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;consumer-theory&gt;&lt;optimization&gt;&lt;self-study&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21907" PostTypeId="2" ParentId="21899" CreationDate="2018-05-09T11:02:02.720" Score="1" Body="&lt;p&gt;The short answer is no, this is not so when the dependent variable is in log, unless you &lt;em&gt;define&lt;/em&gt; the $\%\Delta$ as (100 times) log-difference. The reason is that $E(\log y) \ne \log E(y)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We don't need a multiple regression model to show this so consider $\log(y)=\beta_0 + \beta_1 x + u$. It is the &lt;strong&gt;dependent variable in log&lt;/strong&gt; that matters, so let us not take log to $x$ for notational brevity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is true that $\%\Delta y \approx 100 \beta_1 \Delta x$ if $\Delta u = 0$ (&lt;em&gt;ceteris paribus&lt;/em&gt;) when $\beta_1 \Delta x \approx 0$. But we cannot interpret it in terms of $E(y|x)$. The reason follows.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As you can see, we have $y = \exp(\beta_0 + \beta_1 x + u)$. When $x$ increases from $x_1$ to $x_1+\Delta x$, $y$ increases from $y_1 = \exp(\beta_0 + \beta_1 x_1 + u_1)$ to $y_2 = \exp \{ \beta_0 + \beta_1 (x_1+\Delta x)+u_2 \}$. &lt;strong&gt;Importantly,&lt;/strong&gt; $u$ can also change because $u$ is not held fixed, which is why I wrote $u_1$ and $u_2$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, what is the change rate of $y$? We have&#xA;$$&#xA;\frac{y_2}{y_1} -1 = \exp(\beta \Delta x) \exp(\Delta u) -1 \approx (1+\beta \Delta x) \cdot \exp(\Delta u) -1,&#xA;$$&#xA;where $\Delta u = u_2-u_1$. Here, the left-hand side is the change rate of $y$. You can verify that the change rate of $y$ is approximately $\beta \Delta x$ if $u_1 = u_2$, i.e., if $u$ is held fixed so that $\exp(\Delta u) = 1$. But the problem is that $u$ is &lt;strong&gt;not held fixed&lt;/strong&gt; so $\exp(\Delta u)$ can be &lt;strong&gt;very different from 1&lt;/strong&gt;. When $x$ and $u$ are independent, the average growth rate is $\exp(\beta \Delta x) \cdot E(e^{\Delta u}) -1$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How different would this be from $\beta \Delta x$? If $u\sim N(0,\sigma^2)$ and $u_1$ and $u_2$ are mutually independent, then $u_2-u_1 \sim N(0,2 \sigma^2)$, and thus $E(e^{u_2-u_1}) = \exp(\sigma^2)$. For example, if $\beta_1 \Delta x_1 = 0.01$ and $u\sim N(0,1)$, then the average growth rate of $y$ is $\exp(0.01) \times e - 1 \approx 1.75$, that is, approximately 175%, which is hugely different from 1%. Interesting, isn't it?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Simulations:&lt;/strong&gt; Use R to do the following simulation.&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;set.seed(1)&#xA;n &amp;lt;- 1e6&#xA;x1 &amp;lt;- rnorm(n)&#xA;x2 &amp;lt;- x1+1&#xA;y1 &amp;lt;- exp(1+0.01*x1 + rnorm(n))&#xA;y2 &amp;lt;- exp(1+0.01*x2 + rnorm(n))&#xA;100*mean(y2/y1-1)&#xA;# 175.2406&#xA;mean(log(y2)-log(y1))&#xA;# 0.01004419&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;When $\beta_1 \Delta x = 0.01 \times 1 = 0.01$, the average growth rate is not 1% but 175%. But $\Delta E(\log y)$ is approximately 0.01.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note 1: The above discussion is for the log-level model. Little is changed for the log-log model.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note 2: If you define the growth rate as the log-difference, the expected growth rate equals the expected log-difference = $\beta \Delta x$.&lt;/p&gt;&#xA;" OwnerUserId="10775" LastActivityDate="2018-05-09T11:02:02.720" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="21908" PostTypeId="1" AcceptedAnswerId="22376" CreationDate="2018-05-09T11:15:31.620" Score="-4" ViewCount="538" Body="&lt;p&gt;I have also following budget set &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$B=\{x=(x_1,x_2)\in R^2_+ \mid 2\sqrt{x_1}+x_2\le y\}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where y is income. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume that there are two stories. The agent can shop in both of them. The first store has a quantity discount on good1 as described above. And a fixed unit price of good 2. $p_2=1$. The other store charges fixed unit prices, $p_1=2$ and $p_2=1/2$ respectively. Assume that income y is 6. How can I write the feasible budget constraint for utility maximization $U(x_1, x_2)=x_1x_2$. And since there is two stores, how can I write Lagrangian function for calculation of the optimization problem.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know I have to write my trials. But I cannot write properly any budget  constraint and Lagrangian therefore, I cannot post my solution. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help is appreciated. Thank you.   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/kXX2o.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/kXX2o.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="6134" LastEditorUserId="6134" LastEditDate="2018-05-10T08:54:52.090" LastActivityDate="2018-06-08T15:58:15.553" Title="Question about budget constraint and utility maximization" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;utility&gt;&lt;optimization&gt;&lt;self-study&gt;" AnswerCount="1" CommentCount="7" FavoriteCount="1" ClosedDate="2018-06-09T06:09:04.443" ContentLicense="CC BY-SA 4.0" />
  <row Id="21909" PostTypeId="1" CreationDate="2018-05-09T11:26:20.753" Score="-1" ViewCount="1903" Body="&lt;p&gt;In general, We know that if a good is normal, then as your income increases, then demand of that good increases as well as price is fixed. Similarly, if a good is inferior, then as your income increases, then the demand of good decreases while its price is fixed. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But I read a statement that tells &lt;/p&gt;&#xA;&#xA;&lt;p&gt;“ a decrease in the price of a good will cause the quantity demanded of that good to increase if the good is a normal good, and to decrease if the good is an inferior good”&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I cannot understand this statement.  how can I show it mathematically or graphically. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What do you think about this statement? Do you agree or not? &lt;/p&gt;&#xA;" OwnerUserId="15030" LastEditorUserId="15030" LastEditDate="2018-05-09T12:49:13.003" LastActivityDate="2018-05-09T21:07:28.037" Title="Inferior and normal good and the change in price of those goods" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;&lt;elasticity&gt;&lt;preferences&gt;&lt;self-study&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21911" PostTypeId="2" ParentId="21872" CreationDate="2018-05-09T12:13:26.193" Score="-1" Body="&lt;p&gt;I was carefully rereading the underlying paper (Bloch, 1996) and found what I was looking for. Let $N = \{1,\ldots,n\}$ denote the set of agents and let $\Pi_{\{1, \ldots, i-1\}}$ denote the set of coalition structures of $\{1, \ldots, i-1\}$ for all $i \in \{2,\ldots,n\}$. A strategy in the game of coalition size is a mapping $s_i : \Pi_{\{1, \ldots, i-1\}} \to \{1, \ldots, n-(i-1)\}$ for all $i \in \{2,\ldots,n\}$. Further $s_1 \in N$.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Example with $n=4$. With some abuse of notation (saving curly brackets) we get&#xA;\begin{align}&#xA;&amp;amp;s_1 \in \{1,2,3,4\}\\&#xA;&amp;amp;s_2:\{1\} \to \{1,2,3\}\\&#xA;&amp;amp;s_3:\{\{1,2\},\{12\}\} \to \{1,2\}\\&#xA;&amp;amp;s_4:\{\{1,2,3\},\{12,3\},\{1,23\},\{123\}\} \to \{1\}&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Bloch (1996): &quot;Sequential Formation of Coalitions in Games with Externalities and Fixed Payoff Division&quot;, &lt;em&gt;GEB&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="4266" LastActivityDate="2018-05-09T12:13:26.193" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="21912" PostTypeId="2" ParentId="21901" CreationDate="2018-05-09T12:33:09.923" Score="1" Body="&lt;p&gt;This is not a Bertrand equilibrium. Altough both firms set prices and they do so simultaneously, the products are not perfect substitutes because the travel distance differs for most consumers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What this seems to be is the second stage of a &lt;a href=&quot;https://www.jstor.org/stable/2224214&quot; rel=&quot;nofollow noreferrer&quot;&gt;Hotelling model&lt;/a&gt;. The usual assumptions are that a continuum of buyers are spread out uniformly along the line and that every buyer's reservation price is very high compared to the transportation cost, so in equilibrium all buyers will be served. The total quantity of buyers may be scaled to one for simplicity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given these assumptions you can derive the demand function each firm faces.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2018-05-09T12:33:09.923" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21913" PostTypeId="2" ParentId="21897" CreationDate="2018-05-09T14:02:02.970" Score="1" Body="&lt;p&gt;As the companies doing the production will minimize costs in equilibrium&#xA;$$&#xA;\begin{align*}&#xA;|MRTS_c(K_c,L_c)| &amp;amp; = r/w \\&#xA;\\&#xA;|MRTS_w(K_w,L_w)| &amp;amp; = r/w&#xA;\end{align*}&#xA;$$&#xA;will hold. (Or you can also use the general form of your equations (1),(2),(5) and (6) to get this.) Given your particular production functions the marginal rates of technical substitution are&#xA;$$&#xA;\begin{align*}&#xA;|MRTS_c(K_c,L_c)| &amp;amp; = \frac{L_c}{K_c} \\&#xA;\\&#xA;|MRTS_w(K_w,L_w)| &amp;amp; = \frac{L_w}{K_w}.&#xA;\end{align*}&#xA;$$&#xA;Taken together, this means&#xA;$$&#xA;\frac{L_c}{K_c} = r/w = \frac{L_w}{K_w}.&#xA;$$&#xA;It follows that&#xA;$$&#xA;L_c + L_w = (K_c + K_w) \cdot r/w.&#xA;$$&#xA;The total amount of Labor and Capital are given in your exercise, and these will determine the factor price ratios as well as the $L_c/K_c = L_w/K_w$ ratio. Once you plug those in, your equation system will become linear.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Notice that this is true both in autarky and in free trade equilibrium, we have not used demand functions so far at all. Setting the appropriate demand equal to the appropriate production will give you the remaining equations you need to determine the equilibrium price ratio.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2018-05-09T14:19:02.840" LastActivityDate="2018-05-09T14:19:02.840" CommentCount="7" ContentLicense="CC BY-SA 4.0" />
  <row Id="21914" PostTypeId="1" CreationDate="2018-05-09T15:54:43.017" Score="1" ViewCount="168" Body="&lt;p&gt;If I look, for example, at the UK government's Autumn 2017 budget document the spending piechart has a wedge which says 'net debt interest £41bn'. I notice the wording says 'interest' and not something like 'net debt servicing' or 'interest and principal'.  The government has to repay the principal amount of the bond when it matures.  My question is are these prinicpal payment included in normal budget spending?  If not where are they accounted for in government finances?  Thank you.&lt;/p&gt;&#xA;" OwnerUserId="14368" LastActivityDate="2018-11-20T22:33:12.333" Title="Are principal payments on government bonds included in normal budget spending?" Tags="&lt;government-debt&gt;&lt;government-spending&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="21916" PostTypeId="2" ParentId="16630" CreationDate="2018-05-09T18:04:58.800" Score="0" Body="&lt;p&gt;The simple answer is that we're comparing different dependent variables, and usually these imply different models, some of which do not satisfy the usual hypotheses. In this case, we have &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Model with dependent variable $y_t$ implies that $\log(y_t)$ is not linear in the parameters.&lt;/li&gt;&#xA;&lt;li&gt;Model with dependent variable $\log(y_t)$ implies that $y_t$ is not linear in the parameters.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;So, only one can satisfy linearity. There's no point in comparing models. We only compare them, after we've ascertained that they comply with the hypotheses.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can just check which one obeys linearity from a data plot, or other technique, and then choose that one.&lt;/p&gt;&#xA;" OwnerUserId="118" LastActivityDate="2018-05-09T18:04:58.800" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21917" PostTypeId="2" ParentId="21914" CreationDate="2018-05-09T19:05:09.393" Score="1" Body="&lt;p&gt;Normally, they aren’t, but there are exceptions. For example. The Japanese Ministry of Finance includes principal repayments in its definition of “debt service” - &lt;a href=&quot;https://www.mof.go.jp/english/budget/budget/fy2014/01.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;see budget summary for 2014, page 4&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(The inclusion of principal payments in debt service seems to be a convention for external debt: how much foreign currency debt that needs to be paid back can matter for credit risk. Floating currency sovereigns like the U.K. have negligible credit risk for their local currency borrowings.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reason why it is ignored principal repayment is a fairly meaningless number in government finance. If the government issues \$1 billion in short-term debt, in one year it will have:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;(roughly) \$12 billion in principal repayments if it rolls over 1-month bills,&lt;/li&gt;&#xA;&lt;li&gt;(roughly) \$4 billion in principal repayments if it rolls over 3-month bills, or&lt;/li&gt;&#xA;&lt;li&gt;(roughly) \$1 billion in principal repayment if it issues a 12-month bill.&#xA;(Numbers are approximations since Treasury bills are discount instruments.)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The same principle works for longer-dated debt: you have twice the principal repayments if you roll over a 5-year bond instead of issuing a 10-year bond. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So all principal payments tell us about is the debt management strategy of the government.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you want to know how government debt is out there, you just look at the debt stock.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2018-05-09T19:05:09.393" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21918" PostTypeId="2" ParentId="21909" CreationDate="2018-05-09T21:07:28.037" Score="0" Body="&lt;p&gt;This means that as the quantity demanded for an inferior good falls as the price falls. An example of this is a good that is deemed to be “bad” if the price is bad. Consider a shirt at walmart that the public views as “cheap”. As the price for that good falls individuals expect that good to be worse and demand falls. Ordinarily with normal good the demand would rise as the price falls, but with a normal good the demand curve simply slopes downward as the price falls. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Graphically you can display this pattern with a supply and demand curve. Normally you would see the demand curve slope upward as price falls, but in the case of an inferior good you can simply show it graphically by having the demand curve slope downward as the price falls. &lt;/p&gt;&#xA;" OwnerUserId="16329" LastActivityDate="2018-05-09T21:07:28.037" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21920" PostTypeId="2" ParentId="21891" CreationDate="2018-05-09T21:16:56.980" Score="2" Body="&lt;p&gt;The question is not totally clear, but I will attempt to give you some guidance. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To answer your first questions, confounding variables are not a type of endogenous variable. We do not observe nor are we interested in the confounding variables, which means they are not endogenous variables in our model.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You later give the correct definition of an endogenous variable &quot;An explanatory variable in a multiple regression model that is correlated with the error term&quot;. Hence, there can be several reasons why a variable would be endogenous, but they all have to do with correlation with the error term.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An endogenous variable is one, which cannot have a causal interpretation in a regression model. When something leads to a variable being endogenous, we call this a source of endogeneity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As you mention, an important source of endogeneity are omitted variables. If we omit a variable, which affects the outcome variable, then the omitted variable is captured by the error term in our model. If the omitted variable is correlated with an explanatory variable, then that explanatory variable becomes endogenous, because it is now correlated with the error term.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Other important sources of endogeneity are reverse causality and simultaneity, as you mention. For reverse causality, we have that the explanatory variabe is supposed to influence the outcome variable, but if the outcome variable also affects the explanatory variable, then in our regression model, this latter channel is necessarily captured by the error term. This is because such a channel determines the relationship between the outcome and explanatory variable, but we cannot capture it in any variable. Putting the explanatory variable on the left side instead and using the outcome variable as an explanatory variable does not help either, because we then have the same problem. Then the explanatory variable is correlated with the error term, which makes the explanatory variable endogenous.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So overlapping features are that all sources of endogeneity stem from a correlation of an explanatory variable with the error term. Distinctions are the source of this correlation and consequently how to deal with it. For example, omitted variable bias may be dealt with by observing and adding the omitted variable to the regression. This strategy does not work when trying to address reverse causality.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastActivityDate="2018-05-09T21:16:56.980" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="21921" PostTypeId="1" AcceptedAnswerId="21927" CreationDate="2018-05-10T01:03:17.077" Score="1" ViewCount="163" Body="&lt;p&gt;Two firms are in a market together. They produce a product.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Total revenue from sales is $y=K+L$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;K is the amount of capital&lt;/p&gt;&#xA;&#xA;&lt;p&gt;L is the amount of labor&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These two firms each specialized in supplying one of inputs and the cost of the input supplied is incurred by the person providing it. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For capital, the cost is $K^2/2$ and for  labor, the cost is $L^2/2$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And they share revenue from their business equally. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I need to find firstly that if eac is interested in maximizing his own profit, then how much of each input will they use, and how much profit will each make. And secondly, I need to find the profit maximizing level of inputs for whole business.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a result, I need to compare what I have found in both parts. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;———-&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;my solution&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For firm 1,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$max [1/2(K+L)-K^2/2]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;FOCs:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$1/2-K=0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So $K=1/2$. He use 1/2 unit of capital. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And his profit is $\pi= 1/2*(1/2+L)-1/4=1/2*L\ge 0$ for $L&amp;gt;0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Similarly, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For firm 2,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$max [1/2(K+L)-L^2/2]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;FOCs:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$1/2-L=0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So $L=1/2$. He use 1/2 unit of labor. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And his profit is $\pi= 1/2*(1/2+K)-1/4\ge 0$ for $L\ge 0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;=======&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And I have tried to find the profit maximization for entire business &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$max[(K+L)- K^2/2-L^2/2]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;FOCs;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$1-K=0$ so K=1&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$1-L=0$ so L=1&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And profit $= (1+1)-(1/2+1/2)=1&amp;gt;0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, all parts of my solution are correct?&lt;/p&gt;&#xA;" OwnerUserId="6134" LastEditorUserId="6134" LastEditDate="2018-05-11T05:43:14.260" LastActivityDate="2018-05-11T05:43:14.260" Title="Profit maximization question" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;labor-economics&gt;&lt;self-study&gt;&lt;profit-maximization&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="21922" PostTypeId="2" ParentId="21905" CreationDate="2018-05-10T06:33:22.583" Score="2" Body="&lt;p&gt;Your question is a little bit unclear. But still, if you wish to delve into the philosophical side of economical topics/question/phenomena, you can check the Stanford Encyclopaedia of Philosophy's &lt;a href=&quot;https://plato.stanford.edu/entries/economics/&quot; rel=&quot;nofollow noreferrer&quot;&gt;article on Philosophy of economics&lt;/a&gt;. It might be a good place to start and refine what you are looking for.&lt;/p&gt;&#xA;" OwnerUserId="7025" LastActivityDate="2018-05-10T06:33:22.583" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="21923" PostTypeId="1" CreationDate="2018-05-10T07:12:27.803" Score="1" ViewCount="110" Body="&lt;p&gt;Consider a game with two players, where each player i= 1 ,2 has preferences $u_i$= $s_i^a$$c_i^{1-a}$, where c_i is the consumption and $s_i$ is social interaction. $s_i$ is given by :&#xA;$s_i$ = $t_i$ + $t_{ij}*t_{ji}$, where t_i is time spend by player i alone, and $t_{ij}$  is the time player i spends with player j. Player i has to decide how much of his or her time T to allocate between work, having time alone, {t_i} and social interaction $t_{ij}$. Assume that for each hour, player i works, he or she earns the wage w and assume that the price of the consumption good $c_i$ is normalized to p=1.        &lt;/p&gt;&#xA;&#xA;&lt;p&gt;i. Define the optimization problem for player 1. Write down the Kuhn-Tucker conditions and discuss these conditions. Explain why player 1 faces a strategic situation. Find the best response functions for player 1 and 2. Graph these functions. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;ii.  There are some cultures that emphasize social interaction more than others. In this exercise how can I determine the role of '' culture'' if exists?&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;My solution is :&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$max s_i^a c_i^{a-1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;subject to $c_i$+w$s_i$=Tw and $s_i\le T$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lagrangian &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$L(\lambda, \mu, s_i, c_i) = max s_i^a c_i^{a-1} -\lambda [c_i+ws_i-Tw]+\mu [s_i-T]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;FOCs &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$L_{\lambda}=0$ so, $c_i+ws_i=Tw$    (Eqn-1)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$L_{s_i}=0$ so, $as_i^{a-1}c_i^{1-a}$-$\lambda w$- $\mu=0$ (Eqn-2)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$L_{c_i}=0$ so, $(1-a)s_i^{a}c_i^{-a}$-$\lambda =0$ (Eqn-3)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Slackness condition : $\mu [s_i-T]=0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If $s_i-T&amp;lt;0$ implies $s_i &amp;lt; T$ so $\mu =0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus by equation (2), $as_i^{a-1}c_i^{1-a}$=$\lambda w$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By equation (3),  $(1-a)s_i^{a}c_i^{-a}$=$\lambda $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By equation (2)/(3), $(a/1-a)(c_i/s_i)=w$ implies $c_i={w(1-a)\over a} s_i$ (Eqn-4)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Equation 4 and 1, ${1-a\over a}ws_i +ws_i=Tw$ implies $s^*_i=aT$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, $c_i^*=(1-a)wT$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In order to find the best response function &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$s_i^*=aT$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$t_i^*+t_{ij}*t_{ji}=aT$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By equation 5, $t_{12}(t_{21})={aT-t^*_1\over t_{21}}$ and &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$t_{21}(t_{12})={aT-t^*_2\over  t_{12}}$ equation (6)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When I plug (5) into (6)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$t_{21}(t_{12})={aT-t^*_2\over  (aT-t^*_1)/t_{21}}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$t_{21}={(t_{21}aT-t_{21}t^*_2)\over aT-t^*_1}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$t_{21}aT-t_{21}t^*_1= t_{21}aT-t_{21}t^*_2$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$(t^*_2-t^*_1) t_{21}=0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Each player faces a strategic situation because his best response depends on the others action. The term $t_{ji}$ determine by other players. Thus you have to choose your best response conditional on the others’ action.I really try to find the best response functions but i stuck at this point.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you.&lt;/p&gt;&#xA;" OwnerUserId="18244" LastEditorUserId="18244" LastEditDate="2018-05-10T23:56:56.530" LastActivityDate="2018-05-10T23:56:56.530" Title="Kuhn Tucker optimization problem and game theory" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;consumer-theory&gt;&lt;self-study&gt;" AnswerCount="0" CommentCount="1" ClosedDate="2018-05-17T19:55:03.770" ContentLicense="CC BY-SA 4.0" />
  <row Id="21926" PostTypeId="1" CreationDate="2018-05-10T17:45:59.240" Score="1" ViewCount="128" Body="&lt;p&gt;So, I watched a video on economies of scale. It makes sense to me but I'm wondering, is there a point where say doubling the production rate makes the product even more expensive? How can I figure out the equilibrium point and thus maximum useful rate for producing a product assuming certain restrictions on availability of product, maximum distance to customer, value of ingredients, and other factors? I imagine it would be something like this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/Bea3c.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Bea3c.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Exponential decay in price until certain point is reached&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/mZ3i5.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/mZ3i5.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Stops decreasing right at relative price = 0&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/5IRju.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/5IRju.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Exponential growth after the equilibrium point as relative price goes in the positive direction.&lt;/p&gt;&#xA;" OwnerUserId="18256" LastActivityDate="2018-08-08T20:38:31.887" Title="Economies of scale: when is it disadvantageous?" Tags="&lt;optimization&gt;&lt;pricing&gt;&lt;economies-of-scale&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="21927" PostTypeId="2" ParentId="21921" CreationDate="2018-05-10T17:49:10.177" Score="1" Body="&lt;p&gt;You make a mistake in setting up your individual profit functions. Given that the &lt;strong&gt;total revenues&lt;/strong&gt; from sales are $y=K+L$ and they share revenues equally their revenues are $1/2*(K+L)$&lt;/p&gt;&#xA;" OwnerUserId="12186" LastActivityDate="2018-05-10T17:49:10.177" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="21928" PostTypeId="2" ParentId="21926" CreationDate="2018-05-10T17:59:28.833" Score="0" Body="&lt;p&gt;You don't have to apply a single continuous function as required in many textbook applications. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Theoretically, you could say something like &quot;beyond production level x, some other factor kicks in which begins to apply pressure&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, below production level x, f(x) is the function, and above production level x, the total cost function is the sum of f(x) + g(x). This is still a somewhat simplistic and theoretical representation, but for practical applications could be updated with some variety of parametric or non-parametric approaches.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, perhaps some social media platform succeeds quite a lot in reaching 1 billion users under economies of scale production conditions, but then its per unit costs rise a lot beyond some threshold, for example due to: concerns related to privacy, data localization, spread of fake news, speech which promotes violence or hate against individuals based on ethnicity or religion, etc. Each of those concerns would enter as an essentially separate cost function into the overall production activities of the company. (In terms of pro-competition concerns, it would be arbitrarily easy to not apply such rules to start-ups with size under one thousand or one million users, etc).&lt;/p&gt;&#xA;" OwnerUserId="16499" LastActivityDate="2018-05-10T17:59:28.833" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21929" PostTypeId="1" CreationDate="2018-05-10T19:51:59.610" Score="1" ViewCount="56" Body="&lt;p&gt;Ok so I was arguing with my teacher about this one question: Based on the price elasticity of demand coefficient determine whether the price should be increased or decreased for revenue to increase.&#xA;PED coefficient: -1.2, 0.8, 2.4, -0.3.&#xA;He said that for -1.2 they should decrease price and for -0.3 increase. I agreed with him but then he said that 2.4 should be decreased price to increase revenue because it is elastic. However I said that its 2.4 and not -2.4 so even if its elastic as from PED formula price and quantity demanded would have to both increase or decrease to get it as a positive number therefore we can't really determine whether revenue would increase/decrease. I think he made the question himself so maybe he made a mistake of putting positive coefficient. I have researched that some products have positive like caviar (dunno if true). So my question who was right?&lt;/p&gt;&#xA;" OwnerUserId="18257" LastActivityDate="2018-05-10T19:51:59.610" Title="PED and change in revenue" Tags="&lt;elasticity&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21930" PostTypeId="2" ParentId="21888" CreationDate="2018-05-10T22:02:47.163" Score="1" Body="&lt;p&gt;This youtube channel has excellent videos for metrics:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.youtube.com/channel/UC3tFZR3eL1bDY8CqZDOQh-w&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.youtube.com/channel/UC3tFZR3eL1bDY8CqZDOQh-w&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="16530" LastActivityDate="2018-05-10T22:02:47.163" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21931" PostTypeId="1" CreationDate="2018-05-11T00:27:49.143" Score="3" ViewCount="47" Body="&lt;p&gt;In Stabilizing an Unstable Economy (1986), Hyman Minsky argues that &quot;bank examination is largely perfunctory... rather than an inquiry into the economic viability and the exposures to risk of banking organization.&quot; ( chapter 10, p.240). He then holds that &quot;the existing examination procedures are not a serious substitute for &lt;strong&gt;costumer and collegiate surveillance&lt;/strong&gt; for giant banks with complex asset and liability structures.&quot; (ibid.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now here are my two questions:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;What exactly does he mean by &lt;em&gt;costumer and collegiate surveillance&lt;/em&gt;?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Why is that so important for him? I don't think I really get his point here.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Thank you!&lt;/p&gt;&#xA;" OwnerUserId="11988" LastActivityDate="2018-07-11T13:48:03.473" Title="Hyman Minsky's view on Bank Examination" Tags="&lt;monetary-policy&gt;&lt;banking&gt;&lt;central-banking&gt;&lt;money&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21932" PostTypeId="2" ParentId="21902" CreationDate="2018-05-11T03:40:00.520" Score="3" Body="&lt;p&gt;Player $1$'s utility maximization problem is the following :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\max_{0 \leq t_{12} \leq T} \ \ \left(T-t_{12} + t_{12}t_{21}\right)^a \left(w(T-t_{12})\right)^{1-a}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An equivalent way to solve the above problem is maximizing the $\log$ of the objective i.e. one can solve &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\max_{0 \leq t_{12} \leq T} \ \ a\ln\left(T-t_{12} + t_{12}t_{21}\right) +(1-a)\ln  \left(w\right) + (1-a)\ln  \left(T-t_{12}\right) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Solving it we get the best response function of player 1 as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{eqnarray*} t_{12} = \begin{cases} 0 &amp;amp; \text{if } t_{21} \leq\frac{1}{a} \\ \frac{T(at_{21}-1)}{(t_{21}-1)} &amp;amp; \text{if } t_{21} &amp;gt; \frac{1}{a} \end{cases} \end{eqnarray*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Likewise, the best response function of player 2 is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{eqnarray*} t_{21} = \begin{cases} 0 &amp;amp; \text{if } t_{12} \leq  \frac{1}{a} \\ \frac{T(at_{12}-1)}{(t_{12}-1)} &amp;amp; \text{if } t_{12} \geq  \frac{1}{a} \end{cases} \end{eqnarray*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now you can solve the best responses to get the Nash Equilibria.&lt;/p&gt;&#xA;" OwnerUserId="11824" LastEditorUserId="11824" LastEditDate="2018-06-13T15:39:02.810" LastActivityDate="2018-06-13T15:39:02.810" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="21933" PostTypeId="1" CreationDate="2018-05-11T04:24:18.357" Score="-1" ViewCount="159" Body="&lt;p&gt;I’m studying on auction. But I couldn’t understand some questions about this topic. And I cannot solve such type questions. For example, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know that a set of symmetric and risk neutral bidders participate in a first-price sealed bid auction. For the number of bidders $n\ge 0$,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;F(v) = the distribution function from which bidders’ valuations (independently drawn and it has uniform distribution $v\in [0,1]$, similarly f(v) is density function. $b(v)$ is strategies in auction and calculated by&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$b(v)=\int_0^v x \frac{(n-1)F(x)^{n-2}f(x)}{F(v)^{n-1}} dx$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Firstly I try to show that $b(v) is increasing in v. &#xA;Secondly, how can I show that b(v) is equilibrium strategy. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for second price sealed bid, I try to show there exist an equilibrium for all bidders to bid their true valuations. And finally I want to compare the expected selling prices in the two auctions for conditional on a fixed highest valuation on $v_n$ by arranging bidders’ valuations from highest to lowest $v_1\ge … \ge v_n$. Well,how can I decide which auctions would a risk averse sellers prefer? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Question is this. And I cannot produce any proper solution for such type questions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;—————&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;now, I mention about my solution trials;&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can only show that the bidding function b(v) is increasing in v.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For that I rewrite the bidding function as follows:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$b(v)=\frac{1}{F(v)^{n-1}}\int_0^v x dF^{n-1}(x)dx$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since each bidders value is uniformly distributed on [0,1], I can say F(v)=v and f(v)=1, so if there are n bidders then each employs the bidding function &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$b(v)={1\over v^{n-1}}\int^v_0 xdx^{n-1}={1\over v^{n-1}}\int^v_0 x(n-1)x^{n-2}dx$$&#xA;$$={n-1\over v^{n-1}}\int^v_0 x^{n-1}dx={1\over v^{n-1}}{1\over n} v^n = v-(v/N)=((n-1)v)/n$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So as v increases, the bidding function will increase.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, after this part of the question, I cannot solve. I also read some materials (like that &lt;a href=&quot;https://dvikan.no/ntnu-studentserver/kompendier/14%20jehle%20reny.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://dvikan.no/ntnu-studentserver/kompendier/14%20jehle%20reny.pdf&lt;/a&gt; ) but I could not. Please help me to solve these types questions. Thanks  &lt;/p&gt;&#xA;" OwnerUserId="18231" LastEditorUserId="18231" LastEditDate="2018-05-18T07:03:21.030" LastActivityDate="2018-06-17T08:02:55.717" Title="Auction question" Tags="&lt;game-theory&gt;&lt;self-study&gt;&lt;auctions&gt;&lt;mechanism-design&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21934" PostTypeId="1" CreationDate="2018-05-11T04:24:37.897" Score="1" ViewCount="133" Body="&lt;p&gt;The Laffer curve merely describes the relationship between tax rate and tax revenue. It assumes that workers are most motivated to make money when the rate is 0%. It also assumes that as the rate increases, their motivation decreases. These two assumptions are the basis of the shape of the graph. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It would therefore be understood, based on the two aforementioned assumptions, that at a 0% rate, the total income of the society is of large magnitude. But the graph neglects to depict this. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;All in all, I think the graph neglects to depict three thrings:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;The workers' income and how it changes as rates increase,&lt;/li&gt;&#xA;&lt;li&gt;the behavior of the workers as rates increase, (this is similar to but different than the first neglect), and&lt;/li&gt;&#xA;&lt;li&gt;the basis of the Laffer curve shape. &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;So, I decided to first graph the behavior of the workers as the rate increases, which would then affect the amount of revenue the government took in (which, when graphed, is the Laffer curve), and then, just for fun, I included the disposable income. The x axis is the tax rate and the y axis is money amount-- in the United States, dollars. All y values are arbitrary. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You could see the graph here:&#xA;&lt;a href=&quot;https://www.desmos.com/calculator/7iex7au6ey&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.desmos.com/calculator/7iex7au6ey&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Because the behavior of the workers is arbitrary, any depiction of their behavior would be sufficient for my purposes. Therefore, if you click on the link, you can see two different situations graphed, each situation for a different type of behavior. (For simplicity, I disabled the graphs for the second situation).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Situation one: The &lt;strong&gt;orange&lt;/strong&gt; curve is the total income of the economy before taxation, the &lt;strong&gt;purple&lt;/strong&gt; curve is the tax revenue and the &lt;strong&gt;black&lt;/strong&gt; curve is the disposable income.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Situation two (not enabled): The &lt;strong&gt;green&lt;/strong&gt; curve is the total income of the economy before taxation, the &lt;strong&gt;blue&lt;/strong&gt; curve is the tax revenue and the &lt;strong&gt;red&lt;/strong&gt; curve is the disposable income.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &lt;strong&gt;total income curves&lt;/strong&gt; are shaped like they are because as the tax rate increases, society works less, (or is less motivated to make the same amount of money), and as a whole, has less total income. The &lt;strong&gt;tax revenue curves&lt;/strong&gt;: Because, number one, as tax rates increase, workers are motivated to make less money, and, number two, the rate at which they make less money is increasing, the value of tax revenue does not increase at a constant rate. In fact, after a certain rate (changing depending on the behavior of the workers) tax revenues start to decrease. 80% of 60 dollars is more than 90% of 43 dollars. The tax revenue curves are, in essence, the Laffer curve. And lastly, the &lt;strong&gt;disposable income curves&lt;/strong&gt; are simply,&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;total income - tax revenue&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I have therefore: &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;depicted the workers' income and how it changes as rates increase,&lt;/li&gt;&#xA;&lt;li&gt;depicted the behavior of the workers as rates increase, and&lt;/li&gt;&#xA;&lt;li&gt;I have proven that a bell like shape used to depict the relationship between tax rates and tax revenues is called for.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Now, if one would argue that the Laffer curve should not be bell shaped, and rather should have constant slopes, we could deploy my graphs to show the absurdity of that assumption. The only society that can support a Laffer curve with constant slopes would be in a society where those taxed don't lose motivation to make money. This was, I believe, shown to be an impossibility during Communism in the USSR. Because it is a given that society becomes less and less motivated to make money the more they are taxed, using may graphs we can show that the Laffer curve must have changing slopes. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I graphed a society with indifference to the tax rates using my equations. It can be found this link: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.desmos.com/calculator/q2uslua7nc&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.desmos.com/calculator/q2uslua7nc&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I was playing around with my graphs, creating different situations each depicting different worker behaviors and I noticed I was unable to choose a behavioral situation, (the orange curve in first situation above and green one in the second), where the tax revenue curve (the purple curve in first situation above and blue one in the second) would be a perfect bell shape like Laffer depicted in his curves. So, I decided I would work backwards. I would first draw the tax revenue curve and derive the formula for the associated behavioral curve. This requires simple algebra.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;let j(x) = behavioral curve &lt;/li&gt;&#xA;&lt;li&gt;let a(x) = a perfect bell shape = (1/50)(-(x-50)^2) + 50 &lt;/li&gt;&#xA;&lt;li&gt;let a(x) = money collected at x% rate of total income-- j(x) = (1/100)(x) (j(x))&lt;/li&gt;&#xA;&lt;li&gt;a(x) = (1/100)(x) (j(x))&lt;/li&gt;&#xA;&lt;li&gt;(100)(a(x)) = (x)(j(x)) (100*a(x))/(x) = j(x)&lt;/li&gt;&#xA;&lt;li&gt;---substitute the equation for the perfect a(x)--- &lt;/li&gt;&#xA;&lt;li&gt;(100*((1/50) (-(x-50)^2) + 50))/(x) = j(x)&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;When graphed, j(x), the behavioral curve, has a constant slope. (You could see it here: &lt;a href=&quot;https://www.desmos.com/calculator/tn3qjflkwj&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.desmos.com/calculator/tn3qjflkwj&lt;/a&gt;) We said before, &quot;Because, number one, as tax rates increase, workers are motivated to make less money, and, number two, &lt;strong&gt;the rate at which they make less money is increasing&lt;/strong&gt;, the value of tax revenue does not increase at a constant rate.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I assumed that the rate at which people are discouraged is not constant. Clearly, if the Laffer curve is a perfect bell shape, I was wrong. But was I wrong? Would it make sense to say that a worker is discouraged the same amount between rates of 5% and 35% as they are between 50% and 80%? Doesn't it make &lt;em&gt;more&lt;/em&gt; sense to say the rate at which they are discouraged is changing? If we assume yes, can we disprove Laffer via using may three graphs-- namely, you can't use a perfect bell curve because it leads a constant rate of discouragement?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My questions are:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Are my graphs accurate?&lt;/li&gt;&#xA;&lt;li&gt;And, if they are, are there preexisting graphs that describe the relationship between workers' income, workers' behavior and tax revenue? or is the Laffer graph the only one of the sort?&#xA;&#xA;&lt;ol start=&quot;3&quot;&gt;&#xA;&lt;li&gt;And most importantly, doesn't it make more sense to say that the rate at which people are discouraged is not constant?&lt;/li&gt;&#xA;&lt;/ol&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="18258" LastEditorUserId="18258" LastEditDate="2018-05-11T05:58:30.977" LastActivityDate="2018-11-23T09:05:33.693" Title="Wasn't Laffer Wrong?" Tags="&lt;taxation&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21935" PostTypeId="1" AcceptedAnswerId="21963" CreationDate="2018-05-11T06:40:59.747" Score="2" ViewCount="293" Body="&lt;p&gt;There are two firs in the market. They produce perfect substitutes at cost $c(y_i)=y_i/3$ for i=1,2. The demand function is $p=1-(y_1+y_2)$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider the Cournot competition where firms simultaneously produce their respective outputs. However firm 1 has the opportunity to announce the output it will produce to firm 2 before the firms have produced any output. How can I find the equilibrium quantities?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;————————&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;What I have done...&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For basic case, Cournot equilibrium&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For firm 1, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$max[(1-y_1-y_2)y_1-(y_1/3)]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;FOCs&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$1-2y_1-y_2-(1/3)=0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$y_1={2-3y_2\over 6}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For firm 2, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$max[(1-y_1-y_2)y_2-(y_2/3)]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;FOCs &#xA;$$1-2y_2-y_1-(1/3)=0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$y_2={2-3y_1\over 6}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$y_1=(1/3)-(1/2)(2-3y_1/6)$$&#xA;$$y^*_1=2/9$$&#xA;$$y_2^*=2/9$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For Stackelberg eqn in basic cases &lt;/p&gt;&#xA;&#xA;&lt;p&gt;First firm is mover first &#xA;$$max[(1-y_1-y_2)y_2-(y_2/3)]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;FOCs &#xA;$$1-2y_2-y_1-(1/3)=0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$y_2={2-3y_1\over 6}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For firm 1,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$max[(1-y_1-y_2)y_1-(y_1/3)]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$max[(1-y_1-({2-3y_1\over 6}))y_1-(y_1/3)]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;FOCs&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$1-2y_1-(1/3)y_1-y_1-(1/3)=0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$y_1^*=1/5$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$y_2^*=7/30$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I just find only Stackelberg equilibrium and Cournot equilibrium in basic cases. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But I cannot find the part that I write above. How can I solve this part? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you. &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Edit: (I just post the original version of my question)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/OSbFP.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/OSbFP.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="6134" LastEditorUserId="6134" LastEditDate="2018-05-13T00:43:24.637" LastActivityDate="2018-05-13T00:43:24.637" Title="Cournot equilibrium question" Tags="&lt;microeconomics&gt;&lt;game-theory&gt;&lt;self-study&gt;&lt;competitive-equilibrium&gt;&lt;profit-maximization&gt;" AnswerCount="1" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="21936" PostTypeId="2" ParentId="21934" CreationDate="2018-05-11T07:22:58.513" Score="5" Body="&lt;p&gt;For your first question, it is hard to say whether your graphs are valid, as you are more or less assuming random functional forms. More accurate graphs would derive the functions based on utility maximization of the taxpayer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Furthermore, you are wrong to think the validity of the Laffer curve depends on a perfect bell shape. The Laffer curve simply states that the revenue maximizing tax rate is less than 100%, i.e. there are tax rates where lowering the tax can increase revenue. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Laffer curve can more accurately be derived without explicit functional forms:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Tax revenue at a tax rate of 0 is 0.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;At a tax rate of zero, tax revenue must be increasing with the tax. A small marginal tax increase does not discourage the worker from generating income, if we evaluate his first order conditon (optimization problem) at a tax of zero.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Tax revenue at a tax of 100% or more is also zero. A household that dislikes labor and gets no net income from labor will not work.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Then (e.g. by the intermediate value theorem) it follows that there is a tax rate that maximizes revenue, because a function that is increasing at the initial point and starts at zero and ends at zero must have a maximum somewhere, since it must start going down at some point.  For the argument of Laffer, this is all you need. Whether the curve is a perfect bell or not or whether it has humps is irrelevant. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Most economists would not dispute the existence of a Laffer curve. The controversy about this curve is about whether we are on the left or on the right of the revenue maximizing tax rate.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastEditorUserId="5557" LastEditDate="2018-11-23T09:05:33.693" LastActivityDate="2018-11-23T09:05:33.693" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="21937" PostTypeId="1" AcceptedAnswerId="21962" CreationDate="2018-05-11T07:41:47.780" Score="1" ViewCount="427" Body="&lt;p&gt;We have two firms with identical cost structure compete in a market &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Demand function = $p=a-bq$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And $q=q_1+q_2$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;They are identical in every way. However, firm 1 maximizes profit and firm 2 maximizes revenue as long as shareholders are satisfied, which he achieves by keeping profits nonnegative. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Both firms have constant and equal marginal cost c. So I want to find the quantities that they will choose. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;———&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;What I did is...&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For firm 1, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\pi_1=max[(a-b(q_1+q_2))q_1-cq_1]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;FOCs for $q_1$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$a-2bq_1-bq_2-c=0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So $$q_1={a-bq_2-c\over 2b}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For firm 2,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$max [(a-b(q_1+q_2))q_2]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;FOCs $$a-bq_1-2bq_2=0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$q_2={a-bq_1\over 2b}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, &#xA;$$q_1={a-b({a-bq_1\over 2b})-c\over 2b}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$q_1^*={a-2c\over 3b}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And $$q^*_2={5a+2b\over 6b}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;—-&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question says that “* firm 1 maximizes profit and firm 2 maximizes revenue as long as shareholders are satisfied, which he achieves by keeping profits nonnegative.*”&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Because of this sentence, I am exactly not sure about my solution. Especially for firm 2. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I’m confused at this point. Please tell my mistakes. Thank you. &lt;/p&gt;&#xA;" OwnerUserId="6134" LastActivityDate="2018-05-12T23:36:46.900" Title="Revenue maximization" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;self-study&gt;&lt;profit-maximization&gt;&lt;theory-of-the-firm&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="21939" PostTypeId="2" ParentId="21933" CreationDate="2018-05-11T11:12:31.070" Score="1" Body="&lt;p&gt;In first-price sealed bid auctions it is &lt;strong&gt;not&lt;/strong&gt; a dominant strategy to bid your valuation. Consider the expected payoff function:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Pi(V_{i},b_{i})=(V_{i}-b_{i})*\mathcal{Pr}(b_{i} \quad wins)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;now what would be your payoff if you bid according to your value? It's 0. However, if you bid $b_{i}&amp;lt;V_{i}$ this actually gives you the chance of winning the object at a price lower than your valuation. Hence, there is an optimal amount of bid shading. So how to compute this? Right, using the first order condition, just as in basic micro:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\dfrac{\mathrm{d}\Pi(V_{i},b_{i})}{\mathrm{d}b_{i}}=-\mathcal{Pr}(b_{i} \quad wins) +(V_{i}-b_{i})*\dfrac{\mathrm{d}}{\mathrm{d}b_{i}}\mathcal{Pr}(b_{i} \quad wins)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;now you set this to zero and solve for $b_{i}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$b_{i} = V_{i}-\dfrac{\mathcal{Pr}(b_{i} \quad wins)}{\dfrac{\mathrm{d}}{\mathrm{d}b_{i}}\mathcal{Pr}(b_{i} \quad wins)}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given your assumptions, and the uniform distribution, it should be easy for you to find out what $\mathcal{Pr}(b_{i} \quad wins)$ actually is. For the first question to demonstrate the increasing bid function it might be helpful for you to substitute the pdf and CDF of the uniform for your general expression. If done correctly, you will note that the bid function actually is given by&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$b_{i}(V_{i}) = \dfrac{N-1}{N}V_{i}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which is clearly increasing in values.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I hope this helps you to proceed. Feel free to ask questions if you need more help.&lt;/p&gt;&#xA;" OwnerUserId="18192" LastActivityDate="2018-05-11T11:12:31.070" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="21942" PostTypeId="2" ParentId="21905" CreationDate="2018-05-11T13:29:28.753" Score="0" Body="&lt;p&gt;May I ask your level of education? If you're an undergraduate student just getting going in the field -- keep these thoughts you have in mind but don't dwell on them yet. I was like you and saw the lens through economics courses being taught was exceedingly devoid of psychological basis. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;When getting into a Ph.D. program, it starts to become clearer these ideas you call 'economics' ideas are in-fact very much rooted in consumer psychology. The models will become more intricate for these reasons. But if you want to see the scope, I'd suggest you look up a text on Demand Theory. For now, if you're just getting going -- I would focus almost entirely on mathematics and take the theory as an exercise. You'll get good enough at math where a model/equation turns into an abstract metaphor. (This is where these philosophical ideas finally take an important place). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The most important thing for economics I can't stress this enough, but learn mathematics. &lt;/p&gt;&#xA;" OwnerUserId="15847" LastActivityDate="2018-05-11T13:29:28.753" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="21943" PostTypeId="1" CreationDate="2018-05-11T18:03:23.347" Score="0" ViewCount="38" Body="&lt;p&gt;Can you share an official source or reference of definition of a developed and developing country? some IMF or World Bank definition with link would be preferred. I need to write the reference in my thesis. Thanks&lt;/p&gt;&#xA;" OwnerUserId="18266" LastActivityDate="2018-06-04T01:13:32.403" Title="How a country is categorized as developed or developing?" Tags="&lt;development&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="21945" PostTypeId="1" CreationDate="2018-05-11T19:10:35.950" Score="2" ViewCount="212" Body="&lt;p&gt;This is a question related to the question: &lt;a href=&quot;https://economics.stackexchange.com/questions/21902/optimization-problem-with-kuhn-tucker-conditions&quot;&gt;Kuhn-Tucker optimization problem and game theory&lt;/a&gt; .The question is: Some cultures emphasize more social interaction more than others. Is there a role for culture in the model?   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My solution is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Maximization of the social function with respect to $t_{12}$ and $t_{21}$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;max aln( T - $t_{12}$+ $t_{12}$&lt;em&gt;$t_{21}$) + (1-a)ln (w(T-$t_{12}$)) +aln( T - $t_{21}$+ $t_{12}$&lt;/em&gt;$t_{21}$) + (1-a)ln (w(T-$t_{21}$))  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;and the FOCs are:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;a($t_{21}$-1)/(T -$t_{21}$ +$t_{12}$&lt;em&gt;$t_{21}$) + a$t_{21}$/(T -$t_{12}$ +$t_{12}$&lt;/em&gt;$t_{21}$)=(1-a)/(T - $t_{21}$)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and&lt;/p&gt;&#xA;&#xA;&lt;p&gt;a($t_{12}$)/(T -$t_{21}$ +$t_{12}$&lt;em&gt;$t_{21}$) + a(-1 +$t_{12})$/(T -$t_{12}$ +$t_{12}$&lt;/em&gt;$t_{21}$)=(1-a)/(T - $t_{12}$)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But I cannot find the optimal solutions. Please share your ideas with me. &lt;/p&gt;&#xA;" OwnerUserId="18244" LastEditorUserId="6134" LastEditDate="2018-05-12T01:24:17.800" LastActivityDate="2019-09-03T23:01:40.583" Title="Kuhn-Tucker and optimization (continue)" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;self-study&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="21948" PostTypeId="1" CreationDate="2018-05-11T22:56:17.453" Score="1" ViewCount="44" Body="&lt;p&gt;If a central government owns the means of production and controls business, what ramifications does that have on a stock market? Under such an economy are shares still traded as they are in a mixed/market economy? What about securities?&lt;/p&gt;&#xA;" OwnerUserId="18271" LastActivityDate="2018-05-11T22:56:17.453" Title="How does a stock market work under a command economy" Tags="&lt;macroeconomics&gt;&lt;stock-market&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="21950" PostTypeId="2" ParentId="21906" CreationDate="2018-05-12T05:29:24.817" Score="0" Body="&lt;p&gt;Hi game I see that quite well! I don't know if you have already seen Khun Tucker Conditions as you use a Lagrangian. because lagrangian is with equalities and Khun Tucker with inequalities, and as you see that's inequality and the matrix conditions change, but let's assume you didn't saw Khun Tucker and Lagrangian is okay, I find okey your answer, but that's because the Utility is convex too! And maybe having in consideration that the set is compact and close! you can show it in a graph.&lt;/p&gt;&#xA;" OwnerUserId="18158" LastActivityDate="2018-05-12T05:29:24.817" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="21951" PostTypeId="1" CreationDate="2018-05-12T07:54:22.700" Score="0" ViewCount="615" Body="&lt;p&gt;My teacher defined Unitary elastic demand as demand which has $PED = (-)1$ . The formula I have been told for $PED$ is $\%\Delta Q_d /\% \Delta P$.  But how can total revenue $( = P\times Q)$  remain constant for such a demand? Suppose $P$ goes up $10\%$, so $P' = 1.1P$. For unit elasticity, $Q$ must go down $10\%$ so $Q' = 0.9Q$.  So $T' = Q' \times P' = 0.9Q \times 1.1P = 0.99 \times PQ = 99\%$ of $T$. So when we say $T$ stays constant, do we mean that as an approximation ? &lt;/p&gt;&#xA;" OwnerUserId="18163" LastEditorUserId="175" LastEditDate="2018-05-20T10:17:57.677" LastActivityDate="2018-05-20T10:17:57.677" Title="Unitary Elastic Demand" Tags="&lt;elasticity&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="21953" PostTypeId="2" ParentId="8873" CreationDate="2018-05-12T10:14:41.530" Score="0" Body="&lt;p&gt;In short, for $\rho \geq 1$ there going to be no solution for profit maximization in the &lt;strong&gt;short-run&lt;/strong&gt; (at least one factor is fixed) for &lt;strong&gt;competitive&lt;/strong&gt; case (price is fixes). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In order to get from production function to cost function, we need to introduce factor prices ($r$ and $w$ for textbooks examples) and solve optimization problem. Extensive exposition can be found &lt;a href=&quot;https://economics.stackexchange.com/questions/3020/how-to-derive-firms-cost-function-from-production-function/5273#5273&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To build intuition, let's take $w=1$ and fix one factor.&#xA;In order to deal with profit $\pi(q)$, we should introduce prices for produced goods as well $p&amp;gt;0$.&#xA;So the problem might look as follows ($\rho=2$):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \pi(q) = p \cdot q - 1 \cdot (q^2 - 1)^{1/2} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It can be shown that for the profit function of this sort SOC is: $\pi'' &amp;gt;0$, which means there is no global maximum (though minimum exists).&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;To see the same effect in a simpler example (&lt;strong&gt;not&lt;/strong&gt; derived from CES), consider this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \pi(q) = p \cdot q - 2 \cdot q^{1/2} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;SOC is $\pi'' = (1/2)q^{-3/2} &amp;gt; 0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Notice $q^{1/2}$ but not, say, $q^2$ as usual. Let us compare those two cases for $ p=1.7 $ on the plot to appreciate the difference.&#xA;&lt;a href=&quot;https://i.stack.imgur.com/CoIhw.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/CoIhw.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="4184" LastEditorUserId="4184" LastEditDate="2018-05-15T15:54:03.870" LastActivityDate="2018-05-15T15:54:03.870" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21954" PostTypeId="1" CreationDate="2018-05-12T11:37:10.140" Score="1" ViewCount="184" Body="&lt;p&gt;I am just wondering if someone could explain the descriptive, not mathematical intuition behind why a cournot equilibrium for a duopoly produces a higher level of output than a monopolist but lower level of output than a perfectly competitive maket?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can understand why a cournot model with many firms would result in a perfectly competitive outcome but why would a duopoly necessarily result in a more efficient outcome than a monopoly?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks in advance&lt;/p&gt;&#xA;" OwnerUserId="18278" LastActivityDate="2018-05-12T20:41:25.033" Title="Intuition behind a cournot duopoly nash equilibrium producing a higher output than a monopoly?" Tags="&lt;microeconomics&gt;&lt;industrial-organisation&gt;&lt;nash-equilibrium&gt;&lt;oligopoly&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21955" PostTypeId="2" ParentId="21931" CreationDate="2018-05-12T12:08:08.343" Score="1" Body="&lt;p&gt;I have the 2008 hardcover edition, and in that edition, Chapter 10 starts on page 249. I could not spot that quote - what is the section title?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In any event, in the 2008 edition, there is a section “Prudence and Surveillance” within Chapter 10. In it, he describes “customer and collegiate surveillance.” The argument is that when banks were largely allowed to fail, the private sector had no choice but to monitor bank risk taking.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Customer surveillance refers to surveillance depositors; they will pull their deposits out if they view the bank as especially risky.&lt;/li&gt;&#xA;&lt;li&gt;Collegiate surveillance refers to surveillance by banks and other institutions that lend to a bank in the wholesale money markets (e.g., in the Fed Funds market to make up reserve deficiencies).&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;As for why this matters, this shows up in the rest of Chapter 10. He describes how bank lending determines the level and type of investment.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Financial market and banking affect investment because the current value of capital assets and thus the demand price for investment outout are determined in financial markets, because the amount of investment that will be financed depends upon banking processes, and because the supply price of investment depends upon the cost of finance. (Page 254 of the 2008 edition; first section of Chapter 10).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In his section “Coda” he then argues that “there are no effective barriers to bank expansion and thus to the destabilising impact of banks on demand.”&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words, he is worried more about the instability created by banking as a result of the lack of regulation of their portfolio growth, rather than whether people lose money.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2018-05-12T12:08:08.343" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21956" PostTypeId="2" ParentId="21914" CreationDate="2018-05-12T13:16:03.393" Score="1" Body="&lt;p&gt;The UK figure for debt interest doesn’t include repayment of principal. It is instead covered as part of the ‘Net cash requirement’ - the amount of extra cash that the government needs to raise to finance spending/operations each year. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;When a bond (or gilt, for the UK) matures, the government will need to finance its repayment. However this is just added to the stock of other cash it needs to finance that year. This will primarily be financed by issuing new gilts to raise the cash. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The recording for National Accounts dictates that exchanging one financial asset (a debt security, such as a gilt) in return for another financial asset (cash) is purely a financial transaction and isn’t included in the normal budget deficit. It does, however, affect the size of the government’s debt, as the gilts issued are liabilities on the balance sheet. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you can afford to repay the principal without issuing more gilts, your stock of liabilities goes down and you will need lower debt interest payments in future. &lt;/p&gt;&#xA;" OwnerUserId="18276" LastEditorUserId="18276" LastEditDate="2018-11-20T22:33:12.333" LastActivityDate="2018-11-20T22:33:12.333" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21958" PostTypeId="2" ParentId="21951" CreationDate="2018-05-12T17:55:11.233" Score="2" Body="&lt;p&gt;The way to examine such issues is by general mathematical treatment, not arithmetic examples.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;We have total revenue&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$TR = Q(P)\cdot P$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When will Total Revenue remain constant as price changes?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;We want&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\partial TR}{\partial P} =0 \implies \frac{\partial Q(P)}{\partial P}\cdot P + Q(P) =0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies  \frac{\partial Q(P)}{\partial P} = -\frac {Q(P)}{P}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which is to say that the price elasticity of demand is equal to minus unity.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is it possible for this to hold over the whole range of $P$ and not just momentarily, at a specific value of $P$?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This entails to find a solution to a simple differential equation (using generic notation)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$y' + \frac{y}{x} = 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which gives&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Q(P) = \frac {A}{P},\;\;\; A&amp;gt;0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So if the demand function is as above, it has unitary price elasticity everywhere.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2018-05-12T17:55:11.233" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21959" PostTypeId="2" ParentId="21954" CreationDate="2018-05-12T20:41:25.033" Score="1" Body="&lt;p&gt;Producing more will decrease the price and therefore the profit per unit sold. For a monopolist, all units are their own units. For a duopolist, many units will be the competitor's units.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Viewed differently, producing more produces an externality between producers via prices in a duopoly. A monopolist internalizes these externalities completely. &lt;/p&gt;&#xA;" OwnerUserId="1442" LastActivityDate="2018-05-12T20:41:25.033" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21960" PostTypeId="1" AcceptedAnswerId="21961" CreationDate="2018-05-12T21:44:46.383" Score="1" ViewCount="77" Body="&lt;p&gt;There are a given demand and &lt;code&gt;MC&lt;/code&gt; value. How could I calculate quantity, price, and profit from these values in case of perfect competition, in monopoly and duopoly(Cournot and Stackelberg)?&lt;/p&gt;&#xA;" OwnerUserId="17866" LastActivityDate="2018-05-12T23:08:21.973" Title="Compute variables in perfect competition, in monopoly and duopoly" Tags="&lt;microeconomics&gt;&lt;econometrics&gt;&lt;supply-and-demand&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21961" PostTypeId="2" ParentId="21960" CreationDate="2018-05-12T23:08:21.973" Score="1" Body="&lt;p&gt;Under perfect competition, $p=MC$. So you may substitute this price into the demand equation to obtain the quantity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A monopolist chooses output in a way such that $MR=MC$. So you have $P‘(Q)*Q+P=MC(Q)$, where $P(Q)$ is the inverse demand  equation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For Cournot, it is also simple. Note that the profit function of firm i is given by $$\pi(i)=P(q_{i}+q_{-i})*q_{i}-MC(q_{i})*q_{i}$$. You just use the first order condition to solve for the price and quantitiy respectively. $q_{-i}$ denotes the output of all players except for $i$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, for Stackelberg I would like to know how many players/firms you have. Then, I would be able to explain it to you in a suitable way. I hope this helps.&lt;/p&gt;&#xA;" OwnerUserId="18192" LastActivityDate="2018-05-12T23:08:21.973" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="21962" PostTypeId="2" ParentId="21937" CreationDate="2018-05-12T23:36:46.900" Score="0" Body="&lt;p&gt;Firm 1's objective is to maximize profits :&#xA;$$\max_{q_1\geq 0} \ \ \left(a - b(q_1+q_2)\right)q_1 - cq_1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Solving the above problem, we get the best response function of firm 1 as&#xA;$$q_1 = \dfrac{a - c - bq_2}{2b}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Firm 2's objective is to maximize revenue subject to the constraint that its profits are non-negative :&#xA;$$\max_{q_2\geq 0} \ \ \left(a - b(q_1+q_2)\right)q_2$$ $$\text{s.t. }\left(a - b(q_1+q_2)\right)q_2 - cq_2 \geq 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Solving the above problem, we get the best response function of firm 2 as&#xA;\begin{eqnarray*} q_2 =\begin{cases}  \dfrac{a - bq_1}{2b} &amp;amp; \text{if } a - bq_1 \geq 2c \\ \dfrac{a - c - bq_1}{b} &amp;amp; \text{if } a -  bq_1 &amp;lt; 2c \end{cases}\end{eqnarray*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Solving the best response functions for $q_1$ and $q_2$ yields&#xA;\begin{eqnarray*} (q_1^*, q_2^*) = \begin{cases} \left(\dfrac{a-2c}{3b}, \dfrac{a+c}{3b}\right) &amp;amp; \text{if } a \geq 2c\\&#xA; \left( 0, \dfrac{a-c}{b}\right) &amp;amp; \text{if } a &amp;lt; 2c \end{cases} \end{eqnarray*}&lt;/p&gt;&#xA;" OwnerUserId="11824" LastActivityDate="2018-05-12T23:36:46.900" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="21963" PostTypeId="2" ParentId="21935" CreationDate="2018-05-12T23:39:50.050" Score="1" Body="&lt;p&gt;To answer your question I will assume that &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\bf{A1}$ firm 2 always &quot;trust&quot; in the output reported by firm 1, and&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\bf{A2}$ firm 1 always &quot;keep its word&quot; if announces an output.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Without $\bf{A1}$ and $\bf{A2}$ I think you need more information to solve the game.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Based on how the question is written, at the first period firm 1 has the opportunity to whether announce or not its output. So, lets say that firm 1 must to chose between $\{A, NA\}$ ($A$ for announce and $NA$ for not announce) at $t=1$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, if firm 1 chose $A$ the resulting game will be the same as point i) of your question. In the same way, if firm 1 chose $NA$ the resulting game is the point ii) of your question. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, you only need to obtain the utility of firm 1 for both cases to know what is the best action for firm 1 at $t=1$. The subgame perfect equilibrium must to include the action of firm 1 at $t=1$ and the quantities of both firms at $t=2$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;PS: In point ii) you have a mistake, the Cournot game is symmetric so there is impossible to get different quantities in a Nash equilibrium. (sorry for my bad english)&lt;/p&gt;&#xA;" OwnerUserId="4463" LastEditorUserId="4463" LastEditDate="2018-05-12T23:46:13.763" LastActivityDate="2018-05-12T23:46:13.763" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="21964" PostTypeId="1" AcceptedAnswerId="22030" CreationDate="2018-05-13T00:48:22.513" Score="-1" ViewCount="363" Body="&lt;p&gt;Consider an oligopoly between two identical firms producing a homogenous good with constant marginal cost where firms face linear market demand. $B_i(q_j)$ denotes firm i’s best response given the output by firm j for i,j=1,2 and $i\not= j$. Let $q_c$ denote the Cournot equilibrium output choice where firms choose output simultaneously. Assume now a Stackelberg setup, where firm 2 observes firm 1’s choice before making its own output choice. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider the following pair of strategies in the Stackelberg setup: firm 1 chooses $q_c$. Firm 2 chooses $q_c$ if firm 1 chooses $q_c$ otherwise firm 2 chooses $q^*_2 &amp;gt;&amp;gt;q_c$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(A) show whether or not the pair of strategies described above constitutes a Nash equilibrium in the game. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(B) show whether or not the pair of strategies described above constitutes a subgame perfect equilibrium in the game. &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;What I did is&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Leaks inverse demand function $p=a-bq$ And $q=q_1+q_2$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And since marginal cost is constant c, then cost function is $cq_i$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First of all, I find Cournot equilibrium outputs $q_c$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I obtain by the profit maximization problem&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$q_c=\frac{a-c}{3b}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;for both firms. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Secondly, since firm 2 also has a choice $q_2^* &amp;gt;&amp;gt; q_c$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then let’s assume that $q_2^* = \frac{a-c}{2b}&amp;gt;&amp;gt;\frac{a-c}{3b}=q_c$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then in order to obtain Stackelberg setup, by backward induction method &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let’s calculate $q^*_1$ which is the firm 1’s quantity when firm 2 chooses $q_2^*=\frac{a-c}{2b}$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\pi_1=(a-bq_1-b(\frac{a-c}{2b}))q_1-cq_1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By FOC,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$q_1^*=\frac{a-c}{4b}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And $$q^*_1&amp;lt;&amp;lt; q_c$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thirdly I calculated profits for four cases&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Case 1: firm1’s quantity and firm 2’s quantity are both $q_c$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then both firms’ profits are equal and equal to $\frac{(a-c)^2}{9b}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Case 2: firm1’s quantity is $q_1^*$ firm 2’s quantity is $q_c$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Firm 1’s profit =$\frac{5(a-c)^2}{48b}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Firm 2’s profit =$\frac{5(a-c)^2}{36b}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Case 3: firm1’s quantity is $q_c$ firm 2’s quantity is $q_2^*$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Firm 1’s profit =$\frac{(a-c)^2}{18b}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Firm 2’s profit =$\frac{5(a-c)^2}{12b}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Case 4: firm1’s quantity is $q_1^*$ firm 2’s quantity is $q_2^*$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Firm 1’s profit =$\frac{(a-c)^2}{16b}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Firm 2’s profit =$\frac{(a-c)^2}{8b}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now let’s look at the part (A)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I construct the following table&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/wRqoG.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;Table&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So as it is seen, only $(q_c, q_c)$ is Nash equilibrium. But $(q_1^*, q_2^*)$ is not Nash equilibrium. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Next let’s look at the part (B)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I construct tree in this case. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/IFpWA.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;Tree&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When we look at the table,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First of all, it is for firm 2,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the left hand side, since the payoff of $q_c$ is greater than the payoff of $q_2^*$, the firm 2 will choose $q-c$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the right hand side, since the payoff of $q_2^*$ is greater the payoff of $q_c$ for firm 2, then the firm 2 will choose $q^*_2$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, as for firm 1, if firm 1 choose $q_c$ then it knows that its payoff will be $(a-c)^2/9b$. But if firm 1 choose $q^*_1$ the its payoff will be $(a-c)^2/16b$. So the firm 1 will decide to choose $q_c$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That’s SPNE is $(q_c,q_cq_c)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That is, $(q_1^*,q_2^*)$ is not SPNE. &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;I solve this question in this way. But I am exactly not sure about my way. Please share your ideas with me. I will be happy if say something abou my solution.  Thank you. &lt;/p&gt;&#xA;" OwnerUserId="6134" LastActivityDate="2018-05-18T10:57:53.767" Title="Question on oligopoly." Tags="&lt;microeconomics&gt;&lt;game-theory&gt;&lt;self-study&gt;&lt;oligopoly&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21966" PostTypeId="2" ParentId="21906" CreationDate="2018-05-13T06:49:29.850" Score="3" Body="&lt;p&gt;Consider the following situation :&#xA;Preferences of the consumer are represented by the utility function $u(x_1, x_2) = x_1 + x_2$. Note that preferences are strictly monotonic and convex. Now let income be any $y &amp;gt; 2$. So the consumer's problem is :&#xA;\begin{eqnarray*} \max_{x_1, x_2} &amp;amp; x_1 + x_2 \\ \text{s.t.} &amp;amp;  \ \ 2\sqrt{x_1} + x_2 \leq y \\ &amp;amp; x_1\geq 0, \ x_2 \geq 0 \end{eqnarray*}&#xA;Now let us set up the Lagrangian :&#xA;\begin{eqnarray*} \mathcal{L}(x_1, x_2) = x_1+x_2 - \lambda(2\sqrt{x_1} + x_2 - y) +\mu_1x_1 + \mu_2x_2 \end{eqnarray*} &#xA;Here are the first order necessary conditions:&#xA;\begin{eqnarray*} \dfrac{\partial\mathcal{L}}{\partial x_1} &amp;amp; = &amp;amp; 1 - \dfrac{\lambda}{\sqrt{x_1}} + \mu_1= 0 \\ \dfrac{\partial\mathcal{L}}{\partial x_2} &amp;amp; = &amp;amp; 1 - \lambda + \mu_2= 0 \\ \dfrac{\partial\mathcal{L}}{\partial \lambda} &amp;amp; = &amp;amp; y -2\sqrt{x_1} - x_2  \geq 0, \ \lambda\geq 0, \ \lambda(2\sqrt{x_1} + x_2 - y) = 0 \\ \dfrac{\partial\mathcal{L}}{\partial \mu_1} &amp;amp; = &amp;amp; x_1  \geq 0, \ \mu_1\geq 0, \ \mu_1x_1 = 0 \\ \dfrac{\partial\mathcal{L}}{\partial \mu_2} &amp;amp; = &amp;amp; x_2  \geq 0, \ \mu_2\geq 0, \ \mu_2x_2 = 0 \end{eqnarray*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Check that one of the solutions to the above set of conditions is $x_1^* = 1, \ x_2^* = y -2, \ \lambda^*=1, \ \mu_1^* = 0, \ \mu_2^* = 0$, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But it is not the solution to the utility maximization problem stated above. This is because utility from $(x_1^*, x_2^*) = (1, y-2)$, i.e. $u(x_1^*, x_2^*) = 1 + y - 2= y-1$, is less than the utility from another affordable consumption bundle $(x^{**}_1, x^{**}_2) = (0, y)$ as $u(x_1^{**}, x_2^{**}) = 0 + y = y$ and $2\sqrt{x_1^{**}} + x_2^{**} =y$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, first order conditions are not sufficient for utility maximization.&lt;/p&gt;&#xA;" OwnerUserId="11824" LastActivityDate="2018-05-13T06:49:29.850" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21967" PostTypeId="1" AcceptedAnswerId="22005" CreationDate="2018-05-13T07:11:18.343" Score="-2" ViewCount="297" Body="&lt;p&gt;The story of my question is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/KXhV1.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/KXhV1.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have multiple question. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(1) when John doesn’t work in the underground economy at all , t=0, how can I find the optimal value of $l$ and consumption bundle and his utility. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(2) And when john work in the underground economy, t&gt;0, how can write his optimization problem? Can I say that $l=0$ for t&gt;0 by using the equation (1) in the picture? And in this case, when he is not fined, which way I can find his optimal consumption bundle and his expected utility?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(3) finally, I would like to derive an inequality in order to describe for which parameter values John elects to work in the underground economy. And how can I decide whether John is willing to work in the underground economy or not if m and w increase by the same dollar amount ? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sorry for not posting my answer, because I am not familiar with such a question, my answer is really trivial. &lt;/p&gt;&#xA;" OwnerUserId="6134" LastEditorUserId="6134" LastEditDate="2018-05-13T07:17:14.123" LastActivityDate="2018-05-15T14:08:22.820" Title="Question on consumer theory" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;consumer-theory&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="21970" PostTypeId="2" ParentId="21844" CreationDate="2018-05-13T18:20:21.033" Score="1" Body="&lt;p&gt;I studied maths not economics so I won't comment on your graphs or theoretic models. In my experience as a rates trader, some economic models have their place but their inherent assumptions do not capture the practical market dynamics. I'll comment on the parts of your question I disagree with. Hopefully you appreciate a devil's advocate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Firstly, a &quot;a sovereign debt ratings downgrade&quot; by a ratings agency has little value in the world today as a binary event. Most financial practitioners have made up their mind about the credit quality of issuers through independent or public research before ratings agencies update their databases. Ironically, one possibility is that this may indeed be a classic &quot;sell the rumour, buy the fact&quot; scenario, whereby reasonably large speculators sell the bonds preemptively, profit from general declining markets before the ratings downgrade and then use the liquidity and market wide focus generated by the event to exit their positions, and in fact the bonds may actually increase in value slightly due to this. This is classic Jessie Livermore style of trading (Reminiscences of a Stock Operator). There will doubtless be managed funds whose rules preclude investing in junk status bonds so demand for the bonds overall will likely decline overall although I expect more over a period than specifically because of that binary event.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The notion of &quot;bonds&quot; is a very broad term. If an issuer is downgraded the impact may be greater for various different maturities. The UK in the wake of the financial crisis was under considerable pressure due to its reliance on the financial sector and its government bonds underwent considerable re pricing, but the riskier, longer dated bonds suffered considerably worse that the much less riskier, shorted dated bonds, so in that scenario money market bill rates fell but longer bond rates rose.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When I think about the currency wide issue of money, if you have a reasonably large amount of sovereign debt held by investors that is sold those investors then have only a set of options available to them with respect to that money:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;reinvest in some other asset denominated in the same currency, corporate bonds or equities.&lt;/li&gt;&#xA;&lt;li&gt;sell the currency and buy assets in another currency.&lt;/li&gt;&#xA;&lt;li&gt;deposit the cash with banks or on repo for some form of collateral.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The first of these is just an asset reallocation and weakens sovereign bond prices relative to other assets in the economy. Your argument about government financing is true and the GDP output would be expected to decline, further as confidence also becomes a factor.&#xA;The second would weaken the spot FX rate and the cross-currency basis swap levels. Indirectly this threatens to increase inflation since import prices will be affected by the currency movement. However, a weaker currency might tempt outside speculators at some equilibrium point. The third is difficult; no asset manager will deposit funds unprotected with a bank (particularly a domestic one) and the alternative of receiving back sovereign bond collateral is unappealing, so the repo rates will probably be increased in line with the rates on the bonds themselves, although this is another form of interest rate that does have significant impact and is not necessarily the same the bond rates. Indeed there will also be curvature to this as well.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As an example in 2017 the German government bond curve had 0-1Y yields at -70bps, and a repo rate often at similar levels. But the 20y-30y bond yields were at +100bps whilst the repo rate might be at -100bps. This may sound like arbitrage is possible, but it actually isn't - there is no scenario you can gain without running risk, and those different risks were considered and deemed to be worth the values potentially attainable by those who dared.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally I will point out to you the transmission mechanism. A central bank presides over its own currency and attempts to influence its economy by changing its deposit rate. However, a central bank is inherently connected to the government. I do not consider it wise to treat the two as separate entities. As a national bank, whose fortunes are intimately tied to the government, you would probably be better off buying and holding the sovereign debt if the short dated bonds offered considerably more interest than the central bank deposit rate, since from their point of view a government failure or a central bank failure might be one and the same. If you consider the holdings of Italian sovereign debt by Italian banks you will recognise this strategy as a kind of moral hazard. So the transmission mechanism is likely to remain in place for the short dated bonds and be ultimately tied to the deposit rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I appreciate there is no general conclusion to this thread, and some ideas are not necessarily coherent or consistent. I just found it an interesting question and thought I would explore my own thoughts in raw form. Possibly you find them useful.&lt;/p&gt;&#xA;" OwnerUserId="17969" LastActivityDate="2018-05-13T18:20:21.033" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="21972" PostTypeId="1" CreationDate="2018-05-13T19:30:02.797" Score="1" ViewCount="55" Body="&lt;p&gt;In a textbook application I try to apply Solow model to the US economy. What will be a ballpark estimate of the saving rate and the depreciation rate? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Edit:&lt;/strong&gt; To follow up, assume Cobb-Douglas with labor share 0.3. Assume Y=16916*10^9 and K-22541*10^9 and L=151.4*10^6. Then A=3*10^3. Then s-0.3 and delta-0.05. Does this seem make sense? &lt;/p&gt;&#xA;" OwnerUserId="18288" LastEditorUserId="8815" LastEditDate="2018-05-13T20:31:55.607" LastActivityDate="2018-06-12T22:32:10.483" Title="Trying to apply Solow model to the US econmy" Tags="&lt;solow&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="21974" PostTypeId="2" ParentId="21934" CreationDate="2018-05-13T20:37:10.413" Score="2" Body="&lt;p&gt;The only thing that the &quot;Laffer Curve&quot; concept asserts is that tax income as a function of the tax rate will have a maximum at a tax rate value lower than 100%, and then tax income will drop, as the tax rate continues to increase.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;No assertion is made about the exact shape of the curve, its curvature, the argmax point, etc. These may perhaps be calibrated per country, period, etc. Or, specific theoretical models may produce their own Laffer Curve.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The main goal here is to stress the fact that the tax rate affects the behavior of economic agents in many ways, from working less to tax evasion, and that it eventually leads to undesirable consequences if set too high.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2018-05-13T20:37:10.413" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21977" PostTypeId="2" ParentId="17190" CreationDate="2018-05-13T22:38:00.393" Score="6" Body="&lt;p&gt;Here is an article that reports about several laboratory experiments showing large inconsistencies between theoretical predictions and observed behavior for some payoff structures: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Goeree, J.K. and Holt, C.A., 2001. Ten little treasures of game theory and ten intuitive contradictions. American Economic Review, 91, 1402-1422.&#xA;&lt;a href=&quot;https://doi.org/10.1257/aer.91.5.1402&quot; rel=&quot;noreferrer&quot;&gt;https://doi.org/10.1257/aer.91.5.1402&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are also papers studying variants of the ultimatum game in order to quantify players’ preferences for fairness. One approach to do so is to compare (i) games in which two human players interact with each other and (ii) games in which a human player interacts with a computer (so there is no scope for social preferences): &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hoppe, E.I. and Schmitz, P.W., 2013. Contracting under incomplete information and social preferences: An experimental study. Review of Economic Studies, 80, 1516-1544.&#xA;&lt;a href=&quot;https://doi.org/10.1093/restud/rdt010&quot; rel=&quot;noreferrer&quot;&gt;https://doi.org/10.1093/restud/rdt010&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="18292" LastActivityDate="2018-05-13T22:38:00.393" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="21979" PostTypeId="1" CreationDate="2018-05-14T00:09:01.897" Score="0" ViewCount="149" Body="&lt;p&gt;Say its the 18th century and South America wants tea. Britain, for example could have a monopoly on the tea trade in the area. However if multiple British companies sell in the area they will drive eachothers prices down. So the British government could only allow 1 company to trade there, or force a merger between the companies, so they can trade as a monopoly and make more money which will be payed as tax to the British government. Has this ever happened, or is there a flaw in my logic?&lt;/p&gt;&#xA;" OwnerUserId="18293" LastActivityDate="2018-05-14T10:00:50.987" Title="Have countries with a monopoly on a resource in an area ever established 1-company monopolies in that area to drive up price?" Tags="&lt;monopoly&gt;&lt;monopolistic-competition&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21980" PostTypeId="1" CreationDate="2018-05-14T03:01:05.743" Score="1" ViewCount="10" Body="&lt;p&gt;True or False: Changes in fixed taxes have a bigger effect on real GDP compared with government spending because they affect consumption &lt;/p&gt;&#xA;" OwnerUserId="18287" LastActivityDate="2018-05-14T03:01:05.743" Title="Do changes in fixed taxes have a bigger effect on real GDP compared with government spending because they affect consumption" Tags="&lt;macroeconomics&gt;&lt;monetary-policy&gt;&lt;fiscal-policy&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21981" PostTypeId="1" CreationDate="2018-05-14T05:24:00.663" Score="0" ViewCount="76" Body="&lt;p&gt;Here is my example.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I read the paper called &lt;a href=&quot;http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.172.5854&amp;amp;rep=rep1&amp;amp;type=pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;&quot;Social norms and Energy Conservation&quot;&lt;/a&gt; (2010) by Hunt Allcott, about the energy conservation of households by providing them with the amount of energy individual household use and their average neighbor's energy usage. The first thing is this research discover at the first place that household did not use the best efficient method to conserve the energy. Interesting things are 1 ) the adding reference descriptive social norm for society to adjust 2 ) not only people decrease their energy usage toward that descriptive social norms but some who below average adjust toward social norm level. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So what are the another phenomena social norm affect individual decision ?&lt;/p&gt;&#xA;" OwnerUserId="17897" LastEditorUserId="8815" LastEditDate="2018-07-13T21:25:32.310" LastActivityDate="2018-07-13T21:25:32.310" Title="What is the best example social norm effect economy?" Tags="&lt;macroeconomics&gt;&lt;data-request&gt;&lt;behavioral-economics&gt;&lt;energy-economics&gt;&lt;social-choice&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21982" PostTypeId="1" CreationDate="2018-05-14T06:18:59.217" Score="-1" ViewCount="274" Body="&lt;p&gt;I'm unsure why a command and control policy approach to pollution will still have a dead weight loss? What happens with it/ or what does the government do about it if anything?&lt;/p&gt;&#xA;" OwnerUserId="18294" LastEditorUserId="1417" LastEditDate="2018-05-16T20:17:56.927" LastActivityDate="2018-05-20T16:57:48.863" Title="Command and control policy approach graph" Tags="&lt;microeconomics&gt;&lt;environmental-economics&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="21983" PostTypeId="1" AcceptedAnswerId="21988" CreationDate="2018-05-14T06:24:54.737" Score="3" ViewCount="1157" Body="&lt;p&gt;It’s obvious that WARP does not imply SARP, since WARP does not rule out cyclic choices, whereas SARP does.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The term “Strong” axiom suggests that it encompasses the “weak” axiom. But this is not obvious to me from the definition. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does any choice structure that satisfies SARP also satisfy WARP? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Similarly, the &quot;generalized&quot; axiom of revealed preference (GARP) seems to encompass SARP, but again, I can't see this from the definition. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;WARP: If $x,y\in B$, and $x\in C(B)$, then we cannot find a $B_2$ such that $x,y\in B_2$ and $y\in C(B_2)$ but not $x\in C(B_2)$.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;SARP: Assume for all $B$ the choice $c(B)$ is only one element. If $x_i,x_{i+1}\in B_i$, and $x_i = c(B_i)$, for all $i\in \{1,N-1\}$, then $x_1=c(B_1)\notin B_N$. &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;GARP: if $p_i\cdot x_{i+1}\leq p_i\cdot x_i$ for $i\in \{1, N-1\}$ and $p_N\cdot x_{1}\leq p_N\cdot x_N$, then those inequalities must be equalities. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;(GARP specifically assumes $p$ are price vectors and $x$ are consumption bundles, whereas the other two axioms apply to any type of choice structure.)&lt;/p&gt;&#xA;" OwnerUserId="11146" LastEditorUserId="11146" LastEditDate="2018-05-14T08:17:36.313" LastActivityDate="2018-05-14T09:22:34.277" Title="Does SARP imply WARP? and GARP imply SARP?" Tags="&lt;preferences&gt;" AnswerCount="1" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="21984" PostTypeId="1" AcceptedAnswerId="21986" CreationDate="2018-05-14T07:30:47.693" Score="4" ViewCount="198" Body="&lt;p&gt;There is an article on &lt;a href=&quot;https://www.forbes.com/sites/quora/2016/09/22/we-could-power-the-entire-world-by-harnessing-solar-energy-from-1-of-the-sahara/#69864fad4406&quot; rel=&quot;nofollow noreferrer&quot;&gt;Forbes&lt;/a&gt; where Mehran Moalem, UC Berkeley professor, argues:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;1.2% of the Sahara desert is sufficient to cover all of the energy needs of the world in solar energy. [...] The cost of the project will be about five trillion dollars, one time cost at today's prices without any economy of scale savings. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I know 5 trillion dollars is a lot, but it's definitely worth it. Are there economical reasons against such project, or is it a political issue?&lt;/p&gt;&#xA;" OwnerUserId="18296" LastActivityDate="2018-05-14T09:28:35.860" Title="If 1% of the solar energy of the Sahara can power the entire world, why isn't it happening?" Tags="&lt;energy-economics&gt;&lt;political&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21985" PostTypeId="2" ParentId="21806" CreationDate="2018-05-14T07:42:59.510" Score="0" Body="&lt;p&gt;Equations $11$) and $12$) are not derived, they are &lt;em&gt;assumed&lt;/em&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Specifically, with eq. $9$) Lucas defines/assumes that the value-expected for the $t+1$ price level is the conditional expectation based on $x_t, x_{t+1},\eta_t$ (plus $\eta_t$ on its own). This is imposing the Rational Expectations Hypothesis.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;He then says &quot;we will seek linear solutions...&quot; which is translated &quot;&lt;em&gt;assume&lt;/em&gt; that the functional form of $E(P_{t+1}| x_{t}, x_{t-1}, \eta_{t})$ is linear in its arguments, and then determine (or estimate) the coefficients&quot;. Certainly, this is in all likelihood an approximation to the true functional form of this conditional expectation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So &lt;em&gt;assuming&lt;/em&gt; that &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$E(P_{t+1}| x_{t}, x_{t-1}, \eta_{t}) = \pi_{4} x_{t} +\pi_{5} x_{t-1} + \beta\eta_{t}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and inserting this into $9$) we get $12$) with the mapping $\pi_{6} = 1+\beta$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Inserting $9$) in $10$) we get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$(1+a) P_{t} - a [\pi_{4} x_{t} + \pi_{5} x_{t-1} + \pi_{6} \eta_{t}] = x_{t}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies P_{t} = \frac{1+a\pi_{4}}{1+a}x_t +\frac{a\pi_{5}}{1+a}x_{t-1}+\frac{a\pi_{6}}{1+a}\eta_{t}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which is $11$), after compacting and mapping the above coefficients to the $\pi_1, \pi_2, \pi_3$ ones.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2018-05-14T07:42:59.510" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="21986" PostTypeId="2" ParentId="21984" CreationDate="2018-05-14T07:57:21.787" Score="6" Body="&lt;p&gt;It's lots of things, which added together means it's not going to happen.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Firstly, the initial calculation of area required was just to illustrate how small the world's energy use is, compared to the amount of energy we receive in sunlight, even after compensating for the 20% efficiency of PV modules. So it wasn't actually intended as an engineering solution.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Secondly, there is little political interest globally in becoming completely dependent on a handful of North African countries for electricity supply: most countries made that mistake with oil and OPEC, creating decades of geopolitical mess.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thirdly, it's not a great renewables scenario, because the amounts of energy generated in any two spots of that 1.2% of the Sahara are very closely correlated over all timescales from hours to decades, which means the whole output of the theoretical farm would not show a lot of smoothness. It doesn't span that many timezones, so there'd be several hours every day with no output, for the entire world. Now, that can be addressed with back-up power - just use excess PV to generate hydrogen which is stored, then burnt when its dark to generate electricity then - but that's when it starts getting expensive.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's cheaper to diversify both the types of energy harvested (wind, tidal, geothermal, hydro, biomass), and the geographic area over which it's harvested (both latitude and longtitude), which significantly reduces the storage requirements needed, and reduces the risks associated with intra-annual and inter-annual variability of supply. This also hugely reduces the geo-political implications, and means that all countries get a decent chunk of internal investment from the project.&lt;/p&gt;&#xA;" OwnerUserId="44" LastEditorUserId="44" LastEditDate="2018-05-14T09:28:35.860" LastActivityDate="2018-05-14T09:28:35.860" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21987" PostTypeId="2" ParentId="21984" CreationDate="2018-05-14T09:15:22.103" Score="0" Body="&lt;p&gt;Economics/Politics both&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Whoever pays isn't going to do that sorta thing to then only give it up for LESS than optimal profit. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I mean it's power. Whether you're talking about electricity or oil -- you're not going to get any pleasant solution like that.&lt;/p&gt;&#xA;" OwnerUserId="15847" LastActivityDate="2018-05-14T09:15:22.103" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21988" PostTypeId="2" ParentId="21983" CreationDate="2018-05-14T09:22:34.277" Score="4" Body="&lt;p&gt;Yes, SARP implies WARP. Since all choices are singletons under SARP, we abuse notation and write $C$ as a function that takes alternatives as values.&#xA;We prove the contrapositive, every violation of WARP in a setting where choices are unique give rise to a violation of SARP. So assume there are sets $B$, $B'$ containing $x$ and $y$ such that $c(B)=x$ and $C(B')=y$. Letting $B_1=B$ and $B_2=B'$, you get a direct violation of SARP (I take it you require $x_i\neq x_{i+1}$ in the definition of SARP).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the context of budget sets, SARP implies GARP. Let $B_i=\{x\mid p_ix\leq p_ix_i\}$. Then SARP says that if $p_i x_{i+1}\leq p_i x_i$ but $x_i$ is the unique choice from $B_i$ for $i\in\{1,\ldots,N_1\}$, then $p_N x_i&amp;gt;p_N x_N$. So the case $p_N x_i\leq p_N x_N$ can never occur; GARP cannot be violated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now GARP as usually formulated is a condition on data sets consisting of price-choice combinations. It is not required that the same price system leads to the same choice, so GARP does not imply SARP.&lt;/p&gt;&#xA;" OwnerUserId="1442" LastActivityDate="2018-05-14T09:22:34.277" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21989" PostTypeId="2" ParentId="21979" CreationDate="2018-05-14T10:00:50.987" Score="2" Body="&lt;p&gt;Yes, you are describing the (British) &lt;a href=&quot;https://en.wikipedia.org/wiki/East_India_Company&quot; rel=&quot;nofollow noreferrer&quot;&gt;East India Company&lt;/a&gt;.  A royal charter granted it a 15 year monopoly on English trade with &quot;all countries east of the Cape of Good Hope and west of the Straits of Magellan&quot;.  Also noteworthy, &quot;at the height of its rule in India, the British East India company had a private army of about 260,000 — twice the size of the British Army&quot;.&lt;/p&gt;&#xA;" OwnerUserId="16631" LastActivityDate="2018-05-14T10:00:50.987" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21990" PostTypeId="2" ParentId="12215" CreationDate="2018-05-14T10:56:39.907" Score="1" Body="&lt;p&gt;I know I've referenced that text before so I ran a quick search. Here's the instructor's solution manual.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.dropbox.com/s/319ic47d502jll9/Archive%201.zip?dl=0&quot; rel=&quot;nofollow noreferrer&quot;&gt;Wooldridge Instructor Edition - Cross Section &amp;amp; Panel&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="15847" LastActivityDate="2018-05-14T10:56:39.907" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21994" PostTypeId="2" ParentId="21981" CreationDate="2018-05-14T14:13:04.937" Score="-1" Body="&lt;p&gt;Well, it sounds like the paper is drawing a conclusion between behavioral responses towards energy consumption when they're shown public averages. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There's a problem with that paper -- unless it makes specific reference to this: &#xA;- How does he/she derive causation between variation in electricity and 'social norms'? I don't see social normality being the primary influence. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Separately there are psychological effects at play like:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;• Bystander Effect, Social Loafing, Diffusion, and Moral disengagement &lt;/p&gt;&#xA;&#xA;&lt;p&gt;That very much could be at play, confounding the entire study. What if I chose to increase energy expenditures 'just' because I see that the averages aren't 'that bad.' &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;Everyone else is saving well, so I can go heavy and not hurt the environment as much...&quot; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This incentive and what I understand as the one described in the paper where people conform to a standard norm are different.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But if you're doing some homework and need some 'answer': there are many, cigarettes are very heavily advocated against right now. Someone would choose to change their habit of smoking because 'it's currently less acceptable. &lt;/p&gt;&#xA;" OwnerUserId="15847" LastActivityDate="2018-05-14T14:13:04.937" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21995" PostTypeId="2" ParentId="17190" CreationDate="2018-05-14T15:43:59.987" Score="5" Body="&lt;p&gt;This question is discussed in detail in the paper:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Weibull, Jörgen W. &quot;&lt;a href=&quot;https://link.springer.com/chapter/10.1057/9780230523371_6&quot; rel=&quot;noreferrer&quot;&gt;Testing game theory.&lt;/a&gt;&quot; Advances in&#xA;  Understanding Strategic Behaviour. Palgrave Macmillan, London, 2004.&#xA;  85-104.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Weibull discusses the issues with not knowing the actual payoff functions, the players not knowing the actual payoff functions (incomplete information), and situations where game theorists are less clear about what game theory is supposed to predict.&lt;/p&gt;&#xA;" OwnerUserId="1442" LastActivityDate="2018-05-14T15:43:59.987" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21996" PostTypeId="1" AcceptedAnswerId="22043" CreationDate="2018-05-14T15:59:10.300" Score="2" ViewCount="175" Body="&lt;p&gt;Sanford Grossman, Oliver Hart, and John Moore have developed a theory of the firm based on incomplete contracting (Hart was awarded the Nobel Prize in 2016 for this branch of the literature). In the Grossman/Hart/Moore model, ex-post negotiations always yield an efficient outcome. (Ownership rights influence only the division of the ex-post surplus, which in turn influences incentives to make investments.) In contrast, Oliver Williamson (who was awarded the Nobel Prize in 2009) emphasizes that ex-post negotiations may well yield inefficient outcomes (see e.g. Williamson’s article on the new institutional economics in the Journal of Economic Literature, 2000). Are there any formal models (assuming standard profit-maximization goals of the firm owners) that somehow incorporate Williamson’s insight in the Grossman/Hart/Moore theory of the firm? &lt;/p&gt;&#xA;" OwnerUserId="18299" LastActivityDate="2018-05-19T01:00:05.527" Title="Are there &quot;Grossman/Hart/Moore&quot; models without efficient negotiation outcomes?" Tags="&lt;contracts&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21997" PostTypeId="1" AcceptedAnswerId="21998" CreationDate="2018-05-14T17:02:03.573" Score="-1" ViewCount="235" Body="&lt;p&gt;Let's say I want to conduct an experiment where I randomly vary the price of a product up or down by a small amount. Let's say I want to understand the price elasticity of demand for online shoppers in a given category.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When someone visits my site, I will randomly move the price up or down by some amount, x.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does it matter how what the magnitude of x is given a large enough sample? I think theory will say that a large enough sample will overcome a really small x. But my concern is that let's say the average price in my shop is $440, x =  \$0.01. Does anyone care about \$0.01 when buying a \$440 item?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Do I need x to be, for example, \$10 before I am able to detect a meaningful elasticity?&lt;/p&gt;&#xA;" OwnerUserId="17942" LastActivityDate="2018-05-14T17:58:00.813" Title="Conducting an experiment to calculate empirical elasticity with very small price changes" Tags="&lt;elasticity&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="21998" PostTypeId="2" ParentId="21997" CreationDate="2018-05-14T17:58:00.813" Score="0" Body="&lt;p&gt;You are facing a problem which is probably much more sophisticated than you may have previously thought. I guess you want to learn something about aggregate elasticity of demand. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;By shifting the price per individual website visitor you do not get variation in aggregate demand but only in individual demand. I guess you do not observe the individual demand of prior weeks which then does not allow you to observe the change in demand caused by the price change. Overall, I guess, individual elasticities of demand are not useful for your purposes anyway, so I move further.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, if you would vary prices in the same way for all visitors and observe differences in aggregate demand this potentially tells you something useful. I.e., how does aggregate demand change when the price changes? I think this is what you want to study. Note that your assumption is then that nothing changed for the consumers (income, demand shocks, ...). One could actually control for that in a reduced form regression model or some structural model a la discrete choice. However, notice that you may be facing severe endogeneity problems in your future estimations if you aspire to do this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Concerning the relative magnitude of $x$: there is an extensive literature on this out there. Just use google scholar and type something like &quot;experimental economics elasticity of demand&quot;.&lt;/p&gt;&#xA;" OwnerUserId="18192" LastActivityDate="2018-05-14T17:58:00.813" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="21999" PostTypeId="1" AcceptedAnswerId="22002" CreationDate="2018-05-14T18:19:11.887" Score="2" ViewCount="238" Body="&lt;p&gt;I have a problem with finding a way how to solve this example: We have the company, which has two types of customers indexed as $H$ and $L$. We assume: $θ_H &amp;gt; θ_L$. Quantity$(Q)$ of $H$ indexed customers is in population. Payout of type of the customer$(i)$, which buys products($x$) for a price($p$) is $U_i=θ_iv(x)−p$. Company determines quantity and price for that quantity for every type of a customer ($x_i,p_i$). Costs of the company are $C(x_h,x_l)=x_h+x_l$. Company does not know type of the customer and maximizes its profit.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Find maximization problem which company solves (with restriction). Solve this example with $v(x)=\ln x$.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="18302" LastEditorUserId="18302" LastEditDate="2018-05-14T21:32:34.720" LastActivityDate="2018-05-15T03:38:25.863" Title="Game theory - Write a maximization problem (with restriction)" Tags="&lt;game-theory&gt;&lt;extensive-games&gt;" AnswerCount="1" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="22002" PostTypeId="2" ParentId="21999" CreationDate="2018-05-15T03:38:25.863" Score="4" Body="&lt;p&gt;Here is the maximization problem solved by the company :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{eqnarray*} \max_{x_h, p_h, x_l, p_l} &amp;amp; p_h + p_l - x_h - x_l \\ \text{s.t} &amp;amp;  \theta_hv(x_h) - p_h \geq 0 \tag{IR$_h$} \\ &amp;amp;  \theta_lv(x_l) - p_l \geq 0 \tag{IR$_l$} \\ &amp;amp;  \theta_hv(x_h) - p_h \geq \theta_hv(x_l) - p_l \tag{IC$_h$} \\ &amp;amp;  \theta_lv(x_l) - p_l \geq \theta_lv(x_h) - p_h \tag{IC$_l$}\end{eqnarray*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now we solve the above maximization problem for $v(x) = \ln x$. Given that $\theta_l &amp;lt; \theta_h$, it is easy to see that only IC$_h$ and IR$_l$ will be binding in optimum, and we can rewrite the optimization problem as :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{eqnarray*} \max_{x_h, p_h, x_l, p_l} &amp;amp; p_h + p_l - x_h - x_l \\ \text{s.t} &amp;amp;   \theta_l\ln x_l - p_l = 0 \tag{IR$_l$} \\ &amp;amp;  \theta_h\ln x_h - p_h = \theta_h\ln x_l - p_l \tag{IC$_h$} \end{eqnarray*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Substituting the constraints in the objective, we can rewrite the objective as follows :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{eqnarray*} \max_{x_h, x_l} &amp;amp; \ \ \theta_h\ln x_h + (2\theta_l-\theta_h)\ln x_l - x_h - x_l  \end{eqnarray*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Further assuming $\theta_h + 1 &amp;lt; 2\theta_l$, and solving the problem yields the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{eqnarray*} x_h^* &amp;amp; = &amp;amp; \theta_h \\  x_l^* &amp;amp; = &amp;amp; 2\theta_l-\theta_h \end{eqnarray*}&#xA;Consequently,&#xA;\begin{eqnarray*} p_l^* &amp;amp; = &amp;amp; \theta_l \ln(2\theta_l-\theta_h) \\  p_h^* &amp;amp; = &amp;amp; \theta_h\ln \theta_h + (\theta_l-\theta_h)\ln (2\theta_l-\theta_h) \end{eqnarray*}&lt;/p&gt;&#xA;" OwnerUserId="11824" LastActivityDate="2018-05-15T03:38:25.863" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22005" PostTypeId="2" ParentId="21967" CreationDate="2018-05-15T14:08:22.820" Score="0" Body="&lt;ul&gt;&#xA;&lt;li&gt;&lt;strong&gt;Case 1&lt;/strong&gt; If John choose not to work in the underground economy, his utility maximization problem is&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;\begin{eqnarray*} \max_{x_1, x_2, l} &amp;amp;&amp;amp; x_1x_2(1-l) \\ \text{s.t.} &amp;amp;&amp;amp; p_1x_1 + p_2x_2 \leq wl \\ &amp;amp;&amp;amp; 0 \leq l\leq 1 \end{eqnarray*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Solution to this problem is&#xA;\begin{eqnarray*}(x_1^*, x_2^*, l^*) = \left(\frac{w}{3p_1}, \frac{w}{3p_2}, \frac{2}{3}\right)\end{eqnarray*} &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;strong&gt;Case 2&lt;/strong&gt; If John choose to work in the underground economy then he'll not work in the legitimate sector since wage in the underground economy is higher, consequently his utility maximization problem is&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;\begin{eqnarray*} \max_{x_1, x_2, t} &amp;amp;&amp;amp; (1-q)x_1x_2(1-t) \\ \text{s.t.} &amp;amp;&amp;amp; p_1x_1 + p_2x_2 \leq mt \\ &amp;amp;&amp;amp; 0 \leq t\leq 1 \end{eqnarray*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Solution to this problem is&#xA;\begin{eqnarray*}(x_1^*, x_2^*, t^*) = \left(\frac{m}{3p_1}, \frac{m}{3p_2}, \frac{2}{3}\right)\end{eqnarray*} &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Comparing utilities in the two cases above give us the condition under which John will choose to work for the two sectors :&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;If $(1-q)m^2 \geq w^2$, he'll work for the underground economy.&lt;/li&gt;&#xA;&lt;li&gt;If $(1-q)m^2 \leq w^2$, he'll work for the legitimate sector.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="11824" LastActivityDate="2018-05-15T14:08:22.820" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22006" PostTypeId="1" AcceptedAnswerId="34120" CreationDate="2018-05-15T14:40:12.320" Score="2" ViewCount="95" Body="&lt;p&gt;Informally, I've often seen it claimed that the price of food always goes up. Certainly, I do notice when the price of my £5 food bag goes up 50p or when my £1 milk goes up 20p. Yet, whenever I've asked those with an interest in economics why they aren't investing in stockpiles of food, they laugh and tell me that doing so would be to bet against human prosperity and that over time, the price of food goes down. Clearly, both side cannot be correct. I've tried to look in to this on my own, for example I've tried to use the data available at &lt;a href=&quot;https://tradingeconomics.com/united-kingdom/food-inflation&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://tradingeconomics.com/united-kingdom/food-inflation&lt;/a&gt; however, I've noticed that the common measures of inflation are often based on food prices, and I suspect that the measures of &quot;food inflation&quot; will be somehow influenced by some other measure of inflation, so I've reached the point where I believe that I will need the help of the more skilled folks here. Is there an easy answer to this question?&lt;/p&gt;&#xA;" OwnerUserId="18310" LastActivityDate="2020-02-23T12:29:48.057" Title="In the UK, does the rate of annual price increases in food consistently beat inflation? How can we tell?" Tags="&lt;inflation&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="22007" PostTypeId="1" CreationDate="2018-05-15T20:49:06.317" Score="5" ViewCount="98" Body="&lt;p&gt;Going through the &lt;a href=&quot;https://en.wikipedia.org/wiki/Inflation&quot; rel=&quot;nofollow noreferrer&quot;&gt;Wikipedia article&lt;/a&gt; on inflation, a number of pros and cons to inflation are covered. Most of the &quot;cons&quot; of inflation (cost-push inflation, hoarding, hyperinflation, diminished allocative efficiency, etc.), don't become a problem until inflation is well above the levels currently targeted by The Fed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A number of &quot;pros&quot; are also covered, but one I don't see addressed anywhere I've looked is this: the average U.S. household debt is 3x the average annual income. Our government is also in debt to the tune of \$21T, which comes at a cost of \$400B per year in interest paid. I do see acknowledgement that higher inflation eases debt, but nothing on why increased debt hasn't incentivized us to increase inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Wouldn't a higher inflation rate be a good thing? It would devalue those (household and federal) debts, making them easier to pay off, and saving the interest paid for other budget items. If the Government (and most Americans) were running closer to the black, I can see why you'd want to keep interest low, but given the unprecedented situation, why not allow inflation to float higher?&lt;/p&gt;&#xA;" OwnerUserId="18314" LastEditorUserId="18314" LastEditDate="2018-05-15T22:31:41.970" LastActivityDate="2018-05-18T12:25:16.417" Title="Why, in such a debt-heavy era, is inflation still such a Bad Thing(TM)?" Tags="&lt;inflation&gt;&lt;debt&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22010" PostTypeId="1" AcceptedAnswerId="22012" CreationDate="2018-05-16T12:00:07.860" Score="2" ViewCount="251" Body="&lt;p&gt;This question isn't about asymmetric information per se but rather one of the assumptions. Consider a market for second hand cars; there are lemons (low-quality cars) and plums (high-quality cars). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For lemons, the valuations are: $V_{b} = 1500 $ and  $V_{s} = 1000$. The subscripts denote buyer (b) and seller (s).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For plums: $V_{b} = 4000$ and $V_{s} = 3000$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The buyer knows that there is an equal amount of each car (i.e., the probability of the car being high or low quality is 50%) but she doesn't observe the quality. This results in market failure because the buyer is willing to pay &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac{1}{2}(1500 + 4000) = 2750$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore the sellers of plums leave the market because $2750 &amp;lt; 3000$ and only sellers of lemons remain. And now the buyer is only willing to pay 1500, therefore only lemons will be traded. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is confusing me is that it seems like we are assuming that the buyer knows the sellers valuations. I.e., the buyer knows that because the seller values plums at 3000, and the buyers expected valuation is below this, those sellers will leave the market. Am I misunderstanding something or is this the actual assumption in this case?&lt;/p&gt;&#xA;" OwnerUserId="11767" LastActivityDate="2018-05-17T14:28:26.983" Title="Asymmetric information assumption" Tags="&lt;microeconomics&gt;&lt;asymmetric-information&gt;&lt;market-failure&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22011" PostTypeId="2" ParentId="21982" CreationDate="2018-05-16T13:44:48.583" Score="2" Body="&lt;p&gt;As far as I know, there is a Least Cost Principle regarding cutting pollution, which states that: when there is a pollution target which firms (with heterogeneous and publicly unobserved pollution abatement cost curve) need to abate some pollution to achieve, the policy should aim at achieving the target with the minimum total abatement cost.  Intuitively, the sufficient condition is that the marginal abatement cost (MAC) is equalised across firms (if not, it is possible to save resources, by having the firm with higher MAC to reduce a unit of abatement and let another firm of lower MAC to conduct that unit of abatement).  One way to achieve this efficient outcome is a competitive tradable permit market, where the number of permits is set to the pollution target.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An CAC approach can, for example, command every firm to reduce pollution by a same amount.  However, this does not guarantee the MAC is equal across firms because abatement cost curve is different for different firms.  CAC cannot design an optimal plan because the cost curves are only privately observed.  This yields a DWL if the benchmark is the Least Cost Principle.&lt;/p&gt;&#xA;" OwnerUserId="18321" LastEditorUserId="18321" LastEditDate="2018-05-20T16:57:48.863" LastActivityDate="2018-05-20T16:57:48.863" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22012" PostTypeId="2" ParentId="22010" CreationDate="2018-05-16T16:26:52.067" Score="3" Body="&lt;p&gt;In this setting, both buyers and sellers are usually assumed to be risk neutral. So adding an additional layer of uncertainty over seller's valuation is not really going to change the model's prediction in any &quot;qualitative&quot; way, in the sense that market unraveling (perhaps only partial in this case) is still an inevitable outcome, even though the exact equilibrium may be different.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose the buyer is unsure of the seller's valuation, but the buyer believes that the seller's valuation follows a distribution with a mean of $3000$. Further, let's assume that under this distribution, a fraction $p\in[0,1)$ of the plum seller's value is below $2750$, the buyer's average value of the two types. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, by offering to buy a car of unknown quality at $2750$, the buyer gets an expected payoff of &#xA;\begin{equation}&#xA;\frac{p}{2}(4000-2750)+\frac12(1500-2750)=1250\left(\frac{p}2-\frac12\right)&amp;lt;0.&#xA;\end{equation}&#xA;This is worse than the zero payoff the buyer gets by offering $1500$ for a lemon. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since the mean of seller's valuation is $3000$, there is always a positive fraction of the sellers with values greater than $2750$, i.e. $1-p&amp;gt;0$. These sellers will leave the market as they don't anticipate fetching a price higher than their own values for the car. The exit will then trigger the usual cycle of downward revision of buyer's conditional expected value and more exits. Depending on the distribution of seller value, full market unraveling may or may not occur.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Nevertheless, what underpins the unraveling of (necessarily a fraction of) the plum market is still the same: the buyer's anticipation of a positive fraction $(1-p)$ of the plum sellers not willing to sell at $2750$. &lt;/p&gt;&#xA;" OwnerUserId="42" LastEditorUserId="42" LastEditDate="2018-05-17T14:28:26.983" LastActivityDate="2018-05-17T14:28:26.983" CommentCount="7" ContentLicense="CC BY-SA 4.0" />
  <row Id="22016" PostTypeId="1" CreationDate="2018-05-17T05:30:52.910" Score="2" ViewCount="74" Body="&lt;p&gt;My friends and I have homework and we can't come to a consensus on these questions on how they affect aggregate demand, aggregate supply, and equilibrium: &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Foreign investors building machineries with advanced technology for the country’s electronic&#xA;industry&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;For this we thought Supply up; AS to right; C up; AD to right; no change in equilibrium&lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;2&quot;&gt;&#xA;&lt;li&gt;Thousands of workers leaving the country in search of higher salary&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;and for this we thought: Supply down; AS left; C down; AD left; &#xA;no change in equilibrium&lt;/p&gt;&#xA;" OwnerUserId="18324" LastActivityDate="2018-11-15T22:02:45.543" Title="Macroeconomics: effect of technology/workforce in the short run" Tags="&lt;macroeconomics&gt;&lt;aggregate-production&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22018" PostTypeId="2" ParentId="20646" CreationDate="2018-05-17T11:10:30.220" Score="1" Body="&lt;p&gt;OLS considers all values. The method doesn't care if some samples have the same X value as long as not all of them do.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In many cases there is no controversy in having multiple samples with the same Xi but different Yi.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, if you plot company turnover (Y) versus number of employees (X) for a sample of companies there can be companies that happen to have the exact same number of employees.&lt;/p&gt;&#xA;" OwnerUserId="11805" LastActivityDate="2018-05-17T11:10:30.220" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22019" PostTypeId="1" AcceptedAnswerId="22046" CreationDate="2018-05-17T11:12:52.317" Score="1" ViewCount="347" Body="&lt;p&gt;The main part of the question is as follows &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/puDLr.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/puDLr.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(if you cannot read this, I can immediately write it)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is how to find the subgame perfect Nash equilibrium for the both cases $\bar{g_2}\ge \bar{g_1}$ and $\bar{g_2}&amp;lt; \bar{g_1}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My attempt is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For firm 2 &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$max [f_2(G)-c_2(g_2)]$$&#xA;$$max [\beta ln(g_1+g_2)-g_2]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By FOCs&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\beta / (g_1+g_2)- 1=0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$g_2=\beta -g_1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For firm 1&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$max [f_2(G)-c_2(g_2)]$$&#xA;$$max [\theta ln(g_1+\beta -g_1)-g_1]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I cannot get FOC with respect to $g_1$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;At this point I’m stuck. How can I proceed this solution?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And I have another question &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the same question, I assume the following part&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/PFcIW.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/PFcIW.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Again I need to find subgame perfect Nash equilibrium of this game where player 1 contributes a positive amount of public good.? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sorry but I could not this part completely. Any helps will be appreciated. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since I could not understand such type of questions for the SPE, I asked lots of time. Thanks.  &lt;/p&gt;&#xA;" OwnerUserId="15030" LastEditorUserId="15030" LastEditDate="2018-05-19T19:16:41.077" LastActivityDate="2018-05-19T19:16:41.077" Title="Finding subgame perfect equilibrium" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;game-theory&gt;&lt;self-study&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22020" PostTypeId="1" AcceptedAnswerId="22081" CreationDate="2018-05-17T12:24:28.723" Score="0" ViewCount="72" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Farmer Smith's cattle wander into Farmer Jones' land once a month and cause $\$3,000$ of damage. If Smith reduced the size of his herd by half it would reduce the damage by half but it would also reduce his profits from $\$7,500$ to $\$3,500$. If Smith left the cattle business entirely, he would lose the entire $\$7,500$. If the two parties could negotiate at zero transactions cost, what would be the resulting size of the herd? If there are large transactions costs, Jones hires a lawyer and sues Smith for damages. You are the local judge. Should you allow Jones to collect damages from Smith? If so how much would you award?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I have this question. And I give the following answer. But I am not sure whether this following answer is enough or there are some mistakes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If there are no transaction costs, then smith pays jones $3000 as compensation since it is profitale for him to do so. Notice that if he cuts his herd to hald, he loses 3500 and earns 4000 but if he pays up for the damages i.e. 3000 dollars he earns 7500-3000=4500 , i.e. he still earns 500 more in this situation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now the transaction cots are high. Yes I would allow jones to collect for the damages from smith since that way I am maximizing the society's payoff i.e. I am making Smith internalise the cost of damages that he has caused. I would tell smith to give $3500 to jones because&lt;/p&gt;&#xA;&#xA;&lt;p&gt;a. compensation to the damages&lt;/p&gt;&#xA;&#xA;&lt;p&gt;b. pay up the transaction costs&lt;/p&gt;&#xA;&#xA;&lt;p&gt;c. make him indifferent between cutting his herd to half and keeping the whole herd since this will mean no profit no loss situation which maximizes surplus of the society.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What do you think? Please share with me. thank you. &lt;/p&gt;&#xA;" OwnerUserId="18231" LastEditorUserId="18338" LastEditDate="2018-05-23T06:35:22.887" LastActivityDate="2018-05-23T06:35:22.887" Title="The verification of my solution" Tags="&lt;microeconomics&gt;&lt;self-study&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22023" PostTypeId="1" CreationDate="2018-05-17T14:44:21.367" Score="-1" ViewCount="53" Body="&lt;p&gt;During my last trip, I traveled in Bolivia for two months, and I was struck seeing how life was cheap there, from a European point of view. I believe that is the same in the great majority of the &quot;developing countries&quot;. Food, transportation, hotels, even the touristic tours and attractions are cheap.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But people there might never have the chance to travel because Bolivia is among the poorest countries of South America (if not the poorest). Even the middle-class citizens (if there are such...) would have to pay a lot to buy a plane ticket to anywhere in the world.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is: &lt;strong&gt;What would happen if a unique global currency were established&lt;/strong&gt; AND &lt;strong&gt;that the economic systems of all states were &quot;balanced&quot;&lt;/strong&gt; (?) &lt;strong&gt;so that anyone in the world would benefit from an equivalent purchasing power?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm not talking about some kind of communist ideal where everyone would earn the same salary and all: let's keep the social classes, the competitiveness, &lt;em&gt;etc&lt;/em&gt;. for this hypothesis.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question must have been asked already, but I am a biologist, and a true newbie in economics. So if you could try to answer with simple/simplistic ideas, that would be great!&lt;/p&gt;&#xA;" OwnerUserId="18329" LastActivityDate="2018-06-19T12:35:50.443" Title="A unique global currency and a balanced macroeconomic system" Tags="&lt;macroeconomics&gt;&lt;inequality&gt;&lt;theory&gt;" AnswerCount="2" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="22024" PostTypeId="1" CreationDate="2018-05-17T17:20:10.323" Score="1" ViewCount="90" Body="&lt;p&gt;Where can I find Herfindahl indexes on companies (current or past)? Are there any published lists put out by a research institution?&lt;/p&gt;&#xA;" OwnerUserId="11976" LastEditorUserId="18231" LastEditDate="2018-05-18T14:09:55.733" LastActivityDate="2018-05-18T14:09:55.733" Title="Where can I look up a companies Herfindahl index?" Tags="&lt;data-request&gt;&lt;self-study&gt;&lt;industrial-organisation&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22025" PostTypeId="2" ParentId="21796" CreationDate="2018-05-17T19:48:10.407" Score="2" Body="&lt;p&gt;The shadow price is formally not the increase in the objective function for relaxing a constraint by a single unit, but by an infinitesimal relaxation. In the world of linear programming it can be valid for up to a unit but it doesn't have to be. In your example problem it is actually not.  This becomes clearest when we use pictures. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am going to assume that you were maximizing, not minimizing your objective function and furthermore that you have two additional constraints that you hadn't actually stated: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$K\geq0$ and&#xA;$S\geq0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That would result in the following graphic with K on the y-axis and S on the x-axis, and the optimum at the red dot. The black dotted lines are isoquants of Z, for Z=100, Z=150 and Z=200.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/Zahps.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Zahps.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The feasible region is made up of the x and y axis, the blue line from the y-axis up to the crossing, and the orange line from that point on to the x axis.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let us now relax your constraint $K+2S\leq6$ by one unit, as you propose. In essence this means that the constraint becomes $K+2S\leq7$ and when we draw the new constraints we get:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/D4MYl.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/D4MYl.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Turns out that the new constraint no longer plays a role in determining the optimum! The optimum is now determined by the constraints: $S\geq0$ and $2K+3S\leq10$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The answer to your question should now be clear: the shadow price is valid up to the point where that particular combination of constraints continues to determine the optimum. In this case that means that you can increase 6 to $6\frac{2}{3}$, for a corresponding increase in the objective function of $10*\frac{2}{3}=\frac{20}{3}$  After that point the combination of constraints no longer determines the optimum.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a side point let me add that at least the Excel solver (and I expect therefore many other solvers too) report up to which point you can relax the constraints before the optimum is determined by another set of constraints.&lt;/p&gt;&#xA;" OwnerUserId="12186" LastActivityDate="2018-05-17T19:48:10.407" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22026" PostTypeId="1" CreationDate="2018-05-17T22:57:15.117" Score="3" ViewCount="659" Body="&lt;p&gt;I have a diamond overlapping model&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question is as follows &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Let us consider an infinitely lived production economy populated at time t by $N_t$ identical and perfectly competitive adult individuals. Each agent is born from a single adult parent and lives for two periods. Each youth is part of his parent consumption and each adult is endowed with 1 unit of time that can be allocated between child rearing and market activity. At time t, the budget constraint of the representative adult individual can be written as:&#xA;  $$c_t\le d_t +w_t e_t$$&#xA;  where e denotes the time allocated to work, w stands for the real wage, d represents the real dividend income that corresponds to a fraction 1/N of the aggregate profit $\pi$, and c is the consumption level. Under the assumption that the cost or raising each child is a fraction $\tau$ of the parental time endowment, the time constraint faced by the representative household at time t is:&#xA;  $$\tau n_t + e_t=1$$&#xA;  where n denotes the number of children born at time t. The preferences of an adult individual at time t can be described by a logarithmic utility function U which depends on his consumption level and the number of children:$$u(c_t, n_t)=ln c_t + \gamma ln n_t$$ where γ&gt;0. Let us assume that there is a single perfectly competitive firm using the following&#xA;  Cobb-Douglas production function at every time t: $$ Y_t= AX_t^{1-\epsilon}L_t^{\epsilon}$$&#xA;  where ε∈(0,1) stands for the output elasticity with respect to the land input, A&gt;0 denotes a productivity parameter and Y represents the aggregate output. The stock of land is fixed: $\bar{}$ = $_t$ and the labour input $_t$ is defined as the aggregate amount of time allocated to work. The law of motion of the adult population from time t to t+1 is given by:&#xA;  $$N_{t+1}=n_tN_t$$&#xA;  The question asks to write down the utility maximization problems for both adults and firm and I need to derive both competitive labor supply and labor demand sechedules respectively. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;My answers are respectively:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$d_t$ is dividend income and $d_t=\pi/N$&#xA;For agent problem:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$max [ln c_t + \gamma ln n_t]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Subject to $ c_t\le d_t+ w_t (1-\tau n_t)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lagrangian $L= ln c_t + \gamma ln n_t +\lambda [c_t- d_t- w_t (1-\tau n_t)]$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;FOCs &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(1) W.r.t $c_t$:  $(1/c_t)+\lambda =0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(2) w.r.t $n_t$: $\gamma / n_t +\lambda w_t \tau =0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(3) w.r.t. $c_t-d_t-w_t+w_t \tau n_t=0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By (1) and (2):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{(1/c_t)}{\gamma / n_t }=\frac{\lambda}{\lambda w_t \tau}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, $c_t= n_t\tau w_t$    …(4)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When substitute (4) into (3)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$n_t\tau w_t-d_t-w_t+w_t \tau n_t=0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$n_t=\frac{\pi /N+w_t}{2\tau w_t}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which is labor supply schedule. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For firm’s maximization problem &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$max [Y_t-w_tL_t-X_tr_t]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$max [Y_t= A\bar{X}^{1-\epsilon}L_t^{\epsilon}—w_tL_t-\bar{X}r_t]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By FOC w.r.t. $L_t$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\epsilon A\bar{X}^{1-\epsilon}L_t^{\epsilon -1}-w_t=0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then $$L_t= (W_t / \epsilon A)^{1/(1-\epsilon )}$$&#xA;which is labor demand sechedule. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;————&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;So far, I have written all question with my answers in order to give information about the general framework of the question. And I will be glad if you let me know when see any mistakes so far. But my actual question is posted below:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;blockquote&gt;&#xA;    &lt;p&gt;how can I write the equilibrium conditions on the goods’ market at time t and how can I show that it is equivalent to the labor market clearing conditions according to the Walras law?&lt;/p&gt;&#xA;  &lt;/blockquote&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I do that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For labor market clearing: $N_{t+1}=L_t$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, $$N_{t+1}/N_t= L_t/N_t$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$n_t=e_t={Nw_t-\tau \over 2N}$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But after that, I cannot proceed my solution. Help me to do this part? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you. &lt;/p&gt;&#xA;" OwnerUserId="15030" LastActivityDate="2018-05-17T22:57:15.117" Title="Market clearing condition with Walras law" Tags="&lt;macroeconomics&gt;&lt;monetary-policy&gt;&lt;self-study&gt;&lt;dynamic-programming&gt;&lt;olg&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22027" PostTypeId="1" CreationDate="2018-05-18T01:47:18.560" Score="1" ViewCount="2337" Body="&lt;p&gt;Consider someone who consume two goods and hates them both. &#xA;Given the utility function:&#xA;U(x,y)= -max{x,y}&#xA;1.What would be the shape of the indifference curve?&#xA;2.Why are these preferences &lt;strong&gt;weakly&lt;/strong&gt; convex?&#xA;3.What does the negative sign imply mathematically?&#xA;4.Will it become an min{x,y} function?&lt;/p&gt;&#xA;" OwnerUserId="12058" LastActivityDate="2018-05-18T03:57:14.803" Title="Relationship between convexity and a perfect complements type utility function" Tags="&lt;microeconomics&gt;&lt;preferences&gt;&lt;perfect-complements&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22028" PostTypeId="1" CreationDate="2018-05-18T02:11:28.753" Score="-3" ViewCount="57" Body="&lt;p&gt;I've heard that blockchain technology has been used extensively by financial institutions when making international transactions to eachother, with speed and transparency and cryptographic security being financial incentives. How could the same practice be used profitably by countries/states, nations, or individuals, not just banks?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For instance, could the UK avoid tariffs on trade with EU countries after Brexit by trading with a &quot;tangle&quot; technology pegged to gold?&lt;/p&gt;&#xA;" OwnerUserId="18332" LastEditorUserId="18332" LastEditDate="2018-05-23T01:55:18.297" LastActivityDate="2018-05-23T01:55:18.297" Title="Why do large financial institutions make international transactions in digital currency?" Tags="&lt;international-trade&gt;&lt;international-economics&gt;&lt;cryptocurrency&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22029" PostTypeId="2" ParentId="22027" CreationDate="2018-05-18T02:44:55.913" Score="2" Body="&lt;p&gt;Instead of directly giving you the answers, I'm going to give you a series of hints to help you figure out the answers on your own.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;1.What would be the shape of the indifference curve?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Consider three different consumption bundles: $(3,10)$, $(10,10)$, and $(10,3)$. Verify that these three bundles yield the same utility to the consumer. In other words, they should lie on the same indifference curve. Then draw a curve through the three points. Verify that all points described by $(x,10)$ and $(10,y)$ for $x,y\le10$ should also be on this indifference curve.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;2.Why are these preferences weakly convex?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;First remind yourself what &lt;em&gt;weak convexity&lt;/em&gt; means. Then compare the utilities that the individual gets from the following pairs of bundles:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;$A_1=(10,10)$ and $A_2=\alpha(10,3)+(1-\alpha)(3,10)$ for $\alpha\in(0,1)$ &lt;/li&gt;&#xA;&lt;li&gt;$B_1=(10,10)$ and $B_2=\alpha(10,3)+(1-\alpha)(10,10)$ for $\alpha\in(0,1)$ &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;3.What does the negative sign imply mathematically?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;You said that the consumer &lt;em&gt;hates&lt;/em&gt; both goods. Compare the utilities from the bundles $(10,10)$ and $(5,5)$ and see which is higher (and thus more preferred). &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;4.Will it become an min{x,y} function?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Try sketch an indifference curve for $u=\min\{x,y\}$ and compare to those in part 1.&lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2018-05-18T02:44:55.913" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22030" PostTypeId="2" ParentId="21964" CreationDate="2018-05-18T03:07:28.053" Score="2" Body="&lt;p&gt;You have solved the Cournot part correctly, but then you've gone completely off the road, by mistaking economics for mathematics. This usually happens.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First of all, you shouldn't assume just any value for $q^*_2$ unless you want to show some contradiction by a counterexample. Moreover, even if it was somehow correct, you have used the most unreasonable difficult to solve value $\frac{a-c}{2b}$ which isn't convenient at all.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Second of all, you weren't asked to solve for the SPNE, you were just asked to show whether that particular strategy is SPNE or not.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And lastly, you have mixed strategy profile for action profile, when you gave two answers for the question (a). You said YES and NO, while it only had one strategy. In fact, the number $q_2$ is not a strategy, it's action. The function $q_2(q_1)$ is a strategy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is how you solve this kind of problems:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Solve Cournot and obtain $q_c = q^*_1 = q^*_2 = \frac{a-c}{3b}$.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Now, you should understand the strategy economically before solving it analytically. When Firm 1 has the first-mover advantage, it can (and will) dominate all of the market by producing more and not leaving a space for the Firm 2, which enters after Firm 1. So, Firm 2 has two options:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(a) Don't adjust and sell nothing and make zero profits&lt;/p&gt;&#xA;&#xA;&lt;p&gt;or&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(b) Try to threaten Firm 1 against dominating all of the market and possibly make some positive profit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Obviously, it chooses (b). What the strategy (in the question) says is basically the following: If you deviate from Cournot equilibrium, I will produce a lot more and make production so high, that the prices will drop to zero and both of us won't make any profits. Now, we need to see whether this threat is credible or not.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Before we proceed, please remember the following shortcut: Non-credible threats usually are Nash equilibria, and never are Subgame-Perfect equilibria.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2.a. Show that producing less than Cournot is worse than producing exactly Cournot:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Remember, that $q_1 = q_2 = q_c$ is already a Nash equilibrium. Now, let Firm 1 deviate from the equilibrium and produce less:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$ \pi_1 = (a-b( \frac{a-c}{3b} + \frac{a-c}{3b} - \epsilon) - c) \cdot (\frac{a-c}{3b} - \epsilon = \frac{(a-c)^2}{9b} - b\epsilon^2 &amp;lt; \pi_{cournot} $,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, it will not make any sense for Firm 1 to produce less.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2.b. Show that producing more than Cournot is worse than Cournot, because Firm 2 will respond with higher quantity:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\pi_1 = (a-b(\frac{a-c}{3b} + \epsilon + \frac{a-c}{3b} + \delta) - c)(\frac{a-c}{3b} + \epsilon) = (\frac{a-c}{3} - b\epsilon - b\delta)(\frac{a-c}{3b} + \epsilon) = \frac{(a-c)^2}{9b} - b \epsilon^2 - \frac{a-c}{3b} b \delta - b\delta\epsilon&amp;lt; \frac{(a-c)^2}{9b} = \pi_{cournot}$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, we conclude that the following strategy profile:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;{ $q_1 = \frac{a-c}{3b}$; $ q_2(q_1) = \begin{cases}&#xA;q_c, &amp;amp; q_1 = q_c \\&#xA;q_c+\epsilon, \forall\epsilon&amp;gt;0&amp;amp;q_1\neq q_c&#xA;\end{cases} \} $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;is a Nash equilibrium. That is, a non-credible threat by a Firm 2, which threatened to bankrupt both firms if Firm 1 din't play by the rules, worked and forced Firm 1 to play by Cournot rules, even though it had a first-mover advantage.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The answer to part (A) is YES.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, we have to check, whether this strategy profile is Subgame-Perfect. (Recall, that we are &lt;strong&gt;not&lt;/strong&gt; asked to solve for all subgame-perfect equilibria, just check the existing).&lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;3&quot;&gt;&#xA;&lt;li&gt;Show that in a proper subgame, this strategy is not a Nash equilibrium.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Now, we will show that this threat is non-credible. To do that, identify the only proper subgame: the one where Firm 2 chooses the quanity given Firm 1's choice has already been made.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume, that Firm 1 didn't listen to Firm 2's threats and decided to produce more than Cournot $q_1 = q_c + \epsilon$. Now, if Firm 2 keeps its promise and goes by its own rules, it will have to produce more than Cournot as well: $q_2 = q_c + \delta$. But then we repeat the 2.b's equation and see that it's less profitable for Firm 2 to keep its promise and produce more than it would be to produce $q_c$. And since Firm's only objective is to maximize proifts, we conclude that Firm 2 breaks its promise and doesn't bankrupt both firms. That is, Firm 1 enjoys first mover advantage and Firm 2 obeys its fate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The answer to (b) is NO. Firm 2's strategy is not a Nash equilibrium in the subgame, where it chooses the quantity.&lt;/p&gt;&#xA;" OwnerUserId="18320" LastEditorUserId="18320" LastEditDate="2018-05-18T10:57:53.767" LastActivityDate="2018-05-18T10:57:53.767" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22032" PostTypeId="2" ParentId="22027" CreationDate="2018-05-18T03:57:14.803" Score="2" Body="&lt;p&gt;$u(x, y) = -\max(x, y) = \min(-x, -y)$ is a concave function. Since it is concave, it is also quasiconcave (or equivalently, it represents weakly convex preferences). Here is the indifference map of $u$ :&#xA;&lt;a href=&quot;https://i.stack.imgur.com/FxTSy.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/FxTSy.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$u$ does not represent the same preference as $v(x, y) =\min(x, y)$. Here is the indifference map of $v$ :&#xA;&lt;a href=&quot;https://i.stack.imgur.com/xUh3b.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/xUh3b.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="11824" LastActivityDate="2018-05-18T03:57:14.803" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="22034" PostTypeId="2" ParentId="22024" CreationDate="2018-05-18T12:00:52.650" Score="1" Body="&lt;p&gt;HHI index cannot by definition be &lt;em&gt;on companies&lt;/em&gt;. It is the squared sum of market shares of all the companies in a country. So, if you are looking for companies' market shares, you should look at each country individually.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But if you want HHI index &lt;em&gt;on countries&lt;/em&gt; (which is a correct way of framing the question) then you can use this WorldBank data: &lt;a href=&quot;https://tcdata360.worldbank.org/indicators/hh.mkt&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://tcdata360.worldbank.org/indicators/hh.mkt&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="18320" LastActivityDate="2018-05-18T12:00:52.650" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22035" PostTypeId="2" ParentId="22007" CreationDate="2018-05-18T12:25:16.417" Score="2" Body="&lt;p&gt;While many points can be made about the pros and cons of inflation, the following is one of the most fundamental.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose A borrows \$100 from B and inflation is 5% per year. To keep things simple, assume the terms of the loan require repayment after one year. When the repayment falls due, A pays B \$100, but because of the inflation it is only worth (at the original price level) $100/1.05 \approx \$95.2$.  So A's debt has been somewhat eased by the inflation (and if the term of the loan were much longer the easing could be much greater).  But what about B? In real terms B has lost the same amount that A has gained.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Other things being equal, therefore, inflation benefits borrowers and costs lenders. And in total, amounts lent must equal amounts borrowed. It may be that the the borrowers (government, struggling households) are more visible than the lenders (better-off households, foreigners).  Nevertheless, the effects on lenders, and on incentives for future lenders, cannot be ignored.  Where inflation is expected, lenders will as suggested in Henry's comment demand a higher interest rate to offset their expected loss on the principal repayment.  &lt;/p&gt;&#xA;" OwnerUserId="1417" LastActivityDate="2018-05-18T12:25:16.417" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22036" PostTypeId="2" ParentId="6740" CreationDate="2018-05-18T13:41:23.440" Score="1" Body="&lt;p&gt;I might be late to the party.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A &lt;strong&gt;Start Up&lt;/strong&gt; is a stage where company is still not so clear about so many things, viz&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Models to profit&lt;/li&gt;&#xA;&lt;li&gt;Clear plan about the product&lt;/li&gt;&#xA;&lt;li&gt;Clear plan about their target/market&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;In simple terms they are figuring out those and many such things. &lt;br&gt;Once they are done with clear product, cash flow model and market they come out of Start Up stage (if they still managed to sustain).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That's why Yahoo! was still called as world's biggest Start Up till 2015 or so because they might had not figured out so many things and still experimenting &lt;/p&gt;&#xA;" OwnerUserId="18335" LastActivityDate="2018-05-18T13:41:23.440" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22037" PostTypeId="2" ParentId="21844" CreationDate="2018-05-18T13:51:35.433" Score="1" Body="&lt;p&gt;What about framing your question in terms of the Mundell-Fleming model, which is an extension of the IS-LM framework for a small open economy? Or I would maybe suggest framing it in terms of the AS-AD model which does not assume the price level fixed and is useful to think about medium- to long-term effects on the economy? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Remember that in an “IS-LM” type of framework, the interest rate is set endogenously. A drop in investor confidence has an effect on the equilibrium interest rate via the IS curve (shifts on the left) only. Indeed as &lt;code&gt;Attack68&lt;/code&gt; has rightly pointed out, and which does apply quite well in such a setting: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Firstly, &quot;a sovereign debt ratings downgrade&quot; by a ratings agency has&#xA;  little value in the world today as a binary event.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So &quot;a sovereign debt ratings downgrade&quot; should also not be viewed in IS-LM as having an effect on equilibrium interest rate directly. Indeed, there is only one interest rate in IS-LM and it is some composite object representing all existing interest rates in the economy. So one sovereign rating change will have no direct effect on the &quot;global&quot; interest rate. It will rather induce a drop in output which will then impact interest rate; i.e. IS curve shifts on the left because investor are less confident -&gt; invest less -&gt; less output -&gt; equilibrium interest rate in fact decreases.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I find the question interesting but I unfortunately do not have enough time to draft a nicer explanation. Anyhow, I hope that it helps and is somewhat clear.&lt;/p&gt;&#xA;" OwnerUserId="18336" LastActivityDate="2018-05-18T13:51:35.433" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22038" PostTypeId="2" ParentId="22019" CreationDate="2018-05-18T14:31:45.410" Score="1" Body="&lt;p&gt;Note, there is a mistake in FOC---it should be &#xA;$$\beta/(g_1+g_2) - 1 =0,$$&#xA;so the response function of firm $2$ is&#xA;$$g_2 = \beta - g_1.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This means that a unit increase in a public good contributed by firm $1$ causes firm $2$ to decrease its contribution by the same unit. Then, notice that firm $1$, who correctly anticipates such a (optimal) response by firm $2$, is better off by not contributing anything (hint: $g_1$ only affects $C(g_1)$ up to $g_1 \in [0,\beta]$).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I guess you can take from here to solve the second part&lt;/p&gt;&#xA;" OwnerUserId="18338" LastActivityDate="2018-05-18T14:31:45.410" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22039" PostTypeId="1" CreationDate="2018-05-18T15:45:28.430" Score="5" ViewCount="49" Body="&lt;p&gt;I find the yield curve for bond rates confusing. For example, the current yield curve for US treasuries is shown below:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/TQ8Lk.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/TQ8Lk.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The difference between the 10-year bond and the 30-year bond is tiny, just 0.15%. This seems like a negligible premium to receive for assuming an additional 20 years of risk.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there a theory that explains this counterintuitive (to me) condition?&lt;/p&gt;&#xA;" OwnerUserId="1448" LastActivityDate="2018-05-20T20:34:55.140" Title="Why does the yield curve flatten?" Tags="&lt;financial-economics&gt;&lt;bonds&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22040" PostTypeId="1" CreationDate="2018-05-18T19:09:17.793" Score="0" ViewCount="26" Body="&lt;p&gt;In the Neoclassical Labor-Leisure model, does a fall in the wage rate always reduce hours worked?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or does it depend on whether the substitution or income effect dominates?&lt;/p&gt;&#xA;" OwnerUserId="12229" LastActivityDate="2018-05-18T23:30:55.493" Title="Does a fall in the wage rate always reduce hours worked?" Tags="&lt;microeconomics&gt;&lt;labor-economics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22041" PostTypeId="2" ParentId="22040" CreationDate="2018-05-18T23:30:55.493" Score="1" Body="&lt;p&gt;It is more common to consider an increase in the wage rate: in that case, assuming leisure is a normal good, the income effect should increase leisure (more money available to pay for it, making it more affordable) and the substitution effect should reduce leisure (each hour worked brings greater benefit than before the increase, encouraging work), with a net effect which could go either way&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So with a reduction is the wage rate, you can simply reverse this: assuming leisure is a normal good, the income effect should reduce leisure (less money available to pay for it, making it less affordable) and the substitution effect should increase leisure (each hour worked brings less benefit than before the reduction, discouraging work), with a net effect which could go either way&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the improbable situation that leisure were an inferior good, the income and substitution effects would work in the same directions, so a wage rate increase would lead to less leisure and a wage rate reduction would lead to more leisure&lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2018-05-18T23:30:55.493" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22042" PostTypeId="1" AcceptedAnswerId="22044" CreationDate="2018-05-19T00:31:08.980" Score="4" ViewCount="153" Body="&lt;p&gt;Contrary to the common view, the physics is all about models, there are no such thing as law of nature, because every physical law has its applicability range and therefore all of laws as models. But any physical law derives from one principle - &lt;a href=&quot;https://en.wikipedia.org/wiki/Principle_of_least_action&quot; rel=&quot;noreferrer&quot;&gt;https://en.wikipedia.org/wiki/Principle_of_least_action&lt;/a&gt; - any particle theroy (there are hundreds of them) is written as the model Lagrangian and then variational principle is applied to arrive at dynamical equations and observable quantities that can be corroborated in experiments.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is - is there similar approaches, theories, most general models in economics from which every other model or economic law can be applied. If there are such models, then the automation of economics can be achieved (assuming that the automation of mathematics will be completed, e.g. with project &lt;a href=&quot;http://ai4reason.org/&quot; rel=&quot;noreferrer&quot;&gt;http://ai4reason.org/&lt;/a&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have heard definition - the economics is a tuple &amp;lt;...&gt; but I can not remember the book or article or the content of this tuple. Usually such tuples contain t]general mathematical objects: sets of agents with preference functions, set of interaction mechanisms (market system, competition patterns (monopoly etc.)), sets of external shocks (endogeneous factors) and so on...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am seeking more for literature references, trends, keywords, not exhaustive answer. I can further research question by my own, but I should be informed from where to start my efforts.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Macroeconomics can (and should) be derived from the microeconomics, therefore I am seeking the model that states first principles - general microeconomic model (from which the general macro models could also be derived in the best case).&lt;/p&gt;&#xA;" OwnerUserId="5373" LastActivityDate="2018-05-19T16:26:38.293" Title="General model of economics, economics as mathematical structure" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22043" PostTypeId="2" ParentId="21996" CreationDate="2018-05-19T01:00:05.527" Score="2" Body="&lt;p&gt;Yes, there are models that reconcile Hart’s property rights theory with Williamson’s emphasis on haggling and ex post inefficiencies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hart and Moore have developed a behavioral theory of contracts as reference points. They argue that contractual parties engage in ex post inefficient shading activities when they are aggrieved (which happens when they do not get what they feel entitled to given the reference point that was set by a contract). In this sense, the theory is based on non-standard preferences: Hart, O. and Moore, J. (2008). &lt;a href=&quot;https://doi.org/10.1162/qjec.2008.123.1.1&quot; rel=&quot;nofollow noreferrer&quot;&gt;Contracts as Reference Points&lt;/a&gt;, Quarterly Journal of Economics, Vol. 123, pp. 1–48. See also &lt;a href=&quot;https://doi.org/10.1162/qjec.2009.124.1.267&quot; rel=&quot;nofollow noreferrer&quot;&gt;Hart (2009)&lt;/a&gt; for an extension of this approach. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another possibility to formalize ex post inefficiencies in a Grossman/Hart/Moore framework is to allow for asymmetric information: Schmitz, P.W. (2006). &lt;a href=&quot;https://doi.org/10.1257/000282806776157722&quot; rel=&quot;nofollow noreferrer&quot;&gt;Information Gathering, Transaction Costs, and the Property Rights Approach&lt;/a&gt;, American Economic Review, Vol. 96, pp. 422–434. This approach maintains the standard assumption of profit-maximizing behavior and studies the trade-off between investment incentives and ex post inefficiencies (see also the more recent contribution by &lt;a href=&quot;https://doi.org/10.1016/j.econlet.2017.07.026&quot; rel=&quot;nofollow noreferrer&quot;&gt;Schmitz (2017)&lt;/a&gt; and the literature mentioned there). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, while less related to the Grossman/Hart/Moore framework, there are also models that study property rights in adverse selection models without investments (building on the prominent paper by &lt;a href=&quot;https://doi.org/10.1016/0022-0531(83)90048-0&quot; rel=&quot;nofollow noreferrer&quot;&gt;Myerson and Satterthwaite, 1983&lt;/a&gt;), where the optimal ownership allocation minimizes ex post inefficiencies: McKelvey, R.D. and Page, T. (2002). &lt;a href=&quot;https://doi.org/10.1006/jeth.2001.2954&quot; rel=&quot;nofollow noreferrer&quot;&gt;Status quo bias in bargaining: An extension of the Myerson–Satterthwaite theorem with an application to the Coase theorem&lt;/a&gt;, Journal of Economic Theory, Vol. 107, pp.336–355. A literature review with particular emphasis on models building on the Myerson/Satterthwaite framework: Segal, I. and Whinston, M.D. (2012), &lt;a href=&quot;http://www.jstor.org/stable/j.ctt1r2ggg.7&quot; rel=&quot;nofollow noreferrer&quot;&gt;Property rights&lt;/a&gt;. Handbook of Organizational Economics, pp. 100–158.&lt;/p&gt;&#xA;" OwnerUserId="18341" LastActivityDate="2018-05-19T01:00:05.527" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22044" PostTypeId="2" ParentId="22042" CreationDate="2018-05-19T01:16:18.460" Score="2" Body="&lt;p&gt;This is inherently wrong reasoning. Economics is, above all, a philosophical discipline, and &lt;strong&gt;not&lt;/strong&gt; an applied mathematics. What you have heard about tuples is about the modern &quot;neoclassical&quot; economics (I used quotation marks, because this term is not entirely accurate). So, this is just one approach to do economics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are completely atheoretical ways to do economic analysis (like VAR / macro- econometrics).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Moreover, even within the analytical economics no model is ever unique - every positive monotonic transformation of a utility function represents the same preferences. In other words, we don't even have a bijection to the reality like physics has.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Macroeconomics was born independent of micro and was based on general equilibrium model plus statistics. Until Lucas' critique which redirected macro efforts into fundamental theory which started using elements of micro, and this frequently causes debates within an economics community.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you really want to generalize, then micro is about constrained optimization and macro is about dynamic optimization. There is no absolute consensus about anything else.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Modern economics does not have a demand for AI doing proofs automatically, it has a demand for formulating good models and discussing the right parameters. Therefore it is strange that you have already made your mind about automating economics and &quot;don't need an exhaustive answer&quot;, without getting into the field.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In case you chose to ignore my answer, here are the only links I can refer you to: to learn math-based micro finish &lt;a href=&quot;https://books.google.com/books/about/%E5%BE%AE%E8%A7%82%E7%BB%8F%E6%B5%8E%E7%90%86%E8%AE%BA.html?id=sQGDQgAACAAJ&amp;amp;hl=en&quot; rel=&quot;nofollow noreferrer&quot;&gt;&quot;Microeconomic theory&quot; by Mas-Colell&lt;/a&gt; and to learn math-based macro finish &lt;a href=&quot;https://books.google.com/books/about/Recursive_Methods_in_Economic_Dynamics.html?id=v-W6AAAAIAAJ&quot; rel=&quot;nofollow noreferrer&quot;&gt;&quot;Recursive methods in economic dynamics&quot; by Stokey,Lucas,Prescott&lt;/a&gt; and/or &lt;a href=&quot;https://books.google.com/books?id=DsPH5fWNdrsC&amp;amp;printsec=frontcover&amp;amp;dq=%22Modern%20Economic%20Growth%22%20by%20Acemoglu.&amp;amp;hl=en&amp;amp;sa=X&amp;amp;ved=0ahUKEwjag_XW_ZHbAhXCyVMKHT98A8MQ6AEIKDAA#v=onepage&amp;amp;q=%22Modern%20Economic%20Growth%22%20by%20Acemoglu.&amp;amp;f=false&quot; rel=&quot;nofollow noreferrer&quot;&gt;&quot;Introduction to Modern Economic Growth&quot; by Acemoglu.&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="18320" LastEditorUserId="5052" LastEditDate="2018-05-19T16:26:38.293" LastActivityDate="2018-05-19T16:26:38.293" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22045" PostTypeId="2" ParentId="22042" CreationDate="2018-05-19T08:33:57.533" Score="5" Body="&lt;p&gt;You may be interested in reading &lt;a href=&quot;https://www.sas.upenn.edu/~apostlew/paper/pdf/GPSS.pdf&quot; rel=&quot;noreferrer&quot;&gt;&quot;Economic Models as Analogies&quot;&lt;/a&gt;, a 2014 article by Itzhak Gilboa, Andrew Postlewaite, Larry Samuelson and David Schmeidler, four well regarded economic theorists. They argue, somewhat contrary to your view of economic theorizing, that economic models are better viewed as &quot;theoretical cases&quot; rather than general rules akin to the laws of physics. Predictions are made by drawing analogies between the world in which the models live and reality. In Section 4 of the paper, they do propose a &quot;model of economic models&quot; that formalizes their argument. Although this model is probably not the one you were looking for, it may help clarify your (mis)perception of the methodology in theoretical economics. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The paper's abstract is as follows: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;People often wonder why economists analyse models whose assumptions are known to be false,&#xA;  while economists feel that they learn a lot from such exercises. We suggest that part of the&#xA;  knowledge generated by academic economists is case-based rather than rule-based. That is, instead&#xA;  of offering general rules or theories that should be contrasted with data, economists often analyse&#xA;  models that are ‘theoretical cases’, which help understand economic problems by drawing&#xA;  analogies between the model and the problem. Thus, economic models, empirical data,&#xA;  experimental results and other sources of knowledge are all on equal footing, that is, they all&#xA;  provide cases to which a given problem can be compared. We offer complexity arguments that&#xA;  explain why case-based reasoning may sometimes be the method of choice and why economists&#xA;  prefer simple cases.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="42" LastActivityDate="2018-05-19T08:33:57.533" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22046" PostTypeId="2" ParentId="22019" CreationDate="2018-05-19T09:08:16.543" Score="0" Body="&lt;p&gt;First verify that $\overline{g}_1 = \theta$ and $\overline{g}_2 = \beta$. We'll now find Subgame perfect equilibrium for all possible values of $(\theta, \beta)$ satisfying $\theta &amp;gt; \beta&amp;gt; 1$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To do so, we first maximize player 2's payoff with respect to his contribution taking as given player 1's contribution:&#xA;\begin{eqnarray*} \max_{g_2 \geq 0} &amp;amp; \ \beta\ln (g_1+g_2)- g_2 \end{eqnarray*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and we get the best response strategy of player 2 as a function of player 1's contribution:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{eqnarray*} g_2 = \max(\beta - g_1, 0) \end{eqnarray*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Next, solve player 1's payoff maximization problem taking as given player 2's strategy&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{eqnarray*} \max_{g_1 \geq 0} &amp;amp; \ \theta\ln (g_1+g_2)- g_1 \\  \text{s.t.} &amp;amp; \ g_2 = \max(\beta - g_1, 0)\end{eqnarray*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and we get&#xA;\begin{eqnarray*} g_1^* = \begin{cases} 0 &amp;amp; \text{if } \theta &amp;lt; e\beta \\ \theta &amp;amp; \text{if } \theta \geq e\beta\end{cases} \end{eqnarray*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consequently, the contribution of player 2 in a subgame perfect outcome is&#xA;\begin{eqnarray*} g_2^* = \begin{cases} \beta &amp;amp; \text{if } \theta &amp;lt; e\beta \\ 0 &amp;amp; \text{if } \theta \geq e\beta\end{cases} \end{eqnarray*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the next one, the cost of player 2 is &#xA;\begin{eqnarray*} c_2(g_2) = \begin{cases} g_2 &amp;amp; \text{if } g_1 \geq \overline{g}_1 = \theta \\ \lambda g_2 &amp;amp; \text{if } g_1 &amp;lt; \overline{g}_1 = \theta\end{cases} \end{eqnarray*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First verify that in this case $\overline{g}_1 = \theta$ and $\overline{g}_2 = \dfrac{\beta}{\lambda}$. We'll now find Subgame perfect equilibrium for all possible values of $(\theta, \beta, \lambda)$ satisfying $1 &amp;lt;\theta \leq  \dfrac{\beta}{\lambda} &amp;lt; \beta$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To do so, we first maximize player 2's payoff with respect to his contribution taking as given player 1's contribution:&#xA;\begin{eqnarray*} \max_{g_2 \geq 0} &amp;amp; \ \beta\ln (g_1+g_2)- c_2(g_2) \end{eqnarray*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and we get the best response strategy of player 2 as a function of player 1's contribution:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{eqnarray*} g_2 = \begin{cases} \dfrac{\beta}{\lambda} - g_1 &amp;amp; \text{if } g_1 &amp;lt; \overline{g}_1 = \theta \\ \max\left({\beta} - g_1, 0\right) &amp;amp; \text{if } g_1 \geq \overline{g}_1 = \theta \end{cases} \end{eqnarray*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Next, solve player 1's payoff maximization problem taking as given player 2's strategy &#xA;\begin{eqnarray*} \max_{g_1 \geq 0} &amp;amp; \ \theta\ln (g_1+g_2)- g_1 \\  \text{s.t.} &amp;amp; \ g_2 = \begin{cases} \dfrac{\beta}{\lambda} - g_1 &amp;amp; \text{if } g_1 &amp;lt; \overline{g}_1 = \theta \\ \max\left({\beta} - g_1, 0\right) &amp;amp; \text{if } g_1 \geq \overline{g}_1 = \theta \end{cases}\end{eqnarray*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and we get&#xA;\begin{eqnarray*} g_1^* = \begin{cases} 0 &amp;amp; \text{if } \lambda &amp;lt; e \\ \theta &amp;amp; \text{if } \lambda \geq e\end{cases} \end{eqnarray*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consequently, the contribution of player 2 in a subgame perfect outcome is&#xA;\begin{eqnarray*} g_2^* = \begin{cases} \dfrac{\beta}{\lambda} &amp;amp; \text{if } \lambda &amp;lt; e \\ \beta - \theta &amp;amp; \text{if } \lambda \geq e\end{cases} \end{eqnarray*}&lt;/p&gt;&#xA;" OwnerUserId="11824" LastEditorUserId="11824" LastEditDate="2018-05-19T09:14:01.197" LastActivityDate="2018-05-19T09:14:01.197" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22047" PostTypeId="1" CreationDate="2018-05-19T10:18:04.073" Score="0" ViewCount="201" Body="&lt;p&gt;Currently studying Intro to Macroeconomics, and faced Expectations augmented PC. In my textbook it is not clear how expected inflation affects unemployment. My view so far, is that expected inflation move the Phillips Curve upwards. For the same rate of Unemployment corresponds greater inflation in the short-run. However, unexpected iflation reduces unemployment in the short-run until labour market and companies absorb the unexpected increase of inflation.&lt;/p&gt;&#xA;" OwnerUserId="16671" LastActivityDate="2018-05-19T14:09:32.330" Title="Expectation augmented Phillips Curve" Tags="&lt;macroeconomics&gt;&lt;inflation&gt;&lt;labor-economics&gt;&lt;monetary-policy&gt;&lt;unemployment&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22048" PostTypeId="1" CreationDate="2018-05-19T11:10:46.267" Score="0" ViewCount="37" Body="&lt;p&gt;I have learned that in a country currency is printed equal to production of goods and services in a year. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I want to know if in a year a country produces rice of 10000 rs. The government will print currency of up to rs 10000. In the next year the country again produce rice of 10000 rs. Will the government again print 10000 rs. more? If yes will it not lead to excess currency in circulation? &lt;/p&gt;&#xA;" OwnerUserId="18344" LastEditorUserId="5052" LastEditDate="2018-06-03T19:05:09.407" LastActivityDate="2018-06-03T19:05:09.407" Title="Does the currency in circulation equal the annual production of goods and services?" Tags="&lt;currency&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22049" PostTypeId="1" CreationDate="2018-05-19T12:16:28.497" Score="2" ViewCount="119" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/0ICPD.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/0ICPD.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Best response functions are obtained by differentiating a profit function and solving for q.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In equilibrium, the firms produce 30. But, there's no inverse demand function, so how would equilibrium price be determined?&lt;/p&gt;&#xA;" OwnerUserId="18346" LastActivityDate="2018-05-20T09:42:09.703" Title="How to work out Price with only the Derivative of Profit Function?" Tags="&lt;supply-and-demand&gt;&lt;profit-maximization&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22050" PostTypeId="2" ParentId="22048" CreationDate="2018-05-19T13:52:22.500" Score="1" Body="&lt;p&gt;The amount of currency in circulation does not equal the annual production of goods and services in a country. It is usually much smaller. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, as of July 2013, currency in circulation—that is, U.S. coins and paper currency in the hands of the public—totaled about $1.2 trillion dollars.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In contrast the U.S. GDP for the same year was about $17 trillion dollars.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can find more information on how Fed prints currency to meet demand from this &lt;a href=&quot;https://www.newyorkfed.org/aboutthefed/fedpoint/fed01.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Fed article&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="5052" LastActivityDate="2018-05-19T13:52:22.500" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22051" PostTypeId="2" ParentId="22047" CreationDate="2018-05-19T14:09:32.330" Score="2" Body="&lt;p&gt;In a New Keynesian framework, expectation-augmented Philips curve is the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \pi_t = \beta \;\mathbb{E}\pi_{t+1} + \alpha x_t$$&#xA;where $\beta$ and $\alpha$ are constant, $\pi_t$ stands for the inflation rate (actually long-linear approximation of it but doesn't matter intuitively) at time $t$, $\mathbb{E}\pi_{t+1}$ is inflation rate at time $t+1$ anticipated at time $t$,  and $x_t$ is the output gap -gap between natural level of output at time $t$ and the actual output at time $t$-. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As the equation above suggests, provided a constant $\pi_t$,  an increase in the exptected inflation at time $t+1$ leads to a decrease in the output gap at time t, in other words, total production at time goes down -so unemployment increases-. In this model to obtain a relation between expectations and the current economic decisions, we make some assumptions on technology and preferences. In particular, we assume that firms set nominal prices based on the expectations of future marginal costs, thus output gap today depends on marginal cost of production at the current period and at the following periods.&lt;/p&gt;&#xA;" OwnerUserId="8397" LastActivityDate="2018-05-19T14:09:32.330" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22052" PostTypeId="2" ParentId="22039" CreationDate="2018-05-19T14:12:41.303" Score="1" Body="&lt;p&gt;There is the &lt;a href=&quot;https://www.investopedia.com/terms/m/market-segmentation-theory.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;market segmentation theory&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The demand on the longer end of the yield curve in theory comes from institutional investors, pension funds, insurance companies, foreign central banks etc. who prefer longer durations.&lt;/p&gt;&#xA;" OwnerUserId="5052" LastActivityDate="2018-05-19T14:12:41.303" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22053" PostTypeId="1" CreationDate="2018-05-19T14:14:41.760" Score="1" ViewCount="54" Body="&lt;p&gt;I have tried using the obvious choice - the Stargazer package in R. But, as far as I know, Stargazer does not support packages like 'vars' (for VAR and VECM models, the Johansen procedure, etc...) and 'urca' (for unit root tests). It's a shame, because linear models are represented very nicely in tables with Stargazer.&#xA;What do you use to simplify the table creation process?&lt;/p&gt;&#xA;" OwnerUserId="15936" LastActivityDate="2018-05-19T14:14:41.760" Title="Is there an easy way to create academic looking tables in LaTeX from R econometric tests and models" Tags="&lt;econometrics&gt;&lt;autoregressive&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22054" PostTypeId="2" ParentId="22028" CreationDate="2018-05-19T14:16:20.610" Score="0" Body="&lt;p&gt;Ripple is not used by financial institutions. Some banks have signed up for a pilot of the blockchain technology offered by the same company, but they are not using nor have any incentive to use the crypto currency. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Blockchain technology could improve the speed and transparency of international bank transfers.&lt;/p&gt;&#xA;" OwnerUserId="5052" LastActivityDate="2018-05-19T14:16:20.610" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="22055" PostTypeId="1" AcceptedAnswerId="22056" CreationDate="2018-05-19T14:26:47.467" Score="0" ViewCount="57" Body="&lt;p&gt;Title says it all - how does hyperinflation affect investment and how does this differ from how creeping inflation might affect investment?&lt;/p&gt;&#xA;" OwnerUserId="18347" LastActivityDate="2018-05-19T14:33:56.843" Title="How does hyperinflation affect investment?" Tags="&lt;inflation&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22056" PostTypeId="2" ParentId="22055" CreationDate="2018-05-19T14:33:56.843" Score="0" Body="&lt;p&gt;Hyperinflation has great negative impact on the entire economy, as it makes it very difficult for households and businesses to plan long term projects and protect their wealth and earning power, reducing the real growth of the economy. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Inflation increases the nominal yield of investment securities and erodes the value of a currency. You can get more information on inflation effects on investment from this &lt;a href=&quot;http://europe.pimco.com/EN/Education/Pages/InflationPrimer.aspx&quot; rel=&quot;nofollow noreferrer&quot;&gt;PIMCO primer&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="5052" LastActivityDate="2018-05-19T14:33:56.843" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22057" PostTypeId="1" CreationDate="2018-05-19T15:30:51.243" Score="0" ViewCount="769" Body="&lt;p&gt;Here is the problem: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose that an oligopolist charges a price of 500 and sells 200 units of output per day. If the oligopolist increases its price about 500, quantity demanded will decline by 4 units for every 1 increase in price. On the other hand, if the oligopolist lowers price below 500, quantity demanded will increase by only 1 unit for every 1 decrease in price. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is what I did: &#xA;point 1: (200, 500)&#xA;point 2: (196, 501)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then find slope using m=(y2-y1)/(x2-x1) and then use point-slope form for the line. I think I am interpreting the demand increase/decrease incorrectly, but am not sure?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks!&lt;/p&gt;&#xA;" OwnerUserId="18349" LastActivityDate="2018-05-20T04:18:56.337" Title="Finding the demand function" Tags="&lt;microeconomics&gt;&lt;supply-and-demand&gt;&lt;oligopoly&gt;" AnswerCount="1" CommentCount="2" ClosedDate="2018-09-11T14:39:56.350" ContentLicense="CC BY-SA 4.0" />
  <row Id="22059" PostTypeId="2" ParentId="13483" CreationDate="2018-05-19T16:52:17.687" Score="-1" Body="&lt;p&gt;If we assume that the demand increases will the price increases so it neglects the law because the law of demand of microeconomics is that &quot;other things remaining same,when price of commodity increases the  quantity demand decreases and vice versa&quot;.&#xA;Therefore, the price is not depend upon the demand and price can also not predict through demand, demand is depend upon price and also demand can be predict through price..&lt;/p&gt;&#xA;" OwnerUserId="18352" LastEditorUserId="18352" LastEditDate="2018-05-20T03:54:40.807" LastActivityDate="2018-05-20T03:54:40.807" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22060" PostTypeId="2" ParentId="22048" CreationDate="2018-05-19T19:14:06.230" Score="0" Body="&lt;p&gt;The objective of printing money is to respond to inflation, not to keep up with changes in GDP. If the inflation rate is high and the stock of money in the economy remains constant, the &lt;em&gt;real&lt;/em&gt; amount of money will decrease as the value of money will decrease. (&quot;Real&quot; has a specific definition in economics that you should try to learn. It refers to the inherent value a good has, regardless of the nominal number of rupees that someone says the good is worth.) In studying economics, you will become aware that real fluctuations often matter much more than nominal fluctuations of economic variables. By that I mean that the inherent value of goods and services (what is actually produced) matters more than numbers that try to describe their value. Unfortunately, because of inflation, the numbers that we come up with about something like the stock of money do not give as much useful information compared to the real stock of money. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, we are concerned about the real stock of money, and inflation erodes that, which is why more money must be printed in order for the real stock of money to be kept constant.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have a personal aversion towards talking freely about &quot;printing&quot; money, because I think it obfuscates the much more nuanced and complicated process of money supply than simply asking a machine to print some notes. &quot;Printing&quot; money actually refers to money supply. The main component of that process is that the central bank buys bonds and other securities, thereby increasing the amount of liquidity in the financial market, and driving down interest rates. As interest rates go down, consumers and businesses have less incentive to save, so their consumption and expenditure will increase, along with an increase in demand for more liquid forms of money, one of which is physical currency.&lt;/p&gt;&#xA;" OwnerUserId="175" LastActivityDate="2018-05-19T19:14:06.230" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="22061" PostTypeId="2" ParentId="22049" CreationDate="2018-05-19T19:37:50.000" Score="2" Body="&lt;p&gt;This question seems to be unanswerable. Even assuming a linear inverse demand function $p(Q) = a - bQ$ and a linear cost function $C_i(Q_i) = cQ_i$ the best response function will take the form&#xA;$$&#xA;q_i = \frac{a-c}{2b} - \frac{1}{2}q_j.&#xA;$$&#xA;From the information given, you cannot know if say $c=10$ and $a=55$ or $c = 0$ and $a = 45$, so it is impossible to infer the inverse demand function and the price. (And this is assuming linear functions everywhere.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, notice that the exact market structure (Cournot or Stackelberg) is only given in question c). Yet this would also affect market price. Hence, the question is unfortunately &lt;strong&gt;just of bad quality&lt;/strong&gt; and cannot be answered.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2018-05-20T09:42:09.703" LastActivityDate="2018-05-20T09:42:09.703" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22062" PostTypeId="2" ParentId="22023" CreationDate="2018-05-19T20:34:34.137" Score="0" Body="&lt;p&gt;&lt;code&gt;Dlmr&lt;/code&gt;, the best way for me to respond is to explain how prices are relative to incomes (as well as them being dependent on the state of technology in a country). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is an alternative answer in that it would be practically difficult to have a universal monetary policy. The reason why different currencies exist is because it is politically difficult to co-ordinate monetary policy across several countries, let alone the entire world. Because different countries have separate monetary systems, with different currencies, there end up being differences in how valuable each currency is. The value of a currency derives from how many goods and services that country trades with other countries (as &lt;code&gt;Herr K.&lt;/code&gt; says, &quot;poor countries ... cannot produce enough valuable goods and services&quot;). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In everyday life, people are generally not affected by prices in other countries. If a Coke costs double in an overseas country, so what? You don't go there often, so it shouldn't concern you. However, as with your holiday, people sometimes venture to a different country, and the exchange rate does make them think and wonder about why things cost less or more. The key here is that you only consider things to cost less or more because of your salary. The salary you earn is in a different currency, in a different country. Because it's in a different currency, the exchange rate affects what you can do with that money in a different country. But because you work in a different country, your employer will pay you what you need in order for you to live in your home country! (Employers don't generally think about it this way, but this underlies the level at which wages are set. Your employer will more likely observe the prevailing level of the wage for your type of job in the labour market and not deviate too far from that level.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, I struggle (because of what I've learnt in economics) to understand what a more &quot;expensive&quot; life is. A life being more &quot;expensive&quot; sounds as if the person is poor and cannot afford to have as much. It depends on what job they have. If they have a job that actually pays what you would think is a &quot;lot&quot; of money, but that enables them to pay for &quot;expensive&quot; things, that would in my opinion be normal for somebody living in that country. It just means that prices are higher, but it also means that wages are higher. Perhaps what is confusing you is that their money can buy more in a poorer country (in that case I refer you to my argument above that employers simply pay wages that are needed in order for their employees to live &lt;em&gt;in their own country&lt;/em&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I believe that people living in a poor country generally can afford plane tickets, houses, food, etc. It's just that the strength of the currency they use is low when traded with other currencies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, after talking about how prices are relative to incomes, I want to go back to the important proviso in the brackets in my first sentence. &lt;strong&gt;Technology&lt;/strong&gt; &lt;em&gt;can&lt;/em&gt; certainly account for differences in living standards across countries. For example, cell phones, laptops, cars, production processes, infrastructure, human expertise and business management are technologies that can be more difficult to implement in a undeveloped country, or they can be technologies that are still in elementary forms in those countries. This is a game changer, because technology has a big impact on livelihoods, and the ability of people to access the same quality of life as those in richer countries. This is maybe why you think lives can be more &quot;expensive&quot; - because the same level of technology take a comparatively larger proportion of those people's incomes.&lt;/p&gt;&#xA;" OwnerUserId="175" LastActivityDate="2018-05-19T20:34:34.137" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22063" PostTypeId="2" ParentId="22016" CreationDate="2018-05-19T21:05:11.923" Score="1" Body="&lt;p&gt;For question 1, I think that investment has a demand-side effect on the economy. I think it isn't a supply-side effect because it isn't stated that the investors are responding to a supply-side shock. So I'm saying that AD shifts right. With shifts in the curves, there &lt;strong&gt;will&lt;/strong&gt; be a change in equilibrium. For example, the process you described of both curves shifting right will lead to higher output (even though the price level might not change).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That being said, the &quot;foreign&quot; part of the question does make things a little less obvious. Why would the question want to emphasise the foreign part of this investment? An improvement in technology in one firm will eventually trickle to other firms (vertically or horizontally). Technological improvement shifts the supply curve rightwards, but because this is a long-term effect, I did not say in the first paragraph that there is a shift of the supply curve. Also, if a foreign country sends its profit to its home country, there is effectively a small decrease in the demand curve, but on the whole that would be small enough that it would not offset the increase in demand that the investment brings.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The second question is obviously trying to highlight a decrease in supply, as you have said. The quantity of labour decreases; production decreases.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But... to throw a spanner in the works... this does sort of imply that the workers are consumers. If consumers leave the country, consumption decreases, which decreases aggregate demand (as you have said). One needs to know why the people needed to leave. That being said, with the word &quot;workers&quot; I think the question wanted to highlight the supply side effect.&lt;/p&gt;&#xA;" OwnerUserId="175" LastActivityDate="2018-05-19T21:05:11.923" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22064" PostTypeId="1" AcceptedAnswerId="22074" CreationDate="2018-05-19T23:41:01.260" Score="1" ViewCount="63" Body="&lt;p&gt;I have an amateur interest in economics so forgive me if I display my ignorance. From my understanding, both in the Keynesian and monetarist theory of recessions, the recession occurs because aggregate demand decreases and wages are sticky/rigid. Measures like quantitative easing or government stimulus spending try to raise the level of aggregate spending relative to these &quot;sticky&quot; wages. However, what is to prevent a government taking a much more direct method and just mandating a wage cut throughout the whole economy? Wouldn't this be far more effective and far less prone to abuse than fiscal or monetary stimulus?&lt;/p&gt;&#xA;" OwnerUserId="18354" LastActivityDate="2018-05-20T12:29:39.363" Title="Why don't governments mandate a wage decrease in recessions?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22067" PostTypeId="2" ParentId="22057" CreationDate="2018-05-20T04:14:00.250" Score="2" Body="&lt;p&gt;I don't have a question to &quot;correctly interpret&quot; , but I think the way you are calculating the demand function is correct. The demand curve in an oligopoly can be kinked (bowed out), as this one is. I think it is mathematically accurate to write the function split across the domains, as such:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$Q = \begin{cases} &#xA;700 - P, &amp;amp; 0  \leq P\leq 500 \\&#xA;2200 - 4P, &amp;amp; 500&amp;lt; P&amp;lt; 550&#xA;\end{cases}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where I have written quantity as a function of price, and assumed that the quantity is strictly positive. &lt;/p&gt;&#xA;" OwnerUserId="175" LastEditorUserId="18320" LastEditDate="2018-05-20T04:18:56.337" LastActivityDate="2018-05-20T04:18:56.337" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="22068" PostTypeId="1" CreationDate="2018-05-20T07:24:52.467" Score="2" ViewCount="211" Body="&lt;p&gt;The situation:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is a second price auction with 2 players. Consider a second-price auction with 2 players.  Their valuations of the object at auction&#xA;are and are independently and identically distributed with pdf $f$ and cdf $F$.&#xA;over $[0,\hat v]$. Assume $f$ is continuous and positive over $[0,\hat v]$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now here comes the question: a reservation bid $r$ is now implemented - the winner pays the second of the highest bids including the reservation price, or if both bid lower no-one wins. I want to find the pdf that both bids are above $r$ and above some $x$, and add this to an equation calculating expected revenue for the auctioneer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have already found the pdf for both bids being above some value of $x$: $2f(x)(1-F(x))$. The pdf for both being above $r$ is $(1-F(r))^2$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've had a look at an answer for the problem, and it suggests that the combined pdf is $\frac{2f(x)(1-F(x))}{(1-F(r))^2}$. Could someone explain to me how this is so?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, when calculating expected revenue for the auctioneer, we have for the case where both bids are above $r$: $(1-F(r))^2\int_r^\hat v{\frac{2f(x)(1-F(x))}{(1-F(r))^2}}dx$. I'm also quite confused why we multiply by $(1-F(r))^2$.&lt;/p&gt;&#xA;" OwnerUserId="10993" LastActivityDate="2018-05-20T15:30:53.913" Title="Second Price Auction - adjusting PDF for reservation price" Tags="&lt;auctions&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22070" PostTypeId="1" CreationDate="2018-05-20T07:55:52.630" Score="3" ViewCount="878" Body="&lt;p&gt;President Trump has accused Germany and China of unfair trading practices over trade deficits. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is unfair about trade deficits?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This may be economics 101, but in my naive eyes every time a trade is done it is done deliberately because both sides believe there is a profit to be made. Hence, each time American companies give money to Chinese companies in exchange for goods and thus enhance the trade deficit,  this would presumably be to the advantage of both the USA and China. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You don't see Apple accusing Samsung of unfair trading practices because Apple bought Samsung screens but Samsung didn't buy Apple batteries in return. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that I am not asking why trade deficits are considered bad. Though I don't understand that either, my question how deliberate trade can be considered unfair stands even if trade deficits are bad as a whole for one country.&lt;/p&gt;&#xA;" OwnerUserId="18359" LastEditorUserId="18359" LastEditDate="2018-05-20T10:53:07.403" LastActivityDate="2019-05-14T10:17:00.200" Title="Why are trade deficits considered unfair?" Tags="&lt;international-trade&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="22071" PostTypeId="2" ParentId="22070" CreationDate="2018-05-20T08:45:02.687" Score="5" Body="&lt;p&gt;You are correct.  Trade deficits are not unfair, although it is hard to define unfair in an economic sense. No one is forced to trade and trade represents a consensual agreement. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The strongest economic argument for considering trade deficits unfair is so-called dumping, which is a form of unfair competition. That is when firms sell goods abroad at below a normal price in order to drive out the local competition in the long run. As the foreign businesses would make losses doing so, it only works if the foreign governments subsidize those firms. That is why subsidies leading to unfair competition are banned according to the World Trade Organization rules. In the case of the steel tariffs imposed by the U.S., dumping by China was used as an argument, although there was no evidence of China conducting steel dumping and China isn't even one of the main exporters of steel to the U.S.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another reason is that a trade deficit means that foreign firms are doing better than domestic ones, thereby threatening the jobs of domestic workers. However, for this to happen  consumers must be voluntarily buying those foreign products. If foreign firms offer a much better and/or cheaper product, then a trade deficit is great for consumers, but bad for domestic workers who produce those goods. In this case, trade still represents an overall net increase in welfare, but there are winners and losers. If the winners (consumers) would compensate the workers who lost their jobs, everything would be fine. If they do not it could be considered unfair, although it is not the foreign country being unfair in this case. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;From my experience, there may also be illogical reasons that people consider trade unfair, which I discuss below.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When a country runs a trade deficit that means that it is consuming more than it produces. The country consumes at least as much as it produced and then a bit from what other countries produced too. When that happens, a country is essentially borrowing money from the rest of the world, because consuming more than you have is like spending more money than you have. That is what people mean when they say the U.S. owes a lot of money to China. In this sense many people who take out a loan with a bank to buy something think it is unfair that they have to pay it back. That could be one way in which deficits are considered unfair.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another way in which deficits are considered unfair is by comparing a country to a business, which is wrong and leads to wrong policy. A business wants to maximize profits, so it would like to sell more goods than it buys. The business fails otherwise. In this sense, a business seeing other business succeeding where it fails might think it is being treated unfairly. As discussed, however, a trade surplus just means that you are lending money to the rest of the world. That may be good for some time, but only if you eventually get it back, i.e. eventually run a deficit. So for a business, perpetually making profits is a good thing. For a country, a perpetual surplus forever is not welfare enhancing. &lt;/p&gt;&#xA;" OwnerUserId="5557" LastEditorUserId="5557" LastEditDate="2019-05-14T10:17:00.200" LastActivityDate="2019-05-14T10:17:00.200" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="22072" PostTypeId="2" ParentId="22068" CreationDate="2018-05-20T10:04:48.830" Score="3" Body="&lt;p&gt;To find expected revenue of the seller in a second price auction with reserved price consisting of two bidders who bid their valuations in equilibrium, we do the following :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given that valuations are i.i.d with pdf $f$ and CDF $F$ over $[0, \hat{v}]$, the revenue that the seller gets for different realizations of players' valuations are as indicated in the graph below:&#xA;&lt;a href=&quot;https://i.stack.imgur.com/SwvIY.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/SwvIY.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, expected revenue of the seller is :&#xA;\begin{eqnarray*}  &amp;amp;&amp;amp;\int_r^\hat{v}\int_r^{v_2} v_1 f(v_1)f(v_2)dv_1dv_2 + \int_r^\hat{v}\int_{v_2}^\hat{v} v_2 f(v_1)f(v_2)dv_1dv_2  \\ &amp;amp;&amp;amp;+\int_0^r\int_r^\hat{v} r f(v_1)f(v_2)dv_1dv_2  + \int_r^\hat{v}\int_0^r r f(v_1)f(v_2)dv_1dv_2 \\ &amp;amp;=&amp;amp;  \int_r^\hat{v}v_1 (1-F(v_1))f(v_1)dv_1 + \int_r^\hat{v} v_2 (1-F(v_2))f(v_2)dv_2 + 2rF(r)(1-F(r)) \\ &amp;amp;=&amp;amp; 2\int_r^\hat{v} v_2 (1-F(v_2))f(v_2)dv_2 + 2rF(r)(1-F(r))\end{eqnarray*}&lt;/p&gt;&#xA;" OwnerUserId="11824" LastEditorUserId="11824" LastEditDate="2018-05-20T14:02:31.297" LastActivityDate="2018-05-20T14:02:31.297" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22073" PostTypeId="2" ParentId="22023" CreationDate="2018-05-20T12:05:41.957" Score="1" Body="&lt;p&gt;This is a pretty big question, and there are a lot of debates about it. I will attempt to give a partial answer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first issue: how are exchange rates determined? There’s a lot of theories in economics, but from the standpoint of a financial market practitioner, it’s not clear how useful they are. If we have a freely-floating currency (no peg to something else), all we know for sure is that the volume of sellers has to equal buyers. The key point is that international transactions are generally not to buy coffee in a local cafe, rather to trade goods and services, or buy financial assets. The price of a currency is driven by the relative attractiveness of a country’s exports and its financial assets.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Take Canada/US. Huge cross-border trade, similar economic structures and standard of living, and some people even go across the border to shop. Even so, the exchange rate can be relatively volatile, sometimes moving by 50% over a few years. The standard of living in common currency terms changes a lot, which tells us that currencies do not act in a way to balance out standards of living.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Currency pegs are put in place by a central bank buying or selling its currency to hold the exchange rate constant. It has to cancel out imblances in transaction flows. It has no problem selling its currency, but buying is a problem. It needs gold or foreign currency to buy its currency; when it runs out, the peg breaks. (This is a high level summary of how the Gold Standard failed.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The way to stop this is have a common currency (like the euro). The issue is that currencies are not lumps of gold, they are liabilities of some issuer. In Canada, Canadian dollars are a liability of a branch of the Canadian Federal Government, similarly for the United States. If you issue the currency, you control its supply, and interest rate. If you use the money issued by another entity, you lose control of your money supply and interest rates.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Most developed countries want to keep that control. The euro area countries granted that comtrol to the European Central Bank. One result of that loss of control was that Greece was driven into a depression, and could do nothing about it. &lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2018-05-20T12:05:41.957" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22074" PostTypeId="2" ParentId="22064" CreationDate="2018-05-20T12:29:39.363" Score="0" Body="&lt;p&gt;I will only attempt to give a partial answer, since the full answer is very large. You could possibly create new questions that are narrower to follow up. (My feeling is that this website works best on narrower questions.)&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;One possibility is that New Keynesian theory is just plain wrong. As a disclaimer, that is my view. However, that is a controversial view.&lt;/li&gt;&#xA;&lt;li&gt;The next issue are practical problems that standard New Keynesian models ignore.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;I am not going to discuss (1) in great length. I think the standard critique of sticky prices (which goes back to Keynes) is that you are cutting nominal demand at the same time. The economy will not return to full employment, partly for reasons I cover in (2).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problems with trying to cut wages and prices are as follows.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Legal. Does the government have the authority to do so?&lt;/li&gt;&#xA;&lt;li&gt;Practical. How do we know whether a firm has complied, without having a ministry in charge of price administration? It’s not as if workers will voluntarily run to the government to say that their wages were not cut. We cannot put in place such a ministry during a recession, which typically lasts months.&lt;/li&gt;&#xA;&lt;li&gt;Ignores the effect of debt. Most people and firms have mortgages and other fixed obligations. Broad-based income cuts would result in a mass default event, which will cause a recession to turn into a full-fledged financial crisis. &lt;/li&gt;&#xA;&lt;li&gt;The government has just seized control of price setting (which was historically done in the 1970s to control inflation). How does it set prices in order to achieve its objective? How does the government exit? &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2018-05-20T12:29:39.363" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22076" PostTypeId="2" ParentId="22068" CreationDate="2018-05-20T15:30:53.913" Score="2" Body="&lt;p&gt;I think that the first part of your question must ask for a conditional probability. In other words, for $v_1$ and $v_2$ representing valuations of player 1 and player 2, we should have been asked for the derivation (namely, the density) of the following probability:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Pr( v_1&amp;gt;x \land v_2&amp;gt;x \;|\; r&amp;lt;v_1 \land r&amp;lt;v_2) $$&#xA;Thus it is equal to:&#xA;$$\frac{d\left( \frac{(1-F(x))^2}{(1-F(r))^2} \right)}{dx} = \frac{2f(x)(1-F(x))}{(1-F(r))^2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From your words, however, it is deduced that what it asks for is the derivation (so the density) of the following probability:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Pr(v_1&amp;gt;max(r,x) \;\land\; v_2&amp;gt;max(x,r))$$ &#xA;But, assuming wlog x&gt;r, this is just equal to $\frac{d\left( (1-F(x))^2 \right)}{dx} = 2f(x)(1-F(x))$, so there is no place for $r$ since if $v_1$ and $v_2$ are grater than $x$, and $x$ is greater than $r$, then $v_i$&gt;$x$ implies $v_i$&gt;$r$ for $i=1,2$. So no need to bother with $r$ in this case. But I don't think that your question asks for this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the last part of your question, I'm again suspicious whether there is no requirement for $v_1$ and $v_2$ to be higher than $x$. If the only constraint for them is to be higher than the reserve price $r$, then  Amit above has given a very well answer except that $v_1$ or $v_2$ can't get any value less than $r$ in equilibrium, so in his calculations the integrals $\int_0^r\int_r^\hat{v} r f(v_1)f(v_2)dv_1dv_2$  and $ \int_r^\hat{v}\int_0^r r f(v_1)f(v_2)dv_1dv_2 $ are useless. When we remove these two integrals, we get the answer $2\int_r^\hat{v} v_2 (1-F(v_2))f(v_2)dv_2 $ (you can replace variable $v_2$ by $x$ here to get an identical result with your answer). &lt;/p&gt;&#xA;" OwnerUserId="8397" LastActivityDate="2018-05-20T15:30:53.913" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22077" PostTypeId="1" AcceptedAnswerId="22080" CreationDate="2018-05-20T15:48:51.150" Score="-1" ViewCount="46" Body="&lt;p&gt;If Q1=(P2)⅔&#xA;1. Determine the demand for good 1, when the price of good 2 is 8&#xA;2. Find the cross elasticity of demand for good 1, with respect to P2, when P2=2&lt;/p&gt;&#xA;" OwnerUserId="18363" LastActivityDate="2018-05-20T17:06:39.470" Title="Cross elasticity of demand" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ClosedDate="2018-05-23T10:59:37.697" ContentLicense="CC BY-SA 4.0" />
  <row Id="22078" PostTypeId="2" ParentId="6571" CreationDate="2018-05-20T16:19:08.673" Score="0" Body="&lt;p&gt;Given that $b_i$s are independently and identically distributed on $[0,1]$ with CDF $F$ and PDF $f$, and $b^{[2]}$ denotes the second highest bid, we want to find $\mathbb{E}(b^{[2]}|b^{[2]}\leq \beta)$. To do so, we'll first find the distribution of $b^{[2]}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Pr(b^{[2]}\leq x) = N[1-F(x)][F(x)]^{N-1} + [F(x)]^{N}= N[F(x)]^{N-1} - (N-1)[F(x)]^{N}$$&#xA;where $N$ denotes the number of bidders.&#xA;So the density of $b^{[2]}$ is&#xA;$$N(N-1)\left(1 - F(x)\right)[F(x)]^{N-2}f(x)$$ Consequently, the conditional density of $b^{[2]}$ at $x\in [0, \beta]$ given that $b^{[2]}\leq \beta$ is&#xA;$$\dfrac{N(N-1)\left(1 - F(x)\right)[F(x)]^{N-2}f(x)}{\Pr(b^{[2]}\leq \beta)} $$&#xA;Therefore,&#xA;$$\mathbb{E}(b^{[2]}|b^{[2]}\leq \beta) = \displaystyle\frac{1}{\Pr(b^{[2]}\leq \beta)}\int_0^\beta xN(N-1)\left(1 - F(x)\right)[F(x)]^{N-2}f(x)dx$$&lt;/p&gt;&#xA;" OwnerUserId="11824" LastActivityDate="2018-05-20T16:19:08.673" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22079" PostTypeId="2" ParentId="22070" CreationDate="2018-05-20T16:52:36.940" Score="-1" Body="&lt;p&gt;You have to understand, there are 4 parties to [most] international trades:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(1) the seller&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(2) the seller's government&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(3) the buyer&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(4) the buyer's government&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Obviously, when (1) and (3) agree to a sale, they both are interested in completing the deal, and they both [sort of] believe the deal is fair.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But when someone buys something from a U.S. company and wants to pay in euros,&#xA;the &lt;em&gt;seller&lt;/em&gt; will want to convert those euros into dollars.  Now the governments have to get involved -- by converting euros into dollars, the euro is cheapened and the dollar is strengthened.  Keep this up long enough and the country that imports more than it exports gets into trouble.  They cannot make these conversions fast enough without their currency getting devalued.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Edit -- buyer changed to &lt;em&gt;seller&lt;/em&gt; above.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There's a lot more to it but that will do for a start.&lt;/p&gt;&#xA;" OwnerUserId="18364" LastEditorUserId="18364" LastEditDate="2018-05-21T09:27:50.327" LastActivityDate="2018-05-21T09:27:50.327" CommentCount="9" ContentLicense="CC BY-SA 4.0" />
  <row Id="22080" PostTypeId="2" ParentId="22077" CreationDate="2018-05-20T17:06:39.470" Score="1" Body="&lt;ol&gt;&#xA;&lt;li&gt;$P_2 = 8$, so $Q_1= 8^{2/3}=4$ &lt;/li&gt;&#xA;&lt;li&gt;To find the cross price elasticity, differentiate demand for good 1 with respect to $P_2$: $\frac{dQ_1}{dP_2}=\frac{2}{3}P_2^{-1/3}$&#xA;When $P_2=2$, cross price elasticity is $\frac{2}{3}(2)^{-1/3}$&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Hope you did post a question here after really thinking it through.&lt;/p&gt;&#xA;" OwnerUserId="18321" LastActivityDate="2018-05-20T17:06:39.470" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22081" PostTypeId="2" ParentId="22020" CreationDate="2018-05-20T20:19:42.020" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Zero transaction cost:&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It is correct that the resulting herd will be $\$7,500$, but the transfer from Smith to Jones is not necessarily $\$3,000.$  For instance, the negotiation may result in the transfer amount of $\$4,000$, in which case Smith will be indifferent between producing the ``full-size'' herd and cutting it down by half as $\$7.500 - \$4,000 = \$3,500$. The resulting transfer depends on the negotiation powers of the parties and can be anything between $\$3,000$ and $\$4,000$. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;High transaction cost:&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Notice that your decision as a judge should depend on the value of the transaction cost.  Suppose the transaction cost is $\$4,000$, then what would be your decision? Can (or should) you make Smith indifferent in this case? Hope this will help you with the solution.&lt;/p&gt;&#xA;" OwnerUserId="18338" LastActivityDate="2018-05-20T20:19:42.020" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22082" PostTypeId="2" ParentId="22039" CreationDate="2018-05-20T20:34:55.140" Score="0" Body="&lt;p&gt;There is convexity, where holding longer bonds is inherently more valuable in the context of volatility.&lt;/p&gt;&#xA;" OwnerUserId="17969" LastActivityDate="2018-05-20T20:34:55.140" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22083" PostTypeId="2" ParentId="5869" CreationDate="2018-05-21T05:40:10.567" Score="0" Body="&lt;p&gt;Given that the question was given as a multiple choice question, I'd use the process of elimination to eliminate answers, leaving you with the best answer of the answers provided. So to Deer Hunter's point there may be better answers, but for the sake of the test, we can ignore them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Answer A &quot;Rising income inequality&quot; doesn't make sense as a potential answer, because an increase in income inequality doesn't decrease the amount of money available to be saved in aggregate. Sure if you look at someone who is on the unfortunate end of the increase in income inequality they would have less money, and thus less money to save. But at the same time what about the rich, they have more money in this new more unequal distribution of income, just as the poor were less likely to save because they have less money aren't the rich more likely to save because they have more money. You agree with that last sentence or not, the thing to take away is that changes in inequality are changes in the distribution of the income but not necessarily changes in the amount available in aggregate. Since you are being asked about an aggregate number inequality on it's own isn't a great explanation. Plus, this doesn't really tie in any economic theory you would have learned in your A-levels. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Answer C &quot;Rising Medical Expenses&quot; you may think makes some sense because if people have to spend more money on Medical expenses that money has to come from somewhere. While that is true, does it have to come from savings? Couldn't this come from consumption? Couldn't people cut back on spending on other things to cover this increase spending on medical expenses. Again this on it's own doesn't explain why savings would decrease. Another red flag is, how big an effect would a increase in medical expenses have. How many people are sick and would be expected to be paying these increased medical expenses? Would this effect everyone and thus the aggregate numbers or just a subset of people. How much would these medical expense increases need to be and how many people would have to be paying them to make a noticeable impact on aggregate savings? So this answer is better than A, but still not great&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Answer B &quot;Increased availability of consumer goods&quot;, Hmmm... what does that mean. Well there is an increase in the availability of some goods. What's another word for availability... Supply. Oh it's a increase of supply! That sounds like Economic theory! what would that do, well supply increases which shifts it to the right which means the equilibrium point moves along the demand curve, which means the price should fall, and the quantity of consumer goods consumed should increase. And this means that the total amount spend on consumer goods: Price * quantityDemand will... We don't know. It depends on slope of the demand curve, which will depend on the elasticity of demand for the consumer goods. But what do we know... we know that consumers should be buying more consumer goods, the price for those consumer goods should be falling, but we don't know if the total amount people are spending on consumer goods is increasing or decreasing. Hmmm... but what does any of this have to do with savings. How are savings and consumption related... Hmmm... probably something to do with Marginal something, because well it's your A-levels and economics everything has to do with the Marginal-something-a-rather. Oh yeah Marginal-propensity-to-consume which is equal to 1 - Marginal-propensity-to-save. That's the thing where any given dollar can either be spend or consumed, those are the only options, because that is how we defined saving as not spending. So your Marginal-propensity-to-consume is the probability you are going to spend your next dollar on consumption. Marginal-propensity-to-save is the probability you are going to save your next dollar. Well if we know people are buying more consumer goods, and the price of those consumer goods is falling, the probability that there going to spend there next dollar is likely higher, and the probability they are going to save there next dollar is likely lower. Thus people are less likely to save and it makes sense that savings should decrease. BOOM THIS IS THE ANSWER!!!! &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So I'm confident B was the answer they were looking for. I hope that helped, and that that longwinded explanation was entertaining, and didn't seem sarcastic. I genuinely think I'm hilarious. So that makes one of us :P . &lt;/p&gt;&#xA;" OwnerUserId="18361" LastActivityDate="2018-05-21T05:40:10.567" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22084" PostTypeId="1" CreationDate="2018-05-21T06:06:23.333" Score="0" ViewCount="142" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Suppose that, in addition to physical capital and labour, an economy requires a fixed factor and a non-renewable resource to produce the final good. Prove that an economy with these input requirements may still be able to sustain growth in the long run.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;What I think is that &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Using the concept of resource intensity, we can examine how economic growth, population growth, and the growth of non-renewable resource use are related. Define y as GDP per capita, L as the size of the population, I as resource intensity, and R as resource consumption. The definition of resource intensity is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$I=R/yL$$&#xA;$$R=IyL$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now we can rewrite this equation in terms of growth rates &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\hat{R} = \hat {I}+ \hat {y} + \hat {L}$$ .&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This equation says, for example, that if output per capita is growing at 1% per year, population is growing at 1% per year, and resource intensity is constant, then total resource use will grow at 2% per year.&#xA;The equation can also be turned around and used to illustrate how resource limitations affect economic growth. For example, assume that the quantity of a nonrenewable resource available for use is constant, as in the case of a renewable resource that is al- ready being exploited at the maximum sustainable yield. This assumption implies that Rn = 0. The previous equation can then be rewritten as:&#xA;$$ \hat {y} =-\hat {I}— \hat {L}$$ .&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this form, the equation says that for output per capita to have a positive growth rate, resource intensity must be falling faster than population is growing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For other nonrenewable resources, the ratio of the ultimately recoverable quantity of the resource to current use is higher, but the same result holds: Eventually, if use continues as its current rate, the re- source will run out. Indeed, a moment’s thought makes it obvious that no rate of depletion of a nonrenewable resource is sustainable indefinitely. In the case of renewable resources, it is possible to sustain use indefinitely, but only at a limited level. If GDP is growing and resource use is already at the maximum sustainable yield, then resource intensity (the quantity of resource used per unit of output) must fall over time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These considerations would seem to suggest that our current level of resource consumption may indeed not be sustainable. The question is: Does that mean that our level of income is not sustainable?&#xA;The answer to this question is a definitive no, for two reasons. First, even though the resources that we use now exist in fixed supply, there are frequently possibilities for substituting different resources. Second, although resource deple- tion is a drag on growth, other factors, most notably technological progress, may be sufficient to overcome this drag and allow income to keep rising. We address these issues in turn. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think so. What do you think about this question? And what is fixed factor? I cannot include it.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you &lt;/p&gt;&#xA;" OwnerUserId="18231" LastEditorUserId="18231" LastEditDate="2018-05-21T06:14:11.357" LastActivityDate="2018-05-23T08:01:00.847" Title="Sustainable growth in the long run" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;economic-growth&gt;&lt;solow&gt;" AnswerCount="1" CommentCount="6" FavoriteCount="1" ClosedDate="2018-05-23T10:56:39.383" ContentLicense="CC BY-SA 4.0" />
  <row Id="22085" PostTypeId="2" ParentId="6986" CreationDate="2018-05-21T10:14:37.163" Score="1" Body="&lt;p&gt;Maybe this is too late to Answer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But to get the answer of your query you need to consider two aspects-&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, you need to consider inflation as an indicator in the economic barometer and it is directly reflects the growth of economy, but too much inflation can cause stagflation and too low inflation can cause deflation. So too much incline of this indicator in any direction tends to crash of the economy. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Second, currency is get traded in the world market. And for currency demand and supply are considered in terms of currency trade happens between two countries. For carry-trade country holds currency of other countries having the higher interest rate. Let's consider Country A having interest rate 1.2 holds currency of another country B having an interest rate of 1.5 for 3 months. Then country A gets paid by the country B based on its interest rate. This is called investment in currency. Since the higher interest rate increases demand of the country B currency it increases the value of its currency.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now the value of the currency in the world market is bad or good depending upon what are policies country willing to imposed on import and export. Since if the country is targetting more export then the lower currency value is considered as good for the economy and if the country is targetting more import then higher currency value is considered as good for the economy, read more on balance of trade. &lt;/p&gt;&#xA;" OwnerUserId="18370" LastEditorUserId="18370" LastEditDate="2018-05-21T17:43:27.453" LastActivityDate="2018-05-21T17:43:27.453" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22087" PostTypeId="1" CreationDate="2018-05-21T15:28:03.020" Score="2" ViewCount="214" Body="&lt;p&gt;I am trying to self-study macroeconomics. I just read parts of &quot;Advanced Macroeconomics&quot; by Romer, and found it a good, intuitive introduction to more advanced models (I have also read a more basic book on ISLM/Solow models and such). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now I am being told the next step is Recursive Macroeconomic Theory. What are the contents of this book, i.e. what useful topics and methods does one learn that are not present in the Romer book? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, I am considering reading either RMT, or maybe something on Business cycles and the short run, which I haven't really read much of, the focus so far in the books has mainly been long-run economic growth... What is recommended to read first?&lt;/p&gt;&#xA;" OwnerUserId="18372" LastActivityDate="2018-05-22T19:00:59.703" Title="What are the contents of &quot;Recursive Macroeconomic Theory&quot;" Tags="&lt;macroeconomics&gt;&lt;reference-request&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="22088" PostTypeId="2" ParentId="22087" CreationDate="2018-05-21T17:12:01.693" Score="4" Body="&lt;p&gt;I guess you mean some edition of &lt;a href=&quot;https://mitpress.mit.edu/books/recursive-macroeconomic-theory-third-edition&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;strong&gt;Ljungqvist, L., &amp;amp; Sargent, T. J. Recursive macroeconomic theory. MIT press.&lt;/strong&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is a very valuable book, but not for acquiring a concrete theoretical knowledge. Copying from its marketing-speak, &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;Only experience in solving practical problems fully conveys the power&#xA;  of the recursive approach, and the book provides many applications.&lt;/em&gt;    &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Now really, it provides &lt;em&gt;only&lt;/em&gt; applications. I do not mean empirical-econometric applications, but presentation of dozens of theoretical models from very different sub-fields and their workings under the Recursive Approach. Mind you, the models themselves are summarily presented, with the implicit understanding that the reader already is familiar with, or will go and study the original papers first. Moreover, a lot of theoretical/mathematical underlying knowledge is taken for granted.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2018-05-22T19:00:59.703" LastActivityDate="2018-05-22T19:00:59.703" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22089" PostTypeId="1" AcceptedAnswerId="22207" CreationDate="2018-05-21T22:35:22.283" Score="1" ViewCount="211" Body="&lt;p&gt;Consider a welfare system u dear which a single cash transfer(guaranteed income ) is given to every citizen. Then for each dollar the person earns the payment is reduced to by a where 00 you get a transfer. If t&amp;lt;0, you pay taxes. If t=0, you don’t pay taxes or receive transfers. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose that te wage rate is $w&amp;gt;0$. And so a person who works H hours gets $y_e=wH$. A typical individuals utility function is $$u(y_d, H)=y_d/(1+H)^2$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question has multiple part. I tried to do most of them. But I’m not sure please check my solutions also I cannot do some parts. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;First of all I write an expression for individual’s disposable income $y_d$ as a function of $y_g$ and $y_e$ and other parameters. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$y_d=(1-a)y_e+y_g$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;secondly I try to draw indifference curves for that utility function and his disposable income line as follows &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/JABbO.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/JABbO.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I only put this image to show the graph. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thirdly, I try to drive utility maximizing labor supply function $H^*$ by assuming that $(1-a)w-2y_g&amp;gt;0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$u(y_d, H)=y_d/(1+H)^2$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$u(y_d, H)=((1-a)y_e+y_g)/(1+H)^2$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Derivative with respect to $H$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$${(1-a)w(1+H)^2-((1-a)wH+y_g)2(1+H)\over (1+H)^4}=0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\iff$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$(1+H)[(1-a)w(1+H)-2(1-a)wH-2y_g]=0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since H&gt;0, $(1+H)≠0$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So,&#xA;$$[(1-a)w(1+H)-2(1-a)wH-2y_g]=0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$H*={[(1-a)w-2y_g\over (1-a)w}&amp;gt;0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Additionally,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\partial H^*/\partial y_g=-w/((1-a)w)&amp;lt;0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By intuition, as the guaranteed income $yg$ increases labor supply will decrease. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\partial H^*/\partial a=-2y_g/. ((-a)^2w)&amp;lt;0$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So for each dollar the person earns the reduction amount of a in the single cash transfer increases iff the labor supply decreases. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;these intuitions are enough? What do you say about these results ?&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Fourthly What is the utility maximizing labor supply when  $(1-a)w-2y_g\le 0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this case I said that &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$H*={[(1-a)w-2y_g\over (1-a)w}\le 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, the labor supply will be optimally zero. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;I am stuck at this point. Is what I said true?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And then,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume that the government wants to choose its policy $(y_g, a)$ in such a way that a citizen utility is maximized subject to the constraint that the net transfer is zero   How can I derive the optimal policy? &lt;strong&gt;I tried to derive it. But I guess my solution is not true. How do you derive it? Is it correct? This point is really important.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$u(y_d, H)=Y_d/(1+H)^2=((1-a)wH+y_G)/(1+H)^2$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Subject to $ T=Y_G-aY_E=0$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So $y_g=aY_E=awH$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So &#xA;$$u(y_d, H)=Y_d/(1+H)^2=((1-a)wH+awH)/(1+H)^2=wH/(1+H)^2$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Derivative w.r.t. H; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$(w(1+H)^2-wH2(1+H))/(1+H)^4=0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$(w(1+H)^2-wH2(1+H))=0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Iff &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$w+wH-2wH=0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So $H^*=1/2$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, $y_g^*=aw/2$ and $a^*=2y_g^*/w$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am really stuck at this part.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;And my last question is based on above assumption. But different citizens earn different wages. What do you think about the merit of this policy?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you in advance. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/KcnYJ.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/KcnYJ.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="15030" LastEditorUserId="15030" LastEditDate="2018-05-28T17:39:34.863" LastActivityDate="2018-05-29T03:49:25.837" Title="Maximization with disposable income" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;consumer-theory&gt;&lt;self-study&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22090" PostTypeId="2" ParentId="21882" CreationDate="2018-05-22T00:24:31.770" Score="5" Body="&lt;p&gt;(i) $A$ &amp;amp; $B$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If player 1 play $A$ with probability $p$ and $B$ with probability $(1-p)$, where $0&amp;lt;p&amp;lt;1$, then player 2's expected payoff from playing &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;$D$ is $4p+4(1-p) = 4$&lt;/li&gt;&#xA;&lt;li&gt;$E$ is $6p + 2(1-p) = 4p + 2$&lt;/li&gt;&#xA;&lt;li&gt;$F$ is $6p + 4(1-p) = 2p + 4$&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Since payoff from playing $F$ is more than the payoff from playing any other strategy for player 2, he will always choose $F$ in response to any mixed strategy of player 1 where 1 play $A$ with probability $p$ and $B$ with probability $(1-p)$. Therefore, $F$ is the best response of player 2 if 1 play a mixed strategy $A$ with probability $p$ and $B$ with probability $(1-p)$. However, given the strategy $F$ of player 2, player 1's best response is to play a pure strategy $A$. Therefore, there is no Nash equilibrium in which player 1 mixes between $A$ &amp;amp; $B$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(ii) $A$ &amp;amp; $C$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If player 1 play $A$ with probability $p$ and $C$ with probability $(1-p)$, where $0&amp;lt;p&amp;lt;1$, then player 2's expected payoff from playing &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;$D$ is $4p+6(1-p) = 6 - 2p$&lt;/li&gt;&#xA;&lt;li&gt;$E$ is $6p + 4(1-p) = 2p + 4$&lt;/li&gt;&#xA;&lt;li&gt;$F$ is $6p + 0(1-p) = 6p$&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Since payoff from playing $E$ is more than the payoff from playing $F$, he will never choose $F$ in response to any mixed strategy of player 1 where 1 play $A$ with probability $p$ and $C$ with probability $(1-p)$. Therefore, $F$ is never a best response of player 2 if 1 play a mixed strategy $A$ with probability $p$ and $C$ with probability $(1-p)$. Now let us consider the following cases for $p$ :&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;$0 &amp;lt; p &amp;lt; 0.5$ In this case player 2 has a unique best response and that is to play $D$, in response to which player 1 would like to play a pure strategy $B$, and not a mix of $A$ and $C$. &lt;/li&gt;&#xA;&lt;li&gt;$0.5 &amp;lt; p &amp;lt; 1$ In this case player 2 has a unique best response and that is to play $E$, in response to which player 1 would like to play a pure strategy $C$, , and not a mix of $A$ and $C$. &lt;/li&gt;&#xA;&lt;li&gt;$p = 0.5$ In this case player 2 is indifferent between playing $D$ and $E$, and if 2 mixes between them appropriately i.e. by choosing to play $D$ with probability $0.5$ and $E$ with probability $0.5$, it will leave player 1 with two best responses $A$ and $C$ and therefore, 1 can now choose to play $A$ and $C$ with equal probability. So, we've found a mixed strategy Nash Equilibrium in this case: Player 1 choose to play $A$ with probability 0.5 and $C$ with probability 0.5, and player 2 choose to play $D$ with probability 0.5 and $E$ with probability 0.5.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;(iii) $B$ &amp;amp; $C$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If player 1 play $B$ with probability $p$ and $C$ with probability $(1-p)$, where $0&amp;lt;p&amp;lt;1$, then player 2's expected payoff from playing &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;$D$ is $4p+6(1-p) = 6 - 2p$&lt;/li&gt;&#xA;&lt;li&gt;$E$ is $2p + 4(1-p) = 4 - 2p$&lt;/li&gt;&#xA;&lt;li&gt;$F$ is $4p + 0(1-p) = 4p$&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Since payoff from playing $D$ is more than the payoff from playing any other strategy for player 2, he will always choose $D$ in response to any mixed strategy of player 1 where 1 play $B$ with probability $p$ and $C$ with probability $(1-p)$. Therefore, $D$ is the best response of player 2 if 1 play a mixed strategy $B$ with probability $p$ and $C$ with probability $(1-p)$. However, given the strategy $D$ of player 2, player 1's best response is to play a pure strategy $B$. Therefore, there is no Nash equilibrium in which player 1 mixes between $B$ &amp;amp; $C$.&lt;/p&gt;&#xA;" OwnerUserId="11824" LastEditorUserId="11824" LastEditDate="2018-05-22T06:43:53.660" LastActivityDate="2018-05-22T06:43:53.660" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22091" PostTypeId="1" AcceptedAnswerId="22092" CreationDate="2018-05-21T21:47:38.337" Score="0" ViewCount="63" Body="&lt;p&gt;&lt;strong&gt;How does this work?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In February 2018, China owned \$1.18 trillion of U.S. debt. It's the&#xA;  largest foreign holder of U.S. Treasury securities. The second largest&#xA;  holder is Japan at \$1.06 trillion. Both Japan and China want to keep&#xA;  the value of the dollar higher than the value of their currencies.&#xA;  That helps keep their exports affordable for the United States, which&#xA;  helps their economies grow. That's why, despite China's occasional&#xA;  threats to sell its holdings, both countries are happy to be America's&#xA;  biggest foreign bankers. China replaced the United Kingdom as the&#xA;  second largest foreign holder on May 31, 2007. That's when it&#xA;  increased its holdings to \$699 billion, outpacing the United Kingdom's&#xA;  $640 billion.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Source: &#xA;&lt;a href=&quot;https://www.thebalance.com/who-owns-the-u-s-national-debt-3306124&quot; rel=&quot;nofollow noreferrer&quot;&gt;Article - Who Owns US National Debt&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="18375" OwnerDisplayName="Alexey Shevelyov" LastEditorUserId="18375" LastEditDate="2018-05-22T16:09:28.620" LastActivityDate="2018-06-21T17:20:26.930" Title="How does keeping the value of the dollar by foreign US bondholders makes their exports more affordable?" Tags="&lt;united-states&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="22092" PostTypeId="2" ParentId="22091" CreationDate="2018-05-21T22:18:35.677" Score="1" Body="&lt;p&gt;Suppose a camera is made in Japan and sold in the US. If the maker of the camera wants 10k Yen for it, and the ultimate buyer is paying dollars, then somewhere along the line, dollars have to be exchanged for dollars. For instance, the company that imports the camera might go out and buy 10k Yen, then give the Yen to the company that made the camera. They then pass on the cost of buying the Yen to the camera store, who passes it on to the customer. The dollar being strong with respect to the Yen means that one dollar can buy a lot of Yen. So that means that it doesn't cost very much dollars to buy the 10k Yen, which means that the camera store in the US can sell the camera for fewer dollars, which means that people are more willing to buy the camera, which means that the camera manufacturer gets more business. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You're also asking &lt;em&gt;how&lt;/em&gt; the strength of the dollar is affected. It's a matter of supply and demand: every time Americans buy stuff from other countries, they are supplying dollars, and every time they sell things to other countries, they are demanding dollars. The strength of the dollar depends heavily then on how much the US exports (which strengthens the dollar) versus imports (which weakens the dollar). Since transactions between the US and other countries involve trading goods and dollars, the effect on the dollar is opposite of how the goods are moving from the US perspective: when someone in the US sells a good, that can be viewed as &quot;buying&quot; dollars, and the US buying goods can be viewed as &quot;selling&quot; dollars. A strong (or &quot;expensive&quot;) dollar means that US goods are also expensive, but foreign goods are cheap, and a weak dollar means that US goods are cheap, but foreign goods are expensive. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Companies that facilitate exports generally benefit from a weaker dollar (the goods are cheap, so it's easier to sell them). This includes export companies, and people who work in industries whose markets are largely overseas.  Companies that facilitate imports generally benefit from a stronger dollar. This includes import companies, and companies that that sell a lot of foreign-sourced goods, which in the camera example would include the camera store.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Bonds aren't generally included when calculating exports, but they do have largely the same effect: US treasury bonds are denominated in dollars, so if people in other countries want to buy them, they have to buy dollars, which drives up the value of the dollar.   You can think of it in terms of analogy with a household: exports are like people going out and working for a paycheck, while imports are like buying stuff. A bond is like getting a loan, such as a mortgage or a car loan. The more money someone makes at their job, and the more loans they get, the more the cash they have to spend. A dealership wants to help someone get a car loan, because that makes it easier to but a car. Similarly, China and Japan want the US to be able to sell their bonds, because that makes it easier to buy stuff from China and Japan. Whenever China or Japan buy a treasury bond, they give more money to the US, and the US then uses that money to buy stuff. If China were to sell off their bonds, that would make it harder for the US to sell new bonds, which would make it harder for Americans to buy stuff from China.&lt;/p&gt;&#xA;" OwnerUserId="16462" OwnerDisplayName="Acccumulation" LastEditorUserId="16462" LastEditDate="2018-05-22T16:37:23.747" LastActivityDate="2018-05-22T16:37:23.747" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22093" PostTypeId="2" ParentId="21643" CreationDate="2018-05-22T08:14:38.297" Score="1" Body="&lt;p&gt;The authors are referring to &quot;stochastically singular models&quot;.  What you state above is basically the definition: a number of shocks smaller than the number of observable endogenous variables.  The intro to Zhongjun Qu's working paper &quot;&lt;a href=&quot;http://people.bu.edu/qu/singular/singular.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;A Composite Likelihood Framework for Analyzing Singular DSGE Models&lt;/a&gt;&quot; surveys the literature on the topic.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I assume the term comes from measure theory.  If you have $n$ observable variables but they lie in a lower-dimensional subspace, then the probability measure is &lt;a href=&quot;https://en.wikipedia.org/wiki/Singular_measure&quot; rel=&quot;nofollow noreferrer&quot; title=&quot;singular&quot;&gt;singular&lt;/a&gt; with respect to Lesbesgue measure.  (Understanding this is not important for understanding the concept.)&lt;/p&gt;&#xA;" OwnerUserId="10745" LastActivityDate="2018-05-22T08:14:38.297" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22094" PostTypeId="1" AcceptedAnswerId="22095" CreationDate="2018-05-22T08:24:12.630" Score="4" ViewCount="453" Body="&lt;p&gt;Have I understood this correctly?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When I say my auction mechanism is ex-post budget balanced it means that in practice (I have done market simulations) and according to the results my mechanism is budget balanced. whereas, if the mechanism is ex-ante it means we only anticipate that it is budget balanced?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A reviewer of my paper has asked me to explain in the paper what ex-post and ex-ante means. How would you suggest to explain it?&lt;/p&gt;&#xA;" OwnerUserId="16177" LastActivityDate="2018-05-22T10:31:33.453" Title="Ex-post vs Ex-ante Budget Balance in Auctions" Tags="&lt;auctions&gt;&lt;mechanism-design&gt;&lt;experimental-economics&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22095" PostTypeId="2" ParentId="22094" CreationDate="2018-05-22T10:31:33.453" Score="5" Body="&lt;p&gt;These are widely used technical terms with a precise mathematical meaning:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Ex-ante budget balance&lt;/em&gt; means that the expected sum of all transfers is zero.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Ex-post budget balance&lt;/em&gt; means that the sum of all transfers is zero with probability one. Some authors require that the sum of transfers is always zero. &lt;/p&gt;&#xA;" OwnerUserId="1442" LastActivityDate="2018-05-22T10:31:33.453" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22096" PostTypeId="1" CreationDate="2018-05-22T11:27:25.810" Score="0" ViewCount="55" Body="&lt;p&gt;My State government is considering a new regulatory policy at the moment. We need to put together an assessment of the (likely) economic impacts of the policy. How do we do that? &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;I don't work for the state, I'm an outside volunteer.&lt;/li&gt;&#xA;&lt;li&gt;I don't have any specific economics education.&lt;/li&gt;&#xA;&lt;li&gt;I'm hoping to be able to put something meaningful together with just a couple of evenings of work.&lt;/li&gt;&#xA;&lt;li&gt;There are a few other people whom I'm hoping will help.&lt;/li&gt;&#xA;&lt;li&gt;At this point even knowing what to google could be a big step forward&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The desired end result, I'm pretty sure, is a document saying &quot;Given this trusted data, and these reasonable starting assumptions, and this comprehensible mathematical model, we expect to see about this many more or fewer jobs and about this much more or less business investment&quot;. Not knowing any standardized techniques, this feels like trying to forecast the effects of a river dam on next year's hurricanes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are a few components to the proposed rules, but they can be considered in isolation. The most important one would require (of large producers) a set rate of reduction of CO&lt;sub&gt;2&lt;/sub&gt; emissions, which currently have few if any regulations in our state. So, for example, opponents of the rules will want a forecast based on the assumption that activities which are currently emitting CO&lt;sub&gt;2&lt;/sub&gt; simply shut down instead of migrating to different technology; proponents will want a forecast based on the assumption that wind an solar installations ramp up perfectly.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm new here; feel free to edit the tags or question!&lt;/p&gt;&#xA;" OwnerUserId="18377" LastActivityDate="2018-05-22T11:50:38.527" Title="How does one asses the impact of a proposed policy?" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;political-economy&gt;&lt;united-states&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22097" PostTypeId="2" ParentId="22096" CreationDate="2018-05-22T11:50:38.527" Score="3" Body="&lt;p&gt;Being an economist, I'd say that carrying out a quantitative forecast (&quot;the policy will create/cost x jobs&quot;) would require setting up a model, feeding appropriate data and applying appropriate estimations. You would require decent data on the firm level and a detailed model dealing with lots of production factors. In other words, lots of work and probably way beyond your team's resources. &#xA;What might be feasible is to do a research on the relevant scientific literature in that realm. In particular, you should look for theoretical work on the expected qualitative effects from such a policy. Second, you may look for empirical studies on comparable policies in other countries and contexts. This might give you a rough picture of what one can expect. Assessing the external empirical results might be hard if you're not an expert in the field, but the following guidelines might be of help:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Prefer authors from academic institutions over e.g. international organizations or (way worse) lobby groups.&lt;/li&gt;&#xA;&lt;li&gt;Prefer peer-reviewed publications to non peer-reviewed publications. Use Google Scholar as search engine. For any research item, click on &quot;all versions&quot;. If the item is published in some scientific journal (say, Journal of Environmental Economics), this might give you an indication for quality.&lt;/li&gt;&#xA;&lt;li&gt;prefer more recent studies and studies that deal with countries similiar to yours over others.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="17735" LastActivityDate="2018-05-22T11:50:38.527" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22098" PostTypeId="1" CreationDate="2018-05-22T16:17:42.377" Score="1" ViewCount="98" Body="&lt;p&gt;Is there a name for a system in which the person/entity who makes the buying decision is not the same as the person/entity who pays?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Specific examples of this might be situations which arise in insurance but you could also say a date in which a male is paying for a female (or vice-versa) might qualify.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT:&#xA;My interest in the problem arose a couple of years ago when I came down with shingles.  My doctor prescribed an anti-viral and I noted that my insurance covered almost the entire prescription cost.  I think I paid about \$10 but the full price was listed somewhere as around $250.  I then pondered the idea of whether or not I would have bought the prescription if I were faced with the entire \$250.  I was honestly pretty torn, leaning towards probably not.  But this overall experience made me ponder how the demand curve is augmented by the situation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My interest here is primarily in the demand side effects of this kind of a situation.  My example of the date was an attempt to broaden the scope beyond purely an insurance based question.&lt;/p&gt;&#xA;" OwnerUserId="18383" LastEditorUserId="18383" LastEditDate="2018-05-22T19:05:11.407" LastActivityDate="2018-05-23T14:53:53.987" Title="What do you call a system in which the payer is not the decision maker?" Tags="&lt;decision-theory&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22099" PostTypeId="2" ParentId="22098" CreationDate="2018-05-22T16:59:23.443" Score="1" Body="&lt;p&gt;This is the &lt;a href=&quot;https://en.wikipedia.org/wiki/Principal%E2%80%93agent_problem&quot; rel=&quot;nofollow noreferrer&quot;&gt;principal-agent problem&lt;/a&gt; or agency problem.  It's one of the most studied problems in economics over the last 40 years.  The Wikipedia entry offers a thorough summary.  One topic of research is &lt;a href=&quot;https://en.wikipedia.org/wiki/Mechanism_design&quot; rel=&quot;nofollow noreferrer&quot;&gt;mechanism design&lt;/a&gt;, which is how to design institutions to avoid or minimize agency problems.&lt;/p&gt;&#xA;" OwnerUserId="10745" LastActivityDate="2018-05-22T16:59:23.443" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="22101" PostTypeId="1" CreationDate="2018-05-22T20:06:25.157" Score="1" ViewCount="26" Body="&lt;p&gt;First off, I apologise if, in the following, I do not present the model adequately - I'm at an intermediate level of the study of economics. My question is at the bottom.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Anyway, consider a basic RBC model, where there are a large number of representative firms and infinitely-lived agents, who behave according to the rational expectations and permanent income hypotheses.There is perfect competition. We also assume that agents know exactly what will happen in the future.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The model presented mathematically:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The consumer's problem: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$max\sum_{t=0}^{∞}β^t[u(c_t)+v(1-h_t)]$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;s.t. $\sum_{t=0}^{∞}βR^{-(t+1)}c_t=A_0+\sum_{t=0}^{∞}βR^{-(t+1)}w_th_t$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $β=$ the discount rate; $R^{-1}=\frac{1}{1+r}$, $u=$ a function representing the value of consumption, $v=$ a function representing the value of leisure, $h_t=$ hours worked&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The firm's problem:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$max{π=A_t}f(K_t,h_t)-w_th_t-r_tK_t$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;We assume all savings are invested in capital, so we have:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$K_{t+1}=(1+r+δ)K_t+w_th_t-c_t$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $δ=$ depreciation rate of capital.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, using the fact that the three markets of the model clear (goods, labour, capital), and assuming constant returns to scale, we have three equilibrium conditions (after some maths):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$u'(c_t)=β(1+A_{t+1}f_1(K_{t+1},h_{t+1}-δ)u'(c_{t+1})$ - intertemporal savings/consumption choice&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac{v'(1-h_t)}{u'(c_t)}=A_tf_2$ - consumption/leisure tradeoff&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$K_{t+1}=(1-δ)K_t+A_tf-c_t$ - law of motion for capital&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I'm interested in is what happens to hours worked when there is a positive technology shock with logarithmic preferences. I have already shown that the income and substitution effects cancel each other out in the steady state of the model - but supposedly, in the short run, the substitution effect dominates the income effect with logarithmic preferences. Can someone explain this to me why and show this to me mathematically?&lt;/p&gt;&#xA;" OwnerUserId="10993" LastActivityDate="2018-05-22T20:06:25.157" Title="Impact of technology shock on hours worked in basic RBC model - short and long run with logarithmic preferences" Tags="&lt;rbc&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22102" PostTypeId="1" CreationDate="2018-05-22T21:04:26.250" Score="1" ViewCount="19" Body="&lt;p&gt;When I try to look into standard of living in a given country, I try to find median income figures. I can almost never find them. Instead, all of the data I can find is about average income, GDP per capita, etc. This data is (I think) pretty useless in determining how most people live, because in many of the countries I am looking at, a small number of people receive a disproportionate amount of income.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there a reason why median income is not used as the primary figure?&lt;/p&gt;&#xA;" OwnerUserId="18386" LastActivityDate="2018-05-22T21:04:26.250" Title="Why Does National Data Usually Cite Average Income Rather than Median Income?" Tags="&lt;gdp&gt;&lt;national-income&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22103" PostTypeId="2" ParentId="11164" CreationDate="2018-05-23T01:05:04.163" Score="4" Body="&lt;p&gt;You've fallen into a really common pitfall -- the spurious regression. The parameters you chose to include can't be chosen 'willy nilly' by throwing data into a regress command. Ultimately this can't be answered in so little words, without data, while maintaining accuracy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That said I can try to answer your question as a reference point. Before even attempting this I couldn't emphasize enough caution. Just remember that a model that's almost correct -- for practical purposes is 100% wrong. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So it seems you've settled on a linear log-log specification. I would do a quick Google Scholar search on papers forecasting consumer demand for a product similar to the one of interest. The functional form along with parameters you choose to include must be derived from theory. You'd be able to just copy their equation and just modify it to your data. Otherwise, you're doing blind statistics. This is the main reason you're getting inconsistent signs. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What you're trying to do is specify a derived demand for the category of goods you're focussing on. Your general model is going to look like this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$ logQ_t = \alpha + \beta_llogP_t + X'_t\gamma + \epsilon$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where:&#xA;Q sales  &lt;br/&gt;  P selling point&#xA;  &lt;br/&gt;X vector of factors other than selling price  &lt;br/&gt;&#xA;$\epsilon$ random component in demand&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Have you included any economic indicator parameters? This would be things like GDP, income, population growth, unemployment, interest rates... etc. Depending on the good -- for your purpose -- there's usually theory providing necessary parameters regardless of statistical significance. I would do this first. Add some macro indicators and re-check the F-statistic for the model. Your model would then provide not only own price elasticity of the good, but you'd get an income elasticity, as well as cross-price elasticities for competing/complementing goods. If your company has spent money on advertising this would be necessary to include as well. Have you added dummy variables for the 'category' of the good itself? And trend variables? Lags of seasonal effects, their quadratic effects? Interaction effect variables? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any cursory approach would lead to omitted variable bias over your misspecified parameters. On most circumstances you'll have to verify the multiplier effect isn't changing through time. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Have you checked for normality, autocorrelated errors?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is as broad and general a reference I can think to give you. The functional specification here might be better calculated through an autoregressive form. But this is beyond the scope I think. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm not sure as to your level of econometric/demand analysis so I kept things devoid of much math. I hope this was somewhat helpful. It was great intuition to stop what you're doing when you saw incorrect signs. Keep to that rule of thumb. &lt;/p&gt;&#xA;" OwnerUserId="15847" LastEditorUserId="15847" LastEditDate="2018-05-23T01:13:45.673" LastActivityDate="2018-05-23T01:13:45.673" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22106" PostTypeId="2" ParentId="22084" CreationDate="2018-05-23T08:01:00.847" Score="1" Body="&lt;p&gt;As I said in the comments, without additional details proving anything is either impossible or trivial. Impossible if I do not make any assumptions, trivial if I am allowed to make any assumption I like.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let me give you a hint on how to solve this in the framework how it is usually taught.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The assumptions made are:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;There are decreasing returns to scale to any single production factor&lt;/li&gt;&#xA;&lt;li&gt;There are constant returns to scale to all production factors together&lt;/li&gt;&#xA;&lt;li&gt;Technology and the labour force grow at an exogenous rate (which may be 0)&lt;/li&gt;&#xA;&lt;li&gt;The production function is cobb-douglas form&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Then, denoting national income at time $t$ as $Y_{t}$, capital as $K_{t}$, labour as $L_{t}$, technology as $A_{t}$, a fixed factor such as land as $X$ (which is independent of time) and a non-renewable resource extraction as $E_{t}$ we can formulate the production function as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$Y_{t}=A_{t}K_{t}^{\alpha}X^{\beta}E_{t}^{\eta}L_{t}^{1-(\alpha+\beta+\eta)}$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can determine the income per capita (or more precisely the income per labourer) by dividing both sides by $L_{t}$. Using small letters to denote a variable in per labourer terms we get:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$y_{t}=A_{t}k_{t}^{\alpha}x_{t}^{\beta}e_{t}^{\eta}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that whereas $X$ is independent of time, $x$ is not because the labour force grows over time so the amount of land per labourer changes over time. You can now rewrite this equation in terms of growth rates to determine how it is (im)possible to continue to grow income per capita even in the presence of a non-renewable and fixed production factor.&lt;/p&gt;&#xA;" OwnerUserId="12186" LastActivityDate="2018-05-23T08:01:00.847" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22107" PostTypeId="1" CreationDate="2018-05-23T10:18:32.247" Score="3" ViewCount="3429" Body="&lt;p&gt;I guess there is a some fundamental issues in the economy but I wonder the apparent reason of the recent devaluation in Turkish Lira?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does Turkey need to pay debt in very short term? How much is it? What is the reason of the debt? &lt;/p&gt;&#xA;" OwnerUserId="15780" LastActivityDate="2018-08-16T16:04:33.193" Title="What is the reason of devaluation in Turkish Lira?" Tags="&lt;exchange-rates&gt;" AnswerCount="3" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="22108" PostTypeId="1" AcceptedAnswerId="22113" CreationDate="2018-05-23T10:55:24.040" Score="3" ViewCount="61" Body="&lt;p&gt;Here's the &lt;a href=&quot;http://sims.princeton.edu/yftp/gensys/LINRE3A.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Sims(2002) paper&lt;/a&gt;. It's equal to the published version.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The author gives the following example: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/vBXuc.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/vBXuc.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And tries to write it in the matrix notation of (1) in the paper.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, his solution - in (4) - puts $\epsilon (t)$ in the first equation of (2) instead of $\nu (t-1)$, and $\nu (t-1)$ instead of $\epsilon (t)$. Is this correct, and why?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, when I try to write the the first equation of (2) the time notation doesn't match. The other two equations in (2) do match.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="118" LastEditDate="2018-05-23T13:39:33.697" LastActivityDate="2018-05-23T13:46:28.947" Title="Is there a typo in Sims(2002) paper on solving linear expectations model?" Tags="&lt;macroeconomics&gt;&lt;rational-expectations&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22109" PostTypeId="5" CreationDate="2018-05-23T10:56:42.087" Score="0" Body="" OwnerUserId="-1" LastEditorUserId="-1" LastEditDate="2018-05-23T10:56:42.087" LastActivityDate="2018-05-23T10:56:42.087" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22110" PostTypeId="4" CreationDate="2018-05-23T10:56:42.087" Score="0" Body="" OwnerUserId="-1" LastEditorUserId="-1" LastEditDate="2018-05-23T10:56:42.087" LastActivityDate="2018-05-23T10:56:42.087" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22111" PostTypeId="1" CreationDate="2018-05-23T12:24:20.413" Score="1" ViewCount="60" Body="&lt;p&gt;first, let me explain what I am trying to do. For my graduation work with focus on automation i would like to show the impact of &quot;Sewbots&quot; (SoftWear Automation) on garment manufacturing. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My teacher suggested doing so by applying activity-based costing for a production line and then, by hypothesy,  on a partly automated one. (I know one system of SewBots costs approx. 50.000 - 100.000, it can replace up to 17 workersand needs 1 supervisor for up to 5 production lines.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I found some data on abc in garment production but none of it seems complete.  (Ex. &lt;a href=&quot;https://www.google.it/url?sa=t&amp;amp;source=web&amp;amp;rct=j&amp;amp;url=http://journal-archieves30.webs.com/602-625.pdf&amp;amp;ved=2ahUKEwjzgveL6JvbAhWKvBQKHXdgCTMQFjAAegQICBAB&amp;amp;usg=AOvVaw3rvr7q_1CVtTEZT2uU0mVH&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.google.it/url?sa=t&amp;amp;source=web&amp;amp;rct=j&amp;amp;url=http://journal-archieves30.webs.com/602-625.pdf&amp;amp;ved=2ahUKEwjzgveL6JvbAhWKvBQKHXdgCTMQFjAAegQICBAB&amp;amp;usg=AOvVaw3rvr7q_1CVtTEZT2uU0mVH&lt;/a&gt;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can someone suggest some sources where to get complete realistic data ofactivities, cost drivers, rates etc.. in textile industry?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Every advice is appreciated.&#xA;Thank you very much&#xA;Martin&lt;/p&gt;&#xA;" OwnerUserId="18393" LastActivityDate="2018-05-23T12:24:20.413" Title="Where to get realistic data for ABC-Costing in textile industry" Tags="&lt;data-request&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22112" PostTypeId="1" CreationDate="2018-05-23T12:45:14.630" Score="1" ViewCount="230" Body="&lt;p&gt;So I am kinda stuck on this question. The question goes as follows:&#xA;Consider a multiperiod firm, selling q1 units of a product in period t=1 at spot price P1 and q2 units in period t=2 at spot price P2. It uses three factors in production: capital K, which is acquired for price Pk at t=0 and last two periods, and labor in each period, L1 and L2, with respective spot prices PL1 and PL2; the firm acquires L1 at t=0 and L2 at t=1. The firms product is perishable, so it cannot carry inventory from one period to another.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume prices are as follows: P1=40, P2=50, PK=20, PL1=10, PL2=15. the interest rate is r=10%.&#xA;Set up the firms profit maximization problem, in t=0 present value terms.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So our definition of spot price: spot price = price * (1+r)^t.&#xA;What I have at the moment is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;max 44q1 + 60.5q2 - 10L1 - 16.5L2 &lt;/p&gt;&#xA;&#xA;&lt;p&gt;or&lt;/p&gt;&#xA;&#xA;&lt;p&gt;max 36.36q1 + 41.32q2 - 10L1 - 13.63L2&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm not sure what do about capital (K), since its acquired in t=0 and last two periods and is not noted to be a spot price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT: since PK=20, but the price isn't a spot price and its acquired in 3 different periods, does that mean it should just be 60*K in regards to the max problem?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT 2: Could also be the formula PV = FV * (1/(1+r)^t). Where PV is present value and FV is future value (spot price).&lt;/p&gt;&#xA;" OwnerUserId="18394" LastEditorUserId="18394" LastEditDate="2018-05-23T19:49:01.723" LastActivityDate="2018-05-23T19:49:01.723" Title="Firm's profit max problem, in present value terms" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;profit-maximization&gt;" AnswerCount="0" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="22113" PostTypeId="2" ParentId="22108" CreationDate="2018-05-23T13:46:28.947" Score="4" Body="&lt;p&gt;Yes the $z(t)$ column vector, as it appears in $(4)$ is written upside-down in the translation. Also the first equation in $(2)$ is translated lagged once, i.e. the translated system describes the $w(t-1)$ equation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally there is a typo in the $\Gamma_1$ matrix, there is a void 6th column that should be ignored, and $\theta$ should be in the 4th column not in the 5th (because it multiplies $u(t-1)$.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2018-05-23T13:46:28.947" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="22114" PostTypeId="2" ParentId="22098" CreationDate="2018-05-23T14:53:53.987" Score="0" Body="&lt;p&gt;There is no one word for this case because economics divides this up into multiple subproblems, one of which is the principal-agent problem, but that is not a unique answer to your question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is part of the broader discussion of external costs.  Health is a quasi-good.  If it were a pure good, it would also be a public good.  Public goods are neither rivalrous nor excludable.  It isn't rivalrous because my being healthy doesn't use up the capacity for you to be healthy.  Likewise, using only lawful and ethical means, you cannot exclude people from being healthy.  You could obviously kill them, but excluding such breaches, you cannot.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Insurance is a club.  It is not rivalrous, but it is excludable.  It is a form of voluntary sharing, whereas public goods only function under &lt;em&gt;forced&lt;/em&gt; sharing.  The problem requires a public solution as it is a public goods problem, but in the United States, we lack public health care so the patch Americans have used has been to create clubs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This &quot;club&quot; system has some positive advantages and worked up until the advent of &lt;em&gt;major medical&lt;/em&gt; insurance.  The advantage is that it increases the liquidity to provide health care when needed and as such increased the amount of health care providers and drugs.  In doing so, the nation became healthier, but the cost went up.  To supply more physicians, nurses, drugs, facilities and other personnel it is necessary to move up the supply curve.  The true demand curve is not met because the system is inefficient.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The disadvantage of major medical is that it passed all costs along to the insured to the advantage of both the provider and the insurance company.  The prior system, capitation, passed all excess costs onto the patient so price increases were pretty tightly constrained.  Under capitation, a physician could double their official price, but not receive any additional money because the patient couldn't pay it.  Under major medical, the insurer paid all charges regardless of cost.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This led to the rise of &lt;em&gt;usual, customary and reasonable&lt;/em&gt; charging systems, physician networks and so forth.  Those are damage control systems and cannot contain costs.  Conversely, the insurance company has a strong profit incentive to not permit universal coverage, even if the premiums are affordable.  Since insurers basically receive a percentage over total costs, their profits depend upon rising health care costs.  A system of &quot;I decide, but you pay,&quot; is their most profitable model.  Major medical exists today and capitation does not because of this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As to the boyfriend-girlfriend problem, this is a different type of problem.  The boy could be viewed as purchasing the possibility of sex and may also be viewed as purchasing a potential alliance.  As the payer, it is in the boyfriend's self-interest for the girl to be happy with the purchase.  The best choice would be to allow her to choose.  This does a couple of things that improve efficiency.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, the boy could always veto some idea that was too unacceptable.  Further, this strategy provides information about the girl.  If the goal is sex, an unacceptable movie might not be painful enough to say no to, but if the goal is a permanent mating bond, it may be enough information for the boy to know that it is not worth the emotional costs of watching terrible movies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Second, the boy is purchasing a lottery.  If the boy were risk averse, he would rather be paid than play, but sex throws risk aversion out the door and switches people to risk-loving behavior.  Hence, the existence of unplanned pregnancies.  How many people, just today, have said: &quot;just this once without the condom?&quot;  Because the boy is now risk-loving, the boy is willing to pay a premium to able to take the risk.  Likewise, a risk-averse girl who has become risk-loving due to the presence of hormones is willing to accept a premium for the risk that unfortunate consequences may ensue.  If the premium is inadequate, then nothing will happen.  However, if the premium is sufficient, it may result in no sex because the hormones have not overridden the risk aversion that is the normal state of affairs.  If the guy doesn't create that &quot;spark,&quot; the gifts won't matter.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am reasonably certain I am more handsome than the late Hugh Heffner, but for some reason, tons of 18-22-year-old models are not flocking all over me.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is the potential for inefficiencies in any gift-giving situation, but in the boyfriend-girlfriend case, it is probably very small in the usual case.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can find whole classes of similar problems in the literature, especially for public, common-pool and club goods.&lt;/p&gt;&#xA;" OwnerUserId="11321" LastActivityDate="2018-05-23T14:53:53.987" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22115" PostTypeId="1" CreationDate="2018-05-23T16:45:53.520" Score="0" ViewCount="1335" Body="&lt;p&gt;What's the graph for this utility function? How can it be represented graphically?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this function perfect complements? I do not fully understand that in the question attached in the picture, the slope cannot be a fractionnary number since the goods are perfect complements.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/obMij.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/obMij.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="12058" LastActivityDate="2018-05-23T18:42:48.213" Title="Unusual perfect complements utility function min{ax+y, x+2y}" Tags="&lt;microeconomics&gt;&lt;preferences&gt;&lt;perfect-complements&gt;" AnswerCount="1" CommentCount="0" ClosedDate="2018-06-16T11:40:58.373" ContentLicense="CC BY-SA 4.0" />
  <row Id="22116" PostTypeId="1" CreationDate="2018-05-23T17:16:28.330" Score="0" ViewCount="42" Body="&lt;p&gt;Why do these M1 Money supply charts show data only up to 7th May, when the Fed data is released weekly?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://fred.stlouisfed.org/series/M1&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://fred.stlouisfed.org/series/M1&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://schrts.co/zgaAPi&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://schrts.co/zgaAPi&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks&lt;/p&gt;&#xA;" OwnerUserId="18396" LastActivityDate="2018-12-19T23:01:25.343" Title="M1 Money supply data?" Tags="&lt;money&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22117" PostTypeId="2" ParentId="22115" CreationDate="2018-05-23T18:42:48.213" Score="1" Body="&lt;p&gt;You can solve this question by breaking the Utility function into 2 parts.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Use &lt;em&gt;U(x,y)&lt;/em&gt; = &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;i) 6x+y if 6x+y &amp;lt; x+2y&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;ii) x+2y if x+2y &amp;lt; 6x+y&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This would simplify into the Utility Function &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;U(x,y)&lt;/em&gt; =&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;i) 6x+y if 5x &amp;lt; y&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;ii) x+2y if 5x &gt; y&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When you graph the function you'll get 5x=y as the line of kinks. When 5x&gt;y, that is, to the right of the line of kinks, the corresponding IC will be have a slope -(1/2) since it lies on the line x+2y. Points to the left of line of kinks correspond to the line 6x+y and have the slope -6. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given point (8,9) clearly lies to the left of the line of kinks in the area where 5x&gt;y, therefore this point lies on the Utility line x+2y having slope -(1/2)&lt;/p&gt;&#xA;" OwnerUserId="18398" LastActivityDate="2018-05-23T18:42:48.213" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22118" PostTypeId="2" ParentId="22116" CreationDate="2018-05-23T19:47:41.690" Score="1" Body="&lt;p&gt;That’s what the source data goes up to at present: &lt;a href=&quot;https://www.federalreserve.gov/releases/h6/current/default.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;Fed H.6&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The fact that it is weekly does not mean that it will be close to available in real time, they presumably need time to get the data for some components of the aggregate.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2018-05-23T19:47:41.690" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22119" PostTypeId="1" AcceptedAnswerId="26467" CreationDate="2018-05-23T19:52:45.433" Score="9" ViewCount="197" Body="&lt;p&gt;I recently rediscovered Rothschild and Stiglitz's classic paper, &lt;a href=&quot;http://www.jstor.org/stable/1885326&quot; rel=&quot;noreferrer&quot;&gt;&quot;Equilibrium in Competitive Insurance Markets&quot;&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In footnote 7, they refer to an earlier version of their paper for details on the robustness of their results to their assumptions. Does anyone know how to track that version down? Many different Google search queries haven't worked.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The complete citation for the working paper is&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Rothschild, M., and J. E. Stiglitz, &quot;Equilibrium in Competitive Insurance Markets,&quot; Technical Report No. 170, IMSSS Stanford University, 1975.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;On a separate note, the published version of their paper is beautifully written. You would be remiss to not have read it.&lt;/p&gt;&#xA;" OwnerUserId="8595" LastEditorUserId="8595" LastEditDate="2018-05-24T04:56:58.753" LastActivityDate="2019-01-18T18:27:25.993" Title="Rothschild-Stiglitz working paper?" Tags="&lt;reference-request&gt;&lt;adverse-selection&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="22121" PostTypeId="1" AcceptedAnswerId="22178" CreationDate="2018-05-24T00:25:57.437" Score="2" ViewCount="316" Body="&lt;blockquote&gt;&#xA;&lt;p&gt;Please imagine that Nicole is uncertain of her future wealth. Her wealth in the bad state of the world is zero. Her wealth in the good state is &lt;span class=&quot;math-container&quot;&gt;$w&amp;gt;0$&lt;/span&gt;.  Each state is initially equally likely. However nikole can purchase technology (such as safety equipment) that will make the good state more likely. If she buys &lt;span class=&quot;math-container&quot;&gt;$x&amp;gt;0$&lt;/span&gt; units, the probability of the good state becomes &lt;span class=&quot;math-container&quot;&gt;$q(x)&amp;gt;1/2$&lt;/span&gt; where &lt;span class=&quot;math-container&quot;&gt;$q(x)$&lt;/span&gt;is strictly increasing and strictly concave in x, with &lt;span class=&quot;math-container&quot;&gt;$q(x)&amp;lt;1$&lt;/span&gt; for all x. &lt;em&gt;To purchase x units, Nichole commits to pay &lt;span class=&quot;math-container&quot;&gt;$t(x)&amp;lt;w$&lt;/span&gt; if the good state materialized. She doesn’t pay anything in the bad state&lt;/em&gt; Nicole is risk natural. Andrew faces the exact same problem however Andrew is risk averse. Normalize andrew’s utility in the bad state to &lt;span class=&quot;math-container&quot;&gt;$u(0)=0$&lt;/span&gt;. Assume that &lt;span class=&quot;math-container&quot;&gt;$q(x) $&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$t(x)$&lt;/span&gt; are such that both Nichole and Andrew would like to buy a strictly positive quantity f the technology.&lt;/p&gt;&#xA;&lt;p&gt;So thinking of x as a choice variable formulate Nicole ‘s and Andrew ‘s maximization problem. How can I prove who buys the larger quantity of the technology? And what does this result tells to me intuitively? And secondly how can I prove how the optimal quantity for ether agents depends on &lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt;?&lt;/p&gt;&#xA;&lt;p&gt;In the second case, I assume that the technology is provided by a risk national firm whose costs of supplying x units of the technology is &lt;span class=&quot;math-container&quot;&gt;$kx$&lt;/span&gt; where &lt;span class=&quot;math-container&quot;&gt;$k&amp;gt;0$&lt;/span&gt;. The firm knows Nichole ‘s and Andrew ‘s preferences and is allowed to make different offers to them. If we imagine that the firm decides to offer Nichole a fixed quantity of &lt;span class=&quot;math-container&quot;&gt;$x_N&amp;gt;0$&lt;/span&gt; and Andrew a fixed quantity of &lt;span class=&quot;math-container&quot;&gt;$x_A&amp;gt;0$&lt;/span&gt;. Let  &lt;span class=&quot;math-container&quot;&gt;$t_N(x_N)$&lt;/span&gt;  and  &lt;span class=&quot;math-container&quot;&gt;$t_A(x_A)$&lt;/span&gt; denote the optimal price to charge Nichole and Andrew respectively (where I should remember this is allocated only in the good state).&lt;/p&gt;&#xA;&lt;p&gt;Given a fixed &lt;span class=&quot;math-container&quot;&gt;$x_N$&lt;/span&gt; , I need to derive  &lt;span class=&quot;math-container&quot;&gt;$t_N(x_N)$&lt;/span&gt;and the implicit expression of  &lt;span class=&quot;math-container&quot;&gt;$t_A(x_A)$&lt;/span&gt; for a fixed &lt;span class=&quot;math-container&quot;&gt;$x_A$&lt;/span&gt;. If &lt;span class=&quot;math-container&quot;&gt;$x_N=x_A$&lt;/span&gt;, can I say that  &lt;span class=&quot;math-container&quot;&gt;$t_N(x_N)$&lt;/span&gt;  is greater than  &lt;span class=&quot;math-container&quot;&gt;$t_A(x_A)$&lt;/span&gt;? Or not?  I want to prove it and what can I say about this intuitively? And I want to derive  &lt;span class=&quot;math-container&quot;&gt;$t_N’(x_N)$&lt;/span&gt; and  &lt;span class=&quot;math-container&quot;&gt;$t_A’(x_A)$&lt;/span&gt;. Finally how can I derive an implicit characterization of the optimal quantity to offer to Nichole &lt;span class=&quot;math-container&quot;&gt;$x_N$&lt;/span&gt;. And how can prove whether the optimal value of &lt;span class=&quot;math-container&quot;&gt;$x_A$&lt;/span&gt; is greater than the optimal value of &lt;span class=&quot;math-container&quot;&gt;$x_N$&lt;/span&gt; or not?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;What is only done as a solution is&lt;/p&gt;&#xA;&lt;p&gt;For Nichole&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\max_{x} \ \ q(x) u(w-xt(x))+(1-q(x))u(0)$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;FOCs&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$q’(x) u(w-xt(x))+q(x) u’(w-xt(x))-(w-xt(x))’+(1-q’(x))’u(0)=0$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$q’(x) u(w-xt(x))+q(x) (-t(x)-x)u’(w-xt(x))=u(0)q’(x)$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$q’(x) u(w-xt(x))-q’(x) u(0)=q( x )u’(w-xt(x))(t(x)+x)$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$q’(x)[ u(w-xt(x))- u(0)]=q( x )u’(w-xt(x))(t(x)+x)$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$q’(x)[(1/q(x))[u(q(x)(w-xt(x)))- u(0)]]=q( x )u’(w-xt(x))(t(x)+x)$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$(q’(x)/q(x))[u(q(x)(w-xt(x)))- u(0)]=q( x )u’(w-xt(x))(t(x)+x)$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;Risk natural&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$q(x)(w-xt(x)+(1-q(x))u(0)=u(q(x)(w-xt(x))$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$[u(w-xt(x))-u(0)]=(1/q(x))[u(q(x)(w-xt(x))-u(0)]$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;Risk averse&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$q(x)u(w-xt(x))\le u(q(x)(w-xt(x))$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;Any help is appreciated. Thank you.&lt;/p&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;The original version of question&lt;/p&gt;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/sDRro.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/sDRro.jpg&quot; alt=&quot;enter image description here&quot; /&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;&lt;strong&gt;Edit: for adding my solution for remaining parts&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;p&gt;Take that Nichole is risk neutral. I end up.&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$${\partial u \over \partial x}[q’(x)(w-t(x))-q(x)t’(x)]=0$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$q’(x)(w-5(x))-q(x)t’(x )=0$$&lt;/span&gt; and differentiate this w.r.t. w.&#xA;&lt;span class=&quot;math-container&quot;&gt;$${\partial q’(x) \over \partial x}{\partial x \over \partial w}(w-t(x))+q’(x)[{\partial w \over \partial w}-{\partial t \over \partial x}{\partial x \over \partial w}-\frac{\partial q(x)}{\partial x}{\partial x \over \partial w}t’(x)-q(x){\partial t’(x) \over \partial x}{\partial x \over \partial w}=0$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;After calculations&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$${\partial x \over \partial w}=+{q’(x)\over -q”( x)(w-t(x)+2q’(x)t’(x)+q(x)t”(x)}&amp;gt;0$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;&lt;em&gt;Another part’s solution:&lt;/em&gt;&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\text{profit}=t_N(x_N)k-Nx_N$$&lt;/span&gt;&#xA;Subject to &lt;span class=&quot;math-container&quot;&gt;$q(x)u(w-t_N(x_N))\ge 0$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;But again for this part I couldn’t set up the equation.&lt;/p&gt;&#xA;&lt;p&gt;What I thought is&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$max_{(t_N(x_N), t_A(x_A))} \ \ q(x_A)[t_A(x_A)-kx_A]+q(x_N)[t_N(x_N)-kx_N]$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;First order conditions&lt;/p&gt;&#xA;&lt;p&gt;W.r.t. &lt;span class=&quot;math-container&quot;&gt;$(t_N(x_N)$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$q’(x_N)(t_N(x_N)-kx_N)+q(x_N)[t’_N(x_N)-k]=0$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$t_N(x_N)={q’(x_N)kx_N-q(x_N)[t’_N(x_N)-k]\over q’(x_N)}$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;Similar for Andrew&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$t_A(x_A)={q’(x_A)kx_A-q(x_A)[t’_A(x_A)-k]\over q’(x_A)}$$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="15030" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2018-05-28T11:08:46.757" Title="Question on uncertainity" Tags="&lt;microeconomics&gt;&lt;uncertainty&gt;&lt;mechanism-design&gt;&lt;principal-agent&gt;&lt;adverse-selection&gt;" AnswerCount="1" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="22122" PostTypeId="1" CreationDate="2018-05-24T00:50:30.453" Score="0" ViewCount="64" Body="&lt;p&gt;This question is a quantitative analogy to this &lt;a href=&quot;https://philosophy.stackexchange.com/questions/32331/is-it-self-evident-that-utilitarianism-requires-altruism&quot;&gt;question on philosophy.SE&lt;/a&gt;.  Within the framework of economic decision-theory using utility functions, how do you characterise the moral principles of utilitarianism and altruism, and how do they relate?  (Please ignore uncertainty in the outcome of actions, since I don't want to complicate the question unnecessarily.)&lt;/p&gt;&#xA;" OwnerUserId="16120" LastActivityDate="2018-05-24T01:19:35.377" Title="Characterising utilitarianism and altruism in economics" Tags="&lt;utility&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22123" PostTypeId="2" ParentId="22122" CreationDate="2018-05-24T01:19:35.377" Score="3" Body="&lt;p&gt;&lt;strong&gt;Descriptive Framework:&lt;/strong&gt; Consider a society composed of &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt; individuals, and consider a person in this society who is faced with a decision problem where he has to choose an action &lt;span class=&quot;math-container&quot;&gt;$a \in \mathscr{A}$&lt;/span&gt;.  For simplicity, we will presume that the &lt;strong&gt;marginal utility&lt;/strong&gt; from this action for each individual is known to the decision-maker, and is given by the function &lt;span class=&quot;math-container&quot;&gt;$\Delta U_i : \mathscr{A} \rightarrow \mathbb{R}$&lt;/span&gt; for person &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;.  A positive value of a marginal utility function means that there is a gain from the chosen action to that individual, and a negative value means there is a loss.  Note that utility is interpreted here in the &lt;em&gt;cardinal&lt;/em&gt; sense, so it is not merely an ordinal measure (i.e., it can be aggregated by summation).&lt;/p&gt;&#xA;&lt;p&gt;The vector function of all the marginal utility functions is &lt;span class=&quot;math-container&quot;&gt;$\boldsymbol{\Delta U} = (\Delta U_1, ..., \Delta U_n): \mathscr{A} \rightarrow \mathbb{R}^n$&lt;/span&gt;, and this gives the total change in utility from the action, for all individuals in society.  We can represent an &lt;strong&gt;ethical system&lt;/strong&gt; dependent on these utilities as an ordinal ranking &lt;span class=&quot;math-container&quot;&gt;$\succeq$&lt;/span&gt; over &lt;span class=&quot;math-container&quot;&gt;$\mathscr{A}$&lt;/span&gt; that depends on &lt;span class=&quot;math-container&quot;&gt;$\boldsymbol{\Delta U}$&lt;/span&gt;.  This ranking describes which actions are more or less good under the ethical systems, based on the vector of marginal utilities in the society.&lt;/p&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;&lt;strong&gt;How to describe utilitarianism and altruism:&lt;/strong&gt; Both of these ethical systems involve judging the goodness of an action by the benefit to oneself and others, which we will take to be a judgement in relation to some aggregation of the marginal utilities of the action.  We characterise these two ethical systems with the following rankings.&lt;/p&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;Utilitarianism:&lt;/strong&gt; This ethical system holds that a person should act to maximise the aggregate benefit of their action to the whole of society.  This is represented by the ranking &lt;span class=&quot;math-container&quot;&gt;$\succeq_{\text{U}}$&lt;/span&gt; given by:&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$a \succeq_{\text{U}} a' \quad \quad \iff \quad \quad \sum_{i} \Delta U_i (a) \geqslant \sum_{i} \Delta U_i (a').$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;Altruism:&lt;/strong&gt; This ethical system holds that a person should act to sacrifice his own welfare to others, to the greatest degree.  For each person &lt;span class=&quot;math-container&quot;&gt;$k$&lt;/span&gt; in the society, this is represented by the ranking &lt;span class=&quot;math-container&quot;&gt;$\succeq_{\text{A},k}$&lt;/span&gt; (each individual has a different ethical ranking) given by:&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$a \succeq_{\text{A},k} a' \quad \quad \iff \quad \quad \sum_{i \neq k} \Delta U_i (a) - \Delta U_k (a) \geqslant \sum_{i \neq k} \Delta U_i (a') - \Delta U_k (a').$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;p&gt;Both of these rankings involve an inequality on sums of marginal utilities, but they differ in terms of the signs applied to the parts of the aggregation.  Both can be written in the general form:&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$a \succeq_{\mathbf{w}} a' \quad \quad \iff \quad \quad \sum_{i} w_i \Delta U_i (a) \geqslant \sum_{i} w_i \Delta U_i (a'),$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;for some specified vector of weights &lt;span class=&quot;math-container&quot;&gt;$\mathbf{w} = (w_1, ..., w_n)$&lt;/span&gt;.  In the case of utilitarianism we have weights &lt;span class=&quot;math-container&quot;&gt;$w_i = 1$&lt;/span&gt;, so that each individual contributes their utility equally to the aggregation.  In the case of altruism we have &lt;span class=&quot;math-container&quot;&gt;$w_i = \mathbb{I}(i \neq k) - \mathbb{I}(i=k)$&lt;/span&gt; so that the decision-maker contributes his marginal utility negatively to the aggregation (i.e., self-sacrifice is considered good).&lt;/p&gt;&#xA;" OwnerUserId="16120" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2018-05-24T01:19:35.377" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22124" PostTypeId="1" AcceptedAnswerId="22203" CreationDate="2018-05-24T03:22:07.337" Score="0" ViewCount="613" Body="&lt;p&gt;I recently joined an econ class. I am so lost on how to prove their equality. As a math standpoint, these are completely different equations. Please help! &lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;u1 (x1, x2) = x1^(2/3) x2^(1/3)&#xA;u2 (x1, x2) = 4ln (x1) + 2 ln(x2) +3&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;" OwnerUserId="18401" LastActivityDate="2018-05-28T22:06:17.770" Title="Compare utility functions" Tags="&lt;utility&gt;&lt;preferences&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22130" PostTypeId="1" CreationDate="2018-05-24T14:28:52.820" Score="5" ViewCount="1896" Body="&lt;p&gt;Im currently reading up on the &amp;quot;money metric utility function&amp;quot; (also known as the minimum income function or direct compensation function).&lt;/p&gt;&#xA;&lt;p&gt;By definition it is defined as:&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$m(\text{p},\text{x})\equiv e(\text{p},u(\text{x}))$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;Hal Varian writes in Microeconomic analysis (page 109):&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;it is easy to see that for a fixed &lt;span class=&quot;math-container&quot;&gt;$\text{x}$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$u(\text{x})$&lt;/span&gt; is fixed, so &lt;span class=&quot;math-container&quot;&gt;$m(\text{p},\text{x})$&lt;/span&gt; behaves exactly like an expenditure function: its monotonic, homogenous, concave in &lt;span class=&quot;math-container&quot;&gt;$\text{p}$&lt;/span&gt;, and so on. What is not so obvious is that when when &lt;span class=&quot;math-container&quot;&gt;$\text{p}$&lt;/span&gt; is fixed, &lt;span class=&quot;math-container&quot;&gt;$m(\text{p},\text{x})$&lt;/span&gt; is in fact a utility function.&lt;/p&gt;&#xA;&lt;p&gt;&lt;strong&gt;The proof is simple: for fixed prices the expenditure function is increasing in the level of utility: if you want a higher utility level, you have to spend more money.&lt;/strong&gt; In fact, the expenditure function is strictly increasing in &lt;span class=&quot;math-container&quot;&gt;$u$&lt;/span&gt; for continuous, local non-satiated preferences.&lt;/p&gt;&#xA;&lt;p&gt;Hence for fixed &lt;span class=&quot;math-container&quot;&gt;$\text{p}$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$m(\text{p},\text{x})$&lt;/span&gt; is a monotonic transform of the utility function therefore itself a utility.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Does this (the bolded statement) mean that we essentially convert our consumer's budget constraint/budget line into his indifference curves when prices are fixed?&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2018-11-20T23:01:00.163" Title="Money Metric Utility Function: Budget constraints become Utility Functions?" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;consumer-theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22131" PostTypeId="1" AcceptedAnswerId="22132" CreationDate="2018-05-24T15:36:40.863" Score="1" ViewCount="25" Body="&lt;p&gt;Let $Div_t$ be the dividend per share at date $t$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\displaystyle Div_t=\frac{\text{Earnings}_t}{\text{Shares Outstanding}_t}\times\text{Dividend Payout Rate}_t$ ------------------- (1)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My textbook says that if $\text{Shares Outstanding}_t$ is constant and $\text{Dividend Payout Rate}_t$ is constant, growth in dividends will equal growth of earnings.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, differentiating (1), we get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\displaystyle\frac{d}{dt}Div_t=\frac{\text{Dividend Payout Rate}_t}{\text{Shares Outstanding}_t}\frac{d}{dt}\text{Earnings}_t$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Clearly, $\displaystyle\frac{d}{dt}Div_t\ne\frac{d}{dt}\text{Earnings}_t$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where have I gone wrong?&lt;/p&gt;&#xA;" OwnerUserId="16105" LastActivityDate="2018-05-24T16:16:26.263" Title="Growth in dividends will equal growth of earnings" Tags="&lt;stock-market&gt;&lt;financial-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22132" PostTypeId="2" ParentId="22131" CreationDate="2018-05-24T16:16:26.263" Score="4" Body="&lt;p&gt;The textbook probably means growth rate and not absolute growth. Given your assumptions&#xA;$$&#xA;\frac{\frac{d}{dt}Div_t}{Div_t}=&#xA;\frac{\frac{d}{dt}\text{Earnings}_t}{\text{Earnings}_t}&#xA;$$&#xA;does hold.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2018-05-24T16:16:26.263" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22133" PostTypeId="1" AcceptedAnswerId="22136" CreationDate="2018-05-24T16:46:05.107" Score="0" ViewCount="2395" Body="&lt;p&gt;Consider a market in which there are three firms, all producing the same good. Firm i's cost of producing qi units of the good is &lt;em&gt;Ci(qi)=0&lt;/em&gt; for &lt;em&gt;qi≥0&lt;/em&gt; for each &lt;em&gt;i∈{1,2,3}&lt;/em&gt;;  the price at which output is sold when the total output is Q is &lt;em&gt;Pd(Q)=max{16−Q,0}&lt;/em&gt;, where &lt;em&gt;Q=q1+q2+q3.&lt;/em&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Each firm's strategic variable is output and the firms make their decisions sequentially: initially firm 1 chooses its output, then firm 2 does so, knowing the output chosen by the firm 1, and finally, firm 3 chooses its output, knowing the output chosen by firms 1 and 2. Find the equilibrium and outcome of Stackelberg's oligopoly game. List &lt;em&gt;q1,q2,q3&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The answer has been stated as (8,4,2) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand that we're supposed to use the Best Response functions of the other firms and then move sequentially by first solving the subgame of length 1. &#xA;I was able to find the Best Response of Firm 3 in terms of q1 and q2, but I do not understand how we're supposed to move forward with the question using the given Best Response. For a 2 Firm Stackelberg's oligopoly game, we can simply use the Best Response function of the follower firm and use it in the profit maximization function of leader's firm. However, when I repeat the procedure with a 3 firm Stackelberg's game, the results seem inconclusive. Please help me with this problem! &lt;/p&gt;&#xA;" OwnerUserId="18398" LastActivityDate="2018-05-24T17:37:25.523" Title="3 Firm Stackelberg's Oligopoly Game" Tags="&lt;game-theory&gt;&lt;oligopoly&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22134" PostTypeId="2" ParentId="22130" CreationDate="2018-05-24T17:19:37.593" Score="2" Body="&lt;p&gt;$m(\mathbf p,\mathbf x)$ specifies the minimum amount of money required for a consumer to attain the same utility as consuming bundle $\mathbf x$, taking prices $\mathbf p$ as given. In other words, since all bundles on the same indifference curve as $\mathbf x$ have the same utility value, and to achieve this utility, one needs at least an income of $m(\mathbf p,\mathbf x)$, we can thus establish a one-to-one mapping between utility levels and income levels. As utility is ordinal, we could as well use income as our utility measure. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This does not, however, suggest that the consumer's budget line is converted to her indifference curve; the two remain distinct objects. To see this, consider a two-goods case. With fixed prices, the slope of the budget line is $p_2/p_1$, which is constant for all $\mathbf x$'s. In contrast, the slope of the indifference curves is generally a non-constant function over $\mathbf x$:&#xA;\begin{equation}&#xA;\frac{\partial x_2}{\partial x_1}=\frac{\partial e(\mathbf p,u(\mathbf x))/\partial x_1}{\partial e(\mathbf p,u(\mathbf x))/\partial x_2}=\frac{MU_1(\mathbf x)}{MU_2(\mathbf x)}\,.&#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The money metric utility function simply changes the unit of utility measurement from utils to dollars, which is legitimate thanks to the ordinality of utility. It does not change the underlying mathematical objects in any substantive way, though.&lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2018-05-24T17:19:37.593" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="22135" PostTypeId="1" AcceptedAnswerId="22146" CreationDate="2018-05-24T17:33:57.393" Score="2" ViewCount="40" Body="&lt;p&gt;On May 24th the DJIA dropped and the news has been attributing it to Donald Trump's cancelation of a talk with North Korea (see image below).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/F5AAf.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/F5AAf.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My understanding is that the companies making up the DJIA haven't &lt;em&gt;lost&lt;/em&gt; any substantial amount of money because of this decision-so why has the DJIA fallen?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In general,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;b&gt;How &amp;amp; Why does this news negatively effect the US economy when the overall value of companies haven't declined?&lt;/b&gt;&lt;/p&gt;&#xA;" OwnerUserId="18407" LastActivityDate="2018-05-25T13:52:38.653" Title="Market Value Changing in Response to News" Tags="&lt;macroeconomics&gt;&lt;stock-market&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22136" PostTypeId="2" ParentId="22133" CreationDate="2018-05-24T17:37:25.523" Score="2" Body="&lt;p&gt;I assume that you found Firm 3's best response to be &#xA;\begin{equation}&#xA;q_3^*(q_1,q_2)=\frac12(16-q_1-q_2).&#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The next step would be to solve for Firm 2's best response. Since Firm 2 observes Firm 1's output and correctly anticipates Firm 3's best response, its profit maximization problem is &#xA;\begin{equation}&#xA;\max_{q_2}\;(16-q_1-q_2-q_3^*(q_1,q_2))q_2=&#xA;\max_{q_2}\;\left(16-q_1-q_2-\frac12(16-q_1-q_2)\right)q_2.&#xA;\end{equation}&#xA;Solve this problem, you should get Firm 2's best response as a function of $q_1$ only. Denote this best response $q_2^*(q_1)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, you solve Firm 1's profit maximization, with Firm 1 correctly anticipating the responses of the subsequent two firms: &#xA;\begin{equation}&#xA;\max_{q_1}\; \bigl(16-q_1-q_2^*(q_1)-q_3^*(q_1,q_2)\bigr)q_1.&#xA;\end{equation}&lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2018-05-24T17:37:25.523" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22138" PostTypeId="1" AcceptedAnswerId="22140" CreationDate="2018-05-24T21:21:34.877" Score="2" ViewCount="33" Body="&lt;p&gt;Suppose the amount of money in bank account that is compounded annually is given by $A(t)$. The annual rate of interest is $r$. Find a relation between $\displaystyle\frac{dA}{dt}$ and $r$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My attempt:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$A(t)=A(0)(1+r)^t$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\displaystyle\frac{dA}{dt}=A(0)(1+r)^t\ln (1+r)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Dividing, we get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\displaystyle\frac{1}{A}\frac{dA}{dt}=\ln(1+r)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, I think the answer should be $\displaystyle r=\frac{1}{A}\frac{dA}{dt}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What am I doing wrong?&lt;/p&gt;&#xA;" OwnerUserId="16105" LastActivityDate="2018-05-24T22:17:56.833" Title="Compound interest ($r$ in terms of $\frac{dA}{dt}$)" Tags="&lt;financial-economics&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22139" PostTypeId="1" CreationDate="2018-05-24T21:38:39.127" Score="0" ViewCount="74" Body="&lt;blockquote&gt;&#xA;&lt;p&gt;I have following dynamic optimization problem&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$V(k_0)=\max \sum_{t=0}^{\infty} b^t((1-a)ln c_t+a ln(l_t))$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;Subject to &lt;span class=&quot;math-container&quot;&gt;$l_t+e_t=h$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$y=Ak_t^pe_t^{1-p}$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$k_{t+1}=i_t+(1-x)k_t$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;Where c is consumption, i is inverse,ent, y is output, k is phisical capital per capita. &lt;span class=&quot;math-container&quot;&gt;$l$&lt;/span&gt; is leisure time , e is working time. V is value function. x is depreciation rate. A is total factor productivity.&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;The question I asked to you is that when a is zero, the economy would accumulate more physical capital? Or not? If yes, Why?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;I think that&lt;/p&gt;&#xA;&lt;p&gt;Capital accumulates according to &lt;span class=&quot;math-container&quot;&gt;$k_{t+1}=i_t+(1-x)k_t$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;Since investment &lt;span class=&quot;math-container&quot;&gt;$i_t=y_t-c_t$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;So&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$k_{t+1}=y_t+(1-x)k_t-c_t$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;When a=0, the utility function becomes &lt;span class=&quot;math-container&quot;&gt;$u(c_t)=ln(c_t)$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;That, househoulds get more utility from consumption with this new utility function in comparision to the previous utility function given. So consumption level increases, which decreases one period forward capital stock.&lt;/p&gt;&#xA;&lt;p&gt;But the things that I said seems to be wrong to some extent. What do you think ? Do you have any other wise idea about this?&lt;/p&gt;&#xA;" OwnerUserId="18231" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2018-05-25T09:48:10.133" Title="Capital accumulation" Tags="&lt;macroeconomics&gt;&lt;self-study&gt;&lt;dynamic-programming&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="22140" PostTypeId="2" ParentId="22138" CreationDate="2018-05-24T21:56:58.877" Score="2" Body="&lt;p&gt;You are not doing anything wrong. Since&#xA;$$&#xA;\lim_{r \to 0} \frac{\ln(1+r)}{r} = 1&#xA;$$&#xA;(to see why: use &lt;a href=&quot;https://en.wikipedia.org/wiki/L%27H%C3%B4pital%27s_rule&quot; rel=&quot;nofollow noreferrer&quot;&gt;l'Hôpital's rule&lt;/a&gt; or Taylor approximation) holds, for small numbers $r$ &#xA;$$&#xA;\ln(1+r) \approx r.&#xA;$$&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2018-05-24T22:17:56.833" LastActivityDate="2018-05-24T22:17:56.833" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22141" PostTypeId="1" AcceptedAnswerId="22148" CreationDate="2018-05-25T08:17:21.570" Score="5" ViewCount="156" Body="&lt;p&gt;I don't know a whole lot about economics besides for an intro course I took once so bear with me please...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm a software developer working with cryptocurrencies, and I got to thinking that it would be technically possible to tokenize securities (ideally giving legal ownership of that security to the token holder) and use them for transactions within an economy instead of currencies like the USD. One token would represent a certain percentage share in a holding company or a mutual fund or maybe even a government bond.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;After looking into this, there seems to be some large legal barriers preventing this sort of thing from happening, and it would be more of a feat in that regard than on the technical side of things (I think), but, more theoretically, it got me thinking about what the effects of replacing fiat with securities might be.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One thing I've heard is that a mildly positive inflation rate is desirable in a stable economy because it increases the opportunity cost of holding money thus stimulating more spending. A deflationary means of exchange might reduce spending and cause bad things? I'm also aware that using fiat allows the Federal Reserve some control over the economy via monetary policy, which is definitely needed in this boom and bust situation we're in now.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand, securities actually have what all those gold-standard nutjobs want a currency to have, actual intrinsic value! It allows for anybody taking part in an economy to necessarily own part of it. It could be a kind of free-market socialism where the means of production is actually owned by the people (redistribution of wealth still needed of course). Furthermore, In today's world, the very rich tend to have proportionally more of their wealth tied up in investments compared to the working class, further widening the divide. If securities were currency, investing wouldn't be a choice but a requirement.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My main question is, why isn't this the way it works today? Certainly it would be possible for just a regular US dollar to be legally backed by equity or debt with no crypto hacking involved, so why haven't we done so?&lt;/p&gt;&#xA;" OwnerUserId="18412" LastEditorUserId="18412" LastEditDate="2018-05-25T08:55:00.357" LastActivityDate="2018-05-25T14:34:40.393" Title="Why don't we transact with securities rather than fiat money?" Tags="&lt;macroeconomics&gt;&lt;currency&gt;&lt;securities&gt;" AnswerCount="2" CommentCount="4" FavoriteCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="22142" PostTypeId="2" ParentId="22141" CreationDate="2018-05-25T09:15:16.133" Score="4" Body="&lt;p&gt;You've just reinvented &lt;a href=&quot;https://www.investopedia.com/articles/bonds/08/bearer-bond.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;bearer bonds&lt;/a&gt;. From that page:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Bearer bonds are bonds that are owned by whoever is holding them, rather than having registered owners like most other securities. Like most other bonds, they have a stated maturity date and interest rate, but coupons representing interest payments are generally physically attached to the security and must be submitted to the company for payment.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It's been done. Like cryptocurrencies, the one class of transactions they turned out to be well-suited for was the class of illegal transactions; money laundering, payment for criminal services, prohibited capital movements, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And having a fiat currency which is simply backed by a country's economy, has succeeded against all other kinds of currency as the most viable.&lt;/p&gt;&#xA;" OwnerUserId="44" LastEditorUserId="44" LastEditDate="2018-05-25T09:38:12.663" LastActivityDate="2018-05-25T09:38:12.663" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="22143" PostTypeId="2" ParentId="22139" CreationDate="2018-05-25T09:48:10.133" Score="1" Body="&lt;p&gt;$a=0$ means implies the household does not enjoy leisure. In other words, the trade-off between consumption and leisure is switched off. It's not generally true that with $a=0$, utility is higher for a given value of $c_t$, as this depends on the previous value of $l$. Whether or not consumption rises as a consequence depends also on the parameter $b$, i.e. the utility discount factor. &#xA;If the household does not value leisure, he might work 80 hours per week and obtain a higher income. If he is very forward-looking however, he might also save a lot for later consumption.&lt;/p&gt;&#xA;" OwnerUserId="17735" LastActivityDate="2018-05-25T09:48:10.133" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22145" PostTypeId="2" ParentId="21903" CreationDate="2018-05-25T13:39:16.613" Score="1" Body="&lt;p&gt;If possible, clarifying what exactly you're most interested in might help answers be more on point and useful. Are you interested in the mechanisms that cause a one-period shock to last (and not just immediately dissipate)? Or are you interested in understanding some of the reasons that a shock to one variable (say technological progress) leads to changes in other variables (output, employment, wage, interest rates, etc.)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In either case, the answer depends somewhat on what flavor of the model you're considering. The reasons that shocks tend to have persistent effects in the models comes from mechanically inserting persistence (by using an AR process for shocks) and/or the interplay between stocks and flows (the most common being capital accumulation and investment).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for sources, I personally found that lecture notes from graduate macro classes were often some of the most useful resources for understanding internal mechanisms and reasoning (Eric Simms, for example, has a &lt;a href=&quot;https://www3.nd.edu/~esims1/grad_macro_13.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;wonderful series&lt;/a&gt; of lecture notes that include &lt;a href=&quot;https://www3.nd.edu/~esims1/stylized_facts_rbc_sp12.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;some outlines of BC facts&lt;/a&gt; that models try to explain (including persistence), &lt;a href=&quot;https://www3.nd.edu/~esims1/rbc_model_2012.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;basic RBC model notes&lt;/a&gt;, &lt;a href=&quot;https://www3.nd.edu/~esims1/rbc_extensions_sp12.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;notes examining extensions to the RBC framework&lt;/a&gt;, notes on &lt;a href=&quot;https://www3.nd.edu/~esims1/investment_notes_sp12.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;investment&lt;/a&gt; in RBC models, in addition to &lt;a href=&quot;https://www3.nd.edu/~esims1/new_keynesian.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;NK notes&lt;/a&gt; and some explaining &lt;a href=&quot;https://www3.nd.edu/~esims1/monetary_policy.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;optimal monetary policy&lt;/a&gt; in NK models). In addition to Simms' resources, &lt;a href=&quot;https://www.sas.upenn.edu/~ordonez/html/TeachingG.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;Ordonez&lt;/a&gt; has created a &lt;a href=&quot;https://www.sas.upenn.edu/~ordonez/pdfs/ECON%20510/RBC.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;nice, simple set&lt;/a&gt; that explain the derivation, which might provide some insight. Additionally, &lt;a href=&quot;http://www.wifa.uni-leipzig.de/fileadmin/user_upload/itvwl-vwl/makro/Lehre/ss/am-ii/AM_II_RBC_Theory_3.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;slide 15 in this set&lt;/a&gt; describes one example of how propogation can work, though again, that's quite a limited example.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That said, there are several classic papers (such as &lt;a href=&quot;http://www.kellogg.northwestern.edu/faculty/rebelo/htm/rbc2000.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Resuscitating Real Business Cycles&lt;/a&gt; especially section 4) which are useful to keep in mind. As for how others generate persistence, you can look at habit formation in consumption (&lt;a href=&quot;https://minneapolisfed.org/research/sr/sr280.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;, though there are many others, of course), &lt;a href=&quot;https://www.jstor.org/stable/1809141&quot; rel=&quot;nofollow noreferrer&quot;&gt;variable capital utilization&lt;/a&gt;, or any of the other &lt;a href=&quot;http://www.uio.no/studier/emner/sv/oekonomi/ECON4310/h12/undervisningsmateriale/lecture13.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;listed methods on slides 40-46&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Though again, more info on what exactly you're looking for could help me refocus a bit. I hope these at least provide a start to what you're interested in!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT: Given your interest within a single period, I think the key is to keep in mind what the &quot;engine&quot; is behind the RBC model- ultimately, it's all about households maximizing utility. They do this by producing (through the firm side of the RBC model) and by enjoying leisure. The specific relationship between these objects leads households to respond to changes in any single value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, take a technology shock (say a positive one, so now more output can be generated from the same levels of input). There are two competing forces:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The substitution effect, which leads households to &quot;realize&quot; that, by increasing the number of labor hours they commit to, they can get even more output (some of which can be used for consumption, since &quot;output&quot; in this model isn't differentiated, and can therefore be used either for consumption or investment).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The income effect, which dictates that, since leisure is a normal good (as defined by the utility function exogenously plugged in to the model), higher consumption should lead to higher leisure as well.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Generally, models are &quot;calibrated&quot; such that hours worked and output both rise. So this suggests that households value the additional consumption enough so they choose to work more.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In RBC models with investment, positive technology shocks also mean that capital is more productive, which means interest rates rise.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can write a more thorough overview from my grad macro notes later in the day, but until then, I'd review &lt;a href=&quot;https://www3.nd.edu/~esims1/rbc_model_2012.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;this set&lt;/a&gt; of Simms' notes, which do a decent job explaining where everything comes from, and why variables move the way they do. Alternatively, as &lt;a href=&quot;https://mpra.ub.uni-muenchen.de/17932/1/Real_Business_Cycle_Theory-A_Systematic_Review.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;this source&lt;/a&gt; notes: &quot;Proposed by Kydland and Prescott, the RBC theory rests on the neoclassical concept of rational expectations and constructs on the basis of expected utility maximization. Therefore, it is important to understand the central assumption in the RBC theory: individuals and firms respond to economic events optimally all&#xA;the time.&quot; Additionally &lt;a href=&quot;https://zdoc.site/7-stochastic-growth-models-and-real-business-cycles.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;pages 10 onwards&lt;/a&gt; might be useful in understanding where this comes from, and &lt;a href=&quot;http://www.sfu.ca/~bkrauth/econ808/808_lec5.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;this set of notes&lt;/a&gt; also takes more time detailing where things come from, and what they mean.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let me know if those additional resources are helpful at all!&lt;/p&gt;&#xA;" OwnerUserId="13366" LastEditorUserId="13366" LastEditDate="2018-05-25T15:09:30.627" LastActivityDate="2018-05-25T15:09:30.627" CommentCount="8" ContentLicense="CC BY-SA 4.0" />
  <row Id="22146" PostTypeId="2" ParentId="22135" CreationDate="2018-05-25T13:52:38.653" Score="1" Body="&lt;p&gt;There are likely two major (and closely related) reasons for this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First- stock prices aren't purely reflective of what a company is worth &lt;em&gt;today,&lt;/em&gt; instead, stock prices reflect the expected future prices as well. Events like this, which increase uncertainty and instability, might change expectations about future stock prices. This is then incorporated into current stock prices, which leads to a fall.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Second- a lot of automated trading algorithms incorporate news keywords into their pricing structures (&lt;a href=&quot;https://onlinelibrary.wiley.com/doi/10.1002/9781118467411.ch14&quot; rel=&quot;nofollow noreferrer&quot;&gt;for example&lt;/a&gt;), which can lead to reactions based on the headlines themselves. &lt;a href=&quot;https://www.telegraph.co.uk/business/2018/02/07/automated-trading-frame-markets-mini-crash/&quot; rel=&quot;nofollow noreferrer&quot;&gt;These can then create a feedback loop&lt;/a&gt; with other funds, like ETFs, which trade based on volatility indexes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm sure there are other reasons as well, (perhaps the breakdown in the summit led some traders to reevaluate the relative bargaining power of the US and China in their upcoming summit, which in their mind might lead to an increased likelihood of a trade war, as a hypothetical), though those two can explain many large fluctuations!&lt;/p&gt;&#xA;" OwnerUserId="13366" LastActivityDate="2018-05-25T13:52:38.653" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22147" PostTypeId="2" ParentId="22107" CreationDate="2018-05-25T13:59:11.187" Score="3" Body="&lt;p&gt;The recent shift was likely two major interrelated reasons:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, there was already relatively high uncertainty regarding the future viability and value of the currency (as @zeta-band noted, they're already incurring high deficits).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Second, Erdogan has made statements suggesting that, if re-elected, he'll take more direct control over the central bank. Given that he'd likely institute policies that would lead to higher inflation (or force haircuts on foreign debt holders), investors see that as a worrying potential future outcome.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Though at the same time, the rising interest rates (which, while lower than rates in Turkey, are higher than they were previously) in other Western countries has made investment in places other than Turkey more alluring, which also can devalue the Lira.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT 2:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Perhaps clarifying that sentence a bit would be helpful (I left off an implied phrase, which is bolded below, which might have led to confusion)&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;rising interest rates in other Western countries has made investment in places other than Turkey more alluring &lt;strong&gt;than they comparatively used to be.&lt;/strong&gt; &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I'm saying investors consider a variety of different factors when deciding where to invest. If everything about two countries was absolutely equal (both currently and into the future) then we would expect the investor to put more money in the country who has comparatively higher interest rates. However, this &lt;em&gt;all else being equal&lt;/em&gt; assumption clearly never holds in the real world- countries have different political risks, economic risks, exchange rate risks, etc. that investors consider. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;At the same time, even if every investor evaluates all of these risks identically (meaning everyone looks at the risks in both countries and agrees how likely each event is to occur, and how each one would affect any given investment) we'd still expect to see some variation in investment patterns. Why? Because every investor is optimizing over an entire portfolio, and is considering different specific investments. Additionally, every investor has their own risk preference, a more risk averse investor might be willing to forgo a higher expected return in one country for the comparative &quot;safety&quot; of another.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which takes us back to the case of Turkey. It's true that the interest rates set by the Turkish government are quite high compared to other countries. However, if you're a US-based long term investor (meaning here the projects you'd be investing in wouldn't allow you to get a return on your investment for a long time) you might be worried about other perceived risks (like future inflation) that would make the high interest rate not enough to overcome the potential risks.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So what do we see? We see that there are some international investors who choose to invest in the US (or Europe, China, India, etc.- just not Turkey), some who choose to invest in Turkey, and some who split their resources between them. Furthermore, we can ask a hypothetical question: for investors in group 1 (non-Turkey investors), all else equal, how high would the interest rate have to be to induce you to invest? Clearly the answer is higher than the current rate, but at the same time, we'd expect at least some of them to shift investment if the Turkish interest rates were 75%. Clearly, as the Turkish interest rate goes up, more and more of those investors would shift resources into Turkey.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What we can then do, however, is consider that second and third group of investors (those who invest at least some of their resources in Turkey) and as them &quot;how would your portfolios change if the US interest rate wasn't 1 or 2%, but 50%?&quot; Obviously, we'd expect those investors to shift at least some of their investments from Turkey to the US.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The critical thing, however, is that there isn't a discontinuity. That means that as one country raises their interest rates a bit, some investors would likely shift some of their resources into that country. What we care about is the &lt;em&gt;marginal&lt;/em&gt; investment in each country- the investment that was only just &lt;em&gt;barely&lt;/em&gt; worth it given the conditions. These are the investments that we expect to shift.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So in conclusion, what's driving the devaluation is two fold. On one hand, there's a perception of increasing risks inside Turkey. On the other, the return for investing in places like the US are increasing from what it was previously. These two forces (one pushing down the attractiveness of investment in Turkey; one pushing up the attractiveness of investment in the US) are working in the same direction- to push investment out of Turkey, devalue the currency, and push them into other countries.&lt;/p&gt;&#xA;" OwnerUserId="13366" LastEditorUserId="13366" LastEditDate="2018-08-16T16:04:33.193" LastActivityDate="2018-08-16T16:04:33.193" CommentCount="9" ContentLicense="CC BY-SA 4.0" />
  <row Id="22148" PostTypeId="2" ParentId="22141" CreationDate="2018-05-25T14:34:40.393" Score="1" Body="&lt;p&gt;@EnergyNumbers aptly points out that Bearer bonds do exist and act in some way as a currency like you are describing. This does not answer the question of why aren't bearer bonds used instead of fiat currency?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First we should understand what a bearer bond is. A bearer bond (or any bond really) entitles its holder to fixed payments over years (coupon payments) and the ability to have a pre-agreed upon amount paid at a later date (principal payment). It is essentially an agreement that a company or individual will pay the holder of the bond back the money that the bond was purchased for plus some agreed on interest. Unlike some types of bonds a bearer bond is special in that whoever holds the piece of paper owns the bond, whereas other bonds are generally in someone's name and must be transferred on paper not just physically. Theoretically it makes sense that you could go into a store and pay them in bearer bonds instead of cash assuming the store was willing to accept them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are two big reasons for why you couldn't just stop using the fiat currency and switch over to bearer bond based exchanges.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) Bearer bonds are not necessarily a good holder of wealth. Bonds are a promise by a company to pay back a debt over time with interest. If the company goes bankrupt as most tend to do over time the bond becomes worthless. If you had your life savings in the form of bonds and the company that backs the bonds disappears you suddenly have no money. As an employee or shop owner I may be reluctant to take payments in a currency that may have no value tomorrow. This volatility in price and the potential to lose all value overnight is why only wealthy people generally invest in securities since they can tolerate this risk.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) Bearer bonds are worth currency. What gives bearer bonds value is that they can be exchanged for fiat currency. A &lt;code&gt;$100,000&lt;/code&gt; bearer bond entitles me to &lt;code&gt;$100,000&lt;/code&gt; plus interest payments. If you don't have some fiat currency what does that mean? There needs to be some agreed on value for this type of debt and some sort of unit. Even if all transactions take place in the form of transferred securities (most large corporate transactions already do) there needs to be some agreed upon unit of measurement to compare a bond from one company to the next. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;These same points apply to securities in the form of stocks and ownership in companies. They are simply too volatile and impossible to compare value without some underlying fiat currency. The reason the dollar works so well is that you know the US government is going to be around for a long time. You can trust that the government is going to accept payments in dollars and be paying in dollars meaning that the dollar has some intrinsic value unlike a highly volatile stock or bond.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With all of this said many transactions do take place using an exchange of securities and bonds. Most corporate transactions as well as large transactions among wealthy people take place by transferring ownership of these types of investments. For small transfers (such as buying milk at the store) these types of transactions simply don't make sense for the reasons stated above.&lt;/p&gt;&#xA;" OwnerUserId="10245" LastActivityDate="2018-05-25T14:34:40.393" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="22149" PostTypeId="1" CreationDate="2018-05-25T15:15:16.157" Score="2" ViewCount="108" Body="&lt;p&gt;If my goal were prediction (e.g. of propensity scores), why couldn't I control for higher order terms of the model equation? For example, why not estimate the model and then control for squares and cubes of the predicted values in a second stage and get an even better estimate of the correct predicted values (rather than just a test of functional form)? I know the standard errors would be wrong but couldn't I bootstrap the process?&lt;/p&gt;&#xA;" OwnerUserId="16395" LastEditorUserId="16395" LastEditDate="2018-05-25T16:16:17.743" LastActivityDate="2019-08-20T19:01:40.143" Title="Why can't we control for squares and quadratics of predicted values in regression?" Tags="&lt;econometrics&gt;&lt;applied-econometrics&gt;" AnswerCount="1" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="22151" PostTypeId="1" CreationDate="2018-05-25T20:24:49.723" Score="1" ViewCount="94" Body="&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/Px2II.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;IS curve assumes aggregate demand equals production. Together with LM curve, for a particular price and other exogenous variables, we have one set of production and interest rate that balances both markets.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The picture above shows the aggregate demand and supply curves. Aggregate demand curve comes from varying the price variable and printing all the different balance productions out into the graph. Aggregate supply is exogenous.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a given price, it can be seen in the graph that the aggregate demand (equal to production as is the premise of the IS curve) is not equal to aggregate supply. Hence I can only assume that aggregate supply and production are different things. What is the difference? If they are the same, what am I missing, and can someone clarify my gaps in understanding?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks in advance.&lt;/p&gt;&#xA;" OwnerUserId="18418" LastActivityDate="2018-05-25T20:24:49.723" Title="Question about IM/LS model and aggregate demand/supply" Tags="&lt;macroeconomics&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22152" PostTypeId="2" ParentId="15595" CreationDate="2018-05-25T20:54:37.270" Score="1" Body="&lt;p&gt;These are sometimes known as &quot;quasi-separable utility functions&quot;.  A recent paper that describes the theory is &lt;a href=&quot;http://www.trembling-hand.com/wp-content/uploads/2018/01/addrep.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Quasi-Separable Utility&lt;/a&gt; by Qin and Rommeswinkel.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Utility of this form arises fairly naturally in macro and finance.  If your current utility depends on lagged consumption as well as current, then you get utility of this form,&#xA;$$&#xA;\sum_{t=1}^\infty u(C_{t-1}, C_t),&#xA;$$&#xA;where $C_t$ is time $t$ consumption.  One particularly common form is &#xA;$$&#xA;\sum_{t=1}^\infty u(C_{t} - h C_{t-1}),&#xA;$$&#xA;which is known as habit utility, since it captures (for $h &amp;gt; 0$) the idea that get used to a certain level of consumption, so if it drops you are very unhappy.&lt;/p&gt;&#xA;" OwnerUserId="10745" LastActivityDate="2018-05-25T20:54:37.270" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22154" PostTypeId="2" ParentId="15168" CreationDate="2018-05-25T22:37:48.370" Score="2" Body="&lt;p&gt;I am not familiar with contemporary Marxist economists, but the labour theory of value as formulated in Das Kapital does not deny that the usefulness (&lt;strong&gt;use value&lt;/strong&gt;, in Marx' terms) of an item is subjective. Moreover, the fact that an item is useful to someone (however this usefulness is determined by each individual subject) is a precondition for it to be exchanged on the market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For items that are exchanged on the market (&lt;strong&gt;commodities&lt;/strong&gt;) the &lt;strong&gt;exchange value&lt;/strong&gt; is the ratio between the quantity of one good that is exchanged for a unit of another good. Money is a special commodity&#xA;chosen by a society to measure the exchange values of all other commodities (&lt;strong&gt;price&lt;/strong&gt;).&#xA;Items that are not exchanged (e.g. air, or something that is produced for personal use but not sold) have no exchange value / price, however useful they may be.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The prices of commodities that are sold only occasionally (e.g. a painting) may vary considerably and are rather unpredictable.&#xA;On the other hand, commodities that are produced, exchanged and consumed on a regular basis (and this is the topic of Marx' analysis) tend to have more stable prices.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;According to the labour theory of value (LTV), this equilibrium price is related to the&#xA;average amount of labour necessary in a given society to produce each unit of the commodity (&lt;strong&gt;value&lt;/strong&gt;).&#xA;The reason for this is that, if producers sell a commodity at a low price that does not reflect all the labour that went into making it, they will make no profit or even go bankrupt; on the other hand, if they try to sell at a very high price that is totally unrelated to the necessary labour, there will probably be competitors selling the same commodity at a lower price (unless there is a monopoly).&#xA;This situation is different from the case of a painting, because the buyer of a painting cannot find another seller selling the exact same painting at a lower price: LTV considers equilibrium prices of reproducible commodities under a given average productivity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Once you have a certain number of people who decide to buy a certain product (whatever personal / subjective reasons they may have) and an average productivity for that product, you can use LTV to explain certain aspects of prices.&#xA;E.g. LTV would explain why a toothbrush costs less than a Boeing 747 even though the demand for toothbrushes is much higher than that for Boeing 747s by saying that the production of a toothbrush requires (much) less labour.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, as far as I understand, even in Marx' original formulation there is no contradiction between the LTV and a subjective theory of value (use value) in that the LTV does not deny that the judgment about the usefulness of a given product is subjective.&lt;/p&gt;&#xA;" OwnerUserId="8620" LastEditorUserId="8620" LastEditDate="2018-07-27T15:52:23.097" LastActivityDate="2018-07-27T15:52:23.097" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22155" PostTypeId="1" CreationDate="2018-05-25T23:14:58.350" Score="1" ViewCount="81" Body="&lt;p&gt;I am trying to understand the subjective theory of value and run into some considerations that make me think I got it wrong.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As far as I understand, the subjective theory of value states that the values (prices) of commodities are not related to any objective quantity but rather are a result of individual, subjective judgements. E.g. if I decide to pay 1000 \$ for a good, then for me that good has the (subjective) value of 1000 \$, and that is all there is to it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a result, the gross domestic product of a nation is the sum of all these subjective judgements about the values of goods that are bought and consumed by people over a period of time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But, as far as I know, the GDP is used to evaluate the performance of an economy (growth and so on): Do economists really base their evaluation of an economy on some non-objective measure of value? Or value is subjective at the level of an individual and becomes something objective in the aggregate?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can someone help me out?&lt;/p&gt;&#xA;" OwnerUserId="8620" LastActivityDate="2018-07-25T01:00:09.043" Title="Subjective theory of value applied to gross domestic product" Tags="&lt;value&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22156" PostTypeId="2" ParentId="22155" CreationDate="2018-05-26T00:27:02.750" Score="1" Body="&lt;p&gt;Interesting observation, but I think the answer is partly explained by several factors:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, any calculation of &lt;em&gt;real&lt;/em&gt; GDP would eliminate the year-over-year variance that could be due to taste shocks leading to significant price changes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Second, I think your observation is partially true, however. What makes an iPhone more valuable than an old Motorola smartphone? Sure, some inputs might be slightly different, but the &quot;production technology&quot; of the iPhone makes it such that we (in general) &lt;em&gt;do&lt;/em&gt; value it higher. While some measures like CPI try to account for some of those issues by considering benchmarks for certain performance criteria (like processing power, memory, etc.), in the end, there absolutely is some taste-based component.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think it's partly accounted for by aggregation, as you mentioned, but I think the third point is that there's a bit of a disconnect between what &lt;em&gt;value&lt;/em&gt; is trying to measure, and what GDP is interested in. Theories of value attempt to explain why we attach certain &quot;utility amounts&quot; to different goods. But that doesn't mean the &lt;em&gt;output&lt;/em&gt; of any particular &quot;theory of value&quot; is subjective: the observed prices and quantities are quite objective. GDP (like other macroeconomic indicators) is more interested in tabulating those objective &lt;em&gt;outputs&lt;/em&gt; of the theory of value and observing their change over time. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, I know I value the green mechanical pencil in front of me at \$2, despite the fact I only paid \$1 for it. Assuming the production costs are negligible, GDP would observe that as \$1 of economic activity. It doesn't consider how much I &lt;em&gt;would&lt;/em&gt; have paid for it, which is what different theories of value attempt to explain. Furthermore, &lt;em&gt;why&lt;/em&gt; I value it at \$2 might be for any host of reasons- perhaps its a subjective value, or perhaps that valuation reflects what I think the pencil will be worth in a year's time. Regardless of what that reasoning is, the objective measurements that GDP considers are the price paid and quantity.&lt;/p&gt;&#xA;" OwnerUserId="13366" LastActivityDate="2018-05-26T00:27:02.750" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="22157" PostTypeId="1" AcceptedAnswerId="22159" CreationDate="2018-05-26T00:43:51.893" Score="1" ViewCount="58" Body="&lt;p&gt;Malaysia recently changed governments. The new finance minister claimed the national debt is actually &lt;a href=&quot;https://www.thestar.com.my/business/business-news/2018/05/24/debt-to-gdp-ratio-above-80pct-says-lim/&quot; rel=&quot;nofollow noreferrer&quot;&gt;RM1.087 trillion&lt;/a&gt;, and that the previous government had understated the national debt by some RM400 billion:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;The official Federal Government debt is RM686.8bil&lt;/li&gt;&#xA;&lt;li&gt;&quot;In addition, the Government is already committed to pay for government guarantees for various entities which are unable to service their debts. This amounts to RM199.1bil.&quot;&lt;/li&gt;&#xA;&lt;li&gt;&quot;...the Government also must make lease payments for &quot;Public-Private Partnership&quot; (PPP) projects such as construction of schools, roads, hospitals and police stations, which amount to RM201.4bil.&quot;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The former finance minister promptly responded by claiming that the new minister is overinflating figures, and that &lt;a href=&quot;https://www.thestar.com.my/news/nation/2018/05/25/najib-to-pakatan-congrats-on-spooking-the-market-with-rm1tril-figure/&quot; rel=&quot;nofollow noreferrer&quot;&gt;the original RM686.8 billion was according to &quot;universally accepted&quot; defined by the IMF and World Bank&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't understand what they're saying very well. Two questions:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;What are the two extra terms mentioned by the new minister?&lt;/li&gt;&#xA;&lt;li&gt;Is Malaysia's national debt RM1 trillion or RM686 billion?&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="15607" LastActivityDate="2018-05-26T02:28:46.853" Title="Malaysia's national debt - who's correct?" Tags="&lt;government-debt&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22158" PostTypeId="2" ParentId="15471" CreationDate="2018-05-26T02:18:22.480" Score="0" Body="&lt;p&gt;I realize this question might be too old to reply to, but it was just bumped to the homepage. But anyway:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think other answers might be missing the forest for the trees a bit. Most basic economic models could be defined with either &quot;stocks&quot; or &quot;flows&quot; as you've defined them. Ultimately, it's about measuring productivity in a generalized production function. You can define the inputs however you'd like- labor could be defined in &quot;full time employee equivalents,&quot; or &quot;hours worked,&quot; or a vareity of other things. Capital, as many other answers have noted, is incredibly hard to pin down in some cases. That said, it can often be defined and measured through depreciation, investment, &quot;hours of machine X used,&quot; &quot;number of tractors used,&quot; etc.. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;More generally, both are pinned down by their relative factor income shares: an early estimation of which led to the creation of the Cobb-Douglas Production Function, which is an instructive example. For that, you define labor as the number of person hours worked (so if you worked for two companies, four hours each, it would count as 8 total &quot;units&quot; of labor), and capital as the total value of all machinery, buildings, equipment, etc.. You then look at how productive resources are allocated between the two, and back out income shares. For this, you never needed to really touch the &quot;stock vs flow&quot; issue, you just had to make sure your definitions were consistent.&lt;/p&gt;&#xA;" OwnerUserId="13366" LastActivityDate="2018-05-26T02:18:22.480" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22159" PostTypeId="2" ParentId="22157" CreationDate="2018-05-26T02:28:46.853" Score="2" Body="&lt;p&gt;From a quick glance, it looks like the difference is that the new finance minister is including promised payments that the government had previously made, but hasn't had to pay yet. For example, say I borrow \$10 from you. At the same time, say I had previously promised (in an unrelated interaction) to give you \$5 at the start of June. What's my current debt to you? Officially, it's \$10 (from the loan you had given me). But come the first of June, if I haven't paid you back yet, I'll find myself in debt to you for \$15: \$10 from the loan, and the additional \$5 from the promise. Effectively, the new finance minister is counting the debt to be the entire \$15 (that is, current debt obligations, as well as promised future payments to different projects in Malaysia), while the official figure only considers my debt to be \$10 (since I don't yet technically owe you the additional \$5).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Technically, the government official figures are correct, since the government can &quot;get out&quot; of the future payments by (I'd assume) changing the law to remove themselves from that responsibility. At the same time, since (it looks like) those payments are to Malaysian government/private company partnership projects, simply refusing to pay would ultimately undermine Malaysian projects, which would hurt citizens. Which is more important depends on the context, and the interests of the individual.&lt;/p&gt;&#xA;" OwnerUserId="13366" LastActivityDate="2018-05-26T02:28:46.853" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22162" PostTypeId="1" CreationDate="2018-05-26T11:07:56.310" Score="3" ViewCount="130" Body="&lt;p&gt;The production set has a simple meaning: It is the set of all production vectors that are feasible to a firm. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The production function also has a simple meaning: It gives the output quantity for a given vector of input quantities (for a firm that produces only one output. )&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But what is the production transformation function? It is defined as the function $F(y)$ such that the production set is $\{y: F(y)\leq 0 \}$. Essentially, it is a way to encode the production set. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;But is there also a meaningful interpretation of this function itself, rather than merely as a mathematical device to define the production set in a way that's analytically tractable?&lt;/strong&gt; &lt;/p&gt;&#xA;" OwnerUserId="11146" LastActivityDate="2018-05-26T17:43:07.530" Title="Is there an economic interpretation of the production transformation function?" Tags="&lt;production-function&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22163" PostTypeId="1" CreationDate="2018-05-26T14:39:41.290" Score="2" ViewCount="68" Body="&lt;p&gt;Given the game like Prisoner's dilemma (infinitely undiscounted) and each person has 3 actions in every period: confess defect and kill, and the payoff matrix have 2 NE as (D,D),(K,K).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can I still use the property that if in any stage NE is played, then that kind of strategy is SPNE.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems work for me to prove that any sequence like dd,kk,kk,kk,dd....randomly combination of dd,kk, is SPNE.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is that correct? Can I generalize that property?&lt;/p&gt;&#xA;" OwnerUserId="18424" LastActivityDate="2019-01-29T00:00:25.810" Title="Repeated game with stage game has more than 1 NE" Tags="&lt;game-theory&gt;&lt;repeated-games&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="22165" PostTypeId="2" ParentId="22162" CreationDate="2018-05-26T17:18:02.647" Score="2" Body="&lt;p&gt;It is, as you say, a mathematical device to define the production set in a way that is analytically tractable&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have seen &lt;a href=&quot;https://web.stanford.edu/~jdlevin/Econ%20202/Producer%20Theory.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;one description&lt;/a&gt; as thinking of it as a measure of &lt;em&gt;the amount of technical progress now required to make the combination $y$ a feasible one&lt;/em&gt;, so &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;if $F(y)=0$ then that combination is just feasible with current technology, &lt;/li&gt;&#xA;&lt;li&gt;if $F(y)\lt 0$ that combination is feasible with less than current technology, &lt;/li&gt;&#xA;&lt;li&gt;if $F(y)\gt 0$ that combination requires more than current technology enables and so is currently not feasible&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;though this looks more like handwaving and rationalisation rather than something actually meaningful  &lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2018-05-26T17:18:02.647" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22166" PostTypeId="1" CreationDate="2018-05-26T17:25:24.580" Score="1" ViewCount="31" Body="&lt;p&gt;International trade consists of both goods and services, yet in the case of US-China trade for some reason both the media and official government releases only seem to quote the goods component.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So for example for 2017 imports were $\$505.6$ bn, exports $\$130.4$bn giving a trade deficit in goods of $\$375.2$bn with China.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I cannot for the life of me find import and export figures for services to and from China.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can anyone please point me in the right direction? Thanks.&lt;/p&gt;&#xA;" OwnerUserId="14368" LastEditorUserId="8891" LastEditDate="2018-05-26T17:27:16.210" LastActivityDate="2018-05-26T17:35:41.070" Title="Trade in services between the US and China" Tags="&lt;international-trade&gt;&lt;balance-of-trade&gt;&lt;china&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22167" PostTypeId="2" ParentId="22166" CreationDate="2018-05-26T17:35:41.070" Score="3" Body="&lt;p&gt;Table 2.2 of &lt;a href=&quot;https://www.bea.gov/scb/pdf/2017/10-October/1017-international-services-tables.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.bea.gov/scb/pdf/2017/10-October/1017-international-services-tables.pdf&lt;/a&gt; suggests &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;US exports of services to China in 2016 worth $\$54$bn and &lt;/li&gt;&#xA;&lt;li&gt;US imports of services from China in 2016 worth $\$16$bn&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Later parts of table 2.2 give a breakdown of types of services.  &lt;em&gt;Travel (for all purposes including education)&lt;/em&gt; - which should not include transport - seems to be a large part of US exports of services to China &lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2018-05-26T17:35:41.070" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22168" PostTypeId="2" ParentId="22162" CreationDate="2018-05-26T17:43:07.530" Score="2" Body="&lt;p&gt;One reason a direct interpretation may be difficult is that the function is seemingly without unit. That is if for a function $F()$ the inequality $F(y) \leq 0$ yields the set of feasible productions then the function $G() = 2F()$ works as well. The same is true for any other scalar multiplication or any monotonic transformation of $F$ that leaves the $F(y) = 0$ level curve in place.  &lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2018-05-26T17:43:07.530" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22169" PostTypeId="1" AcceptedAnswerId="22172" CreationDate="2018-05-26T17:50:55.553" Score="1" ViewCount="38" Body="&lt;p&gt;In my last subject of studies I am analyzing trade costs in a gravity model, e.g. multilateral trade resistance and bilateral trade resistance terms. The gravity model assumes world trade. However, I want to analyse the effect of these trade resistance terms only on a subset of countries, , e.g. trade costs of war on LDC's. I therefore would drop all developed countries as exporters and would only analyse LDC's as exporters. Developed countries would be included as importers though. Would it be statistically misleading or would that regression work ? &lt;/p&gt;&#xA;" OwnerUserId="18427" LastActivityDate="2018-05-26T22:13:11.113" Title="Subset of Data in a gravity model" Tags="&lt;microeconomics&gt;&lt;regression&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22170" PostTypeId="1" CreationDate="2018-05-26T19:06:10.577" Score="2" ViewCount="40" Body="&lt;p&gt;In The Wind of Change: &lt;a href=&quot;https://warwick.ac.uk/fac/soc/economics/research/workingpapers/2014/twerp_1049_pascali.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Maritime Technology, Trade and&#xA;Economic Development (2015)&lt;/a&gt;, Pascali estimates various effects on freight rates (i.e. the cost of transport) on outcomes such as trade volumes and economic development. To do this, he exploits a kind of natural experiment that results from the fact that different shipping routes benefit in different ways due to the preexisting wind patterns (i.e. those with wind flows against the route direction).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I guess this controls for demand for shipping, so that freight rates are exogenously affected by transport times. But I don't understand why this is needed to estimate the effects of shipping technology. Isn't the invention of the steamship itself an experiment that allows you to see the effects of shipping technology on trade volume? Why is this additional variation due to asymmetric benefits needed?&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;A typical regression equation used by him is the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/hecBo.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/hecBo.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="17825" LastEditorUserId="17825" LastEditDate="2018-05-26T22:19:23.080" LastActivityDate="2018-05-26T22:19:23.080" Title="Pascali (2015) Natural Experiment" Tags="&lt;econometrics&gt;&lt;international-trade&gt;&lt;history&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22171" PostTypeId="2" ParentId="22170" CreationDate="2018-05-26T21:59:20.280" Score="2" Body="&lt;p&gt;The issue is that the invention of the steamship is not exogenous to economic development. Assuming that trade exerts positive effects on development, it could be that past trade favored economic development and as result the invention of the steamship. By contrast, wind flows are exogenous.&lt;/p&gt;&#xA;" OwnerUserId="6168" LastActivityDate="2018-05-26T21:59:20.280" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="22172" PostTypeId="2" ParentId="22169" CreationDate="2018-05-26T22:13:11.113" Score="1" Body="&lt;p&gt;This regression may work. Two issues, however. &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;How do you identify the &quot;trade costs of war&quot; given that trade and war are potentially endogenous?&lt;/li&gt;&#xA;&lt;li&gt;Dropping the developed countries, which are the main exporters, may affect the estimates of the bilateral and multilateral trade resistance terms. But this is easy to check by comparing the estimates with and without the main exporters.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="6168" LastActivityDate="2018-05-26T22:13:11.113" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22173" PostTypeId="2" ParentId="22163" CreationDate="2018-05-27T00:55:38.840" Score="1" Body="&lt;p&gt;Though a bit unconventional to assume an infinitely repeated game without discounting, the short answer to your question is: yes. Any sequence of stage game Nash Equilibria is supportable as a SPNE. See, for example &lt;a href=&quot;http://econ.ucsb.edu/~garratt/Econ171/Lect012_Slides.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;slide 11 of this deck&lt;/a&gt;, or &lt;a href=&quot;https://web.stanford.edu/~jdlevin/Econ%20203/RepeatedGames.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;these notes from Levin, starting on page 6&lt;/a&gt;. This is more &lt;a href=&quot;http://www.columbia.edu/~mh2245/GT_notes05.pdf#page=145&quot; rel=&quot;nofollow noreferrer&quot;&gt;directly addressed by the definition of SPNEs, found on page 137, Definition 132 of these notes&lt;/a&gt;. Or where those Columbia notes suggest on page 142: &quot;For example if there are multiple Nash equilibria in any of the final subgames then there are multiple sub game perfect Nash equilibria in the game itself&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Though you should note that, given your problem's construction (with no discounting), the set of SPNEs grows substantially, &lt;a href=&quot;https://ocw.mit.edu/courses/economics/14-126-game-theory-spring-2016/lecture-notes/MIT14_126S16_Repeated.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;as you can see.&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="13366" LastEditorUserId="1601" LastEditDate="2018-05-27T07:36:23.633" LastActivityDate="2018-05-27T07:36:23.633" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="22174" PostTypeId="1" AcceptedAnswerId="22175" CreationDate="2018-05-27T03:51:37.687" Score="4" ViewCount="189" Body="&lt;p&gt;&lt;strong&gt;&lt;em&gt;&quot;In presence of heteroscedasticity, OLS estimators are unbiased but inefficient&quot;&lt;/em&gt;&lt;/strong&gt;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Showing the &lt;strong&gt;&lt;em&gt;unbiased&lt;/em&gt;&lt;/strong&gt; part is relatively easy. Some authors have explained the &lt;strong&gt;&lt;em&gt;inefficiency&lt;/em&gt;&lt;/strong&gt; with the help of new variance of the least square estimator.  However, I was asked to show the same thing using the variance of weighted least square estimator ($\hat{\beta^*}$). I proceeded in the following way:-&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider the model, $Y_t=\alpha+\beta X_t+u_t$   where $u_t$'s are  heteroscedastic.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose ${\sigma _u}^2$ be the constant variance of $u_t$'s under the homoscedastic assumption.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $Var(u_t)={\sigma _t}^2$ be the variance of the disturbances under the heteroscedastic assumption.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In Particular, suppose ${\sigma _t}^2=k_t {\sigma _u}^2$, $k_t$'s being some non stochastic constant weights.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, consider the above model in deviation form   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$y_t=\beta x_t +u_t$, where $y_t=Y_t-E(Y)$, $x_t=X_t-E(X)$  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\Rightarrow \frac{y_t}{k_t}=\beta \frac{x_t}{k_t}+\frac{u_t}{k_t}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\Rightarrow \frac{y_t}{k_t}=\beta \frac{x_t}{k_t}+v_t$&lt;br&gt;&#xA;where $v_t$ has constant variance ${\sigma _u}^2$  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, the weighted least square estimator is $\hat{\beta^*}=\frac{\sum \frac{y_t}{k_t}\frac{x_t}{k_t}}{\sum \frac{{x_t}^2}{{k_t}^2}}$  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;which would eventually give us $Var(\hat{\beta^*})=\frac{{\sigma _u}^2}{\sum \frac{{x_t}^2}{{k_t}^2}}$   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, under the heteroscedastic assumption, we have $Var(\hat{\beta})=\frac{\sum {x_t}^2{\sigma_t}^2}{(\sum {x_t}^2)^2}$  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, $$\frac{Var(\hat{\beta^*})}{Var(\hat{\beta})}=\frac{{\sigma _u}^2}{\sum \frac{{x_t}^2}{{k_t}^2}}\times \frac{(\sum {x_t}^2)^2}{\sum {x_t}^2{\sigma_t}^2}$$&lt;br&gt;&#xA;$$\Rightarrow \frac{Var(\hat{\beta^*})}{Var(\hat{\beta})}=\frac{{\sigma _u}^2}{\sum \frac{{x_t}^2}{{k_t}^2}}\times \frac{(\sum {x_t}^2)^2}{\sum {x_t}^2{k_t\sigma_u}^2}$$&lt;br&gt;&#xA;$$\Rightarrow \frac{Var(\hat{\beta^*})}{Var(\hat{\beta})}=\frac{(\sum {x_t}^2)^2} {\sum \frac{{x_t}^2}{{k_t}^2} \sum {x_t}^2{k_t}}$$   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, before I could proceed further, my instructor asked me to check it again. He was insisting that I should get something like  $\frac{\sum (a_t b_t)^2}{\sum {a_t}^2 {b_t}^2}$, so that I can use Cauchy-Schwartz inequality  resulting in $Var(\hat{\beta^*})&amp;lt;Var(\hat{\beta})$. This would eventually prove the  &lt;strong&gt;*inefficiency *&lt;/strong&gt;  part.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since I am not getting that form, I think I have made mistakes. I would be happy if somebody can point it.&lt;/p&gt;&#xA;" OwnerDisplayName="user18429" LastActivityDate="2018-05-27T04:48:11.933" Title="Heteroscedasticity and weighted least square estimator" Tags="&lt;econometrics&gt;&lt;heteroskedasticity&gt;" AnswerCount="1" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="22175" PostTypeId="2" ParentId="22174" CreationDate="2018-05-27T04:48:11.933" Score="4" Body="&lt;p&gt;Let $\hat{\beta}$ be the OLS estimator of $\beta$ in&#xA;$$y_t = \beta x_t + u_t$$&#xA;Let $\tilde{\beta}$ be the OLS estimator of $\beta$ in&#xA;$$\dfrac{y_t}{\sqrt{k_t}} = \beta \dfrac{x_t}{\sqrt{k_t}} + \dfrac{u_t}{\sqrt{k_t}}$$&#xA;$\text{Var}(\hat{\beta}) = \dfrac{\sum x_t^2\sigma_t^2}{\left(\sum x_t^2\right)^{2}} $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\text{Var}(\tilde{\beta}) = \dfrac{\sigma^2_u}{\sum \dfrac{x_t^2}{k_t}} $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, $\dfrac{\text{Var}(\tilde{\beta})}{\text{Var}(\hat{\beta})} = \dfrac{\left(\sum x_t^2\right)^{2}}{\sum \dfrac{x_t^2}{k_t} \sum {x_t^2}{k_t}} $.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $a_t = \dfrac{x_t}{\sqrt{k_t}}$ and $b_t = {x_t}{\sqrt{k_t}}$, and we can rewrite the ratio of variances as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\dfrac{\text{Var}(\tilde{\beta})}{\text{Var}(\hat{\beta})} = \dfrac{\left(\sum a_tb_t\right)^{2}}{\sum a_t^2 \sum {b_t^2}} \leq 1 $ [By Cauchy-Schwarz inequality]&lt;/p&gt;&#xA;" OwnerUserId="11824" LastActivityDate="2018-05-27T04:48:11.933" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22176" PostTypeId="1" CreationDate="2018-05-27T09:02:08.243" Score="3" ViewCount="1387" Body="&lt;p&gt;what is the difference between microeconomics and microfinance?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I cannot understand the difference between the two terms &lt;/p&gt;&#xA;" OwnerUserId="18430" LastEditorUserId="4483" LastEditDate="2018-05-28T16:34:50.053" LastActivityDate="2018-05-28T16:34:50.053" Title="what is the difference between microeconomics and microfinance?" Tags="&lt;microeconomics&gt;&lt;finance&gt;&lt;definition&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22178" PostTypeId="2" ParentId="22121" CreationDate="2018-05-27T12:09:27.960" Score="3" Body="&lt;p&gt;We are given that $u$ is increasing and concave, and $u(0) = 0$. This implies that $\dfrac{u(t)}{t}$ is decreasing in $t$, and also, $\dfrac{u(t)}{t} &amp;gt;  u'(t)$ for all $t$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Nicole's maximization problem :&#xA;\begin{eqnarray*} \max_{x} \  q(x)(w-t(x))\end{eqnarray*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;FOC :&#xA;$q'(x)(w-t(x)) = q(x)t'(x)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose $x_N$ solves Nicole's problem. Therefore, it satisfy&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$q'(x_N)(w-t(x_N)) = q(x_N)t'(x_N)$&#xA;or equivalently,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\dfrac{q'(x_N)}{q(x_N)t'(x_N)} = \dfrac{1}{w-t(x_N)} \tag{1}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Andrew's maximization problem :&#xA;\begin{eqnarray*} \max_{x} \  q(x)u(w-t(x))\end{eqnarray*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;FOC :&#xA;$q'(x)u(w-t(x)) = q(x)t'(x)u'(w-t(x))$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;or equivalently,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\dfrac{q'(x)u(w-t(x))}{q(x)t'(x)} = u'(w-t(x)) \tag{2}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let us compare the two sides of the above FOC (2) at $x = x_N$,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;LHS  = $\dfrac{q'(x_N)u(w-t(x_N))}{q(x_N)t'(x_N)} = \dfrac{u(w-t(x_N))}{w-t(x_N)} &amp;gt; u'(w-t(x_N)) =$ RHS&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since at $x = x_N$ LHS of (2) is greater than RHS of (2), we need to reduce the value of $x$ to make them equal. So, there is $x_A &amp;lt; x_N$ such that &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\dfrac{q'(x_A)u(w-t(x_A))}{q(x_A)t'(x_A)} = u'(w-t(x_A)) \tag{3}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, Nicole buys larger quantity of technology. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Observing the FOCs, we can also conclude that increase in $w$ lead to increase in optimal quantity chosen by both.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now try to solve the remaining two parts.&lt;/p&gt;&#xA;" OwnerUserId="11824" LastActivityDate="2018-05-27T12:09:27.960" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22180" PostTypeId="1" AcceptedAnswerId="22185" CreationDate="2018-05-27T12:40:40.843" Score="2" ViewCount="102" Body="&lt;p&gt;I am confident with the concept of DCF. However, I wanted to check the following proof given that if investors hold a share in $ t $, sell it at $t+1$, receive dividend $\ D_{t+1} $ and the price at $t+1$, $\ P_{t+1}$. Plus, the current value of share is the present value of all future cash flows (dividends). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\ D_{t+j} $ stands for dividend at period $ t+j $&#xA;$\ P_{t+j} $ stands for price at period $ t+j $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Starting from:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;1)&lt;/strong&gt; $\ P_t = \frac{D_{t+1}}{(1+k)} + \frac{P_{t+1}}{(1+k)} $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Induction Hypothesis: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;2)&lt;/strong&gt; $\ P_{t+j} = \sum\limits_{s=1}^{j} \frac{D_{t+s}}{(1+k)^s} + \frac{P_{t+j}}{(1+k)^s} $ with $j &amp;gt; 1 $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Induction Step: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;3)&lt;/strong&gt; $\ P_{t+j+1} = \sum\limits_{s=1}^{j+1} \frac{D_{t+s}}{(1+k)^s} + \frac{P_{t+j+1}}{(1+k)^{s+1}} $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, I was provided with the above proof which does not look right to me. My doubt is the following: why in &lt;strong&gt;1&lt;/strong&gt; and &lt;strong&gt;2&lt;/strong&gt; the price term on the right side is the present value of the price we are measuring and not the PV of the future price? The same is happening for the dividend terms in the summation. This seems inconsistent with &lt;strong&gt;1&lt;/strong&gt; and counterintuitive. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help in assessing the rightness of the above proof or providing an entirely new one will be greatly appreciated! Also this is first post, happy to join the community! &lt;/p&gt;&#xA;" OwnerUserId="18431" LastActivityDate="2018-05-27T21:32:07.947" Title="Proof of DCF model by mathematical induction" Tags="&lt;mathematical-economics&gt;&lt;finance&gt;&lt;financial-economics&gt;&lt;pricing&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22181" PostTypeId="2" ParentId="22149" CreationDate="2018-05-27T13:58:41.563" Score="1" Body="&lt;p&gt;For prediction, yes you can consider the models&#xA;$$&#xA;y = \beta_0 + \beta_1 x_1 + \cdots + \beta_p x_p + \gamma_2 \hat{y}^2 + \cdots + \gamma_m \hat{y}^m + error,&#xA;$$&#xA;where $\hat{y}$ represents the first-step OLS fitted values and $m$ is chosen by something like cross validation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I haven't seen this approach used before. My personal guess is that this approach is not as useful as other commonly used ones (SVM, splines, GAM, etc.). For example, if $p$ is large (in comparison to the number of observations $n$), the first-step OLS may already be overfitting so including $\hat{y}$ is not practical. (Yes, you can use lasso residuals but that's a different story.) If $p$ is small, nonlinearity can perhaps be better handled by splines or even by simply augmenting the equation with quadratic and cubic terms of the features. Some generalized additive models (GAM) are already there too.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My personal experience is that nonlinearity is not so important (for prediction using economic data). It is usually a lot more important to avoid overfitting nicely. To me, your suggestion seems to be useful in some cases but not in many.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That said, I do not want to dissuade you from pursuing this issue, although there is a (high) chance of ending up with the conclusion that it is not very useful given the availability of other methods. BTW, you would already know it, but just in case, Hastie, Tibshirani and Friedman's book (The Elements of Statistical Learning) is helpful.&lt;/p&gt;&#xA;" OwnerUserId="10775" LastActivityDate="2018-05-27T13:58:41.563" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="22182" PostTypeId="1" AcceptedAnswerId="22196" CreationDate="2018-05-27T16:08:04.533" Score="-1" ViewCount="136" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/HqSFr.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/HqSFr.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I could not understand how to analyse the effect of the given situation in this question on government's expenditure and income. If the budget is balanced, the use of calculus technique also didn't help me. Any views on the solution to this question are welcome.&lt;/p&gt;&#xA;" OwnerUserId="15262" LastActivityDate="2018-05-28T16:57:59.800" Title="Equilibrium income in Simple Keynesian Model" Tags="&lt;macroeconomics&gt;&lt;keynesian-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22184" PostTypeId="2" ParentId="15168" CreationDate="2018-05-27T18:38:14.567" Score="2" Body="&lt;p&gt;Conteporary Marxist economist &lt;a href=&quot;https://www.youtube.com/watch?v=flFyaguUqIo&quot; rel=&quot;nofollow noreferrer&quot;&gt;Richard D Wolff&lt;/a&gt; says on the issue (abridged):&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;The labor theory of value is not a theory is not a theory of prices. The prices of things is determined based on whats going on among the people buying and whats going on among those selling. Marx was not so silly...Notice this is not called the labor theory of price, so we need to know what value is.&lt;/p&gt;&#xA;&lt;p&gt;....Marx was interested in analyzing how labor is organized in a society, (this is what the labor theory of value provides insight on) by knowing this we can understand what is happening within a society.&lt;/p&gt;&#xA;&lt;p&gt;This is what Marx thought labor would teach us, the labor thats done produces more than he needs, A surplus. the question is now who gets that surplus.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;According to Dr. Wolff The labor theory of value tells us how the product of a workers labor is divided.&lt;/p&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;Abstractly this can be thought of as:&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$p=c+v+sv$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;where &lt;span class=&quot;math-container&quot;&gt;$p$&lt;/span&gt; is price of the good sold, &lt;span class=&quot;math-container&quot;&gt;$c$&lt;/span&gt; is the cost of the amount of capital used in the production process for the good sold, &lt;span class=&quot;math-container&quot;&gt;$v$&lt;/span&gt; is the amount of the price of the good good paid out to laborors , and &lt;span class=&quot;math-container&quot;&gt;$sv$&lt;/span&gt; is the surplus value received by the capitalist (organizer of the means of production).&lt;/p&gt;&#xA;&lt;p&gt;Based on this marxian analysis, knowledge of the rate of profit (i.e &lt;span class=&quot;math-container&quot;&gt;$\frac{sv}{c+v}$&lt;/span&gt; ) can tell us how much a worker is being exploited (by being under cut his value).&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2018-05-27T18:38:14.567" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22185" PostTypeId="2" ParentId="22180" CreationDate="2018-05-27T21:32:07.947" Score="1" Body="&lt;p&gt;I suspect your induction hypothesis should be an expression for $P_t$ not $P_{t+j}$ , and should be discounting $P_{t+j}$ not $s$ times but $j$ times i.e. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$P_{t} = \left(\sum\limits_{s=1}^{j} \frac{D_{t+s}}{(1+k)^s}\right) + \frac{P_{t+j}}{(1+k)^j}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;for $j \ge 1$, which reduces to your initial statement $P_t = \frac{D_{t+1}}{(1+k)} + \frac{P_{t+1}}{(1+k)}$ when $j=1$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now consider your initial statement replacing $t$ by $t+j$ to give  $P_{t+j}= \frac{D_{t+j+1}}{(1+k)} + \frac{P_{t+j+1}}{(1+k)}$ and substitute this into your induction hypothesis to give &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$P_{t} = \left(\sum\limits_{s=1}^{j+1} \frac{D_{t+s}}{(1+k)^s}\right) + \frac{P_{t+j+1}}{(1+k)^{j+1}}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which proves that the corrected induction hypothesis follows from your original statement&lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2018-05-27T21:32:07.947" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22186" PostTypeId="1" CreationDate="2018-05-28T03:53:55.147" Score="1" ViewCount="280" Body="&lt;p&gt;According to my textbook, the analytical technique for solving a Bellman's Equation is as follows:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Guess a form for $V_0(x)$&lt;/li&gt;&#xA;&lt;li&gt;Solve the maximization problem with respect to the control and obtain a policy function $x' = h_0(x)$&lt;/li&gt;&#xA;&lt;li&gt;Update the guess by plugging the policy function such that $V_1(x) =F(x,h_0(x)) + \beta V_0(h_0(x))$&lt;/li&gt;&#xA;&lt;li&gt;Repeat the above until $V_{i+1} = V_i$ At this point, the equation is solved. &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;My question is, why does this technique, specifically the step, $V_{i+1}= V_i$, solve the Bellman equation? &#xA;Thank you!&lt;/p&gt;&#xA;" OwnerUserId="18435" LastActivityDate="2018-05-28T03:53:55.147" Title="Explanation of Dynamic Programming &quot;Guess and Verify&quot; Technique" Tags="&lt;dynamic-programming&gt;&lt;bellman-equations&gt;" AnswerCount="0" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22187" PostTypeId="2" ParentId="22176" CreationDate="2018-05-28T04:39:09.953" Score="2" Body="&lt;p&gt;Kind of a good question, but it's to do with etymology, nitpicking or something. While economics is the allocation of scarce resources and finance is the allocation of scarce resources over time, microeconomics is a &lt;em&gt;study&lt;/em&gt; while microfinance is a &lt;em&gt;provision&lt;/em&gt; of financial services.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, the 'micro' in microeconomics refers to the scope of &lt;strong&gt;study&lt;/strong&gt; namely that microeconomics studies the behaviors of individuals and firms instead of state issues of growth, inflation, and unemployment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, the 'micro' in microfinance refers to the scope of &lt;strong&gt;recipients&lt;/strong&gt; of financial services.&lt;/p&gt;&#xA;" OwnerUserId="4483" LastActivityDate="2018-05-28T04:39:09.953" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22188" PostTypeId="1" CreationDate="2018-05-28T09:05:51.753" Score="2" ViewCount="26" Body="&lt;p&gt;In Sims(2002), the author explains how one solves a linear rational expectations model. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Gamma_0S_t=\Gamma_1S_{t-1}+C+\Psi z_t + \Pi \mu_t$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The only thing exogenously defined in the $z_t$ variable. Everything else is endogenous.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the Smets and Wouters (2007) paper, we have the monetary policy rule dependent on the potential output, i.e. the output at flexible prices and wages.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How do we deal with the potential output? Is it assumed to be endogenous, and then included in the $S$ terms? If so, will I have to create $S=(S^f,S^s)'$, where $S^f$ are the state variables for the flexible economy, and $S^s$ are the state variables for the sticky economy?&lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="118" LastEditDate="2018-06-01T22:40:26.397" LastActivityDate="2018-06-01T22:40:26.397" Title="How to deal with potential output in the Sims (2002) framework?" Tags="&lt;macroeconomics&gt;&lt;new-keynesian-economics&gt;&lt;dsge&gt;&lt;rational-expectations&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22189" PostTypeId="2" ParentId="22176" CreationDate="2018-05-28T09:26:15.070" Score="0" Body="&lt;p&gt;So they’re actually quite easily distinguishable. For the purposes of discussion it’s more important that you understand the framework of microeconomics. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Historically speaking we just had broad economics. Countries were being formed for the first time; and with that came the organization of a science to deal with the interaction of people within a society. Economics literally translates to ‘home-economics’. So it very much had to do with the allocation to scarcity among households, in broad sense, to optimize best for the nation/collective as a whole. Concerns of this nature to this day involve income/GDP, capital accumulations, unemployment, growth, and inflation. Anything that has to do with countries as a ‘whole’ falls under macroeconomics. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So microeconomics was born separately historically in a similar way. While officials in charge of nations were regulating their trades, there were economies being formed between households, merchants, and business’. The optimization of these circles of trade and transaction involves microeconomics. Most consultants and business entrepreneurs are involved in microeconomics. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finance really took hold almost exclusively in regards to the stock market. Dealing with securities, bonds and markets between companies etc. Even though it very much began autonomously finance is a sub sector of microeconomics. It’s advanced enough to require its own study. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lastly you brought up micro finance. The reason I answered your question from the standpoint of historical context is because it makes micro-finance more easily explained. Micro-finance is a ‘newer’ term that is usually reserved to supplying consumers living in areas of poor credit markets, any sort of financial service. The countries are usually developing or under subsistence as they’re in a constant state of political turmoil, growth trap, resource constraint, or otherwise that keeps their financial sector in constant disequilibrium. This again is a much newer thing and niche: where people have established methods of introducing credit to these countries where banks aren’t doing it. &lt;/p&gt;&#xA;" OwnerUserId="15847" LastActivityDate="2018-05-28T09:26:15.070" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="22191" PostTypeId="1" CreationDate="2018-05-28T09:38:04.300" Score="2" ViewCount="51" Body="&lt;p&gt;To solve the Smets and Wouters (2007) model, we need the linearised equation for the economy when wages and prices are flexible (monetary policy rule depends on the potential output). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, in their scientific article they do not provide those equations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What are they?&lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="118" LastEditDate="2018-06-01T22:39:47.150" LastActivityDate="2018-06-01T22:39:47.150" Title="What are the linearised equations for the flexible economy in Smets and Wouters (2007)?" Tags="&lt;macroeconomics&gt;&lt;new-keynesian-economics&gt;&lt;dsge&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22193" PostTypeId="1" CreationDate="2018-05-28T15:32:18.190" Score="3" ViewCount="217" Body="&lt;p&gt;What does it mean that a production set is closed and non-empty? And why is it important?&lt;/p&gt;&#xA;" OwnerUserId="11385" LastActivityDate="2018-05-29T02:04:04.063" Title="Production set is closed and non-empty?" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22195" PostTypeId="2" ParentId="22193" CreationDate="2018-05-28T16:43:58.320" Score="2" Body="&lt;p&gt;It is just mathematical assumptions in calculus that makes the mathematical analysis has real economic meaning.  Not of great importance unless you want to look deeply into the derivation of results.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You may read this paper: &lt;a href=&quot;https://web.stanford.edu/~jdlevin/Econ%20202/Producer%20Theory.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://web.stanford.edu/~jdlevin/Econ%20202/Producer%20Theory.pdf&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;Throughout our analysis, we will make the innocent technical assumptions that&#xA;  Y is non-empty (so as to have something to study!) and closed (to make it more&#xA;  likely that optimal production plans exist).&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Hope this helps.&lt;/p&gt;&#xA;" OwnerUserId="18321" LastActivityDate="2018-05-28T16:43:58.320" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22196" PostTypeId="2" ParentId="22182" CreationDate="2018-05-28T16:57:59.800" Score="0" Body="&lt;p&gt;Answer is (d).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Due to the transfer, increase in income of workers = decrease in income of capitalists.  Since the tax schedules on both persons are the same, the increase in taxation from workers offset the loss from capitalists, thus effect on budget (gov income - gov expenditure) is zero.  Note that the tax is levied before any consumption decision, so things like propensity are irrelevant.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since the worker has higher marginal propensity (say 0.5, and capitalist's is 0.3), then aggregate expenditure increases because 0.5T-0.3T &gt; 0, where T is the transfer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Actually I think the wording means &quot;individual income&quot; and &quot;individual expenditure&quot; rather than aggregate amount, because aggregate income does not change.  Then the question is even more straightforward: both individual income and individual expenditure change.&lt;/p&gt;&#xA;" OwnerUserId="18321" LastActivityDate="2018-05-28T16:57:59.800" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22197" PostTypeId="1" CreationDate="2018-05-28T17:20:55.827" Score="3" ViewCount="65" Body="&lt;p&gt;I have heard constant complaints, particularly from teachers, that (United States) schools are underfunded, and that budget cuts only stand to exacerbate this problem.  My own high school couldn't even afford a library.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Nevertheless, it seems that in inflation-adjusted dollars, school funding has only increased—and greatly at that.  We see charts like this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/MYSm6.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/MYSm6.jpg&quot; alt=&quot;total per-pupil expenditure&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can point to the last section of the chart and call it a funding cut, but this hardly seems significant given the overall trend.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I initially was going to ask about this disparity, but further research turned up a plausible explanation: the rising &lt;em&gt;cost&lt;/em&gt; of education.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this graph, we see that the cost from 1970 to 2010 has basically tripled (while from the previous graph in the same time the expenditure has only doubled).  This would explain why schools complain about being underfunded.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/Qwprv.gif&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Qwprv.gif&quot; alt=&quot;total cost&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, this itself seems like a problem.  Both these charts are inflation-adjusted.  We clearly see that education cost is rapidly outpacing inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why should this be?  It doesn't seem that we're educating better for that higher cost.  As you can see (also on that chart), student achievement in reading and math is basically the same, and science has actually declined a little.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here I haven't been able to find clear answers.  Is it additional administrators increasing costs?  Are the benchmarks we're using to measure achievement changing, so that it only looks like educational effectiveness is constant?  Are we spending more on technology for no good reason?  Are my sources just wrong?&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My question:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;strong&gt;(To confirm:) Is the explanation of schools' complaints indeed due to per-pupil expenditure being outpaced by the rising cost of education?&lt;/strong&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;What explains the rising cost of education?&lt;/strong&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;sup&gt;Note: this could fit on politics or academia.stackexchange as well.  I'm asking here because I'm interested in the underlying &lt;em&gt;economic&lt;/em&gt; explanation, before I get to policy or practical matters.&lt;/sup&gt;&lt;/p&gt;&#xA;" OwnerUserId="18437" LastActivityDate="2018-05-28T17:20:55.827" Title="Analzying K-12 Education: Cost vs. Expenditure?" Tags="&lt;education-economics&gt;&lt;united-states&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22198" PostTypeId="1" AcceptedAnswerId="22201" CreationDate="2018-05-28T17:38:58.503" Score="2" ViewCount="36" Body="&lt;p&gt;I am working on Home Equity/Bond Bias and need data to calculate the indicators of Home Equity Bias. So where can I find data on market capitalization (stocks and bonds) by year for each country?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Many thanks for your help.&lt;/p&gt;&#xA;" OwnerUserId="14729" LastEditorUserId="6168" LastEditDate="2018-05-28T19:14:26.883" LastActivityDate="2018-05-28T19:16:52.887" Title="Where can I find data on market capitalization?" Tags="&lt;macroeconomics&gt;&lt;data-request&gt;&lt;stock-market&gt;&lt;international-economics&gt;&lt;bonds&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22201" PostTypeId="2" ParentId="22198" CreationDate="2018-05-28T19:16:52.887" Score="0" Body="&lt;ul&gt;&#xA;&lt;li&gt;Market capitalization of listed domestic companies (% of GDP) across years and countries from the World Development Indicators in the &lt;a href=&quot;https://data.worldbank.org/indicator/CM.MKT.LCAP.GD.ZS&quot; rel=&quot;nofollow noreferrer&quot;&gt;World Bank data website&lt;/a&gt; or the &lt;a href=&quot;http://data.un.org/Data.aspx?d=WDI&amp;amp;f=Indicator_Code%3ACM.MKT.LCAP.GD.ZS&quot; rel=&quot;nofollow noreferrer&quot;&gt;United Nations one&lt;/a&gt;.&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://fred.stlouisfed.org/tags/series?t=market%20cap&quot; rel=&quot;nofollow noreferrer&quot;&gt;FRED economic data&lt;/a&gt; on market capitalization.&lt;/li&gt;&#xA;&lt;li&gt;Focusing on European Countries: the &lt;a href=&quot;https://sdw.ecb.europa.eu/browse.do?node=9691455&quot; rel=&quot;nofollow noreferrer&quot;&gt;ECB website&lt;/a&gt;.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="6168" LastActivityDate="2018-05-28T19:16:52.887" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22202" PostTypeId="1" CreationDate="2018-05-28T20:29:52.860" Score="0" ViewCount="119" Body="&lt;p&gt;I'm working with the following task:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;You are convinced that the bond market is dominated by long-term investors. Hence, you have your own view on the liquidity premium/discount that forward rates embody. Given that, do you think that a duration of 3 years for this portfolio is a good idea or a duration of -3 years would be better?&quot; (The provided yield-curve is upward sloping).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, liquidity discount and premium are in contrast to each other?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Second, could anyone explain why/if the forward rates embody a liquidity discount because the market is dominated by long-term investors?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What does it involve if the forward rates embody a liquidity discount, and what will this imply for the future expected rates?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is the solution, but it doesnt make much sense to me:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;Market dominated by long-term investors ⇒ Liquidity discount ⇒ E[r] &gt; f&#xA;Upward sloping yield curve ⇒ f &gt; y0&#xA;In other words, forward rates above current yields. And, on top of that, we need to take into&#xA;account the liquidity discount to obtain the expected short rates. Hence, future interest rates are expected to increase and, thus, one would prefer a portfolio with a duration of -3.&quot;&lt;/p&gt;&#xA;" OwnerUserId="18439" LastActivityDate="2021-05-14T15:01:20.263" Title="Forward rate discounts" Tags="&lt;finance&gt;&lt;interest-rate&gt;&lt;bonds&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22203" PostTypeId="2" ParentId="22124" CreationDate="2018-05-28T22:06:17.770" Score="3" Body="&lt;p&gt;According to the logical positivist view of decision theory, utility functions are just descriptions of &lt;strong&gt;observable behavior&lt;/strong&gt; and have no intrinsic meaning absent this vantage. In other words, $u(x) &amp;gt; u(y)$ indicates that $x$ would be chosen in favor of $y$, but the magnitude of the difference carries no addition information. If $u(x) = 1$ and $u(y) = 0$ the decision maker prefers $x$; if $u(x) = 10000$ and $u(y)= 0$ the decision maker prefers $x$. In either case, we can draw the same conclusions. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What does this mean with regard to your question? It tells us what we mean by &lt;em&gt;equality&lt;/em&gt; of utility functions: we mean that these two different (so no definitionally equal) functions represent the same observable data. Specifically, exactly when $u_1(x) &amp;gt; u_1(y)$ do we also have $u_2(x) &amp;gt; u_2(y)$. As mentioned in the comments, this is precisely when we can compose $u_1$ with a strictly increasing function and pop out $u_2$. (This is because all we care about is the ordering between objects, and strictly increasing functions &lt;em&gt;preserve&lt;/em&gt; order). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, what might our strictly increasing function look like? Well, we can take the log, so that we get $\frac23 ln(x_1) + \frac13 ln(x_2)$ then multiplying by 6 and adding 3 does the trick. Each of these was strictly increasing so too is the composition:&#xA;$$ (x,y) \mapsto 6 (ln(x) + ln(y)) + 3$$&#xA;is our desired function.&lt;/p&gt;&#xA;" OwnerUserId="398" LastActivityDate="2018-05-28T22:06:17.770" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22205" PostTypeId="1" AcceptedAnswerId="22209" CreationDate="2018-05-29T02:14:11.517" Score="4" ViewCount="4138" Body="&lt;p&gt;Three firms are in Cournot competition. The inverse demand curve is denoted p(q) where p is the price if a total of q units are produced. Assumptions are: p(0)&gt;0 and p'(q)&amp;lt;0 and p''(q) $\le 0$ whenever p(q) &gt;0. The firms have identical and continuous cost functions, c($q_i$) &gt;0 for all $q_i$&gt;0. Assume c'($q_i$)$\ge 0$ , c''($q_i$) $\ge$ 0 for all $q_i$ $\ge 0$ and p(0) &gt; c'(0). We consider pure strategy Nash equilibria. For interior quantities , derive firm i's first order condition.  Do you agree that all firms must supply the same quantity in any equilibrium? Do you agree that there is a unique equilibrium? Prove and explain your answers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I did is that &lt;/p&gt;&#xA;&#xA;&lt;p&gt;First I agree that all the 3 firms will supply the same quantity in the equilibrium and this equilibrium is unique. The Profit Maximization Problem for firm 1 is:  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;max  p($q_1$ + $q_2*$ + $q_3*$)$q_1$ -c($q_1$)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and the FOC is : &lt;/p&gt;&#xA;&#xA;&lt;p&gt;p'($q_1$ + $q_2*$ + $q_3*$)$q_1$ +p($q_1$ + $q_2*$ + $q_3*$) -c'($q_1$) = 0 &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If i had the inverse demand function and the cost function, I could have derive the best response function. But now the only that I can say is that $BR_1$($q_2$*, $q_3*$). Similarly for the other two firms : $BR_2$($q_1*$, $q_3*$) and $BR_2(q_1* , q_2*$). But I stuck to this point and I cannot show how this quantities are equal. &#xA;Any help will be appreciated. Thank you. &lt;/p&gt;&#xA;" OwnerUserId="18244" LastActivityDate="2018-05-29T05:09:17.537" Title="Cournot Competition game with 3 Firms" Tags="&lt;microeconomics&gt;&lt;game-theory&gt;&lt;self-study&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22207" PostTypeId="2" ParentId="22089" CreationDate="2018-05-29T03:49:25.837" Score="1" Body="&lt;ul&gt;&#xA;&lt;li&gt;Disposable Income $Y_D$ as a function of $Y_G$ and $Y_E$ is: &#xA;$$Y_D = Y_G + (1-\alpha) Y_E$$&lt;/li&gt;&#xA;&lt;li&gt;Given wage rate $w$, and $Y_E = wH$, the budget equation can be written as:&#xA;$$Y_D = Y_G + (1-\alpha)wH$$&#xA;Preferences of the individual over $Y_D$ and $H$ are represented by the utility function&#xA;$$U(Y_D, H) = \dfrac{Y_D}{(1+H)^2}$$&#xA;So the utility maximization problem is :&#xA;\begin{eqnarray*}\max_{Y_D, H} &amp;amp;&amp;amp; \ \ \dfrac{Y_D}{(1+H)^2} \\ \text{s.t} &amp;amp;&amp;amp;  \ \ Y_D = Y_G + (1-\alpha)wH \\ &amp;amp;&amp;amp;  \ \ H\geq 0 \end{eqnarray*}&#xA;Here is the picture to demonstrate optimal solution :&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/2T94y.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/2T94y.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Solving the above problem we get the optimal labor supply as&#xA;\begin{eqnarray*} H^*(w, \alpha, Y_G) = \begin{cases} 1-\dfrac{2Y_G}{(1-\alpha)w} &amp;amp; \text{if } (1-\alpha)w - 2Y_G &amp;gt; 0  \\ 0 &amp;amp; \text{if } (1-\alpha)w - 2Y_G \leq 0 \end{cases}  \end{eqnarray*}&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;So the optimal utility as a function of $w, \alpha, Y_G$ is as follows:&#xA;\begin{eqnarray*} U^*(w, \alpha, Y_G) = \begin{cases}  \dfrac{((1-\alpha)w)^2}{4((1-\alpha)w - Y_G)} &amp;amp; \text{if } (1-\alpha)w - 2Y_G &amp;gt; 0  \\ Y_G &amp;amp; \text{if } (1-\alpha)w - 2Y_G \leq 0 \end{cases}  \end{eqnarray*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now the Govt. chooses $(Y_G, \alpha)$ by solving :&#xA;\begin{eqnarray*}\max_{Y_G, \alpha} &amp;amp;&amp;amp; \ \ U^*(w, \alpha, Y_G) \\ \text{s.t} &amp;amp;&amp;amp;  \ \ Y_G = \alpha wH^*(w, \alpha, Y_G)  \end{eqnarray*}&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Solving it we get&#xA;$\alpha^* = 0$ and $Y_G^* = 0$&lt;/p&gt;&#xA;" OwnerUserId="11824" LastActivityDate="2018-05-29T03:49:25.837" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22208" PostTypeId="1" CreationDate="2018-05-29T03:55:24.327" Score="1" ViewCount="72" Body="&lt;p&gt;A while ago I asked &lt;a href=&quot;https://economics.stackexchange.com/questions/17550/how-do-countries-create-their-own-currencies-and-give-them-meaningful-value&quot;&gt;how countries make a currency and give it value&lt;/a&gt;, specifically pointing out that I wasn't concerned about when/why such a thing would be done.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Well, now I'm asking the exact opposite. Ignoring how a country would do so, when/why would a country implement a new currency? What are the pros and cons of doing it? And are there differences between large economies and small economies when it comes to this?&lt;/p&gt;&#xA;" OwnerUserId="13990" LastActivityDate="2018-05-29T03:55:24.327" Title="When/Why would a country want to create its own currency?" Tags="&lt;currency&gt;" AnswerCount="0" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="22209" PostTypeId="2" ParentId="22205" CreationDate="2018-05-29T05:09:17.537" Score="4" Body="&lt;p&gt;Firm 1's profit maximization problem is :&#xA;\begin{eqnarray*} \max_{q_1} &amp;amp; \ p(q_1 + q_2 + q_3)q_1 - c(q_1) \end{eqnarray*}&#xA;Firm 1's response to firm 2's and 3's quantity choices will satisfy the following:&#xA;\begin{eqnarray*} p(q_1 + q_2 + q_3) + p'(q_1 + q_2 + q_3)q_1 - c'(q_1) = 0 \end{eqnarray*}&#xA;Likewise, we'll get the implicit best response functions for the other firms as well. &#xA;\begin{eqnarray*} p(q_1 + q_2 + q_3) + p'(q_1 + q_2 + q_3)q_i - c'(q_i) = 0 \end{eqnarray*}&#xA;for each $i \in \{1,2 ,3\}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is a symmetric equilibrium of the above game if there exist $q^*$ such that&#xA;\begin{eqnarray*} p(3q^*) + p'(3q^*)q^* - c'(q^*) = 0 \end{eqnarray*}&#xA;To show that there exist one, consider the following function&#xA;\begin{eqnarray*} g(q) = p(3q) + p'(3q)q - c'(q)\end{eqnarray*}&#xA;Observe that $g(0) = p(0) - c'(0) &amp;gt; 0$. Also, given that $p(q)$ is decreasing and concave, there exist $\overline{q} &amp;gt; 0$ such that $p(\overline{q}) \leq 0$. Consequently, $g(\overline{q}) \leq 0$. Therefore, by intermediate value theorem, there exist $q^* \in [0,\overline{q}] $ such that $g(q^*) = 0$ i.e.&#xA;\begin{eqnarray*} p(3q^*) + p'(3q^*)q^* - c'(q^*) = 0 \end{eqnarray*}&#xA;Also, $g'(q) = 4p'(3q) + 3p''(3q)q - c''(q) &amp;lt; 0$. Since $g(q)$ is decreasing in $q$, $q^*$ is unique.&#xA;So there is a unique symmetric equilibrium. To show that it is the only equilibrium, we'll show that there is no equilibrium where at least two of the firms choose different quantities. To do so, let us subtract the implicit best response function of firm 1 from that of firm 2, &#xA;\begin{eqnarray*} p'(q_1 + q_2 + q_3)(q_2 - q_1) = c'(q_2) - c'(q_1) \end{eqnarray*}&#xA;Notice that the above equality only holds for $q_2 = q_1$. This is because &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;when $q_2 &amp;gt; q_1$, $p'(q_1 + q_2 + q_3)(q_2 - q_1) &amp;lt; 0$ and $c'(q_2) - c'(q_1) &amp;gt; 0$, &lt;/li&gt;&#xA;&lt;li&gt;when $q_2 &amp;lt; q_1$, $p'(q_1 + q_2 + q_3)(q_2 - q_1) &amp;gt; 0$ and $c'(q_2) - c'(q_1) &amp;lt; 0$.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Therefore, there is no equilibrium satisfying $q_2 \neq q_1$. Likewise, there is none satisfying $q_2 \neq q_3$ or $q_1 \neq q_3$.&lt;/p&gt;&#xA;" OwnerUserId="11824" LastActivityDate="2018-05-29T05:09:17.537" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22211" PostTypeId="1" AcceptedAnswerId="22443" CreationDate="2018-05-29T06:39:31.677" Score="3" ViewCount="565" Body="&lt;p&gt;Charitable organizations are ranked according to the proportion of their total budget that is spend on programs(what directly goes to the recipients of their services) relative to money spent on administration(e.g salaries paid to its staff). Suppose there is a charitable organization which spends P on its programs and S on administration (salaries). So its total budget is B = S + P and a proportion P/B goes to programs. The manager of the charity cares about the charity's reputation (ranking) but also cares about his salary. So suppose he maximizes $Q =(P/B)^a$ $S^{1-a}$ ,$ 0 &amp;lt;a&amp;lt; 1 $. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The only donors to the charity are players 1 and 2, who care about the total amount of money that goes to the recipients of the charity's services. Donor k has a budget W and a utility function &#xA;$U_k$ = $c_k$P, where $c_k$ is the dollar amount spent on a private good. Let player k's donation to the charity be $D_k$, k = 1 ,2 .&#xA;The timing of actions is as follows: In stage 1 the donors choose $D_1$ and $D_2$ simultaneously, and in stage 2 , the charity then chooses S and P. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;a) Find the sub-game perfect equilibrium of this game. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;b) Someone clams that the donors give less in total to the charity as the efficiency level of the charity (from their standpoint) increases. Verify the validity of this claim in this simple model and give the intuition for your answer. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;c)Now suppose that in addition to the charitable organization above, there is another charity which is identical to first charity except that its manager's objective function is $Q =(P/B)^b$ $S^{1-b}$ ,$ 0 &amp;lt;b&amp;lt; 1$. Call these charities a-type and b-type. Assume that a &gt;b . Denote player k's donation to charity j as $D_k^j$, k=1 ,2 and j=a ,b. What is the  sub-game perfect Nash equilibrium of the game? (Hint: write down the donors' Kuhn-Tucker conditions). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I did is that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a) I start from the 2nd stage game and maximize the charity's utility function &lt;/p&gt;&#xA;&#xA;&lt;p&gt;max $(P/B)^a$ $S^{1-a}$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;s.t B = S+ P&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The unconstrained problem becomes:&lt;br&gt;&#xA;max $(P/B)^a$ $(B-P)^{1-a}$  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Taking FOC wrt P  we obtain P*= aB&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then going in state 1, I determine the Best response function.Donor 1 wants to maximize&lt;/p&gt;&#xA;&#xA;&lt;p&gt;max (W -D1)(D1 +D2) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The best response function for donor 1 is D1 = (W- D2)/2 .&#xA;Doing the same for donor 2, the besr response function is   D2 = (W- D1)/2 &#xA;Solving the optimal choices are D1*=D2*= W/3 .&#xA;Going back to stage 1 and substituting , P*=2W/3 , B*=2W/3a and S*=2W(1-a)/3a &#xA;This is the Nash equilibrium. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For part b)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The d Q/ d(P/Q) = a $( P/ B)^{a-1}$ $S^{1-a}$ &gt; 0&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and $d ^2$Q/d $(P/Q)^2$ = a(a-1)$(P/B)^{a-2}$ $S^{1-a}$ &amp;lt; 0 &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But I stuck and I do not know how to interpret it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For part c) the donors' Kuhn-Tucher conditions  are :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$D_1^a$ + $D_2^a$ $\geq$ $D_1^b$ + $D_2^b$    &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$D_1^a$ + $D_2^a$ $\geq 0 $ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$D_1^b$ + $D_2^b$ $\geq 0 $ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But if I plug them into the donor's maximization problem I do not end up to a result.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help will be appreciated.&#xA;Thank you &lt;/p&gt;&#xA;" OwnerUserId="18244" LastActivityDate="2018-06-13T05:34:15.773" Title="Subgame Perfect Nash equilibrium: two stage game" Tags="&lt;microeconomics&gt;&lt;game-theory&gt;&lt;self-study&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22212" PostTypeId="1" AcceptedAnswerId="22213" CreationDate="2018-05-29T08:41:34.510" Score="2" ViewCount="35" Body="&lt;p&gt;Where can I find data on bilateral trade between countries in the world over time?&#xA;I heard that only International Trade Center has access to this data, but I guess there's a public source. I tried but didn't succeed, for example &lt;a href=&quot;http://stat.wto.org/StatisticalProgram/WsdbExportZip.aspx?Language=E&quot; rel=&quot;nofollow noreferrer&quot;&gt;this one&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Many thanks.&lt;/p&gt;&#xA;" OwnerUserId="14729" LastActivityDate="2018-05-29T09:40:59.767" Title="Where can I find data on bilateral trade?" Tags="&lt;macroeconomics&gt;&lt;international-trade&gt;&lt;data-request&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22213" PostTypeId="2" ParentId="22212" CreationDate="2018-05-29T09:40:59.767" Score="2" Body="&lt;p&gt;For aggregated trade, there is a excellent database from CEPII called histtrade. It covers data from the first industrial revolution. The site also has data covering disaggregated  trade but only with limited observations. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.cepii.fr/CEPII/en/bdd_modele/bdd_modele.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.cepii.fr/CEPII/en/bdd_modele/bdd_modele.asp&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A second data set is the Barbieri Data set, that can be downloaded from the COW project. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.correlatesofwar.org/data-sets/bilateral-trade&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.correlatesofwar.org/data-sets/bilateral-trade&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="18427" LastActivityDate="2018-05-29T09:40:59.767" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22215" PostTypeId="1" CreationDate="2018-05-29T13:05:32.073" Score="3" ViewCount="126" Body="&lt;p&gt;The budget constraint is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$c_t + \tau_t + s_{t+1} =w_t(1-l_t) +(1+r_t)s_t$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And assume&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\underset{t \longrightarrow \infty}{lim} \ \displaystyle{\frac{s_t}{\Pi_{i=1}^{t-1} (1+r_i)}} = 0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lag Operator $L$ is defined as $L \cdot x_{t+1} = x_t$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How can I get lifetime budget constraint using the Lag Operator?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Many Thanks!&lt;/p&gt;&#xA;" OwnerUserId="18446" LastEditorUserId="18446" LastEditDate="2018-05-29T13:30:06.227" LastActivityDate="2021-03-30T19:00:25.123" Title="Use Lag Operator to find Lifetime Budget Constraint" Tags="&lt;macroeconomics&gt;&lt;representative-agent&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="22216" PostTypeId="2" ParentId="22211" CreationDate="2018-05-29T13:29:11.030" Score="4" Body="&lt;p&gt;In part a, if $B = D_1 + D_2$, then the SGPE should be&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\left\lbrace D_1 = \frac{W}{3},\ D_2 = \frac{W}{3}, \left\lbrace  P = \alpha (D_1 + D_2), \ S = (1 - \alpha) (D_1 + D_2) \right\rbrace \right\rbrace$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Don't say $P = \alpha \frac{2W}{3}$. That's an action, and the second stage best respond should a strategy (function) to make the equilibrium subgame perfect.&lt;/p&gt;&#xA;" OwnerUserId="18446" LastActivityDate="2018-05-29T13:29:11.030" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22217" PostTypeId="2" ParentId="12128" CreationDate="2018-05-29T14:27:39.270" Score="1" Body="&lt;p&gt;As you said it doesn’t make sense to compare entry level finance jobs with non-entry level normal jobs. Salary increase in finance is usually quite large - also many have bonus schemes, which many statistics leave out of the “average salary”. Over time definitely the Quant will make more than the school teacher.&lt;/p&gt;&#xA;" OwnerUserId="14207" LastActivityDate="2018-05-29T14:27:39.270" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22218" PostTypeId="2" ParentId="21603" CreationDate="2018-05-29T15:41:28.953" Score="0" Body="&lt;p&gt;multiplier =1/(1−MPC) holds for a simple closed economy without taxation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;multiplier =1/(MPS+MPM+MPT) holds in an economy that is open and with taxation as a function of income/output. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Both are different economies and therefore the formulas cannot be equated to arrive at your conclusion.&lt;/p&gt;&#xA;" OwnerUserId="18448" LastActivityDate="2018-05-29T15:41:28.953" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22219" PostTypeId="1" CreationDate="2018-05-29T15:56:05.430" Score="4" ViewCount="306" Body="&lt;p&gt;Consider a Cobb-Douglas Prod. Function $$Y=AL^{a}K^{1-\alpha}$$&#xA;This has the cross-partial:&#xA;$$\frac{\partial^2 Y}{\partial K\partial L}=(1-\alpha)\alpha AL^{\alpha-1}K^{-\alpha}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is the interpretation of this the change in the return to labour, with a change in capital (and by Schwarz's theorem, also the change in the return the capital, with a change in labour)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, is it correct to say that the return to labour increases as $\frac{1}{K^a}$ with capital?&lt;/p&gt;&#xA;" OwnerUserId="17825" LastEditorUserId="17825" LastEditDate="2018-05-30T16:29:11.373" LastActivityDate="2018-05-31T10:18:05.093" Title="Interpretation of the Cross Partials of the Cobb-Douglas" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;economic-growth&gt;&lt;production-function&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="22220" PostTypeId="1" CreationDate="2018-05-29T16:56:18.317" Score="3" ViewCount="27" Body="&lt;p&gt;Let us fix the length of one period to be the tenor of the risk-free rate targeted by the central bank, e.g. 1 day. There exists a stochastic discount factor (SDF, a.k.a. pricing kernel).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am confronted with what to me seems like the chicken-and-egg problem. The SDF is by definition determined by investors' preferences (utility function), but its mean, which is by definition directly related to the risk-free rate, is set exogenously by the central bank. Would someone know of a unified framework to resolve my concern? Is it a concern at all?&lt;/p&gt;&#xA;" OwnerUserId="13322" LastActivityDate="2018-05-29T16:56:18.317" Title="Policy rate and the mean of the stochastic discount factor: what is exogenous?" Tags="&lt;monetary-policy&gt;&lt;asset-pricing&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22221" PostTypeId="1" CreationDate="2018-05-29T17:28:31.940" Score="6" ViewCount="158" Body="&lt;p&gt;The consumption of economic goods often takes time. Consider, for example:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Transport services, eg flights, rail journeys;&lt;/li&gt;&#xA;&lt;li&gt;Leisure goods, eg watching a film, visiting a park.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I would like to explore models of consumer or household behaviour in which utility in a period is maximised subject to both income and time constraints. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;From a Google search, two important (but rather old) papers on this topic appear to be:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.researchgate.net/publication/215665892_A_Theory_of_Allocation_of_Time&quot; rel=&quot;nofollow noreferrer&quot;&gt;Becker, G S (1965) &lt;em&gt;A Theory of the Allocation of Time&lt;/em&gt;&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://econpapers.repec.org/article/ecjeconjl/v_3a81_3ay_3a1971_3ai_3a324_3ap_3a828-46.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;De Serpa, A C (1971) &lt;em&gt;A Theory of the Economics of Time&lt;/em&gt;&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;What are other (and more recent) key papers on this topic?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Addendum 31 May 2018&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To give a simple example, suppose there are just two goods $X_1,X_2$ and utility $U$ is given by:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U = X_1^{0.5}X_2^{0.5}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose further that the respective prices and time requirements are for $X_1 (1,2)$ and for $X_2 (2,1)$.  Thus the income and time constraints are:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$X_1 + 2X_2 \leq I$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$2X_1 + X_2 \leq T$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $I$ is income and $T$ is available time. If $T$ is much larger than $I$ (low-income person), then the income constraint will be binding, and the time constraint will be slack, and vice versa if $I$ is much larger than $T$ (high-income person). Over an intermediate range, including $T = I$, both constraints will be binding. These different scenarios have different implications for the effect of a marginal change in price.  Perhaps time preference is relevant here but I can't immediately see how.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Addendum 23 July 2018&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.amazon.co.uk/Consumption-Takes-Time-Implications-Schumpeter-ebook/dp/B000OI0R3I/ref=sr_1_10?ie=UTF8&amp;amp;qid=1532263760&amp;amp;sr=8-10&amp;amp;keywords=ian%20steedman&amp;amp;tag=enlighteconom-21&quot; rel=&quot;nofollow noreferrer&quot;&gt;This book&lt;/a&gt; by Ian Steedman, reviewed &lt;a href=&quot;http://www.enlightenmenteconomics.com/blog/index.php/2018/07/taking-time-seriously-in-economics/&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; by Diane Coyle, looks relevant.&lt;/p&gt;&#xA;" OwnerUserId="1417" LastEditorUserId="1417" LastEditDate="2018-07-23T21:28:19.533" LastActivityDate="2018-07-23T21:28:19.533" Title="Utility Maximisation Subject to Income and Time Constraints" Tags="&lt;reference-request&gt;&lt;utility&gt;&lt;consumer-theory&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22222" PostTypeId="1" AcceptedAnswerId="22281" CreationDate="2018-05-29T18:27:50.390" Score="5" ViewCount="163" Body="&lt;p&gt;Is research at the county-level considered applied micro or applied micro? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The standard undergrad definitions (&lt;strong&gt;&quot;micro&quot; = &quot;individual&quot;&lt;/strong&gt;, &lt;strong&gt;&quot;macro&quot; = &quot;nation&quot;&lt;/strong&gt;) are of no help with units of measurement that lie in between.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help is appreciated.&lt;/p&gt;&#xA;" OwnerUserId="18449" LastActivityDate="2018-06-03T18:53:37.320" Title="Research at the county-level: Macro or Micro?" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;applied-econometrics&gt;&lt;urban-economics&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22224" PostTypeId="2" ParentId="22222" CreationDate="2018-05-29T22:54:50.527" Score="3" Body="&lt;p&gt;I would consider county-level research macroeconomics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Microeconomics focuses on individuals and firms acting as decision makers. I think, looking at county-level aggregates, you are too high level to look at decision makers.&lt;/p&gt;&#xA;" OwnerUserId="40" LastActivityDate="2018-05-29T22:54:50.527" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22225" PostTypeId="1" CreationDate="2018-05-30T01:27:01.517" Score="0" ViewCount="264" Body="&lt;p&gt;I have such a question on the endogenous growth mode”:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In the macroeconomics literature there are various ways in which the growth process in the Ransey-Cass- Koopmans model has been endogenized. &lt;strong&gt;For this question you are required to incorporate one of these endogenous growth mechanisms into the model. You can select the mechanism, but make sure that you explain and/or show how it will generate growth endogenously.&lt;/strong&gt; Setup the optimization problems faced by the various types of agents in your model. Derive and interpret the first order conditions (or efficiency conditions) in these optimization problems. Finally, to the best of your ability use the model to explain the stylized facts of economic growth and development.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;What I want is exactly not to give an answer. I just want to be explained this question. Summarize it. Give hint! especially on dark statement. For example can I explain something like AK MODEL Or ROMER MODEL, LEARNING BY DOING ...? What means endogenous growth mechanism? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I just try to understand the question. Thus I’m asking here. &lt;/p&gt;&#xA;" OwnerUserId="18231" LastEditorUserId="18231" LastEditDate="2018-05-30T01:57:54.647" LastActivityDate="2018-08-09T19:01:17.963" Title="a question on the endogenous growth model" Tags="&lt;macroeconomics&gt;&lt;economic-growth&gt;&lt;self-study&gt;&lt;endogenous-growth&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22226" PostTypeId="2" ParentId="22225" CreationDate="2018-05-30T03:49:25.637" Score="4" Body="&lt;p&gt;&quot;Endogenous Growth&quot; is actually the short version of saying &quot;Endogenous Technology Growth&quot;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Exogenous (Technology) Growth Models&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The rate technological progress $g$ is Exogenously given.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In both Solow and RCK, we can find $A_t = (1 + g)^t A_0 \ \ $(or $A(t) = A(0) e^{gt}$ if in continuous time). $Y$ increases over time because $A$ increases over time. This assumption of growth rate is very strong.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Endogenous (Technology) Growth Models&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The rate of technological progress is Endogenously determined.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example in Two-Sector Growth Model (Rebelo), we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;production $Y = C + I_K =  A \ (vK)^\alpha \ (uH)^{1-\alpha}$ and education $I_H = B \ ((1-v)K)^\alpha \ ((1-u)H)^{1-\alpha}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now $v$ and $u$ are endogenously determined, and thus $H$ is endogenously determined. $A$ doesn't change, but $Y$ will increase over time due to increase in $H$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another example will be the Learning-by-Doing Model.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Recall in Exogenous Models $A_t$ is exogenously given by $A_t = (1+g)^t A_0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But now we want $A_t$ to be determined endogenously. Thus we assume technological progress is due to knowledge creation, and knowledge is a side-production of investment. And thus we let $A_t \equiv \sum_{i=0}^N K_{it}$ (there are N identical firms)&lt;/p&gt;&#xA;" OwnerUserId="18446" LastEditorUserId="18446" LastEditDate="2018-05-30T03:56:20.537" LastActivityDate="2018-05-30T03:56:20.537" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="22227" PostTypeId="2" ParentId="22202" CreationDate="2018-05-30T07:33:06.330" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;What are your assumptions about &lt;strong&gt;a market dominated by long term investors&lt;/strong&gt;?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;For example if the market is dominated by investors does that mean demand outweighs supply so that yields are generally lower?&lt;/li&gt;&#xA;&lt;li&gt;Does long term mean this level of demand for bonds will persist for a long time or that the investors are predisposed to buy maturities of durations longer than another?&lt;/li&gt;&#xA;&lt;li&gt;Do your long term investors have the ability to buy short term maturities and roll them on an on going basis to allow them the possibility of investing for the long term via multiple short dated instruments?&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;What is the &lt;strong&gt;liquidity premium/discount&lt;/strong&gt;?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Is your market very large and liquid (like US or UK treasuries), i.e. you expect prices to be more transparent and have narrower bid-offer spread so that execution costs are small?&lt;/li&gt;&#xA;&lt;li&gt;Is your market illiquid because your investors are buy-and-hold so that there is effectively no secondary market (like SEK or NOK corporate bonds).&lt;/li&gt;&#xA;&lt;li&gt;what impact does each have on the supposed prices of securities.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;What about exogenous factors?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;are you basing the answer to the question solely on this one aspect of knowledge and ignoring all other factors, such as current yield levels and view of the direction of interest rates? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;code&gt;I know this isn't an answer to the question but I have seen first hand how models do not reflect reality and this model seems incredibly simple for this type of analysis. I don't agree with the solution because I don't agree that the 'implications' will always be upheld, and there are 3 of them before the conclusion with scope for much argumentation. This is my own pragmatic view and not necessarily consistent with any of the academics that you are being taught so take it with a pinch of salt.&lt;/code&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="17969" LastActivityDate="2018-05-30T07:33:06.330" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22228" PostTypeId="1" AcceptedAnswerId="22237" CreationDate="2018-05-30T09:56:21.050" Score="5" ViewCount="75" Body="&lt;p&gt;Hey all I am new to macroeconomics and I'm studying right now. I see in my notes that savings $=$ investments, $S=I$.&#xA;I've searched a lot online to see why this is true and I've found a lot of answer but all of them include concepts that I don't yet know, or complicated mathematics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there an &lt;strong&gt;intuitive&lt;/strong&gt; explanation you can give me, maybe with an example, that doesn't involve mathematics or complicated examples about interest rates etc? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The way I see it is, the total amount of money that can be invested in a country can't be more than the savings of a country. If me and someone else were the only 2 people living in country $X$ then if I saved $500$ dollars today, then $500$ dollars is the total amount of money that can be invested tomorrow for example. But I don't know if this a right way to see it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you in advance.&lt;/p&gt;&#xA;" OwnerUserId="18454" LastActivityDate="2018-05-30T23:37:42.680" Title="A question about savings and investments" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22229" PostTypeId="1" AcceptedAnswerId="22233" CreationDate="2018-05-30T12:49:00.790" Score="2" ViewCount="108" Body="&lt;p&gt;Typically, the dependent variable in a linear probability model (LPM) is a 0/1-valued binary variable. What if the dependent variable $y_i$ is still binary but take on general values $a$ and $b$ rather than 0 and 1? Technically, the resulting predictor still retains its nice properties, e.g., it is the minimum mean squared error (MMSE) linear predictor. Again, we may also transform $y_i$ into a 0/1 variable; but sometimes we want to keep the original values, say, for interpretation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is: Can we still call the estimator the LPM estimator? If not, what should we call it?&lt;/p&gt;&#xA;" OwnerUserId="6399" LastActivityDate="2018-05-31T11:54:17.363" Title="Does the linear probability model require the regressand to be zero/one-valued?" Tags="&lt;econometrics&gt;&lt;regression&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22230" PostTypeId="1" AcceptedAnswerId="22231" CreationDate="2018-05-30T15:25:04.367" Score="5" ViewCount="1198" Body="&lt;p&gt;Say there are two people who evaluate an object at 5 dollars and a third who evaluates it at 4 dollars playing a second price sealed bid auction. The first two bid 5 dollars and the third bids 4 dollars. How is the tie broken and how much do they pay? &lt;/p&gt;&#xA;" OwnerUserId="18457" LastActivityDate="2018-05-30T18:57:04.613" Title="How are ties broken in a second price sealed bid auction?" Tags="&lt;game-theory&gt;&lt;auctions&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22231" PostTypeId="2" ParentId="22230" CreationDate="2018-05-30T15:34:24.293" Score="6" Body="&lt;p&gt;The winner pays the second highest bid, which is 5 dollars, however who the winner is depends on the tie-breaking rule. There are multiple rules one could use. In most cases it is assumed that the winner is selected randomly from among the people who placed the highest bids. But you could also select the winner from this group alphabetically or by checking who submitted their bid first.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In case of a Vickrey auction in equilibrium when multiple players place the same highest bid all such players are indifferent between winning and losing, so the exact tie-breaking rule is usually not very important, it does not affect the players' equilibrium payoff nor the seller's revenue.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="42" LastEditDate="2018-05-30T18:57:04.613" LastActivityDate="2018-05-30T18:57:04.613" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22233" PostTypeId="2" ParentId="22229" CreationDate="2018-05-30T19:01:52.360" Score="5" Body="&lt;p&gt;The &quot;LPM&quot; label refers to the structure of the equation, not to the estimator. LPM models can be estimated not only by least-squares methods but also by maximum-likelihood for example.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As regards the nature  of the dependent variable, we are talking about an affine transformation here.  Let a model be with a binary dependent variable and a single regressor for simplicity,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$y_i = \beta_0 +\beta_1x_i +e_i$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;with $y_i \in \{0,1\}$. We are then told that the original variable was &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$z_i = a+(b-a)y_i$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;so $y_i=0\implies z_i =a$ and  $y_i=1 \implies z_i =b$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then the model for $z_i$ is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$z_i = a+(b-a)[\beta_0 +\beta_1x_i +e_i]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;or&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$z_i = \gamma_0 +\gamma_1x_i + u_i$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\gamma_0 = a+(b-a)\beta_0,\;\;\; \gamma_1 = (b-a)\beta_1,\;\;\; u_i = (b-a)e_i$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The structure of the model remains the same, an equation linear in parameters, so it is an LPM model still. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since $(a,b)$ are presumably known values, after estimating the $z$-model, and obtaining estimates for the gammas, we can recover the estimates for the betas also, if they are of interest.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2018-05-30T19:01:52.360" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22234" PostTypeId="2" ParentId="22221" CreationDate="2018-05-30T20:37:26.147" Score="1" Body="&lt;p&gt;Despite its funny title and although it is quite old you may find this paper interesting:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.google.nl/url?sa=t&amp;amp;source=web&amp;amp;rct=j&amp;amp;url=https://www.journals.uchicago.edu/doi/abs/10.1086/260860&amp;amp;ved=2ahUKEwjS_9TAoa7bAhUOzqQKHbmGAogQFjAAegQICRAB&amp;amp;usg=AOvVaw23LctmgSAzihTpKed4mu1l&quot; rel=&quot;nofollow noreferrer&quot; title=&quot;The economics of the afterlife&quot;&gt;The economics of the afterlife&lt;/a&gt; by Scott Gordon in the JPE. His argument is basically that in the presence of an infinite amount of time there would still be a rate of time preference.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A follow-up paper disproving Gordon's claim was written by Amegashie, but I haven't checked that one in detail. You can find that &lt;a href=&quot;https://www.google.nl/url?sa=t&amp;amp;source=web&amp;amp;rct=j&amp;amp;url=http://www.uoguelph.ca/~jamegash/Economics_000.pdf&amp;amp;ved=2ahUKEwjS_9TAoa7bAhUOzqQKHbmGAogQFjADegQIAxAB&amp;amp;usg=AOvVaw33oDInjjTKsC6-RXRXNW_o&quot; rel=&quot;nofollow noreferrer&quot;&gt; here&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Nb credit where credit is due: I would probably never have read the first paper without Yoram Bauman's presentation &quot;Hyperinflation in hell&quot;&lt;/p&gt;&#xA;" OwnerUserId="12186" LastActivityDate="2018-05-30T20:37:26.147" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="22235" PostTypeId="1" CreationDate="2018-05-30T20:45:06.937" Score="0" ViewCount="17" Body="&lt;p&gt;Let's suppose that a startup raise his seed round with a 100k funding for 10% equity. The startup has a pre-money valuation of 1M.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's say that the startup, after 1 year, raise a Series A round. Does the valuation of the startup in the seed round has any impact on the pre-money valuation at the series A? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My understanding is that in principle there is no correlation. Am I right? Is there perhaps a sort of psychological effect by which it's not feasible to value the startup 5, 10 or 100 times more than the previous round? (the time scale of 1 year is arbitrary here) &lt;/p&gt;&#xA;" OwnerUserId="18365" LastActivityDate="2018-05-30T21:14:39.463" Title="How startup early valuation influence later funding stages?" Tags="&lt;asset-pricing&gt;&lt;value&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22236" PostTypeId="2" ParentId="22235" CreationDate="2018-05-30T21:14:39.463" Score="1" Body="&lt;p&gt;No why would it? The valuation should solely be based on the future expectations of the company. Perhaps during this one year, the startup has taken on 100x more customers than it had before, or earning 200 times more, and seemingly have an even brighter future than it did one year ago. Why would the previous valuation affect the new one?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is at least true for rational investors.&lt;/p&gt;&#xA;" OwnerUserId="14207" LastActivityDate="2018-05-30T21:14:39.463" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22237" PostTypeId="2" ParentId="22228" CreationDate="2018-05-30T23:37:42.680" Score="3" Body="&lt;p&gt;It is a statement about national accounts that has to hold (an accounting identity). Unless you understand all the terms in the national accounts, the accounting identity may not make sense.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One non-obvious property of the $S=I$ accounting identity is that increases in inventories are considered investment. That is, it is not just fixed investment (machinery, buildings) which people normally associate with “investment.”&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Take the simple example of a firm that sells goods with a zero profit margin. Its workers are its customers. It pays its workers \$100, and they save \$10. This gives it sales of \$90, and a build up of inventory of \$10. The savings of the workers did not go to fixed investment, it resulted in a possibly undesired build up of unsold goods at the firm.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One thing to note that we are discussing flows within a single accounting period; in my example, the \$10 build up of inventories happens in the same accounting period as the savings (the same day, for example). As a result, when you write in the question that the \$500 savings &lt;em&gt;today&lt;/em&gt; can be used for investment &lt;em&gt;tomorrow&lt;/em&gt; is incorrect if we our accounting period is one day at a time - the savings &lt;em&gt;today&lt;/em&gt; has to match investment &lt;em&gt;today&lt;/em&gt;. (If we had a longer accounting period, such as quarterly, today and tomorrow could end up in the same accounting period.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a result, in order to understand the identity, you need to understand the definitions of the various components of the national accounts. If you added an example of a discussion that you had difficulties with to your question, someone might be able to give you more guidance.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My trick to looking at this is to note that the accounting identity holds for any accounting period, including extremely short ones. In particular, any group of transactions satisfies the identity. I then try to see how the low level transactions would end up if they were the only transactions in the national accounts (like the example above).&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2018-05-30T23:37:42.680" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22239" PostTypeId="2" ParentId="18351" CreationDate="2018-05-31T02:57:46.363" Score="1" Body="&lt;p&gt;The question and the &lt;a href=&quot;https://economics.stackexchange.com/a/18360/8051&quot;&gt;answer by user14471&lt;/a&gt; seem to relate to the issue of ergodicity in economic systems and models. Economic systems (in reality) cannot conceivably be ergodic, while some economic models are ergodic (those that do not attempt to reflect any of the non-ergodic properties).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Necessary concepts to answer this question: Ergodicity, microstates, macrostates&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Ergodicity&quot; rel=&quot;nofollow noreferrer&quot;&gt;Ergodicity&lt;/a&gt; is the property of a system to spend approximately equal amounts of time in each of its &lt;a href=&quot;https://en.wikipedia.org/wiki/Microstate_(statistical_mechanics)&quot; rel=&quot;nofollow noreferrer&quot;&gt;microstate&lt;/a&gt; (if you observe it over sufficiently long times). A microstate is simply the state of a system if you consider every property of every element of the system. Not all microstates are distinguishable. Undistinguishable microstates constitute a macrostate. That is, all macrostates are distinguishable but some have more microstates than others. An ergodic system will be more likely to assume those macrostates with more associated microstates (that is, the macrostates with higher entropy). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Examples&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider a &lt;strong&gt;non-economic example: gas in a container&lt;/strong&gt;. For the definition of a microstate, the position of every molecule is important, for a macrostate only the distribution of the gas matters. While there is a macrostate in which all the molecules are crammed together on one side of the container, this one is extremely unlikely; a macrostate with an even distribution of molecules across the container is much more likely. Since the gas can, however theoretically assume each of the microstates in the future, independent of which other microstates have been assumed in the past, the system is ergodic.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now consider an &lt;strong&gt;economic example: the distribution of dollars across the population&lt;/strong&gt;. A microstate considers which dollar is owned by which person, a macrostate only considers the distribution. While microstates are not distinguishable or even measurable (how do you distinguish the different dollars in your bank account?), the number of microstates per macrostate is important. Theoretically, all dollars could be owned by one person (while everyone else has nothing). This is an extremely unlikely macrostate, while a more even distribution across the population is much more likely. Actually the likelihood (and entropy) will be maximized by a &lt;a href=&quot;https://en.wikipedia.org/wiki/Normal_distribution&quot; rel=&quot;nofollow noreferrer&quot;&gt;Gaussian&lt;/a&gt; distribution. (However, if you measure the distribution of wealth, you will find that it is not Gaussian but &lt;a href=&quot;https://en.wikipedia.org/wiki/Heavy-tailed_distribution&quot; rel=&quot;nofollow noreferrer&quot;&gt;heavy-tailed&lt;/a&gt;.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;How ergodicity, irreversibility, and the arrow of time, are related&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ergodicity can be phrased differently as: every microstate is reachable from every other microstate. It is reversible, it does not have an implicit arrow of time. It is easy to see that this is not the case if the system has an &lt;a href=&quot;https://en.wikipedia.org/wiki/Attractor&quot; rel=&quot;nofollow noreferrer&quot;&gt;attractor&lt;/a&gt; (a stable equilibrium) that captures trajectories (development paths) which will then not be able to leave the attractor again. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Ergodic and non-ergodic models in economics&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Armed with these concepts, we can now return to the question of reversibility in economics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Models of simple exchange of goods etc. are ergodic. Depending on how and according to what prices and preferences the goods are exchanged, every microstate of the system is reachable and possible. What is more, every transaction can be reversed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the case of models of growth, developent, or technological change, ergodicity will typically not hold any more (unless you can have degrowth such that the system reverses its growth trajectory exactly). These systems typically have attractors (&lt;a href=&quot;https://en.wikipedia.org/wiki/Solow%E2%80%93Swan_model&quot; rel=&quot;nofollow noreferrer&quot;&gt;Solow-Swan models&lt;/a&gt; for instance have an attractor once you remove the neutral technical change term) they have production functions that would generally not be considered reversible, and they may not allow for recessions and reversion of technological change. More complex models of technological change and development &lt;a href=&quot;http://users.metu.edu.tr/etaymaz/research/nelson-winter-model.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;from evolutionary economics or so&lt;/a&gt; will definitely &lt;/p&gt;&#xA;&#xA;&lt;p&gt;That said, economic models have a certain tendency to assume ergodicity for whatever is not part of the model. Macro-models (including Solow-Swan models) assume that the structure of the microlevel (that is not modeled) will not interfere with how the model works, that agents are exchangeable (representative agents) and that transactions are neutral. For &lt;a href=&quot;https://en.wikipedia.org/wiki/Real_business-cycle_theory&quot; rel=&quot;nofollow noreferrer&quot;&gt;RBC&lt;/a&gt; and &lt;a href=&quot;https://en.wikipedia.org/wiki/Dynamic_stochastic_general_equilibrium&quot; rel=&quot;nofollow noreferrer&quot;&gt;DSGE&lt;/a&gt; models this is made more explicit by assuming an unbiased i.i.d. stream of shocks acting on a largely homogeneous population of agents. Some varieties (&lt;a href=&quot;https://www.princeton.edu/~moll/ECO521_2016/Lecture11_ECO521.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;HANK&lt;/a&gt; etc.) try to address this, but the heterogeneity those models allow for is extremely limited. &lt;a href=&quot;https://en.wikipedia.org/wiki/Agent-based_computational_economics&quot; rel=&quot;nofollow noreferrer&quot;&gt;Agent-based models&lt;/a&gt; address this from a different angle and are able to achieve the non-ergodicity property observed in real economic systems (see last paragraph below), but they have their own problems, as was &lt;a href=&quot;https://economics.stackexchange.com/a/15845/8051&quot;&gt;discussed in a different question&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Ergodicity in real economic systems&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In real economic systems, it is obvious that development paths are not reversible. You may suffer a recession, you may even experience an extensive collapse and lose advanced technologies, but you will not be able to dismantle and sell off the associated capital goods (and the human capital) in a way mirroring how they were acquired. Further, humans react vastly different to gaining and losing wealth (&lt;a href=&quot;https://en.wikipedia.org/wiki/Loss_aversion&quot; rel=&quot;nofollow noreferrer&quot;&gt;loss aversion&lt;/a&gt;). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And beyond this, the very distribution of wealth - a &lt;a href=&quot;https://en.wikipedia.org/wiki/Heavy-tailed_distribution&quot; rel=&quot;nofollow noreferrer&quot;&gt;heavy tailed&lt;/a&gt;, &lt;a href=&quot;https://en.wikipedia.org/wiki/Pareto_distribution&quot; rel=&quot;nofollow noreferrer&quot;&gt;Pareto&lt;/a&gt; distribution, not a &lt;a href=&quot;https://en.wikipedia.org/wiki/Normal_distribution&quot; rel=&quot;nofollow noreferrer&quot;&gt;Gaussian&lt;/a&gt; - will show you that the system does not achieve (or even come close to) the entropy maximizing macrostate with the most associated microstates. This is a structural property typically found in &lt;a href=&quot;https://en.wikipedia.org/wiki/Complex_adaptive_system&quot; rel=&quot;nofollow noreferrer&quot;&gt;complex systems&lt;/a&gt; with &lt;a href=&quot;https://en.wikipedia.org/wiki/Self-organization#Human_society&quot; rel=&quot;nofollow noreferrer&quot;&gt;self-organizing&lt;/a&gt; properties (the issues Prigogine wrote about as mentioned in the OP). You will find similar distribution also &lt;a href=&quot;https://www.imf.org/external/pubs/ft/wp/2010/wp10109.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;among firm sizes&lt;/a&gt;, &lt;a href=&quot;https://arxiv.org/pdf/cond-mat/0412004&quot; rel=&quot;nofollow noreferrer&quot;&gt;regional agglomerations (city sizes), and a ton of other things&lt;/a&gt; that are more or less related to economic systems.&lt;/p&gt;&#xA;" OwnerUserId="8051" LastActivityDate="2018-05-31T02:57:46.363" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22240" PostTypeId="2" ParentId="22219" CreationDate="2018-05-31T10:18:05.093" Score="3" Body="&lt;p&gt;The interpretation of the cross partial here is the change in the return (or marginal productivity) of labor when capital increases marginally. Similarly, it can be interpreted as the change in the return of capital, when labor increases marginally.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We often only want to interpret the sign of the cross-partial and not the exact value. Here we see that the productivity of one factor increases with the other factor. Interpreting the exact value is more difficult, but also not really interesting for most economic applications.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Furthermore, it is not correct to say that the return to labour increases as $\frac{1}{K^a}$ with capital. How did you arrive at this conclusion?&lt;/p&gt;&#xA;" OwnerUserId="5557" LastActivityDate="2018-05-31T10:18:05.093" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="22241" PostTypeId="2" ParentId="20666" CreationDate="2018-05-31T10:54:55.750" Score="1" Body="&lt;p&gt;After much reading, here's the conclusion I got.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;VAR models can be seen as State-Space models/representations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Usually DSGE linearised solutions have a State-Space representation, with more restrictions than a regular VAR model would have. In fact, there are papers(I remember one from spanos testing the Smets and Wouters model) showing DSGE solutions don't pass the specification tests we usually do to the data.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, instead of assuming that the residuals follow a normal multivariate distribution, they show we would be better to assume a student-t multivariate distribution. Of course, the problem is that most textbooks dealing with multivariate time series - if I remember correctly lutkephöl is one of them - also assume normal distributions. But at least, the time series VAR analysis can be made robust, while I've never seen DSGE model estimations using student-t distributions instead of normal ones.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;P.S.: this is more like a note to self, from my self studying the subject. If anyone knows more, be free to share. &lt;/p&gt;&#xA;" OwnerUserId="118" LastActivityDate="2018-05-31T10:54:55.750" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="22242" PostTypeId="1" CreationDate="2018-05-31T11:11:38.117" Score="2" ViewCount="62" Body="&lt;p&gt;In Herbst and Schorfheide &quot;Bayesian Estimation of DSGE Models&quot;, in the appendix named &quot;Data Sources&quot;, they show several formulas relating the empirical data which should be used for the model.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here's a snapshot from the book.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/hb9qW.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/hb9qW.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've taken the data from the FRED. One can notice that the observations were taken monthly for some variables, and for others were taken quarterly. Some begin in the 40's, while others begin in the 50's.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, the formulas in the book assume the same time period $t$. Hence, what I did was to discover the intersection of the dates of all observations, i.e. quarterly data beginning from the 50's,  and cleaned the data accordingly.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, I'm using the formulas in the book to create those new variables, namely per capita real output, annualized inflation, and federal funds rate. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My doubt resides on whether my procedure was correct.&lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="118" LastEditDate="2018-06-01T22:32:41.883" LastActivityDate="2018-06-01T22:32:41.883" Title="Cleaning data for DSGE model estimation: An and Schorfheide (2007)" Tags="&lt;macroeconomics&gt;&lt;dsge&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22243" PostTypeId="2" ParentId="22229" CreationDate="2018-05-31T11:54:17.363" Score="0" Body="&lt;p&gt;An LPM is a model in which the probability of the binary dependent variable having a particular value is linear in parameters. For example, if $y$ is a 0/1-valued variable and $P(y=1)=x\beta$, it (the equation for the probability) is called a linear probability model. Likewise, if $y \in \{ -1, 1 \}$ and $P(y=-1) = x\beta$, it’s a linear probability model. Or if $y$ is an apple/orange-valued variable and you believe that the probability of $y$ being an apple is $x\beta$, your belief is said to be a linear probability model. Zero/one mean nothing real here; they are only labels. You can label them as man/woman instead if you want. You lose no information by this relabeling as long as you remember the new labels. Also, as Papadopoulus said, it is a model, not an estimator, though we just understand an “LPM estimator” casually as an estimator of parameters in an LPM.&lt;/p&gt;&#xA;" OwnerUserId="10775" LastActivityDate="2018-05-31T11:54:17.363" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22245" PostTypeId="2" ParentId="21884" CreationDate="2018-05-31T14:08:19.573" Score="1" Body="&lt;p&gt;Your approach seems no good. Let us make it really simple: You have only the dependent variable and you want to compare the averages across countries. You keep the firms whose $y$ values are inside the range. By doing this, you are (sort of) equating $y$ values, which you aimed to compare. This is strange. In fact, this leads to endogenous sample-selection.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems, however, acceptable to keep only comparable firms (rather than firm-year) based on the exogenous variables.&lt;/p&gt;&#xA;" OwnerUserId="10775" LastActivityDate="2018-05-31T14:08:19.573" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22247" PostTypeId="1" CreationDate="2018-05-31T17:35:24.480" Score="2" ViewCount="198" Body="&lt;p&gt;I need to compare change in employment size for a sample of companies. I could use percentage change, however, the problem with it is that when the base is small, a small absolute change result in a large percentage change.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For instance, company A and B employment is 10 and 10,000 respectively. assuming both company increase their employment by 5. the percentage increase is 50% for A and 0.05% for B.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I recall reading somewhere that there are some measures that take into account the different initial value when measuring changes (e.g., multiplying relative change by a function of absolute change). However, I can't recall where I read it or the name of the indicator.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Anyone is aware of such indicator or is able to propose a solution?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;TIA&lt;/p&gt;&#xA;" OwnerUserId="18465" LastEditorUserId="18465" LastEditDate="2018-06-01T06:09:29.303" LastActivityDate="2020-07-22T16:58:19.267" Title="Comparing relative change for different base value" Tags="&lt;statistics&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="22250" PostTypeId="1" AcceptedAnswerId="22253" CreationDate="2018-06-01T01:34:16.287" Score="3" ViewCount="759" Body="&lt;p&gt;When I read about national debt, it's usually about how debt is bad because with too much debt, debtors would demand higher interest rates. Eventually the government can't pay the interest, defaults, and the economy collapses.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However not discussed is why the central bank can't just step in and keep lending money to the government. It's not like the central back doesn't already do that - according to &lt;a href=&quot;http://www.pewresearch.org/fact-tank/2017/08/17/5-facts-about-the-national-debt-what-you-should-know/&quot; rel=&quot;nofollow noreferrer&quot;&gt;this article&lt;/a&gt;, 27.6% of the US national debt is currently to another arm of the government. But if the central bank can just keep buying government bonds, the government can also force the interest rate on its debt as low as it desires (just get the central bank to buy more bonds), not to mention deficit spend to its heart's content. And if the government is able to do &lt;em&gt;that&lt;/em&gt;, then national debt isn't a problem at all!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems to me that there's only a problem if 1) the country doesn't have a central bank or 2) you're using another country's currency (e.g. for members of the Eurozone). Am I missing something?&lt;/p&gt;&#xA;" OwnerUserId="15607" LastEditorUserId="8481" LastEditDate="2020-05-07T02:21:33.147" LastActivityDate="2020-05-07T03:48:46.087" Title="Why is national debt bad if the central bank can keep buying bonds?" Tags="&lt;macroeconomics&gt;&lt;government-debt&gt;&lt;central-banking&gt;&lt;bonds&gt;" AnswerCount="3" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="22251" PostTypeId="1" AcceptedAnswerId="22257" CreationDate="2018-06-01T06:02:18.140" Score="3" ViewCount="216" Body="&lt;p&gt;The &lt;a href=&quot;https://en.wikipedia.org/wiki/Virtual_valuation&quot; rel=&quot;nofollow noreferrer&quot;&gt;virtual valuation&lt;/a&gt;  of a buyer in an auctin is a function used to calculate the expeced revenue of a seller from that buyer. When the buyer's value comes from a continuous distribution with pdf $f$ and cdf $F$, the virtual valuation is:&#xA;$$&#xA;r(v) := v - \frac{1-F(v)}{f(v)}&#xA;$$&#xA;How exactly should the virtual valuation be calculated when the distribution is discrete?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, suppose the valuation of a buyer can take three values: 1 USD - with probability 0.3, 2  USD - with probability 0.3, 3  USD - with probability 0.4. What exactly are $F$ and $f$ in this case?&lt;/p&gt;&#xA;" OwnerUserId="385" LastActivityDate="2018-06-01T17:56:49.823" Title="Virtual valuation when the distribution is discrete" Tags="&lt;auctions&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22252" PostTypeId="2" ParentId="22250" CreationDate="2018-06-01T10:07:33.300" Score="1" Body="&lt;p&gt;For the central bank to keep buying government debt indefinitely, it would have to start printing money at some point. That has the usual drawbacks from printing money, such as (hyper-)inflation. &lt;/p&gt;&#xA;" OwnerUserId="5557" LastEditorUserId="27855" LastEditDate="2020-05-07T03:48:46.087" LastActivityDate="2020-05-07T03:48:46.087" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22253" PostTypeId="2" ParentId="22250" CreationDate="2018-06-01T10:21:46.457" Score="3" Body="&lt;p&gt;Yes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The central bank (say the Fed in U.S.) can purchase bonds, but notice:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;The Fed is not going purchase t-bonds and t-bills directly from the Treasury. It will only purchase or sell bonds in the market. (&quot;Open market purchase&quot; or &quot;open market sell.&quot;)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Open market purchase is not only the buying of bonds, but also the creation of money. (You sell bonds to the Fed, and the Fed will pay you.) Increase in money supply means inflation. Obviously, the Fed can't buy too much bonds, or the U.S. will have to deal with disastrous hyperinflation.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Most central banks have some degree of independence in determining what to do. The Fed won't purchase more than they want, and the government is not able to force them.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="18446" LastEditorUserId="27855" LastEditDate="2020-05-07T02:15:06.507" LastActivityDate="2020-05-07T02:15:06.507" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="22254" PostTypeId="2" ParentId="22251" CreationDate="2018-06-01T11:12:45.197" Score="0" Body="&lt;p&gt;&lt;a href=&quot;https://stats.stackexchange.com/a/214514&quot;&gt;Discrete distributions have no pdf&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And since $r(v)$ is defined via $f(v)$ virtual valuations also do not exist in this case. Even if one were to approximate the discrete distribution $X$ with continuous distributions $X_n$ in such a manner that&#xA;$$&#xA;\forall v: \lim_{n \to \infty} F_n(v) = F(v),&#xA;$$&#xA;the limit $\lim_{n \to \infty} r_n(v)$ would not exist where $\lim_{n \to \infty} f_n(v) = 0$.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2018-06-01T11:18:05.013" LastActivityDate="2018-06-01T11:18:05.013" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="22256" PostTypeId="2" ParentId="22250" CreationDate="2018-06-01T13:26:37.660" Score="3" Body="&lt;p&gt;This site is aimed to give non-opinion based answers; this question is worded in a way that leads to opinions (“bad”). I will do my best to give a straight answer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would argue that it is safe to say that there is a lot of hidden politics in discussion of fiscal policy and government debt. If someone does not like policy X, and policy X is popular, it is politically easier to attack X’s effect on government debt than X itself. This could explain the tone of discussions you have read.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As you note, it would be possible for a government to set the interest rates on all of its debt if it borrows in a currency that it controls (via control of the central bank). The standard argument against such a policy is that by doing so, the central bank would lose control of inflation. (That is, it needs to be seen to have the flexibility to raise interest rates to keep expected inflation under control.) There’s a lot of different theoretical arguments to get to that result. (As a disclaimer, I would note that I disagree with them, so I will not attempt to present them.) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Unfortunately, these arguments are often based on cryptic mathematics. You could try asking another question specifically on that topic to get a further background. (I did a quick search, but the questions I saw had various issues. In order to get good answers, you need to ask a very specific question, and avoid introducing editorial comments, as answers end up responding to the editorial comments.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The next line of attack is that by increasing debt, interest costs are rising (assuming interest rates are positive). This implies that these costs become an increasingly large part of the budget. Furthermore, overlapping generations models (OLG models), typically suggest that this results in generational unfairness. (Future generations are disadvantaged relative to the current generation.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, there is the “intertemporal governmental budget constraint.” This constraint - if it holds, which is unclear - suggests that governments will need future primary surpluses to match current debt levels. (The primary surplus is the budget balance excluding interest payments.) The theoretical status of the budget constraint is controversial, but one could argue that it is related in practice to the previous argument about interest payments.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2018-06-01T13:26:37.660" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22257" PostTypeId="2" ParentId="22251" CreationDate="2018-06-01T13:48:12.377" Score="3" Body="&lt;p&gt;Virtual valuation is the derivative of the expected revenue function with respect to the quantile $q$ that is then evaluated at value $v$. The Revenue function is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$R(q) = q\cdot v(q),\;\;\; q = 1-F(v),\;\;\; v(q) = F^{-1}(1-q) \tag{1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$r(v(q)): = \frac{dR(q)}{dq}=  \frac{d}{dq}\big[q\cdot F^{-1}(1-q)\big] \tag{2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;written, &lt;em&gt;after&lt;/em&gt; the calculations, in terms of $v$, so &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$r(v)=v - \frac{1-F(v)}{f(v)} \tag{3}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If $v$ is discrete we have &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$q_j = 1-F(v\leq v_j),\;\;\; j=1,...,k \tag{4}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where now $F$ is a distribution function of a discrete rv, an where $j$ counts the ordered discrete values that $v$ may take, $v \in \{v_1,...,v_k\}$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Discretizing the relationship we could define &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$r(v(q_j, q_{j+1})):= \frac{R(q_{j+1})-R(q_j)}{q_{j+1}-q_j} \tag{5}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which in terms of $v$ becomes&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$r(v(q_j, q_{j+1})):= \frac{v_{j+1}\cdot [1- F(v\leq v_{j+1})] -v_{j}\cdot [1- F(v\leq v_{j})]}{1- F(v\leq v_{j+1})-1+F(v\leq v_{j})} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$=\frac{v_{j+1}\cdot Pr(v &amp;gt; v_{j+1}) -v_{j}\cdot Pr(v &amp;gt; v_{j})}{-Pr(v=v_{j+1})}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Using &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Pr(v &amp;gt; v_{j}) = Pr(v=v_{j+1}) + Pr(v&amp;gt;v_{j+1})$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;we get &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$r(v_j,v_{j+1}) = v_{j} - (v_{j+1}-v_j)\cdot \frac{Pr(v&amp;gt;v_{j+1})}{Pr(v=v_{j+1})}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;or &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$r(v_j,v_{j+1}) = v_{j} - (v_{j+1}-v_j)\cdot \frac{1-F(v_{j+1})}{Pr(v=v_{j+1})} \tag{6}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since to a first approximation, if $v$ is continuous, and $v_j,v_{j+1}$ are &quot;close enough&quot; we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Pr[v \in (v_j,v_{j+1})] \approx f(v_{j+1}) \cdot (v_{j+1}-v_{j})$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is clear how the obtained relation for the discrete case can be seen as the analogue of the continuous case. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For practical applications, one could think also of using a &quot;continuity correction&quot; for the probability in the denominator of $(6)$.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2018-06-01T17:56:49.823" LastActivityDate="2018-06-01T17:56:49.823" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22258" PostTypeId="2" ParentId="21257" CreationDate="2018-06-01T14:54:22.460" Score="0" Body="&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;It is correct that you must forego $600$ Lexus cars to produce $500$ Toyota cars.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;And it is right that you have to give up $500$ Toyota vehicles to increase a production of Lexus as required. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;However, it is not correct that you have to forego $0$ Toyota cars to produce $5,000$ Lexus cars. In fact, you have to give up the entire production of Toyota cars to have that amount of Lexus cars produced.  Thus, the opportunity cost of producing $5,000$ Lexus cars is $2,000$ Toyota cars.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;For calculating unit opportunity costs, you may want to apply the formulas provided in @everyville's post&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="18338" LastActivityDate="2018-06-01T14:54:22.460" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22259" PostTypeId="1" CreationDate="2018-06-01T17:32:30.973" Score="1" ViewCount="19" Body="&lt;p&gt;Here's the &lt;a href=&quot;http://sims.princeton.edu/yftp/gensys/LINRE3A.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Sims(2002) paper&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How does one deduce equation (39) from that paper?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="118" LastActivityDate="2018-06-01T17:32:30.973" Title="Deducing eq. (39) of Sims (2002)" Tags="&lt;macroeconomics&gt;&lt;dsge&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22260" PostTypeId="1" CreationDate="2018-06-01T18:18:44.603" Score="0" ViewCount="26" Body="&lt;p&gt;In a state-space representation, the measurement equation is something of this form $O_t=H_t s_t + u_t$, where $O_t$ are the observational data at time $t$, $H_t$ is a possibly time-dependent matrix relating the state $s_t$ and the observational data. We can see $u_t$ as the measurement errors at time $t$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, in Herbst and Schorfheide book (Bayesian estimation of DSGE models),&lt;/p&gt;&#xA;&#xA;&lt;p&gt;we have $s_t$ dependent on $y_{t}$, but not $y_{t-1}$, while the measurement equations are of the form:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/1RXQc.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/1RXQc.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this a typo? Should I add the $y_{t-1}$ term to $s_t$?&lt;/p&gt;&#xA;" OwnerUserId="118" LastActivityDate="2018-06-05T15:11:35.537" Title="A possible typo in Herbst and Schorfheide book of DSGE estimation" Tags="&lt;macroeconomics&gt;&lt;dsge&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22261" PostTypeId="1" CreationDate="2018-06-01T18:47:46.260" Score="1" ViewCount="310" Body="&lt;p&gt;My economics textbook says that demand curves slope downward - but then goes on to say that when demand increases, prices go up! Does anyone else find this confusing?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Edit&lt;/strong&gt;: from the small number of answers I have received, it seems that this is not a well understood issue in economics. Is anyone aware of alternative approaches which avoid this contradiction (e.g. I have heard that the Austrian School does not use demand curves)?&lt;/p&gt;&#xA;" OwnerUserId="18471" LastEditorUserId="18471" LastEditDate="2018-06-02T10:59:24.247" LastActivityDate="2018-06-02T11:51:26.170" Title="Demand curve confusion" Tags="&lt;mathematical-economics&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22262" PostTypeId="2" ParentId="22261" CreationDate="2018-06-01T19:42:43.153" Score="3" Body="&lt;p&gt;The book probably intends you to think like this&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/5q6ZZ.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/5q6ZZ.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;so you have a downward-sloping demand curve (lower prices lead to higher demand), but if demand increases for a reason not related to price (a shift from the &lt;em&gt;Demand 1&lt;/em&gt; curve to the &lt;em&gt;Demand 2&lt;/em&gt; curve) then the new equilibrium on the upward-sloping supply curve will be at a higher price and quantity&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are a lot of implicit assumptions here, especially &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;the direction of the slope of the supply curve&lt;/li&gt;&#xA;&lt;li&gt;whatever changed the demand curve did not affect the supply curve  &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2018-06-01T19:42:43.153" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22264" PostTypeId="5" CreationDate="2018-06-01T22:48:03.527" Score="0" Body="&lt;p&gt;These models are characterized by the interperiod stochastic optimization, reaching equilibrium for all markets under consideration.&lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="118" LastEditDate="2018-06-06T05:12:58.280" LastActivityDate="2018-06-06T05:12:58.280" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22265" PostTypeId="4" CreationDate="2018-06-01T22:48:03.527" Score="0" Body="DSGE - Dynamic Stochastic General Equilibrium models. " OwnerUserId="118" LastEditorUserId="118" LastEditDate="2018-06-03T19:05:30.873" LastActivityDate="2018-06-03T19:05:30.873" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22266" PostTypeId="1" CreationDate="2018-06-02T03:37:20.187" Score="1" ViewCount="110" Body="&lt;p&gt;I vaguely recall from my reading of Adam Smith’s “The Wealth of Nations”, during college, that he opined that a market-based economy must constantly expand.  Is this recollection correct and, if so, what is the specific quote/reasoning?  Is it not possible for such an economy to be static and self-contained? &lt;/p&gt;&#xA;" OwnerUserId="15911" LastEditorUserId="8815" LastEditDate="2018-06-03T03:18:17.577" LastActivityDate="2018-06-04T20:40:41.877" Title="Must a market-based economy constantly expand?" Tags="&lt;macroeconomics&gt;&lt;supply-and-demand&gt;&lt;economic-growth&gt;" AnswerCount="2" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22268" PostTypeId="2" ParentId="20855" CreationDate="2018-06-02T10:49:12.283" Score="0" Body="&lt;p&gt;Maybe you can do a Probit regression?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let Y be a binary indicator. If the customer continues to use the website frequently (you can determine the threshold for that) after leaving the comment, then Y = 1, otherwise Y = 0. This Y is going to be your dependent variable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let X be the measure of satisfactory, the higher the better.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your independent variables are X and some other factors that may be relevant. For example, the amount of time spent on this website prior to the survey, the amount of money spent on this website prior to the survey, number of friends and etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the coefficient for X is positive, it means customers tend to stay if they are satisfied with the website's customer support (i.e. customer support inefficiency lead to loss of customer).&lt;/p&gt;&#xA;" OwnerUserId="18446" LastActivityDate="2018-06-02T10:49:12.283" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22269" PostTypeId="2" ParentId="22261" CreationDate="2018-06-02T11:51:26.170" Score="1" Body="&lt;p&gt;Separate the concepts &quot;an increase in quantity demanded&quot; from &quot;shifting of the demand schedule&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The second means that for some reason, say change in tastes, preferences, &lt;em&gt;the whole demand curve shifts&lt;/em&gt;: now, &lt;em&gt;quantity demanded&lt;/em&gt; for the product has increased for all price levels, compared to the previous situation, but of course  the downward slope remains.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your economics textbook should have said&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;Demand curves slope downward - but when demand increases (&lt;em&gt;in the&#xA;  sense of shifting the whole demand curve due to, say, a change in&#xA;  consumer preferences&lt;/em&gt;), &lt;em&gt;equilibrium&lt;/em&gt; price goes up&quot;.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="61" LastActivityDate="2018-06-02T11:51:26.170" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22274" PostTypeId="1" CreationDate="2018-06-03T00:52:40.673" Score="5" ViewCount="633" Body="&lt;p&gt;In the United States, wages in real terms have seen very little change over approximately five decades:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/nDS48.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/nDS48.png&quot; alt=&quot;from $19.18 in 1964 to $20.67 in 2014. Measured in 2014 dollars.&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(source: &lt;a href=&quot;http://www.pewresearch.org/fact-tank/2014/10/09/for-most-workers-real-wages-have-barely-budged-for-decades/&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.pewresearch.org/fact-tank/2014/10/09/for-most-workers-real-wages-have-barely-budged-for-decades/&lt;/a&gt; )&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reasons for this are many and varied.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Over approximately the same time period, union membership has fallen dramatically. BLS data since 1983 shows the following chart &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/T7H6n.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/T7H6n.png&quot; alt=&quot;union membership from 20.1% in 1983 to 10.7% in 2017&quot;&gt;&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(source: data roundup via &lt;a href=&quot;https://www.bls.gov/news.release/union2.nr0.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.bls.gov/news.release/union2.nr0.htm&lt;/a&gt; with the same chart in a more accessible article at &lt;a href=&quot;https://www.bloomberg.com/news/articles/2018-01-19/union-membership-rate-in-u-s-held-at-record-low-of-10-7-in-17&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.bloomberg.com/news/articles/2018-01-19/union-membership-rate-in-u-s-held-at-record-low-of-10-7-in-17&lt;/a&gt; ). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reasons for this too are many and varied. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think the causal relationship between the two is weak, but I'm wondering if there has been any research on whether or not there is a relationship, and to what degree.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Repeated, in question form: What is the relationship, if any, between declining union membership and real wage stagnation? Thank you.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Edit: UK data.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The UK has a report on union membership:  &lt;a href=&quot;https://www.gov.uk/government/statistics/trade-union-statistics-2016&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.gov.uk/government/statistics/trade-union-statistics-2016&lt;/a&gt; . One table lists &quot;Trade union membership, UK, 1892 to 2015-16&quot; in absolute terms; the series counting percent of employees only starts in 1989. But it shows that absolute membership peaked in 1979 and has been declining since. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/iU7MZ.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/iU7MZ.png&quot; alt=&quot;Trade union membership, UK, 1892 to 2015-16&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In contrast with the United States, ever since the (absolute) union membership peak in 1979, real wages have increased in the UK (actually shown is since 1980), although they did take a dip after 2008.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/MnMZS.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/MnMZS.png&quot; alt=&quot;Annual Survey of Hours and Earnings, 1980 to 2016&quot;&gt;&lt;/a&gt;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(source: &lt;a href=&quot;http://cep.lse.ac.uk/pubs/download/ea036.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;&quot;Real Wages and Living Standards in the UK&quot;&lt;/a&gt; )&lt;/p&gt;&#xA;" OwnerUserId="11180" LastEditorUserId="11180" LastEditDate="2018-06-07T20:09:34.337" LastActivityDate="2018-06-07T20:09:34.337" Title="Real wage stagnation and union membership" Tags="&lt;wages&gt;&lt;united-states&gt;" AnswerCount="2" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="22275" PostTypeId="1" CreationDate="2018-06-03T01:26:36.270" Score="2" ViewCount="64" Body="&lt;p&gt;Why didn’t Roosevelt’s method of fixing prices on labour and produce help the depression?&#xA;If everyone was receiving a wage that allowed them to afford produce, wouldn’t that create a new equilibrium and overcome the credit expansion from earlier years?&#xA;Yes labour would cost more but wouldn’t the employer be receiving enough money from the fixed prices of their produce to pay these wages?&lt;/p&gt;&#xA;" OwnerUserId="18482" LastActivityDate="2018-06-03T01:26:36.270" Title="Roosevelt’s Price Fixing in The Great Depression" Tags="&lt;inflation&gt;&lt;monetary-policy&gt;&lt;keynes&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22277" PostTypeId="1" CreationDate="2018-06-03T05:03:43.563" Score="1" ViewCount="310" Body="&lt;p&gt;I read that increased interest rate attracts foreign investment but discourages domestic investment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why does interest rate have different effects on foreign and domestic investments?&lt;/p&gt;&#xA;" OwnerUserId="18483" LastActivityDate="2018-06-04T00:26:38.147" Title="Interest Rate and Foreign / Domestic Investment" Tags="&lt;interest-rate&gt;&lt;investment&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22279" PostTypeId="1" CreationDate="2018-06-03T08:48:21.397" Score="1" ViewCount="181" Body="&lt;p&gt;I have read several texts on the nature of sequential equilibria and weak perfect bayesian equilibria (called such by Mas-Colell, also called weak sequential equilibria). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am not looking for computational methods that can be used by computers. I'm looking for a method to quickly find these equilibria in simple games that can be done by hand. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Could you recommend a good text that explains how to do this quickly?&lt;/p&gt;&#xA;" OwnerUserId="11146" LastActivityDate="2018-06-03T08:48:21.397" Title="How to find sequential equilibria and weak perfect bayesian equilibria quickly?" Tags="&lt;reference-request&gt;&lt;game-theory&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22280" PostTypeId="1" AcceptedAnswerId="22310" CreationDate="2018-06-03T18:13:56.453" Score="2" ViewCount="46" Body="&lt;p&gt;Expenditure dampening policies may be used to correct a current account deficit. This involves contractionary monetary and fiscal policy. I understand that such measures induce a reduction in consumption, investment, and government spending and may lead to a fall in aggregate demand. But how can we be so sure that the rise in net exports won't counteract the fall and make AD rise? Is this not a common case? In short, what is the usual effect of dampening policies on AD? &lt;/p&gt;&#xA;" OwnerUserId="18163" LastEditorUserId="28159" LastEditDate="2020-05-29T10:52:09.807" LastActivityDate="2020-05-29T10:52:09.807" Title="Effect of policies on Aggregate Demand" Tags="&lt;international-trade&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22281" PostTypeId="2" ParentId="22222" CreationDate="2018-06-03T18:53:37.320" Score="2" Body="&lt;p&gt;It depends on the focus of the research and the type of model(s) applied.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A study of a particular good or industry at county level would be &lt;strong&gt;micro&lt;/strong&gt;. This might include consideration of, for example, demand and supply of a good, the degree of competition in an industry, and the effect of a tax or subsidy on production or sale of a good.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A study of the overall level of economic activity in a county would be &lt;strong&gt;macro&lt;/strong&gt;.  This might include consideration of, for example, consumption and saving out of income by residents of the county, investment and public expenditure within the county, &quot;exports&quot; to and &quot;imports&quot; from neighbouring counties and beyond, and the effects of all of these on the county's overall economic activity.&lt;/p&gt;&#xA;" OwnerUserId="1417" LastActivityDate="2018-06-03T18:53:37.320" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="22283" PostTypeId="1" CreationDate="2018-06-03T19:54:10.543" Score="1" ViewCount="91" Body="&lt;p&gt;Knowing that a utility function's primary purpose it to be used as a tool to rank consumption bundles, I was wondering: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;do we really need to be concerned with accurate identification utility functions or would simple structural assumptions do?&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The main argument against this would be that by using misspecified  utility functions we would end up with inaccuracy in estimation of demand.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But in terms of using it as an tool to index consumer welfare, does it really matter?&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2018-06-06T07:32:56.010" Title="Do we really need accurate utility functions?" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;welfare&gt;&lt;measuring-utility&gt;" AnswerCount="1" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="22284" PostTypeId="1" CreationDate="2018-06-03T20:37:55.870" Score="1" ViewCount="89" Body="&lt;p&gt;China has the 2nd largest GDP in the world and also has a high GDP growth rate. According to Richard Lynn's &lt;em&gt;IQ and Global Inequality&lt;/em&gt;, the Chinese have a mean IQ of 105, which is one of the highest in the world. So, it just seems to be a matter of time before China becomes a developed country. The only question is when: Will it be 10 years from now? 20 years? 50 years?&lt;/p&gt;&#xA;" OwnerUserId="16105" LastEditorUserId="16105" LastEditDate="2018-06-03T20:57:15.500" LastActivityDate="2020-07-11T17:14:00.667" Title="When can we expect China to become a developed country?" Tags="&lt;international-economics&gt;&lt;development-economics&gt;&lt;china&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22285" PostTypeId="2" ParentId="22284" CreationDate="2018-06-03T23:56:41.243" Score="4" Body="&lt;p&gt;Just because a country has a lot of resources (including human capital), it does not necessarily form a path for a developed nation. China is also very involved in military conflicts. It just takes one war for a country to drift back decades. Also, you can't ignore the brain drain problem. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;With that, &quot;developed&quot; nation is a fluid definition. What does that mean? Is the US developed? Thousands of US citizens don't have electricity yet. No clean water. Massive health care and student loan crisis. Not to forget the trillions of dollars of debt. But many would consider the US a developed nation. If you are basing &quot;developed&quot; as in militarily-wise, then China will soon be a developed nation, if not already.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, if you account for freedom of speech and all, then China is still decades behind from its neighbors like India.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope that helps! &lt;/p&gt;&#xA;" OwnerUserId="18401" LastActivityDate="2018-06-03T23:56:41.243" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22287" PostTypeId="2" ParentId="22277" CreationDate="2018-06-04T00:26:38.147" Score="1" Body="&lt;p&gt;Great question! I know it gets little confusing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's take an example of US and India. I am in the US. India's interest rate (return on investment) is 10%. The US has 8%. Then, I will invest in India -- more ROI. Hence, high-interest rate means more foreign investment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, my brother in India wanted to build a building there. Since the interest rate is high, taking loans is more expensive, and hence he will decide not to invest -- not to make that building. So, because of high-interest rate, domestic investment decreases.  &lt;/p&gt;&#xA;" OwnerUserId="18401" LastActivityDate="2018-06-04T00:26:38.147" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22288" PostTypeId="2" ParentId="22274" CreationDate="2018-06-04T00:34:44.403" Score="0" Body="&lt;p&gt;The direct correlation is tricky. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Reason 1: Employees in the union have significantly higher wages than those not in a union. There is not really any debate about this. But...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Reason 2: Employees without a union in the vicinity of an employer which allows/has a union sees a significant decrease in their overall income.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, overall it may have no net effect.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I hope this helps!&lt;/p&gt;&#xA;" OwnerUserId="18401" LastActivityDate="2018-06-04T00:34:44.403" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="22290" PostTypeId="2" ParentId="21943" CreationDate="2018-06-04T00:44:43.003" Score="0" Body="&lt;p&gt;A developed economy is typically characteristic of a developed country with a relatively high level of economic growth and security. Common criteria for evaluating a country's level of development are income per capita or per capita gross domestic product, the level of industrialization, the general standard of living and the amount of technological infrastructure. Noneconomic factors, such as the human development index, which quantifies a country's levels of education, literacy and health into a single figure, can also be used to evaluate an economy or the degree of development.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Developed Economy Criteria:&#xA;The most common metric used to determine if an economy is developed or developing is per capita GDP, although no strict level exists for an economy to be considered either developing or developed. Some economists consider $12,000 to $15,000 per capita GDP to be sufficient for developed status while others do not consider a country developed unless its per capita GDP is above $25,000 or $30,000. The United States' per capita GDP in 2016 was $57,500.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Source: &lt;a href=&quot;https://www.investopedia.com/terms/d/developed-economy.asp#ixzz5HPf3DGJf&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.investopedia.com/terms/d/developed-economy.asp#ixzz5HPf3DGJf&lt;/a&gt; &lt;/p&gt;&#xA;" OwnerUserId="18401" LastActivityDate="2018-06-04T00:44:43.003" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22291" PostTypeId="2" ParentId="21943" CreationDate="2018-06-04T01:13:32.403" Score="1" Body="&lt;p&gt;The terms developed and developing are UNDP terms.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Read the paper at the link below - it goes through the UNDP, World bank and IMF classifications and it's an IMF working paper so i'd class that as referenceable. At the very least it will point you to better sources.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.imf.org/external/pubs/ft/wp/2011/wp1131.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.imf.org/external/pubs/ft/wp/2011/wp1131.pdf&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="2972" LastActivityDate="2018-06-04T01:13:32.403" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22292" PostTypeId="1" AcceptedAnswerId="22293" CreationDate="2018-06-04T03:44:49.090" Score="5" ViewCount="60" Body="&lt;p&gt;Are stock exchanges like NASDAQ and NYSE market makers? In other words, are they providing liquidity by pairing individual buyers and sellers with each other in real-time? Or does it work differently?&lt;/p&gt;&#xA;" OwnerUserId="16605" LastEditorUserId="16605" LastEditDate="2018-06-04T05:43:42.870" LastActivityDate="2018-06-04T11:13:51.843" Title="Are stock exchanges market makers?" Tags="&lt;stock-market&gt;&lt;investment&gt;&lt;financial-markets&gt;&lt;markets&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22293" PostTypeId="2" ParentId="22292" CreationDate="2018-06-04T06:37:24.207" Score="11" Body="&lt;p&gt;No, they are not market makers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A market maker is someone who (i) quotes two prices (one 'low' and one 'high'), (ii) will buy from any seller at the low quoted price (even if there is no corresponding buyer right now), (iii) will sell to any buyer at the high quoted price (even if there is no corresponding seller) right now.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This injects liquidity into the market when there is an imbalance in the number of sellers and buyers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;NASDQ and NYSE are not market makers, they are marketplaces in which market makers operate.&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2018-06-04T11:13:51.843" LastActivityDate="2018-06-04T11:13:51.843" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="22295" PostTypeId="2" ParentId="21298" CreationDate="2018-06-04T11:27:34.303" Score="1" Body="&lt;p&gt;Demand and supply are functions indicating the price at which a certain quantity would be traded. They represent the intentions of producers and consumers to buy or sell a given quantity at a certain price. &#xA;Reciprocally, you can consider that these curves show you, for a given price, how much the producers would sell and how much the consumers would buy. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now in reality, for the portion of the demand curve which is higher than the supply curve (ie. Consumers would buy the quantity at a higher price than producers would sell it), the market clears the quantity in question at whatever price lies in-between. The portion of the graph where the demand curve is below the supply curve can contain some inventory: that's exactly what the order book of a stock exchange is, with bid (buy) and ask (sell) offers. &lt;/p&gt;&#xA;" OwnerUserId="6820" LastActivityDate="2018-06-04T11:27:34.303" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22296" PostTypeId="2" ParentId="22266" CreationDate="2018-06-04T12:39:07.007" Score="1" Body="&lt;p&gt;No idea who said that first, but I have seen similar assertions in economic commentary many times. The logic was never fully explained, but revolved around the notion that we need compunding income to pay compund interest. Authors treated the idea as so obvious or well known that they never saw the need to explain the details, or cite earlier authors. (It’s been awhile since I’ve seen the assertion, so I cannot give examples.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In theory, the belief that the economy must expand appears incorrect. One could look at the various stock-flow consistent (SFC) models in “Monetary Economics” by Wynne Godley and Marc Lavoie, and one sees that steady solutions are easy to find. Although debt compounds, borrowers just pay down debt.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a practical matter, the tendency is to prefer growth. However, in a services based economy, it is unclear whether real GDP growth gas to correspond to greater natural resource use, which creates a debate whether it is “real growth” or “paper growth.”&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2018-06-04T12:39:07.007" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22297" PostTypeId="2" ParentId="22266" CreationDate="2018-06-04T13:50:20.703" Score="0" Body="&lt;p&gt;Your recollection is incomplete because Adam Smith has also forseen that the development of an economy will lead to an stationary state. In reality we have to deal with wars and other catastrophes, which prevent such an frictionless development.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm also unsure if your interpretation of Adam Smith is correct, that a market economy must constantly expand. I would intepret it the other way around: An market economy expands constantly (if not disturbed).&#xA;In other words: An market economy does grow.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is also &lt;a href=&quot;http://www.economicsconcepts.com/adam_smith&amp;#39;s_model_of_economic_growth.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;a link to the growth model which is related to the Wealth of Nations&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="12910" LastEditorUserId="16631" LastEditDate="2018-06-04T20:40:41.877" LastActivityDate="2018-06-04T20:40:41.877" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22300" PostTypeId="1" AcceptedAnswerId="22345" CreationDate="2018-06-05T01:49:19.703" Score="2" ViewCount="207" Body="&lt;p&gt;Economists across the political spectrum almost unanimously oppose the home mortgage interest tax deduction. While I'm sure there are a few whom I've missed, I could only find a single professional economist who supports it. Greg Landsburg believes that capital income should be untaxed, based on the Chamley-Judd model and its subsequent refinements. He &lt;a href=&quot;http://www.thebigquestions.com/2010/11/22/keep-the-mortgage-interest-deduction/&quot; rel=&quot;nofollow noreferrer&quot;&gt;argues&lt;/a&gt; that the home mortgage interest tax deduction effectively cancels the distortionary tax on home mortgage interest capital income, and so represents a step in the right direction, although he would prefer a complete elimination of all capital income taxation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But does housing really counts as &quot;capital&quot; in the Chamley-Judd sense? A textbook example of capital gains is a lender lending money to a borrower who uses it to buy sewing machines, tractors, etc. and start up a new company, which then turns a profit and allows the borrower to repay the loan with interest. In this example, everybody wins (the borrow, the lender, and the new company's customers), and the Chamley-Judd result that these kind of loans should not be taxed is very reasonable and intuitive.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But as Greg Mankiw's Intro to Economics textbook points out, housing is somewhat of an edge case between capital and consumption, and the fact that &quot;capital&quot; is traditionally defined to include housing is a bit of a historical accident. Morever, there is &lt;a href=&quot;https://economics.stackexchange.com/a/8345/14832&quot;&gt;debate&lt;/a&gt; among economists about whether or not housing should be properly classified as capital. (Mankiw also wrote a &lt;a href=&quot;https://www.nytimes.com/2012/03/04/business/capital-gains-vs-ordinary-income-economic-view.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;New York Times column&lt;/a&gt; on this issue.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm not familiar with the precise assumptions of the Chamley-Judd model, but does the main result that capital income should be untaxed include income from housing appreciation? People typically buy first homes (the only kind to which the mortgage interest deduction applies) for their own personal use, not primarily as investment opportunities. It's not obvious to me why housing purchases would lead to the creation of new economic wealth as more traditional capital investments do. In contrast to Landsburg, Uwe Reinhardt &lt;a href=&quot;https://economix.blogs.nytimes.com/2012/03/16/capital-gains-vs-ordinary-income/&quot; rel=&quot;nofollow noreferrer&quot;&gt;claims&lt;/a&gt; that&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;If pressed, the proponents of the capital-gains preference might concede that a tax preference for gains on transactions in residential real estate is hard to defend.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Under the assumptions of the Chamley-Judd model (or looser, less formal economic reasoning), is housing naturally classified as capital whose appreciation should not be taxed?&lt;/p&gt;&#xA;" OwnerUserId="14832" LastActivityDate="2018-06-14T00:12:00.547" Title="Should housing be considered a form of capital for the purpose of capital gains taxation?" Tags="&lt;investment&gt;&lt;housing&gt;&lt;capital-returns&gt;&lt;optimal-taxation&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22301" PostTypeId="1" AcceptedAnswerId="22359" CreationDate="2018-06-05T02:09:23.987" Score="3" ViewCount="172" Body="&lt;p&gt;This is a follow-up question to &lt;a href=&quot;https://economics.stackexchange.com/questions/19738/why-do-economists-disagree-so-much&quot;&gt;Why do economists disagree so much?&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know little about economics - just enough to know that it's a complex field I don't understand. However I see economic arguments in the media quite often. Since I don't understand economics, how should I make sense of the economics politicians might argue?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, in the Scottish independence debate, there are people who say Scotland is &lt;a href=&quot;https://www.reuters.com/article/us-britain-eu-scotland-economy-analysis/not-oil-but-trade-the-economic-case-for-scottish-independence-idUSKBN16S1ZL&quot; rel=&quot;nofollow noreferrer&quot;&gt;economically better off independent&lt;/a&gt; and people who &lt;a href=&quot;https://www.telegraph.co.uk/business/2017/03/14/five-charts-show-economically-risky-scottish-independence-would/&quot; rel=&quot;nofollow noreferrer&quot;&gt;say the reverse&lt;/a&gt;. Clearly they can't both be right. Ubiquitous's answer in the linked question indicates that this difference in opinion is because we aren't sure what will happen after Scottish independence, and the two camps make different assumptions as to what is more likely. Well and good, but that doesn't tell me how to vote (assuming economics is my main concern).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence the question: given that I can't evaluate economic arguments myself, how can I tell who to vote for? Is there a way to tell if a certain view is more fringe than the other? Can I just count the number of economists with a certain view? Can I go by fame? Popularity? Or just flip a coin?&lt;/p&gt;&#xA;" OwnerUserId="15607" LastActivityDate="2018-06-07T21:41:39.547" Title="How should the general public evaluate economic arguments?" Tags="&lt;macroeconomics&gt;&lt;political&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22304" PostTypeId="1" CreationDate="2018-06-05T09:24:50.160" Score="1" ViewCount="210" Body="&lt;p&gt;When confronted with the simple household consumption maximization problem under uncertainty (and with Arrow security sequential trading)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\max_{\{c_t(s^t),a_{t+1}(s^t,s_{t+1})\}_{t=0}^{\infty}}\sum_{t=0}^{\infty}\sum_{s^t\in S^t}\beta^tprob(s^t) u(c_t(s^t))$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\text{s.t.}\,\,\,c_t(s^t)+\sum_{s_{t+1}|s^t}Q_t(s^t,s_{t+1})a_{t+1}(s^t,s_{t+1})=y_t(s^t)+a_t(s^t)$$&#xA;$$-a_{t+1}(s^t,s_{t+1})\le A_{t+1}(s^t,s_{t+1}) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$a_0(s^t)=0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;we call $A_{t+1}(s^t,s_{t+1})$ the natural debt/borrowing limit and define it as the loosest possible limit. But what exactly does this mean? And what form does it take? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Moreover, in the FOCs for $a_{t+1}(s^t,s_{t+1})$ we cancel the Lagrangian multiplier of the second constraint, it doesn't bind because of the Inada conditions on the function of utility. Is the intuition here that even when you borrow an infinitesimal amount $\epsilon$, if it is repeated enough times you'd reach a point where the debt stock is so high that consumption needs to be zero (not negative because above we implicitly assume $c_t\ge0$ right?) to repay it, which would imply an infinite (?) loss of utility, and thus you shouldn't borrow at all?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, what is the relation with lower asset bound, no-Ponzi scheme and no-default constraint? How do their implications differ?&lt;/p&gt;&#xA;" OwnerUserId="18488" LastEditorUserId="18488" LastEditDate="2018-06-05T10:41:40.393" LastActivityDate="2018-06-05T10:41:40.393" Title="Natural borrowing/debt limit and other borrowing constraints" Tags="&lt;macroeconomics&gt;&lt;utility&gt;&lt;consumer-theory&gt;&lt;optimization&gt;&lt;dynamic-programming&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22305" PostTypeId="1" CreationDate="2018-06-05T09:32:29.283" Score="0" ViewCount="273" Body="&lt;p&gt;I understand that profit maximization implies cost minimization, that is, if a firm is maximizing profits, it will definitely minimize costs. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, under what conditions does cost minimization become an objective in itself?&lt;/p&gt;&#xA;" OwnerUserId="18506" LastActivityDate="2018-06-05T12:09:04.443" Title="When do firms pursue the cost minimization objective instead of profit maximization? Are there any intuitive/practical examples/reasons?" Tags="&lt;profit-maximization&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="22306" PostTypeId="1" AcceptedAnswerId="22307" CreationDate="2018-06-05T11:37:38.867" Score="1" ViewCount="249" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Consider the version of the RCK model where there is a government that runs a constant balanced budget.&lt;/p&gt;&#xA;  &#xA;  &lt;ul&gt;&#xA;  &lt;li&gt;At $t_0$, the economy is in steady state, with constant tax $T_{old} &amp;gt; 0$&lt;/li&gt;&#xA;  &lt;li&gt;Then, at $t_1$, it is announced that at some later moment in time ($t_2$), but not right now, tax will be permanently reduced to $T_{new} &amp;lt; T_{old}$.&lt;/li&gt;&#xA;  &lt;/ul&gt;&#xA;  &#xA;  &lt;p&gt;Draw a graph of changes in the phase diagram that characterizes the dynamics of the economy, and heuristic graphs of the time paths of the following variables:&lt;/p&gt;&#xA;  &#xA;  &lt;ul&gt;&#xA;  &lt;li&gt;consumption per effective worker&lt;/li&gt;&#xA;  &lt;li&gt;capital per effective worker&lt;/li&gt;&#xA;  &lt;li&gt;marginal return on capital per effective worker ($r_t$)&lt;/li&gt;&#xA;  &lt;/ul&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The memo gave the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/bxtRz.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/bxtRz.png&quot; alt=&quot;phase diagram&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/5xh9f.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/5xh9f.png&quot; alt=&quot;time path of consumption&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/I4f2h.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/I4f2h.png&quot; alt=&quot;time path of capital&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/WYmYj.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/WYmYj.png&quot; alt=&quot;time path of the real interest rate&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why do the time paths of capital and the real interest rate look like that?&lt;/p&gt;&#xA;" OwnerUserId="175" LastActivityDate="2019-05-01T18:03:45.743" Title="Why does capital initially reduce and then rise with an anticipated future decrease in taxes in the RCK model?" Tags="&lt;macroeconomics&gt;&lt;consumption&gt;&lt;government-spending&gt;&lt;balanced-growth&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22307" PostTypeId="2" ParentId="22306" CreationDate="2018-06-05T11:37:38.867" Score="0" Body="&lt;p&gt;When the economy transitions between time $t_1$ and $t_2$ (the red line in the phase diagram), capital reduces (because of the leftwards movement). That is why the green line showing the path of capital over time goes down initially. Because capital reduces, the marginal product of capital increases (as seen by $r$ increasing in the time path between $t_1$ and $t_2$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, the economy is on the saddle path, and gradually returns to the new balanced growth path, which is a point with the permanently lower tax rate (and thus permanently higher consumption spending). When this gradual change happens (shown as the black arrow in the phase diagram), capital increases (movement to the right), so in the time path, the green line goes back up to the initial level. Because capital returns to its initial level, the return on capital also decreases to its initial level.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consumption initially jumps up because disposable income over time is discounted, according to the formula $$\int_{t=t_1}^\infty e^{-R(t)}(W(t) - T(t)) \mathrm dt $$ where $R$ is the discount factor, $W$ is the wage and $T$ is tax, so even though disposable income doesn't decrease immediately, the anticipated decrease in the future affects current consumption. Other than that, the anticipated permanent change in government spending puts consumers on the new saddle path.&lt;/p&gt;&#xA;" OwnerUserId="175" LastEditorUserId="175" LastEditDate="2018-06-05T12:13:05.297" LastActivityDate="2018-06-05T12:13:05.297" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22309" PostTypeId="2" ParentId="22305" CreationDate="2018-06-05T12:09:04.443" Score="1" Body="&lt;p&gt;Firms can be said to pursue cost minimization when they do not have control over demand of their product. In the short run, this implies also that unit prices are fixed. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A standard example here is a Utility, say for electricity. Except in extreme situations of very high demand that reaches the network capacity, consumers consume electricity on demand for a given unit price or price schedule.  So &quot;quantity produced&quot; is not determined by the firm, and so the Cost-minimization problem is the most appropriate (minimize costs given output).&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2018-06-05T12:09:04.443" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22310" PostTypeId="2" ParentId="22280" CreationDate="2018-06-05T12:37:46.330" Score="0" Body="&lt;p&gt;The effect of trade would normally only partly counter-act the dampening policy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is of course possible that a change in net exports is greater than the effect of the dampening policy if multiple things are changing at once (like in the real world). I will just discuss what happens if all else is assumed to be unchanged.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My discussion is based on model OPEN, from “Monetary Economics” by Wynne Godley and Marc Lavoie (&lt;a href=&quot;http://models.sfc-models.net&quot; rel=&quot;nofollow noreferrer&quot;&gt;Link to code at sfc-models.net&lt;/a&gt;). I will just do some back-of-the-envelope approximations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We assume that imports are a fixed percentage of demand (20%), and we have two identical economies (which start out with balanced trade). We then assume that Country A enacts a policy that reduces domestic demand by 5%.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Exports would be (roughly) unchanged, since Country B kept policies unchanged. (This is an approximation, since the drop in growth in A would also reduce growth in B via its export industry.)&lt;/li&gt;&#xA;&lt;li&gt;Imports drop by 5% relative to their previous level, which is an amount that is 1% of total demand (since imports are 20% of domestic demand).&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The net result is that there is only a 1% offset from trade against the 5% demand contraction from policy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In order for there to be no effect, we would need the entire drop in domestic demand to come from imports. There might be some special cases where this happens (e.g., the government stops importing foreign equipment), but such selectivity would not be possible with something like interest rate policy.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2018-06-05T12:37:46.330" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22311" PostTypeId="1" CreationDate="2018-06-05T13:07:31.080" Score="1" ViewCount="79" Body="&lt;p&gt;What happens economically when cars last 1000,000 miles on cheap local energy?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EV's can save an average family 2000 dollars a year on energy costs, and 2000 per year on automotive investment. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;That's equivalent to the national debt per capita figure of the West. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does that mean the West will pay back its debt?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Will prices and taxes increase to reclaim civilian wealth spared by EV's for debts?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Will the car/lorry industries halve their revenues by producing thrice as durable vehicles?&lt;/p&gt;&#xA;" OwnerUserId="10997" LastEditorUserId="1601" LastEditDate="2019-03-04T18:13:42.730" LastActivityDate="2019-03-04T18:13:42.730" Title="Electric Vehicle effects on family and macro-economics?" Tags="&lt;macroeconomics&gt;&lt;government-debt&gt;&lt;energy-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22312" PostTypeId="1" CreationDate="2018-06-05T13:27:23.200" Score="4" ViewCount="90" Body="&lt;p&gt;There are several metrics used to identify market power. Such as ... &lt;/p&gt;&#xA;&#xA;&lt;p&gt;the 'n' concentration ratio (the proportion of overall sales given by the top n firms) and the Herfindhal index.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, there is also the Price cost margin (Lerner index). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;These indicators may not always agree with one another.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there some way we can understand which of them is most relevant as an indicator of market power? For example by examining the local characteristics such as what kind of imperfect competition is present, and consumer demand patterns?&lt;/p&gt;&#xA;" OwnerUserId="17789" LastEditorUserId="17789" LastEditDate="2018-06-06T15:15:44.480" LastActivityDate="2018-09-04T18:02:11.243" Title="Concentration Measures" Tags="&lt;microeconomics&gt;&lt;monopolistic-competition&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="22314" PostTypeId="2" ParentId="22311" CreationDate="2018-06-05T14:13:39.313" Score="2" Body="&lt;h3&gt;Macro&lt;/h3&gt;&#xA;&lt;p&gt;One of the big issues with EVs is that several countries collect a lot of revenue from taxes on fossil car fuels. Those revenue streams will shrink, meaning that something else will have to be taxed to make up the shortfall.&lt;/p&gt;&#xA;&lt;p&gt;Will the West pay back its debt? Well, that's barely a meaningful question. If you're thinking of government debt (which is not equivalent to Western debt), then EVs are neither good nor bad. If revenue drops from one source, it will be taken from another source instead.&lt;/p&gt;&#xA;&lt;p&gt;The much bigger threat to car manufacturers is self-driving vehicles. Those could reduce vehicle demand by a huge proportion, if (as expected) they trigger a growth in shared ownership of vehicles. Most cars are used for only a tiny fraction of the time. And even at rush hour, only a minority of cars are in use at any one time.&lt;/p&gt;&#xA;&lt;h3&gt;Family&lt;/h3&gt;&#xA;&lt;p&gt;EVs currently differ from fossil cars in that they have higher capital expenditure, and lower operating expenditure. That will make household cash outflow much lumpier.&lt;/p&gt;&#xA;&lt;p&gt;However, this also encourages the move towards shared ownership of self-driving EVs, which, for those households that choose it, will remove the capital expenditure element, making their cash outflow much smoother.&lt;/p&gt;&#xA;" OwnerUserId="44" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2018-06-05T14:19:41.160" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22315" PostTypeId="2" ParentId="22260" CreationDate="2018-06-05T15:11:35.537" Score="1" Body="&lt;p&gt;After asking this same question on the dynare forum, I got the answer that it's really a typo, and I should augment the state vector.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The interesting thing is that afterwards, I rerun the Gensys function of Sims(2002), and I got a solution for an indeterminate model, which is a bit strange.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Augmenting the state vector by a lag from a previously already present variable shouldn't change the model, since I just added the equation y_{t-1}=y_{t-1}to the model. However, the gensys function states that it does.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This makes me wonder if there's something wrong with the code in Sims(2002). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If anyone knows more, please feel free to share. Thanks&lt;/p&gt;&#xA;" OwnerUserId="118" LastActivityDate="2018-06-05T15:11:35.537" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22316" PostTypeId="2" ParentId="22301" CreationDate="2018-06-05T19:35:12.587" Score="3" Body="&lt;p&gt;I'm afraid economists can offer little guidance on that issue. Apart from the fact that you ask an implicit normative question (how &lt;em&gt;should&lt;/em&gt; people behave?) where most economists tend to be positivists, there is no clear answer to your question. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As unsatisfying as that may seem it is actually quite common in science as Michael Greinecker pointed out, and people deal with it on a daily basis.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As an example: suppose you wanted to plan an outdoor party in roughly two weeks, so you check the weather reports, to pick the best day. There is a good chance that these will differ per source you consult, and if you'd asked any of them which day you should pick they would give different answers. Does that prevent you from setting a date? Probably not. How did you pick the date? You tell me, but you probably used the advice of the person you trusted most or the advice that most weather(wo)men agreed on. It's much the same in economics. We agree on first principles and general predictions, but making precise predictions far into the future is difficult.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;About the only way in science and economics to make long term predictions is relying on long-term averages (or similar techniques) but these predictions are by their construction very general. Again an anology: is climate change a real thing and can we predict average temperature increases under different scenarios of greenhouse gas emissions? Yes, and relatively precisely at that. Can we predict the exact weather two weeks from now? No, and we probably never will.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Similarly we can predict that there will be a lot of economic turmoil if Scotland became independent (especially if they rejoined or stayed in the EU) because of all the laws and border issues that would have to be clarified, but predicting with great certainty wether the net effect is positive or negative is hard to impossible.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Perhaps economists should put up disclaimers at such predictions (some of them probably do) but then again we don't do that for weather reports either.&lt;/p&gt;&#xA;" OwnerUserId="12186" LastActivityDate="2018-06-05T19:35:12.587" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="22317" PostTypeId="1" AcceptedAnswerId="22328" CreationDate="2018-06-05T20:05:31.693" Score="1" ViewCount="51" Body="&lt;p&gt;Consider a simple linear model:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$Y = \beta_1 + \beta_2 MALE + u$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $MALE$ is a dummy variable. $MALE = 0$ if female, $MALE = 1$ if male.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A model is fitted:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\hat{Y} = \hat{\beta_1} + \hat{\beta_2} MALE$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\bar{Y_F}$ and $\bar{Y_M}$ are the sample means of $Y$ for females and males respectively.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Prove that:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\hat{\beta_1} = \bar{Y_F}$, $\hat{\beta_2} = \bar{Y_M} - \bar{Y_F}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the points are plotted in a scatter block, there will be two vertical clusters of points at $MALE = 0$ and $MALE = 1$, as shown:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/AlHWj.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/AlHWj.png&quot; alt=&quot;Scatter plot and regression line&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems intuitively obvious that the total residual sum of squares ($RSS$) is minimized by minimizing the $RSS$ separately for the female and male points. This is achieved by fitting a point at the mean of these points, $\bar{Y_F}$ and $\bar{Y_M}$. Fitting a line between these point yields the correct values for $\hat{\beta_1}$ and $\hat{\beta_2}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I wish to prove this algebraically.&lt;/p&gt;&#xA;" OwnerUserId="12371" LastEditorUserId="12371" LastEditDate="2018-06-06T11:53:41.917" LastActivityDate="2018-06-06T12:01:54.517" Title="Simple Regression With Dummy Variable" Tags="&lt;econometrics&gt;&lt;mathematical-economics&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="22318" PostTypeId="1" AcceptedAnswerId="22323" CreationDate="2018-06-05T20:53:51.017" Score="3" ViewCount="59" Body="&lt;p&gt;For the given model $y = x\beta + \varepsilon$, the four assumptions would be&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;The model is linear in $x$ and $\beta$, also additive in $\varepsilon$&lt;/li&gt;&#xA;&lt;li&gt;The conditional mean of the error terms are zero (i.e. $E[\varepsilon|x] = 0)$&lt;/li&gt;&#xA;&lt;li&gt;$Var[\varepsilon|x] = \sigma^2I_n$&lt;/li&gt;&#xA;&lt;li&gt;Exogeneity of $x$ (i.e. either $x$ is fixed or independent of $\varepsilon$)&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;My questions is that in the case of the following situations which assumptions have been violated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Case 1. $E[x'\varepsilon] \neq 0$ [I am not sure whether this implies the second or fourth assumption has been violated]&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Case 2. $Cov(x_i,\varepsilon_i) \neq 0$ [I suppose the third one has been violated but could it imply the violation of other assumptions?]&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help will be greatly appreciated.&lt;/p&gt;&#xA;" OwnerUserId="18513" LastActivityDate="2018-06-06T03:56:16.883" Title="Regarding the assumption of Classical Linear Regression Model" Tags="&lt;econometrics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22321" PostTypeId="2" ParentId="22318" CreationDate="2018-06-06T02:20:47.363" Score="1" Body="&lt;p&gt;I  assume that x is a scalar.( but argument is similar if it isn't).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;They both violate condition 4) because they both say that x, the regressor, is not independent of $\epsilon$. Case 1 a theoretical statement about the regressor and the noise term. Case 2 is an empirical statement about some of the  actual regressor data and the noise term.   If you want a nice intuitive explanation of econometrics ( not a standard textbook exposition ), I highly recommend Peter Kennedy's text. I think it's called &quot;econometrics&quot;but I'm pretty sure he only wrote one book so you can google for him on amazon.&lt;/p&gt;&#xA;" OwnerUserId="18201" LastActivityDate="2018-06-06T02:20:47.363" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22323" PostTypeId="2" ParentId="22318" CreationDate="2018-06-06T03:56:16.883" Score="1" Body="&lt;p&gt;Case 1: $$\mathbb{E}(x'\epsilon) = \mathbb{E}(\mathbb{E}(x'\epsilon|x)) = \mathbb{E}(x'\mathbb{E}(\epsilon|x))$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, &#xA;$$\mathbb{E}(\epsilon|x) = 0 \implies \mathbb{E}(x'\epsilon) = 0 $$&#xA;Equivalently,&#xA;$$\mathbb{E}(x'\epsilon) \neq 0 \implies \mathbb{E}(\epsilon|x) \neq 0 $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, violating assumption (2).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Case 2:&#xA;If two random variables are independent, then they are uncorrelated i.e. their covariance is 0. Equivalently, if two random variables are correlated, then they are not independent. Therefore, $Cov(x_i, \epsilon)\neq 0$ implies that $x$ is not independent of $\epsilon$ violating assumption (4).&lt;/p&gt;&#xA;" OwnerUserId="11824" LastActivityDate="2018-06-06T03:56:16.883" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22325" PostTypeId="2" ParentId="22283" CreationDate="2018-06-06T07:32:56.010" Score="1" Body="&lt;p&gt;To the extent you are constructing marginal decisions from preferences, the general answer is no.  Any utility function that preserves preference orderings maps to the same partial or total order ranking.  As a consequence, $U(w)=\log(w),w&amp;gt;0$ and $U(w)=\sqrt{w},w&amp;gt;0$ preserve preference orderings with respect to $w$. Issues can exist in the multivariate case as all orderings and partial orderings must be preserved.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the other direction, though, it does matter.  If you are beginning with utility and mapping to preferences, then any transformation results in a different preference structure unless it results in the same indifference curve.  As an example, $U(w)=\log(w)$ and $U(w)=\log(w)+5$ have the same indifference curve and so could be treated as the same preference structure.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the answer is, unfortunately, dependent on the exact question you are asking.  If only the ordering matters, then no, it does not matter.  If the structure matters, then it can matter.&lt;/p&gt;&#xA;" OwnerUserId="11321" LastActivityDate="2018-06-06T07:32:56.010" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22326" PostTypeId="1" CreationDate="2018-06-06T10:29:15.310" Score="1" ViewCount="27" Body="&lt;p&gt;Why is the relation between the growth rate of GDP and the real interest rate important for sustaining the government the debt-to-GDP ratio ?&lt;/p&gt;&#xA;" OwnerUserId="18518" LastActivityDate="2018-06-06T10:29:15.310" Title="Relation between growth rate of GDP and real interest rate for sustainable debt-to-GDP ratio" Tags="&lt;gdp&gt;&lt;government-debt&gt;&lt;debt&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22327" PostTypeId="1" CreationDate="2018-06-06T11:03:09.003" Score="3" ViewCount="192" Body="&lt;p&gt;How is &quot;opportunity cost&quot; an useful concept? Even when it does exist?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What use does it serve?&lt;/p&gt;&#xA;" OwnerUserId="6848" LastActivityDate="2020-03-17T20:41:33.507" Title="How is &quot;opportunity cost&quot; an useful concept? Even when it does exist?" Tags="&lt;opportunity-cost&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="22328" PostTypeId="2" ParentId="22317" CreationDate="2018-06-06T12:01:54.517" Score="0" Body="&lt;p&gt;Find $\hat{\beta_2}$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\hat{\beta_2}=\frac{\Sigma(Y_i-\bar{Y})(MALE - \overline{MALE})}{\Sigma(MALE - \overline{MALE})^2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assuming m males in a sample of n people, $$\overline{MALE}=\frac{m}{n}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can say:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$MALE - \overline{MALE}=\begin{cases}-\frac{m}{n} &amp;amp; \text{if }MALE=0\\\\\frac{n-m}{n} &amp;amp; \text{if }MALE=1\end{cases}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With some algebra, the numerator of $\hat{\beta_2}$ becomes:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Sigma(Y_i-\bar{Y})(MALE - \overline{MALE})=\frac{m(n - m)}{n}(\bar{Y_M} - \bar{Y_F})$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The numerator of $\hat{\beta_2}$ becomes:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Sigma(MALE - \overline{MALE})^2=\frac{m(n - m)^2 + m^2(n - m)}{n^2}=\frac{m(n - m)}{n}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Dividing the two gives the correct answer:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\hat{\beta_2}=\bar{Y_M} - \bar{Y_F}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Find $\hat{\beta_1}$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\hat{\beta_1}=\bar{Y}-\hat{\beta_2}\overline{MALE}=\frac{m\bar{Y_M}+(n - m)\bar{Y_F}}{n} - (\bar{Y_M} - \bar{Y_F})\frac{m}{n}=\bar{Y_F}$$&lt;/p&gt;&#xA;" OwnerUserId="12371" LastActivityDate="2018-06-06T12:01:54.517" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22330" PostTypeId="1" AcceptedAnswerId="22331" CreationDate="2018-06-06T15:40:21.760" Score="5" ViewCount="65" Body="&lt;p&gt;I was wondering how you would call a market for kidney donors and recipients, where you have many 'buyers' and many 'sellers'. However, the 'seller' can only 'sell' his/her 'product' once. Since it's illegal to sell kidneys, the market structure is a little bit vague for me to categorize. Suppose selling and buying kidneys would be legal, how would that market be called?&lt;/p&gt;&#xA;" OwnerUserId="18521" LastEditorUserId="4988" LastEditDate="2018-06-08T08:32:59.493" LastActivityDate="2018-06-08T08:32:59.493" Title="How would you call a market for kidney donors and recipients?" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22331" PostTypeId="2" ParentId="22330" CreationDate="2018-06-06T16:03:46.797" Score="4" Body="&lt;p&gt;Generally, these types of markets are called &lt;a href=&quot;http://ieor.berkeley.edu/~ieor151/lecture_notes/ieor151_lec7.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;matching markets&lt;/a&gt;. That's also the same term given to a variety of economic decisions and market structures, from &lt;a href=&quot;http://www.hss.caltech.edu/~lyariv/ConferencePapers/Abdulkadiroglu.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;school choice&lt;/a&gt; to some types of &lt;a href=&quot;http://www.econ.ku.dk/cam/Files/Autumn2003/workshop/Yoram%20Weiss%20share14.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;marriage problems&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="13366" LastActivityDate="2018-06-06T16:03:46.797" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22332" PostTypeId="1" CreationDate="2018-06-06T16:27:40.583" Score="1" ViewCount="265" Body="&lt;p&gt;I've had a few years of economics courses already but still there are some basic things in the field that I just can not wrap my head around... (let's say economics is not my favorite field of study)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem that I'm having is about an algebraic representation of a demand curve in a perfectly competitive market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Say that there is a set of N suppliers (with |N| possible tending towards infinity, hence a perfectly competitive market; let's just assume free entrance to the market too), consider a supplier i. The market demand function in terms of the output of supplier i can now be written as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/IH4xI.gif&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/IH4xI.gif&quot; alt=&quot;Market demand&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here what is in the curly brackets is just the total market output. Now here's my problem, if you take the derivative of this function wrt. q_i, then you find that this derivative equals beta. However, I've also heard that the derivative of market demand with respect to a firm's output, in a perfectly competitive environment, is 0; as in perfect competition, a firm cannot control the price through its output this effect is very very small because of the many other suppliers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where in my reasoning did I go wrong?&lt;/p&gt;&#xA;" OwnerUserId="18522" LastActivityDate="2018-09-05T12:00:35.810" Title="Algebraic demand curve in a perfectly competitive market for a firm" Tags="&lt;microeconomics&gt;&lt;competition&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22333" PostTypeId="2" ParentId="22312" CreationDate="2018-06-06T16:30:09.763" Score="2" Body="&lt;p&gt;Unfortunately, I'm not sure there's a clear answer to your question, since it so often depends on what the specific needs are for the specific project. Overall, there are a number of different ways to try and measure concentration and market power (as you note in the question). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;That said, there's definitely a lot of interplay between different measures, but often these measures can be reworked to allow for looser (or different) assumptions. For example, one of the more well known merger analysis tools currently used by the DOJ and FTC, &lt;a href=&quot;https://faculty.haas.berkeley.edu/shapiro/uppcritical.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;the Upward Pricing Pressure test&lt;/a&gt; is traditionally linked &lt;a href=&quot;https://pdfs.semanticscholar.org/d442/cc74e7887811fe47d1e974a72c90024b55ec.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;to Bertrand competition&lt;/a&gt;. However, as the creators of the measure note, &lt;a href=&quot;https://faculty.haas.berkeley.edu/shapiro/uppreply.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;that link is often overstated&lt;/a&gt;, and the test &lt;a href=&quot;https://www.ftc.gov/sites/default/files/documents/public_comments/horizontal-merger-guidelines-review-project-545095-00036/545095-00036.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;can be used in cases where Cournot competition is assumed&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Moreover, UPP is &lt;a href=&quot;https://www.ee-mc.com/uploads/media/Merger_Screening_Tools.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;closely linked to other measures&lt;/a&gt;, such as diversion analysis, for which there are many different tools to use to measure it. One method is to use a survey of consumers, (seen, for example, &lt;a href=&quot;http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.597.6075&amp;amp;rep=rep1&amp;amp;type=pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;,) though that of course comes with drawbacks. Instead, &lt;a href=&quot;http://www.internationalcompetitionnetwork.org/uploads/library/doc821.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;market shares&lt;/a&gt; can be used, but so can historiical data from switching patterns. Alternatively, you can look at &lt;a href=&quot;http://economics.uwo.ca/about_us/Workshops/workshop_docs/Mortimer-diversion-paper-mar-2018.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;second choice data and/or price and demand elasticity properties&lt;/a&gt;, or more abstractly &lt;a href=&quot;https://www.ftc.gov/sites/default/files/documents/public_events/Federal%20Trade%20Commission%20Microeconomics%20Conference/conlon.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;data from stock-out events&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm sorry to get stuck in the weeds of merger analysis there, but I think it's an informative example of how many different ways there are to get at the same underlying ideas. Ultimately, what's &quot;best&quot; really depends on the specifics of your project, the data available, and how well you can defend the choice made.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let me know if there's something more directly relevant that you'd like addressed, but a lot of the theoretical complementarities can be seen only when one particular interest is isolated and examined. &lt;/p&gt;&#xA;" OwnerUserId="13366" LastActivityDate="2018-06-06T16:30:09.763" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22334" PostTypeId="1" AcceptedAnswerId="22370" CreationDate="2018-06-06T16:36:25.657" Score="-1" ViewCount="305" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/aVQQg.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/aVQQg.jpg&quot; alt=&quot;first page&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/OMvqG.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/OMvqG.jpg&quot; alt=&quot;second page&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have a problem regarding the last two questions of this exercises because I can not understand how to set up my model in order to find the optimal tax the optimal quantity to be as there was not a tax. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/OSU8U.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/OSU8U.jpg&quot; alt=&quot;My thoughts&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/4HnTC.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/4HnTC.jpg&quot; alt=&quot;My thoughts&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Please share your ideas with me. Thanks.&lt;/p&gt;&#xA;" OwnerUserId="18244" LastActivityDate="2018-06-08T10:37:17.793" Title="Finding the optimal tax" Tags="&lt;microeconomics&gt;&lt;game-theory&gt;&lt;self-study&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22335" PostTypeId="1" CreationDate="2018-06-06T19:42:02.220" Score="2" ViewCount="303" Body="&lt;p&gt;I've been reviewing my microeconomics notes and have found a point that I still don't quite understand. this being &lt;a href=&quot;https://en.wikipedia.org/wiki/Gorman_polar_form&quot; rel=&quot;nofollow noreferrer&quot;&gt;Gorman Polar Form&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Gorman form of the indirect utility function is  as defined by Varian is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$v(p,m)=a_i(p)+b(p)m$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $a_i(p)$ differs from each consumer and $b(p)m$ is the same for every consumer. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;How does one estimate $b(p)m$?&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="1601" LastEditDate="2018-06-15T09:43:49.243" LastActivityDate="2018-08-02T03:28:51.660" Title="Understanding Gorman Polar Form" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="22338" PostTypeId="1" AcceptedAnswerId="22341" CreationDate="2018-06-06T21:59:23.380" Score="1" ViewCount="57" Body="&lt;p&gt;In Dhondt &amp;amp; Heylen (2009)*, they specify a certain production function.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Under some standard model assumptions such as perfect competition and so on, they calculate the optimal wage as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$  w_t = \frac{\partial y_t}{\partial l_t}  $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and the optimal rent on capital as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$  r_t = \frac{\partial y_t}{\partial k_t}  $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;with $k_t $ the capital per capita and $l_t $ the amount of labour per capita and $y_t $ the output per capita.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now what's the reason of this equality? If it because if you maximize for profit, that the maximum is reached in:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$  0 = \frac{\partial W}{\partial L}  $$&#xA;$$  0 = \frac{\partial W}{\partial K}  $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and that this must mean, as W = TO-TK, with TO total revenues and TK total costs, that &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$  \frac{\partial TO}{\partial L} = \frac{\partial TK}{\partial L}   $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$  \frac{\partial TO}{\partial K} = \frac{\partial TK}{\partial K}   $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So in this case, it would be explained if you see ... as ... :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$  \frac{\partial TK}{\partial K} = r_t   $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{\partial TO}{\partial K} =  \frac{\partial y_t}{\partial k_t}  $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$  \frac{\partial TK}{\partial K} = w_t   $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{\partial TO}{\partial L} =  \frac{\partial y_t}{\partial l_t}  $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this correct?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;*Employment and growth in Europe and the US—the role of fiscal policy composition&lt;/p&gt;&#xA;" OwnerUserId="15819" LastEditorUserId="15819" LastEditDate="2018-06-06T22:05:10.443" LastActivityDate="2018-06-06T23:33:08.457" Title="How to calculate the optimal wage and the optimal rent on capital in an economic model?" Tags="&lt;microeconomics&gt;&lt;interest-rate&gt;&lt;wages&gt;&lt;profit-maximization&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22340" PostTypeId="1" AcceptedAnswerId="22350" CreationDate="2018-06-06T23:07:04.623" Score="0" ViewCount="511" Body="&lt;p&gt;&lt;strong&gt;Question:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/rwbii.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/rwbii.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;What my did is&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/M0oZ5.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/M0oZ5.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&#xA;&lt;a href=&quot;https://i.stack.imgur.com/th6fe.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/th6fe.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&#xA;&lt;a href=&quot;https://i.stack.imgur.com/3K3V8.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/3K3V8.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&#xA;&lt;a href=&quot;https://i.stack.imgur.com/9nj7W.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/9nj7W.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&#xA;&lt;a href=&quot;https://i.stack.imgur.com/tR1lQ.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/tR1lQ.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I proceed this question until that point. But, I will be happy if help me to solve this question. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you. &lt;/p&gt;&#xA;" OwnerUserId="15030" LastActivityDate="2018-06-07T16:36:04.920" Title="Question on consumption theory" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;&lt;self-study&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="22341" PostTypeId="2" ParentId="22338" CreationDate="2018-06-06T23:33:08.457" Score="0" Body="&lt;p&gt;I hope this answers your question (if not please let me know!), but the reason they get their wage and rental rates:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$  w_t = \frac{\partial y_t}{\partial l_t} \text{ and } r_t = \frac{\partial y_t}{\partial k_t} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(I assume) is for the same reason most papers use that equation. Consider the firm's problem, that they want to maximize profit, which is (total) revenue ($p_t \times y_t$) minus costs (which we can consider as the total cost of labor, which is $w_t \times l_t$, and capital, which is the rental cost of capital times capital used, $r_t \times k_t$). Therefore, we're trying to maximize:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\max_{l_t,k_t, w_t, r_t} \{ p_t y_t - ( w_t l_t + r_t k_t ) \}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we normalize price of the output to $1$, we can solve for the optimal prices of labor and capital by solving the above problem. Taking the inputs one at a time, we get the first order conditions for labor:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$0 = \frac{\partial y_t}{\partial l_t} - w_t$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which, of course, rearranges to&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$w_t = \frac{\partial y_t}{\partial l_t} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and for capital:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$0 = \frac{\partial y_t}{\partial k_t} - r_t$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which rearranges to:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ r_t = \frac{\partial y_t}{\partial k_t} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course, these are pretty standard derrivations across different fields of economics, so their exact reasoning might be slightly different, but this methodology should provide some of the clearest insight into why that's the case.&lt;/p&gt;&#xA;" OwnerUserId="13366" LastActivityDate="2018-06-06T23:33:08.457" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22342" PostTypeId="1" AcceptedAnswerId="22346" CreationDate="2018-06-06T23:43:13.323" Score="0" ViewCount="911" Body="&lt;p&gt;(I) A monopolist has a cost function $c(q)=q$. It faces the following demand function $ q(p)=100/p$ for $p\le 20$ and $q(p)=0$ for $p\ge 20$. What are the profit maximizing price and output. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(ii) a monopolist has a cost function $c(q)=\alpha q$ where alpha is fixed marginal cost. It’s demand function has a constant price elasticity of demand whose value is $-3$. The government imposes a tax of 6 dollar per unit of output. By how much will the monopolist price rise?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My solutions are as follows:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am not sure whether it is correct or not. Please tell me and show me my mistakes. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/ost5T.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/ost5T.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&#xA;&lt;a href=&quot;https://i.stack.imgur.com/OtBnE.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/OtBnE.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="15030" LastActivityDate="2018-06-07T10:06:02.117" Title="Question on profit maximization with government taxation" Tags="&lt;microeconomics&gt;&lt;self-study&gt;&lt;profit-maximization&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22344" PostTypeId="2" ParentId="22342" CreationDate="2018-06-07T09:46:08.217" Score="1" Body="&lt;p&gt;ii.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't think the demand function in (i.) applies for this question. Here's what I did:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By Lerner Index, $\displaystyle{\frac{P - MC}{P} = \frac{-1}{E_d}}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since $E_d = -3$, we get $P = \frac{3}{2} MC$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We know before tax MC is $c'(q) = \alpha$, and after tax MC is $\alpha + 6$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this sense, MC increased by 6, so P will probably increase by 9&lt;/p&gt;&#xA;" OwnerUserId="18446" LastEditorUserId="18446" LastEditDate="2018-06-07T10:06:02.117" LastActivityDate="2018-06-07T10:06:02.117" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22345" PostTypeId="2" ParentId="22300" CreationDate="2018-06-07T09:58:34.967" Score="1" Body="&lt;p&gt;I think there are a few different ways one can go about examining the topic and general question you bring up. For that reason, I'd like to highlight that this isn't my primary field, and so my answer might not align with a more expert view from that field. However, to get the ball rolling...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, we should probably take a short digression and consider the intuition behind what their results suggest; why exactly is taxation on capital income so problematic? Generally, it's because it creates a comparatively large distortion in future consumption. &lt;a href=&quot;http://www.ucl.ac.uk/~uctp39a/Banks%20and%20Diamond.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;As Banks and Diamond (2010) shows starting on page 31&lt;/a&gt;, capital taxation leads to increasingly large wedges in consumption as the number of periods increases. Unlike labor taxation, which creates large, but contemporary, distortions in consumption, capital taxation creates intertemporal distortions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From that point, I think there's a growing literature questioning whether the traditional Chamley-Judd result is actually as substantial in application (as opposed to theory) as some consider it to be. For example, there are &lt;a href=&quot;https://ideas.repec.org/a/eee/dyncon/v20y1996i4p691-708.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;several&lt;/a&gt;, different &lt;a href=&quot;https://econpapers.repec.org/article/eeepubeco/v_3a71_3ay_3a1999_3ai_3a2_3ap_3a165-188.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;papers&lt;/a&gt; which get non-zero optimal taxation rates on capital if there's endogeneity in wages, or if wages from different types of labor cannot be taxed at their individually optimal rates. In fact, one of these potentially problematic areas is entrepreneurship: as &lt;a href=&quot;https://dspace.mit.edu/handle/1721.1/39720&quot; rel=&quot;nofollow noreferrer&quot;&gt;Reis' dissertation (2007)&lt;/a&gt; points out in the third chapter, &quot;when entrepreneurial labor income cannot be observed separately from capital income, then it is optimal to have positive capital taxation in the long run.&quot; A &lt;a href=&quot;https://economics.mit.edu/files/14044&quot; rel=&quot;nofollow noreferrer&quot;&gt;pretty comprehensive analysis by Straub and Werning (2015)&lt;/a&gt; does a wonderful job of thoroughly analyzing both models presented by Chamley (1986) and Judd (1985) and highlighting which assumptions end up leading to their landmark result. &lt;a href=&quot;http://www.princeton.edu/~moll/ECO503Web/Lecture8_ECO503.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Perhaps a useful workthrough of the math can be seen in Moll's lecture notes&lt;/a&gt;, where it's relatively straightforward to get a positive optimal taxation rate, depending on the intertempoiral elasticity of substitution considered in utility.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Second, I'd point out that there are reasons to be skeptical, even inside either Chamley or Judd's frameworks, that housing interest payments should be considered as capital. Most prominently, both models (I believe) assume no financial constraints (they only require no-Ponzi scheme conditions). Therefore, any agent would be able to purchase a house &quot;out of pocket&quot; (or through costless single-period bonds where the only interest payment is the one imposed by discounting). This in and of itself suggests that mortgages (as we observe them in real life) shouldn't ever be used, since you never ought to pay for liquidity beyond the natural rate of interest. Since mortgages are effectively assumed away in the model, I'd be cautious of applying the model to the optimal taxation of mortgage interest in the first place.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This, I hope, is a bit instructive for the third point- I agree with your skepticism that housing should be viewed as a capital good in this context. Not only because it isn't clear in the general debate of whether housing is capital or not, but also because it doesn't seem to create the same distortionary effects that lead to the zero-capital taxation result &lt;em&gt;even if&lt;/em&gt; we accept the Chamley-Judd result. Given that the interest payments aren't an infinite horizon stream of payments (you'd hope), the wedge wouldn't necessarily lead to the same &quot;intertemporal snowballing&quot; that we observe in both models (and that serves as the basis of their zero-capital tax rate finding to begin with).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I think of any more, I'll be sure to come back and update this answer. And I hope that this just gets the ball rolling for others (which more specialized knowledge in either public economics or optimal taxation theory) to provide more insightful comments. And let me know if this answer was just totally non-responsive to the question you were really interested in to begin with- it's pretty early in the morning here, so I can't guarantee my mind is working at capacity yet!&lt;/p&gt;&#xA;" OwnerUserId="13366" LastActivityDate="2018-06-07T09:58:34.967" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="22346" PostTypeId="2" ParentId="22342" CreationDate="2018-06-07T10:02:13.130" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;(I) A monopolist has a cost function $c(q)=q$. It faces the following demand function $ q(p)=100/p$ for $p\le 20$ and $q(p)=0$ for $p\ge 20$. What are the profit maximizing price and output.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Given the demand function&#xA;\begin{eqnarray*} q(p) = \begin{cases} \frac{100}{p} &amp;amp; \text{if } p \leq 20 \\ 0 &amp;amp; \text{if } p &amp;gt; 20\end{cases} \end{eqnarray*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, revenue as a function of quantity $(q)$ is&#xA;\begin{eqnarray*} r(q) = \begin{cases} 100 &amp;amp; \text{if } q \geq 5 \\ 0 &amp;amp; \text{if } q &amp;lt; 5\end{cases} \end{eqnarray*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given that the cost is $c(q) = q$, profit as a function of quantity $(q)$ is&#xA;\begin{eqnarray*} \pi(q) = r(q) - c(q) = \begin{cases} 100 - q &amp;amp; \text{if } q \geq 5 \\ -q &amp;amp; \text{if } q &amp;lt; 5\end{cases} \end{eqnarray*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We simply solve the following problem to find the optimal quantity of the monopolist:&#xA;\begin{eqnarray*} \max_{q \geq 5} \ 100 - q \end{eqnarray*} &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Solving it we get the optimal quantity $(q^m)$ and the corresponding price $(p^m)$ chosen by the monopolist as &#xA;\begin{eqnarray*} q^m &amp;amp; = &amp;amp; 5 \\ p^m &amp;amp; = &amp;amp; 95\end{eqnarray*}&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;(ii) a monopolist has a cost function $c(q)=\alpha q$ where alpha is fixed marginal cost. It’s demand function has a constant price elasticity of demand whose value is $-3$. The government imposes a tax of 6 dollar per unit of output. By how much will the monopolist price rise?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Given that the demand function has a constant price elasticity whose value is $-3$, it is of the form:&#xA;$$q(p) = \beta p^{-3}$$, where $\beta &amp;gt; 0$ is a constant.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now profit maximization problem of the monopolist in terms of price $(p)$ can be written as :&#xA;\begin{eqnarray*} \max_{p} \ \ pq(p) - c(q(p)) \end{eqnarray*} &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given that the cost is $c(q)=\alpha q$ and the demand is $q(p) = \beta p^{-3}$, the profit maximization problem is :&#xA;\begin{eqnarray*} \max_{p} \beta p^{-2} - \alpha\beta p^{-3} \end{eqnarray*} &#xA;Solving it we get the optimal price as:&#xA;\begin{eqnarray*} p^m = \frac{3\alpha}{2} \end{eqnarray*} &lt;/p&gt;&#xA;&#xA;&lt;p&gt;With tax of 6 per unit, the profit maximization problem is&#xA;\begin{eqnarray*} \max_{p} \beta p^{-2} - \alpha\beta p^{-3} - 6\beta p^{-3}\end{eqnarray*} &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Solving it we get the optimal price as:&#xA;\begin{eqnarray*} p^t = \frac{3(\alpha+6)}{2} \end{eqnarray*} &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, increase in price due to tax equals :&#xA;\begin{eqnarray*} \Delta = p^t - p^m = 9 \end{eqnarray*} &lt;/p&gt;&#xA;" OwnerUserId="11824" LastActivityDate="2018-06-07T10:02:13.130" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22347" PostTypeId="2" ParentId="22332" CreationDate="2018-06-07T10:13:14.980" Score="1" Body="&lt;p&gt;If we're considering the canonical case of one firm facing perfect competition, then we're faced with a demand curve (for each firm's goods) that's perfectly flat- regardless of how many units any given firm produces, consumers are willing to pay a certain market price $p$ and no more (all of this is just a restatement of what you've mentioned in the question, of course). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What we can do is then consider how to have a model that incorporates this definition of perfect competition with your given definition of the demand facing firm $i$. As you point out, the derivative of the demand as you've defined it is $\beta$. (Again, all a restatement of what you've pointed out).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The next question to ask, then, is &quot;what is $\beta$?&quot; Effectively, it's the slope of the demand curve each firm faces. If we assume perfect competition, then we assume a flat demand curve, which leads us to conclude that $\beta=0$. I'd suggest that your reasoning didn't go wrong anywhere, just that the two threads need to be directly connected! &lt;/p&gt;&#xA;" OwnerUserId="13366" LastActivityDate="2018-06-07T10:13:14.980" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="22349" PostTypeId="1" CreationDate="2018-06-07T12:07:09.853" Score="2" ViewCount="68" Body="&lt;p&gt;Suppose in an economy there are $G$ available goods $X_1,...,X_G$.  We can formulate a system of $3G+1$ equations as below:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Q^d_g = A_{g1}+A_{g2}P_g+\mathbf{A}_g\mathbf{Z}^d_g+u_g\quad(g = 1,...,G)\quad(1)$$&#xA;$$Q^s_g = B_{g1}+B_{g2}P_g+\mathbf{B}_g\mathbf{Z}^s_g+v_g\quad(g = 1,...,G)\quad(2)$$&#xA;$$Q^d_g = Q^s_g\quad(g = 1,...,G)\qquad\qquad\qquad\qquad\qquad\quad(3)$$&#xA;$$\sum_{g=1}^GP_gQ^d_g = I\quad\qquad\qquad\qquad\qquad\qquad\qquad\qquad\quad(4)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here $Q^d$ is quantity demanded, $Q^s$ quantity supplied, $P$ price, $\mathbf{Z}^d$ and $\mathbf{Z}^s$ are vectors of other variables (assumed exogenous) relevant to demand and supply respectively, $I$ is available income (also assumed exogenous), the $A$'s and $B$'s are parameters (vectors if in bold), and $u$ and $v$ are error terms.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose we want to estimate demand for good $X_1$. Two methods that might be considered are:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Method 1&lt;/strong&gt;: Use equations (1), (2) and (3) for $g=1$ only, that is, ignore the equations for the other goods and the income constraint. Use (3) to eliminate $Q^s$. Then estimate (1) within the remaining system of two equations using two-stage least squares (2SLS), on the basis that the equation is overidentified.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Method 2&lt;/strong&gt;: Use the whole system of $3G+1$ equations. Use (3) to eliminate $Q^s_g$ for $g=1,...,G$. Then estimate, using a suitable estimator, the system consisting of (1) and (2) for $g=1,...,G$, treating (4) as a cross-equation restriction.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Question&lt;/em&gt;: What would be the most suitable estimation technique for Method 2, and what advantages might it offer over Method 1?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Method 2 of course is rather impracticable as it is unlikely that all the necessary data could be collected.  So the point of the question is to understand what if anything is lost by Method 1 (relative to what might theoretically be obtained by Method 2).&lt;/p&gt;&#xA;" OwnerUserId="1417" LastActivityDate="2018-06-07T12:07:09.853" Title="Simultaneous Equation Models for Estimating Demand for a Good" Tags="&lt;econometrics&gt;&lt;supply-and-demand&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22350" PostTypeId="2" ParentId="22340" CreationDate="2018-06-07T16:36:04.920" Score="2" Body="&lt;p&gt;Consumer's Budget Constraint is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$p_1x_1 + p_2x_2 + c\alpha x_1 = y$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Holding $\alpha$ fixed, consumer's utility maximization problem is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{eqnarray*} \max_{x_1, x_2} &amp;amp; \ (\alpha q + (1-\alpha))x_1 x_2 \\ \text{s.t.} &amp;amp; \ (p_1 + c\alpha)x_1 + p_2x_2  = y \end{eqnarray*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Solving it we get the optimal bundle of goods as:&#xA;\begin{eqnarray*} (x_1, x_2) = \left(\dfrac{y}{2(p_1+c\alpha)},\dfrac{y}{2p_2}\right) \end{eqnarray*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Corresponding utility as a function of $\alpha$ and other parameters is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{eqnarray*} (\alpha q + (1-\alpha))\left(\dfrac{y^2}{4p_2(p_1+c\alpha)}\right)  \end{eqnarray*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now we find optimal value of $\alpha$ by solving&#xA;\begin{eqnarray*} \max_{0 \leq \alpha \leq 1} &amp;amp; \ (\alpha q + (1-\alpha))\left(\dfrac{y^2}{4p_2(p_1+c\alpha)}\right)  \end{eqnarray*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Equivalently, we can find the optimal value of $\alpha$ by maximizing $\log$ of the objective&#xA;\begin{eqnarray*} \max_{0 \leq \alpha \leq 1} &amp;amp; \ \ln(\alpha q + (1-\alpha)) - \ln(p_1+c\alpha) + 2\ln y - \ln 4 - \ln p_2   \end{eqnarray*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Differentiating the objective with respect to $\alpha$, we get&#xA;\begin{eqnarray*} \frac{p_1(q-1) - c}{(\alpha(q-1) + 1)(p_1+c\alpha)} \begin{cases} &amp;gt; 0 &amp;amp; \text{if } p_1(q-1) &amp;gt; c \\ = 0 &amp;amp; \text{if } p_1(q-1) = c  \\ &amp;lt; 0 &amp;amp; \text{if } p_1(q-1) &amp;lt; c \end{cases} \end{eqnarray*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, optimal value of $\alpha$ is $1$ when $p_1(q-1) &amp;gt; c$, all values of $\alpha$ in the interval $[0, 1]$ are optimal when $p_1(q-1) = c$ and optimal value of $\alpha$ is $0$ when $p_1(q-1) &amp;lt; c$. In short, optimal value $\alpha^*$ of $\alpha$ satisfy&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{eqnarray*} \alpha^*  \in \begin{cases}  \{1\} &amp;amp; \text{if } p_1(q-1) &amp;gt; c \\  [0, 1] &amp;amp; \text{if } p_1(q-1) = c  \\  \{0\} &amp;amp; \text{if } p_1(q-1) &amp;lt; c \end{cases} \end{eqnarray*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consequently, final demand $(x_1^*, x_2^*)$ for $(x_1, x_2)$ satisfy&#xA;\begin{eqnarray*} (x_1^*, x_2^*, \alpha^*)  = \begin{cases}  \left(\dfrac{y}{2(p_1+c)},\dfrac{y}{2p_2}, 1\right) &amp;amp; \text{if } p_1(q-1) &amp;gt; c \\  \left(\dfrac{y}{2(p_1+c\alpha)},\dfrac{y}{2p_2}, \alpha\right) &amp;amp; \text{if } p_1(q-1) = c \text{ and } 0 \leq \alpha \leq 1 \\  \left(\dfrac{y}{2p_1},\dfrac{y}{2p_2}, 0\right) &amp;amp; \text{if } p_1(q-1) &amp;lt; c \end{cases} \end{eqnarray*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Alternatively, we can write demand for $x_1$ as&#xA;\begin{eqnarray*} x_1^*  \in \begin{cases}  \left\{\dfrac{y}{2(p_1+c)}\right\} &amp;amp; \text{if } p_1 &amp;gt; \dfrac{c}{q-1} \\  \left[\dfrac{y}{2(p_1+c)}, \dfrac{y}{2p_1}\right] &amp;amp; \text{if } p_1= \dfrac{c}{q-1}  \\  \left\{\dfrac{y}{2p_1}\right\} &amp;amp; \text{if } p_1 &amp;lt; \dfrac{c}{q-1} \end{cases} \end{eqnarray*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is the figure demonstrating the relationship between demand for $x_1$ and its price $p_1$, holding $q$, $y$ and $c$ fixed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/XB9XD.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/XB9XD.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now we consider Uno's revenue as a function of price $p_1$ :&#xA;\begin{eqnarray*} r(p_1) = \begin{cases} \dfrac{y}{2} &amp;amp; \text{if } p_1 \leq \dfrac{c}{q-1}  \\ \dfrac{yp_1}{2(p_1+c)} &amp;amp; \text{if }  \dfrac{c}{q-1} &amp;lt; p_1 \leq \overline{p}_1 \end{cases} \end{eqnarray*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consequently, profit as a function of price $p_1$ is&#xA;\begin{eqnarray*} \pi(p_1) = \begin{cases} \dfrac{y}{2} - \dfrac{ky}{2p_1} &amp;amp; \text{if } p_1 \leq \dfrac{c}{q-1}  \\ \dfrac{y(p_1-k)}{2(p_1+c)} &amp;amp; \text{if }  \dfrac{c}{q-1} &amp;lt; p_1 \leq \overline{p}_1 \end{cases} \end{eqnarray*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Maximizing profit with respect to $p_1$, we get the optimal price as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{eqnarray*} p_1^* = \begin{cases} \dfrac{c}{q-1} &amp;amp; \text{if } 1 - \dfrac{k(q-1)}{c} \geq \dfrac{\overline{p}_1-k}{\overline{p}_1+c} \\ \overline{p}_1 &amp;amp; \text{if } 1 - \dfrac{k(q-1)}{c} &amp;lt; \dfrac{\overline{p}_1-k}{\overline{p}_1+c} \end{cases}\end{eqnarray*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now you can solve the remaining two parts in a similar way.&lt;/p&gt;&#xA;" OwnerUserId="11824" LastActivityDate="2018-06-07T16:36:04.920" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22351" PostTypeId="1" AcceptedAnswerId="22353" CreationDate="2018-06-07T17:15:25.130" Score="0" ViewCount="337" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/OO3Mb.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/OO3Mb.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I could solve Question 25 (simultaneous location game between 2 firms), but I'm confused between options b) and d) for Question 26 (sequential game involving a third firm). I have attached both questions since Question 25 provides context to Question 26. &#xA;Basically, I got my answer as d) for Question 26, using the method of backward induction since it's a sequential game. While the answer key for this question says b) is the correct option. &#xA;My method: Assuming that firm 3 locates at 1/2, firm 1 and 2's location described in option d) gives them both the maximum share than in any other option. Equilibrium should be such that firms 1 &amp;amp; 2 are at an advantage since they are first movers in the game. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Could anyone please confirm as to which should be the correct option for Question 26? Any solution and views are welcome.&lt;/p&gt;&#xA;" OwnerUserId="15262" LastEditorUserId="15262" LastEditDate="2018-06-07T17:23:39.870" LastActivityDate="2018-06-07T18:42:36.867" Title="Location game between 3 firms" Tags="&lt;game-theory&gt;&lt;nash-equilibrium&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22352" PostTypeId="1" CreationDate="2018-06-07T18:42:26.763" Score="1" ViewCount="26" Body="&lt;p&gt;I'm looking for an easy introduction to this model. I have no background in economics at all. A bit of math is ok. I would prefer books, but pdfs are also ok. I searched after a few books, but I think many are too advanced for me (having no background in economics).&lt;/p&gt;&#xA;" OwnerUserId="18529" LastActivityDate="2018-06-07T18:42:26.763" Title="Easy introduction to Heckscher-Ohlin model" Tags="&lt;reference-request&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22353" PostTypeId="2" ParentId="22351" CreationDate="2018-06-07T18:42:36.867" Score="0" Body="&lt;p&gt;$(d)$ cannot be an answer because of the following.  If 1 and 2 are located as in $(d)$, then 3 wants to be located (i) either at $\frac{1}{3}-\varepsilon$ or (ii) at $\frac{2}{3}+\varepsilon$ because doing so yields almost $\frac{1}{3}$ while choosing $\frac{1}{2}$ yields $\frac{1}{2}\times\frac{1}{3}$.  So, 1 receives $\frac{1}{2}\times\frac{1}{3}$ if 3 chooses (i), or 2 receives $\frac{1}{2}\times\frac{1}{3}$ if 3 chooses (ii).  Then, 1 and 2 does not want to act according to $(d)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$(b)$ is the right answer. The reasoning is: if 1 and 2 are located as in the answer, 3 is indifferent of choosing anything in $\left[\frac{1}{4}, \frac{3}{4}\right]$ all of which yield $\frac{1}{4}$ and any other location yields a lower payoff.  In other words, each of 1 and 2 can guarantee himself at least $\frac{1}{4}$.   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, the question is: Does any of 1 and 2 want to deviate from $(b$)?  Suppose when both 1 and 2 played according to $(b)$, 3 chooses $\frac{1}{2}$ so that each of 1 and 2 obtains $\frac{3}{8}$.  Now, suppose that 1 deviates to a location $\frac{1}{4}-x$, where $x \in (0,1/4)$.  Then, he obtains $\frac{1}{4}-x + \frac{\frac{1}{2}-\left(\frac{1}{4}-x\right)}{2} =\frac{3}{8}-\frac{x}{2}$ which is clearly lower than $\frac{3}{8}$ as $x&amp;gt;0$.  Thus, 1 does not want to deviate.  By a similar argument, 3 does not want to deviate too.  Hence, $(b)$ is an equilibrium&lt;/p&gt;&#xA;" OwnerUserId="18338" LastActivityDate="2018-06-07T18:42:36.867" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22354" PostTypeId="1" AcceptedAnswerId="22366" CreationDate="2018-06-07T19:01:29.310" Score="3" ViewCount="2714" Body="&lt;p&gt;I've seen proofs that cost functions are concave of the form&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$C(\lambda w + (1-\lambda)w',q) \ge \lambda c(w,q) + (1-\lambda)c(w',q)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;although this neither feels convincing nor does it seem like a path towards also proving that input demands are downward sloping.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To be more concise in my question, it is two parts.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, prove that all cost functions, regardless of the production function, are concave.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Second, using the first step, also show that input demands are downward sloping.&lt;/p&gt;&#xA;" OwnerUserId="5947" LastActivityDate="2018-06-08T05:05:00.807" Title="Prove all cost functions are concave in input prices and demand for inputs is downward" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;proof&gt;&lt;cost-functions&gt;&lt;proof-reference&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="22355" PostTypeId="1" CreationDate="2018-06-07T19:28:25.063" Score="1" ViewCount="42" Body="&lt;p&gt;&lt;img src=&quot;https://2012books.lardbucket.org/books/macroeconomics-principles-v2.0/section_13/6b38160b8862d8048e85b40793e0a7b9.jpg&quot; alt=&quot;Equilibrium in the money market&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we assume the demand for money (D above) is fixed in this position (for the purposes of this question), and supply (S) is fixed in this position, then how can the BoE change market interest rates (to influence inflation) using the base rate alone? Is this an invalid assumption?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And if changing the base rate changes the interest rate, why doesn't the BoE also need to adjust the money supply every time it changes the base rate to maintain equilibrium as in the diagram above?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It looks to me as though the BoE can only change market interest rates (and influence inflation) by changing the money supply - which I think is what I read the US Fed does?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have no idea, and am really confused about how the central bank plays a role in the money market equilibrium in the diagram above, and how it actually influences inflation. &lt;strong&gt;Any&lt;/strong&gt; clarification or insight would be greatly appreciated. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the purposes of my exam, I know that 'the BoE increases interest rates to curb inflation as costs of borrowing rise etc....' and 'quantitive easing means increasing the money supply to encourage lending, lowering interest rates etc....' but I'm struggling to appreciate how the mechanism actually works.&lt;/p&gt;&#xA;" OwnerUserId="18530" LastActivityDate="2018-06-07T19:28:25.063" Title="How does changing the Bank of England base rate work?" Tags="&lt;supply-and-demand&gt;&lt;interest-rate&gt;&lt;money-supply&gt;&lt;central-banking&gt;&lt;quantitative-easing&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22356" PostTypeId="2" ParentId="20943" CreationDate="2018-06-07T19:49:52.757" Score="2" Body="&lt;p&gt;The weight matrix that you have illustrated needs to be row-normalized, i.e. the row-sum must be one in order for the rho parameter to have the proper parameter bounds, i.e. between (-1/lambda,1), where lambda is the smallest real eigenvalue of the W matrix.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When the weight matrix is row normalized and there is a change in the dependent variable, the shock in that other country will be an average of the surrounding values.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm not sure if this helps but a good resource is the LeSage and Pace text, Introduction to Spatial Econometrics, CRC Press 2009.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can also visit www.spatial-econometrics.com to download free PDF books on spatial econometrics as well.&lt;/p&gt;&#xA;" OwnerUserId="18531" LastActivityDate="2018-06-07T19:49:52.757" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22357" PostTypeId="2" ParentId="22274" CreationDate="2018-06-07T19:57:42.310" Score="1" Body="&lt;p&gt;My understanding is that theories and empirical methodologies demonstrating the relationship between declining union membership and wages risk overestimating the causality of the relationship.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Anyone who argues that businesses do NOT, in a relevant share of cases, endeavour to suppress union formation, activities or recruitment, whether individually or collectively, is either ignorant or a political shill. (Things are not nice 100% of the time in the other direction either.) This should be recognized, in order to proceed with rational discussion of the economics of the issue.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, factors like increased international competition in lower-skilled jobs from a very large international labour pool (which is much more accessible to producers than in 1950 or 1980) can be one reason that the causality of declining union membership can be overestimated. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, mechanisms of tacit collusion between businesses can act to hold down wages as well, for example with various agreements which prevent an employee from working for a competitor for some number of years after they leave (e.g., Google and Apple could both force employees to sign such an agreement as a condition of employment, thus holding down wages for both firms, which both account for a substantial share of employment in their specific areas of activity). This could be another explanation for some portion of wage stagnation that would be difficult to frame as resulting from declining union membership per se.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Between 1) international competition and 2) a proliferation of methods to suppress wages unrelated to union formation or membership per se, it should suffice to say that significant effort for robustness must be demonstrated before any empirical work can be taken seriously when discussing causality between declining union membership and 50 years of stagnant average wages.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The risk, then, is that an inadequate methodology which involves a) under-specification of a model, and/or which b) includes inadequate robustness checks, could indicate that declining union membership caused stagnant wages, when theoretically this could be a false positive when other factors explain both the declining union membership and also stagnant average wages. &lt;/p&gt;&#xA;" OwnerUserId="16499" LastActivityDate="2018-06-07T19:57:42.310" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22358" PostTypeId="1" CreationDate="2018-06-07T21:01:25.657" Score="2" ViewCount="26" Body="&lt;p&gt;Is there a trade group, government, or other publication providing data on aggregate venture capital investment?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Specifically, I'm interested in how overall venture capital funding has changed over time, how it is divided by sector, and how it is divided by funding stage.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm specifically interested in data for the US.&lt;/p&gt;&#xA;" OwnerUserId="10649" LastActivityDate="2018-06-08T20:46:31.863" Title="Summary data on venture capital" Tags="&lt;reference-request&gt;&lt;investment&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22359" PostTypeId="2" ParentId="22301" CreationDate="2018-06-07T21:41:39.547" Score="5" Body="&lt;p&gt;For most purposes, economics is not effectively understood in 10-second segments or catchy phrases used by politicians. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Generally, a willingness to openly acknowledge that something is complex, and to acknowledge merit to empirical evidence and/or ethical argumentation on multiple sides of a debate, is a good indication that what follows has at least some merit. Presentation of an issue which is preoccupied with fun-sounding insults, or promoting black/white thinking on a question, is unlikely to be based on quality analysis.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Differentiating between acknowledgment of complexity, as opposed to obfuscation, is also important. If complexity is acknowledged and some other analysis claims &quot;ah HA, you admit you don't know, stooopid, because you said it's complex&quot;, then don't pay any attention to the people producing the second 'analysis', unless wanting to understand the nature of their manipulation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another strong indicator for a non-expert to guess at the quality of arguments is the transparency in who funds the research. If there is no disclosure of the funding, the research output should be treated as worthless unless you have specific abilities to understand the analytical methods and data inputs. An independent researcher may explicitly declare that no external funding was provided, as compared with someone paid to produce a pre-determined result who may not disclose anything. Disclosing funding sources at least allows a non-expert to observe that the conclusion does or does not align with whoever paid for it. This can be gamed, but a couple minutes of online research should most often be sufficient to determine if it's likely to be BS -- compare a) a web search ending with unnamed corporations or funding organizations with no detail about who/what/when/why of some front organization, and no ability to contact any person from the front organization, as opposed to b) a web search that leads you to a named organization registered in a specific jurisdiction with a named board of directors and an explicit mission statement. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, this is fundamentally not an economics question. The thematic area is more &quot;how can a non-expert evaluate any expert claim?&quot;&lt;/p&gt;&#xA;" OwnerUserId="16499" LastActivityDate="2018-06-07T21:41:39.547" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22360" PostTypeId="2" ParentId="22300" CreationDate="2018-06-07T22:04:59.197" Score="0" Body="&lt;p&gt;The mortgage deduction is generally opposed because it's a subsidy to take on debt -- among other things, this may additionally inflate housing prices and thereby increase the size of fallout from a bubble burst. This can negatively impact systemic stability.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Housing can be considered as capital in the sense of producing a flow of returns. For example, it could cost $3000 a month to rent a similar house. &quot;Capital&quot; need not produce a manufactured output to be &quot;capital&quot;, rather, it need only produce a flow of revenues (e.g., after correcting for depreciation and/or maintenance).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, I'm not sure that the question of whether physical capital should be taxed at low, moderate or high rates (as contrasted with the question of whether human capital embedded in labour should be taxed at low, moderate or high rates) should be considered as well-informed by the question of whether housing is fundamentally &quot;capital&quot; -- instead, housing would be a special case, which is not like &quot;capital&quot; which produces manufactured goods. Housing is &quot;consumed&quot; as the equivalent rental value in any period, but is also &quot;capital&quot; in the sense of producing a flow of benefits. &lt;/p&gt;&#xA;" OwnerUserId="16499" LastActivityDate="2018-06-07T22:04:59.197" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="22361" PostTypeId="1" CreationDate="2018-06-07T23:34:41.877" Score="1" ViewCount="42" Body="&lt;p&gt;came across a problem set that I had no clue how to tackle, but looks painfully simple.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's a market for electricity where households utility is represented by:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;U(E) = aE - 2mL2 (Household Utility)&#xA;C(E) = wE + FC (Firm cost function)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where E is quantity of Electricity and L is daylight available at the households, and FC is a fixed cost, with a,m,and w being constant variables. The problem required deriving the Demand and Supply Curves and then getting the Competitive Equilibrium values for price and quantity as a function of the variables.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Typically, with a two good market, I would derive the marginal utility and equate them over their prices to obtain a value for one good and substitute that into the income constraint to get the demand as a function of one good. However, I can't work this out at all! Daylight doesn't have a price and I'm at a loss for how to derive demand. Similarly with Supply, if I take MC = w, would the supply curve simply be w?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks for all of your help!&lt;/p&gt;&#xA;" OwnerUserId="18533" LastActivityDate="2018-06-07T23:34:41.877" Title="Deriving Single Good Demand Curve" Tags="&lt;mathematical-economics&gt;&lt;utility&gt;&lt;supply-and-demand&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="22362" PostTypeId="1" AcceptedAnswerId="22407" CreationDate="2018-06-07T23:46:18.953" Score="1" ViewCount="771" Body="&lt;p&gt;Question is as follows:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/BrGa4.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/BrGa4.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My answers are&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;(I)&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/D1aLj.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/D1aLj.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let k is constant utility level&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$k=\sqrt{x_A^1x_A^2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$k^2/x_A^1=x_A^2$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first derivative is negative. So the indifference curve is decreasing.&#xA;The second derivative is positive.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since utility function is quasiconcave, then preferences are convex because his prefers averages to extremes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For B&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/usXJa.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/usXJa.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Similarly &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For constant utility level k &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$k=x_B^1/(1+x_B^2)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then $$x_B^2=x_B^1/k-1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is straight line. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Due to the linear indifference curve he is indifferent between averages and extremes. Thus not strictly convex preference. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;(II)&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In order to analyze whether preferences are nonstaiated and strictly monotonic, we need to look at its MU’s.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For A,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;since good 1 and 2 may decrease the marginal utility, preferences are not monotonic.  But preferences are non-satiated. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For B,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since marginal utility is increasing, the preferences are monotonic. But preferences not strictly monotonic because getting more x2 decreases utility. However preferences are locally nonsatiated because by giving the consumer a bit more $x_B^1$ holding $x_B^2$ constant, he strictly better off. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;(III)&lt;/strong&gt;&#xA;&lt;a href=&quot;https://i.stack.imgur.com/2w4rY.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/2w4rY.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&#xA;&lt;a href=&quot;https://i.stack.imgur.com/mdELX.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/mdELX.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I did first three parts in this way. However, I couldn’t proceed the last three parts that I marked with red pen. Please help me to do this. Thank you. &lt;/p&gt;&#xA;" OwnerUserId="15030" LastEditorUserId="15030" LastEditDate="2018-06-07T23:52:07.767" LastActivityDate="2018-06-11T17:08:16.403" Title="Pure exchange economy with free and non-free disposal" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;&lt;self-study&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22364" PostTypeId="2" ParentId="22327" CreationDate="2018-06-08T03:12:57.663" Score="1" Body="&lt;p&gt;Probably the most useful aspect of the concept of &quot;opportunity cost&quot; is to distinguish between choice problems where a particular choice is available, but the alternatives differ.  The concept of opportunity cost stresses that when we make a choice of some action, we forego alternatives, and so the gain from that action is the difference between the benefit of that action, and the benefit of the next-most-preferred alternative.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, you might have two choice problems (e.g., two nights of the week) where you have the opportunity to go to the movies on your own.  You get a certain amount of enjoyment from this, and so you might consider making this decision by thinking about how much you enjoy this activity.  The concept of opportunity cost would tell you to bear in mind the available alternatives, so that you remember you are foregoing other possible activities if you choose to go to the movies.  In one of these cases (e.g., the first night) you might not have any exciting alternatives, and so going to the movies is pretty attractive (the opportunity cost is low).  However, on another night, you might have been invited to an exciting party, with lots of close friends, and so now going to the movies and missing the party seems like a relatively bad idea (the opportunity cost is high).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;All that &quot;opportunity cost&quot; is really doing is reminding you of the fact that decision problems must be considered on the basis of all the available actions, and the relative value of the optimal action is affected by the value of the best foregone alternative.  Most people understand this implicitly (for the most part), but economists are particularly aware of this, and have developed a concept around it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One consequence of considering opportunity cost is to highlight the &lt;a href=&quot;https://en.wikipedia.org/wiki/Sunk_cost#Loss_aversion_and_the_sunk_cost_fallacy&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;strong&gt;sunk cost fallacy&lt;/strong&gt;&lt;/a&gt;, where a person makes a decision to pursue some action even though it is less desirable than the available alternatives, because they have already committed resources to that course of action, and they do not wish to accrue losses from a change of action (i.e., they have &lt;a href=&quot;https://en.wikipedia.org/wiki/Loss_aversion&quot; rel=&quot;nofollow noreferrer&quot;&gt;loss aversion&lt;/a&gt;).  In the example above, suppose you had already pre-paid for your movie-ticket before you find out about the party, and you can't get a refund.  The payment you made for the ticket is a &quot;sunk cost&quot;.  You might be inclined to go to the movies, and miss the party, just so that you don't &quot;waste&quot; the money on the ticket.  However, doing this would just compound one mistake (buying the ticket) with another mistake (choosing to see the movie over a party you would have enjoyed more).  The concept of opportunity cost tells you to compare the available actions against the alternatives, noting that the sunk cost occurs under every case (and is therefore not relevant to a particular action).&lt;/p&gt;&#xA;" OwnerUserId="16120" LastActivityDate="2018-06-08T03:12:57.663" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="22366" PostTypeId="2" ParentId="22354" CreationDate="2018-06-08T05:05:00.807" Score="5" Body="&lt;p&gt;Let $x(w, q)$ denote the solution to the cost minimization problem :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{eqnarray*} \min_{x} &amp;amp; \ w\cdot x \\ \text{s.t.} &amp;amp; \ \ f(x) \geq q \end{eqnarray*}&#xA;where $f$ is the production function.&#xA;Since $x(w, q)$ minimizes cost at $(w, q)$, following holds for all $w$ and for all $q$ :&#xA;\begin{eqnarray*} w\cdot x(w, q) \leq w\cdot x(w', q) \ \ \  \forall w' \end{eqnarray*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also we know that cost function is cost of cost minimizing input choice :&#xA;\begin{eqnarray*} C(w, q) = w\cdot x(w, q) \end{eqnarray*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, we'll show that $C$ is concave in $w$. Consider any arbitrary $w'$, $w''$ and an arbitrary $\lambda \in [0, 1]$.&#xA;\begin{eqnarray*} C(\lambda w' + (1-\lambda) w'', q) &amp;amp; = &amp;amp; (\lambda w' + (1-\lambda) w'')\cdot x(\lambda w' + (1-\lambda) w'', q) \\  &amp;amp; = &amp;amp; \lambda w' \cdot x(\lambda w' + (1-\lambda) w'', q) + (1-\lambda) w''\cdot x(\lambda w' + (1-\lambda) w'', q) \\  &amp;amp; \geq &amp;amp; \lambda w' \cdot x(w', q) + (1-\lambda) w''\cdot x(w'', q)  \\  &amp;amp; = &amp;amp; \lambda C(w' , q) + (1-\lambda) C(w'', q) \end{eqnarray*}&#xA;Therefore, $C$ is concave in $w$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To show that input demand is downward sloping, consider any arbitrary $w'$, and $w''$,&#xA;\begin{eqnarray*} w'\cdot x(w', q) &amp;amp; \leq &amp;amp; w'\cdot x(w'', q) \\ w''\cdot x(w'', q) &amp;amp; \leq &amp;amp; w''\cdot x(w', q) \end{eqnarray*}&#xA;Adding them we get&#xA;\begin{eqnarray*} (w'-w'')\cdot (x(w', q) - x(w'', q)) &amp;amp; \leq &amp;amp; 0 \end{eqnarray*}&#xA;We now consider a special case where $w'$ and $w''$ differ only in the $j$th input's price. Consequently,&#xA;\begin{eqnarray*} (w'-w'')\cdot (x(w', q) - x(w'', q)) = (w_j'-w_j'') (x_j(w', q) - x_j(w'', q)) &amp;amp; \leq &amp;amp; 0 \end{eqnarray*}&#xA;Therefore, demand for $j$th input is inversely related to its price.&lt;/p&gt;&#xA;" OwnerUserId="11824" LastActivityDate="2018-06-08T05:05:00.807" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22367" PostTypeId="1" AcceptedAnswerId="22375" CreationDate="2018-06-08T06:22:39.660" Score="3" ViewCount="149" Body="&lt;p&gt;Qualcomm is currently awaiting Chinese regulatory approval for its acquisition of rival NXP.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Both companies aren't based in China. I'd understand that vehicles like tariffs can be used by countries to exercise control over certain trade inbalances, but how could government &lt;em&gt;block&lt;/em&gt; a takeover taking place outside of its sovereignity? Are anti-trust laws of international nature, in some case?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is the rationale behind this case the same as US technology companies operating in the European Union, with regards to anti-monopoly policy? No long ago, I recall Google being fined by the European Commission on monopoly charges with regards to some of its services in the EU. The case of NXP's takeover seems of an entirely different nature.&lt;/p&gt;&#xA;" OwnerUserId="16317" LastActivityDate="2018-06-08T14:17:21.513" Title="Why do anti-trust regulators in China need to approve NXP's takeover?" Tags="&lt;monopoly&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22368" PostTypeId="1" CreationDate="2018-06-08T07:23:59.930" Score="1" ViewCount="26" Body="&lt;p&gt;Consider the following case:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Country P uses the currency &lt;strong&gt;Euro&lt;/strong&gt; and gives p percent interest on a one year bond issued in &lt;strong&gt;Euro&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Country Q uses the currency &lt;strong&gt;TL&lt;/strong&gt; and gives q percent interest on a one year bond issued in &lt;strong&gt;Euro&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Question:&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;How can we determine the probability of default of the country Q with respect to P ?&lt;/p&gt;&#xA;" OwnerUserId="15670" LastEditorUserId="15670" LastEditDate="2018-06-08T10:06:56.843" LastActivityDate="2018-06-08T10:06:56.843" Title="How to determine the default probability of a county in a bond that is not in its native currency?" Tags="&lt;bonds&gt;&lt;government&gt;&lt;probability&gt;&lt;default&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="22369" PostTypeId="1" CreationDate="2018-06-08T09:34:46.720" Score="3" ViewCount="228" Body="&lt;p&gt;I was reading a note on Solow model in continuous time, and it said we can derive K, C, and Y from the key equation. But the steps were omitted, and I have no clue with it. How can I derive these variables?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Many thanks!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/FQoPO.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/FQoPO.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="18446" LastActivityDate="2018-06-08T09:34:46.720" Title="Solow growth model deriving solutions" Tags="&lt;economic-growth&gt;&lt;solow&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22370" PostTypeId="2" ParentId="22334" CreationDate="2018-06-08T10:37:17.793" Score="4" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Prove that $\Pi_j(x_j)$ is strictly concave in $x_j$.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;$\Pi_j(x_j) = G(x_j) + F\left(\frac{x_j}{y}\right) =G(x_j) + F\left(R_j(x_j)\right) $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Differentiating it we get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\Pi_j'(x_j) =G'(x_j) + F'\left(R_j(x_j)\right)R_j'(x_j) $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Differentating $\Pi_j'(x_j)$, we get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\Pi_j''(x_j) =G''(x_j) + F''\left(R_j(x_j)\right)(R_j'(x_j))^2 + F'\left(R_j(x_j)\right)R_j''(x_j) &amp;lt; 0 $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, $\Pi_j$ is concave.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In a symmetric Nash equilibrium, determine the number of hours devoted to academic work. Call it $x^{**}$.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Symmetric Nash equilibrium where everyone choose $x^{**}$ satisfy :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$G'(x^{**}) + F'\left(1\right)R_j'(x^{**}) = 0 $&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Determine if $x^{**}$ is greater than, less than, or equal to $x^*$? &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Note that $x^*$ satisfy :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$G'(x^{*}) = 0$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;and $x^{**}$ satisfy :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$G'(x^{**}) + F'\left(1\right)R_j'(x^{**}) = 0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Combining the two, we get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$F'\left(1\right)R_j'(x^{**}) = G'(x^{*}) - G'(x^{**})$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since $F'\left(1\right) &amp;gt; 0$ and  $R_j'(x^{**}) &amp;gt; 0$ holds, we obtain&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$G'(x^{*}) - G'(x^{**}) &amp;gt; 0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since $G$ is concave, we get $x^* &amp;lt; x^{**}$.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Compare the students' welfare at $x^*$ and $x^{**}$.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;$\Pi_j(x^{**})=G(x^{**}) + F(1) = G(x^{**}) &amp;lt; G(x^{*})$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, students are worse off at $x^{**}$ compared to $x^{*}$.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Find the tax $\theta^* &amp;gt; 0$ on academic work, that ensures that $x^{**}= x^{*}$.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Symmetric Nash equilibrium where everyone choose $x^{**}$ in the presence of tax $\theta$ satisfy :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$G'(x^{**}) + F'\left(1\right)R_j'(x^{**}) - \theta = 0 $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To determine the sign of $\partial x^{**}/\partial \theta$, we differentiate the above condition with respect to $\theta$ :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\displaystyle G''(x^{**})\frac{\partial x^{**}}{\partial \theta} + F'\left(1\right)R_j''(x^{**})\frac{\partial x^{**}}{\partial \theta} - 1 = 0 $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This yields&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\displaystyle \frac{\partial x^{**}}{\partial \theta}  = \frac{1}{G''(x^{**})+F'\left(1\right)R_j''(x^{**})} &amp;lt; 0 $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, we want to find $\theta^*$ that ensures $x^{**} = x^*$. To do so, we'll use&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$G'(x^{**}) + F'\left(1\right)R_j'(x^{**}) - \theta = 0 $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and substitute $x^{**} = x^*$ in above to get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\theta^* = F'\left(1\right)R_j'(x^{*})$&lt;/p&gt;&#xA;" OwnerUserId="11824" LastActivityDate="2018-06-08T10:37:17.793" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="22371" PostTypeId="1" CreationDate="2018-06-08T10:44:47.527" Score="1" ViewCount="41" Body="&lt;p&gt;Suppose consumption is a function of income as well as real money balance(Pigou Effect) and we have other equations as the standard Keynesian model. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I derived diagrammatically as well as logically that the Shape of the aggregate demand in case of Pigou effect will be flatter than in the normal case. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, I have to look at the case which causes the large effect in increasing the output when nominal money supply increases?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I looked at diagrammatically at this so it came out to be the monetary policy is relatively ineffective in case of Pigou effect but logically Aggregate demand increases due to increase in consumption caused by the rise in real money balances &#xA;and also due to rising in investment expenditure caused by fall in rate of interest so output increase more in case of Pigou effect rather than in normal/standard case so it comes out to be relatively more effective. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where am I wrong?&lt;/p&gt;&#xA;" OwnerUserId="18245" LastEditorUserId="18245" LastEditDate="2018-06-08T10:53:06.833" LastActivityDate="2018-06-08T10:53:06.833" Title="Expansionary monetary policy in case of Pigou effect" Tags="&lt;macroeconomics&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22374" PostTypeId="1" CreationDate="2018-06-08T14:15:45.577" Score="4" ViewCount="158" Body="&lt;p&gt;This question is to be understood in the context of consumption based asset pricing. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm wondering whether relative risk aversion is a property of the period utility function, which is simply a function of a specific $c_t$ such as a power utility function $u(c)=c^{1-\gamma}/1-\gamma$, or if it is a property of the total / lifetime utility function, which is defined as a function over a consumption plan ($c_t$, $c_{t+1}$, ...), e.g. as an additive model over two periods $U(c_t)=u(c_t) + \beta E_t[u(c_{t+1})]$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this standard additive utility framework with e.g. the aforementioned CRRA power utility, this does not seem to make a difference as both would lead to $\gamma$ being the RRA.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, it is less obvious in a recursive framework such as Epstein-Zin-Weil, as I'm not sure how the period utility function $u(c_t)$ would even look like.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help is greatly appreciated.&lt;/p&gt;&#xA;" OwnerUserId="18534" LastEditorUserId="18534" LastEditDate="2018-06-09T13:36:20.680" LastActivityDate="2018-06-12T11:04:38.977" Title="Relative risk aversion, a property of period or lifetime utility" Tags="&lt;utility&gt;&lt;risk-aversion&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22375" PostTypeId="2" ParentId="22367" CreationDate="2018-06-08T14:17:21.513" Score="2" Body="&lt;p&gt;Generally, antitrust regulators have authority over any company doing business inside the zone of its control, hence why &lt;a href=&quot;https://www.nytimes.com/2017/06/27/technology/eu-google-fine.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;the EU antitrust regulators hit Google in 2017&lt;/a&gt;, or &lt;a href=&quot;http://europa.eu/rapid/press-release_IP-18-3505_en.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;the EU's recent examination of US company Apple's attempted acquisition of another US based technology firm, Shazam&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course, for these companies, there's always the option of simply pulling out of those markets (not selling any goods or services, or holding any capital inside their borders) which dodges their authority. But given the size of these markets (US, China and the EU particularly), that's simply not a feasible option.&lt;/p&gt;&#xA;" OwnerUserId="13366" LastActivityDate="2018-06-08T14:17:21.513" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22376" PostTypeId="2" ParentId="21908" CreationDate="2018-06-08T15:47:57.490" Score="1" Body="&lt;p&gt;Let $x_{ij}$ denote the amount of good $i$ bought by the consumer from store $j$. So, consumer's utility maximization problem is described as follows :&#xA;\begin{eqnarray*} \max_{x_{11}, x_{12}, x_{21}, x_{22}} &amp;amp; (x_{11}+x_{12})(x_{21}+x_{22}) \\ \text{s.t.} &amp;amp; \ \ 2\sqrt{x_{11}} + x_{21} + 2x_{12} + \frac{1}{2} x_{22} \leq 6 \\ &amp;amp; x_{11} \geq 0, x_{12} \geq 0, x_{21} \geq 0, x_{22} \geq 0 \end{eqnarray*}&#xA;Given that good 2 is cheaper in store 2, we know that the solution to this problem will satisfy $x_{21} = 0$. Consequently, it is clear from the objective that consumer will always choose $x_{22} &amp;gt; 0$. Also consumer's utility is an increasing function, so consumer will spend all his income in optimum.  Taking them into account, we can rewrite the utility maximization problem of the consumer as :&#xA;\begin{eqnarray*} \max_{x_{11}, x_{12}, x_{22}} &amp;amp; (x_{11}+x_{12})x_{22} \\ \text{s.t.} &amp;amp; \ \ 2\sqrt{x_{11}} + 2x_{12} + \frac{1}{2} x_{22} = 6 \\ &amp;amp; x_{11} \geq 0, x_{12} \geq 0, x_{22} &amp;gt; 0\end{eqnarray*}&#xA;Now we set up the Lagrangian:&#xA;\begin{eqnarray*} \mathcal{L}(x_{11}, x_{12}, x_{22}) = (x_{11}+x_{12})x_{22} - \lambda (2\sqrt{x_{11}} + 2x_{12} + \frac{1}{2} x_{22} - 6) + \mu_1 x_{11} + \mu_2 x_{12} \end{eqnarray*}&#xA;Corresponding Kuhn-Tucker conditions are :&#xA;\begin{eqnarray*} \frac{\partial \mathcal{L}}{\partial x_{11}} &amp;amp; = &amp;amp; x_{22} - \frac{\lambda}{\sqrt{x_{11}}} + \mu_1 = 0 \\ \frac{\partial \mathcal{L}}{\partial x_{12}} &amp;amp; = &amp;amp; x_{22} - 2\lambda + \mu_2 = 0 \\ \frac{\partial \mathcal{L}}{\partial x_{22}} &amp;amp; = &amp;amp; x_{11} + x_{12} - \frac{\lambda}{2}  = 0 \\ \frac{\partial \mathcal{L}}{\partial \lambda} &amp;amp; = &amp;amp; 6 - 2\sqrt{x_{11}} - 2x_{12} - \frac{1}{2} x_{22}  = 0, \ \lambda \geq 0 \\ \frac{\partial \mathcal{L}}{\partial \mu_1} &amp;amp; = &amp;amp; x_{11}  \geq  0, \ \mu_1 \geq 0, \ \mu_1x_{11} = 0 \\ \frac{\partial \mathcal{L}}{\partial \mu_2} &amp;amp; = &amp;amp; x_{12}  \geq  0, \ \mu_2 \geq 0, \ \mu_2x_{12} = 0\end{eqnarray*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One of the solutions to the above conditions solve the optimization problem. Here is that solution :&#xA;$x_{11}^* = 4, x_{12}^* = 0, x_{22}^* = 4, \lambda^* = 8, \mu_1^* = 0,\mu_2^* = 12$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, consumer will buy 4 units of commodity 1 and 0 unit of commodity 2 from the first store; and 0 unit of commodity 1 and 4 units of commodity 2 from the other store.&lt;/p&gt;&#xA;" OwnerUserId="11824" LastEditorUserId="11824" LastEditDate="2018-06-08T15:58:15.553" LastActivityDate="2018-06-08T15:58:15.553" CommentCount="8" ContentLicense="CC BY-SA 4.0" />
  <row Id="22377" PostTypeId="1" AcceptedAnswerId="22400" CreationDate="2018-06-08T20:04:11.517" Score="4" ViewCount="188" Body="&lt;p&gt;I have some issues understanding the intuition in Fixed Effects models,&#xA;and the sources of variation they imply. For a concrete example, consider&#xA;the following regression specification:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$r_{ist}=\gamma_{i}+\delta_{st}+\epsilon_{ist}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The LHS in the above equation is to be interpreted as the rating&#xA;that a worker $i$ receives at time period $t$ in sector $s.$ The&#xA;RHS is composed of three terms. The first term represents a worker&#xA;fixed effect- think of this as a dummy variable that takes a value&#xA;of 1 for worker $i$ and 0 for all $j\neq i$. In this sense, the&#xA;design matrix would consist of dummy variables for all workers (no&#xA;constant term), and the variable for worker $i$ would take on the&#xA;value $1$ when considered in this matrix. The second term represents&#xA;$\delta_{st}$, or a sector-year fixed effect. This is basically a&#xA;coefficient on a dummy variable for a particular sector-year cell. How is one to interpret this?&#xA;There are a total of $st$ of such dummy variables. The third is an&#xA;error term. My first question is, how does on interpret the value&#xA;of a particular $\hat{\gamma}_{i}?$ Also, how does this relate to removing&#xA;the variation at the worker level and the sector year level. What&#xA;variation are we removing? What does it intuitively mean to remove&#xA;variation? Finally, think of adding a set of covariates as:&#xA;$$&#xA;r_{ist}=x_{ist}'\beta+\gamma_{i}+\delta_{st}+\epsilon_{ist}&#xA;$$&#xA; Now, how is $\beta$ being identified? If we take into account individual&#xA;and sector fixed effects, how is $x$ varying? Would one not interpret&#xA;that $\beta$ is identified by holding constant $i$ and holding constant&#xA;$st$ , we vary $x_{ist}$. But if we are holding both $i$ and $st$&#xA;constant, there is no variation in $x.$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I apologize for the multiple questions asked here, but I think the questions are quite inter-related. &lt;/p&gt;&#xA;" OwnerUserId="5233" LastActivityDate="2018-06-10T21:26:59.907" Title="Fixed Effects Interpetation" Tags="&lt;econometrics&gt;&lt;paneldata&gt;" AnswerCount="1" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22378" PostTypeId="2" ParentId="22358" CreationDate="2018-06-08T20:46:31.863" Score="1" Body="&lt;p&gt;The best resource I've found so far is &lt;a href=&quot;https://files.pitchbook.com/website/files/pdf/1Q_2018_PitchBook_NVCA_Venture_Monitor.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Pitchbook's quarterly summary&lt;/a&gt;. It includes some degree of historical data, historical data by funding stage, and historical data by sector.&lt;/p&gt;&#xA;" OwnerUserId="10649" LastActivityDate="2018-06-08T20:46:31.863" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22379" PostTypeId="1" CreationDate="2018-06-09T00:42:04.577" Score="1" ViewCount="25" Body="&lt;p&gt;The concept of employee engagement looks like an overwhelming obvious way of improving business performance, yet since the mid-nineties, and after spending billions on engagement improvement systems, employee engagement is almost exactly where it started at 30%/70% (Gallup). Why?&lt;/p&gt;&#xA;" OwnerUserId="18537" LastActivityDate="2018-06-09T00:42:04.577" Title="Why doesn't the concept of employee engagement work in practice?" Tags="&lt;labor-economics&gt;&lt;labor-cost&gt;" AnswerCount="0" CommentCount="0" ClosedDate="2018-06-16T11:39:01.390" ContentLicense="CC BY-SA 4.0" />
  <row Id="22380" PostTypeId="1" AcceptedAnswerId="22381" CreationDate="2018-06-09T04:08:56.023" Score="4" ViewCount="119" Body="&lt;p&gt;I just started reviewing macroeconomic modeling for an upcoming entry exam, and I'm not sure about my answers in this application:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Suppose that the economy of a country has a representative firm with&#xA;  the following production function $y = f(N) = 2N - (1/2)N^2$ knowing&#xA;  that $N$ is the size of employment.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&lt;strong&gt;1)&lt;/strong&gt; Write the profit of this firm knowing that the price of the good is $P$ and the wage is $W$.&lt;br&gt;&#xA;  &lt;strong&gt;2)&lt;/strong&gt; Determine the demand for labour which is the optimal size of this firm. Comment on your results.&lt;br&gt;&#xA;  &lt;strong&gt;3)&lt;/strong&gt; From the last question, deduce the optimal size of production which is the optimal supply in volume of the good produced by this&#xA;  firm. Comment on your results.&lt;br&gt;&#xA;  &lt;strong&gt;4)&lt;/strong&gt; Suppose the total supply of labour is exogenous, and is given by: $N^o = (W/P)$. Define the notion of labour market equilibrium, and&#xA;  calculate the equilibrium real wage of this economy.&lt;br&gt;&#xA;  &lt;strong&gt;5)&lt;/strong&gt; At this general equilibrium, calculate total production (in volume), the total real payroll, total real profits (profits deflated&#xA;  by the price), and comment on the distribution in this economy.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Admittingly, I'm still quite weak when it comes to macroeconomic modeling, I haven't yet found a good enough source so all my knowledge comes from scattered sources all over the web.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;But here's my attempt:&lt;/strong&gt;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;1)&lt;/strong&gt; I know profits are&lt;br&gt;&#xA;$$\pi = Revenue -Cost \equiv P.y - W.N$$&#xA;Where P is the price of the good, y the quantity produced, W the wage and N the size of employees.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since the quantity produced is given as a function of N I re-wrote that expression into:  $$ P.y - W.N \equiv P. 2N-(1/2)N^2 - W.N$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which can simplify to: $$\pi = P.N(\dfrac{-N+4}{2}-w)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Not sure if this is what they mean but I stopped here.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;2)&lt;/strong&gt; I've read somewhere that optimal demand for labour is reached when $Marginal Benefit = Marginal Cost$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Marginal Benefit is defined as $Marginal Product \times Price$ so in our case that should be the derivative of the Production Function (marginal product) times price, or $MB = (2-N)\times P$&#xA;I've read that Marginal Cost is the real wage $\dfrac{W}{P}$&lt;br&gt;&#xA;So at equilibrium $(2-N)P = \dfrac{W}{P}$ which after some computation we get $$N=-\dfrac{W-2P^2}{P^2}$$ which should be the demand for labour at equilibrium.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;3)&lt;/strong&gt; Since N we found is (supposedly) the optimal demand for labour, and production of the good is a function of N alone, I thought we'd get the optimal size of production by inputting the expression of $N$ we just found in the production function $y$ that was given to us. After some long computations, I got: $$y=-\dfrac{W^2}{2P^4}+2$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;4)&lt;/strong&gt; The real wage at equilibrium is obtained when Demand for Labour equals Supply for Labour. Using the exogenous expression for Labour Supply we were given this means:&#xA;$$\dfrac{W}{P}=-\dfrac{W-2P^2}{P^2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which when solved get $$p=1, w=1$$ and thus real wage would also be equal to $1$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;5)&lt;/strong&gt; Replacing values in various expressions we derived in prior questions I got: $$N=1$$  $$y=\dfrac{3}{2}$$   $$payroll=\dfrac{W}{P}.N = 1$$ $$\pi =\dfrac{1}{2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now I'd be very surprised if I had any answer right since I'm very new to this, so I'd appreciate some feedback on my answers. Also, I'd appreciate some help with the comments on the answers especially the one about the distribution.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks.&lt;/p&gt;&#xA;" OwnerUserId="18249" LastActivityDate="2018-06-09T04:29:44.800" Title="Labour Market: simple macroeconomic modeling" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;labor-economics&gt;&lt;unemployment&gt;&lt;wages&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22381" PostTypeId="2" ParentId="22380" CreationDate="2018-06-09T04:29:44.800" Score="1" Body="&lt;p&gt;To find demand for labor, solve the firm's profit maximization problem :&#xA;\begin{eqnarray*} \max_N &amp;amp; \ P(2N - 0.5N^2) - WN\end{eqnarray*}&#xA;Differentiating the objective with respect to $N$ and setting it equal to 0 yields the demand function for labor :&#xA;\begin{eqnarray*} N^d = 2 - \frac{W}{P}\end{eqnarray*}&#xA;Corresponding supply of output is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{eqnarray*} Y = f\left(2 - \frac{W}{P}\right) = \left(2 - \frac{W}{P}\right)\left(1 + \frac{W}{2P}\right) =  2 - \frac{1}{2}\left(\frac{W}{P}\right)^2\end{eqnarray*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given the supply of labor is&#xA;\begin{eqnarray*} N^s = \frac{W}{P}\end{eqnarray*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Equilibrium in the labor market occurs where $N^d = N^s$. Solving it, we get equilibrium employment, real wage, output, profits as follows :&#xA;\begin{eqnarray*} N^* &amp;amp; = &amp;amp; 1 \\ \left(\frac{W}{P}\right)^* &amp;amp; = &amp;amp; 1 \\ Y^* &amp;amp; = &amp;amp; 1.5 \\ \pi^* &amp;amp; = &amp;amp; 0.5 \end{eqnarray*}&lt;/p&gt;&#xA;" OwnerUserId="11824" LastActivityDate="2018-06-09T04:29:44.800" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="22384" PostTypeId="1" AcceptedAnswerId="22420" CreationDate="2018-06-09T13:24:45.470" Score="2" ViewCount="154" Body="&lt;p&gt;From World Bank, I got the &lt;strong&gt;Household final consumption Expenditure&lt;/strong&gt; for many countries across time. I wonder if this consumption includes Consumption expenditure of Imported Goods / Import Volume?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I want to compute the share of consumption of home goods in total consumption, should I use the following formula?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac{Household final consumption Expenditure - Import Volume}{Household final consumption Expenditure}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;or should I use:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac{Household final consumption Expenditure}{Household final consumption Expenditure + Import Volume}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Many thanks for your help.&lt;/p&gt;&#xA;" OwnerUserId="14729" LastActivityDate="2018-06-13T04:14:40.077" Title="Does Household final consumption Expenditure include Consumption expenditure of Imported Goods" Tags="&lt;macroeconomics&gt;&lt;international-trade&gt;&lt;consumption&gt;" AnswerCount="1" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="22387" PostTypeId="1" CreationDate="2018-06-09T13:46:44.327" Score="1" ViewCount="50" Body="&lt;p&gt;Any advice for a book covering consumption based asset pricing in general and in particular also covers non-standard asset pricing models / utility functions such as Epstein-Zin(-Weil)? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Besides the obvious 2001 Cochrane - Asset Pricing (which is great but doesn't really give any details about models other than the standard additive power utility model).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks.&lt;/p&gt;&#xA;" OwnerUserId="18534" LastActivityDate="2018-06-09T13:46:44.327" Title="Consumption based asset pricing book with Epstein-Zin(-Weil)" Tags="&lt;asset-pricing&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22388" PostTypeId="1" CreationDate="2018-06-10T00:08:57.413" Score="0" ViewCount="48" Body="&lt;p&gt;Oxford professor Ewart Keep writes in a &lt;a href=&quot;https://www.researchgate.net/publication/265225212_MARKET_FAILURE_IN_SKILLS&quot; rel=&quot;nofollow noreferrer&quot;&gt;paper titled Market Failure in Skills&lt;/a&gt; (p. 3) that&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;For firms there is the&#xA;  problem of investment in&#xA;  staff who may leave taking&#xA;  their skills with them.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Some of the historical solutions to this problem involve limiting the mobility of the labor force, ranging from slavery, indentured servitude, and more recently some kinds work visas that are only valid for one employer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So in this sense, some human rights are bad for markets, leading to certain kind of market failure. Is this view uncontroversial among economists? And a complementary question: can measures that limit worker mobility also result in other way in market failure?&lt;/p&gt;&#xA;" OwnerUserId="6210" LastEditorDisplayName="user18" LastEditDate="2018-07-10T01:52:49.217" LastActivityDate="2018-07-10T01:52:49.217" Title="Does labor mobility create a certain type of market failure?" Tags="&lt;labor-economics&gt;&lt;market-failure&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="22389" PostTypeId="2" ParentId="22388" CreationDate="2018-06-10T00:20:25.197" Score="1" Body="&lt;p&gt;Well, from the same paper (p. 5), it's not all that clear that the theory translates to actual market failure:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;There is very little reliable data on either the scale of&#xA;  poaching or its impact upon employers’ training&#xA;  decisions – despite this being frequently adduced by&#xA;  policy makers as the prime cause of market failure in&#xA;  training. One of the few recent surveys to touch on the&#xA;  issue (4) suggested that poaching was a serious problem&#xA;  for no more than about one per cent of the employers in&#xA;  the sample, whereas an earlier survey of employers&#xA;  suggested that the possibility of poaching had&#xA;  discouraged as many as 38% from investing in skill (5).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The references cited for data being:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;(4) J. Kitching and R. Blackburn. 2002. ‘The Nature of&#xA;  Training and Motivation to Train in Small Firms’, DfES&#xA;  Research Report RR330, Nottingham: DfES.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;(5) Training Agency. 1989. Training in Britain, London:&#xA;  HMSO.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I think this constitutes a partial answer, but I'm quite interested in more data, in particular from other countries.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;And, yes, as I suspected, labor immobility &lt;a href=&quot;http://www.economicsonline.co.uk/Market_failures/Labour_market_failures.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;is also&lt;/a&gt; a form (perhaps less controversial) of market failure. But this does in turn raise the interesting question whether you can fix one market failure without causing another (in the labor market).&lt;/p&gt;&#xA;" OwnerUserId="6210" LastEditorUserId="6210" LastEditDate="2018-06-10T00:32:53.070" LastActivityDate="2018-06-10T00:32:53.070" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22390" PostTypeId="1" CreationDate="2018-06-10T03:32:40.447" Score="3" ViewCount="53" Body="&lt;p&gt;In a &lt;a href=&quot;http://www.businessinsider.com/no-skills-gap-in-labor-market-as-wages-staganant-2017-6&quot; rel=&quot;nofollow noreferrer&quot;&gt;Business Insider piece&lt;/a&gt; I read that:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Michael Madowitz, an economist at the Center for American Progress, says he is &amp;quot;unusually unsympathetic to the evergreen skills gap critique.&amp;quot;&lt;/p&gt;&#xA;&lt;p&gt;&amp;quot;First the Econ 101 'pay more for more if you want more' cuts against this well in a period of little wage growth,&amp;quot; Madowitz said. &amp;quot;Second, &lt;strong&gt;there's fascinating/depressing empirical research showing a 'skills gap' occurs because employers add and remove qualifications for the same job postings depending on the labor market, ensuring there is always a skills gap.&amp;quot;&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;(Emphasis mine.)&lt;/p&gt;&#xA;&lt;p&gt;Unfortunately, the article has no further details on the latter research/issue to back up this statement that at least some of this &amp;quot;skill gap&amp;quot; is just employer advertisements vagaries, presumably regardless of what the job actually requires. And I'm curious if this is remotely quantifiable, i.e. how much of the &amp;quot;skills gap&amp;quot; in some sector (under study) turned out to be of this ad-based kind.&lt;/p&gt;&#xA;" OwnerUserId="6210" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2018-06-20T12:15:00.327" Title="Ad-driven skills gap?" Tags="&lt;labor-economics&gt;&lt;education-economics&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22391" PostTypeId="1" CreationDate="2018-06-10T06:09:26.053" Score="1" ViewCount="29" Body="&lt;p&gt;I'm a statistician and my colleagues work with income data every now and then, but they usually apply some arbitrary cut-off and go with logistic regression.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know there's an infinite range of positive support distributions that could work, but I'd like to know if there's something in particular that is supported by economic theory (or perhaps empirical success).&lt;/p&gt;&#xA;" OwnerUserId="18545" LastActivityDate="2018-06-11T20:18:39.497" Title="Is there any specific distribution that is recommended for modelling individual income?" Tags="&lt;statistics&gt;&lt;regression&gt;&lt;money&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="22392" PostTypeId="2" ParentId="22390" CreationDate="2018-06-10T10:21:13.210" Score="1" Body="&lt;p&gt;I don't buy the explanation of this being vagaries of advertisements, regardless of the job.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Instead, I see it as employers showing rational and predictable flexibility in response to a changing supply of labour. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;At times of plentiful supply, they can reduce recruitment costs by being far more selective at the first stage - filtering by essential requirements in the job ad. Finding good staff can be an onerous process. All the filtering stages after writing the ad are labour-intensive, and the labour is often line-managers and upwards, so not cheap. If I know I can get a decent number of interview candidates even with very stringent essential requirements, I'll do that, and that will reduce the number of applications that I have to process. This reduces my costs without significantly impairing the outcome.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At times of restricted supply, it's more cost-effective to advertise for lower essential requirements. That way, you cast a wider net, get more applicants, and are more likely to find a suitable candidate, without overwhelming the staff who have to read through the applications and process them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As an occasional recruiter, I've done all this myself.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2018-06-10T10:21:13.210" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22395" PostTypeId="1" AcceptedAnswerId="22398" CreationDate="2018-06-10T14:10:29.450" Score="2" ViewCount="265" Body="&lt;p&gt;I seem to have a misconception about what interest rates mean. On one hand, they signal how high a government's demand for money is, because if a government is ever in any serious need of money, they can sell bonds with a high enough coupon rate to ensure that investors will quickly buy them, which will have the knock on effect of raising interest rates. On the other hand, I hear that government will frequently increase/decrease interest rates in order to discourage/encourage consumer spending (although, frankly, I've got no idea how the governments go about changing these rates).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, put bluntly, what do interest rates actually mean? If we take for example the UK, I've never heard anyone claim that the interest rates are low because the government is in no real need of money, but I have frequently heard that the interest rates are low because the government wants to encourage consumer spending. What should be read in to that?&lt;/p&gt;&#xA;" OwnerUserId="18310" LastActivityDate="2018-06-10T22:35:03.337" Title="What do interest rates tell us about the state of an economy?" Tags="&lt;consumer-theory&gt;&lt;interest-rate&gt;&lt;bonds&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22397" PostTypeId="1" CreationDate="2018-06-10T20:49:12.597" Score="0" ViewCount="94" Body="&lt;p&gt;Let's assume you have a production function, f,  and you want to know how the output changes with respect to capital, everything else constant (ceteris paribus), so you want to know the marginal productivity or return on capital.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is done by taking the partial derivative of capital to output.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$  \frac{\partial y_t}{\partial k_t}  $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Usually, in most models, the result will be a value between 0 and 1. However, this means that, all other variables being equal, for one extra euro (which comes out of nowhere, I guess, given that all other variables should be the same: ceteris paribus condition), output increases with less than this one euro..., right? I don't get the intuition that this value is less than one, I would it expect to be higher than one, at least. I mean, did 80% of it just vanish?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On wikipedia it is defined as: The marginal product of capital (MPK) is the additional output resulting, ceteris paribus (&quot;all things being equal&quot;), from the use of an additional unit of physical capital. Mathematically, it is the partial derivative of the production function with respect to capital. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm having some difficulty with the meaning of &quot;additional&quot; in this definition. It's not additional to this one extra euro of capital out of nowhere, right? This one euro is really transformed in only like e.g. half a euro in output: e.g. capital +1 ==&gt; output + 0.5.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In contrast to this marginal productivity of capital, you can also calculate the direct partial effect of capital on output, which e.g. for a Cobb-Douglas function is given by the elasticity (relative change of output given 1% relative change of capital) parameter for capital (it's power). &#xA;Yet another way to express the influence of a change in capital is the full effect: in some models, also other variables change when capital changes, e.g. labour, technology and so on, this is called the full effect.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I just mention these effects to contrast them with the calculation and interpreatation of the return on capital.&lt;/p&gt;&#xA;" OwnerUserId="15819" LastEditorUserId="15819" LastEditDate="2018-06-11T19:19:42.843" LastActivityDate="2018-06-11T20:53:57.610" Title="intuitive interpretation of the marginal return/productivity of capital being less than one" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;production-function&gt;&lt;capital-returns&gt;&lt;marginal&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22398" PostTypeId="2" ParentId="22395" CreationDate="2018-06-10T21:00:24.343" Score="3" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;What do interest rates tell us about the state of an economy?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Very little. That is because interest rates are a mechanism aimed at influencing one of many variables of an economy, rather than to diagnose it/them. Interest rates are a one-dimensional dimensional parameter, whereas the state of an economy cannot be captured with just one number. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For instance, an economy might be analyzed from the standpoint of its GDP, its Gini coefficient, income per capita, inflation, an agent's (or sector's) purchase power parity, and other aspects which are not comparable to each other. A rate simply cannot describe all these aspects.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your question itself reflects how interest rates are used for purposes which are not necessarily --or not always-- related: to aid governmental budget, and to influence consumption. In some situations, a cash-strapped government might wish for a reduced consumption (for instance, to be able to cope with public demand), whereas in other situations it might wish for greater consumption (to increase its tax revenues). The fact that two variables in an economy don't always go -or are not intended to go- in the same direction illustrates the ambiguity of how to interpret interest rates.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It should be added that interest rates are also a mechanism aimed at procuring currency stability. This goal can be at odds with patching a budget so that the government can fulfill its agenda. Hence the importance, at least among those of us with a neoliberal mindset, of keeping government and central bank separate; that is, to ensure that the latter is an autonomous entity.&lt;/p&gt;&#xA;" OwnerUserId="18552" LastActivityDate="2018-06-10T21:00:24.343" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22399" PostTypeId="2" ParentId="22395" CreationDate="2018-06-10T21:10:59.637" Score="0" Body="&lt;p&gt;I am going to focus on the use of the term &quot;low&quot;. How low?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If firms and the private sector perceive interest rates as &lt;em&gt;low enough&lt;/em&gt;, they will choose to take out loans and buy goods and services.  They weigh their opportunity costs and their expected ROI on whatever it was they intended to buy.  However, even &quot;historically low interest rates&quot; may not be low enough to stimulate this behavior.  There is no magic number at which this occurs. If the economy's outlook is extremely bad, it may be the case that even an interest rate of 0% is not low enough to stimulate this behavior.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a result of this general tendency, though, investors tend to predict an increase in consumption and investment when interest rates decline. When interest rates increase, they expect decreases in those same categories.&lt;/p&gt;&#xA;" OwnerUserId="4185" LastActivityDate="2018-06-10T21:10:59.637" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22400" PostTypeId="2" ParentId="22377" CreationDate="2018-06-10T21:26:59.907" Score="0" Body="&lt;p&gt;Interpretation of FE: $\delta_{st}$  is the mean rating in each sector in each time period.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Contrived Example:  Over time, public opinion of workers in the library sector improved and their rating r improved. On the other hand, those in the used-car sector became seen as less reliable and their rating r declined.  We capture this with $\delta_{st}$ .&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Identification of B (intuition):  &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;x must vary within individuals i of the same sector s every time period. Otherwise $\delta_{st}$ will be co-linear. &lt;/li&gt;&#xA;&lt;li&gt;x must vary within individuals i along time periods t. Otherwise $\gamma_i$ will be co-linear.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Basically, $\gamma_i$ can be identified separately from $\beta$ because individuals change over time.  And $\delta_{st}$ can be identified separately from $\beta$ because they individuals are heterogeneous within each time period and sector. &lt;/p&gt;&#xA;" OwnerUserId="4185" LastActivityDate="2018-06-10T21:26:59.907" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="22401" PostTypeId="2" ParentId="22395" CreationDate="2018-06-10T22:35:03.337" Score="0" Body="&lt;p&gt;In the UK (and most developed countries), interest rates are not changed by the government but by the central bank via the Monetary Policy Committee (MPC). This means decisions are made independent of direct government intervention and are hence not affected by political myopia. The MPC makes changes to the interest rate primarily to influence inflation (to keep inflation within target). The interest rate can be changed in 2 main ways:&lt;/p&gt;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;The MPC can lower the base rate which is the cost of borrowing for other commercial banks from the central bank. If the base rate is increased then this will most likely be passed on by commercial banks to consumers causing interest rates to rise.&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Increasing the money supply through quantitative easing. This is a process by which the central bank buys up financial assets such as government bonds in order to increase the cash deposits of commercial banks and other financial institutions. This increases the money supply and hence lowers interest rates as shown on the diagram.&#xA;&lt;a href=&quot;https://i.stack.imgur.com/tR98b.gif&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/tR98b.gif&quot; alt=&quot;enter image description here&quot; /&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&lt;p&gt;The interest rate represents the cost of borrowing and the reward for saving. Lowering the interest rate would make it cheaper to borrow encouraging investment and it would reduce the return on saving raising consumption. Also, cutting the interest rate would increase hot money outflows (short term cash flows from foreign investors looking to earn the highest interest). This would cause a depreciation in the exchange rate leading to a rise in demand for exports and fall in imports. Overall, this would raise aggregate demand causing demand-pull inflation.&#xA;(Raising the interest rate would have the opposite effect)&lt;/p&gt;&#xA;&lt;p&gt;Hence, when economic growth forecasts are low due to a lack of confidence in the economy, the MPC is likely to lower interest rates in order to stimulate increases in demand. For example, after brexit the Bank of England reduced interest rates to 0.25% because uncertainty was high. This was aimed at encouraging spending, as you said, to prevent a fall in demand which would reduce inflation and have negative knock on effects on the rest of the economy. However, the interest rate is set in anticipation of the inflation rate in 2 years as it takes time for the effect of a change in interest rates to ripple through the economy. Therefore, it may not be very representative of what the economy is going through at a given point in time.&lt;/p&gt;&#xA;" OwnerUserId="17778" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2018-06-10T22:35:03.337" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22402" PostTypeId="1" CreationDate="2018-06-11T00:07:42.130" Score="-2" ViewCount="658" Body="&lt;p&gt;Equations for &lt;span class=&quot;math-container&quot;&gt;$C$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$I$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$G$&lt;/span&gt;, and &lt;span class=&quot;math-container&quot;&gt;$NX$&lt;/span&gt; are given below. If the equilibrium level of &lt;span class=&quot;math-container&quot;&gt;$GDP$&lt;/span&gt; is &lt;span class=&quot;math-container&quot;&gt;$\$21,500$&lt;/span&gt;, what is the marginal propensity to consume?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$C = 1,500 + (MPC)\cdot Y$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$I = 1,000$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$G = 2,000$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$NX = -200$$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="18553" LastEditorUserId="23083" LastEditDate="2019-12-15T14:41:34.517" LastActivityDate="2019-12-15T14:41:34.517" Title="Equation: If the equilibrium level of GDP is $21,500, what is the marginal propensity to consume?" Tags="&lt;gdp&gt;&lt;equilibrium-selection&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22403" PostTypeId="1" CreationDate="2018-06-11T10:28:29.287" Score="1" ViewCount="38" Body="&lt;p&gt;&lt;a href=&quot;https://www.jstor.org/stable/2555627&quot; rel=&quot;nofollow noreferrer&quot;&gt;Mankiw &amp;amp; Whinston (1986)&lt;/a&gt; show that the market may contain too many firms. The intuition is that if a firm charges a suboptimal high price, a rival has a demand curve that is &quot;too high&quot; and can also enter the market. This is socially suboptimal if both firms incur fixed costs and have the same marginal costs, because one firm could as well supply the total quantity alone with the same variable costs but lower total fixed costs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I don't understand is: Why are fixed costs needed for this resultat? Fixed costs might as well be absent. Then a suboptimal high price might allow a rival with higher marginal costs to enter the market. Note that the entrant might not even produce the same product but an imperfect substitute.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The result is somehow related to the tradeoff between increasing returns to scale and variety (see &lt;a href=&quot;https://www.jstor.org/stable/2553347&quot; rel=&quot;nofollow noreferrer&quot;&gt;Meade, 1974)&lt;/a&gt; and product selection in monopolistic competition (see &lt;a href=&quot;https://www.jstor.org/stable/1817254&quot; rel=&quot;nofollow noreferrer&quot;&gt;Spence, 1976)&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If possible, a graphical representation of the answer would be much appreciated.&lt;/p&gt;&#xA;" OwnerUserId="7834" LastEditorUserId="1601" LastEditDate="2018-06-11T13:05:50.007" LastActivityDate="2018-06-11T13:05:50.007" Title="Excessive entry without fixed costs" Tags="&lt;cost&gt;&lt;welfare-economics&gt;&lt;product-differentiation&gt;&lt;barriers-to-entry&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22404" PostTypeId="2" ParentId="15121" CreationDate="2018-06-11T11:21:16.940" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Why does a decrease in interest rate reduces the velocity of money&#xA;  circulation?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Keep in mind that money circulation and &lt;em&gt;velocity&lt;/em&gt; of money circulation are different concepts. The relation you point out in your 2nd paragraph applies to money circulation, not its velocity: A high interest rate renders saving more attractive and thus reduces money circulation. Also, it is more useful to think of this in terms of &quot;&lt;em&gt;increase of money supply&lt;/em&gt;&quot; rather than &quot;&lt;em&gt;decrease in interest rate&lt;/em&gt;&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &lt;a href=&quot;https://en.wikipedia.org/wiki/Velocity_of_money&quot; rel=&quot;nofollow noreferrer&quot;&gt;Wikipedia article you cite&lt;/a&gt; defines velocity of money circulation as &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;the frequency at which the average same unit of currency is used to&#xA;  purchase [something] within a given time period.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The key term is &quot;&lt;em&gt;average same unit of currency&lt;/em&gt;&quot;. An analogy with drivers and cars is illustrative:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Drivers demand cars (currency) so they can &quot;visit destinations&quot; (purchase goods and services). Suppose the central bank releases additional cars, thereby making them more affordable during a given period. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The release of additional cars will lead to an increase of drivers' aggregate mileage, but the frequency and &lt;em&gt;average usage of one same car within that given period&lt;/em&gt; will decrease because now drivers have more cars (units of currency) to choose from [to perform their transactions]: If now you have access to five cars instead of just one, you might certainly end up driving more than you used to, but you are very unlikely drive five [, six, seven, ...] times more than when you had access to just one car. That means that, in &lt;em&gt;average&lt;/em&gt;, your &lt;em&gt;usage of one same car&lt;/em&gt; will be lower than that from when you only had one. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The implication on the &lt;em&gt;frequency of average usage of the same unit&lt;/em&gt; follows directly from the above argument.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An increase of money supply reduces the velocity of money circulation also from the standpoint that economic agents will not necessarily spend all the additional money available. They will save a portion. That portion pushes down the &lt;em&gt;frequency at which the average same unit currency&lt;/em&gt; is used for purchasing goods and services.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lastly, the Wikipedia section of &lt;a href=&quot;https://en.wikipedia.org/wiki/Velocity_of_money#Relation_to_money_demand&quot; rel=&quot;nofollow noreferrer&quot;&gt;Relation to money demand&lt;/a&gt; is flawed. It states in relevant part:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Given the nominal flow of transactions using money, if the interest&#xA;  rate on alternative financial assets is high, people will not want to&#xA;  hold much money relative to the quantity of their transactions—they&#xA;  try to exchange it fast for goods or other financial assets, and money&#xA;  is said to &quot;burn a hole in their pocket&quot; and velocity is high.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;That argument is flawed because it implicitly assumes that a low interest rate associated to money supply can coexist with a high interest rate on alternative financial assets: That creates arbitrage opportunities. In reality, both rates have a positive correlation. When alternative rates are high, people could not hold much money anyway because the interest rate &lt;em&gt;associated to money supply&lt;/em&gt; is also high.&lt;/p&gt;&#xA;" OwnerUserId="18552" LastActivityDate="2018-06-11T11:21:16.940" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22406" PostTypeId="2" ParentId="18921" CreationDate="2018-06-11T15:46:35.457" Score="-1" Body="&lt;p&gt;1) &quot;The West&quot; is comprised of quite a number of different countries. Among other things, almost none of them have the words &quot;United&quot; or &quot;States&quot; in their names.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) Free trade logic is, by definition, not the main guiding logic when a sector is defined as a strategic sector.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;3) Perhaps Western firms should be banned from exporting to any non-Western country? Would that be good for Western countries? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;4) When &quot;Made in India&quot; becomes a quality stamp for anything other than curry, maybe more people will worry more about India becoming a 2nd (or 7th/8th at best, as it were) vendor.&lt;/p&gt;&#xA;" OwnerUserId="16499" LastActivityDate="2018-06-11T15:46:35.457" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22407" PostTypeId="2" ParentId="22362" CreationDate="2018-06-11T17:08:16.403" Score="3" Body="&lt;p&gt;Consider a pure exchange economy with two players - A and B.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A's utility function is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{eqnarray*} u_A = x_A^{\frac{1}{2}}y_A^{\frac{1}{2}}\end{eqnarray*} &lt;/p&gt;&#xA;&#xA;&lt;p&gt;B's utility function is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{eqnarray*} u_B = \frac{x_B}{1 + y_B}\end{eqnarray*} &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Endowments of A and B are respectively&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{eqnarray*} \omega_A = (2,5), \ \omega_B =(5,2)\end{eqnarray*} &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Find the set of Pareto efficient allocations in this economy.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Set of Pareto efficient allocations consists of those feasible allocations in which B consumes $0$ unit of commodity $Y$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\text{Pareto Set} = \left\{\left(\left(x_A, y_A\right), \left(x_B, y_B\right)\right) \in \mathbb{R}_+^2 \times \mathbb{R}_+^2 | x_A + x_B = y_A + y_B = 7, y_B = 0\right\}$$&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Assume there is no free disposal. Player A can make a take-it-or-leave-it offer to B. Player B can either accept or reject. If player B rejects, then each player stays with his or her current endowment. If player B accepts, A's proposal is implemented. Find the equilibrium allocation outcome $\left(\left(x_A^*, y_A^*\right), \left(x_B^*, y_B^*\right)\right)$.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In a subgame perfect equilibrium, B's strategy will be to accept an allocation proposal $\left(\left(x_A, y_A\right), \left(x_B, y_B\right)\right)$ if $u_B(x_B, y_B) \geq u_B(5, 2) = \frac{5}{3}$, and reject otherwise. Given B's strategy, A will choose a proposal by solving the following maximization problem :&#xA;\begin{eqnarray*} \max_{\left(\left(x_A, y_A\right), \left(x_B, y_B\right)\right)\in \mathbb{R}_+^2 \times \mathbb{R}_+^2} &amp;amp; \ x_A^\frac{1}{2}y_A^\frac{1}{2} \\ \text{s.t.} &amp;amp; \ x_A+ x_B = 7 \\ &amp;amp; \ y_A + y_B = 7 \\  &amp;amp; \ \frac{x_B}{1+y_B} \geq \frac{5}{3}\end{eqnarray*} &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Solving this problem we get the following proposal :&#xA;$\left(\left(x_A^*, y_A^*\right), \left(x_B^*, y_B^*\right)\right) =  \left(\left(\frac{16}{3}, 7\right), \left(\frac{5}{3}, 0\right)\right)$&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Assume there is now free disposal. Redo the last part allowing for free disposal.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Allowing for free disposal, in a subgame perfect equilibrium, B's strategy will be to accept an allocation proposal $\left(\left(x_A, y_A\right), \left(x_B, y_B\right)\right)$ if $u_B(x_B, y_B) \geq u_B(5, 0) = 5$, and reject otherwise. Given B's strategy, A will choose a proposal by solving the following maximization problem :&#xA;\begin{eqnarray*} \max_{\left(\left(x_A, y_A\right), \left(x_B, y_B\right)\right)\in \mathbb{R}_+^2 \times \mathbb{R}_+^2} &amp;amp; \ x_A^\frac{1}{2}y_A^\frac{1}{2} \\ \text{s.t.} &amp;amp; \ x_A+ x_B = 7 \\ &amp;amp; \ y_A + y_B = 7 \\  &amp;amp; \ x_B \geq 5\end{eqnarray*} &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Solving this problem we get the following proposal :&#xA;$\left(\left(x_A^*, y_A^*\right), \left(x_B^*, y_B^*\right)\right) =  \left(\left(2, 7\right), \left(5, 0\right)\right)$&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Find competitive equilibrium (if it exists) in both the cases : (a) no free disposal, (b) free disposal&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Competitive equilibrium consists of an allocation $\left(\left(x_A, y_A\right), \left(x_B, y_B\right)\right)$ and prices $(p_x, p_y = 1)$ such that&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;$x_A = \dfrac{2p_x + 5}{2p_x}$, $y_A = \dfrac{2p_x + 5}{2}$&lt;/li&gt;&#xA;&lt;li&gt;$x_B = \dfrac{5p_x + 2}{p_x}$, $y_B = 0$&lt;/li&gt;&#xA;&lt;li&gt;$x_A+x_B = 7$, $y_A+y_B=7$&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Solving it we get, $p_x = \dfrac{9}{2}$.&#xA;Therefore, competitive equilibrium allocation is $\left(\left(x_A, y_A\right), \left(x_B, y_B\right)\right)=\left(\left(\dfrac{14}{9}, 7\right), \left(\dfrac{49}{9}, 0\right)\right)$ and supporting prices are $(p_x, p_y) = \left(\dfrac{9}{2}, 1\right)$. Equilibrium is the same in both cases - with or without free disposal.&lt;/p&gt;&#xA;" OwnerUserId="11824" LastActivityDate="2018-06-11T17:08:16.403" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="22408" PostTypeId="1" AcceptedAnswerId="22423" CreationDate="2018-06-11T20:03:08.370" Score="2" ViewCount="143" Body="&lt;p&gt;For those who do not know, in America, the higher your income, the higher the percent of it is spent on taxes. This means that, whatever tax money is used for, those who are more hardworking (or, at least, those who are more skilled) are essentially punished. And, because we tax low-income citizens less, we are making their life quality nearly the same as everyone else, which encourages unemployment. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If, on the other hand, income taxes were to be eliminated and sales taxes raised significantly, we would be punishing those who spend a lot - essentially, those who abuse their wealth more. (Obviously this is not necessarily always so, but it is more so than if we apply taxes to anything else like income). This, therefore, would encourage philanthropy (and otherwise spending money on things other than buying.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that this can be engineered in such a way that the total tax money the government gains stays the same.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Question: Why does much of the world still have income taxes? Is there anything (and if so, what?) that makes them better, fairer, or more productive than sales taxes?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;*This question is not a copy of the question &lt;a href=&quot;https://economics.stackexchange.com/questions/12639/are-sales-taxes-regressive&quot;&gt;Are sales taxes regressive?&lt;/a&gt; because the linked question is asking specifically whether sales taxes decrease in burden as income increases. My question is explaining that that doesn't matter. &lt;/p&gt;&#xA;" OwnerUserId="18556" LastActivityDate="2018-06-13T08:19:03.390" Title="What at all justifies income taxes (as opposed to sales taxes only)?" Tags="&lt;finance&gt;&lt;taxation&gt;&lt;optimal-taxation&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22409" PostTypeId="2" ParentId="22391" CreationDate="2018-06-11T20:10:55.660" Score="1" Body="&lt;p&gt;I find it awfully odd to use logistic regression since income is clearly not binary. Sometimes people use logistic to explore if people are in the &quot;top X%&quot; or other sorts of ad-hoc quantile regression. Using logistic seems sub-optimal to me, but perhaps passable. I would prefer quantile regression.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If everyone is employed and you have no unemployed doctors, then you have a wide range of incomes, it makes sense that the distribution would be approximately log normal.  Income distributions have heavy(ish) tails. This is commonly held belief, tied to &quot;Gibrats Law&quot;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here's an interesting paper on it- carefully note they chose to argue &lt;em&gt;more log normal than&lt;/em&gt;. It implicitly confesses of the widely held belief that both consumption and income is log normally distributed.  There are probably more basic papers, but JPE is pretty respected and this has 100+ cites and a good place to dig.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Battistin, Erich, Richard Blundell, and Arthur Lewbel. &quot;Why is consumption more log normal than income? Gibrat’s law revisited.&quot; Journal of Political Economy 117.6 (2009): 1140-1154.&lt;/p&gt;&#xA;" OwnerUserId="4185" LastEditorUserId="4185" LastEditDate="2018-06-11T20:18:39.497" LastActivityDate="2018-06-11T20:18:39.497" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22410" PostTypeId="1" CreationDate="2018-06-11T20:12:14.347" Score="1" ViewCount="244" Body="&lt;p&gt;Given a system where you incentivize people to do actions in a system, we might have good and bad actors.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would like to know if there is a software or framework where I could put the different &lt;code&gt;A&lt;/code&gt; actors and the different &lt;code&gt;Act&lt;/code&gt; actions that they could do -- so I could link &lt;code&gt;A-Act&lt;/code&gt; actors-actions to &lt;code&gt;R&lt;/code&gt; reward.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I could visualize what could happen to the system by varying the different values of R, the different number of actions/actors.&lt;/p&gt;&#xA;" OwnerUserId="18557" LastActivityDate="2018-06-11T20:12:14.347" Title="How can I determine if a token economic is viable?" Tags="&lt;econometrics&gt;&lt;mathematical-economics&gt;&lt;game-theory&gt;&lt;quantity-theory-of-money&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22411" PostTypeId="2" ParentId="22397" CreationDate="2018-06-11T20:53:57.610" Score="1" Body="&lt;p&gt;Several thoughts in this area:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) Capital stock lasts over time. I may trade 1 euro for 1 unit of capital. This capital returns 0.01 euros every period forever.  It pays itself off eventually. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) If one has an incredible high rate of return and a sufficiently low discount rate, one might have divergent consumption paths, ex: I spend all of my money on capital, each unit of capital returns \$2 for the next period. I repeat forever, but never consume anything, because any consumption represents a loss of \$2 tomorrow.  After 1000 periods, I have a huge amount of capital but no consumption.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;3) Cobb-Douglass is normalized so the exponents sum to one. This led to some off-the-cuff work. It has derivatives: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$MPK =\alpha_k * (\frac{L}{K})^{1-\alpha_k}=\alpha_k k^{-(1-\alpha_k)}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$MPL= (1-\alpha_k) (\frac{K}{L})^{\alpha_k} = (1-\alpha_k) k^{\alpha_k}$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In optimal long-run state, these two will be equal. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\alpha_k k^{-(1-\alpha_k)} = (1-\alpha_k) k^{\alpha_k}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\alpha_k = (1-\alpha_k) k^{\alpha_k --(1-\alpha_k)}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\alpha_k = (1-\alpha_k) k^{1}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$k^{1} =  \frac{\alpha_k}{1-\alpha_k}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Plug this back in and you get:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$MPL^{*} = \alpha_k \frac{\alpha_k}{1-\alpha_k}^{-(1-\alpha_k)}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$MPL^{*} = \alpha_k \frac{\alpha_k}{1-\alpha_k}^{\alpha_k-1}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$MPL^{*} = \alpha_k \frac{1-\alpha_k}{\alpha_k} * \frac{\alpha_k}{1-\alpha_k}^{\alpha_k}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$MPL^{*} = (1-\alpha_k) * \frac{\alpha_k}{1-\alpha_k}^{\alpha_k}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$MPL^{*} = (1-\alpha_k) * \frac{\alpha_k^{\alpha_k}}{(1-\alpha_k)^{\alpha_k}}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$MPL^{*} = \frac{\alpha_k^{\alpha_k}}{(1-\alpha_k)^{\alpha_k - 1}}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$MPL^{*} = \alpha_k^{\alpha_k}*(1-\alpha_k)^{1-\alpha_k}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This looks like it's some sort of fraction. A quick screenshot on &lt;a href=&quot;https://www.wolframalpha.com/input/?i=y%20%3D%20(x%5Ex)*((1-x)%5E(1-x));%20x%3E0%20%26x%3C%3D1&quot; rel=&quot;nofollow noreferrer&quot;&gt;wolfram alpha&lt;/a&gt; suggests indeed that is the case.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/JQg48.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/JQg48.png&quot; alt=&quot;graph_of_function&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="4185" LastActivityDate="2018-06-11T20:53:57.610" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22413" PostTypeId="1" AcceptedAnswerId="22416" CreationDate="2018-06-12T00:41:37.553" Score="2" ViewCount="175" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/ZwkKO.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/ZwkKO.jpg&quot; alt=&quot;Exercise&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am so confused because I cannot set up the monopolist's profit maximization problem.What I did is the following one:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/6sbLW.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/6sbLW.jpg&quot; alt=&quot;Picture 2 &quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help will be appreciated. Thank you.&lt;/p&gt;&#xA;" OwnerUserId="18244" LastActivityDate="2018-06-12T02:19:47.453" Title="Subgame perfect equilibrium and expected profit" Tags="&lt;microeconomics&gt;&lt;game-theory&gt;&lt;self-study&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22414" PostTypeId="2" ParentId="21377" CreationDate="2018-06-12T02:01:34.273" Score="1" Body="&lt;p&gt;Here is how an economist would approach the question with a simple model. Of course, a few assumptions are needed. Suppose aggregate production in year $t$ can be thought of as a single firm producing all output ($Y$, which is GDP) using labor ($L$), computers ($C$) and other types of capital ($K$).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$Y_{t}=f\left(K_{t},L_{t},C_{t}\right)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's also make the simplifying assumption that computing speed is captured by the depreciation process of computers. If computing speed is important, then computers depreciate faster as newer, faster models come in. As a consequence, you need to invest in computers more frequently as the economy grows in order to keep the same level of output. Therefore, I argue, a sensible measure of the importance of computing power is given by the growth rate of the economy ($g$) plus depreciation rate ($\delta$),  times the elasticity of output with respect to computers (that is, how many computers you need to produce an additional unit of output)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\left(g+\delta\right)\cdot\left(\frac{\partial Y_{t}}{\partial C_{t}}\cdot\frac{C_{t}}{Y_{t}}\right)=\left(g+\delta\right)\cdot\frac{\partial\log Y_{t}}{\partial\log C_{t}}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can use neoclassical growth theory to obtain this measure from the data. Suppose that the economy is on what neoclassical economists call a &quot;balanced growth path&quot;. That is: output and inputs all grow at a constant rate $g$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac{d\log Y_{t}}{dt}=\frac{d\log K_{t}}{dt}=\frac{d\log L_{t}}{dt}=\frac{d\log C_{t}}{dt}=g$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then the ratio of yearly investment in computers as a percent of the stock of computers needs to be equal to $g+\delta$ in order for growth to remain &quot;balanced&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac{I}{C}=g+\delta$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;multiply both sides by the nominal value of the computer stock ($rC$) to nominal GDP ($PY$) where $r$ is the rental rate of computers and $p$ is the GDP deflator. This gives you the following equation for the yearly nominal investment in computers, as a percentage of GDP:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac{rI}{pY}=\left(g+\delta\right)\frac{rC}{pY}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;now, in equilibrium, the share of capital in total compensation $\frac{rC}{pY}$ is equal to the output/capital elasticity ($\frac{\partial\log Y}{\partial\log C}$). This means that you can rewrite the equation above as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac{rI}{pY}=\left(g+\delta\right)\frac{\partial\log Y}{\partial\log C}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words, a simple neoclassical growth model suggests capital investment in computers as a percent of GDP as a measure of the &quot;importance&quot; of computing power in the economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The data you need to compute this ratio (for different countries and sectors) can be found on the website of the OECD or the EUKLEMS consortium. You'll need to search a bit for it (computers are a subgroup of &quot;ICT capital&quot;).&lt;/p&gt;&#xA;" OwnerUserId="15658" LastEditorUserId="15658" LastEditDate="2018-06-12T02:14:00.023" LastActivityDate="2018-06-12T02:14:00.023" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22415" PostTypeId="1" AcceptedAnswerId="22426" CreationDate="2018-06-12T02:17:49.873" Score="4" ViewCount="649" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/RA6nv.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/RA6nv.jpg&quot; alt=&quot;Exercise&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The quantity is limited to 300 but the monopoly quantity is equal to 400 and gives a monopoly price of 600. But if we plug the quantity of 300 into the demand function we get a price of 700.But I am confused. &lt;a href=&quot;https://i.stack.imgur.com/GYJ8c.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/GYJ8c.jpg&quot; alt=&quot;Picture 2 &quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help will be appreciated.Thank you. &lt;/p&gt;&#xA;" OwnerUserId="18244" LastActivityDate="2018-12-26T21:29:24.097" Title="Bertrand game - Nash equilibrium" Tags="&lt;microeconomics&gt;&lt;game-theory&gt;&lt;self-study&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22416" PostTypeId="2" ParentId="22413" CreationDate="2018-06-12T02:19:47.453" Score="2" Body="&lt;p&gt;After obtaining the loan, entrepreneur has two possible strategies to choose from :&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Strategy $a$ : Expected payoff from strategy $a$ is $\frac{3}{4} (12000-R)$&lt;/li&gt;&#xA;&lt;li&gt;Strategy $b$ : Expected payoff from strategy $b$ is $\frac{1}{4} (16000-R)$&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;He'll choose strategy $a$ if $\frac{3}{4} (12000-R) \geq \frac{1}{4} (16000-R)$, and strategy $b$ if $\frac{3}{4} (12000-R) &amp;lt; \frac{1}{4} (16000-R)$. Or simply, he'll choose strategy $a$ if $R \leq 10000$, and strategy $b$ if $10000 &amp;lt; R \leq 16000$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Bank will maximize it's expected profits by choosing $R$ taking as given the entrepreneur's strategy. Therefore, Bank's expected profits equal $\frac{3}{4}R - 1000$ if it chooses $R \leq 10000$, and $\frac{1}{4}R - 1000$ if it chooses $10000 &amp;lt; R \leq 16000$. Clearly, expected profits of the bank are maximum at $R^*=10000$. Observe that entrepreneur is willing to pay more for the loan than $R^*=10000$ since his expected payoff is $\frac{3}{4}(12000 -10000) = 1500 &amp;gt; 0$, but the bank  will not charge more than 10000 because that would change the entrepreneur's choice of strategy to $b$ which is a more risky choice and yields lower expected returns to the bank.&lt;/p&gt;&#xA;" OwnerUserId="11824" LastActivityDate="2018-06-12T02:19:47.453" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22417" PostTypeId="1" AcceptedAnswerId="22510" CreationDate="2018-06-12T03:33:36.990" Score="1" ViewCount="649" Body="&lt;p&gt;I've been reading up on the uses of the linear expenditure system via a the papers which apply them. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;One paper which gives a good introduction to the topic in a paper called:&#xA;&lt;a href=&quot;https://repub.eur.nl/pub/18250/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Modeling household behavior in a CGE model:&#xA;linear expenditure system or indirect addilog? by Paul de Boer&lt;/a&gt;. (pages 5-6) It goes through the basic theory behind the linear expenditure system fairly well. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However in terms of working out the mathematics myself i'm having some difficulty, below is an abridged version of what is found in the paper.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;To derive the linear expenditure system we have:&#xA;  $$\max \ \ \ \ \ \ U(x_1,...,x_n)=\sum_{i=1}^n\gamma_i ln(x_i-a_i)$$&#xA;  $$s.t.\ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ m=\sum_{i=1}^n p_ix_i$$&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;After computing this we should get our linear expenditure system which is defined as:&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;$$p_ix_i=p_ia_i+ \gamma_i(m-\sum_{j}p_{j}a_j)$$&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;where &#xA;  $(m-\sum_{j}p_{j}a_j)$ is  &lt;em&gt;supernumerary or discretionary expenditure&lt;/em&gt;.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This is not what I got.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;when solving this I end up with this (like how it was previously derived on &lt;a href=&quot;https://economics.stackexchange.com/questions/8633/linear-expenditure-system-of-demands-derivation-help&quot;&gt;Linear Expenditure System of Demands, Derivation Help&lt;/a&gt;):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\sum_{i=1}^nx_i=(a_1,...,a_n)+\left(\frac{\gamma_1}{\lambda p_1},...,\frac{\gamma_1}{\lambda p_1}\right)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How do i get the result like that in this paper?&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="8815" LastEditDate="2018-06-12T12:12:28.703" LastActivityDate="2018-06-19T17:10:05.527" Title="Understanding the linear expenditure system" Tags="&lt;microeconomics&gt;&lt;linear-expenditure-system&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22419" PostTypeId="2" ParentId="17772" CreationDate="2018-06-12T07:49:16.690" Score="3" Body="&lt;p&gt;I finally found a reference that defines the terms &lt;em&gt;risk&lt;/em&gt; and &lt;em&gt;uncertainty&lt;/em&gt; the way I do. Sven Ove Hansson &lt;a href=&quot;https://people.kth.se/~soh/decisiontheory.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;&quot;Decision Theory: A Brief Introduction&quot;&lt;/a&gt; (1994) writes on p. 27-28:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In one of the most influential textbooks in decision theory, the terms &#xA;  are defined as follows: &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&quot;We shall say that we are in the realm of decision making under:&lt;br&gt;&#xA;  (a) &lt;em&gt;Certainty&lt;/em&gt; if each action is known to lead invariably to a specific outcome (the words prospect, stimulus, alternative, etc., are also used).&lt;br&gt;&#xA;  (b) &lt;em&gt;Risk&lt;/em&gt; if each action leads to one of a set of possible specific outcomes, each outcome occurring with a known probability. The probabilities are assumed to be known to the decision maker. For example, an action might lead to this risky outcome: a reward of \$10 if a 'fair' coin comes up heads, and a loss of \$5 if it  comes up tails. Of course, certainty is a degenerate case of risk where the &#xA;  probabilities are 0 and 1.&lt;br&gt;&#xA;  (c) &lt;em&gt;Uncertainty&lt;/em&gt; if either action or both has as its consequence a set of possible specific outcomes, but where the probabilities of these outcomes are completely unknown or are not even meaningful.&quot;&lt;br&gt;&#xA;  (Luce and Raiffa 1957, p. 13) &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;These three alternatives are not exhaustive. &lt;strong&gt;Many – perhaps most – decision problems fall between the categories of risk and uncertainty, as defined by Luce and Raiffa.&lt;/strong&gt; Take, for instance, my decision this morning not to bring an umbrella. I did not know the probability of rain, so it was not a decision under risk. On the other hand, the probability of rain was not completely unknown to me. I knew, for instance, that the probability was more than 5 per cent and less than 99 per cent. &lt;strong&gt;It is common to use the term &quot;uncertainty&quot; to cover, as well, such situations with partial knowledge of the probabilities.&lt;/strong&gt; This practice will be followed here. The more strict uncertainty referred to by Luce and Raiffa will, as is also common, be called &quot;ignorance&quot;. (Cf. Alexander 1975, p. 365) We then have the following scale of knowledge situations in decision problems: &lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;  certainty      deterministic knowledge &#xA;  risk           complete probabilistic knowledge &#xA;**uncertainty**  partial probabilistic knowledge&#xA;  ignorance      no probabilistic knowledge&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;  &#xA;  &lt;p&gt;It us common to divide decisions into these categories, decisions &quot;under &#xA;  risk&quot;, &quot;under uncertainty&quot;, etc. These categories will be used in the following chapters. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;(Emphases and asterisks around &lt;code&gt;uncertainty&lt;/code&gt; are mine.)&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Update:&lt;/strong&gt; From personal communication with the author: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The two definitions [i.e. those of risk and uncertainty above] that you quote &amp;lt;...&gt; are intended to describe the established usage. &amp;lt;...&gt; I am not sure it would be meaningful to propose new terms for these concepts; these terms are well established.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;References&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Alexander, E. R. (1975). &lt;a href=&quot;https://link.springer.com/article/10.1007/BF00136203&quot; rel=&quot;nofollow noreferrer&quot;&gt;The limits of uncertainty: A note&lt;/a&gt;. &lt;em&gt;Theory and Decision, 6&lt;/em&gt;(3), 363-370.&lt;/li&gt;&#xA;&lt;li&gt;Hansson, S.O. (1994). &lt;a href=&quot;https://people.kth.se/~soh/decisiontheory.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;Decision Theory: A Brief Introduction&lt;/em&gt;&lt;/a&gt;.&lt;/li&gt;&#xA;&lt;li&gt;Luce, R.D., and Raiffa, H. (1957). &lt;a href=&quot;https://rads.stackoverflow.com/amzn/click/0486659437&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;Games and Decisions: Introduction and Critical Survey&lt;/em&gt;&lt;/a&gt;. &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="4230" LastEditorUserId="4230" LastEditDate="2018-06-18T13:02:17.917" LastActivityDate="2018-06-18T13:02:17.917" CommentCount="7" ContentLicense="CC BY-SA 4.0" />
  <row Id="22420" PostTypeId="2" ParentId="22384" CreationDate="2018-06-12T08:22:32.167" Score="1" Body="&lt;p&gt;Yes.&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Household final consumption expenditure consists of the expenditure, including expenditure whose value must be estimated indirectly, incurred by resident households on individual consumption goods and services, including those sold at prices that are not economically significant and &lt;strong&gt;including consumption goods and services acquired abroad&lt;/strong&gt;.&lt;/p&gt;&#xA;&lt;p&gt;(From &lt;em&gt;System of National Accounts&lt;/em&gt;, 2008, p. 623, &lt;a href=&quot;https://unstats.un.org/unsd/nationalaccount/docs/sna2008.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;PDF&lt;/a&gt;).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;To elaborate, in the familiar identity &lt;span class=&quot;math-container&quot;&gt;$$Y = C + I + G + (X - M),$$&lt;/span&gt; the reason we subtract &lt;span class=&quot;math-container&quot;&gt;$M$&lt;/span&gt; (imports) is that the terms &lt;span class=&quot;math-container&quot;&gt;$C$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$I$&lt;/span&gt;, and &lt;span class=&quot;math-container&quot;&gt;$G$&lt;/span&gt; also include imported goods and services.&lt;/p&gt;&#xA;&lt;p&gt;In particular and to your secondary question, let:&lt;/p&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;span class=&quot;math-container&quot;&gt;$C_d =$&lt;/span&gt; Consumption of domestically-produced goods and services.&lt;/li&gt;&#xA;&lt;li&gt;&lt;span class=&quot;math-container&quot;&gt;$C_m =$&lt;/span&gt; Consumption of foreign-produced goods and services.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;p&gt;Then: &lt;span class=&quot;math-container&quot;&gt;$$C=C_d+C_m.$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;And what I believe you want is &lt;span class=&quot;math-container&quot;&gt;$\frac{C_d}{C}$&lt;/span&gt; or equivalently &lt;span class=&quot;math-container&quot;&gt;$1-\frac{Cm}{C}$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2018-06-13T04:14:40.077" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22421" PostTypeId="2" ParentId="22402" CreationDate="2018-06-12T08:39:02.533" Score="0" Body="&lt;p&gt;In equilibrium, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Y = AD                   ________________________             ( eq 1)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;AD= C + I + G + NX &lt;/p&gt;&#xA;&#xA;&lt;p&gt;AD= 1,500 + cY + 1,000 + 2,000 - 200&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or AD = 4,300 +cY&#xA;Or Y = 4,300 +cY  ------(from 1)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or (1-c)Y=4,300&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or 1-c = 4,300/Y = 4,300/21,500 = 0.2&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or 1-c = 0.2&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or &lt;strong&gt;c = 0.8&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope this helps&lt;/p&gt;&#xA;" OwnerUserId="15799" LastActivityDate="2018-06-12T08:39:02.533" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22422" PostTypeId="1" AcceptedAnswerId="22429" CreationDate="2018-06-12T10:01:32.697" Score="3" ViewCount="564" Body="&lt;p&gt;Here's the simple question I can't get my head around :(&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;QD= 120-P&#xA;QS= 2P-10&#xA;Tax= 25 euro per unit&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;How much does the government receive?&lt;/p&gt;&#xA;" OwnerUserId="18559" LastActivityDate="2018-06-12T16:03:54.973" Title="Quantity supplied &amp; demanded equation with tax" Tags="&lt;supply-and-demand&gt;&lt;taxation&gt;&lt;general-equilibrium&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22423" PostTypeId="2" ParentId="22408" CreationDate="2018-06-12T10:28:18.747" Score="6" Body="&lt;p&gt;There's a fair amount to unpack in the question, so it might be useful to take it step by step, and consider everything from a more abstract, economic theory perspective.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;...those who are more hardworking (or, at least, those who are more skilled) are essentially punished....&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;We should be careful making statements like this for a couple of reasons. First, the assumption may or may not be true, depending on what model of wages you think applies. For example, if wages are largely determined by bargaining, then it isn't clear that wages necessarily directly (or perfectly) correlate with how hard an individual works, or their skill level. Even if we use a non-bargaining wage model, plenty of &quot;unskilled&quot; jobs (for example, auto workers or welders) make more than &quot;skilled&quot; jobs (for example, many teachers). Second, it isn't clear that progressive taxation should be considered &quot;punishing&quot; high income earners. Given that tax brackets are all applied at the margin, earning more only means that (all else equal) your last dollar will be taxed more than your first dollar.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;because we tax low-income citizens less, we are making their life quality nearly the same as everyone else, which encourages unemployment.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;While we're flattening the differences between the highest and lowest income earners a bit, I'd hesitate to claim that &quot;we're making the quality of life [of low income earners] nearly the same as high income earners.&quot; Given that income still has substantial impacts on quality and duration of life, I'd be hard pressed to agree that we've equalized quality of life.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Beyond that, of course, there's the larger Social Choice problem of &quot;why is somewhat equalizing quality of life a bad thing?&quot; Given that employment and income potential aren't entirely defined by an individual's own effort, but are correlated with many factors that are determined by one's &quot;luck of birth,&quot; creating a society that doesn't at least attempt to account for this exogenous &quot;luck&quot; factor seems arbitrary and somewhat cruel.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;...we would be punishing those who spend a lot - essentially, those who abuse their wealth more.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Again, I'm a bit intrigued by your choice of wording there- why do you consider someone spending income &quot;abusing&quot; it, particularly if we accept your earlier premise that income is tied closely with effort? Isn't spending one's income merely realizing the actual utility potential they earn from doing a job? And if that's the case, why should we discourage spending one's income by substantially raising sales taxes?&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;This, therefore, would encourage philanthropy (and otherwise spending money on things other than buying.)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;There already exist commonly used mechanisms to encourage philanthropy through taxation: deductions. This method provides a much larger potential incentive to encourage philanthropy, since it effectively makes giving to charity &quot;cheaper&quot; than &lt;em&gt;both&lt;/em&gt; spending &lt;em&gt;and&lt;/em&gt; holding earned income (since money given isn't counted against your income), as opposed to merely spent income under your proposal. In other words, with an income tax of $\tau$, every dollar I give to charity only costs me $(1-\tau)$, which is the amount I would keep if I took the dollar as opposed to donate it. If there's only a sales tax, then the cost is the full dollar.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, getting to the crux of the question- there are several reasons the world currently has income taxes. First, there's a distributional concern: the sales tax that would be required to offset income taxes would be quite high, and would cause significant hardship for poorer families. Moreover, only having a sales tax can lead to incentives for wealthier individuals to horde wealth as opposed to spend it, which actually leads to significant economic distortions, and adverse economic outcomes (for example, a fair amount of recent research suggests that too high levels of wealth inequality can lead to slower overall economic growth). As to whether there are fairness implications, I'd point out that the regressive nature of sales taxes are important on this point. Given that a comparatively larger burden of the tax would fall on poorer individuals (since they spend higher proportions of their income), eliminating the income tax in favor of a consumption tax would have distributional consequences.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't mean to sound nit-picky or like I'm dismissing your question out of hand, for the record. There is an important debate to be had for any society regarding how its citizens should shoulder the combined tax load. However, I think most of the debate occurs &quot;inside&quot; of your assumptions made in the question, and only by closely examining those can the debate be meaningful.&lt;/p&gt;&#xA;" OwnerUserId="13366" LastActivityDate="2018-06-12T10:28:18.747" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22425" PostTypeId="2" ParentId="22374" CreationDate="2018-06-12T11:04:38.977" Score="1" Body="&lt;p&gt;Though this probably doesn't fully answer your question, given that it's been active for a little while with no other responses, this might hopefully be able to give some direction.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, it's important to note that the Arrow-Pratt measures of risk aversion are just one possible measure of risk aversion. While it certainly has nice properties in many set-ups, if, for example, the agent doesn't follow expected utility theory, then the Arrow Pratt measure loses it's explanatory value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When it comes to intertemporal risk aversion, it's generally worthwhile to consider risk aversion to be &quot;how much an agent, in period $t$ would be willing to pay to avoid a particular gamble in period $t+1$?&quot; For this, there seem to be several different derivations of measures of risk aversion, depending on the specific assumptions made about the within-period and between period utility function. Given that you've mentioned Epstein Zin, it's probably worth pointing out that their &lt;a href=&quot;http://people.bu.edu/lepstein/files-research/EZ1989.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;1989 paper's focus was on divorcing intertemporal elasticity of substitution from risk preferences&lt;/a&gt;, and they take 15 or so pages to go through what risk aversion means in their non-separable framework, and how to define it. Perhaps more helpful is this &lt;a href=&quot;https://www.frbsf.org/economic-research/files/wp12-17bk.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;recent work&lt;/a&gt; that considers a relatively general definition of risk aversion in a multi-period macro context, which can include some recursive inter-temporal aspects of utility. &lt;a href=&quot;http://home.bi.no/ilan.cooper/research/techchoice1116.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;This paper&lt;/a&gt; also considers a model with non-additively separable utility, and shows that the CRRA coefficient is still the same as it is in the additively separable case. &lt;a href=&quot;https://www.tse-fr.eu/sites/default/files/medias/doc/by/bommier/bommier_rochet.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;This might be another interesting paper&lt;/a&gt; since it also considers risk aversion over a planning horizon without separability.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That said, as this &lt;a href=&quot;http://www.ku.de/fileadmin/160114/Vorlesungsunterlagen/Financial_Theory/06_Dynamic_Preferences.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;small set of lecture notes shows&lt;/a&gt;, if you're primarily interested in measures of RRA using a traditional measure, define it at period $t$ by taking the overall utility function's derivatives at the period of interest. There might be some non $t$ period consumption variables in that measure, but that's fine. &lt;a href=&quot;http://hassler-j.iies.su.se/courses/macro/notes98/ELAST.HTM&quot; rel=&quot;nofollow noreferrer&quot;&gt;This set&lt;/a&gt; also points out the interplay between risk aversion parameters and intertemporal substitution parameters.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I find more I'll edit this response, but hopefully this provides at least a good start!!&lt;/p&gt;&#xA;" OwnerUserId="13366" LastActivityDate="2018-06-12T11:04:38.977" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22426" PostTypeId="2" ParentId="22415" CreationDate="2018-06-12T13:52:54.123" Score="4" Body="&lt;p&gt;Firm $i$'s profits $(\pi_i)$ as a function of its own price $(p_i)$ and the other firm's price $(p_j)$ are as follows :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{eqnarray*} \pi_i(p_i, p_j) = \begin{cases} (p_i-200)\min(1000- p_i, 300) &amp;amp; \text{if } p_i &amp;lt; p_j \\ (p_i-200)\min\left(\frac{1000- p_i}{2}, 300\right) &amp;amp; \text{if } p_i = p_j \\ 0 &amp;amp; \text{if } p_i &amp;gt; p_j\end{cases}  \end{eqnarray*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;, $i, j \in \{1,2\}$ and $i \neq j$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We now find the best response correspondence of firm $i$ $(\text{BR}_i(p_j))$ by solving the following problem &#xA;\begin{eqnarray*} \max_{0 \leq p_i \leq 1000} &amp;amp; \ \ \pi_i(p_i, p_j) \end{eqnarray*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and we'll obtain &lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{eqnarray*} &#xA;\text{BR}_i(p_j) = \begin{cases} \{700\} &amp;amp; \text{if } p_j &amp;gt; 700 \\ \emptyset &amp;amp; \text{if } 400 &amp;lt; p_j \leq 700 \\ \{p_j\} &amp;amp; \text{if } 200 &amp;lt; p_j \leq 400 \\ \{p : p \ge 200\} &amp;amp; \text{if } p_j = 200 \\ \{p : p &amp;gt; p_j\} &amp;amp; \text{if } p_j &amp;lt; 200\end{cases} \end{eqnarray*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$(p_1^*, p_2^*)$ is a Nash equilibrium of this game if it satisfy $p_1^* \in \text{BR}_1(p_2^*)$ and $p_2^* \in \text{BR}_2(p_1^*)$. This yields the following set of Nash equilibria :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\{(p_1^*, p_2^*) : 200 \leq p_1^*=  p_2^* \leq 400\}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;i.e., any action profile where both firms charge the same price, and that price lies in the interval $[200, 400]$ is a Nash equilibrium of the game.&lt;/p&gt;&#xA;" OwnerUserId="11824" LastEditorUserId="11824" LastEditDate="2018-06-12T14:01:43.180" LastActivityDate="2018-06-12T14:01:43.180" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="22427" PostTypeId="2" ParentId="14518" CreationDate="2018-06-12T14:32:54.290" Score="1" Body="&lt;p&gt;Typically you use FCF if the company doesn't pay dividends. You can still use dividends starting in year 5 and if you discount the CFs back to year 0, it doesn't matter that you have 0 CF in the first four years, you'll still get the future value of all CFs at year 0. &lt;/p&gt;&#xA;" OwnerUserId="18561" LastActivityDate="2018-06-12T14:32:54.290" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22428" PostTypeId="2" ParentId="17772" CreationDate="2018-06-12T14:43:30.883" Score="0" Body="&lt;p&gt;It is incorrect to say that uncertainty is an extension of risk, because (among other possibilities) if there is uncertainty, there remains the case of risk being nil but you just don't know it. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;Risk&quot; involves a known payoff matrix with specified probabilities for specified outcomes. &quot;Uncertainty&quot; can involve a payoff matrix that is incompletely defined or undefined, with respect to probabilities of outcomes. In the first case, you can precisely calculate an expected value, in the second case you cannot. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Running through some of the simpler exercises from one or more textbooks (e.g., recent editions on the shelf at the library) could help demonstrate this.&lt;/p&gt;&#xA;" OwnerUserId="16499" LastActivityDate="2018-06-12T14:43:30.883" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="22429" PostTypeId="2" ParentId="22422" CreationDate="2018-06-12T16:03:54.973" Score="3" Body="&lt;p&gt;The government revenue is going to be 1500 euros.&#xA;The tax shifts the supply or the demand curve vertically depending on wether the tax is charged to the consumer or the producer (turns out it doesn't really matter at the end you get the same government revenue).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here you can find a graph representing the situation if the consumer is charged the tax. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.desmos.com/calculator/8unflceczk&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.desmos.com/calculator/8unflceczk&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/msIJb.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/msIJb.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The demand curve shifts from the $Q^{D}=120-P$ (red line) to $Q^{D,tax}=120-(P+25)$ (green line). The supply curve is unchanged (blue line).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The new equilibrium quantity is 60 (instead of 76.667 in the case with no tax), and the revenue is equal to the unit tax times the quantity $25\times60=1500$, which is equal to the area of the orange rectangle.&lt;/p&gt;&#xA;" OwnerUserId="15658" LastActivityDate="2018-06-12T16:03:54.973" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22430" PostTypeId="1" AcceptedAnswerId="22431" CreationDate="2018-06-12T16:24:12.940" Score="1" ViewCount="38" Body="&lt;p&gt;&quot;An FX swap, on the other hand, creates no exchange rate risk for its counterparties. This is because currencies are sold and repurchase at fixed spot and forward rates. In other words, when you sell one currency for another through an FX swap, you know from the start how much of your original currency you will get back. An FX swap is a liquidity management tool, not a risk management tool.&quot; Source: &lt;a href=&quot;https://icmacentre.blog/2017/09/22/are-fx-swaps-and-forwards-missing-global-debt-why-the-bis-is-wrong/&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://icmacentre.blog/2017/09/22/are-fx-swaps-and-forwards-missing-global-debt-why-the-bis-is-wrong/&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, consider the following: An Emerging Market (EM) corporate issues dollar debt and hedges its exposure by entering an FX swap agreement with an International Entity (i.e. a global bank). The EM corporate exchange the amount of Dollar that it received from bond issuance for domestic EM currency at the beginning of the contract.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this scenario isn't, the global bank exposing herself to exchange rate risk, ceteris paribus?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) First, the global bank needs to convert its dollar assets into the EM domestic currency in order to supply the domestic currency to the EM corporate and enter into a FX swap agreement.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) Second, at the end of the contract the global bank will receive back an amount of EM domestic currency at a predetermined forward rate from the EM corporate. However, the global bank presumably derives &quot;utility&quot; from dollar assets and hence will need to convert the EM currency proceeds that she receives from the FX swap into dollars using the future spot rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;3) The future spot rate is clearly uncertain at the time when the FX swap is initially signed, hence the global bank is exposing herself to exchange rate risk.&lt;/p&gt;&#xA;" OwnerUserId="46" LastActivityDate="2018-06-12T18:56:18.237" Title="Emerging Market dollar debt, FX swaps and exchange rate risks" Tags="&lt;finance&gt;&lt;exchange-rates&gt;&lt;international-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22431" PostTypeId="2" ParentId="22430" CreationDate="2018-06-12T17:30:18.800" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;However, the global bank presumably derives &quot;utility&quot; from dollar assets and hence will need to convert the EM currency proceeds that she receives from the FX swap into dollars using the future spot rate.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The bank already had the EM currency though, right? If they had invested it in the EM stock market or any other way they would have had to do switch the returns to dollars anyway, so this is not caused by FX swap.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the bank did not have the EM currency before entering into the FX swap then it is buying the EM currency when the goal is actually future dollars that creates the exchange rate risk, not FX swap itself.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2018-06-12T18:56:18.237" LastActivityDate="2018-06-12T18:56:18.237" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="22432" PostTypeId="1" AcceptedAnswerId="22448" CreationDate="2018-06-12T18:23:46.063" Score="2" ViewCount="260" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/tdkwv.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/tdkwv.png&quot; alt=&quot;Exercise&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am completely confused because I cannot find the leader's best response. I do not know if it is exactly the same as it was a Cournot game. What I did is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/pfuaN.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/pfuaN.jpg&quot; alt=&quot;Picture&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help will be appreciated a lot. Thank you .&lt;/p&gt;&#xA;" OwnerUserId="18244" LastActivityDate="2018-06-13T12:47:30.553" Title="Stackelberg setup" Tags="&lt;microeconomics&gt;&lt;game-theory&gt;&lt;self-study&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22433" PostTypeId="1" CreationDate="2018-06-12T18:37:10.947" Score="2" ViewCount="49" Body="&lt;p&gt;Let's assume we have close prices of one stock of period one year. As far as I understand historical volatility is standard deviation of log return, however I do not understand what this actually mean.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's assume last traded price was $120 and HV is 0.29.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What does this really mean? That we can assume next price will be within the range of 29,58 (which is 29 percent of 120) above or bellow $120?&lt;/p&gt;&#xA;" OwnerUserId="18563" LastActivityDate="2019-12-05T05:02:40.487" Title="what does historical volatility explain?" Tags="&lt;stock-market&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22434" PostTypeId="2" ParentId="22433" CreationDate="2018-06-12T19:45:06.743" Score="-1" Body="&lt;p&gt;No. Volatility by itself is a meaningless number. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Volatility becomes relevant when used in a context, such as when comparing between assets, or to identify how much the stability of a financial instrument has changed over time. In these two examples, dividing volatility by the mean rate of return gives a more useful, dimensionless number known as &lt;em&gt;coefficient of variation&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Historical volatility may also serve as input parameter for simulation of an asset price, provided that the analyst already has in mind a probabilistic model. The example you outline is akin to estimating a confidence interval. Your example reflects an assumption that the asset's behavior is modeled with a probability density function which is symmetrical with respect to the latest price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are other uses of historical volatility, but the ones above are among the most typical applications of that concept. &lt;/p&gt;&#xA;" OwnerUserId="18552" LastActivityDate="2018-06-12T19:45:06.743" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22435" PostTypeId="1" CreationDate="2018-06-12T21:16:36.837" Score="0" ViewCount="1795" Body="&lt;p&gt;Maybe it is a silly question but I really do not know much about econometrics. I am trying to look at the relationship between environmental quality and final consumption expenditure. For this, I look only at the cross-section data for Environmental Performance Index (EPI) for environmental quality and final consumption expenditure data from World Bank Database for 2010. I write down an equation of that kind : &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$log(C)=\alpha+\beta_{1}log(S)+\beta_{2}(log(S))^{2}+\epsilon$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $C$ and $S$ hold for the consumption and environmental quality. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I wonder how I can analyze for the endogeneity issues between consumption and environmental quality. Is it possible to talk about the endogeneity on cross-section data? &lt;/p&gt;&#xA;" OwnerUserId="2938" LastActivityDate="2018-12-16T23:02:35.543" Title="how to test endogeneity in a cross section data?" Tags="&lt;macroeconomics&gt;&lt;econometrics&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22436" PostTypeId="2" ParentId="17772" CreationDate="2018-06-12T21:28:53.997" Score="3" Body="&lt;p&gt;At the risk of being a bit repetitive from my earlier comments, I believe there are a few notable caveats and assumptions made in my answer. Wherever possible, I’ll try to highlight the assumptions made, and how they impact my opinions. That said, any clarification you can provide regarding what exactly your project’s scope and goals are, the more I can refine some of the literature suggestions and my takes (for what that’s worth- admittedly, not a whole lot haha).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first major point to make is that there really is a lot of variation in terminology used inside the field of decision theory. That’s partially driven by the different underlying axioms different models of utility are based on. Using a relatively well-known example, Savage’s axioms don’t assume objective probabilities need to exist for most events. This contrasts with Expected Utility theory, for example, which does directly require some notion of objective probability (whether it’s known or not) of an event’s likelihood of occurring. Therefore, if your model/paper is assuming Savage’s axioms, definitions of uncertainty and risk won’t necessarily be tied to the nuances of how well known a probability is (it allows a bit more flexibility at the real ground level). At the other extreme, Expected Utility Theory, because of the strict reliance on probabilities from the Independence axiom, assumes there’s no real difference between a known and unknown probability- through reduction, any multi-stage uncertainty collapses to a single dimension of uncertainty.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don’t mean to get too far removed from the subject at hand, but I feel it’s worth keeping in mind the high level of context dependence the definitions of these terms often have- “risk” can mean something to Savage, but something slightly different to von Neumann, and something else to Kahneman and Tversky.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The next related caveat on this terminology is in regards to the fluidity of definitions over time. Even beyond the different implications the terms have for different utility structures, different authors have used these terms in a variety of related, but subtly different ways. I think your definitions fall reasonably well inside the umbrella definitions for these terms. As long as you explicitly define how you’re going to use words like &lt;em&gt;uncertainty&lt;/em&gt;, &lt;em&gt;risk&lt;/em&gt;, and &lt;em&gt;ambiguity&lt;/em&gt;, I think you should be fine.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;**EDIT: TO CLARIFY A BIT MORE ON THIS POINT: Historically, several works have directly conflated ambiguity and uncertainty, defining them as the same concept, contrasted with risk. While this has fallen a bit out of favor it seems (using the ambiguity/risk phrasing more commonly), it would still be a historically correct definition. Hence, your definitional example you provide in the question is correct, but perhaps a bit dated. That said, &lt;a href=&quot;http://econ.sciences-po.fr/sites/default/files/Jmp_agnieszka_tymula.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here's an example from 2012 that does include the duality explicitly in their definition&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In real life, of course, most important decisions present a mixture of risk and uncertainty. Since Keynes (1921), Knight (1921) and Ellsberg (1961) distinguished between risk (known probabilities) and uncertainty/ambiguity (unknown probabilities), there have been many studies of the differences between risk and ambiguity attitudes.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Though again, this paper is a bit more outside the central decision theory core (applying the field to healthcare and medicine).&#xA;**&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The last major source of terminology variation I’ve noticed is regarding what the format of the project is. For example, elite econ journal articles published recently (a few examples provided below) tend to hew more closely with the emerging consensus definition in recent decision theory work in risk and ambiguity attitudes, and the theoretical implications. On the other hand, if your project is for lecture notes for a class, or a book chapter, then you get much more leeway in how you delineate between these similar concepts- again as long as you’re clear at the beginning. If you’re writing for a journal article in a related field, like finance or management science, then there very well be conventions in those journals that don’t conform to my experience. I speak from a pretty pure economic theory background, and while I haven’t read everything out there on the subject clearly, I’ve spent a fair amount of time working with a decent subset.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So &lt;strong&gt;What are the proper definitions in my experience?&lt;/strong&gt; Traditionally, you can consider one way of partitioning the set of all decision models into: &lt;em&gt;decisions with uncertainty&lt;/em&gt; as problems where not all outcomes are necessarily known, and &lt;em&gt;decisions with no uncertainty&lt;/em&gt; where all outcomes are deterministically known (and there are no “economic lotteries” in any stage). While there are of course many additional ways of partitioning these two subsets of problems, you can consider &lt;strong&gt;problems with uncertainty&lt;/strong&gt; as being composed of:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;i)&lt;em&gt;problems where probabilities of each outcome is known to the agent&lt;/em&gt; as models of &lt;strong&gt;risk&lt;/strong&gt;, and&lt;/p&gt;&#xA;&#xA;&lt;p&gt;ii)&lt;em&gt;problems where some probabilities are not point identified for the agent&lt;/em&gt;, which makes up models with &lt;strong&gt;ambiguity&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Again, of course, these two subsets don’t always make intuitive sense- if your agents all follow expected utility theory, then there’s no difference between (i) and (ii) from a utility perspective. Any uncertainty over the probabilities (i.e. &lt;strong&gt;ambiguity&lt;/strong&gt;) the agent faces collapses into just a compound lottery (i.e. a model of &lt;strong&gt;risk&lt;/strong&gt;). This, for example, is the issue &lt;a href=&quot;https://en.wikipedia.org/wiki/Ellsberg_paradox&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;Ellsburg Paradox&lt;/em&gt;&lt;/a&gt; “exploits” to show an intuitive failure of expected utility theory. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The “modern” definitions draw from &lt;a href=&quot;https://www.jstor.org/stable/pdf/1884324.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Ellsburg’s 1961 landmark paper (starting on page 657)&lt;/a&gt;, though it should be noted that here the notions of “ambiguity” and “risk” aren’t particularly clearly delineated, they’re defined as I described above. Other utility models started considering “ambiguity” as it’s own, independent feature of preferences largely starting in the late 1980’s. The definition of “ambiguity” becomes a bit clearer in &lt;a href=&quot;https://www.jstor.org/stable/pdf/2526866.pdf?refreqid=excelsior%3A8126619c460ad844644e6bed2b785e72&quot; rel=&quot;nofollow noreferrer&quot;&gt;Segal 1987, starting on page 176, then continuing to 177&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Ambiguous probabilities (i.e., situations where decision makers do not know the exact values of the probabilities) has some clear economic relevance… Other situations where ambiguity of the probabilities may play a significant role occur in search problems or in optimal investment problems. In all these cases, decision makers have some information about the objective probabilities, but they do not know their exact values. This paper suggests that the ambiguous lottery (x, S; 0, S) (ambiguous in the sense that the decision maker does not know the probability of S) should be considered a two-stage lottery, where the first, imaginary, stage is over the possible values of the probability of S.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;(And is then defined in far more precise detail starting on page 183.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another prominent early example of adding this sensitivity to ambiguity conceptually into the modeling framework can be found in &lt;a href=&quot;https://pdfs.semanticscholar.org/7333/ecd504c3bd4f302135480fc0aee9cf73fdf7.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Segal 1988&lt;/a&gt; , which implicitly uses the definitions for “ambiguity” and “risk” as I defined above.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;More recent papers traditionally shorten their definitions to a common theme. Using a relatively random smattering of papers I’ve seen recently, &lt;a href=&quot;http://excen.gsu.edu/fur2012/fullpapers/lplacido.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;this 2011 working paper&lt;/a&gt; defines the terms:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;developments in the theory of decision making under ambiguity (i.e., subjective uncertainty about probabilities) recognize that ambiguity is not always treated the same as a known risk&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.bbk.ac.uk/ems/research/Seminar_info/spring-2014-15-1/trautmannvdKuilen_AmbRev_april2014FINAL.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;This 2014 Handbook chapter&lt;/a&gt; similarly defines decision making under risk and ambiguity:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In many decisions under uncertainty, the decision maker has only vague information about the probabilities of potential outcomes of her actions. Following Ellsberg (1961), such situations with unknown or uncertain probabilities are often called ambiguous, to distinguish them from situations with objectively known probabilities, which are typically called risky.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Recent experimental papers, attempting to measure attitudes (usually in different specific settings) toward risk and ambiguity, have also followed in this general definition trend. For example, &lt;a href=&quot;https://onlinelibrary.wiley.com/doi/abs/10.3982/ECTA13239&quot; rel=&quot;nofollow noreferrer&quot;&gt;this work in Econometrica in 2017&lt;/a&gt; measuring the effects of different types of ambiguity on observed decision making highlights the difference between “compound risk” (just a set of two lotteries with known probabilities of winning in a row) and “ambiguity” (where one stage led to uncertainty over the true probability of winning in that stage, which varies exogenously and unknown to the individual). For example, an example of a lottery with compound risk is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Stage 1:&lt;/em&gt; flip a fair coin. If it’s heads, then go to &lt;em&gt;Stage 2a.&lt;/em&gt; If it’s tails, go to &lt;em&gt;step 2b&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Stage 2a.&lt;/em&gt; Draw a card from a perfectly shuffled standard deck of 32 cards. &lt;em&gt;If the card &lt;strong&gt;is not&lt;/strong&gt; a spade&lt;/em&gt;, then win \$100. Else, win \$0&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Stage 2b.&lt;/em&gt; Draw a card from a perfectly shuffled standard 52 card deck. &lt;em&gt;If the card &lt;strong&gt;is&lt;/strong&gt; a spade&lt;/em&gt;, then win \$100. Else, win \$0.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As you can see, while the probabilities might be dependent on previous draws, the objective likelihood is known at all stages. An example of an “ambiguous lottery,” then could be:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Stage 0:&lt;/em&gt; Draw a number $n$ randomly between $0$ and $50$, but do not show the individual playing the lottery. Then define the number of red balls in an urn as $25+n$, and the number of yellow balls in the urn as $75-n$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Stage 1:&lt;/em&gt; Draw a ball randomly from the urn and flip a fair coin. If the result is &lt;em&gt;either&lt;/em&gt; $(red, heads)$ or $(yellow, tails)$, then win \$100. Else, win \$0.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that, of course, in both cases the overall probability of winning is 50/50 in either lottery. However, sometimes we find that individuals will prefer one lottery over the other, suggesting preferences are partially formed along some other dimension.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sorry this has dragged on. I’ll get back to summarize and add a few more references in a bit, but hopefully this can start the conversation going a bit. If you have any details about the project you have in mind, then I can try and tailor what I add!&lt;/p&gt;&#xA;" OwnerUserId="13366" LastEditorUserId="13366" LastEditDate="2018-06-12T21:39:13.623" LastActivityDate="2018-06-12T21:39:13.623" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="22437" PostTypeId="2" ParentId="22408" CreationDate="2018-06-12T23:07:06.717" Score="2" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;in America, the higher your income, the higher the percent of it is spent on taxes&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Progressive taxation is even worse in many European countries. Progressive taxation is marketed by depicting grotesque disparities between the &lt;em&gt;super rich&lt;/em&gt; and the poor, but the fact is that modest levels of income (affording modest levels of purchase power) readily fall in [the top] tax brackets of over 45%. This means that the &lt;em&gt;middle class&lt;/em&gt; in those countries works approximately six months per year only to fund government's budget.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Why does much of the world still have income taxes?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Because it creates frictions which protect reactionary interests, regardless of elite's political affiliation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Progressive taxation is largely a mechanism to preserve the status quo. Indeed, progressive taxation is a huge, direct obstacle to economic mobility. That obstacle is most hindering to those who pursue most aggressively a certain combination of education and hard work.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For many centuries, suppression of knowledge was the elites' method to preserve power. Now with literacy and technology having gotten &quot;out of hand&quot; (from the perspective of religious or political elites), the modern method consists of confiscating greater portions of income from those who are most likely to uproot the configuration of power. The obsolete blackmail of &quot;&lt;em&gt;God's will and the world to come&lt;/em&gt;&quot; has been replaced by the blackmail of &quot;&lt;em&gt;social fairness&lt;/em&gt;&quot;, apropos of the ideals emanated from the French Revolution.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Is there anything (and if so, what?) that makes them better, fairer,&#xA;  or more productive than sales taxes?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I personally doubt it. Income tax is just easier to implement than sales tax (especially easier than progressive sales taxation). It is also more drastic, as it affects income destined to consumption as well as income destined to savings. That being said, I would not deem income tax fairer or more productive than sales tax.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Economics is premised on the scarcity of resources --referring to goods and services, not to currency--, and the law of supply and demand. Thus, it makes more sense to address the scarcity of goods and services through sales taxes in that, the higher the consumption of certain good by an agent, the greater extent to which he deprives others of that scarce good. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;By contrast, confiscation of income discourages efforts that could otherwise be spent toward achieving more desirable levels (in both quantity and quality) of production.&lt;/p&gt;&#xA;" OwnerUserId="18552" LastEditorUserId="18552" LastEditDate="2018-06-13T08:19:03.390" LastActivityDate="2018-06-13T08:19:03.390" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22438" PostTypeId="1" AcceptedAnswerId="26613" CreationDate="2018-06-12T23:34:04.707" Score="4" ViewCount="61" Body="&lt;p&gt;As I understand the work of Hayek, he asserts that prices encapsulate the &lt;em&gt;true&lt;/em&gt; societal worth of the item being sold by integrating the compound need for all of the ingredients and work which go into that item.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I get the notion that he concludes (though I cannot cite him verbatim on this) that in order to facilitate the greatest societal benefit one should produce what is most expensive and consume what is least expensive (which a rational actor would do anyway, thus providing a more explicit mechanistic argument for Smith's &quot;invisible hand&quot; notion).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;While I totally see this playing out in the middle and low price ranges, taken to the letter, this concept would be a directive to try and produce not high-tech, but luxury goods.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can't see this being of the greatest benefit to society, since the price of luxury goods (e.g. higher-end Montblanc stationary) derives not from the materials, and only marginally from the craftsmanship, but primarily from the brand identity and the rigidity of the niche (by virtue of which it is possible to keep supply low).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm wondering if someone who understands Hayek better than I do could either explain to me why this is in fact the choice which would best benefit society, or why this conclusion does not in fact follow from Hayek's theory.&lt;/p&gt;&#xA;" OwnerUserId="18565" LastEditorUserId="1601" LastEditDate="2019-04-21T08:32:08.217" LastActivityDate="2019-04-21T08:32:08.217" Title="Production choices in Hayek's theory of information-bearing prices" Tags="&lt;utility&gt;&lt;price&gt;&lt;information&gt;&lt;austrian&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22439" PostTypeId="2" ParentId="19289" CreationDate="2018-06-13T00:22:46.050" Score="4" Body="&lt;p&gt;Here is another example with two consumers (A and B), two goods (X and Y):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{eqnarray*} u_A(x_A, y_A) &amp;amp; = &amp;amp; \min(x_A, y_A), \ \omega_A = (1, 0) \\ u_B(x_B, y_B) &amp;amp; = &amp;amp; \min(x_B, y_B), \ \omega_B = (0, 1) \end{eqnarray*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this case, every feasible allocation $((x_A, y_A), (x_B, y_B))$ satisfying $y_A = x_A$ is a competitive equilibrium, and is supported by price vectors $(p_x, p_y) \in  \mathbb{R}^2_+$ such that $p_xx_A +p_yy_A = p_x$ holds. In other words, every $(p_x, p_y) \in  \mathbb{R}^2_+ \setminus \{(0,0)\}$ supports some allocation i.e. $((x_A, y_A), (x_B, y_B)) = \left(\left(\dfrac{p_x}{p_x+p_y}, \dfrac{p_x}{p_x+p_y}\right), \left(\dfrac{p_y}{p_x+p_y}, \dfrac{p_y}{p_x+p_y}\right)\right)$  as a competitive equilibrium.&lt;/p&gt;&#xA;" OwnerUserId="11824" LastEditorUserId="11824" LastEditDate="2018-06-13T03:11:43.667" LastActivityDate="2018-06-13T03:11:43.667" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22440" PostTypeId="1" AcceptedAnswerId="22446" CreationDate="2018-06-13T04:11:56.720" Score="1" ViewCount="44" Body="&lt;p&gt;Can someone tell me how to find the 'delivery price' on a futures exchange? This is the one detail I cannot find on a real futures exchange.&lt;/p&gt;&#xA;" OwnerUserId="6244" LastActivityDate="2018-06-16T22:47:59.470" Title="Futures delivery price" Tags="&lt;finance&gt;" AnswerCount="1" CommentCount="8" ClosedDate="2018-06-26T12:58:14.087" ContentLicense="CC BY-SA 4.0" />
  <row Id="22441" PostTypeId="1" CreationDate="2018-06-13T04:34:21.550" Score="2" ViewCount="79" Body="&lt;p&gt;In the United States it is said that many railroad rights of way are held by railroad corporations in easement rather than in fee simple. It seems strange that it would be done that way when one considers that many railroad tracks continue to function for well over a century. Some tracks have probably been used for more than 150 years. Perhaps the only reason we cannot (yet) say that they typically last more than 250 years, or more than 2000 years, is that railways have not yet existed long enough for us to know that. So why would a railroad buy an easement rather than buying the land unconditionally? Might it be because in the 19th and early 20th centuries people thought railroads would be replaced by some other technology within a few decades?&lt;/p&gt;&#xA;" OwnerUserId="10577" LastActivityDate="2018-06-14T09:53:00.367" Title="Why are many railroad rights-of-way held in easement rather than in fee simple?" Tags="&lt;land&gt;&lt;transportation&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22442" PostTypeId="1" AcceptedAnswerId="22445" CreationDate="2018-06-13T04:54:11.270" Score="1" ViewCount="262" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/V7YHL.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/V7YHL.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Please look at only part ii.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I wrote budget constraint $x_1+x_2=10-f$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When I don’t pay fee, my optimal value values${}=(1,1).$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the case of free disposal, $b_1=b_2=5$ but I consume only $x_1=0$ and $x_2=5.$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However I couldn’t find the value of $f.$ How can I find?&lt;/p&gt;&#xA;" OwnerUserId="18566" LastEditorUserId="10577" LastEditDate="2018-06-13T23:26:04.763" LastActivityDate="2018-06-13T23:26:04.763" Title="Consumer theory with lump sum fee" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="22443" PostTypeId="2" ParentId="22211" CreationDate="2018-06-13T05:26:54.223" Score="4" Body="&lt;p&gt;We'll first find manager's strategy. Manager of the charity chooses $S$ and $P$ by solving the following problem :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{eqnarray*}  \max_{S, P} &amp;amp; \ \frac{P^a S^{1-a}}{B^a} \\  \text{s.t.} &amp;amp; \ P+S = B \end{eqnarray*}&#xA;where $B = D_1+ D_2$.&#xA;Solving it we get the manager's strategy as a function of donations $D_1, D_2$ as :&#xA;\begin{eqnarray*} P &amp;amp;=&amp;amp; aB = a(D_1+D_2)\\S &amp;amp;= &amp;amp;(1-a)B = (1-a)(D_1+D_2) \end{eqnarray*}&#xA;Given the charity's strategy, donors 1 and 2 choose donations $D_1^*$ and $D_2^*$ in such a way that&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;$D_1^*$ solves &#xA;\begin{eqnarray*} \max_{c_1, D_1} &amp;amp; \ c_1a(D_1+D_2^*) \\ \text{s.t.} &amp;amp; \ c_1 + D_1 = W \end{eqnarray*}&lt;/li&gt;&#xA;&lt;li&gt;$D_2^*$ solves &#xA;\begin{eqnarray*} \max_{c_2, D_2} &amp;amp; \ c_1a(D_1^*+D_2) \\ \text{s.t.} &amp;amp; \ c_1 + D_2 = W \end{eqnarray*}&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Solving them we get $D_1^* = D_2^* = \dfrac{W}{3}$. Consequently, manager's response strategy yields that $P^* = \dfrac{2aW}{3}$ is spent on programs in the equilibrium outcome. Utility of both the donors in equilibrium is equal to $\dfrac{4aW^2}{9} $. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, the equilibrium we found is not efficient. If we consider an alternative donation plan $D_1' = D_2' = \dfrac{W}{2}$, the amount spend on programs will go up to  $P' = aW$. Utility of both the donors will now be $\dfrac{aW^2}{2}$ which is higher than before. Also, manager will be better off because he received higher donations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now you can try (c) yourself.&lt;/p&gt;&#xA;" OwnerUserId="11824" LastEditorUserId="11824" LastEditDate="2018-06-13T05:34:15.773" LastActivityDate="2018-06-13T05:34:15.773" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22445" PostTypeId="2" ParentId="22442" CreationDate="2018-06-13T09:20:13.210" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Consumer's problem in default scenario:&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;\begin{eqnarray*} \max_{x_1, x_2} &amp;amp; \ \frac{x_2}{(1+x_1)^2} \\ \text{s.t.} &amp;amp; \ x_1 + x_2 \leq 10 \\&amp;amp; \ 0 \leq x_2 \leq x_1  \end{eqnarray*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can easily show that the solution will satisfy $x_2 = x_1$, and therefore we can rewrite the above problem as:  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{eqnarray*} \max_{x_1} &amp;amp; \ \frac{x_1}{(1+x_1)^2} \\ \text{s.t.} &amp;amp; \ 0 \leq x_1 \leq 5   \end{eqnarray*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Solving this problem we get $x_1= 1$. Consequently, $x_2 = 1$ and the utility of the consumer in optimum is $\dfrac{1}{4}$.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Consumer's problem with a possibility of freely disposing good 1 after paying the fee:&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;\begin{eqnarray*} \max_{x_1, x_2} &amp;amp; \ x_2 \\ \text{s.t.} &amp;amp; \ x_1 + x_2 \leq m \\&amp;amp; \ 0 \leq x_2 \leq x_1  \end{eqnarray*}&#xA;where $m$ is the net income of the consumer after paying the lump-sum fee.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Solution to this problem is $\left(\dfrac{m}{2}, \dfrac{m}{2}\right)$, and the utility of the consumer in optimum is $\dfrac{m}{2}$. Comparing this with the default scenario yields that consumer is indifferent between the scheme and the default when $m = \frac{1}{2}$. Therefore, the maximum willingness to pay to dispose the good at $0$ price is $10 - \frac{1}{2} = 9.5$.&lt;/p&gt;&#xA;" OwnerUserId="11824" LastActivityDate="2018-06-13T09:20:13.210" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22446" PostTypeId="2" ParentId="22440" CreationDate="2018-06-13T10:52:03.240" Score="1" Body="&lt;p&gt;Different futures contracts have different delivery/final settlement machanisms. You need to look up each contract’s specifications.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The U.S. Treasury bond/note futures are an example of a complicated delivery mechanism. There are rules that set the basket of eligible bonds to delivery, as well as the factor relating the futures price to the price paid for the actual bond. That is, the price depends on what bond you deliver.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the comments, you added more information. The key to understanding futures contracts is that holders get a daily profit/loss each day based on the change in the final settlement price. This means that even though the price for final delivery will likely be different than the price at which you entered the futures contract, you will get a gain/loss from the settlement process that matches the difference. The net result is that you effectively buy or sell at the fixed futures price you entered the position at; you just do not know the sequence of payments that occur as part of the settlement process.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, assume that you want to buy a commodity that is traded on a futures exchange. You enter into a long futures position at price of \$1000. If the futures price fell to 900 by the delivery date, you would pay \$900 for the delivery. However, you woukd have lost \$100 as a result of the daily settlement process on your long futures position. Your total cost is \$1000 - where you entered the position. The fact that there are up front gains/losses creates some complexity for fixed income, but that is a second order effect.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you search around, you should be able to find materials explaining the difference between using futures to hedge versus a forward sale/purchase. That might help clear up your undertanding.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastEditorUserId="12891" LastEditDate="2018-06-16T22:47:59.470" LastActivityDate="2018-06-16T22:47:59.470" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="22447" PostTypeId="2" ParentId="22435" CreationDate="2018-06-13T12:24:59.240" Score="0" Body="&lt;p&gt;Strictly speaking, your estimates for $\beta_1$ and $\beta_2$ will suffer from endogeneity if you can't give it a causal interpretation. That is, Environmental Performance has a causal effect on final consumption. Since you are only observing correlations in the data, the data themselves won't tell you anything about causality. This is what theory is for, i.e. you have to make a theoretical argument that your econometric model captures your research question in a sensible manner. An obvious extension to your model would be to eliminate all differences due to GDP/capita i.e. add those to your model. Just think about all potential variables that could have an effect on aggregate consumption &lt;em&gt;and&lt;/em&gt; on environmental quality.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By the way, why do you include $S$ in logs? In your model $\beta_1$ gives you the percentage change of 1 percent higher EPI. I don't know the EPI indicator, but very often parameters to aggregate indices are hard to interpret, because it's often not clear what it means if the index value increases by one. This might be even more complicated if you give it a relative interpretation. The squared term makes things even more complicated.&lt;/p&gt;&#xA;" OwnerUserId="17735" LastActivityDate="2018-06-13T12:24:59.240" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22448" PostTypeId="2" ParentId="22432" CreationDate="2018-06-13T12:47:30.553" Score="1" Body="&lt;p&gt;Let $\pi_1(q_1, q_2), \pi_2(q_1, q_2)$ denotes firm 1's profit and firm 2's profit respectively when firm 1 produces $q_1$ and firm 2 produces $q_2$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In part (i), show that the given strategy profile is a Nash equilibrium by simply verifying the following :&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Firm 1 is playing it's best response to firm 2's strategy i.e.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;$$\pi_1(q_1^c, q_2^c) \geq \pi_1(q_1, q_2^*) \ \ \forall q_1 \neq q_1^c$$&#xA;where $q_2^* &amp;gt; q_2^c$.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Firm 2 is playing it's best response to firm 1's strategy i.e.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;$$\pi_2(q_1^c, q_2^c) \geq \pi_2(q_1^c, q_2) \ \ \forall q_2$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In part (ii), you can show that the given strategy is not subgame perfect  by simply showing :&#xA;$$\exists q_1 \neq q_1^c, \ \pi_2(q_1, q_2^*) &amp;lt; \max_{q_2} \pi_2(q_1, q_2) $$&lt;/p&gt;&#xA;" OwnerUserId="11824" LastActivityDate="2018-06-13T12:47:30.553" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="22449" PostTypeId="1" CreationDate="2018-06-13T14:01:23.427" Score="1" ViewCount="63" Body="&lt;p&gt;Can you explain why the current account of a country is a relevant indicator for the stability of its economic development? I read about this but do not exactly see the link that qualifies it as a indicator. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Afteredit:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Wikipedia says this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A current account surplus indicates that the value of a country's net foreign assets (i.e. assets less liabilities) grew over the period in question, and a current account deficit indicates that it shrank.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I do not understand why these points say us something about the stability of the development. (Sorry, that I didn't manage to express clearly from the beginning but I'm no native speaker.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is my problem now more evident?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Greetings Rico&lt;/p&gt;&#xA;" OwnerUserId="18572" LastEditorUserId="18572" LastEditDate="2018-06-14T15:45:25.997" LastActivityDate="2018-06-14T15:45:25.997" Title="Balance of activities" Tags="&lt;macroeconomics&gt;" AnswerCount="0" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="22450" PostTypeId="2" ParentId="22441" CreationDate="2018-06-13T15:49:50.157" Score="1" Body="&lt;p&gt;Though these are only educated guesses (contract law is not my forte) I'd suppose that there might be a few reasons why this is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's best able to handle the competing interests of the parties involved. Historically, the US Federal Government was more willing to grant public lands to railroads (particularly in the little-settled west). However, due to shifts in the general public's will over the later part of the 19th century (stemming, apparently, from an 1871 decision &lt;em&gt;Hash v. United States&lt;/em&gt;, which granted more explicit rights over the land to railroad companies) it became more difficult to either deed massive tracts of land to the railroad companies, or lease it to them at below market-competitive rates. (Note- much of this taken from &lt;a href=&quot;http://lawreview.colorado.edu/wp-content/uploads/2013/11/9.-Roberts_s.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;this source&lt;/a&gt;.) Ultimately, this leads to a hold-up problem. The country needed railroads to cover the vast interior to ensure development, but without the earlier subsidies, laying tracks for thousands of miles was prohibitively expensive. Therefore, rights-of-way allow for a sort of middle ground, allowing cheap access to the land for the beneficial railroad lines, without giving them as large of subsidies as previously done.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It should also be noted, &lt;a href=&quot;https://scholarship.law.berkeley.edu/cgi/viewcontent.cgi?article=1624&amp;amp;context=elq&quot; rel=&quot;nofollow noreferrer&quot;&gt;as in this source&lt;/a&gt;, that these agreements are the result of an incredibly tangled history, where many different private players, in addition to state and federal governments, all had vested interests in the outcomes. Newly formed territories and states needed the railroads to allow for their development; as linking commerce with reliable, cheap and relatively fast transportation was shown to be incredibly useful with the 1825 completion of the Erie Canal. Therefore, states had incentives to lower the development costs for railroads as much as possible. However, much of the burden of the cost fell to the federal government (who owned the lands being deeded), which was influenced by other individuals hesitant to provide such lucrative benefits for private corporations. Thus, the rights of way agreements came from a compromise-position.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note, &lt;a href=&quot;https://scholarship.law.ufl.edu/cgi/viewcontent.cgi?article=1123&amp;amp;context=facultypub&quot; rel=&quot;nofollow noreferrer&quot;&gt;this source&lt;/a&gt; puts the major reason for the shift in agreement structure as federal dissatisfaction with how the railroads were handling their earlier deeded land. Instead of selling the granted land for commercial purposes, many railroads held onto the land (assuming it would only become more valuable), which delayed development.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, by granting these easements, &lt;a href=&quot;https://illinoislawreview.org/wp-content/ilr-content/articles/2002/5/Heftman.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;governments were able to ensure other public utilities used the same general routes (see page 1406)&lt;/a&gt;- something that railroads could have foreclosed had they owned the land outright.&lt;/p&gt;&#xA;" OwnerUserId="13366" LastActivityDate="2018-06-13T15:49:50.157" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22451" PostTypeId="1" CreationDate="2018-06-13T18:07:42.977" Score="1" ViewCount="59" Body="&lt;p&gt;Should mean wages increase with inflation? &#xA;If not, why? Has this profound consequences in the redistribution of wealth?&#xA;(not an expert in economics...I apologise is the question is too naif)&lt;/p&gt;&#xA;" OwnerUserId="18575" LastActivityDate="2018-06-13T21:42:22.490" Title="Should mean wages increase with inflation?" Tags="&lt;inflation&gt;&lt;wages&gt;&lt;wealth&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22452" PostTypeId="2" ParentId="22451" CreationDate="2018-06-13T19:32:43.243" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Should mean wages increase with inflation? If not, why?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;No. Inflation is not the only factor that determines wages. Inflation has to do with the &lt;em&gt;nominal&lt;/em&gt; value of wages, but these also entail components pertaining to the &lt;em&gt;real&lt;/em&gt; value of work.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here are three examples that tend to push mean wages down,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(1) technology, to the extent that it replaces human labor;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(2) foreign markets may lure high skilled workers (or, for what matters, workers with the highest salaries) to emigrate, causing -&lt;em&gt;caeteris paribus&lt;/em&gt;- mean wages to decrease;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(3) public policy (whether it stems from unions or from policies aimed at reducing the number of unemployed) might prompt -otherwise unneeded- entry of more people in the labor market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Other factors would have the effect of pushing mean wages up. For instance, the converse of (2) (that is, emigration only of workers earning the lowest salaries), unavailability of workers with high productivity, and so forth.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Has this profound consequences in the redistribution of wealth?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;That depends on the particularities of the economy being analyzed: what fiscal policy is implemented; whether households own significant portions of capital; the sensitivity and preponderance of different sectors in the economy; etc.&lt;/p&gt;&#xA;" OwnerUserId="18552" LastActivityDate="2018-06-13T19:32:43.243" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22453" PostTypeId="2" ParentId="22451" CreationDate="2018-06-13T21:42:22.490" Score="1" Body="&lt;p&gt;Inflation &lt;em&gt;should&lt;/em&gt; increase wages in the long run. Wages are the price for labor and all prices increase with inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, in practice wages tend to stay flat despite inflation for a variety of reasons.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Menu costs- it might take time to rework all existing wages. &lt;/li&gt;&#xA;&lt;li&gt;Some wages are locked into long term contracts. &lt;/li&gt;&#xA;&lt;li&gt;Wages, once increased, are difficult to decrease, so employers are reluctant to increase them.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;This is not a limiting list.&lt;/p&gt;&#xA;" OwnerUserId="4185" LastActivityDate="2018-06-13T21:42:22.490" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22454" PostTypeId="1" CreationDate="2018-06-13T22:26:13.653" Score="0" ViewCount="41" Body="&lt;p&gt;What portion of our annual deficit is financed by bonds?  Compared to say, treasury notes (such as checks and printed currency), or private lending?&lt;/p&gt;&#xA;" OwnerUserId="15848" LastActivityDate="2018-06-14T01:26:55.780" Title="What portion of our annual deficit is financed by bonds?" Tags="&lt;government-debt&gt;&lt;bonds&gt;" AnswerCount="1" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="22455" PostTypeId="2" ParentId="22300" CreationDate="2018-06-14T00:12:00.547" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Should housing be considered a form of capital for the purpose of&#xA;  capital gains taxation?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Chamley-Judd's proposition aims at &lt;a href=&quot;https://en.wikipedia.org/wiki/Optimal_capital_income_taxation#The_Chamley%E2%80%93Judd_zero_capital_income_tax_result&quot; rel=&quot;nofollow noreferrer&quot;&gt;avoid[ing] unlimited growth in tax compounding as the horizon extends&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Criticism of the Chamley-Judd model is centered on the &quot;&lt;a href=&quot;https://en.wikipedia.org/wiki/Optimal_capital_income_taxation#The_Chamley%E2%80%93Judd_zero_capital_income_tax_result&quot; rel=&quot;nofollow noreferrer&quot;&gt;assumption regarding infinite lives&lt;/a&gt;&quot;. But I think the distinction between short-term and long-term favors the idea of treating housing as a form of capital. From the standpoint of temporariness, housing qualifies as capital in that it largely meets the characterizations of a fixed factor; whereas it lacks both the flexibility of a variable factor (like labor), and liquidity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Moreover, the fact that a house is the worker's property (whereas, say, an industrial factory is the investor's property) does not automatically negate that the house may be equivalent to worker's fixed factor of production. Hence, taxation should not discriminate between uses of a property.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;does the main result that capital income should be untaxed include&#xA;  income from housing appreciation?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I don't see why not. At first glance, that may seem counter-intuitive because we are used to the notion of depreciation and/or obsolescence of capital. However, appreciation of capital may occur independently of what use (business/industrial vs. residential) is made of that asset. Two scenarios where the market value of a facility or residential property could increase are:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(1) corporations/industries compete to establish their respective headquarters/factories in that facility's location; and&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(2) a catastrophe that renders large, neighboring areas inoperative, too hazardous for continued operation, or for which replacement/restoration is too expensive.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In such instances, it is hard to justify why taxation should discriminate against some uses of a type of fixed assets.&lt;/p&gt;&#xA;" OwnerUserId="18552" LastActivityDate="2018-06-14T00:12:00.547" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="22456" PostTypeId="2" ParentId="19069" CreationDate="2018-06-14T01:22:13.037" Score="2" Body="&lt;p&gt;It might be worth stating that : i&lt;strong&gt;f $u$ is concave (as a multi-dimensional function), it will yield an indirect utility function that is concave in $m$.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If $u:\mathbb{R}^n_+\rightarrow \mathbb{R}$ is concave, then indirect utility function $v:\mathbb{R}^n_+ \times \mathbb{R}_+\rightarrow \mathbb{R}$ defined as&#xA;$v(p, m) := \displaystyle\max_{x\in B(p, m)} u(x)$ is also concave in $m$. Here $B(p, m) = \{x \in \mathbb{R}^n_+ : p\cdot x \leq m\}$ is the budget set. Let $x^d(p, m)$ denotes the solution to the maximization problem $\displaystyle\max_{x\in B(p, m)} u(x)$ so that $v(p, m) = u(x^d(p, m))$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider any arbitrary $m'$, and $m''$ and a $\lambda \in [0, 1]$,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$p\cdot x^d(p, m') \leq m'$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$p\cdot x^d(p, m'') \leq m''$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$p\cdot (\lambda x^d(p, m') + (1-\lambda)x^d(p, m'')) \leq \lambda m' + (1-\lambda) m'' \tag{1}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consequently,&#xA;\begin{eqnarray*} v(p, \lambda m' + (1-\lambda)m'')&amp;amp; = &amp;amp; u(x^d(p, \lambda m' + (1-\lambda)m'')) &amp;amp; \\ &amp;amp; \geq &amp;amp; u(\lambda x^d(p, m') + (1-\lambda)x^d(p, m'')) &amp;amp; \ \ [by \ (1)] \\ &amp;amp; \geq &amp;amp; \lambda  u(x^d(p, m')) + (1-\lambda)u(x^d(p, m'')) &amp;amp; \ \ [by \ \text{concavity of } u]  \\ &amp;amp; = &amp;amp; \lambda  v(p, m') + (1-\lambda)v(p, m'') &amp;amp; \end{eqnarray*}&lt;/p&gt;&#xA;" OwnerUserId="11824" LastActivityDate="2018-06-14T01:22:13.037" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22457" PostTypeId="2" ParentId="22454" CreationDate="2018-06-14T01:26:55.780" Score="1" Body="&lt;p&gt;Unfortunately, there doesn't appear to be a single site that clearly identifies the data you seek. However, that information does appear in a couple of different sources, (in a couple of different formats):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.treasury.gov/resource-center/data-chart-center/Pages/investor_class_auction.aspx&quot; rel=&quot;nofollow noreferrer&quot;&gt;This source from the Treasury&lt;/a&gt; gives a list of the values of all different types of securities auctioned off at every recent treasury auction in Excel spreadsheets&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.treasury.gov/resource-center/data-chart-center/tic/Pages/ticsec2.aspx&quot; rel=&quot;nofollow noreferrer&quot;&gt;This source&lt;/a&gt; gives the relative holdings for domestic and foreign agents, however it doesn't break down the data into as clear specifics for tyeps of debt held.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.treasury.gov/resource-center/data-chart-center/quarterly-refunding/Pages/TBAC-Discussion-Charts.aspx&quot; rel=&quot;nofollow noreferrer&quot;&gt;Finally, these presentations&lt;/a&gt; give overviews (in the &quot;Financing&quot; section of each presentation) of the total value of each type of bond that was issued, and the corresponding value of each typoe that matured.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope that helps a bit!&lt;/p&gt;&#xA;" OwnerUserId="13366" LastActivityDate="2018-06-14T01:26:55.780" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="22458" PostTypeId="1" AcceptedAnswerId="22466" CreationDate="2018-06-14T01:39:36.453" Score="-1" ViewCount="465" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/n35Dv.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/n35Dv.png&quot; alt=&quot;Exercise &quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I completely stuck to the last part of this exercise. I cannot understand how can I determine an allocative efficiency result.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/6MTFL.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/6MTFL.png&quot; alt=&quot;Picture&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help will be appreciated. Thank you. &lt;/p&gt;&#xA;" OwnerUserId="18244" LastActivityDate="2018-06-16T00:58:25.897" Title="Profit maximization and allocative efficiency result" Tags="&lt;microeconomics&gt;&lt;self-study&gt;&lt;profit-maximization&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22459" PostTypeId="2" ParentId="22441" CreationDate="2018-06-14T09:53:00.367" Score="0" Body="&lt;p&gt;I suspect that part of the answer lies in the following (although I haven't been able to find a definitive source).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Over the 19th century, US railways spread over huge distances (eg the &lt;a href=&quot;https://en.wikipedia.org/wiki/First_Transcontinental_Railroad&quot; rel=&quot;nofollow noreferrer&quot;&gt;first transcontinental railway&lt;/a&gt; was built during 1863-69).   Since railways often passed through range land on which cattle were grazing, the problem arose as to how to deal with trains being blocked by cattle on the track. Fencing railways over such long distances would have been very expensive, especially before barbed wire (for which &lt;a href=&quot;https://historyengine.richmond.edu/episodes/view/6265&quot; rel=&quot;nofollow noreferrer&quot;&gt;a key patent was filed in 1874&lt;/a&gt;) came into use. Instead, the solution adopted was to fit locomotives with &lt;a href=&quot;https://en.wiktionary.org/wiki/cowcatcher&quot; rel=&quot;nofollow noreferrer&quot;&gt;cowcatchers&lt;/a&gt;, &lt;a href=&quot;https://www.quora.com/Why-dont-the-UK-steam-trains-have-any-cowcatchers&quot; rel=&quot;nofollow noreferrer&quot;&gt;common in the US but rare for example in the UK&lt;/a&gt; where distances are much shorter and railways are almost always fenced. Thus the technology was not well adapted to support a legal arrangement with a division of ownership between the railway and the surrounding land.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that the question can also be asked from the point of view of the original landowner: why would they prefer not to sell a strip of land to a railway company?  From their point of view, a concern might have been to avoid liability to the railway company for any consequences of their cattle straying on the track.&lt;/p&gt;&#xA;" OwnerUserId="1417" LastActivityDate="2018-06-14T09:53:00.367" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22460" PostTypeId="2" ParentId="17772" CreationDate="2018-06-14T12:50:30.997" Score="1" Body="&lt;p&gt;At the risk of spamming this question- this answer focuses more closely on the papers I've come across for models of uncertainty, risk, and ambiguity in the broader finance landscape. Note- this isn't my primary area of study, so this almost certainly isn't a complete, or even necessarily representative sample of the work there. Similarly, these papers are more likely to at least be somewhat tied to the economics literature, but then again, so is the broader field of decision theory.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;EXPERIMENTAL PAPERS&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Here, we propose a behavioral framework, ambiguity aversion, to help better understand the cause of equity market home bias. Simply put, we argue that ambiguity aversion inhibits people from investing in unfamiliar companies. Unlike previous studies, we use an experimental design with real world assets and test for ambiguity aversion instead of using fictitious assets or simply showing home bias without an explanation... &lt;em&gt;Decision theorists have defined and modeled ambiguity in several ways. The most intuitive way of defining ambiguity is that the individual is uncertain about the distribution of the risk (Knight 1921). More uncertain the individual is about the distribution implies a higher level of ambiguity.&lt;/em&gt; [Emphasis mine]&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;From &lt;a href=&quot;http://people.hss.caltech.edu/~noah/research/papers/Myung%20-%20home%20bias%2028MAY09.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Ambiguity Aversion in Asset Market: Experimental Study of Home Bias (2009)&lt;/a&gt; (Using ambiguity aversion to explain the home-bias puzzle in finance)&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Ambiguity preferences are important to explain human decision-making in many areas in economics and finance... In many circumstances of everyday life, people take decisions in uncertain environments. In most situations, the probabilities of the possible outcomes are only vaguely known to decision makers, if at all. Since the seminal works of Knight (1921) and Ellsberg (1961), the absence of precise information on probabilities is referred to as ambiguity, and has been recognized as a form of uncertainty distinct from the standard notion of risk.&#xA;  Preferences towards ambiguity – and ambiguity aversion in particular – have shown to be an important determinant of individual decision-making.1&#xA;  Incorporating ambiguity preferences in economic models helps to explain a variety of phenomena in economics and finance that cannot be attributed to risk aversion alone...&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;From &lt;a href=&quot;https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2659596&quot; rel=&quot;nofollow noreferrer&quot;&gt;Measuring Ambiguity Preferences: A New Ambiguity Preference Module, 2016&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;GENERAL EMPIRICAL PAPERS:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Households must consider both risk and ambiguity when making investment decisions. Risk refers to events for which the probabilities of the future outcomes are known; ambiguity refers to events for which the probabilities of the future outcomes are unknown. Ellsberg (1961) argues that most people are ambiguity-averse, that is, they prefer a lottery with known probabilities to a similar lottery with unknown probabilities, and numerous theoretical studies explore the implications of ambiguity for economic behavior. In particular, a large body of theory suggests that ambiguity aversion can explain several household portfolio choice puzzles.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;From &lt;a href=&quot;https://www.sciencedirect.com/science/article/pii/S0304405X16000040&quot; rel=&quot;nofollow noreferrer&quot;&gt;Ambiguity aversion and household portfolio choice puzzles: Empirical evidence (2016)&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;We introduce a simple, easy to implement instrument for jointly eliciting risk and ambiguity attitudes. Using this instrument, we structurally estimate a two-parameter model of preferences. Our findings indicate that ambiguity aversion is significantly overstated when risk neutrality is assumed. This highlights the interplay between risk and ambiguity attitudes as well as the importance of joint estimation... Individuals face uncertainty daily. People must evaluate the likelihood of uncertain future outcomes, such as whether a business venture will succeed or fail, the future performance of a stock, or whether their vacation will be ruined by rain. In cases where the outcomes are not accompanied by objective probabilities, the normative approach of Subjective Expected Utility (SEU) theory introduced by (Savage, 1954) has traditionally been used. In this framework, an individual behaves as though she holds a single (subjective) prior over all states of the world and maximizes the expected value of utility given this prior. Ellsberg (1961), however, proposed that most individuals treat ambiguous uncertainty differently than objective risk.1 In particular, he argued that people exhibit a significant degree of ambiguity aversion, placing a premium on outcomes for which probabilities are known.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;From &lt;a href=&quot;http://home.uchicago.edu/jlist/papers/ambiguityaversion.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Estimating Individual Ambiguity Aversion: A Simple Approach, 2015&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;We introduce a tractable method for measuring ambiguity attitudes, which requires only three observations and five minutes per subject, and we apply this method in a large representative sample. In addition to ambiguity aversion, we confirm a-insensitivity, a new ambiguity component recently found in laboratory studies. A-insensitivity means that people insufficiently discriminate between different levels of likelihood, often treating all likelihoods as fifty-fifty, which results in the overweighting of extreme events. Our ambiguity measurements can predict real economic decisions of the subjects; specifically a-insensitivity has a negative relation with stock market participation and private business ownership. Surprisingly, ambiguity aversion is not significantly related to stock market participation, except under high ambiguity perception&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;From &lt;a href=&quot;https://pubsonline.informs.org/doi/abs/10.1287/mnsc.2015.2198&quot; rel=&quot;nofollow noreferrer&quot;&gt;Ambiguity Attitudes in a Large Representative Sample, 2015&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;We match administrative panel data on portfolio choices with survey data on preferences over ambiguity. We show that ambiguity averse investors bear more risk, due to a lack of diversiÖcation. In particular, they exhibit a form of home bias that leads to higher exposure to the domestic relative to the international stock market. While more sensitive to market factors, their returns are on average higher, suggesting that ambiguity averse investors need not be driven out of the market for risky assets... Ambiguity has been widely studied both theoretically and experimentally in the past decades...&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;From &lt;a href=&quot;https://www.tse-fr.eu/sites/default/files/TSE/documents/doc/wp/2017/wp_tse_862.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Ambiguity Preferences and Portfolio Choices: Evidence from the Field (2017)&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;THEORY PAPERS:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;We present a new approach that enables investors to seek a reasonably robust policy for portfolio selection in the presence of rare but high-impact realization of moment uncertainty. In practice, portfolio managers face difficulty in seeking a balance between relying on their knowledge of a reference financial model and taking into account possible ambiguity of the model. Based on the concept of Distributionally Robust Optimization (DRO), we introduce a new penalty framework that provides investors flexibility to define prior reference models using moment information and accounts for model ambiguity in terms of “extreme” moment uncertainty.... Thus, the need arises to take into account additional levels of uncertainty: model uncertainty, also known as model “ambiguity”. Ellsberg [14] has also found that decision makers in fact hold aversion attitudes toward the ambiguity of models. As a classical example, even with lower expected return, investors have higher preference for investments that are geographically closer due to their better understanding of the return distribution.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;From &lt;a href=&quot;https://link.springer.com/article/10.1007/s10898-012-9969-1&quot; rel=&quot;nofollow noreferrer&quot;&gt;Portfolio selection under model uncertainty: a penalized moment-based optimization approach (2013)&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In this paper, we consider the problem of finding optimal portfolios in cases when the underlying probability model is not perfectly known. For the sake of robustness, a maximin approach is applied which uses a ”confidence set” for the probability distribution. The approach shows the tradeoff between return, risk and robustness in view of the model ambiguity... &lt;strong&gt;In his 1921 book Knight [1921], the American economist Frank Knight made a famous distinction between ”risk” and ”uncertainty”. In Knight’s view, ”risk” refers to situations where the decision-maker can assign mathematical probabilities to the randomness, which he is faced with. In contrast, Knight’s ”uncertainty” refers to situations when this randomness cannot be expressed in terms of specific mathematical probabilities. Since the days of Knight, the terms have changed. As introduced by Ellsberg [1961], we refer today to the ambiguity problem if the probability model is unknown and to the uncertainty problem, if the model is known, but the realizations of the random variables are unknown.&lt;/strong&gt; [Bolding mine, perhaps the most direct to your question]&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;From &lt;a href=&quot;http://homepage.univie.ac.at/georg.pflug/science/technicalreports/AmbiguityinPortfolioSelection2.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Ambiguity in portfolio selection&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The most familiar model of choice under uncertainty follows Savage (1954) in positing that agents maximize expected utility according to subjective priors.&#xA;  However, Knight (1939), Ellsberg (1961) and others argue that agents distinguish&#xA;  between risk (known probabilities) and ambiguity (unknown probabilities), and may display aversion to ambiguity, just as they display aversion to risk.1 The financial literature, while admitting the possibility that some individuals might be averse to ambiguity, has largely ignored the implications for financial markets.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;From &lt;a href=&quot;https://pdfs.semanticscholar.org/51eb/509be53ab5ff3f30a64b9512fef1a78a2ce8.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Ambiguity in Asset Markets: Theory and Experiment&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The Ellsberg paradox suggests that people behave differently in risky situations — when they are given objective probabilities — than in ambiguous situations when they are not told the odds (as is typical in financial markets). Such behavior is inconsistent with subjective expected utility theory (SEU), the standard model of choice under uncertainty in financial economics. This article reviews models of ambiguity aversion. It shows that such models — in particular, the multiple-priors model of Gilboa and Schmeidler — have implications for portfolio choice and asset pricing that are very different from those of SEU and that help to explain otherwise puzzling features of the data.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;From &lt;a href=&quot;https://web.stanford.edu/~schneidr/review20.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;AMBIGUITY AND ASSET MARKETS, 2010&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In contrast to the Bayesian approach to estimation error, where there is typically a single prior and the investor is neutral to ambiguity, we consider the case where the investor has multiple priors and is averse to ambiguity... We illustrate how to use the multi-prior model with ambiguity aversion by considering the portfolio problem of a fund manager allocating wealth across eight international equity indices; our empirical analysis suggests that portfolios that incorporate aversion to parameter and model uncertainty tend to over-weight the risk-free asset, are more stable over time, and deliver a higher out-of sample Sharpe ratio than the portfolios from both classical and Bayesian models... The Bayesian decision-maker, however, is assumed to have only a single prior or, equivalently, to be neutral to uncertainty in the sense of Knight (1921). Given the difficulty in estimating moments of asset returns, the sensitivity of portfolio weights to the choice of a particular prior, and the substantial evidence from experiments that agents are not neutral to ambiguity (Ellsberg (1961)), it is important to consider investors with multiple-priors who are averse to this ambiguity, and hence, desire robust portfolio rules that work well for a set of possible models.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;From &lt;a href=&quot;https://www.jstor.org/stable/4123485&quot; rel=&quot;nofollow noreferrer&quot;&gt;Portfolio Selection with Parameter and Model Uncertainty: A Multi-Prior Approach, 2007&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;CONCLUSION&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sorry there's just a lot of text there- I tried to pull out early sections that might give you a flavor of their definitions for the different terms, and how they were applying them. If there are any more big ones, I'll make sure to update it! Hope this helps aid in your project!!&lt;/p&gt;&#xA;" OwnerUserId="13366" LastActivityDate="2018-06-14T12:50:30.997" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22461" PostTypeId="1" CreationDate="2018-06-14T13:50:16.630" Score="2" ViewCount="131" Body="&lt;p&gt;I understand how to calculate volatility and how to calculate call or put price.&#xA;However I don't understand something about input parameters.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For an example.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://finance.yahoo.com/quote/AAPL180817C00190000?p=AAPL180817C00190000&quot; rel=&quot;nofollow noreferrer&quot;&gt;enter link description here&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At the moment I am writing this post, implied volatility for Appl with 190 Strike Call is 22,69%. My question is, based on what TERM? (Time). Because if you want to calculate real implied volatility you must need to know what period of time to include. Time to excerise doesn't tell you much, if you don't know what period you must watch. One month, half a year, one year, 2 years etc.. I assume this 22,69 implied volatility is based on days_to_expire_parameters/some_period. I am trying to figure what is this some_period. I &lt;/p&gt;&#xA;" OwnerUserId="18582" LastActivityDate="2019-04-10T21:01:40.317" Title="implied volatility, how to get parameters?" Tags="&lt;asset-pricing&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22462" PostTypeId="2" ParentId="22461" CreationDate="2018-06-14T17:24:56.227" Score="1" Body="&lt;p&gt;The implied volatility is defined as the volatility parameter that gives you the option price currently trading on the market. That is, you will observe market quotes for option prices or implied volatilities and you use the Black-Scholes formula to convert from one to the other. The implied volatility is not therefore something you computed based on stock price data, it's really a price determined by the market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are as many implied volatilities as there are options traded. In fact, options are frequently quoted in implied vols. You have one implied volatility for every strike price and for every maturity. This defines the &quot;Volatility surface&quot;. Instead of the strike price you frequently see on one of the axes the &quot;moneyness&quot;, that is the ratio of current price to the strike price. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Take a look at this graph.&#xA;&lt;a href=&quot;https://www.mathworks.com/matlabcentral/mlc-downloads/downloads/submissions/23316/versions/2/screenshot.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.mathworks.com/matlabcentral/mlc-downloads/downloads/submissions/23316/versions/2/screenshot.jpg&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That means, for example, that the 3-month 1-moneyness implied vol is the volatility parameter that you need to input in the BS formula to obtain the observed market price of the 3-month 1-moneyness call option.&lt;/p&gt;&#xA;" OwnerUserId="15658" LastActivityDate="2018-06-14T17:24:56.227" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22463" PostTypeId="1" CreationDate="2018-06-14T20:21:02.037" Score="1" ViewCount="37" Body="&lt;p&gt;I'm looking for literature in new keynesian model adaptation to model price shocks. I'm aware of Blanchard, Olivier, and Jordi Gali.  2007.  &lt;a href=&quot;http://www.nber.org/papers/w13368.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;“The Macroeconomic Effects of Oil Shocks: Why Are the 2000s So Different from 1970s.”&lt;/a&gt;  NBER Working Paper No. 13368. Do you know other adaptations of the new keynesian model in this way or from the exporting country view?&lt;/p&gt;&#xA;" OwnerUserId="13288" LastEditorUserId="1601" LastEditDate="2018-06-14T20:37:33.147" LastActivityDate="2018-06-14T20:37:33.147" Title="Adaptation of new keynesian model" Tags="&lt;macroeconomics&gt;&lt;reference-request&gt;&lt;price&gt;&lt;new-keynesian-economics&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22464" PostTypeId="1" CreationDate="2018-06-14T23:15:53.827" Score="1" ViewCount="14" Body="&lt;p&gt;Imagine I have a lot of money and my number 1 aim is to store them somewhere where I can get them fast if I need them.&#xA;I don’t want to have dividends from my money but if I will it  would be great.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example banks are asking to wait some time before I can get big number of money in cash or even to transfer them. So banks don’t look like a good fit for my goals.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Advice me something please.&lt;/p&gt;&#xA;" OwnerUserId="14571" LastActivityDate="2018-06-14T23:15:53.827" Title="What is the easiest and cheapest way to store big money with option to any moment get then in cash?" Tags="&lt;finance&gt;&lt;banking&gt;&lt;investment&gt;&lt;money&gt;&lt;transportation&gt;" AnswerCount="0" CommentCount="3" ClosedDate="2018-06-15T03:22:32.423" ContentLicense="CC BY-SA 4.0" />
  <row Id="22466" PostTypeId="2" ParentId="22458" CreationDate="2018-06-15T05:02:24.887" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;With no tolls, how many people will use the free way during rush hours?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Since during rush hours hundreds of cars travel, so the number of commuters $n$ using the freeway satisfy the following condition :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$10 + n = 60$ i.e. $n= 50$.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Why is it inefficient?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It is inefficient because average commuting time per person in equilibrium is 60 minutes which is the worst possibility. Reducing the number of cars using the freeway during rush hours will necessarily reduce the average commuting time to below 60.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Find the optimal toll charged by a profit maximizing entity that owns the highway.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Let $t$ denote the toll. Average cost of using the highway if $x$ people use it is :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\text{AC} = \begin{cases} 3 + t, &amp;amp; \text{if } x\leq 20 \\  1 + 0.1x + t, &amp;amp; \text{if } x &amp;gt; 20\end{cases} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Profit maximization problem of the entity for peak time is :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{eqnarray*} \max_{t, x} &amp;amp; \ tx \\ \text{s.t} &amp;amp; \ \text{AC} \leq 6 \end{eqnarray*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Solving this problem we get $x^*_p = 25$ and $t^*_p =2.5$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Profit maximization problem of the entity for non peak time is :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{eqnarray*} \max_{t, x} &amp;amp; \ tx \\ \text{s.t} &amp;amp; \ \text{AC} \leq 6 &amp;amp; \ \\ &amp;amp; x  \leq \overline{x}\end{eqnarray*}&#xA;where $\overline{x} &amp;lt; 20$ is exogenously given demand during non peak time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Solving this problem we get $x^*_n = \overline{x}$ and $t^*_n =3$.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Is the outcome efficient?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Yes, it is efficient. In fact, it minimizes the average commute time. If $x$ people use highway during the peak time, then the remaining $(50 - x)$ will be using side streets. So, the average commute time of these 50 people (who were using highway in case of no toll) is :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{eqnarray*} \text{AC of 50 commuters}  = \begin{cases} \frac{30x + 60(50-x)}{50} &amp;amp; \text{if } x \leq 20 \\ \frac{(10+x)x + 60(50-x)}{50} &amp;amp; \text{if } x &amp;gt; 20 \end{cases} \end{eqnarray*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Minimizing it with respect to $x$, we get $x^* = 25$.&lt;/p&gt;&#xA;" OwnerUserId="11824" LastEditorUserId="11824" LastEditDate="2018-06-16T00:58:25.897" LastActivityDate="2018-06-16T00:58:25.897" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="22467" PostTypeId="1" CreationDate="2018-06-15T08:31:26.583" Score="0" ViewCount="4268" Body="&lt;p&gt;Quarterly GDP growth can be calculated either in terms of YoY change or — in the case of seasonally adjusted data — in terms of QoQ change. (A third option would be to annualize the QoQ rate.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To start with a current example: In the U.S., GDP in Q1 2018 grew by 2.9% compared to Q1 2017 (= YoY), whereas it grew by 0.7% compared to Q4 2017 (= QoQ). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In Q4 2017, however, YoY growth was at 2.6%, whereas QoQ growth was at 0.7%. So GDP growth in Q1 2018 was higher compared to the previous quarter in terms of YoY (2.6% -&gt; 2.9%), whereas it was slightly lower compared to the previous quarter in terms of QoQ (0.7% -&gt; 0.6%).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now in judging an economy's &lt;strong&gt;growth momentum&lt;/strong&gt;, analysts typically focus on changes in QoQ growth rates - in the example above coming to a conclusion like &quot;growth in the U.S. slightly lost momentum in Q1 2018&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My question is: Is there a different term to express changes in the YoY rate?&lt;/strong&gt; To stay with the example above, if I comment on the fact that the U.S. YoY rate is up to 2.9% from 2.6%, concluding that there was a “strengthening of growth momentum” might be misleading (especially given the diverging picture based on changes in the QoQ rate).&lt;/p&gt;&#xA;" OwnerUserId="12895" LastEditorUserId="8481" LastEditDate="2020-04-09T23:51:41.520" LastActivityDate="2021-05-05T02:07:46.060" Title="Quarterly GDP growth terminology: YoY vs QoQ" Tags="&lt;macroeconomics&gt;&lt;econometrics&gt;&lt;gdp&gt;&lt;economic-growth&gt;&lt;definition&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22468" PostTypeId="1" CreationDate="2018-06-15T10:43:28.573" Score="1" ViewCount="57" Body="&lt;p&gt;I am solving a bargaining problem in which I have two players $player_1 $ and $ player_2 $.  Both of them have a service (represented as $ z_1 ,z_2 $)  that they can provide . Moreover they will charge some price(cost) ($ \lambda_1, \lambda_2 $ ) for providing that service.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The utility function are based on benefit-cost function.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Player 1 provide a service to the player 2 and charges some price for it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The utility of $player_2$ can be represented as : &#xA;$U_{player_2} =f(z_2)- \lambda_2z_2$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Player 2 provide a service to the player 1 and charges some price for it. &#xA;$U_{player_1} =f(z_1)- \lambda_1z_1$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$z_2$ is the decision variable of player 1 and $z_1$ is the decision variable of player 2 .&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How can I model it using a bargaining game , can I use any other cooperative game approach. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have tried some thing like this : &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$log(f(z_2)- \lambda_2z_2+\lambda_1z_1)+(log(f(z_1)+\lambda_2z_2-\lambda_1z_1 )$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this correct?&lt;/p&gt;&#xA;" OwnerUserId="18588" LastEditorUserId="18588" LastEditDate="2018-06-15T12:28:53.553" LastActivityDate="2018-06-15T12:28:53.553" Title="Two-sided market and bargaining game" Tags="&lt;game-theory&gt;&lt;markets&gt;&lt;bargaining&gt;" AnswerCount="0" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="22472" PostTypeId="1" CreationDate="2018-06-16T12:22:21.283" Score="1" ViewCount="28" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/bMTdD.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;![the  image was taken from public finance book by Musgrave and Musgrave&#xA;]&lt;a href=&quot;https://i.stack.imgur.com/bMTdD.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;1&lt;/a&gt;&lt;/a&gt;Pave 156(fig. 9.5) &lt;/p&gt;&#xA;" OwnerUserId="18593" LastEditorUserId="-1" LastEditDate="2018-07-02T14:27:54.563" LastActivityDate="2018-07-02T14:27:54.563" Title="Why (Im) is gross(before personal tax-BPT) rate of return(ROR) by saver?It should be net ROR &amp; APT, as SS' curve is after personal tax is imposed" Tags="&lt;public-economics&gt;&lt;opportunity-cost&gt;" AnswerCount="0" CommentCount="1" ClosedDate="2018-07-02T19:08:52.260" ContentLicense="CC BY-SA 4.0" />
  <row Id="22473" PostTypeId="1" CreationDate="2018-06-16T12:22:57.620" Score="1" ViewCount="65" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/QHfjG.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/QHfjG.png&quot; alt=&quot;Picture&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I did is the following one but I am not sure at all:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/4Jvij.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/4Jvij.jpg&quot; alt=&quot;Picture 2 &quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help will be appreciated. Thank you. &lt;/p&gt;&#xA;" OwnerUserId="18244" LastActivityDate="2018-06-16T12:22:57.620" Title="Maximization under two different states of the world" Tags="&lt;microeconomics&gt;&lt;self-study&gt;" AnswerCount="0" CommentCount="0" ClosedDate="2018-07-02T19:08:01.207" ContentLicense="CC BY-SA 4.0" />
  <row Id="22474" PostTypeId="2" ParentId="20646" CreationDate="2018-06-16T12:25:11.903" Score="1" Body="&lt;p&gt;Suppose you use OLS to estimate the model:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Y_i = \beta_1 + \beta_2X_i + \varepsilon_i$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that what $i$ indexes is not values of $X$ but units (eg individuals, countries) within the population of interest.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given sample data for units $i=1,...,N$, OLS will find the values of $\beta_1$ and $\beta_2$ that minimize $\Sigma(Y_i - \beta_1 - \beta_2X_i)^2$.  It does not matter at all if some of the $X_i$'s have the same value.  The sum to be minimised is calculated over all the sample units.&lt;/p&gt;&#xA;" OwnerUserId="1417" LastActivityDate="2018-06-16T12:25:11.903" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22475" PostTypeId="1" CreationDate="2018-06-16T16:41:45.383" Score="2" ViewCount="342" Body="&lt;p&gt;Is there a difference between continuation value ($V_t$) and utility ($U_t$) except for a possible scaling / difference in units? My question refers to the consumption-based asset pricing literature.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In standard time additive power utility settings, people seem to only talk about utility (e.g. $U_t=u(C_t)+\beta E_t[u(C_{t+1}]$). In recursive utility / Epstein-Zin-Weil settings, people often refer to a continuation value (e.g. $V_t=((1-\beta)C_t^{1-\rho}+\beta (\mathcal{R}_t(V_{t+1}))^{1-\rho})^{1/(1-\rho)}$).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems to me that both are fairly similar. The only reference I could find on the topic is the asset pricing book from Back (2010), in which (intuitive definitions) utility seems to be a utility measure in &quot;utility units&quot; while continuation value seems to be a utility measure in &quot;consumption good units&quot;, and both are related via $U_t=u(V_t)=\frac{V_t^{1-\gamma}}{1-\gamma}$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Please note: Back confusingly talks about a continuation utility and uses a different notation, the one posted here is inherited from standard references. Also, you can find his book with this &lt;a href=&quot;http://global.oup.com/us/companion.websites/9780190241148/&quot; rel=&quot;nofollow noreferrer&quot;&gt;link&lt;/a&gt;.)&lt;/p&gt;&#xA;" OwnerUserId="18534" LastEditorUserId="18534" LastEditDate="2018-06-16T16:47:22.017" LastActivityDate="2021-02-22T22:26:09.870" Title="Continuation value versus utility in asset pricing" Tags="&lt;utility&gt;&lt;asset-pricing&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22476" PostTypeId="1" CreationDate="2018-06-16T16:46:32.110" Score="2" ViewCount="97" Body="&lt;p&gt;Dear stack exchangers,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;in the course of an internship at a microfinance bank in Tajikistan, I have been tasked with assessing the efficiency of different marketing expenses.&#xA;I will try to expose the situation:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;-I have monthly data (15 months)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;-the individuals are cities (7 cities)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;-as a regressand/dependent variable (called Y), I will be using the monthly variation in clients at the bank (three analyses: global, for deposit products, for loans. I may use the number of new clients, if it is avaible.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;-my regressors/independent (called X) variables are the monthly expenses in one marketing tool (newspapers, billboard, leaflets, website ads, tv+radio), per city. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;--&gt; I'll have 105 observations to treat&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My objective is to evaluate which media brings the most clients per Somoni spent. &#xA;To this end, using STATA, I will conduct a panel analysis, using errors ajusted for clustering, and a fixed  effect per city (the number of new customers per months may be affected, among other things, by the population of the sector).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question that motivated this post is:&#xA;how could I include spending that is national (e.g. TV/radio) into my equations, and obtain a meaningful coefficient for it? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I include the value of national spending in each equation, then the estimated  coefficient would give the average impact of national spending on Y at the city level.&#xA;But national spending has an impact on all cities at the same time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Because the coefficient is an average, I guess multiplying it by 7 (as there are 7 cities) will give me the global impact of national spending on the number of customers.&#xA;What would be the problems with such a solution?&#xA;What alternatives are there?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I also have two subsidiary questions:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;-A lot of Xs take the 0 value. And in a lot of cases, an observation has only one X different from 0. Does this pose a particular problem, apart from those of statistical significance? (I don't think so)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;-Finally, I have a few questions concerning the design of my study.&#xA;Do you think that such a design will yield exploitable coefficients?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is the exclusion of the interest rate variable a heavy problem? (I might not be able to obtain that data)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Should I worry about AR(1) problems? (maybe the number of new clients is affected by network effects, so Y(t) depends on Y(t-1))&lt;/p&gt;&#xA;" OwnerUserId="18579" LastActivityDate="2020-01-09T10:08:25.250" Title="Panel econometrics for marketing mix analysis: how to include spending that affects all the individuals of a panel?" Tags="&lt;econometrics&gt;&lt;applied-econometrics&gt;&lt;development-economics&gt;&lt;stata&gt;&lt;paneldata&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22477" PostTypeId="1" CreationDate="2018-06-16T18:54:48.957" Score="3" ViewCount="126" Body="&lt;p&gt;Suppose that you face risk. It is obvious that taking gambles whose outcomes are negatively correlated with the outcomes of your other gambles can reduce your overall risk ('hedging'). My question, however, concerns &lt;strong&gt;uncorrelated&lt;/strong&gt; gambles - can these reduce your overall risk, and if so when?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Edit&lt;/strong&gt;: to be clear, I am asking about when you can reducing your risk by taking &lt;strong&gt;additional&lt;/strong&gt; uncorrelated gambles, not simply by replacing some gambles in your portfolio with others.&lt;/p&gt;&#xA;" OwnerDisplayName="user17900" LastEditorDisplayName="user17900" LastEditDate="2018-06-17T21:26:35.180" LastActivityDate="2018-06-29T16:44:39.440" Title="When does gambling reduce risk?" Tags="&lt;microeconomics&gt;&lt;finance&gt;&lt;risk&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22478" PostTypeId="2" ParentId="22477" CreationDate="2018-06-16T20:44:54.500" Score="2" Body="&lt;p&gt;In standard cases, you cannot generally reduce risk by gambling with uncorrelated gambles.  With that said, a lot of your question depends entirely upon how you start defining terms.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let me begin by defining risk as being exposed to uncertainty.  If you are not exposed to any uncertainty at the moment, then adding uncorrelated gambles to any outcome present in your life merely adds risk.  This definition is important because it often generates a completely opposite result from defining risk in terms of exposure to a chance of loss.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Imagine you went out today to play the Mega Millions Lotto with once chance in forty-five million of winning.  There is almost no risk in that transaction as there is almost no uncertainty.  You are going to lose.  It is not risky at all.  It is nearly a risk-free asset.  It is a risk-free asset whose expected value is less than a penny, but it is nearly risk-free.  This is why states love offering lotteries.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now let us change our definition to risk as being exposed to a chance of loss.  In that case, a lottery ticket is very risky.  Indeed, the exposure is nearly the full dollar and the chance of an upside looks pretty grim.  With that definition of risk, voluntary exposure makes little sense.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is the word voluntary that is the key.  Now let us make this game a little more extreme and involuntary.  To set this up consider the film, &lt;em&gt;Phone Booth&lt;/em&gt;.  In the film, the lead character has been using the last phone booth in New York to contact his mistress behind his wife's back.  A sniper takes up a location where he can call the lead character through the phone booth and control him.  If he fails to do what he is told, he will be killed.  He has to confess his betrayal.  There is risk present in that the killer may kill him anyway.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider any circumstance where an involuntary outcome will happen in the future unless a gamble is taken.  The gamble is uncorrelated with the outcome but will prevent the outcome.  An example of this is any consumption deferral to avoid starving in the future, such as saving or investing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The firm's outcomes are uncorrelated with your life expectancy unless you happen to run the company.  If you take the gamble, then your life is correlated with the firm's well-being, but theirs is not correlated with yours.  This is known as asymmetric association.  One of the best measures of this is Somers' D.  If you take no gambles then you will run out of resources when you can no longer work.  If you take gambles, uncorrelated with your long-run well-being, then you may live to be very old.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now imagine that you must gamble involuntarily, then you can improve your rate of return and reduce your risk by using the Kelly Criterion.  The Kelly Criterion would increase your utility provided that the return was anticipated to be positive on every gamble.  Otherwise, if all gambles yield a negative return, then you should only gamble if the probability of loss from gambling is less than the probability of loss from fire or theft of cash.&lt;/p&gt;&#xA;" OwnerUserId="11321" LastActivityDate="2018-06-16T20:44:54.500" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22479" PostTypeId="2" ParentId="6973" CreationDate="2018-06-16T20:56:47.590" Score="0" Body="&lt;p&gt;A utility-based rationale leads to the conclusion that the savings scheme &lt;em&gt;reduces&lt;/em&gt; unemployment. The argument goes as follows:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;The savings scheme reduces worker's consumption of goods and services;&lt;/li&gt;&#xA;&lt;li&gt;A decrease in consumption means workers perceive lower utility for their work; &lt;/li&gt;&#xA;&lt;li&gt;Lower utility encourages retirement, especially among those who are close to (or past) retirement age;&lt;/li&gt;&#xA;&lt;li&gt;New retirements translate to an increase in vacant positions;&lt;/li&gt;&#xA;&lt;li&gt;Therefore, unemployment goes down.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="18552" LastActivityDate="2018-06-16T20:56:47.590" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22481" PostTypeId="1" AcceptedAnswerId="22483" CreationDate="2018-06-17T11:58:57.530" Score="0" ViewCount="70" Body="&lt;p&gt;I have a nice and (I think) significant result. I would like to publish it, but I have no idea how. It's a proof of an optimal institutional structure. Who do I contact?&lt;/p&gt;&#xA;" OwnerUserId="13779" LastActivityDate="2018-06-17T16:56:28.987" Title="Getting a Paper Published" Tags="&lt;academic-graduate&gt;&lt;institutions&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="22482" PostTypeId="2" ParentId="22477" CreationDate="2018-06-17T14:01:11.427" Score="2" Body="&lt;p&gt;As @DaveHarris points out, it would be nice to define your concepts. Risk is misused quite often.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That having been said, diversification, placing several smaller uncorrelated bets (or buying several financial assets with uncorrelated returns) instead of placing &#xA; all your money on a single bet is a fairly simple way of reducing one's risk according to most definitions. It is straightforward to show that if $X_i$ are i.i.d. random variables then&#xA;$$&#xA;var\left(\sum_{i=1}^n \frac{X_i}{n} \right) = \frac{var(X_i)}{n} &amp;lt; var(X_i)&#xA;$$&#xA;for all $n&amp;gt;1$, $var(X_i)&amp;gt;0$. If $X_i$ represents your winnings then by placing $n$ small bets instead of just one big one you can greatly reduce the variance of your winnings. This piece of wisdom is so well known there is even a proverb for it: &lt;em&gt;Don't place all your eggs in one basket&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In case&#xA;$$&#xA;E\left(\sum_{i=1}^n \frac{X_i}{n} \right) = E(X_i)&#xA;$$&#xA;holds (this is true for a lot of gambles, e.g. roulette or blackjack) a risk averse player would always prefer several smaller gambles to one big one.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2018-06-29T16:44:39.440" LastActivityDate="2018-06-29T16:44:39.440" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="22483" PostTypeId="2" ParentId="22481" CreationDate="2018-06-17T16:56:28.987" Score="0" Body="&lt;p&gt;If your paper is rigorous enough, you might want to submit it to a peer-reviewed specialized journal. Journals pertaining to Economics are the &lt;a href=&quot;https://academic.oup.com/qje&quot; rel=&quot;nofollow noreferrer&quot;&gt;Quarterly Journal of Economics&lt;/a&gt;, &lt;a href=&quot;https://www.journals.elsevier.com/journal-of-macroeconomics&quot; rel=&quot;nofollow noreferrer&quot;&gt;Journal of Macroeconomics&lt;/a&gt;, &lt;a href=&quot;http://www.res.org.uk/view/economichome.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;The Economic Journal&lt;/a&gt;, and many others. Many of these journals have a link for writers to submit their paper and a &quot;guide for authors&quot;. Likewise, search on Google for &lt;em&gt;Call For Papers&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question by @MichaelGreinecker (whether &lt;em&gt;you know anyone in the field&lt;/em&gt;) makes me wonder whether being accepted for publication also depends on having connections with the editorial, rather than being exclusively a matter of rigor of the research.&lt;/p&gt;&#xA;" OwnerUserId="18552" LastActivityDate="2018-06-17T16:56:28.987" CommentCount="7" ContentLicense="CC BY-SA 4.0" />
  <row Id="22484" PostTypeId="1" CreationDate="2018-06-17T19:09:11.757" Score="2" ViewCount="67" Body="&lt;p&gt;After Malaysia's national debt was [reassessed][1], its totaled $250bn along with other government liabilities.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, I'm having trouble understanding the direct relevance of the ratio of goverment debt to gross domestic product, in Malaysia's case. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Namely, in the article it is stated that its 80 percent of Malaysia's gross domestic product. Why is this statistic important? That is, why should I care about the total government liabilities of Malaysia's being 80% of its gross domestic product. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the case of Turkey, [it][2] is mentioned that companies based in Turkey are suffering under the weight of the foreign debt amounting to some $300bn. The &lt;strong&gt;comparison to the countries GDP&lt;/strong&gt; is then made again; &lt;strong&gt;&quot;\$300bn is more than a third of GDP&quot;&lt;/strong&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Again, &lt;strong&gt;what gives a measure on the relevance of that &lt;em&gt;the foreign debt is more than a third of GDP&lt;/em&gt;&lt;/strong&gt;?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How does this measure differ from country to country?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;[1]: Malaysia leader on a mission (Hannah Beech and Richard C. Paddock, Sa-Su 16th of June 2018)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;[2]: Pillow talk; surrender your dollars, urges President Erdogan (The Economist, 16th of June 2018)&lt;/p&gt;&#xA;" OwnerUserId="16317" LastEditorUserId="16317" LastEditDate="2018-06-18T11:37:46.563" LastActivityDate="2018-06-18T12:03:26.813" Title="Relevance of government liabilities to GDP" Tags="&lt;gdp&gt;&lt;government-debt&gt;&lt;government&gt;&lt;national-accounts&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="22485" PostTypeId="1" AcceptedAnswerId="22501" CreationDate="2018-06-17T20:44:20.310" Score="1" ViewCount="186" Body="&lt;p&gt;When Trump imposes tariffs on imports from China, he is hurting American consumers who won't be able to take advantage of cheap Chinese goods. If China was to retaliate by imposing tariffs on imports from the US, they would be hurting Chinese consumers in the same way. So, is there is any need for a country to retaliate against another country's import tariffs?&lt;/p&gt;&#xA;" OwnerUserId="16105" LastEditorUserId="16105" LastEditDate="2018-06-17T22:46:22.987" LastActivityDate="2018-06-18T22:24:20.100" Title="Retaliating against a foreign country's import tariffs" Tags="&lt;macroeconomics&gt;&lt;international-trade&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22486" PostTypeId="2" ParentId="22485" CreationDate="2018-06-17T23:15:24.370" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;is there is any need for a country to retaliate against another&#xA;  country's import tariffs?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Yes, it's a response against a form of disloyal competition. The effect of tariffs on imports is equivalent to that of currency depreciation. Retaliation or tariffs reciprocation aims at neutralizing a country's dissimulated depreciation of its currency.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In our globalized markets, countries depend on exports for strengthening their economy. The competitive advantage from an innovation's breakthrough is short-lived because nowadays the rest of the countries are able to reproduce that innovation rather quickly. Thus, the easiest and most immediate mechanism for an economy to become more &quot;competitive&quot; is by depreciation of its local currency.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Countries are upset with Trump's tariffs on imports because these are a form of currency [frowned upon] depreciation: Tariffs on imports make it more costly for local consumers to purchase goods from outside. Countries reasonably disapprove of Trump's work-around to the existing international conventions against deliberate depreciation of an economy's local currency.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;When Trump imposes tariffs on imports from China, he is hurting&#xA;  American consumers who won't be able to take advantage of cheap&#xA;  Chinese goods. If China was to retaliate by imposing tariffs on&#xA;  imports from the US, they would be hurting Chinese consumers in the&#xA;  same way.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I would question whether consumers are --at least &lt;em&gt;directly&lt;/em&gt; and to the same extent-- affected by their government's tariffs on imports (I should mention, though, that I have not seen a breakdown of flows in the international trade). See my comment on the short-lived advantage from innovations' breakthroughs. Moreover, China could import from Europe or other countries many of the goods it hitherto imported from the U.S.&lt;/p&gt;&#xA;" OwnerUserId="18552" LastEditorUserId="18552" LastEditDate="2018-06-17T23:31:37.890" LastActivityDate="2018-06-17T23:31:37.890" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="22487" PostTypeId="2" ParentId="22467" CreationDate="2018-06-17T23:54:18.317" Score="0" Body="&lt;p&gt;As long as you clearly label what you are doing, there’s probably a lot of ways of phrasing the change in the year-on-year growth rate. However, anyone with experience will take those changes with a large grain of salt, as a result of “base effects.”&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For relatively low growth rates, the annual rate of change is roughly equal to the sum of non-annualised quarterly growth rates over the last four quarters (or the average of annualised growth rates for 4 quarters). The change in the annual growth rate on quarter is therefore driven by the difference between the latest quarter, and the quarter that dropped out of the annual average. If that previous period was abnormally low, the current annual growth rate will jump higher, even if the quarterly growth rate is unchanged.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since that hardly represents new information about the economy, that jump is not providing a lot of new information - we knew about that weak quarter for a long time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Year-on-year changes are a great for time series plots, but you need to dig further if you want to discuss acceleration/deceleration.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2018-06-17T23:54:18.317" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="22488" PostTypeId="2" ParentId="22475" CreationDate="2018-06-18T09:19:50.580" Score="1" Body="&lt;p&gt;I can't speak to Back's usage (I can't access the book through the link), though in general, I believe the &quot;utility function&quot; refers to the standard meaning of the term (the ultimate function that agent's are trying to maximize), while &quot;continuation value&quot; refers to the Bellman Equation solved for the next period.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A more abstract example of both the &quot;utility function&quot; and &quot;value function&quot; appearing together can be found in &lt;a href=&quot;http://irelandp.com/econ7720/notes/notes3.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;this set of notes from Peter Ireland&lt;/a&gt; in section 3 (example 2) after the optimality conditions are solved for.&lt;/p&gt;&#xA;" OwnerUserId="13366" LastActivityDate="2018-06-18T09:19:50.580" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22489" PostTypeId="1" CreationDate="2018-06-18T11:22:57.307" Score="5" ViewCount="342" Body="&lt;p&gt;Why is so common to suggest university students to specialize in order to get a better paid job?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This goes completely against the principle of diversification of investments, in order to decrease risk by spreading it over a portfolio.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Instead, students are driven towards specialization, investing their most valuable asset, time, in a single high risk endeavor. Specialization might be good for society as a whole, but can have disastrous consequences for the individual.&lt;/p&gt;&#xA;" OwnerUserId="18601" LastActivityDate="2018-06-20T23:19:55.637" Title="Why is everyone suggested to specialize their education?" Tags="&lt;risk&gt;&lt;education-economics&gt;" AnswerCount="5" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="22490" PostTypeId="2" ParentId="22484" CreationDate="2018-06-18T12:03:26.813" Score="1" Body="&lt;p&gt;The government debt represents the total liabilities outstanding that the government must (at some point) repay to investors. Generally to do so, governments tax their populace, either now, or at some future point.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The often cited Debt to GDP ratio figure is one shorthand for understanding how difficult it will be for any given government to raise the revenue necessary to cover its debts, and/or decrease government spending. If country &quot;A&quot; had \$100 billion in outstanding debt, and country &quot;B&quot; had \$400 billion in public debt, which would be in worse shape (that is, which would likely have a harder time raising the necessary funds)? Ultimately, it depends on a variety of factors, one of which being &quot;how much can the country realistically raise in revenue?&quot; If country &quot;B&quot;'s GDP is ten times the size of country &quot;A,&quot; then even with a higher debt load, it represents a smaller relative amount owed, and might then be easier to pay back.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course, this is just one common, convenient shorthand statistic often used to quickly assess how sustainable a country's debt is. There are many other factors which must be considered if you're trying to comprehensively measure &quot;default risk.&quot; But Debt/GDP is a pretty easy, useful one that has become popular over time.&lt;/p&gt;&#xA;" OwnerUserId="13366" LastActivityDate="2018-06-18T12:03:26.813" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="22491" PostTypeId="1" AcceptedAnswerId="22498" CreationDate="2018-06-18T14:11:53.793" Score="2" ViewCount="275" Body="&lt;p&gt;I'm working through Cooper's Data Envelopment Analysis, and they are going over Production Possibility Sets.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;They present 9 firms, each with two inputs and one output:&lt;a href=&quot;https://i.stack.imgur.com/EoR5d.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/EoR5d.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Graphically it easy to see why firms (E,D,C) make up the efficient frontier, however I am struggling to find a mathematical motivation for the inclusion of firm D? How do you show its input/output ratios warrant its inclusion algebraically as opposed to graphically. &lt;/p&gt;&#xA;" OwnerUserId="16530" LastEditorUserId="16530" LastEditDate="2018-06-18T17:57:52.643" LastActivityDate="2018-06-20T09:45:19.233" Title="Inclusion of firms on the efficient frontier of a Production Possibility Set" Tags="&lt;pareto-efficiency&gt;&lt;productivity&gt;" AnswerCount="2" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="22492" PostTypeId="1" AcceptedAnswerId="22494" CreationDate="2018-06-18T14:29:44.510" Score="2" ViewCount="29" Body="&lt;ul&gt;&#xA;&lt;li&gt;Looking at country lists by exports.&lt;/li&gt;&#xA;&lt;li&gt;Diving into exports always shows things like gas turbines, computer hardware, petrolium -- all physical things.&lt;/li&gt;&#xA;&lt;li&gt;None show things like exporting services: financial services, engineering consulting, licensing software. I would imagine that would be a considerable component in countries like UK. In some countries medical tourism might bring considerable revenue.&lt;/li&gt;&#xA;&lt;li&gt;If traditional export metric is for hard products only is there a metric that encompasses service export as well? And is there any data on account balance (export - inport) of countries with services included?&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="18603" LastActivityDate="2018-06-18T15:11:50.403" Title="Why do exports include only hard products?" Tags="&lt;balance-of-trade&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22493" PostTypeId="2" ParentId="22489" CreationDate="2018-06-18T14:38:17.530" Score="7" Body="&lt;p&gt;Note: I did &lt;strong&gt;not&lt;/strong&gt; vote down on this question, and it is not clear why anyone would do so.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Why is so common to suggest university students to specialize in order&#xA;  to get a better paid job?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Because the industry evolves and encounters increasingly harder, diverse challenges. Specialized knowledge is essential for coping with those challenges. At the same time, it is impossible for everybody to achieve expertise in all the diverse disciplines or branches of knowledge. In the labor market, that implies that the supply of workforce is more constrained as we move along the &quot;specialization axis&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is noteworthy, though, that &lt;em&gt;specializing in order to get a higher compensation&lt;/em&gt; is not always profitable. For specialization to be profitable, there also needs to exist enough demand for a skills set. A specialist in &lt;em&gt;semantics of Etruscan dialects spoken in the Po Valley&lt;/em&gt; will have a much harder time to find a job in his field (let alone to earn a satisfactory salary) than a specialist in 4th generation nuclear reactors.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;students are driven towards specialization, investing their most&#xA;  valuable asset, time, in a single high risk endeavor.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Not really. A certain extent of diversification is inherent to the individual's university background. In the case of the nuclear reactor specialist, his background includes calculus, probability, numerical analysis, thermodynamics, heat transfer, electricity, etc. That background makes it easier for him to adapt to drastic changes such as switching careers. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;By contrast, a company is much more static and, thus, much unlikelier to cope with drastic changes successfully. Here are some factors that impair a company's adaptability:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Managers, first and foremost, aim at retaining their power;&lt;/li&gt;&#xA;&lt;li&gt;it is harder for various stakeholders to agree on what the new&#xA;direction needs to be;&lt;/li&gt;&#xA;&lt;li&gt;synchronizing an update of skills set of all its members is expensive&#xA;and possibly out of reach;&lt;/li&gt;&#xA;&lt;li&gt;some members of the organization might leave during the transition;&lt;/li&gt;&#xA;&lt;li&gt;new processes might entail new redundancies, frictions, and&#xA;additional overhead.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;A shareholder has little-to-no control on how the company will fare, or whether it will adopt a unified, effective approach at all. Things are different with the individual, provided that he is determined, not erratic, and has a rational/realistic vision of what he wants.&lt;/p&gt;&#xA;" OwnerUserId="18552" LastEditorUserId="18552" LastEditDate="2018-06-18T15:24:50.187" LastActivityDate="2018-06-18T15:24:50.187" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22494" PostTypeId="2" ParentId="22492" CreationDate="2018-06-18T15:11:50.403" Score="0" Body="&lt;p&gt;Found a fairly nice one from &lt;a href=&quot;https://data.oecd.org/trade/trade-in-goods-and-services.htm#indicator-chart&quot; rel=&quot;nofollow noreferrer&quot;&gt;OECD&lt;/a&gt;. It includes combined trade in goods and services as a percentage of GDP. It is also possible to drill into goods only (which seems most commonly presented in the public domain) or services only data.&lt;/p&gt;&#xA;" OwnerUserId="18603" LastActivityDate="2018-06-18T15:11:50.403" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="22495" PostTypeId="1" CreationDate="2018-06-18T20:04:44.670" Score="1" ViewCount="262" Body="&lt;p&gt;I have learned in accounting that companies can add any amount of profit on their products as they want. That can be 10 - over 500 %. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I also think that international corporations like Coca Cola, Nestlé definitely make more than 200 % profit for each of their products (does anybody know how much).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't know much about what is done with that profit, as every cost the company has is already included in the price. That is not the question here.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is: What would happen if by law EVERY company on this planet can only make a maximum profit of 10 % for each product. When answering please ignore potential legal loopholes or anything similar. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Prices would definitely decrease but what about wages for workers. They would stay the same, because the profit doesn't affect them. Only the wage for managers and CEOs would decrease. But what about international economics. Would it remain stable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And the most important question: Can a law like that (if valid in every country) actually work on long-term? This is a similar question as &quot;Can communism/socialism work?&quot; but It is also a little bit different. &lt;/p&gt;&#xA;" OwnerUserId="16358" OwnerDisplayName="Seraphina" LastEditorUserId="1601" LastEditDate="2018-06-19T23:45:49.100" LastActivityDate="2018-09-03T11:13:12.373" Title="What would happen if corporations can only make a maximum profit of 10% per product" Tags="&lt;money&gt;" AnswerCount="5" CommentCount="11" ContentLicense="CC BY-SA 4.0" />
  <row Id="22496" PostTypeId="2" ParentId="22495" CreationDate="2018-06-18T20:48:36.303" Score="2" Body="&lt;p&gt;That would be ludicrous because it flies out the window the moment you've someone selling services. Consider the &lt;a href=&quot;https://www.smithsonianmag.com/history/charles-proteus-steinmetz-the-wizard-of-schenectady-51912022/&quot; rel=&quot;nofollow noreferrer&quot;&gt;legend out there&lt;/a&gt; about an engineer sending the following invoice:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Making chalk mark on generator $1.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Knowing where to make mark $9,999.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Clearly this person knows what he's doing. You can't regulate applying a 10% maximum profit on that. What would it be based on? The engineer's salary? The latter's salary plus some because of cost of sales and administration? The value provided to the client?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Even in a strictly product related environment, it doesn't fly much better. In the industry, doubling the price (or more) of what you purchase is typical except in consumer retail, because you add value to it in one way or another - if only by knowing who to buy it from in the first place.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can't just enforce a 10% maximum profit margin unless there's full information transparency across the board. For starters it doesn't correspond to reality. And even then you'd likely run into a lot of &quot;what's the point in working?&quot; types of behavior.&lt;/p&gt;&#xA;" OwnerUserId="16158" OwnerDisplayName="Denis de Bernardy" LastActivityDate="2018-06-18T20:48:36.303" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="22497" PostTypeId="1" AcceptedAnswerId="22525" CreationDate="2018-06-18T21:04:30.413" Score="4" ViewCount="147" Body="&lt;p&gt;I have been studying Marxist economics for a little over 3 months now and have been &lt;em&gt;really&lt;/em&gt; trying hard to understand the arguments made.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Right now I'm watching Dr. Stephen Resnick's course on Marxist Economics and am having difficulty understanding the Matematics behind the concept of capitalist exploitation through &lt;a href=&quot;https://youtu.be/7PCxp9tztgQ?t=7m23s&quot; rel=&quot;nofollow noreferrer&quot;&gt;&quot;speed up&quot;&lt;/a&gt; or increase in intensity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;He presents the following formula:&#xA;$$\text{I}=\frac{SV+V}{lh}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where&lt;br&gt;&#xA;-$\text{I}$ is intensity&lt;br&gt;&#xA;-$SV$ is surplus value&lt;br&gt;&#xA;-$V$ is variable capital/ value added by workers&lt;br&gt;&#xA;-$l$ is number of laborers &lt;br&gt;&#xA;-$h$ is the number of hours each laborer works&lt;/p&gt;&#xA;&#xA;&lt;p&gt;he argues that there exists a way to increase surplus if we hold l and h fixed. Mathematically im not sure how this is done.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It cant be from a change in machinery/capital stoc as noted in a &lt;a href=&quot;https://youtu.be/nI1N8SCE_14?t=20s&quot; rel=&quot;nofollow noreferrer&quot;&gt;previous video of Dr. Resnick&lt;/a&gt; since this would decrease the capitalists level of surplus&lt;sup&gt;1&lt;/sup&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So if there is no change in hours worked, number of workers and machinery- How is this increase in surplus value occurring?&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;sub&gt;1. this is based on the equation:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$r=\frac{SV}{V}\left(1-\frac{C}{V+C}\right)$$&lt;/sub&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;-$r$ is the rate of profit&lt;/p&gt;&#xA;&#xA;&lt;p&gt;-$\frac{S}{V}$ is the rate of exploitation/rate of surplus value&lt;/p&gt;&#xA;&#xA;&lt;p&gt;-$\frac{C}{C+V}$ is the index of mechanization/rate of mechanization, where $C$ is value of machinery.&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="8815" LastEditDate="2018-06-24T22:52:47.223" LastActivityDate="2018-10-01T14:35:40.473" Title="Marxist Economics: Understanding Capitalist Exploitation through &quot;speed up&quot; or increase in intensity" Tags="&lt;marxism&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22498" PostTypeId="2" ParentId="22491" CreationDate="2018-06-18T21:45:32.293" Score="2" Body="&lt;p&gt;Though I echo many of the sentiments posed by @AlecosPapadopoulos, maybe this would be helpful for your understanding. Ultimately, we can consider the efficiency frontier as the firms that make up the most efficient ways (or methods of production) of generating a particular output. For example, if our initial bundle of inputs was (listing them in $(x_1, x_2)$ pairs) $(2,5)$, the only firm that can generate a unit of output is firm E, hence its inclusion on the efficiency frontier.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But what about any bundle like $(4,3)$ or $(5,2)$? Clearly firms A and D can produce one unit of output with the first bundle, and firms D and F can generate one unit of output with the second bundle. However, in both cases, only firm D is the most efficient producer. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Why do we care? Perhaps if we're trying to consider the firm that satisfies a cost minimization problem. Suppose the price of each unit of $x_1$ is $1$ and the price of each unit of $x_2$ is $2$. Which firm will produce with the lowest cost? Firm D's production costs are only $\$8 $ per unit of $y$ (while both C and E's costs are $\$10$ per unit of output!), and hence if all goods are undifferentiated the cost curves are constant, firm D will dominate the market). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope that clarifies a bit- let me know if I totally misunderstood your confusion.&lt;/p&gt;&#xA;" OwnerUserId="13366" LastActivityDate="2018-06-18T21:45:32.293" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="22499" PostTypeId="2" ParentId="22497" CreationDate="2018-06-18T22:02:09.350" Score="3" Body="&lt;p&gt;Though I'm certainly no expert in Marxist economic theory, I think he's presenting it as an &quot;&lt;em&gt;if&lt;/em&gt; you can figure out a way of speeding workers up, then you can generate additional surplus from their efforts. Effectively, this is just saying &quot;say you're Ford, and have teams of 7 working on assembly lines that generate 4 cars per hour. Suppose there is some way to increase the intensity of labor, by getting them to work faster and produce 5 cars per hour, and not changing the number of assembly lines or workers per line. Then, if you can hold their wages fixed, you can generate more surplus for the capitalist.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(I'd imagine a historical example might be the semi-mechanized looms of the English Industrial Revolution, where the speed of the mechanisms was dictated by the machinery, and could therefore be bumped up by a factory owner.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't think there's a single coherent mathematical argument explaining why this speed would be increased, just highlighting the different ways the ratio of interest can change.&lt;/p&gt;&#xA;" OwnerUserId="13366" LastActivityDate="2018-06-18T22:02:09.350" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22500" PostTypeId="2" ParentId="22495" CreationDate="2018-06-18T22:06:23.653" Score="4" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;I also think that international corporations like Coca Cola, Nestlé definitely make more than 200 % profit for each of their products (does anybody know how much).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;How are you defining profit?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.cnbc.com/2018/04/24/coca-cola-earnings-q1-2018.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Coca Cola, first quarter 2018&lt;/a&gt;&lt;br&gt;&#xA;Net income:  \$1.37 billion&lt;br&gt;&#xA;Revenue:  \$7.6 billion&lt;br&gt;&#xA;Profit:  18%&lt;br&gt;&#xA;Percentage markup:  22%&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.gurufocus.com/term/Gross+Profit/NSRGY/Gross%252BProfit/Nestle%2BSA&quot; rel=&quot;nofollow noreferrer&quot;&gt;Nestle&lt;/a&gt; was higher in the second half of 2017, around 49.9% profit or 98% markup.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't know which, but if you are getting 200+%, I think that you are leaving out a lot of costs.  If you enforced that standard, companies would go out of business, because you aren't leaving enough for operating expenses.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If all companies, even the risky ones, could only have 10% profit, their product prices would tend to swing greatly.  Because when their costs are high relative to their revenues (e.g. in a recession), their prices would go up.  When costs are relatively low, their prices would be restrained.  So they would be cutting prices in good markets and increasing them in bad markets.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Companies would also have trouble financing through equity, which is rewarded by profits.  They would have to borrow, as that would show up as costs.  But it's hard to borrow unless a company is already profitable.  So no venture capital startups.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Companies would also tend to become bigger.  Because it is easier for a company that does many things to make sure that some are not so profitable.  And of course they wouldn't have to worry about startups stealing their business.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Companies would take few risks.  Because the maximum return is 10%, they have no incentive to pick the riskier choices.  They might just as well pick the safe choice, as it has the same return.  Progress would slow.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To engage in things like pharmaceutical development or oil discovery, companies would basically write off the upfront costs (to minimize profit).  Then if they actually succeeded, they'd have to engage in a flurry of additional costs so as to get full value for their products.  So the companies engaging in such behavior would expand revenues quickly.  And only companies that are already profitable could undertake the most profitable activities.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This encourages companies to out and out waste money.  Higher costs means a higher base, so the 10% is bigger.  &lt;/p&gt;&#xA;" OwnerUserId="68" LastActivityDate="2018-06-18T22:06:23.653" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22501" PostTypeId="2" ParentId="22485" CreationDate="2018-06-18T22:17:56.237" Score="2" Body="&lt;p&gt;If you're using a simple standard model of trade, like the Ricardian model, trade is good and all tariffs, price floors, price ceilings, etc are bad. Retaliatory tariffs will still be problematic for the country imposing them. I think your reasoning is fine in this regard.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, trade occurs over many many years. Responding to the initiation of new tariffs by imposing temporary tariffs will reduce the short-term welfare for everyone, including the tariff initiator.  The country which began this &quot;trade war&quot; will then have lower welfare from both sets of tariffs.  Hopefully, the initiating country will remove their tariffs and return to normal.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The retaliating country has some short-run cost, but if it leads to a final low-tariff state, retaliation may be worth it in the long run.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Imagine the game is a repeated version of the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{array}&#xA;\\ &amp;amp; Free Trade &amp;amp; Tariff &#xA;\\ Free Trade&amp;amp;(5,5)&amp;amp;(3,4)&#xA;\\ Tariff &amp;amp; (4,3)&amp;amp;(2,2)&#xA;\end{array}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where for some reason a party has ended on Tariff, perhaps because they have a &quot;trembling hand&quot; with regard to policy.  Note this is different then the prisoner's dilemma because the payoff does not increase as a result of imposing tariffs.&lt;/p&gt;&#xA;" OwnerUserId="4185" LastEditorUserId="4185" LastEditDate="2018-06-18T22:24:20.100" LastActivityDate="2018-06-18T22:24:20.100" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22504" PostTypeId="1" CreationDate="2018-06-19T05:04:03.397" Score="1" ViewCount="41" Body="&lt;p&gt;Many ad servers running GSP auctions tend to charge a $0.01 increment on the second price. I was wondering if there was any theoretical basis for this, or is it just a way for ad servers to make a little extra money at the expense of advertisers?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Although it probably wouldn't have much effect on incentives in practice, it seems that doing this breaks incentive compatibility in a true Vickrey auction, and breaks the equilibrium properties of a GSP auction.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have heard the case made that this is a tie breaking rule, in which case what do you do when two bidders bid the exact same amount? You can't charge $0.01 extra because it would exceed their maximum bid. In which case this doesn't address the breaking of incentive compatibility.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks&lt;/p&gt;&#xA;" OwnerUserId="18608" LastEditorUserId="18608" LastEditDate="2018-06-19T07:06:04.170" LastActivityDate="2018-06-19T07:06:04.170" Title="Charging a minimum increment on the second price in online advertising auctions" Tags="&lt;microeconomics&gt;&lt;auctions&gt;&lt;advertising&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="22506" PostTypeId="1" CreationDate="2018-06-19T07:55:10.493" Score="0" ViewCount="101" Body="&lt;p&gt;Consider a macroeconomy defined by following equations:&lt;br&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$M = kPy + L(r)$$&lt;/span&gt; &#xA;&lt;span class=&quot;math-container&quot;&gt;$$S(r) = I(r)$$&lt;/span&gt; &#xA;&lt;span class=&quot;math-container&quot;&gt;$$y = m $$&lt;/span&gt;&lt;br&gt;&#xA; Where &lt;span class=&quot;math-container&quot;&gt;$M$&lt;/span&gt; is money supply, &lt;span class=&quot;math-container&quot;&gt;$P$&lt;/span&gt; is price level, &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; is output, &lt;span class=&quot;math-container&quot;&gt;$r$&lt;/span&gt; is interest rate, while &lt;span class=&quot;math-container&quot;&gt;$k,m$&lt;/span&gt; are constants. &lt;span class=&quot;math-container&quot;&gt;$S(r)$&lt;/span&gt; is saving function with &lt;span class=&quot;math-container&quot;&gt;$S'(r) &amp;gt;0$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$I(r)$&lt;/span&gt; is investment function with &lt;span class=&quot;math-container&quot;&gt;$I'(r) &amp;lt;0$&lt;/span&gt;,  and &lt;span class=&quot;math-container&quot;&gt;$L(r)$&lt;/span&gt; is speculative money demand function with &lt;span class=&quot;math-container&quot;&gt;$L'(r) &amp;lt;0$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now how an increase in M affects P? Does P decrease or increase more than proportionately or less than proportionately or proportionately? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am more interested in approach than in solution. I am not able to understand how to approach this problem. &lt;/p&gt;&#xA;" OwnerUserId="16413" LastEditorUserId="1655" LastEditDate="2019-08-19T04:25:41.840" LastActivityDate="2019-08-19T04:25:41.840" Title="Effect of money supply on price level" Tags="&lt;macroeconomics&gt;&lt;supply-and-demand&gt;&lt;money&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22507" PostTypeId="1" CreationDate="2018-06-19T08:59:01.867" Score="1" ViewCount="21" Body="&lt;p&gt;I am looking for any popular model to calculate sales of a new product under the assumption that some goodnesses of the product are given.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, the novelty $N$ and usefulness $U$ of a new product are given, the sales $S$ of it might be calculated as $S(N,U) = N^\alpha + U^\beta + c$ ($1 \leq \alpha, 1 \leq \beta$, and $c$ is a constant number).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I believe this model is too naive and a researcher proposed some popular model. But, I could not find it.&lt;/p&gt;&#xA;" OwnerUserId="18609" LastActivityDate="2018-06-19T08:59:01.867" Title="Model of sales of a new product" Tags="&lt;microeconomics&gt;&lt;reference-request&gt;&lt;consumer-theory&gt;&lt;innovation&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="22509" PostTypeId="2" ParentId="22435" CreationDate="2018-06-19T16:55:33.590" Score="1" Body="&lt;p&gt;Endogeneity can rarely, if ever, be &lt;em&gt;tested&lt;/em&gt;.  It can certainly exist in cross-sectional data.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Running a presumably OLS regression without a theoretical model will just give you a measure of the co-movement of the two variables. Since no other variables are included, what you are estimating is $E(C \mid S)$, i.e. the conditional expected value of Consumption if no other information is used except for the environmental index. Including the square attempts to capture the case of a non-linear conditional expectation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is more of a &quot;prediction&quot; framework (although &lt;em&gt;not&lt;/em&gt; forecasting), rather than an analytical / causal framework.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Informally, you can argue for the existence of endogeneity if either there exists other variables that are correlated both with consumption and the environmental index and/or if their relation is an equilibirum one of co-determination. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Accepting that endogeneity exists, does not invalidate your regression specification. It just says that the coefficients you are estimating may not be what you would want to estimate:&#xA;Here for example&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\beta_1 + 2\beta_2 = \frac {\partial  E(C \mid S)}{\partial S}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But maybe you are interested in how &quot;consumption changes&quot; when the environmental index changes when other influences on consumption are taken &lt;em&gt;structurally&lt;/em&gt; into account. This essentially implies that you would want a more rich right-hand side in your specification. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Note:&lt;/strong&gt; &quot;Take structurally into account&quot; is not the same as saying &quot;all else held constant&quot;. If you estimated a regression with more explanatory variables, the betas themselves would change, so the marginal effect of the index in that alternative scenario would be different even if we examined under the &quot;all else held constant&quot; assumption.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2018-06-19T16:55:33.590" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22510" PostTypeId="2" ParentId="22417" CreationDate="2018-06-19T17:10:05.527" Score="1" Body="&lt;p&gt;For every $x_i$ separately you get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\gamma_i}{x_i-a_i} = \lambda p_i \tag{1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Re-arranging,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\gamma_i}{\lambda} = p_ix_i - p_ia_i \tag{2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sum over $i$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac 1{\lambda}\sum\gamma_i = \sum p_ix_i - \sum p_ia_i \tag{3}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Re-arrange to solve for the optimal $\lambda$ taking into account the restrictions&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\sum p_ix_i = m ,\;\;\; \sum\gamma_i=1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\lambda^* = \frac {1}{m-\sum p_ia_i}\tag {4}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Insert into $(2)$, re-arrange and you 're done.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2018-06-19T17:10:05.527" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22511" PostTypeId="2" ParentId="22495" CreationDate="2018-06-19T18:05:40.723" Score="-2" Body="&lt;p&gt;If you ignore loop holes, it is easy to do and would lead to a very stable economy, because companies would stop making &quot;bubble prices&quot;, that implode as soon as other companies join the field. Also if would help the customer because you would know that a more expensive product includes more in it's price, be it extra function or quality.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But of course loop holes are the big problem. Just look at the CEOs at companies, they always claim to need 100 million bonus for taking &quot;responsibility&quot;, which in itself is nonsense because when actually something goes wrong and they could actually take the responsibility then just run away with another big extra bonus for leaving. And all that can be calculated into the production costs, as well as other random nonsense.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you want to stop companies to screw people over the best way would be a &quot;public base economy&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In short:&#xA;On one side are classical companies like we have today but there are also state controlled coulter companies. For example you have private car companies but you have also a state car company, that produces cars, by law on the same level as the private companies but only with so much profit as the state (and in a democracy the people) thinks is reasonable.&#xA;So private companies get limited over the normal marked. You could also control other aspects that way, as long as the consumer cares about the issue.&lt;/p&gt;&#xA;" OwnerUserId="18614" LastEditorUserId="18614" LastEditDate="2018-09-03T11:13:12.373" LastActivityDate="2018-09-03T11:13:12.373" CommentCount="7" ContentLicense="CC BY-SA 4.0" />
  <row Id="22512" PostTypeId="2" ParentId="22495" CreationDate="2018-06-19T21:01:07.773" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;What would happen if by law EVERY company on this planet can only make&#xA;  a maximum profit of 10 % for each product. When answering please&#xA;  ignore potential legal loopholes or anything similar.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Prices would definitely decrease but what about wages for workers.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Prices would not necessarily decrease. Wages are what would definitely decrease.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Production depends on two factors: labor and capital. Capping the profits to 10% per product will discourage investment, thereby causing significant withdrawals of capital. The reduction of capital will lead to layoffs, because the situation of &quot;too many cooks in the kitchen&quot; will arise at lower levels of capital. The resulting oversupply of labor will push wages down.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Conclusion: Communism and any its variants are altogether detrimental even to those who were supposedly going to be protected by the policy.&lt;/p&gt;&#xA;" OwnerUserId="18552" LastActivityDate="2018-06-19T21:01:07.773" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="22514" PostTypeId="1" CreationDate="2018-06-20T00:25:05.737" Score="1" ViewCount="232" Body="&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Edward_Luttwak&quot; rel=&quot;nofollow noreferrer&quot;&gt;Edward Luttwak&lt;/a&gt; published an essay in 1994, titled &lt;em&gt;Why Facism is the Wave of the Future&lt;/em&gt;; he wrote in this essay:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Partly because with generational change even senior managers can now themselves work those machines if they want to, thereby allowing them to understand their uses, abuses and non-uses; partly because more junior managers are increasingly compelled to use those machines in place of clerical help and clerical companionship;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;then&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;and partly because computer networks allow managers at the next level up literally to oversee, right on their own screens, the work that their underlings are doing or not doing, thereby giving it the same transparency as assembly-line work, with the same immediate visibility of inefficient procedures, inefficient habits and inefficient employees – for all these reasons the long-awaited, long-delayed increase in the efficiency of office-work has finally arrived, exposing hitherto more secure white-collar workers to the work-place dislocations, mass firings or at least diminishing employment prospects that have long been the lot of blue-collar industrial workers in mature economies.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I've heard the term 'precariat' banded about a bit in the UK for the past few years, which sort of tallies with this projection; but can firmer figures be put on this phenomenon? &lt;/p&gt;&#xA;" OwnerUserId="13857" LastActivityDate="2018-06-26T19:33:04.190" Title="Are white collar workers the blue collar workers of the future?" Tags="&lt;political-economy&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22515" PostTypeId="2" ParentId="22489" CreationDate="2018-06-20T01:23:13.757" Score="1" Body="&lt;p&gt;Here's one reason I think behind the push towards specialization. My explanation is not tailored around the goal of getting a better job, but instead towards success in a more general sense.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You note that specialization in education &quot;...goes completely against the principle of diversification of investments, in order to decrease risk by spreading it over a portfolio [sic]&quot;. You are correct in this statement: specialization is risky. However, that is precisely the point.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is a very nice recent working paper, &lt;a href=&quot;http://www.hanzhezhang.net/research/1402PreMatchingGambles.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.hanzhezhang.net/research/1402PreMatchingGambles.pdf&lt;/a&gt;&#xA;in which the author shows that, &quot;...people take risky investments they would have not taken if not for their subsequent participation in competitive matching markets&quot;. Perhaps the most compelling result is the first proposition,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Proposition 1:&lt;/strong&gt; If the surplus function $s(x_{m}, x_w)$ is linear in $x_m$, every man’s unique weakly dominant strategy is the extreme lottery. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;That means that the &lt;strong&gt;riskiest&lt;/strong&gt; bet is weakly optimal. Hence, in our world, where matching is competitive (and where a linear surplus is a reasonable assumption), specialization is rational.&lt;/p&gt;&#xA;" OwnerDisplayName="user11305" LastActivityDate="2018-06-20T01:23:13.757" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22516" PostTypeId="1" AcceptedAnswerId="22546" CreationDate="2018-06-20T04:14:20.177" Score="2" ViewCount="73" Body="&lt;p&gt;The main shortcoming of the first Basel Accord (Basel I) was that its capital requirements did not reflect the actual risk of the bank assets.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One way this nonsense influenced the asset choice of banks was: risk being equal, they chose to reduce the availability of credit to some categories of borrowers shifting towards other categories with lower capital charge, at the expense of more socially preferable investments.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, suppose a bank has to choose between granting a loan to Company A and another investment, B, both equally risky.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose that, due to the regulation rules, the bank has to put aside 150\$ of capital if it grants the loan to A or 100\$ if it invests in B. Hence, it will invest in B.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The same reasoning is valid for all the A-like companies and B-like investments, therefore it creates a credit crunch towards the former.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;According to &lt;a href=&quot;https://dictionary.cambridge.org/dictionary/english/credit-crunch&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://dictionary.cambridge.org/dictionary/english/credit-crunch&lt;/a&gt;, credit crunch is defined as:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;economic conditions that make financial&#xA;  organizations less willing to lend money,&#xA;  often causing serious economic problems&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;and this is bad for the regulator (which is the Central Bank or a similar State Agency).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this behavior by the bank (the agent) with respect to the regulator (the principal) a sort of moral hazard, taking into account that the actual riskiness of the companies is known by the bank but not by the regulator?&lt;/p&gt;&#xA;" OwnerUserId="18618" LastEditorUserId="18618" LastEditDate="2018-06-21T05:53:35.430" LastActivityDate="2018-06-23T22:45:04.867" Title="Is choosing an investment by a bank only due to its regulatory capital charge a form of moral hazard?" Tags="&lt;game-theory&gt;" AnswerCount="3" CommentCount="9" ContentLicense="CC BY-SA 4.0" />
  <row Id="22517" PostTypeId="2" ParentId="22491" CreationDate="2018-06-20T09:02:44.260" Score="1" Body="&lt;p&gt;Let $w_i &amp;gt; 0$ denote the per unit price of input $x_i$, $i\in\{1,2\}$. Consider the problem of identifying the firm that can produce 1 unit of output at lowest cost given the input prices $(w_1, w_2)$. Set of solutions to this problem, denoted by $f_e$, will depend on the input prices. In particular, given the data in the problem, we have the following solution :&#xA;\begin{eqnarray*} f_e(w_1, w_2) = \begin{cases} \{C\} &amp;amp; \ \text{if } \frac{w_1}{w_2} &amp;lt; \frac{1}{4} \\ \{C, D\} &amp;amp; \ \text{if } \frac{w_1}{w_2} = \frac{1}{4} \\ \{D\} &amp;amp; \ \text{if } \frac{1}{4} &amp;lt; \frac{w_1}{w_2} &amp;lt; 1 \\  \{D, E\} &amp;amp; \ \text{if } \frac{w_1}{w_2} =1 \\  \{E\} &amp;amp; \ \text{if } \frac{w_1}{w_2} &amp;gt;1 \end{cases} \end{eqnarray*}&lt;/p&gt;&#xA;" OwnerUserId="11824" LastEditorUserId="11824" LastEditDate="2018-06-20T09:45:19.233" LastActivityDate="2018-06-20T09:45:19.233" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22518" PostTypeId="2" ParentId="22489" CreationDate="2018-06-20T10:38:30.173" Score="0" Body="&lt;p&gt;According to the present scenario, it's good to have diversified knowledge as we know the world is quite dynamic but on the contrary to cope up with the current market competition of demand &amp;amp; supply of human resource we must gain specialisation in minimum one field so that we can prove oneself as a tough competition over other. &lt;/p&gt;&#xA;" OwnerUserId="18622" LastActivityDate="2018-06-20T10:38:30.173" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22520" PostTypeId="2" ParentId="22390" CreationDate="2018-06-20T12:15:00.327" Score="1" Body="&lt;p&gt;I agree with EnergyNumbers' answer but think that the underlying principle can be explained more simply.  The idea of a &quot;skills gap&quot; does not make basic economic sense, because the economy does not have a fixed or identifiable demand for any particular set of skills.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any task can be achieved in a variety of ways, using different combinations of resources.  While we think more often about combinations of land, labour and capital, it's also possible to use different mixtures of low and high skilled labour to get something done.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In short, if somebody's perception of the &quot;skills gap&quot; were magically closed today by instantly improving workers' skills, then tomorrow firms would be talking about the new &quot;skills gap&quot; they'd need to close in order to achieve a new, higher level of productivity and output that they had now set their sights on.&lt;/p&gt;&#xA;" OwnerUserId="16631" LastActivityDate="2018-06-20T12:15:00.327" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22521" PostTypeId="2" ParentId="22489" CreationDate="2018-06-20T13:39:27.047" Score="1" Body="&lt;p&gt;Somebody should post an answer based on Spence's famous model of &lt;a href=&quot;https://www.jstor.org/stable/1882010&quot; rel=&quot;nofollow noreferrer&quot;&gt;Job Market Signaling&lt;/a&gt;. Spence's observation was the following: suppose more able people find education easier (i.e., less costly) than do less able people. Then we can sustain an equilibrium in which education is interpreted as a signal of ability by employers--even if the education itself does not contribute to employees' productivity. The reason this is possible is that high ability individuals will be willing to incur the (low) costs of getting a good education, whereas the effort will be too great for low ability individuals.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If successfully completing education is more difficult as it becomes more advanced and more specialised then specialisation would make the signal more valuable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is obviously not the whole story, but this theory has the attractive feature that it can explain why people often choose fairly specialised courses of education that are not closely related to the career that they ultimately embark upon.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2018-06-20T13:39:27.047" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22522" PostTypeId="2" ParentId="9629" CreationDate="2018-06-20T16:03:14.433" Score="1" Body="&lt;p&gt;To add to the previous answers, and to directly answer your question with respect to a tight/loose policy and its relationship to currency, I think it is best to first define loose monetary policies as &lt;em&gt;those which increase demand for goods and services and/or leads to inflation&lt;/em&gt; and tight conditions as &lt;em&gt;those which reduce demand for goods and services and/or leads to price deflation&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, policies which tend to increase the value of a country's currency will cause a decrease in import prices, lowering prices in the economy, which is price deflationary.  Additionally, a strong currency reduces demand for a country's goods/services, &lt;em&gt;i.e.&lt;/em&gt; exports, as they become more expensive.  Both effects fit our definition of &quot;tight&quot; monetary conditions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Alternatively, a weak currency boosts demand for a country's exports and causes import prices to rise, leading to price inflation, these effects both fit into our definition of &quot;easy&quot; monetary conditions.&lt;/p&gt;&#xA;" OwnerUserId="18625" LastActivityDate="2018-06-20T16:03:14.433" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22524" PostTypeId="2" ParentId="22489" CreationDate="2018-06-20T23:19:55.637" Score="0" Body="&lt;p&gt;Adam Smith's &quot;Wealth of Nations&quot; suggests that &lt;em&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Division_of_labour&quot; rel=&quot;nofollow noreferrer&quot;&gt;division of labor&lt;/a&gt;&lt;/em&gt; results in higher productivity. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Specialization in a particular field is simply an example of division of labor. Employers, broadly, have little interest in hiring generalists, their work force is highly divided. They need a worker for a particular, specific task.&lt;/p&gt;&#xA;" OwnerUserId="4185" LastActivityDate="2018-06-20T23:19:55.637" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22525" PostTypeId="2" ParentId="22497" CreationDate="2018-06-20T23:30:08.663" Score="3" Body="&lt;p&gt;I not familiar with Marxist theory, but assuming your equations are right, we can just banter about the math:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given: &lt;span class=&quot;math-container&quot;&gt;$I,h$&lt;/span&gt; are both fixed&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$I*h = \frac{sv + v}{l}$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would assume in the short run &lt;span class=&quot;math-container&quot;&gt;$l$&lt;/span&gt;, labor force is also fixed, if you're trying to solve this for the whole economy, the workers must end up &lt;em&gt;somewhere&lt;/em&gt;. So,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$I*h*l = sv + v$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$fixed\_value = sv+v$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, all I can tell you is that if &lt;span class=&quot;math-container&quot;&gt;$SV$&lt;/span&gt;, surplus value, is going up, &lt;span class=&quot;math-container&quot;&gt;$V$&lt;/span&gt;, the value added by workers must go down. Jokingly, I suspect his recommendation is to not work so hard!&lt;/p&gt;&#xA;" OwnerUserId="4185" LastEditorUserId="4185" LastEditDate="2018-10-01T14:35:40.473" LastActivityDate="2018-10-01T14:35:40.473" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="22526" PostTypeId="1" AcceptedAnswerId="22541" CreationDate="2018-06-21T02:30:04.440" Score="5" ViewCount="96" Body="&lt;p&gt;In the introductory macroecon textbook I'm reading, it's made clear that savings=investment.  Mathematically, this makes sense to me.  However, I'm having trouble understanding the qualitative implications.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;After looking through other similar questions, it's clear that this is due to an accounting identity where inventory accumulation due to savings is counted as investment.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But, I stumbled across this blog post, &lt;a href=&quot;https://mainlymacro.blogspot.com/2012/01/savings-equals-investment.html&quot; rel=&quot;noreferrer&quot;&gt;https://mainlymacro.blogspot.com/2012/01/savings-equals-investment.html&lt;/a&gt;, that claims savings eventually equals investment in capital (S=DK).  From what I understand, the author of the post is saying that savings will lead to inventory accumulation, DS, which will eventually lead to output (Y) decreasing.  The output must decrease for the firm to avoid losing money.  Decreasing output will lead to income decreasing, and therefore savings further decrease to the point where savings equal DK, or investment in capital goods. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why does the eventual decrease in savings cause savings to equal investment in capital goods (S=DK)?  Am I correctly interpreting what the author of the post is saying?&lt;/p&gt;&#xA;" OwnerUserId="18628" LastActivityDate="2018-06-22T17:26:27.197" Title="Does savings lead to investment in physical capital?" Tags="&lt;macroeconomics&gt;&lt;investment&gt;&lt;saving&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22528" PostTypeId="1" CreationDate="2018-06-21T05:18:38.797" Score="0" ViewCount="982" Body="&lt;p&gt;When I do the basic calculations for mixed probability, I get that the Column player always plays B. However, I am getting a negative probability for the row. Any help is appreciated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/1SBjO.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/1SBjO.png&quot; alt=&quot;Question&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="18401" LastEditorUserId="1601" LastEditDate="2021-05-12T11:03:04.717" LastActivityDate="2021-05-12T11:03:04.717" Title="Find all of the Pure and Mixed Strategy Nash Equilibria" Tags="&lt;game-theory&gt;&lt;nash-equilibrium&gt;&lt;probability&gt;" AnswerCount="2" CommentCount="2" ClosedDate="2021-05-18T11:29:14.610" ContentLicense="CC BY-SA 4.0" />
  <row Id="22530" PostTypeId="2" ParentId="22528" CreationDate="2018-06-21T06:46:14.683" Score="0" Body="&lt;p&gt;Hints: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;As you say, B strictly dominates A for the second player.  You can draw a conclusion in terms of Nash equilibria about the second player&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;If the second player plays B then C and D produce the same result for the first player.  You can draw a conclusion in terms of Nash equilibria about the first player&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;If you draw the sensible conclusions, you may be able to see why your calculations for a unique mixed strategy Nash equilibrium is unlikely to work &lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2018-06-21T06:46:14.683" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22531" PostTypeId="1" CreationDate="2018-06-21T09:50:20.973" Score="1" ViewCount="127" Body="&lt;p&gt;Company A needs to provide service $p$ to company B. However if the company B will reserve the $(1-\alpha)$ fraction of resource for the serving customers of company A, company A will provide a discount proportional to ($1-\alpha$) to company B. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The utility function of company A is composed of benefit obtained from company B given as &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U(A)=\alpha*p*c*f(1-\alpha)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;c here is the unit cost of resource $p$ and this function is maximized in c. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The utility of company B is based on benefit-cost function and given as : &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U(B)=log(1+\alpha p)-\alpha *p * c * f(1-\alpha)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which is maximized in $\alpha$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I need a function$f(1-\alpha)$ which reduces the price $p*c$ .&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have considered the following functions &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$exp(-(1-\alpha))$$&#xA; But I could not find the value of $\alpha$ that would maximize the utility of company B&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\alpha p}{(1+(1-\alpha)^2)}$$&#xA;But this function also does not works.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any ideas for function $f(1-\alpha)$&lt;/p&gt;&#xA;" OwnerUserId="14084" LastEditorUserId="14084" LastEditDate="2018-06-27T05:45:42.397" LastActivityDate="2019-04-23T09:00:55.743" Title="Discount function" Tags="&lt;game-theory&gt;&lt;discount&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="22532" PostTypeId="1" CreationDate="2018-06-21T12:20:50.610" Score="-2" ViewCount="58" Body="&lt;p&gt;I’m struggling with a problem regarding the beta delta agent.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/1n6AI.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can someone give me a hint how I can come up with the levels of utility?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks in advance!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/MkeL2.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/MkeL2.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="18637" LastEditorUserId="18637" LastEditDate="2018-06-22T10:21:26.943" LastActivityDate="2018-06-22T12:44:14.473" Title="Beta delta Agent - Consumption decision" Tags="&lt;behavioral-economics&gt;&lt;decision-theory&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="22533" PostTypeId="1" AcceptedAnswerId="22537" CreationDate="2018-06-21T12:21:31.793" Score="1" ViewCount="61" Body="&lt;p&gt;I am working with the following Economic model of labour and consumption decisions:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;I have a population whose mass is normalized to one of consumers.&lt;/li&gt;&#xA;&lt;li&gt;They derive utility from consumption $c$,supplying labour $l$ and a public good $y$&lt;/li&gt;&#xA;&lt;li&gt;This is summarized by a differentiable utility function $u(c,l,y)$&lt;/li&gt;&#xA;&lt;li&gt;Agents derive earnings $z$ from suppliying labour according to:&#xA;$$z=nl$$&#xA;where $n$ corresponds to a &quot;skill level&quot; such that: $n\in[0,\infty[$. Such skill level is distributed according to distribution of skills $F(n)$ with density $f(n)$.&lt;/li&gt;&#xA;&lt;li&gt;$c_n$, $z_n=nl_n$ and $u_n$ are used to denote the consumption, earnings, and utility level of an individual with skill level $n$&lt;/li&gt;&#xA;&lt;li&gt;the individuals maximize their utility function subject to a constraint:&#xA;$$c_n=z_n-T(z_n)$$&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;where $T(\cdot)$ is a differentiable &quot;tax function&quot;&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt; 7.The public good is produced according to the sum of this tax function:&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;$$y=\int_0^{\infty}f(s)T(z_s)ds$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can use the equations above to express the maximization problem of the consumer as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\max_{z_n}u\left(z_n-T(z_n), z_n/n, \int_0^{\infty}f(s)T(z_s)ds\right)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first order conditions to this problem write (ommitting the arguments of the function $u$ for notation compactness):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$u_{c}(\cdot)(1-T'(z_n))+u_l(\cdot)/n+u_y(\cdot)\cdot  \frac{\partial y}{\partial z_n}=0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am interested in studying the last term $\frac{\partial y}{\partial z_n}$. It seems intuitive that $\frac{\partial y}{\partial z_n}=0$ since:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\partial y}{\partial z_n}=\int_0^{\infty}\frac{\partial f(s)T(z_s)}{\partial z_n}ds=0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;However, I am not sure about the mathematical requirement necessary for the last equation to make sense&lt;/strong&gt;. It seems somewhat contradictory to the intuition yo get when aggregating using sums, for instance a discrete analogous would be given by:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\sum_{s=0}^{\infty} T(z_s)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and it is clear that the derivative of the last expression with respect to $z_n$ would be equal to one.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Could you help me out here? Maybe some broad claryfication of integral aggregation would be required. Thanks!&lt;/p&gt;&#xA;" OwnerUserId="18636" LastActivityDate="2018-07-22T14:13:03.273" Title="Aggregating in a Continuum" Tags="&lt;taxation&gt;&lt;public-economics&gt;&lt;optimal-taxation&gt;&lt;public-goods&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22536" PostTypeId="2" ParentId="22532" CreationDate="2018-06-22T12:44:14.473" Score="0" Body="&lt;p&gt;One caveat, I've written this up while writing the world cup so there may be plenty of mistakes. In addition, I confess that the problem is not terribly transparent. However, here is how I'd interpret it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, when viewed in period $0$, the discounted weights for utilities accrued are $1, \beta \delta, \beta \delta^2$. I make the following assumption: that the given utilities for the various actions are realized immediately--this, I think, is what the writer of this problem wants, but it is not very clear (and indeed, I think it would actually be more reasonable from a modeling perspective if the essay benefit were realized at the end).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Write $P$ for &quot;Attend Party&quot;, write $E$ for &quot;Write Essay&quot; and $0$ for &quot;Do Nothing&quot;. Write a &lt;strong&gt;Plan&lt;/strong&gt; as a triple $\cdot, \cdot, \cdot$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I suppose that the agent cannot go to the party and write the essay on the same night. Moreover, I suppose that there is party on Sunday night $t=2$ (which may or may not be realistic). I also assume that if he parties on $t=0$, he is so hung over that he gets only $3$ addition value for writing the essay on $t=2$. If not, and he recovered fully, the problem would be trivial: he'd party on $t=0$ and write the essay on Sunday. To see this note that his optimal choice could be narrowed down to $P, 0, E$, which yields $10 + 2\beta\delta^2$ or $E, P, 0$, which yields  $2 + 10\beta \delta$. Clearly $P, 0, E \succeq E,P,0$ iff $10 + 2\beta\delta^2 \geq 2 + 10\beta \delta$ iff $\delta \leq 1$, which is always true (with strict inequality if $\delta \neq 1$). Furthermore, note that both of these plans would be followed by the agent at $t=1$ and $t=2$; no commitment device is needed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The agent has the following plans.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\begin{split}&#xA;&amp;amp;0, E, 0\\&#xA;&amp;amp;0, 0, E\\&#xA;&amp;amp;0, P, E\\&#xA;&amp;amp;P, 0, E\\&#xA;&amp;amp;P, E, 0\\&#xA;&amp;amp;E, P, 0\\&#xA;&amp;amp;E, 0, 0\\&#xA;&amp;amp;E, 0, P\\&#xA;&amp;amp;0, E, P&#xA;\end{split}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These yield to him the following utilities (when viewed from period $0$, should he be able to commit to this plan):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\begin{split}&#xA;&amp;amp;2\beta\delta\\&#xA;&amp;amp;2\beta\delta^2\\&#xA;&amp;amp;10\beta\delta - 5\beta\delta^2\\&#xA;&amp;amp;10 - 5\beta\delta^2\\&#xA;&amp;amp;10 - 5\beta\delta\\&#xA;&amp;amp;2 + 10\beta\delta\\&#xA;&amp;amp;2\\&#xA;&amp;amp;2 + 10\beta\delta^2\\&#xA;&amp;amp;2\beta\delta + 10\beta\delta^2&#xA;\end{split}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The possible commitment solutions are:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\begin{split}&#xA;&amp;amp;P, 0, E\\&#xA;&amp;amp;E, P, 0\\&#xA;\end{split}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These are also clearly optimal for the $t=1$ and $t=2$ player as well. Finally, we have $P, 0, E \succeq E, P, 0$ iff $10 - 5\beta\delta^2 \geq 2 + 10\beta\delta$, which holds iff $$\delta \leq \frac{\left(\sqrt{5}\cdot\sqrt{\frac{\left(5\beta+8\right)}{\beta}}-5\right)}{5}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Again, to whomever: please feel free to make any edits or corrections necessary.&lt;/p&gt;&#xA;" OwnerDisplayName="user11305" LastActivityDate="2018-06-22T12:44:14.473" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22537" PostTypeId="2" ParentId="22533" CreationDate="2018-06-22T13:47:37.947" Score="2" Body="&lt;p&gt;To obtain $\frac{\partial y}{\partial z_n}=0$, you implicitly assume that each consumer takes its own skill level as &lt;em&gt;given&lt;/em&gt;. And in such a case, in reality the consumer optimizes with respect to labor supplied only. Perhaps it would be better to optimaze with respect to $l$ given $n$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regarding aggregation the discrete analogous would not be what you write but&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\sum_{s=0}^{\infty}p(s) T(z_s)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $p(s)$ would be the proportion of the population having income $z_s$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that $y = E[T(z_s)]$, the expected value of individual tax burden w.r.t skill level. The density of $s$ plays in the continuous case the role of &quot;population proportions&quot; in the discrete setting&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2018-06-22T13:47:37.947" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22538" PostTypeId="1" CreationDate="2018-06-22T14:47:24.910" Score="9" ViewCount="640" Body="&lt;p&gt;In my country, Portugal, many IT companies are always complaining in media regarding the lack of skilled IT workforce, but they do not raise wages. We have statistical data from the government that proves what I am saying.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Companies are paying less in 2016 than in 2011 for IT workforce (&lt;strong&gt;-10.2%&lt;/strong&gt;). &lt;em&gt;GEP/MTSSS&lt;/em&gt;&lt;/li&gt;&#xA;&lt;li&gt;From 2014 to 2017 there is a decrease of IT workforce from &lt;strong&gt;110.900&lt;/strong&gt; to &lt;strong&gt;104.300&lt;/strong&gt; employees. &lt;em&gt;Eurostat - Employed ICT specialists&lt;/em&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;So, the facts:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Companies are paying lower salaries&lt;/li&gt;&#xA;&lt;li&gt;The number of it specialists also decrease (probably emigration).&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;If there is a shortage of workers, as the companies saying, why the law of supply and demand does not apply in this specific labor market?&lt;/p&gt;&#xA;" OwnerUserId="18647" OwnerDisplayName="daniel__" LastActivityDate="2021-03-30T21:36:32.327" Title="Lack of skilled IT workforce, but they do not raise wages" Tags="&lt;statistics&gt;&lt;labor-economics&gt;" AnswerCount="5" CommentCount="2" FavoriteCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="22539" PostTypeId="2" ParentId="22538" CreationDate="2018-06-22T15:51:55.637" Score="4" Body="&lt;p&gt;If, as they claim, there is a lack of skilled IT workers in Portugal, They have 4 options:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Raise IT salaries. &lt;/li&gt;&#xA;&lt;li&gt;Import IT workers. &lt;/li&gt;&#xA;&lt;li&gt;Export IT jobs. &lt;/li&gt;&#xA;&lt;li&gt;Tolerate existing conditions.  &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Another thing to consider - where do the skilled IT workers in Portugal go? Are they perhaps leaving Portugal for other countries? If Portuguese companies are training entry level people, who then move to another part of Europe after they get experience, then they could have both a shortage of IT workers &lt;em&gt;and&lt;/em&gt; a decrease in the overall skill level of their workers. This could cause both a labor shortage and a decrease in wages.&lt;/p&gt;&#xA;" OwnerDisplayName="user18648" LastEditorDisplayName="user18648" LastEditDate="2018-06-22T16:08:51.023" LastActivityDate="2018-06-22T16:08:51.023" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="22540" PostTypeId="2" ParentId="22538" CreationDate="2018-06-22T17:04:42.353" Score="8" Body="&lt;p&gt;The factual observations you've listed fit neatly with the law of supply.  You've seen that wages (price) have fallen, and during the same period, supply has gone down.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The fact that companies publicly complain that there aren't lots of cheap, highly skilled workers available is not the same as companies being willing to convert that into effective demand by raising wages.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One common reason companies moan about things publicly, for instance, is that they want the government to intervene to help them.  In this case, perhaps they want government to provide more subsidised IT training, or permit more immigration in the sector, either of which could lower wages further or prevent them from rising.&lt;/p&gt;&#xA;" OwnerUserId="16631" LastActivityDate="2018-06-22T17:04:42.353" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22541" PostTypeId="2" ParentId="22526" CreationDate="2018-06-22T17:26:27.197" Score="2" Body="&lt;p&gt;I think that part of the blog post is just saying that savings may not equal investment in capital &lt;em&gt;immediately&lt;/em&gt;, because there can be a delay caused by firms accumulating inventory.  But firms can't continue to accumulate inventory indefinitely, so this is only a transient phenomenon.  Sooner or later, inventory will reach a new equilibrium and savings will equal capital investment again.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;He &lt;em&gt;then&lt;/em&gt; goes on to talk about the reasons that a higher savings rate is unlikely to be sustained (the paradox of thrift).&lt;/p&gt;&#xA;" OwnerUserId="16631" LastActivityDate="2018-06-22T17:26:27.197" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22542" PostTypeId="1" AcceptedAnswerId="22544" CreationDate="2018-06-22T17:39:11.727" Score="0" ViewCount="92" Body="&lt;p&gt;What does the term &lt;strong&gt;Market Power&lt;/strong&gt; mean in microeconomic theory&lt;/p&gt;&#xA;" OwnerUserId="6611" LastEditorUserId="6611" LastEditDate="2018-06-25T20:15:58.827" LastActivityDate="2018-06-25T20:15:58.827" Title="Market Power in microeconomic theory" Tags="&lt;microeconomics&gt;&lt;game-theory&gt;&lt;academic-graduate&gt;&lt;education-economics&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="22544" PostTypeId="2" ParentId="22542" CreationDate="2018-06-22T20:51:58.077" Score="3" Body="&lt;p&gt;In competition policy (part of microeconomics), market power is often defined as the ability of a firm to raise and maintain prices above the levels that would prevail under competitive conditions (with obvious adjustments if the market power is held by a buyer).  Having market power does not necessarily mean it is used or abused, just that it can be&lt;/p&gt;&#xA;&#xA;&lt;p&gt;See for example:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://stats.oecd.org/glossary/detail.asp?ID=3256&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://stats.oecd.org/glossary/detail.asp?ID=3256&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/284400/oft415.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/284400/oft415.pdf&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2018-06-22T20:51:58.077" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22545" PostTypeId="2" ParentId="22538" CreationDate="2018-06-22T23:52:23.710" Score="5" Body="&lt;p&gt;There is a possible hazard to raising wages.  It does two things:  &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Draw more workers to your company.  &lt;/li&gt;&#xA;&lt;li&gt;Increase the cost of your existing workers.  &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;The first should be obvious.  If you increase wages, you can attract workers from other companies.  More workers for you.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The second is less obvious.  You don't necessarily have to raise the pay of your current workers if pay can be differentiated.  But if you start drawing away workers from other companies with higher pay, the natural tendency is for other companies to raise their wages.  Now they are drawing away your original workers.  So you have to match their offers and wages for your original workers are up too.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A third result is that paying higher wages reduces your profits.  If it reduces your profits past the zero point, you will eventually go out of business.  This is especially problematic because in the beginning, what you have is some higher paid workers.  But you have no work for them at the higher pay.  Because all the other competitors are paying less and charging less.  You paying more and charging more win no bids and get no projects.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;One reason this is especially dangerous in IT is that it is comparatively easy to work remotely.  So one firm might hire a Brazilian in Brazil to do the work, taking advantage of lower Brazilian wages.  This sets something of a ceiling on how much firms can charge.  There is extra coordination cost to working remotely like that.  The Brazilian employee can't attend meetings in person, etc.  But there is a limit to how much of a premium one can charge for avoiding that.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To put all this in economic terms, the demand for domestic IT labor is elastic.  As prices increase, the quantity demanded decreases sharply.  Foreign IT options create a natural substitute.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;TL;DR&lt;/strong&gt;  If the pressures limiting how much companies can charge are stronger than pressures limiting how little they can pay, companies will not charge more to pay more.  &lt;/p&gt;&#xA;" OwnerUserId="68" LastActivityDate="2018-06-22T23:52:23.710" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22546" PostTypeId="2" ParentId="22516" CreationDate="2018-06-23T00:09:55.980" Score="1" Body="&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Moral_hazard&quot; rel=&quot;nofollow noreferrer&quot;&gt;Wikipedia&lt;/a&gt;:  &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In economics, moral hazard occurs when someone increases their exposure to risk when insured.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.investopedia.com/ask/answers/09/moral-hazard.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;Investopedia&lt;/a&gt;:  &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Moral hazard is idea that a party protected in some way from risk will act differently than if they didn't have that protection. We encounter moral hazard every day—tenured professors becoming indifferent lecturers, people with theft insurance being less vigilant about where they park, salaried salespeople taking long breaks, and so on.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.economicshelp.org/blog/105/economics/what-is-moral-hazard/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Economics Help&lt;/a&gt;:  &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Moral Hazard is the concept that individuals have incentives to alter their behaviour when their risk or bad-decision making is borne by others.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;A moral hazard occurs when acting causes the behavior against which you are acting to increase.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, bailing out a bank due to risky loans that the bank took encourages future banks to make riskier loans.  If the loans pan out, they make a lot of money.  If the loans fail, they get a bailout.  A bailout is less harmful than a bankruptcy, so they view it as less of a risk.  The bailout avoids a bankruptcy today, but it puts more companies at risk of bankruptcy tomorrow.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In your example, you have two equally risky companies (or types of companies).  But the regulations regard one as riskier than the other.  So they encourage investment in one investment over the other.  That's the intended goal of the policy.  It's not a moral hazard if it is encouraging the intended behavior.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, it may be that the policy is misguided and distorts the market in ways that are not intended.  But that is not a moral hazard.  It would only be a moral hazard if the rule were intended to encourage increased investment in A but due to the way it changed the incentives, it actually increased investment in B.  &lt;/p&gt;&#xA;" OwnerUserId="68" LastEditorUserId="68" LastEditDate="2018-06-23T10:59:51.960" LastActivityDate="2018-06-23T10:59:51.960" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="22547" PostTypeId="1" CreationDate="2018-06-23T08:41:19.510" Score="1" ViewCount="17" Body="&lt;p&gt;I want to focus my product on SMEs (B2B financial service). So to research the market size I decided to check the numbers first. I had not a very productive time studding EU statistic data on &lt;a href=&quot;http://ec.europa.eu/growth/smes/business-friendly-environment/sme-definition_en&quot; rel=&quot;nofollow noreferrer&quot;&gt;their official site&lt;/a&gt;. &#xA;I thought that it's possible to determine market size of SMEs by their total revenue or operational balance (money flow). If you have better metrics please feel free to advice.&#xA;Is there someone who know where can I get these numbers from?&lt;/p&gt;&#xA;" OwnerUserId="14571" LastActivityDate="2018-06-23T08:41:19.510" Title="What is the size of European SMEs in case of money flow and revenue?" Tags="&lt;statistics&gt;&lt;euro-area&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="22548" PostTypeId="1" CreationDate="2018-06-23T09:12:16.033" Score="1" ViewCount="2571" Body="&lt;p&gt;In short, I'm having problems understanding the LM curve, as the explanation given by the picture is for me, the 4th row is counter intuitive. When risk premium increases it causes the interest rates to go higher, but I don't understand how is it related to the lower demand of money? When there's more demand of money, the interest rates get higher and the curve should shift to the left. Please help.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/pFhhN.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/pFhhN.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerDisplayName="user18652" LastActivityDate="2018-06-23T09:12:16.033" Title="Effect of risk premium on the money demand (LM curve)" Tags="&lt;interest-rate&gt;&lt;money&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22549" PostTypeId="2" ParentId="22516" CreationDate="2018-06-23T15:51:04.697" Score="1" Body="&lt;p&gt;&quot;moral hazard&quot; is probably not a good word to describe this, although it clearly can be related. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;moral hazard&quot; (in this context) is when the bank makes riskier-than-optimal loans under the assumption that someone else will pick up the tab if a black swan event occurs. Or, more generally, something which systematically reinforces incentives to place costs (or risk) on a third party, while enabling the investor(s) to retain the full benefit with inadequate or no insurance. The result is then a &quot;too-risky&quot; loan portfolio relative to the optimum.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;While the bank may indeed make calculated decisions in this context to make loans on the basis of some financial instrument or asset (e.g., loan) satisfying criteria to qualify as a specific form of capital when the underlying quality is in fact lower, that is not what would make it moral hazard. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What would make it moral hazard is if the bank were specifically calculating on the basis of known classification issues which would enable them to earn some flows of income which are 'too high' due to the ability to place cost or risk on the regulator or taxpayer. For example, without having to pay for insurance, or underpaying for insurance.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I.e., even if done in a manner 100% consistent with the letter of the regulations, it is not the fact of some classification issue which enables to classify some volume of in-fact-low(er)-quality loans as high(er) quality loans to satisfy some regulatory requirement that makes it &quot;moral hazard&quot;. But, rather, what makes it &quot;moral hazard&quot; is the &lt;strong&gt;incentive&lt;/strong&gt; to place cost or risk on third parties who obtain 'insufficient' or no exposure to the upside.&lt;/p&gt;&#xA;" OwnerUserId="16499" LastActivityDate="2018-06-23T15:51:04.697" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22552" PostTypeId="2" ParentId="22516" CreationDate="2018-06-23T22:45:04.867" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Is this behavior by the bank (the agent) with respect to the regulator&#xA;  (the principal) a sort of moral hazard, taking into account that the&#xA;  actual riskiness of the companies is known by the bank but not by the&#xA;  regulator?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;No, it is not moral hazard. And I would add that it is not morally/economically wrong either.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The bank's decision to lend money to option B might be driven from B's expected return being higher than A's, which could be symptomatic of A's lack of competitiveness. The bank does not have a duty to insure or subsidize A. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Nor is the bank's duty to accommodate the regulator's inaccurate assessment of risks. In fact, if for whatever reason the bank accommodated the regulator's misconception despite [bank's] knowledge that &lt;em&gt;risk(A) = risk(B)&lt;/em&gt; and &lt;em&gt;expected_return(A) &amp;lt;= expected_return(B)&lt;/em&gt;, funding A could contribute to creating a credit crunch in the sense that those resources could have been lent to other options that are more deserving (be it in terms of lower risk or of higher return at the same risk) of that loan.&lt;/p&gt;&#xA;" OwnerUserId="18552" LastActivityDate="2018-06-23T22:45:04.867" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22553" PostTypeId="1" CreationDate="2018-06-24T00:18:43.127" Score="0" ViewCount="40" Body="&lt;p&gt;i would appreciate titles on GDP--academic and lay.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;ty&lt;/p&gt;&#xA;" OwnerUserId="18656" LastActivityDate="2018-06-24T18:13:45.120" Title="best books about GDP" Tags="&lt;gdp&gt;" AnswerCount="1" CommentCount="2" ClosedDate="2018-06-26T12:56:33.910" ContentLicense="CC BY-SA 4.0" />
  <row Id="22554" PostTypeId="2" ParentId="22531" CreationDate="2018-06-24T10:10:55.983" Score="1" Body="&lt;p&gt;Note: The story behind the problem is still confusing, but I will merely focus on your utility functions.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;Edit&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In the problem, it seems that both are minimizing costs: $A$ is doing so via $c$, and $B$ via $\alpha$.  I assume you want a functional form that yields a closed-form solution (and not corner solutions).  In that case, you may want $U$'s to be quasi-concave (i.e. to have a unique maximum).  Namely, you want&#xA;\begin{eqnarray*}&#xA;\frac{\partial U(A)}{\partial c} &amp;gt;0,&amp;amp;&amp;amp;  \frac{\partial^2 U(A)}{\partial c^2} &amp;lt;0, &#xA;\\&#xA;\frac{\partial U(B)}{\partial \alpha} &amp;gt;0,&amp;amp;&amp;amp;  \frac{\partial^2 U(B)}{\partial \alpha^2} &amp;lt;0. &#xA;\end{eqnarray*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems that $f(1-\alpha) = - \ln(1-\alpha)$ satisfies those inequalities.&lt;/p&gt;&#xA;" OwnerUserId="18338" LastEditorUserId="18338" LastEditDate="2018-06-25T15:40:36.623" LastActivityDate="2018-06-25T15:40:36.623" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="22555" PostTypeId="1" CreationDate="2018-06-24T10:18:32.303" Score="1" ViewCount="39" Body="&lt;p&gt;Using the CSV file provided by &lt;a href=&quot;https://fred.stlouisfed.org/series/UNRATE&quot; rel=&quot;nofollow noreferrer&quot;&gt;St. Louis Fed&lt;/a&gt; (which is based on the data series &lt;a href=&quot;https://data.bls.gov/timeseries/LNS14000000&quot; rel=&quot;nofollow noreferrer&quot;&gt;LNS14000000&lt;/a&gt; from the Bureau of Labor Statistics) I noticed that the date is &lt;strong&gt;always the first day of each month&lt;/strong&gt; for the unemployment rate, i.e. for May 1957 it is &lt;code&gt;1957-05-01&lt;/code&gt; and so on. Because BLS currently &lt;a href=&quot;https://www.bls.gov/cps/&quot; rel=&quot;nofollow noreferrer&quot;&gt;will announce the data&lt;/a&gt; for June 2018 on the &lt;strong&gt;6th&lt;/strong&gt; of July, I doubt that the CSV file is correct. Where can I find the accurate historic release dates for the unemployment rates? &lt;/p&gt;&#xA;" OwnerUserId="18659" LastActivityDate="2021-04-09T19:04:00.437" Title="US unemployment data release date" Tags="&lt;data-request&gt;&lt;federal-reserve&gt;&lt;unemployment&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22556" PostTypeId="2" ParentId="22555" CreationDate="2018-06-24T10:22:45.267" Score="0" Body="&lt;p&gt;After some more intensive (4 mins) googling I found it on the &lt;a href=&quot;https://www.bls.gov/schedule/news_release/empsit.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;BLS&lt;/a&gt; website.&lt;/p&gt;&#xA;" OwnerUserId="18659" LastActivityDate="2018-06-24T10:22:45.267" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="22557" PostTypeId="2" ParentId="22538" CreationDate="2018-06-24T11:17:42.780" Score="6" Body="&lt;p&gt;Developing a point made in Dan's answer, it is important to &lt;a href=&quot;https://www.investopedia.com/terms/c/change_in_supply.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;distinguish between a movement along a supply curve and a shift of the whole curve&lt;/a&gt;, in this case the supply curve for skilled IT personnel.&lt;/p&gt;&#xA;&lt;p&gt;When a company decides what wage (price) it will pay, it is making a judgment about its preferred position on the supply curve it faces.  In other words it is choosing, from among the combinations of price and quantity of personnel available to it, the combination which it considers will maximise its profits.&lt;/p&gt;&#xA;&lt;p&gt;When a company moans that there is a shortage of skilled personnel, it is doing something very different.  It is expressing concern that its profits are less than they could be if more skilled personnel could be hired at any given price, that is, if the supply curve were shifted downwards. But the position of the supply curve is likely to be wholly or largely outside the control of any one firm.  So it may also be seeking government intervention with measures to shift the supply curve downwards.&lt;/p&gt;&#xA;&lt;p&gt;From the point of view of a profit-maximising firm, therefore, there is no inconsistency in holding the wage constant while complaining about a shortage of personnel.&lt;/p&gt;&#xA;" OwnerUserId="1417" LastEditorUserId="1417" LastEditDate="2021-03-30T21:36:32.327" LastActivityDate="2021-03-30T21:36:32.327" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22558" PostTypeId="2" ParentId="22528" CreationDate="2018-06-24T11:28:19.187" Score="1" Body="&lt;p&gt;I assume that you are calculating a mixed strategy for the row player so that the column player is indifferent between choosing $A$ and $B$.  And the reason why you get a negative probability is that the row player cannot make the column player indifferent by choosing, say strategy $C$, with a positive probability $\in [0,1]$.  This is because the column player (always) strictly prefers $B$.  &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Side-note: To avoid such confusion in the future, try to see whether you can apply math to calculate a mixed strategy to a game.  Here you clearly cannot (because of the above argument), and that is why math is giving you a ''weird'' answer.  Namely, math yields an answer to a question: What would be a &lt;strong&gt;hypothetical&lt;/strong&gt; probability with which the row player chooses, say, strategy $C$ to make the column player indifferent?  &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="18338" LastActivityDate="2018-06-24T11:28:19.187" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22559" PostTypeId="2" ParentId="22506" CreationDate="2018-06-24T12:58:42.337" Score="1" Body="&lt;p&gt;You can make $P$ the subject of the equation:&#xA;$$P=\frac{M-L} {ky} $$ then find the derivative $$\frac{\mathrm d P} {\mathrm d M} = \frac 1{ky}&amp;gt;0$$ to show there is a positive relationship (when $M$ increases, $P$ increases). The elasticity answers your question about proportionality: \begin{align*} &#xA;\frac{\mathrm d P} {\mathrm d M} \cdot \frac MP &amp;amp;= \frac 1{ky}\left( \frac {kPy} P + \frac {L \cdot ky} {M-L} \right) \\&#xA;&amp;amp;= 1 + \frac L{M-L} \end{align*} shows that $P$ increases more than proportionally (because the elasticity is greater than 1).&lt;/p&gt;&#xA;" OwnerUserId="175" LastEditorUserId="175" LastEditDate="2018-06-24T13:13:17.020" LastActivityDate="2018-06-24T13:13:17.020" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22560" PostTypeId="2" ParentId="22538" CreationDate="2018-06-24T14:01:11.667" Score="2" Body="&lt;ul&gt;&#xA;&lt;li&gt;Companies may complain that are not enough cashiers in supermarkets or seasonal workers in fields but it does not mean they will get significantly higher salary because of that&lt;/li&gt;&#xA;&lt;li&gt;It's quite usual that companies complain about shortage because it may help to attract students in some field&lt;/li&gt;&#xA;&lt;li&gt;It depends on company field - if it's outsourcing company, has limited budget, its competitiveness is based on price so ability to raise salaries or earn more money may be complicated. If a company has its own successful product then it can spend more on talented engineers&lt;/li&gt;&#xA;&lt;li&gt;There is Warren Buffett saying &quot;If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.&quot; - the same applies in hiring world - you should know who and how is making money. If you don't know, you are probably losing.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="13575" LastActivityDate="2018-06-24T14:01:11.667" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22562" PostTypeId="2" ParentId="22553" CreationDate="2018-06-24T18:13:45.120" Score="2" Body="&lt;p&gt;I can recommend &amp;quot;&lt;a href=&quot;https://press.princeton.edu/titles/10183.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;GDP: A Brief but Affectionate History&lt;/a&gt;&amp;quot; by Dianne Coyle as a non-technical background on GDP for a wide audience.&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Why did the size of the U.S. economy increase by 3 percent on one day in mid-2013—or Ghana's balloon by 60 percent overnight in 2010? Why did the U.K. financial industry show its fastest expansion ever at the end of 2008—just as the world’s financial system went into meltdown? And why was Greece’s chief statistician charged with treason in 2013 for apparently doing nothing more than trying to accurately report the size of his country’s economy? The answers to all these questions lie in the way we define and measure national economies around the world: Gross Domestic Product. This entertaining and informative book tells the story of GDP, making sense of a statistic that appears constantly in the news, business, and politics, and that seems to rule our lives—but that hardly anyone actually understands.&lt;/p&gt;&#xA;&lt;p&gt;Diane Coyle traces the history of this artificial, abstract, complex, but exceedingly important statistic from its eighteenth- and nineteenth-century precursors through its invention in the 1940s and its postwar golden age, and then through the Great Crash up to today. The reader learns why this standard measure of the size of a country’s economy was invented, how it has changed over the decades, and what its strengths and weaknesses are. The book explains why even small changes in GDP can decide elections, influence major political decisions, and determine whether countries can keep borrowing or be thrown into recession. The book ends by making the case that GDP was a good measure for the twentieth century but is increasingly inappropriate for a twenty-first-century economy driven by innovation, services, and intangible goods.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="108" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2018-06-24T18:13:45.120" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22563" PostTypeId="1" CreationDate="2018-06-24T23:18:59.760" Score="3" ViewCount="78" Body="&lt;p&gt;As noted in a &lt;a href=&quot;https://economics.stackexchange.com/questions/22497/marxist-economics-understanding-capitalist-exploitation-through-speed-up-or-i&quot;&gt;previous post&lt;/a&gt; one method of capitalist exploitation in marxian theory is through an increase in labor intensity as defined by the equation:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$I=\frac{SV+V}{lh}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A fellow user &lt;a href=&quot;https://economics.stackexchange.com/users/4185/regressforward?tab=profile&quot;&gt;RegressForward&lt;/a&gt; helped with the basic mathematics involved in this formula and came up with a decent understanding of the equation in my opinion. It appears to be the same as exploitation via increase via relative surplus value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However after searching the web for more on this topic I found that there exists a paper which uses a completely different formula which we can use for to get an equation for us who are more econometric ally inclned. A detailed review is in:&#xA;&lt;a href=&quot;https://www.tandfonline.com/doi/abs/10.1080/09538259.2011.583833&quot; rel=&quot;nofollow noreferrer&quot;&gt;Duration, Intensity and Productivity of Labour and the Distinction between Absolute and Relative Surplus-value&lt;/a&gt; by Stavros Mavroudeas.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Setup:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $T$ be the total daily work time of the workers, and $V$ and $SV$ be their value and surplus value produced during the day. It follows that:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$T=SV+V$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;He describes this process of increased intensity by including a factor $b$ which denotes intensity. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It follows that effective labor time is defined as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$t=bT$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;by extension it follows that effective value production and surplus value production is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$v=bV$$&#xA;$$sv=bSV$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Its interesting to note how this affects the marxian labor theory of value:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$P'=C+b(V+SV)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where revenue from sale at price $P'$ is divided based on value added by machinery (C) and effective Labor value and surplus.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;In Short:&lt;/strong&gt; As we can see Stephen Resnick uses a fundamentally different equation from Maveroudeas.  Is there a way to resolve these two equations?&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="8815" LastEditDate="2018-07-27T23:50:25.460" LastActivityDate="2018-07-27T23:50:25.460" Title="Marxist Economics: Contradicting Definitions of Capital Intensity?" Tags="&lt;marxism&gt;" AnswerCount="0" CommentCount="13" ContentLicense="CC BY-SA 4.0" />
  <row Id="22567" PostTypeId="1" CreationDate="2018-06-25T11:01:52.913" Score="0" ViewCount="145" Body="&lt;p&gt;In high school, I've never really questioned the law of supply, taking it as a given. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As I begin an introductory economics course in university, &quot;relearning&quot; the fundamentals of Economics, I realise I'm coming up against some difficulties trying to genuinely understand a fundamental concept: the law of supply. I have searched for similar questions here that concern this but none address the specific nature of my question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I was initially confused at the direct link between price and quantity supplied, given by my textbook, which states that at higher prices, producers will find it more profitable to produce more and will thus do so. At this point in the text, concepts of MC, MR, cost curves etc are a few chapters away, and I am somewhat clueless about them at the moment, but do feel free to use that in your explanation if needed - I know that ultimately, marginal cost has something to do with this but I'm not sure what (I've forgotten most of my high school stuff).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I guess a key concern is this: if more is produced, then total cost of producing also increases right and it may not always be more profitable to have more quantity supplied, unlike what my textbook says. So does the supply curve already account for this? I.e. at every point, the revenue earned will definitely be more than the cost? How can we just assume this?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The interesting thing is, I'm actually able to sort of understand it by reading values off the supply curve by looking at the x-axis (quantity) first (which is a valid approach) then y-axis (price), which is that if producers are to supply more, they will need greater revenue to cover greater costs of production to allow sustained profits (preferably increased profits, maybe same amount - but less important at this point).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In fact, this &quot;inverted&quot; law of supply is what I'd prefer. When I then try to &quot;re-invert&quot; this to try and understand the actual law of supply whereby price change is the cause and quantity supplied is the effect, I'm confused once more. Was hoping somebody could explain how exactly this works, preferably in relation to the explanation for the &quot;inverted&quot; law of supply. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Was wondering also if there's a &quot;mathematical proof&quot; for this - that'd be great, though the intuition behind it should preferably still be explained in plain simple words. &lt;/p&gt;&#xA;" OwnerUserId="11353" LastEditorUserId="11353" LastEditDate="2018-06-25T11:10:49.800" LastActivityDate="2018-06-30T20:47:10.093" Title="Understanding the law of supply" Tags="&lt;supply-and-demand&gt;&lt;price&gt;&lt;marginal&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22568" PostTypeId="1" CreationDate="2018-06-25T13:54:22.540" Score="-1" ViewCount="63" Body="&lt;p&gt;Following questions are related to a crypto project I am working on and proper answers are of utmost importance to this concept's development. I unfortunately lack expert knowledge about money supply mechanisms and quantitative easing.&#xA;What mostly affects possibility of cryptocurrencies becoming worldwide-accepted money, beyond technical issues, is their inherent instability to fiat currencies, which renders them useless for everyday common transactions - because their price fluctuates so much (mostly because of speculation) and nobody trusts fluctuating unit-of-exchange.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, in a fiat world when the buying power of money is decreasing, central bank expands money supply by simply printing more money (or rather they &quot;create money&quot; in exchange for government bonds as far as I know) and if the buying power of currency unit is increasing, central bank decreases money supply by selling bonds for money.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now in cryptocurrency world similar approach recently resurfaced (just as an idea now, I don't know of any working implementation). It uses something like &quot;seigniorage shares&quot;. Basic idea is we want 1 unit of cryptocurrency to be worth 1 USD. So the proposed solution in situation when we need to decrease the money supply (1 unit of cryptocurrency is worth more than 1 USD) then the system, working like central bank will create out of nothing some seignorage shares and sell them for investors hoping the system will buy them back in future for more cash, with profit for investor. Reversing this, if system needs to increase money supply (1 unit of cryptocurrency is worth less than 1 USD) it will buy those seignorage shares from users in exchange for units of that particular cryptocurrency.&#xA;So far, it works like central bank.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But in cryptocurrency world, in theory, there exists another, more straightforward approach. We could just measure the price of 1 unit of cryptocurrency in comparison to USD and increase or decrease money supply by just simply increasing or decreasing balances of cryptocurrency's account-owners pro-rata. So basically, if we need to put 10% of total cryptocurrency units out of existence to regain peg 1Crypto: 1USD, we could shrink all account balances by 10%, simply. And if we need more units in circulation to regain peg, then we increase all account balances pro-rata. It seems like it would work and it would work like central bank.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But bank uses shares as an instrument to take money and give money. One of the cryptocurrency experts Robert Sams wrote in his paper (&lt;a href=&quot;https://bravenewcoin.com/assets/Whitepapers/A-Note-on-Cryptocurrency-Stabilisation-Seigniorage-Shares.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://bravenewcoin.com/assets/Whitepapers/A-Note-on-Cryptocurrency-Stabilisation-Seigniorage-Shares.pdf&lt;/a&gt;):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;How not to distribute&#xA;One simple solution is to distribute pro-rata over all coin balances. This is the approach advocated by Ametrano in his creative coin stabilisation scheme dubbed ”Hayek Money”. This approach has the virtue of simplicity. All wallet balances are simply multiplied by Qi/Qi−1 in each period to arrive at a new wallet balance. [...] The problem is that this scheme only stabilises coin price, it doesn’t stabilise the purchasing power of a wallet balance. Recall the three functions of money:&#xA;1. Unit-of-Account&#xA;2. Store-of-Value&#xA;3. Medium-of-Exchange&#xA;Price stability is not only about stabilising the unit-of-account, but also stabilising money’s store-of-value. Hayek money is designed to address the former, not the latter. It merely trades a ﬁxed wallet balance with ﬂuctuating coin price for a ﬁxed coin price with ﬂuctuating wallet balance. The net eﬀect is that the purchasing power of a Hayek Money wallet is just as volatile as a Bitcoin wallet balance.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My questions: Why is that? Why more brutal method - increasing or decreasing account balances pro-rata wouldn't work in light of R. Sam's argument? Why he says that purchasing power of such wallets (accounts) would be just as volatile as in pre-determined non-flexible money supply systems, like Bitcoin? Why we need shares as a catalyst, why we need them at all?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or, maybe, we don't and increasing and decreasing accounts pro-rata is same effective?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks for help.&lt;/p&gt;&#xA;" OwnerUserId="18672" LastEditorUserId="1601" LastEditDate="2018-06-25T14:09:46.560" LastActivityDate="2018-06-26T16:52:05.817" Title="Question on money supply related to new crypto project" Tags="&lt;supply-and-demand&gt;&lt;money-supply&gt;&lt;quantitative-easing&gt;&lt;quantity-theory-of-money&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="22572" PostTypeId="1" AcceptedAnswerId="22574" CreationDate="2018-06-25T22:40:18.173" Score="4" ViewCount="897" Body="&lt;p&gt;I am reading an eight page piece called &quot;Labor Alienation&quot; by Karl Marx for my Literature class. Here's a link to it if you would like to read it:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.yavanika.org/classes/reader/marx1.pdf&quot; rel=&quot;noreferrer&quot;&gt;http://www.yavanika.org/classes/reader/marx1.pdf&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In it there is a line that says:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Political economy does not disclose the&#xA;  reason for the division between capital and labor, between capital and land.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;My background in economics is quite basic, so I apologize for this very basic question. But whatever help I can get will be greatly appreciated!&lt;/p&gt;&#xA;" OwnerUserId="18677" LastActivityDate="2018-07-27T13:34:21.087" Title="What does Marx mean by &quot;the division between capital and labor&quot;?" Tags="&lt;marxism&gt;&lt;definition&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22574" PostTypeId="2" ParentId="22572" CreationDate="2018-06-26T03:34:23.797" Score="5" Body="&lt;p&gt;Two main changes happened when capitalism came into existence these being the ability to buy and sell property among the peasantry.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Under the feudal system each household was endowed land which was used to produce food/ agricultural products for the household and the lord which provided the land.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When feudalism was abolished the possibilities of production outside the land allotted to the former peasantry was an option. However the nature of the work changed in the sense that workers were still productive but did not own their means of production in the same way that they did under the feudal system. they worked with the machines and materials provided by their employer but did not take the product back, but rather settled for a working wage which is systematically less than his own work. This is exactly the split between land and labor Marx is talking about- &lt;strong&gt;the inability of the worker to have access to the true product of labor&lt;/strong&gt; (or value of it).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The land provided by the lord was a place where the peasants lived so they were always one with their means of production and benefited from it. In the new capitalist system this was no longer possible.&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="44" LastEditDate="2018-06-26T07:50:34.003" LastActivityDate="2018-06-26T07:50:34.003" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="22576" PostTypeId="1" CreationDate="2018-06-26T08:12:25.507" Score="5" ViewCount="64" Body="&lt;p&gt;I recently went through a serious of lectures on economics and markets, and I was surprised by the lectures on options. The lecturer, said that the future prices of certain commodities like rice (food) could be closely estimated with option prices of the present. Commodities like fuel are also closely linked, but there are problems when there is war and diplomatic issues. But for things like shares, options prices are irrelevant to the prices of the future. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;While I understand the second example, I was to surprised with the other two because no reason was given. If anything, shares are controlled by the society, and therefore, should have been easier to control compared to say food, which is susceptible to natural calamities. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So my question is what are the characteristics of markets that could be predicted with options prices of the present? &lt;/p&gt;&#xA;" OwnerUserId="18644" LastActivityDate="2019-12-18T20:03:30.513" Title="Markets that are linked to options prices" Tags="&lt;asset-pricing&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="22577" PostTypeId="2" ParentId="22568" CreationDate="2018-06-26T10:47:13.133" Score="2" Body="&lt;p&gt;As I noted in a comment, the description in this question of real world central banks is overly simplistic. Central banks do not make proportional changes to the monetary base to set the price level. However, I will ignore those problems, and just address the core of the question:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) Will it make sense to change account balances on a pro rata basis to keep the price of a crypto currency stable?&#xA;2) Will “seigniorage shares” work to stabilise the currency value?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I will cover each of these in turn.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) Pro-rata change policy would have no benefits for holders of the currency. Imagine that the currency lost 10% of its value in trading one day, and so holders have a loss of purchasing power. If balances are reduced by (approximately) 10% to balance this, even if the currency returns to parity, you still lost 10% of the value of your holdings, since you have 10% less units.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This would also make any contractual obligations extremely awkward: any contract involving future payment would have to take into account the change of base. All transfers would have to effectively cease before the redenomination of accounts, in order to inconsistencies. If contracts do not take into account the change of base, you have no idea whether you can meet a future obligation. If I have \$100 in a bank account, I know that I can make a payment of \$90 next week, and could plan around that. If account balances are changing in an arbitrary fashion based on the exchange rate, I can no longer plan ahead.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the overall “market capitalisation” of the currency had a tendency to be stable, pro-rata changes might keep the value of the unit stable. But of the “market cap” is changing, the value of the unit would still change, but not as much. However, this is just cosmetic, like a stock split.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) I will admit that I have not read the linked paper on seigniorage shares, but I doubt that any such scheme could work, based on the description provided. The description given here states that developers create a “central bank” that issues the equivalent of Treasury bills to create an interest rate in the crypto-currency in order act like a real world central bank using interest rate policy. The problem is that real world central banks make seigniorage profits by buying Treasury bills issued by the fiscal arm of the government (the Treasury), and the Treasury is paying the interest. The Treasury can do this because it receives tax revenue, future tax revenue backs the interest stream.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The crypto central bank has no tax revenue. It can only pay interest by “printing” more currency units. The more interest is pays, the greater the future dilution of the crypto-currency. This does nothing to make outsiders believe that the crypto-currency will be more valuable in the future.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The only way such a scheme could help stabilise the value of the crypto-currency is that the “central bank” was engaging in activities that were in some sense profitable, so that those “profits” would cancel out the dilution that results from interest payments. For example, it could levy a small “network fee” on transactions (which is the sort of tax I believe that crypto-currency backers want to avoid). However, it is safe to say (based on equity market price volatility) that profit expectations are hardly stable, and so the value of the crypto-currency would change as “profit” expectations change. Since raising the rate of interest paid by the central bank will not improve its expected profitability, it would not be in the analgous position of a real world central bank, which is increasingly profitable as it raises interest rates. As a result, there is no reason for a crypto interest rate policy to act like real world interest rate policy.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastEditorUserId="12891" LastEditDate="2018-06-26T16:52:05.817" LastActivityDate="2018-06-26T16:52:05.817" CommentCount="9" ContentLicense="CC BY-SA 4.0" />
  <row Id="22578" PostTypeId="2" ParentId="20527" CreationDate="2018-06-26T11:32:36.173" Score="2" Body="&lt;p&gt;European countries offer a variety of different unionisation models, so provide reasonable evidence on the usual consequences of unionisation.  &lt;a href=&quot;https://www.theguardian.com/money/2006/jan/28/careers.themilitary&quot; rel=&quot;nofollow noreferrer&quot;&gt;Dutch military personnel are represented by a union&lt;/a&gt;, for instance.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &lt;a href=&quot;http://euromil.org/military-trade-unionism-europe/&quot; rel=&quot;nofollow noreferrer&quot;&gt;European Association of Military Organisations appears sanguine&lt;/a&gt; about the idea, although many European military unions don't have the right to strike (emphasis added):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The President concluded by emphasizing that EUROMIL strongly believes&#xA;  that &lt;strong&gt;military trade unionism does not harm military efficiency&lt;/strong&gt;. On the&#xA;  contrary, being represented in trade unions and professional&#xA;  associations can enhance the [morale] and loyalty of the troops.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Less information is available about the consequences of unionisation on working hours; in general, it seems that unions appear to understand and accept the reasons for long working hours under certain circumstances.&lt;/p&gt;&#xA;" OwnerUserId="16631" LastActivityDate="2018-06-26T11:32:36.173" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22580" PostTypeId="2" ParentId="22576" CreationDate="2018-06-26T14:34:47.530" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;what are the characteristics of markets that could be predicted with options prices of the present?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;There aren't any. Options might be descriptive of the present, today's expectations, and of today's uncertainty; but they cannot be predictive of the future.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Putting aside the intrinsic value of in-the-money options, option prices reflect traders' &lt;em&gt;expectations&lt;/em&gt; about the future price of the underlying asset. But &lt;em&gt;expectation&lt;/em&gt; does not mean &lt;em&gt;determination&lt;/em&gt; or &lt;em&gt;prediction&lt;/em&gt; of the future. In fact, traders try to factor volatility in their valuation of options, which further weakens the notion that option prices are predictors. Volatility represents uncertainty.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, it is false that option prices predict what the future price of the underlying asset will be.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The lecturer is wrong in the distinctions he stated. Had he substantiated his rationale for the distinctions, we would be able to either follow his point or identify where exactly his argument goes astray.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What could happen is that an option or its underlying asset are under- or overvalued, thereby creating arbitrage opportunities while price adjustments take place. However, that has nothing to do with options prices predicting any future prices.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;While I understand the second example, I was to surprised with the&#xA;  other two because no reason was given. If anything, shares are&#xA;  controlled by the society, and therefore, should have been easier to&#xA;  control compared to say food, which is susceptible to natural&#xA;  calamities.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Whether an asset is controlled by either nature or society has no bearing on this matter because nature and society are not even disjoint factors, and they are not mutually exclusive factors.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Trade and production of rice are subject not only to nature calamities, but also to acts of man: strikes, increase of technology, changes in work culture, sudden news that rice cures a chronic disease, and so forth.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Conversely, the stock price of an oil company might go down as a result of nature calamities and thus be unrelated to the acts of man.&lt;/p&gt;&#xA;" OwnerUserId="18552" LastEditorUserId="18552" LastEditDate="2018-06-26T14:42:01.167" LastActivityDate="2018-06-26T14:42:01.167" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22581" PostTypeId="1" AcceptedAnswerId="22586" CreationDate="2018-06-26T15:02:14.307" Score="0" ViewCount="178" Body="&lt;p&gt;Can anybody give me a hint how to solve the following problem?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;*One way to construct preferences over lotteries with monetary prizes is by&#xA;evaluating each lottery L on the basis of two numbers, Ex(L), the expectation&#xA;of L and var(L), L’s variance. Such a procedure may or may not be consistent&#xA;with vNM assumptions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Show that u(L) = Ex(L) − (1/4)var(L) induces a preference relation that&#xA;is not consistent with the vNM assumptions. (For example, consider&#xA;the mixtures of each of the lotteries [1] and 0.5[0] ⊕ 0.5[4] with the&#xA;lottery 0.5[0] ⊕ 0.5[2].)*&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am especially not sure about how to compute the variance in this case.&lt;/p&gt;&#xA;" OwnerUserId="15538" LastActivityDate="2018-06-26T22:47:40.727" Title="Preferences over lotteries" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22582" PostTypeId="1" CreationDate="2018-06-26T15:53:53.603" Score="0" ViewCount="47" Body="&lt;p&gt;If today the United States legalized counterfeiting, what would be the effect on the economy? The counterfeit must look authentic to be legal, thus requiring some skill.&lt;/p&gt;&#xA;" OwnerUserId="18681" LastActivityDate="2018-06-27T00:30:16.453" Title="What would be the effect on the economy if the United States legalized counterfeiting?" Tags="&lt;monetary-policy&gt;&lt;money-supply&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22583" PostTypeId="2" ParentId="22582" CreationDate="2018-06-26T19:24:17.807" Score="2" Body="&lt;p&gt;The initial effect would be great inflation, likely hyperinflation, devaluing the US dollar. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some counterfeiters have had extensive operations, running in the tens or hundreds of millions of dollars. Legalizing these operations would likely lead to a great increase in the number and extent of these operations. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Having more and larger &quot;counterfeiting&quot; operations, or under the proposed law, simply additional printing presses, would cause the US to lose all control over its monetary policy.&lt;/p&gt;&#xA;" OwnerUserId="4185" LastActivityDate="2018-06-26T19:24:17.807" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22584" PostTypeId="2" ParentId="22514" CreationDate="2018-06-26T19:33:04.190" Score="2" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;the long-awaited, long-delayed increase in the efficiency of&#xA;  office-work has finally arrived&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Actually, so far opposite has turn out to be true. The article was written in nineties, in time of boom of productivity. Contrary to expectations, technological advances did not bring higher efficiency of work. As a matter of fact, the productivity has stagnated, as shown in the data below (note that the chart presents all nonfarm labour, including services, office support, admin., etc.).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/32wIl.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/32wIl.png&quot; alt=&quot;US non-farm labour productivity&quot;&gt;&lt;/a&gt;&#xA;&lt;a href=&quot;https://tradingeconomics.com/united-states/productivity&quot; rel=&quot;nofollow noreferrer&quot;&gt;Source: U.S. Bureau of Labor Statistics, United States Nonfarm Labour Productivity, 1988-2018&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Not only software did not boost the office productivity, it is also one of the major factors of the stagnation - after all there are more distractions than ever in today’s workplace (social media, online games, etc.).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems that software designed to monitor employee productivity is not widely used. There are lots of time management apps (like TimeDoctor or WorkIQ, to name the few), budgeting apps, workflow apps, but it cannot be said that they expose &#xA;&lt;em&gt;'white-collar workers to the work-place dislocations, mass firings or at least diminishing employment prospects'&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With that being said, there are plenty of white-collar occupations that can be completely automated (for example bank tellers, bookkeepers, basically all the white collar jobs that include collecting and processing data), but that’s another issue. This is one of the main factors why employment in services in US, understood as % of total employment, never went back to the levels prior to the crisis of 2008.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/Q2LGa.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Q2LGa.png&quot; alt=&quot;Employment in services (% of total employment) in US&quot;&gt;&lt;/a&gt;&#xA;&lt;a href=&quot;https://data.worldbank.org&quot; rel=&quot;nofollow noreferrer&quot;&gt;Source: World Bank, Employment in services (% of total employment) in US, 1991-2017&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Precariat is something different, but related to the loss of job and overall lack of security in life. It was highly used in public debate amids of the crisis in eurozone (you can read one viewpoint from &lt;a href=&quot;http://www.guystanding.com/files/documents/Precariat_and_Class_Struggle_final_English.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Guy Standing&lt;/a&gt;, who popularized the term).&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;** As a side note, I used U.S. data, since USA is deemed to be pioneer in technological advances in services, but Japan would be another interesting example.&lt;/p&gt;&#xA;" OwnerUserId="15240" LastActivityDate="2018-06-26T19:33:04.190" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22585" PostTypeId="2" ParentId="11190" CreationDate="2018-06-26T20:05:40.163" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;I was wondering if options are considered a form of insurance? Is that&#xA;  the right way to think about options?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Yes, an option is a form of insurance. There are differences between insurance and options, but the existence of &lt;em&gt;counterparty risk&lt;/em&gt; is not one of them (see my comment to EnergyNumbers's answer).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Perhaps the most important difference is that options don't require the possession of (or even the intention to possess) the underlying asset, whereas in insurance the insurable risk relates to an item in possession of either the policy holder or (in the case of liability insurance) of a third-party.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When a person has a stock, buying a put option is equivalent to purchasing an insurance policy. In options, the underlying asset is a share, whereas in insurance the underlying asset is the property insured (auto, home, boat, etc). Both insurer and the writer of an option have an obligation to indemnize the buyer of the policy or option, accordingly, in the event that the underlying asset losses value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One difference is that the nature and implementation of options obviate processes that typically take place in an insurance context. For instance, the insurer scrutinizes whether the insured incurred moral hazard (which would lead to rejecting the insured's claim), committed fraud (which would void the policy), and what the circumstances of the loss were (for purposes of subrogation and recovery from third parties). By contrast, with options it suffices to ascertain the price of the underlying asset, the strike price, and the possession of that option, these tasks being automated at the clearinghouse on the expiration date.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Strategies such as butterfly spread combine both purchase and sale (by the same party) of options. In that type of strategies, the party is acting both as insured (in reference to the options he bought) and as insurer (in reference to the options he sold).&lt;/p&gt;&#xA;" OwnerUserId="18552" LastEditorUserId="18552" LastEditDate="2018-06-26T21:11:51.903" LastActivityDate="2018-06-26T21:11:51.903" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22586" PostTypeId="2" ParentId="22581" CreationDate="2018-06-26T22:47:40.727" Score="1" Body="&lt;p&gt;A lottery is essentially a probability distribution. So the variance of a lottery is the variance of the probability distribution it represents, which is given by the formula &#xA;\begin{equation}&#xA;\mathrm{Var}(L)=\sum_{i=1}^np_i(x_i-\mathbb E(L))^2,&#xA;\end{equation}&#xA;where $p_i$ is the probability that outcome $i$ occurs, $x_i$ is the monetary value of outcome $i$, and $\mathbb E(L)$ is the expected value of the lottery. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Take the lottery $L_2=0.5[0]\oplus0.5[4]$ for example. We can easily verify that $\mathbb E(L_2)=2$. By the formula above, then, &#xA;\begin{equation}&#xA;\mathrm{Var}(L_2)=0.5(0-2)^2+0.5(4-2)^2=4.&#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'll leave you to finish the rest of the question.&lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2018-06-26T22:47:40.727" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22587" PostTypeId="2" ParentId="22582" CreationDate="2018-06-27T00:30:16.453" Score="1" Body="&lt;p&gt;Something close to this happened to the &lt;a href=&quot;https://en.wikipedia.org/wiki/Somali_shilling&quot; rel=&quot;nofollow noreferrer&quot;&gt;Somali shilling&lt;/a&gt; after the central bank collapsed around 1991&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;counterfeiters concentrated on the largest denomination 1000 Sh.So. note&lt;/li&gt;&#xA;&lt;li&gt;the value of these notes fell to the physical cost of producing quality counterfeit notes, about 4 US cents per 1000 Sh.So. by 2008&lt;/li&gt;&#xA;&lt;li&gt;large transactions required a prohibitively large number of Somali notes and so foreign currency notes were used instead&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2018-06-27T00:30:16.453" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22589" PostTypeId="2" ParentId="22567" CreationDate="2018-06-27T14:25:44.513" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;As you noted correctly, it has something to do with the costs.  An important point here is a &lt;strong&gt;cost of producing an additional unit,&lt;/strong&gt; and not average cost.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Let me give the following example.  Suppose that you are an owner of a bakery, and you have a single employee who works $8$ hours and produces $8$ breads a day ($1$ bread an hour). Assume you have to pay your employee $\$1$ an hour for the first $8$ hours and $\$1.50$ (overtime) for each additional hour (after $8$ hours), and you sell each bread at $\$1.20$.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;One day you think to yourself: why not to produce and sell $9$ breads (you come to this thought by the same reasoning as in your question)?  Then, you realize that in order to produce the $9$th bread, you need to keep your employee working for an additional hour and have to pay overtime, namely $\$1.5$ for the $9$th hour.  However, you will still sell the $9$th bread for $\$1.20$, which means you will lose $\$0.30$ from producing and selling the $9$th bread.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose that the price of bread has increased to $\$1.60$.  Now, you surely want to keep your employee for the $9$th hour (or even more), since for each additional bread produced (after $8$ breads), you will make $\$0.10$ profit per bread.  So, you can see that an increase in price induced you to supply more.&lt;/p&gt;&#xA;" OwnerUserId="18338" LastEditorUserId="18338" LastEditDate="2018-06-29T16:37:53.007" LastActivityDate="2018-06-29T16:37:53.007" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22590" PostTypeId="1" CreationDate="2018-06-27T16:08:47.450" Score="5" ViewCount="393" Body="&lt;p&gt;I was wondering whether anyone might have an index of the articles that made up the &lt;em&gt;The Economist&lt;/em&gt;'s Schools Brief series that ran from 1975 to 1999 (with a brief refresh in 2013)?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;They were an interesting set of articles that explained economic concepts (with a free market slant, of course, being &lt;em&gt;The Economist&lt;/em&gt;) in an easy and accessible form.&lt;/p&gt;&#xA;" OwnerUserId="11412" LastEditorUserId="4988" LastEditDate="2018-06-29T03:16:38.800" LastActivityDate="2020-09-11T20:37:56.557" Title="An index of the The Economist's Schools Brief series" Tags="&lt;reference-request&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22591" PostTypeId="1" CreationDate="2018-06-27T18:08:27.007" Score="3" ViewCount="100" Body="&lt;p&gt;DSGE models, after log-linearisation, have a state-space representation. &#xA;In this representation, in most papers, the measurement/observation equation is simply stated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm wondering how one deduces that equation, or if it's something ad-hoc, how does one proceed, or what guidlines should we use?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="118" LastActivityDate="2021-04-13T03:04:55.473" Title="How to derive the measurement equation for the state-space representation of a DSGE model?" Tags="&lt;dsge&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22592" PostTypeId="2" ParentId="22591" CreationDate="2018-06-27T20:22:51.797" Score="0" Body="&lt;p&gt;Hi: I can't speak for DSGE models specifically but, in more standard &quot;rational expectations&quot; econometrics, the measurement equation usually comes from some assumed linear relation between the dependent variable and the expectation of some other variable. For example, one might have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$y_t = \beta x^{*}_{t} + \epsilon_{t}$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;where  $x^{*}_{t}$ is the expectation of $x$ at time t so $E(x_t|t-1)$. Note that $x_t$  is often not observable so some formulation for how the expectation is generated must be assumed.  So, for example, if one assumes the adaptive expectations hypothesis for the expectation, then this implies the following relation for $x^{*}_t$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$x^{*}_t = x^{*}_{t-1} + \gamma(x_{t-1} - x^{*}_{t-1})$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Putting the two relations together, one ends up with an exponential smoothing relation for $y_t$ which would then be the measurement equation:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$y_t = \beta \times \gamma \sum_{j=0}^{\infty} (1-\gamma)^{j} x_{t-j-1} + \epsilon_t$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Almost all of above is taken from Harvey's &quot;Econometric Analysis of Time Series&quot; which I highly recommend not for DSGE models but for RE type econometrics. I assume that something similar is done in DSGE models but I'm not absolutely sure because I have no experience with them. Still, this may help some.&lt;/p&gt;&#xA;" OwnerUserId="18201" LastActivityDate="2018-06-27T20:22:51.797" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="22593" PostTypeId="2" ParentId="22590" CreationDate="2018-06-27T20:57:40.143" Score="6" Body="&lt;p&gt;The Economist has some articles online from 1999 onwards: this is a partial selection of some which seemed interesting, though not quite what you are looking for&lt;/p&gt;&#xA;&lt;p&gt;1999&lt;/p&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.economist.com/unknown/1999/10/21/finance-trick-or-treat&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.economist.com/unknown/1999/10/21/finance-trick-or-treat&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.economist.com/unknown/1999/11/04/moneyed-men-in-institutions&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.economist.com/unknown/1999/11/04/moneyed-men-in-institutions&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.economist.com/unknown/1999/11/11/stocks-in-trade&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.economist.com/unknown/1999/11/11/stocks-in-trade&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.economist.com/unknown/1999/11/18/monopoly-power-over-money&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.economist.com/unknown/1999/11/18/monopoly-power-over-money&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.economist.com/unknown/1999/12/09/the-future-of-finance&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.economist.com/unknown/1999/12/09/the-future-of-finance&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;p&gt;2013&lt;/p&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.economist.com/schools-brief/2013/09/05/explaining-the-schools-briefs&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.economist.com/schools-brief/2013/09/05/explaining-the-schools-briefs&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.economist.com/schools-brief/2013/09/07/crash-course&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.economist.com/schools-brief/2013/09/07/crash-course&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.economist.com/schools-brief/2013/09/14/lending-weight&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.economist.com/schools-brief/2013/09/14/lending-weight&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.economist.com/schools-brief/2013/09/21/controlling-interest&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.economist.com/schools-brief/2013/09/21/controlling-interest&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.economist.com/schools-brief/2013/09/28/sovereign-doubts&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.economist.com/schools-brief/2013/09/28/sovereign-doubts&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.economist.com/schools-brief/2013/10/03/calling-to-accounts&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.economist.com/schools-brief/2013/10/03/calling-to-accounts&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;p&gt;2016&lt;/p&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.economist.com/leaders/2016/07/21/breakthroughs-and-brickbats&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.economist.com/leaders/2016/07/21/breakthroughs-and-brickbats&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.economist.com/news/2016/08/04/which-economists-have-had-the-greatest-impact&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.economist.com/news/2016/08/04/which-economists-have-had-the-greatest-impact&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.economist.com/economics-brief/2016/07/23/secrets-and-agents&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.economist.com/economics-brief/2016/07/23/secrets-and-agents&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.economist.com/economics-brief/2016/07/30/minskys-moment&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.economist.com/economics-brief/2016/07/30/minskys-moment&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.economist.com/economics-brief/2017/08/03/gary-beckers-concept-of-human-capital&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.economist.com/economics-brief/2017/08/03/gary-beckers-concept-of-human-capital&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.economist.com/economics-brief/2016/08/06/an-inconvenient-iota-of-truth&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.economist.com/economics-brief/2016/08/06/an-inconvenient-iota-of-truth&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.economist.com/economics-brief/2016/08/11/where-does-the-buck-stop&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.economist.com/economics-brief/2016/08/11/where-does-the-buck-stop&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.economist.com/economics-brief/2016/08/20/prison-breakthrough&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.economist.com/economics-brief/2016/08/20/prison-breakthrough&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.economist.com/economics-brief/2016/08/27/two-out-of-three-aint-bad&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.economist.com/economics-brief/2016/08/27/two-out-of-three-aint-bad&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.economist.com/sites/default/files/econbriefs.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.economist.com/sites/default/files/econbriefs.pdf&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;p&gt;2018&lt;/p&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.economist.com/finance-and-economics/2018/04/12/economists-understand-little-about-the-causes-of-growth&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.economist.com/finance-and-economics/2018/04/12/economists-understand-little-about-the-causes-of-growth&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.economist.com/finance-and-economics/2018/04/19/economists-still-lack-a-proper-understanding-of-business-cycles&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.economist.com/finance-and-economics/2018/04/19/economists-still-lack-a-proper-understanding-of-business-cycles&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.economist.com/finance-and-economics/2018/04/26/many-results-in-microeconomics-are-shaky&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.economist.com/finance-and-economics/2018/04/26/many-results-in-microeconomics-are-shaky&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.economist.com/finance-and-economics/2018/05/03/economists-focus-too-little-on-what-people-really-care-about&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.economist.com/finance-and-economics/2018/05/03/economists-focus-too-little-on-what-people-really-care-about&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.economist.com/finance-and-economics/2018/05/10/barriers-to-entry&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.economist.com/finance-and-economics/2018/05/10/barriers-to-entry&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;p&gt;This clearly misses the older articles.  Google turned up&lt;/p&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://marshallinside.usc.edu/joines/549/articles_pdf/ec901103.txt.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://marshallinside.usc.edu/joines/549/articles_pdf/ec901103.txt.pdf&lt;/a&gt; (Paradigm Lost, November 3, 1990&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://people.tamu.edu/%7Eaglass/econ452/Economist2a.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://people.tamu.edu/~aglass/econ452/Economist2a.pdf&lt;/a&gt; (The Miracle of Trade, 27 January 1996)&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://walkerd.people.cofc.edu/Readings/Markets/schoolsbrief.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://walkerd.people.cofc.edu/Readings/Markets/schoolsbrief.pdf&lt;/a&gt; (Feb 17 1996 - State and Market)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;&lt;em&gt;Added:&lt;/em&gt; The Economist relaunched the series in 2020, which (including some of those listed above) can be found at&lt;/p&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.economist.com/schools-brief/&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.economist.com/schools-brief/&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="8891" LastEditorUserId="8891" LastEditDate="2020-09-08T21:35:57.883" LastActivityDate="2020-09-08T21:35:57.883" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22594" PostTypeId="1" CreationDate="2018-06-28T01:00:32.390" Score="1" ViewCount="32" Body="&lt;p&gt;&lt;strong&gt;Question:&lt;/strong&gt; What are my best options for handling group-level correlations in a panel differences-in-differences model using StataSE 14.2?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Background:&lt;/strong&gt; I have a Differences-in-Differences (DiD) design where a policy (subsidised primary healthcare) was rolled out to different age-groups (k=4) in different years. Like many DiD designs, my model faces the issue of individual-level outcomes (unmet need for a doctor in past 12 months; binary) and group-level treatment, which means there will be (1) correlations within age*year clusters, and (2) serial correlation between age-groups across years.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ie. UNMETigt = αi+ αg + αt + γgt + βTREATgt + δCOVARSigt + εigt&lt;/p&gt;&#xA;&#xA;&lt;p&gt;While I haven't yet obtained access to the panel data, I imagine my Stata code might start from a basis of something like:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;xtset id year&#xA;xtreg unmet L.i.age##L.i.year + L.treat + L.covars&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Currently, this code does not account for the fact that treatment does not vary by i. I am aware that clustering by age*year will bias least-squares standard errors due to serial correlation for age-groups across years. I am also mindful that clustering solely by age-group to remove the time component will only leave me with four clusters, which is insufficient to estimate the correlation without bias. The literature I have consulted appears to cast doubt on the suitability of Stata's cluster option given serial correlation and few clusters (ie, &lt;a href=&quot;http://home.cerge-ei.cz/kaliskova/files/aqm2/Angrist%20Pischke.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Angrist &amp;amp; Pischke, 2008&lt;/a&gt;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Question: What are my best options for handling group-level correlations in a panel differences-in-differences model using StataSE 14.2?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(1) One option in the literature is to correct the standard errors for first-order serial correlation at the group-level, using an AR(p) structure along the lines of &lt;a href=&quot;https://www.sciencedirect.com/science/article/pii/S0304407606001515&quot; rel=&quot;nofollow noreferrer&quot;&gt;Hansen (2007)&lt;/a&gt;. I haven't seen any Stata modules that do this, but does anyone else know of one or something similar?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(2) Another option I've seen is block bootstrapping, which bootstraps the SEs by age-group akin to &lt;a href=&quot;https://www.mitpressjournals.org/doi/pdfplus/10.1162/rest.90.3.414&quot; rel=&quot;nofollow noreferrer&quot;&gt;Cameron, Gelbach &amp;amp; Miller (2008)&lt;/a&gt;. Would this involve simply specifying the option: vce(bootstrap, cluster(age)), or have I misunderstood?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(3) Is there a better approach I'm missing?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Apologies if I've missed something self-evident! I'm new to this form of analysis.&lt;/p&gt;&#xA;" OwnerUserId="18688" LastActivityDate="2018-06-28T01:00:32.390" Title="Diff-in-diff: Handling correlations within group-level treatment using microdata" Tags="&lt;paneldata&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22595" PostTypeId="1" CreationDate="2018-06-28T08:39:17.170" Score="0" ViewCount="51" Body="&lt;p&gt;As far as I understand, in order to make cryptocurrency pegged to USD we need somebody to take the risks of exchange rates. So, if ratio CRYPTO to USD is at a given time 1CRYPTO:1,1 USD, then we increase cryptocurrency supply by 10% and it will return to 1:1 parity? And conversely, if at a given moment ratio is 1.1 CRYPTO: 1 USD, we decrease money supply by 10% and ratio will return to 1:1, is that right?? Increasing and decreasing amounts of cryptocurrency in existence in response to price fluctuations can effectively peg 1 crypto: 1 USD or not??&lt;/p&gt;&#xA;" OwnerUserId="18672" LastActivityDate="2018-07-30T04:00:47.427" Title="Will periodical increasing and decreasing cryptocurrency supply peg cryptocurrency to dollar effectivelly?" Tags="&lt;macroeconomics&gt;&lt;supply-and-demand&gt;&lt;money-supply&gt;" AnswerCount="3" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="22596" PostTypeId="2" ParentId="22595" CreationDate="2018-06-28T09:04:59.720" Score="1" Body="&lt;p&gt;No, it's by no means a guarantee of a peg.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The cryptocurrency's actual exchange rate will be determined by people's collective expectations of the present and future value of the cryptocurrency relative to the dollar.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Most importantly, the exchange rate will be driven by how much people trust that they will actually be able to get a real dollar in exchange for a unit of the cryptocurrency.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2018-06-28T09:04:59.720" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="22598" PostTypeId="2" ParentId="22595" CreationDate="2018-06-28T15:35:37.410" Score="0" Body="&lt;p&gt;The only way to guarantee a stable price in USD terms, the instrument has to be convertible on demand to USD assets that are worth par value (for example, a bank deposit). A central body can achieve this by:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;exchanging the crypto-currency for USD monetary assets at a fixed price via direct transactions (something like a redemption); or&lt;/li&gt;&#xA;&lt;li&gt;intervening on crypto-exchanges to defend a fixed parity price.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;By implication, a central body has to be able to buy or sell USD monetary assets to exchange them for the crypto-currency. In the real world, only a legal entity can own assets, and transfer them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The individuals who control the legal entity will have full control of the USD assets, no matter what your software protocol says. If they walk off with the assets, your only recourse would be to real world courts, and you would only have recourse if you signed a legal contract with the instrument issuer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It would be extremely difficult to get such a scheme to not end up under securities regulations, and it would be hard to classify it as a “crypto-currency,” as it would just be another financial entity issuing securities.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastEditorUserId="12891" LastEditDate="2018-06-28T21:46:42.560" LastActivityDate="2018-06-28T21:46:42.560" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="22599" PostTypeId="1" AcceptedAnswerId="22600" CreationDate="2018-06-28T17:55:06.457" Score="65" ViewCount="15987" Body="&lt;p&gt;I've been reading and speaking to a number of educated economists and economics PhDs who are against the use of intense mathematics and mathematical proof in economic theory. Specifically I've been speaking to those of Marxist and heterodox persuasion and reading their work in an attempt to become more open minded.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;They emphasize that the study of work by classical economists (like Adam Smith, Karl Marx, and David Ricardo) is still relevant and that the practice of how mainstream economics uses mathematics is abusive and is an attempt to fool the masses regarding the &quot;science&quot; economists practice.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have difficulty understanding this argument. What is a reason to be against mathematics in economics?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Note:&lt;/strong&gt; I'm pretty mainstream and like how economics is taught and structured. I'm not anti math-in-economics, I just want to know why this is an argument.&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="1601" LastEditDate="2018-06-29T20:04:33.877" LastActivityDate="2021-02-21T16:28:08.307" Title="Criticism of Math in Economics" Tags="&lt;mathematical-economics&gt;&lt;soft-question&gt;" AnswerCount="23" CommentCount="19" FavoriteCount="30" ContentLicense="CC BY-SA 4.0" />
  <row Id="22600" PostTypeId="2" ParentId="22599" CreationDate="2018-06-28T18:30:30.020" Score="40" Body="&lt;p&gt;I find that the essay &quot;&lt;a href=&quot;https://aeon.co/essays/how-economists-rode-maths-to-become-our-era-s-astrologers&quot; rel=&quot;noreferrer&quot;&gt;The New Astrology&lt;/a&gt;&quot; by Alan Jay Levinovitz (an assistant professor of philosophy and religion, &lt;strong&gt;not&lt;/strong&gt; an economist) makes some good points.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;...the ubiquity of mathematical theory in economics also has serious downsides: it creates a high barrier to entry for those who want to participate in the professional dialogue, and makes checking someone’s work excessively laborious. Worst of all, it imbues economic theory with unearned empirical authority.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;‘I’ve come to the position that there should be a stronger bias&#xA;  against the use of math,’ &lt;a href=&quot;https://en.wikipedia.org/wiki/Paul_Romer&quot; rel=&quot;noreferrer&quot;&gt;Romer&lt;/a&gt; explained to me. ‘If somebody came and&#xA;  said: “Look, I have this Earth-changing insight about economics, but&#xA;  the only way I can express it is by making use of the quirks of the&#xA;  Latin language”, we’d say go to hell, unless they could convince us it&#xA;  was really essential. The burden of proof is on them.’&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The essay also makes a (more or less adequate&amp;mdash;which, I leave up to you) comparison with astrology in ancient China to show that excellent math can be used to prop up ridiculous science and grant status for its practitioners.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="18704" LastEditDate="2018-06-29T14:24:56.590" LastActivityDate="2018-06-29T14:24:56.590" CommentCount="18" ContentLicense="CC BY-SA 4.0" />
  <row Id="22601" PostTypeId="2" ParentId="22599" CreationDate="2018-06-28T19:29:59.733" Score="3" Body="&lt;p&gt;Economics is a social science, not an empirical or laboratory one. It is the study of human behavior in response to competing demands in an environment of scarcity. Human behavior cannot be predicted with mathematical precision — the only way to do it is to make large numbers of gratuitous and unsupportable assumptions about what people will do under a given set of circumstances. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Mathematical economists do not study people. Instead, they study what Nobel laureate Richard Thaler calls “Econs”... perfectly-knowledgeable, perfectly-intelligent, perfectly-logical, perfectly-sophisticated, perfectly-intentioned, perfectly-identical automatons who live and work in an environment of perfect competition; as opposed to humans, who are none of those things and who live on Planet Earth.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It’s not that math is bad — it lets us easily communicate complex ideas clearly and precisely. But we need to remember that the predictions rendered by mathematical economics, very often, will not hold in real life. We need to understand (and promote that understanding in those who look to the economics community for guidance and advice) that math only gets you so far — to make good policy, you need to understand what flawed, fallible, semi-unique, stressed, busy, selfish, sometimes stupid, imperfect human &lt;strong&gt;people&lt;/strong&gt; will do. And mathematics cannot tell you that.&lt;/p&gt;&#xA;" OwnerUserId="14503" LastEditorUserId="14503" LastEditDate="2018-06-28T19:35:17.673" LastActivityDate="2018-06-28T19:35:17.673" CommentCount="21" ContentLicense="CC BY-SA 4.0" />
  <row Id="22602" PostTypeId="2" ParentId="22599" CreationDate="2018-06-28T19:32:20.750" Score="15" Body="&lt;p&gt;I think that the opposition to mathematics in Economics mainly has to do with the obstacles it poses to &lt;em&gt;indoctrination&lt;/em&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A proposition expressed in terms of a mathematical/logic system is susceptible of objective verification, whence the inconsistencies of a proposition are more visible than where a rigid framework is missing. Moreover, mathematical propositions do not lend themselves to the hyperbole and passionate impetus that fuel a socio-political ideology.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The excerpt cited by @denesp reflects Levinotiz's confusion between the rules of logic and the rules of grammar. Despite the definiteness inherent to Latin grammar and the complexity of expressions it allows, its lack of logical rules and relations of consistency render grammar useless as method of proof.&lt;/p&gt;&#xA;" OwnerUserId="18552" LastActivityDate="2018-06-28T19:32:20.750" CommentCount="9" ContentLicense="CC BY-SA 4.0" />
  <row Id="22604" PostTypeId="2" ParentId="22599" CreationDate="2018-06-28T21:00:14.113" Score="4" Body="&lt;p&gt;The problem with math as used in modern economics is that the math is often used to describe models of human behavior. Modeling human behavior, whether with math or otherwise, is incredibly difficult especially over long time scales, if our goal is to make the model match reality. So it's not really that there's a problem with using math per se, but mathematical models of human behavior are by their very nature bound to fail in multitudinous ways, so that the detailed economic models built by economists do not match reality and don't have clear practical utility.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Economics must move away from modeling human behavior and move towards modeling institutions, governments, companies, etc. and the dynamics involving these agents. Mathematical models will be more useful here because the entities I described above have both fewer clearly defined parameters of existence, and their interactions with other human-composite entities are more range restricted than those involving human beings themselves.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Moving away from behavioral economics will restore legitimacy to economic science because a focus on institutions will yield more accurate models and therefore greater predictive and explanatory power.&lt;/p&gt;&#xA;" OwnerUserId="13698" LastActivityDate="2018-06-28T21:00:14.113" CommentCount="13" ContentLicense="CC BY-SA 4.0" />
  <row Id="22605" PostTypeId="1" AcceptedAnswerId="22607" CreationDate="2018-06-28T21:31:42.227" Score="1" ViewCount="129" Body="&lt;p&gt;Wikipedia defines GDP as:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Measure of the market value of all final goods and services produced in a period (quarterly or yearly) of time.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So, I take it that the total value of all goods (and services, whatever &quot;Services&quot; means) manufactured within the country per year is the country's GDP. This YouTube video does a nice job of explaining it too:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.youtube.com/watch?v=mjJmo5mN5yA&quot; rel=&quot;nofollow noreferrer&quot;&gt;What is Gross Domestic Product (GDP)?&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The United States GDP, also from Wikipedia, is around $19 trillion! &lt;/p&gt;&#xA;&#xA;&lt;p&gt;According to the definition, US should manufacture USD 19 trillion worth of goods (finished products) and services within the US, but again, according to this &lt;a href=&quot;https://en.wikipedia.org/wiki/Manufacturing_in_the_United_States&quot; rel=&quot;nofollow noreferrer&quot;&gt;Wikipedia article&lt;/a&gt;, US manufacturing industry outputs only about $2.2 trillion worth of goods. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, what accounts for the remaining $17 trillion? Is it the &quot;Services&quot;? If so, what are these services and how are they measured? &lt;/p&gt;&#xA;" OwnerUserId="18694" LastActivityDate="2019-09-30T09:39:54.837" Title="What accounts for the high GDP of the United States?" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;&lt;finance&gt;&lt;financial-economics&gt;&lt;united-states&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22606" PostTypeId="2" ParentId="22605" CreationDate="2018-06-28T22:03:04.303" Score="0" Body="&lt;p&gt;This webpage by the Bureau of Economic Analysis breaks down GDP by industry: &lt;a href=&quot;https://www.bea.gov/iTable/index_industry_gdpIndy.cfm&quot; rel=&quot;nofollow noreferrer&quot;&gt;link to BEA webpage.&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that in addition to manufacturing, there are also tangible outputs created by agricultural and extraction (mining and energy) industries. Furthermore, even for manufactured goods, not 100% of the final retail price is assigned to manufacturing. When breaking down GDP by industry, value-added contributions are allocated to wholesale and retail industries. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Generally speaking, GDP is measured by taking the market value of transactions, but there are other components that have an imputed value. One would need to read a full description of the national income and product accounts (NIPA) to get the full details. The BEA produces a lot of documentation on that front, I cannot hope to summarise it.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastEditorUserId="12891" LastEditDate="2018-06-29T17:35:32.390" LastActivityDate="2018-06-29T17:35:32.390" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="22607" PostTypeId="2" ParentId="22605" CreationDate="2018-06-28T22:51:35.800" Score="4" Body="&lt;p&gt;Looking at gross output (which includes using the outputs of other industries) and value-added (largely wages and profits) by industry you get numbers like this for 2017 in USD trillion.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Adding up the value-added gives total GDP, and you can see that there is a lot more to the economy than manufacturing&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;                                                         Gross output  Value-added&#xA;Agriculture, forestry, fishing, and hunting                       0.4  0.2&#xA;Mining                                                            0.5  0.3&#xA;Utilities                                                         0.4  0.3&#xA;Construction                                                      1.5  0.8&#xA;Manufacturing                                                     6.0  2.2&#xA;Wholesale trade                                                   1.7  1.2&#xA;Retail trade                                                      1.8  1.1&#xA;Transportation and warehousing                                    1.1  0.6&#xA;Information                                                       1.7  0.9&#xA;Finance, insurance, real estate, rental, and leasing              6.2  4.1  &#xA;Professional and business services                                3.8  2.4&#xA;Educational services, health care, and social assistance          2.8  1.6 &#xA;Arts, entertainment, recreation, accommodation, and food services 1.4  0.8&#xA;Other services, except government                                 0.7  0.4&#xA;Government                                                        3.7  2.5&#xA;&#xA;Total                                                            33.7 19.4&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2018-06-28T22:51:35.800" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22608" PostTypeId="2" ParentId="22599" CreationDate="2018-06-29T00:34:08.667" Score="19" Body="&lt;p&gt;I think there are two important criticisms or limitations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Limit 1:&lt;/strong&gt;  The first, overlapping with what many others have said, is that all mathematic economics are reduced-order models of very highly complex relationships between monumentally complex actors. As Einstein is alleged to have said (approximately) &quot;Insofar as the truths of mathematics relate to mathematics, they are certain. In so far as they relate to the world, they are not certain.&quot; 'Does this mathematics apply in this situation?' is always an open question.  Similarly, 'Is there a better mathematics that we haven't yet discovered?'&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Limit 2:&lt;/strong&gt;  The other problem, and it is bigger for economics than any other field I can think of, is the extent to which the state of the art knowledge of economics changes the economy because it becomes 'common knowledge'.  For example, when you convincingly show that investing in mortgage-backed securities is low-risk compared to the yield, and that home-ownership is a cornerstone of wealth-creation for ordinary people, the economy will pile into those things until the apparent excess value is consumed. This feedback and phase-changeability means that economies are non-ergodic - (apparently NN Taleb makes a lot of this point in Black Swan?)  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Even if economic knowledge were not encoded in policies of economic actors, the changing nature of society and technology will always cause problems under Limit 1.  Neither of these limits argues for excluding mathematics from economics, but they do argue for not excluding non-mathematical considerations (e.g. the political side of political economy) from economics. In practice, this might mean a bit more authority for the judgment of older economists who are wary of, for example, the value of high-speed trading.&lt;/p&gt;&#xA;" OwnerUserId="18698" LastActivityDate="2018-06-29T00:34:08.667" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22611" PostTypeId="1" CreationDate="2018-06-29T08:19:11.903" Score="1" ViewCount="172" Body="&lt;p&gt;I have the following assignment to solve but I'm not sure if I solved it correctly.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Questions&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Let the stochastic process $(Y_t)_t$ be defined by $Y_t = \mu + Y_{t-1} + \varepsilon _t$ with $(\varepsilon _t)_t\sim \mathrm{WN}(0,1)$.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;a) Calculate the expected value and the variance of $(\Delta Y_t)_t$.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;b) Prove that $(\Delta Y_t)_t\sim \mathrm{MA}(1)$ and calculate the autocovariance function of $(\Delta Y_t)_t$.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My solutions&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;a) \begin{eqnarray}&#xA;Y_{t+1} &amp;amp;=&amp;amp; \mu + Y_t + \varepsilon_{t+1}\\[1ex]&#xA;\implies \Delta Y_t = Y_{t+1}-Y_t &amp;amp;=&amp;amp; \mu +\varepsilon_{t+1}\\[1ex]&#xA;\mathrm E(\Delta Y_t ) &amp;amp;=&amp;amp; \mu + \mathrm E(\varepsilon_{t+1}) = \mu \hspace{6cm} \\[1ex]&#xA;\mathrm {Var}(\Delta Y_t) &amp;amp;=&amp;amp; \mathrm{Var}(\varepsilon _{t+1}) = 1&#xA;\end{eqnarray}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;b) \begin{eqnarray}&#xA;(\Delta Y_t)_t &amp;amp;=&amp;amp; \mu + \varepsilon_{t+1} + 0\cdot \varepsilon_t \\[1ex]&#xA;\implies \mathrm{ACV} &amp;amp;=&amp;amp; \mathrm{Cov}(\Delta Y_t, \Delta Y_{t-h})\\&#xA; &amp;amp;=&amp;amp; \mathrm{Cov}(\varepsilon_{t+1}, \varepsilon_{t-h+1}) = \left\{\begin{array}{ll}&#xA;1 &amp;amp; h=0 \\&#xA;0 &amp;amp; \text{otherwise}&#xA;\end{array}\right.&#xA;\end{eqnarray}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What do you think?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&#xA;&lt;/p&gt;&#xA;" OwnerUserId="13335" LastEditorUserId="175" LastEditDate="2018-07-02T17:08:28.883" LastActivityDate="2020-04-24T23:06:55.763" Title="Did I calculate the expected value and the variance correctly?" Tags="&lt;mathematical-economics&gt;&lt;statistics&gt;" AnswerCount="1" CommentCount="12" ContentLicense="CC BY-SA 4.0" />
  <row Id="22613" PostTypeId="2" ParentId="22599" CreationDate="2018-06-29T10:42:20.997" Score="35" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;What is a reason to be against mathematics in economics?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The danger that any tool creates: to impose itself on the tool-user, diluting and narrowing its view of the world. It is a matter of Human Psychology why this happens, but it certainly does, and the aphorism &quot;to he who holds a hammer everything looks like a nail&quot; expresses this phenomenon, which has nothing to do with economics specifically.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Mathematics offer a great service to the Economics discipline by providing a crystal-clear path from premises to conclusions. I fear the next time a Keynes with a General Theory book appears -and then we would have to spend decades again deciphering &quot;what the author really meant&quot; by his verbal arguments -and not really agreeing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &quot;abuse of mathematics&quot; certainly happens: producers and consumers of economic theory tend to not question/worry/have nightmares about &quot;the premises&quot;, to the extend that they should. But once we leave the premises unchallenged, the conclusions become &quot;undeniable truth&quot;, since they have been derived in the rigorous mathematical way.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But the ability to challenge the conclusions is always there, if only we take the time to review critically the premises.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another, more sophisticated way that mathematics may be abused is the belief that the deviation from reality that the premises represent, transfers over to conclusions in a &quot;smooth&quot; manner (call it &quot;the principle of non-accelerating propagation of error&quot;): to consider the trivial example, sure, the assumptions describing a &quot;perfectly competitive&quot; market (the premises) do not hold &quot;exactly&quot; in reality. But, we argue, if they are &quot;close enough&quot; to the structure of a real-world market, then the conclusions we will reach through our model will be &quot;close enough&quot; to the actual outcomes in this market. This belief is not unreasonable, and it is borne by reality in many cases. But this principle of &quot;smooth approximation&quot; does not hold universally. So even if we check the premises and we are satisfied that they are not absurd, it still remains the possibility that the real-world phenomenon we examine is not so well-behaved, it has discontinuities that may make a small deviation lead to very different outcomes in reality. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;That's the abstract analysis of the matter. The sociological and historical view would ask &quot;but if a tool, that theoretically can be used in the proper way, has been seen for decades to be used inappropriately and create undesirable consequences, shouldn't we conclude that we must abandon its use?&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;...in which instant, we start arguing about &lt;em&gt;the extent&lt;/em&gt; of these &quot;undesirable consequences&quot; and whether they overcome any benefits from the use of the tool. In other words, this matter too, dreadfully comes down to a cost-benefit analysis. And we rarely agree on that either.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="1601" LastEditDate="2018-06-29T11:00:49.950" LastActivityDate="2018-06-29T11:00:49.950" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="22614" PostTypeId="1" AcceptedAnswerId="22629" CreationDate="2018-06-29T11:31:06.957" Score="0" ViewCount="43" Body="&lt;p&gt;On the diagram below it is stated that A' has input slacks as it could reduce the amount of $x_2$ and still be on the frontier (by moving to C). However I recall mix-inefficiency having a similar definition. Is there any difference between slacks and mix-inefficiency?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/95zMe.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/95zMe.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="16530" LastActivityDate="2018-07-31T03:00:04.283" Title="Are slacks the same as mix-inefficiency?" Tags="&lt;pareto-efficiency&gt;&lt;productivity&gt;&lt;nonparametrics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22615" PostTypeId="2" ParentId="22599" CreationDate="2018-06-29T11:58:54.780" Score="5" Body="&lt;p&gt;Clearly, mathematics could never cover the full richness of the human experience.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;…In that Empire, the Art of Cartography attained such Perfection that&#xA;  the map of a single Province occupied the entirety of a City, and the&#xA;  map of the Empire, the entirety of a Province. In time, those&#xA;  Unconscionable Maps no longer satisfied, and the Cartographers Guilds&#xA;  struck a Map of the Empire whose size was that of the Empire, and&#xA;  which coincided point for point with it. The following Generations,&#xA;  who were not so fond of the Study of Cartography as their Forebears&#xA;  had been, saw that that vast Map was Useless, and not without some&#xA;  Pitilessness was it, that they delivered it up to the Inclemencies of&#xA;  Sun and Winters. In the Deserts of the West, still today, there are&#xA;  Tattered Ruins of that Map, inhabited by Animals and Beggars; in all&#xA;  the Land there is no other Relic of the Disciplines of Geography.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Jorge Luis Borges, &lt;a href=&quot;https://en.wikipedia.org/wiki/On_Exactitude_in_Science&quot; rel=&quot;noreferrer&quot;&gt;On Exactitude in Science&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="1442" LastActivityDate="2018-06-29T11:58:54.780" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="22616" PostTypeId="2" ParentId="22599" CreationDate="2018-06-29T12:14:15.450" Score="4" Body="&lt;p&gt;Mathematics is just language that can be used to provide clear, accurate statements. It should not be seen as an obstacle&amp;mdash;rather, it should flow naturally alongside the other language with which it is written (e.g. English). I don't believe that maths is inherently &quot;rigorous&quot; or &quot;authoritative&quot;, as other answers have mentioned, because the reader &lt;em&gt;should&lt;/em&gt; be critical enough to spot errors. However, I recognise the limitation here: either because of a limit in human cognition, because people don't put the effort in to study mathematics, or because of a fear of maths, some people &lt;em&gt;aren't good at maths&lt;/em&gt;. I think that is where this problem stems from, &lt;strong&gt;but&lt;/strong&gt; I don't believe that poor aptitude at maths is a good enough argument for why we shouldn't use it. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Excluding maths from economics is akin to saying that that maths should be kept separate from other subjects.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand, reading through the answers reminds me of Paul Romer's paper &lt;a href=&quot;https://paulromer.net/wp-content/uploads/2016/09/WP-Trouble.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;The Trouble With Macroeconomics&lt;/em&gt;&lt;/a&gt;. He criticizes (with a good example) that incorrect assumptions that are made for a mathematical deduction can easily be obfuscated. Section 5.3 reads:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In practice, what math does is let macroeconomists locate the Facts With Unknown Truth Value farther away from the discussion of identification. The Keynesians tended to say &quot;Assume P is true. Then the model is identified.&quot; Relying on a micro-foundation lets an author can say, &quot;Assume A, assume B, ... blah blah blah .... And so we have proven that P is true. Then the model is identified.&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;with the &quot;blah blah blah&quot; making it harder to detect incorrect assumptions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As &lt;a href=&quot;https://economics.stackexchange.com/questions/22599/criticism-of-math-in-economics#comment37184_22600&quot;&gt;Wildcard said&lt;/a&gt;, the average person may well end up skimming over the maths, in blind faith that it's correct, for lack of effort of checking it themselves.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In closing, sure, economics needs a sociological, psychological or political setting, but mathematics helps to study ideal situations. We can't create complete models of humans or institutions, but economics would be very empty if we didn't study ideal situations. Maths belongs in economics&amp;mdash;perhaps those who want it taken out have not satisfied their interest in social sciences enough by studying alternative social science subjects.&lt;/p&gt;&#xA;" OwnerUserId="175" LastActivityDate="2018-06-29T12:14:15.450" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22617" PostTypeId="2" ParentId="21317" CreationDate="2018-06-29T12:40:08.980" Score="1" Body="&lt;p&gt;The function $\tau$ is the 'line of best fit', the growth trend. The 'residual' $y-\tau$ is the output gap. So, $\tau$ detrends $y$ over time, to give the detrended business cycle $y-\tau$. $\quad y-\tau$ fluctuates around 0&amp;mdash;it is positive when the output gap is positive and the economy is in a boom, and negative when the economy is in recession.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first term makes the line of best fit follow the points in a more curvy way than just a straight line; the second term makes the line of best fit straighter (the higher $\lambda$ is).&lt;/p&gt;&#xA;" OwnerUserId="175" LastActivityDate="2018-06-29T12:40:08.980" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="22618" PostTypeId="2" ParentId="22599" CreationDate="2018-06-29T12:55:17.900" Score="26" Body="&lt;p&gt;I would like to point out that &lt;a href=&quot;https://economics.stackexchange.com/q/22599/1601&quot;&gt;the question&lt;/a&gt; is not whether we should have math in economics, but why some people attack mathematical economics. A lot of the recent answers seem to try to answer the first question.&lt;/p&gt;&#xA;&lt;p&gt;Now then, to cover all bases like a good incumbent in a differentiated product market, I will also post an answer with points that economists have already raised about this question.&lt;/p&gt;&#xA;&lt;p&gt;Hayek in his Nobel Lecture:&lt;a href=&quot;https://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/1974/hayek-lecture.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;The Pretence of Knowledge&lt;/a&gt; said&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;It seems to me that this failure of the economists to guide policy more successfully is closely connected with their propensity to imitate as closely as possible the procedures of the brilliantly successful physical sciences - an attempt which in our field may lead to outright error. It is an approach which has come to be described as the &amp;quot;scientistic&amp;quot; attitude - an attitude which, as I defined it some thirty years ago, &amp;quot;is decidedly unscientific in the true sense of the word, since it involves a mechanical and uncritical application of habits of thought to fields different from those in which they have been formed.&amp;quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Paul Romer coined the term &lt;a href=&quot;https://en.wikipedia.org/wiki/Mathiness&quot; rel=&quot;nofollow noreferrer&quot;&gt;mathiness&lt;/a&gt; to describe the issue in his (unrefereed) paper &lt;a href=&quot;https://paulromer.net/mathiness/Mathiness.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Mathiness in the Theory of Economic Growth&lt;/a&gt;. He writes&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;The market for mathematical theory can survive a few lemon articles&#xA;filled with mathiness. Readers will put a small discount on any&#xA;article with mathematical symbols, but will still find it worth their&#xA;while to work through and verify that the formal arguments are&#xA;correct, that the connection between the symbols and the words is&#xA;tight, and that the theoretical concepts have implications for&#xA;measurement and observation. But after readers have been disappointed&#xA;too often by mathiness that wastes their time, they will stop taking&#xA;seriously any paper that contains mathematical symbols. In response,&#xA;authors will stop doing the hard work that it takes to supply real&#xA;mathematical theory. If no one is putting in the work to distinguish&#xA;between mathiness and mathematical theory, why not cut a few corners&#xA;and take advantage of the slippage that mathiness allows? The market&#xA;for mathematical theory will collapse. Only mathiness will be left. It&#xA;will be worth little, but cheap to produce, so it might survive as&#xA;entertainment.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;He goes on to give specific examples of 'mathiness', including works by high profile economists like Lucas and Piketty.&lt;/p&gt;&#xA;&lt;p&gt;Tim Harford provides a laymen's summary of Romer's paper in his blogpost &lt;a href=&quot;http://timharford.com/2015/06/down-with-mathiness/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Down with mathiness!&lt;/a&gt; In this he writes&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;As some academics hide nonsense amid the maths, others will conclude&#xA;that there is little reward in taking any of the mathematics&#xA;seriously. It is hard work, after all, to understand a formal economic&#xA;model. If the model turns out to be more of a party trick than a&#xA;good-faith effort to clarify thought, then why bother?&lt;/p&gt;&#xA;&lt;p&gt;Romer focuses his criticism on a small corner of academic economics,&#xA;and professional economists differ over whether his targets truly&#xA;deserve such scorn. Regardless, I am convinced that the malaise Romer&#xA;and Orwell describe is infecting the way we use statistics in politics&#xA;and public life.&lt;/p&gt;&#xA;&lt;p&gt;There being more statistics around than ever, it has never been easier&#xA;to make a statistical claim in service of a political argument.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="4230" LastEditDate="2021-02-21T16:28:08.307" LastActivityDate="2021-02-21T16:28:08.307" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="22619" PostTypeId="2" ParentId="22599" CreationDate="2018-06-29T15:47:01.267" Score="3" Body="&lt;p&gt;To start with, it can be noted that the rise in mathiness in economics is substantially related to increased data processing power, whether in support of theoretical demonstration or empirical application. It is not itself an objective.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regarding the specific question of why heightened mathiness may be criticized:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) Economics originates from moral philosophy. There are those who believe that debates involving who gets what, and on what terms, is related to moral philosophy. Mathematical tools can help to express moral concepts or present argumentation about which approach might better serve some moral end.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) a) Complex math can enable theoretical presentation which is mathematically satisfactory for expressing a theory, but mathematical complexity should not be perceived as demonstration of quality in and of itself, and b) mathematical complexity doesn't necessarily mean that empirical applications will be any better. The risk may be that in order to impress other economists, unnecessarily and/or incorrectly complex math is used to express and/or develop a theory.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think being open minded in this context would be supported by a belief that diverse economists question the value of heightened mathiness, or that diverse economists view heightened mathiness as a tool (which brings risks, in particular of false overconfidence in results) and not an objective in and of itself. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It can also be noted that one of the main contributions of Marx, aside from proto-macro theory, is extensive development of the idea that technology affects production conditions. And, that production conditions affect the way that all of us live. You don't have to be communist to think that this piece of knowledge is a) useful, and b) not necessarily well served by mathematical demonstration even if some very mathy empirical applications may present results which are very relevant for practical policy considerations. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For most cases, such views should not be perceived as 'anti-math', per se, but rather critical of excessive reliance on (or overconfidence in) mathematical demonstration and/or math-heavy empirical applications as a tool. These can be supplemented by socio-political and/or moral argumentation or reasoning, or if outside of the scope of the work it can at least be explicitly recognized that such considerations are relevant.&lt;/p&gt;&#xA;" OwnerUserId="16499" LastActivityDate="2018-06-29T15:47:01.267" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22620" PostTypeId="2" ParentId="22599" CreationDate="2018-06-29T17:32:52.913" Score="2" Body="&lt;p&gt;It is not the math but that authors misuse the math language.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Check out &lt;a href=&quot;https://en.wikipedia.org/wiki/LL_parser&quot; rel=&quot;nofollow noreferrer&quot; title=&quot;LL Parser&quot;&gt;this Article&lt;/a&gt; (unrelated to the topic). Where are the Definitions? What is the meaning of &lt;strong&gt;&lt;em&gt;S&lt;/em&gt;&lt;/strong&gt;, &lt;strong&gt;&lt;em&gt;E&lt;/em&gt;&lt;/strong&gt;, the arrow inbetween, and all these other symbols? Someone who has not studied this subject can not know.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Scientific texts have many quality standards, like citing others, but defining math symbols is not a standard. In my opinion that is not good, especially if such publications are read by the public.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;It should be a standard in science to define all symbols in public contexts&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I believe this to be the answer to why your colleagues and most other math haters dont like &quot;math&quot; (which, as i already said, is actually not the problem).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The solution can only come from the scientific community.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For websites there is btw a trivial solution, Hover over the above link to see it.&lt;/p&gt;&#xA;" OwnerUserId="18718" LastActivityDate="2018-06-29T17:32:52.913" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="22621" PostTypeId="2" ParentId="22599" CreationDate="2018-06-29T19:34:43.060" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;What is a reason to be against mathematics in economics?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I don't think there is a blanket reason to be against math anymore than there is a blanket reason to be against case studies. It is almost a matter of epistemology. What are the knowledge claims made, with what methods, and with what evidence? Some sorts of questions are very well suited for a quantitative treatment: Like, what is the effect of increased accessibility on housing prices? Or, given a number of variables on cost and household demographics, which mode of transport is a household likely to take to work? There are models that are well suited for finding patterns in that type of questions where the domain is fairly specific, and they may work reasonably well even absent a strong theory underlying observed patterns.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Conversely, a number of questions are of a different nature entirely, related to bigger historical shifts. The rise and fall of the labor movement in the US, say, or why did some cities see a revival when others didn't? Such questions are probably better answered by a different approach than using models (this doesn't mean that there can't be useful quantitative components of asking those questions).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ultimately, I think it has more to do with the sorts of questions different researchers are interested in rather than a wholesale rejection of a practical approach.&lt;/p&gt;&#xA;" OwnerUserId="18697" LastActivityDate="2018-06-29T19:34:43.060" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22623" PostTypeId="2" ParentId="18329" CreationDate="2018-06-30T02:06:34.873" Score="-2" Body="&lt;p&gt;Debt is between US govt and The Fed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the Fed reset the debt back to 0 and bail out the govt, nothing changes. The next debt epoch starts. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Viscious if my understanding is correct. No other govt in the world has this freewheeling !!&lt;/p&gt;&#xA;" OwnerUserId="18726" LastActivityDate="2018-06-30T02:06:34.873" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22624" PostTypeId="2" ParentId="22599" CreationDate="2018-06-30T03:39:46.170" Score="1" Body="&lt;p&gt;At the end of the day, economics and its offshoots (ie business, management, marketing etc) are all social sciences. These areas of inquiry are concerned with specific facades of human behavior as individuals or groups. While quantitative methods are very useful in categorizing and generalizing these behaviors, the behavior itself is highly personal and individualistic. For example, you and I could go into the same supermarket, at the same time, buy the same items and leave. This behavior when analyzed quantitatively, will arrive at an average of our behavior and its root causes, it will however completely miss the individual behaviors. By defining a non-existent third behavior (the average) it will model our behaviors, but will not reflect the true nature of the behaviors it is trying to explain. But when you have a large enough sample for a given population the quantitative analysis just about becomes good enough to draw generalizations, but the generalization being drawn usually is not representative of a given individual. &lt;/p&gt;&#xA;" OwnerUserId="18728" LastActivityDate="2018-06-30T03:39:46.170" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22625" PostTypeId="2" ParentId="22595" CreationDate="2018-06-30T03:47:39.030" Score="-1" Body="&lt;p&gt;As long as it the creates and destroys the correct amount of tokens it should be able to maintain the peg. The cryptocurrency Steem Dollars is a stable cryptocurrency. The system buys and sells the unstable cryptocurrency steem, to manage its money supply.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The only purpose of steam is to manage the money supply, so it has no fundamental value. So if everybody panic sold steem dollars, steem would hyperinflate. It would then be irrational to hold steem and there would be no more buyers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If it were backed in actual assets such as bonds, stock, gold, silver, currencies, or maybe even other cryptocurrencies, it would be better defended against panic sells.&lt;/p&gt;&#xA;" OwnerUserId="18727" LastActivityDate="2018-06-30T03:47:39.030" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22627" PostTypeId="2" ParentId="22567" CreationDate="2018-06-30T19:28:14.690" Score="0" Body="&lt;p&gt;Assume a profit maxmizing but price-taking firm. It solves&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$max_q \{pq - c(q)\}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and the first order condition is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$q^*: p=c'(q^*)$$&#xA;and this will be a global maximum if $c''&amp;gt;0$ (convex, i.e. accelerating costs)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Inverting&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$q^* = (c')^{-1}(p)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The last equation is the supply curve of the individual firm, i.e. the &lt;em&gt;profit maximizing&lt;/em&gt; quantity at each price level (we can postulate the existence of a price so low that maximum profits are negative and so production will be zero in the long run. But we are mostly concerned with what happens as price rises). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A first question is, since we already have assumed &lt;em&gt;accelerating&lt;/em&gt; costs as quantity rises, what guarantee do we have that profits will stay positive and rising at high levels of prices?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The profit function is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\pi = pq^* - c(q^*) = p\cdot [(c')^{-1}(p)] - c[(c')^{-1}(p)]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and we want positive and rising profits, namely&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\pi &amp;gt; 0 ,\;\;\; \frac{\partial\pi}{\partial p}  &amp;gt; 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But if we have $\frac{\partial\pi}{\partial p}  &amp;gt; 0$ it suffices to obtain a single price level where maximum profits are positive, and then we know they will be positive for any higher price level. But if there is no price level with positive maximum profits, the market won't exist. So let's concentrate on the derivative calculation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems complicated but it is not so much. And this is because&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\partial\pi}{\partial p} = \frac {\partial}{\partial p}\big(pq^* - c(q^*)\big)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ = q^* + p\frac{\partial q^*}{\partial p} - c'(q^*)\cdot \frac{\partial q^*}{\partial p}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$=q^* +[p-c'(q^*)]\cdot \frac{\partial q^*}{\partial p}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But the profit function is &lt;em&gt;characterized throughout&lt;/em&gt; by the profit maximizing relation $p=c'(q^*)$,so we conclude that &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\partial\pi}{\partial p} = q^*&amp;gt;0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So we know that as price increases the price-taking supplier can &lt;em&gt;increase&lt;/em&gt; her profits by following the rule &quot;quantity such that marginal cost equals price&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;But does this imply that the maximum profits will increase by &lt;em&gt;increasing&lt;/em&gt; quantity, which is what we want to prove?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We realize that for this we need to show also that $\frac{\partial q^*}{\partial p}&amp;gt;0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here we need to apply the inverse function theorem. Some math properties of the cost function  will ensure that $(c')^{-1}(p) = (c^{-1})'(p)$ and then&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\partial q^*}{\partial p} = \frac{\partial (c')^{-1}(p)}{\partial p)} = \frac{\partial (c^{-1})'(p)}{\partial p} = \frac {1}{c''(p)} &amp;gt;0 $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and we just obtained the &quot;Law of Supply&quot; (upward sloping supply curve).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We see that accelerating costs not only do they not create troubles to the Law of Supply, but on the contrary, guarantee that it holds. Intuitively, since the producer must set quantity so as for marginal cost to equal price, if price increases, it follows that production will be at a level where marginal cost is higher than before. So if costs are accelerating in quantity (positive 2nd derivative) this will be achieved at higher output level.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note: beware that the title &quot;Law of Supply&quot; is also used for &lt;a href=&quot;https://en.wikipedia.org/wiki/Say%27s_law&quot; rel=&quot;nofollow noreferrer&quot;&gt;Say's Law&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;ADDENDUM&lt;/strong&gt;&lt;br&gt;&#xA;With constant returns to scale in the production function and price-taking behavior, we know that costs are linear, i.e. marginal cost is constant and $c''=0$. In such a case, the &quot;Law of Supply&quot; is defended in the following way: since the profit maximizing problem is now not well-defined, the size of each firm is indeterminate. Then we invoke, although not explicitly model, size constraints (which is reasonable). Then a higher price is an indication that quantity demanded exceeds quantity supplied, and due to size constraints the current firms won't be able to fulfill the excess demand. This will induce new firms to enter the market, and so overall quantity supplied will increase.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2018-06-30T20:47:10.093" LastActivityDate="2018-06-30T20:47:10.093" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22628" PostTypeId="2" ParentId="22599" CreationDate="2018-06-30T20:37:32.037" Score="12" Body="&lt;h2&gt;&quot;All models are wrong; some are useful.&quot;&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;The title is really all one needs, but to put a few more words behind it, mathematics is very good at deriving detailed results from very specific premises.  It is very easy to make a mistake in the premises and obscure the consequences with language.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A major issue in macroeconomics is that every policy decision must be self-referential.  It's very easy to accidentally assume that some small actor won't change their decision making slightly in an unexpected way that makes the whole thing fall apart.  It's also very easy to make the mathematics look airtight.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In more microeconomic situations, you have assumptions about how the world will function.  This is most easily seen by developing an AI which can make a killing when fed historical data, but which fails utterly in the real market.&lt;/p&gt;&#xA;" OwnerUserId="9032" LastEditorUserId="9032" LastEditDate="2018-06-30T23:36:23.607" LastActivityDate="2018-06-30T23:36:23.607" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="22629" PostTypeId="2" ParentId="22614" CreationDate="2018-06-30T20:54:15.703" Score="1" Body="&lt;p&gt;If by &quot;slack&quot; we mean that part of the quantity used from an input does not result in an increase in output, then it is evident that this is an inefficient mix of inputs. It is not even about re-allocating inputs to reduce/minimize costs, we are clearly totally wasting some input quantity.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2018-07-01T02:08:07.260" LastActivityDate="2018-07-01T02:08:07.260" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22630" PostTypeId="1" CreationDate="2018-07-01T00:00:19.327" Score="0" ViewCount="60" Body="&lt;p&gt;Are DSGE models used for the day-to-day government policy estimation and optimization? E.g. can DSGE model be used for estimation of the return of additional investments in education and how those education gains propagates to the whole economy (possibly DSGE in multi-sectoral setting this propagation will be sector-dependent). Can similar estimations be made for investments in healhtcare, for industrial policy, for investments in R&amp;amp;D, for estimation for welfare programmes? Can DSGE models be tuned monthly estimations, for making arguments about budget decisions?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are there government papers (no matter which government, just sample could be acceptable) which uses DSGE models for such estimations?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If DSGE models are not used for government decisions about issues that are outside monetary and fiscal scopes, then - what is the reason why DSGE (as the best macroeconomic models available today) is not used for government policy optimization? Are parameter estimation costs so large?&lt;/p&gt;&#xA;" OwnerUserId="5373" LastActivityDate="2018-07-01T00:00:19.327" Title="Use of DSGE models for the day-to-day government policy decisions? If no - then what are obstacles?" Tags="&lt;political-economy&gt;&lt;government&gt;&lt;dsge&gt;&lt;political&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="22632" PostTypeId="2" ParentId="22599" CreationDate="2018-07-01T04:26:45.190" Score="4" Body="&lt;p&gt;In my experience the most important reason is that economics has political implications and that creates a huge moral hazard to use complex incomprehensible math to arrive to politically desirable conclusions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Unlike in natural sciences, economic models can hardly be verified empirically and require tons of assumptions. Add a thick layer of math on top and you can support pretty much anything. In fact, anything beyond linear regression hardly improves predictive power in practice.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Seasoned economists see through this. Some are in on it (hey, it is very profitable!) and some are pretty unhappy about all this abuse of math, which is unethical from a scientific point of view. But I guess many are both. At the end of the day, we all have bills to pay and families to feed. Nevertheless, we are still scientists. So there is a lot of cognitive dissonance and strong feelings going on.&lt;/p&gt;&#xA;" OwnerUserId="6231" LastEditorUserId="1601" LastEditDate="2018-12-08T20:59:55.723" LastActivityDate="2018-12-08T20:59:55.723" CommentCount="7" ContentLicense="CC BY-SA 4.0" />
  <row Id="22633" PostTypeId="1" CreationDate="2018-07-01T05:35:39.903" Score="1" ViewCount="196" Body="&lt;p&gt;There is a question about Solow growth and Ramsey model,&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;compared to solow model, the Ramsey model is better to explain growth patterns across countries because it predicts a slower convergence rate.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Can we evaluate this statement?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Firstly consider the production function as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$f(k)=k^{\alpha}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For Ramsey model utility function is as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/zLpTq.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/zLpTq.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where rho is discount rate. And it’s lagrangian function can be set up as;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/YNgIu.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/YNgIu.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;After some calculations, speed of convergence is calculated as &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/uOhF5.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/uOhF5.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where g is technological growth and n is labor growth. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And for solow model speed of convergence is $$μ_2= (1-\alpha)(\delta + n+ g$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;delta is depreciation rate.&#xA;Again I obtain this formula after some calculations,  it I don’t want to show in detail here. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now assume that we set α=1/3 ρ=4%, n=2% g=1% θ=1 β=2%&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then we get &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$μ_1=5.4 $ and $ μ_2=2%$  for delta is zero. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus adjustment is quite rapid in this caseof Ramsey model; for comparison, the Solow model with the same values of α, n, and g (and as here, no depreciation) implies an adjustment speed of 2 percent per year. The reason for the difference is that in this example, the saving rate is greater than $ s∗$ when k is less than $k∗$ and less than s∗ when k is greater than $k∗$. In the Solow model, in contrast, s is constant by assumption.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the evaluation of this statement, I consider such and explanation. But I wonder what you add this explanation? How can I explain more perfectly? Please share your ideas with me. Thanks. &lt;/p&gt;&#xA;" OwnerUserId="18701" LastEditorUserId="18701" LastEditDate="2018-07-02T17:06:22.700" LastActivityDate="2018-07-02T17:06:22.700" Title="Improve my solution: Question on solow model" Tags="&lt;macroeconomics&gt;&lt;economic-growth&gt;&lt;solow&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22634" PostTypeId="2" ParentId="22599" CreationDate="2018-07-01T17:12:39.683" Score="2" Body="&lt;p&gt;This is not so much of an answer as more of a note motivated predominantly by the &lt;em&gt;softness&lt;/em&gt; of the question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It can be the case that the statement&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;[...] &lt;em&gt;the study of work by classical economists (like Adam Smith, Karl Marx,&#xA;  and David Ricardo) is still relevant&lt;/em&gt;&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;(insert qualifications) is true &lt;em&gt;irrespective&lt;/em&gt; of the truth value of the assertion &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;[...] &lt;em&gt;the practice of how mainstream economics uses mathematics is&#xA;  abusive and is an attempt to fool the masses regarding the &quot;science&quot;&#xA;  economists practice.&lt;/em&gt;&quot;.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;My point is that the relevance of the &lt;em&gt;classics&lt;/em&gt; is not necessarily related to the relevance (or lack thereof) of using mathematics in economics. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Obviously, private communications are opaque to anyone not present and as I were not present in the private communications that instigated this question it is not possible to comment on the specific arguments that lend (or detract) support to the math relevance thesis; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think that there is some renewed interest in the history of economics as a discipline and economic historians are trying to investigate the various paths that economic theory has followed in modern times; I won't use references as I am not an economic historian but I think it is relatively easy for anyone to find material on such issues.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My personal understanding of the subject is that the success of the war effort during WWII attributed (rightly or wrongly, that is debatable) a certain amount of credibility into tools and approaches used in operations research and related fields; obviously these fields were more mathematical in spirit. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;With the advent of the Cold War and the political and ideological issues that ensued it was only natural to expect that tools that had proven themselves useful in the recent past (math, op research) would be used again to stave of the &lt;em&gt;red scare&lt;/em&gt;. Add to this mix the arms race of Cold War and the subsequent major and minor breakthroughs in &lt;em&gt;hard&lt;/em&gt; sciences related to the nuclear effort etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is not difficult to imagine why the agony of the &quot;free world&quot; to emerge victorious from the cold war painted the &lt;em&gt;tools&lt;/em&gt; it had invested so much into with favorable colors. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, there comes an inversion in this scheme where the tools that had been proven useful once are subsequently used almost ceremonially to impart use value into the body of knowledge that accumulated around their use. That is not to say that the mathematics were 'wrong' or 'too abstract' or 'irrelevant'. But it is the case that at some point the tool-case became more important than the actual problems it could solve.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And this is equivalent to hybris.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On a final note, damning or glorifying economics for its use of mathematics seems misplaced so long as the body of knowledge under the heading 'economics' fails to produce positive results for the society at large. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Resources have competing uses and economists know that very well. &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;h2&gt;update 1&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;this is an update about math and classical econs (as it was too long for a comment)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The classical econs couldn't have used calculus as Leibnitz and Newton invented it during the mid- and late-1600's and it was formalized by mathematicians 100-150 years later into something recognizable; I know Marx did some fondling with infinite calculus by never used it as a proper tool; similarly, the use of linear algebra and systems of linear equations were predominantly &lt;em&gt;popularized&lt;/em&gt; by the triumph of Dantzig's simplex algo. The point is that IMO the classic econs did not have that stock of knowledge available to them. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Furthermore, Political economy was to a large extent a discursive enterprise that was meant to &lt;em&gt;convince&lt;/em&gt; the hegemon about the proper path to prosperity (whatever that meant to them at that time).&#xA;Consider eg the Physiocrats. Quesnay's (a contemporary of A. Smith) Tableau was to a large extent a description of flows that needed little effort to be translated into a linear system of inputs and outputs. It wasn't, because &lt;/p&gt;&#xA;&#xA;&lt;p&gt;1.a. his formal education was in medicine (he was trained as a physician)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1.b. the tools to do so were invented by Leontieff in the 60's&lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;2&quot;&gt;&#xA;&lt;li&gt;he and his disciples had all the legitimacy they needed (Turgot, a disciple of Quesnay, eventually become finance Minister)&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;The point I'm trying to make is that lack of mathematical rigor in classical econs does not necessarily mean that they are irrelevant.&lt;/p&gt;&#xA;" OwnerUserId="15762" LastEditorUserId="15762" LastEditDate="2018-07-02T09:08:42.360" LastActivityDate="2018-07-02T09:08:42.360" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22635" PostTypeId="1" CreationDate="2018-07-01T18:29:28.717" Score="1" ViewCount="99" Body="&lt;p&gt;I have had  relatively little exposure to economics( nothing more than EC101) and would greatly appreciate help in answering the following questions: &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Which sections of economics are more or less very relevant related to the hedge fund/ private equity fields?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Which books would one recommend that would help one get a solid grasp(almost to the level of an economics undergraduate) of the sections in 1. ?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Thanks&lt;/p&gt;&#xA;" OwnerUserId="18746" LastActivityDate="2018-09-02T17:01:53.133" Title="Reading list for physics undergrad who'd like to cover the economics related to the hedge fund/ private equity field" Tags="&lt;finance&gt;&lt;financial-economics&gt;&lt;soft-question&gt;&lt;books&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22637" PostTypeId="1" AcceptedAnswerId="22652" CreationDate="2018-07-02T02:35:49.380" Score="1" ViewCount="243" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;In a perfectly competitive Solow economy with physical capital accumulation, population growth and a Cobb-Douglas production function, show that the “golden rule” steady-state would be reached if at every period aggregate consumption coincides with the aggregate labour income.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="18701" LastEditorUserId="18701" LastEditDate="2018-07-02T20:11:58.747" LastActivityDate="2018-07-02T20:12:17.570" Title="Solow model golden rule with my exact answer" Tags="&lt;macroeconomics&gt;&lt;solow&gt;&lt;steady-state&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22638" PostTypeId="2" ParentId="22599" CreationDate="2018-07-02T04:08:38.950" Score="3" Body="&lt;p&gt;Most economics questions have three parts:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Why does a phenomenon occur?  This lets the user understand the answer, understand whether the question is relevant, and understand what factors would change the answer to the next part.&lt;/li&gt;&#xA;&lt;li&gt;How much of the phenomenon is likely to occur?  This lets the user make decisions based on the answer, and compare the importance of various phenomena.&lt;/li&gt;&#xA;&lt;li&gt;Under what conditions does a different phenomenon replace this phenomenon?&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;An answer that does not address all three sub-questions is incomplete.  It is likely to either be misunderstood, or be misleading.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Math is needed to get an approximate answer to the second sub-question:  How much?  A person with a good understanding of the math can simplify the math to provide insight to the first and third sub-questions:  Why, and with what limits?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, Cobb-Douglas production functions (and mathematically similar utility functions) use math that most non-economists do not understand.  The essential features of these functions can be boiled down to &quot;price elasticities&quot; of supply and demand.  These are terms that most non-economists do not understand, but they can be turned into examples that most people do understand.  For example, such functions for global oil production and demand during the 1980s could be simplified to &quot;In the short run, if OPEC cuts its production by 1 percent of the total world production, then the price of oil will go up by 7 percent.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Unfortunately, many economists use math badly:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Instead of using the math to generate (and verify) a simplified explanation, some economists go through the details of a complicated &quot;mathematical demonstration&quot;.  In the end, the reader has to trust that the economist made the right assumptions, and often only as an answer to &quot;how much&quot;, not &quot;why&quot; nor &quot;with what limits&quot;.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Some economists are not careful to explain the uncertainties inherent in their math.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Some economists use symbols ignorantly.  I once had the displeasure of listening to a lecture by a well-paid, soon-to-be-famous economist.  He had many charts about things like long-term trends of the price of power, which were on a log-log scale.  The x-axis was labelled as log(dollars), and the y-axis was labelled as log(kW).  But his units were actually ln(dollars) and ln(kW).  When politely asked later about it, he did not understand that this was a problem!  (If he had actually wanted to be understood, he would have labelled the y-axis as W, kW, MW, GW, &lt;em&gt;et cetera&lt;/em&gt;, and used similar labels for the x-axis.)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="5266" LastActivityDate="2018-07-02T04:08:38.950" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="22640" PostTypeId="2" ParentId="22635" CreationDate="2018-07-02T05:42:48.310" Score="0" Body="&lt;p&gt;While economics is an important field, at the undergraduate level, very little depending on what you are wanting to do with the knowledge.  For example, if you wanted to understand the economics of hedge fund contracts, that would be under microeconomics and financial economics.  If you wanted to understand top-down portfolio management then you would study general macroeconomics and financial economics.  You would be better off reading in finance than economics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Economics is the study of how people make choices given limited resources.  Finance is the study of how to get the right amount of money to the right place at the right time and to account for risks to those strategies.  Both are important, but finance would likely matter more unless your concern is policy related or behavioral.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) To some extent, all of them, but primarily financial and monetary economics.  Financial economics is the study of the deferring of consumption from today into the future.  Monetary economics is the study of how fixed contracts (such as money) impact the real economy and so includes financial intermediation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) I would start with Bolstad's Introduction to Bayesian Statistics and Dennis Lindley's book &quot;Making Decisions,&quot;  and a follow up on Bayesian Econometrics.  Lindley's textbook is what I call a 13th-grade book.  It isn't college, it isn't high school, but it gives you a feel for the thinking.  You will need calculus through multivariate integration to get through Bolstad's book.  You should also separately read any introductory statistics text and a standard econometrics text.  I am recommending the Bayesian first because it will make a lot more sense as it is likely how you think about the world now and it is more useful in the hedge fund world.  Frequentist statistics are somewhat backward to how people view the world.  These would be your preparatory courses.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;After that, I would either pick up a game theory textbook for non-mathematicians or have you pick up any introduction to set theory textbook plus a rigorous game theory book for economists.  If you get the basics of sets and orderings, then game theory is mostly just a set of fixed point theorems.  I would then have you read Parmigiani's textbook on Decision Theory.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Once you have done that, it depends upon what you are wanting to do with the knowledge.  For example, you could look at &quot;Financial Economics,&quot; by Jurgen Eichenberger.  Again, it all depends on what you want to complete by doing this.  Hedge funds and the like are rarely taught at the undergraduate level unless they are taught as special topics to any meaningful depth.  In the giant scope of all human behavior, they are actually a very small subset.  Actually, in terms of behavior, they probably fall into the preposterously small subset.  It is such a small group of people, although they may be important, that the economics of stamp collecting may represent a larger group of people.  Undergraduate education is broad and general because nobody knows ahead of time which elements will be important.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hedge funds, unless you are interested in regulatory aspects which would also involve the economics of legal systems, are a very narrow topic.  If you are looking for a job, you are better off getting a graduate degree.  But I will warn you, in the related field of venture capital, they asked someone what the job was like.  Their response was &quot;it was like coming in every morning and climbing a mountain made of broken glass on your hands and knees.&quot;  That will be true in hedge funds as well, maybe even more so.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To get a better answer, you need to think through what your real underlying question is.  If it is to learn the economics enough to get a job, then make sure you have one semester of computer programming and differential equations.  You should also get two semesters of introductory accounting textbooks.  If you are just curious about a policy topic, such as the impact of hedge funds on national systems of production, then that is a very different set of books.&lt;/p&gt;&#xA;" OwnerUserId="11321" LastActivityDate="2018-07-02T05:42:48.310" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22641" PostTypeId="1" AcceptedAnswerId="22658" CreationDate="2018-07-02T07:40:28.737" Score="2" ViewCount="216" Body="&lt;p&gt;&lt;strong&gt;Is every steady state a golden rule steady state in solow model?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know this question’s exact answer. I only want to ask for the following,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When know that at steady state $\dot{k}=0$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And in solow swan model $$\dot{k}= sk_t^a-(\delta + n+g)k_t$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since this equation is zero, I obtain the $$k_{ss}=(\frac{s}{\delta + n+ g})^{1/1-a}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When I maximize $$c_{ss}=f(k_{ss})-(\delta + n+g)k_{ss}$$ with respect to $k_{ss}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I obtain the golden rule level $k_{gr}=(\frac{a}{\delta + n+ g})^{1/1-a}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$k_{gr}=k_{ss} \iff a=s$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That’s, saving rate is equal to capital share of income. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Otherwise, under different conditions, they are not the same.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What i want to ask that to what extent such a expression in the view of an economist is logical? This is true in terms of mathematical expression, but is it logical in terms of economic intuition  as well? If correct, What does this result say to me intuitively?&lt;/p&gt;&#xA;" OwnerUserId="18701" LastEditorUserId="18701" LastEditDate="2018-07-03T08:50:05.253" LastActivityDate="2018-07-04T08:03:44.050" Title="just economic interpretation: Is every steady state a golden rule steady state?" Tags="&lt;macroeconomics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22643" PostTypeId="2" ParentId="22599" CreationDate="2018-07-02T10:51:26.577" Score="5" Body="&lt;ul&gt;&#xA;&lt;li&gt;Jacob Theodore Schwartz (&lt;a href=&quot;https://books.google.com/books?id=bDUBCAAAQBAJ&amp;amp;pg=PA22&amp;amp;dq=%22The%20very%20fact%20that%20a%20theory%20appears%20in%20mathematical%20form,%20that,%20for%20instance,%20a%20theory%20has%20provided%20the%20occasion%20for%20the%20application%20of%20a%20fixed-point%20theorem%22&quot; rel=&quot;nofollow noreferrer&quot;&gt;1962&lt;/a&gt;):&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The very fact that a theory appears in mathematical form, that, for instance, a theory has provided the occasion for the application of a fixed-point theorem, or of a result about difference equations, somehow makes us more ready to take it seriously.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The above is probably the single most important criticism of the use (or misuse) of math in economics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As some have noted, Coase (1937, 1960, etc.) for example could not be published today, because his work — profound as it might be — would not be recognized as such, since the most advanced math it contained was elementary-school arithmetic.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Conversely, useless gobbledygook filled with dozens of pages of intimidating-looking math earns you publications and tenure.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Ariel Rubinstein (&lt;a href=&quot;https://books.google.com/books?id=qABWZP1yP2cC&amp;amp;pg=PA192&amp;amp;dq=%22unlike%20philosophers%20and%20linguists,%20we%20economists%20behave%20as%20if%20we%20do%20not%20rely%20solely%20on%20our%20impressions%20of%20the%20world%20and%20introspection%22&quot; rel=&quot;nofollow noreferrer&quot;&gt;2012&lt;/a&gt;, &lt;em&gt;Economic Fables&lt;/em&gt;):&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;unlike philosophers and linguists, we economists behave as if we do not rely solely on our impressions of the world and introspection.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Along the same lines as the previous point — math helps add the veneer or pretence of scientific &quot;rigor&quot;. Math helps convince economists (and perhaps a few others) that their work is better and more important than that of political scientists, historians, and, of course, sociologists.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Oskar Morgenstern (1950, &lt;em&gt;On the Accuracy of Economic Observations&lt;/em&gt;):&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Qui numerare incipit errare incipit. [He who begins to count, beings to err.]&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;There is the mistaken belief that whatever can be quantified, formalized, and &quot;mathematicized&quot; is necessarily better. Research in economics has thus been reduced to &quot;theory&quot; (by which is meant theorem-and-proof) and &quot;empirical&quot; (by which is meant regression analysis).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Any&lt;/em&gt; other method of investigation is banished and branded &quot;heterodox&quot;. To reuse our earlier example, Coase was an economic theorist of the highest caliber. Yet he would not count as one of today's &quot;theorists&quot; because he failed to dress his ideas up with enough math.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastEditorDisplayName="user18" LastEditDate="2019-01-01T09:49:46.780" LastActivityDate="2019-01-01T09:49:46.780" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22644" PostTypeId="1" CreationDate="2018-07-02T11:48:58.943" Score="1" ViewCount="44" Body="&lt;p&gt;Greetings I am running a time series which will use vector error correction model. My dependent variable is economic base which is comprised of manufacturing, mining and construction sectors. I have a different economic base for each MSA in PA. One of the regressors is noneconomic base which are the remaining industries for each MSA. THe objective is apply the dynamic time series methods of the cointegration and error correction model that enables sectoral interactions. These model fully estimate the long-run equilibrium relationships among the economic sectors in these MSAs. Would it be feasible to add state GDP as a regressor for each MSA equation?&lt;/p&gt;&#xA;" OwnerUserId="13545" LastActivityDate="2018-07-02T11:48:58.943" Title="Would it be appropriate to include state level variable with MSA model?" Tags="&lt;econometrics&gt;&lt;time-series&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="22645" PostTypeId="1" AcceptedAnswerId="22661" CreationDate="2018-07-02T12:06:21.713" Score="4" ViewCount="333" Body="&lt;p&gt;In many parts of the world, people buy a house expecting its value to increase over time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But if is widely believed that the building's value will increase, what incentive is there for the developer to sell the property?  Why not hold onto the property, and sell it later at a higher price?&lt;/p&gt;&#xA;" OwnerUserId="18759" LastEditorUserId="18759" LastEditDate="2018-07-02T12:32:31.207" LastActivityDate="2018-07-06T19:05:48.097" Title="If house prices appreciate, why do developers sell them?" Tags="&lt;profit-maximization&gt;&lt;housing&gt;&lt;property&gt;" AnswerCount="4" CommentCount="2" FavoriteCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="22646" PostTypeId="2" ParentId="22645" CreationDate="2018-07-02T13:40:40.290" Score="4" Body="&lt;p&gt;The simple answer is that if it is widely expected that the value of an asset will increase in the future, then the value should rise today as people bid up the price of the asset by trying to get the higher return it can provide. In other words, if an asset is trading at a specific price, the &lt;em&gt;average&lt;/em&gt; investor (a term I won't make precise here) should think this is the right price for the asset. Individual house producers can of course choose to take a position in the housing market one way or another (and can have an opinion on the value of the asset which is different from the average investor's opinion), but a scenario where everyone expects risk-adjusted real estate returns to be high simply would not happen.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reason this answer is a bit too simplistic is because there are trading frictions in the housing market - if you think real estate returns are going to be high and you want to buy some houses to get that extra return, it's not as easy as buying some shares of a mutual fund. To a first approximation, however, the simple answer should be good enough here.&lt;/p&gt;&#xA;" OwnerUserId="13743" LastActivityDate="2018-07-02T13:40:40.290" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22647" PostTypeId="2" ParentId="22645" CreationDate="2018-07-02T13:43:13.260" Score="4" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Why not hold onto the property, and sell it later at a higher price?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Here is a non-exhaustive list of why not:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Real estate bubbles going burst.&lt;/li&gt;&#xA;&lt;li&gt;Depreciation and maintenance costs.&lt;/li&gt;&#xA;&lt;li&gt;A location may become less attractive in the long term due to mass&#xA;emigration, criminal activity going up, collapsed economy, business could relocate to&#xA;somewhere with incentives.&lt;/li&gt;&#xA;&lt;li&gt;In some countries, the government might seize vacant property for&#xA;&quot;welfare&quot; reasons.&lt;/li&gt;&#xA;&lt;li&gt;The growth in property prices might still not be worth holding the property&#xA;for an extended period.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="18552" LastActivityDate="2018-07-02T13:43:13.260" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22648" PostTypeId="1" AcceptedAnswerId="22650" CreationDate="2018-07-02T15:31:52.697" Score="0" ViewCount="882" Body="&lt;p&gt;Can anybody give an intuitively explanation for the following problem?&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Let $\succeq$  be a preference relation on a set X. Define I(x) to be&#xA;  the set of all y ∈ X for which y ∼ x. Show that the set (of sets!)&#xA;  {I(x)|x ∈ X} is a partition of X, i.e.,&lt;/p&gt;&#xA;  &#xA;  &lt;ul&gt;&#xA;  &lt;li&gt;For all x and y, either I(x) = I(y) or I(x) ∩ I(y) = ∅. &lt;/li&gt;&#xA;  &lt;li&gt;For every x ∈ X, there is y ∈ X such that x ∈ I(y).&lt;/li&gt;&#xA;  &lt;/ul&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="15538" LastActivityDate="2018-07-05T04:06:01.903" Title="preference relations" Tags="&lt;microeconomics&gt;&lt;preferences&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22649" PostTypeId="2" ParentId="22599" CreationDate="2018-07-02T16:20:10.990" Score="1" Body="&lt;p&gt;Beyond the quantitative aspects, there are also qualitative factors which do not lend themselves to numeric treatment. My background is electrical engineering, which quite correctly employs quantitative methods extensively. Although investing isn't economics, there is a relationship. As much as possible, I've been trying to read and implement the information and wisdom imparted by Benjamin Graham and his colleague David Dodd. Graham himself was the instructor, and later the employer, of Warren Buffett. Graham felt that when anything more than the 4 basic arithmetic operations were dragged into the model, description, or analysis, then somebody was trying to &quot;sell you a bill of goods&quot;. Graham himself was very mathematically adept, and knew calculus and differential equations much better than most students and instructors. So, use of advanced mathematics in some ways acts to obscure, rather than elucidate, matters pertaining to &quot;proper&quot; investment practice. Buffett is still very much alive. Graham himself and most of his employees or students are all long gone, but they all seemed to have died rich. Look through his books &quot;Security Analysis&quot; and &quot;The Intelligent Investor&quot; and you won't find a derivative, integral, ODE, or PDE.&lt;/p&gt;&#xA;" OwnerUserId="18765" LastActivityDate="2018-07-02T16:20:10.990" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="22650" PostTypeId="2" ParentId="22648" CreationDate="2018-07-02T16:54:31.370" Score="0" Body="&lt;p&gt;Let $X$ be the set over which a preference $\succsim$ is defined. The question asks you to prove that $X$ can be divided up into numerous subsets defined by the indifference relation, i.e. all elements within an indifference set, denoted $I(x)$, have the same desirability according to the preference $\succsim$. The collection of these indifference sets is denoted $\{I(x)\vert x\in X\}$. The two bullet points tell you how to proceed with the proof. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, you need to argue that the indifference sets defined by any two elements $x$ and $y$ are either identical or distinct. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Second, you need to argue that every element belongs to one of the indifference sets that divide up $X$.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Here is a simplified example to give you some intuition. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose the set $X$ contains the following items: an apple ($a$), a banana ($b$), a cherry ($c$), a dragon fruit ($d$); that is, $X=\{a,b,c,d\}$. I like cherries best, bananas and apples the second (I'm also indifferent between the two), and dragon fruits the least. This is my preference over $X$. Define the indifference sets as follows: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;$I(a)=\{a,b\}$ (i.e. the set that contains items indifferent to apple includes both apple and banana); &lt;/li&gt;&#xA;&lt;li&gt;$I(b)=\{a,b\}$; &lt;/li&gt;&#xA;&lt;li&gt;$I(c)=\{c\}$; and &lt;/li&gt;&#xA;&lt;li&gt;$I(d)=\{d\}$.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;As we can see, for any $x,y\in\{a,b,c,d\}$, $I(x)$ and $I(y)$ are either identical (as when $x=a$ and $y=b$, or vice versa) or distinct (as when at least one of $x$ and $y$ is $c$ or $d$). This satisfies the first requirement. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the second requirement, it is clear that the four items ($a,b,c$ and $d$) belongs to one of the three indifference sets ($\{a,b\},\{c\},\{d\}$).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To properly prove the claim, you need to generalize the example above to cases where the set $X$ contains an arbitrary number of elements. Strictly speaking, you'd also need to consider arbitrary preferences. But since the preference relation $\succsim$ is complete and transitive, such consideration is less crucial. &lt;/p&gt;&#xA;" OwnerUserId="42" LastEditorUserId="42" LastEditDate="2018-07-05T03:11:48.373" LastActivityDate="2018-07-05T03:11:48.373" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="22651" PostTypeId="1" AcceptedAnswerId="22653" CreationDate="2018-07-02T18:48:24.767" Score="1" ViewCount="725" Body="&lt;p&gt;I've been going over the concept of &lt;a href=&quot;https://en.wikipedia.org/wiki/Walras%27s_law&quot; rel=&quot;nofollow noreferrer&quot;&gt;Walras's Law&lt;/a&gt; and often references to &lt;a href=&quot;https://en.wikipedia.org/wiki/Say%27s_law&quot; rel=&quot;nofollow noreferrer&quot;&gt;Say's Law&lt;/a&gt;. I've heard and &lt;a href=&quot;https://www.quora.com/What-is-the-difference-between-Walras-law-and-Says-law&quot; rel=&quot;nofollow noreferrer&quot;&gt;have seen online&lt;/a&gt; that they are really the same thing however by looking at the definitions I notice a common difference.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;&lt;em&gt;Walras’s law:&lt;/em&gt;&lt;/strong&gt;&lt;br&gt;&#xA;  &lt;strong&gt;&lt;em&gt;“For any price vector $p$, we have $()≡0$; the value of the excess demand  is identically zero.”&lt;/em&gt;&lt;/strong&gt;&#xA;  &lt;br&gt; &lt;br&gt;&#xA;  Where excess demand $z(p)$ is defined as:&#xA;  $$z(p)=\sum_{i=1}^n(x_i(p,m)-\omega_i)$$&#xA;  where $x_i(p,m)$ is our marshallian demand for good $i$  and $\omega_i$ is the initial endowment of good $i$.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Conversely,&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;&lt;em&gt;Say's Law:&lt;/em&gt;&lt;/strong&gt;&lt;br&gt;&#xA;  &lt;strong&gt;&quot;&lt;em&gt;aggregate production necessarily creates an equal quantity of aggregate demand&lt;/em&gt;&quot;&lt;/strong&gt; (from &lt;a href=&quot;https://en.wikipedia.org/wiki/Say%27s_law&quot; rel=&quot;nofollow noreferrer&quot;&gt;Wikipedia&lt;/a&gt;).&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;or $$Q_s(p)=Q_d(p)$$&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Would it be safe to say that Walras's Law makes reference to only &lt;em&gt;consumer&lt;/em&gt; demand (which is transferred through a market and is not &quot;consumed&quot; by the firm themselves via inventory investment), While Say's Law is a statement regarding both demand by consumers and producers regardless of whether or not it goes from producers to consumers or producers back to themselves in form of inventory investment?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The rationale for this argument comes from the fact that we do conciser inventory investment to be included in demand even though it does not change hands in a market.&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2018-07-02T21:21:34.587" Title="Walras's Law V.S Say's Law- Is there a difference?" Tags="&lt;microeconomics&gt;&lt;general-equilibrium&gt;&lt;history-economic-thought&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22652" PostTypeId="2" ParentId="22637" CreationDate="2018-07-02T20:12:17.570" Score="1" Body="&lt;p&gt;Let production function $$F(K_t,L_t)=K_t^aL_t^{1-a}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$max[c^*=f(k^*)-(δ+n)k^*]$$ with respect to $k^*$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then $MPK=a(k^*)^{a-1}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So $k_G= (\frac{a}{(δ+n)})^{1/1-a}$ which is golden rule level of capital stock per capita. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now calculate consumption at golden rule level &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$c_G=f(k_G)-(δ+n)k_G$$&#xA;$$c_G=(k_G)^a-(δ+n)k_G$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$c_G=(\frac{a}{(δ+n)})^{a/1-a}-(δ+n)(\frac{a}{(δ+n)})^{1/1-a}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$c_G=(\frac{a}{(δ+n)})^{a/1-a}[1-(δ+n)(\frac{a}{(δ+n)})]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$c_G=(\frac{a}{(δ+n)})^{a/1-a}[1-a]$$&#xA;$$c_G=k_G^a[1-a]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ow consider to calculate wage &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$w=f(k)-kf’(k)=(1-a)f(k)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$c_G=k_G^a[1-a]=w_G$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$c_G=w_G$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now consider aggregate version,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$C_G/L=W_G/L$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;so,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$C_G=W_G$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am confused at the aggregate transformation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I add this question with its answer in order to contribute to the website. Thus, I will be glad if you add your opinions about my solution as well.&lt;/p&gt;&#xA;" OwnerUserId="18701" LastActivityDate="2018-07-02T20:12:17.570" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22653" PostTypeId="2" ParentId="22651" CreationDate="2018-07-02T21:21:34.587" Score="4" Body="&lt;p&gt;The way you have defined excess demand, it is only consumer excess demand. But Walras's law holds in any private ownership economy at all prices (at which demand and supply are well defined). Walras's law is basically equivalent to consumers spending their budget fully.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let there be $l$ commodities, so every commodity bundle is an element of $\mathbb{R}^l$. There are $m$ consumers and $n$ firms. The set of production plans firm $j$ can produce in terms of net-output is $Y_j$. With this convention, if $p\in\mathbb{R}^l$ is the price system and $y\in Y_j$ a production plan, $p\cdot y=\sum_{k=1}^l p_k y_k$ is the resulting profit. Every consumer has an endowment $\omega_i\in\mathbb{R}^l$ and a (potentially zero) share $\theta_{ij}$ in firm $j$ and the resulting profit. Every firm is privately owned, so each firm's shares sums to one, $\sum_{i=1}^m\theta_{ij}=1$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At the price system $p$, the budget of each consumer is $p\cdot \omega_i +\sum_{j=1}^n \theta_{ij} p\cdot y_j$. If the consumer $i$ demands $x_i$ and spends their whole budget, we have $p\cdot x_i=p\cdot \omega_i +\sum_{j=1}^n \theta_{ij} p\cdot y_j$. Summing up and using that prices are linear,&#xA;$$p\cdot\sum_{i=1}^m x_i=p\cdot\sum_{i=1}^m\omega_i+p\cdot \sum_{i=1}^m\sum_{j=1}^n \theta_{ij}y_j$$&#xA;$$=p\cdot\sum_{i=1}^m x_i=p\cdot\sum_{i=1}^m\omega_i+p\cdot \sum_{j=1}^n\sum_{i=1}^m \theta_{ij}y_j$$&#xA;$$=p\cdot\sum_{i=1}^m x_i=p\cdot\sum_{i=1}^m\omega_i+p\cdot \sum_{j=1}^ny_j$$&#xA;$$=p\cdot\bigg(\sum_{i=1}^m x_i-\sum_{i=1}^m\omega_i-\sum_{j=1}^ny_j\bigg)=0,$$&#xA;so the value of aggregate excess demand is zero and Walras's law holds. But nothing in the argument requires prices to clear markets so that supply equals demand, &#xA;$$\sum_{i=1}^m x_i-\sum_{i=1}^m\omega_i-\sum_{j=1}^ny_j=0.$$&#xA;The latter is clearly a sufficient condition for excess demand to have the value zero, but very far from necessary.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Walras's law is a provable result under some standard assumptions (that guarantee that consumers spend their whole budget), but Say's law is not a formal result in any way.&lt;/p&gt;&#xA;" OwnerUserId="1442" LastActivityDate="2018-07-02T21:21:34.587" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="22655" PostTypeId="2" ParentId="22641" CreationDate="2018-07-03T09:16:21.417" Score="2" Body="&lt;p&gt;No. There are many steady state levels of per-capita consumption. The maximum of these is then defined to be the golden rule (steady state level of per-capita consumption).&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2018-07-03T09:16:21.417" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="22656" PostTypeId="2" ParentId="22599" CreationDate="2018-07-03T13:18:49.373" Score="0" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;&lt;em&gt;What is a reason to be against mathematics in economics?&lt;/em&gt;&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;IMO, &lt;strong&gt;if you frame your whole economic thinking in mathematic terms&lt;/strong&gt; (or too much of it)&lt;strong&gt;, your thought process might become less flexible and innovative&lt;/strong&gt;. Mathematically formalizing economic theories can be an arduous task:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Some postulates might require extreme care when translating them into mathematical language. This has an opportunity cost in terms of time and intellectual energy which will not be spent on more &quot;productive&quot; tasks (e.g. exploring new, radical ideas to longstanding problems);&lt;/li&gt;&#xA;&lt;li&gt;Mathematics requires a rigor that is simply absent when a new idea is emerging: you might not be able to formulate mathematically something you are barely starting to understand.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;As a consequence, your economic thinking might end up &quot;hijacked&quot; by a set of assumptions that enable you to mathematically formalize your theory/model, but which constrains the range of novel economic ideas you can formulate.&lt;/p&gt;&#xA;" OwnerUserId="12770" LastEditorUserId="12770" LastEditDate="2018-07-03T15:43:58.950" LastActivityDate="2018-07-03T15:43:58.950" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="22657" PostTypeId="2" ParentId="14142" CreationDate="2018-07-03T15:31:15.567" Score="2" Body="&lt;p&gt;To be the wrong side of the Laffer curve would require there to be another lower tax rate which produced the same or greater tax revenues &lt;/p&gt;&#xA;&#xA;&lt;p&gt;That is not what was being said: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Question A addressed the sign of the impact on GDP, not on tax revenues;   &lt;/li&gt;&#xA;&lt;li&gt;Question B addressed the sign of the impact on tax revenues; nobody agreed and the large majority disagreed  &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;so the consensus was that lower tax rates would lead to slightly higher GDP and slightly lower tax revenues&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is what usually happens when you are the correct side of the Laffer curve, and allows political debate about issues such as  government deficits, public and private expenditure, and stimulating growth and inflation.  Being the wrong side of the Laffer curve would instead lead to Pareto optimality issues, but that is not the case here   &lt;/p&gt;&#xA;" OwnerUserId="8891" LastEditorUserId="8891" LastEditDate="2018-07-03T16:10:03.243" LastActivityDate="2018-07-03T16:10:03.243" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="22658" PostTypeId="2" ParentId="22641" CreationDate="2018-07-03T15:57:09.163" Score="2" Body="&lt;p&gt;In the Solow-Swan model, no optimization takes place with respect to the savings rate. It is treated as exogenous. The result found by the OP says that, &lt;em&gt;if&lt;/em&gt; the saving rate $s$ is set equal to the capital share of income $a$, &lt;em&gt;then&lt;/em&gt; it will so happen that the steady state capital will be equal to the golden rule capital.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We know that under intertemporal optimization with discounting of the future (Ramsey model), the optimal (in terms of intertemporal utility maximization) savings rate will be variable and at the steady state will be less than the level required to have the steady state capital equal to the golden rule capital.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Returning to the Solow model, the result $s=a &amp;lt;=&amp;gt; k_{ss} = k_{gr}$ has a certain intuitive appeal: we get maximum steady-state consumption if we are investing (and not consuming) all rewards to capital.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="1601" LastEditDate="2018-07-04T08:03:44.050" LastActivityDate="2018-07-04T08:03:44.050" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="22659" PostTypeId="2" ParentId="22599" CreationDate="2018-07-03T16:51:39.413" Score="2" Body="&lt;p&gt;I think there are two legitimate sources of complaint.  For the first, I will give you the anti-poem that I wrote in complaint against both economists and poets.  A poem, of course, packs meaning and emotion into pregnant words and phrases.  An anti-poem removes all feeling and sterilizes the words so that they are clear.  The fact that most English speaking humans cannot read this assures economists of continued employment.  You cannot say that economists are not bright.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;h2&gt;&lt;strong&gt;Live Long and Prosper-An Anti-Poem&lt;/strong&gt;&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;May you be denoted as $k\in{I},I\in\mathbb{N}$, such that $I=1\dots{i}\dots{k}\dots{Z}$&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;where $Z$ denotes the most recently born human.&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;$\exists$ a fuzzy set $Y=\{y^i:\text{Human Mortality Expectations}\mapsto{y^i},\forall{i\in{I}}\},$&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;may $y^k\in\Omega,\Omega\in{Y}$ and $\Omega$ is denoted as &quot;long&quot;&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;and may $U(c)$, where c is the matrix of goods and services across your lifetime&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;$U$ is a function of $c$, where preferences are well-defined and $U$ is qualitative satisfaction,&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;be maximized $\forall{t}$, $t$ denoting time, subject to&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;$w^k=f'_t(L_t),$ where $f$ is your production function across time&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;and $L$ is the time vector of your amount of work,&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;and further subject to $w^i_tL^i_t+s^i_{t-1}=P_t^{'}c_t^i+s^i_t,\forall{i}$&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;where $P$ is the vector of prices and $s$ is a measure of personal savings across time.&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;May $\dot{f}\gg{0}.$&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Let $W$ be the set $W=\{w^i_t:\forall{i,t}\text{ ranked ordinally}\}$&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Let $Q$ be the fuzzy subset of $W$ such that $Q$ is denoted &quot;high&quot;.&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Let $w_t^k\in{Q},\forall{t}$&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;The second is mentioned above, which is the misuse of math and statistical methods.  I would both agree and disagree with the critics on this.  I believe that most economists are not aware of how fragile some statistical methods can be.  To provide an example, I did a seminar for the students in the math club as to how your probability axioms can completely determine the interpretation of an experiment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I proved using real data that newborn babies will float out of their cribs unless nurses swaddle them.  Indeed, using two different axiomatizations of probability, I had babies clearly floating away and obviously sleeping soundly and securely in their cribs.  It wasn't the data that determined the result; it was axioms in use.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now any statistician would clearly point out that I was abusing the method, except that I was abusing the method in a manner that is normal in the sciences.  I didn't actually break any rules, I just followed a set of rules to their logical conclusion in a way that people do not consider because babies don't float.  You can get significance under one set of rules and no effect at all under another.  Economics is especially sensitive to this type of problem.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I do belive that there is an error of thought in the Austrian school and maybe the Marxist about the use of statistics in economics that I believe is based on a statistical illusion.  I am hoping to publish a paper on a serious math problem in econometrics that nobody has seemed to notice before and I think it is related to the illusion.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/tFQkK.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/tFQkK.png&quot; alt=&quot;Sampling Distribution of Bayesian MAP versus Fisher&amp;#39;s MLE&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This image is the sampling distribution of Edgeworth's Maximum Likelihood estimator under Fisher's interpretation (blue) versus the sampling distribution of the Bayesian maximum a posteriori estimator (red) with a flat prior.  It comes from a simulation of 1000 trials each with 10,000 observations, so they should converge.  The true value is approximately .99986.  Since the MLE is also the OLS estimator in the case, it is also Pearson and Neyman's MVUE.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note how relatively inaccurate the Frequency based estimator is compared to the Bayesian.  Indeed, the relative efficiency of $\hat{\beta}$ under the two methods is 20:1.  Although Leonard Jimmie Savage was certainly alive when the Austrian school left statistical methods behind, the computational ability to use them didn't exist.  The first element of the illusion is inaccuracy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The second part can better be seen with a kernel density estimate of the same graph.  &lt;a href=&quot;https://i.stack.imgur.com/QoTFO.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/QoTFO.png&quot; alt=&quot;kernel of sample distribution&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the region of the true value, there are almost no examples of the maximum likelihood estimator being observed, while the Bayesian maximum a posteriori estimator closely covers .999863.  In fact, the average of the Bayesian estimators is .99987 whereas the frequency based solution is .9990.  Remember this is with 10,000,000 data points overall.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Frequency based estimators are averaged over the sample space.  The missing implication is that it is unbiased, on average, over the entire space, but possibly biased for any specific value of $\theta$.  You also see this with the binomial distribution.  The effect is even greater on the intercept.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/Wfxdy.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Wfxdy.png&quot; alt=&quot;alpha&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The red is the histogram of Frequentist estimates of the itercept, whose true value is zero, while the Bayesian is the spike in blue.  The impact of these effects are worsened with small sample sizes because the large samples pull the estimator to the true value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think the Austrians were seeing results that were inaccurate and didn't always make logical sense.  When you add data mining into the mix, I think they were rejecting the practice.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reason I believe the Austrians are incorrect is that their most serious objections are solved by Leonard Jimmie Savage's personalistic statistics.  Savages &lt;em&gt;Foundations of Statistics&lt;/em&gt; fully covers their objections, but I think the split had effectively already happened and so the two have never really met up.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Bayesian methods are generative methods while Frequency methods are sampling based methods.  While there are circumstances where it may be inefficient or less powerful, if a second moment exists in the data, then the t-test is always a valid test for hypotheses regarding the location of the population mean.  You do not need to know how the data was created in the first place.  You need not care.  You only need to know that the central limit theorem holds.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Conversely, Bayesian methods depend entirely on how the data came into existence in the first place.  For example, imagine you were watching English style auctions for a particular type of furniture.  The high bids would follow a Gumbel distribution.  The Bayesian solution for inference regarding the center of location would not use a t-test, but rather the joint posterior density of each of those observations with the Gumbel distribution as the likelihood function.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Bayesian idea of a parameter is broader than the Frequentist and can accomodate completely subjective constructions.  As an example, Ben Roethlisberger of the Pittsburgh Steelers could be considered a parameter.  He would also have parameters associated with him such as pass completion rates, but he could have a unique configuration and he would be a parameter in a sense similar to Frequentist model comparison methods.  He might be thought of as a model.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The complexity rejection isn't valid under Savage's methodology and indeed cannot be.  If there were no regularities in human behavior, it would be impossible to cross a street or take a test.  Food would never be delivered.  It may be the case, however, that &quot;orthodox&quot; statistical methods can give pathological results that have pushed some groups of economists away.&lt;/p&gt;&#xA;" OwnerUserId="11321" LastEditorUserId="11321" LastEditDate="2018-07-03T17:16:58.543" LastActivityDate="2018-07-03T17:16:58.543" CommentCount="10" ContentLicense="CC BY-SA 4.0" />
  <row Id="22660" PostTypeId="1" AcceptedAnswerId="22662" CreationDate="2018-07-04T00:03:00.173" Score="1" ViewCount="102" Body="&lt;p&gt;Glasbeek, Harry. &lt;a href=&quot;https://www.osgoode.yorku.ca/faculty-and-staff/glasbeek-harry-j/&quot; rel=&quot;nofollow noreferrer&quot;&gt;BA, LLB (Melbourne), JD (Chicago)&lt;/a&gt;.&lt;br&gt;&#xA; &lt;a href=&quot;https://rads.stackoverflow.com/amzn/click/1771133074&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;Class Privilege: How Law Shelters Shareholders and Coddles Capitalism&lt;/em&gt; (2017)&lt;/a&gt;. p. 196 Bottom.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;  Also, from an investor's point of view, limited liability frees investment &#xA;  shareholders from the burden of involving themselves in the daily operation &#xA;  of the corporation. The contributed capital is transferred to the corporation &#xA;  where a board of directors and executives are to take charge of it. The corporation is duty-bound to chase profits, that is, the very efforts the &#xA;  would have made on their own account will still be made. But the contribu-tors of capital do not have to expend any effort of their own. In other words, &#xA;  limited liability is good because shareholders do not have to do anything.&lt;br&gt;&#xA;    Two further arguments are made in favour of limited liability. The first&#xA;  arises directly from the fact we are supposed to like the idea of a thriving&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;p. 197&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;market in which shares can be sold and bought. Limited liability helps that &#xA;  cause by eliminating some of the volatility that might otherwise prevail. In the &#xA;  absence of limited liability, less-well-off investors might invest in higher-risk &#xA;  investments than would wealthier ones, because they have less non-invested &#xA;  assets to lose. &lt;strong&gt;Wealthier investors would then have a different appraisal of &#xA;  what makes a share's price affordable than their less wealthy comrades would.&lt;/strong&gt; &#xA;  This could lead to unpredictability in the valuation of shares and, therefore, &#xA;  to less attractive stock markets.2 Here the assumption is that robust stock &#xA;  markets are a plus for the economy—a highly contestable assumption. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I know that  the rich are more likely to be able to afford investment advisors who can help them appraise share prices differently (e.g. more accurately), and who don't cater to the poor. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But can someone please expound the emboldened sentence? How does the poor's larger investment in riskier investments, affect wealthier investors' appraisal of what makes a share's price affordable?&lt;/p&gt;&#xA;" OwnerUserId="4020" LastEditorUserId="4020" LastEditDate="2018-07-06T06:01:37.643" LastActivityDate="2018-07-06T06:01:37.643" Title="Why would the rich care about the poor's overinvestment in riskier investments?" Tags="&lt;investment&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22661" PostTypeId="2" ParentId="22645" CreationDate="2018-07-04T00:52:54.120" Score="6" Body="&lt;p&gt;They are different businesses.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Developers make more money developing than landlording. Some do both. But they are different businesses entirely. Also, there is a limited supply of capital and carrying that capital has a cost.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example. Let's say Bob the Builder borrows $10M to develop a project. The bank lends on the development. Not the completed project. That requires a different type of loan structure, depending on the use: residential vs. commercial, owner occupied residential vs. residential rental, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;After the project is completed, Bob will usually look to sell. If he holds the property as a rental or a commercial, he then switches hats and becomes a landlord. And the asset will require refinancing, as above described. Some builders choose this route. But most do not. As their skills, expertise, equipment, personnel, interests, etc. are all used best and most profitably building and developing.&lt;/p&gt;&#xA;" OwnerUserId="8719" LastEditorUserId="8719" LastEditDate="2018-07-06T19:05:48.097" LastActivityDate="2018-07-06T19:05:48.097" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22662" PostTypeId="2" ParentId="22660" CreationDate="2018-07-04T11:37:29.220" Score="3" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;How does the poor's larger investment in riskier investments, affect&#xA;  wealthier investors' appraisal of what makes a share's price&#xA;  affordable?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It does not. The author purportedly (and mistakenly) thinks that tolerance to risk is governed solely by the investor's wealth.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your question mistakenly conveys that a wealthy investor's method of valuation of share's price consists of merely reading (or as your question portrays, is &quot;affect[ed]&quot; by) the non-wealthy investor's assessment. But that reading significantly differs from what the author wrote.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The excerpts you reproduce reflect the author's cluelessness about basic concepts in finance. The end of the first excerpt seems to be inaccurately transcribed: The poor grammar in &quot;&lt;em&gt;The first arises directly from the fact are supposed to like the idea of a thriving&lt;/em&gt;&quot; do not allow us to grasp the point the author is trying to make. More important, the second excerpt is nonsense.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The author wrote:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;less-well-off investors might invest in higher-risk investments than&#xA;  would wealthier ones, because they have less non-invested assets to&#xA;  lose.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Causation as purported by the author is wrong. It is true that some non-affluent investors might be more tolerant to risk, but that tolerance is not solely determined by their non-affluence. Their expertise (or lack thereof, as you later point out), and/or their ambitions (meaning a person's legitimate sake of wealth) influence the levels of risk each individual investor is willing to incur.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a counterexample to refute the author's point, Nathan Rothschild and James de Rothschild continued getting into high-risk investments even after they &lt;a href=&quot;https://rads.stackoverflow.com/amzn/click/0140240845&quot; rel=&quot;nofollow noreferrer&quot;&gt;had made fortunes&lt;/a&gt;, and much to the dismay of the &lt;a href=&quot;https://rads.stackoverflow.com/amzn/click/0140286624&quot; rel=&quot;nofollow noreferrer&quot;&gt;next generation&lt;/a&gt; in the family.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Next, the author alleges that:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Wealthier investors would then have a different appraisal of what&#xA;  makes a share's price affordable than their less wealthy comrades&#xA;  would.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;If a share's price is affordable to a non-affluent investor, then it obviously is affordable to the wealthier investor as well. The author might have meant a more appropriate term such as &lt;em&gt;risk-worthiness as a function of expected profit&lt;/em&gt;, which brings us back to my previous comment on being more (or less) risk-tolerant than other investors.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An investor buys stock because he has the expectation that the share price will go up. The fact that different investors have different appraisals on the future price of a stock has little or nothing to do with each investor's wealth. Of course, there is a phenomenon known as &lt;em&gt;herd mentality&lt;/em&gt; where a multitude of agents are influenced by a contagious and/or blind belief that a share price will continue certain trend. That leads to price bubbles or collapse, accordingly, but that mechanism of affecting each investor's appraisals is unrelated to what the author and your question portray.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Unpredictability and difference of appraisals are precisely what allow the price of some stocks to fulfill some investors' expectations of profit. If everybody were able to predict the future value of an asset, for instance \$90 per share (for simplicity, assume a risk-free interest rate of 0%), nobody would be willing to sell his share for less than \$90, and nobody would be willing to buy a share for more than \$90. Consequently, the share price would stay at \$90, thereby failing every shareholder's expectation of profit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The author does not substantiate, at least in those excerpts, why the assumption that &quot;&lt;em&gt;robust stock markets are a plus for the economy&lt;/em&gt;&quot; is &lt;em&gt;highly contestable&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;I understand how hedge fund managers with PhDs in Finance (who serve&#xA;  only the rich) can help the rich to appraise share prices differently&#xA;  (e.g. more accurately)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;That is unsubstantiated, highly debatable, and very opinion-based. But I don't vote down questions (or answers) merely for a difference of opinions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Edited on July 5, 2018, to address OP's follow-up comment, and to add last paragraph&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(1) Edited, although see &quot;&lt;em&gt;the fact are supposed to like&lt;/em&gt;&quot; in the excerpt. I assume the author meant to type something like &quot;&lt;em&gt;the fact that &lt;strong&gt;people|investors&lt;/strong&gt; are supposed to like the idea of a thriving market&lt;/em&gt;&quot;. But the whole sentence is still unclear: Is it a &lt;em&gt;fact&lt;/em&gt; that they like the idea of a thriving market? or are they &lt;em&gt;supposed&lt;/em&gt; to like that idea? Saying &quot;the fact that something is supposed&quot; is rather meaningless for his argumentation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;More important, the author's inaccuracies and gaps reflect he does not handle some financial concepts well, and yet he tries to premise on those flawed arguments his proposition about a &lt;em&gt;limited liability&lt;/em&gt; schema. I am not knowledgeable enough to support or criticize the author's conclusion(s) about LLCs/LLPs, but he should definitely rework his arguments away from engendering unwarranted confusion &amp;amp; controversy about &quot;classes&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(2) You ask whether the following would change the sense of my answer:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;I know that the rich are more likely to be able to afford investment&#xA;  advisors who can help them appraise share prices differently (e.g.&#xA;  more accurately), and who don't cater to the poor.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;There are two reasons why it wouldn't lead to a different answer. First: Paying an expensive financial advisor does not guarantee that the investor will obtain competent --let alone accurate-- advice. An advisor's certifications or designations certainly, and only, signal that he has demonstrated (typically via exams) standard knowledge of some prerequisite syllabi. However, the advisor remains subject to the aforementioned unpredictability of markets, and to internal policy at his employer agency.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Second: An advisor might recommend the same to wealthy and poor investors, yet the wealthy respond with &quot;&lt;em&gt;I hear you, advisor, but I still want you to do xyz with my funds&lt;/em&gt;&quot; based on that investor's risk profile, scrutiny, fiscal planning, expertise, or moral/religious considerations. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I should have added yesterday that, even if the wealthy investor cared about the appraisals made by the poor investor, such reading of appraisals is impossible in today's stock markets because these involve so many buyers and sellers. The author &quot;highly contests&quot; (albeit without substantiating why) that &quot;&lt;em&gt;robust stock markets are a plus for the economy&lt;/em&gt;&quot;, but it is precisely that inability (in today's markets) to cross-read investments what strikes the author's insinuation that appraisals vary by &quot;class&quot;.&lt;/p&gt;&#xA;" OwnerUserId="18552" LastEditorUserId="18552" LastEditDate="2018-07-05T11:57:29.127" LastActivityDate="2018-07-05T11:57:29.127" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="22664" PostTypeId="1" AcceptedAnswerId="22675" CreationDate="2018-07-04T14:19:21.937" Score="1" ViewCount="116" Body="&lt;p&gt;Find the returns to scale for he following production function- $(x_1 + 1)^.5 (x_2)^.5$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My attempt,&#xA;Let $f(x_1,x_2)=(x_1 + 1)^.5 (x_2)^.5$&#xA;And $g(x_1,x_2)=(x_1)^.5 (x_2)^.5$&#xA;Now,&#xA;$(x_1 + 1)^.5 (x_2)^.5$ &#xA;$&amp;gt;$&#xA;$(x1)^.5 (x_2)^.5$&#xA;Therefore,&#xA;$f(x_1,x_2)&amp;gt;g(x_1,x_2)$&#xA;Or, $f(tx_1,tx_2)&amp;gt;g(tx_1,tx_2)$ for some t&gt;0&#xA;$&amp;gt;(tx_1)^.5 (tx_2)^.5$&#xA;$=t(x_1)^.5 (x_2)^.5$&#xA;$=tg(x_1,x_2)$&#xA;The function g exhibits constant returns to scale. The function f being bigger than it should exhibit increasing returns to scale. The answer given, however, is decreasing returns to scale. Where am I wrong? Thank you in advance.&lt;/p&gt;&#xA;" OwnerUserId="14458" LastActivityDate="2018-07-05T13:21:47.310" Title="finding the returns to scale of a production function" Tags="&lt;microeconomics&gt;&lt;economies-of-scale&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22665" PostTypeId="2" ParentId="22660" CreationDate="2018-07-04T15:17:55.740" Score="-1" Body="&lt;p&gt;Liability applies whether your assets are in cash, stock, real estate or other. For example, if a company goes bankrupt, it may have to liquidate to pay creditors. Limited liability which prevents shareholders from being liable for additional debts that cannot be paid from such a liquidation would tend to benefit those whose liability is limited, i.e., those with assets to invest, but that is a separate question from whether the perceived marginal benefit associated with a risk differs systematically from wealth.&lt;/p&gt;&#xA;" OwnerUserId="16499" LastActivityDate="2018-07-04T15:17:55.740" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22666" PostTypeId="2" ParentId="22645" CreationDate="2018-07-04T15:25:26.300" Score="1" Body="&lt;p&gt;People buy houses because they want to live in them, and hope the real market price will appreciate. People who buy (or buy shares in) investment properties do so with the expectation to earn a rental income flow, and also hope to choose properties they believe will appreciate in real market price. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Developers make money from developing property on land. If they were to hold onto significant illiquid assets for longer than necessary, this would prevent them from accessing financial resources which would enable them to undertake further development activities. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In some cases, a developer would have rational interest to even sell at a loss. For example, if a second development project had high prospects for profit, and the sale would enable access to finance for the new project, or to pay back investors/creditors in the first project in order to access additional credit financing.&lt;/p&gt;&#xA;" OwnerUserId="16499" LastActivityDate="2018-07-04T15:25:26.300" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22667" PostTypeId="2" ParentId="22635" CreationDate="2018-07-04T16:13:28.383" Score="2" Body="&lt;p&gt;Macroeconomics is the part of interest to fixed income hedge funds, and a secondary concern for other parts of finance. It is also the area with the greatest theoretical splits. I am in the post-Keynesian economics camp. Within post-Keynesian economics, I would list two books as a good starting point.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(I would guess that “mainstream” economists are in the majority for answering questions here. I would let them list what they view as the best introductions to macroeconomics; I have obvious theoretical reservations about the mainstream texts that I have read.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The text &lt;em&gt;Monetary Economics&lt;/em&gt; by Wynne Godley and Marc Lavoie is an introduction to stock-flow consistent modelling. It is aimed at undergraduates, and gives an overview of post-Keynesian economics from a mathematical perspective. The models themselves are simple, but a lot of key information is embedded in the text itself. It explains the post-Keynesian critiques of the theoretical mainstream. My background was in applied mathematics, and the treatment in &lt;em&gt;Monetary Economics&lt;/em&gt; made the most sense to me; the mathematical conventions used by economists elsewhere are somewhat non-obvious to outsiders.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The next book is &lt;em&gt;Stabilizing a Unstable Economy&lt;/em&gt; by Hyman Minsky. It’s more of a popular book than a textbook (largely non-mathematical), but it provides a readable introduction to Hyman Minsky’s views on the relationship between finance and the economy. The 2008 Financial Crisis was labelled a “Minsky Moment,” reflecting Minsky’s popularity among financial market commentators. &lt;em&gt;Stabilizing an Unstable Economy&lt;/em&gt; may not be Minsky’s best book (collections of his articles might be better), but it offers the best overview.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2018-07-04T16:13:28.383" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22668" PostTypeId="2" ParentId="22611" CreationDate="2018-07-04T18:34:42.933" Score="1" Body="&lt;p&gt;He who formulated the exercise is wrong, and this is why I am posting a full answer to a homework question.&#xA;This is a classic example where manipulating recursive relations can lead to different representations that may appear &quot;different&quot; and with different properties.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Delta Y_t \equiv Y_{t}-Y_{t-1} =  \mu + Y_{t-1} + \varepsilon_{t} - \mu - Y_{t-2} - \varepsilon_{t-1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies \Delta Y_t = \Delta Y_{t-1} - \Delta \varepsilon_{t} \tag{1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At the same time &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Y_t = \mu + Y_{t-1} + \varepsilon _t \implies \Delta Y_t = \mu +\varepsilon _t \tag{2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The right hand side of Eqs. $(1)$ and $(2)$ represent the same process. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In any case, &lt;em&gt;neither&lt;/em&gt; of these are $MA(1)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Moving forward, which one to choose?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A soft adoption of Occam's razor indicates that eq. $(2)$ is the simplest. A bit more specifically, we note that the manipulation resulting in $(1)$ hasn't &quot;saved&quot; us from the existence of a unit root and non-stationarity in a clear way. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Both therefore suggest to adopt $(2)$, that says that  $\{\Delta Y_t\}_t$ is the sum of constant and a $WN$ process. &lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2018-07-04T18:34:42.933" CommentCount="8" ContentLicense="CC BY-SA 4.0" />
  <row Id="22669" PostTypeId="1" AcceptedAnswerId="22670" CreationDate="2018-07-04T19:54:32.480" Score="2" ViewCount="55" Body="&lt;p&gt;While evaluating the mixed strategy equilibrium, in most of the cases, we consider that all actions of a player are in the &lt;em&gt;support&lt;/em&gt; of the equilibrium.Is it always so? &#xA;I was going through a problem (36.1, Chapter 3 in Ariel Rubinstein’s &lt;em&gt;A Course in Game Theory&lt;/em&gt;) where the mixed strategy equilibrium was calculated by considering all the possible actions in the support of the probability distribution. I was able to reach to this solution using the basic theory, but I cannot prove that every action will be in the support.&#xA;Here I am borrowing the definition of &lt;em&gt;support&lt;/em&gt; from Ariel Rubinstein’s &lt;em&gt;A Course in Game Theory.&lt;/em&gt;&lt;/p&gt;&#xA;" OwnerUserId="16340" LastActivityDate="2018-07-04T21:34:18.140" Title="Why is every action considered to be in the support while calculating mixed strategy equilibrium?" Tags="&lt;game-theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22670" PostTypeId="2" ParentId="22669" CreationDate="2018-07-04T20:41:24.247" Score="2" Body="&lt;p&gt;It is not, only in intro problems.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You have already seen counterexamples: The prisoner's dilemma has an equilibrium, yet it does not have full support. (But it is a pure strategy equilibrium! So? All pure strategies are just very particular mixed strategies.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Mixed strategies with full support are called completely mixed strategies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is a good exercise to show that strictly dominated pure strategies are never in the support of mixed equilibrium strategies. Using this you yourself can construct a simple example where the only equilibrium is a mixed but not completely mixed strategy profile.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2018-07-04T21:34:18.140" LastActivityDate="2018-07-04T21:34:18.140" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22671" PostTypeId="2" ParentId="10308" CreationDate="2018-07-04T21:02:15.333" Score="1" Body="&lt;p&gt;In Spanish you can reach IPC Online project in Argentina. &lt;a href=&quot;https://ipconlinebb.wordpress.com/&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://ipconlinebb.wordpress.com/&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="18781" LastActivityDate="2018-07-04T21:02:15.333" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22675" PostTypeId="2" ParentId="22664" CreationDate="2018-07-05T02:49:15.507" Score="3" Body="&lt;p&gt;What you have proven is that $$f(tx_1, tx_2) &amp;gt; tg(x_1,x_2)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which translates &quot;scaled $f$ is higher than &lt;em&gt;some other&lt;/em&gt;, homogeneous function $g$ scaled by the same factor&quot;. This does not prove anything about the returns to scale related to $f$, although I can see why it may appear otherwise.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can go in reverse, starting from &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$tf(x_1,x_2) = t^{0.5}t^{0.5}f(x_1,x_2)=...$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and compare to $f(tx_1, tx_2)$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also beware about the following: what are the permissible values for $t$ when returns are not constant? Are you sure we should obtain the result for $t&amp;gt;0$, or maybe we examine the property for a smaller interval?&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2018-07-05T13:21:47.310" LastActivityDate="2018-07-05T13:21:47.310" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="22676" PostTypeId="2" ParentId="22648" CreationDate="2018-07-05T04:06:01.903" Score="0" Body="&lt;ol&gt;&#xA;&lt;li&gt;Either $I(x)=I(y)$ or $I(x) \cap I(y)=\phi $ $\forall$ $x,y\in X$&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Proof by contradiction&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let there be $x,y \in X$ such that $x\neq y$ and $I(x)\neq I(y)$.&#xA;Let there be an element $a \in I(x)\cap I(y)$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence by definition of $I(.)$, $x\sim a$ and $y\sim a$ which implies that $x\sim y$ and this implies that $I(x)=I(y)$ which is a contradiction.&lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;2&quot;&gt;&#xA;&lt;li&gt;$\forall x\in X, \exists y\in X, such\  that\  x\in I(y)$&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Every element $x\in X$ has the property that $x\sim x$, hence there is at least one element in $X$, $\forall y\in X$ such that $x=I(y)$, which is the case when $x=y$.&lt;/p&gt;&#xA;" OwnerUserId="15375" LastActivityDate="2018-07-05T04:06:01.903" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22677" PostTypeId="2" ParentId="1621" CreationDate="2018-07-05T08:01:12.133" Score="3" Body="&lt;p&gt;Glen Weyl, an economist at Microsoft, in a &lt;a href=&quot;https://www.economist.com/letters/2016/09/17/letters-to-the-editor&quot; rel=&quot;nofollow noreferrer&quot;&gt;letter to &lt;em&gt;The Economist&lt;/em&gt;, 2016-09-17&lt;/a&gt;:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;You mentioned the role of Nash equilibrium in redesigning the system of matching job offers at hospitals with medical students. Although a common story, the actual history does not line up as the triumph for non-co-operative game theory you think it is. The “deferred acceptance” algorithm now in use in the system was discovered by medical staff before its rediscovery by David Gale and Lloyd Shapley in the 1960s. In any case, it relies on a co-operative game theory of stability, which is an alternative to Nash’s non-co-operative equilibrium, not an application of it.&lt;/p&gt;&#xA;&lt;p&gt;Nash equilibrium has transformed the way economists think about their field, but clear practical applications of the concept are harder to pinpoint than they might at first appear. The same might be said of Newton’s theory of gravitation and many other great scientific achievements.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerDisplayName="user18" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2018-07-05T08:01:12.133" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22679" PostTypeId="1" AcceptedAnswerId="22681" CreationDate="2018-07-05T12:43:55.797" Score="2" ViewCount="229" Body="&lt;p&gt;Suppose I have a regression model:&#xA;$$y_{i}=x_{1i}\beta_{1}+x_{1i}D_{i}\beta_{2}+\epsilon&#xA;$$&#xA; where $\mathbb{E}\left[\epsilon_{i}|x_{i}\right]\neq0$ , and there&#xA;is a problem of endogeneity. In the above, think of the dummy variable&#xA;being equal to $1$ when $i$ is male. As such, this model allows&#xA;for a differential effect of $x_{1i}$ on $y_{i}$, if the individual&#xA;is a male or female. In order to obtain consistent estimates, suppose&#xA;I have an instrument $z_{1i}$, which is both a relevant instrument&#xA;for $x_{1i}$, and satisfies the exclusion restriction (such that&#xA;$cov(z_{i},\epsilon_{i})=0).$ If there were no interaction term,&#xA;it would be trivial to estimate the above using Two stage least squares,&#xA;or simply just computing:&#xA;$$&#xA;\hat{\beta}=\left(\boldsymbol{z'}x\right)^{-1}\left(\boldsymbol{z'y}\right)&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, the complication arises due to the interaction term. How&#xA;would I go about obtaining estimates for both $\beta_{1}$ and $\beta_{2}$?&#xA;One option is to construct another instrument $D_{i}Z_{1i}$. Would&#xA;such a procedure be valid? &lt;/p&gt;&#xA;" OwnerUserId="5233" LastActivityDate="2019-05-28T18:20:00.600" Title="2SLS with endogenous interaction terms" Tags="&lt;econometrics&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="22680" PostTypeId="1" CreationDate="2018-07-05T12:54:41.413" Score="5" ViewCount="93" Body="&lt;p&gt;I have been using a double-auction mechanism to solve a two-sided market where multiple agents are competing to supply/use slices of a shared resource. The owner of the resource is a trustable third-party who is not biased towards any of the traders and is not using the resource (*simplified description of the problem in the footnote). The setup and the auction algorithm works just fine.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, considering a new scenario, where the auctioneer (the primary supplier) joins the market as a trader, thus cannot be trusted to hold the auction, what other alternatives to auction are there to assure trust?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;*A bakery bakes 1000 baguettes per day and distributes them equally among the 10 restaurants in the town every morning. However, depending on the day some of the restaurants might be short on Baguettes or have an excess supply. We have designed a sealed-bid double-auction mechanism that allows the restaurants to share their excess Baguettes with the restaurants short on baguettes and get monetary compensation for it. As we assume that the bakery is not biased towards any of the restaurants, we trust him to be the auctioneer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The bakery buys one of the restaurants, and it cannot be trusted anymore to run the auction as it is biased. Is it possible to hold the auction without having a central trusted auctioneer and distribute the decision making to solve the trust issue? If so, how we can minimize the communication between the traders?&lt;/p&gt;&#xA;" OwnerUserId="16177" LastActivityDate="2018-07-05T12:54:41.413" Title="Auction mechanism with no trusted third-party" Tags="&lt;markets&gt;&lt;auctions&gt;&lt;efficient-markets&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="22681" PostTypeId="2" ParentId="22679" CreationDate="2018-07-05T13:56:36.250" Score="1" Body="&lt;p&gt;Let $X$ be the original regressor matrix and $Z = [z \;\; zd]$ be the intstruments matrix, and consider the IV estimator&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\hat \beta_{IV} = (Z'X)^{-1}Z'y = (Z'X)^{-1}Z'(X\beta + u) = \beta + (Z'X)^{-1}Z'u$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As long as the things that are included in $Z$ are orthogonal to the error term, we get consistency... provided that $Z'X$ remains invertible, something that you can easily check in your case.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2018-07-05T13:56:36.250" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="22682" PostTypeId="1" CreationDate="2018-07-05T22:06:33.787" Score="1" ViewCount="64" Body="&lt;p&gt;Despite being a small country (area-wise), how Switzerland can sustain a high cost of living? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I get the logic that the pay of employees would be proportionally higher, so they can sustain a high cost of living. Not the entire country is mountainous, &lt;strong&gt;at the least the cost of living should be comparable to neighboring countries especially in the plains.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How does it be able to sustain the economy of border areas where people can do shopping in the neighboring countries?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Am I asking the right question? Clearly, there is some piece of the puzzle about Switzerland, that I don't get.&lt;/p&gt;&#xA;" OwnerUserId="12166" LastActivityDate="2018-07-06T00:59:18.147" Title="How Switzerland has significantly high cost of living as compared to its neighboring countries?" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;&lt;basic-income&gt;&lt;labor-cost&gt;&lt;living-cost&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22685" PostTypeId="1" AcceptedAnswerId="25898" CreationDate="2018-07-06T09:17:29.923" Score="1" ViewCount="45" Body="&lt;p&gt;Many US-branded products like Apple's are manufactured in China. Are these products considered Chinese when they are imported back to US? And are they thus subject to tariffs?  &lt;/p&gt;&#xA;" OwnerUserId="18789" LastEditorDisplayName="user18" LastEditDate="2018-12-06T04:43:09.747" LastActivityDate="2018-12-06T04:43:09.747" Title="Are US-branded products manufactured in China considered Chinese?" Tags="&lt;international-trade&gt;&lt;usa&gt;&lt;china&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22686" PostTypeId="1" CreationDate="2018-07-06T09:53:57.617" Score="1" ViewCount="76" Body="&lt;p&gt;If an economy grows, due to a tax reduction for example, how does that affect the exchange rate? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My logic would be that reduced taxes put more money into people's pockets, which they then use to buy more stuff. If all of that stuff were produced domestically, nothing were to happen to the exchange rate. If some of that stuff were to be produced in other countries and imported, those importing the goods will want to exchange the domestic currency for their foreign currency. That would increase demand for foreign currency relative to domestic currency and thereby decrease the value of the domestic currency.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, as the economy grows other country's producers will want to buy into the economy's market, for which they will need that country's currency and increase demand for it. That will drive the currency up. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore: What effect is stronger in response to domestically motivated economic growth? Is it the depreciating effect of imports or the appreciating effect of new entrants or am I missing something entirely?&lt;/p&gt;&#xA;" OwnerUserId="16657" LastActivityDate="2020-04-26T20:01:45.170" Title="How does domestic demand affect the domestic currency's value" Tags="&lt;economic-growth&gt;&lt;foreign-exchange&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22687" PostTypeId="1" CreationDate="2018-07-06T10:44:43.003" Score="1" ViewCount="42" Body="&lt;p&gt;When a large economy adopts a contractionary fiscal policy, for example, and the exchange rates are mobile, there will be a devaluation in the local currency - but there will be no full return (of the IS curve) because there is a small economy that is a mirror image of the large economy. Its exchange rate will decline (appreciation) and the equilibrium will be somewhere in the middle (international interest rate parity will take place).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Today I came across a more complex question. The large economy threatens to impose tariffs, which causes future disposable income to fall in &lt;strong&gt;both&lt;/strong&gt; economies. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In my opinion, even though the two economies &quot;push&quot; toward devaluation of their currency, the large economy determines the move, its currency is devalued (ie appreciation in the small economy) and the equilibrium point will be to the left of the starting point (again, not a full return of the IS curve).&#xA;Another solution that came to me is that after the curves in both economies have narrowed, the international interest rate drops, and the change is over. With no effect on international trade or exchange rates.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks for the help&lt;/p&gt;&#xA;" OwnerUserId="18790" LastActivityDate="2018-07-06T10:44:43.003" Title="Keynesian model: large and small economies equilibrium" Tags="&lt;keynes&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22688" PostTypeId="2" ParentId="22686" CreationDate="2018-07-06T15:40:03.203" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;What effect is stronger in response to domestically motivated economic&#xA;  growth? Is it the depreciating effect of imports or the appreciating&#xA;  effect of new entrants or am I missing something entirely?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;There's no general answer to that. It depends on the particulars of each economy. Some factors are:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Whether imports outweigh exports or viceversa;&lt;/li&gt;&#xA;&lt;li&gt;Whether the tax reduction is coupled with spending cuts, tariffs,&#xA;foreign debt, etc.;&lt;/li&gt;&#xA;&lt;li&gt;Taxpayers' general propensity to save the additional &quot;disposable&quot;&#xA;income could influence the exchange rate in either direction,&#xA;depending on where they deposit their savings.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="18552" LastActivityDate="2018-07-06T15:40:03.203" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22689" PostTypeId="1" CreationDate="2018-07-06T17:26:31.330" Score="0" ViewCount="93" Body="&lt;p&gt;This &lt;a href=&quot;http://money.cnn.com/2018/07/06/news/economy/china-us-tariffs-list/index.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;CNN article&lt;/a&gt; seems to imply that Chinese tariffs on American goods will make them more expensive to American consumers. Is this true? I did think that tariffs by your own country on imported foreign goods made those imported goods more expensive, but I also thought tariffs by a foreign country on goods your country exports actually made those goods cheaper for you.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Example statement in the article:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The cost of the new tariffs can be found in the roughly 1,300 individual products that have suddenly become more expensive.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This statement is followed by a list of &quot;US goods hit by Chinese tariffs&#xA;&quot;. Clearly the implication is these goods are among the products that have become more expensive.&lt;/p&gt;&#xA;" OwnerUserId="18791" LastActivityDate="2018-07-10T19:10:58.400" Title="Do Chinese tariffs on American goods make them more expensive to American consumers?" Tags="&lt;international-trade&gt;&lt;price&gt;&lt;usa&gt;&lt;china&gt;&lt;tariffs&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="22690" PostTypeId="1" AcceptedAnswerId="22715" CreationDate="2018-07-06T18:37:52.927" Score="2" ViewCount="262" Body="&lt;p&gt;Suppose I wish to run the following gravity regression: &#xA;$$&#xA;Y_{ijt}=\boldsymbol{X_{ijt}'\beta+}ij+i_{t}+j_{t}+\epsilon_{ijt}&#xA;$$&#xA;where the LHS is bilateral trade between $i$ and $j$ in year $t,$&#xA;the first part of the RHS denotes control variables, specific to $i$ and $j$. The term $ij$&#xA;is the pair fixed effects term, which is a fixed effect for a particular&#xA;term. The third term is the importer-time fixed effect, and the fourth&#xA;term is the exporter fixed effect. Importantly, within each year,&#xA;I have bilatereal information between various possible combinations&#xA;of importers and exporters. My questions are as follows: 1) Are the&#xA;coefficients on $ij$, $i_{t}$ and $j_{t}$ identified? My first&#xA;inkling is yes. That is because, assuming a balanced panel, the total&#xA;number of observations are:&#xA;$$&#xA;T\times I\times J&#xA;$$&#xA; whereas the number of coefficients to be identified as:&#xA;$$&#xA;IJ+IT+JT&#xA;$$&#xA; which is less than $TIJ$ if:&#xA;$$&#xA;IJ\left(1-\frac{1}{T}\right)&amp;gt;I+J&#xA;$$&#xA; which should generally be the case.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) On what basis is $\beta$ identified? What variation is being used?&#xA;The $ij$ pair fixed effects would imply this is being identified&#xA;from within country pair- over time variation in $\boldsymbol{X.}$&#xA;What role does $i_{t}$ and $j_{t}$ play? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks!&lt;/p&gt;&#xA;" OwnerUserId="5233" LastActivityDate="2018-07-10T15:03:02.883" Title="Fixed Effects Variation" Tags="&lt;econometrics&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22691" PostTypeId="1" CreationDate="2018-07-07T01:44:19.343" Score="1" ViewCount="12" Body="&lt;p&gt;what is the project monitoring and impact analysis(PMIE)? Can anyone explain basic features of this?&lt;/p&gt;&#xA;" OwnerUserId="18794" LastActivityDate="2018-07-07T01:44:19.343" Title="what is the project monitoring and impact analysis(PMIE)?" Tags="&lt;microeconomics&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22692" PostTypeId="1" CreationDate="2018-07-07T04:55:17.793" Score="2" ViewCount="30" Body="&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/KmvPm.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Negative capitalist savings rate in the 30s, does this refute stimulus &lt;/p&gt;&#xA;" OwnerUserId="18796" LastActivityDate="2018-07-07T04:55:17.793" Title="Low capitalist savings rates" Tags="&lt;elasticity&gt;" AnswerCount="0" CommentCount="0" ClosedDate="2018-07-09T22:08:24.180" ContentLicense="CC BY-SA 4.0" />
  <row Id="22693" PostTypeId="1" CreationDate="2018-07-07T21:55:33.223" Score="1" ViewCount="115" Body="&lt;p&gt;Consider two firms &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Inverse functions: $p(q)=max\{a-q,0\} $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$q$ is total production and a is positive constant. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This value of a takes two values ah=2 (high demand) and aL=1 (low demand). Their probabilities are equal (1/2) for each cases. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Firm 1 know the value of a,  but firm 2 don’t know. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Firm 1 = incumbent &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Firm2 = entrant &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Firm 1 move first. Firm 2 observe firm 1’production $q_1$ before deciding $q_2$ and then move. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For all firms, marginal cost and fixed costs are zero. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Considering firm 1’s incentive to signal the state of the world, describe the set of separating equilibria.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;————&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I have solved:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Case 1:no signaling &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Firstly consider the firm 2,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\pi 2= max [ (1/2)(ah-q_1^H-q_2)q_2+(1/2)(aL-q_1^L-q_2)q_2]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By FOC:  $$q_2^*= {3-(q_1^L+q_1^H)\over 4}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now consider the firm 1. There are two states: ah and aL&lt;/p&gt;&#xA;&#xA;&lt;p&gt;State 1: $a=ah=2$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\pi_1^H = max [ (ah-q_2-q_1^H)q_1^H]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $$q_2^*= {3-(q_1^L+q_1^H)\over 4}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I insert this $q_2$ into maximization objective function &lt;/p&gt;&#xA;&#xA;&lt;p&gt;By FOC:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$5=6q_1^H- q_1^L$         $\ \ $(Equation 1)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;State 2: $a=aL=1$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\pi_1^L= max [ (aL-q_2-q_1^L)q_1^L]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $$q_2^*= {3-(q_1^L+q_1^H)\over 4}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I insert this $q_2$ into maximization objective function.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;FOC: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$6q_1^L+q_1^H=1$ $\ \ $(Equation 2)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When I combine the equations (1) and (2), I obtain that &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$q_1^H+q_1^L=6/5$$&#xA;And $q_1^H=31/35$ and $q_1^L=11/35$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$q_2^*={3-(6/5)\over 4}=9/20$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When I calculate the profits&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\pi_2=81/400$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\pi_1^L&amp;gt;0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\pi_1^H&amp;lt;0$$&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;my first problem is at this point. Why I obtain $\pi_1^H&amp;lt;0$ this profit negative value. This is wrong,  but I could not find my mistake. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Case 2: signaling exist &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider the firm 2&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\pi_2 = max [ (a-q_2-q_1)q_1]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By FOC, $q_2=(1/2)[a-q_1]$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now consider the firm 1,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\pi_1= max [ (1/2)(ah-q_1^H-q_2)q_1^H+(1/2)(aL-q_1^L-q_2)q_1^L]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;S.t.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$(IC_H):\ $ $(ah-q_2-q_1^H)q_1^H&amp;gt; (ah-q_2-q_1^L)q_1^L$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$(IC_L):\ $ $(aL-q_2-q_1^L)q_1^L&amp;gt; (aL-q_2-q_1^H)q_1^H$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$(PC_H):\ $ $ (ah-q_2-q_1^h)q_2&amp;gt;0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$(PC_L):\ $ $ (aL-q_2-q_1^L)q_2&amp;gt;0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Solutions &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$IC_G$ must hold because firm 1 cannot deviate. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$PC_L$ must be biding because the firm 2 cannot earns negative profit. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;By $IC_G$ and $PC_L$, $PC_G$ is automatically satisfied. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the optimization problem becomes&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\pi_1= max [ (1/2)(ah-q_1^H-q_2)q_1^H+(1/2)(aL-q_1^L-q_2)q_1^L]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;S.t.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$(IC_H):\ $ $(ah-q_2-q_1^H)q_1^H&amp;gt; (ah-q_2-q_1^L)q_1^L$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$(PC_L):\ $ $ (aL-q_2-q_1^L)q_2&amp;gt;0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lagrangian &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$L= [ (1/2)(ah-q_1^H-q_2)q_1^H+(1/2)(aL-q_1^L-q_2)q_1^L]+ \lambda [(ah-q_2-q_1^H)q_1^H- (ah-q_2-q_1^L)q_1^L]+\mu [ (aL-q_2-q_1^L)q_2]$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;FOCs &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(I) $dL/dq_1^L=0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(II) $dL/dq_1^H=0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(III) $dL/d\lambda\ge 0$ and $(dL/d\lambda)\lambda=0$ For $\lambda \ge 0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(IV) $dL/d\mu\ge 0$ and $(dL/d\mu)\mu=0$ For $\mu \ge 0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It must be that $\lambda \ge 0$ and $\mu \ge 0$ such that constraints are binding. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;By (III) and (IV), $q_1^H=2$ and $q_1^L=2$&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;blockquote&gt;&#xA;    &lt;p&gt;my problem about signaling case, the values of q1 doesn’t not hold with the answers of solution manual  book that gives only true value. Where is my mistake in mysolution? I could not find my mistake. Please give me a hint.&lt;/p&gt;&#xA;  &lt;/blockquote&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I wrote my solution and the points that I have trouble in yellow box. If need more clarification, I immediately add something. Please help me. Thanks. &lt;/p&gt;&#xA;" OwnerUserId="14785" LastEditorUserId="14785" LastEditDate="2018-07-07T22:12:25.580" LastActivityDate="2018-07-07T22:12:25.580" Title="Signaling questions (separating equilibrium)" Tags="&lt;microeconomics&gt;&lt;game-theory&gt;&lt;self-study&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22694" PostTypeId="1" CreationDate="2018-07-08T08:18:59.213" Score="4" ViewCount="45" Body="&lt;p&gt;When modelling income or wealth, we probably want a continuous distribution with a lower bound; statisticians have named &lt;a href=&quot;https://en.wikipedia.org/wiki/List_of_probability_distributions#Supported_on_semi-infinite_intervals,_usually_[0,%E2%88%9E)&quot; rel=&quot;noreferrer&quot;&gt;many&lt;/a&gt;, but &lt;a href=&quot;https://en.wikipedia.org/wiki/Pareto_distribution&quot; rel=&quot;noreferrer&quot;&gt;Pareto&lt;/a&gt; and &lt;a href=&quot;https://en.wikipedia.org/wiki/Log-normal_distribution&quot; rel=&quot;noreferrer&quot;&gt;log-normal&lt;/a&gt; distributions have been among the most historically popular. Many studies have tested how well these fit the data, and (when they seemed to) estimated the parameters. But is there a theoretical basis for either of these, or for any other model? I found &lt;a href=&quot;https://arxiv.org/pdf/0802.4410.pdf&quot; rel=&quot;noreferrer&quot;&gt;this&lt;/a&gt; motivation for a Gamma distribution, but I suspect it's &lt;em&gt;far&lt;/em&gt; from being mainstream in economics.&lt;/p&gt;&#xA;" OwnerUserId="10991" LastActivityDate="2018-07-08T08:18:59.213" Title="Is there a theoretical basis for any popular income- or wealth-distribution model?" Tags="&lt;inequality&gt;&lt;theory&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22695" PostTypeId="1" CreationDate="2018-07-08T21:42:36.060" Score="2" ViewCount="70" Body="&lt;p&gt;I'm reading Ray Dalio's &lt;em&gt;How the Economic Machine Works&lt;/em&gt;, and although I understand the role of credit in an economy, I don't understand whether credit actually &lt;strong&gt;adds any value&lt;/strong&gt; to an economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ray says that credit is what causes economic cycles (i.e. people borrow and invest when interest rates are low, and save when interest rates are high). This behavior leads to short term debt cycles in the economy. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, Ray also says that these short-term cycles are centered around a long term productivity growth of around 2%.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/sKcmk.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/sKcmk.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So my question is as follows:&#xA;If productivity will always grow at around 2%, what is the point of credit? Aren't you simply borrowing from the future, and then subsequently paying off those debts? Would economic growth be the same without credit? Would the economy be as efficient?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit: Here's the paragraph that I'm confused about. Is this paragraph saying that credit doesn't add anything to an economy (since long-term productivity growth is the same regardless?)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/FRO92.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/FRO92.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="18804" LastEditorUserId="18804" LastEditDate="2018-07-08T21:54:06.547" LastActivityDate="2018-07-09T02:34:11.597" Title="Does credit really help an economy?" Tags="&lt;economic-growth&gt;&lt;productivity&gt;&lt;credit&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="22696" PostTypeId="2" ParentId="22695" CreationDate="2018-07-09T02:34:11.597" Score="3" Body="&lt;p&gt;Credit or more broadly finance helps to allocate scarce resources to where they are most needed.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;Example.&lt;/strong&gt; Suppose party A is sitting on a pile of resources from which he thinks he can make a return of 1% (per annum). Party B has no resources, but thinks she can use party A's resources to make a return of 3%. Then both parties can benefit if A loans his resources to B at a rate of 2%. (Society also benefits, at least insofar as the economic pie is larger than it would otherwise have been.)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;(Of course, in the real world, A and B may be very much mistaken about their rates of return, which is partly how bad things like financial crises arise. But the above simplistic example illustrates what's &quot;supposed&quot; to happen, at least in a world of perfect information.)&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;P.S. Your presumption that &quot;productivity will always grow at around 2%&quot; is false. Finance/credit is at least part of the reason for non-trivial economic growth in the past 250 years. In a world where entrepreneurs are unable to gain credit, economic growth would be lower.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2018-07-09T02:34:11.597" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22700" PostTypeId="2" ParentId="14064" CreationDate="2018-07-09T14:10:51.870" Score="0" Body="&lt;p&gt;Two vies on IS-LM, Keynesian and Monetarist, analyses extreme situations of the economy. It provides comparative-static equilibrium condition. It ignores time-lags. It doesn't consider effects of changes in aggregate demand on output and prices. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Keynesian version assumes price level to be constant and inflation ignored. Neoclassical version considers full-employment and so price level is result of nominal money supply and output is exogenous. &lt;/p&gt;&#xA;" OwnerUserId="18812" LastActivityDate="2018-07-09T14:10:51.870" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22702" PostTypeId="1" AcceptedAnswerId="22709" CreationDate="2018-07-09T16:54:26.383" Score="3" ViewCount="104" Body="&lt;p&gt;&lt;strong&gt;TL;DR&lt;/strong&gt; - Do standardised concepts ever make money?&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Recently I have been wondering if conceptual ideas ever make money, more specifically whether a conceptual idea that is standardised ever makes money? If so, how does it do this? If not, why do they not make money?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An example of a concept that has become a standard is the OSI model, the OSI model is a conceptual idea which governs how traffic passes through a network from the physical layer (layer 1) right up to the application layer (layer 7). This concept has become a standard idea and guideline in networking so much so we now &quot;speak in OSI&quot; what that means is, if there's a cable issue it's a &quot;layer 1 problem&quot; and if there is a routing issue it's considered to be a &quot;layer 3 issue&quot;&lt;/p&gt;&#xA;" OwnerDisplayName="user18815" LastEditorDisplayName="user18815" LastEditDate="2018-07-10T09:56:22.193" LastActivityDate="2018-07-10T11:40:14.233" Title="Do conceptual ideas that become standardised ever make money?" Tags="&lt;money&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22703" PostTypeId="1" CreationDate="2018-07-09T17:19:31.743" Score="1" ViewCount="89" Body="&lt;p&gt;Oscar Tabarez, the current football manager of Uruguay National Team, have urged, after his good results, his governement to raise, as promised, the Education Spending on GDP Ratio to 6%. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is a very good resolution indeed and it makes me looking how my country, France, is ranked. &#xA;Someone, could help to understand why France (i'm french) has a low level in comparison with Mexico, Brazil or Argentina and is one of the last country of OECD.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;source : &lt;a href=&quot;https://data.oecd.org/eduresource/education-spending.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://data.oecd.org/eduresource/education-spending.htm&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are we more efficient with Public Expenditure ? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is large issue but any comments will help me.&lt;/p&gt;&#xA;" OwnerUserId="18816" LastActivityDate="2018-07-14T22:07:40.827" Title="Education Spending Ratio" Tags="&lt;education-economics&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22706" PostTypeId="2" ParentId="22703" CreationDate="2018-07-09T19:45:11.310" Score="2" Body="&lt;p&gt;My work focuses on the Economics of Education, although from a more micro perspective. I can honestly say it's a &lt;em&gt;complicated&lt;/em&gt; question and there are many people working on optimal education spending.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, a bit of simple math. Let $EdExp$ be education expenditure, $GDP$ be Gross Domestic Product, $E_{students}$ be enrolled students, $S_{pop}$ be school-age population, $N_{pop}$ be non-school age population. One can decompose Education Expenditure by GDP ratio in this way:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{EdExp}{GDP} \equiv \frac{E_{students}}{S_{pop}} \times \frac{S_{pop}}{(S_{pop}+N_{pop})} \times (\frac{EdExp}{E_{students}} \times \frac{(S_{pop}+N_{pop})}{GDP})$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note this isn't a &quot;made-up formula&quot;, it's an accounting identity. This is true in the US, China and in a tribe of herdsmen. I'll translate its terms to english. $\frac{EdExp}{GDP}$ is Education Spending to GDP ratio, which Tabarez thinks should be 6%. $\frac{E_{students}}{S_{pop}}$ is the enrollment rate, the fraction of people who are school-aged and attend school. $\frac{S_{pop}}{(S_{pop}+N_{pop})}$ is the dependency ratio, the fraction of the population that is school aged. Lastly, $\frac{EdExp}{E_{students}} \times \frac{(S_{pop}+N_{pop})}{GDP}$ is education expenditure per student divided by GDP per capita. This is the proportion of average income that is spent on the average student.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Countries like France have high GDP per capita and low dependency ratios, which means they can sustain high expenditure per student without having to compromise a large share of GDP on education. Uruguay and Brazil, on the other hand, have high dependency ratios and somewhat low GDP per capita. Enrollment rate isn't very high too. So, in order for these countries to sustain high expenditure per student (which is what ultimately counts), they need to reserve a larger share of GDP for education.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That's one part, the one having to do with demography and aggregate spending. I'd like to talk about the one some of my research is concerned with, spending efficiency. Uruguay is not an extreme case as Brazil, but it shares many problems with its northern neighbor.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Out of the ~6.5% of GDP that Brazil spends in education, only about 1% goes to public fundamental/elementary schools. About 1% goes to public high schools and the rest goes to public universities. This is just terrible. You can't spend 2% of GDP on dozens of millions of students and then 4% on 1 million of them and expect the first system to have reasonable quality. Then, we have the institutional problems. In most states, schools aren't allowed to pay bonuses to better teachers and many poor municipalities can't even hire trained teachers because of low pay, depending on self-taught locals to teach. Access to federal resources such as financing for new materials and data to better understand your school's demands is somewhat easy but mostly untrained, unqualified school managers don't know what to do with these resources. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the cities and school that &lt;em&gt;do&lt;/em&gt; have somewhat qualified personel and more money, public tenure rules in Brazil make it impossible to fire low productivity teachers and managers and even promote the good ones. Leading to overall lack of incentives. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;On one hand, spending matters. It's hard to imagine schools giving good education if there aren't blackbords, chairs and basic equipment in it. On the other hand, poor institutional design and lack of incentives can make tons of money go to waste. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a rule of thumb, anything in the 4-5% education spending to GDP ratio is reasonable. More than that means mostly resources going to waste if there aren't serious attempts to create better incentives and improve school management. &lt;/p&gt;&#xA;" OwnerUserId="18167" LastEditorUserId="18167" LastEditDate="2018-07-12T17:40:29.620" LastActivityDate="2018-07-12T17:40:29.620" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22707" PostTypeId="2" ParentId="12627" CreationDate="2018-07-09T20:10:35.207" Score="1" Body="&lt;p&gt;Diminishing marginal utility is a &lt;strong&gt;cardinal&lt;/strong&gt; property. In other words: it is not invariant to arbitrary monotonic transformations. This indicates that it cannot be associated with any restriction on preferences (i.e., over a binary relation over consumption), since restrictions on preferences are by nature &lt;strong&gt;ordinal&lt;/strong&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To see this, consider preferences defined over $\mathbb{R}_{++}$, perhaps thought of as monetary outcomes. If we take $x \succeq y$ if and only if $x \geq y$, we have a convex preference. Notice that both $U(x) = ln(x)$ and $U(x) = e^x$ represent our preference. Both are quasi-concave functions, although only $ln(x)$ is also concave.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you are willing to entertain additional functional restrictions on $U$, then you can find axiomatic restrictions on $\succeq$ guaranteeing the &lt;em&gt;concavity&lt;/em&gt; of $U$ over $\mathbb R$. The obvious example is the expected utility model, which assumes that $U$ is linear over the set of simple lotteries over $\mathbb R$, i.e., takes the form: &#xA;$$U(p) = \sum_{supp(p)} p_i u(x_i)$$&#xA;where $p$ is a lottery over $\mathbb R$. In this case, the risk aversion axiom---that the certainty equivalent of $p$ is less than the expected value of $p$---will ensure the concavity of $u$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is possible only because we have taken a stand on the cardinal normalization of $U$. In other words, any EU representation of $\succeq$ will have a concave $u$ but &lt;em&gt;there still exist other &lt;strong&gt;convex&lt;/strong&gt; non-expected utility representations&lt;/em&gt;. &lt;/p&gt;&#xA;" OwnerUserId="398" LastActivityDate="2018-07-09T20:10:35.207" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22708" PostTypeId="2" ParentId="7089" CreationDate="2018-07-09T20:58:49.703" Score="2" Body="&lt;p&gt;How about this: For each vector $(x,y)$, there is a unique $z\in \mathbb R$ such that $(x,y) \sim (z,z)$. WLOG assume $x \geq y$. Then to see this claim, first notice by A2 that $(x,x) \succeq (x,y) \succeq (y,x)$. Then traveling along the $45^\circ$ from $(y,y)$ to $(x,x)$, A3 ensures the existence of our $z$. (Strict) Monotonicity assures uniqueness in the obvious way. Let $u: (x,y) \mapsto z$ where $z$ is defined in this way.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now let $(x,y) \sim (z,z)$ and $(x',y') \sim (z',z')$. Then by A1 we have&#xA;\begin{align}&#xA;(x + x',y+y') &amp;amp;\sim (z + x',z + y') \\&#xA;(x' + z,y' +z) &amp;amp;\sim (z'+z,z'+z)&#xA;\end{align}&#xA;so by transitivity, $(x+x',y+y') \sim (z+z',z+z')$. Verifying that $u$ is continuous is trivial.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So $u$ is additive and continuous. As &lt;a href=&quot;https://math.stackexchange.com/questions/116223/proof-that-a-continuous-additive-homomorphism-mathbbrn-to-mathbbrm-is&quot;&gt;this Math SE post&lt;/a&gt; explains if $\mathbb R^2 \to \mathbb{R}$ is additive and continuous then it is linear.&lt;/p&gt;&#xA;" OwnerUserId="398" LastActivityDate="2018-07-09T20:58:49.703" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22709" PostTypeId="2" ParentId="22702" CreationDate="2018-07-10T00:36:54.833" Score="1" Body="&lt;p&gt;This question is hard to answer because it can take so many perspectives. The only way I find to approach it is using examples. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Could John Nash profit from his paper in game theory? Could Einstein profit from general relativity? Yes, with prizes and recognition, but not everytime the concept is used. Not in a way analog to the copyrights of music or publishers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you talk about standard methodologies or standardized concepts, in the business world, several organisations strive for developing and enforcing standards, notably &lt;a href=&quot;https://www.iso.org/about-us.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;ISO&lt;/a&gt; and &lt;a href=&quot;https://www.gs1.org/standards&quot; rel=&quot;nofollow noreferrer&quot;&gt;GS1&lt;/a&gt;. They do have revenue, mostly from consulting or memberships, but they are not-for-profit organisations, as having profit can drive standardisation away. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &lt;a href=&quot;https://www.theverge.com/2017/5/24/15685096/intel-thunderbolt-3-royalty-free-usb-c-spec-data-transfer&quot; rel=&quot;nofollow noreferrer&quot;&gt;history of Thunderbolt&lt;/a&gt; demonstrates how trying to make money of a standard (through royalties) can sometimes drive consumers to use another standard which is free, even if inferior. &lt;/p&gt;&#xA;" OwnerUserId="12304" LastEditorUserId="12304" LastEditDate="2018-07-10T11:40:14.233" LastActivityDate="2018-07-10T11:40:14.233" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="22710" PostTypeId="2" ParentId="22702" CreationDate="2018-07-10T07:14:44.147" Score="0" Body="&lt;p&gt;Do concepts ever make money? Yes, of course they do. But not on their own. They need effort putting into them to turn the concept into intellectual property, product or service that can then be licensed, hired, rented or sold.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, for a long time, Adobe Flash was &lt;strong&gt;the&lt;/strong&gt; standard for interactive animations on web-pages, that Adobe monetised through selling the software to write and compile Flash objects.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is not necessarily the case that having a standards organisation as for-profit prevents the uptake of the standard. As Mark Leeds has written in a comment, the index fund is an ingenious concept that has reaped huge profits, as index funds have become widely adopted.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Furthermore, some standards organisations do make money: they do have a turnover. They can even make a profit: it just doesn't get called a profit, it gets called a surplus. Being a not-for-profit doesn't mean that they can't make a surplus - it just means that profit is not their reason for existing, nor their primary objective.&lt;/p&gt;&#xA;" OwnerUserId="44" LastEditorUserId="44" LastEditDate="2018-07-10T07:19:53.287" LastActivityDate="2018-07-10T07:19:53.287" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22711" PostTypeId="1" CreationDate="2018-07-10T07:42:26.563" Score="2" ViewCount="56" Body="&lt;p&gt;Suppose $F(x)$ and $H(x)$ are both cumulative prob dist functions on the support of $[b_0,b_1]$ and we know followings:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$u(x|F)=\int_{b_0}^{x}\frac{m}{1+k[1-F(b)]} dH(b)$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;and from this &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$[1+k(1-F(x))]du(x|F)=mdH(x)$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;We also know that &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$G(w)(m-u(b_1|F))=\frac{k\int_{b_0}^w [F(w)-F(x)]du(x|F)}{1+k(1-F(w))}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then in the paper, authors get following which is equation [22] in the paper&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{(m-u(b_1|F))dG(w)}{dF(w)}=\frac{kmH(w)}{[1+k[1-F(w)]]^2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I really don't understand how the authors got this. Can somebody help me? &lt;/p&gt;&#xA;" OwnerUserId="18823" LastEditorUserId="61" LastEditDate="2018-07-10T09:28:44.013" LastActivityDate="2018-09-10T02:56:00.370" Title="Burdett and Mortensen (1998), Equation (22), Integral by parts question" Tags="&lt;labor-economics&gt;&lt;search-and-matching&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22712" PostTypeId="1" CreationDate="2018-07-10T09:15:58.223" Score="0" ViewCount="22" Body="&lt;p&gt;This is a very applied question so I hope it's the correct adress here for it:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm running a small entertaining business for virtual reality experiences. Investment was about 120 k. I now build it all up and just opened a week ago. Money left is 25 k. There are two major things I would like to buy, one costs 6 k, the other 18 k (both software licences). &#xA;At the moment, without any income, I can survive about one year. That's why I probably will skip the expensive one of both licences. On the other hand it is a high award winning experience and also advertised by very famous people in our nation. That's why I'm not skipping it at all in my head.&#xA;The other one I guess it could fit to my finances. But anyhow, since VR is probably requested way more in winter time than in summer time I'm not sure how much profit I'll gain and if it is smart to invest into one of both.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there thumb of rule or even any academic method how to figure out if an investment promises to be a good decision? I'm aware that it is probably rather difficult but I'm a technician and I'm used to research anything at different methods. Hence, I believe there must be some tools to use for business purposes?&lt;/p&gt;&#xA;" OwnerUserId="18825" LastActivityDate="2018-07-10T12:24:23.417" Title="When to invest into additional products?" Tags="&lt;investment&gt;&lt;profit-maximization&gt;&lt;probability&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22713" PostTypeId="2" ParentId="22702" CreationDate="2018-07-10T09:45:48.973" Score="1" Body="&lt;p&gt;The United States, in particular, has an institutional framework for the granting of so-called &lt;a href=&quot;https://en.wikipedia.org/wiki/Method_(patent)&quot; rel=&quot;nofollow noreferrer&quot;&gt;method patents&lt;/a&gt;. These are patents that, rather than describing something very concrete like a machine or technological device, cover more abstract inventions such as new business methods or procedures.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Method patents are sometimes used to protect ideas that might be deemed conceptual. One (notorious) example, was amazon's patent for the idea of a &lt;a href=&quot;https://en.wikipedia.org/wiki/1-Click&quot; rel=&quot;nofollow noreferrer&quot;&gt;one-click checkout&lt;/a&gt; (now expired). Once an inventor holds the patent to a method, they have exclusive rights to permit its use. In amazon's case, it allowed the firm to extract licensing fees from others, such as Apple, who wished to use the method in their own products.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A bit closer to home, various economists have patented ideas for how to design well functioning markets (e.g. &lt;a href=&quot;https://patents.google.com/patent/US6718312&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;), which might be perceived as conceptual. These exploit the same method patent framework as the 1-click case.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2018-07-10T09:45:48.973" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="22714" PostTypeId="2" ParentId="22712" CreationDate="2018-07-10T12:24:23.417" Score="1" Body="&lt;p&gt;Other than the generic calculation of &quot;Present Value&quot;, there's no rule of thumb as such. Your decision should largely depend on your knowledge of the market, your capital and other production inputs, whether the licenses are substitutes, the marginal profit each one would bring, and so forth.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If a license has an expiration date, you might want to postpone the purchase till peek season is approaching. That way, you are not cash-strapping yourself unnecessarily. Also, there is always a possibility that some substitute and more affordable software might be released (or be noticed by you) sometime soon. For instance, would you buy a license if you find an open-source equivalent elsewhere?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand, the deployment of a specialized software might take time to stabilize, whence you would need to assess whether that would disrupt business operations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another aspect to consider is that by spending more of your remaining --and arguably vital-- resources, you are placing &quot;more eggs in the same basket&quot;. That type of management is discouraged unless you have the certainty that your business will be profitable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Knowingly or not, during your decision-making you'll inherently be applying many principles of economics and finance. There is just no tool or test that gives the precise type of guidance you are seeking.&lt;/p&gt;&#xA;" OwnerUserId="18552" LastActivityDate="2018-07-10T12:24:23.417" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22715" PostTypeId="2" ParentId="22690" CreationDate="2018-07-10T13:53:33.200" Score="1" Body="&lt;p&gt;It isn't enough to have a large number of observations. You need multiple observations of each $i$ and $j$ for multiple time periods and doing trade with multiple countries. If, for example, if countries $k$ and $l$ only trade with each other, it wouldn't be possible to distinguish between $k$, $l$, and $lk$. In additions, you need multiple observations because you want to identify a time subscript on $i$ and $j$. If you have many countries, many periods, and many trade relationships, and the data are not sparse then this may not matter much. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You may find this paper of use:&#xA;Gravity or dummies? the limits of identification in gravity estimations (&lt;a href=&quot;http://www.freit.org/WorkingPapers/Papers/TradePolicyGeneral/FREIT426.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Hornok 2011&lt;/a&gt;)&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;This paper argues that identification of trade policy effects with a&#xA;  gravity equation that includes country-time dummies to control for the&#xA;  theoretical Multilateral Trade Resistances (MTR) is severely limited.&#xA;  In most cases heterogeneous policy effects, i.e. more than one policy&#xA;  dummies, cannot be identified separately, because the policy dummies&#xA;  and the country-time dummies are perfectly collinear. Although a&#xA;  single policy dummy can b e identified, the estimate may not b e&#xA;  meaningful, because country-time dummies absorb to o much of the&#xA;  useful variation of the data. Standard estimation techniques often do&#xA;  not reveal these problems. The pap er demonstrates these arguments by&#xA;  taking four typical research questions on the effect of a trade&#xA;  policy, checking the&#xA;  identifiability of the corresponding policy effect and deriving the&#xA;  estimates. Empirical exercise on estimating the trade effects of EU&#xA;  enlargement complements the analytical findings.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;And Estimating the gravity model without gravity using panel data&#xA;(&lt;a href=&quot;https://www.tandfonline.com/doi/abs/10.1080/00036840802599784&quot; rel=&quot;nofollow noreferrer&quot;&gt;Westerlund and  Wilhelmsson 2009&lt;/a&gt;)  &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;...$\alpha_{ij}$ which is unidentified in the fixed effects&#xA;  formulation of the model. In order to identify $\alpha_{ij}$, a random&#xA;  effects assumption is needed. But such assumptions are generally not&#xA;  satisfied in practice...&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;@ChinG, here is the basic gravity idea:&#xA;Newton's law of universal gravitation tells us that the force of gravity is&#xA;$$F = \frac{G M_1 M_2}{R^{2}_{1,2}}$$&#xA;which implies&#xA;$$f = g + m_1 + m_2 - 2 \cdot r_{1,2} $$&#xA;(where lowercase letters are the logs of upper case ones). In the trade equation, the force of gravity is replaced with the volume of trade. Usually, $M_1$ represents the economic size of economy one (say measured by $GDP_1$ and in your regression analogous to $I_t$), $M_2$ represents the economic size of economy two ($GDP_2$ and analogous to $J_t$), and $r_{1,2}$ is the geographic or effective economic distance between the two countries ($\alpha_{i,j}$). GDP isn't exactly the right measure because countries differ in fraction of the economy devoted to trad-able output. Think of it as analogous to the importance of that country in global trade (in an absolute and not relative sense). &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2018-07-10T15:03:02.883" LastActivityDate="2018-07-10T15:03:02.883" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="22716" PostTypeId="2" ParentId="22711" CreationDate="2018-07-10T14:41:46.130" Score="2" Body="&lt;p&gt;The authors apply in the second step the exact same rules they used in the first step, regarding the calculation of the total differential of an integral, taking also into account that the integral is taken over a function of the integrating variable and not just the integrating variable itself.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first step is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$d[u(x|F)]=d\left[\int_{b_0}^{x}\frac{m}{1+k[1-F(b)]} dH(b)\right]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$=\frac{m}{1+k[1-F(x)]}dH(x) \tag{1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and re-arranging we get the first result. Applying the same logic, we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$(m-u(b_1|F))\cdot d\big[G(w)\big]=kd\left[\frac{\int_{b_0}^w [F(w)-F(x)]du(x|F)}{1+k(1-F(w))}\right] $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We are considering the differential with respect to $w$, since this is the argument of the $G$ function. To clearly indicate this we will write $d_w$. To clarify the picture write&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$kd_w\left[\frac{\int_{b_0}^w [F(w)-F(x)]du(x|F)}{1+k(1-F(w))}\right] \equiv k d_w\left(\frac{A(w)}{B(w)}\right) = k\frac{B(w)d_wA(w) - A(w)d_wB(w)}{[B(w)]^2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We see that the denominator is exactly as the final expression of the authors, so it is of no concern. We turn to the numerator.&#xA;One by one,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ d_wA(w) = d_w\left[\int_{b_0}^w [F(w)-F(x)]du(x|F)\right] $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$= [F(w)-F(w)]du(w|F) + \left[\int_{b_0}^w d_w[F(w)-F(x)]du(x|F)\right]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$= 0 + d_wF(w) \int_{b_0}^w du(x|F) + 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We applied here Leibniz rule for differentiation w.r.t. a limit of integration under the integral when the integrand is also a function of the integrating limit. The second zero result comes from the fact that $d_wF(x) = 0$ ($F(x)$ does not include $w$, so as we change $w$ the change in $F(x)$ is zero). So &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$B(w)d_wA(w) = [1+k(1-F(w)]d_wF(w) \int_{b_0}^w du(x|F) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$= d_wF(w)\int_{b_0}^w [1+k(1-F(w))]du(x|F) \tag{2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where we have moved the term inside the integral since it does not depend on the integrating variable which is $x$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Going to the second term, we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$d_wB(w) = -kd_wF(w)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$-A(w)d_wB(w) = d_wF(w) \int_{b_0}^w k[F(w)-F(x)]du(x|F) \tag{3}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$B(w)d_wA(w) -A(w)d_wB(w) = d_wF(w)\int_{b_0}^w [1+k(1-F(w)]du(x|F) \\+ d_wF(w) \int_{b_0}^w k[F(w)-F(x)]du(x|F)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The $d_wF(w)$ is a common factor and the two integrals can be written as one due to linearity, so &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$B(w)d_wA(w) -A(w)d_wB(w)=\\ = d_wF(w)\int_{b_0}^w\Big([1+k(1-F(w)] + k[F(w)-F(x)]\Big)du(x|F)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The term $kF(w)$ in the integrand cancels off and we are left with &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$B(w)d_wA(w) -A(w)d_wB(w) = d_wF(w)\int_{b_0}^w[1+k(1-F(x))]du(x|F)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But using the re-arranged $(1)$ and substituting we get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$B(w)d_wA(w) -A(w)d_wB(w) = d_wF(w)\int_{b_0}^wmdH(x)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$= md_wF(w)\cdot \Big(H(x) \big|_{b_0}^w\Big) = md_wF(w)\cdot \Big(H(w) - H(b_0)\Big)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But since $H()$ is a CDF in $(b_0, b_1)$, it follows that $H(b_0) =0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And we are done. In short, don't be afraid to push through the mathematical calculations.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2018-09-10T02:56:00.370" LastActivityDate="2018-09-10T02:56:00.370" CommentCount="7" ContentLicense="CC BY-SA 4.0" />
  <row Id="22717" PostTypeId="1" CreationDate="2018-07-10T17:42:15.023" Score="0" ViewCount="1215" Body="&lt;p&gt;I'm trying to solve the following question: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;The seller wants to auction off a single item to two bidders, the valuation of each bidder is an iid draw from a uniform distribution on $[0,1]$ where the seller sets a reserve price, $r$, and has zero valuation for the item. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I was able to solve for the second price auction, such that the equilibrium bidding function is to bid your valuation for $v&amp;gt;r$ and to not enter if $v&amp;lt;r$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the first price auction, I usually go about solving for the bidding function by first calculating the probability that bidder i wins: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\Pr(i\text{ wins})=\Pr(v_i &amp;gt; r) * \Pr(v_i &amp;gt; v_j)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where I know that $\Pr(v_i &amp;gt; v_j) = (1-b^{-1}(b))$ which I can then use to derive the bidding function as usual in an ordinary FPA $(0,0)$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is, how do I work the reserve price into the bidding function. &lt;/p&gt;&#xA;" OwnerUserId="18829" LastEditorUserId="11824" LastEditDate="2018-07-11T05:51:07.130" LastActivityDate="2018-07-11T09:32:45.937" Title="First Price Auction with Reserve Price" Tags="&lt;microeconomics&gt;&lt;game-theory&gt;&lt;auctions&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22718" PostTypeId="2" ParentId="22689" CreationDate="2018-07-10T19:10:58.400" Score="1" Body="&lt;p&gt;Well, due to Lerner's Simmetry Theorem, an import tax has the same effect of an export tax. When China makes its imports from the US more expensive, its exports get more expensive too.&lt;/p&gt;&#xA;" OwnerUserId="18167" LastActivityDate="2018-07-10T19:10:58.400" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="22721" PostTypeId="1" CreationDate="2018-07-11T00:46:30.280" Score="1" ViewCount="105" Body="&lt;p&gt;I'm stuck on how to estimate the credit (counterparty) risk in interbank lending in the Australian market. TED spread is usually measured as the difference between the LIBOR rate and the T-bill rate. However, when I use the same framework to calculate the Australian TED spread, it is often negative. I use two methods:&#xA;1. 3-month BBSW (bank bill swap rate) -  3-month bank bill rate (or cash rate)&#xA;2. 3-month LIBOR in Australian Dollar - 3-month bank bill rate (or cash rate)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The negative value definitely makes no sense as the former should always be larger than the risk-free rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can anyone illuminate how this works? or did I use the wrong proxy?&lt;/p&gt;&#xA;" OwnerUserId="18831" LastActivityDate="2018-07-12T01:32:13.313" Title="how to measure the funding liquidity, i.e., equivalent U.S. TED spread, in the Australian market?" Tags="&lt;finance&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22723" PostTypeId="1" CreationDate="2018-07-11T07:35:19.173" Score="1" ViewCount="66" Body="&lt;p&gt;In most empirical studies of discrete choice, the presence of an outside good is assumed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can you give an example of a (well published) empirical paper, where there is no outside good and thus utility normalization is w.r.t. to any of the inside goods?&lt;/p&gt;&#xA;" OwnerUserId="4619" LastActivityDate="2018-07-11T07:35:19.173" Title="Discrete choice model without outside option?" Tags="&lt;applied-econometrics&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22724" PostTypeId="2" ParentId="22717" CreationDate="2018-07-11T09:32:45.937" Score="2" Body="&lt;p&gt;Let's forget about the reserve price for a second.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose there is a symmetric increasing equilibrium bidding strategy $b(v)$. We can think of a bidder with value $v$ as choosing which $\tilde{v}$ he will &quot;pretend to be&quot; by submitting bid $b(\tilde{v})$. The bidder wins iff $\tilde{v}&amp;gt;v_j$ (where $v_j$ is his rival's value). Thus, the payoff is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$(v-b(\tilde{v}))\Pr(\tilde{v}&amp;gt;v_j)=(v-b(\tilde{v}))\tilde{v}.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now compute the FOC for choice of $\tilde{v}$:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$v-b(\tilde{v})-\tilde{v}b'(\tilde{v})=0.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If $b$ is really an equilibrium then the optimal choice of $\tilde{v}$ should be the bidder's true value, $v$: $v-b(v)-vb'(v)=0$. This is a differential equation. To solve it we just need a boundary condition.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Anyone with $v&amp;lt;r$ will not bid. So the set of bidders will be the truncated uniform distribution on $[r,1]$. Intuitively, a bidder with value $r$ cannot earn a positive surplus, so a reasonable boundary condition seems to be $b(r)=r$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Solving the initial value problem&#xA;$$v-b(v)-vb'(v)=0,\ b(r)=r$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;yields the equilibrium $$b(v)=\frac{r^2+v^2}{2v}.$$&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2018-07-11T09:32:45.937" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22725" PostTypeId="1" AcceptedAnswerId="22726" CreationDate="2018-07-11T09:35:29.967" Score="1" ViewCount="216" Body="&lt;p&gt;While &lt;a href=&quot;https://politics.stackexchange.com/a/32115/21304&quot;&gt;answering&lt;/a&gt; this question I was doing some research and &lt;a href=&quot;https://www.heritage.org/index/heatmap&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;strong&gt;found that&lt;/strong&gt;&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/b44JZ.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/b44JZ.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;the &lt;a href=&quot;https://en.wikipedia.org/wiki/World_Bank_high-income_economy&quot; rel=&quot;nofollow noreferrer&quot;&gt;high-income world&lt;/a&gt; has Free Markets.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is it that because they are high-income, they have free markets, Or, is it that their free market made them high-income?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A supplementary question is: if the latter is true, why don't all low-income countries adopt Free Markets?&lt;/p&gt;&#xA;" OwnerDisplayName="user18806" LastActivityDate="2018-07-11T17:59:58.093" Title="Free market vs high income" Tags="&lt;free-market&gt;" AnswerCount="2" CommentCount="2" ClosedDate="2018-07-12T20:02:16.137" ContentLicense="CC BY-SA 4.0" />
  <row Id="22726" PostTypeId="2" ParentId="22725" CreationDate="2018-07-11T10:24:37.607" Score="-1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Is it that because they are high-income, they have free markets, Or,&#xA;  is it that their free market made them high-income?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Free market leads to or significantly contributes to a nation's high income.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;why don't all low-income countries adopt Free Markets?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Free markets are not a sufficient condition for prosperity. Many low-income countries with a supposedly market-economy remain undeveloped because rampant corruption in those countries outpaces or absorbs the benefits that free markets bring to the economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Elsewhere, ignorance and political interests are the main impediments to the adoption of a market economy. The notion of so-called &lt;em&gt;welfare state&lt;/em&gt; is utilized to dissimulate or justify the mechanism or structures with which certain types of reactionary groups retain power.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In socialist (or de-facto socialist) countries, sectors like labor unions retain much of their influence notwithstanding the gaps in their leaders' economics background. A market economy typically results in a loss of concessions those groups are not willing to give up.&lt;/p&gt;&#xA;" OwnerUserId="18552" LastActivityDate="2018-07-11T10:24:37.607" CommentCount="7" ContentLicense="CC BY-SA 4.0" />
  <row Id="22727" PostTypeId="1" CreationDate="2018-07-11T12:54:35.273" Score="0" ViewCount="34" Body="&lt;p&gt;In &lt;a href=&quot;https://www.bbc.co.uk/news/business-44659500&quot; rel=&quot;nofollow noreferrer&quot;&gt;this BBC News article about the merger of Tata Steel and Thyssenkrupp&lt;/a&gt;, the following figure is reported:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The merged group anticipates it will make costs savings of between £350m to £440m a year.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Presumably some or all of these savings would be achieved by eliminating redundant duplication of departments across the two organizations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are the cost savings mentioned in the article indicative of a fundamental inefficiency caused by a competitive market, that wouldn't be present in, say, a nationalized industry (or total monopoly)?&lt;/p&gt;&#xA;" OwnerUserId="18835" LastActivityDate="2018-07-11T17:07:09.790" Title="Do the efficiency savings of mergers indicate a type of waste or inefficiency in a market?" Tags="&lt;efficient-markets&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22728" PostTypeId="2" ParentId="22727" CreationDate="2018-07-11T17:07:09.790" Score="-1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Are the cost savings mentioned in the article indicative of a&#xA;  fundamental inefficiency caused by a competitive market, that wouldn't&#xA;  be present in, say, a nationalized industry (or total monopoly)?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;That &quot;causation&quot; is mischaracterized. It is not that a competitive market &lt;em&gt;causes&lt;/em&gt; inefficiencies, but that it &lt;em&gt;encourages their removal&lt;/em&gt;. Inefficiencies also exist in a state-controlled economy, but there the government pursues other policies because it does not need to be concerned about the risk of being left out of the [state-controlled] market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The title of the article you shared serves to illustrate the point. The fact that the unions &quot;&lt;em&gt;welcomed&lt;/em&gt;&quot; the merger reflects how they typically object to mergers (elsewhere, the article quotes one union officer in terms of having &quot;&lt;em&gt;made great sacrifices&lt;/em&gt;&quot;). The historical friction from unions is antithetical to the optimization that eventually becomes indispensable in a market-based economy. Here, it appears from the article that the unions understood that Trump's tariffs on steels and the imminent consequences from Brexit are compelling reasons to reach an agreement and accept the merger.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A &lt;em&gt;natural&lt;/em&gt; monopoly is the only monopoly that could thrive in a competitive market because, by &lt;a href=&quot;https://en.wikipedia.org/wiki/Natural_monopoly#Formal_definition&quot; rel=&quot;nofollow noreferrer&quot;&gt;definition of natural monopoly&lt;/a&gt;, the existence of competitors would not result in improvements in the market or economy.&lt;/p&gt;&#xA;" OwnerUserId="18552" LastActivityDate="2018-07-11T17:07:09.790" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22729" PostTypeId="1" CreationDate="2018-07-11T17:43:57.480" Score="1" ViewCount="64" Body="&lt;p&gt;This question is related to extremum estimators. I am looking to propose an estimator that I think may be a Tobit estimator, but I am unsure. The question is as follows: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $z$ be a random variable with a strictly increasing CDF $F( \dot ) $ everywhere on its support. The median of $Z$, $\gamma$ is defined as: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$ \int _{-\infty, \gamma} dF(z) &amp;gt; \frac{1}{2}$ ; $ \int _{\gamma, \infty} dF(z) &amp;gt; \frac{1}{2}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is known that $\gamma$ minimizes an expected absolute deviatin criterion:&#xA; $\gamma = argmin_e E(|Z-e| - |Z|)$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;We consider a model $Y=max\{c, f(X; \theta)+\epsilon\}$ where c is a known constant and the conditional median of $\epsilon$ given  $X$ is 0. Suppose we have an i.i.d sample $\{X_i, Y_i\}$, that is generated by this model. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) Propose an extremum estimator for $\theta$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here, I was thinking that a Tobit model would be appropriate since the model is truncated by the constant $c$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) Show the estimator you proposed is consistent. &lt;/p&gt;&#xA;" OwnerUserId="18829" LastEditorUserId="10775" LastEditDate="2018-08-12T01:25:44.790" LastActivityDate="2018-12-10T19:01:51.167" Title="extremum Estimator (possibly tobit?)" Tags="&lt;econometrics&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="22730" PostTypeId="1" CreationDate="2018-07-11T17:55:14.047" Score="2" ViewCount="48" Body="&lt;p&gt;How would Trump's tariffs affect an American multinational company? Would the goods that they produce be considered imports?&lt;/p&gt;&#xA;" OwnerUserId="18836" LastEditorUserId="10343" LastEditDate="2019-09-24T10:04:51.150" LastActivityDate="2019-09-24T10:04:51.150" Title="Effects of tariffs on company" Tags="&lt;international-trade&gt;&lt;tariffs&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22731" PostTypeId="2" ParentId="22725" CreationDate="2018-07-11T17:59:58.093" Score="0" Body="&lt;p&gt;Capitalism works best when there is elasticity- the price can go up or down by a marginal unit without running into the problem of plateauing supply or demand.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In extremely wealthy or extremely poor places, the market can experience inelasticity- where a change in the price will not affect demand.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Cheap item inelasticity:&lt;/strong&gt;&#xA;E.g. The water is free at restaurants but we don't see people drinking insane quantities of water, though supply/$0 should equal infinite demand.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Expensive item inelasticity:&lt;/strong&gt;&#xA;Someone is stranded in the desert and has no water. A vending machine offers him water for 100 gold coins. Even though the price is very high, the man still needs water. To save his life, the man would pay 100 or even 200 coins, doubling the price without reducing the demand. As it happens, the man has only one coin and dies because the vending machine was unable to adjust its price to make a sale.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Cheap item inelasticity is rarely a problem because if a country is stuck with undesirable surplus, it could just burn it or throw it in the sea.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Expensive item inelasticity is more prevalent in poorer places where more of the population is unable to afford important goods. A country could A) allow its people to starve B) subsidize goods for the poor C) set a maximum price for the item.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;B and C are not free-market options.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A poorer economy is more likely to run into the problem of Expensive Item Inelasticity and is thus more likely to attempt to resolve it. &lt;/p&gt;&#xA;" OwnerUserId="13403" LastActivityDate="2018-07-11T17:59:58.093" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22732" PostTypeId="1" AcceptedAnswerId="22736" CreationDate="2018-07-11T19:51:10.617" Score="8" ViewCount="217" Body="&lt;p&gt;There is a lot of discussions about immigration and its effect on economies lately in Europe, so I'd like to ask a question. Is it true that immigration helps to sustain welfare in rich European countries? For example, in the case of pensions, since life expectation is increasing and natality rates are decreasing in the richest European countries, the ratio of people receiving a pension to that of active workers (who pay those pensions with their taxes) is increasing. Since immigrants usually have a higher natality rate, they should help counteract this effect.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, often people counter this argument by saying that immigrants receive much more money from welfare, than they return through taxes, for various reasons:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;unemployment is much higher among immigrants than among natives&lt;/li&gt;&#xA;&lt;li&gt;there are many irregular immigrants who still receive healthcare (if they go to an emergency room), but who don't pay taxes&lt;/li&gt;&#xA;&lt;li&gt;etc.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Especially (but not only) in Denmark, this constant grievance has reached incredible levels. It seems to me baseless racism, but I'm not an economist, so I'd like to know:  are there studies which prove that the contribution to welfare from immigrants is a net positive? Are there studies that indicate that by blocking immigration, rich European countries would risk not being able to pay pensions in the future?&lt;/p&gt;&#xA;" OwnerUserId="10839" LastEditorUserId="10839" LastEditDate="2018-07-11T21:24:59.567" LastActivityDate="2018-07-12T15:15:56.887" Title="Does immigration help to sustain welfare in rich European countries?" Tags="&lt;unemployment&gt;&lt;welfare-economics&gt;&lt;government-spending&gt;&lt;migration&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22733" PostTypeId="1" CreationDate="2018-07-11T19:54:14.653" Score="1" ViewCount="71" Body="&lt;p&gt;I am studying for an exam and I am focusing on different types of preferences and shocks and the respective responses. This problem has been causing me trouble.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The representative consumer in an economy has the lifetime utility function: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$U = \sum \beta^t U(c_t, l_t)$, where $c_t$ is consumption in period t and $l_t$ is labor supply and $U(c_t, l_t)= c_t^\frac{1}{2} - l_t$. The production technology is given by $y_t= A_t \times l_t$ where $y_t$ is output in period t. Consumers can lend and borrow freely at the interest rate $r_t$ and the government spending in period t, $g_t$ is exogeneously given and is financed by lump-sum taxes and government debt. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) What is the intertemporal elasticity of substitution in consumption? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know the IES is is the measure of responsiveness to the growth rate of consumption to the real interest rate. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) Derive equilibrium levels of consumption, output, employment and interest rate in each period in terms of exogenous variables and given parameters in the model. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;3) Discuss the effects of changes in government spending on consumption, output, employment and interest rate. Is there a crowding out effect of government spending in this economy? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;4) Is it true that the level of government spending is irrelevant in this economy? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think the answer to this is no intuitively. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;5) Is it true that the distribution of government debt across time is irrelevant in this economy? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think the answer to this is yes, it is true due to Ricardian equivalence. &lt;/p&gt;&#xA;" OwnerUserId="18838" LastEditorUserId="18838" LastEditDate="2018-07-11T21:02:03.373" LastActivityDate="2018-07-11T21:02:03.373" Title="Consumer preferences and government spending" Tags="&lt;macroeconomics&gt;&lt;real-business-cycles&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22734" PostTypeId="1" CreationDate="2018-07-11T22:06:53.280" Score="3" ViewCount="76" Body="&lt;p&gt;Two risk averse people are identical in every way (including wealth, W , amount of loss, L, and utility function, U(W)) except they have different probabilities of loss. Suppose they want to buy insurance from a risk neutral monopoly insurance company. Let p1 and p2 denote the probabilities of loss of each agent, respectively, with p1 &amp;lt; p2. The company cannot distinguish between the two agents.&#xA;An insurance policy is a pair (P;I) where P is the premium paid and I is the level of coverage (amount paid out in case of loss).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(i) If the company is restricted to o§er a single full insurance policy what would it be?&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;I have found its solution:  but I don’t understand a point in its solution.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We consider two situations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;1st Situation:&lt;/strong&gt; we consider a full insurance only to low types (I.e. people who have high probability of loss (p2))&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let’s characterize the insurance policy &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;$p_2U(W-P-L-I)+(1-p_2)U(W-P)=p_2U(W-L)+(1-p_2)U(W)=U_L$&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;$W-P-L-I=W-P \iff L=I$&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;$P^*=W-u^{-1}(u_L)$&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;I understand how to write these three steps perfectly.  But,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;2nd Situation:&lt;/strong&gt; we consider a full insurance only to both high types and low types (I.e. people who have high probability of loss (p2) and who have low probability of loss (p1))&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;I am stuck at this point,&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;ol&gt;&#xA;  &lt;li&gt;$p_1U(W-P^L-L-I)+(1-p_1)U(W-P^H)=p_1U(W-L)+(1-p_1)U(W)=u_H$&lt;/li&gt;&#xA;  &lt;li&gt;$W-P^L-L-I=W-P^H \iff L=I$&lt;/li&gt;&#xA;  &lt;li&gt;$P^*=u^{-1}(u_H)$&lt;/li&gt;&#xA;  &lt;li&gt;Firm’s expected profit = $(1-p_1)P^H+(p_1)(P^H-I)+(1-p_2)P^H+(p_2)(P^H-I)$&lt;/li&gt;&#xA;  &lt;/ol&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In yellow box, in 1st and 2nd steps, why do the one side of the equation include $p^H$ and other side of the equation include $p_L$?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And in the 3rd step, why price level don’t include wealth W?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, if I solved the question by myself, I wrote the equations in yellow box as follows : &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;1. $p_1U(W-P^H-L-I)+(1-p_1)U(W-P^H)=p_1U(W-L)+(1-p_1)U(W)=u_H$&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;2. $W-P^H-L-I=W-P^H \iff L=I$&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;3. $P^*=W-u^{-1}(u_H)$&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;4. Firm’s expected profit = $(1-p_1)P^H+(p_1)(P^H-I)+(1-p_2)P^L+(p_2)(P^L-I)$&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But what I write above are wrong. why?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In summary, I don’t understand how to write equations in the yellow box? Please do a short explanation for those. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you have an idea, I will be really glad if you explain. &lt;/p&gt;&#xA;" OwnerUserId="18701" LastEditorUserId="18701" LastEditDate="2018-07-12T10:10:09.220" LastActivityDate="2018-07-12T10:10:09.220" Title="Insurance question: need a brief explanation" Tags="&lt;microeconomics&gt;&lt;game-theory&gt;" AnswerCount="0" CommentCount="9" ContentLicense="CC BY-SA 4.0" />
  <row Id="22735" PostTypeId="2" ParentId="22721" CreationDate="2018-07-12T01:32:13.313" Score="2" Body="&lt;p&gt;it is measured by the swap spread, the difference between the 3-month bank bill swap rate (BBSW3M) or 3-month bank bill rate and the 3-month overnight indexed swap rates (OIS3M) captures the inherent bank credit risk and therefore funding liquidity in the inter-bank lending market.&lt;/p&gt;&#xA;" OwnerUserId="18840" LastActivityDate="2018-07-12T01:32:13.313" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22736" PostTypeId="2" ParentId="22732" CreationDate="2018-07-12T09:35:45.793" Score="4" Body="&lt;p&gt;Here is a chart from the OECD, which shows the net fiscal impact of migrants on their recipient country (i.e. by how much to they contribute or withdraw from the welfare state, albeit excluding in-kind benefits such as healthcare). For most Western countries, Denmark included, migrants are modest net positive contributors (&quot;they pay in more than they take out&quot;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is because migrants tend to be disproportionately working age, whereas the native population contains many retired or young people. Thus, migrants tend to pay a lot of income tax relative to the average native. Luxembourg and Switzerland stand out because both are small economies that attract many high-wage knowledge workers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the vertical axis of this chart is the net contribution to the fiscal budget. So a value of 1% means $(\$\text{tax paid}-\$\text{welfare received})/\$\text{GDP}=0.01$. Note that this is different to (and less than) migrants' overall contribution to GDP because, for example, migrants keep much of their contribution to GDP in the form of after-tax wages.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/bVatb.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/bVatb.png&quot; alt=&quot;Fiscal impact of migrants&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I took the chart from Oxford's &lt;a href=&quot;http://migrationobservatory.ox.ac.uk/resources/briefings/the-fiscal-impact-of-immigration-in-the-uk/&quot; rel=&quot;nofollow noreferrer&quot;&gt;migration observatory&lt;/a&gt;, which has more information specific to the case of the UK.&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2018-07-12T12:01:44.153" LastActivityDate="2018-07-12T12:01:44.153" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="22737" PostTypeId="1" CreationDate="2018-07-12T11:32:24.757" Score="3" ViewCount="111" Body="&lt;p&gt;I have been tasked with teaching some students macroeconomics, and will shortly need to introduce them to the concept of 'aggregate demand'. Usually, this is defined by the following sort of equation:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$AD$ = $C + I + G + X - M$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where the symbols have the usual interpretations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is whether aggregate demand is supposed to refer to the &lt;strong&gt;quantity&lt;/strong&gt; that is demanded or rather the &lt;strong&gt;value&lt;/strong&gt; of total demand.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Both options would seem to present difficulties:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the one hand, if we say that aggregate demand is a quantity, one needs to ask 'of what?' Naturally, if there were just one good in the economy, answering this would be easy. But in reality, there are many different goods. Are we supposed to just add up the quantities demanded of all these different goods (e.g. if people demand 5 laptops, 3 apples and nothing else, aggregate demand is 8)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand, we might say that aggregate demand is the &lt;strong&gt;value&lt;/strong&gt; of total demand, i.e. $p_{1}q_{1} + ... + p_{n}q_{n}$ where $p_{i}$ and $q_{i}$ are the quantity demanded and price of good $i$. That seems a bit more meaningful, but then it is far from intuitive that aggregate demand falls when the 'overall price level' (whatever that is) rises. For one might have thought that if prices rise, the value of total demand would (sometimes) rise, just as a firm's total revenue can increase when the price increases (if demand is inelastic).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My apologies if the answer is obvious; I am simply not very familiar with macroeconomics.&lt;/p&gt;&#xA;" OwnerDisplayName="user17900" LastEditorDisplayName="user17900" LastEditDate="2018-07-24T19:39:34.630" LastActivityDate="2018-07-24T19:39:34.630" Title="What actually is aggregate demand?" Tags="&lt;macroeconomics&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="22739" PostTypeId="2" ParentId="22737" CreationDate="2018-07-12T13:26:08.823" Score="2" Body="&lt;p&gt;We measure these in values.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, this is a macroeconomic &lt;em&gt;identity&lt;/em&gt;, it holds always by design.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You need an economic model that will make specific behavioral and other assumptions, in order to discuss movements when the price level change.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, you write&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;it is far from intuitive that aggregate demand falls when the 'overall&#xA;  price level' (whatever that is) rises&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Even in introductory economics courses beware of &quot;intuitive&quot; thinking.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And indeed, where is the model and its assumptions based on which one would argue that as price level rises aggregate demand falls? It is certainly not embedded in the macroeconomic &lt;em&gt;identity&lt;/em&gt;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Find the model that predicts so, understand its assumptions, and then discuss whether these assumptions are &quot;intuitive&quot;.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2018-07-12T13:26:08.823" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="22740" PostTypeId="2" ParentId="22732" CreationDate="2018-07-12T14:17:18.243" Score="0" Body="&lt;p&gt;The argument that immigration can somehow be related to social welfare (eg. higher pensions) is over-simplistic. Even assuming that immigration does provide a surplass for EU countries, this is by no means translated into more social benefits. However, it can indeed be translated to larger profits for the industry:  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;During the last 5-year immigrant crisis, EU countries are separated into 2 schools, the ones that welcome some immigrant population (Germany, France, etc) and the very negative ones (Denmark, Austria, etc).   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regarding the first group, the extend up to which their motives are humanitarian is highly doubtful. Immigrants means cheap labor hands and due to their uncertainty they have lesser demands. They are by default the most vulnerable part of the working class, thus easier to exploit. In that sense, and in absence of labor-force is certain economic areas, the  &lt;a href=&quot;https://www2.staffingindustry.com/eng/Editorial/Daily-News/Germany-Daimler-and-Randstad-welcome-refugees-35719?&quot; rel=&quot;nofollow noreferrer&quot;&gt;european industrialists are very keen to employ a certain amount of such labor power&lt;/a&gt;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;When this is not the case, though, immigrants are exploited in worse ways.&lt;br&gt;&#xA;1) &lt;a href=&quot;http://www.soc.ucsb.edu/faculty/robinson/Assets/pdf/Global%20Capitalism%20Immigrant%20Labor%20and%20the%20Struggle%20for%20Justice.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Anti-immigrant repressive apparatuses, ranging from private-for-profit immigrant detention centres to border militarization &amp;amp; surveillance systems, prooves extremely profitable for the &#xA;transnational corporate economy&lt;/a&gt;&lt;br&gt;&#xA;2) &lt;a href=&quot;https://www.nytimes.com/2016/01/14/world/europe/denmark-refugees-confiscate-valuables.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Direct accumulation from immigrants' possessions&lt;/a&gt;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;An extra point to bear in mind is that the immigrant crisis gave rise to a large increase of far-right groups and even parties in EU, some of them also have representatives nowadays in European parliament. Their agenda is not very beneficial for the social welfare, as the recent past has shown.  &lt;/p&gt;&#xA;" OwnerUserId="13849" LastActivityDate="2018-07-12T14:17:18.243" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22741" PostTypeId="2" ParentId="22732" CreationDate="2018-07-12T15:15:56.887" Score="2" Body="&lt;p&gt;The typical analyses which tend to pretty unambiguously show net positive impact of immigration on the economy (despite the likelihood that some specific labour market segments may experience lower wages, which is a negative for workers in that sector at least in the short run) could differ from analyses of specific undertakings to accommodate large numbers of people fleeing an extremely deadly conflict zone while disallowing them from participation in the labour market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So it can be correct to state that immigration policy positively impacts the economy, while allowing for the possibility that some humanitarian undertakings may have a net cost to public accounts and/or GDP per capita, in particular in the short run.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It would be extremely premature to conclude whether accommodation of refugees in 2015 (in particular in Germany) will have an aggregate positive impact on average income in a country in 2020, 2030 or 2050. For example, specific undertakings to achieve a desired positive impact on wages, profits, GDP per capita and/or public accounts could succeed, or they could fail to succeed. In both cases there is risk that other specific undertakings to promote their failure could succeed, or fail to succeed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The main thing here is to recognize that economic analysis of a) labour market-driven immigration (both demand by employers and also supply by workers) should be considered as distinct from b) population flows which are selective on the basis of humanitarian need (among those with ability to reach a place where they can apply to be considered for asylum).&lt;/p&gt;&#xA;" OwnerUserId="16499" LastActivityDate="2018-07-12T15:15:56.887" CommentCount="8" ContentLicense="CC BY-SA 4.0" />
  <row Id="22742" PostTypeId="1" AcceptedAnswerId="22747" CreationDate="2018-07-12T17:52:45.767" Score="-1" ViewCount="70" Body="&lt;p&gt;This question is not on whether these devices work or not but so much as if they did work. What if electricity can be made so cheap that everyone could afford it ti the point there was no demand for electricity? Would a new clean source of electricity generated from home at a fraction of the cost of solar or other external power be harmful economically?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/0ILIE.gif&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/0ILIE.gif&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="15570" LastEditorUserId="15570" LastEditDate="2018-07-12T19:32:22.030" LastActivityDate="2018-07-29T00:21:26.533" Title="Would a very cheap renewable energy source be harmful economically?" Tags="&lt;utility&gt;&lt;general-equilibrium&gt;&lt;oil&gt;&lt;corporate-governance&gt;" AnswerCount="1" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="22743" PostTypeId="2" ParentId="13989" CreationDate="2018-07-12T17:56:16.220" Score="1" Body="&lt;p&gt;&lt;a href=&quot;https://www.jstor.org/stable/pdf/116817.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Epple and Romano (AER 1998)&lt;/a&gt; developed an interesting general equilibrium model with peer effects. It clearly diagnoses school's pricing strategies. The model predicts that competition will lead private schools to give tuition discounts to more able students, and that this will give rise to an equilibrium exhibiting stratification by income and ability between the public and private sectors and to a hierarchy of schools within the private sector. &lt;a href=&quot;https://pdfs.semanticscholar.org/3e57/6b6faae0ca9b876585d2384ccfe813b779fd.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Epple, Figlio and Romano (JPubE 2004)&lt;/a&gt; submits this model to the empirical test quite sucessfully. &lt;/p&gt;&#xA;" OwnerUserId="18167" LastActivityDate="2018-07-12T17:56:16.220" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22744" PostTypeId="2" ParentId="22737" CreationDate="2018-07-12T18:13:29.493" Score="0" Body="&lt;p&gt;It is rare, though not exactly wrong, to say that $C+I+G+X-M$ is indeed a quantity. Of what? Of homogenous output $Y$, priced at the price level $P=1$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It honestly seems very confusing to me, but I can't think of it as being wrong.&lt;/p&gt;&#xA;" OwnerUserId="18167" LastActivityDate="2018-07-12T18:13:29.493" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22745" PostTypeId="1" CreationDate="2018-07-12T19:07:05.493" Score="0" ViewCount="105" Body="&lt;p&gt;When a company decides to import goods, are the tariffs paid on those goods collected by customs? Or do companies treat tariffs as tax expense? In any case, can a company write off these tariffs and eventually receive a tax refund on the import taxes they paid?&lt;/p&gt;&#xA;" OwnerUserId="18847" LastActivityDate="2019-09-17T15:21:04.097" Title="Are Tariffs Refundable?" Tags="&lt;tariffs&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22747" PostTypeId="2" ParentId="22742" CreationDate="2018-07-12T20:02:16.033" Score="0" Body="&lt;p&gt;Energy firms generally have obsolescence in mind Meaning they're more likely to see trends in the energy sector and adapt. Whether completely shutting down operations across the board and possibly merge with a firm less invested in the obsolete industry, or discontinue unprofitable operations and alter investments toward improving this new cheap alternative energy. Both outcomes won't create quite the drastic economic shock, at least in the U.S. since U.S. workers in the energy sector in 2017 accounted for merely 2% of the U.S. population (&lt;a href=&quot;https://www.energy.gov/sites/prod/files/2017/01/f34/2017%20US%20Energy%20and%20Jobs%20Report_0.pdf#page24&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.energy.gov/sites/prod/files/2017/01/f34/2017%20US%20Energy%20and%20Jobs%20Report_0.pdf#page24&lt;/a&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Low-skill workers in this industry would be the ones hit hardest by the disruptiveness of this new technology. Unemployment may go up - bad for the economy. Yet the savings generated from this new economical method for producing energy may just overcompensate the decrease spending from workers and firms hit hardest by this new technology. Meaning a country's disposable income may rise, thus creating incentive to spend more.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Again, depending how disruptive this technology may be, I don't see any cost-saving method for producing energy at home or a business, as a harmful threat for an economy. There will be losers, sure, but the net-gain - economically, as a nation - in achieving energy independence outweighs the short-term losses from the descriptiveness of this new technology. Fusion reactors will soon be viable sources of energy and people in the energy sector ought to know this.&lt;/p&gt;&#xA;" OwnerUserId="18847" LastEditorUserId="18847" LastEditDate="2018-07-29T00:21:26.533" LastActivityDate="2018-07-29T00:21:26.533" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22749" PostTypeId="2" ParentId="22745" CreationDate="2018-07-12T21:25:39.993" Score="2" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;can a company write off these tariffs and eventually receive a tax&#xA;  refund on the import taxes they paid?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;A country &lt;em&gt;might&lt;/em&gt; enact provisions to exempt (possibly via a refund) from tariffs if the importer company or the intended use of the import meets certain conditions. But generalizing a reimbursement in the form of tax refund (or tax credit) would defeat the purpose of imposing tariffs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Keep in mind that tariffs are one mechanism through which policymakers implement barriers to entry in the domestic market. Therefore, it would make no sense for the regulator to implement such barriers only to essentially reverse them thereafter.&lt;/p&gt;&#xA;" OwnerUserId="18552" LastActivityDate="2018-07-12T21:25:39.993" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22751" PostTypeId="2" ParentId="13931" CreationDate="2018-07-12T22:20:10.027" Score="3" Body="&lt;p&gt;Generally 2SLS is referred to as IV estimation for models with more than one instrument and with only one endogenous explanatory variable.&#xA;You can also use two stage least squares estimation for a model with one instrumental variable. &#xA;It can be shown that IV estimation equals 2SLS estimation when there is one endogenous and one instrumental variable.&#xA;Finally 2SLS can be used for models with multiple endogenous explanatory variables as long as we have the same amount of instruments as endogenous variables.&lt;/p&gt;&#xA;" OwnerUserId="18851" LastEditorUserId="18851" LastEditDate="2018-07-12T22:32:39.730" LastActivityDate="2018-07-12T22:32:39.730" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22752" PostTypeId="1" CreationDate="2018-07-13T04:18:40.737" Score="1" ViewCount="70" Body="&lt;p&gt;Consumer spending initially rises by 5 billion for each 1% increase in household wealth.  Investment spending initially increases $20 billion for each 1% decrease in real interest rate. The multiplier is 4. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If house household wealth decreases by 5% and real interest rate falls by 2%, &lt;strong&gt;(1)&lt;/strong&gt; in what direction and by how much will aggregate demand shift at each price level. &lt;strong&gt;(2)&lt;/strong&gt; In what direction and by how much will it &lt;em&gt;eventually&lt;/em&gt; shift. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\quad -5\% \quad \text{in} \quad HH\quad { Y }_{ d }\text{ } \Longrightarrow \text{ } -$25\text{ }\text{billion in}\text{ } C$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\quad -2\%\quad \text{in}\quad i\text{ } \Longrightarrow \text{ } +$40\text{ }\text{billion in}\text{ } { I }_{ g }$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I treat aggregate demand the same way as aggregate expenditure (&lt;em&gt;is this right?&lt;/em&gt;), then with government spending and exports constant, the initial change is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$-$25\quad billion\quad +\quad $40\quad billion\quad =\quad +$15\quad billion$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and for the long term we use the multiplier,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Delta C\quad =\quad -$25\quad billion\quad \times \quad 4\quad =\quad -$100\quad billion$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Delta I\quad =\quad $40\quad billion\quad \times \quad 4\quad =\quad $160\quad billion$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the long term change is +$60 billion? (i.e. curve shift out to the right)&lt;/p&gt;&#xA;" OwnerUserId="18777" LastActivityDate="2018-07-13T04:18:40.737" Title="Macroeconomics 101 Problem: Aggregate Demand Changes" Tags="&lt;macroeconomics&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22753" PostTypeId="1" AcceptedAnswerId="22758" CreationDate="2018-07-13T04:59:06.147" Score="1" ViewCount="321" Body="&lt;p&gt;It has been disturbing me since the first year of college that the meaning of economic is express too much as it is too less. &quot;Study of scarcity, utilize the limited resources to satisfy unlimited human wants&quot; this sentence explains not quite clear to me, it has more application than utilize the resources. Someone on the internet always said that economics is everything but for me, I cannot fully understand that word &quot;everything is too vague&quot; I barely use it in real life because of all those assumptions of &quot;ceteris paribus&quot;, &quot;rational behavior&quot;. Make everybody in the industry better off is it the main goal? I don't know &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So please the person who knows the answer, the insight, please answer this question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What actually is the goal of economics and its meaning(not definition) ?&lt;/p&gt;&#xA;" OwnerUserId="17897" LastEditorUserId="12910" LastEditDate="2018-07-13T08:20:34.030" LastActivityDate="2018-07-15T00:21:37.100" Title="What is economics?" Tags="&lt;microeconomics&gt;&lt;soft-question&gt;&lt;philosophy-of-economics&gt;" AnswerCount="4" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="22754" PostTypeId="2" ParentId="22753" CreationDate="2018-07-13T05:51:38.027" Score="0" Body="&lt;p&gt;Economics is the study of how people make choices when their choices are limited in some form.  That is it.  That is the goal.  It is not generally descriptive, although neuroeconomics is in a very practical sense descriptive.  When an economist sees someone purchasing an orange, they see that as a solution to a problem.  All of economics is about reverse engineering the solutions people use, such as buying an orange.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since ethics, costs, and practicality don't allow an actual determination of each specific reason every single thing is purchased, economists reduce the model set down to variables that are general enough to describe what is happening in the system.  For example, the orange could have been purchased to practice juggling because it costs less than a juggling ball.  For someone else, it could be for lunch.  Economists talk instead about the utility of the orange, preferences, needs and wants.  Because utility and the change in utility usually wash out in the process, and certainly preferences do, they focus on the observable variables.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some assumptions, such as ceteris paribus, are not economic assumptions, they are the standard assumptions used in mathematics when dealing with partial derivatives.  Unfortunately, since most business students never see a partial derivative the assumption isn't helpful in everyday life.  Rationality in economics is defined as knowing the ordering of your preferences and acting on it, although &lt;em&gt;rational behavior&lt;/em&gt;, which is a conclusion and not an assumption, is a bit more than that.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It boils down to choice.  Hiring someone is a choice.  Firing someone is a choice.  We study unemployment, but it is the artifact of those individual choices.  We also study smoking, sex, and green bean consumption.  Anywhere choice is involved economics is involved as long as there is some limit that could prevent choosing &quot;everything.&quot;  The goal is understanding.  It has no meaning unless you provide it with one.&lt;/p&gt;&#xA;" OwnerUserId="11321" LastActivityDate="2018-07-13T05:51:38.027" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="22755" PostTypeId="2" ParentId="22753" CreationDate="2018-07-13T07:58:25.347" Score="1" Body="&lt;p&gt;Economics is a social science. The meaning lays in the word itself:  οἰκονομία (oikonomía, “management of a household, administration”). In economic science is a houshold the freely choosen frame of a given research. It can be a single individual or the whole globe. Mostly it is a firm or the economy of an country. The goal of the management is to adapt the houshold to the environment and fulfill the requirements for a viable existence.&lt;br&gt;&#xA;Different &lt;a href=&quot;https://economics.stackexchange.com/questions/15688/which-are-the-different-schools-of-economic-thought&quot;&gt;schools of economic thoughts&lt;/a&gt; are formed around various core ideas. Currently the most prominent school is concerned with efficient allocation of scarce resources. Other schools are build around the study of real world institutions, gender or lack of knowledge. A &lt;a href=&quot;https://economics.stackexchange.com/questions/35/fundamental-equations-in-economics/49#49&quot;&gt;question&lt;/a&gt;, which is shared between most of these schools, is, how to realize demand of goods match supply.&lt;br&gt;&#xA;Economic science is closely linked with economic history. In an economy where exchange happens in markets and where an universal unit is used to communicate costs and values, economics will answer questions about these topics. Ecological economics for example broadens the view of the economic world and tells us that energy and diversity of live also matters.&lt;/p&gt;&#xA;" OwnerUserId="12910" LastActivityDate="2018-07-13T07:58:25.347" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22756" PostTypeId="1" CreationDate="2018-07-13T08:55:26.167" Score="2" ViewCount="109" Body="&lt;p&gt;Recently I had a conversation with a certain person (call her X) about the marginal propensity to consume (and about the multiplier effect).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;With marginal propensity to consume I mean $c_1$ as a part of aggregate income (Y). For clarity let's say: $$Y_t =c_0 +c_1Y_{t-1} +I-G$$&#xA;with $c_0$ as autonomous spending; I as Investments and G as government spending. For simplicity lets say $I$ and $G$ are exogenous. The model can be found in every macroeconomics text book, e. g. Blanchard.&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The conversation went something like this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;X: &quot;Why do you use a value of $c_1$=0.1?&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Me: &quot;This value is equivalent to empirical results done by many different studies for example: &lt;a href=&quot;https://equitablegrowth.org/working-papers/marginal-propensity-consume/&quot; rel=&quot;nofollow noreferrer&quot;&gt;this&lt;/a&gt;&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;X: &quot;You don't really think that marginal propensity to consume is that small. It should be something like $c_1$=0.9. Are you sure that you don't mean $1-c_1$=0.1?&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At this moment I was pretty shocked by the response of person X and didn't really know what to say because the answer was so straight forward and forceful.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;After thinking about this conversation I came across some (at least in my mind) strange contradictions:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;at first I thought to myself: &quot;ok let's look at the original source of this function i. e. the book from Blanchard (Macroeconomics 5th edition). As it turns out in the appendix he is &quot;estimating&quot; the marginal propensity to consume and get's a value of 0.77&lt;/li&gt;&#xA;&lt;li&gt;then I thought to myself: &quot;but wait a minute. If $c_1$ is that high the multiplier would be huge with 4.34&quot; which can not be realistic &lt;/li&gt;&#xA;&lt;li&gt;another thing that was going through my mind is the aspect of the permanent income hypothesis which basically states that consumers smooth their consumption over their lifespan. Based on this approach a high value for $c_1$ is also unrealistic because this would lead to a high volatility of consumption &lt;/li&gt;&#xA;&lt;li&gt;I know that there is a difference between a permanent change in income (Y) and a temporary change but I don't really think in either of both cases a value of $c_1=0.8$ can be justified&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;My question is the following: What is the the current view on the marginal propensity to consume?&lt;/p&gt;&#xA;" OwnerUserId="16436" LastActivityDate="2018-07-13T08:55:26.167" Title="Marginal propensity to consume and multiplier effect" Tags="&lt;consumer-theory&gt;&lt;keynesian-economics&gt;&lt;national-income&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22757" PostTypeId="1" AcceptedAnswerId="22764" CreationDate="2018-07-13T13:00:06.490" Score="1" ViewCount="151" Body="&lt;p&gt;I have researched a bit in different forums.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Main answers include:&#xA;1. So Different countries can control different monetary policies&#xA;2. So different countries can handle shocks(up and down).&#xA;3.Based on region,human resource, natural resources, geographical position, cultural diversity, ethnicity etc&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1.My question is why not control money as if there is a single country (with more than one states(suppose each state is a country))?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2.Why currency will be divided based on region,human resource, natural resources, geographical position, cultural diversity, ethnicity etc? (states/places in a single country can also have diversity then how they can be managed and several countries cannot be managed?)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;3.Because if that is the case who decides we need different currencies based on which conditions (eg. eurozone)? &#xA;If the division is true why not there are different currencies for each 10-20 kilometers(or where there is more rice growth,or where there is no agriculture but more tourism difference based on these differences)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit : please don't make it duplicate because I am asking after seeing the other questions. After checking now I want to know more derived from that answers.. please refer q 2,3&lt;/p&gt;&#xA;" OwnerUserId="18856" LastEditorUserId="18856" LastEditDate="2018-07-13T20:41:03.373" LastActivityDate="2018-07-14T12:45:47.947" Title="Why do different countries have different currency ? Why not there are different currencies for each 10-20 kilometers?" Tags="&lt;currency&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="22758" PostTypeId="2" ParentId="22753" CreationDate="2018-07-13T14:35:42.507" Score="1" Body="&lt;p&gt;Economics is a science still in growth! Try to sit back and forget about the &quot;meaning&quot; thing for a while. After you took enough courses and immersed into enough literature, then you will have your opinion about economics, which will answer your question. Don't be abducted by the premature thought or some false idea of justification. A similar situation is that many people would ask what mathematics is, especially some pretentious &quot;philosophers&quot; who probably cannnot or won't sit down and do a math proof themselves. They thus have no way to know what mathematics is and hence lose their ground to have a discussion over the activity of mathematics. Certainly one would argue that they have every right to do what they are trying to do. I don't disagree. But the truth is that my claim is not contradicted by the quoted fact; what I am saying is the implication &quot;if you want to know what economics (or mathematics, as in my example) is about, then you want to first do it and get a feeling of it.&quot;. This has nothing to do with whether one has a right or not.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are a lot of &quot;definitions&quot; provided by those who have climbed the mountain so very earlier. You can try M. Friedman or P.A. Samuelson or Michael D. Intriligator (in his book entitled Mathematical Optimization and Economic Theory, if I am not mistaken), for example. But you will feel empty after you read those &quot;definitions&quot; and regret to have spent so much time in vain to understand economics in this way. I would say that the definitions they give probably are the crystals of their wisdom towards economics; this often gives a delusion that one can take this &quot;pill&quot; and a shortcut will open up. No. I am afraid things do not go this way. The &quot;definition&quot; won't come to you if you don't first lay down to pursue it... Cheers. My two cents. Too long for the comment section. But it feels strong to me to share here.  &lt;/p&gt;&#xA;" OwnerUserId="11843" LastActivityDate="2018-07-13T14:35:42.507" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="22760" PostTypeId="1" CreationDate="2018-07-14T03:40:23.120" Score="2" ViewCount="102" Body="&lt;p&gt;Let $x_k = \frac{w}{\sum{p_l}}$ for $k = 1...L$ be the demand function. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This demand function does satisfy the weak axiom and this can be shown simply. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The slutsky matrix is an $L \times L$  matrix of $0$'s for any (p,w). &#xA;In Mas-Colell Microeconomic Theory page 35 and also in this publication - &lt;a href=&quot;https://www.jstor.org/stable/1911539&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.jstor.org/stable/1911539&lt;/a&gt; , necessary and sufficient condition for the weak axiom to hold are that (i) S(p,w) is Negative semi-definite and (ii) $v^TS(p,w)v &amp;lt; 0 $ whenever $v \neq \alpha p$ for any scalar $\alpha$, $v \neq 0$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Clearly (i) is satisfied for this demand function and slutsky matrix. However, consider the price vector $[1,1,1,...1]$. The slutsky matrix is still the matrix of zeros. Consider $v=[2,1,1...1]$. $v^TS(p,w)v = 0$ which is not less than 0. Note that $v$ is not proportional to $p$. This appears to violate (ii). Where have I gone wrong?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is exercise 2.F.17 from Mas-Colell Microeconomic theory. &lt;/p&gt;&#xA;" OwnerUserId="18864" LastActivityDate="2018-07-14T20:14:29.663" Title="How does this demand function satisfy the Weak axiom if it doesnt satisfy the necessary and sufficient conditions?" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22761" PostTypeId="1" AcceptedAnswerId="22763" CreationDate="2018-07-14T05:35:34.367" Score="0" ViewCount="136" Body="&lt;p&gt;Hi All: In time series econometrics, if one has a relationship say&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$y_{t} = \frac{x_{t}}{1- \rho L} + \epsilon_{t} $ where L is the backshift operator, then the expression can be re-written as the following infinite series:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$y_{t} = \sum_{i=0}^{\infty} \rho^{i} x_{t-i} + \epsilon_{t}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But, what is the expression ( and can it be derived easily ) when the original expression is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$y_{t} = \frac{x_{t}}{1- \rho (L)^{k}}$ where $k is some positive integer greater than 1. Just to be clear, since this is coming out so small when I look at it, the rho is not raised to k but the backshift operator is.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks for the wisdom.  Also, if it's too complicated  or too long to explain, then any reference that explains it is appreciated.&lt;/p&gt;&#xA;" OwnerUserId="18201" LastActivityDate="2018-07-14T20:20:01.963" Title="backshift operator in time series confusion" Tags="&lt;time-series&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="22762" PostTypeId="2" ParentId="22215" CreationDate="2018-07-14T11:16:20.197" Score="0" Body="&lt;p&gt;@T. G.: I think I obtained the expression for $s_{t+1}$ as a function of the other variables. I don't know what lifetime budget really means so I'll write the answer here and hope it's useful.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$s_{t+1} = \sum_{t=0}^{\infty} \lambda_{t} (w_{t}(1-l_{t}) -c_{t} - \tau_{t})$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $\lambda_{t} = \prod_{i=0}^{t-1} (1 + r_{t-i})$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm not certain if it's correct but intuitively, it looks like exponential smoothing of some kind of expression each period, except that the smoothing constant is not constant and is a function of the past interest rates ??&lt;/p&gt;&#xA;" OwnerUserId="18201" LastActivityDate="2018-07-14T11:16:20.197" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="22763" PostTypeId="2" ParentId="22761" CreationDate="2018-07-14T11:29:30.377" Score="0" Body="&lt;p&gt;From your last comment it seems that you might have already figured out how to proceed, although I'm not following some of your reasoning. I just want to point out that there is no need to initialize $y_0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The absolute value of ρ is typically assumed to be lower than 1 (otherwise, the series would be &quot;explosive&quot;). Because of that, the terms $ρ^ny_{t-n*k}$ and $ρ^nϵ_{t-n*k}$ will be zero when taking the limit of $n-&amp;gt;∞$ in the expansion of $y_t$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The expression for $y_t$ is &#xA;$$ y_t= ∑_{i=0}^{∞}  ρ^ix_{t−i*k}+ϵ_t.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This means that the effect of $ρL^k$ is to model $y_t$ from $x_t$, $x_{t-k}$, $x_{t-2k}$, $x_{t-3k}$, and so forth. $k=1$ is just a special case of this expression.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I feel too lazy to plug my scanner and scan my derivation right now, but I'll do so if you really want to see it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Edited to add scan and explanation of the derivation&lt;/strong&gt;&#xA;&lt;a href=&quot;https://i.stack.imgur.com/9zF0S.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/9zF0S.jpg&quot; alt=&quot;derivation&quot;&gt;&lt;/a&gt;&#xA;Here's a walk-through of the derivation. Hope my handwriting is legible enough; if not, it's the scanner's fault. &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;(1) shows the equivalent way of writing $y_t$ by applying the&#xA;backshift operator $L^k$ (of course, after multiplying everything by $1-ρL^k$ ).&lt;/li&gt;&#xA;&lt;li&gt;(2) and (3) apply the backshift operator to $y_{t-k}$ and&#xA;$y_{t-2*k}$, since each one appears in each one's preceding equation.&lt;/li&gt;&#xA;&lt;li&gt;(4) substitutes in (1) the expressions obtained from (2) and (3).&lt;/li&gt;&#xA;&lt;li&gt;Multiplications by ρ are developed in (5). Notice the resulting pairs of&#xA;(underlined) terms offsetting each other.&lt;/li&gt;&#xA;&lt;li&gt;(6) is (5) after removing the underlined/offsetting terms.&lt;/li&gt;&#xA;&lt;li&gt;The pattern is discernible from (6) and expressed in (7) for $n$.&lt;/li&gt;&#xA;&lt;li&gt;(8) is (7) but with summation notation for the terms involving $x$.&lt;/li&gt;&#xA;&lt;li&gt;(9) is the limit of (8) when $n$ tends to infinity. There, the&#xA;assumption of |ρ|&amp;lt;1 is essential for convergence of the summation&#xA;(as justified in the 2nd paragraph I wrote this morning).&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Since $|ρ|&amp;lt;1$, then $|ρ^n|&amp;lt;&amp;lt;1$ for sufficient large $n$. Therefore, the term $ρ^ny_{t-nk}$ in (8) will tend to zero regardless of the value of $y_0$. In other words, the influence of $y_0$ on $y_t$ decreases as $t$ departs from 0.&lt;/p&gt;&#xA;" OwnerUserId="18552" LastEditorUserId="18552" LastEditDate="2018-07-14T20:20:01.963" LastActivityDate="2018-07-14T20:20:01.963" CommentCount="9" ContentLicense="CC BY-SA 4.0" />
  <row Id="22764" PostTypeId="2" ParentId="22757" CreationDate="2018-07-14T12:40:13.413" Score="2" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;If the division is true why not there are different currencies for&#xA;  each 10-20 kilometers(or where there is more rice growth,or where&#xA;  there is no agriculture but more tourism difference based on these&#xA;  differences)?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;If I'm grasping your question correctly, that type of hyper-fragmentation of &lt;em&gt;currency areas&lt;/em&gt; would largely wipe out the standardization advantage that money has over barter (By &lt;em&gt;standardization&lt;/em&gt; I am not referring to the ISO classification of currencies, but to their feature of being a mutually-acknowledged unit for trading).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Historically, fragmentation of currency areas has occurred during wars and/or early postwar. Two examples come to my mind. One is the Mexican Revolution (1910-1921), where various groups of rebels and armies got in the habit of inventing their own currency and deploying them in territories they occupied. It was jokingly said that &lt;a href=&quot;https://en.wikipedia.org/wiki/Pancho_Villa&quot; rel=&quot;nofollow noreferrer&quot;&gt;Francisco &quot;Pancho&quot; Villa&lt;/a&gt; used to print his bills &lt;a href=&quot;https://rads.stackoverflow.com/amzn/click/9687009055&quot; rel=&quot;nofollow noreferrer&quot;&gt;while on horseback&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another, more recent example dates from the mid 1990s, during the precarious period once the Balkan war was brought to an end (see &lt;a href=&quot;https://en.wikipedia.org/wiki/Dayton_Agreement&quot; rel=&quot;nofollow noreferrer&quot;&gt;Dayton Agreement&lt;/a&gt;). I recall a Polish reporter of name Kasia Wyderko mentioning during a TV roundtable from late 1990s that there were three currencies in Bosnia-Herzegovina, their areas being delimited by the ethnic profile of each territory (croats, serbs, and muslims, accordingly). Unfortunately, the roundtable doesn't appear to be uploaded, but some reference to the multiple currencies in Bosnia-Herzegovina in the mid 1990s is &lt;a href=&quot;https://en.wikipedia.org/wiki/Bosnia_and_Herzegovina_dinar&quot; rel=&quot;nofollow noreferrer&quot;&gt;this Wikipedia site&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Other than the answers to the &quot;duplicate&quot; question, the aforementioned instances reflect that fragmentation of currency areas is somehow a &quot;last resort&quot; where marked distrust, instability, or resentment precludes economic cohesion and the adoption of a common currency. The isolation and barter-like limitations that ensue from that fragmentation in a small economy most often hinders its dynamism or adaptability.&lt;/p&gt;&#xA;" OwnerUserId="18552" LastEditorUserId="18552" LastEditDate="2018-07-14T12:45:47.947" LastActivityDate="2018-07-14T12:45:47.947" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23764" PostTypeId="2" ParentId="22760" CreationDate="2018-07-14T20:14:29.663" Score="1" Body="&lt;p&gt;Your equivalence result is incorrect. The correct results are:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;If $x(p,w)$ satisfies Walras' law, homogeneity of degree zero, and the weak axiom, then the Slutsky matrix is negative semidefinite, that is, $v \cdot S(p,w) v \leq 0$ for any vector $v$.&lt;/li&gt;&#xA;&lt;li&gt;If the Slutsky matrix is negative definite for all vectors $v$ that are not proportional to $p$, that is, if $v \cdot S(p,w) v &amp;lt; 0$ for such vectors $v$, and if $x(p,w)$ satisfies Walras' law and homogeneity of degree zero, then it satisfies the weak axiom.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Therefore, there is no contradiction in the fact that your demand function satisfies the weak axiom while its Slutsky matrix is only negative semidefinite (and not negative definite).&lt;/p&gt;&#xA;" OwnerUserId="4667" LastActivityDate="2018-07-14T20:14:29.663" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23765" PostTypeId="1" CreationDate="2018-07-14T21:00:41.920" Score="1" ViewCount="3485" Body="&lt;p&gt;How net capital outflow is equal to net exports suppose I export a car to US and in return i got few thousand dollars then instead of acquiring any asset abroad i decided to bring money back to my home country by exchanging dollar with local currency. Can any one clear my confusion?&lt;/p&gt;&#xA;" OwnerUserId="18866" LastActivityDate="2018-07-14T22:55:45.520" Title="How net capital outflow = net exports?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23766" PostTypeId="2" ParentId="22703" CreationDate="2018-07-14T22:07:40.827" Score="1" Body="&lt;p&gt;As a richer country, with higher GDP, France simply spends more and for more years in education, which yields higher results.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Using your source, which can display the expenditure in % of GDP or in USD/Student, you can see that the higher levels of Mexico actually translate into 3.000 USD per student, while france spends 10k per student. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/jLDYb.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/jLDYb.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Another way to look at it is to see the &lt;a href=&quot;http://uis.unesco.org/node/334652&quot; rel=&quot;nofollow noreferrer&quot;&gt;education expenditure as % of GDP per capita&lt;/a&gt;, and seeing it over the years. It demonstrates how France has maintained its expenditure higher than the other countries you mentioned.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/r469n.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/r469n.png&quot; alt=&quot;Education expenditure as % of GDPpc in France, Uruguay Argentina &amp;amp; Mexico. France has close to 20%&quot;&gt;&lt;/a&gt;&#xA;&lt;a href=&quot;https://data.worldbank.org/indicator/SE.XPD.PRIM.PC.ZS?end=2015&amp;amp;locations=UY-FR-AR-MX&amp;amp;start=2003&quot; rel=&quot;nofollow noreferrer&quot;&gt;Source&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And all of this goes on top of the factors mentioned by Pedro in the other answer, such as different demographics and dependency rates.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;None of this seems to be related with efficiency of public expenditure.&lt;/p&gt;&#xA;" OwnerUserId="12304" LastActivityDate="2018-07-14T22:07:40.827" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23768" PostTypeId="2" ParentId="23765" CreationDate="2018-07-14T22:55:45.520" Score="1" Body="&lt;p&gt;Suppose you are Japanese and you sold your Japanese-made car for say $\$15,000$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You now own $\$15,000$ of a foreign financial asset you did not have before, whether a debt from a US company or individual or US cash or a bank deposit. This is what you are describing as a capital outflow from Japan, though I would call it a financial outflow&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You then sell this asset for say $\yen 1,650,000$ which you can use in Japan &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;You may have acquired these yen from some other Japanese person or company.  They now hold the foreign financial asset, so this does not have a further effect of the international financial position&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;You may have acquired these yen from some US person or company, or from an entity from a third country.  They now hold fewer financial Japanese assets, so your subsequent negative financial outflow (wiping out your original positive outflow) is balanced by the negative financial inflow (from a Japanese perspective) of the US or other foreign entity reducing its Japanese assets. This negative financial inflow is equivalent to a positive financial outflow &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2018-07-14T22:55:45.520" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23769" PostTypeId="2" ParentId="22753" CreationDate="2018-07-14T23:49:40.880" Score="0" Body="&lt;p&gt;Theoretical propositions in introductory economics typically assume that people do not make wrong choices. Like most other assumptions, this enables to teach some core concepts and relevant math without worrying about 10 or 100 complicating factors. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regarding your more general concerns, you can refer to debate about whether simple models are better to illustrate a theory or whether complex models should be preferred. (More likely, simple models are better for some situations and complex models are better for other situations.) Also, anything on the subject of &quot;market imperfections&quot; should provide a decent outline recognizing well-established reasons that main assumptions may not in fact be satisfied. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Much of the rest of the study of economics after core micro, macro and statistics courses deals with the extremely numerous exceptions and extensions upon basic theory.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To answer your question in particular, as opposed to what may underlie frustrations with the field in general, micro and macro must be considered separately:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Microeconomics is concerned with how individuals, households and businesses make decisions, in particular when faced with multiple options and differential costs and benefits.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Macroeconomics is concerned with understanding how this adds up at the aggregate level, mainly for the purpose of being able to provide a desirable level of macroeconomic stability which enables individuals and businesses to plan their affairs, while leaving plenty of space for old industries to die and for new technologies and innovations to be able to access financial, human and physical inputs to be able to grow.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From a public policy perspective, both micro and macro are to be used to improve the capacity and/or well-being of individuals, and the long-term production potential of the nation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From a business perspective, these tools are to be used to understand competition and/or the macro context so that they can evaluate opportunities and risks in a competitive market. (It should be noted here that economics and finance are two distinct fields.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From an individual perspective, knowledge of economics can contribute to well-informed, or alternatively overconfident, political participation. For example, many people who are not troubled by the simplifying assumptions that you recognize in introductory economics will then go on with extreme confidence in declaring that &lt;b&gt;'any tax cut is a good tax cut'&lt;/b&gt; (just check your textbook exercises on the effects of a tax on the sum of consumer surplus + producer surplus) or &lt;b&gt;'any government spending is a waste'&lt;/b&gt;. These declarations can be contrasted with (slightly) more nuanced argumentation such as &lt;b&gt;'the benefit of a tax must exceed its downsides'&lt;/b&gt; (and moreover the least undesirable tax is to be preferred) or &lt;b&gt;'government should only be involved in activities that are produced in insufficient quantity or quality by the marketplace'&lt;/b&gt; (e.g., building bridges and charging low or no tolls to use them).&lt;/p&gt;&#xA;" OwnerUserId="16499" LastEditorUserId="16499" LastEditDate="2018-07-15T00:21:37.100" LastActivityDate="2018-07-15T00:21:37.100" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23773" PostTypeId="1" CreationDate="2018-07-15T11:48:00.457" Score="2" ViewCount="142" Body="&lt;p&gt;There are a lot of people working in universities in countries like Ukraine, Belarus, Romania, Bulgaria, Poland, and so on with low salaries. Those people have high skills and education.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I saw some students pursuing PhDs in those countries with low salaries when they can just cross the border to earn much more.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why don't most of them migrate to Western Europe?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What factors bind them in their countries?&lt;/p&gt;&#xA;" OwnerDisplayName="user18806" LastEditorUserId="4988" LastEditDate="2018-07-20T02:28:05.653" LastActivityDate="2018-07-20T02:28:05.653" Title="Why don't most of the highly educated people in poorer part of Europe migrate to the Western part?" Tags="&lt;euro-area&gt;&lt;migration&gt;&lt;demographics&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="23774" PostTypeId="1" AcceptedAnswerId="23796" CreationDate="2018-07-15T15:08:58.093" Score="1" ViewCount="1751" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Suppose the Total Cost function of a firm in Perfect Competition is&#xA;  given by: $$C(q) = 450 + 15q + 2q^2$$&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The market price is $P = 15$ per unit&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&lt;strong&gt;Determine the optimal quantity produced by the firm&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The trouble I'm having with this is a friend suggests the optimal quantity is q = 25 but that doesn't make sense to me.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Because when we calculate &lt;strong&gt;Marginal Cost = Marginal Revenue&lt;/strong&gt; we get:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$4q + 15 = 15$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which will yield an optimal quantity of 0 and not 25 when we solve for q.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The only way I can see it being equal to 25 is if the price is 115 and not 15 because of some typo. Any thoughts?&lt;/p&gt;&#xA;" OwnerUserId="18249" LastActivityDate="2018-07-17T16:02:36.380" Title="MICROECONOMICS: Optimal quantity produced in a Perfect Competition Market" Tags="&lt;microeconomics&gt;&lt;general-equilibrium&gt;&lt;competitive-equilibrium&gt;&lt;producer-theory&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="23776" PostTypeId="2" ParentId="15144" CreationDate="2018-07-15T21:29:36.653" Score="0" Body="&lt;p&gt;We could create new institutions, combine them with free market and maybe account better for social and ecological costs. For example, when every commodity gets a CO2 impact label and every person will have an personal budget of CO2 tickets, which is limited to a sustainable level, a new market for such tickets is created. To put such an label on every commodity and to account the personal budgets are costly tasks, but it would not be impossible today. Informing customers about environmental impact is a strong signal for an ecology conscious business and could make this idea interesting for trading companies, even if it will limit the consumption.&lt;br&gt;&#xA;Another way already exists are rating agencies for goods and services. It is realized as an smart phone app. A customer scans a bar code and augment the product packaging with information about negative or positive effects caused by producing the product.&lt;br&gt;&#xA;These are only two simple ideas, which both partly exists today.&lt;br&gt;&#xA;Processes like these will lead to more conscious producers. Consumers alone can't change the economic world, but we can help to make it more social and environmental friendly.&lt;/p&gt;&#xA;" OwnerUserId="12910" LastActivityDate="2018-07-15T21:29:36.653" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="23779" PostTypeId="1" AcceptedAnswerId="23780" CreationDate="2018-07-16T11:27:50.410" Score="1" ViewCount="56" Body="&lt;p&gt;According to Chuka Umunna, Labour MP for Streatham and prominent pro-EU campaigner:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;People were told: &quot;if immigration levels fall, it will be easier to&#xA;  get a job, and easier to get a job that's paid well.&quot; Since 2016, net&#xA;  immigration from the EU has fallen. Yet this indicator has gotten&#xA;  worse.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;He did not cite which study the numbers came from, but let's just assume it's true. From a purely supply / demand perspective it does seem counter-intuitive, but it could be more nuanced and complicated than that. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My personal best guess was: this result could be from a lagged effect of all the previous immigration up until then. With the red tape and time needed to immigrate, settle down, get a sponsored visa, find a job, it may take months or years for immigration levels to have a measurable influence on jobs. I first envisioned conducting a lag / lead regression analysis to test my hypothesis, but have since redirected my interest in theory.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Question:&lt;/strong&gt; Is there anything in existing economic theory that could explain a fall in immigration correlating and/or causing higher difficulty in finding employment? (note I use and/or for causality) And related, what other empirical findings outside the UK support Umunna's claim?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Further Clarification:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&quot;easier to get a job&quot;: I am not quite sure how to quantify this section of Umunna's claim, I'm guessing he meant: average number of months unemployed before finding a job, or perhaps he meant: average availability of jobs in said sector. In your answer, explain which interpretation you use.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="12212" LastActivityDate="2018-07-16T12:15:06.500" Title="Post Brexit Referendum employment theory" Tags="&lt;macroeconomics&gt;&lt;theory&gt;&lt;political-economy&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="23780" PostTypeId="2" ParentId="23779" CreationDate="2018-07-16T12:15:06.500" Score="2" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Is there anything in existing economic theory that could explain a&#xA;  fall in immigration correlating and/or causing higher difficulty in&#xA;  finding employment?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In addition to the lagged effect you outline, there are at least two possible causes for the paradox you describe. These &lt;em&gt;theoretical&lt;/em&gt; possibilities are independent of which interpretation of unemployment is adopted. I'm unaware of (and not even searching for) statistical evidence of whether this actually occurs. &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;A reduction of immigration could also entail a reduction of demand of goods and services. If there's no demand, some businesses are likely to reduce their staff, leading to an oversupply of labor (i.e., unemployment).&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;High-skilled immigrants might boost the industry in a different country to an extent that renders that foreign economy more competitive than the domestic economy. A significant trend in that direction could prompt domestic companies to slash jobs or even to relocate to one such country where supply of high-skilled labor is stronger. That would lead to the unemployment of low-skilled workers in the domestic labor market.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;As for 2., it is reasonable to say that --almost by definition-- the low-skilled workers outnumber high-skilled ones.&lt;/p&gt;&#xA;" OwnerUserId="18552" LastActivityDate="2018-07-16T12:15:06.500" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23781" PostTypeId="1" AcceptedAnswerId="23783" CreationDate="2018-07-16T12:52:17.497" Score="3" ViewCount="1238" Body="&lt;p&gt;I encountered that nobody, even my profs and lecturers so far, has an intuitive way to explain what the Leontief inverse represents. Does somebody here? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As most people here would know, it goes: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\ x=Ax+y $ where $x$ is the output and $y$ the final demand. So&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\ x - Ax =y $ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\ x (1 - A) =y $ or &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\ x = (1-A)^{-1}  y  $ or&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\ x = Ly $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;While $A$ is clearly the proportion of total output that comes from intermediate value exchanges and not from transactions to final demand $1 - A$ should be the proportion of total output caused by final demand. However $L = (1-A)^{-1}$. So what would this be? The inverse proportion of what in total output is related to final demand? You can also just say of course $L$ represents the multiplier or scaling factor of how $x$ responds to changes in $y$, but that is not what I am asking for. I wonder if there is any real world interpretation possible on what L represents. Or is it an entirely abstract multiplier?&lt;/p&gt;&#xA;" OwnerUserId="18877" LastEditorUserId="10247" LastEditDate="2018-07-17T09:55:14.510" LastActivityDate="2018-07-18T09:54:43.817" Title="What does the Leontief Inverse represent? (Intuitive Meaning or Real World Concept)" Tags="&lt;macroeconomics&gt;&lt;international-trade&gt;&lt;leontief&gt;&lt;input-output&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23783" PostTypeId="2" ParentId="23781" CreationDate="2018-07-16T16:06:46.127" Score="4" Body="&lt;p&gt;Something you didn't mention is that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$x = Ax + y$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;means that to produce one unit of $x$, you use $A$ unit of $x$. E.g. you need electricity to produce electricity.&#xA;&lt;hr&gt;&#xA;Under the condition that $1&amp;gt;|A|\geq0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$(1-A)^{-1} = \sum_{k=0}^\infty A^k$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which allows us to write&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$x = Ly = \left(\sum_{k=0}^\infty A^k \right)y$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;hr&gt;&#xA;Thus, for one unit of $y$, your (scalar) $L$ expressed as an infinite sum can be interpreted as the length of the &lt;em&gt;engaged&lt;/em&gt; auto-production chain.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A little illustration&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/rxYXI.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/rxYXI.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;hr&gt;&#xA;Note that all of the above can be generalized in matrix terms, i.e.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\boldsymbol{x} = \left(\boldsymbol{I} - \boldsymbol{A}\right)^{-1}\boldsymbol{y}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $\boldsymbol{x}$ and $\boldsymbol{y}$ are column vectors and $\boldsymbol{I}$ and $\boldsymbol{A}$ square matrices. Each $\boldsymbol{x}$'s component may (or may not) require some of its own production as well as some units coming from other sectors, i.e. from $\boldsymbol{A}\boldsymbol{x}$. In this case, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\left(\boldsymbol{I} - \boldsymbol{A}\right)^{-1} = \sum_{k=0}^\infty \boldsymbol{A}^k$ is true if and only if all of $\boldsymbol{A}$'s eigenvalues have absolute value smaller than $1$. $\left(\boldsymbol{I} - \boldsymbol{A}\right)^{-1}$ can be useful if you want to know how any variation -- of $y$ admitedly, but also of anything else, say, a tax -- propagates through a (co-dependent) sectorial chain.&lt;/p&gt;&#xA;" OwnerUserId="10247" LastEditorUserId="10247" LastEditDate="2018-07-16T19:41:28.550" LastActivityDate="2018-07-16T19:41:28.550" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23784" PostTypeId="2" ParentId="23773" CreationDate="2018-07-16T16:55:33.533" Score="6" Body="&lt;p&gt;There are numerous reasons why one would want to stay in a particular country even though earning power is lower.  These are usually summarized as &quot;frictions&quot; in the labor market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Culture, familiarity with an area, language, family are all non-negligible &quot;frictions&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I note that while there will be a tendency to vote this closed as not economic, I think the reminder that there are meaningful human incentives other than money and tangible goods may be worth remembering.&lt;/p&gt;&#xA;" OwnerUserId="4185" LastActivityDate="2018-07-16T16:55:33.533" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="23785" PostTypeId="2" ParentId="23773" CreationDate="2018-07-16T17:14:20.303" Score="3" Body="&lt;p&gt;Occupational licensing may be one reason why:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Occupational licensing is not unique to the United States. Based on&#xA;  information gathered in 2012 from the then twenty- seven  nations  in &#xA;  the  European  Union  (EU),  between  9  and  24  percent  of &#xA;  European  workers  are  subject  to  occupational   licensing, which&#xA;  translates to between 19 million and 51 million individuals. These&#xA;  estimates of the share of the workforce  that is licensed, even at the&#xA;  higher end, are still lower than the estimated share in the United&#xA;  States, which is slightly under  30 percent (Koumenta et al. 2014).&#xA;  Similar  to  U.S.  states,  the  extent  of  occupational  licensing &#xA;  varies  widely  across  countries  in  the  EU:  Bulgaria,  Estonia,&lt;br&gt;&#xA;  Finland, France, Ireland, Latvia, Lithuania, Malta, the Netherlands,&#xA;  Romania, and Sweden all have less than 15 percent  of  their  workers &#xA;  covered  by  occupational  licensing  (Koumenta  et  al.  2014). &#xA;  Regulation  is  much  more  prevalent  in  other   countries, however:&#xA;  at least 25 percent of the workforce in Denmark and Germany, for&#xA;  example, is regulated, and rates are  also high in Italy and Spain.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Reforming Occupational Licensing Policies&#xA;&lt;a href=&quot;https://www.brookings.edu/wp-content/uploads/2016/06/THP_KleinerDiscPaper_final.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Morris M. Kleiner (2015)&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;We also find evidence that intra-EU migrants are less likely to be found in regulated occupations.&quot;&#xA;Occupational Regulation in the EU andUK: Prevalence and Labour Market Impacts &#xA;&lt;a href=&quot;http://%20www.busman.qmul.ac.uk/media/sbm/research/researchcentres/cred/impact-reports/Occupational-Regulation-Koumenta.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Koumenta, Humphris, Kleiner, and Pagliero (2014)&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This channel disproportionately benefits richer and more skilled workers (at least in the USA)&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;[L]icensing can shift resources from workers with lower-income and &#xA;  fewer  skills  to  those  with  higher  income  and  skills. Data show&#xA;  that 52 percent  of  licensed workers  hold  a Bachelor’s degree, &#xA;  compared  to 38 percent  of  unlicensed  workers. Lower-income &#xA;  workers  are  less  likely  to  be  able  to  afford  the  tuition &#xA;  and  lost  wages  associated  with licensing’s educational&#xA;  requirements, closing the door to many licensed jobs for them. It is&#xA;  also lower-income workers who are hurt if wages fall in unlicensed&#xA;  jobs, since on average, unlicensed workers earn 28 percent less than&#xA;  licensed workers.&#xA;  &lt;a href=&quot;https://obamawhitehouse.archives.gov/sites/default/files/docs/licensing_report_final_nonembargo.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;OCCUPATIONAL LICENSING:A FRAMEWORK FOR POLICYMAKERS (USA (2015))&lt;/a&gt; &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="69" LastActivityDate="2018-07-16T17:14:20.303" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="23787" PostTypeId="1" AcceptedAnswerId="23803" CreationDate="2018-07-16T19:17:04.680" Score="0" ViewCount="3105" Body="&lt;p&gt;I've been reading up on Walras' Law and thought I understood it pretty well. However one of my friends asked me point blank what is an example of excess demand or excess supply is and I had some difficulty answering and realized I had no clue.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What are examples of excess demand and excess supply?&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="8815" LastEditDate="2018-07-18T04:00:38.357" LastActivityDate="2018-07-18T04:00:38.357" Title="What is excess demand/ excess supply?" Tags="&lt;microeconomics&gt;&lt;walrasian&gt;" AnswerCount="2" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="23788" PostTypeId="2" ParentId="23781" CreationDate="2018-07-16T19:56:12.617" Score="1" Body="&lt;p&gt;What intuition can the mathematical concept of an inverse (function, matrix) have? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a single-input monotonic production function $F(x) = q \implies x= F^{-1}(q)$ the operator $F^{-1}$ is the transformation mechanism that translates output to required input. &lt;strong&gt;A &quot;change of units&quot; calculator if you wish.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Isn't this what $(I-A)^{-1}$ does in the case of the OP's question? &lt;em&gt;Given&lt;/em&gt; whatever technical, or behavioral, or other assumptions we make (here, about how much is needed for intermediate use, and how much is demand), $(I-A)^{-1}$ translates the units of output into units of input. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But it appears the OP already knows that much, and they are asking for something more...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How about this then: $(I-A)^{-1}$ compacts nicely the vast number of workhours, committees, memos, disagreements, power struggles etc, that would be needed in a planning economy, where we would have to secure amount $x$ of the input in order to satisfy amount $y$ of the output.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I leave as food for thought what could it represent in a market economy, where prices and decentralized decisions enter the picture.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2018-07-16T19:56:12.617" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23790" PostTypeId="1" CreationDate="2018-07-17T09:34:42.107" Score="5" ViewCount="107" Body="&lt;p&gt;Often in textbooks and online I see thte definition of an elasticity to be as follows:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;1) $\epsilon = \frac{\frac{\Delta Y}{Y}}{\frac{\Delta X}{X}}= \frac{\partial \log Y}{\partial \log X}$&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Thus, when using an elasticity along with a percentage change in X to estimate a percentage change in Y, it would seem to make sense that one would multiply the percentage change in X by the elasticity as below:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;2) ${\frac{\Delta Y}{Y}}=\epsilon\cdot(\frac{\Delta X}{X})$&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;However, in one instance I've seen mention that it is more accurate to estimate the percentage change in Y as follows:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;3) ${\frac{\Delta Y}{Y}}=(\frac{X_2}{X_1})^\epsilon-1$&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I'm seeking to apply elasticities derived by estimating log-log regression models and would appreciate some guidance as to whether formula #2 or #3 is more appropriate when evaluating impacts on Y resulting from changes in X.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can someone please explain why formula #3 may be more appropriate than formula #2? And how does one get mathematically from formula #1 to formula #3?&lt;/p&gt;&#xA;" OwnerUserId="18884" LastActivityDate="2018-07-17T10:43:11.703" Title="Using an elasticity to evaluate changes in a dependent variable" Tags="&lt;econometrics&gt;&lt;elasticity&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23791" PostTypeId="1" CreationDate="2018-07-17T09:45:52.117" Score="0" ViewCount="25" Body="&lt;p&gt;I am reading Optimal Time-Consistent Fiscal Policy with Finite Lifetimes by Calvo and Obstfeld. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is the paper : &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.dropbox.com/s/930qzet01hrk054/1911079.pdf?dl=0&quot; rel=&quot;nofollow noreferrer&quot;&gt;Calvo and Obstfeld (1988)&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In fact, their model consists of two stages. In the first part, there is an OLG model with individuals who have an individual discount factor (the same individual discount rate for all individuals). After, once the OLG is solved (consumption distributed optimally in a static way), the model reduces to a standard agent model. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is a sentence that I can not understand on the page 418 of the paper&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Notice that the optimal aggregate accumulation path is entirely&#xA;  independent of private time preference&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;How is this possible? The utility function depends on a parameter $\Phi$ which contains the private time preference (i.e individual discount rate). Then, the steady-state levels will be different with respect to different individual discount rates. It follows that the dynamics of the consumption and capital will depend on the individual discount rate.&lt;/p&gt;&#xA;" OwnerUserId="2938" LastActivityDate="2018-07-17T09:45:52.117" Title="Optimal Time-Consistent Fiscal Policy with Finite Lifetimes" Tags="&lt;macroeconomics&gt;&lt;economic-growth&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="23792" PostTypeId="2" ParentId="23790" CreationDate="2018-07-17T10:21:17.117" Score="4" Body="&lt;blockquote&gt;&#xA;&lt;p&gt;why formula #3 may be more appropriate than formula #2?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Actually, #2 is a linear approximation of #3.&lt;/p&gt;&#xA;&lt;p&gt;Note that&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\partial \log Z$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;can be written/seen as&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\log Z_2 - \log Z_1 = \log\frac{Z_2}{Z_1} (\approx 0)$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;where the above difference is &lt;em&gt;infinitesimal&lt;/em&gt;, hence the use of &lt;span class=&quot;math-container&quot;&gt;$\partial$&lt;/span&gt;.&#xA;In such a case, #1 can be written as&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\epsilon = \frac{\frac{\Delta Y}{Y}}{\frac{\Delta X}{X}}= \frac{\log (Y_2/Y_1)}{\log (X_2/X_1)}$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;Equivalently, the above equality is only true because we are dealing with infinitesimal changes. Which means that if, say, &lt;span class=&quot;math-container&quot;&gt;$Y_2 &amp;gt;&amp;gt; Y_1$&lt;/span&gt;, the above equality implies an approximation, i.e.&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\epsilon = \frac{\log (Y_2/Y_1)}{\log (X_2/X_1)} \approx \frac{\frac{\Delta Y}{Y}}{\frac{\Delta X}{X}}$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;Which leads to #2:&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\frac{\Delta Y}{Y} \approx \epsilon \frac{\Delta X}{X}$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;Actually, the smaller &lt;span class=&quot;math-container&quot;&gt;$\Delta Y$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\Delta X$&lt;/span&gt;, the better the approximation.&lt;/p&gt;&#xA;&lt;hr&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;how does one get mathematically from formula #1 to formula #3?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\epsilon = \frac{\log (Y_2/Y_1)}{\log (X_2/X_1)}$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\Leftrightarrow \log \frac{Y_2}{Y_1} = \epsilon \log \frac{X_2}{X_1} =$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$\log\left[\left(\frac{X_2}{X_1}\right)^\epsilon\right]$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\Leftrightarrow \frac{Y_2}{Y_1} = \left(\frac{X_2}{X_1}\right)^\epsilon$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\Leftrightarrow \frac{Y_2}{Y_1} -1 = \frac{Y_2 - Y_1}{Y_1} = \frac{\Delta Y}{Y}= \left(\frac{X_2}{X_1}\right)^\epsilon -1$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="10247" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2018-07-17T10:43:11.703" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="23794" PostTypeId="1" AcceptedAnswerId="23797" CreationDate="2018-07-17T09:32:36.723" Score="1" ViewCount="368" Body="&lt;p&gt;Could somebody explain how Straffin calculated the security levels for Rose and Colin on p. 103? As far as I understood, Colin's security level is 6 because it is the minimum of the strategy Colin A because Colin A dominates Colin B. If both, Colin A and Colin B were considered, Rose should follow a mixed strategy of 8/9 for Rose A and 1/9 for Rose B, which leads to a security level of 20/9, but only if Colin A was considered. I don't understand, how Straffin came to the security level of 10/3 for Rose and why the strategy BA should be played at least 1/3 of the time. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here are the two pages that describe the problem (I apologize for the bad resolution):&#xA;&lt;a href=&quot;https://i.stack.imgur.com/hnR7V.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/hnR7V.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="18885" OwnerDisplayName="Joram Schito" LastActivityDate="2018-07-25T07:37:16.630" Title="Straffin, P. D. (1993): Game Theory and Strategy. How is the security level on p. 103 calculated?" Tags="&lt;game-theory&gt;" AnswerCount="2" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="23796" PostTypeId="2" ParentId="23774" CreationDate="2018-07-17T16:02:36.380" Score="1" Body="&lt;p&gt;A typo seems very probable; more importantly, your procedure and concepts of setting MC=MR to solve for profit maximisation is definitely correct, regardless of the numbers being plug into the question.&lt;/p&gt;&#xA;" OwnerUserId="18321" LastActivityDate="2018-07-17T16:02:36.380" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23797" PostTypeId="2" ParentId="23794" CreationDate="2018-07-17T16:53:12.747" Score="1" Body="&lt;p&gt;Suppose Colin plays A with probability c and B with probability 1-c, while Rose plays A with probability r and B with probability 1-r. Then Rose's payoff is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$2rc+4(1-r)c+10r(1-c)+0(1-r)(1-c)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Rose's security level is calculated by taking the max-mini payoff: that is, for each value of r, find the minimum payoff over all c, then find the maximum such value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, first, we can simplify the above expression:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$2rc+4c-4rc+10r-10rc = 4c+10r-12rc$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a function of c, this is a line with intercept $10r$ and slope $4-12r$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Case I: $r = \frac13$, this line is a constant $10r$. Plug $r =\frac13$ in and you get $\frac{10}3$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Case II: $r &amp;gt; \frac13$, then it's negatively sloped, and the minimum occurs at $c = 1$, with a payoff of $4-2r$. Since $r &amp;gt; \frac13$, we have that the payoff is less than $4-2/3 = \frac{10}3$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Case II: $r &amp;lt; \frac13$, then it's positively sloped, and the minimum occurs at $c = 0$, with a payoff of $10r$. Since $r &amp;lt; \frac13$, the payoff is less than $\frac{10}3$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words, if Rose plays A $\frac13$ of the time, then she gets an average of $\frac{10}3$ regardless of what Colin does. If she plays A less than $\frac13$ of the time, then if Colin plays B, then she gets 10 less than $\frac13$ of the time and 0 the rest of the time, getting her less than  $\frac{10}3$. If she plays A more than $\frac13$ of the time, then if Colin plays A, she gets 2 more than $\frac13$ of the time and 4 the rest of the time, getting her less than $\frac{10}3$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So Rose can guarantee herself $\frac{10}3$ by playing A $\frac13$ of the time, and every other strategy has a possibility of giving her less than that. Thus, $\frac{10}3$ is her security level.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reason BA should be played at least $\frac13$ of the time is that if BA is played  $\frac13$ of the time  and AB is played  $\frac23$ of the time, then Colin's payoff is  $8*\frac13+ 5*\frac23 =  \frac83 +  \frac{10}3 = \frac{18}3=6$, which is his security level. If BA is played less than  $\frac13$ of the time, then his payoff goes below his security level, so he would be better off not cooperating.&lt;/p&gt;&#xA;" OwnerUserId="16462" LastActivityDate="2018-07-17T16:53:12.747" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="23798" PostTypeId="1" AcceptedAnswerId="23819" CreationDate="2018-07-17T19:51:02.257" Score="3" ViewCount="458" Body="&lt;p&gt;Consider the second problem below from Varian’s &lt;strong&gt;Intermediate Microeconomics&lt;/strong&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Suppose that there were 25 people who had a reservation price of \$500, and the 26th person had a reservation price of \$200.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;In the above example, what would the equilibrium price be if there were 24 apartments to rent? What if there were 26 apartments to rent? What if there were 25 apartments to rent?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;For 24 apartments, the equilibrium price is \$500, and for 25, it’s \$200–\$500. So far, the answers in the back agree. However, for 26 apartments, I think the the equilibrium price should be \$0–\$200, whereas the book just says \$200 flat. I draw the supply-demand curve like this, where the blue line represents supply and black is demand:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/D0hIx.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/D0hIx.png&quot; alt=&quot;curve&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here’s a screenshot of the answers for reference:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/AXAWS.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/AXAWS.png&quot; alt=&quot;answers&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is the textbook correct, and if so, what am I missing here?&lt;/p&gt;&#xA;" OwnerUserId="18891" LastActivityDate="2018-07-19T02:43:12.767" Title="Why is the equilibrium price not anything between \$0 and \$200?" Tags="&lt;supply-and-demand&gt;" AnswerCount="1" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="23799" PostTypeId="1" CreationDate="2018-07-17T21:23:03.280" Score="0" ViewCount="26" Body="&lt;p&gt;I am working on a project that involves points. The idea is that users will earn points and redeem them for certain rewards. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The means via which the users earn are fairly limited (They can attend a seminar, a class, etc).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I want to make sure that once the circulation of points increases, we want to employ an inflation model that increases the prices of the items.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am a complete newbie to economics and have no clue how can this be achieved. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My initial attempts consist of models where the prices increase flatly with respect to the circulation amount - but that wouldn't be fair for people who haven't made any significant contribution to the circulation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Second thought was to take into consideration the &quot;average&quot; increase in the users' income over a period and increase by that fator. But that is when it hit me - that way, the target prices will keep on increasing and no users will be able to redeem any rewards. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Should I explore per-capita income route? Is there a &quot;text-book&quot; model that I can read about and potentially implement to make a fair system that also motivates people to increase their income?&lt;/p&gt;&#xA;" OwnerUserId="18892" LastActivityDate="2018-09-16T14:00:10.880" Title="Devising a model for inflation for a closed points system" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;inflation&gt;&lt;economic-growth&gt;&lt;financial-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23800" PostTypeId="2" ParentId="23787" CreationDate="2018-07-17T23:38:14.237" Score="1" Body="&lt;p&gt;Excess demand is the function describing the amount of quantity demanded above quantity supplied at each price level. Mathematically, it is allowed to be negative (so then we have excess quantity supplied actually).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Remember that the Walrasian construct imagines an &quot;auction&quot; situation when transactions do not take place as long as the market doesn't clear. So somebody (the &quot;walrasian auctioneer&quot;) &quot;announces a price, and buyers declare their desired quantities at that price and sellers declare the quantities they want to sell at that price. If the sum of quantities demanded exceeds the sum of quantities supplied, the excess demand function is strictly positive at that price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A classic case of real-world strictly positive excess quantity demanded is a very large discount a shop may give for an item, but having decided a priori the pieces it will sell at that prices (the desired quantity supplied at the price). The price may be so low that customers may demand more than the quantities that the store desires to sell at that price.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2018-07-17T23:44:02.223" LastActivityDate="2018-07-17T23:44:02.223" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23801" PostTypeId="1" CreationDate="2018-07-18T00:04:03.857" Score="1" ViewCount="42" Body="&lt;p&gt;I am going through a paper on sovereign default by Mendoza and Yue (2012), in which defaults are explained in terms of how firms that use foreign intermediate inputs lose access to international credit markets once the governement defaults on its debt. This means that after a default production decreases and therefore the model predicts that exports should decrease, but whenI look at periods of default of Argentina, Ukraine and Panama, the data tells exactly the opposite: exports increased in the wake of the sovereign default. What can explain this? What papers can I look for?&lt;/p&gt;&#xA;" OwnerUserId="13920" LastEditorUserId="1601" LastEditDate="2018-07-18T12:57:03.413" LastActivityDate="2018-12-15T15:01:00.807" Title="What can explain increasing exports after default episodes?" Tags="&lt;macroeconomics&gt;&lt;international-trade&gt;&lt;international-economics&gt;&lt;default&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23803" PostTypeId="2" ParentId="23787" CreationDate="2018-07-18T03:04:24.953" Score="2" Body="&lt;p&gt;&lt;strong&gt;Definition 1.&lt;/strong&gt; Excess supply is supply minus demand.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Definition 2.&lt;/strong&gt; Excess demand is demand minus supply.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Example 1.&lt;/strong&gt; A baker posts a sale price of \$2 per loaf of bread.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At this price, he is willing to sell up to 300 loaves of bread (per day), but consumers are willing to buy only 200.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We say that quantity supplied and quantity demanded (at the price of \$2) are 300 and 200 and write $$S(\$2) = 300\text{ and }D(\$2) = 200.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Excess supply is then $$ES(\$2) = S(\$2) − D(\$2) = 300 - 200 = 100.$$ (If we'd like, we can also say that excess demand is −100.)&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Example 2.&lt;/strong&gt; A baker posts a sale price of \$1 per loaf of bread.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At this price, he is willing to sell up to 100 loaves of bread (per day), while consumers are willing to buy 250.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We say that quantity supplied and quantity demanded (at the price of \$1) are 100 and 250 and write $$S(\$1) = 100\text{ and }D(\$1) = 250.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Excess demand is then $$ED(\$1) = D(\$1) − S(\$1) = 250 - 100 = 150.$$ (If we'd like, we can also say that excess supply is −150.)&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;In the real world, the baker may not know precisely how many loaves of bread he's willing to sell at each and every price. Nonetheless, if it is the case that QS obviously greatly exceeds QD (or vice versa), he will either notice this and respond accordingly or go out of business.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastEditorDisplayName="user18" LastEditDate="2018-07-18T03:10:03.373" LastActivityDate="2018-07-18T03:10:03.373" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23805" PostTypeId="2" ParentId="20701" CreationDate="2018-07-18T06:15:29.027" Score="0" Body="&lt;p&gt;Actually, if you have low friction in your trade such as low tariffs and/or custom's inspection times then the answer should be to do nothing.  If people want to buy more fish from foreign countries than they sell to foreign countries or vice versa, then they are happy.  If it made them unhappy, they would do something else (technically we should be talking in terms of utility or satisfaction but for most people with fish that is happiness).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A trade deficit in fish has to be made up somewhere else either with temporary credits or with trade in other markets such as tin or paper.  A naturally happening trade deficit in fish is a very good thing.  It should not be interfered with.  The system will balance itself out over time, maybe decades, in overall trade.  Barring market manipulation by a trading partner,  you should do nothing at all except sit back and eat the fish.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the event of manipulation, you still possibly should do nothing.  Imagine if the Singaporean government paid its fishermen $1 per pound per fish as a subsidy, undercutting your prices.  That is great, Singapore's tax dollars are being paid to Malaysia's fish eating public.  Why argue with Singapore's desire to pay Malaysia money?&lt;/p&gt;&#xA;" OwnerUserId="11321" LastActivityDate="2018-07-18T06:15:29.027" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23806" PostTypeId="1" CreationDate="2018-07-18T08:26:03.133" Score="1" ViewCount="16" Body="&lt;p&gt;The formula for ROCE is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;ROCE = net profit before tax / capital employed&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where capital employed is long-term liabilities + share capital + retained profit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, I've only used this in very simple situations, so when I came across Samsung's financial report, I am somewhat confused (balance sheet at page 4, P&amp;amp;L account at page 7): &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://images.samsung.com/is/content/samsung/p5/global/ir/docs/2017_con_quarter04_all.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://images.samsung.com/is/content/samsung/p5/global/ir/docs/2017_con_quarter04_all.pdf&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can I confirm that the values (in millions of Korean won) are:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Net profit before tax = 56,195,967&lt;/p&gt;&#xA;&#xA;&lt;p&gt;LTL = Total liabilities - total current liabilities = 87,260,662 - 67,175,114&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Retained profit = 215,811,200&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Share capital = preference shares + ordinary shares = 119,467 + 778,047&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, should share premium be included in share capital?&lt;/p&gt;&#xA;" OwnerUserId="18895" LastActivityDate="2018-07-18T08:26:03.133" Title="Return on Capital Invested - what to include in 'capital employed'" Tags="&lt;capital-returns&gt;&lt;capital&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23808" PostTypeId="2" ParentId="23801" CreationDate="2018-07-18T11:12:32.790" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;at periods of default of Argentina, Ukraine and Panama, the data tells&#xA;  exactly the opposite: exports increased in the wake of the sovereign&#xA;  default. What can explain this?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Sovereign default may trigger a depreciation of the domestic currency. When that happens, it has a two-fold effect on the domestic economy: On the one hand, foreign immediate inputs (that is, imports) become more expensive. On the other hand, exports become cheaper (that is, more attractive) to foreign markets. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The net effect depends on the particularities of the economy being analyzed. For instance, a depreciation of the domestic currency might prompt firms to resort to domestic substitutes of the foreign intermediate inputs, in which case the drawback of sovereign default is reduced or mitigated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An exporter is more immune to the detrimental effect of sovereign default if (1) its need for foreign inputs is not too high, (2) it hedged against a depreciation of the domestic currency, and/or (3) it does not compete for or need subsidies from the government because these could be harder to obtain in the context of sovereign default.&lt;/p&gt;&#xA;" OwnerUserId="18552" LastActivityDate="2018-07-18T11:12:32.790" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23809" PostTypeId="2" ParentId="23799" CreationDate="2018-07-18T12:13:38.867" Score="1" Body="&lt;p&gt;If your points are exchangable for rewards, the fundamental value of the points is entirely driven by the exchange rate between points and the rewards. (People may value the points more or less than the fundamental value for any number of reasons.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This means that the inflation rate is entirely driven by the administered exchange rate - up until the point the program runs out of rewards. If you want to prevent the possibility of running out of rewards, the total supply of points must be held less than the redemption value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is similar to the operation of a gold standard. In the classical gold standard, a country’s currency (in principle) is exchangeable at a fixed rate against gold. (In practice, the implementation of gold standards changed over time.) You should be able to find a lot of resources on gold standard systems.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you have a fixed supply of rewards, and you want to keep the exchange rate stable, you would need to find a way to drain points from the system - a tax. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In terms of motivating people, the major question is the value of the rewards. If people don’t want your rewards, your points will have little value.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2018-07-18T12:13:38.867" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23810" PostTypeId="1" CreationDate="2018-07-18T13:25:33.393" Score="2" ViewCount="106" Body="&lt;p&gt;I'm trying to estimate the following model:&#xA;Labor demand=f(wages,lagged labor demand, GFCF, GDP, trade share, labor productivity, real exchange rate)... (1)&#xA;Wages= f(labor demand,lagged wages, GFCF, GDP, trade share, labor productivity, real exchange rate)...(2)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When i run endogeneity test in stata and dumitrescu hurlin test in Eviews, they say that all regressors are endogenous. Is this something normal or I'm doing something wrong?&lt;br&gt;&#xA;Eagerly waiting for a reply. &lt;/p&gt;&#xA;" OwnerUserId="18897" LastActivityDate="2019-08-12T21:02:45.303" Title="Can all the regressors be endogenous in a given model?" Tags="&lt;endogeneity&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="23811" PostTypeId="2" ParentId="20992" CreationDate="2018-07-18T14:02:11.667" Score="2" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;''Diamond Paradox'' by &lt;a href=&quot;http://cemi.ehess.fr/docannexe/file/2360/diamond.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Diamond (1971)&lt;/a&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This is a &quot;less-known paradox,&quot; usually put as a counter to famous Bertrand paradox. It is a starting point in the literature on informational frictions in consumer markets, and the scientists in the field agree on its significance.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Its idea is diametrically opposite to that of Bertrand.  Consider the following simple example.  There are $2$ firms which produce homogeneous goods at zero marginal cost and compete in prices, $p$.  This simultaneously set prices.  Also there is a single consumer who supplies a demand given by $1-p$.  Importantly, the consumer does not observe prices set by firms and, therefore, needs to search for them sequentially, where search is costly.  Suppose that cost of visiting a firm is given by $0 &amp;lt; c \leq \frac{1}{2}$.  Then, the unique equilibrium of the market is that both firms charge monopoly price &#xA;$$p^M= \frac{1}{2}.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is a diametrically opposite result to that of Bertrand. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reasoning behind the result is as follows.  Suppose both firms charge $p=0$. Then, the consumer randomly visits one of the firms, say firm $i$, and buys. However, firm $i$ could have charged $c$ and made positive profits as the consumer would have bought goods anyway because she would have suffered cost $c$ had she left firm $i$ in order to buy from the rival firm.   By the same argument, one can see that $p=c$ cannot be an equilibrium as now firm $i$ can charge $c+c$ and improve its profit.  Continuing this way, it is easy to arrive to an equilibrium where both firms charge $p^M$.  A firm does not want to charge $p^M+c$ simply because its profit is maximized at $p^M$.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Formal Analysis of the Example&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Timing:&lt;/strong&gt; First, the firms simultaneously set prices.  Second, the consumer without knowing prices engage into sequential search.  The first search is free and the consumer visit each firm with equal probability. The consumer can come back to the previously searched firm for free.  The consumer has to observe a price of a firm to buy goods from that firm. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Beliefs:&lt;/strong&gt; In equilibrium, the consumer has correct belief about strategies of firms. If, upon visiting a firm, she observes a price different from an equilibrium one, the consumers assumes that the rival firm has deviated to the same price too.  Thus, the consumer has symmetric (out-of-equilibrium beliefs).  Note: the results of the game does not change if the consumers has passive beliefs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Strategies:&lt;/strong&gt; Strategies of the firms are prices.  As mixing is allowed, let $F(p)$ represent the probability that a firm charges a price no greater than $p$.  Strategy of the consumer is whether to search for the second price, upon observing the first one. This strategy is given by a reservation price $r$, such that upon observing a price lower than $r$ she buys outright, upon observing a price greater than $r$ she searches further, and upon observing a price equal to $r$ she is indifferent between buying immediately and searching further.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Equilibrium Notion:&lt;/strong&gt; Concept of Perfect Bayesian Equilibrium (PBE) is employed.  A PBE is characterized by price distribution $F(p)$ for each firm and the consumer's reservation price strategy given by $r$ such that $(i)$ each firms chooses $F(p)$ that maximizes its profit, given the equilibrium strategy of the other firm and the consumer's optimal search strategy, and (ii) the consumer searches according to the reservation price rule $r$, given correct beliefs concerning equilibrium strategies of firms.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Theorem:&lt;/strong&gt; For any $c&amp;gt;0$, there exists a PBE characterized by triple $(p^M, p^M, r)$, where $p^M$'s are charged with probability $1$ and &#xA;$$r=1.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Proof:&lt;/strong&gt; First, I prove that $r=1$, or that the consumer buys outright when she observes any price lower than $1$.  Clearly, if she observes a price greater than $1$ she does not buy from that firm as this yields a negative payoff to the consumer.  Now, suppose she observes price $p'&amp;lt;r$.  Then, she expects the rival firm to charge $p'$ too. Thus, if she buys outright her payoff is $\int_{p'}^{1}(1-p)dp$, and if she searches she expects a payoff equal to $\int_{p'}^{1}(1-p)dp - c$.  As the former is greater than the latter, she better-off when she buys immediately.  This proves that $r=1$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Next, I prove that both firms charge $p^M$. Clearly, firms never charge above $1$ as they will never sell.  Then, the expected profit of a firm is $\frac{1}{2}(1-p)p$ because the consumer visits a firm half of the time. It is easy to see that the profit is maximized at $p^M$. &lt;strong&gt;QED.&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="18338" LastEditorUserId="18338" LastEditDate="2018-07-19T10:44:57.650" LastActivityDate="2018-07-19T10:44:57.650" CommentCount="1" CommunityOwnedDate="2018-07-18T14:02:11.667" ContentLicense="CC BY-SA 4.0" />
  <row Id="23814" PostTypeId="2" ParentId="23810" CreationDate="2018-07-18T16:37:15.360" Score="1" Body="&lt;p&gt;In principle, there is nothing to exclude the case where all regressors are endogenous. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My issue is that the Hurlin-Dumitrescu test has to do with Granger-causality, and Granger-causality examines the relation between the regressors and the dependent variable, not the relation between the regressors and the error term. On the other hand, endogeneity refers to the existence of correlation of the regressors with the error term.   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So it appears that the Hurlin-Dumitrescu test is of no use on testing for endogeneity. Do I miss something here?&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2018-07-18T16:45:31.950" LastActivityDate="2018-07-18T16:45:31.950" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="23815" PostTypeId="1" CreationDate="2018-07-18T22:20:14.847" Score="0" ViewCount="120" Body="&lt;p&gt;If every person in America was given a million dollars what fundamentally changes that causes prices to rise? Intuitively I was thinking that this is simply a production problem. With more money there is more effective demand but without a rise in productivity prices will simply shift to a new equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I had this thought and I was wondering if it's a good way to understand inflation. &lt;/p&gt;&#xA;" OwnerUserId="18901" LastActivityDate="2018-07-19T04:46:13.333" Title="Is inflation a lack of production?" Tags="&lt;inflation&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="23816" PostTypeId="2" ParentId="23815" CreationDate="2018-07-19T00:51:01.473" Score="1" Body="&lt;p&gt;Yes, this appears to be correct. This intuition is fundamentally Keynesian. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider the AS-AD curve.  During the vertical portion, additional demand increases prices while supply remains roughly fixed. As a result, prices increase dramatically.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/AD%E2%80%93AS_model&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://en.wikipedia.org/wiki/AD%E2%80%93AS_model&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="4185" LastActivityDate="2018-07-19T00:51:01.473" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="23817" PostTypeId="1" AcceptedAnswerId="23818" CreationDate="2018-07-19T01:15:20.213" Score="4" ViewCount="424" Body="&lt;p&gt;In supply-and-demand curve, we draw curves of indifference. Say the demand goes through (1, \$1). Then Bob the Buyer is &lt;em&gt;indifferent&lt;/em&gt; between spending \$1 for 1 apple or just keeping the \$1. If Sally the Seller had 1 apple to sell, then the equilibrium quantity sold would be 0 or 1—we cannot say. Seen differently, Bob will buy 1 apple if the price is in the interval [\$0, \$1) (and he &lt;em&gt;may&lt;/em&gt; buy it if the price is exactly $1).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Would it not be simpler to use closed intervals? In our example, Bob will buy 1 apple is the price is in the interval [\$0, \$1]. The equilibrium quantity sold will &lt;em&gt;definitely&lt;/em&gt; be \$0. Seen differently, the demand curve represents the maximum price buyers will pay, and the supply curve represents the minimum sellers will sell for.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's (literally) an infitesmal of a difference, but it seems, at least for discrete situations like the above, it would be nice to say exactly what will happen.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why don't we do that? There must be some elegant reason.&lt;/p&gt;&#xA;" OwnerUserId="18891" LastEditorUserId="18891" LastEditDate="2018-07-19T20:44:24.453" LastActivityDate="2018-07-21T16:23:59.137" Title="Why not say the buyer will *definitely* buy at price X?" Tags="&lt;supply-and-demand&gt;" AnswerCount="4" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23818" PostTypeId="2" ParentId="23817" CreationDate="2018-07-19T02:00:28.997" Score="5" Body="&lt;p&gt;Under Yatharth's approach, the set of prices at which Bob will definitely buy an apple is the closed interval $[\$0,\$1]$, which is nice. However, the set of prices at which Bob will definitely &lt;strong&gt;not&lt;/strong&gt; buy an apple now becomes an &lt;strong&gt;open&lt;/strong&gt; interval $(\$1,\infty]$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In contrast, under the conventional approach, the set of prices at which Bob may buy an apple is closed: $[\$0,\$1]$. So too is the set of prices at which he may not buy an apple: $[\$1,\infty)$. So, under the conventional approach, we're dealing solely with closed intervals.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Both approaches have their merit. But I believe that all things considered, fewer inconveniences arise with the conventional approach than with your suggested approach. In general, it's &quot;nicer&quot; to not have to deal with any open intervals.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Example 1.&lt;/strong&gt; Under Yatharth's approach, there is no answer to the question &quot;What is the lowest price at which Bob may not buy an apple?&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Example 2.&lt;/strong&gt; Under Yatharth's approach, the demand curve will be discontinuous and with jumps. In contrast, under the conventional approach, it is continuous (albeit with kinks).&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Elaborating on Example 2.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The demand function $D:\mathbb{R}_{0}^{+}\rightarrow\mathcal{P}\left(\mathbb{R}_{0}^{+}\right)$ maps each price (a non-negative number) to a set of quantities demanded (a subset of the non-negative numbers). The economic interpretation is that at each price, $D$ tells us what numbers of units of the good the consumer most prefers to buy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We assume that the good is infinitely divisible.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then here are the graphs of the demand function under the two approaches:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/ugzF5.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/ugzF5.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The demand function is continuous under the conventional approach, but not under Yatharth's. (Nonetheless, under Yatharth's, it is lower semi-continuous.)&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastEditorDisplayName="user18" LastEditDate="2018-07-20T02:12:45.843" LastActivityDate="2018-07-20T02:12:45.843" CommentCount="8" ContentLicense="CC BY-SA 4.0" />
  <row Id="23819" PostTypeId="2" ParentId="23798" CreationDate="2018-07-19T02:20:48.733" Score="1" Body="&lt;p&gt;Varian is indeed wrong here in that there is a critical omission: He should have specified whether there in a 27th person and what this person's reservation price is.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;If there is no 27th person, then the set of possible equilibrium prices is $[\$0,\$200]$, as you correctly point out. Explanation:&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;At each $p\in(\$0,\$200)$, we have $S(p)=26$ and $D(p)=26$, so that there is a possible equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At $p=\$200$, we have $S(p)=26$ and $D(p)=\{25,26\}$, so that there is a possible equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At $p=\$0$, we have $S(p)=\{0,1,\dots,26\}$ and $D(p)=26$, so that there is a possible equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At any $p&amp;gt;\$200$, we have $S(p)=26$ and $D(p)\leq25$, so that there is no possible equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;If there is a 27th person and her reservation price is $k&amp;lt;\$200$, then the set of possible equilibrium prices is $[k,\$200]$. Explanation:&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;At each $p\in(\$k,\$200)$, we have $S(p)=26$ and $D(p)=26$, so that there is a possible equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At $p=\$k$, we have $S(p)=26$ and $D(p)=\{26,27\}$, so that there is a possible equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At $0&amp;lt;p&amp;lt;k$, we have $S(p)=26$ and $D(p)=27$, so that there is no possible equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At $p=\$0$, we have $S(p)=\{0,1,\dots,26\}$ and $D(p)=27$, so that there is a possible equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At any $p&amp;gt;\$200$, we have $S(p)=26$ and $D(p)\leq25$, so that there is no possible equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Notes.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;I assume throughout, as I believe Varian has, that each apartment-owner's reservation price or willingness-to-accept is \$0. I also assume that negative prices are impossible.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Following usual practice in economics, I've been a little sloppy about whether the elements of the codomains of the supply and demand functions $S$ and $D$ are numbers or sets of numbers. (Technically and most generally, they should be sets. But so as not to confuse students, we usually and more simply say they are numbers.)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerDisplayName="user18" LastEditorDisplayName="user18" LastEditDate="2018-07-19T02:43:12.767" LastActivityDate="2018-07-19T02:43:12.767" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23820" PostTypeId="2" ParentId="23815" CreationDate="2018-07-19T04:46:13.333" Score="1" Body="&lt;p&gt;You can't only view it through the lens of the amount of production. You're missing more than half the story.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Inflation is sometimes described as too much money chasing too few goods.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;More specifically, it can be a &lt;em&gt;change&lt;/em&gt; in the balance between the amount of money and the amount of goods and services, such that there's some combination of more money, and less goods and services.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So yes, a reduction in production is one possible cause of inflation. An increase in the supply of money is another.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Money doesn't have value in and of itself. Its value comes from its scarcity, (and its credibility, its usefulness as a medium of exchange and a store of value, and so on)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If that scarcity is reduced (by creating enough money to give each person a million dollars, and then doing that), then its unit value decreases a lot - the scarcity value of a single dollar has just hugely decreased. In other words, each unit of production (of a good or a service) can now be exchanged for a lot more dollars. That is to say prices rise, and we have inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Inflation is about the amount of production, the amount of money, the changes in each of those, the interaction between the two amounts, and the interaction between the changes in the two amounts. Inflation is also about the accumulated expectations of the market, of the &lt;em&gt;future&lt;/em&gt; of all of those things. It can also be about changes in the balance between the production of different types of goods and services; and changes in the composition of the basket of goods and services that are used to measure inflation. And it can be about changes in the method of calculating inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So that's why it's much more interesting and complex than merely the amount of production.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2018-07-19T04:46:13.333" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23821" PostTypeId="2" ParentId="23817" CreationDate="2018-07-19T06:55:35.517" Score="4" Body="&lt;p&gt;Two arguments to complement the existing answer:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;We need to have one price for which Bob is indifferent between buying the apple or not, otherwise his preferences are discontinuous, which does not make much sense normatively. That is, an infintesimal variation in the price would cause him to reverse his preferences.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Your logic is not entirely correct as Bob might also buy the apple for 1 dollar, as this action is not strictly dominated (he is indifferent). And whether he is indifferent at a price of 1 dollar or not is economically irrelevant, as it will not influence Bob's behavior in equilibrium. Suppose for instance that Sally is a monopolist who knows Bob's preferences and posts a price for the apple (a take-it-or-leave-it offer). Irrespective of whether Bob strictly or weakly prefers buying the apple for 1 dollar rather than not, the only equilibrium is the one in which Sally offers the apple for 1 dollar, and Bob accepts the offer (either because he is indifferent, or because he strictly prefers it).&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="4667" LastActivityDate="2018-07-19T06:55:35.517" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="23822" PostTypeId="2" ParentId="23817" CreationDate="2018-07-19T10:14:39.943" Score="1" Body="&lt;p&gt;This is essentially  a request for clarification, but it is a bit long to be a comment. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Demand curves represent the amount that the consumer will definitely buy at each price (if it has the income). So the statement &quot;the demand curve passes through the point $(1,1)$&quot;, means that the consumer will definitely buy one apple at one dollar price, (if he has one dollar). It will certainly also buy one apple (and maybe more), if the price is below one dollar (and he has the income).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is not clear what the OP explores here, since Indifference curves are drawn in the goods space, or at least, in the &quot;one good and income space&quot;. But the demand curve is drawn in the &quot;good-price&quot; space. We cannot superimpose the demand curve on the map of the indifference curves.  &lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2018-07-19T10:14:39.943" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="23823" PostTypeId="1" AcceptedAnswerId="23825" CreationDate="2018-07-19T12:52:55.557" Score="1" ViewCount="161" Body="&lt;p&gt;&lt;strong&gt;Introduction&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Imagine this random country. &quot;Yolistan&quot;, it is a new country that appeared after a war/revolution/independence/whatever.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The currency it's the &quot;Yolo&quot;&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Yolistan needs to import resources to start again the industry, for some time they are not able to produce enough raw materials so they decide to change their currency rate to 1:2 (Yolo/Dollar) to favor Imports.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The First Question is, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Where could this country acquire dollars at such rate or how they do it?&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Yolistan(yolos) wants to buy Iron from the US(dollars) do they pay is Yolos or they have to buy dollars first?&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;After some time of importing goods, now they are able to supply themselves so they change the Yolo to 2:1 (Yolo/Dollar) to favor Exports&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Second Question, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&quot;What happens to their economy and currency if that country changes the rate constantly to favor Exports/Imports?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks for the interest in this question.&lt;/p&gt;&#xA;" OwnerUserId="18905" LastActivityDate="2018-07-19T15:50:40.727" Title="What could happen if a country changes their currency rate constantly?" Tags="&lt;macroeconomics&gt;&lt;exchange-rates&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="23824" PostTypeId="1" CreationDate="2018-07-19T13:41:09.610" Score="1" ViewCount="62" Body="&lt;p&gt;I am expecting a decline in trade between the US and its key trading partners (China, Europe, Canada, Mexico).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there any mechanism / force that prevents US trading partners from cooperating amongst themselves to ramp-up trade amongst themselves to compensate for not trading with the US?  Does the US offer goods, which have no substitute?&lt;/p&gt;&#xA;" OwnerUserId="10161" LastEditorUserId="10161" LastEditDate="2018-07-22T23:45:06.827" LastActivityDate="2018-07-27T08:01:35.907" Title="Is there any mechanism to prevent tariff 'exile'?" Tags="&lt;tariffs&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23825" PostTypeId="2" ParentId="23823" CreationDate="2018-07-19T15:50:40.727" Score="0" Body="&lt;p&gt;At the outset, I'll point out that it would be neither healthy nor realistic for Yolistan's regulator or central bank to arbitrarily modify exchange rates. Issuing decrees about &lt;em&gt;what the new exchange rate is&lt;/em&gt; does not guarantee that foreign entities will be willing to perform transactions at that rate.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Where could this country acquire dollars at such rate or how they do&#xA;  it?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Yolistan could acquire dollars through exports, revenues from providing goods and services to tourists visiting Yolistan, money transfers from Yolistanis living abroad, persuade a country to lend money, and/or selling bonds (which is a form of debt).&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Yolistan(yolos) wants to buy Iron from the US(dollars) do they pay is&#xA;  Yolos or they have to buy dollars first?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Yolistan needs to buy dollars first, as it is unlikely that the US would want to have reserves in a new and uncertain currency such as Yolos.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;What happens to their economy and currency if that country changes the&#xA;  rate constantly to favor Exports/Imports?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Markets would not consider the Yolo a reliable currency (see the&lt;br&gt;&#xA;discussions regarding the volatility of bitcoin). Markets expect a&lt;br&gt;&#xA;currency to be stable.&lt;/li&gt;&#xA;&lt;li&gt;Frequent and abrupt manipulations of the Yolo would discourage other&#xA;countries (and foreign companies) from signing trade agreements with(and invest in) Yolistan because of (1) concerns about unfair competition, and (2) excessive uncertainty about purchase power, rendering investments&#xA;and obligations too risky to commit with.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;This answer is not exhaustive.&lt;/p&gt;&#xA;" OwnerUserId="18552" LastActivityDate="2018-07-19T15:50:40.727" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="23826" PostTypeId="1" AcceptedAnswerId="23828" CreationDate="2018-07-19T19:56:31.533" Score="2" ViewCount="77" Body="&lt;p&gt;I am trying to construct utility function for an agent who can be risk-seeking or risk-averse. We have an agent $i$ who has an ideal point $x$ in a policy space $X = [0,1]$. There is a policy (option) given by $a \in X$. Can we construct the agent $i$'s utility function as a distance between his ideal point and $a$ as $u_i (a) = -(x - a)^\gamma$, where $\gamma &amp;gt; 0$ represents $i$'s attitude towards risk, such as $\gamma &amp;gt; 1$ means $i$ is risk-averse and $\gamma &amp;lt; 1$ means that $i$ is risk-seeking? &lt;/p&gt;&#xA;" OwnerUserId="18865" LastActivityDate="2018-07-20T00:28:52.107" Title="Construct utility function for a risk-averse agent" Tags="&lt;utility&gt;&lt;expected-utility&gt;&lt;risk&gt;&lt;risk-aversion&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="23828" PostTypeId="2" ParentId="23826" CreationDate="2018-07-19T23:21:18.320" Score="2" Body="&lt;p&gt;If $-|x-a|$ represents the monetary payoff associated with the policy choice $a$, then $u(a) =-\left(|x-a|^\gamma\right)$ is risk averse for $\gamma &amp;gt; 1$, and risk loving for $0&amp;lt;\gamma &amp;lt; 1$.&lt;/p&gt;&#xA;" OwnerUserId="11824" LastEditorUserId="11824" LastEditDate="2018-07-20T00:28:52.107" LastActivityDate="2018-07-20T00:28:52.107" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23829" PostTypeId="1" CreationDate="2018-07-20T00:58:21.457" Score="1" ViewCount="112" Body="&lt;p&gt;I want to get past daily charts for stocks I'm looking at but I can't seem to find any websites that display this real-time data. The daily high, low, close, and open isn’t enough information to suit my needs.&lt;/p&gt;&#xA;" OwnerUserId="18908" LastActivityDate="2020-06-10T16:00:35.067" Title="Daily stock data request" Tags="&lt;data-request&gt;" AnswerCount="3" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="23830" PostTypeId="1" AcceptedAnswerId="23836" CreationDate="2018-07-20T03:16:48.940" Score="2" ViewCount="206" Body="&lt;p&gt;I believe I’m using the most basic version of Cobb-Douglas: $U(x,y)=x^\beta * y ^{(1-\beta)}$.  The question I have is: in this example would a consumer’s preference ($\beta$) change if the price of either X or Y changes?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I.e., when presented with several options of a  good at different prices the budget line will change for each.  Given this change the indifference curve will at least shift, if the entire function doesn’t change altogether (different total Utility due to a different basket of goods).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This question is came up when solving for beta and utility using actual data where 1 good is X and the other is all goods not X (income less spend on X).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Got started solving for beta after seeing how they solved for the total derivative &lt;a href=&quot;https://www.uvm.edu/~wgibson/CYU/cobb-douglas.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="17918" LastEditorUserId="12186" LastEditDate="2018-07-20T10:42:20.657" LastActivityDate="2018-07-20T11:51:22.610" Title="Consumer preference and price in the Cobb-Douglas function" Tags="&lt;microeconomics&gt;&lt;preferences&gt;&lt;cobb-douglas&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23831" PostTypeId="2" ParentId="23829" CreationDate="2018-07-20T03:18:12.337" Score="2" Body="&lt;p&gt;&lt;a href=&quot;https://finance.yahoo.com/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Yahoo Finance&lt;/a&gt; is a site thats pretty useful for getting historical stock data. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can get some pretty big datasets (i.e. you can get daily stock market data for &lt;a href=&quot;https://ca.finance.yahoo.com/quote/MSFT/history?period1=511074000&amp;amp;period2=1531972800&amp;amp;interval=1d&amp;amp;filter=history&amp;amp;frequency=1d&quot; rel=&quot;nofollow noreferrer&quot;&gt;Microsoft&lt;/a&gt; going back to 1989 till now).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope this helps.&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2018-07-20T03:18:12.337" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="23832" PostTypeId="2" ParentId="23829" CreationDate="2018-07-20T03:24:49.030" Score="0" Body="&lt;p&gt;If you need something more granular that daily information then you may need to subscribe/use a third party api.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I believe Quantopian, interactive brokers, and  (maybe, I haven’t used it) robinhood can access data like this, but you’ll need an account for all (quantopian is free, but limited to their notebook platform).&lt;/p&gt;&#xA;" OwnerUserId="17918" LastActivityDate="2018-07-20T03:24:49.030" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23836" PostTypeId="2" ParentId="23830" CreationDate="2018-07-20T11:51:22.610" Score="4" Body="&lt;p&gt;No, preferences are stable. That is not to say that the quantity demanded or marginal utility obtained at the new price level is the same though. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we'd allow the exponent of the utility function to vary for different price levels we'd let utility depend on prices, which it does not. Of course the actual utility that can be &lt;em&gt;obtained&lt;/em&gt; depends on prices, but not the utility itself.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Back to your problem. You probably obtained a $\beta$ by observing one price and X quantity, with Y the remaining budget, filled that in in the formula: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac{dY}{dX}=-\frac{\beta Y}{(1-\beta) X}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and solved for $\beta$, and then did that again for a different price and found a different $\beta$. Given that you use real world data, that in itself is not surprising.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Unfortunately, the real world does not always match our models, so you would have to estimate $\beta$ using econometrics. Given that in CD models expenditures are fixed proportions of the budget you should be able to simply estimate:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\beta=\frac{p_x X}{M} + \epsilon$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That is $\beta$ is the average proportion of the budget spent on X.&lt;/p&gt;&#xA;" OwnerUserId="12186" LastActivityDate="2018-07-20T11:51:22.610" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="23838" PostTypeId="1" CreationDate="2018-07-20T15:15:56.330" Score="1" ViewCount="29" Body="&lt;p&gt;I have a data set with some demographics of consumers who bought a product that can be used to imply their preference (beta) using Cobb-Douglas (see comments of &lt;a href=&quot;https://economics.stackexchange.com/q/23830/17918&quot;&gt;original question&lt;/a&gt;). I’d like to check if any of the other features (specifically household size) have a significant impact on the derived beta of the consumer.  The eventual goal is to incorporate the results into an agent based model when generating the preference variable of the agents (which would then be used to generate the Cobb-Douglas function unique to that agent).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The income (budget) of the consumer plays a role in the derivation of the beta so perhaps it’s better to measure the effect of these features on income instead of the preference?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I’m familiar with the standard regression techniques, but wanted to make sure there wasn’t any issue with running a regression against a derived variable.&lt;/p&gt;&#xA;" OwnerUserId="17918" LastActivityDate="2018-07-20T15:15:56.330" Title="Regression on derived consumer preference" Tags="&lt;microeconomics&gt;&lt;regression&gt;&lt;cobb-douglas&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="23839" PostTypeId="1" CreationDate="2018-07-20T17:07:39.400" Score="1" ViewCount="80" Body="&lt;p&gt;NYU Prof Joseph Foudy said the US trade deficit was caused by a lack of domestic savings and that tariffs on China would just shift the deficit to other countries. &lt;a href=&quot;https://finance.zacks.com/relationship-between-trade-deficit-savings-6835.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Zacks&lt;/a&gt; says&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;A country’s trade balance (current account balance) is the difference between the value of exports of goods and services and the value of imports of goods and services. Through national accounting identities, the trade balance can also be expressed as the difference between national (both public and private) savings and investment.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So isn't Foudy really saying we have a deficit because we import more than we export? In other words isn't the lack of domestic savings identical to the deficit rather than its cause?&lt;/p&gt;&#xA;" OwnerUserId="18913" LastActivityDate="2018-11-29T06:40:26.470" Title="Is the trade deficit driven by lack of domestic savings?" Tags="&lt;international-trade&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="23840" PostTypeId="1" CreationDate="2018-07-20T19:32:58.590" Score="2" ViewCount="284" Body="&lt;p&gt;I've been reading the book &lt;a href=&quot;https://www.amazon.ca/Technical-Analysis-Explained-Fifth-Successful/dp/0071825177&quot; rel=&quot;nofollow noreferrer&quot;&gt;Technical Analysis Explained by Martin J. Pring&lt;/a&gt; as a result of a conversation with one of my friends who said he did technical analysis but didn't apply the types of models employed by econometrician when forecasting (i.e ARIMA, VAR ect).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;as I progressed through the book, I noticed though the methods were simple and required little knowledge of statistics but they worked very well. They call these methods as a part of trend analysis.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My Question:&lt;/strong&gt; why are such methods not employed by more frequently by economists/econometricians?&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Note: an example of such methods can be seen in the presentation by Martin Pring: &lt;a href=&quot;https://www.youtube.com/watch?v=xgoV0UCUkW4&quot; rel=&quot;nofollow noreferrer&quot;&gt;Technical Analysis for Short Term Traders&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="8815" LastEditDate="2018-07-20T20:44:14.263" LastActivityDate="2018-07-20T20:44:14.263" Title="Technical Analysts and Econometricians: A Question on Methods" Tags="&lt;econometrics&gt;&lt;soft-question&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="23841" PostTypeId="2" ParentId="23840" CreationDate="2018-07-20T20:38:20.040" Score="2" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;why are such methods not employed by more frequently by&#xA;  economists/econometricians?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Because the so-called &lt;em&gt;technical analysis&lt;/em&gt; (&quot;TA&quot;) is overly simplistic and devoid of mathematical (or at least rational) basis. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The application of algebra, probability, time series, and other tools &amp;amp; disciplines does not guarantee accuracy of forecast, but at least that application provides a more robust framework with which to model financial data than what is achievable through TA. Just to mention one example, TA does not address &lt;em&gt;arbitrage opportunities&lt;/em&gt;, which is a useful and consistent approach to pricing financial instruments.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;I noticed though the methods were simple and required little knowledge&#xA;  of statistics, they worked very well. They call these methods as a&#xA;  part of trend analysis.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;There is a false sense of accuracy surrounding TA. Materials that teach or promote TA obviously will present instances where --in hindsight-- the method appears to work. But nothing in TA predicts, models, or at least explains the price trajectory of a financial instrument (let alone its timing).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think that if/when TA supposedly &quot;works&quot;, it is only because of a kind of self-reinforcing feedback: TA &quot;indoctrination&quot; inadvertently prompts TA adepts to reinforce that, say, a price-band (or however it is called) is about to be broken because the price of the stock has touched its limit twice. Thus, TA-based traders react by performing certain transactions expecting to profit from the supposedly imminent direction of the stock.&lt;/p&gt;&#xA;" OwnerUserId="18552" LastEditorUserId="18552" LastEditDate="2018-07-20T20:44:03.187" LastActivityDate="2018-07-20T20:44:03.187" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="23842" PostTypeId="1" AcceptedAnswerId="23844" CreationDate="2018-07-21T06:00:09.593" Score="0" ViewCount="393" Body="&lt;p&gt;I just read about the &quot;dynamics&quot; of long-, short-term intreset rates and inflation. Does the logic go as follows?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Centrals banks determine interest rates which in turn determine the short term rates. Inflation and expected inflation on the other hand determine how the central bank will most likely change the rates in the future(i.e what the market expects the central banks to do), hence&lt;/p&gt;&#xA;&#xA;&lt;p&gt;short term rate + expected inflation= long term rates?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Found the info here,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.investopedia.com/articles/bonds/09/bond-market-interest-rates.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.investopedia.com/articles/bonds/09/bond-market-interest-rates.asp&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="8383" LastEditorUserId="8383" LastEditDate="2018-07-22T05:55:13.783" LastActivityDate="2018-07-22T19:29:59.953" Title="Long-,short-term interest rates and inflation" Tags="&lt;macroeconomics&gt;&lt;interest-rate&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="23843" PostTypeId="1" AcceptedAnswerId="23866" CreationDate="2018-07-21T09:16:34.930" Score="0" ViewCount="29" Body="&lt;p&gt;Does any guys know how to find the data source of US individual wage earnings from 1920 to 2018?&lt;/p&gt;&#xA;" OwnerUserId="13914" LastEditorUserId="13914" LastEditDate="2018-07-24T03:30:57.957" LastActivityDate="2018-07-24T03:30:57.957" Title="Data Source on US Wage Earnings" Tags="&lt;data-request&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="23844" PostTypeId="2" ParentId="23842" CreationDate="2018-07-21T11:10:57.350" Score="2" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Does the logic go as follows? &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;short term rate + expected inflation= long term rates?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Not exactly. There is some confusion. Inflation distinguishes between &lt;em&gt;real&lt;/em&gt; and &lt;em&gt;nominal&lt;/em&gt; interest rates, whereas the discrepancy between short- and long-term interest rates is derived from the preclusion of &lt;em&gt;arbitrage opportunities&lt;/em&gt;. It is neither actual nor expected inflation, but the &lt;em&gt;forward rate&lt;/em&gt;, what explains the discrepancy between short- and long-term interest rates. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;By way of example, suppose the short- and long-term rates currently are 3% and 5%, with short- and long-term referring to 1 and 2 years, respectively. The interest rate $r_{f}$ for the 2nd year should be such that $(1+0.03)(1+r_{f})=(1+0.05)^2$. Any other rate $r_{f}$ would allow either the borrower or the lender to make profit with no risk (or somewhat equivalently, to make profit without having to invest his own funds).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is true that a lender requires higher return for long-term loans than for short-term ones because a longer term entails greater exposure to risk. But the inflation is just &lt;em&gt;one of multiple&lt;/em&gt; risks that the lender factors in when determining at what rate (of return) he is willing to lend money.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Edited on 7/22/2018 (at 3:29PM EDT) to supplement as per 2nd-to-last comment&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is no robust or widely-adopted method for calculation of long-term rates based on estimated future inflation (and/or short-term rates). Nor is there a mathematical expression describing how --or even whether-- &lt;em&gt;market forces&lt;/em&gt; use the estimated future inflation for determining the rate at which lenders are willing to commit funds for a long-term period. I personally doubt that such method or expression could ever exist.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One can only resort to &lt;em&gt;qualitative reasoning&lt;/em&gt; to sketch the &lt;em&gt;generic&lt;/em&gt; effect that some information tends to have on long-term rates. In the case of expected/estimated future inflation, it might be &lt;em&gt;implicitly&lt;/em&gt; (at most, but perhaps not at all) reflected in other &lt;em&gt;factors and preferences&lt;/em&gt; that influence those market forces. Uncertainty --as you rightly point out in one of your comments--, risk aversion, and &lt;em&gt;cost of opportunity&lt;/em&gt; are three of many other factors and preferences that influence how much a long-term rate would differ from the short-term rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Although it is reasonable to conjecture that these estimates, factors, and preferences are positively correlated with the duration of a long-term period, it would be very hard (or I would say futile as well as impossible) to reliably model &lt;em&gt;by how much&lt;/em&gt; they cause a long-term rate to differ from the short-term rate.&lt;/p&gt;&#xA;" OwnerUserId="18552" LastEditorUserId="18552" LastEditDate="2018-07-22T19:29:59.953" LastActivityDate="2018-07-22T19:29:59.953" CommentCount="13" ContentLicense="CC BY-SA 4.0" />
  <row Id="23845" PostTypeId="2" ParentId="23817" CreationDate="2018-07-21T16:23:59.137" Score="0" Body="&lt;p&gt;If he obtains 1 util of value from an apple that costs 1 util, then he neither gains nor loses from purchasing the apple and consuming it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;He might buy it, or might not, and at that price will be indifferent as to whether he does.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since the difference is literally infinitessimal, presumably convenience rather than theory will justify most decisions about whether to used an open or closed bound.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Compare this to a stock trading platform which may calculate to very small, but finite, differences in prices. Being finite, and not infinitessimal, it is strictly calculable whether a gain can be had. In which case specific features of reality would dictate the answer, and not convenience. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Textbook exercises may 'arbitrarily' be designed to require one or the other -- for practical applications, the difference simply is the type of inequality operator used in the programming.&lt;/p&gt;&#xA;" OwnerUserId="16499" LastActivityDate="2018-07-21T16:23:59.137" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23848" PostTypeId="2" ParentId="7110" CreationDate="2018-07-21T21:35:43.827" Score="0" Body="&lt;p&gt;You should start with &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;em&gt;Microeconomics&lt;/em&gt; (Robert Pindyck, Daniel Rubinfeld) then move to &lt;em&gt;Intermediate Microeconomics&lt;/em&gt; (Hal Varian) and Finally move to &lt;em&gt;Microeconomic Foundations I: Choice and Competitive Markets&lt;/em&gt; (David Kreps).&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;em&gt;Macroeconomics&lt;/em&gt; (Olivier Blanchard) then move to &lt;em&gt;Advanced Macroeconomic&lt;/em&gt; (David Romer) [Don't get scared of the word &quot;Advanced&quot;,it's not that Advanced] and to finish with &lt;em&gt;Introduction to Modern Economic Growth&lt;/em&gt;(Daron Acemoglu)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;With no doubt, you need to have a sound mathematical proficiency to deal with the books. For that, you should know up to the level of &lt;em&gt;Mathematics for Economists&lt;/em&gt;(Simon and Blume)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Having read some Basic statistics and Econometrics will add as a bonus.&lt;/p&gt;&#xA;" OwnerUserId="18107" LastActivityDate="2018-07-21T21:35:43.827" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23852" PostTypeId="1" AcceptedAnswerId="23853" CreationDate="2018-07-22T07:09:25.950" Score="4" ViewCount="180" Body="&lt;p&gt;&lt;strong&gt;My understanding&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If Country A extends MFN status to Country B with reduced tariffs for a product, then it must treat all other nations in the same way. By this WTO encourages multilateral concessions rather than trade-distorting bilateral concessions. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Question&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is the point of granting Country B, the MFN status if it's going to be the same for all countries? Also, the term 'Most Favoured Nation' is completely misleading here. Country A could have announced that it's going to reduce tariffs for that specific product to all WTO members rather than bringing Country B into the whole picture.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Please explain what's the point of a country granting another MFN status, and why does it apply to all WTO members if only two countries are involved here.&lt;/p&gt;&#xA;" OwnerUserId="18920" LastActivityDate="2018-07-22T11:57:38.823" Title="The term &quot;Most Favoured Nation&quot; is misleading to me. Please explain" Tags="&lt;macroeconomics&gt;&lt;international-trade&gt;&lt;balance-of-trade&gt;&lt;free-trade&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23853" PostTypeId="2" ParentId="23852" CreationDate="2018-07-22T08:31:21.803" Score="5" Body="&lt;p&gt;You seem to have it the wrong way around. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The act of country A extending Most Favoured Nation status to country B only affects the import tariffs on country B's products, not those on other countries' products. MFN status means that the tariffs on the Most Favoured Nation's products cannot be higher than the lowest import tariff on similar products from other countries to country A. (Hence the name 'most favoured', as it will have the lowest tariff.) Similar products from other countries without MFN status from country A may have higher tariffs than those imposed on country B's products.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are some caveats. E.g. if country A is in a free trade zone with countries X and Y and charges no tariffs at all on their products then even if country A grants country B Most Favoured Nation status, it does not mean it cannot impose any tariffs against country B's products. Basically country B has to get the lowest tariff, but free trade zones are not regarded as having 0 tariffs, rather as being exempt from tariffs.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2018-07-22T11:57:38.823" LastActivityDate="2018-07-22T11:57:38.823" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23854" PostTypeId="2" ParentId="1817" CreationDate="2018-07-22T13:16:23.843" Score="-1" Body="&lt;p&gt;Shadowstats.com states an annual inflation rate for the USD at present at over 10%. This is accelerating to the upside. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here's something you missed: Historically fiat monetary systems have a 100% failure rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;L.&lt;/p&gt;&#xA;" OwnerUserId="18922" LastActivityDate="2018-07-22T13:16:23.843" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23857" PostTypeId="1" CreationDate="2018-07-22T18:30:49.880" Score="2" ViewCount="516" Body="&lt;p&gt;If a central bank carried out monetary policy that consisted of multiplying each person's wealth by a common factor, I would find it plausible that all prices would get multiplied by the same factor and there would be approximately no real effects.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, this is not how central banks carry out monetary policy. They print money and engage in market transactions that target certain prices. To me it does not seem plausible that this has no real effects, in the long run or the short run. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is, why do many economists believe that money is neutral in the long run? Do they take the quantity theory of money as proof that money is neutral in the long run? Is there particular empirical evidence, or influential papers that have convinced many economists that money is neutral in the long run?&lt;/p&gt;&#xA;" OwnerUserId="10499" LastActivityDate="2018-07-23T14:41:23.233" Title="Why do many economists believe that money is neutral in the long run?" Tags="&lt;monetary-policy&gt;&lt;money&gt;&lt;quantity-theory-of-money&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23858" PostTypeId="2" ParentId="23857" CreationDate="2018-07-22T19:55:11.623" Score="0" Body="&lt;p&gt;I'm more of a micro guy, so take what I'm saying with a grain of salt.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose there's a monetary policy shock. Because of nominal rigidities and credit market imperfections output, prices change. The price level eventually settles in its trajectory and output does the same. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I guess what I'm trying to do is to ask you a question: how can money &lt;em&gt;not&lt;/em&gt; neutral? How can a Central Bank change, only through policy, in the longo run?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It that were the case, wouldn't every single country in the world be rich by now?&lt;/p&gt;&#xA;" OwnerUserId="18167" LastEditorUserId="18167" LastEditDate="2018-07-22T21:12:45.087" LastActivityDate="2018-07-22T21:12:45.087" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="23859" PostTypeId="2" ParentId="23857" CreationDate="2018-07-23T07:00:53.393" Score="1" Body="&lt;p&gt;There are multiple ways that a central bank can resort to apply its designated monetary policy. The most common one is called &quot;open market operations (omo)&quot;, which is basically selling/buying government securities to/from private individuals or organizations. Through these operations, central bank affects the level of cash reserves in the banking system since it deposits/withdraws payments for these government securities to/from the banking system. When cash reserves in the banks go up -by central bank buying government securities-, these banks decrease their interest rate to deplete the extra added cash reserves, and the vice-versa.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As you can see, in this mechanism the only price that is changed &quot;directly&quot; by central bank is the price of government securities. Once the cash reserves in the banking system reaches its targeted level, the probability that the general price level in a specific market will be affected is equal for almost all markets. Thus the operations of central bank does not aim at specific markets, alterations in the interest rates affect the whole economy equally by average.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are tons of literature, both theoretical and empirical, focusing on the neutrality of money. You can also search them via Google Scholars.&lt;/p&gt;&#xA;" OwnerUserId="8397" LastActivityDate="2018-07-23T07:00:53.393" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="23860" PostTypeId="2" ParentId="23857" CreationDate="2018-07-23T08:52:46.767" Score="1" Body="&lt;p&gt;If one believes that there is a single equilibrium, and that markets will find it whatever the starting position, then money must be neutral in the long run. A monetary intervention, in that world, is a temporary perturbation that will get traded away to zero eventual impact, as everything returns to equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is likely that neither of those underlying assumptions are true.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, they are commonly made to simplify the analysis.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some economists fall into the trap of making the assumptions to simplify the analysis, but then internalising those assumptions as being how the world actually works.&lt;/p&gt;&#xA;" OwnerUserId="44" LastEditorUserId="44" LastEditDate="2018-07-23T14:41:23.233" LastActivityDate="2018-07-23T14:41:23.233" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23861" PostTypeId="1" AcceptedAnswerId="23868" CreationDate="2018-07-23T14:32:53.163" Score="4" ViewCount="77" Body="&lt;p&gt;There is a sample of $n$ observations, each element has a numeric $Y$ and $X$ characteristic. There is an OLS regression over the sample&#xA;$$&#xA;Y = b_0 + b_1 X + \textbf{u},&#xA;$$&#xA;$\textbf{u}$ being the vector of residuals. Suppose we remove observation $i$ from the sample, restricting it to $n-1$ observations, and run an OLS regression again, yielding&#xA;$$&#xA;Y_{-i} = b_0' + b_1' X_{-i} + \textbf{u}'.&#xA;$$&#xA;Subscript $_{-i}$ denotes that $Y$ and $X$ are not the same vectors as before, as observation $i$ is missing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Seems to me that if the observation $i$ we removed is on the original sample's 'regression line', that is if&#xA;$$&#xA;Y_i = b_0 + b_1 X_i,&#xA;$$&#xA;then $b_0 = b_0'$ and $b_1 = b_1'$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Example: (in R code)&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;x = c(5,3,4,5,4,4)&#xA;y = c(20,15,14,21,10,25)&#xA;&#xA;plot(x,y)&#xA;abline(coef(reg))&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/7Rg1G.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/7Rg1G.png&quot; alt=&quot;regression line&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;plot(x[-1],y[-1])&#xA;&#xA;reg1 = lm(y[-1] ~ x[-1])&#xA;abline(coef(reg1))&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/AECl5.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/AECl5.png&quot; alt=&quot;subsample regression&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My questions are:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) Is this true, and if yes, what is the proof? &lt;br&gt;&#xA;[I figured this one out in the meantime, but feel free to give a nicer solution.]&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) Is it possible that after removing an observation (not on the 'regression line') we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;($b_0 = b_0'$ and $b_1 \neq b_1'$)  or ($b_0 \neq b_0'$ and $b_1 = b_1'$)?&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2018-07-23T15:07:13.763" LastActivityDate="2018-07-24T04:15:43.677" Title="When is an OLS parameter unchanged on a subsample?" Tags="&lt;econometrics&gt;&lt;regression&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="23863" PostTypeId="2" ParentId="23861" CreationDate="2018-07-23T15:05:33.040" Score="3" Body="&lt;p&gt;I think I figured out 1). I am still interested in 2).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;OLS sets $b_0$ and $b_1$ in such a way that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;(b_0 \ \  b_1) = \arg\min_{a_0, a_1} \sum_j \left(Y_j - a_0 - a_1 X_j\right)^2. &#xA;$$&#xA;The first order conditions are&#xA;$$&#xA;(-2)\sum_j \left(Y_j - b_0 - b_1 X_j\right) = 0 &#xA;$$&#xA;and&#xA;$$&#xA;(-2)\sum_j X_j \left(Y_j - b_0 - b_1 X_j\right) = 0.&#xA;$$&#xA;If observation $i$ is on the regression line then&#xA;$$&#xA;\begin{align*}&#xA;\left(Y_i - b_0 - b_1 X_i\right) &amp;amp; = 0 \\&#xA;\\&#xA;X_i\left(Y_i - b_0 - b_1 X_i\right) &amp;amp; = 0.&#xA;\end{align*}&#xA;$$&#xA;It follows from this and the original first order conditions that&#xA;$$&#xA;\begin{align*}&#xA;(-2)\sum_{j\neq i} \left(Y_j - b_0 - b_1 X_j\right) &amp;amp; = 0 \\&#xA;\\&#xA;(-2)\sum_{j\neq i} X_j\left(Y_j - b_0 - b_1 X_j\right) &amp;amp; = 0,&#xA;\end{align*}&#xA;$$&#xA;which are the first order conditions of the subsample's OLS problem.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2018-07-23T17:12:17.517" LastActivityDate="2018-07-23T17:12:17.517" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23864" PostTypeId="1" AcceptedAnswerId="24253" CreationDate="2018-07-23T15:54:35.213" Score="2" ViewCount="983" Body="&lt;p&gt;Field of Economics became mathematical and model based. I can grasp the appeal of the model but fail to understand why do we introduce certain assumptions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Actually I am trying to relax the assumptions of the model, Ramsey Cass Kooperman (RCK) model, just as an exercise but before I can relax them I need to know why they were significant in the first place)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, in the context of RCK model&#xA;Why does the assumption of &lt;/p&gt;&#xA;&#xA;&lt;p&gt;1.Compactness, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;2.twice continuously differentiable function, and &lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;3&quot;&gt;&#xA;&lt;li&gt;homogeneity (homothetic)  are taken. &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Why are the relevant?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know this that homogeneity produce constant returns to scale with Cobb Douglas production function and lt also implies homothetic. Why do we need homothetic functions? &lt;/p&gt;&#xA;" OwnerUserId="18929" LastEditorUserId="18929" LastEditDate="2018-08-21T18:29:50.303" LastActivityDate="2018-08-24T12:27:03.267" Title="Assumptions of Ramsey Cass Model" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="11" ContentLicense="CC BY-SA 4.0" />
  <row Id="23865" PostTypeId="1" AcceptedAnswerId="23871" CreationDate="2018-07-23T18:04:54.573" Score="0" ViewCount="353" Body="&lt;p&gt;Is there a strict division between the Keynesianism and Monetarism on the view of inflation. In other words, does the push and pull inflation only belong within a Keynesian framework and does inflation defined in term of balance between monetary base and supply of goods and services only belong within the Monetarism.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Alot of presentations of inflation are self contradictory to me and I thought this might be why. I.e that there is indeed two definitions of inflation not having anything to do with each other originally.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In particular I find it hard to distinguish between &quot;An increase in the money supply&quot; and &quot;An increase in the aggregate demand for goods and services&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On this page ; &lt;a href=&quot;https://www.investopedia.com/articles/05/012005.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.investopedia.com/articles/05/012005.asp&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The demand is governed by the existing amount of money in my opinion, i.e demand pull become secondary or a consequence of increase in money supply. Hence the &quot;definition&quot; of inflation as &quot;increase in prices&quot; seams to include two things of which we cant decide what is what.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Increase in money supply $\rightarrow$ demand pull  $\rightarrow$ prices up.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Increase in money supply $\rightarrow$ prices up.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;demand pull  $\rightarrow$ prices up. (without increase in money)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The last implication donst make sense.&lt;/p&gt;&#xA;" OwnerUserId="8383" LastEditorUserId="8383" LastEditDate="2018-07-24T08:20:02.433" LastActivityDate="2018-07-24T13:30:45.560" Title="Inflation, Monetarism and Keynesianism" Tags="&lt;macroeconomics&gt;&lt;inflation&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="23866" PostTypeId="2" ParentId="23843" CreationDate="2018-07-24T02:52:00.890" Score="0" Body="&lt;p&gt;For &lt;strong&gt;annual&lt;/strong&gt; individual-level earnings data:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;From 1962: try Current Population Survey (CPS) &lt;a href=&quot;https://cps.ipums.org/cps/intro.shtml&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://cps.ipums.org/cps/intro.shtml&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;From 2000, try American Community Survey (ACS) &lt;a href=&quot;https://usa.ipums.org/usa/acs.shtml&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://usa.ipums.org/usa/acs.shtml&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;For &lt;strong&gt;decadal&lt;/strong&gt; individual-level census data:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;From 1850: IPUMS-USA &lt;a href=&quot;https://usa.ipums.org/usa-action/faq#ques0&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://usa.ipums.org/usa-action/faq#ques0&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="10853" LastActivityDate="2018-07-24T02:52:00.890" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23868" PostTypeId="2" ParentId="23861" CreationDate="2018-07-24T04:15:43.677" Score="2" Body="&lt;p&gt;Since Q1 has been solved, I'll focus on Q2. Yes, it's possible to&#xA;remove a sample point that is not on the regression line but still&#xA;yields $b_{1}=b_{1}'$ and $b_{0}\ne b_{0}'$. Such points have the property $x_{j}=\bar{x}$,&#xA;where $\bar{x}=\frac{1}{n}\sum_{i=1}^{n}x_{i}$. These points are&#xA;known as points &lt;strong&gt;without leverage&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose $\left(x_{j},y_{j}\right)$ is a point without leverage but&#xA;not on the regression line, that is, $x_{j}=\overline{x}$ and $y_{j}\ne\overline{y}$.&#xA;We know&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{align*}&#xA;b_{1} &amp;amp; =\frac{\sum_{i}\left(x_{i}-\bar{x}\right)y_{i}}{\sum_{i}\left(x_{i}-\bar{x}\right)^{2}}\\&#xA; &amp;amp; =\frac{\sum_{-j}\left(x_{i}-\bar{x}\right)y_{i}+\left(x_{j}-\overline{x}\right)y_{j}}{\sum_{-j}\left(x_{i}-\bar{x}\right)^{2}+\left(x_{j}-\overline{x}\right)^{2}}\\&#xA; &amp;amp; =\frac{\sum_{-j}\left(x_{i}-\bar{x}\right)y_{i}}{\sum_{-j}\left(x_{i}-\bar{x}\right)^{2}}\\&#xA; &amp;amp; =\frac{\sum_{-j}\left(x_{i}-\bar{x}_{-j}\right)y_{i}}{\sum_{-j}\left(x_{i}-\bar{x}_{-j}\right)^{2}}\\&#xA; &amp;amp; =b_{1}'&#xA;\end{align*}&#xA;here we use the conditions $x_{j}-\overline{x}=0$ and $\overline{x}=\overline{x}_{-j}$.&#xA;Combined with the condition $\overline{y}\ne\overline{y}_{-j}$, we&#xA;have &#xA;\begin{align*}&#xA;b_{0}' &amp;amp; =\overline{y}_{-j}-b_{1}'\overline{x}_{-j}\\&#xA; &amp;amp; \ne\overline{y}-b_{1}\overline{x}\\&#xA; &amp;amp; =b_{0}&#xA;\end{align*}&lt;/p&gt;&#xA;" OwnerUserId="10853" LastActivityDate="2018-07-24T04:15:43.677" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23869" PostTypeId="1" AcceptedAnswerId="30833" CreationDate="2018-07-24T07:38:23.163" Score="2" ViewCount="68" Body="&lt;p&gt;Today, the world's reserve currency is USD. At the start of the 20th century, the reserve currency was the British Pound GBP. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Using U.S as an example to narrow the scope, what are the advantages and disadvantages Americans face with the USD being the reserve currency today? &lt;/p&gt;&#xA;" OwnerUserId="6172" LastActivityDate="2019-09-11T01:01:38.817" Title="What are the advantages and disadvantages to a country's people when the national currency is the world's reserve currency?" Tags="&lt;currency&gt;&lt;united-states&gt;" AnswerCount="1" CommentCount="1" ClosedDate="2019-09-26T06:19:58.260" ContentLicense="CC BY-SA 4.0" />
  <row Id="23871" PostTypeId="2" ParentId="23865" CreationDate="2018-07-24T13:25:33.647" Score="4" Body="&lt;p&gt;I thick you should return to some book about history of economic theories usch as &lt;a href=&quot;https://rads.stackoverflow.com/amzn/click/1845422082&quot; rel=&quot;nofollow noreferrer&quot;&gt;&quot;Modern Macroeconomics: Its Origins, Development and Current State&quot;&lt;/a&gt; . Center of focus in Keynesianism/Monetarism debates was about the power of monetary/fiscal policy for combating recession.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Monetarists won and showed that monetary policy is effective at least when there is no ground for liquidity trap. Monetarists also believe that &quot;transmission mechanisms&quot; of monetary policy are more much broader than what Keynesian interest rate-investment mechanism ascertains. thus Monetarists as well as Keynesians accept that printing money will increase aggregate demand but through much more broader channels.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I should say that distinction between demand-pull inflation and cost-push inflation is a little tricky, because in real world (rather than in our DSGE models which are designed based on equilibrium paradigm) when central bank prints money excessively,  demand increment in  different markets will take place in a gradual manner and inflation transmits from one market to other markets step by step. According to this fact, one who just observe the input price increment in some markets, may think that there should be a cost-push inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Pure cost-push inflations are mainly rooted in real shocks (namely supply shocks) rather than nominal shocks (namely demand shocks). For example droughts, wars and oil price shocks  can make pure cost-push inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally I should say that monetary policy may be able to dampen nominal (demand) shocks, but there are &lt;a href=&quot;https://www.bostonfed.org/news-and-events/speeches/a-look-inside-a-key-economic-debate-how-should-monetary-policy-respond-to-price-increases-driven-by-supply-shocks.aspx&quot; rel=&quot;nofollow noreferrer&quot;&gt;some economists&lt;/a&gt; who argue that monetary policy should not harshly respond to supply shocks . Unfortunately in real world central banks hardly can find out whether a price increment is due to supply shocks or demand shocks.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Monetary policy is much more complicated than what Taylor Rule suggests. &lt;/p&gt;&#xA;" OwnerUserId="18937" LastEditorUserId="18937" LastEditDate="2018-07-24T13:30:45.560" LastActivityDate="2018-07-24T13:30:45.560" CommentCount="7" ContentLicense="CC BY-SA 4.0" />
  <row Id="23872" PostTypeId="1" CreationDate="2018-07-24T14:36:57.457" Score="0" ViewCount="124" Body="&lt;p&gt;Provided the network infrastructure costs the same for the seller (if things going on with net neutrality weren't to effect that), certainly considering the fact that an average citizen of a given &quot;low average $ income&quot; country would have less money available for digital products than say someone from Germany or U.S.A.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What are the mechanisms that justify large price differences between different countries (3x ratios or more) ?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit: Thanks for your answers.&#xA;As real life examples, what struck me is any app here &lt;a href=&quot;https://steamdb.info/apps/&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://steamdb.info/apps/&lt;/a&gt; but as you suggested it applies for various digital goods on amazon and other sellers.&lt;/p&gt;&#xA;" OwnerUserId="18938" LastEditorUserId="18938" LastEditDate="2018-07-26T13:06:34.973" LastActivityDate="2018-07-26T13:06:34.973" Title="Does only &quot;supply/demand&quot; rule justify different prices for a digital good?" Tags="&lt;currency&gt;" AnswerCount="3" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="23873" PostTypeId="2" ParentId="23824" CreationDate="2018-07-24T16:51:37.347" Score="3" Body="&lt;p&gt;No, there is no mechanism or force that prevents the USA's (current/former) trading partners from cooperating amongst themselves to ramp-up trade amongst themselves to compensate for reduced trading with the USA.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And the USA offers very few goods or services that couldn't be substituted with goods or services from elsewhere: but note that supply chains don't grow overnight - it takes time and investment to expand supply chains outside the USA.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And as Adam Bailey notes in the comments, countries generally tend to trade more with those closest to them. To replace that trade, with trade with more distant countries, means higher transport costs, longer transport times, and possibly larger cultural and/or linguistic differences to overcome.&lt;/p&gt;&#xA;" OwnerUserId="44" LastEditorUserId="44" LastEditDate="2018-07-27T08:01:35.907" LastActivityDate="2018-07-27T08:01:35.907" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="23875" PostTypeId="2" ParentId="23872" CreationDate="2018-07-24T18:05:14.040" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;What are the mechanisms that justify large price differences between&#xA;  different countries (3x ratios or more) ?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Absent any concrete examples where that actually occurs, I can think of some factors that might make sense of the &lt;em&gt;hypothetical&lt;/em&gt; disparities.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A government might impose &lt;em&gt;taxes/tariffs on imports&lt;/em&gt;, including digital goods. Providers of a digital good will not absorb those taxes and tariffs. Instead, providers will pass them to the consumer, especially if those providers have access to other (international and/or domestic) markets.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The level or intensity of &lt;em&gt;competition&lt;/em&gt; might vary per country. Strong competition could prompt a provider to set lower prices in economies where his market share is at risk or reduced.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the case of digital services, there might be costs associated with &lt;em&gt;customizing&lt;/em&gt; them to consumers in a foreign economy. Consider the hypothetical situation of a German company offering a digital service to consumers in Spain. Since a large sector of Spain's population only speaks Spanish, the German company might need to hire Spanish speakers for customer support. The resulting, additional cost should be reflected only in the pricing for Spain, lest the company lose market share in the other economies.&lt;/p&gt;&#xA;" OwnerUserId="18552" LastActivityDate="2018-07-24T18:05:14.040" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23877" PostTypeId="1" CreationDate="2018-07-24T19:33:11.787" Score="1" ViewCount="19" Body="&lt;p&gt;Is there a statistic that describes the “churn” in the unemployment rate i.e. how many became unemployed compared to how many found work? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I’ve heard of unemployment volatility (&lt;a href=&quot;https://www.emeraldinsight.com/doi/abs/10.1108/03068291211224937&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.emeraldinsight.com/doi/abs/10.1108/03068291211224937&lt;/a&gt;) but never could find any stat for it in the U.S.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a better idea of what I’m talking about, here is an article written about it in India: &lt;a href=&quot;https://www.cmie.com/kommon/bin/sr.php?kall=warticle&amp;amp;dt=2017-10-31%2009:43:08&amp;amp;msec=273&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.cmie.com/kommon/bin/sr.php?kall=warticle&amp;amp;dt=2017-10-31%2009:43:08&amp;amp;msec=273&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does the BoLS track this metric?&lt;/p&gt;&#xA;" OwnerUserId="15955" LastActivityDate="2018-07-24T21:42:49.803" Title="Unemployment Rate Volatility" Tags="&lt;labor-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23878" PostTypeId="2" ParentId="23872" CreationDate="2018-07-24T20:11:06.067" Score="4" Body="&lt;p&gt;One explanation would be &lt;strong&gt;price discrimination&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some people are willing to pay more for software than others. (Typically, we would expect such people to live in richer countries.) As a result, it will be in the interest of software seller with monopoly power to charge different people different prices.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In case this isn't clear, here is an illustrative example. Suppose that Microsoft is deciding how much to charge users for a digital copy of Microsoft Office. Legally, it is the only entity that is permitted to sell Office, so it has some monopoly power. Since we are considering digital copies of Office, its marginal cost will be essentially zero. Suppose that:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;In Country A, all inhabitants would pay at most £10 for one copy of Office.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;In Country B, all inhabitants would pay at most £200 for one copy of Office.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;(Assume that no inhabitant wants more than one copy.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What prices should Microsoft charge (to maximise profits)? Obviously, it should charge £10 in Country A (or £9.99 if you prefer) and £200 in Country B. Thus, even though the cost of production are the same in both countries, prices will vary greatly between them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that this explanation only works if Microsoft can prevent resale - which it can, since it has a patent for Microsoft Office. Otherwise, someone might start buying copies of Office in Country A and re-selling them in Country B, a strategy which will render Microsoft bankrupt unless it changes its pricing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course, it also assumes that price discrimination is legal.&lt;/p&gt;&#xA;" OwnerDisplayName="user17900" LastActivityDate="2018-07-24T20:11:06.067" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23879" PostTypeId="2" ParentId="23877" CreationDate="2018-07-24T21:42:49.803" Score="2" Body="&lt;p&gt;The U.S. Bureau of Labor Statistics (BLS rather than BoLS) publishes the results of its &lt;a href=&quot;https://www.bls.gov/jlt/home.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;Job Openings and Labor Turnover Survey&lt;/a&gt; (JOLTS)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, its &lt;a href=&quot;https://www.bls.gov/news.release/jolts.nr0.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;summary news release&lt;/a&gt; for May 2018, published on July 10, started with:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The number of job openings edged down to 6.6 million on the last business day of May, the U.S. Bureau &#xA;  of Labor Statistics reported today. Over the month, hires and separations were little changed at 5.8 &#xA;  million and 5.5 million, respectively. Within separations, the quits rate and the layoffs and discharges &#xA;  rate were little changed at 2.4 percent and 1.1 percent, respectively. This release includes estimates of &#xA;  the number and rate of job openings, hires, and separations for the nonfarm sector by industry and by &#xA;  four geographic regions.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2018-07-24T21:42:49.803" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23880" PostTypeId="1" CreationDate="2018-07-24T22:56:24.530" Score="0" ViewCount="55" Body="&lt;p&gt;What is the common definition for economic richness of a person?&#xA;When can you say John Doe (hypothetical name) is rich (objectively)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Strictly economically speaking, no philosophical debate.&lt;/p&gt;&#xA;" OwnerUserId="8870" LastActivityDate="2018-07-25T00:17:20.603" Title="When can a person be called rich?" Tags="&lt;definition&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="23881" PostTypeId="2" ParentId="23880" CreationDate="2018-07-25T00:10:11.373" Score="3" Body="&lt;p&gt;There is no commonly-accepted definition. Different countries and different organizations within a country will have different definitions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, the African Development Bank &lt;a href=&quot;https://www.afdb.org/fileadmin/uploads/afdb/Documents/Publications/The%20Middle%20of%20the%20Pyramid_The%20Middle%20of%20the%20Pyramid.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;defines&lt;/a&gt; the rich to be those with &quot;per capita consumption levels&quot; of &gt;\$20 per day (2005 PPP).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That would be around or below the poverty line in most developed countries. For example, the &lt;a href=&quot;https://www.healthcare.gov/glossary/federal-poverty-level-fpl/&quot; rel=&quot;nofollow noreferrer&quot;&gt;2018 US federal poverty line&lt;/a&gt; for an individual is \$12,140 per annum or \$33.26 per day.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastEditorDisplayName="user18" LastEditDate="2018-07-25T00:17:20.603" LastActivityDate="2018-07-25T00:17:20.603" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="23882" PostTypeId="2" ParentId="23794" CreationDate="2018-07-25T07:37:16.630" Score="0" Body="&lt;p&gt;Based on @Acccumulation 's answer, I try to put the reason, why BA should be played at least $\frac{1}{3}$ of the time, in other words. If Colin would not cooperate, he could always play Colin A because Colin A dominates Colin B. Therefore, he was granted a payoff of $6$ for sure. Now, consider the cooperation cases AB and BA: For AB, Colin would get a payoff of $5$, whereas he would get a payoff of $8$ for BA. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question now is: How large should the ratio of playing BA at least be in order to guarantee Colin to cooperate by playing a mixture of AB and BA and not to play only Colin A?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To answer this, put this into a formula by determining $x$ as the minimum occurrence of BA with payoff $8$ for Colin and $1-x$ as the remaining occurrence of AB with payoff $5$. Remember that $6$ is the minimum payoff Colin would get if he played only the dominant strategy Colin A: &#xA;$$x\cdot 8+(1-x)\cdot5 \geq 6$$&#xA;$$3\cdot x+5 \geq 6$$&#xA;$$x \geq \frac{1}{3}$$&#xA;Thus, BA should be played at least $\frac{1}{3}$ of the time to motivate Colin to cooperate.&lt;/p&gt;&#xA;" OwnerUserId="18885" LastActivityDate="2018-07-25T07:37:16.630" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23883" PostTypeId="2" ParentId="22107" CreationDate="2018-07-25T08:42:40.700" Score="0" Body="&lt;p&gt;Actually the reason is simple: the return value of the Turkish lira is so lower that investors and individuals don't want to hold it in their accounts. But why is it so? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;First of all, the CBRT doesn't follow the traditional monetary policy theory. Artificially lower interest rate is still in force, and there is not much sign that the CBRT will return to sufficiently tighter policy sooner. Interest rate should have been set around 35-40% while it is still being kept around 20%. An episode resembling to that of today had happened in 1994 during which Tansu Çiller was the prime minister, who was just another conservative political leader, and thanks to the right contractionary policy followed by the CBRT at that period depreciation of the Turkish lira was bearable in 1994. Today the CBRT just doesn't follow what it is supposed to do.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Monetary policy is not the real answer, of course. Even if the CBRT starts to do its job properly, without the necessary structural reforms the Turkish economy will continue to suffer from unstable growth rates and weak innovation capacity. AKP and Erdogan have proven themselves as unable to complete these reforms, in fact they have even revoked many crucial economic reforms made before. IMF has had prepared a nearly excellent guide for Turkey about how to conduct structural reforms, and for unknown reasons AKP smoothly followed this guide in its first 5 years. Today Turkey is in an urgency to get together with IMF again and prepare a new set of economic reform plans. I guess that this will happen sooner than many expect.&lt;/p&gt;&#xA;" OwnerUserId="8397" LastActivityDate="2018-07-25T08:42:40.700" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="23886" PostTypeId="1" CreationDate="2018-07-25T17:39:43.403" Score="1" ViewCount="43" Body="&lt;p&gt;Quadratic voting approximates efficiency for a large collective making a sequence of binary decisions. What if a group can take multiple actions? Say, for example, a series of decisions where 2 out of 5 outcomes can be chosen each time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'd like to know if anything about the efficiency of quadratic voting is known in such situations. Does it depend on if non-winning choices can occur in later decisions? Also, what if different decisions use differing amounts of a finite resource that must be apportioned?&lt;/p&gt;&#xA;" OwnerUserId="18951" LastEditorUserId="1601" LastEditDate="2018-07-25T19:44:46.340" LastActivityDate="2018-07-25T19:44:46.340" Title="Is quadratic voting efficient in multiple winner elections?" Tags="&lt;mechanism-design&gt;&lt;social-choice&gt;&lt;voting&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23887" PostTypeId="1" AcceptedAnswerId="23888" CreationDate="2018-07-25T19:24:32.947" Score="-2" ViewCount="159" Body="&lt;p&gt;Why do &lt;strong&gt;ONLY&lt;/strong&gt; &lt;strong&gt;Indian&lt;/strong&gt; staffing/&quot;consulting&quot; bodyshop agencies flood the US job market, and why do they flood &lt;strong&gt;ONLY&lt;/strong&gt; the US?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is definitely not just &quot;Well, many Indians have at least somewhat understandable English.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why do Russian or Chinese bodyshops not flood the US? There are tons of English speakers there.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are tons of quite competent German and French speakers in Russia and Eastern Europe, but they do not make unsolicited calls to job seekers in Germany and France, to tell them about &quot;an urgent position with their client.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why do &lt;strong&gt;Indian&lt;/strong&gt; bodyshops not flood the UK, Germany, France, the Scandinavian countries?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is so unique in this combination of the US job market and &lt;strong&gt;India&lt;/strong&gt; that makes this phenomenon persist?&lt;/p&gt;&#xA;" OwnerUserId="13244" LastEditorUserId="13244" LastEditDate="2018-07-25T20:03:28.120" LastActivityDate="2018-07-25T23:07:58.580" Title="Why do ONLY Indian staffing/&quot;consulting&quot; bodyshops flood the US job market?" Tags="&lt;financial-markets&gt;" AnswerCount="1" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="23888" PostTypeId="2" ParentId="23887" CreationDate="2018-07-25T21:22:35.643" Score="0" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Why do Indian bodyshops not flood the UK, Germany, France, the&#xA;  Scandinavian countries?&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;What is so unique in this combination of the US job market and India&#xA;  that makes this phenomenon persist?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;You touch on a worsening problem that apparently very few people have noticed, and which merits scrutiny. The least harmful effect intermediaries --from India and elsewhere-- cause is the &lt;em&gt;false and misleading impression&lt;/em&gt; that jobs (as reflected in labor statistics) are being &quot;created&quot;. Indian intermediaries abound in Canada as well, and they are not unheard of in Europe. But whether or not these agencies originate from India is irrelevant to the actual waste of time (and energy) their fake &quot;screening processes&quot; cause to candidates.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem is not just the mere flooding of so-called &quot;consulting&quot; agencies, but also --and more important-- that they usually post job advertisements that don't exist. That is why these agencies hardly ever provide any specifics about the alleged project or job position for which they approach the candidate.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;There are tons of quite competent German and French speakers in Russia&#xA;  and Eastern Europe, but they do not make unsolicited calls to job&#xA;  seekers in Germany and France, to tell them about &quot;an urgent position&#xA;  with their client.&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Non-Indian intermediaries and fake ads about &quot;an urgent position&quot; are rampant also in Europe. For instance, it is common for &quot;positions&quot; allegedly located in continental Europe to be advertised and screened by agencies located in the UK. In and of itself, that combination is not an unequivocal indicative of being a fake ad. However, the idea that employers in continental Europe would skip the multitude of nearby intermediaries and approach an unknown &quot;recruiter&quot; from far away is bizarre.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My experience with intermediaries from Europe is that they often try to gather information from the candidate as to where else he has recently applied, what those other projects/positions consist of, and so forth. That is the intermediaries' attempt to figure out what customer(s) to approach and offer staffing services.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Edited to add ...&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One possible reason behind the combination you mention (US job market and Indian agencies) might be an intent to abuse the U.S. visa &amp;amp; immigration system. For years I have been hearing about Indian recruiters (for instance, &lt;a href=&quot;https://www.firstpost.com/business/high-stakes-for-infosys-as-visa-fraud-case-trial-begins-next-week-417132.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Infosys&lt;/a&gt;) being investigated/charged for visa fraud.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To sponsor a foreigner for a work visa and/or an employment-based [U.S.] green card, the sponsoring agency/employer needs to prove to the Department of Labor that there are no qualified candidates in the U.S. market to fill a position.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By posting advertisements and/or conducting unsolicited interviews such as the one you found on Quora, the Indian agency might be trying to fabricate evidence that its efforts to find qualified, [U.S.] domestic candidates were fruitless. But this is just my conjecture as I revisit your inquiry. Only an investigator or an honest insider could speak with certainty about this issue.&lt;/p&gt;&#xA;" OwnerUserId="18552" LastEditorUserId="18552" LastEditDate="2018-07-25T23:07:58.580" LastActivityDate="2018-07-25T23:07:58.580" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="23889" PostTypeId="2" ParentId="23872" CreationDate="2018-07-25T22:12:40.710" Score="0" Body="&lt;p&gt;I bring a real example for this topic.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is a e-book called &quot;Open Economy Macroeconomics in Developing Countries (The MIT Press)&quot;. I searched it in amazon.es (Spanish Amazon site) and in amazon.com.br (Brazilian Amazon site). These were the results:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.amazon.es/Economy-Macroeconomics-Developing-Countries-Press-ebook/dp/B00G4J2EPA&quot; rel=&quot;nofollow noreferrer&quot;&gt;Price in Spain&lt;/a&gt;: 47.99€. &#xA;&lt;a href=&quot;https://rads.stackoverflow.com/amzn/click/B00G4J2EPA&quot; rel=&quot;nofollow noreferrer&quot;&gt;Price in Brazil&lt;/a&gt;: 405,31R$ (96.66€ at the time of writing this post).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As we can see, Brazilian people are paying about the &lt;strong&gt;double&lt;/strong&gt; of the price which Spanish people are paying. How can we explain this if this is a digital product with no extra cost per sale?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) Brazilian taxes are higher than Spanish taxes. So here the buyers will pay the difference.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) The Brazilian Real (currency of Brazil) is a bit volatile, so the seller wants to protect himself against a sudden devaluation of Brazilian Real. So here the buyers will pay this kind of insurance too.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we add 1 (higher taxes) and 2 (insurance against potential devaluation) we probably have the difference between Brazilian and Spanish prices for the same digital product.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, this example is not that &quot;simple&quot;. If we pay attention, there is the possibility for Spanish buyers to buy the paper-edition of the book (103.51€), but not for Brazilian ones. This could be the third (3) reason of the difference we see between prices. In addition to reason 1 and reason 2, we could add reason 3: Brazilian customers can only buy this product in its digital version, so the seller expects them to be willing to pay more for the same (digital) product since there is no paper-edition alternative (as there is in Spanish case).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So finally, 1 + 2 + 3 could explain the huge difference between the two prices for the same digital product.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In each new example it can be different, but those reasons could explain many other examples.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT: For some reason it does not allow me to link the Brazilian site properly. Anyway, you can just check it at amazon.com.br&lt;/p&gt;&#xA;" OwnerUserId="18953" LastEditorUserId="18953" LastEditDate="2018-07-25T22:18:07.847" LastActivityDate="2018-07-25T22:18:07.847" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23893" PostTypeId="2" ParentId="9038" CreationDate="2018-07-26T13:06:07.357" Score="0" Body="&lt;p&gt;If I understand your question...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This would be something best handled by closely looking at your residuals. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your unobserved variation is the single most important statistical insight when it comes to accurate empirical examination. I could almost guarantee you're dealing with serial correlation, some simultaneity issues, and possibly multicollinearity. These issues are generally best tackled through autoregressive vector specifications to avoid the issues of causality. &lt;/p&gt;&#xA;" OwnerUserId="15847" LastActivityDate="2018-07-26T13:06:07.357" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23896" PostTypeId="2" ParentId="22107" CreationDate="2018-07-27T07:30:17.107" Score="2" Body="&lt;p&gt;In a short word, it's &quot;Uncertainty&quot;, uncertainty about the future. &#xA;Investors don't like that.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Investors like poltical stability, tend to favour democracies (not always) where there's rule of law. This is essential for certainty that their investments will stay theirs, and not suddenly nationalised or something else. Another type of statbility is price stability. Both type of stabilities may play complementary roles, since soaring inflation can cause social and political unrest, or vice-versa, political unrest causes domestic currency to slide, leading to price inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;After this last election, at least two factors were instrumental to this increasing of uncertainty: soaring inflation, and the Turkish Central Bank failing to raise interest rates, despite the inflation being 3 times the official target. The second factor Erdogan is not exactly a stable democratic guy... With this last election, he gets increased powers, due to a recent change in the constitution, and he also promised to exert more pressure over monetary policy, which may explain why the TCB hasn't increased rates, and also he put his Son-in-Law as Finance Minister. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A third factor which definitely doesn't help is that markets have changed their feeling towards emerging markets, due to the strong dollar (rates have been rising), and the impending trade war, with the slowing of the chinese economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How can we expect the markets not to react to this?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;References: Several articles of the Financial Times, among which &lt;a href=&quot;https://www.ft.com/content/5f389ec8-8f23-11e8-bb8f-a6a2f7bca546&quot; rel=&quot;nofollow noreferrer&quot;&gt;Turkish lira tumbles after central bank keeps interest rates steady&lt;/a&gt;, &lt;a href=&quot;https://www.ft.com/content/c114d1ca-90d6-11e8-b639-7680cedcc421&quot; rel=&quot;nofollow noreferrer&quot;&gt;Sliding lira sets off alarms bells for Turkey’s businesses&lt;/a&gt;, &lt;a href=&quot;https://www.ft.com/content/e2354d1e-7aea-11e8-bc55-50daf11b720d&quot; rel=&quot;nofollow noreferrer&quot;&gt;Strong dollar leaves emerging markets on edge for rest of 2018&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="118" LastEditDate="2018-07-27T07:40:24.250" LastActivityDate="2018-07-27T07:40:24.250" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="23898" PostTypeId="2" ParentId="22572" CreationDate="2018-07-27T13:34:21.087" Score="1" Body="&lt;p&gt;Here Marx (if it is indeed him; I couldn't find a link independent from yavanika.org) is criticising what he calls &quot;political economy&quot;, ie, the thought current that sought to explain scientifically the internal workings of capitalist economies - Smith, Ricardo, Sismondi, Malthus, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And his criticism is that &quot;political economy&quot; takes the division between capital and labour (or capital, labour, and land) as granted, as if it was a fact of nature, and not a historical construct, by no means implied in the &quot;nature of things&quot;.&lt;/p&gt;&#xA;" OwnerUserId="15747" LastActivityDate="2018-07-27T13:34:21.087" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23899" PostTypeId="1" AcceptedAnswerId="23906" CreationDate="2018-07-27T17:37:14.127" Score="1" ViewCount="364" Body="&lt;p&gt;I am having troubles in solving correctly the following problem:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A company wants to minimize its total costs, on the condition that the income obtained from the sale of the quantities $x_1, x_2$ of the two products it produces exceed a certain minimum threshold. Knowing that the unit costs of manufacturing each good are linear functions of the produced outputs in the form $C_1 = x_1, C_2 = 2x_2$, that everything that is produced is sold and that the sale prices of the products are: $p_1 = 1$ and $p_2 = 3$, respectively. Determine the quantities $x_1, x_2$ that minimize the cost of the process.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Solution:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$x_1 = 6/11$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$x_2 = 9/11$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\lambda = -12/11$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$TotalCost(x_1,x_2) = 18/11$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I tried to solve it through the common way: using Lagrange function with Kuhn-Tucker conditions. However, I cannot reach the correct solution, despite I tried several times. I think I am not building Lagrange function correctly as a consequence of not understanding properly the economical meaning of what the problem want me to solve.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So I would be really greateful if you can help me to understand how to reach the correct solution to &lt;strong&gt;this specific problem&lt;/strong&gt;, knowing that clarifying &lt;strong&gt;how to build Lagrange function and its restrictions&lt;/strong&gt; is probably what it is needed here to fully understand the problem and its solution.&lt;/p&gt;&#xA;" OwnerUserId="18953" LastActivityDate="2018-07-28T11:29:05.610" Title="Difficulty in an economics' optimization problem using Kuhn-Tucker conditions (interpretation difficulty)" Tags="&lt;optimization&gt;" AnswerCount="2" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="23900" PostTypeId="1" CreationDate="2018-07-27T18:42:36.747" Score="0" ViewCount="67" Body="&lt;p&gt;I'm reading Ray Dalio's &quot;An In-Depth Look at Deleveragings&quot;, and at one point he's talking about central banks providing liquidity and credit support, and he states: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;This produces relief and, if done in the right amounts, allows a&#xA;  deleveraging to occur with positive growth. The right amounts are&#xA;  those that a) neutralize what would otherwise be a deflationary credit&#xA;  market collapse and &lt;strong&gt;b) get the nominal growth rate marginally above&#xA;  the interest rate to tolerably spread out the deleveraging process.&quot;&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I'm not sure I understand point &lt;strong&gt;b&lt;/strong&gt; here. Could someone explain the interplay between nominal growth rate and nominal interest rate, and how they affect the deleveraging process?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks!&lt;/p&gt;&#xA;" OwnerUserId="18804" LastActivityDate="2018-08-27T16:00:44.863" Title="Nominal Growth rate above Nominal Interest Rate" Tags="&lt;economic-growth&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23901" PostTypeId="1" CreationDate="2018-07-28T02:00:34.940" Score="3" ViewCount="58" Body="&lt;p&gt;At least as from Edgeworth and Pareto we think about utility in mathematical terms. My question twofold &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(i)  about the start of the usage of binary relations to model preferences in economics, and hence the start of the axiomatic utility representation exercise. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(ii) about the start of usage of the symbol $\succsim$ to represent weak preference. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;About (i) the earlier reference I could find is Wold's (1943): &quot;A synthesis of pure demand analysis I-III&quot; pioneering work on utility representation; and about (ii) is Herstein and Milnor (1953): &quot;An axiomatic approach to measurable utility&quot; work on expected utility.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does anyone know about earlier uses??&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ant further comments, references or ideas are most welcome.&lt;/p&gt;&#xA;" OwnerUserId="10166" LastActivityDate="2019-04-19T12:45:42.230" Title="The use of preference relations in choice theory and the $\succsim$ symbol" Tags="&lt;reference-request&gt;&lt;utility&gt;&lt;preferences&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23905" PostTypeId="2" ParentId="23899" CreationDate="2018-07-28T11:09:58.743" Score="1" Body="&lt;p&gt;The OP clarified in a comment that a) &quot;income&quot; here means &quot;revenues&quot; and not &quot;profit&quot; (it is not always the case), and b) that Karush-Kuhn-Tucker multipliers work just fine if we define them to be non-positive instead of non-negative (they do, but it is not a widely known fact).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The other bad terminology in the statement of the problem is the &quot;unit cost&quot; one -it is really meant &quot;marginal cost&quot;. So we have to obtain the Total Cost function from its partial derivatives. This is easy to do since we see that the cross-partial is zero.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So if &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\partial TC}{\partial x_1} = x_1,\;\;  \frac {\partial TC}{\partial x_2} = 2x_2$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;it follows that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$TC = \frac 12 x_1^2 + x_2^2 + FC,\;\;\;FC\geq 0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and we want to minimize it subject to the constraint $p_1x_1 + p_2x_2 \geq \bar R$.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;PS: It appears that the revenue floor is $3$?&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2018-07-28T11:09:58.743" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="23906" PostTypeId="2" ParentId="23899" CreationDate="2018-07-28T11:29:05.610" Score="0" Body="&lt;p&gt;The way to solve it is by defining it as a maximization problem. Here is a brief explanation of the scan.&#xA;&lt;a href=&quot;https://i.stack.imgur.com/Bc632.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Bc632.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&#xA;1. Formulate the original problem, with $k$ denoting the income (or profit) threshold.&lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;2&quot;&gt;&#xA;&lt;li&gt;&lt;p&gt;Express it as a maximization problem ($min(f) = - max(-f) $). I also re-stated the income (or profit) condition, although that might be unnecessary after all (see below).&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Formulate the lagrangian.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Get the partial derivatives of the lagrangian.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Equate the derivatives to zero and solve for $x_1$ and $x_2$.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The previous step leads to $x_1=2x_2 / 3$.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Substitute $x_1$ and $x_2$ in the income (or profit) condition.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The previous step leads to optimal $x_1$ and $x_2$.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Substitute optimal $x_1$ and $x_2$ in the original problem.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;It appears that the problem uses $k=3$ as the minimum threshold for income (or profit), since that threshold gives $TotalCost=18/11$, $x_1=6/11$, and $x_2=9/11$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm unsure how to make sense of negative λ, but (positive) $12/11$ stems from the condition (in step 5) $2x_1=λ$.&lt;/p&gt;&#xA;" OwnerUserId="18552" LastActivityDate="2018-07-28T11:29:05.610" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="23907" PostTypeId="2" ParentId="23900" CreationDate="2018-07-28T12:08:59.970" Score="0" Body="&lt;p&gt;&lt;strong&gt;b) get the nominal growth rate marginally above the interest rate to tolerably spread out the deleveraging process.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I will share what I understood with you. Maybe someone can clarify if I am right or not.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If nominal growth rate &gt; interest rate it means (since it says &quot;marginally&quot;) it will help people to gradually deleverage theirselves, since while they are growing, the interests do not grow in the same proportion (but lower). The potential consequence is an elimination of debt (deleverage) in the long term.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Maybe it helps.&lt;/p&gt;&#xA;" OwnerUserId="18953" LastEditorUserId="18953" LastEditDate="2018-07-28T15:02:03.370" LastActivityDate="2018-07-28T15:02:03.370" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23908" PostTypeId="2" ParentId="23900" CreationDate="2018-07-28T12:20:40.753" Score="1" Body="&lt;p&gt;I have not read the text in question (other than the quote), but I would guess that his logic runs as follows. If we are discussing the government, one common analytical concept is the primary fiscal balance - the fiscal deficit excluding interest payments. If the primary fiscal balance is zero, the change in government debt will equal interest costs. The assumption is that a primary balance of zero is in some sense neutral (that assumption could be questioned), nominal debt levels will grow at the nominal rate of interest (since the government needs to borrow to cover the interest payment).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we then look at the debt/GDP ratio, we see that is the nominal interest rate is the same as the nominal growth rate of GDP, the ratio will be unchanged under that circumstance. However, if the nominal interest rate is less than nominal GDP, the ratio would fall.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, it is unclear to me why growth rates being “marginally above”interest rates makes anything other than a marginal difference. That might be better explained elsewhere in his text.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is a literature on the concept of &lt;em&gt;fiscal sustainability&lt;/em&gt;, where the relationship between growth rates and interest rates is covered in nore depth. Trying to summarise that theory appears to be beyond the scope of this particular question, but that is a key word you could use to search for more details.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2018-07-28T12:20:40.753" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23909" PostTypeId="1" CreationDate="2018-07-29T03:21:13.080" Score="3" ViewCount="228" Body="&lt;p&gt;Say you have an asset that produces for you £1k per year profit (adjusted for inflation) at a constant rate? (The proverbial immortal goose that lays golden eggs).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Logic would say it's potential is infinite. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But for an individual of age 30 it is only worth up to £50k in their lifetime. And they may care less about what happens to it after they die. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But to a company who buys it, companies can live essentially forever.&lt;/p&gt;&#xA;" OwnerUserId="18968" LastActivityDate="2018-07-29T23:43:34.767" Title="How much is an asset worth that produces a constant income?" Tags="&lt;value&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="23911" PostTypeId="2" ParentId="23909" CreationDate="2018-07-29T07:15:48.540" Score="7" Body="&lt;p&gt;An asset that gives you a constant sum of nominal income every year is called a &lt;a href=&quot;https://en.wikipedia.org/wiki/Perpetuity&quot; rel=&quot;nofollow noreferrer&quot;&gt;perpetuity&lt;/a&gt;. (The UK government used to issue such a product and called it a &lt;a href=&quot;https://en.wikipedia.org/wiki/Consol_(bond)&quot; rel=&quot;nofollow noreferrer&quot;&gt;consol&lt;/a&gt;.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Everyone &quot;knows&quot; that £1,000 received next year is worth less than £1,000 received this year. But how much less?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To try to formalize this notion, economists use the concepts of &lt;strong&gt;discount rate&lt;/strong&gt; and &lt;strong&gt;present value&lt;/strong&gt;. The discount rate is the rate at which you discount future returns.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If for example your discount rate is $5\%$, then this means you treat £1,000 received next year as equivalent to £950 received this year. (And an economist would say that the present value of £1,000 received next year is £950.) &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;We can now answer your specific numerical question:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;For simplicity, suppose your discount rate is fixed as $\delta$.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Then the present value of this asset is: $$1000+(1 -\delta)1000+(1 -\delta)^21000+\dots = \frac{1000}{\delta}.$$&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;More generally, suppose your discount rate each year is $\delta_t$ ($t=0,1,2,\dots$).&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Then the present value of this asset is: $$1000+(1 -\delta_1)1000+(1 -\delta_1)(1 -\delta_2)1000+\dots.$$&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;The brief discussion above is usually covered in greater depth in a course on Intermediate Microeconomics. See e.g. &lt;a href=&quot;https://rads.stackoverflow.com/amzn/click/0393919676&quot; rel=&quot;nofollow noreferrer&quot;&gt;Varian&lt;/a&gt; (2014, 9e) Ch. 10.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastEditorDisplayName="user18" LastEditDate="2018-07-29T23:43:34.767" LastActivityDate="2018-07-29T23:43:34.767" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="23913" PostTypeId="1" CreationDate="2018-07-29T17:47:11.833" Score="1" ViewCount="249" Body="&lt;p&gt;I am reading the famous paper of &lt;a href=&quot;http://piketty.pse.ens.fr/files/Blanchard1985.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Blanchard,1985&lt;/a&gt;. There are some fundamental stuff that I did not really get. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) Why they call it &quot;perpetual youth&quot;?&#xA;2) On page 225, he mentions the cohort size. So, for example does it mean that there are &quot;x&quot; numbers of individual of age 20. But this number x declines when the time goes to infinity? Does it mean that at a given date $t$, there are people with age between $0$ and $\infty$ ?&lt;/p&gt;&#xA;" OwnerUserId="2938" LastEditorUserId="2938" LastEditDate="2018-07-29T18:12:13.200" LastActivityDate="2018-07-30T14:19:57.527" Title="Perpetual Youth Model" Tags="&lt;macroeconomics&gt;&lt;economic-growth&gt;&lt;olg&gt;&lt;representative-agent&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23914" PostTypeId="1" CreationDate="2018-07-29T18:35:54.373" Score="2" ViewCount="692" Body="&lt;p&gt;I engaged in an argument with a friend about whether takeaway food ordering apps had any 'value'. I tried to persuade him that they were rent extraction enterprises but he wasn't convinced. So I want two things here. Firstly what the weak points of my argument are and secondly how I can articulate my points better. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My position was that apps are being used to provide marginal benefits to consumers who then use them at great expense to the restaurants that actually prepare the food. However, if those that benefit from the app (hungry consumers) had to shoulder the cost incurred rather than the restaurant, they would choose not to use the app. By this I mean if the money paid by the restaurant to the app firm was added as a surcharge to the customer bill, they would pick up the phone instead of using the app. Therefore because those who enjoy the limited benefits of the app would not be willing to pay to service the app, the app has no value and is a rent seeking enterprise by a tech firm to extract money from takeaway restaurants. &lt;/p&gt;&#xA;" OwnerUserId="18975" LastActivityDate="2019-01-25T06:13:46.930" Title="Claiming that food delivery apps are purely rent extraction" Tags="&lt;technology&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="23915" PostTypeId="2" ParentId="23914" CreationDate="2018-07-30T00:26:34.813" Score="9" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;at great expense to the restaurants that actually prepare the food&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Your premise seems to be that the restaurants are somehow losing out.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The key though is that (if done right) all three parties (the app company, the restaurant, and the consumer) should benefit. The reason is that through economies of scale (delivering for multiple restaurants) and perhaps other factors, the app company is able to organize and execute the delivery at a lower cost than the restaurant would be able to.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One piece of evidence that all three parties benefit is that all three parties continue to use this arrangement.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Note that with certain countries and certain apps, the delivery app companies are actually losing money. Venture capitalists throw money at them hoping they'll end up as the &quot;winner-takes-all&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Rarely though is it the case that the consumer or the restaurant loses from this arrangement. A consumer who finds this a losing proposition can quite easily stop doing business with the app. Likewise with any restaurant.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2018-07-30T00:26:34.813" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="23917" PostTypeId="2" ParentId="23914" CreationDate="2018-07-30T03:50:18.477" Score="7" Body="&lt;p&gt;In addition to @KennyLJ 's answer, I think it's worth pointing out that your points require some pretty restrictive assumptions about the demand for food delivery. Some individuals might substitute calling and placing an order with going online, but certainly not all. Given that the app itself might encourage some people to order delivery (or take out) who would have otherwise prepared their own meals, it's very possible that both the app and the restaurant come out ahead.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Furthermore, we should consider information asymmetries, like search costs, which are reduced by the existence of the app. Before it was as simple to search for options that satisfied basic requirements, consumers might have simply reverted to &quot;trusted options&quot; (like major chains) instead of trying local options. (Note: I realize that Google still exists which reduces search costs, but I think food apps might be even more effective- apps like Grubhub allow for a more effectively constrained search based on relevant parameters, like no delivery fee or no minimum, etc.).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, it should be pointed out that many restaurants might not have offered delivery before the introduction of apps like Grubhub (which will occasionally deliver using their own network of drivers) because it wasn't profitable. Thus, these apps may substantially increase the business these outlets are able to attract.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In short, I agree with the other answer, and your friend's points- there are observable, clearly defined efficiencies that food service apps are able to provide. And while some restaurants may be hurt by them, it certainly isn't &quot;purely rent seeking.&quot;&lt;/p&gt;&#xA;" OwnerUserId="13366" LastActivityDate="2018-07-30T03:50:18.477" CommentCount="10" ContentLicense="CC BY-SA 4.0" />
  <row Id="23918" PostTypeId="1" AcceptedAnswerId="23921" CreationDate="2018-07-30T09:06:55.353" Score="0" ViewCount="67" Body="&lt;p&gt;Let's say I owe a company.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At the final state I want to be left with 1M cash for myself and 50 percent of the company.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The investor is not willing to buy shares and give me the money but only invest in the company.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I thought about selling my shares to a third person for one million cash after the first investment so I'll be left with 50% at the end and 1M.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How much percentage should I give the investor and for how much money, and how much should I sell to the third person and for how much money in order to be left with 1M and 50% of the company?&lt;/p&gt;&#xA;" OwnerUserId="11211" LastActivityDate="2019-12-22T21:02:45.360" Title="How do I calculate the amount of money I get from an investor and the percentage I give him in return?" Tags="&lt;mathematical-economics&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="23919" PostTypeId="2" ParentId="23918" CreationDate="2018-07-30T09:22:55.923" Score="0" Body="&lt;p&gt;Well basically it pretty easy to calculate:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A + B + C = X&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;A:&lt;/strong&gt;  0.25X : 25% of the company for investors&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;B:&lt;/strong&gt;  0.5X : 50% you want to be left with&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;C:&lt;/strong&gt;  1M : The price for selling to third party&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;X:&lt;/strong&gt;  The value of the company that we would like to find&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So in your case it's:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;0.25X + 0.5X + 1M = X -&gt;&#xA;0.25X = 1M -&gt; &#xA;X = 4&lt;/p&gt;&#xA;" OwnerUserId="18980" LastEditorUserId="18980" LastEditDate="2018-07-30T09:36:28.920" LastActivityDate="2018-07-30T09:36:28.920" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23921" PostTypeId="2" ParentId="23918" CreationDate="2018-07-30T13:53:31.800" Score="0" Body="&lt;p&gt;The solution is as follows:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Y : Final worth of company.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;X : Percentage of investment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Y = 1000000 + YX% + Y50%&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And the result is the following graph showing xy which is the amount the investors has to pay as a function of x which is the percentage they get.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.desmos.com/calculator/ahftzqlgop&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.desmos.com/calculator/ahftzqlgop&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="11211" LastEditorUserId="11211" LastEditDate="2018-07-30T14:34:44.260" LastActivityDate="2018-07-30T14:34:44.260" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23922" PostTypeId="2" ParentId="23913" CreationDate="2018-07-30T14:19:57.527" Score="1" Body="&lt;p&gt;I haven't read the paper in full detail (I should, it's interesting) but let me give you my interpretation of the paper's title.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Blanchard uses a constant probability of instanteneous death for each agent. As mentioned in footnote one of the paper this is most realistic as assumption for people between 20 and 40. Agents in the model therefore are like young people for their entire life, hence the title.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for your question 2, the way I read the paper yes there are many people alive of all ages. After all at each instant in time a new cohort of size p is born (and starts dieing off immediately at rate 1/p). So eventually at time is infinity that cohort will have completely passed away.&lt;/p&gt;&#xA;" OwnerUserId="12186" LastActivityDate="2018-07-30T14:19:57.527" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23924" PostTypeId="1" AcceptedAnswerId="39295" CreationDate="2018-07-30T16:30:20.480" Score="1" ViewCount="78" Body="&lt;p&gt;The US has the largest gross trade deficit with China. But some economists have argued that this is misleading, e.g. using the &lt;a href=&quot;https://www.cnbc.com/2018/06/19/trump-is-wrong-on-tariffs-and-trade-just-look-at-his-iphone.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;iPhone as an example&lt;/a&gt; in which most parts don't orginate in China. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There's actually a more academic version of this analysis called &quot;trade in value-added&quot;, which can be roughly &lt;a href=&quot;https://www.wto.org/english/res_e/booksp_e/aid4tradeglobalvalue13_e.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;summarized as&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Global imbalances: accounting for trade in value-added (specifically accounting for trade in intermediate parts and components) and taking into account “trade in tasks” does not change the overall trade balance of a country with the rest of the world – it redistributes the surpluses and deficits across partner countries. When bilateral trade balances are measured in gross terms, the deficit with final goods producers (or the surplus of exporters of final products) is exaggerated because it incorporates the value of foreign inputs. The underlying imbalance is in fact with the countries that supplied inputs to the final producer. As pressure for rebalancing increases in the context of persistent deficits, there is a risk of protectionist responses that target countries at the end of global value chains on the basis of an inaccurate perception of the origin of trade imbalances.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This does look like quite an involved method to follow for all imports though. My question for here is: with whom would the US have the largest trade imbalance if one uses the &quot;trade in value-added&quot; (possibly recursively) to track US imports to their components?&lt;/p&gt;&#xA;" OwnerUserId="6210" LastActivityDate="2020-08-19T09:34:26.483" Title="With whom does the US have the largest deficit using the trade in value-added (TiVA) methodology?" Tags="&lt;international-trade&gt;&lt;united-states&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23925" PostTypeId="2" ParentId="23924" CreationDate="2018-07-30T16:50:58.153" Score="0" Body="&lt;p&gt;Found an answer in the same WTO book, although it's for a decade ago:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;China’s bilateral trade: &#xA;  Global value chains in a changing world&#xA;  surplus with the United States was over US$ 40 billion, or 25 per cent smaller in&#xA;  value-added terms in 2009 and 30 per cent smaller in 2005. This partly reflects&#xA;  the higher share of US value-added imports in Chinese final demand but also the&#xA;  fact that a significant share (one-third) of China’s exports reflect foreign content –&#xA;  the “factory asia” phenomenon. The data illustrate that significant exports of&#xA;  value-added from the Republic of Korea and Japan pass through China on their&#xA;  way to final consumers, resulting in significantly smaller Chinese trade deficits with&#xA;  these countries but also typically higher Japanese and the Republic of Korea’s trade&#xA;  surpluses with other countries. Similarly, the database shows that the Republic of&#xA;  Korea’s significant trade deficit with Japan in gross terms almost disappears when&#xA;  measured in value-added terms.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So there's some 25% reduction for US deficit with China in 2009 when using TiVA, but it still looks like China is the most significant source of US trade deficit, even calculated this way. There's also a graph in the book from China's perspective:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/ymirc.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/ymirc.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I also found a &lt;a href=&quot;https://foreignpolicy.com/2017/02/22/economists-to-trump-its-not-the-trade-deficit-stupid/&quot; rel=&quot;nofollow noreferrer&quot;&gt;slighly more recent (2011) TiVA data&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Indeed, economists at the Organization for Economic Cooperation and Development (OECD) and the World Trade Organization have been trying to develop a so-called “value-added” methodology for tallying trade balances. It can make a big difference. In 2011, the most recent year with available value-added data, the United States ran a \$275.1 billion trade deficit with China; under the value-added approach, that was cut to \$178.7 billion. The contrast is starker in electronics. The 2011 U.S. trade deficit in that sector amounted to \$136.3 billion; a “value-added” deficit was just \$54.2 billion.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="6210" LastEditorUserId="6210" LastEditDate="2018-07-31T00:43:04.633" LastActivityDate="2018-07-31T00:43:04.633" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23926" PostTypeId="1" CreationDate="2018-07-30T17:43:11.183" Score="15" ViewCount="10854" Body="&lt;p&gt;Why is it bad that someone can use something like a park or an emergency room without paying?&lt;/p&gt;&#xA;" OwnerUserId="14503" LastActivityDate="2018-08-17T22:32:38.667" Title="Why is the Free Rider Problem a problem?" Tags="&lt;free-riding&gt;" AnswerCount="6" CommentCount="10" FavoriteCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="23928" PostTypeId="2" ParentId="23926" CreationDate="2018-07-30T19:51:12.960" Score="34" Body="&lt;p&gt;According to the standard criterion used to evaluate welfare (Pareto efficiency), the problem with 'free riding' is that goods are not produced even though they cost less to produce than they are worth to consumers. That means that we are forfeiting an opportunity to help people without harming anyone else.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To illustrate using a standard example, suppose that 10 people live on a street, and that each would value an additional street light at £100 (i.e. each would pay up to £100 to bring a new street light into existence). The street light would cost £101 to produce, but if produced can be used by all for free: this is known as 'non-excludability'. Will it be produced? If people are self-interested, then the answer is no. Although any resident would benefit from the street light, building it would cost them £101, which exceeds the benefit (£100). That's a problem since the total benefit (10 x £100 = £1000) greatly exceeds the cost of the light. If the inhabitants could be compelled to pay for the street light, sharing the cost equally, then they would all be better off.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I should stress that, from the perspective of Pareto efficiency, the problem with 'free riding' has nothing to do with 'equity'. To use your example of parks, the problem is &lt;strong&gt;not&lt;/strong&gt; that people get to use the park without paying. Rather, the problem is that, since people are expected to free ride, the park won't be created in the first place.&lt;/p&gt;&#xA;" OwnerDisplayName="user17900" LastEditorDisplayName="user17900" LastEditDate="2018-07-30T20:13:21.467" LastActivityDate="2018-07-30T20:13:21.467" CommentCount="14" ContentLicense="CC BY-SA 4.0" />
  <row Id="23929" PostTypeId="1" AcceptedAnswerId="23944" CreationDate="2018-07-30T20:09:19.650" Score="0" ViewCount="160" Body="&lt;p&gt;In Christian List's Stanford Encyclopaedia entry &lt;em&gt;Social Choice Theory&lt;/em&gt; (2013, &lt;a href=&quot;https://plato.stanford.edu/entries/social-choice&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://plato.stanford.edu/entries/social-choice&lt;/a&gt;) he says that:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;an aggregation rule is defined for a fixed set of individuals &lt;em&gt;N&lt;/em&gt; and a fixed decision problem, so that majority rule in a group of two individuals is a different mathematical object from majority rule in a group of three.&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I was wondering if, in a similar way, social choice aggregation rules are defined for a set of weightings over &lt;em&gt;N&lt;/em&gt;? In other words, does a disagreement regarding how to weight the voters entail a disagreement regarding aggregation rule?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;E.g. let's say that &lt;em&gt;N&lt;/em&gt; = {voter-1, voter-2}. Furthermore, you and I both favour a lexicographic dictatorship. The only difference is that you favour a lexicographic dictatorship which ranks voter-1 over voter-2, and I favour a lexicographic dictatorship which ranks voter-2 over voter-1. Strictly speaking, do we agree on aggregation rule, or do we disagree?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be greatly appreciated! :)&lt;/p&gt;&#xA;" OwnerUserId="18988" LastEditorUserId="18988" LastEditDate="2018-07-30T23:01:10.347" LastActivityDate="2018-07-31T20:20:00.137" Title="Is a social choice aggregation rule defined for a set of weightings over the set of voters (N)?" Tags="&lt;social-choice&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="23931" PostTypeId="2" ParentId="23926" CreationDate="2018-07-30T21:43:06.383" Score="11" Body="&lt;p&gt;I would also add to @afreelunch's answer that not all free riders play the exact same role in every situation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the example cited by him about street lights, it is quite obvious that people there could get an extra profit thanks to those lights. But if they do not buy them, nobody will lose anything (except the opportunity of having that extra profit).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, let's imagine this example: 2 cities, A and B, which are dumping pollution in a shared river. This pollution is causing diseases in the population, so both cities are &quot;losing&quot;, in public terms. The problem could be solved with a single machine next to the river. This would solve the problem for both cities, even in the case that just one of them paid for it. In this case, those 2 cities do not represent the same kind of potential free riders as in the street lights example, since in this case both cities need to do something. In this &quot;coward game&quot;, A or B WILL pay for the machine, even knowing that the other will behave as a free rider, because the alternative (not building the machine) is worse not only for the free rider (which would use the public good for free), but also for the city which will build the machine, since they both have a big pollution problem.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are many other contexts in which &quot;free riding&quot; does not represent exactly the same situation, and as a consequence the potential solution for the game will be different.&lt;/p&gt;&#xA;" OwnerUserId="18953" LastEditorUserId="-1" LastEditDate="2018-07-31T21:00:39.250" LastActivityDate="2018-07-31T21:00:39.250" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="23932" PostTypeId="1" AcceptedAnswerId="23940" CreationDate="2018-07-30T21:56:07.243" Score="2" ViewCount="84" Body="&lt;p&gt;Having just begun self-studying economics, I apologise if this question is too simple.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Do investments increase or decrease with increased interest rate?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;According to the small, closed economy model (as far as I understand it) increased interest rates make borrowing harder and hence crowed out investment.&#xA;However, in the large, open economy model it is mentioned that higher interest rates encourage both domestic and foreign investors to lend in the country, so investment can increase?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I appreciate that this boils down to a difference in foreign vs. domestic, and ultimately into the question wether investment is &lt;strong&gt;lending&lt;/strong&gt; or &lt;strong&gt;borrowing&lt;/strong&gt;. Anybody who could put me on the right track please? &lt;/p&gt;&#xA;" OwnerUserId="18990" LastActivityDate="2018-07-31T11:41:33.943" Title="Are Investments positively or negatively correlated with interest rate" Tags="&lt;macroeconomics&gt;&lt;interest-rate&gt;&lt;open-economy-macro&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23934" PostTypeId="2" ParentId="23932" CreationDate="2018-07-30T22:08:18.270" Score="1" Body="&lt;p&gt;History is plenty of different situations, but usually it works like this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Low interest rates will increase demand of borrowing money and will decrease the interest of investors in lending (they will probably try to find another place with higher interest rates to invest in).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a consequence, there will be less people offering money, so the interest rate will increase and the demand of borrowing money will decrease (because it will be more expensive). Maybe it will reach a kind of balance or maybe it will attract imvestors again (it depends on both local and international situation).&lt;/p&gt;&#xA;" OwnerUserId="18953" LastActivityDate="2018-07-30T22:08:18.270" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23938" PostTypeId="1" AcceptedAnswerId="24058" CreationDate="2018-07-31T04:43:37.870" Score="1" ViewCount="513" Body="&lt;p&gt;If I have four input factors (a, b, c, b) and I want to construct a nested CES production function such that (a, b) are substitutes, (c, d) are substitutes and [(a, b), (c, d)] are complements, I.e. a, b together are complements of c, d together. How would such a production function look like? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I saw some people include a Cobb Douglas there to simplify the function. So, under what situations do people use Cobb Douglas in a nested CES? Cause the factor price of a here in my model will decrease asymptotically to zero, if use the classic CES, b will be completely substituted, which I don’t want.&lt;/p&gt;&#xA;" OwnerUserId="18995" LastEditorUserId="1601" LastEditDate="2018-08-10T00:02:31.683" LastActivityDate="2018-08-10T00:46:31.293" Title="Nested CES Production Function" Tags="&lt;microeconomics&gt;&lt;production-function&gt;&lt;ces-function&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="23939" PostTypeId="1" AcceptedAnswerId="23953" CreationDate="2018-07-31T10:02:32.710" Score="1" ViewCount="70" Body="&lt;p&gt;Consider the standard linear regression model: $y_i = \alpha + \beta D_i + e_i$ where the coefficients are defined by linear projections and $D_i$ is a dummy variable. In the population, the coefficients are given by:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\alpha = E[y_i \mid D_i =0] \ \text{and} \ \beta = E[y_i \mid D_i = 1] - E[y_i \mid D_i =0]$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Using OLS to estimate the coefficients, we get:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\widehat{\alpha} = \overline{y}_{D_i=0} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\widehat{\beta} = \overline{y}_{D_i=1}-\overline{y}_{D_i=0} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words, $\widehat{\alpha}$ is just the sample mean of $y_i$ in the subsample with $D_i=0$ and $\widehat{\beta}$ is the difference in sample means of the two groups. The expressions seem very obvious because they are just sample versions of the population, but my question is, how can we arrive at the above coefficient estimates by using the standard OLS formulas? That is using:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\widehat{\alpha} = \overline{y} - \overline{D}\widehat{\beta} \ \ \text{and} \ \ \widehat{\beta} = \frac{\sum_{i=1}^{N}(D_i - \overline{D})(y_i - \overline{y})}{\sum_{i=1}^{N}(D_i - \overline{D})^2}$$ &lt;/p&gt;&#xA;" OwnerUserId="14416" LastActivityDate="2018-08-01T14:52:02.930" Title="Dummy variable regressor OLS coefficient formula" Tags="&lt;econometrics&gt;&lt;regression&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="23940" PostTypeId="2" ParentId="23932" CreationDate="2018-07-31T11:41:33.943" Score="1" Body="&lt;p&gt;One quick way to reason the negative correlation is the concept of Present Value (PV). An increase of interest rate reduces the PV of cash (in-)flows occurring in subsequent periods.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;in the large, open economy model it is mentioned that higher interest&#xA;  rates encourage both domestic and foreign investors to lend in the&#xA;  country, so investment can increase?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Yes, but that is because on the lender's side that leads to an &lt;em&gt;arbitrage opportunity&lt;/em&gt; and/or a reduced &lt;em&gt;cost of opportunity&lt;/em&gt;. Strictly speaking, high interest rates prompts lenders to &lt;em&gt;lend&lt;/em&gt; money rather than to &lt;em&gt;invest&lt;/em&gt; (or consume).&lt;/p&gt;&#xA;" OwnerUserId="18552" LastActivityDate="2018-07-31T11:41:33.943" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23941" PostTypeId="1" CreationDate="2018-07-31T11:49:30.727" Score="2" ViewCount="74" Body="&lt;p&gt;I'm reading Ray Dalio's &lt;em&gt;&quot;How the Economic Machine Works&quot;&lt;/em&gt;, and he says that there are four factors contributing to deleveragings in economies:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) Debt Reduction&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) Austerity&lt;/p&gt;&#xA;&#xA;&lt;p&gt;3) Transferring wealth from the haves to have-nots&lt;/p&gt;&#xA;&#xA;&lt;p&gt;4) Debt Monetization&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, to me it seems like debt monetization is equivalent to transferring wealth from the haves to have-nots -- am I correct in my assumption?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Debt monetization leads to inflation which means that cash and Accounts Receivable get cheaper. That would mean that cash holders and creditors would get punished. Since creditors are wealthy people, aren't we basically reducing the dollars received by wealthy people and giving that money back to poor people through job creation?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Just want to make sure I'm understanding correctly.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks!&lt;/p&gt;&#xA;" OwnerUserId="18804" LastActivityDate="2018-12-29T16:00:09.960" Title="Is Debt Monetization Equivalent to transferring money from rich to poor?" Tags="&lt;debt&gt;&lt;unemployment&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="23942" PostTypeId="2" ParentId="6329" CreationDate="2018-07-31T12:49:17.080" Score="2" Body="&lt;p&gt;Isn't this mostly an issue of pricing at a level where most people feel it's worth paying to avoid the hassle (and potential legal issues) of piracy?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Take music singles for example: when I was a teenager (late 90's), a CD single cost £3.99 in the UK. When it became possible to download songs for free that someone else had ripped and uploaded, many people started doing that. When iTunes came along and you could legitimately buy the same song for £0.99 (later £0.79 I believe - it may have gone up again since), I had no objection to paying that amount, and managing an iTunes library was all-round easier than random mp3 files on my HDD.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Nowadays I use Spotify, and £9.99 a month seems reasonable considering I stream music for 6+ hours a day at work. But I understand the industry is rallying against Spotify because they aren't getting enough royalties from it (boo hoo).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The issue I have today is that the same price correction has yet to happen for movies and eBooks which are, IMO, way too expensive in digital form. Take Kindle books for example, a new release can still cost £6 or £7 - the same price I could get the printed copy from my local superstore. How can they possibly justify charging the same amount when it simply cannot cost them as much for a digital copy as the printed media?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Movies are even worse: services like Google Play, Apple and Amazon charge (I believe) £5 - 7 to &lt;strong&gt;rent&lt;/strong&gt; an HD movie for 48 hours. In a lot of cases I could buy a physical version of the same film from a shop for £10 that I can play as often as I like. A one-off digital consumption should be &lt;em&gt;significantly&lt;/em&gt; cheaper than an unlimited-use physical version.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When movie studios and book publishers realise that their products no longer attract the same premiums they used to, and adjust prices accordingly, I think the number of people prepared to pirate will be pretty small, and limited to those people who will always take free over paid-for, even if there is effort/risk involved. If eBooks were £2-3, or movies £1.99 to rent for 24 hours, I'd probably pay that several times if I wanted to re-watch the film later.&lt;/p&gt;&#xA;" OwnerUserId="19001" LastActivityDate="2018-07-31T12:49:17.080" CommentCount="11" ContentLicense="CC BY-SA 4.0" />
  <row Id="23943" PostTypeId="2" ParentId="23926" CreationDate="2018-07-31T18:16:26.553" Score="6" Body="&lt;p&gt;The existing answers are covering mostly only situations where the 'free riders' aren't using up anything. It's important to note that an emergency room is &lt;em&gt;absolutely not&lt;/em&gt; such an example. Someone who is not paying for an emergency room visit &lt;em&gt;is&lt;/em&gt; using up someone else's resources without compensating them. They are taking up an ER room that could be used by other patients, taking up time of the doctors, nurses, and other staff, and using up consumable goods such as medications, gloves, needles, etc. All of this costs money.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a result of the free rider, everyone else is paying more, receiving worse service, or both compared to what they would have if the 'free rider' either paid their share or weren't present.&lt;/p&gt;&#xA;" OwnerUserId="5760" LastActivityDate="2018-07-31T18:16:26.553" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23944" PostTypeId="2" ParentId="23929" CreationDate="2018-07-31T20:20:00.137" Score="1" Body="&lt;p&gt;First it is important to define our terms.  The concept of &quot;weighted voters&quot; does not necessarily make sense for an arbitrary social choice rule.  So presumably we are interested in social choice rules where, at some point in the aggregation process, we add up a collection of terms, where each term contains information about the preferences or opinion of some voter.  Typically, such rules are &quot;anonymous&quot; in the sense that we can permute the opinions of the voters without changing the answer.  We can easily introduce a &quot;weighted&quot; version of such a rule by computing a &lt;em&gt;weighted&lt;/em&gt; sum instead of an unweighted sum.  (Typically, a weighted version of the rule fails to be anonymous.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let us say that two social choice rules $F$ and $G$ are &lt;em&gt;different&lt;/em&gt; if they sometimes produce different outputs when presented with identical input (e.g. when presented with identical preference profiles).  In that case, it is definitely the case that in general, different voter-weights will yield different social choice rules.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, let's consider &quot;weighted majority voting&quot; with three voters, $A$, $B$ and $C$.  One possibility is that each voter receives equal weight (say, 1/3) ---this is effectively the &quot;unweighted&quot; version, which satisfies anonymity.  Another possibility is that voter $A$ receives weight 5, while voters $B$ and $C$ each receive weight 1.  It is easily verified that this &quot;weighted majority rule&quot; is actually a dictatorship for $A$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course, we might say that all the different weighted majority rules belong to the same &quot;family&quot; of voting rules, and therefore they all have certain properties in common.  For example, there are many theorems which are proved for the family of &quot;all weighted majority rules&quot;  (or &quot;for all weighted scoring rules&quot;, or whatever).  But that does not mean that they are the &quot;same&quot; rule.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When you ask, &quot;does a disagreement regarding how to weight the voters entail a disagreement regarding aggregation rule?&quot;, the answer is &quot;yes and no&quot;.  Clearly, we might agree on the &lt;em&gt;type&lt;/em&gt; of voting rule to use (say, we agree to use a weighted majority rule because it satisfies certain desirable properties and we all agree these properties are important), while still disagreeing on the exact &lt;em&gt;weights&lt;/em&gt; to use in the rule.&lt;/p&gt;&#xA;" OwnerUserId="8759" LastActivityDate="2018-07-31T20:20:00.137" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23945" PostTypeId="2" ParentId="23941" CreationDate="2018-07-31T21:34:27.133" Score="0" Body="&lt;p&gt;Despite that transfer can happen for a limited period of time (since eventually a new balance will be reached and the situation will be the same again, in relative terms), the main reason for a debt monetization is increasing exports. This is commonly used when the balance of payments has a negative balance (so the country is importing more than exporting).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As you noticed, debt monetization will produce inflation (in a standard situation) and the consequence of inflation is usually a devaluation of the national currency. Like this, exports will be cheaper for foreigners and the national economy will probably grow (thanks to that money which is entering into the country), creating employment and increasing national consumption. Also, the devaluation will cause a decrease of national imports, since buying international goods will be more expensive for national people. The combined effect of these two side of the same situation will lead to a balance of the balance of payments, or even to a positive balance (exports &gt; imports) of the balance of payments.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, it is nice to remark that unless the political decisions mess everything up (we can see some examples in recent history in several countries), a new balance will be reached in all cited fields, with maybe a similar distribution to the one at the beginning (different nominal rates, but similar relative/real rates, depending on terminology and case).&lt;/p&gt;&#xA;" OwnerUserId="18953" LastActivityDate="2018-07-31T21:34:27.133" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23946" PostTypeId="1" CreationDate="2018-08-01T00:14:08.177" Score="2" ViewCount="44" Body="&lt;p&gt;I have not seen this question asked anywhere, so I'm posing it here in case anybody else (hopefully) can help me get to the answer. In a nutshell, my question is: &lt;strong&gt;how do we arrive at the saving function in a canonical OLG with Cobb-Douglas utility?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'll explain my question in more detail: In Diamond's original OLG model, he describes saving as a function of the wage and the interest rate, so that:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;s_t=s_t(w_t,r_{t+1}).&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;More specifically, when utility is Cobb-Douglas:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;U = (1-\beta) \cdot ln (C_{1,t}) + \beta \cdot ln(C_{2,t+1})&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Diamond concludes that the saving rate is a fixed ratio of the wage rate, such that:&#xA;$$&#xA;s_t= \beta \cdot w_t&#xA;$$&#xA;The same conclusion can found in most online references that cover the canonical OLG (for example, &lt;a href=&quot;https://economics.mit.edu/files/10232&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, I have not been able to find an explanation anywhere of &lt;strong&gt;how one arrives at this equation for saving&lt;/strong&gt;. Most references that are available online, like the one I've just linked to, simply present a formula with no explanation as to its derivation. Meanwhile, &lt;a href=&quot;https://economics.mit.edu/files/10232&quot; rel=&quot;nofollow noreferrer&quot;&gt;in his original paper&lt;/a&gt;, Diamond seems to jump to this conclusion (in page 1134) with no step-by-step explanation for how he arrived at this result for the Cobb-Douglas case.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can anybody perhaps help me understand how this result comes about?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;(My motivation for asking is that I want to understand what would happen to consumption in a canonical OLG model if we supplemented the wage with an exogenous source of income &quot;A&quot;, so that consumption of the young at time &quot;t&quot; were given by: $C_{1,t} = w_t -s_t + A$).&lt;/em&gt;&lt;/p&gt;&#xA;" OwnerUserId="19009" LastEditorUserId="19009" LastEditDate="2018-08-01T00:19:26.977" LastActivityDate="2018-08-01T00:19:26.977" Title="Finding savings in an Overlapping Generations model" Tags="&lt;macroeconomics&gt;&lt;utility&gt;&lt;optimization&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23948" PostTypeId="2" ParentId="23926" CreationDate="2018-08-01T01:31:48.457" Score="2" Body="&lt;p&gt;There are other aspects, which (I think) has not been mentioned by other answers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If people have the choice to pay for something, or to be a free rider, almost everyone will choose to be a free rider. If everyone pays their fair share (for some definition of &quot;fair share&quot;) of the cost of road building &amp;amp; maintenance, and the roads get built, then everyone benefits.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If Dave is the a free rider, the roads will still get built. In a country with a population of millions of people, everyone else will only need to pay a fraction of a cent more. They wouldn't even notice, right? And while technically, the roads would wear out faster, the amount is also negligible. So you could argue, why not let this one person be a free rider?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are 2 problems with this:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;This argument applies (individually) to everyone. You could argue it for you, I could argue it for me, and so on. The more people that are exempt, the bigger the cost to the remainder. Eventually it DOES mean that people will need to pay more.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;If individuals are exempt, then those that do pay, consider this unfair. Why should I pay, if you don't have to? Collecting the money to make roads becomes harder, and at some point, there might be civil unrest by the people paying.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Both of these are issues, for example, with tax collection. Some companies are exempt - for example, if a company has enough negotiating power, they can talk themselves out of taxes (or some part of taxes); if the (local or national) government does not agree, they will go elsewhere. Once one company succeeds, other companies will use the same tactic.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, when individuals realise that many companies are not paying taxes, they get (understandably) upset. This strongly links to how fair people think a particular exemption is - if someone has no income, they will not pay income tax, this would not cause people to be upset. However, if someone has millions of dollars in an overseas tax haven, and they pay no tax, or if a company doesn't pay tax because they buy their product from an overseas parent company at the exact price that they don't make a profit, people get upset.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is also a related cost to potential &quot;free riders&quot; - if the ambulance is paid for by the insurance companies, they might not come to the aid of the uninsured &quot;free riders&quot;. The cost of this is also born by the insured - if you are insured, but can't prove it, will you be left behind?&lt;/p&gt;&#xA;" OwnerUserId="19011" LastActivityDate="2018-08-01T01:31:48.457" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="23949" PostTypeId="1" CreationDate="2018-08-01T03:55:43.890" Score="0" ViewCount="110" Body="&lt;p&gt;China imports $14B of soybeans from the US annually.  In response to US Tariffs, China has put Tariffs on US soybeans and is switching to Brazil for their beans.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the long term and based on history, can one expect that Brazil will retain China's business after the tariffs are sorted out between the US and China? Or is their some economic force (price?) that would shift the soybean market back from Brazil to US farmers/&lt;/p&gt;&#xA;" OwnerUserId="10161" LastActivityDate="2018-08-15T04:07:19.413" Title="Tariff long term effects" Tags="&lt;tariffs&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23950" PostTypeId="2" ParentId="23914" CreationDate="2018-08-01T05:11:43.150" Score="5" Body="&lt;p&gt;In my youth, pizza delivery was my way to make money, so I have some understanding of how the economics work in practice.  &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Taking orders is expensive.  It takes several minutes and can require that the order taker clean their hands before and after taking the order.  Before because it's hard to read something covered in tomato sauce; after because they were just touching something that was not food and may not be clean.  Or they have to have dedicated order takers.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So not taking the order over the phone and instead having the app do it is in and of itself a gain for the restaurant.  &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Marketing is expensive.  The app is replacing both the yellow pages (telephone book) and circular (mailed to the home) advertisements.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Again, spending those advertising dollars on the app rather than the traditional methods can be a gain for the restaurant.  &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Taking payment for orders is expensive.  Again, this can take several minutes of someone's time and require multiple hand cleanings.  Beyond that, you have to pay the credit card company, the armored car company, or take the risk of carrying cash to the bank (which also takes time).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;With the app, they generally take the money and pay the restaurant by check or direct deposit.  &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Food is cheap.  Food is often only a fraction of the cost of sale.  Most of the cost is rent, utilities, and labor.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If a restaurant can make more food or use less labor (because people who were taking orders and payment are now making food instead), then they are ahead.  &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Apps tend to be integrated with the restaurant ordering system.  So the app makes the order come out of the same printer as in-house orders.  That interface is cheap, because the same basic system can be used by a large number of restaurants.  &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Unlike food prep, the order and payment time has to be done on demand.  Restaurants can prep extra food when they know it will be busy.  But they can't do anything about orders and payment taking.  So shifting that outside the restaurant reduces their labor when they are busiest and increased labor is least effective.  &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Sit down restaurants are expensive.  The restaurant has to send someone out to take the order, has to move the food from the kitchen to the table, has to take payment, and has to clean up the table and dishes afterwards.  Much cheaper to get people to take the food away and use their own plates and silverware.  &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Delivery is expensive.  The typical delivery takes about twenty minutes to bag the pizzas for delivery, take them out to the car, drive to the destination, carry them to the door, wait for someone to answer, get the money, give the pizzas, give the change, return to the car, drive back, take the empty bags into the restaurant.  About ten minutes driving and ten minutes walking or waiting.  The restaurant has to pay the driver at least minimum wage, plus a delivery fee (used to be \$.50; may be more now).  That's at least \$2.30 these days.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;When Little Caesars started delivery, they added a \$2 surcharge.  This suggests that their delivery costs were at least that much and probably more.  They likely subsidized delivery at least somewhat.  They did not offer free delivery then despite how common it was because they were a carryout shop that priced itself assuming carryout.  They were about 25% cheaper than other pizza shops at the time, suggesting that delivery is in fact 25% of the costs.  &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Let's consider some of the costs replaced by the app:  &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;2-3% credit card fee.  &lt;/li&gt;&#xA;&lt;li&gt;Labor taking orders and payments.  &lt;/li&gt;&#xA;&lt;li&gt;Labor for delivery (or eat-in).  &lt;/li&gt;&#xA;&lt;li&gt;Advertising.  &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;As I said earlier, just delivery costs are likely around 25% of the cost of a pizza order.  Yet virtually every pizza shop offers free delivery.  This is because most people would prefer to pay extra for &quot;free&quot; delivery rather than go pick up their food.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;That's why restaurants are willing to pay 25% to have someone else handle delivery and taking orders and payments.  That stuff is expensive.  Your argument assumes that all that is free when the restaurant takes the order directly.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You may be correct that if the cost were added as a surcharge, people wouldn't pay it.  But the relative price would not be 25% then.  Because some of the cost would show up in the regular prices of the restaurant.  And it's also worth noting that restaurants that do offer &quot;free&quot; delivery often do better than cheaper restaurants that do not.  &lt;/p&gt;&#xA;" OwnerUserId="68" LastActivityDate="2018-08-01T05:11:43.150" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="23951" PostTypeId="1" CreationDate="2018-08-01T05:25:49.147" Score="0" ViewCount="35" Body="&lt;p&gt;Here is a composite goods production function:&lt;a href=&quot;https://i.stack.imgur.com/uBbF1.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/uBbF1.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And here is the price ratio of Ys and Yg, derived from their marginal products: &lt;a href=&quot;https://i.stack.imgur.com/PfVzK.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/PfVzK.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then the author normalized the price of final goods Y to 1 and somehow got the following relationship:&lt;a href=&quot;https://i.stack.imgur.com/WvYCL.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/WvYCL.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How is the last equation derived?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you!&lt;/p&gt;&#xA;" OwnerUserId="18995" LastActivityDate="2018-08-01T16:23:38.337" Title="Price Derivation in a Production Function" Tags="&lt;microeconomics&gt;&lt;production-function&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="23952" PostTypeId="1" CreationDate="2018-08-01T06:24:21.607" Score="3" ViewCount="2460" Body="&lt;p&gt;Apologies for asking what is probably a basic question from someone that is not in the economics field. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But I was playing around with the idea of determining how a group of people could split a bill &quot;fairly&quot;, meaning they each spend an equal amount of utility, calculated from their yearly income. And I did it using logarithms since that is the common recommendation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have seen many mentions that the utility of money is roughly logarithmic as it increases. And it is usually phrased as a rule of thumb, but I don't see actual justification. And the assumption seems embedded everywhere. For instance, a (real) flat income tax that taxes all income (not just consumption or earned income) is seen as neither regressive nor progressive - but the flat tax assumption (that everyone would pay the same percentage) again points to the idea of money having logarithmic utility.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is, has this actually been measured? I have seen indications that economists actually do studies where they analyze purchasing decisions across a wide range of income levels. It seems that with enough data points, a utility function could actually be calculated. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Has this been done? And is it actually logarithmic? What is it? Is there an up to date utility function for the value of money?&lt;/p&gt;&#xA;" OwnerUserId="19015" LastActivityDate="2018-08-09T23:56:55.683" Title="Is the utility of money *actually* logarithmic?" Tags="&lt;utility&gt;&lt;money&gt;" AnswerCount="3" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="23953" PostTypeId="2" ParentId="23939" CreationDate="2018-08-01T11:11:36.900" Score="2" Body="&lt;p&gt;To start, let's derive $\hat{\beta}$. As you note:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\hat{\beta} = \frac{\sum(D_i - \bar{D})(y_i - \bar{y})}{\sum (D_i - \bar{D})^2} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The key to evaluating this is to recognise that $D_i$ is a binary variable that equals $0$ or $1$. Thus, we can use standard results on Bernoulli random variables.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To evaluate the numerator, note that if $D$ is Bernoulli distributed:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \mathrm{Cov}[D, y] = \mathbb{E}[Dy] - \mathbb{E}[D]\mathbb{E}[y] = \mathrm{P(D=1)}\mathbb{E}[y|D=1] - \mathrm{P(D=1)}\mathbb{E}[y] $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By the sample analogue of this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac{\sum(D_i - \bar{D})(y_i - \bar{y})}{n} = \bar{D}(\bar{y}_{D_i=1}-\bar{y})$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To evaluate the denominator, note that if $D$ is a Bernouilli random variable:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\mathrm{Var[D]} = \mathrm{P(D=1)}[1-\mathrm{P(D=1)]}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sample analogue:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\sum (D_i - \bar{D})^2}{n} = \bar{D}(1 - \bar{D})$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We therefore see that:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\hat{\beta}=\frac{\bar{D}(\bar{y}_{D_i=1}-\bar{y})}{\bar{D}(1 - \bar{D})}&#xA;= \frac{\bar{y}_{D_i=1}-\bar{y}}{1 - \bar{D}}&#xA;\\ = \frac{\bar{y}_{D_i=1}-(\bar{y}_{D_i=1}\bar{D}+\bar{y}_{D_i=0}(1-\bar{D}))}{1 - \bar{D}}&#xA;\\ = \bar{y}_{D_i=1} - \bar{y}_{D_i=0}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which is what we wanted to show.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is then trivial to derive:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\hat{\alpha} = \bar{y} - \bar{D}\hat{\beta} =\bar{y}_{D_i=1}\bar{D}+\bar{y}_{D_i=0}(1-\bar{D}) - \bar{D}(\bar{y}_{D_i=1} - \bar{y}_{D_i=0}) = \bar{y}_{D_i=0}$$&lt;/p&gt;&#xA;" OwnerDisplayName="user17900" LastEditorDisplayName="user17900" LastEditDate="2018-08-01T14:52:02.930" LastActivityDate="2018-08-01T14:52:02.930" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23954" PostTypeId="2" ParentId="23952" CreationDate="2018-08-01T12:53:18.947" Score="0" Body="&lt;p&gt;In terms of generic human perceptions of information, you may want to look at &quot;&lt;a href=&quot;http://www.biopsychology.org/norwich/isp/isp.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;Information, Sensation and Perception&lt;/a&gt;&quot; by KH Norwich, 2003 for a viewpoint on generalising the way human's perceive the information (value) of their observations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It provides a useful link between various spot theories and the mathematics, but avoids the open-ended-ness of most 'psychologist' writings (hence it hasn't been popular..)&lt;/p&gt;&#xA;" OwnerUserId="18999" LastEditorUserId="1601" LastEditDate="2018-08-09T23:56:55.683" LastActivityDate="2018-08-09T23:56:55.683" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23956" PostTypeId="2" ParentId="23926" CreationDate="2018-08-01T13:02:42.533" Score="2" Body="&lt;p&gt;Surprisingly no one has mentioned the &lt;a href=&quot;https://en.wikipedia.org/wiki/Tragedy_of_the_commons&quot; rel=&quot;nofollow noreferrer&quot;&gt;tragedy of the commons&lt;/a&gt;. Having been born in the Soviet Union where everything was public and everyone was a free rider, I used to call it the tragedy of my life. But anecdotes aside, the problem with free riders is if they are allowed, eventually everyone becomes a free rider. Eventually, such a place deteriorates into, for a lack of a better word, a dumphole. Now, parks and other public infrastructure exist because government enforces tax collection equally and those parks are paid for and maintained mainly using taxes so in reality there are no free riders. There are those who pay, but don't use it. Same with public hospitals that the healthy never get to use, but they do pay taxes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Public things can exist and be maintained in theory and practice in tight communities where free riding is nearly impossible to hide. Usually in at least seasonally isolated communities, by geography and/or climate. Examples are very small villages around the world or even sparsely populated countries with harsh climate like Scandinavia or Canada. There, a free rider wouldn't be much of a problem for anyone but himself because his identity would likely be a common knowledge and he would have little options to avoid punishment. Hence, an instance of free riding would never get a chance to snowball into the tragedy of the commons.&lt;/p&gt;&#xA;" OwnerUserId="6231" LastActivityDate="2018-08-01T13:02:42.533" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="23957" PostTypeId="2" ParentId="23941" CreationDate="2018-08-01T13:31:35.350" Score="1" Body="&lt;p&gt;In the US, broad debt monetization would produce the following losers:  owners of cash, bonds or equivalent fixed income securities- notably, China, Japan, and the other foreign US creditors, and entitlement holders such as pensioners.  The winners would be:  anyone who owns a real asset on a leveraged basis, such as property owners who have a mortgage, corporations who have borrowed a lot versus their cash flows.  This isn't really rich-&gt;poor, it's lender-&gt; borrower.   This seems like an attractive policy for the US, although there's a very strong argument that the US dollar will permanently lose its reputation as a store of value if it were ever implemented.&lt;/p&gt;&#xA;" OwnerUserId="13062" LastActivityDate="2018-08-01T13:31:35.350" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23958" PostTypeId="2" ParentId="23952" CreationDate="2018-08-01T13:56:39.123" Score="3" Body="&lt;p&gt;&quot;Essentially, all models are wrong, but some are useful&quot;&#xA;George Box,  &lt;a href=&quot;https://rads.stackoverflow.com/amzn/click/0471810339&quot; rel=&quot;nofollow noreferrer&quot;&gt;Empirical Model-Building and Response Surfaces&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To what approximation would one like to know the utility of wealth? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To be guaranteed that a utility function representation of preferences exists you need a number of assumptions about preferences to hold. Usually, these are Completeness and Transitivity with Continuity, Monotonicity, and Convexity common additional assumptions to give the nicely behaved preferences we see in most economics settings. &lt;a href=&quot;https://web.stanford.edu/~jdlevin/Econ%20202/Choice%20Theory.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Levin  and Milgrom (2004)&lt;/a&gt; provides a technical, but short overview of the definitions and derivations in this branch of economics called &quot;Choice Theory&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But that's just for ordinal utility functions (functions which rank bundles of goods but resulting the utils have no economic meaning beyond that a bundle with higher utils is preferred to one with lower utils) to exist. It turns out that the preferences of ordinal utility functions are preserved by any positive affine transformation. To get a particular functional form like $log(x)$ to matter you need cardinal utility where the values of the preferences matter (although even here they can be re-scaled by a positive constant and a constant added). Cardinal utility functions are more common in finance and macroeconomic settings even though more is required for such a utility function to exist. As Wikipedia says:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The idea of cardinal utility is considered outdated except for&#xA;  specific contexts such as decision making under risk, utilitarian&#xA;  welfare evaluations, and discounted utilities for intertemporal&#xA;  evaluations where it is still applied. Elsewhere, such as in&#xA;  general consumer theory, ordinal utility with its weaker assumptions&#xA;  is preferred because results that are just as strong can be derived.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Cardinal_utility&quot; rel=&quot;nofollow noreferrer&quot;&gt;Cardinal utility&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given the findings of behavioral economics experiments, which provide evidence that preferences may violate &lt;a href=&quot;https://onlinelibrary.wiley.com/doi/abs/10.1002/(SICI)1099-1050(200001)9:1%3C47::AID-HEC485%3E3.0.CO;2-L&quot; rel=&quot;nofollow noreferrer&quot;&gt;completeness&lt;/a&gt; and &lt;a href=&quot;https://www.jstor.org/stable/2234520?seq=1#page_scan_tab_contents&quot; rel=&quot;nofollow noreferrer&quot;&gt;transitive&lt;/a&gt; axioms, it is likely that no such &quot;true&quot; function exists. However, as Box's quote indicates, they may still be useful. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The log utility function has nice properties. The logarithmic utility function is a special case of constant relative risk aversion (&lt;a href=&quot;https://onlinelibrary.wiley.com/doi/abs/10.1002/hec.1331&quot; rel=&quot;nofollow noreferrer&quot;&gt;CRRA&lt;/a&gt;) utility function. Roughly speaking, this family of utility functions views risks in percents of wealth as constant for all levels of wealth. That is, rich and poor alike worry the same about a 10% shock to wealth. Equivalently, the utility &quot;pain&quot; of spending 10% of wealth on something are the same at all wealth levels. This is an example of a function with a declining marginal utility of consumption.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Log utility is particularly easy to work with because it has simple derivatives and reflects a &quot;low&quot; but non-zero level of preferences over risk. Also, under log utility the wealth and substitution effects of interest rates cancel out in intertemporal choice problems, which further simplifies some models. In portfolio allocation, log utility maximization is effectively maximizing the geometric mean return the return in the long run, which feels intuitively sensible as an investment goal for the long run investor. Also, when working with shocks to wealth that are log-normal and a log utility function, there are nice closed form solutions to the values of expected  utility (they are slightly more complex in the CRRA case). Here is an example of trying to calibrate CRRA utility using experimental data:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;For this specification of CRRA, a value of 0 denotes risk neutrality,&#xA;  negative values indicate risk-loving, and positive values indicate&#xA;  risk aversion.  Thus we see clear evidence of risk aversion: the mean&#xA;  CRRA coefficient is 0.64. This distribution is consistent with&#xA;  comparable estimates obtained in the United States, using college&#xA;  students and an MPL design, by Holt and Laury [2002] and Harrison,&#xA;  Johnson, McInnes and Rutström [2003a][2003b].&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://pdfs.semanticscholar.org/df52/40bb1f0bef65b41bc1006ac31aaeb7358db3.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Harrison, Lau, Rutstrom (2007)&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If CRRA were the proper specification and the experimental point estimates recovered the true CRRA parameter, then we would be close to log utility which occurs when you take the limit of a CRRA utility function as the coefficient approaches $1$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In conclusion, there is some empirical evidence that preferences can be approximated with a log utility function and it is very easy to work with. &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2018-08-01T15:03:24.760" LastActivityDate="2018-08-01T15:03:24.760" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23959" PostTypeId="2" ParentId="23952" CreationDate="2018-08-01T16:19:26.797" Score="0" Body="&lt;p&gt;It's next to impossible to empirically infer the approximate form of a utility function, because all data can tell us is how to order options by their mean utility, e.g. if people prefer one gamble to another. But there is a theoretical motivation. If I take successive independent gambles that each scale with an arbitrary ante I choose to put up, and I know my utility function and use it to calculate my optimum total investment, each gamble has a certain random multiplicative effect on my wealth, or equivalently a random additive effect on my log-wealth. Since my sum is to maximise my mean utility, a logarithmic utility function together with the theorem $\mathbb{E}(X+Y)=\mathbb{E}X+\mathbb{E}Y$ implies the optimum strategy is to take it one gamble at a time in the obvious way. Any other utility function would in general lack this desirable property.&lt;/p&gt;&#xA;" OwnerUserId="10991" LastActivityDate="2018-08-01T16:19:26.797" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23960" PostTypeId="2" ParentId="23951" CreationDate="2018-08-01T16:23:38.337" Score="1" Body="&lt;p&gt;Rewrite the first equation as&#xA;$$Y^{\frac{\rho-1}{\rho}} = Y_s^{\frac{\rho-1}{\rho}} + Y_g^{\frac{\rho-1}{\rho}}. $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Divide both sides by $Y_s^{\frac{\rho-1}{\rho}}$ to obtain&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\left(\frac{Y}{Y_g}\right)^{\frac{\rho-1}{\rho}} = 1 + \left(\frac{Y_s}{Y_g}\right)^{\frac{\rho-1}{\rho}}.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Substitute the price-ratio and production-ratio relationships as in your second equation and make some algebraic changes, and you will get your last equation.  Note: I interpreted ``the price of $Y$ normalized to $1$'' as $\frac{p_g}{p_Y} = p_g= \left(\frac{Y}{Y_g}\right)^{\frac{1}{\rho}}$.&lt;/p&gt;&#xA;" OwnerUserId="18338" LastActivityDate="2018-08-01T16:23:38.337" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="23961" PostTypeId="1" AcceptedAnswerId="23962" CreationDate="2018-08-01T16:44:43.013" Score="-1" ViewCount="252" Body="&lt;p&gt;If agent A has utility function $u(x_1, x_2)$ and agent B has utility function $v(x_1, x_2)$, what are the equation(s) that characterize the Pareto-efficient  allocation of goods in the Edgeworth box? Assume that the initial endowment of agent A is $(\omega_A^1, \omega_A^2)$ and the initial endowment of agent B is $(\omega_B^1, \omega_B^2)$.&lt;/p&gt;&#xA;" OwnerUserId="16105" LastActivityDate="2018-08-01T19:01:18.473" Title="Pareto-optimal allocations in the Edgeworth box" Tags="&lt;microeconomics&gt;&lt;pure-exchange-economy&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23962" PostTypeId="2" ParentId="23961" CreationDate="2018-08-01T18:54:14.393" Score="0" Body="&lt;p&gt;I don't know why this got down-voted. I'll post my attempt anyway...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$MRS_A(x_A^1, x_A^2)=MRS_B(x_B^1, x_B^2)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\displaystyle\left.\frac{\partial{u}/\partial{x_1}}{\partial{u}/\partial{x_2}}\right|_{(x_A^1, x_A^2)}=\left.\frac{\partial{v}/\partial{x_1}}{\partial{v}/\partial {x_2}}\right|_{(x_B^1, x_B^2)}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In addition, $x_A^1+x_B^1=\omega_A^1+\omega_B^1$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and $x_A^2+x_B^2=\omega_A^2+\omega_B^2$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These 3 equations in 4 unknowns determine the contract curve.&lt;/p&gt;&#xA;" OwnerUserId="16105" LastEditorUserId="16105" LastEditDate="2018-08-01T19:01:18.473" LastActivityDate="2018-08-01T19:01:18.473" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="23963" PostTypeId="1" AcceptedAnswerId="24088" CreationDate="2018-08-01T19:30:26.560" Score="1" ViewCount="120" Body="&lt;p&gt;In the following slide &lt;a href=&quot;https://i.stack.imgur.com/8OMa8.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/8OMa8.png&quot; alt=&quot;Instrumental variables: 1 endogenous regressor &amp;amp; 1 instrument&quot;&gt;&lt;/a&gt;&#xA;&lt;a href=&quot;https://www.uio.no/studier/emner/sv/oekonomi/ECON4150/v14/undervisningsmateriale/lecture16_instrumental_variables.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;ECON4150 - Introductory Econometrics Lecture 16: Instrumental variables, Monique de Haan&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;it says that &quot;instrument exogeneity implies $E[u_i \mid Z_i]=0$&quot; where instrument exogeneity is defined on slide 13 as $cov(Z_i, u_i) =0$. Here $Z_i$ is the instrument and $u_i$ is the error term in the structural model with a single endogenous variable. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can someone prove to me why this is true? I thought the implication only held the other way, i.e., $E[u_i \mid Z_i] = 0$ implies $cov(Z_i, u_i)=0$ but the slides suggests that $cov(Z_i, u_i)=0$ implies $E[u_i \mid Z_i] = 0$, which isn't true in general?&lt;/p&gt;&#xA;" OwnerUserId="14416" LastEditorUserId="69" LastEditDate="2018-08-03T16:49:11.333" LastActivityDate="2018-11-10T03:03:15.643" Title="Why does instrument exogeneity imply conditional mean zero?" Tags="&lt;econometrics&gt;&lt;regression&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23964" PostTypeId="1" AcceptedAnswerId="23979" CreationDate="2018-08-01T19:33:09.463" Score="2" ViewCount="163" Body="&lt;p&gt;Today I read in a non-scientific article that &lt;a href=&quot;https://www.theverge.com/2015/3/26/8280309/amazon-warehouse-jobs-exclusive-noncompete-contracts&quot; rel=&quot;nofollow noreferrer&quot;&gt;Amazon requires some physical workers to sign non-compete agreements&lt;/a&gt;. I used to think that the idea behind allowing non-compete clauses in contracts is to protect a companies' intellectual property. The article mentions that non-competes may also serve to protect a company's investment in case it pays for the employee's education or training. Neither of these seems to fit this case. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What scientific articles (in fields of mathematical economics, such as Industrial Organization) describe models where allowing for non-compete clauses improves the situation of both the employer and the employee?&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2018-08-02T18:14:17.983" Title="Articles about the economics of non-compete contracts" Tags="&lt;reference-request&gt;&lt;labor-economics&gt;&lt;industrial-organisation&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23965" PostTypeId="2" ParentId="22335" CreationDate="2018-08-02T03:28:51.660" Score="1" Body="&lt;p&gt;After doing some reading on the topic, it appears we would estimate this equation as we would with any other demand estimation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;the reason why the term $b(p)m$ is written this way is due to the assumption of homothetic preferences (or homogeneous of degree 1, this dosen't matter in demand analysis). Since Gorman polar form is a homothetic form this implies that:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$v(p,m)=a_i(p)+b(p)m \equiv a_i(p)+b(p,m)$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;more specifically $$b(p,m) \Rightarrow b(p)m$$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;if preferences are homothetic or homogeneous of degree 1.&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2018-08-02T03:28:51.660" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23968" PostTypeId="1" CreationDate="2018-08-02T08:01:25.213" Score="1" ViewCount="22" Body="&lt;p&gt;Looking over the information in the tour I'm aware this might be too opinion based or require too long answers, so I apologies in advance if this is off topic.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In an attempt to keep the question tightly focused I'll restrict it to one specific example.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Recently Bernie Sanders has been taking aim at large corporations that make significant profits while leaving employees struggling to buy food and healthcare. One of the more prominent examples is the Disney Corporation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;According to online information in 2017 Disney made a net profit of &lt;a href=&quot;https://www.statista.com/statistics/273556/net-income-of-the-walt-disney-company/&quot; rel=&quot;nofollow noreferrer&quot;&gt;9.8bn USD&lt;/a&gt; and employed approx 200,000 people. If we assumed that 80% of these employees were the low wage earners referred to by Bernie Sanders, taking approximately 10% of this net profit and redistributing it as wages would allow for a pay rise for each individual of over $2 an hour.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A net profit of $8bn would still seem to indicate a very healthy company that would presumably be attractive to shareholders and investors. What other economic impacts would be expected if Disney reduced it's net profit margin by 10% purely by increasing low wage employee remuneration? Or what is wrong with the publicly available numbers/my understanding that means these figures are inaccurate?&lt;/p&gt;&#xA;" OwnerUserId="19027" LastActivityDate="2018-08-02T11:10:26.180" Title="Effect on Large Company on Redistributing Profit from Shareholder to Employees" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="23969" PostTypeId="2" ParentId="23968" CreationDate="2018-08-02T11:10:26.180" Score="2" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;What other economic impacts would be expected if Disney reduced it's&#xA;  net profit margin by 10% purely by increasing low wage employee&#xA;  remuneration?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The reduction of net profit margin might exceed the percentage of wage increase if benefits, insurance premiums, and any [Disney's] other obligations are tied to wages.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Likewise, a reduction of net profit margins might prompt shareholders to dump Disney stocks and invest in other companies they consider more profitable and/or unlikelier to act to the detriment of shareholders.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Companies with significant levels of debt might experience an increase in financial costs (higher interest rates) if --for instance-- the reduction of profit margin prompts a rating agency to lower the company's grade a notch.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This answer is neither an exhaustive list of possible impacts nor an assessment of whether or not wages at large corporations currently are at fair levels.&lt;/p&gt;&#xA;" OwnerUserId="18552" LastActivityDate="2018-08-02T11:10:26.180" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23970" PostTypeId="1" CreationDate="2018-08-02T04:38:59.040" Score="3" ViewCount="162" Body="&lt;p&gt;I think the question is pretty self explanatory. I'm just trying to understand the logic behind why an upward sloping yield curve indicates a good economy?&lt;/p&gt;&#xA;" OwnerUserId="19042" OwnerDisplayName="ricksanchez" LastEditorUserId="4816" LastEditDate="2018-09-02T19:29:58.277" LastActivityDate="2019-05-30T23:01:40.863" Title="Why is a Normal Yield Curve a sign of a healthy economy?" Tags="&lt;economic-growth&gt;&lt;financial-markets&gt;" AnswerCount="3" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="23971" PostTypeId="2" ParentId="23970" CreationDate="2018-08-02T04:56:01.217" Score="0" Body="&lt;p&gt;That shows economy is expected to grow, there is demand of money, people innovating and developing the society. &lt;/p&gt;&#xA;" OwnerDisplayName="sukusi" LastActivityDate="2018-08-02T04:56:01.217" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="23972" PostTypeId="1" AcceptedAnswerId="23974" CreationDate="2018-08-02T12:23:29.860" Score="1" ViewCount="984" Body="&lt;p&gt;In the news today they were talking about how the US is &quot;threatening to increase proposed tariffs on Chinese imports from 10 percent to 25 percent.&quot;&#xA;One of the reasons they gave for this was that Chinese currency has depreciation 8% which rendered the previous 10% tariffs ineffective. The news even described China as &quot;fiddling&quot; with their currency as if it was intentional to get around tariffs. &#xA;I'm wondering how these two are related. How does a currency being worth less effect the percent based tariffs?&lt;/p&gt;&#xA;" OwnerUserId="19029" LastActivityDate="2018-08-02T19:58:08.137" Title="How is currency depreciation related to import tariffs?" Tags="&lt;inflation&gt;&lt;international-trade&gt;&lt;united-states&gt;&lt;china&gt;&lt;tariffs&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="23973" PostTypeId="1" CreationDate="2018-08-02T13:03:10.117" Score="0" ViewCount="254" Body="&lt;p&gt;I'm actually wondering what the correct name for the difference between the minimum selling price and the actual selling price is?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's say I'm having an product A. After all calculations(costs, planned profit, possible discounts,...) I can sell my product for 7€(my minimum selling price). On the market I can offer it for 10€. In this case im making an extra margin of 3€.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That means: &lt;code&gt;extra Margin(3€) = actual Selling price(10€) - minimum selling price(7€)&lt;/code&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now I'm wondering what the correct name of this &lt;code&gt;extra margin(3€)&lt;/code&gt; is?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I already thought it could be the contribution margin, but isn't this something different?&lt;/p&gt;&#xA;" OwnerUserId="19030" LastActivityDate="2018-08-02T18:12:36.317" Title="Difference between the minimum selling price and the actual selling price" Tags="&lt;price&gt;&lt;pricing&gt;&lt;marginal&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23974" PostTypeId="2" ParentId="23972" CreationDate="2018-08-02T13:44:12.337" Score="1" Body="&lt;p&gt;Assume that a chinese company is selling a product for 100 RMB or 16 USD.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With the 10% tariff the cost for an american importer rises to 17.6 USD. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the the RMB depreciates 8% and the price in RMB is unchanged the importer pays 8% less in USD or 16.192 USD. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Depreciating the RMB by 8% offsets (almost all of) the effect of the 10% tariff.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This calculation does not account for the fact that chinese imports get more expensive. If the good is manufactured using imported oil the cost of that oil will not be offset by the depreciated RMB.&lt;/p&gt;&#xA;" OwnerUserId="11805" LastActivityDate="2018-08-02T13:44:12.337" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23976" PostTypeId="1" AcceptedAnswerId="23990" CreationDate="2018-08-02T14:07:28.450" Score="1" ViewCount="28" Body="&lt;p&gt;I was wondering if there is a way to account for daily inflation data. I have daily short-term interest rates, and I would like to convert them to real short-term interest rates. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can I just average the monthly CPI over the days of that month to calculate the real rate with the Fisher equation?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help is greatly appreciated!&lt;/p&gt;&#xA;" OwnerUserId="18964" LastActivityDate="2018-08-03T14:13:14.293" Title="Daily variable for inflation" Tags="&lt;macroeconomics&gt;&lt;inflation&gt;&lt;interest-rate&gt;&lt;price-index&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23977" PostTypeId="1" CreationDate="2018-08-02T16:02:48.700" Score="0" ViewCount="507" Body="&lt;p&gt;If a country's central bank prints money, it causes inflation. However, apparently, small amounts of inflation is a good thing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why is the case? What would happen if central banks stopped printing money altogether (except to replace destroyed bills)?&lt;/p&gt;&#xA;" OwnerUserId="19035" LastActivityDate="2018-08-02T19:34:12.420" Title="Why do central banks print money?" Tags="&lt;inflation&gt;&lt;central-banking&gt;&lt;deflation&gt;" AnswerCount="1" CommentCount="1" ClosedDate="2018-08-02T19:18:25.133" ContentLicense="CC BY-SA 4.0" />
  <row Id="23978" PostTypeId="2" ParentId="23973" CreationDate="2018-08-02T18:12:36.317" Score="1" Body="&lt;p&gt;Sale price minus cost is profit per unit or marginal producer surplus. It's not quite clear what this &quot;planned profit&quot; means. If you're including opportunity costs in this amount (I could spend my time working another job making X, so if I instead spend my time making Product A, I want to make at least X doing so), those are part of the costs. If you literally mean &quot;How much I think I'll profit from this&quot;, that has no economic meaning. &lt;/p&gt;&#xA;" OwnerUserId="16462" LastActivityDate="2018-08-02T18:12:36.317" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="23979" PostTypeId="2" ParentId="23964" CreationDate="2018-08-02T18:14:17.983" Score="2" Body="&lt;p&gt;&lt;a href=&quot;https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2872408&quot; rel=&quot;nofollow noreferrer&quot;&gt;Ghosh and Shankar (2017) &quot;Optimal Enforcement of Noncompete Covenants&quot;, &lt;em&gt;Economic Inquiry&lt;/em&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Noncompete covenants or covenant not to compete (CNC) are clauses in employment contracts in which the employee agrees not to gain employment with a competitor firm. In this article, we study the efficiency aspects of such contracts by incorporating the effect of labor mobility restrictions on knowledge transfer across firms, investment decisions by firms, and investment by workers. Following research that shows state‐wise variations in the degree of CNC enforcement, we allow the strength of CNC enforcement to vary as a matter of regulatory policy and derive the optimal strength of enforcement. We also look at how regulations around CNCs should be optimally designed when employers can use collusive agreements, such as “no poaching” agreements, as an alternative to noncompete clauses. Given recent allegations of employer collusion among large Silicon Valley firms, we argue for a cautious approach in designing policies on CNC enforcement.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.jstor.org/stable/41261726&quot; rel=&quot;nofollow noreferrer&quot;&gt;Garmaise (2011) &quot;Ties that Truly Bind: Noncompetition Agreements, Executive Compensation, and Firm Investment&quot;, &lt;em&gt;Journal of Law, Economics, &amp;amp; Organization&lt;/em&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;We study the effects of non-competition agreements by analyzing time-series and cross-sectional&#xA;  variation in the enforceability of these contracts across U.S. states. We find that tougher noncompetition&#xA;  enforcement promotes executive stability. Increased enforceability also results in reduced&#xA;  executive compensation and shifts its form towards greater use of salary. We further show&#xA;  that stricter enforcement reduces research and development spending and capital expenditures per&#xA;  employee. These results are consistent with a model in which enforceable non-competition contracts&#xA;  encourage firms to invest in their managers’ human capital. On the other hand, our findings&#xA;  suggest that these contracts also discourage managers from investing in their own human capital&#xA;  and that this second effect is empirically dominant.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Two other recent empirical papers may also be of interest: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3040393&quot; rel=&quot;nofollow noreferrer&quot;&gt;Jeffers (2018) &quot;The Impact of Restricting Labor Mobility on Corporate Investment and Entrepreneurship&quot;&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2556669&quot; rel=&quot;nofollow noreferrer&quot;&gt;Starr (2018) &quot;Consider This: Training, Wages, and the Enforceability of Covenants Not to Compete&quot;&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="42" LastActivityDate="2018-08-02T18:14:17.983" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23980" PostTypeId="1" CreationDate="2018-08-02T18:18:53.823" Score="1" ViewCount="11" Body="&lt;p&gt;I am not an economist and I am looking for reference knowledge about how the economy of the UK (mainly focussing on England/Scotland/Wales) developed over the past 5 decades. The kind of information I need concerns:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;strong&gt;GDP&lt;/strong&gt; by &lt;strong&gt;sector&lt;/strong&gt;: how did the different sectors change over time (e.g. decline of manufacturing and rise of services)?&lt;/li&gt;&#xA;&lt;li&gt;Statistical &lt;strong&gt;regions&lt;/strong&gt;: how did they evolve? What are their commonalities/differences?&lt;/li&gt;&#xA;&lt;li&gt;How did different &lt;strong&gt;cities&lt;/strong&gt; evolve (e.g. London vs Manchester/Birmingham)?&lt;/li&gt;&#xA;&lt;li&gt;Economic trends and &lt;strong&gt;demography&lt;/strong&gt;: What is the relationship between economic trends and population?&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;What (relatively) recent textbooks/reports/articles would you recommend to find this kind of topics?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't necessarily need the associated data, but that would be a nice plus.&lt;/p&gt;&#xA;" OwnerUserId="19036" LastActivityDate="2018-08-02T18:18:53.823" Title="Economic history/geography of the UK (1960-today)" Tags="&lt;reference-request&gt;&lt;gdp&gt;&lt;economic-growth&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23981" PostTypeId="2" ParentId="23977" CreationDate="2018-08-02T18:37:27.880" Score="1" Body="&lt;p&gt;If a central bank stopped printing money then deflation would eventually occur meaning the value of $1 would increase over time. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is a simple intuition as to why this would happen. Imagine there is an economy where the only product either produced or sold is widgets. Lets assume that the central bank fixes the total amount of currency in the economy at $1,000. Lets also assume to keep the math simple that every widget produced every year is bought and consumed and that people in this economy don't ever save money and spend 100% of their income every year on widgets (this is a dubious assumption in real life but makes the math easy, it is a fair assumption in real life that citizens will spend a certain % of their income on goods and services every year that are consumable).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the economy produced 100 widgets per year based on its level of production and those widgets were bought using the available currency then each widget could sell for $100. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lets now say that due to population growth and increases in technology the economy can now produce 200 widgets. There is only &lt;code&gt;$1,000&lt;/code&gt; to buy the 200 widgets so each widget now sells for &lt;code&gt;$50&lt;/code&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The price level has halved. In order to buy the same product (1 widget) you have to spend half as much money. If the central bank wished to keep price levels the same they would have to increase the money supply to $2,000 to keep up with he increase in productivity. This is why you expect a central bank to increase the money supply over time.&lt;/p&gt;&#xA;" OwnerUserId="10245" LastEditorUserId="10245" LastEditDate="2018-08-02T19:34:12.420" LastActivityDate="2018-08-02T19:34:12.420" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23983" PostTypeId="2" ParentId="23972" CreationDate="2018-08-02T19:58:08.137" Score="1" Body="&lt;p&gt;One answer and one comment here make the &lt;strong&gt;false claim&lt;/strong&gt; that tariffs are equivalent to currency depreciation, playing around with the exchange rate of your currency can &quot;eliminate&quot; a tariff, and so forth.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think they are being confused by a well-known equivalence result, which says that a simultaneous import tariff &lt;em&gt;and&lt;/em&gt; export subsidy at the same rate is equivalent to a currency depreciation. If instituted, it would be offset by a real currency appreciation - either a rise in the foreign for domestic exchange rate, or (in a fixed exchange rate regime) domestic price inflation. This kind of taxation/subsidy scheme is a part of most VAT systems around the world - it is a trade-neutral adjustment with the purpose of preventing possible large exchange rate movements in response to the institution of a VAT. &lt;em&gt;A standalone tariff (import tax) is not trade-neutral, exchange rate movements are.&lt;/em&gt; So it's impossible for a tariff to be offset by currency appreciation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's not hard to see this - imagine that a country A trades in an international goods market. If it imposes a simultaneous %10 export subsidy and %10 import tax, then a firm in country A can sell a good worth 1 unit of foreign currency abroad for 1.10 units, but the old domestic price of this good is 1 unit of foreign currency. Likewise, a consumer in country A can purchase a good domestically for 1 unit of foreign currency, or can purchase it abroad for 1.10 units. The result is that in equilibrium the domestic currency must undergo a real appreciation of %10, and trade is unaffected, since relative prices remain identical. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, imagine the same thing without the export subsidy given to firms selling goods abroad. Then, a %10 domestic price inflation (more generally, %10 real appreciation of the currency) does &lt;em&gt;not&lt;/em&gt; offset the tariff, because while it restores balance in the import market, it causes an imbalance in the export market. What happens is that in equilibrium the price paid at the margin for the same good in all markets must be equal, so consumption and the use in production of imported goods must decline until their value at the margin rises sufficiently to justify the increased price. In other words, the tariff affects the &lt;em&gt;relative&lt;/em&gt; price of exports versus imports, not just the &lt;em&gt;price level&lt;/em&gt;. Since it has a relative price effect, it is not trade or production-neutral.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;US administration officials (including President Trump himself) have said on several occasions that they believe the border-adjustment of a VAT, i.e a simultaneous import tax and export subsidy at the same rate, is &lt;em&gt;not&lt;/em&gt; trade-neutral, and that it gives countries using a value-added taxation system an unfair advantage over the US. They have made similar claims about policies of deliberate currency depreciation by other countries. This is contrary to the consensus in the field of international trade - see &lt;a href=&quot;http://www.nber.org/chapters/c7211.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;this paper&lt;/a&gt; by Krugman and Feldstein for the consensus view on this subject. However, if you take this belief as granted, then you can imagine that the administration wants to regain the competitive edge that they believe they have lost due to Chinese renminbi depreciation.&lt;/p&gt;&#xA;" OwnerUserId="13743" LastActivityDate="2018-08-02T19:58:08.137" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="23984" PostTypeId="1" CreationDate="2018-08-02T20:22:29.033" Score="2" ViewCount="73" Body="&lt;p&gt;Is there the equivalent of a Rand Journal of Economics for the topic of logistics, focusing on the micro-economics of productivity gains via automation or disruptive technologies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is the wonderful macroeconomic work by Carlota Perez on effect of technology disruption on financial capital, which helps me think about logistics etc., but in scouring Google, I find a paucity of micro-economic research on the area of logistics and supply chain and manufacturing processes. I am sure I am missing the elephant in the room, any tips for where it is ?&lt;/p&gt;&#xA;" OwnerUserId="19004" LastEditorUserId="42" LastEditDate="2018-08-03T00:14:33.707" LastActivityDate="2018-08-03T00:14:33.707" Title="Research community around logistics micro-economic topics?" Tags="&lt;microeconomics&gt;&lt;reference-request&gt;&lt;technology&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23985" PostTypeId="1" AcceptedAnswerId="23986" CreationDate="2018-08-03T00:36:11.797" Score="2" ViewCount="36" Body="&lt;blockquote&gt;&#xA;  &lt;ol&gt;&#xA;  &lt;li&gt;Write the sum of residuals in matrix form. &lt;/li&gt;&#xA;  &lt;/ol&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Attempt: $(y-X\boldsymbol{\beta})^T(y-X\boldsymbol{\beta}) = y^Ty-\boldsymbol{\beta}^TX^Ty-y^TX\boldsymbol{\beta}+\boldsymbol{\beta}^TX^TX\boldsymbol{\beta} = y^Ty-2y^TX\boldsymbol{\beta}+\boldsymbol{\beta}^TX^TX\boldsymbol{\beta}.$&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;ol start=&quot;2&quot;&gt;&#xA;  &lt;li&gt;Minimize this and verify that $\hat{\boldsymbol{\beta}} = (X^TX)^{-1}X^Ty$. &lt;/li&gt;&#xA;  &lt;/ol&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Attempt: $\frac{\partial SSR(\boldsymbol{\beta})}{\partial \boldsymbol{\beta}} = -2y^TX+2X^TX\boldsymbol{\beta} = 0 \rightarrow X^TX\boldsymbol{\beta}=y^TX \rightarrow \hat{\boldsymbol{\beta}} = (X^TX)^{-1}y^TX = (X^TX)^{-1}X^Ty.$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I haven't studied matrix calculus, so I am a little bit confused about the step in calculation. In the first problem, could you show me which rule is used for the first equality in the equation. And in the second problem, I am a little confused about the first step of differentiation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I really appreciate if you show the calculation step by step. &lt;/p&gt;&#xA;" OwnerUserId="17957" LastActivityDate="2018-08-03T03:38:48.557" Title="Sum of residuals and Matrix calculus (step by step)" Tags="&lt;econometrics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23986" PostTypeId="2" ParentId="23985" CreationDate="2018-08-03T03:38:48.557" Score="5" Body="&lt;p&gt;Let $\mathbf A,\mathbf B$ be $m\times n$ matrices (or vectors is either $m$ or $n$ is $1$), &#xA;\begin{align}&#xA;(\mathbf A+\mathbf B)^T&amp;amp;=\mathbf A^T+\mathbf B^T \tag{1}\\&#xA;(\mathbf A\mathbf B)^T&amp;amp;=\mathbf B^T\mathbf A^T \tag{2}&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, &#xA;\begin{align}&#xA;(\mathbf y-\mathbf X\beta)^T(\mathbf y-\mathbf X\beta)&amp;amp;=(\mathbf y^T-(\mathbf X\beta)^T)(\mathbf y-\mathbf X\beta)\\&#xA;&amp;amp;=(\mathbf y^T-\beta^T\mathbf X^T)(\mathbf y-\mathbf X\beta)\\&#xA;&amp;amp;=\mathbf y^T(\mathbf y-\mathbf X\beta)-\beta^T\mathbf X^T(\mathbf y-\mathbf X\beta)\\&#xA;&amp;amp;=\mathbf y^T\mathbf y-\mathbf y^T\mathbf X\beta-\beta^T\mathbf X^T\mathbf y+\beta^T\mathbf X^T\mathbf X\beta \\&#xA;&amp;amp;=\mathbf y^T\mathbf y-2\mathbf y^T\mathbf X\beta+\beta^T\mathbf X^T\mathbf X\beta \tag{3}&#xA;\end{align}&#xA;where line 1 uses $(1)$, line 2 uses $(2)$, and the last line follows from the fact that $\mathbf y^T\mathbf X\beta$ and $\beta^T\mathbf X^T\mathbf y$ are both $1\times1$ scalars. &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Let $\mathbf a,\mathbf x$ be $n\times 1$ vectors and $\mathbf A$ a symmetric $n\times n$ matrix. Matrix calculus has the following rules: &#xA;\begin{align}&#xA;\frac{\mathrm d\ \mathbf a^T\mathbf z}{\mathrm d\ \mathbf z}&amp;amp;=\mathbf a \tag{4} \\&#xA;\frac{\mathrm d\ \mathbf z^T\mathbf A\mathbf z}{\mathrm d\ \mathbf z}&amp;amp;=2\mathbf A\mathbf z \tag{5}&#xA;\end{align}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Applying these to differentiating $(3)$ with respect to $\mathbf\beta$, we get the first order condition:&#xA;\begin{equation}&#xA;-2\mathbf X^T\mathbf y+2\mathbf X^T\mathbf X\beta=0&#xA;\end{equation}&#xA;Solving for $\beta$, we get the usual OLS formula.&lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2018-08-03T03:38:48.557" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="23987" PostTypeId="1" CreationDate="2018-08-03T07:46:42.753" Score="1" ViewCount="106" Body="&lt;p&gt;Must admit it has been many years since I have done advanced calculations or anything remotely like it, so please bear with me.&#xA;I have problem that I hope to get some help with. Say I have below dataset:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;|   Quarter |   Exposure |   Loss Given   |   Probability of  |   Estimated Loss  |&#xA;|           |            |   Default (%)  |   Default (%)     |                   |&#xA;|-----------|------------|----------------|-------------------|-------------------|&#xA;|       Q1  |   100,000  |          3.0%  |             5.0%  |            150.0  |&#xA;|       Q2  |   150,000  |          2.8%  |             5.5%  |            231.0  |&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Where &lt;code&gt;Estimated Loss = Exposure x Loss Given Default x Probability of Default&lt;/code&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My problem now is, I would like to be able to explain the difference between Estimated Loss in Q2 and Q1, by explaining how much of the delta is due to the change in each parameter, or how much each parameter contributes of the change - if that makes sense?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ideally I would like to be able to say something like below:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;231 - 150 = 81, of which:&#xA;+76 due to increase in Exposure&#xA;-10 due to decrease in Loss Given Default&#xA;+15 due to increase in Probability of Default&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;The reason behind showing it like this, is to make it more &quot;understandable&quot; for the reader who is not aware of the mechanics behind the numbers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My initial thinking was to see what effect it had on Estimated Loss by changing only one parameter at a time; but I will miss some multiplier-effect, since the parameters are not independent. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also if done this way - the order of how I show the change affects the outcome. Say I first change Exposure and see the result, next up LGD and lastly PD - then, because they are dependent, the effect is larger in PD than in Exposure - and other way around if I change the order. That was when I realised that I should probably have brushed up on my math skills. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) Would it even be possible/make sense to explain the delta as above, where it can be determined how much each paramter contributes of the delta?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) If it is possible; I assume that I need to do some sort of Partial Differential equation?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks for you help :-)&lt;/p&gt;&#xA;" OwnerUserId="14207" LastEditorUserId="4816" LastEditDate="2019-02-28T06:30:09.237" LastActivityDate="2020-11-19T08:06:55.640" Title="Contribution by each factor" Tags="&lt;microeconomics&gt;&lt;debt&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23988" PostTypeId="2" ParentId="23987" CreationDate="2018-08-03T08:22:28.017" Score="2" Body="&lt;p&gt;The easiest consistent explanation is using multiplication: The Q2 estimated loss of $231$ is $\frac{231}{150}=1.54$ times the Q1 estimated loss of $150$.  This is a combination of&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;The exposure being $1.5$ times the previous figure &lt;/li&gt;&#xA;&lt;li&gt;The loss given default being about $0.933$ times the previous figure &lt;/li&gt;&#xA;&lt;li&gt;The probability of default being $1.1$ times the previous figure &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;and this is consistent with $1.5\times 0.933 \times 1.1 \approx 1.54$ - it does not matter which order you do the multiplication&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is not that far away from saying $50\% -6.7\% + 10\%$ is about $54\%$, except that that is not precise (they actually add up to $53.3\%$ and other examples could be worse) but this would be talking about percentage changes in percentages, which is often confusing&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you looked at the effect on the old estimated loss of $150$ of each change if the others had not changed, you would have got $+75$ (not $+76$), $-10$, $+15$ which add up to $+80$ rather than the actual $+81$, and other examples could be worse &lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2018-08-03T08:22:28.017" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="23989" PostTypeId="1" CreationDate="2018-08-03T13:34:29.000" Score="0" ViewCount="496" Body="&lt;p&gt;&lt;strong&gt;Context&lt;/strong&gt;&#xA;As far as I understand, economic cycles are mostly dependent on the amount of demand (which is influenced by money supply, which is in turn influenced by the availability of credit). Since credit dwarfs cash as a % of total currency, credit is by far the most important driver of money supply. &#xA;In general, the government controls interest rates to slow down an overheating economy, or to expand a slowing economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Question&lt;/strong&gt;&#xA;My question is, why do we need government to control interest rates? Assuming banks are rational and want to make money, wouldn't banks tighten credit rules in the midst of an overheating economy? If banks sense that debts are too high, wouldn't it make sense for them to increase interest, or stop lending to risky customers to avoid customers that default on their debts? I don't see why government is any more qualified at controlling interest rates than banks themselves. You could argue that banks are greedy, but at the same time, they're smart and have a long-term view. If a bank loaned money in an overheating market, they wouldn't be in business for too long.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks!&lt;/p&gt;&#xA;" OwnerUserId="18804" LastActivityDate="2018-11-02T03:00:02.520" Title="Why does the government need to control interest rates?" Tags="&lt;credit&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23990" PostTypeId="2" ParentId="23976" CreationDate="2018-08-03T14:13:14.293" Score="1" Body="&lt;p&gt;&lt;a href=&quot;http://www.thebillionpricesproject.com/datasets/&quot; rel=&quot;nofollow noreferrer&quot;&gt;The Billion Price Project&lt;/a&gt; offers what you want:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Daily price indices, monthly, and annual inflation rates for Argentina&#xA;  and the US. Monthly data with annual inflation rates for Argentina,&#xA;  Brazil, China, Germany, Japan, South Africa, UK, US, 3 US sectors, and&#xA;  global aggregates (including Eurozone). Daily PPP series for Argentina&#xA;  and Australia.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;However, these data, which come mostly from online transaction data, are imperfect because they end in 2015. However, I've put together some code so you can see that there is not very much high frequency price level variation for the basket of goods:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;import delimited pricestats_bpp_arg_usa.csv&#xA;drop if country==&quot;ARGENTINA&quot;&#xA;gen date2 = date(date, &quot;DMY&quot;)&#xA;format date2 %d &#xA;tsset date2&#xA;twoway (tsline indexps)&#xA;&#xA;tssmooth ma indexps_ma30  = indexps, window(30)&#xA;twoway (tsline indexps) (tsline indexps_ma30)&#xA;gen monthly_diff = indexps - l30.indexps&#xA;gen monthly_diff_ma = indexps_ma30 - l30.indexps_ma30&#xA;gen abs_double_diff =  abs(monthly_diff -  monthly_diff_ma)&#xA;&#xA;sum indexps indexps_ma30 monthly_diff monthly_diff_ma abs_double_diff, detail&#xA;twoway (tsline monthly_diff) (tsline monthly_diff_ma)\&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;This generates a figure comparing the 30 day moving average price level and actual price level you can see below that there is very little difference between the smoothed and actual price level. The price level of a broad basket of prices doesn't fluctuate enough for daily inflation to be very different from assuming a constant inflation (which is roughly equivalent to using the average). &#xA;&lt;a href=&quot;https://i.stack.imgur.com/m3BVw.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/m3BVw.png&quot; alt=&quot;Comparison of 30 day moving average price level and actual price level&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I estimate, using the calculations above, that monthly inflation is about 11 basis point per month. Using a measure of inflation rather than the price level shows that the smoothed and raw inflation estimates are very similar. This variation could be because there is measurement error and bias from the high frequency calculation approach.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Bottom line, I would just stick with converting monthly series to an implied daily rate. Depending on if you care about business days or calendar days and how you feel about using real time data, this could be as simple as: $$ \hat{r}_{daily\ implied, t} = ( 1 + r_{monthly\ observed, t})^{1/30} -1 +\epsilon$$&#xA;&lt;a href=&quot;https://i.stack.imgur.com/KtVAU.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/KtVAU.png&quot; alt=&quot;Smoothed and raw inflation&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2018-08-03T14:13:14.293" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="23991" PostTypeId="1" CreationDate="2018-08-03T15:02:07.710" Score="1" ViewCount="136" Body="&lt;p&gt;If the value of fiat currency is a function of the supply of money and it's velocity, is the accumulation of that currency detrimental to its stability?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I may be wrong in my understanding of the value of money but it goes something like this. A unit of a fiat currency over a period is worth the total value of transaction in the economy over the period, divided by the product of the total money in circulation over that period and the velocity of that money.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assuming that is a more or less accurate description of the value of currency does existing sitting currency that is not being invested or spent in that period have any negative effects on it's overall value.&lt;/p&gt;&#xA;" OwnerUserId="19039" LastActivityDate="2018-08-03T15:02:07.710" Title="Does accumulation of fiat currency cause instability?" Tags="&lt;inflation&gt;&lt;currency&gt;&lt;value&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="23992" PostTypeId="1" CreationDate="2018-08-03T15:26:50.390" Score="3" ViewCount="63" Body="&lt;p&gt;As the tariffs war getting escalating, I am curious about how the tariffs works on Iphone. Apple is an American company, and Iphone is its product. But manufactured by factory in China. Is there a tariff imposed on Iphone when it imported back?&#xA;Are all goods that belongs to American company but manufactured in China being included? If not, what is the driver? If it is, what percent of the tariffs are actually product from American company, isn't increasing tariffs just hurting these companies?&lt;/p&gt;&#xA;" OwnerUserId="7923" LastActivityDate="2019-05-13T17:32:06.430" Title="Is Iphone included in tariffs?" Tags="&lt;international-trade&gt;&lt;free-trade&gt;&lt;tariffs&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23993" PostTypeId="2" ParentId="23989" CreationDate="2018-08-03T18:05:12.887" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;why do we need government to control interest rates? Assuming banks&#xA;  are rational and want to make money, wouldn't banks tighten credit&#xA;  rules in the midst of an overheating economy?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I assume that by &lt;em&gt;government&lt;/em&gt; you mean &lt;em&gt;central bank&lt;/em&gt;. Otherwise, I agree with you by saying that governmental intrusion in monetary policy often creates inefficiencies and distortions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The purpose of any [private] financial entity is to maximize its profits rather than the stability of the domestic currency. Thus, a central bank's primary goal is (or should be) to procure that currency stability, which it &lt;em&gt;pursues&lt;/em&gt; by &quot;printing money&quot; and issuing bonds. The conventional term &quot;&lt;em&gt;control&lt;/em&gt; [of interest rates]&quot;, however, is a overstatement/misnomer from the standpoint that financial entities are not prohibited to transact with each other (or with the public) at lower or higher rates than the ones pursued by the central bank.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That being said, a central bank's pursuit of other goals in addition to --or in lieu of-- currency stability tends to impair its ability to achieve that primary goal (see also last paragraph of &lt;a href=&quot;https://economics.stackexchange.com/questions/22395/what-do-interest-rates-tell-us-about-the-state-of-an-economy/22398#22398&quot;&gt;this answer&lt;/a&gt;). See, for instance, the Federal Reserve's assertions of its &lt;a href=&quot;https://www.federalreserve.gov/newsevents/speech/bernanke20101015a.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;dual mandate of maximum employment and price stability&lt;/em&gt;&lt;/a&gt;. Notwithstanding Ben Bernanke's renown inflationary profile, his repeated calls in the midst of the Great Recession for Congress to enact reforms reflects his awareness that his monetary policy of essentially printing more money was improper, insufficient, and/or ineffective to address the core issues of the labor market. The vulnerability is more severe in those economies where a government exerts greater control on that nation's central bank.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;You could argue that banks are greedy, but at the same time, they're&#xA;  smart and have a long-term view. If a bank loaned money in an&#xA;  overheating market, they wouldn't be in business for too long.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Some financial institutions negligently or recklessly incur excessive risk, thereby causing severe repercussions when unexpected market conditions occur. Consider the Barings Bank. This entity was founded in the XVIII century, yet the lack of scrutiny of a strategy performed by one of its hitherto &quot;star traders&quot; caused its collapse in 1995.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My allusion to the Barings Bank diverts from your central inquiry, but it illustrates that an entity's longstanding prevalence in the economy does not disprove the necessity for a [purportedly disinterested] regulator or central bank to scrutinize anomalies that are potentially catastrophic.&lt;/p&gt;&#xA;" OwnerUserId="18552" LastEditorUserId="18552" LastEditDate="2018-08-03T18:31:52.073" LastActivityDate="2018-08-03T18:31:52.073" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23995" PostTypeId="1" CreationDate="2018-08-03T23:51:20.750" Score="0" ViewCount="58" Body="&lt;p&gt;Utility function is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$U(c_t,l_t)=(1-a)ln(c_t)+aln(l_t)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$l_t$ is leasure time&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$c_t$ is consumption &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Production function is $y_t=k_t^e(1-l_t)^{1-e}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$k_{t+1}=i_t+(1-\delta )k_t$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where k is capital delta is capital depreciation rate. i is investment. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;when a=0, would economy accumulate more physical capital? Why?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;——&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think that, when a=0, agents get utility only from consumption. They don’t get utility from leisure time so they have a more tendency to work. So output increases, which leads to capital accumulation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does this make sense? How can more correctly interpret this? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;—-&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In addition to interpretation, I have essentially following question&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I derive optimal physical capital equation for delta=1and for the maximization problem&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$v(k_t)=max\sum B^tu(c_t,l_t)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$k_{t+1}=Bey^*_t$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But I could not demonstrate this is locally stable. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Please give me a hint. Thanks. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you want, I can write my solution in detail. &lt;/p&gt;&#xA;" OwnerUserId="19044" LastEditorUserId="-1" LastEditDate="2018-08-28T11:27:37.990" LastActivityDate="2018-09-27T12:00:03.290" Title="when a=0, would economy accumulate more physical capital? Why?" Tags="&lt;macroeconomics&gt;&lt;self-study&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23996" PostTypeId="1" AcceptedAnswerId="23998" CreationDate="2018-08-04T08:11:04.033" Score="1" ViewCount="23" Body="&lt;p&gt;My energy supplier offers two tariffs:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first is a &quot;Price Protection tariff&quot;. It gives you a fixed per-kWh price for 12 months, and has no exit fees (23.28 cent)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The other is a &quot;Variable price tariff&quot;. It has a higher per-kWh price (25.31 cent).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This appears to be the only difference.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am a little thrown regarding the economics here.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Does this mean the company is assuming the price will likely go down?&lt;/li&gt;&#xA;&lt;li&gt;If they believed the price will likely go up, should I not have to pay a premium for the price being fixed.&lt;/li&gt;&#xA;&lt;li&gt;Otherwise, what would be a reason for a customer to choose the variable price tariff?&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="19045" LastActivityDate="2018-08-04T15:02:24.423" Title="Supplier offers &quot;Price Protection Tariff&quot; w/o exit fees, and more expensive Variable Price tariff. Does that mean it is betting on the price falling?" Tags="&lt;price&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23998" PostTypeId="2" ParentId="23996" CreationDate="2018-08-04T15:02:24.423" Score="1" Body="&lt;p&gt;It is possible that the supplier is trying to segment the market:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;For those customers who do not frequently review the pricing options, it has a &quot;standard variable tariff&quot; which is not the lowest price on the market&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;For those customers of theirs or of other suppliers who do review the options, it has a lower price option which it sets competitively, though it hopes that some of these will not review at the end of the 12 month period and will then be automatically switched to the higher price &quot;standard variable tariff&quot; &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Whether you regard this as promoting competition or as an abuse in competitive markets is a complicated political and regulatory question &lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2018-08-04T15:02:24.423" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="23999" PostTypeId="1" AcceptedAnswerId="24001" CreationDate="2018-08-04T19:17:05.257" Score="3" ViewCount="396" Body="&lt;p&gt;I understand that with continuous and strictly increasing utility function we can find Pareto efficient allocations by looking at the allocation that satisfies $MRS_1 = MRS_2$. However, I was not sure how we can find Pareto Efficient Allocations for discontinuous utilities (or one continuous and one discontinuous utility). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For instance, given exchange economy with one unit of initial endowment of the good $x$ and $y$, if we have person A's utility function as $$u_A(x,y) = x^\alpha y^{1-\alpha}$$&#xA;and person B's preference is represented by lexicographic: given $(x,y)$ and $(x',y')$, B prefers the former if&#xA;$$x&amp;gt;x'$$ or &#xA;$$x = x', y&amp;gt;y'$$&#xA;In this case, we can't calculate $MRS_B$. Does anyone have any suggestion how can we find the Pareto Efficient Allocation and Core Allocation? Thank you very much for your help in advance!&lt;/p&gt;&#xA;" OwnerUserId="14542" LastActivityDate="2018-08-05T01:03:31.160" Title="Pareto efficient allocation and core allocation in 2 person exchange economy with discontinuous utility" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24000" PostTypeId="2" ParentId="23995" CreationDate="2018-08-04T21:31:49.807" Score="0" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Does this make sense? How can more correctly interpret this?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It does not. Where did you get those formulations/definitions? I still have to educate myself on utility theory, but I see several issues with these definitions. The inconsistencies and insufficiency as outlined below impede reaching a robust interpretation of what (if any) impact parameter $a$ has on the levels of capital.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;$a$ has to be in [0,1]. Otherwise, leisure time and/or consumption&#xA;would decrease utility, which is absurd. But the ranges of values other&#xA;variables can take are unclear.&lt;/li&gt;&#xA;&lt;li&gt;Unless you establish positive, lower bounds --though greater than&#xA;1-- for  $l_t$ and $c_t$, the utility function would be undefined or&#xA;unbounded (meaning that it could be minus infinite).&lt;/li&gt;&#xA;&lt;li&gt;In the production function, I assume that $e$ is in $[0,1]$. In that&#xA;case, $l_t$ cannot be greater than 1. But that leads to the&#xA;absurdity that &lt;em&gt;leisure time&lt;/em&gt; decreases utility. Moreover, the condition $l_t&amp;lt;=1$ contradicts the previous item (requiring $l_t$ to be greater than 1), unless one introduces positive constants in $U(c_t,l_t)$ to come up with an adequate definition of utility that is compatible with the definition of production function.&lt;/li&gt;&#xA;&lt;li&gt;It seems to me that the production function might have to explicitly or implicitly involve&#xA;$c_t$ (so as to represent production inputs).&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;I think that, when a=0, agents get utility only from consumption. They&#xA;  don’t get utility from leisure time so they have a more tendency to&#xA;  work.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;ol start=&quot;5&quot;&gt;&#xA;&lt;li&gt;How do $i_t$ and $c_t$ relate? That conjecture about $a$ &quot;implies&quot; that&#xA;it should be thought of as a function of $l_t$ and/or $c_t$, but&#xA;that is not evident from the formulations/definitions.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Further scrutiny (and knowledge of utility theory) might help identifying additional issues.&lt;/p&gt;&#xA;" OwnerUserId="18552" LastEditorUserId="18552" LastEditDate="2018-08-04T23:00:56.497" LastActivityDate="2018-08-04T23:00:56.497" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24001" PostTypeId="2" ParentId="23999" CreationDate="2018-08-05T01:03:31.160" Score="2" Body="&lt;p&gt;Here are two pertinent observations:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;If A has a positive amount of the $x$-good, and $B$ a positive amount of the $y$-good, both can be made strictly better off (why?).&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;There is no efficient allocation in which $A$ has no amount of the $x$-good, but a positive amount of the $y$-good (why?).&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Remaining are the allocations in which $B$ gets everything and allocations in which A has a positive amount of the $x$-good and all of the $y$-good. Verify that these are indeed Pareto efficient allocations. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finding core allocations is not much different. There is a small difference if you define blocking so that all parties involved might be strictly better off. In that case, you can have allocations in which $A$ has none of the $x$-good but some of the $y$-good.&lt;/p&gt;&#xA;" OwnerUserId="1442" LastActivityDate="2018-08-05T01:03:31.160" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24002" PostTypeId="1" AcceptedAnswerId="24003" CreationDate="2018-08-05T01:39:13.460" Score="0" ViewCount="45" Body="&lt;p&gt;To get a pdf copy of a paper published in Elsevier is quite difficult. You need to pay a high price. Publishers like Elsevier used to have good reasons to charge people a lot: before the invention of internet it was expensive to make those papers accessible.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, now the cost to make those papers accessible is very low. The marginal cost of sending out a pdf copy is zero. The fixed cost of administration expense is extremely low compare to the publishers' stunningly high profit. What's worse is that the creators of those research papers do not get paid from publishers at all most of the time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;According to the most basic theory of economics, the consumer surplus is maximized if and only if the price is equal to the marginal oppotunity cost. So if we want to benifit the society as a whole, we should set the price of those pdf papers to nearly zero. So the copyright laws today actually unfairly benefit Publishers at the cost of the interest of the whole society.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So should the government force publishers of research papers to make their price more reasonable? Is there any other solution to this problem?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am an ESL learner. please condone my error if it was a language problem. Thank you.&lt;/p&gt;&#xA;" OwnerUserId="19048" LastEditorUserId="1601" LastEditDate="2018-08-05T10:05:09.233" LastActivityDate="2018-08-05T12:00:53.497" Title="Should publishers of scientific papers such as Elsevier be regulated by the government?" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="24003" PostTypeId="2" ParentId="24002" CreationDate="2018-08-05T12:00:53.497" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;According to the most basic theory of economics, the consumer surplus&#xA;  is maximized if and only if the price is equal to the marginal&#xA;  opportunity cost.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;You are mixing agents in using these concepts. Consumer's surplus (or utility) is independent of the producer's marginal cost. Paraphrasing &lt;a href=&quot;https://www.investopedia.com/exam-guide/cfa-level-1/microeconomics/marginal-benefit-cost.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;Investopedia's explanation&lt;/a&gt;, the consumer surplus or utility is maximized when the purchase of an additional unit equals the marginal benefit the consumer obtains from that additional unit.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Should publishers of scientific papers such as Elsevier be regulated&#xA;  by the government?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;No. Doing so could prompt the publisher to reduce the quality of its product or --in an extreme scenario-- close operations altogether. The existence substitute publications which are available for free further weakens the need for governmental intrusion in a private entity's decision-making.&lt;/p&gt;&#xA;" OwnerUserId="18552" LastActivityDate="2018-08-05T12:00:53.497" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24005" PostTypeId="1" AcceptedAnswerId="24359" CreationDate="2018-08-05T14:38:29.637" Score="2" ViewCount="449" Body="&lt;p&gt;My terminology may be off on this one but I can't get a definitive answer on how the above are related. To me, it seems like bartering is a &lt;em&gt;superset of trading&lt;/em&gt; which is itself a &lt;em&gt;superset of monetary exchange&lt;/em&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The goal of every individual using money is to acquire things of value. Money is the means of acquiring valuables but of no value in themselves. Money indicates that at some point in time I produced, acquired, discovered etc something of value which became my possession but I later gave up receiving a numeric representation, which I deemed to accurately represent my possessions value at the time. I now have the &quot;value&quot; but not the valuable (effectively storing it for later use or subdivision).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Bartering is the exchange of something of value for something else of value (the ultimate goal).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Trading is the exchange of a valuable for a (perceived) representation of its value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Monetary exchange is the exchange of two tokens of value accepted in different regions (or by different organizations, countries etc...)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It appears to me that the purpose of any exchange is ultimately between things of value (bartering), on top of which has been added an additional layer of abstraction (money) in order to have a constant (and consequently always desirable &quot;something&quot; for which to make an exchange) and abstracting the trade even further is to make an exchange between mediums of exchange.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Yet, most sources I view, trading is distinguished from bartering as bartering is an exchange between valuables but money is a medium of exchange. &#xA;Is my assumption of a direct hierarchical link between the three forms of exchange correct?&lt;/p&gt;&#xA;" OwnerUserId="19056" LastActivityDate="2019-01-03T06:55:55.880" Title="How is bartering (goods for goods) conceptually related to trading (goods for money) and monetary (money for money) exchange?" Tags="&lt;trading&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24006" PostTypeId="2" ParentId="24005" CreationDate="2018-08-05T16:05:34.800" Score="1" Body="&lt;p&gt;I think it really depends on your what you mean by the words &quot;trading&quot;, &quot;bartering&quot; and &quot;monetary exchange&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;E.g. the sentence &quot;I will trade my apple for your orange&quot; describes a barter, yet it uses the word trade. &quot;Let us trade places&quot; also does not involve any money.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you google &quot;monetary exchange took place&quot; you will find several sentences that merely imply someone got money for something, not necessarily another type currency.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If by barter you mean trading any two (or more) types of goods, and by trade you mean trading one (or more) type of goods for one (or more) type of currency and by monetary exchange you mean trading two (or more) types of currency, then yes, you are right, because currencies are in some sense goods and the rest is a tautology.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2019-01-03T06:55:55.880" LastActivityDate="2019-01-03T06:55:55.880" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24007" PostTypeId="1" CreationDate="2018-08-05T21:42:42.367" Score="1" ViewCount="659" Body="&lt;p&gt;There is a short article in The Economist (link below) where the writer makes the claim that because there are firms the exhibit economies of scale - in driverless technology - they will eventually drive out the fierce competition that occupies the current industry. Reasons for this is that falling average cost enables firms to produce more units, which get more testing and data: so, more date includes better safety and technology, resulting in more corporate partners/investment, implying an eventual crowding out of smaller firms. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I think, is that monopolies - or even 2 or 3 firm oligopolies, although much more possible - don't typically form in this way. Natural monopolies form when markets cannot efficiently contain the introduction of another firm, which means there must be economies of scale and relatively low demand to keep out competitors. At least right now, in this market - which is driven primarily through software development - I don't see a monopoly forming. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then there are barriers to entry. There aren't any on the books yet, but the article lists a few that could happen in theory, such as regulation and the curtailing of less safe/successful firms being ejected from the market. What are your thoughts? Thanks &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.economist.com/finance-and-economics/2018/06/07/the-market-for-driverless-cars-will-head-towards-monopoly&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.economist.com/finance-and-economics/2018/06/07/the-market-for-driverless-cars-will-head-towards-monopoly&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="5404" LastActivityDate="2018-08-05T21:42:42.367" Title="Will the market for driverless cars move toward a monopoly?" Tags="&lt;monopoly&gt;&lt;competition&gt;&lt;oligopoly&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24008" PostTypeId="1" CreationDate="2018-08-06T10:35:47.070" Score="2" ViewCount="52" Body="&lt;p&gt;Transferable utility is a concept that seems to be associated with cooperative game theory and coalitions. I would like to know if there are any examples of transferable utility in non-cooperative game theory. &lt;/p&gt;&#xA;" OwnerUserId="5591" LastActivityDate="2018-08-09T19:03:57.090" Title="Is it possible to have transferable utility in non-cooperative games?" Tags="&lt;game-theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24010" PostTypeId="1" AcceptedAnswerId="41482" CreationDate="2018-08-06T16:22:08.527" Score="2" ViewCount="2860" Body="&lt;p&gt;I'm trying to decide whether to run a multinomial logit or a conditonal logit (McFadden, 1973). I have data from a choice-based conjoint study in which each of the respondent's choices was between a pair of products with varying characteristics, including price. Each of the characteristics is a continuous variable, if that matters. I want to estimate a marginal willingness to pay for each of the characteristics. Typical explanations of how the two models differ are as follows:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Multinomial logit models a choice as a function of the &lt;em&gt;chooser's&lt;/em&gt; characteristics, whereas conditional logit models the choice as a function of the &lt;em&gt;choices’&lt;/em&gt; characteristics.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;By this logic, I would lean towards a conditional logit given that I'm trying to estimate a marginal willingness to pay for each characteristic. On the other hand, the values I estimate for this depend entirely on the preferences of the respondents, so you could say that I'm really estimating something relating to the preferences of respondents, rather than anything innate about the choices' characteristics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does anybody have a more crisp understanding of the differences between the models and/or reflections on which would be more appropriate in this setting?&lt;/p&gt;&#xA;" OwnerUserId="48" LastActivityDate="2020-12-12T09:24:21.967" Title="Difference between multinomial logit and conditional logit" Tags="&lt;applied-econometrics&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="24014" PostTypeId="2" ParentId="11088" CreationDate="2018-08-06T20:45:11.013" Score="1" Body="&lt;p&gt;The following is Table 2 from &lt;a href=&quot;http://arc.hhs.se/download.aspx?MediumId=1428&quot; rel=&quot;nofollow noreferrer&quot;&gt;The Infant Industry Argument: a Critical Scrutiny&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/bI9R7.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/bI9R7.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&#xA;J.M.H. Govers (2012)&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Therefore,  a  second  best  alternative  can  be  introduced  which &#xA;  examines  the  rate  of productivity   growth   of   the   protected industry   while   drawing   a   comparison   with  unprotected &#xA;  industries in  other  countries  (Bell  et  al.,  1984).  As  an &#xA;  alternative  one  can look  at  the  changes  in  productivity  levels&#xA;  of  infants  during  a  period  of  protection.... The majority of the&#xA;  firms presented however, show a modest productivity growth while being&#xA;  under protection....A  rough  comparison  therefore  concludes  that &#xA;  only  a part   of   the   infant   industries   represented   in Table&#xA;  2 experience   higher   levels   of productivity  growth  than  their &#xA;  mature  peers  abroad.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So, roughly speaking, the industries in this table with productivity changes below 5% can be thought of as infant industry failures and failures of industrial policy. &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2018-08-06T20:45:11.013" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24015" PostTypeId="1" AcceptedAnswerId="24017" CreationDate="2018-08-06T21:59:39.407" Score="1" ViewCount="82" Body="&lt;p&gt;Let us consider a perfectly competitive one-period production economy consisting of one firm, N&gt;0 household(s) and one government. Each household is endowed with x unit(s) of physical capital and with h unit(s) of time that can be allocated to work: e and/or turn into leisure time: l at a rate of one for one. The preferences of the representative household are represented by the following utility function:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/uHv2S.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/uHv2S.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;commodity is produced by the single perfectly competitive firm using the following Cobb-Douglas production function:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$Y=AK^{\alpha}H^bL^{1-\alpha-b}$$&#xA;where Y denotes the aggregate level of market production, K represents the aggregate level of private physical capital, H represents the aggregate level of public physical capital, L stands for the aggregate labour input defined as the total amount of time allocated to work, and ,b ∈ (0,1), A&gt;0 are parameters. The firm rents from households both labour at the real wage rate w and physical capital at the real rental rate . Each household earns a real dividend income that corresponds to a fraction 1/N&#xA;of the firm’s profit P , pays a physical capital tax t $\in$(0,1) proportional to his real&#xA;physical capital income. Let us assume that a fraction  ∈ (0,1) of the total tax revenue T is invested into the public physical capital:  =  and a fraction 1 −  ∈ (0,1) is consumed by the government:  = (1 − ).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Would production possible without the government: t= 0? Do households have incentives to rent the physical capital to the firm if t= 1? &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I wrote the governemnt’s revenue = $T= t(NρΧ)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And then I think to use laffer curve to answer this question. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example &lt;/p&gt;&#xA;&#xA;&lt;p&gt;when t=0, T=0, so H=0 so Y=0. There is no production. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;When, t=1, T=NρΧ so H&gt;0 and Y&gt;0&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And hh’s phisical capital revenue=(1-t )ρX. So when t=1, there is no revenue for households. So they don’t want to rent their physical capitals. &#xA;In order to find optimal $t^*$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I need to maximize $T= t(NρΧ)$ w.r.t $t$. But I could not get any reasonable value. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;——&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An edit:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Should I consider X depends on t here. That is X=X(t)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then    $$ \max tNρΧ(t)$$ subject to $t$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By FOC. NpX(t)+tNρΧ’(t)=0&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There exist $t^*$ such that $NpX(t*)+t^*NρΧ’(t*)=0$ Holds. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this way correct? Or &lt;/p&gt;&#xA;&#xA;&lt;p&gt;How can I solve this question? &lt;/p&gt;&#xA;" OwnerUserId="15030" LastEditorUserId="15030" LastEditDate="2018-08-06T22:21:05.200" LastActivityDate="2018-08-07T10:41:38.450" Title="Laffer curve in one period economy" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24016" PostTypeId="1" CreationDate="2018-08-07T03:49:03.410" Score="1" ViewCount="46" Body="&lt;p&gt;It seems as if &quot;pure, naked self-interest&quot;, that is, self-interest without liberty, results often in a zero-sum game. (I'm using the term liberty in a Lockean sense, where it is taken to mean the presence of wise regulations that actually enhances our freedoms).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, it also appears that the presence of such regulations have a role in the harnessing of self-interest for the common good, where a zero-sum game is essentially converted into a positive-sum game.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm curious if this line of analysis has been explored in the literature. Any references to articles in the literature are welcome and would be much appreciated.&lt;/p&gt;&#xA;" OwnerUserId="5591" LastActivityDate="2018-08-07T03:49:03.410" Title="Zero-sum games being converted into positive-sum games" Tags="&lt;philosophy-of-economics&gt;&lt;adam-smith&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24017" PostTypeId="2" ParentId="24015" CreationDate="2018-08-07T10:41:38.450" Score="3" Body="&lt;p&gt;Disclaimer: I still have to educate myself on utility theory (same as I disclosed &lt;a href=&quot;https://economics.stackexchange.com/questions/23995/when-a-0-would-economy-accumulate-more-physical-capital-why/24000#24000&quot;&gt;here&lt;/a&gt;).&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Would production possible without the government: t= 0?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It cannot be determined with the information given. The problem's definition of $T$ is unclear or incomplete, as the only component of $T$ mentioned in the problem is the physical capital tax rate $t$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assuming that the only source of government revenue is the physical capital tax, then no, production would not be possible if $t=0$ because --as you point out--, the latter implies that $T$, $H$, and therefore $Y$ are zero. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But that prompts the question: Does the definition of production $Y$ even make sense if  = ? Obviously not: Production should still be possible because private physical capital $K$ is not affected by the condition $t=0$.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Do households have incentives to rent the physical capital to the firm&#xA;  if t= 1?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Yes, they may have an indirect incentive even if $t=1$: The real wage $w$. If nobody rented physical capital, there would be no demand for labor. Consequently, no household would earn income from labor even if a household's utility function indicates a preference for work over leisure.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I gather that the problem is a textbook exercise, and/or that not all the assumptions are reflected in the inquiry. Thus, a portion of my answer possibly goes beyond the scope of that chapter or section.&lt;/p&gt;&#xA;" OwnerUserId="18552" LastActivityDate="2018-08-07T10:41:38.450" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24018" PostTypeId="1" CreationDate="2018-08-07T11:12:58.353" Score="2" ViewCount="106" Body="&lt;p&gt;I asked myself: How is it that the stocks are always rising? How is money generated every year so that the value of a company rises?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I mean, at some point there is a finite amount of money in the system, isn't it? Right now people assume that the stock market is overheated and not many sources are left where money can come from to make it rise even higher.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now my question is: How and where is money coming from? I know, people invest, but at some point they take money from point A to B and don't create it. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there a basic book out there which explains the basics? Not for dummies but also not for experts who assume to know everything. Maybe a pragmatic economics book?&lt;/p&gt;&#xA;" OwnerUserId="19072" LastActivityDate="2018-08-07T17:38:34.347" Title="Why is the stock market always rising?" Tags="&lt;stock-market&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24021" PostTypeId="2" ParentId="24018" CreationDate="2018-08-07T15:41:56.100" Score="-1" Body="&lt;p&gt;&lt;a href=&quot;https://rads.stackoverflow.com/amzn/click/1908506547&quot; rel=&quot;nofollow noreferrer&quot;&gt;&quot;Where Does Money Come From?&quot;&lt;/a&gt; is what you need I believe:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Where Does Money Come From? reveals how, contrary to public perception, the bulk of today's money supply is created and allocated by commercial banks in their role as providers of credit. The authors argue that this system is inherently unstable, with little effective regulation of how much credit is provided or whether it is used for productive or speculative purposes. Based on detailed research and consultation with experts, including from the Bank of England, Where Does Money Come From? reviews theoretical and historical debates on the nature of money and banking and explains the role of the central bank, the Government and the European Union. This Second edition includes new sections on Libor and quantitative easing in the UK and the sovereign debt crisis in Europe.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The book also contains a lot of references for further reading.&lt;/p&gt;&#xA;" OwnerUserId="14062" LastEditorUserId="14062" LastEditDate="2018-08-07T17:15:47.793" LastActivityDate="2018-08-07T17:15:47.793" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24022" PostTypeId="2" ParentId="24018" CreationDate="2018-08-07T17:38:34.347" Score="2" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;How is it that the stocks are always rising? &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Because companies generate value.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;How is money generated every year so that the value of a company rises?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It isn't. Money is a &lt;em&gt;measure&lt;/em&gt; of value, it is not value itself. Suppose you spend the day making a painting that's worth 100 dollars. You added one hundred dollars' worth of &lt;em&gt;value&lt;/em&gt; to the economy, but you didn't add any actual dollars to the economy. There's no need for there an extra 100 dollars to be created for you to make the painting. If the market capitalization of a company rises from 10 billion dollars to 11 billion dollars, the amount of money that people are willing to pay for the company has increased, but the amount of money that &lt;em&gt;exists&lt;/em&gt; hasn't increased.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;I mean, at some point there is a finite amount of money in the system&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Well, the money supply is generally increasing, but that's separate from the rise of stock prices.&lt;/p&gt;&#xA;" OwnerUserId="16462" LastActivityDate="2018-08-07T17:38:34.347" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24025" PostTypeId="1" CreationDate="2018-08-07T21:59:22.570" Score="4" ViewCount="73" Body="&lt;p&gt;I was researching poverty in Africa and was reading about their daily wages. &#xA;Based on the article linked, &lt;strong&gt;2/3 of Africans live on less than $1.25 USD, a day&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, what this article and many other ones don't elaborate on is how that $1.25 is used. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would like to better understand how African families use their money, and am especially interested to learn how much money goes into &lt;em&gt;savings&lt;/em&gt;. For example, maybe 1 dollar is used for food and other necessities, and other $0.25 is kept as savings. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If anyone has any answers or data that may help answer this question, I appreciate any help. Thanks.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Link: &#xA;&lt;a href=&quot;http://global-growing.org/en/content/fact-7-about-three-quarters-african-population-live-less-2-half-population-less-125-day&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://global-growing.org/en/content/fact-7-about-three-quarters-african-population-live-less-2-half-population-less-125-day&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="19079" LastEditorUserId="19079" LastEditDate="2018-08-11T22:10:17.583" LastActivityDate="2018-08-11T22:10:17.583" Title="How Africans use their wages?" Tags="&lt;data-request&gt;&lt;money&gt;&lt;wages&gt;&lt;poverty&gt;&lt;saving&gt;" AnswerCount="0" CommentCount="5" FavoriteCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24026" PostTypeId="1" AcceptedAnswerId="24043" CreationDate="2018-08-08T01:14:34.947" Score="1" ViewCount="61" Body="&lt;p&gt;I am currently reading &quot;The Economics of Superstar&quot; written by Rosen (1981). I don't understand one differential equation he used in the paper. The equation is as follows: &#xA;$$\frac{dp}{dz} = (p+s)/z.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;He says if we integrate this, we get $p(z) = vz-s$ for $v = (p+s)/z$. I think that it is a simple differential equation, but I am having trouble solving this. Could you give some help? &lt;/p&gt;&#xA;" OwnerUserId="17957" LastActivityDate="2018-08-09T14:18:46.433" Title="Solving differential equation in The Economics of Superstar (by Rosen)" Tags="&lt;microeconomics&gt;&lt;difference-equations&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24028" PostTypeId="1" AcceptedAnswerId="24063" CreationDate="2018-08-08T05:14:23.750" Score="1" ViewCount="129" Body="&lt;p&gt;&lt;strong&gt;Ramsey model with income tax&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Question:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For this question you are required to setup a Ransey-Cass-Koopmans model economy with a Cobb-Douglas constant returns to scale production technology, with inputs of capital (K) and labour (L). Setup the model with a constant depreciation rate, constant rate of labour- augmenting technological progress and constant rate of population growth. Also incorporate a government that finances its spending each period via a proportional income tax system. Assume that both labour and capital income are taxed at the same rate – say τ. You can assume that government spending is completely wasteful; or you can make some other assumption about how the tax revenue is used, however do not allow government spending to generate endogenous growth.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am asking only this past&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;blockquote&gt;&#xA;    &lt;p&gt;Use the model to explain the income gap that exists between wealthy and poor countries.&lt;/p&gt;&#xA;  &lt;/blockquote&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;———&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I did:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I solved this model with hamiltonian. And I got the following results (I posted picture of my results, because this is only extra information that helps to solve question.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/oaqM9.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/oaqM9.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And the phase diagram&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/HJoYa.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/HJoYa.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And at steady state, saving rate is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$s^*={(delta +n + x)(1-τ)a\over p+delta+θx}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;x is growth rath of technology. (Productivity growth rate) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Delta depration rate. and production function $Y=K^a(AL)^{1-a}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My interpretation: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Economic growth is measured only by x. So only x and A affect the income. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume that we have $k_i&amp;lt;k^*$ and every parameters are constant for two countries except for x . Poor country has lower x. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;When x increases, saving decreases, MPK decreases, so capital rate of return decreases, capital stock increases. And eventually they have the same growth rate. (This is substitution effect) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But I could not know how to explain this question better. Any help is appreciated. Really I need a help too much! &lt;/p&gt;&#xA;" OwnerUserId="15030" LastActivityDate="2018-08-10T12:44:49.053" Title="Income gap in Ramsey model" Tags="&lt;macroeconomics&gt;&lt;self-study&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24029" PostTypeId="1" AcceptedAnswerId="24036" CreationDate="2018-08-08T05:17:15.903" Score="2" ViewCount="76" Body="&lt;p&gt;When in surplus or shortage, in order to achieve equilibrium price must change. I understand that. But what if when in surplus, suppliers choose to instead sell less, but for the same price? Vice versa for shortage.&lt;/p&gt;&#xA;" OwnerUserId="19081" LastActivityDate="2018-08-08T22:12:21.883" Title="Supply Deman Equilibrium" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24030" PostTypeId="1" AcceptedAnswerId="24033" CreationDate="2018-08-08T10:28:48.430" Score="3" ViewCount="85" Body="&lt;p&gt;In some sense this is a follow-up to&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://economics.stackexchange.com/questions/3141/correlation-between-salary-level-and-housing-prices-in-a-town&quot;&gt;Correlation between salary level and housing prices in a town&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There I was reminded to ask for causality, not correlation. I am interested in the causal effect of mathematical education on salaries even if I do not use those words below.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, my question is the following: does mathematical education result in a better salary? Here, by mathematical education, I do not mean mathematics as a major but rather a major with heavy mathematics in it. Probably a better formulation is this: is there any literature on whether studying applied mathematics pays off? Again not an Applied Mathematics as a curriculum per se, but a course with heavy applied math content.&lt;/p&gt;&#xA;" OwnerUserId="1564" LastEditorUserId="69" LastEditDate="2018-08-09T11:28:15.570" LastActivityDate="2018-08-09T11:28:15.570" Title="Does mathematical education imply a better salary?" Tags="&lt;reference-request&gt;&lt;education-economics&gt;&lt;causality&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="24031" PostTypeId="1" AcceptedAnswerId="24047" CreationDate="2018-08-08T12:56:18.940" Score="1" ViewCount="158" Body="&lt;p&gt;I don't think I understand how optimization problems with a linear function work as of now. If you have a production economy with two agents, two goods and Cobb-Douglas utility representation, and you introduce a firm with a linear production function and fixed costs that basically acts as a transfer from one good (say x), to the other good (say y), as far as I can see, the solution to the firm's maximization is to shut down.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is what I am talking about specifically:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$&#xA;u_1(x,y)=\alpha\ ln(x)+(1-\alpha)ln(y)&#xA;$$&#xA;$$&#xA;u_2(x,y)=\beta\ ln(x)+(1-\beta)ln(y)&#xA;$$&#xA;$e_1=(0,1), e_2=(1,0)$&#xA;with a linear production function for firm $f(x)=x$ where they use x as an input and produce y, and there is a fixed cost FC&gt;0 only if they produce. My problem lies in how do I solve the firm's maximization problem? It's linear, so I don't think I can use the FOC like you can with the utility maximization problem. Intuitively, I &quot;feel&quot; like it's going to be a corner solution, but I don't know how to systematically solve optimization problems with a linear function.&lt;/p&gt;&#xA;" OwnerUserId="19084" LastActivityDate="2018-08-09T16:16:40.283" Title="General Equilibrium with Linear Production" Tags="&lt;production-function&gt;&lt;optimization&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24032" PostTypeId="1" AcceptedAnswerId="24037" CreationDate="2018-08-08T14:04:39.947" Score="2" ViewCount="65" Body="&lt;p&gt;I am reading a paper &lt;a href=&quot;https://www.dropbox.com/s/sodwp5j6a9i9xhf/Okuguchi%20-%201981%20-%20Population%20Growth%2C%20Costly%20Innovation%20and%20Modified%20Hartwick%27s%20Rule.pdf?dl=0&quot; rel=&quot;nofollow noreferrer&quot;&gt;Okuguchi,1981&lt;/a&gt; with a Ramsey growth model. There is a constant population growth $n$ such as $L(t)=e^{nt}$. The way he writes the Hamiltonian is quite interesting (equation 5 on page 658.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$H=e^{-(\rho+n\left(1-\sigma\right))t}\left[\frac{C^{1-\sigma}}{1-\sigma}+\psi AG+\phi\left(Q-C\right)\right]+\lambda R$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where capital letters represent the aggregate variables and not per capita variables. $\lambda$ is constant in the model.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In fact, the author does not deal with per capita variables but aggregate variables. Of course, he takes into account the population growth since $n$ appears in co-state dynamics. However, I can not understand how he puts the exponential term $e^{-(\rho+n\left(1-\sigma\right))t}$ in the Hamiltonian in this way. &#xA;I would really appreciate if you give me some hints or suggestions. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the same fashion, is it correct to write something like&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$H=e^{-(\rho-n)t}\left[U\left(C\right)+\lambda\left(AK-C\right)+\mu\left(\left(1-S\right)S-\gamma AK\right)\right]$$&lt;/p&gt;&#xA;" OwnerUserId="2938" LastEditorUserId="2938" LastEditDate="2018-08-08T14:44:14.473" LastActivityDate="2018-08-09T10:16:04.283" Title="Ramsey growth model - per capita vs aggregate variables" Tags="&lt;macroeconomics&gt;&lt;economic-growth&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24033" PostTypeId="2" ParentId="24030" CreationDate="2018-08-08T14:16:02.683" Score="5" Body="&lt;p&gt;Math is easier if you are smarter. As such, math education is a costly and therefore credible signal of general intelligence. Below are two experiments that try to get around this selection issue by looking at exogenous variation in worker mathematical ability on labor market outcomes. However, a word of caution. They do not present evidence that mathematical education makes you more productive. Even if all mathematical education is is a signal of intelligence, it can be valuable to individual workers to get more mathematical education, and they will on average benefit from interventions that lower the cost of getting a mathematical education  &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;We examine the link between math skills and labor-market outcomes&#xA;  using a resume-based field experiment. Specifically, we send&#xA;  fictitious resumes in response to online job postings, randomly&#xA;  assigning some resumes to indicate stronger math skills, and measure&#xA;  employer responses. The resumes that are randomly assigned to indicate&#xA;  stronger math skills receive more interest from employers than the&#xA;  comparison resumes. Our findings add to the body of evidence showing&#xA;  that stronger math skills positively affect labor-market outcomes.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Math skills and labor-market outcomes: Evidence from a resume-based field experiment by &lt;a href=&quot;https://www.sciencedirect.com/science/article/pii/S0272775711001531&quot; rel=&quot;noreferrer&quot;&gt;Koedel and Tyhurst (2012)&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Outsourcing  of  jobs  to  low-wage  countries  has  increased  the &#xA;  focus  on  the  accumulation  of skills – such as Math skills – in&#xA;  high-wage count ries. In this paper, we exploit a high school pilot &#xA;  scheme  to  identify  the  causal  effect  of  advanced  high  school &#xA;  Math  on  labor  market outcomes.  The  pilot  scheme  reduced  the &#xA;  costs  of  choosing  advanced  Math  because  it  allowed for at more&#xA;  flexible combination of Math with other courses. We find clear&#xA;  evidence of  a  causal  relationship  between  Math  and  earnings &#xA;  for  the  students  who  are  induced  to  choose  Math  after  being &#xA;  exposed  to  the  pilot  scheme.  The  effect  partly  stems  from &#xA;  the  fact  that these students end up with higher education.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Is there a causal effect of high school math on labor market outcomes? by &#xA;&lt;a href=&quot;ftp://repec.iza.org/SSRN/pdf/dp2357.pdf&quot; rel=&quot;noreferrer&quot;&gt;Joensen and Nielsen (2009)&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2018-08-08T14:16:02.683" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24034" PostTypeId="2" ParentId="21926" CreationDate="2018-08-08T20:38:31.887" Score="1" Body="&lt;p&gt;I would give you a simple answer: when the marginal cost is equal to the marginal income. This would be the equilibrium and beyond that the company would lose money.&lt;/p&gt;&#xA;" OwnerUserId="18953" LastActivityDate="2018-08-08T20:38:31.887" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24035" PostTypeId="1" AcceptedAnswerId="24038" CreationDate="2018-08-08T21:17:16.067" Score="3" ViewCount="466" Body="&lt;p&gt;In introductory economics courses the concept of marginal utility is illustrated through simple examples like how much benefit one gets from eating another slice of pizza (i.e first slice provides 100 utils, second slice 50 etc). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I was wondering if there exists a utility function that can allow for the possibility of over consumption (i.e. a function that would produce -50 utils from the 10th slice of pizza ).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know there would be issues with this since utility functions are only defined up to monotonic transformations, and concavity in our utility functions would violate the &quot;averages preferred to extremes&quot; assumption. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does such a function exist?&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2018-08-09T16:04:23.593" Title="modelling disutility from over consumption" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;consumer-theory&gt;" AnswerCount="3" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24036" PostTypeId="2" ParentId="24029" CreationDate="2018-08-08T22:12:21.883" Score="1" Body="&lt;p&gt;In the standard competitive-market supply and demand model, the prediction is that, when an above-equilibrium price leads to surplus, prices will naturally fall. You're asking why suppliers don't just sell less at the same price instead, yes?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The basic reason why this doesn't happen is that doing this would require coordination on the part of the sellers, and there are too many of them to all work together.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Imagine, for example, that the equilibrium price is 10, but the current price is 15, leading to a surplus, with $Q_s=20$ and $Q_d=10$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In your scenario, you end up with sellers agreeing to sell 10 units at a price of 15 each, and no more. However, at this high price, each seller will have an incentive to produce just a little more. One of the sellers, let's call her Jane, will sneak an 11th unit into the market, and either try to sell it as one of the ten units in the market at a price of 15, hoping that one of the other sellers will end up with an un-sellable unit, or Jane will try to take over the market by offering at a slightly lower price of 14 (which she can certainly afford to do - 14 is still much higher than her marginal cost).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the plan to fall apart, there just has to be one person like Jane willing to work in their own interest against all the other sellers. And since there are by definition &lt;em&gt;many many&lt;/em&gt; suppliers in the market, surely there's at least one Jane sitting around drooling at the thought of all those sales.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Most of the sellers would be better off overall if they were able to stick to an agreement to have a high-price and sell a low-quantity (after all, this is basically what monopolies and oligopolies do). But because there are so many competitors, each of whom has an individual incentive to break that agreement, the agreement is going to fall apart, leading prices to drop and quantity-traded to increase up to the equilibrium point.&lt;/p&gt;&#xA;" OwnerUserId="12848" LastActivityDate="2018-08-08T22:12:21.883" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24037" PostTypeId="2" ParentId="24032" CreationDate="2018-08-09T07:38:45.177" Score="1" Body="&lt;p&gt;For per capita $c=C/L$, I guess it comes from &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\int_0^{\infty}e^{-\rho t}\frac{c(t)^{1-\sigma}}{1-\sigma} dt = \int_0^{\infty}e^{-\rho t}\frac{(C(t)/L(t))^{1-\sigma}}{1-\sigma} dt$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$= \int_0^{\infty}L(t)^{-(1-\sigma)}e^{-\rho t}\frac{C^{1-\sigma}}{1-\sigma} dt$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Normalizing initial population to $L_0=1$ we have $L(t) = e^{nt}$ so&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$...= \int_0^{\infty}(e^{nt})^{-(1-\sigma)}e^{-\rho t}\frac{C(t)^{1-\sigma}}{1-\sigma} dt =  \int_0^{\infty}e^{-(1-\sigma)nt}e^{-\rho t}\frac{C(t)^{1-\sigma}}{1-\sigma} dt$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$=\int_0^{\infty}e^{-[\rho+(1-\sigma)n]t}\frac{C(t)^{1-\sigma}}{1-\sigma} dt$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regarding the application of the discounte factor throughout the whole Hamiltonian, it just implies that the multipliers $\lambda$ and $\mu$ are to be treated as &lt;em&gt;present-value&lt;/em&gt; multipliers, and not &lt;em&gt;current-value&lt;/em&gt; multipliers. In the textbook formulation and in per capita magnitudes, we usually use current (running) value mutipliers and we totally ignore the discount factor. This affects the intertemporal first-order condition. In generic notation, denote $B$ the state variable, $q$ the mutliplier and $r$ the discount factor. Then, with present-value mutlipliers, we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\partial H}{\partial B} = -\dot q$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;while if we interpret $q$ as a current-value multiplier we have &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\partial H}{\partial B} = r q-\dot q&#xA;$$&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2018-08-09T10:16:04.283" LastActivityDate="2018-08-09T10:16:04.283" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="24038" PostTypeId="2" ParentId="24035" CreationDate="2018-08-09T08:22:47.353" Score="4" Body="&lt;p&gt;Varian's Intermediate Microeconomics covers a concept called the &lt;a href=&quot;https://en.wikipedia.org/wiki/Bliss_point_(economics)&quot; rel=&quot;nofollow noreferrer&quot;&gt;bliss point&lt;/a&gt;.&#xA;If the consumed amount of a certain good is under the quantity specified by the bliss point, then the consumer would prefer to consume more of the good, all other things being equal. If the consumed amount is over the quantity specified by the bliss point, then consumer would prefer to consume less of the good, all other things being equal (i.e. it becomes a 'bad').&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In case of one good, a utility function that represents this kind of preference is&#xA;$$&#xA;U(x) = -(x - x_b)^2,&#xA;$$&#xA;where $x_b$ is the bliss point quantity. For two goods, similar utility functions exist, e.g.&#xA;$$&#xA;U(x,y) = -(x - x_b)^2 - (y - y_b)^2&#xA;$$&#xA;or&#xA;$$&#xA;\hat{U}(x,y) = |x - x_b| + |y - y_b|.&#xA;$$&#xA;Both $U$ and $\hat{U}$ violates &lt;a href=&quot;https://en.wikipedia.org/wiki/Monotone_preferences&quot; rel=&quot;nofollow noreferrer&quot;&gt;monotonicity&lt;/a&gt;, $U$ represents strictly &lt;a href=&quot;https://en.wikipedia.org/wiki/Convex_preferences&quot; rel=&quot;nofollow noreferrer&quot;&gt;convex&lt;/a&gt; preferences, so averages are still preferred to extremes. $\hat{U}$ represents weakly convex preferences.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2018-08-09T16:02:09.337" LastActivityDate="2018-08-09T16:02:09.337" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24039" PostTypeId="2" ParentId="24035" CreationDate="2018-08-09T09:44:24.280" Score="3" Body="&lt;p&gt;The function&#xA;$$u(c) = -ac^2 + bc$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;does the job of initially providing positive utility, then having a maximum, then declininig (negative marginal utility) and eventually turning negative itself. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;One should be clear though that these are cardinal utility concepts. I haven't worked out how they would stand up in an ordinal utility framework.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2018-08-09T10:34:37.480" LastActivityDate="2018-08-09T10:34:37.480" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24043" PostTypeId="2" ParentId="24026" CreationDate="2018-08-09T11:28:22.530" Score="1" Body="&lt;p&gt;The differential equation is of the form&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$y' + f(x)y = q(x)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The correct answer in our case is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$p = -s$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;so that you know what you are targeting.&#xA;Namely,  it does not depend on $z$. You can verify that it satisfies the differential equation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then the author just plays around like&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$p= - s \implies p -p = s-s \implies p - \frac p z z = \frac s z z - s $$   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$           p = \frac p z z + \frac s z z - s = \frac {p+s}{z}z - s$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies p = vz -s $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;...and I suppose this playing around with identities is helpful to what he does in the paper.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2018-08-09T14:18:46.433" LastActivityDate="2018-08-09T14:18:46.433" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="24044" PostTypeId="2" ParentId="24035" CreationDate="2018-08-09T14:09:14.340" Score="3" Body="&lt;p&gt;I think that $\hat{U}$ from denesp's answer is great, and so is the one by Alecos Papadopoulos. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another example of a function would be;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$U(x,y) = e^{-(x-x_0)^2-(y-y_0)^2}$ where $x_0,y_0$ is the bliss point. &#xA;This would be how it looks with $x_0=2, y_0=2$:&#xA;&lt;a href=&quot;https://i.stack.imgur.com/UUk7x.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/UUk7x.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and this with the contour set levels:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/zSHlM.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/zSHlM.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="19094" LastEditorUserId="1601" LastEditDate="2018-08-09T16:04:23.593" LastActivityDate="2018-08-09T16:04:23.593" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="24045" PostTypeId="1" CreationDate="2018-08-09T14:40:34.370" Score="5" ViewCount="1858" Body="&lt;p&gt;My question is simple: in theory, why should we expect the total quantity that firms want to sell to be (at least approximately) equal to the total quantity that consumers want to buy?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As I understand it, the standard explanation is something like this. If supply were greater than demand (for instance), then there must be some 'frustrated' sellers who cannot sell all of the units that they want to sell. Instead of paying the market price, buyers could therefore pay a lower price to these sellers while still buying all the units that they want to purchase. This pushes the price downwards, a process that continues until supply equals demand.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I find this kind of explanation unsatisfying for two reasons:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;In the standard framework of competitive equilibrium, agents choose quantities (and view prices as fixed). And yet, the disequilibrium adjustment story here relies on price setting.&lt;/li&gt;&#xA;&lt;li&gt;The explanation is highly informal. As a result, it is unclear what assumptions are necessary for it to hold and when we should expect supply to equal demand.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I would be very grateful if anyone could improve on this explanation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Edit&lt;/strong&gt;: what I am looking for is a rigorous story explaining why:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;If the number of units that producers want to sell exceeds the number that consumers want to buy, the price will fall.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;If the number of units that consumers want to buy exceeds the number that producers want to sell, the price will increase.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;This is a very fundamental assumption in economics so I think deserves a good answer on economics SE (apparently, not everyone agrees, judging by the recent downvotes!)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The puzzle (for me) is how this can happen in an environment when everyone views the price as given (i.e. the standard model of perfect competition).&lt;/p&gt;&#xA;" OwnerDisplayName="user17900" LastEditorDisplayName="user17900" LastEditDate="2018-08-15T18:08:26.183" LastActivityDate="2019-02-11T12:06:48.440" Title="Why does supply equal demand?" Tags="&lt;microeconomics&gt;" AnswerCount="6" CommentCount="15" FavoriteCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="24046" PostTypeId="2" ParentId="24045" CreationDate="2018-08-09T15:53:14.140" Score="1" Body="&lt;p&gt;You can easily change the informal explanation to a &quot;quantity-based&quot; approach, using a dynamic approach. Assume that firms in the market produce this period $S_1$ but the consumers that show up buy only $D_1&amp;lt;S_1$. What would you do if you were a producer, for period $2$, given the information you have about where demand stands?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume the good is perishable. Then the unsold quantity from period $1$ is destroyed. In period $2$ are you going to produce the same amount, or something less? I would say less, to reduce somehow the quantity that will go to waste and your loss from that fact.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume the good is not perishable, so you have inventories left over from the first period. Now, the tendency is to produce even less than when the good is perishable, because you can sell during period $2$ the inventories from period $1$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So we see, that starting from a quantity supplied above quantity demanded, it is reasonable to expect lower quantity supplied next period.&#xA;One can easily make the analogous argument starting with quantity demanded higher than quantity supplied. This is a gradual adjustment towards &quot;market equilibrium&quot;, where quantity supplied will equal quantity demanded, or approximately so.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;...and I didn't mention prices anywhere. You can think that this is a local market where the producers are forced to sell at a specific price, &quot;imposed&quot; on them by other similar markets and the expectations of consumers. In other words, what I described above can roll out while the price &lt;em&gt;remains fixed&lt;/em&gt; from period to period.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The above was just an informal description. The benchmark approach to the dynamic adjustment towards market equilibrium is the Cobweb Theorem, see &lt;a href=&quot;https://academic.oup.com/qje/article-abstract/52/2/255/1862362&quot; rel=&quot;nofollow noreferrer&quot;&gt;Ezekiel 1938&lt;/a&gt;. &lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2018-08-15T23:07:13.650" LastActivityDate="2018-08-15T23:07:13.650" CommentCount="7" ContentLicense="CC BY-SA 4.0" />
  <row Id="24047" PostTypeId="2" ParentId="24031" CreationDate="2018-08-09T16:16:40.283" Score="1" Body="&lt;p&gt;If the firm takes output price and wage as given, then its supply is infinity if the price is larger than the wage, and it is zero if the price is equal, or lower, than the wage. If the price is larger than the wage, the firm by increasing output can make arbitrarily large profits, and thereby, in particular, cover its fixed cost. If the price is equal or below the wage, then there is no way of making profits, and therefore, the unique best option is to set output equal to zero.&lt;/p&gt;&#xA;" OwnerUserId="2787" LastActivityDate="2018-08-09T16:16:40.283" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="24048" PostTypeId="1" CreationDate="2018-08-09T16:51:48.373" Score="0" ViewCount="41" Body="&lt;p&gt;I have a problem to be maximized with the following program&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$max\int_{0}^{\infty}\left\{ u\left(C\right)+\beta S^{\chi}\right\} e^{-\rho t}dt$$&#xA;s.t&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\dot{K}=AK-C$$&#xA;$$\dot{S}=\left(1-S\right)S-\gamma AK$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $K$ is physical capital $S$ is the natural capital. All capital letters represent aggregate variables. The economy enjoys the natural capital as a positive amenity and the natural capital is negatively affected by the physical capital accumulation by a rate of $\gamma$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am trying to express this program by &lt;strong&gt;&lt;em&gt;variables per capita&lt;/em&gt;&lt;/strong&gt; since I would like to have constant steady state values. Note that the population grows at rate $n$. ($L(t)=L(0)e^{nt}$ with $L(0)=1$) It is easy for physical capital. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I will have something as &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\dot{k}=Ak-nk-c$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, for the natural capital, the logistic growth of the natural capital and the amenity $S^{\chi}$ complicate the issue. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there a way to express all the maximization program by variables per capita? I would really appreciate if you have some hints to give or some solutions. Or if it is not possible to express by per capita variables, I would be happy to know the reason. Thanks! &lt;/p&gt;&#xA;" OwnerUserId="2938" LastEditorUserId="2938" LastEditDate="2018-08-09T18:19:01.993" LastActivityDate="2018-08-10T11:51:20.677" Title="A maximization program expressed by per capita variales - Ramsey model" Tags="&lt;economic-growth&gt;&lt;environmental-economics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24049" PostTypeId="2" ParentId="24048" CreationDate="2018-08-09T17:27:05.613" Score="0" Body="&lt;p&gt;If you assume that population size (N) is 1 and grows at the rate n=0, then would it not solve the problem? Defining, $s = S/N, k = K/N$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\dot{S} = S -S^2 -\gamma AK    &#xA;\implies \frac{\dot{s}}{s} = 1 - sN - \gamma A\frac{k}{s}  &#xA;\implies  \frac{\dot{s}}{s} = 1 - s - \gamma A\frac{k}{s} $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Likewise for the utility function I think. &lt;/p&gt;&#xA;" OwnerUserId="19094" LastEditorUserId="19094" LastEditDate="2018-08-09T18:06:08.943" LastActivityDate="2018-08-09T18:06:08.943" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="24050" PostTypeId="1" CreationDate="2018-08-09T17:45:36.680" Score="0" ViewCount="72" Body="&lt;p&gt;The theoretical situation is this. What if a record breaking amount of platinum were discovered. What would happen to the economies that use, store, and/or produce platinum?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would like to apply this theory to any kind of precious material or element. Other examples would be gold, uranium, or oil.&lt;/p&gt;&#xA;" OwnerUserId="19096" LastActivityDate="2018-08-09T18:28:29.793" Title="Is there an economic theory that explains what happens when a market is saturated with a precious resource?" Tags="&lt;markets&gt;&lt;efficient-markets&gt;&lt;aggregate-production&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="24051" PostTypeId="2" ParentId="20645" CreationDate="2018-08-09T17:50:46.450" Score="1" Body="&lt;p&gt;This is for Micro, entirely based on my own opinion and experience. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Syllabus:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The most useful topics would be those on production and cost and perfect competition. I see no point of talking about utility theory unless you will be covering intertemporal choice. This and basic demand-supply. If you will be covering ISLM, you might find it a good idea to discuss &quot;shifting a curve versus moving along a curve&quot; with demand-supply prior to moving to ISLM. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Books:&lt;br&gt;&#xA;I personally find useful The Applied Theory of Price by Deirdre McCloskey. The math (read calculus) was usually in the footnotes or appendix and I really did not need calculus to cover almost all of the standard chapters - Consumer Behavior, Perfect Competition, Monopoly etc. The exposition was intuition based. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, having used this book as an instructor, I personally needed to actually read and work through the examples before teaching it to my students - some of them could require a bit of very careful thinking. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The book is available on the author's webpage: &lt;a href=&quot;http://www.deirdremccloskey.com/books/index.php&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.deirdremccloskey.com/books/index.php&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Depending on how much calculus you want to show your students, other open source books on micro could be the one by McAfee &lt;a href=&quot;https://www.mcafee.cc/Introecon/&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.mcafee.cc/Introecon/&lt;/a&gt;&#xA;and the one by Yoram Bauman (can't find the link to it)&lt;/p&gt;&#xA;" OwnerUserId="19094" LastActivityDate="2018-08-09T17:50:46.450" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24052" PostTypeId="1" AcceptedAnswerId="24057" CreationDate="2018-08-09T17:52:21.320" Score="1" ViewCount="31" Body="&lt;p&gt;I'm trying to solve the optimal production $\{x,y\}$ for a risk neutral agent with weight $w$ in firm $X$ and weight $1-w$ in firm $Y$. Each firm has marginal cost $c^X$ and $c^Y$ respectively. The firms face a linear demand where $P(Q)=a-b Q$ and the total production of the economy $Q=x+y$. This risk neutral agent maximizes profits so his/her utility will be:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$U(x,y)=w(x(a-b(x+y)-c^X))+(1-w)(y(a-b(x+y)-c^Y))$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I take first order conditions to maximize this utility I get:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$(a-2b x-c^X)w-by=0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$(a-2b y-c^Y)(1-w)-bx=0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which solves to:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$x=\frac{(1-w)(2 c^X w-c^Y+a(1-2 w))}{b(1-2w)^2}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$y=\frac{w(2 c^Y(1- w)-c^X-a(1-2 w))}{b(1-2w)^2}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assuming this is all correct, I don't understand why when $w=0$, then $y=0$!!! and $x=\frac{a-c^Y}{b}$ maxing the utility $U(x,y)=0$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think this doesn't make sense and can't be the optimum because having $x=0$ and $y=\frac{a-c^Y}{2b}$ (monopoly production) would give $U(x,y)=\frac{(a-c)^2&#xA;}{2b}&amp;gt;0$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I must have something wrong, the derivatives and solutions are correct, does anyone see what I'm missing here?&lt;/p&gt;&#xA;" OwnerUserId="19097" LastEditorUserId="1601" LastEditDate="2018-08-09T23:54:27.420" LastActivityDate="2018-08-10T17:50:27.783" Title="2 firms production decision for one agent" Tags="&lt;production-function&gt;&lt;productivity&gt;&lt;profit-maximization&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24053" PostTypeId="2" ParentId="24050" CreationDate="2018-08-09T18:28:29.793" Score="2" Body="&lt;p&gt;At the outset, discovery does not equate availability. Huge amounts of platinum (or the material at issue) might be discovered, but that does not necessarily mean that its extraction is feasible or practicable with the currently available techniques. See &lt;a href=&quot;https://phys.org/news/2017-04-mineral-resource-exhaustion-myth.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; and &lt;a href=&quot;https://en.wikipedia.org/wiki/Gold#Occurrence&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assuming that the discovered material is economically available, then supply would increase, thereby pushing prices down. At the same time, demand for that material would increase because agents (consumers) might deem that material a convenient substitute of other [now relatively costlier] alternatives. The net effect would be a higher quantity of that material being traded, and at a lower price.&lt;/p&gt;&#xA;" OwnerUserId="18552" LastActivityDate="2018-08-09T18:28:29.793" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24054" PostTypeId="2" ParentId="21945" CreationDate="2018-08-09T18:37:43.007" Score="1" Body="&lt;p&gt;I tried this for a=0.5, T=10, w=2 and I get the following real solutions for t12 and t21:&lt;br&gt;&#xA;(1) $t_{12}=t_{21}=2.8165$&lt;br&gt;&#xA;(2) $t_{12}=t_{21}=1.1835$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For (1) the function is valued at 3.78821 and for (2) the function is valued at 3.68444. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So it seems that (1) is the solution for the maximum. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If it helps, here is the function and the contour sets at those parameter values. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Function&lt;br&gt;&#xA;&lt;a href=&quot;https://i.stack.imgur.com/P7y2c.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/P7y2c.jpg&quot; alt=&quot;Function&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Contour Set ($t_{12}$ on X axis):  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/z74Vj.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/z74Vj.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By the way, are your FOCs correct? For the FOC with t12, I have:&#xA;$-\frac{(1 - a)}{(T - t_{12})} + \frac{a (-1 + t_{21})}{(T - t_{12} + t_{12} t_{21})} + \frac{a t_{21}}{(&#xA;  T - t_{21} + t_{12} t_{21})} = 0$&lt;/p&gt;&#xA;" OwnerUserId="19094" LastActivityDate="2018-08-09T18:37:43.007" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24055" PostTypeId="2" ParentId="22225" CreationDate="2018-08-09T19:01:17.963" Score="0" Body="&lt;p&gt;TG's explanation is great. I do not have enough reps so I can't put this as a reply to the comment by OP on TG's post.   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;On The Mechanics Of Economic Development - Lucas (JME,1988) might be useful for the OP (he solves a Solow model with exogenous growth and his own model with endogenous growth  on similar setup) and Introduction to Modern Economic Growth by Acemoglu (apparently the MWG of growth) might be useful as well.&lt;/p&gt;&#xA;" OwnerUserId="19094" LastActivityDate="2018-08-09T19:01:17.963" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24056" PostTypeId="2" ParentId="24008" CreationDate="2018-08-09T19:03:57.090" Score="4" Body="&lt;p&gt;Well, in a lot of mechanism design uses money and assumes agents' valuations are quasilinear. So monetary payments are essentially &quot;transferable utility&quot;.&lt;/p&gt;&#xA;" OwnerUserId="2856" LastActivityDate="2018-08-09T19:03:57.090" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24057" PostTypeId="2" ParentId="24052" CreationDate="2018-08-09T23:54:11.743" Score="1" Body="&lt;p&gt;Seems like you are assuming there will be an interior solution.&#xA;$$&#xA;(a-2b x-c^X)w-by = 0&#xA;$$&#xA;only needs to hold if the value of $x$ is positive. If it is not, but $x = 0$, the lowest possible amount, then &#xA;$$&#xA;(a-2b x-c^X)w-by &amp;lt; 0&#xA;$$&#xA;is not a contradiction. Further decreasing $x$ would increase utility, but it is not possible. Therefore in the case when $w = 0$ and&#xA;$$&#xA;(a-2b x-c^X)w-by = -by&#xA;$$&#xA;you do not necessarily have $y = 0$.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2018-08-09T23:54:11.743" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24058" PostTypeId="2" ParentId="23938" CreationDate="2018-08-10T00:46:31.293" Score="1" Body="&lt;p&gt;Consider the &lt;a href=&quot;https://en.wikipedia.org/wiki/Constant_elasticity_of_substitution&quot; rel=&quot;nofollow noreferrer&quot;&gt;CES production function&lt;/a&gt; over four goods defined as follows:&#xA;$$ x = (\alpha j^{\gamma} + k^{\gamma})^{1/\gamma}$$&#xA;$$ y = (\delta l^{\beta} + m^{\beta})^{1/\beta }$$&#xA;$$ z = (\zeta x^{\xi} + y^{\xi})^{1/\xi }$$&#xA;If $\gamma$ is near one then $j$ and $k$ are near perfect substitutes. If $\beta$ is near one then $l$ and $m$ are near perfect substitutes. If $\xi$ is a large negative value then the composite goods $x$ and $y$ are near perfect complements&lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2018-08-10T00:46:31.293" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24059" PostTypeId="2" ParentId="21880" CreationDate="2018-08-10T06:48:26.997" Score="2" Body="&lt;p&gt;I have two sources here:&lt;/p&gt;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Argument by David Friedman: &lt;a href=&quot;http://www.daviddfriedman.com/Academic/Price_Theory/PThy_Chapter_5/PThy_Chapter_5.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.daviddfriedman.com/Academic/Price_Theory/PThy_Chapter_5/PThy_Chapter_5.html&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&lt;p&gt;&lt;strong&gt;EDIT:&lt;/strong&gt;&lt;br /&gt;&#xA;From the link:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;An increase in wages (say, from \$10/hour to \$11/hour) has two effects. It makes leisure more costly--each hour not worked means \$11 less income instead of \$10. That is an argument for working more hours at the higher salary. But at the same time, the increased wage means that the producer is wealthier--and is therefore inclined to consume more leisure. It is possible for the second effect to outweigh the first, in which case the increased wage causes a decrease in hours worked, as shown in Figure 5-4. This is called a backward-bending supply curve for labor; the backward-bending portion is from F to G (and presumably above G). The result, in the case of a single producer, would be a supply curve for goods that sloped in the wrong direction; for some range of goods, higher prices would generate less output instead of more.&lt;br /&gt;&#xA;&lt;a href=&quot;https://i.stack.imgur.com/v4t8F.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/v4t8F.png&quot; alt=&quot;enter image description here&quot; /&gt;&lt;/a&gt;&lt;br /&gt;&#xA;This is not the first time we have seen a conflict between income and substitution effects. In Chapter 3, the same situation generated a Giffen good--a good whose demand curve sloped in the wrong direction. I argued that there were good reasons not to expect to observe Giffen goods in real life. Those reasons do not apply to the backward-bending supply curve for labor.&lt;/p&gt;&#xA;&lt;p&gt;One of the reasons was that while we expect consumption of most goods to go up when income goes up, a Giffen good must be a good whose consumption goes down with increasing income--an inferior good. Indeed, it must be so strongly inferior that the income effect of an increase in its price (which, since we are buying it, is equivalent to a decrease in real income) outweighs the substitution effect. Our labor is something we are selling, not buying; an increase in its price (the wage rate) makes us richer not poorer, and so inclined to buy more leisure. So the backward-bending supply curve for labor only requires leisure to be a normal good.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;ol start=&quot;2&quot;&gt;&#xA;&lt;li&gt;Argument and diagram by unknown:&#xA;&lt;a href=&quot;http://people.bath.ac.uk/ak220/teaching/labor%20supply.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://people.bath.ac.uk/ak220/teaching/labor%20supply.pdf&lt;/a&gt;&lt;br /&gt;&#xA;&lt;strong&gt;EDIT&lt;/strong&gt;&lt;br /&gt;&#xA;From the link:&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Suppose now that the wage someone receives goes up, (Diagram II). Obviously, this also increases the cost of leisure since the opportunity cost for not working is the wage you don’t get. So, since leisure has become more expensive, the worker increases his working time. This is the (negative) substitution effect. At the same time, there is also an income effect coming from the fact that since your wage increased, your whole wage income increased&lt;span class=&quot;math-container&quot;&gt;$^2$&lt;/span&gt;.Thus, the income effect will tempt the&#xA;worker to increase his/her leisure. Be careful here: Leisure became more expensive&#xA;but the income effect is positive. Remember that when we were talking about a&#xA;normal good X, an increase in price would have caused both effects to be negative.&#xA;I’ll explain this contradiction later.&lt;/p&gt;&#xA;&lt;p&gt;An increase in the wage will cause the budget line to pivot upwards to the new&#xA;position MoM1. The consumer now is on the new indifferent curve &lt;span class=&quot;math-container&quot;&gt;$I_1$&lt;/span&gt;. As you can see,&#xA;he has both increased his leisure and his consumption! Let’s decompose this effect.&#xA;The substitution effect will make the worker work more, &lt;span class=&quot;math-container&quot;&gt;$Q_0$&lt;/span&gt; to &lt;span class=&quot;math-container&quot;&gt;$Q_2$&lt;/span&gt;. However, the&#xA;income effect will push in the opposite direction, &lt;span class=&quot;math-container&quot;&gt;$Q_2$&lt;/span&gt; to &lt;span class=&quot;math-container&quot;&gt;$Q_1$&lt;/span&gt;. Since the I.E. over weights&#xA;the S.E., the consumer will increase his leisure.&lt;br /&gt;&#xA;&lt;a href=&quot;https://i.stack.imgur.com/Q3yWa.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Q3yWa.png&quot; alt=&quot;enter image description here&quot; /&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&lt;p&gt;This worker’s reaction was actually determined by the IE, since the SE would always&#xA;motivate the worker to work more. For a different worker, the IE could have acted in&#xA;the same direction as the S.E. Clearly, this depends on where the indifference curves&#xA;lie on the diagram, their shape (preferences) and the level of non wage income. Suppose a worker possesses a very significant source of non wage income. Obviously,&#xA;he would react more smoothly in a wage increase than someone who relies solely on&#xA;his wage income.&lt;/p&gt;&#xA;&lt;p&gt;For a particular level of wage, a worker would be indifferent between working and&#xA;not working at all. This wage is called reservation wage and depends on the level of&#xA;the non wage income, keeping preferences constant.&lt;/p&gt;&#xA;&lt;p&gt;Finally, few comments on the contradiction I mentioned before:&lt;/p&gt;&#xA;&lt;p&gt;Suppose we have good X which is normal and its price increases. There is a decrease&#xA;in the consumption of the good since the good became more expensive in relation to&#xA;other goods. (Substitution effect). There is also a decrease in the consumption of the&#xA;good because of the income effect, since the real income decreased and the good is&#xA;normal. Consequently the one effect adds to the other and the total effect is negative.&lt;/p&gt;&#xA;&lt;p&gt;Now in X’s position we have Leisure, assuming that leisure is a normal good. If its&#xA;price increases (increase in wage) then leisure becomes more expensive so the worker&#xA;would want to consume less of it (work more). On the other hand the income effect motivates the worker to increase his/her leisure instead of reducing it (as it was the&#xA;case with good X). Who is wrong here?&lt;/p&gt;&#xA;&lt;p&gt;Apparently none! In the conventional model of goods X and Y we are concerned with&#xA;people who consume the goods and do not sell those goods. In contrast, an individual&#xA;not only consumes leisure but also “sells” it to an employer (in which case it is called&#xA;work time). Thus when the price of leisure increases, it may become more expensive&#xA;to consume but at the same time the consumer benefits from selling it at a higher&#xA;price! Thus, the income effect can be either positive or negative depending on&#xA;consumer’s preferences and particularly on how much leisure he sells in relation to&#xA;how much he consumes.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;In (2)[Diagram II] it seems that IE&amp;gt;SE but optimal choice of leisure is increasing. Seems that leisure is normal here.&lt;/p&gt;&#xA;" OwnerUserId="19094" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2018-08-10T16:56:37.230" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24060" PostTypeId="2" ParentId="15403" CreationDate="2018-08-10T07:19:31.523" Score="1" Body="&lt;p&gt;Your method is correct. This however does not have to be the case in general. Your have a budget surplus simply because your government spending does not rise too much relative to your tax revenue collection.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider the following with MPC = 0.3, t = 0.2 and Y = 1000 and dt = 0.5:&#xA;&lt;a href=&quot;https://i.stack.imgur.com/vRKoh.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/vRKoh.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you increase spending too much, you will end up with a budget deficit. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There could be other factors as well, for example, the rate of taxes you have in the economy when the policy changes are made. For the same parameter set mentioned above, with dG and t free, you have (t on vertical axis and dG on horizontal axis):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/klnwT.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/klnwT.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are some dG,t pairs which generate surplus/deficit/balanced budget. &lt;/p&gt;&#xA;" OwnerUserId="19094" LastActivityDate="2018-08-10T07:19:31.523" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24061" PostTypeId="2" ParentId="10472" CreationDate="2018-08-10T08:44:35.410" Score="2" Body="&lt;p&gt;I wanted to add this as a reply to denesp's comment, but I do not have enough reps. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;MRS and a binding BC gives a system of two equations from which we can solve the optimum bundle. In case of income  = 10, these two equations have positive solutions, in case of income = 1, these two equations do not have positive solutions. See this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/VlF0q.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/VlF0q.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Income = 1 just makes the choice set small enough that there is no MRS = price ratio, hence the corner solution. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I completely agree that income =1 is really the more fun question. &lt;/p&gt;&#xA;" OwnerUserId="19094" LastEditorUserId="19094" LastEditDate="2018-08-10T10:31:37.313" LastActivityDate="2018-08-10T10:31:37.313" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24062" PostTypeId="2" ParentId="24048" CreationDate="2018-08-10T11:51:20.677" Score="1" Body="&lt;p&gt;Take the differential equation for the natural resource. I will write $S \equiv sL$ where lowercase is the per capita magnitude. So&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\dot{S}=\left(1-S\right)S-\gamma AK$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies \frac {d(sL)}{dt} = (1-sL)sL - \gamma AkL$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies \dot sL + s\dot L = sL - s^2L^2 -\gamma AkL$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Divide by $L$ to get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \dot s + sn = s - s^2L -\gamma Ak$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and using $L=e^{nt}$ and re-arranging we get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \dot s = (1-n) s - s^2e^{nt} -\gamma Ak$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Setting this equal to zero, we have a quadratic polynomial in $s$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\dot s = 0 \implies e^{nt}s^2 - (1-n) s + \gamma Ak=0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We see that the leading term increases as $t$ increases. The only way to maintain equality with zero, and constant $s$, is if $k$ decreases as time passes (and this will be only temporary since $k$ cannot turn negative). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So it appears that you cannot have a &quot;steady state in per capita terms&quot; for all variables here, consumption, capital &lt;em&gt;and&lt;/em&gt; the natural resource.&#xA;Most probably you can maintain consumption and capital at constant steady state values while the &lt;em&gt;per capita&lt;/em&gt;, at least, natural resource depletes to extinction (but you have to show that this is optimal with respect to intertemporal utility maximization).&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2018-08-10T11:51:20.677" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24063" PostTypeId="2" ParentId="24028" CreationDate="2018-08-10T12:44:49.053" Score="2" Body="&lt;p&gt;I think your solution is on the right direction. But allow me to make a few observations. &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;The question talked about income gap and wanted you to use a Ramsey model, with exogenous technology growth, and no endogenous growth mechanism through public spending. Given these, I would think that the focus should not entirely be on the growth rate of technology. Using your example, if the two countries have the exact same set of parameters, then the country with higher x will have lower long run $k^*$. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;See the starting point of my (1) and your analysis: we assumed that the countries have identical parameters. For Rich(R) and Poor(P) countries, this is not a reasonable assumption. Furthermore, I am not sure if assuming that technological progress in R is faster than P is correct.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Might I suggest the following. Pick a parameter (say the tax rate). Make the tax rate higher in one of the countries. Which automatically divides the countries into R and P. Then even if you do not have different x, the income gap will remain. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I assumed the following parameter values (L=Low, H=High):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\delta = 0.1; n = 0.01; \rho = 0.05; \alpha = 0.3; \theta = 1/0.3$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$t_H = 0.2; t_L = 0.1; x_H = 0.5; x_L = 0.2;$  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My Utility function is $\frac{C^{1-\theta}}{1-\theta}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The corresponding long run $k$ values are:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(i) $ k^*_{t_H x_H} = 0.583336 $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(ii) $k^*_{t_H x_L} = 0.943351  $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(iii) $k^*_{t_L x_H} = 0.69023 $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(iv) $k^*_{t_L x_L} = 1.11622 $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now you can pick whichever pair among (i)-(iv) as your R and P. Suppose you say (ii) is P and (iv) is R. Then say both countries have the exact tech improvement and x rises from $x_L $ to $x_H$. (ii) moves to 0.58 and (iv) moves to 0.69. The gap (R-P) before the shock was 0.172869. After the shock income gap (R-P) is 0.106894. The gap went down. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My code (Mathematica):  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;code&gt;kdot = (1 - t)*k^a - c - (n + d + x)*k;&lt;/code&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;code&gt;Ham = c^(1 - \[Theta])/(&#xA;   1 - \[Theta]) + \[Lambda]*((1 - t)*k^a - c - (n + d + x)*k);&lt;/code&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;code&gt;(*Costate1=\[Lambda]dot/\[Lambda]-(\[Rho]-n*(1-\[Theta])-x*(1-\[Theta]\&#xA;))==-D[Ham,k];*)&lt;/code&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;code&gt;FOCc1 = D[Ham, c] == 0;&lt;/code&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;code&gt;FOCc2 = FOCc1[[1]] + \[Lambda] == \[Lambda];&lt;/code&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;code&gt;FOCc3 = FOCc2 /. {c -&amp;gt; c[t], \[Lambda] -&amp;gt; \[Lambda][t]};&lt;/code&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;code&gt;FOCc4 = D[FOCc3, t][[1]]/c[t]^-\[Theta] == &#xA;   D[FOCc3, t][[2]]/c[t]^-\[Theta];&lt;/code&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;code&gt;FOCc5 = FOCc4 //. {c[t]^\[Theta] -&amp;gt; \[Lambda][t]^-1} /. {\[Lambda]'[&#xA;      t]/\[Lambda][t] -&amp;gt; \[Lambda]dot/\[Lambda]};&lt;/code&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;code&gt;Euler = -((\[Theta] Derivative[1][c][t])/&#xA;     c[t]) - (\[Rho] - n*(1 - \[Theta]) - x*(1 - \[Theta])) == -D[Ham,&#xA;       k]/\[Lambda];&lt;/code&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;code&gt;Euler2 = chat /. Flatten[Solve[Euler /. {c'[t]/c[t] -&amp;gt; chat}, chat]];&lt;/code&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;code&gt;kstar = k /. Flatten[Solve[Euler2 == 0, k]];&lt;/code&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;code&gt;csol = c /. Flatten[Solve[kdot == 0, c]];&lt;/code&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;code&gt;cstar = csol /. {k -&amp;gt; kstar};&lt;/code&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;code&gt;(*Parameters*)&lt;/code&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;code&gt;d = 0.1; n = 0.01; \[Rho] = 0.05; a = 0.3; \[Theta] = 1/0.3;&lt;/code&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;code&gt;Ht = 0.2; Lt = 0.1; Hx = 0.05; Lx = 0.02;&lt;/code&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;code&gt;kstarHtauHx = kstar /. {t -&amp;gt; Ht, x -&amp;gt; Hx}&lt;/code&gt;&#xA;&lt;code&gt;kstarHtauLx = kstar /. {t -&amp;gt; Ht, x -&amp;gt; Lx}&lt;/code&gt;&#xA;&lt;code&gt;kstarLtauHx = kstar /. {t -&amp;gt; Lt, x -&amp;gt; Hx}&lt;/code&gt;&#xA;&lt;code&gt;kstarLtauLx = kstar /. {t -&amp;gt; Lt, x -&amp;gt; Lx}&lt;/code&gt;&lt;/p&gt;&#xA;" OwnerUserId="19094" LastActivityDate="2018-08-10T12:44:49.053" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24064" PostTypeId="1" CreationDate="2018-08-10T12:52:36.603" Score="1" ViewCount="34" Body="&lt;p&gt;This question is cross-posted from MathSE: &lt;a href=&quot;https://math.stackexchange.com/q/2877146/582860&quot;&gt;link&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have the following differential equation from a journal article:&lt;br&gt;&#xA;$\dot{g}(t) - \delta(t)g(t) = -H(t)  --- (1) $,&lt;br&gt;&#xA;which is integrated between t and T. t is time and T is a terminal (scaler) time point. The functions are implicitly defined on time (t). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The solution I have (from the same article, no steps shown) is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$g(t) = g(T)e^{-\int_t^T \delta(u) du} + \int_t^T H(u)e^{-\int_t^u \delta(s) ds} du --- (2) $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand that the solution is obtained by using the integrating factor:&lt;br&gt;&#xA;$IF = e^{\int_t^T \delta(u) du}  $.&lt;br&gt;&#xA;This means that in the penultimate step of the solution, I will have something like&#xA;$g(t) = g(T)e^{-\int_t^T \delta(u)du} + e^{-\int_t^T \delta(u) du} \int_t^T H(u) e^{\int_u^T \delta(s)ds} du  --- (3)  $  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If (3) gives (2), then it must be true that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$e^{-\int_t^T \delta(u) du} \int_t^T H(u) e^{\int_u^T \delta(s)ds} du = \int_t^T H(u) e^{-\int_t^u \delta(s)ds} du --- (4) $  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;with the understanding that u is considered to be a future time point relative to t. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I do not understand is the exact reason why (4) is correct. From my understanding one possible explanation could be that the first term on the left hand side of 4 is implicitly a function of t which is why it can be included under the integral of the second term on the left hand side where the functions are being integrated between two values of t, namely t and T. But I am unsure if this is an accurate way of describing this. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there a theorem/result that supports/invalidates my way of thinking and is there a way to explain (4)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The paper in question is &lt;a href=&quot;https://www.jstor.org/stable/2937767?seq=1#page_scan_tab_contents&quot; rel=&quot;nofollow noreferrer&quot;&gt;A Model of the Demand for Longevity and the Value of Life Extension&lt;/a&gt;.  The equation and the solution are numbered (17) and (18) respectively. I am presenting those here without some of the extra terms. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Clarification on the numberings in the question&lt;/strong&gt;:  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The numberings (1)-(4) in the question are mine. (1) in the question is a simplified version of (17) in the paper and (2) in the question is a simplified version of (18) in the paper.&lt;/p&gt;&#xA;" OwnerUserId="19094" LastEditorUserId="19094" LastEditDate="2018-08-10T18:54:52.547" LastActivityDate="2018-08-10T18:54:52.547" Title="Including definite integrals inside definite integrals - Crossposted from MathSE" Tags="&lt;mathematical-economics&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24065" PostTypeId="2" ParentId="21880" CreationDate="2018-08-10T14:09:08.980" Score="1" Body="&lt;p&gt;First, let's define a &lt;a href=&quot;https://economics.stackexchange.com/questions/131/what-are-giffen-goods/223#223&quot;&gt;Giffen Good&lt;/a&gt;. &#xA;A Giffen good is a consumption good or service where demand increases as the price rises. That is, the price elasticity of demand ($\frac{\partial \ln (X)}{\partial \ln (P)}$) is positive. That's pretty unusual because normally raising the price of a good makes you poorer (which usually makes you demand less of everything) and by raising the relative price of that good you usually demand less of that good in particular.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does any of this logic change with leisure? For hourly or commissioned workers, working more hours raises your salary (by $w$ per hour) and reduces your consumption of leisure ($\ell$ falls by $1$ per hour labor supply increases). In this setting, leisure is simply a good where the price the wage. What happens when the wage goes up 1% ($\frac{\partial \ln (\ell)}{\partial \ln (w)}$)? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If it is true that this is a Giffen good then there should be regions where labor supply falls with the wage. This hypothesis is the &lt;a href=&quot;https://en.wikipedia.org/wiki/Backward_bending_supply_curve_of_labour&quot; rel=&quot;nofollow noreferrer&quot;&gt;backward bending supply curve of labor&lt;/a&gt;. Intuitively, we know this effect cannot be very strong over lifetime income because we are 7x higher income per capita since 1870 (&lt;a href=&quot;https://arxiv.org/ftp/arxiv/papers/1205/1205.5671.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Kitov and Kitov&lt;/a&gt;) in the West but hours worked has fallen about 38% (&lt;a href=&quot;https://eh.net/encyclopedia/hours-of-work-in-u-s-history/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Whaples&lt;/a&gt;) suggesting such an elasticity would have to be 0.063.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My impression is the profession is skeptical that this is an important effect in rich countries. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The &quot;backward bending&quot; supply curve of labor is now [n.b. circa 1973]&#xA;  accepted as a matter of course by most economists. It has no doubt&#xA;  been perplexing to observe that the most commonly employed types of&#xA;  utility functions do not yield such curves under the usual textbook&#xA;  analysis of the problem. Particular preference maps have been found&#xA;  that generate backward bending curves; however, they are&#xA;  nonparametric, leading to difficulties of estimation, and upon closer&#xA;  examination seem to imply counter-intuitive results. We will show that&#xA;  taking into account the wealth position of an individual on the one&#xA;  hand and survival consideration on the other greatly expands the&#xA;  variety of shapes that can be derived for the supply curve from some&#xA;  simple utility functions. The use of a specific simple utility&#xA;  function also implies some severe restrictions on the form the supply&#xA;  curve can take, rendering it test- able. Empirical evidence is shown&#xA;  to sup- port the conclusion that the supply curve is monotonic. We&#xA;  will also show that the notion that the aggregate supply curve of&#xA;  labor slopes down rests, in part, on an error of aggregation, and that&#xA;  the empirical evidence usually cited in support of the negative slope,&#xA;  when correctly interpreted, cannot be so construed.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Assets, Subsistence, and The Supply Curve of Labor &#xA;&lt;a href=&quot;https://www.jstor.org/stable/1808853?seq=1#page_scan_tab_contents&quot; rel=&quot;nofollow noreferrer&quot;&gt;AER, Barzel and McDonald (1973)&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Evidence may be stronger for a backward bending labor supply in subsistence circumstances:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;According to the textbook model poor people would work least. In&#xA;  practice, the opposite is often observed in less industrialized&#xA;  countries, but also in wealthier countries especially during economic&#xA;  downturns. People in impoverished circumstances appear to be working&#xA;  longer hours as wages fall to maintain income constant; they display a&#xA;  negative labor supply elasticity. These observations, however, have&#xA;  been somewhat of an embarrassment for the neo-classical theory, which&#xA;  contends that labor supply elasticities are usually positive when&#xA;  people respond to economic opportunities. That evidence has therefore&#xA;  tended to be dismissed in the literature as resulting from&#xA;  “irrationality” (culture of poverty), or from limited consumption&#xA;  opportunities (quantity constraint), in short, as being an exotic&#xA;  curiosity of “backward” regions.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Labor supply, the family and poverty: the S-shaped labor supply curve&#xA;&lt;a href=&quot;https://www.sciencedirect.com/science/article/pii/S0167268102000112&quot; rel=&quot;nofollow noreferrer&quot;&gt;Dessing (2002)&lt;/a&gt;  &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2018-08-10T14:09:08.980" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24067" PostTypeId="2" ParentId="24052" CreationDate="2018-08-10T17:50:27.783" Score="0" Body="&lt;p&gt;Similar to the corner solution argument by denesp:  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;When we solve Max U(x,y) when w = 0, we are selecting x and y such that U is maximized. But, w = 0, implies that U is decreasing in x. Thus, we will choose the smallest possible value of x. For any value of y we can select, a non-zero value of x will lower utility.  &lt;/p&gt;&#xA;" OwnerUserId="19094" LastActivityDate="2018-08-10T17:50:27.783" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24068" PostTypeId="2" ParentId="24045" CreationDate="2018-08-10T19:55:24.423" Score="0" Body="&lt;p&gt;In the classical assumption of perfect competition you should make a distinction b/w Supply and Demand curves, and the Quantity Supplied and the Quantity Demanded at any one point on those curves.&#xA;I'd argue that this statement &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;buyers could therefore pay a lower price to these sellers while still buying all the units that they want to purchase&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;is not true in the perfect competition framework. Buyers will demand a different quantity at every price point. The theory is that the intersection of S and D curves represents the equilibrium that will eventually happen. The market would only bear one price at a time. If some sellers are willing to lower their price, but not all then new sellers will enter the market if necessary to meet the Quantity Demanded (perfect competition assumes no barriers to entry).&lt;/p&gt;&#xA;" OwnerUserId="19106" LastActivityDate="2018-08-10T19:55:24.423" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24069" PostTypeId="2" ParentId="24045" CreationDate="2018-08-10T20:34:07.673" Score="1" Body="&lt;p&gt;I am not entirely sure if I can agree to the OP's comment that the disequilibrium analysis depends on price setting. I would rather argue that the analysis depends on quantity selection. With 1000 buyers and sellers in a market, where each seller is a firm and the market equilibrium price is $P^e$ and quantity $Q^e$, a single seller will produce $q_i^e$ such that $P^e = MC_i(q_i^e)$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the seller increases production to say $$q_i^1&amp;gt;q_i^e$$, then the seller can do the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(1) If the seller charges $P^e$, the seller is making a loss for each of the extra units and the seller reduces production. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(2) If the seller charges $P_1&amp;gt;P^e$ no one buys from him and he makes a loss for the unsold units. The seller reduces production. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The seller realizes that the seller must adhere to the price charged by the market at which point the seller realizes that the optimum quantity produced by the seller is such that $P^e = MC(q_i^e)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(2) requires, I believe, homogeneous products, large number of buyers and sellers. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;EDIT&lt;/strong&gt;&#xA;Adjustment process for (2).&lt;br&gt;&#xA;When the seller (as discussed above) realizes the overproduction, the seller must adjust back to the output level sold in the market. There are two features while this process happens (i) till the seller adjusts back, there is excess supply, and (ii) there are two prices in the market - $P^e$ and $P_1$. The price that &quot;falls&quot; to the equilibrium level is $P_1$.   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now instead of a single seller, imagine that a group of sellers make this type of overproduction - ultimately all of them will come back to the equilibrium quantity level. &lt;/p&gt;&#xA;" OwnerUserId="19094" LastEditorUserId="19094" LastEditDate="2018-08-14T03:55:59.243" LastActivityDate="2018-08-14T03:55:59.243" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24070" PostTypeId="1" CreationDate="2018-08-10T21:25:56.283" Score="0" ViewCount="68" Body="&lt;p&gt;If I have a model with taxes on consumption denoted $\tau$ should I write the utility function as $u(c)$ or $u((1-\tau)c)$? Thanks &lt;/p&gt;&#xA;" OwnerUserId="19108" LastEditorUserId="16530" LastEditDate="2018-08-12T16:08:55.993" LastActivityDate="2018-08-13T13:35:31.783" Title="Utility and consumption tax" Tags="&lt;utility&gt;&lt;taxation&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24071" PostTypeId="2" ParentId="24070" CreationDate="2018-08-10T21:44:58.033" Score="1" Body="&lt;p&gt;U(c). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Taxes are an adjustment on your income/resource and show up on your budget constraint. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;U(c) just measures the utility you get from consuming c. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As an aside, consumption taxes should not be 1-t. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Example: Investment = F - (1+t)C = Net Savings.   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you wrote (1-t), it would mean, Investment = F -C + tC. Higher is the tax rate, more is the investment or budget left over for investment, ceteris paribus - which does not make sense. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;EDIT&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The answer by @Henry got me thinking about the following. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If a model is proposed where a consumer purchases C units of consumption goods taxed at rate t, such that the consumer will have to give away tC units in taxes and ultimately will consume (1-t)C, the analysis is based on tangible goods. In the budget constraint of the consumer it will read as :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Investment = Output - Price * C  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;since the consumer will have paid for C units and then ultimately consumed (1-t)C units due to the tax.  &lt;/p&gt;&#xA;" OwnerUserId="19094" LastEditorUserId="19094" LastEditDate="2018-08-13T09:48:17.813" LastActivityDate="2018-08-13T09:48:17.813" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24072" PostTypeId="1" CreationDate="2018-08-11T01:24:50.500" Score="0" ViewCount="51" Body="&lt;p&gt;Let $\mathbf{y} = \mathbf{X_1}\mathbf{\beta_1}+\mathbf{X_2}\mathbf{\beta_2}+\mathbf{u}$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $\mathbf{X} = [\mathbf{X_1} |\mathbf{X_2}]$.&#xA;Define $\mathbf{M_i}$ to be the complementary projections for $i = 1,2$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, $\mathbf{M_xM_1} = \mathbf{M_x}(\mathbf{I} - \mathbf{P_1}) = \mathbf{M_x - M_xP_1} = \mathbf{M_x-[I-P_x]P_1} = \mathbf{M_x-[P_1-P_xP_1]} = \mathbf{M_x - [P_1-P_1]} = \mathbf{M_x}$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Could you check if this is okay? &lt;/p&gt;&#xA;" OwnerUserId="17957" LastActivityDate="2018-08-13T01:53:03.837" Title="prove that $M_xM_1 = ?$" Tags="&lt;econometrics&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="24073" PostTypeId="1" CreationDate="2018-08-11T11:34:26.710" Score="0" ViewCount="68" Body="&lt;p&gt;I think it is hard to derive Eq(5) in paper Chong (2007).&#xA; (&lt;a href=&quot;http://www.bgu.ac.il/~grade/inst_ineq.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.bgu.ac.il/~grade/inst_ineq.pdf&lt;/a&gt;) Could anyone share any ideas on its derivations or intuitions behind it? Let's discuss it in more details to help us understand more about this paper. Thank you a lot.&lt;/p&gt;&#xA;" OwnerUserId="13914" LastEditorUserId="13914" LastEditDate="2018-08-13T03:41:09.560" LastActivityDate="2018-08-13T12:49:58.077" Title="A few questions in paper Chong 2007" Tags="&lt;institutions&gt;" AnswerCount="2" CommentCount="1" ClosedDate="2018-08-25T00:32:33.827" ContentLicense="CC BY-SA 4.0" />
  <row Id="24076" PostTypeId="1" CreationDate="2018-08-11T14:29:35.690" Score="1" ViewCount="117" Body="&lt;p&gt;I'd like to know if there are any examples of indirect mechanisms that are not auctions. Auctions seem like a very controlled environment. I'd like to see some examples of indirect mechanisms &quot;out in the wild&quot;.&lt;/p&gt;&#xA;" OwnerUserId="5591" LastActivityDate="2019-03-17T18:31:00.797" Title="What are some examples of indirect mechanisms that are not auctions?" Tags="&lt;mechanism-design&gt;" AnswerCount="2" CommentCount="0" ClosedDate="2019-04-03T15:45:09.820" ContentLicense="CC BY-SA 4.0" />
  <row Id="24077" PostTypeId="1" CreationDate="2018-08-11T14:39:20.760" Score="0" ViewCount="22" Body="&lt;p&gt;Mechanism design is an offshoot of game theory, and many call it &quot;inverse game theory&quot;, since it involves the use of incentives to ensure that the end result of the game being played out is beneficial to the designer of the game.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That being said, is it always the case that whenever a mechanism is implemented, it results in a game being played out amongst the players?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My intuition says &quot;no&quot;, since no game will take place if it is the dominant strategy for all players to reveal their true preferences. Am I correct?&lt;/p&gt;&#xA;" OwnerUserId="5591" LastActivityDate="2018-08-11T17:27:21.840" Title="Do mechanisms always result in a series of strategic games being played out?" Tags="&lt;mechanism-design&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24080" PostTypeId="2" ParentId="24077" CreationDate="2018-08-11T17:27:21.840" Score="1" Body="&lt;p&gt;I'm not sure what you mean by &quot;results in a game&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When doing mechanism design, after you've fixed a mechanism, the resulting mathematical structure can be identified with a game which we solve using the tools of game theory. That is, the choice of a mechanism induces a game. I suppose you could take this to mean that it results in a game.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Just because that game has dominant strategies does not mean the game doesn't &quot;take place&quot;. In fact, I don't even know how you can speak of dominant strategies when you don't (even if only implicitly) have a game in mind when doing so.&lt;/p&gt;&#xA;" OwnerUserId="8595" LastActivityDate="2018-08-11T17:27:21.840" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24081" PostTypeId="1" CreationDate="2018-08-11T18:00:18.860" Score="-2" ViewCount="53" Body="&lt;p&gt;How does the cost of switching over to wholly green technology in the US at current prices and at current technology without factoring in possible improvements in efficiency or technology solely in terms of infrastructure and not considering the costs of winding down the fossil fuel industry (an important consideration itself) compare with the total cost of the war in Iraq?&lt;/p&gt;&#xA;&lt;p&gt;(International-economics is probably not the best tag for this question. If anyone has a better suggestion please edit it in).&lt;/p&gt;&#xA;&lt;p&gt;&lt;strong&gt;edit&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;p&gt;To address the concern raised by @ThisIsNoZaku here is a snippet of an interview from &lt;a href=&quot;https://www.democracynow.org/2018/8/13/meet_the_two_protesters_who_confronted&quot; rel=&quot;nofollow noreferrer&quot;&gt;DemocracyNow&lt;/a&gt;:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;&lt;strong&gt;Amy Goodman&lt;/strong&gt;: Sally Holmes can you respond to what Interior Secretary Zinke said about fighting wars for oil?&lt;/p&gt;&#xA;&lt;p&gt;&lt;strong&gt;Sally Holmes&lt;/strong&gt;: I think he just basically removed the smokescreen about fighting wars for democracy and freedom and admitted they are for oil, and I think it is extremely irresponsible for him to not only say that, but also for him to say that they are not looking for any other alternatives. There are other ways, renewable energy obviously, but we don't need to be sending more Americans, more of our family members and friends across the world to fight for energy when we have the scientific technology here to change that.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="13857" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2020-11-13T06:23:59.370" Title="How does the cost of switching over to green energy compare to the cost of the war in Iraq?" Tags="&lt;international-economics&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24084" PostTypeId="2" ParentId="23995" CreationDate="2018-08-11T20:30:08.150" Score="1" Body="&lt;p&gt;From the looks of this question, it seems like a typical consumption-saving problem with possibly endogenous leisure. &#xA;I am assuming the production function is constant returns to scale. I am assuming that $a\in[0,1]$&#xA;The problem is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\underset{\{c_t,k_{t+1},l_t\}} {Max} \sum_{t=0}^{\infty} \beta^t U[c_t,l_t] = (1-a)ln[c_t]+aln[l_t]$  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;subject to $k_{t+1} = f[k_t,l_t]+(1-\delta)k_t-c_t$  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Bellman Equation:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$V[k_t] = U[c_t,l_t]+\beta V[k_{t+1}] $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Differentiating w.r.t $k_{t+1}$ and using the envelope condition you will find the Euler as: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac{c_{t+1}}{c_t} = \beta (f_{k_{t+1}}+(1-\delta))$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which at steady state gives you:&lt;br&gt;&#xA;$k^* =(1-l^*)(\frac{e}{\frac{1}{\beta}-(1-\delta)})^{\frac{1}{1-e}}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If a = 0, there is no labor selection problem and $l^*=0$ leading to full use of available time for labor. Clearly, there is more capital in the steady state equilibrium. &lt;/p&gt;&#xA;" OwnerUserId="19094" LastActivityDate="2018-08-11T20:30:08.150" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24086" PostTypeId="2" ParentId="24073" CreationDate="2018-08-11T20:59:01.353" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Could you help me derive Eq(5) in paper Chong (2007)?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;My initial derivations were wrong because I misread Eq(1) as $y_{i,t}=c_{i,t}+r_{i,t}$. It was until I read the answer posted by @AlecosPapadopoulos that I realized that the paper actually uses $y_{i,t}=c_{i,t}+r_{i,t+1}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, apropos of the latest edit of OP's inquiry (now to discuss &lt;em&gt;the intuitions behind [the paper]&lt;/em&gt;), I still posit that the paper is a subtle promotion of socialism premised on flawed or impractical notions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The paper makes the point (and Alecos' answer presents a clear derivation of Eqs(5)) that the optimal value of &lt;em&gt;rent seeking&lt;/em&gt; $r_{i,t+1}$ is $0$ for &lt;em&gt;strong&lt;/em&gt; institutions, which are denoted by $w=0$. This means that no household should pursue &lt;em&gt;rent seeking&lt;/em&gt;. Or equivalently (see Eq(2)), that no household should seek to &lt;em&gt;appropriate a larger share of the resource&lt;/em&gt; (page 6). Regardless of the model's time horizon (generations instead of shorter periods), that differs very little (if at all) from socialism.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Additionally, since $y_{i,t}=c_{i,t}+r_{i,t+1}$, the optimal choice in strong institutions would be $y_{i,t}=c_{i,t}$. That is, the household should &lt;em&gt;allocate its entire income to consumption&lt;/em&gt;. Obviously, that generalized policy renders a real-life economy highly vulnerable to contingencies and structural changes. That vulnerability inherently contradicts any notion of &quot;strong&quot; institution.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Furthermore, substituting $w=0$ and &quot;optimal&quot; $r_{i,t+1}=0$ in Eq(2) gives $a_{i,t+1}=A\frac{0^0}{\int^1_0{0^0di}}$. What are we supposed to do with that?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another problem is the model's inter-generational framework. I appreciate Alecos' emphasis/clarification that different values of $t$ for a same household $i$ allude to different generations of that household. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But that modeling horizon is hardly realistic because each household experiences too many or too profound transformations (oftentimes just from one generation to the next one) to be still considered a single, continued entity. Indeed, households go through marriages, divorces, remarriages, child bearing in each marriage, emigration, bankruptcy, and so forth.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is not necessarily realistic to assume that $w$ is constant throughout generations either, as the paper subsequently assumes.&lt;/p&gt;&#xA;" OwnerUserId="18552" LastEditorUserId="18552" LastEditDate="2018-08-13T12:21:52.247" LastActivityDate="2018-08-13T12:21:52.247" CommentCount="8" ContentLicense="CC BY-SA 4.0" />
  <row Id="24087" PostTypeId="1" CreationDate="2018-08-12T00:23:03.563" Score="0" ViewCount="53" Body="&lt;p&gt;Maynard Keynes in section VI in chapter 12 of his &lt;em&gt;General Theory of Employment, Interest &amp;amp; Money&lt;/em&gt; writes:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;If I may be allowed to appropriate the term &lt;em&gt;speculation&lt;/em&gt; for the activity of forecasting the psychology of the market, and the term &lt;em&gt;enterprise&lt;/em&gt; for the activity of forecasting the prospective yield of assets over their whole life, it is by no means always the case that speculation predominates over enterprise. As the organisation of investment market improves, the risk of the predominance of speculation does, however, increase.&lt;/p&gt;&#xA;&lt;p&gt;In one of the greatest investment markets in the world, namely, New York, the influence of speculation (in the above sense) is enormous. Even outside the field of finance, Americans are apt to be unduly interested in discovering what average opinion believes average opinion to be; and this national weakness finds its nemesis in the stock market...&lt;/p&gt;&#xA;&lt;p&gt;...Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes a bubble on a whirlpool of speculation. When capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done.&lt;/p&gt;&#xA;&lt;p&gt;The measure of success attained by Wall Street, regarded as an institution of which the proper social purpose is to direct new investment into the most profitable channels in terms of future yield, cannot be claimed as one of the outstanding triumphs of &lt;em&gt;laissez-faire&lt;/em&gt; capitalism - which is not surprising, if I am right in thinking that the best brains of Wall Street have been in fact directed towards a different object.&lt;/p&gt;&#xA;&lt;p&gt;These tendencies are a scarcely avoidable outcome of our having successfully organised 'liquid' investment markets. It is usually agreed that casinos, in the public interest, be inaccessible and expensive. And perhaps the same is true of stock exchanges...&lt;/p&gt;&#xA;&lt;p&gt;The introduction  of a substantial Government transfer tax on all transactions might prove the most serviceable reform available, with a view of mitigating the predominance of speculation over enterprise in the United States.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;One such transfer tax is the &lt;a href=&quot;https://en.m.wikipedia.org/wiki/Tobin_tax&quot; rel=&quot;nofollow noreferrer&quot;&gt;Tobin Tax&lt;/a&gt; but this seems very specific in that it is applied to 'spot conversions of one currency into another'; what other specific proposals in line with Keynes suggestion are there? And have any been implemented and if so what have been the results?&lt;/p&gt;&#xA;" OwnerUserId="13857" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2019-04-10T00:02:05.397" Title="What policies are in place to police financial speculation in the modern era?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24088" PostTypeId="2" ParentId="23963" CreationDate="2018-08-12T01:16:14.623" Score="2" Body="&lt;p&gt;No, you're right, $Cov[Z_i,u_i]=0$ does not imply $E[u_i|Z_i]=0$ in general. If the author defined &quot;instrument exogeneity&quot; as $Cov(Z_i,u_i)=0$ previously, he/she is being careless here.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;Instrument exogeneity&quot; is often defined as $E[u_i|Z_i]=0$ too, in which case all you need to do would be to understand &quot;implies&quot; as &quot;means&quot;. But since exogeneity is defined as uncorrelatedness (zero covariance), this issue has to be addressed. the author'd better fix it in a later version. How about &quot;Instrument exogeneity usually means ...&quot; instead of &quot;Instrument exogeneity implies ...&quot;?&lt;/p&gt;&#xA;" OwnerUserId="10775" LastActivityDate="2018-08-12T01:16:14.623" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24089" PostTypeId="2" ParentId="22729" CreationDate="2018-08-12T01:57:19.120" Score="1" Body="&lt;p&gt;First of all, this is not a Tobit-type estimator. A Tobit estimator is a maximum-likelihood estimator, which is based on a full specification of the error distribution. You have only the median specified, so it can't be an MLE.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What can we do? To begin with, note that, for a random variable $Z$, the median of $\max(c,Z)$ is $\max(c, \mathrm{med}(Z))$, which can be proved by using the definition of the median.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, for your problem, you have&#xA;$$\mathrm{med}(y|X) = \max(c, f(X,\theta))$$&#xA;under the assumption that $\mathrm{med}(\epsilon|X)=0$. A natural extremum estimator would be the minimizer of&#xA;$$\frac{1}{n} \sum_{i=1}^n |y_i - \max(c, f(X_i,\theta)) |.$$&#xA;You defined the median as the minimizer of $E(|Z-e|-|Z|)$, but this is the same as the minimizer of $E|Z-e|$ without $-|Z|$, so I dropped the &quot;$-|y_i|$&quot; from the objective function.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is a generalization of Powell (1984), Least absolute deviations estimator for the censored regression model, &lt;em&gt;Journal of Econometrics&lt;/em&gt;, 25, 303-325. See the paper for more details including consistency. &lt;a href=&quot;https://web.stanford.edu/~doubleh/eco273/powell1984.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://web.stanford.edu/~doubleh/eco273/powell1984.pdf&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="10775" LastEditorUserId="10775" LastEditDate="2018-08-12T16:10:30.547" LastActivityDate="2018-08-12T16:10:30.547" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24090" PostTypeId="1" CreationDate="2018-08-12T03:44:35.890" Score="1" ViewCount="164" Body="&lt;p&gt;I am aiming to program a basic simulation of a simplified economy to look at the impact of various interventions. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The economy will have N groups of homogeneous consumers and M producer / employer sectors. Each producer sector makes one type of good that the consumers can purchase, so there are M goods. To try to keep it (relatively) simple, the goods will all be independent with no close substitutes or compliments. E.g. goods will be steak and diapers, not steak and chicken, nor steak and potatoes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Each group of consumers will need to have a demand curve for each of the M goods, as well as a &quot;demand&quot; for leisure.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given the marginal utilities for each good, you can calculate a demand curve for that good. So, the approach I'm thinking is to generate utility curves for each good, then use those utility curves to derive demand curves which then drive consumer purchasing behavior and other downstream effects.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This brings me to the question, what's a good way to randomly generate a lot of plausible utility curves? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, if I wanted a linear utility curve I could randomly generate a slope and an intercept. That is simple and easy to do, but it misses diminishing marginal utility which is one of the most important features.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What's a form that's easy to work with, has relatively few parameters to specify, and still captures most of the key features of utility curves?&lt;/p&gt;&#xA;" OwnerUserId="19118" LastActivityDate="2020-12-30T23:04:30.453" Title="What is a good way to generate realistic utility curves?" Tags="&lt;utility&gt;&lt;supply-and-demand&gt;&lt;simulations&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24092" PostTypeId="1" CreationDate="2018-08-12T10:30:14.990" Score="-1" ViewCount="72" Body="&lt;p&gt;So I don't know if this might be the right place, if it isn't I'd appreciate if anyone can link me to the right place. Anyways here is the question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've read up on what are the cons of printing more money and that's basically inflation. But that only happens because we are injecting that printed money directly into the financial system, in this case, everybody has more money which leads to inflation. Consider a different case.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose we want to make education free (zero tuiton/fees etc), but how are we supposed to pay all those professors and people working in these universities?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We could start printing more money and give those people money from government's reserves. Now you would say, But this in-turn means people all over the country have more money since they don't have educational expenses for their children.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;How about increasing the tax rates for anybody who has children, to compensate for this?&lt;/strong&gt; This way people who didn't have children remain unaffected, while those who have, have to pay more taxes which minimizes the difference of what they gained by not spending on their children's education.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You would say that this doesn't change the overall outcome, so what's the use of this sort of system. Well this means international students could study for free, children living in orphanages could as well. I don't know if children in orphanages are getting education or if there is an another system for it though.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the end I don't see how this could cause inflation or other problems as everybody still has the same amount of money.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;EDIT:-&lt;/strong&gt;&#xA;For people who don't understand let me summarize the situation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) Print more money. Use this money to pay salaries for university staff.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) Increase tax rates for people who have children so that they don't have more money left due to not paying educational expenses.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;3) Foreign and orphans and other students with similar cases (basically people with no children), don't have to worry about taxes. They can get free education if of course they pass the eligibility criteria for that university&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;EDIT:-&lt;/strong&gt; (in response to erik's edit)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So try thinking of it this way. Is it more likely that people continue living their normal life and ignore this high quality education which they possibly can't afford or they choose to pay for this education and bring their living standard down?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If it's the latter, then yes it causes inflation but if it's the former then no it doesn't since they still have the same amount of money.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An example to explain it better. Suppose I want to do Masters from USA but it costs me 2000$ (idk the actual amounts so it's an assumption). Well If I collect all the money from my banks and savings I can manage to get this education but I won't have anything left for other life expenses (food, clothes, entertainment, etc). So I decide to not do this Masters from USA and carry on my with my never changing life. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However if the government pays this money for my education. Do I have more money now? The answer is NO. It's just I'm getting the education free, I ain't getting any money.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The alternate view of this is with people who can afford it and are paying this money from their own pockets. They will see the difference as they will be saving their own money if the government pays their expense. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However do you really think that this bunch of people can cause really such high inflation the government fears? First of all the likelihood of these people hogging all the international seats are low. Secondly making education free means they will have more competition from people all around who couldn't afford it before (I think the latter are greater in size than the ones who can afford)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In any case looks to me the gains far outweigh the losses. Eliminating poverty in this way will lead to much better economy later on.&lt;/p&gt;&#xA;" OwnerUserId="19120" LastEditorUserId="19120" LastEditDate="2018-08-16T20:53:37.480" LastActivityDate="2018-10-06T06:39:10.063" Title="Cons of printing more money but not injecting in the system directly" Tags="&lt;macroeconomics&gt;&lt;monetary-policy&gt;&lt;money-supply&gt;" AnswerCount="1" CommentCount="8" ContentLicense="CC BY-SA 4.0" />
  <row Id="24093" PostTypeId="2" ParentId="24092" CreationDate="2018-08-12T12:19:29.760" Score="0" Body="&lt;p&gt;Let us think about this in the following way: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(1)Suppose education is funded by government spending (G). So the real value of education  = G. The government decides to balance the spending by taxing the parents of children (children who must be educated by some well enforced law). Then the government's budget deficit is:  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;G-TR  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;where TR is the total tax revenue collected from the parents. &#xA;Does the government need to print money? No, as long as G-TR=0&#xA;Has education been made free? No. The spending on schooling by parents, prior to government intervention, has now been replaced by the tax they pay to the government. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(2) What if now, the government decides to pay for education of not only the domestic, but also the foreign students. Say that extra spending is Gf. Now the budget deficit is:  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;G + Gf - TR&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If G = TR, then the government must secure some way of funding the extra spending. Hence,&#xA;&lt;span class=&quot;math-container&quot;&gt;$\dot{m} = G+Gf-TR$&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$\dot{m}$&lt;/span&gt; is the change in nominal balances (money) that is achieved by printing money. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In (1) there is no inflation. In fact, (1) can be solved without even introducing money in the model. In (2) there will be inflation as long as there is some budget deficit, with the deficit spending funded through seignorage. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note however, the government can raise the spending on deficit, without printing money at all. They could be issuing bonds to cover the deficit spending. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;EDIT&lt;/strong&gt;&lt;br&gt;&#xA;Method (2) will create inflation. Why?&#xA;Assume that the economy is at balanced government budget, so G = TR. Now suppose a foreign student joins the education system in the country, and the government spends Gf = \$100 for this student. But the government does not raise taxes to fund this spending, rather prints \$100 and pays for this education. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This &lt;em&gt;extra&lt;/em&gt; income of Gf which was received by the education provider increases the provider's budget by Gf. The extra demand made by the provider for goods and services in the economy will lead to a rise in prices for goods and services leading to inflation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;EDIT after the edit on OP's question&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The example you gave about the Masters is absolutely correct. You are also right to identify that you do not have extra money. However, the person(s) who taught you they have the extra money. This income received by your educators was in lieu for services they provided - however, the source of the income was the government printing money and giving to them. That, causes the inflation. If for example, they were paid by you, then what you would be doing is paying a fraction of resource you have (by virtue of income earned, capital asset returns or loans) in lieu of the educational service provided. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I hope I have pointed out the difference in the two flows of income for the educators. The first one, the government money, is generated by mandate. The second one, fraction of your resource is part of the economy's circular flow. The first one generates inflation, because suddenly there are some educators in the economy who have more income due to money being printed and handed to them, which means that their excess demand will not be met by a higher production. The second one does not, because you are paying for services you are receiving out of your own income, not by using money - your purchases are adjusted accordingly and balanced out by the demand made by the educators with their income. &lt;/p&gt;&#xA;" OwnerUserId="19094" LastEditorUserId="19094" LastEditDate="2018-10-06T06:39:10.063" LastActivityDate="2018-10-06T06:39:10.063" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="24095" PostTypeId="2" ParentId="24090" CreationDate="2018-08-12T16:13:57.327" Score="1" Body="&lt;p&gt;It's somewhat simple, actually. You can just use a Cobb-Douglas with $m+1$ goods available, the last one being leisure. So, you should have something like:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$U(x_1,x_2,...,x_m,x_{m+1}) = \prod_{i=1}^{m+1} x_i^{\alpha_i}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Subject to $\sum_{i=1}^{m+1} \alpha_i = k$, where $k$ is the degree of homogeneity of the utility function. Usually, $k=1$ is considered reasonable.  &lt;/p&gt;&#xA;" OwnerUserId="18167" LastEditorUserId="1601" LastEditDate="2018-08-12T16:24:31.743" LastActivityDate="2018-08-12T16:24:31.743" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="24098" PostTypeId="1" CreationDate="2018-08-12T18:25:56.533" Score="0" ViewCount="25" Body="&lt;p&gt;I am studying for an exam in marketing, and there's the following sample question:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;The main reasons that people choose products in category X is: 1. Brand 2. Price. Where the importance ranking is 50% Brand and 50% Price. Brand A’s utility is 50 and Brand B’s utility is 30. What is the maximal pricing among the following of Brand B’s product so that it will be preferred by the market if the pricing of A is $80?&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;a: $54.9&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;b: $59.9&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;c: $64.9&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;d: $69.9&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The correct answer is (b). How do they get to this number? My only idea of how to solve this would be to multiply $80 by 30/50 but that's not even an option. Thank you.&lt;/p&gt;&#xA;" OwnerUserId="19123" LastActivityDate="2018-08-13T14:14:39.420" Title="Question related to conjoint analysis" Tags="&lt;marketing&gt;" AnswerCount="1" CommentCount="0" ClosedDate="2018-09-11T10:05:56.417" ContentLicense="CC BY-SA 4.0" />
  <row Id="24099" PostTypeId="1" CreationDate="2018-08-12T19:10:29.567" Score="0" ViewCount="22" Body="&lt;p&gt;you know turkey was one of the 7members of F-35 joint strike fighter program..its engine is being manufactured in turkey.turkish government made all legal obligations to program and paid 35 billion dollars to budget pool so far but american congress decided to end delivery of 200fighters to turkey illegally by trump's decision last week..&#xA;so i heard a news on cnn turk this evening that turkey minister of defence is going to moscow to negotiate agreed terms to buy 300 SU-57 stealth fighter from sukoi instead next month..i think this will be important step of turkey's way to waited exit from NATO after S400 agreement of last year..it is called 'bricst-it&quot; in turkey at the moment..it is possible to join to BRICS instead of NATO&amp;amp;EU for turkey..but in continue of news,there will be a government decision of turkey to prosecute united states government worth 1,8 trillion dollars sum plus with all turkey's army lost from F-35 program and legal compensations and interest rate of 20 years..ok here is my question..which international court may look at this case and is decision obligatory?&lt;/p&gt;&#xA;" OwnerUserId="19119" LastActivityDate="2018-08-12T20:45:40.553" Title="who is responsible as international court to solve economic conflicts between countries and is it obligatory?" Tags="&lt;law&gt;" AnswerCount="1" CommentCount="1" ClosedDate="2018-08-25T00:30:26.607" ContentLicense="CC BY-SA 4.0" />
  <row Id="24100" PostTypeId="2" ParentId="24098" CreationDate="2018-08-12T19:42:32.283" Score="1" Body="&lt;p&gt;Here you have a possible answer (although I am not 100% sure about it):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You said Brand counts 50% and price 50%. We can consider that with higher brand utilities we get higher chance of buying, while with higher prices we get lower chance of buying the product. Following this idea, I made this equation in which both chances (of product A and B) should be equal, since it would lead us to an equilibrium in which it would be the same for the custumer to buy the product A or the product B:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$U_A - P_A = U_B - P_B$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We substitute according to our values:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$50 - 80 = 30 - x$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We simplify:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$-30 = 30 - x$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Again:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$-60 = -x$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And again:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$x = 60$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So 60\$ would be the price of indifference between product A and B. So we should make it a bit lower if we want people to buy product B: &lt;strong&gt;59.9$&lt;/strong&gt;, the correct answer of your problem.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I hope it helps.&lt;/p&gt;&#xA;" OwnerUserId="18953" LastActivityDate="2018-08-12T19:42:32.283" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24101" PostTypeId="2" ParentId="10146" CreationDate="2018-08-12T19:53:20.437" Score="1" Body="&lt;p&gt;I think &lt;a href=&quot;https://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.12.4.133&quot; rel=&quot;nofollow noreferrer&quot;&gt;this&lt;/a&gt; is what you are looking for.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is a quite interesting paper. I hope it helps.&lt;/p&gt;&#xA;" OwnerUserId="18953" LastActivityDate="2018-08-12T19:53:20.437" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24102" PostTypeId="2" ParentId="24099" CreationDate="2018-08-12T20:45:40.553" Score="1" Body="&lt;p&gt;As far as I am aware, there is no &quot;general&quot; international court for economic affairs.&#xA;The ICJ (Interntaional Court of Justice) is the judicial organ of the UN, and it in fact decided few cases with economic background, but usually in the context of other questions of international law.&#xA;The closest to what you are looking for is probably WTO dispute settlement system, which is described here: &lt;a href=&quot;https://en.wikipedia.org/wiki/Dispute_settlement_in_the_WTO&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://en.wikipedia.org/wiki/Dispute_settlement_in_the_WTO&lt;/a&gt;&#xA;In theory, it is for WTO members only, but in practice, 96 % of global trade is covered under WTO.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Other possible court is the International Court of Arbitration: &lt;a href=&quot;https://en.wikipedia.org/wiki/International_Court_of_Arbitration&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://en.wikipedia.org/wiki/International_Court_of_Arbitration&lt;/a&gt;&#xA;It has no clearly defined jurisdiction, instead, the parties must agree to bring the case to it, but it is becoming increasingly popular.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Last, but not least, an ad hoc panel can be established specially for given dispute.&lt;/p&gt;&#xA;" OwnerUserId="7059" LastActivityDate="2018-08-12T20:45:40.553" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24103" PostTypeId="2" ParentId="24087" CreationDate="2018-08-12T21:02:02.563" Score="1" Body="&lt;p&gt;I am afraid that &quot;speculation&quot; can be policed only very indirectly, since it is impossible to tell what &quot;speculation&quot; is and isn't. Look at Keynes' definition: &lt;em&gt;speculation for the activity of forecasting the psychology of the market&lt;/em&gt;&#xA;In other words, you know the INTENTION of the speculator. You must see inside his head. I am not aware of any agreed-upon distinction of &quot;enterprise&quot; and &quot;speculation,&quot; that can be perceived and judged objectively, from the outside. One activity can be speculation in one context and not in another.&lt;/p&gt;&#xA;" OwnerUserId="7059" LastActivityDate="2018-08-12T21:02:02.563" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24104" PostTypeId="1" CreationDate="2018-08-12T23:20:41.313" Score="0" ViewCount="318" Body="&lt;p&gt;I'm reading Niall Ferguson's The Ascent of Money and I had a question about the economic difference between printing money vs. selling bonds to foreign entities.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At one point in the book, the author says that much of Southern Civil War effort (in the United States) was funded by issuing Cotton-backed bonds. I.e the south issued bonds that could be converted to Cotton.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The author then points out that the turning point in the war was when the Union army captured New Orleans and setup a naval blockade, which prevented European investors from collecting their cotton.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This ruined the South's ability to sell bonds, and forced them to print money to pay for war expenses, which led runaway inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is as follows: In this case, how is issuing bonds better than printing money? Wouldn't foreign bond purchases also lead to inflation, since there would be an influx of money into the south purchasing more goods? Why did the South even bother with issuing bonds, and why couldn't they just print money in the first place.&lt;/p&gt;&#xA;" OwnerUserId="18804" LastActivityDate="2021-03-30T10:07:50.760" Title="Printing Money vs. Issuing International Bonds" Tags="&lt;debt&gt;&lt;bonds&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24105" PostTypeId="2" ParentId="24070" CreationDate="2018-08-12T23:24:50.287" Score="1" Body="&lt;p&gt;It may depend on what $c$ represents and how the tax is applied&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;If $c$ is the quantity actually consumed then it remains $u(c)$&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;If $c$ is the quantity purchased and then you have to pass a quantity $\tau c$ over as taxes keeping $(1-\tau)c$ for actual consumption then it is $u((1-\tau)c)$ &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;If $c$ is the expenditure on consumption which has a unit price of $p$ and you then have to pay an additional $\tau c$ in tax then it is $u \left(\frac{c}{p}\right)$; if the price is $p=1$ then this is $u \left({c}\right)$ &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;If $c$ is the expenditure on consumption including tax which therefore has a unit price of $p(1+\tau)$  then it is $u \left(\frac{c}{p(1+\tau)}\right)$; if the pre-tax price is $p=1$ then this is $u \left(\frac{c}{1+\tau}\right)$&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Note that $u \left(\frac{c}{1+\tau}\right)$ is not the same as $u((1-\tau)c)$    &lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2018-08-12T23:24:50.287" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="24106" PostTypeId="2" ParentId="24072" CreationDate="2018-08-13T01:53:03.837" Score="1" Body="&lt;p&gt;The only assertion here that goes beyond self-evident matrix algebra and substitutions, is that &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$P_XP_1 = P_1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since the columns of $X_1$ are in $X$ it follows that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$P_X X_1 = X_1$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;because in general it holds that &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$P_X X = X$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Namely the projection matrix operates as the identity matrix for the columns of the matrix from which it has been constructed. But then&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$P_X P_1 = P_XX_1(X_1'X_1)^{-1}X_1' = (P_XX_1)(X_1'X_1)^{-1}X_1'$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$=X_1(X_1'X_1)^{-1}X_1' = P_1$$&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2018-08-13T01:53:03.837" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24108" PostTypeId="2" ParentId="24073" CreationDate="2018-08-13T03:05:33.563" Score="0" Body="&lt;p&gt;There is nothing methodologically/technically wrong with the definition of the utility function (eq. $(4)$ of the paper). It is a utility function where parents derive utility also from the future income of their children, and more over without discounting it, even though it is in the future and even though it won't be their personal consumption. We can debate the realism of this formulation, namely whether it describes the majority of real-world parents as regards how they view the relation with their children, but technically it has no flaws.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As regards the optimal decision rules in equation $(5)$, they are  correct. We have to &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\max_{r_{t+1}}[V=\ln c_t + \ln y_{t+1}]$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Using $(3)$ forwarded once we have $y_{t+1} = \varepsilon_{t+1} a_{t+1}$, while from $(2)$ we have &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$a_{t+1} = Ar_{t+1}^{w_{t+1}} \left (\int_0^1 r_{i,t+1}^{w_{t+1}}di\right)^{-1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Using also the budget constraint $(1)$, the objective function can be re-written &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$V=\ln (y_t-r_{t+1}) + \ln \varepsilon_{t+1} + \ln a_{t+1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$= \ln (y_t-r_{t+1}) + \ln \varepsilon_{t+1} + \ln A + w_{t+1} \ln r_{t+1} - \ln \left (\int_0^1 r_{i,t+1}^{w_{t+1}}di\right)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now note that $\varepsilon_{t+1}$ is a random variable, not a decision variable. Also, $A$ is a constant, and the last component that contains the integral is not differentiated w.r.t individual decision variables, because every individual has &quot;measure zero&quot;, which is the fancy way to say that it is negligible with respect to the whole, and does not consider the effects that his actions has on the whole.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the f.o.c will be, simply &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {\partial V}{\partial r_{t+1}}=-\frac {1}{y_t-r_{t+1}} + \frac {w_{t+1}}{r_{t+1}} =0$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and from that we obtain eq. $(5)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I didn't read the whole paper, because I don't like its opaqueness as regards the mathematical steps. In other words, what I wrote above, however simple, should be spelled out at least in a Technical Appendix. Moreover, there is a curious mention about &quot;productive investment&quot; three lines below eq. $(4)$, that appears nowhere in the first pages of the paper.Perhaps in an initial version they had also productive investment in the model but then simplified it. But that's sloppy.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2018-08-13T12:49:58.077" LastActivityDate="2018-08-13T12:49:58.077" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24109" PostTypeId="2" ParentId="24104" CreationDate="2018-08-13T03:50:51.360" Score="0" Body="&lt;p&gt;Bonds are backed by real resources. Money is backed by nothing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lets say I'm a British investor. The price of 1 kilo of cotton is 100 British pounds. If I buy a bond for 1 kilo of cotton redeemable in 1 year for 90 pounds then in one year when I redeem the bond and the 1 kilo of cotton is sent to me I can sell it for 100 pounds for a profit of 10 pounds or 10% (100 - 90). The number of pounds in the south has nothing to do with the value of the pound since no new pounds are being created. A southerner with payment in pounds can go to Britain and use the pounds and if anything the transfer of pounds from Britain to the South will cause deflation as the supply of pounds in Britain decreases since they are now in the South.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is different from the South printing money which actually increases the money supply. If the south has 100K total confederate dollars in circulation which can be used to purchase 1000 arbitrary goods and services then each good can be purchased for 100 confederate dollars. If the south wants to purchase an additional 1000 arbitrary goods and tries to print an additional 100K this leads to inflation as now there are 200K total confederate dollars. The money supply in this instance has expanded whereas it has not in the bonds example.&lt;/p&gt;&#xA;" OwnerUserId="10245" LastActivityDate="2018-08-13T03:50:51.360" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24110" PostTypeId="1" CreationDate="2018-08-13T06:45:47.927" Score="-1" ViewCount="74" Body="&lt;p&gt;In Anti-Piketty, the author's claim that the statement &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;If the supply of any good is insufficient and it's price is too high, then demand for that good should decrease which should lead to a decline in its price&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;is a misunderstanding of Freshman economics seems more of an ad hominem attack, which has led me to want to understand further if the attack is valid. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If this is such a basic misunderstanding of microecon 101, then how would Piketty be a renowned economist?&lt;/p&gt;&#xA;" OwnerUserId="19128" LastActivityDate="2019-01-05T15:01:35.327" Title="Anti Piketty Confusing Movement Along Demand Curve with Shift" Tags="&lt;microeconomics&gt;&lt;supply-and-demand&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="24111" PostTypeId="1" CreationDate="2018-08-13T08:02:23.997" Score="1" ViewCount="772" Body="&lt;p&gt;I am getting a bit confused about setting up the Lagrangian in intertemporal constrained optimization problems. The confusion is as to when is the one-period budget constraint multiplied by the discount factor Beta and/or when is it included in the summation? Here is what I mean. In this first example:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/iicII.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/iicII.png&quot; alt=&quot;Example 1&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;the constraint is not multiplied by Beta, nor part of the summation. Now, in example 2:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/AxeZD.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/AxeZD.png&quot; alt=&quot;Example 2&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;the constraint is multiplied by the discount factor Beta and part of the intertemporal summation. Why this difference? Aren't the two cases pretty much equal, both maximizing subject to one-period constraints? The only difference I see is when the interest rate on the assets is realized, but that should not matter I believe(?)&#xA;I also found a third case (will upload an image later if I find it) in which the one-period constraint is summed up intertemporally, but not discounted by Beta.&#xA;So to conclude: what is the rule here? What am I missing? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By looking at the FOCs that follow example 1, it becomes clear that the author means the Lagrange Multiplier to be part of the summation, but not discounted by Beta. This is clear from the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/6vFUf.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/6vFUf.png&quot; alt=&quot;Focs_Example1&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So this really looks to me like a different formulation to the second example. The &quot;funny&quot; thing, however, is that in both cases you get the same result (i.e. the same Euler Equation).&lt;/p&gt;&#xA;" OwnerUserId="19130" LastEditorUserId="19130" LastEditDate="2018-09-18T08:42:52.590" LastActivityDate="2018-09-18T08:42:52.590" Title="Lagrangian: when to discount budget constraint?" Tags="&lt;macroeconomics&gt;&lt;utility&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24115" PostTypeId="1" CreationDate="2018-08-13T18:25:35.823" Score="4" ViewCount="82" Body="&lt;p&gt;In Gelman and Hill's 2007 book, &lt;a href=&quot;https://rads.stackoverflow.com/amzn/click/052168689X&quot; rel=&quot;nofollow noreferrer&quot;&gt;Data Analysis Using Regression and Multilevel/Hierarchical Models&lt;/a&gt;, chapter 11 begins the exploration of multilevel models. To do so, they introduce a data set that relates city level child support enforcement policies to individual outcomes. Because the treatment is at the city level, this serves to show how sometimes it is good to model the city level effects (at the higher level of the hieratchical model) and then model those as having effects on individuals (the lower level). I'd like to follow along but the data set doesn't seem to be in either of the two places on Gelman's website where he keeps data:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://www.stat.columbia.edu/~gelman/arm/examples/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Data and software for the examples in the book&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://www.stat.columbia.edu/~gelman/arm/examples/&quot; rel=&quot;nofollow noreferrer&quot;&gt;More data and software for the examples in the book. (Sorry we're a bit disorganized right now!)&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Anyone know where to find these data?&lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="1601" LastEditDate="2018-08-13T18:50:48.390" LastActivityDate="2018-12-16T11:03:35.747" Title="Gelman and Hill's Data on Effects of Child Support Enforcement" Tags="&lt;data-request&gt;&lt;public-economics&gt;&lt;law&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24116" PostTypeId="2" ParentId="24076" CreationDate="2018-08-13T19:16:41.847" Score="2" Body="&lt;p&gt;Voting mechanisms would seem to be a good example.  So are matching mechanisms such as those used to assign students to public schools. &lt;/p&gt;&#xA;" OwnerUserId="19116" LastActivityDate="2018-08-13T19:16:41.847" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24117" PostTypeId="2" ParentId="24111" CreationDate="2018-08-13T19:58:39.350" Score="1" Body="&lt;p&gt;The constraint is part of the objective function in each period. So, naturally it is subject to discounting, and so it must &quot;be multiplied by beta&quot;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the fist setup above is wrong (or just a typo: one should check whether in the specific publication the solution given follows the above image or in reality it implies that the constraint is multiplied by beta).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &quot;third case&quot; the OP mentions in his post is a different matter. There we &quot;compact&quot; the constraint into one, so here they are outside the sum and the intertemporal discounting, with the understanding that the single multiplier is a present-value multiplier in this case. This is ok, it is done for example on certain macroeconomic models related to optimal taxation.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2018-08-13T19:58:39.350" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24118" PostTypeId="1" CreationDate="2018-08-13T20:45:02.473" Score="1" ViewCount="24" Body="&lt;p&gt;Dear StackExchange community,&lt;/p&gt;&#xA;&#xA;&lt;h1&gt;Question:&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;According to, e.g., &lt;a href=&quot;https://en.wikipedia.org/wiki/Random_effects_model&quot; rel=&quot;nofollow noreferrer&quot;&gt;Wikipedia&lt;/a&gt;, random effects models assume &quot;that the individual specific effects are uncorrelated with the independent variables.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand that to mean that, in the context of a shared frailty model (see below), a control variable that varies on the &lt;em&gt;group level&lt;/em&gt; must not be correlated with the &lt;em&gt;group level frailty&lt;/em&gt;. But:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Question: are variables that vary &lt;em&gt;within&lt;/em&gt; groups allowed to be correlated with the group-level frailty?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Example: imagine that&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;one is modeling the time for siblings to reach their terminal educational degree,&lt;/li&gt;&#xA;&lt;li&gt;the control variables include dummy variables for each kind of terminal degree (BSc, MSc, etc.),&lt;/li&gt;&#xA;&lt;li&gt;the shared frailty at the sibling level represents the sibling-level speed, i.e., tendency to finish degrees faster&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Imagine also, that people who run through their education at a faster pace also tend to continue into higher levels of education. Faster families will be overrepresented among higher degrees. Therefore, the researcher wants to correct for the sibling-level speed. But at the same time, the degree dummies will be correlated with the frailty.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Would the shared frailty model be valid in such a case? Would the model correctly estimate the associations between types of terminal degrees and the the time to completion?&lt;/p&gt;&#xA;&#xA;&lt;h1&gt;Background:&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;I would like to estimate a shared frailty model (see &lt;a href=&quot;http://psfaculty.ucdavis.edu/bsjjones/frailtyslides.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;these lecture notes&lt;/a&gt;; the following draws on this document). It is a a random effects survival analysis model where unobserved heterogeneity between groups are modelled as a so-called shared random effect common to each group. It takes the form:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$h(t_{ij})=h_0(t)\exp(\beta' \mathbf x_{ij} + \varphi'w_i)$,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $h(t_{ij})$ is the hazard of individual $i$ in group $j$ at time $t$ given the baseline hazard, $h_0$, the control variables for each individual, $\mathbf x_{ij}$, and the shared frailty for group $i$, $w_i$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The $w_i$ are assumed to be drawn from an independent sample from a distribution with mean 0 and variance 1.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I hope my question makes sense and I look forward to hear your answers.&lt;/p&gt;&#xA;" OwnerUserId="19133" LastActivityDate="2018-08-13T20:45:02.473" Title="Group-level random effect correlated with within-group independent variable" Tags="&lt;econometrics&gt;&lt;statistics&gt;&lt;fixed-effects&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24119" PostTypeId="1" AcceptedAnswerId="24151" CreationDate="2018-08-13T23:55:26.843" Score="1" ViewCount="1020" Body="&lt;p&gt;I have a model $Z = \alpha X + \beta Y + \gamma C + \epsilon$. I am interested in the relative effects of $X$ and $Y$ on $Z$. However, $X$ and $Y$ are endogenous. I have identified two instruments $X'$ and $Y'$ respectively. $C$ is an exogenous control variable (fixed effect). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;How do I go about estimating the model with these two instruments for the two endogenous variables? Do I need to use 3SLS? I am fairly new to this field. Any resources that address this would be very helpful, thank you. &lt;/p&gt;&#xA;" OwnerUserId="7881" LastActivityDate="2018-08-16T08:35:42.523" Title="Two Endogenous Variables and Two Instruments" Tags="&lt;econometrics&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24120" PostTypeId="2" ParentId="23992" CreationDate="2018-08-14T01:57:37.440" Score="2" Body="&lt;p&gt;&lt;a href=&quot;https://www.nytimes.com/2018/04/03/us/politics/white-house-chinese-imports-tariffs.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;As of April 2018&lt;/a&gt;, the tariffs are targetted at products in which Chinese companies dominate.  They would apply to products made by American companies in China and imported to the US, but the exact products covered have been chosen to minimise this effect.  Nevertheless,&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;it will most likely increase costs for American manufacturers that depend on imported parts because it concentrates heavily on machinery and high-tech components.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In other words, US firms that use components made in China by Chinese companies as inputs in creating more complex products will be harmed.  For instance, &lt;a href=&quot;https://www.washingtonpost.com/business/economy/us-makers-of-blue-jeans-motorcycles-and-other-goods-urge-caution-on-tariffs/2018/03/06/95c3e926-2159-11e8-badd-7c9f29a55815_story.html?noredirect=on&amp;amp;utm_term=.0cd815a3dc4c&quot; rel=&quot;nofollow noreferrer&quot;&gt;Harley Davidson have said&lt;/a&gt; that&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Import tariffs on steel and aluminum will drive up costs for all products made with these raw materials, regardless of their origin.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="16631" LastActivityDate="2018-08-14T01:57:37.440" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24121" PostTypeId="2" ParentId="18867" CreationDate="2018-08-14T07:12:47.560" Score="1" Body="&lt;p&gt;&lt;strong&gt;Corrections&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;s cannot be greater than 1/2.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If A chooses 0 -- if s&gt;0, B chooses either -1 or 1 -- &lt;strong&gt;but&lt;/strong&gt; if s=0, B chooses either -1 or 0 or 1. &lt;strong&gt;0 is only weakly dominated.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If B chooses -1 -- if s&gt;0, A chooses -1 -- &lt;strong&gt;but&lt;/strong&gt; if s=0, A chooses either -1 or 0 or 1. &lt;strong&gt;0 and 1 are only weakly dominated.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If B chooses 0 -- A chooses 0&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If B chooses 1 -- if s&gt;0, A chooses 1 -- &lt;strong&gt;but&lt;/strong&gt; if s=0, A chooses either -1 or 0 or 1. &lt;strong&gt;-1 and 0 are only weakly dominated.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;PSNE&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;if s=0&lt;/strong&gt;, (0, -1) and (0, 0) and (0, 1) are pure strategy Nash equilibria.&#xA;Otherwise, there are none.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Mixed Strategy&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;B is indifferent when:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A plays $-1$ or $1$ with probability $-\frac{s}{s-2}=\frac{s}{2-s}$ (from 0 to 1/3), and $0$ with probability $\frac{3s-2}{s-2}$ (from 1 to 1/3)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A is indifferent when:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;B plays $-1$ or $1$ with probability $\frac{s-1}{s-2}$ (from 1/2 to 1/3) and $0$ with probability $-\frac{s}{s-2}$ (from 0 to 1/3)&lt;/p&gt;&#xA;" OwnerUserId="19136" LastActivityDate="2018-08-14T07:12:47.560" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24126" PostTypeId="1" CreationDate="2018-08-14T14:27:54.977" Score="0" ViewCount="243" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;a href=&quot;https://money.stackexchange.com/questions/97931/are-there-any-countries-in-which-post-dated-cheques-are-commonly-used-in-trade&quot;&gt;I am reposting from the Personal Finance &amp;amp; Money Stack Exchange&lt;/a&gt; because my question was flagged as being about economics and off-topic.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The post-dated cheque is the most common payment instrument for internal commerce in Turkey. According to the &lt;a href=&quot;https://www.riskmerkezi.org/Content/Upload/istatistikiraporlar/ekler/1379/Bankalara_Ibraz_Edilen_ve_Karsiliksiz_Islemi_Yapilan_Cek_Bilgileri__-_Haziran_2018.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;data published by The Banks Association of Turkey&lt;/a&gt;, ₺784 billion (equivalent to \$208 billion in December 2017) worth of payments were processed through cheques, most of which are believed to be post-dated. To compare, &lt;a href=&quot;https://tradingeconomics.com/turkey/exports&quot; rel=&quot;nofollow noreferrer&quot;&gt;Turkey's total exports&lt;/a&gt; were worth ~$150 billion in the same year.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reason for me asking this question is: I have been hearing from numerous people that the usage of the post-dated cheque as a financial instrument is unique to Turkey. That is obviously not true; &lt;a href=&quot;https://en.wikipedia.org/wiki/Post-dated_cheque&quot; rel=&quot;nofollow noreferrer&quot;&gt;there are other countries&lt;/a&gt; that allow post-dating cheques, e.g. &lt;a href=&quot;https://money.stackexchange.com/a/33705/64163&quot;&gt;Canada&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, the argument is that the &lt;strong&gt;majority&lt;/strong&gt; of payments are made with post-dated cheques, which could indeed be unique to Turkey. In Turkey, when someone writes you a post-date cheque, you can use that cheque to pay someone else. The process is described by most as &lt;strong&gt;minting money on-the-fly&lt;/strong&gt;. Used as legal money, cheques change hands frequently, and you can find yourself paying for property using a cheque written by someone you don't personally know. Only when the date comes can the cheque be cashed in by its n^th holder, realizing its value promised to its 1st holder. This highly exaggerates the number given above (₺784 billion) which does not reflect how many times a cheque was used in payment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This essentially forms a network of trust that operates in parallel to the banks. The reason I have been told is that the banks are owned by the holding companies of Turkey, and their operational capabilities outside the financial domain make them competitors to every other company. Thus a businessman in Turkey has an excuse not to disclose his financial/business history to banks; it's like leaking information to your competitors. So instead of taking out a loan, they write post-dated cheques. Again, I am relaying what I have been told.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given the situation in Turkey, are there any other countries with similar financial habits? Or do the countries listed in &lt;a href=&quot;https://en.wikipedia.org/wiki/Post-dated_cheque&quot; rel=&quot;nofollow noreferrer&quot;&gt;Wikipedia&lt;/a&gt; (Australia, Canada, India, Serbia etc.) see only limited use?&lt;/p&gt;&#xA;" OwnerUserId="19141" LastActivityDate="2021-05-11T23:17:45.907" Title="Are there any countries in which post-dated cheques are commonly used in trade?" Tags="&lt;financial-economics&gt;&lt;money&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24127" PostTypeId="1" CreationDate="2018-08-14T16:10:26.553" Score="1" ViewCount="827" Body="&lt;p&gt;Shouldn't it be easier to produce more quantity of goods for a producer?&#xA;Isn't it the case that the ease of production is inherently tied to the quantity you produce?&#xA;Shouldn't it be the case that the more you produce , the more easier it becomes to produce a bit more?&#xA;I understand why the marginal cost drops for lower quantities but am not sure why it should steadily climb up if the quantity crosses some threshold.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course , the fixed costs and variable costs as a result of increase in quantities produced could play a local effect in the increasing marginal cost but I don't see why in general the marginal cost curve seems to be increasing by the argument that it should be easier to produce a bit more when you are already producing a lot.&lt;/p&gt;&#xA;" OwnerUserId="19142" LastActivityDate="2018-10-15T19:02:08.457" Title="Why is the law of diminishing marginal returns justified?" Tags="&lt;macroeconomics&gt;" AnswerCount="3" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24128" PostTypeId="2" ParentId="24127" CreationDate="2018-08-14T17:12:16.223" Score="-1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Shouldn't it be easier to produce more quantity of goods for a&#xA;  producer?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;No. At some point, staff is overworked and machines overheat. Even if it were indefinitely easier to increase the quantity of goods produced, nothing guarantees that there will be demand for the entire production. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Additionally, progressive taxation, and oversupply of goods have a detrimental effect on producer's profit. These factors are not strictly related to ease of production, but to your question as to &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Why is the law of diminishing marginal returns justified?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Furthermore, the sole fact that consumers experience a diminishing marginal utility precludes the possibility that a producer will be able to sell its entire production no matter how much he raises his levels of output.&lt;/p&gt;&#xA;" OwnerUserId="18552" LastActivityDate="2018-08-14T17:12:16.223" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24129" PostTypeId="1" AcceptedAnswerId="24130" CreationDate="2018-08-14T18:37:23.507" Score="1" ViewCount="61" Body="&lt;p&gt;Paul Rogers in an &lt;a href=&quot;https://www.opendemocracy.net/paul-rogers/climate-revolution&quot; rel=&quot;nofollow noreferrer&quot;&gt;article&lt;/a&gt; on &lt;em&gt;Open Democracy&lt;/em&gt;, writes:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;It is also significant that the term 'hothouse earth' has caught on, and that the idea of runaway climate disruption is covered in the media in some depth - even by newspapers that have long been impregnable citadels of climate denial&lt;/p&gt;&#xA;&lt;p&gt;The weekly &lt;em&gt;economist&lt;/em&gt; has for many years given ample space to climate sceptics, but recently it's coverage has changed markedly. The cover story of its &lt;a href=&quot;https://www.economist.com/leaders/2018/08/02/the-world-is-losing-the-war-against-climate-change&quot; rel=&quot;nofollow noreferrer&quot;&gt;latest&lt;/a&gt; is about the failure to tackle climate change.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Is it possible to quantify and cost the ideological obstruction on tackling climate change given that the earlier climate change is tackled the more effective it would be?&lt;/p&gt;&#xA;&lt;p&gt;One example of a global effort to limit environmental damage was the Montreal protocol on limiting substances that damage the ozone layer that came into force in 1987 with climate projections showing that ozone layer will return to 1980 levels around 2050-70. Of course, the CFC industry is valued in the billions whereas the fossil fuel industry is valued in the trillions so there is likely to be a much larger push-back from the industry. It's this that I want to have numbers on.&lt;/p&gt;&#xA;&lt;p&gt;In view of the comment below in the top rated answer, I'd suggest that such an exercise would useful in informing class action suits in the future in the same way that we have had class action suits against big tobacco firms. (In the latter, they are polluting peoples lungs and in the former, the planet lungs).&lt;/p&gt;&#xA;" OwnerUserId="13857" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2019-12-03T18:04:46.097" Title="Is it possible to quantify &amp; cost the ideological obstruction to climate change?" Tags="&lt;macroeconomics&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24130" PostTypeId="2" ParentId="24129" CreationDate="2018-08-14T20:30:04.473" Score="4" Body="&lt;p&gt;Yes, it is possible to cost it. The range of costs could be estimated by taking the range of estimates of the marginal social cost of carbon (in €/tCO2e), and the range of estimates of the net excess amount of greenhouse gases [GHG] released due to delay (in tCO2e), and multiplying these together.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One starting point would be to ask how long it would have taken to get to zero net GHG if there had been international agreement in 1989, at the start of the IPCC, to put the world on track to tackle climate change (a deal that was killed by the USA, USSR, UK, Japan at the time), and what the total net emissions would have been on that trajectory, versus how they'll be if we achieve a 1.5&amp;deg;C or 2&amp;deg;C trajectory now.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I suspect no one's done it because it's not obvious what the value of the exercise would be: in the absence of a time machine, it doesn't really inform any decisions now.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2018-08-14T20:30:04.473" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24131" PostTypeId="1" AcceptedAnswerId="24163" CreationDate="2018-08-14T21:53:31.270" Score="2" ViewCount="29" Body="&lt;p&gt;In the news lately and in previous administrations, one of the most popular sound bytes I've heard was: &quot;so and so is not growing the economy, he's growing the bubble.&quot; As with much sensationalism in the news, this is a rather normative statement. What I want to investigate is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Question:&lt;/strong&gt; what is a positive statement that can be said for the same argument?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Seeing as the federal reserve themselves have openly said they have no formal definition of a &quot;bubble&quot; and we can take it all the way back to the tulip mania days, but I think it's still interesting to see what is the most persuasive quantifiable metric that would suggest if the bubble is growing or if the economy itself is growing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My best attempt&lt;/strong&gt; One metric I noticed was in America home ownership is down and yet the real estate prices are increasing, suggesting that the valuation of homes is from the speculation of a wealthy few. Now, I concede this is only representative of &lt;strong&gt;one&lt;/strong&gt; part of the economy, to see the bigger picture we would have to include more industries. Perhaps the same technique, but using a composite basket of such metrics?&lt;/p&gt;&#xA;" OwnerUserId="12212" LastActivityDate="2018-08-17T05:45:17.243" Title="Empirical means of discerning &quot;economy&quot; and &quot;bubble&quot;" Tags="&lt;macroeconomics&gt;&lt;economic-bubble&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24132" PostTypeId="1" AcceptedAnswerId="24148" CreationDate="2018-08-14T22:11:11.817" Score="1" ViewCount="150" Body="&lt;p&gt;How to prove that if $f$ is strictly quasi-concave and homogeneous of degree 1, then $f$ is concave? It was left as an exercise by Silberberg &amp;amp; Suen (2001), p.140.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I simply could not elaborate any sketches to leave here as a starting point.&lt;/p&gt;&#xA;" OwnerUserId="19145" LastActivityDate="2018-08-15T18:12:19.563" Title="Quasiconcavity and homogeneity" Tags="&lt;production-function&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24134" PostTypeId="1" CreationDate="2018-08-15T00:25:44.940" Score="5" ViewCount="243" Body="&lt;p&gt;At least in the United States, firms seem to almost always reduce labor costs via layoffs rather than pay cuts. Pay cuts are so rare that they're literally &lt;a href=&quot;https://money.cnn.com/2009/01/07/news/economy/salary_cuts/index.htm?postversion=2009010811&quot; rel=&quot;noreferrer&quot;&gt;headline&lt;/a&gt; &lt;a href=&quot;https://content.time.com/time/subscriber/article/0,33009,1891748,00.html&quot; rel=&quot;noreferrer&quot;&gt;news&lt;/a&gt;. From an economic standpoint, if workers are being paid more than their marginal product, then either solution fixes the problem - layoffs boost marginal product to match the old wage, while pay cuts lower the wage to match the new marginal product.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But it seems to me that a pay cut is better for both the employer and the employee. From the employer's side, when times get better they don't need to bring in a bunch of inexperienced new employees to replace the ones they laid off. From the employee's side, they still make some money rather than no money, and they are free  to leave the company if they can find sufficiently higher pay at another firm to compensate for the inconvenience of switching jobs. Personally, I would always prefer to be offered a pay cut than laid off, and apparently over &lt;a href=&quot;https://hrdailyadvisor.blr.com/2012/02/26/layoff-furlough-pay-cut-which-is-best/&quot; rel=&quot;noreferrer&quot;&gt;90% of workers feel the same way&lt;/a&gt;. So why are layoffs so ubiquitous?&lt;/p&gt;&#xA;" OwnerUserId="14832" LastActivityDate="2018-09-15T07:51:27.790" Title="Why do firms losing money almost always reduce labor costs via layoffs instead of pay cuts?" Tags="&lt;microeconomics&gt;&lt;unemployment&gt;&lt;wages&gt;&lt;firm&gt;" AnswerCount="5" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24135" PostTypeId="1" AcceptedAnswerId="24137" CreationDate="2018-08-15T01:10:25.157" Score="-1" ViewCount="75" Body="&lt;p&gt;I can't see any economic argument for banning insider trading. In general, the point of allowing financial securities to be traded is to ensure that they are properly valued. &quot;Insiders&quot; seem better informed about the proper value of these securities than &quot;outsiders&quot;. In few other realms do we ban people who are knowledgeable about a subject from trading items relating to that subject.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Apparently the primary motivation for the ban is a sense that it's &quot;unfair&quot; for insiders to profit from information that other people don't have access to, but I don't understand this normative argument. We don't think that it's unfair for doctors to profit from their specialized medical knowledge - or for that matter, for successful CEOs to profit from their industry expertise by receiving high salaries (as opposed to making well-timed stock trades). A potential investment advantage from access to &quot;inside&quot; information seems like just another form of indirect compensation, which will be priced into the wage market and (all else equal) lower the nominal salary just like all non-cash benefits.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm &lt;em&gt;not&lt;/em&gt; trying to make some point of libertarian principle or start a philosophical argument. Nor am I assuming that there's some heavy onus on the government to justify any economic regulation. I'm simply looking for a value-neutral summary of the argument for banning insider trading, since I've never heard such an argument.&lt;/p&gt;&#xA;" OwnerUserId="14832" LastActivityDate="2018-08-15T16:24:11.943" Title="What are the arguments for banning insider trading?" Tags="&lt;finance&gt;&lt;financial-markets&gt;&lt;government&gt;&lt;regulation&gt;&lt;law&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="24136" PostTypeId="2" ParentId="24081" CreationDate="2018-08-15T01:33:23.883" Score="-1" Body="&lt;p&gt;A &lt;a href=&quot;https://www.reuters.com/article/us-iraq-war-anniversary/iraq-war-costs-u-s-more-than-2-trillion-study-idUSBRE92D0PG20130314&quot; rel=&quot;nofollow noreferrer&quot;&gt;report&lt;/a&gt; by Reuters on a study published give years ago said:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;The total cost of the war in Iraq was 1.7 trillion dollars with an additional 490 billion dollars to be paid to war veterans in benefits, expenses that could rise to 6 trillion dollars over the next four decades in interest ... according to the Costs of War Project by the Watson Institute for International Studies at Brown University ... [the report] is based on actual expenditures from the US treasury and future committment such as medical and disability claims of war veterans.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;That is the purely financial costs; they also mention the human costs as:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;The war has killed 134,000 Iraqi civilians and may have contributed to the cost of around four times that number ... when security forces, insurgents, journalists and humanitarian workers are included the total climbs to an estimated 176,000 to 189,000.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Suprisingly they don't mention the number of war veterans that died in the war and nor how many were injured.&lt;/p&gt;&#xA;&lt;p&gt;They also mention that:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;The US gained little from the war whilst Iraq was traumatised by it.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;So no mention of oil here. A separate article by Open Democracy said that the total revenue of the oil sold in Iraq was 80 billion dollars in the first six months of this year. Suppose that the US had gone to war for the oil, and suppose that diverted 50%. This would mean a yearly revenue $80 billion. At that rate it would take three decades to pay the costs of the war, excluding the future commitments mentioned above.&lt;/p&gt;&#xA;&lt;p&gt;This might suggest that the war was not fought on those grounds but as an exercise in punitive collective punishment as recommended by Machivellis &lt;em&gt;Prince&lt;/em&gt;. This was given as the main political motive from the left and it appears to me that the evidence very much stacks up this way.&lt;/p&gt;&#xA;&lt;p&gt;Had these funds been diverted to investing in green technology for the future, in the same way that the Manhatten project developed nuclear technology, at least one thing could be said - the human costs would have been negligible.&lt;/p&gt;&#xA;&lt;p&gt;Reuters go on to report:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;&amp;quot;Action needed to be taken,&amp;quot; said Steven Bucci, the military assistant to former defense secretary Donald Rumsfield ... he agreed that the costs of the war proved to be to be a tiny fraction of the real costs.&lt;/p&gt;&#xA;&lt;p&gt;&amp;quot;If we had the foresight to see how long it would last and even if it had cost only half the lives we would not have gone in. Just the time alone would have stopped us. Everyone thought it would be short.&amp;quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;So the question condenses down to how much green technology and investment could be bought for between 2-6 trillion dollars.  My guess - an enormous amount...&lt;/p&gt;&#xA;" OwnerUserId="13857" LastEditorUserId="13857" LastEditDate="2020-11-13T06:23:59.370" LastActivityDate="2020-11-13T06:23:59.370" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24137" PostTypeId="2" ParentId="24135" CreationDate="2018-08-15T01:36:30.860" Score="1" Body="&lt;p&gt;One argument is that it creates a sort of moral hazard: An insider may take (potentially harmful) actions so as to create fluctuations in the share price and profit from such fluctuations.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;His actions may be harmful to the firm and to society.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Example.&lt;/strong&gt; Suppose a scientist working at a pharmaceutical company on a cure for cancer. All indications are that the cure is likely to work and so the company's share price is very high. The scientist could then deliberately sabotage the work and short-sell the firm's stock.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;If the share price fluctuations serve no purpose other than to enrich the insider, then these fluctuations are harmful insofar as volatility and uncertainty are harmful.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;But you are not alone in your doubts. See e.g. &lt;a href=&quot;https://www.econlib.org/library/Enc/InsiderTrading.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;EconLib&lt;/a&gt; for more arguments both for and against regulating insider trading.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2018-08-15T01:36:30.860" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24138" PostTypeId="2" ParentId="24134" CreationDate="2018-08-15T01:38:38.373" Score="0" Body="&lt;p&gt;While workers in the crisis may prefer a pay cut I don't know if long-term they would &lt;em&gt;appreciate&lt;/em&gt; their employer for doing so. Employers may feel like it is damaging to the long-term stability of the workforce.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That being said, arguably &lt;em&gt;layoffs can be equivalent to pay cuts&lt;/em&gt; when the workers laid off are on the higher end of the wage scale. After laying off relatively more senior employees an employer has both fewer employees and a lower rate of compensation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I read an argument recently about the opposite scenario: why aren't wages increasing right now? One explanation was that even though the data says wages are flat this is because hiring interns and additional entry-level positions waters down the actual wage increases to existing employees. &lt;/p&gt;&#xA;" OwnerUserId="19106" LastActivityDate="2018-08-15T01:38:38.373" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24141" PostTypeId="2" ParentId="23949" CreationDate="2018-08-15T04:07:19.413" Score="2" Body="&lt;p&gt;We don't know.  Consider the following possibilities:  &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;The tariff lasts long enough that the United States soybean farmers switch from soybeans to some other crop.  When the tariff is dropped, they don't change back.  Brazil keeps the business.  &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Brazilian farmers open new land and buy equipment specifically for soybeans.  When the tariff ends, Brazil and the US split the business in some fashion (implicitly via market actions).  Some farmers in both countries may go out of business or switch crops as a result.  &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Brazilian soybeans that had shipped to Europe are now shipped to China.  Europeans buy soybeans from the US that they had bought from Brazil.  Transport costs may climb, but both the US and Brazil continue to produce soybeans at about the same rate as they did prior to the tariff.  When the tariff goes away, business patterns may go back to the previous pattern.  &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The US uses soybeans to make biofuels or otherwise finds new ways to use soybeans.  &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Chinese consumers might replace some soybeans with some other food in their diet.  Maybe they decide they like the new food better and they never eat as many soybeans as they did previously.  &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Producers and consumers engage in long term deals.  So once the market is changed, it stays changed even after the impetus for change is gone.  &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;We might know how much of the soybean market is dominated by long term deals, but other than that, we don't really know how things will change.  It's quite possible that all these things happen to some level.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;When something like this happens, it may make both permanent and temporary changes.  Someone might be able to work out a model whereby we can speculate as to how much of the change would be permanent and how much would be temporary.  But any such model is going to be somewhat of a guess.  &lt;/p&gt;&#xA;" OwnerUserId="68" LastActivityDate="2018-08-15T04:07:19.413" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24142" PostTypeId="2" ParentId="24134" CreationDate="2018-08-15T11:14:43.593" Score="0" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Why do firms losing money almost always reduce labor costs via layoffs&#xA;  instead of pay cuts?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Although anyone individually assesses that a pay cut would be less catastrophic than being laid off, it is necessary to look at the &quot;psychology&quot; surrounding the notions of utility and survival. Much of this answer admittedly sounds cruel, but I aim at describing an agent's &quot;survival&quot; reaction.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An employee receiving lower compensation is prone to feel shortchanged because workload remains --or is perceived to remain-- constant. For instance, even if the workload decreases, the employee usually still has to meet his full-time schedule and be available. Consequently, employees' imminent dissatisfaction from a pay cut tends to lower their morale and productivity. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;By contrast, seeing other layoffs encourages an employee to maintain his productivity for fear of he himself being terminated. Likewise, an unemployed person is likelier to accept disadvantageous conditions for a while than the employee who --understandably-- will expect a reversal of his pay cut as soon as business conditions improve.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where compensation includes benefits, one layoff is likely to conduce to a greater reduction of costs than applying a 50% pay cut to two employees with same pay level. At first glance, the layoff increases the employer's exposure to a &lt;em&gt;bottleneck risk&lt;/em&gt; with respect to the remaining employee (for instance, that the latter might get sick), but that risk is mitigated by the latter's interest not to be laid off as well. Where the number of layoffs is big enough, the reduction of costs would be reflected even in semi-fixed costs, such as the premium for &lt;em&gt;group insurance&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Fiscal policy/stimulus might also influence an employer's propensity to decide for layoffs [and subsequent hires] in lieu of maintaining steady workforce via pay cuts.&lt;/p&gt;&#xA;" OwnerUserId="18552" LastActivityDate="2018-08-15T11:14:43.593" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24143" PostTypeId="2" ParentId="24126" CreationDate="2018-08-15T11:29:49.633" Score="1" Body="&lt;p&gt;Iran is another similar case, however in Iran use of post-dated cheques are mainly due to difficulties that a businessman will face if he wants to use bank loans.&#xA;For example banks usually have a well-known precondition for extending loan to firms and households which is providing sufficient liquid collaterals.&#xA;For finding more theoretical elaborations you can search for &quot;access to credit&quot; literature which tries to elaborate why banks do not have sufficient incentive to provide credit to some people.  &lt;/p&gt;&#xA;" OwnerUserId="18937" LastActivityDate="2018-08-15T11:29:49.633" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24146" PostTypeId="2" ParentId="24127" CreationDate="2018-08-15T16:06:05.163" Score="0" Body="&lt;p&gt;&lt;a href=&quot;https://www.britannica.com/topic/diminishing-returns&quot; rel=&quot;nofollow noreferrer&quot;&gt;Diminishing return&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Diminishing returns, also called law of diminishing returns or&#xA;  principle of diminishing marginal productivity, economic law stating&#xA;  that if one input in the production of a commodity is increased while&#xA;  all other inputs are held fixed, a point will eventually be reached at&#xA;  which additions of the input yield progressively smaller, or&#xA;  diminishing, increases in output.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Produce a &lt;em&gt;bit&lt;/em&gt; more may be less cost.  If you increase a single resource at some point you get less productivity per unit.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Long term if the whole process is designed to produce more then cost per item should go down. &lt;/p&gt;&#xA;" OwnerUserId="10625" LastActivityDate="2018-08-15T16:06:05.163" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24147" PostTypeId="2" ParentId="24134" CreationDate="2018-08-15T18:08:49.613" Score="0" Body="&lt;p&gt;It would not be fair to top employees that would not be cut. Those are employees that you don't want to lose and they are employees that can find a better job.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A 10% pay cut is lay off 1/10.  Do you want to risk losing your top 10% or get rid of the bottom 10%?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where the industry has tanked you do see taking a pay cut some time.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another option is if it is hourly just cut the hours.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The union auto industry years back had high pay for blue collar.  They just laid off and then contracted the work to shops that were not union.&lt;/p&gt;&#xA;" OwnerUserId="10625" LastActivityDate="2018-08-15T18:08:49.613" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24148" PostTypeId="2" ParentId="24132" CreationDate="2018-08-15T18:12:19.563" Score="2" Body="&lt;p&gt;Note that strictness of quasi-concavity is not required, unless you want to obtain strict concavity as a result.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Take any $x,y\in\mathbb R^n$. Observe that homogeneity of degree 1 (HD1) implies that &#xA;\begin{equation}&#xA;f(x/f(x))=f(x)/f(x)=1=f(y/f(y)).&#xA;\end{equation}&#xA;For any $\alpha\in(0,1)$, let &#xA;\begin{equation}&#xA;\theta=\frac{\alpha f(x)}{\alpha f(x)+(1-\alpha)f(y)}.\tag{1}&#xA;\end{equation}&#xA;Note that $\theta$ also lives in the (open) unit interval.&#xA;Thus, by quasi-concavity, we have for every $\theta\in(0,1)$,&#xA;\begin{equation}&#xA;f\left(\theta\frac{x}{f(x)}+(1-\theta)\frac{y}{f(y)}\right)\ge\min\left\{\frac{x}{f(x)},\frac{y}{f(y)}\right\}=1. &#xA;\end{equation}&#xA;Expanding the LHS using $(1)$, we get &#xA;\begin{equation}&#xA;f\left(\frac{\alpha x+(1-\alpha)y}{\alpha f(x)+(1-\alpha)f(y)}\right)\ge1.&#xA;\end{equation}&#xA;Invoking HD1 again, we have&#xA;\begin{equation}&#xA;\frac{f(\alpha x+(1-\alpha)y)}{\alpha f(x)+(1-\alpha)f(y)}\ge1&#xA;\quad\Leftrightarrow\quad &#xA;f(\alpha x+(1-\alpha)y)\ge \alpha f(x)+(1-\alpha)f(y),&#xA;\end{equation}&#xA;which means $f$ is concave. &lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2018-08-15T18:12:19.563" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24149" PostTypeId="1" CreationDate="2018-08-15T20:02:26.980" Score="0" ViewCount="79" Body="&lt;p&gt;I understand the implications of having a higher/lower GDP at market exchange rates. I also understand what PPP measures. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But, what does a difference in GDP, at PPP, indicate in terms of differences in &lt;em&gt;levels&lt;/em&gt;?&lt;/p&gt;&#xA;" OwnerUserId="2759" LastActivityDate="2018-08-15T22:46:32.610" Title="What does it mean if country X has a higher GDP at Purchasing Power Parity (PPP) than country Y?" Tags="&lt;macroeconomics&gt;&lt;purchasing-power-partity&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24150" PostTypeId="2" ParentId="24149" CreationDate="2018-08-15T22:46:32.610" Score="1" Body="&lt;p&gt;I like this explanation from &lt;a href=&quot;http://www.imf.org/external/pubs/ft/fandd/2007/03/basics.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;Callen (2007)&lt;/a&gt;, published in the IMF's F&amp;amp;D, their quarterly magazine.  For measuring consumption in a country, PPP is probably the way to go, but international economic and financial power is probably better measured with market rates.&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;&lt;strong&gt;PPP versus market rates&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;p&gt;So which method is better? The appropriate way to aggregate economic&#xA;data across countries depends on the issue being considered. Market&#xA;exchange rates are the logical choice when financial flows are&#xA;involved. For example, the current account balance represents a flow&#xA;of financial resources across countries. It is appropriate to use the&#xA;market exchange rate to convert these flows into dollars when&#xA;aggregating across regions or calculating the global current account&#xA;discrepancy. But for other variables, the decision is less clear cut.&#xA;Take real GDP growth. International organizations use different&#xA;approaches. The World Bank uses market-based rates to determine the&#xA;weights in its regional and global aggregations of real GDP, whereas&#xA;the IMF and the Organization for Economic Cooperation and Development&#xA;use weights based on PPP rates (although the IMF also publishes a&#xA;global growth aggregate based on market rates in the WEO). Each&#xA;methodology has its advantages and disadvantages.&lt;/p&gt;&#xA;&lt;p&gt;&lt;strong&gt;Advantages of PPP&lt;/strong&gt;&lt;br /&gt;&#xA;A main one is that PPP exchange rates are relatively stable over time. By contrast, market rates are more&#xA;volatile, and using them could produce quite large swings in aggregate&#xA;measures of growth even when growth rates in individual countries are&#xA;stable. Another drawback of market-based rates is that they are&#xA;relevant only for internationally traded goods. Nontraded goods and&#xA;services tend to be cheaper in low-income than in high-income&#xA;countries. A haircut in New York is more expensive than in Lima; the&#xA;price of a taxi ride of the same distance is higher in Paris than in&#xA;Tunis; and a ticket to a cricket game costs more in London than in&#xA;Lahore. Indeed, because wages tend to be lower in poorer countries,&#xA;and services are often relatively labor intensive, the price of a&#xA;haircut in Lima is likely to be cheaper than in New York even when the&#xA;cost of making tradable goods, such as machinery, is the same in both&#xA;countries. Any analysis that fails to take into account these&#xA;differences in the prices of nontraded goods across countries will&#xA;underestimate the purchasing power of consumers in emerging market and&#xA;developing countries and, consequently, their overall welfare. For&#xA;this reason, PPP is generally regarded as a better measure of overall&#xA;well-being.&lt;/p&gt;&#xA;&lt;p&gt;&lt;strong&gt;Drawbacks of PPP&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;p&gt;The biggest one is that PPP is harder to measure than market-based rates. The ICP is a huge statistical undertaking,&#xA;and new price comparisons are available only at infrequent intervals.&#xA;Methodological questions have also been raised about earlier surveys.&#xA;In between survey dates, the PPP rates have to be estimated, which can&#xA;introduce inaccuracies into the measurement. Also, the ICP does not&#xA;cover all countries, which means that data for missing countries have&#xA;to be estimated.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="69" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2018-08-15T22:46:32.610" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24151" PostTypeId="2" ParentId="24119" CreationDate="2018-08-16T08:35:42.523" Score="2" Body="&lt;p&gt;I don't think you need anything like a 3SLS. Just run the first stage for the two endogenous variables separately:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\tilde{X}=\alpha_1+\beta_1X'+\beta_2Y'+\beta_3C+\epsilon$$&#xA;$$\tilde{Y}=\kappa_1+\gamma_1X'+\gamma_2Y'+\gamma_3C+\delta$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then run a regression of Z on the predicted value of $\tilde{X}$, $\tilde{Y}$ as and $C$. If the assumptions are all satisfied, this should give a consistent estimate of the coefficients.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I also found this thread online. It might be helpful.&#xA;&lt;a href=&quot;https://www.stata.com/statalist/archive/2012-08/msg01238.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.stata.com/statalist/archive/2012-08/msg01238.html&lt;/a&gt; &lt;/p&gt;&#xA;" OwnerUserId="16411" LastActivityDate="2018-08-16T08:35:42.523" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24152" PostTypeId="2" ParentId="24045" CreationDate="2018-08-16T11:16:16.820" Score="1" Body="&lt;p&gt;I have just discovered an essay by &lt;a href=&quot;http://huwdixon.org/SurfingEconomics/chapter2.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Dixon&lt;/a&gt; in which he claims that supply equals demand is &lt;strong&gt;not&lt;/strong&gt; an equilibrium! He writes:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Firms will want to raise price at the competitive equilibrium (see&#xA;  Dixon, 1987, theorem 1). The reason is simple. At the competitive&#xA;  price, firms are on their supply function: price equals marginal cost.&#xA;  This can only be optimal for the firm if the demand curve it faces is&#xA;  actually horizontal. But if the firm raises its price (a little), it&#xA;  will not lose all its customers since, although consumers would like&#xA;  to buy from firms still setting the competitive price, those firms&#xA;  will not be willing to expand output to meet demand (their competitive&#xA;  output maximizes profits at the competitive price). Those customers&#xA;  turned away will be available to buy at a higher price. Thus if a firm&#xA;  raises its price above the competitive price, it will not lose all its&#xA;  customers but only some of them . . .&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Apparently, then, the premise of the question was wrong: we should not expect supply to equal demand (except perhaps with constant marginal costs, as Dixon discusses).&lt;/p&gt;&#xA;" OwnerDisplayName="user17900" LastEditorDisplayName="user17900" LastEditDate="2019-02-11T12:06:48.440" LastActivityDate="2019-02-11T12:06:48.440" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24153" PostTypeId="1" AcceptedAnswerId="24233" CreationDate="2018-08-16T11:21:01.903" Score="0" ViewCount="52" Body="&lt;p&gt;How much are concepts of &lt;a href=&quot;https://en.wikipedia.org/wiki/Post-scarcity_economy&quot; rel=&quot;nofollow noreferrer&quot;&gt;post-scarcity and abundance economics&lt;/a&gt; just ideological/idealist or do we really observing their beginnings already?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;strong&gt;healthcare&lt;/strong&gt;: gets more and more expensive&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;food&lt;/strong&gt;: good organic food does not get cheaper&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;water&lt;/strong&gt;: not a problem where it is really abundant since centuries. Some lakes are gone however for example to water an agglomeration like Los Angeles.&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;good air&lt;/strong&gt;: not abundant in large urban areas, air pollution has arrived even in Germany, a country which has been looking at this for long time&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;work&lt;/strong&gt;: try to get a well paid job without advanced qualification&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;housing&lt;/strong&gt;: everywhere scarce with exception of deep, partly abandoned rural areas (3D printing can be a solution, but i.e. in Germany not possible due to unmet requirements regarding energy efficiency standards)&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;education&lt;/strong&gt;: either not free or of declining quality (i.e. German schools would need &lt;a href=&quot;https://www.heise.de/newsticker/meldung/Immer-groessere-Milliardenluecke-bei-Investitionen-in-Schulen-4137300.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;billions of investment&lt;/a&gt; to catch up)&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;family/parenting&lt;/strong&gt;: women are allowed and expected to make career which creates additional pressure if they target both having kids and high life quality&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;How to recognise then an empirical evidence that we move to abundance and post-scarcity (sounds like promise of communists in old times actually)?&lt;/p&gt;&#xA;" OwnerUserId="13716" LastEditorUserId="13716" LastEditDate="2018-08-17T07:23:33.127" LastActivityDate="2018-12-21T10:02:20.440" Title="Empiric evidence of abundance and post-scarcity either transition to it?" Tags="&lt;supply-and-demand&gt;" AnswerCount="1" CommentCount="6" FavoriteCount="1" ClosedDate="2018-12-30T02:02:04.433" ContentLicense="CC BY-SA 4.0" />
  <row Id="24154" PostTypeId="1" CreationDate="2018-08-16T13:12:17.257" Score="0" ViewCount="65" Body="&lt;p&gt;When does an economic theory become true?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When does it satisfy requirements for true knowledge, e.g. similar to those in empirical sciences?&lt;/p&gt;&#xA;" OwnerUserId="6848" LastActivityDate="2018-08-16T18:06:43.997" Title="When does an economic theory become true?" Tags="&lt;theory&gt;" AnswerCount="2" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="24156" PostTypeId="1" CreationDate="2018-08-16T16:36:05.277" Score="2" ViewCount="170" Body="&lt;p&gt;According to &lt;a href=&quot;https://www.theguardian.com/commentisfree/2018/feb/12/treasury-tweet-slavery-compensate-slave-owners&quot; rel=&quot;nofollow noreferrer&quot;&gt;this&lt;/a&gt; article in the Guardian the UK Treasury tweeted in 2018:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;Did you know that in 1833, Britain used £20 million pounds - which amounted to 40% of the UK GDP to buy freedom for all slaves in the Empire. The amount of money borrowed for the Slavery Abolition Act was so large that it wasn't paid off until 2015. This means that every living British citizen paid for ending the slave trade.&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;To which one angry British citizen, Lexington Wright, tweeted back:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;So basically my father, and his children and grand-children have been paying taxes to compensate those who enslaved our ancestors and you want me to be proud of this fact? Are you f****** insane???&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The Guardian adds as commentary to this exchange:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Few people in the 1830s would have seen it this way. Compensation was a mechanism of ending a system that millions of people had come to regard as abhorrent and a national disgrace. The abolitionists agonised over it ... the only people who saw a positive in it were the people who spent three decades campaigning for it and would be the beneficiaries of it - the slave owners.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;They go on to add:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The slave owners not only recieved compensation from the British Taxpayer they won another concession, the euphemistically named 'apprenticeship' system. What this meant was that slaves were forced to work on the fields for another further six years without pay after the abolition of slavery.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The above is the background to the following questions:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Q. The compensation was paid for emancipating slaves in the Empire. How much of this was paid for the top five slave-owning nations? Who are they, and how many slaves were emancipated?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;**Q. How much was this worth as a percentage of the top slave-owning nations GDP at that time? And in particular, the USA?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Q. Was any additional monies paid by any of those nations governments as compensation?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Q. How did they come up with the figure of £20 million pounds - was this solely based on the market values of slaves at the time or were other factors taken into consideration?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Q. How would one cost the six years of unpaid work by emancipated slaves and how much did this come to?&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are a number of questions but they are all interlinked and prompted by the initial tweet. I can ask them separately if people wish. &lt;/p&gt;&#xA;" OwnerUserId="13857" LastEditorUserId="13857" LastEditDate="2019-12-09T02:11:34.133" LastActivityDate="2019-12-09T02:11:34.133" Title="How much did it 'cost' slave-owning nations to emancipate the slaves as a percentage of GDP?" Tags="&lt;economic-history&gt;" AnswerCount="2" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="24157" PostTypeId="2" ParentId="24154" CreationDate="2018-08-16T16:53:19.477" Score="3" Body="&lt;p&gt;It's just the same as in the physical sciences:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;an economic theory, like any theory or model in physics or chemistry or biology, is wrong (H/T George Box), but it can be useful.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;True knowledge&quot; is not a really a useful concept; not in physical sciences, not in social sciences. The important question is whether a model gives us useful insights, and whether it can constructively inform decisions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An economic theory gains acceptance when it turns out to be useful.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2018-08-16T16:53:19.477" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24158" PostTypeId="2" ParentId="24154" CreationDate="2018-08-16T18:06:43.997" Score="0" Body="&lt;p&gt;When - just as in physics of any other science - testable predictions fit observed data. It's &quot;true knowledge&quot;, and neither is any theory in any science, but rather, empirically observed behavior that matches what the framework/theory predicts. That's a good benchmark for good theory.&lt;/p&gt;&#xA;" OwnerUserId="18167" LastActivityDate="2018-08-16T18:06:43.997" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24159" PostTypeId="2" ParentId="24156" CreationDate="2018-08-16T21:38:58.277" Score="2" Body="&lt;p&gt;Unfortunately, I'm not sure this will really answer the questions you raised to your satisfaction, but I can at least give some of them a try:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;First Note:&lt;/strong&gt; It wasn't 40% of the GDP of the Empire, but rather the 20 million GBP sum was equivalent to 40% of their annual governmental expenditures (or 5% of the Empire's contemporary GDP) &lt;a href=&quot;https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/680456/FOI2018-00186_-_Slavery_Abolition_Act_1833_-_pdf_for_disclosure_log__003_.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;source here&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regarding your first couple of questions: unfortunately, there's no good, useful answer that I can find. If you were interested in calculating these numbers yourself, it might be worthwhile to look at &lt;a href=&quot;http://www.ucl.ac.uk/lbs/project/research&quot; rel=&quot;nofollow noreferrer&quot;&gt;this online database of payments made under the act&lt;/a&gt;. That said, it's important to remember that, as colonies of the British Empire, there might well be many reasons that could make the desired &quot;contemporary GDP amount&quot; difficult to calculate. For example, if there's an individual who owned plantations in Trinidad and the Bahamas, they themselves might live in London. Thus, for all practical matters, the compensation payment the plantation owner would receive doesn't flow to either colony, and shouldn't be considered in those colonies GDPs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for &quot;how did they come up with 20 million GBPs?&quot; While I haven't seen a specific answer, I'd imagine much the same way compensation pools are created today- by Parliamentary negotiation, estimation and extrapolation. The number itself is known exactly (that is, we know it's 20 million, and that's not an estimation on the part of the Guardian) since &lt;a href=&quot;http://www.pdavis.nl/Legis_07.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;it's inscribed in paragraph XXIV of the act itself&lt;/a&gt; (have to scroll down a bit, or search on the page for &quot;million&quot;). &lt;em&gt;That said,&lt;/em&gt; there's specific information in paragraph XLV of that act &lt;em&gt;how&lt;/em&gt; the sum of 20 million GBP should be divvied up between the different colonies, and that's based on the local &quot;value&quot; of slaves in each colony for the previous eight years.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;About additional compensation- no. Remember, there weren't really those &quot;national governments&quot; at the time. They all were, by definition of the act, only territories which were still completely ruled by the British crown. As far as I know, no regional governors supplemented that pool (I'm not even sure if they would have been allowed to, since the authorization for the payments in this case were from the British Parliament, and the vehicle to disperse the payments was a commission set up by the act).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, I'm not exactly sure what you mean by &quot;how would you cost the six years of unpaid labor.&quot; Who are you referring to &quot;costing&quot; this? The value of this labor wasn't included in the payments by Parliament. If you were thinking about what the &lt;em&gt;effective cost&lt;/em&gt; of this provision was (that is, how much it cost the slaves whose freedom was delayed by those six years) then again, I think it might be an open question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Again, I'll check back later to see if I can help by refining my answer. Let me know how this aligns with what you were looking for. Also, &lt;a href=&quot;https://www.independent.co.uk/news/uk/home-news/britains-colonial-shame-slave-owners-given-huge-payouts-after-abolition-8508358.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;these&lt;/a&gt; additional &lt;a href=&quot;http://www.nationalarchives.gov.uk/pathways/blackhistory/rights/emancipation.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;resources&lt;/a&gt; might provide &lt;a href=&quot;https://www.thecanadianencyclopedia.ca/en/article/slavery-abolition-act-1833/&quot; rel=&quot;nofollow noreferrer&quot;&gt;a bit of useful info&lt;/a&gt;!&#xA;&lt;strong&gt;NB: &lt;a href=&quot;https://www.britannica.com/topic/Slavery-Abolition-Act&quot; rel=&quot;nofollow noreferrer&quot;&gt;the total number of slaves freed uner this act is roughly 800,000&lt;/a&gt;&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="13366" LastActivityDate="2018-08-16T21:38:58.277" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="24160" PostTypeId="1" CreationDate="2018-08-16T22:52:14.433" Score="-1" ViewCount="45" Body="&lt;p&gt;How does financial status dictate the level of care differ? Where can you find the best healthcare income to medical service rendered?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand that health care differs depending on a geographical location worldwide. Base it one a model with the largest of cities. &lt;/p&gt;&#xA;" OwnerUserId="15570" LastEditorUserId="15570" LastEditDate="2018-08-18T04:50:50.807" LastActivityDate="2018-08-18T04:50:50.807" Title="Is health care equal in the emergancy room?" Tags="&lt;applied-econometrics&gt;&lt;health-economics&gt;" AnswerCount="1" CommentCount="1" ClosedDate="2018-08-20T10:05:11.820" ContentLicense="CC BY-SA 4.0" />
  <row Id="24162" PostTypeId="1" CreationDate="2018-08-17T00:59:08.357" Score="2" ViewCount="49" Body="&lt;p&gt;A paper by IMF researchers (but not an official position of the IMF) &lt;a href=&quot;http://www.abc.net.au/news/2018-05-23/we-should-fear-robots-says-imf/9786460&quot; rel=&quot;nofollow noreferrer&quot;&gt;has found&lt;/a&gt; that automation will lead to higher inequality under all scenarios they considered.&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Even in the scenario where robots only compete for some jobs, and the impacts on wages and growth are reduced, the IMF paper said inequality gets worse.&lt;/p&gt;&#xA;&lt;p&gt;&amp;quot;Allowing for tasks that complement robots does not help as much as one might think, partly because more and more workers compete for those jobs, driving down the overall wage.&lt;/p&gt;&#xA;&lt;p&gt;&amp;quot;In addition to the fall in the average wage and the rise in the capital share, unskilled workers suffer large decreases in absolute and relative wages.&amp;quot;&lt;/p&gt;&#xA;&lt;p&gt;Even in areas where robots can't compete, the news isn't great from the IMF team.&lt;/p&gt;&#xA;&lt;p&gt;&amp;quot;This also does not really help, again because there are only so many of those jobs to go around, and labour chased out of the automatable sector tends to drive down wages.&amp;quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;There are two more reports I found (which I haven't look at in much detail), one from UBS and one from BAML which &lt;a href=&quot;https://www.theguardian.com/business/2016/jan/19/fourth-industrial-revolution-set-to-benefit-richest-ubs-report-says&quot; rel=&quot;nofollow noreferrer&quot;&gt;point to the same thing&lt;/a&gt;: auotmation drives inequality.&lt;/p&gt;&#xA;&lt;p&gt;So, is there any research coming up with the opposite conclusion, i.e. that automation can/will reduce inequality? (And I mean to inquire about research based on some modelling, not just some &amp;quot;just so story&amp;quot;).&lt;/p&gt;&#xA;&lt;p&gt;&lt;sup&gt;Ref: Andrew Berg; Edward F Buffie; Luis-Felipe Zanna, (May 21, 2018) &amp;quot;&lt;a href=&quot;https://www.imf.org/en/Publications/WP/Issues/2018/05/21/Should-We-Fear-the-Robot-Revolution-The-Correct-Answer-is-Yes-44923&quot; rel=&quot;nofollow noreferrer&quot;&gt;Should We Fear the Robot Revolution? (The Correct Answer is Yes)&lt;/a&gt;&amp;quot;,  IMF Working Paper No. 18/116&#xA;&lt;/sup&gt;&lt;/p&gt;&#xA;" OwnerUserId="6210" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2018-08-17T10:44:19.303" Title="Has any research found that automation will decrease inequality?" Tags="&lt;reference-request&gt;&lt;labor-economics&gt;&lt;inequality&gt;&lt;automation&gt;" AnswerCount="0" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24163" PostTypeId="2" ParentId="24131" CreationDate="2018-08-17T05:18:36.433" Score="2" Body="&lt;p&gt;You are probably not far off the mark. While there may be no consensus what a bubble is, &lt;a href=&quot;https://en.wikipedia.org/wiki/Economic_bubble#Identifying_asset_bubbles&quot; rel=&quot;nofollow noreferrer&quot;&gt;one proposed definition&lt;/a&gt; is&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Unusual changes in single measures, or relationships among measures (e.g., ratios) relative to their historical levels. For example, in the housing bubble of the 2000s, the housing prices were unusually high relative to income.&lt;/p&gt;&#xA;&lt;p&gt;For stocks, the price to earnings ratio provides a measure of stock prices relative to corporate earnings; higher readings indicate investors are paying more for each dollar of earnings.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;I'm not aware of [more] composite measures... but I'm not sure it would be very useful either. Generally one wants to know where exactly the problem is (whic sector) when there's a bubble.&lt;/p&gt;&#xA;&lt;p&gt;Although Wikipedia doesn't seem to mention this, there's obvious caveat to such a method. Quoting from a fairly cited &lt;a href=&quot;http://www.its.caltech.edu/%7Ecamerer/JofEconSrvys-BubFadsAssetPrices.PDF&quot; rel=&quot;nofollow noreferrer&quot;&gt;review of Camerer&lt;/a&gt;:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Any apparent bubble could be evidence of a variable which affects intrinsic value but is not observed by the econometrician.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Basically a problem of confounding variables, as far as I understand it.&lt;/p&gt;&#xA;&lt;p&gt;As a putative example (of the latter), Camerer gives:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;An example might be the Hong Kong stock market, which rose l0 times in value&#xA;between 1970 and 1973, then dropped 75% in a year. These enormous price swings&#xA;might indicate a bubble or fad, or they could be rational swings based on changing beliefs about what will happen when Hong Kong reverted to China after the British lease expires in 1997.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;More examples like that are supposed to be given in a paper by &lt;a href=&quot;http://www.nber.org/papers/w1971&quot; rel=&quot;nofollow noreferrer&quot;&gt;Flood et. al&lt;/a&gt; (cited by Camerer), but I haven't read it.&lt;/p&gt;&#xA;" OwnerUserId="6210" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2018-08-17T05:45:17.243" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24164" PostTypeId="2" ParentId="9206" CreationDate="2018-08-17T10:40:30.547" Score="2" Body="&lt;p&gt;The world as a whole is richer than ever. And people are richer than ever. The last 50 years show a remarkable decrease in extreme poverty in the world, especially in Asia. Your observation that growth in the richest countries have been slow the last 10 years is correct. However, compared to 50 years ago, people in the richest countries are much better off in general.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A good way to illustrate this is to view official statistics through the Gapminder tool.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.gapminder.org/tools/#&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.gapminder.org/tools/#&lt;/a&gt;$chart-type=mountain&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Choose &lt;strong&gt;Income&lt;/strong&gt; and press play. &lt;/p&gt;&#xA;" OwnerUserId="11805" LastEditorUserId="1601" LastEditDate="2018-08-17T10:46:28.913" LastActivityDate="2018-08-17T10:46:28.913" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24167" PostTypeId="2" ParentId="24160" CreationDate="2018-08-17T18:40:01.360" Score="1" Body="&lt;p&gt;Instead of just flagging this question for closing as &quot;unclear what you are asking&quot; (which I did), I will also provide an answer to show why this is so, in the hope that the OP will rework their question.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, there are two totally different questions here. The one is in the title:  &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;Is healthcare equal in the emergency room?&quot;    &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Ignoring the sensationalist flavor of the wording, this is &quot;too broad&quot; a question, because, even as the OP themselves acknowledge, the answer may differ from country to country, depending on the healthcare system and the laws of the country.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, there is the second (apparent) question: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;Depending on your financial status does the level of care differ in a&#xA;  hospital where if you don't pay you die?&quot;  &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;But this is not really a question, because it is already answered by itself: if we start by the premise that we are in a hospital where &quot;if we don't pay we die&quot;, then it follows that the level of care we receive will depend on our financial status and our ability to pay. So nothing to answer here.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2018-08-17T18:40:01.360" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24168" PostTypeId="1" CreationDate="2018-08-17T20:38:02.650" Score="3" ViewCount="129" Body="&lt;p&gt;I'm looking at apartments and noticed that many offer amenities such as gyms, pools, saunas and hot tubs which are &quot;free&quot; to use by tenants (paid for by the condo fees). However, I noticed that while most of them also have laundry rooms, tenants must pay to use the machines (at the machine, on a per-wash basis).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The washing machines are an outlier in the sense that they are the only facility on the premises that cost extra to use; everything else (tennis court, barbecues, pool and gym) is free.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Why is it that washing machines seem to be treated differently?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I thought about it for a bit, here are &lt;strong&gt;a few of my hypotheses so far&lt;/strong&gt; (but I don't have data to support any of it):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can't imagine that washing machines cost much more to operate than a pool, gym, tennis court or sauna - maybe I'm wrong - but considering that the aforementioned are all included I don't think the landlords left the machines out of the included amenities because it would have been too expensive to include them. (Or too expensive to include them &lt;em&gt;instead of&lt;/em&gt; some of the other aforementioned amenities)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Clearly, &quot;&lt;em&gt;because they can&lt;/em&gt;&quot; is true, if they &lt;em&gt;can&lt;/em&gt; make money off the machine they'll opt to do so, but they also could save money by not having a pool and gym to maintain yet they do it because they seem like good incentives to live there. Are the machines not included simply because they aren't very convincing incentives for potential customers? Either because&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;people underestimate the cost to use the machines (therefore would not see free use as a big incentive)&lt;/li&gt;&#xA;&lt;li&gt;it's the norm here (North America) for machines to require payment for use and since it's not a &quot;sexy&quot; topic of conversation the laundry rooms are simply left out of sales discussions (making it hard to advertise it as an incentive). A landlord wouldn't gain much by giving the customer more than they expected in this case, so they don't.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I'm asking because, personally, I'd rather have free use of those machines than free access to a pool and sauna I'd never use and I'm wondering why no one seems to offer free washing machines for tenants.&lt;/p&gt;&#xA;" OwnerUserId="18716" LastActivityDate="2018-08-20T10:35:41.667" Title="Why do you typically have to pay for use of the washing machines while other amenities are free?" Tags="&lt;canada&gt;&lt;living-cost&gt;" AnswerCount="3" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24169" PostTypeId="2" ParentId="23926" CreationDate="2018-08-17T22:32:38.667" Score="2" Body="&lt;p&gt;It is a &quot;problem&quot; because if no one pays for the good or service (they are 'free' riding after all), sellers of that product have no incentive to produce it. If no one produces it, and the good or service is beneficial (e.g. national defense), then surely that is a &quot;problem&quot;? I don't think anyone wants to live in a country with no national defense.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The same logic applies to parks and emergency rooms. If no one pays, there won't be any parks or emergency rooms. If you are thinking that the govt. should pay for it instead, understand that the govt. has to get the resources to pay for it from somewhere. That leads to taxation. There is no such thing as a free lunch. &lt;em&gt;Someone&lt;/em&gt; has to pay for it at the end of the day.&lt;/p&gt;&#xA;" OwnerUserId="11901" LastActivityDate="2018-08-17T22:32:38.667" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24170" PostTypeId="2" ParentId="24168" CreationDate="2018-08-17T22:58:03.557" Score="3" Body="&lt;p&gt;As you said, you would prefer to have free washing machines instead of free swimming pool. What does this mean? That washing your clothes is more important than having a bath in a swimming pool. Usually, it applies to almost anyone. So you could stop using swimming pool, but not washing machines.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, it does not seem probable that many people will use that swimming pool at the same time. But even if they do, people will not complain about massification unless it is too much and permanent (both conditions are rare to be filled).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) They know that washing clothes is more important than having a bath in a swimming pool. And even more, they know that you cannot avoid to wash your clothes (but you can avoid having a bath).&#xA;2) They do not expect the swimming pool to be always full of people, so they do not expect many complaining about it.&#xA;3) Having a swimming pool is cool. Having a free swimming pool is very cool. Marketing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In conclusion: they use the swimming pool as part of their marketing, while they make money from washing machines since you have to wash your clothes with no potential alternative (while having a bath in a swimming pool has several alternatives, so if you had to pay for it, maybe you would not use it).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I hope it helps.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For those who do not know what I am talking about, take a look of these two terms: &quot;utility&quot; and &quot;elasticity&quot; ;)&lt;/p&gt;&#xA;" OwnerUserId="18953" LastEditorUserId="18953" LastEditDate="2018-08-18T08:01:36.227" LastActivityDate="2018-08-18T08:01:36.227" CommentCount="8" ContentLicense="CC BY-SA 4.0" />
  <row Id="24172" PostTypeId="1" AcceptedAnswerId="24184" CreationDate="2018-08-18T08:58:06.733" Score="0" ViewCount="166" Body="&lt;p&gt;In the &lt;a href=&quot;https://www.bis.org/statistics/index.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;BIS Debt Securities statistics&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In both column &quot;issueresidence&quot; and column &quot;issuenationality&quot; there is a category called &quot;&lt;strong&gt;All countries excluding residents&lt;/strong&gt;&quot;. I do not understand what it means. What is it used for? although I have read through the report going with the data.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Many thanks for your help! &lt;/p&gt;&#xA;" OwnerUserId="14729" LastEditorUserId="14729" LastEditDate="2018-08-18T13:17:40.277" LastActivityDate="2018-08-20T00:49:38.363" Title="Explain some All countries excluding residents in BIS Debt Securities Data" Tags="&lt;statistics&gt;&lt;debt&gt;&lt;bonds&gt;&lt;definition&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24173" PostTypeId="1" CreationDate="2018-08-18T12:14:37.790" Score="1" ViewCount="67" Body="&lt;p&gt;I saw this identification method is used in several working papers but to me it is impossible to understand how it works by simply reading them.&#xA;I have searched many books and lecture notes in order to read something about it but I found either nothing clear or nothing at all.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does anyone know what is the sense of this methodology and how it helps in the identification process?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks a lot in advance&lt;/p&gt;&#xA;" OwnerUserId="19167" LastActivityDate="2018-08-18T12:14:37.790" Title="How are rotation matrices used in structural VAR identification through sign restrictions?" Tags="&lt;econometrics&gt;&lt;applied-econometrics&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24175" PostTypeId="1" CreationDate="2018-08-18T20:17:35.043" Score="0" ViewCount="65" Body="&lt;p&gt;I'm working on this supposed to be a simple multiple choice question:&#xA;The yield curve indicates?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A. the relationship between existing short, medium and longer term interest rates, independent of expectations about future interest rates.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;B. the relationship between the existing cash rate and the expected level of cash rate in the future&lt;/p&gt;&#xA;&#xA;&lt;p&gt;C. expectations about future levels of medium and longer term interest rates&lt;/p&gt;&#xA;&#xA;&lt;p&gt;D. among other things, expectations about the future levels of the cash rate and hence about future monetary policy&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I believe all the answer could be correct, but I'm leaning toward A because the yield curve could be seen as a &quot;snapshot&quot; of short, med and long term rates. Hence, although the expectation of future cash rate or monetary policy does affect short and long term rate, the existing yield curve should already capture these expectations. But A could be wrong because of the word &quot;independent&quot; alone.&lt;/p&gt;&#xA;" OwnerUserId="19171" LastEditorUserId="19171" LastEditDate="2018-08-18T20:29:05.610" LastActivityDate="2018-11-17T00:03:15.600" Title="Yield curve and cash rate (multiple choice)" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24176" PostTypeId="2" ParentId="24175" CreationDate="2018-08-18T21:11:47.367" Score="1" Body="&lt;p&gt;D)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A can be eliminated because the yield curve includes expectations of future rates (forward rates).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;B is true but incomplete because it doesn't include monetary policy or current long term rates.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;C is mostly true, but incomplete because it doesn't mention the expectations for future short term rates.  You could also make an argument that the curve does not include expectations for long term rates.  For example, if the curve goes out to 30 years, it does not give you the 6 month forward 30 year rate.  Therefore if your definition of &quot;long term rates&quot; is the 30 year rate, the curve does not provide expectations for&lt;/p&gt;&#xA;" OwnerUserId="19173" LastActivityDate="2018-08-18T21:11:47.367" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="24179" PostTypeId="1" AcceptedAnswerId="24189" CreationDate="2018-08-19T17:04:07.327" Score="3" ViewCount="1839" Body="&lt;p&gt;Can anyone give me connection and intuition behind each of the following euler's equation-&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Euler's equation in production function represents that total factor payment equals degree of homogeneity times output, given factors are paid according to marginal productivity. &#xA;Refer to this - &lt;a href=&quot;http://www.applet-magic.com/euler.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.applet-magic.com/euler.htm&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And Euler's equation in consumption which seeks to find optimal consumption path where marginal utility lost due to little less consumption today matches the expected utility gain from higher future consumption.&#xA;Refer to this - &lt;a href=&quot;https://www.quora.com/What-is-the-Euler-condition&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.quora.com/What-is-the-Euler-condition&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1.Can someone please explain is there any connection between the two? &lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;2&quot;&gt;&#xA;&lt;li&gt;And what are the motive (intuition) behind their use ?&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="18929" LastEditorUserId="18929" LastEditDate="2018-08-20T12:26:49.637" LastActivityDate="2018-08-20T18:00:11.997" Title="Euler's Theorem" Tags="&lt;macroeconomics&gt;&lt;mathematical-economics&gt;&lt;production-function&gt;&lt;representative-agent&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24180" PostTypeId="1" CreationDate="2018-08-19T17:33:59.097" Score="4" ViewCount="479" Body="&lt;p&gt;I am just wondering whether the following question has already been answered in game theory: Fix an arbitrary (say, finite) two-player strategic form game. Under what condition, does one player (say, Player 1) want to be the first-mover than the second mover?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, we know that moving first is better in Cournot competition and moving second is better in Rock-paper-scissors. Is there a general condition on the payoffs of two-player games under which we can tell whether Player 1 should go first or second, if he could choose?&lt;/p&gt;&#xA;" OwnerUserId="19180" LastActivityDate="2018-08-31T14:13:47.930" Title="General Results on First or Second Mover Advantage?" Tags="&lt;game-theory&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24182" PostTypeId="2" ParentId="24168" CreationDate="2018-08-19T20:10:00.133" Score="2" Body="&lt;p&gt;One consideration is that charging for the use of washing machines on a per-wash basis creates an incentive for tenants to use the machines efficiently by operating them only with a full load of clothes to be washed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By contrast, if use were free - or if charges were on some other basis, eg per weight of clothes washed -, then there would be no such incentive, with the likely consequence that the average load would be less than full. This in turn would mean that the machines would be used more frequently than if operated with full loads. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;That has implications for both tenants and landlord.  For tenants, it increases the risk that often when they want to wash clothes they find that all machines are already in use - possibly leading to complaints to the landlord.  A more direct implication for the landlord is that more frequent use implies higher running costs in respect of electricity, and (if consumption is charged for) water.  More frequent use may also lead to increased need for maintenance and repairs, again with costs to the landlord.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So there is advantage for the landlord, over and above the income it yields, from charging on a per-wash basis.&lt;/p&gt;&#xA;" OwnerUserId="1417" LastEditorUserId="1417" LastEditDate="2018-08-20T08:49:19.687" LastActivityDate="2018-08-20T08:49:19.687" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24184" PostTypeId="2" ParentId="24172" CreationDate="2018-08-20T00:49:38.363" Score="0" Body="&lt;p&gt;Your link is not particularly helpful - perhaps you mean something like &lt;a href=&quot;https://stats.bis.org/?m=6%257C346%257C644#ppq=CBS_IB_INT_C_BY_SEC_TYP_IB;pv=11~10,9~0,0,0~name&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://stats.bis.org/?m=6%257C346%257C644#ppq=CBS_IB_INT_C_BY_SEC_TYP_IB;pv=11~10,9~0,0,0~name&lt;/a&gt;     &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;All countries excluding residents&quot; is a phrase BIS use for &lt;em&gt;international&lt;/em&gt; debt securities, so represents debt or similar instruments issued by somebody in one country and held by somebody else in a different country, i.e. excluding residents (human or corporate) of the same county  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that residents of the same country may have a different nationality or be owned by non-residents.  So for example if an American-owned subsidiary incorporated in London issues a debt security to a German-owned subsidiary incorporated in London denominated in Japanese Yen, this would be excluded from these statistics since the two banks are both resident in the UK. But if the American-owned bank in London holds a debt security issued by an American bank in New York, this should not be excluded, and should count as a US liability to the UK    &lt;/p&gt;&#xA;&#xA;&lt;p&gt;BIS provides a &lt;a href=&quot;https://www.bis.org/statistics/glossary.htm?&amp;amp;selection=260&amp;amp;scope=Statistics&amp;amp;c=a&amp;amp;base=term&quot; rel=&quot;nofollow noreferrer&quot;&gt;glossary&lt;/a&gt;, which is sometimes helpful and sometimes less so  &lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2018-08-20T00:49:38.363" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24185" PostTypeId="1" CreationDate="2018-08-20T08:25:38.250" Score="1" ViewCount="24" Body="&lt;p&gt;I'm trying to compare some data I have about two companies, and in order to do so I need to compare their income inequality, but also to take in consideration the total income of each.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example if we are to find that one company is slightly less equal, but has way higher total income, we would prefer her over the other. This is motivated by the fact that are we looking only at a subpart of the economy, hence the total income does matter.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand that most (if not all?) income inequality metrics don't evaluate that as a result of their definition which is purely a measure of inequality, but I didn't have any other name for what I am looking for.&lt;/p&gt;&#xA;" OwnerUserId="19183" LastActivityDate="2018-08-20T08:25:38.250" Title="Is there an income inequality metric which also considers the total income?" Tags="&lt;inequality&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24187" PostTypeId="1" CreationDate="2018-08-20T10:30:23.703" Score="0" ViewCount="77" Body="&lt;p&gt;Politicians often bicker about how big the government should be when it comes to redistributing wealth. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Question:&lt;/strong&gt; My question is simple; would a laissez-faire approach to the market always result in inequality? Is there an upper-limit to capital/wealth accumulation? That is to say, if the governments never step in, are there any market mechanisms to counter-act a few people absorbing extreme levels of wealth?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Note:&lt;/strong&gt; I want to focus on free markets as much as possible, but if we so choose to go down the rabbit hole of &quot;equality of opportunity&quot; and &quot;equality of outcome&quot; here are my two cents: &quot;Equality of outcome&quot; comes off as Orwellian and dystopian in that the economy is planned absolutely, but &quot;equality of opportunity&quot; implies winners and losers under a market where people are free to produce, consume and compete. &lt;/p&gt;&#xA;" OwnerUserId="12212" LastActivityDate="2018-09-27T08:16:39.240" Title="Market Theory: Upper limit of capital/weatlth accumulation?" Tags="&lt;macroeconomics&gt;&lt;markets&gt;&lt;capital&gt;" AnswerCount="1" CommentCount="7" ContentLicense="CC BY-SA 4.0" />
  <row Id="24188" PostTypeId="2" ParentId="24168" CreationDate="2018-08-20T10:35:41.667" Score="1" Body="&lt;p&gt;First, I've been in apartments with washing and drying included.  These tend to have the washer and dryer in the apartment.  So there is no conflict with other tenants who might want to use the facilities.  I could run half loads, etc. without inconveniencing others.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've also lived in apartments with no laundry facilities whatsoever.  In these, I had to go to an off-site location where I could pay quarters.  An on-site location where I can pay quarters is strictly more convenient than that.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've also purchased gym and pool memberships separately from an apartment (as well as having options in the apartment).  They tend to be paid monthly (like apartments) or annually.  In apartments, they typically have no or limited staff (perhaps a part time lifeguard for the pool).  You already pay monthly rent for your apartment.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;People tend to overestimate the amount of time that they will use both pools and gyms.  So someone who chooses the apartment for the pool or gym probably won't use the facilities as much as they originally thought.  So the perceived value to someone looking for an apartment of a free gym, pool, sauna, etc. is higher than the actual value.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another issue is that gyms and tennis courts are low maintenance.  A little cleaning here and there.  The machines last a long time.  Buy new nets for the tennis court every couple years.  Saunas and pools are higher maintenance, mostly more cleaning.  Washers and dryers are machines, which require regular maintenance.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I suspect that the main reason why washers and dryers are usually a paid item is that there are businesses that go around selling them that way.  Landlords can lease the space to external businesses that operate the washers and dryers and collect the money.  Or the landlords can buy the equipment, doing some routine maintenance themselves.  No one offers to sell people a turnkey sauna operation, but it's a market niche for laundry.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, coin operated laundry costs don't appear in the rent.  But free laundry would.  So &quot;free&quot; laundry makes apartments look more expensive (even though they might be the same price after one figures out laundry costs).  &lt;/p&gt;&#xA;" OwnerUserId="68" LastActivityDate="2018-08-20T10:35:41.667" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24189" PostTypeId="2" ParentId="24179" CreationDate="2018-08-20T12:08:40.037" Score="6" Body="&lt;p&gt;They both relate in one way or the other to extensions of the same mathematical object, namely the &lt;a href=&quot;https://en.wikipedia.org/wiki/Cauchy%E2%80%93Euler_equation&quot; rel=&quot;nofollow noreferrer&quot;&gt;Cauchy-Euler differential equation&lt;/a&gt;, that has the form&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$a_{n} x^n f^{(n)}(x) + a_{n-1} x^{n-1} f^{(n-1)}(x) + \cdots + a_0 f(x) = 0 \tag{1}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where $f^{(n)}$ denotes the $n$-th derivative of the function $f$. Its 1st-order version is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$a_{1} x f^{(1)}(x) +  a_0 f(x) = 0\tag{2}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;A. &quot;Eulers theorem for homogeneous functions&quot;.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider the 1st-order Cauchy-Euler equation, in a &lt;em&gt;multivariate&lt;/em&gt; extension:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ a_1\mathbf x'\cdot  \nabla f(\mathbf x) + a_0f(\mathbf x) = 0 \tag{3}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Homogeneous_function#Positive_homogeneity&quot; rel=&quot;nofollow noreferrer&quot;&gt;Euler's theorem for homogeneous functions&lt;/a&gt; says essentially that &lt;em&gt;if&lt;/em&gt; a multivariate function is homogeneous of degree $r$, then it satisfies the multivariate first-order Cauchy-Euler equation, with $a_1 = -1, a_0 =r$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;B. &quot;Euler's equation in consumption.&quot;&lt;/strong&gt;&lt;br&gt;&#xA;Consider a univariate but &lt;em&gt;non-linear&lt;/em&gt; extension for the 1st-order Cauchy-Euler differential equation:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$a_{1}g(x) f^{(1)}(x) +  a_0 f(x) = 0 \tag{4}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now set $x=t$ (i.e. equal to time), and $f(x) = C(t)$ (say, per capita consumption). Then $(4)$ is written&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$a_{1}g(t) \frac{dC(t)}{dt} +   a_0 C(t) = 0 $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies \dot C = -\frac {a_0}{a_{1}g(t)}C(t) \tag{5}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What we realize is that the solution to the intertemporal utility maximization problem is described by an equation of the form of $(5)$, with suitable values and forms  for $a_0, a_1, g(t)$. For example, in the Ramsey model, we could set $a_0=-1, a_1 = 1, g(t) = (r(t)-\rho)^{-1}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The discrete analogue (i.e. for discrete time) of the Cauchy-Euler non-linear extension is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$a_{1}g(t) \Delta C_{t+1} +   a_0 C_t = 0 $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\implies C_{t+1} = \left (1-\frac {a_0}{a_1 g(t)}\right) C_t$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and again we see that the solution to the intertemporal utility problem in discrete time satisfies a Cauchy-Euler 1st order equation.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why the &quot;Cauchy&quot; name prefix has dropped out in the economics literature, I don't know.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="1601" LastEditDate="2018-08-20T18:00:11.997" LastActivityDate="2018-08-20T18:00:11.997" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24190" PostTypeId="1" AcceptedAnswerId="24191" CreationDate="2018-08-20T13:14:03.973" Score="3" ViewCount="79" Body="&lt;p&gt;Here in the UK, the external debt is currently over 300% of GDP. To me this looks very worrying, using my basic financial logic, it seems like this debt will only go up (because of interest combined with the fact we don't have enough money to pay it off). The fact that it's over 3 times the value of the British economy worries me even more, like there's no end in sight...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand a country can remain in debt forever (so long as they keep paying their lenders) but how long can a country like the UK keep going like this? Public debt is 94% of GDP so that's just about manageable, but what happens if the external debt keeps rising? or the GDP begins to fall? Can the UK maintain a level of debt that is 300% of GDP forever? Basically, what would it take to turn this debt into a total financial collapse? I've heard of something similar happening in Argentina in the late 90s and they had a catastrophic recession, could that happen in the UK anytime soon?&lt;/p&gt;&#xA;" OwnerUserId="19184" LastActivityDate="2018-08-20T13:43:41.840" Title="When Does a Country's External Debt Become a Problem?" Tags="&lt;debt&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24191" PostTypeId="2" ParentId="24190" CreationDate="2018-08-20T13:43:41.840" Score="4" Body="&lt;p&gt;The position is both worse and better than you describe&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you look at Section 7 and Figure 6 of  &lt;a href=&quot;https://www.ons.gov.uk/economy/nationalaccounts/balanceofpayments/bulletins/balanceofpayments/quarter1jantomar2018&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.ons.gov.uk/economy/nationalaccounts/balanceofpayments/bulletins/balanceofpayments/quarter1jantomar2018&lt;/a&gt; you will find that UK liabilities (public and private) abroad were estimated to be £10,894.5 billion at the end of March 2018, about 5.30 times UK GDP in the 12 months to March&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But at the same time UK assets abroad were estimated to be £10,632.2 billion, about 5.18 times UK GDP &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the net position here was a liability of £262.3 billion, about 0.13 times UK GDP (a minor rounding issue here), i.e. 13% of annual GDP.  In fact the net position is the difference between two enormous numbers largely resulting from financial activity in the City of London, both of which are estimated with errors, so large revisions to the estimated net position is common  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A small UK net international liability represents the position for many years and so in that sense empirically seems to have been sustainable.  For Greece this net figure became large and unsustainable, contributing to its crisis, and not helped by the Eurozone restricting the possible solutions.  The answer to your question &quot;When Does a Country's External Debt Become a Problem?&quot; seems to be &quot;when people start to worry that they will not be able to get their money back and so stop lending more money&quot;.  Turkey may be facing this issue at the moment.  But I doubt there is a fixed figure you can identify&lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2018-08-20T13:43:41.840" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="24192" PostTypeId="1" AcceptedAnswerId="24193" CreationDate="2018-08-20T20:33:40.327" Score="2" ViewCount="126" Body="&lt;p&gt;Hi All: I have no formal background in economics but I've been teaching myself RE for the last 3 or so years when I get the chance. I know the history and parts of the literature pretty well but it's clearly a vast field so some things are still quite fuzzy. The following question may help me with a confusion I've had for a while but am only asking to bother now. ( fortunate to find this list. Didn't know about it early on when I started in RE ).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Lucas Critique was in 1976 and gives examples to show that the standard and well known keynesian approach to econometrics is  not terribly useful from the standpoint of policy. Once a policy changes, expectations can change and keynesian econometrics didn't handle that.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is: Did the Lucas Critique &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A) represent the start of what is termed the RE revolution ( in order to combat the critique ) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;OR&lt;/p&gt;&#xA;&#xA;&lt;p&gt;B)  was RE already in place and well known  before the Lucas Critique ?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Basically, I'm trying to understand whether the Lucas Critique could have had the title &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;Keynesian type econometric models need to be replaced by a new econometric technique called RE&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am aware that Muth actually came up with the basis for what later became RE &#xA;but I'm not counting that as the start, atleast for the moment. ( no disrespect to Muth ).  I'm asking whether was RE was already in play say&#xA;after 1970 but before the Lucas Critique ? It seems like it was as far my&#xA;reading goes ( Lucas has famous RE type papers from 1972 ) so, then I'm wondering why was the Lucas Critique such a big deal in that case ? Didn't everyone know it already since RE was already around. Thanks for any insights-references etc.&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;                                                      Mark&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;" OwnerUserId="18201" LastActivityDate="2018-08-21T16:25:28.623" Title="Lucas Critique and RE: Did one arrive before the other?" Tags="&lt;econometrics&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="24193" PostTypeId="2" ParentId="24192" CreationDate="2018-08-20T23:10:41.873" Score="5" Body="&lt;p&gt;While this probably doesn't fully answer your question, at least it might be able to serve as a start.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think the biggest conceptual difficulty here is regarding what exactly the heart of the Lucas critique is, and why it was so influential. Before he published &lt;a href=&quot;http://people.sabanciuniv.edu/atilgan/FE500_Fall2013/2Nov2013_CevdetAkcay/LucasCritique_1976.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;his seminal 1976 work&lt;/a&gt; a large body of macroeconomists were primarily engaged in attempting to investigate policy analysis by estimating fundamental parameters of a model (at the time, since Keynsian analysis was in vogue, it generally focused on things like the marginal propensity to consume or save, or estimating consumption functions for use in policy counterfactuals, etc.). How this was done was by using aggregated historical economic data to try and back out the parameters of interest.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Lucas Critique points out that this effort cannot be guaranteed to be internally consistent. That is, all of the observed, aggregate historical data being used was actually the &lt;em&gt;output&lt;/em&gt; of a complex system. When considering how a change in policy might impact welfare, the economist cannot assume that these parameters will remain unchanged.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Critically, this is true independent of whether the model is using rational expectations. No matter the macro modeling assumptions, the internal optimization that the agents are &quot;doing&quot; inside the model must be grounded in actual fundamentals of economic theory. That is to say, there's no theoretical reason why one consumption function should be used by an individual over any other (for example). Historical data, then, can only give insights into what the optimal decision making behavior was &lt;em&gt;at the time it was observed.&lt;/em&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There's actually a pretty good example &lt;a href=&quot;https://en.wikipedia.org/wiki/Lucas_critique&quot; rel=&quot;nofollow noreferrer&quot;&gt;on the Wikipedia page for the Lucas Critique&lt;/a&gt; in the last section (behavior surrounding Fort Knox). Rational expectations would suggest that individuals are maximizing some, known objective function for whether they should try and rob the vault or not. Given that we don't see many attempts, we can then say that, given individuals are following rational expectations and are maximizing some consistent utility function, in general, the perceived costs outweigh the benefits. The Lucas Critique, on the other hand, says that we cannot use the fact that we don't observe many attempts at robbery now to suggest that Fort Knox spend less on security. While RE theory says &lt;strong&gt;people aren't robbing because the costs outweigh the benefits,&lt;/strong&gt; the Lucas Critique says &lt;strong&gt;we cannot use the fact that we don't observe many arobbery attempts at this level of security to say anything about how robberies will change if we change security levels.&lt;/strong&gt; All we know is that, in this particular set of circumstances, we observe some equilibrium behavior (few robberies). To make policy statements, we have to base our models on some fundamental theory- one of the most prominent being a form of RE. But ultimately, whether we believe RE holds or not, the Lucas Critique still points out that we must base our predictions in some theoretical foundation, and not only use aggregated outcome data.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sorry that was kind of long winded and sloppy- I'll try to tidy it up later if it would help!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;EDIT:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Is it fair to say that the LC is a criticism of keynesian models because they didn't include expectations of any kind rather than just not rational ones?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Broadly, that's exactly it. Keynseian models at the time needed lots of aggregated parameters (again, like marginal propensities, etc.) to come up with conclusions on how different policy changes, or economic shocks, might impact the economy (or industry, or group of people, etc.). The problem is, Keynsian analysis (again, at the time) requires these parameters without any theoretical context. &lt;em&gt;Why should the marginal propensity to consume be X? What would cause that to change?&lt;/em&gt; These questions require the &lt;em&gt;microfoundations&lt;/em&gt; that we've seen spring up in the macro field- models that attempt to examine what determines important macro parameters, and how changes to those underlying causes will change the parameters of interest. Not only did Keynsian models not include &lt;em&gt;expectations&lt;/em&gt; (specifically forward looking variables), they tended not to include any &lt;em&gt;theoretical basis&lt;/em&gt; for the parameters they estimated.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;And, as long as the included expectations can be connected to either A) the policy rule or B) the underlying stochastic process ( if there is no specific policy rule sometimes they seem to do this), the model is then internally consistent.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;While these are certainly two good microfoundations that an economist can use to build a macro model, &lt;em&gt;model consistency&lt;/em&gt; (again, using the broadest possible definition) can rely on an even weaker basis. For example, you could have a model of the macro labor market where labor supply is completely divorced from any sort of &lt;em&gt;rational&lt;/em&gt; or &lt;em&gt;forward looking&lt;/em&gt; behavior at all. You could base your model on something like:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Every period, all agents wake up and flip a fair coin. If the coin is heads, they go to work. If it's tails, they go back to sleep until the next period.&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course, this premise is completely divorced from reality- coin flipping has nothing to do with the decision of whether to go to work. But it would at least provide a clear &lt;em&gt;theoretical basis&lt;/em&gt; (even if absurd) for why the labor market behaves the way it does. Instead of just observing &quot;last period, the labor market participation rate was 60%, thus, we should take that as some underlying parameter&quot; (like the classical Keynsian methodology might), you'd say &quot;I see last period there must have been an inordinate number of coins that landed 'heads.'&quot; Your theory would give you a specific reason for believing the participation rate was 60% (the proportion of heads), a prediction for what it would be next period (50%, since that's the expected number of heads you'd expect to see next period), and a reason ** &lt;em&gt;why&lt;/em&gt; ** it should be 50% (again, because everyone's flipping coins).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Moreover, using the coin-flip model of labor markets, you could consider how a policy change should affect behaviour. How would a doubling of wages change turnout? In this case, we'd predict it wouldn't have any impact (still doesn't impact the coin probabilities). And while that might seem absurd, at least you can very clearly explain &lt;strong&gt;why&lt;/strong&gt; there will be no change, using some economic reasoning. The old Keynsian models &lt;strong&gt;couldn't&lt;/strong&gt; provide these types of explanations, other than &quot;because the last time wages doubled, X happened to participation.&quot; While that might be nice to know, it cannot be considered a useful answer, since there might have been any number of other things causing the wage change to happen the last time, that might not be at play now (and which might have been even more important in driving the participation changes).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Rational expectations, then, is just one useful, generalizable, easily applicable mechanism for how to bring microfoundations into these macro models.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Again, hope that helps!! Let me know if I can clear anything up!!&lt;/p&gt;&#xA;" OwnerUserId="13366" LastEditorUserId="13366" LastEditDate="2018-08-21T16:25:28.623" LastActivityDate="2018-08-21T16:25:28.623" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="24194" PostTypeId="1" CreationDate="2018-08-21T05:01:26.437" Score="1" ViewCount="43" Body="&lt;p&gt;I consider a participating life insurance contract which is fair if $P_0 = e^{-rT} \mathbb{E}^{\mathbb{Q}}\left[ L(T) \right)$ ($\mathbb{Q}$ denotes the risk-neutral measure), where $P_0$ is the premium and $L(T)$ the claims paid by the insurance company. $L(T)$ is given by:&#xA;$$ L(T) = P(T) + \delta B(T) - D(T), $$ with &#xA;$$P(t) = P(t-1) (1+g) + \max \left( \alpha \gamma (A(t) - A(t-1))-g P(t-1),0\right),$$ &#xA;$$B(T) = \max\left(\frac{P_0}{A_0} A(T) - P(T),0\right),$$&#xA;$$ D(T) = \max\left( P(T) - A(T),0\right).$$ &#xA;$g$ is the guaranteed minimum interest rate, $\delta$ the terminal surplus participation rate, $\alpha$ the annual surplus rate, and $\gamma \in (0,1)$. The asset $A$ follows a geometric brownian motion:&#xA;$$A(T) = A(0) \exp\left( (r-\sigma^2/2)T + \sigma W_T^{\mathbb{Q}}\right).$$ &#xA;Does it make sense to consider a terminal or an annual surplus rate larger than 100%? An annual rate larger than 100% leads to a decrease in reserves for the insurance company, in my opinion this is not a realistic distribution rule, right? But what about the terminal surplus rate? &lt;/p&gt;&#xA;" OwnerUserId="19190" LastEditorUserId="1601" LastEditDate="2018-08-22T21:33:13.640" LastActivityDate="2018-08-22T21:33:13.640" Title="Terminal and annual surplus distribution in participating life insurance" Tags="&lt;asset-pricing&gt;&lt;surplus&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24195" PostTypeId="1" CreationDate="2018-08-21T08:49:13.173" Score="0" ViewCount="27" Body="&lt;p&gt;Imagine if some country identifies a large resource of oil/coal/natural gas or other sources of energy that can be supplied to the entire world for the cheapest rate ever.(say for electricity 1 Cent/unit,petrol 1 cent/litre).How will it affect the world economy ?&lt;/p&gt;&#xA;" OwnerDisplayName="user19192" LastEditorDisplayName="user19192" LastEditDate="2018-08-21T08:54:18.007" LastActivityDate="2018-08-21T09:53:36.460" Title="What will happen to the world economy if the price of oil/Coal/natural gas/electricity and all energy sources drops to lowest?" Tags="&lt;macroeconomics&gt;" AnswerCount="2" CommentCount="0" ClosedDate="2018-08-29T06:44:48.063" ContentLicense="CC BY-SA 4.0" />
  <row Id="24196" PostTypeId="2" ParentId="24195" CreationDate="2018-08-21T09:18:25.283" Score="0" Body="&lt;p&gt;There would be a short-term boost to profits, as a significant cost driver has dropped. There will be some substitution, as energy replaces other factor inputs (probably human labour in particular). In theory, overall, everyone collectively is better off, but redistribution effects will be significant and unpredictable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There would be a massive shift in the geopolitics of energy: countries that are currently powerful primarily due to their energy supplies (e.g. Saudi Arabia) could become insignificant on the international scene.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If it's a fossil fuel, then there would be a catastrophic medium and long-term reduction in total global wealth owing to accelerated anthropogenic climate change. A significant chunk of global economic activity would have to be diverted to adaptation to a rapidly changing, highly random, highly variable, highly unpredictable climatic period. International refugee migrations would be of the order of a billion people or more. There would be a non-trivial probability that human civilisation would essentially cease to exist in any recognisable form.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If it's not a fossil fuel then, well, we're close to that point now: PV is around 2 (\$/€)cent/kWh for a big proportion of the world, and is expected to halve again over the next decade or so. So all being well, we'll live to see this. Note that the benefits will not be confined to one country, though: the resource is globally distributed.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2018-08-21T09:18:25.283" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24198" PostTypeId="2" ParentId="24195" CreationDate="2018-08-21T09:53:36.460" Score="0" Body="&lt;p&gt;The question is a bit misleading since electricity is the energy source we use that's produced by raw sources such as oil...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Oil and coal have an advantage today as current power plants and cars technology is based on burning them...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Should other sources be cheaper, than shifting to sources would occur. One of the biggest boosts to electric cars R&amp;amp;D was the oil's 147$ barrel price peak&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Gloablly, growth should explode, since energy is needed throughout the value chain&lt;/p&gt;&#xA;&#xA;&lt;p&gt;OPEC's members and Russia's economies would probably collapse, as their economics rely mostly on oil and gas&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The middle east world significance and interests would drop to african levels&lt;/p&gt;&#xA;" OwnerUserId="19195" LastActivityDate="2018-08-21T09:53:36.460" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24199" PostTypeId="1" AcceptedAnswerId="24238" CreationDate="2018-08-21T10:06:38.940" Score="1" ViewCount="59" Body="&lt;p&gt;According to recent news, Venezuela is lopping 5 zeros out of its regular Bolívar, and devaluing it, and pegging it to a cryptocurrence issued by Venezuela, to fight the economic situation (hyperinflation, low GDP, etc.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, if I remember well, won't the devaluation of a currency increase inflation by increasing prices of imports, and in some cases also increasing prices from domestic products by increasing exports?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What's the rationale here for this measure?&lt;/p&gt;&#xA;" OwnerUserId="118" LastActivityDate="2018-08-23T12:45:13.760" Title="Devaluation of Venezuelan Bolívar - Will it increase or fight hyperinflation?" Tags="&lt;currency&gt;&lt;cryptocurrency&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24203" PostTypeId="1" CreationDate="2018-08-21T13:24:14.257" Score="2" ViewCount="93" Body="&lt;p&gt;You regularly hear in the media how countries are billions or even &lt;em&gt;trillions&lt;/em&gt; of US dollars in debt. How does a country get so far in debt, and who is it in debt &lt;em&gt;to&lt;/em&gt;? How can countries of the world operate owing such vast amounts of money?&lt;/p&gt;&#xA;" OwnerUserId="19197" LastActivityDate="2018-08-22T08:46:41.573" Title="How can countries be in so much debt?" Tags="&lt;debt&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24204" PostTypeId="1" CreationDate="2018-08-21T15:17:11.273" Score="0" ViewCount="63" Body="&lt;p&gt;As I understand it, a primary feature / requirement of cryptocurrency is that it is not controlled by a government actor: it is decentralized.  If this is true and the Petro is controlled by a government (i.e. it can 'mint' more coins):  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;What is the reason to implement cryptocurrency in a manner that allows for greater ease of 'printing money'?&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="10161" LastActivityDate="2019-03-22T17:09:49.247" Title="Venezuela Petro Cryptocurrency" Tags="&lt;cryptocurrency&gt;" AnswerCount="3" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24205" PostTypeId="1" CreationDate="2018-08-21T15:46:30.810" Score="1" ViewCount="58" Body="&lt;p&gt;Governments often say things like &quot;we will reduce the deficit by 2025&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why can't they simply eliminate the deficit immediately by spending less than the taxes they receive?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Surely if a country is in debt, it should try and run a surplus so it can start paying off it's debts and reduce its interest payments.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there some reason why they can't do this?&lt;/p&gt;&#xA;" OwnerUserId="18968" LastActivityDate="2018-08-22T17:07:11.780" Title="Why can't countries immediately stop the deficit?" Tags="&lt;government-debt&gt;" AnswerCount="2" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="24206" PostTypeId="2" ParentId="24205" CreationDate="2018-08-21T18:37:06.317" Score="1" Body="&lt;p&gt;Some countries have very strict fiscal rules that basically force them to keep on spending more, or reduce the government's ability to cut spending (Brazil is a good example). Other countries have looser rules, but can't cut because of political pressures.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Remember acute spending cuts mean less money for hospitals, schools and many other services that rely on public money. It's often a very impopular measure.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That's why economists often favor clear, well-defined spending rules. Such as establishing a primary surplus target during times of economic growth, a maximum deficit during recessions and maybe a debt/GDP ratio ceiling. &lt;/p&gt;&#xA;" OwnerUserId="18167" LastActivityDate="2018-08-21T18:37:06.317" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24207" PostTypeId="1" CreationDate="2018-08-21T21:45:07.443" Score="3" ViewCount="92" Body="&lt;p&gt;What are some open problems in mathematical economics which are treated as if they have been solved in economics papers?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As an example, one of my teachers has previously pointed out to me that there is no existence and uniqueness proof of a specific type of Overlapping Generation problem, yet most academics with this specialty write papers that assume that their computed solution is the correct one.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are there more examples of this sort, in which economists (implicitly) make use of a foundational result, despite no one having proven it?&lt;/p&gt;&#xA;" OwnerUserId="18954" LastActivityDate="2018-08-21T21:45:07.443" Title="Open Foundational Problems in Mathematical Economics" Tags="&lt;mathematical-economics&gt;&lt;theory&gt;&lt;soft-question&gt;&lt;proof&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24208" PostTypeId="2" ParentId="9175" CreationDate="2018-08-21T22:46:32.280" Score="1" Body="&lt;p&gt;It probably could. But it would not be popular with savers. Printing money means all the currency is worth less. So it is essentially like a universal tax on people who have money (usually the middle class and rich).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How would you like it if your thousand pounds saving was suddenly worth half as much as the government had devalued it to pay off the debt. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And those people who are in debt are now more well off since their debt is worth less. Is that fair too?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So all in all, it's not a very good idea unless you really want to annoy your voters.&lt;/p&gt;&#xA;" OwnerUserId="18968" LastActivityDate="2018-08-21T22:46:32.280" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24210" PostTypeId="1" CreationDate="2018-08-22T00:34:52.427" Score="2" ViewCount="21" Body="&lt;p&gt;I am looking for US data on population and net migration by state and year from 1970 up to recent years (2015, 2016, 2017)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there a reliable, clean and integrated/compatible source?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For 2010 to 2017 I found this &lt;a href=&quot;https://www.census.gov/data/tables/2017/demo/popest/state-total.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;US Census State Population Totals and Components of Change: 2010-2017&lt;/a&gt; website. Is there anything similar for previous periods?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Other sources I considered that are not adequate: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Net Migration   Patterns for US Counties: only decennial&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.census.gov/data/tables/time-series/demo/geographic-mobility/historic.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Census::CPS Historical Migration/Geographic Mobility Tables&lt;/a&gt;: does not disaggregate by state&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="18242" LastEditorUserId="18242" LastEditDate="2018-08-23T15:50:53.930" LastActivityDate="2018-08-23T21:00:17.177" Title="Reliable US yearly population and netmigration estimates by state from 1970 up to today" Tags="&lt;data-request&gt;&lt;population-economics&gt;&lt;migration&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24211" PostTypeId="1" CreationDate="2018-08-22T07:23:18.550" Score="2" ViewCount="40" Body="&lt;p&gt;A German economist who also worked at the ECB &lt;a href=&quot;http://www.euronews.com/2017/03/07/view-how-to-understand-germany-s-trade-surplus&quot; rel=&quot;nofollow noreferrer&quot;&gt;notes&lt;/a&gt; that:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Germany’s bilateral trade surplus with the US has barely changed, despite substantial swings in the euro-dollar exchange rate – which was as high as €1:\$1.60 in 2011, and as low as €1:\$1.04 more recently. Germany owes its export success not to currency manipulation, but to its strong market position and the pricing power of its highly specialized manufacturing champions. [...]&lt;/p&gt;&#xA;&lt;p&gt;The euro is not too weak, and German exports are not too high. Rather, the problem is that Germany’s imports are too low, owing to its huge investment gap. [...] The gap is the result of policy failures – namely protectionist policies in the non-tradable services sector. The International Monetary Fund, the European Commission, and the OECD have long tried to convince Germany to deregulate services, curtail vested interests, and improve competition. But, as it stands, wages, productivity, and investment remain high in the German export sector, and low in the non-tradable services sector.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;How can protectionist policies keep wages &lt;em&gt;low&lt;/em&gt;, e.g. in services? Usually protectionist policies (e.g. tariffs on imports) tend to increase wages by protecting the local workforce from outside competition. A typical form of barrier to entry in services, namely professional licenses also increase wages (by decreasing labor supply) as far as I know. So how can protectionist policies achieve the opposite effect of lowering wages, particularly in services sector?&lt;/p&gt;&#xA;" OwnerUserId="6210" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2018-08-22T07:23:18.550" Title="How can protectionist policies keep wages low?" Tags="&lt;germany&gt;&lt;protectionism&gt;&lt;services&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24212" PostTypeId="2" ParentId="24204" CreationDate="2018-08-22T07:36:48.493" Score="2" Body="&lt;p&gt;Cryptocurrency is never a good medium of trade exchange compare to printed notes.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Anyone follows the history and trend of cryptocurrency can tell you that, cryptocurrency has become speculative medium than a currency itself. The best scenario to describe the speculation is various &lt;a href=&quot;https://en.wikipedia.org/wiki/Initial_coin_offering&quot; rel=&quot;nofollow noreferrer&quot;&gt;Initial coin offering&lt;/a&gt;(ICO) that went boom and bust.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A cryptocurrency such as Petro coins does not fair better than others, even Venezuela government say it is &quot;backing&quot; with something like oil. Because the logistics are too complicated and costly. Thus, Petro coin is anything but just yet another ICO to attract speculators to pay it in dollars(or any foreign currency that Venezuela needs). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In short, something like Petro is not going to replace the currency, but as a tool or &quot;virtual commodity honeypot&quot; used by Venezuela to get foreign currency without any sound production. &lt;/p&gt;&#xA;" OwnerUserId="11177" LastActivityDate="2018-08-22T07:36:48.493" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24213" PostTypeId="2" ParentId="24203" CreationDate="2018-08-22T07:45:09.033" Score="1" Body="&lt;ul&gt;&#xA;&lt;li&gt;How does a country get so far in debt, and who is it in debt to? &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Mostly because of government-issued bonds. These can be held by other governments, private entities or even the various government agencies: &lt;a href=&quot;https://www.thebalance.com/who-owns-the-u-s-national-debt-3306124&quot; rel=&quot;nofollow noreferrer&quot;&gt;In the US&lt;/a&gt;, starting with the last category:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Intragovernmental Holdings. This is the portion of the federal debt owed to 230 other federal agencies. Intragovernmental holdings total $5.6 trillion, almost 30 percent of the debt. Why would the government owe money to itself? Some agencies, like the Social Security Trust Fund, take in more revenue from taxes than they need. Rather than stick this cash under a giant mattress, these agencies buy U.S. Treasurys with it.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Debt Held by the Public. The public holds the rest of the national debt of $14.7 trillion. Foreign governments and investors hold almost half of it.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Since I see you're from the UK... over there bonds are called &lt;a href=&quot;https://en.wikipedia.org/wiki/Gilt-edged_securities&quot; rel=&quot;nofollow noreferrer&quot;&gt;gilts&lt;/a&gt;. And here's a &lt;a href=&quot;http://news.bbc.co.uk/2/hi/business/8530150.stm&quot; rel=&quot;nofollow noreferrer&quot;&gt;breakdown&lt;/a&gt; of their ownership from 2009 (since that's what I could easily find):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/jyJL4.gif&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/jyJL4.gif&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The biggest owners of gilts are insurance companies and pension funds. For them, gilts are predictable investments, which are particularly useful when a low-risk product is needed. Pension funds, for example, will usually switch an individual's holdings from higher risk investments, such as shares in companies, and put them in gilts as the person gets closer to retirement.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Next on the list comes investors overseas. Unfortunately, nobody keeps records showing in which countries these gilts are held. This is in contrast to, for example, the US, which regularly publishes lists of the countries that own its Treasury Bills. So we know that at the end of 2009, $302.5bn (£196bn) of US government debt was held in the UK, making the UK the third-biggest investor behind Japan and China.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The next biggest category holding UK government debt is banks, which includes the Bank of England. Since March 2009, as part of its quantitative easing programme, the Bank of England has bought just short of £200bn of gilts, making it the third-biggest holder of UK government debt.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;And a more recent (2017) &lt;a href=&quot;https://theconversation.com/how-vanishing-debt-costs-helped-the-uk-forget-about-a-never-ending-deficit-83321&quot; rel=&quot;nofollow noreferrer&quot;&gt;article&lt;/a&gt; (although lacking a pretty graph) roughly paints the same picture for UK's debt:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Traditionally, around 40% of UK public debt was held by pension funds and insurance companies, which form a captive market because of their need for predictable and safe long-term investment returns. Around a quarter was held by other UK financial institutions and households, and the rest by overseas investors.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;QE [quantitative easing] has disrupted this pattern. Now, around a quarter of issued gilts are held by the Bank of England under its Asset Purchase Facility. Official data still show overseas holdings at around 27%, with insurance and pension funds’ share down to 28%, and other UK financial institutions holding around 40%. But once the store of gilts sequestered on the Bank of England’s balance sheet is excluded, overseas buyers account for 35% of gilt holdings and other central banks another 11%.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Uniquely, more than 10% of the UK’s debt cannot be traced to either domestic or overseas buyers due to the paucity of data from the regular auctions. Lack of clarity on who’s holding the debt makes it harder to judge the risks of buyers selling-off or staying away. That fuzziness that may have helped to keep the markets calm.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;How can countries of the world operate owing such vast amounts of money?&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;It depends on the country. Countries whose currency is attractive enough, e.g. the US dollar can &quot;get away with it&quot; by &quot;printing&quot; more money (see &lt;a href=&quot;https://money.cnn.com/2016/05/11/news/economy/donald-trump-print-money/index.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;quantitative easing&lt;/a&gt;), although they can't do that too fast because that can cause inflation. The bonds of the big countries have had somewhat of &quot;miraculous&quot; negative real interest rate in the short run &lt;a href=&quot;https://theconversation.com/how-vanishing-debt-costs-helped-the-uk-forget-about-a-never-ending-deficit-83321&quot; rel=&quot;nofollow noreferrer&quot;&gt;recently&lt;/a&gt; (although lacking a pretty graph):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;UK national debt is currently issued at a yield of less than 1% – far below the rate of inflation (2.6% in July). And this means Britain can effectively raise money free of charge in real terms. [...]&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;So why are UK bonds still flying off the shelves, allowing the government to plug the gap in its spending plans with virtually “free” money? It is possible that investors are snapping-up new gilts simply through a lack of alternatives. If (as some fear) overpriced stock markets and property are about to crash and once-buoyant emerging markets are in trouble then the public debt of stable rich countries becomes the least worst option. US and German debt issues are proving similarly popular at rock-bottom yields.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Although this year the bond rates &lt;a href=&quot;https://www.reuters.com/article/us-global-markets-realyields/commentary-policy-tightening-its-real-rates-that-matter-for-markets-idUKKBN1EY15R&quot; rel=&quot;nofollow noreferrer&quot;&gt;are expected to tighten&lt;/a&gt;, they are still mostly negative in real terms (for the big boys, but not so much for the smaller fish with weaker economies; the exception being the US which slighly above zero):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/A7Nls.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/A7Nls.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Negative real borrowing costs add fuel to markets that are already on fire, limiting the downward pressure on bonds, keeping corporate spreads on the tight side and pushing stocks to new high after new high. [...]&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;For investors, it’s a chicken and egg scenario. They’re crying out for policy “normalization” - higher rates and less central bank “interference” in markets - but are enjoying the asset price boom that’s in large part a direct consequence of central bank largesse.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Countries whose debt is denominated in a foreign currency, or a currency they can't print for some other reason, e.g. being in monetary union (ahem, Greece) can be in a world of hurt if they suddenly are threatened by default (inability to pay back on schedule). Typically the IMF steps in but it also &lt;a href=&quot;https://www.imf.org/en/About/Factsheets/Sheets/2016/08/02/21/28/IMF-Conditionality&quot; rel=&quot;nofollow noreferrer&quot;&gt;imposes conditions&lt;/a&gt; in terms of structural reforms etc. for their bailouts.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;E.g. &lt;a href=&quot;https://www.cnbc.com/2018/07/05/eurogroup-centeno-greek-bonds-are-now-safer-for-investors-and-will-.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;news from July this year&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Greece is scheduled to end nearly a decade of external help this August, after implementing more than 400 policy measures demanded by creditors. The yield on the 10-year government bond has fallen about 30 basis points in the wake of the recent debt deal. It moved from standing at about 4.2 percent to 3.9 percent. In contrast, Italy’s 10-year yield currently stands at 2.668 percent and the U.S.’ at 2.85 percent.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="6210" LastEditorUserId="6210" LastEditDate="2018-08-22T08:46:41.573" LastActivityDate="2018-08-22T08:46:41.573" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24214" PostTypeId="2" ParentId="15941" CreationDate="2018-08-22T08:51:47.203" Score="0" Body="&lt;p&gt;Testing for measurement error in linear regressions: Hausman (1978, Econometrica, www.jstor.org/stable/1913827)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Testing for measurement error in general nonlinear, nonparametric models: Wilhelm (2018, CeMMAP Working Paper, &lt;a href=&quot;http://www.ucl.ac.uk/~uctpdwi/papers/cwp451818.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.ucl.ac.uk/~uctpdwi/papers/cwp451818.pdf&lt;/a&gt;)&lt;/p&gt;&#xA;" OwnerUserId="19202" LastActivityDate="2018-08-22T08:51:47.203" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24217" PostTypeId="1" CreationDate="2018-08-22T13:25:07.380" Score="1" ViewCount="60" Body="&lt;p&gt;Is there a link between the level of the labor share and growth? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In standard models growth is the rate of (labor augmenting) technical progress and labor force. So does that mean if the labor share was .7 in one economy and .3 in an otherwise equivalent economy that there would be no difference in equilibrium growth rates?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I ask because there is a lot of literature of the link between inequality and growth (although not always steady state growth) but not a link between labor share and growth, despite the fact that the correlation between inequality (the Gini) and the labor share is presumably very high.&lt;/p&gt;&#xA;" OwnerUserId="19132" LastActivityDate="2018-08-23T08:21:03.970" Title="labor share and growth" Tags="&lt;labor-economics&gt;&lt;economic-growth&gt;&lt;inequality&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24218" PostTypeId="1" AcceptedAnswerId="24239" CreationDate="2018-08-22T13:55:20.610" Score="1" ViewCount="66" Body="&lt;p&gt;If a thief steals an item to make money from it, which percent of the legal market value the thief typically gets?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For instance, if the thief steals a bike that costs $1000 new in the shop, how much money that thief typically makes from this operation? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Most likely it should be much less than $1000, because why someone would buy a used item from the questionable sources for the same price. Also, if a thief would use some black market handler, that handler also needs to earn.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If this differs a lot for different goods, please address the differences.&lt;/p&gt;&#xA;" OwnerUserId="6449" LastEditorUserId="6449" LastEditDate="2018-08-23T07:56:34.857" LastActivityDate="2018-08-24T21:56:18.103" Title="Which part of the market value a thief can expect to get for the stolen item?" Tags="&lt;black-market&gt;" AnswerCount="2" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="24220" PostTypeId="2" ParentId="24205" CreationDate="2018-08-22T17:07:11.780" Score="-1" Body="&lt;p&gt;This strategy works perfectly well for an individual, household, or company, because for these entities, there is no link between income and expenditure.  Each one can cut expenditure and expect to continue to earn the same income.  Governments do not work like that.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Most government income is highly dependent on the overall level of activity in the economy.  If the government quickly reduces expenditure, this will almost certainly* lead to reduced employment, reduced investment, reduced tax receipts, and push up variable forms of government expenditure like unemployment and low-income benefits.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The result tends to be a massive contraction in economic output, and often an &lt;em&gt;increase&lt;/em&gt; in the budget deficit, increasing the government's debt and reducing its ability to repay.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.youtube.com/watch?v=M88YiPmTqo8&quot; rel=&quot;nofollow noreferrer&quot;&gt;Here is a 4-minute summary of this point by Yanis Varoufakis.&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is also an obvious social cost to reductions in government expenditure.  For instance, mild austerity in the UK since the global financial crisis &lt;a href=&quot;http://www.ox.ac.uk/news/2017-02-20-30000-excess-deaths-2015-linked-cuts-health-and-social-care&quot; rel=&quot;nofollow noreferrer&quot;&gt;caused around 30,000 excess deaths &lt;em&gt;per year&lt;/em&gt; by 2015&lt;/a&gt;.  Killing tens of thousands of your electorate each year can prove politically costly.  The level of austerity required to balance a substantial deficit within a year is likely to have a much more extreme human cost.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;*There are a few potentially large types of government expenditure that could have minimal effect on the domestic economy, e.g. purchase of foreign military equipment.&lt;/p&gt;&#xA;" OwnerUserId="16631" LastActivityDate="2018-08-22T17:07:11.780" CommentCount="9" ContentLicense="CC BY-SA 4.0" />
  <row Id="24221" PostTypeId="1" CreationDate="2018-08-22T17:18:18.300" Score="2" ViewCount="950" Body="&lt;p&gt;Weierstrass Theorem states that any bounded sequence has a convergent subsequence.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I did that in my maths course and understood it completely. But when I was learning optimization techniques in economics, the definition by the book Sundaram was tweaked slightly to make it fit into the understanding of optimization. It goes like this - (see Figure 1)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you read it, it is saying just what original theorem said. The only difference is that, instead of starting off with a bounded sequence and reaching the conclusion that it will have convergent subsequence, it started off with a convergent subsequence (by assuming Compact set) and reached the conclusion that it should be bounded. It makes sense right? It did to me too until I found a result on compact set, stated on the same book. (See figure 2)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This redefining of the theorem made it a circular definition - if a set can only be compact if n only if it is bounded then by assuming Compactness in redefinition we implicitly assumed boundedness. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, my question is please tell me where am I going wrong. Have I understood the redefinition incorrectly or missed so point? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/GTa4F.jpg&quot; alt=&quot;Figure 1&quot;&gt;&#xA;&lt;img src=&quot;https://i.stack.imgur.com/s72gs.jpg&quot; alt=&quot;Figure 2&quot;&gt;&lt;/p&gt;&#xA;" OwnerUserId="18929" LastActivityDate="2018-08-22T18:57:55.337" Title="Weierstrass Theorem in Optimization" Tags="&lt;optimization&gt;" AnswerCount="1" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24222" PostTypeId="2" ParentId="24221" CreationDate="2018-08-22T18:57:55.337" Score="4" Body="&lt;p&gt;What the book calls the &quot;Weierstrass Theorem&quot; is more commonly known as the &lt;a href=&quot;https://en.wikipedia.org/wiki/Extreme_value_theorem&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;strong&gt;Extreme Value Theorem&lt;/strong&gt;&lt;/a&gt;, which states that a continuous function defined on a compact domain attains a maximum and a minimum.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Extreme_value_theorem#Proof_of_the_extreme_value_theorem&quot; rel=&quot;nofollow noreferrer&quot;&gt;A common proof&lt;/a&gt; of this theorem involves the use of the &lt;a href=&quot;https://en.wikipedia.org/wiki/Bolzano%E2%80%93Weierstrass_theorem&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;strong&gt;Bolzano–Weierstrass theorem&lt;/strong&gt;&lt;/a&gt;, which you learned in your math course, and which says every bounded sequence has a convergent subsequence. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the two theorems are actually different, albeit related, statements.&lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2018-08-22T18:57:55.337" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24223" PostTypeId="2" ParentId="24187" CreationDate="2018-08-22T20:07:44.850" Score="1" Body="&lt;p&gt;A market is an social institution with various attributes and works under complex conditions. Under some conditions a pure monopoly is the only known limit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Markets are creations by human intelligence and will not exist if not used for merchand. The market mechanisms are used in our society to enable a complex, diverse, work-sharing economy. Not the other way around.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Side note: The question is not how big a government is. A small government can have a bigger impact on a market than big government.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;My question is simple; would a laissez-faire approach to the market always result in inequality?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The reason why markets are so useful, they lower the costs to synchronize the various supplies with the societal limitless demands (individual demands can be limited). Markets can react to  technological, cultural and knowledge changes in the societies. But they depend on the kind of economy wherein they function. When the economy prefers bigger enterprises than many small firms, markets can not change much on these structures. Nevertheless the answer to your question is no. When a market starts under the condition of fair distribution and some other factors like transactions costs, market entry costs, costs for research and development and others don't play an important role, markets can stabelize the fair distribution of wealth. &lt;/p&gt;&#xA;" OwnerUserId="12910" LastEditorUserId="12910" LastEditDate="2018-09-27T08:16:39.240" LastActivityDate="2018-09-27T08:16:39.240" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24227" PostTypeId="1" CreationDate="2018-08-22T23:54:20.660" Score="0" ViewCount="776" Body="&lt;p&gt;I am trying to understand what is the difference between the &lt;em&gt;Borrower&lt;/em&gt; and the &lt;em&gt;Sponsor&lt;/em&gt; entities in a syndicate loan agreement.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Namely, it looks like quite often, the &lt;em&gt;Borrower&lt;/em&gt; entity will be a Company that is getting acquired by the &lt;em&gt;Sponsor&lt;/em&gt; entity - what I don't understand is if the Sponsor is acquiring the Company, why isn't the Sponsor borrowing the money?&lt;/p&gt;&#xA;" OwnerUserId="19214" LastActivityDate="2018-12-22T11:01:35.377" Title="Syndicated Loans Terminology - Borrower &amp; Sponsor" Tags="&lt;debt&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24229" PostTypeId="1" CreationDate="2018-08-23T05:22:39.037" Score="0" ViewCount="866" Body="&lt;p&gt;I have read somewhere (attributed to Milton Friedman) that a good practice of monetary policy is to maintain a constant inflation rate (of 3% per annum, say). What is the point of that? If everyone knows the constant inflation rate, would they not factor that in when pricing goods and thereby effectively eliminate the inflation?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a toy example, suppose the Feb maintains the money supply $M(t)=M(0)e^{at}$ at time $t$ for some constant $a$ known to people. Then people will price the goods (including debts) $P(t)=P(0)e^{at}$ at time $t$ where $P:=(p_1,p_2,\cdots,p_n)$ is a vector of prices for $n$ goods. Then the ratio of the prices $P/p(1)=(1,\frac{p_2}{p_1},\cdots,\frac{p_n}{p_1})$ remains the same. What is the point of the targeted inflation? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can think of one justification in a particular scenario for setting a target but of the money supply rather than of inflation which is the increment in price. If we know the &lt;em&gt;quantity&lt;/em&gt;, so to speak, of the economy is growing at $Q(t)=Q(0)e^{at}$. Then it makes sense to increase the money supply as described above, so that people can still price the goods at $P(t)=P(0)$. But this is no price inflation. Besides, if the money supply is held constant and the quantity grow rate is known, people can just price the goods at $P(t)=P(0)e^{-at}$ and the price ratio still remains unchanged. I do not see the harm in price deflation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The possible flaw in this setup is that the &quot;speed&quot; of the diffusion of the physical monetary supply amongst the non-bank entities is no greater than the &quot;speed&quot; of the transaction. We can eliminate this flaw and achieve infinite monetary diffusion speed and simultaneity of inflation by bringing all transactions onto digital platforms. People can set their algorithms to increase the prices at the target rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This question is related but different from the question &lt;a href=&quot;https://economics.stackexchange.com/questions/5861/is-zero-inflation-desirable&quot;&gt;Is zero inflation desirable?&lt;/a&gt;. The latter asked about the effect of keeping inflation at zero. My question asks whether targetting an inflation rate not necessarily zero that is to be known to all people is any different from zero inflation and its desirability.&lt;/p&gt;&#xA;" OwnerUserId="10298" LastEditorUserId="10298" LastEditDate="2018-08-25T00:23:42.777" LastActivityDate="2019-10-03T15:52:02.543" Title="What is the point of a constant (thus known) inflation rate?" Tags="&lt;inflation&gt;&lt;monetary-policy&gt;" AnswerCount="5" CommentCount="7" ContentLicense="CC BY-SA 4.0" />
  <row Id="24232" PostTypeId="2" ParentId="24229" CreationDate="2018-08-23T07:28:37.407" Score="0" Body="&lt;p&gt;So in your question is basically two questions, right. Firstly, why target constant inflation, and why not just zero?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first question about the constancy of the inflation rate. Basically it ensures stability of the real economy if future inflation is known within some interval. An example hereof is contracts, which are much easier to write if the inflation is pretty stable. Even more importantly financial system will tend to work better and fund projects which are beneficial.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why can't inflation just be zero? Firstly a lot of debt is created constantly in society. Inflation has traditionally been a valve to lower the real burden of debt over time. Secondly, the economy tend to experience inflation, because prices change when the economy experiences pressure. Thus, it would be hard for any central bank to target zero inflation. Lastly, changing prices tend to smooth changes in the economy. In other words, changing prices provide dynamism in e.g. wage negotiations and other things.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am sure there are other reasons for both question, but these were the ones that sprang to mind. &lt;/p&gt;&#xA;" OwnerUserId="19217" LastActivityDate="2018-08-23T07:28:37.407" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="24233" PostTypeId="2" ParentId="24153" CreationDate="2018-08-23T08:05:38.617" Score="0" Body="&lt;p&gt;Okay I have done some research.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Possibly, abundance could be available soon along these lines:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;organic food&lt;/strong&gt; - abundance of &lt;a href=&quot;https://www.wired.com/story/my-two-week-edible-insect-feast/&quot; rel=&quot;nofollow noreferrer&quot;&gt;edible insects&lt;/a&gt; and &lt;a href=&quot;https://www.wired.com/story/my-two-week-edible-insect-feast/&quot; rel=&quot;nofollow noreferrer&quot;&gt;clean meat from meat breweries&lt;/a&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;housing&lt;/strong&gt; - abundant through &lt;a href=&quot;https://www.theatlantic.com/business/archive/2017/08/japan-rural-decline/537375/&quot; rel=&quot;nofollow noreferrer&quot;&gt;abandoned rural areas&lt;/a&gt; and &lt;a href=&quot;https://www.bbc.com/news/technology-44709534&quot; rel=&quot;nofollow noreferrer&quot;&gt;3D printed homes&lt;/a&gt;, water and good air possible available there as well&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;education&lt;/strong&gt; - given you are okay with self-education Internet provides enough free/cheap learning resources&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="13716" LastActivityDate="2018-08-23T08:05:38.617" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24236" PostTypeId="2" ParentId="24229" CreationDate="2018-08-23T09:45:35.650" Score="0" Body="&lt;p&gt;In addition to the reasons given by pkpkPPkafa, an important reason to target a non-zero inflation rate is to reduce the lower bound of real interest rates.  There is commonly perceived to be a zero nominal lower bound for interest on most forms of debt.  If inflation is at (say) 3%, then an interest rate of (say) 0.5% creates a negative real interest rate, enabling the central bank/government to pursue a more stimulating monetary policy than would otherwise be possible.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Being caught by the zero lower bound of nominal interest rates is often referred to as a &quot;liquidity trap&quot;.  Paul Krugman has written extensively on this, &lt;a href=&quot;https://krugman.blogs.nytimes.com/2010/08/31/japan-1998/&quot; rel=&quot;nofollow noreferrer&quot;&gt;particularly with reference to Japan&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="16631" LastActivityDate="2018-08-23T09:45:35.650" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24237" PostTypeId="2" ParentId="24229" CreationDate="2018-08-23T11:03:16.770" Score="1" Body="&lt;p&gt;First, contra to your last statement, deflation is &lt;a href=&quot;https://www.economist.com/the-economist-explains/2015/01/07/why-deflation-is-bad&quot; rel=&quot;nofollow noreferrer&quot;&gt;obviously harmful&lt;/a&gt; if one considers its effect on growth via demand:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The nominal interest rate cannot fall below zero, because that would mean reducing savers’ bank balances every month, and would prompt them to withdraw their deposits from banks and stash cash under the bed. Together with inflation, this puts a floor on the real interest rate too. If inflation is low and real rates can’t fall far enough to boost demand and perk up prices, demand will weaken still further. This is the dreaded deflation trap.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;What you're missing from your model is any notion of savings and interest. There's also the psychological issue of cutting wages in nominal terms to keep up with deflation. (As an aside, that's also one of the reasons why laying off people &lt;a href=&quot;https://doi.org/10.1016/S0014-2921(98)00002-6&quot; rel=&quot;nofollow noreferrer&quot;&gt;is preferred&lt;/a&gt; to wage cuts in a downturn.) I'm sure there are more questions here on econ.SE about deflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Second, the real answer to your question (targeting a non-zero inflation) is &lt;a href=&quot;https://en.wikipedia.org/wiki/Price_stability&quot; rel=&quot;nofollow noreferrer&quot;&gt;price stability&lt;/a&gt;. To quote your &lt;a href=&quot;https://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp170.pdf?5a6c189e978749a5299b76ab370771e5&quot; rel=&quot;nofollow noreferrer&quot;&gt;an ECB paper&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;We are interested in finding the price index [i.e. inflation] that, if kept on an assigned target, would lead to the&#xA;  greatest stability in economic activity. This concept might be called the stability price index.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Constructing the latter is pretty complicated in a multi-sectoral model, and you're invited to read ECB's paper. But avoiding deflation &lt;a href=&quot;https://www.ecb.europa.eu/mopo/strategy/pricestab/html/index.en.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;is one of the goals&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Inflation rates of below, but close to, 2% are low enough for the economy to fully reap the benefits of price stability. This aim also underlines the ECB’s commitment to provide an adequate margin to reduce the risks of deflation. Having such a safety margin against deflation is important because there are limits to how far interest rates can be cut. In a deflationary environment monetary policy may thus not be able to sufficiently stimulate aggregate demand by using its interest rate instrument. This makes it more difficult for monetary policy to fight deflation than to fight inflation.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;As for why some arbitrary number &gt;&gt;0 for inflation decreases economic stability... that is slightly more involved to answer in modelling terms, I won't attempt that here. A highly cited &lt;a href=&quot;http://www.nber.org/papers/w5326&quot; rel=&quot;nofollow noreferrer&quot;&gt;empirical paper by Barro (1995)&lt;/a&gt; found that when high-inflation is included in the sample growth is negatively affected:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Data for around 100 countries from 1960 to 1990 are used to assess the effects of inflation on economic performance. If a number of country characteristics are held constant, then regression results indicate that the impact effects from an increase in average inflation by 10 percentage points per year are a reduction of the growth rate of real per capita GDP by 0.2-0.3 percentage points per year and a decrease in the ratio of investment to GDP by 0.4-0.6 percentage points. Since the statistical procedures use plausible instruments for inflation, there is some reason to believe that these relations reflect causal influences from inflation to growth and investment. However, statistically significant results emerge only when high- inflation experiences are included in the sample. Although the adverse influence of inflation on growth looks small, the long-term effects on standards of living are substantial. For example, a shift in monetary policy that raises the long-term average inflation rate by 10 percentage points per year is estimated to lower the level of real GDP after 30 years by 4-7%, more than enough to justify a strong interest in price stability.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Another &lt;a href=&quot;https://institutional.fidelity.com/app/proxy/content?literatureURL=/9871680.PDF&quot; rel=&quot;nofollow noreferrer&quot;&gt;observed fact&lt;/a&gt; from high[er]-inflation periods that has some explantory power is that higher inflation reduces the performance distinction between stocks and bonds (thus lowering the attraction to invest in more growth-producing assets):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;By contrast, when inflation is higher and more volatile—&#xA;  as it was in the 1970s [US] —the correlation between stocks&#xA;  and bonds increases. Because rising inflation negatively&#xA;  affects the performance of both stocks and bonds,&#xA;  bonds generally become more equity-like amid higher&#xA;  inflation and thus tend to provide less diversification. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In theory one might be able to come up with a model where high but stable inflation exists (you actually did that), which might cause stocks and bonds to behave differently [enough], but in practice such historical examples of high but non-volatile inflation are rather lacking.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &lt;a href=&quot;http://www.ucl.ac.uk/~uctpa36/monetary%20policy.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;textbook&lt;/a&gt; problems with high level of inflation (not taking volatility into account):&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Shoe_leather_cost&quot; rel=&quot;nofollow noreferrer&quot;&gt;&quot;shoe-leather&quot; cost&lt;/a&gt;: keeping lower money balances when inflation is high (implying more frequent trips to the bank/ATM).&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Menu_cost&quot; rel=&quot;nofollow noreferrer&quot;&gt;menu cost&lt;/a&gt;: time and effort to change price lists in an inflationary environment&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I'm not sure how well-tested these are in practice (as distinct effects).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On top of those level effects (which &lt;a href=&quot;https://doi.org/10.1111/j.1465-7295.1997.tb01895.x&quot; rel=&quot;nofollow noreferrer&quot;&gt;are disputed&lt;/a&gt; by some economists), volatility in inflation brings its own problems:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;E.g. an &lt;a href=&quot;https://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp317.pdf?273b564713ec51b8eff5c01cd6f46d72&quot; rel=&quot;nofollow noreferrer&quot;&gt;ECB paper&lt;/a&gt; stating these as well-known facts:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Among the harmful effects of inflation, the negative consequences of inflation volatility are of&#xA;  particular concern. These include higher risk premia, hedging costs and unforeseen redistribution of&#xA;  wealth. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Or another &lt;a href=&quot;https://doi.org/10.1111/1468-2362.00021&quot; rel=&quot;nofollow noreferrer&quot;&gt;empirical paper&lt;/a&gt; actually evaluating the effect of inflation volatility (separately from level):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;This paper re‐examines the relationship between inflation, inflation volatility and growth, using cross‐country panel data for the past 30 years. With regard to the level of inflation, we find that exploiting the time dimension of the data reveals a strong negative correlation between inflation and income growth for all but low inflation countries. To examine the role of inflation uncertainty on growth, we use intra‐year inflation data to construct an annual measure of inflation volatility. Using this measure, we find that inflation volatility is also robustly negatively correlated with growth, even after the effect of the level of inflation is controlled for.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;As far as I know far fewer economists disagree with the latter points, i.e. that volatility of inflation is bad (for growth). &lt;a href=&quot;https://doi.org/10.1177%2F097491011100400103&quot; rel=&quot;nofollow noreferrer&quot;&gt;E.g.&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;While the level of inflation was found not to have a significant effect on growth, [...] inflation volatility does significantly impact growth even for countries with moderately high levels on inflation. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;There are also works that discuss whether/why &lt;a href=&quot;https://www.kansascityfed.org/publicat/econrev/pdf/3q94golb.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;inflation uncertainty rises with the inflation level&lt;/a&gt;, i.e. even if you don't have actual volatiliy of inflation, a perception of an increased risk of volatiliy may be enough to create negative effects associated with volatility.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;While the costs of inflation uncertainty are&#xA;  relatively easy to identify, explaining why inflation&#xA;  uncertainty increases with inflation is more difficult.&#xA;  The most appealing explanation involves the&#xA;  response of monetary policy to inflation.&#xA;   When&#xA;  inflation is low, monetary policymakers try to keep&#xA;  it low. To the extent they are successful, inflation&#xA;  remains low and stable. When inflation is high,&#xA;  however, monetary policymakers are more likely to&#xA;  adopt disinflationary policies. These policies, by&#xA;  lowering the inflation rate, increase inflation variability.&#xA;  Moreover, the policies create inflation&#xA;  uncertainty because the timing and short-run impact&#xA;  of policy on inflation are uncertain.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Basically it is a learned effect from what central banks usually do.&lt;/p&gt;&#xA;" OwnerUserId="6210" LastEditorUserId="6210" LastEditDate="2019-10-03T14:30:05.583" LastActivityDate="2019-10-03T14:30:05.583" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24238" PostTypeId="2" ParentId="24199" CreationDate="2018-08-23T12:45:13.760" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;lopping 5 zeros out of its regular Bolívar&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This will make the numbers used in daily shopping more manageable. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;However, if I remember well, won't the devaluation of a currency increase inflation by increasing prices of imports, and in some cases also increasing prices from domestic products by increasing exports?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Devaluing the currency might help make imports possible again.&#xA;The exchange rate vs the USD is held superficially high by the government. However, it is not possible to exchange Bolivars for USD because of the shortage of foreign currency caused by a drop in oil income. Getting paid in overvalued Bolivars is not very appealing, so imports have essentially ground to a halt causing massive shortages in products that aren't produced locally. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;What's the rationale here for this measure?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The government hopes that this will stabilize the currency and reduce inflation to manageable levels. The market usually requires real change for that to happen, so in my opinion not much will change. There will still be hyperinflation and shortages.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;References: &lt;a href=&quot;https://en.wikipedia.org/wiki/Shortages_in_Venezuela&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://en.wikipedia.org/wiki/Shortages_in_Venezuela&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="11805" LastActivityDate="2018-08-23T12:45:13.760" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24239" PostTypeId="2" ParentId="24218" CreationDate="2018-08-23T14:12:53.457" Score="2" Body="&lt;p&gt;I would even say, you might be able to make &lt;strong&gt;more profit&lt;/strong&gt; on the black market, and sell it for more than the market price. the fact that you do not pay any &lt;strong&gt;taxes&lt;/strong&gt; on the black market gives you the opportunity to make profit in the range of what the tax would be.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Surely there are cases where that might differ.&#xA;Depending on supply and demand. Still i think it is not far fetched to assume, you can sometimes make a lot more money by selling something on the black market. Whether it is stolen or not.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Most likely it should be much less than $1000, because why someone would buy a used item from the questionable sources for the same price.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;That would then depend on the &quot;kind&quot; of black market. Surely there are black markets considered &quot;safe&quot; und &quot;trustworthy&quot; in the eyes of some dealers and thieves.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Also, if a thief would use some black market handler, that handler also needs to earn.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Here you could split the profit made due to a lack of taxes and national regulations between all the people involved in that trading process.&lt;/p&gt;&#xA;" OwnerUserId="19220" LastEditorUserId="19220" LastEditDate="2018-08-23T14:34:21.127" LastActivityDate="2018-08-23T14:34:21.127" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24241" PostTypeId="1" CreationDate="2018-08-23T16:17:17.023" Score="2" ViewCount="26" Body="&lt;p&gt;I was wondering if there are any experiments of financial games (laboratory games under controlled circumstances like Plott and Sunder's &lt;em&gt;Rational Expectations and the Aggregation of Diverse Information in Laboratory Security&#xA;Markets&lt;/em&gt; in 1988) with just one player? I'm not really interested in the outcomes of such an experiment, but rather on how should it be designed. How many assets should there be? Is it fine for the price to distribute just like a normal distribution (with mean on price*(1+expected return)). How many periods are fine? And so on.&lt;/p&gt;&#xA;" OwnerUserId="19223" LastActivityDate="2018-08-23T16:17:17.023" Title="Are there any experiments about financial games with just one player?" Tags="&lt;reference-request&gt;&lt;game-theory&gt;&lt;finance&gt;&lt;behavioral-economics&gt;&lt;experimental-economics&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24242" PostTypeId="2" ParentId="24210" CreationDate="2018-08-23T18:10:26.800" Score="2" Body="&lt;p&gt;&lt;a href=&quot;https://www.census.gov/data/tables/time-series/demo/geographic-mobility/state-to-state-migration.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Census State to State Migration Flows&lt;/a&gt; are available from 2004 - 2016. Census's &lt;a href=&quot;https://www.census.gov/data/tables/time-series/demo/popest/intercensal-2000-2010-state.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;State Intercensal Tables: 2000-2010&lt;/a&gt; has annual state population data over the 2000-2010 period. Combining this with Census's &lt;a href=&quot;https://www.census.gov/data/tables/2017/demo/popest/state-total.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;State Population Totals and Components of Change: 2010-2017&lt;/a&gt; gives population series for back to 2004.&lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2018-08-23T21:00:17.177" LastActivityDate="2018-08-23T21:00:17.177" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24243" PostTypeId="1" CreationDate="2018-08-23T20:09:27.050" Score="0" ViewCount="97" Body="&lt;p&gt;Are there any mathematical models of a planned economy like in the soviet union? Specifically id like to know how we would model 5 year plans.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Do any exist?&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2020-12-15T20:02:35.293" Title="Models of a Planned Economy" Tags="&lt;macroeconomics&gt;&lt;reference-request&gt;&lt;marxism&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="24244" PostTypeId="1" CreationDate="2018-08-23T21:40:08.660" Score="1" ViewCount="72" Body="&lt;p&gt;I am currently using the tool gEcon trying to create static CGE-models. As a starting point I am using a sample model from the gEcon developers. I already implemented small changes and managed that I was able to find an equilibrium after loading the model into R. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The model which works is this (open in Notepad++) &lt;a href=&quot;https://www.dropbox.com/s/ljcpaf557lotq54/Model_2factors.gcn?dl=0&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.dropbox.com/s/ljcpaf557lotq54/Model_2factors.gcn?dl=0&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can check running it in R and finding an equilibrium. Just run the R-File after changing the filepaths for the gcn- and the two excell files.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;R-File: &lt;a href=&quot;https://www.dropbox.com/s/2cffc6zk1ry46am/R-file%20for%202%20factor%20model.R?dl=0&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.dropbox.com/s/2cffc6zk1ry46am/R-file%20for%202%20factor%20model.R?dl=0&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Table: &lt;a href=&quot;https://www.dropbox.com/s/8x5ophhvi51tydp/2factor_table.csv?dl=0&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.dropbox.com/s/8x5ophhvi51tydp/2factor_table.csv?dl=0&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Map: &lt;a href=&quot;https://www.dropbox.com/s/y7so3zryz8b508z/2factor_map.csv?dl=0&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.dropbox.com/s/y7so3zryz8b508z/2factor_map.csv?dl=0&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From this point I am trying to add the third Factor 'R' into the model, with properties just as the other factors. I define everything analog to how the other factors were implemented, but I fail to find the equilibrium in R. (For trying out just change filepaths in the R-file)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;gcn-file: &lt;a href=&quot;https://www.dropbox.com/s/elkrbn5oy811khp/Model_3factors.gcn?dl=0&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.dropbox.com/s/elkrbn5oy811khp/Model_3factors.gcn?dl=0&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;R-File: &lt;a href=&quot;https://www.dropbox.com/s/x09eukjufh2lfey/R-file%20for%203%20factor%20model.R?dl=0&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.dropbox.com/s/x09eukjufh2lfey/R-file%20for%203%20factor%20model.R?dl=0&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Table: &lt;a href=&quot;https://www.dropbox.com/s/tpx6znhm9g22fhm/3factor_table.csv?dl=0&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.dropbox.com/s/tpx6znhm9g22fhm/3factor_table.csv?dl=0&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Map: &lt;a href=&quot;https://www.dropbox.com/s/r6w8reii4c05vwt/3factor_map.csv?dl=0&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.dropbox.com/s/r6w8reii4c05vwt/3factor_map.csv?dl=0&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have tried many ways of defining the new factor (number of equations need to match number of variables) but failed to do so correctly. The error message popping up in R is somewhat misleading, as the cause is not that the initial values of the variables are too far of. There is just no other error message it this point. I even set them once one by one almost exactly onto their correct values. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can somebody see what I am doing wrong with my new factor? Any suggestions what to try out? if you need further information, I am happy to tell you.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Greetings,&#xA;René&lt;/p&gt;&#xA;" OwnerUserId="19224" LastActivityDate="2018-08-23T21:40:08.660" Title="How to add a third factor of production to a static CGE-Model in gEcon" Tags="&lt;general-equilibrium&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24248" PostTypeId="1" CreationDate="2018-08-24T06:54:56.560" Score="1" ViewCount="72" Body="&lt;p&gt;Currently, about 2bn people consume insects, so there must be a scaled industry already as well.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, you can buy cricket powder at roughly $100/kg.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now my concern is:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;if this is already a common nutrition source, why the price? (could not imagine, those 2bn people pay that)&lt;/li&gt;&#xA;&lt;li&gt;nevertheless insect farming wherever it takes involves lot of manual labour&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;In my understanding, a future source of food should match the following criteria:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;sustainable (OK)&lt;/li&gt;&#xA;&lt;li&gt;cheap (not clear)&lt;/li&gt;&#xA;&lt;li&gt;scalable through automation (I think this is currently very limited)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Compared to a &lt;a href=&quot;http://www.digitaljournal.com/tech-and-science/technology/lab-grown-meat-startup-raises-funding-to-bring-product-to-market/article/527295&quot; rel=&quot;nofollow noreferrer&quot;&gt;meat brewery&lt;/a&gt;, if they will mature, seems easier to scale, even if entrypoint is harder.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So why is the price currently so high and how exactly are these insects will become the future of food (media excitement put aside) - is a realistic criteria market turnover?&lt;/p&gt;&#xA;" OwnerUserId="13716" LastActivityDate="2018-08-24T09:46:41.353" Title="Insect farming as future of protein nutrition: reality check" Tags="&lt;innovation&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24249" PostTypeId="1" CreationDate="2018-08-24T07:36:00.513" Score="1" ViewCount="25" Body="&lt;p&gt;Currently, farming crickets is quite labor intensive.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;No wonder that if you compare prices, in developed countries you get crickets at say \$100/kg, while &lt;a href=&quot;http://www.mattprindle.com/cricket-demand-and-prices-in-thailand/&quot; rel=&quot;nofollow noreferrer&quot;&gt;in Thailand&lt;/a&gt; they cost under \$2/pound, &lt;a href=&quot;http://www.mattprindle.com/cricket-demand-and-prices-in-thailand/&quot; rel=&quot;nofollow noreferrer&quot;&gt;in an e-shop \$29/kg&lt;/a&gt; which comes close to &lt;em&gt;production&lt;/em&gt; cost in a developed country.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Nevertheless, there are quite many cricket farms &lt;strong&gt;for human food&lt;/strong&gt; opening in developed countries. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why? &lt;/p&gt;&#xA;" OwnerUserId="13716" LastEditorUserId="13716" LastEditDate="2018-08-24T09:50:04.750" LastActivityDate="2018-08-24T13:46:15.423" Title="Understanding the use case of farming crickets in developed countries" Tags="&lt;profit-maximization&gt;" AnswerCount="1" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="24251" PostTypeId="2" ParentId="24229" CreationDate="2018-08-24T08:51:45.753" Score="2" Body="&lt;p&gt;As I understand it, your question is the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assuming that the rate is inflation is known by all in advance, does it matter what rate of inflation we set?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The answer to this question is 'yes'. For one thing, even if inflation is predictable, it transfers resources from holders of cash to the government or monetary authority ('seigniorage'). As a result, people may try to hold less cash, which means they need make more trips to the bank (leading to 'shoe leather costs').&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, contrary to the supposed lesson of your 'toy model', perfectly predictable inflation can have real effects.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, you are right to emphasise that the importance of predictability: unpredicted inflation often has effects that predicted inflation does not. For example, consider the common claim that an increase in inflation is good for borrowers and bad for lenders. If unpredicted, that is certainly true. But if predicted by all in advance, one might expect the increase to simply drive up nominal interest rates, leaving the real interest rate unchanged.&lt;/p&gt;&#xA;" OwnerDisplayName="user17900" LastActivityDate="2018-08-24T08:51:45.753" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="24253" PostTypeId="2" ParentId="23864" CreationDate="2018-08-24T09:10:27.150" Score="2" Body="&lt;p&gt;In the presentation that the OP linked to, &quot;compactness&quot; is not assumed, but derived as a result from more primitive properties that are assumed, one of which is the &quot;twice differentiability&quot; of the functions involved.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The presentation deals with the vary basic deterministic growth model in discrete time. The per capita production function in each period is $g(k_t)$ for which it is assumed that it is continuous and differentiable $g'&amp;gt;0,\;\; g''&amp;lt;0$. The law of motion of capital is then&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$k_{t+1} = g(k_t) + (1-\delta)k_t -c_t$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;with $0&amp;lt;\delta&amp;lt;1$ being the depreciation rate. The sequence starts at some arbitrary, finite initial value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The presentation wants to show the existence and uniqueness of the solution. To do that, in page 6 it first proves that the &quot;choice set&quot; is bounded -namely that the set from which the economic agents may choose the optimal levels of consumption and capital is &lt;em&gt;not&lt;/em&gt; the whole $\mathbb R_+$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is proved by considering the &lt;em&gt;maximal&lt;/em&gt; sequence of capital levels, irrespective of utility optimization considerations. If the maximal sequence is bounded, it means that the optimal sequence can only be chosen from a bounded set of values.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The maximum capital sequence obtains if we set consumption equal to zero: what happens when we consume nothing and we use all our capital stock &lt;em&gt;and&lt;/em&gt; all the new output as capital only.&#xA;We have then the sequence&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$k^{max}_{t+1} = g(k^{max}_{t}) + (1-\delta)k^{max}_{t}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now that consumption is set to zero, the sequence of capital is governed by a non-linear first-order difference equation. A sufficient (although not necessary) condition for the maximal sequence to be bounded is that this difference equation is asymptotically globally stable, namely, if starting from any initial point we converge to a fixed point (it is not necessary because we could have bounded oscillations also and obtain a bounded sequence).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The fixed point of the maximal capital sequence satisfies&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$k^{max}_*:  k^{max}_{t+1}=k^{max}_{t} \implies g(k^{max}_*) = \delta k^{max}_* $$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;By standard theory, global stability of the fixed point will obtain if the derivative of the difference equation, evaluated at the fixed point, is less than unity in absolute value,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\left |\frac {\partial k^{max}_{t+1}(k^{max}_*)}{\partial k^{max}_{t}}\right| = g'(k^{max}_*)+1-\delta &amp;lt;1 \implies g'(k^{max}_*) &amp;lt; \delta$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At the fixed point, it holds that &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac {g(k^{max}_*)}{k^{max}_*} = \delta $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For fixed point stability we want &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$g'(k^{max}_*) &amp;lt; \delta$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So fixed point stability requires&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$g'(k^{max}_*)&amp;lt;\frac {g(k^{max}_*)}{k^{max}_*}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;or that &quot;the marginal product will be less than the average product&quot;. Under the assumption that $g''&amp;lt;0$ everywhere, this will also hold for the fixed point. Hence, we obtain fixed point stability, and so also convergence and so boundedness of the maximal capital sequence. This tells us why we assume 2nd-order differentiability: by having the 2nd derivative and making assumptions about it, we can easily determine whether the equilibrium points are unique and things like that. Note also that differentiability of any degree implies continuity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the maximal capital sequence is bounded, so will be any other capital sequence, and hence the choice set for capital is bounded. If it is for capital it is also for consumption. Then, the full capital equation expressed as an inequality &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$k_{t+1} \leq g(k_t) + (1-\delta)k_t -c_t$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;defines a set (a unidimensional set, an interval on the real line) that is a) bounded below at zero (by the assumption that capital cannot be negative  b) bounded above as proven c) it can attain its boundary points. So it is closed and bounded and therefore &lt;em&gt;compact&lt;/em&gt;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;More over, we assume that there are no &quot;holes&quot; in it, that there are not &quot;forbidden&quot; values in this set. This makes the set convex.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given these properties (incl. continuity of the production function), by standard theorems we are assured that a maximum, i.e. a solution exists, and it is unique, which is what the presentation wanted to prove at this point.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2018-08-24T12:27:03.267" LastActivityDate="2018-08-24T12:27:03.267" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24254" PostTypeId="2" ParentId="24227" CreationDate="2018-08-24T09:11:48.607" Score="1" Body="&lt;p&gt;It sounds like you're talking about a leveraged buyout. In these transactions, a private equity firm (or sponsor as you call them) will acquire an operating company. The debt for the acquisition - raised via the capital markets - will reside on the target company's balance sheet. This debt will be used to pay the previous owners (another PE firm, founders, etc.. whoever owned the company previously). The PE firms will never take debt onto their own balance sheet, and during the course of ownership often raise additional debt on the company to pay themselves dividends.&lt;/p&gt;&#xA;" OwnerUserId="19230" LastActivityDate="2018-08-24T09:11:48.607" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24255" PostTypeId="2" ParentId="24248" CreationDate="2018-08-24T09:46:41.353" Score="1" Body="&lt;p&gt;Currently, the problem lies in the genetic selection to make insects suitable for mass processing. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's compare this to chicken farming&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Human society already select chicken that will grow lots of meat for many years&lt;/li&gt;&#xA;&lt;li&gt;There are machinery available to &quot;process&quot; the chicken&lt;/li&gt;&#xA;&lt;li&gt;There are existing demands and supply chain.&lt;/li&gt;&#xA;&lt;li&gt;Currently chicken is cheap&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;In industrial scale, it is all about ease of processing.  Currently, insects like crickets is not a good competing candidate. However, it is just a matter of time for the food scientist to discover a suitable insect.&lt;/p&gt;&#xA;" OwnerUserId="11177" LastActivityDate="2018-08-24T09:46:41.353" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="24256" PostTypeId="1" CreationDate="2018-08-24T10:03:07.617" Score="3" ViewCount="457" Body="&lt;p&gt;I need help understanding this selection bias problem. I am estimating a mincer equation for a final year project and I was told I need to worry about self-selection bias IN OCCUPATIONS.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My lecturer said that, because wages vary between occupations, and individuals select occupations as a choice, the sample is selected. In that sense, I need to correct this problem. We were taught the Heckman selection model in the context of people deciding whether to work or not. I understand this case, but not the case of occupations. I mean, all is a choice, isn't? In my model I also have hours of work, public or private sector, full time or part time, region, industry, and other common variables. Why do we worry about occupations but not about everything else? I just cannot get my head around this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Occupations are low, middle and high skill. I'm estimating the returns to education for Australian workers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think one thing is important, which is if the variable is included or not in the regression. For example, normally you cannot include a variable&#xA;of employment or inactive, because inactive have no wage. This is why, as I understood from the lecture, we need to test for selection. But choice variables that are included, are they a concern? &lt;/p&gt;&#xA;" OwnerUserId="15121" LastEditorUserId="15121" LastEditDate="2018-08-31T10:34:10.400" LastActivityDate="2018-10-07T13:31:12.523" Title="When is self-selection a problem? Mincer equation" Tags="&lt;econometrics&gt;&lt;selection-bias&gt;" AnswerCount="2" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="24258" PostTypeId="1" CreationDate="2018-08-24T12:56:23.470" Score="0" ViewCount="3272" Body="&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/RpSt8.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I want to understand the adjustment process from Very short run production decision to Short run production decision to Long run production decision. As far as I've understood: consider an increase in demand due increase in money supply. This shifts AD curve to the right.&#xA; Now in the very short run firms are willing to supply whatever demanded at the same price (I want to know why. They'll ask workers to work overtime so they'll have to pay extra wages so why would they not charge higher price instantly?)&#xA;After the very short run, prices rise(why?) and demand falls so output goes down after the initial increment.&#xA;In the long run, prices keep rising (why?) and output finally comes back to initial full employment level.&#xA;I couldn't find proper coherent explanation of this process in mankiw or in dornbusch or in Able and Bernanke.&lt;/p&gt;&#xA;" OwnerUserId="14617" LastActivityDate="2019-02-01T08:01:20.253" Title="Short run Aggregate supply curve is horizontal or positively sloped?" Tags="&lt;macroeconomics&gt;&lt;supply-and-demand&gt;&lt;keynesian-economics&gt;&lt;aggregate-production&gt;&lt;classical-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24260" PostTypeId="2" ParentId="24256" CreationDate="2018-08-24T13:29:24.440" Score="0" Body="&lt;p&gt;The idea is that education is only a partial measure of ability. If high ability people select into certain occupations because the returns to ability are higher in those occupations, then a simple Mincer regression will conflate the returns to ability and the returns of the occupation.You need to account for the selection effect to get an unbiased estimate of the returns to occupation and education. &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2018-08-24T13:29:24.440" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24261" PostTypeId="1" CreationDate="2018-08-24T13:43:14.167" Score="0" ViewCount="97" Body="&lt;p&gt;Let's say that you have a good which price can change quite often because of its demand. Let's assume that you developed an algorithm that changes continuously the supply of the good to make its value as constant as possible and equal to $1. How would you simulate this system? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I cannot figure out is how to simulate the changes in price of the good based on the demand. For example, let's take these as the initial conditions of the system:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$initial-supply = 1000 goods$$&#xA;$$initial-value = $1/good $$&#xA;$$ production-rate-of-the-good=500 goods/second$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now let's assume that the demand is 500 goods/second. Does this imply that the price of the good will stay constant? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the demand becomes 2000 goods/second for some interval, how will the price of the good change if the production rate remains the same?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am a beginner in these concepts and I hope that this question makes sense &lt;/p&gt;&#xA;" OwnerUserId="19235" LastActivityDate="2021-03-30T01:02:05.273" Title="How can you model/simulate the price/value of a good?" Tags="&lt;supply-and-demand&gt;&lt;value&gt;&lt;simulations&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24262" PostTypeId="2" ParentId="24249" CreationDate="2018-08-24T13:46:15.423" Score="1" Body="&lt;p&gt;I think there are probably a few different answers to your question, all of which likely play some role.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, in many developed countries, insect use in human food is regarded not as an inferior good, but a normal good. By highlighting things like nutrition content (specifically protein), they're trying to capture a market that includes more affluent, health conscious consumers. These individuals are likely to be a bit less price sensitive, and may even use price as a signalling component. Therefore, products using crickets might be less sensitive to pricing compared to other goods.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Second, companies trying to sell cricket-based products might also feel that their consumers would be more concerned about ingredient sourcing to distant farms. This could be because of perceived fears of quality differences, or because of things like a preference towards local sourcing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Third, it seems that many of the newer farms opening in the developed world &lt;a href=&quot;https://www.fastcompany.com/40454212/this-automated-cricket-farm-is-designed-to-make-bugs-a-mainstream-source-of-protein&quot; rel=&quot;nofollow noreferrer&quot;&gt;like the one profiled here&lt;/a&gt; are addressing the issues of labor intensity in cricket production by increasing efficiencies and utilizing more technology in the production process.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There's also likely some natural home bias in products like this. Much of the grassroots support for increased cricket consumption is driven by the farmers themselves. Because stronger community roots can improve these efforts, and because of the high costs of researching, incorporating, and offshoring production facilities to a distant country, there might just not be that much of an economic incentive to move production overseas. It isn't trivially easy to offshore an entire production facility, and the profitability and long term market potential might not have quite reached a position where that's profitable yet.&lt;/p&gt;&#xA;" OwnerUserId="13366" LastActivityDate="2018-08-24T13:46:15.423" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24264" PostTypeId="1" CreationDate="2018-08-24T15:14:39.583" Score="-4" ViewCount="36" Body="&lt;p&gt;I am currently studying in 12th. We have a subject called EVS - Environmental Studies. So as usual, we have to do projects. I chose &quot;Bad effects of Plastic&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the project book I have to write that why I chose this project.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have to write 10 points in one sentence. Help me!&lt;/p&gt;&#xA;" OwnerUserId="19237" LastActivityDate="2018-08-24T16:14:48.713" Title="Urgent answer needed!" Tags="&lt;environmental-economics&gt;" AnswerCount="1" CommentCount="1" ClosedDate="2018-08-24T18:02:12.243" ContentLicense="CC BY-SA 4.0" />
  <row Id="24265" PostTypeId="2" ParentId="24264" CreationDate="2018-08-24T16:14:48.713" Score="1" Body="&lt;p&gt;Plastic is particularly harmful as it is a trendy topic, so students tend to choose it even when they have do not know what to write about it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In case the effort barrier to actually read about the subject cannot be overcome, plastic may result in bad grades.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2018-08-24T16:14:48.713" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24266" PostTypeId="1" AcceptedAnswerId="24267" CreationDate="2018-08-24T17:51:55.817" Score="2" ViewCount="1138" Body="&lt;p&gt;In a recent &lt;a href=&quot;https://twitter.com/BillGates/status/1029414776735059968&quot; rel=&quot;nofollow noreferrer&quot;&gt;tweet&lt;/a&gt; (Aug 14th, 2018, reproduced below), Bill Gates said that supply demand curves don't work for software because the first unit costs a lot and every unit after that is free. Isn't this just modeled by a horizontal supply line?&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;At the time I was in college, this was basically how the global economy worked...&lt;/p&gt;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/0AEDE.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/0AEDE.jpg&quot; alt=&quot;enter image description here&quot; /&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&lt;p&gt;This chart assumes that the total cost of production increases as supply increases. When a car company makes a new vehicle, the 10th car costs the same to manufacture as the 1000th.&lt;/p&gt;&#xA;&lt;p&gt;But software doesn’t work like this. Microsoft might spend a lot of money to develop the first unit of a new program, but every unit after that is virtually free to produce.&lt;/p&gt;&#xA;&lt;p&gt;Unlike the goods that powered our economy in the past, software is an intangible asset -- “something you can’t touch.” And it’s not the only example: data, insurance, e-books, even movies work in similar ways.&lt;/p&gt;&#xA;&lt;p&gt;The portion of the global economy that doesn’t fit the old model just keeps getting larger. But the rules that govern the economy haven’t kept up. This is one of the biggest trends in the global economy that isn’t getting enough attention.&lt;/p&gt;&#xA;&lt;p&gt;If you want to understand why this matters, I highly recommend the new book “Capitalism Without Capital” by @haskelecon and @stianwestlake. Here’s my review: &lt;a href=&quot;https://www.gatesnotes.com/Books/Capitalism-Without-Capital&quot; rel=&quot;nofollow noreferrer&quot;&gt;link&lt;/a&gt;.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="19239" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2018-12-04T11:01:41.600" Title="Is Bill Gates wrong about supply demand curves?" Tags="&lt;supply-and-demand&gt;" AnswerCount="5" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24267" PostTypeId="2" ParentId="24266" CreationDate="2018-08-24T19:47:44.890" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Is Bill Gates wrong about supply demand curves?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Yes, this time he is wrong (and please know that, generally speaking, I identify myself as an admirer of Bill Gates). It is unclear to me how much of this comes from his own reflection versus from the book he reviewed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, supply [curve] does not depend only on the cost of production. It may also depend on other factors such as &lt;em&gt;sake of profit&lt;/em&gt; and &lt;em&gt;market-share strategy&lt;/em&gt;. The nature of &quot;intangible&quot; products might certainly involve different dynamics and different prevalence of these factors, whence conceptualizing supply exclusively on the basis of &quot;&lt;em&gt;how much it costs to produce an additional unit&lt;/em&gt;&quot; is an oversimplification.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Second, Bill Gates's review appears to trivialize the concept of &lt;em&gt;production costs&lt;/em&gt;, as costs do not cease once a product is released to the market. Henceforth, the company or supplier needs to allocate resources for maintenance &amp;amp; support. Larger numbers of units sold make it likelier that more vulnerabilities will be discovered, which in turn requires the hiring of sufficient staff so as to avoid bottlenecks and a subsequent loss of market share. In the software industry, this is (or was) palpable --for instance-- in the release of patches &amp;amp; updates to mitigate buffer overflow exploits.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Similarly, gaining a larger market-share subjects the supplier to both stronger scrutiny by authorities and a higher likelihood of expensive litigation of various sorts: unfair trade practices, monopoly, product liability, to name some. This and the preceding paragraph occur both in the context of both tangible products and &quot;intangible&quot; ones such as a new version of Windows OS.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Although it is very unlikely that maintenance and litigation costs will be proportional to the number of units sold (e.g. produced), the quantitative significance of these aspects are most recently evidenced by the falling of Facebook in the stock market since the wake of the Cambridge Analytica scandal.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is hard and maybe futile to outline with precision the dynamics of supply of intangible goods. However, for the reasons explained above, an horizontal supply curve definitely would not reflect or capture the complexity of the market of intangible goods.&lt;/p&gt;&#xA;" OwnerUserId="18552" LastEditorUserId="18552" LastEditDate="2018-08-24T20:13:50.433" LastActivityDate="2018-08-24T20:13:50.433" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24268" PostTypeId="2" ParentId="24218" CreationDate="2018-08-24T21:49:57.473" Score="1" Body="&lt;p&gt;The answer is impossible as it is, because, as you suspect, &lt;em&gt;this differs a lot for different goods&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some goods can be reduced to their substance. If I steal the Jules Rimet Cup, I can melt it down, and sell the gold. I will waste the artistic labour that was imparted on it, but basically I will be able to sell its remains for the market price of gold. Being gold a very valuable material, this probably means most of the market price it would sell for in an auction. If it was made of tin, however, even though I could still melt it, it wouldn't be a good deal, because the market price of tin is quite low. In this case, the artistic labour would be worth much more than the tin, so melting it would destroy most of the value. In such a case, the cost of the theft might be more than the perspective price of the stolen item.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In such cases - which is the case of most works of art -, the piece would have to be sold as it is, and then the problem would be finding prospective buyers. Who would buy a decorative item that cannot be displayed publicly? There certain are a few collectionists out there that would pay for that, but they are very few, and contacting them would probably be very difficult, at least for your average thief. And so, such thefts are most probably done at the instigation of the 'buyer', who would probably be more accurately described as an employer. In this case, the price will resemble more a (very high) wage. A given price is fixed by the instigator, and thieves will accept it, or not, according to some cost/benefit analysis.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In still other cases, such as old but not remarkable automobiles, the reducing of the stolen part to its constitutive parts might actually add value. Possibly the start motor of a 1970 VW beetle is more valuable as a separate item than as part of the original car - especially when those items are no longer made by the original manufacturer, and yet there is still demand for them. In that case, the disassembler will be able to sell the piece at, or near at, its market value, making him able to pay the thief a considerable part of such value. But what part, this is difficult to assert, except perhaps by studying police records of solved car thefts.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Yet other goods considerably lose value if they are broken down. A gem's value, for instance, grows exponentially with its size; cutting a diamond into two smaller ones results in two gems that are each worth much less than the original diamond. So there is a trade-off here, between the remarkability of the diamond and its sellability. If the stolen gem is huge, and consequently remarkable, it probably can only be sold in the same conditions as a work of art: very few buyers, who will rather instigate the theft than wait for an occasional thief to steal the item. Otherwise it has to be cut into pieces, greatly reducing its value; so the cutter will be only able to make a small fraction of the price of the original gem, and consequently the thief will be very underpaid (moreso considering that the cutter, in such a case, will have to work quite a lot). If the gem is small and unremarkable, it might be sold as a whole, at near its market price (or perhaps even taken to the pawn shop).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, sorry if this is a quite incomplete answer, but I hope I have at least helped clarify why it varies a lot, and explain a few variables for such variation.&lt;/p&gt;&#xA;" OwnerUserId="15747" LastEditorUserId="15747" LastEditDate="2018-08-24T21:56:18.103" LastActivityDate="2018-08-24T21:56:18.103" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24269" PostTypeId="1" CreationDate="2018-08-25T00:07:11.790" Score="2" ViewCount="45" Body="&lt;p&gt;Two theoretical arguments why a high level of inflation is bad (e.g. for growth) are:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Shoe_leather_cost&quot; rel=&quot;nofollow noreferrer&quot;&gt;shoe-leather cost&lt;/a&gt;: keeping lower money balances when inflation is high (implying more frequent trips to the bank/ATM).&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Menu_cost&quot; rel=&quot;nofollow noreferrer&quot;&gt;menu cost&lt;/a&gt;: time and effort to change price lists in an inflationary environment&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Are there any empirical studies that measured these two costs? (And I mean measure them separately from the slower growth due to inflation, which in itself is somewhat controversial, e.g. &lt;a href=&quot;http://www.nber.org/papers/w5326&quot; rel=&quot;nofollow noreferrer&quot;&gt;Barro (1995)&lt;/a&gt; vs &lt;a href=&quot;https://doi.org/10.1177%2F097491011100400103&quot; rel=&quot;nofollow noreferrer&quot;&gt;Emara (2012)&lt;/a&gt;.)&lt;/p&gt;&#xA;" OwnerUserId="6210" LastEditorUserId="1601" LastEditDate="2018-08-25T06:07:24.720" LastActivityDate="2018-08-25T06:07:24.720" Title="Are there empirical studies that quantify shoe-leather or menu costs?" Tags="&lt;macroeconomics&gt;&lt;reference-request&gt;&lt;inflation&gt;&lt;empirical-evidence&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24270" PostTypeId="2" ParentId="24266" CreationDate="2018-08-25T00:29:05.917" Score="0" Body="&lt;p&gt;Gates posted in his Tweet some linear supply and demand curves (quantity vs. price) and then said&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;This chart assumes that the total cost of production increases as supply increases. &lt;strong&gt;When a car company makes a new vehicle, the 10th car costs the same to manufacture as the 1000th.&lt;/strong&gt; But software doesn’t work like this. Microsoft might spend a lot of money to develop the first unit of a new program, but every unit after that is virtually free to produce.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Gates seems rather ignorant that (internal) &lt;a href=&quot;https://en.wikipedia.org/wiki/Economies_of_scale&quot; rel=&quot;nofollow noreferrer&quot;&gt;economies of scale&lt;/a&gt; exist in many other industries. &lt;a href=&quot;https://www.economist.com/news/2008/10/20/economies-of-scale-and-scope&quot; rel=&quot;nofollow noreferrer&quot;&gt;E.g., textbook-reminder material from The Economist&lt;/a&gt;:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Economies of scale are factors that cause the average cost of producing something to fall as the volume of its output increases. Hence it might cost \$3,000 to produce 100 copies of a magazine but only \$4,000 to produce 1,000 copies. The average cost in this case has fallen from \$30 to \$4 a copy because the main elements of cost in producing a magazine (editorial and design) are unrelated to the number of magazines produced.&lt;/p&gt;&#xA;&lt;p&gt;Economies of scale were the main drivers of corporate gigantism in the 20th century. They were fundamental to Henry Ford's revolutionary assembly line, and they continue to be the spur to many mergers and acquisitions today. [...]&lt;/p&gt;&#xA;&lt;p&gt;Internal economies of scale arise in a number of areas. For example, it is easier for large firms to carry the overheads of sophisticated research and development (R&amp;amp;D). In the pharmaceuticals industry R&amp;amp;D is crucial. Yet the cost of discovering the next blockbuster drug is enormous and increasing. Several of the mergers between pharmaceuticals companies in recent years have been driven by the companies' desire to spread their R&amp;amp;D expenditure across a greater volume of sales.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;The software industry may be just an extreme example, where R&amp;amp;D costs are much higher than other costs, but the other costs are certainly not zero.&lt;/p&gt;&#xA;&lt;p&gt;If a firm offers &lt;em&gt;any&lt;/em&gt; customer support whatsoever for their software, it can't be the case that the support cost is completely independent from the number of units sold. Even if it's just scaling support websites so they take millions of page hits from self-help customer, it's still a cost. However, leaving aside his apparent poor knowledge of other industries, Gate's argument is that per-units costs are negligible (&amp;quot;virtually free&amp;quot;) in comparison with R&amp;amp;D, not zero.&lt;/p&gt;&#xA;&lt;p&gt;It's also not clear that sales and marketing costs don't factor substantially in unit costs for software. After a firm obtains a monopolistic position so it can afford to not bother with any marketing (although that's probably not the case even for Microsoft), maybe those costs do become negligible. Hower, as far as the average softare firm goes, a &lt;a href=&quot;https://finance.yahoo.com/news/overview-understanding-software-industry-cost-170003737.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;yahoo survey&lt;/a&gt; found that:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;On average, [software] companies spend 15%–25% of their revenues in sales and marketing activities. However, there are exceptions like Symantec (SYMC) which has consistently spent ~40% of its revenues in sales and marketing.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;So at least in some niches it seems that marketing costs are substantial. I don't expect these marketing costs to be independent of the number of units sold (and thus &amp;quot;produced&amp;quot;).&lt;/p&gt;&#xA;&lt;p&gt;And also from the same source on R&amp;amp;D costs:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;R&amp;amp;D costs typically form 10%–20% of the revenues for software companies. However, not all of this goes into innovation. A large portion of it’s spent in testing various configurations of operating systems (or OS) instead of developing new functionality. Industry experts think that even less than 5% of R&amp;amp;D budget is spent on innovation.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Gates is also ignoring a more subtle issue: the R&amp;amp;D cost itself has some relationship to the market share of the software thus developed. Why? You cannot attain a monopolistic position with trivial software that's quick to write and thus offers a low barrier of entry to competition. So the size of the software is related to its ultimate market share (which translates into units sold), and so R&amp;amp;D costs are in this way a determinant of the number of units sold (so &amp;quot;produced&amp;quot;). The exact shape of this relationship is probably more difficult to quantify; empirical evidence has pointed to both &lt;a href=&quot;https://doi.org/10.1016/0950-5849(94)90083-3&quot; rel=&quot;nofollow noreferrer&quot;&gt;economies and diseconomies of scale relating software size to its production cost&lt;/a&gt;. (Diseconomies are supposedly of the communication-complexity kind between [more] developers.)&lt;/p&gt;&#xA;&lt;p&gt;Diseconomies of scale are not unique to software development either. The aforementioned article in The Economist talks about it a general context of organizations:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;The larger an organisation becomes in order to reap economies of scale, the more complex it has to be to manage and run such scale. This complexity incurs a cost, and eventually this cost may come to outweigh the savings gained from greater scale. In other words, economies of scale cannot be gleaned for ever.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;A related issue that's worth mentioning: Gates probably thinks his software support infrastructure is &amp;quot;virtually free&amp;quot; of cost because he &lt;em&gt;already&lt;/em&gt; has it in place for new products. And that brings us to &lt;a href=&quot;https://en.wikipedia.org/wiki/Economies_of_scope&quot; rel=&quot;nofollow noreferrer&quot;&gt;economies of scope&lt;/a&gt;. As nicely said (again) in The Economist:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;First cousins to economies of scale are economies of scope, factors that make it cheaper to produce a range of products together than to produce each one of them on its own. Such economies can come from businesses sharing centralised functions, such as finance or marketing. Or they can come from interrelationships elsewhere in the business process, such as cross-selling one product alongside another, or using the outputs of one business as the inputs of another.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;Gates' tweet doesn't talk about demand, but he does mention it in his &lt;a href=&quot;https://www.gatesnotes.com/Books/Capitalism-Without-Capital?WT.mc_id=08_14_2018_10_CapitalismWithoutCapital_BG-TW_&amp;amp;WT.tsrc=BGTW&amp;amp;linkId=55542187&quot; rel=&quot;nofollow noreferrer&quot;&gt;extended notes&lt;/a&gt; he links to. These notes focus on the so-called &amp;quot;intangible investment&amp;quot; in R&amp;amp;D but also in marketing etc.&lt;/p&gt;&#xA;&lt;p&gt;And when talking about those, he doesn't sound so radical after all. The pricing of products developed through heavy R&amp;amp;D costs (in particular &lt;a href=&quot;https://unitaid.eu/assets/Delinkage_Economic_Perspective_Feb2016.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;medication&lt;/a&gt;) is a huge issue, with lots of research done on how to recoup the sunk R&amp;amp;D cost, or &lt;a href=&quot;https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4045395/&quot; rel=&quot;nofollow noreferrer&quot;&gt;how to finance future R&amp;amp;D&lt;/a&gt;, e.g. by hoarding cash  from current sales (as done by firms like Apple, Google, etc.) or other means (e.g. venture capitalism).&lt;/p&gt;&#xA;&lt;p&gt;Gates is also fairly correct when he criticizes the &amp;quot;magical&amp;quot; belief in equilibrium as the best thing for society, laid up a as an easy target in the following terms:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Equilibrium is magical, because it maximizes value to society. Goods are affordable, plentiful, and profitable. Everyone wins. [Critique based on the software industry follows.]&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;And in this respect Gates is correct again; equilibrium is affected by economies of scale, although Gates omits (even from his extended notes) the &lt;a href=&quot;https://www.uam.es/personal_pdi/economicas/cllano/master_ec_intern/L3_imperfect_competition.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;typical/textbook effects&lt;/a&gt; that [internal] economies of scale have on equilibrium:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Internal ES [economies of scale]:&lt;br /&gt;&#xA;– Problem: it forces us to move to a imperfect competition model:&lt;br /&gt;&#xA;• In imperfect competition, firms can affect the price.&lt;br /&gt;&#xA;– Industries with few producers&lt;br /&gt;&#xA;– Industries with product differentiation for consumers&lt;br /&gt;&#xA;– In order to sell more, the price must be decreased (strategic behaviors)&lt;br /&gt;&#xA;• Possible cases:&lt;br /&gt;&#xA;– Monopoly; oligopoly; Monopolistic competition&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;So as a sort of conclusion: Gates gives some rather bad examples from other industries (e.g. saying that the auto industry lacks economies of scale is laughable), and he fails to talk about the elephant in the room (monopolies)... but his conclusion that equilibrium isn't necessarily a good thing from some points of view (particularly in the case of imperfect competition, engendered by economies of scale)... is actually correct, even though Gates' own argumentation for this is rather unconvincing. Keep in mind that his main point with tweets/blog is to promote a book and to argue that the &amp;quot;intangible investment&amp;quot; lacks sufficient recognition. (His last point reminds me of the controversy --which also &lt;a href=&quot;https://edition.cnn.com/2013/02/27/tech/innovation/code-video-gates-zuckerberg/index.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;involved Gates&lt;/a&gt; at one point -- whether there are enough developers; &lt;a href=&quot;https://spectrum.ieee.org/view-from-the-valley/at-work/tech-careers/commentary-the-h1b-problem-as-ieeeusa-sees-it&quot; rel=&quot;nofollow noreferrer&quot;&gt;it depends who you ask&lt;/a&gt;.)&lt;/p&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;And let's dispel this myth that economies of scale or monopoly's effect on the [lack of] equilibrium are not covered in econ 101. E.g. a freely available textbook has a&#xA;&lt;a href=&quot;https://open.lib.umn.edu/principleseconomics/chapter/10-1-the-nature-of-monopoly/#rittenecon-ch10_s02_s01_s01_f01&quot; rel=&quot;nofollow noreferrer&quot;&gt;&amp;quot;Figure 10.1 Economies of Scale Lead to Natural Monopoly&amp;quot;&lt;/a&gt;.&lt;/p&gt;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/ELb4a.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/ELb4a.png&quot; alt=&quot;enter image description here&quot; /&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&lt;p&gt;It also talks of sunk costs as a barrier to entry after that.&lt;/p&gt;&#xA;&lt;p&gt;And &lt;a href=&quot;https://books.google.com/books?id=Tqi8oOmYiLMC&amp;amp;pg=PA321&quot; rel=&quot;nofollow noreferrer&quot;&gt;Mankiw's textbook&lt;/a&gt; has had an &amp;quot;FYI: Why a Monopoly Does Not Have a Supply Curve&amp;quot; for many editions:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;You may have noticed that we have analyzed the price in a monopoly&#xA;market using the market demand curve and the firm’s cost curves.&#xA;We have not made any mention of the market supply curve. By contrast,&#xA;when we analyzed prices in competitive markets beginning in Chapter 4,&#xA;the two most important words were always supply and demand.&#xA;What happened to the supply curve? Although monopoly firms make&#xA;decisions about what quantity to supply, a monopoly does not have a supply&#xA;curve. A supply curve tells us the quantity that firms choose to supply&#xA;at any given price. This concept makes sense when we are analyzing&#xA;competitive firms, which are price takers. But a monopoly firm is a price&#xA;maker, not a price taker. It is not meaningful to ask what amount such a&#xA;firm would produce at any given price because it cannot take the price&#xA;as given. Instead, when the firm chooses the quantity to supply, that&#xA;decision (along with the&#xA;demand curve) determines&#xA;the price.&#xA;Indeed, the monopolist’s&#xA;decision about how much&#xA;to supply is impossible to&#xA;separate from the demand curve&#xA;it faces. The shape of the demand curve determines the shape of the&#xA;marginal-revenue curve, which in turn determines the monopolist’s&#xA;profit-maximizing quantity. In a competitive market, each firm’s supply&#xA;decisions can be analyzed without knowing the demand curve, but&#xA;that is not true in a monopoly market. Therefore, we never talk about a&#xA;monopoly’s supply curve.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Both are introductory &amp;quot;econ 101&amp;quot; textbooks.&lt;/p&gt;&#xA;" OwnerUserId="6210" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2018-08-26T05:02:34.770" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24271" PostTypeId="1" CreationDate="2018-08-25T03:39:54.397" Score="0" ViewCount="53" Body="&lt;p&gt;I understand a non-autonomous increase in AD as an increase in AD caused by an increase in income (please correct me if I am wrong). However, I do not understand why the multiplier effect must be triggered by an increase in autonomous AD. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I suppose that an increase in income will increase household's purchasing power thus consumption. This will in turn encourage the firms to increase output and hire more factors of production, thus increasing the national income, which will further increase expenditure? Is this not the multiplier effect's working?&lt;/p&gt;&#xA;" OwnerUserId="19242" LastEditorUserId="1601" LastEditDate="2018-08-26T07:59:15.610" LastActivityDate="2020-12-14T17:03:35.343" Title="Why a non-autonomous increase in aggregate demand will not trigger muliplier effect?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24272" PostTypeId="2" ParentId="24266" CreationDate="2018-08-25T13:31:47.040" Score="3" Body="&lt;p&gt;No, Bill Gates is correct here. The simple econ 101 cross model is based on a separation of the supply and demand side. Firms are price takers, they assume they can sell as much as they want at the prevailing price and their output decisions have no impact on the price. If firms are not price takers, they have to explicitly take into account how the demand side reacts since this determines the impact on prices. Now with huge returns to scale, price taking is usually not a sensible assumption and therefore the econ 101 cross an inappropriate model.&lt;/p&gt;&#xA;" OwnerUserId="1442" LastActivityDate="2018-08-25T13:31:47.040" CommentCount="10" ContentLicense="CC BY-SA 4.0" />
  <row Id="24275" PostTypeId="2" ParentId="24266" CreationDate="2018-08-26T05:25:23.630" Score="-1" Body="&lt;h3&gt;Yes, Gates is wrong&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;If there was just one customer for a piece of software, the software would be cheaper than for two customers.  With just one customer, it can work in just one way.  For the second customer, it has to be more flexible.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can see some quick examples of this in Microsoft Windows 10.  It has &lt;a href=&quot;https://www.businessinsider.com/there-are-seven-different-versions-of-windows-10-2015-5&quot; rel=&quot;nofollow noreferrer&quot;&gt;seven different versions&lt;/a&gt; for different customers.  Beyond that, it has a multitude of configuration options.  Yet a single customer will tend to use just one configuration and stick with that.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Gates is correct to say that software is different.  It does have greater returns to scale than cars.  But cars also reduce price with scaling and face the problem of needing to be configured for multiple uses.  Software isn't unique.  Books always had a similar problem (writing the book is a huge part of the initial cost while actually printing the book is much cheaper).  E-books accentuate that, but it's still the same problem.  &lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Insurance&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;Gates is laughably wrong about insurance.  Insurance is not all first customer cost.  Insurance improves with scale more like cars do.  The first customer is exceptionally risky, as the company either has to pay out or not.  If not, the insurance premium is all margin.  If the company does pay out, then it almost certainly loses money on that customer.  Additional customers amortize that risk.  The more customers, the lower the risk, even though the payout increases.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Insurance companies work because customers can pool their risk together.  Customers pay a small amount of money so that if an unlikely event happens, they can avoid paying out a large amount of money.  The larger the pool, the lower the risk.  But even a gigantic pool still adds payout, on average, with each customer.  The payout becomes more predictable, not less in amount.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If there is a one in a hundred chance of something happening that costs \$1000 and an insurance company has one customer,  then the premium needs to be really high.  There's an argument that it needs to be \$1000, as otherwise the company won't have enough money to pay off the claim if it occurs.  But if the company has a hundred thousand customers that cost \$5 to obtain and maintain, the company could charge \$15 per customer.  It would expect to pay \$1 million on that many customers, or \$10 per customer.  Add the \$5 and there you go.  The company collects \$1.5 million and pays out \$1 million.  The remaining \$.5 million goes to staffing and other overhead.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;That's a simplified model, but it's how supply works in insurance.  The first customer is the most expensive because the first customer is also the riskiest.  After a while, the marginal cost settles to an approximately constant value.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Cars work the same way.  Initially there are design and prototyping costs.  The initial car may be made by hand rather than assembly line.  So the first car, the concept car, is really expensive.  Subsequent cars are cheaper and eventually they move production to the assembly line.  Ideally the car would occupy an entire assembly line for a year.  But some cars don't sell that well, so they also have to retool the line at least once to make a different car.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Retooling is expensive, so they try to avoid it by things like working twenty-four hours on another line instead.  Or they build ahead so that they don't have to produce more of the current car after retooling.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Again, my point is that insurance and cars are similar.  The first customer is really expensive and the second, third, etc. are almost as much.  You need thousands if not millions of customers to amortize the pooled risk (insurance) or the design and setup costs (cars).  Software makes this more so, as the marginal costs get much closer to zero.  &lt;/p&gt;&#xA;" OwnerUserId="68" LastActivityDate="2018-08-26T05:25:23.630" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24276" PostTypeId="1" CreationDate="2018-08-26T10:04:51.337" Score="2" ViewCount="23" Body="&lt;p&gt;I am a health economist working with panel data for a paper I am working on, I use Hausman tests to determine if I should use fixed or random effects estimators in my analysis. For some outcomes random effects are supported, for others fixed are. For the main table of results in my paper would it be acceptable to report the results of the fixed effects models for those outcomes that the Hausman suggests should use a fixed effects estimator and the results of the random effects estimator for those outcomes that a random effects estimator is suggested for?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are there any examples of this approach in the literature?&lt;/p&gt;&#xA;" OwnerUserId="12034" LastEditorUserId="1601" LastEditDate="2018-08-26T10:31:54.607" LastActivityDate="2018-08-26T10:31:54.607" Title="Publishing fixed and random effects in one model" Tags="&lt;reference-request&gt;&lt;paneldata&gt;&lt;fixed-effects&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24279" PostTypeId="1" CreationDate="2018-08-26T11:41:18.563" Score="0" ViewCount="119" Body="&lt;p&gt;I just read parts of an introductory economics book. I read about the monetary system in the U.S. and came up with the following question: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Can the Fed raise the M1 money supply permanently without having either to buy further Treasury bills or use helicopter money (i.e. to refrain from recieving the principal payment at maturity) ?&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think about the following model: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is the Fed $F$ the companies $C$ the households $H$ and the banks $B$. We can partition the system into $\{F\}$ and $\{B,C,H\}$. At time $t=0$ there are $\alpha$ $\$$ in $\{B,C,H\}$ as currency i.e. as physical bank notes. No matter what happens in $\{B,C,H\}$ $\alpha$ cannot increase. Suppose $F$ wants to increase the money supply. As far as I know the Fed primarily uses open market operations (OMOs) to increase money supply. Let's try this. To simplify things let's consider a very simple bond.  Someone in $\{B,C,H\}$ issues a bond for  $\beta \$ $. The terms of the bond will grant the buyer a payment of $\gamma \$ $ at $t=1$ and $ \delta = \gamma - \beta &amp;gt; 0$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, as the Fed wants to increase money supply it undergoes an OMO, i.e. prints $\beta \$ $  and buys our bond. The money supply in $\{B,C,H\}$ at $ 0 &amp;lt; t &amp;lt;1 $ is $ \alpha + \beta $. So far so good. We could consider the money multiplication buy loans during $ 0 &amp;lt; t &amp;lt;1 $ but that would not change the situation at $ t &amp;gt; 1$. At $t=1$ the issuer of the bond i.e. someone in $ \{B,C,H\}$ has to pay $F$  $\gamma \$$. So, at $t &amp;gt; 1 $ there is less money ( $ \alpha - \delta$ ) in $\{B,C,H\}$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, to me all of that seems controversial. $F$ wants to increase the money in $\{B,C,H\}$ but effectively reduces it. Of course $F$ could disguise the situation by buying another bonds and thus increase the time until maturity but this does not really change the situation. So, this question comes up:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Can the Fed raise the M1 money supply permanently without having either to buy further Treasury bills or use helicopter money (i.e. to refrain from recieving the principal payment at maturity) ?&lt;/strong&gt; &lt;/p&gt;&#xA;" OwnerUserId="19252" LastEditorUserId="264" LastEditDate="2018-08-30T14:37:00.653" LastActivityDate="2019-12-23T23:00:50.083" Title="Can the Fed raise the M1 money supply permanently w/o helicopter money?" Tags="&lt;money-supply&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24281" PostTypeId="1" CreationDate="2018-08-26T18:16:56.050" Score="0" ViewCount="297" Body="&lt;p&gt;While calculating GDP of nation, how personal savings which is not invested in economy or has become part mandatory reserve ratio of government is treated? Similarly do we include import and export of financial asset in Net Exchange(Export - Import)&lt;/p&gt;&#xA;" OwnerUserId="5372" LastActivityDate="2018-09-14T10:57:21.420" Title="GDP Calculation and treatment of Personal Savings" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;&lt;saving&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24282" PostTypeId="1" CreationDate="2018-08-26T19:41:44.873" Score="1" ViewCount="35" Body="&lt;p&gt;The world's Bitcoin mining in the aggregate uses surprisingly large amounts of electricity.  Princeton computer scientist Arvind Narayanan estimates that Bitcoin mining now uses about &lt;a href=&quot;https://theoutline.com/post/6047/bitcoin-mining-accounts-for-almost-one-percent-of-the-worlds-energy-consumption&quot; rel=&quot;nofollow noreferrer&quot;&gt;five gigawatts of electricity per day&lt;/a&gt;, or somewhat more than the state of New York.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How does the dollar value of all bitcoin compare with the total cost of the electricity required to generate it?   (Not over one day, but up to now.)&lt;/p&gt;&#xA;" OwnerUserId="14903" LastActivityDate="2018-08-26T19:41:44.873" Title="How does the dollar value of all bitcoin compare with the total cost of the electricity required to generate it?" Tags="&lt;cryptocurrency&gt;&lt;bitcoin&gt;" AnswerCount="0" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="24283" PostTypeId="1" AcceptedAnswerId="24286" CreationDate="2018-08-26T23:47:41.293" Score="1" ViewCount="27" Body="&lt;p&gt;I'm looking for a comparison I can make between &quot;traditional&quot; energy sources and solar energy. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ideally, I'd like to show how much solar energy has yet to come down in price before it is cheaper than, say, gas or coal. I would like to know the historical rate at which this has been currently happening. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question is then what metric is good for this. Levelized cost of electricity by source in time would be my preference, however, I cannot find data for this over time and by source (e.g solar, coal &amp;amp; gas).. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any advice would be appreciated. &lt;/p&gt;&#xA;" OwnerUserId="19261" LastActivityDate="2018-08-27T09:36:32.460" Title="Energy Costs by Source over Time" Tags="&lt;data-request&gt;&lt;energy-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24284" PostTypeId="1" CreationDate="2018-08-27T03:14:17.870" Score="-1" ViewCount="46" Body="&lt;p&gt;May I ask what other proverbs reflect the common sense of economics, such as those who dig for gold are not  better than those who sell shovels?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I'm talking about is that during the Gold Rush in the United States, a lot of people went to California to get their gold, but the gold diggers didn't make as much money as the people who bought shovels next to them, so the gold diggers were not as good as the ones who sold the shovels.&lt;/p&gt;&#xA;" OwnerUserId="19262" LastEditorUserId="19262" LastEditDate="2018-08-29T04:55:41.380" LastActivityDate="2018-08-29T04:55:41.380" Title="Common sense of economics as reflected in proverbs" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;finance&gt;" AnswerCount="1" CommentCount="6" ClosedDate="2018-08-29T05:11:18.380" ContentLicense="CC BY-SA 4.0" />
  <row Id="24285" PostTypeId="1" AcceptedAnswerId="24289" CreationDate="2018-08-27T04:36:29.423" Score="1" ViewCount="174" Body="&lt;p&gt;I was reading Mankiw and it showed variation of demand/supply curve with external factors. However, in all the cases the curves only shifted but didn't change in shape. What I am wondering is why the slope of these curves don't change?&lt;/p&gt;&#xA;" OwnerUserId="19263" LastEditorUserId="1601" LastEditDate="2018-08-28T18:41:02.693" LastActivityDate="2018-08-28T18:41:02.693" Title="Why slope is constant in demand/supply curve?" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;supply-and-demand&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24286" PostTypeId="2" ParentId="24283" CreationDate="2018-08-27T08:17:07.523" Score="2" Body="&lt;p&gt;PV is already cheaper than gas or coal in most of the world, on a like-for-like basis. So that sort of answers your main underlying question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's estimated that &lt;em&gt;new&lt;/em&gt; PV will be cheaper than &lt;em&gt;existing&lt;/em&gt; coal and gas within the next 2-5 years, depending on where in the world we're talking about.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;LCoE is a hypothetical construct resting on a bunch of assumptions that often don't hold, so isn't wildly useful.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For real data, look at actual auction results for new generation that's priced per unit electricity supplied to the grid. That's pretty easy for PV, but you may struggle to find recent comparable auction data for dirty old generators such as gas and coal, because those are rarely procured as auctions priced per unit electricty.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You then need to adjust those costs for the factors not represented in the auction prices.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For PV, that's the cost of integration into the grid (balancing intermittency, reserve capacity, reactive power, and so on). Those costs are pretty tiny - well below USD 10/MWh - but will vary, depending on the particular grid. Look out for additional subsidies such as the CELs (tradeable clean energy certificates) in Mexican auctions, tax-breaks, free land, state-subsidised loans, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For dirty generators, you'll need to add in the unpriced social costs, including the insurance risks of accidents, and the waste costs: greenhouse-gas marginal social costs are around USD 100 /tCO2e (see peer-reviewed work by Chris Hope &amp;amp; others).&lt;/p&gt;&#xA;" OwnerUserId="44" LastEditorUserId="44" LastEditDate="2018-08-27T09:36:32.460" LastActivityDate="2018-08-27T09:36:32.460" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24289" PostTypeId="2" ParentId="24285" CreationDate="2018-08-27T12:29:00.203" Score="2" Body="&lt;p&gt;Well, it's just a simplification. You can make a demand curve non-linear if you want to, but it doesn't serve any particular pedagogical function to do so and Mankiw is just trying to make the reader understand the intuition behind basic concepts.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think you also want to know why a shock only shifts the curve, not its slope. Well, slopes of these curves have a certain meaning. The slope of a demand curve is related with consumer preferences, for example. An income shock is not particularly relevant to consumer preferences (not in the simple models Mankiw presents, at least, it's not like you &lt;em&gt;can't&lt;/em&gt; model preferences like that), so it shouldn't change the demand curve's slope, only shift it. That is, people consume more (or less, depending on the shock) of a certain good at the same price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The slope of a supply curve has an intimate relation with the economy's cost structure. Why should a supply shock - such as an earthquake - alter the curve's slope? &lt;/p&gt;&#xA;" OwnerUserId="18167" LastActivityDate="2018-08-27T12:29:00.203" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24290" PostTypeId="2" ParentId="24271" CreationDate="2018-08-27T12:31:50.727" Score="1" Body="&lt;p&gt;Because if the increase doesn't come from an autonomous component, it already amounts to the non-autonomous demand increase + multiplier.&lt;/p&gt;&#xA;" OwnerUserId="18167" LastActivityDate="2018-08-27T12:31:50.727" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24291" PostTypeId="2" ParentId="24284" CreationDate="2018-08-27T14:12:08.060" Score="1" Body="&lt;p&gt;Assuming you're not refering to the book Proverbs in the bible, it really depends on the language and culture. Although some proverbs are shared between languages and cultures, others are very distinct. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;That being said a well-known one is: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Do not throw good money after bad.&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;indicating the (perhaps not so) common sense of not considering sunk costs in your decisions. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The all-time economic favourite is probably:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;There is no such thing as a free lunch.&lt;/em&gt;&lt;/p&gt;&#xA;" OwnerUserId="12186" LastActivityDate="2018-08-27T14:12:08.060" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24292" PostTypeId="1" CreationDate="2018-08-27T17:55:35.707" Score="1" ViewCount="109" Body="&lt;p&gt;I would like to find a minimal mathematical model for describing financial crises of the type that produces hyperinflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here's a naive attempt, just to give the idea of what I'm thinking of.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;There are n actors, each initially has 1 dollar. There are two operations:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;actor i can transfer x (potentially a fraction) dollars to actor j&lt;/li&gt;&#xA;&lt;li&gt;actor i can make promises to actor j (maybe of the type: if you transfer 1 dollar to me today I will transfer 2 dollars to you tomorrow).&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;One can then define the quantity of money in various ways: the first way is that it is always n. Then there is no inflation of course. Or one could define it to be the sum of money that people owe to you. Et.c. I don't know what is the most reasonable defintion.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The model ignores commodities (one can suppose that transfers of dollars involve transfers of commodities, but the latter are ignore). I would the following to happen: I postulate some rational behavior and preferences on the actors, and the result is that the quantity of money has dramatic behavior as a function of time.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;I suppose many people have attempted to do this, but I don't know how to find it in the literature (I'm not an economist).&lt;/p&gt;&#xA;" OwnerUserId="13770" LastEditorUserId="13770" LastEditDate="2018-08-27T18:11:02.177" LastActivityDate="2018-11-06T05:30:31.383" Title="Simplest model of an economy exhibiting (hyper)inflation" Tags="&lt;mathematical-economics&gt;&lt;inflation&gt;&lt;computation&gt;" AnswerCount="2" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24294" PostTypeId="1" CreationDate="2018-08-28T01:49:51.190" Score="5" ViewCount="125" Body="&lt;p&gt;Economies of scope captures the idea of having efficiency in variety. I've come across this idea only in producer theory to capture the idea that companies may benefit from their ability to reduce cost of production through horizontal or vertical integration.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Quoting Micheal Carter from his book Foundations of Mathematical Economics,&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The production technology displays economies of joint production or economies of scope at y  y1; y2; . . . ; ym&#xA;  if the total cost of producing all the outputs separately is greater than the cost of producing the outputs jointly&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Is there a consumer theory equivalent of the idea of economies of scope?&lt;/p&gt;&#xA;" OwnerUserId="19127" LastActivityDate="2021-04-23T22:08:15.830" Title="Consumer Utility Maximization equivalent of economies of scope" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24295" PostTypeId="1" AcceptedAnswerId="24301" CreationDate="2018-08-28T04:11:29.143" Score="5" ViewCount="103" Body="&lt;p&gt;I often see claims that new (generally government) projects will &quot;create &lt;em&gt;n&lt;/em&gt; jobs&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, this 2013 claim from the &lt;a href=&quot;http://www.economicdevelopmenthq.com/blog/tokyo-2020-olympics-jobs-japan/&quot; rel=&quot;noreferrer&quot;&gt;Economic Development Blog&lt;/a&gt; about the 2020 Olympic Games:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The Olympic Games are expected to create 152,000 jobs nationwide across Japan. This includes 84,000 new jobs in Tokyo and 68,000 in the rest of the country.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I have always found such claims to be vapid, because it doesn't say how long the jobs last.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sticking to the example: One of those new positions might be to be a security guard for a month during the games. One of those new positions might be to work on the planning for the event for seven years. One of those new positions might be to be a groundskeeper at a new Olympic facility for decades.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lumping these together seems like it is a misleading metric. Perhaps saying &quot;250,000 job-months&quot; would be a better measure?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But I am economically naive. Perhaps economists have already considered this and have a standard definition I don't know about to allow them to properly compare.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are these figures mostly meaningless, just being used to hype a project by its proponents? Are they accepted estimates of real economic boost a project might bring?&lt;/p&gt;&#xA;" OwnerUserId="4868" LastEditorUserId="1601" LastEditDate="2018-08-29T09:37:18.097" LastActivityDate="2018-09-12T14:05:11.367" Title="Does the political claim &quot;will create X jobs&quot; have an economic definition?" Tags="&lt;political&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24297" PostTypeId="1" CreationDate="2018-08-28T07:37:35.347" Score="3" ViewCount="43" Body="&lt;p&gt;classical revealed preference is about a situation where we assume an agent has a preference over some set of possible choices $X$. We then construct a revealed preference relation on $X$ from choices made given choice sets $C\subseteq X$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;But is there a theory of revealed preference for the case where the agent doesn't inherently care about his choice $x\in X$, but cares about outcome $o\in O$, where there is a function $f:X\to O$?&lt;/strong&gt; This function $f$ may possibly be uncertain, or may vary over time?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT: I am asking for a literature on the question of how we infer $u$ in this context, not on how do we infer the   &lt;em&gt;induced&lt;/em&gt; preference on $X$.&lt;/p&gt;&#xA;" OwnerUserId="11146" LastEditorUserId="11146" LastEditDate="2018-08-29T14:25:45.847" LastActivityDate="2018-08-29T14:25:45.847" Title="revealed preference given an uncertain environment?" Tags="&lt;preferences&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24298" PostTypeId="2" ParentId="24297" CreationDate="2018-08-28T11:41:37.017" Score="4" Body="&lt;p&gt;Revealed preference theory is essentially about the observable empirical content of theories. Now if we look at the classical model of utility maximization, if there is a fixed function $f:X\to O$ and a utility function $u:O\to\mathbb{R}$, utility maximization amounts to maximizing with respect to the utility function $v:X\to\mathbb{R}$ given by $v(x)=u\big(f(x)\big)$ for all $x\in X$. There is nothing new here.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If $f$ can change or is uncertain, you are looking at a form of changing preferences or uncertain preferences. Since revealed preference theory is about the observable empirical content of theories, you need some theory about changing preferences or uncertain preferences. The task is then to identify the empirical content of the theory. For this to be an interesting exercise, there needs to be some relation between different decision problems. One example is the work of Gul and Pesendorfer on the empirical implications of the Strotz multiple self model of changing preferences with consistent planning in&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Gul, Faruk, and Wolfgang Pesendorfer. &quot;The revealed preference theory of changing tastes.&quot; &lt;em&gt;The Review of Economic Studies&lt;/em&gt; 72.2 (2005): 429-448.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="1442" LastActivityDate="2018-08-28T11:41:37.017" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="24300" PostTypeId="1" CreationDate="2018-08-28T16:12:00.907" Score="1" ViewCount="22" Body="&lt;p&gt;I want to calculate the real terms rise in UK private rent prices since 2011 using the CPIH measure. The indexes of nominal rent prices and the CPIH rose by 14.7% and 13.5% respectively, so I can say rent prices rose by 1.2% more than inflation did.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But do I need to account for the fact that rent prices are a component in the basket of goods used to calculate CPIH? It seems circular to say 'Rents didn't rise that much faster than the CPIH' if the CPIH would have risen by less without rents being included. Is that worry correct? If so, how do economists adjust for it? Many thanks&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit: Note this question doesn't actually have anything to do with rent/ housing prices. It's about how to measure the real times rise in the price of any item that is part of the basket of goods used to calculate the CPIH.&lt;/p&gt;&#xA;" OwnerUserId="19279" LastEditorUserId="19279" LastEditDate="2018-08-28T17:41:30.417" LastActivityDate="2018-08-28T17:41:30.417" Title="Can the CPIH be used to find the real terms rise in price of a component of the basket of goods?" Tags="&lt;macroeconomics&gt;&lt;inflation&gt;&lt;consumer-theory&gt;&lt;time-series&gt;&lt;price-index&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24301" PostTypeId="2" ParentId="24295" CreationDate="2018-08-28T16:20:50.300" Score="6" Body="&lt;p&gt;There is no standard, internationally agreed definition of what should count as &quot;a job&quot; when conducting economic impact assessments.  However, it is an important question that is often (not always) taken seriously when constructing such estimates.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sometimes it is very important that jobs estimates are comparable.  This is particularly the case when politicians have to decide between competing investments.  If project A creates 1000 jobs and B creates 1200 jobs, then you should be sure that those estimates used the same methodology (and that it was sane) before deciding between the two.  For this reason governments often have official (though maybe internal) guidance on how to calculate the number of jobs created.  This is particularly true in the international development sector, where it is now quite common for government interventions to be aimed primarily at job creation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand, it is not necessarily the case that we would want to use the same definition in all contexts, even if it's the same government creating estimates.  For instance, the UK government may want to use different criteria for assessing a community regeneration project in northern England than it would for an aid project in Afghanistan.  It would hopefully be transparent in both cases.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Each case is complicated for lots of reasons, including those you mention and many others.  How many hours a week must you work to have a job?  Does that change depending on what local working patterns are?  What if your job is seasonal?  Does it make a difference if you left another job to take the new one?  Does it matter if your previous job was in the informal sector, or part time, or not as well paid?  Does it matter if your job conforms with the ILO core conventions?  What about the new jobs that would have been created anyway?  And what about indirect jobs created as a result of increased spending of newly employed people (the multiplier), or because people copy you (spillovers)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT: There is a comparison of some common job creation definitions for development in &lt;a href=&quot;https://www.enterprise-development.org/wp-content/uploads/MeasuringJobCreation_WP_MarketShareAssociates_for_DCED_16June2014.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;a DCED working paper&lt;/a&gt; on pp12-13.&lt;/p&gt;&#xA;" OwnerUserId="16631" LastEditorUserId="16631" LastEditDate="2018-09-12T14:05:11.367" LastActivityDate="2018-09-12T14:05:11.367" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24304" PostTypeId="1" CreationDate="2018-08-29T10:22:00.423" Score="0" ViewCount="115" Body="&lt;p&gt;I am calculating YoY change in macroeconomic variables (inflation, industrial production etc.). However this growth is distorted by low base of last year. Currently I am using 2 year cagr to adjust for the base effect. Is there a better statistical method to separate the base effect and momentum. &lt;/p&gt;&#xA;" OwnerUserId="19285" LastActivityDate="2021-05-14T08:00:40.080" Title="Separation of base and momentum effect" Tags="&lt;statistics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24305" PostTypeId="1" CreationDate="2018-08-29T13:02:24.463" Score="1" ViewCount="55" Body="&lt;p&gt;Apparently&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;‘Athletic scholarships are common in the United States, but in many countries they are rare or non-existent.’&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;But are there countries where there are some universities that offer sports scholarships while other universities in the same country don't? We can shrink country to city, town, district, etc if you like (Note 2). I'll just say 'area'.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have this relative: My relative and I are expats living in a certain area but permanent residents of the area. My relative recently got accepted into a first world university for an undergraduate degree in engineering and was accepted as a sports scholar...sort of.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;None of the tuition is waived. The only thing my relative gets is a reduced fee to be on the team: Yeah, the university charges its students a fee to be on the team. My relative also gets lower grade requirements in admissions or retention, but my relative does not need that due to having outstanding grades in secondary. I figured this was a practice in this area where we both live and where we are both expats (see quote above).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, I found out that several universities in this area apparently do offer sports scholarships ranging from 50-100% off tuition. One of the universities that offer is even of a lower QS ranking than the university that my relative is attending (Note 1). This to me seems like a big misunderstanding on my part, so I've emailed the university, although my relative has already asked, just to get first hand confirmation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the mean time: Why would anyone play sports for a university against other universities but not get paid or get tuition waived for the playing?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some guesses:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Lower admission grade requirement&lt;/li&gt;&#xA;&lt;li&gt;Lower retention grade requirement&lt;/li&gt;&#xA;&lt;li&gt;Admission or retention for dormitory requirement&lt;/li&gt;&#xA;&lt;li&gt;Possibility of future scholarships&lt;/li&gt;&#xA;&lt;li&gt;Prospects of a sports-related careers after graduation that include but are not limited to professional sports&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;The thing is none of my guesses explain why those universities apparently have sports scholarships that waive tuition at least partly while this university doesn’t. Why wouldn’t sports scholars from a university that doesn't pay their sports scholars just transfer to another university in the next year thus causing the university to lose in inter-school competitions?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Note 1): My relative applied to all universities in our area for sports scholarships and was rejected for all but this university. Also, our area has less than 10 universities, and they're all in the QS... Wait, lemme check...Yeah, ACTUALLY, my relative's university has the &lt;a href=&quot;https://www.topuniversities.com/university-rankings/world-university-rankings/2019&quot; rel=&quot;nofollow noreferrer&quot;&gt;highest world QS ranking in our area&lt;/a&gt;. Meanwhile, the university with the lowest world QS ranking in our area has sports scholarships. Also, all universities in question are in the top 100 in our continent's world QS ranking, our continent is not Africa, and my relative's university is not the highest in our area for our continent's world QS ranking.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Note 2): I'm thinking perhaps of a possibility where, say, in North America or Europe this might be the case but is not the case for a specific state or city or something like Massachusetts, Boston, UK or London. You can shrink as much as you want on the condition that universities in your shrunken area compete with each other in sports.&lt;/p&gt;&#xA;" OwnerUserId="4483" LastActivityDate="2018-09-13T05:24:25.400" Title="Does it make economic sense for only some universities in a certain area to pay their sports scholars?" Tags="&lt;supply-and-demand&gt;&lt;labor-economics&gt;&lt;wages&gt;&lt;education-economics&gt;&lt;research&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24306" PostTypeId="1" AcceptedAnswerId="24322" CreationDate="2018-08-29T13:35:15.880" Score="2" ViewCount="570" Body="&lt;p&gt;In my economics class, we're learning about the production possibilities frontier, marginal benefits, and marginal costs. The book uses the example of a company that can choose between producing colas, pizzas, or some combination of both:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/ru37F.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/ru37F.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The book then goes on to note that while marginal cost can be directly derived from this graph in terms of the slope (which makes sense), the marginal benefit is separate data that depends on preference. Here is the data they present for the marginal benefit of producing one more unit of pizza:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/j3BI8.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/j3BI8.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Question:&lt;/strong&gt; I would greatly appreciate if someone could please clarify why the marginal benefit of producing one more unit of pizza is measured as &quot;Willingness to pay &lt;strong&gt;cans of soda per pizza&lt;/strong&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To clarify: I understand why marginal &lt;em&gt;cost&lt;/em&gt; would be measured in terms of cans of cola. This is because producing one more unit of pizza incurs a loss (cost) of a certain number of cans of cola that we could have otherwise produced.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But for marginal benefit, it's unclear how we're measuring the &quot;benefit&quot; we derive in terms of... cans of cola. That makes no sense.&lt;/p&gt;&#xA;" OwnerUserId="10336" LastActivityDate="2018-08-31T09:07:22.180" Title="How is marginal benefit measured?" Tags="&lt;macroeconomics&gt;&lt;marginal&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24308" PostTypeId="2" ParentId="24279" CreationDate="2018-08-29T18:40:06.163" Score="1" Body="&lt;p&gt;I am going to just discuss the situation for the monetary base, not M1. It is possible that the monetary base and M1 could move in opposite directions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The following three instruments are the main components of the monetary base.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Currency in circulation: dollar bills, and coins. Currency holdings are the result of voluntary decisions by the private sector, and the Fed has very limited ability to influence those decisions.&lt;/li&gt;&#xA;&lt;li&gt;Required reserves of banks held at the Fed. In order to increase this, loan amounts outstanding must increase. One can argue that Fed decisions influence borrowing decisions, but it is not something that they can easily directly control. (We would need to go back to the Volcker Fed to see a historical attempt to do this; its effectiveness has been debated. Sorry. no reference handy.)&lt;/li&gt;&#xA;&lt;li&gt;Bank settlement balances in excess of required reserves (excess reserves). These balances went from near zero to being quite large as a result of “quantitative easing.”&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;The Fed cannot drive excess balances negative, as that would imply that some banks are short reserves - which is not allowed by regulators. However, it is free to make excess reserves as positive as they wish, as quantitative easing proved.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;They do this via:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;buying something;&lt;/li&gt;&#xA;&lt;li&gt;or lending against something (which includes repurchase agreements, or repos).&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;That “something” is usually Treasury securities, but there are classes of private debt securities is can buy or lend against (as was done in the Financial Crisis). There is no other choice; the Fed does not have a legal mandate to dump money from helicopters (or whatever). So the answer to your question is that they essentially need to buy enough Treasury bills/bonds to increase the monetary base, unless they want to lend against other private debts.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am not able to give a legal opinion, but it is unclear that the Fed has the ability to not demand payment for matured bonds/bills. Even if they did so, it would just be an irregular loan to the Treasury. (Since Fed profits are returned to te Treasury anyway, there is no point not taking the contractual Treasury payments.)&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2018-08-29T18:40:06.163" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24309" PostTypeId="2" ParentId="24305" CreationDate="2018-08-29T18:55:22.380" Score="1" Body="&lt;p&gt;I mean, even in the US, the ability of a school to offer sports scholarships is determined by what athletic conference(/division) they belong to: Division III schools are forbidden from offering athletic scholarships. (So in that regard- it can vary even at the city level. Boston has some schools that give athletic scholarships, and some that don't). In fact, in that example, Northeastern University provides athletic scholarships, but three blocks away is Wentworth Institute of Technology that doesn't.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As far as why would someone play a sport without the possibility of scholarship? For some, I'm sure it's the potential for a future athletic scholarship (for example, many US football players will play their first couple of seasons for a community college in the hopes of attracting attention from NCAA Division I programs). For others, I'd guess the potential of going pro- if you didn't get offered a spot on a team that provides athletic scholarships, this might be your only chance to improve and try out for a pro team later.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But for most, I'd guess it's probably because they enjoy it. Many US schools have club teams in many sports, which compete against local schools and offer no real chance for financial returns. Moreover, why do so many students participate in other competitive extra curricular activities? I'd guess the same reason.&lt;/p&gt;&#xA;" OwnerUserId="13366" LastActivityDate="2018-08-29T18:55:22.380" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24310" PostTypeId="1" CreationDate="2018-08-29T22:26:56.830" Score="2" ViewCount="20" Body="&lt;p&gt;From what I understand about Boserup's theories, she claims that when populations grow and near the carrying capacity of whatever habitat they live in, businesses will have incentive to invest in new technologies that boost the efficiency of resource extraction and thus raising the carrying capacity (food production will keep up with population growth).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there a more specific way to explain why businesses have more incentive to invest in technologies, other than its &quot;demand-driven&quot;? That's the best I can come up with right now. Technologies often require investments to be made before they become commercially viable, and even then, they incur further costs as businesses have to spend money replacing capital and training workers to use the tech. Surely, if this eventually yields a profit however, why would businesses only invest in tech once overpopulation threatens? Why would they just do it whenever they can?&lt;/p&gt;&#xA;" OwnerUserId="19293" LastActivityDate="2018-08-29T22:26:56.830" Title="Understanding Boserup's theories on food and overpopulation" Tags="&lt;technology&gt;&lt;demographics&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24312" PostTypeId="1" AcceptedAnswerId="24314" CreationDate="2018-08-30T11:25:49.423" Score="2" ViewCount="69" Body="&lt;p&gt;I want to know the meaning of Semidefinite Integral.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am used to read definite and indefinite integral but I want to know the meaning of such equation :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\pi(e)\left(1-F\left[-\frac{a}{\pi(e)}\right]\right) \left(a+\frac{\int_{-\frac{a}{\pi(e)}}\mu f(\mu)d\mu }{\left(1-F\left[-\frac{a}{\pi(e)}\right]\right)}\right)$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\pi(e):$ is the probability of finding the information $\mu$ depending of the effort $e$ of the agent.&#xA;$\left(1-F\left[-\frac{a}{\pi(e)}\right]\right)$ is the condition for the agent to search this information depending on the parameter $a$ which can be viewed as a reward.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\mu$ is a stochastic term distributed by $f(\mu)$, the expected value of $\mu$ is 0.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I do not understand the second term of the equation where there is only the lower bound:&#xA;$\int_{-\frac{a}{\pi(e)}}\mu f(\mu)d\mu$&lt;/p&gt;&#xA;" OwnerUserId="14418" LastEditorUserId="14418" LastEditDate="2018-08-30T11:39:03.893" LastActivityDate="2018-08-30T16:31:53.803" Title="Purpose of Semidefinite Integral" Tags="&lt;mathematical-economics&gt;&lt;stochastic-processes&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24314" PostTypeId="2" ParentId="24312" CreationDate="2018-08-30T13:11:25.067" Score="3" Body="&lt;p&gt;It is just an opaque way to denote that the non-definite integration limit will take the value of the variable itself. Namely,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\int_a g(x) dx \equiv \int_a^x g(s)ds$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;... where $s$ is just the dummy variable of integration. Since sometimes we use the notation $\int _D f(x) dx$ to denote fully definite integration &quot;over the domain $D$ of $x$&quot;, I would avoid the left-hand side notation and I would stick with the more clear right-hand-side one. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I do hope that the authors where you find this notation mean what I wrote above, because this is what mathematicians mean by it.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2018-08-30T16:31:53.803" LastActivityDate="2018-08-30T16:31:53.803" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24316" PostTypeId="1" CreationDate="2018-08-30T16:46:37.550" Score="3" ViewCount="93" Body="&lt;p&gt;In Tim Roughgarden's fantastic course on Algorithmic Game Theory, he begins the course by introducing basic mechanism design, and &lt;a href=&quot;http://theory.stanford.edu/~tim/f13/l/l3.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Myerson's Lemma&lt;/a&gt;. He then proves that Myerson's Lemma is valid for piecewise constant allocation functions. I would like to know if a proof also exists for piecewise &lt;em&gt;linear&lt;/em&gt; allocation functions. &lt;/p&gt;&#xA;" OwnerUserId="5591" LastActivityDate="2018-12-29T06:02:40.587" Title="Is Myerson's Lemma valid for piecewise linear allocation functions?" Tags="&lt;mechanism-design&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24318" PostTypeId="2" ParentId="22495" CreationDate="2018-08-30T19:20:26.710" Score="0" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;I have learned in accounting that companies can add any amount of&#xA;  profit on their products as they want. That can be 10 - over 500 %.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;They are not forbidden to do that. But unless they have a very strong monopolist situation, they will need to try to price their products at lower or similar prices than other companies.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;I also think that international corporations like Coca Cola, Nestlé&#xA;  definitely make more than 200 % profit for each of their products&#xA;  (does anybody know how much).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I am not sure. They certainly make a huge amount of profits, but they also have a huge amount of capital.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Accounting is mostly about pretending to be transparent, while being as opaque as one can be. Companies report losses when they are making profits (in order to dodge taxes, for instance), and profits when they are losing money (to avoid bad publicity). So the answer to this is quite certainly &quot;we don't know, unless we are in the board of one such company&quot;.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;I don't know much about what is done with that profit, as every cost&#xA;  the company has is already included in the price. That is not the&#xA;  question here.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Part of it is distributed among shareholders, and part of it is reinvested.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;My question is: What would happen if by law EVERY company on this&#xA;  planet can only make a maximum profit of 10 % for each product. When&#xA;  answering please ignore potential legal loopholes or anything similar.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;They would artificially increase their expenses. Government doesn't allow them to have profits? Then they will pay higher salaries to their executives, higher rents to their landlords (and provide that their landlords are their relatives or people otherwise related to them). Are those loopholes? If so, the answer here is, &quot;companies will find loopholes in order to keep their profits&quot;; asking to keep loopholes out of the answer is more or less like asking &quot;what would happen to someone who takes cyanide, but please ignore the toxic properties of cyanide&quot;...&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Prices would definitely decrease but what about wages for workers.&#xA;  They would stay the same, because the profit doesn't affect them. Only&#xA;  the wage for managers and CEOs would decrease. But what about&#xA;  international economics. Would it remain stable.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Manager and executive officers salaries would most certainly rise. And there would strong incentives for them to reinvest part of those increased salaries in the companies. International economics would be stable, but politics would not: the incentives for corruption, money laundering, tax evasion, etc., would be enormous, and so would the political pressure to repeal such kind of legislation.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;And the most important question: Can a law like that (if valid in&#xA;  every country) actually work on long-term?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;No, it cannot. First, Somewheristan will certainly realise that if they have a more generous law, they will attract the headquarters of international corporations, and consequently increase their tax revenues. So, as long as there are different polities with different legal systems, this cannot work. You would need either a world government, or a single national government capable of imposing its own laws upon the other (by violence or credible threat of violence, of course). And it is difficult to see what advantage would such a super-imperialist polity obtain by doing this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Second, political power is very responsive to economic power. How many politicians would survive free elections if the private companies only donate to their adversaries? How many dictators can hold onto power if the capitalist class of their country opposes them?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Third, as accounting is about secrecy, you would need a government capable of actually controlling the internal workings of all relevant companies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You would need a very strong worldwide government to do something like this - but a very strong government inclined to do this would be better off if it simply opted to superceed a market economy by something like &quot;communism&quot;, a &quot;gift economy&quot;, or similar. If you are going to fight against a giant, you should aim at killing it, not at shaving it.&lt;/p&gt;&#xA;" OwnerUserId="15747" LastActivityDate="2018-08-30T19:20:26.710" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24319" PostTypeId="1" CreationDate="2018-08-30T20:00:41.437" Score="1" ViewCount="53" Body="&lt;p&gt;I'm not an economics major but when I go to the library of the economics department I see that computers have access to something that is related to Thomson Reuters. given that I'm interested in finance, can somebody explain what is that tool, what can be done with it? and just give some info to somebody like me who doesn't know much. thank you so very much in advance&lt;/p&gt;&#xA;" OwnerUserId="19298" LastActivityDate="2018-08-31T19:12:23.580" Title="What is the Thomson Reuters tool that is used in universities?" Tags="&lt;soft-question&gt;&lt;software&gt;" AnswerCount="2" CommentCount="4" ClosedDate="2018-09-15T23:14:47.150" ContentLicense="CC BY-SA 4.0" />
  <row Id="24320" PostTypeId="2" ParentId="24319" CreationDate="2018-08-30T22:04:40.030" Score="4" Body="&lt;p&gt;It is a huge financial database which consents you to export data easily via the datastream tool for excel. There you can find common data (such as those available via online databases, e.g. yahoo finance or investing) but also intra-day data, indexes, analysis and the platform consent you to apply directly some statistical techniques. It is a great source, useful especially when you cannot get data from free sources. &lt;/p&gt;&#xA;" OwnerUserId="10931" LastEditorUserId="10931" LastEditDate="2018-08-31T06:44:32.720" LastActivityDate="2018-08-31T06:44:32.720" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24321" PostTypeId="2" ParentId="24316" CreationDate="2018-08-31T02:29:04.487" Score="1" Body="&lt;p&gt;Milgrom's excellent &lt;em&gt;Putting Auction Theory to Work&lt;/em&gt; is a reference for what you're looking for. If I'm not mistaken, Myerson's lemma works for quasi-linear payoffs.&lt;/p&gt;&#xA;" OwnerUserId="18167" LastActivityDate="2018-08-31T02:29:04.487" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24322" PostTypeId="2" ParentId="24306" CreationDate="2018-08-31T07:43:40.093" Score="4" Body="&lt;p&gt;The reason why marginal benefit is measured in cans of soda is that this economy only has two goods: pizza and soda. So instead of using money we may as well use soda. Alternatively, in the absence of money this economy is an exchange economy, and the only way to pay for pizza in that case is with soda.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When you move beyond two goods willingness to pay is often measured in money value. However, measuring willingness to pay in money value is just a convenient way of saying: a bundle of &quot;everything else that is available&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a two good economy,given the current amount of pizza that you have, an additional slice of pizza may thus be worth 5 cans of soda to you. In a multiple good economy it may be say 5\$ where the 5\$ stands for &quot;all the other (combinations of) goods you could get for 5\$.&lt;/p&gt;&#xA;" OwnerUserId="12186" LastEditorUserId="1601" LastEditDate="2018-08-31T09:07:22.180" LastActivityDate="2018-08-31T09:07:22.180" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24323" PostTypeId="1" CreationDate="2018-08-31T09:29:59.570" Score="-2" ViewCount="336" Body="&lt;p&gt;From what I understand. LTV predicts that fiat currency, which requires zero labor to produce, should have zero value. Empirically, fiat currency does not have zero value. Would this prove that the labor theory of value is wrong?&lt;/p&gt;&#xA;" OwnerUserId="19301" LastEditorUserId="19898" LastEditDate="2018-11-09T00:48:22.973" LastActivityDate="2020-11-19T07:31:24.917" Title="Does fiat currency disprove labor theory?" Tags="&lt;political-economy&gt;" AnswerCount="4" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="24325" PostTypeId="2" ParentId="24180" CreationDate="2018-08-31T14:13:47.930" Score="1" Body="&lt;p&gt;One nice reference that seeks to answer your question is the following paper,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://link.springer.com/content/pdf/10.1007/BF01076104.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://link.springer.com/content/pdf/10.1007/BF01076104.pdf&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The paper's main results are contained in the following theorem (Theorem I): &lt;/p&gt;&#xA;&#xA;&lt;p&gt;a. If both players have a dominant strategy in the basic game, the game is the same. (where the basic game is just the 2x2 bimatrix game)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;b. If only one player has a dominant strategy in the basic game, then&#xA;the extended game has a unique equilibrium in un-dominated strategies.&#xA;It's different from the  basic game outcome iff that outcome is Pareto dominated by another pure strategy outcome. The extended game equilibrium achieves&#xA;these Pareto dominating payoffs by having the player with the dominant&#xA;strategy play first and the other second.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Think of this as a way to achieve a Pareto superior vector of payoffs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(C) If the unique simultaneous play equilibrium of the basic game is&#xA;in mixed strategies, then like in part (B) there won't be a change unless there's a Pareto superior P.S. vector. If Pareto dominance does&#xA;not exist, both players will wait until the second period and play&#xA;simultaneously. If Pareto dominance does exist, the unique extended&#xA;game equilibrium attains the Pareto dominating payoffs by selecting one&#xA;of the sequential move games.&lt;/p&gt;&#xA;" OwnerDisplayName="user11305" LastActivityDate="2018-08-31T14:13:47.930" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24326" PostTypeId="1" CreationDate="2018-08-31T16:14:22.400" Score="0" ViewCount="129" Body="&lt;p&gt;There's a trade war (dispute) going on between USA and China, and it boils down to the USA accusing China of not buying enough American products, relative to what they sell to America. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Putting aside other accusations such as currency manipulation, cyber security hacking, etc. If we just focus on this central accusation of 'You are not buying enough of my stuff, while selling too much stuff here!&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't understand how that can be a valid 'accusation'. Buying and selling are willing actions taken by market participants, made as a result of their own economic situation. China has total freedom to decide what and how much to buy (import) from any country, as does the USA. If China decides not to buy certain products it probably means either it thinks those products are too expensive, too low quality, or maybe China doesn't need them. Same with USA - it decides to buy certain products from China at certain amount because it has decided it is the right product at the right price and amount. My point is, USA can decide to buy however much from China and vice versa. These are willing market participants.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If so, how can any country 'accuse' of another of not buying enough or selling too much? Whatever China sells is agreed to be bought by USA, it's not like China forces USA buy its stuff. And whatever China buys from USA is its own decision.&lt;/p&gt;&#xA;" OwnerUserId="19305" LastActivityDate="2019-01-11T21:44:43.580" Title="On trade, What justificaion does the USA have to accuse China of 'selling too much not buying enough from USA'" Tags="&lt;macroeconomics&gt;&lt;international-trade&gt;" AnswerCount="4" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24327" PostTypeId="2" ParentId="20895" CreationDate="2018-08-31T18:30:23.730" Score="2" Body="&lt;p&gt;&lt;strong&gt;The poor don't work because they have too much money.&lt;/strong&gt;  I believe this refers to the common conservative position that unemployment benefit should be cut or abolished, because if it is sufficient to enable the recipient to lead a dignified life, then it undermines the incentive for them to find a job in order to increase their income.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;The rich don't work because they don't have enough money.&lt;/strong&gt;  This is a clear reference to the supply-side belief that marginal tax rates on high-earners are so high that they stifle any motivation to work, and that lowering tax rates for this group will lead to a marked increase in the amount they choose to work.&lt;/p&gt;&#xA;" OwnerUserId="16631" LastActivityDate="2018-08-31T18:30:23.730" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24328" PostTypeId="5" CreationDate="2018-08-31T19:06:21.103" Score="0" Body="" OwnerUserId="-1" LastEditorUserId="-1" LastEditDate="2018-08-31T19:06:21.103" LastActivityDate="2018-08-31T19:06:21.103" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24329" PostTypeId="4" CreationDate="2018-08-31T19:06:21.103" Score="0" Body="The branch of Finance that studies and models how specific assets (such as options, bonds and stocks) are priced." OwnerUserId="18167" LastEditorUserId="18167" LastEditDate="2018-09-01T01:45:00.923" LastActivityDate="2018-09-01T01:45:00.923" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24330" PostTypeId="2" ParentId="24323" CreationDate="2018-08-31T19:10:56.030" Score="0" Body="&lt;p&gt;Fiat currency, the object itself such as a dollar bill, indeed &lt;em&gt;takes&lt;/em&gt; labor and capital to be produced. People work with printers to make those baby greenies. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think your question has a few problems. What is the definition of LTV you're working with, for example? What exactly is &lt;em&gt;value&lt;/em&gt;? These are very broad and abstract questions most economists nowadays just don't care about anymore. I guess we're more interested in solving object problems such as poverty and hunger more than in discussing the sex of angels, fortunately.&lt;/p&gt;&#xA;" OwnerUserId="18167" LastActivityDate="2018-08-31T19:10:56.030" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24331" PostTypeId="2" ParentId="24319" CreationDate="2018-08-31T19:12:23.580" Score="0" Body="&lt;p&gt;If you work with financial data, it's a great tool because it provides formated data. That's why many departments provide their students access to it.&lt;/p&gt;&#xA;" OwnerUserId="18167" LastActivityDate="2018-08-31T19:12:23.580" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24332" PostTypeId="2" ParentId="24326" CreationDate="2018-08-31T19:18:50.497" Score="1" Body="&lt;p&gt;There's no technical justification, it's a political statement. Most trade wars are, in fact, the fruit of politics.&lt;/p&gt;&#xA;" OwnerUserId="18167" LastActivityDate="2018-08-31T19:18:50.497" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24335" PostTypeId="1" CreationDate="2018-09-01T11:07:29.337" Score="2" ViewCount="47" Body="&lt;p&gt;I've been reading a book where the author claims that &quot;if there are two goods they are always net substitutes. Along an indifference curve an increase in price of good 2 leads to less of good 2 and more of good 1 being consumed when utility is maximized. When there are more than two goods, the law of diminishing marginal rate of substitution implies that at least one good must be a net substitute for any other good.&quot; &#xA;&lt;br/&gt;&#xA;The first part can be proved easily using graphs, it's the second that I couldn't prove mathematically.&#xA;&lt;br/&gt;&#xA;Source of the quotation has been attached &lt;a href=&quot;https://books.google.co.in/books?id=pi4JBAAAQBAJ&amp;amp;pg=PA104&amp;amp;lpg=PA104&amp;amp;dq=net%20substitutes%20more%20than%20two%20goods%20law%20of%20diminishing%20marginal%20rate%20of%20substitution%20implies%20that%20at%20least%20one%20of%20the%20goods%20must%20be%20a%20net%20substitute%20for%20any%20other%20good&amp;amp;source=bl&amp;amp;ots=rvPf6etHY5&amp;amp;sig=AoDLRTE3tZYYM5r9KaFgKFIpx5Y&amp;amp;hl=en&amp;amp;sa=X&amp;amp;ved=2ahUKEwjFzpWgzpndAhXbe30KHbbRBlUQ6AEwAHoECAQQAQ#v=onepage&amp;amp;q=net%20substitutes%20more%20than%20two%20goods%20law%20of%20diminishing%20marginal%20rate%20of%20substitution%20implies%20that%20at%20least%20one%20of%20the%20goods%20must%20be%20a%20net%20substitute%20for%20any%20other%20good&amp;amp;f=false&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;, Pg-104.&lt;/p&gt;&#xA;" OwnerUserId="14458" LastActivityDate="2019-05-14T20:03:40.723" Title="Prove that in presence of many goods, the law of DMRS implies that at least one good must be a net substitute for any other good" Tags="&lt;microeconomics&gt;&lt;self-study&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24337" PostTypeId="2" ParentId="23970" CreationDate="2018-09-01T17:07:16.713" Score="1" Body="&lt;p&gt;The prevalent hypothesis for the normal slope of the yield curve is due to a combination of the expectations hypothesis, and a liquidity premium. &#xA;Recall what the yield curve is measuring- it graphs Yield to maturity against a bond of maturity t, for different time horizons t. This yield to maturity is generally thought of as the interest rate.&#xA;First, the assumption is that we hold constant the risk profile of the bonds in question- think of just looking at the yields of T-Bills for different horizons.&#xA;The expectations hypothesis is straightforward: it specifies that the yield to maturity (upto an approximation) of a two year bond is the average of the current yield and the expected future yield. As such, if the yield curve is &lt;strong&gt;flat&lt;/strong&gt;, this would mean that the interest rates are not expected to change. Generally speaking, the yield curve is upward sloping. This can still occur under constant interest rate expectations, because people have a preference for liquidity. As such, not having liquidity for 2 periods is more costly than 1, and hence this premium is reflected in a liquidity premium on the yield curve. However, if the yield curve has a sharp upward slope, the economy is expected to do well. This is because first, output is positively correlated with interest rates. This is, in part, due to the fact that a boom is correlated with increased spending, leading to inflation, and the government controlling money supply (inflation) by raising interest rates. &lt;/p&gt;&#xA;" OwnerUserId="5233" LastActivityDate="2018-09-01T17:07:16.713" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24338" PostTypeId="1" CreationDate="2018-09-01T18:20:01.787" Score="4" ViewCount="312" Body="&lt;p&gt;I've been presented with the following problem:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$y=3(x_3)^{\frac13}(\max\{x_1,8x_2\})^{\frac13}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And the objective is to both maximize profit and minimize cost. First of all, if the problems are dual, does that mean the result will be the same in variables such as demands?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;STILL, MY BIGGEST ISSUE IS THIS:&lt;/strong&gt; When you get rid of the &lt;em&gt;max&lt;/em&gt;, this becomes a Cobb Douglas piece of cake. But I just don't understand how to do that. So far, all I've got is that this function allows corner solutions, so it's not solved just as a Leontieff function. How would you go about choosing each good? I'm also sure it has to do with input prices $w_1$ and $w_2$&lt;/p&gt;&#xA;" OwnerUserId="19312" LastEditorUserId="42" LastEditDate="2018-09-01T18:42:55.903" LastActivityDate="2018-09-01T19:22:48.453" Title="Decision over &quot;max&quot; production function:" Tags="&lt;production-function&gt;&lt;cost&gt;&lt;profit-maximization&gt;&lt;cost-functions&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24339" PostTypeId="2" ParentId="24338" CreationDate="2018-09-01T19:22:48.453" Score="4" Body="&lt;h1&gt;Hint&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;For profit maximization, either $x_1$ or $x_2$ (but not both) must be zero. If not, say $x_1^*&amp;gt;x_2^*&amp;gt;0$ at the optimum, then one could increase profit by lowering cost by reducing $x_2^*$ without affecting output and thus revenue. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $z=\max\{x_1,8x_2\}$. The profit function can be written as &#xA;\begin{equation}&#xA;p[3(x_3)^{1/3}(z)^{1/3}]-w_3x_3-c_zz,\tag1&#xA;\end{equation}&#xA;where &#xA;\begin{equation}&#xA;c_z=&#xA;\begin{cases}&#xA;w_1&amp;amp;\text{if }x_1&amp;gt;8x_2\\&#xA;w_2/8&amp;amp;\text{if }x_1&amp;lt;8x_2\\&#xA;\min\{w_1,w_2/8\}&amp;amp;\text{if }x_1=8x_2&#xA;\end{cases}&#xA;\end{equation}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Solve $(1)$ for the condition determining the optimal level of $z$, and compare the costs of achieving this level using either $x_1$ or $x_2$. Use the one that entails the lower cost.&lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2018-09-01T19:22:48.453" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24340" PostTypeId="1" CreationDate="2018-09-02T04:36:48.793" Score="2" ViewCount="33" Body="&lt;p&gt;In mechanism design, for example in the case of a single item auction, we often assume that a socially efficient outcome is to allocate the good to the bidder with the highest valuation of that good. In the case of a sponsored search auction, we want the items (slots on the sponsored search space) to be handed out in such a way that the most valuable slots go to the bidders with the highest valuation of the same slots.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the sponsored search auction case, whom is the allocation optimal for? The bidders, or the web user, or both? If it is optimal for the web user, why?&lt;/p&gt;&#xA;" OwnerUserId="5591" LastActivityDate="2018-09-02T13:02:17.257" Title="Efficient social allocation awards item to the highest valuer in a sponsored search auction. Whom is it optimal for?" Tags="&lt;mechanism-design&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24341" PostTypeId="2" ParentId="24340" CreationDate="2018-09-02T13:02:17.257" Score="1" Body="&lt;p&gt;The optimality concept used here is usually &lt;a href=&quot;https://en.wikipedia.org/wiki/Pareto_efficiency&quot; rel=&quot;nofollow noreferrer&quot;&gt;Pareto-optimality&lt;/a&gt;, a.k.a. Pareto-efficiency. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Pareto efficiency or Pareto optimality is a state of allocation of resources from which it is impossible to reallocate so as to make any one individual or preference criterion better off without making at least one individual or preference criterion worse off.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So a Pareto-efficient allocation is not necessarily 'optimal for' anyone. It just means that given the current allocation no one can be made better off without cost to others.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2018-09-02T13:02:17.257" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24342" PostTypeId="2" ParentId="24323" CreationDate="2018-09-02T17:26:00.293" Score="-1" Body="&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Labor_theory_of_value&quot; rel=&quot;nofollow noreferrer&quot;&gt;Wikipedia&lt;/a&gt; defines LTV as:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The labor theory of value (LTV) is a theory of value that argues that&#xA;  the economic value of a good or service is determined by the total&#xA;  amount of &quot;socially necessary labor&quot; required to produce it, rather&#xA;  than by the use or pleasure its owner gets from it (demand) and its&#xA;  scarcity value (supply). It does not say that the value of a commodity&#xA;  is determined by the actual amount of labor contained in it, but the&#xA;  average amount needed to produce it. This is called &quot;socially&#xA;  necessary labor&quot;. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Due to the fact that all currencies roughly (average) cost the same to make yet have wildly different values across countries must mean that LTV's theory that &quot;average amount&quot; of labour needed to produce notes cannot correlate with its value whatsoever, and therefore the value of currency must entirely be subject to supply and demand of currency. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As the same would not be true with global commodities like gold, this is evidence to suggest that fiat currencies do indeed disprove LTV.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, if one views the cost to produce money/notes (i.e. the cost to central banks from mints) rather than their fiat value, then LTV is not disproven as the 'socially necessary labour' is relatively equal globally and has no connection to currency values.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Note: I may have misunderstood your question but I had a go&lt;/em&gt;&lt;/p&gt;&#xA;" OwnerUserId="7970" LastEditorUserId="68" LastEditDate="2018-09-04T18:15:36.620" LastActivityDate="2018-09-04T18:15:36.620" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24348" PostTypeId="1" CreationDate="2018-09-03T02:02:03.480" Score="2" ViewCount="943" Body="&lt;p&gt;I'm doing my Master thesis in economics. I have only a very basic understanding of econometrics, and honestly, I hate it, the same things go for stats and probability etc. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, at my school my supervisor allowed me to get help to analyze the data using VAR or GARCH so the analysis itself will be done by an assistant at the school. However, my supervisor told me I should be able to answer questions regarding the model once I defend. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have been watching tons of YouTube videos about econometrics, but I think I should get a book to understand econometrics better. I don't want to master it, I just want to pass the defense. Once I'm done I'm not interested to learn anything about econometrics ever again. So, any Econometrics book you suggest? I found many online and not sure which one is the easiest to use.&lt;/p&gt;&#xA;" OwnerUserId="19080" LastEditorUserId="68" LastEditDate="2018-09-04T08:36:55.593" LastActivityDate="2018-09-06T18:03:22.813" Title="What econometrics book or textbook should I use?" Tags="&lt;econometrics&gt;" AnswerCount="1" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24350" PostTypeId="2" ParentId="24326" CreationDate="2018-09-03T12:07:16.953" Score="0" Body="&lt;p&gt;Why shouldn't that be a valid accusation.&#xA;&lt;a href=&quot;https://www.census.gov/foreign-trade/balance/c5700.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;The numbers speak a clear language.&lt;/a&gt;&#xA;But that isn't even the main problem. The actual problem is, that while the US was stupid enough to listen to &quot;economic experts&quot; that always told them to open their markets more and more, China was smart enough to massively restrict it's own marked for foreign industries.&#xA;As an example, if you are a car company and want to sell your products (cars of course) on the chinese market you either had to pay 25% import taxes or, if you wanted to skip that by producing partly in china directly, you had to do it together with a local car manufacturer.&#xA;That puts the US economy in a huge disadvantage with the results visible in the numbers above.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the accusation that import/export between china is way of to the benefits of china is correct as well as the accusation that they doing it on purpose.&lt;/p&gt;&#xA;" OwnerUserId="18614" LastActivityDate="2018-09-03T12:07:16.953" CommentCount="13" ContentLicense="CC BY-SA 4.0" />
  <row Id="24352" PostTypeId="1" CreationDate="2018-09-03T16:29:22.313" Score="6" ViewCount="1335" Body="&lt;p&gt;According to &lt;a href=&quot;https://en.wikipedia.org/wiki/Land_value_tax&quot; rel=&quot;noreferrer&quot;&gt;https://en.wikipedia.org/wiki/Land_value_tax&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Because the supply of land is essentially fixed, land rents depend on what tenants are prepared to pay,&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;That doesn't make any sense.  If more people want to live in a particular place, rents will increase.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;rather than on landlord expenses, preventing landlords from passing LVT to tenants.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Only if there's somewhere else that tenants want to be, that also has lower rents.  The real estate boom in San Francisco shows that when people with lots of money really want to live in a particular place, rents rise.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, what stops the Land-Value Tax be passed on to tenants (in the situation where demand outstrips supply, and the government decides to increase the LVT)?&lt;/p&gt;&#xA;" OwnerUserId="14221" LastEditorUserId="25624" LastEditDate="2021-01-15T02:00:09.770" LastActivityDate="2021-01-15T06:01:32.353" Title="Why can't the Land-Value Tax (in some cases) be passed on to tenants?" Tags="&lt;supply-and-demand&gt;&lt;taxation&gt;&lt;optimal-taxation&gt;&lt;land&gt;" AnswerCount="5" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24353" PostTypeId="2" ParentId="24352" CreationDate="2018-09-03T23:33:15.933" Score="1" Body="&lt;p&gt;Supply response causes a change in prices, the incidence which is shared between the producer and the consumer. As land is defined as everything not supplied by human effort, thus perfectly inelastic, there is no supply response so the incidence of a LVT falls only on the landowner.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In practice the value of land is the difference in productivity/average wages between different locations. A landowner cannot therefore pass on the tax in higher prices because this will simply lead to the abandonment of valuable land to where land is valueless. As there is always marginal land, even in somewhere like the US, the LVT has no effect on rents, though it would reduce rental incomes, thus selling prices.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is also why landlords change charge more than market rent and why a LVT cannot be levied at more that 100% of market rents.&lt;/p&gt;&#xA;" OwnerUserId="19326" LastActivityDate="2018-09-03T23:33:15.933" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24354" PostTypeId="1" CreationDate="2018-09-04T06:49:01.883" Score="1" ViewCount="61" Body="&lt;p&gt;Karl Marx writes in his book &quot;capital&quot;, that the exchange value of a commodity is determined by the necessary average labor required to produce the commodity. The labor is measured in time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here's my question. There are different types of wood for the production of furniture. Why is furniture made of high-quality wood usually more expensive, while the amount of labor (measured in time) is independent of the wood quality? According to Marx, a table made of low-quality wood should be as expensive as a table made of high-quality wood (apart from negligible differences in the processing due to the wood quality). But this is obviously wrong.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What would Marx answer to this question?&lt;/p&gt;&#xA;" OwnerUserId="16415" LastEditorUserId="16415" LastEditDate="2018-09-04T07:03:00.860" LastActivityDate="2018-10-08T16:31:55.500" Title="Labor time and the exchange value (Marx). What about the quality of the raw materials?" Tags="&lt;commodities&gt;&lt;price-theory&gt;&lt;marxism&gt;&lt;labor-cost&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24355" PostTypeId="2" ParentId="24352" CreationDate="2018-09-04T07:58:53.453" Score="8" Body="&lt;blockquote&gt;&#xA;  &lt;blockquote&gt;&#xA;    &lt;p&gt;Because the supply of land is essentially fixed, land rents depend on what tenants are prepared to pay,&lt;/p&gt;&#xA;  &lt;/blockquote&gt;&#xA;  &#xA;  &lt;p&gt;That doesn't make any sense. If more people want to live in a particular place, rents will increase.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;And if rents increase, then obviously tenants are prepared to pay more.  If they aren't willing to pay increased rents, then they don't really want to live there more than another place.  I.e. your statement is entirely consistent with the statement that you are criticizing.  &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;blockquote&gt;&#xA;    &lt;p&gt;rather than on landlord expenses, preventing landlords from passing LVT to tenants.&lt;/p&gt;&#xA;  &lt;/blockquote&gt;&#xA;  &#xA;  &lt;p&gt;Only if there's somewhere else that tenants want to be, that also has lower rents. The real estate boom in San Francisco shows that when people with lots of money really want to live in a particular place, rents rise.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I think you missed the point here.  Presumably landlords are already charging what the market will bear.  How does a Land Value Tax (LVT) change what the market will bear?  As it's a tax on landlords, obviously it has no direct effect on tenants.  The tenants are not prepared to pay more rent &lt;em&gt;as a result of&lt;/em&gt; the LVT.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If rents will go up by \$100 a month without an LVT and \$100 a month with an LVT, then landlords can't pass the LVT to tenants.  That's true even if the \$100 is enough to pay the LVT.  Without the LVT, the landlord would have raised the rent and kept all of the money (minus income taxes, etc.).  With the LVT, the landlord pays the LVT and may still have to pay more income taxes (depending on the deductibility of the LVT).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The only way that an LVT can influence rents from the landlord side is if it causes the number of units available for rent to either increase or decrease.  In the long term, that happens.  Landowners can choose to build more or fewer units on their land.  But in the immediate term, the number of units is fixed.  A landowner can't take a single family home and instantaneously convert it into a hundred-unit apartment building, even if there is sufficient land to support that.  Thus the LVT does not change unit availability or the rent that tenants are willing to pay.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, it is possible that the LVT enables spending that tenants find valuable.  And that spending causes demand and therefore rents to increase.  But that spending would be just as valuable to the tenants if it were financed by a different tax with less impact on landowners.  Of course, tenants might be negatively impacted by that tax, e.g. if they pay it.  But those effects are aside from the impact of an LVT on landlords.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The LVT itself does not increase rents in the short term.  It may increase rents in the long term if it drives away landowners by making some places economically infeasible to rent.  But that assumes that landlord profits are less than the LVT.  Or landowners may choose not to expand the number of units in the long term.  Or the LVT may finance a benefit that increases the value of the units to tenants.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the landlord can only pass on the LVT if tenants benefit from the spending financed by the LVT, shifting the demand curve such that tenants will pay more.  So the more that the LVT finances benefits for tenants, the better able the landlord will be to pass on the LVT.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If those things don't happen, the landlord can't pass on the LVT.  The landlord can only get the regular market rent.  That may be an increasing market rent, but the increase is not due to the LVT.  It's only determined by movement in the tenants' demand curve, which is not directly impacted by the LVT.  &lt;/p&gt;&#xA;" OwnerUserId="68" LastActivityDate="2018-09-04T07:58:53.453" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="24356" PostTypeId="1" CreationDate="2018-09-04T09:53:17.910" Score="1" ViewCount="124" Body="&lt;p&gt;So it is said that Adam Smith said that self interest leads to collective interest.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is obviously not the case. We do not have a society that maximises the collective good*.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is, Is there a way to engineer society such that self interest will lead to a collective interest?&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;*It can be argued that the very poor are not as poor as they were a short time ago, but this is not what I am asking about.&lt;/p&gt;&#xA;" OwnerUserId="19330" LastEditorUserId="12304" LastEditDate="2018-09-04T22:03:23.187" LastActivityDate="2018-10-07T16:47:51.530" Title="How to engineer the economic system, so that an individuals self interest leads to fulfilling collective interest" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;" AnswerCount="3" CommentCount="11" ContentLicense="CC BY-SA 4.0" />
  <row Id="24357" PostTypeId="2" ParentId="24348" CreationDate="2018-09-04T11:22:15.870" Score="2" Body="&lt;p&gt;I'm not an econometrician but here is my guide on some books I found helpful (and still do).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My opinion is that a nice place to start is with an advanced undergraduate textbook. These are often helpful even for postgraduate students to build intuition and brush up on mathematical techniques. For books at this level I would recommend &lt;em&gt;Introductory Econometrics: A Modern Approach&lt;/em&gt; by Wooldridge, &lt;em&gt;Introduction to Econometrics&lt;/em&gt; by Stock and Watson and &lt;em&gt;Introduction to Econometrics&lt;/em&gt; by Dougherty. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You mention a dislike of maths and stats. Do you have much in the way of familiarity with matrix algebra? If not, I recommend &lt;em&gt;A Guide to Modern Econometrics&lt;/em&gt; Verbeek and the older &lt;em&gt;Econometric Methods&lt;/em&gt; by Johnston and DiNardo. These two books are pitched at the more basic end of the graduate level and have excellent appendices on matrix algebra. Either of these would be an excellent starting point for you. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;More advanced books include Greene's &lt;em&gt;Econometric Analysis&lt;/em&gt; and my favourite; &lt;em&gt;Econometrics&lt;/em&gt; by Fumio Hayashi. The latter textbook centers on the Generalised Method of Moments as an organizing principle which really helps illuminate the material. &lt;em&gt;Econometric Analysis of Cross Sectional and Pannel Data&lt;/em&gt; Wooldridge is a classic at the graduate level. It may also be worth considering the online textbook by Bruce Hansen. It's available on his website &lt;a href=&quot;https://www.ssc.wisc.edu/~bhansen/econometrics/&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.ssc.wisc.edu/~bhansen/econometrics/&lt;/a&gt; These textbooks could be considered rather mathematical on the first reading. For example, the large sample properties of estimators require some sophisticated mathematical machinery. All the textbooks mentioned above give a fairly digestible but somewhat superficial treatment of these topics. To get a good understanding of these topics a course in measure theory and integration would be a great help! &lt;/p&gt;&#xA;&#xA;&lt;p&gt;After these come the more specialized books in Panel Data / Microeconometerics and Time Series. The books mentioned in the previous paragraph generally do have an introduction to these topics but it's rather limited. In terms of Time Series a great textbook is &lt;em&gt;Applied Econometric Time Series&lt;/em&gt; by Walter Enders. This book is much more focused on Time Series in real world applications and is lighter on the technical details. I would recommend this to you if you're still interested in VAR, ARCH, GARCH and error correction models etc. In stark contrast is &lt;em&gt;Time Series Analysis&lt;/em&gt; by James Hamilton. A very thorough textbook but quite a hard read. In terms of Microeconometrics, I like &lt;em&gt;Microeconometrics&lt;/em&gt; by Cameron and Trivedi and Baltagi's &lt;em&gt;Econometric Analysis of Panel Data&lt;/em&gt;. There are many, many more excellent textbooks in these fields but they're too numerous to mention. Remember, these books are advanced and would only be used once you've taken the standard grad econometrics courses. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lastly, every economist should have a copy of Angrist and Pischke's &lt;em&gt;Mostly Harmless Econometrics&lt;/em&gt; A great guide to econometrics as a discipline. &lt;/p&gt;&#xA;" OwnerUserId="6966" LastEditorUserId="6966" LastEditDate="2018-09-06T18:03:22.813" LastActivityDate="2018-09-06T18:03:22.813" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24359" PostTypeId="2" ParentId="24005" CreationDate="2018-09-04T17:27:12.810" Score="3" Body="&lt;p&gt;Consider an economy where there are $N$ goods and assets. How do you purchase a good? If $n \cdot (n-1)$ forms of exchange are possible because all $n$ goods can be all other $n-1$ goods then this is a barter economy. If there is only a single good that can be exchanged for all other goods then only $n-1$ forms of exchange are possible then this is a monetary economy where that single good is &quot;money&quot;. See, for example,  &lt;a href=&quot;https://www.jstor.org/stable/2117496?seq=1#metadata_info_tab_contents&quot; rel=&quot;nofollow noreferrer&quot;&gt;Kiyotaki and Wright (1993)&lt;/a&gt;. Used this way, Trade Equilibrium $\supset$ Barter Equilibrium $\cup$ Monetary Equilibrium. A no trade equilibrium is sometimes called autarky. &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2018-09-04T17:27:12.810" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24361" PostTypeId="1" CreationDate="2018-09-04T23:13:31.543" Score="3" ViewCount="791" Body="&lt;p&gt;The reasoning usually given for why you would use a second price auction (SPA) as opposed to a first price auction (FPA) is that FPA encourage underbidding while SPA encourage truthful bidding. That is, bidding your true value is a weakly dominant strategy in SPA, whereas in FPA, bidding below your true value is the dominant strategy. See &lt;a href=&quot;https://economics.stackexchange.com/questions/12389/what-are-the-advantages-and-disadvantages-of-second-price-auctions&quot;&gt;this question&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is: why does it matter to the seller whether people bid truthfully or not? Initially, I thought that since SPA induce truthful bidding, they also maximize expected revenue for the seller, which is why a seller would use SPA.  But, according to the &lt;a href=&quot;https://en.wikipedia.org/wiki/Revenue_equivalence&quot; rel=&quot;nofollow noreferrer&quot;&gt;revenue equivalence theorem&lt;/a&gt;, FPA and SPA generate the same expected revenue. So, shouldn't it not matter to the seller what auction they choose? Why would a seller prefer SPA -- which are generally harder to explain -- if it doesn't generate higher expected revenue?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can think of three possible explanations:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;There's a mismatch between theory and the real world. Maybe in theory SPA and FPA should generate the same revenue, but in practice they don't. If so, is there any empirical research that shows this?&lt;/li&gt;&#xA;&lt;li&gt;The seller's goal is to collect information rather than to maximize revenue. Maybe the seller has a product and they don't know how much to sell it for. In that case, an SPA could help them generate an accurate demand curve.&lt;/li&gt;&#xA;&lt;li&gt;To benefit the buyer. If there's no cost to the seller in terms of revenue, but a benefit to the buyer, a seller might want to use SPA. But this leads to the question: why does the seller care about helping the buyer? Maybe in order to encourage more buyers to participate in the auction? And, possibly encouraging more buyers to enter the auction would raise the expected revenue from the auction, if those new buyers were higher bidders.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Since SPA are so common in online advertising (google adwords) and eBay, they might be the most widely used auction there is today. So, I'm wondering why sellers prefer them to FPA. Is any of these explanations on the right track?&lt;/p&gt;&#xA;" OwnerUserId="19336" LastEditorUserId="19336" LastEditDate="2018-09-05T18:56:07.207" LastActivityDate="2019-02-23T04:30:22.490" Title="Why are second price auctions preferred if they don't maximize expected revenue?" Tags="&lt;microeconomics&gt;&lt;game-theory&gt;&lt;auctions&gt;" AnswerCount="4" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24362" PostTypeId="2" ParentId="24326" CreationDate="2018-09-04T23:17:13.770" Score="3" Body="&lt;p&gt;The US president see’s trade as a zero-sum game, where there is always a winner and a loser, being the winner the one who sells more to the other. This view is not shared by most economists, as the mainstream opinion is that international trade is beneficial for both parties (see Ricardo or Krugman for examples). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the US’s president mind, “to win the game” they must restrict the sales of Chinese goods, using tarifs or quotas. The US can either produce these goods or import them elsewhere. The Chinese, however, are expected to have no other alternative but to keep importing advanced goods, critical for their economy, such as aeroplanes parts from Boeing. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The expected outcome from this policy is less competition for national producers, potentially resulting in more jobs and higher profits. However, end consumers might end up facing higher prices for several goods, resulting in lower real incomes. &lt;/p&gt;&#xA;" OwnerUserId="12304" LastActivityDate="2018-09-04T23:17:13.770" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24364" PostTypeId="1" AcceptedAnswerId="24367" CreationDate="2018-09-05T08:27:33.970" Score="3" ViewCount="164" Body="&lt;p&gt;Solving introductory microeconomics problems I have come across the following type of utility function:&#xA;$$ f(K,L) = (\alpha K^{\frac{\sigma - 1}{\sigma}} + (1 - \alpha) L^{\frac{\sigma - 1}{\sigma}})^{\frac{\sigma}{\sigma - 1}} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I find it slightly reminiscent of the logarithm version of the Cobb-Douglas function, but clearly the exponents don't fit with that. So the question is: &lt;strong&gt;How would you interpret $\alpha$ and $\sigma$ in this case?&lt;/strong&gt;. Is $\alpha$ still the relative fraction of capital and labour? How can I think about $\sigma$? &lt;/p&gt;&#xA;" OwnerUserId="18990" LastEditorUserId="1601" LastEditDate="2018-09-05T09:11:54.727" LastActivityDate="2018-09-05T13:55:21.340" Title="Interpretation of Interesting Utility Function" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;cobb-douglas&gt;" AnswerCount="1" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="24365" PostTypeId="1" AcceptedAnswerId="24522" CreationDate="2018-09-05T09:27:11.133" Score="6" ViewCount="124" Body="&lt;p&gt;I was wondering if there is any literature on voting systems where voters elect representatives, and in the representatives' assembly the vote of each representative is weighted by the number of votes she was elected with.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;E.g.: A special but easy example would be the US supreme court. The 'voters' here are the US senators, their 'representatives' are the supreme court judges. Instead of each judge having an equal vote their vote could have a weight equal to the number of votes they were confirmed with. This would make a difference, as consensus candidates seem to be &lt;a href=&quot;https://www.axios.com/confirmation-votes-on-supreme-court-nominees-ea08cd67-d04a-474a-9b9d-ec7ee429888c.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;confirmed by more votes&lt;/a&gt; - at least in the current system. Changing the supreme court's voting mechanism could of course affect confirmations, but this may be a way to incentivize consensus.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In case of general elections and parliamentary representatives such a weighted voting system would incentivize representatives to try to represent all the voters in their district, not just the majority. (Assuming representatives care about their voting power, but one could always tie their salary to the number of votes they were elected by.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The idea is simple, so it has probably been raised before. Please refer me to some literature.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2018-09-23T14:06:24.753" LastActivityDate="2020-09-20T07:27:28.460" Title="Weighted voting: Vote of representative weighted by number of election votes" Tags="&lt;reference-request&gt;&lt;social-choice&gt;&lt;voting&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24366" PostTypeId="1" AcceptedAnswerId="24393" CreationDate="2018-09-05T09:59:33.207" Score="3" ViewCount="91" Body="&lt;p&gt;Apologies if this is a rather simple question, I appreciate any guidance. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;$$ Q(K,L) = AK^\alpha L^{\beta} $$&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;where A is a constant. Identify the conditions on $\alpha$ and $\beta$&#xA;  for output function Q to correspond to a competitive economy.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So a competitive economy is one where the factors of production are paid their marginal product. I am aware that the Cobb-Douglas production function alignes with this, so I would have: $ \alpha + \beta = 1$ and $\alpha, \beta &amp;gt; 0$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;But is this really the only and most general answer?&lt;/strong&gt; I cannot see why we couldn't have different exponents and still pay the factors of production their marginal product.&lt;/p&gt;&#xA;" OwnerUserId="18990" LastActivityDate="2018-09-07T10:48:28.893" Title="Is Cobb-Douglas the only output function corresponding to a competitive economy?" Tags="&lt;macroeconomics&gt;&lt;competitive-equilibrium&gt;&lt;cobb-douglas&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24367" PostTypeId="2" ParentId="24364" CreationDate="2018-09-05T13:55:21.340" Score="5" Body="&lt;p&gt;This is the &lt;a href=&quot;https://en.wikipedia.org/wiki/Constant_elasticity_of_substitution&quot; rel=&quot;noreferrer&quot;&gt;CES production function&lt;/a&gt;, where CES stands for constant elasticity of substitution. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The parameter $\sigma$ captures the (constant) elasticity of substitution and $\alpha$ is the share parameter. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Cobb-Douglas production function can be obtained as a special case of the CES class by taking $\sigma\to1$. For proof, I'd refer you to &lt;a href=&quot;https://economics.stackexchange.com/q/361/42&quot;&gt;this post&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2018-09-05T13:55:21.340" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24369" PostTypeId="2" ParentId="24361" CreationDate="2018-09-05T20:11:12.887" Score="5" Body="&lt;p&gt;I don't think sellers would prefer SPA over FPA. In fact, the SPA is riskier than the FPA, if we look at it from a seller's perspective. The reason is because the distribution of prices in case of the SPA is a &lt;em&gt;mean preserving spread&lt;/em&gt; of the distribution of prices in FPA(you can refer to Vijay Krishna's Auction Theory for the proof). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, the VCG mechanism finds a lot of applications in real life scenarios(like in case of network routing algorithms). It just so happens that the VCG mechanism can turn out to be the second price auction, given that certain conditions are met. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Generalized SPA is another such example, that draws its basis from the standard SPA. Please see &lt;a href=&quot;https://en.wikipedia.org/wiki/Generalized_second-price_auction&quot; rel=&quot;noreferrer&quot;&gt;https://en.wikipedia.org/wiki/Generalized_second-price_auction&lt;/a&gt; .&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As far as the English Auction is considered, it is equivalent to the SPA only in the case of independent bidders. If the values realized by the bidders depend upon the the values realized by others(meaning the valuations are now interdependent), the English Auction no longer remains equivalent to the SPA(interdependence is something that on can expect to be more prevalent in real life cases).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another thing, the RET states that the 'expected revenue' is same for standard auctions with symmetric bidders. The payment received by the seller is just the &lt;em&gt;highest bid&lt;/em&gt;. Thus, receiving a higher payment in either auction(FPA or SPA) depends on the values realized by the bidders(and the bidding strategy).&lt;/p&gt;&#xA;" OwnerUserId="16340" LastActivityDate="2018-09-05T20:11:12.887" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24370" PostTypeId="2" ParentId="24361" CreationDate="2018-09-05T20:59:29.850" Score="3" Body="&lt;p&gt;I would argue that the principal benefit to the (simple) second-price (or Vickrey) auction is the fact that it is easy. That is, it is weakly dominant strategy simply just to bid your own valuation. Straightforward. As Vickrey (1961) writes,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;Each bidder can confine his efforts and attention to an appraisal of the value the article would have in his own hands, at a considerable saving in mental strain and possibly in out-of-pocket expense.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;See the recent paper, &quot;Obviously Strategy-Proof Mechanisms&quot; (Li 2017 AER) for further discussion related to this post&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.aeaweb.org/articles?id=10.1257/aer.20160425&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.aeaweb.org/articles?id=10.1257/aer.20160425&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerDisplayName="user11305" LastActivityDate="2018-09-05T20:59:29.850" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="24371" PostTypeId="2" ParentId="24323" CreationDate="2018-09-06T01:58:27.203" Score="1" Body="&lt;p&gt;From &lt;a href=&quot;https://en.wikipedia.org/wiki/Labor_theory_of_value#Distinctions_of_economically_pertinent_labor&quot; rel=&quot;nofollow noreferrer&quot;&gt;wikipedia&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Value &quot;in use&quot; is the usefulness of this commodity, its utility. A&#xA;  classical paradox often comes up when considering this type of value.&#xA;  In the words of Adam Smith:&lt;/p&gt;&#xA;  &#xA;  &lt;blockquote&gt;&#xA;    &lt;p&gt;The word value, it is to be observed, has two different meanings, and&#xA;    sometimes expresses the utility of some particular object, and&#xA;    sometimes the power of purchasing other goods which the possession of&#xA;    that object conveys. The one may be called &quot;value in use&quot;; the other,&#xA;    &quot;value in exchange.&quot; The things which have the greatest value in use&#xA;    have frequently little or no value in exchange; and, on the contrary,&#xA;    those which have the greatest value in exchange have frequently little&#xA;    or no value in use. Nothing is more useful than water: but it will&#xA;    purchase scarce anything; scarce anything can be had in exchange for&#xA;    it. A diamond, on the contrary, has scarce any value in use; but a&#xA;    very great quantity of other goods may frequently be had in exchange&#xA;    for it (Wealth of Nations Book 1, chapter IV).&lt;/p&gt;&#xA;  &lt;/blockquote&gt;&#xA;  &#xA;  &lt;p&gt;Value &quot;in exchange&quot; is the relative proportion with which this&#xA;  commodity exchanges for another commodity (in other words, its price&#xA;  in the case of money). It is relative to labor as explained by Adam&#xA;  Smith:&lt;/p&gt;&#xA;  &#xA;  &lt;blockquote&gt;&#xA;    &lt;p&gt;The value of any commodity, [...] to the person who possesses it, and&#xA;    who means not to use or consume it himself, but to exchange it for&#xA;    other commodities, is equal to the quantity of labour which it enables&#xA;    him to purchase or command. Labour, therefore, is the real measure of&#xA;    the exchangeable value of all commodities (Wealth of Nations Book 1,&#xA;    chapter V).&lt;/p&gt;&#xA;  &lt;/blockquote&gt;&#xA;  &#xA;  &lt;p&gt;Value (without qualification) is the labor embodied in a commodity&#xA;  under a given structure of production. Marx defined the value of the&#xA;  commodity by the third definition. In his terms, value is the&#xA;  'socially necessary abstract labor' embodied in a commodity. To David&#xA;  Ricardo and other classical economists, this definition serves as a&#xA;  measure of &quot;real cost&quot;, &quot;absolute value&quot;, or a &quot;measure of value&quot;&#xA;  invariable under changes in distribution and technology.[4]&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Ricardo, other classical economists and Marx began their expositions&#xA;  with the assumption that value in exchange was equal to or&#xA;  proportional to this labor value. They thought this was a good&#xA;  assumption from which to explore the dynamics of development in&#xA;  capitalist societies. Other supporters of the labor theory of value&#xA;  used the word &quot;value&quot; in the second sense to represent &quot;exchange&#xA;  value&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So No, fiat currency has exchange value which is equal to the amount of labor you can purchase with it.&lt;/p&gt;&#xA;" OwnerUserId="19341" LastEditorUserId="19341" LastEditDate="2018-09-06T04:42:41.630" LastActivityDate="2018-09-06T04:42:41.630" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24372" PostTypeId="2" ParentId="24365" CreationDate="2018-09-06T04:39:44.780" Score="0" Body="&lt;p&gt;Generally most voting reform advocates try to tweak the voting method to select the candidate that maximizes utility for all voters rather than weighting who gets elected post vote because that would get difficult to keep track of and there could be a lot of confounding variables. With your SCOTUS example; (Ignoring the fact that it used to be very common for 98-0 approvals) what if a senator dies in a state like MA where the governor has to hold a special rather than appoint?  Would we just give up on appointing justices unless the same party help POTUS and the Senate?  Or to broaden that to a general election, what if it rained really bad on election day?  Senators elected during midterms (turnout 35%-40%) would be worthless compared to ones elected in presidential years (turnout 60%).  If we did it by raw votes That would really upset small states and any way it was done would definitely violate the constitution.  But if we didn't do it for the senate and just did it for SCOTUS isn't that just perpetuating the EXTREME bias for rural states that chamber already has to another branch?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some much better voting methods:&#xA;For Multi Winner elections there are several methods to make sure that the electorate is appropriately represented.   IMO &lt;a href=&quot;https://en.wikipedia.org/wiki/Mixed-member_proportional_representation&quot; rel=&quot;nofollow noreferrer&quot;&gt;MMP&lt;/a&gt; is the best in use but I think &lt;a href=&quot;https://www.rangevoting.org/RRV.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;RRV&lt;/a&gt; would be better.  And if you are stuck with single winner the best way to &lt;a href=&quot;http://electology.github.io/vse-sim/VSE/&quot; rel=&quot;nofollow noreferrer&quot;&gt;maximize honest voting&lt;/a&gt; and get the best result is &lt;a href=&quot;https://www.equal.vote/star-vs-irv&quot; rel=&quot;nofollow noreferrer&quot;&gt;STAR&lt;/a&gt;.  But if you are just having an up or down vote like for SCOTUS there is no need to get fancy.&lt;/p&gt;&#xA;" OwnerUserId="19341" LastActivityDate="2018-09-06T04:39:44.780" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24373" PostTypeId="2" ParentId="88" CreationDate="2018-09-06T05:31:29.453" Score="2" Body="&lt;p&gt;It's amusing to me that everyone gets taught that the LTV was all Marx.  Here is Adam smith resolving that paradox for you:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From &lt;a href=&quot;https://en.wikipedia.org/wiki/Labor_theory_of_value#Distinctions_of_economically_pertinent_labor&quot; rel=&quot;nofollow noreferrer&quot;&gt;wikipedia&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Value &quot;in use&quot; is the usefulness of this commodity, its utility. A&#xA;  classical paradox often comes up when considering this type of value.&#xA;  In the words of Adam Smith:&lt;/p&gt;&#xA;  &#xA;  &lt;blockquote&gt;&#xA;    &lt;p&gt;The word value, it is to be observed, has two different meanings, and&#xA;    sometimes expresses the utility of some particular object, and&#xA;    sometimes the power of purchasing other goods which the possession of&#xA;    that object conveys. The one may be called &quot;value in use&quot;; the other,&#xA;    &quot;value in exchange.&quot; The things which have the greatest value in use&#xA;    have frequently little or no value in exchange; and, on the contrary,&#xA;    those which have the greatest value in exchange have frequently little&#xA;    or no value in use. Nothing is more useful than water: but it will&#xA;    purchase scarce anything; scarce anything can be had in exchange for&#xA;    it. A diamond, on the contrary, has scarce any value in use; but a&#xA;    very great quantity of other goods may frequently be had in exchange&#xA;    for it (Wealth of Nations Book 1, chapter IV).&lt;/p&gt;&#xA;  &lt;/blockquote&gt;&#xA;  &#xA;  &lt;p&gt;Value &quot;in exchange&quot; is the relative proportion with which this&#xA;  commodity exchanges for another commodity (in other words, its price&#xA;  in the case of money). It is relative to labor as explained by Adam&#xA;  Smith:&lt;/p&gt;&#xA;  &#xA;  &lt;blockquote&gt;&#xA;    &lt;p&gt;The value of any commodity, [...] to the person who possesses it, and&#xA;    who means not to use or consume it himself, but to exchange it for&#xA;    other commodities, is equal to the quantity of labour which it enables&#xA;    him to purchase or command. Labour, therefore, is the real measure of&#xA;    the exchangeable value of all commodities (Wealth of Nations Book 1,&#xA;    chapter V).&lt;/p&gt;&#xA;  &lt;/blockquote&gt;&#xA;  &#xA;  &lt;p&gt;Value (without qualification) is the labor embodied in a commodity&#xA;  under a given structure of production. Marx defined the value of the&#xA;  commodity by the third definition. In his terms, value is the&#xA;  'socially necessary abstract labor' embodied in a commodity. To David&#xA;  Ricardo and other classical economists, this definition serves as a&#xA;  measure of &quot;real cost&quot;, &quot;absolute value&quot;, or a &quot;measure of value&quot;&#xA;  invariable under changes in distribution and technology.[4]&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Ricardo, other classical economists and Marx began their expositions&#xA;  with the assumption that value in exchange was equal to or&#xA;  proportional to this labor value. They thought this was a good&#xA;  assumption from which to explore the dynamics of development in&#xA;  capitalist societies. Other supporters of the labor theory of value&#xA;  used the word &quot;value&quot; in the second sense to represent &quot;exchange&#xA;  value&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Diamond has exchange value = to whatever amount of labour people are willing to trade for it.  Water has use value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But since they lived well before the advent of nuclear power they never had that ah ha moment that it should really be an energy balance that gets used to determine values.  &lt;a href=&quot;https://www.nytimes.com/2009/04/12/opinion/12zencey.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Frederick Soddy, who won a Nobel for Chemistry&lt;/a&gt; discovering radioactive decay, did some very interesting work in economics that started &lt;a href=&quot;http://habitat.aq.upm.es/boletin/n37/afsod.en.html?iframe=true&amp;amp;width=100%25&amp;amp;height=100%25&quot; rel=&quot;nofollow noreferrer&quot;&gt;to incorporate Energy Balances&lt;/a&gt; along with his way ahead of his time understanding of how Money works, as he called to move to fiat.  And was completely ignored by the mainstream of Econ (some things never change).&lt;/p&gt;&#xA;" OwnerUserId="19341" LastActivityDate="2018-09-06T05:31:29.453" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24374" PostTypeId="2" ParentId="24356" CreationDate="2018-09-06T06:11:40.417" Score="-1" Body="&lt;p&gt;Redefine self interest to be LONG TERM self interest. The rich do much worse off in a demand starved economy, with something like 50% of the population living paycheck to paycheck.  The post war Golden age was strong, because employers felt a sense of community with their employees.  Then Friedman revived that Greed is Good stuff, leading to the shareholder revolution, and then the government supercharged it by allowing companies to pay executives in stock options and allowing firms to &lt;a href=&quot;https://www.nakedcapitalism.com/2017/08/shareholder-value-killing-innovation.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;do stock buybacks&lt;/a&gt;.  Which meant that absolutely no one running large corporations had any incentive to invest, and expand the business which would pay back in years, if at all. It was much easier to just monkey around with the stock price and IBGYBG.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It would also help if economists remembered that there is no such thing as a market that isn't created, or at the very least allowed to exist because of government rules and new rules aren't always bad.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But there is always &lt;a href=&quot;https://www.nakedcapitalism.com/2012/08/kalecki-on-the-political-obstacles-to-achieving-full-employment.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;power dynamics too&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;We have considered the political reasons for the opposition to the&#xA;  policy of creating employment by government spending. But even if this&#xA;  opposition were overcome — as it may well be under the pressure of the&#xA;  masses — the maintenance of full employment would cause social and&#xA;  political changes which would give a new impetus to the opposition of&#xA;  the business leaders. Indeed, under a regime of permanent full&#xA;  employment, the ‘sack’ would cease to play its role as a ‘disciplinary&#xA;  measure. The social position of the boss would be undermined, and the&#xA;  self-assurance and class-consciousness of the working class would&#xA;  grow. Strikes for wage increases and improvements in conditions of&#xA;  work would create political tension. It is true that profits would be&#xA;  higher under a regime of full employment than they are on the average&#xA;  under laissez-faire, and even the rise in wage rates resulting from&#xA;  the stronger bargaining power of the workers is less likely to reduce&#xA;  profits than to increase prices, and thus adversely affects only the&#xA;  rentier interests. But ‘discipline in the factories’ and ‘political&#xA;  stability’ are more appreciated than profits by business leaders.&#xA;  Their class instinct tells them that lasting full employment is&#xA;  unsound from their point of view, and that unemployment is an integral&#xA;  part of the ‘normal’ capitalist system.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="19341" LastEditorUserId="19330" LastEditDate="2018-09-06T15:15:05.803" LastActivityDate="2018-09-06T15:15:05.803" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24375" PostTypeId="1" AcceptedAnswerId="24699" CreationDate="2018-09-06T08:35:13.270" Score="0" ViewCount="123" Body="&lt;p&gt;I am reading &quot;Capitalism and Freedom&quot; by Milton Friedman. In Chapter 3, &quot;The control of Money&quot;, Dr. Friedman explains how the Fed exacerbated the Great Depression of the 1930s. In particular:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In September 1931, Britain went off the gold standard. This act was&#xA;  preceded and followed by gold withdrawals from the United States.&#xA;  Although gold had been flowing into the United States in the prior two&#xA;  years, and the U.S. gold stock and the Federal Reserve gold reserve&#xA;  ratio were at an all time high, the Reserve System reacted vigorously&#xA;  and promptly to the external drain as it had not to the previous&#xA;  internal drain. It did so in a manner that was certain to intensify&#xA;  the internal financial difficulties. After more than two years of&#xA;  severe economic contraction, the System raised the discount rate—the&#xA;  rate of interest at which it stood ready to lend to member banks—more&#xA;  sharply than it has within so brief a period in its whole history&#xA;  before or since. The measure arrested the gold drain. It was also&#xA;  accompanied by a spectacular increase in bank failures and runs on&#xA;  banks. In the six months from August 1931 through January 1932, roughly one out of ten banks in existence suspended operations and total deposits in commercial banks fell by 15 per cent.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;My questions are:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Why would an increase in the discount rate arrest gold withdrawal by foreign individuals?&lt;/li&gt;&#xA;&lt;li&gt;Why would an increase in the discount rate decrease the amount of bank deposits made by commercial banks?&lt;/li&gt;&#xA;&lt;li&gt;Why would an increase in the discount rate make commercial banks fail?&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="6887" LastEditorUserId="264" LastEditDate="2018-09-08T03:29:02.243" LastActivityDate="2018-11-25T19:01:05.170" Title="Why would a rise in the discount rate stop foreign gold drain and make banks fail?" Tags="&lt;macroeconomics&gt;&lt;monetary-policy&gt;&lt;central-banking&gt;&lt;political-economy&gt;&lt;discount-rate&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="24376" PostTypeId="1" CreationDate="2018-09-06T14:22:58.653" Score="0" ViewCount="30" Body="&lt;p&gt;The law of demand holds that ceteris paribis, a decrease of demand can be caused by an increase in price. However, it is also true that when demand decreases, the price will decrease, it will fall. How can one explain this seeming contradiction? I know it's because of the invisible hand of the market forces, but can I don't know how to specifically explain what is that makes this make sense, and ensures that it is not contradiction with the law of demand. Can someone please explain? &lt;/p&gt;&#xA;" OwnerUserId="19345" LastActivityDate="2018-09-07T01:04:51.267" Title="A Question About The Laws Of Demand" Tags="&lt;supply-and-demand&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ClosedDate="2018-09-11T21:53:31.920" ContentLicense="CC BY-SA 4.0" />
  <row Id="24377" PostTypeId="1" CreationDate="2018-09-06T14:47:07.980" Score="1" ViewCount="47" Body="&lt;p&gt;Here are 4 points from my class.  &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;• Because resources are scarce, devoting more resources to&#xA;  producing capital requires devoting fewer resources to producing&#xA;  goods and services for current consumption.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;• Consequently, the accumulation of capital involves a tradeoff.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;• When governments encourage saving and investment, they also&#xA;  encourage growth and in the long run this raises the standard of&#xA;  living.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;• A well-functioning and carefully regulated financial market, one&#xA;  that quickly and efficiently brings savings and investment together&#xA;  with minimal risk and in a transparent way, is a critical ingredient&#xA;  in the recipe for economic growth.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I can conclude that saving and investment are good for growth, but I cannot tell exactly why. Can someone make it clearer, maybe with a concrete example?&lt;/p&gt;&#xA;" OwnerUserId="19346" LastActivityDate="2018-09-07T08:25:37.327" Title="How saving and investment influence growth in the long run?" Tags="&lt;macroeconomics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24378" PostTypeId="2" ParentId="24376" CreationDate="2018-09-06T15:13:18.977" Score="0" Body="&lt;p&gt;In an economic equilibrium, supply and demand, as &lt;strong&gt;functions of quantity&lt;/strong&gt; &quot;meet&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When an increase in price occur, as a result of a &lt;strong&gt;change in the supply function&lt;/strong&gt;, for example increase in the cost of labour, it is because the  &lt;strong&gt;new&lt;/strong&gt; supply function will meet the same demand function, at a point where supply prices are higher and generally the demanded quantity in such prices is lower&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The other case you suggested implies the same exercise on the demand function, for example: the effect of a health trend on fried food.&#xA;In this case, consumers maxinum prices for a given price would be lower: they would need a bigger incentive to buy&lt;/p&gt;&#xA;" OwnerUserId="19195" LastActivityDate="2018-09-06T15:13:18.977" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24379" PostTypeId="2" ParentId="24377" CreationDate="2018-09-06T15:50:32.417" Score="1" Body="&lt;p&gt;Well, define investment then...&#xA;Investment in capital basically means that the capital will generate better returns in the future (that is at the end of the investment period)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The equilibrium is the time preferences of the suppliers, of any good, for an &lt;em&gt;X&lt;/em&gt; return on capital now, &lt;strong&gt;or&lt;/strong&gt; an *X * (1 + y%)* in the future. That is, that at certain level of &lt;em&gt;y&lt;/em&gt; the supplier (of any product for that matter) will be indifferent&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This supplier time preference is the ingredient of the demand function for capital&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assuming we have functioning capital market, with an equilibrium of expected future returns, time preferences can be traded&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In such a manner, our supplier can borrow money, assuming that equilibrium prices (bond markwt yields, for example) are lower than his time preference represented by &lt;em&gt;y&lt;/em&gt;  are being done, or he can lend money should prices be higher&lt;/p&gt;&#xA;" OwnerUserId="19195" LastEditorUserId="19195" LastEditDate="2018-09-06T17:49:08.590" LastActivityDate="2018-09-06T17:49:08.590" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24380" PostTypeId="2" ParentId="24354" CreationDate="2018-09-06T18:06:06.553" Score="4" Body="&lt;p&gt;The example you've picked is slightly complicated, because I think there are two possible reasons for the difference in price.  Both could contribute at the same time, depending on your view of how wood production works in your example.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;1. The labour value invested in growing, harvesting and processing better quality wood&lt;/strong&gt; (prior to furniture manufacture).  It is natural to suspect that higher quality wood might be harder or more time-consuming to grow, otherwise nobody would bother growing low-quality wood.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;2. Rent.&lt;/strong&gt;  Marx wrote at length about &lt;a href=&quot;https://en.wikipedia.org/wiki/Differential_and_absolute_ground_rent&quot; rel=&quot;nofollow noreferrer&quot;&gt;how rent is extracted in capitalist economies&lt;/a&gt;.  If growing the best wood is a matter of owning the most fertile land, then the landowner would naturally extract that surplus value from the wood production process.  This rent then shows up in higher prices for higher quality wood.&lt;/p&gt;&#xA;" OwnerUserId="16631" LastActivityDate="2018-09-06T18:06:06.553" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24382" PostTypeId="2" ParentId="24294" CreationDate="2018-09-06T18:21:03.413" Score="0" Body="&lt;p&gt;Nothing explicit, but I think that there is no real need for a special consumer theory...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we see diversity as similar yet not identical products, for example red and yellow shirts, then for the theory to hold, you should have specific demands for yellow shirts and red shirts&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We touch marketing basics, but this is the core element of differentiation:&#xA;Markets split into sub-markets until an imperfectly imitable product is being made, then a premium can be collected on&#xA;A premium labeled red shirt for example&lt;/p&gt;&#xA;" OwnerUserId="19195" LastActivityDate="2018-09-06T18:21:03.413" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24383" PostTypeId="2" ParentId="24292" CreationDate="2018-09-06T20:13:20.663" Score="0" Body="&lt;p&gt;You're model seems to be oversimplified&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It assumes a closed market, without a central bank or government issuing the money&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regarding the closed market - in a closed market the total amount of money is completely controlled by the government, mainly by the interest rates, but theoretically also by the setting the minimal reserve ratio: the minimum amount of money an actor cannot loan to anyone else&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Removing the government reaching your model, well the equilibrium will be set by the actors' time preferences, that is what is minimal promise i would take or j would suggest&lt;/p&gt;&#xA;&#xA;&lt;p&gt;History shows that when such realities emerged, in ancient times, gold caught on as currency commodity, and even when banks showed up, until the 60s, it was the anchor for gov. currency&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hyperinflation occurs when a currency is losing trust. Usually its the trust of the government issuing that currency and paying its debt with it&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That means high budget deficits on too low interest rates in closed markets (irresponsible government), high debts in foreign currency with low foreign currency reserves or any combination of both&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Try to think of a currency as an option on a state's economy: it reflects its internal purchase power and the ability of the state to pay its debts&lt;/p&gt;&#xA;" OwnerUserId="19195" LastActivityDate="2018-09-06T20:13:20.663" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24384" PostTypeId="2" ParentId="24366" CreationDate="2018-09-06T21:35:20.167" Score="5" Body="&lt;p&gt;Let $a+b&amp;lt;1,\;\; a,b&amp;gt;0$.  Pay the factors of production their marginal product:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$rK = \frac {aQ}{K} K= aQ,\;\;\ wL=\frac {bQ}{L} L=bQ$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So total payments to factors of production will be&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$rK +wL = aQ + bQ = (a+b)Q &amp;lt; Q$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And the question is: &lt;strong&gt;who gets the rest of the output that has been produced?&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="1601" LastEditDate="2018-09-06T22:03:19.330" LastActivityDate="2018-09-06T22:03:19.330" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24385" PostTypeId="1" CreationDate="2018-09-06T22:33:41.663" Score="3" ViewCount="101" Body="&lt;p&gt;Some friends of mine run a small business, in a small garage-like space, with a few employees, making and selling &quot;plumbuses&quot;. The typical customer orders about 5 plumbuses at a time. When I heard that they have received inquiries for large orders of plumbuses (500, for bulk discount) and have consistently declined, I was confused. I strongly believe that they have the capacity to satisfy both small and large orders, in terms of production. Their reason for declining large orders was something along the lines of &quot;...but each plumbus could be sold for more when we do the smaller orders&quot;. &quot;Well, yes, but then you can make more plumbuses&quot;, is my response. Their thinking may apply to limited production items, whereas there are plenty of plumbus ingredients (dinglebops, schleem, etc) on the market where their small business will have no impact on the supply of the ingredients.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Surely there is an equation that they can use to satisfy their desired profits and fulfill these bulk orders. With my limited economics experience (some high school and college courses), I would imagine something like the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;a(x) = price of producing, packing, shipping x plumbuses&lt;/p&gt;&#xA;&#xA;&lt;p&gt;b(x) = desired profit from selling x plumbuses at once&lt;/p&gt;&#xA;&#xA;&lt;p&gt;f(x) = a(x) + b(x)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;...where the price of making x plumbuses falls on some curve, since making (and mostly packing/shipping) many at once is cheaper than processing one at a time, and the desired profit from an order of x plumbuses falls on another curve where each additional plumbus contributes some marginal profit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would like to express my ideas to my friends to help them succeed as a small business. The friend who is actually most opposed to fulfilling the bulk orders has a degree in Economics, so I would like to have some legitimacy in my pitch, backing up my position with real terms, equations, sources, and eventually, real numbers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What are the terms and equations that I am thinking of but cannot put a name to, and what resources can be recommended so that I can more informed of this topic?&lt;/p&gt;&#xA;" OwnerUserId="19351" LastActivityDate="2018-09-06T22:33:41.663" Title="How should I calculate bulk selling price for a small business?" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;pricing&gt;&lt;marginal&gt;" AnswerCount="0" CommentCount="8" ContentLicense="CC BY-SA 4.0" />
  <row Id="24386" PostTypeId="2" ParentId="24376" CreationDate="2018-09-07T01:04:51.267" Score="2" Body="&lt;p&gt;We have a problem of terms here.  &quot;Demand&quot; is usually used to refer to the function where for a given price, a given quantity will be demanded.  That quantity is referred to as the quantity demanded.  &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;a decrease of demand can be caused by an increase in price. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This is a shift along the demand curve (function).  It changes the quantity demanded, but the demand curve itself stays the same.  I would say instead:  &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;An increase in price will cause a decrease in the quantity demanded if all else is equal.  &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This could happen if the supply curve shifted.  &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;However, it is also true that when demand decreases, the price will decrease, it will fall.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This is a shift of the curve itself.  I.e. the curve or function changes as a result of a change in demand.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Even if the supply curve is fixed, the intersection could still change because the demand curve moved.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The point is that you are using demand in one place to refer to the curve and in another place you are using it to refer to the quantity demanded.  If you use different terms for those two things, it's easier to see that your statements are not in conflict.  They are talking about different things.  &lt;/p&gt;&#xA;" OwnerUserId="68" LastActivityDate="2018-09-07T01:04:51.267" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24389" PostTypeId="1" CreationDate="2018-09-07T06:39:25.213" Score="3" ViewCount="105" Body="&lt;p&gt;Pindyck, Rubinfeld. &lt;em&gt;&lt;a href=&quot;https://www.pearson.com/us/higher-education/product/Pindyck-Microeconomics-9th-Edition/9780134184241.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Microeconomics&lt;/em&gt; (2017 9 ed)&lt;/a&gt;. pp. 314-315.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/wdXFK.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/wdXFK.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;https://www.etymonline.com/word/rent#etymonline_v_10433&quot; rel=&quot;nofollow noreferrer&quot;&gt;Etymonline&lt;/a&gt; substantiates that 'rent'  originally didn't mean the microeconomics meaning overhead: no surprise, as microeconomics is a recent discipline. So please see the titled question. Why worsen the ambiguity and polysemy of 'rent', rather than using some other word?   &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Is Economic Rent related to the mainstream meaning of &quot;payment for use of property&quot;? &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="4020" LastEditorUserId="4020" LastEditDate="2018-09-07T06:51:49.273" LastActivityDate="2019-05-19T18:21:44.507" Title="Why was the term 'Economic Rent' chosen? How does it relate to the ordinary meaning of 'rent'?" Tags="&lt;definition&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24390" PostTypeId="2" ParentId="24377" CreationDate="2018-09-07T08:25:37.327" Score="2" Body="&lt;p&gt;The result you are asking about follows more formally from the Solow model. It's definitely worth looking into. I won't go into the model specifics, since I believe you are after a simple example.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, note that what economists refer to as capital is not really what most people mean when talking about capital. For us, capital is typically a production factor that is not labor. A good example is a machine. For agriculture it could also be something like fertilizer. These are all things that help you produce more and that is how you get growth from capital.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose you are a farmer who can produce 10 potatoes a year currently. You sell those potatoes and then can decide to spend that money consuming (e.g. buying steaks) or you can invest it in &quot;capital&quot;. If you spend the money on a tractor and some fertilizer, you can produce 20 potatoes next year. That is how investment leads to growth. That is also why you need to give up some consumption today in order to grow your production and have more consumption tomorrow. &lt;/p&gt;&#xA;" OwnerUserId="5557" LastActivityDate="2018-09-07T08:25:37.327" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24391" PostTypeId="2" ParentId="24389" CreationDate="2018-09-07T08:45:29.367" Score="3" Body="&lt;p&gt;Note that the Etymoline page you link traces the origin of the word rent as meaning, more generally, &quot;income revenue&quot;. Here's their definition (my emphasis):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;rent (n.1) &quot;payment for use of property,&quot; mid-12c., a legal sense, &lt;strong&gt;originally &quot;income, revenue&quot; (late Old English), from Old French rente &quot;payment due; profit, income,&quot;&lt;/strong&gt; from Vulgar Latin *rendita, noun use of fem. past participle of *rendere &quot;to render&quot; (see render (v.)).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This meaning (income revenue) is quite close to the use of the term rent by economists—i.e., an income arising from private control of some scarce factor of production.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Indeed, if we consult the Oxford English Dictionary (which I usually take as the definitive reference on the language), here's what we find in the first entry:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;1. b.&lt;/strong&gt; Revenue, income. Also &lt;em&gt;fig&lt;/em&gt;. &lt;em&gt;Obsolete&lt;/em&gt;.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The OED has examples of the word being used in this sense as late as 1783. Meanwhile, the first recorded usage of &quot;rent&quot; in the sense meant by economists is 1662. So economists didn't simply invent a new meaning for the word rent; they adopted the word because, at the time early economists were writing, it meant exactly what they wanted to say.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;The more modern meaning of &quot;payment for use of property&quot; is essentially a special case of the older, more general meaning of the word rent. Indeed, such a payment is an expense for the payer but an &lt;em&gt;income&lt;/em&gt; for the recipient.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If a recipient owns an apartment and earns an income (&quot;rent&quot;) from letting it out to a tenant then s/he is earning rent both in the common modern sense of the word, and in the sense described by Pindyck and Rubinfeld. So the usage is clearly related. It's just that this situation (someone earning an income because they own a scarce factor of production) is somewhat more general than the simple contexts in which the word rent finds every day usage.&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2018-09-07T09:37:57.140" LastActivityDate="2018-09-07T09:37:57.140" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24393" PostTypeId="2" ParentId="24366" CreationDate="2018-09-07T10:48:28.893" Score="4" Body="&lt;p&gt;Any constant returns to scale function is compatible witha competitive economy. Cobb-Douglas is not the only one. Google CES production function.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, product can be wasted or be an externality, so even in non CRS competitive economy can exist.&lt;/p&gt;&#xA;" OwnerUserId="15121" LastActivityDate="2018-09-07T10:48:28.893" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24394" PostTypeId="1" AcceptedAnswerId="24452" CreationDate="2018-09-07T14:39:57.297" Score="5" ViewCount="303" Body="&lt;p&gt;I am struggling understanding the concept of rational expectations. Can someone explain in simple words the concept of rational expectations? Does someone know a good (online) source explaining rational expectations?&lt;/p&gt;&#xA;" OwnerUserId="19354" LastActivityDate="2018-09-11T02:34:49.820" Title="Explanation Rational Expectations" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;" AnswerCount="4" CommentCount="10" ContentLicense="CC BY-SA 4.0" />
  <row Id="24395" PostTypeId="2" ParentId="24394" CreationDate="2018-09-07T14:49:48.803" Score="2" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;The concept of rational expectations asserts that outcomes do not differ systematically (i.e., regularly or predictably) from what people expected them to be. The concept is motivated by the same thinking that led Abraham Lincoln to assert, “You can fool some of the people all of the time, and all of the people some of the time, but you cannot fool all of the people all of the time.” From the viewpoint of the rational expectations doctrine, Lincoln’s statement gets things right. It does not deny that people often make forecasting errors, but it does suggest that errors will not persistently occur on one side or the other.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;from Tomas Sargent (&lt;a href=&quot;https://www.econlib.org/library/Enc/RationalExpectations.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.econlib.org/library/Enc/RationalExpectations.html&lt;/a&gt;)&lt;/p&gt;&#xA;" OwnerUserId="15121" LastActivityDate="2018-09-07T14:49:48.803" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24396" PostTypeId="2" ParentId="13911" CreationDate="2018-09-07T16:17:20.457" Score="1" Body="&lt;p&gt;This is not the elasticity of substitution formula. The correct one is, between factors, $K,L$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\sigma = \frac{\mathrm{d}\log \left(\frac{K}{L}\right)}{\mathrm{d}\log \left(\frac{F_L}{F_K}\right)}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This expression can conveniently be worked as follows: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\mathrm{d}\log \left(\frac{K}{L}\right)}{\mathrm{d}\log \left(\frac{F_L}{F_K}\right)} = \frac {(L/K)[d(K/L)]}{(F_K/F_L)[d(F_{L}/F_{K})]}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$=\frac {LF_L}{KF_K} \cdot \frac{d(K/L)}{d(F_{L}/F_{K})}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the Cobb-Douglas case we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \frac {F_L}{F_L} = \frac {1-a}{a}\frac {K}{L} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;so&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$d\left(\frac{F_{L}}{F_{K}}\right) = \frac {1-a}{a}d\left(\frac{K}{L}\right)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Substituting both expressions we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\sigma = \frac {L}{K}\frac {1-a}{a}\frac {K}{L} \cdot \frac{d(K/L)}{[(1-a)/a]d(K/L)}=1.$$&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2018-09-07T16:17:20.457" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24398" PostTypeId="1" CreationDate="2018-09-07T18:44:26.003" Score="5" ViewCount="81" Body="&lt;p&gt;Standard undergraduate textbooks begin with an exposition of the  money market with the following equilibrium condititon: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{M^{s}}{P}=L\left(R,Y\right)&#xA;$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the above, the LHS is what is defined as &quot;Real Money Supply&quot;, and the RHS is defined as &quot;Real Money Demand&quot;. My question is the following: does the fact that we divide the LHS by the price level render these two quantities in units of goods? Intuitively, I think these quantities represent the number of goods that can be bought for a given amount of nominal money. What are the units of these quantities? &lt;/p&gt;&#xA;" OwnerUserId="5233" LastActivityDate="2019-04-24T03:27:02.477" Title="Intuition behind Real Money Demand and Real Money Supply" Tags="&lt;money-supply&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24399" PostTypeId="1" AcceptedAnswerId="24424" CreationDate="2018-09-08T01:59:46.757" Score="1" ViewCount="275" Body="&lt;ol&gt;&#xA;&lt;li&gt;Please see the titled question. Poverty obviously demands pressing  solutions, let alone a stopgap. Dasgupta beneath refers to &amp;quot;the best Desta’s world can do&amp;quot;: isn't &lt;a href=&quot;https://en.wikipedia.org/wiki/Voluntary_childlessness&quot; rel=&quot;nofollow noreferrer&quot;&gt;Voluntary childlessness&lt;/a&gt; and Antinatalism more effective and instant? Kids &lt;a href=&quot;https://www.mirror.co.uk/news/world-news/garbage-kids-pictured-floating-makeshift-5990352&quot; rel=&quot;nofollow noreferrer&quot;&gt;who play and scavenge in garbage&lt;/a&gt;, and who &lt;a href=&quot;https://abcnews.go.com/International/life-tunnels-inside-underground-world-bucharest-romanias-sewer/story?id=27200275&quot; rel=&quot;nofollow noreferrer&quot;&gt;live in sewers&lt;/a&gt; may argue that it was &lt;a href=&quot;https://www.amazon.ca/Better-Never-Have-Been-Existence/dp/0199549265&quot; rel=&quot;nofollow noreferrer&quot;&gt;better never to have been born&lt;/a&gt;. &lt;a href=&quot;https://www.amazon.co.uk/Better-Never-Have-Been-Existence/dp/0199549265&quot; rel=&quot;nofollow noreferrer&quot;&gt;Harms of their existences are obvious&lt;/a&gt;:&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/EeeeT.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/EeeeT.jpg&quot; alt=&quot;enter image description here&quot; /&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&lt;ol start=&quot;2&quot;&gt;&#xA;&lt;li&gt;For those who still crave children, why isn't adoption recommended?  I refer only to &lt;em&gt;educating&lt;/em&gt; the indigent;  anything involuntary like eugenics  is unethical.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&lt;p&gt;Dasgupta, Partha. &lt;a href=&quot;https://www.amazon.co.uk/Economics-Very-Short-Introduction-Introductions/dp/0192853457&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;Economics: A Very Short Introduction&lt;/em&gt; (2007)&lt;/a&gt;.&lt;/p&gt;&#xA;&lt;p&gt;p. 159 Bottom&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;In a moving discourse on the character of poverty at the 2001&#xA;Plenary Meeting of the Pontifical Academy of Social Sciences,&#xA;Vatican, Justice Nicholas McNally of Zimbabwe urged us all to see&#xA;poverty as a sense of fatalism to ever-increasing economic&#xA;hardships in a changing, and elsewhere an often progressive, world.&#xA;At that same meeting, the political scientist Wilfrido Villacorta&#xA;suggested that the term ‘poor’ when applied to countries is perhaps&#xA;no longer useful; that countries ought perhaps now to be classified&#xA;in accordance with some such term as ‘progressive’, so that we may&#xA;ask if they have the institutions, policies, and civic attitudes in place&#xA;to enable people to improve their lot. &lt;strong&gt;Perhaps the best Becky’s world&#xA;can do for Desta’s is to offer financial and technical assistance so as&#xA;to promote and support local enterprises – including those&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;p. 160&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;&lt;strong&gt;involving education and primary health care – that people there are&#xA;all too keen to create even as they see from a distance how people&#xA;elsewhere have been able to improve their conditions of living. And&#xA;perhaps the best Desta’s world can do for Becky’s is to alert it to the&#xA;enormous stresses economic growth there has put on Nature. There&#xA;is, alas, no magic potion for bringing about economic progress in&#xA;either world. [I bolded]&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;p. 102&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;h3&gt;Gender inequalities&lt;/h3&gt;&#xA;&lt;p&gt;The considerations I have just outlined can’t on their own explain&#xA;the persistence and magnitude of household inequalities in the poor&#xA;world. In a notable article, the demographer Pravin Visaria&#xA;observed that the female–male ratio in India had shown a decline&#xA;since the Indian Census of 1901; worse, it has been considerably less&#xA;than 1. According to the most recent census, there are 93 women to&#xA;every 100 men in India. In the rich world today, the ratio is 106 to&#xA;100. In answering a question the epidemiologist Lincoln Chen&#xA;posed in response to Visaria’s finding, namely, ‘Where have the&#xA;women gone?’, he and his collaborators collected gender-based&#xA;mortality and anthropometric statistics from villages in the Indian&#xA;sub-continent and discovered male bias in the allocation of food&#xA;and health care in poor households. &lt;strong&gt;The suspicion is that parents&#xA;not only practise female infanticide, but also withhold postnatal&#xA;health care so as to reduce the number of girls in the household. [I bolded]&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.amazon.co.uk/Economics-Users-Guide-Ha-Joon-Chang/dp/1620408120&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;Economics: The User's Guide&lt;/em&gt;&lt;/a&gt;. p. 334.&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt; Inadequate childhood nutrition, lack of learning stimulus and sub-par schools (frequently found in poor neighbourhoods) restrict the development of poor children, diminishing their future prospects. Parents may have some control over how much nutrition and learning stimulus their children get – and some poor parents, to their credit, make great efforts and provide more of those things than do other parents in similar situations – but there is a limit to what they can do. They are by definition under great financial stress. Many of them are totally exhausted from juggling two or three insecure jobs. And most of them had a poor childhood and poor education themselves.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="4020" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2018-09-16T01:55:33.353" Title="Why don't economists recommend voluntary childlessness to fight poverty?" Tags="&lt;poverty&gt;" AnswerCount="2" CommentCount="8" ContentLicense="CC BY-SA 4.0" />
  <row Id="24400" PostTypeId="2" ParentId="9511" CreationDate="2018-09-08T06:00:14.980" Score="2" Body="&lt;p&gt;I quote some Reddit posts that answer this question more simply. I lightly corrected some writing.&lt;/p&gt;&#xA;&lt;hr /&gt;&#xA;&lt;h3&gt;&lt;a href=&quot;https://www.reddit.com/r/explainlikeimfive/comments/26tsah/eli5_how_does_fiat_currency_come_to_exist/chue0xd/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Post by 'scienceteacherguy' around Sep. 2014&lt;/a&gt;&lt;/h3&gt;&#xA;&lt;p&gt;Let's say that you wanted a loaf of bread from the baker. It costs 1 ounce of gold. You don't have any gold. A man comes up to you and says I'll give you 5 coins if you give me your shoes. You ask &amp;quot;what are these coins worth?&amp;quot; He says &amp;quot;These coins represent the 500 ounces of gold I owe you. Just bring it back to me sometime to get your gold.&amp;quot; You ask him &amp;quot;Do you really have 500 ounces of gold?&amp;quot; He says &amp;quot;No&amp;quot;.&lt;/p&gt;&#xA;&lt;p&gt;As you laugh and are about to give the man his coins back, the baker comes over and says &amp;quot;Oh hey, I saw you looking at my bread! Would you like some? You can pay me with that coin!&amp;quot;&lt;/p&gt;&#xA;&lt;p&gt;Would you use that coin to get your bread?&lt;/p&gt;&#xA;&lt;p&gt;Of course you would. As long as you know that your coin is good for this exchange, you don't care what it's backed up by. All you care about is its perceived validity and wide acceptance as an exchangeable object.&lt;/p&gt;&#xA;&lt;p&gt;If people keep accepting it as trade, that's all that matters. No matter what the reason is. If they think it's as good as the gold that doesn't really exist, that's the end of the discussion.&lt;/p&gt;&#xA;&lt;p&gt;Why would the baker accept the coin as payment for the bread then? Because he thinks he can give it to someone else in exchange for something else. And around and around and around we go.&lt;/p&gt;&#xA;&lt;p&gt;It's all an illusion, but it's necessary, and it works. We all just have to keep playing along, and everything will be fine.&lt;/p&gt;&#xA;&lt;p&gt;If anyone refuses to play along, however, and tries to cash the coin in....&lt;/p&gt;&#xA;&lt;h3&gt;&lt;a href=&quot;https://www.reddit.com/r/explainlikeimfive/comments/7wwuim/eli5_how_does_fiat_money_work_in_terms_of_world/du3u9lf/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Post by 'theelectricmayor' around Mar. 2018&lt;/a&gt;&lt;/h3&gt;&#xA;&lt;p&gt;Well let's examine the idea that gold backed money has value because gold has value - does gold really have value?&lt;/p&gt;&#xA;&lt;p&gt;Imagine you had a million dollars in gold coins and then all world governments and organizations vanished overnight. In this new mad max world do you think you could walk over to your neighbor and buy some of his food with gold? After all what use is gold to him, he can't eat it, it won't protect him from the rain and it won't scare off wild dogs. It's just shiny metal thats too soft to be made into tools and frankly pretty heavy to lug around.&lt;/p&gt;&#xA;&lt;p&gt;The reason a gold coin had value in the past was that somewhere in every province was some powerful lord who had more food then he could ever eat, a big castle over his head and many guards with swords who knew how to deal with wild dogs. And with all of his needs well met this lord could afford to trade some of his excess food or wood or swords for a pretty piece of metal to decorate his head with. So people used those gold coins in trade because they knew that there was a known means of cashing them out into something of true value (by trading with the lord of the castle) in the event that they couldn't find someone that would accept them as a currency.&lt;/p&gt;&#xA;&lt;p&gt;Of course once there is more than a certain amount of gold coins in circulation they in effect become a fiat currency, because the lord of the castle can only trade for so much gold before they run out of goods and there are only so many neighboring lords to try. So while this 'backing' of the gold currency existed it wasn't that robust, it would not survive a 'run on the bank' where everyone tried to cash out their gold coins at once.&lt;/p&gt;&#xA;&lt;p&gt;Now lets imagine a different kingdom. This kingdom has fertile land and is protected from invaders because of the wise policies of the king. As a result many farmers flock there to enjoy its bounty. However in return for the use of the land the king demands a yearly payment that can only be made using pieces of paper with the kings face stamped on them. The paper is worthless by itself but because the chance to farm in this kingdom has value and you can't farm there without some of those papers the papers gain value. People are willing to trade goods in exchange for these papers because then they can then can take a share of those fertile lands for a year. Indeed they now use the papers among themselves as a unit of value and even ask for it from outsiders - those who wish to buy goods from those in the fertile kingdom will need to obtain the paper its citizens value, which only makes the paper more valuable.&lt;/p&gt;&#xA;&lt;p&gt;What I've just described is most fiat currencies. The US dollar has a base value because taxes must be paid with it, and people are willing to pay those taxes because being a business in the US is more productive than being a business in a country like Somalia. In turn US businesses deal in US dollars, so the value of US goods acts as an incentive to increase the value of the dollar - you want an American truck you'll need to get American dollars. A neat example of this is OPEC (the organization of oil producers like Saudi Arabia, Kuwait, Iran, etc) who decided long ago that their oil would be indexed in US dollars. So the value of oil contributes to the value of the US dollar, and since everyone wants oil it provides a strong leg to 'prop up' the value of the dollar even if the US economy isn't doing that well. This is why it is a financial concern when OPEC talks about switching to the Euro - it means the US dollar would be losing one of its pillers of value while the Euro would gain one.&lt;/p&gt;&#xA;&lt;p&gt;So the value or promise of a fiat currency is access to the economy of the country that issued it, as well as any satellites of that dollar economy.&lt;/p&gt;&#xA;&lt;h3&gt;&lt;a href=&quot;https://www.reddit.com/r/changemyview/comments/2gbs2i/cmv_i_believe_that_the_dollar_and_all_other_fiat/ckhp5tk/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Post by 'JamesDK' around Mar. 2018&lt;/a&gt;&lt;/h3&gt;&#xA;&lt;p&gt;But why the US dollar (or other strong global fiat currencies) are a safe store of value hasn't been much discussed, so I'll try to change your view that way:&lt;/p&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;The US dollar is the only legal tender for US citizens to use in paying their debt (i.e. taxes) to the Federal Government.&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The US still boasts the largest and (arguable) strongest economy in the world. Our financial sector and our media/entertainment industries are unquestionably the 'best' in the world - our citizens and the global community aren't going to stop trading on Wall Street or consuming our movies, TV shows, and music any time soon.&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Every American who works in the largest economy on Earth is required, by law, to pay their taxes in US dollars. You could start a business tomorrow, only accept and pay your employees in Bitcoin or gold or free goods but (when April 15th comes): your taxes will be due in US dollars. Same goes for every businessperson and employee in the country.&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;So, Americans will keep the dollar afloat: what about the rest of the world? Well, America still boasts the largest military in the world, and has shown no compunction in using it to defend its economic interests. A big part of 'spreading democracy' is keeping recalcitrant parts of the world open to US cultural exchange and global (read: US) free trade. The very fact that we can use trade and economic sanctions as a disincentive to foreign belligerence (as we're doing now with Russia) says that losing access to American investment and American trade at least should be a major disincentive to behave in ways that America doesn't approve.&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;At least at present, countries and international investors are lending to the US Treasury at negative interest rates. If you lend the US government \$100, you're getting around \$98 back after 10 years. Why would anyone do this? Because you can be as close to 100% sure as possible that, after 10 years, you're getting that \$98 back. By contrast, you could take any other investment and get $150 or you could get \$25 (or nothing). The US, as a global super-power with the most powerful military on earth and the largest economy, is the safest store of value available. Better to take a small, predictable loss than an uncertain gain.&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;p&gt;All of this leads to another point that opponents of 'fiat currency' fail to grasp: everything but consumable goods is fiat currency. Gold has no value, except in the production of semiconductors, and you can't eat semiconductors. Bitcoin, though it might not be endorsed by a government, only has value because people have decided it has value. The only things that can be truly said to have value in this world are the essentials of existence - food, water, clothing, shelter, and fuel. The second you convert those resources into any type of abstraction (be that fiat currency, precious metals, cryptocurrencies, etc.) you're created an artificial store of value. At that point, your 'currency' is only worth what people will take in exchange for it - nothing has a set value.&lt;/p&gt;&#xA;&lt;p&gt;The US dollar has value because, if you try to block its use, you're denied access to the largest capital market, the largest entertainment market, and the largest and most active consumer market that planet has ever seen. The most powerful military force in the history of mankind will come down with the fury of God on your ass if you do anything that would challenge the dollar's global supremacy. You can say what you want about the 'rightness' or 'fairness' of this system, but Washington DC will be in ashes before the dollar loses its value, and (at that point) we'll all have a lot more to worry about than the value of our money.&lt;/p&gt;&#xA;&lt;p&gt;The dollar (or the Euro) may collapse, but they'll collapse after their governments. And, if the governments of the most prosperous and stable countries in the history of globe collapse: God help us all. I won't be scrounging around for gold or Bitcoins: I'll be looking for tinned soup, bottled water, and bullets.&lt;/p&gt;&#xA;&lt;h3&gt;&lt;a href=&quot;https://www.reddit.com/r/mmt_economics/comments/5kw383/help_me_understand_the_evidence_for_taxes_drive/dbrbdt9/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Post by 'geerussell' around 2017&lt;/a&gt;&lt;/h3&gt;&#xA;&lt;p&gt;That's not quite the idea of tax-driven money. A currency is worth something when people will offer real output--goods and services--in exchange for it. By imposing a tax obligation that can only be satisfied in a specific currency the issuer creates demand for that currency motivating people to offer goods and services to obtain it.&lt;/p&gt;&#xA;&lt;p&gt;The more people offering output for sale in a given currency, the more it can buy, the more it is worth. The USD for example is worth a lot because it's attached to a very rich underlying economy that produces a lot of real output for sale in USD. A currency attached to a smaller, less productive economy is going to be worth less.&lt;/p&gt;&#xA;&lt;p&gt;So it's not to say the more government taxes, the more a currency would be worth but that taxes are how the worth of a country's productive output is attached to a specific currency. How much taxation is actually needed to achieve that end will vary depending on the stability and credibility of the issuer.&lt;/p&gt;&#xA;&lt;p&gt;An already firmly established currency from a long standing stable issuer like the USD can maintain with relatively little taxation. At the other end of the spectrum a fledgling government introducing a brand new currency to a small, open economy may find it necessary to have a lot of broad and very direct taxes to drive usage. To the extent the government suffers from a lack of legitimacy or otherwise can't effectively tax, its currency will struggle to take root.&lt;/p&gt;&#xA;" OwnerUserId="4020" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2018-09-08T06:00:14.980" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24403" PostTypeId="1" AcceptedAnswerId="24408" CreationDate="2018-09-08T08:11:49.377" Score="2" ViewCount="409" Body="&lt;p&gt;Given a choice set $X$ (NOT assumed to be a commodity set...), and utility functions $u,u'$ on $X$, it is clear that if $u'$ is a strictly monotonic transformation of $u$ then they induce the same preference relation on $X$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is, under what conditions does the opposite hold? &lt;strong&gt;What are the least strict conditions we can think of that imply that if $u,u'$ induce the same preference relation on $X$, that $u'$ must then necessarily be a strictly increasing transformation of $u$?&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="11146" LastEditorUserId="11146" LastEditDate="2018-09-08T12:04:34.463" LastActivityDate="2018-09-09T11:05:44.013" Title="preference relations and monotonic transformations of utillity functions" Tags="&lt;preferences&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24404" PostTypeId="2" ParentId="24403" CreationDate="2018-09-08T11:57:47.880" Score="0" Body="&lt;p&gt;For the sake of simplicity, let us consider the domain $X$ to be $\mathbb{R_+^n}$, and let $\succsim$be any preference relation(satisfying all the required choice axioms) on this domain.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $\textbf{x}$ and $\textbf{y}$ belong to the preference relation $\succsim$ (both $\textbf{x}$ and $\textbf{y}$ are points in $\mathbb{R_+^n}$), such that $\textbf{x}$$\succsim$$\textbf{y}$. This implies that there exists some utility representation $U$ of this relation, such that $\forall$ $\textbf{x}$,$\textbf{y}$$\in$$\mathbb{R_+^n}$, we have $U(\textbf{x})$$\geq$$U(\textbf{y})$. Now, if we consider any monotonically increasing function $f(.)$, then the former inequality can very well be written as $f(U(\textbf{x}))$$\geq$$f(U(\textbf{y}))$, $\forall$ $\textbf{x}$,$\textbf{y}$$\in$$\mathbb{R_+^n}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Coming back to your question, there can be two cases. If it is already known that $U$ and $U'$ induce the same preference relation on $X$, then all the assumptions are covered under the standard choice axioms. However, to prove that one is a monotonic transformation of the other(let's say $U'$ is a monotonic transformation of $U$) you can simply find out the &lt;em&gt;demand correspondences&lt;/em&gt; corresponding to the two utility functions, and show that they are essentially the same. To see that this is true, consider the lagrangian $L$$=$$f(U(\textbf{x}))$ + $\lambda$$(w -\textbf{p.x}) $, where $w$$\in$$\mathbb{R_+}$ and $\textbf{p}$$\in$$\mathbb{R_+^n}$, and $f(.)$ is a monotonically increasing function as assumed earlier(you can also replace $f(.)$ with $U'(.)$, it's essentially the same thing). Taking the first order conditions, we get $f_U(U(\textbf{x})).U_{x_i}(\textbf{x}) -\lambda.p_{x_i}= 0$. Now, for any $i,j$$\in$ $\{1,2,..,n\}$, we have $f_U(U(\textbf{x})).U_{x_i}(\textbf{x})/p_{x_i}$$=$$f_U(U(\textbf{x})).U_{x_j}(\textbf{x})/p_{x_j}$,  or $U_{x_i}(\textbf{x})/p_{x_i}=U_{x_j}(\textbf{x})/p_{x_j}$, which is the same condition that we would've obtained if the utility function was only $U(.)$. Thus, in layman language, the demand correspondences are exactly the same 'algebraic expressions' for $f(U(.))$ and $U(.)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The second case can be when you are not aware of any preference relation, you're just given two functions, $U \&amp;amp; U'$. In that case, you can similarly proceed to solve the Lagrangian, and check whether the expressions(read as solutions for all $x_i$) obtained are same or not. If they are not same, then neither of the two functions can be represented as a monotonic transformation of the other. If they are same, you'll still need to prove that the 'expression' obtained represents a demand correspondence, and hence a preference relation exists for the given utility functions. To prove that, you simply need to check whether the demand correspondences obtained satisfies all the properties pertaining to the Slutsky's matrix(you can refer to MWG for this section).&lt;/p&gt;&#xA;" OwnerUserId="16340" LastEditorUserId="16340" LastEditDate="2018-09-09T06:35:38.300" LastActivityDate="2018-09-09T06:35:38.300" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24405" PostTypeId="1" CreationDate="2018-09-08T12:03:26.567" Score="1" ViewCount="20" Body="&lt;p&gt;I am looking for a textbook that treats revealed preference and utility theory much more thoroughly than does Mas-Collel.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What would be suggestions for this? Specifically I'm interested in conditions under which utility functions are characterized uniquely up to monotonic or linear transformations.&lt;/p&gt;&#xA;" OwnerUserId="11146" LastActivityDate="2018-09-08T14:24:10.530" Title="advanced mathematical treatement of revealed preference and utility theory?" Tags="&lt;reference-request&gt;&lt;utility&gt;&lt;expected-utility&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24406" PostTypeId="2" ParentId="24405" CreationDate="2018-09-08T14:24:10.530" Score="2" Body="&lt;p&gt;Here is a good, thorough book on revealed preference theory. I copied the bibliographic information from my Kindle copy.&#xA;Title: Revealed preference theory / Christopher P. Chambers, Federico Echenique. Description: New York : Cambridge University Press, [2016]&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Chambers, Christopher P.; Echenique, Federico. Revealed Preference Theory (Econometric Society Monographs) . Cambridge University Press. Kindle Edition. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is also the 1988 classic by David M. Kreps, Notes on the Theory of Choice (Westview publishers) and the 2013 Microeconomic Foundations I, also by Kreps (Princeton University Press) has quite a thorough discussion.&lt;/p&gt;&#xA;" OwnerUserId="19358" LastActivityDate="2018-09-08T14:24:10.530" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24407" PostTypeId="1" CreationDate="2018-09-08T14:36:18.493" Score="2" ViewCount="119" Body="&lt;p&gt;What are the economic principles behind a company continually selling a product for well under its market value. Continually here expressing that it does not appear to be some short term method to bankrupt competitors.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am talking about companies that sell products that can be routinely resold on the second hand market for many times their initial cost.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I recently watched a documentary on Nike, where it describes their humongous Limited Edition department and how they sell shoes for a few hundred dollars a pop to client base willing to wait in line for weeks and pay thousands of dollars for any one of their limited editions shoes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It describes Nike underselling their shoes by 1000% in both quantity and price. But Nike is hardly the only example, a few years ago, anyone who wanted to buy a Nintendo Wii could be certain of making a profit reselling it.&lt;/p&gt;&#xA;" OwnerUserId="10200" LastEditorUserId="68" LastEditDate="2018-09-11T09:47:50.217" LastActivityDate="2018-09-11T09:47:50.217" Title="The economics of continually selling a product for under its market value?" Tags="&lt;microeconomics&gt;&lt;price-discrimination&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24408" PostTypeId="2" ParentId="24403" CreationDate="2018-09-08T15:24:40.863" Score="2" Body="&lt;p&gt;Depending onhow one reads the question, the converse holds either always or basically never. Let $u:X\to\mathbb{R}$ and $v:X\to\mathbb{R}$ be arbitrary functions with ranges $u(X)$ and $v(X)$, respectively. It is not hard to show that $u$ and $v$ represent the same preferences if and only if there exists a strictly increasing function $h:v(X)\to\mathbb{R}$ such that $u=h\circ v$. So this is the &quot;always&quot;-answer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now one might require $h$ to be defined and strictly increasing on all of $\mathbb{R}$. In that case, one can basically never guarantee the existence of such an $h$, at least for standard economic applications. Let $X=[0,1]$, $u$ be given by $u(x)=x$ and $v$ be given by $v(x)=x$ for $x\leq 1/2$ and $v(x)=x+1$ for $x&amp;gt;1/2$. Then $v(X)=[0, 1/2]\cup (3/2,2]$. If $h:\mathbb{R}\to\mathbb{R}$ is a nondecreasing function such that $u=h\circ v$, all $r\in(1/2,3/2]$ must be mapped to the same point by $h$, so $h$ cannot be strictly increasing. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Such a problem occurs whenever $X$ is a connected topological space (say, a convex subset of some $\mathbb{R}^n$) and some continuous utility representation exists that is not constant.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem can even occur if both $v$ and $u$ are continuous. Let $X=\mathbb{R}$, $u$ be given by $u(x)=x$ and $v$ be given by $v(x)=e^x$. Then $v(X)=\mathbb{R}_{++}$, the set of strictly positive numbers. Suppose there were some strictly increasing function $h:\mathbb{R}\to\mathbb{R}$ such that $u=h\circ v$. Then $h$ would be a strictly increasing extension of the logarithm function to all of $\mathbb{R}$, which is impossible.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, some positive result: If $X$ is a connected topological space, and $u:X\to\mathbb{R}$ and $v:X\to\mathbb{R}$ are continuous functions that represent the same preferences and are either both bounded above or unbounded above and are either both bounded below or unbounded below, then there exists a strictly increasing continuous function $h:\mathbb{R}\to\mathbb{R}$ such that $u=h\circ v$.&lt;/p&gt;&#xA;" OwnerUserId="1442" LastEditorUserId="1442" LastEditDate="2018-09-09T11:05:44.013" LastActivityDate="2018-09-09T11:05:44.013" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24410" PostTypeId="2" ParentId="24407" CreationDate="2018-09-08T18:15:22.847" Score="3" Body="&lt;p&gt;1st of all, you should distinguish cases from the Nike case and others, if any:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since Nike sells only a tiny portion of its shoes &quot;irrationally&quot; it cannot be seen as market value - equilibrium price, but rather as marketing expenses&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Think that simply generating a rare nike products market adds value to the brand and motivates consumers to prefer nike&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regarding any other case: they can either be &quot;dumping&quot; - that is selling at a loss in order to throw your competitors, selling above your *average * cost, meaning making  a profit, maybe fightinv for market share, or being cross funded by different activity, to hurt competitors in the subject market&lt;/p&gt;&#xA;" OwnerUserId="19195" LastActivityDate="2018-09-08T18:15:22.847" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="24412" PostTypeId="2" ParentId="24361" CreationDate="2018-09-08T20:41:53.013" Score="0" Body="&lt;p&gt;The SPA/VCG rule has not only the characteristics other have mentioned here - namely that truthful reporting your valuation is weakly dominant. There's an important feature of it that more often than not goes unmentioned.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, what exactly is the SPA/Vickrey Auction? The Vickrey-Clarke-Groves mechanism is basically a pair of primal-dual linear programming problems. The primal's solution gives us who should get the good and the dual's solution, how much is this agent supposed to pay. This is isn't accidental. It resembles perfect competition general equilibrium models, which one can describe as linear programming problems in finite dimension.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In pigouvian terms, the VCG mechanism guarantees there's no mismatch between social and private marginal gains. There's a deep price theory implication in the VCG mechanism. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As &lt;a href=&quot;https://www.sciencedirect.com/science/article/pii/0022053180900393&quot; rel=&quot;nofollow noreferrer&quot;&gt;Ostroy showed in 1980&lt;/a&gt;, perfect competition implies alignment between private benefits and each agent's social shadow-price.  This also happens in a Vickrey Auction. As a matter of fact, one can think of a perfectly competitive market as a giant Vickrey Auction.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Second price/ Vickrey auctions mirror perfect competition&lt;/em&gt;. That's why they're vastly preferred. Expected revenue may be the same, but allocative efficiency is definitely better.&lt;/p&gt;&#xA;" OwnerUserId="18167" LastActivityDate="2018-09-08T20:41:53.013" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24413" PostTypeId="2" ParentId="24394" CreationDate="2018-09-08T20:48:02.923" Score="1" Body="&lt;p&gt;Rational Expectations - as opposed to Adaptive Expectations - is a theoretical framework in which agents form expectations not solely based on past experiences but also on current information, priors and what they think is going to happen.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It doesn't imply perfect prediction of the future, just that a policymaker can't systematically fool agents, at the risk of losing credibility. This was a big leap forward in terms of macroeconomic theory in the 70s.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT: Mark's comment reminded me of an important aspect of RE. Before it, models assumed agents &lt;em&gt;didn't know the model&lt;/em&gt;. Part of the Lucas Critique is that policymakers can't statically estimate parameters and think that agents aren't responsive to policy trying to explore trade-offs and induce certain states.&lt;/p&gt;&#xA;" OwnerUserId="18167" LastEditorUserId="18167" LastEditDate="2018-09-08T23:39:46.663" LastActivityDate="2018-09-08T23:39:46.663" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="24415" PostTypeId="1" CreationDate="2018-09-08T22:42:36.723" Score="6" ViewCount="576" Body="&lt;p&gt;I would like to ask for your help. I recently learned that the Lexicographic Preference relation can be represented by a utility function $u:X\to\mathbb{R}$ on $\mathbb{Q}\times\mathbb{R}$ (but not $\mathbb{R}\times\mathbb{Q}$).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To recall, a lexicographic preference relation says that on $\mathbb{R^2}$, $x\succeq y$x if and only if $x_1&amp;gt;y_1$  or $x_1=y_1$ and $x_2\geq y_2$ where $x=(x_1,x_2)$ and $y=(y_1,y_2)$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, I would have liked to see a proof of this statement and how is it possible to build such a utility representation. I guess that we must assume first that there exist a utility representation for the Lexicographic preference on $\mathbb{Q}\times\mathbb{Q}$ since the latter is countable, but I am lost after.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Infinitely many thanks for your help!&lt;/p&gt;&#xA;" OwnerUserId="19272" LastEditorUserId="1442" LastEditDate="2018-09-09T00:08:02.597" LastActivityDate="2018-09-10T10:42:33.347" Title="Lexicographic Preference Relation on the QxR" Tags="&lt;preferences&gt;&lt;decision-theory&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24417" PostTypeId="2" ParentId="24415" CreationDate="2018-09-09T00:37:07.943" Score="3" Body="&lt;p&gt;Note first that for each nontrivial (more than one point) compact interval $I$, there exists a strictly increasing function from $\mathbb{R}$ to $I$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $\langle q_1,q_2, q_3,\ldots\rangle$ be an enumeration of $\mathbb{Q}$. We will define $u:\mathbb{Q}\times\mathbb{R}\to\mathbb{R}$ inductively, one $q_n$ after another.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $I_1$ be a nontrivial compact interval and $u_1:\mathbb{R}\to I_1$ be strictly increasing.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now assume there are disjoint nontrivial compact intervals $I_1,\ldots,I_n$ that ordered on the line like $q_1,\ldots,q_n$, and strictly increasing functions $u_m:\mathbb{R}\to I_m$ for $m\leq n$. Since these intervals are closed and disjoint, there is space between any two consecutive intervals. So one can put a nontrivial compact interval $I_{n+1}$ in a place corresponding to $q_{n+1}$ among $q_1,\ldots, q_n$. Choose also some strictly increasing function $u_{n+1}:\mathbb{R}\to I_{n+1}$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This will give you a disjoint sequence $\langle I_1, I_2, \ldots\rangle$ of nontrivial intervals and a sequence of functions $\langle u_1, u_2, \ldots\rangle$ with $u_n:\mathbb{R}\to I$ be strictly increasing. Now define $u:\mathbb{Q}\times\mathbb{R}\to \mathbb{R}$ by $u(q_n,r)=u_n(r)$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can verify that $u$ represents the lexicographic ordering on $\mathbb{Q}\times\mathbb{R}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Warning: The existence of a countably infinite number of disjoint nontrivial intervals might appear very strange, but is perfectly fine. &lt;/p&gt;&#xA;" OwnerUserId="1442" LastActivityDate="2018-09-09T00:37:07.943" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="24418" PostTypeId="1" CreationDate="2018-09-09T06:10:02.070" Score="1" ViewCount="35" Body="&lt;p&gt;In the Law of Variable Proportions, it is said that a producer prefers to work in the second phase where it is the phase of diminishing returns while number of variable factors are increased. But shouldn't they prefer to work in the first phase where there are increasing returns? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Doesn't increasing returns seem to be a better possibility for producers rather than diminishing returns?&lt;/p&gt;&#xA;" OwnerUserId="19365" LastActivityDate="2018-09-09T06:10:02.070" Title="Law Of Variable Proportions" Tags="&lt;microeconomics&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24419" PostTypeId="1" CreationDate="2018-09-09T07:40:32.467" Score="1" ViewCount="117" Body="&lt;blockquote&gt;&#xA;&lt;p&gt;Given two companies, total assets of $100 million each.&lt;/p&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Company 'A' owns \$50M of company 'B'.&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Company 'B' owns \$50M of company 'A'.&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;If you look at the value of both companies do you get \$200M or \$100M in value?&lt;/p&gt;&#xA;&lt;p&gt;Is there any effect of this in the stock market where there is lots of circular ownership?&lt;/p&gt;&#xA;" OwnerUserId="19366" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2018-09-09T07:40:32.467" Title="Value of companies with circular ownership" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;finance&gt;&lt;stock-market&gt;&lt;financial-economics&gt;" AnswerCount="0" CommentCount="1" ClosedDate="2018-09-15T23:08:08.260" ContentLicense="CC BY-SA 4.0" />
  <row Id="24423" PostTypeId="1" AcceptedAnswerId="24426" CreationDate="2018-09-09T14:44:18.370" Score="3" ViewCount="537" Body="&lt;p&gt;Suppose that consumer's utility function for three goods is separable, that is,&#xA;&lt;br/&gt;&#xA;$U(x_1, x_2, x_3) = f_1(x_1) + f_2(x_2) + f_3(x_3)$ ...(i)&#xA;&lt;br/&gt;&#xA;where $f_i$ is increasing and strictly concave, i=1,2,3. Show that&#xA;&lt;br/&gt;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;$ df_i/dP_1 $ for i = 2,3 can be either positive or negative, but they must be of the same sign where $f_i$ is the demand function for good i and $P_1$ is price of good 1.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;br/&gt;&#xA;i reasoned using the equimarginal principle where at optimum we must have &#xA;&lt;br/&gt;&#xA;$ MU_1/P1 = MU_2/P2 = MU_3/P3 $.&#xA;&lt;br/&gt;&#xA;suppose good 1 is normal, if $P_1$ rises demand for good 1 falls, that is $df_1/dP_1$ &amp;lt; 0. Due to law of diminishing marginal utility $MU_1$ rises, however to maintain equilibrium $ MU_2,  MU_3$ must also rise. So, $df_2/dp_1 &amp;lt; 0$ and $ df_3/dP_1 &amp;lt; 0$. But i couldn't do it more mathematically, taking the derivative of (i) w.r.t $P_1$ isn't of much use, please help.&lt;/p&gt;&#xA;" OwnerUserId="14458" LastActivityDate="2018-09-09T19:39:50.540" Title="separable utility function and cross price effect" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;self-study&gt;" AnswerCount="1" CommentCount="11" ContentLicense="CC BY-SA 4.0" />
  <row Id="24424" PostTypeId="2" ParentId="24399" CreationDate="2018-09-09T16:28:47.477" Score="-1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Why don't economists recommend voluntary childlessness to fight&#xA;  poverty?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Because making that recommendation is unpopular, and the bulk of society does not seem ready to have a serious discussion about it. And at an individual level, nobody who wants to have children will change his or her mind solely on grounds of what economists suggest would be best for society.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Governments could certainly make a much better effort to avoid overpopulation, although that would entail striking much of the outdated and populist welfare mentality. In the U.S., many women living in poverty --with no studies and no job-- bear multiple children (in some cases, each impregnation being effected by a different man), and yet these biological parents are given no ultimatum from the welfare system. If further welfare benefits were conditioned on --say-- sterilization, &quot;Human Rights&quot; activists would make a huge scandal. To a greater or lesser extent, systemic deficiencies of that sort also exist in Africa and Europe.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Instead of &lt;em&gt;voluntary childlessness&lt;/em&gt;, I think a more realistic, more embraceable option is to &lt;em&gt;postpone childbearing&lt;/em&gt;. The era where the next generation was needed for helping --say-- in the farm is long gone. Now the ongoing increase of life expectancy and of automation require[s] people to enhance their skills set. The latter is much harder to attain if the young adult is already immersed in parenting obligations.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;For those who still crave children, why isn't adoption recommended?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I personally do not see it viable, but any elaboration in this regard is too susceptible to misinterpretations and requires weighing a multitude of factors. I will only point out that adoption does not address one root cause of the problem: That the system largely fails (or hopefully not so much now and I am just unaware of it) to prevent &lt;em&gt;multiple unplanned pregnancies&lt;/em&gt; among individuals with high reproductive rates and living in extreme poverty.&lt;/p&gt;&#xA;" OwnerUserId="18552" LastActivityDate="2018-09-09T16:28:47.477" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24425" PostTypeId="2" ParentId="24394" CreationDate="2018-09-09T18:34:03.677" Score="-1" Body="&lt;p&gt;I will provide an actual answer because I strongly believe that embedding the rational expectations (RE) assumption into macroeconomic models is ridiculous. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I will try to crystalize this in a concise way. Anytime we try to use a macroeconomic model to forecast outcomes we are actually creating a model that incorporates, via probability distribution, all possible outcomes. RE assumes that nothing unforeseen occurs (it is whenever nothing unforeseen occurs that rational agents can act optimally) and that rational agents are then able to compute profit maximizing choice paths. Further, any behavioral deviations necessarily produce sub-optimal paths for choice variables. This is akin to assuming that all economic actors know the model governing the DGP within which they operate. And this yields (2): agents can only form RE whenever they know the true specification of the economic model governing their world and its exact parameterization. You decide for yourself if you think these are good assumptions. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This yields an extreme (and perhaps dangerous) system of thinking; the supposition that economic models ought to consistently provide reliable quantitative predictions about future outcomes, for example. It is also ironic that modern macroeconomists micro-found current models to attain quantitative predictions over an ordinal outcome. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;See the work of Roman Frydman. A good starting point is &quot;Towards an Understanding of Market Processes: Individual Expectations, Learning, and Convergence to Rational Expectations Equilibrium&quot;. AER, 1982. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You might also look into the behavioral and experimental macroeconomics literature. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;edit: I will add --  Evans, G. W. and G. Ramey (2006) Adaptive Expectations, Under parameterization and the Lucas Critique. Journal of Monetary Economics for assertion (2)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;edit2: My memory was incorrect and erik (below in comments) is correct. Frydman didn't win the NP. It was his co-founder of his institution at Columbia university Edmund Phelps. &lt;/p&gt;&#xA;" OwnerUserId="1655" LastEditorUserId="1655" LastEditDate="2018-09-11T02:34:49.820" LastActivityDate="2018-09-11T02:34:49.820" CommentCount="12" ContentLicense="CC BY-SA 4.0" />
  <row Id="24426" PostTypeId="2" ParentId="24423" CreationDate="2018-09-09T19:39:50.540" Score="5" Body="&lt;p&gt;The following argument assumes that we are dealing only with interior solutions. Let $(x_1,x_2,x_3)$ be an optimal demand bundle at prices $(p_1,p_2,p_3)$ and income $m$ and assume that $(x_1,x_2,x_3)$ is an optimal demand bundle at prices $(p_1',p_2,p_3)$ and income $m$. We want to show that one of the following three cases holds: &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;$x_2=x_2'$ and $x_3=x_3'$,&lt;/li&gt;&#xA;&lt;li&gt;$x_2&amp;lt;x_2'$ and $x_3&amp;lt;x_3'$, or&lt;/li&gt;&#xA;&lt;li&gt;$x_2&amp;gt;x_2'$ and $x_3&amp;gt;x_3'$.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;What is not allowed to happen is that $x_2\leq x_2'$ and $x_3&amp;gt;x_3'$ or $x_2&amp;gt;x_2'$ and $x_3\leq x_3'$. Assume one of these cases happens, without loss of generality, we can assume it is the first.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By the strict concavity of $f_2$ and $f_3$, we have&#xA;$$MU_2(x_1,x_2,x_3)=\frac{\partial f_2(x_2)}{\partial x_2}\geq \frac{\partial f_2(x_2')}{\partial x_2}=MU_2(x_1',x_2',x_3')$$&#xA;and&#xA;$$MU_3(x_1,x_2,x_3)=\frac{\partial f_3(x_3)}{\partial x_3}&amp;lt; \frac{\partial f_3(x_3')}{\partial x_3}=MU_3(x_1',x_2',x_3').$$ &#xA;Therefore,&#xA;$$\frac{MU_2(x_1',x_2',x_3')}{p_2}\leq\frac{MU_2(x_1,x_2,x_3)}{p_2}=\frac{MU_3(x_1,x_2,x_3)}{p_3}&amp;lt;\frac{MU_3(x_1',x_2',x_3')}{p_3},$$&#xA;in contradiction to the equimarginal principle.&lt;/p&gt;&#xA;" OwnerUserId="1442" LastActivityDate="2018-09-09T19:39:50.540" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24427" PostTypeId="1" AcceptedAnswerId="24430" CreationDate="2018-09-09T20:01:54.560" Score="1" ViewCount="82" Body="&lt;p&gt;I am currently writing my bachelor thesis on peer effects. However, the more I read about the identification problems (I read e.g. Manski, Moffitt, Angrist, Goldsmith et al.), the less I understand. I particularly have a problem with understanding how endogenous selection affects my estimates (omitted variables? Selection bias?) and understanding the correlated unobservables/ related errors in variables and the endogenous membership problem and how or whether they relate to each other. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know this is a lot but any help is appreciated!!! Thanks a lot!!!&lt;/p&gt;&#xA;" OwnerUserId="19378" LastActivityDate="2018-09-09T21:07:29.377" Title="What are the identification problems in measuring peer effects?" Tags="&lt;microeconomics&gt;&lt;applied-econometrics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24428" PostTypeId="1" AcceptedAnswerId="24431" CreationDate="2018-09-09T20:29:11.550" Score="0" ViewCount="19" Body="&lt;p&gt;Need you help .. &#xA;Have couple questions about the &lt;a href=&quot;https://www.cmegroup.com/trading/agricultural/files/ht_charts/snd_cbt.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Wheat Report&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;M Acres stands for ? Million acres ?&lt;/li&gt;&#xA;&lt;li&gt;Yield Bu/Acre , can anybody explain this calculation ? &lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Stocks use ratio % , how the calculation works ?   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/rel1z.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/rel1z.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="19379" LastActivityDate="2018-09-09T21:27:26.000" Title="How to understand the USDA Demand/Supply report ?" Tags="&lt;commodities&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24430" PostTypeId="2" ParentId="24427" CreationDate="2018-09-09T21:07:29.377" Score="0" Body="&lt;p&gt;Well, imagine you don't know how students are grouped. Maybe better students are deliberately grouped together, for example. Then your estimation is clearly biased. You'd basically reach the conclusion that classes with better students are better. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Peer effects are hard to identify with observational data because similarities in the behavior of peers could be due to peer effects or to selection into peer groups based on common unobserved characteristics, or to factors that affect all peers in a peer group.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To do a proper estimation we need a quasi-experiment, preferably a true experiment. Because in such context you indeed know that student allocation is random, so there's a clear causal link and possibility to separate the treatment effect from homophily and confounding factors.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Angrist and Pischke's &lt;em&gt;Mostly Harmless Econometrics&lt;/em&gt; is a must-read for anyone interesting in working in this topic. &lt;a href=&quot;https://economics.mit.edu/files/9800&quot; rel=&quot;nofollow noreferrer&quot;&gt;Angrist (2014)&lt;/a&gt; discusses this matter in more depth and this &lt;a href=&quot;http://www.nber.org/digest/apr01/w7867.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;NBER digest&lt;/a&gt; may help you with the intuition. &lt;/p&gt;&#xA;" OwnerUserId="18167" LastActivityDate="2018-09-09T21:07:29.377" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24431" PostTypeId="2" ParentId="24428" CreationDate="2018-09-09T21:27:26.000" Score="1" Body="&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;em&gt;M Acres&lt;/em&gt; is million &lt;a href=&quot;https://en.wikipedia.org/wiki/Acre&quot; rel=&quot;nofollow noreferrer&quot;&gt;acres&lt;/a&gt;, as you suggest&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;em&gt;Bu&lt;/em&gt; is &lt;a href=&quot;https://en.wikipedia.org/wiki/Bushel&quot; rel=&quot;nofollow noreferrer&quot;&gt;bushel&lt;/a&gt;, in theory a volume of 8 US dry gallons, but apparently for wheat at 13.5% moisture it represents a weight 60 pounds.  &lt;em&gt;Bu/Acre&lt;/em&gt; is therefore an average yield: with some minor rounding $\frac{2309}{43.9}\approx 52.7$ in the first column&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;em&gt;Stocks/Use ratio&lt;/em&gt; seems to be the stocks at the end of the period divided by the total use (domestic and exports) in the period so in the first column $\frac{1181}{2222}\approx 53.2\%$  &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2018-09-09T21:27:26.000" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24433" PostTypeId="2" ParentId="13989" CreationDate="2018-09-09T22:13:46.100" Score="1" Body="&lt;p&gt;I came here to answer this question again because I feel like I omitted important points.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Schools don't present your typical production function. They're multi-product firms with several inputs with varying degrees of substitutability and complementarity. Different outputs (such as human capital, student health and socio-emotional skills) aren't necessarily antagonistic, but compete for school resources and there likely are multiple equilibria, given the vast amount of inputs and multiple outputs. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;One important feature of a school's production function is that customers are a central aspect of the firm's technology. Students aren't just customers, they're inputs and each one has an unique, time-varying marginal productivity. This implies private schools should charge students different tuitions, in some cases provide full-scholarships or even &lt;em&gt;pay&lt;/em&gt; students to attend the school. A good student, through peer effects, can alleviate the school's input demand - especially for teachers and TAs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, yeah, you're right. Usual pricing strategies used in &quot;traditional producer theory&quot; aren't exactly appropriate for studying the &quot;industrial organization of schools&quot;. Because of (i) the variety of input substitutability and complementarity, (ii) customer-input technology and (iii) the presence of various outputs. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some schools, for example, focus on the niche market of &quot;conscious&quot; parents and devote more resources to socio-emotional skills. Others go for the classic &quot;we educate geniouses here&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://sites.williams.edu/wpehe/files/2011/06/DP-40.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Winston (1996)&lt;/a&gt; is a good reference on this topic.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I hope I made things a bit clearer.&lt;/p&gt;&#xA;" OwnerUserId="18167" LastEditorUserId="18167" LastEditDate="2018-09-10T06:06:53.553" LastActivityDate="2018-09-10T06:06:53.553" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24434" PostTypeId="1" CreationDate="2018-09-10T02:47:30.710" Score="1" ViewCount="21" Body="&lt;p&gt;If I were to use capacity share (as a proxy of quantity market share) in a demand estimation setup (such as BLP), are there ways to deal or interpret the measurement error? I would consider this question answered if someone could point to a paper in which something similar was made.   &lt;/p&gt;&#xA;" OwnerUserId="19376" LastActivityDate="2018-09-10T02:47:30.710" Title="Using capacity share instead of quantity market share in demand estimation (BLP)" Tags="&lt;econometrics&gt;&lt;supply-and-demand&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24435" PostTypeId="2" ParentId="9706" CreationDate="2018-09-10T03:52:38.547" Score="1" Body="&lt;p&gt;In your case, you might try to reach the said antitrust authority and ask for the dataset. You also could reach the parties themselves and ask for the shared data. Authorities acquire these datasets through parties BI data and/or third parties that might have some connection to the merger (companies concerned with the operation, clients etc). I believe it is highly improbable that the data is made publicly available anywhere.   &lt;/p&gt;&#xA;" OwnerUserId="4640" LastActivityDate="2018-09-10T03:52:38.547" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24436" PostTypeId="1" CreationDate="2018-09-10T03:57:49.513" Score="0" ViewCount="54" Body="&lt;p&gt;I want to find conditions under which two utility functions can be known to be linear transformations of each other.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider a (possibly finite) arbitrary set of outcomes $X$ (Not necessarily interpreted as commodities), and a specific utility function $u^*:X\to \mathbb R$. &lt;strong&gt;We want to find out whether an agent's utility function is a linear transformation of $u^*$ or not.&lt;/strong&gt; Consider a set of lotteries $\mathcal L$ on $X$. Now suppose we give an agent choices between subsets $C\subseteq \mathcal L$. What I want is: What choices do we need to give to the agent to know that his utility function is a linear transformation of some utility function $u^*$?&#xA;Note: we don't need to check whether the agent has rational preferences. We assume from the outset that he has a vnM utility funciton.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is simply revealed preference, but I don't recall reading about anything about this specifically. &lt;/p&gt;&#xA;" OwnerUserId="11146" LastEditorUserId="11146" LastEditDate="2018-09-10T04:18:26.610" LastActivityDate="2019-04-09T03:03:35.870" Title="Efficient revealed preference check of whether two preferences over lotteries are the same?" Tags="&lt;preferences&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24437" PostTypeId="1" CreationDate="2018-09-10T05:29:00.083" Score="1" ViewCount="25" Body="&lt;p&gt;I have been asked the following question, and I don't understand why the expected value of the firm is conditioned on the trade taking place.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;Suppose that a firm owns a business unit that it wants to sell. Potential buyers know that the seller values the unit at either $100m, $110m, $120m, . . . , $190m, each value equally likely. The seller knows the precise value, but the buyer only knows the distribution. The buyer expects to gain from synergies with its existing businesses, so that its value is equal to seller’s value plus $10m. (In other words, there are gains from trade.) Finally, the buyer must make a take-it-or-leave-it offer at some price p. How much should the buyer offer?&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The answer is the &#xA;$$ (10 + E[value|trade takes place] - (Price Paid for business)) \times Prob(trade takes place|Price paid)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't understand why $E[value|trade takes place]$ is conditioned on the trade, I would have though that it would just be $E[value]$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can anyone shed light on why this is the case? &lt;/p&gt;&#xA;" OwnerUserId="14175" LastActivityDate="2018-09-10T05:29:00.083" Title="Why is the expected value conditional on the trade taking place in an adverse selection problem?" Tags="&lt;microeconomics&gt;&lt;adverse-selection&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24438" PostTypeId="2" ParentId="24407" CreationDate="2018-09-10T06:44:12.543" Score="1" Body="&lt;p&gt;Consider what a downward sloping demand curve means.  The first customer is willing to pay a higher price than the second customer and so on.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Concretely, consider a first customer who is willing to pay \$1 million and a second customer willing to pay \$500 thousand.  So if Nike prices at \$1 million a pair, it makes one pair and sells for \$1 million.  If it prices at \$500 thousand, it makes two pairs and sells for \$1 million total.  This is not discriminatory pricing.  With discriminatory pricing, Nike would sell the first pair at \$1 million and the second pair at \$500 thousand, for \$1.5 million total.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now consider what happens if we add a third customer who is willing to pay \$100 thousand.  If Nike sells at that price, it has three customers and sells for \$300 thousand total.  It was much better off selling at either \$1 million or \$500 thousand.  But what if there are more customers at \$100 thousand?  If we add ninety-seven more customers at \$100 thousand, Nike can sell a hundred pairs for \$10 million total.  That's more than it made at a \$1 million price point.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your assumption is that if Nike sells its shoes for \$300 and there is someone willing to pay \$2000 for a pair, that Nike could sell at \$2000.  But if Nike sold at \$2000, many of its other customers would drop out.  That's not a market price; it's a specific customer price.  And if Nike sells less than a seventh as many shoes at \$2000 as at \$300, it makes less money even with the higher price.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To explain why they price at a point where they run out rather than leaving a slight excess.  Because forcing people to make a \$300 or no shoe decision may be more successful if the person knows that the shoe won't be available tomorrow.  They may actually sell more shoes if they are expected to run out than they would if the shoes were guaranteed to be plentiful.  Because people can't procrastinate making the choice.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;That's not to say that there aren't marketing reasons as well, but that we don't necessarily need marketing to explain this.  &lt;/p&gt;&#xA;" OwnerUserId="68" LastActivityDate="2018-09-10T06:44:12.543" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24441" PostTypeId="1" CreationDate="2018-09-10T10:21:02.790" Score="1" ViewCount="40" Body="&lt;p&gt;How is the currency value estimated? Why India has lowest prices to dollar? For example if you buy bread in India it will cost you 1 dollar and in USA 5 dollars&lt;/p&gt;&#xA;" OwnerUserId="19384" LastActivityDate="2018-09-10T12:12:48.617" Title="On what does currency value depend" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="1" ClosedDate="2018-09-15T23:37:12.243" ContentLicense="CC BY-SA 4.0" />
  <row Id="24443" PostTypeId="2" ParentId="24441" CreationDate="2018-09-10T12:12:48.617" Score="0" Body="&lt;p&gt;I will answer your question from the economic point of view, not financial. Your question can be understood from several differents positions. Im from Argentina and nowadays Argentina has devaluated the money nearly 50% agains USA dollar. When I analize why, it comes clearly when I see macroeconomics data. Speaking about INDIA, in general terms the relation Country Money/North American Dollar is explained economically with the macroeconomics equilibium result. Lets see what we have in India. The GDP per capita is low, as you can see in the image, meaning that the value added per capita is poor against USA. You can imagine like you do a simple job, may be Rural job, against USA (industrial work) . The Debt (% GDP) is near 68% (think that as you have an important DEBT to attend annually. The Debt Per Capita is near $1183 dollars, so you can imagine that you have that debt. Your Education Expense (% GDP) is 14%, that number is not so great if you want change the economic structural problem and economic development. Health expenditure is near 5%, that is low, so you may be dont have a huge life expectancy, in fact is 68 years!. People in your country tends to Emigrate rather than inmigrate, so imagine that you dont like to much live in India. Each marriage has 2.33 sons and you have a tremendous amount of people to feed (2.400 millons or persons). There is more, you spend the money buying GUNS more than EDUCATION, your Defense Spending %GDP is 14% (very big) and ending, your imports are bigger than your export so you spend more money than you should. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/iOGDj.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/iOGDj.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a conclution, India´s value added is low, so the income is low, India spend few in education and Health but too much in military stuff. India has debt and Buy (gold and crude petroleum) more than sells (diamonds, refined oil). If you have an expensive dollar your petroleum will be more expensive. The value of a Rupia agains USA Dollar is calculated by the Central Bank of India, and it is not easy to explain because it has a complex macroeconomic impact and reasons, but, in general, it needs to be one value that maximize the Indian macroeconomics indicators and gives an improvement trend for the society. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/prRKa.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/prRKa.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt; &lt;/p&gt;&#xA;" OwnerUserId="19385" LastActivityDate="2018-09-10T12:12:48.617" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24444" PostTypeId="1" CreationDate="2018-09-10T12:18:11.690" Score="0" ViewCount="1949" Body="&lt;p&gt;Suppose u(x,y)=min{x+y,4(x)^1/2,4(y)^1/2} , Px=1, Py=2, M=5 . Here, Px, Py and M are the price of x, price of y, and the Income. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Give an example of the optimal consumption bundle of x and y for this consumer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know to plot the Indifference Curve given a value of Utility,however how could I know what is the maximum utility that can be obtained in this case? &lt;/p&gt;&#xA;" OwnerUserId="19386" LastActivityDate="2018-09-10T13:44:57.593" Title="Finding Optimal Consumption Bundle" Tags="&lt;microeconomics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24445" PostTypeId="2" ParentId="24444" CreationDate="2018-09-10T12:28:08.750" Score="0" Body="&lt;p&gt;The indifference curve is the set all optimal sets of consumption.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The indifference curve derives from the utility function, which itself is a 3 variables equation (both x and y explain u)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Mathmatically , once you have the budget constraint you need to use it with the derivative of the utility function to find the optimum *under * the specific budget constraint&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your utility function cannot be derived once, but needed to be derived thrice, and &quot;sewed&quot; on the mininum places&lt;/p&gt;&#xA;" OwnerUserId="19195" LastEditorUserId="19195" LastEditDate="2018-09-10T13:12:18.627" LastActivityDate="2018-09-10T13:12:18.627" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24446" PostTypeId="1" CreationDate="2018-09-10T13:28:28.877" Score="-2" ViewCount="399" Body="&lt;p&gt;I am trying to calculate substitution and income effect for 2 goods, &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given that marginal utility &lt;span class=&quot;math-container&quot;&gt;$\mathrm{MU}_x = 1$&lt;/span&gt;, marginal utility &lt;span class=&quot;math-container&quot;&gt;$\mathrm{MU}_y = -a$&lt;/span&gt; (unknown number), price  of &lt;span class=&quot;math-container&quot;&gt;$p_x = 16$&lt;/span&gt;, price of &lt;span class=&quot;math-container&quot;&gt;$p_y = 20$&lt;/span&gt;, how should I proceed? I am unable to use the equal marginal principle, since I cannot have a negative price. But without using the marginal principle, I am also unable to find the optimal basket.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I was also considering that the marginal rate of substitution of &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; will always be greater than that of &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt;. Hence, the optimal basket would just be to spend all the income on &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;. Could that count as an optimal basket?&lt;/p&gt;&#xA;" OwnerUserId="19387" LastEditorUserId="23083" LastEditDate="2019-12-15T14:40:14.227" LastActivityDate="2019-12-15T14:40:28.090" Title="How to calculate income and substitution effect when equal marginal principle is violated" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="24447" PostTypeId="2" ParentId="24444" CreationDate="2018-09-10T13:44:57.593" Score="2" Body="&lt;p&gt;In this case the optimal choice is $(x^*, y^*) = (3, 1)$. Here is the picture :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/EqzLW.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/EqzLW.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="11824" LastActivityDate="2018-09-10T13:44:57.593" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24449" PostTypeId="1" CreationDate="2018-09-10T08:07:38.160" Score="2" ViewCount="346" Body="&lt;p&gt;How dependent is the economy of the world on the United States?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can US policies have disastrous impacts on other superpowers in the world such as Germany?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, take into account countries such as Iran and Turkey which were hit by US sanctions and their economy soon deteriorated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I want to know if the same can happen to a country like Germany, UK, or Japan if at some point in time US decides to impose similar measures on such countries or even decide to stop doing business with them?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In brief, can German economy, as an example, survive without the United States? Are they heavily-dependent on the US?&lt;/p&gt;&#xA;" OwnerDisplayName="janicamexe" LastActivityDate="2018-09-10T17:49:56.800" Title="Is the world economy highly-dependent on the United States of America?" Tags="&lt;united-states&gt;" AnswerCount="2" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="24450" PostTypeId="2" ParentId="24449" CreationDate="2018-09-10T08:24:29.110" Score="1" Body="&lt;p&gt;During 2017 &lt;a href=&quot;https://ycharts.com/indicators/us_gdp_as_a_percentage_of_world_gdp&quot; rel=&quot;nofollow noreferrer&quot;&gt;US GDP made up 24.03% of global GDP&lt;/a&gt;, so yes, the world economy is heavily dependent on the US.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Specific effects on individual countries depend on current levels of trade.  The one country that would be most negatively affected (especially given news about the NAFTA negotiations), would be Canada (&lt;a href=&quot;https://www.thebalance.com/trade-deficit-by-county-3306264&quot; rel=&quot;nofollow noreferrer&quot;&gt;582 billion traded&lt;/a&gt; with a &lt;a href=&quot;https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?locations=CA&amp;amp;view=chart&quot; rel=&quot;nofollow noreferrer&quot;&gt;GDP of 1.653 trillion&lt;/a&gt;).  Most other countries probably wouldn't experience that level of total economic collapse, but depending on what scenario you're suggesting things aren't going to go well regardless since the US is also instrumental in doing things like the dollar being the global reserve currency and being the basis of the petro trade, as well as subsidizing global security (mostly in regards to international shipping and piracy).&lt;/p&gt;&#xA;" OwnerDisplayName="Teleka" LastActivityDate="2018-09-10T08:24:29.110" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="24451" PostTypeId="2" ParentId="24449" CreationDate="2018-09-10T17:49:56.800" Score="1" Body="&lt;p&gt;The answer is yes, also because the global economy is highly interconnected in total. If there would be no trade possible between two economic areas, it would have an impact on the economy globally. The Germany US example would change Germany a lot. The US is an important market for the car manufacturers, the &lt;a href=&quot;https://www.vci.de/vci-online/presse/pressemitteilungen/2015-10-05-usa-jetzt-wichtigster-exportmarkt-fuer-die-chemie-vci.jsp&quot; rel=&quot;nofollow noreferrer&quot;&gt;chemical and pharma industry&lt;/a&gt;. Eight of thirty DAX enterprises are in this businesses. &lt;a href=&quot;https://www.vda.de/en/press/press-releases/20180828-mattes-on-the-agreement-between-usa-and-mexico&quot; rel=&quot;nofollow noreferrer&quot;&gt;Here&lt;/a&gt; is a press release of the German association of car industry, which shows some gladness about the absence of disturbances in the NAFTA. &#xA;For the &lt;a href=&quot;https://www.vdma.org/en/v2viewer/-/v2article/render/22743629&quot; rel=&quot;nofollow noreferrer&quot;&gt;engineering industry&lt;/a&gt;, which is maybe the most important for the german economy, the US is still the biggest trade partner outside of the EU. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;How Germany could survive such scenario is hard to estimate. The trade with Russia would be intensified and could maybe compensate some loss. If this would be not possible Germany would have really hard times economically.&lt;/p&gt;&#xA;" OwnerUserId="12910" LastActivityDate="2018-09-10T17:49:56.800" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24452" PostTypeId="2" ParentId="24394" CreationDate="2018-09-10T18:18:19.090" Score="4" Body="&lt;p&gt;The concept of rational expectations can indeed be confusing. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;One of the nicest pieces that I read online on rational expectations is the following: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://economictheoryblog.com/2012/05/18/rational-expectations&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://economictheoryblog.com/2012/05/18/rational-expectations&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It very nicely describes the concept of rational expectations in very simple words. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The most important thing one needs to understand is that rational expectations do not imply that all people act optimal under all circumstances, it rather implies that people behave optimally given the information they have. &lt;/p&gt;&#xA;" OwnerUserId="19390" LastActivityDate="2018-09-10T18:18:19.090" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24455" PostTypeId="2" ParentId="24436" CreationDate="2018-09-10T22:10:08.627" Score="1" Body="&lt;p&gt;Perhaps I'm way off base on this, but given the relatively strong requirements imposed in the question, I'm tempted to say that we can never truly be able to state with certainty that some individual's utility function $u_i$ is absolutely a linear transformation of some other function $u^{*}$ considered ex ante. While depending on the specific $u_i$, $u^{*}$ and initial questions asked, it could be possible to dismiss the two as not satisfying the transformation requirement, but I don't think one could ever actually confirm it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The underlying reason for this thinking is the inclusion of vNM utilities and lotteries over outcomes. Since the former assumption imposes cardinality on our utility framework, there is always the possibility of discrepancies between $u_i$ and $u^{*}$. Even considering just one good (money, for example) any sequence of observed choices made by some individual following a utility function $u_i$ might only differ from how an individual following $u^{*}$ behaves in the &quot;gaps.&quot; No matter how fine the probabilities and dollar amounts get, we can always come up with some alternative $u'$ which replicates the decisions up till that point. (We can always consider, for example, some $u^{'}$ that's a piecewise on some interval where $u^{*}$ is smooth. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course, as our ability to observe smaller and smaller intervals increases from repeated choice observational data, the possible deviations between $u^{*}$ and some alternative $u'$ trends towards zero. But again, finding out that all observations thusfar suggest the individual's utility $u_i$ is a linear transformation of $u^{*}$ doesn't guarantee that there isn't some interval of the function where they're different.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It should also be pointed out that this really only considers extreme cases- for all experimental purposes we only need a function that approximates an individual's utility function. But I do think it's tougher to truly prove one is a linear transformation of the particular $u^{*}$ in mind.&lt;/p&gt;&#xA;" OwnerUserId="13366" LastActivityDate="2018-09-10T22:10:08.627" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24456" PostTypeId="2" ParentId="24446" CreationDate="2018-09-11T06:50:29.937" Score="-1" Body="&lt;p&gt;Given that &lt;span class=&quot;math-container&quot;&gt;$a&amp;gt;0$&lt;/span&gt;, one can see that the utility function is, &lt;span class=&quot;math-container&quot;&gt;$U =x-ay$&lt;/span&gt;. Which gives us linear indifference curves. Which also tells us that &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; is a “good” and &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; is a “bad”. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus the consumer spends all income on &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; and purchases no units of &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt;. You are correct in what you mention in your question. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can not apply the equimarginal principle here since all you get is a corner solution. &lt;/p&gt;&#xA;" OwnerUserId="19094" LastEditorUserId="23083" LastEditDate="2019-12-15T14:40:28.090" LastActivityDate="2019-12-15T14:40:28.090" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24460" PostTypeId="1" AcceptedAnswerId="24468" CreationDate="2018-09-11T10:07:50.750" Score="-2" ViewCount="1658" Body="&lt;p&gt;How to proceed with such problems where there is no pure Nash Equilibrium? Even if we attempt to eliminate strictly dominated strategies, we find none. &lt;a href=&quot;https://i.stack.imgur.com/DaHsT.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/DaHsT.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="19386" LastActivityDate="2018-09-11T15:02:27.710" Title="Game Theory; Finding the Nash Equilibria" Tags="&lt;game-theory&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24461" PostTypeId="1" CreationDate="2018-09-11T10:58:05.143" Score="0" ViewCount="438" Body="&lt;p&gt;Adam's consumption period 1 and 2 are denoted by $c_1$ and $c_2$ respectively. His utility function is $U(c_1,c_2)=4c_1^{0.5} + c_2$&#xA;Ben earns an income of \$3 in period 1 and \$3 in period 2, regardless of the level of inflation.&#xA;a.  Suppose there is no inflation and the interest rate is 5%. How much will Ben consume in each period?&#xA;b.  Now suppose that inflation rate rise to 100%. How much will Adam consume in each period now?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For part a, I took $c_2= -1.05c_1 + 6.15$ as the budget line and equated it to &#xA;MRS of his utility function. I managed to obtain $c_1 = 3.63$ and $c_2= 2.341$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, I am unsure of how to do part b as I obtain a negative answer for $c_2$ after doing the same steps as part a. The only differenece was that I took into account inflation for part b.&lt;/p&gt;&#xA;" OwnerUserId="19399" LastEditorUserId="4816" LastEditDate="2018-09-13T15:10:36.120" LastActivityDate="2021-03-31T21:05:50.633" Title="intertemporal utility maximisation" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24462" PostTypeId="2" ParentId="21362" CreationDate="2018-09-11T12:19:53.277" Score="-1" Body="&lt;p&gt;We'll you've pretty much answered it yourself...&#xA;Assuming any integration happens, it'll be horizontal&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Vertical integration is buying your customer/ supplier up/down the value chain&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Horizontal will be to buy your competitor, and in the general case, its added value and the reason of purchase will be the specific products it creates, not its finance dept. for that matter&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regarding an example, most M&amp;amp;As I can think of right now are of vertical integration&#xA;If I remember any I'll add them as comments&lt;/p&gt;&#xA;" OwnerUserId="19195" LastActivityDate="2018-09-11T12:19:53.277" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24463" PostTypeId="1" CreationDate="2018-09-11T12:56:32.623" Score="0" ViewCount="531" Body="&lt;p&gt;Given two goods (where more is better), and I am consuming at a point that maximizes my utility (i.e on the budget line, with an indifference curve tangential to the budget line).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When the prices of the two goods change to an unknown, and yet I consume where my utility is the same maximum utility as before, can I conclude that the price of this new basket is the same as before?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Logically, I think it does. But on the other hand, I'm thinking about possibilities where price of good A increases, and price of good B decreases by the same amount, which leaves me stuck.&lt;/p&gt;&#xA;" OwnerUserId="19387" LastActivityDate="2018-09-11T15:43:56.843" Title="Optimal basket and the maximum utility" Tags="&lt;microeconomics&gt;" AnswerCount="2" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="24465" PostTypeId="2" ParentId="24463" CreationDate="2018-09-11T13:21:29.147" Score="1" Body="&lt;p&gt;Given the circumstances and model you describe, consuming the entire budget will give higher utility than consuming less than the entire budget.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can therefore assume that the optimal basket will have the same total price as before the price change. &lt;/p&gt;&#xA;" OwnerUserId="11805" LastActivityDate="2018-09-11T13:21:29.147" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24466" PostTypeId="2" ParentId="24461" CreationDate="2018-09-11T13:52:11.943" Score="0" Body="&lt;p&gt;The purpose of part b is probably to illustrate what happens during hyper inflation: people spend there money immediately while they get anything for them. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that there is probably an implicit constraint that $c_2$ cannot be lower than 0, so the answer would be $c_1 = \$6, c_0 = \$0$.&lt;/p&gt;&#xA;" OwnerUserId="11805" LastEditorUserId="4816" LastEditDate="2018-09-13T12:58:06.147" LastActivityDate="2018-09-13T12:58:06.147" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24467" PostTypeId="1" AcceptedAnswerId="24473" CreationDate="2018-09-11T13:54:52.687" Score="0" ViewCount="204" Body="&lt;p&gt;Given the indirect utility function:&#xA;&lt;em&gt;V={M^2}/{4P1P2}&lt;/em&gt;,&#xA;how do we establish the Slutsky Decomposition?&#xA;I used Roy's Identity to get the Demand, but I'm stuck with the other components of the Slutsky Equation. &lt;/p&gt;&#xA;" OwnerUserId="18398" LastActivityDate="2018-09-11T16:52:57.410" Title="Slutsky Decomposition from Indirect Utility Function" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;&lt;preferences&gt;" AnswerCount="1" CommentCount="0" ClosedDate="2018-09-15T23:07:58.260" ContentLicense="CC BY-SA 4.0" />
  <row Id="24468" PostTypeId="2" ParentId="24460" CreationDate="2018-09-11T14:26:45.180" Score="0" Body="&lt;p&gt;You can do some iterated deletion of weakly dominated strategies. Strategy $C$ for player $2$ is weakly dominated by $L$ played with $2/3$ and $R$ with $1/3$. Then, having eliminated $C$, we can see that $B$ is strictly dominated by (e.g.) $T$ with $3/5$ and $M$ with $2/5$ for player $1$. That leaves us with a $2 \times 2$ game, for which it is easy to solve for the M.S. Nash equilibrium. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is $\big((1/2,1/2,0), (2/3, 0, 1/3)\big)$. It is unique. &lt;/p&gt;&#xA;" OwnerDisplayName="user11305" LastActivityDate="2018-09-11T14:26:45.180" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24470" PostTypeId="2" ParentId="24463" CreationDate="2018-09-11T14:59:06.347" Score="1" Body="&lt;p&gt;If the price ratio of the new basket is the same as the original basket, it means the budget line pivots about the original consumption bundle. In this case , quantity of goods consumed is same but prices change. Therefore, price of new basket changes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, if price ratio of new basket is not the same as before. It means that the budget line changes such that it is still tangential to the original indifference curve. ( there can be many different ways to draw a tangent to a curve )&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this case, it is not possible to tell whether the price of the original basket changes as both quantities and price changes for the new basket.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Just my thoughts :)&lt;/p&gt;&#xA;" OwnerUserId="19399" LastActivityDate="2018-09-11T14:59:06.347" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24473" PostTypeId="2" ParentId="24467" CreationDate="2018-09-11T16:39:31.720" Score="0" Body="&lt;p&gt;Since you already know the demand correspondences, you can use use the duality principle as follows: $v(\textbf{p},e(\textbf{p},u)) = u.$ Using this we get $\frac{4e(\textbf{p},u)}{p_1p_2}=u$, or $e(\textbf{p},u)) = \frac{up_1p_2}{4}.$ Now, using Shephard's Lemma, we can obtain the Hicksian demands as: $\frac{\partial e(\textbf{p},u)}{\partial p_i} = h_i(\textbf{p},u)).$ &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, the job is not yet done. You might get stuck with the $u$ while evaluating the Slutsky's equation. In other words, you need to find the utility function as well. The demand correspondences are(I hope you've obtained the same expressions) $x_1(p_1,p_2,m)=m/2p_1$ and $x_2(p_1,p_2,m)=m/2p_2$. Since the indirect utility function is homogenous of degree zero, you can further write it as $v(p_1,1,m)=v(p,m)=m^2/4p=(m/2).(m/2p).$ From the demand correspondences obtained, you have to represent $m/2$ and $m/2p$ in terms of $x_1$ and $x_2$ ($p_2=1$, as a consequence of homogeneity of $v(p_1,p_2,m)$), and substitue it back into the indirect utility function. Thus, we obtain the the utility function $U(x_1,x_2)=x_1.x_2$(since we obtain the indirect utility function by substituting the walrasian demands into the given utility function, backtracking the same steps gives us back the utility from the indirect utility). I think now one can easily evaluate the Slutsky's Equation.&lt;/p&gt;&#xA;" OwnerUserId="16340" LastEditorUserId="16340" LastEditDate="2018-09-11T16:52:57.410" LastActivityDate="2018-09-11T16:52:57.410" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24474" PostTypeId="2" ParentId="24261" CreationDate="2018-09-11T18:36:29.370" Score="0" Body="&lt;p&gt;You're question is unclear...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you're in a competitive market, as a supplier, you can only see the market price at a given time, where it is set essentially by &lt;strong&gt;all&lt;/strong&gt; suppliers and consumers at once&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you're a monopoly, then you can estimate the quantitive demand based on price, simply because you control the entire market, and set the price level at the marginal revenue, where you gain the most&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The only ways, other than a monopoly, to estimate demand are:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If demand is completely inelastic, like with fuel: people won't change their driving patterns on marginal changes in price&#xA;meaning quantity will remain the same in any case &lt;/p&gt;&#xA;&#xA;&lt;p&gt;completely elastic: price will remain the same no matter the quantity&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A government set price, quantity or any other specific regulation on the product. Although, with &quot;too much&quot; regulation, in some cases a black market can be created, etc. &lt;/p&gt;&#xA;" OwnerUserId="19195" LastActivityDate="2018-09-11T18:36:29.370" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24475" PostTypeId="1" AcceptedAnswerId="24486" CreationDate="2018-09-11T19:46:28.240" Score="2" ViewCount="98" Body="&lt;p&gt;I am currently trying to gain some basic understanding of the mean-variance tradeoff. However, since I do not have an economic education background, I am struggling with some issues. Currently I am wondering which of the two is the key driver for decision-making. Let's say I have option A with a low variance and a low expected value, and option B with a moderate variance and a moderate expected value - which of the two would people choose? Are we more attracted by increasing profit or by relatively lower risks? Or is there no general principle and it depends on individual preferences?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I appreciate any input on that! Thank you in advance.&lt;/p&gt;&#xA;" OwnerUserId="19402" LastActivityDate="2018-09-13T00:47:32.530" Title="Mean vs. variance - which is dominant?" Tags="&lt;financial-economics&gt;&lt;risk&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24476" PostTypeId="2" ParentId="24475" CreationDate="2018-09-11T20:39:55.080" Score="1" Body="&lt;p&gt;There is no general principle. It depends on preferences. Especially the degree of risk aversion, i.e. the preference toward risk.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As you mention, there is a trade-off. If there would be a dominant factor, as your title asks, then there would be no trade-off, as the best decision would always be clear. &lt;/p&gt;&#xA;" OwnerUserId="5557" LastActivityDate="2018-09-11T20:39:55.080" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24478" PostTypeId="2" ParentId="15558" CreationDate="2018-09-12T04:46:23.107" Score="1" Body="&lt;p&gt;Part of the stagnating real wage anomaly could be explained by the increase in labour supply that occurred in the US labour market in 1975 due to the participation rate rising. The US participation rate jumped from around 60% in 1970 to 64% in 1980. As the labour supply increased, the price of labour decreased due to the competition created by the additional supply. As the Marginal Productivity of Labour is diminishing with quantity, additional labour supply would cause the marginal productivity of labour (MPL) to fall and thus the value of nominal wages (assuming wage is a function of price and MPL, Wage=Price*MPL) to also fall. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In terms of stagnating real wages, that is, the number of goods and services a household can consume, the graph again contradicts what we would expect to see from rising productivity. That is, higher productivity should result in a reduction in the price of goods and services. To explain this, the relative decrease in the nominal wage (as discussed above) would have to be equal to or greater than the reduction in the price of goods and services caused by increases in productivity. This solution appears ambiguous at best as it is unlikely that nominal wages would fall significantly from a 4% increase in labour supply. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;An analysis of labour supply in the US, during and following the 1970s can be used to explain some of the stagnation in the value of real wages but cannot be used conclusively to explain all of the lack of real wage growth. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://gonzoecon.com/2012/01/december-unemployment-rate/&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://gonzoecon.com/2012/01/december-unemployment-rate/&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="19404" LastActivityDate="2018-09-12T04:46:23.107" CommentCount="9" ContentLicense="CC BY-SA 4.0" />
  <row Id="24482" PostTypeId="1" CreationDate="2018-09-12T13:58:32.257" Score="3" ViewCount="127" Body="&lt;p&gt;The following image is an excerpt taken from Myerson and Satterthwaite's 1983 paper &lt;em&gt;Efficient Mechanisms for Bilateral Trading&lt;/em&gt;:&#xA;&lt;a href=&quot;https://i.stack.imgur.com/iFxMP.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/iFxMP.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know what the theorem is all about, all I need is some help with the integrals &#xA; (especially the one at the second equality sign).&lt;/p&gt;&#xA;" OwnerUserId="16340" LastEditorUserId="14901" LastEditDate="2018-09-16T20:56:56.963" LastActivityDate="2018-09-16T20:56:56.963" Title="Help needed to understand proof in Myerson and Satterthwaite (1983)" Tags="&lt;mathematical-economics&gt;&lt;game-theory&gt;&lt;mechanism-design&gt;" AnswerCount="1" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24483" PostTypeId="5" CreationDate="2018-09-12T16:22:14.280" Score="0" Body="&lt;p&gt;The System of National Accounts is an internationally recognized framework for reconciling, compiling and disseminating statistics on the economy and financial system.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Key indicators produced from the framework include:  &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Gross domestic product and national income metrics.&lt;/li&gt;&#xA;&lt;li&gt;Data on the production in industries, and how this accrues to the generation of income (and other concepts such as saving and investment).&lt;/li&gt;&#xA;&lt;li&gt;Financial accounts and balance sheets for the key sectors of the economy&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The National Accounts are typically produced by the National Statistical Institute of each country, and there is a large international community of statisticians, operational researchers and economists who formulate international best practice for these statistics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Useful links&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://unstats.un.org/unsd/nationalaccount/sna.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://unstats.un.org/unsd/nationalaccount/sna.asp&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="13262" LastEditorUserId="13262" LastEditDate="2018-09-15T16:30:57.473" LastActivityDate="2018-09-15T16:30:57.473" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24484" PostTypeId="4" CreationDate="2018-09-12T16:22:14.280" Score="0" Body="Covers how National Accounts statistics should be interpreted, as well as information regarding how National Statistical Institutes compile these concepts. May also answer questions raised by the international statistical community on methodological best practice for these statistics." OwnerUserId="13262" LastEditorUserId="13262" LastEditDate="2018-09-15T23:39:02.847" LastActivityDate="2018-09-15T23:39:02.847" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24486" PostTypeId="2" ParentId="24475" CreationDate="2018-09-12T22:11:03.453" Score="0" Body="&lt;p&gt;It depends on both preferences and circumstances, the latter being especially important if there is some risk of a loss.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose Option A has normally distributed outcomes with expected value \$10 and standard deviation (square root of variance) \$2, while Option B again with normally distributed outcomes has expected value $100 and standard deviation also \$100.  In that case the risk of loss under Option A is extremely small, while that under Option B (&gt; 1 standard deviation from mean, 1-tail) is about 16%.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now consider three individuals: 1 and 2 each start with \$1,000, 3 starts with \$100.  Individual 1, we assume, accepts Option B despite the risk of loss, but individuals 2 and 3 both prefer Option A.  In that case the difference between 1 and 2, whose circumstances are the same, can only be attributed to their preferences: 2 is more risk-averse.  But the difference between 1 and 3, though it could reflect different preferences, is more plausibly explained by their different circumstances: starting with only \$100, 3 judges that he cannot afford a significant risk of a loss which he might be quite content to accept if he had started with \$1,000.&lt;/p&gt;&#xA;" OwnerUserId="1417" LastActivityDate="2018-09-12T22:11:03.453" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24487" PostTypeId="2" ParentId="24475" CreationDate="2018-09-13T00:47:32.530" Score="0" Body="&lt;p&gt;Both are important. Mean will tell you the historical outcome while variance will tell you the historical risk. If I had to only choose one, I would make an argument for variance. Here is an example:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;Population              Results     &#xA;A   B   C   D   Mean    Variance    SD&#xA;1   3   5   5   3.50    2.75       1.66&#xA;2   3   4   5   3.50    1.25       1.12&#xA;10  0   0   4   3.50    16.75      4.09&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;The mean tells you 3.5 is the expected result while the variance tells you the risk. we can see that the second set has less risk while the 3rd set has the most. Taking the square root of the variance, which is the standard deviation (SD) gives the volatility of the choice.  I would choose line 2 because it has a mean of 3.5 but the less amount of risk associated with it. &lt;/p&gt;&#xA;" OwnerUserId="19412" LastActivityDate="2018-09-13T00:47:32.530" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24488" PostTypeId="1" CreationDate="2018-09-13T02:52:18.613" Score="1" ViewCount="445" Body="&lt;p&gt;I am a first-year undergrad econ student and was interested in reading Keynes' book. in the preface, Keynes pointed out that the text deals in the abstract and is meant for his fellow economists. After reading a few chapters its become quite clear that he wasn't kidding. there so many theories and ideas that I am not familiar with and most of the ideas are criticised more than they are explained.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So my question is: what prior knowledge do I need to possess to understand the book? Any books you can recommend to acquire said Prior knowledge? &#xA;and lastly is the book even worth reading?&lt;/p&gt;&#xA;" OwnerUserId="19413" LastActivityDate="2018-09-13T18:45:00.983" Title="When can one read the general theory of employment,interest and money?" Tags="&lt;macroeconomics&gt;&lt;theory&gt;&lt;keynesian-economics&gt;&lt;keynes&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="24489" PostTypeId="2" ParentId="24305" CreationDate="2018-09-13T05:24:25.400" Score="1" Body="&lt;p&gt;The question posed as I currently understand it is, &quot;&lt;strong&gt;What determines whether schools subsidize undergraduate varsity athletes?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The best way to economically approach this question is to consider the different schools as firms giving &quot;on the job training&quot; to the student athletes. They help improve two types of human capital for the student. Specialized studies for a major and sports proficiency have varying levels of &quot;firm specificity&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If a firm and laborer would both benefit from training, then who should bear the cost of providing that training? If the firm pays the cost of all the training, then what is to stop the employee from being able to switch to another company? If the laborer provides the entire cost of training, what stops the company from not offering a higher wage after the training?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So usually, both the laborer and the firm will provide some of the cost of training. If the training skills are easily transferable between different firms (general human capital), then the laborer will pay a greater burden of the costs. If the training skills are not easily transferable between different firms (firm-specific human capital), then the firm will pay more of the costs of training. This helps to reduce the chance of someone being trained and one party not getting the return on investment for the training.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Consider then that schools can produce a spectrum of two variables. Good students, and good athletes, and mixes of both proficiencies are what differentiate students. Different schools will focus on different &quot;products&quot; and that will change how profitable it is to put money into different types of training as well. Note that in a sense with this analogy, the laborers are the goods being produced, so trying to figure out how the marginal product and marginal cost entangle with each other is not a trivial feat.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;What affects how much a school pays for athletic training is a complicated issue. There are many other questions embedded within it. If a school provides higher quality athletic training, does that make the skills it teaches more transferable (you can take your training to a different school now that you know the tricks) so that other schools can provide a better offer? Or does it make the skill less transferable (working with a good team you have lots of camaraderie with and then suddenly switching makes things hard to switch)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At the end of the day though, the take away is that most schools don't fully subsidize education or athletic training because it is expensive. School places you in debt in hopes of a hopefully higher wage later on. In order to fully answer your question above, you have to answer a lot of smaller questions about the nature of the education market in general; ultimately, the scope of this above question is really broad.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2018-09-13T05:24:25.400" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24491" PostTypeId="1" AcceptedAnswerId="24496" CreationDate="2018-09-13T11:25:00.817" Score="3" ViewCount="132" Body="&lt;p&gt;I have recently listened to a podcast by &lt;a href=&quot;https://en.wikipedia.org/wiki/Peter_Schiff&quot; rel=&quot;nofollow noreferrer&quot;&gt;Peter Schiff&lt;/a&gt; concerning the China - US trade war. Schiff to me is an interesting chap; he always puts an interesting spin on things. However, from time to time his rhetoric is very predictable. I knew going into the podcast that he would be pessimistic about the US situation, however I think he may have gone too far with this analogy. I'm paraphrasing here, but it's almost word for word, I'm just condensing:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;To understand who would &quot;win&quot; the trade war between the US and China, let's imagine a simpler model. Suppose there is an imaginary island that has 4 people on it: 1 American and 3 Chinese people. Let's say they have to survive on this island somehow. One Chinese person is tasked with going out and fishing. Another Chinese person is tasked with foraging for fruits and other edible plants. The third Chinese person is tasked with preparing and cooking the food. So what does the American do? Well, he simply eats! Now he doesn't eat everything, he leaves enough for the three Chinese people to sustain themselves, but the American does get the lion's share. This illustrates the precariousness of the US economy; should the Chinese ever decide to kick the US off the island, they have the skills they need to survive. And by analogy, the Chinese can win the trade war since they are making a lot of useful things whereas America's economy is primarily consumption.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It sounds kind of absurd when simplified this way, but I think Schiff has made some excellent points (in a rather humurours way to boot). Let us concede that trying to predict who will &quot;win&quot; the trade war (might be more a lose/lose) is a very speculative matter, so let's cut Schiff &lt;em&gt;some&lt;/em&gt; slack. It's not easy to take a risk and stake one's reputation. With that said...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Question:&lt;/strong&gt; Are there any glaring errors in this analogy? Is there a way to make the analogy more realistic?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My personal critique:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;The notion that the Chinese do all the work so the American can gorge himself and get hardly anything in return for themselves seems over the top. When America consumes Chinese products, China is getting USD in return, which is the world reserve currency and they can use that to buy or invest in anything in the world. Surely that's worth something. Of course, it's true that the RMB has been climbing the currency rankings in the past few years, but still, there are limitations on RMB denominated options.&lt;/li&gt;&#xA;&lt;li&gt;There are certain sectors that America is adept at. America has a powerful agriculture sector that produces much of the worlds wheat and a handful of other crops.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;That's what I have so far. I would like to find other errors in Schiff's analogy. If possible, I would like to improve on his analogy and make it more realistic.&lt;/p&gt;&#xA;" OwnerUserId="12212" LastActivityDate="2018-11-11T04:06:23.197" Title="China - US Trade War: Holes in this analogy?" Tags="&lt;macroeconomics&gt;&lt;international-trade&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24494" PostTypeId="1" CreationDate="2018-09-13T14:06:56.737" Score="2" ViewCount="1179" Body="&lt;p&gt;I have been struggling trying to understand the difference between a quasiconcave and a convex utility function. As far as I understand a function can be both at a certain point, but is not clear to me why sometimes is said that the function is quasiconcave rather than just convex. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can someone please tell me what are the implication of  &lt;/p&gt;&#xA;" OwnerUserId="19418" LastActivityDate="2018-10-13T23:00:18.323" Title="quasiconcave vs convex function" Tags="&lt;utility&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24495" PostTypeId="1" AcceptedAnswerId="24497" CreationDate="2018-09-13T14:37:52.543" Score="3" ViewCount="667" Body="&lt;p&gt;In the following picture two preference relations are defined - &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ist preference relation defines lexicographic relation. Though we know that lexicographic preferences doesn't have utility function. They are defined at a point so we cannot define a utility function - is discontinuous. But how can we show it in terms of upper and lower contour set being closed?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why second one is continuous? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note - some terminologies - &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A binary relation &gt;~ on the metric space X is continuous if, for all x in X, the upper and lower contour sets, { y in X : y &gt; ~ x} and {y in X : x &gt;~ y}, respectively, are closed. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The upper contour set of x is &gt;~ (x) = {y in X : y &gt;~ x} &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The lower contour set of x is &gt;~ (x) = {y in X : x&gt;~ y} &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/HshMx.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;" OwnerUserId="18929" LastActivityDate="2018-09-13T15:56:20.237" Title="Continuous function in microeconomics" Tags="&lt;microeconomics&gt;&lt;utility&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24496" PostTypeId="2" ParentId="24491" CreationDate="2018-09-13T14:41:42.773" Score="2" Body="&lt;p&gt;A very interesting question&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The analogy is wrong in a few aspects&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1st of all, the technology. The us produces patents and knowledge in general which china doesn't posess&#xA;Furthermore the us government supports innovation and the development of new technologies&#xA;Since it intangible, its hard to dismiss, but when you think about it, the US most valuable companies main assets are tech patents&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The ingredient of creating technology is highly skilled workers, which in turn, make the us low tech industry  unsustainable, which, in its turn, gives china its advantage&lt;/p&gt;&#xA;&#xA;&lt;p&gt;China doesn't have a functioning innovation model, on the contrary, stealing patents are almost a Chinese specialty...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another thing to consider is the game that china is playing:&#xA;The stronger the demand for its goods, the stronger the demand for labor, which increases local salaries, then the product cost itself&#xA;And along with the rise of its foreign currency balance that pressures the Yuan's rate to rise, &#xA;there is a huge pressure on the Chinese products' price in dollars&lt;/p&gt;&#xA;&#xA;&lt;p&gt;China holds it currency artificially low, essentially subsidizing its products at a large cost, and in way, hurting the us economy&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the analogy is not really holding...&#xA;The us is not the free rider in this story&lt;/p&gt;&#xA;" OwnerUserId="19195" LastActivityDate="2018-09-13T14:41:42.773" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="24497" PostTypeId="2" ParentId="24495" CreationDate="2018-09-13T15:41:31.440" Score="3" Body="&lt;p&gt;Take $y_1=y_2=1$. As the figure below shows, the lower left segment of the boundary of the upper contour set of the lexicographic preference is open.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/2uzi1.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/2uzi1.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="42" LastEditorUserId="42" LastEditDate="2018-09-13T15:52:09.103" LastActivityDate="2018-09-13T15:52:09.103" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24498" PostTypeId="2" ParentId="24495" CreationDate="2018-09-13T15:56:20.237" Score="1" Body="&lt;p&gt;The continuity axiom can be interpreted as follows: Let $(\textbf{x}^n)$ and $(\textbf{y}^n)$ be two sequence of goods, such that $(\textbf{x}^n)$ converges to $\textbf{x}$ and $(\textbf{y}^n)$ to $\textbf{x}$. Then the continuity axiom says that if $\forall n$ $(\textbf{x}^n)$$\succsim$$(\textbf{y}^n)$, then $\textbf{x}$$\succsim$$\textbf{y}$ also holds true(here, $(\textbf{x}^n)$,$(\textbf{y}^n),\textbf{x}, \textbf{y} \in\mathbb{R_+^n} $). This statement is equivalent to the fact that the upper contour set and lower contour set is closed (think of $(\textbf{x}^n)$ and $(\textbf{y}^n)$ to be convergent sequences of the upper and lower contour sets respectively,i.e;$(\textbf{x}^n)\in (upper contour)$, and $(\textbf{y}^n)\in (lower contour)$, $\forall n$. Then, the sequences should converge within their respective sets).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The above statement, however, does not hold true for lexicographic preferences. To see that, consider any two bundles of $\mathbb{R_+^2} $represented by $((1/2)^n,0) \&amp;amp; (0,k)$ where, $k&amp;gt;0$. It is routine to check that the bundle $((1/2)^n,0)$ converges to $(0,0)$. Now, according to the concept of lexicographic preference(I hope you're familiar with it), $((1/2)^n,0)\succsim(0,k)$. However, the preferences change as the bundle $((1/2)^n,0)$ converges to $(0,0)$(i.e; now the bundle $(0,k)\succsim(0,0)$,as n tends to an infinite value). Thus, lexicographic preferences violate the continuity axiom.&lt;/p&gt;&#xA;" OwnerUserId="16340" LastActivityDate="2018-09-13T15:56:20.237" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24500" PostTypeId="2" ParentId="17226" CreationDate="2018-09-13T16:45:47.720" Score="1" Body="&lt;p&gt;There aren't two payoff matrices. If there's a random choice between the two payoff matrices, then the overall payoff matrix will just be a linear combination of the two matrices you've presented, according to the probabilities. For instance, if the probability of getting caught is 10%, then each entry in the overall matrix is .9 times the corresponding entry in the first matrix, plus .1 times the entry in the second matrix. Since the two matrices are identical but for the bottom right, only that square will depend on the probability. If the probability of getting caught is $p$, then the payoff in that square will be $4(1-2p)$. More generally, if they have probability $p$ of getting a fine $f$ instead of the regular payoff, then the overall payoff will be $4(1-p)-pf=4-4p-pf=4-(f+4)p$. As you say, a higher probability of getting caught means less of a fine is required, and vice versa.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You have the payoffs for both players being equal, but suppose the Supplier and Consumer have different expected payoffs for the bottom right, SEP and CEP respectively. For the Supplier, any positive SEP will be an incentive to choose Corrupt. But for the Consumer, they need a CEP&gt;2 to have an incentive to choose Corrupt. So we can remove the Nash Equilibrium by punishing just the Conusmer, and the required probability/size of the punishment for the Consumer will be lower than for the Supplier. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You say that even if you disincentivize the Consumer from Corrupt, the Supplier can go to another Consumer, but if the other Consumer has the same payoff matrix, then from a game theory point of view, as soon as we get a matrix for which the Consumer will choose Honest, the Supplier shouldn't be able to find any Consumer to be Corrupt.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Keep in mind that any game theory analysis will be based on only what's in the payoff matrix, so if there's some phenomenon that you think will affect the result, then for it to be included in the analysis, the payoff matrix needs to reflect it somehow. One way to analyze a party's ability to move on to another counterparty is opportunity costs. Suppose I have a painting, and one potential buyer might pay 100k, while another might pay 90k. You might think that the payoff for getting the first buyer to buy it is 100k, but by selling it to the first buyer, I'm giving up the opportunity to sell it to the second. So making sure the first deal goes through might be worth only 10k to me. Similarly, even if a Supplier gets 2 units of utility for selling something, if they're giving up the opportunity to sell it to someone else, then it might be appropriate to consider their payoff to be less than 2.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Besides subtracting a NE we don't like, we can also look at how we can add one we do like. Currently, the Supplier's choice matter only if the Consumer chooses Corrupt; otherwise, they are indifferent. Thus, the only way to induce them to choose Honest is by changing the payoffs when the Consumer chooses Corrupt. If the Supplier's payoff in the bottom left corner were less than 2, then they would have an incentive to choose Honest when the Consumer chooses Honest. This would make (Honest, Honest) a Nash equilibrium. So if the Supplier had a chance, no matter how small, of being punished every time they choose Corrupt, regardless of whether the Consumer chooses Corrupt, then the upper left would be a NE.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;They would then be in a situation where are two NE. They would prefer the bottom right one, while you prefer that they be in the top left. Such a situation is heavily history-dependent: once they're in one NE, getting into another requires coordination. So one strategy would be to first put a lot of effort towards catching and punishing the Consumer, lowering the payoff in the bottom right and eliminating it as a NE. Once they're in the top left NE, you could reduce the enforcement. This would re-introduce the bottom right as a NE, but they would now be in the upper left NE and would have to coordinate getting to the other one. You can then put in some effort into punishing the Supplier whenever they choose Corrupt but the amount of effort to keep that a NE would be less than that need to keep (Honest, Honest) a NE would be less than that needed to keep (Corrupt, Corrupt) not a NE. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;An even better solution would be adding a &quot;Snitch&quot; option; if Honest players had the option of snitching on Corrupt ones, and were rewarded for doing so, then that would make Corrupt much less attractive.&lt;/p&gt;&#xA;" OwnerUserId="16462" LastActivityDate="2018-09-13T16:45:47.720" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24501" PostTypeId="2" ParentId="24488" CreationDate="2018-09-13T18:45:00.983" Score="-2" Body="&lt;p&gt;I don't think you should read it at any point in your carrer, honestly. It is severily outdated, ambiguous and overall not worth the time and effort put into reading it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Try Screpanti &amp;amp; Zamagni's &lt;em&gt;An Outline of the History of Economic Thought&lt;/em&gt;. Undergraduates do better when studying the works of economists who have been dead for decades as what they are, historical curiosities.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you are really bent on reading the General Theory and/ or pretend to research history of economic thought, then I'd say after you go through an intermediate macroeconomic theory course you're good to go.&lt;/p&gt;&#xA;" OwnerUserId="18167" LastActivityDate="2018-09-13T18:45:00.983" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="24503" PostTypeId="1" AcceptedAnswerId="24504" CreationDate="2018-09-13T22:04:16.797" Score="3" ViewCount="1937" Body="&lt;p&gt;I've been reading (trying to brush up on my economics knowledge) and came across the equation: $q_D = a + b(P)$.  The variable $a$ is explained as &quot;factors other than price affecting demand.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I read up on non-price determinants of demand (e.g. income changes, preference changes, etc); but, what I've not been able to satisfactorily understand is how $a$ is calculated from those determinants.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So in the equation: $q_D = 6 - 0.5(P)$, what does $6$ represent and how was it determined?&lt;/p&gt;&#xA;" OwnerUserId="19422" LastEditorUserId="42" LastEditDate="2018-09-13T22:43:33.813" LastActivityDate="2018-09-13T22:43:33.813" Title="Demand Curve Equation Explanation" Tags="&lt;microeconomics&gt;&lt;supply-and-demand&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24504" PostTypeId="2" ParentId="24503" CreationDate="2018-09-13T22:11:35.903" Score="3" Body="&lt;p&gt;In this demand curve, $a=6$ means that the autonomous demand for this good is of 6 units. That is, if the market price of that good was $0$, then people would demand 6 units. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is reasonable to think that a positive income shock, or a shift in preferences making this good more desirable would make $a$ higher. I don't think there's any deeper meaning here, just that a downward sloping demand curve requires a positive intercept or else quantity demanded would be negative at any price $P$.&lt;/p&gt;&#xA;" OwnerUserId="18167" LastActivityDate="2018-09-13T22:11:35.903" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24505" PostTypeId="2" ParentId="24494" CreationDate="2018-09-13T22:40:28.117" Score="2" Body="&lt;p&gt;Strict quasiconcavity implies single-peakedness, i.e. any strictly quasiconcave function has a unique supremum (or maximum if the domain is compact). Hence, any strictly increase convex function is also strictly quasiconcave. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here are a couple figures to illustrate the difference. The function on the right is not quasiconcave because it has two local maxima. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/qGaWY.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/qGaWY.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2018-09-13T22:40:28.117" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24506" PostTypeId="1" AcceptedAnswerId="25026" CreationDate="2018-09-14T04:13:29.247" Score="1" ViewCount="123" Body="&lt;p&gt;Which Book or books would you recommend for an undergrad to learn about the history and evolution of economic thought and theory, and why? &#xA;There Just so many of them out there and I just don't know which one will be best.&#xA;the one I was thinking of getting was Ekelund &amp;amp; Hebert's A History of Economic Theory and Method but am not sure about it.&lt;/p&gt;&#xA;" OwnerUserId="19413" LastActivityDate="2020-11-29T19:38:10.433" Title="what is the most comprehensive History of Economic Thought book for an undergrad?" Tags="&lt;reference-request&gt;&lt;history-economic-thought&gt;" AnswerCount="3" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="24508" PostTypeId="1" CreationDate="2018-09-14T04:46:35.103" Score="1" ViewCount="42" Body="&lt;p&gt;In the following image, we have U.S. and U.K. producing wheat and cloth in bushels/hour and yards/hour respectively.&#xA;    &lt;a href=&quot;https://i.stack.imgur.com/Rfvrj.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Rfvrj.jpg&quot; alt=&quot;&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In all cases except in case D, given in the figure, trade is possible between U.S. and U.K. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;how did we reach this conclusion?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;step 1: U.S. can exchange 4W for 1C domestically if she gets any ratio of exchange lesser than 4W/1C say, 3W/1C or 2W/1C or 1W/1C then U.S. shall be willing to exchange wheat for cloth. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;step 2: U.K. can exchange 1W for 2C domestically if she gets any ratio of exchange greater than 1C/2W say, 1W/1C then U.K. shall be willing to exchange cloth for wheat.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Conclusively, if the ratio lies between 4W/1C and 1W/2C, both U.S. and U.K. shall be willing to trade. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;if we apply this formula in all cases, we can find whether trade is possible or not between the two nations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is whether this method is foolproof?&lt;/p&gt;&#xA;" OwnerUserId="19409" LastActivityDate="2018-09-14T08:52:04.433" Title="how to find whether trade is possible between two nations" Tags="&lt;international-economics&gt;" AnswerCount="0" CommentCount="0" ClosedDate="2018-09-15T23:08:29.943" ContentLicense="CC BY-SA 4.0" />
  <row Id="24510" PostTypeId="1" CreationDate="2018-09-14T05:59:41.817" Score="1" ViewCount="258" Body="&lt;p&gt;I am struggling with the differentiating between when to use $ Q=q_1+q_2$ and $Q(q_1,q_2)=q_1+q_2$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a 2 player cournot game, &#xA;given &#xA;$$ P=a-bQ, with \ MC's \ c_1 \neq c_2   $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I find the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;FOC&#xA; $$  q_{i}^* = \frac{a-c_i}{2b} - \frac{q_j}{2}  $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which leads to me to a equilibrium value of $$q_i^{eq}= \frac{a-2c_i+c_j}{3b} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;when using $$P=a-b(q_1+q_2)$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \textbf{HOWEVER} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The supplied answer is $$q_i^{eq} = \frac{2a+c_j-2c_i}{3b} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;with FOC&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ q_{i}^* = \frac{a-c_i}{b} - Q  $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where the answer uses &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$P = a-bQ(q_1,q_2) $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When am I supposed to use the different Q's? as all my lecture notes follow the method I used, and there are other questions which look identical and use $Q=q_1+q_2$ but there is obviously a time to use $Q(q_1,q_2)$. &lt;/p&gt;&#xA;" OwnerUserId="14175" LastEditorUserId="4816" LastEditDate="2018-09-14T08:34:08.777" LastActivityDate="2018-09-16T08:54:41.427" Title="Solving a Cournot Equilibrium, the case of Q=q1+q2, Q(q1,q2)=q1+q2" Tags="&lt;microeconomics&gt;&lt;industrial-organisation&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24511" PostTypeId="2" ParentId="24506" CreationDate="2018-09-14T08:30:27.380" Score="2" Body="&lt;p&gt;My suggestion is not necessarily the most comprehensive, but &quot;The Worldly Philosophers&quot; by Robert Heilbroner is very enjoyable. &lt;/p&gt;&#xA;" OwnerUserId="14175" LastActivityDate="2018-09-14T08:30:27.380" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24513" PostTypeId="2" ParentId="24510" CreationDate="2018-09-14T09:50:51.337" Score="3" Body="&lt;p&gt;It seems to me that there is a mistake in the answer provided to you, or a rather unusual profit function is used.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In any case, when we use&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\pi_i = (a-bQ(q_1,q_2))q_i-c_iq_i$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;as profit function, and do not further specify $Q$, the FOC is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\frac{d\pi_i}{dq_i}=a-c_i-b(q_i\frac{dQ(q_1,q_2)}{dq_i}+Q(q_1,q_2))$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The latter collapses to your first FOC for $Q=q_1+q_2$. &#xA; The second FOC is essentially the same as ubiquitous has pointed out. Both can be obtained by evaluating the derivative of Q w.r.t. $q_i$ which is essentially 1.&lt;/p&gt;&#xA;" OwnerUserId="12186" LastEditorUserId="12186" LastEditDate="2018-09-16T08:54:41.427" LastActivityDate="2018-09-16T08:54:41.427" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24514" PostTypeId="2" ParentId="24304" CreationDate="2018-09-14T10:07:55.143" Score="0" Body="&lt;p&gt;For a &quot;stable&quot; base, you can use any average of previous years that &quot;makes sense&quot;, that is an average with minimal variance and give an explicit explanation&#xA;If the last year doesn't deviate from that average then it is unnecessary &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To demonstrate the momentum effect you can use a moving average, in that case there is no meaning for the base and edge cases are normalized &lt;/p&gt;&#xA;" OwnerUserId="19195" LastActivityDate="2018-09-14T10:07:55.143" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24515" PostTypeId="2" ParentId="24281" CreationDate="2018-09-14T10:57:21.420" Score="1" Body="&lt;p&gt;The GDP, as you implied, is represented as follows&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Y = C + G + I + nX&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Where &lt;em&gt;Y&lt;/em&gt; is the GDP, &lt;em&gt;C and G&lt;/em&gt; are private and government consumption, and &lt;em&gt;I&lt;/em&gt; is the invest in fixed assets&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This formula represents the &lt;strong&gt;demand&lt;/strong&gt; for GDP&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a closed market &lt;em&gt;I&lt;/em&gt; = &lt;em&gt;S&lt;/em&gt; since all savings, for a certain amount of real interest &lt;em&gt;r&lt;/em&gt; are allocated to investments in projects that would return &lt;em&gt;r&lt;/em&gt; or higher&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;S&lt;/em&gt; then is a supply factor for the demand for &lt;em&gt;I&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In an open market, local savings can be invested abroad and foreign savings can be invested locally, via financial assets&lt;/p&gt;&#xA;&#xA;&lt;p&gt;nX are net exports of goods and services, these can be financial or other. tourism is, in a way, an export / import service&lt;/p&gt;&#xA;" OwnerUserId="19195" LastActivityDate="2018-09-14T10:57:21.420" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24518" PostTypeId="2" ParentId="24510" CreationDate="2018-09-14T13:58:33.683" Score="4" Body="&lt;p&gt;First point: you write &quot;I am struggling with the differentiating between when to use $ Q=q_1+q_2$ and $Q(q_1,q_2)=q_1+q_2$&quot;. But these are the same thing: both define $Q$ as a function of $q_1$ and $q_2$. It's just that the second expression makes this functional dependence explicit by writing out the arguments, whereas the first does not. This is purely an issue of notation and has no bearing on the solution.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Let's start by writing out the profit function and computing the first-order condition:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Pi=[a-b(q_i+q_j)]q_i-c_i q_i$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\partial\Pi}{\partial q_i}=0 \iff a-b(q_i+q_j)-bq_i-c_i=0\iff q_i=\frac{a-bq_j-c_i}{2b}.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is the FOC that you got in your solution (just slightly rearranged). So far, so good!&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Let's repeat those same two steps but writing the profits in a slightly different way&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\Pi=[a-bQ]q_i-c_i q_i$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\frac{\partial\Pi}{\partial q_i}=0 \iff a-bQ-b\underbrace{\frac{dQ}{dq_i}}_{=1}q_i-c_i=0\iff q_i=\frac{a-c_i}{b}-Q.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is the FOC from the solution you were given. But note that $Q=q_i+q_j$. Making this substitution gives&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$q_i=\frac{a-c_i}{b}-Q=\frac{a-c_i}{b}-q_i-q_j$$&#xA;$$q_i=\frac{a-bq_j-c_i}{2b}.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In words: your answer, and the provided solution have exactly the same first-order condition. So we can be confident that both are correct at least this far, and the discrepancy must be coming from the next step.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Now we need to solve the system of first-order conditions for equilibrium. We have &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$q_i=\frac{a-bq_j-c_i}{2b},\ q_j=\frac{a-bq_i-c_j}{2b},$$&#xA;$$q_i=\frac{a-b\frac{a-bq_i-c_j}{2b}-c_i}{2b}.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Solving this last equation for $q_i$ yields&#xA;$$q_i^{\text{eq}}=\frac{a-2c_i+c_j}{3b}.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is your answer. It is unclear where the answer in the solution came from, but the most likely situation is that there is an algebra error in the final step of computation of the solution.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2018-09-14T13:58:33.683" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24519" PostTypeId="1" AcceptedAnswerId="24526" CreationDate="2018-09-14T16:17:06.940" Score="3" ViewCount="132" Body="&lt;p&gt;Let the log dividend growth evolve according to $\Delta d_{t+1} = \epsilon_{d, t+1}$ where $\epsilon_{d, t+1}$ is just white noise. Let the log returns be $r_{t+1} = x_t + y_t + \epsilon_{r, t+1}$ where $x_t = b_x x_{t-1} + \delta_{x, t}$ and $y_t = b_y y_{t-1} + \delta_{y, t}$ and $\epsilon_{r, t+1}$, $\delta_{x, t}$, and $\delta_{y, t}$ are all white noise. Solve for the dividend price ratio, $d_t - p_t$ and show that it is an $ARMA(p, q)$ process, find $p$ and $q$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I did was to start off with the famous Campbell-Shiller decomposition: $d_t - p_t  = E_t \sum_{j=1}^{\infty} \rho^{j-1}(r_{t+j} - \Delta d_{t+j})$ and one can easily show that $E_t(r_{t+j}) = b_x^{j-1} x_t + b_y^{j-1} y_t$ and $E_t(\Delta d_{t+j}) = 0$ and so we get &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$d_t-p_t = \frac{x_t}{1-\rho b_x} + \frac{y_t}{1-\rho b_y} $$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm now stuck with trying to show that this is an ARMA(p, q) process. What I've tried is substituting in $x_t$ and $y_t$ to get:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$d_t - p_t = b_x \frac{x_{t-1}}{1-\rho b_x} + b_y \frac{y_{t-1}}{1-\rho b_y}+ \frac{\delta_{x, t}}{1-\rho b_x} + \frac{\delta_{y, t}}{1-\rho b_y}$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But I am stuck on manipulating the RHS to form a $d_{t-1} - p_{t-1}$, specifically, I know that $d_{t-1}-p_{t-1} = \frac{x_{t-1}}{1-\rho b_x} + \frac{y_{t-1}}{1-\rho b_y}$ but the coefficients $b_x$ and $b_y$ on the RHS makes things difficult. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT: I've done a bit more working out and here is what I've done:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{align*}&#xA;d_t - p_t &amp;amp; = \frac{x_t}{1-\rho b_x}  + \frac{y_t}{1-\rho b_y} \\&#xA;&amp;amp; = \frac{b_x x_{t-1} + \delta_{x, t}}{1-\rho b_x} + \frac{b_y y_{t-1} + \delta_{y, t}}{1-\rho b_y} \\&#xA;&amp;amp; = b_x \frac{x_{t-1}}{1-\rho b_x} + b_y \frac{y_{t-1}}{1-\rho b_y} +  \frac{\delta_{x, t}}{1-\rho b_x} + \frac{\delta_{y, t}}{1-\rho b_y} \\&#xA;&amp;amp; = b_x\left(d_{t-1} - p_{t-1} - \frac{y_{t-1}}{1-\rho b_y} \right) + b_y\left(d_{t-1} - p_{t-1} - \frac{x_{t-1}}{1-\rho b_x} \right)+  \frac{\delta_{x, t}}{1-\rho b_x} + \frac{\delta_{y, t}}{1-\rho b_y} \\&#xA;&amp;amp; = (b_x + b_y)(d_{t-1} - p_{t-1})-b_x\left(\frac{b_y y_{t-2} + \delta_{y, t-1}}{1-\rho b_y} \right)-b_y\left(\frac{b_x x_{t-2} + \delta_{x, t-1}}{1-\rho b_x} \right) +  \frac{\delta_{x, t}}{1-\rho b_x} + \frac{\delta_{y, t}}{1-\rho b_y} \\&#xA;&amp;amp; = (b_x + b_y)(d_{t-1} - p_{t-1}) - b_xb_y\left(\frac{x_{t-2}}{1-\rho b_x} + \frac{y_{t-2}}{1-\rho b_y} \right) - b_x \frac{\delta_{y, t-1}}{1-\rho b_y}- b_y \frac{\delta_{x, t-1}}{1-\rho b_x}+  \frac{\delta_{x, t}}{1-\rho b_x} + \frac{\delta_{y, t}}{1-\rho b_y}  \\&#xA;&amp;amp; = (b_x + b_y)(d_{t-1} - p_{t-1}) - b_xb_y(d_{t-2} - p_{t-2}) - b_x \frac{\delta_{y, t-1}}{1-\rho b_y}- b_y \frac{\delta_{x, t-1}}{1-\rho b_x}+  \frac{\delta_{x, t}}{1-\rho b_x} + \frac{\delta_{y, t}}{1-\rho b_y}&#xA;\end{align*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So it seems like there are two lags for $d_t-p_t$ but I am not sure how to manipulate the moving average terms...&lt;/p&gt;&#xA;" OwnerUserId="14416" LastEditorUserId="14416" LastEditDate="2018-09-14T18:58:39.237" LastActivityDate="2018-09-18T03:29:24.437" Title="Show that the dividend price ratio is a ARMA(p, q) process" Tags="&lt;econometrics&gt;&lt;financial-economics&gt;&lt;time-series&gt;&lt;asset-pricing&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24520" PostTypeId="1" CreationDate="2018-09-14T16:23:57.793" Score="4" ViewCount="79" Body="&lt;p&gt;As reported &lt;a href=&quot;https://www.dailystar.com.lb/Business/Regional/2018/Sep-14/463411-eu-nations-mull-clearing-house-to-avoid-iran-sanctions-reports.ashx&quot; rel=&quot;noreferrer&quot;&gt;here&lt;/a&gt; and elsewhere, the EU is considering the creation of a clearing house to keep trading with Iran despite US sanctions. Why is it not possible for the EU to conduct normal financial transactions with Iran without the involvement of US institutions?&lt;/p&gt;&#xA;" OwnerUserId="19428" LastEditorUserId="8481" LastEditDate="2020-05-09T21:22:45.740" LastActivityDate="2020-05-09T22:08:37.240" Title="Why does the EU need a clearing centre to circumvent US sanctions against Iran?" Tags="&lt;international-trade&gt;&lt;international-economics&gt;&lt;european-union&gt;&lt;sanctions&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24522" PostTypeId="2" ParentId="24365" CreationDate="2018-09-14T17:23:13.953" Score="3" Body="&lt;p&gt;You ask an excellent question, as it has been partly but not fully discussed in the scientific literature.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your exact proposal (weighting representatives by the amount of votes they got in the election) has been discussed on a blog post (in french) by Jean-François Laslier &lt;a href=&quot;https://blogs.mediapart.fr/jean-francois-laslier/blog/190417/une-idee-en-lair-sur-la-representation-politique&quot; rel=&quot;nofollow noreferrer&quot;&gt;see here&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In practice, representatives are often elected on a geographical basis, and their weight is determined by the local area they represent (typically: its population). There is a whole literature on that subject. Balinski and Young [BY] focus on how to design (integer) voting weights that are as close as possible to proportional to the populations. A consequent literature has questioned the desirability of the idea of proportionality, a representative paper in this area is Barbera and Jackson [BJ].&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Besides, your proposal seems to be one feature (among other) of the liquid democracy system advocated by democracy activists. In that system, each one can delegate or vote on each decision, and delegates' weight equals the number of received delegations. The system has been experimented by the German Pirate party. It has been studied recently in computer science. One issue is that some influent members may get too many votes [GKMP].&lt;/p&gt;&#xA;&#xA;&lt;p&gt;[BY]: Balinski and Young. Fair Representation. 1982&lt;/p&gt;&#xA;&#xA;&lt;p&gt;[BJ]: Barbera and Jackson. On the Weights of Nations: Assigning Voting&#xA;Weights in a Heterogeneous Union. 2006&lt;/p&gt;&#xA;&#xA;&lt;p&gt;[GKMP]: Gölz, P., Kahng, A., Mackenzie, S., &amp;amp; Procaccia, A. D.. The Fluid Mechanics of Liquid Democracy. 2018&lt;/p&gt;&#xA;" OwnerUserId="19429" LastActivityDate="2018-09-14T17:23:13.953" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24524" PostTypeId="1" CreationDate="2018-09-14T21:33:44.487" Score="7" ViewCount="112" Body="&lt;p&gt;I have been reading about the SMD results and it's &quot;damning&quot; nature for GET. My understanding of the result is as follows: price changes not only cause a substitution effect but also change the wealth distribution of a society. The latter could, in principle, cause the excess demand function to have any shape (save for homogeneity of degree zero, Walras' Law, boundary conditions, continuity)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My reaction to this is that it seems enormously &lt;em&gt;unlikely&lt;/em&gt;. While I'm sure it's possible, it seems to me that if the number of individuals and commodities gets sufficiently large, that &quot;hardly any&quot; economies would actually exhibit this weird behaviour. The wealth redistributions required to get the weird shape would be just too improbable. I am curious if there was some way of defining the space of economies as a measure space, and then saying that the set of economies with weird aggregate excess demand function is of &quot;small&quot; measure (and tending to zero with the number of individuals/commodities). Do mathematical economists agree with this intuition of mine?&lt;/p&gt;&#xA;" OwnerUserId="18354" LastActivityDate="2018-09-28T01:19:30.950" Title="How likely are the Sonnenschein-Mantel-Debreu results?" Tags="&lt;mathematical-economics&gt;&lt;general-equilibrium&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="24525" PostTypeId="2" ParentId="24134" CreationDate="2018-09-14T23:17:15.333" Score="1" Body="&lt;p&gt;I think this can be explained by prisoner's dilemma. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Short answer: if by pay cuts a firm would lose its competitiveness in attracting high quality employees, the best strategy for a firm is to lay off low quality employees.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose a firm has two strategies to reduce cost (not necessary in a bad time): pay cuts ($C$) or layoffs ($L$). &lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;---------------&#xA;      L      C&#xA;L (0, 0) (2,-2)&#xA;C (-2,2) (0, 0)&#xA;---------------&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;If other firms in the labor market use the same strategies to cut cost, either by pay cuts ($C$) or layoffs ($L$), we suppose all the firm in the market both would maintain the current productivity. But if other firms choose layoffs ($L$) while the firm chooses pay cuts ($C$), high quality employers would jump to other firms since the salaries are higher there. Thus other firms increases productivity and the firm decreases. Therefore, the equilibrium is (L,L).&lt;/p&gt;&#xA;" OwnerUserId="14540" LastActivityDate="2018-09-14T23:17:15.333" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24526" PostTypeId="2" ParentId="24519" CreationDate="2018-09-15T04:00:19.030" Score="2" Body="&lt;p&gt;Hi: I don't know where you got the expression for $d_{t-1} - p_{t-1}$ but assuming that's true, then I think you are basically there. Take your final expression and  consider the two lagged white noise terms first. They can be added together to make one lagged white noise term because I'm pretty certain that the sum of two white noise processes is still white noise. Similarly, the two non lagged white noise terms can be added to make one non-lagged white noise term. So, you end up with an MA(1) so the whole expression is ARMA(2,1). Granted the MA(1) part will have some complicated constant coefficients on both the lagged and non-lagged term but they are not terribly important. Also, you can always normalize so that the non-lagged coefficient of the MA(1) piece is 1.0.  If you or anyone thinks this reasoning is flawed, let me know because I don't see the flaw in it and am all ears. Thanks.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\boldsymbol{EDIT}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Elbarto: I've dealt with ARIMA models quite a bit over the last 5-6 years so this was bothering me so I kept at it. It turns out ( after many readings that may have been in my sub-conscious initially ) that the 4 last terms of your original expression do represent an MA(1) process. The mistake I made is that my argument was el-wrongo. The following is the argument that's used in the literature-texts for showing what process any ARIMA type &quot;process&quot; reduces to. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) Construct the autocorrelations at each lag of the process.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) If that  calculation results in a functional form that behaves in the same way (in terms of its shape) as some well known ARIMA model, then the original unknown process is equivalent to that well known process. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Unfortunately, we were unable to derive the process was using your methodology which is more direct and, to me, more intuitive.  The 1) and 2) argument above stems from the fact that any stationary and invertible ARIMA model has a 1 to 1 mapping between the model parameters and the model  autocorrelations. Therefore, if you know the autocorrelation shape, you know the process. I'm not absolutely sure if the stationary part of the theorem is even needed and, in fact, I don't even know if it's an actual theorem. I just think of it as a theorem but it is true.  The best analogy to this argument would be knowing the impulse response in the DSP framework. Still, for the intuition,  I like your approach better.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, to make a long story short,  using this approach,  take those 4 terms as some unknown  ARIMA process and calculate its autocorrelation. Since that process clearly has an non-zero autocorrelation at lag 1  and zero after that, it is an MA(1) process.  This is a specific case of the generic argument used in the literature  but it's slightly unsatisfying given how your method seems quite reasonable also. My thinking is that the  one to one mapping  theorem must be equivalent to what you (and I later) were trying to do. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, if you want to be bothered ( I didn't want to be ), you could calculate the autocorrelation of that 4 term process. It will be some function of the three parameters. Then set that function equal to $\frac{\theta}{(1+\theta^2)}$ and  hopefully ( it looked ugly to me  and I'd probably make a mistake somewhere even if I could be bothered) solve for $\theta$. That implies that the four term  process is  an MA(1) with parameter $\theta$. Anyway, the usefulness of calculating it is that you would then have $\theta$ as some function of of the other parameters: $b_{x}$, $b_{y}$ and $\rho$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With that in hand, it may become more clear as to what the algebraic argument is that would show the same thing ??? We must be thinking about it in some incorrect way that I can't see (a scaling-normalization issue perhaps ?).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm reasonably satisfied now so, if you can't be bothered, I understand. All the best and thanks for neat question. I learned something from you and also during my googling journey. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$\boldsymbol{Last~~ Comment}$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Elbarto: Just one last thing. Keep in mind the same autocorrleation argument could have been used for the full expression that includes the AR(2) term. I have no idea how difficult that is but it's not nearly as easy as the MA(1) because now the ACF dies out slowly or oscillates depending on the roots. In fact, I bet it would be a lot more work than you did to show the AR(2) directly so not really worth pursuing.&lt;/p&gt;&#xA;" OwnerUserId="18201" LastEditorUserId="18201" LastEditDate="2018-09-18T03:29:24.437" LastActivityDate="2018-09-18T03:29:24.437" CommentCount="13" ContentLicense="CC BY-SA 4.0" />
  <row Id="24528" PostTypeId="2" ParentId="24134" CreationDate="2018-09-15T07:51:27.790" Score="2" Body="&lt;p&gt;Here are four possible reasons:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Reason #1. Fixed costs per employee.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Due to taxes, insurance, 401k plans, etc., the cost of an employee (to the employer) is significantly greater than the employee's take-home pay.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For simplicity, assume an employer must bear an additional lump sum cost per employee that is equal to 20% of each employee's current take-home pay. Assume also that all employees are identical. Then to cut payroll costs by 30%, the employer can either:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;A.&lt;/strong&gt; Fire 30% of the employees; OR&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;B.&lt;/strong&gt; Cut each employee's take-home pay by 36%.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Many firms will prefer &lt;strong&gt;A&lt;/strong&gt; to &lt;strong&gt;B&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Reason #2. Parkinson's Law&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Parkinson's Law is the humorous adage that &quot;work expands so as to fill the time available for its completion&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This may apply also to workers in a firm. Laying off say 5% of employees may make no difference to total production -- especially if a firm was already bloated and overstaffed to begin with.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Reason #3. Keeping employees on their toes.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By occasionally laying off a significant fraction of employees during downturns, one credibly demonstrates that employees should work hard and well or risk being fired.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;[There are here two separate questions: (a) Does this tactic really work (in motivating employees)?; and (b) Do there exist employers who believe in this tactic? An affirmative answer to (b) suffices to serve as an explanation to your question.]&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Reason #4. Worker morale.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose we ignore Reason #1 and happily, we can save 30% in payroll costs by either:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;C.&lt;/strong&gt; Firing 30% of the employees; OR&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;D.&lt;/strong&gt; Cutting each employee's take-home pay by 30%.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Under &lt;strong&gt;C&lt;/strong&gt;, the 30% who are fired will indeed be very heavily demoralized, &lt;em&gt;but they are no longer your problem&lt;/em&gt;. As for the remaining 70%, they might be slightly demoralized about losing some of their work buddies. But they might even be reinvigorated after discovering they survive the cut.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In contrast, under &lt;strong&gt;D&lt;/strong&gt;, every employee is rather demoralized about the 30% pay cut.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Many firms will prefer &lt;strong&gt;C&lt;/strong&gt; to &lt;strong&gt;D&lt;/strong&gt;.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2018-09-15T07:51:27.790" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24530" PostTypeId="1" AcceptedAnswerId="24538" CreationDate="2018-09-15T13:55:08.127" Score="4" ViewCount="278" Body="&lt;p&gt;There is a well know graph, that shows a tight link between productivity and wages, until the 70s, and a break of the link since:&#xA;&lt;a href=&quot;https://i.stack.imgur.com/Mk1AG.jpg&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Mk1AG.jpg&quot; alt=&quot;productivity and wages&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There's a lot of possible explanations for this, I keep hearing more of them:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Tax cuts to corporations, that changed the profits distribution &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;detachment from the gold standard &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Rise in global trade and the consequential drop in the US industry power in the economy &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The loss of power of labour unions&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;There is a good article &lt;a href=&quot;https://www.outsidethebeltway.com/what-happened-to-the-wage-and-productivity-link/&quot; rel=&quot;noreferrer&quot;&gt;here&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I actually thought of a possible reason myself: the decrease of competitiveness of the labor market as a result of mergers and acquisitions or the drop in power of labour unions, as said&lt;/p&gt;&#xA;&#xA;&lt;p&gt;High wages in today's hi tech industry can support this explanation in the opposite way&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there any empirical evidence to support any of these theories? &lt;/p&gt;&#xA;" OwnerUserId="19195" LastActivityDate="2018-09-16T04:32:02.327" Title="Empirical explanation on divergence between productivity and wages since the 70s" Tags="&lt;labor-economics&gt;&lt;wages&gt;&lt;productivity&gt;&lt;empirical-evidence&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24533" PostTypeId="2" ParentId="24530" CreationDate="2018-09-15T19:16:20.770" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Is there any empirical evidence to support any of these theories?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I doubt that there is data which thoroughly decouples the set of &lt;em&gt;possible explanations&lt;/em&gt; (some of which you listed in your question). Many of these factors are so interrelated that attempting to decouple them in order to identify &quot;the one root-cause&quot; seems futile.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This circular dynamic illustrates some of these interrelations:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Technology has undeniably boosted workers' productivity and&#xA;contributed to globalization.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;That creates an oversupply of goods and services, which translates to&#xA;oversupply in the labor market.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Both globalization and labor oversupply drive wages down in the U.S. (the weakening of U.S. labor unions is just another facet of oversupply and the ability to &quot;consume&quot; labor from overseas).&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;And these circumstances of unemployment foster fiercer competition among labor suppliers, which leads to further specialization and technological improvements.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Similar chains of reasoning can be developed if instead of &lt;em&gt;technology&lt;/em&gt; one takes &lt;em&gt;globalization&lt;/em&gt; or a &lt;em&gt;fiscal/financial cojuncture&lt;/em&gt; as starting point. Either way, economic agents will seek to maximize profits, which in an open economy can only be attained by competition and innovation. That inevitably leads to lower wages and higher productivity, respectively.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An economist's efforts to solve this chicken-and-egg dilemma would be uninteresting, more so where other real and emerging problems are not even marginally captured in the aforementioned circular dynamics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Although there has been so much outcry about wage stagnation in the U.S. (and other countries), no one can reasonably refute that even with today's &quot;stagnated wages&quot; people in these economies have access to many more goods and services than with the growing wages in the first decades following World War II.&lt;/p&gt;&#xA;" OwnerUserId="18552" LastActivityDate="2018-09-15T19:16:20.770" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="24534" PostTypeId="1" CreationDate="2018-09-15T19:31:06.950" Score="0" ViewCount="50" Body="&lt;p&gt;Is it always true that an AR(p) process with a white noise error will be covariance stationary? &lt;/p&gt;&#xA;" OwnerUserId="1655" LastActivityDate="2018-09-15T19:31:06.950" Title="AR(p) with white noise error term -- always covariance stationary?" Tags="&lt;macroeconomics&gt;&lt;econometrics&gt;&lt;time-series&gt;" AnswerCount="0" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="24535" PostTypeId="2" ParentId="24398" CreationDate="2018-09-15T23:12:05.623" Score="2" Body="&lt;p&gt;They're in monetary units! Let's say an economy has a money supply of &lt;span class=&quot;math-container&quot;&gt;$100$&lt;/span&gt; &lt;span class=&quot;math-container&quot;&gt;$mu$&lt;/span&gt; and a price level of &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt;. Another economy has the same money supply but a price level of &lt;span class=&quot;math-container&quot;&gt;$1.5$&lt;/span&gt;. Which economy has the bigger &lt;em&gt;real&lt;/em&gt; money supply? The first, obviously. In the first hypothetical economy, you can think of the average transaction as one involving smaller amounts of currency. Real money demand will of course depend on nominal income &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt;. An increase in nominal income makes people demand more money because there's more transactions to be made. &lt;/p&gt;&#xA;" OwnerUserId="18167" LastEditorUserId="18167" LastEditDate="2019-04-24T03:27:02.477" LastActivityDate="2019-04-24T03:27:02.477" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24536" PostTypeId="1" CreationDate="2018-09-16T01:14:28.880" Score="2" ViewCount="653" Body="&lt;p&gt;Given the following cost function, where t is the quantity of some product.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$C(t) = 1/3t^3 - 7t^2 +11t + 50$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;here is a graph between $t= 0$ and $t = 25$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/Nqq6e.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Nqq6e.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We are asked if this function is convex or concave?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Technically it is neither, but I am asking, &lt;strong&gt;in the context of economics,&lt;/strong&gt; do we have to define intervals and say, between $0$ and $4.11$, it is concave, and for $t&amp;gt;4.12$ we have a convex function?&lt;/p&gt;&#xA;" OwnerUserId="19437" LastActivityDate="2018-09-16T21:50:10.160" Title="Is this Cost function concave or convex?" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;optimization&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="24537" PostTypeId="2" ParentId="24399" CreationDate="2018-09-16T01:55:33.353" Score="1" Body="&lt;p&gt;Despite the initial shock value provided for the question, and the high possibility for this question to become heated, political, or otherwise delve into an off-topic conversation, I will do my best to provide an answer to this question.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;Voluntary childlessness would be a functionally ineffective suggestion.&lt;/strong&gt; This is not only too vague a suggestion to be widely useful or create policy for, but there are better focuses for economists to study in order to fight poverty.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;If adults are practicing female infanticide for cultural or economic reasons, would these adults seriously consider simply not having children if you ask them? If adults are withholding post-natal care in particular circumstances, then how is this an economic failure rather than a moral one? If we are focusing on the family unit, and argue that every family has its own smaller market economy in who provides what sort of labor for the family, then shouldn't we argue that each family economy should be informed on how to make better choices, and be restricted from making unethical choices such as murder?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In some cases, maybe a family might consider not having kids if they can't support them. The consideration for whether someone will have a reasonable quality of life of course is subjective. In some parts of America there is extreme poverty, same as there is in India or China or many other countries. Yet happiness or &quot;utility&quot; has always been a subjective experience, and families continue to have children in these conditions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider this statement from Indian economist and Nobel Prize winner Amartya Sen:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;There is considerable empirical evidence that even as people in many parts of the world have become richer, with much more income to spend in real terms than ever before, they have not felt particularly happier than before.&lt;sup&gt;1&lt;/sup&gt; &quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;As with all things this may not be universally true. Some studies find suicide rates are not sensitive to income or unemployment. &lt;sup&gt;2&lt;/sup&gt; But what is a bad living standard for some is not an insurmountable living standard for others. Is it wrong for people to bring children into the world where they must overcome suffering? Answering this question requires imposing a hard standard for what standard of living is a basic right, which frankly, is not the intellectual right of economists over everyday people.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Responsible economists, if looking at this issue, would rather prevent the miniature market failures within the family unit. Sometimes, trying to make policy that greatly restricts choice at the small scale would be impractical, or too prohibitive to be ethical, as economists generally like to allow for individual freedoms. So economists tend to look at broader policy through taxes or social welfare programs to combat poverty. One thing that is clear is that to prevent the most egregious consequences of poverty, there must be a way to hold those accountable who commit atrocities such as female infanticide or other such actions.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;It was mentioned in the last chapter that no major famine has ever occurred in a functioning democracy with regular elections, opposition parties, basic freedom of speech and a relatively free media (even when the country is so poor and in a seriously adverse food situation)....Despite China's greater economic success than India's in many economic fields, China - unlike independent India - did have a huge famine, indeed the largest famine in recorded history, in 1958-61, with a mortality count estimated at close to 30 million. Though the famine raged for three years, the government was not pressed to change its disastrous policies&lt;sup&gt;3&lt;/sup&gt;&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;If transparency and public accountability are required to prevent and act on national tragedies that greatly reduce welfare, then on the smaller scale, the culture within a community is what will determine whether poverty or crises of resources will be answered with some sort of aid or assistance, or whether they will be answered with more drastic measures.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;One cannot ignore in this conversation that many modern economies actively encourage population growth. As mentioned above in the comments, some places like Communist China had a one-child policy to restrict population growth. That policy has been repealed in the face of the changing demographics that China is undergoing, where there will be a much larger proportion of older people who live longer. The one child policy was a contrived way of dealing with issues like food shortages. Because the government tried to completely control markets, they created weird market failures and dealt with them in ways that were clearly detrimental.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does this mean policies such as giving tax breaks to those who marry or giving welfare based on household size are bad policies? Is there moral hazard in subsidizing child creation in some sense? First off, why do these policies exist? An economy can grow both with the creation of technology, and the creation of capital and labor which pair together at some &quot;efficient&quot; ratio, depending on the market. To perhaps oversimplify, growing labor is one of the ways of growing an economy and trying to keep it productive and competitive with other countries.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, economists should study how welfare programs for families affect the incentives families have for working or having children, etc. Which they already do. A cursory search of the literature:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;https://www.jstor.org/stable/1967031?seq=1#page_scan_tab_contents&quot; rel=&quot;nofollow noreferrer&quot;&gt;Maru, Rushikesh M. &quot;Incentives and disincentives in the Indian family welfare program.&quot; Studies in family planning 17, no. 3 (1986): 136-145.&lt;/a&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;https://www.mdrc.org/sites/default/files/print_3.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Knox, Virginia W., Cynthia Miller, and Lisa A. Gennetian. Reforming welfare and rewarding work: A summary of the final report on the Minnesota Family Investment Program. Vol. 8. New York: Manpower Demonstration Research Corporation, 2000.&lt;/a&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;https://www.jstor.org/stable/2527390?seq=1#page_scan_tab_contents&quot; rel=&quot;nofollow noreferrer&quot;&gt;Keane, Michael, and Robert Moffitt. &quot;A structural model of multiple welfare program participation and labor supply.&quot; International economic review (1998): 553-589.&lt;/a&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;https://academic.oup.com/qje/article-abstract/129/4/1711/1852847&quot; rel=&quot;nofollow noreferrer&quot;&gt;Dahl, Gordon B., Andreas Ravndal Kostøl, and Magne Mogstad. &quot;Family welfare cultures.&quot; The Quarterly Journal of Economics 129, no. 4 (2014): 1711-1752.&lt;/a&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;http://www.nber.org/papers/w7627&quot; rel=&quot;nofollow noreferrer&quot;&gt;Schoeni, Robert F., and Rebecca M. Blank. What has welfare reform accomplished? Impacts on welfare participation, employment, income, poverty, and family structure. No. w7627. National bureau of economic research, 2000.&lt;/a&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;https://www.journals.uchicago.edu/doi/abs/10.1086/298372&quot; rel=&quot;nofollow noreferrer&quot;&gt;Lundberg, Shelly, and Robert D. Plotnick. &quot;Adolescent premarital childbearing: Do economic incentives matter?.&quot; Journal of Labor Economics 13, no. 2 (1995): 177-200.&lt;/a&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;At the end of the day, economists are not concerned necessarily with changing the minds of individual family members and encouraging them to not have children. A family may not even find this &quot;optimal&quot;, as children are a source of not just future support into old age, but of companionship in a harsh world (and other non-pecuniary incentives). Energy is better directed at guiding the hand of government towards policy that can effectively alleviate poverty and increase the welfare of society as a whole.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Additional citations:&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;sup&gt;1&lt;/sup&gt; Sen, Amartya Kumar. The idea of justice. Harvard University Press, 2009. 272.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;sup&gt;2&lt;/sup&gt; &lt;a href=&quot;https://www.tandfonline.com/doi/abs/10.1080/0003684042000295304&quot; rel=&quot;nofollow noreferrer&quot;&gt;Andres, Antonio Rodriguez. &quot;Income inequality, unemployment, and suicide: a panel data analysis of 15 European countries.&quot; Applied Economics 37, no. 4 (2005): 439-451.&lt;/a&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;sup&gt;3&lt;/sup&gt; Sen, Amartya Kumar. The idea of justice. Harvard University Press, 2009. 342.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2018-09-16T01:55:33.353" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24538" PostTypeId="2" ParentId="24530" CreationDate="2018-09-16T04:32:02.327" Score="2" Body="&lt;p&gt;This is sort of my field, tough I focus more on education. One explanation that seems to fit the data is that the american labor market now is incorporating benefits and variable pay, so wages &lt;em&gt;should&lt;/em&gt; decouple from productivity if &lt;em&gt;total compensation&lt;/em&gt; doesn't - and &lt;em&gt;voi lá&lt;/em&gt;, &lt;a href=&quot;https://files.stlouisfed.org/files/htdocs/publications/es/07/ES0707.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;that's whats happening&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;One reason, perhaps, is that the character of the productivity acceleration&#xA;  changed circa 2000. Prior to that date, studies have suggested&#xA;  that the more important effect was an increasing ratio of capital&#xA;  to labor (capital deepening) as businesses substituted relatively&#xA;  less expensive information technology and communication equipment&#xA;  for labor. Since 2000, some studies suggest that the more&#xA;  important factor has been a re-engineering of business practices,&#xA;  which has increased the “skill bias” in the labor market, that is,&#xA;  the premium paid for higher levels of technical, professional, and&#xA;  managerial education and experience. For employers, variable pay&#xA;  solves, in part, the problem of monitoring the performance of such&#xA;  workers: Unlike traditional factory and retail service workers,&#xA;  whose hours at work are relatively easily monitored, many skilled&#xA;  professionals work at varied locations and times of day. Finally,&#xA;  increasing reliance on variable pay also perhaps is a type of risksharing&#xA;  arrangement between businesses and workers. If the recent&#xA;  productivity trend slows, reducing or curtailing variable pay may&#xA;  be less offensive to professional workers than reductions in base&#xA;  salaries. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/g48dH.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/g48dH.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="18167" LastActivityDate="2018-09-16T04:32:02.327" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24540" PostTypeId="5" CreationDate="2018-09-16T05:04:43.223" Score="0" Body="" OwnerUserId="-1" LastEditorUserId="-1" LastEditDate="2018-09-16T05:04:43.223" LastActivityDate="2018-09-16T05:04:43.223" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24541" PostTypeId="4" CreationDate="2018-09-16T05:04:43.223" Score="0" Body="A measure of efficiency in production for some given set of inputs" OwnerUserId="-1" LastEditorUserId="4251" LastEditDate="2018-09-17T02:19:14.137" LastActivityDate="2018-09-17T02:19:14.137" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24542" PostTypeId="5" CreationDate="2018-09-16T05:05:37.037" Score="0" Body="" OwnerUserId="-1" LastEditorUserId="-1" LastEditDate="2018-09-16T05:05:37.037" LastActivityDate="2018-09-16T05:05:37.037" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24543" PostTypeId="4" CreationDate="2018-09-16T05:05:37.037" Score="0" Body="A modelling approach in which firms' plants are chosen via maximizing a profit function under a demand or resource limit restriction." OwnerUserId="18167" LastEditorUserId="18167" LastEditDate="2018-09-17T02:30:32.483" LastActivityDate="2018-09-17T02:30:32.483" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24544" PostTypeId="2" ParentId="24536" CreationDate="2018-09-16T05:10:53.237" Score="3" Body="&lt;p&gt;&quot;In the context of economics&quot;, it is neither - because convexity in economics means the same it does in math. If you redefine its domain, such that it's only computed for any $t &amp;gt; 4.12$, this function's image is clearly convex: no line between two vectors inside it isn't entirely contained in the set.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;P.S: Although convexity has the same definition in both fields, it has an important economic interpretation and is a very important hypothesis in many classical general equilibrium models.&lt;/p&gt;&#xA;" OwnerUserId="18167" LastEditorUserId="18167" LastEditDate="2018-09-16T21:50:10.160" LastActivityDate="2018-09-16T21:50:10.160" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24546" PostTypeId="1" AcceptedAnswerId="24554" CreationDate="2018-09-16T14:04:00.050" Score="6" ViewCount="48" Body="&lt;p&gt;Is there any comprehensive theoretical studies on how third-party certification adoption may affect industrial performance/dynamics of an industry? &lt;/p&gt;&#xA;" OwnerUserId="19438" LastEditorUserId="108" LastEditDate="2018-09-16T16:34:25.430" LastActivityDate="2018-09-17T08:23:26.257" Title="Literature on the effects of third-party certification on industrial dynamics?" Tags="&lt;reference-request&gt;&lt;industrial-organisation&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24547" PostTypeId="2" ParentId="24546" CreationDate="2018-09-16T16:34:17.920" Score="5" Body="&lt;p&gt;For models of the informational role/effects of third-party certifiers on an industry, you might like to look at&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lizzeri, Alessandro (1999). “&lt;a href=&quot;https://www.jstor.org/stable/pdf/2556078.pdf?seq=1#page_scan_tab_contents&quot; rel=&quot;noreferrer&quot;&gt;Information Revelation and Certification Intermediaries&lt;/a&gt;”. RAND Journal of Economics 30.2, pp. 214–231.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Albano, Gian Luigi and Alessandro Lizzeri (2001). “&lt;a href=&quot;https://onlinelibrary.wiley.com/doi/abs/10.1111/1468-2354.00110&quot; rel=&quot;noreferrer&quot;&gt;Strategic Certification and Provision of Quality&lt;/a&gt;”. International Economic Review 42.1, pp. 267–283.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2018-09-16T16:34:17.920" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="24548" PostTypeId="2" ParentId="24482" CreationDate="2018-09-16T20:36:55.477" Score="2" Body="&lt;p&gt;I'm assuming by &quot;at [the] second equality sign&quot; you mean the translation of the right-hand side of the first equality sign to the right-hand side of the second equality sign. This can be handled by analyzing each integral separately.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Notice that in the first (double) integral the left-hand side of the inner integral does not vary with $v_2$, so&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\int_{a_1}^{\min\{v_2,b_1\}} \left[ v_2 f_2\left( v_2 \right) + F_2\left( v_2 \right) - 1 \right] f_1\left( v_1 \right) dv_1 \\\hspace{3cm}= \left[ v_2 f_2\left( v_2 \right) + F_2\left( v_2 \right) - 1 \right] \int_{a_1}^{\min\left\{ v_2, b_1 \right\}} f_1\left( v_1 \right) dv_1.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The upper bound of the right-hand integral is just there to cap the CDF, so $\int_{a_1}^{\min\{ v_2, b_1 \}} f_1( v_1 ) dv_1 = F_1( v_2 )$, taking as given that $F_1( x ) = 1$ for all $x \geq b_1$. In terms of the original equation this gives&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$ \int_{a_2}^{b_2} \int_{a_1}^{\min\{v_2,b_1\}} \left[ v_2 f_2\left( v_2 \right) + F_2\left( v_2 \right) - 1 \right] f_1\left( v_1 \right) dv_1 dv_2 \\\hspace{3cm}= \int_{a_2}^{b_2} \left[ v_2 f_2\left( v_2 \right) + F_2\left( v_2 \right) - 1 \right] F_1\left( v_2 \right) dv_2. \hspace{2cm} \text{(Term L)}$$&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Notice that the inner integrand in the second (double) integral can be written as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$v_1 f_1\left( v_1 \right) + F_1\left( v_1 \right) = \frac{d}{dv} \left[ v F_1\left( v \right) \right]_{v = v_1}.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since $a_1 F_1( a_1 ) = 0$ (because $F_1( a_1 ) = 0$) and $x F_1( x ) = x$ for all $x \geq b_1$, this gives&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\int_{a_2}^{b_2} \int_{a_1}^{\min\left\{ v_2, b_1 \right\}} \left[ v_1 f_1\left( v_1 \right) + F_1\left( v_1 \right) \right] dv_1 f_2\left( v_2 \right) dv_2 \\ \hspace{3cm} = \int_{a_2}^{b_2} \min\left\{ v_2 F_1\left( v_2 \right), b_1 \right\} f_2\left( v_2 \right) dv_2. \hspace{2cm} \text{(Term R)}$$&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;The second equality is $\text{(Term L)} - \text{(Term R)}$.&lt;/p&gt;&#xA;" OwnerUserId="14901" LastActivityDate="2018-09-16T20:36:55.477" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24549" PostTypeId="1" CreationDate="2018-09-16T22:20:02.093" Score="1" ViewCount="41" Body="&lt;p&gt;The key assumption in a Differences in Differences design is that both the control and the treatment group have parallel tendencies, that is, they'd follow similar paths over time if there was no treatment. I can see how it is important and unparallel tendencies surely make LATE estimation biased, but is there any pratical example of this problem? Any papers on it or that suffer from it? &lt;/p&gt;&#xA;" OwnerUserId="18167" LastEditorUserId="18167" LastEditDate="2018-09-17T14:22:32.183" LastActivityDate="2019-02-06T07:19:38.863" Title="Any examples of non-parallelism making Diff-in-Diff estimation biased?" Tags="&lt;econometrics&gt;&lt;reference-request&gt;&lt;applied-econometrics&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24554" PostTypeId="2" ParentId="24546" CreationDate="2018-09-17T08:23:26.257" Score="4" Body="&lt;p&gt;This is also a big theme in agriculturaland environmental economics given the amount of nutritional, healthy, organic and other labels that we see on food these days.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here are a few references to start:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hamilton, Stephen F., and David Zilberman. &quot;Green markets, eco-certification, and equilibrium fraud.&quot; &lt;em&gt;Journal of Environmental Economics and Management&lt;/em&gt; 52.3 (2006): 627-644.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Zilberman, David, Scott Kaplan, and Ben Gordon. &quot;The political economy of labeling.&quot; &lt;em&gt;Food Policy&lt;/em&gt; (2018).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ibanez, Lisette, and Gilles Grolleau. &quot;Can ecolabeling schemes preserve the environment?.&quot; &lt;em&gt;Environmental and Resource Economics&lt;/em&gt; 40.2 (2008): 233-249.&lt;/p&gt;&#xA;" OwnerUserId="12186" LastActivityDate="2018-09-17T08:23:26.257" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24559" PostTypeId="1" CreationDate="2018-09-17T15:18:06.980" Score="3" ViewCount="52" Body="&lt;p&gt;Consider the following scenario. There is a continuum of players in a population, with population measure normalized to $1$. Each player has a type $\theta \in [0,1]$ and we suppose that $\theta$ is distributed according to a (nice) c.d.f $H(\theta) \sim [0,1]$ with full support. Write $\mathbb{E}_{H}\big[\theta\big] = \mu$ (where I am abusing notation somewhat by treating $\theta$ as an R.V.).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Each (infinitesimal) player may choose a random variable $X_{\theta}$ distributed according to cdf $F_{\theta}$ with support on $[0,1]$ subject to the constraint that the expectation, $\mathbb{E}_{F_{\theta}}\big[X_{\theta}\big] = \theta$. If we think of the realization $x_{\theta}$ as type $\theta$'s resulting type (which remember is random), then given the choices of strategies (R.V.s) by the other players, there will be a new associated population distribution of types $G$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;(EX 1:)&lt;/strong&gt; For example, suppose $H(\theta) = \theta$ is simply the uniform distribution on $[0,1]$ and let each player choose the Bernoulli distribution with mean $\theta$. Then it is clear that $G$ is itself a Bernoulli distribution with mean $\mu$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have several questions:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;How to formalize the aggregation of the independent random variables $X_{\theta}$? &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;From, &#xA;&lt;a href=&quot;https://math.stackexchange.com/questions/414966/a-continuum-of-independent-random-variables&quot;&gt;https://math.stackexchange.com/questions/414966/a-continuum-of-independent-random-variables&lt;/a&gt; , &lt;a href=&quot;https://www.math.lsu.edu/~sengupta/7360f09/kolmogorov.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.math.lsu.edu/~sengupta/7360f09/kolmogorov.pdf&lt;/a&gt; , and &lt;a href=&quot;http://www.its.caltech.edu/~kcborder/Notes/Kolmogorov.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.its.caltech.edu/~kcborder/Notes/Kolmogorov.pdf&lt;/a&gt;&#xA;it seems like the Kolmogorov Extension is what I want, no?&lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;2&quot;&gt;&#xA;&lt;li&gt;Given a distribution $H$, what properties must $G$ have? &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;For instance, it is clear that if $F_{\theta}$ consists simply of a choice of $\theta$ with probability $1$ $\forall \theta$, then $H = G$. Furthermore, if $H$ consists of a Bernoulli distribution with mean $\mu$ it seems equally clear that $G$ must be the same (we could never have a $G$ with support on the interior of $[0,1]$ since there are just two types $\theta = 0$ and $1$). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As EX 1 illustrates it seems like I can always &quot;push&quot; the distribution out, which reminds me of the notion of a balayage or sweeping. Hence, my intuition suggests that any $G$ such that $G$ is a mean-preserving-spread of $H$ is achievable. Any thoughts?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am also worried that there may be measurability issues that I am glossing over.&lt;/p&gt;&#xA;" OwnerDisplayName="user11305" LastActivityDate="2018-09-17T15:18:06.980" Title="Mean Field/Differential Game and Measurability" Tags="&lt;mathematical-economics&gt;&lt;game-theory&gt;&lt;probability&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24563" PostTypeId="1" CreationDate="2018-09-17T21:28:52.383" Score="1" ViewCount="63" Body="&lt;p&gt;I first wanted to ask this on philosophy@SE but, on a second thought, decided this might be a better place.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we defined a general policy's objective being &quot;to maximize well being and minimize suffering&quot;, we can say that &quot;suffering&quot; in that sentence is the opposite of well-being. But how do you define &quot;well-being&quot; by using lower level indicators, none of which are regressivly axiomatic and in a way that's so abstract that it's difficult to blame for cultural or any other kind of bias?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would imagine that, at this point, defining well-being should be a province of economics and not philosophy. Do economists concern themselves with the question of defining well-being at an individual or collective level, by using natural/rationalist terms so that no amount of regression of the origins of any preceding term's definition runs into a proposition that will be considered &quot;axiomatic&quot;?&lt;/p&gt;&#xA;" OwnerUserId="4699" LastActivityDate="2018-09-18T10:19:03.707" Title="Non-axiomatic definition of well-being" Tags="&lt;social-welfare&gt;&lt;philosophy-of-economics&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24566" PostTypeId="2" ParentId="24563" CreationDate="2018-09-18T06:01:07.843" Score="4" Body="&lt;p&gt;When you say that a policy's objective is to &quot;maximize well-being&quot;, presumably you mean &quot;maximize &lt;em&gt;collective&lt;/em&gt; well-being&quot;.  And presumably, by &quot;collective&quot; well-being, you mean some sort of aggregate or average of the &lt;em&gt;individual&lt;/em&gt; well-beings of all members of society.  So your question breaks into two parts:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;What is the right measure of individual well-being?&lt;/li&gt;&#xA;&lt;li&gt;What is the right way to aggregate individual well-being into a measure of collective well-being?&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Question #1 is really a philosophical question (although many of the more philosophically minded economists have thought about it).  Broadly speaking, there are three families of approaches to defining/measuring individual well-being:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;em&gt;Hedonic&lt;/em&gt;:   Well-being is an emotional state (e.g. happiness).  Different hedonic approaches differ as to whether well-being is a short-term or instantaneous phenomenon (e.g. pleasure, absence of pain) or a more long-term one (e.g. &quot;overall life satisfaction&quot;).&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;em&gt;Preference-satisfaction&lt;/em&gt;:  According to this approach, well-being is the satisfaction of the individual's preferences.  To the extent that people want to be happy, and to the extent that they are happy when they get what they want, this overlaps the hedonic approach.  But there are situations where they come apart.  Also, different preference-satisfaction approaches differ over whether we care about the individual's &lt;em&gt;actual&lt;/em&gt; preferences, or her &quot;ideal&quot; preferences (i.e. those she would have if she was perfectly informed, perfectly rational, etc.).&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;em&gt;Perfectionist&lt;/em&gt; (or &quot;objective list&quot;) approaches.  These approaches propose to measure well-being in terms of some list of objective criteria, such as physical health, education, material consumption, participation in the community, etc.  Whereas the two previous approaches are &quot;subjective&quot; (it is is up to individual to determine her own level of well-being), this approach is &quot;objective&quot; (the individual's own opinion is only one part of the data, and perhaps is entirely irrelevant).   So in an objective list approach, an individual could have a high level of well-being even if she herself thinks she is miserable (and vice versa).&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Turning to the second part of the question:  what is the right way to aggregate individual well-being into collective well-being?  This is also a philosophical question (indeed, it is the central question of the entire &quot;welfarist&quot; approach to moral philosophy).  But it has also been explored extensively by economists.  Economists refer to such an aggregator as a &lt;em&gt;social welfare function&lt;/em&gt; or &lt;em&gt;social welfare order&lt;/em&gt;, and there is a huge literature on the axiomatic characterization of various families of social welfare functions. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a good introduction to these topics, I suggest the following books:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;em&gt;Handbook of Well-being and Public Policy&lt;/em&gt;, edited by Matthew D. Adler and Marc Fleurbaey,  Oxford University Press, 2016.   &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;em&gt;Handbook of Rational and Social Choice&lt;/em&gt;, edited by Paul Anand, Prasanta Pattanaik, and Clemens Puppe, Oxford University Press, 2009.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;em&gt;Handbook of Social Choice and Welfare&lt;/em&gt;, volume I, edited by  Kenneth J. Arrow,   Amartya K. Sen and  Kotaro Suzumura,  Elsevier, 2002.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;em&gt;Handbook of Social Choice and Welfare&lt;/em&gt;, volume II, edited by  Kenneth J. Arrow,   Amartya K. Sen and  Kotaro Suzumura,  Elsevier,&#xA;2011.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Each of these handbooks contains chapters written by different experts on different aspects of these questions.  The first two books are the most &quot;philosophical&quot;.  The second two books are more focused on axiomatic analysis of social welfare functions.  The very first book (the &lt;em&gt;Handbook of Well-being and Public Policy&lt;/em&gt;) is probably the best place to start.&lt;/p&gt;&#xA;" OwnerUserId="8759" LastActivityDate="2018-09-18T06:01:07.843" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24567" PostTypeId="1" AcceptedAnswerId="25317" CreationDate="2018-09-18T06:17:27.717" Score="5" ViewCount="227" Body="&lt;p&gt;I have heard of the argument that in order for USD to be reserve currecy, the rest of the world must own enough USD to store it as reserves. In order for the rest of the world to own enough USD, U.S has to buy more goods than U.S sells to the rest of the world. In other words, run a trade deficit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this a sound economic argument? If no, what are some holes in this argument? If yes, wouldn't the trade tariffs that President Trump is imposing on its trade partners all over the world lead to the end of USD as world's reserve currency?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://qz.com/1266044/why-does-the-us-run-a-trade-deficit-to-maintain-the-dollars-privileged-position/&quot; rel=&quot;noreferrer&quot;&gt;https://qz.com/1266044/why-does-the-us-run-a-trade-deficit-to-maintain-the-dollars-privileged-position/&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="6172" LastActivityDate="2018-11-02T17:18:37.583" Title="Is it true that the U.S has to run a chronic trade deficit with the rest of the world as a price to pay for being the world's reserve currency?" Tags="&lt;international-trade&gt;&lt;currency&gt;&lt;balance-of-trade&gt;&lt;usa&gt;&lt;foreign-exchange&gt;" AnswerCount="1" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24568" PostTypeId="1" AcceptedAnswerId="24570" CreationDate="2018-09-18T06:30:43.787" Score="1" ViewCount="308" Body="&lt;p&gt;What is the impact of an inelastic demand function on a monopoly production and pricing strategy ?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Theory states, that a monopoly will strive to maximize its profits, by arriving to a point where the difference between the revenues and costs is at a maximum&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The potential revenues derive from quantity of sales at a certain price, whixh by turn, are affected by demand&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the demand is inelastic, that means that quantity will remain fixed, no matter the price&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does that narrow or broaden the monopoly's options ?&#xA;What's the impact of that type of demand on the equilibrium price ?&lt;/p&gt;&#xA;" OwnerUserId="19195" LastActivityDate="2018-09-18T09:45:46.997" Title="Monopoly equilibrium with a completely inelastic demand" Tags="&lt;microeconomics&gt;&lt;elasticity&gt;&lt;monopoly&gt;" AnswerCount="1" CommentCount="7" ClosedDate="2018-09-23T15:27:33.140" ContentLicense="CC BY-SA 4.0" />
  <row Id="24569" PostTypeId="1" AcceptedAnswerId="24571" CreationDate="2018-09-18T09:23:23.993" Score="3" ViewCount="44" Body="&lt;p&gt;I'm trying to find out about the history of South Africa's government debt. However, I couldn't manage to find suitable literature or websites showing the history. It is also very difficult to find data on the national treasury website of South Africa.&#xA;Does anybody have any hints or literature tips?&lt;/p&gt;&#xA;" OwnerUserId="19457" LastEditorUserId="4988" LastEditDate="2018-09-21T16:03:22.593" LastActivityDate="2018-09-21T16:03:22.593" Title="Where can I get national debt data?" Tags="&lt;macroeconomics&gt;&lt;data-request&gt;&lt;government-debt&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24570" PostTypeId="2" ParentId="24568" CreationDate="2018-09-18T09:45:46.997" Score="4" Body="&lt;p&gt;Perfectly inelastic demand means quantity demanded is $q$ irrespective of the price. If producing quantity $q$ costs $c$ then the monopolist's problem is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\max_p \{pq-c\}.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This problem is not well-defined because the function $pq-c$ is increasing in $p$ and has no maximum. So there is no solution to the monopolist's problem. Intuitively, since the monopolist can sell $q$ units at &lt;em&gt;any&lt;/em&gt; price, it would want to choose a price of $+\infty$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You remark incredulously that we do not observe infinite oil prices. If the price of fuel increased to \$1000 per gallon then people would obviously drive their cars less and demand less fuel. So the demand for oil is not perfectly inelastic!&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;One way to make the problem more well behaved, which is quite common in the literature, is to assume a so-called &quot;choke-price&quot; (a price above which demand drops to zero). Demand is therefore&#xA;$$D(p)=\begin{cases}q\text{ if }p\leq\overline{p}\\[0.3em]0\text{ if }p&amp;gt;\overline{p}\end{cases}.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The monopolist's problem is then &lt;/p&gt;&#xA;&#xA;&lt;p&gt;$$\max_p \{pq-c\}\text{ s. th. }p\leq\overline{p}.$$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is a well-defined maxmisation problem with a unique solition: $p=\overline{p}$ (assuming $\overline{p}q&amp;lt;c$, otherwise the firm would just shit down).&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2018-09-18T09:45:46.997" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24571" PostTypeId="2" ParentId="24569" CreationDate="2018-09-18T09:50:09.080" Score="3" Body="&lt;p&gt;Several international organisations provide open access to macroeconomic data such as national debt - usually the &lt;a href=&quot;https://data.worldbank.org/&quot; rel=&quot;nofollow noreferrer&quot;&gt;World Bank&lt;/a&gt;, economic development organizations such as the &lt;a href=&quot;https://www.oecd.org/sdd/oecdmaineconomicindicatorsmei.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;OECD&lt;/a&gt; and the &lt;a href=&quot;https://www.afdb.org/en/knowledge/statistics/&quot; rel=&quot;nofollow noreferrer&quot;&gt;African Development Bank&lt;/a&gt;, as well as public institutions in the USA (&lt;a href=&quot;https://catalog.data.gov/dataset/international-macroeconomic-data-set&quot; rel=&quot;nofollow noreferrer&quot;&gt;data.gov&lt;/a&gt;) and in Europe (as an example the &lt;a href=&quot;https://sdw.ecb.europa.eu/browse.do?node=9691101&quot; rel=&quot;nofollow noreferrer&quot;&gt;ECB data warehouse&lt;/a&gt;). The national central banks should also provide the data you need, but its ease of access might vary.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &lt;a href=&quot;https://data.worldbank.org/indicator/GC.DOD.TOTL.CN?locations=ZA&quot; rel=&quot;nofollow noreferrer&quot;&gt;World Bank Open Data&lt;/a&gt; has the data you need, both in LCU (local currency) or in % of GDP, but only up to 2000 for the specific case of South Africa. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The IMF also collects data for several countries, so check if the &lt;a href=&quot;http://data.imf.org/?sk=85b51b5a-b74f-473a-be16-49f1786949b3&quot; rel=&quot;nofollow noreferrer&quot;&gt;page for South Africa&lt;/a&gt; has the data you are looking for.&lt;/p&gt;&#xA;" OwnerUserId="12304" LastEditorUserId="12304" LastEditDate="2018-09-18T10:01:24.483" LastActivityDate="2018-09-18T10:01:24.483" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24572" PostTypeId="2" ParentId="24563" CreationDate="2018-09-18T10:19:03.707" Score="1" Body="&lt;p&gt;Neo-classical economists use the concept of &lt;strong&gt;utility&lt;/strong&gt; as a proxy of well-being, and accept that every agent has a different set of preferences for their own utility, but all try to maximise one's own utility.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Well-being at an individual level varies imensely and thus is rarely defined. At a macro level, it's generally agreed that the availability and quality of Healthcare, Safety &amp;amp; Stability, Infrastructure, Education &amp;amp; Culture, and Environment greatly influence liveability, as well as well-being. These factors are the ones considered for indexes such as the &lt;a href=&quot;http://hdr.undp.org/en/content/human-development-index-hdi&quot; rel=&quot;nofollow noreferrer&quot;&gt;HDI&lt;/a&gt; or the city liveability rankings (see the ones from &lt;a href=&quot;https://mobilityexchange.mercer.com/quality-of-living-reports&quot; rel=&quot;nofollow noreferrer&quot;&gt;Mercer&lt;/a&gt; or from &lt;a href=&quot;https://pages.eiu.com/rs/753-RIQ-438/images/The_Global_Liveability_Index_2018.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;The Economist&lt;/a&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One last (personal) note: the question of well being sits between psychology, economics and philosophy. The maslow pyramid shares several aspects with the concepts used for the Human Development Index.&lt;/p&gt;&#xA;" OwnerUserId="12304" LastActivityDate="2018-09-18T10:19:03.707" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24573" PostTypeId="1" CreationDate="2018-09-18T10:51:22.793" Score="0" ViewCount="54" Body="&lt;p&gt;In context of European research projects, they invest into development of digital platforms.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is a source to give a &lt;a href=&quot;http://stephane-castellani.com/everything-you-need-to-know-about-digital-platforms/&quot; rel=&quot;nofollow noreferrer&quot;&gt;definition&lt;/a&gt;  but not really, and every time people refer directly or indirectly to Apple, Google and Facebook. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Somehow, they try to replicate the business model, but not culture.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But, the question is: is there a formal definition of what digital platform is?&lt;/p&gt;&#xA;" OwnerUserId="13716" LastActivityDate="2018-12-18T23:01:30.283" Title="What is a digital platform?" Tags="&lt;definition&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24575" PostTypeId="1" CreationDate="2018-09-18T11:22:45.177" Score="0" ViewCount="1394" Body="&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Ludwig_von_Mises&quot; rel=&quot;nofollow noreferrer&quot;&gt;Ludwig von Mises&lt;/a&gt; in his book &lt;a href=&quot;https://mises.org/library/liberalism-classical-tradition/html/p/38&quot; rel=&quot;nofollow noreferrer&quot;&gt;&quot;Liberalism: In the Classical Tradition&quot;&lt;/a&gt; writes that in liberal economic the monopolies are rare and have a tendency to disappear. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For an onlooker like me, however, his arguments sound not convincing, they give an impression of topics specially selected for polemics. For example, he doesn't explain the causes of the Great Depression (which is a standard argument against liberalism for his opponents). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Moreover, I would say, his style is strangely focused on examples, he seems to carefully avoid mathematical language, where chosen notations and premises give a possibility to deduce general statements from other general statements. As a result, his examples look like special cases which do not cover the whole picture. The examples that he gives look good, but a feeling appears that there are other, uncomfortable examples, which go unnoticed. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand, what happens in the real economy does not confirm his scheme well, for example (this is commonplace in the political debates in modern Russia) the &quot;liberal reforms&quot; of 1990-2000-ies led not to capitalist relations but directly to a feudal society with highly monopolized economical and political life.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I want to ask you if there exist theories/books/articles where the accusation against Liberalism -- &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Liberalism leads to monopolies&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;-- is discussed in detail with convincing references, examples, and conclusions? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;EDIT 29.09.2018.&lt;/strong&gt; Gentlemen (and ladies), still I would like someone to enlighten me. Where do monopolies come from? Are they a result of state intervention, or do they arise by themselves, without a public policy? Where is this all described (i.e. which reading could you recommend)? If the school of Mises died, what does the rest of the economic science say about it?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;EDIT 08.07.2019.&lt;/strong&gt; I'd like to add this question: are there any ways to deal with monopolies except the government intervention?&lt;/p&gt;&#xA;" OwnerUserId="5528" LastEditorUserId="5528" LastEditDate="2019-07-22T10:34:17.440" LastActivityDate="2019-07-22T10:34:17.440" Title="What does liberal economic theory say about monopolies?" Tags="&lt;monopoly&gt;&lt;political-economy&gt;" AnswerCount="4" CommentCount="27" ContentLicense="CC BY-SA 4.0" />
  <row Id="24577" PostTypeId="1" CreationDate="2018-09-18T13:05:59.447" Score="1" ViewCount="217" Body="&lt;p&gt;I have balanced panel data for around 130 countries, over three years. I ran a fixed effects regression using 'country' as my panel variable, and adding dummies for 'year'. I want to forecast the value of the dependent variable for the next 20 years, &lt;strong&gt;for only one country in particular&lt;/strong&gt;. Could somebody suggest the best way to do this?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am using Stata for this purpose.&lt;/p&gt;&#xA;" OwnerUserId="13883" LastActivityDate="2019-08-15T16:02:35.327" Title="Panel Data and Forecasting" Tags="&lt;econometrics&gt;&lt;paneldata&gt;&lt;stata&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24578" PostTypeId="2" ParentId="24577" CreationDate="2018-09-18T14:38:26.790" Score="-1" Body="&lt;p&gt;Probably this question is better placed at stackoverflow. Technically, in order to predict out of the sample, you need the full set of variables in the estimation. So after carrying out the estimation, you could do something like this. I assume your last observed year is 2010.&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;* expand US data for the last observed data point.&#xA;expand 20 if country == &quot;US&quot; &amp;amp; year == 2010&#xA;bys country year: replace year = . if _n &amp;gt; 1&#xA;bys country (year): replace year = year[_n-1] if year == .&#xA;estimates restore panel_estimation&#xA;predict outcome_var&#xA;* check whether that worked&#xA;tw line outcome_var year if country == &quot;US&quot;&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;This will predict a value based on your panel estimation also for the newly created observations. I am not judging whether it makes sense to extrapolate a time-trend over three years to twenty years ;)&lt;/p&gt;&#xA;" OwnerUserId="17735" LastEditorUserId="17735" LastEditDate="2018-09-19T10:51:34.857" LastActivityDate="2018-09-19T10:51:34.857" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="24579" PostTypeId="1" CreationDate="2018-09-18T17:43:36.987" Score="0" ViewCount="51" Body="&lt;p&gt;this is more a theoretical question, nowadays with Internet, Debit/Credit cards and Cryptocurrencies, why should we keep printing/making more physical money? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;granted not everybody has access to these technologies, but for the sake of this question, let's say every body does&lt;/p&gt;&#xA;" OwnerUserId="19463" LastActivityDate="2018-09-19T20:49:54.783" Title="Can we get rid of banknotes and coins?" Tags="&lt;currency&gt;&lt;cryptocurrency&gt;" AnswerCount="3" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24581" PostTypeId="2" ParentId="24579" CreationDate="2018-09-18T20:02:23.837" Score="1" Body="&lt;p&gt;Money will always be used for exchanges between nations. As a universal equivalent it will still be the best commodity for nation-to-nation exchanges and for measuring debts and credits between nations too. &#xA;Besides using alternative open source equivalents, such as cryptocurrencies, how would national banks manage to regulate inflation rates? This certainly is a critical point. Bitcoin for instance is a finite source of exchange: if it were to become a universal equivalent, virtually it would infinitely increase in its value, since the volume of the market exchange gets bigger and bigger.  Other cryptocurrencies tried solving this creating non finite sources, yet this still implies a arbitrary growth of the volume of available currency.&lt;/p&gt;&#xA;" OwnerUserId="19466" LastActivityDate="2018-09-18T20:02:23.837" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24582" PostTypeId="1" CreationDate="2018-09-19T01:13:33.573" Score="1" ViewCount="1061" Body="&lt;p&gt;I wonder why two functions can represent the same preferences? &lt;/p&gt;&#xA;" OwnerUserId="19469" LastActivityDate="2018-09-19T03:51:05.433" Title="Why can two functions represent the same preferences?" Tags="&lt;microeconomics&gt;" AnswerCount="2" CommentCount="1" ClosedDate="2018-09-23T15:19:06.750" ContentLicense="CC BY-SA 4.0" />
  <row Id="24583" PostTypeId="5" CreationDate="2018-09-19T01:25:59.877" Score="0" Body="" OwnerUserId="-1" LastEditorUserId="-1" LastEditDate="2018-09-19T01:25:59.877" LastActivityDate="2018-09-19T01:25:59.877" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24584" PostTypeId="4" CreationDate="2018-09-19T01:25:59.877" Score="0" Body="A political theory that stands for human rights, free markets, free trade and little state intervention." OwnerUserId="18167" LastEditorUserId="18167" LastEditDate="2018-09-22T09:23:21.437" LastActivityDate="2018-09-22T09:23:21.437" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24585" PostTypeId="2" ParentId="24582" CreationDate="2018-09-19T01:29:10.387" Score="2" Body="&lt;p&gt;We say that two utility functions represent the same preferences because the current utility theory is ordinal, rather than cardinal, which means that we do not care about the specific number that a consumption bundle gives us when we plug it into the function, we only care about the order of preferences, i.d. whether u(A)&gt;u(B), u(A)=u(B) or u(A)&#xA;" OwnerUserId="13920" LastActivityDate="2018-09-19T01:29:10.387" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24586" PostTypeId="1" CreationDate="2018-09-19T01:34:11.783" Score="1" ViewCount="136" Body="&lt;p&gt;If I am being asked to do an unconditional analysis of a time series variable, lets say GDP starting in 2000, what model am I supposed to estimate?&lt;/p&gt;&#xA;" OwnerUserId="13920" LastActivityDate="2019-12-14T11:02:40.537" Title="What is an unconditional model for a time series variable?" Tags="&lt;econometrics&gt;&lt;applied-econometrics&gt;&lt;time-series&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24587" PostTypeId="2" ParentId="24582" CreationDate="2018-09-19T03:51:05.433" Score="4" Body="&lt;p&gt;Suppose I strictly prefer Apple ($A$) to Banana ($B$) and that these are the only two goods in existence.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider the following functions:†&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;The function $u$ with $u(A)=1$, $u(B)=0$.&lt;/li&gt;&#xA;&lt;li&gt;The function $v$ with $v(A)=-99$, $v(B)=-100$.&lt;/li&gt;&#xA;&lt;li&gt;The function $w$ with $w(A)=0.1$, $w(B)=0.01$.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Each of the above functions correctly represents my preference because in each case, the function's value at $A$ exceeds that at $B$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A utility function (representation) is merely a (very) convenient way to numerically encode my preference. Here there are only two goods and I prefer $A$ to $B$. So, &lt;em&gt;any&lt;/em&gt; function whose value at $A$ is greater than that at $B$ would correctly represent my preference.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this example, we have only two goods, so a utility function isn't particularly useful or convenient.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But with more goods (and sometimes also more assumptions), utility functions can help to produce useful results that tell us something about the real world.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;†Real-valued, with domain $\{A,B\}$.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2018-09-19T03:51:05.433" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24588" PostTypeId="1" CreationDate="2018-09-19T05:31:50.687" Score="-2" ViewCount="66" Body="&lt;p&gt;Money usually has inflation tied to it, but is there a product that has stayed around the same value world wide for a very long time, and probably will for a very long time as well (something like 100 years into the future?)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm talking about a product like coffee beans, or bananas, something that for instance you could always buy the same amount with an hour of minimum wage, regardless of the time period, something that has always kept its relatively same value, Any ideas?&lt;/p&gt;&#xA;" OwnerUserId="19471" LastEditorUserId="19471" LastEditDate="2018-09-19T05:36:57.687" LastActivityDate="2018-10-21T04:08:13.993" Title="What's a product that historically has always had the same value, and probably will in the future?" Tags="&lt;inflation&gt;&lt;productivity&gt;&lt;minimum-wage&gt;" AnswerCount="3" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="24590" PostTypeId="2" ParentId="24588" CreationDate="2018-09-19T10:30:04.450" Score="-1" Body="&lt;p&gt;&lt;strong&gt;Life&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since value is usually measured and communicated in measures of money, gold or other finite resource, then this question can only have as an answer priceless things. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Life is not a product though, so not sure if this answer will be accepted.&lt;/p&gt;&#xA;" OwnerUserId="12304" LastActivityDate="2018-09-19T10:30:04.450" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="24591" PostTypeId="1" CreationDate="2018-09-19T11:11:49.630" Score="3" ViewCount="432" Body="&lt;p&gt;I seem to be having trouble in comprehending what it means for a time series to be covariance stationary. Specifically, with the third condition that for any $t,h$ the $cov(x_t,x_{t+h})$ only depends on $h$ and not $t$. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Would anyone have any examples of how a time series might be covariance stationary or any examples of non-covariance stationary time series?&lt;/p&gt;&#xA;" OwnerUserId="19470" LastEditorUserId="1601" LastEditDate="2018-09-19T15:46:53.023" LastActivityDate="2018-09-21T05:26:57.733" Title="Examples of Covariance Stationary Time Series" Tags="&lt;econometrics&gt;&lt;time-series&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24594" PostTypeId="2" ParentId="24591" CreationDate="2018-09-19T16:06:54.393" Score="1" Body="&lt;p&gt;Let $\epsilon_1, \epsilon_2, ... ,\epsilon_t,...$ denote i.i.d. stochastic variables, each having a standard deviation of $\sigma$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let&#xA;$$&#xA;x_t = \sum_{i = 1}^t \epsilon_i.&#xA;$$&#xA;Then&#xA;$$&#xA;cov(x_t,x_{t+h}) =&#xA;cov\left(&#xA;\sum_{i = 1}^t \epsilon_i,&#xA;\sum_{i = 1}^{t+h} \epsilon_i&#xA;\right).&#xA;$$&#xA;Because of the i.i.d. property&#xA;$$&#xA;cov\left(&#xA;\sum_{i = 1}^t \epsilon_i,&#xA;\sum_{i = 1}^{t+h} \epsilon_i&#xA;\right)&#xA;=&#xA;\sum_{i = 1}^t cov\left(\epsilon_i,\epsilon_i\right) +&#xA;\sum_{i = 1}^t\sum_{j \neq i} cov\left(\epsilon_i,\epsilon_j\right)&#xA;$$&#xA;and furthermore because of independence&#xA;$$&#xA;\sum_{i = 1}^t cov\left(\epsilon_i,\epsilon_i\right) +&#xA;\sum_{i = 1}^t\sum_{j \neq i} cov\left(\epsilon_i,\epsilon_j\right)&#xA;=&#xA;\sum_{i = 1}^t \sigma +&#xA;\sum_{i = 1}^t\sum_{j \neq i} 0&#xA;=&#xA;t \cdot \sigma.&#xA;$$&#xA;Now we have shown that for this time series&#xA;$$&#xA;cov(x_t,x_{t+h}) =&#xA;t \cdot \sigma&#xA;$$&#xA;depends on $t$ hence it is not covariance stationary.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a covariance stationary time series, let&#xA;$$&#xA;z_t = \epsilon_{t-1} + \epsilon_{t}.&#xA;$$&#xA;By performing the same analyis, you can conlude that for $t &amp;gt; 1$,&#xA;$$&#xA;cov(z_t,z_{t+h}) =&#xA;\left\{&#xA;\begin{array}{ll}&#xA;\sigma &amp;amp; \text{ if } h = 1 \\&#xA;0 &amp;amp; \text{ if } h &amp;gt; 1.&#xA;\end{array}&#xA;\right.&#xA;$$&#xA;Since this depends on $h$, but not on $t$, the time series $z_t$ will be covariance stationary (after $t = 1$).&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2018-09-19T16:06:54.393" CommentCount="9" ContentLicense="CC BY-SA 4.0" />
  <row Id="24595" PostTypeId="1" AcceptedAnswerId="24597" CreationDate="2018-09-19T17:10:33.413" Score="1" ViewCount="6657" Body="&lt;p&gt;As the title states, I want to know how to derive the hicksian demand of perfect complements $\text{min} \, \{x1,x2\}$.  Thanks in advance.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, no price is given, or budget.  my main question is how do i do this considering there really is no utility function?&lt;/p&gt;&#xA;" OwnerDisplayName="user19452" LastEditorUserId="18167" LastEditDate="2018-09-20T00:58:02.863" LastActivityDate="2018-09-20T16:44:00.163" Title="hicksian demand of perfect complements" Tags="&lt;utility&gt;&lt;perfect-complements&gt;" AnswerCount="2" CommentCount="3" ClosedDate="2018-09-23T16:09:43.200" ContentLicense="CC BY-SA 4.0" />
  <row Id="24597" PostTypeId="2" ParentId="24595" CreationDate="2018-09-19T18:06:11.827" Score="1" Body="&lt;p&gt;Hicksian demand is the consumption bundle that minimizes the expenditure of the consumer subject to the constraint that he attains some target level of satisfaction in equilibrium. In the problem, the expenditure on any bundle $(x, y)$ is given by $p_Xx + p_Yy$ and the target level of satisfaction is $\mu$. Given that the utility function is $u(x, y) = \min(x, y)$, the expenditure minimization problem is formulated as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;\begin{eqnarray*} \min_{x, y} \ \ &amp;amp; p_Xx+p_Yy \\ \text{s.t.} \ \ &amp;amp;  \min(x, y) \geq \mu\end{eqnarray*}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Solution to this problem is a function known as Hicksian demand function :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$x^h (p_X, p_Y, \mu) = \mu $&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$y^h (p_X, p_Y, \mu) = \mu $&lt;/p&gt;&#xA;" OwnerUserId="11824" LastActivityDate="2018-09-19T18:06:11.827" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24599" PostTypeId="2" ParentId="24579" CreationDate="2018-09-19T20:40:12.967" Score="0" Body="&lt;p&gt;There's no real reason to do so...&#xA;Sweden, for example, is bearly usibg physical money at all&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question can be looked at in a broader sense, examining old technologies working in parallel with newer&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At the end of the day, the last end-user, should abandon the old tech, for the regulator (in tgis case) to switch it off&lt;/p&gt;&#xA;&#xA;&lt;p&gt;sms (or 2g cell networks in general) are a good example&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Evantually, the only barrier not to impose using debit cards (which unlike crypto-currency are quite common), is the potential damage for the economy from physical money users.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regulation can encourage or incentivize traders to move to debit cards, using taxes, fees or subsidies, then when the physical money usage drops, stop generating physical money, with minimal damage&lt;/p&gt;&#xA;" OwnerUserId="19195" LastActivityDate="2018-09-19T20:40:12.967" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24600" PostTypeId="2" ParentId="24579" CreationDate="2018-09-19T20:49:54.783" Score="0" Body="&lt;p&gt;Privacy would be a big issue. Making all payments on-line would mean that all payments will be recorded and could be traced. Even in anonymous systems like bitcoin, it would be easier to trace payments then with physical currency.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can argue that law-abiding citizens don't need to be afraid - but thats not the point. There are certainly many many things that are not illegal, but nevertheless you won't be happy if they went public. That's the point of privacy.&lt;/p&gt;&#xA;" OwnerUserId="7059" LastActivityDate="2018-09-19T20:49:54.783" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24601" PostTypeId="2" ParentId="24573" CreationDate="2018-09-19T21:06:14.540" Score="2" Body="&lt;p&gt;I am not aware of any definition, and believe me, lots of people would like to have one - mostly for regulatory purposes. There are attempts in many countries to regulate digital platforms, but without good definition, you can't create a good legal regulation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any definition I have seen so far is a list of features, that is, however, not exhaustive - it would be a good definition if we could say, &quot;it is a platform if it has those 8 features,&quot; but then you will find one that doesn't have all of them, and you find something that has all of them, but you won't call it a platform...&lt;/p&gt;&#xA;" OwnerUserId="7059" LastActivityDate="2018-09-19T21:06:14.540" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24602" PostTypeId="1" CreationDate="2018-09-19T21:58:36.090" Score="1" ViewCount="89" Body="&lt;p&gt;&lt;strong&gt;&lt;em&gt;Note&lt;/strong&gt;: This question may seem really pointless, but it's actually in the context of a cryptocurrency idea I am developing, but I posed it this way as the question is not really about cryptocurrencies at all, but rather the impact of a bizarre monetary policy on exchange rates.&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Republic of Nowhereland follows a rather peculiar monetary policy: new Nowhereland dollars (NWD) are created by destroying an equivalent number of US dollars, at a fixed 1:1 ratio. Anybody can go to the central bank with any quantity of USD, ritually burn it in front of a bank official, and receive freshly printed NWD. In fact, NWD banknotes are inscribed with text saying &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;100 Dollars, Sacrificed to the Gods, at the Central Bank of Nowhereland&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;or some other denomination. Even the central bank itself is strictly forbidden from creating NWD without destroying an equivalent amount of USD.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Otherwise, the central bank does not interfere in any way with the foreign exchange market, and NWD is fully convertible in every sense. The government does not even have significant foreign exchange reserves. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is, what sort of implications, especially on the NWD/USD market exchange rate, would such a system of currency issuance have? Obviously, the NWD will never be valued significantly above the USD, since otherwise burning USD at the central bank would be profitable, and the supply of NWD will rapidly grow until it's no longer profitable to do so.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand, assuming the Nowherelandish economy grows more than it contracts, it seems like a NWD priced significantly lower than the USD would be unrealistic, as in this case the money supply will never grow. This would cause the NWD to appreciate until hitting the 1:1 ratio when burning NWD becomes profitable again. Also, it seems like this would be anticipated by forex traders, so everybody would buy NWD whenever it's cheaper than USD, so the NWD would essentially be pegged to the USD.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is my reasoning correct, or am I missing something major? Why are there no real-life currencies backed by such a &quot;one-way&quot; currency board? It seems like it would allow currencies to be soft-pegged to another currency, without incurring any obligations for the central bank to buy its own currency at a fixed rate.&lt;/p&gt;&#xA;" OwnerUserId="19479" LastActivityDate="2018-09-19T21:58:36.090" Title="How would a &quot;one-way&quot; fixed exchange rate backed by destroying foreign currency work?" Tags="&lt;inflation&gt;&lt;monetary-policy&gt;&lt;foreign-exchange&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24604" PostTypeId="1" CreationDate="2018-09-20T04:25:21.027" Score="1" ViewCount="286" Body="&lt;p&gt;I am wondering how the price elasticity of demand (or supply) impacts market efficiency. A more specific question - can we say that in a monopolized market elasticity will be low, and that in a competitive market the competition allows the elasticity of demand to increase? Said another way, a lack of competition places a ceiling on the elasticity of demand, when there is good competition, the elasticity is not bound and reaches the correct market equilibrium value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can a regulator use low elasticity as evidence there is a lack of competitiveness?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can an increase to price elasticity of demand increase consumer surplus while reducing producer surplus?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Would be great to hear some layman thoughts,a s well as references to academic literature (I didn't find much on the topic in my search).&lt;/p&gt;&#xA;" OwnerUserId="17942" LastActivityDate="2018-09-20T06:36:47.793" Title="How does elasticity impact market efficiency?" Tags="&lt;elasticity&gt;&lt;monopoly&gt;&lt;pareto-efficiency&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24606" PostTypeId="2" ParentId="24591" CreationDate="2018-09-20T05:00:35.197" Score="0" Body="&lt;p&gt;@ M Damon: If you're just starting with time series ( actually, even if you're not ) ,  think it's best to forget about Wold Decomp and ARIMA models and all that jibber jabber. I re-read your question and I think the best way to think of covariance stationary is the following.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You're sitting in the audience and there's a stage that you look at. The stage is  such that the beginning of the curtain to the end of the curtain is of length h. You also have the ability to see the h numbers&#xA;( picture each number taking up a unit length of space )  that come out ( some stochastic process causes them to arrive on stage ) in the h second interval&#xA;so that they perfectly fit on stage from the left side of the stage all the&#xA;way to the right.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, at time &lt;span class=&quot;math-container&quot;&gt;$t = 1, X_1$&lt;/span&gt; arrives on the stage. Then, the &lt;span class=&quot;math-container&quot;&gt;$X_2$&lt;/span&gt; arrives on stage at &lt;span class=&quot;math-container&quot;&gt;$t = 2$&lt;/span&gt;, to the right of &lt;span class=&quot;math-container&quot;&gt;$X_1$&lt;/span&gt; ( from your vantage point ). So, after &lt;span class=&quot;math-container&quot;&gt;$h$&lt;/span&gt; seconds, you have &lt;span class=&quot;math-container&quot;&gt;$X_1, \ldots X_h$&lt;/span&gt; on stage and ordered from left to right. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You are sitting there at time &lt;span class=&quot;math-container&quot;&gt;$t=h$&lt;/span&gt; ( picture time stopping for a moment ) and since the observations are from some stochastic process,  there is a covariance structure between those h elements on stage.  Whatever it is, doesn't matter. Maybe it's &lt;span class=&quot;math-container&quot;&gt;$\theta^i$&lt;/span&gt; where &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; is the lag between two &lt;span class=&quot;math-container&quot;&gt;$X_t$&lt;/span&gt; say &lt;span class=&quot;math-container&quot;&gt;$X_t$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$X_{t-i}$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Next, time starts again and you close your eyes for another &lt;span class=&quot;math-container&quot;&gt;$h$&lt;/span&gt; seconds so that a new set of &lt;span class=&quot;math-container&quot;&gt;$h$&lt;/span&gt; elements arrive on stage and the old ones leave. Now you're at time &lt;span class=&quot;math-container&quot;&gt;$2h$&lt;/span&gt; and you open your eyes. So, it's time &lt;span class=&quot;math-container&quot;&gt;$t = 2h$&lt;/span&gt;, but the covariance structure between the new &lt;span class=&quot;math-container&quot;&gt;$h$&lt;/span&gt; elements on stage does not change from what it was earlier. So, the specific elements themselves don't matter when it comes to the covariance of any two elements. All one needs to know is the distance between any two elements in order to know what the covariance ( or correlation ) of them is. 2h plays no role. All that matters for knowing the covariance of any two elements on stage is their distance. This is the practical meaning of the term &quot;covariance stationary&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that stage could have been bigger or smaller. &lt;span class=&quot;math-container&quot;&gt;$h$&lt;/span&gt; was just random number picked.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This assumption is made and is useful because ( informally speaking ) it kind of allows one to estimate model parameters in an unbiased way with only one  set of time series observations. If this assumption was not made, then it would be kind of like having a sample size of &lt;span class=&quot;math-container&quot;&gt;$n=1$&lt;/span&gt; because the stochastic realization is one element. I hope that helps.&lt;/p&gt;&#xA;" OwnerUserId="18201" LastEditorUserId="18201" LastEditDate="2018-09-21T05:26:57.733" LastActivityDate="2018-09-21T05:26:57.733" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24607" PostTypeId="2" ParentId="24604" CreationDate="2018-09-20T06:08:06.660" Score="1" Body="&lt;p&gt;Good question&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we examine edge cases of full elasticity, then we get:&#xA;supply or demand with zero impact of quantity on price: no matter the quantity, price will remain the same&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Looking at elastic demand, that mean that for suppliers the MC function will arrive to the particular demand price. No special change in efficiency&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Looking at elastic supply, that means that the consumer surplus will derive from the fixed price&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Based on theory, there will be no loss of efficiency (a certain quantity that will be lost) when adding taxes or subsidies&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The common real case of full elasticity, is for imported or exported goods, where the world market's equilibrium for the product imported /exported is unaffected by local market&#xA;In this case, either consumers get cheaper prices for products, comparing to a similar product manufactured locally &#xA;or get extra prices for local goods sold abroad&lt;/p&gt;&#xA;" OwnerUserId="19195" LastEditorUserId="19195" LastEditDate="2018-09-20T06:36:47.793" LastActivityDate="2018-09-20T06:36:47.793" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="24610" PostTypeId="2" ParentId="24586" CreationDate="2018-09-20T08:57:45.423" Score="1" Body="&lt;p&gt;So the simplest response would be that an unconditional model is a model that does not include any other stochastic regressors. Lets say your variable of interest is $Y_t$ then a conditional model would be&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$Y_t = \alpha + X_t\beta + v_t$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where you are implicitly conditioning on $X_t$ (i.e. treating it as fixed/exogenous). In time series $X_t$ can also include lags or transformations of $Y_t$. In the example that you gave, you could think of inflation (or lags of GDP) as potential conditioning variables. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So then, given this, what is an unconditional model? Well it is a model that does not include $X_t$ and instead only has deterministic terms (such as a constant or a trend). That is to say in the context of GDP, GDP growth doesn't depend on (i.e. isn't conditional upon) another variable but rather grows at a constant rate (or has a linear trend).&lt;/p&gt;&#xA;" OwnerUserId="6844" LastActivityDate="2018-09-20T08:57:45.423" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24613" PostTypeId="1" CreationDate="2018-09-20T14:17:12.550" Score="2" ViewCount="294" Body="&lt;p&gt;Are there any applications of number theory and abstract algebra in economics? An economist had told me that number theory had an application to a theorem in economics, however he did not remember what it is and my number theory professor in undergrad had also mentioned it but I can't find it. I know combinatorics and graph theory have applications in economics in regards to social networks. I am very curious about it&lt;/p&gt;&#xA;" OwnerUserId="19483" LastEditorUserId="42" LastEditDate="2018-09-20T15:21:59.943" LastActivityDate="2018-09-20T15:21:59.943" Title="Applications of Pure Mathematics in Economics" Tags="&lt;reference-request&gt;&lt;mathematical-economics&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24614" PostTypeId="1" CreationDate="2018-09-20T14:47:17.643" Score="4" ViewCount="388" Body="&lt;p&gt;I need help in a maximization problem(finding the optimal investment portfolio).&#xA;&lt;a href=&quot;https://i.stack.imgur.com/iVge7.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/iVge7.png&quot; alt=&quot;enter image description here&quot; /&gt;&lt;/a&gt;&#xA;where &lt;span class=&quot;math-container&quot;&gt;$R_s$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\Phi$&lt;/span&gt; are &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt; by &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt;, with other variables being scalars.&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$C^s$&lt;/span&gt; is consumption (or wealth) of an investor, &lt;span class=&quot;math-container&quot;&gt;$R_s$&lt;/span&gt; (or &lt;span class=&quot;math-container&quot;&gt;$R$&lt;/span&gt;) is the return rates of risky assets while &lt;span class=&quot;math-container&quot;&gt;$R_f$&lt;/span&gt; is the return rate of a risk-free asset(say government bond), &lt;span class=&quot;math-container&quot;&gt;$\Phi$&lt;/span&gt; is the quantities of risky assets, &lt;span class=&quot;math-container&quot;&gt;$\phi_f$&lt;/span&gt; is the quantity of the risk-free asset, &lt;span class=&quot;math-container&quot;&gt;$\omega$&lt;/span&gt; is the quantity of all the assets(so &lt;span class=&quot;math-container&quot;&gt;$\phi_f+\Phi' \cdot 1=\omega$&lt;/span&gt;), and &lt;span class=&quot;math-container&quot;&gt;$u(\cdot)$&lt;/span&gt; is the investor's utility function.&lt;/p&gt;&#xA;&lt;p&gt;The solution to this problem gives the following first order condition(FOC) i.e. taking derivative w.r.t. &lt;span class=&quot;math-container&quot;&gt;$\Phi$&lt;/span&gt; (assuming integration and differentiation can be exchanged):&lt;/p&gt;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/koeCv.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/koeCv.png&quot; alt=&quot;enter image description here&quot; /&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&lt;p&gt;But there's actually a constraint: &lt;span class=&quot;math-container&quot;&gt;$\phi_f+\Phi' \cdot 1=\omega$&lt;/span&gt;, so I tried Lagrange but couldn't get the same result:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$L(\Phi, \lambda)=E[u(c)]+\lambda(\omega-\phi_f-\Phi' \cdot 1 )$$&lt;/span&gt; with FOCs:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\partial L/\partial \Phi =E[u'(c)(R-1\cdot R_f)]-\lambda \cdot 1=0$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\partial L/\partial \lambda =\omega-\phi_f-\Phi' \cdot 1 =0$$&lt;/span&gt;&#xA;I couldn't get the same result from above. To have the result in the solution I must have &lt;span class=&quot;math-container&quot;&gt;$\lambda=0$&lt;/span&gt; but I'm not sure in what cases it can hold. Please let me know which parts I did wrong.&lt;/p&gt;&#xA;" OwnerUserId="19485" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2018-10-24T20:10:43.047" Title="A question about Lagrange multiplier(when $\lambda=0$)" Tags="&lt;utility&gt;&lt;optimization&gt;&lt;asset-pricing&gt;&lt;portfolio-theory&gt;" AnswerCount="3" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24616" PostTypeId="2" ParentId="24595" CreationDate="2018-09-20T16:44:00.163" Score="1" Body="&lt;p&gt;Although one can derive the Hicksian demands by solving the expenditure minimisation problem, but the Leontief function is not differentiable at the 'kink', or at the 'point of optimality'. Thus one has to resort to simpler algebraic manipulations to find out the Hicksian demands.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let $\textbf{p}\in\mathbb{R_{++}^2}$(that is both $p_1 \ \&amp;amp; \ p_2$ are $&amp;gt;0$). We know that for $U(x,y)=min\{x,y\}$, the optimal consumption bundle is at the point where $x=y$. Let the budget correspondence be $p_1x+p_2y\leq w$, where $w$ is the income level. Optimal consumption bundle occurs when all the income is used up. Thus, we have $p_1x+p_2x= w$ (since $x=y$ at point of optimality). This gives us the demand correspondences as $x(\textbf{p},w)=y(\textbf{p},w)=\frac{w}{p_1+p_2}$. Using the demands, we can find out the &lt;em&gt;indirect utility&lt;/em&gt; as $v(\textbf{p},w)=U(x(\textbf{p},w),y(\textbf{p},w))=min\{\frac{w}{p_1+p_2},\frac{w}{p_1+p_2}\}=\frac{w}{p_1+p_2}$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Next, we turn towards the duality principle,i.e; for a given level of utility, we have $v(\textbf{p},e(\textbf{p},u))=u$. Thus, we have $\frac{e(\textbf{p},u)}{p_1+p_2}=u$, or $e(\textbf{p},u)=u(p_1+p_2)$. Next, we appeal to the Shephard's Lemma,i.e; $\frac{\partial e(\textbf{p},u)}{\partial p_i}=h_i(\textbf{p},u)$. Notice that the expenditure function is differentiable in prices. Thus, we get $h_1(\textbf{p},u)=u$ and $h_2(\textbf{p},u)=u$.&lt;/p&gt;&#xA;" OwnerUserId="16340" LastActivityDate="2018-09-20T16:44:00.163" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24618" PostTypeId="1" CreationDate="2018-09-20T18:42:54.777" Score="0" ViewCount="31" Body="&lt;p&gt;I have read that robocallers are untraceable because they are usually companies in India or the Phillipines.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't understand how this is possible. If I call India or the Phillipines, it is very expensive, a dollar or two per call. If the robocallers are paying this kind of money for each call, I don't see how that could be profitable, considering how many hangups they get.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are foreign companies getting some cheap way to call into the US so that the pricing of international calls is highly asymmetric?&lt;/p&gt;&#xA;" OwnerUserId="1448" LastActivityDate="2018-11-19T20:02:00.380" Title="How are robocallers able to make international calls profitable?" Tags="&lt;services&gt;" AnswerCount="1" CommentCount="2" ClosedDate="2018-12-08T05:14:29.467" ContentLicense="CC BY-SA 4.0" />
  <row Id="24619" PostTypeId="2" ParentId="24618" CreationDate="2018-09-20T19:02:57.297" Score="1" Body="&lt;p&gt;The short answer is yes&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In general, technology today allows to transfer calls between telephone switches, over the internet, at zero cost (with only the fixed broadband cost), using SIP protocol&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So one of the main reasons for international calls to cost differently between countries is the internal market structure of each country&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Internal market structure includes in many cases operators interconnect costs or wholesale costs, regulated or not. It can also include taxes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Calls to the US are extremely cheap&#xA;So in theory, one can download a SIP program and connect to any other person with a SIP program. All that is left is connecting to an international calls provider, and make calls... &lt;/p&gt;&#xA;" OwnerUserId="19195" LastActivityDate="2018-09-20T19:02:57.297" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24620" PostTypeId="1" AcceptedAnswerId="24623" CreationDate="2018-09-20T19:35:37.633" Score="4" ViewCount="136" Body="&lt;p&gt;LTV predicts that fiat currency, which requires zero labor to produce, should have zero value. Empirically, fiat currency does not have zero value. How do Marxists account for this. The to responses I have gotten so far are that labor does go into printing(though very little in comparison to the price) and that fiat currency is merely a token of money. In which case what is the money in this regard and how can any of this be empirically tested?&lt;/p&gt;&#xA;" OwnerUserId="19302" LastActivityDate="2018-09-23T09:44:00.647" Title="How do Marxists account for fiat money?" Tags="&lt;labor-economics&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24621" PostTypeId="1" CreationDate="2018-09-20T20:22:48.407" Score="0" ViewCount="23" Body="&lt;p&gt;Apparently &lt;a href=&quot;https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&amp;amp;objectid=11820240&quot; rel=&quot;nofollow noreferrer&quot;&gt;Apple pays no taxes in New Zealand&lt;/a&gt;, even though it has employees and profit-making operations there amounting to over a billion dollars per year. The cross linked article does not really explain how it is that they are paying no taxes. What are the relevant rules?&lt;/p&gt;&#xA;" OwnerUserId="1448" LastActivityDate="2018-09-20T20:22:48.407" Title="How is it that Apple is paying no taxes in New Zealand?" Tags="&lt;taxes&gt;&lt;multinational-companies&gt;" AnswerCount="0" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="24623" PostTypeId="2" ParentId="24620" CreationDate="2018-09-21T00:06:42.730" Score="2" Body="&lt;p&gt;Marx's theory of product-value is often called a &quot;labour theory of value&quot; though he never used it himself to describe his &quot;law of value&quot;. He also had a theory of exchange-value to try to explain market phenomena. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Marx did have a theory of the materialisation of labour in gold. But fiat or credit money has no intrinsic value (if it did then it would not be &lt;em&gt;fiat&lt;/em&gt;), though it does have an exchange value, broadly speaking the value that can be acquired by spending it.  Marx argued that the use of money obscured the real value (&quot;congealed labour-time&quot;) involved in transactions and exchanges. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;That is not really testable, but what may be testable is the extent that relative prices of different commodities reflect the labour involved in their production, and if so whether these reflections are of average or marginal labour, and what causes changes in relative prices over time.  Whether you would want to is another question: it is all a bit 19th century.&lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2018-09-21T00:06:42.730" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24624" PostTypeId="2" ParentId="24620" CreationDate="2018-09-21T06:50:56.337" Score="-1" Body="&lt;p&gt;There is nothing which exists in the human world, which does not require labor. Fiat money is by far no exception to that. It requires an state with many institutions to secure the money, so people can trust in the value of it. It requires bank houses and a lot of technology and real work to manage the financial processes. Marxian economics is very materialistic. The material background of most &quot;pure&quot; econonomic phenomens, is often ignored by the mainstream. For marxian economics fiat money has definitely value of &quot;congealed labour-time&quot; and not only the value of the printed paper.&#xA;Today we live in the age of information and data. So we know a lot things similar to fiat money. How a society determines the value of something is in the power of the society, not in the thing itself. The average required  labour time is an theoretical more philosophical tool, which still is not easily applicable to known, maybe any, economy.&lt;/p&gt;&#xA;" OwnerUserId="12910" LastEditorUserId="12910" LastEditDate="2018-09-23T09:44:00.647" LastActivityDate="2018-09-23T09:44:00.647" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24625" PostTypeId="1" CreationDate="2018-09-21T12:26:42.793" Score="3" ViewCount="137" Body="&lt;p&gt;Consider a CES production function &lt;span class=&quot;math-container&quot;&gt;$Y=f(K,L)$&lt;/span&gt; with elasticity of factor substitution &lt;span class=&quot;math-container&quot;&gt;$\sigma&amp;gt;0$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The substitution effect of higher real wages naturally implies a shift along the isoquant to more &lt;span class=&quot;math-container&quot;&gt;$K$&lt;/span&gt;. The rise in costs will reduce output. The total effect of &lt;span class=&quot;math-container&quot;&gt;$w \uparrow$&lt;/span&gt; on &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$K$&lt;/span&gt; is the sum of this substitution and output effect. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm interested in the link between the value of &lt;span class=&quot;math-container&quot;&gt;$\sigma$&lt;/span&gt; and the strength of these two effects. Does anyone know a good reference, or lecture notes on the algebra of these effects in the CES context?&lt;/p&gt;&#xA;" OwnerUserId="19132" LastActivityDate="2019-12-16T02:03:10.570" Title="Wages, capital: Substitution and Output Effects" Tags="&lt;production-function&gt;&lt;elasticity-of-substituion&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24628" PostTypeId="2" ParentId="24614" CreationDate="2018-09-22T01:08:35.057" Score="1" Body="&lt;p&gt;A &lt;span class=&quot;math-container&quot;&gt;$\lambda = 0$&lt;/span&gt; means that the objetive function's derivative with respect to the restriction is zero. In more intuitive terms, one cannot change the expected utility of consumption by relaxing or tightening the budget restriction. This is a weird case, for sure, I think you're missing something here. Maybe telling us what the variables mean can help?&lt;/p&gt;&#xA;" OwnerUserId="18167" LastActivityDate="2018-09-22T01:08:35.057" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24629" PostTypeId="1" AcceptedAnswerId="24644" CreationDate="2018-09-22T02:47:06.877" Score="0" ViewCount="106" Body="&lt;p&gt;&lt;a href=&quot;https://rads.stackoverflow.com/amzn/click/B00QH9NTSI&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;A Random Walk Down Wall Street&lt;/em&gt; (2015 11 ed)&lt;/a&gt;. pp. 224 Bottom - 225 Top.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;  Changes in the rate of inflation will similarly tend to have a systematic influence on the returns from common stocks. This is so for at least two reasons. First, &lt;strong&gt;an increase in the rate of inflation tends to increase interest rates&lt;/strong&gt; and thus tends to lower the prices of some equities, as just discussed. Second, the increase in inflation may squeeze profit margins for certain groups of companies—public utilities, for example, which often find that rate increases lag behind increases in costs. On the other hand, inflation may benefit the prices of common stocks in the natural resource industries. Thus, again there are important systematic relationships between stock returns and economic variables that may not be captured adequately by a simple beta measure of risk.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Please expound the sentence bolded overhead? &lt;/p&gt;&#xA;" OwnerUserId="4020" LastEditorUserId="4020" LastEditDate="2018-09-22T16:57:31.740" LastActivityDate="2018-09-23T06:37:55.633" Title="Why can an increase in inflation rate, increase interest rates?" Tags="&lt;inflation&gt;&lt;interest-rate&gt;" AnswerCount="2" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24630" PostTypeId="1" CreationDate="2018-09-22T03:33:30.580" Score="0" ViewCount="363" Body="&lt;p&gt;&lt;a href=&quot;https://rads.stackoverflow.com/amzn/click/com/B00QH9NTSI&quot; rel=&quot;nofollow noreferrer&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;A Random Walk Down Wall Street&lt;/em&gt; (2015 11 ed)&lt;/a&gt;. p. 125.&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;&lt;strong&gt;Determinant 4: The level of market interest rates.&lt;/strong&gt; The stock market does not exist as a world unto itself. Investors should consider how much profit they can obtain elsewhere. Interest rates, if they are high enough, can offer a stable, profitable alternative to the stock market. Consider periods such as the early 1980s when yields on prime-quality corporate bonds soared to close to 15 percent. The expected returns from stock prices had trouble matching these bond rates; money flowed into bonds while stock prices fell sharply. Finally, stock prices reached such a low level that a sufficient number of investors were attracted to stem the decline. Again in 1987, interest rates rose substantially, preceding the great stock-market crash of October 19. To put it another way, to attract investors from high-yielding bonds, stock must offer bargain-basement prices.*&lt;/p&gt;&#xA;&lt;p&gt;  *The point can be made another way by noting that because higher interest rates enable us to earn more now, any deferred income should be “discounted” more heavily. Thus, the present value of any flow of future dividend returns will be lower when current interest rates are relatively high. The relationship between interest rates and stock prices is somewhat more complicated, however, than this discussion may suggest. Suppose investors expect that the rate of inflation will increase from 5 percent to 10 percent. Such an expectation is likely to drive interest rates up by about 5 percentage points to compensate investors for holding fixed-dollar-obligation bonds whose purchasing power will be adversely affected by greater inflation. Other things being the same, this should make stock prices fall. &lt;span class=&quot;math-container&quot;&gt;$\color{red}{\text{But with higher expected inflation, investors may reasonably project that corporate earnings and dividends will also increase at a faster rate}}$&lt;/span&gt;, causing stock prices to rise. A fuller discussion of inflation, interest rates, and stock prices is contained in Chapter 13.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Please expound the sentence that I reddened overhead?&lt;/p&gt;&#xA;" OwnerUserId="4020" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2020-01-17T17:01:35.197" Title="Why would higher expected inflation increase corporate earnings and dividends' rate of increase?" Tags="&lt;inflation&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24632" PostTypeId="1" CreationDate="2018-09-22T04:49:03.437" Score="3" ViewCount="92" Body="&lt;p&gt;Is there a finite game that cannot be represented by an &lt;a href=&quot;https://en.wikipedia.org/wiki/Extensive-form_game&quot; rel=&quot;nofollow noreferrer&quot;&gt;extensive form&lt;/a&gt; or a game tree?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know that many games are too long and complex to be represented by a tree of a reasonable size, but that's not what I'm looking for because it is in part a computational limitation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Instead I wonder if there is something simple out there that just doesn't fit into an extensive form? All the books that I've read say something like &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Various games can be represented by trees&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;But I haven't seen &quot;all games&quot; claim anywhere. Are there any known exceptions?&lt;/p&gt;&#xA;" OwnerUserId="6231" LastActivityDate="2018-09-23T09:01:58.843" Title="Is there a game that cannot be represented by a game tree?" Tags="&lt;game-theory&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24633" PostTypeId="2" ParentId="24632" CreationDate="2018-09-22T07:35:07.207" Score="0" Body="&lt;p&gt;An interesting thought...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I guess that recoursive games, where a result is dependent on playing the same game, in a dynamic count of times, cannot be represented in a form or a matrix&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A more common case is multiplayer simultaneous games, when has 2 player requires a 2d  matrix, each new player will add a dimension to the matrix, more than 3 will not be able to have a graph representation, but only a database like schema&lt;/p&gt;&#xA;" OwnerUserId="19195" LastEditorUserId="19195" LastEditDate="2018-09-22T14:30:54.163" LastActivityDate="2018-09-22T14:30:54.163" CommentCount="8" ContentLicense="CC BY-SA 4.0" />
  <row Id="24635" PostTypeId="1" CreationDate="2018-09-22T10:44:52.910" Score="1" ViewCount="113" Body="&lt;p&gt;I am interested in understanding the rationale behind discounting in the context of government policy appraisal. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As far as I understand it, there are three main components to the discount values normally used:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Estimate of catastrophic risk.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;GDP growth.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Time preference value of money. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Adjustment of future costs/revenues to the first two of these make sense to me, but the third seems to include a &quot;normative judgement&quot; that I want to check I understand. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;By adjusting for the time preference value of money in policy appraisal we are explicitly saying that we value the utility of present people more than the utility of future people? Not just because an event may lead to the destruction of society (1), or because the economy will grow and hence costs/benefits will be smaller in the future (2), but because future benefits mean less to current people now. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any confirmation or challenge to my understanding would be appreciated.   &lt;/p&gt;&#xA;" OwnerUserId="18156" LastEditorUserId="5557" LastEditDate="2018-09-22T15:39:32.967" LastActivityDate="2018-09-24T13:24:33.557" Title="Rationale for discounting" Tags="&lt;theory&gt;&lt;discount&gt;&lt;discount-rate&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24637" PostTypeId="2" ParentId="24629" CreationDate="2018-09-22T11:27:17.567" Score="0" Body="&lt;p&gt;In a free currency exchanges market, the central bank defined goal, in the general case, is to maintain price stability and inflation rate restrained, that is to keep inflation positive but at a low rate, &#xA;In order to encourage economic activity&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Inflation can be manipulated by the amount of money - more money in the system, the lower its value, and higher prices respectively, and vice-versa.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The amount of money is manipulated by the central using interest rates: higher interest rates encourages deposits in banks and discourages taking loans, both actions leading to less money in the system, and vice-versa &lt;/p&gt;&#xA;" OwnerUserId="19195" LastActivityDate="2018-09-22T11:27:17.567" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24638" PostTypeId="1" AcceptedAnswerId="24643" CreationDate="2018-09-22T14:27:03.620" Score="2" ViewCount="45" Body="&lt;p&gt;I  cannot understand what (lny-lny0)/t means. Of course we use this to show growth rate. But in the mathematical sense, I cannot know what it is. Is it diferrentiaion?&lt;/p&gt;&#xA;" OwnerUserId="19506" LastActivityDate="2018-09-23T01:53:41.163" Title="I can't find (lny-lny0)/t meaning" Tags="&lt;economic-growth&gt;" AnswerCount="1" CommentCount="5" ClosedDate="2018-09-23T16:11:10.693" ContentLicense="CC BY-SA 4.0" />
  <row Id="24639" PostTypeId="1" AcceptedAnswerId="24649" CreationDate="2018-09-22T16:57:22.407" Score="0" ViewCount="28" Body="&lt;p&gt;After reading &lt;a href=&quot;https://www.bloomberg.com/news/articles/2018-09-13/jpmorgan-sees-liquidity-wildcard-in-gauging-depth-of-next-crisis&quot; rel=&quot;nofollow noreferrer&quot;&gt;a recent article&lt;/a&gt; and a discussion with a friend, I was left wondering what an investment bank would have to gain by claiming that a financial crisis is coming.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can see an obvious answer which is that by instilling fear in the market you can lower stock prices of shares that you would be interested in buying. However I find that this is a very dangerous game to play, because if the panic spreads, overall their portfolio would lose a lot.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Whether their prediction is accurate or realistic doesn't concern me. I just want to know what they'd gain if they did lie about it.&lt;/p&gt;&#xA;" OwnerUserId="19508" LastActivityDate="2018-09-23T18:34:11.950" Title="What would an investment bank have to gain by warning of an impending financial crisis?" Tags="&lt;finance&gt;&lt;stock-market&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="24640" PostTypeId="2" ParentId="24635" CreationDate="2018-09-22T17:58:57.407" Score="0" Body="&lt;p&gt;It's not so much that we as policy makers value present welfare more than future welfare intrinsically.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The time preference for money is just stating that people would rather have a dollar today than a dollar tomorrow. The premise behind banking is that people will lend money today for money plus extra tomorrow. So that is generally the context behind that third justification for the discount factor you list.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2018-09-22T17:58:57.407" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24641" PostTypeId="1" CreationDate="2018-09-22T19:39:11.907" Score="2" ViewCount="99" Body="&lt;p&gt;I discovered the Afriat's theorem on the possible rationalization of a given data set of demand observations and would like to ask for your help in understanding how to compute Afriat numbers in practice, since I can't find a way to compute them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Varian algorithm is the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first step consists in indexing the elements in the demand dataset S and finding the index of the maximal number. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Until here, I believe I understand what's going on. If we have a dataset of demands that satisfies GARP, then we can order them by the revealed preference relation directly or indirectly without any cycle and find such an index (the maximal one).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then comes the third step of the Algorithm. &#xA;&quot;Input: A set of demand observations (p^i, x^i), i = 1...n, and the revealed preference relation R that satisfy GARP.&#xA;Output: A set of numbers U^i, lamda^i, &gt; 0, i = 1...n, that satisfy the Afriat inequalities.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;I=(1, ..., n] and B non empty, defines as a transitive and complete binary relation.&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Let m = max(I), we found it before.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Set E = (i in I: x^iR^xm). If B = 0, set U^m=lamda^m and go to 6.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Should we understand that on the n*n matrix with the coefficients, the diagonal terms will always be (1,1) then ?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, the algorithm says otherwise go to step 4. And then I don't understand how we can go to step 4, since there is always at least one element in E ?&lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;4&quot;&gt;&#xA;&lt;li&gt;&lt;p&gt;Set U^m = min (over E),min(over B), min( U^J + lamda^jp^j(x^i - x^), u^j).&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Set lamda^m = max (over E),max (over B) max((U^J - U^m)/p^i(x^J - x^i), 1).&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;May someone explain to me these steps. Thanks very much!!! &lt;/p&gt;&#xA;" OwnerUserId="19272" LastEditorUserId="19272" LastEditDate="2018-09-22T20:23:37.487" LastActivityDate="2018-09-22T20:23:37.487" Title="Afriat's number" Tags="&lt;consumer-theory&gt;&lt;decision-theory&gt;&lt;theory&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24643" PostTypeId="2" ParentId="24638" CreationDate="2018-09-23T01:53:41.163" Score="1" Body="&lt;p&gt;Generally &lt;code&gt;ln&lt;/code&gt; is used to represent the &lt;a href=&quot;https://en.wikipedia.org/wiki/Natural_logarithm&quot; rel=&quot;nofollow noreferrer&quot;&gt;natural logarithm&lt;/a&gt;.  I know of no notation system that uses it to represent differentiation.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Natural logarithm:  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\frac{\ln{y} - \ln{y_0}}{t}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Differential_calculus&quot; rel=&quot;nofollow noreferrer&quot;&gt;Differentiation&lt;/a&gt; would look more like &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\frac{dy}{dt}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;or &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$f'(t)$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is common to take &lt;a href=&quot;https://en.wikipedia.org/wiki/Logarithm&quot; rel=&quot;nofollow noreferrer&quot;&gt;logarithms&lt;/a&gt; of growth functions because they involve exponents and logarithms can simplify equations with exponents.  In particular, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ \ln{(1+g)^t} = t\ln{(1+g)}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;is a basic property of logarithms.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A Maclaurin expansion is an alternative way to write the equation.  See &lt;a href=&quot;https://en.wikipedia.org/wiki/Taylor_series&quot; rel=&quot;nofollow noreferrer&quot;&gt;Taylor series&lt;/a&gt; and &lt;a href=&quot;http://www.mathsmutt.co.uk/files/macser.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;Maclaurin's series&lt;/a&gt; for more information.  A Maclaurin expansion does in fact take advantage of differentiation.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This logarithm is referred to as natural because its base arises from normal mathematical calculations rather than being arbitrary, much like &lt;span class=&quot;math-container&quot;&gt;$\pi$&lt;/span&gt;.  &lt;/p&gt;&#xA;" OwnerUserId="68" LastActivityDate="2018-09-23T01:53:41.163" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24644" PostTypeId="2" ParentId="24629" CreationDate="2018-09-23T06:37:55.633" Score="0" Body="&lt;p&gt;&lt;strong&gt;Scenario A.&lt;/strong&gt; Suppose the inflation rate is 2% (per year).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I lend you \$100 (for one year) at an interest rate of 5% (per year).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then after accounting for inflation, the real return I get in a year's time is† 5% − 2% = 3%.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This 3% return is my reward for:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Deferring my own consumption (instead of using that \$100 some other way right now);&lt;/li&gt;&#xA;&lt;li&gt;Taking on the risk of you defaulting (i.e. not paying back); and&lt;/li&gt;&#xA;&lt;li&gt;Other transaction costs involved in executing this loan.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;And this 3% is the cost you're willing to pay for the benefit of having that additional \$100 to spend right now.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Scenario B.&lt;/strong&gt; Now suppose instead the inflation rate is 4%.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose we're still willing to make the same deal. That is, I still get a 3% return as my reward (for lending you \$100) and you are still willing to pay 3% (for having that additional $100 to spend now).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then the interest rate we'd use for this loan would instead be‡ 4% + 3% = 7%.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;†This is approximate. To be precise, the real return I get is actually &lt;span class=&quot;math-container&quot;&gt;$$\frac{1.05}{1.02} - 1 = 0.0294... = 2.94...\%.$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;‡Again, this is approximate. If we continue using the 2.94...% figure from above, then the interest rate we use for the loan should instead be &lt;span class=&quot;math-container&quot;&gt;$$1.04 \times 1.0294 ... - 1 = 0.0706... = 7.06...\%.$$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2018-09-23T06:37:55.633" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24645" PostTypeId="2" ParentId="24632" CreationDate="2018-09-23T09:01:58.843" Score="7" Body="&lt;p&gt;Well, for this you need to define what a &quot;finite game&quot; is. The usual way to do so, is to define it as an extensive form game, which makes the whole issue circular. But there are different ways to model extensive form games at different levels of generality. For example, the first definition due to John von Neumann and Oskar Morgenstern made a number of strong restrictions on timing that look somewhat archaic from today's perspective. The subsequent definition by Harold Kuhn significantly generalized the class of possible extensive form games. An implicit restriction in the way Kuhn defined extensive form games was that no player is allowed to move through the same information set twice, an assumption weakened in the Ph.D. thesis of John Isbell. So there are various notions of extensive form games at various levels of generality, including versions that allow for infinite games.&lt;/p&gt;&#xA;" OwnerUserId="1442" LastActivityDate="2018-09-23T09:01:58.843" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24646" PostTypeId="2" ParentId="24614" CreationDate="2018-09-23T10:53:32.957" Score="0" Body="&lt;p&gt;Hi: 2 things I noticed. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) You're using &lt;span class=&quot;math-container&quot;&gt;$R$&lt;/span&gt; in places where I think you mean &lt;span class=&quot;math-container&quot;&gt;$R_{s}$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) more importantly, you don't need the lagrange multiplier approach because the constraint is already implied-being used in the derivation of the objective function. Therefore, the use of the lagrange multiplier approach in order to satisfy the constraint is unnecessary.&lt;/p&gt;&#xA;" OwnerUserId="18201" LastEditorUserId="18201" LastEditDate="2018-09-23T16:45:36.323" LastActivityDate="2018-09-23T16:45:36.323" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24647" PostTypeId="1" CreationDate="2018-09-23T15:14:37.510" Score="2" ViewCount="466" Body="&lt;p&gt;I have started out reading seminal paper of Solow - Solow Growth model. It starts out with discussing weaknesses in Harrod Domar Model, a simple model of economic growth which featured prior to solow's work. You can read about Harrod model here &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.google.co.in/amp/s/sanaasaluja.wordpress.com/2015/08/05/the-harrod-domar-model-of-economic-growth/amp/&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.google.co.in/amp/s/sanaasaluja.wordpress.com/2015/08/05/the-harrod-domar-model-of-economic-growth/amp/&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;While discussing about Harrod Domar Model, Solow said it consistently uses short run tools for long run analysis (see the picture). But I don't understand why he called 'the multiplier' as a short run tool and 'margin(al) [product]' as a long run tool? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/lCRBs.jpg&quot; alt=&quot;picture&quot;&gt;&lt;/p&gt;&#xA;" OwnerUserId="18929" LastEditorUserId="1601" LastEditDate="2018-09-23T15:29:05.247" LastActivityDate="2018-09-23T15:29:05.247" Title="Solow Model - criticism of Harrod model" Tags="&lt;macroeconomics&gt;&lt;solow&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24648" PostTypeId="1" CreationDate="2018-09-23T16:21:02.453" Score="0" ViewCount="55" Body="&lt;p&gt;I am working on undergrad research in econometrics and am seeking some advice/help in terms of finding data sets and picking variables. I have an idea chosen for my topic, but I need to make a official proposal including a rough linear regression equation to turn in to my teacher soon. &#xA;My topic idea is to observe the causes for recent decline in female labor force participation in the US. I am hoping this topic is not too broad. Initially, I was going to look at whether campaign spending impacted voter share in Senate races from 2012 data sets, but I find this idea a tad boring and would like to make my new idea work if possible. &#xA;My ideas for variables include the obvious: age &amp;amp; teen participation rates (16-24), race/ethnicity, educational attainment, children, martial status, avg weekly hours worked, etc. However, I wanted to also see if the increase in opioid addiction in the US could also be having an impact on labor force participation specifically for women, as well as paid family leave benefits in the US vs other countries and labor force participation of immigrant women. &#xA;So with all said, does anyone have any suggestions for me both as to whether this topic is viable as a project in my course, as well as where I could find the data for such a topic? I have been reading a lot of literature on the topic, but having a hard time finding actual data sets that I could use for regression.&#xA;Thanks!   &lt;/p&gt;&#xA;" OwnerUserId="19515" LastActivityDate="2018-09-23T21:48:13.050" Title="Help with undergrad econometric project" Tags="&lt;econometrics&gt;&lt;applied-econometrics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24649" PostTypeId="2" ParentId="24639" CreationDate="2018-09-23T18:34:11.950" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;What would an investment bank have to gain by warning of an impending&#xA;  financial crisis?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;An entity might have an incentive to deceitfully alarm about an &quot;impending crisis&quot; if the entity's portfolio largely consist of positions which lead to profit when the price of other asset(s) goes down. Examples of such positions are &lt;em&gt;put options&lt;/em&gt;, short selling of stocks, and certain side in interest rate swaps. The same applies if much of the entity's liabilities is positively correlated with the price of assets which are representative of the market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The entity could hedge against the risk of a &lt;em&gt;generalized&lt;/em&gt; fall by getting long positions in &quot;very&quot; Out-of-The-Money put options. Being far &lt;em&gt;OTM&lt;/em&gt; implies that this protection for drastic scenarios is not significantly expensive. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Likewise, the rest of an entity's portfolio could also consist of assets deemed stable enough to withstand crises.&lt;/p&gt;&#xA;" OwnerUserId="18552" LastActivityDate="2018-09-23T18:34:11.950" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24651" PostTypeId="2" ParentId="24648" CreationDate="2018-09-23T21:48:13.050" Score="1" Body="&lt;p&gt;Can you provide your research question in one concise sentence? It seems like you've proposed half a dozen topics some of which are peripherally related. You need a quantifiable dependent and independent variable as well as essential control variables. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question needs to be quantifiable and have a wealth of data already available. I'd highly recommend for your undergraduate paper instead of asking a question and then searching for the data to back up the answer, you instead peruse some interesting data sources and ask a question based on what is available. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Check out sites like &lt;a href=&quot;https://www.data.gov/open-gov/&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.data.gov/open-gov/&lt;/a&gt; which have a wealth of easily downloadable datasets that you can explore. Find datasets related to topics that you find interesting and go through the available data and begin to think of what can act as an independent or dependent variable. Base your question so that the dataset you have already found and think is interesting perfectly fits instead of the other way around.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Unless you plan to do original research it will be quite difficult to simply find data to fit your question unless you already knows it exists.&lt;/p&gt;&#xA;" OwnerUserId="10245" LastActivityDate="2018-09-23T21:48:13.050" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24652" PostTypeId="2" ParentId="15929" CreationDate="2018-09-23T21:58:53.240" Score="0" Body="&lt;p&gt;I'm probably going to kick a hornet's nest by saying this, but I suspect that modern USD value is rooted in the fact that the US Treasury must remit USD to bond holders (particularly the Fed) at maturity.  All other sources of USD value are likely subsidiary to that demand.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;US taxes must be paid in USD; that demand provides value in the broader economy, but I suspect that is secondary to and stems from Treasury's need to pay off bonds in USD.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a tertiary effect, US taxes provide taxpayers access to services, infrastructure, and certain goods; it could be said that USD's value stems in part from those things.  For instance, US taxes help support the quality of US schools, roads, libraries, military, and police.  This effect is diluted, though, by the fact that there are social contract and governance issues that emerge when you get to this layer.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Fourth-order sources of value would include global valuations of USD as a reserve and international payment currency. In other words, the currency is traded globally because US taxpayers feel like they get something in return when they pay their US taxes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If all of the above is true, then it would follow that reducing tax revenues or shrinking government should reduce currency demand at home, leading to inflation, and vice versa.  We see some of these effects in various experiments throughout history, not only in the US but elsewhere.&lt;/p&gt;&#xA;" OwnerUserId="4994" LastEditorUserId="4994" LastEditDate="2018-09-23T23:25:57.667" LastActivityDate="2018-09-23T23:25:57.667" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24653" PostTypeId="1" CreationDate="2018-09-23T22:29:16.747" Score="1" ViewCount="34" Body="&lt;p&gt;In a paper I was reading, a budget constraint for the Euler equation for the consumption asset was described as:-&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;W_{t+1} = (W_t - C_t) R_{c, t+1}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here &lt;span class=&quot;math-container&quot;&gt;$ R_{c, t+1}$&lt;/span&gt; is the 'return to the consumption asset'. What does this mean?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Paper: &lt;a href=&quot;http://www.nber.org/papers/w18104&quot; rel=&quot;nofollow noreferrer&quot;&gt;Volatility, the Macroeconomics, and Asset Prices&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="19517" LastEditorUserId="1601" LastEditDate="2018-09-24T21:08:38.970" LastActivityDate="2018-10-26T17:00:39.057" Title="What is Return to Consumption Asset" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24654" PostTypeId="1" CreationDate="2018-09-23T23:12:42.183" Score="0" ViewCount="302" Body="&lt;p&gt;tariffs lead to inflation; is this the same as inflation from supply constraints or demand drive, given that the tariff is removed from the money supply? How should the fed be thinking about this in the context of raising interest rates if they use inflation a gauge of how much to hike?&lt;/p&gt;&#xA;" OwnerUserId="19520" LastActivityDate="2019-04-23T02:02:45.670" Title="tariffs and inflation" Tags="&lt;inflation&gt;&lt;tariffs&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24656" PostTypeId="2" ParentId="24630" CreationDate="2018-09-24T12:26:59.833" Score="1" Body="&lt;p&gt;I don’t have the book, but the passage hints that it will be covered in Chapter 13.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The passage has “reasonably project” as a disclaimer, which does imply that it would not hold in all cases. It is not that hard to find counter-examples. If we define inflation as a change in the CPI, oil price spike will normally raise CPI. The higher energy costs are bad for firms with energy input costs, while the oil producers that benefit may be foreigners.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, if we stick to an idealised scenario, where all prices are rising at roughly the same rate, we can get the result that profits rise in line with inflation. If we make two assumptions:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;real activity is not affected by the change in inflation rates;&lt;/li&gt;&#xA;&lt;li&gt;profit margins are stable.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;We then are in a situation where we are just projecting current variables forward with the same real growth rate, while nominal variables are growing by the sum of real growth and inflation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If profit margins are stable, then that implies that nominal profits are proportional to nominal revenues, and so would scale with inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The passage implies that the author thinks those two assumptions are reasonable, and presumably detailed in Chapter 13. (I don’t have any references handy, but I’ve certainly seen similar arguments many times. The main difficulty is whether higher inflation is associated with higher or lower profit margin.)&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2018-09-24T12:26:59.833" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24657" PostTypeId="2" ParentId="24635" CreationDate="2018-09-24T13:24:33.557" Score="2" Body="&lt;p&gt;As Kitsune rightly points out the usual reason for the inclusion of the time preferences for money into the discount formula (or Ramsey fomula) is that we observe this kind of behaviour in people. Given that many economists take a positive approach towards the study of economics, that is a logical stance.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That being said the last word is not spoken on this, and discounting and its use in benefit cost analyses for especially long-term policies is an active area of research. The Stern review on the economics of climate change sparked intense debate on whether we should include a pure rate of time preference and if so, what its size should be. On the one had you had economists like Stern who argued for a very small rate (0.01 % if memory serves), only to account for catastrophic risk, on the other hand there were economists like Nordhaus who argued for a rate close to 3%, based on observed choices by people in real life and the interest rates. Wikepedia covers the debate &lt;a href=&quot;https://en.wikipedia.org/wiki/Stern_Review#Inherent_discounting&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://scholar.harvard.edu/files/weitzman/files/gamma_discounting.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Martin Weitzman did a study among 2160 economists what the real discount rate should be&lt;/a&gt;  for climate change (that is pure rate of time preference plus discounting because of GDP growth) called Gamma discounting and published in the AER. He found a range from -3 to 27%, which may give you an idea of the disagreement among economists on the issue of discounting. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.lse.ac.uk/GranthamInstitute/wp-content/uploads/2015/06/Working-Paper-172-Drupp-et-al.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Drupp, Freeman, Groom and Nesje&lt;/a&gt; did a more detailed follow-up in 2015, called discounting disentangled. Their range for the full discount rate is lower, from 0 to 10%, and they also asked explicitly what the pure rate of time preference should be. The mean recommended value for the latter by their 200 surveyed experts was 1.10%, but even that rate had a range from 0 to 8%.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Interestingly, the person who first came up with the Ramsey formula, Frank Ramsey, in &lt;a href=&quot;http://piketty.pse.ens.fr/files/Ramsey1928.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;a mathematical theory of saving&lt;/a&gt;, argued for a rate of time preference for societies of 0, calling a positive rate &quot;ethically indefensible&quot;, although he does use a positive rate later on in the paper.&lt;/p&gt;&#xA;" OwnerUserId="12186" LastActivityDate="2018-09-24T13:24:33.557" CommentCount="8" ContentLicense="CC BY-SA 4.0" />
  <row Id="24658" PostTypeId="1" CreationDate="2018-09-24T13:53:01.050" Score="0" ViewCount="113" Body="&lt;p&gt;Why is the marginal cost curve not the same as the supply curve?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My personal explanation is that since the marginal cost curve is cost of producing each new product, the supply curve just represents the break even point of selling a certain number of these products. The seller can sell some at a profit, and some at a loss, and as long as the loss and profit cancel out, he's on the supply curve. Thus the supply of producing x goods is just the average of the marginal cost curve from 0 to x.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This explanation seems logical to me, but I have been given an alternative explanation - the supply curve is that of the market, whereas the marginal cost curve is intrinsic to the firm. However, I am unsure as to why the market supply would be related to the marginal cost curve as the average of its integral.&lt;/p&gt;&#xA;" OwnerUserId="19293" LastEditorUserId="1601" LastEditDate="2018-09-24T17:02:10.930" LastActivityDate="2021-04-12T00:02:15.333" Title="Monopsony diagram curves" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24659" PostTypeId="1" CreationDate="2018-09-24T14:51:46.683" Score="1" ViewCount="42" Body="&lt;p&gt;I'm trying to figure out the elasticity of substitution between input &lt;span class=&quot;math-container&quot;&gt;$s$&lt;/span&gt; and input &lt;span class=&quot;math-container&quot;&gt;$v$&lt;/span&gt;. I know that the marginal rate of substitution between these two inputs are &lt;span class=&quot;math-container&quot;&gt;$\frac{v^2}{s(v+k)}$&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$k$&lt;/span&gt; is another input. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, the elasticity of substitution is,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$E_{sv}=\dfrac{dln\big(v/s\big)}{dln\bigg(\frac{v^2}{s(v+k)}\bigg)}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$=\dfrac{dln\big(v\big)}{dln\bigg(\frac{v^2}{s(v+k)}\bigg)}-\dfrac{dln\big(s\big)}{dln\bigg(\frac{v^2}{s(v+k)}\bigg)}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But I'm not sure how to proceed to get the input elasticity of substitution between factors &lt;span class=&quot;math-container&quot;&gt;$s$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$v$&lt;/span&gt;? Do I need to know the prices of both? &lt;/p&gt;&#xA;" OwnerUserId="14078" LastEditorUserId="14078" LastEditDate="2018-09-25T11:22:51.177" LastActivityDate="2018-09-25T11:22:51.177" Title="Elasticity of Substitution between 2 factors, without knowing relative prices" Tags="&lt;microeconomics&gt;&lt;elasticity&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24661" PostTypeId="2" ParentId="24658" CreationDate="2018-09-24T17:06:58.120" Score="0" Body="&lt;p&gt;There are two assumptions in your explanation that require change&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1st of all, regading the seller&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The seller can sell some at a profit, and some at a loss, and as long&#xA;  as the loss and profit cancel out, he's on the supply curve.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The supply curve theoretical logic is that the seller will produce as much products as possible, at a rising cost, as long as the market price that he sees is higher than the last product he produced - the marginal product&#xA;Based on that, the seller will &lt;em&gt;always&lt;/em&gt; sell at market price. the profit comes from the gap between the market price and the entire cost of production, which is cheaper than the marginal cost. he's initial products cost less&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The supply curve is the average MC of all firms, which, in a competitive market model, share the same technology, since open information is available, so the average should be of identical firms&lt;/p&gt;&#xA;" OwnerUserId="19195" LastActivityDate="2018-09-24T17:06:58.120" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="24663" PostTypeId="1" CreationDate="2018-09-24T19:19:24.780" Score="0" ViewCount="58" Body="&lt;p&gt;Is probability of default expected to increase with increase in the interest rates set by the central bank? &lt;/p&gt;&#xA;" OwnerUserId="19529" LastActivityDate="2018-11-24T12:01:40.303" Title="What is the relation between probability of default and country's interest rates?" Tags="&lt;macroeconomics&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24664" PostTypeId="2" ParentId="24663" CreationDate="2018-09-24T20:07:31.753" Score="0" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Is probability of default expected to increase with increase in the&#xA;  interest rates set by the central bank?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Not necessarily. The central bank's decision to raise interest rates may be sought to curb an overheated economy, to fight inflation, to reduce the prospect of currency depreciation, or to achieve other purposes. As you can see, these purposes have little to do with risk of default.&lt;/p&gt;&#xA;" OwnerUserId="18552" LastActivityDate="2018-09-24T20:07:31.753" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24665" PostTypeId="2" ParentId="20132" CreationDate="2018-09-24T21:57:21.777" Score="9" Body="&lt;p&gt;Yes, &lt;a href=&quot;https://link.springer.com/article/10.1007/s43036-020-00125-y&quot; rel=&quot;nofollow noreferrer&quot;&gt;Bachir et al. (2021)&lt;/a&gt; extend the Karush-Kuhn-Tucker theorem under mild hypotheses, for an infinite number of variables (their Corollary 4.1).&lt;/p&gt;&#xA;&lt;p&gt;I give hereafter a weaker version of the generalization of Karush-Kuh-Tucker in infinite dimension:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Let &lt;span class=&quot;math-container&quot;&gt;$X\subset\mathbb{R}^{\mathbb{N}}$&lt;/span&gt; be a nonempty convex subset of&#xA;&lt;span class=&quot;math-container&quot;&gt;$\mathbb{R}^{\mathbb{N}}$&lt;/span&gt; and let &lt;span class=&quot;math-container&quot;&gt;$x^{*}\in Int\left(X\right)$&lt;/span&gt;. Let&#xA;&lt;span class=&quot;math-container&quot;&gt;$f,g_{1},g_{2},...,g_{m}:X\rightarrow\mathbb{R}$&lt;/span&gt; be convex functions&#xA;continuous at &lt;span class=&quot;math-container&quot;&gt;$x^{*}$&lt;/span&gt; and term-to-term differentiable at &lt;span class=&quot;math-container&quot;&gt;$x^{*}$&lt;/span&gt;, i.e.&#xA;such that the functions&#xA;&lt;span class=&quot;math-container&quot;&gt;$f_{n,x^{*}}\left(x_{n}\right):=f\left((x_1^{*},...,x_{n-1}^*,x_n,x_{n+1}^*,...)\right)$&lt;/span&gt; and&#xA;&lt;span class=&quot;math-container&quot;&gt;$g_{j,n,x^{*}}\left(x_{n}\right):=g_{j}\left((x_1^{*},...,x_{n-1}^*,x_n,x_{n+1}^*,...)\right)$&lt;/span&gt; are&#xA;differentiable at &lt;span class=&quot;math-container&quot;&gt;$x_{n}$&lt;/span&gt; for all &lt;span class=&quot;math-container&quot;&gt;$n\in\mathbb{N}$&lt;/span&gt; and&#xA;&lt;span class=&quot;math-container&quot;&gt;$j\in\left\{ 1,2,...,m\right\}$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;p&gt;(Qualification condition) Suppose that for all &lt;span class=&quot;math-container&quot;&gt;$k\in\mathbb{N}^{*}$&lt;/span&gt;&#xA;and for all &lt;span class=&quot;math-container&quot;&gt;$x\in X$&lt;/span&gt;,&#xA;&lt;span class=&quot;math-container&quot;&gt;$$x^{*}+P^{k}\left(x-x^{*}\right)=\left(x_{1},...,x_{k},x_{k+1}^{*},x_{k+2}^{*},...\right)\in X$$&lt;/span&gt;&#xA;If there exist&#xA;&lt;span class=&quot;math-container&quot;&gt;$\left(\lambda_{j}^{*}\right)_{j}\in\left(\mathbb{R}_{+}\right)^{\mathbb{N}}$&lt;/span&gt;&#xA;such that&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\lambda_{j}^{*}g_{j}\left(x^{*}\right)  =0,\:\forall j\in\left\{&#xA;1,2,...,m\right\} \quad \quad \quad \quad \quad (1)$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$f_{n,x^{*}}^{\prime}\left(x_{n}^{*}\right)+\sum_{j=1}^{m}   \lambda_{j}^{*}g_{j,n,x^{*}}^{\prime}\left(x_{n}^{*}\right)=0,\:\forall&#xA;n\in\mathbb{N} \quad \quad (2)$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;(Sufficiency) Then &lt;span class=&quot;math-container&quot;&gt;$x^{*}$&lt;/span&gt; is an optimal solution on &lt;span class=&quot;math-container&quot;&gt;$\Gamma:=\left\{&#xA;\left(x_{i}\right)_{i}\in&#xA;X\,:\,g_{1}\left(x\right)\leq0,...,g_{m}\left(x\right)\leq0\right\} :$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$f\left(x^{*}\right)=\underset{x\in\Gamma}{\inf}f\left(x\right)$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;(Necessity) Besides, if &lt;span class=&quot;math-container&quot;&gt;$x^{*}$&lt;/span&gt; is an optimal solution on &lt;span class=&quot;math-container&quot;&gt;$\Gamma$&lt;/span&gt; and&#xA;if the Slater condition &lt;span class=&quot;math-container&quot;&gt;$Int\left(\Gamma\right)\neq\emptyset$&lt;/span&gt; is&#xA;verified, then there exist unique&#xA;&lt;span class=&quot;math-container&quot;&gt;$\left(\lambda_{j}^{*}\right)_{j}\in\left(\mathbb{R}_{+}\right)^{\mathbb{N}}$&lt;/span&gt;&#xA;which verify the (Karush-Kuhn-Tucker) conditions (1) and (2).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;The number of constraints has to be finite, but simple constraints like non-negativity constraints can be replaced by an equivalent restriction on the domain of the variables. For example, instead of the constraints &lt;span class=&quot;math-container&quot;&gt;$\forall n \in \mathbb{N},\;x_n \geq 0$&lt;/span&gt; on the domain &lt;span class=&quot;math-container&quot;&gt;$\mathbb{R}^{\mathbb{N}}$&lt;/span&gt;, one can take &lt;span class=&quot;math-container&quot;&gt;$X=(\mathbb{R}_+)^{\mathbb{N}}$&lt;/span&gt;, and the theorem applies.&lt;/p&gt;&#xA;&lt;p&gt;Note that the (sufficiency) result is easy to prove when one further assumes that the convex Lagrangian &lt;span class=&quot;math-container&quot;&gt;$\mathcal L(x, \lambda)=f(x)+\sum_{j=1}^m\lambda_j g_j(x)$&lt;/span&gt; is Gateaux differentiable, with a Gateaux derivative equal to 0 at &lt;span class=&quot;math-container&quot;&gt;$u=(x^*, \lambda^*)$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;p&gt;Indeed, a function &lt;span class=&quot;math-container&quot;&gt;$h: V \rightarrow \mathbb{R} $&lt;/span&gt; convex and Gateaux differentiable on &lt;span class=&quot;math-container&quot;&gt;$V$&lt;/span&gt; verifies &lt;span class=&quot;math-container&quot;&gt;$h(v)-h(u) \geq h^\prime(u; v-u), \forall u,v \in V$&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$h^\prime(u; v)$&lt;/span&gt; is the directional derivative of &lt;span class=&quot;math-container&quot;&gt;$h$&lt;/span&gt; at &lt;span class=&quot;math-container&quot;&gt;$u$&lt;/span&gt; in the direction &lt;span class=&quot;math-container&quot;&gt;$v$&lt;/span&gt;. (One can see that from the definition of convexity: &lt;span class=&quot;math-container&quot;&gt;$h(u)+\theta \left( h(v) -h(u) \right) \geq h\left(u+\theta (v-u)\right)$&lt;/span&gt;; subtracting &lt;span class=&quot;math-container&quot;&gt;$h(u)$&lt;/span&gt;, dividing by &lt;span class=&quot;math-container&quot;&gt;$\theta$&lt;/span&gt;, and taking the limit when &lt;span class=&quot;math-container&quot;&gt;$\theta \rightarrow 0^+$&lt;/span&gt;; see &lt;a href=&quot;https://math.unice.fr/%7Eauroux/EPU/Optim2.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;this&lt;/a&gt; for more details). Applying that inequality to the Lagrangian at &lt;span class=&quot;math-container&quot;&gt;$u$&lt;/span&gt; proves that the Lagrangian admits a minimum at &lt;span class=&quot;math-container&quot;&gt;$u$&lt;/span&gt;, which solves the minimization program: &lt;span class=&quot;math-container&quot;&gt;$ f(x^*) =L(x^*, \lambda^*) \leq f(x)+\sum_{j=1}^m\lambda_j g_j(x) \leq f(x), \; \forall x\in \Gamma$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;p&gt;However, in general, it is not easy to prove that the Gateaux derivative of a convex series (such as an infinite Lagragian) (exists and) equals 0 at some point &lt;span class=&quot;math-container&quot;&gt;$u$&lt;/span&gt;, unless one uses the result (Theorem 3.14 in &lt;a href=&quot;https://link.springer.com/article/10.1007/s43036-020-00125-y&quot; rel=&quot;nofollow noreferrer&quot;&gt;Bachir et al. (2021)&lt;/a&gt;) that the Gateaux derivative is thus equal to the sum of derivatives of each term in the series.&lt;/p&gt;&#xA;" OwnerUserId="15856" LastEditorUserId="15856" LastEditDate="2021-03-08T15:51:41.830" LastActivityDate="2021-03-08T15:51:41.830" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24666" PostTypeId="2" ParentId="24654" CreationDate="2018-09-24T22:55:36.083" Score="1" Body="&lt;p&gt;Across the board tariffs (ex: sales tax) can result in higher prices or &quot;inflated&quot; prices. This is usually not what economists refer to when they say inflation. Inflation that the fed is concerned with, is an across the board increase in all goods as a result from &lt;strong&gt;changes in the money supply.&lt;/strong&gt; Something, that the fed can directly influence, whereas the fed has no control over taxes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Fiscal policy (Government) and monetary policy (The Fed) can sometimes coordinate actions for a desired result.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For instance: Following the 2007/8 financial crisis, the united states paired subsidies and incentives ,effectively lowering sales tax (fiscal policy), with low interest rates (monetary policy) to stimulate the economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can imagine that a coordinated policy concerned with high inflation rates might do the opposite.&lt;/p&gt;&#xA;" OwnerUserId="4808" LastActivityDate="2018-09-24T22:55:36.083" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24667" PostTypeId="1" CreationDate="2018-09-24T23:52:09.437" Score="2" ViewCount="40" Body="&lt;p&gt;For inflation to happen at roughly 2%/yr and for people to trade the same (or higher) volumes of goods, people must be trading more money. For such a trend to exist in the long term, there must be more actual units of currency that exist (right?) which means actual currency must be being created by the central bank (right?). When does the central bank create this money (or am I wrong in inferring the central bank must be creating cash...)?&lt;/p&gt;&#xA;" OwnerUserId="19531" LastActivityDate="2018-09-25T01:38:21.777" Title="How does the money supply grow in the long term?" Tags="&lt;macroeconomics&gt;&lt;monetary-policy&gt;&lt;money-supply&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24668" PostTypeId="1" CreationDate="2018-09-25T00:51:59.703" Score="1" ViewCount="512" Body="&lt;p&gt;Consider the Mincer model:&#xA;&lt;span class=&quot;math-container&quot;&gt;$\log(y)=b_0 + b_1S + b_2E + b_3E^2+u$&lt;/span&gt;&#xA;where S is schooling, Y is salary (monthly) and E is experience. I want to verify the following statements:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;The return for 1 extra year of education is &lt;span class=&quot;math-container&quot;&gt;$\hat{b_1}*100$&lt;/span&gt;%&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;If we knew E (experience) for a particular person, his return for 1 extra year of experience is &lt;span class=&quot;math-container&quot;&gt;$\hat{b_2}*E+\hat{b_3}*E^2$&lt;/span&gt;. This one I doubt more.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Thanks in advance.  &lt;/p&gt;&#xA;" OwnerUserId="19532" LastActivityDate="2018-09-25T00:51:59.703" Title="How to interpret Mincer equation coefficients" Tags="&lt;econometrics&gt;&lt;statistics&gt;" AnswerCount="0" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="24669" PostTypeId="2" ParentId="24667" CreationDate="2018-09-25T01:38:21.777" Score="2" Body="&lt;p&gt;Central banks often do not create cash.  For example, in the United States, it is the Treasury department that prints cash.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What a central bank does most often that has the effect of creating money is to engage in open market operations.  In an open market operation, it does one of two things:  &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Sell an asset that it is holding, usually a government bond.  &lt;/li&gt;&#xA;&lt;li&gt;Buy an asset, again usually a government bond.  &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;If it sells, it takes money out of circulation.  Obviously it does this less often, as overall the money supply is growing.  More often, it buys.  This transfers money from its account to someone else's account.  Most of the time, this is a purely electronic transaction.  While the central bank may track its account balance, there's nothing keeping it from being negative.  As it grows more negative, we call this money creation.  But again, this is an electronic transaction.  No actual cash needs to change hands.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, someone may go to the bank and ask for the money.  The bank hands that person cash, which it has to replenish.  The bank may ask the central bank to ship it some actual cash.  If the central bank had none, it would have to go to whomever prints the money to get some.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Because of the way that fractional reserve banking works, most money is actually created by the banks.  The way this works is that someone deposits money in the bank.  Let's say it's \$10 and the reserve fraction is 10% (as in the US).  The bank keeps \$1 or deposits it with the central bank as a reserve.  The other \$9 it can loan out to someone else.  That entity either spends it or banks it.  If it spends, then someone else faces the same decision.  Eventually all of that \$9 is deposited.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the new deposit, the bank (which may be a different bank or the same one) has to reserve \$.90 but can loan out the remaining \$8.10.  But now we have two deposits of the same money.  So there's \$19 of deposits with only \$10 of money.  \$9 was created by the banks.  The process repeats until there is \$10 of reserve and \$90 more (10% reserve fraction).  So for every \$10 created by the central bank, regular banks can create up to \$90 more.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Most of this money will never be exchanged as cash.  People will write checks or use credit cards.  The money will never exist physically.  It only exists as accounting transactions.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's not even necessary to involve banks.  Let's say I sell you something for \$10.  But you tell me that you have no cash.  I loan you the money implicitly by allowing you to take the item.  I've implicitly created \$10 of money.  When you pay off the loan, you are implicitly destroying that \$10 by closing the loan.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In summary, central banks often don't print any cash.  But regardless of who prints cash, most money in the money supply is never printed.  Most money only ever exists as accounting transactions, and most money is generally created by regular banks rather than the central bank.  &lt;/p&gt;&#xA;" OwnerUserId="68" LastActivityDate="2018-09-25T01:38:21.777" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24670" PostTypeId="1" CreationDate="2018-09-25T07:58:09.763" Score="0" ViewCount="38" Body="&lt;p&gt;After a major global event, sometimes the markets move and headlines are written saying something like “2 trillion wiped off markets”. But what does this actually mean? Does it mean the aggregate value of companies on the exchanges has been reduced?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;After Brexit similar headlines were generated, has the market recovered its value yet?&lt;/p&gt;&#xA;" OwnerUserId="5505" LastActivityDate="2018-09-25T10:04:06.547" Title="What does it mean when someone says “2 trillion wiped off markets”?" Tags="&lt;markets&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24671" PostTypeId="2" ParentId="24670" CreationDate="2018-09-25T08:32:23.237" Score="1" Body="&lt;p&gt;That's connected to the way currency or prices fluctuate, particularly in the stock exchange. It comes from the approach that value (e.g. of a firm) equals the sum of all the stocks at current price. That's often called the &quot;Market Cap(italization)&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Think of a firm A with 10.000 stocks. If from one day to the other the stock of company A goes from 100€ to 50€, then its market capitalization/market value goes from 1M€ (=10.000 stocks * 100€) to 500k€. In this conditions you could say that half a milion was wiped off the market or from this company.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That answers directly to your question, but keep in mind that there are many other ways of calculating the &lt;a href=&quot;https://en.wikipedia.org/wiki/Valuation_(finance)#Business_valuation&quot; rel=&quot;nofollow noreferrer&quot;&gt;value of a firm&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="12304" LastEditorUserId="12304" LastEditDate="2018-09-25T10:04:06.547" LastActivityDate="2018-09-25T10:04:06.547" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24673" PostTypeId="1" AcceptedAnswerId="24674" CreationDate="2018-09-25T09:22:39.723" Score="5" ViewCount="1089" Body="&lt;p&gt;I see the term “entry price” and “price entry system” in relation to tariffs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What do these means?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example this document: &lt;a href=&quot;https://ageconsearch.umn.edu/bitstream/10095/1/sp06go22.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://ageconsearch.umn.edu/bitstream/10095/1/sp06go22.pdf&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="5505" LastEditorUserId="4988" LastEditDate="2018-09-27T21:32:55.223" LastActivityDate="2018-09-27T21:32:55.223" Title="What is the “entry price” in relation to tariffs?" Tags="&lt;definition&gt;&lt;tariffs&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24674" PostTypeId="2" ParentId="24673" CreationDate="2018-09-25T10:29:39.627" Score="5" Body="&lt;p&gt;Entry price system (EPS) is a &lt;a href=&quot;https://doi.org/10.1016/j.foodpol.2008.06.005&quot; rel=&quot;noreferrer&quot;&gt;EU-specific term&lt;/a&gt; relating to their food import tariffs, more specifically to fruits and vegetables. It's a somewhat complicated system designed to strongly discourage imports below a certain price. This is a summary from 2009 paper:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The EU protects growers of 15 kinds of selected fruits&#xA;  and vegetables against international competition not&#xA;  only by the means of ad valorem tariffs of up to 20%,&#xA;  but also by the EPS. The EPS came into effect on 1&#xA;  July 1995, replacing the former RPS. Analogous to a&#xA;  minimum import price, the EPS is designed to restrict&#xA;  imports below the product-specific, politically&#xA;  designated EP plus ad valorem tariff (Table 1). If the&#xA;  EP is undercut, an additional specific tariff is levied,&#xA;  which proportionally varies depending on the gap&#xA;  between the product’s actual import price and the EP.&#xA;  When the EP is undercut by 8% or more, the&#xA;  maximum specific tariff, referred to as the maximum&#xA;  tariff equivalent (MTE), of up to 80% of the EP is&#xA;  charged. For example, the EPS is applied to oranges&#xA;  during the EU orange harvest season in the time period&#xA;  December 1 to May 31. The MFN tariff for oranges&#xA;  seasonally varies between 3.2% and 16.0% whereas&#xA;  the MFN EP remains constant at a level of 354 €/t. If&#xA;  oranges are exported to the EU at a price of 336.3 €/t,&#xA;  the EP is undercut by 5%. This implies that the&#xA;  exporter has to pay an additional specific tariff of 17.7&#xA;  €/t which is equal to the gap between the import price&#xA;  and the EP. If the entry price for oranges is undercut&#xA;  by 8% or more, an additional specific tariff at the level&#xA;  of the MTE of 71 €/t is charged. [...]&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/kaCCz.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/kaCCz.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Monitoring compliance with the EPS faces the&#xA;  difficulty that a large share of fruit and vegetable&#xA;  imports in the EU is on commission, implying that the&#xA;  import price is not determined until the product is sold&#xA;  in the EU market. Therefore, the EC calculates a&#xA;  synthetic import price, the standard import value&#xA;  (SIV). Fruit and vegetable prices, surveyed for each&#xA;  product and export country individually, are collected&#xA;  on representative fruit and vegetable wholesale&#xA;  markets in all EU Member States. The daily SIVs are&#xA;  calculated as a weighted average of collected&#xA;  wholesale market prices, less a marketing and&#xA;  transportation margin and applied tariffs.&#xA;  The EPS can be circumvented (both legally and&#xA;  illegally), so that some product is finally sold at prices&#xA;  below the EP (García-Álvarez-Coque, 2002).&#xA;  According to information from importers, illegal&#xA;  circumvention (e.g. based on false invoicing) is more&#xA;  prevalent in small-scale trading, particularly between&#xA;  related trading partners. Storage can offer a means of&#xA;  legal circumvention, as storable products can be&#xA;  imported at any time while customs clearance is&#xA;  delayed until some later date when the SIV is above&#xA;  the EP. Once cleared at a favourable SIV, the product&#xA;  can be sold later on EU markets at any price (Cioffi&#xA;  and del' Aquila, 2004).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;There were some &lt;a href=&quot;https://www.freshfruitportal.com/news/2014/04/23/qa-european-commission-explains-new-entry-price-system-for-fruit-veg/&quot; rel=&quot;noreferrer&quot;&gt;2014 changes&lt;/a&gt; (not covered in that quote).&lt;/p&gt;&#xA;" OwnerUserId="6210" LastActivityDate="2018-09-25T10:29:39.627" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24675" PostTypeId="2" ParentId="24663" CreationDate="2018-09-25T11:20:08.023" Score="1" Body="&lt;p&gt;The answer depends on the situation for the country in question. Since the answer is correspondingly very large if we covered all cases, I am only attempting to offer an overview of the cases. Feel free to ask follow up questions on more specific questions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I will cover three important sinplified cases.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;“Gold Standard”/“hard currency borrowing”.&lt;/li&gt;&#xA;&lt;li&gt;Free-floating fiat currency.&lt;/li&gt;&#xA;&lt;li&gt;Euro area.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;(1) The “gold standard” example is not currently of interest, but if you want to look at historical governmental defaults, they were associated with the gold standard, or the countries borrowing in a foreign currency (“hard currency”). (Countries in currency pegs are also in a similar situation.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a gold standard, the government’s money in some sense can be converted into gold. Ultimately, it needs to have enough tax revenue in its local currency to force the private sector to turn in enough currency so that the consolidated government (fiscal arm/central bank) can honour the conversion parity. If that level of taxes is not politically sustainable, the government will be forced to default.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The usual operating procedure in a gold standard is for the central bank to raise interest rates to attract gold inflows. However, this raises the interest expense of the government, and so it makes it harder to sustain the gold parity price. So in this case, higher interest rates can raise default rates. However, the causality is ambiguous - the central bank is often forced to raise interest rates to defend the currency value, snd the currency is falling in value because of an expected default. Therefore, one could argue that high interest rates in a currency peg country are the result of an elevated default risk.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For countries with a currency peg or borrow in a foreign currency, they are in a similar boat, as they need to impose taxes in order to be able to obtain the external instrument.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(2) A floating currency sovereign (e.g. the United States, the United Kingdom, Japan, Canada...) does not attempt to fix the value of its currency versus external instruments. It can create arbitrary amounts of its currency unit without using any real resources. The only real concern is the purchasing power of the currency unit (inflation).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since there are no external constraints (lack of gold), default is essentially a political decision. &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;There are operating procedures that might entail default (e.g. the debt ceiling in the United States). It is a political decision to not override those procedures.&lt;/li&gt;&#xA;&lt;li&gt;Interest spending may be such a high part of the budget that politicians would rather default than pay the interest.&lt;/li&gt;&#xA;&lt;li&gt;Government debt may be viewed as illegitimate. For example, debts incurred by a radical government that was later overthrown.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;High interest rates might help push a country towards default, but that was not the case in the 1970s. The number of defaults of countries in this situation is so low and usually associated with other problems that there are almost no data to draw conclusions from.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;3) The euro area is a special case: the currency itself is a fiat currency, but it is under the control of a central bank that is a supranational entity. The euro area nations are not sovereign in the same sense that the federal Government of Canada is, rather they are in a situation similar to a Canadian province.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2018-09-25T11:20:08.023" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24678" PostTypeId="1" CreationDate="2018-09-25T21:44:33.247" Score="0" ViewCount="33" Body="&lt;p&gt;Is it correct to say that import tariffs are unilaterally decided by the nation or bloc applying the tariff?&lt;/p&gt;&#xA;" OwnerUserId="5505" LastActivityDate="2019-08-26T17:03:40.543" Title="Is it correct to say that import tariffs are unilateral?" Tags="&lt;international-trade&gt;&lt;tariffs&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24680" PostTypeId="1" CreationDate="2018-09-25T23:49:02.310" Score="1" ViewCount="3526" Body="&lt;p&gt;i find the topic of real exchange rate appreciation / depreciation often not very well explained. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;even the excerpt below from the following &lt;a href=&quot;https://economics.stackexchange.com/questions/4/real-exchange-rate-vs-ppp-rate&quot;&gt;accepted answer&lt;/a&gt; on this website is not correct in my opinion. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The home currency appreciates in real terms against a foreign currency either if the home currency appreciates in nominal terms or if the &lt;strong&gt;home country's inflation rate is lower than that in the foreign currency.&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;specifically, the part in bold i believe is wrong. if the home country's inflation rate is lower than that of the foreign country, then all else equal, the home currency should &lt;strong&gt;depreciate&lt;/strong&gt; in real terms as the domestic consumption basket becomes cheaper relative to the foreign consumption basket&lt;/p&gt;&#xA;&#xA;&lt;p&gt;some of the confusion abounds because of the different quoting conventions (X vs 1/X, foreign vs domestic, etc) &lt;/p&gt;&#xA;" OwnerUserId="19543" LastActivityDate="2018-09-28T13:28:41.837" Title="real exchange rate appreciation" Tags="&lt;macroeconomics&gt;&lt;exchange-rates&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24681" PostTypeId="2" ParentId="15929" CreationDate="2018-09-25T23:51:21.927" Score="0" Body="&lt;p&gt;The U.S. dollar (as opposed to the Canadian Australian dollars) is a unit of account: a way to measure the value of monetary instruments. For example a \$20 bill is an instrument with a value of 20 units, with the unit being a dollar. Debts are measured in this unit, and there are laws that regulate how such debts are discharged via the transfer of instruments.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These monetary instruments can be organised into various measures of money supply (monetary base, M1, etc.). Which instruments you want to consider to be “money” probably depends on what you want to analyse.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The monetary base (mainly) consists of two types of instruments: notes and coins (“currency in circulation”) issued by entities with the Federal government, and deposits at the Federal Reserve (“bank reserves”). Although the private sector can settle transactions using other means (debit and credit cards, cheques (checks in American English)), ultimately these government-issued instruments will back up the private instruments, since banks settle between themselves via transferring balances at the Federal Reserve.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The fact that the private sector layers its own instruments on top of government-issued instruments explains why the definition of “money” is somewhat vague.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2018-09-25T23:51:21.927" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24684" PostTypeId="1" AcceptedAnswerId="24691" CreationDate="2018-09-26T00:40:35.987" Score="0" ViewCount="51" Body="&lt;p&gt;&lt;a href=&quot;https://rads.stackoverflow.com/amzn/click/B00QH9NTSI&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;A Random Walk Down Wall Street&lt;/em&gt; (2015 11 ed, but an 2019 ed. is upcoming)&lt;/a&gt;. p. 100 Top.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;  To make matters even more complicated, there was not just one bond issued against a package of mortgages. The mortgage-backed securities were sliced into different “tranches,” each tranche with different claim priority against payments from the underlying mortgages and each with a different bond rating. It was called “financial engineering.” Even if the underlying mortgage loans were of low quality, the bond-rating agencies were happy to bestow an AAA rating on the bond tranches with the first claims on the payments of interest and principal from the underlying mortgages. The system should more accurately be called “financial alchemy,” and the alchemy was employed not only with mortgages but with all sorts of underlying instruments, such as credit card loans and automobile loans. These derivative securities were in turn sold all over the world.&lt;br&gt;&#xA;    It gets even murkier. Second-order derivatives were sold on the derivative mortgage-backed bonds. Credit-default swaps were issued as insurance policies on the mortgage-backed bonds. Briefly, the swap market allowed two parties—called counterparties—to bet for or against the performance of the mortgage bonds, or the bonds of any other issuer. For example, suppose I hold bonds issued by General Electric and I begin to worry about GE’s creditworthiness. I could buy and hold an insurance policy from a company like AIG (the biggest issuer of credit default swaps) that would pay me if GE defaulted. The problems with this market lay in the fact that the issuers of the insurance such as AIG had inadequate reserves to pay the claims if trouble occurred. &lt;strong&gt;And anyone from any country could buy the insurance, even without owning the underlying bonds. [I bolded.]&lt;/strong&gt; Eventually, the credit-default swaps trading in the market grew to as much as ten times the value of the underlying bonds, pushed by demand from institutions around the world. This change, where the derivative markets grew to a large multiple of the underlying markets, was a crucial feature of the new finance system. It made the world’s financial system very much riskier and much more interconnected.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Please see the bolded sentence and the titled question. I believe that personal life insurance requires the beneficiary to be related to the insured. Why not for credit-default swaps?&lt;/p&gt;&#xA;" OwnerUserId="4020" LastActivityDate="2018-09-26T03:40:34.040" Title="Why can anyone buy insurance of an, without owning the, underlying asset?" Tags="&lt;finance&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24685" PostTypeId="1" CreationDate="2018-09-26T00:44:39.483" Score="0" ViewCount="42" Body="&lt;p&gt;&lt;a href=&quot;https://rads.stackoverflow.com/amzn/click/B00QH9NTSI&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;A Random Walk Down Wall Street&lt;/em&gt; (2015 11 ed, but an 2019 ed. is upcoming)&lt;/a&gt;. p. 105 Middle.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;  &lt;span class=&quot;math-container&quot;&gt;$\color{red}{\text{Markets can be highly efficient even if they make errors.}}$&lt;/span&gt; Some are doozies, as when Internet stocks in the early 2000s appeared to discount not only the future but the hereafter. How could it be otherwise? Stock valuations depend upon estimations of the earning power of companies many years into the future. Such forecasts are invariably incorrect. Moreover, investment risk is never clearly perceived, so the appropriate rate at which the future should be discounted is never certain. Thus, market prices must always be wrong to some extent. But at any particular time, it is not obvious to anyone whether they are too high or too low. The evidence I will present next shows that professional investors are not able to adjust their portfolios so that they hold only “undervalued” stocks and avoid “overvalued” ones. The fact that the best and the brightest on Wall Street cannot consistently distinguish correct valuations from incorrect ones shows how hard it is to beat the market. There is no evidence that anyone can generate excess returns by making consistently correct bets against the collective wisdom of the market. &lt;strong&gt;Markets are not always or even usually correct. But NO ONE PERSON OR INSTITUTION CONSISTENTLY KNOWS MORE THAN THE MARKET. [I bolded]&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Can someone please distinguish more clearly how &lt;span class=&quot;math-container&quot;&gt;$\color{red}{\text{'[m]arkets can be highly efficient even if they make errors'}}$&lt;/span&gt;? I don’t understand the differences between market efficiency and price correctness. &lt;/p&gt;&#xA;" OwnerUserId="4020" LastActivityDate="2018-09-26T01:39:59.113" Title="How can markets can be highly efficient, even if they make errors?" Tags="&lt;efficient-markets&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24686" PostTypeId="2" ParentId="24685" CreationDate="2018-09-26T01:12:44.653" Score="3" Body="&lt;p&gt;The theory of efficient markets is that no one can make rewards that are in excess of the level reflected by the risk they are taking, except by random chance.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So if markets can make mistakes, but not in a way that allows anyone to make disproportionate rewards except by random chance, then they can be highly efficient.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2018-09-26T01:12:44.653" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24687" PostTypeId="2" ParentId="24685" CreationDate="2018-09-26T01:39:59.113" Score="2" Body="&lt;p&gt;Suppose we have 100 jars, each with an unknown number of jelly beans. Denote these numbers &lt;span class=&quot;math-container&quot;&gt;$N_1$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$N_2$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$\dots$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$N_{100}$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Millions of contestants are invited to submit their guesses for what these 100 numbers are.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For each &lt;span class=&quot;math-container&quot;&gt;$i=1,2,\dots,100$&lt;/span&gt;, let &lt;span class=&quot;math-container&quot;&gt;$G_i$&lt;/span&gt; be the average of all the submitted guesses for the number &lt;span class=&quot;math-container&quot;&gt;$N_i$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let us refer to these 100 average guesses &lt;span class=&quot;math-container&quot;&gt;$G_1$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$G_2$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$\dots$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$G_{100}$&lt;/span&gt; as the &quot;market's guesses&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is highly probable that every single one of the market's guesses is wrong. This is what Malkiel means when he says that &quot;&lt;strong&gt;market prices must always be wrong to some extent&lt;/strong&gt;&quot; or that the market &quot;&lt;strong&gt;makes errors&lt;/strong&gt;&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, the market's 100 guesses are probably much better† than any single contestant's 100 guesses. This is what Malkiel means when he says that the market is &quot;&lt;strong&gt;highly efficient&lt;/strong&gt;&quot;.‡&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Altogether then, although the &quot;market&quot; may not get any single number correct (and is thus &quot;always wrong&quot;), it is, on average, &quot;more correct&quot; than any single contestant (and is thus &quot;highly efficient&quot;).&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;sup&gt;&lt;sub&gt;&lt;em&gt;Footnotes.&lt;/em&gt;&lt;/sub&gt;&lt;/sup&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;sup&gt;&lt;sub&gt;†Where &quot;better&quot; can be quantified by say:&lt;/sub&gt;&lt;/sup&gt;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;sup&gt;&lt;sub&gt;the sum of absolute deviations &lt;span class=&quot;math-container&quot;&gt;$\sum_{i=1}^{100} \left|N_i-G_i\right|$&lt;/span&gt;; or&lt;/sub&gt;&lt;/sup&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;sup&gt;&lt;sub&gt;the sum of squared errors &lt;span class=&quot;math-container&quot;&gt;$\sum_{i=1}^{100} \left(N_i-G_i\right)^2$&lt;/span&gt;; or&lt;/sub&gt;&lt;/sup&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;sup&gt;&lt;sub&gt;whatever other measure that seems sensible in this scenario.&lt;/sub&gt;&lt;/sup&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;sup&gt;&lt;sub&gt;‡Unfortunately, the term &lt;em&gt;efficient&lt;/em&gt; means different things in different contexts and to different economists. My above answer is merely what I believe Malkiel meant by this term.&lt;/sub&gt;&lt;/sup&gt;&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2018-09-26T01:39:59.113" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24688" PostTypeId="1" AcceptedAnswerId="24695" CreationDate="2018-09-26T02:40:54.210" Score="0" ViewCount="16" Body="&lt;p&gt;&lt;a href=&quot;https://rads.stackoverflow.com/amzn/click/com/B00QH9NTSI&quot; rel=&quot;nofollow noreferrer&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;A Random Walk Down Wall Street&lt;/em&gt; (2015 11 ed, but an 2019 ed. is upcoming)&lt;/a&gt;. p. 249 Top.&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;  Suppose irrational investors cause an oil company security to become overpriced relative to both its fundamental value and its peer oil companies. Arbitrageurs can simply sell the overpriced security short and buy a similar substitute oil company security. Thus, the arbitrageur is hedged in the sense that favorable or unfavorable events affecting the oil industry will influence both companies. A rise in the price of oil that makes the shorted security rise will make the arbitrageur’s long position rise as well.&lt;br /&gt;&#xA;  &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Why wouldn’t this arbitrageur just break even, especially after transaction costs?&lt;/p&gt;&#xA;&lt;h3&gt;Case 1 of 2: The oil industry improves.&lt;/h3&gt;&#xA;&lt;p&gt;Then as written overhead, the substitute oil company's and shorted security's price rise. The former causes the arbitrageur  to gain money, and the latter  to lose money.&lt;/p&gt;&#xA;&lt;h3&gt;Case 2 of 2: It tumbles.&lt;/h3&gt;&#xA;&lt;p&gt;Then the substitute oil company's and shorted security's price drop. The former causes the arbitrageur  to lose money, and the latter  to gain  money.&lt;/p&gt;&#xA;" OwnerUserId="4020" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2018-09-26T12:25:57.033" Title="Why wouldn't an arbitrageur who shorts an overpriced security, and longs a substitute company, break even?" Tags="&lt;investment&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24689" PostTypeId="1" CreationDate="2018-09-26T02:50:10.867" Score="1" ViewCount="48" Body="&lt;p&gt;&lt;a href=&quot;https://rads.stackoverflow.com/amzn/click/B00QH9NTSI&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;A Random Walk Down Wall Street&lt;/em&gt; (2015 11 ed, but an 2019 ed. is upcoming)&lt;/a&gt;. pp. 271 Bottom – 272 Top.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;  All “smart beta” strategies represent active management rather than indexing. Capitalization-weighted portfolios are the market. If you believe a subset of securities will give you superior returns, you are counting on some “dumb” investors to hold portfolios producing poorer returns. Some “smart beta” advocates have been quite explicit in suggesting who these dumb investors might be. They claim that the investors in traditional capitalization index funds are the dumb beta investors, since by holding the broad index they will be holding a number of overvalued growth stocks. &lt;em&gt;But that argument must be false.&lt;/em&gt; &lt;span class=&quot;math-container&quot;&gt;$\color{red}{\text{The holder of a broad-based index fund will by definition achieve the average return for the market.}}$&lt;/span&gt; &lt;strong&gt;If “smart beta” funds generate above average returns, it can’t be at the expense of traditional index-fund investors—it must be at the expense of all active managers who do not hold the market portfolio.&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;For simplicity, suppose that a country’s economy has only 2 types of ETF: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;i. 1 broad-based, whose return I'll call &lt;span class=&quot;math-container&quot;&gt;$r_B$&lt;/span&gt; + &lt;/p&gt;&#xA;&#xA;&lt;p&gt;ii. 1 Smart Beta one that's a subset of securities without some (overvalued) growth stocks, whose return must be higher than the broad-based fund's (say &lt;span class=&quot;math-container&quot;&gt;$2\% + r_B$&lt;/span&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then the average return of ETFs is &lt;span class=&quot;math-container&quot;&gt;$1\% + r_B$&lt;/span&gt;, which nobody achieves (as my imaginary economy has only 2 types of ETF). &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;So how's the red sentence true? &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;How's the bolded sentence true? Wouldn’t fund ii's higher return 'be at the expense of traditional index-fund investors'? &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="4020" LastActivityDate="2019-04-27T22:02:00.477" Title="Why will the holder of a broad-based index fund, by definition, achieve the average return for the market?" Tags="&lt;stock-market&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24691" PostTypeId="2" ParentId="24684" CreationDate="2018-09-26T03:35:16.537" Score="1" Body="&lt;p&gt;In a free market, two parties should be free to contract/trade whatever they like, under whatever conditions they like, &lt;em&gt;unless&lt;/em&gt; the state has good reasons -- be it economic, moral, religious, or otherwise -- for intervening.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So I would instead rephrase your question as the following two questions:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Question 1. Why is it that in life insurance, the state intervenes by imposing the requirement known as &lt;strong&gt;insurable interest&lt;/strong&gt;?&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Question 2. Are there good reasons for the state to likewise impose a similar requirement on credit default swaps (CDS)?&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Question 1.&lt;/em&gt; Actually, during the early (modern) history of insurance (which involved primarily life and marine insurance), you &lt;em&gt;could&lt;/em&gt; buy insurance even without having an underlying stake in the insured object or what we now call an &lt;em&gt;insurable interest&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As you can imagine, this led to a number of abuses, including murders and ships getting lost or destroyed. The term &lt;em&gt;moral hazard&lt;/em&gt; actually originated in this context (and has since been appropriated by economists to mean something slightly different).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One result of such abuses was that in 1746, the &lt;a href=&quot;https://books.google.com/books?id=zihZL7vn4Y8C&amp;amp;pg=PA510&amp;amp;dq=%22WHEREAS%20it%20hath%20been%20found%20by%20Experience,%20that%20the%20making%20Assurances%22&quot; rel=&quot;nofollow noreferrer&quot;&gt;Marine Insurance Act&lt;/a&gt; came into effect in Great Britain and introduced the doctrine of &lt;em&gt;insurable interest&lt;/em&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;WHEREAS it hath been found by Experience, that the making Assurances, Interest or no Interest, or without further Proof of Interest than the Policy, hath been productive of many pernicious Practices, whereby great Numbers of Ships, with their Cargoes, have either been fraudulently lost and destroyed ... no Assurance or Assurances shall be made ... without further Proof or Interest than the Policy, or by way of Gaming or Wagering, or without Benefit of Salvage to the Assurer ...&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Question 2.&lt;/em&gt; With CDS, the arguments in favor of imposing the insurable interest doctrine are weaker. For example, the risk of moral hazard is lower, because it is harder to cause a firm or sovereign state to default than to murder someone or burn a ship.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So by and large, CDS are treated by most governments as being just like any speculative asset that anyone is free to trade in at one's own risk.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Nonetheless, Germany (2010) and the EU (2012) have imposed this doctrine on CDS, though only for debt issued by European governments and not by firms  -- see e.g. Aldasoro and Ehlers (&lt;a href=&quot;https://www.bis.org/publ/qtrpdf/r_qt1806b.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;2018&lt;/a&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some of the blame for the Global Financial Crisis has been rightly ascribed to CDS. However, I think the two big problems with CDS were the lack of transparency and the systemic risk (or &quot;domino effect&quot;), rather than the lack of an insurable interest requirement.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Imposing the insurable interest requirement would not have much mitigated these two problems, except perhaps by increasing the transaction costs associated with CDS and thus decreasing their use.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastEditorDisplayName="user18" LastEditDate="2018-09-26T03:40:34.040" LastActivityDate="2018-09-26T03:40:34.040" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24692" PostTypeId="2" ParentId="24680" CreationDate="2018-09-26T09:21:39.320" Score="0" Body="&lt;p&gt;If, as you say, the domestic consumption basket becomes cheaper, that means that the purchasing power of the domestic currency has increased.  If the purchasing powes of the domestic currency has increased while that of the foreign currency hasn't changed, the domestic currency has appreciated in real terms.&lt;/p&gt;&#xA;" OwnerUserId="16631" LastActivityDate="2018-09-26T09:21:39.320" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24693" PostTypeId="1" AcceptedAnswerId="24785" CreationDate="2018-09-26T09:45:30.497" Score="-1" ViewCount="153" Body="&lt;p&gt;Consider an investor with initial wealth &lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt; and has to decide how to invest it. There is a riskless asset with rate of return &lt;span class=&quot;math-container&quot;&gt;$r$&lt;/span&gt;. The risky asset has return &lt;span class=&quot;math-container&quot;&gt;$x_i$&lt;/span&gt; with probability &lt;span class=&quot;math-container&quot;&gt;$\pi_i$&lt;/span&gt; for &lt;span class=&quot;math-container&quot;&gt;$i=1,2,3,...,n$&lt;/span&gt;. Denote by &lt;span class=&quot;math-container&quot;&gt;$\alpha$&lt;/span&gt; the fraction of wealth that investor puts into the risky asset, so that &lt;span class=&quot;math-container&quot;&gt;$1- \alpha$&lt;/span&gt; is the fraction that he puts in the riskless asset. &#xA;Write down the investor's optimization problem.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is a question from my homework test. I want to specifically confirm my answer of part a), &#xA;I wrote &lt;span class=&quot;math-container&quot;&gt;$$max \sum_{i=1}^{n} \pi _{i}[U((1-\alpha )w(1+r)-\alpha w+\sum_{i=1}^{n}x_i]$$&lt;/span&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This, we have to maximise w.r.t. &lt;span class=&quot;math-container&quot;&gt;$\alpha$&lt;/span&gt;&#xA;Can anyone confirm?&lt;/p&gt;&#xA;" OwnerUserId="18667" LastEditorUserId="14688" LastEditDate="2018-10-22T20:03:40.740" LastActivityDate="2018-10-22T20:03:40.740" Title="Investor's optimization problem with risk aversion" Tags="&lt;investment&gt;&lt;optimization&gt;&lt;risk-aversion&gt;" AnswerCount="1" CommentCount="8" FavoriteCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24694" PostTypeId="1" CreationDate="2018-09-26T11:11:05.387" Score="0" ViewCount="73" Body="&lt;p&gt;In standard revealed preference, we don't assume that the agent has rational preferences over a choice set $X$, and we can then ask: under what conditions can $X$ be rationalized by a rational preference relation?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One answer turns out to be: if the choice set $\mathcal C$ contains all    subsets $C\subset X$ of 3 elements or less, and the weak axiom of revealed preference is satisfied.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But now, what if we already know from the outset that the preference relation of the decisionmaker is rational, and we just want to pinpoint uniquely which preference relation this is? Then at the very least, we only need every 2-element subset of $X$, but it seems that this can be imporved. Is there work on this?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;EDIT:&lt;/strong&gt; Let me state the question more clearly: What are minimal conditions on a choice collection $\mathcal C\subseteq \mathcal P(X)$ such that for any preference relation that generates choices $c(C)$, that preference relation is the unique rationalization of those choices?&lt;/p&gt;&#xA;" OwnerUserId="11146" LastEditorUserId="11146" LastEditDate="2018-09-27T08:21:54.173" LastActivityDate="2018-09-27T08:21:54.173" Title="Revealed preference if we know that the decisionmaker is rational?" Tags="&lt;preferences&gt;" AnswerCount="0" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="24695" PostTypeId="2" ParentId="24688" CreationDate="2018-09-26T12:25:57.033" Score="1" Body="&lt;p&gt;Yes, you've understood half the reason for taking the joint position: if sector-wide movements occur, then the position stays neutral: i.e. it is insulated from those movements.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's not sector-wide movements that this position is trying to profit from. So it's wise to insulate the position from those movements.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What this position is trying to profit from, is the relative over-pricing of the shorted-security, and the relative under-pricing of its competitor. If the arbitrageurs are correct, and can stay solvent long enough, then &lt;strong&gt;each&lt;/strong&gt; of their two positions will make a profit when the shorted security drops in price, and the held security rises in price.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2018-09-26T12:25:57.033" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24696" PostTypeId="1" CreationDate="2018-09-26T12:27:08.213" Score="1" ViewCount="74" Body="&lt;p&gt;Given &lt;span class=&quot;math-container&quot;&gt;$ Y=f(K,L;\sigma) $&lt;/span&gt;, the effect on labor from a change in the price of capital can be gauged through a substitution effect and a scale effect:&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{align*}&#xA;\frac{\partial L}{\partial r}  &amp;amp; =\underset{Sub}{\underbrace{\left.&#xA;\frac{\partial L^{c}}{\partial r}\right\vert _{Y}}}%&#xA;+\underset{Scale}{\underbrace{\frac{\partial L^{c}}{\partial Y}\frac{\partial&#xA;Y}{\partial r}}}\\ \\&#xA;&amp;amp; =SH_{_{Labor}}\left(  \sigma+\eta\right)&#xA;\end{align*}&lt;/span&gt;&#xA;where &lt;span class=&quot;math-container&quot;&gt;$L^c$&lt;/span&gt; is the conditional demand (the smooth movement along the isoquant).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This can then - as far as I can see - be also expressed as the sum of the factor substitution elasticity and the firm's elasticity of demand, weighted by the labor cost share. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But are &lt;span class=&quot;math-container&quot;&gt;$\eta$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\sigma$&lt;/span&gt; independent of one another? If a firm can readily substitute factors in response to factor price changes, this will presumably impact its price elasticity of demand. Any thoughts?&lt;/p&gt;&#xA;" OwnerUserId="19132" LastActivityDate="2018-09-26T12:27:08.213" Title="Demand Elasticity, Factor Substitution: Independent?" Tags="&lt;elasticity&gt;&lt;production-function&gt;&lt;elasticity-of-substituion&gt;&lt;cost-functions&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24697" PostTypeId="2" ParentId="24653" CreationDate="2018-09-26T16:07:31.223" Score="1" Body="&lt;p&gt;On the previous page (introducing equation 2.2) the authors state that &quot;consumption asset&quot; means &quot;wealth portfolio&quot;, so &lt;span class=&quot;math-container&quot;&gt;$R_{c,t+1}$&lt;/span&gt; is the return to the wealth portfolio, which makes sense from the equation you quote.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;the log return to the consumption asset (wealth portfolio), &lt;span class=&quot;math-container&quot;&gt;$r_{c,t+1}$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="16631" LastActivityDate="2018-09-26T16:07:31.223" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24698" PostTypeId="1" CreationDate="2018-09-26T16:14:02.480" Score="0" ViewCount="1414" Body="&lt;p&gt;&lt;strong&gt;Context:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$Y -(C+I+G) = X - M$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a closed economy, &lt;span class=&quot;math-container&quot;&gt;$(X-M) = 0$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Notations&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Y --&gt; Income/Output&lt;/p&gt;&#xA;&#xA;&lt;p&gt;C,I,G --&gt; Consumption, Investment and Government expenditure respectively.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;X --&gt; Exports&lt;/p&gt;&#xA;&#xA;&lt;p&gt;M --&gt; Imports&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;I want an economic intuition how is it possible that aggregate of all savings in a closed economy equals 0.&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="19546" LastActivityDate="2018-09-27T09:23:28.557" Title="Does National Savings equal zero in a closed economy? Please give an economic intuition" Tags="&lt;macroeconomics&gt;&lt;international-trade&gt;&lt;international-economics&gt;&lt;national-income&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="24699" PostTypeId="2" ParentId="24375" CreationDate="2018-09-26T16:24:31.643" Score="1" Body="&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;An increase in the discount rate increases the cost of borrowing for commercial banks.  Their normal response would be to&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(a) Offer higher interest rates to depositors to replace loans from the Reserve System, and&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(b) Increase commercial interest rates on the loans they offer to pass on their higher costs to customers.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;This makes it more attractive for individuals (including foreign ones) to deposit gold or pay back loans, together &quot;arrest[ing] withdrawal&quot;.&lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;2&quot;&gt;&#xA;&lt;li&gt;&lt;p&gt;I'm not sure it would and couldn't find this implied in the text.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Because their cost of borrowing has gone up sharply.  If they can't get rid of this cost by calling in loans or attracting savings, or offset it with profits, then they'll go under.  And if they quickly pass on higher interest rates to borrowing customers, this is likely to lead to bankruptcies and foreclosures, so they have to write off loans, and go under.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="16631" LastActivityDate="2018-09-26T16:24:31.643" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24700" PostTypeId="2" ParentId="24680" CreationDate="2018-09-26T16:39:12.763" Score="2" Body="&lt;p&gt;You need a clear understanding of what is exchange rate and how it is determined. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider two countries with &lt;strong&gt;free flow of goods and services that is there is no transaction, transportation, tariff costs etc.&lt;/strong&gt; [I am assuming an ideal world here].&lt;/p&gt;&#xA;&#xA;&lt;p&gt;say, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;India&lt;/strong&gt; &lt;em&gt;(Currency: Indian Rupee abbreviated as INR)&lt;/em&gt; and &lt;strong&gt;USA&lt;/strong&gt; &lt;em&gt;(Currency: Dollar abbreviated as $ )&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Exchange rate:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;$ 1 = INR 50&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider a commodity let us say pencils:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume that in year 2018 - one pencil costs $ 1 in USA and INR 50 in India.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now let us suppose that India faces an inflation of 10% per annum and there is no inflation in USA.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence new prices of pencil in year 2019:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;India - INR 55&lt;/p&gt;&#xA;&#xA;&lt;p&gt;USA - $ 1&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since, there are no transportation and transaction costs Indians will start purchasing pencil from USA since 1 US $ still equals INR 50 and Indians get pencils relatively cheaper in USA after converting their currency into dollars. &lt;strong&gt;This will push up Indian imports and hence Indian currency will depreciate and US dollar will appreciate because US exports have gone up.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This process will continue till 1$ = INR 55.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now coming back to your question say home country is USA and due to relatively lower inflation rate in USA, the US dollar appreciates (NOT depreciate).&lt;/p&gt;&#xA;" OwnerUserId="19546" LastEditorUserId="19546" LastEditDate="2018-09-28T13:28:41.837" LastActivityDate="2018-09-28T13:28:41.837" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="24702" PostTypeId="1" AcceptedAnswerId="24703" CreationDate="2018-09-26T20:19:46.107" Score="4" ViewCount="317" Body="&lt;p&gt;Solving the basic Utility Maximization Problem, i.e.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{align}&#xA;max_{x\geq 0} u(x) \\&#xA;s.t. \,\,\, p^Tx\leq w&#xA;\end{align}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;we get the Kuhn-Tucker first order condition&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{gather}&#xA;\frac{\partial u(x)}{\partial x_l}\leq \lambda p_l&#xA;\end{gather}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which holds with equality when &lt;span class=&quot;math-container&quot;&gt;$x_l &amp;gt; 0$&lt;/span&gt;, i.e. when solutions are interior. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is it enough to say that since preferences are assumed to be monotonous, we can rule out the possibility of boundary solutions and thus we are safe in setting the FOC with the equal sign?&lt;/p&gt;&#xA;" OwnerUserId="6773" LastEditorUserId="5557" LastEditDate="2018-09-27T09:24:56.033" LastActivityDate="2018-09-27T09:24:56.033" Title="Ruling out boundary solutions in Utility Maximization" Tags="&lt;microeconomics&gt;&lt;utility&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24703" PostTypeId="2" ParentId="24702" CreationDate="2018-09-26T20:50:31.863" Score="5" Body="&lt;p&gt;No, it isn't.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A simple counterexample is&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{align*}&#xA;\max_x \hskip 10pt &amp;amp; x_1 + x_2 \\&#xA;\\&#xA;\text{s.t.} \hskip 10pt &amp;amp; x_1 + 2x_2 = 10.&#xA;\end{align*}&lt;/span&gt;&#xA;The utility function is monotonic (strictly monotonic even), but the solution is a corner solution at &lt;span class=&quot;math-container&quot;&gt;$(x_1,x_2) = (10,0)$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;The above answers the question, but it is worthwhile to note that defining a sufficient condition (that is not too strong) seems to be difficult.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Not even convexity is sufficient. (The utility function above is convex, and could be made strictly convex with an extremely slight bend.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Seems like you would have to compare the level curve gradients at all the possible corner solutions to the gradient of the budget set, but that does not really help you in higher dimensions.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2018-09-27T05:47:12.283" LastActivityDate="2018-09-27T05:47:12.283" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24704" PostTypeId="1" CreationDate="2018-09-26T21:12:26.990" Score="-1" ViewCount="515" Body="&lt;p&gt;Compared with, say minimum wage increases, how inflationary is progressive taxation?&lt;/p&gt;&#xA;" OwnerUserId="16013" LastEditorUserId="1601" LastEditDate="2018-09-27T07:10:37.453" LastActivityDate="2018-09-27T07:26:15.427" Title="How inflationary is progressive taxation?" Tags="&lt;inflation&gt;&lt;taxation&gt;&lt;minimum-wage&gt;" AnswerCount="2" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="24705" PostTypeId="2" ParentId="24702" CreationDate="2018-09-26T22:24:26.190" Score="5" Body="&lt;p&gt;One sufficient condition for interior solutions given strictly positive prices and income that sometimes works is that every bundle in the interior of the commodity space (a bundle that contains strictly positive amounts of all goods) is preferred to every bundle on the boundary of the commodity space (a bundle that contains zero of some commodity). Prime examples are &lt;a href=&quot;https://en.wikipedia.org/wiki/Cobb%E2%80%93Douglas_production_function#Cobb%E2%80%93Douglas_utilities&quot; rel=&quot;noreferrer&quot;&gt;Cobb-Douglas utility functions&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;More generally (not really), to be sure that you get interior solutions for all positive prices, marginal utilities should become infinitely large when the amount of one commodity goes to zero. A typical example is &lt;span class=&quot;math-container&quot;&gt;$u:\mathbb{R}^2_+\to\mathbb{R}$&lt;/span&gt; given by&#xA;&lt;span class=&quot;math-container&quot;&gt;$$u(x_1,x_2)=\sqrt{x_1}+\sqrt{x_2}.$$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="1442" LastActivityDate="2018-09-26T22:24:26.190" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24707" PostTypeId="2" ParentId="24689" CreationDate="2018-09-27T05:32:08.547" Score="1" Body="&lt;p&gt;&lt;strong&gt;1. The Red Sentence&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Because it is market-weighted, the market portfolio is the average of what's going on. It is the default scenario, in which you don't need to trade to maintain your asset allocation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As soon as someone trades and diverge from this default scenario, one of the two parties will lose, &lt;em&gt;relative&lt;/em&gt; to the market (they can both be better off, but one of them will underperform).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In addition, your setup with two funds cannot work. The smart beta index is going to trade. With whom? Not with the market-weighted fund: he does not need to trade (the weights basically adjust all by themselves with the price changes, he only needs to reinvest dividends). Therefore if there are two funds only in your universe, and one of them holds the market portfolio, then the second either holds nothing, or he holds the market portfolio as well. If he holds any other security, then the market portfolio funds cannot hold all securities with market-weights.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;2. The Bold Sentence&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think this sentence is wrong. It confuses return and performance. Performance is the efficiency of the process which generates return from risk. Basically, you input risk, and you output return. That's what investing is all about.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The claim behind smart betas is that the market portfolio is not correctly diversified. Basically, you get exposure for some risk without being paid for it. This can be shown quite intuitively : equally-weighted portfolios overperform market-cap weighted portfolios (&lt;a href=&quot;https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2170212&quot; rel=&quot;nofollow noreferrer&quot;&gt;Platen and Rendek, 2010&lt;/a&gt;, &lt;a href=&quot;https://opus.lib.uts.edu.au/handle/10453/18876&quot; rel=&quot;nofollow noreferrer&quot;&gt;Platen and Rendek, 2012&lt;/a&gt;). That's because it gives you exposure non non-rewarded risks!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To sum up: the market-weighted portfolio does give you the average return. It can be outperformed by other strategies. Your example is too simple to work.&lt;/p&gt;&#xA;" OwnerUserId="6820" LastEditorUserId="4020" LastEditDate="2018-09-29T20:48:16.700" LastActivityDate="2018-09-29T20:48:16.700" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24708" PostTypeId="2" ParentId="24704" CreationDate="2018-09-27T07:13:56.333" Score="1" Body="&lt;p&gt;This is almost a link only answer, but you are asking for peer reviewed sources in the comments.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Brian Romanchuk's statement that taxes are anti-inflationary also appears. (Attributed to 'conventional macro'.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.jstor.org/stable/41791881?seq=1#page_scan_tab_contents&quot; rel=&quot;nofollow noreferrer&quot;&gt;CAN INCOME TAX INCREASES BE INFLATIONARY? AN EXPOSITORY NOTE&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;Abstract&lt;/strong&gt;&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Conventional macroeconomics classifies an increase in the rate of&#xA;  income taxation as an anti-inflation device because it reduces&#xA;  aggregate demand. However, an income tax hike may also constrict&#xA;  aggregate supply, making the effect on the price level ambiguous on&#xA;  purely theoretical grounds. This phenomena is investigated in the&#xA;  context of the conventional Hicks-Hansen IS-LM model, and a sufficient&#xA;  condition for an income tax hike to reduce the equilibrium price level&#xA;  is found. It is argued that this condition is very likely to be&#xA;  satisfied by the U.S. economy.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2018-09-27T07:13:56.333" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24709" PostTypeId="2" ParentId="24704" CreationDate="2018-09-27T07:16:03.797" Score="1" Body="&lt;p&gt;Taxation is deflationary. It's fiscal tightening. It reduces aggregate demand.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(You didn't mention government spending in the question, so I've assumed it's flat).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Inflation is an increasing amount of money chasing the same amount of goods (or variants of same).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Taxation reduces the amount of money in the economy. So there's less money chasing the same amount of goods. Hence it's deflationary.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As to the extent to which &lt;em&gt;progressive&lt;/em&gt; taxation specifically, is more or less deflationary than flat or regressive taxation: if we accept the observation that marginal propensity to consume decreases with income, then progressive taxation is less deflationary than flat or regressive taxation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If, instead of assuming government spending is flat, we assume that the government's net fiscal position is flat, i.e. spending changes to match tax revenue, then progressive taxation is likely to be inflationary relative to flat or regressive taxation, as the average propensity to consume of people on lower incomes tends to be higher than that of people on higher incomes. Whether the overall net effect of taxation is inflationary or deflationary, will depend on the exact nature of the government spending, and where the economy is in the cycle.&lt;/p&gt;&#xA;" OwnerUserId="44" LastEditorUserId="44" LastEditDate="2018-09-27T07:26:15.427" LastActivityDate="2018-09-27T07:26:15.427" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24710" PostTypeId="2" ParentId="24698" CreationDate="2018-09-27T09:23:28.557" Score="3" Body="&lt;p&gt;In a closed economy, savings equal investment. Your equation actually shows this. We have:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$Y−(C+G) - I = 0$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that savings, by definition, is just equal to the production &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt; that is not consumed. Here we have consumption by private citizens &lt;span class=&quot;math-container&quot;&gt;$C$&lt;/span&gt; and consumption by the Government &lt;span class=&quot;math-container&quot;&gt;$G$&lt;/span&gt;. Therefore, savings &lt;span class=&quot;math-container&quot;&gt;$S$&lt;/span&gt; is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$S = Y - (C+G)$&lt;/span&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;and therefore:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$S=I$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So national savings can only be zero if investment is zero.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is a concrete example. You don't spend all your income and save money in a bank. People who want to invest (e.g. to start a business or buy a tractor) go and borrow that money, which is then invested.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In an open economy, there is no reason for savings to equal investment. Nevertheless, the two are often strongly correlated in reality, which is known as the &lt;a href=&quot;https://www.dummies.com/education/finance/international-finance/the-feldsteinhorioka-international-finance-puzzle/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Feldstein-Horioka Puzzle&lt;/a&gt;. This is/was one of the major puzzles in international economics and a large literature has been devoted to explaing it.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastActivityDate="2018-09-27T09:23:28.557" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24711" PostTypeId="1" CreationDate="2018-09-27T09:50:57.967" Score="2" ViewCount="52" Body="&lt;p&gt;I am new to this form. I am going to run an OLS regression with dependent variable as a correlation coefficient (between -1 and 1). I am aware that this dependent variable may be problematic in the OLS regression. But what can I do in order to implement the regression? Thanks!&lt;/p&gt;&#xA;" OwnerUserId="19556" LastActivityDate="2018-09-30T14:55:54.207" Title="Running ols when dependent variable is correlation coefficient" Tags="&lt;econometrics&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="24713" PostTypeId="1" AcceptedAnswerId="24736" CreationDate="2018-09-27T11:30:01.103" Score="2" ViewCount="2711" Body="&lt;p&gt;I seem to not be getting this. Could someone explain me the mathematical way to show a concave utility function [like (ax^2+by^2)] subject to a budget constraint has a corner solution. I get the economic intuition behind it but not the mathematical part behind it. &lt;/p&gt;&#xA;" OwnerUserId="19558" LastActivityDate="2018-09-28T19:00:18.893" Title="Concave utility functions corner solution explanation" Tags="&lt;optimization&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24714" PostTypeId="1" AcceptedAnswerId="24717" CreationDate="2018-09-27T12:42:16.440" Score="0" ViewCount="1567" Body="&lt;p&gt;Sorry if this is a basic question, however I have no idea on how to derive an equation for an income offer curve. All the explanations I'm getting is the graphical one where you just connect the different optimum points. It would be really helpful if someone can explain how do you derive an equation for such given any utility function. &lt;/p&gt;&#xA;" OwnerUserId="19558" LastActivityDate="2018-09-27T16:39:48.483" Title="Deriving equation for income offer curve" Tags="&lt;consumer-theory&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24715" PostTypeId="1" AcceptedAnswerId="24718" CreationDate="2018-09-27T15:57:58.087" Score="2" ViewCount="140" Body="&lt;p&gt;How does government spending on imported goods affect GDP?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is it first counted as government spending and then subtracted as imports? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For instance, if the US government buy a new accounting system from overseas, how would this affect the US GDP?&lt;/p&gt;&#xA;" OwnerUserId="19562" LastActivityDate="2018-09-27T18:10:04.893" Title="How does government spending on imported goods affect GDP?" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;&lt;government-spending&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24717" PostTypeId="2" ParentId="24714" CreationDate="2018-09-27T16:39:48.483" Score="1" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/Iw5sX.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Iw5sX.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I have derived here is more appropriately called Engel curve. &lt;/p&gt;&#xA;" OwnerUserId="19546" LastActivityDate="2018-09-27T16:39:48.483" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24718" PostTypeId="2" ParentId="24715" CreationDate="2018-09-27T18:04:37.090" Score="1" Body="&lt;p&gt;Recall the definition of GDP that it is the aggregate value of all goods and services produced &lt;strong&gt;within the domestic territory.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The concept of domestic territory is central here. Only those government expenditures that creates a domestic income is counted in GDP.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For instance, if US government gives economic aid to a poor African country it will not be a part of US GDP, although it is a government expenditure.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the same way the government expenditure on imports does not create any domestic income hence the value of imports will be subtracted from the GDP without any complementary addition.&lt;/p&gt;&#xA;" OwnerUserId="19546" LastEditorUserId="19546" LastEditDate="2018-09-27T18:10:04.893" LastActivityDate="2018-09-27T18:10:04.893" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24719" PostTypeId="1" AcceptedAnswerId="24723" CreationDate="2018-09-27T20:35:35.077" Score="2" ViewCount="68" Body="&lt;h2&gt;If &lt;span class=&quot;math-container&quot;&gt;$\succsim$&lt;/span&gt; is transitive but irreflexive, then it is asymmetric.&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;this is my proof:  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose &lt;span class=&quot;math-container&quot;&gt;$\succsim$&lt;/span&gt; is not asymmetric, which means that for any &lt;span class=&quot;math-container&quot;&gt;$x,y \in X$&lt;/span&gt; &lt;span class=&quot;math-container&quot;&gt;$x\succsim y \rightarrow y \succsim x$&lt;/span&gt;. By definition &lt;span class=&quot;math-container&quot;&gt;$\succsim$&lt;/span&gt; is transitive, i.e. for any &lt;span class=&quot;math-container&quot;&gt;$x, y, z \in X$&lt;/span&gt; we have &lt;span class=&quot;math-container&quot;&gt;$x \succsim y$&lt;/span&gt; &amp;amp; &lt;span class=&quot;math-container&quot;&gt;$y\succsim z$&lt;/span&gt; &lt;span class=&quot;math-container&quot;&gt;$\rightarrow$&lt;/span&gt; &lt;span class=&quot;math-container&quot;&gt;$x \succsim z$&lt;/span&gt;. So since we are supposing &lt;span class=&quot;math-container&quot;&gt;$\succsim$&lt;/span&gt; is symmetric:  &lt;span class=&quot;math-container&quot;&gt;$y\succsim x \rightarrow x \succsim$&lt;/span&gt; y. Now since  &lt;span class=&quot;math-container&quot;&gt;$\succsim$&lt;/span&gt;  is transitive  &lt;span class=&quot;math-container&quot;&gt;$y \succsim x$&lt;/span&gt; &amp;amp;  &lt;span class=&quot;math-container&quot;&gt;$x\succsim y \rightarrow y \succsim y$&lt;/span&gt; but  &lt;span class=&quot;math-container&quot;&gt;$\succsim$&lt;/span&gt;  is irreflexive so it's a contradition and  &lt;span class=&quot;math-container&quot;&gt;$\succsim$&lt;/span&gt; is asymmetric.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What do you think of my proof, is it wrong or not clear enough?&lt;/p&gt;&#xA;" OwnerUserId="19566" LastActivityDate="2018-09-28T00:17:21.367" Title="If $\succsim$ is transitive but irreflexive, then it is asymmetric, proof" Tags="&lt;preferences&gt;&lt;self-study&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24720" PostTypeId="1" CreationDate="2018-09-27T21:09:16.637" Score="0" ViewCount="47" Body="&lt;p&gt;There has been a lot of discussion for a while now over how the short market on Tesla is quite crowded.  This got me thinking of what possible benefits the short market bestows upon the economy as a whole.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Specifically, supposing some hypothetical company &lt;span class=&quot;math-container&quot;&gt;$C$&lt;/span&gt; (that isn't Tesla), that has random payoff at time &lt;span class=&quot;math-container&quot;&gt;$t$&lt;/span&gt; of &lt;span class=&quot;math-container&quot;&gt;$P_t(x)$&lt;/span&gt; where &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; is the investment.  Supposing that &lt;span class=&quot;math-container&quot;&gt;$P_t$&lt;/span&gt; is 'risky' (e.g. &lt;span class=&quot;math-container&quot;&gt;$p(P_t(x) = x) = 1$&lt;/span&gt; is 'non risky', and &lt;span class=&quot;math-container&quot;&gt;$p(P_t(x) = 2.5x) = 0.5; p(P_t(x) = 0) = 0.5$&lt;/span&gt; is 'risky').  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can vaguely imagine that a mixture of investors and shorters would somehow even out the expected risk for the economy as a whole.  Does this intuition hold in reality?  If so, what is the mechanism and reasoning here?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can see at least one avenue by which aggregate risk to the economy can be insured under the right circumstances.  Suppose that we have the &quot;risky&quot; business &lt;span class=&quot;math-container&quot;&gt;$C$&lt;/span&gt; as defined above.  Ceate another business &lt;span class=&quot;math-container&quot;&gt;$C_2$&lt;/span&gt; with the same payout, but which succeeds or fails exactly when &lt;span class=&quot;math-container&quot;&gt;$C$&lt;/span&gt; fails or succeeds, respectively.  If we invest &lt;span class=&quot;math-container&quot;&gt;$x/2$&lt;/span&gt; into each company, the payout at time &lt;span class=&quot;math-container&quot;&gt;$t$&lt;/span&gt; is exactly &lt;span class=&quot;math-container&quot;&gt;$1.25x$&lt;/span&gt; with probability 1.  Thus, &lt;span class=&quot;math-container&quot;&gt;$C_2$&lt;/span&gt; &quot;evens out&quot; the risk of &lt;span class=&quot;math-container&quot;&gt;$C$&lt;/span&gt;, and vice versa.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Do short positions also fill this role?  Does anything else?&lt;/p&gt;&#xA;" OwnerUserId="14072" LastEditorUserId="14072" LastEditDate="2018-12-31T00:26:17.177" LastActivityDate="2018-12-31T00:26:17.177" Title="Can aggregate risk to the economy be insured, and how?" Tags="&lt;risk&gt;" AnswerCount="0" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="24721" PostTypeId="1" AcceptedAnswerId="24725" CreationDate="2018-09-27T22:03:08.160" Score="2" ViewCount="31" Body="&lt;p&gt;I just stopped and thought about the current economic state, and yield curve in particular.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As you can see &lt;a href=&quot;https://fred.stlouisfed.org/series/T10Y2Y&quot; rel=&quot;nofollow noreferrer&quot; title=&quot;here&quot;&gt;here&lt;/a&gt;, the yield curve is starting to flatten, means longer bonds demand is high, while short term bonds demand are low.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is happening due to the &quot;fear&quot; from the upcoming short term economics, so the investors are selling short bonds and buying long bonds.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In US, the chance for government default are very low, as they can print more money and never declare a default, which will cause inflation (something that affect both short term and long term).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So why does the investors are buying longer bonds, with the same yield as short term yield, while the risk is so low? What is the rational behind getting longer bonds?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks.&lt;/p&gt;&#xA;" OwnerUserId="19568" LastActivityDate="2018-09-28T01:03:23.463" Title="Yield curve flattening- abstract question" Tags="&lt;bonds&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24723" PostTypeId="2" ParentId="24719" CreationDate="2018-09-28T00:17:21.367" Score="3" Body="&lt;p&gt;A relation that is not asymmetric need not be symmetric. But if &lt;span class=&quot;math-container&quot;&gt;$\succsim$&lt;/span&gt; is not asymmetric, there must be elements &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; such that both &lt;span class=&quot;math-container&quot;&gt;$x\succsim y$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$y\succsim x$&lt;/span&gt; hold and these elements are all you need to arrive at a contradiction. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, &lt;span class=&quot;math-container&quot;&gt;$x\succsim y\implies y\succsim x$&lt;/span&gt; can hold for an asymmetric relation, namely when &lt;span class=&quot;math-container&quot;&gt;$x\succsim y$&lt;/span&gt; does not hold. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'd like also to point out that &quot;any&quot; is ambiguous here and might be read as &quot;all&quot; instead&#xA;of the intended &quot;some.&quot;&lt;/p&gt;&#xA;" OwnerUserId="1442" LastActivityDate="2018-09-28T00:17:21.367" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24724" PostTypeId="2" ParentId="24711" CreationDate="2018-09-28T00:21:58.520" Score="1" Body="&lt;p&gt;Welcome. Many things can be done. Some simple ones are:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Option 1: Do not care and just do OLS.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Option 2: Do some transformation such as &lt;span class=&quot;math-container&quot;&gt;$\ln (1+y) - \ln (1-y)$&lt;/span&gt;, logit of &lt;span class=&quot;math-container&quot;&gt;$\frac12 (y+1)$&lt;/span&gt;, to change the range from &lt;span class=&quot;math-container&quot;&gt;$(-1,1)$&lt;/span&gt; to &lt;span class=&quot;math-container&quot;&gt;$(-\infty, \infty)$&lt;/span&gt; and do OLS. I assumed that there are no &lt;span class=&quot;math-container&quot;&gt;$\pm 1$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Option 3: Change your model. Let &lt;span class=&quot;math-container&quot;&gt;$y_{1,ij}$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$y_{2,ij}$&lt;/span&gt; be the firm-level (&lt;span class=&quot;math-container&quot;&gt;$j$&lt;/span&gt;=firm) variables from which you obtain the correlation coefficient &lt;span class=&quot;math-container&quot;&gt;$y_i$&lt;/span&gt;. As &lt;span class=&quot;math-container&quot;&gt;$y_i$&lt;/span&gt; is also obtained by regressing &lt;span class=&quot;math-container&quot;&gt;$y_{1,ij}$&lt;/span&gt; on &lt;span class=&quot;math-container&quot;&gt;$y_{2,ij}$&lt;/span&gt; (up to a scaling factor), you might want to regress &lt;span class=&quot;math-container&quot;&gt;$y_{1,ij}$&lt;/span&gt; on &lt;span class=&quot;math-container&quot;&gt;$y_{2,ij}$&lt;/span&gt; including other industry-level variables &lt;span class=&quot;math-container&quot;&gt;$x_i$&lt;/span&gt; as regressors. But in that case you need to think about which one of &lt;span class=&quot;math-container&quot;&gt;$y_{1,ij}$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$y_{2,ij}$&lt;/span&gt; to use as the dependent variable. If you are worried about endogeneity, you can also consider instrumental variable estimation, but that's a different story.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would choose Option 1 unless many correlation coefficients in the sample are very close to &lt;span class=&quot;math-container&quot;&gt;$\pm 1$&lt;/span&gt;. Note that interpretation changes in Option 2.&lt;/p&gt;&#xA;" OwnerUserId="10775" LastEditorUserId="10775" LastEditDate="2018-09-30T14:55:54.207" LastActivityDate="2018-09-30T14:55:54.207" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24725" PostTypeId="2" ParentId="24721" CreationDate="2018-09-28T01:03:23.463" Score="2" Body="&lt;p&gt;If an investor has a fixed amount to invest for a given time horizon, then a longer-term bond locks in the current long-term bond interest rate, but a short-term bond only provides this rate for a short time. After that, the short-term interest rate may be more or less favourable. Apparently the investors expect that the short-term rate will become less favourable for them after the current short-term bonds mature. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Investment is mostly about expectations, which may or may not be correct. Where the expectations come from is a more complicated question.&lt;/p&gt;&#xA;" OwnerUserId="4445" LastActivityDate="2018-09-28T01:03:23.463" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24726" PostTypeId="2" ParentId="24524" CreationDate="2018-09-28T01:19:30.950" Score="1" Body="&lt;p&gt;The space of economies can certainly be modeled as a measure space. Perturbing an economy (the parameters of preferences and production functions) generally changes the excess demand function continuously, so if there is one economy with a &quot;weird&quot; excess demand function (however defined), then there is a positive measure of them (open ball around the one weird economy). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As the number of commodities grows, and preferences for each new commodity are randomly drawn from some space, then my intuition is that the probability that at least one commodity has upward sloping demand converges to 1. The probability that all commodities have &quot;weird&quot; demand likely converges to zero. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Empirically, upward sloping demand is rare (examples of inferior goods are rare). &lt;/p&gt;&#xA;" OwnerUserId="4445" LastActivityDate="2018-09-28T01:19:30.950" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24729" PostTypeId="1" AcceptedAnswerId="24733" CreationDate="2018-09-28T07:31:04.950" Score="1" ViewCount="25" Body="&lt;p&gt;'Everybody' knows that prices are generally governed by offer &amp;amp; demand, but I am wondering on the details of the stock exchange here.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How are stock prices (the ones which are nicely listed every day in charts) are actually computed to a specific number based on various simultaneouse bids? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Do they change, if no transaction is actually taking place (but there are bids)?&#xA;And how are concurring bids dealt with?&lt;/p&gt;&#xA;" OwnerUserId="19572" LastActivityDate="2018-09-28T10:03:46.803" Title="How are final stock prices arrived at?" Tags="&lt;stock-market&gt;&lt;price&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24730" PostTypeId="1" AcceptedAnswerId="24758" CreationDate="2018-09-28T09:18:26.363" Score="0" ViewCount="148" Body="&lt;p&gt;In class I was taking notes about equivalence relations defined as:  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Given a generic relation &lt;span class=&quot;math-container&quot;&gt;$R$&lt;/span&gt; on &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$xIy$&lt;/span&gt; if both &lt;span class=&quot;math-container&quot;&gt;$xRy$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$yRx$&lt;/span&gt;&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, I don't really understand the following proposition:  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;If &lt;span class=&quot;math-container&quot;&gt;$R$&lt;/span&gt;&lt;/em&gt; (the original relation) &lt;em&gt;is reflexive and transitive, then &lt;span class=&quot;math-container&quot;&gt;$I$&lt;/span&gt;&lt;/em&gt; (the derived relation) &lt;em&gt;is reflexive, symmetric and transitive.&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand this is an instance of &lt;span class=&quot;math-container&quot;&gt;$\succsim $&lt;/span&gt; where the derived relations are &lt;span class=&quot;math-container&quot;&gt;$\sim$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\succ$&lt;/span&gt;, but the proposition holds only for the former (the strict preference obviously is not symmetric). Why is that so? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, how can I prove that &lt;span class=&quot;math-container&quot;&gt;$R$&lt;/span&gt; having the two properties leads to &lt;span class=&quot;math-container&quot;&gt;$I$&lt;/span&gt; having the same two properties + symmetry? &lt;/p&gt;&#xA;" OwnerUserId="19566" LastActivityDate="2018-09-30T04:34:13.797" Title="Doubt about equivalence relation" Tags="&lt;preferences&gt;&lt;self-study&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24731" PostTypeId="1" AcceptedAnswerId="24732" CreationDate="2018-09-28T09:27:13.400" Score="3" ViewCount="195" Body="&lt;p&gt;I'm wondering if there is a logic for the causal influence of population growth on the increase in GDP per capita.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;I guess&lt;/strong&gt;,&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;increase in population as a factor of production might move aggregate supply curve to the right, lowering the price.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;increase in population as consumers might move the aggregate demand curve to the right, increasing the price.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;In both cases, the total amount may increase. But I don't understand how these reasons combine to explain the causal effect (if any!). So, why they are so worried about low birth rate?&lt;/p&gt;&#xA;" OwnerUserId="19576" LastActivityDate="2019-05-05T03:33:51.710" Title="Causal effect of population growth on GDP per capita increase" Tags="&lt;macroeconomics&gt;&lt;population-economics&gt;" AnswerCount="3" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24732" PostTypeId="2" ParentId="24731" CreationDate="2018-09-28T09:41:46.050" Score="3" Body="&lt;p&gt;Birth rate affects not only total population but also the &lt;em&gt;age structure&lt;/em&gt; of the population.  If the birth rate over many years is below the level at which the population replaces itself, the result will be a falling population with an increasing proportion of elderly and often economically inactive people.  With a falling proportion of economically active people, GDP per capita is likely to be less than it would have been with a higher birth rate.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This effect can to some extent be offset by policies to encourage older people to continue working for longer, such as raising the age at which state pensions become payable. &lt;/p&gt;&#xA;" OwnerUserId="1417" LastActivityDate="2018-09-28T09:41:46.050" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24733" PostTypeId="2" ParentId="24729" CreationDate="2018-09-28T10:03:46.803" Score="1" Body="&lt;p&gt;Its really quite simple, the stock price you're seeing is actually the last trade that took place, the different bids are tails of the suppliers and demanders - their maximal or minimal bids&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In everyday trade the simultaneous bids arr very close, and the deals are happening all the time, more or less bids in a certain direction can point out market expectations, but in a range of minutes&#xA;This applies to high volume markets, of course&lt;/p&gt;&#xA;" OwnerUserId="19195" LastActivityDate="2018-09-28T10:03:46.803" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="24734" PostTypeId="1" CreationDate="2018-09-28T12:37:55.640" Score="1" ViewCount="159" Body="&lt;p&gt;How large is the Underground Economy in the US, and is it growing or getting smaller as a percent of GDP?&lt;/p&gt;&#xA;" OwnerUserId="19577" LastActivityDate="2018-11-07T17:44:44.523" Title="How large is the Underground Economy in the U.S" Tags="&lt;gdp&gt;&lt;currency&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24736" PostTypeId="2" ParentId="24713" CreationDate="2018-09-28T15:28:33.503" Score="2" Body="&lt;p&gt;Intuitively, one can see that the corner solutions lie on the highest possible indifference curve(for concave preferences). Thus, utility obtained will be highest on those points. The following figure(courtesy-&lt;a href=&quot;https://slideplayer.com/slide/9320004/&quot; rel=&quot;nofollow noreferrer&quot; title=&quot;Google Images&quot;&gt;Google Images&lt;/a&gt;) might help one to visualize the above statement.&lt;/p&gt;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/dINWb.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/dINWb.jpg&quot; alt=&quot;enter image description here&quot; /&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&lt;p&gt;Mathematically, it is a bit tough to visualize whats going on. However, the Kuhn Tucker conditions can tell you whether a corner solution will exist or not(note that concavity/convexity of preferences are of no use while using Kuhn-Tucker Theorem, however one needs to check for differentiability of the objective function/constraints). First of all, according to Weierstrass' Theorem, it is guaranteed that an optimum point for &lt;span class=&quot;math-container&quot;&gt;$U(x_1,x_2)$&lt;/span&gt; exists in the budget set &lt;span class=&quot;math-container&quot;&gt;$B(p_1,p_2,w)=\{(x_1,x_2):p_1 x_1 + p_2 x_2 \leq w\}$&lt;/span&gt; (only if &lt;span class=&quot;math-container&quot;&gt;$U(x_1,x_2)$&lt;/span&gt; is continuous in the given domain,i.e; the budget set). This tells us that we cannot rule out any solution/optimal point where either &lt;span class=&quot;math-container&quot;&gt;$x_1=0$&lt;/span&gt; or &lt;span class=&quot;math-container&quot;&gt;$x_2=0$&lt;/span&gt;, or both. Now, to check whether a corner solution exists or not, we can proceed as follows. Consider the maximization problem&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{gather*}&#xA;\max\ U(x_1,x_2); \\ s.t.\ p_1x_1+p_2x_2\leq w;\ x_1\geq 0, x_2\geq 0.\\&#xA;\end{gather*}&lt;/span&gt;&#xA;The Kuhn Tucker Lagrangian is given as&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{align}&#xA;L = U(x_1,x_2)+ \lambda(w-p_1x_1+p_2x_2)+ \mu_1 x_1+ \mu_2 x_2.&#xA;\end{align}&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;The Kuhn Tucker conditions are given as-&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{gather*}&#xA;\frac{\partial L}{\partial x_1}\leq0\tag{1}\\ \frac{\partial L}{\partial x_2}\leq0\tag{2}\\ \frac{\partial L}{\partial \lambda}\leq0 ,\ \frac{\partial L}{\partial \mu_1}\leq0\ ,\frac{\partial L}{\partial \mu_2}\leq0\tag{3}\\ \lambda\frac{\partial L}{\partial \lambda}=0\tag{4}\\ \mu_1\frac{\partial L}{\partial \mu_1}=0\ ,\mu_2\frac{\partial L}{\partial \mu_2}=0\tag{5}&#xA;\end{gather*}&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;The inequality signs in conditions &lt;span class=&quot;math-container&quot;&gt;$(1)$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$(2)$&lt;/span&gt; can be replaced with the equality sign, if the constraints are binding(you can read more about binding constraints/constraint qualifications from Simon and Blume).&lt;/p&gt;&#xA;&lt;p&gt;However, the given problem of corner solutions can be understood from the conditions in &lt;span class=&quot;math-container&quot;&gt;$(5)$&lt;/span&gt;, which say that &lt;span class=&quot;math-container&quot;&gt;$\mu_1 x_1=0$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\mu_2 x_2=0$&lt;/span&gt;. These equations tell us that either any one(or both) of the &lt;span class=&quot;math-container&quot;&gt;$\mu_i=0$&lt;/span&gt; or any one(or both) of the &lt;span class=&quot;math-container&quot;&gt;$x_i = 0$&lt;/span&gt;. By considering all the above cases one by one, we can figure out whether a corner solution will exist or not.&lt;/p&gt;&#xA;&lt;p&gt;For example, if the utility function is given as &lt;span class=&quot;math-container&quot;&gt;$U(x_1,x_2) = x_1 + \ln(x_2)$&lt;/span&gt;, the solutions obtained by using Kuhn Tucker theorem are-&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{gather*}&#xA;    x_1= &#xA;\begin{cases}&#xA;    \frac{w}{p_1} - 1,&amp;amp; \text{if } w&amp;gt;p_1\\&#xA;    0,              &amp;amp; \text{otherwise}&#xA;\end{cases}\\&#xA;x_2= &#xA;\begin{cases}&#xA;    \frac{p_1}{p_2} ,&amp;amp; \text{if } w&amp;gt;p_1\\&#xA;    \frac{w}{p_2},              &amp;amp; \text{otherwise}&#xA;\end{cases}&#xA;\end{gather*}&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;The corner solutions in this case are obtained whenever &lt;span class=&quot;math-container&quot;&gt;$w\leq p_1$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerUserId="16340" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2018-09-28T19:00:18.893" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24737" PostTypeId="1" CreationDate="2018-09-28T17:42:05.357" Score="0" ViewCount="77" Body="&lt;p&gt;What needs to be true about the demand function &lt;span class=&quot;math-container&quot;&gt;$z(y)$&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; is income, for the income elasticity &lt;span class=&quot;math-container&quot;&gt;$\varepsilon = \frac{dz(y)}{dy}/\frac{z(y)}{y}$&lt;/span&gt; to be always greater than one (so that the good is always a luxury)? In particular, does the demand function have to be convex in income? Would that be a sufficient condition? &lt;/p&gt;&#xA;" OwnerUserId="19579" LastActivityDate="2018-09-29T09:28:04.440" Title="Income Elasticity and Convexity of Demand in Income" Tags="&lt;consumer-theory&gt;&lt;elasticity&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24740" PostTypeId="2" ParentId="24737" CreationDate="2018-09-28T22:59:25.250" Score="1" Body="&lt;p&gt;This may not be the answer you are looking for.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What you want may be technically feasible, but just barely. What I mean is that for any &lt;span class=&quot;math-container&quot;&gt;$\delta &amp;gt; 0$&lt;/span&gt;, you cannot have the income elasticity always be larger than &lt;span class=&quot;math-container&quot;&gt;$1 + \delta$&lt;/span&gt;. The simple reason is that it would mean that the amount spent on the good &lt;em&gt;always&lt;/em&gt; increases faster than the income. Then eventually the amount spent on the good would just overtake the income, but this is, of course, a contradiction.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Income elasticity being exactly equal to one would be easy, e.g. demand derived from Cobb-Douglas.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You should also be able to construct a function &lt;span class=&quot;math-container&quot;&gt;$z(y)$&lt;/span&gt; for which&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\epsilon(y) = 1 + \frac{1}{y},&#xA;$$&lt;/span&gt;&#xA;so that &lt;span class=&quot;math-container&quot;&gt;$\epsilon(y) &amp;gt; 1$&lt;/span&gt;, although &#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\lim_{y\to \infty} \epsilon(y) = 1.&#xA;$$&lt;/span&gt;&#xA;You would need to solve a differential equation:&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{align*}&#xA;1 + \frac{1}{y} &amp;amp; = \frac{dz(y)}{dy}/\frac{z(y)}{y} \\&#xA;\\&#xA;z(y) \left(\frac{1}{y} + \frac{1}{y^2}\right) &amp;amp; = \frac{dz(y)}{dy}.&#xA;\end{align*}&lt;/span&gt;&#xA;Unfortunately I am not good at these, so I don't know what &lt;span class=&quot;math-container&quot;&gt;$z$&lt;/span&gt; yields a solution, but I don't think this is what you had in mind anyway.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2018-09-29T09:28:04.440" LastActivityDate="2018-09-29T09:28:04.440" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24741" PostTypeId="2" ParentId="15558" CreationDate="2018-09-29T00:02:49.060" Score="2" Body="&lt;p&gt;The house is taking a percentage right off the top. In 1979, the top 1% of the population's share of U.S. income, including capital gains, was hovering around 9-10%, with the top 0.1% having about 2.5-4.0%. In 2013, those percentages were 20% and 9.5%, respectively. In 1979, the bottom 50% in the U.S. earned 20% of all income. As of 2013, that share had dropped to 13%. All income group segments of the U.S. population (by quintiles) experienced real pre-tax and after-tax income gains from 1979-2013. The &quot;rising tide lifted all boats,&quot; though not evenly.&#xA;Capital and equity owners have been taking excessive profits &lt;strong&gt;because they can&lt;/strong&gt;. Labor has been left in the dust: &lt;strong&gt;because employees became satisfied&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Policies that made it happen: Taxation is less progressive; unions power has decreased or at least have not grown. See Martin Ford's 2015 book Rise of the Robots. It is just starting, and this trend is consistent for the last thirty years. Slowly but surely, jobs that used to afford a living for families have been disappearing in favor of machines, systems and outsourcing. That in itself is not a bad thing. BUT humans are not able to adapt quickly enough, and labor is slowly being cheapened compared to whiz-bang machines and systems.&lt;/p&gt;&#xA;" OwnerUserId="19581" LastEditorUserId="19195" LastEditDate="2018-11-09T00:49:37.133" LastActivityDate="2018-11-09T00:49:37.133" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24743" PostTypeId="2" ParentId="24731" CreationDate="2018-09-29T03:03:20.563" Score="1" Body="&lt;p&gt;You also might think about how things are changing ignoring the birth rate.  People are living longer after retirement.  This means that even without a change to the birth rate, there are fewer workers per retiree.  Since retirees consume but do not produce, this means that per capita growth will be slower even if per worker production growth stays the same or increases.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now add in a dropping birth rate.  A dropping current birth rate means that in twenty or thirty years (thirty is an extreme case, e.g. a doctor or lawyer), we will have fewer workers per retiree.  The dropping birth rate that happened thirty or more years ago is reflected in fewer workers now.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given the increases in longevity and the comparative lack of increases in the retirement age, the economy needs an increasing birth rate to compensate.  An alternative is an increase in immigration.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we go back and look at the supply and demand curves, your original hypothesis was that increasing the supply of labor would lower prices while increasing demand would increase them.  But in this situation, demand is staying high due to retirees while supply is dropping.  And of course, a higher birth rate now won't help with that now.  It takes twenty to thirty years.  A higher birth rate now would increase consumption (children have to eat, etc.) without immediate production benefits.  But some people worry about what will happen in the future.  &lt;/p&gt;&#xA;" OwnerUserId="68" LastActivityDate="2018-09-29T03:03:20.563" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24744" PostTypeId="2" ParentId="14197" CreationDate="2018-09-29T04:04:33.377" Score="1" Body="&lt;p&gt;Empirically yes, it seems confidence has a positive correlation with correctness. One reference is &lt;a href=&quot;https://scholar.harvard.edu/files/shleifer/files/bag.dec14_fornber.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Bordalo et al. 2018 Beliefs about gender&lt;/a&gt;, see Fig.1 for example. The actual probability of a correct answer is different from own or other people's estimate of the probability of a correct answer, but if the estimated probability is higher, then the actual probability is higher. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As to the axioms or theoretical assumptions - you can just assume that people's estimates of their correctness are increasing in the correctness. Or assume Bayesian updating about own correctness, in which case past correct guesses would increase the guesser's confidence in own correctness. The number of past correct guesses in turn is positively correlated with the guesser's actual correctness (by the Law of large numbers).&lt;/p&gt;&#xA;" OwnerUserId="4445" LastActivityDate="2018-09-29T04:04:33.377" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24745" PostTypeId="2" ParentId="5931" CreationDate="2018-09-29T04:08:26.343" Score="1" Body="&lt;p&gt;eBay seems to think that additional sellers increase its profit (not just revenue), because it advertises the option to sell on its website and tries to recruit more sellers. That's the empirical answer. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Theoretically, eBay could refuse to list the additional seller's product and not charge the seller any fees, so by revealed preference, eBay cannot be worse off with an additional seller. If eBay was forced to list every seller who comes along, then the revealed preference reasoning would fail, so then eBay may or may not be better off with an extra seller.&lt;/p&gt;&#xA;" OwnerUserId="4445" LastActivityDate="2018-09-29T04:08:26.343" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24746" PostTypeId="2" ParentId="21162" CreationDate="2018-09-29T04:19:09.410" Score="2" Body="&lt;p&gt;In one dimension if the functions &lt;span class=&quot;math-container&quot;&gt;$f_i$&lt;/span&gt; are bounded, e.g. defined on a compact interval, then yes. Take &lt;span class=&quot;math-container&quot;&gt;$g_1$&lt;/span&gt; such that it makes &lt;span class=&quot;math-container&quot;&gt;$f_1$&lt;/span&gt; almost constant, e.g. &lt;span class=&quot;math-container&quot;&gt;$g_1(x)=\frac{x}{N(\max f_1-\min f_1)}$&lt;/span&gt; where &lt;span class=&quot;math-container&quot;&gt;$N&amp;gt;0$&lt;/span&gt; is large. Take &lt;span class=&quot;math-container&quot;&gt;$g_2(x)=x$&lt;/span&gt; Then &lt;span class=&quot;math-container&quot;&gt;$g_1\circ f_1+g_2\circ f_2\approx f_2$&lt;/span&gt;, which is strictly quasiconcave by assumption. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In one dimension a strictly quasiconcave function is either strictly increasing, strictly decreasing or single-peaked.&lt;/p&gt;&#xA;" OwnerUserId="4445" LastActivityDate="2018-09-29T04:19:09.410" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24747" PostTypeId="1" CreationDate="2018-09-29T05:46:55.533" Score="1" ViewCount="41" Body="&lt;p&gt;I tried to summarize my thoughts about oil price changes, and try to understand the next weeks.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Will decrease price:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;OPEC output is higher every month, increasing supply.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;interest rates goes up, will reduce demand, less cars, less depending, less companies.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Will increase price:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Canada production outage&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;inflation, causing goods price to be increased&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;fracking extracting is costly, which is sensitive to interest rates, higher rates will cause less fracking, less supply.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I'm trying to understand to increasing factors, that released the price from 50-60\$ area into above 70\$ area.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does anyone have ideas for why we are at high levels right now (and it looks like we will get higher)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks&lt;/p&gt;&#xA;" OwnerUserId="19568" LastActivityDate="2018-09-29T13:14:45.923" Title="Crude oil price changing factors" Tags="&lt;inflation&gt;&lt;oil&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24748" PostTypeId="2" ParentId="24747" CreationDate="2018-09-29T07:12:51.080" Score="1" Body="&lt;p&gt;Why have prices gone up?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Because supply was less than demand. The price has now increased, to bring supplies onto market, and to reduce demand.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Will it go higher? No one knows. The market thinks not, otherwise prices would already have gone higher.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2018-09-29T07:12:51.080" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="24750" PostTypeId="2" ParentId="24747" CreationDate="2018-09-29T13:14:45.923" Score="1" Body="&lt;p&gt;A few fundamentals to state:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;equilibrium prices drives from  both supply and demand.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;these curves are functions of quantity.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The supply chain is an average of all MC functions of all firms.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;As you wrote, oil supply arrives from different sources at different costs and technologies: Land drilling, fracking, sea drilling etc, with different mobilizing costs: land pipes, tankers, etc.&#xA;Any technology shift changes the supply curve function **itself ** since the tech is a parameter&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Energy markets are huge, state-dependant markets. You looked at the increase of supply, as you wrote in a comment, what about the increase in demand? China and India's energy consumption is rising together with their growth...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Geo-politics is also a factor in the market, think of the impact of Iraqi and Kurd oil, with it limitations on supply or Nigerian oil for that matter, Iranian sanctions on the other hand is also an issue, and that is without mentioning Russia and Qatar's gas, their middle eastern involvement etc... &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You should also take into consideration that supply and demand and are not fully elastic (or fully inelastic) ... as I wrote, prices changes as equilibrium changes&lt;/p&gt;&#xA;" OwnerUserId="19195" LastActivityDate="2018-09-29T13:14:45.923" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24753" PostTypeId="1" CreationDate="2018-09-29T16:22:37.583" Score="0" ViewCount="59" Body="&lt;p&gt;I have an OLG model with constant level of technology and population. The utility of agent who is born in period t is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;U() = c1,t + 1/1+pC2,t+1&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My textbook asks me to write the maximization problem and FOC for the agent  who is born in period t with the assumption that agent can not refuse the consumption in any of the periods. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know how to write maximization problem &lt;/p&gt;&#xA;&#xA;&lt;p&gt;U() = c1,t + 1/1+pC2,t+1 -  max c1,t ≥0 С2,t+1 ≥0&#xA;c1t + st = wt&#xA;c2,t+1 = (1 + r,t+1)st&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The only thing which I do not get is why we need the assumtion that agent can not refuse the consumption in any of the periods. What does it give us?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am sorry of the question is obvious, I am just studying OLG model on my own and do not get everything.&lt;/p&gt;&#xA;" OwnerUserId="15976" LastActivityDate="2019-04-29T05:00:55.500" Title="Why in maximization in OLG model with 1 generations we assume that both consumptions are positive?" Tags="&lt;olg&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24754" PostTypeId="1" CreationDate="2018-09-29T17:05:56.323" Score="2" ViewCount="74" Body="&lt;p&gt;I understand the &lt;span class=&quot;math-container&quot;&gt;$MV=PQ$&lt;/span&gt; identity. I also understand the benefit for the government in some cases to having non increasing over time (even if high) values of &lt;span class=&quot;math-container&quot;&gt;$\Delta P$&lt;/span&gt; (stealth tax &amp;amp; seigneur-age &amp;amp; real gdp shock,...).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I do not understand is in what cases would the benefits (for the government) of increasing &lt;strong&gt;rates&lt;/strong&gt; (second derivatives) of inflation out weight the costs?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Because it seems to me many countries (Venezuela, Zimbabwe, apparently Iran right now) could have --yet did not-- hike short term rates (to reduce &lt;span class=&quot;math-container&quot;&gt;$\Delta M$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\Delta V$&lt;/span&gt;) when inflation (&lt;span class=&quot;math-container&quot;&gt;$\Delta P$&lt;/span&gt;) was going from 'high but stable' to 'out of control' (systematically increasing &lt;span class=&quot;math-container&quot;&gt;$\Delta P$&lt;/span&gt;). &lt;/p&gt;&#xA;" OwnerUserId="15146" LastActivityDate="2018-09-30T22:41:10.507" Title="Why hyper-inflation?" Tags="&lt;currency&gt;&lt;money-supply&gt;&lt;money&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24756" PostTypeId="1" AcceptedAnswerId="24764" CreationDate="2018-09-29T17:41:23.477" Score="5" ViewCount="383" Body="&lt;p&gt;Following the work of &lt;em&gt;Raurich et al. (2012)&lt;/em&gt; I got stuck trying to derive the average productivity starting from the following CES production function:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$Y=A\left [ \alpha K^{\frac{\sigma -1}{\sigma }}+(1-\alpha)(AL)^{\frac{\sigma -1}{\sigma }} \right ]^{\frac{\sigma}{\sigma-1 }}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The result they get is: &#xA;&lt;span class=&quot;math-container&quot;&gt;$$\left (\frac{Y}{AL}  \right )^{\frac{1-\sigma }{\sigma }}=\frac{1}{\alpha \left ( \frac{K}{AL} \right )^{\frac{\sigma-1 }{\sigma }}+(1-\alpha )}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there anyone who can help me with this?&lt;/p&gt;&#xA;" OwnerUserId="19586" LastActivityDate="2018-09-30T10:51:20.097" Title="Deriving average productivity from a CES production function" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;mathematical-economics&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24757" PostTypeId="2" ParentId="24730" CreationDate="2018-09-30T00:06:04.147" Score="2" Body="&lt;p&gt;If both &lt;span class=&quot;math-container&quot;&gt;$xRy$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$yRx$&lt;/span&gt; &lt;span class=&quot;math-container&quot;&gt;$\forall x,y \in X$&lt;/span&gt;, then the indifference relation &lt;span class=&quot;math-container&quot;&gt;$I$&lt;/span&gt; is symmetric by definition. Not all symmetric relations are equivalence relations. However, you are given that &lt;span class=&quot;math-container&quot;&gt;$R$&lt;/span&gt; is also reflexive and transitive. So we have that &lt;span class=&quot;math-container&quot;&gt;$I$&lt;/span&gt; is symmetric, reflexive, and transitive. Therefore &lt;span class=&quot;math-container&quot;&gt;$I$&lt;/span&gt;, or &lt;span class=&quot;math-container&quot;&gt;$\sim$&lt;/span&gt;, is an equivalence relation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can verify that &lt;span class=&quot;math-container&quot;&gt;$\sim$&lt;/span&gt; is an equivalence relation by reading off the definitions of the three properties. &lt;span class=&quot;math-container&quot;&gt;$R$&lt;/span&gt;, or &lt;span class=&quot;math-container&quot;&gt;$\succsim$&lt;/span&gt;, is a (weak) preference relation, also known as a total preorder. Total preorders are transitive, complete, and therefore reflexive.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Keep in mind that reflexivity and transitivity does not necessarily imply symmetry: &lt;span class=&quot;math-container&quot;&gt;$R = \{(x,x), (y,y), (x,y)\}$&lt;/span&gt; given &lt;span class=&quot;math-container&quot;&gt;$X = \{x,y\}$&lt;/span&gt; is clearly reflexive and transitive but not symmetric because &lt;span class=&quot;math-container&quot;&gt;$xRy$&lt;/span&gt; but not &lt;span class=&quot;math-container&quot;&gt;$yRx$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerUserId="14688" LastEditorUserId="14688" LastEditDate="2018-09-30T04:34:13.797" LastActivityDate="2018-09-30T04:34:13.797" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24758" PostTypeId="2" ParentId="24730" CreationDate="2018-09-30T01:26:11.193" Score="1" Body="&lt;p&gt;I believe your questions are:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;Q1.&lt;/strong&gt; Why is &lt;span class=&quot;math-container&quot;&gt;$\succ$&lt;/span&gt; not symmetric?&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&lt;strong&gt;Q2.&lt;/strong&gt;  Why is &lt;span class=&quot;math-container&quot;&gt;$\sim$&lt;/span&gt; &lt;strong&gt;(a)&lt;/strong&gt; symmetric; &lt;strong&gt;(b)&lt;/strong&gt; reflexive; and &lt;strong&gt;(c)&lt;/strong&gt; transitive?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Answers:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;A1.&lt;/strong&gt; Suppose &lt;span class=&quot;math-container&quot;&gt;$x \succ y$&lt;/span&gt;. Then by &lt;strong&gt;Definition 4&lt;/strong&gt; (refer to basic setup and definitions below), &lt;span class=&quot;math-container&quot;&gt;$x \succsim y$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$y \not\succsim x$&lt;/span&gt;. Therefore, by the same definition, &lt;span class=&quot;math-container&quot;&gt;$y \not\succ x$&lt;/span&gt;. Thus, &lt;span class=&quot;math-container&quot;&gt;$\succ$&lt;/span&gt; is not symmetric.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;A2.&lt;/strong&gt; Let &lt;span class=&quot;math-container&quot;&gt;$x,y,z\in X$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;A2(a)&lt;/strong&gt;&lt;span class=&quot;math-container&quot;&gt;$\hspace{10pt}$&lt;/span&gt; &lt;span class=&quot;math-container&quot;&gt;$x\sim y$&lt;/span&gt; &lt;span class=&quot;math-container&quot;&gt;$\hspace{10pt}$&lt;/span&gt; &lt;span class=&quot;math-container&quot;&gt;$\iff$&lt;/span&gt; &lt;span class=&quot;math-container&quot;&gt;$\hspace{10pt}$$x\succsim y$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$y\succsim x$&lt;/span&gt; (Definition 3) &lt;span class=&quot;math-container&quot;&gt;$\hspace{10pt}$&lt;/span&gt; &lt;span class=&quot;math-container&quot;&gt;$\iff$&lt;/span&gt; &lt;span class=&quot;math-container&quot;&gt;$\hspace{10pt}$$y\sim x$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;A2(b)&lt;/strong&gt; By &lt;strong&gt;Definition 2&lt;/strong&gt;, &lt;span class=&quot;math-container&quot;&gt;$x \succsim x$&lt;/span&gt;. And so, by &lt;strong&gt;Definition 3&lt;/strong&gt;, &lt;span class=&quot;math-container&quot;&gt;$x \sim x$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;A2(c)&lt;/strong&gt; Suppose &lt;span class=&quot;math-container&quot;&gt;$x\sim y$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$y\sim z$&lt;/span&gt;. (We will show that &lt;span class=&quot;math-container&quot;&gt;$x\sim z$&lt;/span&gt;.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By &lt;strong&gt;Definition 2&lt;/strong&gt;, we have &lt;span class=&quot;math-container&quot;&gt;$x\succsim y$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$y\succsim z$&lt;/span&gt;. And now by the transitivity of &lt;span class=&quot;math-container&quot;&gt;$\succsim$&lt;/span&gt;, we have &lt;span class=&quot;math-container&quot;&gt;$x\overset{1}{\succsim} z$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Similarly, we also have &lt;span class=&quot;math-container&quot;&gt;$y\succsim x$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$z\succsim y$&lt;/span&gt;. And so again by the transitivity of &lt;span class=&quot;math-container&quot;&gt;$\succsim$&lt;/span&gt;, we have &lt;span class=&quot;math-container&quot;&gt;$z\overset{2}{\succsim} x$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given &lt;span class=&quot;math-container&quot;&gt;$\overset{1}{\succsim}$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\overset{2}{\succsim}$&lt;/span&gt;, by &lt;strong&gt;Definition 3&lt;/strong&gt;, we have &lt;span class=&quot;math-container&quot;&gt;$x\sim z$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Basic setup and definitions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Definition 1.&lt;/strong&gt; A (binary) relation &lt;span class=&quot;math-container&quot;&gt;$R$&lt;/span&gt; (on a set &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt;) is:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;em&gt;Symmetric&lt;/em&gt; if for all &lt;span class=&quot;math-container&quot;&gt;$x,y\in X$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$xRy \iff yRx$&lt;/span&gt;;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;em&gt;Reflexive&lt;/em&gt; if for all &lt;span class=&quot;math-container&quot;&gt;$x\in X$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$xRx$&lt;/span&gt;;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;em&gt;Transitive&lt;/em&gt; if for all &lt;span class=&quot;math-container&quot;&gt;$x,y,z\in X$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$xRy$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$yRz$&lt;/span&gt; implies &lt;span class=&quot;math-container&quot;&gt;$xRz$&lt;/span&gt;.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Let &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; be our set of alternatives.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Definition 2.&lt;/strong&gt; Let &lt;span class=&quot;math-container&quot;&gt;$\succsim$&lt;/span&gt; be a reflexive and transitive relation on &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We interpret &lt;span class=&quot;math-container&quot;&gt;$\succsim$&lt;/span&gt; as the weakly-preferred-to relation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Definition 3.&lt;/strong&gt; &lt;span class=&quot;math-container&quot;&gt;$x \sim y$&lt;/span&gt; if &lt;span class=&quot;math-container&quot;&gt;$x \succsim y$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$y \succsim x$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We interpret &lt;span class=&quot;math-container&quot;&gt;$\sim$&lt;/span&gt; as the indifference relation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Definition 4.&lt;/strong&gt; &lt;span class=&quot;math-container&quot;&gt;$x \succ y$&lt;/span&gt; if &lt;span class=&quot;math-container&quot;&gt;$x \succsim y$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$y \not\succsim x$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We interpret &lt;span class=&quot;math-container&quot;&gt;$\succ$&lt;/span&gt; as the strictly-preferred-to relation.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastEditorDisplayName="user18" LastEditDate="2018-09-30T01:31:53.297" LastActivityDate="2018-09-30T01:31:53.297" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="24759" PostTypeId="2" ParentId="24754" CreationDate="2018-09-30T02:14:41.537" Score="2" Body="&lt;h3&gt;How central banks raise interest rates&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;This is a common misunderstanding of central banking.  The popular media portrays things as if the act of increasing interest rates prevents hyperinflation.  In truth, &quot;preventing inflation&quot; and higher interest rates are both side effects of restraining the growth of the money supply.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What central banks set is not generally interest rates but a &lt;em&gt;target&lt;/em&gt; for the interest rate.  In the United States, this is called the federal funds rate target.  Let's break this down.  Funds are simply money loaned from one bank to another, generally on an overnight basis.  The funds rate is the (weighted) average interest rate at which they loan to each other.  It's the federal funds rate because it is at the national level, not limited to one state.  That number is calculated based on market actions.  It is not government controlled.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Federal Reserve sets a target for that statistic.  If the statistic is below the target, the Fed sells bonds.  Too high, the Fed buys treasury bonds.  That puts more money in the system.  With more money, more banks have excess reserves (to loan to other banks) and fewer banks are short on reserves (needing to borrow from other banks).  As a result, the average rate falls.  Inflation increases.  Too low, and the opposite happens:  sell bonds; less money; less excess reserves; more borrowers; higher interest rates; lower inflation.  &lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Alternative tools of monetary policy&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;Are there other tools that a central bank can use?  Sure.  A central bank can change the reserve fraction, pay interest on excess reserves, or change the rate at which it loans to banks.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the US, the rate at which the Fed loans to banks is called the discount rate.  It is generally set to around the same value as the federal funds rate target.  Banks hardly ever borrow from the Fed, as the rules around it make it undesirable.  They would generally prefer to pay a premium and borrow from other banks.  But there is a limit to the premium that they will pay.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Changing the reserve fraction means changing the amount of deposits that banks must hold.  The higher it is, the less that banks can lend.  This is hard to change suddenly.  If the reserve fraction was 10% (as it currently is in the US) and is raised to 11%, that means that most every bank will have to borrow and few will have money to lend.  This would force many to borrow money from the Fed or be forced to suddenly sell assets.  They would prefer to have some notice.  Then they can save up to have 11% by the announced date.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Paying interest on excess reserves has a similar effect to changing the reserve fraction, as it increases the amount of money held as reserves.  It is more gradual than changing the reserve fraction.  However, it can also compete with banks that are trying to borrow from other banks.  The other banks may prefer the deposit interest to the loan interest.  Paying interest also costs money.  &lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Monetary policy and hyperinflation&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;Let's get back to hyperinflation countries.  The governments of those countries don't want to pay interest on excess reserves.  Even if they didn't mind the other side effects, those countries don't have the money to spend.  And they generally aren't constrained by the reserve fraction.  In a hyperinflation, times are uncertain.  Banks don't want to get stuck loaning money at an interest rate that will be lower than tomorrow's market rate.  But rates are always increasing.  So banks often refuse to loan even if they are awash in reserves.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the same reason, central banks don't increase the reserve fraction.  It won't help.  And in a hyperinflation, the central bank would want to increase the discount rate and loan less.  But as already said, central bank to bank loans are rare.  Even eliminating them will not have much of an effect.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;We're back to the one tool remaining, open market operations to try to meet a higher interest rate target.  But for those to work, the central bank has to sell government bonds in competition with the government.  The central bank has a limited amount of assets that it can sell.  Once it is out, it's helpless.  It can set any interest rate target it wants, but it lacks any way to hit it.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Meanwhile, the government retains plenty of tools to cause inflation.  For example, they can print money.  And they are likely to do so, as everything is becoming more expensive.  So they need more money just to offer the same level of services as they did previously.  So they print it.  But then everything is more expensive and they need more money.  &lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Effective policy&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;The solution of course is to lower the level of government spending instead of trying to maintain it against inflation.  But in the short term, that is extremely painful for all those that suddenly don't get the level of government support to which they are accustomed.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;They still need to do that eventually.  Because in a hyperinflation, everything only gets worse.  Because they are trying to trade a permanent increase in inflation for a temporary improvement in the economy.  Obviously trading a permanent harm for a temporary benefit is a bad deal.  But in the short term, it's hard to make that decision and go for the permanent benefit in exchange for the temporary harm.  And the longer this goes, the larger the short term harm is.  And desperate people think more about the immediate term than the long term.  That's part of what it means to be desperate.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;TL;DR&lt;/strong&gt;:  in the short term, benefits of more money seem to outweigh the harm of inflation.  And in a hyperinflation, people tend to think in the short term, trying to survive today while letting tomorrow fend for itself.  &lt;/p&gt;&#xA;" OwnerUserId="68" LastEditorUserId="68" LastEditDate="2018-09-30T22:41:10.507" LastActivityDate="2018-09-30T22:41:10.507" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24761" PostTypeId="1" AcceptedAnswerId="24766" CreationDate="2018-09-30T07:37:07.907" Score="0" ViewCount="70" Body="&lt;p&gt;Apple import iPhones manufactured by factories in China. Apple has to pay for these Chinese manufacturers. So, Apple should be in debt with Chinese manufacturers. But why do we say the US government is in debt to China?&lt;/p&gt;&#xA;" OwnerUserId="19592" LastEditorUserId="1601" LastEditDate="2018-09-30T11:18:39.633" LastActivityDate="2018-09-30T11:21:39.907" Title="Why do we say the US is in debt to China?" Tags="&lt;international-trade&gt;&lt;government-debt&gt;&lt;balance-of-trade&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24762" PostTypeId="2" ParentId="24575" CreationDate="2018-09-30T08:51:54.503" Score="4" Body="&lt;p&gt;Monopoly and competition are one of the central topics in microeconomics, so there many theories on the source of monopoly, and they are not universally applicable.  Government intervention is certainly one possible source of monopoly, but there are many others.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't think I could give a general answer that does the question justice, so I will just give links to some of the topics are related:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Cournot_competition&quot; rel=&quot;nofollow noreferrer&quot;&gt;Cournot competition&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Economies_of_scale&quot; rel=&quot;nofollow noreferrer&quot;&gt;Economies of scale&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Network_effect&quot; rel=&quot;nofollow noreferrer&quot;&gt;Network effect&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Diamond_coconut_model&quot; rel=&quot;nofollow noreferrer&quot;&gt;Diamond search paradox&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Monopolistic_competition&quot; rel=&quot;nofollow noreferrer&quot;&gt;Monopolistic competition&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Contestable_market&quot; rel=&quot;nofollow noreferrer&quot;&gt;Market contestability&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The general area is known as industrial organization.  The classic text is Jean Tirole's &quot;The Theory of Industrial Organization&quot;, though I think this only covers a small fraction of the topic.&lt;/p&gt;&#xA;" OwnerUserId="10745" LastActivityDate="2018-09-30T08:51:54.503" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="24763" PostTypeId="1" AcceptedAnswerId="24770" CreationDate="2018-09-30T10:04:56.957" Score="1" ViewCount="20" Body="&lt;p&gt;Suppose we have a country &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt; with a fixed exchange rate regime.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose that, suddenly, the foreign demand for &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt;'s made products rose up.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What will happen to &lt;span class=&quot;math-container&quot;&gt;$X-IM$&lt;/span&gt;?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As far as I can tell &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; grows and thus &lt;span class=&quot;math-container&quot;&gt;$GNP$&lt;/span&gt; grows. Finally since &lt;span class=&quot;math-container&quot;&gt;$GNP$&lt;/span&gt; grows and the exchange rate is fixed &lt;span class=&quot;math-container&quot;&gt;$IM$&lt;/span&gt; grows. So, finally we can't say anything about &lt;span class=&quot;math-container&quot;&gt;$X-IM$&lt;/span&gt;?&lt;/p&gt;&#xA;" OwnerUserId="19593" LastEditorUserId="10775" LastEditDate="2018-09-30T15:26:50.713" LastActivityDate="2018-09-30T15:26:50.713" Title="influence of growing foreign demand for local products on the net exports in a fixed exchange rate regime" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24764" PostTypeId="2" ParentId="24756" CreationDate="2018-09-30T10:51:20.097" Score="2" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/3zNON.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/3zNON.jpg&quot; alt=&quot;Solution&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is the solution to your difficulty. By the way, which text are you following? &lt;/p&gt;&#xA;" OwnerUserId="19546" LastActivityDate="2018-09-30T10:51:20.097" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="24765" PostTypeId="1" CreationDate="2018-09-30T10:52:26.770" Score="0" ViewCount="86" Body="&lt;p&gt;As the title stated, how can a person from the general public contribute to country's economy by being well-informed?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand one of the reason would be tax. If a person understands the importance of paying tax, then the person would be understand his responsibility and pay his tax promptly.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, are there any other aspects can a informed person contribute to country's economy?&lt;/p&gt;&#xA;" OwnerUserId="19594" LastActivityDate="2018-09-30T14:38:05.563" Title="Well-informed citizen can contribute better to country's economy?" Tags="&lt;political-economy&gt;&lt;public-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24766" PostTypeId="2" ParentId="24761" CreationDate="2018-09-30T11:21:39.907" Score="1" Body="&lt;p&gt;Because, regardless of private debts of Apple, the US government is in debt to China.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;As of September 2014, foreigners owned \$6.06 trillion of U.S. debt, or approximately 47% of the debt held by the public of \$12.8 trillion and 34% of the total debt of $17.8 trillion. As of 2018, the largest holders were China, Japan, Ireland, and Brazil.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/National_debt_of_the_United_States#Foreign_holdings&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://en.wikipedia.org/wiki/National_debt_of_the_United_States#Foreign_holdings&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;See also &lt;a href=&quot;http://ticdata.treasury.gov/Publish/mfh.txt&quot; rel=&quot;nofollow noreferrer&quot;&gt;MAJOR FOREIGN HOLDERS OF TREASURY SECURITIES&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2018-09-30T11:21:39.907" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="24767" PostTypeId="1" AcceptedAnswerId="24831" CreationDate="2018-09-30T14:33:00.660" Score="3" ViewCount="224" Body="&lt;p&gt;My country is facing a critical depreciation of its currency's exchange rate and the central bank has introduced a 100 percent cash margin requirement on a selected set of imports.&#xA;&#xA;&lt;li&gt;&#xA;My main problem is how this can help to stabilize the currency?&lt;/li&gt;&#xA;&lt;li&gt;The selected set of imports include some products which my country doesn't manufacture at all. So how can this help stabilize the exchange rate if people still keep consuming the imported goods because they have no other alternative?&lt;/li&gt; &lt;/p&gt;&#xA;" OwnerUserId="19595" LastActivityDate="2018-11-03T11:00:15.617" Title="How does imposing 100 percent cash margin requirement on imports help to stabilize foreign exchange reserves of a country?" Tags="&lt;exchange-rates&gt;&lt;foreign-exchange&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24768" PostTypeId="2" ParentId="24765" CreationDate="2018-09-30T14:38:05.563" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;how can a person from the general public contribute to country's&#xA;  economy by being well-informed?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Primarily, by promoting policies and pursuing models which the informed person identifies as premised on realistic arguments versus those that are detrimental or make no sense.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A well-informed individual on his or her own is unlikely to outweigh activism or lobbying that pursues adverse interests. Nonetheless, that individual has more elements [than uneducated people] to scrutinize, analyze, and --if need be-- dismantle others' arguments. At the bare minimum, the well-informed individual can reasonably discern what would be most convenient (whether domestically or for the economy as a whole).&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;I understand one of the reason would be tax. If a person understands&#xA;  the importance of paying tax, then the person would be understand his&#xA;  responsibility and pay his tax promptly.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Not necessarily. Being well-informed is not deterministic of the rationale and conclusions at which the person will arrive. The well-informed person could reach a conclusion which is the opposite of the conjecture that he or she will become enthusiastic about taxes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For instance, the individual could identify (as I personally do) that heavy taxation curtails a person's freedom, significantly complicates his or her financial planning, destroys incentives for productivity/innovation/self-improvement/etc., and even is ineffective toward the purposes of &quot;well-fare&quot; state with which politicians attempt to justify brutal levels of taxation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Additionally, notions of utility as well as time value of money might still prompt a pro-tax advocate to delay his payment of taxes instead of paying them sooner.&lt;/p&gt;&#xA;" OwnerUserId="18552" LastActivityDate="2018-09-30T14:38:05.563" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24770" PostTypeId="2" ParentId="24763" CreationDate="2018-09-30T15:26:29.150" Score="2" Body="&lt;p&gt;Yes, &lt;span class=&quot;math-container&quot;&gt;$IM$&lt;/span&gt; increases in the equilibrium, but, no, &lt;span class=&quot;math-container&quot;&gt;$IM$&lt;/span&gt; cannot increase more than &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; does.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Logical explanation: &quot;&lt;span class=&quot;math-container&quot;&gt;$\Delta X &amp;lt; \Delta IM$&lt;/span&gt; in the equilibrium&quot; means that &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt;'s GNP &lt;strong&gt;decreases&lt;/strong&gt;. When GNP decreases, we have &lt;span class=&quot;math-container&quot;&gt;$\Delta IM &amp;lt; 0$&lt;/span&gt; while &lt;span class=&quot;math-container&quot;&gt;$0 &amp;lt; \Delta X$&lt;/span&gt; so we can't have &lt;span class=&quot;math-container&quot;&gt;$\Delta X&amp;lt;\Delta IM$&lt;/span&gt;. Contradiction! We can never have &lt;span class=&quot;math-container&quot;&gt;$X-IM$&lt;/span&gt; decreasing in the equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Mathematical illustration: Consider the model &lt;span class=&quot;math-container&quot;&gt;$Y=C+I+G+X-IM$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$C=a+bY$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$IM=c+dY$&lt;/span&gt;. Then the equilibrium is &lt;span class=&quot;math-container&quot;&gt;$Y = (a-c+I+G+X)/(1-b+d)$&lt;/span&gt;. When &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; increases by &lt;span class=&quot;math-container&quot;&gt;$\Delta X$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$\Delta Y = \Delta X / (1-b+d)$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\Delta IM = d\Delta X / (1-b+d)$&lt;/span&gt;. Thus,&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\Delta X - \Delta IM = \left(1 - \frac{d}{1-b+d} \right) \Delta X = \left( \frac{1-b}{1-b+d} \right) \Delta X &amp;gt; 0.$$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="10775" LastActivityDate="2018-09-30T15:26:29.150" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24772" PostTypeId="1" CreationDate="2018-09-30T20:32:14.117" Score="2" ViewCount="48" Body="&lt;p&gt;In &lt;a href=&quot;https://www.economist.com/britain/2018/09/06/britains-unemployment-is-ultra-low-but-its-wages-are-ultra-measly&quot; rel=&quot;nofollow noreferrer&quot;&gt;this recent article&lt;/a&gt;, The Economist argues that one of the reasons behind the anaemic recent wage growth in Britain is that the recent job growth has been concentrated in lower-productivity jobs and cites the fact that &lt;strong&gt;the number of hairdressers in the UK is up 50% since 2010.&lt;/strong&gt; How can that be?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The population is probably up c. 5% since 2010, which means that population growth can't explain this increase. It also seems far-fetched that people would consume 40-50% more haircuts per person per year. (As an example, that would mean that instead of getting a haircut once every 4 weeks or 13 times per year, you now get a haircut once every 2.7 weeks or 19.5 times per year.) What am I missing?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I ask this question because I do think that the growth of low-productivity jobs plays an important role behind stagnating real wages in the UK. (A continental European politician once commented on the British economy pivoting more and more towards services by saying, &quot;you can't &lt;em&gt;all&lt;/em&gt; make a living by opening doors for each other.&quot;)&lt;/p&gt;&#xA;" OwnerUserId="13349" LastActivityDate="2018-09-30T20:32:14.117" Title="How can the number of hairdressers in the UK be up 50% since 2010?" Tags="&lt;macroeconomics&gt;&lt;labor-economics&gt;&lt;wages&gt;&lt;productivity&gt;&lt;services&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="24774" PostTypeId="1" AcceptedAnswerId="24780" CreationDate="2018-10-01T00:52:33.533" Score="4" ViewCount="622" Body="&lt;p&gt;Whenever various developing countries around the world talk about growing their economies, they talk about facilitating foreign investments and they put so much emphasis on it as if a country's economic growth can survive only if foreigners bring money into the country.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To me this is a cynic and dystopian way of thinking as you are dependent on other country's mercy, and those countries which developed themselves in the 1st phase of industrialization-wave are the only ones who rule the roost.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is it impossible for a country to grow its economy without foreign investment?&lt;/p&gt;&#xA;" OwnerDisplayName="user18806" LastEditorDisplayName="user18806" LastEditDate="2018-10-01T01:35:10.050" LastActivityDate="2018-10-01T20:27:09.597" Title="Can't a country grow its GDP without foreign investment?" Tags="&lt;gdp&gt;&lt;investment&gt;&lt;foreign-exchange&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24776" PostTypeId="2" ParentId="24753" CreationDate="2018-10-01T02:54:04.530" Score="1" Body="&lt;p&gt;I think all the textbook is trying to say is that there can be no corner solutions to your maximization problem. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Not refusing consumption in any period, I think translates to consumption in each period &gt; 0. &lt;/p&gt;&#xA;" OwnerUserId="19094" LastActivityDate="2018-10-01T02:54:04.530" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24780" PostTypeId="2" ParentId="24774" CreationDate="2018-10-01T14:19:34.610" Score="5" Body="&lt;p&gt;No, you can definitely grow GDP without foreign investment or even trade. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are 3 basic ways to grow GDP. One is increasing human capital, which includes increasing population as well as allowing women to work. Basically, anything that increases the number of people in the labor force. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Second, we have physical capital, which is where foreign investment comes in. This includes machines and computers, etc. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But both of these eventually have diminishing marginal returns. The final way is innovation, which means more efficient ways to do things, as well as new markets and ways to use goods, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But foreign investment also helps with innovation, especially in developing countries, as the investment usually involves bringing innovation from foreign countries to the developing one.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So while it is not necessary, it is definitely helpful.&lt;/p&gt;&#xA;" OwnerUserId="19608" LastEditorUserId="19608" LastEditDate="2018-10-01T17:30:07.330" LastActivityDate="2018-10-01T17:30:07.330" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24782" PostTypeId="1" AcceptedAnswerId="24788" CreationDate="2018-10-01T20:09:44.363" Score="5" ViewCount="818" Body="&lt;p&gt;I know that a stock market index (like S&amp;amp;P, NIKKEI, etc.) is computed from the prices of selected stocks, but I was wondering why the name of the currency is almost never expressed. For example, if the S&amp;amp;P price is 2927 points I assume those are dollars, but how about NIKKEI? Is its price is expressed in yen? Is DAX expressed in euro? Is there a standard in financial community?&lt;/p&gt;&#xA;" OwnerUserId="19611" LastEditorDisplayName="user18" LastEditDate="2018-10-02T06:19:10.917" LastActivityDate="2018-10-03T08:22:35.547" Title="What does a stock market index stand for?" Tags="&lt;stock-market&gt;&lt;price-index&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24783" PostTypeId="2" ParentId="24774" CreationDate="2018-10-01T20:27:09.597" Score="1" Body="&lt;p&gt;It's not impossible for a developing country to achieve economic growth without foreign investment, although in some circumstances it could be extremely difficult.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose a country's gross output in year 0 is &lt;span class=&quot;math-container&quot;&gt;$Y_0$&lt;/span&gt;. Assuming autarchy, we can write:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$Y_0 = C_0 + I_0$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where &lt;span class=&quot;math-container&quot;&gt;$C$&lt;/span&gt; is consumption and &lt;span class=&quot;math-container&quot;&gt;$I$&lt;/span&gt; is gross investment (government expenditure is assumed included within either &lt;span class=&quot;math-container&quot;&gt;$C$&lt;/span&gt; or &lt;span class=&quot;math-container&quot;&gt;$I$&lt;/span&gt;, depending upon its nature). Investment here includes not only investment in factories, equipment and infrastructure but also investment in human capital via education and training. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In order for the economy to grow by increasing its stock of capital, &lt;span class=&quot;math-container&quot;&gt;$I_0$&lt;/span&gt; must as a minimum be larger than the year's depreciation of capital (and for a worthwhile rate of growth it must be significantly larger).  While technological progress is sometimes described as a separate source of growth, the practicality often is that new techniques have to be embodied in physical equipment and require training of the workers who will apply them.  Most economic growth therefore requires additional capital.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In assessing whether such investment is possible, the implications of the implied level of consumption (&lt;span class=&quot;math-container&quot;&gt;$C_0 = Y_0 - I_0$&lt;/span&gt;) have to be considered, and here both economic and political considerations arise. A minimum economic criterion is whether consumption is sufficient to support the population at subsistence level. A stronger criterion is whether it is sufficient to support the population at the level to which it has recently been accustomed. The government, however, may well view the situation in terms of political feasibility, and focus especially on whether it can meet the expected living standards of those groups on which it mainly relies for support.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In practice, therefore the distinction between possible and impossible is imprecise.  There is a trade-off between having sufficient investment for the economy to grow and maintaining a satisfactory level of consumption. How that trade-off is addressed will depend upon the particular economic system and degree of state control. In a highly centralized economy, the balance between &lt;span class=&quot;math-container&quot;&gt;$C_0$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$I_0$&lt;/span&gt; will be largely a government decision.  In a more market-oriented economy, it will result from many separate decisions by firms and individuals. But in either case, if a country is only just above subsistence level, or if output is below trend (perhaps due to a poor harvest or natural disaster), then it is likely to be very difficult to achieve sufficient investment for growth.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In some circumstances, therefore, foreign investment may be virtually essential for growth.  In others, although not essential, it may help to mitigate the problem of achieving growth while maintaining a satisfactory level of consumption.&lt;/p&gt;&#xA;" OwnerUserId="1417" LastActivityDate="2018-10-01T20:27:09.597" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24785" PostTypeId="2" ParentId="24693" CreationDate="2018-10-01T22:18:43.537" Score="0" Body="&lt;p&gt;You didn't specify a utility function over wealth so I'm using &lt;span class=&quot;math-container&quot;&gt;$u(\cdot)$&lt;/span&gt;. Assuming that &lt;span class=&quot;math-container&quot;&gt;$x_i$&lt;/span&gt; is indeed a rate of return, the investor's optimization problem would be&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\DeclareMathOperator*{\argmax}{arg\,max}&#xA;\argmax_{\alpha \in \ [0,1]} \sum_{i=1}^{n} \pi_iu(w(1-\alpha)r + w\alpha x_i);&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;that is, the investor wishes to find the optimal &lt;span class=&quot;math-container&quot;&gt;$\alpha \in [0,1]$&lt;/span&gt; that maximizes expected utility over returns. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In words: with probability &lt;span class=&quot;math-container&quot;&gt;$\sum_{i=1}^{n} \pi_i = 1$&lt;/span&gt; the investor earns the return &lt;span class=&quot;math-container&quot;&gt;$w(1-\alpha)r$&lt;/span&gt; from the riskless asset, but with probability &lt;span class=&quot;math-container&quot;&gt;$\pi_i$&lt;/span&gt; the investor earns the return &lt;span class=&quot;math-container&quot;&gt;$w\alpha x_i$&lt;/span&gt; from the risky asset.&lt;/p&gt;&#xA;" OwnerUserId="14688" LastEditorUserId="14688" LastEditDate="2018-10-01T22:26:23.833" LastActivityDate="2018-10-01T22:26:23.833" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="24787" PostTypeId="2" ParentId="6941" CreationDate="2018-10-02T01:37:31.550" Score="1" Body="&lt;p&gt;Kenneth Rogoff mentions this idea a few times in &lt;a href=&quot;https://press.princeton.edu/titles/10798.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;The Curse of Cash&lt;/em&gt; (2016)&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;During the early history of paper money (in China), many note issues did have expiration dates. One exception was Kublai Khan's issues (p. 22).&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;During a phaseout of paper currency, one of the (many) possible measures might be to impose an expiration date, in particular on large notes (p. 95). This would increase the cost of holding cash. (If it were so desired, one could also allow for the possibility for trading in old notes for newer notes with later expiry dates.)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Expiration dates are one method for implementing low/negative interest rates (p. 165).&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;(This is not a complete answer; I am not an expert on this issue, but thought I'd just mention what I'd come across while reading this particular book.)&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastEditorDisplayName="user18" LastEditDate="2018-10-02T01:45:12.793" LastActivityDate="2018-10-02T01:45:12.793" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24788" PostTypeId="2" ParentId="24782" CreationDate="2018-10-02T05:05:53.573" Score="8" Body="&lt;p&gt;Indexes don't have units. They're indexes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An index is a ratio of two numbers. The two numbers have the same dimension. So their ratio is unit-less.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The compilers of each stock market index set a denominator which represents a base set of conditions, and they then may adjust that denominator to ensure that events that change market cap, but which should not change the index, do not change the index. The sum of the market capitalisations of all of the index members forms the numerator. These are both expressed in the domestic currency (so for the FTSE 100, the currency is GBP; for the S&amp;amp;P 500, the currency is USD)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For more, see &lt;a href=&quot;https://www.investopedia.com/ask/answers/040215/what-does-sp-500-index-measure-and-how-it-calculated.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.investopedia.com/ask/answers/040215/what-does-sp-500-index-measure-and-how-it-calculated.asp&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Stock market indices are still exposed to currency variations, because the denominator is not adjusted for currency variations, and the numerator is exposed to them: the index members' market caps are all in the same currency, and their profitability will almost always have some exposure to the currency too.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a multi-currency index, a standard currency is chosen, and then each company's market cap is converted to that currency. Again, the numerator and denominator are expressed in the same currency, so the index has no unit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The one freak in all this is the Dow Jones Industrial Average, which doesn't behave like other indexes (it's an index, but it's a straight price average, not weighted by market cap), and should, broadly speaking, just be ignored.&lt;/p&gt;&#xA;" OwnerUserId="44" LastEditorUserId="44" LastEditDate="2018-10-03T08:22:35.547" LastActivityDate="2018-10-03T08:22:35.547" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24790" PostTypeId="2" ParentId="24782" CreationDate="2018-10-02T07:49:21.393" Score="3" Body="&lt;p&gt;While stock indexes can be formally defined as unitless, they are tied to a currency because comparing market values at &lt;em&gt;different times&lt;/em&gt; requires a specific, persistent unit of account.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A simple criterion that clarifies the issue is to ask in what currency a given index is &lt;em&gt;investable&lt;/em&gt;, i.e., in what currency an ETF could be traded such that its price maintains a nearly fixed ratio to the index. For national stock indexes, this is indeed the local currency: dollars for the S&amp;amp;P 500 (and, yes, the DJIA too), yen for the Nikkei, euros for the DAX, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, you will find that US-based ETFs for &lt;em&gt;US indexes&lt;/em&gt; track the indexes directly, whereas US-based ETFs for &lt;em&gt;non-US indexes&lt;/em&gt; track the indexes multiplied by the exchange rate of the index currency relative to the dollar.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Global indexes such as MSCI World have to specify their choice of currency and may quote the index value separately in dollars, euros, etc., with different numerical values and percent returns.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Again, this is a &lt;em&gt;unit of account&lt;/em&gt; issue, as the economic substance of a stock investment is not affected by the currency in which one measures it.&lt;/p&gt;&#xA;" OwnerUserId="19618" LastActivityDate="2018-10-02T07:49:21.393" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24791" PostTypeId="1" AcceptedAnswerId="24794" CreationDate="2018-10-02T13:52:17.863" Score="3" ViewCount="272" Body="&lt;p&gt;I have a set &lt;span class=&quot;math-container&quot;&gt;$X = \{1,2,3\}$&lt;/span&gt; and a binary relation &lt;span class=&quot;math-container&quot;&gt;$B = \{(1,1),(1,2),(1,3),(2,3),(3,1)\}$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am trying to understand if this relation is complete.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The completeness definition I am using is if for each &lt;span class=&quot;math-container&quot;&gt;$x,y$&lt;/span&gt; in &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt;, either &lt;span class=&quot;math-container&quot;&gt;$xBy$&lt;/span&gt; or &lt;span class=&quot;math-container&quot;&gt;$yBx$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At first I thought &lt;span class=&quot;math-container&quot;&gt;$B$&lt;/span&gt; was complete but both &lt;span class=&quot;math-container&quot;&gt;$(2,2)$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$(3,3)$&lt;/span&gt; are not in &lt;span class=&quot;math-container&quot;&gt;$B$&lt;/span&gt;.&#xA;In the definition, if I set &lt;span class=&quot;math-container&quot;&gt;$x=2,y=2$&lt;/span&gt; then I think we should have &lt;span class=&quot;math-container&quot;&gt;$(2,2)$&lt;/span&gt; in &lt;span class=&quot;math-container&quot;&gt;$B$&lt;/span&gt;.&#xA;On the other hand, it seems meaningless to me because isn't &lt;span class=&quot;math-container&quot;&gt;$2B2$&lt;/span&gt; related with reflexivity? So for completeness do we actually need &lt;span class=&quot;math-container&quot;&gt;$(2,2) \in B$&lt;/span&gt;?&lt;/p&gt;&#xA;" OwnerUserId="19549" LastEditorUserId="14688" LastEditDate="2018-10-03T07:40:29.443" LastActivityDate="2018-10-03T07:40:29.443" Title="Completeness from an example" Tags="&lt;microeconomics&gt;&lt;preferences&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24794" PostTypeId="2" ParentId="24791" CreationDate="2018-10-02T14:39:32.563" Score="4" Body="&lt;p&gt;Yes, the relation &lt;span class=&quot;math-container&quot;&gt;$B$&lt;/span&gt; over &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; is not complete since &lt;span class=&quot;math-container&quot;&gt;$3 \in X$&lt;/span&gt; but &lt;span class=&quot;math-container&quot;&gt;$(3,3) \notin B$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The variables &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; in the completeness definition &quot;&lt;span class=&quot;math-container&quot;&gt;$\forall x,y \in X, xBy \lor yBx$&lt;/span&gt;&quot; are treated as placeholders and thus are not necessarily distinct. In fact, completeness implies reflexivity when you let &lt;span class=&quot;math-container&quot;&gt;$y = x$&lt;/span&gt; in the definition.&lt;/p&gt;&#xA;" OwnerUserId="14688" LastActivityDate="2018-10-02T14:39:32.563" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24795" PostTypeId="1" AcceptedAnswerId="24806" CreationDate="2018-10-02T15:55:18.790" Score="2" ViewCount="169" Body="&lt;p&gt;Why are the two series so different for the US? Data is here: &lt;a href=&quot;https://fred.stlouisfed.org/graph/?g=lqVJ&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://fred.stlouisfed.org/graph/?g=lqVJ&lt;/a&gt; and photo added below:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/w1fK4.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/w1fK4.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Private consumption in GDP should include all items consumer by households, whereas the CPI is a basket of &quot;representative&quot; goods. Is this part of the difference? For example, that goods not in the basket have become cheaper than those in the basket?&lt;/p&gt;&#xA;" OwnerUserId="15121" LastActivityDate="2018-10-03T06:49:52.623" Title="Why CPI differs so much from consumption deflator?" Tags="&lt;price&gt;&lt;consumption&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24800" PostTypeId="2" ParentId="23989" CreationDate="2018-10-03T01:54:00.800" Score="0" Body="&lt;p&gt;There’s two somewhat related points that give a simplified answer to your question.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;The government (central bank) sets the base interest rate in a free-floating currency.&lt;/li&gt;&#xA;&lt;li&gt;The government will set that interest rate in a manner that meets its policy objectives; the private sector has no incentive to meet those objectives on its own.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;I will outline these in turn.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we are discussing a free-floating currency (e.g., no gold conversion right), the central government is the monopoly supplier of the monetary base. Roughly speaking, all private monetary claims can be viewed as a claim on that government-issued money. As the monopoly supplier, the government can dictate the price of money - i.e., the interest rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;More specifically, private sector debt arrangements are typically set up with liquidity backstops. For example, commercial paper lines are backed with credit lines at banks. Some banks will go to other banks for backstops. However, those banks need a backstop - the central bank. In a liquidity crisis, the central bank sets the interest rate for emergency lending to banks. The interest rate for such lending becomes the base rate of interest in the economy. This rate is determined solely at the discretion of the central bankers, and thus is under control of an arm of the government.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Hyman Minsky discussed the liquidity structure of banking systems in detail; my description here is my own phrasing. The book “Stabilizing an Unstable Economy” discusses the evolution of the financial system of the United States in the post-war era.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Once we accept that the government sets the base rate of interest, how does it set it? That leads us to the whole theory of monetary economics, which I cannot hope to summarise. The standard story is that the central bank sets the interest rate to control inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why won’t the banks do this? Private sector lenders only care about getting paid back. If the economy is growing rapidly in nominal terms, it means that borrowers’ incomes should be growing - and they can easily meet debt repayments. So there is no reason to fear inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One could argue that bankers are worried about the real return on lending. However, this ignores the nature of banks. Banks are highly levered entities, and so their return on equity (what they care about) is much higher than the level of interest rates - so long as borrowers do not default. Therefore, they have no reason to care about the inflationary consequences of their lending decisions.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2018-10-03T01:54:00.800" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24805" PostTypeId="1" AcceptedAnswerId="24812" CreationDate="2018-10-03T05:23:43.060" Score="3" ViewCount="110" Body="&lt;p&gt;In the state of Mexas, two politicians (Mr. BO, or &quot;Politician 1&quot; and Mr. TC, or &quot;Politician 2&quot;) are competing intensely for a senate seat. The two politicians spend on advertising to increase the number of supporters. A political consultant finds that the optimal advertising expenditure of Mr. BO, &lt;span class=&quot;math-container&quot;&gt;$S_{1}$&lt;/span&gt;, depends on the spending &lt;span class=&quot;math-container&quot;&gt;$S_{2}$&lt;/span&gt; by Mr. TC and a &quot;likability&quot; parameter &lt;span class=&quot;math-container&quot;&gt;$\alpha$&lt;/span&gt; that influences the popularity of Mr. BO in Mexas: &lt;span class=&quot;math-container&quot;&gt;$$\text{Equation 1:  }S_{1} = f\left ( S_{2}, \alpha \right ),$$&lt;/span&gt;&#xA;where &lt;span class=&quot;math-container&quot;&gt;$f:\mathbb{R}_{+}^{2}\rightarrow \mathbb{R}$&lt;/span&gt; is twice continuously differentiable, &lt;span class=&quot;math-container&quot;&gt;$0&amp;lt;\frac{\partial f\left ( S_{2}, \alpha \right )}{\partial S}&amp;lt;1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$0&amp;lt;\frac{\partial f\left ( S_{2}, \alpha \right )}{\partial \alpha}&amp;lt;1$&lt;/span&gt; for all &lt;span class=&quot;math-container&quot;&gt;$S_{2} \geq 0$&lt;/span&gt; and all &lt;span class=&quot;math-container&quot;&gt;$\alpha \geq 0$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The optimal expenditure of politician 2 depends on the spending &lt;span class=&quot;math-container&quot;&gt;$S_{1}$&lt;/span&gt; of politician 1 and a &quot;redness&quot; parameter &lt;span class=&quot;math-container&quot;&gt;$\beta$&lt;/span&gt;, which influences how many people would stick to Mr. TC: &lt;span class=&quot;math-container&quot;&gt;$$\text{Equation 2:  }S_{2} = g\left ( S_{1}, \beta \right ),$$&lt;/span&gt;&#xA;where &lt;span class=&quot;math-container&quot;&gt;$g:\mathbb{R}_{+}^{2}\rightarrow \mathbb{R}$&lt;/span&gt; is twice continuously differentiable, &lt;span class=&quot;math-container&quot;&gt;$0&amp;lt;\frac{\partial g\left ( S_{1}, \alpha \right )}{\partial S}&amp;lt;1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$0&amp;lt;\frac{\partial g\left ( S_{1}, \alpha \right )}{\partial \alpha}&amp;lt;1$&lt;/span&gt; for all &lt;span class=&quot;math-container&quot;&gt;$S_{1} \geq 0$&lt;/span&gt; and all &lt;span class=&quot;math-container&quot;&gt;$\beta \geq 0$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The equilibrium values of &lt;span class=&quot;math-container&quot;&gt;$S_{1}$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$S_{2}$&lt;/span&gt; are given by the solution of the simultaneous equations (1) and (2). Suppose that there is a unique solution &lt;span class=&quot;math-container&quot;&gt;$S_{1}^{*}&amp;gt;0$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$S_{2}^{*}&amp;gt;0$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does an increase in &lt;span class=&quot;math-container&quot;&gt;$\alpha$&lt;/span&gt;(holding &lt;span class=&quot;math-container&quot;&gt;$\beta$&lt;/span&gt; constant) necessarily increase or necessarily decrease &lt;span class=&quot;math-container&quot;&gt;$S_{1}^{*}$&lt;/span&gt;? Explain. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My attempt:&lt;/strong&gt; Here I have used Implicit Function Theorem to answer the question, as we are essentially looking for the comparative statics of &lt;span class=&quot;math-container&quot;&gt;$\frac{\mathrm{d} S_{1}^{*} }{\mathrm{d} \alpha }$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since from equation 2, &lt;span class=&quot;math-container&quot;&gt;$S_{2}^{*} = g\left ( S_{1}^{*}, \beta \right )$&lt;/span&gt;, I substituted &lt;span class=&quot;math-container&quot;&gt;$S_{2}^{*}$&lt;/span&gt; in equation to obtain &lt;span class=&quot;math-container&quot;&gt;$$S_{1}^{*} = f\left ( g\left ( S^{*}_{1}, \beta \right ), \alpha \right ).$$&lt;/span&gt; Then since &lt;span class=&quot;math-container&quot;&gt;$$S_{1}^{*} - f\left ( g\left ( S^{*}_{1}, \beta \right ), \alpha \right ) = 0 \equiv F,$$&lt;/span&gt;&#xA;I can apply the Implicit Function Theorem (IFT) to derive &lt;span class=&quot;math-container&quot;&gt;$\frac{\mathrm{d} S_{1}^{*} }{\mathrm{d} \alpha }$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So &lt;span class=&quot;math-container&quot;&gt;$$\frac{\mathrm{d} S_{1}^{*} }{\mathrm{d} \alpha } = - \frac{\frac{\partial F}{\partial \alpha}}{\frac{\partial F}{\partial S_{1}}} = - \frac{\frac{\partial f\left (  \right )}{\partial \alpha}}{1 - \frac{\partial f \left (  \right )}{\partial g} \frac{\partial g \left (  \right )}{\partial S_{1}^{*}}} \frac{&amp;gt;}{&amp;lt;} 0.$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since we do not know the sign of the derivative &lt;span class=&quot;math-container&quot;&gt;$\frac{\partial f \left (  \right )}{\partial g}$&lt;/span&gt;, the effect of &lt;span class=&quot;math-container&quot;&gt;$\alpha$&lt;/span&gt; on &lt;span class=&quot;math-container&quot;&gt;$S^{*}_{1}$&lt;/span&gt; is ambiguous. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does my answer make sense?&lt;/p&gt;&#xA;" OwnerUserId="6592" LastActivityDate="2018-10-03T09:13:28.360" Title="Comparative statics question with an application" Tags="&lt;comparative-statics&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24806" PostTypeId="2" ParentId="24795" CreationDate="2018-10-03T05:34:17.657" Score="1" Body="&lt;p&gt;The discrepancy between these two standard measures of inflation stems mostly from the differences between the basket of goods used by each index.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The CPI is based on survey data taken from some representative sample of consumers. This data represents a basket of &quot;typical&quot; household consumption. The PCE index is also based on survey data, but taken from firms instead. PCE index data represents a basket of sales derived from firm production. It is not difficult to imagine that this discrepancy in baskets can be magnified by certain prices, corresponding to goods in the difference set, receiving a much higher weight than others, thus driving a wedge between the indices. You allude to this in your question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Additionally, and by construction, the CPI covers a smaller set of expenditures than those covered by the PCE index. The PCE index includes expenditures which are not paid for directly by the agent, such as medical care expenses from employer-provided health insurance, employee retirement payments, etc. The CPI does not take these sorts of transactions into account and instead covers strictly out-of-pocket expenses.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lastly, the evolution of baskets characterized by the two indices over time is quite different. The CPI has a &quot;stickier&quot; basket that is much more resistant to quality-change and price substitution over time than the PCE index, which directly incorporates price substitution between goods in forming its representative basket.&lt;/p&gt;&#xA;" OwnerUserId="14688" LastEditorUserId="14688" LastEditDate="2018-10-03T06:49:52.623" LastActivityDate="2018-10-03T06:49:52.623" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24809" PostTypeId="1" CreationDate="2018-10-03T07:27:13.130" Score="2" ViewCount="83" Body="&lt;p&gt;Most of the standard books/papers/reading materials prove/state the existence of a Nash Equilibrium by appealing to Sperner's Lemma, or to Brouwer's/Kakutani's FPT. However, I've recently come to know that the existence can be proved in other ways, although I wasn't able to find any relevant material regarding the same.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is, that is it really possible to prove the existence of a Nash Equilibrium using some other result(s)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would really appreciate any kind of help.&lt;/p&gt;&#xA;" OwnerUserId="16340" LastEditorUserId="16340" LastEditDate="2018-10-03T08:03:30.767" LastActivityDate="2018-10-03T08:10:46.050" Title="Proving the existence of Nash Equilibrium using alternate approaches" Tags="&lt;reference-request&gt;&lt;mathematical-economics&gt;&lt;game-theory&gt;&lt;nash-equilibrium&gt;" AnswerCount="1" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="24810" PostTypeId="2" ParentId="24809" CreationDate="2018-10-03T07:52:29.063" Score="3" Body="&lt;p&gt;It seems unlikely that an elementary proof exists, because the Kakutani fixed point theorem &lt;a href=&quot;https://link.springer.com/article/10.1186/s13663-016-0562-z&quot; rel=&quot;nofollow noreferrer&quot;&gt;follows&lt;/a&gt; from the theorem proving the existence of Nash equilibria. So this is a strong theorem.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;The rest of this answer has been made before the question has been &lt;a href=&quot;https://economics.stackexchange.com/posts/24809/revisions&quot;&gt;edited&lt;/a&gt; to specifically exclude it. (After the answer was already posted and the OP read it.)&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;There are several ways the existence of NE's in finite games can be proven.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Nash_equilibrium#Alternate_proof_using_the_Brouwer_fixed-point_theorem&quot; rel=&quot;nofollow noreferrer&quot;&gt;One can use Brouwer's fixed point theorem&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or, one can do so using Sperner's lemma, stopping by at Brouwer's as an intermediate step. &lt;a href=&quot;https://web.stanford.edu/~saberi/lecture1.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Sperner, Brouwer and Nash&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2018-10-03T08:10:46.050" LastActivityDate="2018-10-03T08:10:46.050" CommentCount="7" ContentLicense="CC BY-SA 4.0" />
  <row Id="24811" PostTypeId="1" CreationDate="2018-10-03T08:10:53.307" Score="3" ViewCount="185" Body="&lt;p&gt;Can anyone help to estimate total cost under Translog cost function. I have input output and input cost data. It would be highly appreciated if someone can provide a software demo to estimate the same is given.&lt;/p&gt;&#xA;" OwnerUserId="19631" LastEditorUserId="20995" LastEditDate="2020-05-29T10:52:32.947" LastActivityDate="2021-05-04T15:52:39.577" Title="Translog cost function" Tags="&lt;econometrics&gt;" AnswerCount="3" CommentCount="0" ClosedDate="2021-05-08T11:10:41.500" ContentLicense="CC BY-SA 4.0" />
  <row Id="24812" PostTypeId="2" ParentId="24805" CreationDate="2018-10-03T09:13:28.360" Score="3" Body="&lt;p&gt;You can obtain a definite answer for &lt;span class=&quot;math-container&quot;&gt;$$\text{sign}\left\{\frac{\mathrm{d} S_{1}^{*} }{\mathrm{d} \alpha }\right\}$$&lt;/span&gt; given the assumptions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$S_{1}^{*} - f\left ( g\left ( S^{*}_{1}, \beta \right ), \alpha \right ) = 0 \equiv F$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and the Implicit Function Theorem&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\frac{\mathrm{d} S_{1}^{*} }{\mathrm{d} \alpha } = - \frac{\partial F/\partial \alpha}{\partial F/\partial S^*_{1}} $$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;we have  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\frac{\partial F}{\partial \alpha} = -\frac{\partial f}{\partial \alpha}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\frac{\partial F}{\partial S^*_{1}} = 1-\frac{\partial f}{\partial S_2}\cdot \frac{\partial g}{\partial S^*_{1}}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For these expressions we know not only the signs but also the magnitudes. The result follows.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2018-10-03T09:13:28.360" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="24813" PostTypeId="2" ParentId="24811" CreationDate="2018-10-03T09:24:19.803" Score="1" Body="&lt;p&gt;This article might be of help: &lt;a href=&quot;https://ageconsearch.umn.edu/bitstream/122709/2/sjart_st0160.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://ageconsearch.umn.edu/bitstream/122709/2/sjart_st0160.pdf&lt;/a&gt; &lt;/p&gt;&#xA;" OwnerUserId="15121" LastActivityDate="2018-10-03T09:24:19.803" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24814" PostTypeId="1" CreationDate="2018-10-03T14:02:25.727" Score="1" ViewCount="102" Body="&lt;p&gt;I'd like to have your opinion on the following; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assuming that I'm doing a research on setting the optimal price for gasoline for a company and my client wants me to perform a study on​ customers' gasoline purchasing habits when they notice an increase in the price of gas. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have a training data on these categories: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;People who have not noticed a​ gas-price increase&#xA;  &lt;/li&gt;&#xA;&lt;li&gt;People who drive electric cars&#xA;  &lt;/li&gt;&#xA;&lt;li&gt;People who have recently noticed a​ gas-price increase&#xA;  &lt;/li&gt;&#xA;&lt;li&gt;People who ride their bikes to work&#xA;  &lt;/li&gt;&#xA;&lt;li&gt;People who ride the bus&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Where I am going to form a treatment and a control group. Though I'm not sure how to pick the categories I'll be including in the test. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My opinion (definitely not an expert), I would ignore the people who ride their bikes to work and who drive electric cars, as they are simply out of the interest of the research. And randomly distribute the other categories' members. Thing I'm not sure is about the people who ride the bus; should I include them or not? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However my other opinion is that there might be also some switches for EVs, bikes or public bus. In this case I'd better include every category in the data. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks in advance for every opinion. &lt;/p&gt;&#xA;" OwnerUserId="19633" LastActivityDate="2019-05-02T02:02:05.390" Title="Regarding the group formation in an oil-price experiment" Tags="&lt;microeconomics&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24816" PostTypeId="2" ParentId="24814" CreationDate="2018-10-03T16:08:45.323" Score="0" Body="&lt;p&gt;Not sure what information the training data gives you, but in this study it appears that you want to estimate the effect of knowledge of a (one-shot) increase in gas prices on gasoline consumption. From that research question, it is clear that the two relevant groups of comparison are&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;people who have not noticed a​ gas-price increase (&lt;strong&gt;control&lt;/strong&gt; group), and&lt;/li&gt;&#xA;&lt;li&gt;people who have recently noticed a​ gas-price increase (&lt;strong&gt;treatment&lt;/strong&gt; group).&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Depending on how rich the training data is, you could run a variety of robust models. It would also be important to not overstate your findings to your boss -- ideally you would have many such instances of gasoline price hikes, not just one: it is plausible that during the time period in question there was an external factor that made one group much more or much less likely to purchase gas, independent of the price hike. A panel set would put you in a better position to control for such factors and make more substantial claims.&lt;/p&gt;&#xA;" OwnerUserId="14688" LastEditorUserId="14688" LastEditDate="2018-10-03T23:18:27.413" LastActivityDate="2018-10-03T23:18:27.413" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24819" PostTypeId="1" AcceptedAnswerId="24829" CreationDate="2018-10-03T20:35:03.087" Score="4" ViewCount="96" Body="&lt;p&gt;If country A has a free trade agreement with country B, and country B has a free trade agreement with country C, does that mean country A effectively has a free trade agreement with country C?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the answer is “it depends what you mean by free trade”, what characteristics of the A-to-B agreement would be be conducive to it being “transitive” with the B-to-C agreement?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If A-to-B and B-to-C were perfectly “compatible” in this sense, could A ship goods directly to C or would they still have to go via B?&lt;/p&gt;&#xA;" OwnerUserId="18835" LastActivityDate="2018-10-04T07:36:13.133" Title="Is free trade transitive?" Tags="&lt;free-trade&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24820" PostTypeId="1" AcceptedAnswerId="24823" CreationDate="2018-10-03T20:37:45.623" Score="3" ViewCount="490" Body="&lt;p&gt;On the website &lt;a href=&quot;https://www.core-econ.org/&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.core-econ.org/&lt;/a&gt; in the book provided, there is an exercise 19.10. It asks whether poll tax is progressive, regressive or distributionally neutral. To answer this question of course we need to know first what is regressive, progressive and distributionally neutral tax. &#xA;First of all a poll tax is a tax levied as a fixed sum on every liable individual.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Progressive tax is a tax in which the tax rate increases as the taxable income increases.&lt;/li&gt;&#xA;&lt;li&gt;Regressive tax is the opposite, it takes larger percent from low-income earners and  lower percentage from higher income earners. &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;However I could not find the definition of distributionally neutral tax.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My question:&lt;/strong&gt; What is the definition of distributionally neutral tax?&lt;/p&gt;&#xA;" OwnerUserId="19636" LastEditorUserId="68" LastEditDate="2018-10-04T16:14:12.193" LastActivityDate="2018-10-04T16:14:12.193" Title="What is the definition of distributionally neutral tax?" Tags="&lt;taxation&gt;&lt;definition&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24821" PostTypeId="2" ParentId="24814" CreationDate="2018-10-03T22:24:24.543" Score="1" Body="&lt;p&gt;Without knowing more about your specific project, you probably want to look at difference-in-difference methodologies. It's the bread and butter of this sort of psudo-experiment. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I see you use the phrases &quot;train&quot; and &quot;test&quot;.  Be very careful, typically machine learning approaches are designed to get very good &lt;span class=&quot;math-container&quot;&gt;$\hat{Y}$&lt;/span&gt;s.  Economists in general &lt;em&gt;don't care about &lt;span class=&quot;math-container&quot;&gt;$\hat{Y}$&lt;/span&gt;s much at all&lt;/em&gt;. We care about having good &lt;span class=&quot;math-container&quot;&gt;$\hat{\beta}$&lt;/span&gt;'s. It will take some time to get used to that idea.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Naive use of traditional ML techniques will lead to highly biased estimators and very misleading estimates of &lt;span class=&quot;math-container&quot;&gt;$\hat{Y}$&lt;/span&gt; that often lead to bad policy decisions.&lt;/p&gt;&#xA;" OwnerUserId="4185" LastActivityDate="2018-10-03T22:24:24.543" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="24822" PostTypeId="2" ParentId="19846" CreationDate="2018-10-03T22:24:39.887" Score="0" Body="&lt;p&gt;Consumer surplus simply refers to the excess amount left in the hand of a consumer after the purchase of a particular commodity.&lt;/p&gt;&#xA;" OwnerUserId="19638" LastEditorUserId="1601" LastEditDate="2018-10-04T05:43:41.393" LastActivityDate="2018-10-04T05:43:41.393" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24823" PostTypeId="2" ParentId="24820" CreationDate="2018-10-03T23:11:48.927" Score="2" Body="&lt;p&gt;It depends on what the writer intended.  Here, just over halfway down &lt;a href=&quot;https://core-econ.org/the-economy/book/text/19.html#1910-redistribution-taxes-and-transfers&quot; rel=&quot;nofollow noreferrer&quot;&gt;section 19.10&lt;/a&gt;, is a part with the orange title  &lt;em&gt;Progressive and regressive redistribution&lt;/em&gt; with a paragraph saying&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;When the direct effect of a tax or transfer policy (compared to what would happen in the absence of the policy) is a reduction in inequality, it is called &lt;strong&gt;progressive&lt;/strong&gt;. We have just seen that expenditures are more progressive than taxes. If a policy’s direct effect is a rise in inequality it is called &lt;strong&gt;regressive&lt;/strong&gt;. Policies that are neither progressive nor regressive are called &lt;strong&gt;distributionally neutral&lt;/strong&gt;.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Clicking on the blue bolded words gives the definitions&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;&lt;strong&gt;progressive (policy)&lt;/strong&gt; An expenditure or transfer that increases the incomes of poorer households by more than richer households, in percentage terms.&lt;/p&gt;&#xA;&lt;p&gt;&lt;strong&gt;distributionally neutral&lt;/strong&gt; A policy that is neither progressive or regressive so that it does not alter the distribution of income.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;The definition of &lt;em&gt;regressive&lt;/em&gt; seems to be missing but presumably is something which increases the incomes of poorer households by less than richer households, in percentage terms.  Similarly, presumably all three can also be applied when the policy reduces incomes, with &lt;em&gt;progressive&lt;/em&gt; being where the richer households are hit proportionately hardest, &lt;em&gt;regressive&lt;/em&gt; being where the poorer households are hit proportionately hardest, and &lt;em&gt;distributionally neutral&lt;/em&gt; where all households are hit proportionately the same.  There will be other types, such as those which hit rich and poor proportionately the same but middle incomes differently.&lt;/p&gt;&#xA;&lt;p&gt;The key to answering the exercise comes from considering the proportionate effects on incomes of a poll tax.&lt;/p&gt;&#xA;&lt;p&gt;Other people have used &lt;em&gt;distributionally neutral&lt;/em&gt; in a different sense: for example &lt;a href=&quot;https://medium.com/@MichaelSLinden/no-a-flat-tax-cannot-be-both-revenue-distributionally-neutral-b986177d3c6f&quot; rel=&quot;nofollow noreferrer&quot;&gt;Michael Linden discussing a flat percentage tax with a single deductible&lt;/a&gt; used it to mean a result with the same distributional effect as the income and payroll taxes it might replace; he meant that the change (rather than the policy itself) should be broadly neutral on the current distributional effect of these taxes&lt;/p&gt;&#xA;" OwnerUserId="8891" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2018-10-03T23:11:48.927" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24824" PostTypeId="2" ParentId="19846" CreationDate="2018-10-04T01:22:31.080" Score="0" Body="&lt;p&gt;Consumer surplus is the difference between what the consumer would be willing to pay and what the consumer actually paid.  For example, if the consumer values the product at \$80 but the product actually sells for \$50, then &lt;span class=&quot;math-container&quot;&gt;$\$80 - \$50$&lt;/span&gt; or \$30 is the consumer surplus.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It would be the &lt;a href=&quot;https://economics.stackexchange.com/a/24822/68&quot;&gt;amount left in the consumers' pockets&lt;/a&gt; if the consumers started with the price that they would be willing to pay.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It can also be considered the surplus in utility that the consumer receives (as stated &lt;a href=&quot;https://economics.stackexchange.com/a/19848/68&quot;&gt;here&lt;/a&gt;).  The consumer would have been willing to pay \$80 in the example.  Because the consumer actually paid \$50, the consumer receives \$30 worth of utility without paying for it.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is the latter explanation that most likely leads to the name consumer &lt;em&gt;surplus&lt;/em&gt;.  Even though calling it &lt;a href=&quot;https://economics.stackexchange.com/a/19847/68&quot;&gt;consumer savings&lt;/a&gt; might be a more intuitive way of thinking about it.  &lt;/p&gt;&#xA;" OwnerUserId="68" LastActivityDate="2018-10-04T01:22:31.080" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24825" PostTypeId="1" CreationDate="2018-10-04T01:44:51.603" Score="2" ViewCount="93" Body="&lt;p&gt;I would like to hopefully get some insights on the Anscombe and Aumann Expected utility.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've read some proofs and understood the Expected Utility Theorem (VNM) which allows us to approach consumers preferences over not pre-determined lotteries or risky outcomes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, I don't manage to rationalize this way the Anscombe and Aumann expected utility, although I believe I understand the proof.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Particularly, I would like to know how I can rely heuristically the 'state space' and 'probability spaces' (other than being antecedent and image of the Aumann act).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, sometimes 'objective probabilities' are evoked as well as an explanation with horses, that I don't get.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sorry for this confusing message and thanks a lot!&lt;/p&gt;&#xA;" OwnerUserId="19272" LastActivityDate="2021-02-24T12:06:20.593" Title="Anscombe and Auman Expected Utility" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;decision-theory&gt;&lt;expected-utility&gt;&lt;measuring-utility&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24826" PostTypeId="2" ParentId="24819" CreationDate="2018-10-04T02:19:14.093" Score="3" Body="&lt;p&gt;As far as I know, free trade agreements don't automatically extend in a transitive way, but you may want to ask lawyers in international law or look it up.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In practice free trade agreements between A and B and B and C are not equivalent to an agreement between A and C, because shipping goods directly from A to C makes them subject to import and export taxes. Shipping from A to B is tax-free, and similarly from B to C, but the shipping cost may make this not worthwhile. For example when A and C are next to each other, but B is on the opposite side of the world, then low-value goods are not worth taking through B. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In contrast, if A and C had a free-trade agreement, then it would be worthwhile to ship low-value goods between them.&lt;/p&gt;&#xA;" OwnerUserId="4445" LastActivityDate="2018-10-04T02:19:14.093" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24828" PostTypeId="1" CreationDate="2018-10-04T03:38:39.050" Score="2" ViewCount="205" Body="&lt;p&gt;I haven't done a regression discontinuity design (RDD) before. I know it requires a large sample size for identification, thus I fear that my sample size is not large enough.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The study is cross-sectional, not longitudinal.&#xA;Entire sample size is around 1000, and the sample size around the cutoff point is around 100.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is it enough for a cross-sectional fuzzy RDD?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is the &quot;minimum&quot; sample size and &quot;good-enough&quot; sample size for cross-sectional fuzzy (sharp) RDD?&lt;/p&gt;&#xA;" OwnerUserId="11772" LastEditorUserId="11772" LastEditDate="2018-10-04T05:22:25.353" LastActivityDate="2018-10-04T21:49:52.353" Title="Minimum sample size for cross-sectional RDD" Tags="&lt;applied-econometrics&gt;&lt;empirical-methods&gt;&lt;identification&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24829" PostTypeId="2" ParentId="24819" CreationDate="2018-10-04T07:36:13.133" Score="4" Body="&lt;p&gt;Free trade agreements are not transitive. Each country in a free trade agreement needs to ratify it with a legislative or regulatory body. Otherwise there is no legal basis for it to function and customs officials won't be able to observe it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In practice if A and B have a free trade agreements and B and C do too, businesses can transship in the best case scenario. Or, most likely, ship from A to B, unload-unpack-repack-load using an intermediary company in B, and ship from B to C. That might cost less or more than paying import/export tariffs from A to C.&lt;/p&gt;&#xA;" OwnerUserId="6231" LastActivityDate="2018-10-04T07:36:13.133" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24830" PostTypeId="1" AcceptedAnswerId="24832" CreationDate="2018-10-04T10:01:28.870" Score="2" ViewCount="47" Body="&lt;p&gt;can you please clarify this for me?&lt;br&gt;&#xA;Gov't need money for deficit elimination, so they issuing bonds (lets say 1T, 10 years, 2%).&lt;br&gt;&#xA;Fed is buying the bonds with fresh money, so the gov't now has new 1T$ to spend.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But - I always hearing the 1T is getting to the banks, and the amount of market money is 1T x Money Multiplier.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;How does the money gets from the govt to the banks?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks.&lt;/p&gt;&#xA;" OwnerUserId="19568" LastActivityDate="2018-10-04T11:08:35.363" Title="How printed money gets to the commercial banks?" Tags="&lt;macroeconomics&gt;&lt;banking&gt;&lt;bonds&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="24831" PostTypeId="2" ParentId="24767" CreationDate="2018-10-04T10:17:06.780" Score="1" Body="&lt;p&gt;Simply because when you want to buy goods from country A, you (generally) first have to buy A's currency, which means selling yours.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And given that selling a currency exerts a downward pressure on its value, the main idea behind a 100 percent cash margin requirement is about counter-balancing the depreciation by exerting an inversely-proportional upward pressure.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That being explained, if importators do so by mobilizing already-owned and in-excess cash, there is no reason for such a policy to work... which is unlikely, say, in the case of Turkey, since domestic liquidity have already been sold, which means buying them back.&lt;/p&gt;&#xA;" OwnerUserId="10247" LastEditorUserId="10247" LastEditDate="2018-10-04T10:29:05.717" LastActivityDate="2018-10-04T10:29:05.717" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="24832" PostTypeId="2" ParentId="24830" CreationDate="2018-10-04T10:53:02.827" Score="1" Body="&lt;p&gt;Commercial banks do not &quot;get money&quot; from the government. They do so either from the FED or either from worldwide financial markets. And actually, banks can even buy gov's bonds, which in this case is the contrary of what you describe.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Conceptually, the FED simply buys bonds emitted by commercial banks. But using the word &quot;buy&quot; here is misleading. The FED is not a traditional economic agent.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;hr&gt;&#xA;First, note that the FED has two main possibilities to lower interest rates. They can do it directly by saying, &quot;ok guys, tomorrow refinancing will be less expansive&quot; or indirectly by injecting liquidity in the system, i.e. by proactively buying commercial banks' bonds for (almost or really) nothing, or even paying them interests for that -- which is equivalent to having negative interest rates!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When the FED does so (either directly or indirectly), commercial banks will be able to refinance themselves at a lower cost. Which means that at the end, these commercial banks will also be more, say, flexible, and thus will stimulate demands (here and there) in the national economy by lending money (here and there). If supplies stay constant, markets will reach a new equilibrium via prices rising due to these stimulated demands &lt;span class=&quot;math-container&quot;&gt;$\iff$&lt;/span&gt; stops deflation.&lt;/p&gt;&#xA;" OwnerUserId="10247" LastEditorUserId="10247" LastEditDate="2018-10-04T11:08:35.363" LastActivityDate="2018-10-04T11:08:35.363" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="24833" PostTypeId="1" AcceptedAnswerId="24834" CreationDate="2018-10-04T11:11:54.947" Score="4" ViewCount="176" Body="&lt;p&gt;As per my calculations, the derivative of the MR curve is given by:&#xA;&lt;span class=&quot;math-container&quot;&gt;$MR'(q)=2p'(q)+qp''(q)$&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$p(q)$&lt;/span&gt; is the inverse demand curve. Therefore,for a downward sloping demand curve, if the second derivative is large and positive, MR should actually be increasing.&#xA;However, intuitively, if demand falls, then marginal revenue should fall as well, and by a greater amount than demand. The two don't seem to match up, and that's my concern.&lt;/p&gt;&#xA;" OwnerUserId="13883" LastEditorUserId="13883" LastEditDate="2019-05-13T16:06:46.413" LastActivityDate="2019-05-13T16:06:46.413" Title="Can marginal revenue be increasing?" Tags="&lt;supply-and-demand&gt;&lt;monopoly&gt;&lt;marginal&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24834" PostTypeId="2" ParentId="24833" CreationDate="2018-10-04T12:42:50.607" Score="6" Body="&lt;p&gt;It is perfectly consistent for the marginal revenue to increase in &lt;span class=&quot;math-container&quot;&gt;$q$&lt;/span&gt;, even if the demand curve decreases.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Marginal revenue is&#xA;&lt;span class=&quot;math-container&quot;&gt;$$p(q)+ q p'(q).$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;The first term says &quot;if I sell one extra unit then I will receive an extra &lt;span class=&quot;math-container&quot;&gt;$p$&lt;/span&gt; in revenue&quot;. The larger is this effect, the higher is the MR.&lt;/li&gt;&#xA;&lt;li&gt;The second term says &quot;in order to sell one extra unit, I will have to reduce my price by &lt;span class=&quot;math-container&quot;&gt;$p'(q)$&lt;/span&gt;, which means that much less revenue on each of the &lt;span class=&quot;math-container&quot;&gt;$q$&lt;/span&gt; units I would have sold anyway&quot;. The larger is this effect, the lower is the MR.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;If &lt;span class=&quot;math-container&quot;&gt;$p''(q)&amp;gt;0$&lt;/span&gt; it means the price cut needed to sell an extra unit (the second effect above) gets smaller as we move down the demand curve. So the negative part of the marginal revenue is diminished, which can cause the marginal revenue overall to increase.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Note 1:&lt;/strong&gt; although the marginal revenue function can be increasing, it can never rise above the demand curve. Indeed, from the expression above we see that the marginal revenue is strictly below the demand curve whenever &lt;span class=&quot;math-container&quot;&gt;$p'(q)&amp;lt;0$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Note 2 (slightly more technical):&lt;/strong&gt; the possibility of an increasing marginal revenue implies a potential non-uniqueness of the solution to the profit-maximisation problem (even when marginal costs are constant). This is because there may be more than one point at which MR=MC, as the below figure shows (this figure was generated with the demand function &lt;span class=&quot;math-container&quot;&gt;$p(q)=1-q+3q^2-3q^3$&lt;/span&gt;):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/fKNk0.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/fKNk0.png&quot; alt=&quot;Non-monotonic marginal revenue function&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We only have to think about points where MR=MC and MR is decreasing (the one in the figure where MR is increasing is a local minimum for profits rather than a local maximum). The other two are both local maxima, but typically only one will be the global profit-maximising point.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Becuase dealing with cases where there are multiple potential solutions is messy, people often make an assumption to guarantee a unique solution. One such assumption is that &quot;demand is log-cocave&quot;, meaning &lt;span class=&quot;math-container&quot;&gt;$ln(p(q))$&lt;/span&gt; is concave. Let's see why this works. Demand is log concave if&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\frac{d^2\ln(p(q))}{dq^2}&amp;lt;0$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\frac{p''(q)}{p(q)}-\frac{p'(q)^2}{p(q)^2}&amp;lt;0$$&lt;/span&gt;&#xA;So if demand is log-concave we know&#xA;&lt;span class=&quot;math-container&quot;&gt;$$p''(q)&amp;lt;\frac{p'(q)^2}{p(q)}.$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can use this information to see how large we can make the derivative of the MR curve that you calculated:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\frac{d MR}{dq}=2p'(q)+qp''(q)\leq 2p'(q)+q\frac{p'(q)^2}{p(q)}.$$&lt;/span&gt;&#xA;Can this be positive? The answer is yes if&#xA;&lt;span class=&quot;math-container&quot;&gt;$$2p'(q)+q\frac{p'(q)^2}{p(q)}&amp;gt;0$$&lt;/span&gt;&#xA;i.e. if&#xA;&lt;span class=&quot;math-container&quot;&gt;$$2p(q)+qp'(q)=MR+p(q)&amp;lt;0.$$&lt;/span&gt;&#xA;(in the last line I changed the direction of the inequality because I divided by &lt;span class=&quot;math-container&quot;&gt;$p'$&lt;/span&gt;, which is negative).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We find that, given log-concave demand, &lt;span class=&quot;math-container&quot;&gt;$\frac{d MR}{dq}$&lt;/span&gt; can be positive only if &lt;span class=&quot;math-container&quot;&gt;$MR&amp;lt;0$&lt;/span&gt;. So the marginal revenue curve will never slope up in the region the firm would consider choosing.&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2018-10-06T06:48:58.370" LastActivityDate="2018-10-06T06:48:58.370" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="24836" PostTypeId="1" CreationDate="2018-10-04T14:16:51.737" Score="1" ViewCount="52" Body="&lt;p&gt;Why is 'taxes less subsidies' a part of the calculation of GDP (income approach)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is it because in the expenditure method of GDP, consumption expenditure will exceed those of the total &quot;wages and profit of firms&quot;? &lt;/p&gt;&#xA;" OwnerUserId="19292" LastActivityDate="2018-10-04T14:16:51.737" Title="'Taxes less subsidies' included in income approach of GDP" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24837" PostTypeId="1" AcceptedAnswerId="24842" CreationDate="2018-10-04T14:22:05.480" Score="1" ViewCount="59" Body="&lt;p&gt;So when QE is used (or something similar that results in printing mone), where does the newly created money go? Does some entity get free money? Why is that allowed?&lt;/p&gt;&#xA;" OwnerUserId="13081" LastActivityDate="2018-10-04T21:32:58.437" Title="Where the money from QE goes" Tags="&lt;central-banking&gt;&lt;federal-reserve&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24838" PostTypeId="1" AcceptedAnswerId="24847" CreationDate="2018-10-04T17:12:08.203" Score="1" ViewCount="154" Body="&lt;p&gt;Let´s discuss a little!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When the direct effect of a tax or transfer policy (compared to what would happen in the absence of the policy) is a reduction in inequality, it is called &lt;strong&gt;progressive policy.&lt;/strong&gt; If a policy’s direct effect is a rise in inequality it is called &lt;strong&gt;regressive&lt;/strong&gt;. Policies that are neither progressive nor regressive are called &lt;strong&gt;distributionally neutral&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the book on the website &lt;a href=&quot;https://core-econ.org/the-economy/book/text/19.html#1910-redistribution-taxes-and-transfers&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://core-econ.org/the-economy/book/text/19.html#1910-redistribution-taxes-and-transfers&lt;/a&gt; there is an exercise 19.10.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;There are question such as&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) Suppose you learn that the richest 10% of people pay 30% of income tax. Does it mean that the tax system is progressive?&#xA;2) Some governments of developing countries give scholarships for some of their best students to go to graduate school abroad. If there are no eligibility restrictions, is this policy likely to be progressive or regressive? What might justify this policy?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My answers&lt;/strong&gt; &#xA;1) From the information given we can not say whether tax system is regressive or progressive. First of all we do not know what percentage do the lower-income earners get. Secondly, if poorer people are paying less percentage we could say that the tax system is progressive. If lower-income earners pay the less or equal percentage as the richest 10% of the society then we could say that the tax is regressive.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) I do not understand exactly the question even though i translated it to my mother language. I do not understang preciecly this part ¨ If there are no eligibility restrictions, is this policy likely to be progressive or regressive? What might justify this policy?¨. However answering this questiong i would like to say that if students who got scholarship get a good education abroad and then return bqck with good knowledge and will transfer this knowledge to other citizens (for example being teacher or professor researchers) or even politicians or economists then in a long-run situation in a country could prosper. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My question&lt;/strong&gt; &#xA;What is your opinion? Do you agree with my opinion? Or you maybe can say something in contrary?&lt;/p&gt;&#xA;" OwnerUserId="19636" LastEditorUserId="19636" LastEditDate="2018-10-04T18:44:04.963" LastActivityDate="2018-10-04T21:59:29.043" Title="Tax system is progressive or regressive" Tags="&lt;monetary-policy&gt;&lt;taxation&gt;&lt;productivity&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24839" PostTypeId="2" ParentId="22686" CreationDate="2018-10-04T17:28:08.193" Score="0" Body="&lt;p&gt;There is a small catch in your explanation. If the domestic demand increases relative to foreign demand, hence domestic price level will also increase. It will have following effects:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) Since, inflation differential is a major determinant of the exchange rate, hence due to higher inflation the domestic currency will depreciate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) Exporters have an incentive to reduce Exports because domestic price level and demand  is higher and so is the revenue. The goods which were previously exported now will be sold in the domestic market. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Either way the currency will depreciate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now the question depends upon the new entrants.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think it is better to do a micro-economic analysis here.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;If the market is competitive then surely the new entrants do not face any barriers to entry.&lt;/li&gt;&#xA;&lt;li&gt;If the market is oligopolistic or government follows protectionist policy for its domestic industries then surely there is no way for the new entrants to make their way in.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;In my opinion, there are even more factors which you're missing:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Depreciation on appreciation is a short run and medium run phenomenon. The timing involved for the exporters and importers to adjust according to fluctuations in domestic demand is far less than that required for new entrants to establish their production in the country.&lt;/li&gt;&#xA;&lt;li&gt;Plus there is one more dynamic involved here. You are completely ignoring the role of expectations. Investment does not depend on current prices(demand) but on the expectations regarding future prices(demand).&lt;/li&gt;&#xA;&lt;li&gt;What if the country is politically unstable or faces a high variability in demand. Thus, it is not a good place for investors. Hence new entrants will never come in.&lt;/li&gt;&#xA;&lt;li&gt;The other part you are missing is, the cost of production involved. What if higher demand comes with higher wage rates (Wage-price spiral). The higher demand does promise a greater revenue but not lower costs and profits are the function of both revenue and costs. &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="19546" LastActivityDate="2018-10-04T17:28:08.193" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24840" PostTypeId="1" CreationDate="2018-10-04T17:36:16.533" Score="1" ViewCount="328" Body="&lt;p&gt;I have read in many books that since utility cannot be measured - so ordinal concept or comparison concept is used. &#xA;If that is so, how can one define a mathematical function for utility which gives a cardinal value for inputs.&#xA;The two things mentioned above are inconsistent with each other.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can somebody explain what I am missing here.&lt;/p&gt;&#xA;" OwnerUserId="19546" LastActivityDate="2018-10-05T15:59:36.590" Title="What is the concept of ordinal utility?" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;utility&gt;&lt;measuring-utility&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24841" PostTypeId="2" ParentId="24840" CreationDate="2018-10-04T18:21:40.867" Score="3" Body="&lt;p&gt;Suppose Alex, Bryan, and Chris run in a race. Alex is the fastest and Chris is the slowest. So far I have only given you &lt;em&gt;ordinal&lt;/em&gt; information about where they finished.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I guess you'd be okay with me taking that ordinal information and saying &quot;Alex finished first, Bryan finished second, and Chris finished third&quot;. But then I just defined a function that assigns a number to each of the ordinal places:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$f(x)=\begin{cases}1\text{ if }x=\text{Alex}\\2\text{ if }x=\text{Bryan}\\3\text{ if }x=\text{Chris}.\end{cases}$$&lt;/span&gt;&#xA;Note that the numbers 1, 2, 3 don't tell us &lt;em&gt;how much&lt;/em&gt; faster Alex was than Bryan, only that he was somewhat faster.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Utility functions are just like this: they give bigger numbers to the best alternatives. But the size of those numbers don't tell us &lt;em&gt;how much&lt;/em&gt; better the best alternative is, only that it is better. That is the sense in which the function is ordinal.&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2018-10-05T15:59:36.590" LastActivityDate="2018-10-05T15:59:36.590" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="24842" PostTypeId="2" ParentId="24837" CreationDate="2018-10-04T19:30:32.733" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;[...] where does the newly created money go?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This money is used by central banks to &quot;buy&quot; commercial banks' bonds &lt;span class=&quot;math-container&quot;&gt;$\iff$&lt;/span&gt; commercial banks are refinancing themselves &lt;span class=&quot;math-container&quot;&gt;$\iff$&lt;/span&gt; this money goes to commercial banks.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Does some entity get free money?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Yes, when central banks buy commercial banks' bonds for free, i.e. at a &lt;a href=&quot;https://en.m.wikipedia.org/wiki/Zero_interest-rate_policy&quot; rel=&quot;nofollow noreferrer&quot;&gt;0 interest rate&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Why is that allowed?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The main reason is that as counter-cyclical agents, central banks have to change reference rates to stimulate their national economies, even if sometimes doing so implies to center them on 0, or even on a negative value. Note that in the case of negative interest rates, we are talking about entities that are paid to get money.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;E.g. when refinancing themselves at a lower-than-previously cost, commercial banks are theoretically more prompt to be, say, flexible, and thus to stimulate demands (here and there) in the national economy by lending money (here and there). If supplies stay constant, markets will reach a new equilibrium via prices rising (inflation) due to these stimulated demands. Persistent inflation means new business opportunities, which in turn means growth if capacities to cut these opportunities exist domestically, or thanks to foreign direct investments.&lt;/p&gt;&#xA;" OwnerUserId="10247" LastEditorUserId="10247" LastEditDate="2018-10-04T21:32:58.437" LastActivityDate="2018-10-04T21:32:58.437" CommentCount="9" ContentLicense="CC BY-SA 4.0" />
  <row Id="24844" PostTypeId="1" AcceptedAnswerId="24925" CreationDate="2018-10-04T20:48:27.027" Score="1" ViewCount="149" Body="&lt;p&gt;I'm a monitor for a microeconomics course and a student came up with this question. That this utility function represents monotonic preferences I think it's clear. Both goods have positive and constant marginal utilities. What I think is less clear is if this preference relation is transitive. How can I assess it? &lt;/p&gt;&#xA;" OwnerUserId="18167" LastActivityDate="2018-10-10T03:34:37.793" Title="Does $U(x,y) = x^2 + y^2 + 2xy$ represent transitive, monotonic preferences?" Tags="&lt;microeconomics&gt;&lt;preferences&gt;" AnswerCount="2" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="24845" PostTypeId="1" AcceptedAnswerId="24853" CreationDate="2018-10-04T21:31:31.787" Score="5" ViewCount="309" Body="&lt;p&gt;I interested in the net effect of buying locally versus abroad.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The UK Government wants to buy a ship. It can buy from a UK or Korean shipyard. The unit price is the same for both yards: £10. A ten pound note. Nice and simple for the purpose of this example.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the purchase is from the local shipyard, then the ten-pound note is delivered to the local yard directly from the bank account of the Government, having previously been forcibly removed from other UK citizens via taxation. This wealth is then distributed throughout the UK economy, via the employees and suppliers of the shipyard.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some people advocate buying locally for this reason: they view this local economic stimulus as a positive side-effect of buying locally.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the ship is purchased from Korea, assuming perfectly efficient currency exchange, then the wealth is transferred (having been converted into the Korean currency by a foreign exchange brokerage) to a Korean company. This wealth is then distributed around the Korean economy in a similar way, and presumably the Korean economy sees the economic stimulus.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But the original ten pound note has not vanished. It is now sitting in the bank account of someone behind the foreign exchange brokerage. This ten pound note will either be saved, or converted into another currency, or spent in the UK, because the UK is the only location where it is legal tender. So the money is STILL (eventually) spent in the UK, but a little more circuitously.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is my understanding correct? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does this mean buying locally is in some sense equivalent to buying from another economy? Or where have I gone wrong?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does the situation change if Korea has the same currency as the UK?&lt;/p&gt;&#xA;" OwnerUserId="5505" LastEditorUserId="5505" LastEditDate="2018-10-04T21:56:07.030" LastActivityDate="2018-10-10T23:30:08.360" Title="Buying locally vs abroad" Tags="&lt;international-trade&gt;&lt;currency&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24846" PostTypeId="2" ParentId="24828" CreationDate="2018-10-04T21:49:52.353" Score="1" Body="&lt;p&gt;I've run RDDs on similar sample sizes and got the paper accepted at a respectable conference. It's important to run McCrary Density Tests on your sample to look for people using knowledge on the treatment assignment rule to manipulate results and - even more important - to have a clear identification strategy, a qualitative justification for what you're doing.&lt;/p&gt;&#xA;" OwnerUserId="18167" LastActivityDate="2018-10-04T21:49:52.353" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24847" PostTypeId="2" ParentId="24838" CreationDate="2018-10-04T21:59:29.043" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Suppose you learn that the richest 10% of people pay 30% of income&#xA;  tax. Does it mean that the tax system is progressive?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;You are right. It cannot be determined without knowing the income tax of lower-income earners.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;If there are no eligibility restrictions, is this policy likely to be&#xA;  progressive or regressive? What might justify this policy?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;That is even more uncertain than the previous question because it requires assumptions that are not inherent to --or implied by-- the policy. In fact, giving scholarships to some of &lt;em&gt;the best students&lt;/em&gt; contradicts that &lt;em&gt;there are no eligibility restrictions&lt;/em&gt;, but that is irrelevant.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, not all degrees (whether earned at home or abroad) lead to a profitable career. For instance, graduates in graphical design usually earn significantly less than physicians.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Second, the effect of scholarships also depends on whether those students become high-income earners and decide sever ties with their home country. This could lead to a &quot;progressive&quot; scenario of &lt;em&gt;lower inequality&lt;/em&gt; notwithstanding that the population that remains in the home country is the &lt;em&gt;poorer&lt;/em&gt; sector.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is just impossible to conjecture about the effects of the policy based on the information given.&lt;/p&gt;&#xA;" OwnerUserId="18552" LastActivityDate="2018-10-04T21:59:29.043" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24848" PostTypeId="1" AcceptedAnswerId="24855" CreationDate="2018-10-04T23:17:14.893" Score="6" ViewCount="388" Body="&lt;p&gt;I'm taking a public policy course and the textbooks that were recommended for the course are way out of sync with the course material. These are:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Gruber, Public Finance and Public Policy&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Stiglitz, Economics of the Public Sector&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which are all well and good, except they are too basic.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, in class we've derived the Samuelson condition using Lagrange multipliers and analyzed how it differs from the equilibrium with voluntary contributions. But there's nothing of the sort on these textbooks. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Our course outline is as follows:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;1.    State intervention in the economy&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;a.  Efficency&lt;/p&gt;&#xA;&#xA;&lt;p&gt;b.  Fundamental Welfare Theorems&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;2.    Market failures&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;a.  Absence of competition&lt;/p&gt;&#xA;&#xA;&lt;p&gt;b.  Externalities&lt;/p&gt;&#xA;&#xA;&lt;p&gt;c.  Public Goods&lt;/p&gt;&#xA;&#xA;&lt;p&gt;d.  Information issues&lt;/p&gt;&#xA;&#xA;&lt;p&gt;e.  Incomplete markets&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;3.     Public Goods and the Public provision of Private Goods&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;a.  Public goods: efficiency conditions&lt;/p&gt;&#xA;&#xA;&lt;p&gt;b.  Public provision of Private Goods. Rationing systems&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;4.    Externalities&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;a.  Theory of externalities&lt;/p&gt;&#xA;&#xA;&lt;p&gt;b.  Private and public sector solutions&lt;/p&gt;&#xA;&#xA;&lt;p&gt;c.  Distinction between the use of prices and quantities in solving externality issues&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;5.    Social Choice&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;a.  Issues with preference aggregation. Arrow’s Theorem&lt;/p&gt;&#xA;&#xA;&lt;p&gt;b.  Different voting systems. Median voter theorem&lt;/p&gt;&#xA;&#xA;&lt;p&gt;c.  Social welfare functions: utilitarianism, Rawlsian criteria and intermediate &#xA;cases&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;6.    Taxes&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;a.  Introduction to taxes&lt;/p&gt;&#xA;&#xA;&lt;p&gt;b.  Fiscal incidence&lt;/p&gt;&#xA;&#xA;&lt;p&gt;c.  Inefficiencies derived from imposition and their consequences for optimal &#xA;taxes&lt;/p&gt;&#xA;&#xA;&lt;p&gt;d.  Taxes and labor supply, saving and decision making&lt;/p&gt;&#xA;&#xA;&lt;p&gt;e.  Fiscal reform&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;I would appreciate immensely any sort of guidance on this front.&lt;/p&gt;&#xA;" OwnerUserId="5174" LastEditorUserId="1601" LastEditDate="2018-10-05T07:52:47.120" LastActivityDate="2019-11-06T18:43:56.177" Title="What are some good advanced level textbooks on public economics?" Tags="&lt;reference-request&gt;&lt;public-economics&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24849" PostTypeId="1" AcceptedAnswerId="24850" CreationDate="2018-10-05T00:04:28.433" Score="-1" ViewCount="1216" Body="&lt;p&gt;I need to solve the expenditure minimization in a context where &lt;span class=&quot;math-container&quot;&gt;$u(x,y) = min\{x,y\}$&lt;/span&gt;, i.e. where utility is Leontief. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The minimization problem is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\text{min}_{x,y}\,\,p_xx+p_yy \\&#xA;\text{subject}\,\,\text{to}\,\,\text{min}\{x,y\} \geq u$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know that if I had to maximize the sam utility function I had to impose the equality between the content of the curly brackets. But I am stuck in getting how should I behave in this context. Should I proceed by cases? &lt;/p&gt;&#xA;" OwnerUserId="6773" LastActivityDate="2018-10-05T01:08:18.210" Title="Expenditure minimization with Leontief utility" Tags="&lt;microeconomics&gt;&lt;leontief&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24850" PostTypeId="2" ParentId="24849" CreationDate="2018-10-05T01:08:18.210" Score="1" Body="&lt;p&gt;The Lagrangian method wouldn't be of any use, because Leontief function is not differentiable at the point of optimality/kink. However, you can consider the following approach. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;We know that for &lt;span class=&quot;math-container&quot;&gt;$U(x,y)=min\{x,y\}$&lt;/span&gt;, optimalilty occurs at the point where &lt;span class=&quot;math-container&quot;&gt;$x=y$&lt;/span&gt;. Let the budget correspondence be &lt;span class=&quot;math-container&quot;&gt;$p_1x+p_2y\leq w$&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt; is the income level. Optimal consumption bundle occurs when all the income is used up. Thus, we have &lt;span class=&quot;math-container&quot;&gt;$p_1x+p_2x= w$&lt;/span&gt; (since &lt;span class=&quot;math-container&quot;&gt;$x=y$&lt;/span&gt; at point of optimality). This gives us the demand correspondences as &lt;span class=&quot;math-container&quot;&gt;$x(\textbf{p},w)=y(\textbf{p},w)=\frac{w}{p_1+p_2}$&lt;/span&gt;. Using the demands, we can find out the &lt;em&gt;indirect utility&lt;/em&gt; as &lt;span class=&quot;math-container&quot;&gt;$v(\textbf{p},w)=U(x(\textbf{p},w),y(\textbf{p},w))=min\{\frac{w}{p_1+p_2},\frac{w}{p_1+p_2}\}=\frac{w}{p_1+p_2}$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Next, we turn towards the duality principle,i.e; for a given level of utility, we have &lt;span class=&quot;math-container&quot;&gt;$v(\textbf{p},e(\textbf{p},u))=u$&lt;/span&gt;. Thus, we have &lt;span class=&quot;math-container&quot;&gt;$\frac{e(\textbf{p},u)}{p_1+p_2}=u$&lt;/span&gt;, or &lt;span class=&quot;math-container&quot;&gt;$e(\textbf{p},u)=u(p_1+p_2)$&lt;/span&gt;. Next, we appeal to Shephard's Lemma,i.e; &lt;span class=&quot;math-container&quot;&gt;$\frac{\partial e(\textbf{p},u)}{\partial p_i}=h_i(\textbf{p},u)$&lt;/span&gt;. Notice that the expenditure function is differentiable in prices. Thus, we get &lt;span class=&quot;math-container&quot;&gt;$h_1(\textbf{p},u)=u$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$h_2(\textbf{p},u)=u$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another approach is possible. You can also solve the EMP for the standard CES utility function, and then derive the respective hicksian demands for Leontief function by taking suitable limits on the elasticity.(I don't know of any material where they've used this method, but it is possible according to theory) &lt;/p&gt;&#xA;" OwnerUserId="16340" LastActivityDate="2018-10-05T01:08:18.210" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24851" PostTypeId="2" ParentId="24845" CreationDate="2018-10-05T04:14:33.003" Score="1" Body="&lt;p&gt;The currency is not as relevant as so many other more important factors. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Buying a better ship is a very important factor. If a better ship is chosen and it is Korean, then the buyer (and seller) will benefit from their comparative advantages. I.e. instead of making British workers produce inferior ship, they can produce something they are better at instead, sell that to Koreans, and buy a better ship from them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another factor is the fairness of trade. Is the trade fair? Are there any tariffs, subsidies, dumping, theft, &lt;strong&gt;currency manipulation&lt;/strong&gt;, corruption, extortion, forced labor, etc. etc. going on? Maybe not in South Korea and UK, but generally international trade is never perfect.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;National security. Are you buying a military ship? A tanker? Is the deal big enough to be abused for political purposes?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are many more of course.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Currency element is just that one item the list that I highlighted.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That's why big deals like ships, which are more like into 10 billion pounds, usually require a lengthy public review process to go over all of these issues.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand, if we are talking about 10 pound soda bottles, then currency is about irrelevant for large to medium businesses that can fix exchange rates using Forex futures or swap contracts at virtually no cost. Different currencies is a problem for smaller businesses because accessing heavily regulated financial markets is pretty tough for them and they usually have to bear exchange rate risks and pay hefty commissions to the local banks.&lt;/p&gt;&#xA;" OwnerUserId="6231" LastActivityDate="2018-10-05T04:14:33.003" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="24853" PostTypeId="2" ParentId="24845" CreationDate="2018-10-05T08:33:06.450" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Does this mean buying locally is in some sense equivalent to buying from another economy?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It depends on how bilateraly opened are the economies of the countries that are in trade interactions.  To get an idea of which country ultimately benefits the most from those trade interactions,  the sign of the Uk-to-SKorea-trade-balance is likely to be a good proxy. A positive sign would mean that wealth redistribution due to these trade interactions are greater locally than abroad. But still, remembering that wealth concretly consists of incomes stemming from labor and dividends, its redistribution is strongly related to having (or not) world-wide shareholders and local workers (that are also consumers) that mainly (in value) buy goods locally. And if what they buy locally is actually also mainly produced locally, i.e. the Uk-to-World-trade-balance is positive, we can reasonably think that wealth redistribution mainly occurs at the domestic level. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Why is the consideration of trade deficits/surpluses relevant?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Trade deficits/surpluses are good proxies of how netportable (somehow exportable &lt;span class=&quot;math-container&quot;&gt;$-$&lt;/span&gt; importable) the aggregated purchasing powers of coutries in trade interactions are. Indeed, the idea is that the difference between &lt;em&gt;buying locally versus abroad&lt;/em&gt; vanishes if owning/accessing foreign markets is as easy as owning/accessing local markets -- except for workers who would be shareholders of nothing, which is rather unlikely: we all have a savings account(?) Not that obvious.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In the scenario in my question the ten pound note ends up sitting in the account of someone backing the foreign exchange broker.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The ten pount note is an asset that has its own value in South Korea's currency.  If you assume that currency exchange markets are perfectly efficient, there is not point in considering transitory states and only the &lt;em&gt;final&lt;/em&gt; usage matters. Thus, the definition you make of &lt;em&gt;final&lt;/em&gt; (and &lt;em&gt;transitory&lt;/em&gt;) is of first importance and is contextual to a specific question, with an explicitly formalized time horizon. Moreover, when sitting in the account of someone backing the broker, the ten pound note can be used to create money if, say, it is &lt;em&gt;short-sold&lt;/em&gt; or &lt;em&gt;lended&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Can we agree that the ten pound note will be either at rest in a repository (bank account/under a bed) […]&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Incidentally, even the fact of having it really at rest in a repository is very unlikely to be neutral : this will have impact on the solvency of the depositor. With a higher solvency she can benefit from lower interest rates and/or from better leverage effects. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Can we agree that the ten pound note will […] be spent in the UK economy (as that is the only accepting economy)?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The point is that this ten pound note may stay &quot;unused&quot; for long periods of time and simply be considered as a traditional asset, sold here and there. The amounts that would be collected during sales could be used all around the world. However, is this an observed behavior ? I.e &lt;em&gt;Is British pount used as a safe haven value?&lt;/em&gt; If the answer is &lt;em&gt;No&lt;/em&gt;, then indeed a UK note is very likely to be spent locally as that is the only accepting economy.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;At best I see a difference in the speed of money with respect to spending locally vs abroad. […] So the only real difference between local and abroad is efficiency of spending (fees, speed of money).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;IMO, this summarizes well the idea &lt;span class=&quot;math-container&quot;&gt;$+$&lt;/span&gt; how &lt;strong&gt;&lt;em&gt;bilateraly&lt;/em&gt;&lt;/strong&gt; opened are the economies of the countries that are in trade interactions. On the other hand, and strictly speaking about the 10 pound note as such, this additionally complexifies our story by outlining that if this speed is &quot;low&quot; and relative-to-dollar inflation &quot;high&quot;, the note of 10£@year0 may worth ~0.00£ in year0-based real terms many years later.&lt;/p&gt;&#xA;" OwnerUserId="10247" LastEditorUserId="10247" LastEditDate="2018-10-10T23:30:08.360" LastActivityDate="2018-10-10T23:30:08.360" CommentCount="10" ContentLicense="CC BY-SA 4.0" />
  <row Id="24855" PostTypeId="2" ParentId="24848" CreationDate="2018-10-05T12:11:35.653" Score="6" Body="&lt;p&gt;The best book in my opinion for your case is definitely &lt;a href=&quot;https://mitpress.mit.edu/books/intermediate-public-economics-second-edition&quot; rel=&quot;nofollow noreferrer&quot;&gt;Intermediate Public Economics&lt;/a&gt; by Jean Hindriks and Gareth D. Myles. It is often used as a standard text for public finance at your level and covers most of the material you need in an interesting and accessible way.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastEditorUserId="5557" LastEditDate="2019-11-06T18:43:56.177" LastActivityDate="2019-11-06T18:43:56.177" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24856" PostTypeId="1" CreationDate="2018-10-05T13:35:35.600" Score="1" ViewCount="124" Body="&lt;p&gt;I have a very basic question on the somewhat cryptic Open Market Operations. So, from what I understand, say the Fed wants to reduce interest rates (increase monetary base). It will firs buy a bond by writing a cheque to the security holder, the cheque is deposited in a commerical bank, which then deposits this in the central bank. The reserve account of the central bank is credited, and the commercial bank is then able to use these &quot;excess reserves&quot; to create fresh loans- injecting money in the economy.&#xA;I guess my question is: when the issuer of the bond (say the government) has to pay back to the security holder (central bank), wont it decrease money supply then? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks!&lt;/p&gt;&#xA;" OwnerUserId="5233" LastActivityDate="2020-04-13T20:39:56.740" Title="Question on Open Market Operations" Tags="&lt;monetary-policy&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24858" PostTypeId="2" ParentId="24856" CreationDate="2018-10-05T14:28:16.113" Score="-1" Body="&lt;p&gt;Your question reversed the order... If the central bank issues the bond, its gets money (thus decreasing the amount of money in the system),&#xA;it pays the money &lt;strong&gt;back&lt;/strong&gt; throughout a certain period of time, then money goes back to circulation&#xA;But by that time, the central bank can issue new bonds and repeat the process &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Essentially, central banks manages a balance&#xA;Of course the catch is it pays money it *invents *... &lt;/p&gt;&#xA;" OwnerUserId="19195" LastActivityDate="2018-10-05T14:28:16.113" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24859" PostTypeId="1" CreationDate="2018-10-05T18:15:51.027" Score="1" ViewCount="25" Body="&lt;p&gt;Whenever the topic of Social Security solvency comes up, the consensus is that benefits for future generations have to be cut, mainly because of two reasons:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;People are living longer.&lt;/li&gt;&#xA;&lt;li&gt;There are more people retiring than people contributing to the system.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I understand the first reason, but the second doesn't make sense to me, mathematically speaking: the retirement of an older generation should not be affected by the number of contributors in the younger generation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In simplistic terms, if the older generation is composed of 100 people, those 100 people paid payroll taxes during their working years, so by the time they retire, there should be 100 people's worth of reserves to fund their retirement. The number of contributors in the younger generation is irrelevant.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Inflation should not be a factor either since, at least in the United States, reserves are invested in intra-government bonds.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, why do I constantly hear the retiree to contributor ratio as a reason why Social Security benefits will have to be cut for future generations?&lt;/p&gt;&#xA;" OwnerUserId="4380" LastActivityDate="2018-10-06T09:02:38.293" Title="Why does the retiree to contributor ratio matter when discussing the solvency of Social Security?" Tags="&lt;united-states&gt;&lt;social-security&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24860" PostTypeId="2" ParentId="24845" CreationDate="2018-10-05T20:19:38.710" Score="0" Body="&lt;p&gt;If Britain is buying a ship from Korea, it needs to pay for that ship. If it has to pay for the ship, then it needs to sell other goods abroad, or it won't be able to pay.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the issue of buying locally is more complicated, and it cannot be properly addressed unless we take into account the national strategy of Britain. It is not merely a problem that if Britain buys abroad, it will be &quot;exporting jobs&quot;, as it is often expressed. The actual question is, &quot;what is the importance of ships in British economic strategy?&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If Britain thinks that ships are of central importance - they are a commercial nation, with a maritime vocation, and need strong fleets to make their trades abroad - then they probably should have a dynamic ship industry, lest they be placed in a complicated position if international events lead to them being unable to import ships (suppose that they go to war with Korea, of that Korea decides to no more sell ships to them).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If on the other hand they think ships are unimportant (for instance, the important thing is the computer system that is used to drive the ship), then they probably should buy ships from Korea, or Greece, or whomever offers the best price/quality relation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand, your reasoning is only valid if the ships bought have a positive role in the British economy. Suppose Britain was like some oil exporting countries, where the local elites strategy is merely to buy as much foreign gadgets as possible for the enjoyment of the rich. Buying yachts for the super-rich to entertain themselves won't have the same economic effects as buying cargo ships that will boost your foreign commerce.&lt;/p&gt;&#xA;" OwnerUserId="15747" LastActivityDate="2018-10-05T20:19:38.710" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24861" PostTypeId="1" AcceptedAnswerId="24865" CreationDate="2018-10-05T21:42:26.550" Score="2" ViewCount="116" Body="&lt;p&gt;I am working with a consumption set &lt;span class=&quot;math-container&quot;&gt;$X = R_+^2$&lt;/span&gt; and preferences that are complete, transitive, continuous and strongly monotonically decreasing. The economy is characterized by the presence of two economic bads. I need to show that &quot;there always exist a solution to the consumer's utility maximization problem&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My point is that if I had a continuous utility function over a compact budget set, using Weierstrass theorem I have the certainty of the function reaching its extrema. The problem here, if I am right, is that the budget set is no longer bounded and thus neither compact. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are there other results I can use to show the statement? &lt;/p&gt;&#xA;" OwnerUserId="6773" LastActivityDate="2018-10-06T06:46:45.070" Title="Existence of maximum utility with two bads" Tags="&lt;microeconomics&gt;&lt;utility&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="24863" PostTypeId="1" CreationDate="2018-10-06T05:11:07.573" Score="1" ViewCount="18" Body="&lt;p&gt;Profits are the difference between input and output prices. So profits would only fall in those industries where output price fell faster than input price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there any reason deflation would reduce profits in all industries rather than just some?&lt;/p&gt;&#xA;" OwnerUserId="19657" LastActivityDate="2018-10-06T08:56:34.260" Title="Is there any reason deflation would reduce profits?" Tags="&lt;finance&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24864" PostTypeId="2" ParentId="24734" CreationDate="2018-10-06T05:55:07.537" Score="2" Body="&lt;p&gt;There has been some research on this. For example, see the papers by Cagan (1958), Tanzi (1983) and Schneider (2007), Schneider et. al (2010). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you would like a survey kind of thing, there is a staff paper from St. Louis Fed: Restrepo-Echavarria (2015). Link: &lt;a href=&quot;https://www.stlouisfed.org/publications/regional-economist/january-2015/underground-economy&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.stlouisfed.org/publications/regional-economist/january-2015/underground-economy&lt;/a&gt;&#xA;and also Schneider and Enste (2000).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Based on Table 3.3.3 (page 24) of Schneider et. al (2010) and the discussion (page 17-19 of same paper) which makes me believe that the numbers on the table are percentage of GDP, USA moved from 8.8% in 1999 to 8.4% in 2007 with a country average of 8.6% in this time period. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that (as these papers would mention) there is significant debate about defining and estimating &quot;shadow economy&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;References&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Cagan, Phillip. &quot;The Demand for Currency Relative to the Total Money Supply.&quot; Journal of Political Economy, August 1958, Vol. 66, No. 4, pp. 302-28.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Restrepo-Echavarria. &quot;Measuring Underground Economy Can Be Done, but It Is Difficult&quot; &#xA;Federal Reserve Bank of St. Louis The Regional Economist, First Quarter 2015, Vol. 23, No. 1&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Schneider, Friedrich. &quot;Shadow Economies and Corruption All Over the World: New Estimates for 145 Countries.&quot; Economics: The Open-Access, Open-Assessment E-Journal, July 2007, Vol. 1, No. 2007-9, pp. 1-66.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Schneider, Friedrich &amp;amp; Buehn, Andreas &amp;amp; Montenegro, Claudio E. &quot;Shadow economies all over the world : new estimates for 162 countries from 1999 to 2007,&quot; , 2010, Policy Research Working Paper Series 5356, The World Bank.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Schneider, F. and Enste, D. Shadow Economies: Size, Causes, and Consequences. The Journal of Economic Literature, 2000 , 38(1): 77–114. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Tanzi, Vito. &quot;The Underground Economy in the United States: Estimates and Implications.&quot; Staff Papers—International Monetary Fund, 1983, Vol. 30, No. 2, pp. 283-305.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="19094" LastActivityDate="2018-10-06T05:55:07.537" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24865" PostTypeId="2" ParentId="24861" CreationDate="2018-10-06T06:46:45.070" Score="3" Body="&lt;p&gt;I assume, by a &lt;strong&gt;strongly monotonically decreasing&lt;/strong&gt; preference &lt;span class=&quot;math-container&quot;&gt;$\succsim$&lt;/span&gt;, you mean: for all &lt;span class=&quot;math-container&quot;&gt;$x,y\in\mathbb R^2_+$&lt;/span&gt;,&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;x\succ y \text{ only if $x\le y$ and $x\ne y$}. &#xA;\end{equation}&lt;/span&gt;&#xA;Then it is clear that &lt;span class=&quot;math-container&quot;&gt;$(0,0)$&lt;/span&gt; is the most preferred bundle in &lt;span class=&quot;math-container&quot;&gt;$\mathbb R^2_+$&lt;/span&gt;, i.e. &lt;span class=&quot;math-container&quot;&gt;$(0,0)\succ x$&lt;/span&gt; for all &lt;span class=&quot;math-container&quot;&gt;$x\in\mathbb R^2$&lt;/span&gt; such that &lt;span class=&quot;math-container&quot;&gt;$x\ne (0,0)$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, any utility function representing &lt;span class=&quot;math-container&quot;&gt;$\succsim$&lt;/span&gt; must also satisfy &lt;span class=&quot;math-container&quot;&gt;$u(0,0)\ge u(x)$&lt;/span&gt; for all &lt;span class=&quot;math-container&quot;&gt;$x\in\mathbb R^2_+$&lt;/span&gt;. Hence, &#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;(0,0)=\arg\max_{x} u(x)&#xA;\end{equation}&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2018-10-06T06:46:45.070" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="24866" PostTypeId="1" AcceptedAnswerId="24867" CreationDate="2018-10-06T07:09:09.623" Score="2" ViewCount="74" Body="&lt;p&gt;This is based off an &lt;a href=&quot;https://economics.stackexchange.com/a/24834/19094&quot;&gt;answer&lt;/a&gt; given by @Ubiquitous in here: &lt;a href=&quot;https://economics.stackexchange.com/questions/24833/can-marginal-revenue-be-increasing/24834?noredirect=1#comment39250_24834&quot;&gt;Can marginal revenue be increasing?&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The solution he proposed involved a MR curve that sloped down, then up and then down. His equation for the demand curve (for example) to generate such a MR is &lt;span class=&quot;math-container&quot;&gt;$P(q)=1−q+3q^2−3q^3$&lt;/span&gt; (see comments below his answer).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there an Utility function that can generate a demand curve which gives, say an U-shape looking MR?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note: I am not looking for an utility function that replicates Ubiquitous's MR. &lt;/p&gt;&#xA;" OwnerUserId="19094" LastActivityDate="2018-10-07T14:20:02.713" Title="Utility function that generates a demand curve which will have an U shaped MR curve" Tags="&lt;microeconomics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24867" PostTypeId="2" ParentId="24866" CreationDate="2018-10-06T07:50:14.423" Score="3" Body="&lt;p&gt;Let &lt;span class=&quot;math-container&quot;&gt;$v(x) = \int  1 − x + 3x^2 − 3x^3 \text{d}x$&lt;/span&gt;.&#xA;The quasi linear utility function&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;U(x,y) = v(x) + y&#xA;$$&lt;/span&gt;&#xA;generates the &lt;a href=&quot;https://economics.stackexchange.com/a/24834/1601&quot;&gt;inverse demand curve given by Ubiquitous&lt;/a&gt; if income &lt;span class=&quot;math-container&quot;&gt;$I$&lt;/span&gt; is large enough and &lt;span class=&quot;math-container&quot;&gt;$p_y = 1$&lt;/span&gt;, as&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{align*}&#xA;|MRS(x,y)| &amp;amp; = p_x \\&#xA;\\&#xA;v'(x) &amp;amp; = p_x \\&#xA;\\&#xA;1 − x + 3x^2 − 3x^3 &amp;amp; = p_x.&#xA;\end{align*}&lt;/span&gt;&#xA;Hence it will also result in the same &lt;span class=&quot;math-container&quot;&gt;$MR$&lt;/span&gt; for &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;P.s.: I have not checked if &lt;span class=&quot;math-container&quot;&gt;$U(x,y)$&lt;/span&gt; is convex, so second order conditions may need to be examined here. Note that &lt;span class=&quot;math-container&quot;&gt;$U(x,y)$&lt;/span&gt; need not be convex everywhere, only above the &lt;span class=&quot;math-container&quot;&gt;$MR$&lt;/span&gt;'s U shape. Everywhere else it can be altered as we see fit.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2018-10-06T08:37:44.397" LastActivityDate="2018-10-06T08:37:44.397" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="24868" PostTypeId="2" ParentId="24863" CreationDate="2018-10-06T08:56:34.260" Score="1" Body="&lt;p&gt;For some models, deflation makes consumers save more, because they expect one unit of money in the future to buy more goods than one unit now. Consumption falls, so revenue and current profits fall. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The fall in demand and profit may have feedback effects: less investment, less innovation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In general, depends on the model you are using. In a static model with homogeneous firms, the real profits may stay unchanged. &lt;/p&gt;&#xA;" OwnerUserId="4445" LastActivityDate="2018-10-06T08:56:34.260" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24869" PostTypeId="2" ParentId="24859" CreationDate="2018-10-06T09:02:38.293" Score="1" Body="&lt;p&gt;Pay as you go vs Fully funded pension plan distinction is relevant here. Also known as Defined benefit vs Defined contribution. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If everyone saved for their own pension via payroll taxes or otherwise (Pay as you go/ Defined contribution), then the ratio of retiring to contributing people indeed would not matter. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, most governments pay current retirees from taxes on current workers. If there are fewer current workers relative to retirees, then either each has to pay more tax (discouraging working, eventually leading to declining tax revenue) or each retiree gets less pension. Governments typically do not save the current taxes to pay pensions when the current workers retire. Instead, governments are typically borrowing against future tax revenue. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;See also the Overlapping Generations Model (OLG). &lt;/p&gt;&#xA;" OwnerUserId="4445" LastActivityDate="2018-10-06T09:02:38.293" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24870" PostTypeId="1" AcceptedAnswerId="24873" CreationDate="2018-10-06T10:25:43.500" Score="2" ViewCount="291" Body="&lt;p&gt;The following is a proof that the indirect utility function is nonincreasing in prices, but I can't understand the last step. How do they conclude that &lt;span class=&quot;math-container&quot;&gt;$v(p_1, y) \ge$&lt;/span&gt; from the previous reasoning?&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Consider &lt;span class=&quot;math-container&quot;&gt;$p_0\ge p_1$&lt;/span&gt; and let &lt;span class=&quot;math-container&quot;&gt;$x_0$&lt;/span&gt; solve the utility maximisation problem when &lt;span class=&quot;math-container&quot;&gt;$p = p_0$&lt;/span&gt;. Because &lt;span class=&quot;math-container&quot;&gt;$x_0\ge 0$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$(p_0 − p_1) · x_0 ≥ 0$&lt;/span&gt;. Hence, &lt;span class=&quot;math-container&quot;&gt;$p_1·x_0 ≤ p_0·x_0 ≤ y$&lt;/span&gt;, so that &lt;span class=&quot;math-container&quot;&gt;$x_0$&lt;/span&gt; is feasible for the utility maximisation problem when &lt;span class=&quot;math-container&quot;&gt;$p = p_1$&lt;/span&gt;. We conclude that &lt;span class=&quot;math-container&quot;&gt;$v(p_1, y) ≥ u(x_0) = v(p_0, y)$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="19660" LastEditorUserId="1442" LastEditDate="2018-10-06T11:52:41.440" LastActivityDate="2018-10-06T11:59:37.927" Title="Proof that utility is nonincreasing in prices" Tags="&lt;utility&gt;&lt;price&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24871" PostTypeId="1" CreationDate="2018-10-06T11:31:08.877" Score="2" ViewCount="21" Body="&lt;p&gt;On June 11, 1782, John Adams secured a much needed loan for the new Republic from Holland. How exactly did this work in the days of strictly paper currency? What did it mean to loan internationally back then (and even today)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Did Holland send their own currency? Did they send it in the form of some standard, i.e gold bullion? How did the U.S. pay this back? In some other standard? I just have no concept of how an international power could lend anything other than goods in the 18th century. &lt;/p&gt;&#xA;" OwnerUserId="19661" LastEditorUserId="1601" LastEditDate="2018-10-06T11:45:55.050" LastActivityDate="2018-10-06T11:45:55.050" Title="How did old international loans work?" Tags="&lt;international-trade&gt;" AnswerCount="0" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24872" PostTypeId="1" AcceptedAnswerId="24877" CreationDate="2018-10-06T11:59:31.810" Score="3" ViewCount="370" Body="&lt;p&gt;We have marshallian demands for goods 1 and 2:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$x_1^* = \frac{I}{2p_1}$&lt;/span&gt;  and &lt;span class=&quot;math-container&quot;&gt;$x_2^* = \frac{I}{2p_2}$&lt;/span&gt;&#xA;where &lt;span class=&quot;math-container&quot;&gt;$I$&lt;/span&gt; is income and &lt;span class=&quot;math-container&quot;&gt;$p_i$&lt;/span&gt; is price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We need to solve the slutsky equation for income effect and substitution effect as such:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\frac{D (x_i)}{D (p_j)} = \frac{D(H^i(p1, p2, i))}{ D(p_i)} - x_j*\frac{D(x_i^*)}{D(I)}$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So in balance marshallian demand is the same as the compensated demand.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I solved the left hand side of equation and got a result of &lt;span class=&quot;math-container&quot;&gt;$0$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then I moved on to the income effect and got the following result:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$-\frac{I}{2p_j}*\frac{1}{2p_i} = -\frac{I}{4p_jp_i}$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Substituting the results from above in to the slutsky equation gives a positive result for substitution effect. I thought that that the substitution effect is always negative. Can anyone help me out?&lt;/p&gt;&#xA;" OwnerUserId="19663" LastActivityDate="2018-10-06T16:45:17.083" Title="Slutsky equation with marshallian demand" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24873" PostTypeId="2" ParentId="24870" CreationDate="2018-10-06T11:59:37.927" Score="4" Body="&lt;p&gt;That follows &lt;span class=&quot;math-container&quot;&gt;$v(p_1,y)$&lt;/span&gt; being the highest utility one can get from a bundle affordable given prices &lt;span class=&quot;math-container&quot;&gt;$p_1$&lt;/span&gt; and income &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt;. Let &lt;span class=&quot;math-container&quot;&gt;$x_1$&lt;/span&gt; be such a utility maximizing bundle. Then &lt;span class=&quot;math-container&quot;&gt;$p_1\cdot x_1\le y$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$u(x_1)\ge u(x)$&lt;/span&gt; for all &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; such that &lt;span class=&quot;math-container&quot;&gt;$p_1\cdot x\le y$&lt;/span&gt;. In particular, &lt;span class=&quot;math-container&quot;&gt;$u(x_1)\ge u(x_0)$&lt;/span&gt; since &lt;span class=&quot;math-container&quot;&gt;$p_1\cdot x_0\le y$&lt;/span&gt; (this is what the argument you have shows.) Therefore,&#xA;&lt;span class=&quot;math-container&quot;&gt;$$v(p_1,y)=u(x_1)\geq u(x_0)=v(p_0,y).$$&lt;/span&gt;&#xA;Intuitively, if prices are lower, one can buy from a richer set of options, and with more options one can always get at least as high utility.&lt;/p&gt;&#xA;" OwnerUserId="1442" LastActivityDate="2018-10-06T11:59:37.927" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24875" PostTypeId="1" CreationDate="2018-10-06T14:01:09.460" Score="1" ViewCount="30" Body="&lt;p&gt;What are the problems of estimating gravity regressions with firm-level data or industry-level data rather than country-level data? &lt;/p&gt;&#xA;" OwnerUserId="19665" LastActivityDate="2018-10-06T14:01:09.460" Title="gravity regressions with firm-level data" Tags="&lt;international-trade&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24877" PostTypeId="2" ParentId="24872" CreationDate="2018-10-06T16:15:53.533" Score="3" Body="&lt;p&gt;The first term on the RHS of the Slutsky equation (as you write it) should be &lt;span class=&quot;math-container&quot;&gt;$\frac{\partial h_i(p_i,p_j,I)}{\partial p_j}$&lt;/span&gt;, not &lt;span class=&quot;math-container&quot;&gt;$\frac{\partial h_i(p_i,p_j,I)}{\partial p_i}$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So your subsequent algebra is fine but you're conflating cross-price substitution with the own-price substitution: when you let &lt;span class=&quot;math-container&quot;&gt;$i \neq j$&lt;/span&gt; in the Slutsky equation, the first term on the RHS &lt;span class=&quot;math-container&quot;&gt;$\left(\text{again, }\frac{\partial h_i(p_i,p_j,I)}{\partial p_j}\right)$&lt;/span&gt; measures the cross-price substitution effect of an increase in the price of &lt;span class=&quot;math-container&quot;&gt;$j$&lt;/span&gt; on the (compensated) demand of &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;. You found it to be positive, so goods &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$j$&lt;/span&gt; are &lt;em&gt;net&lt;/em&gt; substitutes (the cross-price partials of &lt;span class=&quot;math-container&quot;&gt;$h_i$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$h_j$&lt;/span&gt; cannot be oppositely signed -- this follows from Shephard's Lemma).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you let &lt;span class=&quot;math-container&quot;&gt;$i = j$&lt;/span&gt;, however, you will then find that the Slutsky equation implies that the own-price substitution effect is negative for both goods, which you correctly note should be negative:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\begin{align}&#xA;\frac{\partial h_i(p_i,I)}{\partial p_i} &amp;amp;= \frac{\partial x_i}{\partial p_i} + x_i \frac{\partial x_i}{\partial I} \\&#xA;&amp;amp;= -\frac{I}{2p_i^2} + \frac{I}{2p_i} \left(\frac{1}{2p_i}\right) \\&#xA;&amp;amp;= -\frac{I}{4p_i^2} &amp;lt; 0.&#xA;\end{align}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="14688" LastEditorUserId="14688" LastEditDate="2018-10-06T16:45:17.083" LastActivityDate="2018-10-06T16:45:17.083" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24878" PostTypeId="2" ParentId="24356" CreationDate="2018-10-06T19:22:37.517" Score="-1" Body="&lt;p&gt;The answer is, we shouldn't engineer a society. But we should respect us as beings with the ability to bring our own purposes in harmony with our fellow ones and with the greater society. This is almost often a hard task, but only we could do it. I would understand Adam Smith so, that it is possible to bring out of realizing self-interests the best for the society. It is possible, but not a natural law. Our whole self, our intelligence, our emotions our morals and everything what makes us human is required that this becomes possible. Therefor no recipe exists to bake an perfect society. If we delegate responsibilities to an higher instance we loose some of the power to make the world a better place.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My perspective comes from Degrowth. It is a relative young movement, which tries to form an economy where is more harmony in our relationship with living nature and it wishes to create possibilities for a good live for everyone on our planet earth. We learned that we only can reach this goal if we talk about and work for this target. We can only show points where the current economy fails, to reach this goal. But we don't have an plan and maybe will never have one, who says us, this is the way we must go. Everyone is responsible to define for his- or herself what good live means. We make small steps, and ask after nearly every step, is it right or wrong. We think our world has room for many societies, maybe some are planned other ones are complete chaotic but the art of this kind of economy is, that they all can prosperous coexist.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The concept of self-interests is often misunderstood as being the same as private interests. If a fence is required to protect my private sphere from the rest of the world this is already an lost in the self-interest to not enclose the view to the wider world.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We all live in a very exciting time. The value of land is still the most well-founded orientation to assess things. But the scientific knowledge and the economic use of land have made it possible that more people from less land could live sustainably. We currently overuse our resources excessively, but we believe that the human species can only survive on a viable globe. That's why ecological argriculture is so important. Degrowth collaborates with Nyéléni movement for food sovereignty and Via Campesina.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another key element is communication. The plenty of energy provided by fossil fuels is used to build a network that help us to work together globally. Not the interests of a particular group satisfy our own interests, but the joined interests of all of us.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We should not overestimate the power of choice. Today we can choose between electric power from fossils and from renewable energy sources. But we are confronted with the hard truth, that the right choice is to use less power at all. We must stop in believing that energy is not scarce because it is relative cheap. It is cheap because it is a good which does not differ in quality, but it makes a big difference where it comes from if the &lt;a href=&quot;https://edition.cnn.com/2018/03/03/americas/honduras-berta-caceres-suspect-arrest/index.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;home of people&lt;/a&gt; is destroyed to produce it. Similar sad stories can be told about our food, our clothes and nearly everything what we consume. Why do we need to call some products fair traded? We need free trade and free trade should be identique with fair trade, every time and everywhere.&lt;/p&gt;&#xA;" OwnerUserId="12910" LastEditorUserId="12910" LastEditDate="2018-10-07T12:56:10.850" LastActivityDate="2018-10-07T12:56:10.850" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24879" PostTypeId="1" CreationDate="2018-10-06T20:33:00.500" Score="0" ViewCount="102" Body="&lt;p&gt;Is the cross price elasticity of demand between two goods always lower in magnitude than the price elasticities of demand of each good?&lt;/p&gt;&#xA;" OwnerUserId="19667" LastActivityDate="2018-10-07T15:25:40.473" Title="Cross price elasticity of demand vs Price elasticity of demand" Tags="&lt;supply-and-demand&gt;&lt;elasticity&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24881" PostTypeId="2" ParentId="17133" CreationDate="2018-10-07T07:50:57.927" Score="1" Body="&lt;p&gt;I've been trying to find a solution for this same question.  As mentioned by others, most of the solutions are a bit too time consuming to do on the spot if you're taking notes, so I still think it's easier to draw out the graphs by hand on the spot.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There's a good post referencing some of the different software options, along with how to do this with R and ggplot if you're interested on &lt;a href=&quot;https://www.andrewheiss.com/blog/2017/09/15/create-supply-and-demand-economics-curves-with-ggplot2/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Andrew Heist's blog&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, see &lt;a href=&quot;https://economics.stackexchange.com/questions/8226/create-simple-graphs-without-functional-forms/8231#8231&quot;&gt;Create simple graphs without functional forms&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Among these options, I'm trying to learn to do everything with TiKZ, but it's a work in progess...&lt;/p&gt;&#xA;" OwnerUserId="19671" LastActivityDate="2018-10-07T07:50:57.927" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24882" PostTypeId="2" ParentId="6986" CreationDate="2018-10-07T12:17:47.357" Score="1" Body="&lt;p&gt;This came in late but let me simplify things a little bit, An increased Real G.D.P of an economy will lead to Increase in Demand, Which will lead to Increase in Prices(inflation), this will then lead to Increased Real Interest Rates(The banks will try an make up for the increase in prices of goods), This of course now leads to Decreased Demand &gt; Disinflation &gt; Decreased Interest Rates &gt; Decreased Real G.D.P.&lt;/p&gt;&#xA;" OwnerUserId="19673" LastActivityDate="2018-10-07T12:17:47.357" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24883" PostTypeId="1" CreationDate="2018-10-07T12:26:21.757" Score="2" ViewCount="263" Body="&lt;p&gt;I am trying to understand the fact that &lt;span class=&quot;math-container&quot;&gt;$e(p, v(p,y)) = y$&lt;/span&gt;. There is a proof in the text Advanced Microeconomic Theory (Jehle and Reny) that states the following:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Because &lt;span class=&quot;math-container&quot;&gt;$u(·)$&lt;/span&gt; is strictly increasing on &lt;span class=&quot;math-container&quot;&gt;$R_n^+$&lt;/span&gt;, it attains a minimum at &lt;span class=&quot;math-container&quot;&gt;$x = 0$&lt;/span&gt;, but does not attain a maximum. Moreover, because &lt;span class=&quot;math-container&quot;&gt;$u(·)$&lt;/span&gt; is continuous, the set &lt;span class=&quot;math-container&quot;&gt;$U$&lt;/span&gt; of attainable utility&#xA;  numbers must be an interval. Consequently, &lt;span class=&quot;math-container&quot;&gt;$U = [u(0), u^b)]$&lt;/span&gt; for &lt;span class=&quot;math-container&quot;&gt;$u^b &amp;gt; u(0)$&lt;/span&gt;, and where &lt;span class=&quot;math-container&quot;&gt;$u^b$&lt;/span&gt; may be either finite or &lt;span class=&quot;math-container&quot;&gt;$+∞$&lt;/span&gt;.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;To prove, fix &lt;span class=&quot;math-container&quot;&gt;$(p, y) ∈ R^{++}_n × R^+$&lt;/span&gt;. We know &lt;span class=&quot;math-container&quot;&gt;$e(p, v(p, y)) ≤ y$&lt;/span&gt;. We would like to show in fact that equality must hold. So suppose not, that is, suppose &lt;span class=&quot;math-container&quot;&gt;$e(p, u)&amp;lt;y$&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$u = v(p, y)$&lt;/span&gt;. Note that by definition of &lt;span class=&quot;math-container&quot;&gt;$v(·), u ∈ U$&lt;/span&gt;, so that &lt;span class=&quot;math-container&quot;&gt;$u&amp;lt;u^b$&lt;/span&gt;. By the continuity of &lt;span class=&quot;math-container&quot;&gt;$e(·)$&lt;/span&gt; from, we may therefore choose &lt;span class=&quot;math-container&quot;&gt;$ε &amp;gt; 0$&lt;/span&gt; small enough so that &lt;span class=&quot;math-container&quot;&gt;$u + ε&amp;lt;u^b$&lt;/span&gt;, and &lt;span class=&quot;math-container&quot;&gt;$e(p, u +&#xA;ε)&amp;lt;y$&lt;/span&gt;. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I don't understand the point below:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Note that by definition of &lt;span class=&quot;math-container&quot;&gt;$v(·)$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$u ∈ U$&lt;/span&gt;, so that &lt;span class=&quot;math-container&quot;&gt;$u&amp;lt;u^b$&lt;/span&gt;. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$v(·)$&lt;/span&gt; denotes the maximum utility that can be achieved for given prices and wealth, and I do not see why we cannot have &lt;span class=&quot;math-container&quot;&gt;$u = u^b$&lt;/span&gt; such that &lt;span class=&quot;math-container&quot;&gt;$u ≤ u^b$&lt;/span&gt; since &lt;span class=&quot;math-container&quot;&gt;$u^b$&lt;/span&gt; may be finite. What am I missing here?  &lt;/p&gt;&#xA;" OwnerUserId="19660" LastEditorUserId="1601" LastEditDate="2018-10-07T14:39:01.400" LastActivityDate="2019-01-05T20:02:45.570" Title="The relationship between indirect utility and expenditure functions" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;price&gt;&lt;wealth&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24884" PostTypeId="2" ParentId="24256" CreationDate="2018-10-07T13:31:12.523" Score="2" Body="&lt;p&gt;There is no fundamental difference between the choice of occupation and say region. In fact,  there exists a large literature in migration that builds on Roy's model, starting with Borjas (1987).  I'd argue that ideally you'd like to correct for self- selection/ sorting in all choice dimension. In practice this can be hard/ cumbersome/ impossible to do.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why do we tend to worry about self- selection more in the context of occupations than regions? I suppose it boils down to the fact that everyone had to actively choose an occupation at some point,  whereas we are all born in some region. But,  again,  there is no fundamental difference. &lt;/p&gt;&#xA;" OwnerUserId="19675" LastActivityDate="2018-10-07T13:31:12.523" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24885" PostTypeId="2" ParentId="24879" CreationDate="2018-10-07T13:59:11.167" Score="3" Body="&lt;p&gt;Not necessarily. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example if the utility function is &lt;span class=&quot;math-container&quot;&gt;$U=\min\{x,y\}$&lt;/span&gt;, then the demand function for x is given by &lt;span class=&quot;math-container&quot;&gt;$D=\frac{M}{P_x+P_y}$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The own price elasticity of demand for x is: &lt;span class=&quot;math-container&quot;&gt;$-\frac{M}{(P_x+P_y)^2} \frac{P_x}{x}$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The cross price elasticity of demand for x is: &lt;span class=&quot;math-container&quot;&gt;$-\frac{M}{(P_x+P_y)^2} \frac{P_y}{x}$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If these elasticities are evaluated at &lt;span class=&quot;math-container&quot;&gt;$P_x=P_y=p$&lt;/span&gt;, then for any value of x, you have the same elasticities. &lt;/p&gt;&#xA;" OwnerUserId="19094" LastEditorUserId="1601" LastEditDate="2018-10-07T15:25:40.473" LastActivityDate="2018-10-07T15:25:40.473" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24886" PostTypeId="2" ParentId="24866" CreationDate="2018-10-07T14:20:02.713" Score="0" Body="&lt;p&gt;This is the utility function @denesp gave in his answer above. It does not have any convexity issues in the range &lt;span class=&quot;math-container&quot;&gt;$0&amp;lt;x&amp;lt;0.3$&lt;/span&gt;, which is the range where the MR will have an U shape. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The function:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/Lpd9b.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Lpd9b.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="19094" LastActivityDate="2018-10-07T14:20:02.713" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24887" PostTypeId="2" ParentId="24356" CreationDate="2018-10-07T16:47:51.530" Score="3" Body="&lt;p&gt;Well, there's mechanism design. We use game theory to study what people do and then reverse it and ask ourselfs what set of rules induce people to rationally choose to do what the mechanism designer wants them to do.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In an auction, we charge the second highest price to the winner, that's a Vickrey-Clark-Groves mechanism. In voting, one might want to apply the Goeree-Zhang mechanism, for example. &lt;/p&gt;&#xA;" OwnerUserId="18167" LastActivityDate="2018-10-07T16:47:51.530" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24888" PostTypeId="2" ParentId="24883" CreationDate="2018-10-07T18:10:32.323" Score="1" Body="&lt;p&gt;Even if &lt;span class=&quot;math-container&quot;&gt;$u^b$&lt;/span&gt; is finite, it can never be achieved. This is what is meant by &quot;does not attain a maximum&quot;. Rather, &lt;span class=&quot;math-container&quot;&gt;$u(x)$&lt;/span&gt; &lt;em&gt;approaches&lt;/em&gt; &lt;span class=&quot;math-container&quot;&gt;$u^b$&lt;/span&gt; from below as &lt;span class=&quot;math-container&quot;&gt;$x \to \infty$&lt;/span&gt;. This is because &lt;span class=&quot;math-container&quot;&gt;$u$&lt;/span&gt; is &lt;em&gt;strictly increasing&lt;/em&gt;. If we had &lt;span class=&quot;math-container&quot;&gt;$u(x_*) = u^b$&lt;/span&gt; for some &lt;span class=&quot;math-container&quot;&gt;$x_*$&lt;/span&gt;, then we would have &lt;span class=&quot;math-container&quot;&gt;$u(x_* + 1) &amp;gt; u^b$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$u^b$&lt;/span&gt; could not be a bound. This is why &lt;span class=&quot;math-container&quot;&gt;$U$&lt;/span&gt; is written as the half-open interval &lt;span class=&quot;math-container&quot;&gt;$[u(0), u^b)$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerUserId="19618" LastActivityDate="2018-10-07T18:10:32.323" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24889" PostTypeId="1" AcceptedAnswerId="24892" CreationDate="2018-10-07T18:45:57.093" Score="0" ViewCount="135" Body="&lt;p&gt;Recall that the slutsky equation is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\frac{\partial x_i}{\partial p_i}=\frac{\partial h_i}{\partial p_i}-\frac{\partial x_i}{\partial m}x_i$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know &lt;span class=&quot;math-container&quot;&gt;$\frac{\partial h_i}{\partial p_i}$&lt;/span&gt; defined as the substitution effect, the second part of the equation is the income effect.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My Question: is the income effect defined as  &lt;span class=&quot;math-container&quot;&gt;$-\frac{\partial x_i}{\partial m}x_i$&lt;/span&gt; or &lt;span class=&quot;math-container&quot;&gt;$\frac{\partial x_i}{\partial m}x_i$&lt;/span&gt; (is the negative sign a defining characteristic?)&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="8815" LastEditDate="2018-10-07T18:52:52.663" LastActivityDate="2018-10-08T03:56:02.397" Title="Income effect $-\frac{\partial x_i}{\partial m} x_i$ or $\frac{\partial x_i}{\partial m}x_i$?" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;slutsky-equation&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24891" PostTypeId="1" CreationDate="2018-10-07T22:14:45.373" Score="-1" ViewCount="2941" Body="&lt;p&gt;I've been struggling with this for hours, trying to figure out how to solve this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;A perfectly competitive market has the marginal cost function, c (cost is C(y)=cy) and is facing the demand function: D(p)=A-a*p&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have found the price elasticity: (-a&lt;em&gt;p)/D(p) = (-a&lt;/em&gt;p)/(-a*p+A)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can someone explain how I can find the optimal price?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So I have tried to find the revenue, by multiplying D(p) and p (price).&#xA;R(p) = p&lt;em&gt;D(p) --&gt; p&lt;/em&gt;D(p) = p*(A-ap) --&gt; p*(A-ap) = -ap^2+Ap&#xA;Then I have taken the derivative of R(p), which is the marginal revenue&#xA;R'(p) = A-2*ap&#xA;Then I assume the optimal price would be to isolate p?!&lt;/p&gt;&#xA;" OwnerUserId="19681" LastEditorUserId="19681" LastEditDate="2018-10-08T01:58:01.727" LastActivityDate="2018-10-08T13:49:46.240" Title="Find optimal price from demand function?" Tags="&lt;microeconomics&gt;&lt;supply-and-demand&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="24892" PostTypeId="2" ParentId="24889" CreationDate="2018-10-08T03:50:01.610" Score="2" Body="&lt;p&gt;The income effect is defined as &lt;span class=&quot;math-container&quot;&gt;$\mathbf{-\frac{\partial x_i}{\partial m}x_i}$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let &lt;span class=&quot;math-container&quot;&gt;$x_i$&lt;/span&gt; be a normal good; that is, a good whose Marshallian demand increases with an increase in income &lt;span class=&quot;math-container&quot;&gt;$\left(\frac{\partial x_i}{\partial m} &amp;gt; 0\right)$&lt;/span&gt;. Even if there was no substitution effect &lt;span class=&quot;math-container&quot;&gt;$\left(\frac{\partial h_i}{\partial p_i} = 0\right)$&lt;/span&gt; from an increase in own-price, the amount of &lt;span class=&quot;math-container&quot;&gt;$x_i$&lt;/span&gt; consumed would still be reduced as the consumer is effectively poorer. Hence the net income effect in this case is &lt;em&gt;negative&lt;/em&gt;, which necessitates the negative sign since &lt;span class=&quot;math-container&quot;&gt;$x_i$&lt;/span&gt; is non-negative. Analogous logic holds if &lt;span class=&quot;math-container&quot;&gt;$x_i$&lt;/span&gt; is an inferior good instead.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This interpretation is consistent with &lt;a href=&quot;https://is.muni.cz/el/1431/jaro2014/M9302/um/Nicholson_Micro.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Nicholson &amp;amp; Snyder (p. 156)&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="14688" LastEditorUserId="14688" LastEditDate="2018-10-08T03:56:02.397" LastActivityDate="2018-10-08T03:56:02.397" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24895" PostTypeId="1" CreationDate="2018-10-08T07:31:01.220" Score="2" ViewCount="2371" Body="&lt;p&gt;The supply curve is built as the average marginal cost (MC), when the MC is equal or higher than the average cost (AC)&#xA;The marginal cost increases, as a result of the opposite effect of marginal production&#xA;In this case, we get a supply curve that's rising from left to right: higher cost per rising quantity &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the case of marginal cost of zero, I can think of no other case than a supply curve that is equal to AC, and that the AC is dropping, since fixed costs do not change as a result of quantity&#xA;And so, we'll receive a curve that's dropping from left to right: lower cost per rising quantity  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Real life cases can be broadcast tv, surpluses in production, &quot;internet economy&quot; etc. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Am I wrong in my assumption? &#xA;Is there any reference of this type of equilibrium ?&#xA;Is it a stable equilibrium ? I mean, since the marginal cost is zero, there is no impact on increasing demand&lt;/p&gt;&#xA;" OwnerUserId="19195" LastActivityDate="2019-12-04T13:02:10.277" Title="Supply curve when the marginal cost is zero" Tags="&lt;supply-and-demand&gt;&lt;marginal&gt;&lt;cost-functions&gt;" AnswerCount="1" CommentCount="8" ContentLicense="CC BY-SA 4.0" />
  <row Id="24897" PostTypeId="2" ParentId="24891" CreationDate="2018-10-08T08:31:25.190" Score="1" Body="&lt;p&gt;This logic is something that I've seen many beginners struggle with, so I will try to give a thorough answer. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The optimal price is not derived by maximizing revenue, as you suggest, but rather by maximizing profits. So you want to maximize revenue minus costs. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you were to include costs in your approach you would come to the correct conclusion that the solution is &quot;Marginal Revenue = Marginal costs&quot;. Mathematically, maximizing Profit = Revenue - Costs means taking the derivative and setting it to zero. The derivative of revenue and costs are marginal revenue and marginal cost respectively. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This rule is always true. Nevertheless, you must take the type of competition into account. Perfect competition has a different revenue expression than a monopoly. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose we have perfect competition. This means the firm is a price taker. In turn, the firm cannot take the demand function into account when making its decision (by optimizing). So the firm maximizes:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$Profit = p*y - c*y$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The solution is &lt;span class=&quot;math-container&quot;&gt;$p=c$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Taking the first order condition will hence give you the famous &quot;price = marginal cost&quot; rule. In this case, the marginal revenue is just &lt;span class=&quot;math-container&quot;&gt;$p$&lt;/span&gt;. Here, the revenue for each extra unit sold is just whatever that unit costs. There could be price effects from selling an additional unit, since a larger supply means a lower price. Nevertheless, the optimizing firm in perfect competition cannot take such price effects into account. It must take the price as given.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The monopolist, however, does not take the price as given, but can choose it. This is done by taking the (inverse) demand function into account. I find it easier to use inverse demand, which is &lt;span class=&quot;math-container&quot;&gt;$P(y)$&lt;/span&gt;. You can find this by rearranging your demand function, which is &lt;span class=&quot;math-container&quot;&gt;$D(p)=y(p)$&lt;/span&gt;. We have to maximize:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$Profit = P(y)*y - c*y$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The solution here is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$P(y) + P'(y)* y = c$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, we have marginal revenue equals marginal cost. This is what I believe you were attempting to do and it only works for monopolies. &lt;/p&gt;&#xA;" OwnerUserId="5557" LastEditorUserId="5557" LastEditDate="2018-10-08T13:49:46.240" LastActivityDate="2018-10-08T13:49:46.240" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24898" PostTypeId="1" AcceptedAnswerId="24923" CreationDate="2018-10-08T11:29:01.023" Score="0" ViewCount="274" Body="&lt;p&gt;If X is finite, define this function &lt;span class=&quot;math-container&quot;&gt;$u : X \rightarrow  \mathbb{R}$&lt;/span&gt; by &lt;span class=&quot;math-container&quot;&gt;$u(x) = |\{z\in X:z \prec x \}|$&lt;/span&gt;. Prove that &lt;span class=&quot;math-container&quot;&gt;$u$&lt;/span&gt; is a utility function for &lt;span class=&quot;math-container&quot;&gt;$\succsim$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Is it sufficient to prove that the relation is transitive and complete?&lt;br&gt;&#xA;By Lemma:  &lt;em&gt;If &lt;span class=&quot;math-container&quot;&gt;$\succsim$&lt;/span&gt; has a utility function, then it is transitive and complete.&lt;/em&gt;&lt;/p&gt;&#xA;" OwnerUserId="19566" LastActivityDate="2018-10-10T00:52:00.007" Title="Prove that $u$ is a utility function for $\succsim$" Tags="&lt;utility&gt;&lt;preferences&gt;&lt;self-study&gt;&lt;proof&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24899" PostTypeId="2" ParentId="3091" CreationDate="2018-10-08T12:54:34.167" Score="1" Body="&lt;p&gt;Another example for the different possibilities of maximum amounts of good/services that an economy/country can produce could be that of guns or butter, the country must make a decision between the two possibilities and how much of the two goods they want to produce. in this case guns mean armaments (for the defence of the country) and butter means food (to be consumed for the population). futhermore, the choice made between two possibilities involves an oppurtunity cost and the country/economy must make a decision based on its current economic situation. A  country might want to produce more of capital goods as they will create a future stream of benefits whereas consumer goods are consumed immediately having no long term benefits. Another choice that the economy could face is between &lt;strong&gt;education and healthcare&lt;/strong&gt;, if the country has as ageing population like Japan, they might want to invest more in healthcare, but with a growing population like that in India, the country might want to invest in the alternative of education more than investing in healthcare. Since the resources required in any of the examples are not the same the PPC is always going to be curved.&lt;/p&gt;&#xA;" OwnerUserId="19687" LastActivityDate="2018-10-08T12:54:34.167" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24902" PostTypeId="1" CreationDate="2018-10-08T15:25:27.057" Score="-1" ViewCount="1122" Body="&lt;p&gt;Consider a simple quasi-linear utility function of the form &lt;span class=&quot;math-container&quot;&gt;$U(x,y)=x +ln(y)$&lt;/span&gt;. For this problem, assume&#xA;that you have “enough” income, so that the optimal consumption bundle is where: &lt;span class=&quot;math-container&quot;&gt;$x,y &amp;gt;&amp;gt; 0$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I was wondering how to calculate income and substitution effects.  I've started by using Lagrange function to derive that &lt;span class=&quot;math-container&quot;&gt;$y=\frac{P_x}{P_y}$&lt;/span&gt;, &lt;em&gt;(price of &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; over the price of &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt;)&lt;/em&gt; and &lt;span class=&quot;math-container&quot;&gt;$x=\frac{M}{P_x}-1$&lt;/span&gt; (&lt;span class=&quot;math-container&quot;&gt;$M$&lt;/span&gt; is income).  What do I do now to find these two effects?&lt;/p&gt;&#xA;" OwnerDisplayName="user19452" LastEditorUserId="12186" LastEditDate="2018-12-13T20:44:10.413" LastActivityDate="2018-12-13T20:44:10.413" Title="Calculating income and substitution effects" Tags="&lt;utility&gt;&lt;slutsky-equation&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24903" PostTypeId="2" ParentId="24354" CreationDate="2018-10-08T16:31:55.500" Score="1" Body="&lt;p&gt;The value embodied in the raw materials is transferred to the final commodity. So, it is not just the labour necessary to transform the raw materials that forms the value of the final commodity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why does a ring of gold have a higher price than a ring of silver, even though the labour necessary to mold each metal into a ring is the same?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Because the labour necessary to extract gold from nature is more than the labour necessary to extract silver.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;It is perhaps useful to remind that Marx doesn't think a capitalist makes his prices by calculating value or the labour embodied in commodities; rather that prices, after being formed by very different considerations, will reflect value, ie, the labour incorporated into commodities.&lt;/p&gt;&#xA;" OwnerUserId="15747" LastActivityDate="2018-10-08T16:31:55.500" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24905" PostTypeId="1" AcceptedAnswerId="24910" CreationDate="2018-10-08T18:17:35.563" Score="1" ViewCount="62" Body="&lt;p&gt;So I have been given a utility function = &lt;span class=&quot;math-container&quot;&gt;$ 48 R + Ry -R^2$&lt;/span&gt; where &lt;span class=&quot;math-container&quot;&gt;$R$&lt;/span&gt; represents leisure hours and &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; represents labour income. &lt;span class=&quot;math-container&quot;&gt;$y=rl$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$r$&lt;/span&gt; is wage rate and &lt;span class=&quot;math-container&quot;&gt;$l$&lt;/span&gt; is labour hours. Find hours worked increases with wage.&#xA;So what I thought I can do was:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I equate MRS = Slope of Budget constraint and I got something like this &#xA;&lt;span class=&quot;math-container&quot;&gt;$(48 + y - 2R)/ R = r $&lt;/span&gt;&#xA;Then I equated in &lt;span class=&quot;math-container&quot;&gt;$R$&lt;/span&gt; and got &lt;span class=&quot;math-container&quot;&gt;$R=48+(rl)/r+2$&lt;/span&gt;&#xA;Can I just now do differential of &lt;span class=&quot;math-container&quot;&gt;$R$&lt;/span&gt; with respect to &lt;span class=&quot;math-container&quot;&gt;$r$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can I continue with this method? Have I made some mistake so far? Or is this method completely wrong and is there some other method.&lt;/p&gt;&#xA;" OwnerUserId="19558" LastEditorUserId="19558" LastEditDate="2018-10-09T09:01:43.820" LastActivityDate="2018-10-09T09:21:23.490" Title="Hours worked increases with wage" Tags="&lt;labor-economics&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24906" PostTypeId="1" CreationDate="2018-10-08T19:59:39.393" Score="1" ViewCount="185" Body="&lt;p&gt;I am confused if it is possible for to randomly select a sample such that SRF and PRF do not intersect. I have thought of the concept of parallel lines, which allows for such a case but I am unsure if concepts of probability and statistics allow for it. &lt;/p&gt;&#xA;" OwnerUserId="19695" LastActivityDate="2019-01-07T23:01:55.390" Title="Can there be a sample such that SRF and PRF do not intersect?" Tags="&lt;econometrics&gt;&lt;mathematical-economics&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24907" PostTypeId="1" CreationDate="2018-10-08T21:49:05.183" Score="1" ViewCount="664" Body="&lt;p&gt;I have a question involving optimal consumption bundles for quasi-linear preferences. Utility is given by &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$U(x_1,x_2) = 16\sqrt{x_1} + 2x_2$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and &lt;span class=&quot;math-container&quot;&gt;$p_1 = 8, p_2 = 4, I = 30$&lt;/span&gt;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I have so far is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$8x_1 + 4x_2 = 30$$&lt;/span&gt; and&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$MRS = -\frac{4}{\sqrt{x_1}} = -\frac{p_1}{p_2} = -2$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Solving that I get &lt;span class=&quot;math-container&quot;&gt;$x_1 = 4$&lt;/span&gt;, but plugging that into the budget equation results in a negative value for &lt;span class=&quot;math-container&quot;&gt;$x_2$&lt;/span&gt;. What am I doing wrong here?&lt;/p&gt;&#xA;" OwnerUserId="19697" LastEditorUserId="14688" LastEditDate="2018-10-09T03:55:02.797" LastActivityDate="2018-10-09T03:55:02.797" Title="Quasi-linear Optimal Consumption Bundle" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;preferences&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24909" PostTypeId="1" CreationDate="2018-10-09T06:54:14.803" Score="2" ViewCount="258" Body="&lt;p&gt;Free-disposal and CR of scale can not imply convex production set.&#xA;But it is true for single-input and single-output model.&#xA;Therefore, I am wondering how to prove if production set Y satisfies free-disposal and constant returns of scale, then Y is convex when there are only 2 commodities.&lt;/p&gt;&#xA;" OwnerUserId="19698" LastActivityDate="2018-10-09T06:54:14.803" Title="How to prove if production set Y satisfies free-disposal and CR of scale, then Y is convex, when there are only 2 commodities" Tags="&lt;production-function&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24910" PostTypeId="2" ParentId="24905" CreationDate="2018-10-09T09:21:23.490" Score="1" Body="&lt;p&gt;It's probably easiest to insert everything into Utility &lt;span class=&quot;math-container&quot;&gt;$U = U(R)$&lt;/span&gt;, such that it depends only on one choice variable:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$U(R) = 48R + Rr(L^{*}-R)-R^2$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Deriving w.r.t. &lt;span class=&quot;math-container&quot;&gt;$R$&lt;/span&gt; yields the first order condition:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$48 - Rr + r(L^{*}-R)-2R \overset{!}{=} 0$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Rearranging yields leisure in terms of the wage rate:&#xA;&lt;span class=&quot;math-container&quot;&gt;$R(r) = \frac{48-L^{*}r}{3+r}$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Labor Supply &lt;span class=&quot;math-container&quot;&gt;$l(r)$&lt;/span&gt; is hence given by:&#xA;&lt;span class=&quot;math-container&quot;&gt;$l(r) = \frac{3L^{*}+2rL^{*}-48}{3+r}$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Deriving this by &lt;span class=&quot;math-container&quot;&gt;$r$&lt;/span&gt; should yield what you're looking for:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\frac{d l}{d r} = \frac{3L^{*} + 16}{(r+3)^2}$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="17735" LastActivityDate="2018-10-09T09:21:23.490" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24912" PostTypeId="1" CreationDate="2018-10-09T11:37:51.850" Score="3" ViewCount="51" Body="&lt;p&gt;I'm interested in what factors lead to changes in the price of land. I'm interested in this question in general across a whole country, say (as opposed to land in particular places). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So I'm interested in this question, because I'm interested to build a stock flow consistent model of 'Georgist' effects: integrate georgist understanding into a  post keynesian model framwework.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a follow up issue, I'm also interested to what extent the macro drivers of land value are shared with shares in companies that have extensive market power (e.g. coca cola). Can land be thought of as an archetype of other 'monopoly' assets.&lt;/p&gt;&#xA;" OwnerUserId="19704" LastEditorUserId="19704" LastEditDate="2018-10-09T11:39:30.193" LastActivityDate="2018-10-10T09:22:01.580" Title="What are the drivers of the price of land?" Tags="&lt;value&gt;&lt;land&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24913" PostTypeId="2" ParentId="24912" CreationDate="2018-10-09T11:38:10.460" Score="0" Body="&lt;p&gt;At present, I was thinking of the following factors:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Aggregate rents go up as disposable income goes up&lt;/li&gt;&#xA;&lt;li&gt;The ratio of house prices to rents is driven by interest rates, including long-term interest rates.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;And as comments (things that are hard to build in):&lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;3&quot;&gt;&#xA;&lt;li&gt;Infrastructure development locally increases rents&lt;/li&gt;&#xA;&lt;li&gt;Heterogeneity of land (e.g. a north south divide, large cities) increases average house prices.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;I would think that private land ownership then has various effects e.g.:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Increases inequality of wealth&lt;/li&gt;&#xA;&lt;li&gt;Reduces aggregate demand because landowners, being richer in general, have reduced propensity to consume&lt;/li&gt;&#xA;&lt;li&gt;Possibly reduces investment through crowding out.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="19704" LastActivityDate="2018-10-09T11:38:10.460" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24914" PostTypeId="2" ParentId="24912" CreationDate="2018-10-09T14:25:18.533" Score="2" Body="&lt;p&gt;Because of population growth, savings, and technological innovation the stock of capital and augmented labor are growing over time. These forces raise the marginal product of land. Unlike capital, the supply of land is fixed. This means that the supply of land can't increase in response to the rising marginal product. Investors have to be indifferent between investing a dollar in holding land and a dollar of productive capital. Capital is paid its marginal product (&lt;span class=&quot;math-container&quot;&gt;$r$&lt;/span&gt;). For investors to be indifferent, each dollar buys &lt;span class=&quot;math-container&quot;&gt;$1/P$&lt;/span&gt; worth of capital, and that fraction of a unit of land returns &lt;span class=&quot;math-container&quot;&gt;$r$&lt;/span&gt;. One unit of real estate actually returns &lt;span class=&quot;math-container&quot;&gt;$rP$&lt;/span&gt;. So, over time, the forces that raise the marginal product of labor and capital, population growth, capital deepening, and technological innovation, raise the marginal product of land and therefore push up the price because the quantity cannot adjust.   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This assumes we can abstract from issues of taxation and depreciation. We can handle those details but they don't change the basic story. What is more important issue is that land is in fixed supply and capital is not. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are some innovations that increase the literal or effective quantity of land: e.g. landfill, multi-story construction, enhancements in in agricultural productivity. More accurately, in practice, the quantity of land can adjust can adjust in a limited way, more slowly, and at greater cost than physical capital. This preserves insight above: quantities do not adjust to equate the marginal product of physical capital and land, and so the price must do so instead. &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2018-10-10T09:22:01.580" LastActivityDate="2018-10-10T09:22:01.580" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="24915" PostTypeId="1" AcceptedAnswerId="24975" CreationDate="2018-10-09T15:43:13.177" Score="1" ViewCount="66" Body="&lt;p&gt;I have a question relating to central bank's balance sheets, taken from Krugman and Obstfelds' &quot;International Macroeconomics&quot; textbook. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;They mention that when the central bank purchases foreign bonds, the domestic money supply increases. This is paid for with domestic currency.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is: how does this look like in practice? So say the Fed buys the government of England's bonds. Will they convert it first to pounds? Or would Bank of England sell the bond for dollars? I am struggling to understand how the increase in purchase of foreign bonds increases domestic money supply.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help is much appreciated.&lt;/p&gt;&#xA;" OwnerUserId="5233" LastActivityDate="2018-10-13T07:45:01.433" Title="Central Bank Balance Sheets and foreign bonds" Tags="&lt;monetary-policy&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24916" PostTypeId="1" CreationDate="2018-10-09T15:52:09.170" Score="1" ViewCount="76" Body="&lt;p&gt;Jeff Gore has &lt;a href=&quot;http://www.retirethepenny.org/&quot; rel=&quot;nofollow noreferrer&quot;&gt;suggested scrapping the 1 cent coins&lt;/a&gt; a few years ago. Why doesn't the US cancel the pennies? Is it that terrible to the economics to keep the copper coin?&lt;/p&gt;&#xA;&lt;p&gt;As mentioned in the comments, Greg Mankiw has also discussed it &lt;a href=&quot;https://www.collegian.psu.edu/opinion/article_fa95d970-575f-11ea-8bba-3775c7b5d720.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Per year, the average citizen wastes 12 minutes paying with pennies.&#xA;That’s like half of an episode of The Office. Twelve minutes is also&#xA;the length of the first human spacewalk by Soviet cosmonaut Alexey&#xA;Arkhipovich in 1965.&lt;/p&gt;&#xA;&lt;p&gt;Mankiw also estimated this 12 minutes of wasted time costs the U.S.&#xA;economy approximately $1 billion every year.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="19707" LastEditorUserId="19707" LastEditDate="2021-01-22T10:34:15.117" LastActivityDate="2021-01-22T10:34:15.117" Title="Should we get rid of the Penny?" Tags="&lt;currency&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24917" PostTypeId="1" CreationDate="2018-10-09T18:35:41.390" Score="1" ViewCount="72" Body="&lt;p&gt;Is it possible for there to be a shortage of labour in an economy when there is cost-push inflation?&lt;/p&gt;&#xA;" OwnerUserId="19710" LastActivityDate="2021-04-27T02:09:56.173" Title="Cost-push inflation and labour shortage" Tags="&lt;macroeconomics&gt;&lt;inflation&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24918" PostTypeId="2" ParentId="24917" CreationDate="2018-10-09T18:41:46.647" Score="0" Body="&lt;p&gt;The definition of cost-push inflation is an increase in aggregate prices driven by an increase in the cost of labour and/or production inputs. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A shortage of labour could put upward pressure on wages, yielding this type of inflation. So, yes, it is possible. However, it is not necessarily true that cost-push inflation is caused by a labour shortage and it is also not true that a labour shortage will always cause cost-push inflation. &lt;/p&gt;&#xA;" OwnerUserId="1655" LastActivityDate="2018-10-09T18:41:46.647" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24919" PostTypeId="1" CreationDate="2018-10-09T19:29:35.387" Score="0" ViewCount="845" Body="&lt;p&gt;I am currently struggling with this exercise. &#xA;Professor Nash announces that he will auction off a 20 dollars bill in a competition between two students chosen at random. Each student is to privately submit a bid on a piece of paper; whoever places the highest bid wins the 20 dollars bill. In the event of a tie, each student gets 10 dollars. The auction is all-pay: each student must pay his/her bid regardless of who wins the auction.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;HERE is the question&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose each student could borrow money from the other students in the class, so that each of them had a total of $11 to bid. Find a Nash equilibrium in this case? &#xA;I know I have to find a mixed-strategy  nash equilibrium but I don't understand how I can't compute it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks&lt;/p&gt;&#xA;" OwnerUserId="19711" LastActivityDate="2018-11-10T04:00:03.587" Title="All-Pay Auction Mixed Strategy Equilibrium" Tags="&lt;game-theory&gt;&lt;nash-equilibrium&gt;&lt;auctions&gt;" AnswerCount="1" CommentCount="7" ContentLicense="CC BY-SA 4.0" />
  <row Id="24920" PostTypeId="2" ParentId="24906" CreationDate="2018-10-09T21:13:03.730" Score="1" Body="&lt;p&gt;It is theoretically possible, but extremely unlikely if the random sample is large.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To see that it is possible, consider the very simple case shown below in which the population consists of just four points in the X-Y plane which happen to lie at the corners of a parallelogram.&lt;br&gt;&#xA;&lt;a href=&quot;https://i.stack.imgur.com/Tnqvk.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Tnqvk.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&#xA;Assuming linear regression lines, the population regression function (PRF) will be as represented by the continuous line.  If a sample regression function (SRF) is fitted to a sample of two points and the points happen to be A and B, then the function will be as represented by the dashed line which is parallel to the PRF.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note however that even in this case, the probability that a random sample of two points will produce a SRF parallel to the PRF is only one third.  There are six possible such samples, two of which (AB,CD) yield SRF's parallel to the PRF, and four of which (AC,AD,BC,BD) do not.  In a realistic case in which both the population and the sample are much larger, and the points do not lie in such a simple geometrical pattern, the probability of a SRF parallel to the PRF will be very small indeed.   &lt;/p&gt;&#xA;" OwnerUserId="1417" LastActivityDate="2018-10-09T21:13:03.730" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24922" PostTypeId="2" ParentId="24916" CreationDate="2018-10-09T22:03:37.193" Score="-2" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Should we get rid of the Penny?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;No. That would be as foolish as suppressing a symptom instead of addressing the illness.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reason why &quot;a penny does not buy a penny&quot; --or being more accurate, why it &lt;em&gt;no longer&lt;/em&gt; buys a penny-- is that currency depreciation has been policymakers' answer for too long and for too many issues.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The permanent, excessive printing of money inevitably weakens the purchase power of the USD. Metal prices, like everything else, go up where economic problems are &quot;addressed&quot; by issuing more bonds, giving more subsidies, ignoring the rapidly changing demographics, and pretending that welfare state still is sustainable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The weakening of a currency by inflationary measures is not limited to rendering coin metals out of reach. At some point, even the cost of paper on which money is printed can also exceed the purchase power of the denominations printed on that paper. History has many examples of this.&lt;/p&gt;&#xA;" OwnerUserId="18552" LastActivityDate="2018-10-09T22:03:37.193" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24923" PostTypeId="2" ParentId="24898" CreationDate="2018-10-10T00:52:00.007" Score="1" Body="&lt;p&gt;You're asked to prove that &lt;span class=&quot;math-container&quot;&gt;$u(x)\ge u(y)\;\Leftrightarrow\;x\succsim y$&lt;/span&gt; for any &lt;span class=&quot;math-container&quot;&gt;$x,y\in X$&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$u(x)=|\{z\in X:z\prec x\}|$&lt;/span&gt;, i.e. the utility of &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; is measured by the number of other alternatives that rank strictly below it. &#xA;Since &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; is finite, let's suppose without loss of generality that &lt;span class=&quot;math-container&quot;&gt;$X=\{1,2,\dots,N\}$&lt;/span&gt; where &lt;span class=&quot;math-container&quot;&gt;$N$&lt;/span&gt; is some finite number. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'll prove the case in which there is no indifference among the alternatives, say, &lt;span class=&quot;math-container&quot;&gt;$1\succ2\succ\cdots\succ N$&lt;/span&gt;. I'll let you finish the proof by establishing the case where there are indifferences among subsets of alternatives.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Step 1. Establishing &lt;span class=&quot;math-container&quot;&gt;$u(x)&amp;gt;u(y)\;\Rightarrow\;x\succ y$&lt;/span&gt;.&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose &lt;span class=&quot;math-container&quot;&gt;$u(x)&amp;gt;u(y)$&lt;/span&gt;. By the definition of &lt;span class=&quot;math-container&quot;&gt;$u$&lt;/span&gt;, the number of alternatives strictly worse than &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; is larger than the number of alternatives strictly worse than &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt;. If &lt;span class=&quot;math-container&quot;&gt;$y\succsim x$&lt;/span&gt;, this would simply contradict the previous statement. Hence, we must have &lt;span class=&quot;math-container&quot;&gt;$x\succ y$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Step 2. Establishing &lt;span class=&quot;math-container&quot;&gt;$x\succ y\;\Rightarrow\;u(x)&amp;gt;u(y)$&lt;/span&gt;.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose &lt;span class=&quot;math-container&quot;&gt;$x\succ y$&lt;/span&gt;. Since we assume no indifference among alternatives, the set of strictly worse alternatives to &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$\{z\in X:x\succ z\}$&lt;/span&gt;, must contain more elements than the set of strictly worse alternatives to &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$\{z\in X:y\succ z\}$&lt;/span&gt;. In other words, &lt;span class=&quot;math-container&quot;&gt;$|\{z\in X:x\succ z\}|&amp;gt;|\{z\in X:y\succ z\}|$&lt;/span&gt;. Therefore, we obtain &lt;span class=&quot;math-container&quot;&gt;$u(x)&amp;gt;u(y)$&lt;/span&gt; as a result.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Taken together, steps 1 and 2 demonstrate that &lt;span class=&quot;math-container&quot;&gt;$x\succ y\;\Leftrightarrow\;u(x)&amp;gt;u(y)$&lt;/span&gt; for any arbitrary &lt;span class=&quot;math-container&quot;&gt;$x,y\in X$&lt;/span&gt;. &lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2018-10-10T00:52:00.007" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24924" PostTypeId="2" ParentId="24844" CreationDate="2018-10-10T01:54:18.033" Score="0" Body="&lt;p&gt;Any preference relation represented by an utility function is transtive.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose &lt;span class=&quot;math-container&quot;&gt;$x \succsim y$&lt;/span&gt; and  &lt;span class=&quot;math-container&quot;&gt;$y \succsim z$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\succsim$&lt;/span&gt; is represented by &lt;span class=&quot;math-container&quot;&gt;$U$&lt;/span&gt;. Then &lt;span class=&quot;math-container&quot;&gt;$U(x) \geq U(y)  $&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$U(y) \geq U(z)$&lt;/span&gt;, so &lt;span class=&quot;math-container&quot;&gt;$U(x) \geq U(z)$&lt;/span&gt;  and then &lt;span class=&quot;math-container&quot;&gt;$x \succsim z$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerUserId="16528" LastActivityDate="2018-10-10T01:54:18.033" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24925" PostTypeId="2" ParentId="24844" CreationDate="2018-10-10T03:34:37.793" Score="0" Body="&lt;p&gt;&lt;strong&gt;Transitivity.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Definition.&lt;/em&gt; If &lt;span class=&quot;math-container&quot;&gt;$A \succsim B$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$B \succsim C$&lt;/span&gt;, then &lt;span class=&quot;math-container&quot;&gt;$A \succsim C$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Proof.&lt;/em&gt; Suppose &lt;span class=&quot;math-container&quot;&gt;$A \succsim B$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$B \succsim C$&lt;/span&gt;. Then by definition of a utility representation, &lt;span class=&quot;math-container&quot;&gt;$U(A) \geq U(B)$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$U(B) \geq U(C)$&lt;/span&gt;. By the transitivity of &lt;span class=&quot;math-container&quot;&gt;$\geq$&lt;/span&gt;, we have &lt;span class=&quot;math-container&quot;&gt;$U(A) \geq U(C)$&lt;/span&gt;. And so again by definition of a utility representation, &lt;span class=&quot;math-container&quot;&gt;$A \succsim C$&lt;/span&gt;, so that &lt;span class=&quot;math-container&quot;&gt;$\succsim$&lt;/span&gt; is transitive.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Monotonicity.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Definition.&lt;/em&gt; If &lt;span class=&quot;math-container&quot;&gt;$x_1\geq x_2$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$y_1\geq y_2$&lt;/span&gt;, then &lt;span class=&quot;math-container&quot;&gt;$\left(x_1,y_1\right)\succsim\left(x_2,y_2\right)$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Proof.&lt;/em&gt; Suppose &lt;span class=&quot;math-container&quot;&gt;$x_1\geq x_2 \left(\geq 0\right)$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$y_1\geq y_2\left(\geq 0\right)$&lt;/span&gt;. Then &lt;span class=&quot;math-container&quot;&gt;$$U\left(x_1,y_1\right) = x_1^2 +y_1^2 +2x_1y_1 \geq x_2^2 +y_2^2 +2x_2y_2 = U\left(x_2,y_2\right),$$&lt;/span&gt; so that definition of a utility representation, &lt;span class=&quot;math-container&quot;&gt;$\succsim$&lt;/span&gt; is monotonic.&lt;/p&gt;&#xA;" OwnerDisplayName="user16354" LastActivityDate="2018-10-10T03:34:37.793" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24926" PostTypeId="1" AcceptedAnswerId="24936" CreationDate="2018-10-10T04:00:53.807" Score="5" ViewCount="330" Body="&lt;p&gt;Akerlof's 1970 &lt;a href=&quot;https://www.sas.upenn.edu/~hfang/teaching/socialinsurance/readings/fudan_hsbc/Akerlof70(2.1).pdf&quot; rel=&quot;noreferrer&quot;&gt;paper&lt;/a&gt; models the utility of two trading groups as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;U_1 = M + \sum_{i=1}^n x_i	\\&#xA;U_2 = M + \sum_{i=1}^n \frac{3}{2} x_i&#xA;$$&lt;/span&gt;&#xA;where &lt;span class=&quot;math-container&quot;&gt;$M$&lt;/span&gt; is the consumption of good other than cars, &lt;span class=&quot;math-container&quot;&gt;$x_i$&lt;/span&gt; is the quality of the &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;th car, and &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt; is the number of cars.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The quality of the cars held by group one have a uniformly distributed quality &lt;span class=&quot;math-container&quot;&gt;$0 \leq x \leq 2$&lt;/span&gt; and the price of goods other than the cars is unitary.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Income for the two groups is denoted &lt;span class=&quot;math-container&quot;&gt;$Y_1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$Y_2$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The paper goes on to give the demand for cars for type one traders:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;D_1 = Y_1/p \quad \quad  \mu/p &amp;gt; 1	\\&#xA;D_1 = 0 \quad \quad  \mu/p &amp;lt; 1&#xA;$$&lt;/span&gt;&#xA;The supply of cars from type one is&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;S_1 = pN/2 \quad \quad p \leq 2&#xA;$$&lt;/span&gt;&#xA;and their quality is &lt;span class=&quot;math-container&quot;&gt;$\mu = p/2$&lt;/span&gt;.  The paper states that to drive the expressions for supply and quality, the uniform distribution of car quality is used.  How is this done exactly?&lt;/p&gt;&#xA;" OwnerUserId="19716" LastActivityDate="2018-10-11T02:27:40.317" Title="Market for lemons derivation" Tags="&lt;asymmetric-information&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24928" PostTypeId="2" ParentId="24902" CreationDate="2018-10-10T08:49:41.367" Score="1" Body="&lt;p&gt;First of all:&#xA;In general, for preferences that are quasi-linear in &lt;span class=&quot;math-container&quot;&gt;$x(y)$&lt;/span&gt; it holds true that:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Overall effect = Substitution effect, if in the initial situation both goods or if only good &lt;span class=&quot;math-container&quot;&gt;$y(x)$&lt;/span&gt; are consumed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Overall effect = Income effect, if in the initial situation only good &lt;span class=&quot;math-container&quot;&gt;$x(y)$&lt;/span&gt; is consumed.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Substitution effect= &lt;span class=&quot;math-container&quot;&gt;$x( p(x)', m') - x( p(x), m)$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Income effect= &lt;span class=&quot;math-container&quot;&gt;$x(p(x)', m) - x( p(x)', m') $&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;If you need a detailed step for step calculation, feel free to ask for it!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Have a good day!&lt;/p&gt;&#xA;" OwnerUserId="19714" LastEditorUserId="17735" LastEditDate="2018-10-10T10:01:22.683" LastActivityDate="2018-10-10T10:01:22.683" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24929" PostTypeId="1" AcceptedAnswerId="24939" CreationDate="2018-10-10T13:10:28.870" Score="1" ViewCount="57" Body="&lt;p&gt;Let's take as an example the province of Quebec in Canada with a debt of $273B. It just elected a conservative and nationalistic government&#xA;to lead the next 4 years. Their platform is that of fiscal prudence and tax reduction. There is a lot of debate around the need to lower the state's debt versus investing more into services and increasing said debt.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With that in mind, I have a few questions for you all:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Who owns all this debt? What happens when the state falls into the red? Is it possible for the state to no longer be able to borrow? Is there a finite amount it can borrow?&lt;/p&gt;&#xA;" OwnerUserId="19720" LastEditorUserId="19689" LastEditDate="2018-10-10T14:09:31.163" LastActivityDate="2018-10-12T14:38:03.533" Title="Who owns state bonds?" Tags="&lt;debt&gt;&lt;bonds&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="24930" PostTypeId="2" ParentId="8214" CreationDate="2018-10-10T13:59:34.510" Score="4" Body="&lt;p&gt;This Deutsche Bank figure from 2013 has some broad categories for German debt and compares it with other rich countries:&#xA;&lt;a href=&quot;https://i.stack.imgur.com/x2E4S.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/x2E4S.jpg&quot; alt=&quot;Comparison of Rich country debt holders&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A newer chart, using slightly with more granular categories. Note that Germany is DE.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/SN8t6.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/SN8t6.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2018-10-10T13:59:34.510" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24931" PostTypeId="1" CreationDate="2018-10-10T14:02:35.560" Score="3" ViewCount="114" Body="&lt;p&gt;Firstly, my apologies if this isn't the right forum for this - I couldn't spot a better one!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We are all born, pay taxes and die.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Depending on where we live, those taxes will (hopefully) be used to pay for our medical care when we are born, our education, maybe our college fees, health care during our lives and perhaps social care when we get too old to look after ourselves. Not to mention defending our country (armed forces) and keeping the streets safe (police).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some of us will be fortunate enough to earn lots of money, pay tax on that money and still be able to pay for their own healthcare, their children's education and their own care when they get old. These people are likely to pay much more in taxes than they will ever receive back in benefits from the state.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Others won't be so fortunate, maybe they'll have periods of unemployment, maybe they have long-term (or just expensive) medical problems, or maybe they just won't pay much tax because they don't earn much in the first place.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In summary - some people will, over the course of their life, contribute far more in taxes than they will receive back in benefits. Others will receive much more in benefits than they ever contribute.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There must be a break-even income where a persons' overall, lifetime, tax contribution matches the total of all the benefits he receives.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, assuming a typical working life of 45-50 years and an average life expectancy what should my average salary be over that period to eventual break-even? to be neither a net-contributor nor a net-consumer?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the purposes of this question, I'm assuming UK rates of taxation and benefits although if there are figures for other countries I'd be happy to have those too! I'm also just asking about financial contributions/costs, not considering the relative social contributions of different types of jobs &lt;em&gt;(i.e. nurses compared to stock-brokers etc)&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;UPDATE - I think I've found most of the answer at this &lt;a href=&quot;https://www.thisismoney.co.uk/money/news/article-2215070/Are-contributor-burden-nations-finances--Squeezed-middle-increasingly-dependent-state.html&quot; rel=&quot;nofollow noreferrer&quot; title=&quot;link&quot;&gt;link&lt;/a&gt; . &lt;/p&gt;&#xA;" OwnerUserId="19721" LastEditorUserId="19721" LastEditDate="2018-10-11T08:24:49.970" LastActivityDate="2018-12-11T16:57:45.563" Title="How much to earn to break-even throughout life" Tags="&lt;taxation&gt;&lt;social-welfare&gt;&lt;social-security&gt;" AnswerCount="3" CommentCount="3" ClosedDate="2018-12-12T20:46:22.657" ContentLicense="CC BY-SA 4.0" />
  <row Id="24932" PostTypeId="1" CreationDate="2018-10-10T15:51:37.000" Score="0" ViewCount="44" Body="&lt;p&gt;I understand that future income is less valuable than income in the present because of the concept of present value, where money available today can be invested to earn interest or can be spent to avoid paying interest, whereas money that is not collected until the future cannot generate interest income or pay interest expenses. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, if I want to explain why future expenses are considered less costly than expenses in the present, can I use the concept of present value to explain? I know it is linked somehow, but I don't know how to put it into words. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would appreciate any help or hints. Thank you. &lt;/p&gt;&#xA;" OwnerUserId="15054" LastActivityDate="2018-10-10T17:08:51.960" Title="Why are future expenses considered less costly than expenses in the present?" Tags="&lt;interest-rate&gt;&lt;financial-economics&gt;&lt;value&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24933" PostTypeId="2" ParentId="24932" CreationDate="2018-10-10T17:03:09.207" Score="1" Body="&lt;p&gt;Let's simplify this with an example. If I gave you $100 right now, at the very worst, you could collect interest rate on it (let's assume 5%).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's compare two cases:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A) I gave you $100 a year ago.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;B) I give you $100 now.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the first case, you'd have collected interest and now be at $105.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the second case you'd only have $100.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note this same logic applies to expenses. You can pay me $100 now.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or you can pay me $100 next year (and keep the interest for yourself).&lt;/p&gt;&#xA;" OwnerUserId="4808" LastActivityDate="2018-10-10T17:03:09.207" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24934" PostTypeId="2" ParentId="24932" CreationDate="2018-10-10T17:08:51.960" Score="1" Body="&lt;p&gt;A certain amount of money is worth more now than it is later. &lt;strong&gt;That's true whether you're spending or receiving the money.&lt;/strong&gt; I'd rather get paid today than tomorrow, since it's worth more today. Likewise, I'd rather pay my debts tomorrow rather than today, since it's worth less tomorrow. Future income is worth less than present income, and future expenses are less costly than present expenses.&lt;/p&gt;&#xA;" OwnerUserId="7030" LastActivityDate="2018-10-10T17:08:51.960" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24935" PostTypeId="1" CreationDate="2018-10-10T17:40:55.640" Score="0" ViewCount="611" Body="&lt;p&gt;I do not have any background on economics. So my question might sound too simple and I hope it to be clear enough. I am curious about the following: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there any formal definition of a relationship between resource availability and demand? Intuitively I would expect that resource shortage, demand would increase. But this is not expected by the law of demand, assuming that the price of the resource would increase. Am I confusing something here?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you,&#xA;best&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;EDIT 1:&lt;/strong&gt; &lt;strong&gt;@Brythan&lt;/strong&gt; Thank you for your answer. &lt;strong&gt;@EnergyNumbers&lt;/strong&gt; and &lt;strong&gt;@erik&lt;/strong&gt; thank you for your contributions. They were very useful to understand these concepts deeper. I was reading a little more about this and I wonder if the concept of scarcity is instead better applied here. I reformulate my question: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;(1)&lt;/strong&gt; does supply-induced scarcity implies that demanded is greater than supply?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;(2)&lt;/strong&gt; what is the correlation between supply-induced scarcity and quantity demanded?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;EDIT 2:&lt;/strong&gt; To be more clear, I understand that scarcity does not necessarly refer &quot;to whether a good is in shortage or surplus, nor to whether there are only a few or whether there are many&quot;. That is to say that scarcity is not the same as availability. Instead, scarcity &quot;refers to the possible existence of conflict over the possession of a finite thing&quot; (&lt;a href=&quot;https://mises.org/library/goods-scarce-and-nonscarce&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://mises.org/library/goods-scarce-and-nonscarce&lt;/a&gt;). The scarcity of a good (or a resource) happens when supply is not sufficient to meet the demand. &quot;Supply-induced scarcity occurs when environmental degradation, pollution, natural variation or a breakdown in the delivery infrastructure constrains or reduces the total supply or local availability of a specific resource. As the supply of natural resources is reduced, options for pursuing productive livelihood strategies are undermined, potentially creating competition between livelihood groups.&quot; (&lt;a href=&quot;http://www.un.org/en/events/environmentconflictday/pdf/GN_Renewable_Consultation.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.un.org/en/events/environmentconflictday/pdf/GN_Renewable_Consultation.pdf&lt;/a&gt;). That is, supply-induced scarcity is correlated with the resource availability.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now concerning the questions &lt;strong&gt;(1)&lt;/strong&gt; and &lt;strong&gt;(2)&lt;/strong&gt;, it seems reasonable to say that in circumstances of supply-induced scarcity, when a decrease on the availability of a resource happens, because supply is not sufficient to meet the demand, the quantity demanded is higher than in circumstances closer to equilibrium. Does this make sense to you?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now returning to my original question:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;Is there any formal definition of a relationship between resource availability and demand?&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;I do not know how to answer it. But taking into account the conclusions above it seems plausible to say that there is a relationship between resource availability and &lt;strong&gt;quantity&lt;/strong&gt; of demand (instead of demand): in circumstances of supply-induced scarcity the quantity of demand may increase.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What do you think?&lt;/p&gt;&#xA;" OwnerUserId="19723" LastEditorUserId="19723" LastEditDate="2018-10-12T15:05:09.147" LastActivityDate="2018-12-11T16:03:05.620" Title="Is there any formal definition of a relationship between resource availability and demand?" Tags="&lt;microeconomics&gt;&lt;supply-and-demand&gt;&lt;definition&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="24936" PostTypeId="2" ParentId="24926" CreationDate="2018-10-10T20:39:44.837" Score="3" Body="&lt;p&gt;A type-1 seller will trade her car only if the car's measure of quality &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; (privately known) is less than or equal to the average car quality in the market, &lt;span class=&quot;math-container&quot;&gt;$\mu$&lt;/span&gt;. &lt;span class=&quot;math-container&quot;&gt;$x \in [0,2]$&lt;/span&gt; since no buyer values a car more than &lt;span class=&quot;math-container&quot;&gt;$2$&lt;/span&gt; and a car cannot be sold for less than &lt;span class=&quot;math-container&quot;&gt;$0$&lt;/span&gt;. To find the probability of a car having quality less than or equal to &lt;span class=&quot;math-container&quot;&gt;$\mu$&lt;/span&gt;, we consider the CDF of &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$F(x)$&lt;/span&gt;, assuming &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; is uniformly distributed over the support &lt;span class=&quot;math-container&quot;&gt;$[0,2]$&lt;/span&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;F(x)=&#xA;\begin{cases}&#xA;0 &amp;amp;&amp;amp; x \leq 0 \\ &#xA;\frac{x}{2} &amp;amp;&amp;amp; x \in  [0,2] \\ &#xA;1 &amp;amp;&amp;amp; x \geq 2.&#xA;\end{cases}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the probability that a car has &lt;span class=&quot;math-container&quot;&gt;$x \leq \mu$&lt;/span&gt; is &lt;span class=&quot;math-container&quot;&gt;$P(x \leq \mu) = F(\mu) = \frac{\mu}{2}$&lt;/span&gt;. A seller facing a price &lt;span class=&quot;math-container&quot;&gt;$p$&lt;/span&gt; for her car becomes indifferent towards selling at &lt;span class=&quot;math-container&quot;&gt;$\mu = p \implies F = \frac{p}{2}$&lt;/span&gt;. Scaling up by a total of &lt;span class=&quot;math-container&quot;&gt;$N$&lt;/span&gt; cars possessed by type-1 sellers implies that the market supply from type-1 sellers is &lt;span class=&quot;math-container&quot;&gt;$S_1(p) = \frac{p}{2}N$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerUserId="14688" LastEditorUserId="14688" LastEditDate="2018-10-11T02:27:40.317" LastActivityDate="2018-10-11T02:27:40.317" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24937" PostTypeId="1" AcceptedAnswerId="24938" CreationDate="2018-10-10T21:46:22.323" Score="1" ViewCount="34" Body="&lt;p&gt;My current understanding is that &lt;a href=&quot;https://washingtonsblog.com/2011/04/excessive-leverage-helped-cause-the-great-depression-and-the-current-crisis-and-government-responds-by-encouraging-more-leverage.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;excessive leverage caused the Great Recession&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are there existing metrics for measuring the levels of leverage currently used in the US financial sector (lending, investing, bonds, etc.)?&lt;/p&gt;&#xA;" OwnerUserId="14816" LastEditorUserId="14816" LastEditDate="2018-10-10T22:29:10.383" LastActivityDate="2018-10-12T22:34:41.940" Title="Existing metrics for amounts of leverage used in financial sector" Tags="&lt;data-request&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24938" PostTypeId="2" ParentId="24937" CreationDate="2018-10-10T22:39:17.147" Score="1" Body="&lt;p&gt;The first place to start is the Federal Reserve’s Flow of Funds report (Z.1) - &lt;a href=&quot;https://www.federalreserve.gov/releases/z1/current/&quot; rel=&quot;nofollow noreferrer&quot;&gt;link to Fed website&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It has aggregate balance sheets on an instrument and sector basis (including the financial sector, as well as its components). One can then look at growth rates, or scale relative to national income/GDP.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Although I have personal preferences on what data I would look at, someone else might be able to suggest studies on particular indicators.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2018-10-10T22:39:17.147" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24939" PostTypeId="2" ParentId="24929" CreationDate="2018-10-10T22:52:45.333" Score="1" Body="&lt;p&gt;I’ll offer brief answers to the sub-questions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;“Who owns the debt?” You might be able to find information in Canada’s financial accounts data, but all provinces are likely aggregated. Finance Quebec may voluntarily post some information on holders, but I am unaware of any sources in the public domain.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;“What happens when a &lt;em&gt;province&lt;/em&gt; falls in the red?” Canadian provincial finance is very different than American state finance. If “fall in the red” means “runs a fiscal deficit,” the province will just issue bonds.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;“Is it possible for a &lt;em&gt;province&lt;/em&gt; to no longer borrow?” Unlike American states, there are no balanced budget laws in Canadian provinces. The “limit” is the inability to float bonds in the bond markets. The Social Credit government in Alberta was forced to default in the Great Depression (1930s), and I believe that was the only post-Confederation (1867) provincial default. (It’s hard to find an authoritative reference for that statement, sorry.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;“Is there a finite anount it can borrow?” The only limit is what it can get from auctioning bonds to investors. There is no iron law determining an upper limit for that, but realistically debt levels will be compared to past history and the situation of other provinces.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A single province is relatively small when compared to aggregate borrowing/lending in the Canadian dollar financial system. Therefore, a province is unlikely to hit some aggregate “limit,” rather it is a question of whether investors are willing to allocate their portfolios towards the province. For example, if investors fear default, they will not be happy to lend, no matter how much balance sheet capacity they have to buy bonds. Discussing the aggregate lending capacity is controversial, and I am deliberately ducking that question. That should be a separate question.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastEditorUserId="12891" LastEditDate="2018-10-12T14:38:03.533" LastActivityDate="2018-10-12T14:38:03.533" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24940" PostTypeId="2" ParentId="24935" CreationDate="2018-10-11T01:56:58.337" Score="1" Body="&lt;p&gt;I'm going to take a stab at providing the information that I think that you want, but I won't be answering the question that you asked. If this doesn't help you, consider changing the question as I don't think that we are necessarily understanding it.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;TL;DR&lt;/strong&gt;:  Resource availability and demand are mostly unrelated.  If anything, low resource availability will reduce demand (in the long term, not the short term).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Resource availability has no direct effect on the demand curve.  The demand curve reflects how people &lt;em&gt;value&lt;/em&gt; the resource.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Availability determines the supply curve, which measures the cost of production.  I.e. at a specific quantity supplied, the supply curve will give a specific price.  That is often a marginal price.  That is to say, it is the price at which the last unit can be produced.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In general, in a market economy, the quantity supplied and the quantity demanded are the same.  And that value occurs when the demand and supply curves intersect.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've been using a term, quantity demanded, with which you may not be familiar.  It may be that what I call quantity demanded is what you are thinking about when you say demand.  That happens sometimes.  Demand in economics is generally a graph of how the quantity demanded will change based on price.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In general, if a resource is constrained, this moves the supply curve (and may change its shape).  A constraint will move the supply curve to the left.  Since supply curves generally slope up and demand curves slope down (the higher the price, the more people will find a way to supply; the higher the price, less people will demand at that price), moving supply to the left will reduce the quantity supplied/demanded.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Meanwhile, there will be a bunch of people who would like to buy the resource but not at that price.  These also may be the people you think of as &quot;increased demand.&quot;  From an economic perspective, this unmet demand is not measured beyond that.  It is the portion of the demand curve to the right of the quantity demanded.  That area will increase if the demand curve stays the same while the quantity demanded shifts left.  Most economists would not refer to this as increased demand, but you may be.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now all that's the short term reaction.  In the long term, lack of a resource may cause demand for the resource to drop.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider gasoline.  Let's assume that it becomes constrained.  Initially, in the short term, my only real options are to pay more or drive less.  But in the long term, I can get a different car.  My new car may run on natural gas or electricity.  But if I do that, then the gasoline demand curve changes.  Not by a lot, as I'm only one person.  But if many other people do the same thing, collectively we shift the demand curve.  It would be reasonable then to say that lack of availability reduced demand in the long term.  &lt;/p&gt;&#xA;" OwnerUserId="68" LastActivityDate="2018-10-11T01:56:58.337" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24941" PostTypeId="2" ParentId="24919" CreationDate="2018-10-11T03:17:40.103" Score="2" Body="&lt;p&gt;In response to our &lt;a href=&quot;https://economics.meta.stackexchange.com/questions/1465/economics-se-policy-on-homework-questions&quot;&gt;policy on homework questions&lt;/a&gt;, I will work on the following abstract version of your question:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;A single prize is to be allocated by an all-pay auction. Assume the value of the prize is 1 to both bidders, and this is common knowledge. Both bidders have a budget constraint &lt;span class=&quot;math-container&quot;&gt;$m$&lt;/span&gt;. If there is a tie, each bidder receives the prize with &lt;span class=&quot;math-container&quot;&gt;$\frac{1}{2}$&lt;/span&gt; probability. Find a Nash Equilibrium in this game.&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We shall focus on the symmetric equilibrium in this game, that is, both bidders are using the same equilibrium strategy. Before we get started, let's make two observations:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Claim 1&lt;/strong&gt;: Whenever there is a mass point in the equilibrium strategy (i.e. there is positive probability to submit one bid), this mass should be put on the upper bound &lt;span class=&quot;math-container&quot;&gt;$m$&lt;/span&gt;. For if not, one bidder can always deviate to a slightly higher bid and obtain higher surplus. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Claim 2&lt;/strong&gt;: Whenever a bidder randomizes, the bid should be uniformly drawn from &lt;span class=&quot;math-container&quot;&gt;$(0,t)$&lt;/span&gt;, and the probability that this happens should be &lt;span class=&quot;math-container&quot;&gt;$t$&lt;/span&gt;. This is because only in this case, a bidder is indifferent between any bid &lt;span class=&quot;math-container&quot;&gt;$b\in(0,t)$&lt;/span&gt;: &#xA;&lt;span class=&quot;math-container&quot;&gt;$$\text{Expected payoffs}=t\cdot \frac{b}{t}\cdot 1-b=0.$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, we can guess that the equilibrium strategy takes the form&#xA;&lt;span class=&quot;math-container&quot;&gt;$$t\cdot \text{Uniform}(0,t)+(1-t)\cdot\delta_m.$$&lt;/span&gt;&#xA;That is, with probability &lt;span class=&quot;math-container&quot;&gt;$t$&lt;/span&gt;, a bidder submits a bid uniformly drawn from &lt;span class=&quot;math-container&quot;&gt;$(0,t)$&lt;/span&gt;, and with complementary probability she submits &lt;span class=&quot;math-container&quot;&gt;$m$&lt;/span&gt;. The only thing left is to pin down &lt;span class=&quot;math-container&quot;&gt;$t$&lt;/span&gt;. Note that if this is an equilibrium strategy, a bidder should be indifferent between any bid &lt;span class=&quot;math-container&quot;&gt;$b\in(0,t)\cup\{m\}$&lt;/span&gt;. Therefore, the payoffs from submitting &lt;span class=&quot;math-container&quot;&gt;$m$&lt;/span&gt; should also be 0, i.e.&#xA;&lt;span class=&quot;math-container&quot;&gt;$$t\cdot 1+(1-t)\cdot\frac{1}{2}-m=0,$$&lt;/span&gt;&#xA;which implies &lt;span class=&quot;math-container&quot;&gt;$t=2m-1$&lt;/span&gt;. (Notice that for the existence of such an equilibrium, we must have &lt;span class=&quot;math-container&quot;&gt;$2m&amp;gt;1$&lt;/span&gt;.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, a Nash Equilibrium in this game is that both bidders play the strategy&#xA;&lt;span class=&quot;math-container&quot;&gt;$$(2m-1)\cdot \text{Uniform}(0,2m-1)+(2-2m)\cdot\delta_m.$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How does it map back to the original problem? I believe the OP can take it from here.&lt;/p&gt;&#xA;" OwnerUserId="6014" LastActivityDate="2018-10-11T03:17:40.103" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24942" PostTypeId="1" AcceptedAnswerId="24952" CreationDate="2018-10-11T03:42:26.017" Score="1" ViewCount="322" Body="&lt;p&gt;In every textbook it says that it is easy to see that with no income effect, the integral&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\int_{p^0_1}^{p^1_1} \! h(p,u_0) \mathrm{d}p_1. = \int_{p^0_1}^{p^1_1} \! h(p,u_1) \, \mathrm{d}p_1$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Could someone explain to me why?&lt;/p&gt;&#xA;" OwnerUserId="19727" LastActivityDate="2018-10-11T18:50:25.117" Title="Proof that EV = CV when there is no income effect" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24944" PostTypeId="2" ParentId="11792" CreationDate="2018-10-11T08:47:11.803" Score="0" Body="&lt;p&gt;First understand the concept of debt to GDP ratio %. It means country's ability to repay it's debt. Means 240% means Japan has 2.4 times directly reserves to meet it's external debt. It is a good sign low % is a bad sign. Lower than 100% is a bad sign.&lt;/p&gt;&#xA;" OwnerUserId="19730" LastActivityDate="2018-10-11T08:47:11.803" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24946" PostTypeId="1" AcceptedAnswerId="29268" CreationDate="2018-10-11T11:35:27.777" Score="2" ViewCount="136" Body="&lt;p&gt;For the productions &lt;span class=&quot;math-container&quot;&gt;$f(k,l) $&lt;/span&gt; that are continuously differentiable, is the proposition  that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;&lt;span class=&quot;math-container&quot;&gt;$f(k,l)$&lt;/span&gt; is decreasing return to scale &lt;span class=&quot;math-container&quot;&gt;$\Leftrightarrow f_{ll}f_{kk}-f_{kl}^2&amp;gt;0$&lt;/span&gt;&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;always true, I have checked for Cobb-Douglas functions and believe it will also hold for all Constant-Elasticity fuction, can someone give me some hints or show some counter-examples?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here we define &lt;span class=&quot;math-container&quot;&gt;$f(k,l)$&lt;/span&gt; to be decreasing return to scale if &lt;span class=&quot;math-container&quot;&gt;$ f(tk,tl)&amp;lt;tf(k,l)$&lt;/span&gt; for &lt;span class=&quot;math-container&quot;&gt;$t&amp;gt;1$&lt;/span&gt; for all &lt;span class=&quot;math-container&quot;&gt;$(k,l)$&lt;/span&gt; in the domain.&lt;/p&gt;&#xA;" OwnerUserId="18093" LastEditorDisplayName="user17900" LastEditDate="2019-04-10T10:35:14.360" LastActivityDate="2019-05-10T19:31:11.087" Title="Is &quot;$f(k,l)$ is decreasing return to scale $\Leftrightarrow f_{ll}f_{kk}-f_{kl}^2&gt;0$&quot; always true?" Tags="&lt;production-function&gt;&lt;profit-maximization&gt;&lt;cost-functions&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24947" PostTypeId="1" CreationDate="2018-10-11T12:30:02.980" Score="1" ViewCount="184" Body="&lt;p&gt;I teach a general equilibrium class in my university and I want to have an exercise that is not too difficult where the Lagrangian multiplier is needed. I was under the impression that with Cobb Douglas and 3 goods I could force them to use it but in the end it turned out that they could easily solve it without it. Is there a rule of thumb or an exercise for what kind of problems force students to use the Lagrangian? To be clear, I want an example with exchange. &lt;/p&gt;&#xA;" OwnerUserId="18784" LastEditorUserId="18784" LastEditDate="2018-10-11T15:43:53.743" LastActivityDate="2019-04-09T18:03:50.773" Title="Exercise where lagrangian is needed?" Tags="&lt;utility&gt;&lt;general-equilibrium&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24948" PostTypeId="1" CreationDate="2018-10-11T13:39:12.467" Score="17" ViewCount="12000" Body="&lt;p&gt;I notice that there seems to be little or no change in car prices over the last 20 years and they seem to be unaffected by inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, a Toyota Camry sold for about \$23,000 +/- \$2,000 (MSRP) around 1999-2000, and currently it sells for about the same.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why is this?&lt;/p&gt;&#xA;" OwnerUserId="1448" LastEditorUserId="1448" LastEditDate="2018-10-12T10:41:21.557" LastActivityDate="2019-08-26T20:04:51.743" Title="Car prices haven't changed in 20 years, no inflation?" Tags="&lt;inflation&gt;&lt;price&gt;&lt;united-states&gt;" AnswerCount="10" CommentCount="10" FavoriteCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24949" PostTypeId="2" ParentId="24947" CreationDate="2018-10-11T14:55:29.127" Score="1" Body="&lt;p&gt;I think a situation in which corner solutions may occur would be more fruitful. Cobb-Douglass ensures an interior solution, so they can use the expenditure share trick pretty easily, for any number of goods. Perhaps a really simple CES function, like &lt;span class=&quot;math-container&quot;&gt;$x^.5+y^.5+z^{.5}$&lt;/span&gt;? Or, if you still want an interior solution, pick something that's not a well-known function, but where marginal utility becomes infinite as either good approaches 0, like &lt;span class=&quot;math-container&quot;&gt;$\ln(x) - \frac{1}{\sqrt{y}} - \frac{1}{z}$&lt;/span&gt; You'll still get tidy derivatives, but substitution won't be possible.&lt;/p&gt;&#xA;" OwnerUserId="16229" LastActivityDate="2018-10-11T14:55:29.127" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="24950" PostTypeId="2" ParentId="24946" CreationDate="2018-10-11T15:03:16.473" Score="-1" Body="&lt;p&gt;For a single output production function, decreasing returns to scale does imply concavity of &lt;span class=&quot;math-container&quot;&gt;$f$&lt;/span&gt;. I believe you can find this result in Ch5 of MWG, either as a proposition or an exercise. The condition you have comes from considering the Hessian of &lt;span class=&quot;math-container&quot;&gt;$f$&lt;/span&gt;, and showing that the determinant is positive. For more on the Hessian Conditions, this is a handy reference: &lt;a href=&quot;https://mjo.osborne.economics.utoronto.ca/index.php/tutorial/index/1/cvn/t&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://mjo.osborne.economics.utoronto.ca/index.php/tutorial/index/1/cvn/t&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="16229" LastActivityDate="2018-10-11T15:03:16.473" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24951" PostTypeId="2" ParentId="24948" CreationDate="2018-10-11T15:47:53.983" Score="22" Body="&lt;p&gt;Inflation is measured against a basket of goods. It's a symptom of what's going on in markets. Some products go up in price over time. Some go down in time. Some stay the same price, but change their specification.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So it's looking down the wrong end of the microscope, to ask why inflation hasn't affected car prices. Car prices are part of inflation. Changes in car prices affect inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The causal link the other way is very very weak. Inflation puts pressure on wages. If this causes wages to rise, then the cost curve shifts, and equilibrium prices change. But for cars, wage costs are a very small part of total car manufacturing cost. And the market for labourers in the industry has shrinking demand and over-supply, so upward pressures are very weak.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The inflation experienced by car manufacturers is very different to the inflation experienced by the public. We've been through a global financial crisis and a super-cycle in commodities. A general-public inflation measure is a very poor measure of input-cost inflation for car manufacturers.&lt;/p&gt;&#xA;" OwnerUserId="44" LastEditorUserId="44" LastEditDate="2018-10-12T11:01:41.723" LastActivityDate="2018-10-12T11:01:41.723" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24952" PostTypeId="2" ParentId="24942" CreationDate="2018-10-11T18:50:25.117" Score="1" Body="&lt;p&gt;This is because when the Marshallian demand &lt;span class=&quot;math-container&quot;&gt;$x_i(p,w)$&lt;/span&gt; is constant in &lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt; (i.e. no income effect), the Hicksian demand &lt;span class=&quot;math-container&quot;&gt;$h_i(p,u)$&lt;/span&gt; is constant in &lt;span class=&quot;math-container&quot;&gt;$u$&lt;/span&gt;. To see this, we only need to apply the relation&#xA;&lt;span class=&quot;math-container&quot;&gt;$$h_i(p,u)=x_i(p,e(p,u)).$$&lt;/span&gt;&#xA;For &lt;span class=&quot;math-container&quot;&gt;$u^0\neq u^1$&lt;/span&gt;, we have&#xA;&lt;span class=&quot;math-container&quot;&gt;$$h_i(p,u^0)=x_i(p,e(p,u^0))=x_i(p,e(p,u^1))=h_i(p,u^1).$$&lt;/span&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, &#xA;&lt;span class=&quot;math-container&quot;&gt;$$\int_{p^0_1}^{p^1_1} \! h_i(p,u^0) \mathop{dp_1} = \int_{p^0_1}^{p^1_1} \! h_i(p,u^1) \, \mathop{dp_1}.$$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="6014" LastActivityDate="2018-10-11T18:50:25.117" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24953" PostTypeId="2" ParentId="24948" CreationDate="2018-10-11T18:51:44.733" Score="8" Body="&lt;p&gt;Specifically treating car prices, well, the prices are determined globally and not necessarily in dollars&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;In the last 20 years:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Car manufacturers move factories across borders to save costs, China and India have become major market player both as major manufacturers and as a major consumers&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a result of these causes, an additional major impact was added, which is the exchange currencies' exchange rates.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;For the last 10 years:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Following the global economic crisis, interest rates dropped to practically zero worldwide, trying, among other things, to encourage local exports, in what was called a &quot;currency war&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The last major impact, that I can add, might sound trivial, but it's there: the technology improvements implemented in car factories over the past 20 years, must have dropped the cost of manufacturing, for the same vehicles. meaning: either vehicles cost remained similar but cars got better, so products are not that comparable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Or:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Vehicle manufacturing in the same place, over time got cheaper.&lt;/p&gt;&#xA;" OwnerUserId="19195" LastEditorUserId="4436" LastEditDate="2018-10-12T08:38:24.180" LastActivityDate="2018-10-12T08:38:24.180" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24955" PostTypeId="2" ParentId="24948" CreationDate="2018-10-11T21:44:43.297" Score="14" Body="&lt;p&gt;You also didn't look at car prices in general but rather just the Toyota Camry. For example a 2001 BMW M3 was ~\$46,000 while a 2018 BMW M3 is ~\$66,000.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Most cars have increased in price over the last 20 years, but some manufacturers will always have a cheap car in their lineup . &lt;/p&gt;&#xA;" OwnerUserId="19740" LastEditorUserId="19740" LastEditDate="2018-10-11T22:18:25.430" LastActivityDate="2018-10-11T22:18:25.430" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="24958" PostTypeId="2" ParentId="24090" CreationDate="2018-10-12T00:01:44.013" Score="1" Body="&lt;p&gt;You could also consider any additively separable utility function (the Cobb Douglas form can be transformed to be additively separable). Then marginal utility of a good depends only on the consumption of that good, which makes it very easy to find the demands. If for whatever reason, you aren't happy with Cobb-Douglas, this is a nice generalization. You can also pick functions that go to &lt;span class=&quot;math-container&quot;&gt;$-\infty$&lt;/span&gt; when the input is 0 to ensure interior solutions.&lt;/p&gt;&#xA;" OwnerUserId="16229" LastActivityDate="2018-10-12T00:01:44.013" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24963" PostTypeId="2" ParentId="24931" CreationDate="2018-10-12T08:22:48.900" Score="-1" Body="&lt;p&gt;Generally, only the top 1% pay significant taxes. Nearly half of taxes in the US are paid by the top 1% of taxpayers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So in order to pay an average tax burden you need to make hundreds of K a year.&lt;/p&gt;&#xA;" OwnerUserId="19750" LastActivityDate="2018-10-12T08:22:48.900" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24965" PostTypeId="2" ParentId="24948" CreationDate="2018-10-12T09:51:33.267" Score="0" Body="&lt;p&gt;I do remember Camry's around $25k in the beginning of 2000s!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If our memories don't fail us, you are right the inflation hasn't touched Camry's price. This phenomenon in fact happens very often mostly for these reasons:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Production technologies improve and the companies can produce the same unit of product with less resources. This effects high tech products, e.g. some cars, computers&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Production process improves: supply chains improvements, outsourcing, etc. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Quality of the product decreases. E.g. some processed foods contain less protein now and more sugar and fat&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Patents expire&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Regulations, taxes, tariffs, etc. are lowered&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;There are many more of course but these I think are the most common and significant. I won't attempt to guess how many, if any, of these affected the Camry price. Probably a few. Sometimes several factors pull in different directions and some outweigh the other.&lt;/p&gt;&#xA;" OwnerUserId="6231" LastActivityDate="2018-10-12T09:51:33.267" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24967" PostTypeId="1" AcceptedAnswerId="24974" CreationDate="2018-10-12T10:20:17.240" Score="1" ViewCount="163" Body="&lt;p&gt;If preferences are identical and homogeneous, then show that market demand for any good must&#xA;be independent of the distribution of income.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My workings are as follows: &#xA;&lt;span class=&quot;math-container&quot;&gt;$$q^{d}(p)=\sum_{i=1}^{n}f(p_x,p_{-x},I)$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$q^{d}(p)=f(p_{x},p_{-x})\sum_{i=1}^{n}I$$&lt;/span&gt;&#xA;Here, &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; is the price of that particular good and &lt;span class=&quot;math-container&quot;&gt;$(-x)$&lt;/span&gt; is the price vector of all the rest of the goods except &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;. Market demand is given by the submission of all consumers from &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt; to &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt;.&lt;br&gt;&#xA;But, I'm still confused how this function is multiplicatively separable in the price vector &lt;span class=&quot;math-container&quot;&gt;$P$&lt;/span&gt;.Can someone give a proof of it. &#xA;Thanks!&lt;/p&gt;&#xA;" OwnerUserId="18667" LastActivityDate="2018-10-12T17:09:43.123" Title="Market demand independent of distribution of income" Tags="&lt;microeconomics&gt;&lt;supply-and-demand&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24968" PostTypeId="2" ParentId="24948" CreationDate="2018-10-12T10:37:43.293" Score="1" Body="&lt;p&gt;A quick search led me to this (rather outdated) page indicating that average new car prices actually went down for some time, when corrected for inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So it is definitely not the case that prices don't increase, but perhaps not as fast as you see other things increase.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://seekingalpha.com/article/81546-real-prices-for-new-cars-keep-going-down&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://seekingalpha.com/article/81546-real-prices-for-new-cars-keep-going-down&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My personal intuition is that in the period of 1988 to 2006 cars have become less of a luxury good and more of a commodity. Which is why they became not as expensive as they could have been.&lt;/p&gt;&#xA;" OwnerUserId="19756" LastActivityDate="2018-10-12T10:37:43.293" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24969" PostTypeId="2" ParentId="24931" CreationDate="2018-10-12T10:54:05.390" Score="-1" Body="&lt;p&gt;The premise of the question is fundamentally flawed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;People contribute to the economy, and therefore to the exchequer, as much through their actions as their direct taxes. The most obvious example of this is that salaried workers produce more than they are paid, and this excess provides profits to the company and its owners, but it also operates through simple consumption and unpaid labour. Thus calculating that someone paid X taxes and received Y services and so has a net X-Y balance is essentially meaningless because it is a far too narrow conception of how people contribute.&lt;/p&gt;&#xA;" OwnerUserId="4825" LastActivityDate="2018-10-12T10:54:05.390" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="24973" PostTypeId="2" ParentId="24948" CreationDate="2018-10-12T15:14:29.643" Score="0" Body="&lt;p&gt;Price is just a signal indicative of the money supply, and the product market supply &amp;amp; demand. It may not carry any information on quality or intrinsic value. The cars today have in general much better functionalities than 20 years ago, so I think the comparison is rather on the value of a personal transportation vehicle, not on the cars itself. Something like medical oxygen or diamonds that is mostly homogeneous might provide better comparison. &lt;/p&gt;&#xA;" OwnerUserId="19765" LastActivityDate="2018-10-12T15:14:29.643" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24974" PostTypeId="2" ParentId="24967" CreationDate="2018-10-12T16:22:11.550" Score="2" Body="&lt;p&gt;I take homogeneity of preferences here to mean that preferences are homothetic; that is, preferences can be represented by a utility function that is homogeneous of degree one. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For an arbitrary good &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; and a vector of prices &lt;span class=&quot;math-container&quot;&gt;$\mathbf{p}$&lt;/span&gt;, let individual demand be &lt;span class=&quot;math-container&quot;&gt;$x_i(\mathbf{p}, M_i)$&lt;/span&gt; for each consumer &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; with income &lt;span class=&quot;math-container&quot;&gt;$M_i$&lt;/span&gt;. Thus market demand is &lt;span class=&quot;math-container&quot;&gt;$D = \sum_{i} x_i(\mathbf{p},M_i)$&lt;/span&gt;. Since preferences are identical, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\sum_{i} x_i(\mathbf{p},M_i) = \sum_{i} x(\mathbf{p},M_i).$$&lt;/span&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, by homogeneity, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\sum_{i} x(\mathbf{p},M_i) = \sum_{i} x(\mathbf{p},1) M_i = x(\mathbf{p},1) \sum_{i} M_i = x(\mathbf{p},1)M,$$&lt;/span&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;where &lt;span class=&quot;math-container&quot;&gt;$\sum_i M_i = M$&lt;/span&gt; is aggregate consumer income. Thus &lt;span class=&quot;math-container&quot;&gt;$D$&lt;/span&gt; is independent of the &lt;em&gt;distribution&lt;/em&gt; of income and is solely a function of aggregate income across consumers, &lt;span class=&quot;math-container&quot;&gt;$M$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerUserId="14688" LastEditorUserId="14688" LastEditDate="2018-10-12T17:09:43.123" LastActivityDate="2018-10-12T17:09:43.123" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24975" PostTypeId="2" ParentId="24915" CreationDate="2018-10-12T17:44:59.693" Score="1" Body="&lt;p&gt;It happens in reality, pretty much as described in the book, not far from what you wrote&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Say that the fed would like to buy UK bonds. Since UK bonds are issued in pounds, in order to buy them, the Fed will have to 1st buy pounds, in exchange for dollars, which didn't previously exists.&#xA;In this case, more dollars will enter circulation, and the money supply will rise.&#xA;In parallel, the dollar exchange rate will increase against the pound, that is the dollar will weaken.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Its the same logic that  domestic bonds: buying domestic government bonds, in exchange for previously non-existing dollars, would increase money supply.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In today's free capital markets, there isn't any essential difference between the two, because of arbitrage:&#xA;In the case of buying foreign bonds, and rising pound rate, euro holders, for example, for them rates remained unchanged , will buy dollars to sell pounds, until a new euro rate will be set.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Similarly, a local increase in inflation, due to purchasing domestic bonds, will effect exchange rates, as local currency value would fall.&lt;/p&gt;&#xA;" OwnerUserId="19195" LastEditorUserId="1601" LastEditDate="2018-10-13T07:45:01.433" LastActivityDate="2018-10-13T07:45:01.433" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24976" PostTypeId="2" ParentId="24948" CreationDate="2018-10-12T17:58:54.307" Score="2" Body="&lt;p&gt;You're not considering that today's $23,000 car might not be the same car as the one from 20 years ago, or that the costs of its manufacture might not be the same.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;While the &quot;basket of goods&quot; another answerer referred to has simple items in it like rice, soap, tee-shirts and hammers, a car is a very poor item to measure inflation with, because of its complexity. Hundreds of parts and indeed hundreds of different types of materials go into it. Many dozens of different raw commodities are involved. Scores of different kinds of worker inputs are involved, with probably thousands of different individual contributors adding value along the way before you get your car.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Today's \$23,000 car is probably made with cheaper materials. A 20-year-old Camry today probably feels cheap-o compared to a brand-new one, but, &lt;strong&gt;at the time&lt;/strong&gt;, a brand-new Camry at that price point 20 years ago probably felt reasonably decent compared to other Camrys at lower trim levels and other cars at lower price points. Today's $23K Camry on the other hand feels cheap-o compared to the premium trim Camry and compared to other cars at higher price points with more premium materials.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That's one factor. Another is, today's cars are produced with 20 years' worth of production efficiency improvements. So even with the 20 years worth of technology improvements which make today's Camry a more advanced car than the 20-year-old one, it's still cheaper because cheaper ways to automate production have been found.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Products like this are really really bad things to use to judge inflation. Today's iphones cost about the same as those from 10 years ago too (in nominal dollars), but they're clearly way way more phone for your money. Something today with five million times the computing power of something which took a Congressional appropriation 60 years ago costs a five-millionth as much as that dinosaurian system.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Certain things work against the inflationary trend, on the surface, but really tell you nothing whatsoever about inflation.&lt;/p&gt;&#xA;" OwnerUserId="14214" LastActivityDate="2018-10-12T17:58:54.307" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24977" PostTypeId="2" ParentId="24948" CreationDate="2018-10-12T19:05:55.687" Score="-2" Body="&lt;p&gt;Lets start from the beginning, there is no such thing as inflation/economic growth ( TINSTAIEG, similar to TINSTAAFL ). Because when you expose the methodology, you get arbitrary view which depends on the judge who defines methodology. One rule have worked for ages, but only for long-long-distance - price of Money, i.e. the price of Gold/Silver troz. But this classic approach, though free from third-party risks, does not answer the question &quot;What is inflation anyway?&quot; entirely. Merely it does another definition.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we go with the car price in gold ounces, we are having slow deflation over last decades. High gasoline was holding car sells in emerging markets, because of that many Korean manufacturers were bankrupt. Some of those are now Tata Motors - in India. In Russia major car maker AutoVAZ-Renault, was having problems in last 20 years to even sustain the quality of product.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From the other side, there is even more pressure in the market, Tesla is pushing with heavy weight to shift the market to their side, if Tesla succeed in the end, they will destroy traditional market. But they are fighting heavy battle with arabs, who control the petroleum market. Todays cars are mostly just the arm of petroleum &quot;big politics&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;High oil price will return, and it really &lt;em&gt;does&lt;/em&gt; hold the car price. &lt;strong&gt;Inflation flows, just the other way.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Nice question, my Austrian colleague!&lt;/p&gt;&#xA;" OwnerUserId="19770" LastActivityDate="2018-10-12T19:05:55.687" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24978" PostTypeId="1" CreationDate="2018-10-12T22:14:44.310" Score="-1" ViewCount="347" Body="&lt;p&gt;I'm a student at a faculty of economics. The professor asked us a question to which I still can not find an answer, which is why entrepreneurship is part of the production factors?&#xA;I would be very grateful to you!&lt;/p&gt;&#xA;" OwnerUserId="19774" LastActivityDate="2018-10-14T19:12:46.133" Title="Why is entrepreneurship a factor of production?" Tags="&lt;economic-growth&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="24980" PostTypeId="1" CreationDate="2018-10-12T22:43:31.957" Score="0" ViewCount="102" Body="&lt;p&gt;The Z.1 Fed data can be found &lt;a href=&quot;https://fred.stlouisfed.org/tags/series?t=z1&quot; rel=&quot;nofollow noreferrer&quot;&gt;in FRED&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I notices that many similar data sets are labelled &quot;Flow&quot; or &quot;Level&quot;. For example,&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://fred.stlouisfed.org/series/FBTLLIQ027S&quot; rel=&quot;nofollow noreferrer&quot;&gt;Financial business; total liabilities, Flow&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://fred.stlouisfed.org/series/FGTLBLQ027S&quot; rel=&quot;nofollow noreferrer&quot;&gt;Federal government; total liabilities, Level&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://fred.stlouisfed.org/series/FBTFASQ027S&quot; rel=&quot;nofollow noreferrer&quot;&gt;Financial business; total financial assets, Level&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;And sometimes, the Level version for a Flow series doesn't exist or vice verse.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is the difference?&lt;/p&gt;&#xA;" OwnerUserId="14816" LastActivityDate="2018-12-12T01:02:05.747" Title="Difference between &quot;Level&quot; and &quot;Flow&quot; in the Z.1 Fed data" Tags="&lt;data-request&gt;&lt;federal-reserve&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24981" PostTypeId="1" CreationDate="2018-10-12T23:08:07.980" Score="1" ViewCount="128" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Assume that the J-curve is true. What would the DD curve look like during the early period of the J-curve (where the value effect dominates)?  What would the effect of temporary changes in monetary and fiscal policy look like with this DD curve?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I assume that the DD curve might be downward sloping because of the value effect, but I'm unsure how temporary changes in government spending and temporary changes in the money supply will affect the AA and DD schedules in this scenario.  Would somebody please explain?&lt;/p&gt;&#xA;" OwnerUserId="19775" LastActivityDate="2018-10-12T23:08:07.980" Title="J Curve and DD Schedule in the Short Run (International Finance)" Tags="&lt;macroeconomics&gt;&lt;finance&gt;&lt;international-trade&gt;&lt;international-economics&gt;&lt;exchange-rates&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24982" PostTypeId="1" CreationDate="2018-10-12T23:24:37.967" Score="1" ViewCount="59" Body="&lt;p&gt;On page 116 of &lt;em&gt;The British Industrial Revolution in Global Perspective&lt;/em&gt; Robert Allen writes &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;...the total factor productivity of enclosed farms was 18 per cent&#xA;  higher than that of open fields. If rent accounted for one-third of&#xA;  revenues, then enclosure boosted rent by 64 per cent, for example a&#xA;  rise from 12 shillings to 20 shillings per acre.&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Is the 64% rent increase derived from the 18% total factor productivity increase here?  If so, what is the working in detail?&lt;/p&gt;&#xA;" OwnerUserId="19773" LastEditorUserId="68" LastEditDate="2018-10-13T19:31:29.613" LastActivityDate="2018-10-13T19:31:29.613" Title="Total factor productivity and revenue" Tags="&lt;productivity&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24983" PostTypeId="1" AcceptedAnswerId="25052" CreationDate="2018-10-12T23:28:40.850" Score="2" ViewCount="1137" Body="&lt;p&gt;I can think of some examples, but what can be an outline of the proof?&lt;/p&gt;&#xA;" OwnerUserId="19566" LastActivityDate="2018-10-16T14:36:07.090" Title="Can a continuous preference be represented by a discountinuous function?" Tags="&lt;utility&gt;&lt;preferences&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24984" PostTypeId="2" ParentId="24948" CreationDate="2018-10-12T23:41:20.887" Score="0" Body="&lt;p&gt;Manufactured goods become cheaper over time. Fiat currency loses purchasing power over time (due to a generally increasing supply).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this particular case (which is further complicated by government regulations and consumer emotions), the two sides seem somewhat balanced.&lt;/p&gt;&#xA;" OwnerUserId="18695" LastEditorUserId="68" LastEditDate="2018-10-13T19:31:20.760" LastActivityDate="2018-10-13T19:31:20.760" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24985" PostTypeId="2" ParentId="24980" CreationDate="2018-10-13T00:21:39.923" Score="1" Body="&lt;p&gt;Say you have a balance sheet that measures a country's total stock of financial assets and liabilities for a given year. If you have a bunch of these balance sheets for several years, those data points are the actual &lt;strong&gt;levels&lt;/strong&gt; of total assets/liabilities. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now suppose you decide to subtract the levels that correspond to year &lt;span class=&quot;math-container&quot;&gt;$t-1$&lt;/span&gt; from the levels that correspond to year &lt;span class=&quot;math-container&quot;&gt;$t$&lt;/span&gt;. That's what the Fed is doing with these data series -- the &lt;strong&gt;flows&lt;/strong&gt; are the &lt;em&gt;first-difference&lt;/em&gt; of the levels.&lt;/p&gt;&#xA;" OwnerUserId="14688" LastEditorUserId="14688" LastEditDate="2018-10-13T00:33:06.920" LastActivityDate="2018-10-13T00:33:06.920" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24986" PostTypeId="2" ParentId="24982" CreationDate="2018-10-13T06:00:16.627" Score="1" Body="&lt;p&gt;Rent was one third of revenue. Revenue increases by 18%. Assuming this all goes to rent&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\frac{18}{100/3} = 54.&#xA;$$&lt;/span&gt;&#xA;Perhaps the 6 instead of 5 is a typo?&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2018-10-13T07:23:46.847" LastActivityDate="2018-10-13T07:23:46.847" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24990" PostTypeId="1" AcceptedAnswerId="24996" CreationDate="2018-10-13T13:46:30.967" Score="0" ViewCount="65" Body="&lt;p&gt;Most introductory international economics textbooks use the Uncovered Interest Rate Parity condition for deriving bilateral exchange rates. In other words, it is solely interest rate differential brought about by monetary policy that cause exchange rates to fluctuate, as investors demand/supply more attractive currency, which then adjusts exchange rate till the return in both currencies are equalized.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question is- how do trade in goods affect this phenomenon? For instance, say China increases money supply, effectively decreasing interest rate, and this causes flight away from China towards American dollars, causing the American dollar to appreciate. China then benefits by improving its Current Account position. However, as the Chinese exchange rate has depreciated, Chinese goods are now cheaper, so more people will demand Chinese goods. Would this not have an offsetting effect on the depcreciation as people now demand the Yuan more? &lt;/p&gt;&#xA;" OwnerUserId="5233" LastActivityDate="2018-10-14T05:35:53.050" Title="Exchange Rate Determination" Tags="&lt;exchange-rates&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24992" PostTypeId="2" ParentId="24895" CreationDate="2018-10-13T15:19:19.850" Score="-1" Body="&lt;p&gt;Took me a bit, but I have figured its out:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The single firm's supply curve is defined as it marginal cost, as long as MC is above it average cost&#xA;A firm would not sell below its average cost, since it would loae money, Mathmatically we can define, for the single firm &#xA;S = MAX(AC, MC)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Our basic assumption,for this discussion, is that MC = 0&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Under the basic assumption and that costs are positive, obviously, then, the supply curve will always equal AC:&#xA;S = MAX(AC, 0), AC &gt; 0&#xA;S = AC&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The other conculsion from the basic assumption is that the production function, under the costs limit, is completely unaffected by quantity&#xA;Intuitively: its costs the same to produce 100 products and 1000 products. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the Total costs function, as a function of quantity, is fixed, then the average function is:&#xA;AC = TC/x&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In that case, we'll get a supply curve, though a very special one:&#xA;It'll decrease price as a result of increasing quantity, and prices will aspire to zero. always&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Update:&#xA;Allowing myself to add a link to an article I wrote on the topic:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://medium.com/@guylouzon/the-last-generation-has-been-era-of-huge-growth-for-the-hi-tech-industry-145d81b2f9aa&quot; rel=&quot;nofollow noreferrer&quot;&gt;Start-Up economics: the disrupt model&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="19195" LastEditorUserId="19195" LastEditDate="2019-07-07T12:32:17.410" LastActivityDate="2019-07-07T12:32:17.410" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="24994" PostTypeId="1" CreationDate="2018-10-13T16:43:23.673" Score="4" ViewCount="10211" Body="&lt;p&gt;On a demand curve when the demand increases the price will decrease. However on a demand and supply graph, when the demand shifts to the right, the price will increase. I understand why, but then what is the point of analyzing a demand curve, if it contradicts the market equilibrium graph?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am sorry if this is a stupid question. It has only been a month since I have started economics in high school. &lt;/p&gt;&#xA;" OwnerUserId="19786" LastActivityDate="2018-10-13T19:54:50.653" Title="When demand increases why does the price decrease but equilibrium price increase?" Tags="&lt;microeconomics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24995" PostTypeId="2" ParentId="24994" CreationDate="2018-10-13T18:11:23.340" Score="0" Body="&lt;p&gt;To answer your question, think of the actual function&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The demand function is dependent on quantity, and the result of which will be the price. The utility function and budget constraints are the same &lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand, if there is another impact on demand, which is not the quantity, let's say a health trend, then the &lt;em&gt;entire&lt;/em&gt; demand function will change and meet the supply for health food at a higher place&#xA;The utility function will &lt;em&gt;change&lt;/em&gt; and budget constraints will be the same&lt;/p&gt;&#xA;" OwnerUserId="19195" LastActivityDate="2018-10-13T18:11:23.340" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="24996" PostTypeId="2" ParentId="24990" CreationDate="2018-10-13T18:34:45.850" Score="0" Body="&lt;p&gt;1st of all, regading your remark&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;... , it is solely interest rate differential brought about by monetary&#xA;  policy that cause exchange rates to fluctuate...&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;That's just because it these models the internet case is isolated (like the joke of economists needed to change a light bulb)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As to your question, its always a combination between interests/ exchange rates and trade:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Per your example:&#xA;When China lowers rates, effectively increasing money supply, the Yuan decreases and make exports more profitable&#xA;Once exports occur, dollars come back to China, and converted to Yuans, making the Yuan increase back.&#xA;To keep exports more profitable to China, a constant increase of money, lower interests rates, are needed. This, in turn, can create local price surges. Essentially the local economy subsidizes exports&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What China does though, is not exactly that,  even if similar&#xA;China holds its foreign exchange rates low, and its interest higher. That sounds a bit contradicting, but its possible, if China's government absorbs dollars.&#xA;So on one hand, Chinese exports are cheap, and on the other hand, the Yuan is a strong local currency. Furthermore, due to yhe e, export accelerated growth, wages and wealth has increased...&lt;/p&gt;&#xA;" OwnerUserId="19195" LastActivityDate="2018-10-13T18:34:45.850" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="24997" PostTypeId="2" ParentId="24994" CreationDate="2018-10-13T18:59:17.237" Score="3" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;On a demand curve when the demand increases the price will decrease.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;You actually mean &quot;along the demand curve, a decrease in price will increase quantity demanded, all else equal&quot;. This is the &lt;a href=&quot;https://en.wikipedia.org/wiki/Law_of_demand&quot; rel=&quot;nofollow noreferrer&quot;&gt;law of demand&lt;/a&gt;, and it holds for ordinary (&quot;non-Giffen/Veblen&quot;) goods that have downward-sloping demand curves. There is &lt;em&gt;no shift&lt;/em&gt; of the demand schedule in this scenario:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://14solvbr.files.wordpress.com/2012/09/movement-demand-curve.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://14solvbr.files.wordpress.com/2012/09/movement-demand-curve.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;However on a demand and supply graph, when the demand shifts to the right, the price will increase.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Yes, when the demand curve &lt;em&gt;shifts&lt;/em&gt; to the right (all else equal), the equilibrium market price rises to account for the fact that consumers are now willing to pay more. The increase in price is the mechanism by which excess demand at the initial price is cleared:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/lSt2q.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/lSt2q.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;There is no contradiction here in the supply-and-demand model. Note that movements &lt;em&gt;along&lt;/em&gt; the demand curve can only occur when we are away from a market equilibrium. These price movements are traced out by shifts of the supply curve and they continue until the new market equilibrium is reached.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Based on your vocabulary, you are likely misunderstanding the demand curve with actual quantity demanded.&lt;/p&gt;&#xA;" OwnerUserId="14688" LastEditorUserId="14688" LastEditDate="2018-10-13T19:54:50.653" LastActivityDate="2018-10-13T19:54:50.653" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25001" PostTypeId="1" AcceptedAnswerId="25002" CreationDate="2018-10-13T21:11:28.490" Score="0" ViewCount="208" Body="&lt;p&gt;I have a super basic question on international macro.&#xA;I read that an increase in the capital inflows (say because of favorable macro enviroment) can increase the domestic money supply. However, it is only the central bank that can engineer an increase in the money supply. How would this look like in practice? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks!&lt;/p&gt;&#xA;" OwnerUserId="5233" LastActivityDate="2018-10-14T02:47:05.000" Title="Money supply and Capital Flows" Tags="&lt;banking&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25002" PostTypeId="2" ParentId="25001" CreationDate="2018-10-13T21:30:06.283" Score="1" Body="&lt;p&gt;I do not believe that foreign capital investment (at least in the short-run) would &lt;em&gt;directly&lt;/em&gt; increase the domestic money supply.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When foreign investors purchase domestic currency, the investors merely transfer that currency from domestic accounts to their own accounts. Then, when the investors purchase capital in the domestic market, the purchased currency is transferred back to the domestic sellers. Thus I do not see how net circulation of domestic currency rises in the event of a capital inflow directly.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are, of course, more complicated &lt;em&gt;indirect&lt;/em&gt; effects such as domestic banks issuing an increased number of loans based off new demand deposits that may increase the money supply, but the direct effect that I believe you're alluding to isn't there. As you say, the domestic money supply cannot be increased without &lt;strong&gt;banks&lt;/strong&gt; playing a role in fueling domestic credit.&lt;/p&gt;&#xA;" OwnerUserId="14688" LastEditorUserId="14688" LastEditDate="2018-10-14T02:47:05.000" LastActivityDate="2018-10-14T02:47:05.000" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25007" PostTypeId="1" CreationDate="2018-10-14T04:45:44.270" Score="2" ViewCount="32" Body="&lt;p&gt;I am trying to model a transition path of an economy exposed to a permanent shock to government spending on dynare via matlab.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We start with these model equations (standard dynare code format).&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;c(+1) = c* beta*(1+alpha*k^(alpha-1)-delta);&#xA;y = k(-1)^alpha;&#xA;k = (y-c)+(1-delta)*k(-1)-g;&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Where alpha, beta are constants, &lt;code&gt;g&lt;/code&gt; is exogenous (the shock), and &lt;code&gt;c&lt;/code&gt;, &lt;code&gt;y&lt;/code&gt;, &lt;code&gt;k&lt;/code&gt; are consumption, production, and capital respectively.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We then want to change our utility function to &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/eSxDt.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;span class=&quot;math-container&quot;&gt;$$U = \sum_{t=0}^{\infty} \beta^t \frac{C_t^{1-\sigma}}{1-\sigma}$$&lt;/span&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that the first equation in the model is basically an Euler Equation, so only that will change if the utility model changes.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I get that the derivative of modified &lt;span class=&quot;math-container&quot;&gt;$U$&lt;/span&gt; at time &lt;span class=&quot;math-container&quot;&gt;$t$&lt;/span&gt; is &lt;span class=&quot;math-container&quot;&gt;$b^t*C_t^{-\sigma}$&lt;/span&gt;, which when put into the Euler Equation makes the dynare model&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;c(+1)^(-sigma) = c^(-sigma)*beta*(1+alpha*k^(alpha-1)-delta);&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;But if I do this, then the steady state values of &lt;code&gt;K&lt;/code&gt; and thus &lt;code&gt;Y&lt;/code&gt; and &lt;code&gt;C&lt;/code&gt; do not change because the two &lt;code&gt;c&lt;/code&gt;s become 1 when divided out at steady state…which I feel is somehow wrong.&lt;/p&gt;&#xA;" OwnerUserId="19793" LastEditorUserId="12186" LastEditDate="2018-10-15T10:38:54.980" LastActivityDate="2018-10-15T10:38:54.980" Title="Effect of Modified Utility Function on Initial and End Values of Capital, Labor and Production" Tags="&lt;macroeconomics&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25010" PostTypeId="2" ParentId="24990" CreationDate="2018-10-14T05:35:53.050" Score="0" Body="&lt;p&gt;There are multitude of factors affecting exchange rate determination. It is not just about interest rate differential. &lt;strong&gt;&lt;em&gt;Introductory economics textbooks deal in Ceteris Paribus situation.&lt;/em&gt;&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The thing I appreciate in your question is, you think beyond what is written in textbook and question it. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Remember anything can happen in any economy, since there are n-number of factors simultaneously at work.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You hypothesized that depreciated Chinese currency will boost Chinese exports, but what if there are supply side constraints and exports cannot be increased; what if, the Mundell Fleming effect does not work in the first place due to low expectations of investors regarding Chinese economy. These are just examples that things can turn out in any way. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Just get a general understanding of how system works. The best thing is to know the mechanics of changing the light bulb and then consider all the random and non-random factors that that can change the light bulb. :)&lt;/p&gt;&#xA;" OwnerUserId="19546" LastActivityDate="2018-10-14T05:35:53.050" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25012" PostTypeId="1" AcceptedAnswerId="25039" CreationDate="2018-10-14T07:31:20.923" Score="0" ViewCount="157" Body="&lt;p&gt;When a central bank 'pays' interest rate X / year, what does it mean exactly? Is that pure money printing? Where does that money (interest rate) come from? does it increase the debt of the country?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A popular way to fight high inflation is to increase interest rate, but doesn't that mean printing more money -&gt; more inflation?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you!&lt;/p&gt;&#xA;" OwnerUserId="2740" LastEditorUserId="2740" LastEditDate="2018-10-15T07:21:01.037" LastActivityDate="2018-10-16T11:06:55.783" Title="Understanding interest rates" Tags="&lt;interest-rate&gt;&lt;money-supply&gt;&lt;central-banking&gt;" AnswerCount="4" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="25015" PostTypeId="2" ParentId="25012" CreationDate="2018-10-14T11:57:46.740" Score="0" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;When a central bank 'pays' interest rate X / year, what does it mean&#xA;  exactly?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It means that by lending to the central bank \$100/(1+X) at the beginning of the year, the central bank will pay \$100 at the end of that year.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;A popular way to fight high inflation is to increase interest rate,&#xA;  but doesn't that mean printing more money -&gt; more inflation?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Not necessarily. Increasing the interest rate may attract cash flows from foreign lenders/investors. The effects of it on the exchange rate (appreciation of the local currency), currency reserves, and/or trade balance tend to alleviate the need to merely print more money in the local economy.&lt;/p&gt;&#xA;" OwnerUserId="18552" LastActivityDate="2018-10-14T11:57:46.740" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25016" PostTypeId="1" CreationDate="2018-10-14T12:13:41.950" Score="1" ViewCount="3517" Body="&lt;p&gt;Suppose we have 2 inputs a and b , output is &lt;strong&gt;y=f(a,b)&lt;/strong&gt;.&#xA;In the long run, let us suppose profits are maximized at a* and b*.&#xA;Profit is &lt;strong&gt;py-wa-kb&lt;/strong&gt;[p is price and w and k are constants]. Now for max profit, profit equals &lt;strong&gt;py-wa*-kb*&lt;/strong&gt;.&#xA;Now for constant/increasing returns to scale firms, doubling input clearly doubles or more the profit which means there can be &lt;strong&gt;no finite&lt;/strong&gt; a* and b* for such firms which does not make logical sense to me. &#xA;Where am i wrong?&lt;/p&gt;&#xA;" OwnerUserId="19799" LastActivityDate="2018-12-14T01:00:55.613" Title="Profit maximization and returns to scale relation" Tags="&lt;microeconomics&gt;&lt;profit-maximization&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25018" PostTypeId="2" ParentId="25016" CreationDate="2018-10-14T13:39:48.927" Score="2" Body="&lt;p&gt;Are you assuming a perfectly competitive market? If so, then a profit-maximizing firm with constant returns to scale (CRS) production can only feasibly earn zero economic profits as &lt;span class=&quot;math-container&quot;&gt;$P = MC$&lt;/span&gt; in the long-run. If not, then either &lt;span class=&quot;math-container&quot;&gt;$P &amp;gt; MC$&lt;/span&gt; and the firm continues to produce indefinitely until it hits capacity constraints or &lt;span class=&quot;math-container&quot;&gt;$P &amp;lt; MC$&lt;/span&gt; and the firm ceases to operate since producing any units would be unprofitable (in which case doubling inputs would be even more unprofitable).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To see this, it's easiest to consider the firm's cost function &lt;span class=&quot;math-container&quot;&gt;$C(w, r, y)$&lt;/span&gt;. Since the firm's production is CRS, the firm's &lt;em&gt;average cost&lt;/em&gt; of producing &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; is constant and thus &lt;span class=&quot;math-container&quot;&gt;$C(w, r, y) = C(w, r, 1)y$&lt;/span&gt;. The firm's unconstrained profit maximization problem is thus&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{align*}&#xA;\max_{y} \prod = Py - C(w,r,1)y.&#xA;\end{align*}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assuming an interior solution, the first-order condition is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{gather*}&#xA;\frac{\partial \Pi}{\partial y} = P - C(w,r,1) = 0 \\&#xA;\implies P = C(w,r,1).&#xA;\end{gather*}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So at &lt;span class=&quot;math-container&quot;&gt;$P = C(w, r, 1)$&lt;/span&gt;, profits are zero and output &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; is indeterminate. If instead &lt;span class=&quot;math-container&quot;&gt;$P &amp;gt; C(w,r,1)$&lt;/span&gt;, for instance, then we are no longer at an interior solution and it is clear that the firm will continue to produce and use more inputs up until capacity constraints bind.&lt;/p&gt;&#xA;" OwnerUserId="14688" LastEditorUserId="14688" LastEditDate="2018-10-15T00:00:03.680" LastActivityDate="2018-10-15T00:00:03.680" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25020" PostTypeId="2" ParentId="25012" CreationDate="2018-10-14T16:07:10.363" Score="0" Body="&lt;p&gt;You need a clear understanding of interest rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Interest rate is nothing but the opportunity cost of holding money. It is the price you pay for the cash in your wallet. It is the price of present consumption.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now think a level deeper.  You have some cash in your wallet or in your house. What were the other opportunities of using that cash? You would have invested that cash and let's say you would have done a small business and earned a profit. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You plan to keep it in the bank and authorise the bank to use that cash for a stipulated time.  Now your bank should compensate you with a part of productivity that your cash would generate. Your cash is actually a capital that earns a return. So rate of interest is nothing but rate of return on your investable cash. If there is no investment there would not be any rate of interest because further value could not be generated without investment. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now inflation could be controlled by increasing the rate of interest &lt;strong&gt;in a closed economy&lt;/strong&gt;. Higher rate of interest would discourage investor to take loans and invest. Higher rate of interest would also discourage households to hold liquid cash and decrease spending thereby decrease their demand which would exert a downward pressure on prices.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;The higher interest rate never means printing more money instead it means printing less money.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;em&gt;See, the interest rate is nothing but the price of money which is determined from the intersection of money demand and money supply curves. &#xA;When you increase the money supply that is you print more money you tend to decrease the price of money that is the interest rate and vice verca.&lt;/em&gt;&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope this explanation brings in conceptual clarity.&lt;/p&gt;&#xA;" OwnerUserId="19546" LastEditorUserId="19546" LastEditDate="2018-10-14T16:12:10.610" LastActivityDate="2018-10-14T16:12:10.610" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="25021" PostTypeId="2" ParentId="24978" CreationDate="2018-10-14T19:12:46.133" Score="0" Body="&lt;p&gt;Every ship needs someone at the wheel. The sea is rough and there is a lot of fog around. That makes it difficult to steer. &#xA;Entrepreneurship is hard to measure, so it exists in many econonic models as invisible part of factors labor, knowledge and capital.&lt;/p&gt;&#xA;" OwnerUserId="12910" LastActivityDate="2018-10-14T19:12:46.133" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25024" PostTypeId="1" CreationDate="2018-10-15T00:36:01.353" Score="2" ViewCount="82" Body="&lt;p&gt;I have one question in the proof for section 4.1. in Cole, Mailath, and Postlewaite (2001). &#xA;&lt;span class=&quot;math-container&quot;&gt;$$\lim_{\varepsilon \to 0}\frac{1}{2\varepsilon}\int_{\overline{l}-\varepsilon}^{\overline{l}+\varepsilon} v(\beta(i) + \delta, \sigma(i+\beta^{-1}(\beta(i) +\delta) - \overline{l}-\varepsilon))-v(\beta(i), s(i))di$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;They say the above limit is equal to :&#xA;&lt;span class=&quot;math-container&quot;&gt;$$v(\beta(\overline{l}+\delta, \sigma(\tilde{l}))-v(\beta(\overline{l}, s(\overline{l})),$$&lt;/span&gt; for &lt;span class=&quot;math-container&quot;&gt;$\tilde{l} = \beta^{-1}(\beta(\overline{l})+\delta).$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am not sure how do they this. I think if &lt;span class=&quot;math-container&quot;&gt;$\varepsilon \to 0$&lt;/span&gt;, the term inside the integral goes to 0. But, the answer they give us is to substitute &lt;span class=&quot;math-container&quot;&gt;$\overline{l}$&lt;/span&gt; for &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; in the integral. I appreciate if you give some help to figure this out. &lt;/p&gt;&#xA;" OwnerUserId="17957" LastActivityDate="2018-10-15T15:52:46.897" Title="need help from theorists: proof in Cole, Mailath, and Postlewaite (2001)" Tags="&lt;microeconomics&gt;&lt;theory&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25026" PostTypeId="2" ParentId="24506" CreationDate="2018-10-15T06:04:52.300" Score="1" Body="&lt;p&gt;Screpanti and Zamagni's Outline of the History of Economic Thought is very comprehensive. The problem is I don't think most undergrads should go for it. The authors put too much emphasis on &quot;schools of thought&quot; and in my experience, most undergrads get this idea of a weak kind of &quot;pluralism&quot; from it, that there are many schools and not one is &quot;right&quot;. My point is: if you do read it, do it very critically. The mainstream of economics is the mainstream for a reason, it's a solid framework. &lt;/p&gt;&#xA;" OwnerUserId="18167" LastActivityDate="2018-10-15T06:04:52.300" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25028" PostTypeId="1" CreationDate="2018-10-15T09:48:16.977" Score="1" ViewCount="31" Body="&lt;p&gt;There is an abundance of conspiracy theories online that the USD is propped up in part by the fact that oil is traded in USD, and that countries which think about allowing trades in a different currency like Saddam's Iraq are promptly snuffed out by the US military. In fact, I'd go on to say that this is the widely-held belief in &lt;a href=&quot;https://www.bayt.com/en/specialties/q/86315/what-would-happen-if-oil-was-traded-in-another-currency-other-than-the-usd/&quot; rel=&quot;nofollow noreferrer&quot;&gt;west Asian countries&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've been trying to find the truth for sometime but it seems that experts themselves seem to contradict each other. A &lt;a href=&quot;https://www.reddit.com/r/explainlikeimfive/comments/2ywqf0/eli5_why_it_matters_in_which_currency_crude_oil/&quot; rel=&quot;nofollow noreferrer&quot;&gt;reddit user explains&lt;/a&gt; the difference between 'traded in' and 'settled in' and a fellow at the &lt;a href=&quot;https://www.forbes.com/sites/timworstall/2014/12/05/commodities-are-usually-priced-in-dollars-yes-but-this-does-not-mean-what-you-think-it-means/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Adam Smith Institute writes on Forbes&lt;/a&gt; essentially saying &quot;no effect really&quot;. On the flip side, you have an MI-6 agent writing for HuffPo that &lt;a href=&quot;https://www.huffingtonpost.com/alastair-crooke/petrodollar-us-saudi-policy_b_6245914.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;the USD is a weapon against Russia&lt;/a&gt; because oil is priced in dollars, and this quora user who says that the &lt;a href=&quot;https://www.quora.com/What-would-happen-to-the-US-economy-if-oil-wasn%E2%80%99t-traded-in-US-Dollars?no_redirect=1&quot; rel=&quot;nofollow noreferrer&quot;&gt;impact on USD rates could be as high&lt;/a&gt; as 1-2%.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So my questions are:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Does the fact that oil is priced in USD have a tangible impact on the world, or is settlement freely in any currency as the reddit user explains?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;If so, what would be the effect of countries pricing oil in another currency?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;If not, what is a 'petro dollar' (as petrol can be settled in another currency), and how did this conspiracy theory come about? &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="19814" LastActivityDate="2018-10-15T09:48:16.977" Title="Will there be any significant impact if oil was priced/traded in another currency other than USD?" Tags="&lt;usa&gt;&lt;commodities&gt;&lt;oil&gt;&lt;eurodollar&gt;" AnswerCount="0" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25029" PostTypeId="2" ParentId="24127" CreationDate="2018-10-15T12:05:50.427" Score="1" Body="&lt;p&gt;Marginal product can be constant, increasing or diminishing depending on Returns to Scale (also called Economies of scale). If Returns to Scale is constant, it means that each extra unit of product/output takes one extra unit of input. In this case, marginal product will be constant. In other words, the efficiency of production is constant.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, take the case of increasing Returns to Scale, which is usually seen in the real world in a typical factory. In this case, one extra unit of product takes less than one extra quantum of cost inputs. In such a case, the firm has high fixed costs as compared to variable costs and said to possess an operating leverage (in financial terms). And, the efficiency of production increases. Same inputs produce higher outputs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Example&lt;/strong&gt;: a software company selling products has high fixed costs and close to zero variable costs. So, selling one extra copy of software can happen at a much lower increase in inputs. This is however, till you reach the ceiling where you have to employ additional fixed cost resources to generate the next item of product. Say, when the next version/iteration of the software has to be produced, it would need additional fixed cost resources to develop it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, yes it isn't necessary that marginal product will always have a diminishing curve.&lt;/p&gt;&#xA;" OwnerUserId="15732" LastEditorUserId="15732" LastEditDate="2018-10-15T19:02:08.457" LastActivityDate="2018-10-15T19:02:08.457" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25030" PostTypeId="2" ParentId="25024" CreationDate="2018-10-15T12:21:42.737" Score="3" Body="&lt;p&gt;This can be achieved with &lt;a href=&quot;https://en.wikipedia.org/wiki/L%27H%C3%B4pital%27s_rule&quot; rel=&quot;nofollow noreferrer&quot;&gt;L'Hopital's rule&lt;/a&gt;, which says&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\lim_{x\rightarrow0}\frac{f(x)}{g(x)}=\lim_{x\rightarrow0}\frac{f'(x)}{g'(x)}.$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;The result from Cole, Mailath, and Postlewaite holds fairly generally and is not special to the particular functions in their integrand.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let&#xA;&lt;span class=&quot;math-container&quot;&gt;$$f(\epsilon)=\int_{l-\epsilon}^{l+\epsilon}h(x,\epsilon)dx \iff f'(\epsilon)=h(l-\epsilon,\epsilon)+h(l+\epsilon,\epsilon)+\int_{l-\epsilon}^{l+\epsilon}\frac{\partial h(x,\epsilon)}{\partial \epsilon}dx$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and&#xA;&lt;span class=&quot;math-container&quot;&gt;$$g(\epsilon)=2\epsilon\iff g'(\epsilon)=2.$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, using L'Hopital's rule:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\lim_{\epsilon\rightarrow0}\frac{f(\epsilon)}{g(\epsilon)}=\lim_{\epsilon\rightarrow0}\frac{f'(\epsilon)}{g'(\epsilon)}=\frac{h(l,0)+h(l,0)}{2}=h(l,0).$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;A final word on 'intuition'. You reason, correctly, that the integral goes to zero with &lt;span class=&quot;math-container&quot;&gt;$\epsilon$&lt;/span&gt;. But the problem is that the denominator, &lt;span class=&quot;math-container&quot;&gt;$2\epsilon$&lt;/span&gt; also goes to zero. So, to know what the overall expression does as &lt;span class=&quot;math-container&quot;&gt;$\epsilon$&lt;/span&gt; approaches zero, we need to know whether the numerator or the denominator approaches zero faster. In other words, for &lt;span class=&quot;math-container&quot;&gt;$\epsilon\rightarrow0$&lt;/span&gt; are we dividing a small number by a very very small number, or are we dividing a very very small number by a small number? This, roughly speaking, is the logic behind L'Hopital's rule.&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2018-10-15T15:52:46.897" LastActivityDate="2018-10-15T15:52:46.897" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="25031" PostTypeId="1" AcceptedAnswerId="25032" CreationDate="2018-10-15T14:33:04.340" Score="2" ViewCount="4420" Body="&lt;p&gt;Is there a practical difference between local non-satiation and montonicity? Can one exist in a utility function without the other?&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2018-10-15T20:41:26.197" Title="Whats the difference between local non-satiation and monotonicity?" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25032" PostTypeId="2" ParentId="25031" CreationDate="2018-10-15T15:04:27.380" Score="4" Body="&lt;p&gt;Monotonicity of preferences is a &lt;strong&gt;stronger&lt;/strong&gt; condition than local nonsatiation. Monotonicity implies local nonsatiation, but &lt;em&gt;not&lt;/em&gt; the other way around.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To see this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Claim:&lt;/strong&gt; Let &lt;span class=&quot;math-container&quot;&gt;$\succsim$&lt;/span&gt; be a monotonic preference relation over &lt;span class=&quot;math-container&quot;&gt;$\mathbb{R}^n_{+}$&lt;/span&gt;. Therefore, &lt;span class=&quot;math-container&quot;&gt;$\succsim$&lt;/span&gt; is locally nonsatiated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Proof:&lt;/strong&gt; Fix some &lt;span class=&quot;math-container&quot;&gt;$\varepsilon &amp;gt; 0$&lt;/span&gt;. Let there be an arbitrary &lt;span class=&quot;math-container&quot;&gt;$x \in \mathbb{R}^n_{+}$&lt;/span&gt; and let &lt;span class=&quot;math-container&quot;&gt;$\mathbf{1} \in \mathbb{R}^n_{+}$&lt;/span&gt; be the unit vector. For any &lt;span class=&quot;math-container&quot;&gt;$\lambda &amp;gt; 0$&lt;/span&gt;, we also have &lt;span class=&quot;math-container&quot;&gt;$x + \lambda \mathbf{1} \in \mathbb{R}^n_{+}$&lt;/span&gt;. Since clearly &lt;span class=&quot;math-container&quot;&gt;$x + \lambda \mathbf{1} \gg x,$&lt;/span&gt; &lt;span class=&quot;math-container&quot;&gt;$x + \lambda \mathbf{1} \succ x$&lt;/span&gt; by monotonicity. Consider the following metric over &lt;span class=&quot;math-container&quot;&gt;$\mathbb{R}^n_{+}$&lt;/span&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;d(x+\lambda \mathbf{1}, x) = ||x+\lambda \mathbf{1} -x|| = \lambda||\mathbf{1}|| = \lambda \sqrt{n}.&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus for &lt;span class=&quot;math-container&quot;&gt;$\lambda &amp;lt; \frac{\varepsilon}{\sqrt{n}}$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$d(x+\lambda \mathbf{1}, x) &amp;lt; \varepsilon$&lt;/span&gt; yet &lt;span class=&quot;math-container&quot;&gt;$x + \lambda \mathbf{1} \succ x$&lt;/span&gt;. Since &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; was arbitrary, the existence of such a point implies that &lt;span class=&quot;math-container&quot;&gt;$\succsim$&lt;/span&gt; is locally nonsatiated. &lt;span class=&quot;math-container&quot;&gt;$\blacksquare$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To show that locally nonsatiated preferences do &lt;em&gt;not&lt;/em&gt; imply monotonic preferences, you can come up with a utility function &lt;span class=&quot;math-container&quot;&gt;$u(\cdot)$&lt;/span&gt; over various goods that strictly increases with respect to some of the goods but reaches a &lt;em&gt;satiation point&lt;/em&gt; for at least one of the others. For example, in &lt;span class=&quot;math-container&quot;&gt;$\mathbb{R}^2_{+}$&lt;/span&gt;: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;u(x_1,x_2) = x_1 - |1-x_2|.&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A consumer with such preferences is satiated with respect to &lt;span class=&quot;math-container&quot;&gt;$x_2$&lt;/span&gt; at &lt;span class=&quot;math-container&quot;&gt;$x_2=1$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerUserId="14688" LastEditorUserId="14688" LastEditDate="2018-10-15T20:41:26.197" LastActivityDate="2018-10-15T20:41:26.197" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25034" PostTypeId="2" ParentId="16229" CreationDate="2018-10-15T17:59:42.817" Score="1" Body="&lt;p&gt;The answer by @NickCHK is very good and the derivation is correct for quantity taxes. Nevertheless, let me clarify a few things. In the comments you give a counterexample to this formula and state that the formula only holds for linear S or D. That is not true.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It also holds for non-linear S/D. Your counterexample about the supply shape is not only non-linear, it is also non-continuous. That means the derivative does not exist over the whole domain, which complicates things. Nevertheless, the formula would hold on either side of the kink points. Furthermore, your comment seems to argue that the formula implies constant incidence shares. This is also not true as elasticities are not necessarily constant with regards to quantity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is, however, a common case where this formula does not hold exactly. For ad valorem taxes (e.g. the VAT) you would have slightly different expressions. Nevertheless, the incidence formula for quantity taxes is still a good proxy. This is discussed a bit in &lt;a href=&quot;https://www.sciencedirect.com/science/article/pii/S0047272706001708&quot; rel=&quot;nofollow noreferrer&quot;&gt;Carbonnier (2007)&lt;/a&gt;, who analyzes VAT, but uses the formula in your OP as a proxy for the consumer share of the tax.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is also worth noting that the formula is derived for marginal tax rate changes. With very large changes, the incidence will not be exactly as described above, but that is a caveat of all such analyses using (non-discrete) derivatives.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastEditorUserId="5557" LastEditDate="2018-10-16T18:31:41.647" LastActivityDate="2018-10-16T18:31:41.647" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25036" PostTypeId="1" AcceptedAnswerId="25037" CreationDate="2018-10-15T19:38:36.063" Score="1" ViewCount="102" Body="&lt;p&gt;Suppose we have a utility function with three inputs, &lt;span class=&quot;math-container&quot;&gt;$j, k,$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$s$&lt;/span&gt; described by &lt;span class=&quot;math-container&quot;&gt;$$u(j,k,s) = A\ln(k^\alpha + \beta j^\alpha) + B\ln(s).$$&lt;/span&gt; The price of &lt;span class=&quot;math-container&quot;&gt;$j, k,s$&lt;/span&gt; are &lt;span class=&quot;math-container&quot;&gt;$p_j, p_k, p_s$&lt;/span&gt;, respectively, and we cannot spend more than amount &lt;span class=&quot;math-container&quot;&gt;$Y.$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;We are asked to find conditions where the optimized result is to consume only two out of the three inputs. In other words, we wish to find conditions where one input is not consumed at all.&lt;/strong&gt;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there a systematic way to approach this type of problem? I tried taking the marginal utilities with respect to each good, and finding a case where exactly one of the goods was negative for all &lt;span class=&quot;math-container&quot;&gt;$j, k, s \geq 0$&lt;/span&gt;, but I don't think that's the right way to go. &lt;/p&gt;&#xA;" OwnerUserId="18006" LastEditorUserId="18006" LastEditDate="2018-10-15T19:44:28.323" LastActivityDate="2018-10-15T20:55:07.907" Title="Utility Function Implies Consumption of Not All Goods" Tags="&lt;microeconomics&gt;&lt;optimization&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25037" PostTypeId="2" ParentId="25036" CreationDate="2018-10-15T20:55:07.907" Score="3" Body="&lt;p&gt;There might be a systematic way (e.g. some variation of the gradient method), but it is probably not trivial (see &lt;a href=&quot;https://economics.stackexchange.com/q/24702/1601&quot;&gt;here&lt;/a&gt;), unlike this problem.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By checking &lt;span class=&quot;math-container&quot;&gt;$U(j,k,0)$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$U(j,0,s)$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$U(0,k,s)$&lt;/span&gt;, you will find that one of them can actually never occur when utility is maximized. Then you can move on to examine the two goods where 0 consumption can occur, and compare their marginal rate of substitution to their price ratio. Whenever these are unequal in optimum, it signals a corner solution. &lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2018-10-15T20:55:07.907" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25039" PostTypeId="2" ParentId="25012" CreationDate="2018-10-16T01:44:47.613" Score="0" Body="&lt;p&gt;The usual modern practice is for central banks to set a policy rate, which is where it wants short-term (often overnight) interbank lending rates to be. This then becomes the reference rate for other interest rates. An interest rate is just the cost of borrowing (expressed as a percentage per year); it is itself not money.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The rate of interest is set to achieve policy objectives, such as controlling inflation. (I will not attempt to answer the part of the question whether raising the rate of interest itself causes inflation, as that us extremely controversial.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is no need for the central bank to actually pay that rate of interest on anything, as I will discuss later.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is possible for private banks to borrow at that interest rate from the central bank. In the United States, that would be discount window borrowing. Banks would do this if they need funding and cannot get it elsewhere (it is normally frowned upon). The discount rate is another policy rate that is set as a spread to the main policy rate (the fed funds rate). However, since the private bank is borrowing from the central bank, money is flowing from the private sector back to the central bank, reducing the money supply.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Pre-2008, the Federal Reserve did not pay interest on balances held at it by banks (“reserves”). That is, it could keep interest rates at a target level without paying interest to do so.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, it now pays interest on reserves. It needs to do so now in order to keep inter-bank rates at its target rate as a result of the decision to create large amounts of excess reserves (“quantitative easing”). The payment of interest by the central bank creates “money,” since balances at the central bank are part of the money supply. (This might be termed “money printing,” but that phrase is somewhat vaguely defined.) The increased balances are created by the central bank adjusting upwards private bank balances (in the same way private banks do to their customers), so the money “appears out of nowhere.”&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does this payment increase the debt of the country? Not by standard definitions, since they usually equate governmental debt to the amount of bonds/bills issued by the fiscal authority (the Treasury in the United States). However, it increases the money issued by the central bank, and money is a liability of the central bank. Since the central government owns the central bank, this means that governmental &lt;em&gt;liabilities&lt;/em&gt; are higher. &lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2018-10-16T01:44:47.613" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25041" PostTypeId="1" AcceptedAnswerId="25042" CreationDate="2018-10-16T03:23:21.390" Score="2" ViewCount="1449" Body="&lt;p&gt;There are two firms in a Cournot duopoly that face inverse demand &lt;span class=&quot;math-container&quot;&gt;$P = \alpha - Q$&lt;/span&gt;, but one firm has total costs &lt;span class=&quot;math-container&quot;&gt;$c_1*q_1$&lt;/span&gt; and the other has total costs &lt;span class=&quot;math-container&quot;&gt;$c_2*q_2$&lt;/span&gt; with &lt;span class=&quot;math-container&quot;&gt;$c_1 &amp;lt; c_2$&lt;/span&gt;. I want to show that firm 1 will have greater profits and produce a greater share of market output than firm 2 in equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Intuitively that makes sense to me because if one firm is more cost efficient they should be able to produce more and capture more of the market, right? I'm just having trouble showing this mathematically. I've gotten to the point of writing down profits for each: &lt;span class=&quot;math-container&quot;&gt;$Profit_1 = (\alpha - Q)q_1 - c_1*q_1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$Profit_2 = (\alpha - Q)q_2 - c_2 * q_2$&lt;/span&gt;, but taking derivatives with respect to the q's doesn't get me anywhere. Would appreciate some help&lt;/p&gt;&#xA;" OwnerUserId="19822" LastEditorUserId="19822" LastEditDate="2018-10-16T17:31:05.317" LastActivityDate="2018-10-16T17:31:05.317" Title="Cournot duopoly with differing costs" Tags="&lt;microeconomics&gt;&lt;game-theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25042" PostTypeId="2" ParentId="25041" CreationDate="2018-10-16T04:05:17.137" Score="2" Body="&lt;p&gt;I think the missing link for you is not realizing that &lt;span class=&quot;math-container&quot;&gt;$Q$&lt;/span&gt; is actually equal to &lt;span class=&quot;math-container&quot;&gt;$q_1 + q_2$&lt;/span&gt;: in a duopoly, quantity demanded can only be derived for the two firms in question. With that in mind, we can rewrite the profit functions for both firms in terms of &lt;span class=&quot;math-container&quot;&gt;$q_1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$q_2$&lt;/span&gt; and then optimize with respect to the &lt;span class=&quot;math-container&quot;&gt;$q$&lt;/span&gt;'s accordingly (since Cournot competition is competition over quantities). We are then going to be left with two &lt;em&gt;best response&lt;/em&gt; functions, one that tells you the optimal level of &lt;span class=&quot;math-container&quot;&gt;$q_1$&lt;/span&gt; as a function of &lt;span class=&quot;math-container&quot;&gt;$q_2$&lt;/span&gt; and another that tells you the optimal level of &lt;span class=&quot;math-container&quot;&gt;$q_2$&lt;/span&gt; as a function of &lt;span class=&quot;math-container&quot;&gt;$q_1$&lt;/span&gt;. Then it just becomes an algebra problem to find the Nash equilibrium and the relationship of quantities and profits between the firms will become clear.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Firm 1 maximizes profits&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{align*}&#xA;\Pi_1(q_1) = (\alpha - (q_1 + q_2))q_1 - c_1 q_1.&#xA;\end{align*}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first-order condition is&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{gather*}&#xA;\frac{d \Pi_1(q_1)}{dq_1} = 0 \\&#xA;\implies \alpha - 2q_1 + q_2 = c_1 \\&#xA;\implies q_1(q_2) = \frac{\alpha - c_1}{2} + \frac{q_2}{2}.&#xA;\end{gather*}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Similarly, Firm 2 maximizes profits&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{align*}&#xA;\Pi_2(q_2) = (\alpha - (q_1 + q_2))q_2 - c_2 q_2.&#xA;\end{align*}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first-order condition is&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{gather*}&#xA;\frac{d \Pi_2(q_2)}{dq_2} = 0 \\&#xA;\implies \alpha - 2q_2 + q_1 = c_2 \\&#xA;\implies q_2(q_1) = \frac{\alpha - c_2}{2} + \frac{q_1}{2}.&#xA;\end{gather*}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Solving the system of equations for &lt;span class=&quot;math-container&quot;&gt;$q_1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$q_2$&lt;/span&gt; yields&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{align*}&#xA;q_1^* &amp;amp;= \frac{\alpha - 2c_1 + c_2}{3} \\&#xA;q_2^* &amp;amp;= \frac{\alpha - 2c_2 + c_1}{3}, &#xA;\end{align*}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which implies that &lt;span class=&quot;math-container&quot;&gt;$\mathbf{q_1^* &amp;gt; q_2^*}$&lt;/span&gt; since &lt;span class=&quot;math-container&quot;&gt;$c_1 &amp;lt; c_2$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that both firms face the same price &lt;span class=&quot;math-container&quot;&gt;$P^* = \alpha - (q^*_1 + q^*_2)$&lt;/span&gt;. Therefore, we have that&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{align*}&#xA;(P^* - c_1)q_1^* &amp;amp;&amp;gt; (P^* - c_2)q_2^* \\&#xA;\implies \mathbf{\Pi^*_1} &amp;amp;&amp;gt; \mathbf{\Pi^*_2}.&#xA;\end{align*}&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="14688" LastEditorUserId="14688" LastEditDate="2018-10-16T06:02:00.653" LastActivityDate="2018-10-16T06:02:00.653" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25043" PostTypeId="1" CreationDate="2018-10-16T07:58:20.580" Score="2" ViewCount="74" Body="&lt;p&gt;I am currently using the gravity model for my dissertation on migration flows. Do gravity models need to be augmented by dummy variables only or can other explanatory variables (such as the unemployment rate in the destination/ origin country) be included please?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;All your feedback is greatly appreciated. &lt;/p&gt;&#xA;" OwnerUserId="19826" LastActivityDate="2019-04-15T05:03:20.650" Title="Augmented Gravity Model" Tags="&lt;macroeconomics&gt;&lt;econometrics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25045" PostTypeId="1" AcceptedAnswerId="25048" CreationDate="2018-10-16T10:42:22.900" Score="1" ViewCount="777" Body="&lt;p&gt;I understand that a cryptocurrency has no intrinisc value, and that therefore its value is determined strictly by market forces, i.e. supply and demand.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I &quot;get&quot; (more or less) that this is how it works for cryptocurrencies that are already &quot;up and running&quot;, but what I don't get is how a cryptocurrency's market gets started. I mean, there are over 800 cryptocurrencies already, with a couple dozen pretty well-known, right? So apparently starting one isn't very difficult. But when someone starts a cryptocurrency, how does his first (and his second, third, etc.) &quot;coin&quot; acquire any value in terms of traditional money? I mean, I understand that the first transaction gets the cryptocurrency's &quot;market&quot; going, but that transaction is internal to the currency, right? It does not establish a value relative to a traditional currency.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I also don't get who would enter into that first transaction anyway. If some person tells me &quot;Hey I started a new cryptocurrency, so far I've mined 1 unit of it. Can I use it to buy a can of beer from you?&quot;, why would I ever say yes, given that there is no way to determine what is a reasonable &quot;starting value&quot; for his currency?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(I did read up on a bit ICO's, but I don't quite get that either. OK, some &quot;company&quot; proposes to create a bitcurrency, and investors can buy into it prior to its creation. Does that mean they buy a certain number of the yet-to-be-created currency? In that case, again I don't understand what possible basis there could be for assinging a specific value.)&lt;/p&gt;&#xA;" OwnerUserId="19829" LastActivityDate="2018-10-16T16:37:36.037" Title="What determines a new cryptocurrency's initial value?" Tags="&lt;cryptocurrency&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25047" PostTypeId="2" ParentId="25012" CreationDate="2018-10-16T11:06:55.783" Score="0" Body="&lt;p&gt;So, a central bank sets the interest rate of the instrument of money that it deals in. Example, the Reserve Bank of India (RBI) sets the repurchase rate (repo rate) at which it will buy or sell money against treasury bonds as collateral. So, if the repo rate is 5%, it means that Commercial Banks (bank) can borrow funds from the RBI (by giving treasury bonds as collateral) at 5%.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is separate from the Open Market Operations (OMO) that a Central Bank performs to control money supply (liquidity) in an economy. So, a Central Bank can announce bond sales or redemptions. If there is a bond sale, the Central Bank will sell the treasury bonds that it holds as assets and accept dollars from the purchasers (typically Banks). In this case the money supply in the economy goes down. The opposite effect occurs when bonds are redeemed/purchased back. The bonds are purchased by the Central Bank and it pays money to the bondholders releasing money into the economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the second case of OMO where the Central Bank pays money to the bondholders, it actually prints money. Similarly, if the Commercial Banks borrow from the Central Bank using the repo mechanism, the latter will print money to lend at that rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In reality, Commercial Banks opt for Central Bank borrowing as a last option and opt to borrow money from other Banks where collateral free loans are available (albeit at a higher rate).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Further Reading&lt;/strong&gt;: There is a reverse repo rate at which the central bank can borrow money from the bank, say at 4%. So, effectively this sets a floor interest rate of 4% for the bank since it will at least get that much and a ceiling rate of 5% at which bank can borrow from the Central bank. The difference 1% is Central Bank's profit.&lt;/p&gt;&#xA;" OwnerUserId="15732" LastActivityDate="2018-10-16T11:06:55.783" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25048" PostTypeId="2" ParentId="25045" CreationDate="2018-10-16T11:36:26.207" Score="2" Body="&lt;p&gt;A cryptocurrency's initial value is set at the same way as an established cryptocurrency.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's the price that people are willing to pay, when they believe the hype told to them by the crypto's promoters.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As such, the price is a measure of the promoters' marketing skills, and the gullibility of the buyers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I completely understand that you feel it ought to be different. But for an intrinsically worthless thing, what I've written above, applies both to a new crypto and an existing one. It's worthless. Therefore its price is whatever the owner can fool someone into paying for it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for what number the promoters actually pick, they will play a guessing game. There's a story about how opticians price the pair of a new glasses. When they tell a new customer the price, they say, it will be £60. And they pause, and watch the customer's reaction. If they don't blink, they add &quot;per lens&quot;. Pause, and if no blink again, &quot;and £120 for the frame&quot;. If the customer looks scared, they can then add &quot;but with your discount, the frame will be half price&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Pricing worthless assets is similar, but far worse. The seller make a pretty fairy story about the total value of the market, works out how many tokens there will be, throws in a big &quot;get in at the ground floor&quot; discount, and then plucks the asking price out of thin air.&lt;/p&gt;&#xA;" OwnerUserId="44" LastEditorUserId="44" LastEditDate="2018-10-16T16:37:36.037" LastActivityDate="2018-10-16T16:37:36.037" CommentCount="8" ContentLicense="CC BY-SA 4.0" />
  <row Id="25049" PostTypeId="1" AcceptedAnswerId="25050" CreationDate="2018-10-16T11:45:26.707" Score="0" ViewCount="124" Body="&lt;p&gt;Consider the market for retail banking. Everyone is governed by the same interest rates, and it's not like one bank can offer something remarkably different from the others.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Retail pharmacies are the same way. They're all selling the same drugs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In these markets, competitors have less &quot;room to maneuver&quot; when competing. They have to differentiate based on intangibles like service and amenities. They can't actually change the product.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's like a 100-yard race. How do you win? You run faster than everyone else...full stop. There's no strategy. There's no way to subtly maneuver yourself into a better position. Everyone is selling the same thing -- speed in a straight line for 10 seconds.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there a name for this type of market? Or a name for the type of product?&lt;/p&gt;&#xA;" OwnerUserId="4265" LastActivityDate="2018-10-16T12:38:48.323" Title="What is the name for a market where everyone is basically selling the same thing?" Tags="&lt;markets&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25050" PostTypeId="2" ParentId="25049" CreationDate="2018-10-16T12:38:48.323" Score="2" Body="&lt;p&gt;Such markets are said to be &lt;em&gt;homogeneous goods&lt;/em&gt; markets or &lt;em&gt;commodities&lt;/em&gt; markets. And the goods traded within them are sometimes known as commodities. From &lt;a href=&quot;https://en.wikipedia.org/wiki/Commodity&quot; rel=&quot;nofollow noreferrer&quot;&gt;Wikipedia&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;In economics, a commodity is an economic good or service that has full or substantial fungibility: that is, the market treats instances of the good as equivalent or nearly so with no regard to who produced them. Most commodities are raw materials, basic resources, agricultural, or mining products, such as iron ore, sugar, or grains like rice and wheat. Commodities can also be mass-produced unspecialized products such as chemicals and computer memory.&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="108" LastActivityDate="2018-10-16T12:38:48.323" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25051" PostTypeId="2" ParentId="25043" CreationDate="2018-10-16T14:11:22.930" Score="1" Body="&lt;p&gt;The gravity model of migration, like the gravity model of international trade, is a theoretical model. When you try to estimate the model, there isn't a predetermined cap to what kind of variables or how many of them you can include in your regressions as controls in the reduced form econometric specification. The controls aren't just limited to dummies. Those estimated coefficients are often interesting in their own right.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As &lt;a href=&quot;http://store.ectap.ro/articole/714.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Bunea (2012)&lt;/a&gt; says (&lt;strong&gt;emphasis&lt;/strong&gt; mine):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;Since Lowry (1966, pp. 1-118), the basic gravity model has been&#xA;  extended to the following form:&lt;/em&gt;&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\begin{align*}&#xA;M_{ij} = &amp;amp;\beta_0 \times log(g) + \beta_1 \times log(P_i) + \beta_2 \times log(P_j) + \beta_3 \times log(X_i) + \\&#xA;&amp;amp;\beta_4 \times log(X_j) + \beta_5 \times log(D_{ij}) + \varepsilon_{ij}&#xA;\end{align*}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&lt;em&gt;where &lt;span class=&quot;math-container&quot;&gt;$X_i$&lt;/span&gt; is a vector of explanatory variables describing different features of the origin (i.e. push factors) and &lt;span class=&quot;math-container&quot;&gt;$X_j$&lt;/span&gt; is a vector of explanatory variables describing features of the destination (i.e. pull factors). Push factors are those characteristics of the origin place that encourage (discourage) out-migration (in-migration), such as &lt;strong&gt;low incomes&lt;/strong&gt;, &lt;strong&gt;high unemployment&lt;/strong&gt;, &lt;strong&gt;high prices&lt;/strong&gt;, in general few opportunities for development.&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Whether some of these explanatory variables &lt;em&gt;should&lt;/em&gt; be included in your regressions warrants a separate question and is dependent on the research context.&lt;/p&gt;&#xA;" OwnerUserId="14688" LastEditorUserId="14688" LastEditDate="2018-10-17T03:03:53.507" LastActivityDate="2018-10-17T03:03:53.507" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25052" PostTypeId="2" ParentId="24983" CreationDate="2018-10-16T14:36:07.090" Score="3" Body="&lt;p&gt;Indeed you are correct that a continuous utility function can be represented by a discontinuous function. However, I am not sure what you mean by proof beyond an example; an example &lt;strong&gt;is&lt;/strong&gt; a proof of this fact. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For completeness, here is an example we can take &lt;span class=&quot;math-container&quot;&gt;$\succeq\,\subset \mathbb R \times \mathbb R$&lt;/span&gt; to reflect the usual ordering (i.e., &lt;span class=&quot;math-container&quot;&gt;$x \succeq y$&lt;/span&gt; iff &lt;span class=&quot;math-container&quot;&gt;$x \geq y$&lt;/span&gt;). Clearly this is a continuous ordering as its contour sets are intervals. The utility function&#xA;&lt;span class=&quot;math-container&quot;&gt;$$ U(x) = \begin{cases}&#xA;x &amp;amp;\text{ if } x &amp;lt; 4 \\&#xA;x + 1 &amp;amp;\text{ if } x \geq 4&#xA;\end{cases}&#xA;$$&lt;/span&gt;&#xA;is discontinuous, but represents &lt;span class=&quot;math-container&quot;&gt;$\succeq$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any such function is necessarily have a continuous representation as well. &lt;/p&gt;&#xA;" OwnerUserId="398" LastActivityDate="2018-10-16T14:36:07.090" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25056" PostTypeId="2" ParentId="19718" CreationDate="2018-10-16T19:19:34.160" Score="0" Body="&lt;p&gt;In the real world, the Fed actually just sets a target for Fed Funds rate - which is the rate at which US Banks lend to each other for overnight funds (1 day). It uses Open Market Operations to manage the Fed Funds Rate at its desired target level.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Each FOMC meeting sets a target for the fed funds rate. It can't force&#xA;  the banks to use its targeted rate. Instead, it uses open market&#xA;  operations to push the fed funds rate to its target. &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;If the FOMC wants the rate lower, the Fed purchases securities from&#xA;  its member banks. It deposits credit onto the banks' balance sheets,&#xA;  giving them more reserves than they need. It forces the banks to lower&#xA;  the fed funds rate so they can lend out the extra funds to each other.&#xA;  That's how the Fed lowers interest rates.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;When the Fed wants rates higher, it does the opposite. It sells its&#xA;  securities to banks and consequently removes funds from their balance&#xA;  sheet. This gives banks fewer reserves which allow them to raise&#xA;  rates. Since 2015,  the Fed has been raising interest rates. It does&#xA;  this to control inflation.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.thebalance.com/fed-funds-rate-definition-impact-and-how-it-works-3306122&quot; rel=&quot;nofollow noreferrer&quot;&gt;Source&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="15732" LastActivityDate="2018-10-16T19:19:34.160" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25057" PostTypeId="2" ParentId="16895" CreationDate="2018-10-16T19:31:43.653" Score="0" Body="&lt;p&gt;For a retailer in a competitive market, it may be better to first calculate the unconstrained demand of that product in the market and then see whether it is above the supply constraints of the retailer. If not, then see at what price can you meet that demand and it may be that only some demand will be met if the price is high. If yes, then you can maximise the price at which demand would equal the supply constraint.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On a personal note, being in the retail industry myself, forecasting a product category may be more useful than a single product as there are many factors involved and there could be high forecast inaccuracies in the latter.&lt;/p&gt;&#xA;" OwnerUserId="15732" LastActivityDate="2018-10-16T19:31:43.653" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25058" PostTypeId="1" CreationDate="2018-10-16T19:50:23.360" Score="1" ViewCount="78" Body="&lt;p&gt;I had an introductory class in marketing last week, and the professor wanted to test our previous knowledge of economics (we are juniors). &#xA;He asked us this simple question: &quot;What are the fundamental/basic categories in economics?&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Confused by the vagueness of the question, most of us said labor, capital, profit, markets... All sorts of things, but none were apparently correct. In the end, he said that the correct answer is: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;cost&lt;/li&gt;&#xA;&lt;li&gt;result (as in profit or revenue)&lt;/li&gt;&#xA;&lt;li&gt;time&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;He continued to say that we define everything in economics on the basis of these three categories.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My questions now are: is this true? Do I really have such a significant knowledge gap that I somehow missed this crucial piece? Where can I find the confirmation of his statement?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If this is not true, can you please refer me to where I can find the answer to this question?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks&lt;/p&gt;&#xA;" OwnerUserId="18327" LastActivityDate="2018-10-18T18:22:10.097" Title="What are &quot;the fundamental categories of economics&quot;?" Tags="&lt;supply-and-demand&gt;&lt;theory&gt;&lt;marketing&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25062" PostTypeId="2" ParentId="25058" CreationDate="2018-10-16T22:27:43.367" Score="2" Body="&lt;p&gt;Cost covers all the inputs you mentioned and markets don't need to exist. Rent seeking is a perfectly valid alternatives to markets. So having to choose (cost/spend) between different alternatives (profit) is all there is. You can even include time as a cost and reduce it to two factors.&lt;/p&gt;&#xA;" OwnerUserId="19840" LastActivityDate="2018-10-16T22:27:43.367" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25066" PostTypeId="1" AcceptedAnswerId="25072" CreationDate="2018-10-16T23:24:29.730" Score="2" ViewCount="91" Body="&lt;p&gt;Vermont apparently tried to setup a single-payer healthcare system, only to have various healthcare and pharmaceutical companies threaten to ruin them if they did so, at which point Vermont, a state not large enough to take them on, backed down.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Despite this, countries like Iceland have single-payer systems, and don't have to deal with things like nonsense pharmaceutical price gouging despite having only around half the population of Vermont, and six billion dollars less in GDP.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why is it that Iceland can setup a single-payer system, but Vermont couldn't? What does Iceland have that Vermont doesn't? And how can these differences be generalized such to explain what the requirements are for a state, or country, or healthcare providing NGO to be able to run a single-payer system?&lt;/p&gt;&#xA;" OwnerUserId="13990" LastActivityDate="2018-10-17T10:14:13.037" Title="Why can Iceland setup and maintain a single-payer system but Vermont can't?" Tags="&lt;health-economics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25067" PostTypeId="2" ParentId="25066" CreationDate="2018-10-17T01:36:12.300" Score="-4" Body="&lt;p&gt;Single payer systems are primarily an interest group policy. Giving and taking money from the same person is never rational. All major social security systems are PAYGO.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So vermont is simply too small to have the necessary political infrastructure for a funded system to be viable.&lt;/p&gt;&#xA;" OwnerUserId="19843" LastActivityDate="2018-10-17T01:36:12.300" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="25070" PostTypeId="1" AcceptedAnswerId="25344" CreationDate="2018-10-17T07:39:57.690" Score="0" ViewCount="48" Body="&lt;p&gt;If every middle class single-family detached home in a sprawling metropolitan area like Los Angeles were each replaced with two luxury condos over a short period, would average real estate prices rise or fall? Would they go in one direction first and then the other direction later?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or the opposite, if every two luxury homes were replaced by a single middle-class home occupying both parcels, would prices rise or fall?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm asking this because I'm wondering whether density or luxuriousness has the greatest effect on real estate prices. Knowing the answer to this would help to answer the question, &lt;em&gt;&quot;To solve the housing crisis, is it better to increase supply (even if it's luxury housing) or mandate affordable housing?&quot;&lt;/em&gt;&lt;/p&gt;&#xA;" OwnerUserId="19846" LastEditorUserId="19846" LastEditDate="2018-10-17T17:47:01.540" LastActivityDate="2018-11-04T17:30:11.480" Title="Flooding the real estate market with luxury homes: will average prices rise or fall?" Tags="&lt;supply-and-demand&gt;&lt;price&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="25071" PostTypeId="1" AcceptedAnswerId="25148" CreationDate="2018-10-17T07:59:54.750" Score="1" ViewCount="127" Body="&lt;p&gt;From an investment perspective, it seems to me that a low interest-rate environment can yield to some relatively &quot;un-risky&quot; profits.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As the interest-rate can barely go lower, we now it should rise again at some point (take for instance the recent interest-rate hike in the US).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this case, what would be the corresponding investment vehicle/product to invest in? My guess would be to just short-sell positions in bonds, as an interest-rate rise corresponds to a decrease of bond prices, but this seems too obvious.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Am I missing something, for instance that short-selling of bonds is not permitted?&lt;/p&gt;&#xA;" OwnerUserId="18411" LastEditorUserId="18411" LastEditDate="2018-10-23T03:21:09.923" LastActivityDate="2018-10-23T05:22:48.790" Title="Fixed-income investment in a low interest-rate environment" Tags="&lt;macroeconomics&gt;&lt;interest-rate&gt;&lt;investment&gt;&lt;bonds&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25072" PostTypeId="2" ParentId="25066" CreationDate="2018-10-17T10:14:13.037" Score="4" Body="&lt;p&gt;From what Wikipedia tells me on the Vermont case, the Vermont government feared increases in costs and taxes from such a reform. In the end, it boils down to what people/voters/decision-makers are willing to pay for a health care system they believe to be good for the people. Scandinavian countries provide lots of top-class public services (health care, child care, education) but also collect the highest tax rates in the world. Apparently, political will and public opinion in Iceland were willing to accept the price attached, which was not the case in Vermont. Beyond, it is possible that the move from the previous system was less drastic in Iceland, requiring fewer things to change.&lt;/p&gt;&#xA;" OwnerUserId="17735" LastActivityDate="2018-10-17T10:14:13.037" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25075" PostTypeId="1" CreationDate="2018-10-17T18:56:53.497" Score="-3" ViewCount="65" Body="&lt;p&gt;In fractional reserve banking a bank can buy m0 and use it to create any amount of m1/m2. Why don't they do this? The loans could be just banks lending each other at 0% interest to create unlimited money.&lt;/p&gt;&#xA;" OwnerUserId="19854" LastActivityDate="2018-10-18T15:32:26.773" Title="Why don't banks just buy m0 and create unlimited loans?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25076" PostTypeId="1" CreationDate="2018-10-17T19:28:26.173" Score="-1" ViewCount="141" Body="&lt;p&gt;I've been thinking about the credit theory of money lately and how it creates money. Since Banks look for sufficient reserves &lt;em&gt;after&lt;/em&gt; extending a loan, and since the central bank always loans out money to banks that need more reserves, money seems to be created by banks extending loans to people/organizations. With this in mind, why do banks mess around with leveraging deposits to &quot;multiply&quot; the monetary base into M1, is it beneficial to minimize the amount of MB in circulation?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Maybe instead of having private banks (that require heavy government regulation anyway), the central bank could extend loans by printing more MB. The CB could lend at a risk-free rate of 0%, and any interest would be just to cover the risk. This way a 1:1 ratio could be maintained between total outstanding private debt and total dollars in circulation, which could be done by paying for old delinquent loans with interest revenues from paid-for loans.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The wikipedia page on money creation states that &quot;The amount of money that is created [...] when a loan is issued is equal to the principal of the loan, but the money needed for paying the compound interest of the loan has not been created. As a consequence of this process, the amount of debt in the world exceeds the total money supply. Critics of the current banking system are calling for monetary reform for this reason.&quot; Maybe having an unlimited money supply (well, limited to the combined credit-worthiness of the population) in the way I described could be a solution to this problem?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm a blockchain software developer and I'm thinking of making a CreditCoin cryptocurrency that works in this way, with new coins being minted in exchange for a promise of monthly repayment (in the same coin) and with a built-in credit score system to determine individuals borrowing limits and interest rates. Of course the actual identity of the individual will have to be known as well to track credit score. To me, this seems like a cryptocurrency that has the potential to be much more stable than BTC or ETC or the others. BTC has proven to be very volatile even with high liquidity and a market cap of over 100 Billion dollars.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why isn't this the way, say, the US government does things? Is it a viable alternative to the existing system? If not, why? Is it beneficial to minimize the MB?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you don't have all the answers, a partial answer is fine. I'm no economist, just someone interested in macroeconomics, so take what I say with a grain of salt!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit: This seems to be an existing idea. The wikipedia page &lt;a href=&quot;https://en.wikipedia.org/wiki/List_of_monetary_reformers&quot; rel=&quot;nofollow noreferrer&quot;&gt;List of monetary reformers&lt;/a&gt; lists a group who are &quot;Supporters of publicly issued money who oppose charging interest on issuance of money, formerly called 'Greenbackers' in late 19th century United States.&quot; There's also an organization called &lt;a href=&quot;https://en.wikipedia.org/wiki/Positive_Money&quot; rel=&quot;nofollow noreferrer&quot;&gt;Positive Money&lt;/a&gt; advocating a system where &quot;private banks would be deprived from their ability to create money.&quot; &quot;Although Positive Money's proposal is similar to full-reserve banking or narrow banking, it differs in the sense that it would merge bank deposits and central bank money.&quot;&lt;/p&gt;&#xA;" OwnerUserId="18412" LastEditorUserId="18412" LastEditDate="2018-10-19T22:23:14.843" LastActivityDate="2018-10-20T12:22:03.300" Title="Why doesn't the central bank extend loans directly?" Tags="&lt;money-supply&gt;&lt;banking&gt;&lt;central-banking&gt;&lt;federal-reserve&gt;&lt;cryptocurrency&gt;" AnswerCount="2" CommentCount="7" FavoriteCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="25078" PostTypeId="2" ParentId="25076" CreationDate="2018-10-17T19:44:26.053" Score="1" Body="&lt;p&gt;Lending is a complicated process and it is far easier to buy treasuries secured by the government than to do it directly. Also the Bank has to request a loan. The government cannot easily force them.&lt;/p&gt;&#xA;" OwnerUserId="19856" LastActivityDate="2018-10-17T19:44:26.053" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25079" PostTypeId="1" AcceptedAnswerId="25080" CreationDate="2018-10-18T01:30:23.040" Score="0" ViewCount="88" Body="&lt;p&gt;Hi: I'm reading a paper by Broze and Szafarz titled &quot;On Econometric Models with Rational Expectations and I don't follow a step in section 3.2 which discusses the method of undetermined coefficients. So,  I was hoping that someone could explain the derivation. I will write down the equations and then explain the step that I don't follow.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) &lt;span class=&quot;math-container&quot;&gt;$p_{t} = a \times E(p_{t+1} | I_{t}) + u_{t} $&lt;/span&gt; This equation  is given. It comes out of the Cagan Hyperinflation model. &lt;span class=&quot;math-container&quot;&gt;$u_{t}$&lt;/span&gt; is an error term.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) &lt;span class=&quot;math-container&quot;&gt;$ u_{t} = \epsilon_{t} + \alpha \epsilon_{t-1} + \ldots + \alpha_{k} \epsilon_{t-k} + \ldots = A(B) \epsilon_{t} $&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;3) &lt;span class=&quot;math-container&quot;&gt;$ p_{t} = \psi_{0} \epsilon_{t} + \ldots \psi_{k} \epsilon_{t-k} + \ldots = \Psi(B) \epsilon_{t} $&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;4) &lt;span class=&quot;math-container&quot;&gt;$ E(p_{t+1}| I_{t} ) = \frac{\Psi(B) - \psi_{0}}{B}    \epsilon_{t} $&lt;/span&gt;&#xA;So, &lt;span class=&quot;math-container&quot;&gt;$B$&lt;/span&gt; denotes the lag operator which is often denoted as &lt;span class=&quot;math-container&quot;&gt;$L$&lt;/span&gt; in the literature. The explanations of the equations follow.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) As stated above, this is given. This is clear.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) This is the standard infinite MA representation that follows from Wold's decomposition. This is clear.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;3) This is the guess that is made in the method of undetermined coefficients. This is clear.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;4) This is not clear to me. They say &quot;it follows&quot;. I see that it's kind of coming by subtracting &lt;span class=&quot;math-container&quot;&gt;$\psi_{0} \epsilon_{t}$&lt;/span&gt; from both sides of 3) but &lt;span class=&quot;math-container&quot;&gt;$B$&lt;/span&gt; is the infinite lag polynomial and they are dividing by it which confuses me.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks in advance for the help. Some discussion has been omitted so, if anyone needs to see the actual pages, I can scan and send them. My email is my name with a 2 on the end of it and the mail server is that famous one that starts with a g.&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;                                        Mark&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;" OwnerUserId="18201" LastEditorUserId="18201" LastEditDate="2018-10-18T02:41:59.647" LastActivityDate="2018-10-18T04:14:46.847" Title="not following a step in a paper on rational expectations" Tags="&lt;econometrics&gt;&lt;rational-expectations&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="25080" PostTypeId="2" ParentId="25079" CreationDate="2018-10-18T03:31:18.113" Score="0" Body="&lt;p&gt;Presumably &lt;span class=&quot;math-container&quot;&gt;$I_t$&lt;/span&gt; stands for the information set at time &lt;span class=&quot;math-container&quot;&gt;$t$&lt;/span&gt;. So note that &lt;span class=&quot;math-container&quot;&gt;$E[\epsilon_j|I_t] = \epsilon_j$&lt;/span&gt; &lt;span class=&quot;math-container&quot;&gt;$\forall j \leq t$&lt;/span&gt;. This will come into play when working out the LHS.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We wish to verify Equation (4), which is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;E(p_{t+1}|I_t) = \frac{\Psi(B) - \psi_0}{B} \epsilon_t,&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which is equivalent to&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\begin{align*}&#xA;B(E(p_{t+1}|I_t)) = \Psi(B) \epsilon_t - \psi_0 \epsilon_t. &amp;amp;&amp;amp;(*)&#xA;\end{align*}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;We are given that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\Psi(B) \epsilon_t = \psi_0 \epsilon_t + \psi_1 \epsilon_{t-1} + \psi_2 \epsilon_{t-2} + \dots + \psi_k \epsilon_{t-k} + \dots&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;so the &lt;strong&gt;RHS&lt;/strong&gt; of &lt;span class=&quot;math-container&quot;&gt;$(*)$&lt;/span&gt; is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\boldsymbol{\Psi(B) \epsilon_t - \psi_0 \epsilon_t = \psi_1 \epsilon_{t-1} + \psi_2 \epsilon_{t-2} + \dots + \psi_{k} \epsilon_{t-k} + \dots}.&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Now, the LHS. Since &lt;span class=&quot;math-container&quot;&gt;$p_t = \psi_0 \epsilon_t + \psi_1 \epsilon_{t-1} + \psi_2 \epsilon_{t-2} + \dots + \psi_k \epsilon_{t-k} + \dots,$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\begin{align*}&#xA;E(p_{t+1}|I_t) &amp;amp;= \psi_0 E(\epsilon_{t+1}|I_t) + \psi_1 E(\epsilon_t|I_t) + \psi_2 E(\epsilon_{t-1}|I_t) + \dots  + \psi_k E(\epsilon_{t-k+1}|I_t) + \dots \\&#xA;&amp;amp;= \psi_1 \epsilon_{t} + \psi_2 \epsilon_{t-1} + \dots + \psi_{k} \epsilon_{t-k+1} + \dots&#xA;\end{align*}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;since &lt;span class=&quot;math-container&quot;&gt;$E(\epsilon_{t+1}|I_t) = 0$&lt;/span&gt; because &lt;span class=&quot;math-container&quot;&gt;$\epsilon$&lt;/span&gt; is an independent white noise process.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given that &lt;span class=&quot;math-container&quot;&gt;$B(\cdot)$&lt;/span&gt; is the &lt;em&gt;lag operator&lt;/em&gt;, the &lt;strong&gt;LHS&lt;/strong&gt; of &lt;span class=&quot;math-container&quot;&gt;$(*)$&lt;/span&gt; is thus&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\begin{align*}&#xA;\boldsymbol{B(E(p_{t+1}|I_t))} &amp;amp;= B(\psi_1 \epsilon_{t} + \psi_2 \epsilon_{t-1} + \dots + \psi_{k} \epsilon_{t-k+1} + \dots) \\&#xA;&amp;amp;= \psi_1 B(\epsilon_{t}) + \psi_2 B(\epsilon_{t-1}) + \dots + \psi_{k} B(\epsilon_{t-k+1}) + \dots \\&#xA;&amp;amp;= \boldsymbol{\psi_1 \epsilon_{t-1} + \psi_2 \epsilon_{t-2} + \dots + \psi_{k} \epsilon_{t-k} + \dots}.&#xA;\end{align*}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Thus the &lt;strong&gt;LHS = RHS&lt;/strong&gt;; that is,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\begin{align*}&#xA;E(p_{t+1}|I_t) = \frac{\Psi(B) - \psi_0}{B} \epsilon_t. &amp;amp;&amp;amp;\blacksquare&#xA;\end{align*}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="14688" LastEditorUserId="14688" LastEditDate="2018-10-18T04:14:46.847" LastActivityDate="2018-10-18T04:14:46.847" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25082" PostTypeId="1" CreationDate="2018-10-18T10:01:34.713" Score="1" ViewCount="367" Body="&lt;p&gt;So recently I made some rules with my transaction data. Based on it I can determine which products are profitable to bundle it together.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But even though I know e.g. product A→ product B, are there any ways to determine how many bundles will be sold based on the discount value?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;E.g. out of the 100 transactions with product A for price X and there are 40 transactions with product B for price Y(I know lift value might be better but let's keep it easy for now), if product A and B are bundled together, what is the discount rate to increase the optimal short term sales?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I do have products sold for product A and B for different kind of discount, so I was thinking using price elasticity to determine the discount for the bundle because if you know the price you know the quantity, but I dont think it is the right way of thinking and there is no price elasticity for both products.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The data I have: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Price of the product &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lift, support, confidence values and other values related to rules. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;sold product per month &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Discount value per product&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think these variables are more crucial. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any suggestions would be appreciated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks in advance!&lt;/p&gt;&#xA;" OwnerUserId="19863" LastEditorUserId="19862" LastEditDate="2018-11-09T00:47:29.460" LastActivityDate="2021-04-27T06:13:31.180" Title="Calculate optimal discount for product bundling" Tags="&lt;microeconomics&gt;&lt;optimization&gt;&lt;r&gt;&lt;discount-rate&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25084" PostTypeId="1" AcceptedAnswerId="25088" CreationDate="2018-10-18T12:40:31.240" Score="3" ViewCount="128" Body="&lt;p&gt;In my current macro economics course, it has been stated that there is &lt;em&gt;certainty equivalence&lt;/em&gt; in the random walk permanent income hypothesis (&quot;which implies individuals act as if future consumption was at its conditional mean value and ignore its variation&quot;) only holds if the utility is assumed to be on form &lt;span class=&quot;math-container&quot;&gt;$$ u(c) = c - ac^2/2 $$&lt;/span&gt;&#xA;I have consulted the coursebook but could not find any rigorous proof or intuition of this. Could anybody help please?&lt;/p&gt;&#xA;" OwnerUserId="18990" LastEditorUserId="18990" LastEditDate="2018-10-18T16:16:02.417" LastActivityDate="2018-10-18T19:33:45.677" Title="Why Certainity Eqivalence in PIH only holds for quadratic utilities" Tags="&lt;macroeconomics&gt;&lt;utility&gt;&lt;uncertainty&gt;&lt;friedman&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="25085" PostTypeId="1" CreationDate="2018-10-18T14:54:58.087" Score="4" ViewCount="50" Body="&lt;p&gt;I am looking for economic research, theory or empirics, on production/profit maximization/competition for firms producing goods with network effects, such as clubs in which every one's utility depends on the number of other participants. As a producer, my goal is not only to produce the good, but to ensure that enough people consume it at the same time. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What are key papers in this area? What are keywords for me to search for Relevant papers?&lt;/p&gt;&#xA;" OwnerUserId="19866" LastEditorUserId="1601" LastEditDate="2018-10-18T15:12:01.807" LastActivityDate="2019-04-17T13:03:10.613" Title="Economics of clubs(sport gym, language course, etc)" Tags="&lt;reference-request&gt;&lt;preferences&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25086" PostTypeId="1" CreationDate="2018-10-18T15:07:05.827" Score="1" ViewCount="87" Body="&lt;p&gt;When I studied linear regression analysis, one of the assumptions taught was that of homoskedatiscity. I understood that homoskedasticity was required for significance testing on the coefficients. Then in my econometrics class, my professor said that we actually don't need homogeneity assumption since it was too strong. Instead, in order to conduct hypothesis testing on the coefficients, we could use &quot;t-robust test&quot; or Wald test. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So then why is homoskedasticity still widely assumed and taught in linear regression class? How do I reconcile these? &lt;/p&gt;&#xA;" OwnerUserId="19727" LastEditorUserId="19727" LastEditDate="2018-10-20T01:47:36.443" LastActivityDate="2018-10-21T16:40:47.723" Title="Linear Regression Assumptions of Homoskedasticity" Tags="&lt;econometrics&gt;&lt;regression&gt;" AnswerCount="1" CommentCount="13" ContentLicense="CC BY-SA 4.0" />
  <row Id="25087" PostTypeId="2" ParentId="25075" CreationDate="2018-10-18T15:32:26.773" Score="0" Body="&lt;p&gt;In fractional reserve banking, banks need balances at the central bank (reserves), not “M0”, (which includes currency in circulation as well, e.g. dollar bills). Banks do borrow reserves, but that means that the lending bank has to give some up - the total amount of reserves is unchanged.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Although a bank can borrow reserves, its lending capacity is limited by equity requirements. People are not going to inject equity into a bank so that it can make loans without profits from the net interest margin.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2018-10-18T15:32:26.773" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25088" PostTypeId="2" ParentId="25084" CreationDate="2018-10-18T15:59:56.613" Score="3" Body="&lt;p&gt;Certainty equivalence in the context of the Permanent Income Hypothesis implies that &lt;span class=&quot;math-container&quot;&gt;$u'(E_t[c_{t+1}]) = E_t[u'(c_{t+1})]$&lt;/span&gt;, which only holds if marginal utility &lt;span class=&quot;math-container&quot;&gt;$u'(\cdot)$&lt;/span&gt; is linear (by linearity of expectations) and thus only if actual utility &lt;span class=&quot;math-container&quot;&gt;$u(\cdot)$&lt;/span&gt; is quadratic. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To see where this comes from, consider the utility maximization problem of a representative household over an infinite horizon where consumption stream &lt;span class=&quot;math-container&quot;&gt;$\{c_t\}$&lt;/span&gt; and asset holdings stream &lt;span class=&quot;math-container&quot;&gt;$\{a_{t+1}\}$&lt;/span&gt; are chosen, taken as given the real interest rate, fixed at &lt;span class=&quot;math-container&quot;&gt;$r$&lt;/span&gt;, initial wealth &lt;span class=&quot;math-container&quot;&gt;$a_0$&lt;/span&gt; and a stream of income &lt;span class=&quot;math-container&quot;&gt;$\{y_t\}$&lt;/span&gt;. Lastly, take utility to be quadratic over consumption: &lt;span class=&quot;math-container&quot;&gt;$u(c_t) = \alpha c_t - \frac{1}{2}c^2_t$&lt;/span&gt; with sufficiently large &lt;span class=&quot;math-container&quot;&gt;$\alpha$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the household's maximization problem is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{equation*}&#xA;\begin{aligned}&#xA;&amp;amp; \underset{\{c_t, a_{t+1}\}}{\text{max}}&#xA;&amp;amp; &amp;amp; E_0\sum_{t=0}^{\infty} \beta^{t}u(c_t), \text{ where } \beta = \frac{1}{1 + \rho} \text{ , } \rho &amp;gt; 0 \\&#xA;&amp;amp; \text{s.t.}&#xA;&amp;amp; &amp;amp; c_t + a_{t+1} = (1+r)a_t + y_t &amp;amp; \forall t.\\&#xA;\end{aligned}&#xA;\end{equation*}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;$$&lt;/span&gt;&#xA;Therefore, the Lagrangian for this maximization problem is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{equation*}&#xA;\mathcal{L} = \sum_{t=0}^{\infty} \beta^{t} \{E_t[u(c_t) + \lambda_t((1+r)a_t+y_t-c_t-a_{t+1})]\}.&#xA;\end{equation*}&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first-order conditions of the Lagrangian are&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{align}&#xA;\frac{\partial \mathcal{L}}{\partial c_t} &amp;amp;= \beta^{t} u'(c_t) - \beta^t\lambda_t = 0 &amp;amp;&amp;amp;(1)\\&#xA;\frac{\partial \mathcal{L}}{\partial a_{t+1}} &amp;amp;= -\beta^{t}\lambda_t + \beta^{t+1} (1+r)E_t[\lambda_{t+1}] = 0 &amp;amp;&amp;amp;(2).&#xA;\end{align}&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Solving for &lt;span class=&quot;math-container&quot;&gt;$\lambda_t$&lt;/span&gt; using (1) and substituting into (2) gives&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{align*}&#xA;u'(c_t) = \beta (1+r)E_t[u'(c_{t+1})].&#xA;\end{align*}&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Take &lt;span class=&quot;math-container&quot;&gt;$\rho = r$&lt;/span&gt; in this economy for simplicity. Thus &lt;span class=&quot;math-container&quot;&gt;$\beta(1+r) = 1$&lt;/span&gt;:&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{align*}&#xA;u'(c_t) = E_t[u'(c_{t+1})].&#xA;\end{align*}&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since utility is quadratic, marginal utility is linear which implies that the expectation of marginal utility is the marginal utility of the expectation:&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{align*}&#xA;u'(c_t) = u'(E_t[c_{t+1}])&#xA;\end{align*}&lt;/span&gt;&#xA;which implies that&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{align*}&#xA;c_t = E_t[c_{t+1}]&#xA;\end{align*}&lt;/span&gt;&#xA;since &lt;span class=&quot;math-container&quot;&gt;$u'(\cdot)$&lt;/span&gt; is injective. Thus we have certainty equivalence.&lt;/p&gt;&#xA;" OwnerUserId="14688" LastEditorUserId="14688" LastEditDate="2018-10-18T19:33:45.677" LastActivityDate="2018-10-18T19:33:45.677" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="25089" PostTypeId="2" ParentId="25058" CreationDate="2018-10-18T18:22:10.097" Score="0" Body="&lt;p&gt;An interesting question...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first thing I would say is demand. &#xA;Without demand, there's no incentive to supply anything. Demand, in turn, is based on consumer utility.&#xA;I exclude budget constraints, because a budget assumes a system.&#xA;A single person on a deserted island will pick a fruit from a tree (tree as capital + labor, supply... ) only if he's hungry (demand)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The next thing I would treat is supply. dependant on means and motivation (demand), any use of production factors to satisfy demand&#xA;The basic economic concept axiom built on that is &lt;em&gt;decreasing marginal product&lt;/em&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The last thing is game theory. &#xA;The entire economic theory is based on game theory&#xA;One might say that economics is a specific case of game theory,&#xA;for example, &lt;em&gt;an economic equilibrium is a multiplayer simultaneous game&lt;/em&gt;&lt;/p&gt;&#xA;" OwnerUserId="19195" LastActivityDate="2018-10-18T18:22:10.097" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="25090" PostTypeId="1" CreationDate="2018-10-18T19:08:23.587" Score="-2" ViewCount="50" Body="&lt;p&gt;From what I understand, m1 money is just as liquid as m0 since an individual can withdraw it from the bank at any time and in any quantity (up to the amount (s)he deposited). Because of this I don't see the point of using the money multiplier effect to increase deposits instead of simply allowing the central bank to loan out money to individuals by printing more (since that's already what banks do with m1). If anything the current practice seems dangerous because there's always the chance of a bank run.&lt;/p&gt;&#xA;" OwnerUserId="18412" LastEditorUserId="18412" LastEditDate="2018-10-18T20:23:31.227" LastActivityDate="2018-10-19T00:43:41.017" Title="Why don't we mint more m0 instead of creating m1 through fractional reserve banking?" Tags="&lt;money-supply&gt;&lt;banking&gt;&lt;central-banking&gt;&lt;money&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="25091" PostTypeId="1" CreationDate="2018-10-18T20:54:49.600" Score="8" ViewCount="178" Body="&lt;p&gt;First of all, that's a homework question, and I &lt;em&gt;will&lt;/em&gt; try to make it as useful to future readers as possible. &lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Problem&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;So, I was given a problem about the model described by Botond Kőszegi and Matthew Rabin in &quot;A Model of Reference-Dependent Preference&quot; in 2006:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;A person deals with two goods: tea (&lt;span class=&quot;math-container&quot;&gt;$c_1 \in \{0, 1\}$&lt;/span&gt;), and money (&lt;span class=&quot;math-container&quot;&gt;$c_2 \in R$&lt;/span&gt;).&#xA;  &lt;span class=&quot;math-container&quot;&gt;$$&#xA;c_1 = \begin{cases}1, \mbox{if he buys tea}\\ 0, \mbox{if he does not buy tea} \end{cases}&#xA;$$&lt;/span&gt;&#xA;  His consumption utility is given by: &lt;span class=&quot;math-container&quot;&gt;$$m(c) = v \times c_1 + c_2$$&lt;/span&gt;&#xA;  His gain-loss utility is given by:&#xA;  &lt;span class=&quot;math-container&quot;&gt;$$&#xA;n(x | r) = \begin{cases} (x - r), \mbox{if } x \ge r\\ \lambda \times (x - r), \mbox{if } x \lt r \end{cases}&#xA;$$&lt;/span&gt;&#xA;  Tea costs &lt;span class=&quot;math-container&quot;&gt;$P_H = 30$&lt;/span&gt;; also, let &lt;span class=&quot;math-container&quot;&gt;$v = 13, \lambda = 4$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;There are multiple tasks, but I'm struggling even with the first one:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Prove that the reference point &lt;span class=&quot;math-container&quot;&gt;$r = (c_1, c_2) = (1, -30)$&lt;/span&gt; with probability 1 is his &lt;em&gt;personal equilibrium&lt;/em&gt;.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Do not forget that in the gain-loss utility in case of deviation from expectations, the lost utility should be considered - as it looks in the consumption utility.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Confusion 1&lt;/strong&gt;: What does the second sentence even mean and how do I consider the lost utility??&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;My attempt&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;First of all, let's define what we're looking for. According to page 1143 of the paper:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;A selection &lt;span class=&quot;math-container&quot;&gt;$\{F_l \in D_l\}_{l \in R}$&lt;/span&gt; is a &lt;em&gt;personal equilibrium&lt;/em&gt; (PE) if for all &lt;span class=&quot;math-container&quot;&gt;$l \in R$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$F'_l \in D_l$&lt;/span&gt; &lt;span class=&quot;math-container&quot;&gt;$U(F_l | \int F_l dQ(l)) \ge U(F'_l  | \int F_l dQ(l))$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So, provided that the probability is 1, I can get rid of the integrals and prove that &lt;span class=&quot;math-container&quot;&gt;$U(r | r) \ge U(x | r) \forall x \ne r$&lt;/span&gt;, or, given that there are only two possible choices (right?), that &lt;span class=&quot;math-container&quot;&gt;$U((1, -30) | (1, -30)) \ge U((0, 0) | (1, -30))$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Confusion 2&lt;/strong&gt;: does he really have only two choices and is the second choice &lt;span class=&quot;math-container&quot;&gt;$(0, 0)$&lt;/span&gt;?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Next, compute &lt;span class=&quot;math-container&quot;&gt;$U(r | r)$&lt;/span&gt;. As per p. 1138 of the same work:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;We assume that overall utility has two components: &lt;span class=&quot;math-container&quot;&gt;$u(c|r) = m(c) + n(c|r)$&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$m(c)$&lt;/span&gt; is &quot;consumption utility&quot; typically stressed in economics, and &lt;span class=&quot;math-container&quot;&gt;$n(c|r)$&lt;/span&gt; is &quot;gain-loss utility.&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;U(r | r) = U((1, -30) | (1, -30)) = m(1, -30) + n((1, -30) | (1, -30))&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As per the same page:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;We also assume that gain-loss utility is separable: &lt;span class=&quot;math-container&quot;&gt;$n(c|r) = \sum_{k=1}^K n_k(c_k | r_k)$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So I can do:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;m(1, -30) = v \times 1 - 30 = 13 - 30 = -17\\&#xA;n((1, -30) | (1, -30)) = n(1 | 1) + n(-30 | -30) = (1 - 1) + (-30 + 30) = 0\\&#xA;\mbox{Thus, } U(r | r) = -17 + 0 = -17&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now for the second option:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;U((0, 0) | (1, -30)) = m(0, 0) + n((0, 0) | (1, -30)) = 0 + n(0 | 1) + n(0 | -30) = \lambda \times (0 - 1) + (0 + 30) = 30 - \lambda = 30 - 4 = 26\\&#xA;\mbox{Thus, } U(x | r) = 0 + 26 = 26&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Confusion 3&lt;/strong&gt;: So, I got &lt;span class=&quot;math-container&quot;&gt;$U(r | r) \lt U(x | r)$&lt;/span&gt;, which is quite the opposite of what I need to prove...&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;UPDATE&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;I'm being told by a fellow student that one should multiply the second part of the gain-loss utility by &lt;span class=&quot;math-container&quot;&gt;$v$&lt;/span&gt; (!) to get:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;n(x | r) = \begin{cases} (x - r), \mbox{if } x \ge r\\ v \times \lambda \times (x - r), \mbox{if } x \lt r \end{cases}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So that the computation of &lt;span class=&quot;math-container&quot;&gt;$U(x | r)$&lt;/span&gt; I get:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;U((0, 0) | (1, -30)) = \lambda \times v \times (0 - 1) + (0 + 30) = -22&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;...and the same for &lt;span class=&quot;math-container&quot;&gt;$U((1, -30) | (1, -30))$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;They also say that this is what the &quot;Do not forget that in the gain-loss utility in case of deviation from expectations, the lost utility should be considered - as it looks in the consumption utility.&quot; part of the task tells me to do. Unfortunately, I still have no idea what this part means or why I should multiply &lt;em&gt;only&lt;/em&gt; the second part of the function by &lt;em&gt;exactly&lt;/em&gt; &lt;span class=&quot;math-container&quot;&gt;$v$&lt;/span&gt;. I mean, why would you just change the function out of nowhere?&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Question&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Where am I wrong? And why do I need to multiply by &lt;span class=&quot;math-container&quot;&gt;$v$&lt;/span&gt;, and do I &lt;em&gt;actually&lt;/em&gt; need to do this?&lt;/p&gt;&#xA;" OwnerUserId="19870" LastEditorUserId="11590" LastEditDate="2019-03-21T15:17:58.863" LastActivityDate="2019-03-21T15:17:58.863" Title="Kőszegi - Rabin (2006) model problem" Tags="&lt;behavioral-economics&gt;&lt;loss-aversion&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25093" PostTypeId="2" ParentId="25090" CreationDate="2018-10-19T00:43:41.017" Score="0" Body="&lt;ul&gt;&#xA;&lt;li&gt;With deposit insurance, worrying about bank runs is somewhat of an anachronism. It takes a really big policy mistake to cause one in modern financial systems. Although banks were caught up in the financial crisis, the problems largely originated in wholesale financing markets (interbank lending, bonds, asset-backed securities, money markets), which are not fractional reserve lending.&lt;/li&gt;&#xA;&lt;li&gt;Very few political parties in most developed countries want the central government to take over lending decisions from banks. There are programmes where the government backstops the credit risk in lending (the CMHC mortgage insurance scheme in Canada is one example I am very familiar with), but we still usually have private banks administering the loans.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;In any event, there seem to be a few similar questions on fractional reserve banking on this website.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2018-10-19T00:43:41.017" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25094" PostTypeId="2" ParentId="25082" CreationDate="2018-10-19T04:46:53.853" Score="0" Body="&lt;p&gt;Do you have price elasticity figures at your disposal from other sources or were you planning on trying to estimate elasticities yourself using the data? If you are planning on estimating elasticities using the data, you need to be very careful. Running a simple log-log OLS regression will give you poor estimates because your data points are all market equilibrium points and are not a representative sample of points along a static demand curve. You have serious endogeneity issues there.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have tried undertaking similar projects so I know the pitfalls well. If you still want to back out sales using elasticities, you could try an instrumental variables approach using some of your other variables as instruments to try and circumvent the endogeneity problem via supply-side identification. Another option is to use a simultaneous equations model where you posit functional forms for supply and demand separately and then estimate the reduced form using, say, two-stage least squares (2SLS).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you are strictly interested in forecasting sales well and not really concerned with understanding causal channels, you can look into machine learning algorithms. Depending on how many data points and how many variables you have at your disposal, there are various models that may suit your needs. You should understand these models well before running them, however, because most of them are not like the models in your standard econometrics toolkit. For instance, the more &quot;flexible&quot; models (such as unpruned decision trees, multilayer perceptrons, etc.) are very susceptible to &lt;em&gt;overfitting&lt;/em&gt; the data by essentially modeling noise, leading to higher mean squared errors than anticipated due to high variance.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you're interested in learning more, I found &lt;a href=&quot;http://www.r2d3.us/visual-intro-to-machine-learning-part-1/&quot; rel=&quot;nofollow noreferrer&quot;&gt;this&lt;/a&gt; to be an outstanding, easy-to-understand introduction into statistical learning.&lt;/p&gt;&#xA;" OwnerUserId="14688" LastEditorUserId="14688" LastEditDate="2018-10-19T05:24:59.437" LastActivityDate="2018-10-19T05:24:59.437" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25095" PostTypeId="2" ParentId="24588" CreationDate="2018-10-19T11:22:25.307" Score="1" Body="&lt;p&gt;No, there is no such product.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;Value&quot; is a historical construct; it only exists where products are made to be sold as commodities. When there was no production of commodities, products had no value. If we reshape our societies so that we no longer produce things as commodities, there will no longer be value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Even as long as products are commodities, their value necessarily changes. In Marxist terms, productivity of labour changes (increasing in the long term, with technological progress, but flutuating on the short term), so the labour time necessary to produce any given commodity isn't fixed, and neither is value. In neoclassic terms, the utility of products necessarily changes with technological progress: things that were useful become obsolete and lose value, things that had no use become important for new productive processes, and acquire value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course, the value of some commodities is more stable than the value of others. Gold has always been very expensive, while aluminium was very expensive but become very cheap due to new productive processes. It is reasonable to believe that gold, as long as it has any use value, will always be expensive: there are limited reserves of gold, and gold cannot be created by transformative processes. But even here, fluctuation is the norm: gold became much cheaper, though still very expensive, in the 16th century, due to New World mines.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In short, you won't find any product that has had a stable value since the inception of commodity production. And we won't be able to make accurate predicions of the future value of any commodity, because technological progress is unpredictable - even if we assume that commodity production will be the form of economical activity until the end of times - which is far from given.&lt;/p&gt;&#xA;" OwnerUserId="15747" LastActivityDate="2018-10-19T11:22:25.307" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25096" PostTypeId="2" ParentId="25085" CreationDate="2018-10-19T11:55:44.747" Score="1" Body="&lt;p&gt;No doubt there are other topics that have network effects, but one place to look is spatial common pool or pollution literature, where actions in location A have an effect in location B, and some coordination is required. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Papers include renewable resources e.g.:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Kaffine, Daniel T., and Christopher Costello. &quot;Unitization of&#xA;  spatially connected renewable resources.&quot; The BE Journal of Economic&#xA;  Analysis &amp;amp; Policy 11.1 (2011).&#xA;  &lt;a href=&quot;https://www.degruyter.com/view/j/bejeap.2011.11.issue-1/bejeap.2011.11.1.2714/bejeap.2011.11.1.2714.xml&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.degruyter.com/view/j/bejeap.2011.11.issue-1/bejeap.2011.11.1.2714/bejeap.2011.11.1.2714.xml&lt;/a&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The acid rain problem (admittedly quite old):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Mäler, Karl-Göran, and Aart De Zeeuw. &quot;The acid rain differential&#xA;  game.&quot; Environmental and Resource Economics 12.2 (1998): 167-184.&#xA;  &lt;a href=&quot;https://link.springer.com/article/10.1023/A:1008273509255&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://link.springer.com/article/10.1023/A:1008273509255&lt;/a&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;And things like pollen dispersal (self-promotion, but it is definitely clubs):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Punt, Maarten J., and Justus Wesseler. &quot;The Formation of GM‐free and&#xA;  GM Coasean Clubs: Will They Form and If So How Much Can They&#xA;  Achieve?.&quot; Journal of Agricultural Economics 69.2 (2018): 413-438.&#xA;  &lt;a href=&quot;https://onlinelibrary.wiley.com/doi/full/10.1111/1477-9552.12235&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://onlinelibrary.wiley.com/doi/full/10.1111/1477-9552.12235&lt;/a&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="12186" LastActivityDate="2018-10-19T11:55:44.747" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25100" PostTypeId="1" CreationDate="2018-10-19T18:45:54.727" Score="-1" ViewCount="269" Body="&lt;p&gt;How do I find the optimal price for a monopolist given the monopolist's cost function and market demand?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have &lt;span class=&quot;math-container&quot;&gt;$Profit(y) = p*y + C(y)$&lt;/span&gt; where &lt;span class=&quot;math-container&quot;&gt;$p$&lt;/span&gt; is price, &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; is output, and &lt;span class=&quot;math-container&quot;&gt;$C(y)$&lt;/span&gt; is total cost.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then I set the derivative of &lt;span class=&quot;math-container&quot;&gt;$Profit$&lt;/span&gt; (with respect to y) equal to 0 and solve for &lt;span class=&quot;math-container&quot;&gt;$p$&lt;/span&gt;. Is that correct?&lt;/p&gt;&#xA;" OwnerUserId="19877" LastEditorUserId="14688" LastEditDate="2018-10-22T11:08:38.980" LastActivityDate="2018-10-22T11:08:38.980" Title="How do I find optimal price or maximise profit in a monopolistic market?" Tags="&lt;microeconomics&gt;&lt;monopoly&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25101" PostTypeId="1" AcceptedAnswerId="25106" CreationDate="2018-10-19T19:45:56.350" Score="2" ViewCount="30" Body="&lt;p&gt;For a certain good, if there is a one-time fixed cost for a consumer to switch to a different firm in a later time, then we say this good is ____ (or has property ___). Examples include&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Consumer: House renter&lt;/li&gt;&#xA;&lt;li&gt;Firm: Landlord&lt;/li&gt;&#xA;&lt;li&gt;Good: Stays in a house&lt;/li&gt;&#xA;&lt;li&gt;One-time Cost: Moving cost&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Consumer: Mobile phone user&lt;/li&gt;&#xA;&lt;li&gt;Firm: Wireless carrier&lt;/li&gt;&#xA;&lt;li&gt;Good: Uses of phone over a carrier network&lt;/li&gt;&#xA;&lt;li&gt;One-time Cost: New account activation fee&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="8828" LastActivityDate="2018-10-20T05:32:55.857" Title="For a certain good, if there is a one-time fixed cost for a consumer to switch to a different firm, then this good is?" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="0" ClosedDate="2018-10-20T06:50:36.360" ContentLicense="CC BY-SA 4.0" />
  <row Id="25103" PostTypeId="1" AcceptedAnswerId="25107" CreationDate="2018-10-19T22:24:17.380" Score="1" ViewCount="45" Body="&lt;p&gt;In the Netherlands we have a shortage of affordable housing. Especially in urban areas, especially housing in the price ranges affordable for young people and middle and low incomes.&#xA;This is pretty much a constant, of course now that the economy is doing well and the house prices are rising again, after the 2008 crises, it is even more true.&#xA;A couple of years ago - at a period in time when affordable housing was a scarce but real estate prices were not going through the roof - our then Minister for Housing was on television in Singapore asking investors to come buy ('invest in') Dutch real estate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is a clip in Dutch, shown in a late-night show: &quot;&lt;a href=&quot;https://youtu.be/c3fywTiEJgM&quot; rel=&quot;nofollow noreferrer&quot;&gt;Starters op de woningmarkt - Zondag met Lubach (S09)&lt;/a&gt;&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why?&#xA;Could there ever be any benefit for citizens when investors buy existing real estate? They are not building new houses.&#xA;Could there ever be any benefit in a situation where affordable housing is already scarce?&lt;/p&gt;&#xA;" OwnerUserId="19757" LastActivityDate="2018-10-20T05:37:26.570" Title="Why would a politician sollicit foreign investors to come and buy real estate?" Tags="&lt;social-welfare&gt;&lt;housing&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25105" PostTypeId="2" ParentId="25100" CreationDate="2018-10-20T00:56:17.753" Score="1" Body="&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\textbf{In short}$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;No, there are a number of issues. see section 1 below for the solution, and section 2 for some intuition behind why this process works. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\textbf{section 1 - Potential Problems}$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\underline{Objective \ function \ setup}$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your objective function is the function that you are interested in, in your question it is profit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It appears that there is a wrong sign on your cost function.  Costs take away from profits, they don't add to profits.  i.e. &lt;span class=&quot;math-container&quot;&gt;$$ \pi = revenue \color{red}{-} costs, \ where\ \pi \ is  \ profit$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\underline {Inverse \ Demand, y(p)=a-bp}$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another issue is that in a typical monopoly question, output(i.e. y) is a function of price (i.e. &lt;span class=&quot;math-container&quot;&gt;$y(p) $&lt;/span&gt;) and inversely price is a function of output (i.e. &lt;span class=&quot;math-container&quot;&gt;$p(y) $&lt;/span&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This occurs because there is one firm in the market, and thus the firm faces the entire market demand. This means that the firm &lt;span class=&quot;math-container&quot;&gt;$\textbf{is not a price taker}$&lt;/span&gt;, but every price it sets has an effect on the quantity demanded, and results in the firm's price &lt;span class=&quot;math-container&quot;&gt;$\textbf{being the demand curve}$&lt;/span&gt; (called the inverse demand curve). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose we had a market with consumers having a demand function of &#xA;&lt;span class=&quot;math-container&quot;&gt;$$y_d(p)=a-bp $$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, this would result in the  objective function&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ max_{p} \ \pi = p\times y_d(p) - C(y) $$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One issue with this is that your costs function is now a function of price, because it is a function of output which is a function of price. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;i.e. &lt;span class=&quot;math-container&quot;&gt;$ C(y(p)) $&lt;/span&gt; ,  to solve this you would need to a.) implicitly derive or b.) substitute y(p) for it's function (e.g &lt;span class=&quot;math-container&quot;&gt;$C(a-bp)$&lt;/span&gt;, if available). I think young's theorem might have something to say on this. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\textbf{Now we have a valid profit function for a monopoly!!}$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ max_{p} \ \pi = \color{red}{ p \times y_d(p)} - \color{blue}{C(a-bp)} $$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;now we can optimise; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\underline{First \ order \ conditions}$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ \frac{\partial \pi}{\partial p} = \color{red}{(1\times y_d(p) + p \times y_d'(p) )} - \color{blue}{\frac{d}{dp}(C(a-bp))}$$&lt;/span&gt;&#xA;NB, you have to apply chain rule to derive &lt;span class=&quot;math-container&quot;&gt;$ p \times y_d(p) $&lt;/span&gt; hence the term in red on the left. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Set &lt;span class=&quot;math-container&quot;&gt;$ \frac{\partial \pi}{\partial p} = 0$&lt;/span&gt; and solve for p.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By setting this equal to zero, &lt;span class=&quot;math-container&quot;&gt;$\color{red}{marginal \ revenue}$&lt;/span&gt; equals &lt;span class=&quot;math-container&quot;&gt;$\color{blue}{marginal \ cost}$&lt;/span&gt; with respect(in terms of) to p. Thus, this is where profit is maximised. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$ \textbf{voila} $&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now you have the optimal price&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\textbf{section 2 - Intuition}$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This works because you are using the process of optimisation on the profit function, to find the best price. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The process of taking the max or min of a function is referred to as optimisation in mathematics. It helps find the largest (max) or smallest (min) value in the objective function (profit in your case). This works because taking the derivative of a function essentially treats your objective function as a curve with respect to the variable you are interested in, and in taking the derivative allows you to find the peaks(max values) and the troughs(min values) of your objective function. Hence in your example, you are treating profit as a curve and finding the point on that curve with the largest p value. &lt;/p&gt;&#xA;" OwnerUserId="14175" LastActivityDate="2018-10-20T00:56:17.753" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25106" PostTypeId="2" ParentId="25101" CreationDate="2018-10-20T05:32:55.857" Score="2" Body="&lt;p&gt;The good has a switching cost / is subject to a switching cost. Rarely used: it is a Diamond good. (Referring to the Diamond 1971 paper.)&lt;/p&gt;&#xA;" OwnerUserId="4445" LastActivityDate="2018-10-20T05:32:55.857" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25107" PostTypeId="2" ParentId="25103" CreationDate="2018-10-20T05:37:26.570" Score="2" Body="&lt;p&gt;The owners of existing housing certainly benefit from increased demand and higher prices for their assets. The total benefit to society may be positive or negative, depending on whether current owners win more than current non-owners lose (from higher prices if they want to buy and become owners).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Higher price of housing makes new buildings more profitable, benefiting the construction industry.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The politician may favour certain groups over others, for example the construction industry is usually a large donor in election campaigns. So the politician may want real estate prices to rise even if it is on average bad for the country.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;`Invest in' need not mean buying existing housing, but it could mean building new buildings and selling the apartments in them. This could increase availability and decrease the price of housing. &lt;/p&gt;&#xA;" OwnerUserId="4445" LastActivityDate="2018-10-20T05:37:26.570" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="25108" PostTypeId="2" ParentId="10821" CreationDate="2018-10-20T09:00:23.497" Score="0" Body="&lt;p&gt;The tiny fraction of lower demand resulting from rooftop devices or even reverse metering, which produces a minuscule impact on generated power, that may have an effect.  What has an effect is the perceived risk and its management at the investment and pricing levels.  Therefore, not all the effects of senses of opportunity and risk will be visible in the data.  In other words, the time shift between correlated features in the data do not always faithfully indicate causality.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is a faithful predictor is a life long indication of value.  Those that value money tend to have more.  Therefore, the larger dollar shifts in investment and the larger artificially motivated price shifts will be, to a large degree, instigated by the wealthy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is their interest?  Relatively safe return on investment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If research into things like any of the technologies in this &lt;a href=&quot;http://www.solarchallengeu.org/energy.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Energy Acquisition Tree&lt;/a&gt; is viable in the short term, investors have an opportunity to invest in the markets affected by research breakthroughs and the research to bring forth the breakthrough at appropriate times.  This is how the oil industry was built.  Research, infrastructure, and demand were manufactured concurrently through the following activities.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Exploration technology&lt;/li&gt;&#xA;&lt;li&gt;Refinement technology&lt;/li&gt;&#xA;&lt;li&gt;Distribution business&lt;/li&gt;&#xA;&lt;li&gt;Marketing of high performance sports cars based on sexual appeal&lt;/li&gt;&#xA;&lt;li&gt;Marketing of two car families based on feminism&lt;/li&gt;&#xA;&lt;li&gt;Marketing of low efficiency family vehicles based on safety&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Although the correlation is obvious in culture and in economic data during the last hundred years, the causality is not always clear.  The cause was largely a set of conversations in golf carts and in investment banking board rooms about ROI capacity, which is high for fuel oils unless depletion becomes an issue.  It will eventually, but the decisions were made with generations between the decision makers and the eventuality of resource depletion.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With solar, the case is different.  The ROI is not nearly as immediate, but the longer term durability of the technology may be higher.  Without an absolute assertion that it will be higher and a significantly longer term business vision, alternative energy is merely a speculative market and highly dependent upon political and military trends.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This may change if a few relatively probable events occur with substantiality.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Kazakhstan begins producing significantly&lt;/li&gt;&#xA;&lt;li&gt;Deep off shore Brazil fields remain untappable without risking the entire Atlantic ecosystem&lt;/li&gt;&#xA;&lt;li&gt;Domestic ecological movements throughout the most highly populated industrialized or industrializing countries threaten blowback scenarios for leaders that support coal powered plant construction&lt;/li&gt;&#xA;&lt;li&gt;The Saudis are correct that their fields will effectively deplete in about 15 years&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="11487" LastActivityDate="2018-10-20T09:00:23.497" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25109" PostTypeId="2" ParentId="25076" CreationDate="2018-10-20T12:22:03.300" Score="0" Body="&lt;p&gt;There are several reasons why the Federal Reserve would never make loans to individual people:  (a) it does not have the resources needed to assess creditworthiness (that's what private banks do) (b) they consider themselves in the business of managing broad economic variables such as interest rates and the level of reserves, and not in the business of allocating credit.  (c) only in exceptional circumstances do they take direct exposure to the credit of the private sector (eg following the 2008 credit crisis), and would not want to do this as a matter of course. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The CreditCoin idea seems open to abuse (you'll have a hard time tracking down delinquent borrowers). The types of people that like crypto don't like giving their identity and all the other info you'll need to make an accurate credit assessment.  &lt;/p&gt;&#xA;" OwnerUserId="13062" LastActivityDate="2018-10-20T12:22:03.300" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25110" PostTypeId="1" CreationDate="2018-10-20T15:23:34.230" Score="1" ViewCount="36" Body="&lt;p&gt;GDP = C + I + G + (X-M)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If GDP is supposed to count only final goods and services, why include I? Eg if build public roads, can count as G; if build factory, can count when factory produces goods and those goods are sold.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Put differently, counting I seems to double count. Eg if one counts spending on factory as I today, when the factory produces and sells goods tomorrow and in subsequent periods, the counting is done again (eg I, followed by C).&lt;/p&gt;&#xA;" OwnerUserId="19888" LastEditorUserId="19888" LastEditDate="2018-10-20T15:31:09.463" LastActivityDate="2018-10-20T17:46:01.847" Title="why is I included as part of GDP?" Tags="&lt;gdp&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25112" PostTypeId="2" ParentId="25110" CreationDate="2018-10-20T17:46:01.847" Score="1" Body="&lt;p&gt;Investing is about &quot;new&quot; things that did not exist. Any acquisition of a previously existing asset, such as a house, is considered as Savings rather than Investment. Moreover, Investment is not consumed at the present time and are expected to provide flows for longer periods of time.&lt;/p&gt;&#xA;" OwnerUserId="19891" LastActivityDate="2018-10-20T17:46:01.847" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25116" PostTypeId="2" ParentId="7028" CreationDate="2018-10-21T02:58:59.087" Score="4" Body="&lt;p&gt;There is a major disciplinary specification problem here: “who is an economist?”&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At the time Marx was active as an author (including posthumously with Engels) the field of knowledge was known as “political economy,” so as to distinguish it from the domestic economy of household management—both from the Greek oikos.  Political economy was, and still can, be distinguished as a scholarly discipline as the study of the formation of “value,” or the question of “what is something worth?”  At the time three methods of dealing with this were present in the discipline: absolute labour content, proto-marginalisms, and utilitarianisms (subjective or moralistic evaluations).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Marx primarily engaged with political economy through a &lt;strong&gt;critique&lt;/strong&gt; of the labour theory of value, positing instead a realised (ie sold), valorised (ie applied to production, not wasted) socially-necessary (technical organisation), labour power (skill organisation), averaged (exertion) theory of value with the price of buying actual living labour to convert to labour power politically determined by the balance of class conflict (that is, the price of labour may be below life time replacement or day to day replacement: starvation wages may be what the politics bear).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;He also spent his time viciously heckling utilitarians over the incommensurability of internal desires and proto-marginalists.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Economics, as a discipline, is founded in the reaction to the incommensurability problem of subjective prices, and instead posits marginal differences in effective demand instead of human desires.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the sense that Marx’s work is hard to reconcile as a system with marginalism, it is hard to posit Marx as an economist rather than a political economist. However, in the sense that Marx specifies a number of useful problems, represents the most highly developed outcome of labour theories of value, and that a whole load of scholars trained in Marx’s work work in economics departments he is of continuing influence in that discipline. &lt;/p&gt;&#xA;" OwnerUserId="19898" LastActivityDate="2018-10-21T02:58:59.087" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25117" PostTypeId="2" ParentId="1876" CreationDate="2018-10-21T03:23:17.677" Score="0" Body="&lt;p&gt;“Communism” in Marx’s writing can indicate one of two social relations of being:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;“FULL COMMUNISM” being some end state of human expression underwritten by lack of want; and,&lt;/li&gt;&#xA;&lt;li&gt;lower communism, or “socialism,” where the value form has been abolished as a social relationship by a self emancipating and self abnegating proletariat (it is busy destroying the wage and capital, and thus itself)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The first has never existed. “Primitive communism” is an entirely different category rooted in appropriation of the environment at band and tribal scales. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Whether the second has existed is a fraught historical question. We’re going to deal with it in three points: substitutionalism, historical material dialectic, and tenuousness and modes of production. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Substitutionalism is the social practice of groups within or outside of the working class substituting themselves for the position of the entire working class. Some organisations, such as those inspired by Lenin have this as a strategy. Others, such as anarchist inspired armed movements have it as an unconscious practice as a result of, for example, shooting bosses. In both cases these groups are acting for, not as, the working class. A state or chaos that claims to be abolishing the value form is not necessarily doing so. We thus &lt;strong&gt;must&lt;/strong&gt; discount the claims of any state or agency to be implementing socialism, and look at their actual historical practice in material relations, and the dialectical manner in which forces contest with each other. It isn’t what you say: it’s whether everybody is actually no longer working for wages.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the historical material dialectic no agency is “total.” Capitalism is a process which is never complete. There is always a seven year old to subject to wage labour. There is always a new commodity to invent for sale. There is always capital to expand or devalorise. Correspondingly socialism is not an end state, but a process. The process is one of workers forming deeper solidarity and stopping wage labour, the commodity and capital as social relationships. Every “sick” day. Every shop lifting. Every freebie. Every sabotage. Every strike. Every union (even the “bad” ones).  Every closer union in culture, politics, distribution or production. Every factory occupation hung. Every council of workers put to a wall and shot. Each of these processes is socialism coming into being as a new form of human relationships. Are some stronger than others? Yes: capitalism repeatedly failed in China and Europe. Socialism has repeatedly failed. The 1917-1919 Russian workplace soviets were less advanced than the 1956 Hungarian councils. In Hungary they took state power with delegated leaderships of workers from the job. In Russia geographic councils of intelligentsia took power on behalf of workers. But &lt;strong&gt;none&lt;/strong&gt; of these have ever achieved a mode of production, all have been drowned in blood within revolution, and in heartbreak and commodities without revolution. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A mode of production is a self-sustaining system of economic relations where people replicate themselves and their relations generation to generation with an increasing density or volume of whatever constitutes “property.”  No group of workers have maintained self control over a vast majority of an economy while seriously and immediately abolishing wage commodity capital. It has barely lasted three years in the best cases. But as recognised above “absolutes” aren’t appropriate analysis. Working class cultures and communities have maintained and expanded cultures and material relations within capital that seek to abolish wage commodity capital, even while they work within that relationship. Workers coops for distribution have lasted three plus generations. Mondragon might be workers whipping themselves, but they’re not broke yet. Villages and suburbs have controlled to limited extents the rate of exploitation, and produced grey and black markets of solidarity lasting over generations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So no: Full nor lower communism have neither been achieved, however, the working class communist movement has a long history of actually trying, with notable and limited advances. Many of which were strangled in the crib, or privatised later. &lt;/p&gt;&#xA;" OwnerUserId="19898" LastEditorUserId="19898" LastEditDate="2018-10-22T05:50:50.007" LastActivityDate="2018-10-22T05:50:50.007" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25118" PostTypeId="2" ParentId="10491" CreationDate="2018-10-21T03:37:24.793" Score="1" Body="&lt;p&gt;Socially necessary labour power is a requirement for the circulation of value, embodied in classical reproduction schema as “lp.”&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An individual human being who owns capital exerts themselves in relation to that capital. They make a decision regarding who will make decisions about their capital. They may go further and directly make decisions about their capital. They may go further and make decisions about the day to day uses of their capital and what their wage slaves do. They may go further and actually lay hand on tool to physically convert wool to yarn, or reading to academic journal articles.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In each and every of these cases they are exerting labour power, injecting labour into the process, and embody actual living labour. To this extent a capitalist contributes toward potential value like any other human: he spins wool, he bullies spinners, he purchases jennies, he distributes capital between spinning and weaving, he hires a director to ensure the work is done for him.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The socially necessary price for these services as “labour” is far below the stipends actually doled out to management and other nomenklatura: they’re not paid a wage for their labour, but given stipends from profit for imprisoning workers in an industrial hell. The socially necessary price will be that of a worker conducting the same job: advanced operational administrative is a good proxy, government service prices.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So yes, they add value &lt;strong&gt;only to the extent they exert labour power&lt;/strong&gt; and only in relation to the socially necessary price of complex labour of that sort.&lt;/p&gt;&#xA;" OwnerUserId="19898" LastActivityDate="2018-10-21T03:37:24.793" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25119" PostTypeId="2" ParentId="24588" CreationDate="2018-10-21T04:08:13.993" Score="-1" Body="&lt;p&gt;Where labour power exists it has had a stable “value,” in that it is the only commodity that all other commodities could be reduced to in value flow terms. The politically contingent definition of the price of actual living labour, the normalisation of different hours and exertions and family sizes not withstanding, all commodities can find a momentary reflection through the price or average socially necessary labour power.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is somewhat of a cheat but it means that we can use production worker compensation as a useful stable measure in capitalisms, knowing that the subjectivity imported will be the political-economic state of the class war of the past.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is superior to even the most sensitive CPI commodity bundling which will represent the subjective political balance of statisticians of the day or later. GDP and GDP/cap have an obvious price of money problem and are only really good for projects representing “a proportion of total social exertion.”&lt;/p&gt;&#xA;&#xA;&lt;p&gt;No price series is valid before the generalisation of commodity subsistence, wage labour and capital. &lt;/p&gt;&#xA;" OwnerUserId="19898" LastActivityDate="2018-10-21T04:08:13.993" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25124" PostTypeId="1" AcceptedAnswerId="25126" CreationDate="2018-10-21T12:55:07.213" Score="0" ViewCount="15" Body="&lt;p&gt;&lt;a href=&quot;http://evonomics.com/capitals-share-of-income-is-way-higher-than-you-think/&quot; rel=&quot;nofollow noreferrer&quot;&gt;In this article&lt;/a&gt;, the writer talks about the «capital share, as a percent of GDP — here just 1 – labor share percentage» &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What's this 1-labour share percentage?&lt;/p&gt;&#xA;" OwnerUserId="118" LastActivityDate="2018-10-21T16:43:36.250" Title="What's a « 1-Ratio» ? From a text on Capital's share of GDP" Tags="&lt;economic-growth&gt;&lt;growth-accounting&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25125" PostTypeId="2" ParentId="25086" CreationDate="2018-10-21T16:40:47.723" Score="1" Body="&lt;p&gt;For the same reason you're taught the very simple supply and demand model of perfect competition in econ 101. It's not that it's &lt;em&gt;wrong&lt;/em&gt;, it's a simplification of the real world and a good place from where to start. Once you've mastered the basics, you can learn more advanced topics. Heteroskedasticity isn't &lt;em&gt;that&lt;/em&gt; advanced of a topic tho, most undergraduate students who take a second econometrics course get to learn about robust tests and all that.&lt;/p&gt;&#xA;" OwnerUserId="18167" LastActivityDate="2018-10-21T16:40:47.723" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25126" PostTypeId="2" ParentId="25124" CreationDate="2018-10-21T16:43:36.250" Score="2" Body="&lt;p&gt;I'm pretty sure he means &quot;1 minus the labour share percentage&quot;, i.e. he's estimating the capital share of GDP as the proportion of GDP not going to labour.  It's not typeset well, but he has used an em-dash (longer) after &quot;GDP&quot; and a minus sign (shorter) after &quot;1&quot;.&lt;/p&gt;&#xA;" OwnerUserId="16631" LastActivityDate="2018-10-21T16:43:36.250" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25127" PostTypeId="1" AcceptedAnswerId="25128" CreationDate="2018-10-21T18:17:01.153" Score="2" ViewCount="287" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/1yibE.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/1yibE.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The image is pretty much self-explanatory. To add some context, I'm learning Solow-Swan Growth Theory and my professor said that the marginal product will not change if both capital and labor increase at the same scale. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can intuitively understand that it makes sense but trying to apply a simple equation (the blue one, the definition of constant marginal product) is just not working. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's either I'm not partial differentiating correctly or the whole theory is wrong. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't see anything wrong with what I've done but why are they not the same? &lt;/p&gt;&#xA;" OwnerUserId="19907" LastEditorUserId="108" LastEditDate="2018-10-21T19:24:19.327" LastActivityDate="2018-10-21T19:24:19.327" Title="Showing marginal product of capital is independent of the scale of production" Tags="&lt;macroeconomics&gt;&lt;mathematical-economics&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25128" PostTypeId="2" ParentId="25127" CreationDate="2018-10-21T18:58:01.410" Score="4" Body="&lt;p&gt;There's something quite subtle going on here that means your final line is wrong (but it's an easy mistake to make and a tough one to spot).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To compute the MPK, we must differentiate the production function with respect to the current level of capital: &lt;span class=&quot;math-container&quot;&gt;$\partial F/\partial K$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But in your final line, you are not differentiating with respect to the current level of capital (which is &lt;span class=&quot;math-container&quot;&gt;$\tilde{K}=\lambda K$&lt;/span&gt;). You are instead differentiating with respect to &lt;span class=&quot;math-container&quot;&gt;$K$&lt;/span&gt;, which is a fraction &lt;span class=&quot;math-container&quot;&gt;$1/\lambda$&lt;/span&gt; of the current amount of capital. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we compute the derivative with respect to &lt;span class=&quot;math-container&quot;&gt;$\tilde{K}\equiv \lambda K$&lt;/span&gt; instead of just &lt;span class=&quot;math-container&quot;&gt;$K$&lt;/span&gt; then everything works as it should:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\frac{\partial F(\lambda K,\lambda L)}{\partial \lambda K}=\frac{\partial (8(\lambda K)^{1/2}(\lambda L)^{1/2})}{\partial \lambda K}=4(\lambda K)^{-1/2}(\lambda L)^{1/2}=4\frac{\sqrt{L}}{\sqrt{K}}.$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This does not depend on &lt;span class=&quot;math-container&quot;&gt;$\lambda$&lt;/span&gt; so MPK is indeed independent of the scale of the economy. QED&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2018-10-21T19:03:42.253" LastActivityDate="2018-10-21T19:03:42.253" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25132" PostTypeId="2" ParentId="13397" CreationDate="2018-10-22T06:56:32.283" Score="0" Body="&lt;p&gt;The relationship of the proletarian to capital is that of the sale of labour power.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Professionals are a cultural category of people who exert intellectually, in the context of certification mechanisms.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As Gramsci amply points out some workers work by hand and others by mind.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Professionals may therefore also be wage labourers if they are paid to sell their working by mind.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To the extent that the additional training received by professionals both embodies past labour and allows the exertion of labour power that is compounded and requires exceptional exertion the labour power of working class professionals is complex: an hour of it is proportionally greater in the production of value than that of the standard average hour of socially necessary labour time. It would take more engineers longer to perform an hour of nursing than a nurse. It would take more nurses longer to perform an hour of engineering than an engineer. This in part is reflected in a higher price for labour in professions, through intermediating processes such as the political contest of labourers with capital regarding the specific price of their labour. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, some professionals exert themselves as petite-bourgeois, selling services that they nominally control.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some professionals take on management positions and end up with class relationships on the scale of class traitor (foreman style managers) through to effectively stipendiary capitalists (CEO and paid Director style managers). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Yet other professionals control capital, and even should they engineer or nurse on the side they are primarily engaged in controlling others labour through higher management, directorial duties, or investment. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In some societies professionals have sought to control capital in general without receiving personal profit, and only receiving minimal social stipends above the average worker (ie 7-10 multiples of the average wage.)  These attempts have been political, and, due to the &lt;em&gt;claim&lt;/em&gt; that they portended an end to profit maximisation in capital movement, Veblen’s &lt;em&gt;Engineers&lt;/em&gt;, Djilas’ &lt;em&gt;New Class&lt;/em&gt; of nomenklatura, and Ehrenreich’s &lt;em&gt;Professional Managerial Class&lt;/em&gt; have been considered as the possible nucleus for a post-capitalist non-socialist ruling class. All three of these theories point to use-value maximisation as the interests of this purported “class,” and Djilas almost goes so far to purport a bearer of social worth other than “exchange value,” in the form of relationships of cultural control over absolute labour time (ie the meetings will continue until morale improves). This account is weakly received in Marxism. &lt;/p&gt;&#xA;" OwnerUserId="19898" LastActivityDate="2018-10-22T06:56:32.283" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25134" PostTypeId="2" ParentId="13271" CreationDate="2018-10-22T07:01:52.393" Score="0" Body="&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;Critique:&lt;/strong&gt; Marxism seeks to observe the world as it is. While the form of presentation in Capital is from the fundamental dialectic of the commodity relationship towards specific social relations; the manner of research was from concrete social relations towards immediate explanatory claims. Marxism doesn’t do thought experiments or models: it is sociological. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;Liberation:&lt;/strong&gt; the other face of the critique is that the purpose of Marxist economics is not to explain capitalism but to abolish it. Marxism seeks to find and explain the cracks in the commodity form’s society such that workers together can stick in a sharpened screwdriver and twist. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="19898" LastActivityDate="2018-10-22T07:01:52.393" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25135" PostTypeId="2" ParentId="6185" CreationDate="2018-10-22T07:10:19.023" Score="0" Body="&lt;p&gt;The relationship between proletarians and capital is that of the sale of labour power to the command of the owner of capital.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This relationship holds whether:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;the worker is sold for life as a slave&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;the worker is indentured&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;the worker sells their labour on a yearly basis&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;the worker sells their labour on an hourly basis&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;the worker sells their labour on the basis of pieces produced for the capitalist&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;the worker sells their labour as pieces produced for the capitalist&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The line between the proletarian freelancer and the petits bourgeois freelancer is the line over the control over the labour power &lt;em&gt;in the social process of production.&lt;/em&gt;  The owner operator truck driver who cannot command her rate, or his choice of runs and timing is a proletarian like the day carpenter who owns a adze, chisel, file and mallet.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Deciding what is produced, when, and the manner of its production, is a good basis for examining the border between proletarian and petits bourgeois. &lt;/p&gt;&#xA;" OwnerUserId="19898" LastActivityDate="2018-10-22T07:10:19.023" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25136" PostTypeId="1" AcceptedAnswerId="25145" CreationDate="2018-10-22T11:27:09.163" Score="1" ViewCount="45" Body="&lt;p&gt;&lt;p&gt;I came across this question where the GDP for the years 1995-1997 is given. &lt;ul&gt;&lt;li&gt;Then I was asked to compute the growth rate every year which I'm aware of.&lt;/li&gt;&lt;li&gt;The next question was to compute the average which is simple divison.&lt;/li&gt;&lt;li&gt;However, the final question asks me to predict the GDP for the year of 2012 using the average rate of GDP between 1995-1997. &lt;/li&gt;&lt;/ul&gt;&lt;p&gt;I understand the tedius way to go about solving this problem is to keep computing the GDP from 1997 all the way upto 2012. Is there a simplar way I can determine the GDP of a particular year, using an average growth rate?&lt;/p&gt;&lt;/p&gt;&#xA;" OwnerUserId="19915" LastActivityDate="2018-10-23T15:26:02.787" Title="Unsure how to go about computing GDP for the following problem" Tags="&lt;gdp&gt;&lt;economic-growth&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25137" PostTypeId="1" AcceptedAnswerId="29724" CreationDate="2018-10-22T11:43:03.230" Score="1" ViewCount="126" Body="&lt;p&gt;This question is about the following paper:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;F. Bourguignon and C. Morrison &quot;Inequality among World Citizens: 1820-1992&quot;, &lt;em&gt;American Economic Review&lt;/em&gt;, Vol. 92, No. 4. (Sep., 2002), pp. 727-744.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On p.730, the authors say that &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The data, data sources, and assumptions behind them are available at:&#xA;  (&lt;a href=&quot;http://www.delta.ens.fr/XIX&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.delta.ens.fr/XIX&lt;/a&gt;).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;But the link is dead.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does anyone know where their data can be accessed /downloaded?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;P.S. I am interested in data which were used in calculating Gini and other indices reported in the paper.&lt;/p&gt;&#xA;" OwnerUserId="4776" LastActivityDate="2019-06-08T17:45:06.990" Title="Data Set of Bourguignon and Morrison 2002 AER" Tags="&lt;gdp&gt;&lt;data-request&gt;&lt;inequality&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25143" PostTypeId="2" ParentId="25071" CreationDate="2018-10-23T01:53:54.390" Score="1" Body="&lt;p&gt;Your assumption that low interest rates will &quot;eventually&quot; have to rise is not warranted.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Indeed, we are currently witnessing prolonged periods of low interest rates that do not obviously seem to be coming to an end.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Example 1.&lt;/strong&gt; For 7 years, the US FOMC's &lt;a href=&quot;https://www.federalreserve.gov/monetarypolicy/openmarket.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;target federal funds range&lt;/a&gt; remained unchanged at 0–0.25% (from Dec 2008 through Dec 2015). From Dec 2015 through Oct 2018, there have been 8 increases so that it is now 2.00-2.25%. But even after 8 increases, this rate range remains historically low.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Example 2.&lt;/strong&gt; A more dramatic example is the case of Japan, where the &lt;a href=&quot;https://tradingeconomics.com/japan/interest-rate&quot; rel=&quot;nofollow noreferrer&quot;&gt;10-year government bond yield&lt;/a&gt; has remained closed to 0% for two decades now (and indeed is under 0% now).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You predict that since interest rates are so low now, they must rise. You might very well turn out to be correct, but this is hardly a certainty and there are many others taking the opposite bet. &lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2018-10-23T01:53:54.390" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="25144" PostTypeId="2" ParentId="20266" CreationDate="2018-10-23T02:27:14.273" Score="0" Body="&lt;p&gt;My theory:&#xA;With the ever-increasing demand for bandwidth, there is a need for capacity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With the repeal of net neutrality, providers can charge for a premium level of service, as well as refusing traffic that does not bring in revenue. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think a better analogy would be an apartment building.&#xA;With net-neutrality: everyone would expect the pay the same rate and get the same level of amenities. Since no one can be turned away the front door of the building would also be unlocked 24/7.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Without net-neutrality: There will be multiple levels of service and price. The people that want a really fast service without having to share resources will have access to that level of service (if they want to pay for it), Those willing to have a little latency will pay less.  &lt;/p&gt;&#xA;" OwnerUserId="19923" LastActivityDate="2018-10-23T02:27:14.273" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25145" PostTypeId="2" ParentId="25136" CreationDate="2018-10-23T02:29:33.970" Score="0" Body="&lt;p&gt;Generic growth formula:  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\frac{V_t}{V_{t_0}} = (1 + r)^{t-t_0}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Solving for &lt;span class=&quot;math-container&quot;&gt;$r$&lt;/span&gt; will give you a growth rate in terms of the units of &lt;span class=&quot;math-container&quot;&gt;$t$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$t_0$&lt;/span&gt;.  In your example, that's years.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You currently have a growth rate and the value in 1997.  Projected value in 2012 would be &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$V_{2012} = V_{1997} \cdot (1 + r)^{2012-1997} = V_{1997} \cdot (1 + r)^{15}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This assumes that &lt;span class=&quot;math-container&quot;&gt;$r$&lt;/span&gt; is the decimal (not percentage) average growth rate that you calculated.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'll leave it up to you whether your original calculations of the growth rate are consistent with this method of calculating the growth rate.  If not, you may want to recalculate it.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The formula that I gave is a generic one.  While you may be applying it to GDP, this will work for the growth rate of any variable.  That's why I used &lt;span class=&quot;math-container&quot;&gt;$V$&lt;/span&gt; for value rather than a variable more commonly recognized as representing GDP.  &lt;/p&gt;&#xA;" OwnerUserId="68" LastActivityDate="2018-10-23T02:29:33.970" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25146" PostTypeId="2" ParentId="8924" CreationDate="2018-10-23T03:05:03.347" Score="1" Body="&lt;p&gt;In macroeconomics, investment is the amount of goods(consumer goods or capital goods) produced or purchased per unit time which are not consumed at the present time. In other words, &quot;investment&quot; is the amount of goods saved for future use which is by definition &quot;Savings&quot;. (Saving does not necessarily need to be in the form of cash. It can also be in the form of unused goods)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, economist has basically termed saving as &quot;investment&quot; and later found out that &#xA;Saving = Investment.  This may confuse people into thinking that savings and investments are separate concepts. However, both are same concept expressed in different vocabulary.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, if the word &quot;Investment&quot; means amount of &lt;strong&gt;capital goods&lt;/strong&gt; produced or purchased per unit time which are not consumed at the present time and the word &quot;Saving&quot; means amount of &lt;strong&gt;consumer goods&lt;/strong&gt; produced or purchased per unit time which are not consumed at the present time, &quot;Saving&quot; is not necessarily equal to &quot;Investment&quot;. Then,  the Y = C + I should be converted to Y = C + S + I to depict more accurate definition and relation between Saving and Investment. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the scenario 1, Amanda produced 500 dollar car (Y = 500 dollars). Joe buys the car. Depending on the use of the car, Joe may be either consuming or investing(which means consuming at a future date) the car. 500 dollars cash &quot;saved&quot; by Amanda is not a saving in an economical sense. 500 dollars cash is only a medium of exchange held by Amanda. It does not represent real consumer goods or capital goods &lt;strong&gt;saved&lt;/strong&gt; for future use.&#xA;Therefore in a bigger picture, Y = C + S + I where Y= 500 dollars, C + I = 500 dollars, S = 0 dollar.&lt;/p&gt;&#xA;" OwnerUserId="19924" LastEditorUserId="19924" LastEditDate="2018-10-23T04:14:29.400" LastActivityDate="2018-10-23T04:14:29.400" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25147" PostTypeId="2" ParentId="25071" CreationDate="2018-10-23T03:33:59.430" Score="0" Body="&lt;p&gt;NOTE: I realized afterwards that the OP is asking about what vehicle/product to invest in &lt;em&gt;in correspondence to an expected rise in interest rates&lt;/em&gt;, whereas my answer addresses situations in which either A)interest rates do not rise or B)OP wishes to take advantage of low interest rates before they rise again. However, I am hesitant to delete the answer since deleting answers is frowned upon. Please keep in mind the above when reading the answer below.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Fixed rate bonds are definitely an idea, especially if you can get fixed-rate loans at low interest.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, I don't know if this is applicable to where you live, but this is what a lot of people do in Japan and Korea: invest in real estate.&#xA;Because the interest is so low, it's easy to take out a low-interest fixed-rate loan to purchase a second home/apartment and rent it out for fixed-income. What people will generally do in this case, assuming they have sufficient income, is pay off their loans for the first home in 20~25 years, then use that home as collateral to obtain an even lower interest rate for the purchase of the second home.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What makes this uniquely advantageous in these countries as opposed to, say, the US, is that because the interest is so low, monthly payments are usually what their rent would have been anyway, or even lower in some cases. A middle-class single income family, or a family with two working class jobs should be able to handle it without too much difficulty. I can't say the same for the US.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By the time they are finished paying off the second home, they are ready to retire and now have a home to live in plus fixed-income from the rent generated from the second home.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This has become less feasible in Korea in recent decades due to severe inflation of real estate prices, but in Japan a significant factor in determining property value is earthquake related variables, which helps to keep property prices down and affordable for buyers, relatively speaking.&lt;/p&gt;&#xA;" OwnerUserId="19925" LastEditorUserId="19925" LastEditDate="2018-10-23T05:22:48.790" LastActivityDate="2018-10-23T05:22:48.790" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="25148" PostTypeId="2" ParentId="25071" CreationDate="2018-10-23T03:58:38.750" Score="0" Body="&lt;p&gt;I also would push back some against your view that interest rates must somehow rise. Nevertheless, to speculate on future moves in interest rates investors have many products at their disposal, such as outright shorting bonds, &lt;a href=&quot;https://www.cmegroup.com/trading/interest-rates/introduction-to-eurodollar-futures-and-options.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;selling Eurodollar futures&lt;/a&gt;, or selling interest rate swaps (paying fixed), to name a few. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You are right to be hesitant about there being free money on the table. The key hurdle is that the prices for many of these products already reflect investors' expectations that rates will rise. Take interest rate swaps, for example. I have attached a screenshot from a Bloomberg Terminal's USSW screen that displays different market rates.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/k78hT.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/k78hT.png&quot; alt=&quot;Bloomberg USSW Screen&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The 10-year swap rate is quoted at 3.241%. If you are not familiar with swaps, basically two parties are agreeing to switch fixed and floating cash flows on an agreed notional value. Let's say the notional is \$100. With today's price, you can agree to either pay fixed coupons of 3.241% (so \$3.24) a year for the next 10 years, or receive USD 3M LIBOR (currently 2.478%). The benefit of the receiving the floating side is that the floating rate you get can go up as LIBOR increases. The benefit of the receiving fixed is that the rate you receive cannot go down.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you wanted to profit off of increasing interest rates, then you would want to pay fixed and receive floating (since you thought the floating would go up). &lt;strong&gt;Notice, however, that at the start you would be paying 3.241% and only receiving 2.478%&lt;/strong&gt;, so cash would be leaving your pocket, i.e. the trade has a &lt;em&gt;negative carry&lt;/em&gt;. Not only would you need rates to go up to make money, but they need to go up enough to overcome all this money you lose in the meantime. This negative carry reflects investors' expectations that rates will go up over the next 10 years.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Shorting bonds (particularly long-duration) would expose you to a similar negative carry position. To borrow bonds, you would need to pay a form of borrow fee (most likely through charging a lower repo rate than the GC rate, see more &lt;a href=&quot;https://www.icmagroup.org/Regulatory-Policy-and-Market-Practice/repo-and-collateral-markets/icma-ercc-publications/frequently-asked-questions-on-repo/12-what-is-a-special-in-the-repo-market/&quot; rel=&quot;nofollow noreferrer&quot;&gt;special in repo market&lt;/a&gt;). Furthermore, you would also need to pay the coupons of the bonds you have shorted to their original holders. So once again, you might have to bleed a couple percent a year to keep this trade on. Even if rates go up, you might still lose money if they don't go up enough.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The bearish rate expectations already priced into the market and the costs of implementing shorts make it so you can still lose money on your trade if rates do not go up as much as you think or do not go up fast enough.&lt;/p&gt;&#xA;" OwnerUserId="5987" LastEditorUserId="5987" LastEditDate="2018-10-23T04:21:35.900" LastActivityDate="2018-10-23T04:21:35.900" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25152" PostTypeId="2" ParentId="21291" CreationDate="2018-10-23T10:27:16.350" Score="0" Body="&lt;p&gt;In that set-up, the wages are related by the following: &lt;span class=&quot;math-container&quot;&gt;$w_h\geq w_l$&lt;/span&gt;. But it can never happen the low skill earn more. This crucially comes from the fact the high skill have equal or higher productivity than low skill in &lt;em&gt;any&lt;/em&gt; task. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;By contradiction, if it's the case that &lt;span class=&quot;math-container&quot;&gt;$w_l&amp;gt;w_h$&lt;/span&gt;, then a firm could offer a higher wage to the high skill and substitute the low skill, thus increasing production.&lt;/p&gt;&#xA;" OwnerUserId="17875" LastEditorUserId="17875" LastEditDate="2019-02-06T10:39:34.463" LastActivityDate="2019-02-06T10:39:34.463" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25153" PostTypeId="1" AcceptedAnswerId="25155" CreationDate="2018-10-23T10:28:09.057" Score="1" ViewCount="74" Body="&lt;p&gt;Let's say there are two players in a game. In the first period, P1 makes an offer to split 3 dollars with P2. P2 accepts or rejects the offer. If P2 accepts, they get the offer made by P1, and P1 gets what is left of the 3 dollars. If P2 rejects, then P2 makes an offer to P1 in period 2. P1 can then accept or reject the offer. If P1 accepts, then P1 gets the offer made by P2, and P2 gets the 3 dollars minus the offer they made to P1. If P1 rejects the offer, they both get 1 dollar. A discount factor of δ applies in the second period, i.e. one should consider 3δ dollars in the pot, and 1δ dollars as being the value of the outside option.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How do I find the Sub Game Perfect Equilibrium of this game?&lt;/p&gt;&#xA;" OwnerUserId="13649" LastActivityDate="2018-10-23T11:24:17.877" Title="How do I solve this Game Theory Bargaining problem?" Tags="&lt;game-theory&gt;" AnswerCount="1" CommentCount="0" ClosedDate="2018-11-09T01:07:13.873" ContentLicense="CC BY-SA 4.0" />
  <row Id="25154" PostTypeId="1" AcceptedAnswerId="25187" CreationDate="2018-10-23T10:43:38.663" Score="1" ViewCount="279" Body="&lt;p&gt;The discounting condition is as follow:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There exists some &lt;span class=&quot;math-container&quot;&gt;$\beta \in (0, 1)$&lt;/span&gt; such that &lt;span class=&quot;math-container&quot;&gt;$[T(f + a)](x) ≤ (T f)(x) + βa$&lt;/span&gt;, for all &lt;span class=&quot;math-container&quot;&gt;$f ∈ B(X), a ≥ 0, x ∈ X$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;While the monotonicity condition makes sense, I can't give a nice meaning to this property. &lt;/p&gt;&#xA;" OwnerUserId="17875" LastActivityDate="2019-11-20T18:44:58.030" Title="In Blackwell's condition for T to be a contraction mapping, we require that satisfies discounting. What is the intuition of discounting?" Tags="&lt;dynamic-programming&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25155" PostTypeId="2" ParentId="25153" CreationDate="2018-10-23T11:24:17.877" Score="1" Body="&lt;p&gt;So, we have to solve this game by Backward induction. We know if &lt;span class=&quot;math-container&quot;&gt;$P_1$&lt;/span&gt; rejects the offer at the end note, both will get &lt;span class=&quot;math-container&quot;&gt;$P_1=P_2=\delta $&lt;/span&gt;. So, to make &lt;span class=&quot;math-container&quot;&gt;$P_1$&lt;/span&gt; better off and make the proposal accepted,&lt;span class=&quot;math-container&quot;&gt;$P_2$&lt;/span&gt; will offer &lt;span class=&quot;math-container&quot;&gt;$P_1$&lt;/span&gt; an amount of &lt;span class=&quot;math-container&quot;&gt;$(\delta +\epsilon ) $&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$\epsilon \rightarrow 0$&lt;/span&gt;.(I'm considering the case of continuous prices or you can think of a &lt;span class=&quot;math-container&quot;&gt;$\epsilon =0.001$&lt;/span&gt; i.e. a very small amount which just makes the &lt;span class=&quot;math-container&quot;&gt;$P_1$&lt;/span&gt; strictly better off in accepting the proposal. So, &lt;span class=&quot;math-container&quot;&gt;$P_2$&lt;/span&gt; will get &lt;span class=&quot;math-container&quot;&gt;$3\delta -(\delta +\epsilon )$&lt;/span&gt; or &lt;span class=&quot;math-container&quot;&gt;$3\delta -\delta +0.001=2\delta +0.001$&lt;/span&gt;. Now, &lt;span class=&quot;math-container&quot;&gt;$P_1$&lt;/span&gt; knows that if &lt;span class=&quot;math-container&quot;&gt;$P_1$&lt;/span&gt; offers any amount &lt;span class=&quot;math-container&quot;&gt;$&amp;lt; 2\delta +\epsilon $&lt;/span&gt;( strictly less than), then &lt;span class=&quot;math-container&quot;&gt;$P_2$&lt;/span&gt; will reject the offer. So, to make &lt;span class=&quot;math-container&quot;&gt;$P_2$&lt;/span&gt; strictly better off, he'll offer &lt;span class=&quot;math-container&quot;&gt;$P_2$&lt;/span&gt; an amount of &lt;span class=&quot;math-container&quot;&gt;$(2\delta +\epsilon + \theta )$&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$\epsilon \to 0,\theta \to 0 $&lt;/span&gt; i.e. infinitesimal changes such as &lt;span class=&quot;math-container&quot;&gt;$\epsilon =\theta =0.001$&lt;/span&gt;. So, &lt;span class=&quot;math-container&quot;&gt;$P_1$&lt;/span&gt; will get an amount of &lt;span class=&quot;math-container&quot;&gt;$(3-2\delta -\epsilon -\theta )$&lt;/span&gt; where, &lt;span class=&quot;math-container&quot;&gt;$\epsilon ,\theta &amp;gt; 0$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="18667" LastActivityDate="2018-10-23T11:24:17.877" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25157" PostTypeId="2" ParentId="25136" CreationDate="2018-10-23T15:26:02.787" Score="0" Body="&lt;p&gt;This answer does not directly respond to your question, but I'm concerned that you're treating the calculation of the average growth rate too simplistically. You said it is &quot;simple division&quot;, by which I assume you added the two growth rates together and divided by 2.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a first pass at showing why that method is incorrect, consider the following scenario. In year 1 an economy grows by 10%, increasing an index of GDP from 100 to 110. In the second year, the economy &lt;em&gt;shrinks&lt;/em&gt; by 10%, which reduces the index from 110 to 99 (as 10% of 110 is 11). Thus, over the two years, the economy has shrunk from 100 to 99.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you add the two growth rates and divide by 2, you get 0%, but the average growth rate should actually be negative.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When looking for a growth rate, you are assuming that the trend of GDP is exponential. Thus, one way to get an average growth rate is to compare the start value with the end value. In my example, the growth rate would be &lt;span class=&quot;math-container&quot;&gt;$r$&lt;/span&gt; in the following equation: &lt;span class=&quot;math-container&quot;&gt;$$99=100(1+r)^2$$&lt;/span&gt; which solves out to be approximately &lt;span class=&quot;math-container&quot;&gt;$r=-0.5\%$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, an advanced economist would know that merely relying on the start and end values overlooks all the important data in between, furthermore, the start or end value may be in a year where there was a deviation from the trend (i.e. a shock). Thus, it is best to run a regression to get the line of best fit through all the data points. The typical way to do this is to log the values, find the linear line of best fit, and then report the slope of the line as the average growth rate. Even though this method may not be expected from you at your level, it is recommended for any accomplished economist.&lt;/p&gt;&#xA;" OwnerUserId="175" LastActivityDate="2018-10-23T15:26:02.787" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25158" PostTypeId="1" CreationDate="2018-10-23T16:01:32.460" Score="0" ViewCount="44" Body="&lt;p&gt;As per CARE RATINGS for India, in FY18 half of the formal sector firms are showing negative sales/growth but positive job growth? Explain please.&lt;/p&gt;&#xA;" OwnerUserId="19934" LastEditorUserId="6168" LastEditDate="2019-04-06T08:39:24.190" LastActivityDate="2019-04-06T08:39:24.190" Title="Negative growth rate with positive job growth" Tags="&lt;economic-growth&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25160" PostTypeId="2" ParentId="25158" CreationDate="2018-10-23T16:27:05.727" Score="1" Body="&lt;p&gt;These measure different numbers. Dollar value of items sold can decrease while number of employed people can increase, so there is no contradiction here.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2018-10-23T16:27:05.727" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="25162" PostTypeId="1" CreationDate="2018-10-23T18:13:25.833" Score="1" ViewCount="11" Body="&lt;p&gt;While learning Econometrics, I got curious to know whether &lt;code&gt;A/B&lt;/code&gt; can make a better variable than separate &lt;code&gt;A&lt;/code&gt; and &lt;code&gt;B&lt;/code&gt;, when constructing a linear regression model. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Variables are often changed to more appropriate form in linear regression like making it log(x) or changing its scale for better interpretation. So I thought, why not try taking a ratio of two variables and get rid of the original two? (To avoid multicollinearity of course.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For an example, let's say I'm interested in stock price and make a linear regression on it. Would it be better to include original &lt;code&gt;book value&lt;/code&gt; and &lt;code&gt;market value&lt;/code&gt; as two separate variables in my model or make them into one variable like &lt;code&gt;book value/market value&lt;/code&gt;? or would it depend on the situation/purpose? &lt;/p&gt;&#xA;" OwnerUserId="19907" LastActivityDate="2018-10-23T18:13:25.833" Title="Can A/B be a better variable than separate A, B in linear regression?" Tags="&lt;econometrics&gt;&lt;regression&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25163" PostTypeId="2" ParentId="24614" CreationDate="2018-10-23T20:10:37.137" Score="0" Body="&lt;p&gt;There is no problem with your approach, the correct f.o.c. is indeed&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\partial L/\partial \Phi =E[u'(c)(R-1\cdot R_f)]-\lambda \cdot 1=0$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;They give you a &lt;em&gt;constraint&lt;/em&gt; meaning that &lt;span class=&quot;math-container&quot;&gt;$\omega$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\phi_s$&lt;/span&gt; are treated as exogenously fixed numbers (and indeed you are not asked to maximize with respect to them). So you have an exogenously given total quantity for risky assets that you have to allocate among them, equal to &lt;span class=&quot;math-container&quot;&gt;$\omega+\phi_s$&lt;/span&gt;. It follows that if this constraint is relaxed, most probably your expected consumption and utility will change since you will be able to buy more/less risky assets, so it is the correct thing to do to form a Lagrangean. This constraint operates in the same way as a &quot;budget constraint&quot; would, only it does so at the level of quantities and not values.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2018-10-23T20:10:37.137" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25164" PostTypeId="1" CreationDate="2018-10-23T21:49:07.087" Score="2" ViewCount="239" Body="&lt;p&gt;I am currently a senior in economics, and I have been pondering ideas for doing a research paper. Sometimes I go about thinking theory and trying to find applications I could apply it to empirically, sometimes I will look through datasets and see if anything interesting might come to mind, and sometimes I will just happen to think up something that could possibly be an interesting idea related to economics. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the most part, I don't think any of the ideas I've come upon have much substance for a paper. I was wondering if anyone would happen to have any suggestions for the creative process of coming up with a topic? Considering it is undergraduate, I realize that it likely won't be anything too substantial or different than what has been studied in the field already, but I would like it to be atleast somewhat unique. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have taken econometrics I and II, and I am leaning towards some type of research involving panel data as being the main possibility. &lt;/p&gt;&#xA;" OwnerUserId="19470" LastActivityDate="2018-10-23T21:49:07.087" Title="Coming up with a Research Topic for Undergraduate Paper" Tags="&lt;applied-econometrics&gt;&lt;research&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25166" PostTypeId="1" CreationDate="2018-10-23T23:41:16.487" Score="6" ViewCount="227" Body="&lt;p&gt;Why do tax analysts worry about marginal tax rates, not average effective rates, in looking for incentive effects of taxes &lt;/p&gt;&#xA;" OwnerUserId="19935" LastEditorUserId="68" LastEditDate="2018-10-24T04:44:27.863" LastActivityDate="2018-11-01T08:32:50.443" Title="Why use marginal rather than average tax rates in incentive analysis?" Tags="&lt;finance&gt;&lt;taxation&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25168" PostTypeId="1" AcceptedAnswerId="25172" CreationDate="2018-10-24T02:34:09.820" Score="2" ViewCount="1548" Body="&lt;p&gt;Can a bank use its excess reserves to purchase stocks? If so, does this inflate the cost of borrowing for your average Joe since he has to offer returns (interest payments) that are competitive with stock market returns? Or, on the other hand, maybe a personal loan with collateral &lt;em&gt;is&lt;/em&gt; competitive when you consider the low risk?&lt;/p&gt;&#xA;" OwnerUserId="18412" LastActivityDate="2020-05-28T14:06:48.957" Title="Can banks buy stocks?" Tags="&lt;banking&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25169" PostTypeId="2" ParentId="25166" CreationDate="2018-10-24T02:42:21.150" Score="5" Body="&lt;p&gt;People make decisions based on how the decision will change things.  If I work an extra \$1000 worth of time, then I have to pay &lt;span class=&quot;math-container&quot;&gt;$\$1000 * \text{marginal tax rate}$&lt;/span&gt; in taxes.  The average rate is irrelevant to that calculation.  It's a little more complicated than that in that the marginal tax rate may change over that \$1000.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The only time that the average tax rate would matter would be if I were asking at the beginning of the year if it would make sense to not work at all that year.  But I can reach the same result with marginal tax analysis and not be restricted to the beginning of the year.  The marginal-based analysis already has to handle things like the marginal rate changing.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The average tax rate provides useful information so seldom that there's no real point in using it.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The marginal rate tells us how a change from the status quo will affect things.  If my marginal rate in the example is 25%, then I can make an extra $750 by working that extra.  Is that more or less than my value of my leisure time?  That's a real decision.  &lt;/p&gt;&#xA;" OwnerUserId="68" LastActivityDate="2018-10-24T02:42:21.150" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25170" PostTypeId="2" ParentId="25166" CreationDate="2018-10-24T04:59:55.543" Score="0" Body="&lt;p&gt;The entire Economic system, let alone incentives, are built on marginal effects&#xA;Taxation may be charged on supply of production factors (labor, capital, for example) or up the value chain, on the final product ((VAT)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The supply curve, by definition, is the &lt;em&gt;marginal cost&lt;/em&gt; function (where it exceeds average cost)&#xA;So taxing labor or capital, will, by definition, tax the &lt;em&gt;marginal cost&lt;/em&gt; of production, and will affect the incentive to produce more: for every point on top of the supply curve (the MC) there is an extra cost.&#xA;The only reference to the average, is whether or not to supply the product.&#xA;This mainly applies to the labor or capital supply curves, but will also affect the cost of the final product&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Taxing the final product directly, will generate a similar effect, where basically the product will cost more, and the supply will meet the demand on a higher price level, less quantity consumed, which will affect the marginal production&lt;/p&gt;&#xA;" OwnerUserId="19195" LastActivityDate="2018-10-24T04:59:55.543" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25171" PostTypeId="1" CreationDate="2018-10-24T05:12:20.523" Score="3" ViewCount="60" Body="&lt;p&gt;I am looking at the following paper. Glenn Ellison &amp;amp; Sara Fisher Ellison, 2009. &quot;Search, Obfuscation, and Price Elasticities on the Internet,&quot; Econometrica, Econometric Society, vol. 77(2), pages 427-452, 03. &#xA;Link: &lt;a href=&quot;https://www.nber.org/papers/w10570&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.nber.org/papers/w10570&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The model did not include price but did include rank ie. the position of a product on a comparison website sorted by price. They then used the model results to calculate price elasticity. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To summarise, the way they did this was: they treat log(1 + Rank) as a continuous variable and compute estimated elasticity when all variables are at their means by setting the derivative of Rank with respect to a change in Price equal to the inverse of the average distance between the twelve lowest prices. They concluded  &quot;the low-quality 128MB PC100 demand equation corresponds to an own-price elasticity of -25.0&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can't understand this explanation, how is this price elasticity calculated?&lt;/p&gt;&#xA;" OwnerUserId="19937" LastActivityDate="2018-10-24T05:12:20.523" Title="Price elasticity on comparison website. How to calculate price elasticity using the coefficient of the products position on site?" Tags="&lt;elasticity&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="25172" PostTypeId="2" ParentId="25168" CreationDate="2018-10-24T05:18:25.073" Score="2" Body="&lt;p&gt;1st of all, banking regulation in different, in various countries, so there is no 1 accurate answer for all cases.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Having that said, In general, banks &lt;strong&gt;may&lt;/strong&gt; buy stocks, but that won't be with any capital being held as a deposit reserve ratio, or Basel regulation recommendations.&#xA;This is because a bank has to keep enough capital allocated per loan.&#xA;Furthermore, when a bank recruits capital in order to lend it, it becomes its own debt, rather than capital. The bank lending money is its asset, which should be alternative to stock buying&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When a bank buys a stock, its done from it Nostro account, dedicated for investments and is seperate from its &quot;classic&quot; activity&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course diversions from the theoretical model do exist, in cases like the Sub-prime bubble of 2008. but, obviously,the large banks back then, in fully aware manner, broke their own business model rules, in a fraudulent way &lt;/p&gt;&#xA;" OwnerUserId="19195" LastActivityDate="2018-10-24T05:18:25.073" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25174" PostTypeId="1" AcceptedAnswerId="25185" CreationDate="2018-10-24T14:40:07.313" Score="3" ViewCount="558" Body="&lt;p&gt;I'd like to know if, when running a VAR model in R (package &quot;vars&quot;), the cholesky decomposition matrix is upper triangular (so I should order my variables from more endogenous to less endogenous), or lower triangular (so I should order my variables from less endogenous to more endogenous).&lt;/p&gt;&#xA;" OwnerUserId="19943" LastActivityDate="2018-10-24T19:50:03.963" Title="Cholesky Decomposition in R package &quot;vars&quot;" Tags="&lt;econometrics&gt;&lt;r&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25175" PostTypeId="1" CreationDate="2018-10-24T14:57:37.927" Score="2" ViewCount="129" Body="&lt;p&gt;The profit function is convex in prices. Are there any conditions under which it is linear in prices? (The property as written in most books doesn't mention strict convexity, so it seems to suggest that linearity is possible.)&lt;/p&gt;&#xA;" OwnerUserId="18507" LastActivityDate="2018-10-24T14:57:37.927" Title="Convexity of profit function" Tags="&lt;profit-maximization&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25176" PostTypeId="1" CreationDate="2018-10-24T15:28:42.453" Score="3" ViewCount="30" Body="&lt;p&gt;I'm looking for an implementation of the ascending-bid auction introduced in his &lt;a href=&quot;http://ausubel.com/auction-papers/efficient-ascending-auction-aer.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;2004 AER paper&lt;/a&gt;. More specifically, a market using this framework which either&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;has been reviewed by other scholars or &lt;/li&gt;&#xA;&lt;li&gt;has available data. &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Or, on the contrary, an explanation of why this auction format is not broadly in use.&lt;/p&gt;&#xA;" OwnerUserId="4415" LastEditorUserId="1601" LastEditDate="2019-02-02T19:12:08.767" LastActivityDate="2019-02-02T19:12:08.767" Title="Ausubel (2004) auction, any implementation?" Tags="&lt;reference-request&gt;&lt;auctions&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="25178" PostTypeId="1" AcceptedAnswerId="25205" CreationDate="2018-10-24T15:45:19.613" Score="1" ViewCount="292" Body="&lt;p&gt;According to Merriam-Webster's dictionary, &lt;a href=&quot;https://www.merriam-webster.com/dictionary/capitalism&quot; rel=&quot;nofollow noreferrer&quot;&gt;capitalism&lt;/a&gt; is &quot;an economic system characterized by private or corporate ownership of capital goods, by investments that are determined by private decision, and by prices, production, and the distribution of goods that are determined mainly by competition in a free market.&quot; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;One could argue that banks are the engine which drive capitalism in today's world, since they are the institution which actually creates money through the lending of money at a rate of interest. However, there is nothing in the above definition of capitalism which indicates that banks are necessary for capitalism to thrive.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is what would happen if every country in the world were to make a law that would make it illegal to lend money at a positive rate of interest? Then of course, traditional banks would cease to exist. But would capitalism also cease to thrive? In other words, would people lose their incentive or ability to produce?&lt;/p&gt;&#xA;" OwnerUserId="13169" LastActivityDate="2018-10-26T17:01:48.563" Title="Would capitalism without banks work?" Tags="&lt;interest-rate&gt;&lt;banking&gt;&lt;central-banking&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="25179" PostTypeId="1" AcceptedAnswerId="25182" CreationDate="2018-10-24T16:38:38.073" Score="1" ViewCount="132" Body="&lt;p&gt;Arrow's impossibility theorem states that no social choice rule satisfies a certain list of desiderata. Amongst these are &lt;em&gt;completeness&lt;/em&gt; and &lt;em&gt;unrestricted domain&lt;/em&gt;. Could someone please explain the difference?&lt;/p&gt;&#xA;" OwnerDisplayName="user17900" LastActivityDate="2018-10-24T17:10:20.633" Title="Unrestricted domain vs complete" Tags="&lt;microeconomics&gt;&lt;social-choice&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25182" PostTypeId="2" ParentId="25179" CreationDate="2018-10-24T17:10:20.633" Score="1" Body="&lt;p&gt;You could have completeness and give up unrestricted domain. A non social choice example:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The relation &quot;larger than&quot; or &lt;span class=&quot;math-container&quot;&gt;$\leq$&lt;/span&gt; is not complete over the complex plane &lt;span class=&quot;math-container&quot;&gt;$\mathbb{Z}$&lt;/span&gt;, but it is complete if it is restricted to a subset of it, real numbers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Similarly you could have unrestricted domain and give up completeness.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;E.g. majority voting is not complete if you allow unrestricted domain. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore these are separate properties. You can argue you need both, but perhaps you are willing to part with one or the other. Personally I agree that giving up completeness rather than unrestricted domain seems strange.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2018-10-24T17:10:20.633" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="25184" PostTypeId="1" CreationDate="2018-10-24T18:56:37.350" Score="1" ViewCount="143" Body="&lt;p&gt;When would a marginal cost curve be vertical? I understand this happens when the marginal cost jumps, from say 0 to 100, but in such a case, I think there should be a discontinuity rather than a vertical curve.&lt;/p&gt;&#xA;" OwnerUserId="13883" LastActivityDate="2018-10-24T18:56:37.350" Title="Vertical Marginal Cost curves" Tags="&lt;microeconomics&gt;&lt;cost&gt;&lt;marginal&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25185" PostTypeId="2" ParentId="25174" CreationDate="2018-10-24T19:14:58.247" Score="2" Body="&lt;p&gt;According to page 6 of &lt;a href=&quot;https://cran.r-project.org/web/packages/vars/vars.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;the documentation for &lt;em&gt;vars&lt;/em&gt;&lt;/a&gt;, the Cholesky decomposition matrix is lower triangular:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The long-run impact matrix is the lower-triangular Choleski decomposition of the above matrix and the contemporaneous impact&#xA;  matrix is equal to:&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$(I_K − A_1 − \dots − A_p)Q$$&lt;/span&gt;&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;where &lt;span class=&quot;math-container&quot;&gt;$Q$&lt;/span&gt; assigns the lower-triangular Cholesky decomposition.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In the theoretical literature, Cholesky factorization is traditionally defined as lower-triangular; that is, as &lt;span class=&quot;math-container&quot;&gt;$A = L L^{T}$&lt;/span&gt;. There is a function is base R, &lt;em&gt;chol()&lt;/em&gt;, that returns the upper-triangular Cholesky decomposition of a matrix &lt;span class=&quot;math-container&quot;&gt;$X = R^{T}R$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerUserId="14688" LastEditorUserId="14688" LastEditDate="2018-10-24T19:50:03.963" LastActivityDate="2018-10-24T19:50:03.963" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25186" PostTypeId="1" CreationDate="2018-10-24T20:13:09.690" Score="3" ViewCount="2808" Body="&lt;p&gt;I didn't study economics, but am quite interested in the topic. I came to the question whether I could derive the supply curve / marginal cost function from the production function and I actually found a quite straight forward method, that I couldn't find online, so I would really appreciate if you could confirm (or correct) the result.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We are given the production function (we assume Cobb-Douglas), where capital is fixed and the only input is labor: &lt;span class=&quot;math-container&quot;&gt;$$Y(L)=L^a, t 1&amp;gt;0$$&lt;/span&gt; The cost function is just wage times labor input: &lt;span class=&quot;math-container&quot;&gt;$$K=wL$$&lt;/span&gt; We can manipulate our Production function, so that The labor supply is isolated and can then be substituted in the cost function: &lt;span class=&quot;math-container&quot;&gt;$$Y^{(1/a)}=L$$&lt;/span&gt; Substitution gives: &lt;span class=&quot;math-container&quot;&gt;$$K=wY^{(1/a)}$$&lt;/span&gt; where &#xA;&lt;span class=&quot;math-container&quot;&gt;$$w=\frac{dY}{dL}=aA^{(a-1)}=a(Y^{(1/a)})^{(1/a)}=aY^{(1/(a^2))}$$&lt;/span&gt; Plugged in into the cost function: &lt;span class=&quot;math-container&quot;&gt;$$K=aY^{(1/(a^2))}Y^{(1/a)}=aY^{(1/(a^2)+1/a)}$$&lt;/span&gt; The supply function is equal to the marginal costs, so: &lt;span class=&quot;math-container&quot;&gt;$$t S=\frac{dK}{dY}$$&lt;/span&gt; which is, dependent on a) a function of high degree. Eg. at &lt;span class=&quot;math-container&quot;&gt;$a=0.3$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$S=0.3Y^{14,4}$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this result correct? I mean it is just easy manipulation so there should be nothing wrong about it. And we made no usage of any more “complicate” optimization as I found online.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And now that I've already registered here and took the time to pose a question: is there any “proof” (theoretically) or evidence that the compensation is always the marginal rate. I mean, as a manager I would always charge the average costs or pay my employees their average contribution, also in the “not equilibrium” state. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Please excuse if I made any language mistakes. I'm not a native speaker.&lt;/p&gt;&#xA;" OwnerUserId="19950" LastEditorUserId="68" LastEditDate="2018-10-25T18:05:15.010" LastActivityDate="2018-10-25T18:05:15.010" Title="Derive the cost function and supply function from production function" Tags="&lt;production-function&gt;&lt;marginal&gt;&lt;cost-functions&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25187" PostTypeId="2" ParentId="25154" CreationDate="2018-10-24T23:35:36.413" Score="5" Body="&lt;p&gt;Without discounting, you cannot show either&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;T(g + || f - g||) \leq Tg + \beta || f - g|| &#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;or &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;T(f + || g - f||) \leq Tf + \beta || g - f|| &#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and thus you cannot demonstrate that &lt;span class=&quot;math-container&quot;&gt;$T$&lt;/span&gt; is a contraction mapping in the traditional proof.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;For intuition, note that Blackwell's sufficiency conditions for a contraction mapping is a &lt;em&gt;fixed-point theorem&lt;/em&gt; used to establish the convergence of value function iterations. In the simplest case possible of a collapsed state space with the linear operator &lt;span class=&quot;math-container&quot;&gt;$T(W) = \sigma + \beta W$&lt;/span&gt;, it is clear that &lt;span class=&quot;math-container&quot;&gt;$\beta \in (0,1)$&lt;/span&gt; will &lt;strong&gt;always&lt;/strong&gt; lead to an intersection of &lt;span class=&quot;math-container&quot;&gt;$T(W)$&lt;/span&gt; (from above) with the 45-degree line &lt;span class=&quot;math-container&quot;&gt;$T(W) = W$&lt;/span&gt; and thus converge at a fixed point &lt;em&gt;independent&lt;/em&gt; of the initial guess. The discounting condition that pins down such a &lt;span class=&quot;math-container&quot;&gt;$\beta$&lt;/span&gt; assures this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In systems with fully specified state spaces, however, discounting is no longer sufficient to establish uniqueness. Monotonicity is additionally required in these cases to establish the sufficiency of Blackwell's conditions because of additional concerns over dynamics.&lt;/p&gt;&#xA;" OwnerUserId="14688" LastEditorUserId="14688" LastEditDate="2018-10-25T04:00:55.880" LastActivityDate="2018-10-25T04:00:55.880" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25193" PostTypeId="1" CreationDate="2018-10-25T10:17:54.083" Score="1" ViewCount="52" Body="&lt;p&gt;Consumer's problem &#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;\max \sum_{t}\beta^{t}[c_{t}-1/2(1-x_{t})^{2}],&#xA;\end{equation}&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;\ s.t. c_{t}+q_{t}b_{t+1} \leq (1-\tau_{t})(1-x_{t})+b_{t},&#xA;\end{equation}&lt;/span&gt;&#xA;where c=consumption, x=leisure(1-x=labor), &lt;span class=&quot;math-container&quot;&gt;$\tau$&lt;/span&gt;=labor income tax, &#xA;b_{t+1}=the gov's bond, which is sold in period t at price q_{t}.&#xA;Time endowment is normalized to 1. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;\ L=\sum_{t}\beta^{t}[c_{t}-1/2(1-x_{t})^{2}]+\lambda[c^{t}+q_{t}b_{t+1}-b_{t}-(1-\tau_{t})(1-x_{t})]&#xA;\end{equation}&lt;/span&gt;&#xA;First order conditions&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;w.r.t. c_{t}: \beta^{t}-\lambda=0&#xA;\end{equation}&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;w.r.t. x_{t}: -\beta^{t}(1-x_{t})(-1)-\lambda(1-\tau_{t})(-1)=0 &#xA;\end{equation}&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;w.r.t. b_{t}: ?&#xA;\end{equation}&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="19912" LastEditorUserId="19912" LastEditDate="2018-10-25T13:31:00.730" LastActivityDate="2018-10-25T13:31:00.730" Title="Lagrangian multiplier" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;" AnswerCount="0" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="25195" PostTypeId="2" ParentId="25178" CreationDate="2018-10-25T16:15:52.027" Score="5" Body="&lt;p&gt;Under most capitalism-like systems, companies are funded in two ways.  One is debt with positive interest, the other is by selling equity to shareholders.  If you could effectively prohibit debt, then companies could conceivably adapt by switching to a 100% equity model, in which individuals would shift all of their interest-bearing savings into shares.  This would create various inefficiencies (and create a lot of problems for consumers who would be unable to obtain mortgages), but wouldn't fundamentally destroy the incentive to produce.&lt;/p&gt;&#xA;" OwnerUserId="16631" LastEditorUserId="16631" LastEditDate="2018-10-25T16:56:17.117" LastActivityDate="2018-10-25T16:56:17.117" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25201" PostTypeId="1" AcceptedAnswerId="25203" CreationDate="2018-10-26T04:01:15.007" Score="2" ViewCount="63" Body="&lt;p&gt;Why don't they use cash to pay down their debts? &lt;/p&gt;&#xA;" OwnerUserId="19727" LastActivityDate="2018-10-26T09:07:23.403" Title="Why do companies sit on cash while they have debt?" Tags="&lt;finance&gt;&lt;corporate-finance&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25203" PostTypeId="2" ParentId="25201" CreationDate="2018-10-26T09:07:23.403" Score="4" Body="&lt;p&gt;Debt is cheap. Flexibility is valuable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;They hold debt + cash up to the point where the value of flexibility is still greater than the net cost of servicing the debt minus any interest earnt on the cash.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It saves them the transaction costs of re-raising debt when they need it, had they paid it down early.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's cashflow that typically kills businesses, rather than profitability. So holding extra cash, makes long-term business sense: it's the ultimate safety net.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2018-10-26T09:07:23.403" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25204" PostTypeId="1" AcceptedAnswerId="25206" CreationDate="2018-10-26T09:18:11.910" Score="5" ViewCount="378" Body="&lt;p&gt;I think the CDF is pretty much fixed, so the FOSD (first order stochastic dominance) is pretty much non-stochastic. Why does it have a &quot;stochastic&quot; in its name?&lt;/p&gt;&#xA;" OwnerUserId="13381" LastActivityDate="2018-10-26T11:23:22.880" Title="Why stochastic dominance is &quot;stochastic&quot;?" Tags="&lt;financial-economics&gt;&lt;decision-theory&gt;&lt;portfolio-theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25205" PostTypeId="2" ParentId="25178" CreationDate="2018-10-26T09:20:54.167" Score="5" Body="&lt;p&gt;You ask: &lt;em&gt;&quot;what would happen if every country in the world were to make a law that would make it illegal to lend money at a positive rate of interest?&quot;&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We know what happens, because we've already seen this happen in some places.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;People reinvent lending for positive interest in some other guise that keeps the word of the law, but breaks the spirit of it. For example, asset-backed loans get reinvented as hire-purchase.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So would capitalism work without banks? Yes, it would. Remember that the distinguishing feature of banks is not that they give loans, but that they take deposits which are then guaranteed. For capital to be organised within corporate entities, those corporate entities need to be able to borrow money. That's possible without banks - and structures repeatedly evolve to find a way to provide interest-bearing loans, even when proscribed by State or religion.&lt;/p&gt;&#xA;" OwnerUserId="44" LastEditorUserId="44" LastEditDate="2018-10-26T17:01:48.563" LastActivityDate="2018-10-26T17:01:48.563" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25206" PostTypeId="2" ParentId="25204" CreationDate="2018-10-26T11:23:22.880" Score="9" Body="&lt;p&gt;In the below figure, CDF &lt;span class=&quot;math-container&quot;&gt;$F(\cdot)$&lt;/span&gt; is first-order stochastically dominated by &lt;span class=&quot;math-container&quot;&gt;$G(\cdot)$&lt;/span&gt;. But &lt;span class=&quot;math-container&quot;&gt;$X_1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$X_2$&lt;/span&gt; fall within the support of both distributions. So it would be possible to draw &lt;span class=&quot;math-container&quot;&gt;$X_1$&lt;/span&gt; from &lt;span class=&quot;math-container&quot;&gt;$F$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$X_2$&lt;/span&gt; from &lt;span class=&quot;math-container&quot;&gt;$G$&lt;/span&gt;, &lt;em&gt;or&lt;/em&gt; to draw &lt;span class=&quot;math-container&quot;&gt;$X_2$&lt;/span&gt; from &lt;span class=&quot;math-container&quot;&gt;$F$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$X_1$&lt;/span&gt; from &lt;span class=&quot;math-container&quot;&gt;$G$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;More generally, if &lt;span class=&quot;math-container&quot;&gt;$X_G$&lt;/span&gt; is a draw from &lt;span class=&quot;math-container&quot;&gt;$G$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$X_F$&lt;/span&gt; is a draw from &lt;span class=&quot;math-container&quot;&gt;$F$&lt;/span&gt; then &lt;span class=&quot;math-container&quot;&gt;$X_F-X_G$&lt;/span&gt; will sometimes be positive and sometimes negative. In this sense, the dominance is only stochastic: &lt;span class=&quot;math-container&quot;&gt;$G$&lt;/span&gt; produces larger draws than &lt;span class=&quot;math-container&quot;&gt;$F$&lt;/span&gt; on average, but not all of the time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/t18JH.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/t18JH.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2018-10-26T11:23:22.880" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25207" PostTypeId="1" AcceptedAnswerId="25211" CreationDate="2018-10-26T14:48:30.550" Score="5" ViewCount="127" Body="&lt;p&gt;We've had strong GDP growth all three quarters this year. To me, that would indicate that, in at least some areas, we should be seeing growth. However, from my extremely ignorant armchair, it doesn't look like that's happening.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://tradingeconomics.com/united-states/wages&quot; rel=&quot;noreferrer&quot;&gt;Wage growth has held steady&lt;/a&gt;, &lt;a href=&quot;https://www.google.com/search?q=dow&amp;amp;rlz=1C1GCEA_enUS812US812&amp;amp;oq=dow&amp;amp;aqs=chrome..69i57j69i60j69i61j69i60j69i59.215j0j1&amp;amp;sourceid=chrome&amp;amp;ie=UTF-8&quot; rel=&quot;noreferrer&quot;&gt;the DOW&lt;/a&gt;, &lt;a href=&quot;https://www.google.com/search?rlz=1C1GCEA_enUS812US812&amp;amp;ei=eyHTW5H5EIagswXM57boAQ&amp;amp;q=s%26p+500&amp;amp;oq=s&amp;amp;gs_l=psy-ab.3.1.0i131i67j0i67l6j0i131j0j0i131.36048.36048..37225...0.0..0.47.47.1......0....1..gws-wiz.......0i71.XtL_x7wv15E&quot; rel=&quot;noreferrer&quot;&gt;S&amp;amp;P 500&lt;/a&gt;, and &lt;a href=&quot;https://www.google.com/search?q=nasdaq&amp;amp;rlz=1C1GCEA_enUS812US812&amp;amp;source=lnms&amp;amp;tbm=fin&amp;amp;sa=X&amp;amp;ved=0ahUKEwiTifHipaTeAhUpgK0KHbgDCgEQ_AUIDigB&amp;amp;biw=1764&amp;amp;bih=850#scso=_rCHTW93xOMO8sAWcnaegAg1:0&quot; rel=&quot;noreferrer&quot;&gt;NASDAQ&lt;/a&gt; are all roughly even year-to-date, and &lt;a href=&quot;https://www.usgovernmentspending.com/federal_deficit_chart.html&quot; rel=&quot;noreferrer&quot;&gt;the deficit has grown 17%&lt;/a&gt;. Even &lt;a href=&quot;https://www.cnbc.com/2018/10/25/us-trade-deficit-widens-for-fourth-straight-month-hits-76-billion.html&quot; rel=&quot;noreferrer&quot;&gt;the trade deficit is growing&lt;/a&gt;. This confuses me. Though not perfectly correlated, I thought the GDP would at least be a strong indicator of these other financial components (or the other way around).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To grossly (pun unintended) oversimplify my point: it sounds to me like the value of America has gone up, but there's somehow less money in America. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Am I missing something? How can the GDP be consistently growing at a rapid rate when nothing else seems to be?&lt;/p&gt;&#xA;" OwnerUserId="19968" LastActivityDate="2018-11-05T00:32:55.477" Title="How is the GDP growing when nothing else seems to be?" Tags="&lt;gdp&gt;&lt;economic-growth&gt;&lt;stock-market&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25208" PostTypeId="1" AcceptedAnswerId="25319" CreationDate="2018-10-26T16:35:57.243" Score="0" ViewCount="24" Body="&lt;p&gt;Customs officers check for tax compliance at trade borders.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But who performs the checks for regulatory compliance at trade borders?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is it simply the various Government ministries (eg the one responsible for food and agriculture), or is it Customs Officers?&lt;/p&gt;&#xA;" OwnerUserId="5505" LastActivityDate="2018-11-02T17:51:35.350" Title="Who performs the checks for regulatory compliance at trade borders?" Tags="&lt;international-trade&gt;" AnswerCount="1" CommentCount="1" ClosedDate="2018-11-09T01:04:39.380" ContentLicense="CC BY-SA 4.0" />
  <row Id="25211" PostTypeId="2" ParentId="25207" CreationDate="2018-10-26T18:04:51.993" Score="6" Body="&lt;p&gt;There's a bit to unpack here.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consistent wage growth seems in line with rising GDP. So does a steadily falling unemployment rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For other economic measures, the stock market is a whole other animal. It often responds to outside global events that aren't solely economic in nature. It may also be affected by the Federal Reserve's desire to steadily increase the interest rate, though we would expect that to also affect unemployment somewhat perhaps.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The most interesting point of contention here is the trade deficit. It's a common misconception that high trade deficits should imply slower GDP growth. During the Great Depression we ran a trade surplus. During 2001 and 2009, with some of the weakest GDP growth, we also had small trade deficits. One possibility as to why we are running a trade deficit is that with a booming US economy, domestic production demands more inputs, which we have to get from abroad for at least a little bit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's not really a matter of &quot;less money in the economy&quot; at the end of the day. You can also consider the typical textbook expression for calculating GDP:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$Y = C + I + G + (X - M)$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt; is in GDP and &lt;span class=&quot;math-container&quot;&gt;$(X - M)$&lt;/span&gt; is exports minus imports. From this equation, it looks like the more we import, the lower GDP gets, so if we end up running a trade deficit because imports keep rising or &quot;money leaves the economy&quot;, then we should have smaller GDP.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What's easy to forget is that we have to do something with these imports. We either consume them, use them for investments, or the government buys them (&lt;span class=&quot;math-container&quot;&gt;$C, I, G$&lt;/span&gt;), so subtracting imports from the measure of GDP is just a way of preventing double counting.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastEditorUserId="4251" LastEditDate="2018-11-05T00:32:55.477" LastActivityDate="2018-11-05T00:32:55.477" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25212" PostTypeId="1" AcceptedAnswerId="25216" CreationDate="2018-10-26T18:32:07.670" Score="1" ViewCount="147" Body="&lt;p&gt;Consider a regression model on the form:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$y_{i} = \alpha + \beta_{1}X_{i} + u_{i}$&lt;/span&gt; (1)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am given &lt;span class=&quot;math-container&quot;&gt;$var(u_{i}|X_{i}) = 10$&lt;/span&gt; and I know the OLS estimates for &lt;span class=&quot;math-container&quot;&gt;$\alpha$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\beta$&lt;/span&gt; and using this I have to calculate the standard errors of the parameter estimates. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am following Hayashi's book and I know that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$se(b_{k}) = \sqrt(s^{2}(X'X)^{-1}_{kk})$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where &lt;span class=&quot;math-container&quot;&gt;$b_{k}$&lt;/span&gt; is the parameter estimate of interest. I know &lt;span class=&quot;math-container&quot;&gt;$(X'X)^{-1}$&lt;/span&gt; but what is confusing me is going from the given model to expressing it in matrix notation and that this does not use the variance of the error term.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can express (1) as &lt;span class=&quot;math-container&quot;&gt;$Y = X\beta + u$&lt;/span&gt; and since &lt;span class=&quot;math-container&quot;&gt;$var(u_{i}|X_{i}) = var(y_{i} - \alpha - \beta_{2}X_{i}|X_{i})$&lt;/span&gt; but is this equal to &lt;span class=&quot;math-container&quot;&gt;$var(Y - X\beta|X)$&lt;/span&gt;?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If so, I can express &lt;span class=&quot;math-container&quot;&gt;$var(u_{i}|X_{i}) = 10$&lt;/span&gt; as &lt;span class=&quot;math-container&quot;&gt;$\sigma^{2}I_{n}$&lt;/span&gt; where &lt;span class=&quot;math-container&quot;&gt;$\sigma^{2} = 10$&lt;/span&gt;. And then could I use the fact that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$var(b_{k}|X) = (X'X)^{-1}X' \sigma^{2} I_{n} X(X'X)^{-1}$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To find the standard errors of interest.&lt;/p&gt;&#xA;" OwnerUserId="11767" LastEditorUserId="11767" LastEditDate="2018-10-26T19:34:23.100" LastActivityDate="2018-10-27T06:09:24.390" Title="Calculating standard error" Tags="&lt;econometrics&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25213" PostTypeId="1" CreationDate="2018-10-26T22:32:04.353" Score="1" ViewCount="78" Body="&lt;p&gt;Here is a hypothetical scenario: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's say there are two tribes which barter goods. Tribe A has an fairly large amount of fish, but no bricks. Tribe B has an extreme abundance of bricks, but no water in their land to go fishing.Tribe A trades 5 fish with Tribe B for 100 bricks.  This arrangement exists peacefully for many years.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At some point Tribe A creates tools to create bricks and no longer requires the bricks of Tribe B. Tribe B still requires the fish of Tribe A but now has nothing to pay for the fish.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What would happen in this instance? Is there historical evidence in which a similar scenario has occurred? Is there an economic theory that explains what will happen?&lt;/p&gt;&#xA;" OwnerUserId="19973" LastActivityDate="2018-10-28T01:11:56.550" Title="What happens in a bartering system when a resource is plentiful but cannot be paid for?" Tags="&lt;microeconomics&gt;&lt;markets&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25214" PostTypeId="1" CreationDate="2018-10-27T00:31:34.393" Score="1" ViewCount="281" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;Question:&lt;/strong&gt; Is there any way to show that price controls might increase competition?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I'm trying to find a way, any way, that price controls might lead to an increase in competition between companies. I've done a few hours of research, mostly just reading long PDFs, but I'm having difficulty finding any sort of analysis that shows that price controls increase competition among companies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The best I've gotten is that some people argue that price controls are a kind of competition law (?) which are designed to increase competition. But that's not really a warrant for the question.&lt;/p&gt;&#xA;" OwnerUserId="19974" LastActivityDate="2018-10-27T20:59:23.613" Title="Do price controls increase competition?" Tags="&lt;competition&gt;" AnswerCount="3" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="25215" PostTypeId="1" CreationDate="2018-10-27T01:30:09.963" Score="0" ViewCount="577" Body="&lt;p&gt;We're discussing utility functions &lt;/p&gt;&#xA;" OwnerUserId="19975" LastEditorUserId="19975" LastEditDate="2018-10-27T02:19:09.013" LastActivityDate="2018-10-28T22:24:39.343" Title="What does it mean to have a strictly increasing transformation in consumer theory?" Tags="&lt;consumer-theory&gt;" AnswerCount="1" CommentCount="1" ClosedDate="2018-10-30T15:08:10.573" ContentLicense="CC BY-SA 4.0" />
  <row Id="25216" PostTypeId="2" ParentId="25212" CreationDate="2018-10-27T04:05:33.590" Score="5" Body="&lt;p&gt;Your notation is a bit all over the place, so I'm going to try and standardize it for a general case.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; be the &lt;em&gt;regression matrix&lt;/em&gt; (which includes a column of 1s for the intercept term) and &lt;span class=&quot;math-container&quot;&gt;$\beta$&lt;/span&gt; be the vector of coefficients to be estimated via OLS (which includes the intercept term). &lt;span class=&quot;math-container&quot;&gt;$Var(u_i|X) = 10 = \sigma^2$&lt;/span&gt;, for all &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;. Thus the errors are homoscedastic (constant variance) and the variance-covariance matrix of the errors &lt;span class=&quot;math-container&quot;&gt;$\Omega$&lt;/span&gt; has diagonal entries that are all equal to &lt;span class=&quot;math-container&quot;&gt;$\sigma^2$&lt;/span&gt;. Furthermore, if you assume that the error terms are not serially correlated, then the off-diagonal covariance terms &lt;span class=&quot;math-container&quot;&gt;$Cov(u_i, u_j|X)$&lt;/span&gt; for all &lt;span class=&quot;math-container&quot;&gt;$i \neq j$&lt;/span&gt; in the variance-covariance matrix &lt;span class=&quot;math-container&quot;&gt;$\Omega$&lt;/span&gt; are zero.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Those are two of the standard Gauss-Markov assumptions used to establish the BLUEness of the OLS estimator. Under these assumptions, &lt;span class=&quot;math-container&quot;&gt;$\Omega$&lt;/span&gt; is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;E[uu'|X] = &#xA;    \left[&#xA;    \begin{array}{ccccc}&#xA;    \sigma^2                                    \\&#xA;      &amp;amp; \sigma^2    &amp;amp;   &amp;amp; \huge0        \\&#xA;      &amp;amp;               &amp;amp;   \ddots                  \\&#xA;      &amp;amp; \huge0 &amp;amp;   &amp;amp; \sigma^2        \\&#xA;      &amp;amp;               &amp;amp;   &amp;amp;   &amp;amp; \sigma^2&#xA;    \end{array}&#xA;    \right] = \sigma^2I.&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To get the variance of the OLS estimates &lt;span class=&quot;math-container&quot;&gt;$b = \hat{\beta}$&lt;/span&gt;, first note that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\begin{align}&#xA;b &amp;amp;= (X'X)^{-1}X'y \\&#xA;&amp;amp;= (X'X)^{-1}X'(X\beta + u) \\&#xA;&amp;amp;= \beta + (X'X)^{-1}X'u \\&#xA;\implies b - \beta &amp;amp;= (X'X)^{-1}X'u,&#xA;\end{align}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;using &lt;span class=&quot;math-container&quot;&gt;$y = X\beta + u$&lt;/span&gt;. Then, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\begin{align}&#xA;Var(b|X) &amp;amp;= E[(b-\beta)(b-\beta)'|X] \\&#xA;&amp;amp;= E[(X'X)^{-1}X'u((X'X)^{-1}X'u)'|X] \\&#xA;&amp;amp;= E[(X'X)^{-1}X'uu'X(X'X)^{-1}|X] \\&#xA;&amp;amp;= (X'X)^{-1}X'E[uu'|X]X(X'X)^{-1}.&#xA;\end{align}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But recall that we derived &lt;span class=&quot;math-container&quot;&gt;$E[uu'|X] = \sigma^2 I$&lt;/span&gt; via the Gauss-Markov assumption of &lt;a href=&quot;https://en.wikipedia.org/wiki/Gauss%E2%80%93Markov_theorem#Spherical_errors&quot; rel=&quot;noreferrer&quot;&gt;spherical errors&lt;/a&gt;. Thus, by substitution,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\begin{align}&#xA;Var(b|X) &amp;amp;= (X'X)^{-1}X'E[uu'|X]X(X'X)^{-1} \\&#xA;&amp;amp;= (X'X)^{-1}X'(\sigma^2 I)X(X'X)^{-1} \\&#xA;&amp;amp;= \sigma^2 (X'X)^{-1} X'X(X'X)^{-1} \\&#xA;\implies Var(b) &amp;amp;= \sigma^2 (X'X)^{-1}.&#xA;\end{align}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The standard deviation of &lt;span class=&quot;math-container&quot;&gt;$b$&lt;/span&gt; is just the square root of the variance, or &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;sd(b) = \sqrt{\sigma^2 (X'X)^{-1}}.&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To find the standard deviation of the &lt;span class=&quot;math-container&quot;&gt;$k^{th}$&lt;/span&gt; estimated coefficient in &lt;span class=&quot;math-container&quot;&gt;$b$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$b_{k}$&lt;/span&gt;, we simply extract the &lt;span class=&quot;math-container&quot;&gt;$k^{th}$&lt;/span&gt; diagonal element of &lt;span class=&quot;math-container&quot;&gt;$(X'X)^{-1}$&lt;/span&gt;, denoted as &lt;span class=&quot;math-container&quot;&gt;$(X'X)_{kk}^{-1}$&lt;/span&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;sd(b_k) = \sqrt{\sigma^2 (X'X)_{kk}^{-1}}.&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\sigma^2$&lt;/span&gt; is the (common) variance of the errors, and unfortunately, this value is unobserved in our sample. In your question, however, it appears that this value is just given to you directly &amp;mdash; it's &lt;span class=&quot;math-container&quot;&gt;$10$&lt;/span&gt;. &lt;em&gt;In general, however, &lt;span class=&quot;math-container&quot;&gt;$\sigma^2$&lt;/span&gt; must be estimated using the data&lt;/em&gt;. It turns out that given homoscedastic errors, an unbiased estimator of &lt;span class=&quot;math-container&quot;&gt;$\sigma^2$&lt;/span&gt; is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;s^2 = \frac{e'e}{n-P},&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt; is the number of observations, &lt;span class=&quot;math-container&quot;&gt;$P$&lt;/span&gt; is the number of columns in &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt;, and &lt;span class=&quot;math-container&quot;&gt;$e = \hat{u}$&lt;/span&gt;; that is, the vector of residuals &lt;span class=&quot;math-container&quot;&gt;$y - Xb$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, the &lt;strong&gt;standard error of &lt;span class=&quot;math-container&quot;&gt;$\mathbf{b_k}$&lt;/span&gt;&lt;/strong&gt; is estimated as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\boldsymbol{se(b_k) = \sqrt{s^2 (X'X)_{kk}^{-1}}},&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which is Hayashi's result.&lt;/p&gt;&#xA;" OwnerUserId="14688" LastEditorUserId="14688" LastEditDate="2018-10-27T06:09:24.390" LastActivityDate="2018-10-27T06:09:24.390" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25218" PostTypeId="2" ParentId="25214" CreationDate="2018-10-27T06:12:09.857" Score="1" Body="&lt;p&gt;You're question should derive from specific markets, that &lt;strong&gt;before&lt;/strong&gt; price control, are not competitive enough (or at all) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;After we assume that the market in question is not competitive, the next question is what prices should be controlled to lower entrance barriers&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here's the catch: higher than competitive prices should motivate additional players to enter the market with lower prices, thus lowering, until the competitive price is reached&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A place where price control &lt;em&gt;can&lt;/em&gt; take place to increase competition, is on wholesale prices, that might be a barrier as being to costly for new potential competitors.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The conclusion is that the wholesale market by itself might be monopolistic&#xA;So price control, won't directly encourage competition, but indirectly, there might such cases&lt;/p&gt;&#xA;" OwnerUserId="19195" LastActivityDate="2018-10-27T06:12:09.857" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25220" PostTypeId="2" ParentId="25214" CreationDate="2018-10-27T07:38:47.797" Score="2" Body="&lt;p&gt;A classic example, related to the point made by @GuyLouzon, is access pricing in network industries.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A telephone network is a natural monopoly. The modern approach to regulating this market is to force the monopolist owner of the network infrastructure to allow competing telecomms services firms to buy access to the network. This allows those rivals to offer competing retail telephone services using the monopolist's infrastructure rather than having to build their own.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The price that the incumbent charges firms for network access is regulated. Ensuring that monopolist does not set the network access price too high means that downstream firms can profitably buy access and thereby enter the market for retail telecommunications services. While the fundamental natural monopoly problem has not gone away, regulating the access price at least helps to ensure the retail telehone service market is not also monopolised.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you would like to read more about this example, I'd recommend &quot;&lt;a href=&quot;https://mitpress.mit.edu/books/competition-telecommunications&quot; rel=&quot;nofollow noreferrer&quot;&gt;Competition in Telecommunications&lt;/a&gt;&quot; by Laffont &amp;amp; Tirole.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;One can easily build a model of this situation. Suppose that retail telephone firms earn profit &lt;span class=&quot;math-container&quot;&gt;$\pi_n$&lt;/span&gt; when there are &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt; firms in the market. Make the standard assumption that &lt;span class=&quot;math-container&quot;&gt;$n\pi_n\leq m\pi_m$&lt;/span&gt; whenever &lt;span class=&quot;math-container&quot;&gt;$n&amp;gt;m$&lt;/span&gt; (industry profit is lower when there is more competition).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The wholesale firm sets a price, &lt;span class=&quot;math-container&quot;&gt;$p$&lt;/span&gt;, for access to its network. Firms will choose to buy access so long as &lt;span class=&quot;math-container&quot;&gt;$\pi_n&amp;gt;p$&lt;/span&gt;. The highest price the monopolist can charge if it wants to serve &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt; firms is therefore &lt;span class=&quot;math-container&quot;&gt;$\pi_n$&lt;/span&gt;. Thus, the monopolist can serve one firm and earn profit &lt;span class=&quot;math-container&quot;&gt;$\pi_1$&lt;/span&gt;, serve two firms and earn profit &lt;span class=&quot;math-container&quot;&gt;$2\pi_2$&lt;/span&gt;, serve 3 firms and earn &lt;span class=&quot;math-container&quot;&gt;$3\pi_3$&lt;/span&gt;, etc. Because &lt;span class=&quot;math-container&quot;&gt;$n\pi_n$&lt;/span&gt; is decreasing in &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt;, the monopolist optimally sets &lt;span class=&quot;math-container&quot;&gt;$p=\pi_1$&lt;/span&gt; and grants access to a single firm, inducing a downstream monopoly.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A policy that constrains &lt;span class=&quot;math-container&quot;&gt;$p&amp;lt;\pi_2$&lt;/span&gt; would, on the other hand, induce more than one firm to enter downstream and thus result in more downstream competition than when the price cap is not in place.&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2018-10-27T20:59:23.613" LastActivityDate="2018-10-27T20:59:23.613" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25221" PostTypeId="1" AcceptedAnswerId="25268" CreationDate="2018-10-27T08:29:25.620" Score="0" ViewCount="42" Body="&lt;p&gt;I am currently studying for an economics of conflict exam and one of the potential questions is likely to be in the vein of &quot;Are Terrorists Rational - Discuss&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However how would rationality be defined in this context?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A canonical example is often metal detectors, whereby it is has been shown that when metal detectors were introduced in airports, terrorists substituted skyjackings for other means hostage taking. This would imply some rational framework where terrorists have some sort of budget constraint and indifference curve.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, under the assumption that they didn't substitute for another form of terrorist action, would this imply irrationality? On a superficial level it may, but what if they just valued skyjackings really highly? Under the notion of revealed preferences, surely by just attempting to skyjack you are showing that skyjacking is valued to you and you are therefor doing a &quot;rational&quot; action?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So can something ever be irrational?&lt;/p&gt;&#xA;" OwnerUserId="16530" LastActivityDate="2018-10-30T08:31:10.073" Title="What does irrationality mean under the notion of revealed preferences? An example with terrorism." Tags="&lt;choice-theory&gt;&lt;rationality&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="25222" PostTypeId="2" ParentId="25213" CreationDate="2018-10-27T09:10:13.597" Score="1" Body="&lt;p&gt;Tribe A will not necessarily sever barter with tribe B. This has to do with &lt;a href=&quot;https://www.investopedia.com/university/economics/economics2.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;Production Possibility Frontier&lt;/a&gt; and related concepts such as &lt;em&gt;specialization&lt;/em&gt; &amp;amp; utility.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Tribe A's production of bricks could certainly press tribe B to agree to a bricks/fish exchange rate that is more convenient to tribe A than it was prior to the latter's invention of tools to create bricks.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In an extreme scenario, tribe A's bricks might be of better quality and much cheaper than tribe B's bricks. That might render A unlikelier to maintain barter with tribe B. If so, tribe B might want to consider fish substitutes such as hunting, veganism, veganism's closest alternative (i.e. cannibalism), acuphagia (of A's new tools), or outright &lt;a href=&quot;https://www.dailymail.co.uk/news/article-2595087/Indian-villager-addicted-eating-mud-rocks-BRICKS-gets-three-kilos-debris-day.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;eating bricks&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="18552" LastActivityDate="2018-10-27T09:10:13.597" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="25223" PostTypeId="1" CreationDate="2018-10-27T13:21:11.730" Score="2" ViewCount="213" Body="&lt;p&gt;Consider a utility function on the form &lt;span class=&quot;math-container&quot;&gt;$u(q_{1},q_{2},q_{3}) = min\{\alpha ln(q_{1}) + (1 - \alpha) ln(q_{2}), ln(q_{3})\}$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know that optimal behaviour requires &lt;span class=&quot;math-container&quot;&gt;$\alpha ln (q_{1}) + (1 - \alpha) ln(q_{2}) = ln(q_{3})$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I tried substituting this into the budget constraint (after raising both sides to the power of &lt;span class=&quot;math-container&quot;&gt;$e$&lt;/span&gt;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$p_{1}q_{1} + p_{2}q_{2} = y$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But I am unsure how to proceed in finding the Marshallian demand, since I have two variables &lt;span class=&quot;math-container&quot;&gt;$(q_{1}, q_{2})$&lt;/span&gt; and only one equation. I have tried different transformations but my main problem is that it feels like I'm missing an equation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help is greatly appreciated. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT: I just re-read the question and I misspecified the budget constraint! The consumer only spends on &lt;span class=&quot;math-container&quot;&gt;$q_{1}$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$q_{2}$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerUserId="19977" LastEditorUserId="4251" LastEditDate="2018-11-09T00:59:11.110" LastActivityDate="2018-11-09T00:59:11.110" Title="Marshallian demand with Leontif preferences" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;leontief&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="25224" PostTypeId="2" ParentId="25214" CreationDate="2018-10-27T13:49:40.613" Score="1" Body="&lt;p&gt;If your non-regulated equilibrium is characterized by deterrence pricing, i.e. one firm is able to credibly threaten to undercut any price of a market entrant, then setting a minimum price will ensure that entering the market is profitable. This increases the number of firms, i.e. competition. However, competition will not be in the price domain but in quality.&lt;/p&gt;&#xA;" OwnerUserId="16669" LastActivityDate="2018-10-27T13:49:40.613" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25226" PostTypeId="1" CreationDate="2018-10-27T18:49:52.920" Score="1" ViewCount="17" Body="&lt;p&gt;Profits are the difference between input and output prices. Is there any reason deflation would cause profits to decline generally rather than in those industries where output prices fell faster?&lt;/p&gt;&#xA;" OwnerUserId="19978" LastActivityDate="2018-10-27T21:03:22.083" Title="Is there any reason deflation would reduce profit?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25228" PostTypeId="2" ParentId="25226" CreationDate="2018-10-27T21:03:22.083" Score="1" Body="&lt;p&gt;Profits also depend on the quantity demanded/sold. If deflation is accompanied by a decrease in demand, under equal input/output price deflation (or even if input prices fall more than output prices), profits can fall.&lt;/p&gt;&#xA;" OwnerUserId="18839" LastActivityDate="2018-10-27T21:03:22.083" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25229" PostTypeId="1" CreationDate="2018-10-27T22:26:01.170" Score="1" ViewCount="573" Body="&lt;p&gt;Just for information. I think we can agree on that a Pareto optimal allocation is where you cannot put someone in a better position without making someone else worse off. I know that any competitive equilibrium is Pareto optimal, but any other form of equilibrium is not always Pareto optimal. Why is that?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given an example, if a firm's demand for labour is equivilant to the labour supply by consumer, there is an equilibrium. But is it not also Pareto optimal or does that depend on the equation of demand for labour and labour supply?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Graphically speaking; will an equilibrium between two factors be the intersection, whereas a Pareto optimal is when the slope is the same for both factors?&lt;/p&gt;&#xA;" OwnerUserId="19877" LastEditorUserId="19877" LastEditDate="2018-10-28T03:16:55.683" LastActivityDate="2019-08-24T14:01:40.223" Title="Why is Pareto efficiency not always equitable or equilibrium?" Tags="&lt;pareto-efficiency&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25231" PostTypeId="1" CreationDate="2018-10-27T22:56:57.127" Score="0" ViewCount="584" Body="&lt;p&gt;The calculation of GDP(using expenditures) is: &lt;span class=&quot;math-container&quot;&gt;$C+I+G+Xn$&lt;/span&gt;,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where we calculate the spending on final goods and services within a country. However, how exactly are final and intermediate goods differentiated when calculating spending? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For instance, if one firm sells a product to another firm that adds to that same product and sells it again, how exactly do governments account for this when calculating GDP?&lt;/p&gt;&#xA;" OwnerUserId="19980" LastActivityDate="2018-11-29T16:31:54.007" Title="How can intermediate goods and final goods be differentiated?" Tags="&lt;gdp&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25232" PostTypeId="2" ParentId="25213" CreationDate="2018-10-28T01:11:56.550" Score="0" Body="&lt;p&gt;Contrived microeconomic models poorly represent reality, as can be readily demonstrated by the importation of non-economic behaviour or new goods into your example model by people attempting to comment on or answer your question. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;What would happen in this instance? &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Given that fish is a “requirement,” it can be taken to be a necessity of Tribe B’s existence: Tribe B ceases to exist in one consumption cycle. The paucity of the model means we shouldn’t declare this to be physical liquidation, or enslavement or incorporation into A, or a reconstitution of B such that fish are no longer a necessity. Good substitution is prohibited as the only two marketable goods are necessities and non-substitutable.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Is there historical evidence in which a similar scenario has occurred?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;We have good historical evidence that not only is the model posited far too narrow, but that its assumption of barter as meaningful is fallacious, and that far denser networks of trade are normal across human societies and economic forms (Graeber, Debt).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, the question doesn’t hang on it’s curious imposition of bartering. We can rephrase with any means of exchange and deal with technologically based goods substitution making one agent in exchange irrelevant in terms of a past exchange relationship.  If it isn’t technical change then the question needs rephrasing to cover lockout, strike, embargo, change in production priority, substitution, dilution, etc…&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In examples like nylon parachutes, silk production transferred to other goods: agent “B,” ceased to exist, or was reconstituted on a lesser scale.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, given the liminality of “tribal” existence labour history and labour economics supply a much more useful pool of experience. In frame knitting (a form of weaving) Agent C developed a new technique which meant that they no longer required as much (eventually any) wage labour from Agent L: frame knitting domestic producers. This is because they mechanised production, using a new body of workers, newly produced as workers. As L was no longer able to exchange wage labour at previous rates, C dictated new ratios in the relationship of wages to output. L engaged in legalistic, civil disobedience and armed action against C. C reduced L’s necessities of life, and reduced their freedom of agency (with A and B we would call this enslavement of B). C’s new production was inferior, but C was accepting of this dilution. Eventually L ceased to exist, losing elements to migration, reconstitution, but eventually due to an inability to accept inter generational reproduction at the standards of life required to continue as a domestic frame knitter.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question would be best reasked with a complex model that doesn’t import unneeded assumptions; or as a question about technical substitution in economic history. &lt;/p&gt;&#xA;" OwnerUserId="19898" LastActivityDate="2018-10-28T01:11:56.550" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25235" PostTypeId="2" ParentId="25229" CreationDate="2018-10-28T08:27:13.877" Score="3" Body="&lt;p&gt;You seem to be confusing concepts from partial and general equilibrium. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Partial_equilibrium&quot; rel=&quot;nofollow noreferrer&quot;&gt;Partial equilibrum&lt;/a&gt;&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Supply and demand functions are usually mapped in such a way that quantity is on the &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;-axis and price is on the &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt;-axis. Competitive equilibrium is where the supply and demand functions intersect.&lt;span class=&quot;math-container&quot;&gt;$^1$&lt;/span&gt; It is called partial equilibrium because only the market for one good was analysed. Slopes play no role in determining whether a point is an equilibrium or not.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;General equilibrum in pure exchange economies&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;General competitive equilibrium considers all goods. Lectures usually restrict themselves to two types of goods and two consumers, as that scenario is easier to understand but gives the same insights.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The most frequently used display method in pure exchange economies is the &lt;a href=&quot;https://en.wikipedia.org/wiki/Edgeworth_box&quot; rel=&quot;nofollow noreferrer&quot;&gt;Edgeworth box&lt;/a&gt;. It uses the fact that the total amount of goods is given, an allocation just distributes these among the two consumers. Quantity of good &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; is on the &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;-axis and quantity of good &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; is on the &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt;-axis. Distance from the lower left corner shows the first consumers basket of goods, distance from the upper right corner shows the second consumers basket of goods. Given utility functions one can analyse Pareto-optimality in this setting. An allocation is Pareto-optimal if the slopes of the indifference curves running through the allocation are identical.&lt;span class=&quot;math-container&quot;&gt;$^2$&lt;/span&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also given an initial allocation, which denotes the property of the consumers, one can derive the general competitive equilibrium. The equilibrium price ratio is where the price vector going through the initial bundle is tangential to an indifference curve of each consumer and the point of tangency is the same. The equilibrium good allocation is the point of tangency. As a result, here, the slopes of the indifference curves are identical, hence the equilibrium good allocation is Pareto-optimal.&lt;span class=&quot;math-container&quot;&gt;$^3$&lt;/span&gt;&#xA;Intersection plays no role in determening whether a point is an equilibrium or not. Since we draw the indifference curves that run through the same point of the Edgeworth box, they will intersect (run through the same point) for sure.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;sub&gt;&lt;span class=&quot;math-container&quot;&gt;$^1$&lt;/span&gt;&#xA;There are some exceptions when &lt;span class=&quot;math-container&quot;&gt;$p = 0$&lt;/span&gt; but that is a special case.&#xA;&lt;/sub&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;sub&gt;&lt;span class=&quot;math-container&quot;&gt;$^2$&lt;/span&gt;&#xA;There are some exceptions where the indifference curves are non-differentiable at the allocation and hence the slopes do not exist. The allocation may still be Pareto-efficient. In case the allocation is on the side of the Edgeworth box there are further exceptions.&#xA;&lt;/sub&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;sub&gt;&lt;span class=&quot;math-container&quot;&gt;$^3$&lt;/span&gt;&#xA;Again, this is only true if the allocation is in the interior of the Edgeworth box and both indifference curves are differentiable.&#xA;&lt;/sub&gt;&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2018-10-28T10:42:49.333" LastActivityDate="2018-10-28T10:42:49.333" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25237" PostTypeId="1" CreationDate="2018-10-28T16:12:39.210" Score="3" ViewCount="117" Body="&lt;p&gt;So I've noticed the reliance on the term &quot;efficiency&quot; on some cases of economic practice. But I've also recognized problems, e.g. problems of abstraction or problems of pseudo-objectivity, related to making claims about &quot;economic efficiency&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I wonder whether &quot;efficiency&quot; can ever be an objective quality? Or whether it's in practice a very complicated concept.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;E.g. while slaves could be efficient in terms of output, using slaves would negate many other aspects of humans and thus is not necessarily a &quot;complete&quot; view on &quot;efficiency&quot;. Also, while &quot;exploiting&quot; laborers for gains might offer efficiency, it again might neglect that laborers have more aspects than &quot;mere cold production&quot;. And that those other aspects (e.g. life quality) might have correlation between how they perform in work.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, since communities or societies cannot necessarily be shown to have &quot;objective goals&quot;, then concepts such as &quot;economic growth&quot; may seem absurd. Because objectively, there's nothing to fundamentally motivate it.&lt;/p&gt;&#xA;" OwnerUserId="6848" LastActivityDate="2018-10-30T18:49:28.260" Title="Can measures of &quot;efficiency&quot; be objective?" Tags="&lt;theory&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25243" PostTypeId="2" ParentId="25215" CreationDate="2018-10-28T22:24:39.343" Score="1" Body="&lt;p&gt;If I'm understanding your question correctly, you are referring to increasing transformations of a utility function. Suppose I have a set of alternatives &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt;, a rational preference relation &lt;span class=&quot;math-container&quot;&gt;$\succsim$&lt;/span&gt; on &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt;, and a function &lt;span class=&quot;math-container&quot;&gt;$u:X \rightarrow \mathbb{R}$&lt;/span&gt; which represents this preference relation. Then it can be shown that for any &lt;span class=&quot;math-container&quot;&gt;$v:\mathbb{R} \rightarrow \mathbb{R}$&lt;/span&gt; which is monotonically increasing, &lt;span class=&quot;math-container&quot;&gt;$v \circ u:X \rightarrow \mathbb{R}$&lt;/span&gt; also represents these preferences. Try to prove this; it's a good exercise. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So in classical economic theory, we never have a &quot;unique&quot; utility function which represents preferences. This is because we can always take an increasing transformation of the function and get something else which contains all the relevant information with respect to our preferences. &lt;/p&gt;&#xA;" OwnerUserId="19987" LastActivityDate="2018-10-28T22:24:39.343" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25246" PostTypeId="1" CreationDate="2018-10-29T00:15:29.210" Score="1" ViewCount="510" Body="&lt;p&gt;What is the Stata command for calculating a turning point in a regression and analyzing how the data is distributed on each side of the turning point?&lt;/p&gt;&#xA;" OwnerUserId="19992" LastActivityDate="2018-10-29T00:15:29.210" Title="Turning points in a regression STATA" Tags="&lt;econometrics&gt;&lt;stata&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25247" PostTypeId="1" CreationDate="2018-10-29T01:24:25.843" Score="5" ViewCount="197" Body="&lt;p&gt;Consider &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\max_{x_1, x_2, x_3, x_4} u(x) = \sqrt{x_1 x_2} + \sqrt{x_3 x_4}$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;s.t. &lt;span class=&quot;math-container&quot;&gt;$\; p_1x_1 + p_2x_2 + p_3x_3 + p_4x_4 \le w$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know we can solve the max problem through separately considering case(i): &lt;span class=&quot;math-container&quot;&gt;$x_1, x_2 &amp;gt; 0$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$x_3 = x_4 = 0$&lt;/span&gt;; and case (ii) &lt;span class=&quot;math-container&quot;&gt;$x_1 = x_2 = 0$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$x_3, x_4 &amp;gt; 0$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But is it possible to solve the whole optimization problem through the Kuhn–Tucker method?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can write down the Lagrangian &lt;span class=&quot;math-container&quot;&gt;$L(x,\lambda)=\sqrt{x_1x_2}+\sqrt{x_3x_4}+\lambda(w-p_1x_1-p_2x_2-p_3x_3-p_4x_4)$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;with the complementary slackness conditions:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\frac{\partial L}{\partial x_1}=\frac{1}{2}\sqrt{\frac{x_2}{x_1}}-\lambda p_1 \le 0,\quad x_1 \ge 0, \quad \text{and}\quad  x_1 \frac{\partial L}{\partial x_1}=0$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\frac{\partial L}{\partial x_2}=\frac{1}{2}\sqrt{\frac{x_1}{x_2}}-\lambda p_2 \le 0,\quad x_2 \ge 0, \quad \text{and}\quad  x_2 \frac{\partial L}{\partial x_2}=0$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\frac{\partial L}{\partial x_3}=\frac{1}{2}\sqrt{\frac{x_4}{x_3}}-\lambda p_3 \le 0,\quad x_3 \ge 0, \quad \text{and}\quad  x_3 \frac{\partial L}{\partial x_3}=0$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\frac{\partial L}{\partial x_4}=\frac{1}{2}\sqrt{\frac{x_3}{x_4}}-\lambda p_4 \le 0,\quad x_4 \ge 0, \quad \text{and}\quad  x_4 \frac{\partial L}{\partial x_4}=0$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, when guessing say, &lt;span class=&quot;math-container&quot;&gt;$x_1 = 0$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$x_2,x_3,x_4&amp;gt;0$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$\lim_{x_1 \to 0}\frac{\partial L}{\partial x_1} \to \infty$&lt;/span&gt;, which does not satisfy the complementary slackness &lt;span class=&quot;math-container&quot;&gt;$x_1 \frac{\partial L}{\partial x_1} = 0$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I do not know whether we can use the Kuhn–Tucker method to solve this optimization problem? And if not, what are the reasons?&lt;/p&gt;&#xA;" OwnerUserId="5207" LastActivityDate="2021-01-14T14:01:55.160" Title="Can $u(x) = \sqrt{x_1 x_2} + \sqrt{x_3 x_4}$ be solved by Kuhn–Tucker conditions?" Tags="&lt;microeconomics&gt;&lt;optimization&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25249" PostTypeId="2" ParentId="25223" CreationDate="2018-10-29T02:46:21.587" Score="1" Body="&lt;p&gt;So, I have not really worked out the maths behind solving this. I prefer to take a shortcut and just compute it numerically. Here is what I have. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;These are the contour surfaces and the budget constraint. Notice how the solution will be at the &quot;kinked&quot; curve in the middle of each surface. &#xA;&lt;a href=&quot;https://i.stack.imgur.com/4fydl.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/4fydl.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The levels 1 and 2 are only for example. The third level, u = 3.92762 is related to the next part of my answer. Also, BC is the budget curve with income = 300. I have chosen &lt;span class=&quot;math-container&quot;&gt;$\alpha = 0.5$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$P_1 = 2, P_2=3, P_3=1$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, using the parameters mentioned in the last paragraph, the maximum is found to be at &lt;span class=&quot;math-container&quot;&gt;$q_1 = 65.8896, q_2 = 39.1448, q_3 = 50.7863$&lt;/span&gt; and the maximized utility is &lt;span class=&quot;math-container&quot;&gt;$u = 3.92762$&lt;/span&gt;. I assumed that all goods are strictly consumed at positive amounts. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am attaching my Mathematica code below, so that you can replicate and modify these results as you want&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;u = Min[a*Log[q1] + ((1 - a)*Log[q2]), Log[q3]]   &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;BC = p1*q1 + p2*q2 + p3*q3&lt;br&gt;&#xA;    a = 0.5; p1 = 2; p2 = 3; p3 = 1;&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;ContourPlot3D[{u == 1, u == 2, u == 3.92762, BC == 300}, {q1, 0,&lt;br&gt;&#xA;  100}, {q2, 0, 100} , {q3, 0, 100}, AxesLabel -&gt; Automatic,&lt;br&gt;&#xA;  ContourStyle -&gt; {Opacity[0.5], Opacity[0.5], Opacity[0.5],     Opacity&#xA;  [1]}, Mesh -&gt; None, PlotLegends -&gt; &quot;Expressions&quot;]&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;NMaximize[{u, BC &amp;lt;= 300, q1 &gt; 0, q2 &gt; 0, q3 &gt; 0}, {q1, q2, q3}, Reals]&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="19094" LastEditorUserId="19094" LastEditDate="2018-10-29T03:08:10.580" LastActivityDate="2018-10-29T03:08:10.580" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25251" PostTypeId="2" ParentId="25237" CreationDate="2018-10-29T06:44:06.743" Score="0" Body="&lt;p&gt;This question is asking if economic and/or political economic categories are value laden, or used in value laden ways.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The social uses of economics and political economy are always value laden. Practitioners have latent or blatant values which they inject unknowingly or knowingly into their work. Institutions and clients demand outcomes or specify problems with only one answer. That’s people in society. We are moral and political. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Like most social disciplines the disciplines of economics and political economics prefer less value judgement. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Economics deals with this problem by putting a lot of weight on their field specifying assumption of ranked order type effective preferences (I don’t have enough money to prefer diamonds, I prefer stackexchange). This assumption is value laden of course, but it reduces the question of “worth what for who’s use” to “what is the price of how many dead babies?”&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Political economics specifying question is “what is value?” Multiple theories of value are available. They are evaluated against each other by consistency, completeness and explanatory worth. For example, utilitarianism is out of fashion because scholars realised that we can never equate my enjoyment and your enjoyment, “use” is an interior experience.  Marxism claims a strong explanatory worth in terms of predicting future behaviour and for the liberation of the majority of the population from compulsion. It has known completeness problems (full communism hasn’t happened, yet) and with consistency (declining rate of profit debate.)&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Economics and political economy are value laden&lt;/li&gt;&#xA;&lt;li&gt;Each uses techniques to minimise that&lt;/li&gt;&#xA;&lt;li&gt;some economic calculations are largely value free within their framework, this leads to a conflict between for example potential economic efficiency and social or cultural preferences that are not expressed economically.  Such a tension is not resolvable within Economics. Such tensions may be resolveable within political economy, but debates about values worth uses and power ensue. &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="19898" LastActivityDate="2018-10-29T06:44:06.743" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25252" PostTypeId="2" ParentId="25237" CreationDate="2018-10-29T09:57:17.953" Score="1" Body="&lt;p&gt;Efficiency is mostly a very objective measure. That is why it is preferred by economists, who like to avoid using value laden concepts in order to be as objective as possible. This affinity for objective measures was strongly put forward by Max Weber.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The concept of efficiency that economists use is most often Pareto Efficiency. If a proposal is more efficient it means that it is possible to make someone better off without making anyone else worse off. While this also imposes a (light) value system, economists argue that it is a concept most people would agree with regardless of values.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your question seems to confuse efficiency with desirability. Just because something is efficient does not necessarily mean it is the best policy, because &quot;best&quot; is evaluated along many dimensions. In that sense, you are right that &quot;best&quot; is not always objective. Nevertheless, efficiency itself is objective. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The example of imposing slavery you give would violate the concept of pareto efficiency, because it makes the slaves worse off. Of course, many issues (such as slavery or human rights) should not be evaluated on the basis of efficiency alone. That does not mean, however, that the concept of efficiency cannot be objective. &lt;/p&gt;&#xA;" OwnerUserId="5557" LastEditorUserId="5557" LastEditDate="2018-10-30T03:53:49.570" LastActivityDate="2018-10-30T03:53:49.570" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="25253" PostTypeId="1" AcceptedAnswerId="25270" CreationDate="2018-10-29T14:45:37.740" Score="0" ViewCount="32" Body="&lt;p&gt;I am considering the idea of &quot;Harry Browne's permanent portfolio&quot;. I seen a few versions of this strategy where the different parts consists of funds which in turn have some costs associated with them. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then why not just buy one ETF(which only contains the corresponing asset) for each of three parts consisting of government securites and gold and for the last forth just a large stock fund for the stock part? &lt;/p&gt;&#xA;" OwnerUserId="8383" LastActivityDate="2018-10-30T11:04:52.420" Title="The &quot;permanent portfolio&quot; content" Tags="&lt;finance&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25255" PostTypeId="1" CreationDate="2018-10-29T16:32:29.800" Score="2" ViewCount="3008" Body="&lt;p&gt;The convexity of an indifference curve results from the fact that the absolute value of its (negative) derivative, which is the marginal rate of substitution is decreasing. But why do we say that it's convex to the origin? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is an implicit function that is convex and concave to the origin?&lt;/p&gt;&#xA;" OwnerUserId="18009" LastEditorUserId="1601" LastEditDate="2019-06-02T09:38:13.437" LastActivityDate="2021-02-12T17:46:48.537" Title="Convexity of indifference curve" Tags="&lt;microeconomics&gt;" AnswerCount="5" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25256" PostTypeId="2" ParentId="25255" CreationDate="2018-10-29T17:34:36.800" Score="2" Body="&lt;p&gt;The expression tries to convey a visual notion of convexity. It is &quot;convex to the origin&quot; in the sense that if we &quot;stand&quot; at the origin, the point &lt;span class=&quot;math-container&quot;&gt;$(0,0)$&lt;/span&gt;, and &quot;look towards&quot; the graph, we will perceive it as convex.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In contrast, if we stand &quot;above&quot; such a graph looking towards it, taking &quot;our&quot; position as being the origin, it will be concave. This &quot;relativity&quot; I suspect comes from physics and the arbitrariness of the origin of the coordinate system there.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2018-10-29T17:34:36.800" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25257" PostTypeId="2" ParentId="21257" CreationDate="2018-10-29T17:42:23.477" Score="1" Body="&lt;p&gt;Your answers in the first and second questions are correct, as another post noted. However, the last question cannot be answered: we would have to know what would be the number of Toyota produced when production of Lexus is zero, in order to answer that.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;By the way the Labels in your graph are wrong - it should read &quot;Lexus&quot; in the vertical and &quot;Toyota&quot; in the horizontal axis.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2018-10-29T17:42:23.477" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25258" PostTypeId="2" ParentId="25247" CreationDate="2018-10-29T17:51:31.793" Score="1" Body="&lt;p&gt;Why do you want to guess that some &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; is zero? What is the problem of having all four goods strictly positive at the solution?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In fact, due to the presence of the square root in the first order conditions, the solution looks straightforward, since the inequality cannot hold (and assuming exhaustion of the budget).  &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;ADDENDUM&lt;/strong&gt;&lt;br&gt;&#xA;Given the f.o.c's provided by the OP, all &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;'s have to be strictly positive at the solution, since otherwise we have division by zero and/or the undetermined form &lt;span class=&quot;math-container&quot;&gt;$0/0$&lt;/span&gt;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This in turn implies that &lt;span class=&quot;math-container&quot;&gt;$\partial L/\partial x_i = 0$&lt;/span&gt; at the solution, which now becomes easy to compute.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2018-11-29T02:53:47.180" LastActivityDate="2018-11-29T02:53:47.180" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25259" PostTypeId="1" CreationDate="2018-10-29T18:12:32.573" Score="-1" ViewCount="203" Body="&lt;p&gt;Is it possible for an entity (say a state, e.g. USA) to keep a constant GDP/debt ratio with a monotonically increasing debt.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I should probably mention that I am not an economist (physics and c.s background). In order to answer my question above, I want to know what are the governing equations for the gdp/debt ratio evolution (in time). From the simple analysis I've encountered, the evolution is treated relative to a single entity, where the controlling factor is the relation between the interest rate &lt;span class=&quot;math-container&quot;&gt;$r$&lt;/span&gt; (treated as a scalar) and the GDP growth factor &lt;span class=&quot;math-container&quot;&gt;$g$&lt;/span&gt;. If &lt;span class=&quot;math-container&quot;&gt;$g&amp;gt;r$&lt;/span&gt;, then we can increase our debt while keeping the ratio constant.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My problem is that this seems counter intuitive, especially if international relations are taken into account (a low ratio in one country has to mean a high ratio in another). Even if I allow the interest to somehow grow with the debt, the simple analysis does not assume any restriction on the GDP growth (which seems to me, has to be affected by the other factors). What models should I look into in this regard. Additionally, as a mere amature in these matters, I wonder why are all the magnitudes scalar and all the equations algebraic (where are the differential equations? show me some dynamics).&lt;/p&gt;&#xA;" OwnerUserId="19996" LastActivityDate="2018-10-30T11:26:55.053" Title="Evolution of GDP to debt ratio" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;&lt;government-debt&gt;" AnswerCount="2" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="25260" PostTypeId="2" ParentId="25237" CreationDate="2018-10-29T18:12:39.573" Score="3" Body="&lt;p&gt;Efficiency can be a very &quot;objective&quot; concept because it is &lt;em&gt;conditional&lt;/em&gt; on whatever &quot;non-economic&quot; environment production will take place. Consider the &quot;production possibilities frontier&quot; of a society, that says &quot;given the resources we have, we can produce &lt;span class=&quot;math-container&quot;&gt;$100$&lt;/span&gt; of X only, or &lt;span class=&quot;math-container&quot;&gt;$70$&lt;/span&gt; of Y only, or some combination of the two, in a year&quot;.  As long as we are &lt;em&gt;on&lt;/em&gt; the production possibility frontier, we are efficient. &#xA;Right. &lt;em&gt;How&lt;/em&gt; do we measure how much we can produce? It looks like a totally objective &quot;engineering&quot; exercise (however complicated). &quot;We have available &lt;span class=&quot;math-container&quot;&gt;$1000$&lt;/span&gt; labor hours and with them we can produce &lt;span class=&quot;math-container&quot;&gt;$100$&lt;/span&gt; units of &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt;, it is simple as that&quot;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hmmm... and why do we have &lt;span class=&quot;math-container&quot;&gt;$1000$&lt;/span&gt; labor hours available, and not, say, &lt;span class=&quot;math-container&quot;&gt;$2000$&lt;/span&gt;? How did we determine that? We determined it by considering perhaps some &quot;average&quot; number of hours worked per person times the working population of the society. Ok, and how did this &quot;average&quot; number of labor hours per working person cοme about? In practice it is strongly affected by the institutional environment in the specific economy. But his institutional environment is taken as &lt;em&gt;given&lt;/em&gt; in determining whether we are efficient or not.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So this concept of efficiency is conditional on technology and socio-economic institutions (market structure is included here).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But can the socio-economic institutions be assessed as to whether they cause inefficiency themselves? They certainly can, but we just moved one step higher than the previous concept of efficiency. And here things get cloudy, because the socio-economic institutions are never free of ideology, values and the like.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So to say &quot;the structure causes inefficiency&quot; has the possible rebound &quot;given &lt;em&gt;your&lt;/em&gt; values which is not my values&quot;. In theory we could even quantitatively assess that -but we would have to perform real-world experiments, something like &quot;let's introduce slavery, and see whether in a long term perspective we produce more or not&quot;. Ok. Are you willing to play slave in this scenario (that will last many-many years), so that the world will benefit from the objective knowledge we will gain?&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2018-10-30T18:49:28.260" LastActivityDate="2018-10-30T18:49:28.260" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="25261" PostTypeId="2" ParentId="25259" CreationDate="2018-10-29T20:43:00.577" Score="0" Body="&lt;p&gt;The short answer to your question is yes&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I believe you're trying to approach this to theoretically, when this is an empirical question&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The debt to GDP ratio is the total government debt divided by the GDP&#xA;These are, of course, real numbers&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The government controls the budget, sets a tax policy and sets an annual deficit goal, that should, in turn, control the total debt.&#xA;Interest rates are a part of the budget, and aren't included in the debt to GDP ratio&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regarding you remark on exchange rates:&#xA;A debt can be raised in a foreign currency, when raised abroad, or to back up any import /export activity, etc. In which case the effect is direct&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another exchange rate impact can occur when the debt isn't managed well by the state, foreign investors might pull out and raise the exchange rates.&#xA;This will also mean that the country will either raise its interest, to reflect the risk, or it might suffer inflation&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The US case is unique in a sense that it used the fact that it is the world's largest economy, the best alternative for risk-wise, and the government behind the dollar&lt;/p&gt;&#xA;" OwnerUserId="19195" LastActivityDate="2018-10-29T20:43:00.577" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25262" PostTypeId="2" ParentId="19507" CreationDate="2018-10-30T01:06:19.347" Score="0" Body="&lt;p&gt;Yes.  Via the wage as the price of reproduction of labour power.&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;In order to modify the human organism, so that it may acquire skill and handiness in a given branch of industry, and become labour-power of a special kind, &lt;strong&gt;a special education or training is requisite, and this, on its part, costs an equivalent in commodities of a greater or less amount.&lt;/strong&gt; This amount varies according to the more or less complicated character of the labour-power. &lt;strong&gt;The expenses of this education (excessively small in the case of ordinary labour-power), enter pro tanto into the total value spent in its [labour-power's] production.&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;p&gt;…&lt;/p&gt;&#xA;&lt;p&gt;If the owner of labour-power works to-day, to-morrow he must again be able to repeat the same process in the same conditions as regards health and strength. His means of subsistence must therefore be sufficient to maintain him in his normal state as a labouring individual. […] On the other hand, the number and extent of his so-called necessary wants, as also the modes of satisfying them, &lt;strong&gt;are themselves the product of historical development,&lt;/strong&gt; and depend therefore to a great extent on the degree of civilisation of a country, more particularly on the conditions under which, and consequently on the habits and degree of comfort in which, the class of free labourers has been formed.  &lt;strong&gt;In contradistinction therefore to the case of other commodities, there enters into the determination of the value of labour-power a historical and moral element.&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;p&gt;—&lt;em&gt;Capital&lt;/em&gt; 1 6&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Thus, to the extent that a wage differs from the social average, it represents the class conflict over the value of past training, and the general class conflict over the value of workers as human beings,&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;We stated […] that in the creation of surplus-value &lt;strong&gt;it does not in the least matter, whether the labour appropriated by the capitalist be simple unskilled labour of average quality or more complicated skilled labour.&lt;/strong&gt; All labour of a higher or more complicated character than average labour is expenditure of labour-power of a more costly kind, &lt;strong&gt;labour-power whose production has cost more time and labour, and which therefore has a higher value,&lt;/strong&gt; than unskilled or simple labour-power. &lt;strong&gt;This power being higher-value, its consumption is labour of a higher class, labour that creates in equal times proportionally higher values than unskilled labour does.&lt;/strong&gt; Whatever difference in skill there may be between the labour of a spinner and that of a jeweller, the portion of his labour by which the jeweller merely replaces the value of his own labour-power, does not in any way differ in quality from the additional portion by which he creates surplus-value. In the making of jewellery, just as in spinning, the surplus-value results only from a quantitative excess of labour, from a lengthening-out of one and the same labour-process, in the one case, of the process of making jewels, in the other of the process of making yarn. [18]&lt;/p&gt;&#xA;&lt;p&gt;But on the other hand, in every process of creating value, the reduction of skilled labour to average social labour, e.g., one day of skilled to six days of unskilled labour, is unavoidable. [19] We therefore save ourselves a superfluous operation, and simplify our analysis, by the assumption, that the labour of the workman employed by the capitalist is unskilled average labour.&lt;/p&gt;&#xA;&lt;p&gt;[18]: The distinction between skilled and unskilled labour rests in part on pure illusion, or, to say the least, on distinctions that have long since ceased to be real, and that survive only by virtue of a traditional convention; in part on the helpless condition of some groups of the working-class, a condition that prevents them from exacting equally with the rest the value of their labour-power. Accidental circumstances here play so great a part, that these two forms of labour sometimes change places. Where, for instance, the physique of the working-class has deteriorated, and is, relatively speaking, exhausted, which is the case in all countries with a well developed capitalist production, the lower forms of labour, which demand great expenditure of muscle, are in general considered as skilled, compared with much more delicate forms of labour; the latter sink down to the level of unskilled labour. Take as an example the labour of a bricklayer, which in England occupies a much higher level than that of a damask-weaver. Again, although the labour of a fustian cutter demands great bodily exertion, and is at the same time unhealthy, yet it counts only as unskilled labour. And then, we must not forget, that the so-called skilled labour does not occupy a large space in the field of national labour. Laing estimates that in England (and Wales) the livelihood of 11,300,000 people depends on unskilled labour. … (S. Laing: “National Distress,” &amp;amp;c., London, 1844). “The great class who have nothing to give for food but ordinary labour, are the great bulk of the people.” (James Mill, in art.: “Colony,” Supplement to the Encyclop. Brit., 1831.)&lt;/p&gt;&#xA;&lt;p&gt;— &lt;em&gt;Capital&lt;/em&gt; 1 7&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;As can be seen skill is just a variety of exertion difference, which is also paid.  Marx's labour-power is socially necessary and averaged.&lt;/p&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;Turning to your example—for which advertising I'm forced to consume every day induces suspicion regarding the reduction of website design through mechanisation to more closely approximate simple labour (ha, ha)—we will need to refine your model so that it makes sense.&lt;/p&gt;&#xA;&lt;p&gt;Let us postulate that the special skills require 10 years of education (such as a Lecturer in Graphic Design at a university, prior to the generalisation of higher education, say in 1970).  Labourer &amp;quot;A&amp;quot; then embodies 10 years more of reproduction of actual living labour than the socially average &amp;quot;B.&amp;quot;  Given that education happens on a yearly scale, rather than an hourly, let's view the value difference in terms of yearly wages and production.  Let us give the average years of work as 20-60.&lt;/p&gt;&#xA;&lt;p&gt;A's product embodies 1 average wage's values plus 10/30ths of an average wage.&#xA;B's product embodies 1 average wage's values.&lt;/p&gt;&#xA;&lt;p&gt;A will be paid 1/3rd more than B, if the wage is solely determined by payment in full for the embodied commodities in A's labour (ha, ha).  Based on my knowledge of historical relativities in Australian wages, this turns out to be pretty much on the ball, the chief difference today is that the 10 extra has been whittled down by an increase by 4 years in the general composition of standard labour.&lt;/p&gt;&#xA;&lt;p&gt;In reality A and B's wages will be determined by social struggle.  I've yet to see a real skills shortage, due to labour substitutability and mechanisation as the incorporation of previous human skill.  Additionally, capitalists produce commodities, whose &amp;quot;use&amp;quot; is the speculative consumption under the belief by an purchaser that they will fulfil a desire.  Namely, much like less skilled labour can be substituted, so can less useable commodities.  The &amp;quot;historical and moral&amp;quot; element determining wages is often union strength, recent threats of viable revolution, craft resistances.  &amp;quot;What is a skill,&amp;quot; in terms of pricing labour-power is a matter of social brawling.&lt;/p&gt;&#xA;&lt;p&gt;Marx clearly believes that skills are illusory &amp;quot;The distinction between skilled and unskilled labour rests in part on pure illusion,&amp;quot; and that only past class war holds up skill's values for labour power, &amp;quot;[the division of labour into skilled and unskilled rests] on distinctions that have long since ceased to be real, and that survive only by virtue of a traditional convention.&amp;quot;  Moreover, that the only reason why the skilled can continue class war to maintain their enhanced wage is due to the &amp;quot;the helpless condition of some groups of the working-class, a condition that prevents them from exacting equally with the rest the value of their labour-power,&amp;quot; namely that some of the unskilled are so physically and intellectually degraded that they cannot fight back.  In this light, a consideration of the history of the Australian Builders Labourers Federation, and their movement from unskilled (less paid) to skilled (more paid) through fighting class war could be of value.&lt;/p&gt;&#xA;" OwnerUserId="19898" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2018-10-30T01:06:19.347" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25264" PostTypeId="2" ParentId="25255" CreationDate="2018-10-30T02:52:21.763" Score="0" Body="&lt;p&gt;Note: this answer is more mathematically complicated than an undergraduate level, but I will try to give intuition as well. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think it's easier to think about this problem in terms of preferences. A preference relation &lt;span class=&quot;math-container&quot;&gt;$\succsim$&lt;/span&gt; over a set of alternatives &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; is convex if &#xA;&lt;span class=&quot;math-container&quot;&gt;$$x \succsim y \Rightarrow \lambda x + (1-\lambda) y \succsim y$$&lt;/span&gt;&#xA;for every &lt;span class=&quot;math-container&quot;&gt;$\lambda \in (0,1]$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Basically, what this is saying is that if I like x more than y, I also like any bundle which is a mix between them better than y. So essentially, if I'm at y, then I'd like to get as close to x as possible with respect to y. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To visualize this, consider being at some value on an arbitrary indifference curve for convex preferences (e.g. Cobb-Douglass utility function). Pick another point which is on a strictly higher indifference curve. Then I can draw a straight line between the two bundles, and everything on that line is better than where I started. Graphically, this should be obvious, as everything between the two points should also be on a strictly higher indifference curve. Mathematically speaking, this is the same as saying that the upper contour set for x, &lt;span class=&quot;math-container&quot;&gt;$\{y : y \succsim x\}$&lt;/span&gt; is a convex set for every x. &lt;/p&gt;&#xA;" OwnerUserId="19987" LastActivityDate="2018-10-30T02:52:21.763" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="25265" PostTypeId="2" ParentId="21774" CreationDate="2018-10-30T03:46:26.010" Score="0" Body="&lt;p&gt;I will try to explain this through ISLM model. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider you are an employee working for the government and earn \$1000 per month. Government follows expansionary fiscal policy and increases your pay to \$1500. Your purchasing power increases by \$ 500 when prices are held constant. This increase in your income will translate into money demand because obviously you will demand money to purchase goods and services with your extra income. This is known as transmission mechanism where increase in demand in real market transmits to money market. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In ISLM framework this could be shown as follows: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you look carefully one interesting thing is happening here. IS curve shifts rightward due to multiplier effect because your expenditure will be somebody else's income and so on. But due to increase in the demand of money the price of money or the rate of interest also increases. This increase in rate of interest incentivizes you to reduce your demand and save more de-incentivizes the borrowers. Thus, this has an offsetting effect on the level of income. This phenomenon is known as crowding out of private investment. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/cg0Ro.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/cg0Ro.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now let us see what happens in a liquidity trap situation. Consider the same scenario where your income increases by \$500 and your money demand also increases. But rate of interest is trapped (that is why it is known as trap) here and they will not increase. This will result in no offsetting effect or no crowding out or full multiplier effect. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/PUkxH.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/PUkxH.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If an economy is below full employment level, a corresponding increase in money supply will produce an offsetting effect on increase in money demand thereby keeping the rate of interest at their original level. &lt;/p&gt;&#xA;" OwnerUserId="19546" LastActivityDate="2018-10-30T03:46:26.010" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25266" PostTypeId="2" ParentId="25255" CreationDate="2018-10-30T04:02:00.533" Score="0" Body="&lt;p&gt;In case of any convex function, the value of the Arithmetic mean of any two points on the function is not less than the value of midpoint of the function in that interval.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Look at this function below:&#xA;&lt;a href=&quot;https://i.stack.imgur.com/EhdVn.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/EhdVn.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This function is convex to the point &lt;span class=&quot;math-container&quot;&gt;$(0,0)$&lt;/span&gt; and concave to the point &lt;span class=&quot;math-container&quot;&gt;$(10,10)$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerUserId="19546" LastEditorUserId="19546" LastEditDate="2018-11-01T00:27:07.913" LastActivityDate="2018-11-01T00:27:07.913" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25268" PostTypeId="2" ParentId="25221" CreationDate="2018-10-30T08:31:10.073" Score="0" Body="&lt;p&gt;I think I have worked out some sort of solution to this question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In &lt;a href=&quot;https://www.sciencedirect.com/science/article/abs/pii/S1574001305800110&quot; rel=&quot;nofollow noreferrer&quot;&gt;Handbook of Defense Economics Chapter 9: Terrorism Theory and Applications&lt;/a&gt;, Enders and Sandler give the example of metal detectors in airports to explain the notion of rationality under terrorism. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;They show empirically that the inclusion of metal detectors in airports not only decreased the number of skyjackings, but that terrorists substituted towards other means such as more conventional hostage taking. They also give the example of when America fortified their embassies, terrorists attacked America's allies' embassies more. These substitution effects are an example of rationality as either cost benefit analysis is being applied or there optimization with constraints is taking place.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, my question related to &quot;What if skyjackings didn't decrease after metal detectors were put in&quot;, would this imply terrorists aren't rational and we can't use these models to understand their behavior?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The answer to this is that we don't know and that two competing solutions exist: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(1) Terrorists are irrational and act arbitrarily to express anger.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(2) Terrorists simply don't have full information or their preference for skyjacking is extremely high. In this case they could have done a cost benefit analysis but may have calculated incorrectly or not been privy to full information.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I lean towards the later, but it is impossible to prove either. &lt;/p&gt;&#xA;" OwnerUserId="16530" LastActivityDate="2018-10-30T08:31:10.073" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25269" PostTypeId="2" ParentId="25255" CreationDate="2018-10-30T09:38:27.280" Score="4" Body="&lt;p&gt;I think what people mean when they say &quot;convex to the origin&quot; (or to any point &lt;span class=&quot;math-container&quot;&gt;$p$&lt;/span&gt;) is that the function is convex when looked at in a new basis, namely the basis resulting from a rotation such that the new x axis (call it x') is, up to a constant, tangent to the IC and the distance &lt;span class=&quot;math-container&quot;&gt;$|p-IC|$&lt;/span&gt; is minimized by that point of tangency (&lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/drnYf.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/drnYf.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="18009" LastActivityDate="2018-10-30T09:38:27.280" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="25270" PostTypeId="2" ParentId="25253" CreationDate="2018-10-30T11:04:52.420" Score="1" Body="&lt;p&gt;I hope I understood your question correctly. In case this helps:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) you can probably cover even the stock part with a combination of just a few ETFs. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) traditional funds (as opposed to ETFs) will always be promoted much more aggressively, because their providers earn high fees. ETFs are much less profitable for their providers and are often not promoted at all even if they represent a superior solution. This might explain why you see versions with traditional funds, but not ETFs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think you are right in thinking that you can construct a &quot;permanent portfolio&quot; type investment portfolio out of ETFs with a superior cost structure. Probably the best way to do it. Industry players who have a vested interest in traditional portfolio management won't tell you this though.&lt;/p&gt;&#xA;" OwnerUserId="14137" LastActivityDate="2018-10-30T11:04:52.420" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="25271" PostTypeId="2" ParentId="25259" CreationDate="2018-10-30T11:26:55.053" Score="0" Body="&lt;p&gt;Yes, all these numbers are real scalar series. However, they are sampled at the end of accounting time periods, they are difference equations, not differential equations. Some people like trying to force economic data into differential equations, and end up ignoring the theoretical issues of such a conversion. (My training is in electrical engineering, and there is a very well developed theory for conversions between discrete time and continuous time models.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The dynamics for government debt in a simplified model are simple. GDP is more complex, as it is the aggregate of underlying variables. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Based on my experience, the easiest textbook for a non-economist to grasp economics is “Monetary Economics” by Wynne Godley and Marc Lavoie. It is an introduction to stock-flow consistent (SFC) models. It illustrates how models of varying complexity build up.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It should be noted that SFC models are from outside the economic mainstream. The mainstream prefers models in which outcomes are the result of optimisation problems. However, it is difficult to see how things like the debt-GDP ratio evolve using those models. The Godley-Lavoie text does explain differences in views.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To return to your question, it is not that difficult to create SFC models where all countries enter a steady state where they grow at the same rate in real terms (growth excluding inflation). Nominal growth rates (in local currency terms) could be different as a result of different inflation rates. Debt levels would grow at the same pace as GDP.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course, economies are not always going to be in steady state. That said, during an expansion, it is fairly typical for growth rates of variables to be relatively steady, and so debt/GDP ratios move at a steady pace. We could only predict all the wiggles in the ratio if we could make perfect economic forecasts, which is unlikely. (That would be an entirely different question.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, discussions of debt ratio evolution using fixed &lt;span class=&quot;math-container&quot;&gt;$r$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$g$&lt;/span&gt; are seen as defective from the SFC modelling tradition. If one looks at those models, the behaviour of the private sector will drive the steady state debt ratios. (See Godley and Lavoie, Chapter 3.)&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2018-10-30T11:26:55.053" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25273" PostTypeId="2" ParentId="25231" CreationDate="2018-10-30T14:35:42.197" Score="0" Body="&lt;p&gt;I can give you a rough idea. You have to look at &lt;strong&gt;value add&lt;/strong&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Take company A, which sold goods for \$100. Government statisticians will not just say, OK, add $100 to GDP. Instead, they will also look at the cost of goods sold, which is what the company paid to suppliers before it could produce the \$100 worth of goods. Let's say it paid \$80. The value add for company A is then \$20. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's imagine Company B is the only supplier to Company A and it doesn't have any suppliers anymore as it creates everything in-house. The value add at Company B will be \$80.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The get GDP, you'll add value add at company A (\$20) and value add at company B (\$80), which is \$100.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Statisticians gather the necessary info from companies to be able to determine these values.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is article along these lines on &lt;a href=&quot;https://www.investopedia.com/terms/i/intermediate-good.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;Investopedia&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="14137" LastActivityDate="2018-10-30T14:35:42.197" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25275" PostTypeId="2" ParentId="19808" CreationDate="2018-10-30T17:54:03.050" Score="-1" Body="&lt;p&gt;Generally, ATC does include implicit costs unless otherwise specified by regular accounting&lt;/p&gt;&#xA;" OwnerUserId="20007" LastActivityDate="2018-10-30T17:54:03.050" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25276" PostTypeId="1" CreationDate="2018-10-30T18:09:56.627" Score="2" ViewCount="566" Body="&lt;p&gt;I am currently working with Pesaran &amp;amp; Timmermann test version from year 2009. Since I could not find any R package that contains function to calculate it (&lt;code&gt;rugarch&lt;/code&gt; has 1992 version in &lt;code&gt;DACTest&lt;/code&gt;). I recently posted thread in cross validated with similar question where kind user mlofton advised me to look into this list. Since cross-posting is not acceptable practice after over week of hard research I managed to develop R code for &lt;code&gt;newPT_test&lt;/code&gt;. It seems to be correct, but since I had lots of doubts maybe someone will clarify my concerns. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is the formula I used (Pönkä 2017):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$PT=(T-1)(S^{-1}_{yy,w}S_{y\hat{y},w}S^{-1}_{\hat{y}\hat{y},w}S_{\hat{y}y,w}) \sim {\chi}^2_1, $$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$S_{yy,w}=(T-1)^{-1}Y'M_wY, $$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$S_{\hat{y}\hat{y},w}=(T-1)^{-1}\hat{Y}'M_w\hat{Y}, $$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$S_{y\hat{y},w}=(T-1)^{-1}\hat{Y}'M_w\hat{Y},$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$S_{y\hat{y},w}=(T-1)^{-1}Y'M_w\hat{Y}, $$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$M_w=I_{T-1}-W(W'W)^{-1}W', $$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$W=(\tau_{T-1},Y_{-1},\hat{Y}_{-1}),$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;...and &lt;span class=&quot;math-container&quot;&gt;$Y=(y_2,...,y_T)'$&lt;/span&gt;&quot;,&lt;span class=&quot;math-container&quot;&gt;$\hat{Y}=(\hat{y}_2,...,\hat{y}_T)$&lt;/span&gt;,&lt;span class=&quot;math-container&quot;&gt;$Y_{-1}=(y_1,...,y_{T-1})$&lt;/span&gt;,&lt;span class=&quot;math-container&quot;&gt;$\hat{Y}=(\hat{y}_1,...,\hat{y}_{T-1})$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\tau_t$&lt;/span&gt; is as &lt;span class=&quot;math-container&quot;&gt;$(T-1)\times1$&lt;/span&gt; vector of ones...&quot; From other source I learned that &lt;span class=&quot;math-container&quot;&gt;$I_t$&lt;/span&gt; is identity matrix. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My main issue was notation. I understand that &lt;span class=&quot;math-container&quot;&gt;$y_t$&lt;/span&gt; represents ones and zeroes depending on whether change between actual value and its last observation was positive (&lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt;) or negative (&lt;span class=&quot;math-container&quot;&gt;$0$&lt;/span&gt;)? Same for forecast &lt;span class=&quot;math-container&quot;&gt;$\hat{y}_t$&lt;/span&gt;. &#xA;I am not sure how to understand vectors: &lt;span class=&quot;math-container&quot;&gt;$Y=(y_2,...,y_t)'$&lt;/span&gt;  and &lt;span class=&quot;math-container&quot;&gt;$Y'$&lt;/span&gt; in &lt;span class=&quot;math-container&quot;&gt;$S$&lt;/span&gt; elements. I know that &lt;span class=&quot;math-container&quot;&gt;$'$&lt;/span&gt; at the end of &lt;span class=&quot;math-container&quot;&gt;$(y_2,...,y_t)'$&lt;/span&gt; means it is column vector, so &lt;span class=&quot;math-container&quot;&gt;$Y'$&lt;/span&gt; indicates that now its row vector now?. Also it starts from &lt;span class=&quot;math-container&quot;&gt;$y_2$&lt;/span&gt; which means I remove first observation from binary series while in &lt;span class=&quot;math-container&quot;&gt;$Y_{-1}=(y_1,...,y_{T-1})$&lt;/span&gt; I remove last? That makes &lt;span class=&quot;math-container&quot;&gt;$\tau_{t-1}$&lt;/span&gt; a &lt;span class=&quot;math-container&quot;&gt;$(T-1)\times3$&lt;/span&gt; matrix right?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is R code:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;nwPT_test=function(actual,forecast){&#xA;&#xA;yt=actual #assign actual to yt to make code shorter  &#xA;xt=forecast #assign forecast to xt...  &#xA;&#xA;delta_yt=as.matrix(cbind(ifelse(yt-lag(yt)&amp;gt;0,1,0)[-1])) #calc change of yt (delta)&#xA;delta_xt=as.matrix(cbind(ifelse(xt-lag(xt)&amp;gt;0,1,0)[-1])) #calc change of xt(delta)&#xA;nT=length(delta_yt) #number of Time periods&#xA;Yt=cbind(delta_yt[-1]) #Yt=(y2,...,yT) &#xA;Xt=cbind(delta_xt[-1]) #Xt=(x2,...,xT)&#xA;Yt2=as.vector(rbind(delta_yt[-nT])) #Yt2=(y1,...,yT-1)&#xA;Xt2=as.vector(rbind(delta_xt[-nT])) #Xt2=(x1,...,xT-1)&#xA;teta=rep(1,nT-1) #T-1 vector of ones&#xA;I=diag(nT-1) #Identity matrix&#xA;W=cbind(teta,Yt2,Xt2) #W matrix as in formula&#xA;&#xA;Mw=I-(W%*%((t(W)%*%W)^(-1))%*%t(W))#calcualting Mw as in formula&#xA;&#xA;#calculating elements S as in formula&#xA;Syy.w=((nT-1)^(-1))*t(Yt)%*%Mw%*%Yt&#xA;Sxx.w=((nT-1)^(-1))*t(Xt)%*%Mw%*%Xt&#xA;Sxy.w=((nT-1)^(-1))*t(Xt)%*%Mw%*%Yt&#xA;Syx.w=((nT-1)^(-1))*t(Yt)%*%Mw%*%Xt&#xA;&#xA;PT=(nT-1)*(Syy.w^(-1)*Syx.w*Sxx.w^(-1)*Sxy.w)#finally calculating PT &#xA;&#xA;p.value=1-pchisq(PT,df=1)#calculating p-value&#xA;#some code to make it looks nicer&#xA;summary=c(PT,p.value)&#xA;names(summary)=c(&quot;PT statistic&quot;,&quot;p.value&quot;)&#xA;summary&#xA;}&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;I managed to solve most issues from my previous thread. Here is the link:: &lt;a href=&quot;https://stats.stackexchange.com/questions/372776/confusions-about-pesaran-timmermann-test-2009-version?noredirect=1#comment701286_372776&quot;&gt;https://stats.stackexchange.com/questions/372776/confusions-about-pesaran-timmermann-test-2009-version?noredirect=1#comment701286_372776&lt;/a&gt; &#xA;It might help understand the way I approached it. So far my code seems to give correct results.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Please answer only questions from current thread. Hope I updated my question enough to not be treated as double post... And thanks again to mlofton for informing me about this great SE subsite. &lt;/p&gt;&#xA;" OwnerUserId="12852" LastActivityDate="2018-10-30T18:09:56.627" Title="Helping in understaing new Pesaran and Timmermann test (and R code validation)" Tags="&lt;econometrics&gt;&lt;r&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25277" PostTypeId="1" CreationDate="2018-10-30T20:09:21.540" Score="1" ViewCount="52" Body="&lt;p&gt;I'd really like some tips on how to master the material for first year phd econometrics (texts: hayashi chap 1 -3, - econometrics, casella and berger 5 - 8th chapter - statistical inference) apart from doing problem sets set by professor on my own and struggling through them :) I have a month and 10 days and get stuck easily while solving problems. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am a self-taught mathematician (multivariable calc, linear algebra, single variable) and so I don't quite know how to utilise the tools in my toolbox although I know them in theory, if that makes sense. With practice questions, I start seeing a pattern and I am not seeing one in metrics yet. constructive advice much appreciated&lt;/p&gt;&#xA;" OwnerUserId="19643" LastActivityDate="2018-10-30T20:09:21.540" Title="study methods for first year phd courses in econ" Tags="&lt;econometrics&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25278" PostTypeId="2" ParentId="14603" CreationDate="2018-10-30T20:34:10.597" Score="1" Body="&lt;p&gt;Subsidized export lowers cost to ship goods from China and helps to provide pricing benefits over locally produced products in receiving countries. Broad examples are found with the Universal Postal Union, Asia-Europe rail subsidies and china ship-building subsidies. &lt;/p&gt;&#xA;" OwnerUserId="20009" LastActivityDate="2018-10-30T20:34:10.597" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="25281" PostTypeId="1" AcceptedAnswerId="25288" CreationDate="2018-10-31T01:34:46.163" Score="4" ViewCount="54" Body="&lt;p&gt;When a foreign company wants to export their goods to the U.S. they may encounter a tariff (e.g. steel). The tariff is imposed by the U.S. government at the port of entry and is a form of tax revenue. However, does the exporter's revenue take a hit or do they simply charge the importer more to take the cost of the tariff into account? Does it just depend on whatever agreement the exporter/importer come to? &lt;/p&gt;&#xA;" OwnerUserId="20011" LastActivityDate="2018-10-31T20:37:16.043" Title="How do tariffs work?" Tags="&lt;tariffs&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25282" PostTypeId="1" AcceptedAnswerId="25284" CreationDate="2018-10-31T02:24:46.117" Score="1" ViewCount="166" Body="&lt;p&gt;I'm interested in learning how the economy of a town is analyzed. For instance, some occupations serve only people in the town, for instance the town grocer, baker, restaurant, dry cleaner, etc. Their income must come from other people in the town. But other people's jobs will have them sell externally, like someone with an online store.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've read things discussing how if Amazon's HQ2 brings 50,000 high paying jobs to a city, that also will cause there to be, say 100,000 new secondary jobs (restaurants, dry cleaners, etc that cater to the additional 50k people)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is this area of study called and what papers or books are good to learn more about it?&lt;/p&gt;&#xA;" OwnerUserId="7979" LastEditorDisplayName="user18" LastEditDate="2018-10-31T02:33:33.273" LastActivityDate="2018-11-01T02:02:00.053" Title="How does the economy of a city work?" Tags="&lt;macroeconomics&gt;&lt;economic-growth&gt;&lt;urban-economics&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="25284" PostTypeId="2" ParentId="25282" CreationDate="2018-10-31T05:13:00.867" Score="4" Body="&lt;p&gt;Answering your question involves the various sub-fields of &lt;em&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Regional_economics&quot; rel=&quot;nofollow noreferrer&quot;&gt;Regional Economics&lt;/a&gt;&lt;/em&gt;, such as Spatial Competition theory (Hotelling, 1929), Economic Geography, Urban&#xA;Economics (Alonso, 1964), New Economic Geography (Krugman, 1991), preferably in an integrated way.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Indeed, each of these subfields relate to considerations that complement each other. As stated by Thisse (2010), integrating space in economic analyses relates to &lt;strong&gt;&lt;em&gt;(i)&lt;/em&gt;&lt;/strong&gt; the use of a computable general equibrium (CGE) framework to endogenize the formation of incomes and relative prices, &lt;strong&gt;&lt;em&gt;(ii)&lt;/em&gt;&lt;/strong&gt; the realism of the modeled geographical space, the necessity of being multidimensional, asymmetric and empirically grounded and &lt;strong&gt;&lt;em&gt;(iii)&lt;/em&gt;&lt;/strong&gt; the number of encompassed spatial scales. Otherwise, it is difficult to figure out how spatial forces shape the so-called Space-economy (Isard, 1949) and, a fortiori, what policy or what institutional change can influence them if they are judged to go in an undesired direction.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would reformulate your question as &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;What to do to model a city, &lt;em&gt;a priori&lt;/em&gt; itself within a system of cities in interaction.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Incorporating CGE theory&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The modeling architecture to develop in order to spatialize a GE is implicitly specified by Thisse (2010), who, instead of soft-linking compact descriptions of the economy and spatial formalisms, insist on the necessity of their full entanglement. This intellectual movement is the same as the movement toward hybrid models approach to couple GE models and engineering-based energy models (Hourcade et al., 2006). In the case of spatial economics, this hybridization passes through the use of New Economic Geography (NEG), which intrinsically implies GE theory. Indeed, GE concerns are what makes Economic Geography New (Krugman, 1998).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Involving geographical realism&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At the scale (implicitly) involved in Urban Economics (UE), i.e. the urban scale, you can read Anas and Xu (1999), Nitzsche&#xA;and Tscharaktschiew (2013), Choi et al. (2015), Anas and Liu&#xA;(2007). If we collapse the internal structure of a metropolitan area into a single point, we conventionally jump to the field and the scale of analysis of New Economic Geography (NEG). Because at its early stages the analytic tractability of the spatial processes governing the interactions of areas was a key objective, one NEG’s notable feature is its lack of realism with&#xA;respect to the geographical distribution of areas, e.g. distributed in a mono-dimensional world as in Krugman (1993)’s Racetrack economy or in a part of it as in Fujita et al. (1999b)’s Line economy, as well as in a bi-dimensional world as in Puga (1999)’s side-by-side Equidistant Economy (EE). Since then, adding more real spaces components to NEG has been thought of as the main step for future development (Behrens and Thisse, 2007; Fujita and Krugman, 2003). You may also want to read Behrens et al. (2007), Bosker et al. (2007), Stelder (2005), Brakman et al. (2006), Sheng et al. (2016), Mercenier et al. (2016).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Involving multiple spatial scales&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Both UE- or NEG-related models rely on exogenous signals coming from upper geographical scales, be them national, regional or global. But it is harder to find modeling approaches in which these links are explicitly involved. Attempts to bridge this gap can be found in Waisman et al. (2013), Allio (2015, 2016) and Faucheux (2018). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;hr&gt;&#xA;Waisman, Allio and Faucheux integrate (i), (ii) and (iii) in their modeling exercices.&lt;/p&gt;&#xA;" OwnerUserId="10247" LastEditorUserId="10247" LastEditDate="2018-11-01T02:02:00.053" LastActivityDate="2018-11-01T02:02:00.053" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25285" PostTypeId="1" AcceptedAnswerId="25291" CreationDate="2018-10-31T09:57:52.837" Score="0" ViewCount="28" Body="&lt;p&gt;can you tell me what could be key economic mechanisms that explain long-term damage of the Great Recession?&lt;/p&gt;&#xA;" OwnerUserId="20012" LastActivityDate="2018-10-31T20:52:12.433" Title="What are key economic mechanisms explaining long term damage during Great Recession" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="1" ClosedDate="2018-11-09T00:40:01.887" ContentLicense="CC BY-SA 4.0" />
  <row Id="25287" PostTypeId="1" CreationDate="2018-10-31T19:29:54.980" Score="0" ViewCount="173" Body="&lt;p&gt;I want to find an expression for the asymptotic variance of the OLS estimator given that the errors are heteroskedastic.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have understood the derivation using CLT for the homoskedastic case. I.e.,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\sqrt N (\hat{\beta} - \beta) \stackrel{a}{\sim}N(0,Q_{xx}^{-1}BQ_{xx}^{-1}) $&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where &lt;span class=&quot;math-container&quot;&gt;$Q_{xx} = E(x'x)$&lt;/span&gt; and&#xA;&lt;span class=&quot;math-container&quot;&gt;$B = E(u^2 x'x)$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So under homoskedasticity I can use the law of iterated expectation to simplify &lt;span class=&quot;math-container&quot;&gt;$B$&lt;/span&gt; as &lt;span class=&quot;math-container&quot;&gt;$E(E(u^2|x)x'x) = \sigma^2E(x'x)$&lt;/span&gt;. Where &lt;span class=&quot;math-container&quot;&gt;$E(u^2|x) = \sigma^2$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the asymptotic variance becomes &lt;span class=&quot;math-container&quot;&gt;$Avar(\hat{\beta}) = Q_{xx}^{-1}\sigma^2$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now consider the case of heteroskedastic errors. E.g., &lt;span class=&quot;math-container&quot;&gt;$E(u^2|x) = f(x) = \theta x^2$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Under this specification, the previous asymptotic distribution still holds: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\sqrt N (\hat{\beta} - \beta) \stackrel{a}{\sim}N(0,Q_{xx}^{-1}BQ_{xx}^{-1}) $&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But what I am having trouble with is how to simplify &lt;span class=&quot;math-container&quot;&gt;$B$&lt;/span&gt;. I see no reason why I can't use LIE again to express &lt;span class=&quot;math-container&quot;&gt;$B$&lt;/span&gt; the same way as before &lt;span class=&quot;math-container&quot;&gt;$E(E(u^2|x)x'x) = E(u^2|x)E(x'x) = \theta x^2 E(x'x)$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I can make this substitution the rest of the derivation should just be some algebra. The reason I am confused is because in Wooldridge he says&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;A &lt;span class=&quot;math-container&quot;&gt;$\textbf{homoskedasticity}$&lt;/span&gt; assumption simplifies the&#xA;  form of OLS asymptotic variance: &lt;span class=&quot;math-container&quot;&gt;$E(u^2x'x) = \sigma^2 E(x'x)$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="11767" LastActivityDate="2018-10-31T19:29:54.980" Title="Asymptotic variance under heteroskedasticity" Tags="&lt;econometrics&gt;&lt;heteroskedasticity&gt;" AnswerCount="0" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="25288" PostTypeId="2" ParentId="25281" CreationDate="2018-10-31T20:02:51.083" Score="2" Body="&lt;p&gt;Assuming a competitive global market, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If an importer would by steel in the global market in global prices, he will have to absorb the tax cost at importing, then roll it to its customers at home&#xA;The exporter will not absorb the tax, since it can sell to other countries without it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the importer's country is big enough market-wise, then:&#xA;some tax absorption on the exporter's side might take place since the exporter will lose large sales if no absorption is made, &#xA;And the importer will not roll all the tax to its customers since competing importers, might receive the same tax-absorption sharing with exporters (theory dictates it, all are equal in a competition),&#xA;In this case, a lower price from competitors will lead to a loss of market share&lt;/p&gt;&#xA;" OwnerUserId="19195" LastActivityDate="2018-10-31T20:02:51.083" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="25289" PostTypeId="2" ParentId="25281" CreationDate="2018-10-31T20:37:16.043" Score="0" Body="&lt;p&gt;In most countries and from a fiscal point of view, the exporter is the one who assumes the tariff, since it is the cost imposed by the country to allow the entry of foreign goods.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, it is possible that the exporter increases the price of his good, in order to divide the cost of the tariff between him and the importer.&lt;/p&gt;&#xA;" OwnerUserId="18953" LastActivityDate="2018-10-31T20:37:16.043" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25290" PostTypeId="1" CreationDate="2018-10-31T20:40:10.150" Score="5" ViewCount="140" Body="&lt;p&gt;Robert Solow famously said:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;You can see the computer age everywhere but in the productivity statistics&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This quote is often linked with the productivity paradox (&lt;a href=&quot;https://en.wikipedia.org/wiki/Productivity_paradox&quot; rel=&quot;noreferrer&quot;&gt;https://en.wikipedia.org/wiki/Productivity_paradox&lt;/a&gt;), such that we don't see mayor productivity growth from new tech.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But there is something I don't understand. Economic growth is about percentage growth. A graph of GDP looks like an exponential function. So nominally a 5% growth is much much higher when the economy is that of the US than that of Malawi.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So we might not see an acceleration of economic growth, but we at least see continued growth, which allegedly becomes harder and harder as economies develop. This is the idea behind Solow's model, where without an exogenous &lt;strong&gt;percentage growth&lt;/strong&gt; in A, output converges to the steady state.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So I don't really understand the problem. To me, computers are clearly visible in a growing economy. But this seems to be unsatisfactory for Solow, who wants to see what, a 10% growth rate? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What's wrong in my thinking?&lt;/p&gt;&#xA;" OwnerUserId="15121" LastEditorUserId="15121" LastEditDate="2018-11-01T12:57:57.793" LastActivityDate="2019-05-01T19:02:10.367" Title="Can we see the computer age in the productivity statistics?" Tags="&lt;productivity&gt;&lt;technological-progress&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25291" PostTypeId="2" ParentId="25285" CreationDate="2018-10-31T20:52:12.433" Score="2" Body="&lt;p&gt;Big recessions produce mass unemployment and for long periods. People can get demotivated, and lose skills and training. As the economy evolves, new skills are needed and unemployed people might lose that. That is a long term damage. Think of all the youngsters in Spain, coming out of the university, ended up working in bars and other low skill jobs. That's not only demotivating but also bad for their human capital.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That's one example I can think of.&lt;/p&gt;&#xA;" OwnerUserId="15121" LastActivityDate="2018-10-31T20:52:12.433" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25293" PostTypeId="1" CreationDate="2018-10-31T22:06:39.403" Score="0" ViewCount="43" Body="&lt;p&gt;Suppose Alice wants to buy Bob's house but they use different banks. Alice gets a loan from bank A and needs to transfer her new deposits to Bob at bank B to pay for the house. Obviously Alice's deposits at bank A will decrease by the same amount that Bob's increases at bank B, but now bank B's liabilities have increased (more deposits) while bank A's have decreased (less deposits). How is this imbalance settled between the two banks?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm guessing bank A sends money to bank B through the central bank (since both banks have an account there), which means A is sending B some of its reserves. But it also seems possible to me that bank B could have an account at bank A that gets credited new deposits. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Similarly, when banks loan to each other to meet reserve requirements, do they loan money that the central bank credited to them or do they credit each other with the reserves they need? &lt;/p&gt;&#xA;" OwnerUserId="18412" LastEditorUserId="18412" LastEditDate="2018-10-31T22:15:10.747" LastActivityDate="2018-11-02T13:16:11.340" Title="Do banks pay each other from their reserves?" Tags="&lt;banking&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25294" PostTypeId="2" ParentId="21767" CreationDate="2018-11-01T04:26:17.407" Score="0" Body="&lt;p&gt;Velocity of money is nothing but number of times the nominal money is changing hands.&#xA;Suppose the GDP (aggregate expenditure) of a country is \$1,000.  The amount of money in circulation is \$500. So money should change hands two times for expenditure worth $1000 to occur which makes velocity of money = 2. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$MV=PY$&lt;/span&gt;&#xA;=&gt; &lt;span class=&quot;math-container&quot;&gt;$M = (1/V) PY$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now coming to your question, suppose the GDP increases to \$1500. If money supply and prices remain constant, then velocity of money must increase to 3 to sustain an expenditure worth \$1500. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is a completely classical case and output is assumed to be at the full employment level of equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But in real economy, the things are not as simple since money itself becomes an asset whose price is the rate of interest. &lt;/p&gt;&#xA;" OwnerUserId="19546" LastActivityDate="2018-11-01T04:26:17.407" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25296" PostTypeId="1" AcceptedAnswerId="25299" CreationDate="2018-11-01T08:11:43.663" Score="0" ViewCount="22" Body="&lt;p&gt;I'm trying to understand how to think about real estate markets and how to identify markets where there might be strong demand for additional housing (I'm looking at senior housing in particular) and am new to real estate, so I had a few questions about metrics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In particular, two that seem important are occupancy rates (measured as beds filled/available beds in all facilities) and stabilized occupancy rates (measured as beds filled/available beds for facilities that are at least 2 years old.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Obviously, if there's lots of new construction, we'd expect occupancy to fall as a lot of new beds are coming online and it takes time to fill them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I'm wondering, however, is if there is significance in comparing the spread between occupancy and stabilized occupancy. For example, if we had a fake and overly simplistic example of two markets that looked like this:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;Market 1, Occupancy Rate of 88%, Stabilized Occupancy Rate of 90%, Construction vs. Inventory of 5% &#xA;Market 2, Occupancy Rate of 50%, Stabilized Occupancy Rate of 90%, Construction vs. Inventory of 7%&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;then the conclusion I would draw is there is likely much more latent demand in Market 1 than Market 2 because at at the same new construction levels, the spread is so much lower in Market 1 (2%) than Market 2 (40%), indicating that properties are filling up much faster in Market 1.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is that the right way to think about this metric? If so, how should I think about adjusting or scaling this kind of metric for the amount of new construction?&lt;/p&gt;&#xA;" OwnerUserId="20016" LastActivityDate="2018-11-01T14:42:32.473" Title="Does a tighter spread between occupancy and stabilized occupancy indicate higher demand?" Tags="&lt;statistics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25297" PostTypeId="2" ParentId="25166" CreationDate="2018-11-01T08:32:50.443" Score="1" Body="&lt;p&gt;To add to Brythan's question: It is correct that the marginal tax rate is more important for incentives than the average tax rate, as economists regularly (and often rightly so) think about marginal changes to a given situation. There are however shortcomings to this. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;One standard result in labor/public ecnomics is that labor supply is more responsive on the extensive margin (whether or not work) than on the intensive margin (how many hours to work). An inactive person that considers to take up work faces a possible transition from zero hours of work to some positive amount of hours per week (8, 20, 40...). For this person, the marginal tax rate tells little about the monetary gain of entering at a given number of hours and some potential earnings. For this reason, the &lt;a href=&quot;https://www.oecd.org/social/benefits-and-wages.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;OECD&lt;/a&gt; calculates alternative incentive measures. For example the &lt;em&gt;Participation Tax Rate&lt;/em&gt; measures the share of additional earnings that is taxed away (including the potential loss of social welfare payments). This measure, though subject to many assumptions, might be more informative on the incentives on the extensive margin of labor supply.&lt;/p&gt;&#xA;" OwnerUserId="17735" LastActivityDate="2018-11-01T08:32:50.443" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25298" PostTypeId="1" CreationDate="2018-11-01T11:08:50.370" Score="1" ViewCount="41" Body="&lt;p&gt;I am solving a three-stage game in which first the sender sends the signal, then the receiver acts based on the signal and finally, the sender moves again. The sender has two types high and low and the high type would like to pretend to be the low type. The last stage action of high or low type is already defined and is different for the agents. I am struggling with the pooling equilibrium. Since the last stage actions of the senders are different, the optimal pooling signal of them is different as well. How should I come up with the pooling equilibrium?&#xA;Thank you very much&lt;/p&gt;&#xA;" OwnerUserId="20018" LastEditorUserId="11590" LastEditDate="2019-05-19T16:55:03.797" LastActivityDate="2019-05-19T16:55:03.797" Title="Three stage two player signalling game, pooling equilbrium" Tags="&lt;game-theory&gt;&lt;signaling&gt;" AnswerCount="0" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25299" PostTypeId="2" ParentId="25296" CreationDate="2018-11-01T14:42:32.473" Score="2" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Does a tighter spread between occupancy and stabilized occupancy&#xA;  indicate higher demand?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Not necessarily. Demand is not the only factor that determines occupancy rates. A tight spread by itself only indicates market &lt;em&gt;steadiness&lt;/em&gt; (that is, uniformity over time).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Using your example, Market 2 could have experienced a significant increase of demand in the past two years and yet present a lower occupancy rate if cost at new facilities outweighs the demand increase. The new bedrooms are available but only few consumers can afford them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Government intervention and/or expectations about the future might also discourage suppliers from effectively releasing to the market much of the new facilities. This certainly amounts to a reduction of supply (and a higher Occupancy Rate, accordingly), but metrics might fail to capture that reduction in a market that would otherwise reflect the same demand and Occupancy Rate as Market 1.&lt;/p&gt;&#xA;" OwnerUserId="18552" LastActivityDate="2018-11-01T14:42:32.473" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25302" PostTypeId="2" ParentId="21298" CreationDate="2018-11-01T17:22:18.313" Score="0" Body="&lt;p&gt;Q refers to a &lt;strong&gt;potential&lt;/strong&gt;. The equilibrium Q is the one which actually occurs (although real economies are more complicated than that). In practice, firms stock inventory of their goods, anticipating demand based on their expectations. Firms normally do not operate on a Japanese-style &quot;just in time&quot; basis (google the concept). It's risky. They keep stock. Sometimes the stocks last for long.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In accounting also firms operate on different basis. There is the FIFO and the LIFO, which are different ways to manage production, demand and inventories. You can read &lt;a href=&quot;https://en.wikipedia.org/wiki/FIFO_and_LIFO_accounting&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://en.wikipedia.org/wiki/FIFO_and_LIFO_accounting&lt;/a&gt; for more information.&lt;/p&gt;&#xA;" OwnerUserId="15121" LastActivityDate="2018-11-01T17:22:18.313" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25303" PostTypeId="2" ParentId="25290" CreationDate="2018-11-01T17:39:10.720" Score="2" Body="&lt;p&gt;It means that computers (or IT in general) contribute to the society (they make us &lt;em&gt;better off&lt;/em&gt; and more productive at work), but this does not show up in GDP statistics. The reason is that many of these services are for free. As an example, the value of the Google Search is not reflected in a market price for running this search. The problem is related to the societal value of mothers raising their children at home. Other examples are environmental protection or caring for your parents. Since these services are not traded on markets, it does not enter GDP. Whether the Solow quote is actually true is however debatable. The value of the google search engine is to some extent reflected in the advertisement google is selling. And this enters GDP statistics. The relation with the productivity puzzle is whether productivity is actually falling or whether we need new concepts to measure productivity in the computer age.&lt;/p&gt;&#xA;" OwnerUserId="17735" LastActivityDate="2018-11-01T17:39:10.720" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25310" PostTypeId="1" AcceptedAnswerId="25320" CreationDate="2018-11-02T10:06:35.783" Score="2" ViewCount="164" Body="&lt;p&gt;A homothetic ordering is defined as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$x \succeq y \Rightarrow \lambda x \succeq \lambda y \qquad \forall \lambda &amp;gt;0$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where &lt;span class=&quot;math-container&quot;&gt;$x,y \in \mathbb{R}^n$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, any differentiable function representing the ordering has the property&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\frac{\partial f}{\partial x_i}(\lambda x)= k \frac{\partial f}{\partial x_i }(x)$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;with &lt;span class=&quot;math-container&quot;&gt;$k,\lambda &amp;gt;0$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How is this results derived? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can see how we can derive properties of the function values from homothety, but have no idea how we can say anything about its derivatives.&lt;/p&gt;&#xA;" OwnerUserId="8630" LastEditorUserId="8630" LastEditDate="2018-11-04T15:44:46.220" LastActivityDate="2018-11-05T01:39:33.787" Title="Why does a homothetic function have constant ratio of marginal products along rays?" Tags="&lt;microeconomics&gt;&lt;production-function&gt;&lt;producer-theory&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="25312" PostTypeId="1" CreationDate="2018-11-02T12:53:01.030" Score="0" ViewCount="122" Body="&lt;p&gt;I have what is probably a very silly question, but I have gone down the rabbit hole and can’t get back out.....&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there is a hierarchy of preference, and within each level of choice do we reset the rationality clock? i.e. suppose I choose a property investment (my investment preference) as I believe it will maximise my utility over investments X and Y. I am a utility maximising rational econ. However, a layer down, I choose to invest in property B instead of property A, despite property A being a better investment on every financial indicator. I do so, because in this round of choice, property B meets my preference, which is based upon having a new build property, which is closer to home. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am maximising utility and acting rationally for my new preference, but not in relation to my first preference. In choosing investment B, am I therefor acting rationally or irrationally? Or have I got this all wrong?&lt;/p&gt;&#xA;" OwnerUserId="20032" LastActivityDate="2021-03-02T19:07:40.910" Title="Does Preference have a Hierarchy? A Silly Question" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;preferences&gt;&lt;rationality&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="25313" PostTypeId="2" ParentId="25293" CreationDate="2018-11-02T13:16:11.340" Score="1" Body="&lt;p&gt;The details of payments systems are complex, and vary by country. I am slightly familiar with how it works in Canada, and I believe that the principles would not be radically different in other developed countries. Here’s a primer on the Canadian payments systems: &lt;a href=&quot;https://www.bankofcanada.ca/core-functions/financial-system/canadas-major-payments-systems/&quot; rel=&quot;nofollow noreferrer&quot;&gt;link&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The advantage of Canada is that there are no reserve requirements, so it’s easier to explain. If you look at the balance sheet data published by the Bank of Canada, the Canadian banks normally have a balance of \$0 at the central bank at the end of the day. In fact, that is what is expected. (In practice, there are small misses of the zero balance; a lot of money sloshes through the payments system.) In a country with reserve requirements (like the U.S.), banks would like to have a target balance equal to their required reserves. (At present, the Fed has forced excess reserves into the system.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The amount of interbank transactions are very large. They send amounts back and forth on the payments system based on various transactions - their own, and client transactions. The job of a Canadian bank Treasurer is to make sure that the net balance of all payments ends up at \$0 at the end of the day, so that the net position at the Bank of Canada is unchanged. (In a country with reserve requirements, they will want to hit at least the required reserves level.) They will achieve this by any number of methods:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;issue new securities;&lt;/li&gt;&#xA;&lt;li&gt;borrow/lend in the interbank market;&lt;/li&gt;&#xA;&lt;li&gt;buy or sell securities (mainly government bonds);&lt;/li&gt;&#xA;&lt;li&gt;borrow/lend through repurchase agreements (repos);&lt;/li&gt;&#xA;&lt;li&gt;if all else fails, run to the central bank and borrow against their assets. This option is &lt;em&gt;greatly&lt;/em&gt; frowned upon, and will prompt an investigation from regulators as to why the bank cannot borrow in the markets. (This is termed a “lender-of-last resort” operation, and should only be necessary in a crisis).&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;(Since you asked about bank lending in particular, it is achieved by Bank A wiring money to Bank B through the payments system, in exchange for a contractual obligation to make a reverse future operation with interest.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The multiplicity of options means that we cannot trace exactly what happens when customers transfer funds to someone at another bank; all we know is that at the end of the day, all of the bank’s transactions with the payments system should net to zero.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2018-11-02T13:16:11.340" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25316" PostTypeId="2" ParentId="25290" CreationDate="2018-11-02T16:34:45.730" Score="1" Body="&lt;p&gt;Solow's Model - and much of growth theory - is somewhat based on resource saving technical change: economies get more productive by producing more output with the same amount of inputs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is a very useful framework in a &quot;steel and wheat&quot; economy, but loses explanatory power when you want to account Google Translator and similar services which are for free, available for anyone at any time. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;One response is to think about output-saving technical change, as in &lt;a href=&quot;https://www.nber.org/papers/w23315&quot; rel=&quot;nofollow noreferrer&quot;&gt;Hulten and Nakamura, 2017&lt;/a&gt;: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;We extend the conventional neoclassical production and growth framework, with its emphasis on total factor productivity as the primary macroeconomic mechanism of innovation, to allow for technical change that affects consumer welfare directly. Our model is based on Lancaster’s “New Approach to Consumer Theory,” in which there is a separate consumption technology that transforms goods, measured at production cost, into utility. This technology can shift over time, allowing consumers to make more efficient use of each dollar of income. This is an output-saving technical change, in contrast to the resource-saving technical change of the TFP residual. The output-saving formulation is a natural way to think about the free information goods available over the Internet, which bypass GDP and go directly to the consumer. It also leads to the concept of expanded GDP (EGDP), the sum of conventional supply-side GDP and a willingness-to-pay metric of the value of output-saving innovation to consumers. This alternative concept of GDP is linked to output-saving technical change and incorporates the value of those technology goods that have eluded the traditional concept. It thus provides a potentially more accurate representation of the economic progress occurring during the digital revolution. One implication of our model is that living standards, as measured by EGDP, can rise at a faster rate than real GDP growth, which may shed light on the question of how the latter can decline in an era of rapid innovation.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="18167" LastActivityDate="2018-11-02T16:34:45.730" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25317" PostTypeId="2" ParentId="24567" CreationDate="2018-11-02T17:18:37.583" Score="3" Body="&lt;p&gt;This is an excellent question and I will do my best to give you a well thought out answer. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Many observers believe the U.S. dollar (USD) will lose its status as the world's reserve currency&lt;/strong&gt;. In fact, I got pushback from another forum regarding finance about this. These doomsday dollar folks cite agreements between China and Iran on settling trade in their own currencies rather than US dollars as evidence that the end of the dollar as a reserve currency is near.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can actually find documentation from the IMF on what are some of the worlds currency that are being held in reserve by the planets nations: &lt;a href=&quot;http://data.imf.org/?sk=E6A5F467-C14B-4AA8-9F6D-5A09EC4E62A4&quot; rel=&quot;nofollow noreferrer&quot;&gt;Currency Composition of Official Foreign Exchange Reservers (COFER)&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Back in 2013 the U.S. trade deficit shrank to $34 billion and it was presented as good news.&lt;/strong&gt; &lt;strong&gt;But if we don't run a trade deficit, that would lead to problems for us, in particular, on U.S. corporate profits&lt;/strong&gt;. The financial media does not talk about this because it does not understand the connection between our trade deficit and our currency being the world's reserve currency which creates a dynamic that was coined in thee 60s, known as Triffins' Paradox, based on the observations of Belgian-American economist, Robert Triffin.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It was Robert Triffin who pointed out that the country whose currency foreign nations wish to hold (the global reserve currency) &lt;strong&gt;must be willing to supply the world with an extra supply of its currency to fulfill world demand for this 'reserve' currency (foreign exchange reserves) and thus cause a trade deficit.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So there always has to be a fundamental imbalance in the balance of payments. Depending on the goal at any given period, it may require an overall flow of dollars out of the United States, while at other periods of time, it may require an overall flow of dollars in to the United States, but net currency inflows and outflows cannot both happen at once.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How sound is this? You will have to look at it for yourself as we have been doing this for almost a quarter of a century now. So we have all been living it since the day we were born. A better question would be, how sound is it for the U.S. to maintain its dollar as the world reserve currency &lt;em&gt;and&lt;/em&gt; run a &lt;strong&gt;trade surplus&lt;/strong&gt;. That's a new one, that's one we haven't tried.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This leads us to your last question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Just like we invoked &lt;strong&gt;Triffin's Paradox&lt;/strong&gt; to explain our current situation, for this new one we can invoke &lt;strong&gt;Hobson's Choice&lt;/strong&gt;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you run trade surpluses, you cannot supply the global economy with the currency flows it needs for trade, reserves, payment of debt denominated in the reserve currency and credit expansion, so yes it would lead to the end of the USD as a global reserve currency.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we no longer possess a global reserve currency, we can't print money and have it accepted as payment. (The euro and yen are quasi-reserve currencies based on the size of the European Union and Japanese economies, but neither acts as the primary reserve and as a result both are vulnerable to currency crises, despite the conventional wisdom that both are on the same footing as the U.S. dollar.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So trade surpluses on our part are impossible as we hold the global reserve currency.&lt;/p&gt;&#xA;" OwnerUserId="20035" LastActivityDate="2018-11-02T17:18:37.583" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="25318" PostTypeId="2" ParentId="12420" CreationDate="2018-11-02T17:29:49.923" Score="2" Body="&lt;p&gt;I think it is too strong a statement to say that immigration always and everywhere &quot;improves&quot; the economy, but there are some factors that do make it helpful (or less damaging) that are not necessarily obvious.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;The most important thing is that &lt;strong&gt;each new immigrant creates demand in the economy roughly equal to one additional job&lt;/strong&gt; (assuming he/she has an income).  A migrant worker is often viewed as a person coming to the picnic and taking a piece of pie, leaving less for everyone else, when the reality is that they &lt;em&gt;brought along an extra slice themselves&lt;/em&gt;.  This boosts GDP but the effect on GDP per capita is unclear.&lt;/li&gt;&#xA;&lt;li&gt;The key reason that the host economy tends to benefit is that &lt;strong&gt;migrants are disproportionately of working age&lt;/strong&gt;.  There are fewer economic dependents (children and retired people) among recent immigrants and fewer older people drawing health-related benefits.  So they &lt;a href=&quot;https://www.ft.com/content/c49043a8-6447-11e4-b219-00144feabdc0&quot; rel=&quot;nofollow noreferrer&quot;&gt;tend to improve the fiscal position of the government&lt;/a&gt;.&lt;/li&gt;&#xA;&lt;li&gt;Immigration enables &lt;strong&gt;better job matching&lt;/strong&gt; than is possible nationally.  This is clear from the fact that lots of countries have lists of professions where there are local shortages, which have more relaxed immigration rules.  This can be very important in small countries, or less developed countries where educational institutions can't necessarily deliver all of the needs of the job market.  And even for a country like the UK, if there is a shortage of, say, doctors and nurses, it can be a very slow process to fill that gap by increasing domestic training.&lt;/li&gt;&#xA;&lt;li&gt;It may be smaller effect, but immigration can directly improve export performance just by &lt;strong&gt;creating networks of trust and local understanding&lt;/strong&gt;.  If a UK firm wants to start exporting to Nigeria, it's really useful to hire an immigrant from that country that speaks local languages, has a basic understanding of how to deal with the authorities there, and maybe even knows a few Nigerian importers.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;In suggestion (1), you also talk about low-skill immigration filling unattractive jobs.  A mixed effect of disproportionately low-skill migration is that the spending of low-skill immigrants goes to all sectors of the economy, including stimulating demand for high-skill professions (low-skill immigrants still need doctors and lawyers).  If immigration is predominantly of this type, it may increase the wage premium that higher skill jobs offer.&lt;/p&gt;&#xA;" OwnerUserId="16631" LastEditorUserId="16631" LastEditDate="2018-12-02T00:38:42.923" LastActivityDate="2018-12-02T00:38:42.923" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25319" PostTypeId="2" ParentId="25208" CreationDate="2018-11-02T17:51:35.350" Score="1" Body="&lt;p&gt;The most simple and universal answer is that it is up to each government to decide if checks should be made and if so by whom.  Some have none, either because of international agreements, because they see no need, or because they lack the capacity to do so.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The most common case is, as you say, that officials from different ministries inspect goods, and food/agriculture are the most common because it's too late if you find out that pests or diseases have been imported once they're past the border.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But otherwise, countries often make efforts to reduce and simplify border checks by doing risk assessments of traders or containers (and inspecting only the risky ones), by improving cooperation between ministries, or by improving enforcement of regulations and standards behind the border.&lt;/p&gt;&#xA;" OwnerUserId="16631" LastActivityDate="2018-11-02T17:51:35.350" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25320" PostTypeId="2" ParentId="25310" CreationDate="2018-11-02T21:48:33.393" Score="3" Body="&lt;p&gt;A homothetic function can be characterized as follows:&#xA;Let &lt;span class=&quot;math-container&quot;&gt;$f(\mathbf x)$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$\mathbf x \in \mathbb R^n$&lt;/span&gt; be a function homogeneous of degree &lt;span class=&quot;math-container&quot;&gt;$r$&lt;/span&gt;. Let &lt;span class=&quot;math-container&quot;&gt;$g()$&lt;/span&gt; be a function with &lt;span class=&quot;math-container&quot;&gt;$g'\neq 0$&lt;/span&gt;. Then &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$G(\mathbf x) = g[f(\mathbf x)]$$&lt;/span&gt;&#xA;is homothetic. Since &lt;span class=&quot;math-container&quot;&gt;$f(\mathbf x)$&lt;/span&gt; is homogeneous of degree &lt;span class=&quot;math-container&quot;&gt;$r$&lt;/span&gt; we have that &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$f(\lambda \mathbf x) = \lambda ^ rf(\mathbf x) $$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$G(\lambda \mathbf x) = g[\lambda ^ r f(\mathbf x)]$$&lt;/span&gt; and so &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\frac{\partial G(\lambda x)}{\partial x_i}=g'[f(\lambda  x)]\cdot \lambda ^r \frac{f(x)}{\partial x_i}=\lambda^r \cdot\frac{g'[f(\lambda x)]}{g'[f(x)]}\frac{\partial G(x)}{\partial x_i}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Evidently, we will also have &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\frac{\partial G(\lambda x)}{\partial x_j}=g'[f(\lambda  x)]\cdot \lambda ^r \frac{f(x)}{\partial x_j}=\lambda^r \cdot\frac{g'[f(\lambda x)]}{g'[f(x)]}\frac{\partial G(x)}{\partial x_j}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which leads to the &quot;constant MRS along rays&quot; characterization of homothetic functions,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\frac{\partial G(\lambda x) / \partial x_i}{\partial G(\lambda x) / \partial x_j} = \frac{\partial G (x) / \partial x_i}{\partial G( x) / \partial x_j}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(see Simon and Blume 1994, p. 503).&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2018-11-05T01:39:33.787" LastActivityDate="2018-11-05T01:39:33.787" CommentCount="12" ContentLicense="CC BY-SA 4.0" />
  <row Id="25321" PostTypeId="1" CreationDate="2018-11-03T02:20:50.517" Score="0" ViewCount="20" Body="&lt;p&gt;If a currency X is pegged to another currency Y which collapses, what happens to currency X?&lt;/p&gt;&#xA;" OwnerUserId="20038" LastActivityDate="2018-11-03T06:39:34.630" Title="If a currency is pegged to another currency which collapses, what happens?" Tags="&lt;currency&gt;" AnswerCount="1" CommentCount="1" ClosedDate="2018-11-09T00:39:08.203" ContentLicense="CC BY-SA 4.0" />
  <row Id="25322" PostTypeId="2" ParentId="25321" CreationDate="2018-11-03T06:39:34.630" Score="2" Body="&lt;p&gt;You need to define &quot;pegged&quot; and &quot;collapses&quot;...&#xA;Setting a fixed exchange rate is by controlling the local currency's amount of money&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the &lt;em&gt;economy&lt;/em&gt; of currency X's owner goes bankrupt (a &quot;collapse&quot;), why would the Y currency owner continue to keep the attachment...?&#xA;Usually &quot;pegging&quot; currencies together is to a strong currency, like the US dollar&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the onwer of Y currency will keep attaching Y to X, it will create a local hyper inflation, and hurt its own economy... &lt;/p&gt;&#xA;" OwnerUserId="19195" LastActivityDate="2018-11-03T06:39:34.630" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25323" PostTypeId="1" CreationDate="2018-11-03T10:24:46.120" Score="2" ViewCount="4833" Body="&lt;p&gt;What is the difference between an inferior good and a Giffen good?&#xA;Are the two following definitions for an inferior good equivalent?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Def 1:&lt;/strong&gt; An inferior good is a good for which the demand decreases after a decrease of its price. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Def 2:&lt;/strong&gt; An inferior good is a good for which the income effect leads to a decrease of demand after a relative decrease of its price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A Giffen good (1) is when after a decrease in price of good (1) the demand for (1) decreases but the demand of some other good (2) increases.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or is &lt;strong&gt;Def 1&lt;/strong&gt; just the definition of a Giffen good, which is a &lt;a href=&quot;https://en.wikipedia.org/wiki/Inferior_good#Giffen_goods&quot; rel=&quot;nofollow noreferrer&quot;&gt;special type of inferior good&lt;/a&gt; ?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a Giffen good the Income Effect is strong enough to outweigh the Substitution Effect... But isn't it also the case for all inferior goods? The change in their demand is going to be negative (we consume less after the decrese in price) and that change is equal to the sum of SE and IE, so we also get that Income Effect is strong enough to outweigh the Substitution Effect.&lt;/p&gt;&#xA;" OwnerUserId="18009" LastEditorUserId="18009" LastEditDate="2018-11-03T11:03:42.720" LastActivityDate="2020-01-17T06:02:25.340" Title="Difference between Giffen and inferior goods. Why aren't all inferior goods Giffen goods?" Tags="&lt;microeconomics&gt;&lt;supply-and-demand&gt;&lt;giffen-goods&gt;" AnswerCount="2" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="25325" PostTypeId="1" CreationDate="2018-11-03T15:09:25.253" Score="1" ViewCount="25" Body="&lt;p&gt;Were banks literally saved with tax payers' money? Or is it that states borrowed the banks, consequently, the banks must return this money back at some point? Can someone please give me some references?&lt;/p&gt;&#xA;" OwnerUserId="20042" LastEditorUserId="20042" LastEditDate="2018-11-03T15:22:18.273" LastActivityDate="2018-11-03T15:22:18.273" Title="financial crisis '08: what is it meant by the banks were saved by the states?" Tags="&lt;banking&gt;&lt;economic-crisis&gt;&lt;financial&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25326" PostTypeId="1" CreationDate="2018-11-03T15:38:45.457" Score="1" ViewCount="14" Body="&lt;p&gt;I have a large residential mortgage portfolio that has fixed and arm mortgages. I want to roughly calculate the amortization of the arm portfolio by year without delving into loan by loan calculations. Would that be possible to go by using weighted average margins, maturities, some assumptions on prepayment rate and index rate?&lt;/p&gt;&#xA;" OwnerUserId="20043" LastActivityDate="2018-11-03T15:38:45.457" Title="Simple mortgage portfolio amortization" Tags="&lt;portfolio-theory&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25327" PostTypeId="1" CreationDate="2018-11-03T15:48:08.743" Score="3" ViewCount="167" Body="&lt;p&gt;Why does the federal raising interest rates actually have an effect on the economy? The typical answer is that it reduces money supply by incentivizing saving and increasing cost of loans.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But couldn't market participants just react by adjusting FX rates, inflation, etc. by the appropriate amount? Then even though the money supply is reduced, the real rates are unchanged, resulting in no net effect. What are the factors preventing this from actually happening?&lt;/p&gt;&#xA;" OwnerUserId="20045" LastActivityDate="2019-01-03T16:01:20.303" Title="Why does raising interest rates work?" Tags="&lt;interest-rate&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25329" PostTypeId="1" CreationDate="2018-11-03T17:16:14.967" Score="1" ViewCount="18" Body="&lt;p&gt;I'm working with a longitudinal panel dataset that surveys the same few thousand individuals biennially and I have six years of this data. My dependent variable would be how much individuals spend on X, and there are a list of about 15 independent variables such as age, income, etc that could affect whether and how much individuals spend on X.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I could run regressions for each panel to see whether people who have higher incomes spend more on X, for example, but I want to be able to measure whether the spending patterns of individuals on X changes as their circumstances change (do individuals who get a raise between surveys spend more on X? do individuals spend more on X as they get older?) instead of just whether richer individuals spend more on X. I have no idea how to go about this, though.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I have so far is that I could difference the data between years so I have (for example) IncomeChange and SpendingOnX for every year, and so on and combine everything as a set of entries, but that doesn't measure individual behavior changes as much as just the effect of changes. Such as:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;..... | IncomeChange &amp;amp; all indep vars | dSpendingOnX&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;...1 | [2007 to 2005 for individual A].. | [how much more A spent in 2007]&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;...2 | [2009 to 2007 for individual A].. | [how much more A spent in 2009]&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;...3 | [2007 to 2005 for individual B].. | [how much more B spent in 2007]&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;...4 | [2009 to 2007 for individual B].. | [how much more B spent in 2009]&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;...5 | [2011 to 2009 for individual A].. | [how much more A spent in 2011]&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;And so on, down to entry 25,000 (for the same 5000 people surveyed each of the years, for 5 years since differencing wouldn't be available for the first year of the survey).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That would let me see how changes in, say, income, affect changes in spending in general, but I feel like there would be methods that would be a lot more insightful and I just haven't been able to figure them out. Would I have to run a separate regression for each year-combo (one for 2007 with differences in variables since 2005, one for 2009 with differences in variables since 2007, and so on?)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, with this level of information:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;UserID | dIncome05to07 | dIncome07to09 | dIncome09to11 | dSpending05to07 | dSpending07to09 | dSpending09to11&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;A | +1000 | -3000 | +250 | +100 | -200 | +100&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;B | +2000 | -5000 | +700 | +400 | -100 | +100&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;...all the way down to the 5000th individual.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;How would I be able to find results in the format of something like: &quot;in general, as individuals see a change in income of +1000 the amount they spend on X is expected to change by +117.42&quot;? Or is that not possible with this set of longitudinal panel data? With 5000 individuals, it's not like I could add, say, a dummy for each individual or something (to my knowledge) or subset them into subgroups.&lt;/p&gt;&#xA;" OwnerUserId="20044" LastActivityDate="2018-11-03T17:16:14.967" Title="How do I measure effects over years in panel data with individuals?" Tags="&lt;econometrics&gt;&lt;statistics&gt;&lt;applied-econometrics&gt;&lt;regression&gt;&lt;paneldata&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25330" PostTypeId="2" ParentId="25327" CreationDate="2018-11-03T20:40:34.550" Score="-1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;couldn't market participants just react by adjusting FX rates,&#xA;  inflation, etc. by the appropriate amount?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Exchange rates actually adjust in a way that ends up precluding arbitrage opportunities.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Although a central bank might aim at a certain level of inflation, the exchange rate and inflation are not variables that the central bank can control. Instead, the central bank's primary tool to influence these and other variables is the interest rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A central bank can intervene by using its reserves of foreign currencies for the purpose of restoring stability of the local currency, but the bank's ability to do so is limited to the amount of reserves it is willing or able to sacrifice. By contrast, the central bank is not &quot;physically&quot; constrained when determining an interest rate. In other words, interest rates entail a degree of freedom that a central bank does not have with exchange rates.&lt;/p&gt;&#xA;" OwnerUserId="18552" LastActivityDate="2018-11-03T20:40:34.550" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25332" PostTypeId="2" ParentId="25327" CreationDate="2018-11-04T01:32:09.383" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;The typical answer is that it reduces money supply by incentivizing saving and increasing cost of loans.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This is backwards.  The Federal Reserve (the United States' central bank) sets a &lt;em&gt;target&lt;/em&gt; for the federal funds rate.  The rate itself is a weighted average based on market activity.  The Fed encourages the average rate to match the target by buying and selling bonds in what are called open market operations.  Buying bonds puts money into circulation, increasing the money supply.  Selling bonds takes money out of circulation.  The Fed changes the money supply to change the interest rate, not the other way around.  &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;But couldn't market participants just react by adjusting FX rates, inflation, etc. by the appropriate amount?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Only if all (or even most) of the participants worked together.  If only one or a small portion of participants attempt this, then it creates arbitrage opportunities for the remainder.  Currency exchange rates and inflation are both set based on market actions.  They aren't so easy to adjust.  &lt;/p&gt;&#xA;" OwnerUserId="68" LastActivityDate="2018-11-04T01:32:09.383" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25333" PostTypeId="2" ParentId="25312" CreationDate="2018-11-04T01:52:33.960" Score="0" Body="&lt;p&gt;*A little disclaimer, this is more  me ruminating than providing a rigorously proofed response. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have never thought of preferences being related that way before, especially through the use of hierarchies. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\textbf{Main response}$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The way I think about the scenario above is through preference weightings, were the values of the goods that can be chosen are weighted according to the good-specific preferences of the agent. This allows the agent to still be a rational econ and maximise their utility, but make sub-optimal financial choices. In a simple scenario similar to your example,  there would be two goods, &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt;. &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt; provides greater returns and  from what I understand above, the agents utility would take an additive form (to ensure that the goods are substitutes)  i.e.&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;U_1 = 2Q_Y+Q_X &#xA;$$&lt;/span&gt;&#xA;Thus, a utility maximising agent would choose to spend his budget on &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt; as it provides greater returns.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\textbf{However}$&lt;/span&gt;, we can incorporate the agents preferences for &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;a new build property, which is closer to home.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;which we can call &lt;span class=&quot;math-container&quot;&gt;$\beta_{nbp}$&lt;/span&gt;. Thus, as &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; has characteristics which match the above, the agents utility would now take the form; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\hat {U}_1 = 2Q_Y+\beta_{nbp}\cdot Q_X &#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, the agents utility now incorporates the financial superiority of good &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt;, as it outperforms good &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; by a factor of 2, and it incorporates the agents non-financial preferences through &lt;span class=&quot;math-container&quot;&gt;$\beta_{nbp}$&lt;/span&gt;. For a utility maximising agent to choose &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; over &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$\beta_{nbp}$&lt;/span&gt; must be greater than 2, which implies that the agents non-monetary preferences are more important than his financial preferences. Thus, by adding preference weighting,it is one way to show that a rational utility maximising agent will choose a financially worse product over another product, as there are other non-financial elements which the agent desires more. However, if the agent had been a profit maximiser the choice of &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; over &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt; would not be rational, and in the problem above we would not include &lt;span class=&quot;math-container&quot;&gt;$\beta_{nbp}$&lt;/span&gt; in the analysis. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\textbf{Real life example}$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A real-life example I suppose which is slightly related, would be choosing between an ultra cheap  but crappy mobile(cell) phone and an expensive but good quality phone. On a strictly monetary basis, the ultra cheap one is preferable. However, as soon as you start incorporating quality, the utility-values of the phones change. The change isn't financially, but based on the utility (eg. combined preferences for monetary and non-monetary benefits) derived by whoever is buying the phone, and hence they may choose the better quality phone at the expense of spending more money. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\textbf{meta-discussion}$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On a more meta-level, I think your question has some really interesting points. It appears to be that there is a misinterpretation between utility and profit maximisation. Considering this definition of utility; &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;utility is the want satisfying power of any commodity or capacity of a commodity to give satisfaction.&lt;span class=&quot;math-container&quot;&gt;$^1$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It can be seen that utility is not solely reliant on money, but rather is only partially reliant on financial benefits. However, as money is such a large part of our society and can be (relatively)easily measured and compared,  it is used a lot to quantify the non-monetary preferences (through monetary trade-offs, which is a really interesting field of research by itself!). Thus, this quantification seems to lead to a bit of confusion between profit maximisation (which is solely focused on money) and utility maximisation (which is focused on utils and want satisfaction), which I wouldn't be surprised is from the way economics is taught and very rarely explicitly mentions this difference. Hence, economics is not necessarily not just solely focused on money, but it does use money to help compare the costs and benefits of tangibles and intangibles.  This is probably, a reason why economics is rather practical  and often relied upon during policy development, as it provides easily comparable estimates to values which would otherwise be illusive.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$^1$&lt;/span&gt; &lt;a href=&quot;https://en.wikibooks.org/wiki/Principles_of_Economics/Utility&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://en.wikibooks.org/wiki/Principles_of_Economics/Utility&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="14175" LastActivityDate="2018-11-04T01:52:33.960" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25334" PostTypeId="1" CreationDate="2018-11-04T07:03:10.847" Score="1" ViewCount="12" Body="&lt;p&gt;I'm currently taking a run-of-the-mill Intermediate Macro class and have coursework which asks to produce a vis that tracks U.S. Investment from 1970-2014. What is the salient/canonical National Accounts metric for this?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At present I'm using Gross Domestic Private Investment from the FRED database, but am uneasy about what exactly &quot;Private&quot; means/whether that excludes anything I need to include.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The class itself is mostly modelling so refers to investment as just 'I', not any specific metric so there's nothing from the actual class content for me to go on.&lt;/p&gt;&#xA;" OwnerUserId="20053" LastActivityDate="2018-11-04T07:03:10.847" Title="What is the Canonical Metric for Investment? (U.S.)" Tags="&lt;investment&gt;&lt;national-accounts&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25339" PostTypeId="2" ParentId="25327" CreationDate="2018-11-04T13:41:29.940" Score="0" Body="&lt;p&gt;I guess whats missing from your question is the unpacking of what you mean by &quot;work&quot;? To address that, let's talk about &lt;strong&gt;the multiple objectives the Fed is trying to meet in raising those interest rates:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;It's attempting to preserve its credibility, which is threatened by a zero-interest-rate forever policy.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;It's attempting to maintain its political capital, which is eroding as even the mainstream media has accepted the reality that Fed policy has enriched the already-wealthy at the expense of everyone else.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;It's attempting to &quot;normalize&quot; interest rates without killing its favorite child, the stock market.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;It's attempting to raise rates without upsetting the fragile global currency/debt shopping cart.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Now, the raising of the interest rate will probably dampen carry trades. Carry trades are speculations based on borrowing U.S. dollars and investing that borrowed money in higher-yielding and extremely risky emerging markets.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Those emerging market bets are denominated in the home-country currency, and as those currencies decline against the USD, the carry trade's gains are offset by foreign exchange (FX) losses.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Again, a lot of how you understand and/or interpret the raising of interest rates working is dependent on what role you play in this whole thing. Typically, the raising of interest rates tends to strengthen the U.S. dollar, anytime the U.S. dollar is strengthened, it ends up being to the detriment of U.S. global corporations, please note the term &lt;em&gt;global&lt;/em&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know it is our habit as Americans to assume that Direct TV, Blackberry and all these wonderful products are only available to us, made by us, sold to us. Everyone and their mother in Caracas, Venezuela has Direct TV and a Blackberry. So these U.S. corporations are doing business &lt;strong&gt;globally&lt;/strong&gt; and so strengthening of our currency typically translates to a loss for them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As the dollar strengthens, the $7 trillion in dollar-denominated debt in emerging markets increases in value relative to depreciating local currencies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The real dilemma here, which again as Americans we never think about, because the Fed is an American institution, the dollar is an American currency, is that the Fed has two roles to play. It is expected to keep its local economy stable and strong, but its also expected to satisfy the world with dollars.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another loser of raising interest rates, aside from U.S. global corporations is China. Increase in yields will push down the value of existing Treasury bonds that China holds, so China's still-vast hoard of Treasuries will lose value as the coupon rate rises.&lt;/p&gt;&#xA;" OwnerUserId="20035" LastActivityDate="2018-11-04T13:41:29.940" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25340" PostTypeId="2" ParentId="19718" CreationDate="2018-11-04T13:54:36.230" Score="0" Body="&lt;p&gt;So first, let's understand that the Fed Funds Rate which the Fed had dropped 3% back in early 2008 is the rate charged to banks, not consumers. While there is a correlation between the Fed lowering rates and the cost of credit to various financial players, it is virtually nonexistent in terms of consumer credit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A factor that hardly ever gets asked in this forum when someone poses the question of interest rates is the role that supply and demand for debt plays. I can understand why, as an individual you are thinking, who the heck wants to buy debt?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Well, it happens everyday, institutions are buying and selling debt all day long.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So if we are in a period, I am haven't checked recently, where the supply of available credit has shrunk. Then it doesn't matter if the Fed raises or lowers the coupon rate. The cost of credit would be rising regardless.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, why are they talking about raising the coupon rate now? Here is the real-world &lt;strong&gt;multiple objectives of the Fed in raising the coupon rate&lt;/strong&gt;:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;It's attempting to preserve its credibility, which is threatened by a zero-interest-rate forever policy.&lt;/li&gt;&#xA;&lt;li&gt;It's attempting to maintain its &lt;em&gt;political capital&lt;/em&gt;, which is eroding as even the mainstream media has accepted the reality that Fed policy has enriched the already-wealthy at the expense of everyone else.&lt;/li&gt;&#xA;&lt;li&gt;It's attempting to &quot;normalize&quot; interest rates without killing its favorite child, the stock market.&lt;/li&gt;&#xA;&lt;li&gt;It's attempting to raise rates without upsetting the fragile global currency/debt shopping cart.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="20035" LastActivityDate="2018-11-04T13:54:36.230" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25341" PostTypeId="1" CreationDate="2018-11-04T15:03:35.270" Score="2" ViewCount="437" Body="&lt;p&gt;Consider a firm that chooses the quantity of labour &lt;span class=&quot;math-container&quot;&gt;$L$&lt;/span&gt; to hire which maximises its profits. As usual, we suppose that output &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt; is increasing in &lt;span class=&quot;math-container&quot;&gt;$L$&lt;/span&gt; but at a strictly decreasing rate; and for simplicity, we suppose that labour is the only input used in production. The firm takes wages &lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt; and the price of its output &lt;span class=&quot;math-container&quot;&gt;$p$&lt;/span&gt; as given (which is meant to capture the notion that the goods and labour market are 'perfectly competitive').&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As everyone knows, the firm should hire labour until it has driven the marginal revenue product of labour down to the wage. That is, the optimal quantity of labour &lt;span class=&quot;math-container&quot;&gt;$L^*$&lt;/span&gt; must satisfy&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$ w=MPL(L^*)p$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is the puzzle. If the firm chooses this level of &lt;span class=&quot;math-container&quot;&gt;$L$&lt;/span&gt;, it will make no profit from the last worker. But since &lt;span class=&quot;math-container&quot;&gt;$MPL$&lt;/span&gt; is strictly decreasing in &lt;span class=&quot;math-container&quot;&gt;$L$&lt;/span&gt;, that means it makes a positive profit on all of the previous workers. As a result, the firm must make a profit - something which is meant to be impossible in perfect competition, at least in the long run!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To see the point graphically, note that the firm's profits are given by the triangle below the 'VMPL curve' and above the market wage:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/hcX2a.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/hcX2a.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Clearly, the area of this triangle is positive!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Before opening this up to discussion, I'll review some possible solutions:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;One might think that the solution relates to the distinction between 'economic profit' and 'accounting profit'. However, this is a mistake. Suppose that there are &lt;strong&gt;no&lt;/strong&gt; costs associated with production other than the wage bill (e.g. decision making is 'free'). Then there is no distinction to be drawn (economic profit = accounting profit) and yet the puzzle persists.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;One might think that, under perfect competition, prices (whether &lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt; or &lt;span class=&quot;math-container&quot;&gt;$p$&lt;/span&gt;) somehow adjust to wipe out the profits. But, as can easily be seen (e.g. from the graph), profits will be strictly positive for &lt;strong&gt;any&lt;/strong&gt; &lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$p$&lt;/span&gt; that induces &lt;span class=&quot;math-container&quot;&gt;$L^* &amp;gt; 0$&lt;/span&gt;.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;As you will have noticed, the firm &lt;strong&gt;won't&lt;/strong&gt; make any profit if MPL is flat. Perhaps this needs to hold in the long run?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;One final solution (my favourite) is that, in perfect competition, the only firms will exist are those which minimise their average costs. One might think that this then induces near zero &lt;span class=&quot;math-container&quot;&gt;$L^*$&lt;/span&gt; and thus near zero profits. But here one hits a technical problem: there is &lt;strong&gt;no&lt;/strong&gt; value of &lt;span class=&quot;math-container&quot;&gt;$L &amp;gt; 0$&lt;/span&gt; which minimises average costs. For any &lt;span class=&quot;math-container&quot;&gt;$L^* &amp;gt; 0$&lt;/span&gt; you choose, average costs will be lower if &lt;span class=&quot;math-container&quot;&gt;$L = L^* - \epsilon$&lt;/span&gt; for some &lt;span class=&quot;math-container&quot;&gt;$\epsilon &amp;gt; 0$&lt;/span&gt;.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Thanks in advance for any thoughts on this!&lt;/p&gt;&#xA;" OwnerDisplayName="user17900" LastEditorDisplayName="user17900" LastEditDate="2019-04-20T09:44:20.303" LastActivityDate="2019-05-31T23:18:52.997" Title="How can perfectly competitive firms earn zero profits?" Tags="&lt;microeconomics&gt;&lt;competition&gt;&lt;theory-of-the-firm&gt;" AnswerCount="1" CommentCount="8" ContentLicense="CC BY-SA 4.0" />
  <row Id="25342" PostTypeId="1" AcceptedAnswerId="25419" CreationDate="2018-11-04T15:38:48.497" Score="0" ViewCount="59" Body="&lt;p&gt;The question is: Prove or disprove, if the price elasticity of a demand of a good is unitary then the cross price Elasticity of demand of that good is zero.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any hints on how to approach this? &lt;/p&gt;&#xA;" OwnerUserId="19558" LastActivityDate="2018-11-08T10:05:49.053" Title="Price and cross price Elasticity of demand" Tags="&lt;elasticity&gt;" AnswerCount="2" CommentCount="1" ClosedDate="2018-11-09T01:03:12.790" ContentLicense="CC BY-SA 4.0" />
  <row Id="25343" PostTypeId="1" AcceptedAnswerId="25359" CreationDate="2018-11-04T15:48:06.390" Score="4" ViewCount="255" Body="&lt;p&gt;I come across a lecture material on market functions and externalities that makes me quite confused. Here's the setup: Two stores are located next to each other. If one installs a camera system in front of the shop to provide security supervision then it will cover both stores (hence both will be benefited).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The willingness-to-pay functions of these stores for that camera system look like this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/PwnC9.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/PwnC9.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question is to draw the social marginal benefit function &lt;span class=&quot;math-container&quot;&gt;$(SMB)$&lt;/span&gt; of adopting the camera. This is how it is done:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/xRD92.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/xRD92.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What it does is to add vertically the prices for each level of quantity. Hence for the first part where &lt;span class=&quot;math-container&quot;&gt;$P_{WTP2} \ge  0$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$SMB=WTP1+WTP2$&lt;/span&gt;. Then after that point &lt;span class=&quot;math-container&quot;&gt;$SMB=WTP1$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I usually do and see for deriving total demand is to add up quantities for each level of price. Is it because now they are WTP and SMB functions that it's done the other way around?&lt;/p&gt;&#xA;" OwnerUserId="7905" LastEditorUserId="7905" LastEditDate="2018-11-05T16:02:48.413" LastActivityDate="2021-03-31T21:50:56.347" Title="Is it right to derive social marginal benefit by adding individual prices instead of quantities?" Tags="&lt;microeconomics&gt;&lt;supply-and-demand&gt;&lt;self-study&gt;&lt;externalities&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="25344" PostTypeId="2" ParentId="25070" CreationDate="2018-11-04T17:30:11.480" Score="0" Body="&lt;p&gt;After 2 weeks and no answers, I think it's fair to say that the odds of a average prices rising as a result of replacing each lower priced dwelling unit with 2 higher priced ones is roughly equal to the odds of prices falling (equal enough that nobody is willing to stake their reputation on a prediction).&lt;/p&gt;&#xA;" OwnerUserId="19846" LastActivityDate="2018-11-04T17:30:11.480" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25345" PostTypeId="1" CreationDate="2018-11-04T20:28:03.800" Score="1" ViewCount="65" Body="&lt;p&gt;My college tutor told me that demand for college admission at our institute is price inelastic. She says so, because, in the past 20 years, price of college education at our institute has increased, but the number of students hasn't decreased. Does this really mean that college admission at our institute is price inelastic? Or is there a way I can counter that?&lt;/p&gt;&#xA;" OwnerUserId="19292" LastEditorUserId="108" LastEditDate="2018-11-05T07:22:46.887" LastActivityDate="2018-11-05T07:55:36.860" Title="If price increases and quantity remains the same can we infer that demand is perfectly inelastic?" Tags="&lt;supply-and-demand&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25347" PostTypeId="2" ParentId="25345" CreationDate="2018-11-04T22:30:02.220" Score="3" Body="&lt;blockquote&gt;&#xA;&lt;p&gt;My college tutor told me that demand for college admission at our&#xA;institute is price inelastic.&lt;/p&gt;&#xA;&lt;p&gt;Does this really mean that college admission at our institute is price&#xA;inelastic?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;That is not necessarily accurate. For instance, there could be &lt;em&gt;excess demand&lt;/em&gt; so that a more expensive tuition makes no difference in enrollment because the wealthier students still outnumber the spots available in college.&lt;/p&gt;&#xA;&lt;p&gt;Price inelasticity of demand of this college conveys the notion that a student generally does not care about tuition increases: he will enroll in this college anyway. But in reality, if there are options (that is, other colleges) from where to choose, most likely there are substitution dynamics at play even if the end result is that all spots in this college are filled up. Indeed, those wealthier students might be substituting their otherwise preferred and costlier college by enrolling in this one if their first option becomes unaffordable just like this college became unaffordable to other students.&lt;/p&gt;&#xA;" OwnerUserId="18552" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2018-11-04T22:47:28.430" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25348" PostTypeId="2" ParentId="25207" CreationDate="2018-11-04T23:12:55.663" Score="2" Body="&lt;p&gt;This is an excellent question you ask. Another way this could have been asked is &lt;em&gt;how can the economy grow by roughly one-third in real dollars while real median household income drops like a rock?&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, based on Gross Domestic Product (GDP), the U.S. economy has grown since 2000. GDP rose from 10,002 in 2000 to 17,974 in mid-2015. That's an increase of roughly about 77.8%.&#xA;&lt;a href=&quot;https://i.stack.imgur.com/lUXX5.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/lUXX5.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/8Fpk2.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/8Fpk2.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;If we adjust GDP for inflation, we get what's known as real GDP, which increased roughly about 34.6%: from 12,924 in 2000 to 17,397 in mid-2015&lt;/strong&gt;. This works out to a real annual increase of about 2.9% annually.&#xA;&lt;a href=&quot;https://i.stack.imgur.com/P5JO4.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/P5JO4.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/LbDRQ.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/LbDRQ.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It would be natural to expect full-time employees' wages and salaries to rise at about this same rate as the economy expanded. But real median weekly earnings (wages and salaries) increased a grand total of &lt;span class=&quot;math-container&quot;&gt;$5 dollars in the past 15 years: from $&lt;/span&gt;334 per week to $339 per week.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/309uw.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/309uw.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/t53bG.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/t53bG.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If wages and salaries had risen at the same 2.9% annual rate of real GDP growth, median weekly earnings would be &lt;span class=&quot;math-container&quot;&gt;$479, not $&lt;/span&gt;339. That's &lt;span class=&quot;math-container&quot;&gt;$140 more per week. But weekly median earnings for full-time workers rose only $&lt;/span&gt;5 per week, not $140 per week.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words, the growth in real GDP hasn't trickled down to wages and salaries.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Real household income--which includes both earned income and unearned income such as dividends and interest--has plummeted 7.8% since 2000. This is a striking contrast with real GDP growth of 34.6%: the economy has expanded 34.6% after adjusting for inflation, while real median household income has declined 7.8%.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If real median household income had grown at the same 2.9% annual rate of GDP, it would now be &lt;span class=&quot;math-container&quot;&gt;$86,000 a year rather than $&lt;/span&gt;55,600.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/gnyB2.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/gnyB2.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/2O8pQ.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/2O8pQ.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So where did all this growth of the economy end up?** How can the economy grow by roughly one-third in real dollars while real median household income drops like a rock and real wages/salaries are essentially unchanged for 15 years?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can check these projections based on 2.9% annual growth for yourself with a simple Excel spreadsheet.&lt;/p&gt;&#xA;" OwnerUserId="20035" LastActivityDate="2018-11-04T23:12:55.663" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25349" PostTypeId="2" ParentId="25345" CreationDate="2018-11-05T01:29:36.513" Score="2" Body="&lt;p&gt;It might actually be quite elastic but income has risen just enough to compensate for the increase in tuitions! It also might be the case that demand is high enough so that the amount of available spots is fully met at any reasonable price. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;A priori&lt;/em&gt;, one just can't guarantee that the demand curve for higher education is inelastic based on the observation that over 20 years prices have risen without a significant decrease in demand. A lot can change in 20 years and one can't simply assume all things were held constant during the period. &lt;/p&gt;&#xA;" OwnerUserId="18167" LastActivityDate="2018-11-05T01:29:36.513" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25350" PostTypeId="1" CreationDate="2018-11-05T03:54:20.943" Score="-2" ViewCount="316" Body="&lt;p&gt;Suppose that a competitive firm receives a price of &lt;span class=&quot;math-container&quot;&gt;$P$&lt;/span&gt; for its output, and pays prices of w, r and v for its labor &lt;span class=&quot;math-container&quot;&gt;$(L)$&lt;/span&gt;, capital &lt;span class=&quot;math-container&quot;&gt;$(K)$&lt;/span&gt; and natural resources &lt;span class=&quot;math-container&quot;&gt;$(R)$&lt;/span&gt; inputs, respectively. The firm operates with the production function&#xA;&lt;span class=&quot;math-container&quot;&gt;$Q = L^aK^bR^c$&lt;/span&gt;. &lt;strong&gt;The firm chooses labor and capital to maximize profit.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;a. Derive the firm’s profit function. &lt;span class=&quot;math-container&quot;&gt;$\pi$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;b. Derive the first-order conditions FOC for profit maximization. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My Question is regarding FOC, since the firm chooses labor and capital to maximize profit, do I look at this as a problem with simply two endogenous variables mainly labor &lt;span class=&quot;math-container&quot;&gt;$(L)$&lt;/span&gt;, capital &lt;span class=&quot;math-container&quot;&gt;$(K)$&lt;/span&gt;, hence the FOC are the partial derivative of the proofit function &lt;span class=&quot;math-container&quot;&gt;$w.r.t. L$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$K$&lt;/span&gt;. (&lt;span class=&quot;math-container&quot;&gt;$\pi_L$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\pi_K$&lt;/span&gt;) or should I include &lt;span class=&quot;math-container&quot;&gt;$\pi_R$&lt;/span&gt; in my solution&lt;/p&gt;&#xA;" OwnerUserId="19437" LastActivityDate="2018-11-07T05:37:43.490" Title="Maximizing a Cobb-Douglas Function" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;profit-maximization&gt;&lt;cobb-douglas&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25351" PostTypeId="2" ParentId="25345" CreationDate="2018-11-05T04:01:07.893" Score="4" Body="&lt;p&gt;We know for a fact that supply is perfectly price inelastic. Each school typically has a quota -- some rough estimate of the number of students it wishes to enroll.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And every year, there are many who are able and willing to pay the full price of the good (a spot in the school) but are nonetheless not admitted.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Example.&lt;/strong&gt; For decades, a school has consistently offered 10,000 seats to each cohort. Demand though has consistently risen so that price has also risen. However, we cannot infer anything about the slope of D (i.e. whether demand is price inelastic).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That demand is also price inelastic may very well be true, but cannot be inferred simply from the fact that the number of students hasn't decreased.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/gViQl.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/gViQl.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Another important consideration/complication is &lt;strong&gt;price discrimination&lt;/strong&gt;. Through financial aid, US universities practice what amounts to near perfect price discrimination, making many students pay as much as they can bear. So, while the &lt;em&gt;sticker price&lt;/em&gt; has risen greatly, the actual price paid by many students may not have risen as much.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastEditorDisplayName="user18" LastEditDate="2018-11-05T07:55:36.860" LastActivityDate="2018-11-05T07:55:36.860" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25352" PostTypeId="2" ParentId="21120" CreationDate="2018-11-05T10:40:44.897" Score="1" Body="&lt;p&gt;This is an excellent question. I believe there are five different &quot;flavors&quot; of conventional economics that dominate our landscape today that come from the past. In order of emergence they would be:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;em&gt;Modern Capitalism&lt;/em&gt;: this is the classical free-market capitalism: supply and demand discover price of goods, services, labor, money and risk in open, transparent markets.&lt;/li&gt;&#xA;&lt;li&gt;&lt;em&gt;Marxism&lt;/em&gt;: developed by Karl Marx in the second half of the 19th Century, Marxist analysis holds that private capital has a built-in advantage over labor, and left to its own devices capital will impoverish laborers and enrich the owners of capital.&lt;/li&gt;&#xA;&lt;li&gt;&lt;em&gt;Socialist State Capitalism&lt;/em&gt;: unfettered capitalism creates great disparities in income and wealth (that is, winners and losers). The solution is to extract wealth from the free-market winners via taxes for social programs that distribute the nation's wealth more equitably.&#xA;&#xA;&lt;ol start=&quot;4&quot;&gt;&#xA;&lt;li&gt;&lt;em&gt;Neo-Keynesian State Capitalism&lt;/em&gt;: to counter recessions, the state (government) increases its own borrowing and spending (called deficit spending) to compensate for declining private consumption, and the central bank lowers the cost of borrowing money and floods the banking system with credit to persuade households and businesses to borrow money to spend and invest.&lt;/li&gt;&#xA;&lt;li&gt;&lt;em&gt;Neoliberal Global Capitalism&lt;/em&gt;: government regulations and meddling (that is, picking winners and losers rather than letting the free market select winners and losers) hamper growth, and without growth prosperity declines for rich and poor alike. The solution is to cut regulatory red tape and unleash markets to allow the free flow of information, labor and capital. This freedom increases the pie of wealth for everyone in the economy.&lt;/li&gt;&#xA;&lt;/ol&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;It's important to note that these established examples of economic theory at play today do not replace each other the way conventional high school economics would have us believe; in the modern post-World War II era, each new system is layered on top of the existing arrangement. Thus, state socialism didn't replace free-market capitalism; it was added as a new layer that distributed income to social programs and controlled key industries. The increased role of the state in the form of Keynesian policies influenced free-market capitalism but did not displace it, and neoliberal globalization extended the free flow of capital even as it left many domestic industries virtually untouched.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Again, you cite examples from the past which can mislead readers into thinking, these economic theories are no longer practiced and so what is in practice today?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I am saying above, is those five that I cite are the dominant economic theories and they are ALL in practice today.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are no 100% ideologically pure economies...virtually every major economy is a complex mix of free markets, social program spending, Keynesian stimulus and neoliberal globalization. Take the United States for example, widely held as a free-market economy, devotes &lt;span class=&quot;math-container&quot;&gt;$2.5 trillion of its $&lt;/span&gt;3.8 trillion Federal budget to social programs. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;European nations such as Germany widely held as social-democratic relies heavily on globalization and exports to fund their social spending.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;China, nominally Communist, relies on free markets to generate the revenues needed to subsidize state-owned enterprises (SOEs).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The point being we don't have &lt;em&gt;one dominant economic theory&lt;/em&gt; in play at this time; &lt;em&gt;we have a multitude of economic theories being mixed and applied together&lt;/em&gt;. These economies co-exist and can be imagined as layers that overlap each other in certain areas but operate by their own rules and inputs.&lt;/p&gt;&#xA;" OwnerUserId="20035" LastActivityDate="2018-11-05T10:40:44.897" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25353" PostTypeId="1" AcceptedAnswerId="25354" CreationDate="2018-11-05T12:12:50.673" Score="1" ViewCount="39" Body="&lt;p&gt;While reading Mazzucato's &quot;The value of everything&quot;, I come across this&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The rise in private debt in the US and UK has resulted in household&#xA;  savings falling as a percentage of disposable income - income minus&#xA;  taxes - especially in periods of sustained economic growth (during the&#xA;  1980s, the late 1990s and the beginning of the 2000s.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I wonder if this is based on observation or if there is a cause and effect (as suggested by &quot;resulted&quot;), in which case I'd be grateful if anyone could provide some intuition of why such a relationship would exist.&lt;/p&gt;&#xA;" OwnerUserId="20042" LastActivityDate="2018-11-05T13:53:39.203" Title="falling household savings" Tags="&lt;economic-growth&gt;&lt;debt&gt;&lt;saving&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25354" PostTypeId="2" ParentId="25353" CreationDate="2018-11-05T13:53:39.203" Score="1" Body="&lt;p&gt;If household debt rises, it means that more households consume more than they earn. This is the same as saying they save less. This means that the causal channel in your quote is by definition. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now one may ask why do savings decrease in a period of growth. I could imagine two causal channels. It could be that growth is a consequence of low interest rates, causing both higher private debt and hence more investment. One could also think of sustainable growth causing positive expectations, so households are worrying less about the future and hence save less for precautionary reasons.&lt;/p&gt;&#xA;" OwnerUserId="17735" LastActivityDate="2018-11-05T13:53:39.203" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25355" PostTypeId="2" ParentId="21120" CreationDate="2018-11-05T13:55:18.210" Score="2" Body="&lt;p&gt;&lt;strong&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Spectrum_auction&quot; rel=&quot;nofollow noreferrer&quot;&gt;Spectrum auctions&lt;/a&gt;&lt;/strong&gt; are generally designed by economists using results and insights from auction theory. For example, most modern spectrum auctions are at least somewhat related to the ascending clock proxy auction of Ausubel and Cramton. These auctions are used to sell hundreds of millions of dollars of radio spectrum licenses. A similar point can be made about the auction mechanisms used by other branches of the public section (such as central bank treasury auctions).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Matching_theory_(economics)&quot; rel=&quot;nofollow noreferrer&quot;&gt;Matching theory&lt;/a&gt;&lt;/strong&gt; has been widely applied in the design of many real-world markets and allocation mechanisms. Examples include the assignment of student doctors to medical residency, the assignment of students to high schools, and the pairing of kidney donors with patients.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;a href=&quot;https://www.britannica.com/topic/competition-policy&quot; rel=&quot;nofollow noreferrer&quot;&gt;Compeition (antitrust) policy&lt;/a&gt;&lt;/strong&gt; is based to a very large extent on results from industrial organisation. This includes policy formulation informed by many comparatively recent results on topics including bundling, collusion, and vertical restraints.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2018-11-05T13:55:18.210" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25357" PostTypeId="1" AcceptedAnswerId="25386" CreationDate="2018-11-05T15:07:05.457" Score="1" ViewCount="86" Body="&lt;p&gt;Using maths how could I show this, I am able to show that AC&gt;MC By differentiating AC with respect to q and assuming AC is falling , but how do show its falling in the first place if we have increasing returns to scale. Thanks&lt;/p&gt;&#xA;&#xA;&lt;p&gt;aso I know that IRTS means f(tz)&gt;tf(z) where f is productions function gives us maximum amount of output for a given set of inputs Zi.&lt;/p&gt;&#xA;" OwnerUserId="20059" LastEditorUserId="20059" LastEditDate="2018-11-05T15:14:48.463" LastActivityDate="2018-11-07T04:05:23.347" Title="How to show average cost is falling if we have IRTS" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25359" PostTypeId="2" ParentId="25343" CreationDate="2018-11-05T18:12:43.483" Score="6" Body="&lt;p&gt;Vertical summation of the individual marginal benefit curves is the correct way to find social marginal benefit if the camera system, so far as the two stores are concerned, is a &lt;a href=&quot;https://en.wikipedia.org/wiki/Public_good&quot; rel=&quot;nofollow noreferrer&quot;&gt;public good&lt;/a&gt;. Horizontal summation is the way to find total market demand for a private good.&lt;/p&gt;&#xA;&lt;p&gt;A good is a public good if it satisfies two conditions.  One is non-excludability: that would be satisfied if neither store can prevent the other from benefiting from the camera system.  The other is non-rivalrousness: that would be the case if neither store's use of the system limited the other's use of it.&lt;/p&gt;&#xA;&lt;p&gt;Even if the camera system covers both stores, it could be that it does not fulfil both these conditions. For example, one store might control its use and limit or charge for the other's access to photos / film taken.  In that case the non-excludability condition would not be met.&lt;/p&gt;&#xA;&lt;p&gt;Let's suppose however that the conditions for a public good are fully met. Let's also suppose that &amp;quot;quantity&amp;quot; of the camera system can meaningfully be defined (this does not seem straightforward). In that case the quantity must be the same for both stores, and the social marginal benefit at that quantity is the sum (graphically the vertical sum) of the marginal benefits to each store. The principle of vertical summation is implicit in the &lt;a href=&quot;https://en.wikipedia.org/wiki/Samuelson_condition&quot; rel=&quot;nofollow noreferrer&quot;&gt;Samuelson condition&lt;/a&gt; for optimal provision of a public good, according to which the quantity provided is optimal where the sum of the marginal benefits equals the marginal cost of provision (&lt;a href=&quot;https://www.jstor.org/stable/1925895?seq=1&quot; rel=&quot;nofollow noreferrer&quot;&gt;Samuelson 1954&lt;/a&gt;, see equation 2 p 387 and explanation p 388).&lt;/p&gt;&#xA;&lt;p&gt;It possibly makes vertical summation seem paradoxical when the vertical axis of the diagram is labelled P for price.  It would be more correct I suggest to label it MB for marginal benefit, as in &lt;a href=&quot;https://en.wikipedia.org/wiki/Samuelson_condition#/media/File:Samuelson_condition.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;this diagram&lt;/a&gt; illustrating the Samuelson condition.&lt;/p&gt;&#xA;" OwnerUserId="1417" LastEditorUserId="1417" LastEditDate="2021-03-31T21:50:56.347" LastActivityDate="2021-03-31T21:50:56.347" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25360" PostTypeId="2" ParentId="16200" CreationDate="2018-11-05T18:40:05.713" Score="0" Body="&lt;p&gt;As interest rates go up, mortgage affordability goes down and therefore there is an increased demand in rents (offset by a lower demand in buying homes). Therefore rental rates have a higher relationship to interest rate than 1:1. &lt;/p&gt;&#xA;" OwnerUserId="20061" LastEditorUserId="68" LastEditDate="2018-11-06T02:47:22.080" LastActivityDate="2018-11-06T02:47:22.080" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25364" PostTypeId="2" ParentId="17396" CreationDate="2018-11-05T21:35:14.923" Score="0" Body="&lt;p&gt;The way I would attack this is to solve the utility function &lt;span class=&quot;math-container&quot;&gt;$u(x,y)=xy$&lt;/span&gt; subject to the budget constraint: &lt;span class=&quot;math-container&quot;&gt;$4x+y=m$&lt;/span&gt;. This is using Lagrange method&#xA;It turns out that &lt;span class=&quot;math-container&quot;&gt;$x=m/8$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$y=m/2$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Engel curve show the relationship between income and the quantity of the good demanded, so substitute values for &lt;span class=&quot;math-container&quot;&gt;$m$&lt;/span&gt; and find the corresponding &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; or &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; demanded and plot the Engel curve for good x or good y. &lt;/p&gt;&#xA;" OwnerUserId="20064" LastEditorUserId="68" LastEditDate="2018-11-06T02:52:46.220" LastActivityDate="2018-11-06T02:52:46.220" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25366" PostTypeId="2" ParentId="24204" CreationDate="2018-11-06T00:09:35.740" Score="1" Body="&lt;p&gt;Its a type of control fraud. Not only is there a lack of decentralization as you have noticed, but the petro cannot be converted directly into deliverable-upon-demand oil contracts. Remember, the petro is supposed to be backed by oil.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's important to understand that any currency that claims to be &quot;backed&quot; by gold, oil, rice, bat guano, etc. must be convertible to the underlying commodity at a transparent conversion rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If a currency can't be converted on demand into the underlying commodity, it's not &quot;backed by oil,&quot; it's just another form of control fraud, which I define as those holding power in centralized institutions enrich themselves at the expense of the citizenry by modifying what's legally permissible.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Conventional fraud is against the law; control fraud is legal because it benefits those who make the rules.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Until a foreign financial institution successfully converts its Venezuelan petros into actual barrels of oil, or oil contracts that can be sold immediately on the global market, then the petro isn't backed by anything. Until that conversion process is functioning transparently, the petro is nothing but a giant control fraud perpetrated to benefit the few clinging to power in Venezuela at the expense of the many. &lt;/p&gt;&#xA;" OwnerUserId="20035" LastActivityDate="2018-11-06T00:09:35.740" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25367" PostTypeId="1" AcceptedAnswerId="25381" CreationDate="2018-11-06T00:46:27.847" Score="7" ViewCount="1167" Body="&lt;p&gt;I’m reading through a textbook in auction design when it describes a term, virtual valuation&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\phi_i(v_i) = v_i - \frac{1 - F(v_i)}{f(v_i)}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where &lt;span class=&quot;math-container&quot;&gt;$f$&lt;/span&gt; is the pdf of a bidders valuation and &lt;span class=&quot;math-container&quot;&gt;$F$&lt;/span&gt; is the corresponding cdf.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is described as the price you want to charge minus the cost of not knowing &lt;span class=&quot;math-container&quot;&gt;$v_i$&lt;/span&gt;. Can someone explain how the cost was derived from the probability distributions? Note I’m not an economics student by training.&lt;/p&gt;&#xA;" OwnerUserId="20066" LastEditorUserId="11590" LastEditDate="2019-04-28T22:29:28.823" LastActivityDate="2019-04-28T22:29:28.823" Title="What is virtual valuation?" Tags="&lt;auctions&gt;&lt;mechanism-design&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="25369" PostTypeId="2" ParentId="20330" CreationDate="2018-11-06T03:41:46.173" Score="1" Body="&lt;p&gt;I would say cryptocurrencies are in a speculative boom phase based on examples of Ethereum being 10 dollars in 2016 and jumping to 370 dollars the following year and Bitcoin going from 900 dollars to 10,000 dollars in those same years.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With that said, speculative boom phases are poor guides to future valuations and the maturation trajectory of a new sector.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, to answer your question, yes they are in a speculative boom phase or as you put it in a bubble.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Many people decry the current speculative frenzy in cryptocurrencies, and others warn the whole thing is a Ponzi scheme, a fad, and a bubble in which the gullible sheep are being led to slaughter.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think what non-experts or rather people who don't write software for cryptocurrencies should do is analyze these cryptocurrencies through the filters of scarcity and utility and come to your own conclusion on a case by case basis based on the application of those filters.&lt;/p&gt;&#xA;" OwnerUserId="20035" LastActivityDate="2018-11-06T03:41:46.173" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25370" PostTypeId="2" ParentId="24292" CreationDate="2018-11-06T05:30:31.383" Score="1" Body="&lt;p&gt;I agree with Guy that your model is simplistic. My own position is that hyper-inflation is first and foremost a political phenomenon. It results out of specific political policies and choices.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words, hyperinflation is a political process, not a financial process which proceeds with some sort of inevitability once a tipping point has been reached.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Although you also hear about when the dollar will fall off the cliff or that kind of talk, its inaccurate. Destroying a currency is not like falling off a cliff, where gravity takes hold all the way to its demise.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Destroying a currency is deliberate and requires a lot of manhandling and pushing up the steep incline and eventually shoving it off the cliff.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At any point up to the final shove into oblivion, the political winds could change and the policy pressure that is destroying the currency would cease.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Currencies are destroyed as an unintended consequence of saving the status quo from losing power. Rather than risk a decline in power, an upheaval in the fiefdom, elites in the status quo choose to debauch the currency as a short-cut to their unsustainable financial woes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We have a great example with what is going on in Venezuela right now.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But lets imagine an example here in the States. Let's say tomorrow the Federal government says that all Social Security recipients who were receiving 2,000 a month will now receive 200 dollars a month. Rather than risk the firestorm that would ignite and get rid of some very powerful people, the government chooses to debauch the currency so that the 2,000 dollars will soon only provide 200 dollars in purchasing power. The government has de facto reduced the payment by 90% via destruction of its currency. But due to the stealth of this process, the citizenry are blind to the erosion. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you take 10% of their money away every year via debauching the currency, then in nine years they have lost 90%, no fuss no muss, and the status quo stays intact.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the populace goes on for several decades like this, no worries, but if it starts to lose trust in the currency, thats how hyperinflation starts to set in. Again, its a political act, not a financial one and its not an inevitable conclusion of anything, it can be stopped in its tracks.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So what I am saying that unlike how in our economics courses, we may be given a model to measure classic inflation, hyperinflation or the debauchery of the currency cannot be viewed in that same manner. No real model to measure when its going to happen, it all depends on the politics of the day and there is no inevitability, it can start to go in that direction and then be stopped in its tracks, because its a political phenomenon not a financial one.&lt;/p&gt;&#xA;" OwnerUserId="20035" LastActivityDate="2018-11-06T05:30:31.383" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25371" PostTypeId="2" ParentId="24323" CreationDate="2018-11-06T08:18:42.140" Score="0" Body="&lt;p&gt;Mandel claims Marx treats paper money as a sign of the underlying money commodity:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Paper money, banks notes, are a money sign representing a given quantity of the money-commodity. Starting from the above-mentioned example, a banknote of £1 represents 1/10 ounce of gold. This is an objective ‘fact of life’, which no government or monetary authority can arbitrarily alter. It follows that any emission of paper money in excess of that given proportion will automatically lead to an increase in the general price level, always other things remaining equal. If £1 suddenly represents only 1/20 ounce of gold, because paper money circulation has doubled without a significant increase in the total labour time spent in the economy, then the price level will tend to double too. The value of 1/10 ounce of gold remains equal to the value of 10 quarters of wheat. But as 1/10 ounce of gold is now represented by £2 in paper banknotes instead of being represented by £1, the price of wheat will move from £1 to £2 for 10 quarters (from two shillings to four shillings a quarter before the introduction of the decimal system).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;( &lt;a href=&quot;https://www.ernestmandel.org/en/works/txt/1990/karlmarx/6.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.ernestmandel.org/en/works/txt/1990/karlmarx/6.htm&lt;/a&gt; )&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, price and value aren’t the same:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The price-form, however, is not only compatible with the possibility of a quantitative incongruity between magnitude of value and price, i.e., between the former and its expression in money, but it may also conceal a qualitative inconsistency, so much so, that, although money is nothing but the value-form of commodities, price ceases altogether to express value. Objects that in themselves are no commodities, such as conscience, honour, &amp;amp;c., are capable of being offered for sale by their holders, and of thus acquiring, through their price, the form of commodities. Hence an object may have a price without having value. The price in that case is imaginary, like certain quantities in mathematics. On the other hand, the imaginary price-form may sometimes conceal either a direct or indirect real value-relation; for instance, the price of uncultivated land, which is without value, because no human labour has been incorporated in it. (Capital 1 3:1)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="19898" LastActivityDate="2018-11-06T08:18:42.140" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25372" PostTypeId="2" ParentId="25367" CreationDate="2018-11-06T12:01:59.773" Score="5" Body="&lt;p&gt;The idea is simple: the seller wants to target that individuals who's ready to pay him the highest amount, thus targets the person with the highest virtual valuation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To target the individual who's ready to pay the most, we appeal to the concept of stochastic dominance(specifically, we are talking about first order stochastic dominance). The term &lt;span class=&quot;math-container&quot;&gt;$\lambda_i =\frac{ f_i(v_i)}{1-F_i(v_i)}$&lt;/span&gt; is known as the hazard rate. Reverse of hazard rate, &lt;span class=&quot;math-container&quot;&gt;$\frac{1}{\lambda_i}$&lt;/span&gt; is used to check the hazard rate dominance(which will imply stochastic dominance as well) of one random variable over the other. The random variable which dominates all is given the object by the seller. &lt;/p&gt;&#xA;" OwnerUserId="16340" LastEditorUserId="16340" LastEditDate="2018-11-06T17:33:00.297" LastActivityDate="2018-11-06T17:33:00.297" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="25375" PostTypeId="1" AcceptedAnswerId="27791" CreationDate="2018-11-06T13:21:27.687" Score="1" ViewCount="146" Body="&lt;p&gt;I want to know if my thinking is correct. &#xA;Look at the following game.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/rAgl6.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/rAgl6.png&quot; alt=&quot;Simultaneous game&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As the game has only one subgame (i.e., the game itself) then the Nash Equilibria will coincide with the subgame perfect equilibria.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this case, we have two Nash equilibria: {U, u} and {D, d}. By my statement before, the subgame perfect equilibria will be {U, u} and {D, d} too. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Am I right?&lt;/p&gt;&#xA;" OwnerUserId="20068" LastActivityDate="2019-04-14T22:54:13.217" Title="Find a subgame perfect equilibrium and a Nash equilibrium" Tags="&lt;microeconomics&gt;&lt;game-theory&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="25377" PostTypeId="2" ParentId="24110" CreationDate="2018-11-06T13:44:13.463" Score="0" Body="&lt;p&gt;Thats Tom Palmer and what he is saying is that his high school professor taught him not to confuse a shift in demand curve with movement along the demand curve.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I will put this in my own words for you. If there is not enough supply of a good to meet demand, Piketty is saying the price should drop and I would agree denesp, where is this should coming from?  If there is a demand for a product, but not enough supply, then the price should and does increase, not drop, because this makes this product scarce and its scarcity gives it value. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So like if everyone could turn lead into gold then gold would drop in price because it is not longer scarce to mine, everyone can turn lead into gold in the comfort of their own homes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Palmer is just saying, hey, I read this analysis of supply and demand of Piketty, basic high school stuff and he could not even get that one right.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Its just a way to introduce that he is about to tear Piketty's theories a new one.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But as someone who has followed Piketty's work, allow me to address what Anti-Piketty, the book, is really addressing so that other readers can get a more robust understanding here of what Anti-Piketty is about.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have followed Piketty's taxation/social welfare solutions to wealth inequality and I have found that it does nothing to change the source of systemic inequality, debt-based neo-feudalism and neo-colonialism.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, just because there may be a mass of people like myself that disagree with him, does not mean Piketty would not be a renowned economist.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Especially when is tax the rich solution, would, instead of being resisted by the super wealthy and creating waves, they could just as well agree with it and ensure through their power and influence that is the middle class or those beneath them who get the brunt of this taxation policy. At it also lets them off the hook because they showed that they are on board with Piketty, so not all filthy rich are that bad after all.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What Piketty is known for is his book &lt;em&gt;Capital in the Twenty-First Century&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Piketty addresses wealth inequality in that book, that's what he is popular for. In his book he is proving that capital expands at rates far above the overall economy and wages. Since capital grows much faster than wages or the underlying economy, the gap between earned income and unearned income (rents) widens, along with the net worth of those who own capital and those who own little to no capital.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I do not disagree with this argument, in fact, I have provided answers in other questions in this forum with charts confirming the above.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What Piketty recommends as a solution is a global wealth tax which I believe is close to impossible to implement and that's where we part ways and Anti-Piketty steps in.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would go further and say it is impossible within the U.S., never mind the world, as the top 0.1% own the political machinery. Why would anyone who owns the political process agree to tax themselves?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The dangers of any economist suggesting another tax the rich idea, is that this never falls on the doorstep of the super wealthy because they have all the resources and power to block these kinds of policies towards them, the upper middle class, however, do not.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So politicians will say, hey look we successfully implemented a tax the rich plan, when in actuality, its taxing the middle class and the politicians get their votes and the middle class get screwed, again, because they have no voice or political power like the super wealthy do.&lt;/p&gt;&#xA;" OwnerUserId="20035" LastActivityDate="2018-11-06T13:44:13.463" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25381" PostTypeId="2" ParentId="25367" CreationDate="2018-11-06T17:25:34.827" Score="9" Body="&lt;p&gt;Suppose you face a single buyer whose willingness to pay, &lt;span class=&quot;math-container&quot;&gt;$v$&lt;/span&gt;, is distributed according to &lt;span class=&quot;math-container&quot;&gt;$F(v)$&lt;/span&gt;. If you charge a price &lt;span class=&quot;math-container&quot;&gt;$p$&lt;/span&gt;, he will buy if and only if &lt;span class=&quot;math-container&quot;&gt;$v&amp;gt;p$&lt;/span&gt;, leaving you with expected revenue of &lt;span class=&quot;math-container&quot;&gt;$$r(p)=\Pr(v&amp;gt;p)p=[1-F(p)]p.$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's maximise revenue by computing an FOC:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$r'(p)=1-F(p)-F'(p)p=0.$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can rearrange this as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\phi(p)\equiv p-\frac{1-F(p)}{F'(p)}=0$$&lt;/span&gt;&#xA;i.e., the 'virtual valuation' should be zero.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we return to &lt;span class=&quot;math-container&quot;&gt;$r'(p)$&lt;/span&gt; and think about what the individal terms mean, we can see where the &quot;cost&quot; you ask about comes from: a unit increase in price causes an extra unit of revenue in the fraciton &lt;span class=&quot;math-container&quot;&gt;$1-F$&lt;/span&gt; of the time that the buyer is willing to buy, but reduces the liklihood of him buying by &lt;span class=&quot;math-container&quot;&gt;$F'$&lt;/span&gt;. This is the fundamental trade-off that a seller who doesn't know the buyer's willingness to pay must make.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;If you know anything about standard monopoly theory then this setup should be quite familiar. Usually, when we look at a profit-maximising monopolist with demand &lt;span class=&quot;math-container&quot;&gt;$D(p)$&lt;/span&gt; and zero marginal cost we solve&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\max_p D(p)p\iff \underbrace{D'(p)p-D(p)}_{\text{marginal revenue}}=0.$$&lt;/span&gt;&#xA;In an auction-like setting, the 'demand' &lt;span class=&quot;math-container&quot;&gt;$1-F(p)$&lt;/span&gt; is simply the probability of the buyer being willing to pay &lt;span class=&quot;math-container&quot;&gt;$p$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2018-11-06T17:25:34.827" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="25382" PostTypeId="1" AcceptedAnswerId="25406" CreationDate="2018-11-06T17:46:25.600" Score="0" ViewCount="49" Body="&lt;p&gt;I'm curious if anyone has a recommended lecture notes, slides, or book, anything really, that goes through evolutions of basic models like &lt;span class=&quot;math-container&quot;&gt;$y=AK$&lt;/span&gt;, to &lt;span class=&quot;math-container&quot;&gt;$y=AK^aL^{1-a}$&lt;/span&gt;, to &lt;span class=&quot;math-container&quot;&gt;$y_t=A_tK_t$&lt;/span&gt;, to &lt;span class=&quot;math-container&quot;&gt;$y_t=A_tK^{a}_tL_t^{1-a}$&lt;/span&gt;, etc. such that the models get more complex. I'm following along with the lectures in class but all the asides, comments on real-world examples, aren't helping me solidify the intuition for the big-ideas that are underlying some of the evolutions. Basically, why some models are too simple, and what adding more variables does to the model.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Previous threads focus on discrete models in econometrics (hit markets for ideas I'm concerned with lead me here), so not that relevant. &lt;/p&gt;&#xA;" OwnerUserId="19462" LastEditorUserId="68" LastEditDate="2018-11-07T00:42:15.120" LastActivityDate="2018-11-07T17:51:31.763" Title="Lecture note recommendations for the endogenous growth model (EGM)" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25383" PostTypeId="2" ParentId="25342" CreationDate="2018-11-06T20:01:03.277" Score="-2" Body="&lt;p&gt;Sketch your answer for the demand function &lt;span class=&quot;math-container&quot;&gt;$x = -p_x/p_y$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerUserId="20068" LastActivityDate="2018-11-06T20:01:03.277" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25384" PostTypeId="1" AcceptedAnswerId="25395" CreationDate="2018-11-06T20:27:03.163" Score="1" ViewCount="9009" Body="&lt;p&gt;I was recently asked about what the income and substitution effects are for perfect substitutes are. Given the rather peicewise nature of the demands for each good in a utility function considering perfect substitutes I'm not sure what the answer is.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That being said, what are the income and substitution effects for a utility function considering goods that are perfect substitutes?&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2018-11-07T09:58:44.893" Title="Income and substitution effect for perfect substitutes" Tags="&lt;microeconomics&gt;&lt;slutsky-equation&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25385" PostTypeId="1" CreationDate="2018-11-06T20:50:38.833" Score="0" ViewCount="24" Body="&lt;p&gt;I am trying to find a more elegant usage of wording for one-to-one matching and I am need of some thoughts from others. Bilateral matching? Any help would be respected.&lt;/p&gt;&#xA;" OwnerDisplayName="user16020" LastActivityDate="2018-11-06T20:50:38.833" Title="Synonyms for One-to-One Matching Mechanisms" Tags="&lt;mechanism-design&gt;&lt;definition&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="25386" PostTypeId="2" ParentId="25357" CreationDate="2018-11-07T00:03:34.610" Score="1" Body="&lt;p&gt;A production function &lt;span class=&quot;math-container&quot;&gt;$f: \mathbb{R}^k \rightarrow \mathbb{R}$&lt;/span&gt; exhibits &lt;em&gt;increasing returns to scale&lt;/em&gt; if for &lt;span class=&quot;math-container&quot;&gt;$\alpha &amp;gt; 1$&lt;/span&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ f(\alpha \mathbf{x}) &amp;gt; \alpha f(\mathbf{x})$$&lt;/span&gt;&#xA;This implies the directional derivative of &lt;span class=&quot;math-container&quot;&gt;$f$&lt;/span&gt; at &lt;span class=&quot;math-container&quot;&gt;$\mathbf{x}$&lt;/span&gt; in the direction of &lt;span class=&quot;math-container&quot;&gt;$\mathbf{x}$&lt;/span&gt; is greater than &lt;span class=&quot;math-container&quot;&gt;$f(\mathbf{x})$&lt;/span&gt;. (Let &lt;span class=&quot;math-container&quot;&gt;$\alpha = (1+ \epsilon)$&lt;/span&gt; then &lt;span class=&quot;math-container&quot;&gt;$\frac{f(\mathbf{x} + \epsilon \mathbf{x}) - f(\mathbf{x})}{\epsilon} &amp;gt; f(\mathbf{x})$&lt;/span&gt; then take limit as &lt;span class=&quot;math-container&quot;&gt;$\epsilon \rightarrow 0$&lt;/span&gt; to obtain &lt;span class=&quot;math-container&quot;&gt;$\nabla_\mathbf{x} f(\mathbf{x}) &amp;gt; f(\mathbf{x})$&lt;/span&gt;.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given a price vector &lt;span class=&quot;math-container&quot;&gt;$\mathbf{p}$&lt;/span&gt; the cost function gives the minimum cost to produce a quantity &lt;span class=&quot;math-container&quot;&gt;$q$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ c(q) = \min_\mathbf{x} \left\{\mathbf{p} \cdot \mathbf{x}  \mid f(\mathbf{x}) \geq q \right\} $$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Lagrangian for this problem is &lt;span class=&quot;math-container&quot;&gt;$\mathcal{L} = \mathbf{p} \cdot \mathbf{x} + \lambda (q - f(\mathbf{x}))$&lt;/span&gt;. The first order condition is &lt;span class=&quot;math-container&quot;&gt;$\mathbf{p} = \lambda \nabla f(\mathbf{x}^*))$&lt;/span&gt;. Take the dot product of both sides with &lt;span class=&quot;math-container&quot;&gt;$\mathbf{x}^*$&lt;/span&gt; to obtain &lt;span class=&quot;math-container&quot;&gt;$ c(q) =  \mathbf{p} \cdot \mathbf{x}^* = \lambda \nabla f(\mathbf{x}^*) \cdot \mathbf{x}^*=\lambda \nabla_{\mathbf{x}^*}f(\mathbf{x}^*)$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Our previous result on increasing returns to scale then implies &lt;span class=&quot;math-container&quot;&gt;$c(q) &amp;gt; \lambda f(\mathbf{x}^*) = \lambda q$&lt;/span&gt;.  By the envelope theorem, marginal cost is &lt;span class=&quot;math-container&quot;&gt;$\frac{dc}{dq} = \frac{\partial \mathcal{L}}{\partial q} = \lambda$&lt;/span&gt;. Combining, this gives us marginal cost is less than average cost for an increasing return to scale production function:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$ \frac{dc}{dq} &amp;lt; \frac{c(q)}{q}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That immediately implies average cost is decreasing in &lt;span class=&quot;math-container&quot;&gt;$q$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Intuition&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;A more intuitive way to think about this is that increasing returns to scale in the production function implies that for &lt;span class=&quot;math-container&quot;&gt;$\alpha &amp;gt; 1$&lt;/span&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ c(\alpha q) \leq \alpha c(q)$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the production &lt;span class=&quot;math-container&quot;&gt;$f$&lt;/span&gt; scales more than linearly in inputs, the cost of producing a quantity scales less than linearly. You can show this without any calculus at all.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Once you have that, divide by &lt;span class=&quot;math-container&quot;&gt;$\alpha q$&lt;/span&gt; and you immediately obtain:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ \frac{c(\alpha q)}{\alpha q} \leq \frac{c(q)}{q} \text{ for } \alpha &amp;gt; 1 \text{ and IRTS}$$&lt;/span&gt;&#xA;That shows for an increasing returns to scale production function, a higher level of production has a lower average cost.&lt;/p&gt;&#xA;" OwnerUserId="10334" LastEditorUserId="10334" LastEditDate="2018-11-07T04:05:23.347" LastActivityDate="2018-11-07T04:05:23.347" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25387" PostTypeId="1" AcceptedAnswerId="25426" CreationDate="2018-11-07T00:10:01.307" Score="3" ViewCount="6761" Body="&lt;p&gt;I've had this doubt for a long time and I still can't find a proper answer to it. Most answers I get just partially explain the phenomenon of a general increase in price level. I want to understand WHY and HOW monetary issue causes inflation.&lt;/p&gt;&#xA;&lt;p&gt;I'm always told that if a country A has a total amount of output of $100 and this amount is represented by 100 coins of gold, then each coin of gold stands for one unit of output. If one day I stumble upon a gold mine and produce 100 further coins of gold, then I'll have 200 coins, so each coin now represents 0.5 units of output. It's is completely obvious that now each monetary unit has a lower purchasing power, but how do suppliers notice this? How does the economy as a whole detect this increase in money? If the answer is an increase in the demand for goods, then why do suppliers raise their prices? Why don't they just keep prices on a the same level if they know inflation is going to destroy us all?&lt;/p&gt;&#xA;" OwnerUserId="20076" LastEditorUserId="69" LastEditDate="2020-06-19T14:23:23.747" LastActivityDate="2020-06-20T11:54:56.750" Title="How does printing money cause inflation?" Tags="&lt;inflation&gt;" AnswerCount="6" CommentCount="4" FavoriteCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="25388" PostTypeId="1" CreationDate="2018-11-07T01:02:07.557" Score="0" ViewCount="107" Body="&lt;p&gt;We can look up the price of a stock, like that of Google, and it gives a particular figure. I would like to know how the price signal is &quot;centralized&quot;. What I mean is: if the trades happen between individuals holding the stocks, then how is the overall trading price arrived at? Surely, the individuals who are on the buy side and the sell side would have to &quot;register&quot; the sale with the SEC or something? That's the way it happens with other tangible items, like houses and cars, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The stock price on the market acts as a global signal, which efficiently moves financial capital around. Without it, we would be left to our best guesses, which might take too long to converge on a single number, if it ever did at all.&lt;/p&gt;&#xA;" OwnerUserId="5591" LastActivityDate="2019-12-05T02:01:25.200" Title="How are the price signals of stocks in the stock market centralized?" Tags="&lt;stock-market&gt;&lt;price&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25389" PostTypeId="2" ParentId="25387" CreationDate="2018-11-07T01:29:30.770" Score="-1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;If the answer is an increase in the demand for goods, then why suppliers rise prices? Why don't they just keep prices on a the same level if they know inflation is going to destroy us all?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Because that doesn't fix their problem.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppliers have a limited amount of goods.  In order to get more goods, they have to purchase the inputs for them.  But those suppliers also have a limited amount of goods.  Eventually you get to root goods, e.g. mining labor and mines.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider how a mine operates.  It has workers working a certain amount of time and producing a certain amount of ore.  If the mine wants to increase the amount of ore that it produces, it has to pay its workers overtime or hire new workers.  But if it hires new workers, they are likely to be less productive than the existing workers.  The existing workers may even have to slow down so as to explain how to mine.  So either way, it is more expensive for the mine to produce more ore.  To cover their expenses, they increase prices.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a normal economy, this is healthy.  Some of the people buying the ore may choose not to buy at the new price.  Or they may cut their profits because their competitors aren't raising their prices.  Even if they increase the prices of their products, this might get balanced by someone else cutting prices.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In an inflationary economy, this natural adjustment may constantly fall on the side of increasing prices.  And as everyone's costs increase, they feel the need to pass on the cost increases to their customers.  Because otherwise, they would be making less money.  Then there is inflation, which means that the same profit they used to make is worth less.  To try to keep their income on pace with their costs, they increase their prices.  But that causes more inflation...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What's money have to do with this?  Consider a tiny economy.  There's a farmer and a government employee.  Both of them are constantly a bit hungry, as the farmer can't grow much.  He has to import water for irrigation from a neighboring country.  He exports some food so as to afford the water.  He pays \$300 a week for taxes.  The government employee is paid \$300 a week and pays it all for food (she owns her own house, is exempt from taxes, and doesn't have anything else on which to spend her salary).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The government employee has a brilliant idea.  She prints an extra \$100 in currency.  This gives her \$400 in salary.  She goes to the farmer and asks for more food.  The problem is that he doesn't have more food.  The \$300 of food that he has now is all the food that he can possibly produce after he eats his own \$300 worth of food and trades food for water.  He needs the water to produce the modest amount of food that he grows now.  And he needs to eat too.  He's already constantly hungry.  He can't eat less food.  So he increases his prices.  He sells the same amount of food for \$400 as he used to sell for \$300.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now the government employee has a problem.  If the new price is \$400, she needs to raise her pay.  But the government only has \$300 in revenue.  So she has to raise taxes too.  So the farmer pays \$400 in taxes.  The government employee makes \$400 in pay and spends it all on food.  That's inflation.   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You ask why can't the farmer just keep prices the same but limit the amount sold.  But the government employee won't be satisfied with that.  She's hungry.  She'll increase his taxes so that he needs the extra money.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this simple example, everything works out.  They just create a new stable situation.  But what happens if she keeps printing money?  Prices and taxes and pay keep going up.  Soon enough, the farmer expects to have to charge a higher price each week.  This is called hyperinflation.  Inflationary expectations are feeding the inflation.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The real problem here is that they need to produce more food.  Perhaps the government employee should quit working for the government and work for the farmer instead.  The farmer could pay in food if the tax rate is dropped to zero (with no government employee to collect taxes).  Perhaps the two of them together could find a way to get a 33% improved yield without additional water.  Maybe they catch water runoff and carry it back to the field.  The point being that if they improve productivity, they can really benefit.  Whereas printing money, they get no real benefit, just inflation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Real economies work the same way.  They just have far more moving parts.  But they still need productivity growth to make real gains.  Just having more money around doesn't help.  What's needed is more goods.  &lt;/p&gt;&#xA;" OwnerUserId="68" LastActivityDate="2018-11-07T01:29:30.770" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25391" PostTypeId="2" ParentId="25350" CreationDate="2018-11-07T05:37:43.490" Score="0" Body="&lt;p&gt;The maximisation problem is :&#xA;&lt;span class=&quot;math-container&quot;&gt;$\max_{K,L}$&lt;/span&gt; &lt;span class=&quot;math-container&quot;&gt;$\pi =PL^{a}K^{b}R^{c}-wL-rK-vR$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The arguments will be only &lt;span class=&quot;math-container&quot;&gt;$K,L$&lt;/span&gt;,so &lt;span class=&quot;math-container&quot;&gt;$F.O.Cs$&lt;/span&gt; will only include &lt;span class=&quot;math-container&quot;&gt;$\pi _{K},\pi _L$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The profit function will be a function of &lt;span class=&quot;math-container&quot;&gt;$(P,w,r,v)$&lt;/span&gt;. Finding &lt;span class=&quot;math-container&quot;&gt;$F.O.Cs$&lt;/span&gt; will give us the &lt;span class=&quot;math-container&quot;&gt;$\pi (P,w)$&lt;/span&gt; function where &lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt; denotes all the input prices. &lt;/p&gt;&#xA;" OwnerUserId="18667" LastActivityDate="2018-11-07T05:37:43.490" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25393" PostTypeId="1" CreationDate="2018-11-07T08:29:45.313" Score="1" ViewCount="328" Body="&lt;p&gt;Marginal Revenue is equal to the price in perfect competition, but MR is also defined as the revenue obtained by selling one extra unit of the good, so how is it not always the case that MR=P ?&#xA;Revenue from one unit of a good = Price of the good. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or is that definition not true, namely MR should be seen as &lt;span class=&quot;math-container&quot;&gt;$\frac{\partial R}{\partial Q}$&lt;/span&gt; (which deosn't really make sense for goods that are discrete things, but let's just admit it does?)&lt;/p&gt;&#xA;" OwnerUserId="18009" LastActivityDate="2018-11-07T11:44:48.087" Title="Is Marginal Revenue not always equal to the price?" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="7" ContentLicense="CC BY-SA 4.0" />
  <row Id="25395" PostTypeId="2" ParentId="25384" CreationDate="2018-11-07T09:58:44.893" Score="3" Body="&lt;p&gt;An indifference curve for perfect substitutes is a straight line. In fact it is the line defined by &lt;span class=&quot;math-container&quot;&gt;$y=const-x$&lt;/span&gt;, for a utility level of &lt;span class=&quot;math-container&quot;&gt;$const\in\Bbb R$&lt;/span&gt;. We maximize the utility when our budget line is tangent to the IC line. But they are both straight lines, so there are a few cases (considering a situation with only 2 goods): &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;the prices are not equal (&lt;span class=&quot;math-container&quot;&gt;$P_X&amp;lt; P_Y$&lt;/span&gt; for example, then you would always choose good &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt;)&lt;/li&gt;&#xA;&lt;li&gt;&lt;span class=&quot;math-container&quot;&gt;$P_X&amp;gt; P_Y$&lt;/span&gt; for example, then you would always choose good &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt;&lt;/li&gt;&#xA;&lt;li&gt;the prices of the goods are equal &lt;span class=&quot;math-container&quot;&gt;$\implies$&lt;/span&gt; our budget line is parallel to the IC line and the utility maximization point is anywhere on the budget line.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;For cases 1 and 2:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's consider the case where good &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt; is cheaper and becomes relatively more expensive after a price change.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can use Hicks' method to determine the SE and the IC by reducing artificially the consumer's income so that he ends up consuming a basket that is on the original IC curve before the price change (I think Slutksy method is impossible to implement, because we would have to reduce the budget so that the original basket is chosen but with the new prices it is impossible, unless the good is an inferior good I guess, but can they are perfect substitutes so they are both inferior, which I'm not sure if it's possible because an inferior good must take up most of your budget)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We go from equilibrium &lt;span class=&quot;math-container&quot;&gt;$E$&lt;/span&gt; to &lt;span class=&quot;math-container&quot;&gt;$E'$&lt;/span&gt; and the equilibrium &lt;span class=&quot;math-container&quot;&gt;$E''$&lt;/span&gt; is the one due to a reduced budget by the method of Hicks.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/XWtob.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/XWtob.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the third case, in theory the original equilibrium can be anywhere on the budget line. In practice it is probably in a fixed position and you can use the same method to derive the IE and the SE.&lt;/p&gt;&#xA;" OwnerUserId="18009" LastActivityDate="2018-11-07T09:58:44.893" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25396" PostTypeId="2" ParentId="25393" CreationDate="2018-11-07T11:44:48.087" Score="2" Body="&lt;p&gt;No, marginal revenue is not always equal to the price. It would be if marginal revenue were defined as only the amount paid for the last sold unit, which is equal to the price by definition. However, selling one more unit of a good might have  implications on the market price itself, thus impacting the revenue as a whole.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider a monopolist selling a quantity Q1 in a given period at a price of P1. It is a monopolist so it is selling the maximum amount demand can bear at this price. I.e. Qd(P1)=Q1.&#xA;Suppose he is now deciding whether or not to sell an additional unit and prices for all goods he sells have to be uniform (i.e. no price discrimination). Since at the current price P1 no additional unit can be sold, the price has to drop to P2 so that: Qd(P2)=Q1+1.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is the marginal revenue of this decision? It is not equal to P2 since this would ignore the effects on the revenue overall. Instead, the effect is : MR=P2+(P2-P1)*Qd(P1). So on the one hand there is the price of the last unit sold, but on the other hand there is the effect on all other units sold because the price itself has changed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You are right that a demand curve theoretically speaking is not a smooth function, and shouldn't have a slope but instead be some kind of step-function technically speaking. However if this step function for example implies that every increase of 1 in the price means a decrease of say 2 in quantity demanded, then nothing is lost in making it a linear function of the form Qd=a-2P.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So yes your last definition is correct.&lt;/p&gt;&#xA;" OwnerUserId="18214" LastActivityDate="2018-11-07T11:44:48.087" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25397" PostTypeId="1" AcceptedAnswerId="25404" CreationDate="2018-11-07T12:25:28.247" Score="0" ViewCount="362" Body="&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$u(x,y) = min(2x,y)+ y?$&lt;/span&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't understand how we can plot it. I know that there's going to be minimum so I am familiar with the cusp shape of perfect complements. But this looks like a quasilinear utility function. So how can I systematically plot it? &lt;/p&gt;&#xA;" OwnerUserId="6592" LastActivityDate="2018-11-07T17:41:27.100" Title="How to draw the indifference curves for" Tags="&lt;utility&gt;" AnswerCount="1" CommentCount="0" ClosedDate="2018-11-09T01:18:17.653" ContentLicense="CC BY-SA 4.0" />
  <row Id="25398" PostTypeId="1" CreationDate="2018-11-07T13:02:43.030" Score="0" ViewCount="111" Body="&lt;p&gt;I was reading this article on advance purchase discounts and pricing in which the author uses the monotone hazard rate assumption. Why does the author use it?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The article is &lt;em&gt;Advance-purchase discounts as a price discrimination device&lt;/em&gt; (&lt;a href=&quot;http://www.frankrosar.de/mediapool/135/1350549/data/nockepeitzrosar_apd_2011.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;PDF&lt;/a&gt;) by Nocke Peitz and Rosar&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Below you can find a screenshot of the part in question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you very much!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/LbGuQ.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/LbGuQ.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="19949" LastEditorUserId="68" LastEditDate="2018-11-08T00:17:16.577" LastActivityDate="2018-11-08T00:17:16.577" Title="What is the monotone hazard rate assumption used for?" Tags="&lt;microeconomics&gt;&lt;game-theory&gt;&lt;pricing&gt;&lt;price-discrimination&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25399" PostTypeId="1" AcceptedAnswerId="25401" CreationDate="2018-11-07T14:40:07.793" Score="0" ViewCount="319" Body="&lt;p&gt;Here's a graph for reference:&#xA;&lt;a href=&quot;https://i.stack.imgur.com/Qnomd.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Qnomd.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the left graph, I read from a book (CFA L1 notes) that&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;At any output above the quantity where &lt;span class=&quot;math-container&quot;&gt;$MR = MC$&lt;/span&gt;, the firm will be generating losses on its marginal production and will maximize profits by reducing output to where &lt;span class=&quot;math-container&quot;&gt;$MR = MC$&lt;/span&gt;.&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;But now consider this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/x8XjA.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/x8XjA.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$Q'$&lt;/span&gt; is an output level above the one at which &lt;span class=&quot;math-container&quot;&gt;$MC=MR$&lt;/span&gt;. Shouldn't the yellow region represent a positive economic profit in this case? I can understand that at any output level above the one at which &lt;span class=&quot;math-container&quot;&gt;$ATC=MR$&lt;/span&gt;, the firm would start making losses. But isn't the quote above incorrect, or am I missing something? Sure, you might be making a suboptimal profit at output &lt;span class=&quot;math-container&quot;&gt;$= Q’$&lt;/span&gt;, but you’re certainly not making an outright loss.&lt;/p&gt;&#xA;" OwnerUserId="20079" LastEditorUserId="20079" LastEditDate="2018-11-07T15:23:26.747" LastActivityDate="2018-11-07T15:27:47.340" Title="In perfect competition, why is there economic loss if marginal cost &gt; marginal revenue?" Tags="&lt;microeconomics&gt;&lt;cost&gt;&lt;competition&gt;&lt;profits&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25400" PostTypeId="2" ParentId="25398" CreationDate="2018-11-07T15:17:29.480" Score="1" Body="&lt;p&gt;The motivation for this assumption is to have a unique solution. In this article, it is necessary to prove the 1st lemma, i.e. the quasi-concavity of the profit function.  You find a similar motivation in Tirole’s book (Industrial Organization, p. 156).&lt;/p&gt;&#xA;" OwnerUserId="4415" LastActivityDate="2018-11-07T15:17:29.480" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25401" PostTypeId="2" ParentId="25399" CreationDate="2018-11-07T15:27:40.750" Score="2" Body="&lt;p&gt;There is no loss at Q' and you are indeed right that the yellow area represents the firm profits. However, if you were to compare the yellow area to the blue area you would find that the latter is greater. So profit for the firm is not optimal at Q' but is optimal at Q*. This is what the quote refers to, it says the firm will be generating losses on its marginal production (so on the quantity Q' - Q*). It does not say that the firm will generate losses on production in general. This will only happen beyond MR=ATC or TC=TR&lt;/p&gt;&#xA;" OwnerUserId="20080" LastActivityDate="2018-11-07T15:27:40.750" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25402" PostTypeId="2" ParentId="25399" CreationDate="2018-11-07T15:27:47.340" Score="2" Body="&lt;p&gt;In perfect competition, &lt;span class=&quot;math-container&quot;&gt;$MR=P$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;When &lt;span class=&quot;math-container&quot;&gt;$MC&amp;gt;P$&lt;/span&gt;, marginally you're generating losses but you may still be profitable overall. This is represented by your (positive) yellow area, which is smaller than the blue area (the optimal one).&lt;/p&gt;&#xA;" OwnerUserId="4415" LastActivityDate="2018-11-07T15:27:47.340" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25404" PostTypeId="2" ParentId="25397" CreationDate="2018-11-07T17:41:27.100" Score="1" Body="&lt;p&gt;&lt;a href=&quot;https://www.desmos.com/calculator/m3yzlrz1rs&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.desmos.com/calculator/m3yzlrz1rs&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here, as you can see when &lt;span class=&quot;math-container&quot;&gt;$2x&amp;gt;y$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$U=y+y=2y$&lt;/span&gt; (Right hand side to the line of kink of &lt;span class=&quot;math-container&quot;&gt;$2x=y$&lt;/span&gt;&#xA;and when &lt;span class=&quot;math-container&quot;&gt;$2x&amp;lt;y$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$U=2x+y$&lt;/span&gt;&#xA;So, the Black curve denotes the utility function of 10 level of utility but you can draw for any with the kink line as &lt;span class=&quot;math-container&quot;&gt;$2x=y$&lt;/span&gt;. &lt;/p&gt;&#xA;" OwnerUserId="18667" LastActivityDate="2018-11-07T17:41:27.100" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25405" PostTypeId="2" ParentId="24734" CreationDate="2018-11-07T17:44:44.523" Score="-2" Body="&lt;p&gt;&lt;em&gt;Massive&lt;/em&gt;, and only going getting bigger with the popularity of cryptocurrencies in black markets. As overpriced and speculative of an asset as they are, it's allowing shadow value flows like never before in modern tax systems, and even more so in the world's most impoverished and destabilized  economic systems such as Venezuela (not the Petro). There are very big players in Bitcoin, Monero, etc, and in some form, cryptocurrencies are going to stay around for a while.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's pointless trying to estimate the exact share of hidden transactions in an economy, but it has certainly grown since the post-WWII economic and information boom. &lt;/p&gt;&#xA;" OwnerUserId="16652" LastActivityDate="2018-11-07T17:44:44.523" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25406" PostTypeId="2" ParentId="25382" CreationDate="2018-11-07T17:51:31.763" Score="0" Body="&lt;p&gt;I think that the notes closely resembling what you are looking for - a gradual explanation of how the growth theories develop - are those from Acemoglu. Check his web page for slides and look in your school library for Intro to Modern Economic Growth. The slides are very detailed I think. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Growth models are, I believe, presented very rigorously. Additionally, in my opinion, it is discussed how they are connected. &lt;/p&gt;&#xA;" OwnerUserId="19094" LastActivityDate="2018-11-07T17:51:31.763" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25407" PostTypeId="2" ParentId="25341" CreationDate="2018-11-07T18:21:23.643" Score="3" Body="&lt;p&gt;First, let's deal with the semantics and terminology aspect: what the word &quot;profit&quot; means in Economics, and what the word means in the everyday/business/accounting use, are two different things. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In its everyday business use &quot;profit&quot; is the surplus above all expenses including depreciation. &lt;strong&gt;So what business call &quot;profit&quot; the Economics discipline calls &quot;net return to invested capital&quot;.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In Economics on the other hand, &quot;profit&quot;, although never really &quot;officially&quot; defined universally, it essentially means &quot;excess returns to capital above the market level&quot;, where the &quot;market level&quot;, sometimes means &quot;average level&quot; sometimes it means &quot;perfect competition level&quot;, or some other notion of equilibrium returns in the absence of exploitation of market frictions, market power and the like. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Perfectly competitive firms earn zero profits because perfect competition drives prices down to average cost - but &lt;em&gt;where in &quot;cost&quot; we include what business call profits&lt;/em&gt;, because for us, it is payment to capital used in production. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now let's consider the specific example of the OP, where &quot;for simplicity&quot; we have a single production factor, and where, the production function is strictly concave:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$Q= F(L), \;F'&amp;gt;0, \;F''&amp;lt;0$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The profit maximization problem here is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\pi = pQ - wL,\;\; \text{f.o.c.}: \;pF' = w \implies L^* = (F')^{-1}(w/p)$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\pi^* = pF - pF'L = p(F-F'L)$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For zero profits we should have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\pi^*=0\implies F - F'L = 0 \implies \frac {F}{L} = F'$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;or that average product in real terms equals marginal product. As long as the functional form of the production function is such that there is a positive level of &lt;span class=&quot;math-container&quot;&gt;$L$&lt;/span&gt; for which this equality can hold, the argument of the theory is that competition will push the price to a level where the level of labour chosen will be such that all revenues go to payments for labor.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And if the production function does not allow for such an equality, then it simply is not compatible with a perfectly competitive market structure.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The OP should figure out how and why the diagram used in their post is misleading.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2018-11-08T02:39:37.217" LastActivityDate="2018-11-08T02:39:37.217" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25408" PostTypeId="2" ParentId="21295" CreationDate="2018-11-07T19:56:53.973" Score="0" Body="&lt;p&gt;Not exactly the name of an economic policy, but maybe you are searching for Public choice theory?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Diffused costs and concentrated benefits are famously described by Public choice as the results of rent seeking organisms able to effectuate political pressure to gain some form of regulatory capture or structural advantage over an otherwise free market. I'm not sure if I've heard a formal name for that kind of policy, without a judgement of the intentions embedded in the name that is. &lt;/p&gt;&#xA;" OwnerUserId="12536" LastActivityDate="2018-11-07T19:56:53.973" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25409" PostTypeId="1" AcceptedAnswerId="25425" CreationDate="2018-11-07T20:02:39.513" Score="0" ViewCount="231" Body="&lt;p&gt;I wonder about the question given in the title. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What could be arguments against this statement? &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Considering China and Russia: Both countries have an authoritarian political system. I claim - and please correct me if you think otherwise - that an authoritarian system hinders innovation. I would assume that universities are not free in their choice of topics to perform research on. Why is this bad for innovation? Not sure here, just a feeling. I would also say that innovation requires creative thinking and that an authoritarian system often comes with fear of stating one's own opinion and that this somehow doesn't yield the mindset necessary for innovation. Well, you can tell I am not very certain with this argument. Can you help me with it? &lt;/li&gt;&#xA;&lt;li&gt;Considering India and Brazil and South Africa: Wealth is very unequally distributed in these countries. And I feel like this is also hindering innovation. A large portion of their population will not have free access to education, already reducing the number of people that technological innovation can come from. &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;I know that this is a question which doesn't have the  one ultimate answer. So should I be in the wrong forum for it, I apologize for it. Otherwise, I am excited and happy to hear your comments! &lt;/p&gt;&#xA;" OwnerUserId="20081" LastActivityDate="2018-11-08T20:24:41.470" Title="Will BRICS countries be the leading innovation countries 20 years from now?" Tags="&lt;gdp&gt;&lt;innovation&gt;" AnswerCount="1" CommentCount="1" ClosedDate="2018-11-09T01:02:46.383" ContentLicense="CC BY-SA 4.0" />
  <row Id="25413" PostTypeId="1" CreationDate="2018-11-07T23:11:32.603" Score="1" ViewCount="53" Body="&lt;p&gt;I was having a conversation with a colleague regarding sunk costs, and discussion came up that the appeal of falling for the sunk cost fallacy might be a feature rather than a flaw, as it is behavior that appears to be very common and very persistent across generations. &lt;em&gt;I'd argue, just looking at the world as I see it, most individuals fall for the sunk cost fallacy, and it doesn't seem to give a serious disadvantage over time&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm aware of the literature regarding sunk costs and memory. I'm curious about any thoughts you all may have. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you!&lt;/p&gt;&#xA;" OwnerUserId="2844" LastActivityDate="2018-11-09T01:06:36.323" Title="Sunk cost fallacy- is it a bug or a feature?" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;&lt;behavioral-economics&gt;&lt;bounded-rationality&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25414" PostTypeId="2" ParentId="17250" CreationDate="2018-11-08T00:38:09.003" Score="0" Body="&lt;p&gt;Gresham's law holds that &quot;bad money drives out good money,&quot; meaning that given a choice of currencies (broadly speaking, &quot;money&quot; that serves as a store of value and a means of exchange), people use depreciating &quot;bad&quot; money to buy goods and services and hoard &quot;good&quot; money that is appreciating or holding its value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As this dynamic plays out, eventually there is little &quot;good money&quot; in circulation and the economy suffers accordingly.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am no expert on wampum, but I believe it had to do with counterfeiting and it just losing its value for the Dutch and English settlers to the extent where nobody wanted it as a form of payment.&lt;/p&gt;&#xA;" OwnerUserId="20035" LastActivityDate="2018-11-08T00:38:09.003" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25417" PostTypeId="1" AcceptedAnswerId="25433" CreationDate="2018-11-08T03:56:30.713" Score="1" ViewCount="47" Body="&lt;p&gt;I'm trying to understand Monderer and Samet's 1989 paper on approximate common knowledge.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm stuck in the last part of the proof of the &quot;agreeing to disagree&quot; Theorem A, where the upper bound of the posterior is established. The lower bound seems clear but I just cannot understand how one of the terms is written as (1-p). Am pasting a picture below of the part where I'm lost:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/910xH.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/910xH.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The last line which establishes the upper bound of r_i is unclear to me. Any help would be greatly appreciated. The link of the paper is : &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://ie.technion.ac.il/~dov/cpb_monderer_samet.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://ie.technion.ac.il/~dov/cpb_monderer_samet.pdf&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Theorem A is in page 180-181)&lt;/p&gt;&#xA;" OwnerUserId="11724" LastActivityDate="2018-11-09T15:36:35.807" Title="Approximating common knowledge with common beliefs (Monderer and Samet, 1989)" Tags="&lt;game-theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25418" PostTypeId="1" CreationDate="2018-11-08T10:03:18.990" Score="0" ViewCount="71" Body="&lt;p&gt;From investopedia: &quot;YTM is the total return anticipated on a bond if the bond is held until it matures&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have also seen this interpretation used in other sources however this seems wrong to me.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;More specifically the I don't see how the anticipated rate of return can be independent from the cost of capital. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I get from the math is that YTM expresses the cost of capital required for the net present value to be zero.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the YTM is low then I can probably use a higher discount rate when calculating the present value of the bond. But using a higher discount rate than the YTM, by it's definition means a lower present value and therefore a negative net present value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the YTM is high enough then I will most likely use a lower discount rate, meaning a  higher present value and therefore a positive net present value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is my understanding correct?&lt;/p&gt;&#xA;" OwnerUserId="20087" LastActivityDate="2018-11-08T19:37:54.333" Title="Yield To Maturity exact meaning" Tags="&lt;finance&gt;&lt;self-study&gt;&lt;investment&gt;&lt;bonds&gt;&lt;discount-rate&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25419" PostTypeId="2" ParentId="25342" CreationDate="2018-11-08T10:05:49.053" Score="1" Body="&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$P_XX+P_YY=M$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Differentiating w.r.t. &lt;span class=&quot;math-container&quot;&gt;$P_X$&lt;/span&gt;,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\frac{\partial X }{\partial P_X}P_X+X+\frac{\partial Y}{\partial P_X}P_Y=0$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Divide the whole term by &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt;, considering &lt;span class=&quot;math-container&quot;&gt;$X\neq 0$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\varepsilon _X+1+\frac{\partial Y}{\partial P_X}\frac{P_Y}{X}=0$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\varepsilon _X=1$&lt;/span&gt;(Given) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$2+\frac{\partial Y}{\partial P_X}\frac{P_X}{Y}(\frac{P_Y}{X}\frac{Y}{P_X})=0$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here, &lt;span class=&quot;math-container&quot;&gt;$$P_X,P_Y,X,Y&amp;gt; 0$$&lt;/span&gt;(ASSUMPTION)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, Cross- Price elasticity is &lt;span class=&quot;math-container&quot;&gt;$-2$&lt;/span&gt; (some positive no.) and not $0.&#xA;So, this statement is not true. &lt;/p&gt;&#xA;" OwnerUserId="18667" LastActivityDate="2018-11-08T10:05:49.053" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25422" PostTypeId="2" ParentId="25418" CreationDate="2018-11-08T17:46:21.533" Score="1" Body="&lt;p&gt;The yield to maturity is the &lt;a href=&quot;https://en.wikipedia.org/wiki/Internal_rate_of_return&quot; rel=&quot;nofollow noreferrer&quot;&gt;internal rate of return&lt;/a&gt; on the bond assuming no default. Given a series of promised cashflows in the future, to quote Prof. John Cochrane, &quot;... the yield is just a convenient way to quote the price.&quot; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the case of a zero-coupon bond with price &lt;span class=&quot;math-container&quot;&gt;$p_0$&lt;/span&gt; and face value &lt;span class=&quot;math-container&quot;&gt;$c_t$&lt;/span&gt; due &lt;span class=&quot;math-container&quot;&gt;$t$&lt;/span&gt; periods in the future, the yield to maturity is the fictional, constant interest rate &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; that solves the equation:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ p_0 = \frac{c_t}{(1 + y)^t} $$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;More generally in the case of a non-negative series of payments &lt;span class=&quot;math-container&quot;&gt;$(c_1, \ldots, c_T)$&lt;/span&gt;, the yield to maturity is the fictional, constant interest rate &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; that solves:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ p_0 = \sum_{t=1}^T \frac{c_t}{\left(1 + y\right)^t}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given a series of promised coupon payments and the bond's face value, listing either a bond price or bond yield conveys the same information.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The yield to maturity does not tell you the expected return because you don't know the probability of default, recovery rate, etc....&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Problems/errors with Investopedia's definition&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;The Investopedia definition you quoted is flawed because it's missing the critical phrase, &quot;&lt;em&gt;assuming no default&lt;/em&gt;.&quot; I've seen other sloppy, incomplete, or confused definitions on Investopedia and prefer Wikipedia.&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Problems with your statements on the cost of capital&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;The yield to maturity has an unambiguous, widely agreed upon definition and is easily computable. On the other hand, the cost of capital is a more nebulous concept. Different practitioners or academics often use somewhat different definitions for the cost of capital and estimate these somewhat different notions of the cost of capital in different ways.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you define the cost of capital as the return expected to be earned by investors, then yield to maturity is not the cost of capital over the period because the yield to maturity ignores the probability of default. (That said, it appears common practice in corporate finance to just ignore default probabilities and use yields as the cost of debt.)&lt;/p&gt;&#xA;" OwnerUserId="10334" LastEditorUserId="10334" LastEditDate="2018-11-08T18:47:22.383" LastActivityDate="2018-11-08T18:47:22.383" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="25423" PostTypeId="2" ParentId="25418" CreationDate="2018-11-08T19:37:54.333" Score="0" Body="&lt;p&gt;Another answer here defines the yield-to-maturity. I just want to comment on the cost of capital part of the question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The yield-to-maturity is similar to an internal rate of return calculation on an assets that generates future cash flows, with a single outflow (the invoice price). (Market yield calculation conventions may differ from an internal rate of return.) By definition, the NPV of the position is zero, if we use the discount rate matching the quoted yield.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Bringing in the cost of capital implies that we are looking at the cost of financing the position. Since costs vary by investor, we cannot give values that everyone will agree on - unlike the bond yield. That is why the yield-to-maturity is quoted in markets, while there are no quotes based on the cost of capital.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In order to calculate the cost of capital, weneed to know exactly:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;what are the types (debt, equity) of financing;&lt;/li&gt;&#xA;&lt;li&gt;what are the “interest” rates associated with each financing instrument (possibly the cost of equity).&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Once we pin down the financing information, we can either:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;determine the Net Present Value of the position; or&lt;/li&gt;&#xA;&lt;li&gt;determine the internal return on equity.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;For example, if we finance the bond position by borrowing at a lower rate of interest, we would expect to generate net positive cash flows, and hence a positive NPV.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also note that if the position is 100% equity financed, the expected return on equity is the rate of return on the asset, or the bond yield.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2018-11-08T19:37:54.333" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25425" PostTypeId="2" ParentId="25409" CreationDate="2018-11-08T20:24:41.470" Score="0" Body="&lt;p&gt;What makes you assume that there is a link between the BRIC(S) countries annd innovation, more than any other country in the world, to make them leaders?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The growth reason in each BRICS country is different. The similarity is partially because of the ratio between labor and capital, economies that invest in industrialization, capital, and get higher growth until they reach their new industrialized potential&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are large differences: Russia's economy is based on energy - oil and gas. China has been subsidizing its industry with a low exchanges rate, a subsidy that is ending now, Brazil has also plenty of energy resources, but alot of unattended poverty and corruption, India faces a lot of structural government issues etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An authoritarian doesn't have to lead to lower innovation, Japan in the 19th century became western country in a generation, with Japanese sent to study in Europe.&#xA;It is less probable for an authoritarian regime to support innovation, for the simplest reason - it depends on a single authority to understand it, rather than a public agenda oriented regime&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What you you should look for as an indicator for innovation is R&amp;amp;D expenditure out of the GDP, patent protection and any &quot;doing business&quot; score you find reliable&lt;/p&gt;&#xA;" OwnerUserId="19195" LastActivityDate="2018-11-08T20:24:41.470" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25426" PostTypeId="2" ParentId="25387" CreationDate="2018-11-08T22:37:38.607" Score="1" Body="&lt;blockquote&gt;&#xA;&lt;p&gt;WHY and HOW monetary issue causes inflation.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;When a central bank emits money (or decrease key interest rates), commercial banks will be able to refinance themselves at a lower cost. Which means that at the end, these commercial banks will also be more, say, flexible, and thus will stimulate demands (here and there) in the national economy by lending money (here and there). If supplies stay constant, markets will reach a new equilibrium via prices rising due to these stimulated demands &lt;span class=&quot;math-container&quot;&gt;$\implies$&lt;/span&gt; inflation.&lt;/p&gt;&#xA;" OwnerUserId="10247" LastEditorUserId="10247" LastEditDate="2020-06-19T07:29:25.067" LastActivityDate="2020-06-19T07:29:25.067" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="25427" PostTypeId="2" ParentId="25413" CreationDate="2018-11-08T23:39:47.250" Score="1" Body="&lt;p&gt;Very interesting question.&lt;br/&gt;&#xA;To answer the direct question in the title, I'd say I'd have to break the sunk cost fallacy into two arenas. In the first I'd say it is a feature not a bug, but in the second, vice versa.&lt;br/&gt;&#xA;&lt;br/&gt;&#xA;As a means to keep a business from dying before it's been given opportunity to profit.&#xA;&lt;br/&gt;&#xA;&lt;br/&gt;&#xA;I think that the sunk cost fallacy is still a double edged sword, I think that it may serve to keep businesses alive longer than they should, but I also believe that it at times keeps businesses alive long enough to see a return. Most small business owners I know, successful or not, have fallen victim to the underlying logic- for good or bad. In that way I do not consider it bad or good, I just see it as a feature of the economy, especially local economies. &#xA;&lt;br/&gt;&#xA;&lt;br/&gt;&#xA;As a flaw in the human psyche taken advantage of by MLM schemes, Casinos, numbers games and similar enterprises.&#xA;&lt;br/&gt;&#xA;&lt;br/&gt;&#xA;I believe that in these cases, it becomes a bug, not a feature. A terrible flaw that extracts great amounts of wealth from those of us who are vulnerable, intoxicated (not necessarily by narcotics, but by grand promises to we who are not in a secure position), and caught off guard. That's not to take responsibility away from our choices. I just think that most people, after being had as a result of falling into the trap of this logic, feel angry at themselves not in the way that Bismark might have felt after making a strategic error (which is what I have seen from business owners), but closer to the way that Heracles felt after murdering his own children. I stayed at the Cosmopolitan in Vegas recently, and noted that my room was one of the few with balconies that I could see anywhere on the strip. W Therefew balcony rooms in Vegas for a reason. &lt;br/&gt;Just my raw thoughts on the subject and are mostly anecdotal, this is the first time I've considered the sunken cost fallacy in this light. &lt;br/&gt;&lt;/p&gt;&#xA;" OwnerUserId="20097" LastEditorUserId="20097" LastEditDate="2018-11-09T01:06:36.323" LastActivityDate="2018-11-09T01:06:36.323" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="25428" PostTypeId="2" ParentId="15558" CreationDate="2018-11-09T02:27:12.043" Score="1" Body="&lt;p&gt;Benefit costs have been &lt;a href=&quot;http://www.pewresearch.org/fact-tank/2018/08/07/for-most-us-workers-real-wages-have-barely-budged-for-decades/&quot; rel=&quot;nofollow noreferrer&quot;&gt;increasing&lt;/a&gt;.  One hypothesis is that the overall compensation increases have been going to benefit increases rather than wage increases.  I.e. if my employer is paying \$5000 a year more for my healthcare, it may be unwilling to give me \$5000 cash in addition.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another hypothesis is that inflation undercounts &lt;a href=&quot;https://www.investopedia.com/articles/investing/123115/rising-prices-inflation-or-quality-improvements.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;quality improvements&lt;/a&gt;.  If my house is 50% bigger than my parents' house and costs 50% more, is that 50% inflation?  Or zero?  Or something else?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also consider some things that are ubiquitous now.  &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Television in every bedroom.  I grew up with just one in the house.&lt;/li&gt;&#xA;&lt;li&gt;Everyone owns their own computer.  My family didn't own a single computer until I was around ten.  My parents each have their own now.  &lt;/li&gt;&#xA;&lt;li&gt;Mobile phones.  I was the first member of my family to get one as an adult.  Many families now have one for each person, including the kids.  &lt;/li&gt;&#xA;&lt;li&gt;DVD (or Blu-Ray) player.  My family got its first VHS player after the computer.  &lt;/li&gt;&#xA;&lt;li&gt;Microwave.  Another appliance that appeared in my house when I was older.  &lt;/li&gt;&#xA;&lt;li&gt;Digital Video Recorder.  Not ubiquitous yet, but much more common.  &lt;/li&gt;&#xA;&lt;li&gt;Internet.  My family got dial up years after the computer.  Now everyone has broadband.  &lt;/li&gt;&#xA;&lt;li&gt;Cable.  Once you already have broadband, adding cable TV is cheap.  Particularly if you also have a landline.  &lt;/li&gt;&#xA;&lt;li&gt;Cars are much more advanced now.  E.g. higher fuel economy.  &lt;/li&gt;&#xA;&lt;li&gt;Prepared meals have replaced garden produce.  As a kid, my family made its own tomato sauce from garden-picked produce.  Now, I buy that in a jar or even get a whole frozen dinner that is already cooked and just needs heated.  &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;How is it that we have so much more stuff on less money?  &lt;/p&gt;&#xA;" OwnerUserId="68" LastActivityDate="2018-11-09T02:27:12.043" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25429" PostTypeId="2" ParentId="25387" CreationDate="2018-11-09T05:05:34.153" Score="-1" Body="&lt;p&gt;I feel your question can be rephrased as - &quot;How does mined gold enter into money circulation and what effects does it have level and price of money.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Using your example - M2 and GDP&lt;/strong&gt;&#xA;Let's take the example you quoted. I am using M2 to denote money supply and GDP to denote output. In your example, 100 units of Gold is the GDP. Now, these are two different things of course and M2 / GDP ratio varies by country. World average is 125% as checked from World Bank. &lt;a href=&quot;http://data.worldbank.org/indicator/FM.LBL.BMNY.GD.ZS?view=chart&quot; rel=&quot;nofollow noreferrer&quot;&gt;Source&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, M2 = 125 following from your example. Now, the mined Gold would be sold in the market at world price assuming free trade and no exchange restrictions. If entire world is on the Gold standard, all currencies are pegged to the Gold and they are essentially having 1:1 ratio (doesn't hold true in real life though even when we were on Gold standard; separate topic).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Impact of mined Gold on World Price of Gold&lt;/strong&gt;&#xA;So, if the size of economy in your example is very small say less than 1% of Global GDP, then the impact on world prices of additional 100 units of mined Gold will be very less. If on the contrary, the economy is large, it will have a substantial negative impact on price. Price of gold will go down because supply increased substantially.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;How does this enter money circulation?&lt;/strong&gt;&#xA;When the customer - say a large gold trader or a jeweller or an industrial company(ies) buys the gold, they could either put the Gold in the bank and swap money for it or warehouse it. Former = enters money circulation. Latter = doesn't yet. Whenever the Warehouse gold is sold, it will enter money supply when it is exchanged for bank notes. Some of it might get used for industrial manufacturing and jewellery and that will end up in consumption and not money supply.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Impact of mined Gold on Level and Price of Money&lt;/strong&gt;&#xA;Now, whenever this new Gold enters the money circulation, the bank essentially prints new money. This broadens the M2. Depending on the reserve requirements, banks can lend more now and essentially credit goes up, interest rates move down and inflation goes up afterward. GDP would go up depending on the ratio of M2 to GDP as explained above.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Example: if the reserve requirements are 10% then banks can lend up to 100 dollars for each 10 dollars worth of Gold in their vaults. This 10 dollar worth of Gold increases when new Gold is mined.&lt;/p&gt;&#xA;" OwnerUserId="15732" LastActivityDate="2018-11-09T05:05:34.153" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25432" PostTypeId="1" CreationDate="2018-11-09T12:32:58.377" Score="-1" ViewCount="30" Body="&lt;p&gt;My main goal is to compare CEO compensation for banks across different countries. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does anybody know where I can find data on CEO compensation for banks for different countries or a paper which contains at least a qualitative ranking? In the end I want to have a ranking for a certain number of countries of the form: Payment country 1 &gt; Payment country 2 &gt; Payment country 3 .... . I know from the literature that in the US CEO compensation should be the highest, followed by the UK. But most sources I found are not free to use (like Execucomp) and this paper (&lt;a href=&quot;https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1592163&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1592163&lt;/a&gt;) gives a rather strange ordering where the CEO compensation in the UK is very low.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A paper with a table and &lt;/p&gt;&#xA;" OwnerUserId="16436" LastActivityDate="2019-12-05T01:02:20.457" Title="CEO Compensation in Banking Data" Tags="&lt;data-request&gt;&lt;wages&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25433" PostTypeId="2" ParentId="25417" CreationDate="2018-11-09T15:36:35.807" Score="0" Body="&lt;h3&gt;Showing the left-hand inequality&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;Let's rearrange the equation,&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\begin{align*}&#xA;x &amp;amp;= r_i \frac{\mu\left( B^p_i\left( E \right) \right)}{\mu\left( E \right)} - \frac{\mu\left( X \cap \left[ B^p_i\left( E \right) \setminus E \right] \right)}{\mu\left( E \right)} \\&#xA;&amp;amp; \iff \underbrace{x \mu\left( E \right) + \mu\left( X \cap \left[ B^p_i\left( E \right) \setminus E \right] \right)}_{\text{LHS}} = r_i \mu\left( B^p_i\left( E \right) \right).&#xA;\end{align*}&#xA;$$&lt;/span&gt;&#xA;Since all terms in &lt;span class=&quot;math-container&quot;&gt;$\text{LHS}$&lt;/span&gt; are weakly positive, we can omit &lt;span class=&quot;math-container&quot;&gt;$\mu( X \cap [ B^p_i( E ) \setminus E ] )$&lt;/span&gt; from &lt;span class=&quot;math-container&quot;&gt;$\text{LHS}$&lt;/span&gt;, giving&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;x \mu\left( E \right) \leq r_i \mu\left( B^p_i\left( E \right) \right).&#xA;$$&lt;/span&gt;&#xA;Since &lt;span class=&quot;math-container&quot;&gt;$\mu( E ) \geq p \mu( B^p_i( E ) )$&lt;/span&gt;, this directly implies &lt;span class=&quot;math-container&quot;&gt;$x p \leq r_i$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Showing the right-hand inequality&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;Since &lt;span class=&quot;math-container&quot;&gt;$\mu( E ) \leq \mu( B^p_i( E ) )$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$x \geq 0$&lt;/span&gt;, we have&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\begin{align*}&#xA;&amp;amp;\frac{1}{\mu\left( E \right)} \left[ r_i \mu\left( B^p_i\left( E \right) \right) - \mu\left( X \cap \left[ B^p_i\left( E \right) \setminus E \right] \right) \right] \\&#xA;&amp;amp;\geq \frac{1}{\mu\left( B^p_i\left( E \right) \right)}\left[ r_i \mu\left( B^p_i\left( E \right) \right) - \mu\left( X \cap \left[ B^p_i\left( E \right) \setminus E \right] \right) \right] \\&#xA;&amp;amp;= \underbrace{r_i - \frac{\mu\left( X \cap \left[ B^p_i\left( E \right) \setminus E \right] \right)}{\mu\left( B^p_i\left( E \right) \right)}}_{\text{RHS}}.&#xA;\end{align*}&#xA;$$&lt;/span&gt;&#xA;It must be that &lt;span class=&quot;math-container&quot;&gt;$X \cap [ B^p_i( E ) \setminus E ] \subseteq B^p_i( E ) \setminus E$&lt;/span&gt;, so&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\text{RHS} \geq r_i - \frac{\mu\left( B^p_i\left( E \right) \setminus E \right)}{\mu\left( B^p_i\left( E \right) \right)} = r_i - \frac{\mu\left( B^p_i\left( E \right) \right) - \mu\left( E \right)}{\mu\left( B^p_i\left( E \right) \right)} = r_i - \left( 1 - \mu\left( \left. E \right| B^p_i\left( E \right) \right) \right).&#xA;$$&lt;/span&gt;&#xA;By definition (and this is inequality (9) in the text) &lt;span class=&quot;math-container&quot;&gt;$\mu( E | B^p_i( E ) ) \geq p$&lt;/span&gt;, thus&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\text{RHS} \geq r_i - \left( 1 - p \right).&#xA;$$&lt;/span&gt;&#xA;Noting that the original equality was &lt;span class=&quot;math-container&quot;&gt;$x = \text{RHS}$&lt;/span&gt;, we have&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;x \geq r_i - \left( 1 - p \right) \;\; \iff \;\; r_i \leq x + 1 - p.&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="14901" LastActivityDate="2018-11-09T15:36:35.807" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25434" PostTypeId="2" ParentId="25387" CreationDate="2018-11-09T16:07:53.160" Score="0" Body="&lt;p&gt;As mentioned in the comments, I too ran into problems on first attempts to understand inflation as far too many people give what I can only describe as &quot;textbook&quot; answers to the question that fail to help anyone grasp the underlying logic. That being said, I will do my best to explain it in the most simple and concise way I can conceive of.&lt;br/&gt; &#xA;&lt;br/&gt; &#xA;We start by establishing a barter economy where we have only two items, food and wood. &lt;br/&gt; &lt;br/&gt; &#xA;If there is a particularly good harvest season and we assume that wood is bought with food (food is now the basis for &lt;em&gt;price&lt;/em&gt;) and that each producer of wood is looking to take the best price, then it is as simple as understanding that the producers of food now have more resources to barter with, which allows them to bid against each other more competitively and at &lt;strong&gt;higher prices&lt;/strong&gt;. If we track the food-price of wood, we can see that as the supply of food increases (inflates), the food-price of wood increases as well.&#xA;&lt;br/&gt; &lt;br/&gt; &#xA;If we add a third product, copper, and we say that the producers of copper do not need wood, only food. Then we may begin to consider food a common currency. Its supply is a means of participating in the auction for goods across the entire market. &#xA;&lt;br/&gt; &lt;br/&gt; &#xA;If we were to have a bad harvest, there is simply less for the producers to come to auction with when they bid on wood or copper, as a consequence the food-price of &lt;em&gt;both&lt;/em&gt; these items comes down. Whether they do this with actual food or paper notes that are redeemable in food, the principles are the same. As to why we began to use gold rather than food (which is what we started with), that is an answer to a different question. &#xA;&lt;br/&gt; &lt;br/&gt; &#xA;If you can understand this, you understand the core concept of inflation. It's just jargon for excess supply and, in school, often used only to describe currency rather than goods. The next step is understanding it in terms of modern Western economies which is &lt;strong&gt;&lt;em&gt;notably more complicated&lt;/em&gt;&lt;/strong&gt;.&lt;br&gt;&#xA;&lt;br/&gt; &lt;br/&gt; &#xA;At its core its the same principle discussed above, except we are dealing with a case where the currency has nothing backing it other than our expectation that other people will accept it AND the knowledge that we are compelled to pay tax and that said tax must be paid in said currency. Its supply is controlled by help-for-profit banks that work closely with national governments (federal reserve in the U.S. ). However, to answer the direct question in the title, how does printing money cause inflation. Think of the example above, just think of it as the added supply to understand it at a very basic level. These help for profit banks add monies to the economies of the world in a number of different ways (quantitative easing, reserve requirements..) and how it affects your local economy is something you can spend an academic career studying. &#xA;&lt;br/&gt; &lt;br/&gt; &#xA;I won't go into specific central banking mechanics as your description seemed to be better answered by a description of the mechanics of inflation itself. Maybe I misunderstood, if so, comment, otherwise, I hope this helps. &lt;/p&gt;&#xA;" OwnerUserId="20097" LastEditorUserId="20097" LastEditDate="2018-11-09T16:23:25.647" LastActivityDate="2018-11-09T16:23:25.647" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25435" PostTypeId="2" ParentId="25388" CreationDate="2018-11-09T16:35:46.173" Score="-1" Body="&lt;p&gt;Think of the stock certificate as a physical object being traded around. It may be traded on more than one market. The centralisation you speak of depends on the source for the quote. The quote, generally (some exceptions), is a last trade price (a &lt;em&gt;delayed&lt;/em&gt; last trade price). It is not global. I have trading software that allows me to see quotes with less delays, I can choose to see it only on certain markets or last trade from any market. I see different signals than you do.&lt;br/&gt; &#xA;The most direct answer to the question in the title is &quot;they're not&quot;. There is no central, global signal. What you are likely referring to is just the (delayed) last trade price of the security on the markets that the quote service pulls from. &lt;/p&gt;&#xA;" OwnerUserId="20097" LastActivityDate="2018-11-09T16:35:46.173" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25436" PostTypeId="2" ParentId="25388" CreationDate="2018-11-09T22:51:02.843" Score="-1" Body="&lt;p&gt;If you want to buy a share of Google, then you have to find someone who's willing to sell a share. You could try to find such a person on your own, but it's a lot easier to go to an organization that specializes in matching people who want to buy with people who want to sell. Such organizations are called &quot;stock exchanges&quot;. How they work is you tell them how much you're willing to pay, and someone else says how much they're asking for, and if what you're willing to pay is at least as much as how much the seller is asking for, then the exchange matches you up. So the exchange keeps track of how much people are willing to pay (known as the &quot;bid&quot; price), and how much people are asking for (the &quot;ask&quot; price). When you look up &quot;the&quot; price of a stock, that's a summary of this information (I have &quot;the&quot; in quotes because there is no one &quot;true&quot; price of a stock; at minimum there are the bid and ask).&lt;/p&gt;&#xA;" OwnerUserId="16462" LastActivityDate="2018-11-09T22:51:02.843" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25437" PostTypeId="2" ParentId="25432" CreationDate="2018-11-09T23:06:58.180" Score="-1" Body="&lt;p&gt;You should be able to obtain this info from listed companies in the US and UK, but also in other countries.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Most publicly listed firms are obliged to report CEO compensation. &lt;a href=&quot;http://insiders.morningstar.com/trading/executive-compensation.action?t=QCOM&amp;amp;region=usa&amp;amp;culture=en-US&quot; rel=&quot;nofollow noreferrer&quot;&gt;Here's an example for Qualcomm&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="12304" LastActivityDate="2018-11-09T23:06:58.180" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25438" PostTypeId="1" CreationDate="2018-11-10T00:26:51.797" Score="0" ViewCount="273" Body="&lt;p&gt;I have a problem set stating that a competitive equilibrium does exist under a series of assumptions on the economy. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question is &quot;Show that the following six assumptions are needed for existence by constructing counterexamples to it where 5 of them are satisfied and one not&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The assumptions are continuity, convexity and local nonsatiation of preferences and closedness, convexity and inaction of the production set. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;From what I got from the question and the TA explanations, it seems that if one of this properties fails, then there should be no competitive equilibrium. But I have actually found cases in which these properties are violated but an equilibrium exists. For example, in an Edgeworth box with bliss point preferences (which are not locally nonsatiated) we can find an equilibirum; the same happens when we have for example lexicographic (which are not continuous) and perfect substitutes. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;SO my question is are these assumptions necessary for the existence of an equilibirum or not? And if not, what would be the purpose of the exercise?&lt;/p&gt;&#xA;" OwnerUserId="6773" LastActivityDate="2018-11-10T00:26:51.797" Title="Assumptions for the existence of a Walrasian equilibrium" Tags="&lt;microeconomics&gt;&lt;general-equilibrium&gt;&lt;competitive-equilibrium&gt;" AnswerCount="0" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="25439" PostTypeId="2" ParentId="24436" CreationDate="2018-11-10T02:39:47.123" Score="0" Body="&lt;p&gt;First, we can rephrase your question in the following way:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Given a linear &lt;span class=&quot;math-container&quot;&gt;$u^*: \mathcal L \to \mathbb R$&lt;/span&gt; and an expected utility preference &lt;span class=&quot;math-container&quot;&gt;$\succsim$&lt;/span&gt;, what is the minimal subset of &lt;span class=&quot;math-container&quot;&gt;$\succsim$&lt;/span&gt; needed to ensure that it is represented by &lt;span class=&quot;math-container&quot;&gt;$u^*$&lt;/span&gt;.&lt;/strong&gt;&lt;span class=&quot;math-container&quot;&gt;$^1$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can do it in &lt;span class=&quot;math-container&quot;&gt;$|X| - 1$&lt;/span&gt; observations, so long as every dimension of &lt;span class=&quot;math-container&quot;&gt;$\mathcal L$&lt;/span&gt; is &quot;represented&quot; in the observations. Let's explore how this can be done, and hopefully in the process, make my claim coherent. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the moment assume that &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; is finite. Let &lt;span class=&quot;math-container&quot;&gt;$b,w$&lt;/span&gt; be the best and worst elements of &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; according to &lt;span class=&quot;math-container&quot;&gt;$u^*$&lt;/span&gt;; wlog assume that &lt;span class=&quot;math-container&quot;&gt;$u^*(b) = 1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$u^*(w) = 0$&lt;/span&gt;. Of course it must be that &lt;span class=&quot;math-container&quot;&gt;$b \succsim w$&lt;/span&gt;, or we have a counter-example to the hypothesis that &lt;span class=&quot;math-container&quot;&gt;$\succsim$&lt;/span&gt; is represented by &lt;span class=&quot;math-container&quot;&gt;$u^*$&lt;/span&gt;. Now for each other element &lt;span class=&quot;math-container&quot;&gt;$x \in X$&lt;/span&gt; we need only to know if &#xA;&lt;span class=&quot;math-container&quot;&gt;$$u^*(x)b + (1-u^*(x))w \sim x$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If this is true then by the properties of EU, any representation (also normalized on &lt;span class=&quot;math-container&quot;&gt;$b,w$&lt;/span&gt;) must set &lt;span class=&quot;math-container&quot;&gt;$u(x)$&lt;/span&gt; to be &lt;span class=&quot;math-container&quot;&gt;$u^*(x)u(b) + (1-u^*(x))u(w) = u^*(x)1 + (1-u^*(x))0 = u^*(x)$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, if &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; is infinite, there may not be a best and worst element, you will have to deal with cases where the element &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; is above or below the bounds of the normalization. This issue arrises also in the proof of the mixture space theorem and is dealt with in the same way---take mixtures with the extreme elements, and figure out the weights accordingly.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is easy to show that any less data than the above leaves a degree of freedom which can be exploited. In other words, you must check each dimension but it suffices to do this with a single observation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For what its worth this is a specific case of a much more general result: a linear function is completely determined by its behavior on basis vectors! &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; is your basis for &lt;span class=&quot;math-container&quot;&gt;$\mathcal L$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;[1] I could be getting your question wrong. Perhaps you mean that &lt;span class=&quot;math-container&quot;&gt;$u^*$&lt;/span&gt; is over &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; not &lt;span class=&quot;math-container&quot;&gt;$\mathcal L$&lt;/span&gt; and you do not have access to cardinal properties of &lt;span class=&quot;math-container&quot;&gt;$u^*$&lt;/span&gt;. If this is the case, the answer still stands, but the question seems pretty meaningless.&lt;/p&gt;&#xA;" OwnerUserId="398" LastActivityDate="2018-11-10T02:39:47.123" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25440" PostTypeId="1" AcceptedAnswerId="25445" CreationDate="2018-11-10T03:37:41.473" Score="1" ViewCount="49" Body="&lt;p&gt;Suppose a company has a zero coupon bond with face value of 200 million which matures in a year.  Its assets has a market value of 300 million. The standard deviation is 30%  and the risk free rate is 5%. It does not pay any dividends. Based on the Black-Scholes model, what is the value of debt and equity? How can we replicate this option?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm new to finance, but don't we need to know whether this is a call or a put option to replicate it? Also how do we go about solving for the value of debt and equity using the B-S model? Wouldn't the value of debt just 200M/(1+5%)? What does it have to do with the model? &lt;/p&gt;&#xA;" OwnerUserId="19727" LastActivityDate="2018-11-10T14:31:18.143" Title="Black-Scholes Model question" Tags="&lt;finance&gt;&lt;corporate-finance&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25442" PostTypeId="1" CreationDate="2018-11-10T10:54:58.810" Score="0" ViewCount="55" Body="&lt;p&gt;i  have the value  added  of  a  company for 2 years  2016  and  2017  so  to  compare these  values and to see its evolutioon i divided the value of 2017 by  the one of  2016&lt;/p&gt;&#xA;&#xA;&lt;p&gt;but  some friends told me that the comparison i am doing is false because  values should  be calculated using  same  price  base&lt;/p&gt;&#xA;&#xA;&lt;p&gt;so  what should i do to have a correct  evaluation  ?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;thanks a lot  in advance for  any help  &lt;/p&gt;&#xA;" OwnerUserId="19813" LastActivityDate="2018-11-22T19:45:07.610" Title="Evaluate value added of a company" Tags="&lt;mathematical-economics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25445" PostTypeId="2" ParentId="25440" CreationDate="2018-11-10T14:31:18.143" Score="0" Body="&lt;p&gt;For simplicity, numbers are in millions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We assume that markets are efficient, and that the value of equity and liabilities equals that of assets. So debt + equity = 300. We want to solve for the value of the debt, and get equity as the residual.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The valuation debt &lt;span class=&quot;math-container&quot;&gt;$=\frac{200}{1.05}$&lt;/span&gt; assumes no default. We model default by the probability of the value of the assets dropping below 200 (redemption value of debt) after one year.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can value the default risk by nothing that it could be cancelled out by buying a put on the asset values, with a strike at 200. I leave to the reader the determination of this value. Buying the bond and the put creates a default risk free bond, which has the discounted value above.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The value of bond with default is therefore the value of the default free bond less the value of the put.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2018-11-10T14:31:18.143" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="25446" PostTypeId="1" CreationDate="2018-11-10T14:43:37.467" Score="-1" ViewCount="66" Body="&lt;p&gt;What are the options for Economics PhD students after graduation? I am aware most students end up going into academia as either professors or researchers. What are the options in the corporate world for an Economics PhD graduate?&lt;/p&gt;&#xA;" OwnerUserId="20102" LastActivityDate="2018-11-11T06:06:45.387" Title="Economics PhD graduate?" Tags="&lt;academic-graduate&gt;&lt;government&gt;&lt;soft-question&gt;&lt;research&gt;" AnswerCount="2" CommentCount="2" ClosedDate="2018-11-21T22:42:58.610" ContentLicense="CC BY-SA 4.0" />
  <row Id="25448" PostTypeId="1" AcceptedAnswerId="25464" CreationDate="2018-11-10T16:02:12.970" Score="-1" ViewCount="36" Body="&lt;p&gt;I would briefly comment that Rosetta Stone has a terrible reputation among language lovers (&lt;a href=&quot;https://language101.com/reviews/rosetta-stone/&quot; rel=&quot;nofollow noreferrer&quot;&gt;see sample review about why most people can't learn like they did as a child&lt;/a&gt;), and some language lovers claim that people who used Rosetta Stone to learn a new language usually can't say more than a few words in the target language. Also alleged is that Rosetta Stone is at least rumored to originally be a Spanish course with heavy copying and pasting, and for native English speakers it works best for Romance and northern Europe's Germanic languages, perhaps because English is a mix of Romance and Germanic languages. (I would offer a half-dissenting caveat that for all the faults in the accent evaluator, the 1-2% who least need the help can profitably use Rosetta Stone to learn an accent.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now to the main question: Darwin's theory of evolution as originally formulated was an adaptation of an economic theory, or so I understand. In the proto-Darwinian theory of evolution, organisms survive differentially according to their fitness to the environment. The original economic version was that the marketplace would favor goods and services that worked, weeding out those that didn't.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So how can something so bad as Rosetta Stone be the gold standard, partly challenged by DuoLingo? It gives an impression of learning, perhaps, but serious critiques are readily available on the web. It also uses a pedagogy based on features of a small child's brain that are taken out well before adulthood. Related questions could be asked of Microsoft's success with MS-DOS and Internet Explorer, but I know enough of my bias not to make that my main question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, it seems that there are vastly inferior products on the market which are preferred to ones that are much better. At least in the pre-Darwinian economic version, I'd be interested in knowing how.&lt;/p&gt;&#xA;" OwnerUserId="20115" LastActivityDate="2018-11-11T11:08:24.137" Title="How does &quot;Survival of the Fittest&quot; result in Rosetta Stone's economic success?" Tags="&lt;efficient-markets&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="25450" PostTypeId="1" AcceptedAnswerId="25456" CreationDate="2018-11-10T17:42:45.350" Score="1" ViewCount="42" Body="&lt;p&gt;The GDP Calculation is for US. &#xA;If a Canadian company decides to change from a US supplier to a Canadian supplier, will that change the GDP?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I thought it would - as that it would reduce exports - but the answer given is &quot;no change&quot;&lt;/p&gt;&#xA;" OwnerUserId="19292" LastActivityDate="2018-11-11T13:13:43.020" Title="GDP (Is this a part of GDP Calculation)?" Tags="&lt;gdp&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25451" PostTypeId="2" ParentId="17887" CreationDate="2018-11-10T19:47:50.160" Score="2" Body="&lt;p&gt;One book that may help you out is &lt;em&gt;&lt;a href=&quot;https://abridge.me.uk/doku.php?id=macroeconomics_and_the_phillips_curve_myth&quot; rel=&quot;nofollow noreferrer&quot;&gt;Macroeconomics and the Phillips Curve Myth&lt;/a&gt;&lt;/em&gt; by James Forder.  His narrative is similar to the one you refer to, but the terminology is a little different.  He argues that pre-1968, the economic literature had a more nuanced understanding of inflation that incorporated factors like profit and union power to a greater extent.  I'm not sure the ideas would be completely new to you, and their authors probably wouldn't have described them as &amp;quot;political theories&amp;quot;, but Forder argues that there is a great deal of academic work, including empirical work, that quite suddenly fell out of historical accounts of the literature.  If nothing else, I think his reference list could get you started.&lt;/p&gt;&#xA;" OwnerUserId="16631" LastEditorUserId="16631" LastEditDate="2020-12-04T17:31:45.090" LastActivityDate="2020-12-04T17:31:45.090" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25452" PostTypeId="1" CreationDate="2018-11-10T20:24:28.523" Score="1" ViewCount="65" Body="&lt;p&gt;Could one define a production function which is homogenous as having constant elasticity of substitution. Just want clarification .&#xA;Thanks&lt;/p&gt;&#xA;" OwnerUserId="20059" LastActivityDate="2018-12-12T15:00:40.780" Title="Homogenous production function" Tags="&lt;production-function&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25454" PostTypeId="1" AcceptedAnswerId="25466" CreationDate="2018-11-10T23:00:34.527" Score="0" ViewCount="163" Body="&lt;p&gt;In my intro macroeconomics course, my professor tried to emphasize that the money supply changes ONLY by increasing or decreasing lending activity. However, I feel like he was trying to focus on lending because most people have the misconception that the Federal Reserve just &quot;prints money&quot; to increase the money supply. However, is it true that although the MAJORITY of the money supply increases with more lending, that in some cases the Federal Reserve does &quot;add zeros&quot; to their spreadsheets to influence the money supply? For example, if they wanted to increase the money supply they could &quot;print money&quot; and use those funds to buy bonds from banks which in turn would then lend out that money and increase the money supply.&lt;/p&gt;&#xA;" OwnerUserId="20011" LastActivityDate="2018-11-11T11:22:15.373" Title="What does it mean to &quot;print money&quot;?" Tags="&lt;money-supply&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25455" PostTypeId="1" CreationDate="2018-11-10T23:09:59.583" Score="1" ViewCount="167" Body="&lt;p&gt;I derived the Walrasian equilibrium for an economy of two consumers with their respective utility functions (u1, u2) and initial endowments but later on I am asked to maximize (u1+u2).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does anyone know how this changes the problem ? Like, what is the difference in both approaches when it comes to the optimal allocations ?&lt;/p&gt;&#xA;" OwnerUserId="20119" LastEditorUserId="68" LastEditDate="2018-11-11T00:07:44.913" LastActivityDate="2020-08-02T12:24:41.953" Title="What is the difference between solving for utility maximization separately or aggregately?" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;walrasian&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25456" PostTypeId="2" ParentId="25450" CreationDate="2018-11-10T23:20:42.583" Score="1" Body="&lt;p&gt;GDP is a measure of the value of &lt;strong&gt;final goods&lt;/strong&gt; produced in a country over a period of time. Final goods are those that are sold to consumers. Therefore, the intermediate step of a supplier selling to another company would not be counted in the GDP calculation. Since it wouldn't have been counted in US GDP when the US supplier was selling to the Canadian company, there is no change in US GDP when the Canadian company changes to a Canadian supplier.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider car production across many companies in the US (some make tires, some make engine parts, etc.) that then sell these parts to the final manufacturer. We wouldn't count the production of each part separately, we just count the final value when the car is sold to a consumer. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT: Apparently, I was mistaken. What I said regarding intermediate/final goods is generally true. However, after doing a little more research on this, it turns out exported intermediate goods are an exception to this rule. The value of these exports IS included in the calculation of GDP. For more details on this, see &lt;a href=&quot;https://research.stlouisfed.org/publications/page1-econ/2018/09/04/how-do-imports-affect-gdp&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://research.stlouisfed.org/publications/page1-econ/2018/09/04/how-do-imports-affect-gdp&lt;/a&gt;. I apologize for the confusion. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given this revelation, I am somewhat stumped by your original question. Are there any other details provided in the statement of the question? &lt;/p&gt;&#xA;" OwnerUserId="20107" LastEditorUserId="20107" LastEditDate="2018-11-11T13:13:43.020" LastActivityDate="2018-11-11T13:13:43.020" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25457" PostTypeId="2" ParentId="25455" CreationDate="2018-11-11T01:32:35.163" Score="1" Body="&lt;p&gt;Under what constraints is &lt;span class=&quot;math-container&quot;&gt;$u_1+u_2$&lt;/span&gt; maximized? The exercise may be about the First Welfare Theorem: a competitive equilibrium is Pareto efficient. In this case, maximizing the sum may be designed to highlight that the equilibrium you found also maximizes the sum of utilities. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In general, the maximum of a sum of functions need not equal the maximum of any of these functions. &lt;/p&gt;&#xA;" OwnerUserId="4445" LastActivityDate="2018-11-11T01:32:35.163" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25458" PostTypeId="2" ParentId="25454" CreationDate="2018-11-11T01:39:37.027" Score="0" Body="&lt;p&gt;Depends on what you mean by money supply: M0, M1 etc (see &lt;a href=&quot;https://education.howthemarketworks.com/glossary/money-supply/&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; for example). If M0, then printing money is literally issuing new coins and bills. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Fed can certainly &quot;add zeroes&quot; and use the extra money to buy other assets. The frequency of this is an empirical question. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ask your professor what she/he meant.&lt;/p&gt;&#xA;" OwnerUserId="4445" LastActivityDate="2018-11-11T01:39:37.027" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25459" PostTypeId="2" ParentId="25446" CreationDate="2018-11-11T01:47:32.523" Score="3" Body="&lt;p&gt;Your claim that most go into academia is wrong. From the top universities, about half to two-thirds go into academia, but from most universities, most go to non-academic careers. It's simple accounting: a top-30 university graduates about 20 PhDs in economics per year, hires 1 or 2. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Google &quot;[university name] economics job market outcomes&quot;, or &quot;[university name] economics placement&quot; to see where the PhDs get jobs. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Corporate world: economic consulting, management consulting, banking, large companies like Amazon, Wal-Mart, Uber. &lt;/p&gt;&#xA;" OwnerUserId="4445" LastActivityDate="2018-11-11T01:47:32.523" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25460" PostTypeId="1" CreationDate="2018-11-11T02:21:21.993" Score="1" ViewCount="37" Body="&lt;p&gt;The question is as follows: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The inverse market demand for provision of gas services is given by p(y) = 1/(1+y), where p is the unit price and y measures output in appropriately scaled units. Suppose the technology of gas provision is summarized by the total cost curve C(yi) = (10^−2)yi, where yi represents the units produced by firm i. Suppose all firms have access to the same technology. What is the long run competitive equilibrium of this market? Specify output exchanged, equilibrium price, number of active firms in the market, and profits of each of them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My attempt at a solution:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know that for a competitive equilibrium market in the long run, profit is 0. Thus, I can write 0 = p(y)*y - C(yi)y. I also know that P = MC.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Solving either gives P = 1/100 and y = 99. My question is, is this y for each individual firm or total output in the market? I am thinking it is the former since supply should be infinitely elastic at the optimal price in a competitive equilibrium. But I am stuck on solving for the number of active firms are in the market. How do I go about doing this? Thanks.&lt;/p&gt;&#xA;" OwnerUserId="20123" LastEditorUserId="20123" LastEditDate="2018-11-12T00:11:35.530" LastActivityDate="2018-11-12T00:11:35.530" Title="Competitive Market - Production &amp; Number of Firms" Tags="&lt;microeconomics&gt;&lt;competitive-equilibrium&gt;&lt;theory-of-the-firm&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25461" PostTypeId="2" ParentId="24491" CreationDate="2018-11-11T04:06:23.197" Score="2" Body="&lt;p&gt;Arash, you definitely have a more sensible understanding of how the global economy works than Peter Schiff does. From my days of listening to Peter Schiff, I walked away with the understanding that Peter does not know exactly how Triffins' Paradox works, nor what it means to have a global reserve currency.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To truly understand why trade wars ignite and spread, we need to go back to the monetary stimulus program launched after the 2009 financial meltdown which includes Zero Interest Rate Policy (ZIRP), Quantitative Easing (QE) and central bank purchases of government and corporate bonds and stocks to backstop lenders and increase liquidity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So with credit being almost free, new production facilities come online in the hopes of earning a profit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Soon there is more productive capacity than there is demand for the good being produced and this leads to over-capacity, and it leads to over-production, which as a result of supply and demand. This leads to a loss of pricing power: producers can't raise prices due to global gluts, so they end up dumping their over-production wherever they can.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Over-capacity leads to some nations over-producing, and cheap, easy credit leads to over-consumption in other nations. Both imbalances are the result of vast distortions in the incentive structure of the global economy, distortions created by the policies of (ZIRP), and other financial engineering, as well as government subsidies for over-production and so on.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As these distortions and imbalances start destabilizing domestic economies, political leaders turn to trade wars to stem the erosion of the domestic economy. Trade wars are the inevitable consequence of monetary stimulus that creates perverse incentives to borrow more than is prudent, over-produce, over-consume and use accounting trickery and financial engineering to maintain the appearance of fiscal health.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Its a complex topic, but Schiff always succeeds in turning into a pissing contest among an American and Chinaman type of imagery. It is nothing personal between China and U.S., its just financial trickery among its leaders to try to keep their economies afloat after screwing it up in the first place.&lt;/p&gt;&#xA;" OwnerUserId="20035" LastActivityDate="2018-11-11T04:06:23.197" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25462" PostTypeId="2" ParentId="25446" CreationDate="2018-11-11T06:06:45.387" Score="0" Body="&lt;p&gt;Sander's answer about checking various Economics PhD program websites for their recent placements is good advice. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, the American Economic Association has a list of Job Openings for Economists on their website (&lt;a href=&quot;https://www.aeaweb.org/joe/listings&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.aeaweb.org/joe/listings&lt;/a&gt;). This may help give you an idea as to where recent graduates with Economics PhDs will end up. &lt;/p&gt;&#xA;" OwnerUserId="20107" LastActivityDate="2018-11-11T06:06:45.387" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25464" PostTypeId="2" ParentId="25448" CreationDate="2018-11-11T11:08:24.137" Score="2" Body="&lt;p&gt;I'm not very familiar with the history of the Rosetta Stone method, but as for your remark that &quot;there are vastly inferior products on the market which are preferred to ones that are much better&quot;, here's some food for thought:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;It could be due to some type of lock-in effect (&lt;a href=&quot;http://www.afterecon.com/economics-and-finance/lock-effect/&quot; rel=&quot;nofollow noreferrer&quot;&gt;1&lt;/a&gt;, &lt;a href=&quot;https://en.wikipedia.org/wiki/Vendor_lock-in&quot; rel=&quot;nofollow noreferrer&quot;&gt;2&lt;/a&gt;). This could be deliberate on the part of the vendors by spreading misinformation about other products or making access to them difficult, or simply because there is inefficient flow of information about other products, i.e. people see others using a product, assume it is good and barely any one goes looking for alternatives. In your case, it could be that only language lovers have enough expertise to know that the method is inefficient while it's the first thing average people find when looking for language learning methods and they assume it's the first thing they found because it's good and they don't search any further. For another example of this you could look into the history of the Qwerty keyboard. The layout dates back to the days of typewriting and engineering constraints they had back then. Nowadays there are layouts that would be much more efficient, but Qwerty remains mainstream.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Sometimes good and products survive in a marketplace not because they add any positive value to it but because they are intrinsically good at surviving. I came across this idea while studying Richard Dawkins' selfish gene idea so while it's not exactly pre-Darwinian, you could look into it.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Finally, it seems to me that your argument makes the error of forgetting that we're always in the middle of things. So even if we admit that, as you put it, &quot;the marketplace would favor goods and services that worked, weeding out those that didn't&quot;, this is still a process that takes time. Who is to say that we're not exactly in the middle of such a process with Rosetta Stone and that it won't be weeded out in a few decades?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="20126" LastActivityDate="2018-11-11T11:08:24.137" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25466" PostTypeId="2" ParentId="25454" CreationDate="2018-11-11T11:22:15.373" Score="0" Body="&lt;p&gt;Of course, the central bank could print more currency to increase the money supply by a process known as seigniorage. But how will it get that newly created money into circulation? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is what it does - It lends that newly created money to commercial banks which further process it to the borrowers. Thus, it all come down to the lending activity. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Everything else being constant, the increase in money supply lowers the market interest rate further pushing the lending activity. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;PS : This is how the Reserve Bank of India works. RBI in Indian economy is the banking regulator and hence could control the money supply. I don't know if it works exactly the same way for Federal Reserve.&lt;/p&gt;&#xA;" OwnerUserId="19546" LastActivityDate="2018-11-11T11:22:15.373" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25473" PostTypeId="1" CreationDate="2018-11-11T20:33:44.823" Score="2" ViewCount="33" Body="&lt;p&gt;This is an exercise which I came upon while studying an introduction to financial mathematics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Exercise :&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Consider the finite sample space &lt;span class=&quot;math-container&quot;&gt;$\Omega = \{\omega_1,\omega_2,\omega_3\}$&lt;/span&gt; and let &lt;span class=&quot;math-container&quot;&gt;$\mathbb P$&lt;/span&gt; be a probability measure such that &lt;span class=&quot;math-container&quot;&gt;$\mathbb P[\{\omega_1\}] &amp;gt; 0$&lt;/span&gt; for all &lt;span class=&quot;math-container&quot;&gt;$i=1,2,3$&lt;/span&gt;. We define a financial market of one period which is consisted by the probability space &lt;span class=&quot;math-container&quot;&gt;$(\Omega,\mathcal{F},\mathbb P)$&lt;/span&gt; with &lt;span class=&quot;math-container&quot;&gt;$\mathcal{F} := 2^\Omega$&lt;/span&gt; and the securities &lt;span class=&quot;math-container&quot;&gt;$\bar{S} = (S^0,S^1,S^2)$&lt;/span&gt; which are consisted of the zero-risk security &lt;span class=&quot;math-container&quot;&gt;$S^0$&lt;/span&gt; and two securities &lt;span class=&quot;math-container&quot;&gt;$S^1,S^2$&lt;/span&gt; which have risk. Their values at the time &lt;span class=&quot;math-container&quot;&gt;$t=0$&lt;/span&gt; are given by the vector &#xA;  &lt;span class=&quot;math-container&quot;&gt;$$\bar{S}_0 = \begin{pmatrix} 1\\2\\7 \end{pmatrix}$$&lt;/span&gt;&#xA;  while their values at time &lt;span class=&quot;math-container&quot;&gt;$t=1$&lt;/span&gt;, depending whether the scenario &lt;span class=&quot;math-container&quot;&gt;$\omega_1,\omega_2$&lt;/span&gt; or &lt;span class=&quot;math-container&quot;&gt;$\omega_3$&lt;/span&gt; happens, are given by the vectors &#xA;  &lt;span class=&quot;math-container&quot;&gt;$$\bar{S}_1(\omega_1) = \begin{pmatrix} 1\\3\\9\end{pmatrix}, \quad \bar{S}_1(\omega_2) = \begin{pmatrix} 1\\1\\5\end{pmatrix}, \quad \bar{S}_1(\omega_3) = \begin{pmatrix} 1\\5\\10 \end{pmatrix}$$&lt;/span&gt;&#xA;  (a) Show that this financial market has arbitrage.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;(b) Let &lt;span class=&quot;math-container&quot;&gt;$S_1^2(\omega_3) = 13$&lt;/span&gt; while the other values remain the same as before. Show that this financial market does not have arbitrage and describe all the equivalent martingale measures.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Attempt :&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;(a)&lt;/strong&gt; We have that a value process is defined as :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$V_t = V_t^\bar{\xi} = \bar{\xi}\cdot \bar{S}_t = \sum_{i=0}^d \xi_t^i\cdot \bar{S}_t^i, \quad t \in \{0,1\}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where &lt;span class=&quot;math-container&quot;&gt;$\xi = (\xi^0, \xi) \in \mathbb R^{d+1}$&lt;/span&gt; is an investment strategy where the number &lt;span class=&quot;math-container&quot;&gt;$\xi^i$&lt;/span&gt; is equal to the number of pieces from the security &lt;span class=&quot;math-container&quot;&gt;$S^i$&lt;/span&gt; which are contained in the portfolio at the time period &lt;span class=&quot;math-container&quot;&gt;$[0,1], i \in \{0,1,\dots,d\}$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, I also know that to show that a market has arbitrage, I need to show the following :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$V_0 \leq 0, \quad \mathbb P(V1 \geq 0) = 1, \quad \mathbb P(V_1 &amp;gt; 0) &amp;gt; 0$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand that the different &lt;span class=&quot;math-container&quot;&gt;$S$&lt;/span&gt; vectors will be plugged in to calculate &lt;span class=&quot;math-container&quot;&gt;$V_t$&lt;/span&gt; but I really can't comprehend &lt;span class=&quot;math-container&quot;&gt;$\xi$&lt;/span&gt;. What would the &lt;span class=&quot;math-container&quot;&gt;$\xi$&lt;/span&gt; vector be ? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help for me to understand what &lt;span class=&quot;math-container&quot;&gt;$\xi$&lt;/span&gt; really is based on the problem and how to complete my attempt will be much appreciated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For &lt;strong&gt;(b)&lt;/strong&gt;, showing that it does not have arbitrage is similar to &lt;strong&gt;(a)&lt;/strong&gt; as I will just show that one of these conditions will not hold. What about the martingale stuff though ? It's a mathematical substance we really haven't been into so, if possible, I would really appreciate an elaboration.&lt;/p&gt;&#xA;" OwnerUserId="20128" LastActivityDate="2018-11-11T20:33:44.823" Title="Showing that a market model has arbitrage and describing martingales" Tags="&lt;mathematical-economics&gt;&lt;finance&gt;&lt;financial-economics&gt;&lt;financial-markets&gt;&lt;martingales&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25474" PostTypeId="1" CreationDate="2018-11-11T21:14:19.340" Score="1" ViewCount="49" Body="&lt;p&gt;I got that in an exchange economy, conditions as preferences being continuous, strictly convex and strongly monotone and &lt;span class=&quot;math-container&quot;&gt;$\sum_i \omega_i\gg 0$&lt;/span&gt; are &lt;strong&gt;sufficient&lt;/strong&gt; conditions for the existence of a Walrasian (or competitive) equlibirum. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are there &lt;strong&gt;necessary&lt;/strong&gt; conditions for the existence of an equilibrium?&lt;/p&gt;&#xA;" OwnerUserId="6773" LastEditorUserId="6773" LastEditDate="2018-11-12T22:23:48.287" LastActivityDate="2018-12-17T15:07:29.997" Title="Necessary conditions for the existence of a competitive equilibirum" Tags="&lt;microeconomics&gt;&lt;general-equilibrium&gt;&lt;competitive-equilibrium&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25475" PostTypeId="2" ParentId="11831" CreationDate="2018-11-11T23:13:09.553" Score="0" Body="&lt;p&gt;So, to understand what the World Bank is saying, you need to understand who the World Bank is and how they view the economy. What's been apparent to me is that they are part of the global neoliberal capitalist and state capitalist school of thought. These two bankrupt ideologies more or less define their policies and worldview which is the reliance on an expansion of credit and State power which will and already is resulting in unhappy endings.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are also structural end-games such as the one someone above mentioned, the Baumol's cost disease at work, which is the inefficient sectors of our economy end up dominating the national income, as counterintuitive as it may be.&lt;/p&gt;&#xA;" OwnerUserId="20035" LastActivityDate="2018-11-11T23:13:09.553" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25477" PostTypeId="1" CreationDate="2018-11-12T03:39:10.600" Score="1" ViewCount="22" Body="&lt;p&gt;I have seen it suggested that currencies that are backed by a commodity are generally considered to be a bad idea in most cases. However, I have done a bit of my own research into representative money etc. and I cannot find a definitive explanation of why this might be the case.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, my question is this: Are there qualities of commodity backed currencies that make them a bad idea?&lt;/p&gt;&#xA;" OwnerUserId="20140" LastActivityDate="2018-11-12T03:39:10.600" Title="What are the issues with currencies backed by commodities?" Tags="&lt;currency&gt;&lt;commodities&gt;" AnswerCount="0" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25479" PostTypeId="1" AcceptedAnswerId="25480" CreationDate="2018-11-12T06:00:11.747" Score="2" ViewCount="2165" Body="&lt;p&gt;What's the difference &lt;strong&gt;between Strongly and strictly increasing utility functions&lt;/strong&gt;?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I know is that if &lt;span class=&quot;math-container&quot;&gt;$x'&amp;gt;&amp;gt;x $&lt;/span&gt; where &lt;span class=&quot;math-container&quot;&gt;$x'$&lt;/span&gt; has all elements strictly greater than &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; then &lt;span class=&quot;math-container&quot;&gt;$U(x')&amp;gt;U(x)$&lt;/span&gt;, I think this is the definition of &lt;em&gt;Strictly increasing&lt;/em&gt; utility function. And if &lt;span class=&quot;math-container&quot;&gt;$x'&amp;gt;&amp;gt;x$&lt;/span&gt; , then &lt;span class=&quot;math-container&quot;&gt;$U(x')\geq U(x)$&lt;/span&gt;, this is the definition of &lt;em&gt;Increasing function(monotone)&lt;/em&gt; function. I've no idea about Strongly Increasing function. Can anyone show a graphical example if this strongly increasing assumption is violated, how will the graph look like? (Utility function's graph) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Reference is from GEOFFREY A. JEHLE PHILIP J. RENY, Advanced Microeconomic Theory. &lt;/p&gt;&#xA;" OwnerUserId="18667" LastActivityDate="2018-11-17T08:43:26.090" Title="Strongly and strictly increasing utility functions" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;consumer-theory&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25480" PostTypeId="2" ParentId="25479" CreationDate="2018-11-12T06:12:44.033" Score="2" Body="&lt;p&gt;The term &lt;strong&gt;strongly increasing function&lt;/strong&gt; is non-standard in economics (and I believe also in math) and should have been clearly defined in the main text.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The following definitions are given only in their Appendix 1, p. 529 (2011, 3rd edition):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/uoLPJ.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/uoLPJ.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As the following text states:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;a strictly increasing function need not be strongly increasing, but every strongly increasing function is strictly increasing&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2018-11-12T06:12:44.033" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="25481" PostTypeId="2" ParentId="17053" CreationDate="2018-11-12T06:17:35.993" Score="-1" Body="&lt;p&gt;Given that the quote is partially extraneous to the question, I am answering two elements:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;People pathologically hoard so much cash that they impoverish the entire nation&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;As others have pointed out, cash hoarding is unusual and impacts chiefly on the supply of physical money and its price. If we consider banked cash as a hoard, we would mostly consider this malinvestment and pathological as well. But does it “impoverish the entire nation?” No, it only impoverishes the proletariat of that nation by relative emiseration (Capital in circulation : wages; ie by increasing the organic composition of capital). She is advancing some kind of “exploitation” theory. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;She believes that people are poor because some other people are rich. I know that is totally fallacious, but I don't know how to explain it to her.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Well, it isn’t fallacious. Apart from the trivial pie division example that larger slices require smaller slices, there’s the classic difference between the price of socially average necessary labour power and the realiseable value embodied in that labour’s product. As noted in relation to relative emiseration, if you take a measure of money over time like %GDP/capita a growing economy with private ownership of capital will show a declining wage.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As far as explaining it to her, or even better talking with her, I’d suggest face to face after shouting her lunch, and with plenty of tokens and pen and paper.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I’d suggest size of the slice, versus size of the pie. The problem of effective demand versus real desires (ie: why the size of the slice matters, because real desires are normative not objective measures, thus share of social power is important,) and probably a simple explanation of Marxist exploitation, including that labour mustn’t get the full product of their labour due to capital depreciation etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you can use these teaching models to help her figure out what she believes about the appropriate ordering for social power, you can equip her with a strong opinion from an allied political economy on whether the rich emiserate the poor and how money works. If you go in trying to re-educate her to your particular normative beliefs she will resist and refuse. &lt;/p&gt;&#xA;" OwnerUserId="19898" LastActivityDate="2018-11-12T06:17:35.993" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25482" PostTypeId="2" ParentId="15635" CreationDate="2018-11-12T07:05:44.567" Score="0" Body="&lt;p&gt;The most recent crises that popped in 2009, had actually gone in several years before which lead up to that crisis point and it was the result the collusion of the Central State and banks to extend home ownership to millions of citizens who did not qualify for that burden.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By the way, it did not stop a year later. The Federal government continued to pour tens of billions of dollars into this &quot;home ownership should be for everyone&quot; project via subsidies to Fannie Mae, Freddie Mac and FHA. Mortgage lenders were delighted to write mortgages in our completely nationalized market in which the government backs literally 99% of all mortgages and the Federal Reserve bought $1.2 trillion in mortgages that no sane private investor would touch.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Allow me to cite my source:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.reuters.com/article/us-fannie/fannie-mae-seeks-8-4-billion-from-government-after-loss-idUSTRE64935O20100511&quot; rel=&quot;nofollow noreferrer&quot;&gt;Fannie Mae seeks $8.4 billion from government after loss&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="20035" LastActivityDate="2018-11-12T07:05:44.567" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25483" PostTypeId="1" AcceptedAnswerId="25484" CreationDate="2018-11-12T08:07:55.627" Score="3" ViewCount="76" Body="&lt;p&gt;I have a question about the contents of this &lt;a href=&quot;https://www.sciencedirect.com/science/article/pii/S014098831830358X&quot; rel=&quot;nofollow noreferrer&quot;&gt;paper*&lt;/a&gt;, which links a building energy model and a utility-maximization component. In it, the author tests several electricity prices using a Cobb-Douglas utility function. As I understand, the C-D function (&lt;span class=&quot;math-container&quot;&gt;$U=X^\alpha*Y^\beta$&lt;/span&gt;) stipulates that &lt;span class=&quot;math-container&quot;&gt;$X=\frac{\alpha}{\alpha+\beta}*\frac{Income}{P_x}$&lt;/span&gt; at optimality. If Income and share parameters are fixed, that would mean &lt;span class=&quot;math-container&quot;&gt;$(X)(P_x)$&lt;/span&gt; is always constant; if &lt;span class=&quot;math-container&quot;&gt;$P_x$&lt;/span&gt; doubles, &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; is halved, etc..&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That is not what the paper finds in the linkage of the two components. P_electricity*ElectricityUse is not always constant. The expenditure equation implied by the C-D function is violated, but the paper applies an expenditure equation from the building energy model instead of it. They just maximize the utility function as the objective, subject to the budget constraint, and given the electricity use and expenditures from the building model, but do not factor in the implied relations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this a violation that would nullify such linkage?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;*Sorry if it is blocked behind a paywall, there isn't an alternate free copy. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Citation:&lt;/strong&gt; Matar, W. &quot;Households' response to changes in electricity pricing schemes: Bridging microeconomic and engineering principles.&quot; Energy Economics 75.&lt;/p&gt;&#xA;" OwnerUserId="20143" LastEditorUserId="68" LastEditDate="2018-11-13T01:02:49.743" LastActivityDate="2018-11-14T05:05:01.133" Title="Linking top-down and bottom-up models for analyzing electricity price-based demand response: Expenditure constraint is violated?" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;utility&gt;&lt;cobb-douglas&gt;" AnswerCount="2" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="25484" PostTypeId="2" ParentId="25483" CreationDate="2018-11-12T11:48:09.750" Score="1" Body="&lt;p&gt;Constant expenditure in &lt;em&gt;monetary&lt;/em&gt; terms requires constant Income indeed. Does the paper you site adjusts its equations and the data to account for possible changes in income present in the data?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What the CD utility function &lt;span class=&quot;math-container&quot;&gt;$U = X^aY^b$&lt;/span&gt; does impose, is constant expenditure &lt;em&gt;shares&lt;/em&gt;,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\frac{X^*p_x}{I} = \frac {a}{a+b}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the question would be for the appropriateness of the utility function specification whether the data support &lt;span class=&quot;math-container&quot;&gt;$X^*p_x/I = const.$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the methodological front the OP writes&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;...the paper applies an expenditure equation from the building energy&#xA;  model instead of it. They just maximize the utility function as the&#xA;  objective, subject to the budget constraint, and given the electricity&#xA;  use and expenditures from the building model,...&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This begs the question: if consumer demand / consumer expenditure is postulated from outside the model, exactly what is the purpose of solving the utility maximization problem? The main purpose of utility maximization is to provide the demand functions, namely to show how utility considerations determine choice and consumer decisions.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are we sure about what the authors are doing exactly?&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2018-11-12T11:48:09.750" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="25487" PostTypeId="2" ParentId="25452" CreationDate="2018-11-12T14:38:18.243" Score="2" Body="&lt;p&gt;I'm answering if there is any production function which is homogeneous and CES too. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;How about a CES production function only. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$y=(x^\rho +y^\rho )^\frac{1}{\rho }$&lt;/span&gt; for &lt;span class=&quot;math-container&quot;&gt;$0\neq \rho &amp;lt;1$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This function has Elasticity of Substitution : &lt;span class=&quot;math-container&quot;&gt;$\sigma =\frac{1}{(1-\rho )}$&lt;/span&gt; which is a constant. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Considering homogeneity,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$ y=((\lambda x)^\rho +(\lambda y)^\rho )^\frac{1}{\rho }$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$y=(\lambda^\rho (x^\rho +y^\rho ))^\frac{1}{\rho }$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$y=(\lambda ^\rho )^\frac{1}{\rho }(x^{\rho }+y^\rho )^\frac{1}{\rho }$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$y=\lambda (x^\rho +y^\rho )^\frac{1}{\rho }$&lt;/span&gt; which is the initial production function. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since, the degree of &lt;span class=&quot;math-container&quot;&gt;$\lambda $&lt;/span&gt; is 1, so, it's homogeneous of degree &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerUserId="18667" LastActivityDate="2018-11-12T14:38:18.243" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25496" PostTypeId="1" CreationDate="2018-11-12T23:20:47.947" Score="3" ViewCount="91" Body="&lt;p&gt;Suppose we have a model that is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;y = X_1\beta_1 + X_2\beta_2 + X_3\beta_3 + \varepsilon&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where &lt;span class=&quot;math-container&quot;&gt;$X_1$&lt;/span&gt; is independent of &lt;span class=&quot;math-container&quot;&gt;$X_2$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$X_3$&lt;/span&gt; but &lt;span class=&quot;math-container&quot;&gt;$X_2$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$X_3$&lt;/span&gt; are correlated with each other.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose we don't have data on &lt;span class=&quot;math-container&quot;&gt;$X_3$&lt;/span&gt; so we omit it and run the regression:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;y = X_1\gamma_1 + X_2\gamma_2 + \nu&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Econometric theory on OVB states that &lt;span class=&quot;math-container&quot;&gt;$\gamma_2$&lt;/span&gt; will be biased.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My questions:  &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Will &lt;span class=&quot;math-container&quot;&gt;$\gamma_1$&lt;/span&gt; be biased in this case as well? I ran a simulation with some data I created and I do get a biased result.  &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;If it is unbiased then how do I prove it? I use FWL theorem to find &lt;span class=&quot;math-container&quot;&gt;$\gamma_1$&lt;/span&gt; and show that its expectation equals &lt;span class=&quot;math-container&quot;&gt;$\beta_1$&lt;/span&gt; but get stuck here:&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\hat{\gamma_1} = \beta_1 + (X_1'M_{X_2}X_1)^{-1}(X_1'M_{X_2}X_3\beta_3) + (X_1'M_{X_2}X_1)^{-1}(X_1'M_{X_2}\varepsilon)&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The third term will become 0 when we take the expectation but not sure how to make the second term 0.&lt;/p&gt;&#xA;" OwnerUserId="20153" LastEditorUserId="68" LastEditDate="2018-11-13T01:08:50.490" LastActivityDate="2018-12-19T23:40:16.247" Title="Does omitted variable bias 'contaminate' coefficients for regressors not correlated with the omitted variable?" Tags="&lt;econometrics&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25498" PostTypeId="1" AcceptedAnswerId="25520" CreationDate="2018-11-13T01:28:38.367" Score="2" ViewCount="83" Body="&lt;p&gt;I recently wrote an economics quiz and one of the questions was: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Suppose &quot;r&quot; is the interest rate that prevails between the present and&#xA;  the future. If &quot;r&quot; increases and a household chooses to consume more&#xA;  in the present, then:&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I answered that since the price of current consumption increases and the consumer consumes more, current consumption must be an inferior good.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However this was marked incorrectly for me and the correct answer was current consumption must be a normal good. I'm unsure of why this would be the correct answer, could somebody explain the reasoning?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit: The five options were:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;A) it is an irrational decision.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;B) consumption in the present must be an inferior good.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;C) consumption in the present must be a normal good.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;D) consumption in the future must be an inferior good.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;E) consumption in the future must be a normal good.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I chose chose B but the correct answer was listed as C.&lt;/p&gt;&#xA;" OwnerUserId="20155" LastEditorDisplayName="user18" LastEditDate="2018-11-14T07:35:32.140" LastActivityDate="2018-11-14T07:35:32.140" Title="If interest rate increases and consumption in the present increases, is present consumption a normal good?" Tags="&lt;interest-rate&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="25499" PostTypeId="2" ParentId="14422" CreationDate="2018-11-13T02:25:02.310" Score="1" Body="&lt;p&gt;Murray Rothbard gave a &quot;natural rights&quot; justification for an AnCap society.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;David Friedman (son of Milton Friedman) discusses and gives a &lt;em&gt;consequentialist&lt;/em&gt; defence for an Anarcho-Capitalist society. It's discussed in his book 'The Machinery of Freedom' and references 14th century Iceland for an approximation of how a society based on private laws and courts work.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Murray Rothbard, however, is still is the best known AnCap theoretician.&lt;/p&gt;&#xA;" OwnerUserId="20157" LastActivityDate="2018-11-13T02:25:02.310" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25500" PostTypeId="2" ParentId="24575" CreationDate="2018-11-13T02:43:45.597" Score="1" Body="&lt;p&gt;The best study I know of on the formation and sustenance of monopolies is 'Enterprise monopoly in the US' by Austrian/Chicago Economist G Warren Nutter.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The best summary of this book I have found are at these Quora answers:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.quora.com/Are-monopolies-potentially-bad-if-they-disrupt-a-free-market/answer/Austin-Middleton&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.quora.com/Are-monopolies-potentially-bad-if-they-disrupt-a-free-market/answer/Austin-Middleton&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.quora.com/Is-the-argument-thatall-monopolies-were-created-by-the-government-true/answer/Austin-Middleton&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.quora.com/Is-the-argument-thatall-monopolies-were-created-by-the-government-true/answer/Austin-Middleton&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(A one line summary is that monopolies tend not to be formed in an unregulated market)&lt;/p&gt;&#xA;" OwnerUserId="20157" LastActivityDate="2018-11-13T02:43:45.597" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="25503" PostTypeId="2" ParentId="15407" CreationDate="2018-11-13T07:03:13.850" Score="0" Body="&lt;p&gt;For Marx Capital is a social relationship that flows between particular momentary embodiments in an attempt to realise its value in an expanded form. Capital seeks to begat more capital, above the average social rate of profit, and should one attempt to reproduce with less realised profit, capital will flow from your endeavour towards other endeavours seeking greater than average profit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As the value form Capital generally is a commodity (except in …P…) and has both a use-value (a purported utility) and an exchange value (a purported magnitude of money it is exchangeable for). To complete flows from Money in exchange for Commodity, the use-value must &lt;em&gt;appear&lt;/em&gt; to satisfy a need, the magnitude to be realised must be within the capacity of someone with a perceived need. (Note that a crisis of realisation is inherent: value doesn’t circulate and manifest itself until the commodity is successfully sold; not also the perceived need need not be actually met.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The circuit of capital is any complete circuit, a reproduction scheme in the general form:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;M—C…P…C’—M’… &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;M being capital in the money form&lt;/li&gt;&#xA;&lt;li&gt;C being capital in the commodity form, as depreciating capital goods, labour power, objects of work, ancilliaries etc&lt;/li&gt;&#xA;&lt;li&gt;…P… being production, where capital ceases to have an exchange value and becomes the actual uses of labour, raw materials, machines etc&lt;/li&gt;&#xA;&lt;li&gt;C’ being a volume of commodities greater in value than C, due to exploitation&lt;/li&gt;&#xA;&lt;li&gt;with M’ being money of a greater value than M, and M’ becoming available as M for the next circuit&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Thus, all current capital comes from either capital newly reproduced OR from primitive accumulation. The first is trivial: as a flow capital must continuously reproduce itself.  Profits saved don’t count; profit which isn’t reinvested has been taken temporarily out of the capital relationship. If it was banked then it never left, it flowed into finance markets as the bank lent the money on, seeking always profit. Deferred consumption by labour has exactly the same relationship as deferred profit reinvestment. Those savings are transferred to the control of capitalists, even if they’re redrawable during starvation etc. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The second, “primitive accumulation,” is the combination of pre-capitalist classes converting their property into capital, capitalist states appropriating property directly, the enclosure of past labourers in the new form of wage slaves, and the creation of new forms of commodity.  As examples in order:  I could sell all my opium and buy Bank of England bonds. The UK could seize all my opium and auction it. I could addict all my peasant to opium, only available for cash, while stealing their land. I could declare information to be a commodity by act of state and sell to or tax people for knowing the price of my opium. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As regards finance markets for capital in Marx, I’d go volume 3 and Mandel.&lt;/p&gt;&#xA;" OwnerUserId="19898" LastEditorUserId="19898" LastEditDate="2018-11-13T07:10:30.970" LastActivityDate="2018-11-13T07:10:30.970" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25505" PostTypeId="1" AcceptedAnswerId="25622" CreationDate="2018-11-13T10:34:38.157" Score="4" ViewCount="443" Body="&lt;p&gt;Neoclassical economics as a utility function that represents a consumer's preference ordering over a choice set.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Joan Robinson criticized utility for being a circular concept:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;Utility is the quality in commodities that makes individuals want to&#xA;  buy them, and the fact that individuals want to buy commodities shows&#xA;  that they have utility&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This criticism is similar to that of the philosopher Hans Albert who argued that the ceteris paribus conditions on which the marginalist theory of demand rested rendered the theory itself an empty tautology and completely closed to experimental testing. In essence, demand and supply curve (theoretical line of quantity of a product which would have been offered or requested for given price) is purely ontological and could never been demonstrated empirically.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In my understanding, the neoclassical economics is based on utility. So if this concept is no testable, and circular, how neoclassical economics can explain anythings?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm not saying the system can not predict anythings, because if we record a lot of behaviors, we can certainly predict some behavior by comparing similar patterns (it's mainly the logic behind machine learning). But we should not call that a theory neither an explanation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I end up with those interrogations:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Is &lt;em&gt;utility&lt;/em&gt; a &lt;a href=&quot;https://en.wikipedia.org/wiki/Circular_definition&quot; rel=&quot;nofollow noreferrer&quot;&gt;circular definition&lt;/a&gt;?&lt;/li&gt;&#xA;&lt;li&gt;The theory has &lt;a href=&quot;https://en.wikipedia.org/wiki/Falsifiability&quot; rel=&quot;nofollow noreferrer&quot;&gt;falsifiability&lt;/a&gt;?&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Related content&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As I'm exploring this question, and will add some content I stumble upon that I think add some context.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://fixingtheeconomists.wordpress.com/2014/02/17/joan-robinsons-critique-of-marginal-utility-theory/&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://fixingtheeconomists.wordpress.com/2014/02/17/joan-robinsons-critique-of-marginal-utility-theory/&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="10836" LastEditorUserId="10836" LastEditDate="2018-11-14T12:05:31.213" LastActivityDate="2018-11-19T01:38:21.203" Title="Is utility in neoclassical economics a circular argument/concept?" Tags="&lt;utility&gt;&lt;consumer-theory&gt;&lt;theory&gt;&lt;political-economy&gt;" AnswerCount="2" CommentCount="8" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25506" PostTypeId="1" AcceptedAnswerId="25509" CreationDate="2018-11-13T14:07:20.200" Score="3" ViewCount="240" Body="&lt;p&gt;For &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt; individuals, can a blocking coalition only be formed by at least &lt;span class=&quot;math-container&quot;&gt;$n/2$&lt;/span&gt; individuals? For example, if there are 6 individuals, can less than 3 individuals form blocking coalitions? &lt;/p&gt;&#xA;" OwnerUserId="18398" LastActivityDate="2018-11-13T17:45:37.730" Title="Blocking Coalitions" Tags="&lt;microeconomics&gt;&lt;self-study&gt;&lt;general-equilibrium&gt;&lt;pareto-efficiency&gt;&lt;walrasian&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25507" PostTypeId="1" AcceptedAnswerId="25521" CreationDate="2018-11-13T15:13:56.813" Score="3" ViewCount="43" Body="&lt;p&gt;I do not wish to get into the details of the Demonetisation implemented by the Indian Government on 8th November, 2016. Endless political debates have already been conducted advocating or berating this step. As an Economics student, I would like to get some technical insight into this action and the economic effects of demonetization in general.&lt;/p&gt;&#xA;" OwnerUserId="18398" LastEditorUserId="18398" LastEditDate="2018-11-15T11:32:40.130" LastActivityDate="2018-11-15T11:32:40.130" Title="The Effects of Demonetisation" Tags="&lt;macroeconomics&gt;&lt;economic-growth&gt;&lt;development&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="25509" PostTypeId="2" ParentId="25506" CreationDate="2018-11-13T17:45:37.730" Score="2" Body="&lt;p&gt;Coalition formation is not the same as majority voting. Say, in a single good economy, individual 1 has the entire endowment, so &lt;span class=&quot;math-container&quot;&gt;$\mathbf e=(1,0,0,0,0,0)$&lt;/span&gt;. Then individual 1 forms a blocking coalition to any allocation &lt;span class=&quot;math-container&quot;&gt;$\mathbf x=(x_1,\dots,x_6)$&lt;/span&gt; where &lt;span class=&quot;math-container&quot;&gt;$x_1&amp;lt;1$&lt;/span&gt;. &lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2018-11-13T17:45:37.730" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25510" PostTypeId="1" CreationDate="2018-11-13T20:50:49.133" Score="2" ViewCount="171" Body="&lt;p&gt;I'm trying to better understand wealth creation– let's use trade as an example. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've bought a cup for \$2 and sold it for \$10. We've &quot;created some new wealth&quot; there– but without a net increase in actual dollars that exist, how has more wealth been created? Am I not just taking \$10 that already existed from someone who perhaps made it at their day job? Who's boss in turn took it from the sale of a bagel? Aren't these dollars that already exist? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;How does this boil down into actual new wealth and money?&lt;/p&gt;&#xA;" OwnerUserId="20162" LastEditorUserId="20162" LastEditDate="2018-11-13T20:56:25.790" LastActivityDate="2018-11-13T22:29:05.737" Title="Wealth Creation: Where does the money come from?" Tags="&lt;macroeconomics&gt;&lt;economic-growth&gt;&lt;money-supply&gt;&lt;wealth&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="25512" PostTypeId="5" CreationDate="2018-11-13T22:03:41.947" Score="0" Body="" OwnerUserId="8815" LastEditorUserId="8815" LastEditDate="2018-11-13T22:03:41.947" LastActivityDate="2018-11-13T22:03:41.947" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25513" PostTypeId="4" CreationDate="2018-11-13T22:03:41.947" Score="0" Body="With reference to overlapping generation models (OLG models). " OwnerUserId="8815" LastEditorUserId="8815" LastEditDate="2018-11-13T22:03:41.947" LastActivityDate="2018-11-13T22:03:41.947" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25514" PostTypeId="2" ParentId="25510" CreationDate="2018-11-13T22:29:05.737" Score="1" Body="&lt;p&gt;If we view &quot;wealth&quot; as the subjective experience of pleasure, then &quot;wealth&quot; can spring up &lt;em&gt;ex nihilo&lt;/em&gt;: if people used to get two dollars' worth of pleasure from having a cup, but now they get ten dollars' worth, then in some sense eight dollars of wealth has come &quot;out of nowhere&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, it's more likely that at least one party has misvalued the cup. Perhaps the original seller was unaware that there was someone out there who would get ten dollars' worth of pleasure from the cup, or maybe the buyer has miscalculated how much pleasure they will get from the cup. In that case, wealth has not been created, it has simply been transferred to you.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A third possibility is that you have added value to the cup. Perhaps you own a retail store, and 2 dollars is the wholesale price while 10  dollars is the retail price. The person who paid 10  dollars for the cup doesn't want to buy in bulk like you do to get the wholesale price, and they don't want to deal with buying from the manufacturer. Maybe they bought a bunch of stuff from your store, and it would have been a lot of work to arrange purchases from all the different manufacturers. You've added to the end user's convenience, and therefore added wealth to the economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The issue of currency is a side matter. Currency is a measure of wealth; it isn't wealth in and of itself. If you had made the cup all by yourself, clearly you would have created wealth, even if no money changed hands. Money enables price signals to let other people know how much you value their activity, but that value exists independent of an explicit monetary figure been ascribed to it. If you create a cup and then sell it for 10 dollars, the wealth creation occurs when you make the cup. When you sell the cup, you are indeed not creating 10  dollars of wealth at that moment; it already has existed since you made the cup (however, depending on how one does the accounting, &lt;em&gt;some&lt;/em&gt; of the wealth may be created when you transfer possession, if the person you sell it to has more of a use for it than you do, but it's the transferring possession, not the payment of currency, that causes the increase in wealth).&lt;/p&gt;&#xA;" OwnerUserId="16462" LastActivityDate="2018-11-13T22:29:05.737" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25516" PostTypeId="1" CreationDate="2018-11-13T23:27:26.780" Score="-1" ViewCount="27" Body="&lt;p&gt;What does the last phrase after the last comma in this sentence mean?&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;And, in the end, the civil magistrate will find that he has dearly&#xA;  paid for his intended frugality, in saving a fixed establishment for&#xA;  the priests; and that, in reality, the most decent and advantageous&#xA;  composition, which he can make with the spiritual guides, is to bribe&#xA;  their indolence, by assigning stated salaries to their profession, and&#xA;  rendering it superfluous for them to be farther active, than merely to&#xA;  prevent their flock from straying in quest of new pastors.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Could the word &quot;than&quot; be replaced with the word &quot;and&quot; to mean what Smith intended?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems that the rendering of something superfluous would be along the lines of merely preventing something.  But I think of the word &quot;than&quot; to refer to contrasting two elements.  Was the word &quot;than&quot; a typo?  If not, what did Adam Smith mean?  Or did the word &quot;than&quot; mean something different back in Adam Smith's day?&lt;/p&gt;&#xA;" OwnerUserId="20116" LastActivityDate="2018-11-14T00:20:35.363" Title="Did the word &quot;than&quot; mean something different in The Wealth of Nations?" Tags="&lt;adam-smith&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ClosedDate="2018-11-14T22:17:39.033" ContentLicense="CC BY-SA 4.0" />
  <row Id="25517" PostTypeId="2" ParentId="25516" CreationDate="2018-11-14T00:20:35.363" Score="1" Body="&lt;p&gt;This is not really an economics question  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/David_Hume&quot; rel=&quot;nofollow noreferrer&quot;&gt;David Hume&lt;/a&gt; &quot;by far the most illustrious philosopher and historian of the present age&quot; who Adam Smith appears to be quoting here, is saying that paying priests of the established church a state salary would reduce their incentives to be undesirably active, in contrast to a unsubsidised competitive market for religion which could lead priests &quot;to pervert the truth, by infusing into it a strong mixture of superstition, folly, and delusion&quot; with &quot;no regard paid to truth, morals, or decency&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The sentence is actually structured the other way round, but in any case the &lt;em&gt;than&lt;/em&gt; is to contrast &quot;to be farther active&quot; (seen as undesirable) against &quot;merely to prevent their flock from straying in quest of new pastors&quot; (seen as acceptable); the use of &lt;em&gt;farther&lt;/em&gt; and &lt;em&gt;merely&lt;/em&gt; shows that a contrast is intended&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Smith did not agree with Hume on the dangers and benefits of competitive religion &lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2018-11-14T00:20:35.363" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25518" PostTypeId="1" CreationDate="2018-11-14T01:26:37.093" Score="1" ViewCount="13" Body="&lt;p&gt;Hope this isn't too simple a question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I read an article that stated  that the UK government and EU have reached a draft agreement for a Brexit deal, leading to the following market movements after the announcement.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) GBP rose against USD&#xA;2) Yields increased for 10-year British government bonds (i.e bond prices fell)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first point seems fairly predictable, but why would seemingly less investment risk lead to a decline in bond prices? Could this be more about British  equities becoming more attractive relative to bonds due to less perceived risk?&lt;/p&gt;&#xA;" OwnerUserId="20165" LastActivityDate="2018-11-14T01:26:37.093" Title="Bond prices and Brexit" Tags="&lt;bonds&gt;" AnswerCount="0" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="25519" PostTypeId="2" ParentId="25483" CreationDate="2018-11-14T05:05:01.133" Score="0" Body="&lt;p&gt;Okay. I have a follow-up question about this integration. Given the author is discovering &lt;span class=&quot;math-container&quot;&gt;$P_eX_e$&lt;/span&gt; outside of the utility component, he's not directly maximizing the utility in the problem. He's just computing what a utility would be given the budget equation, and then identifying the maximum value afterward.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Do the strict Lagrangian and subsequently the optimality conditions actually apply?  &lt;/p&gt;&#xA;" OwnerUserId="20143" LastActivityDate="2018-11-14T05:05:01.133" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25520" PostTypeId="2" ParentId="25498" CreationDate="2018-11-14T07:34:19.243" Score="2" Body="&lt;p&gt;First, the definitions:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;A &lt;strong&gt;normal good&lt;/strong&gt; is one whose demand rises when income rises.&lt;/li&gt;&#xA;&lt;li&gt;An &lt;strong&gt;inferior good&lt;/strong&gt; is one whose demand falls when income rises.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I will use &lt;span class=&quot;math-container&quot;&gt;$c_1$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$c_2$&lt;/span&gt;, and &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; to denote current consumption, future consumption, and (lifetime) income.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, if &lt;span class=&quot;math-container&quot;&gt;$r$&lt;/span&gt; rises, then as usual there are two effects, the &lt;strong&gt;substitution effect (SE)&lt;/strong&gt; and the &lt;strong&gt;income effect (IE)&lt;/strong&gt;. We are given that the Total Effect (TE) is that &lt;span class=&quot;math-container&quot;&gt;$c_1$&lt;/span&gt; increases or equivalently, that TE is positive.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let us write &lt;span class=&quot;math-container&quot;&gt;$$TE=SE+IE&amp;gt;0.$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We now look at each of the two individual effects:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Substitution Effect (SE)&lt;/strong&gt;. You correctly identified the cause of this effect -- &quot;the price of &lt;span class=&quot;math-container&quot;&gt;$c_1$&lt;/span&gt; increases&quot;. And so, the SE is that the consumer should &lt;strong&gt;substitute&lt;/strong&gt; out of &lt;span class=&quot;math-container&quot;&gt;$c_1$&lt;/span&gt; and into &lt;span class=&quot;math-container&quot;&gt;$c_2$&lt;/span&gt;. That is, the SE unambiguously says that &lt;span class=&quot;math-container&quot;&gt;$c_1 \downarrow$&lt;/span&gt;. We write &lt;span class=&quot;math-container&quot;&gt;$SE&amp;lt;0$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, you then made the mistake of concluding that this shows &lt;span class=&quot;math-container&quot;&gt;$c_1$&lt;/span&gt; is inferior. But remember that whether a good is inferior or normal depends on responses to changes in income. So, &lt;strong&gt;the SE has nothing to do with whether a good is inferior or normal&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Income Effect (IE)&lt;/strong&gt;. We first note that since &lt;span class=&quot;math-container&quot;&gt;$$TE=SE+IE&amp;gt;0 \text{ and } SE&amp;lt;0,$$&lt;/span&gt; it must be that &lt;span class=&quot;math-container&quot;&gt;$IE&amp;gt;0$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here there are two possibilities. I very much suspect the person writing this question overlooked possibility #2 (in which case the answer should be B) and went only with possibility #1 (answer C).&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;If the consumer is a lender (or saver), then an increase in &lt;span class=&quot;math-container&quot;&gt;$r$&lt;/span&gt; implies an increase in &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt;. In which case, &lt;span class=&quot;math-container&quot;&gt;$IE&amp;gt;0$&lt;/span&gt; if and only if the good is normal. Hence, the answer is C.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;However, if the consumer is a borrower,  then an increase in &lt;span class=&quot;math-container&quot;&gt;$r$&lt;/span&gt; implies a &lt;em&gt;decrease&lt;/em&gt; in &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt;. In which case, &lt;span class=&quot;math-container&quot;&gt;$IE&amp;gt;0$&lt;/span&gt; if and only if the good is inferior. Hence, the answer is B.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2018-11-14T07:34:19.243" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="25521" PostTypeId="2" ParentId="25507" CreationDate="2018-11-14T07:44:59.630" Score="1" Body="&lt;p&gt;I am not an expert in biology but let me give you some intuition through it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For instance if you have some impurities in your blood. There are two ways to remove that impure blood from your body. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) To give you some medicine that enters your system to cure you. This is a slow procedure and may not guarantee concrete results.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) To artificially suck entire blood out of your body and make attempts to purify it and then refill it into your body. This is a fast procedure and will produce certain concrete results which can either be positive or negative. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, if the second method seems lucrative to you, make sure you think of what will happen to you in that time interval when your body is without blood.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Noe let us come to Economics. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Money is a medium of exchange and store of value.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let me write a simple equation of money. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$MV = PY$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$M$&lt;/span&gt; ~ Amount of money in circulation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$V$&lt;/span&gt; ~  Velocity of Money. Velocity of money is nothing but number of times the nominal money is changing hands&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$P$&lt;/span&gt; ~ Price level&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt; ~ Output in the economy&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$PY$&lt;/span&gt; hence is the value of output or GDP. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can make an intuitive sense of this equation that is the GDP of the country is how fast a given quantity of money circulates in the economy. Suppose the GDP (aggregate expenditure) of a country is \$1,000. The amount of money in circulation is \$500. So money should change hands two times for expenditure worth \$1000 to occur which makes velocity of money = 2.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now once you have digested this relationship.  Demonetisation in the Republic of India was not an attack on the quantity of money but on the velocity of money in circulation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It did not make the existing money worthless since the old cash could be exchanged for new cash but it choked off the flow of money that is the velocity of money in the economy since old cash which made for 86% of the entire money supply ceased to be a legal tender. Now coming back to our equation:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$MV = PY$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There was an artificial decrease in velocity(V) so the right hand side of the equation &lt;span class=&quot;math-container&quot;&gt;$PY$&lt;/span&gt; must fall to maintain the equilibrium. That is GDP must fall temporarily which is the stagnation of the economy. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Understand it this way, you temporarily decrease the purchasing power of the people by pulling all the money out of the system. People stop buying stuff and sellers cannot sell their stuff. Producers will stop producing and people will lose jobs. Hence this is an artificially created recession.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This was perfectly evident in the growth rate of the country that slumped by about 2% in the beggining of 2017. The 2% of India's GDP is a phenomenal multi billions of dollars which India lost and which is the actual monetary cost of this decision. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now the fundamental question at the heart of economic decisions - Does the benefits justify the costs? Which is a debatable topic as you mentioned so I am not going into that.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But what I personally believe is, Indians should have thought it out more rigorously and thoroughly before making such an unconventional move.&lt;/p&gt;&#xA;" OwnerUserId="19546" LastEditorUserId="19546" LastEditDate="2018-11-14T13:19:40.560" LastActivityDate="2018-11-14T13:19:40.560" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25525" PostTypeId="1" AcceptedAnswerId="25574" CreationDate="2018-11-14T09:54:01.813" Score="1" ViewCount="690" Body="&lt;p&gt;Consider a &lt;span class=&quot;math-container&quot;&gt;$2*2$&lt;/span&gt; exchange economy where individual &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt; has an endowment &lt;span class=&quot;math-container&quot;&gt;$(4,5)$&lt;/span&gt; and individual 2 has an endowment &lt;span class=&quot;math-container&quot;&gt;$(6,5)$&lt;/span&gt;. &#xA;The utility functions of individuals are represented by &lt;span class=&quot;math-container&quot;&gt;$U({x}_i{y}_i)$&lt;/span&gt;=&lt;span class=&quot;math-container&quot;&gt;${x}_i{y}_i$&lt;/span&gt; where &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; refers to individual &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt; or &lt;span class=&quot;math-container&quot;&gt;$2$&lt;/span&gt;.&#xA;I know that the allocations which equate &lt;span class=&quot;math-container&quot;&gt;$MRS$&lt;/span&gt; for both individuals would be the Pareto Optimal allocations. However, I seem to be very confused regarding the endowments. I cannot find an allocation that is Pareto Superior to the endowments. Also, the endowment (if it is, in fact, Pareto Optimal) does not satisfy the equality of &lt;span class=&quot;math-container&quot;&gt;$MRS$&lt;/span&gt; condition. &#xA;Is it the case that equality of &lt;span class=&quot;math-container&quot;&gt;$MRS$&lt;/span&gt; is not a necessary condition for pareto optimality? I can think of examples, such as Lexicographic Preferences which yield Pareto Efficient points without the condition of &lt;span class=&quot;math-container&quot;&gt;${MRS}_i=$${MRS}_j$&lt;/span&gt;.&#xA;I think I'm missing out on something. &#xA;My concepts seem quite shaky so please bear with me. &lt;/p&gt;&#xA;" OwnerUserId="18398" LastEditorUserId="18398" LastEditDate="2018-11-14T09:59:12.027" LastActivityDate="2019-01-20T07:11:21.267" Title="Pareto Optimality of Endowments" Tags="&lt;microeconomics&gt;&lt;general-equilibrium&gt;&lt;pareto-efficiency&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25526" PostTypeId="1" AcceptedAnswerId="25527" CreationDate="2018-11-14T10:49:31.463" Score="1" ViewCount="58" Body="&lt;p&gt;I live in Germany and as most people know the car industry is very important in our country. Currently, there is a discussion about stricter emission limits for cars in the European Union. The car industries main criticism of stricter limits is that they supposedly lead to lots of jobs being lost. I don't quite understand why this should be the case.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why do (don't) stricter emission limits lead to job loss?&#xA;What theoretical mechanism is at work here? Is there any empirical evidence that this is actually the case (stricter limits lead to job loss)?&lt;/p&gt;&#xA;" OwnerUserId="20172" LastActivityDate="2018-11-14T15:00:25.340" Title="Why do stricter emission limits cost jobs?" Tags="&lt;labor-economics&gt;&lt;unemployment&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25527" PostTypeId="2" ParentId="25526" CreationDate="2018-11-14T13:25:20.317" Score="2" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Why do (don't) stricter emission limits lead to job loss?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I am not knowledgeable of the mechanism and exact details of the emissions paraphernalia, but the sector's worry makes perfect sense. Stricter regulations lead to or contribute to &#xA;job losses.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Stricter emission regulation entails a greater probability and/or magnitude of fines and sanctions to non-compliant companies. To avoid those sanctions, a company will be forced to spend additional resources to (1) replace technologies that are otherwise perfectly operational, (2) focus on expertise that distracts that industry from its core business, and (3) fund expenses that result from the increased overhead. The question is &lt;em&gt;where&lt;/em&gt; those resources will come from.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Car makers may opt to pass that cost to consumers. However, that decision predictably will push sales down, thereby leading to overcapacity of labor and consequently layoffs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Alternatively, car makers may decide to absorb the new compliance costs and leave the price of cars unchanged. But the prospect of reduced profits would prompt stockholders to sell their stock, thereby weakening the car maker's ability to meet its financial obligations. To cope with (or avoid exacerbating) this imbalance, the car maker has to reduce costs; and the readily available alternatives to that effect are layoffs and a freeze of new hires.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Furthermore, for car makers with significant reliance on exports, compliance with stricter regulations tends to hinder their competitiveness especially with respect to non-EU car makers which are not subject to akin regulatory constraints. Thus, EU car makers will lose [international] market share, most likely impacting its ability and interest to keep that much of its labor force.&lt;/p&gt;&#xA;" OwnerUserId="18552" LastEditorUserId="18552" LastEditDate="2018-11-14T13:30:42.853" LastActivityDate="2018-11-14T13:30:42.853" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="25528" PostTypeId="2" ParentId="24045" CreationDate="2018-11-14T13:46:14.817" Score="1" Body="&lt;p&gt;The way I like to think about it is in form of this universally true relationship.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Value of Goods sold = Value of Goods bought&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For every seller, there is a corresponding buyer (in terms of value) otherwise trade is not possible.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is nothing but the essence of general equilibrium theory. Forgive me, I won't go into the algebra or the language of the answer would change from English to Greek.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now the question why does the demand equal supply. If we assume that the agents are rational, then obviously they would maximize their profit / utility / welfare.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now if demand does not equal supply, then the agents being rational would calibrate their parameter of price which would make &lt;strong&gt;BOTH&lt;/strong&gt; of them better off. In Economics this is known as Pareto improvement.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This Pareto improvement will continue till the demand equals supply. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;PS &#xA; I am sorry that I did not supplement my answer with mathematical rigour which I could have done to show that in equilibrium net demand = net supply. But I believe, the essence could be understood.&lt;/p&gt;&#xA;" OwnerUserId="19546" LastActivityDate="2018-11-14T13:46:14.817" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="25529" PostTypeId="2" ParentId="25505" CreationDate="2018-11-14T13:48:07.790" Score="0" Body="&lt;p&gt;Ranked order preference within effective demand does have problems; but not to my mind the problem of tautology. It is a model, one which reduces human conduct to the terrain of ranked order preference within effective demand. “Homo economicus” is a useful stand in, especially given the problems of utilitarianism in terms of the social reconciliation of desires and desires being unrestricted by effective demand. The concept of utility maximisation in homo economicus is a similar limitation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Establishing a major field of social science on an assumption, or a simplified model, isn’t to my mind a bad thing. Especially as it is an up front assumption for the purposes of building models. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The theory has falsifiability?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Falsifiability is one conception in the philosophy of science to help with questions of what science is. Other philosophers of science have suggested it is of limited usefulness (Kuhn, Lakatos, Feyerabend.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given that marginalisms have staked a great big place in the academy, the state and the market I don’t think it is particularly useful to beat them with the stick of falsifiability, or even ad hocery; Tempting as it might be to use Popper on marginalism given Popper’s work on Marxism. Science generally doesn’t do “True” thanks to Hume. Falsifiability is one way forward, but open to the claim that &lt;em&gt;falsifiabilty itself&lt;/em&gt; fails to adequately reflect empirical life. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Philosophy of Science and History of Science and Science and Technology Studies have all come around to the question of “isn’t it just all one damn thing after another?” And to a certain extent that is it. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;But we should not call that a theory neither an explanation.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Theories and explanations as great edifices aren’t necessary. Doctoral students, Senior Lectureships, ARC Grants, and honours students appointed to Treasury or Finance are. Expecting Economics as science to be more coherent than Physics, or Mathematics, is potentially admirable but actually heart breaking. My only suggestion would be avoiding shouting “the peasants wear no clothes,” at the heterodox who attempt to maintain internal consistency, empirical reflection and 3rd party impact factors, when the emperor of thinking about human production and exchange is also nude.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Science is hard. Field specifying assumptions are often inadequate. Most scientists ignore the problem and get on with churning out papers—some even believe their research has utility. &lt;/p&gt;&#xA;" OwnerUserId="19898" LastActivityDate="2018-11-14T13:48:07.790" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25530" PostTypeId="2" ParentId="25526" CreationDate="2018-11-14T14:06:15.200" Score="0" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;The car industries main criticism of stricter limits is that they supposedly lead to lots of jobs being lost. I don't quite understand why this should be the case.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I don’t understand this either. The management function of the car industry in Germany is under a responsibility to maximise profits within the law. They aren’t responsible to maximise the number of jobs. This looks like a political or marketing claim being made in the context of the capitalists of an industry sector bargaining with the state.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In such a context assuming that the market facing marketing unit of the car industry as a whole is honestly representing an economic process is dubious.  I suspect the marketing purpose relates to the economic costs of labour and production process disruptions to legally comply with potential regulations on their commodity. Namely that the law would reduce profits is the motivator, and that job losses are virtue signalling to conceal the nature of the firm from the public / state representatives. There’s also an element of threat.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am sure that other answers will explore the possibility that this claim is independently potentially truthful, but within a framework where emissions are limited by the state, but where profit taking by car companies is not limited. The car industry’s statement definitely is in the context of firms engaging in political action for economic ends, even though the bargaining is in a very imperfect “market” with poorly informed agents. &lt;/p&gt;&#xA;" OwnerUserId="19898" LastActivityDate="2018-11-14T14:06:15.200" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25532" PostTypeId="2" ParentId="25526" CreationDate="2018-11-14T15:00:25.340" Score="0" Body="&lt;p&gt;The arguments of the automotive industry are rather vague and should not be reckoned to be sophisticated at all.&#xA;The VDA (German Association of the Automotive Industry) claims that the planned regulations are technically not realisable within the next years - especially for trucks and commercial vehicles. Once these type of cars are banned from the streets due to them not meeting the regulations, the customer has to look for an adequate alternative - which hardly exists and costs a lot. Hence whole sectors like logistic or retail have to struggle, since there is no suitable alternative to polluting trucks, and employees have to be laid off, since without automobiles moving services and goods there is a gap in logistic chain and there goes the economy...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, the regulations will cost jobs in the German automative industry, since there are simply not enough cheap German electrally powered cars. People would be incentivised to buy more cars from abroad or - the worst case scenario - too look for a alternative to automobiles. The drop in German car sales in Germany would ultimatively lead to some layoffs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The argument of job losses is more a threat than a profound prediction.&#xA;&quot;Dare to adopt these regulations and we will lay off a significant amount of workers.&quot;&lt;/p&gt;&#xA;" OwnerUserId="8327" LastActivityDate="2018-11-14T15:00:25.340" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25533" PostTypeId="2" ParentId="25525" CreationDate="2018-11-14T15:41:10.523" Score="0" Body="&lt;p&gt;There exists a Pareto Superior allocation, since you already know that &lt;span class=&quot;math-container&quot;&gt;$MRS_1=MRS_2$&lt;/span&gt; which gives the equation &lt;span class=&quot;math-container&quot;&gt;$\frac{y_1}{x_1}=\frac{y_2}{x_2}$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider an allocation for individual-1, &lt;span class=&quot;math-container&quot;&gt;$(\sqrt{20},\sqrt{20})$&lt;/span&gt; which gives the same utility to individual-1 as his endowment of &lt;span class=&quot;math-container&quot;&gt;$U_1=20$&lt;/span&gt;, while individual-2's bundle will be &lt;span class=&quot;math-container&quot;&gt;$(10-\sqrt{20},10-\sqrt{20})$&lt;/span&gt;. Utility of individual-2 at this bundle will be &lt;span class=&quot;math-container&quot;&gt;$U_2=$$(10-\sqrt{20})^2&amp;gt;30$&lt;/span&gt;. This bundle is pareto superior to endowment bundle. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, endowment is not Pareto efficient, as correctly pointed out, it doesn't even satisfy the &lt;span class=&quot;math-container&quot;&gt;$MRS$&lt;/span&gt; condition in case of standard nice and smooth &lt;span class=&quot;math-container&quot;&gt;$ICs$&lt;/span&gt;. &lt;/p&gt;&#xA;" OwnerUserId="18667" LastActivityDate="2018-11-14T15:41:10.523" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="25535" PostTypeId="1" CreationDate="2018-11-14T16:20:31.427" Score="0" ViewCount="4769" Body="&lt;p&gt;I thought of Central banks as the regulators of financial markets. But surplus reserves of some Central banks surpass giant corporate companies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Please explain me how do they manage to make profit in just regulating activity and printing currency.&lt;/p&gt;&#xA;" OwnerUserId="19546" LastActivityDate="2019-11-20T06:38:39.287" Title="How do central banks earn profit?" Tags="&lt;macroeconomics&gt;&lt;monetary-policy&gt;&lt;central-banking&gt;&lt;federal-reserve&gt;" AnswerCount="4" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25536" PostTypeId="2" ParentId="25535" CreationDate="2018-11-14T16:44:04.273" Score="2" Body="&lt;p&gt;Central Banks are not made to make profit. They are there to stabilize the price (inflation) and avoid crisis.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But to do that, they sell and buy assets. If they do a good job, they must purchase assets when they are undervalued and sell when they are overvalued. By doing that they are making profit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is good because Central Bank's infrastructure does have a cost. If they were not making profit, they would have to be financed by the taxpayer. When a central bank is making profit, they typically give this money back to the state, lowering the amount of needed taxes.&lt;/p&gt;&#xA;" OwnerUserId="10836" LastActivityDate="2018-11-14T16:44:04.273" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25537" PostTypeId="2" ParentId="15017" CreationDate="2018-11-14T17:38:51.427" Score="0" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/ApsnP.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/ApsnP.png&quot; alt=&quot;Consider a Cobb-Douglas function&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Cobb-Douglas technology’s returns-to-scale is&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;constant      if   a1+ … + an  = 1&#xA;increasing   if   a1+ … + an  &amp;gt; 1&#xA;decreasing  if   a1+ … + an  &amp;lt; 1.&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;In your case, a1+a2=1.4+0.5=1.9, which is greater than 1. Therefore the given function exhibits increasing returns-to-scale.&lt;/p&gt;&#xA;" OwnerUserId="20175" LastActivityDate="2018-11-14T17:38:51.427" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25546" PostTypeId="1" CreationDate="2018-11-15T00:10:21.083" Score="3" ViewCount="1711" Body="&lt;p&gt;In the program I am writing, I need to show a currency selector. I would like it to display currency symbols. For this, I need to know what is the longest, in characters, currency symbol (or rather what the maximum length can be, if there is any limitation).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;E.g. USD, EUR, RUB all use single-character symbols: $, €, ₽. I initially assumed that it will always be one character. But I am obviously wrong, as e.g. Polish zloty symbol is zł.&lt;/p&gt;&#xA;" OwnerUserId="20179" LastActivityDate="2018-12-02T14:47:50.317" Title="What is the maximum number of characters in a currency symbol?" Tags="&lt;currency&gt;&lt;accounting&gt;" AnswerCount="3" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="25548" PostTypeId="2" ParentId="15407" CreationDate="2018-11-15T01:14:43.720" Score="0" Body="&lt;p&gt;According to Locke, capital originates in mans labour to what is freely given by nature. He mixes his labour with it and this becomes capital. Capital then multiplies capital. Its really just as simple as that.&lt;/p&gt;&#xA;" OwnerUserId="13857" LastActivityDate="2018-11-15T01:14:43.720" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="25551" PostTypeId="2" ParentId="25546" CreationDate="2018-11-15T02:28:05.320" Score="6" Body="&lt;p&gt;Instead of currency symbols, some of which are used by more than one currency as @HotLicks suggests, you may want to consider the three-letter currency codes used in most currency exchanges. Here is a list: &lt;a href=&quot;https://en.wikipedia.org/wiki/ISO_4217#Active_codes&quot; rel=&quot;noreferrer&quot;&gt;https://en.wikipedia.org/wiki/ISO_4217#Active_codes&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2018-11-15T02:28:05.320" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25553" PostTypeId="2" ParentId="25535" CreationDate="2018-11-15T02:53:39.687" Score="1" Body="&lt;p&gt;Central banks are banks.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At present in developed countries, central banks issue “currency in circulation” (e.g. dollar bills). In countries with reserve requirements (like the US), private banks are required to hold deposits at the central bank (“reserves”). These instruments are liabilities, and mostly pay 0% interest.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As assets, central banks either hold bonds (mainly government bonds), or lend to banks via various mechanisms. These assets pay interest.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since they issue liabilities that have a 0% interest, and normally own assets that pay a positive interest rate, they earn a profit. (In recent years, negative interest rates have popped up.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This link leads to reports describing the US Federal Reserve’s balance sheet: &lt;a href=&quot;https://www.federalreserve.gov/monetarypolicy/quarterly-balance-sheet-developments-report.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;link to Fed report page.&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2018-11-15T02:53:39.687" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25554" PostTypeId="1" CreationDate="2018-11-15T04:16:53.383" Score="0" ViewCount="387" Body="&lt;p&gt;I think that conventionally implicit costs are positive but if for example we consider a negative interest rate as an implicit cost, the implicit cost would be negative. Is this true? Can implicit costs be negative?&lt;/p&gt;&#xA;" OwnerUserId="20155" LastActivityDate="2019-12-10T09:02:15.313" Title="Can implicit costs be negative?" Tags="&lt;cost&gt;&lt;profits&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25555" PostTypeId="2" ParentId="25554" CreationDate="2018-11-15T05:03:08.157" Score="1" Body="&lt;p&gt;We can define a (positive) cost to be simply a negative benefit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In which case, a (positive) benefit is simply a negative cost.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So yes, in general, costs can be negative.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Note though that in economics, it doesn't usually make sense to speak of costs in isolation or benefits in isolation. Instead we usually look at the net benefits (i.e. all benefits minus all costs) or net costs (all costs minus all benefits).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So to use your interest rate example, usually when one buys say a 10-year bond, the benefit one gets in return is the positive interest rate. However, countries like Germany and Japan have issued bonds with negative interest rates. So, it seems silly that anyone would buy such bonds -- with negative interest rates, one is clearly getting a (negative) benefit and hence incurring a cost. However, this cost must be compared to &lt;em&gt;other&lt;/em&gt; costs -- for example that of safely storing some sum of money. When the proper cost-benefit analysis has been made, we will usually find that for the buyers of these German and Japanese bonds, the net benefits are positive (or equivalently, the net costs are negative).&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2018-11-15T05:03:08.157" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25556" PostTypeId="2" ParentId="25546" CreationDate="2018-11-15T11:00:41.903" Score="1" Body="&lt;p&gt;&lt;a href=&quot;https://economics.stackexchange.com/a/25551/20179&quot;&gt;Suggestion of @herr-k&lt;/a&gt; led me to this Wikipedia article: &lt;a href=&quot;https://en.wikipedia.org/wiki/List_of_circulating_currencies&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://en.wikipedia.org/wiki/List_of_circulating_currencies&lt;/a&gt;. It lists all current currencies and their symbols.&lt;/p&gt;&#xA;" OwnerUserId="20179" LastEditorUserId="20179" LastEditDate="2018-11-15T19:03:00.050" LastActivityDate="2018-11-15T19:03:00.050" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25557" PostTypeId="2" ParentId="24520" CreationDate="2018-11-15T15:45:23.913" Score="1" Body="&lt;p&gt;Because &lt;a href=&quot;https://www.theguardian.com/world/2018/may/13/us-sanctions-european-countries-iran-deal-donald-trump&quot; rel=&quot;nofollow noreferrer&quot;&gt;the US has threatened to sanction European companies that trade with Iran&lt;/a&gt;.  Most European companies that are interested in trading in Iran also trade with the US, so would be vulnerable to various kinds of sanctions.&lt;/p&gt;&#xA;" OwnerUserId="16631" LastActivityDate="2018-11-15T15:45:23.913" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="25559" PostTypeId="1" CreationDate="2018-11-15T16:31:00.127" Score="1" ViewCount="133" Body="&lt;p&gt;Some payment cards can be limited for certain purposes only (e.g. for paying only for food, or only for car fuel). When you try to pay for a different purpose, the system rejects the payment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand that this may be implemented by using &lt;strong&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Merchant_category_code&quot; rel=&quot;nofollow noreferrer&quot;&gt;MCC&lt;/a&gt;&lt;/strong&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;A Merchant Category Code (MCC)&lt;/strong&gt; is a four-digit number listed in ISO 18245 for retail financial services. MCC is used to classify the business by the type of goods or services it provides. MCCs are assigned &lt;em&gt;by merchant type&lt;/em&gt; (e.g. one for hotels, one for office supply stores, etc.) or &lt;em&gt;by merchant name&lt;/em&gt; (e.g. 3000 for United Airlines).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I pay in the supermarket and I have e.g. food, toiletries and light bulbs in my shopping cart. Does the payment terminal communicates with the card provider multiple MCCs based on the type of goods, or is there one single MCC assigned to the merchant (based on their most common goods) and only this is sent for payment authorization?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From the definition on Wikipedia&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;MCCs are assigned by &lt;strong&gt;merchant&lt;/strong&gt; type&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I would understand that the MCC is assigned to the &lt;strong&gt;merchant&lt;/strong&gt;. On other side, based on my shopping experience, I am sometimes not able to pay with such a card for all the goods. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;E.g. if the card is limited to food (a type of card used for employee benefit) and my shopping cart contains food &lt;em&gt;and&lt;/em&gt; toiletries, the card pays for the food only.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Can one single payment contain multiple MCCs? Or is there another mechanism employed?&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="20186" LastEditorUserId="20186" LastEditDate="2018-11-24T11:58:03.697" LastActivityDate="2018-11-24T11:58:03.697" Title="Can one single payment contain multiple Merchant Category Codes (MCC)?" Tags="&lt;banking&gt;&lt;technology&gt;&lt;regulation&gt;&lt;payment-system&gt;" AnswerCount="0" CommentCount="2" ClosedDate="2018-12-13T07:38:43.443" ContentLicense="CC BY-SA 4.0" />
  <row Id="25560" PostTypeId="1" CreationDate="2018-11-15T16:59:55.753" Score="3" ViewCount="81" Body="&lt;p&gt;When we talk about Consumption Function , we draw the 45 degree line of Income or Aggregate supply curve simultaneously.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But while graphing saving function , we don't show Income curve (45 deg. line) on same graph .&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why is it so ?&lt;/p&gt;&#xA;" OwnerUserId="19458" LastActivityDate="2019-04-14T22:01:20.287" Title="Why don't we draw National Income Curve(45 deg. line) simultaneously with graph for Saving Function?" Tags="&lt;saving&gt;&lt;national-income&gt;&lt;aggregate-production&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25561" PostTypeId="2" ParentId="15407" CreationDate="2018-11-15T17:05:42.403" Score="-1" Body="&lt;p&gt;Capital is the potential to create something of value. Humans can make things or do things for other humans by giving their time to a task of value to other humans. So, if I have a 40 hours spare per week, then I have a 40 hours worth of human capital per week. And, depending on the value of the skills I have that human capital could be worth more or less, than someone else's 40 hours. If we extend the concept of potential to create value then we have a concept of capital that is generic. If I have a £1000 I can use that to hire someone or buy a machine that has the potential to generate things of value, and so on. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope that helps?&lt;/p&gt;&#xA;" OwnerUserId="20188" LastActivityDate="2018-11-15T17:05:42.403" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25562" PostTypeId="1" CreationDate="2018-11-15T17:11:31.447" Score="3" ViewCount="53" Body="&lt;p&gt;Please clarify the difference in meaning behind markup and margin. Why would I use one or the other?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Markup = (Price - Cost)/Cost&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;useful for examining how much actual profit is made on each sale.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Margin = (Price - Cost)/Price&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;useful for helping ensure that a sale generates a profit.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Sources:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.linkedin.com/pulse/margin-vs-markup-two-sides-same-coin-steve-raye/&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.linkedin.com/pulse/margin-vs-markup-two-sides-same-coin-steve-raye/&lt;/a&gt;.&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.inflowinventory.com/blog/calculate-margin-vs-markup/&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.inflowinventory.com/blog/calculate-margin-vs-markup/&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="20187" LastActivityDate="2018-11-16T02:22:33.480" Title="What is the difference between Margin and Markup?" Tags="&lt;finance&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="25563" PostTypeId="2" ParentId="25560" CreationDate="2018-11-15T20:13:43.857" Score="1" Body="&lt;p&gt;The role of 45 degree line while showing a consumption function is that the 45 degree line translates the values on x-axis to equal values on y-axis. The consumption function is drawn on an income and aggregate expenditure plane. Hence the 45 degree line shows consumption + savings which is aggregate output or aggregate supply or income. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The other way to look at it is when you add up consumption function and saving function on the income- expenditure plane you will get a 45 degree line.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can show the 45 degree line along with the saving function and the difference between 45 degree line and the saving function will reflect the consumption expenditure. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another intuition that you will get is that the saving function will never intersect the 45 degree line which is representative of the fact that there is some consumption at the 0 level of income and rate of increase in savings is less than the rate of increase in income which is very obvious.&lt;/p&gt;&#xA;" OwnerUserId="19546" LastActivityDate="2018-11-15T20:13:43.857" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25564" PostTypeId="1" AcceptedAnswerId="25566" CreationDate="2018-11-15T21:15:51.580" Score="0" ViewCount="29" Body="&lt;p&gt;I remember seeing a fallacy mentioned concerning the different valuations you put on something just because you own it. I would like a link to the discussion of that fallacy. Thanks.&lt;/p&gt;&#xA;" OwnerUserId="20189" LastActivityDate="2018-11-16T01:13:13.073" Title="Name of a certain economic fallacy" Tags="&lt;reference-request&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25565" PostTypeId="1" CreationDate="2018-11-15T22:59:56.123" Score="1" ViewCount="98" Body="&lt;p&gt;In the context of preferences on a set of lotteries on a finite set &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt;, what is an example of a preference that is independent, Archimedean but &lt;strong&gt;not&lt;/strong&gt; mixture continuous?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know the mixture continuous implies Archimedean but cannot think of an example where the reverse implication fails.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;For completeness, I provide here the definitions of the terms above. Suppose &lt;span class=&quot;math-container&quot;&gt;$X=\{x_1,\ldots,x_n\}$&lt;/span&gt; is finite. Let &lt;span class=&quot;math-container&quot;&gt;$\Delta X=\{\pi\in\mathbb{R}^n:\sum_{i=1}^n\pi_i=1, \pi_i\geq 0\}$&lt;/span&gt;. A preference &lt;span class=&quot;math-container&quot;&gt;$\succeq$&lt;/span&gt; on the elements of &lt;span class=&quot;math-container&quot;&gt;$\Delta X$&lt;/span&gt; is:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;strong&gt;Independent&lt;/strong&gt;: if &lt;span class=&quot;math-container&quot;&gt;$\forall$&lt;/span&gt; lotteries &lt;span class=&quot;math-container&quot;&gt;$\pi,\rho,\sigma$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\forall \alpha\in(0,1)$&lt;/span&gt;:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\pi\succ\rho\iff\alpha\pi+(1-\alpha)\sigma\succ \alpha\rho+(1-\alpha)\sigma,\\&#xA;\pi\sim\rho\iff\alpha\pi+(1-\alpha)\sigma\sim \alpha\rho+(1-\alpha)\sigma;&#xA;$$&lt;/span&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;Archimedean&lt;/strong&gt;: if &lt;span class=&quot;math-container&quot;&gt;$\forall$&lt;/span&gt; lotteries &lt;span class=&quot;math-container&quot;&gt;$\pi,\rho,\sigma$&lt;/span&gt;,&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\pi\succ\rho\succ\sigma\implies\exists\alpha,\beta\in(0,1): \alpha \pi+(1-\alpha)\sigma\succ\rho, \beta \pi+(1-\beta)\sigma\prec\rho&#xA;$$&lt;/span&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;Mixture continuous&lt;/strong&gt;: if for all &lt;span class=&quot;math-container&quot;&gt;$\pi,\rho,\sigma$&lt;/span&gt;, the sets&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\{\alpha\in[0,1]:\alpha\pi+(1-\alpha)\rho\succeq\sigma\}\quad\text{and}\quad \{\alpha\in[0,1]:\alpha\pi+(1-\alpha)\rho\preceq\sigma\}&#xA;$$&lt;/span&gt;&#xA;are closed in &lt;span class=&quot;math-container&quot;&gt;$[0,1]$&lt;/span&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="5875" LastActivityDate="2018-11-15T22:59:56.123" Title="Archimedean but not mixture continuous" Tags="&lt;preferences&gt;&lt;uncertainty&gt;&lt;choice-theory&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="25566" PostTypeId="2" ParentId="25564" CreationDate="2018-11-16T01:13:13.073" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;The &lt;a href=&quot;https://en.wikipedia.org/wiki/Endowment_effect&quot; rel=&quot;nofollow noreferrer&quot;&gt;endowment effect&lt;/a&gt; is the hypothesis that people ascribe more value to things merely because they own them.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2018-11-16T01:13:13.073" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25568" PostTypeId="2" ParentId="25562" CreationDate="2018-11-16T02:22:33.480" Score="3" Body="&lt;p&gt;Markup is how much the seller is adding to the cost to get the price of sale.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Margin is how much of the sale price is available for overhead and profit.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You would tend to use markup when you are more concerned with costs than the sale price.  You would use margin when you are more concerned with the sale price than costs.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\frac{\text{markup}}{\text{margin}} = \frac{\frac{\text{Price}-\text{Cost}}{\text{Cost}}}{\frac{\text{Price}-\text{Cost}}{\text{Price}}} = \frac{\text{Price}}{\text{Cost}}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since cost is generally less than price, markup will generally be larger than margin.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Profit (both accounting and economic) will be no more than margin.  So if you want to talk about profit, you might start by considering margin.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\text{markup} = \frac{\text{Price}}{\text{Cost}} - 1$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\text{margin} = 1 - \frac{\text{Cost}}{\text{Price}}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One reason you might use markup rather than margin is that you may not know the price.  If you have something that costs one unit and you want 100% markup, then you find out that the price is two units.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\text{Price} = \text{markup}\cdot\text{Cost} + 1$$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="68" LastActivityDate="2018-11-16T02:22:33.480" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25570" PostTypeId="2" ParentId="24115" CreationDate="2018-11-16T11:00:13.457" Score="1" Body="&lt;p&gt;I just faced the same problem and found the solution:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Use this code in R:&lt;/p&gt;&#xA;&#xA;&lt;h1&gt;input Stata file&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;library(foreign) &#xA;child &amp;lt;- read.dta(&quot;C:\child.iq.dta&quot;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Code found here:(&lt;a href=&quot;https://www.statmethods.net/input/importingdata.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.statmethods.net/input/importingdata.html&lt;/a&gt;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You need the double &quot; \ &quot; if you're using R. &#xA;read.dta(&quot;    &quot;) Type the exact folder with data ending. Be careful to use common characters, otherwise R could have problems finding the folder. In my case I just saved the files on C:\.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This way you can access all Data.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm using the latest R-Studio version.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I hope I could help you!&lt;/p&gt;&#xA;" OwnerUserId="20196" LastActivityDate="2018-11-16T11:00:13.457" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25571" PostTypeId="1" CreationDate="2018-11-16T13:13:34.420" Score="3" ViewCount="132" Body="&lt;p&gt;Autonomous consumption is done either through past savings or by borrowing money or selling asset to have minimum consumption in order to survive.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So can autonomous consumption be greater than our 1st level of consumption ?&lt;/p&gt;&#xA;" OwnerUserId="19458" LastActivityDate="2020-09-08T18:00:55.080" Title="Can Autonomous Consumption be Greater than Income of individual?" Tags="&lt;consumption&gt;&lt;national-income&gt;&lt;aggregate-production&gt;" AnswerCount="2" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="25572" PostTypeId="1" CreationDate="2018-11-16T13:20:02.567" Score="1" ViewCount="87" Body="&lt;p&gt;I would like to calculate/simulate the &lt;i&gt;a-priori&lt;/i&gt; necessary sample size for a repeated public goods experiment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$N$&lt;/span&gt; Participants play &lt;span class=&quot;math-container&quot;&gt;$R$&lt;/span&gt;  rounds of a public goods game  (linear, voluntary contribution mechanism, anonymous, no punishment, no communication, simultaneous decisions) in groups of &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt; (with &lt;span class=&quot;math-container&quot;&gt;$n \leq N$&lt;/span&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let  private payout of a participant &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; be &lt;span class=&quot;math-container&quot;&gt;$\pi_i$&lt;/span&gt; calculated as &lt;span class=&quot;math-container&quot;&gt;$\pi_i = p_i + \alpha \times G$&lt;/span&gt;, with&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$G=\sum_{i=1}^{n}(g_i)$&lt;/span&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$p_i$&lt;/span&gt; the contribution to the private account,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$g_i$&lt;/span&gt; the contribution to the public account,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$ 0 &amp;lt; \alpha &amp;lt;1&amp;lt; \frac{\alpha}{n}$&lt;/span&gt;, which is the marginal per capita return (MPCR).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Each participant decides how much of their &lt;span class=&quot;math-container&quot;&gt;$E$&lt;/span&gt; tokens she contributes to the public account, &lt;span class=&quot;math-container&quot;&gt;$0 \leq g_i \leq E$&lt;/span&gt;, whereas &lt;span class=&quot;math-container&quot;&gt;$p_i = E - g_i$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Each round &lt;span class=&quot;math-container&quot;&gt;$r$&lt;/span&gt; (&lt;span class=&quot;math-container&quot;&gt;$0 \leq r \leq R$&lt;/span&gt;) each individual &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; starts with a new endowment &lt;span class=&quot;math-container&quot;&gt;$E$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the experiment, participants are randomly allocated to conditions. The conditions vary by two factors. Factor 1 has 2 levels, factor 2 has 2 levels, making this a 2x2 full factorial design. The levels are categorical.&#xA;Random allocation is &lt;i&gt;between-subjects&lt;/i&gt;, i.e. each subject &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; is allocated to the same combination of factor levels each round. In other words: Treatment allocation does not vary with round &lt;span class=&quot;math-container&quot;&gt;$r$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I want to test for significance of the interaction between F1 and F2 on contributions to the public good &lt;span class=&quot;math-container&quot;&gt;$g_{ij}$&lt;/span&gt;. I am not quite clear on whether to use a random or fixed effects regression model for this, since the dependent variable varies with &lt;span class=&quot;math-container&quot;&gt;$r$&lt;/span&gt; but the independent variables stay constant across rounds &lt;span class=&quot;math-container&quot;&gt;$r$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Either way I would like to calculate, resp. simulate the power of the interaction effect, given n. &#xA;Since these types of experiments are frequently condcuted I wanted to ask whether someone could provide me with R or Stata Code for calculation or simulation, or any other type of resource.&lt;/p&gt;&#xA;" OwnerUserId="12071" LastActivityDate="2018-11-16T13:20:02.567" Title="Calculate power for multiple rounds of public goods experiment" Tags="&lt;behavioral-economics&gt;&lt;public-economics&gt;&lt;public-goods&gt;&lt;experimental-economics&gt;&lt;randomized-experiment&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25573" PostTypeId="1" CreationDate="2018-11-16T14:19:08.683" Score="1" ViewCount="60" Body="&lt;p&gt;Aggregate Demand is Basically &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;AD = C + I + G + X - M &#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is not this national income Through &lt;em&gt;Expenditure Method&lt;/em&gt; ?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then why don't we treat AD equal to National Income ?&lt;/p&gt;&#xA;" OwnerUserId="19458" LastActivityDate="2019-08-13T17:02:10.343" Title="Why doesn't Aggregate Demand mean National Income whereas Aggregate supply is equal to national income?" Tags="&lt;macroeconomics&gt;&lt;aggregate-production&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25574" PostTypeId="2" ParentId="25525" CreationDate="2018-11-16T15:16:40.657" Score="1" Body="&lt;p&gt;Given the endowments&#xA;Individual 1 : &lt;span class=&quot;math-container&quot;&gt;$(4,5); U(4,5) = 20$&lt;/span&gt; and Individual 2 : &lt;span class=&quot;math-container&quot;&gt;$(6,5); U(6,5)=30$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given that there is no more than and 10 units of Good X and 10 units of Good Y in the economy. If I allocate Individual 1 one with &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; units of Good X and &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt; units of Good Y then Individual 2 has &lt;span class=&quot;math-container&quot;&gt;$(10-X)$&lt;/span&gt; units of Good X (&lt;span class=&quot;math-container&quot;&gt;$10-Y$&lt;/span&gt;) units of Good Y.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now the set of Pareto superior allocations to the given endowments, if they exist will satisfy these two simultaneous non linear inequalities.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$ XY \geq 20$&lt;/span&gt; Red region&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$ (10-X)(10-Y) \geq 30$&lt;/span&gt; Blue region&#xA;&lt;a href=&quot;https://i.stack.imgur.com/bAkAW.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/bAkAW.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&#xA;Graphically plotting these inequalities we observe: &lt;strong&gt;The small common region which you see between red and blue areas is actually the infinite set of all Pareto superior allocations to the given endowment.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now our job is to find out that allocation which is Pareto optimal, that is that convex lens shaped common region should not be present.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This point could be achieved where both curves are tangent to each other.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/UaFTk.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/UaFTk.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which are required Pareto &lt;del&gt;optimal&lt;/del&gt; efficient/superior allocations.&lt;/p&gt;&#xA;" OwnerUserId="19546" LastEditorUserId="19546" LastEditDate="2019-01-20T07:11:21.267" LastActivityDate="2019-01-20T07:11:21.267" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="25575" PostTypeId="1" CreationDate="2018-11-16T15:19:51.403" Score="2" ViewCount="160" Body="&lt;p&gt;I have a super basic question on the shift in supply and demand curves ( I haven't seen this stuff since high school). More generally, this is about solving systems of simultaneous equations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We have two curves, an IS curve and an LM curve. We know from theory&#xA;that the IS curve is downward sloping in &lt;span class=&quot;math-container&quot;&gt;$i-y$&lt;/span&gt; space and the LM&#xA;curve is upward sloping in &lt;span class=&quot;math-container&quot;&gt;$i-y$&lt;/span&gt; space. Let's take a basic example.&#xA;The IS curve is represented by&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;i=-y&#xA;$$&lt;/span&gt;&#xA;and the &lt;span class=&quot;math-container&quot;&gt;$LM$&lt;/span&gt; curve is represented by &#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;i=y&#xA;$$&lt;/span&gt;&#xA; Equilibrium would imply values of &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; that solve these&#xA;equations simultaneously, or &lt;span class=&quot;math-container&quot;&gt;$i=y=0.$&lt;/span&gt; Now suppose government activity&#xA;increased, shifting the &lt;span class=&quot;math-container&quot;&gt;$IS$&lt;/span&gt; curve to the right. In this framework,&#xA;this would result in a horizontal translation of &lt;span class=&quot;math-container&quot;&gt;$2$&lt;/span&gt; units of the&#xA;&lt;span class=&quot;math-container&quot;&gt;$IS$&lt;/span&gt; curve. &#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;i=-y+2&#xA;$$&lt;/span&gt;&#xA; while the &lt;span class=&quot;math-container&quot;&gt;$LM$&lt;/span&gt; curve remains unchanged. The new equilibrium is given&#xA;by &lt;span class=&quot;math-container&quot;&gt;$y=1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$1.$&lt;/span&gt; Notice that the initial increase of &lt;span class=&quot;math-container&quot;&gt;$2$&lt;/span&gt; in the&#xA;IS curve resutlts in equilibrium increasing by only &lt;span class=&quot;math-container&quot;&gt;$1.$&lt;/span&gt; Intuitively,&#xA;this is because as &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; increases, so does &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; according to &lt;span class=&quot;math-container&quot;&gt;$LM$&lt;/span&gt;&#xA;relation. And, as &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; increases, &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; decreases according to &lt;span class=&quot;math-container&quot;&gt;$IS$&lt;/span&gt;&#xA;relation. As both these relations have to be satisfied, some of the&#xA;initial increase is moderated. My question is: what ensures that &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt;&#xA;in fact doesn't decrease? If the &lt;span class=&quot;math-container&quot;&gt;$LM$&lt;/span&gt; curve determines interest rates&#xA;that are super sensitive to increases in &lt;span class=&quot;math-container&quot;&gt;$y,$&lt;/span&gt; can it not be that&#xA;&lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; increases sufficiently that &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; in equilibrium decreases? Graphically,&#xA;this is not possible- in the extreme case, the &lt;span class=&quot;math-container&quot;&gt;$LM$&lt;/span&gt; curve is vertical,&#xA;&lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; does not change. But, what condition ensures that &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; does not decrease?&lt;/p&gt;&#xA;" OwnerUserId="5233" LastEditorUserId="1601" LastEditDate="2018-11-16T16:57:05.763" LastActivityDate="2018-11-24T15:18:11.350" Title="Question on shifts in Supply and Demand Curves" Tags="&lt;macroeconomics&gt;&lt;supply-and-demand&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25576" PostTypeId="2" ParentId="25573" CreationDate="2018-11-16T15:22:15.503" Score="1" Body="&lt;p&gt;The existence of aggregate demand does not mean that aggregate demand is fulfilled. For instance if the aggregate planned demand is 100 billion dollars and due to crisis or war output is very low at just 10 billion dollars. Does the national income equal 100 billion dollars?&lt;/p&gt;&#xA;" OwnerUserId="19546" LastActivityDate="2018-11-16T15:22:15.503" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25578" PostTypeId="1" CreationDate="2018-11-16T21:24:16.493" Score="1" ViewCount="41" Body="&lt;p&gt;There are N agents living in an economy with two goods, &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt;. Their preferences are described by the following utility function &lt;span class=&quot;math-container&quot;&gt;$u(X,Y) = 2 \sqrt{XY}$&lt;/span&gt;. Each agent is endowed with 1 unit of &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$y_{i}$&lt;/span&gt; units of &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt;. Each unit of &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt; is sells for &lt;span class=&quot;math-container&quot;&gt;$p$&lt;/span&gt; units of &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question is to show that each agent gets a utility of &lt;span class=&quot;math-container&quot;&gt;$\frac{1 + py_{i}}{\sqrt p}$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is what I have tried:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The agent chooses &lt;span class=&quot;math-container&quot;&gt;$X,Y$&lt;/span&gt; in order to maximise &lt;span class=&quot;math-container&quot;&gt;$2\sqrt{XY}$&lt;/span&gt; subject to &lt;span class=&quot;math-container&quot;&gt;$X + pY = 1 + p y_{i}$&lt;/span&gt; So I have expressed the resource constraint in units of good &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt;. The LHS is what the agent can buy and the RHS is the endowment, also expressed in units of &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I then re-arrange the constraint in terms of &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt;, i.e, &lt;span class=&quot;math-container&quot;&gt;$Y = \frac{1}{p} + y_{i} - \frac{X}{p}$&lt;/span&gt; and substitute this in to the utility function, with the FOC with respect to &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; and then substitute the optimal value of &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; back in to the utility function to get an expression in terms of &lt;span class=&quot;math-container&quot;&gt;$y_{i}$&lt;/span&gt;. However, the expression is not what I am supposed to get.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If anyone wants to check my algebra, here it is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The utility function becomes &lt;span class=&quot;math-container&quot;&gt;$2\sqrt {(X/p) + Xy_{i} - X^2/p}$&lt;/span&gt; Differentiating this w.r.t &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; I find that &lt;span class=&quot;math-container&quot;&gt;$X^* = (1/2)(1 + y_{i}p)$&lt;/span&gt;. I substitute this in the utility function, &lt;span class=&quot;math-container&quot;&gt;$2\sqrt{X^*y_{i}}$&lt;/span&gt; but this does not equal &lt;span class=&quot;math-container&quot;&gt;$\frac{1 + py_{i}}{\sqrt p}$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any ideas on where I am going wrong?&lt;/p&gt;&#xA;" OwnerUserId="20199" LastEditorUserId="68" LastEditDate="2018-11-17T03:14:24.007" LastActivityDate="2018-11-17T03:14:24.007" Title="Finding individual utility" Tags="&lt;microeconomics&gt;&lt;competitive-equilibrium&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25579" PostTypeId="1" CreationDate="2018-11-17T01:34:00.587" Score="1" ViewCount="17" Body="&lt;p&gt;I studied that Investment is the expenditure incurred on the procurement of such goods that would help us in production of goods and services.&#xA;And mainly consists of Fixed and Inventory Investment &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this the only definition of investment in economics ?&#xA;Or definition of investment changes when we talk about different concepts ?&lt;/p&gt;&#xA;" OwnerUserId="19458" LastEditorUserId="19458" LastEditDate="2018-11-17T02:49:14.337" LastActivityDate="2018-11-17T02:49:14.337" Title="Is the definition of Investment variable in Economics?" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;investment&gt;&lt;productivity&gt;&lt;producer-theory&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25580" PostTypeId="2" ParentId="25578" CreationDate="2018-11-17T01:54:05.593" Score="1" Body="&lt;p&gt;Your mistake probably occurred at the final substitution stage. Optimal utility should be &lt;span class=&quot;math-container&quot;&gt;$2\sqrt{x^*y^*}$&lt;/span&gt;, which is not the same as &lt;span class=&quot;math-container&quot;&gt;$2\sqrt{x^*y_i}$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In general, maximizing a two-good Cobb-Douglas utility function &lt;span class=&quot;math-container&quot;&gt;$u(x,y)=Ax^\alpha y^\beta$&lt;/span&gt; subject to budget constraint &lt;span class=&quot;math-container&quot;&gt;$p_xx+p_yy=m$&lt;/span&gt; has general solution &#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;x^*=\frac{\alpha}{\alpha+\beta}\frac{m}{p_1}&#xA;\quad\text{and}\quad &#xA;y^*=\frac{\beta}{\alpha+\beta}\frac{m}{p_2}.&#xA;\end{equation}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In your case, the parameters &lt;span class=&quot;math-container&quot;&gt;$A,\alpha,\beta,p_x,p_y,m$&lt;/span&gt; take the following values: &#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;A=2,\quad\alpha=\beta=\frac12,\quad p_x=1,\quad p_y=p,\quad m=1+py_i.&#xA;\end{equation}&lt;/span&gt;&#xA;Plugging in the values, you get optimal consumption:&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;x^*=\frac{1+py_i}{2},\quad y^*=\frac{1+py_i}{2p}.&#xA;\end{equation}&lt;/span&gt;&#xA;Hence optimal utility is &#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;u(x^*,y^*)=2\sqrt{\frac{1+py_i}{2}\cdot \frac{1+py_i}{2p}}=\frac{1+py_i}{\sqrt p}&#xA;\end{equation}&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2018-11-17T01:54:05.593" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25581" PostTypeId="2" ParentId="25571" CreationDate="2018-11-17T02:04:36.027" Score="1" Body="&lt;p&gt;Expressing consumption as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$C = a + f(Y)$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt; is income, there is nothing in the theory that forbids &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$a &amp;gt; f(Y)$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;even though the theoretical anticipation and the empirical regularity (i.e. for most people) is that &lt;span class=&quot;math-container&quot;&gt;$a &amp;lt; f(Y)$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2018-11-17T02:04:36.027" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="25582" PostTypeId="2" ParentId="25442" CreationDate="2018-11-17T03:59:50.833" Score="1" Body="&lt;p&gt;What you are missing is the concept of &lt;strong&gt;&lt;em&gt;GDP deflator&lt;/em&gt;&lt;/strong&gt; .&#xA;Which is there while studying National Income Accounting.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When you are comparing change in Valve Added (GDP) of 2016 and 2017 , the change could have been mainly due to two reasons :-&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;em&gt;Increase in production&lt;/em&gt;&lt;/li&gt;&#xA;&lt;li&gt;or &lt;em&gt;Change in prices&lt;/em&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;While comparing Value Added by the company in two years , second reason i.e change in prices would give us false result as while comparing GDP we want to see how much the production has increased/decreased between the years , but the change in prices might show an exaggerated value of GDP if we do not take into account the change in prices .&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For getting the correct answer what we do is that we take one year as base year(generally the first year given to us i.e 2016 in your case) and calculate the GDP on the basis of the prices prevalent on that year , so that we get a true picture of real change in GDP .&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\text{GDP Deflator} = \frac{\text {Nominal  GDP}}{\text{Real GDP}} \cdot {100}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where Nominal GDP is the GDP of 2017 at current year i.e 2017 prices &#xA;And Real GDP is the GDP of 2017 calculated at base year prices i.e 2016&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also remember the formulae &lt;span class=&quot;math-container&quot;&gt;$\text{GDP = Units produced * Price per unit} $&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;em&gt;Do refer to the following hyperlink&lt;/em&gt;&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://www.pitt.edu/~mgahagan/PriceIndexes/cpigdp.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;strong&gt;GDP deflator&lt;/strong&gt;&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Hope you find my answer useful. :)&lt;/p&gt;&#xA;" OwnerUserId="19458" LastActivityDate="2018-11-17T03:59:50.833" CommentCount="9" ContentLicense="CC BY-SA 4.0" />
  <row Id="25586" PostTypeId="2" ParentId="25479" CreationDate="2018-11-17T08:43:26.090" Score="2" Body="&lt;p&gt;The difference between strongly and strictly increasing functions depends on the set on which functions are defined. In reference to the book mentioned, you are asking the difference between strongly and strictly increasing utility functions. The domains of such functions are &lt;strong&gt;non-negative real numbers&lt;/strong&gt; or &lt;strong&gt;strictly positive real numbers&lt;/strong&gt;. Now take an example of Cobb-Douglas utility functions and non-negative real numbers as the domain. Now compare two bundles (0,1),(0,2). You will find that Cobb-Douglas utility functions are not strongly increasing. Now consider CES utility function with non-negative real numbers. Now compare the same bundle (0,1),(0,2). You will find that CES utility functions are strongly increasing on non-negative real numbers.&#xA;If you compare Cobb-Douglas and CES utility function defined on strictly positive real numbers then both are strongly increasing.&lt;/p&gt;&#xA;" OwnerUserId="20203" LastActivityDate="2018-11-17T08:43:26.090" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25587" PostTypeId="1" CreationDate="2018-11-17T08:58:48.483" Score="0" ViewCount="53" Body="&lt;p&gt;I need to show whether or not the following function is increasing, decreasing, or constant returns to scale, but I can't figure out how to extract the &lt;em&gt;t&lt;/em&gt; from it when it is put in the form &lt;span class=&quot;math-container&quot;&gt;$y(tX_1, tX_2)$&lt;/span&gt;.&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;y = X_2\sin{\left(\frac{X_1}{X_2}-\pi \right)}&#xA;$$&lt;/span&gt;&#xA;Is there any other way of showing IRS, DRS, and CRS? Any help would be appreciated!&lt;/p&gt;&#xA;" OwnerUserId="20120" LastEditorUserId="68" LastEditDate="2018-11-18T01:12:24.950" LastActivityDate="2018-11-18T01:12:24.950" Title="How can I show whether the following function is Increasing, Decreasing, or Constant returns to scale?" Tags="&lt;microeconomics&gt;" AnswerCount="2" CommentCount="0" ClosedDate="2018-11-23T16:04:42.683" ContentLicense="CC BY-SA 4.0" />
  <row Id="25590" PostTypeId="2" ParentId="25587" CreationDate="2018-11-17T11:58:25.340" Score="0" Body="&lt;p&gt;in the case of for example a production function, returns to scale mean the effect when all factors of production are multiplied by a certain constant, with what constant is the production level multiplied?&#xA;i) the same constant as the factors of production (constant returns to scale)&#xA;ii) a larger constant (increasing returns to scale)&#xA;iii) a smaller constant (decreasing returns to scale)&#xA;So the right approach is to simply fill in a constant (let's call it c) in your function.&#xA;cX2(sin((cX1/cX2)-pi)&#xA;and try to rewrite it to &#xA;d(X2(sin((X1/X2)-pi))&#xA;where d is the constant with which y is multiplied as a consequence of multiplying X1 and X2 with c&lt;/p&gt;&#xA;" OwnerUserId="18214" LastActivityDate="2018-11-17T11:58:25.340" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25591" PostTypeId="2" ParentId="25587" CreationDate="2018-11-17T12:00:38.763" Score="3" Body="&lt;p&gt;You have &lt;span class=&quot;math-container&quot;&gt;$$F(x_1,x_2)=x_2\sin\bigg(\frac{x_1}{x_2}-\pi\bigg).$$&lt;/span&gt;&#xA;If you multiply all factors by &lt;span class=&quot;math-container&quot;&gt;$t$&lt;/span&gt; you get&#xA;&lt;span class=&quot;math-container&quot;&gt;$$F(tx_1,tx_2)=t x_2\sin\bigg(\frac{tx_1}{tx_2}-\pi\bigg).$$&lt;/span&gt;&#xA;Simplify the fraction and you are almost done.&lt;/p&gt;&#xA;" OwnerUserId="1442" LastActivityDate="2018-11-17T12:00:38.763" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25593" PostTypeId="1" AcceptedAnswerId="25644" CreationDate="2018-11-17T12:53:10.500" Score="1" ViewCount="21" Body="&lt;p&gt;Consider a two-period corporate bond with the following characteristics. The bond was issued at &lt;span class=&quot;math-container&quot;&gt;$t = 0$&lt;/span&gt; with face value &lt;span class=&quot;math-container&quot;&gt;$FV = 100$&lt;/span&gt; at &lt;span class=&quot;math-container&quot;&gt;$t = 2$&lt;/span&gt;. In period &lt;span class=&quot;math-container&quot;&gt;$t = 1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$t = 2$&lt;/span&gt; coupons of &lt;span class=&quot;math-container&quot;&gt;$5$&lt;/span&gt; are paid out (&lt;span class=&quot;math-container&quot;&gt;$c = 5$&lt;/span&gt;). We are in &lt;span class=&quot;math-container&quot;&gt;$t = 1$&lt;/span&gt; and the bond issuer has just paid the first coupon. The price of the bond is 101.942.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose that the bond is callable at &lt;span class=&quot;math-container&quot;&gt;$101$&lt;/span&gt;. The bond issuer is informed by an investment bank that it can issue a new one period zero coupon bond worth &lt;span class=&quot;math-container&quot;&gt;$101$&lt;/span&gt; today for a face value of &lt;span class=&quot;math-container&quot;&gt;$104.030$&lt;/span&gt; in &lt;span class=&quot;math-container&quot;&gt;$t = 2$&lt;/span&gt;.What is the yield to maturity on this hypothetical bond?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The eqaution is given by:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$P_0 : \frac{c}{(1+r)} + \frac{C}{(1+r)^t} + \frac{FV}{(1+r)^t}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$c=0$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$FV= 104.03$&lt;/span&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$P_0 = 101$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$t=2$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And solve for &lt;span class=&quot;math-container&quot;&gt;$r$&lt;/span&gt;.&#xA;But the right answer is all of this above, &lt;strong&gt;but&lt;/strong&gt; &lt;span class=&quot;math-container&quot;&gt;$t=1$&lt;/span&gt; .. Why? When they say that &lt;span class=&quot;math-container&quot;&gt;$t=2$&lt;/span&gt;?&lt;/p&gt;&#xA;" OwnerUserId="20206" LastActivityDate="2018-11-20T06:45:48.207" Title="Bond pricing, compute YTM ... why t not = 2?" Tags="&lt;financial-economics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25594" PostTypeId="1" CreationDate="2018-11-17T13:19:07.773" Score="1" ViewCount="125" Body="&lt;p&gt;Definition of Investment that I have found: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Investment is the expenditure incurred on the procurement of such capital assets that would help in further production .&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;According to this, it means that investment is only made by producers. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Am I correct in saying that only producers invest? Or do consumers also invest? &lt;/p&gt;&#xA;" OwnerUserId="20208" LastEditorUserId="20208" LastEditDate="2018-11-20T14:49:23.137" LastActivityDate="2018-11-25T17:04:35.383" Title="Do consumers also invest?" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;investment&gt;" AnswerCount="4" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="25601" PostTypeId="2" ParentId="25594" CreationDate="2018-11-17T19:35:19.387" Score="2" Body="&lt;p&gt;It is true that we tend to think of Investment as something firms and businesses do, while consumers practice savings or &quot;invest&quot; in utility-enhancing assets (like a house to live in). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;One could argue that when consumers buy shares of a corporation in the stock market they participate in productive investment, even though they do not control the decision-making process. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But exactly because they do not affect the decision-making process it is better to think of such &quot;investments&quot; also as saving, and retain the word investment for the purposeful and decided-upon transformation of resources into productive use.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2018-11-17T19:35:19.387" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="25603" PostTypeId="1" AcceptedAnswerId="25604" CreationDate="2018-11-17T22:50:46.527" Score="0" ViewCount="233" Body="&lt;p&gt;Quoting from MWG p.519, Chapter 10: Pure Exchange, The Edgeworth Box&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;..., any intersection of the consumers' offer curves at an allocation &lt;strong&gt;different from the endowment point &lt;span class=&quot;math-container&quot;&gt;$\omega$&lt;/span&gt;&lt;/strong&gt; corresponds to an equilibrium...&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Does this mean that the endowment point can never be an equilibrium or that the crossing of offer curves there is not enough to guarantee that?&lt;/p&gt;&#xA;" OwnerUserId="6773" LastEditorUserId="6773" LastEditDate="2018-11-17T22:58:49.853" LastActivityDate="2018-11-17T23:13:54.147" Title="Can the endowment point be the competitive equilibrium?" Tags="&lt;microeconomics&gt;&lt;general-equilibrium&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25604" PostTypeId="2" ParentId="25603" CreationDate="2018-11-17T23:13:54.147" Score="1" Body="&lt;p&gt;The endowment can be an equilibrium allocation. But as is written on page 518, if indifference curves are smooth, which we will assume in the following, they must be tangent to the offer curve at the endowment. So if the offer curves cross at the endowment, the indifference curves must cross too. But if the indifference curves at the endowment cross each other, the endowment cannot be Pareto efficient. But every equilibrium allocation is efficient, so the initial endowment will not be an equilibrium allocation if the offer curves cross each other there (they would need to be tangent.)&lt;/p&gt;&#xA;" OwnerUserId="1442" LastActivityDate="2018-11-17T23:13:54.147" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="25605" PostTypeId="1" AcceptedAnswerId="25666" CreationDate="2018-11-18T02:26:47.187" Score="6" ViewCount="6740" Body="&lt;p&gt;According to what I have read, investment is the expenditure on  creation of capital goods, which means that it is done by producers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then why do we treat buying of house by households as investment when they are not doing any production?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the sense of treating house as investments, we can treat other consumer goods also like investments. For example, if a consumer buys a TV, we could treat that like an investment because he's receiving a benefit for as long as he owns the TV. Why do we treat houses differently?&lt;/p&gt;&#xA;" OwnerUserId="20208" LastEditorUserId="264" LastEditDate="2018-11-23T16:19:44.027" LastActivityDate="2018-11-27T13:38:18.557" Title="Why do we consider purchase of house by households as investment?" Tags="&lt;investment&gt;&lt;national-accounts&gt;" AnswerCount="3" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="25606" PostTypeId="2" ParentId="24575" CreationDate="2018-11-18T05:36:46.800" Score="2" Body="&lt;p&gt;I'm the user 'softlibertarian', that answer was from an anonymous account I can't seem to recover. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In any case, the liberal economic theory (liberal in both Misesean(Austrian) and Chicago(Neoclassical) senses) is quite clear about monopolies. Here's the short, succinct (and non-technical) version:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Every form of action is a monopoly. I, as the person softlibertarian, possess monopoly over labour that is exclusively mine i.e. every monopoly has a &lt;em&gt;scope&lt;/em&gt;. Tom Cruise, for instance, possesses monopoly over action movies named Mission Impossible for the action of lead actor.&lt;/li&gt;&#xA;&lt;li&gt;A monopoly that is both wide in scope (the number of purposes the action serves) and narrow in &quot;awareness&quot; (i.e. is mysterious enough to remain proprietary without alternatives) is especially difficult to create. To sustain such a monopoly, a producer has to create something that is good enough to be loved by everyone and secretive enough to prevent alternatives from springing up.&lt;/li&gt;&#xA;&lt;li&gt;The empirical evidence (historical events, if you're an Austrian) in the aforementioned book, 'Enterprise Monopoly in the US', demonstrate that monopolistic &quot;predatory&quot; powers of any producer are sustained and nurtured in the presence of government regulation and licensing (preventing competition from rising). Some Chicagoans in rare cases, however, seem okay with a government &quot;anti-trust&quot; legislature.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I'd still recommend you visit these links:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.quora.com/Are-monopolies-potentially-bad-if-they-disrupt-a-free-market/answer/Austin-Middleton&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.quora.com/Are-monopolies-potentially-bad-if-they-disrupt-a-free-market/answer/Austin-Middleton&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.quora.com/Is-the-argument-thatall-monopolies-were-created-by-the-government-true/answer/Austin-Middleton&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.quora.com/Is-the-argument-thatall-monopolies-were-created-by-the-government-true/answer/Austin-Middleton&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;softlibertarian I was asking this having in mind applications to the economic life in Russia. What is the libertarian explanation of the events here? What &quot;liberal reformators&quot; of 1990-ies were doing here,&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;To answer your comment, @Sergei Akbarov, (forgive my ignorance of the happenings in early 90s Russia, I only barely know what happened) the libertarian explanation is that markets were crushed, central planning was adopted, which suffered from Hayek's &quot;Knowledge problem&quot; (markets take into account the localized knowledge and time when making decisions, a central planner, however benevolent and superior, does not have access to these valuable input, eventually leading to unwanted surpluses and deficits) ultimately leading to the collapse. That was the case in pre-Deng China, and to a milder, but still severe, pre-liberalization India (British inspired Indian Fabian Socialism is a story for another day).&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;was that the right strategy from the point of view of libertarians?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Of course not, libertarians emphasize a much greater (if not complete) reliance on market mechanisms to coordinate individuals' productive and consumptive capacities. Again it depends on which libertarian you ask. If you ask me, I'd recommend the &quot;mainstream&quot; Scott Sumner (Market Monetarist/Chicago) libertarianism which basically says enable market mechanisms for virtually everything you can think of, establish carbon(pigouvian) tax for negative externalities where private arbitration turns unjust, provide the oft-quoted Hayekian &quot;basic needs&quot; in the form of NIT (implemented as EITC in the United States).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I'm allowed to get tangential and in case you're worried about monopolies, I'd refer you to the popular libertarian philospher Robert Nozick's description of a free market economy. He describes, in his book Anarchy, State and Utopia, the mechanism by which wealth forms, Wealth is formed only by peaceful individuals interacting with their belongs in a productive manner (Wilt Chamberlain argument). You are no worse off than what you were when others gained wealth, nullifying your (hypothetical) claim to injustice.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;@Kitsune Cavalry, I hope this answer is satisfactory.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Disclaimer: I have not had any sort of formal economic training. Economics is simply my side interest.&lt;/p&gt;&#xA;" OwnerUserId="20158" LastActivityDate="2018-11-18T05:36:46.800" CommentCount="19" ContentLicense="CC BY-SA 4.0" />
  <row Id="25607" PostTypeId="1" CreationDate="2018-11-18T07:46:24.190" Score="2" ViewCount="424" Body="&lt;p&gt;There was a question in my book in which the factor income paid to abroad was given as negative .&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I guess here negative means that we are not paying but receiving from them but how can it happen that we are receiving income from normal residents of other countries ?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is it true that factor income paid to abroad can be negative or is it only in theory ?&lt;/p&gt;&#xA;" OwnerUserId="20208" LastActivityDate="2018-11-18T12:09:02.030" Title="How can Factor Income paid to abroad be negative?" Tags="&lt;macroeconomics&gt;&lt;national-income&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25609" PostTypeId="2" ParentId="25607" CreationDate="2018-11-18T12:09:02.030" Score="1" Body="&lt;p&gt;I suspect that you are looking at an economic description which contrasts &lt;em&gt;factor incomes&lt;/em&gt; with &lt;em&gt;current transfers&lt;/em&gt;.  That is slightly old fashioned, and the contemporary terms are &lt;em&gt;primary income&lt;/em&gt; and &lt;em&gt;secondary income&lt;/em&gt; in the balance of payments accounts (a similar change in the national accounts involved going from what was called GNP to GNI - gross national income)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, for the United Kingdom, you can find data in the &lt;a href=&quot;https://www.ons.gov.uk/economy/nationalaccounts/balanceofpayments/bulletins/unitedkingdombalanceofpaymentsthepinkbook/previousReleases&quot; rel=&quot;nofollow noreferrer&quot;&gt;UK Balance of Payments Pink Book&lt;/a&gt;, for  &lt;a href=&quot;https://www.ons.gov.uk/file?uri=/economy/nationalaccounts/balanceofpayments/datasets/4primaryincomethepinkbook2016/thepinkbook2018/pinkbook2018chapter4.xls&quot; rel=&quot;nofollow noreferrer&quot;&gt;primary income in Chapter 4&lt;/a&gt; and &lt;a href=&quot;https://www.ons.gov.uk/file?uri=/economy/nationalaccounts/balanceofpayments/datasets/5secondaryincomethepinkbook2016/thepinkbook2018/pinkbook2018chapter5.xls&quot; rel=&quot;nofollow noreferrer&quot;&gt;secondary income in Chapter 5&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Primary income includes:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;compensation of employees (e.g. pay of cross-border workers and short-term migrants)&lt;/li&gt;&#xA;&lt;li&gt;earnings on direct investment (e.g. profits of foreign subsidiaries - in theory this can be negative if they are loss-making)   &lt;/li&gt;&#xA;&lt;li&gt;earnings on portfolio investment (e.g. share dividends and bond coupons)   &lt;/li&gt;&#xA;&lt;li&gt;earnings on other investment (e.g. interest paid on bank loans and deposits) &lt;/li&gt;&#xA;&lt;li&gt;taxes and subsidies on products and production (only recently reclassified to primary income and possibly not in your &lt;em&gt;factor income&lt;/em&gt;)  &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;By contrast, secondary income (so presumably not in your &lt;em&gt;factor income&lt;/em&gt;) includes:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;remittances by long-term migrants and current transfers by others&lt;/li&gt;&#xA;&lt;li&gt;insurance premiums and claims&lt;/li&gt;&#xA;&lt;li&gt;cross-border taxes on income and wealth etc. and social security contributions and benefits&lt;/li&gt;&#xA;&lt;li&gt;overseas aid&lt;/li&gt;&#xA;&lt;li&gt;other intergovernmental current transfers and international organisations&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Exports and imports of goods and services are treated separately: in the UK Pink Book, &lt;a href=&quot;https://www.ons.gov.uk/file?uri=/economy/nationalaccounts/balanceofpayments/datasets/2tradeingoodsthepinkbook2016/thepinkbook2018/pinkbook2018chapter2.xls&quot; rel=&quot;nofollow noreferrer&quot;&gt;goods are in chapter 2&lt;/a&gt; and &lt;a href=&quot;https://www.ons.gov.uk/file?uri=/economy/nationalaccounts/balanceofpayments/datasets/3tradeinservicesthepinkbook2016/thepinkbook2018/pinkbook2018chapter3.xls&quot; rel=&quot;nofollow noreferrer&quot;&gt;services in chapter 3&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In each case there are credits (income from abroad) and debits (income due abroad), leading to a net figure which can be positive or negative.  Add all of these up and you get the current account balance&lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2018-11-18T12:09:02.030" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="25614" PostTypeId="1" CreationDate="2018-11-18T15:44:47.510" Score="1" ViewCount="242" Body="&lt;p&gt;I through one tutors heard that vector is used in economics .&#xA;But on searching about it on internet could not find anything &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Recently I studied about Vectors in Mathematics &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So I was wondering how could Vector be used in Economics ?&lt;/p&gt;&#xA;" OwnerUserId="19458" LastActivityDate="2018-11-18T15:44:47.510" Title="What is Application of Vector Algebra in Economics?" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;mathematical-economics&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25615" PostTypeId="1" CreationDate="2018-11-18T17:31:30.560" Score="2" ViewCount="64" Body="&lt;p&gt;What kind of products did Lehman Brothers have on their books that caused the collapse? Do we have access to data on this topic?&lt;/p&gt;&#xA;" OwnerUserId="6611" LastEditorUserId="1601" LastEditDate="2019-04-23T17:50:27.690" LastActivityDate="2019-04-23T17:50:27.690" Title="Collapse of Lehman Brothers: What did they have in their books?" Tags="&lt;finance&gt;&lt;data-request&gt;&lt;financial-crises&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25616" PostTypeId="2" ParentId="25615" CreationDate="2018-11-18T18:02:00.527" Score="3" Body="&lt;p&gt;We do have information on this topic. I’d recommend starting with the &lt;a href=&quot;http://fcic-static.law.stanford.edu/cdn_media/fcic-reports/fcic_final_report_chapter18.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Financial Crisis Inquiry Commission report chapter&lt;/a&gt; on it, and review the &lt;a href=&quot;https://www.newyorkfed.org/medialibrary/media/research/epr/2014/1412flem.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;New York Fed article&lt;/a&gt; on its resolution. Detailed information on the assets should be available from bankruptcy filings, though those will involve quite a bit of work to obtain. &lt;/p&gt;&#xA;" OwnerUserId="264" LastEditorUserId="264" LastEditDate="2018-11-24T15:52:12.770" LastActivityDate="2018-11-24T15:52:12.770" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25617" PostTypeId="2" ParentId="25575" CreationDate="2018-11-18T19:06:53.247" Score="3" Body="&lt;p&gt;Write &lt;span class=&quot;math-container&quot;&gt;$i=I(y,a)$&lt;/span&gt; for the IS function (expressed as some function of &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt;). Likewise, let &lt;span class=&quot;math-container&quot;&gt;$i=L(y)$&lt;/span&gt; be the LM function. Assume the following properties:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\frac{\partial I(y,a)}{\partial a}&amp;gt;0$&lt;/span&gt; : &lt;span class=&quot;math-container&quot;&gt;$a$&lt;/span&gt; is a parameter that causes the IS curve to shift up.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\frac{\partial I(y,a)}{\partial y}&amp;lt;0$&lt;/span&gt;: the IS function slopes downwards&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\frac{\partial L(y)}{\partial y}&amp;gt;0$&lt;/span&gt; : the LM function slopes upwards&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;For any &lt;span class=&quot;math-container&quot;&gt;$a$&lt;/span&gt;, we find the equilibrium &lt;span class=&quot;math-container&quot;&gt;$y^*(a)$&lt;/span&gt; at the intersection of the two functions:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$I(y^*(a),a)- L(y^*(a))=0.$$&lt;/span&gt;&#xA;Applying the implicit function theorem:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\frac{\partial I}{\partial a}+\frac{\partial y^*}{\partial a}\left(\frac{\partial I}{\partial y^*}-\frac{\partial L}{\partial y^*}\right)=0,$$&lt;/span&gt;&#xA;which implies&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\frac{\partial y^*}{\partial a}=-\frac{\frac{\partial I}{\partial a}}{\frac{\partial I}{\partial y^*}-\frac{\partial L}{\partial y^*}}.$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The numerator is positive by hypothesis. Thus, for &lt;span class=&quot;math-container&quot;&gt;$y^*$&lt;/span&gt; to increase with &lt;span class=&quot;math-container&quot;&gt;$a$&lt;/span&gt; we require that the denominator be negative: &lt;span class=&quot;math-container&quot;&gt;$\frac{\partial I}{\partial y^*}&amp;lt;\frac{\partial L}{\partial y^*}$&lt;/span&gt;. This is clearly true because &lt;span class=&quot;math-container&quot;&gt;$I$&lt;/span&gt; slopes downward and &lt;span class=&quot;math-container&quot;&gt;$L$&lt;/span&gt; slopes upward. But &lt;span class=&quot;math-container&quot;&gt;$y^*$&lt;/span&gt; would also increase even if &lt;span class=&quot;math-container&quot;&gt;$I$&lt;/span&gt; sloped upward—provided itdoes so more gradually than &lt;span class=&quot;math-container&quot;&gt;$L$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2018-11-24T15:18:11.350" LastActivityDate="2018-11-24T15:18:11.350" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25618" PostTypeId="2" ParentId="3115" CreationDate="2018-11-18T20:34:42.187" Score="2" Body="&lt;p&gt;The target is to find a local maximum (or minimum) of a function.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the function is differentiable twice:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;The &lt;a href=&quot;http://mathworld.wolfram.com/FirstDerivativeTest.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;first derivative test&lt;/a&gt; will tell you if it's an local extremum.&lt;/li&gt;&#xA;&lt;li&gt;The &lt;a href=&quot;http://mathworld.wolfram.com/SecondDerivativeTest.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;second derivative test&lt;/a&gt; will tell you if it's a local maximum or a minimum.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;In case you function is not differentiable, you can do a more general &lt;a href=&quot;http://mathworld.wolfram.com/ExtremumTest.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;extremum test&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note: it's impossible to construct an algorithm to find a &lt;a href=&quot;http://mathworld.wolfram.com/GlobalExtremum.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;global maximum for an arbitrary function&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Neoclassical economists certainly rename those two mathematical methods to &lt;em&gt;first-order conditions&lt;/em&gt; and &lt;em&gt;second-order conditions&lt;/em&gt; to look cool or for other historical reasons. Why use a name widely used when you can just make one up?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The term is also used on &lt;a href=&quot;https://en.wikipedia.org/wiki/Constrained_optimization&quot; rel=&quot;nofollow noreferrer&quot;&gt;constrained maximization&lt;/a&gt; when they use the &lt;a href=&quot;https://en.wikipedia.org/wiki/Lagrange_multiplier&quot; rel=&quot;nofollow noreferrer&quot;&gt;Lagrange multiplier&lt;/a&gt; method and &lt;a href=&quot;https://en.wikipedia.org/wiki/Karush%E2%80%93Kuhn%E2%80%93Tucker_conditions&quot; rel=&quot;nofollow noreferrer&quot;&gt;Karush–Kuhn–Tucker conditions&lt;/a&gt;. Again, I don't thinks the term is used by non-economist.&lt;/p&gt;&#xA;" OwnerUserId="10836" LastEditorUserId="10836" LastEditDate="2018-11-18T20:59:01.360" LastActivityDate="2018-11-18T20:59:01.360" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25621" PostTypeId="1" CreationDate="2018-11-19T00:43:29.163" Score="2" ViewCount="73" Body="&lt;p&gt;Suppose a bank makes a loan of $1M to someone taking out a mortgage to buy a house by crediting that person's bank account with a deposit equal to the size of the mortgage. Suppose the required reserve ratio is 10%.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;a)How much has the money supply increased by?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;b)Does reserve or high powered money change? Why or why not?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I did: &lt;span class=&quot;math-container&quot;&gt;$\frac{$1M}{0.10}$&lt;/span&gt; = $10M (this will be the increase in money supply)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Because the reserve ratio is 10%, the reserve money changes by 10% of 10,00,000 = 1,00,000&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this correct?&lt;/p&gt;&#xA;" OwnerUserId="19292" LastEditorUserId="19458" LastEditDate="2018-11-22T12:00:52.703" LastActivityDate="2020-09-14T01:08:05.860" Title="Change in money supply" Tags="&lt;money-supply&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25622" PostTypeId="2" ParentId="25505" CreationDate="2018-11-19T01:38:21.203" Score="5" Body="&lt;p&gt;Let's be clear--the concept of utility is both unfalsifiable (as a singular proposition) &lt;em&gt;and&lt;/em&gt; useful.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Joan Robinson is right, of course: Utility as a definition is circular. If you read a textbook that discusses the foundations of economic theory (such as the popular graduate text by Mas-Colell, Whinston, and Green), then you start not with utility, but with &lt;em&gt;preferences&lt;/em&gt;. You would characterize an individual as being defined by a &quot;preference relation&quot; which describes, for every pair of potential allocations (i.e., sets of goods), which they prefer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some (not all!) preference relations are &lt;em&gt;rational&lt;/em&gt;, which means that they are both complete (you have a well-defined preference over any pair of allocations), and transitive (if you like A more than B and B more than C, you like A more than C). A subset of those preference relations can be represented by a utility function (again, not all--the classic example is lexicographic preferences).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So a utility function is really just a thing that represents some underlying preferences. The statement &quot;Steve's preferences are accurately modeled by a utility function&quot; are not restrictive enough to be tested in any practical way. Rationality in general is hard to test as well, as you can always explain away seeming rationality violations with unusual preferences.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Instead, you should think about utility as a &lt;em&gt;framework&lt;/em&gt;, not a theory. It's a language for developing theories. For example, you can describe Friedman's Permanent Income Hypothesis without invoking utility at all, but describing it in terms of utility is a lot clearer and simpler!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As an aside, the blog post you linked to is utter tripe, from a guy who seems to love bashing economics while not actually knowing all that much about it. I would avoid him like the plague.&lt;/p&gt;&#xA;" OwnerUserId="20225" LastActivityDate="2018-11-19T01:38:21.203" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25624" PostTypeId="1" CreationDate="2018-11-19T07:48:08.847" Score="1" ViewCount="16" Body="&lt;p&gt;The setting is a simple OLS regression where the true model has regressor &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; and error term &lt;span class=&quot;math-container&quot;&gt;$u$&lt;/span&gt;, but we can only measure &lt;span class=&quot;math-container&quot;&gt;$\bar{x}=x+v$&lt;/span&gt; where &lt;span class=&quot;math-container&quot;&gt;$v$&lt;/span&gt; is iid with mean 0.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;According to the textbook:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\mathbb{E}(u|x)=0$&lt;/span&gt; is satisfied, but &lt;span class=&quot;math-container&quot;&gt;$\mathbb{E}(\bar{u}|\bar{x})=\mathbb{E}(u-\beta x|x+v)=-\beta v$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can see that &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$u$&lt;/span&gt; are correlated, but why am I allowed to just take &lt;span class=&quot;math-container&quot;&gt;$\beta x$&lt;/span&gt; out of the expectation when I &quot;only&quot; condition on the sum &lt;span class=&quot;math-container&quot;&gt;$x+v$&lt;/span&gt;, and not explicitly on &lt;span class=&quot;math-container&quot;&gt;$v$&lt;/span&gt;?&lt;/p&gt;&#xA;" OwnerUserId="8630" LastActivityDate="2018-11-19T07:48:08.847" Title="Expectation conditional on a sum of random variables" Tags="&lt;econometrics&gt;&lt;probability&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25626" PostTypeId="2" ParentId="9916" CreationDate="2018-11-19T10:11:04.160" Score="1" Body="&lt;p&gt;Suppose the preferences of all agents in all families are monotone and convex (the standard assumptions of consumer theory). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, a Pareto-efficient envy-free allocation always exists when there are two families. However, it might not exist when there ar three or more families.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Proofs and examples can be found in &lt;a href=&quot;https://arxiv.org/abs/1811.06684&quot; rel=&quot;nofollow noreferrer&quot;&gt;this working paper&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="385" LastActivityDate="2018-11-19T10:11:04.160" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25627" PostTypeId="1" AcceptedAnswerId="25637" CreationDate="2018-11-19T10:29:33.910" Score="2" ViewCount="525" Body="&lt;p&gt;Bonds usually pay interest only and the entire principal is paid back at maturity. On the other hand fixed rate retail loans pay back both interest and principal such that at the end no debt is remaining.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To me, the latter seems to be more manageable. The borrower never need to pay back a lump sum of money at the same time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why do governments and companies prefer the first structure of payments when borrowing money instead of paying annuity?&lt;/p&gt;&#xA;" OwnerUserId="4150" LastActivityDate="2018-11-27T22:57:15.917" Title="Why do bonds pay back the entire principal at maturity instead of paying it off gradually?" Tags="&lt;debt&gt;&lt;bonds&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25631" PostTypeId="1" CreationDate="2018-11-19T16:02:20.770" Score="-2" ViewCount="80" Body="&lt;p&gt;How can banks break themselves up? If they refuse to how can the federal government force them to break up or break them up themselves?&lt;/p&gt;&#xA;" OwnerUserId="20230" LastEditorUserId="59" LastEditDate="2021-03-11T04:43:56.177" LastActivityDate="2021-03-11T04:43:56.177" Title="Breaking Up The Big Banks" Tags="&lt;macroeconomics&gt;&lt;banking&gt;&lt;government&gt;&lt;nonexpert&gt;" AnswerCount="2" CommentCount="0" ClosedDate="2021-03-12T10:59:56.673" ContentLicense="CC BY-SA 4.0" />
  <row Id="25632" PostTypeId="1" AcceptedAnswerId="25638" CreationDate="2018-11-19T16:22:41.130" Score="0" ViewCount="54" Body="&lt;p&gt;For almost all manufactured goods which the manufacturer doesn't sell directly to the end consumer, the manufacturer sells to a distributor, and the distributor is then free to resell the good to the consumer at whatever price she wants (although of course if the distributor wants to stay in business, then the final price will be primarily set by market forces).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But the market for books is an exception: the manufacturer (i.e. the publisher) physically inscribes the sale price directly onto the manufactured good. The distributor (i.e. the physical or online bookstore) can offer a &quot;discount&quot; and sell it at a lower price than the prescribed one, but can't reasonably sell for a higher price for reasons of consumer psychology. I can't think of any other good which uses this strange business model. It seems to deprive the market of pricing flexibility to adapt to e.g. regional variations in demand, transportation costs, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course, the market for books is very distinct from a standard market described in microeconomics textbooks, because so much of the value of the book comes from intellectual property rights rather than from physical resource and manufacturing labor costs, which makes it more like a monopoly than a competitive market. (Moreover, depending on how the author's compensation is structured, the publisher may face very high fixed costs.) But on the other hand, other markets like video rentals seem similar in that respect, but the movie studio doesn't set the sales price - the video distributor does, as in a standard market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why is the market for books so weird?&lt;/p&gt;&#xA;" OwnerUserId="14832" LastActivityDate="2018-11-19T22:37:38.880" Title="Why is the price of books set by the manufacturer rather than the distributor?" Tags="&lt;microeconomics&gt;&lt;markets&gt;&lt;pricing&gt;&lt;books&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="25633" PostTypeId="2" ParentId="25631" CreationDate="2018-11-19T16:27:20.153" Score="6" Body="&lt;p&gt;This is an interesting question.  The banks themselves will not naturally divide themselves. There are great returns to scale in banking, and risk can be greatly diversified by being massive and having more clients in different positions. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This means they would have to be broken up legally. So, one would need legal cause to break them up, of which at the moment I can think of none that seem to strongly apply. One would likely need a new law. Perhaps they are violating an anti-competitive clause, eg. they are monopolies. (This would require quite a radical new interpretation of the existing laws, though.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If this is the case, the Federal Trade Commission and Department of Justice generally have purview over past monopoly-busting activity.  They bring suit against the company in question and these suits can eventually lead to breaking up a firm.&lt;/p&gt;&#xA;" OwnerUserId="4185" LastEditorUserId="4185" LastEditDate="2018-11-19T22:04:27.917" LastActivityDate="2018-11-19T22:04:27.917" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25634" PostTypeId="1" CreationDate="2018-11-19T17:21:24.877" Score="3" ViewCount="413" Body="&lt;p&gt;What are the perfect Bayesian equilibria in the following game?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/wQ9fR.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/wQ9fR.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The part that is confusing me is the right-hand side, where player 2 is of type N.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT: My workings out so far are given below:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We start off by noticing that if player 2 is type &lt;span class=&quot;math-container&quot;&gt;$N$&lt;/span&gt;, it can be rational for him to play both &lt;span class=&quot;math-container&quot;&gt;$Steal$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$Split$&lt;/span&gt;, as he does not know what player 1 plays.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let us therefore first look at the case where player 2 plays &lt;span class=&quot;math-container&quot;&gt;$Steal$&lt;/span&gt; if he is type &lt;span class=&quot;math-container&quot;&gt;$N$&lt;/span&gt;. Then player 1's expected payoff from stealing is &lt;span class=&quot;math-container&quot;&gt;$100\beta$&lt;/span&gt; and his expected payoff from splitting is &lt;span class=&quot;math-container&quot;&gt;$50\alpha + 50\beta$&lt;/span&gt;. In this case player 1 steals when &lt;span class=&quot;math-container&quot;&gt;$100\beta &amp;gt; 50\alpha + 50\beta \Leftrightarrow \alpha &amp;lt; \beta$&lt;/span&gt;, and therefore splits if &lt;span class=&quot;math-container&quot;&gt;$\alpha &amp;gt; \beta$&lt;/span&gt; and is indifferent when &lt;span class=&quot;math-container&quot;&gt;$\alpha = \beta$&lt;/span&gt;. This means we get the following potential PBE's in this case:&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{align*}&#xA;    (Steal, Steal; \alpha \leq \beta) \text{ and } (Split, Steal; \alpha \geq \beta).&#xA;\end{align*}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let us next look at the case where player 2 plays &lt;span class=&quot;math-container&quot;&gt;$Split$&lt;/span&gt; if he is type &lt;span class=&quot;math-container&quot;&gt;$N$&lt;/span&gt;. Then player 1's expected payoff from stealing is &lt;span class=&quot;math-container&quot;&gt;$100\beta + 100(1-\alpha-\beta)=100(1-\alpha)$&lt;/span&gt; and his expected payoff from splitting is &lt;span class=&quot;math-container&quot;&gt;$50$&lt;/span&gt;. In this case player 1 steals when &lt;span class=&quot;math-container&quot;&gt;$100(1-\alpha) &amp;gt; 50 \Leftrightarrow \alpha &amp;lt; 1/2$&lt;/span&gt;, and therefore splits if &lt;span class=&quot;math-container&quot;&gt;$\alpha &amp;gt; 1/2$&lt;/span&gt; and is indifferent if &lt;span class=&quot;math-container&quot;&gt;$\alpha = 1/2$&lt;/span&gt;. This means that we get the following potential PBE's in this case:&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{align*}&#xA;    (Steal, Split; \alpha \leq 1/2) \text{ and } (Split, Split; \alpha \geq 1/2).&#xA;\end{align*}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As such, we have can write up the set of pure-strategy PBE:&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{alignat*}{1}&#xA;    \text{PBE} = \{&amp;amp;(Steal, Steal; \alpha \leq \beta),(Split, Steal; \alpha \geq \beta), \\ &amp;amp;(Steal, Split; \alpha \leq 1/2),(Split, Split; \alpha \geq 1/2)\}.&#xA;\end{alignat*}&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="20232" LastEditorUserId="20232" LastEditDate="2018-11-20T19:57:41.677" LastActivityDate="2019-08-17T23:01:35.170" Title="Perfect Bayesian Equilibria" Tags="&lt;microeconomics&gt;&lt;game-theory&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="25635" PostTypeId="1" AcceptedAnswerId="25636" CreationDate="2018-11-19T19:59:48.967" Score="0" ViewCount="18" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/3P4Nc.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/3P4Nc.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In question c-f. .Why do they calculate &lt;span class=&quot;math-container&quot;&gt;$t=3$&lt;/span&gt;? When they say &lt;span class=&quot;math-container&quot;&gt;$t=4$&lt;/span&gt; at the beginning and then next year is &lt;span class=&quot;math-container&quot;&gt;$t=4+1=t=5$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="20206" LastActivityDate="2018-11-19T21:31:23.527" Title="Bond pricing, why t=3?" Tags="&lt;financial-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25636" PostTypeId="2" ParentId="25635" CreationDate="2018-11-19T21:31:23.527" Score="0" Body="&lt;p&gt;If there are 4 years to maturity now, it will only be 3 years to maturity next year.&#xA;E.g., initial year is 2000, bond matures in 2004. In 2001, it’s 3 years to 2004.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2018-11-19T21:31:23.527" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25637" PostTypeId="2" ParentId="25627" CreationDate="2018-11-19T21:37:18.810" Score="4" Body="&lt;ul&gt;&#xA;&lt;li&gt;They just issue new debt to roll over the principal anyway. Unlike individuals, they do not have a fixed life span.&lt;/li&gt;&#xA;&lt;li&gt;Trading amortising bonds in the secondary market is a pain, since you then need to keep track of the amortising schedule when pricing them. (This point was discussed in comments. The calculations for amortising bonds in 2018 are straightforward, but not in the era before digital computers, and that is when bond market conventions were developed.) Vanilla bonds with the same maturity and coupon are effectively identical, but this is not true for two amortisers with different maturity dates. Although this does not appear to be an issue now; trading conventions were largely determined in the pre-digital computer age. For example, the principal amount on a bond is used in for default recovery purposes; that is equal to the face value of a bullet bond, but has to be determined for an amortising bond, which is an awkward calculation to be done on the fly without access to digital computing technology.&lt;/li&gt;&#xA;&lt;li&gt;One added note is that straight amortising bonds have a very low duration relative to a bullet principal payment. Many investors want to get as much duration as possible for a given investment amount.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="12891" LastEditorUserId="12891" LastEditDate="2018-11-27T22:57:15.917" LastActivityDate="2018-11-27T22:57:15.917" CommentCount="7" ContentLicense="CC BY-SA 4.0" />
  <row Id="25638" PostTypeId="2" ParentId="25632" CreationDate="2018-11-19T21:57:15.567" Score="2" Body="&lt;p&gt;It’s the manufacturer’s suggested retail price (MSRP); manufacturers cannot dictate the final retail price. Any manufacturer that has a catalogue or a website has a suggested retail price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If retailers want to sell at a higher price, they just slap a price sticker over the MSRP. From what I recall, this was standard practice back in the 1970s-1980s, when inflation was more of an issue.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The point of negotiation between publishers and distributors is the discount from the MSRP the distributor gets the books at. This discount is normally fixed for the entire line of books; they are not going to negotiate prices on a per-title basis. (Some best sellers might have special negotiations.) The retailer will then set prices relative to the discount received. Since the default is to sell at the MSRP, it can save booksellers the expense of putting on their own price stickers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why are books different? Well, go into a bookstore and count the number of unique products on 10 feet of floor space.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Other differences include:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Unsold books can be returned, which is unusual. This was a desperation measure that publishers resorted to in the Great Depression, which they never managed to undo. This means that most books have a limited shelf life, so inflation affecting the MSRP is less of an issue.&lt;/li&gt;&#xA;&lt;li&gt;Books can be special ordered at book stores. The order price is going to have to be the MSRP.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="12891" LastEditorUserId="12891" LastEditDate="2018-11-19T22:37:38.880" LastActivityDate="2018-11-19T22:37:38.880" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25639" PostTypeId="1" AcceptedAnswerId="25641" CreationDate="2018-11-19T23:10:36.843" Score="0" ViewCount="47" Body="&lt;p&gt;For an report (professional not academic) I was asked for the Labor Rate Index of my region, which is a data point I've never been asked for before. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;After some googling I've found the term referred to in a small number of papers (listed below) and oddly they seem to be from military organizations. Often times when I'm asked for a datapoint that uses the word &quot;index&quot;, it comes from a proprietary report that costs money. I apologize if that's the case. Anyways, here are some references I've found to a Labor Rate Index with no explanation of what it is: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://cade.osd.mil/content/cade/files/csdr/guidance/Escalation%20Handbook__20170118.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;INFLATION AND ESCALATION BEST PRACTICES FOR COST ANALYSIS: ANALYST HANDBOOK&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The term Constant Price (CP$) may be used to refer to costs normalized&#xA;  with an escalation index. Constant Price indicates what a narrowly&#xA;  defined basket of goods or services would cost had it been fully&#xA;  produced and purchased in the base year. Examples of Constant Prices&#xA;  include contractor labor rates normalized with a &lt;strong&gt;labor rate index&lt;/strong&gt;;&#xA;  aircraft unit costs normalized with an aircraft index; and fuel costs&#xA;  normalized with a fuel price index. Constant Prices remove both&#xA;  inflation and real price change from observed dollars, returning the&#xA;  base period’s price.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.dau.mil/locations/midwest/Documents/Cost%20Estimating%20and%20Escalation2.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Inflation &amp;amp; Escalation&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;“Constant Price” (CP) may be used to refer to costs normalized with an escalation index&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;– Constant Price indicates what a narrowly defined basket of goods&#xA;  would have cost in a base year&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;– Examples of Constant Price include contractor labor rates divided by&#xA;  an &lt;strong&gt;labor rate index&lt;/strong&gt;, aircraft unit costs divided by an aircraft&#xA;  index, etc.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;– CP addresses market forces (supply and demand) with respect to goods&#xA;  and services&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;– CP is the normalization used for estimating purposes&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.dtic.mil/dtic/tr/fulltext/u2/a046977.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;A STUDY OF SHIP ACQUISITION COST ESTIMATING IN THE NAVAL SEA SYSTEMS COMMAND&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;(2) A &lt;strong&gt;Labor Rate Index&lt;/strong&gt; Provides Similar Allowance For Inflation In The&#xA;  Labor Portion Of The Estimate Since 1970, the Branch has produced an&#xA;  annual guidance table for use by estimators in selecting labor bid&#xA;  rotes. Data sources for this task are some 80 union-management&#xA;  agreements. Bureau of Labor&#xA;  Statisticsstudies,historicalbids,U.S.DepartmentofCommercesta- tistics,&#xA;  naval shipyard employment figures and other sources. This guidance&#xA;  promotes consistency in all estimates and is intended to narrow ihe&#xA;  margin of error over previous personalized methods.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Anyways, as you can see the term is never defined or sourced. I've tried reaching out to the company to find out why they asked for this, but I'm working through a consultant and so many degrees of separation make it hard to get nit-picky questions answered. &lt;/p&gt;&#xA;" OwnerUserId="6406" LastEditorUserId="19898" LastEditDate="2018-11-23T16:11:11.197" LastActivityDate="2018-11-23T16:11:11.197" Title="What is a Labor Rate Index" Tags="&lt;inflation&gt;&lt;data-request&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25641" PostTypeId="2" ParentId="25639" CreationDate="2018-11-20T03:26:40.843" Score="2" Body="&lt;p&gt;The labour rate index is actually synonymous with a more popular term, the labour cost index.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the same way that the consumer price index measures inflation of consumer prices, the labour cost index measures the cost of purchasing labour. For example, 12 dollars could buy you more labour 30 years ago than it can now. Inflation indexes like these can be used to normalize historical data. That way we can compare changes and trends across years without worrying about labour cost being inflated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://nso.gov.mt/en/nso/Sources_and_Methods/Unit_C2/Labour_Market_Statistics/Pages/Labour-Cost-Index.aspx&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://nso.gov.mt/en/nso/Sources_and_Methods/Unit_C2/Labour_Market_Statistics/Pages/Labour-Cost-Index.aspx&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www150.statcan.gc.ca/n1/en/pub/71-586-x/71-586-x2001001-eng.pdf?st=mrJ1RXhQ&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www150.statcan.gc.ca/n1/en/pub/71-586-x/71-586-x2001001-eng.pdf?st=mrJ1RXhQ&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="4808" LastActivityDate="2018-11-20T03:26:40.843" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25642" PostTypeId="1" CreationDate="2018-11-20T05:16:26.587" Score="0" ViewCount="59" Body="&lt;p&gt;How to implement embargoes with respect to a trading company?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's assume i am a small trading agent which assists and guides small exporters and importers while keeping embargoes and light sanctions under considerations. My source of info regarding sanctions are workers of other big players. I usually get help from them in order to declare a trade clear. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know that United Nations publishes Sanctions Lists of banned Individuals and Companies, I also know that Banks and Exchange companies have software solutions to screen a name against these lists.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These lists are not enough for Trading as an embargo usually includes source, destination and product being traded. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are there any Internationally published sources of embargoes which can be consulted? Is there an automated software solution (free or cheap) to screening a trade?&lt;/p&gt;&#xA;" OwnerUserId="20237" LastEditorUserId="8481" LastEditDate="2020-05-11T16:25:51.533" LastActivityDate="2021-02-05T18:02:10.150" Title="Are there internationally published sources of trade sanctions?" Tags="&lt;international-trade&gt;&lt;data-request&gt;&lt;trading&gt;&lt;sanctions&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25644" PostTypeId="2" ParentId="25593" CreationDate="2018-11-20T06:45:48.207" Score="1" Body="&lt;p&gt;A better symbolism might be as follows.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;T : periods to maturity from issuance,&#xA;t : periods remaining to maturity,&#xA;n : periods lapsed&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then t = T - n. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In your case, because the 1st coupon was paid the day in question, n = 1. T = 2. Thus, t = 2 - 1 = 1 period remaining to maturity. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You will only discount from the &quot;current&quot; time, in your example the end of year 1, across the remaining periods. &lt;/p&gt;&#xA;" OwnerUserId="20238" LastActivityDate="2018-11-20T06:45:48.207" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="25645" PostTypeId="1" AcceptedAnswerId="25650" CreationDate="2018-11-20T06:55:11.737" Score="0" ViewCount="36" Body="&lt;p&gt;Okay, So this is the whole question. It's a bit far. But i just have one question about it: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/DkjTb.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/DkjTb.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/Phwqg.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Phwqg.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/jWc3g.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/jWc3g.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/SinWC.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/SinWC.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So in question c) we have the equation for the sharpe ratio as: &#xA;&lt;span class=&quot;math-container&quot;&gt;$$\frac{E(w_1R_{1A} + w_2R_{2A})}{\sigma_c}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\sigma_C = w_1^2 var(\beta_1 R_{1t}) + w_2^2 var(\beta_2 R_{2t}) + 2w_1 w_2 Cov(R_1R_2)$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We have the &lt;span class=&quot;math-container&quot;&gt;$2cov$&lt;/span&gt; here, but in e) question. The right answer is that they not have the &lt;span class=&quot;math-container&quot;&gt;$2cov$&lt;/span&gt; here. Otherwise it is the same equation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;/ &lt;/p&gt;&#xA;" OwnerUserId="20206" LastActivityDate="2018-11-20T11:08:56.123" Title="Why not 2cov in this question?" Tags="&lt;financial-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25648" PostTypeId="1" CreationDate="2018-11-20T09:53:05.873" Score="1" ViewCount="124" Body="&lt;p&gt;When we talk about excess or deficient aggregate demand , how does employment suddenly comes ?&lt;/p&gt;&#xA;" OwnerUserId="19458" LastEditorUserId="59" LastEditDate="2021-04-08T17:59:37.160" LastActivityDate="2021-05-08T19:04:15.367" Title="How is employment related to aggregate demand and aggregate supply?" Tags="&lt;macroeconomics&gt;&lt;unemployment&gt;&lt;nonexpert&gt;&lt;aggregate-production&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25650" PostTypeId="2" ParentId="25645" CreationDate="2018-11-20T11:03:18.653" Score="1" Body="&lt;p&gt;Because as your covariance-variance matrix shows the covariance is 0 between them. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question e asks you to use the “true” covariance matrix from d presumably.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It’s not that you exclude it, that’s sort of misinterpretation, it is just zero (&lt;span class=&quot;math-container&quot;&gt;$cov(R_1,R_2)=0 \implies 2w_1 w_2 Cov(R_1R_2) =0$&lt;/span&gt;) and per convention zero is usually dropped from equations.&lt;/p&gt;&#xA;" OwnerUserId="15517" LastEditorUserId="15517" LastEditDate="2018-11-20T11:08:56.123" LastActivityDate="2018-11-20T11:08:56.123" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="25651" PostTypeId="2" ParentId="25648" CreationDate="2018-11-20T12:28:58.477" Score="0" Body="&lt;ul&gt;&#xA;&lt;li&gt;In an economic model, we normally have a production function that increases with the amount of labour. Since inherited capital is fixed, in the short run,the only way to increase out (supply) is via increasing the amount of labour employed. The real world is somewhat fuzzier; some service industries (like software) can have greater sales without increasing the number of employees. However, such behaviour is limited, and greater output is normally associated with more people working.&lt;/li&gt;&#xA;&lt;li&gt;The relationship between aggregate supply and aggegate demand somewhat depends on prior economic views. To summarise the Keynesian view, if aggregate demand rises (or is expected to rise), firms will increase output (hiring more labour) to meet expected increased demand.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2018-11-20T12:28:58.477" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25652" PostTypeId="2" ParentId="25621" CreationDate="2018-11-20T12:37:59.277" Score="0" Body="&lt;p&gt;A) The money supply only increased by $1 million, since that is the increase in deposits.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;B) Reserves are deposits at the central bank. A private bank extending a loan to a customer does not create a deposit at the central bank (or government-issued notes and coins). The bank would have to either have \$100,000 in excess reserves before making the loan, or borrow the reserves.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2018-11-20T12:37:59.277" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25653" PostTypeId="1" CreationDate="2018-11-20T13:48:18.480" Score="2" ViewCount="297" Body="&lt;p&gt;Acc. to definition of Aggregate Supply &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;It is the total value of final goods and services that the &lt;em&gt;producers&lt;/em&gt; are &lt;strong&gt;&lt;em&gt;willing&lt;/em&gt;&lt;/strong&gt; to supply in country .&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Definition of National Income &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;It is the value of &lt;em&gt;total&lt;/em&gt; &lt;em&gt;output&lt;/em&gt; &lt;strong&gt;&lt;em&gt;produced&lt;/em&gt;&lt;/strong&gt; by normal residents of a country in given period of time .&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;AS is what producers are &lt;em&gt;wanting/willing&lt;/em&gt; to supply i.e it is &lt;em&gt;not the actual output produced&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Whereas National Income is the value of output produced i.e it is the &lt;em&gt;actual value of output that has been produced.&lt;/em&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then how can we say that Aggregate Supply &lt;em&gt;(Willing)&lt;/em&gt; = National Income &lt;em&gt;(Actual)&lt;/em&gt; ?&lt;/p&gt;&#xA;" OwnerUserId="19458" LastActivityDate="2018-11-20T13:48:18.480" Title="How is Aggregate Supply(Willing) equal to National Income(Actual)?" Tags="&lt;macroeconomics&gt;&lt;producer-theory&gt;&lt;aggregate-production&gt;&lt;national-income&gt;&lt;input-output&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25654" PostTypeId="1" AcceptedAnswerId="25672" CreationDate="2018-11-20T14:58:52.913" Score="0" ViewCount="103" Body="&lt;p&gt;It seems quite simple under framework of free market, when there are no taxes or subsidies,price celling or price floors, etc, that can mess up the market: if there is profit (or will be, according to forecast of expert), then wealth was created (or will be created). If profit is negative (i.e. we have loses) then wealth was destroyed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But what if we have public goods provided by the State? There will be no profit, so this metric is dead in this case. Normally people don't buy things from the State, they are taxed. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Using opinion of an expert seems too fragile strategy to see if wealth is created or destroyed. Probably we could survey people with questions like &quot;How much would you contribute to additional street lighting if there was crowdfunding campaign?&quot;, but I'm not sure if it's how it is done in practice.(Please confirm if I right). Ideally it would give us demand curve. &lt;/p&gt;&#xA;" OwnerUserId="4979" LastActivityDate="2018-11-22T13:46:53.737" Title="How do we determine if wealth will be created or destroyed (and how much) when we want to provide (quasi)public goods?" Tags="&lt;public-economics&gt;&lt;public-goods&gt;&lt;wealth&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25655" PostTypeId="2" ParentId="25594" CreationDate="2018-11-20T15:35:12.737" Score="0" Body="&lt;p&gt;Consumers participate in informal/household production (dishes, laundry, food etcetera). In this sense, when a consumer buys a fridge, stove, dishwasher or other comparable machine they are essentially investing. &lt;/p&gt;&#xA;" OwnerUserId="20080" LastActivityDate="2018-11-20T15:35:12.737" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="25656" PostTypeId="2" ParentId="25642" CreationDate="2018-11-20T15:37:55.880" Score="0" Body="&lt;p&gt;The following site might help you out: &lt;a href=&quot;https://www.globaltradealert.org&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.globaltradealert.org&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="20080" LastActivityDate="2018-11-20T15:37:55.880" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25657" PostTypeId="1" CreationDate="2018-11-20T16:06:57.870" Score="1" ViewCount="149" Body="&lt;p&gt;I've been reading about the translog production function and know its really just a log-log production function approximated using a first order maclauren series.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why not just leave the function as is? What economic interpretation or use does taking taylor series do for us?&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2019-02-05T21:02:20.490" Title="Whats the rationale for using taylor series in economics?" Tags="&lt;econometrics&gt;&lt;mathematical-economics&gt;&lt;production-function&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25658" PostTypeId="1" CreationDate="2018-11-20T16:27:42.757" Score="0" ViewCount="43" Body="&lt;p&gt;Karl Marx said that capitalism commodifies everything. So I'm wondering if that rule applies to the very State itself.&lt;/p&gt;&#xA;" OwnerUserId="16510" LastActivityDate="2018-11-21T10:54:34.790" Title="Is it possible to commodify the State?" Tags="&lt;stock-market&gt;&lt;government&gt;&lt;commodities&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25661" PostTypeId="1" CreationDate="2018-11-20T20:38:40.913" Score="1" ViewCount="44" Body="&lt;p&gt;Of course we can't just take money from current world order and give nothing back.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;In theory, can an advanced civilization exist without money at all?&#xA;May be this is an utopic idea because of... what? Intraspecific aggression? Our education system? Our history or heritage?&#xA;What stops us to do so or to go in that direction?&#xA;Is it good or bad in long term?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You need stuff – you take it. You don't need &quot;golden toilet&quot; because of marketing don't try to sell it to you, because &quot;business minds&quot; will be busy to solve problems (or to coordinate other minds to do so), not to make more businesses and make more markets.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;The main purpose of this question is to understand what fundamental economics and/or cultural (historical) &lt;strike&gt;problems&lt;/strike&gt; tasks do we need to solve to use more science and less marketing in our lifes.&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have an opinion that we need so much things to buy, sell and choose because of culture, lack of education and a lots of marketing around us.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Marketing needed for business, but not for humanity. We, as a species, spend so much resources of our brains and planet to solve small things (not all of us, of course). And this stops us from doing really BIG things.&lt;/p&gt;&#xA;" OwnerUserId="20242" LastEditorUserId="20242" LastEditDate="2018-12-02T11:32:27.803" LastActivityDate="2018-12-02T11:32:27.803" Title="Is it possible to imagine humanity without a modern understanding of money?" Tags="&lt;money&gt;&lt;political-economy&gt;" AnswerCount="2" CommentCount="0" ClosedDate="2018-11-29T17:15:41.210" ContentLicense="CC BY-SA 4.0" />
  <row Id="25662" PostTypeId="2" ParentId="25634" CreationDate="2018-11-20T22:37:45.670" Score="1" Body="&lt;h1&gt;Hint:&lt;/h1&gt;&#xA;&lt;p&gt;You can convert the game into the following normal form:&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;\begin{array}{|c|c|c|}&#xA;\hline&#xA;&amp;amp; Steal &amp;amp; Split \\\hline &#xA;Steal &amp;amp; 100\beta, 0&amp;amp; 100(1-\alpha),0 \\\hline &#xA;Split &amp;amp; 50(\alpha+\beta),50+50(1-\alpha-\beta) &amp;amp; 50,50 \\\hline&#xA;\end{array}&#xA;\end{equation}&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;Note that Steal is a weakly dominant strategy for player 2, so (Split, Split) can never be an equilibrium.&lt;/p&gt;&#xA;" OwnerUserId="42" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2018-11-20T22:37:45.670" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="25664" PostTypeId="2" ParentId="25605" CreationDate="2018-11-20T23:27:48.003" Score="1" Body="&lt;p&gt;&lt;em&gt;TL;DR: From the point of view of the national accounts, when someone buys a house, they're not doing it as a member of a household, they're doing it as (and this is a direct quote as highlighted below), &quot;unincorporated enterprises that produce housing services that are consumed by the household to which the owner belongs.&quot;&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;After earlier proposing to close, I now see from other answers and comments that this area is broadly misunderstood, and you thus obviously have a good question here.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From your question, I can see that you understand the conceptual distinction between enterprises, which definitionally invest and produce, and do not consume (as all their purchases are considered to be intermediate inputs to production), and households, which definitionally consume and do not invest or produce.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this view, it's easy to see why you'd wonder why we carve out the purchases of residential structures and treat them differently.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The answer is that we don't actually treat them differently from the view of the national accounts, because we've created an accounting fiction that treats a person who owns their own home both as an enterprise and as a household. This has been encoded from the start; it appears even in the first System of National Accounts, the international framework for national accounting.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Importantly, it is not, as one of the other answers states, just a convention, just because homes create housing services. If that were the case, we'd also treat other consumer durables, like cars and appliances as investments, but we don't, as you correctly point out in your comments.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Rather, it's done for a very specific reason, which is that if we didn't create this accounting fiction, then comparisons between countries or over time could be distorted by differences in the homeownership rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Consistent Comparisons&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's imagine that we stuck with the straightforward approach, which would be to treat all purchases by households as consumption, and treated houses just like we treat cars.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we did this, then GDP in Japan, for example, would be artificially higher than GDP in the US, because the US has a higher homeownership rate, and conversely, more households in Japan are renters— and rent payments definitely belong in GDP. So just because the same thing (a house) was owned differently in different countries, GDP would differ. We wouldn't want that.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Worse yet, consider a house that was built before the financial crisis and sold (and thus counted in GDP as consumption). Now imagine that the homeowner was unable to make their mortgage payments, and the house was foreclosed on and sold to an investor, who rented it out. The house, already counted in GDP at its initial sale, would then be counted in GDP as a rental, artificially inflating GDP in the aftermath of a financial crisis. We wouldn't want that, either.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;The Accounting Fiction&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The solution to this, as I mentioned before, has been explicitly accounted for in the System of National Accounts since &lt;a href=&quot;https://unstats.un.org/unsd/nationalaccount/docs/1953sna.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;its first version in 1953&lt;/a&gt;. This SNA makes clear the distinction you make between enterprises and households, saying &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In other words the production boundary is drawn by first separating households from enterprises and then separating two types of purchases by enterprises, namely those which are and those which are not charged to current cost.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The SNA then goes into the case of primary producers (i.e., farms, etc.), which are in many ways similar, as they're households, but they produce something (food, rental services), which may be consumed by them or by others (if they sell some of what they grow or take in a tenant on an informal basis). The SNA then proposes that farm households be treated both as households and as enterprises:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;For instance, farm households are not only households from the consuming point of view but also enterprises which engage in agricultural production.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It goes on to draw a parallel with homeownership:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The farming imputation [note: counting farm production for own use in GDP] made for such economies accords with the rules given for primary producers and the rental imputation [note: counting in GDP what homeowners would be paying in rent if they were renting] accords with the rules given for other producers if account is taken of the face that home-ownership is a regarded as a trade.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This is then encoded in the definition of enterprises:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;ENTERPRISES include all firms, organizations and institutions which produce goods and services for sale at a price intended approximately to cover the cost of production. The class of enterprise includes the following categories:&#xA;  [...]&#xA;  (b) All households and private non-profit institutions in their capacity as landlords of dwellings whether or not they occupy their own properties.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In short, we divide households that own their own homes into two entities: the household as such, and the person who bought the house as a landlord. This is made even more clear in the &lt;a href=&quot;https://unstats.un.org/unsd/nationalaccount/docs/sna2008.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;most recent version (2008)&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;Persons who own the dwellings in which they live are&#xA;  treated as owning unincorporated enterprises that produce&#xA;  housing services that are consumed by the household to&#xA;  which the owner belongs.&lt;/strong&gt; The housing services produced&#xA;  are deemed to be equal in value to the rentals that would be&#xA;  paid on the market for accommodation of the same size,&#xA;  quality and type. [...]&#xA;  The imputed values of the housing services are recorded as&#xA;  final consumption expenditures of the owners.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Emphasis mine.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;How this affects investment&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So now we understand that people who purchase homes are being treated as enterprises, rather than households, and then renting the house to the household to which they belong.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From here, the relationship should be straightforward. Because homeowners are enterprises, it's not inconsistent to treat the purchase of the asset as an investment, it's perfectly appropriate. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Further, it should be obvious that doing it any other way would complicate comparisons between countries and over time, the same way that not imputing rent would. If we counted homes that were purchased as consumption, we'd be measuring much lower investment in countries just because they had higher homeownership rates. Similarly, in cities, it's not at all uncommon for apartment buildings that were constructed with rentals in mind to be sold as condos, or vice versa, depending on changes in funding and local market conditions. You wouldn't want measured investment to rise or fall because of this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Further implications&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are two quick further implications that are worth touching on:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(1) The full purchase price of a home is not to be counted as investment, &lt;em&gt;only the structure is.&lt;/em&gt; &lt;a href=&quot;https://apps.bea.gov/scb/pdf/2009/02%20February/0209_briefing_structures.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Per the BEA&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In the NIPAs, private investment in new construction&#xA;  is measured mainly as the sum of the costs of inputs&#xA;  of all construction “put in place,” that is, all&#xA;  construction activity completed in a given period.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Obviously, this means in part that the land that the house is build on is not counted in GDP, either as investment or construction, as it's just a transfer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;More importantly, though, it's also supposed to exclude consumer durables unless the home is rented— because a refrigerator shouldn't count as an investment when it comes with a home but not when you're replacing it later on.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(2) It's possible to imagine other items, like cars, being treated like houses in the future. If the companies that are trying to build fleets of driverless cars manage to take a larger bite out of private car ownership, we'll have the same issue with cars that we do with homes, where measured GDP and investment over time would be significantly affected by the share of cars that were owned vs. rented (this is already something of an issue due to motor vehicle leasing). We'd see more recorded investment because the cars were owned by enterprises, and we'd see lower volatility in GDP, because every convert to driverless cars would be someone not being recorded as making an all-at-once consumption purchase, instead showing up as a consumer of a stream of services over time.&lt;/p&gt;&#xA;" OwnerUserId="264" LastEditorUserId="264" LastEditDate="2018-11-27T13:38:18.557" LastActivityDate="2018-11-27T13:38:18.557" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25665" PostTypeId="1" AcceptedAnswerId="25675" CreationDate="2018-11-21T02:36:46.440" Score="2" ViewCount="452" Body="&lt;p&gt;Throughout microeconomic literature i see the following restiriction placed on the nature of elasticities in demand system estimation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This being for some arbitarary good &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; we require price elasticities and income elasticities to be:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\varepsilon(x,p_x)+\varepsilon(x,p_y)+\varepsilon(x,I)=0$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is the proof for this? (I cant seem to find it).&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="8815" LastEditDate="2018-11-21T03:55:51.817" LastActivityDate="2018-11-21T16:36:02.413" Title="Proof for homogeneity of elasticities" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;&lt;elasticity&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="25666" PostTypeId="2" ParentId="25605" CreationDate="2018-11-21T03:21:05.313" Score="5" Body="&lt;p&gt;Definitions:&lt;/p&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;strong&gt;Investment&lt;/strong&gt; is the purchase of any (new) capital goods.&lt;/li&gt;&#xA;&lt;li&gt;A &lt;strong&gt;capital good&lt;/strong&gt; is any good that is used to produce other goods and services.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;p&gt;A house produces a stream of housing services. Hence, a house may be regarded as a capital good. And thus, the purchase of a house may be regarded as investment.&lt;/p&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;Note though that definitions and lines in economics can often be fuzzy and there can be grey areas. You are quite right to question whether we should count the purchase of a house as investment. One could argue that we shouldn't. However, by convention in national income accounting, we do, with the above as our rationale.&lt;/p&gt;&#xA;&lt;p&gt;As noted in the &lt;a href=&quot;https://unstats.un.org/unsd/nationalaccount/sna2008.asp&quot; rel=&quot;noreferrer&quot;&gt;UN System of National Accounts (2008, p. 8)&lt;/a&gt;:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;No matter how simple and precise concepts and classifications may appear in principle, there are inevitably difficult borderline cases which cannot easily be fitted into predetermined categories. ...&lt;/p&gt;&#xA;&lt;p&gt;The general nature and purpose of the distinction between gross fixed capital formation and consumption, whether intermediate or final, is clear. The distinction is fundamental for economic analysis and policymaking. Nevertheless, the borderline between consumption and gross fixed capital formation is not always easy to determine in practice. Certain activities contain some elements that appear to be consumption and at the same time others that appear to be capital formation. In order to try to ensure that the SNA is implemented in a uniform way, decisions have to be taken about the ways in which certain difficult, even controversial, items are to be classified.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;In response to an incorrect comment that claims that &amp;quot;The purchase of a new house is not counted as investment&amp;quot;:&lt;/p&gt;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.bea.gov/help/glossary/residential-fixed-investment&quot; rel=&quot;noreferrer&quot;&gt;BEA glossary&lt;/a&gt;:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Consists of purchases of private residential structures and residential equipment that is owned by landlords and rented to tenants.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Blanchard, &lt;em&gt;Macroeconomics&lt;/em&gt; (2017, p. A-3):&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;&lt;strong&gt;Residential investment&lt;/strong&gt; (...) is the purchase of new houses or apartments by persons.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Mankiw, &lt;em&gt;Macroeconomics&lt;/em&gt; (2015, p. 27):&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Residential investment is the purchase of new housing by households and landlords.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Hubbard &amp;amp; O'Brien, &lt;em&gt;Macroeconomics&lt;/em&gt; (2017, p. 255):&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;&lt;em&gt;Residential investment&lt;/em&gt; is spending by households and firms on new single-family and multi-unit houses.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerDisplayName="user18" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2018-11-22T06:43:53.340" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="25667" PostTypeId="2" ParentId="25661" CreationDate="2018-11-21T07:23:58.883" Score="1" Body="&lt;p&gt;The rather famous political economist Marx claims that the wage labour relationship contains within itself the transcendence of that relationship. This is in part as the only socially productive property a worker has consists in the giving away of themselves for a mess of postage.  This suggests a non-engagement with owning socially productive property and instead an emphasis on usufruct. Similarly the commodities of the wage are used (consumed) rather than hoarded.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In Marx’s suggestion that the proletariat can abolish itself, the wage, profit, Capital—in general “the value form”—the abolition of money as we understand it in Marx or contemporary use would necessarily be abolished. Movements of socially useful stuff and services would somehow work on the basis of capacity and need. There might be a mediator, but it wouldn’t have the current functions of money.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Apart from a few very short term instances during revolutionary crises, and generally without ordinary productive activity, there’s no empirical evidence for these relationships; and, there isn’t sufficient material to move beyond large weak concepts like “love,” or “solidarity.”&lt;/p&gt;&#xA;" OwnerUserId="19898" LastActivityDate="2018-11-21T07:23:58.883" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25668" PostTypeId="2" ParentId="25658" CreationDate="2018-11-21T07:26:59.257" Score="1" Body="&lt;p&gt;Yes. For example, the nationalisation of industries brought expanded reproduction into the state function. So do public private partnerships. The generalisation of private sector management standards and language have made obvious the service provisions of commodities to customers in areas like welfare, defence procurement, archival or parliamentary services.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I commend Volume 1 of &lt;em&gt;Capital&lt;/em&gt; to you, in particular chapters 1 to 6, because your use of the term in commentary differs significantly from that present in the literature you reference.  The value-form, as in &quot;the commodity,&quot; is a social relationship not an object.&lt;/p&gt;&#xA;" OwnerUserId="19898" LastEditorUserId="19898" LastEditDate="2018-11-21T10:54:34.790" LastActivityDate="2018-11-21T10:54:34.790" CommentCount="7" ContentLicense="CC BY-SA 4.0" />
  <row Id="25669" PostTypeId="1" CreationDate="2018-11-21T09:16:15.160" Score="1" ViewCount="227" Body="&lt;p&gt;According to Keynesian theory :-&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Equilibrium level is the point at which Aggregate Demand curve intersects Aggregate Supply curve .&#xA;And this point is termed as Full Employment Level &lt;/p&gt;&#xA;&#xA;&lt;p&gt;How do we interpret that this is level of full employment ?&lt;/p&gt;&#xA;" OwnerUserId="19458" LastActivityDate="2018-11-21T09:16:15.160" Title="How is there full employment level at equilibrium level according to Keynesian theory(AD-AS approach)?" Tags="&lt;macroeconomics&gt;&lt;unemployment&gt;&lt;new-keynesian-economics&gt;&lt;keynesian-economics&gt;&lt;keynes&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25672" PostTypeId="2" ParentId="25654" CreationDate="2018-11-21T14:49:14.230" Score="0" Body="&lt;p&gt;You are right, given that it is not possible for markets to provide public goods this is often done by the state and surveys are one way of establishing the amount desired. Such surveys could establish individual demand curves. Note that, due to the non-rivalry of public goods constructing a demand curve for society as a whole requires &lt;strong&gt;vertical addition&lt;/strong&gt; of the individual demand curves. This is known as the Samuelson rule.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are however all kinds of problems associated with such surveys. Given that tax levels depend upon your answer you may want to understate your true willingness to pay. Survey respondents may also find themselves in a public goods game where it is individually rational to understate WTP even though as a group they would want the public good.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course we are not surveyed all the time in practice, but we approve or disapprove of further increases or decreases in public goods provision by voting for certain parties (of course that is not the only consideration when voting but it may be part).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Depending on the public good in question sometimes other tools are available. For example a large recreational spot or natural area that is freely available for recreation is also a public good, provided it doesn't become congested. The demand curve can then be constructed by estimating the travel costs that people incur to travel and recreate in that spot. That is called the travel cost method. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, sometimes we can construct demand curves for public goods by observing the premium people are willing to pay in terms of house prices for a nice view in their house, or the reduction because they live in a highly polluted area (pollution is often an example of a public bad). Those are hedonic methods.&lt;/p&gt;&#xA;" OwnerUserId="12186" LastEditorUserId="12186" LastEditDate="2018-11-22T13:46:53.737" LastActivityDate="2018-11-22T13:46:53.737" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="25675" PostTypeId="2" ParentId="25665" CreationDate="2018-11-21T16:36:02.413" Score="3" Body="&lt;p&gt;Note that the Marshallian demand function &lt;span class=&quot;math-container&quot;&gt;$x^*(p_x,p_y,I)$&lt;/span&gt; is homogeneous degree zero in &lt;span class=&quot;math-container&quot;&gt;$(p_x,p_y,I)$&lt;/span&gt; (see &lt;a href=&quot;https://economics.stackexchange.com/q/12308/42&quot;&gt;here&lt;/a&gt; for a proof). According to Euler's theorem for homogeneous function, it follows that &#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;\frac{\partial x^*}{\partial p_x}p_x+\frac{\partial x^*}{\partial p_y}p_y+\frac{\partial x^*}{\partial I}I=0\cdot x(p_x,p_y,I)=0&#xA;\end{equation}&lt;/span&gt;&#xA;Dividing both sides by &lt;span class=&quot;math-container&quot;&gt;$x^*$&lt;/span&gt;, you have &#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{align}&#xA;\frac{\partial x^*}{\partial p_x}\frac{p_x}{x^*}+\frac{\partial x^*}{\partial p_y}\frac{p_y}{x^*}+\frac{\partial x^*}{\partial I}\frac{I}{x^*}&amp;amp;=0\\&#xA;\epsilon_{xx}+\epsilon_{xy}+\epsilon_{xI}&amp;amp;=0&#xA;\end{align}&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2018-11-21T16:36:02.413" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25676" PostTypeId="2" ParentId="25605" CreationDate="2018-11-21T18:25:06.557" Score="0" Body="&lt;p&gt;The main categories and subcategories are&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Capital goods categorized further in productive capital goods and utility-enhnacing capital goods&lt;/li&gt;&#xA;&lt;li&gt;Consumpitin goods, categorized further into durable goods and perishable goods. Roughly,perishable consumption goods is what we eat and drink and whet we use one. Durable goods are all the rest: a TV, a private car, are considered as durable goods.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;These are useful concepts but they do not produce a razor-sharp criterion to characterize goods. And they are not consistent with each other either: we subcategorize capital goods per their intended use, while we subcategorize consumption goods per their life span. &#xA;So a car bought by a company for its sales force is considered as productive capital good, while a car bought by an individual for its own private use is considered a durable consumption good.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To stick to the OP's question, what is a &lt;em&gt;residential&lt;/em&gt; house? Is it a &quot;utility-enhancing capital good&quot; or a &quot;durable consumption good&quot;? Traditionally, we classify it in  the former category, mainly because of the magnitude of its value and implied long life span, compared to &quot;usual&quot; durable consumption goods.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now the concept of investment (in economics, not in everyday usage of the word), is closely if not exclusively linked to production, so &quot;investment&quot; by households in buying residential housing appears to not qualify... and it doesn't: in many empirical studies of investment, purchases of residential houses are clearly distinguished from investments done by businesses.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In parsimonious and highly abstract macroeconomic models, the distinction tends to be made much less often.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2018-11-21T18:25:06.557" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25677" PostTypeId="1" CreationDate="2018-11-21T19:15:02.187" Score="0" ViewCount="270" Body="&lt;p&gt;Following the work of &lt;em&gt;Lu (1967)&lt;/em&gt; (Full text available &lt;a href=&quot;https://lib.dr.iastate.edu/cgi/viewcontent.cgi?referer=https://www.google.es/&amp;amp;httpsredir=1&amp;amp;article=4405&amp;amp;context=rtd&quot; rel=&quot;nofollow noreferrer&quot; title=&quot;link to the paper&quot;&gt;here&lt;/a&gt;!) I got stuck trying to derive the elasticity of substitution between factors. He use the formula developed by Allen, that when the production function is linear and homogeneous is the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\sigma =\frac{\frac{\partial V}{\partial K}\frac{\partial V}{\partial L}}{V\frac{\partial^2 V}{\partial K\partial L}}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The partial derivatives of L and K and the cross second-order partial derivative are the following: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$(1)\frac{\partial V}{\partial K}=\frac{dY}{dX}=\frac{1}{X}\left ( Y-\alpha X^{-\frac{c}{b}}Y^{\frac{1}{b}} \right )=\frac{1}{K}\left ( V-\frac{\partial V}{\partial L}\cdot L \right )$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$(2)\frac{\partial V}{\partial L}=Y-X\frac{dY}{dX}=\alpha X^{-\frac{c}{b}}Y^{\frac{1}{b}}$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$(3)\frac{\partial^2 V}{\partial K \partial L}=\frac{\alpha}{bL} X^{-\frac{c}{b}-1}Y^{\frac{1}{b}-1}\left ( X\frac{dY}{dX}-cY \right )$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And the expected result (the one the author gets) is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\sigma =\frac{b}{1-\frac{cf}{cf'}}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there anyone who can help me with this? Thanks.&lt;/p&gt;&#xA;" OwnerUserId="19586" LastActivityDate="2018-12-23T07:02:35.543" Title="Calculating the elasticity of substitution between factors of production" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;linear-algebra&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25680" PostTypeId="1" AcceptedAnswerId="25682" CreationDate="2018-11-21T22:14:04.927" Score="1" ViewCount="53" Body="&lt;p&gt;Consider some consumer who consumes good &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt;. The price of &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; is fixed to be &lt;span class=&quot;math-container&quot;&gt;$k$&lt;/span&gt;. The price of &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; is &lt;span class=&quot;math-container&quot;&gt;$c(y)$&lt;/span&gt;. The consumer's marginal rate of substitution is given by &lt;span class=&quot;math-container&quot;&gt;$\frac{-x}{y}$&lt;/span&gt;. If the consumer optimises and is a price taker, I know she should set the absolute value of this equal to the price ratio. However, her quantity demanded affects the price ratio, as her demand influences the price of &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt;. So, does it still hold that she would set&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\frac{x}{y}=\frac{k}{c(y)}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or does this result fail since her quantity demanded has an affect on the price of &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt;?&lt;/p&gt;&#xA;" OwnerUserId="20253" LastEditorUserId="12186" LastEditDate="2018-11-22T12:02:38.820" LastActivityDate="2018-11-22T12:02:38.820" Title="If the consumer is not a price taker, does she still set marginal rate of substitution equal to the price ratio?" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;consumer-theory&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25681" PostTypeId="2" ParentId="25680" CreationDate="2018-11-22T01:56:26.927" Score="0" Body="&lt;p&gt;You are actually talking about &lt;a href=&quot;https://course-notes.org/economics/micro_economics/monopsony&quot; rel=&quot;nofollow noreferrer&quot;&gt;monopsony&lt;/a&gt; -- or in a weaker form: oligopsony. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are &lt;em&gt;a priori&lt;/em&gt; no conventional way to deal directly with hybrid situations like the one you describe: you would rather have to deal with a (multi-level) &lt;em&gt;nested&lt;/em&gt; (CES-type or whatever) &lt;em&gt;utility function&lt;/em&gt;, recursively optimized, taking the goods' characteristics into account at each solving step. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For &lt;em&gt;an example&lt;/em&gt; of how such a utility &quot;tree&quot; looks like, see &lt;a href=&quot;https://scholar.google.co.jp/scholar?q=nested+ces+type&amp;amp;hl=en&amp;amp;as_sdt=0&amp;amp;as_vis=1&amp;amp;oi=scholart#d=gs_qabs&amp;amp;p=&amp;amp;u=%23p%3D4M_lBFThHfIJ&quot; rel=&quot;nofollow noreferrer&quot;&gt;Keller 1976&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="10247" LastEditorUserId="10247" LastEditDate="2018-11-22T02:17:32.850" LastActivityDate="2018-11-22T02:17:32.850" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25682" PostTypeId="2" ParentId="25680" CreationDate="2018-11-22T03:02:31.163" Score="3" Body="&lt;p&gt;We have the utility function  &lt;span class=&quot;math-container&quot;&gt;$U(x,y) = Ax^ay^a$&lt;/span&gt; and we want to solve&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\max U = Ax^ay^a,\;\;\; s.t. xp_x + yp_y(y) = I$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Lagrangean is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\Lambda = Ax^ay^a + \lambda [I-xp_x - yp_y(y)]$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and the first order conditions are&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\frac {aU}{x} = \lambda p_x$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\frac {aU}{y} =\lambda p_y + \lambda y\frac{\partial p_y}{\partial y}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It follows that at the optimum&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$xp_x = yp_y + y^2\frac{\partial p_y}{\partial y}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;or that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\frac{x}{y} = \frac{p_y}{p_x} + y \frac{\partial p_y/\partial y}{p_x}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But the previous expression is more interesting because it can be viewed as a quadratic polynomial in &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt;, and be solved for its roots&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2018-11-22T03:02:31.163" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="25685" PostTypeId="1" AcceptedAnswerId="25708" CreationDate="2018-11-22T07:34:11.383" Score="1" ViewCount="165" Body="&lt;p&gt;So I've seen in my textbooks and many places online that when marginal product is more than average product average product is increasing, when average product is falling average product is greater than the marginal product. I get the economic intuition behind all this but I was wondering how can one show this mathematically. &lt;/p&gt;&#xA;" OwnerUserId="19558" LastActivityDate="2018-11-23T05:06:27.260" Title="Marginal Product and Average product" Tags="&lt;production-function&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25686" PostTypeId="2" ParentId="25627" CreationDate="2018-11-22T08:43:19.537" Score="0" Body="&lt;p&gt;I agree it can seem counter-intuitive, compared to a normal loan, but there are some different characteristics for bonds. Here are some points that come to mind: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Fixed income stream. By not repaying the principal, and having a fixed interest rate, it is known exactly how much the bond holder will receive in income (and how much the issuer will have to pay). This is quite helpful for both sides, plus it helps with understanding its value for trading it on the secondary market. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Cash flow. By not having to to repay principal over the life of the bond, it allows the borrower to utilise more of the cash up front (for investment etc) and it can either make a plan to repay the principal later (like an interest only mortgage) or rollover the debt by issuing another bond to pay for the redemption (as generally happens with governments). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Historical precedent. Bonds have existed for a very long time, when the physical piece of paper was the asset and you had a literal coupon to claim interest. This was probably quite a nice and simple way of agreeing debt obligations. There are even perpetual bonds, which have no maturity date!&lt;/p&gt;&#xA;" OwnerUserId="18276" LastActivityDate="2018-11-22T08:43:19.537" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25688" PostTypeId="1" AcceptedAnswerId="25691" CreationDate="2018-11-22T10:53:22.737" Score="2" ViewCount="58" Body="&lt;p&gt;first and foremost, I'm not an economist, probably a scientist though.&#xA;In my country the most popular way to buy and appartment or a house is by first-price-auctions (the highest bid takes it all).&#xA;Rules are simple : bids ends up at a specific time, you can only bid online, and each bid has generally a 30min validity (meaning if no one bids higher than you in these 30min, and if you are the highest, you get it.)&#xA;We also don't know who's bidding, if there's 2,3,4,x people bidding on the same good.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Each appartment has a &quot;showing price&quot;, and from my experience, bids starts at -10%. Nevertheless the market is pretty down these last weeks/months, and only very good value appartments are sold, often higher than the showing price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is simple : I tried to look in scientific reviews, what are the strategies to bid better as a buyer (i.e. lowering the final price as much as you can), but still it is hard for me to get into general applicable strategies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For instance, is bidding systematically the minimum bid over another offer a good strategy to limit final price? (if I bid +100 USD each time to another bid, will it statistically at the end make me win with a lower price?)&#xA;Or, if I wait until the last minute to bid, is it a better strategy than bidding asap ? &#xA;Do the trick with uneven number work to lower the final price? (offer of 12458$ for instance, instead of 12500USD) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have been looking into bibliography for a while, but I haven't found any solid argument.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Maybe you guys know a bit more than I do? :)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Cheers !&lt;/p&gt;&#xA;" OwnerUserId="20259" LastActivityDate="2018-12-22T15:02:00.403" Title="Buyer's efficiency in auctions" Tags="&lt;auctions&gt;&lt;scientific-method&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25689" PostTypeId="2" ParentId="25688" CreationDate="2018-11-22T11:42:17.760" Score="0" Body="&lt;p&gt;Interesting question,&#xA;It can be dealt with with two models: economic theory and game theory (which, in turn, is the base for modern economic theory)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Game theory should be the most practical.&#xA;To start if we simplify, we can assume that &quot;everybody else&quot; is one player&#xA;In a turn based game, each provides his own minimal bid as long its the highest bid,&#xA;That means that the response of each player, will be higher bid, until the maximal value will be reach, for the player with a maximal rate&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;So the end-game for each player, will the other's maximal bid + delta&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Notice that the optimum has to arrive by playing and &lt;em&gt;responding&lt;/em&gt;&#xA;With an endless amount of players, endless amount of games,&#xA;The market price will be the market price: The maximal price will be reached, based on the available supply.&#xA;Once that sets, market price is a given known number, based on which a consumer will decide whether to buy or not = economic equilibrium...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, to answer your question: you can and should play and respond to others' prices, but close enough to market prices (and of course, based on the unique parameters for each flat), simply to save the time and trouble&lt;/p&gt;&#xA;&#xA;&lt;p&gt;hope that helps,&#xA;Guy&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Game_tree&quot; rel=&quot;nofollow noreferrer&quot;&gt;Game theory game tree&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="19195" LastActivityDate="2018-11-22T11:42:17.760" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="25690" PostTypeId="2" ParentId="25323" CreationDate="2018-11-22T13:13:39.333" Score="0" Body="&lt;p&gt;It's not always the case that the income effect will outweigh the substitution effect. The ones that outweigh the substitution effect are the Giffen goods.  The ones that don't are just plain inferior goods. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Example: Suppose you are on a low nutrious diet because you earn less and can't afford other items. Now your income increases the demand for your current good decreases. These low nutritional products are your inferior goods. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, take the case where the price increases for the low nutrious dietary items, but your demand will decrease like any other usual good but will not increase. &lt;/p&gt;&#xA;" OwnerUserId="19558" LastActivityDate="2018-11-22T13:13:39.333" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25691" PostTypeId="2" ParentId="25688" CreationDate="2018-11-22T13:27:02.573" Score="0" Body="&lt;p&gt;The kind of bidding strategy depends upon the auction environment' i.e, whether the players are bidding independently, or do their valuations(hence, bidding value) depend on the valuations observed by other players as well(in mathematical terms, the random variables are not independent). Both the environments will have different bidding strategies. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the independent case, players do not take into account the possible valuations observed by others while bidding. Whereas, incase of interdependent valuations, players do take into account the valuations observed by others while making a bid. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm assuming you're interested in the interdependent valuations case. Well, in such cases one needs to specify the kind of correlation that exists between the players(players = random variables). If aggressive bidding by any one discourages others, then a negative correlation will exist, and suitable bidding strategies can be derived using the existing mathematical theory. Same goes for a positive correlation as well. The main point here is, that the winner will always take into account the valuations of the other players in an interdependent valuations environment, to avoid the 'Winner's Curse'.&lt;/p&gt;&#xA;" OwnerUserId="16340" LastActivityDate="2018-11-22T13:27:02.573" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25693" PostTypeId="1" CreationDate="2018-11-22T15:43:23.463" Score="0" ViewCount="31" Body="&lt;p&gt;Now accoring to this article: &lt;a href=&quot;https://www.telegraph.co.uk/news/2016/07/30/britain-banishes-plastic-bags-as-5p-tax-sees-usage-plummet-by-6/?fbclid=IwAR3avBXNeV1n3Emb8weHygZnCJdKo6xLIPWJB0J0gyHhXXh6FQf8MJKrznc&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.telegraph.co.uk/news/2016/07/30/britain-banishes-plastic-bags-as-5p-tax-sees-usage-plummet-by-6/?fbclid=IwAR3avBXNeV1n3Emb8weHygZnCJdKo6xLIPWJB0J0gyHhXXh6FQf8MJKrznc&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;just by putting a 5p tax on plastic bags. The total number used plastic bags has fallen from approx 9 billion down to 1 billion.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now based on that i wanted to see why this tax led to a distortion of the price mechanism, creating socially inefficient tax rates that also resulted in deadweight losses as seen in the uploaded figure. Is this correct done/understood?&lt;a href=&quot;https://i.stack.imgur.com/kbQT1.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/kbQT1.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="20261" LastActivityDate="2018-11-22T18:40:32.610" Title="Am i correct here? #greenTaxes #priceMechanism #inefficientTax #DeadweightLoss" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="2" ClosedDate="2018-12-08T05:14:18.447" ContentLicense="CC BY-SA 4.0" />
  <row Id="25695" PostTypeId="2" ParentId="25693" CreationDate="2018-11-22T18:40:32.610" Score="1" Body="&lt;p&gt;Yes you are correct, provided of course that plastic bags have no external effects. Then that triangle is the deadweight loss. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, green taxes are typically implemented for a reason and if plastic bags have an external effect the supply curve is not equal to the social marginal costs. The idea of the taxes is to bring the private marginal costs in line with the social marginal costs. If plastic bags do have an external effect than that triangle is not deadweight loss but part of a cost that society bears.&lt;/p&gt;&#xA;" OwnerUserId="12186" LastActivityDate="2018-11-22T18:40:32.610" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25697" PostTypeId="2" ParentId="17095" CreationDate="2018-11-22T20:28:49.813" Score="2" Body="&lt;p&gt;Yes it does. This file goes up to 2015: &lt;a href=&quot;http://fs2.american.edu/wgp/www/Patent%20index1960%20-%202015.xlsx&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://fs2.american.edu/wgp/www/Patent%20index1960%20-%202015.xlsx&lt;/a&gt; &#xA;If this link no longer works, it should be linked from this page: &lt;a href=&quot;http://fs2.american.edu/wgp/www&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://fs2.american.edu/wgp/www&lt;/a&gt; after the &quot;Research policy&quot; paper.&lt;/p&gt;&#xA;" OwnerUserId="6713" LastActivityDate="2018-11-22T20:28:49.813" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25698" PostTypeId="2" ParentId="25661" CreationDate="2018-11-22T20:55:11.990" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Is it possible to imagine humanity without a modern understanding of money?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Given that humanity has been on this earth for a hell of a lot longer than than money has, then I would think so. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And from what I've read many nomadic tribes in Africa, the Americas and Austronesia did without money into the modern period. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Whether of course someone can imagine it, obviously depends very much on their imagination.&lt;/p&gt;&#xA;" OwnerUserId="13857" LastActivityDate="2018-11-22T20:55:11.990" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25699" PostTypeId="1" CreationDate="2018-11-22T20:58:29.177" Score="0" ViewCount="50" Body="&lt;p&gt;Instead of describing the general question, let me give a concrete example.&#xA;Suppose in a city they want to extend a metro line but they don't have enough budget for it. Could the city designate a locality which would mostly profit from the extension and say that in the next 10 years any flat sold or rented in the area would have an additional 10% sales tax which would go to the metro building funds? I'm thinking that this way the residents would also profit financially (even those who don't use the metro), as due to the metro extension they could sell their flats for, say, 20% more, so about half of this increase would go to the city, the rest to the residents. What would be some issues with such a tax?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ps. Of course there are several variants, like whether the tax starts only after the extension is completed (from a bank loan), how long the tax needs to be paid (fix years or until enough money is collected), should it be also for rents or only for sales, should only the first sale of each flat be taxed or also subsequent sales, how should the boundary of the tax be determined (possibly with several zones, like some paying just half the tax), which politician should steal the money etc. I'm mainly interested in why the main idea has never been implemented, AFAIK.&lt;/p&gt;&#xA;" OwnerUserId="19338" LastActivityDate="2018-11-23T11:38:54.723" Title="Can infrastructure costs be covered by taxes on flat sales/rents?" Tags="&lt;taxation&gt;&lt;infrastructure&gt;" AnswerCount="2" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="25701" PostTypeId="2" ParentId="25699" CreationDate="2018-11-22T22:54:44.630" Score="0" Body="&lt;p&gt;Perceptions of inequity between different localities can be a significant obstacle to such schemes, making it difficult for them to gain sufficient political support.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Taking the metro line example, it may seem fair that residents (and/or property owners) in the locality that will benefit from the line should contribute to its cost via an additional tax not levied on residents in other parts of a city.  If the locality is the first suburb of the city to have a metro line, then residents may perceive that the arrangement is fair.  If however other suburbs already have metro lines, perhaps built and paid for many years ago, and already benefit from use of the lines and enhanced property values, then the locality's residents will very likely focus on the &lt;em&gt;unfairness&lt;/em&gt; of paying an extra tax for a facility that other localities already have for free.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Addressing the comment by domotorp, the locality's residents are unlikely to accept that their only options are a) a metro line paid for by an extra tax on the locality only, and b) no metro. Other options they might try to persuade the city government to adopt are metro paid for by: c) an extra tax (at a much lower rate) on the whole city; d) additional borrowing; e) reducing or cancelling other expenditure (expecially if the metro is just one of several proposed large infrastructure projects).&lt;/p&gt;&#xA;" OwnerUserId="1417" LastEditorUserId="1417" LastEditDate="2018-11-23T11:38:54.723" LastActivityDate="2018-11-23T11:38:54.723" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25702" PostTypeId="2" ParentId="25699" CreationDate="2018-11-22T23:09:41.173" Score="1" Body="&lt;p&gt;Yes,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What you are describing is called &lt;a href=&quot;https://en.wikipedia.org/wiki/Value_capture&quot; rel=&quot;nofollow noreferrer&quot;&gt;value capture&lt;/a&gt;. There are a variety of forms of the tax, each with their own pros and cons. The general idea is that infrastructure, particularly transport infrastructure, disproportionately benefits parties closest to the line.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A good example is happening in Western Sydney in what was semi-rural land. An international airport and substantial extra development. Large land-owners found that their property is just down the road from a planned town-centre and they can build apartments on their paddocks. There was massive value uplift which was not captured by the government, but could have been.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm not aware of a reason why the policy shouldn't work, but it is politically tricky.&lt;/p&gt;&#xA;" OwnerUserId="40" LastActivityDate="2018-11-22T23:09:41.173" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="25703" PostTypeId="2" ParentId="16477" CreationDate="2018-11-23T00:00:07.343" Score="0" Body="&lt;p&gt;In short, a buyer wants a way to make revenue back on the initial investment of a car, if this isn't possible ( a used car market doesn't exist) then the buyer may find another investment opportunity and avoid cars altogether. However, without a used car market, demand for new cars would increase, presuming cars are a necessity, and so therefore would the price. The price of new cars could possibly reduce if there is a used car market as the dealers will want new stock leaving so that they don't stop trading.&lt;/p&gt;&#xA;" OwnerUserId="20265" LastActivityDate="2018-11-23T00:00:07.343" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25705" PostTypeId="2" ParentId="21654" CreationDate="2018-11-23T03:50:00.213" Score="1" Body="&lt;p&gt;Suppose McDonald's has 2 franchisees. &lt;code&gt;Franchisee A&lt;/code&gt; under its current franchise arrangement has to pay \$100 a year of minimum rent until the current arrangement expires in 2025. &lt;code&gt;Franchisee B&lt;/code&gt;, on the other hand, has to pay \$75 a year but its arrangement expires in 2019.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The future minimum rent due to McDonald's in 2018 is &lt;span class=&quot;math-container&quot;&gt;$\$100 + \$75 = \$175$&lt;/span&gt;. This continues until 2020, where the payments then drop to only \$100 a year after &lt;code&gt;Franchisee B&lt;/code&gt;'s arrangement expires. Although, we would expect a high renewal rate with McDonald's franchisees, the table only shows future cash flows under contracts existing today, or as they say in the annual report&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;The following table summarizes...future minimum rent payments due to the Company &lt;strong&gt;under existing franchise arrangements as of December 31, 2014.&lt;/strong&gt;&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Note that these values are &lt;em&gt;not&lt;/em&gt; discounted. In our simple example, McDonald's is owed \$100 a year from 2021 to 2025 by &lt;code&gt;Franchisee A&lt;/code&gt; and then gets $0 a year after 2025 since there are no more arrangements left. \$100 a year from 2021 to 2025 sums to \$500 for the thereafter row.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/2J8Bb.png&quot; width=&quot;225&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These tables of contractual obligations and future cash flows are helpful to analyze the future cash needs of a business. Often times companies may have a lot of debt due in a specific year when a bond issue matures. While companies often refinance (&quot;rollover&quot;) that debt, it is helpful for investors to know that that debt maturity is coming up since if the company cannot refinance (say it is a lousy retailer or there is a financial crisis) and does not have enough cash on hand, the company could be forced into bankruptcy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This future minimum rents table provided by McDonald's tells investors how much cash is contractually coming in the door, and also sheds light on the remaining life of McDonald's franchise arrangements.&lt;/p&gt;&#xA;" OwnerUserId="5987" LastActivityDate="2018-11-23T03:50:00.213" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25707" PostTypeId="2" ParentId="13043" CreationDate="2018-11-23T04:44:26.380" Score="0" Body="&lt;p&gt;If I may, I shall rephrase your question more broadly (than just NFL shirts) as &amp;quot;All things considered, do donations of second-hand clothing (SHC) to developing countries harm those countries?&amp;quot;&lt;/p&gt;&#xA;&lt;p&gt;As is often the case in economics, the answer here is, &amp;quot;It depends; we're not sure; more research is needed.&amp;quot;&lt;/p&gt;&#xA;&lt;p&gt;Some of the previous answers have already applied armchair reasoning, so here I'll quote from some who've actually studied this specific issue:&lt;/p&gt;&#xA;&lt;h2&gt;Those who tend to answer &amp;quot;Yes&amp;quot;:&lt;/h2&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1468-0297.2008.02190.x&quot; rel=&quot;nofollow noreferrer&quot;&gt;Frazer, &amp;quot;Used‐Clothing Donations and Apparel Production in Africa&amp;quot; (2008)&lt;/a&gt;:&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Used‐clothing imports are found to have a negative impact on apparel production in Africa, explaining roughly 40% of the decline in production and 50% of the decline in employment over the period 1981–2000.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://repository.lib.ncsu.edu/bitstream/handle/1840.20/35638/etd.pdf?sequence=1&amp;amp;isAllowed=y&quot; rel=&quot;nofollow noreferrer&quot;&gt;Sun, &amp;quot;Second-hand Clothing Imports and the Textile and Apparel Industry in Africa&amp;quot; (2018, Master's thesis)&lt;/a&gt;:&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;This research concludes that over the time period from 2001 to 2012, SHC imports are responsible for roughly 19% of the annual decline of apparel production and roughly 12% of the annual decline of apparel employment in Africa. Also, a significant negative relationship between SHC imports and textile production is identified which is contrary to Frazer’s (2008) finding of no relationship. SHC imports are responsible for roughly 33% of the annual decline of textile production and roughly 6% of the annual decline of textile employment. Finally, a slight negative relationship between SHC and overall manufacturing employment is identified in Africa over 2001-2012.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;hr /&gt;&#xA;&lt;h2&gt;Those who tend to answer &amp;quot;No&amp;quot;:&lt;/h2&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://mpra.ub.uni-muenchen.de/82175/1/MPRA_paper_82175.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Calabrese Balchin Mendez-Parra, &amp;quot;The phase-out of second-hand clothing imports: what impact for Tanzania&amp;quot; (2017)&lt;/a&gt;:&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Depending on the substitutability between new and used clothing, the phase-out could prompt increased import of new clothing. It could also prompt employment losses and generate costs for the poorest consumers. In the longer term, the phase-out is unlikely to promote the development of the garment sector unless the existing constraints are properly addressed.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://journals.sagepub.com/doi/abs/10.1177/1024529414563004&quot; rel=&quot;nofollow noreferrer&quot;&gt;Amankwah-Amoah, &amp;quot;Explaining declining industries in developing countries: The case of textiles and apparel in Ghana&amp;quot; (2015)&lt;/a&gt; concludes:&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;contrary to the assertion that associated used-clothing imports have deleterious effects on the apparel production sectors in sub-Saharan African countries [citations omitted] the evidence suggests that such products can help to improve small firms’ competitiveness relative to low-cost imports. The current trend in Ghana and across Africa towards banning second-hand products as the primary cause of industry decline does not take account of the fact that second-hand imports have potential to infuse&#xA;entrepreneurial spirit.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.tandfonline.com/doi/abs/10.1080/00220389008422167&quot; rel=&quot;nofollow noreferrer&quot;&gt;Haggblade, &amp;quot;The Flip Side of Fashion Used Clothing Exports to the Third World&amp;quot; (1990)&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Value added comparisons suggest the introduction of used clothing has raised national income. ... So a \$1,000 increase in used clothing purchases at the expense of an equivalent purchasing power reduction in the other channels increases national income by \$62 to \$198. Moreover, the distribution of that income will not reduce earnings among low-income groups since the used clothing income accruing to low-income groups, the&#xA;retailers and distributors, equals that earned in tailoring.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;hr /&gt;&#xA;&lt;h2&gt;Mixed or inconclusive:&lt;/h2&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.ajol.info/index.php/ajer/article/view/166029&quot; rel=&quot;nofollow noreferrer&quot;&gt;Wetengere, &amp;quot;Is the Banning of Importation of Second-Hand Clothes and Shoes a Panacea to Industrialization in East Africa&amp;quot; (2018)&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;This study found that the importation of SHC had positive contribution on the lives of the poor namely: SHC were consumed by the poor bacause SHC were cheaper, good quality and fashionable. Also, SHC created employment and filled the gap during shortage of clothes and shoes in the region. Despite such contributions, SHC had negative impacts: on the revamping of the textiles and leather industries, on health of the consumer, on human dignity and on the African culture. For those reasons, the ban is justifiable and commendable. However, it should be noted that the influx of SHC into the region was not the core reason for the collapse of the former textiles and shoes industries in the region. Rather the reasons that directly effected the collapse of the industries in the region included: poor leadership, lack of capital, lack of skilled manpower, poor infrastructure as well as un-competitive business and investment environment prevailing in the region.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://oxfamilibrary.openrepository.com/oxfam/bitstream/10546/112464/1/rr-impact-second-hand-clothing-trade-developing-countries-010905-en.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Baden &amp;amp; Barber, &amp;quot;The impact of the second-hand clothing trade on developing countries&amp;quot; (2005 Oxfam study)&lt;/a&gt;:&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;The trade has clear consumer benefits. This is especially true in countries with low purchasing power, and for poorer consumers, though in many sub-Saharan African countries it seems that almost all socio-economic groups are choosing to buy SHC. ... The trade supports hundreds of thousands of livelihoods in developing countries. These include jobs in trading, distributing, repairing, restyling, and washing clothes. Oxfam’s research in Senegal estimates that 24,000 people are active in the sector in that country.&lt;/p&gt;&#xA;&lt;p&gt;... SHC imports are likely to have played a role in undermining industrial textile/clothing production and employment in West Africa, which experienced a serious decline in the 1980s and 1990s. However, such imports have not been the only cause. Increasingly cheap imports from Asia are competing with local production, while supply-side constraints undermine the efficiency of the domestic industry. These constraints include unreliable and expensive infrastructure; the cost and availability of materials; outdated capital stock and lack of access to credit; and inadequate training and management skills.&lt;/p&gt;&#xA;&lt;p&gt;In several West African countries it is not clear that, even in the absence of SHC, local textile/garment production and employment would recover, as new imports from East Asia are cheaper than locally produced goods and there are serious supply-side constraints.&lt;/p&gt;&#xA;&lt;p&gt;It is likely that SHC displaces exports from third countries, particularly from Asia. It is hard to estimate precisely, but if all SHC trade were replaced by new imports, rather than by production in destination countries, then the number of jobs created in exporting countries would be around 100,000.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;In a controlled experiment, &lt;a href=&quot;https://www.tandfonline.com/doi/abs/10.1080/19439342.2014.919012&quot; rel=&quot;nofollow noreferrer&quot;&gt;Wydick, Katz, &amp;amp; Janet, &amp;quot;Do in-kind transfers damage local markets? The case of TOMS shoe donations in El Salvador&amp;quot; (2014)&lt;/a&gt; conclude:&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Our experimental study among 979 households in El Salvador finds modest evidence to support the hypothesis that donated shoes exhibit negative impacts on local shoe markets. ... While all of our regression estimates lie in the direction of slightly negative impacts on household shoe purchases, they fail to reach statistical significance, and thus we cannot present conclusive evidence pointing to a negative impact on domestic markets from in-kind donations.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1467-7660.2012.01797.x&quot; rel=&quot;nofollow noreferrer&quot;&gt;Brooks &amp;amp; Simon, &amp;quot;Unravelling the Relationships between Used-Clothing Imports and the Decline of African Clothing Industries&amp;quot; (2012)&lt;/a&gt;:&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Many casual observers have linked the decline in African clothing manufacturing to the import of used clothing [citations omitted]. This issue needs to be explored critically and empirically and in relation to the recent history of economic liberalization in Africa [citations omitted], which has posed multiple challenges for African clothing industries. ... Approaching this problem exclusively through published economic statistics fails to reflect what has really occurred in Africa. ... Complex realities cannot be explained by running regressions without attention to the quality of data sets and the relevance of the models and instrumentation.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;In a purely theoretical analysis, &lt;a href=&quot;https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1467-7679.1996.tb00114.x&quot; rel=&quot;nofollow noreferrer&quot;&gt;Bigsten &amp;amp; Wicks, &amp;quot;Used‐Clothes Exports to the Third World: Economic Considerations&amp;quot; (1996)&lt;/a&gt; make the modest and tentative conclusion that used clothes donations should probably not be subsidized:&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Used-clothes imports may cause economic damage in the presence of distortions and externalities; subsidising imports of used clothes for aid projects could increase this damage. Even in the case of targeting ‘the poorest of the poor’, who may have no effective demand for new clothes, more effective and better targeted aid projects are possible. Given used-clothes markets throughout the Third World, used clothes can be shipped without subsidy, and the sales receipts will cover the costs.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;By the way, the East African Community is currently restricting or banning the import of used clothes -- see e.g. &lt;a href=&quot;https://www.nytimes.com/2017/10/12/world/africa/east-africa-rwanda-used-clothing.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;this 2017 NYT story&lt;/a&gt;. This has resulted in &lt;a href=&quot;https://www.economist.com/middle-east-and-africa/2018/04/05/donald-trumps-other-trade-war-with-rwanda-over-used-clothes&quot; rel=&quot;nofollow noreferrer&quot;&gt;&amp;quot;Trump's Other Trade War&amp;quot; (2018 &lt;em&gt;Economist&lt;/em&gt; story)&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2018-11-23T04:44:26.380" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25708" PostTypeId="2" ParentId="25685" CreationDate="2018-11-23T05:06:27.260" Score="4" Body="&lt;p&gt;Here is a simple explanation for a single input and output technology represented by a production function &lt;span class=&quot;math-container&quot;&gt;$f:\mathbb{R} \to \mathbb{R}$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that Average Product (AP) is defined as &#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;AP(x) = \frac{f(x)}{x}&#xA;$$&lt;/span&gt;&#xA;, and Marginal Product (MP) is defined as&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;MP(x) = \frac{\partial f(x)}{\partial x} = f'(x)&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, we take the derivative of the function &lt;span class=&quot;math-container&quot;&gt;$AP(x)$&lt;/span&gt;, and then we have&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\frac{\partial AP(x)}{\partial x} = \frac{f'(x)x-f(x)}{x^2}&#xA;\\&#xA;= \frac{1}{x}\bigg[f'(x)-\frac{f(x)}{x}\bigg]&#xA;\\&#xA;= \frac{1}{x}[MP(x)-AP(x)]&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; indicates the level of the input, &lt;span class=&quot;math-container&quot;&gt;$x&amp;gt;0$&lt;/span&gt;, and thus we have,&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\frac{\partial AP(x)}{\partial x} &amp;gt; 0 \iff MP(x)&amp;gt;AP(x)&#xA;$$&lt;/span&gt;&#xA;, or &#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\frac{\partial AP(x)}{\partial x} &amp;lt; 0 \iff MP(x)&amp;lt;AP(x)&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="20085" LastActivityDate="2018-11-23T05:06:27.260" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25709" PostTypeId="2" ParentId="25677" CreationDate="2018-11-23T06:54:34.613" Score="1" Body="&lt;p&gt;First of all, I think that 'linear and homogeneous' is a typo of 'linearly homogeneous.' Indeed, it can be shown that if the production function &lt;span class=&quot;math-container&quot;&gt;$V$&lt;/span&gt; is linearly homogeneous, Allen Elasticity of Substitution between &lt;span class=&quot;math-container&quot;&gt;$K$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$L$&lt;/span&gt; can be expressed as&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\sigma = \frac{V_K V_L}{V \cdot V_{KL}}&#xA;$$&lt;/span&gt;&#xA;by using the fact that &lt;span class=&quot;math-container&quot;&gt;$V_K$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$V_L$&lt;/span&gt; are homogeneous of degree 0, resulting in&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;V_{LL}L + V_{LK}K=0&#xA;\\&#xA;V_{KL}L + V_{KK}K=0&#xA;$$&lt;/span&gt;&#xA;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Moreover, by the definitions in the paper (Lu, 1967), note that&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;X \equiv \frac{K}{L}&#xA;\\&#xA;Y \equiv \frac{V}{L} = F(\frac{K}{L}, 1) \equiv f(X)&#xA;\\&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, by substituting the results given by the author, we have&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\sigma = \frac{\bigg[\frac{1}{K}(V-V_LL)\bigg]  \bigg[\alpha X^{-\frac{c}{b}}Y^{\frac{1}{b}}\bigg]} {V \cdot \frac{\alpha}{bL} X^{-\frac{c}{b}-1}Y^{\frac{1}{b}-1}\left ( X\frac{dY}{dX}-cY \right )}&#xA;$$&lt;/span&gt;&#xA;, or&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\sigma = \frac{b}{V} \cdot \frac{L}{K} \cdot \frac{(V-V_LL)XY}{X\frac{dY}{dX}-cY}&#xA;\\&#xA;= \frac{b}{V} \cdot \frac{(V-V_LL)Y}{X\frac{dY}{dX}-cY}&#xA;\\&#xA;= \frac{b}{V} \cdot \frac{V-V_LL}{\frac{X}{Y} \frac{dY}{dX}-c}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that, since &lt;span class=&quot;math-container&quot;&gt;$V$&lt;/span&gt; is linearly homogeneous,&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;V-V_LL = V_KK = \frac{dY}{dX}K&#xA;$$&lt;/span&gt;&#xA;where the second equality holds for (3.18) in the paper.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore,&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\sigma = \frac{b}{V} \cdot \frac{\frac{dY}{dX}K}{\frac{X}{Y} \frac{dY}{dX}-c}&#xA;\\&#xA;= b \cdot \frac{\frac{X}{Y} \frac{dY}{dX}}{\frac{X}{Y} \frac{dY}{dX}-c}&#xA;\\&#xA;= \frac{b}{1-c(\frac{X}{Y} \frac{dY}{dX})^{-1}}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, note that&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\frac{X}{Y} \frac{dY}{dX} = \frac{X}{f(X)} \frac{dY}{dX} = \frac{X}{f(X)}f'(X)&#xA;$$&lt;/span&gt;&#xA;, and thus we have&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\sigma = \frac{b}{1-\frac{cf}{Xf'}}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(You have a typo on this expression)&lt;/p&gt;&#xA;" OwnerUserId="20085" LastActivityDate="2018-11-23T06:54:34.613" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25710" PostTypeId="1" CreationDate="2018-11-23T10:39:28.927" Score="0" ViewCount="285" Body="&lt;p&gt;I was using R to calculate the annualized quarterly growth rate of real GDP by 400*diff(log(rgdp)).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I perform in this way some of the percentage change is big.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, if I calculate as 100*diff(log(rgdp)) than results seems to be accurate as what shows up on the most of the website.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why is this happening? follow by the growth formula it should be multiplied by 400, not 100.&lt;/p&gt;&#xA;" OwnerUserId="20269" LastActivityDate="2021-04-11T18:04:35.540" Title="annualized quarterly growth rate calculating" Tags="&lt;economic-growth&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25713" PostTypeId="2" ParentId="25710" CreationDate="2018-11-23T14:45:20.283" Score="0" Body="&lt;p&gt;Perhaps quarterly growth should be multiplied by 400, but not &lt;em&gt;annualized&lt;/em&gt; quarterly growth?&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2018-11-23T14:45:20.283" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="25715" PostTypeId="1" AcceptedAnswerId="25721" CreationDate="2018-11-23T18:35:45.620" Score="2" ViewCount="107" Body="&lt;p&gt;I have a question about Arrow's impossibility theorem. I'm not sure I understand exactly what is meant by the &quot;no dictator&quot; criterion. Does the presence of a &quot;dictator&quot; mean that across all possible combinations of individual preference orderings for N individuals, the same person's preferences will always match the group preference ordering exactly? Or does it simply mean that across all possible combinations of individual preference orderings for N individuals, there will be &lt;em&gt;some&lt;/em&gt; individual for each one of those combinations whose preferences match the group preferences exactly, but that individual doesn't necessarily have to be the same for each combination? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the former, I can clearly construct a counter-example that (I think) satisfies the other two criteria (unanimity and independence of irrelevant alternatives). For example:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Combination 1:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Person 1: A &gt; B &gt; C&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Person 2: B &gt; A &gt; C&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Person 3: C &gt; A &gt; B&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Group preference: A &gt; B &gt; C&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Combination 2:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Person 1: A &gt; B &gt; C&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Person 2: B &gt; A &gt; C&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Person 3: B &gt; A &gt; C&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Group preference: B &gt; A &gt; C&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this example, Person 1 is the &quot;dictator&quot; in combination 1, but not in combination 2. Therefore, by the first definition above of &quot;dictator&quot; there is no dictator in this system (I'm also assuming I haven't violated the other two criteria: someone please point out if I have). If we're going by the second definition of &quot;dictator&quot; above, sure, this system has a &quot;dictator&quot; under each combination, but this doesn't seem like an appropriate definition to me. If the ballot changed with new issues to rank (e.g. A*, B*, and C*) these &quot;dictators&quot; might not hold sway anymore, so are they really &quot;dictators&quot; in the sense we normally think? Or is it just happenstance that their preferences happened to align with the group preferences one time? Obviously, there's something about the theorem that I'm not understanding, so if someone could please clarify that for me I'd be very appreciative. Thanks!&lt;/p&gt;&#xA;" OwnerUserId="20274" LastEditorUserId="20274" LastEditDate="2018-11-23T18:41:34.050" LastActivityDate="2018-11-24T10:35:50.543" Title="Question about the &quot;No Dictator&quot; Criterion in Arrow's Impossibility Theorem" Tags="&lt;decision-theory&gt;&lt;social-welfare&gt;&lt;social-choice&gt;&lt;voting&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25716" PostTypeId="1" CreationDate="2018-11-23T19:37:39.597" Score="0" ViewCount="48" Body="&lt;p&gt;Kahneman and Tversky's prospect theory, which they developed to contradict expected utility theory, is obviously an interesting result. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But, after their experiments has anyone tried to completement the theory? Or to contradict it?&lt;/p&gt;&#xA;" OwnerUserId="19566" LastActivityDate="2018-11-26T13:02:31.767" Title="Theories that complement/contradict prospect theory?" Tags="&lt;utility&gt;&lt;expected-utility&gt;&lt;theory&gt;&lt;experimental-economics&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="25718" PostTypeId="1" CreationDate="2018-11-24T03:25:05.537" Score="2" ViewCount="252" Body="&lt;p&gt;Why were there numerous banks run right after the stock market crash of 1929? Why would a bank fail because the stock market crashes?&lt;/p&gt;&#xA;" OwnerUserId="20230" LastActivityDate="2020-12-11T15:01:40.160" Title="Bank Runs During the 1930s" Tags="&lt;macroeconomics&gt;&lt;stock-market&gt;&lt;banking&gt;&lt;investment&gt;" AnswerCount="4" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="25719" PostTypeId="1" AcceptedAnswerId="25723" CreationDate="2018-11-24T10:11:28.937" Score="1" ViewCount="83" Body="&lt;p&gt;So I was solving a question which says find the range in which MRTS is diminishing&#xA;&lt;span class=&quot;math-container&quot;&gt;$f(k,l) = 600k^2l^2-k^3l^3$&lt;/span&gt; is the production function&#xA;I got the MRTS = &lt;span class=&quot;math-container&quot;&gt;$ -(1200kl^2-3k^2l^3) \over 1200k^2l-3k^3l^2$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, i'm getting &lt;span class=&quot;math-container&quot;&gt;$\frac{\partial f'(k,l)}{\partial k} = \frac{l}{k^2}$&lt;/span&gt; then range is &lt;span class=&quot;math-container&quot;&gt;$l &amp;lt;0 $&lt;/span&gt; which doesn't seem to make sense. &#xA;Is my answer correct or is there some mistake?? &lt;/p&gt;&#xA;" OwnerUserId="19558" LastActivityDate="2018-11-24T15:19:44.103" Title="Diminishing MRTS range" Tags="&lt;production-function&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25721" PostTypeId="2" ParentId="25715" CreationDate="2018-11-24T10:35:50.543" Score="1" Body="&lt;p&gt;Arrow's Theorem concerns a &lt;em&gt;social preference function&lt;/em&gt; ---that is, a function that produces a group preference order for &lt;em&gt;every&lt;/em&gt; possible profile of individual preferences.  The axioms &quot;Nondictatorship&quot;, &quot;Independence of Irrelevant Alternatives&quot;, etc. must then be satisfied by the function at &lt;em&gt;every&lt;/em&gt; profile.  (To be more precise, an axiom like IIA involves a comparison between the behaviour of the function at &lt;em&gt;two different&lt;/em&gt; profiles.  So it must be satisfied by the function for every &lt;em&gt;pair&lt;/em&gt; of profiles.)   Your counterexample only shows me the outcome at two particular profiles;  it does not specify the function itself.  Until you specify a function, we can't know whether the axioms are satisfied.  Arrow's Theorem says that, when you try to extend your example to completely specify the outcome at every profile, sooner or later you will run into a situation where you must violate one of the axioms.&lt;/p&gt;&#xA;" OwnerUserId="8759" LastActivityDate="2018-11-24T10:35:50.543" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25723" PostTypeId="2" ParentId="25719" CreationDate="2018-11-24T11:01:12.813" Score="3" Body="&lt;p&gt;Fix the production function to a constant value &lt;span class=&quot;math-container&quot;&gt;$f_0$&lt;/span&gt; so that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;f_0 = 600k^2l^2 - k^3 l^3 \tag{1}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is a figure for different values of &lt;span class=&quot;math-container&quot;&gt;$f_0$&lt;/span&gt; (isoquants)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/KCa1T.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/KCa1T.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that with increasing &lt;span class=&quot;math-container&quot;&gt;$k$&lt;/span&gt; the rate of change of &lt;span class=&quot;math-container&quot;&gt;$l$&lt;/span&gt; becomes smaller for a given &lt;span class=&quot;math-container&quot;&gt;$f$&lt;/span&gt; and a fixed change in &lt;span class=&quot;math-container&quot;&gt;$k$&lt;/span&gt;. We can show this more formally by taking the derivative w.r.t &lt;span class=&quot;math-container&quot;&gt;$l$&lt;/span&gt; at both sides&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;0 = 600\left(2kl^2 + 2k^2 l \frac{\partial l}{\partial k}\right) - \left(3k^2l^3 + 3k^3l^2\frac{\partial l}{\partial k}\right) \tag{2}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can further simplify this to&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;0 = -3k l (-400 + k l)\left(l + k \frac{\partial l}{\partial k}\right) \tag{3}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The solutions are &lt;span class=&quot;math-container&quot;&gt;$k = 0$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$l = 0$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$kl = 400$&lt;/span&gt; or &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\frac{\partial l}{\partial k} = -\frac{l}{k} \tag{4}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which confirms that that increasing &lt;span class=&quot;math-container&quot;&gt;$k$&lt;/span&gt; decreases the MRTS, in other words, the range in which the marginal diminishes is &lt;span class=&quot;math-container&quot;&gt;$k &amp;gt; 0$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="14419" LastEditorUserId="14419" LastEditDate="2018-11-24T15:19:44.103" LastActivityDate="2018-11-24T15:19:44.103" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="25724" PostTypeId="1" CreationDate="2018-11-24T11:37:29.867" Score="0" ViewCount="444" Body="&lt;p&gt;I have been tasked to explain the changes in economic performance of a particular country as part of my class assignment. In particular, I need to explain the changes in the inflation rate of Malaysia over the past 10 years. The general trend seems to be that over time, the fluctuations in the rate of inflation has become smaller, maintaining at 2-4% in recent years. However, there is this large fluctuation in the period from 2008 to 2010. I am quite sure this has got  to do with the Great Recession of 2008. However, I am not quite sure what is the connection between a global financial crisis and large volatility in prices of goods and services. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/bn1Y7.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/bn1Y7.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="18212" LastActivityDate="2018-11-24T18:03:12.840" Title="Explaining fluctuations in inflation rate" Tags="&lt;inflation&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25727" PostTypeId="2" ParentId="25724" CreationDate="2018-11-24T18:03:12.840" Score="2" Body="&lt;p&gt;Given the expectations-augmented Phillips curve, national output which is less than the natural level of output (&lt;em&gt;the level of GDP which is associated with full employment&lt;/em&gt;) causes deflationary pressure at an accelerating rate (&lt;em&gt;assuming people's expectations of inflation is last period's inflation rate&lt;/em&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The financial crisis of 2008 was caused by a credit-driven asset price bubble. This was caused by financial institutions who invested in assets that were at the time priced at a value greater than their fundamental value. By holding these assets that were rising in price, they were used as collateral and/or used as capital buffers in order to make leveraged investments on these same overvalued assets. Causing a feedback loop, as these leveraged investments created a further increase in demand for these assets (&lt;em&gt;raising their price, once more&lt;/em&gt;) which caused financial institutions to make further lending on these assets, which drives the asset price higher, and so on. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;When the asset-price bubble &quot;burst&quot; and financial institutions subsequently made substantial losses (&lt;em&gt;as they did not have enough capital to subsidise these losses&lt;/em&gt;) they had to cut down on their asset holdings to at least mitigate these losses, which caused a significant contraction in lending to the economy, as these financial institutions were more focused on collecting a large reserve base. A decrease in lending causes a decrease in investment in the economy, and subsequently decreases consumption, hence why aggregate demand decreased and the global economy was facing a period of mass deflation. &lt;/p&gt;&#xA;" OwnerUserId="20277" LastActivityDate="2018-11-24T18:03:12.840" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="25728" PostTypeId="1" AcceptedAnswerId="25734" CreationDate="2018-11-24T18:25:13.917" Score="1" ViewCount="453" Body="&lt;p&gt;In my textbook, it says Y must rise to restore money market equilibrium as the justification.&lt;/p&gt;&#xA;" OwnerUserId="20273" LastActivityDate="2018-11-25T22:08:42.493" Title="Why does a reduction in money demand lead to a rightward shift in the LM curve?" Tags="&lt;macroeconomics&gt;&lt;monetary-policy&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25729" PostTypeId="1" AcceptedAnswerId="25730" CreationDate="2018-11-24T19:22:22.643" Score="1" ViewCount="66" Body="&lt;p&gt;Here is a contextual example from &lt;a href=&quot;http://www.chicagocdr.org/papers/listpaper.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Landry et. al. 2006 &lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;We concentrate on an economy with n symmetric agents who&#xA;  derive utility from consuming a numeraire good, yi, a public good&#xA;  at level G, and (possibly) from their own contribution bi to the&#xA;  public good. Each agent faces a budget constraint yi  bi  w and&#xA;  derives ex post utility according to  &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;(1) &lt;span class=&quot;math-container&quot;&gt;$   Ui = u(yi) + \Theta h(G)  + \gamma f(bi)$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="10826" LastEditorUserId="264" LastEditDate="2018-11-24T22:19:09.267" LastActivityDate="2018-11-24T22:19:09.267" Title="What are 'Symmetric Agents' vs. 'Asymmetric Agents'?" Tags="&lt;definition&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25730" PostTypeId="2" ParentId="25729" CreationDate="2018-11-24T21:35:16.520" Score="3" Body="&lt;p&gt;“Symmetric agents” generally means that all the agents have the same payoff function and the same information set. In this case, it’s the function you’ve specified. It’s often the case that, because symmetric agents will all respond the same way, they can be replaced with a single representative agent, in contrast to heterogenous agent models. &lt;/p&gt;&#xA;" OwnerUserId="264" LastEditorUserId="264" LastEditDate="2018-11-24T22:14:00.090" LastActivityDate="2018-11-24T22:14:00.090" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25733" PostTypeId="1" CreationDate="2018-11-25T03:22:38.730" Score="1" ViewCount="42" Body="&lt;blockquote&gt;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/kZje6.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/kZje6.png&quot; alt=&quot;enter image description here&quot; /&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;I am reading George J. Mailath and Andrew Postlewaite (2001), and this is the lemma 1 in this paper. I don't understand the induction process in this proof. I think that we should use the fact that &lt;span class=&quot;math-container&quot;&gt;$x_{i+1} + p_{k+1}&amp;lt; v(b_{i+1}, s_{i+k})$&lt;/span&gt; to show &lt;span class=&quot;math-container&quot;&gt;$x_{i+k-1}+p_{i+k} &amp;lt; v(b_{i+k-1}, s_{i+k})$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;p&gt;At first, I did induction with respect to &lt;span class=&quot;math-container&quot;&gt;$k$&lt;/span&gt;. Since &lt;span class=&quot;math-container&quot;&gt;$k&amp;gt;1$&lt;/span&gt;, the first step of induction is &lt;span class=&quot;math-container&quot;&gt;$k=2$&lt;/span&gt;.  Then, we should show that &lt;span class=&quot;math-container&quot;&gt;$x_{i+1} + p_{i+2} &amp;lt; v(b_{i+1}, s_{i+2})$&lt;/span&gt;. But, I have no idea of how to show this.&lt;/p&gt;&#xA;&lt;p&gt;Is my approach of induction correct? I appreciate if you give any help.  Please tell me if more context is needed.&lt;/p&gt;&#xA;" OwnerUserId="17957" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2018-11-25T03:22:38.730" Title="proof verification in George J. Mailath and Andrew Postlewaite (2001b)" Tags="&lt;microeconomics&gt;&lt;game-theory&gt;&lt;theory&gt;&lt;matching&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="25734" PostTypeId="2" ParentId="25728" CreationDate="2018-11-25T05:46:53.143" Score="1" Body="&lt;p&gt;If the demand for money falls as the supply remains constant, there is excess supply of money. It is equivalent to an increase in the supply while the demand stays constant.&lt;/p&gt;&#xA;" OwnerUserId="20281" LastActivityDate="2018-11-25T05:46:53.143" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25736" PostTypeId="2" ParentId="25728" CreationDate="2018-11-25T12:10:54.887" Score="0" Body="&lt;p&gt;When dealing with the LM curve we are dealing with the money market, where only two assets exist; money and bonds. A decrease in money demand causes a rightward shift of the LM curve for the following reason:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a given Y (&lt;em&gt;output/national income etc.&lt;/em&gt;) there is now a decrease in the equilibrium interest rate in regards to the previous LM curve. As money demand has fallen, people do not want to hold as much money as they would like. So they will transfer their money to the only asset available, bonds. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Important: There is an inverse relationship between the price of a bond and it's interest rate.&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, an increase in the purchasing of bonds increases their demand and subsequently their price, which implies a decrease on the interest rate of these bonds. Which is in line with the rightward shift of the LM curve; a decrease in money demand increases the demand for bonds which decreases the interest rate on these bonds.&lt;/p&gt;&#xA;" OwnerUserId="20277" LastActivityDate="2018-11-25T12:10:54.887" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25737" PostTypeId="2" ParentId="25594" CreationDate="2018-11-25T12:49:39.117" Score="0" Body="&lt;p&gt;Horrod domar said that &quot;If the savings are increased then it leads to investment&quot;. By this we can say formally that consumer is also investing as he is actively saving money but in the sense of real economics(global level) we say that only producer/manufacturer is investing. Consumers invest in a wide variety of things but not in large amounts and more over their investment is not controlled by themselves directly. &lt;/p&gt;&#xA;" OwnerUserId="19953" LastActivityDate="2018-11-25T12:49:39.117" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25738" PostTypeId="2" ParentId="25728" CreationDate="2018-11-25T16:01:46.537" Score="0" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/VRdYe.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/VRdYe.png&quot; alt=&quot;IS-LM negative demand shock&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I always end up resorting to graphs to understand these problems, and the attached one might be helpful.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the demand for money has fallen, it also means that there is less economic activity and economic income (&lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt;) is falling. As the others have pointed out, this is tantamount to there being a surplus of liquid cash in the economy relative to what people want or need. You can see this decrease in demand for money in the graph, as we move from equilibrium point &lt;span class=&quot;math-container&quot;&gt;$E$&lt;/span&gt;, downwards along the &lt;span class=&quot;math-container&quot;&gt;$LM_0$&lt;/span&gt; curve to the economy's position after the demand shock.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Next, we know that the interest rate will always move to balance the supply and demand of money (&lt;a href=&quot;https://en.wikipedia.org/wiki/Liquidity_preference&quot; rel=&quot;nofollow noreferrer&quot;&gt;the theory of liquidity preference&lt;/a&gt;), so after the demand for money falls, the &lt;span class=&quot;math-container&quot;&gt;$IS_0$&lt;/span&gt; curve will also shift downwards to &lt;span class=&quot;math-container&quot;&gt;$IS_1$&lt;/span&gt; so that the interest rate will now meet our newly decreased &lt;span class=&quot;math-container&quot;&gt;$LM_0$&lt;/span&gt; demand level at the point where those two lines intersect.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words, if you think of the interest rate as the amount of money it takes a bank to convince someone to give up the use of their cash assets (liquid and ready to be used now) by converting them into savings (which they can't use right away), we are now in a situation where people don't want or need to use cash for immediate economic activity (falling demand), so they're happy to convert all their surplus cash into savings bonds to get that high interest (&lt;span class=&quot;math-container&quot;&gt;$i_0$&lt;/span&gt; level) payback later. Since there's too much cash in the economy relative to demand, it's far too easy to convince people to switch to bonds, so we don't need to use such a high interest rate as incentive, and hence the interest rate will drop (&lt;span class=&quot;math-container&quot;&gt;$i_1$&lt;/span&gt;, and we will reach a new IS-LM equilibrium as our &lt;span class=&quot;math-container&quot;&gt;$IS_0$&lt;/span&gt; curve shifts down to &lt;span class=&quot;math-container&quot;&gt;$IS_1$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The backdrop to all of this is that economic activity has slowed down.  You can see this by looking at our new IS-LM equilibrium position after the demand shock, where the corresponding &lt;span class=&quot;math-container&quot;&gt;$Y_1$&lt;/span&gt; position is less than what we had before at &lt;span class=&quot;math-container&quot;&gt;$Y_0$&lt;/span&gt;.  We want the economy to get back to its activity levels before, however, so how do we do this given given the current interest rate (&lt;span class=&quot;math-container&quot;&gt;$i_1$&lt;/span&gt;) and money supply/demand levels?  We can either use fiscal or monetary policy, but the question is about the &lt;span class=&quot;math-container&quot;&gt;$LM$&lt;/span&gt; curve, we can just focus on monetary policy.   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this case, using monetary policy to stimulate the economy, the central bank could increase the money supply by buying back bonds.  As it does so, the supply of money in the economy goes up further, shifting our &lt;span class=&quot;math-container&quot;&gt;$LM$&lt;/span&gt; curve to the right.  As the &lt;span class=&quot;math-container&quot;&gt;$LM_0$&lt;/span&gt; curve moves to its new position at &lt;span class=&quot;math-container&quot;&gt;$LM_1$&lt;/span&gt;, our equilibrium interest rate drops further still (&lt;span class=&quot;math-container&quot;&gt;$i_2$&lt;/span&gt;) on the &lt;span class=&quot;math-container&quot;&gt;$IS_1$&lt;/span&gt; curve to its new equilibrium point &lt;span class=&quot;math-container&quot;&gt;$F$&lt;/span&gt;, which should theoretically push economic income level back to its original point at &lt;span class=&quot;math-container&quot;&gt;$Y_0$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There's &lt;a href=&quot;https://www.coursera.org/lecture/macroeconomic-factors/1-3-2-aggregate-demand-shocks-and-policy-responses-in-the-short-run-AWCSj&quot; rel=&quot;nofollow noreferrer&quot;&gt;a good video explaining all of this&lt;/a&gt;, which is taken from a two-part &lt;a href=&quot;https://www.coursera.org/specializations/managerial-economics-business-analysis#courses&quot; rel=&quot;nofollow noreferrer&quot;&gt;Coursera course on macroeconomics&lt;/a&gt; if you're interested (part 3 and 4 of the specialization).  &lt;/p&gt;&#xA;" OwnerUserId="19671" LastEditorUserId="19671" LastEditDate="2018-11-25T22:08:42.493" LastActivityDate="2018-11-25T22:08:42.493" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25739" PostTypeId="2" ParentId="25594" CreationDate="2018-11-25T16:22:51.420" Score="0" Body="&lt;p&gt;Within the framework of national accounts, you are correct in saying that only producers invest. This is true by definition. However, households are sometimes treated in national accounts as containing both consumers and producers (unincorporated enterprises), when it's not possible to separate the two.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As I explain in detail in &lt;a href=&quot;https://economics.stackexchange.com/a/25664/264&quot;&gt;an answer to a related question&lt;/a&gt;, when a person engages in productive activity (or when they acquire capital goods for use in production, i.e., invest) we try to the extent possible to separate that activity out, and say that that person is doing that in their capacity as part of a productive enterprise. When they consume, we count that as occurring in their capacity as a consumer. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It can be confusing, because there are two overlapping systems that appear in national accounts. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first is the division between enterprises (producers) and households (consumers), in which households are treated as consumers and never as producers, as detailed in the other answer. This is considered to be the ideal, and the national accounts try to separate out households as consumers from households as producers to the extent possible, but it often can't be done for practical reasons. As a result, this division sits in the background, and accounts are generally presented in the second system, using accounting fictions when it's practical and important to reconcile between the two.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The second is the institutional view, which how accounts are generally presented. In this view, corporations (including quasi-corporations) are still never consumers. However, it's not always possible to split out the accounts of households between when they act &quot;in their capacity as consumers&quot; from when they act &quot;in their capacity as producers.&quot; As a result, in this framework, productive activity that occurs in a household can be treated as a part of the household, as noted in the &lt;a href=&quot;https://unstats.un.org/unsd/nationalaccount/docs/sna2008.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;2008 System of National Accounts&lt;/a&gt;. (p. 63):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Institutional units are allocated to sector according to the&#xA;  nature of the economic activity they undertake. The three&#xA;  basic economic activities recorded in the SNA are&#xA;  production of goods and services, consumption to satisfy&#xA;  human wants or needs and accumulation of various forms&#xA;  of capital. &lt;strong&gt;Corporations undertake either production or&#xA;  accumulation (or both) but do not undertake (final)&#xA;  consumption.&lt;/strong&gt; Government undertakes production (but&#xA;  mainly of a different type from corporations), accumulation&#xA;  and final consumption on behalf of the population. &lt;strong&gt;All&#xA;  households undertake consumption on their own behalf and&#xA;  may also engage in production and accumulation.&lt;/strong&gt; &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;On page 83, they explain further:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;As noted in the introduction, households are unlike&#xA;  corporations in that they undertake final consumption.&lt;/strong&gt;&#xA;  However, like corporations, they may also engage in&#xA;  production. &lt;strong&gt;Household unincorporated market enterprises&lt;/strong&gt;&#xA;  are created for the purpose of producing goods or services&#xA;  for sale or barter on the market.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The relationship between the two views (consumer/producer) and institutional is then described:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;An unincorporated enterprise can only be treated as a&#xA;  corporation if it is possible to separate all assets, including&#xA;  financial assets down to the level of cash, into those that&#xA;  belong to the &lt;strong&gt;household in its capacity as a consumer&lt;/strong&gt; from&#xA;  those belonging to the &lt;strong&gt;household in its capacity as a&#xA;  producer&lt;/strong&gt;. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The desire to split out this activity to the extent possible is explained explicitly on p. 461:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;All households undertake final consumption and all to a&#xA;  greater or lesser extent undertake accumulation but a&#xA;  household does not necessarily undertake production. &lt;strong&gt;To&#xA;  the extent possible, the production activities within&#xA;  households are treated as quasi-corporations, included in&#xA;  one of the corporations sectors and separated from the rest&#xA;  of the household.&lt;/strong&gt; However, as explained in paragraphs&#xA;  4.155 to 4.157 a quasi-corporation can only be created&#xA;  when a full set of accounts, including balance sheet entries&#xA;  and information about withdrawals of income from the&#xA;  quasi-corporation, is available.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;So, just so long as you're talking about consumers, it's true to say that they never produce, and thus never invest.&lt;/strong&gt; If you're talking about households, in the consumer/producer framework it's not a household that is investing, it's an unincorporated enterprise that is contained within the household. In the institutional framework, productive activity is separated out when possible and just counted as part of the household when it's not possible. In this framework, households therefore always consume and sometimes invest, but they never invest &lt;em&gt;in their capacity as consumers&lt;/em&gt;.&lt;/p&gt;&#xA;" OwnerUserId="264" LastEditorUserId="264" LastEditDate="2018-11-25T17:04:35.383" LastActivityDate="2018-11-25T17:04:35.383" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25740" PostTypeId="1" CreationDate="2018-11-25T19:04:10.877" Score="1" ViewCount="37" Body="&lt;p&gt;I have a doubt: I'm studying about real exchange rates and I'm having some problem with the formula.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;RER= NER* price ratio&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I don't understand is how do you take this price ratio? Which price appears in the numerator and which one in the denominator?&lt;/p&gt;&#xA;" OwnerUserId="19292" LastActivityDate="2018-12-25T21:00:26.913" Title="Real exchange rate" Tags="&lt;macroeconomics&gt;&lt;exchange-rates&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25741" PostTypeId="2" ParentId="25740" CreationDate="2018-11-25T20:27:39.543" Score="1" Body="&lt;p&gt;Depends of which currency is in the nominator of the NER.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;E.g. if you are calculating the real exchange rate between the US and the Eurozone&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\text{RER} = 0.88 \frac{\text{EUR}}{\text{USD}} \frac{p_{\text{US}}}{p_{\text{EZ}}}.&#xA;$$&lt;/span&gt;&#xA;Since &lt;span class=&quot;math-container&quot;&gt;$p_{\text{US}}$&lt;/span&gt; is measured in USD, and &lt;span class=&quot;math-container&quot;&gt;$p_{\text{EZ}}$&lt;/span&gt; is measured in EUR, this is the only way RER will make sense. If you calculated&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;0.88 \frac{\text{EUR}}{\text{USD}} \frac{p_{\text{EZ}}}{p_{\text{US}}}&#xA;$$&lt;/span&gt;&#xA;you would get something that is measured in EUR&lt;span class=&quot;math-container&quot;&gt;$^2/$&lt;/span&gt;USD&lt;span class=&quot;math-container&quot;&gt;$^2$&lt;/span&gt;, which would be very strange indeed.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2018-11-25T20:27:39.543" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="25743" PostTypeId="1" CreationDate="2018-11-26T04:51:24.170" Score="1" ViewCount="26" Body="&lt;p&gt;In paper such as &lt;a href=&quot;https://www.davidhbailey.com/dhbpapers/stop-out.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;this&lt;/a&gt;, I see the normal distribution being used to model the process of a financial investment. This seems strange because aggregating i.i.d. normal variables yields a mean that increases linearly.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would have expected the an investment account value to be better modeled by something like,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$ \nu_t = \exp \sum_\tau X_\tau $&lt;/span&gt; for &lt;span class=&quot;math-container&quot;&gt;$ X_\tau \sim \mathcal{N}(\mu, \sigma) $&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;while linear is a reasonable model short term, exponential would seem to be superior long term because of the scaling concerns.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is the exponentiated Weiner process the &quot;correct&quot; process to use here?&lt;/p&gt;&#xA;" OwnerUserId="14816" LastActivityDate="2018-11-26T04:51:24.170" Title="Use of Normal distribution in financial simulations" Tags="&lt;finance&gt;&lt;simulations&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25744" PostTypeId="1" AcceptedAnswerId="25746" CreationDate="2018-11-26T06:30:50.960" Score="2" ViewCount="270" Body="&lt;p&gt;I am trying to prove the expected utility theorem with three outcomes. The expected utility with &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt; outcomes is rather cumbersome and long in the economics textbook Mas-Colell. But I was hoping that the proof with three outcomes is shorter, however, I am having some difficulty proving it. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose I have three lotteries &lt;span class=&quot;math-container&quot;&gt;$x \succeq   y \succeq   z$&lt;/span&gt;. We can think of &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; as the &quot;best&quot; lottery and &lt;span class=&quot;math-container&quot;&gt;$z$&lt;/span&gt; as the &quot;worst&quot;. The can set  &lt;span class=&quot;math-container&quot;&gt;$u(x)=1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$u(z)=0$&lt;/span&gt; and then &lt;span class=&quot;math-container&quot;&gt;$u(y)=p$&lt;/span&gt; where &lt;span class=&quot;math-container&quot;&gt;$p$&lt;/span&gt; is the probability at which a gamble with a &lt;span class=&quot;math-container&quot;&gt;$p$&lt;/span&gt; chance of &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; and a &lt;span class=&quot;math-container&quot;&gt;$1-p$&lt;/span&gt; chance of &lt;span class=&quot;math-container&quot;&gt;$z$&lt;/span&gt; is indifferent to &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How do I proceed from here to prove the Expected utility theorem? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt; outcomes, the EU states that given &lt;span class=&quot;math-container&quot;&gt;$\succeq $&lt;/span&gt; satisfies independence and continuity axioms, there is a utility function &lt;span class=&quot;math-container&quot;&gt;$ u:Z\rightarrow \mathbb{R}$&lt;/span&gt; such that if &lt;span class=&quot;math-container&quot;&gt;$$p\succeq q\Leftrightarrow \sum_{i=1}^{n}p_{i}u(z_{i})\geq \sum_{i=1}^{n}q_{i}u(z_{i}).$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Edit:&lt;/strong&gt; Letting &lt;span class=&quot;math-container&quot;&gt;$u(x)= 1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$u(z) = 0$&lt;/span&gt; linearly scales the utility function. &#xA;So we want to show &lt;span class=&quot;math-container&quot;&gt;$$u(y) = u\left ( px + (1-p)z \right ) = pu(x) + (1-p)u(z) = p \text{ by the independence axiom}.$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since we have assumed &lt;span class=&quot;math-container&quot;&gt;$x \succeq  y \succeq  z$&lt;/span&gt; then it follows that &lt;span class=&quot;math-container&quot;&gt;$u(x) \geq u(y) \geq u(z)$&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$p \in [0,1]$&lt;/span&gt;. Does this make sense? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am not sure about the part: &lt;span class=&quot;math-container&quot;&gt;$u\left ( px + (1-p)z \right ) = pu(x) + (1-p)u(z)$&lt;/span&gt;. Is this a legitimate way of writing the proof for the case of three outcomes?&lt;/p&gt;&#xA;" OwnerUserId="6592" LastEditorUserId="6592" LastEditDate="2018-11-26T20:43:43.173" LastActivityDate="2018-11-27T10:39:27.753" Title="Proof of Expected utility theorem with three outcomes" Tags="&lt;microeconomics&gt;&lt;expected-utility&gt;&lt;proof&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25745" PostTypeId="1" CreationDate="2018-11-26T12:23:58.680" Score="1" ViewCount="230" Body="&lt;p&gt;Suppose you are given 2 models.&lt;/p&gt;&#xA;&lt;p&gt;Model of 1 has &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; as the dependent variable and &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; as the independent:&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$y = \beta_0  + \beta_1 x + \epsilon$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;Model 2 has &lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt; as the dependent variable and &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; as the independent variable&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$w = \lambda_0 + \lambda_1 x + u,$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;such that both models have their own disturbance term.&lt;/p&gt;&#xA;&lt;p&gt;Then you are given a fitted model in which &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; is dependent on &lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$y = \phi_0 + b w + e$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;Now the question is to find plim of &lt;span class=&quot;math-container&quot;&gt;$\hat{b}$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;p&gt;I tried making &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; the subject from model 1, plugged the &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; in model 2 and then plugged &lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt; (model 2) in fitted. Now when I took &lt;span class=&quot;math-container&quot;&gt;$Cov(xy)$&lt;/span&gt; after all this substitution my fitted model &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; doesn't have and &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;. I can't further solve for &lt;span class=&quot;math-container&quot;&gt;$plim$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerUserId="19919" LastEditorUserId="10287" LastEditDate="2020-12-20T12:10:22.697" LastActivityDate="2020-12-20T12:10:22.697" Title="Plim of ols estimator" Tags="&lt;econometrics&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="25746" PostTypeId="2" ParentId="25744" CreationDate="2018-11-26T12:56:30.953" Score="3" Body="&lt;p&gt;In order to do that, you need to define &lt;span class=&quot;math-container&quot;&gt;$u(·)$&lt;/span&gt; as a utility function on &quot;sure things&quot; rather than on lotteries. In your example, you need to think in terms of the set of possible prizes to the lotteries. Say the set of possible prizes is given by &lt;span class=&quot;math-container&quot;&gt;$R$&lt;/span&gt; and asume that is finite. For any &lt;span class=&quot;math-container&quot;&gt;$r\in R$&lt;/span&gt;, define &lt;span class=&quot;math-container&quot;&gt;$w_r$&lt;/span&gt; as a lottery that pays &lt;span class=&quot;math-container&quot;&gt;$r$&lt;/span&gt; in every state of nature. Then, it should be clear that &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$x \sim \sum_i p_i w_i,$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(and similarly for &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$z$&lt;/span&gt;) where &lt;span class=&quot;math-container&quot;&gt;$p_i$&lt;/span&gt; denotes the probability of state &lt;span class=&quot;math-container&quot;&gt;$i.$&lt;/span&gt; Given that, as you mention, it must be the case that two equally desirable lotteries receive the same expected utility, the utility assigned to &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; needs to be&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$H(x)=H\left(\sum_i p_i w_i\right).$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first chapter of Huang, C. and Litzenberger, R.H. &lt;em&gt;Foundations for Financial Economics,&lt;/em&gt; North Holland, 1988 explains in detail why the function representing the preferences &lt;span class=&quot;math-container&quot;&gt;$(H(·))$&lt;/span&gt; has to be linear, and, with linearity stablished, you get the expected utility representation because&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$H\left(\sum_i p_i w_i\right)=\sum_i p_i H(w_i).$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The only thing left is to define &lt;span class=&quot;math-container&quot;&gt;$u(r) \equiv H(w_r),$&lt;/span&gt; i.e, &lt;span class=&quot;math-container&quot;&gt;$u(r)$&lt;/span&gt; is defined on outcomes, while &lt;span class=&quot;math-container&quot;&gt;$H(w_r)$&lt;/span&gt; is defined on lotteries. This is why we say that &lt;span class=&quot;math-container&quot;&gt;$u(r)$&lt;/span&gt; is a utility function on sure things, because &lt;span class=&quot;math-container&quot;&gt;$r$&lt;/span&gt; receives the same utility level that a lottery paying precisely &lt;span class=&quot;math-container&quot;&gt;$r$&lt;/span&gt; in every state of nature.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course, expected utility is most useful in settings with large outcomes spaces and/or large lotteries spaces. In a restricted setting such as yours, you're probably best served by assigning values (&quot;utilities&quot;) to lotteries themselves (as you did in your question). Again, a more rigorous proof can be found in Huang and Litzenberger, op.cit.&lt;/p&gt;&#xA;" OwnerUserId="20281" LastEditorUserId="20281" LastEditDate="2018-11-27T10:39:27.753" LastActivityDate="2018-11-27T10:39:27.753" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="25747" PostTypeId="2" ParentId="25716" CreationDate="2018-11-26T13:02:31.767" Score="3" Body="&lt;p&gt;A good place to start would be the book &lt;em&gt;Prospect Theory: For Risk and Ambiguity&lt;/em&gt;, by Peter Wakker (2010, Cambridge University Press).  There is an entire area of economic theory called &lt;em&gt;decision theory&lt;/em&gt; which studies models of decision making under uncertainty --typically, models which deviate from the classical expected utility maximization model in some way.  Decision theory involves both theoretical results and experimental tests.  Prospect theory is only one among many models that decision theorists consider.&lt;/p&gt;&#xA;" OwnerUserId="8759" LastActivityDate="2018-11-26T13:02:31.767" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25748" PostTypeId="1" AcceptedAnswerId="25783" CreationDate="2018-11-26T14:45:49.330" Score="0" ViewCount="49" Body="&lt;p&gt;I have a problem where there are two agents in a joint project, &#xA;Each agent &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; puts in effort &lt;span class=&quot;math-container&quot;&gt;$x_i$&lt;/span&gt; &lt;span class=&quot;math-container&quot;&gt;$(0 \leq x_i \leq 1)$&lt;/span&gt; which cost each &lt;span class=&quot;math-container&quot;&gt;$c(x_i)= x_i^2$&lt;/span&gt;. The outcome of the project is &#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;f(x_1, x_2)= 3 x_1 x_2&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which is split equally between both, regardless of their effort levels. &#xA;I am asked to formulate de situation as a normal form game and find the NE.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I have done is that I have assumed some values for the efforts to evaluate the game and I have also maximized each player's payoff individually to get best responses and make them intersect to get to the NE. &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;In this illustration, NE are &lt;span class=&quot;math-container&quot;&gt;$(0,0)$&lt;/span&gt;; &lt;span class=&quot;math-container&quot;&gt;$(0.25, 0.25)$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$(0.5, 0.5)$&lt;/span&gt;&#xA;&lt;a href=&quot;https://i.stack.imgur.com/1Nu82.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/1Nu82.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\max f(x_1, x_2)-c_1$&lt;/span&gt; with respect to &lt;span class=&quot;math-container&quot;&gt;$x_1$&lt;/span&gt; ; yields : &lt;span class=&quot;math-container&quot;&gt;$x_1 = (3/4)x_2$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\max f(x_1, x_2)-c_2$&lt;/span&gt; with respect to &lt;span class=&quot;math-container&quot;&gt;$x_2$&lt;/span&gt; ; yields : &lt;span class=&quot;math-container&quot;&gt;$x2 = (3/4)x_1$&lt;/span&gt;&#xA;Both maximization problems intersect when &lt;span class=&quot;math-container&quot;&gt;$x_1 = 0 = x_2$&lt;/span&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Anyhow, I don't think this is the right way to go...&lt;/p&gt;&#xA;" OwnerUserId="20119" LastEditorUserId="14419" LastEditDate="2018-11-27T08:41:08.523" LastActivityDate="2018-11-28T13:31:27.070" Title="Nash equilibrium two players in a joint effortful project" Tags="&lt;microeconomics&gt;&lt;nash-equilibrium&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25749" PostTypeId="1" CreationDate="2018-11-26T15:15:32.400" Score="1" ViewCount="88" Body="&lt;p&gt;Real exchange rate formula is the exchange rate multiplied by the ratio of two prices.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;what does this ratio actually imply? What is the rationale behind taking the ratio?&lt;/p&gt;&#xA;" OwnerUserId="19292" LastActivityDate="2020-08-17T23:50:08.127" Title="real exchange rate formula doubt" Tags="&lt;macroeconomics&gt;&lt;inflation&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25751" PostTypeId="1" CreationDate="2018-11-26T19:02:40.853" Score="1" ViewCount="38" Body="&lt;blockquote&gt;&#xA;&lt;p&gt;Should a country be more inclined or less inclined to join a currency union (common currency) under the following events:&lt;/p&gt;&#xA;&lt;p&gt;a) Increase in the size and frequency of AD shocks to the economy.&lt;/p&gt;&#xA;&lt;p&gt;b) Increase in the size and frequency of money demand shocks to the economy.&lt;/p&gt;&#xA;&lt;p&gt;c) Increase in the cultural similarities between the country and the country or region it is joining.&lt;/p&gt;&#xA;&lt;p&gt;d) Decrease in capital mobility restrictions combined with an increase in immigration restrictions.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;In case a, I feel as though it depends on whether or not the AD shocks are similar between the joining regions; if they are, then they would be more inclined, but if they're not, then otherwise.&lt;/p&gt;&#xA;&lt;p&gt;In case b, I think the country would be less inclined since they would have less control over monetary policy.&lt;/p&gt;&#xA;&lt;p&gt;In case c, I would say more inclined because it would encourage labor movement.&lt;/p&gt;&#xA;&lt;p&gt;Finally, in case d, I would say less inclined because, although capital would flow freely, a decrease in labor flows would be worse.&lt;/p&gt;&#xA;&lt;p&gt;What are your thoughts on these four cases?&lt;/p&gt;&#xA;" OwnerUserId="19803" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2019-04-27T04:54:00.967" Title="Theory of Optimal Currency Areas" Tags="&lt;international-trade&gt;&lt;currency&gt;&lt;exchange-rates&gt;&lt;international-economics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25752" PostTypeId="2" ParentId="25749" CreationDate="2018-11-26T20:55:37.017" Score="0" Body="&lt;p&gt;As a consumer the nominal exchange rate is arbitrary, £1 can get me $1.28, so what?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What matters is how much the consumer can buy given this exchange rate. By incorporating the price level of the domestic and foreign economies the consumer can know how much they will be able to buy with this exchange of currency. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Domestic economy ~ U.K.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Foreign economy ~ U.S.A.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Nominal Exchange Rate ~ $1.28/£&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume that the price level of the U.S.A. is greater than the U.K.'s price level so that the foreign economy has a greater weighted average of prices relative to the domestic economy. For this given nominal exchange rate, my purchasing power would decline if I exchanged all my pounds to dollars, as U.S.A. goods are more expensive. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As the foreign price level is greater, the pound is overvalued &lt;em&gt;in this case&lt;/em&gt;. There is not enough demand for U.K. goods to cause any inflationary pressure. By devaluing the pound, there will be a greater demand for U.K. goods as holders of the U.S. dollar can get more pounds per dollar. The result is an increase in the real exchange rate as the price ratio increases.  &lt;/p&gt;&#xA;" OwnerUserId="20277" LastActivityDate="2018-11-26T20:55:37.017" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="25756" PostTypeId="1" AcceptedAnswerId="25757" CreationDate="2018-11-27T06:07:56.280" Score="1" ViewCount="355" Body="&lt;p&gt;Will all the solutions be in the corner or will the cusp in the middle give us any interior solution? This is by the intersection of the budget line.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am getting this type of a shape:&#xA;&lt;a href=&quot;https://i.stack.imgur.com/GTPY5.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/GTPY5.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But I am not sure if there will be interior solution. If there is we can't use differentiation because of the cusp. I think that there will only be corner solutions but it depends on the shape of the indifference curve. &lt;/p&gt;&#xA;" OwnerUserId="6592" LastEditorUserId="6592" LastEditDate="2018-11-27T07:58:38.473" LastActivityDate="2018-11-27T18:19:54.143" Title="Any interior solution for $u(x,y) = min\left \{ x,y \right \}^{2} + max\left \{ x,y \right \}$?" Tags="&lt;utility&gt;&lt;optimization&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25757" PostTypeId="2" ParentId="25756" CreationDate="2018-11-27T09:41:09.587" Score="1" Body="&lt;p&gt;Because the two segments of the IC bend away from the origin, the only possible solutions are at the corners or at &lt;span class=&quot;math-container&quot;&gt;$x=y$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Write &lt;span class=&quot;math-container&quot;&gt;$p_x$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$p_y$&lt;/span&gt; for the prices, and &lt;span class=&quot;math-container&quot;&gt;$M$&lt;/span&gt; for the budget.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose we try to set up a corner solution in which only one of the two goods is consumed. Since utility is symmetric, it makes sense to spend all of your money on whichever good is cheaper. Suppose this is good &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;. We then have &lt;span class=&quot;math-container&quot;&gt;$x=\frac{M}{p_x}&amp;gt;0=y$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$u=x$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The best &lt;span class=&quot;math-container&quot;&gt;$x=y$&lt;/span&gt; bundle that can be afforded is such that &lt;span class=&quot;math-container&quot;&gt;$x p_x+x p_y=M\iff x=y=\frac{M}{p_x+p_y}$&lt;/span&gt;. Utility is then&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\frac{M^2}{(p_x+p_y)^2}+\frac{M}{p_x+p_y}.$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You should easily be able to compute a condition on &lt;span class=&quot;math-container&quot;&gt;$M$&lt;/span&gt; such that the bundle with &lt;span class=&quot;math-container&quot;&gt;$x=y$&lt;/span&gt; is optimal: &lt;span class=&quot;math-container&quot;&gt;$$M&amp;gt;\frac{p_y(p_x+p_y)}{p_x}.$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can see this dependence on M if we look at a contour plot of the indifference curves:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/ytC8E.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/ytC8E.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2018-11-27T09:41:09.587" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="25760" PostTypeId="1" AcceptedAnswerId="25773" CreationDate="2018-11-27T15:58:05.427" Score="0" ViewCount="202" Body="&lt;p&gt;I'm following a paper (Full text available &lt;a href=&quot;https://lib.dr.iastate.edu/cgi/viewcontent.cgi?referer=https://www.google.es/&amp;amp;httpsredir=1&amp;amp;article=4405&amp;amp;context=rtd&quot; rel=&quot;nofollow noreferrer&quot; title=&quot;link to the paper&quot;&gt;here&lt;/a&gt;!) where at some point &lt;strong&gt;(pag.17 and 20)&lt;/strong&gt; the author get the following derivative:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\frac{\partial V}{\partial L}=Y-X\frac{dY}{dX}=\alpha X^{-\frac{c}{b}}Y^{\frac{1}{b}}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where: &lt;span class=&quot;math-container&quot;&gt;$Y=\frac{V}{L}$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$X=\frac{K}{L}$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, starting from this he calculates the partial derivative with respect&#xA;to L and the cross second-order partial derivative (the partial derivative with respect to K), whose results are shown below:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\frac{\partial^2 V}{L^{2}}=-\frac{\alpha }{bL} X^{-\frac{c}{b}}Y^{\frac{1}{b}-1}\left ( X\frac{dY}{dX}-cY \right )$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\frac{\partial^2 V}{dKdL}=\frac{\alpha }{bL} X^{-\frac{c}{b}-1}Y^{\frac{1}{b}-1}\left ( X\frac{dY}{dX}-cY \right )$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I was stuck trying to derive these latter derivatives. Is there anyone who can help me with this? Thank you so much!&lt;/p&gt;&#xA;" OwnerUserId="19586" LastActivityDate="2018-11-27T22:55:13.070" Title="Second order partial derivative and cross second-order partial derivative" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;elasticity-of-substituion&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25761" PostTypeId="1" AcceptedAnswerId="25774" CreationDate="2018-11-27T16:01:57.947" Score="0" ViewCount="41" Body="&lt;p&gt;I am currently reviewing some stuff on capital flight and self-fulfilling crises. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this scenario, investors generally think that a low availability of reserves could imply that the central bank may not be able to hold a fixed exchange rate. Consequently, investors quickly convert their domestic assets into foreign assets. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given that this implies that the money supply decreases (as currency in circulation reduces), shouldn't this automatically increase interest rates? (Under IS-LM framework, a decrease in money supply increases interest rates). As a result, domestic assets should automatically become more valuable, thus fixing the problem naturally. Is there a problem in this line of reasoning?&lt;/p&gt;&#xA;" OwnerUserId="5233" LastEditorUserId="8481" LastEditDate="2020-04-08T15:59:57.760" LastActivityDate="2020-04-08T15:59:57.760" Title="Capital flight and interest rates" Tags="&lt;macroeconomics&gt;&lt;interest-rate&gt;&lt;international-economics&gt;&lt;central-banking&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25763" PostTypeId="2" ParentId="21695" CreationDate="2018-11-27T17:30:37.917" Score="3" Body="&lt;p&gt;I would suggest:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) Macroeconomics by Dornbusch and Fisher.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) Macroeconomics by Richard Froyen&lt;/p&gt;&#xA;&#xA;&lt;p&gt;3) The Economics of money and financial markets by Mishkin.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Between the first two books that is Dornbusch and Fischer and Richard Froyen, I am indifferent.  Both are equally good and the only difference is that Dornbusch and Fischer has a slightly more mathematical rigor whereas Froyen is a more story like engaging macroeconomics narrative with fair amount of mathematics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you need a truly engaging book,  then go for Mishkin. But I will suggest don't read Mishkin as the first book to understand macroeconomics.&lt;/p&gt;&#xA;" OwnerUserId="19546" LastActivityDate="2018-11-27T17:30:37.917" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25764" PostTypeId="2" ParentId="25756" CreationDate="2018-11-27T17:48:24.033" Score="1" Body="&lt;p&gt;The above answer needs to be supplemented with this answer. You can't just say &quot;the graph looks concave&quot;. You have to put in a little work, at least if you were my student.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let &lt;span class=&quot;math-container&quot;&gt;$x&amp;gt; y$&lt;/span&gt; without loss of generality (the objective function is symmetrical). Then we have &lt;span class=&quot;math-container&quot;&gt;$U(x,y) = y^2+x$&lt;/span&gt;. Since this is increasing in both variables, we can see right away that our constraint (&lt;span class=&quot;math-container&quot;&gt;$x+py \leq M$&lt;/span&gt;) will bind (you can provide an epsilon delta argument for this if you want). Thus we have &lt;span class=&quot;math-container&quot;&gt;$U(x(y),y) = y^2+M-py$&lt;/span&gt;. This is a polynomial, and we find that &lt;span class=&quot;math-container&quot;&gt;$y = 2/p$&lt;/span&gt; is the only critical point and by the second derivative test it is a local minimum.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now we have to consider the case &lt;span class=&quot;math-container&quot;&gt;$x=y$&lt;/span&gt;. This is what the answer above me can be inserted.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Have a good day. Oh and &lt;span class=&quot;math-container&quot;&gt;$x=y$&lt;/span&gt; is most definitely an interior point in this context. Although technically that solution is on the boundary of the choice set. The only reason it is a special case is that the function isn't differentiable there.&lt;/p&gt;&#xA;" OwnerUserId="20302" LastEditorUserId="20302" LastEditDate="2018-11-27T18:19:54.143" LastActivityDate="2018-11-27T18:19:54.143" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25766" PostTypeId="2" ParentId="25761" CreationDate="2018-11-27T19:44:17.073" Score="0" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;As a result, domestic assets should automatically become more&#xA;  valuable, thus fixing the problem naturally. Is there a problem in&#xA;  this line of reasoning?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The main point here is that domestic assets are not positively correlated with the domestic interest rate. Other than that, there are &quot;forces&quot; in opposite directions that make it impossible to &quot;mechanically&quot; predict the net outcome of variables from which crises are determined.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For instance, when investors convert their domestic assets to foreign assets, they are dumping domestic currency, thereby causing its depreciation and a lower &quot;cost&quot; (return) for borrowing (lending) money. From that standpoint, this is akin to a decrease of domestic interest rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand, the central bank would need to offer a higher interest rate in order to lure lenders into purchasing bonds. Also cheaper domestic assets might become attractive to foreign investors. It is just impossible to outline where the equilibrium rate will be, let alone to identify &lt;em&gt;a priori&lt;/em&gt; its sufficiency for fixing a crisis.&lt;/p&gt;&#xA;" OwnerUserId="18552" LastActivityDate="2018-11-27T19:44:17.073" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25767" PostTypeId="2" ParentId="8782" CreationDate="2018-11-27T19:47:34.350" Score="0" Body="&lt;p&gt;Heating oil always used to be cheaper than gasoline until gas demand dropped a few years ago and the demand for heating oil was still there.  The short answer is they charge more because they can. Just as in northern Maine the price differential for a gallon of gas is 40 cents per gallon. It cost 5 cents or less per gallon to transport but there is always at least a 20 cent or more premium. They charge more because they can. It's all about the money!&lt;/p&gt;&#xA;" OwnerUserId="20305" LastActivityDate="2018-11-27T19:47:34.350" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25770" PostTypeId="1" CreationDate="2018-11-27T20:50:24.023" Score="1" ViewCount="1370" Body="&lt;p&gt;I am reading a book on business cycle models, and it keep using the word &quot;steady state&quot;. It never defined what that actually means.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Obviously it is the idea that some key variables reach constant levels ... but WHAT key variables? It doesn't explain that.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, at one point it says &quot;zero inflation steady state&quot;. Uhm, sorry, but what? Zero inflation steady state? Of course inflation is zero in steady state ... otherwise price levels would not be constant, hence not in steady state. In fact, if inflation was ever non-zero, we can NOT be in steady state since then price levels must be changing by definition.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So what am I supposed to make of this? What is steady state??&lt;/p&gt;&#xA;" OwnerUserId="20307" LastActivityDate="2018-11-28T11:04:07.020" Title="What does steady state mean?" Tags="&lt;steady-state&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="25772" PostTypeId="1" CreationDate="2018-11-27T22:17:21.547" Score="0" ViewCount="36" Body="&lt;p&gt;I am reading article &lt;a href=&quot;http://public.gettysburg.edu/~tlin/research/robots-main.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://public.gettysburg.edu/~tlin/research/robots-main.pdf&lt;/a&gt; &quot;A New Keynesian Model with Robots: Implications for Business Cycles and Monetary Policy&quot; and I wonder how actual this article is, actually, in my opinion, this article will bring Nobel prize to its authors.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question: is there research on macroeconomic models about labour-replacing capital, i.e. about robotics and artificial intelligence as the new factor? Google search gives no relevant results and as far as I can find, the mentioned article is really pioneering in this field. Or maybe there is ongoing research on these themes but it uses different terms and keywords?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course, capital is usually included in all the major macroeconomic models, but the key issue is that today the certain forms of capital can almost fully replace (e.g. see &lt;a href=&quot;https://www.hlai-conf.org/&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.hlai-conf.org/&lt;/a&gt; or &lt;a href=&quot;http://people.idsia.ch/~juergen/&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://people.idsia.ch/~juergen/&lt;/a&gt;) labour and it brings with itself new issues, including the necessity to model new types of taxes and also the universal basic income. Maybe such labour-replacing capital has already been modeled in traditional (e.g. DSGE) models?&lt;/p&gt;&#xA;" OwnerUserId="5373" LastActivityDate="2018-11-28T08:59:59.617" Title="Macroeconomic models with labor-replacing capital?" Tags="&lt;macroeconomics&gt;&lt;labor-economics&gt;&lt;capital&gt;&lt;human-capital&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25773" PostTypeId="2" ParentId="25760" CreationDate="2018-11-27T22:55:13.070" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Is there anyone who can help me with this?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Here it is. Equations 1-3, and 5-6 are obtained in preparation for the 2nd derivatives of V with respect to L and K.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/XS7tf.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/XS7tf.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let me know if you have any questions.&lt;/p&gt;&#xA;" OwnerUserId="18552" LastActivityDate="2018-11-27T22:55:13.070" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="25774" PostTypeId="2" ParentId="25761" CreationDate="2018-11-27T23:26:20.237" Score="2" Body="&lt;p&gt;It is very difficult for interest rates to cover the losses caused by a sharp devaluation. For example, if you believe that a currency is going to drop to 75% of its current value within 3 months month due to a devaluation, you need an annual interest rate of about 216% (&lt;span class=&quot;math-container&quot;&gt;$3.16^{\frac{1}{4}} \approx 1.33 \approx \frac{1}{0.75}$&lt;/span&gt;) to cover that loss.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since interest rates of that magnitude would cause deep stress for domestic borrowers, we can reach a point where speculators believe that the central bank will not raise interest rates by enough to cover the losses (relative to a foreign currency) created by a devaluation.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2018-11-27T23:26:20.237" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25775" PostTypeId="1" AcceptedAnswerId="26178" CreationDate="2018-11-27T23:50:23.023" Score="4" ViewCount="152" Body="&lt;p&gt;I am a high school student in an intro Microeconomics class (note that we have &lt;em&gt;not&lt;/em&gt; covered utility functions) and I'm utterly confused about the classical concept of rationality. I certainly understand that that conception does not accurately describe a good chunk of real-world behavior (hence behavioral economics). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Nevertheless, my concern which I ask about here is more basic: Classical rationality as described in my textbook (Krugman/Wells' Economics) doesn't even seem &lt;em&gt;coherent&lt;/em&gt;. It's essentially just defined as &quot;people act to make themselves better off,&quot; but then the book (and online sources) go on to conclude that, under this definition, it is irrational to, say, honor sunk costs. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But why need this be so? (again, I'm not even talking about behavioral economics, I'm just trying to understand the justification within the traditional paradigm) After all,suppose person A knows they will derive satisfaction from honoring sunk costs. Then doesn't honoring sunk costs make them better off (it fulfills their desire for happiness), and therefore becomes rational for person A? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I feel like there may be some restrictions to the traditional definition of rationality that my book and teacher have glossed over. Because right now I am utterly at a loss for how my book can draw such specific conclusions about what is rational and irrational when the definition of rational behavior given seems malleable enough to make virtually any action rational for at least some people. &lt;/p&gt;&#xA;" OwnerUserId="20311" LastActivityDate="2018-12-29T19:33:09.803" Title="Understanding Classical Rationality at a Basic Level" Tags="&lt;microeconomics&gt;&lt;philosophy-of-economics&gt;&lt;rationality&gt;" AnswerCount="4" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25776" PostTypeId="2" ParentId="25751" CreationDate="2018-11-28T00:32:47.523" Score="0" Body="&lt;p&gt;I think you are right about case a. However, given that there is no information about the similarity of the shocks across countries, we might answer &quot;less inclined&quot; as monetary policy becomes more important with larger and more frequent AD shocks.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For similar reasons, I would answer less inclined for case b, as you mentioned.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Case c is definitely more inclined, as labor movement can be increased. Here again you are correct. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Case d is very ambiguous. I do not think you can answer less or more inclined. One factor makes the country more inclined, while the other makes it less so. There is no reason to say capital movements are more or less important than labor movement. &lt;/p&gt;&#xA;" OwnerUserId="5557" LastActivityDate="2018-11-28T00:32:47.523" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25778" PostTypeId="2" ParentId="25775" CreationDate="2018-11-28T05:24:15.097" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;After all,suppose person A knows they will derive satisfaction from honoring sunk costs. Then doesn't honoring sunk costs make them better off (it fulfills their desire for happiness), and therefore becomes rational for person A?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Utility experienced from honouring sunk costs is treated separately from honouring sunk costs themselves. ( section 2 of &lt;a href=&quot;http://www.princeton.edu/~tkelly/papers/Sunk%20Costs,%20Rationality,%20and%20Acting%20For%20the%20Sake%20of%20the%20Past.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.princeton.edu/~tkelly/papers/Sunk%20Costs,%20Rationality,%20and%20Acting%20For%20the%20Sake%20of%20the%20Past.htm&lt;/a&gt; )&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I feel good for rescuing my phone from a toilet, or feel bad, that’s separate from the phone being in the toilet.&lt;/p&gt;&#xA;" OwnerUserId="19898" LastActivityDate="2018-11-28T05:24:15.097" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25779" PostTypeId="1" CreationDate="2018-11-28T08:37:09.300" Score="1" ViewCount="71" Body="&lt;p&gt;I'm looking for a comprehensive overview of international income tax systems (OECD countries would be sufficient), showing which countries apply some sort of family taxation, i.e. married partners undergo some sort of &lt;a href=&quot;https://en.wikipedia.org/wiki/Income_splitting&quot; rel=&quot;nofollow noreferrer&quot;&gt;Income Splitting&lt;/a&gt;. The Wikipedia Article mentions Germany, U.S. and Canada. France also applies splitting. What are the remaining ones?&lt;/p&gt;&#xA;" OwnerUserId="17735" LastEditorUserId="17735" LastEditDate="2018-12-05T09:30:59.610" LastActivityDate="2020-08-31T18:04:50.447" Title="Which countries impose family income taxation?" Tags="&lt;taxation&gt;&lt;family-taxation&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="25780" PostTypeId="2" ParentId="25772" CreationDate="2018-11-28T08:59:59.617" Score="1" Body="&lt;p&gt;The &lt;em&gt;Grundrisse’s&lt;/em&gt; “fragment on the machines” expounds on the tendency to universal automation rather famously, without Marx having stripped his more idealistic hopes from his exposition, and without the deadening jargon of &lt;em&gt;Capital’s&lt;/em&gt; chapters on the organic composition of capital. It isn’t perfect on the automation of science itself, but that just needs to be reread with science posited as a commodity, AI as fixed capital etc. Nick Dyer-Witheford works in this area last time I checked.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The assumption, or rather observation, of the centrality of a diminishing living component of labour is central to Marxist political economy. Normally it is posited as the OCC critique where transcending this process only exists as a negative, but the fragment on the machines pictures the real possibility of social mastering of social production. In “fragment” Marx goes a bit further than UBI and instead poses universal leisure (relief from labour) due to hyper abundance. This is viewed as a fundamentally political achievement and one not achieved by parliament, treasury or finance ministries.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As far as formalisations, OCC seems to be an accepted category amongst the analytical Marxists (Basu 2018 …Ground-rent… [working paper] &lt;a href=&quot;https://scholarworks.umass.edu/cgi/viewcontent.cgi?article=1242&amp;amp;context=econ_workingpaper&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://scholarworks.umass.edu/cgi/viewcontent.cgi?article=1242&amp;amp;context=econ_workingpaper&lt;/a&gt;). This means it ought to appear in heterodox Marxist economics, as opposed to just Marxist political economy. &lt;/p&gt;&#xA;" OwnerUserId="19898" LastActivityDate="2018-11-28T08:59:59.617" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25781" PostTypeId="2" ParentId="25770" CreationDate="2018-11-28T09:20:48.580" Score="1" Body="&lt;p&gt;Usually the term steady state is derived from the &lt;a href=&quot;https://en.wikipedia.org/wiki/Solow%E2%80%93Swan_model&quot; rel=&quot;nofollow noreferrer&quot;&gt;Solow Model&lt;/a&gt; and its &lt;a href=&quot;https://en.wikipedia.org/wiki/Ramsey%E2%80%93Cass%E2%80%93Koopmans_model&quot; rel=&quot;nofollow noreferrer&quot;&gt;derivatives&lt;/a&gt; that seek to explain long-term economic growth. The steady state is a state in which the growth rate of the economy is constant (but positive!). In the Solow model, the growth rate is more or less a function of the saving rate. An economy might deviate from this because it's either on the path to this steady state or because of temporal fluctuations, where Business Cycle Models kick in. The steady state has hence to be thought of as the initial / or long-term average stat of the economy if around which the business cycle evolves.&lt;/p&gt;&#xA;" OwnerUserId="17735" LastEditorUserId="17735" LastEditDate="2018-11-28T10:10:57.957" LastActivityDate="2018-11-28T10:10:57.957" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="25782" PostTypeId="2" ParentId="25770" CreationDate="2018-11-28T11:04:07.020" Score="3" Body="&lt;p&gt;A system is said to be in steady state if certain variables do not change over time (and where &quot;certain variables&quot; depend on the context and ought to have been clearly specified by the writer).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Say we define a system to be in steady state if inflation does not change over time. Then if inflation is constant at 2%, we say that the system is in steady state even though prices are changing. (This is contrary to what you've suggested in your post.)&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;(The term &lt;em&gt;steady state&lt;/em&gt; was, like the term &lt;em&gt;equilibrium&lt;/em&gt;, appropriated from the sciences for use in economics. However, although the term &lt;em&gt;equilibrium&lt;/em&gt; is often ill-defined, the term &lt;em&gt;steady state&lt;/em&gt; is usually amenable to precise definition, provided the writer makes an effort.)&lt;/p&gt;&#xA;" OwnerDisplayName="user20317" LastActivityDate="2018-11-28T11:04:07.020" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25783" PostTypeId="2" ParentId="25748" CreationDate="2018-11-28T13:31:27.070" Score="1" Body="&lt;p&gt;You are actually almost correct. Your first approach shows the normal form of the game, but in an incomplete way, which is why you find &quot;extra&quot; Nash equilibria. The possible strategies of the players include all positive effort levels not just the ones you show.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The NE (0.25;0.25) is not actually an equilibrium because either player can reduce their effort a tiny amount (but less than the amount in your game) increasing their payoff. For example the optimum amount of effort for player 1 if player 2 uses effort level 0.25 is 0.1875 which is not in your game. If player 1 opts for an effort level of 0.1875 player 2's optimal effort is 3/4*0.1875=0.140625.&#xA;Continuing this reasoning you'll find eventually there is only one NE: (0;0) which is what you had correctly identified using your second approach.&lt;/p&gt;&#xA;" OwnerUserId="12186" LastActivityDate="2018-11-28T13:31:27.070" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25785" PostTypeId="2" ParentId="25775" CreationDate="2018-11-28T17:33:35.320" Score="0" Body="&lt;p&gt;Hi: I don't know what &quot;honoring sunk costs&quot;  means specifically but rationality refers to the idea that people behave in such a way as to maximize their utility function. Since you haven't covered utility functions yet, then my guess is that, in this case, rational just means that people want to maximize their financial well being. So,I think the book is saying that honoring sunk costs is not consistent with that concept of maximizing one's financial well being.  Therefore, honoring sunk costs is irrational behavior.&lt;/p&gt;&#xA;" OwnerUserId="18201" LastActivityDate="2018-11-28T17:33:35.320" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25787" PostTypeId="1" AcceptedAnswerId="25799" CreationDate="2018-11-28T20:20:59.363" Score="3" ViewCount="416" Body="&lt;p&gt;I was discussing today with a classmate about the relationship between prodution functions, and we tried to prove that the CES is a special case of the translog production function, but we failed. We have related the CES, the cobb-douglas and the leontief already, but we are missing the link with the translog. Is it possible to show the assumption in terms of CES parameters that yield a CES? Any help is more than welcome. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks! Jonas.&lt;/p&gt;&#xA;" OwnerUserId="20320" LastActivityDate="2018-11-29T11:14:06.503" Title="Is the CES a special case of the translog production function?" Tags="&lt;production-function&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25789" PostTypeId="1" AcceptedAnswerId="25797" CreationDate="2018-11-28T22:02:58.383" Score="1" ViewCount="34" Body="&lt;p&gt;We are studying the Ricardian equivalence in a macro course and we are asked to show that a tax cut today will be matched by a tax hike tomorrow. I believe the above is supposed to be the solution, however I do not quite understand the total differential and even less so the notation. I have three questions:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;How exactly do I take the total derivative of &lt;span class=&quot;math-container&quot;&gt;$C_1=\theta(V_1+Y^L_1-T_1+\frac{Y^L_2-T_2}{1+r})$&lt;/span&gt; with respect to &lt;span class=&quot;math-container&quot;&gt;$T_1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$T_2$&lt;/span&gt;?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;How would I then get to &lt;span class=&quot;math-container&quot;&gt;$dC_1=-\theta(dT_1+\frac{dT_2}{1+r})$&lt;/span&gt;? &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;What is the interpretation of &lt;span class=&quot;math-container&quot;&gt;$dT_1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$dT_2$&lt;/span&gt;? Specifically, what is the interpretation of &lt;span class=&quot;math-container&quot;&gt;$dT_1=-\frac{dT_2}{1+r}$&lt;/span&gt;?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="15281" LastEditorUserId="15281" LastEditDate="2018-11-29T08:24:54.773" LastActivityDate="2018-11-29T10:51:48.953" Title="Intepretation of $dC_1=-\theta(dT_1+\frac{dT_2}{1+r})=0\Longleftrightarrow dT_1=-\frac{dT_2}{1+r}$?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="25793" PostTypeId="2" ParentId="17152" CreationDate="2018-11-29T06:26:41.380" Score="1" Body="&lt;p&gt;You did not factor in the 4 Darwinian goals of global trade:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Find foreign markets to absorb excess production, that is, where excess production can be dumped.&lt;/li&gt;&#xA;&lt;li&gt;Extract foreign resources at low prices.&lt;/li&gt;&#xA;&lt;li&gt;Deny geopolitical rivals access to these resources.&lt;/li&gt;&#xA;&lt;li&gt;Open foreign markets to domestic capital and credit so domestic capital can buy up all the productive assets and resources.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="20035" LastActivityDate="2018-11-29T06:26:41.380" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25794" PostTypeId="2" ParentId="23839" CreationDate="2018-11-29T06:40:26.470" Score="1" Body="&lt;p&gt;And we are back to Triffins' Paradox, apparently one of the most under studied and relevant concepts of our time which would answer many of these questions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;when one nation's fiat currency is used as the world's reserve currency, the needs of the global trading community are different from the needs of domestic policy makers. That is the reason we have a trade deficit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Understood in this light, rising U.S. trade deficits in the 1990s and 2000s were required to provide enough dollars to lubricate rising global trade:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/008pa.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/008pa.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, what does it mean if our trade deficit begins to decline? From the point of view of this professor, it would mean that we Americans are now saving money, but once again, we live in the age of globalization and we have the worlds reserve currency, so our economy is the whole planet not just within our borders.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Meaning, a declining trade deficit sounds good because we individualize our thinking about economics, oh boy, we are becoming savers, instead of spenders. We do not seem to care that it means fewer dollars are being exported. Who cares, right?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Well, consider that the global economy is about 60 trillion, of which about 25% is the U.S. economy. Into this vast sea of trade, the U.S. &quot;exports&quot; about 400-500 billion in U.S. dollars via the trade deficit. Put in perspective, it isn't that big compared to the machine it is lubricating.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So what happens when there are fewer dollars being exported? Demand for existing dollars goes up, pushing the &quot;price&quot; of dollars up--basic supply and demand, again, it sounds good, until you consider how it affects U.S. corporate profits.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;No, their profits don't go up. Most large U.S. global corporations already earn 60+% of their revenues overseas, in other currencies. As the dollar weakened during massive QE, global corporate profits skyrocketed as earnings in euros, yen, etc. rose when stated in dollars.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As the U.S. dollar strengthens, overseas profits will decline when stated in dollars. Shrinking trade deficits means fewer dollars exported into the global economy, which means demand for dollars for trade, reserves and to pay debts denominated in dollars will face shrinking supply. That will drive the &quot;price&quot; of dollars higher.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As the price of dollars rise, U.S. corporate profits will decline as all the goods and services sold overseas in other currencies are converted (at least for accounting purposes) into U.S. dollars.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So let your professor know to be careful what he wishes for as shrinking trade deficits may appear to be positive for the domestic economy, but they won't be positive for a stock market dependent on profits generated by global corporations who earn 50%-60% of their revenues overseas.&lt;/p&gt;&#xA;" OwnerUserId="20035" LastActivityDate="2018-11-29T06:40:26.470" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25797" PostTypeId="2" ParentId="25789" CreationDate="2018-11-29T09:01:26.843" Score="3" Body="&lt;p&gt;&lt;strong&gt;Basic intro to total differentiation&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose we have a function &lt;span class=&quot;math-container&quot;&gt;$$f(x_1,x_2,\ldots,x_n).$$&lt;/span&gt; The total derivative is given by &lt;span class=&quot;math-container&quot;&gt;$$\frac{\partial f}{\partial x_1}dx_1+\frac{\partial f}{\partial x_2}dx_2+\ldots+\frac{\partial f}{\partial x_n}dx_n,$$&lt;/span&gt;&#xA;where the &lt;span class=&quot;math-container&quot;&gt;$\partial$&lt;/span&gt; terms are partial derivatives and the &lt;span class=&quot;math-container&quot;&gt;$dx$&lt;/span&gt; terms are so-called &quot;differentials&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Conceptually, what is going on is the following: we ask &quot;if I change every variable &lt;span class=&quot;math-container&quot;&gt;$x_i$&lt;/span&gt; by a &lt;em&gt;small&lt;/em&gt; amount &lt;span class=&quot;math-container&quot;&gt;$dx_i$&lt;/span&gt;, what is the effect on the overall value of &lt;span class=&quot;math-container&quot;&gt;$f$&lt;/span&gt;?&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To answer this question, we can think about the variables one-by-one. Start with &lt;span class=&quot;math-container&quot;&gt;$x_1$&lt;/span&gt;. A unit increase in &lt;span class=&quot;math-container&quot;&gt;$x_1$&lt;/span&gt; causes &lt;span class=&quot;math-container&quot;&gt;$f$&lt;/span&gt; to change by &lt;span class=&quot;math-container&quot;&gt;$\partial f/\partial x_1$&lt;/span&gt;. We are making a small &lt;span class=&quot;math-container&quot;&gt;$dx_1$&lt;/span&gt; unit change in &lt;span class=&quot;math-container&quot;&gt;$x_1$&lt;/span&gt;. Thus, the total change in &lt;span class=&quot;math-container&quot;&gt;$f$&lt;/span&gt; due to the change in &lt;span class=&quot;math-container&quot;&gt;$x_1$&lt;/span&gt; is &lt;span class=&quot;math-container&quot;&gt;$\frac{\partial f}{\partial x_1}dx_1$&lt;/span&gt;. At the same time, we change &lt;span class=&quot;math-container&quot;&gt;$x_2$&lt;/span&gt; by &lt;span class=&quot;math-container&quot;&gt;$dx_2$&lt;/span&gt;, resulting in a &lt;span class=&quot;math-container&quot;&gt;$\frac{\partial f}{\partial x_2}dx_2$&lt;/span&gt; unit change in &lt;span class=&quot;math-container&quot;&gt;$f$&lt;/span&gt; and so on.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you want to read more on the topic, I'd recommend the relevant chapter of &quot;Fundamental Methods of Mathematical Economics&quot; by Alpha Chiang.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Aside on why this might be useful (can be skipped without loss)&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's look at an example of how this could be useful. Suppose we have a game where players &lt;span class=&quot;math-container&quot;&gt;$i=1,2$&lt;/span&gt; each choose an action &lt;span class=&quot;math-container&quot;&gt;$x_i$&lt;/span&gt;. Player &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;'s payoff is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$u_i=f(x_i,a)+g(x_i,x_j,a)$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where &lt;span class=&quot;math-container&quot;&gt;$a$&lt;/span&gt; is a parameter and &lt;span class=&quot;math-container&quot;&gt;$x_j$&lt;/span&gt; is the other player's action. Thus, a player's best action is given by the first-order condition&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$f_1(x_i,a)+g_1(x_i,x_j,a)=0$$&lt;/span&gt;&#xA;where &lt;span class=&quot;math-container&quot;&gt;$f_i$&lt;/span&gt; means the partial derivative of &lt;span class=&quot;math-container&quot;&gt;$f$&lt;/span&gt; wrt its &lt;span class=&quot;math-container&quot;&gt;$i^{th}$&lt;/span&gt; argument. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is hard to know how a change in the parameter &lt;span class=&quot;math-container&quot;&gt;$a$&lt;/span&gt; will affect &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;'s choice of &lt;span class=&quot;math-container&quot;&gt;$x_i$&lt;/span&gt; because the change in &lt;span class=&quot;math-container&quot;&gt;$a$&lt;/span&gt; will affect &lt;span class=&quot;math-container&quot;&gt;$x_i$&lt;/span&gt; not only directly, but also by changing &lt;span class=&quot;math-container&quot;&gt;$x_j$&lt;/span&gt;. When all of these changes have settled back to equilibrium, what happens? It seems like we can't go any further because we need to know the functional form of &lt;span class=&quot;math-container&quot;&gt;$f$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$g$&lt;/span&gt; to be able to explicitly solve for &lt;span class=&quot;math-container&quot;&gt;$x_i$&lt;/span&gt; and see how they depend on each other and on &lt;span class=&quot;math-container&quot;&gt;$a$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But total differentiation can help us understand the properties of the solution here. Let's totally differentiate the first order condition, allowing all of &lt;span class=&quot;math-container&quot;&gt;$x_i$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$x_j$&lt;/span&gt;, and &lt;span class=&quot;math-container&quot;&gt;$a$&lt;/span&gt; to change at once (I omit the arguments of the functions for brevity):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$[f_{11}+g_{11}]dx_i+g_{12}dx_j+[f_{12}+g_{13}]da=0.$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now I can solve for &lt;span class=&quot;math-container&quot;&gt;$\frac{dx_i}{da}$&lt;/span&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\frac{dx_i}{da}=-\frac{f_{12}+g_{13}}{f_{11}+g_{11}}.$$&lt;/span&gt;&#xA;So long as I know something about the individual properties of &lt;span class=&quot;math-container&quot;&gt;$f$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$g$&lt;/span&gt;, I can use this equation to tell me what the sign of &lt;span class=&quot;math-container&quot;&gt;$fx_i/da$&lt;/span&gt; will be!&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Coming back to your example&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For notational convenience, I give your function a name (&lt;span class=&quot;math-container&quot;&gt;$f$&lt;/span&gt;):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$f(C_1,T_1,T_2)\equiv\theta(V_1+Y^L_1-T_1+\frac{Y^L_2-T_2}{1+r})-C_1=0,$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;we apply the basic rules of total differentiation:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$f_1 dC_1+f_2dT_1+f_3dT_2=0.$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We compute &lt;span class=&quot;math-container&quot;&gt;$f_1=\frac{\partial f}{\partial C_1}=-1$&lt;/span&gt;,&lt;span class=&quot;math-container&quot;&gt;$f_2=\frac{\partial f}{\partial T_1}=-\theta$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$f_3=\frac{\partial f}{\partial T_2}=-\theta\frac{1}{1+r}$&lt;/span&gt;. This therefore gives &lt;span class=&quot;math-container&quot;&gt;$$dC_1=-\theta\left(dT_1+\frac{dT_2}{1+r}\right).$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In words, this equation tells us that the change in &lt;span class=&quot;math-container&quot;&gt;$C_1$&lt;/span&gt; must be equal to &lt;span class=&quot;math-container&quot;&gt;$-\theta\left(dT_1+\frac{dT_2}{1+r}\right)$&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$dT_1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$dT_2$&lt;/span&gt; are the changes in &lt;span class=&quot;math-container&quot;&gt;$T_1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$T_2$&lt;/span&gt;. Thus, if we want to say that &lt;span class=&quot;math-container&quot;&gt;$C_1$&lt;/span&gt; doesn't change then it must be that &lt;span class=&quot;math-container&quot;&gt;$dT_1=-\frac{dT_2}{1+r}$&lt;/span&gt; so that the changes in &lt;span class=&quot;math-container&quot;&gt;$T_1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$T_2$&lt;/span&gt; 'cancel-out'.&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2018-11-29T10:51:48.953" LastActivityDate="2018-11-29T10:51:48.953" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25799" PostTypeId="2" ParentId="25787" CreationDate="2018-11-29T11:14:06.503" Score="1" Body="&lt;p&gt;the translog is an approximation of the CES function. Let consider a 2 factors production function &lt;span class=&quot;math-container&quot;&gt;$A(\alpha K^\gamma+(1-\alpha)L^\gamma)^{1/\gamma}$&lt;/span&gt;. &#xA;First, take the log of this production function, and then approximate this to the first-order using the McLaurin series for &lt;span class=&quot;math-container&quot;&gt;$\gamma$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Using Mathematica (laziness, sorry): &lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;Series[Log[A(\[Alpha] K^\[Gamma]+(1-\[Alpha])L^\[Gamma])^(1/\[Gamma])], {\[Gamma], 0, 1}] // FullSimplify&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;You reach &#xA;&lt;span class=&quot;math-container&quot;&gt;$%\log \left(A K^{\alpha } L^{1-\alpha }\right)+\frac{1}{2} \gamma(1-\alpha) \alpha  \left((\log (K)-\log (L))^2\right)+O\left(\gamma ^2\right)$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\ln Y=\ln(A)+\alpha\ln K+(1-\alpha)\ln L+\gamma \alpha(1-\alpha)\left(\ln K+\ln L -\ln K\ln L \right)+O\left(\gamma ^2\right)$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This corresponds to the usual translog functional form used in econometric estimation.&lt;/p&gt;&#xA;" OwnerUserId="4415" LastActivityDate="2018-11-29T11:14:06.503" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="25800" PostTypeId="2" ParentId="24678" CreationDate="2018-11-29T15:58:44.250" Score="1" Body="&lt;p&gt;It depends on the importing country or bloc (X), and the country the import is coming from (Y), and the product category (Z).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If X is not a WTO member, and is not party to a trade agreement with Y, then tariffs can be set unilaterally.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If X is a WTO member (and has bound Z) or has signed a preferential trade agreement with Y that covers Z, then the tariff can be set unilaterally within (multilateral, bilateral or regionally agreed) limits.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If X is part of a free-trade agreement (or customs union) with Y that covers Z, then X is constrained to allow duty-free import.&lt;/p&gt;&#xA;" OwnerUserId="16631" LastActivityDate="2018-11-29T15:58:44.250" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25801" PostTypeId="2" ParentId="25231" CreationDate="2018-11-29T16:31:54.007" Score="1" Body="&lt;p&gt;While @M3RS is correct that value added is another approach to computing GDP that handles the final vs. intermediate goods problem more aptly, within the context of the expenditure approach, you would effectively be measuring spending by who's buying it, and this measure is fundamentally imperfect. For example, flour sold by a cooking supply company to a bakery is likely to be counted as an intermediate good. Flour sold at a retail store is likely to be counted as a final good. But, it could be that a relatively small scale bakery buys flour at Costco (I used to work at a wholesale club, and we supplied a lot of small businesses). In that case, despite efforts by the government not to double count, it's really unavoidable. This is why value added is generally better for avoiding double counting.&lt;/p&gt;&#xA;" OwnerUserId="16229" LastActivityDate="2018-11-29T16:31:54.007" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25802" PostTypeId="2" ParentId="12979" CreationDate="2018-11-29T16:34:43.213" Score="3" Body="&lt;p&gt;Aggregate supply is a relationship of price level and output. It is a function, or a curve, or a table. It is not a single value. If we know a particular price level, then we can determine the &lt;em&gt;level&lt;/em&gt; of output that would correspond with that. The GDP for 2006 is determined by plugging in the price level of 2006 to the AS curve for 2006, and seeing what output is produced at that price level.&lt;/p&gt;&#xA;" OwnerUserId="16229" LastActivityDate="2018-11-29T16:34:43.213" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25803" PostTypeId="1" CreationDate="2018-11-29T17:03:27.993" Score="3" ViewCount="407" Body="&lt;p&gt;Does open source software contribute to the GDP of a nation? If yes then how, and how does it depend on the increase in usage? For instance, would an increase in the usage of open source software increase GDP, or would it decrease GDP?&lt;/p&gt;&#xA;" OwnerUserId="20329" LastEditorUserId="16631" LastEditDate="2018-11-30T02:23:25.120" LastActivityDate="2019-08-28T19:01:30.183" Title="Does open source software contribute to GDP?" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25804" PostTypeId="1" AcceptedAnswerId="25808" CreationDate="2018-11-29T17:27:27.643" Score="1" ViewCount="17" Body="&lt;p&gt;In an open economy, a country can either pay for imports by running down its reserves, or by financial inflows. The payment for imports via reserves is easy to understand- an importer can go exchange currency for foreign currency, and pay for imports. But suppose this is not the case- there are no reserves left. How are payments for imports funded by financial inflows? How does this look like in practice?&lt;/p&gt;&#xA;" OwnerUserId="5233" LastActivityDate="2018-11-29T22:27:48.593" Title="Paying for imports" Tags="&lt;international-trade&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25805" PostTypeId="1" CreationDate="2018-11-29T18:09:36.557" Score="0" ViewCount="57" Body="&lt;p&gt;I've done economics for 3 months only, so bear with me.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If Social Benefit = Private Benefit + External Benefit&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then how is it physically possible that private benefit could ever exceed social benefit?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Someone told me that if there is an External Cost this reduces the social benefit, but why? If the Social Cost already takes the External Cost into account, why would the Social Benefit do the same?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the Social Benefit and Social Cost are two different things then why do they both take into account costs and benefits?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I really do not understand the logic behind it and do not understand my teacher's explanation. Much help is needed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you. &lt;/p&gt;&#xA;" OwnerUserId="20331" LastActivityDate="2018-11-29T18:29:36.427" Title="How does private benefit exceed social benefit?" Tags="&lt;market-failure&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25806" PostTypeId="2" ParentId="25805" CreationDate="2018-11-29T18:29:36.427" Score="1" Body="&lt;p&gt;The net social welfare can be written as &lt;span class=&quot;math-container&quot;&gt;$W=B-C$&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$W$&lt;/span&gt; is total welfare, &lt;span class=&quot;math-container&quot;&gt;$B$&lt;/span&gt; is the benefit, and &lt;span class=&quot;math-container&quot;&gt;$C$&lt;/span&gt; is the cost.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose we are interested in thinking about a negative externality that implies a social cost of &lt;span class=&quot;math-container&quot;&gt;$E$&lt;/span&gt;. Then we would have &lt;span class=&quot;math-container&quot;&gt;$$W=B-(C+E)=B-C-E.$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Imagine if, instead of viewing this as a social cost, we interpret the externality as reducing the social benefit. The expression would then be &lt;span class=&quot;math-container&quot;&gt;$$W=(B-E)-C=B-C-E.$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the two ways of thinking about the world are completely equivalent and it is merely a naming convention whether we call the externality a cost or a reduction in benefit. I guess your confusion has come about because you heard people on different occasions using the different conventions, without being clear about which convention they were using.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The only thing that matters is that we don't double-count the externality by including it as &lt;strong&gt;both&lt;/strong&gt; a cost and a reduction in benefit.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2018-11-29T18:29:36.427" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="25807" PostTypeId="1" AcceptedAnswerId="25814" CreationDate="2018-11-29T18:55:32.143" Score="1" ViewCount="186" Body="&lt;p&gt;&lt;em&gt;Majority Rule will induce non empty choice set if individual preferences are single peaked&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this statement true? I have some trouble in understanding the meaning of 'single peakedness' in context of this statement. Does choice set here imply that we need to find the, say, favorite alternative amongst the given ones? I understannd that Majority Voting is riddled with intransitivity. What does 'non empty' choice set imply ?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I understand is that for single peaked alternatives, individual has a particular alternative of his choice and the alternatives that are away from the peak would be preferred less. &#xA;My concepts seem to be quite shaky. Please bear with me. &lt;/p&gt;&#xA;" OwnerUserId="18398" LastEditorUserId="18398" LastEditDate="2018-11-29T19:19:57.140" LastActivityDate="2018-11-30T06:53:14.327" Title="Majority Rule and Single Peakedness" Tags="&lt;microeconomics&gt;&lt;preferences&gt;&lt;self-study&gt;&lt;social-choice&gt;&lt;voting&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25808" PostTypeId="2" ParentId="25804" CreationDate="2018-11-29T22:27:48.593" Score="1" Body="&lt;p&gt;A couple of examples:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Selling off assets in exchange for imports.  You sell some of your land to a foreigner in exchange for foreign currency, and use that to pay for imports.&lt;/li&gt;&#xA;&lt;li&gt;Foreign direct investment.  A foreign company sets up a business in your country, and imports lots of raw materials and machinery in order to set everything up.  These goods count as inputs, as they're coming into your country, but they're paid for by a foreign entity with foreign currency.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Both of these are kinds of financial inflows.&lt;/p&gt;&#xA;" OwnerUserId="16631" LastActivityDate="2018-11-29T22:27:48.593" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25809" PostTypeId="2" ParentId="20160" CreationDate="2018-11-30T01:29:29.870" Score="1" Body="&lt;p&gt;These results can indeed be extended to a more general setting. In this case, define the &lt;span class=&quot;math-container&quot;&gt;$\nu$&lt;/span&gt;-th player's strategy vector &lt;span class=&quot;math-container&quot;&gt;$x^\nu \in R^{n_\nu}$&lt;/span&gt; and so &lt;span class=&quot;math-container&quot;&gt;$x=(x^1,\dots,x^N)^T$&lt;/span&gt; of a size &lt;span class=&quot;math-container&quot;&gt;$n_1+\dots+n_N$&lt;/span&gt; for a &lt;span class=&quot;math-container&quot;&gt;$N$&lt;/span&gt; player game.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this context, &lt;span class=&quot;math-container&quot;&gt;$\nabla_\nu \varphi_\nu(x)$&lt;/span&gt; is a vector of size &lt;span class=&quot;math-container&quot;&gt;$n_\nu$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The pseudo-gradient (denoted &lt;span class=&quot;math-container&quot;&gt;$g(x,r)$&lt;/span&gt; in the paper) is still the vector concatenated by all the gradients of &lt;span class=&quot;math-container&quot;&gt;$\varphi$&lt;/span&gt; i.e. &lt;span class=&quot;math-container&quot;&gt;$g(x,r)=(\nabla_1 \varphi_1(x),\dots,\nabla_N \varphi_N(x))^T$&lt;/span&gt;. In this general case, the positivity constraint in the definition of diagonally strictly concave means that each component of a vector is positive.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, the reasoning of Rosen can be followed in the exact same way with the notations above.&lt;/p&gt;&#xA;" OwnerUserId="20334" LastActivityDate="2018-11-30T01:29:29.870" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25810" PostTypeId="1" CreationDate="2018-11-30T02:15:52.890" Score="0" ViewCount="53" Body="&lt;p&gt;If new, more advanced equipment reduces the amount of labor needed to produce an increased level of output, then&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;The AVC curve will shift upward&lt;/li&gt;&#xA;&lt;li&gt;The MC curve will shift upward&lt;/li&gt;&#xA;&lt;li&gt;The ATC curve will shift downward&lt;/li&gt;&#xA;&lt;li&gt;The AFC curve will shift upward&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;The textbook states the correct answer is 3, however my teacher tells me that there is another possibility. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My thinking is that it could be the 1.The Average Variable Cost will shift upwards. My reasoning is that because the new equipment adds to the cost, including ordering the equipment, installing it, maintaining it, and training people to operate it. All of that would contribute to the cost. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Am I grasping the concept of AVC correctly. And is 1. a good alternative? &lt;/p&gt;&#xA;" OwnerUserId="20335" LastActivityDate="2019-08-27T12:02:10.253" Title="Determining Another Possibility For a Microeconomics Question" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25814" PostTypeId="2" ParentId="25807" CreationDate="2018-11-30T06:53:14.327" Score="3" Body="&lt;p&gt;Suppose that &lt;em&gt;A&lt;/em&gt;={&lt;em&gt;a,b,c,....,z&lt;/em&gt;} is a finite set of social alternatives, and let &lt;strong&gt;P&lt;/strong&gt;={&amp;gt;&lt;sub&gt;1&lt;/sub&gt;,&amp;gt;&lt;sub&gt;2&lt;/sub&gt;,....,&amp;gt;&lt;sub&gt;N&lt;/sub&gt;} be a profile of strict preference orders on &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt; (where the set {1,2,...,&lt;em&gt;N&lt;/em&gt;} indexes the voters).    We say that the profile &lt;strong&gt;P&lt;/strong&gt; is &lt;em&gt;single-peaked&lt;/em&gt; if there is &lt;em&gt;some&lt;/em&gt; way to order the alternatives in &lt;em&gt;A&lt;/em&gt; (e.g. in alphabetical order) such that, for each of the preference orders &amp;gt;&lt;sub&gt;n&lt;/sub&gt; in &lt;strong&gt;P&lt;/strong&gt;, there is some &quot;ideal point&quot; (say, &lt;em&gt;h&lt;/em&gt;) such that &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;a&amp;lt;&lt;sub&gt;n&lt;/sub&gt; b &amp;lt;&lt;sub&gt;n&lt;/sub&gt; c &amp;lt;&lt;sub&gt;n&lt;/sub&gt; ... &amp;lt;&lt;sub&gt;n&lt;/sub&gt; g &amp;lt;&lt;sub&gt;n&lt;/sub&gt; h &amp;gt;&lt;sub&gt;n&lt;/sub&gt; i &amp;gt;&lt;sub&gt;n&lt;/sub&gt; j &amp;gt;&lt;sub&gt;n&lt;/sub&gt; .... &amp;gt;&lt;sub&gt;n&lt;/sub&gt;  y &amp;gt;&lt;sub&gt;n&lt;/sub&gt; z&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that the condition does not impose any particular preferences between, say, &lt;em&gt;g&lt;/em&gt; and &lt;em&gt;i&lt;/em&gt;, or indeed between any element of {&lt;em&gt;a,b,...,g&lt;/em&gt;} and any element of {&lt;em&gt;i,j,..,z&lt;/em&gt;}.  Note also that different voters could have different ideal points.  (So voter &lt;em&gt;n&lt;/em&gt; has ideal point &lt;em&gt;h&lt;/em&gt; in the above exampe, but maybe voter &lt;em&gt;m&lt;/em&gt; has ideal point &lt;em&gt;d&lt;/em&gt;....)  Note also that the question here is not whether a single preference ordering &amp;gt;&lt;sub&gt;n&lt;/sub&gt; is &quot;single-peaked&quot; ---the question is that entire the &lt;em&gt;profile&lt;/em&gt; &lt;strong&gt;P&lt;/strong&gt; is single-peaked, meaning that we can find a single ordering of &lt;em&gt;A&lt;/em&gt; such that &lt;em&gt;all&lt;/em&gt; the preferences in &lt;strong&gt;P&lt;/strong&gt; are single-peaked with respect to this ordering.  (In the above example, I used alphabetical order, but this was just for simplicity.  The question is only whether &lt;em&gt;some&lt;/em&gt; order exists.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why is this condition useful?  Suppose you try to construct a social preference order &amp;gt;&lt;sub&gt;0&lt;/sub&gt; by determining the comparison between each pair of alternatives through a simple majority vote (as recommended by Condorcet).   So for example, for alternatives &lt;em&gt;b&lt;/em&gt; and &lt;em&gt;g&lt;/em&gt;, we will stipulate that &lt;em&gt;b &amp;gt;&lt;sub&gt;0&lt;/sub&gt; g&lt;/em&gt; if and only if  &lt;em&gt;b &amp;gt;&lt;sub&gt;n&lt;/sub&gt; g&lt;/em&gt; for a majority of the voters {1,2,...,&lt;em&gt;N&lt;/em&gt;}.  (For simplicity, suppose &lt;em&gt;N&lt;/em&gt; is odd, so that majority vote never results in a tie.) We know that in general, this method does &lt;em&gt;not&lt;/em&gt; result in a transitive preference relation.  (This is &lt;a href=&quot;https://economics.stackexchange.com/questions/5804/condorcets-paradox-is-the-majority-rule-transitive?rq=1&quot;&gt;Condorcet's Paradox&lt;/a&gt;.)  However, if the profile &lt;strong&gt;P&lt;/strong&gt; is single-peaked, then this method of &quot;pairwise majority vote&quot; &lt;em&gt;always&lt;/em&gt; yields a transitive social preference order.  (This was discovered by Duncan Black.)   Furthermore, the &quot;maximal&quot; element of the resulting social preference order is the &lt;em&gt;median&lt;/em&gt; of the ideal points of the voters.  (This is the famous &lt;em&gt;Median voter theorem&lt;/em&gt;.)   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In summary, if the profile &lt;strong&gt;P&lt;/strong&gt; is single-peaked, then not only does majority rule induce a non-empty choice set (as you said), but this choice set is rationalized by a complete and transitive social preference order (obtained by pairwise majority votes), and furthermore we can say exactly what the choice set is (it is the median of the ideal points of the voters).&lt;/p&gt;&#xA;" OwnerUserId="8759" LastActivityDate="2018-11-30T06:53:14.327" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25815" PostTypeId="2" ParentId="25810" CreationDate="2018-11-30T10:50:24.103" Score="2" Body="&lt;p&gt;Usually capital costs are deemed fixed rather than variable costs. Probably your teacher is thinking that the AFC curve will shift upwards, although this depends on the cost of the new equipment relative to that of the old.&lt;/p&gt;&#xA;" OwnerUserId="20281" LastActivityDate="2018-11-30T10:50:24.103" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25816" PostTypeId="1" CreationDate="2018-11-30T11:09:07.310" Score="0" ViewCount="92" Body="&lt;p&gt;What is the difference between the world economy and world trade? I have read in one book saying &quot;US share in the world economy is 28% and in the world trade is 15%&quot; (2008 edition though). Please explain. Thanks&lt;/p&gt;&#xA;" OwnerUserId="20338" LastEditorUserId="1417" LastEditDate="2018-11-30T12:14:47.530" LastActivityDate="2019-08-27T14:01:40.203" Title="World economy and world trade" Tags="&lt;international-trade&gt;&lt;usa&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25818" PostTypeId="2" ParentId="25816" CreationDate="2018-11-30T12:14:10.133" Score="1" Body="&lt;p&gt;&quot;Trade&quot;, in economics, usually means trade between countries.  So if goods made in, say, the Netherlands are sold in Belgium, that counts as trade.  But if goods made in, say, California are sold in Florida, that doesn't count as trade.  Because the US is a large and populous country, it has a high proportion of internal transactions that count as part of its GDP, a measure of its economy, but do not count as trade.  Many smaller countries, on the other hand, will have a share of world trade exceeding their share of the world economy. &lt;/p&gt;&#xA;" OwnerUserId="1417" LastActivityDate="2018-11-30T12:14:10.133" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="25819" PostTypeId="1" CreationDate="2018-11-30T12:32:35.897" Score="1" ViewCount="200" Body="&lt;p&gt;I'm currently on a university assignment where I'm stuck more or less in the middle. I have to answer the following problem:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose you are interested in estimating the production function for agricultural output (as in the seminal article  &lt;a href=&quot;https://www.jstor.org/stable/1235460&quot; rel=&quot;nofollow noreferrer&quot;&gt;Mundlak 1961&lt;/a&gt;).  You have access to data for a large number of farms &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; for &lt;span class=&quot;math-container&quot;&gt;$T \geq 1$&lt;/span&gt; time periods. The&#xA;production function you want to estimate is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;y_{it} = x_{it}\beta + \alpha_i + \epsilon_{it}&#xA;\end{equation}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where &lt;span class=&quot;math-container&quot;&gt;$y_{it}$&lt;/span&gt; is log-output, &lt;span class=&quot;math-container&quot;&gt;$x_{it}$&lt;/span&gt; is log-labour (a variable input), &lt;span class=&quot;math-container&quot;&gt;$\alpha_i$&lt;/span&gt; is log-soil-quality (a fixed input) and &lt;span class=&quot;math-container&quot;&gt;$\epsilon_{it}$&lt;/span&gt; is rainfall (a random input). Each farmer knows the price of output &lt;span class=&quot;math-container&quot;&gt;$P_t$&lt;/span&gt;, the wage rate &lt;span class=&quot;math-container&quot;&gt;$W_t$&lt;/span&gt;, and the soil quality of his farm &lt;span class=&quot;math-container&quot;&gt;$\alpha_i$&lt;/span&gt;. However, as the&#xA;econometrician you only observe (&lt;span class=&quot;math-container&quot;&gt;$y_{it}$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$x_{it}$&lt;/span&gt;). Assume that &lt;span class=&quot;math-container&quot;&gt;$\epsilon_{it}$&lt;/span&gt; is &lt;span class=&quot;math-container&quot;&gt;$iid$&lt;/span&gt; and independent of everything else in the model.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Solve the farmer’s profit maximization problem assuming he sells output&#xA;at a common (across farmers) market price &lt;span class=&quot;math-container&quot;&gt;$P_t$&lt;/span&gt; and pays common&#xA;wages &lt;span class=&quot;math-container&quot;&gt;$W_t$&lt;/span&gt;. (Hint: It may help to write down the production function in levels instead of logs.) For notational convenience, assume &lt;span class=&quot;math-container&quot;&gt;$Ee{^{\epsilon_{it}}}  = \lambda$&lt;/span&gt;. Does the labor demand depend on &lt;span class=&quot;math-container&quot;&gt;$\alpha_i$&lt;/span&gt;? Explain the economic intuition behind the result.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is the preceeding task which is answered as follows: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$y_{it} = x_{it}\beta + \alpha_i + \epsilon_{it}$$&lt;/span&gt; is log of the production function. So production must be&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$Y_{it} = A_iX_{it}^\beta\cdot u_{it}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;found by taking exponential&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\exp(y_{it}) = \exp(x_{it}\beta + \alpha_i + \epsilon_{it})$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and defining &lt;span class=&quot;math-container&quot;&gt;$Y_{it} = exp(y_{it})$&lt;/span&gt; &lt;span class=&quot;math-container&quot;&gt;$X_{it}=\exp(x_{it})$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$A_i = \exp(\alpha_i)$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$u_{it} = \exp(\epsilon_{it})$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Profit max problem is then&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ \max_{X_{it}}\Pi_{it} = P_t A_iX_{it}^\beta\cdot u_{it} - W_t X_{it} $$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given the iid character of &lt;span class=&quot;math-container&quot;&gt;$\epsilon_{it}$&lt;/span&gt; and the farmers knowledge the expected profit is the same with &lt;span class=&quot;math-container&quot;&gt;$\mathbb E[u_{it}]$&lt;/span&gt; substituted for &lt;span class=&quot;math-container&quot;&gt;$u_{it}$&lt;/span&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ \max_{X_{it}}\mathbb E [\Pi_{it}] = P_t A_iX_{it}^\beta\cdot \mathbb E [u_{it}] - W_t X_{it} $$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The solution for labour demand is &#xA;&lt;span class=&quot;math-container&quot;&gt;$$X_{it}^\star= \left(\frac{P_tA_i \mathbb E [u_{it}] }{W_t}\right)^{\frac{1}{1-\beta}}$$&lt;/span&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;higher price, soil quality and expected rainfall are all expected to increase marginal revenue of labor and therfore increase labor demand for a given wage.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here's the question on which I am stuck:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Under what assumption can you recover a consistent estimate for &lt;span class=&quot;math-container&quot;&gt;$\beta$&lt;/span&gt; by running (pooled) OLS? Based on what you found in (1a) do you think this assumption is violated in this case? (no proof required)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Would anyone give me some hints on how to tackle this task?&#xA;Extremely glad for any help!&lt;/p&gt;&#xA;" OwnerUserId="20339" LastActivityDate="2018-11-30T12:32:35.897" Title="Profit maximization problem using linear regression (pooled OLS)" Tags="&lt;econometrics&gt;&lt;regression&gt;&lt;profit-maximization&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25820" PostTypeId="2" ParentId="25745" CreationDate="2018-11-30T13:13:09.827" Score="0" Body="&lt;p&gt;If your question is how to express the plim (&lt;span class=&quot;math-container&quot;&gt;$b$&lt;/span&gt;, say) of the slope estimator from the regression of &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; on &lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt; in terms of the plim's (&lt;span class=&quot;math-container&quot;&gt;$a$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$c$&lt;/span&gt;, say) of the two slope estimators for your two models (one &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; on &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;, and the other &lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt; on &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;), my answer is no that's not possible. You did not give us enough information.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt; have unit variance (for simplification), what you want is &lt;span class=&quot;math-container&quot;&gt;$b=cor(y,w)$&lt;/span&gt; expressed in terms of &lt;span class=&quot;math-container&quot;&gt;$a=cor(y,x)$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$c=cor(w,x)$&lt;/span&gt;. But that's not possible. You cannot find &lt;span class=&quot;math-container&quot;&gt;$b$&lt;/span&gt; from &lt;span class=&quot;math-container&quot;&gt;$a$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$c$&lt;/span&gt;. &lt;span class=&quot;math-container&quot;&gt;$Cor(y,w)$&lt;/span&gt; is not a function of &lt;span class=&quot;math-container&quot;&gt;$cor(y,x)$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$cor(w,x)$&lt;/span&gt;. It is like we cannot find the joint distribution of &lt;span class=&quot;math-container&quot;&gt;$(A,B)$&lt;/span&gt; from the individual marginal distributions of &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$B$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here are two examples, with the same &lt;span class=&quot;math-container&quot;&gt;$a$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$c$&lt;/span&gt;, but different &lt;span class=&quot;math-container&quot;&gt;$b$&lt;/span&gt;. (i) &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; are mutually independent (&lt;span class=&quot;math-container&quot;&gt;$a=0$&lt;/span&gt;), &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt; are mutually independent (&lt;span class=&quot;math-container&quot;&gt;$c=0$&lt;/span&gt;), and &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt; are mutually independent (&lt;span class=&quot;math-container&quot;&gt;$b=0$&lt;/span&gt;). (ii) &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; are mutually independent (&lt;span class=&quot;math-container&quot;&gt;$a=0$&lt;/span&gt;), &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt; are mutually independent (&lt;span class=&quot;math-container&quot;&gt;$c=0$&lt;/span&gt;), and &lt;span class=&quot;math-container&quot;&gt;$y=w$&lt;/span&gt; (&lt;span class=&quot;math-container&quot;&gt;$b=1$&lt;/span&gt;). You cannot find &lt;span class=&quot;math-container&quot;&gt;$b$&lt;/span&gt; from &lt;span class=&quot;math-container&quot;&gt;$a$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$c$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerUserId="10775" LastActivityDate="2018-11-30T13:13:09.827" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25822" PostTypeId="1" CreationDate="2018-11-30T18:56:49.173" Score="0" ViewCount="121" Body="&lt;p&gt;I need a little conceptual clarification. &#xA;For a standard &lt;span class=&quot;math-container&quot;&gt;$N*K*M$&lt;/span&gt; general equilibrium model, would an allocation, say, &lt;span class=&quot;math-container&quot;&gt;$y^k$&lt;/span&gt; be Pareto Optimal if it does not solve &lt;span class=&quot;math-container&quot;&gt;$max(py^k)$&lt;/span&gt;? &#xA;I understand that the competitive allocations would Pareto Optimal given strictly convex, monotonic utility functions, but does the implication hold reversely as well? &lt;/p&gt;&#xA;" OwnerUserId="18398" LastActivityDate="2020-04-24T18:06:05.623" Title="General Equilibrium Involving Production" Tags="&lt;microeconomics&gt;&lt;production-function&gt;&lt;self-study&gt;&lt;general-equilibrium&gt;&lt;walrasian&gt;" AnswerCount="1" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="25823" PostTypeId="1" CreationDate="2018-11-30T20:15:20.777" Score="-1" ViewCount="35" Body="&lt;p&gt;During imperfect price discrimination is it possible to determine profit per group. For example:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Aggregated Cost function: C(Q) = 18*Q + 5; where Q = q1 + q2&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Aggregated Demand (AD) for group 1: q1(p1) = 8 - [(1/6)*p1]&lt;/p&gt;&#xA;&#xA;&lt;p&gt;AD for group 2: q2(P2) = 4 - [(1/6)*p2]&lt;/p&gt;&#xA;&#xA;&lt;p&gt;After finding the inverse demand function (p1 and p2), setting up the profit maximization, and solving for q*1 and q*2, p*1 and p*2, and profit max., can one compute the individual group profit for group 1 and 2?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In order to solve this condition one would need the aggregated cost for each group. Because the monopoly is creating and selling the same good the cost would be the same between the two groups. Is it possible to divide the aggregated market cost function by the number of groups (in this case by two) to find the group's aggregated cost function?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the end, the sum of the profits from group 1 and 2 should equal the profit maximization solved earlier.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any direction (i.g. books or research papers) would be great as well! Thank you in advance.&lt;/p&gt;&#xA;" OwnerUserId="20342" LastActivityDate="2018-12-01T09:26:36.760" Title="Imperfect Price Discrimination profit per group" Tags="&lt;microeconomics&gt;&lt;monopoly&gt;&lt;price-discrimination&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="25826" PostTypeId="2" ParentId="25823" CreationDate="2018-12-01T09:26:36.760" Score="0" Body="&lt;p&gt;No, you cannot clearly determine the individual cost functions. For example both the individual cost functions&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;C_1(q_1) = 18q_1 + 3, \hskip 20pt&#xA;C_2(q_2) = 18q_2 + 2&#xA;$$&lt;/span&gt;&#xA;and&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\hat{C}_1(q_1) = 18q_1 + 1, \hskip 20pt&#xA;\hat{C}_2(q_2) = 18q_2 + 4&#xA;$$&lt;/span&gt;&#xA;would yield the same optimum and sum up to &lt;span class=&quot;math-container&quot;&gt;$C(Q) = 18Q + 5$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Fixed costs can be allocated to any items, they do not change production decisions. Even in accounting there are several methods for actually allocating common fixed costs between production units.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2018-12-01T09:26:36.760" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25833" PostTypeId="2" ParentId="25822" CreationDate="2018-12-01T14:47:59.860" Score="1" Body="&lt;p&gt;You seem to be looking for the &lt;a href=&quot;https://en.wikipedia.org/wiki/Fundamental_theorems_of_welfare_economics&quot; rel=&quot;nofollow noreferrer&quot;&gt;Second Welfare Theorem&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The Second Theorem states that out of all possible Pareto optimal outcomes one can achieve any particular one by enacting a lump-sum wealth redistribution and then letting the market take over.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2018-12-01T14:47:59.860" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="25837" PostTypeId="2" ParentId="25803" CreationDate="2018-12-01T17:42:21.807" Score="3" Body="&lt;p&gt;Open source software does influence GDP in a number of ways, both positively and negatively.  The net effect of greater open source usage will depend on the economy, I think particularly on whether the economy produces or imports most of the closed-source software that is being displaced by greater open-source usage.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here are some of the mechanisms by which open source software influences GDP:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;People still pay for some open source software through donations, a mechanism very similar to the purchase price of closed source software.  E.g. &lt;a href=&quot;https://static.mozilla.com/moco/en-US/pdf/2015_Mozilla_Audited_Financial_Statement.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;the Mozilla Foundation received $4.5 million in contributions in 2015&lt;/a&gt; (see p4).&lt;/li&gt;&#xA;&lt;li&gt;Companies provide a wide range of services that rely on open source software.  In some cases this is closer to closed source development (e.g. &lt;a href=&quot;https://en.wikipedia.org/wiki/Red_Hat&quot; rel=&quot;nofollow noreferrer&quot;&gt;Red Hat&lt;/a&gt;), where companies pay to use software systems -- even though the underlying software is open source, they pay for an &quot;&lt;a href=&quot;https://en.wikipedia.org/wiki/Enterprise_software&quot; rel=&quot;nofollow noreferrer&quot;&gt;enterprise solution&lt;/a&gt;&quot;.  Maybe &lt;a href=&quot;https://w3techs.com/technologies/overview/web_server/all&quot; rel=&quot;nofollow noreferrer&quot;&gt;90% of web servers are open source&lt;/a&gt;, but companies are still paid to provide those servers, same with companies providing virtual machines.&lt;/li&gt;&#xA;&lt;li&gt;The use of open-source software by companies or workers that could not afford closed-source equivalents improves productivity and probably therefore GDP.&lt;/li&gt;&#xA;&lt;li&gt;Most obviously, the use of open source software replaces some closed-source software reducing the purchase and production of closed-source software.  More closed-source development is paid, so this would reduce GDP &lt;em&gt;in the country where the closed-source software is made&lt;/em&gt;.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;As I mentioned, whether an increase in open-source usage is likely to increase GDP probably depends primarily on whether most closed-source software is domestically produced or imported.  If closed-source software is domestically produced, and this production is partly replaced, GDP could go down, unless this if offset by open-source-related services.  However, if closed-source software is mostly imported (the case in the vast majority of countries worldwide), only the value addition in wholesale and retail shows up in GDP.  Using open source instead will free up foreign exchange that can be used elsewhere.  If a chunk of this buys capital goods instead, that should boost GDP in the medium term.&lt;/p&gt;&#xA;" OwnerUserId="16631" LastActivityDate="2018-12-01T17:42:21.807" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25839" PostTypeId="1" AcceptedAnswerId="25840" CreationDate="2018-12-01T18:14:13.503" Score="4" ViewCount="1726" Body="&lt;p&gt;In a closed economy, the national income identities imply that &lt;span class=&quot;math-container&quot;&gt;$$S=I$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, the intuition is not clear to me. The saving is the part of national disposable income that is not consumed. &lt;span class=&quot;math-container&quot;&gt;$I$&lt;/span&gt; is the sum of residential and nonresidential investment. When firms invest, they generally borrow to finance that investment. However, why is it the case that this would necessarily equal aggregate savings? Individuals might save, but firms (or households) need not borrow. Does &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; include idle funds as well? &lt;/p&gt;&#xA;" OwnerUserId="5233" LastActivityDate="2018-12-01T20:08:13.687" Title="S=I in a closed economy" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25840" PostTypeId="2" ParentId="25839" CreationDate="2018-12-01T19:02:57.123" Score="6" Body="&lt;p&gt;This is a macroeconomic tautology, and like many others, the words often do not have their commonly expected meaning.  In particular saving and investment are not directly about money but about stuff measured in money terms&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose you had an economy based purely on grains of wheat.  The real activities are:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Plant wheat grains, grow them and harvest them, getting more grains as a result&lt;/li&gt;&#xA;&lt;li&gt;Consume wheat as food&lt;/li&gt;&#xA;&lt;li&gt;Store unconsumed wheat for future planting or consumption&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;In this case, macroeconomic &lt;em&gt;saving&lt;/em&gt; is the amount that production exceeds consumption while macroeconomic &lt;em&gt;investment&lt;/em&gt; is either increasing stored stocks or the planting of grains for future production.  (If you were wondering, grains which rot after having been purchase by consumers still count as consumption, while grains which rot while in producers' storage count as negative investment.)  So in this case, both &lt;em&gt;saving&lt;/em&gt; and &lt;em&gt;investment&lt;/em&gt;  measure the same thing, seen from different perspectives.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Clearly you could measure this particular economy purely in grains of wheat, but if you want to do so in money terms then you would need to know the price of wheat, where say a million grains are worth &lt;span class=&quot;math-container&quot;&gt;$\$5$&lt;/span&gt;.  This would then allow you to incorporate the production and consumption of other stuff into your calculations, such as barley where say a million grains are worth &lt;span class=&quot;math-container&quot;&gt;$\$3$&lt;/span&gt; and yields are different, or beer produced from barley and bread from wheat, or anything else.  But saving representing unconsumed production, and investment representing the other non-consumption uses, would remain equal, almost by definition      &lt;/p&gt;&#xA;" OwnerUserId="8891" LastEditorUserId="8891" LastEditDate="2018-12-01T20:08:13.687" LastActivityDate="2018-12-01T20:08:13.687" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25841" PostTypeId="1" AcceptedAnswerId="25845" CreationDate="2018-12-01T20:40:03.940" Score="2" ViewCount="239" Body="&lt;p&gt;How can &lt;strong&gt;'the best and worst lotteries exist when the set of outcome is finite and the rational preference relation satisfies independence axiom'&lt;/strong&gt; be proven?&lt;/p&gt;&#xA;" OwnerUserId="12387" LastActivityDate="2019-09-04T11:45:08.083" Title="Existence of 'best' and 'worst' lottery" Tags="&lt;expected-utility&gt;&lt;uncertainty&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="25842" PostTypeId="1" AcceptedAnswerId="25843" CreationDate="2018-12-01T22:23:18.780" Score="1" ViewCount="85" Body="&lt;p&gt;In the IS-LM framework, when the CB expands Money supply, interest rates are driven down, investment is boosted, and aggregate output increases (shift of LM curve, movement along IS curve). In the case of the Eurozone, given that member countries are not able to unilaterally expand money supply- this is the mandate of the ECB- it is often said that there is no monetary independence. However, interest rates in different European countries are different. I have two questions:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;i) Even though the currency is the same, the interest rates are different. Would a risk premium be the only explanation for the interest parity condition not holding here (there is no risk of devaluation for the same currency)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) The Central bank of each country has no power over the money supply. However, the yields are still different. Is this purely a result of market forces (again determined by differences in risk?)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a broader sense, what is the role of the European network of central banks when they can't control the Money supply ? (the main purpose of existing for most central banks).&lt;/p&gt;&#xA;" OwnerUserId="5233" LastActivityDate="2018-12-02T00:41:22.980" Title="IS-LM , Eurozone and Interest Rate Parity" Tags="&lt;international-trade&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25843" PostTypeId="2" ParentId="25842" CreationDate="2018-12-02T00:41:22.980" Score="1" Body="&lt;ol&gt;&#xA;&lt;li&gt;It’s the same currency and interest rate structure for all countries. The only difference is that there is a default premium for some countries. You see the exact same thing in Canada, with the Canadian provinces trading at different yields.&lt;/li&gt;&#xA;&lt;li&gt;The ECB is literally the union of all the national central banks. When the ECB makes a decision, it is implemented at the national central bank level.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;The IS/LM model has severe limitations. The ECB sets interest rates; it’s ability to control “the money supply” (which aggregate?) is debatable. (It can increase the size of the monetary base, but that does not imply that bank deposits etc. will grow.)&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2018-12-02T00:41:22.980" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="25844" PostTypeId="1" AcceptedAnswerId="25871" CreationDate="2018-12-02T01:14:24.547" Score="1" ViewCount="50" Body="&lt;p&gt;In econometrics, ( this material is in a lot of the literature but, IMHO, can most clearly be found in Harvey's text, &quot;econometric analysis of time series&quot;), there are generally two versions of a specific lagged dependent variable which is usually  termed the koyck distributed lag. ( It's a very special case of a distributed lag ). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I write down version 1 and version 2 below.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Version 1 is shown below.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1):   &lt;span class=&quot;math-container&quot;&gt;$y_t = \rho \times y_{t-1} + \beta \times x_t + \epsilon_t$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where &lt;span class=&quot;math-container&quot;&gt;$\epsilon_t = (v_t - \rho v_{t-1}) \sim N(0, \sigma^2) $&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is also version 2 which is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2):     &lt;span class=&quot;math-container&quot;&gt;$y_t = \rho \times y_{t-1} + \beta \times x_t + \epsilon_t$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where &lt;span class=&quot;math-container&quot;&gt;$\epsilon_t \sim N(0, \sigma^2) $&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, in version 1, the error term is such that &lt;span class=&quot;math-container&quot;&gt;$v_t$&lt;/span&gt; is AR(1) and in version 2), the error term is pure noise.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is the following: Is there a way to write to a version where the error term is MA(1) ? I initially figured there must be some kind of symmetry because  we have the pure noise case and the AR(1) case so I figured there must be a version with an MA(1) error term. But now I'm not so sure and actually don't think do.  Thanks for any insights.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT BASED ON GOOD QUESTION IN COMMENT:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hi: &lt;span class=&quot;math-container&quot;&gt;$\frac{\epsilon_t}{(1 - \rho L)} = v_t$&lt;/span&gt; where &lt;span class=&quot;math-container&quot;&gt;$L$&lt;/span&gt; is the lag operator.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, &lt;span class=&quot;math-container&quot;&gt;$v_{t}$&lt;/span&gt; can be thought of as an exponentially smoothed average of the past white noise error terms &lt;span class=&quot;math-container&quot;&gt;$\epsilon_{i}$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, version 1) of the model can be re-written in the following way:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$y_t = \rho \times y_{t-1} + \beta \times x_t + (1-\rho L) v_{t} $&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which can be re-written as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$y_{t}(1 - \rho L) = \beta \times x_t + (1 - \rho L) v_{t} $&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, dividing the whole the equation by &lt;span class=&quot;math-container&quot;&gt;$(1 - \rho L)$&lt;/span&gt; results in what I call the long form of version 1 of the model:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$y_{t} =  \beta \times \sum_{i=0}^{\infty} \rho^{i} x_{t-i} +  v_{t}$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, the model implies that response is &lt;span class=&quot;math-container&quot;&gt;$\beta$&lt;/span&gt; times an exponentially smoothed average of the past &lt;span class=&quot;math-container&quot;&gt;$x_{i}$&lt;/span&gt;  plus v_{t}. But, we can re-write the last term which results in&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$y_{t} =  \beta \times \sum_{i=0}^{\infty} \rho^{i} \times x_{t-i} + \sum_{i=0}^\infty \rho^{i} \epsilon_{t-i}$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, in version 1), the response can be thought of as an exponentially smoothed version of the past &lt;span class=&quot;math-container&quot;&gt;$x_{t}$&lt;/span&gt; plus the exponentially smoothed version of the past error terms, namely the &lt;span class=&quot;math-container&quot;&gt;$\epsilon_{i}$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I won't write it out, but, in  the long form of version 2, the error term is not an exponentially smoothed average of the past &lt;span class=&quot;math-container&quot;&gt;$\epsilon_{i}$&lt;/span&gt;. The past error terms  are not involved and the error term is just &lt;span class=&quot;math-container&quot;&gt;$\epsilon_{t}$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks for good question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;SECOND EDIT BASED ON GOOD QUESTION IN COMMENT:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When your question made me write it out in the long form, it hit me that&#xA;an MA(1) structure could just be:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$y_{t} =  \beta \times \sum_{i=0}^{\infty} \rho^{i} \times x_{t-i} + \epsilon_t + \rho \epsilon_{t-1} $&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This would be an MA(1) error term for the koyck distributed lag. I don't think it simplifies in any way by writing it in the short form but it's still a nice way of thinking of a third possibility. In one case, the error term lasts on period. in another case, the error term is  is an exp smoothed average of past errors and in the last case, the error is linear combination of the last two errors. Clearly your question totally led to this and I think what you're saying in your comment is the same as here, so thanks much for insight.&lt;/p&gt;&#xA;" OwnerUserId="18201" LastEditorUserId="18201" LastEditDate="2018-12-02T23:44:38.170" LastActivityDate="2018-12-03T03:42:22.227" Title="2 versions of the koyck distributed lag" Tags="&lt;time-series&gt;" AnswerCount="1" CommentCount="9" ContentLicense="CC BY-SA 4.0" />
  <row Id="25845" PostTypeId="2" ParentId="25841" CreationDate="2018-12-02T02:30:03.817" Score="3" Body="&lt;h1&gt;Hint&lt;/h1&gt;&#xA;&lt;p&gt;Let &lt;span class=&quot;math-container&quot;&gt;$\{1,2,\dots,N\}$&lt;/span&gt; be the set of outcomes. Without loss of generality, let &lt;span class=&quot;math-container&quot;&gt;$1\succsim 2\succsim\cdots\succsim N$&lt;/span&gt;. Let &lt;span class=&quot;math-container&quot;&gt;$\mathbf e_i$&lt;/span&gt; denote the degenerate lottery that assigns probability &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt; on outcome &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$0$&lt;/span&gt; on the rest. Note that any lottery &lt;span class=&quot;math-container&quot;&gt;$L=(p_1,\dots,p_N)$&lt;/span&gt; can be written as a compound lottery &lt;span class=&quot;math-container&quot;&gt;$p_1\mathbf e_1+\cdots+p_N\mathbf e_N$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;p&gt;Since lottery &lt;span class=&quot;math-container&quot;&gt;$\mathbf e_i$&lt;/span&gt; amounts to getting outcome &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; for sure, we must have&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;\mathbf e_1\succsim \mathbf e_2\succsim \cdots \succsim \mathbf e_N.\tag{1}&#xA;\end{equation}&lt;/span&gt;&#xA;Successively applying the independence axiom to &lt;span class=&quot;math-container&quot;&gt;$(1)$&lt;/span&gt;, you'll obtain &lt;span class=&quot;math-container&quot;&gt;$\mathbf e_1$&lt;/span&gt; as (one of) the best lottery and &lt;span class=&quot;math-container&quot;&gt;$\mathbf e_N$&lt;/span&gt; as (one of) the worst.&lt;/p&gt;&#xA;" OwnerUserId="42" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2018-12-02T02:30:03.817" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25846" PostTypeId="1" CreationDate="2018-12-02T05:09:44.417" Score="1" ViewCount="33" Body="&lt;blockquote&gt;&#xA;&lt;p&gt;&lt;strong&gt;Question:&lt;/strong&gt; Is there a quantitative or some kind of correlation between the number of drug dealers in a certain region and the price of pharmaceutical drugs?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;This is for a case I'm working on, but I can't seem to find a direct correlation between the price of prescription drugs and drug dealers.&lt;/p&gt;&#xA;&lt;p&gt;Right off the bat, it seems simple right? Lower prices force drug dealers out as consumers turn towards the brand name drugs which effectively lowers the amount of drug dealers in an area. However, I can't seem to find, anywhere, that says something along those lines.&lt;/p&gt;&#xA;" OwnerUserId="19974" LastEditorUserId="6168" LastEditDate="2020-08-03T09:29:20.497" LastActivityDate="2020-08-03T09:29:20.497" Title="Is there a correlation between pharmaceutical prices and drug dealers?" Tags="&lt;price&gt;&lt;pricing&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25847" PostTypeId="2" ParentId="25846" CreationDate="2018-12-02T07:15:44.340" Score="2" Body="&lt;p&gt;Direct correlation seems unlikely. You would probably have to control for population or even better, population density. Leaving prices unchanged a city with ten times the population can support ten times as many drug dealers. Differences in average income levels would present a similar problem.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finding reliable data, such as number of drug dealers and a good measure of price levels will be a challenge as well.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2018-12-02T07:15:44.340" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25850" PostTypeId="1" CreationDate="2018-12-02T11:47:01.983" Score="-1" ViewCount="69" Body="&lt;p&gt;I am really lost right now. I have a test tomorrow and I am stressing out.&#xA;Whatever I look at for externalities, which could be my textbook, a website, notes from class, they all contradict each other.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If &lt;em&gt;Social benefit = private benefit + external benefit&lt;/em&gt;, then it is impossible for it to exceed private benefit.&#xA;Yet on the supply and demand graph, it is shown that private benefit &lt;em&gt;can&lt;/em&gt; exceed social benefit, as there are &quot;negative benefits&quot; of &lt;strong&gt;consumption&lt;/strong&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words, in these graphs they only include &lt;strong&gt;consumption&lt;/strong&gt; for &lt;strong&gt;benefits (demand curve)&lt;/strong&gt; and &lt;strong&gt;production&lt;/strong&gt; for &lt;strong&gt;costs (supply curve)&lt;/strong&gt;&#xA;Yet, in all my notes and our textbook, it says that benefits include &lt;strong&gt;positive&lt;/strong&gt; externalities from consumption &lt;strong&gt;and&lt;/strong&gt; production, and costs include &lt;strong&gt;negative&lt;/strong&gt; externalities from consumption &lt;strong&gt;and&lt;/strong&gt; production. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, at the same time, everyone says you can have &quot;negative benefits&quot; and &quot;positive costs&quot;. Therefore, what is the point of separating costs and benefits if they're constantly combined? How do you determine them?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am so confused and I am sorry if this post was a train wreck but nothing makes sense and I am stressed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Much help is needed,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you. &lt;/p&gt;&#xA;" OwnerUserId="20360" LastEditorUserId="20360" LastEditDate="2018-12-02T12:11:01.130" LastActivityDate="2018-12-02T13:03:31.353" Title="How does social cost and social benefit work?" Tags="&lt;microeconomics&gt;&lt;externalities&gt;&lt;market-failure&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25851" PostTypeId="1" CreationDate="2018-12-02T11:58:11.833" Score="1" ViewCount="64" Body="&lt;p&gt;I am analyzing pricing for a new streaming service for a school project. My thought is to calculate the demand function of a player in the same industry and then calculate the optimal price. I am a little confused about calculating the demand function for Netflix. I have their subscription fees (converted to annual) since 2007 - x axis and subscribers - y axis. I am getting an upward slope. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Below is the output of regression. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Subscribers = 76.5 + 0.5 Fee_per_year&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would appreciate it if someone can point out what mistake I am making. &lt;/p&gt;&#xA;" OwnerUserId="20359" LastEditorUserId="5557" LastEditDate="2018-12-04T22:15:55.787" LastActivityDate="2019-09-01T00:02:55.660" Title="Problem finding Demand Function" Tags="&lt;supply-and-demand&gt;&lt;pricing&gt;" AnswerCount="1" CommentCount="0" ClosedDate="2019-09-04T18:17:25.023" ContentLicense="CC BY-SA 4.0" />
  <row Id="25852" PostTypeId="2" ParentId="25850" CreationDate="2018-12-02T13:03:31.353" Score="1" Body="&lt;p&gt;The payoff of an individual or a group is given by &lt;span class=&quot;math-container&quot;&gt;$$\text{thier benefits}-\text{their costs}.$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's work with an example of car ownership. It yields two benefits for me: I can use it to go to work (which is worth &lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt;) and I can use it to go shopping (which is worth &lt;span class=&quot;math-container&quot;&gt;$s$&lt;/span&gt; to me). Owning the car is also costly: fuel and maintainence cost &lt;span class=&quot;math-container&quot;&gt;$c$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, the net payoff of car ownership for me is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$[\text{benefits}]-(\text{costs})=[w+s]-(c)=w+s-c.$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Now suppose I take the &quot;benefit&quot; of travelling to work and I insist that we &lt;em&gt;relabel&lt;/em&gt; it as a negative cost. That is, I say &quot;No, no, it's not that I get a benefit of &lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt; from travelling to work. Rather, I save a cost of &lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt; by being able to drive to work instead of having to find another way to get there.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Okay, so we need to rewrite our payoff equation with the new benefits and costs. We now have a benefit of &lt;span class=&quot;math-container&quot;&gt;$s$&lt;/span&gt; from the shopping, a cost of &lt;span class=&quot;math-container&quot;&gt;$c$&lt;/span&gt; from maintenance and fuel, and a cost of &lt;span class=&quot;math-container&quot;&gt;$-w$&lt;/span&gt; from not having to worry about how I get to work. My payoff is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$[\text{benefits}]-(\text{costs})=[s]-(c-w)=w+s-c.$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is exactly the same as before!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is a much more general principle here: it is exactly equivalent to call something a positive benefit or a negative cost. Likewise, it is equivalent to call something a positive cost, or a negative benefit. That means we can always take a benefit, put a minus sign in front, and call it a cost or vice-versa. Whether we end up calling it a benefit or a cost is completely arbitrary. If we wanted to be extreme about it, we could insist there are no costs, only positive benefits and negative benefits; after all, what is a cost if not a negative benefit?&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;if something is good then it is a positive benefit or a negative cost&lt;/li&gt;&#xA;&lt;li&gt;of something is bad then it is a positive cost or a negative benefit&lt;/li&gt;&#xA;&lt;li&gt;each thing should only be counted &lt;em&gt;once&lt;/em&gt; (i.e., it should not be included as both a benefit and a cost at the same time).&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;A common convention is to only allow positive benefits and positive costs. Thus, if something is good we call it a benefit, and if something is bad we call it a cost. But that's not the only way.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This applies equally to private benefits/costs and social benefits/costs.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;What this means for you is that you don't need to get tangled up in knots about what is a cost and what is a benefit, because you can always switch between the two. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You only need to (1) be consistent, and (2) be clear what factors you are including as benefits and which as costs. If you are confused by your books and notes it is because the author did a bad job of being clear about this.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2018-12-02T13:03:31.353" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25853" PostTypeId="1" AcceptedAnswerId="25868" CreationDate="2018-12-02T13:05:43.317" Score="1" ViewCount="4486" Body="&lt;p&gt;I'm just getting started as an amateur into microeconomics and I really can't understand this thing about marginal utility when more than one good is involved:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's say I have the utility function &lt;strong&gt;&lt;em&gt;U = x(y+1)&lt;/em&gt;&lt;/strong&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, from what I've studied, I  think that the marginal utilities for x and y should be:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;MU&lt;sub&gt;x&lt;/sub&gt; = y+1&lt;br&gt;&#xA;MU&lt;sub&gt;y&lt;/sub&gt; = x&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I just don't get how to arrive there &quot;mathematically&quot;, and I fear I wouldn't be able to find the marginal utilities of a more complex function, for example &lt;strong&gt;&lt;em&gt;U = x(x+y)&lt;/em&gt;&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Could you help me?&lt;br&gt;&#xA;Thank you!&lt;/p&gt;&#xA;" OwnerUserId="20362" LastActivityDate="2018-12-02T22:46:07.387" Title="How to calculate marginal utility with two goods?" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;marginal&gt;" AnswerCount="1" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="25854" PostTypeId="1" CreationDate="2018-12-02T13:21:15.133" Score="1" ViewCount="37" Body="&lt;p&gt;I assume most people have heard of Pascal's Wager, in case you have not: &lt;a href=&quot;https://en.wikipedia.org/wiki/Pascal%27s_Wager&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://en.wikipedia.org/wiki/Pascal%27s_Wager&lt;/a&gt;   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;By the Stanford encyclopedia of philosphy:  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;&quot;We have a decision under risk, with probabilities assigned to the ways the world could be, and utilities assigned to the outcomes. In particular, we represent the infinite utility associated with salvation as ‘∞’. We assume that the real line is extended to include the element ‘∞’, and that the basic arithmetical operations are extended as follows:&#xA;For all real numbers r: ∞+r=∞. &#xA;For all real numbers r: ∞×r=∞ if r&gt;0.&quot;&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Doesn't this contradict one of the axioms of the expected utility theory? In particular the archimedean property states:  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Let l, l’ and l’’ be three lotteries in L such that &lt;span class=&quot;math-container&quot;&gt;$l \succ l’ \succ l’’$&lt;/span&gt;. Then there are &lt;span class=&quot;math-container&quot;&gt;$p,q \in(0,1)$&lt;/span&gt; such that:&#xA;&lt;span class=&quot;math-container&quot;&gt;$pl + (1-p)l’’ \succ l’ \succ ql + (1-q)l’’$&lt;/span&gt;&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and it basically means that there are no infinitely preferred or infinitely despised lotteries.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But in the Pascal's Wager, &lt;span class=&quot;math-container&quot;&gt;$l$&lt;/span&gt; = salvation = &lt;span class=&quot;math-container&quot;&gt;$ + \infty$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$l'$&lt;/span&gt; = nothing (god doesn't exist), &lt;span class=&quot;math-container&quot;&gt;$l''$&lt;/span&gt; = damnation = &lt;span class=&quot;math-container&quot;&gt;$ - \infty$&lt;/span&gt;,&#xA;but then there does not exist a probability &lt;span class=&quot;math-container&quot;&gt;$p &amp;gt; 0$&lt;/span&gt; such that any mixed combination of damnation and salvation is strictly preferred than &quot;god doesn't exist&quot;.&lt;br&gt;&#xA;What do you think?&lt;/p&gt;&#xA;" OwnerUserId="19566" LastActivityDate="2018-12-02T16:21:51.183" Title="Does Pascal's Wager fail archimedean property?" Tags="&lt;decision-theory&gt;&lt;expected-utility&gt;&lt;rationality&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="25855" PostTypeId="2" ParentId="25546" CreationDate="2018-12-02T14:47:50.317" Score="1" Body="&lt;p&gt;There is a standard called ISO 4217. This standard contains currencies used in banking and business, and it used worldwide.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can find a list &lt;a href=&quot;https://www.ibm.com/support/knowledgecenter/en/SSZLC2_7.0.0/com.ibm.commerce.payments.developer.doc/refs/rpylerl2mst97.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can also find a CSV file containing every currency code &lt;a href=&quot;https://github.com/datasets/currency-codes/blob/master/data/codes-all.csv&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="19047" LastActivityDate="2018-12-02T14:47:50.317" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25857" PostTypeId="1" CreationDate="2018-12-02T16:04:11.467" Score="3" ViewCount="99" Body="&lt;p&gt;Mathematically speaking the current account is defined as:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\text{CA}=S-I$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where &lt;span class=&quot;math-container&quot;&gt;$S$&lt;/span&gt; is savings and &lt;span class=&quot;math-container&quot;&gt;$I$&lt;/span&gt; is investment. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;We know for a closed economy &lt;span class=&quot;math-container&quot;&gt;$S=I$&lt;/span&gt; so &lt;span class=&quot;math-container&quot;&gt;$CA=0$&lt;/span&gt;. practically speaking for an open economy what is the difference between these two terms?&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2020-08-24T14:00:50.107" Title="The Difference between investment and savings in CA identity" Tags="&lt;international-economics&gt;&lt;open-economy-macro&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25859" PostTypeId="2" ParentId="25846" CreationDate="2018-12-02T16:45:58.690" Score="2" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;it seems simple right? Lower prices force drug dealers out as&#xA;  consumers turn towards the brand name drugs which effectively lowers&#xA;  the amount of drug dealers in an area.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;No, it is definitely not simple. Perhaps it is not even practical. You are talking about two different, largely disjoint markets.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In one market, the consumer base consists of patients undergoing medical treatment. In the other market, the set of consumers consists of junkies. Each set's approach toward narcotics is different than the other's. Although there can be some intersection (for instance, some prescription drugs create dependence and lead to illegal substitutes, whereas a rehab might be prescribed certain drugs to overcome his prior addiction), I doubt it would be representative of the &quot;composite&quot; consumer base.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Each market might present wildly different elasticities, thereby precluding the possibility of a serious, reliable analysis of one &quot;consolidated&quot; market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Even if pharmaceutical companies increase drugs supply, that does not mean (or ought not imply) that it will be matched by an increase in the number of prescriptions.&lt;/p&gt;&#xA;" OwnerUserId="18552" LastActivityDate="2018-12-02T16:45:58.690" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25860" PostTypeId="1" CreationDate="2018-12-02T17:11:31.333" Score="1" ViewCount="84" Body="&lt;p&gt;In a book I am reading, the problem of the firms is described as maximizing current market value of profits. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\max \sum_{k=0}^\infty \Delta_{t, t+k} \cdot &quot;\text{profits in period k}&quot;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, basically, it's all profits, discounted back with discount factor &lt;span class=&quot;math-container&quot;&gt;$\Delta_{t, t+k}$&lt;/span&gt;. Except, the discount factor is defined in the book as &lt;span class=&quot;math-container&quot;&gt;$$\Delta_{t, t+k} = \beta^{k} U_{c, t+k}/U_{c, t}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where &lt;span class=&quot;math-container&quot;&gt;$\beta$&lt;/span&gt; is a discount rate, and &lt;span class=&quot;math-container&quot;&gt;$U_c$&lt;/span&gt; is the first derivative of the utility function of the consumers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I don't understand is, why are the derivatives of the utility function of consumers with respect to consumption involved in the discount factor? Why is it not just &lt;span class=&quot;math-container&quot;&gt;$\beta$&lt;/span&gt;? The book gives no explanation of where this discount factor came from.&lt;/p&gt;&#xA;" OwnerUserId="20363" LastActivityDate="2018-12-02T18:00:12.020" Title="Why is there a stochastic discount factor in firms present value?" Tags="&lt;discount-rate&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="25861" PostTypeId="1" AcceptedAnswerId="25863" CreationDate="2018-12-02T17:46:37.303" Score="2" ViewCount="81" Body="&lt;p&gt;Currently I'm studying the RCK model at my Advanced Macroeconomics I classes. &#xA;A question arose almost immediately when I saw the utility function of a household in this model. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/UCFv5.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/UCFv5.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question is: why are we using exp(-ρt) inside this integral? I mean: why this functional form in particular? I love mastering every single aspect of every model I study, that's why I'm asking so. &#xA;Thank you really much in advance for your kind responses.&lt;/p&gt;&#xA;" OwnerUserId="8283" LastEditorUserId="8283" LastEditDate="2018-12-02T18:15:30.947" LastActivityDate="2018-12-02T19:10:05.957" Title="Why are we using exp(.) as the functional form in the household maximization problem inside the RCK model?" Tags="&lt;macroeconomics&gt;&lt;economic-growth&gt;&lt;balanced-growth&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25863" PostTypeId="2" ParentId="25861" CreationDate="2018-12-02T19:10:05.957" Score="3" Body="&lt;p&gt;I guess you already know that &lt;span class=&quot;math-container&quot;&gt;$\exp(-\rho t)$&lt;/span&gt; is the the discount factor. In particular, it is obtained by continuously compounding the discount factor&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\exp(-\rho t)=\lim_{m \to \infty} \left(1+ \frac{\rho}{m}\right)^{mt}$$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="20281" LastActivityDate="2018-12-02T19:10:05.957" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25865" PostTypeId="1" CreationDate="2018-12-02T21:25:08.293" Score="-1" ViewCount="23" Body="&lt;p&gt;why when we do the following operation mean (10 ,20,30)= 20 &lt;/p&gt;&#xA;&#xA;&lt;p&gt;is different from (mean(10,20)+30)/2=22,5&lt;/p&gt;&#xA;&#xA;&lt;p&gt;there are no equality between the 2 operations using mean  ? why?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;thanks a lot in advance for any help &lt;/p&gt;&#xA;" OwnerUserId="19813" LastActivityDate="2018-12-02T23:09:03.107" Title="equality between 2 operations using mean" Tags="&lt;mathematical-economics&gt;" AnswerCount="1" CommentCount="2" ClosedDate="2018-12-08T05:05:50.900" ContentLicense="CC BY-SA 4.0" />
  <row Id="25866" PostTypeId="1" CreationDate="2018-12-02T21:46:10.960" Score="3" ViewCount="43" Body="&lt;p&gt;The following graph from the &lt;a href=&quot;http://data.worldbank.org/indicator/MS.MIL.XPND.GD.ZS?end=2015&amp;amp;start=1988&amp;amp;view=chart&amp;amp;year=2015&quot; rel=&quot;nofollow noreferrer&quot;&gt;world bank website&lt;/a&gt; shows the world wide military expenditure in percentage of the world GDP over time from 1988 to 2015&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/4uLzU.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/4uLzU.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am trying to find similar data over a much longer period of time. Over the last 3000 years would be ideal! Of course, I realize that such data might result from very rough estimations and might eventually be specific to a certain area of the world and arguably not representative.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Where could I find similar data over a much longer period of time?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;sub&gt;This question has first been asked &lt;a href=&quot;https://history.stackexchange.com/questions/35233/military-expenditure-over-time&quot;&gt;here&lt;/a&gt; on History.SE almost two years ago. It got a good reception but no answer. Following advice of the community, I asked the question to be migrated. The question has been judged on-topic for economics.SE by moderators. As the question is too old to be migrated, it has been closed on history.SE and I am reposting it here.&lt;/sub&gt;&lt;/p&gt;&#xA;" OwnerUserId="8049" LastEditorUserId="1601" LastEditDate="2018-12-02T23:00:06.237" LastActivityDate="2018-12-03T02:16:46.967" Title="Military expenditure over time" Tags="&lt;data-request&gt;&lt;political-economy&gt;&lt;history&gt;&lt;government-spending&gt;&lt;economic-history&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25868" PostTypeId="2" ParentId="25853" CreationDate="2018-12-02T22:46:07.387" Score="1" Body="&lt;p&gt;This is quite simple to answer given you know a bit of multivariable differential calculus. You're looking for &lt;em&gt;partial&lt;/em&gt; derivatives of the utility function. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, given &lt;span class=&quot;math-container&quot;&gt;$$U(x,y) = x(y+1)$$&lt;/span&gt; we have &lt;span class=&quot;math-container&quot;&gt;$$\frac{\partial U}{\partial x} = y+1$$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$$\frac{\partial U}{\partial y} = x$$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;These are the goods' marginal utilities.&lt;/p&gt;&#xA;" OwnerUserId="18167" LastActivityDate="2018-12-02T22:46:07.387" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25869" PostTypeId="2" ParentId="25865" CreationDate="2018-12-02T23:09:03.107" Score="2" Body="&lt;p&gt;Algebraically speaking, these are two different operations&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the first scenario you have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\frac{10 + 20 + 30}{3} = 20 \tag{1}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the second case you have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\frac{(10 + 20) / 2 + 30}{2} = 22.5 \tag{2}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But if this is not convincing enough, consider a different set of numbers, just to make things easier take &lt;span class=&quot;math-container&quot;&gt;$\{-3, -2, -1, 0, 1, 2, 3\}$&lt;/span&gt;. Imagine a bar of length &lt;span class=&quot;math-container&quot;&gt;$6$&lt;/span&gt;, and you put a mass separated by a unit of length:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt; *===*===*===*===*===*===*&#xA;-3  -2  -1   0   1   2   3&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;The question is, where do you need to place your finger such that bar is in equilibrium? Answer is &lt;span class=&quot;math-container&quot;&gt;$0$&lt;/span&gt;, which actually is the average of the points. Now let's group the first three points and replace it with the average, and the other four and replace them with the average &lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt; ====*=============*======&#xA;    -2       0    1.5     &#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;you immediately see that if you place your finger at &lt;span class=&quot;math-container&quot;&gt;$0$&lt;/span&gt; the bar will topple to the left. So you changed the problem just by averaging in groups. You can return to the original situation by adding different weights to each point&lt;/p&gt;&#xA;" OwnerUserId="14419" LastActivityDate="2018-12-02T23:09:03.107" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25870" PostTypeId="2" ParentId="25866" CreationDate="2018-12-03T02:16:46.967" Score="2" Body="&lt;p&gt;This is a &quot;there can be no adequate answer&quot; answer, for periods prior to &quot;imperialism as a world system.&quot;  (Personally, I'd pick 1880s here, ymmv.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Gross domestic product as a conceptual tool contains a number of assumptions about how economies function which are unsustainable prior to the generalisation of capitalism in the Marxian sense.  While it might be possible to produce homologues for GDP in societies prior to &quot;production&quot; in the capitalist sense, these link poorly with the assumptions you wish to use GDP for.  In societies without a generalised measure of value, production occurs in traditional manners.  The state, particularly prior to Louis XIV era innovations, lacks the capacity to mobilise the economy to particular ends.  This is to say, there is no &quot;gross&quot; productivity, and there is no capacity of a state to mobilise a percentage of productivity.  The state acts as an agent amongst others in traditional relations of production to move portions of portions of social product to its ends.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Earlier the ability to talk about the state comes into question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Apart from these issues of concepts of measure, there are issues with measurements themselves.  Data series are incredibly fragmentary and difficult to interpret.  Consider, for example, Measuringworth.com's data series on English wage/price series.  The wages and prices originate in monastic records which were not typical of the relations between agricultural labourers and land controllers.  Even the data points from &quot;private&quot; markets in labour here are suspect, 'with' or 'without' beer?  'With' or 'without' crofts being destroyed regularly?  The customary nature of pre-capitalist economies makes data sets less and less meaningful numerically because of the number of externalities.  Even if data points rigorously record the externalities ('with' beer, but 'with' destruction of waste communities of free peasants, and 'with' regular rapine due to civil war), other data points won't have adequate records.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The alternate way forward would be situational and context interpretive single case studies.  To look at institutional stressor indicators due to war.  Did dynastic families fail to reproduce, or were they subject to heightened baronial outrage; were peasant revolts common, what grains were eaten, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can't apply a stable category, due to categorical assumptions about capacity to mobilise economies and what is worthful being changeable.  We can't gain equivalent data points, due to the complex structures of worth in the premodern.&lt;/p&gt;&#xA;" OwnerUserId="19898" LastActivityDate="2018-12-03T02:16:46.967" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25871" PostTypeId="2" ParentId="25844" CreationDate="2018-12-03T03:42:22.227" Score="1" Body="&lt;p&gt;As I explained in the edited question, the comment-question made by @caverac made me write the models out in their respective long form versions. Doing this made it obvious that an MA(1) structure can be imposed and the model is shown below.  As far as I can tell, the long form of this model cannot be transformed to a lagged dependent variable model (what I refer to as the short form ) nicely like can be in the  AR(1) and pure noise cases.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Long Form of Koyck Distributed Lag Model With MA(1) error term:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$y_{t} = \beta \times \sum_{i=0}^{\infty} \rho^{i} x_{t-i} + \epsilon_t + \rho \times \epsilon_{t-1}$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="18201" LastActivityDate="2018-12-03T03:42:22.227" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25872" PostTypeId="2" ParentId="25857" CreationDate="2018-12-03T09:20:08.503" Score="2" Body="&lt;p&gt;Yesterday I gave &lt;a href=&quot;https://economics.stackexchange.com/questions/25839/s-i-in-a-closed-economy/25840&quot;&gt;an example of an economy based on grains of wheat&lt;/a&gt; where the real domestic activities were &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Plant wheat grains, grow them and harvest them, getting more grains as a result&lt;/li&gt;&#xA;&lt;li&gt;Consume wheat as food&lt;/li&gt;&#xA;&lt;li&gt;Store unconsumed wheat for future planting or consumption&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;In an open economy there are two further possibilities&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Send wheat grains abroad (e.g. exports)&lt;/li&gt;&#xA;&lt;li&gt;Receive wheat grains from abroad (e.g. imports)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;So saving represents the excess of production of wheat grains over consumption, while investment represents a combination of planting grains for future production and increasing stocks of grain.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this open economy, you then get the macroeconomic tautology that the increase in stocks must be equal to production plus imports minus the sum of consumption and use for planting and exports.  Rearrange this and you get that saving (production minus use for consumption) minus investment (use for planting plus increase in stocks) must equal exports minus imports (in effect the balance of trade or, if you take into account other foreign income, the current account balance), i.e. &lt;span class=&quot;math-container&quot;&gt;$S-I = X-M$&lt;/span&gt; or &lt;span class=&quot;math-container&quot;&gt;$CA=S-I$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You may then want to translate this into monetary terms using the price of wheat, or in a more complicated economy the price of all the stuff involved, but the key is to recognise this is about stuff measured in monetary terms rather than about money      &lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2018-12-03T09:20:08.503" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25875" PostTypeId="1" AcceptedAnswerId="25878" CreationDate="2018-12-03T17:16:27.997" Score="2" ViewCount="272" Body="&lt;p&gt;I've been deriving Bass diffusion model and keep consistently finding a different result than Bass' original answer. To make things worse, every single link in the Google results page just copies the Bass original solution, while I am finding the different one. You don't have to know the model, just let me show you the math part, so you can check my solution.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;The premise:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We have two formulations of the hazard rate --- as Bayesian conditional probability and as a linear function:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;	\frac{f(t)}{1-F(t)} = p + q F(t)&#xA;\end{equation}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where &lt;span class=&quot;math-container&quot;&gt;$f(t) = \frac{dF(t)}{dt}$&lt;/span&gt;. This gives the following differential equation:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;	\frac{dF(t)}{dt} = (1 - F(t)) (p + qF(t))&#xA;\end{equation}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My solution&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Using Chain Rule, we rewrite this as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;	\int \frac{dF(t)}{(1-F(t))(p+qF(t))} = \int dt = t&#xA;	\label{eq:diff}&#xA;\end{equation}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Notice that:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;	\frac{1}{(1-F(t))(p+qF(t))} = \left( \frac{1}{p+q} \right) \left( \frac{q}{p+qF(t)} + \frac{1}{1-F(t)} \right),&#xA;\end{equation}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;substituting this to the above equation, implies:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;	\int \frac{q}{p+qF(t)} dF(t) - \int \frac{-1}{1-F(t)} dF(t) = (p + q) t&#xA;\end{equation}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;integrating yields:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;	\log (p + qF(t)) - \log (1 - F(t)) = (p + q) t&#xA;\end{equation}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;using log properties:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;	\log \left( \frac{p + qF(t)}{1 - F(t)} \right) = (p + q) t&#xA;\end{equation}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;or:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;	\frac{p + qF(t)}{1 - F(t)} = e^{(p+q)t}&#xA;\end{equation}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;cross producting the fraction yields:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;	p + qF(t) = e^{(p+q)t} - e^{(p+q)t} F(t)&#xA;\end{equation}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;finally:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;	(q + e^{(p+q)t}) F(t) = (e^{(p+q)t} - p) &#xA;\end{equation}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;or:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;	F(t) = \frac{e^{(p+q)t} - p}{e^{(p+q)t} + q}&#xA;\end{equation}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;The problem:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But Bass, somehow found the following:&#xA;&lt;a href=&quot;https://i.stack.imgur.com/zgdcM.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/zgdcM.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;cancelling out my answer does not yield Bass' answer. The unnecessary &lt;span class=&quot;math-container&quot;&gt;$q$&lt;/span&gt; is ruining everything.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can you please help me with this inconsistency?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you.&lt;/p&gt;&#xA;" OwnerUserId="18320" LastActivityDate="2018-12-03T19:19:05.097" Title="What am I doing wrong in the derivation of Bass diffusion model?" Tags="&lt;value&gt;&lt;marketing&gt;&lt;difference-equations&gt;&lt;theory-of-the-firm&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25876" PostTypeId="1" CreationDate="2018-12-03T18:15:46.597" Score="1" ViewCount="56" Body="&lt;p&gt;I want to calculate market concentration (HHI and C4) but I don't have sales data. Is it accurate to use the share of establishments of each firm as a proxy for market power?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Could you list some references that use this or a similar method?&lt;/p&gt;&#xA;" OwnerUserId="20373" LastActivityDate="2019-01-26T20:06:36.313" Title="Calculating Market Concentration without sales data" Tags="&lt;microeconomics&gt;&lt;industrial-organisation&gt;&lt;theory&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25878" PostTypeId="2" ParentId="25875" CreationDate="2018-12-03T19:19:05.097" Score="3" Body="&lt;p&gt;You are missing an integration constant&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\log\left(\frac{p + qF(t)}{1 - F(t)}\right) = (p + q)t + \color{red}{\tilde{C}}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This constant you can name it whatever you want, I'm going to name it as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\color{red}{\tilde{C}} = \color{blue}{C}(p + q) + \ln q&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where &lt;span class=&quot;math-container&quot;&gt;$C$&lt;/span&gt; is just another constant. So I basically changed one constant for  another one (completely allowed). Now the problem becomes&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{eqnarray}&#xA;\ln\left(\frac{p + qF(t)}{1 - F(t)}\right) &amp;amp;=&amp;amp; (p + q)t + \color{blue}{C}(p + q) + \ln q = (p + q)(t + C) + \ln q\\&#xA;p + qF(t) &amp;amp;=&amp;amp; e^{(p + q)(t + C) + \ln q}(1 - F(t)) = qe^{(p + q)(t + C)}(1 - F(t)) \\&#xA;[q + qe^{(p + q)(t + C)}]F(t)&amp;amp;=&amp;amp; qe^{(p + q)(t + C)} - p \\&#xA;F(t) &amp;amp;=&amp;amp; \frac{1}{q} \frac{qe^{(p + q)(t + C)} - p}{1 + e^{(p + q)(t + C)}}&#xA;\end{eqnarray}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Rearranging a bit the terms&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\bbox[5px,border:2px solid blue]&#xA;{&#xA;F(t) = \frac{1}{q}\frac{q - pe^{-(p + q)(t + C)}}{1 + e^{-(p + q)(t + C)}}&#xA;}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="14419" LastActivityDate="2018-12-03T19:19:05.097" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="25880" PostTypeId="1" AcceptedAnswerId="25882" CreationDate="2018-12-04T03:08:10.773" Score="2" ViewCount="121" Body="&lt;p&gt;The principal goal of Econometrics is to find causal effects between economic variables. But the growing technology level seems to show us that Big Data and Statistical Learning result in a tradeoff with econometrics, because of according to some professors (and professionals),  the Statistics field, once is applied in economics, must be guide by economic theory because its alternatives find  correlations (Not inference).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given the above, is it possible to find causal effects between economic variables with Statistical Learning methods as alternatives to Econometrics?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Pardon forerrors, I'm not a native English speaker)&lt;/p&gt;&#xA;" OwnerUserId="14160" LastActivityDate="2018-12-04T21:09:06.707" Title="Statistical Learning and Econometrics" Tags="&lt;econometrics&gt;&lt;theory&gt;&lt;computation&gt;" AnswerCount="1" CommentCount="7" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25881" PostTypeId="2" ParentId="24266" CreationDate="2018-12-04T11:01:41.600" Score="-1" Body="&lt;p&gt;&quot;When a car company makes a new vehicle, the 10th car costs the same to manufacture as the 1000th.&quot; You're saying that there are no economies of scale? This doesn't really make sense. The cost of producing a marginal unit once an assembly or other manufacturing process is already set up is going to be less than setting up the manufacturing process in order to produce one unit.&lt;/p&gt;&#xA;" OwnerUserId="20379" LastActivityDate="2018-12-04T11:01:41.600" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25882" PostTypeId="2" ParentId="25880" CreationDate="2018-12-04T13:59:54.063" Score="0" Body="&lt;p&gt;As @markleeds suggested, Judea Pearl made a significant contribution to the field of Causality.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;His work (though not innovative) explains that causality cannot be represented by joint probabilities. In fact, even econometric models can't model causality.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, we have to use Rubin's Causal model, Granger Causality, Difference-in-Differences or whatever, to explore causality.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, the answer to your question is yes and no. We can use statistical learning techniques in combination with causal frameworks, but they alone can't provide causality rigorously.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, I came up with a very simple solution to use special impulse-responses (in my case, one-hot vectors like &lt;span class=&quot;math-container&quot;&gt;$(1,0,0), (0,1,0), (0,0,1)$&lt;/span&gt;) to clear out the partial effects of input variables to the outcome in Neural Nets. Link here: &lt;a href=&quot;http://ravshansk.com/articles/irf-ann&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://ravshansk.com/articles/irf-ann&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But all of these are just hacks and don't quite have a rigor. Judea Pearl argues that we must have a new notation for causality or use graphical models whatsoever.&lt;/p&gt;&#xA;" OwnerUserId="18320" LastEditorUserId="18320" LastEditDate="2018-12-04T21:09:06.707" LastActivityDate="2018-12-04T21:09:06.707" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="25883" PostTypeId="1" CreationDate="2018-12-04T14:03:28.470" Score="4" ViewCount="97" Body="&lt;p&gt;For a project in experimental economics, I thought of doing something related to expected utility theory/prospect theory, but using grades instead of money.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this reformulation of the Allais paradox conceptually right or not?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Problem 1.1:&lt;br&gt;&#xA;Consider the following scenario:&lt;br&gt;&#xA;A.1 – you can get an B+ with probability 100%&lt;br&gt;&#xA;B.1 – you can get A with probability 10% or get B+ with probability 89% or not passing the exam with probability 1%.&lt;br&gt;&#xA;+&lt;br&gt;&#xA;A.2 – you can get B+ with probability 11% or not passing the exam with probability 89%,&lt;br&gt;&#xA;B&lt;/em&gt;.2 – you can get A with probability 10% or not pass the exam with probability 90%.*&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then I will modify the problem to see if for higher stakes student's preferences change.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit:&#xA;If we consider that not passing the exam gives utility = 0, (as in the Allais paradox we have the same case because it corresponds to receiving 0$) the graph of the utility function, assuming constant marginal utility of grades would look like this:&#xA;&lt;a href=&quot;https://i.stack.imgur.com/G0sdT.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/G0sdT.jpg&quot; alt=&quot;utility&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="19566" LastEditorUserId="19566" LastEditDate="2018-12-04T21:45:55.333" LastActivityDate="2019-02-03T09:02:50.610" Title="Can I recreate an experiment on Allais paradox using student grades as payoffs?" Tags="&lt;expected-utility&gt;&lt;risk&gt;&lt;risk-aversion&gt;&lt;experimental-economics&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25884" PostTypeId="2" ParentId="25883" CreationDate="2018-12-04T15:56:26.667" Score="0" Body="&lt;p&gt;No, it is incorrect to reformulate it like that. You've formulated something, but it's not the Allais paradox.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The point of the Allais paradox is that the rewards are (in the theory being tested) quantitative and of constant marginal utility. Grades are not quantitative, and are not claimed to have constant marginal utility.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2018-12-04T15:56:26.667" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="25887" PostTypeId="2" ParentId="25851" CreationDate="2018-12-04T22:11:51.900" Score="1" Body="&lt;p&gt;You cannot empirically calculate the demand function in your current setting. Finding a demand function is indeed very difficult in general. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What we can observe, i.e. the data you have, is the market equilibrium over time, i.e. the equilibrium price and quantity levels. These are determined by the interplay of supply and demand. So when you observe a price and quantity you are not observing demand, but rather a combination of demand and supply. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To find the demand curve, you would need, for example, an instrument variable, i.e a variable that is correlated with demand, but independent of supply.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastActivityDate="2018-12-04T22:11:51.900" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25891" PostTypeId="1" AcceptedAnswerId="25892" CreationDate="2018-12-05T08:56:02.077" Score="2" ViewCount="52" Body="&lt;p&gt;My professor states the validity condition in the following way:&#xA;&lt;span class=&quot;math-container&quot;&gt;$W$&lt;/span&gt; (the matrix of instrumental variables) must be such that &#xA;&lt;span class=&quot;math-container&quot;&gt;$ \text{plim} \, \frac{W'u}{N}=0$&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$u$&lt;/span&gt; is the error term.&#xA;Intuitively, I can see that in some way, this relates to the covariance between &lt;span class=&quot;math-container&quot;&gt;$W$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$u$&lt;/span&gt;, but am not entirely convinced.&#xA;Moreover, why do we look at this condition in an asymptotic setting? Why not impose mean independence, i.e., &lt;span class=&quot;math-container&quot;&gt;$E(u|W)=E(u)$&lt;/span&gt;?&lt;/p&gt;&#xA;" OwnerUserId="13883" LastEditorUserId="17735" LastEditDate="2018-12-05T10:38:56.687" LastActivityDate="2019-01-05T17:21:01.833" Title="Validity condition for Instrumental Variables" Tags="&lt;econometrics&gt;&lt;instrumental-variable&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25892" PostTypeId="2" ParentId="25891" CreationDate="2018-12-05T09:13:46.527" Score="2" Body="&lt;p&gt;Essentially, &lt;span class=&quot;math-container&quot;&gt;$Cov(u,W) = 0$&lt;/span&gt; is implied by &lt;span class=&quot;math-container&quot;&gt;$E(u|W) = E(u)$&lt;/span&gt; by the &lt;a href=&quot;https://stats.stackexchange.com/questions/306620/conditional-expectation-and-covariance&quot;&gt;Law of iterated expectations&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="17735" LastEditorUserId="17735" LastEditDate="2019-01-05T17:21:01.833" LastActivityDate="2019-01-05T17:21:01.833" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="25894" PostTypeId="1" AcceptedAnswerId="25913" CreationDate="2018-12-05T13:45:16.710" Score="1" ViewCount="65" Body="&lt;p&gt;A business can sell &quot;goods&quot; (/&quot;products&quot;) and &quot;services&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there a term that encompasses both of these?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Various words may fit (e.g. &quot;offering&quot;), but I'm looking for the technical term, if there is one.&lt;/p&gt;&#xA;" OwnerUserId="20388" LastActivityDate="2018-12-08T15:36:20.850" Title="Is there a super term for goods/products and services?" Tags="&lt;definition&gt;&lt;economic-terms&gt;" AnswerCount="2" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="25896" PostTypeId="2" ParentId="8519" CreationDate="2018-12-05T14:19:48.520" Score="2" Body="&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$D(p,I) = \arg\max {U(x):px≤I}.$$&lt;/span&gt;&#xA;The problem&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\arg\max_x {U(x/I):px/I≤1}$$&lt;/span&gt;&#xA;has solution&#xA;&lt;span class=&quot;math-container&quot;&gt;$$x/I = D(p,1)$$&lt;/span&gt; hence &lt;span class=&quot;math-container&quot;&gt;$$D(p,I)/I = D(p,1)$$&lt;/span&gt; or &lt;span class=&quot;math-container&quot;&gt;$$D(p,I) = ID(p,1)$$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="20389" LastEditorUserId="1601" LastEditDate="2019-10-22T08:15:39.343" LastActivityDate="2019-10-22T08:15:39.343" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25897" PostTypeId="1" CreationDate="2018-12-06T01:53:06.800" Score="1" ViewCount="24" Body="&lt;p&gt;I'm planning to start a project of something &quot;innovative&quot;. And among some of the parts of the project that I'm thinking about, it's in the term of how money (profits) should be distributed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The truth is, I personally am not a connoisseur of finance and economics at the level I desire. That's why I go to this platform.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a nutshell, my idea is this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of all the capital (income) that the company receives for the sale of its products (suppose it is &quot;coffee&quot;), I want 30% for the company, 40% for research and development terms (in favor of improve the product and everything related to it and its services), and the remaining 30%, that is distributed among absolutely ALL those involved, from the people who collect the coffee beans (even if they are located in other latitudes, make them receive their retribution proportional), an employee like the one who is dedicated to the services of cleaning and maintenance, up to the highest positions or positions. All proportionally and depending on the value that is contributed to the company, as if each employee (no matter how small the position), was their own company.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As if each one was a shareholder of the company.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The questions are: Does this type of model exist? and more specifically, what would be the best financial model to proportionally distribute the company's income to all employees, also according to the value they contribute?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you for reading.&lt;/p&gt;&#xA;" OwnerUserId="20390" LastActivityDate="2018-12-06T01:53:06.800" Title="Best financial model to proportionally distribute the company's income to all employees?" Tags="&lt;labor-economics&gt;&lt;economic-growth&gt;&lt;financial-economics&gt;&lt;wages&gt;&lt;human-capital&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="25898" PostTypeId="2" ParentId="22685" CreationDate="2018-12-06T02:22:57.510" Score="1" Body="&lt;p&gt;Short answer, yes, they are considered Chinese imports. Your excellent question speaks to the flaw in using Gross Domestic Product as a measurement of the health of a nation's economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The flaw is that the simplistic assignment of &quot;import&quot; and &quot;export&quot; completely misses the reality of modern manufacture and trade, where parts come from multiple nations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If trade numbers more accurately accounted for how products are made, it is possible that the United States would not have any trade deficit at all with China. The problem, in short, is that trade figures are currently calculated based on the assumption that each product has a single country of origin and that the declared value of that product goes to that country. Thus, every time an iPhone or an iPad rolls off the factory floors of Foxconn (Apple’s main contractor in China) and travels to the port of Long Beach, California, it is counted as an import from China.&lt;/p&gt;&#xA;" OwnerUserId="20035" LastActivityDate="2018-12-06T02:22:57.510" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25903" PostTypeId="1" CreationDate="2018-12-06T09:51:14.043" Score="1" ViewCount="259" Body="&lt;p&gt;In my country, the only legal way to sell a gold bar is to sell it to the central bank. What are the reasons why some countries hoard gold bars? &lt;/p&gt;&#xA;" OwnerUserId="20400" LastEditorDisplayName="user18" LastEditDate="2018-12-07T03:51:14.350" LastActivityDate="2019-10-06T15:02:20.323" Title="Why do many countries hoard gold bars?" Tags="&lt;central-banking&gt;" AnswerCount="5" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="25906" PostTypeId="1" CreationDate="2018-12-06T12:12:05.900" Score="0" ViewCount="23" Body="&lt;p&gt;I'm trying to refresh my microeconomics knowledge. And I have some &quot;blind spots&quot; I just can't fix.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's say we have a monopoly on the market. It's usual goal is to maximize it's profits. The point where &lt;span class=&quot;math-container&quot;&gt;$MR=MC$&lt;/span&gt; will profit maximizing condition. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/eHMp9.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/eHMp9.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is &lt;strong&gt;value&lt;/strong&gt; in this context? &#xA;I mean, the good &lt;span class=&quot;math-container&quot;&gt;$Q$&lt;/span&gt; is being Demanded by customers so value concept should be assigned to it, right? Is there a &quot;value curve&quot; or &quot;marginal value curve&quot; for such charts? Or &lt;strong&gt;value&lt;/strong&gt; is &lt;strong&gt;utility&lt;/strong&gt;, or &lt;strong&gt;benefit&lt;/strong&gt;? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm confused about the usage of those terms.&lt;/p&gt;&#xA;" OwnerUserId="10198" LastActivityDate="2018-12-06T20:41:03.957" Title="What is value in the context of microeconomic analys for case of monopoly profit maximization" Tags="&lt;microeconomics&gt;&lt;value&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25909" PostTypeId="2" ParentId="14064" CreationDate="2018-12-06T16:59:26.573" Score="1" Body="&lt;p&gt;The best economic models make useful predictions with as little complexity as possible -- in other words, they make assumptions that aren't &quot;true&quot; in the real world, but make predictions that nevertheless turn out to be true.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For instance, advocates of the day-to-day use of the IS-LM model such as Paul Krugman point to the analysis of liquidity traps as an important case where its users have proved to be right where many other analysts have made bad predictions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From &quot;&lt;a href=&quot;https://krugman.blogs.nytimes.com/2014/03/28/what-i-mean-when-i-talk-about-is-lm-wonkish/&quot; rel=&quot;nofollow noreferrer&quot;&gt;What I Mean When I Talk About IS-LM (Wonkish)&lt;/a&gt;&quot;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Those of us who understood IS-LM and took it seriously declared &lt;em&gt;in advance&lt;/em&gt; — in late 2008 and early 2009 — that big deficits and huge increases in the monetary base would lead neither to soaring interest rates nor to soaring inflation. This was very much not what many influential people were saying: there were widespread forecasts of &lt;a href=&quot;https://krugman.blogs.nytimes.com/2009/05/02/liquidity-preference-loanable-funds-and-niall-ferguson-wonkish/&quot; rel=&quot;nofollow noreferrer&quot;&gt;soaring rates&lt;/a&gt; and &lt;a href=&quot;https://www.ft.com/intl/cms/s/0/ae436dbc-2d09-11de-8710-00144feabdc0.html?siteedition=intl#axzz2xIgWBnXy&quot; rel=&quot;nofollow noreferrer&quot;&gt;soaring inflation&lt;/a&gt;. Later, there were &lt;a href=&quot;https://krugman.blogs.nytimes.com/2013/05/03/playing-whack-a-mole-with-expansionary-austerity/&quot; rel=&quot;nofollow noreferrer&quot;&gt;many people denying&lt;/a&gt; that austerity would have negative effects on output.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;He provides &lt;a href=&quot;https://krugman.blogs.nytimes.com/2011/10/09/is-lmentary/&quot; rel=&quot;nofollow noreferrer&quot;&gt;a more detailed explanation&lt;/a&gt; of an IS-LM analysis of liquidity traps (and a few other insights that the model provides).&lt;/p&gt;&#xA;" OwnerUserId="16631" LastActivityDate="2018-12-06T16:59:26.573" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25911" PostTypeId="2" ParentId="16904" CreationDate="2018-12-06T19:15:24.943" Score="1" Body="&lt;p&gt;This is actually pretty tricky, as &quot;capital flight&quot; can be a contested term itself. Here's a distinction provided by Darryl McLeod in the &lt;em&gt;&lt;a href=&quot;http://www.econlib.org/library/Enc1/CapitalFlight.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Concise Encyclopedia of Economics&lt;/a&gt;,&lt;/em&gt; edited by David Henderson and provided online by the Library of Economics and Liberty:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;There is no widely accepted definition of capital flight. The classic use of the term is to describe widespread currency speculation, especially when it leads to cross-border movements of private funds that are large enough to affect national financial markets. The distinction between &quot;flight&quot; and normal capital outflows is thus a matter of degree, much like the difference between a &quot;bank run&quot; and normal withdrawals.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;There's some discussion by Frank R. Gunter in the &lt;em&gt;&lt;a href=&quot;http://www.worldcat.org/oclc/896073024&quot; rel=&quot;nofollow noreferrer&quot;&gt;International Encyclopedia of the Social Sciences&lt;/a&gt;,&lt;/em&gt; edited by William Darity, Jr., about the fuzziness of the term &quot;capital flight&quot; as related to motivations or the nature of the transactions: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Capital flight is generally defined as an outflow of funds from a country motivated by an adverse change in the country’s economic, political, or social environment. Some believe that this definition is too broad. They distinguish between outflows that reflect “normal” international diversification motivated by marginal changes in risk-adjusted returns and funds fleeing or propelled across national borders during a crisis. According to this view, only the latter category represents true capital flight. Related definitions restrict capital flight to short-term speculative outflows—“hot” money—or to an outflow of illegal transactions only. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So, it seems that scale, motivations (adverse events, crisis), and the nature of the transactions could all be distinctions to some degree between capital outflow and capital flight. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I hope this helps!&lt;/p&gt;&#xA;" OwnerUserId="20405" LastActivityDate="2018-12-06T19:15:24.943" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25912" PostTypeId="1" CreationDate="2018-12-06T19:42:18.593" Score="1" ViewCount="29" Body="&lt;p&gt;This is a question about data consistency. I'm using the &lt;a href=&quot;http://ec.europa.eu/economy_finance/ameco/user/serie/SelectSerie.cfm&quot; rel=&quot;nofollow noreferrer&quot;&gt;AMECO&lt;/a&gt; database and I'm interested in employment data for Greece. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My current understanding is that the series about Employment (NETD) should &lt;em&gt;in principle&lt;/em&gt; be equal to the sum of the series on Self-employed persons (NSTD) plus the series on Wage earners (NWTD).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In fact, this is what the information on the Employment series &lt;a href=&quot;http://ec.europa.eu/economy_finance/ameco/HelpHtml/netd.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;says&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, if one plots the employment series along with the sum of the series on wage earners and the self-employed-or inspects their relationship otherwise- it will become evident that the expected equality is verified &lt;em&gt;only&lt;/em&gt; for a part of the sample (after the '90s).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is the reason for this discrepancy? &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;update:&lt;/strong&gt; In the following plot the blue series depicts Employment &lt;em&gt;proper&lt;/em&gt; (NETD) while the red series is the one I constructed by adding NSTD (self-employed) and NWTD (employees). It's the later one that falls short of the former. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/aHnbb.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/aHnbb.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This becomes more evident in the next plot. It depicts the annual percentage difference between the constructed employment series (the red line above) and the AMECO series for employment (blue), which I consider as a baseline.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/6Mmgs.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/6Mmgs.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Casual inspection of the plots demonstrates the fact that for almost the first half of the sample the constructed series &lt;em&gt;falls short&lt;/em&gt; of the baseline. In plain English, up until the 90's employment in Greece &lt;em&gt;is not&lt;/em&gt; exhausted by the sum of the self-employed and employees. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Such a discrepancy is not detailed in the data description for employment (see link in the question above) and it begs the question which series provides the correct answer to the question &quot;What is the level of employment in Greece up to and including the nineties?&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, the motivation for this question is not simply the level of employment. Please note that if the constructed series is off, that means that eg when trying to retrieve the adjusted wage share for Greece, one ends up with a &lt;em&gt;lower&lt;/em&gt; figure for the period relevant to the observed discrepancy. &lt;/p&gt;&#xA;" OwnerUserId="15762" LastEditorUserId="15762" LastEditDate="2018-12-07T08:43:10.897" LastActivityDate="2018-12-07T08:43:10.897" Title="Isn't it the case that figures on employment should equal the sum of employees plus the self-employed?" Tags="&lt;macroeconomics&gt;&lt;data-request&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25913" PostTypeId="2" ParentId="25894" CreationDate="2018-12-06T20:23:01.107" Score="2" Body="&lt;p&gt;I'm not aware of any such &quot;technical&quot; term in economics. Goods and services are referred to as goods and services in economics, period. From the example you give in the comments, it looks like you're trying to write an introduction/review of a business. In that case, not using a technical jargon, be it existing or not, would probably be better anyways. By the way, X = &quot;offering&quot; sounds pretty good to me.&lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2018-12-06T20:23:01.107" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25915" PostTypeId="2" ParentId="25906" CreationDate="2018-12-06T20:41:03.957" Score="1" Body="&lt;p&gt;The demand curve represent the marginal value that consumers put on a good. That is, the marginal value for the &lt;span class=&quot;math-container&quot;&gt;$Q$&lt;/span&gt;-th unit of the good is the height of the demand curve at &lt;span class=&quot;math-container&quot;&gt;$Q$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The total value from consuming &lt;span class=&quot;math-container&quot;&gt;$Q$&lt;/span&gt; units of the good is therefore the area under the demand curve from &lt;span class=&quot;math-container&quot;&gt;$0$&lt;/span&gt; to &lt;span class=&quot;math-container&quot;&gt;$Q$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The net value (i.e. net of cost) from consuming &lt;span class=&quot;math-container&quot;&gt;$Q$&lt;/span&gt; units of the good is consumer surplus, which equals total value (defined in the previous paragraph) minus total cost (represented by the sum of the two shaded rectangles in your graph). &lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2018-12-06T20:41:03.957" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="25917" PostTypeId="1" AcceptedAnswerId="25928" CreationDate="2018-12-06T22:17:34.837" Score="3" ViewCount="46" Body="&lt;p&gt;Take a look at the government bonds interest rates, &lt;a href=&quot;https://www.marketwatch.com/&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.marketwatch.com/&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the US is 2.9, and for Spain and UK are 1.5 and 1.1 respectively. Spain is an economy with high unemployment, a high deficit and debt and low growth. The UK is suffering through Brexit, massive uncertainty on its future. Meanwhile, the US solidly grows. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why would investors charge more to the US, perhaps the most powerful country in the world, than to other countries? &lt;/p&gt;&#xA;" OwnerUserId="20409" LastEditorUserId="4988" LastEditDate="2018-12-13T23:25:20.737" LastActivityDate="2018-12-13T23:25:20.737" Title="Why is the ten year interest rate lower for Spain/UK bonds than for US?" Tags="&lt;government-debt&gt;&lt;bonds&gt;&lt;usa&gt;&lt;eu&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25918" PostTypeId="2" ParentId="25912" CreationDate="2018-12-06T22:33:40.820" Score="1" Body="&lt;p&gt;While you didn't share in which direction the equality is off, I would imagine that there is a double-counting issue. If someone is a self-employed person AND a wage earner (e.g. perhaps they have a salaried position but also do freelancing on the side as a registered independent contractor), this may lead to the sum of self-employed workers + wage earners to be higher than Total Employed. That's my thought. &lt;/p&gt;&#xA;" OwnerUserId="20407" LastActivityDate="2018-12-06T22:33:40.820" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25919" PostTypeId="2" ParentId="25917" CreationDate="2018-12-06T22:47:00.400" Score="1" Body="&lt;p&gt;The Eurozone has lower interest rates right now as the Federal Reserve in the US has been steadily raising rates in the past two years. The EU is still in a period of low interest rates to encourage spending and spur economic growth/inflation and are only now beginning to eliminate Quantitative Easing. Both of these factors, the low rates and QE, lead to the EU in general having lower interest rates across the yield curve than the US. &lt;/p&gt;&#xA;" OwnerUserId="20407" LastActivityDate="2018-12-06T22:47:00.400" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25921" PostTypeId="1" AcceptedAnswerId="25923" CreationDate="2018-12-07T00:11:53.463" Score="5" ViewCount="221" Body="&lt;p&gt;I am very new to mechanism design so I am a bit lost among the concepts, even the most basic ones. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;One thing that is not clear to me is the concept of direct mechanism and its relationship with the revelation principle. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;From what I got a &lt;strong&gt;direct mechanism&lt;/strong&gt; is a mechanisms, in which, instead of messages, the agents report their preference/type. Are we assuming this is a truthful report?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am asking that because the &lt;strong&gt;revelation principle&lt;/strong&gt; is stated as &quot;anything that can be accomplished by any mechanism can actually be accomplished by a direct revelation mechanism that is individual rational and incentive compatible&quot; in &lt;a href=&quot;https://www.sas.upenn.edu/~ordonez/pdfs/ECON%20201/NoteMECH.pdf&quot; rel=&quot;noreferrer&quot;&gt;this notes&lt;/a&gt; but as &quot;a social choice function can be implemented by an arbitrary mechanism (i.e. if that mechanism has an equilibrium outcome that corresponds to the outcome of the social choice function), then the same function can be implemented by an incentive-compatible-direct-mechanism (i.e. in which players truthfully report type) with the same equilibrium outcome (payoffs).&quot; on &lt;a href=&quot;https://en.wikipedia.org/wiki/Revelation_principle&quot; rel=&quot;noreferrer&quot;&gt;Wikipedia&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So I don't get if truthfulness is implied by the direct mechanism or if it is an additional requirement. &lt;/p&gt;&#xA;" OwnerUserId="6773" LastEditorUserId="6773" LastEditDate="2018-12-07T00:25:17.950" LastActivityDate="2019-03-17T19:13:57.853" Title="Are direct mechanisms always truthful?" Tags="&lt;game-theory&gt;&lt;mechanism-design&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25922" PostTypeId="2" ParentId="25903" CreationDate="2018-12-07T00:39:21.050" Score="-2" Body="&lt;p&gt;Gold is regarded as safe haven. It was used as an exchange before money was invented. Good hedge in crisis times. &lt;/p&gt;&#xA;" OwnerUserId="20403" LastActivityDate="2018-12-07T00:39:21.050" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25923" PostTypeId="2" ParentId="25921" CreationDate="2018-12-07T01:09:54.730" Score="3" Body="&lt;p&gt;Incentive compatible here means that you have no incentive to lie. A direct mechanism that is not incentive compatible would entice some agents to report a false type.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2018-12-07T01:09:54.730" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="25924" PostTypeId="2" ParentId="25718" CreationDate="2018-12-07T02:18:56.177" Score="0" Body="&lt;p&gt;A bank has \$1,000,000 in deposits but has lent out \$900,000 of that, so it only holds \$100,000 cash. So long as a lot of people don't need money at once there's no problem, but how can you, as a depositor, be confident that the bank will have money when you need it? Better to go and withdraw it all right now, just to be safe. Now get about half the bank's customers thinking this way and there is a run on the bank. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This scenario, more or less, played out dozens of times during the '29 stock market crash, and it is this that made the otherwise esoteric stock market relevant to ordinary citizens (and severely affected their economic circumstances). &lt;/p&gt;&#xA;" OwnerUserId="12218" LastActivityDate="2018-12-07T02:18:56.177" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25925" PostTypeId="2" ParentId="25496" CreationDate="2018-12-07T04:32:59.850" Score="1" Body="&lt;p&gt;I would suspect that if  &lt;span class=&quot;math-container&quot;&gt;$X_1$&lt;/span&gt; is independent of &lt;span class=&quot;math-container&quot;&gt;$X_3$&lt;/span&gt;, then it must imply &lt;span class=&quot;math-container&quot;&gt;$E[X_1*X_3]$&lt;/span&gt; is equal to &lt;span class=&quot;math-container&quot;&gt;$E[X1] * E[X_3]$&lt;/span&gt;, given this you can conclude that the Covariance is 0. &lt;span class=&quot;math-container&quot;&gt;$Cov(X_1,X_3) = E[X_1*X_3] - E[X_1]* E[X_3]$&lt;/span&gt;. If the Covariance is 0 between these two variables then so is the correlation. Thus I would believe that removing &lt;span class=&quot;math-container&quot;&gt;$X_3$&lt;/span&gt; from the regression and having it's effect enter the error term would not result in having &lt;span class=&quot;math-container&quot;&gt;$γ_1$&lt;/span&gt; be biased as the &lt;span class=&quot;math-container&quot;&gt;$X_3$&lt;/span&gt; in the residual term does not have correlation with &lt;span class=&quot;math-container&quot;&gt;$γ_1$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are you looking for a rigorous mathematical proof?&lt;/p&gt;&#xA;" OwnerUserId="20142" LastEditorUserId="20142" LastEditDate="2018-12-19T18:17:27.990" LastActivityDate="2018-12-19T18:17:27.990" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25927" PostTypeId="2" ParentId="25903" CreationDate="2018-12-07T14:27:09.687" Score="-1" Body="&lt;p&gt;Gold does not depreciate. It does not oxidate. It keeps well. Its an asset that has a stable value. There is currently no other like it. &lt;/p&gt;&#xA;" OwnerUserId="20415" LastActivityDate="2018-12-07T14:27:09.687" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25928" PostTypeId="2" ParentId="25917" CreationDate="2018-12-07T14:32:55.690" Score="2" Body="&lt;p&gt;Inflation forecast is higher in the US than the rest of countries. US here: &lt;a href=&quot;https://www.statista.com/statistics/244983/projected-inflation-rate-in-the-united-states/&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.statista.com/statistics/244983/projected-inflation-rate-in-the-united-states/&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Spain here: &lt;a href=&quot;https://www.statista.com/statistics/271077/inflation-rate-in-spain/&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.statista.com/statistics/271077/inflation-rate-in-spain/&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Japan here: &lt;a href=&quot;https://www.statista.com/statistics/270095/inflation-rate-in-japan/&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.statista.com/statistics/270095/inflation-rate-in-japan/&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;UK here: &lt;a href=&quot;https://www.statista.com/statistics/270384/inflation-rate-in-the-united-kingdom/&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.statista.com/statistics/270384/inflation-rate-in-the-united-kingdom/&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Because inflation is higher, central banks will raise interest rate higher. Long term rates are higher in consequence.&lt;/p&gt;&#xA;" OwnerUserId="20416" LastActivityDate="2018-12-07T14:32:55.690" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="25929" PostTypeId="1" CreationDate="2018-12-07T18:55:01.367" Score="1" ViewCount="59" Body="&lt;p&gt;Im new to economics and want to understand the AIDS/QAIDs model of Angus Deaton. Can anyone suggest possible readings for the same as a background knowledge??&lt;/p&gt;&#xA;" OwnerUserId="20419" LastActivityDate="2018-12-08T10:49:40.707" Title="Deaton's AIDS/QAIDS model" Tags="&lt;development-economics&gt;" AnswerCount="1" CommentCount="1" ClosedDate="2018-12-30T01:55:46.407" ContentLicense="CC BY-SA 4.0" />
  <row Id="25932" PostTypeId="2" ParentId="25929" CreationDate="2018-12-08T10:49:40.707" Score="0" Body="&lt;p&gt;For starters, &lt;a href=&quot;https://www.jstor.org/stable/1805222&quot; rel=&quot;nofollow noreferrer&quot;&gt;the original article&lt;/a&gt;. &lt;a href=&quot;https://www.jstor.org/stable/2951405&quot; rel=&quot;nofollow noreferrer&quot;&gt;Banks et. al&lt;/a&gt; (1997) discuss its assumptions. This &lt;a href=&quot;https://www.jstor.org/stable/2233510&quot; rel=&quot;nofollow noreferrer&quot;&gt;survey&lt;/a&gt; might also be helpful.&lt;/p&gt;&#xA;" OwnerUserId="17735" LastActivityDate="2018-12-08T10:49:40.707" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25933" PostTypeId="1" CreationDate="2018-12-08T11:59:00.083" Score="2" ViewCount="39" Body="&lt;p&gt;I am learning to do top-down analysis on a number of sectors in the US equity markets. I have never done it before and I would appreciate it if some professionals can share their experiences with me.&lt;/p&gt;&#xA;&lt;p&gt;Specifically, I would like to know the list of attributes/data/factors I should be measuring and monitoring.&lt;/p&gt;&#xA;&lt;p&gt;Most of the websites I can find are vague about this subject. They mostly generally list a few vague things such as GDP, inflation, treasury bond yields, etc. However, I would like to know the more specific data used. Take treasury bond yield for example. I have learnt from elsewhere that people are monitoring the 2Y yield vs 10Y yield for indication of an economical reversal. I can't find any website that gives this kind of working examples on a top-down approach.&lt;/p&gt;&#xA;&lt;p&gt;Can you tell me what other specific measures/data the industry's professionals normally would look at in a top-down sector-wide analysis?&lt;/p&gt;&#xA;" OwnerUserId="20413" LastEditorUserId="6168" LastEditDate="2020-08-29T17:01:08.943" LastActivityDate="2020-08-29T17:01:08.943" Title="What data/factors/attributes do the professionals monitor in a top-down analysis on the macroeconomics?" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;finance&gt;&lt;financial-markets&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="25934" PostTypeId="2" ParentId="24156" CreationDate="2018-12-08T12:51:07.307" Score="0" Body="&lt;blockquote&gt;&#xA;&lt;p&gt;Q. How would one cost the six years of unpaid work by emancipated slaves and how much did this come to?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;According to Afua Hirsch's &lt;em&gt;Brit(ish)&lt;/em&gt; it's not six years but four years, she writes:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;The intersection of economic, socio-political factors and abolition is one of the most complex and protracted debates in modern historiography. What is not contested is that, when Britain did abolish the slave trade, the value of the 800,000 or so slaves still owned by Brits in the Caribbean was valued at £47 million. Of this sum, the £20 million so ‘cheerfully’ stumped up by the British taxpayer, after decades of black agitation, was not paid to compensate slaves for their abuse, loss of family, income, dignity, heritage, identity or life, but instead to compensate the slave owners for the loss of their chattels.&lt;/p&gt;&#xA;&lt;p&gt;The remaining £27 million – a colossal sum at the time – was paid for by none other than the slaves themselves, who had to work for another four years for free after abolition, in order to raise the funds. The deprivation characterising their lives at the end of slavery, which left them illiterate, unskilled, psychologically traumatised and irreparably cut off from their African homelands, survives on an intergenerational basis to this day.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;for which she refers to&lt;/p&gt;&#xA;&lt;p&gt;Richard Hart (2002), &lt;em&gt;Slaves Who Abolished Slavery: Blacks in Rebellion&lt;/em&gt;, University of the West Indies.&lt;/p&gt;&#xA;&lt;p&gt;On that basis the annual value of slave labour works out to be at £27 million/4 which is roughly £6.5 million. This works out to be around 15% of Britains GDP then. To put this into context British GDP in 2017 was around £1.5 trillion and 15% of this works out to be £250 billion.&lt;/p&gt;&#xA;&lt;p&gt;Afua Hirsch also notes:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;I have no direct links to the Caribbean or other parts of the African diaspora created by slavery. If reparations were to be paid for the act of enslaving 12 million Africans, I would gain nothing personally.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;So the actual figures of 800,000 slaves owned by the British vastly underplays the actual size of the slave trade and the devastation it must have caused in the former Africa colonies. Imagine for the example the situation in reverse - that for two or three hundred years African ships plying Europe and carrying off 60,000 men and women annually with or without collaborators. Would Europe survive as a polity? Afua Hirsch does not answer this question but she goes on to write:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Structural, deliberately orchestrated disadvantage is intergenerational, passed down through families, in just the same way as those born into privileged families inherit wealth. The impact of slavery on the African continent, from where so many millions – often the strongest and most able – were kidnapped, is harder to delineate. But it’s widely acknowledged that slavery deprived huge swathes of Africa of its working-age people over four centuries, and that the trauma of industrial-scale kidnap and murder has been far-reaching.&lt;/p&gt;&#xA;&lt;p&gt;As the late Nigerian writer Chinua Achebe wrote, ‘The victims of this catastrophe have been struggling for centuries now against their cruel fate on both sides of the Atlantic: on one side, scratching the soil of ruined farms in a devastated continent; on the other, toiling in the sweltering aftermath of captivity.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="13857" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2018-12-08T13:38:34.100" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25935" PostTypeId="1" CreationDate="2018-12-08T13:21:21.307" Score="1" ViewCount="14" Body="&lt;p&gt;I can`t quite wrap my head around one step in deriving the pigou tax in a multiple polluter case. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are j firms, which produce joint product in amount of &lt;span class=&quot;math-container&quot;&gt;$k_j$&lt;/span&gt;.&#xA;Joint product can be abated, where the cost function &lt;span class=&quot;math-container&quot;&gt;$C_j(a_j)$&lt;/span&gt;&#xA;denotes the costs for firm j for abating &lt;span class=&quot;math-container&quot;&gt;$a_j$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Social damage costs: &lt;span class=&quot;math-container&quot;&gt;$ e = \sum_{j=1}^{m}{(k_j -a_j) }$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To minimize total social cost:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$min_{(aj)_{j=1}^{m}}\sum_{j=1}^{m}C_j(a_j)+ \sum_{i=1}^{m}D_i(e)$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With FOC we should, according to my script, arrive at:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$C_j^`(a_j)=\sum_{i=1}^{n}D_j^`(e)$&lt;/span&gt;  for all j = 1,...,m&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But I don't understand why it isn't:&#xA;&lt;span class=&quot;math-container&quot;&gt;$\sum_{j=1}^{m}C_j^`(a_j)=-\sum_{i=1}^{n}D_j^`(e)$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think for example the partial derivative of &lt;span class=&quot;math-container&quot;&gt;$\sum_{j=1}^{2}C_j$&lt;/span&gt; is equal to the partial derivative of it's parts. &#xA;So &lt;span class=&quot;math-container&quot;&gt;$[\sum_{j=1}^{2}C_j]' = C_{1}^{'}(a_1) + C_{2}^{'}(a_2)$&lt;/span&gt; &#xA;and therefore:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\sum_{j=1}^{m}C_j^`(a_j)+\sum_{i=1}^{n}D_j^`(e)= 0$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't really know, where I`m going wrong with this and would be really happy if someone could point me into the right direction. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Best regards :)&lt;/p&gt;&#xA;" OwnerUserId="20424" LastActivityDate="2018-12-08T13:21:21.307" Title="derivation of pigou taxes in multiple polluter case" Tags="&lt;environmental-economics&gt;&lt;pigouvian-taxes&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25936" PostTypeId="1" CreationDate="2018-12-08T13:32:40.703" Score="1" ViewCount="21" Body="&lt;p&gt;In his engrossing book &quot;Naked Statistics&quot; Charles Wheelan begins to explain how controlling for variables works by stratifying the sample. However, he stops short of explaining the reaggregation, leaving one intrigued by the stratification analogy but confused as to whether- and if so, how- it can be applied. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To be more specific, he is looking to isolate the effect of education on weight, by controlling for gender, height, and income. He imagines an experiment in which a number of people (constituting the sample) all gather in one place. Then the stratification begins:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Men and women are separated&lt;/li&gt;&#xA;&lt;li&gt;The men and women are separately subdivided by height. At this point, as he says it &quot;There will be a room of 6-foot tall men. Next door, there will be a room of 6-foot 1-inch men&quot;&lt;/li&gt;&#xA;&lt;li&gt;Finally, each of these rooms (identified by combinations of gender and height) can be further subdivided by income.&#xA;As he puts it: &quot;Eventually we will have lots of rooms, each of which contains individuals who are identical in all respects except for education and weight, which are the two variables we care about. There would be a room of forty-five-year old 5-foot 5-inch men who earn 30,000 to 40,000 a year&quot;.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;While we can regress weight on education in each of these rooms, how useful is that given that we are looking to end up with a &lt;strong&gt;single&lt;/strong&gt; coefficient that encapsulates the relationship between weight and education observed in each of these rooms?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;What magic analysis would need to be performed using data of the people in each of these rooms, which then could be aggregated to obtain the regression coefficient which can be interpreted as the effect of the independent variable of interest on the dependent variable, after we control for the two binary variables? How exactly would the aggregation work?&lt;/em&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;While I found this question/discussion &lt;a href=&quot;https://stats.stackexchange.com/questions/17336/how-exactly-does-one-control-for-other-variables&quot;&gt;https://stats.stackexchange.com/questions/17336/how-exactly-does-one-control-for-other-variables&lt;/a&gt; interesting, controlling for a variable by its inclusion in a regression is insightful but not a very intuitive answer. Stratification and Reaggregation, if it is possible, shows quite a bit of promise of intuitive understanding.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Illustrative Example with Made up Numbers&lt;/em&gt;:&#xA;On the left are the results of the simple regression of weight on education (after stratifying by income and gender) in each of the 4 rooms (each room with 15 people/observations), whereas on the right are the results of the multiple regression of weight on education, income, and gender (60 people/observations combined). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Is it possible to aggregate the results of the regressions obtained in each of the 4 rooms (stratified by income and gender) to obtain the coefficient on education obtained in the multiple regression (-3.28), in which we control for income and gender?&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/OetlS.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/OetlS.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt; &#xA;&lt;a href=&quot;https://i.stack.imgur.com/0IuJC.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/0IuJC.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="20425" LastActivityDate="2018-12-08T13:32:40.703" Title="Controlling for a variable in OLS - Stratification and Reaggregation. Simple Example" Tags="&lt;regression&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25937" PostTypeId="2" ParentId="25933" CreationDate="2018-12-08T13:43:27.747" Score="1" Body="&lt;p&gt;I am experienced with fixed income macro analysis. The short answer is that what you look at depends on what you want to know.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In rates analysis, the key driver for bond yields (hence prices) is the expected path for the overnight rate. The central bank sets the overnight rate. So you need to be interested in what the central bank is looking at.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Bank of Canada is a fairly typical developed central bank, and has very good primers on their decision-making process. They have some pages describing indicators they look at here: &lt;a href=&quot;https://www.bankofcanada.ca/rates/indicators/&quot; rel=&quot;nofollow noreferrer&quot;&gt;link to BoC page.&lt;/a&gt; You could draw analogies to indicators in other countries.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(With regards to the 2/10 slope, that is indication of the expected path of short rates. The usual story is that if the slope is negative - 10-year yield less than the 2-year - rate cuts are expected, which normally happens in a recession. There is a huge literature on the “yield curve” for forecasting; should be easy to find something with a web search.)&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2018-12-08T13:43:27.747" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25939" PostTypeId="2" ParentId="25894" CreationDate="2018-12-08T15:36:20.850" Score="2" Body="&lt;p&gt;The trouble with economics is that many of its technical terms either have broader or narrower meaning in ordinary language. &quot;Good&quot; is one such example. A good is any thing that can be used to satisfy a human want, provided that the person who wants to use this good can (i) control it, and (ii) believes that she can use it to satisfy her wants. This is a much broader definition and narrower definition than the ordinary language definition. But this is the technical term that you are looking for (see also Giffen good, club good, public good etc.). Although, an economic good would perhaps be more precise (i.e. if a business produces it, then it's probably not available in abundance. In other words: it's scarce. It's something to economize.). &lt;/p&gt;&#xA;" OwnerUserId="20426" LastActivityDate="2018-12-08T15:36:20.850" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25940" PostTypeId="2" ParentId="18690" CreationDate="2018-12-08T15:48:26.270" Score="2" Body="&lt;p&gt;I would like to answer this question by sort of describing what each would start to look like. In an area where the population is aging, the resulting decline in incomes and spending tend to be deflationary because less money is earned and less money is spent, reducing economic activity, also known as Gross Domestic Product.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The elderly also sell assets such as stocks, bonds and their primary house to fund their retirement, and if the elderly populace is a major cohort (due to low birth rates and increasing life spans, etc.), then this mass dumping of assets is also deflationary, as the increasing supply of sellers and the stagnating supply of buyers pushes prices lower.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, if you take 10 million workers from secure, full-time employment with full benefits to low-paid, insecure part-time jobs with few benefits, you have there the makings of a self-reinforcing deflationary spiral in action because a significant portion of the labor force is now receiving less income, which necessarily slashes their spending and, just as importantly, their ability to borrow huge sums of money to buy vehicles, homes, overseas vacations, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In consumer-dependent economies that are dependent on debt for much of the consumer spending, this decline in borrowing and spending power is extremely deflationary, as there is a lot less money available to chase the existing output of goods and services.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Japan is a case in point. An NHK TV program last Spring reported some young people in Japan are trickling back to rural villages and renting large traditional farm houses and the adjoining land for $200/month, a fraction of what they were paying for cramped studios in big cities. This is an example of deflation in action: people abandon costly housing, transportation, etc. and adopt lifestyles that generate far less income and far lower expenses--both are deflationary.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Technology is relentlessly deflationary. Where consumers once spent small fortunes buying stereo equipment and music storage (LPs, cassettes, CDs, etc.), cameras, film, photo printing, etc., game consoles and equipment, small-screen TVs, and paying for telephony, now a single device--a smart phone--combines all these functions (with some obvious limitations) in one device.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Globalization and commoditization are also deflationary. Global wage arbitrage and automation lowers production costs, and the commoditization of labor and inputs (capital and materials) push prices lower.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Declining energy costs are also deflationary, as the cost of energy affects the pricing of almost every good and service.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You may have heard a lot about printing money being inflationary, but that's not necessarily so. I cited a deflationary trend in Japan above, but I did not mention that Japan has been printing money for decades and yet they have been in a deflationary spiral for decades.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why or how can this be? Well, if economic activity declines by &lt;span class=&quot;math-container&quot;&gt;$1 trillion due to lower incomes, spending, etc., creating $&lt;/span&gt;1 trillion out of thin air and injecting it into the economy as monetary and fiscal stimulus is more or less simply replacing the $1 trillion of deflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To back up my claim that the Bank of Japan has been printing money like crazy and no inflation in site, check out this chart:&#xA;&lt;a href=&quot;https://i.stack.imgur.com/dB6LJ.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/dB6LJ.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, the problem with classifying a recession as inflationary or deflationary is that, much like using GDP to get a pulse on the health of an economy, its past its time. We live in a different world now, we live in an economy where this coming recession will not be inflationary or deflationary, but rather non-linear.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Okay, so what is the difference between a linear and non-linear recession you may be wondering?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Linear correlations are intuitive: if GDP declines 2% in the next recession, and employment declines 2%, we get it: the scale and size of the decline aligns. In a linear correlation, we'd expect sales to drop by about 2%, businesses closing their doors to increase by about 2%, profits to notch down by about 2%, lending contracts by around 2% and so on.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I am suggesting is that is not what we are going to experience this time around. We will experience a recession that is non-linear and asymmetric.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, an apparently mild decline of 2% in GDP might trigger a 50% rise in the number of small businesses closing, a 50% collapse in new mortgages issued and a 10% increase in unemployment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I recently moved away from a state that is already and has been for quite some time going through this kind of non-linear and asymmetric recession, especially in regards to their pension crisis that they are doing a good job of keeping under wraps. I do not want to offend anyone, so I will not mention what state in the Union this was that I recently relocated from. I will just say they currently have $115 billion in unfunded liability to public pensioners. That kind of crisis leads to higher property taxes, services being cut or simply collapsing and manifesting itself in such things as potholes on almost every single road you drive on, including the wealthier neighborhoods.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But this public-sector pension crisis is just the tip of the iceberg. What happens when the gains in equities and bonds that have nurtured the illusion that public-sector pension funds are solvent and can be funded by further tax increases reverse into losses?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So a better way to start looking at and understanding recession, would be linear vs. non-linear as opposed to inflationary vs. deflationary.&lt;/p&gt;&#xA;" OwnerUserId="20035" LastActivityDate="2018-12-08T15:48:26.270" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25941" PostTypeId="1" CreationDate="2018-12-08T16:12:00.623" Score="1" ViewCount="26" Body="&lt;p&gt;I am very much confused about the causality between &lt;em&gt;real&lt;/em&gt; and &lt;em&gt;nominal&lt;/em&gt; interest rates, in monetary policy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So we know the Fisher equation:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$i_t = r_t + E \pi_{t+1}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now imagine that the central bank sets an interest rate rule where &lt;span class=&quot;math-container&quot;&gt;$i_t = f(y, \pi, ...)$&lt;/span&gt;, i.e., some function of important economy parameters like output and inflation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So far, so good. Now imagine the central bank increases the rates, as &lt;span class=&quot;math-container&quot;&gt;$i_t = f(y, \pi, ...) + \epsilon$&lt;/span&gt;. This will affect the economy parameters, so the &lt;em&gt;future&lt;/em&gt; interest rate will change as a result of its own increase.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But &lt;strong&gt;how&lt;/strong&gt;? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think there are two ways of measuing that change, and I don't know which one is correct.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;The first measure is to first calculate the effect of &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;'s change on all economy parameters: &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$r_t$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$\pi$&lt;/span&gt;, etc, etc. Then, plug all those changes back into the &lt;strong&gt;rule&lt;/strong&gt; &lt;span class=&quot;math-container&quot;&gt;$i_t = f(y, \pi, ...)$&lt;/span&gt; to figure out the interest rate.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The second way is to again calculate the interest rate increase's affect on the entire economy, on &lt;span class=&quot;math-container&quot;&gt;$y_t, r_t, \pi$&lt;/span&gt;, etc. And then ... simply use the Fisher equation: &lt;span class=&quot;math-container&quot;&gt;$i_t = r_t + E\pi$&lt;/span&gt; and calculate the new &lt;span class=&quot;math-container&quot;&gt;$i_t$&lt;/span&gt;.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;I'm thinking the second way is correct, since the first seems to assume that the Central Bank &quot;constantly&quot; increases the rates, ... but it probably doesn't right? The &quot;rule&quot; is only in affect when it decides, and the rest of the time, I need to use the Fisher equation, like in 2?&lt;/p&gt;&#xA;" OwnerUserId="20427" LastActivityDate="2018-12-08T16:12:00.623" Title="Monetary economics: What is the causality between nominal and real interest rates?" Tags="&lt;interest-rate&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25942" PostTypeId="1" CreationDate="2018-12-08T17:29:06.483" Score="0" ViewCount="116" Body="&lt;p&gt;Why does the narrowing of trade deficit cause an increase in bond prices? &#xA;I do understand that narrowing of trade deficit leads to narrowing of capital account surplus. Also, investor confidence rises which might push the demand for bonds high and cause an increase in bond prices?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But is there any other reason?&lt;/p&gt;&#xA;" OwnerUserId="19292" LastActivityDate="2019-06-07T19:03:45.407" Title="Bond prices and Trade deficit" Tags="&lt;macroeconomics&gt;&lt;international-trade&gt;&lt;bonds&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25946" PostTypeId="1" CreationDate="2018-12-09T02:03:06.667" Score="0" ViewCount="76" Body="&lt;p&gt;In Chapter 3 of Gali's famous Monetary Policy book, he measures the effects of a monetary policy shock.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The interest rate rule is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/xGQs6.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/xGQs6.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then a shock &lt;span class=&quot;math-container&quot;&gt;$v_t &amp;gt; 0$&lt;/span&gt; occurs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;He proceeds to measure how this affects &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$\pi$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$r$&lt;/span&gt; (output, inflation, and real interest).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As you would expect, &lt;span class=&quot;math-container&quot;&gt;$y, \pi$&lt;/span&gt; go down, &lt;span class=&quot;math-container&quot;&gt;$r$&lt;/span&gt; goes up. However, he then derives the following equation, which measures what happens to the nominal interest rate:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/3Mei7.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/3Mei7.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;However&lt;/strong&gt;, I simply cannot for the life of me figure out how he derives this equation. I mean, I totally get that he's just using the Fisher equation. But why doesn't he go back to the interest rate rule from the first picture and use that? Why is he suddenly ignoring his own rule and relying fully on a basic identity like the Fisher equation? &lt;/p&gt;&#xA;" OwnerUserId="20432" LastActivityDate="2018-12-09T15:40:42.483" Title="A question about a derivation in Gali's Monetary Policy book" Tags="&lt;monetary-policy&gt;" AnswerCount="1" CommentCount="3" ClosedDate="2018-12-10T00:57:29.020" ContentLicense="CC BY-SA 4.0" />
  <row Id="25947" PostTypeId="1" CreationDate="2018-12-09T03:19:36.790" Score="-3" ViewCount="67" Body="&lt;p&gt;Show that u=a+bM-yM^2 represents a risk averter's utility function who is interested only in the mean and the variance of the state distribution of Income M.  Can anybody send me the full solution. thanx&lt;/p&gt;&#xA;" OwnerUserId="20434" LastEditorUserId="20434" LastEditDate="2018-12-09T11:56:16.797" LastActivityDate="2018-12-09T11:56:16.797" Title="Advance Microeconomics" Tags="&lt;microeconomics&gt;&lt;econometrics&gt;&lt;mathematical-economics&gt;" AnswerCount="1" CommentCount="1" ClosedDate="2018-12-10T07:01:25.070" ContentLicense="CC BY-SA 4.0" />
  <row Id="25949" PostTypeId="2" ParentId="25947" CreationDate="2018-12-09T05:27:53.093" Score="2" Body="&lt;p&gt;I assume that the agent is an expected utility maximizer with Bernoulli index &lt;span class=&quot;math-container&quot;&gt;$u$&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$b$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; are fixed constants. Then, just take expectations of &lt;span class=&quot;math-container&quot;&gt;$u$&lt;/span&gt; and try to write the right-hand side as function of the mean and variance of &lt;span class=&quot;math-container&quot;&gt;$M$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the risk aversion part, recall that an expected-utility maximizer is risk averse if his Bernoulli index &lt;span class=&quot;math-container&quot;&gt;$u$&lt;/span&gt; is concave. &lt;/p&gt;&#xA;" OwnerUserId="7088" LastActivityDate="2018-12-09T05:27:53.093" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25950" PostTypeId="1" CreationDate="2018-12-09T05:38:17.227" Score="1" ViewCount="18" Body="&lt;p&gt;Facebook, notoriously, crowd-sources through the internet to improve their product - Facebook. This without any payment. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given the vast computing power that is now available and the kind of personal data that they farm it seems plausible that one can set up a system of micro-payments to pay back users for the work that they do to improve Facebook. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Q. Has any of the tech giants - and specifically Facebook - looked into this?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Q. Has there been any academic studies of such a system?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note: This question should be tagged as digital-economics - but there is no such tag.&lt;/p&gt;&#xA;" OwnerUserId="13857" LastActivityDate="2018-12-09T05:38:17.227" Title="Has Facebook considered a system of micro payments to pay users for the work they do in improving their Facebook?" Tags="&lt;macroeconomics&gt;" AnswerCount="0" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="25951" PostTypeId="1" CreationDate="2018-12-09T05:53:02.887" Score="1" ViewCount="18" Body="&lt;p&gt;I have data for sale in petroleum products across different states in India of both public sector and private sector companies for past 10 years.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;No. of years - 2008 to 2018 monthly data for 10 years&#xA;No. of petroleum products - 47 &#xA;No. of states - 35&#xA;No. of companies - 14 (public sector - 11 &amp;amp; private sector - 3)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What type of econometric analysis can be conducted on this data? I would like to use VAR, can any ideas be suggested. How can I use VAR and in establishing what relationship? &lt;/p&gt;&#xA;" OwnerUserId="20402" LastActivityDate="2018-12-09T05:53:02.887" Title="To the following data, what kind of econometric analysis can be conducted/ or what type of relationship can be established?" Tags="&lt;applied-econometrics&gt;&lt;time-series&gt;&lt;firm&gt;" AnswerCount="0" CommentCount="0" ClosedDate="2018-12-13T07:29:09.457" ContentLicense="CC BY-SA 4.0" />
  <row Id="25954" PostTypeId="1" CreationDate="2018-12-09T08:25:04.110" Score="1" ViewCount="19" Body="&lt;p&gt;I am currently reading both Poor Economics and Factfulness, and two seemingly contradictory statements jump out at me. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;From Factfulness, and I am kind of taking this statement out of context, but it suggests that there is a quantity-quality trade-off between family size and children's educational level (independent of whether the mother is more educated):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Educated mothers decide to have fewer children and more children&#xA;  survive. More energy and time is invested in each child’s education.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Rosling, Hans. Factfulness (p. 69). Flatiron Books. Kindle Edition.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;However, from Poor Economics, the authors also discuss studies on the same issue, and seem to suggest that there is no relationship at all:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Of course, these three studies alone may not be the last word, and&#xA;  there is certainly a need for more research, but for now, our reading&#xA;  of the evidence, contrary to what Sachs argues in Common Wealth, is&#xA;  that there is no smoking gun to prove that larger families are bad for&#xA;  children.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Banerjee, Abhijit. Poor Economics: A Radical Rethinking of the Way to&#xA;  Fight Global Poverty (p. 110). Perseus Books Group. Kindle Edition.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I understand that more research needs to be done on the &quot;quantity-quality&quot; trade-off. Poor Economics provides reference to the three studies it examined that found no trade-off, while I found a few studies online that supports the trade-off.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;All the references I have seen so far are single-country studies. Is there a cross-country studies, across wide cultural and income regions, that can shed more light on this family-size effect? what are some of the latest development in this research?&lt;/p&gt;&#xA;" OwnerUserId="20437" LastEditorUserId="1601" LastEditDate="2018-12-09T08:37:04.997" LastActivityDate="2018-12-09T08:37:04.997" Title="Reference recommendation on the causal relationship between family size and children's educational attainment, or the quantity-quality trade-off" Tags="&lt;reference-request&gt;&lt;poverty&gt;&lt;education-economics&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25957" PostTypeId="2" ParentId="25946" CreationDate="2018-12-09T15:40:42.483" Score="2" Body="&lt;p&gt;As mentioned in the comments your question is not possible to answer as it is, but you should know that in macroeconomic models of growth exogenous shocks are measured by log-linearising equations around their steady state and then calculating impulse responses (that is, the magnitude and persistence of a shock to the variables of interest). This must be precisely what your book shows you, and unless you become familiar with macroeconomic modeling this question will hardly be answered any better than it is on your book. &lt;/p&gt;&#xA;" OwnerDisplayName="user20105" LastActivityDate="2018-12-09T15:40:42.483" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25958" PostTypeId="2" ParentId="24045" CreationDate="2018-12-09T16:20:51.357" Score="1" Body="&lt;p&gt;This is actually a very important question in the field of macroeconomic theory. Basically as you stated most focus on the standard framework of competitive equilibrium at the undergrad level shows that at a given equilibrium price supply and demand will equal, with demand/supply being adjusted in order to eliminate excess demand/ excess supply that appears at non-equilibrium prices. Now first clarification that might have gotten you some downvotes is that taking prices as given does not relate to fixing a price, but rather to the assumption that &quot;small&quot; individuals cannot exert any influence on the price of a commodity (suggest you read up on the law of large numbers, which is a basic assumption of such models). Now, if you are really interested in understanding the pure theoretical perspective of the existence and uniqueness of a competitive equilibrium price I suggest you look further into fixed point theorems and the concept of the possibility of free-disposal equilibria. As far as the assumptions go in these models, the basic ones will relate to the convexity of preferences and free-disposal. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is a suggestion: &lt;a href=&quot;http://math.uchicago.edu/~may/REU2014/REUPapers/Jung.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://math.uchicago.edu/~may/REU2014/REUPapers/Jung.pdf&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now at a less advanced level, consumers and firms take prices as given (because they are small relative to a large number of individuals). Now, a competitive equilibrium is reached when the demand of consumers (assuming a certain form of preferences and budget set), and the supply of firms (assuming a certain production function) are equal. There is no excess anything. Now, from this situation a price will be determined, which is known as the equilibrium price. Competitive equilibria simply require that the budget constraint for the economy is &quot;respected&quot; so to speak. In more advanced micro excess demand and excess supply under competitive equilibria is in fact allowed, so I suggest you read up on this (any exchange or production economy set-up a la Arrow-Debreu-Mckensie.  &lt;/p&gt;&#xA;" OwnerDisplayName="user20105" LastActivityDate="2018-12-09T16:20:51.357" CommentCount="11" ContentLicense="CC BY-SA 4.0" />
  <row Id="25959" PostTypeId="2" ParentId="25903" CreationDate="2018-12-09T16:47:05.963" Score="-1" Body="&lt;p&gt;Think of the following. Imagine the world suffers a major disaster. Chaos emerges. Rule of law collapses. The monetary system as we know it is destroyed. We could either go back to barter (and surely some will do). Or we can go back to a hard currency, like those in the past, where money was basically in the form of gold coins (and other metals). Thus, gold is, in that sense, THE SAFEST asset, because it will provide you with purchasing power in the case of a major civilisation collapse (and anything in between that and a mere currency crisis). Every kingdom on earth sought to increase their gold reserves (called mercantilism).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But this begs the question, so why gold and not for instance water (which is way more useful for life)? The answer is built upon several factors. One is that gold depreciates quite slowly (paper money however could be lost in  a fire). Second, it is easily storable and hard to steal on masse (unlike water). Third, is highly regarder by the rich and powerful (e.g. kings). But the most important reason is sociological. It's a selfulfilling property of gold. It is regarded by other people as the safest asset and therefore it becomes the safest asset. &lt;/p&gt;&#xA;" OwnerUserId="15121" LastActivityDate="2018-12-09T16:47:05.963" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25962" PostTypeId="2" ParentId="25942" CreationDate="2018-12-09T17:06:54.607" Score="1" Body="&lt;p&gt;lower deficit means more export, so more foreign currency is coming into the country. Part of this goes to buy bonds. More demand means higher bond prices. People in the countr might feel richer too, because there is more exports, so more income to them. They might buy more bonds too. &lt;/p&gt;&#xA;" OwnerUserId="15121" LastActivityDate="2018-12-09T17:06:54.607" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25963" PostTypeId="1" AcceptedAnswerId="25965" CreationDate="2018-12-09T17:08:18.587" Score="1" ViewCount="29" Body="&lt;p&gt;For a finite-horizon discrete time optimization problem, my textbook provides a condition called the &quot;bequest condition&quot;, which I'm not familiar with. Specifically, where the state at time &lt;span class=&quot;math-container&quot;&gt;$t$&lt;/span&gt; is denoted &lt;span class=&quot;math-container&quot;&gt;$x_t$&lt;/span&gt;, the bequest condition states that at the final state, &lt;span class=&quot;math-container&quot;&gt;$x_T$&lt;/span&gt;, it must hold that &lt;span class=&quot;math-container&quot;&gt;$x_T\geq \bar x$&lt;/span&gt;. What does this mean?&lt;/p&gt;&#xA;" OwnerUserId="20439" LastActivityDate="2018-12-09T17:28:08.353" Title="What is the &quot;bequest condition&quot; in a finite-horizon discrete optimization problem?" Tags="&lt;mathematical-economics&gt;&lt;optimization&gt;&lt;dynamic-optimization&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25964" PostTypeId="2" ParentId="22599" CreationDate="2018-12-09T17:13:50.977" Score="0" Body="&lt;p&gt;Many of the criticism comes from the recent financial crisis. Economists failed to predict the crisis, beside the super sophisticated models. Many then said that economics is wrong because this super complex models cannot capture essential elements of life and behavior and society. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So part of the movement against mathematics is just in response to the evidence. For many, the sicence is often a failure. &lt;/p&gt;&#xA;" OwnerUserId="15121" LastActivityDate="2018-12-09T17:13:50.977" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25965" PostTypeId="2" ParentId="25963" CreationDate="2018-12-09T17:28:08.353" Score="2" Body="&lt;p&gt;It is simply the terminal condition of the model. You do not specify the variable that x represents, but if it were, for example, capital, this would simply state that in the last period (since horizon is finite) there is a condition that states that capital must be greater or equal to some given amount (bequest --&gt; legacy, you might find some sense in that word). &#xA;Again, you do not specify the model, but normally these types of conditions relate to either a simplifying assumption that allows you to solve models using certain methods (for example undetermined coefficient, iterative solution methods, etc.), or to some logical notion. &lt;/p&gt;&#xA;" OwnerDisplayName="user20105" LastActivityDate="2018-12-09T17:28:08.353" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25966" PostTypeId="1" CreationDate="2018-12-09T18:18:37.570" Score="1" ViewCount="81" Body="&lt;p&gt;I'm reading a book on monetary policy, and it defines the representative household's consumption as &lt;span class=&quot;math-container&quot;&gt;$$C_t = \int_0^1 C_t(i) di$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;so, basically a sum over the consumption of good &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then later on, it says that the consumption of each good is identical &lt;span class=&quot;math-container&quot;&gt;$$C_t(i) = C_t(j) = C_t$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This equation makes no logical sense. How can &lt;span class=&quot;math-container&quot;&gt;$C_t(i) = C_t$&lt;/span&gt; for all &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;? &lt;span class=&quot;math-container&quot;&gt;$C_t$&lt;/span&gt; is DEFINED as an integral sum over all those &lt;span class=&quot;math-container&quot;&gt;$C_t(i)$&lt;/span&gt;. They cannot be identical.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That's like saying 4 = 2 + 2, and then say 4 = 2. &lt;/p&gt;&#xA;" OwnerUserId="20432" LastActivityDate="2018-12-13T20:29:18.777" Title="Logically inconsistent optimality condition" Tags="&lt;macroeconomics&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25967" PostTypeId="2" ParentId="25966" CreationDate="2018-12-09T18:52:09.197" Score="2" Body="&lt;p&gt;There is &lt;span class=&quot;math-container&quot;&gt;$C_t$&lt;/span&gt; the number and &lt;span class=&quot;math-container&quot;&gt;$C_t()$&lt;/span&gt; the function. This is already so in your first equation. Your second equation says that the function is constant over &lt;span class=&quot;math-container&quot;&gt;$[0,1]$&lt;/span&gt;. In which case it is true that &lt;span class=&quot;math-container&quot;&gt;$C_t$&lt;/span&gt; the number equals &lt;span class=&quot;math-container&quot;&gt;$C_t()$&lt;/span&gt; the function's value times 1. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The same thing with a different notation:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$ C_t \triangleq \int_0^1 f_{C,t}(i) di.$$&lt;/span&gt;&#xA;If there exists a constant &lt;span class=&quot;math-container&quot;&gt;$c_t$&lt;/span&gt;, where for all &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$f_{C,t}(i) = c_t.$$&lt;/span&gt;&#xA;then&#xA;&lt;span class=&quot;math-container&quot;&gt;$$ C_t \triangleq \int_0^1 f_{C,t}(i) di = \int_0^1 c_t di = c_t. $$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2018-12-09T18:52:09.197" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25968" PostTypeId="1" AcceptedAnswerId="26040" CreationDate="2018-12-09T21:10:30.843" Score="0" ViewCount="47" Body="&lt;p&gt;We know that in regular economies general equilibrium theory predicts a finite and &lt;strong&gt;odd&lt;/strong&gt; number of equilibria, using the properties of the excess demand function and the index theorem. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;How about the non-regular economies? From my understanding, these are the economies in which at least one price vector equilibirum generates a singular matrix of price effects. Geometrically, this can be interpreted as the excess demand function having a zero slope at one of the equilibria as shown in the picture below &lt;a href=&quot;https://i.stack.imgur.com/nXcte.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/nXcte.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can we say something more about the equilibria, in case they are a finite number? Do they need to be even, odd or there is no restriction? &lt;/p&gt;&#xA;" OwnerUserId="6773" LastActivityDate="2019-04-14T00:01:35.283" Title="Equilibria in non regular economies" Tags="&lt;general-equilibrium&gt;&lt;competitive-equilibrium&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="25970" PostTypeId="2" ParentId="25966" CreationDate="2018-12-09T21:36:22.380" Score="1" Body="&lt;p&gt;I guess that you would have no problem in the general case of &lt;span class=&quot;math-container&quot;&gt;$n \ (&amp;gt;0)$&lt;/span&gt; goods, instead of &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt;. In such a case, the &lt;em&gt;identical-consumption&lt;/em&gt; hypothesis becomes &lt;span class=&quot;math-container&quot;&gt;$C_t(i) = C_t(j) = C_t/n$&lt;/span&gt;, which leads to&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$C_t = \int_0^n C_t(i) di = \int_0^n \frac{C_t}{n} di = \frac{C_t}{n} \int_0^n di = \frac{C_t}{n} [ i ]^n_0 = \frac{C_t}{n} (n- 0) = C_t$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Simply set &lt;span class=&quot;math-container&quot;&gt;$n=1$&lt;/span&gt;, and you will get your answer.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;That's like saying &lt;span class=&quot;math-container&quot;&gt;$4 = 2 + 2$&lt;/span&gt;, and then say &lt;span class=&quot;math-container&quot;&gt;$4 = 2$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Actually, it is more like saying that, e.g. &lt;span class=&quot;math-container&quot;&gt;$4 = 1 + 3$&lt;/span&gt; and then say &lt;span class=&quot;math-container&quot;&gt;$4 = 2 \times \frac{4}{2}$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="10247" LastEditorUserId="10247" LastEditDate="2018-12-13T20:29:18.777" LastActivityDate="2018-12-13T20:29:18.777" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="25971" PostTypeId="1" AcceptedAnswerId="26016" CreationDate="2018-12-09T22:43:19.307" Score="2" ViewCount="70" Body="&lt;p&gt;My background is more in statistics and applied math, so I am not familiar with the breadth of decision making models from economics. However, I am working on a project that involves decision making models, especially with reference to racism and/or sexism in hiring or labor market decisions. I was just wondering if there were any existing economics papers that model decision making where some decision-makers in the decision making process subscribe to differing levels of prejudiced beliefs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course I did search google scholar and looked at the microeconomics section of the American Economic Journal. I found a bunch of statistical papers which demonstrate that there is bias in hiring. But I am really looking for something with a model of the decision making process that includes a racism or sexism component. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any suggestions would be appreciated. &lt;/p&gt;&#xA;" OwnerUserId="20443" LastActivityDate="2018-12-13T16:15:13.083" Title="reference request: models of how racism or sexism affects decision making" Tags="&lt;reference-request&gt;&lt;game-theory&gt;&lt;labor-economics&gt;&lt;decision-theory&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25973" PostTypeId="2" ParentId="25966" CreationDate="2018-12-10T02:44:32.413" Score="1" Body="&lt;p&gt;Both the other two answers are of course correct, but they do not provide a way to understand (or assess the suitability of) this correct but counter intuitive result.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To complete the mathematical discussion, indeed, it holds, if &lt;span class=&quot;math-container&quot;&gt;$c(i) = c$&lt;/span&gt;, that &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\int_0^1 c di = c \int_0^1  di = c \tag{1}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is one of those useful cases where we can see clearly that treating an integral as &quot;more or less like a sum&quot;, doesn't always work. By the integral we do &lt;em&gt;not&lt;/em&gt; &quot;sum&quot; distinct consumed quantities for the fundamental reason that the index &lt;span class=&quot;math-container&quot;&gt;$i \in \mathbb R$&lt;/span&gt; and not &lt;span class=&quot;math-container&quot;&gt;$i \in \mathbb N$&lt;/span&gt; nor &lt;span class=&quot;math-container&quot;&gt;$i \in \mathbb Q$&lt;/span&gt;. So we &lt;em&gt;cannot even write&lt;/em&gt; a sum expression, which by definition requires an index that is at most countably infinite.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then the issue arises: is the specific mathematical tool appropriate in modeling the economic phenomenon that it attempts to model here? The OP's puzzlement is all too real and valid, since indeed, the expression says &quot;I consume a continuum of goods each at the same quantity &lt;span class=&quot;math-container&quot;&gt;$c$&lt;/span&gt; and the result is that my total consumption is just &lt;span class=&quot;math-container&quot;&gt;$c$&lt;/span&gt;&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the real world we say &quot;I consume &lt;span class=&quot;math-container&quot;&gt;$n \in \mathbb N$&lt;/span&gt; goods each at quantity &lt;span class=&quot;math-container&quot;&gt;$c$&lt;/span&gt;, and my total consumption is then &lt;span class=&quot;math-container&quot;&gt;$n \cdot c$&lt;/span&gt;.&quot; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that the discrepancy would have evaporated if the author of the book has used &quot;mass&quot; &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt; of goods rather then &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt; (for dummy variable of integration &lt;span class=&quot;math-container&quot;&gt;$v$&lt;/span&gt; and consumption per good related to &lt;span class=&quot;math-container&quot;&gt;$[0,n]$&lt;/span&gt; goods): &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\int_0^n c_n dv = c_n \int_0^n  dv = n\cdot c_n \tag{2}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This also helps us to understand why the &lt;span class=&quot;math-container&quot;&gt;$[0,1]$&lt;/span&gt; formulation is used after all in many economic models that use such a depiction of cunsumption: it is just a re-scaling issue.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume that we start with eq. &lt;span class=&quot;math-container&quot;&gt;$(2)$&lt;/span&gt;, which accords better with intuition. Define the variable &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$i \equiv v/ n \implies di = \frac {dv}{n}\implies ndi =dv,\;\;\; v=0\implies i=0,\;\;\; v=n \implies i=1 $$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Applying the change of variables we have &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\int_0^n c_n dv = \int_0^1 c_n ndi $$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then set &lt;span class=&quot;math-container&quot;&gt;$c \equiv n\cdot c_n$&lt;/span&gt; to get &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\int_0^n c_n dv = \int_0^1 cdi = c\int_0^1 di = c  $$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words, when we have a continuum of goods &lt;span class=&quot;math-container&quot;&gt;$[0,1]$&lt;/span&gt; as the authors did, and we say that we consume the same &lt;span class=&quot;math-container&quot;&gt;$c$&lt;/span&gt; &quot;per good&quot;, it is equivalent to say that we have a continuum of goods &lt;span class=&quot;math-container&quot;&gt;$[0,n]$&lt;/span&gt; and we consume &lt;span class=&quot;math-container&quot;&gt;$c_n=c/n$&lt;/span&gt; from each.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2018-12-10T10:51:22.047" LastActivityDate="2018-12-10T10:51:22.047" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25975" PostTypeId="1" AcceptedAnswerId="25976" CreationDate="2018-12-10T05:56:29.733" Score="0" ViewCount="49" Body="&lt;p&gt;I'm trying to work out the following problem for my microeconomics course, using the standard method we have been taught.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Problem:&lt;/strong&gt; Output is a function of inputs &lt;span class=&quot;math-container&quot;&gt;$x_1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$x_2$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$y=x_1^{1/2}x_2$&lt;/span&gt;. Total cost is a function of inputs &lt;span class=&quot;math-container&quot;&gt;$x_1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$x_2$&lt;/span&gt; and their corresponding prices, &lt;span class=&quot;math-container&quot;&gt;$w_1=3$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$w_2=2$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$c=3x_1+2x_2$&lt;/span&gt;. The price at which output can be sold is &lt;span class=&quot;math-container&quot;&gt;$p=6$&lt;/span&gt;. What is the profit maximizing level of &lt;span class=&quot;math-container&quot;&gt;$x_2$&lt;/span&gt; for the firm to use in the long run?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Attempt:&lt;/strong&gt; In the long run, the profit maximizing level of &lt;span class=&quot;math-container&quot;&gt;$x_2$&lt;/span&gt; is found by solving &lt;span class=&quot;math-container&quot;&gt;$p\times MP_2=w_2$&lt;/span&gt;. That is, &lt;span class=&quot;math-container&quot;&gt;$6x_1^{1/2}=2$&lt;/span&gt;. But, &lt;span class=&quot;math-container&quot;&gt;$x_2$&lt;/span&gt; is no longer a variable in this equation! This leads me to believe the firm will exit, meaning &lt;span class=&quot;math-container&quot;&gt;$x_2=0$&lt;/span&gt;, but I cannot think of how to relate the economic theory to the mathematics.&lt;/p&gt;&#xA;" OwnerUserId="20446" LastActivityDate="2018-12-10T09:10:34.657" Title="Would this hypothetical firm exit in the long run?" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25976" PostTypeId="2" ParentId="25975" CreationDate="2018-12-10T09:10:34.657" Score="0" Body="&lt;p&gt;The firm will not exit: for example inputs &lt;span class=&quot;math-container&quot;&gt;$x_1=1,x_2=1$&lt;/span&gt; lead to &lt;span class=&quot;math-container&quot;&gt;$y=1, c=5$&lt;/span&gt; and profit &lt;span class=&quot;math-container&quot;&gt;$py-c=1$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In general profit is &lt;span class=&quot;math-container&quot;&gt;$6x_1^{1/2}x_2-3x_1-2x_2$&lt;/span&gt;  &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;As you found with &lt;span class=&quot;math-container&quot;&gt;$x_1 =\frac19$&lt;/span&gt;, profit is &lt;span class=&quot;math-container&quot;&gt;$-\frac13$&lt;/span&gt; which is independent of &lt;span class=&quot;math-container&quot;&gt;$x_2$&lt;/span&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;But with &lt;span class=&quot;math-container&quot;&gt;$x_1 \gt \frac19$&lt;/span&gt;, profit is an increasing function of &lt;span class=&quot;math-container&quot;&gt;$x_2$&lt;/span&gt; and is positive when &lt;span class=&quot;math-container&quot;&gt;$x_2 \gt \frac{3x_1}{6\sqrt{x_1}-2}$&lt;/span&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;For example with &lt;span class=&quot;math-container&quot;&gt;$x_1 =1$&lt;/span&gt;, output is &lt;span class=&quot;math-container&quot;&gt;$x_2$&lt;/span&gt;, profit is &lt;span class=&quot;math-container&quot;&gt;$4x_2 -3$&lt;/span&gt; and is positive for &lt;span class=&quot;math-container&quot;&gt;$x_2 \gt \frac34$&lt;/span&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;For example with &lt;span class=&quot;math-container&quot;&gt;$x_1 =4$&lt;/span&gt;, output is &lt;span class=&quot;math-container&quot;&gt;$2x_2$&lt;/span&gt;, profit is &lt;span class=&quot;math-container&quot;&gt;$10x_2 -12$&lt;/span&gt; and is positive for &lt;span class=&quot;math-container&quot;&gt;$x_2 \gt \frac{6}{5}$&lt;/span&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;So there appears to be no  profit maximizing level of &lt;span class=&quot;math-container&quot;&gt;$x_2$&lt;/span&gt; because (providing &lt;span class=&quot;math-container&quot;&gt;$x_1 \gt \frac19$&lt;/span&gt;) profit is an increasing  function of &lt;span class=&quot;math-container&quot;&gt;$x_2$&lt;/span&gt;. So a profit maximiser will want to increase &lt;span class=&quot;math-container&quot;&gt;$x_2$&lt;/span&gt; without limit.  Your partial derivative method did not find this infinite solution&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For what it is worth, given a particular &lt;span class=&quot;math-container&quot;&gt;$x_2$&lt;/span&gt;, the optimal value of &lt;span class=&quot;math-container&quot;&gt;$x_1$&lt;/span&gt; seems to be &lt;span class=&quot;math-container&quot;&gt;$x_2^2$&lt;/span&gt; making the profit &lt;span class=&quot;math-container&quot;&gt;$x_2(3x_2-2)$&lt;/span&gt; which is clearly positive when &lt;span class=&quot;math-container&quot;&gt;$x_2&amp;gt;\frac23$&lt;/span&gt; and then again an increasing function of &lt;span class=&quot;math-container&quot;&gt;$x_2$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2018-12-10T09:10:34.657" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25979" PostTypeId="1" CreationDate="2018-12-10T12:09:28.847" Score="1" ViewCount="15" Body="&lt;p&gt;Why does China has to give approval to two US companies merging together?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There have been quite a few examples in the last time, as UTC &amp;amp; Rockwell Collins as well as Qualcomm acquiring NXP Semiconductor.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why does in this case UTC need approval from China : &lt;a href=&quot;https://edition.cnn.com/2018/11/27/business/united-technologies-breakup-conglomerate/index.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://edition.cnn.com/2018/11/27/business/united-technologies-breakup-conglomerate/index.html&lt;/a&gt; &lt;/p&gt;&#xA;" OwnerUserId="20450" LastEditorUserId="1601" LastEditDate="2018-12-10T18:04:59.850" LastActivityDate="2018-12-10T18:04:59.850" Title="China approval for US company acquisition" Tags="&lt;usa&gt;&lt;regulation&gt;&lt;china&gt;&lt;competition-authority&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25980" PostTypeId="2" ParentId="25779" CreationDate="2018-12-10T13:44:38.370" Score="1" Body="&lt;p&gt;I have finally found this: &lt;a href=&quot;https://dx.doi.org/10.1787/9789264013216-en&quot; rel=&quot;nofollow noreferrer&quot;&gt;OECD (2005), Taxing Working Families&lt;/a&gt; A little old, but mostly accurate still.&lt;/p&gt;&#xA;" OwnerUserId="17735" LastActivityDate="2018-12-10T13:44:38.370" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25981" PostTypeId="1" CreationDate="2018-12-10T15:06:37.533" Score="3" ViewCount="7218" Body="&lt;p&gt;&lt;em&gt;Money Heist&lt;/em&gt; (original Spanish title: &lt;em&gt;La Casa de papel&lt;/em&gt;) is a Spanish TV show about a bank heist. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;From Wikipedia (bolding mine),&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In Money Heist, a mysterious man, known as &quot;The Professor&quot;, is planning the biggest bank heist in history. (...) &lt;strong&gt;The goal is to enter the Royal Mint of Spain in Madrid (...) and print €2.4 billion&lt;/strong&gt;.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The idea of the Professor is that, since they don't rob a classic bank, the money they steal is no one's property. I would argue that it is actually everyone's money. Precisely, since we are speaking about euros, it is every European's money. Even if this money belongs to no one, there is still a large sum of money suddenly appearing &quot;out of nowhere&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;In real life, what would be the effect on the economy if the group of robbers carried its plan to its success and ended up with 2.4 billion euros?&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="2677" LastEditorUserId="2677" LastEditDate="2019-07-15T22:22:03.573" LastActivityDate="2019-07-15T22:22:03.573" Title="Did the robbers from Money Heist real steal noone's money?" Tags="&lt;money-supply&gt;&lt;central-banking&gt;&lt;money&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="25983" PostTypeId="1" CreationDate="2018-12-10T16:19:37.023" Score="2" ViewCount="132" Body="&lt;p&gt;In my introductory microeconomics class, a problem set had the following question:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;If the price elasticity of demand for Snickers bars is 1, what will a 1% increase in its price do to the total amount spent on it (not quantity purchased, but total amount spent) each week? &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The answer in the problem set solution released later was as follows:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;It will leave it unchanged because the percentage change in quantity demanded will exactly offset the percentage change in price.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;My problem with this is that isn't total revenue (and therefore total expenditure) supposed to be maximum when the demand is unitary elastic? If so, shouldn't changing the price when demand is already unitary, decrease revenue/expenditure?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've also tried numerical examples. If the price of a bar is \$2 and 100 units are being purchased, the expenditure is \$200. If the price increases to \$2.02, the quantity should fall to 99. Now the expenditure would be \$2.02 * 99 = \$199.98, which is lower than \$200.&lt;/p&gt;&#xA;" OwnerUserId="20452" LastActivityDate="2018-12-26T14:35:43.573" Title="Effect on revenue of changing price of unitary demand elastic product" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25984" PostTypeId="1" CreationDate="2018-12-10T16:34:21.040" Score="1" ViewCount="53" Body="&lt;p&gt;Law of Diminishing Marginal Utility states that marginal utility from consuming each additional unit of a commodity declines as its consumption increases, while keeping consumption of other commodities constant. Here my doubt is that &quot;keeping consumption of other commodities constant&quot; means what? Here &quot;other commodities&quot; means which are those? Please clarify this with an example.&lt;/p&gt;&#xA;" OwnerUserId="20453" LastActivityDate="2018-12-11T11:52:21.323" Title="In law of DMU statement what is meant by &quot;keeping other commodities&quot;?" Tags="&lt;utility&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25986" PostTypeId="2" ParentId="25984" CreationDate="2018-12-11T08:46:41.650" Score="2" Body="&lt;p&gt;You have a beer. The beer is great. You have a second one. It's equally good, but it adds less to your utility (decreasing marginal returns). You have a third beer, which makes you also feel better, but the effect is relatively small. Since you're drinking only for a while, you become hungry and you order a spicy pizza. The pizza makes you thirsty and you have, you name it, another beer. This fourth one is likely to be better than the third one, as it kills the spices.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this example, the pizza is the 'other commodity'. The term &quot;keeping consumption of other commodities constant&quot; is just a typical economics way of saying &quot;&lt;a href=&quot;https://en.wikipedia.org/wiki/Ceteris_paribus&quot; rel=&quot;nofollow noreferrer&quot;&gt;I look at beer consumption in isolation, but I am aware that things are usually more complicated&lt;/a&gt;&quot;. The law of diminishing marginal utility is just not valid anymore if you consume lots of commodities because of complementarities in consumption.&lt;/p&gt;&#xA;" OwnerUserId="17735" LastEditorUserId="17735" LastEditDate="2018-12-11T11:52:21.323" LastActivityDate="2018-12-11T11:52:21.323" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="25987" PostTypeId="2" ParentId="14064" CreationDate="2018-12-11T15:31:54.047" Score="-2" Body="&lt;p&gt;Advantages:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Large enconomy&lt;/li&gt;&#xA;&lt;li&gt;National level problems&lt;/li&gt;&#xA;&lt;li&gt;Calculate national income&lt;/li&gt;&#xA;&lt;li&gt;Less assumptions&lt;/li&gt;&#xA;&lt;li&gt;Working of economic market&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Disadvantages:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Ignorance of individual units&lt;/li&gt;&#xA;&lt;li&gt;Incomplete records&lt;/li&gt;&#xA;&lt;li&gt;Less exact results&lt;/li&gt;&#xA;&lt;li&gt;No individual approach&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="20459" LastEditorUserId="7363" LastEditDate="2019-05-11T17:06:09.710" LastActivityDate="2019-05-11T17:06:09.710" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25988" PostTypeId="1" AcceptedAnswerId="25989" CreationDate="2018-12-11T15:58:41.370" Score="3" ViewCount="266" Body="&lt;p&gt;In the Firm supply chapter of the microeconomics Varian's book, they show &quot;three equivalent ways to measure producer’s surplus&quot; using marginal cost, average cost and the average variable cost curves.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But my teacher says, &quot;those three ways give different results. You have to keep the same method during a given analysis&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So are they or not giving the same result?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Intuitively I think they do give the same result and do not understand why my teacher says they do not.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/GYtge.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/GYtge.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="10836" LastEditorUserId="10836" LastEditDate="2018-12-11T16:01:30.203" LastActivityDate="2020-03-07T06:29:06.080" Title="Do the three ways of measuring producer’s surplus give the same result?" Tags="&lt;microeconomics&gt;&lt;firm&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="25989" PostTypeId="2" ParentId="25988" CreationDate="2018-12-11T16:01:24.533" Score="8" Body="&lt;p&gt;Ask your teacher what he meant, because there is either a misunderstanding or he is mistaken. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Producer's surplus will come down to &lt;span class=&quot;math-container&quot;&gt;$y \cdot p - VC(y)$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the first graph, by definition of &lt;span class=&quot;math-container&quot;&gt;$AVC$&lt;/span&gt; we have&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;y \cdot (p - AVC(y)) = y \cdot p - VC(y).&#xA;$$&lt;/span&gt;&#xA;In the second graph, using &lt;span class=&quot;math-container&quot;&gt;$\int MC = VC$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$VC(0) = 0$&lt;/span&gt;, we have&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\int_0^y p - MC(x) \text{d} x =&#xA;\left[x \cdot p - VC(x)\right]_0^y = y \cdot p - VC(y).&#xA;$$&lt;/span&gt;&#xA;The area in the third graph is &#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\begin{align*}&#xA;\int_0^z p - AVC(z) \text{d} x + &#xA;\int_z^y p - MC(x) \text{d} x.&#xA;\end{align*}&#xA;$$&lt;/span&gt;&#xA;Let us calculate it by parts:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\begin{align*}&#xA;\int_0^z p - AVC(z) \text{d} x &amp;amp; = z \cdot p - z \cdot AVC(z) = z \cdot p -  VC(z) \\&#xA; \\&#xA;\int_z^y p - MC(x) \text{d} x &amp;amp; = (y - z) \cdot p - VC(y) + VC(z). &#xA;\end{align*}&#xA;$$&lt;/span&gt;&#xA;Summing up the two, we get &lt;span class=&quot;math-container&quot;&gt;$y \cdot p - VC(y)$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2018-12-11T18:16:38.970" LastActivityDate="2018-12-11T18:16:38.970" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25990" PostTypeId="2" ParentId="24931" CreationDate="2018-12-11T16:57:45.563" Score="-1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;In summary - some people will, over the course of their life,&#xA;  contribute far more in taxes than they will receive back in benefits.&#xA;  Others will receive much more in benefits than they ever contribute.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;You cannot separate tax and the economies. Workers contribute to the economy. Yet most rich people are paid directly or indirectly through capital rent. Capital by its own does not create any additional value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So &quot;contribution&quot; doesn't mean a lot. Rich peoples do have more money, and pay more tax, yet this money come in part from other people’s works.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note: I'm not saying that with any political agenda. It's just how it is and it make this question a bit odd.&lt;/p&gt;&#xA;" OwnerUserId="10836" LastActivityDate="2018-12-11T16:57:45.563" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25992" PostTypeId="1" AcceptedAnswerId="26004" CreationDate="2018-12-11T19:25:14.213" Score="3" ViewCount="440" Body="&lt;p&gt;The last case is GM in the USA. I fail to understand why does this happen. I understand that laying off jobs means higher dividend for the share holder and thus higher stock prices but in the long run is this a viable strategy, doesn't this mean lower income (and thus dividend) for the next quarter or year? Being that not only the employees are being fired but also that the factories are being closed it doesn't seem to me as a case of automation taking over the job. Can someone explain this to me? (I know that GM is allegedly cutting down the production of models non selling well, I am asking in general and not the specific case)&lt;/p&gt;&#xA;" OwnerUserId="20462" LastEditorUserId="4251" LastEditDate="2018-12-29T16:04:42.113" LastActivityDate="2018-12-29T16:04:42.113" Title="Why does firing employees appear to increase the share price of a company?" Tags="&lt;stock-market&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="25993" PostTypeId="1" CreationDate="2018-12-11T20:29:58.757" Score="2" ViewCount="81" Body="&lt;p&gt;I'm using this equation to calculate market value of land based on the levied land value tax:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;y = market land value&lt;br /&gt;&#xA;x = land value tax&lt;br /&gt;&#xA;r = real interest rate&lt;br /&gt;&#xA;a = real time-independent land value&lt;br /&gt;&#xA;i = tax revenue&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$y + (y*x)/r = a$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$y = (r*a)/(r+x)$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But something can't be right here because if I lower the real interest rate (to imply an expensive future), then the market value of land should go up since the future rent of the land becomes more important in the market's mind. Instead, the market value of land goes down! I guess this is because future taxes are taken into account as well and out-weigh any future rent. When rates go up, are the higher taxes, resultant from higher land values, also dismissed easier and thus making higher land values more tolerable so land owners don't care about the future tax cost as much?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another question is calculating the optimal tax rate to maximize tax revenues:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$yx = x(r*a)/(r+x)$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems that charging a tax higher than 100% will actually result in higher tax revenue. Is that because the real interest rate (~1%) has an effect on the future tax revenue so it's better to collect taxes as quick as possible or the tax base will not tolerate higher taxes from higher land values? Also, it seems interest that a 1% land value tax only collects half the tax revenue that it potentially could.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A final question, is how would I calculate exclusivity value? A 1% land value tax should add value intrinsically due to its dampening effects on future risk; ie, it's easier to maintain ownership over land if only a small amount of future value appreciation had to be paid for, than if the entirety of future value appreciation had to be paid for. Ex: paying 10k a year knowing it will never go up, vs paying 9k a year knowing it will go up.&lt;/p&gt;&#xA;" OwnerUserId="16510" LastEditorUserId="16510" LastEditDate="2018-12-13T22:37:28.227" LastActivityDate="2018-12-13T22:37:28.227" Title="Why do higher real interest rates increase land value?" Tags="&lt;interest-rate&gt;&lt;taxation&gt;&lt;optimal-taxation&gt;" AnswerCount="0" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="25995" PostTypeId="1" CreationDate="2018-12-12T10:22:05.833" Score="1" ViewCount="54" Body="&lt;p&gt;Do free-trade agreements typically include clauses relating to services?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, reciprocal recognition of professional qualifications.&lt;/p&gt;&#xA;" OwnerUserId="5505" LastActivityDate="2018-12-14T19:44:57.560" Title="Do free-trade agreements typically include clauses relating to services?" Tags="&lt;international-trade&gt;&lt;free-trade&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25996" PostTypeId="1" AcceptedAnswerId="26007" CreationDate="2018-12-12T10:26:42.243" Score="3" ViewCount="306" Body="&lt;p&gt;What is the interpretation of the expenditure function's being concave?&lt;/p&gt;&#xA;" OwnerUserId="20100" LastActivityDate="2018-12-12T23:38:04.083" Title="Economic interpretation of the concavity of the expenditure function" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25997" PostTypeId="2" ParentId="25992" CreationDate="2018-12-12T12:15:33.047" Score="1" Body="&lt;p&gt;Your question is problematic.  Let me restate it.  Is firing an embezzler bad for a company?  Or, is firing your lead producer bad for a company?  The firing OR hiring of workers has no directional implication for the stock price without other information.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;General Motors is trying to avoid six billion dollars in costs, a quarter of which are tariffs.  The USMCA changed some of the rules, effectively putting a sales tax on a wide variety of domestically made cars.  In particular, they required that 75% of the materials were made in North America versus 62.5% under NAFTA.  That meant that even if a car was 70% made in the US, it was now a foreign car for tariff purposes if nothing came from Canada or Mexico.  The old NAFTA requirements made quite a few cars viable that would not be viable otherwise.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Tariffs would be 25% of the price of those vehicles, the profit margin on new cars is very thin.  GM has been trying to spin this to be about changing consumer sentiment, but really it is about cost changes created by a new change in the rules.  People would like to see a retooling of those plants, but that is unlikely.  The tariff regime is unstable.  Without knowing the rules of the road, would you spend billions of dollars on a plant that would need to run for thirty or forty years to be viable, when the rules could wipe out its value tomorrow?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;GM's choice was very rational.  If the tariffs were gone and NAFTA back in place, then those plants would likely still be open as you would not need to avoid an added 1.5 billion dollars in added costs from tariffs alone.  That would have been corporate profit, or at least a reduction in losses if there were any.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You are correct in your idea that corporate revenues will fall.  In fact, corporate profit will fall when compared to prior years, but it will fall less than would happen if they kept them open.&lt;/p&gt;&#xA;" OwnerUserId="11321" LastActivityDate="2018-12-12T12:15:33.047" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="25998" PostTypeId="1" CreationDate="2018-12-12T12:18:22.077" Score="1" ViewCount="53" Body="&lt;p&gt;I calculated the HHI index for Chile exports and got values ranging from 0.09 and 0.13. We know that Chilean exports are very concentrated (around 40% of the exports are copper related goods) and the index might be misleading. I used HS 6 digits with the Customs data and Comtrade data. I am really puzzled and appreciate any help. Thanks.&lt;/p&gt;&#xA;" OwnerUserId="20470" LastActivityDate="2018-12-13T06:03:39.230" Title="HHI and concentration" Tags="&lt;international-trade&gt;" AnswerCount="1" CommentCount="0" ClosedDate="2018-12-30T01:54:55.413" ContentLicense="CC BY-SA 4.0" />
  <row Id="26000" PostTypeId="1" CreationDate="2018-12-12T13:08:24.537" Score="1" ViewCount="35" Body="&lt;p&gt;What are the difference and relation between the concepts of &lt;a href=&quot;https://en.wikipedia.org/wiki/Business_process&quot; rel=&quot;nofollow noreferrer&quot;&gt;business process&lt;/a&gt; and &lt;a href=&quot;https://en.wikipedia.org/wiki/Strategic_management&quot; rel=&quot;nofollow noreferrer&quot;&gt;business strategy&lt;/a&gt;?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, the process of strategy planning consists of the following steps:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;formulate missions and goals&lt;/li&gt;&#xA;&lt;li&gt;conduct external analysis to identify opportunities and threats in external competitive environment&lt;/li&gt;&#xA;&lt;li&gt;conduct internal analysis to identify strengths and weaknesses in internal operating environment&lt;/li&gt;&#xA;&lt;li&gt;formulate strategies, according to the missions and goals, opportunities and threats and strengths and weaknesses.&lt;/li&gt;&#xA;&lt;li&gt;implement formulated strategies&lt;/li&gt;&#xA;&lt;li&gt;monitor and control the execution of implemented strategies&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Is business process involved in some step(s) of the strategic planning process?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks.&lt;/p&gt;&#xA;" OwnerUserId="90" LastActivityDate="2018-12-12T13:08:24.537" Title="What are the difference and relation between the concepts of business process and business strategy?" Tags="&lt;microeconomics&gt;" AnswerCount="0" CommentCount="3" ClosedDate="2018-12-12T23:27:24.173" ContentLicense="CC BY-SA 4.0" />
  <row Id="26003" PostTypeId="1" AcceptedAnswerId="26063" CreationDate="2018-12-12T14:38:13.793" Score="0" ViewCount="334" Body="&lt;p&gt;General equilibrium framework; two individuals, two goods represented in an Edgeworth box.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is it true that if the preference are both strongly monotonic the Pareto set will go from the origin of an individual's axis to the one of the other's axis? By origin, I mean the points of the box where an individual has everything and the other nothing. The reason would be that the allocation of all goods to one of the single individuals is Pareto optimal. &lt;/p&gt;&#xA;" OwnerUserId="6773" LastEditorUserId="6773" LastEditDate="2018-12-12T18:51:59.823" LastActivityDate="2019-05-17T21:01:45.583" Title="Pareto set and Edgeworth box" Tags="&lt;general-equilibrium&gt;&lt;pareto-efficiency&gt;" AnswerCount="1" CommentCount="8" ContentLicense="CC BY-SA 4.0" />
  <row Id="26004" PostTypeId="2" ParentId="25992" CreationDate="2018-12-12T15:18:16.860" Score="2" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Is firing employees to raise stock prices a good strategy for a&#xA;  company?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;For the range of scenarios whereby more productivity can be obtained from employees (units of workforce), it certainly is.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By opting for layoffs, a company seeks to get rid of &lt;em&gt;redundant&lt;/em&gt; capacity and its associated costs, such as insurance, retirement pensions, or vacations. Since labor is the production factor which can be adjusted in the short-term, the benefit from cutting labor costs is reflected in the company's financial statements quicker than when the company envisions to sell its facilities, real estate, and equipment. Market agents are mindful of that difference, whence they foresee that the company's numbers are about (or are likelier) to improve.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That &quot;strategy&quot; (or, said more properly, tactic) starts to fail where the remaining workforce burns out and/or gets demoralized. These conditions are evidenced in accidents; production failures; product recalls; costs of litigation for unfair labor practices or faulty products; sickness; sudden resignations that cause bottlenecks; and when excessive layoffs render the company unable to meet the demand. It also fails when managers make their firing decisions influenced by personal motives (politics: favoritism, animosity) instead of business-minded criteria.&lt;/p&gt;&#xA;" OwnerUserId="18552" LastEditorUserId="18552" LastEditDate="2018-12-12T15:29:10.140" LastActivityDate="2018-12-12T15:29:10.140" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26005" PostTypeId="2" ParentId="25983" CreationDate="2018-12-12T15:46:19.480" Score="1" Body="&lt;p&gt;This is an excellent question (and congratulations for spotting an apparent inconsistency in your problem set!) To answer it, we need to distinguish between two slightly different concepts: the arc elasticity and the point elasticity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &lt;strong&gt;arc&lt;/strong&gt; elasticity of demand can defined as the percentage change in quantity demanded divided by the percentage change in price. (Other definitions are available.) For instance (to borrow your example), if initially &lt;span class=&quot;math-container&quot;&gt;$P = 2$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$Q = 100$&lt;/span&gt;, and later &lt;span class=&quot;math-container&quot;&gt;$P = 2.02$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$Q = 99$&lt;/span&gt;, then the arc elasticity of demand is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\frac{\%\Delta Q}{\%\Delta P} = \frac{\frac{100-99}{100}}{\frac{2-2.02}{2}} = -1$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Notice that to calculate the arc elasticity of demand we need &lt;strong&gt;two&lt;/strong&gt; price/quantity pairs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In contrast, the &lt;strong&gt;point&lt;/strong&gt; elasticity is defined slightly differently: it is the limit of the arc price elasticity as the size of the change in price goes to zero. In other words, it is essentially the same as the arc elasticity, but for a infinitesimally small price change. As a result, the 'old' price/quantity and 'new' price/quantity are essentially the same, so to compute the point elasticity we need only &lt;strong&gt;one&lt;/strong&gt; price/quantity pair.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A bit more formally, consider a small price change &lt;span class=&quot;math-container&quot;&gt;$dP$&lt;/span&gt; that leads to a small change in demand &lt;span class=&quot;math-container&quot;&gt;$dQ$&lt;/span&gt;. The point elasticity is given by&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\frac{\%\Delta Q}{\%\Delta P} = \frac{\frac{dQ}{Q}}{\frac{dP}{P}} = \frac{dQ}{dP}\frac{P}{Q} $$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These preliminaries out of the way, we are now in position to answer your question.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Under standard assumptions (downward sloping and differentiable demand), revenue is maximised when the &lt;strong&gt;point&lt;/strong&gt; elasticity equals 1. (You may wish to verify this!)&lt;/li&gt;&#xA;&lt;li&gt;However, at the revenue maximising point, the &lt;strong&gt;arc&lt;/strong&gt; elasticity need not be one. Conversely, if the arc elasticity is one, revenue need not be maximised (as your example indicates).&lt;/li&gt;&#xA;&lt;li&gt;Insofar as the point elasticity is a good approximation for the arc elasticity (i.e. when considering small prices changes), the arc elasticity should be close to 1 at the revenue maximising price/quantity.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerDisplayName="user17900" LastEditorDisplayName="user17900" LastEditDate="2018-12-26T14:35:43.573" LastActivityDate="2018-12-26T14:35:43.573" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26006" PostTypeId="1" CreationDate="2018-12-12T19:55:14.207" Score="2" ViewCount="43" Body="&lt;p&gt;Tunisia might be signing a free trade agreement with the EU very soon. It's called ALECA or DCFTA.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Many activists and labor unions are opposing such an agreement because it would result in losing jobs and shutting down local businesses, according to them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Would an FTA between Tunisia and EU be beneficial for the Tunisian economy? How?&lt;/p&gt;&#xA;" OwnerUserId="20475" LastActivityDate="2018-12-12T19:55:14.207" Title="Positive effects of a Tunisia-EU free trade agreement?" Tags="&lt;supply-and-demand&gt;&lt;gdp&gt;&lt;economic-growth&gt;&lt;free-trade&gt;&lt;eu&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="26007" PostTypeId="2" ParentId="25996" CreationDate="2018-12-12T22:26:31.367" Score="2" Body="&lt;p&gt;The expenditure function is always concave. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose you consume two goods. Suppose the price of one of those goods, say &lt;span class=&quot;math-container&quot;&gt;$p1$&lt;/span&gt;, increases. Suppose also that, rather than rebalance your demand, you increase consumption of good one enough to maintain some given level of utility (let's say whatever level of utility you had whenever consuming goods 1,2 before the price of good 1 increased). Then your expenditure rises linearly.  Suppose instead that you rebalance your demand. Then your expenditures rise but not as much as whenever you do not rebalance your demand. Thus, concavity. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, I suppose an interpretation here is that a consumer always has the ability to rebalance demands s.t. he/she maintains some desired level of utility in the cheapest way possible. Worst case, expenditures increase linearly. But linear functions are both concave and convex. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is a very loose way to discuss this. However, I think it gives intuition, which is what I think you are looking for here. &lt;/p&gt;&#xA;" OwnerUserId="1655" LastEditorUserId="1655" LastEditDate="2018-12-12T23:38:04.083" LastActivityDate="2018-12-12T23:38:04.083" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26009" PostTypeId="2" ParentId="25998" CreationDate="2018-12-13T06:03:39.230" Score="1" Body="&lt;p&gt;At the HS6 level, there are thousands of product codes (I believe around 5,000) so if you're just computing the HHI using product codes, then actually it's pretty surprising you've received such a large number! However, for the interpretation of your result you should keep in mind that you've computed the export HHI of Chile using HS6 product codes, which definitely do not correspond to a more common, yet harder to define, notion of &quot;commodities&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, there are many product codes that can be said to be copper related, and refer to various forms of smelted and refined copper. For instance, the HS6 code (in the HS1992 nomenclature) for copper ore is 260300, but there are dozens of product codes for refined copper and related products (i.e. 740110, 740120, 740200, etc.). Do you want to treat all these as separate products? It depends on the question you want to ask. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For instance, if you wanted to ask what the export HHI of Chile is for commodities, then you would need to define what a commodity is, and which HS codes you want to aggregate into commodities such as &quot;nickel&quot;, &quot;copper&quot;, etc.. and then compute the HHI based on the export shares of these groupings. There are &lt;a href=&quot;https://are.berkeley.edu/~fally/Data/commodity_hs6_correspondence.xlsx&quot; rel=&quot;nofollow noreferrer&quot;&gt;pre-existing groupings of commodities&lt;/a&gt;, but the &quot;right&quot; aggregation will depend on your question.&lt;/p&gt;&#xA;" OwnerUserId="6705" LastActivityDate="2018-12-13T06:03:39.230" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26010" PostTypeId="2" ParentId="21295" CreationDate="2018-12-13T10:00:30.590" Score="1" Body="&lt;h2&gt;Utility Trade-offs: Pareto Efficiency vs Equality&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;While I tend to agree with the notion of Tragedy of the Commons as per the comments, I will provide an additional economic framework to answer your question. Perhaps this is something you already know, but is nonetheless useful for answering your question as per the &lt;a href=&quot;/questions/tagged/welfare-economics&quot; class=&quot;post-tag&quot; title=&quot;show questions tagged &amp;#39;welfare-economics&amp;#39;&quot; rel=&quot;tag&quot;&gt;welfare-economics&lt;/a&gt; tag. As to the exact name of the policy, I'm not sure there is a name for the &lt;em&gt;policy&lt;/em&gt;, but the underlying economic concept can be characterized as a utility trade-off and that's likely how a policy maker would approach this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider the following social indifference curve, I just made it myself, don't scrutinize it too much:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/UctAz.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/UctAz.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assuming the First Theorem of Welfare Economics held before the tariff, then that point would have been on the pareto efficient curve which is the gray line in my graph. This curve is also known as the utility possibilities curve, which shows the highest utility one party can have without reducing another party's utility. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In your case, since the aluminum producers were worse off, then this is a utility trade-off. And we recall that society may be willing to trade off one group's utility for another's utility, sometimes on the grounds of equality, but for other reasons too.&lt;/p&gt;&#xA;" OwnerUserId="12212" LastEditorUserId="12212" LastEditDate="2018-12-13T10:14:12.570" LastActivityDate="2018-12-13T10:14:12.570" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26014" PostTypeId="1" AcceptedAnswerId="26025" CreationDate="2018-12-13T12:20:55.090" Score="1" ViewCount="48" Body="&lt;p&gt;I need to defend my use of the Random Effects (RE) estimator in my economics project. I've been told in cross validated that the proper place for the question is here.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The causal effect of the exchange rate on shopping in the neighbouring country, is estimated using the following equation:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{eqnarray}&#xA;\ln⁡(\text{Traffic})_{i,t} &amp;amp;=&amp;amp; \beta_0+ \beta_1 \ln⁡(\text{Exchange rate})_t + \beta_2  \ln⁡(\text{Distance})_i \\&amp;amp;&amp;amp; + \beta_3 \ln⁡(\text{Exchange rate})\cdot\ln⁡(\text{Distance})_{i,t}+ \text{Month}_t \\&amp;amp;&amp;amp; + \beta_4(\text{Consumer confidence})_t + \epsilon_{i,t}&#xA;\end{eqnarray}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;-&lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;= 16 roads, &lt;span class=&quot;math-container&quot;&gt;$t$&lt;/span&gt;= day (2010-14)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;-Exchange rate: foreign currency per unit of domestic currency&lt;/p&gt;&#xA;&#xA;&lt;p&gt;-Distance: distance between road and border&lt;/p&gt;&#xA;&#xA;&lt;p&gt;-Month: month dummies&lt;/p&gt;&#xA;&#xA;&lt;p&gt;-Consumer confidence: consumer confidence indices&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here are the reasons I can think of so far to argue for the validity of my specification:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Fixed effects is not viable. I do not have the full population/large sample of roads. D-I-D is not possible either, as there is no control group. RE is an alternative. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;RE’s allows me to exploit the spatial dimension i.e. distance, which is really important for causality. Distance would be wiped out by alternative specifications that include road dummies.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;All roads are the same classification of major road, there are not large differences between roads e.g. different speed limits are not altering the volume of traffic flow. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;I can’t think of any unobservable in the residual that is correlated with the explanatory variables. The only one is maybe that larger shopping areas attract more cross border shoppers, and so some roads are affected more than others by the exchange rate. But in my case I know that people go the nearest shopping area, not the biggest. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;All shoppers/roads receive the same shock/exchange rate. And shoppers are affected by national factors e.g. those contained in consumer confidence. So there’s no reason to have controls for each road.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Random effects scares me, so any advice is greatly appreciated! Thank you. &lt;/p&gt;&#xA;" OwnerUserId="5367" LastEditorUserId="14419" LastEditDate="2018-12-13T17:01:51.350" LastActivityDate="2018-12-13T21:46:00.467" Title="Justification for my Random Effects estimation" Tags="&lt;exchange-rates&gt;&lt;regression&gt;&lt;causality&gt;&lt;endogeneity&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26015" PostTypeId="1" CreationDate="2018-12-13T14:26:57.747" Score="0" ViewCount="213" Body="&lt;p&gt;Both Montenegro and Kosovo have unilaterally (?) decided to use euros as their official currencies. I think that most of their capital exists only as records in bank registers, so there is not much problem with that, but what about physical notes and coins that are in circulation? Where do they get them from? &lt;/p&gt;&#xA;" OwnerUserId="20481" LastActivityDate="2019-06-12T02:01:11.063" Title="Where do Montenegro and Kosovo get their euros from?" Tags="&lt;currency&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="26016" PostTypeId="2" ParentId="25971" CreationDate="2018-12-13T16:15:13.083" Score="4" Body="&lt;p&gt;There is a large literature on this, particularly in the context of labour markets. Some classic references:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;https://www.press.uchicago.edu/ucp/books/book/chicago/E/bo22415931.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Becker (1957)&lt;/a&gt; analyses employers who care about making profits&#xA;but also seek to avoid interacting with certain groups. One famous&#xA;result is employer prejudice need not lead to racial wage gaps as&#xA;long as there are enough non-prejudiced employers to hire the&#xA;minority group.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;https://www.jstor.org/stable/1806107?seq=1#metadata_info_tab_contents&quot; rel=&quot;nofollow noreferrer&quot;&gt;Phelps (1972)&lt;/a&gt; models employers who use demographic information&#xA;(e.g. gender or race) as proxies for unobserved but productivity&#xA;relevant variables. Unsurprisingly, it turns out that differences in&#xA;means or variances across demographic groups can induce employers to&#xA;discriminate in this setting.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Similar models are developed by &lt;a href=&quot;http://www2.econ.iastate.edu/classes/econ321/Orazem/arrow_discrimination.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Arrow (1971)&lt;/a&gt; and &lt;a href=&quot;http://econ2.econ.iastate.edu/classes/econ321/rosburg/Aigner%20and%20Cain%20-%20Statistical%20Theories%20of%20Discrimination%20in%20Labor%20Markets.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Aigner and&#xA;Cain (1977)&lt;/a&gt;. I would particularly recommend reading the latter.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Here are some &lt;a href=&quot;https://economics.mit.edu/files/553&quot; rel=&quot;nofollow noreferrer&quot;&gt;lecture notes&lt;/a&gt; which provide a useful overview of&#xA;some of the main issues and ideas.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerDisplayName="user17900" LastActivityDate="2018-12-13T16:15:13.083" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26017" PostTypeId="1" CreationDate="2018-12-13T16:45:53.373" Score="2" ViewCount="46" Body="&lt;p&gt;I was listening to a podcast featuring Michael Lewis (author of &lt;em&gt;Flashboys&lt;/em&gt; and &lt;em&gt;Moneyball&lt;/em&gt;), who mentioned a black swan scenario where the administration would threaten to selectively not pay its Treasury bond obligations to China.  If this were to be, I understand it would undermine confidence in the global economic system, but I am unable to anticipate exactly what the concrete results would be. &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;What would an administration threat of a default trigger?&lt;/li&gt;&#xA;&lt;li&gt;What exactly would a default trigger?&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="10161" LastEditorUserId="6168" LastEditDate="2020-05-03T09:43:14.627" LastActivityDate="2020-05-03T09:43:14.627" Title="U.S. Treasury defaulting on its bond obligations to China" Tags="&lt;government-debt&gt;&lt;bonds&gt;&lt;default&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26018" PostTypeId="1" CreationDate="2018-12-13T16:46:41.750" Score="1" ViewCount="49" Body="&lt;p&gt;I live in Iran, a country that has been under sanctions since 1979. After the US sanctions on Iranian oil, everything got worse and the price of everything increased four times in just three months. These days I hear that the &lt;em&gt;economic collapse&lt;/em&gt;  will happen. I want to know what it means and what consequences it can have for Iran, its economy and society.&lt;/p&gt;&#xA;&lt;p&gt;Wikipedia talks about Great Depression as an example but I want an example, close to Iran's situation, if there is such example.&lt;/p&gt;&#xA;&lt;p&gt;It seems that the inflation continues and with more sanctions the economy will get even worse.&lt;/p&gt;&#xA;&lt;p&gt;I don't know a lot about economics. Please answer with simple words and give examples if you know similar cases in other countries — what were the consequences?&lt;/p&gt;&#xA;&lt;p&gt;I should add that the government publishes wrong news about the rate of inflation, the value of rial, etc. Hence, the governmental statistics are totally unreliable.&lt;/p&gt;&#xA;" OwnerDisplayName="user32001" LastEditorDisplayName="user32001" LastEditDate="2021-02-21T15:09:53.593" LastActivityDate="2021-02-21T15:09:53.593" Title="What does the economic collapse of a country mean and what are its consequences?" Tags="&lt;macroeconomics&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="26021" PostTypeId="2" ParentId="26015" CreationDate="2018-12-13T18:04:24.213" Score="1" Body="&lt;p&gt;Countries can get foreign currency from tourists, exports or intergovernmental aid programs. (And several other ways, but these should suffice here.)&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2018-12-13T22:25:40.973" LastActivityDate="2018-12-13T22:25:40.973" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="26022" PostTypeId="1" CreationDate="2018-12-13T19:59:29.113" Score="2" ViewCount="42" Body="&lt;p&gt;The Central Statistical Office of Poland publishes a report every two years, in which it diagnoses the labor market. Among other indicators, they publish the mode of the distribution of wages, in painful detail (up to a grosz, worth around a quarter of a cent). For instance for 2017 it was 2074.03 PLN worth at the time of writing 548.6 USD (&lt;a href=&quot;https://twitter.com/GUS_STAT/status/933623652867854336&quot; rel=&quot;nofollow noreferrer&quot;&gt;source tweet in Polish&lt;/a&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These statistics always resonate strongly with a lot of my friends, however I have doubts. Having a background in statistics but none in economy, I criticize this indicator as being excessively susceptible to noise. I expect very low correlation between the frequency of wage equal X PLN and X+0.01 PLN and as such conveying very little information about the labor market as a whole. I could see this indicator useful if applied to a reasonably quantized histogram (which however raise the question where should the bin edges be). On the other hand, if somebody does not wish to look at the market as a whole, I could imagine some creative uses of this value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would like to ask the community if it is aware of any meaningful uses of the aforementioned in economic research, and if so, at which degree of quantization.&lt;/p&gt;&#xA;" OwnerUserId="20486" LastActivityDate="2018-12-14T16:12:27.493" Title="Is the mode of wage distribution a meaningful economic indicator?" Tags="&lt;macroeconomics&gt;&lt;statistics&gt;&lt;wages&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26023" PostTypeId="2" ParentId="13596" CreationDate="2018-12-13T21:10:39.307" Score="1" Body="&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$I^j$&lt;/span&gt; is just a known constant (i.e. we don't know anything about production, which would endogenously generate the amount of per capita income), but as you suggest the budget constraint for the consumer is that &lt;span class=&quot;math-container&quot;&gt;$\sum_i p_i d_i^j \leq I^j$&lt;/span&gt; (here, you can assume this holds with equality).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, note that if &lt;span class=&quot;math-container&quot;&gt;$d_i^j &amp;lt; \bar{d}_i$&lt;/span&gt;, then the utility function will be negative. So, if we have sufficient income to afford the minimum consumption (i.e. &lt;span class=&quot;math-container&quot;&gt;$\sum_i p_i \bar{d}_i \leq I^j$&lt;/span&gt;), to avoid this outcome the consumer will purchase at least &lt;span class=&quot;math-container&quot;&gt;$d_i^j \geq \bar{d}_i$&lt;/span&gt; units of each good. Therefore, if we define &lt;span class=&quot;math-container&quot;&gt;$x_i^j \equiv d_i^j-\bar{d}_i$&lt;/span&gt;, we know that &lt;span class=&quot;math-container&quot;&gt;$x_i^j \geq 0$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With this reformulation, we can rewrite this &lt;em&gt;Stone-Geary&lt;/em&gt; utility function as a &lt;em&gt;Cobb Douglas&lt;/em&gt; utility function, i.e.&#xA;&lt;span class=&quot;math-container&quot;&gt;$U^j = \prod_{i=1}^N (d_i^j - \bar{d}_i)^{\varphi_i}=\prod_{i=1}^N (x_i^j)^{\varphi_i}$&lt;/span&gt;. Then, to solve for the optimal consumption of &lt;span class=&quot;math-container&quot;&gt;$x_i^j$&lt;/span&gt;, you can just solve for optimal consumption with a Cobb Douglas utility function with a new income of &lt;span class=&quot;math-container&quot;&gt;$\bar{I}^j \equiv I^j - \sum_i p_i \bar{d}_i$&lt;/span&gt; (that is, the remaining income left over after spending it on the minimum consumption level of each good). Once you have the optimal &lt;span class=&quot;math-container&quot;&gt;$x_i^j$&lt;/span&gt;, the optimal consumption level of the good (inclusive of the minimum) is &lt;span class=&quot;math-container&quot;&gt;$d_i^j = x_i^j+\bar{d}_i$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerUserId="6705" LastActivityDate="2018-12-13T21:10:39.307" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26025" PostTypeId="2" ParentId="26014" CreationDate="2018-12-13T21:46:00.467" Score="2" Body="&lt;p&gt;Your first point is valid for not using fixed effects as you are interested in the entire border not just these 16 roads.  Random effects can be advantageous when you have such a small sample compared to the population for your treatment group.  Also note, if the unobserved effect has a large variance or T is very large then RE will be close to FE anyway.  You can try both and do a Hausman test to see if the two models are different. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your second point is not convincing.  I don't see this as being a justification for using random effect.  Don't lose site of what you are looking for, the effect of exchange rates on shopping across the border of your two countries.  You don't care about the effect of roadway length on the roadway traffic, so why bother with the idea of holding on to it in your results.  The one thing your distance variable can do is act as a sort of robustness check for you since that is one of the fixed effects you want to control for.  Now I can understand your interaction term with distance as there is probably some sort of cost and benefit for people considering the exchange rate vs the distance they have to drive, but in FE models, your interaction will remain.  Also note, that road dummies would be very similar to FE with your model specification.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would probably likely try a First Difference approach as well since you are going to have serially correlated errors.  You have controlled for some time-variant factors like seasonality with your months and some economic conditions with consumer confidence, but there could be other factors that change over time: road constructions, localized new regulation, new store openings on one side of the border, etc.  These would create serial correlation in your error term.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As long as you have a good justification for each modeling approach, I would try them all and compare your results.  Just use a straightforward pooled OLS model as your baseline, and then proceed from there.  Don't just blindly try everything, but be thoughtful and understand the assumptions you make in each approach.&lt;/p&gt;&#xA;" OwnerUserId="20485" LastActivityDate="2018-12-13T21:46:00.467" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26026" PostTypeId="1" CreationDate="2018-12-13T22:06:05.357" Score="2" ViewCount="113" Body="&lt;p&gt;I'm told that forgone job opportunities are implicit costs, to be included in calculating economic profit, but I can't seem to see how I could list and consider many different forgone opportunities. My question here is how do we do so?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, if I have a piece of land or big city real estate, there could be a great many different uses for it. If I considered each of these forgone opportunities an implicit cost, I would think the expression of my economic costs would be useless to me. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So I suspect that either I'm suffering from an oversimplified ECON101 explanation of implicit and opportunity costs or simply an incorrect one. Any references would be appreciated. &lt;/p&gt;&#xA;" OwnerUserId="18777" LastActivityDate="2021-05-05T23:12:06.323" Title="Multiple Forgone Job Opportunities and Economic Profit" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26028" PostTypeId="2" ParentId="26022" CreationDate="2018-12-14T07:25:59.490" Score="0" Body="&lt;p&gt;I agree with you that the mode of the wage distribution is not particularly useful, especially at this detail. I wonder how many people earn this amount (5, 10?). This is actually the first time I see an institution reporting the mode of the wage distribution at all. In itself, the figure can be easily misunderstood. Journalists/Commentators often enough mix up median and mean; what would happen with mode?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The histogram also shown in your link is way more useful.&lt;/p&gt;&#xA;" OwnerUserId="17735" LastActivityDate="2018-12-14T07:25:59.490" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26030" PostTypeId="2" ParentId="26022" CreationDate="2018-12-14T13:45:06.973" Score="0" Body="&lt;p&gt;The mode of the distribution is a very useful statistic.&#xA;Let &lt;span class=&quot;math-container&quot;&gt;$m_d$&lt;/span&gt; be the mode, and let &lt;span class=&quot;math-container&quot;&gt;$d&amp;gt;0$&lt;/span&gt; be some value. Let &lt;span class=&quot;math-container&quot;&gt;$w'\neq m_d$&lt;/span&gt; be any other value in the support of the random variable wage &lt;span class=&quot;math-container&quot;&gt;$W$&lt;/span&gt;. Then, in general,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$Pr(W \in [m_d-d,m_d+d] ) &amp;gt; Pr(W \in [w'-d,w'+d] )$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;translating verbally the above relation, provides also the intuition as to why the mode is a useful statistic.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As regard &quot;precision in reporting&quot;, it is good that agencies report the exact calculation they arrived at. It is for users of the information to realize that these are statistical indicators and such high precision is not really useful in &lt;em&gt;subsequent&lt;/em&gt; use of the statistical information for macroscopic analysis and decision making.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I also had a look at the histogram you linked to, and something is wrong (inconsistent) here: you say that the reported mode of the wage is &lt;span class=&quot;math-container&quot;&gt;$2074.03$&lt;/span&gt; PLN. But in the histogram, this value does not fall inside the bin with the greatest relative empirical frequency (which has a low bound of &lt;span class=&quot;math-container&quot;&gt;$2173.39$&lt;/span&gt;. This creates an awkward situation, as regards interpretation.  Usually the mode is in the center of the bin with the greatest relative empirical frequency.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2018-12-14T13:45:06.973" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26031" PostTypeId="2" ParentId="26022" CreationDate="2018-12-14T16:12:27.493" Score="1" Body="&lt;p&gt;Yes, it is a very useful indicator.  You are correct that it has greater noise, but, depending upon how it was calculated it can be a very useful measure.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Statistical efficiency is a nice thing, but it implies a very specific loss function.  Let us imagine you are a government.  For the US government, the mean wage includes individuals like Bill Gates.  The implicit loss function is quadratic loss.  However, is this a politically useful measure?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You want to get over 50% of the votes, and this is a highly skewed distribution.  That does not attest to the well-being of the middle of the body politic.  For that, you want to look at the median, which minimizes absolute linear loss.  It is less efficient. It tells you the experience of the median voter, provided votes are roughly distributed randomly across the income spectrum. However, since voting is an all-or-nothing proposition, you don't just want to know the health of the middle.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This brings us to the all-or-nothing loss function.  It is the populist loss function.  It is the most common experience of your people.  Hillary Clinton and David Cameron managed median voter theory perfectly; they both lost.  This is a problem that, in politics, used to be called the &quot;farm-block,&quot; problem.  The median is not representative if any one large body can move the vote.  The body most likely to do this are the individuals at the mode.  If they act together, they move an otherwise tied election, and almost all elections are close to being tied if competition is real.  Voting is an all-or-nothing proposition.  The mode minimizes the all-or-nothing loss function. To ignore the mode is to watch a government collapse.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Do not&lt;/em&gt; think of this as an attempt to find the center of location.  Think of it as a gamble that no government wants to lose.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Don't use bins, find the supremum of a kernel density estimate.&lt;/p&gt;&#xA;" OwnerUserId="11321" LastActivityDate="2018-12-14T16:12:27.493" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26032" PostTypeId="2" ParentId="25995" CreationDate="2018-12-14T17:50:43.460" Score="-2" Body="&lt;p&gt;No, but there is a proposed free trade in services agreement on the table, but reciprocal recognition of licenses isn't intrinsically part of it.  However, it does have a provision that once a trade barrier is dropped, it can never be reintroduced in some form.  So, for example, a Canadian physician cannot practice in the US and vice versa automatically, but under the proposed treaty, if the two nations acknowledged the validity of each other's licenses, then they could never reverse that decision.&lt;/p&gt;&#xA;" OwnerUserId="11321" LastEditorUserId="11321" LastEditDate="2018-12-14T18:05:44.470" LastActivityDate="2018-12-14T18:05:44.470" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="26033" PostTypeId="1" CreationDate="2018-12-14T19:26:20.260" Score="0" ViewCount="75" Body="&lt;p&gt;Why are log returns used in finance? For example to calculate a stocks performance. There are a lot of articles on that topic yet I don't find them very helpful. Could somebody please explain step by step? Maybe also with pros and cons.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks in advance.&lt;/p&gt;&#xA;" OwnerUserId="20490" LastEditorUserId="264" LastEditDate="2019-05-14T02:09:49.020" LastActivityDate="2019-05-14T02:09:49.020" Title="log returns in finance" Tags="&lt;finance&gt;&lt;stock-market&gt;&lt;investment&gt;&lt;portfolio-theory&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26034" PostTypeId="2" ParentId="25995" CreationDate="2018-12-14T19:44:57.560" Score="1" Body="&lt;p&gt;The simplest answer is: &lt;strong&gt;some do, some don't&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Trade in goods and trade in services are dealt with quite separately, so structurally, you wouldn't find a couple of clauses on services within an FTA.  You would generally find a chapter on goods and (possibly) another on services, reflecting the division in the WTO between the &lt;a href=&quot;https://en.wikipedia.org/wiki/General_Agreement_on_Tariffs_and_Trade&quot; rel=&quot;nofollow noreferrer&quot;&gt;GATT (goods)&lt;/a&gt; and the &lt;a href=&quot;https://en.wikipedia.org/wiki/General_Agreement_on_Trade_in_Services&quot; rel=&quot;nofollow noreferrer&quot;&gt;GATS (services)&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Quantitatively, there is a roughly equal split between goods-only agreements and agreements that cover both (&lt;a href=&quot;http://rtais.wto.org/UI/PublicAllRTAList.aspx&quot; rel=&quot;nofollow noreferrer&quot;&gt;153 for goods only and 154 combined agreements have been notified to the WTO&lt;/a&gt; as of December 2018).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You also often find a group of countries negotiating a goods-only FTA first, then extending to cover services later on (for example by adding a protocol to an existing treaty).  This reflects the fact that an integrated services market is usually seen as a &quot;deeper&quot; form of integration than tariff-free trade.&lt;/p&gt;&#xA;" OwnerUserId="16631" LastActivityDate="2018-12-14T19:44:57.560" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26035" PostTypeId="1" CreationDate="2018-12-14T20:17:49.163" Score="3" ViewCount="139" Body="&lt;p&gt;I have the following inter temporal utility function: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$U(t)=(\frac{s(t)}{1-\sigma})(c_t/c_{t-1}^\gamma)^{(1-\sigma)} - \chi*h(t)$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where &lt;span class=&quot;math-container&quot;&gt;$h(t)$&lt;/span&gt; is the hours worked.&#xA;I know that gamma is responsible for consumption smoothing as I have achieved the following results after a positive shock on &lt;span class=&quot;math-container&quot;&gt;$s(t)$&lt;/span&gt;:&lt;a href=&quot;https://i.stack.imgur.com/23Lmr.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/23Lmr.png&quot; alt=&quot;The consumption after a shock when \gamma =1, is much smoother&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem is i do not know how to prove mathematically that when gamma=1 consumption is smoother &lt;/p&gt;&#xA;" OwnerUserId="20491" LastEditorUserId="17735" LastEditDate="2018-12-15T07:59:49.417" LastActivityDate="2021-05-03T11:06:40.617" Title="Consumption smoothing in RBC Model" Tags="&lt;consumption&gt;&lt;rbc&gt;&lt;dynare&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="26037" PostTypeId="2" ParentId="26033" CreationDate="2018-12-14T21:02:53.317" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Why are log returns used in finance?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It really is about compactness when devising models. The mathematical property of logarithms &lt;span class=&quot;math-container&quot;&gt;$$log(S_{t+n}/S_t)=log(S_{t+n})-log(S_t)$$&lt;/span&gt; makes log returns more convenient for modeling than the traditional &lt;span class=&quot;math-container&quot;&gt;$$\frac{ S_{t+1}-S_t}{S_t}$$&lt;/span&gt; because the former allow the modeler to think in terms of subtraction.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The only &quot;con&quot; for using log returns is that logarithms are more difficult to compute or approximate &quot;by hand&quot; than a subtraction and division. However, with our widespread access to computers, that is not really a drawback for practical purposes.&lt;/p&gt;&#xA;" OwnerUserId="18552" LastActivityDate="2018-12-14T21:02:53.317" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26038" PostTypeId="2" ParentId="26017" CreationDate="2018-12-14T21:43:54.393" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;the administration would threaten to selectively not pay its Treasury&#xA;  Bond obligations to China&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;What exactly would a default trigger?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Selective default would be ineffective and it could backfire.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It would be ineffective because, at any point in time, a treasury bond has the same value regardless of who holds it. If the USA disavows its obligations toward China, clearly the &lt;a href=&quot;http://ticdata.treasury.gov/Publish/mfh.txt&quot; rel=&quot;nofollow noreferrer&quot;&gt;top holder of US Treasury securities&lt;/a&gt;, China might opt to get rid of its holdings. China's move would predictably disrupt the bonds market due to the arbitrage opportunities that will ensue.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Selective default would backfire in two ways. Most certainly, the Treasury would attract fewer funds in the next round(s) of US bonds because the market would be &quot;flooded&quot; with the bonds of which China is getting rid.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The other way in which it could backfire is that selective default against China will make other countries wary of they themselves becoming the target of a subsequent selective default. Since no creditor likes the prospect of its holdings being singled out for default, there is a realistic chance that each country would decide to dump its holdings as well, and lead to a domino effect. That reaction is likelier now with the increasing efforts to replace the US as the &quot;official&quot; currency for international settlements (such as in oil or currency markets).&lt;/p&gt;&#xA;" OwnerUserId="18552" LastActivityDate="2018-12-14T21:43:54.393" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26039" PostTypeId="2" ParentId="26035" CreationDate="2018-12-14T21:56:35.380" Score="0" Body="&lt;p&gt;Have you tried solving the maximization problem? Normally you do this taking into account some market clearing condition or budget constraint and you should be able to solve for equilibrium prices to get future consumption as a function of present consumption. Consumption smoothing will simply show the path of consumption. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Getting this equation you can show how consumption varies for different levels of &lt;span class=&quot;math-container&quot;&gt;$ \gamma $&lt;/span&gt; (in your case = 0 and = 1)&lt;/p&gt;&#xA;" OwnerDisplayName="user20105" LastActivityDate="2018-12-14T21:56:35.380" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26040" PostTypeId="2" ParentId="25968" CreationDate="2018-12-14T22:41:33.023" Score="0" Body="&lt;p&gt;@Afreelunch gave you the right intuition. Non-regular economies will exhibit an infinite amount of equilibrium points. Intuitively since there is no local uniqueness, the continuum can be expressed as an interval on the real line so there is an infinite number of such points. &lt;/p&gt;&#xA;" OwnerDisplayName="user20105" LastActivityDate="2018-12-14T22:41:33.023" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26042" PostTypeId="1" AcceptedAnswerId="26053" CreationDate="2018-12-15T01:01:04.903" Score="1" ViewCount="776" Body="&lt;p&gt;Given a Total Cost equation &lt;span class=&quot;math-container&quot;&gt;$TC(Q) = a + bQ + cQ^2 + dQ^3$&lt;/span&gt; what do the coefficients mean? For example &lt;span class=&quot;math-container&quot;&gt;$a$&lt;/span&gt; is fixed costs, what are &lt;span class=&quot;math-container&quot;&gt;$b,c,d$&lt;/span&gt; and how are they calculated?&lt;/p&gt;&#xA;" OwnerUserId="20495" LastEditorUserId="5557" LastEditDate="2018-12-16T13:04:04.380" LastActivityDate="2018-12-16T13:04:04.380" Title="Coefficients of Cubic Total Cost Function" Tags="&lt;microeconomics&gt;&lt;cost-functions&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26045" PostTypeId="1" CreationDate="2018-12-15T16:16:51.977" Score="0" ViewCount="63" Body="&lt;p&gt;I'm currently searching for historical changes in prices as a result of a big/sudden change in demand/supply, like the tulip mania in Holland. Are there any notable examples?&lt;/p&gt;&#xA;" OwnerUserId="20503" LastActivityDate="2020-01-09T19:02:50.357" Title="Are there more historical examples of big change in prices thanks to demand/supply changes like the tulip mania?" Tags="&lt;supply-and-demand&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="26046" PostTypeId="2" ParentId="26045" CreationDate="2018-12-15T17:41:48.273" Score="2" Body="&lt;p&gt;Every price change of a good is due to a change in supply/demand. Based on your example are you maybe thinking of sudden price changes due to a bubble? For example with the tullip mania the price of the tullips was completey detached from the utility that anyone actually got from owning tullips. In a nutshell people were willing to pay exorbitant prices for these tullips because they expected to be able to sell them for an even higher price in the future. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another example would be the dotcom bubble where there was a sudden drop in the value of internet based companies. I want to mention that the people spending a years salary on a tullip bulb weren't necessarily stupid or naive. Think about it like a time bomb where you don't know when it is going to explode. Holding the bomb(owning the asset) allows you to make money and you can hand off the bomb anytime you want. If you are however holding it when it explodes you lose all of your money.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another example would be the cryptocurrency market.&lt;/p&gt;&#xA;" OwnerUserId="20431" LastActivityDate="2018-12-15T17:41:48.273" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26049" PostTypeId="1" CreationDate="2018-12-16T05:49:56.810" Score="1" ViewCount="47" Body="&lt;p&gt;A government issues perpetual bonds with no interest payments, no coupons: Most economists that are not hyper-dovish would argue such a bond is intrinsically worthless. However, if a government were desperate for some form of credit in regard to these instruments, wouldn’t there be some probability of the government buying these instruments back and thus granting them value?&lt;/p&gt;&#xA;" OwnerUserId="20508" LastActivityDate="2019-05-15T13:02:50.517" Title="Isn’t a zero-coupon perpetual bond not worthless if the relevant government has some probability of buying them back?" Tags="&lt;bonds&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26052" PostTypeId="2" ParentId="26049" CreationDate="2018-12-16T12:52:06.313" Score="2" Body="&lt;p&gt;If I understand you correctly, the bond pays out nothing whatsoever. Such a bond must be worthless. The value of the bond is equal to the net present value, i.e. the sum of the discounted value of all future cash flows, which are zero in your case. If the government would buy it back, it would necessarily buy it back at a price of zero. Therefore, the bond will remain worthless in any case.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastActivityDate="2018-12-16T12:52:06.313" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26053" PostTypeId="2" ParentId="26042" CreationDate="2018-12-16T13:03:45.563" Score="1" Body="&lt;p&gt;There is no deeper meaning than what you already discuss. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Total Cost function is always made up of fixed costs plus the variable costs (each of which may be zero). We have:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$TC(Q) = F \; + \, VC(Q)$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where &lt;span class=&quot;math-container&quot;&gt;$TC$&lt;/span&gt; is the total cost function, &lt;span class=&quot;math-container&quot;&gt;$F$&lt;/span&gt; are the fixed costs and &lt;span class=&quot;math-container&quot;&gt;$VC$&lt;/span&gt; are the variable costs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Fixed costs do not depend on the quantity, unlike variable costs. There is nothing more to it. In your case, &lt;span class=&quot;math-container&quot;&gt;$a$&lt;/span&gt; is the fixed cost and the variable costs are &lt;span class=&quot;math-container&quot;&gt;$bQ + cQ^2 + dQ^3$&lt;/span&gt;. The relation between quantity and variable costs is somewhat complicated and non-linear in your example, but there's nothing wrong with that. The exact form of the cost function comes from the technical aspect of the production process, which may very well be complicated. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So &lt;span class=&quot;math-container&quot;&gt;$b, c, d \,$&lt;/span&gt; are just exogenous parameters (imagine them as numbers), which give the shape of the cost function, but do not have any deeper meaning. Furthermore, they will not be solved for or calculated and are simply taken as given. This is always the case with parameters. In solving economic models, you take the parameters and exogenous variables as given and solve for the endogenous variables, which in your case probably involves the quantity &lt;span class=&quot;math-container&quot;&gt;$Q$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastActivityDate="2018-12-16T13:03:45.563" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26054" PostTypeId="1" AcceptedAnswerId="29345" CreationDate="2018-12-16T13:19:07.987" Score="1" ViewCount="224" Body="&lt;p&gt;In the classical two-player Stackelberg game (sequential Cournot) we have a linear demand function &lt;span class=&quot;math-container&quot;&gt;$P = 1 - Q$&lt;/span&gt; where &lt;span class=&quot;math-container&quot;&gt;$Q = \sum_0^2 q_i $&lt;/span&gt;, and we assume homogenous production cost &lt;span class=&quot;math-container&quot;&gt;$c$&lt;/span&gt;. By starting from the &quot;bottom&quot; of the game where player 2 knows player 1's chosen output and best-response reacts to it, and then moving &quot;upwards&quot; assuming player 1 anticipates this response, the game can be shown to have equilibrium solutions:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ q_1^\star = \frac{1-c}{2} $$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$ q_2^\star = \frac{1-c}{4} .$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can follow the same procedure with 3, 4 or more players and discover the pattern:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$ q_n^\star = \frac{1-c}{2^n} .$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;I have been trying to work out a rigorous mathematical proof, say by induction or other methods, to show that this has to be the case, but not managed to find any. Can anybody help please?&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="18990" LastActivityDate="2019-05-15T21:08:24.270" Title="Rigorous solution of Stackelberg leader-follower game with N-players?" Tags="&lt;microeconomics&gt;&lt;game-theory&gt;&lt;extensive-games&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26055" PostTypeId="2" ParentId="26054" CreationDate="2018-12-16T16:00:01.677" Score="0" Body="&lt;p&gt;Because each new player faces the residual demand curve of the prior player, therefore he always ends up producing half the quantity of the prior player. &lt;/p&gt;&#xA;" OwnerUserId="20513" LastActivityDate="2018-12-16T16:00:01.677" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26059" PostTypeId="1" AcceptedAnswerId="26061" CreationDate="2018-12-17T03:24:23.413" Score="0" ViewCount="26" Body="&lt;p&gt;To my knowledge being a shareholder is owning a portion of a company. Then by that logic shouldn't a shareholder be able to request a companies assets instead of money? As an example, if I own 100 dollars worth of shares in XYZ company would I be able to get 100 dollars worth of their assets (chairs, tables, laptops)? &lt;/p&gt;&#xA;" OwnerUserId="20519" LastEditorUserId="20519" LastEditDate="2018-12-17T03:42:29.793" LastActivityDate="2018-12-17T14:41:05.547" Title="Is it possible for shareholders to get a companies assets in place of currency?" Tags="&lt;stock-market&gt;&lt;trading&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26060" PostTypeId="1" CreationDate="2018-12-17T13:21:23.293" Score="0" ViewCount="51" Body="&lt;p&gt;I am looking for a utility function that will lead to the following demand&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\alpha p^{\epsilon}$$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know it is most likely a CES utility since the elasticity of demand is constant and this is usually consequence of CES utility.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I also believe that the second good most likely was set as the numeare good or that the function must be a special case when the relative prices do not matter.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am also little bit confused because of the positive relationship between price and demand I guess it must be a Giffen good.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I tried to solve several problems with different CES utilities but did not ever got this. I am not sure if there is any analytical way how to get from result like this to initial problem, I am just using trial and error, I would appreciate any help.&lt;/p&gt;&#xA;" OwnerUserId="15517" LastEditorUserId="42" LastEditDate="2018-12-17T17:39:28.980" LastActivityDate="2018-12-17T17:39:28.980" Title="Which utility function yields following demand $\alpha p^{\epsilon}$" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;supply-and-demand&gt;" AnswerCount="0" CommentCount="3" ClosedDate="2018-12-29T16:00:06.067" ContentLicense="CC BY-SA 4.0" />
  <row Id="26061" PostTypeId="2" ParentId="26059" CreationDate="2018-12-17T14:41:05.547" Score="0" Body="&lt;p&gt;The short answer is no. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Even on a liquidation scenario it’s unlikely that a common stock shareholder would be distributed physical assets. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assuming this is a C-Corporation you are asking about, shareholders do not have rights to ‘money’ or assets held inside the company- If the shares are of a preferred class with dividend rights you may receive a portion of retained earnings.&lt;/p&gt;&#xA;" OwnerUserId="20522" LastActivityDate="2018-12-17T14:41:05.547" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26062" PostTypeId="2" ParentId="25474" CreationDate="2018-12-17T15:07:29.997" Score="-2" Body="&lt;p&gt;If the competitive equilibrium exists, it must lie on the contract curve where two consumers' marginal rate of substitution are the same. Also, this equilibrium lies inside the zone of mutual advantages (area where the indifference curves intersect with the endowment) because trade is voluntary. If consumers’ marginal rates of substitution vary continuously with their consumption levels then a competitive equilibrium exists&lt;/p&gt;&#xA;" OwnerUserId="20513" LastActivityDate="2018-12-17T15:07:29.997" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26063" PostTypeId="2" ParentId="26003" CreationDate="2018-12-17T15:12:27.697" Score="0" Body="&lt;p&gt;The Pareto optimal set should always pass through the origin because it's one of the point that makes it impossible to better off a consumer without harming the other.&lt;/p&gt;&#xA;" OwnerUserId="20513" LastActivityDate="2018-12-17T15:12:27.697" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26064" PostTypeId="2" ParentId="18538" CreationDate="2018-12-17T15:27:13.390" Score="-1" Body="&lt;p&gt;I think if the government prohibits price discrimination, then the sum of MR in each market should equal to the MC: &lt;span class=&quot;math-container&quot;&gt;$$2(Q_1+Q_2) = 180 - Q_1 - 2Q_2$$&lt;/span&gt; Also the price in each market should be the same: &lt;span class=&quot;math-container&quot;&gt;$P_1 = P_2$&lt;/span&gt;. Therefore: &#xA;&lt;span class=&quot;math-container&quot;&gt;$$ 80-Q_1/2 = 100-Q_2$$&lt;/span&gt;. Aligning these two equations we get &lt;span class=&quot;math-container&quot;&gt;$$Q_1 = 20; Q_2 = 30; P_1=P_2 = 70.$$&lt;/span&gt; Hope this helps!&lt;/p&gt;&#xA;" OwnerUserId="20513" LastEditorUserId="17735" LastEditDate="2018-12-18T12:21:33.387" LastActivityDate="2018-12-18T12:21:33.387" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26067" PostTypeId="2" ParentId="26026" CreationDate="2018-12-17T19:04:49.897" Score="-1" Body="&lt;p&gt;We don't use all possible opportunity costs. We only use the cost of forgoing the next-best-alternative. &lt;/p&gt;&#xA;" OwnerUserId="18777" LastActivityDate="2018-12-17T19:04:49.897" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26069" PostTypeId="1" CreationDate="2018-12-18T09:09:48.627" Score="1" ViewCount="92" Body="&lt;p&gt;I have learned about the Markov decision process (MDP) formalism in the context of machine learning. I know that micro theorists also study MDP's, and agent behaviour in this context (both single and multi-agent I think).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am wondering if there is a good/standard textbook on MDP's from the perspective of micro theory (game theory/decision theory)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If not, is there at least a micro theory textbook that heavily focuses on MDP's?&lt;/p&gt;&#xA;" OwnerUserId="11146" LastEditorUserId="42" LastEditDate="2019-04-11T21:20:23.503" LastActivityDate="2019-04-11T21:33:54.550" Title="Textbooks addressing Markov decision processes in microeconomics/game theory/decision theory?" Tags="&lt;microeconomics&gt;&lt;reference-request&gt;&lt;game-theory&gt;&lt;decision-theory&gt;&lt;markov-chain&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26073" PostTypeId="2" ParentId="25571" CreationDate="2018-12-18T12:41:32.477" Score="0" Body="&lt;p&gt;econ 101 , assume people are rational.&lt;br&gt;&#xA;imagine you are an irrational person who lives in an unreasonably poor 3rd world country where you mine diamonds for a living , you are paid a dollar(1.00),for your troubles but the cost of water and food a day cost a dollar 25 (1.25). then yes autonomous consumption can be greater than income.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;but, assuming youre rational you'd realize the reward of working (income) is less than the cost to feed yourself(autonomous consumption), and will decide to be unemployed instead because thats the rational thing to do.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;in summary all things being equal autonomous consumption &quot;cannot&quot; be greater than income .&lt;/p&gt;&#xA;&#xA;&lt;p&gt;keyword phrase = &quot;all things being equal&quot;&lt;/p&gt;&#xA;" OwnerUserId="20531" LastActivityDate="2018-12-18T12:41:32.477" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26076" PostTypeId="1" AcceptedAnswerId="26078" CreationDate="2018-12-18T20:56:41.723" Score="0" ViewCount="52" Body="&lt;p&gt;For instance, in 2008, the Royal Bank of Scotland saw its stock price drop by ~30% in a day, and it was apparently impossible for the bank to make it till the end of the day because it would run out of cash.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why is that so? How can its valuation affect in such a short term the cash it can disposes of?&lt;/p&gt;&#xA;" OwnerUserId="5509" LastActivityDate="2018-12-18T22:03:37.507" Title="How can a company run out of cash when its stock prices is dropping?" Tags="&lt;corporate-finance&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26078" PostTypeId="2" ParentId="26076" CreationDate="2018-12-18T22:03:37.507" Score="3" Body="&lt;p&gt;It appears to me that it is the other way round: The RBS was running out of cash which is why the stock price was dropping. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Stocks usually don't affect the immediate operation of a company, since they are traded on secondary markets (stock exchanges) among stock owners, not bought from / sold to the actual company which issued the stock.&lt;/p&gt;&#xA;" OwnerUserId="20518" LastActivityDate="2018-12-18T22:03:37.507" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26080" PostTypeId="1" CreationDate="2018-12-18T23:14:53.913" Score="1" ViewCount="60" Body="&lt;p&gt;Could you help me to identify monopoly, because I got confused. There is a company with market share of 54 %. The second one has market share of 21 %.&#xA;Can this market be characterized as monopoly or maybe duopoly? Thanks in advance.&lt;/p&gt;&#xA;" OwnerUserId="20535" LastActivityDate="2018-12-19T02:27:34.127" Title="Is this market monopoly or duopoly?" Tags="&lt;microeconomics&gt;&lt;stock-market&gt;&lt;monopoly&gt;&lt;competition&gt;&lt;dominant-strategy&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26081" PostTypeId="1" CreationDate="2018-12-18T23:56:56.377" Score="1" ViewCount="19" Body="&lt;p&gt;An American company &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt; has sold a manufactured product to a German company &lt;span class=&quot;math-container&quot;&gt;$B$&lt;/span&gt;, and they agree for the payment of 100,000 EUR in 1 year.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;What type of exposure does &lt;span class=&quot;math-container&quot;&gt;$B$&lt;/span&gt; have?&lt;/li&gt;&#xA;&lt;li&gt;What type of exposure does &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt; have?&lt;/li&gt;&#xA;&lt;li&gt;What is the potential problem for &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt; if it decides not to hedge (i.e. not to cover)?&lt;/li&gt;&#xA;&lt;li&gt;Repeat the exercise in case the payment is performed in USD.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Let &lt;span class=&quot;math-container&quot;&gt;$K_T$&lt;/span&gt; be the exchange rate (EUR/USD) at time &lt;span class=&quot;math-container&quot;&gt;$t=T$&lt;/span&gt; (1 year from now), and let &lt;span class=&quot;math-container&quot;&gt;$K_0$&lt;/span&gt; be the exchange rate at time &lt;span class=&quot;math-container&quot;&gt;$t=0$&lt;/span&gt; (i.e. now).&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Since EUR is the domestic currency of &lt;span class=&quot;math-container&quot;&gt;$B$&lt;/span&gt;, it will take no risk in&#xA;the transaction.&lt;/li&gt;&#xA;&lt;li&gt;If &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt; buys a Forward contract (at time &lt;span class=&quot;math-container&quot;&gt;$T$&lt;/span&gt; the firm &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt; will sell 100.000 EUR at a fixed rate &lt;span class=&quot;math-container&quot;&gt;$K_F$&lt;/span&gt;) but &lt;span class=&quot;math-container&quot;&gt;$K_f &amp;lt; K_T$&lt;/span&gt;, then it will face an indirect loss of 100,000*(&lt;span class=&quot;math-container&quot;&gt;$K_T - K_F$&lt;/span&gt;) USD. If &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt; buys a Put option which gives it the right to sell 100.000 EUR at the rate &lt;span class=&quot;math-container&quot;&gt;$K_P$&lt;/span&gt;, it will exercise the option only if &lt;span class=&quot;math-container&quot;&gt;$K_P &amp;gt; K_T$&lt;/span&gt;, otherwise it will not exercise and will sell 100.000 EUR at the rate &lt;span class=&quot;math-container&quot;&gt;$K_T$&lt;/span&gt;.&lt;/li&gt;&#xA;&lt;li&gt;If &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt; decides not to hedge, the potential problem is in the case &lt;span class=&quot;math-container&quot;&gt;$K_T &amp;lt; K_0$&lt;/span&gt;, because in this case &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt; will face an indirect loss of 100,000*(&lt;span class=&quot;math-container&quot;&gt;$K_0 - K_T$&lt;/span&gt;) USD.&lt;/li&gt;&#xA;&lt;li&gt;Since USD is the domestic currency of &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt;, it will take no risk in the transaction. On the other hand, &lt;span class=&quot;math-container&quot;&gt;$B$&lt;/span&gt; should buy a Call option, because it gives &lt;span class=&quot;math-container&quot;&gt;$B$&lt;/span&gt; the right to buy 100,000 USD at time &lt;span class=&quot;math-container&quot;&gt;$T$&lt;/span&gt; at a fixed rate &lt;span class=&quot;math-container&quot;&gt;$K_C$&lt;/span&gt;: &lt;span class=&quot;math-container&quot;&gt;$B$&lt;/span&gt; will exercise the option if &lt;span class=&quot;math-container&quot;&gt;$K_C &amp;gt; K_T$&lt;/span&gt;, otherwise it will not exercise and will buy 100,000 USD at the rate &lt;span class=&quot;math-container&quot;&gt;$K_T$&lt;/span&gt;.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Is the reasoning correct?&lt;/p&gt;&#xA;" OwnerUserId="20532" LastEditorUserId="20532" LastEditDate="2018-12-21T14:09:39.937" LastActivityDate="2018-12-21T14:09:39.937" Title="Exposure of two companies in a transaction involving an FX option" Tags="&lt;exchange-rates&gt;&lt;foreign-exchange&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26082" PostTypeId="2" ParentId="26080" CreationDate="2018-12-19T02:27:34.127" Score="1" Body="&lt;p&gt;The definition of a monopoly is one company having the exclusive control of a good or service. Since there are 2+ companies it does not fit the definition of a monopoly.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A duopoly is a situation where 2 companies control the majority of the market. It sounds like this describes your situation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A more correct term may be oligopoly which describes a market where a small limited number of entities controls the majority of the market. If there is a 3rd company which controls the remaining 25% market share this may be the most correct term but otherwise a duopoly is probably the correct definition.&lt;/p&gt;&#xA;" OwnerUserId="10245" LastActivityDate="2018-12-19T02:27:34.127" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26083" PostTypeId="1" AcceptedAnswerId="26090" CreationDate="2018-12-19T08:52:50.847" Score="1" ViewCount="33" Body="&lt;p&gt;Colleagues,&#xA;I have started an analysis on spatial econometrics models, and looking for data to compute an exchange rate volatility. My variables to construct the weight matrices are all bilateral including FDI, Trade and et.c&#xA;My samples are 15 african countries, and is a bit cumbersome to get their bilateral exchange rates. The only possible way is to get rates per one unit of dollar.&#xA;* Where can I get a compiled data about it? and/or How could I compute the bilateral counterpart?&lt;/p&gt;&#xA;" OwnerUserId="20537" LastActivityDate="2018-12-19T23:54:48.727" Title="Exchange rate volatility" Tags="&lt;applied-econometrics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26084" PostTypeId="1" AcceptedAnswerId="26114" CreationDate="2018-12-19T11:59:05.937" Score="0" ViewCount="81" Body="&lt;p&gt;I would like to understand how to solve dynamic optimization problems involving more than one state variable and state equation (to apply to long-term economic models with more than one capital good).  Searching the web I found &lt;a href=&quot;http://www.peterthompson.gatech.edu/uploads/images/Teaching/modeling_chapter2.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;this chapter&lt;/a&gt; which seems helpful. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does anyone know which book the chapter is from (it seems unlikely that it's by Peter Thompson whose website it's on as he lists his specialisms as strategy and innovation)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any other recommendations on this topic would also be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="1417" LastActivityDate="2018-12-22T13:23:01.843" Title="Reference Request - Dynamic Optimization with More Than One State Variable" Tags="&lt;reference-request&gt;&lt;mathematical-economics&gt;&lt;dynamic-optimization&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="26088" PostTypeId="2" ParentId="25496" CreationDate="2018-12-19T23:21:03.047" Score="0" Body="&lt;p&gt;Your approach leads to a biased estimator. Nevertheless, there exists a way to obtain an unbiased estimator for &lt;span class=&quot;math-container&quot;&gt;$\beta_1$&lt;/span&gt;. We asssume all the regularity conditions and exogeneity of regressors with respect to the error &lt;span class=&quot;math-container&quot;&gt;$\varepsilon$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) Center the variables on their sample means, &lt;span class=&quot;math-container&quot;&gt;$ y_c = y- \bar y, X_{c1} = X_1 - \bar X_1$&lt;/span&gt;, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) Specify the regression&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$y_c = X_{c1}\delta + u$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\hat \delta_{OLS} = \left(X'_{c1} X_{c1}\right)^{-1}X'_{c1}y_c $$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$=\left(X'_{c1} X_{c1}\right)^{-1}X'_{c1}X_{c1}\beta_1 + \left(X'_{c1} X_{c1}\right)^{-1}X'_{c1}X_{c2}\beta_2 \\+ \left(X'_{c1} X_{c1}\right)^{-1}X'_{c1} X_{c3}\beta_3 + \left(X'_{c1} X_{c1}\right)^{-1}X'_{c1}\varepsilon_c$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Simplifying and taking expectations conditional on &lt;span class=&quot;math-container&quot;&gt;$X_{c1}$&lt;/span&gt; we get &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\mathbb E(\hat \delta_{OLS} \mid X_{c1})= \beta_1 + \left(X'_{c1} X_{c1}\right)^{-1}X'_{c1}\mathbb E(X_{c2} \mid X_{c1})\beta_2  \\+\left(X'_{c1} X_{c1}\right)^{-1}X'_{c1} \mathbb E(X_{c3}\mid X_{c1})\beta_3 + \left(X'_{c1} X_{c1}\right)^{-1}X'_{c1}\mathbb E(\varepsilon_c\mid X_{c1})$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By the regressor independence and exogeneity assumptions, as well as due to the centering we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\mathbb E(X_{c2} \mid X_{c1}) = \mathbb E(X_{c2} ) = 0$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\mathbb E(X_{c3} \mid X_{c1}) = \mathbb E(X_{c3} ) = 0$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\mathbb E(\varepsilon_c \mid X_{c1})  = 0$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So we are left with &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\mathbb E(\hat \delta_{OLS} \mid X_{c1})= \beta_1 \implies \mathbb E(\hat \delta_{OLS}) = \beta_1$$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2018-12-19T23:21:03.047" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26090" PostTypeId="2" ParentId="26083" CreationDate="2018-12-19T23:54:48.727" Score="0" Body="&lt;p&gt;It makes more sense to use the USD as an intermediary currency.  If you know the central South African and Nigerian exchanges rates are for example &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;span class=&quot;math-container&quot;&gt;$14.38\; ZAR = 1\; USD$&lt;/span&gt; &lt;/li&gt;&#xA;&lt;li&gt;&lt;span class=&quot;math-container&quot;&gt;$364 \, NGN = 1\, USD$&lt;/span&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;then by division &lt;span class=&quot;math-container&quot;&gt;$\frac{14.38}{364}$&lt;/span&gt; or &lt;span class=&quot;math-container&quot;&gt;$\frac{364}{14.38}$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;span class=&quot;math-container&quot;&gt;$0.0395\,  ZAR \approx 1 \, NGN$&lt;/span&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;span class=&quot;math-container&quot;&gt;$25.3 \, NGN \approx 1 \, ZAR$&lt;/span&gt;  &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2018-12-19T23:54:48.727" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26092" PostTypeId="1" CreationDate="2018-12-20T10:39:35.753" Score="0" ViewCount="60" Body="&lt;p&gt;The WWI &amp;amp; WWII debt is  quite well defined in the UK for example and quite shocking how many years it took to pay off.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Somebody told me that the Italian debt crisis really goes all the way back to Mussolini's excessive prewar spending and in 2011 Berlusconi defended Italy's debt crisis as he argued it went back to the war and was just the way the country runs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is the true reason? Given that a country such as Russia managed last year to pay off all the Soviet debt it seems quite strange that a G7 economy like Italy could have a debt going back to Mussulini's era starting in the twentys. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Obviously a countries debt is made up of many things such as public spending and in all countries but chronically in some corruption. But there often is an isolated or small number of decisions, policy or event that accountants for the beginning of the problem.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;P.S is this question perhaps for the history stackexchange?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some historic/economic background is summaried here: &lt;a href=&quot;https://en.wikipedia.org/wiki/Economy_of_Italy_under_fascism&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://en.wikipedia.org/wiki/Economy_of_Italy_under_fascism&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="20539" LastEditorUserId="20539" LastEditDate="2018-12-22T10:32:08.517" LastActivityDate="2018-12-23T14:41:25.337" Title="Does the Italian national debt really go all the way back to Mussolini's excessive prewar spending?" Tags="&lt;government-debt&gt;&lt;history&gt;&lt;economic-history&gt;" AnswerCount="1" CommentCount="10" ContentLicense="CC BY-SA 4.0" />
  <row Id="26094" PostTypeId="2" ParentId="9982" CreationDate="2018-12-20T15:29:24.743" Score="0" Body="&lt;p&gt;Ricardo did not explain how equilibrium prices are determined.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;In autocracy&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Labor is the only factor of production, the usage of this factor determine the cost of production.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Because their is only two goods the relative usage of the factor determine their exchange rate. And because we have constant return to scale and their is only one factor of production the PPF is a strait line -&gt; exchange rate are constant and independent of the quantity demanded.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, because you have only two good, the idea of price doesn't make that much sens. You can only exchange good A for good B and vice-versa. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other word, in Ricardian model, the price is the opportunity cost.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To know the quantity consumed, you need to know the utility function. But it will not change the price in autocracy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Trade&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I need to check :). But I believe the demand will ony tell use where we are on the world PFF. Then the slop of the world PPF at this point will give the &quot;price&quot;.&lt;/p&gt;&#xA;" OwnerUserId="10836" LastEditorUserId="10836" LastEditDate="2018-12-20T15:35:57.083" LastActivityDate="2018-12-20T15:35:57.083" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26097" PostTypeId="1" CreationDate="2018-12-21T02:31:37.687" Score="2" ViewCount="139" Body="&lt;p&gt;Are there any big, overarching research goals in economics?&#xA;Examples from other fields that come to my mind:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Mathematics: Millenium problems, Hilbert's problems, Collatz conjecture, ...&lt;/li&gt;&#xA;&lt;li&gt;Computer science: Proof of P =?= NP, quest for an exascale system&lt;/li&gt;&#xA;&lt;li&gt;Biology / Medicine: Cure disease, cancer, stop ageing&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Probably, economics as a (social) science is inherently not the right field for such grandiose goals, but is there anything comparable?&lt;/p&gt;&#xA;" OwnerUserId="20518" LastActivityDate="2018-12-25T14:06:47.937" Title="Big research goals in economics?" Tags="&lt;research&gt;&lt;philosophy-of-economics&gt;" AnswerCount="4" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26099" PostTypeId="1" CreationDate="2018-12-21T07:30:39.450" Score="-2" ViewCount="55" Body="&lt;p&gt;For example, while Germany’s GDP increased by about thirteen percent, the US’s GDP has increased by more than a third of its GDP in 2009.&lt;/p&gt;&#xA;" OwnerUserId="20548" LastEditorUserId="1601" LastEditDate="2018-12-21T11:17:20.010" LastActivityDate="2018-12-23T03:19:35.630" Title="How did the US gain such a large increase in GDP compared to other industrial nations within the last decade?" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;" AnswerCount="3" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26100" PostTypeId="2" ParentId="26097" CreationDate="2018-12-21T09:35:07.783" Score="0" Body="&lt;p&gt;It is very subjective since as you stated economics does not assess goals of immediate perception. But let's think about it, consider a great branch of macroeconomics, growth theory: deepening the knowledge of the causes of growth yields higher welfare, and with this word we consider also technological and medical growth. Not bad, I would say. Let's try with another example, models of credit scoring. Being able to correctly evaluate a potential borrower and the level of risk of a lender entails financial stability which avoids catastrophic crises, with relevant consequences on every discipline. Last example, market normative regulation. Protecting consumer from firms' abuses consents to maximize consumer's surplus. An happy consumer is an happy citizen, happy citizens ensures  social and political stability. These are few (and subjective) examples that point out an important message: economics is the base on which modern societies have built their foundations, a well oiled economic machine consent to reach those great human discoveries that you pointed out in your message. &lt;/p&gt;&#xA;" OwnerUserId="10931" LastActivityDate="2018-12-21T09:35:07.783" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26101" PostTypeId="1" AcceptedAnswerId="26103" CreationDate="2018-12-21T10:58:19.427" Score="1" ViewCount="151" Body="&lt;p&gt;Mas-Colell, Winston and Green's Microeconomic Theory uses the notion of contour set, as shown hereunder:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/RWWbC.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/RWWbC.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the context of Microeconomic Theory, what would be the definition of a contour set?&lt;/p&gt;&#xA;" OwnerUserId="6099" LastActivityDate="2018-12-21T11:50:18.490" Title="Contour set in Mas-Collel, Winston and Green" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26102" PostTypeId="2" ParentId="26099" CreationDate="2018-12-21T11:32:24.900" Score="-1" Body="&lt;p&gt;Part of the answer is definitely population growth. If a country is becoming more productive on average, its residents will produce more GDP per capita. (If you consider GDP a good metric of this.) If a country gets more residents while GDP per capita is unchanged, that will also increase the GDP. If GDP per capita is increasing while population is also increasing, the two effects add up.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Most European nations do not have population growth rates comparable to that of the US.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;See US-German population growth rate comparison &lt;a href=&quot;https://data.worldbank.org/indicator/SP.POP.GROW?end=2017&amp;amp;locations=US-DE&amp;amp;name_desc=true&amp;amp;start=2009&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore the US GDP growth rate has a component - population growth - that is missing from the European growth rates. This may not make the differences go away entirely, but it does make them smaller.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;See US-German GDP growth rate comparison &lt;a href=&quot;https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?end=2017&amp;amp;locations=US-DE&amp;amp;name_desc=true&amp;amp;start=2009&amp;amp;view=chart&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;See US-German GDP per capita growth rate comparison &lt;a href=&quot;https://data.worldbank.org/indicator/NY.GDP.PCAP.KD.ZG?end=2017&amp;amp;locations=US-DE&amp;amp;name_desc=true&amp;amp;start=2009&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2018-12-21T11:32:24.900" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26103" PostTypeId="2" ParentId="26101" CreationDate="2018-12-21T11:50:18.490" Score="1" Body="&lt;p&gt;The upper contour set is &lt;span class=&quot;math-container&quot;&gt;$ UC(x)=\{ y|y \succsim x \} $&lt;/span&gt;, i.e., all the goods baskets that are at least as desirable as &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;. Similarly, the lower contour set is &lt;span class=&quot;math-container&quot;&gt;$LC(x)=\{ y|x \succsim y \} $&lt;/span&gt;, i.e., all the goods baskets that are at most as desirable as &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerUserId="20281" LastActivityDate="2018-12-21T11:50:18.490" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26106" PostTypeId="1" CreationDate="2018-12-21T16:09:12.663" Score="-1" ViewCount="496" Body="&lt;p&gt;Mas-Colell, Whinston and Green's Microeconomic Theory affirms the budget set is closed. I would like to know why.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/aywEZ.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/aywEZ.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The definition of open set in the book is the following:&lt;a href=&quot;https://i.stack.imgur.com/cm1T1.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/cm1T1.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="6099" LastActivityDate="2018-12-24T04:41:45.127" Title="Proof that the budget set is closed" Tags="&lt;microeconomics&gt;" AnswerCount="2" CommentCount="1" ClosedDate="2018-12-29T16:02:03.627" ContentLicense="CC BY-SA 4.0" />
  <row Id="26107" PostTypeId="2" ParentId="26106" CreationDate="2018-12-21T17:14:44.403" Score="1" Body="&lt;p&gt;Loosely speaking &lt;strong&gt;closed&lt;/strong&gt; means that it includes the boundary. The boundary of the budget set is formed by those goods baskets (&lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;) that imply spending all available income, i.e., such that &lt;span class=&quot;math-container&quot;&gt;$p·x=w.$&lt;/span&gt; It is clear that they belong in the budget set and, hence, it is closed. (To be strict, we'd also need to check that points such as &lt;span class=&quot;math-container&quot;&gt;$ \vec 0$&lt;/span&gt; also belong in the budget set. That's easy and I leave it for you to prove).&lt;/p&gt;&#xA;" OwnerUserId="20281" LastActivityDate="2018-12-21T17:14:44.403" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26110" PostTypeId="1" CreationDate="2018-12-22T00:54:34.130" Score="0" ViewCount="316" Body="&lt;p&gt;p. 100. &lt;a href=&quot;https://rads.stackoverflow.com/amzn/click/com/0199684316&quot; rel=&quot;nofollow noreferrer&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;Accounting: A Very Short Introduction&lt;/em&gt;  (2014)&lt;/a&gt;.&lt;/p&gt;&#xA;&lt;p&gt;I understand the green sentence beneath, but not the fractional formula for BEP containing CPU in red? What's the intuition for the latter?&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;h3&gt;Contribution&lt;/h3&gt;&#xA;&lt;p&gt;The ‘contribution’ is the amount that a particular product line helps&#xA;towards covering fixed costs and making a profit. The contribution is&#xA;measured as: Sales − Variable costs.  This can also be calculated per&#xA;unit of production. The contribution per unit (CPU) is:&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\color{red}{CPU = \text{Selling price per unit} − \text{Variable cost per unit}}$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;That is, taking the selling price for one unit of production, and then&#xA;deducting all the variable costs for that one unit of production,&#xA;gives the contribution per unit.&lt;/p&gt;&#xA;&lt;h3&gt;Break-even point (BEP)&lt;/h3&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\color{forestgreen}{\text{The break-even point is the volume of production at which the firm makes zero profit.}}$&lt;/span&gt; Therefore, the break-even point is the level at&#xA;which all costs (including fixed costs) can be paid for. The formula&#xA;is:&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$BEP = \dfrac{\text{Total fixed costs}}{\color{red}{\text{Contribution per unit (CPU)}}}$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;So, above the break-even point, any extra items sold will generate&#xA;profit. Every unit that is produced and sold in excess of the&#xA;break-even point will generate profit of the amount of the CPU. The&#xA;total profit made is:&lt;/p&gt;&#xA;&lt;p&gt;Units in excess of break-even point × CPU&lt;/p&gt;&#xA;&lt;p&gt;If the firm does not reach break-even point, this implies that it has&#xA;not yet covered fixed costs and will therefore make a loss. The size&#xA;of the loss will be the number of units under the break-even point,&#xA;multiplied by the CPU.&lt;/p&gt;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/U8LCl.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/U8LCl.jpg&quot; alt=&quot;enter image description here&quot; /&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&lt;p&gt;The break-even point can be&#xA;derived using the formula given above, or by drawing up a chart such&#xA;as Figure 15.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="4020" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2018-12-22T14:06:27.827" Title="Why intuitively does Break-even point $= \dfrac{\text{Total fixed costs}}{\text{Selling price per unit} − \text{Variable cost per unit}}$?" Tags="&lt;accounting&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26113" PostTypeId="2" ParentId="26110" CreationDate="2018-12-22T09:09:42.603" Score="0" Body="&lt;p&gt;Very easy proof:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;we know that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$π = 0$&lt;/span&gt; equalas to &lt;span class=&quot;math-container&quot;&gt;$TR - TC = 0$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;by definition, total revenue (TR) is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$TR=Q*p$&lt;/span&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;i.e. the price that I get per unit produced whereas total cost (TC) is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$TC= FC+VC*Q$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where &lt;span class=&quot;math-container&quot;&gt;$FC$&lt;/span&gt; are the total fixed costs and the total variable costs, &lt;span class=&quot;math-container&quot;&gt;$VC*Q$&lt;/span&gt;, is the value of the variable cost per unit times the number of unit produced. Substituting in the profit expression we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$p*Q-FC-VC*Q=0$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and isolating Q, which is the amount of unit that implies the BEP we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$Q_{BEP}=(FC)/(p-VC)$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which is exactly your formula.&#xA;What does this formula tell us? Nothing more that, if I produce such that my total revenue is equal to my total cost I get profit equals to zero. It is just another way of expressing the same thing. &lt;/p&gt;&#xA;" OwnerUserId="10931" LastEditorUserId="10931" LastEditDate="2018-12-22T14:06:27.827" LastActivityDate="2018-12-22T14:06:27.827" CommentCount="7" ContentLicense="CC BY-SA 4.0" />
  <row Id="26114" PostTypeId="2" ParentId="26084" CreationDate="2018-12-22T13:23:01.843" Score="0" Body="&lt;p&gt;As pointed out by mark leeds, the chapter appears to be part of an incomplete text by Peter Thompson - see &lt;a href=&quot;http://www.peterthompson.gatech.edu/index.php?page=dynamic-modeling&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="1417" LastActivityDate="2018-12-22T13:23:01.843" CommentCount="0" CommunityOwnedDate="2018-12-22T13:23:01.843" ContentLicense="CC BY-SA 4.0" />
  <row Id="26115" PostTypeId="2" ParentId="26110" CreationDate="2018-12-22T13:32:27.123" Score="1" Body="&lt;p&gt;Intuitively, the breakeven point is where the volume of sales results in the gross margin (based on the difference between selling price and variable costs per item) exactly covering fixed costs    &lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2018-12-22T13:32:27.123" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26117" PostTypeId="1" CreationDate="2018-12-22T14:53:23.047" Score="-1" ViewCount="231" Body="&lt;p&gt;The following passage is in Ibn Khalduns &lt;em&gt;Muqaddimah&lt;/em&gt;:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;One of the greatest injustices and one contributing most to the destruction of civilisation is the unjustified imposition of tasks and the use of subjects  for forced labour. This is so because labour belongs to the things that constitute capital. Gain and sustenance represent the value realised from labour among civilised people. By their efforts and all their labours they (acquire) capital and (make a) profit. They have no other way to make a profit  except (through labour).&lt;/p&gt;&#xA;&lt;p&gt;Subjects employed in cultural enterprises gain their livelihoods and profit from such activities. Now, if they are obliged to work utside their own field and are used for forced labour unrelated to their (ordinary ways of) making a living, they no longer have any profit and are thus deprived of the price of their labour, which is their capital (asset). They suffer, and a good deal of their livelihood is gone, or even all of it.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;This is strikingly similar to the ideas of Marx and his school. Is there any indication that Marx had read or was aware of Ibn Khalduns ideas?&lt;/p&gt;&#xA;&lt;p&gt;&lt;strong&gt;It's worth pointing that the first translation in Germany that I am aware of was a book of extracts by a Joseph von Hammer-Purgstall in 1810 whereas Marx was born in 1818, which leaves it open as a distinct possibility.&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="13857" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2018-12-23T07:40:21.407" Title="Was Marx influenced by Ibn Khalduns Muqaddimah?" Tags="&lt;economic-history&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26118" PostTypeId="2" ParentId="26099" CreationDate="2018-12-22T16:32:26.027" Score="2" Body="&lt;p&gt;It is not immediately clear which GDP numbers you are referring to, so here is a selection from the &lt;a href=&quot;https://www.imf.org/external/pubs/ft/weo/2018/02/weodata/index.aspx&quot; rel=&quot;nofollow noreferrer&quot;&gt;IMF World Econonic Outlook&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/OENUW.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/OENUW.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would therefore guess that your numbers were GDP at current prices measured in US dollars (Germany up 8%, USA up 35% from 2009 to 2017).  The main cause of this difference seems to be the change in the USD/EUR exchange rate over the eight years, largely driven by higher interest rates in the US. Measured in national currencies the results are more similar (Germany up 33%, USA up 35%).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A better measure might be the real change in GDP measured at constant prices in national currency so as to adjust for domestic inflation (Germany up 19%, USA up 19%).  Indeed, allowing for faster population growth in the USA, GDP per capita measured at constant prices in national currency has grown slightly faster in Germany than the USA (Germany up 15%, USA up 12%)    &lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2018-12-22T16:32:26.027" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26120" PostTypeId="2" ParentId="26117" CreationDate="2018-12-23T01:21:26.603" Score="2" Body="&lt;p&gt;Rosenthal (1958) lists the bibliography of previous translation efforts, the only relevant for Marx:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;2) A complete French translation, under the title of Prolegomenes historiques d'Ibn Khaldoun, was published by William MacGuckin de Slane on the basis of Quatremere's edition and with comparison of the Paris manuscripts used by Quatremere, the first Bulaq edition, and the Turkish translation (in part). The three volumes appeared in Paris in the years 1862, 1865, and 1868, as Vols. xix to xxi of the Notices et Extraits des manuscrits de la Bibliotheque Imperiale.&#xA;  De Slane did an altogether admirable job of presenting a highly readable and, in the main, accurate translation of the work. The &quot;freedom&quot; of his version has often been unjustly censured, for it was intentional, and a &quot;free&quot; translation is perfectly legitimate for a work with the stylistic character of the Muqaddimah. There are occasional mistakes of translation, some of them caused by the difficulty of the subject matter and the language, others of a sort that might easily have been avoided. Explanatory footnotes are sparse, and de Slane usually did not bother to indicate the sources for his statements. However, the concluding words of R. Dozy's review of de Slane's work still stand: &quot;Rarely has so difficult a book been translated&#xA;  so well.&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;However Rosenthal’s scholarship is manifestly deficient in his failure to refer to Hammer-Purgstall’s translated extracts of 1810. Given this deficiency, and the presence of extracts of unknown contents, it is not impossible that Marx was exposed to the social relations focused historiography of Khaldun during Marx’s more voracious periods. Marx did read Hammer-Purgstall on other topics ( &lt;a href=&quot;https://www.marxists.org/cestina/marx-engels/1854/061854a.html#7a&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.marxists.org/cestina/marx-engels/1854/061854a.html#7a&lt;/a&gt; ) but I’ve not found evidence of his exposure to Khaldun, nor of the contents of the extracts. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Khaldun is not, however, appearing in Marx’s works at a site: search of Marxists.org. Now Marxists.org isn’t MEGA but it is a good start. Khaldun appears in Korsch (1938) and other interwar marxists in a haigiographic throw away along side for example Vico.  The lack of more extensive hagiography means that Marx hadn’t cited him in major published works (the notebooks and MEGA being post WWII remember).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;While Marx is certainly a racist prig who avoids citing his antecedents unless he can destroy them utterly, I can’t see how Khaldun would not have been cited in full text searchable texts archived by marxists.org if Marx had been influenced by Khaldun in his production of historical materialism. This does not rule out a throw away text note from the notebooks, but Marx was fixated on Europeans.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So sadly that’s a “highly probable no.” Marx was voracious but his orientalist work was dilettantish at best.  It is most probable that convergent evolution is the explanation, rather than influence, is the explanation. The chief evidence &lt;/p&gt;&#xA;" OwnerUserId="19898" LastEditorUserId="19898" LastEditDate="2018-12-23T07:00:21.803" LastActivityDate="2018-12-23T07:00:21.803" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="26121" PostTypeId="2" ParentId="26099" CreationDate="2018-12-23T03:14:20.913" Score="0" Body="&lt;p&gt;I'm not sure where your data are from, but in the following data taken from the World Bank*, &lt;span class=&quot;math-container&quot;&gt;$\color{red}{\text{Row (1)}}$&lt;/span&gt; paints roughly your picture, with US GDP rising by 34.5% and Germany GDP rising by only 7.6% between 2009 and 2017.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/W1fDN.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/W1fDN.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, once we take into account &lt;span class=&quot;math-container&quot;&gt;$\color{blue}{\text{(2) relative price levels}}$&lt;/span&gt;, this seemingly huge gap disappears.**&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And when we also take into account &lt;strong&gt;(3) changes in population&lt;/strong&gt; (with the US enjoying a bigger increase than Germany), then it actually appears that Germany has done slightly better.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Footnotes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;*I retrieved all data retrieved from the World Bank website on 2018-12-22 (and the World Bank states that they were last updated on 2018-11-14). Links:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://data.worldbank.org/indicator/NY.GDP.MKTP.CD&quot; rel=&quot;nofollow noreferrer&quot;&gt;GDP (current US $)&lt;/a&gt;.&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://data.worldbank.org/indicator/NY.GDP.MKTP.PP.KD&quot; rel=&quot;nofollow noreferrer&quot;&gt;GDP, PPP (constant 2011 international \$)&lt;/a&gt;.&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://data.worldbank.org/indicator/NY.GDP.PCAP.PP.KD&quot; rel=&quot;nofollow noreferrer&quot;&gt;GDP per capita, PPP (constant 2011 international \$)&lt;/a&gt;.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;**The step from (1) to (2) uses the World Bank's International Comparison Program or Project (ICP), which may or may not be accurate and, indeed, has been heavily criticized by some. For example, the Indian economist Surjit Bhalla &lt;a href=&quot;https://www.business-standard.com/article/opinion/surjit-s-bhalla-world-bank-peddling-poverty-107122201086_1.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;once called&lt;/a&gt; this program no different from a snake-oil salesman.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastEditorDisplayName="user18" LastEditDate="2018-12-23T03:19:35.630" LastActivityDate="2018-12-23T03:19:35.630" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26122" PostTypeId="1" CreationDate="2018-12-23T07:20:15.217" Score="-1" ViewCount="71" Body="&lt;p&gt;In 2016 Wells Fargo was fined $185 million dollars by the Consumer Financial Protection Bureau for opening up two million fake accounts, that is accounts without their customers permission.&lt;/p&gt;&#xA;&lt;p&gt;Q. How did they intend to profit from this as it seems that no new money was going into the system?&lt;/p&gt;&#xA;&lt;p&gt;&lt;strong&gt;edit&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;p&gt;@Giskard: Unauthorised accounts are still a fake accounts, it's merely more specific about the nature of its 'fakeness'. I meant by new money as additional monies brought in by new custom. Your answer points out that Wells Fargo was making money through administrative charges as opposed to interest on a larger capital base. I'd have accepted your answer as correct but my phone isn't letting me click on accept - it's an old phone.&lt;/p&gt;&#xA;" OwnerUserId="13857" LastEditorUserId="13857" LastEditDate="2020-11-13T06:34:21.703" LastActivityDate="2020-11-13T06:34:21.703" Title="How did Wells Fargo intend to profit by opening up two million fake accounts?" Tags="&lt;economic-history&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="26123" PostTypeId="2" ParentId="26122" CreationDate="2018-12-23T10:50:55.757" Score="3" Body="&lt;p&gt;Why do you think no new money was going into the system?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The accounts where unauthorized rather than fake. Wells Fargo charged their existing customers for additional accounts that they did not request.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Wells Fargo clients began to notice the fraud after being charged unanticipated fees and receiving unexpected credit or debit cards or lines of credit.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Wells_Fargo_account_fraud_scandal&quot; rel=&quot;nofollow noreferrer&quot;&gt;Source: Wikipedia&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2018-12-23T10:50:55.757" CommentCount="8" ContentLicense="CC BY-SA 4.0" />
  <row Id="26125" PostTypeId="2" ParentId="26092" CreationDate="2018-12-23T14:41:25.337" Score="1" Body="&lt;p&gt;Debt Crises are the inability to pay interest on the debt a country has already taken up to that point. There are many theories, about how such crises can develop, however all have one thing in common. You need debt to have a debt crisis. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is debt? Debt is when a country spends too much compared to how much it earns (in case you are familiar with simple econmic terms, that is G (gov. spending) exceeds T (gov earning — &lt;span class=&quot;math-container&quot;&gt;$ \Delta M$&lt;/span&gt; could be taken into account, is however negligible for most countries, as money printing is usually not the way to finance debt.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;War is expensive&quot;, means that during war-time there are HUGE governmental expenses to production of weapons and what not. &#xA;However, to say that the debt crisis is due to WW expenses one would have to look at how debt levels of Italy have developed after the world wars. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have found a graph in my book and saw that in the 1970 Italy had a debt ration &lt;span class=&quot;math-container&quot;&gt;$(\frac{B}{Y})$&lt;/span&gt; of 40 percent, which in today's terms is not much, rather below average. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the years 1980 to 1990 Italy took up a lot of new debt, peaking at a debt level of ca. 120% in the early years of the 90's. From there debt has been 'steady' with increases to 130% in 2014. Thus, one can say. No. The debt crisis is not due to war expenses, when looking at it from this purely expense-tracking perspective...&lt;/p&gt;&#xA;" OwnerUserId="20565" LastActivityDate="2018-12-23T14:41:25.337" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="26126" PostTypeId="1" CreationDate="2018-12-23T16:03:32.753" Score="2" ViewCount="304" Body="&lt;p&gt;The translog production function is defined as the following.&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\ln y=\alpha_0+\sum_{i=1}^n\alpha_i \ln x_i+\frac{1}{2}\sum_{i=1}^n\sum_{j=1}^n\ \beta_{ij}\ln x_i\ln x_j $$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know it is a approximation of the CES production function and simplifies to  being a logged general cobb douglas production function when every &lt;span class=&quot;math-container&quot;&gt;$\beta_{ij}=0$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;however in cases where every (or even a single) &lt;span class=&quot;math-container&quot;&gt;$\beta_{ij}\neq0$&lt;/span&gt; what interpretation does it take on?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;i.e. I know &lt;span class=&quot;math-container&quot;&gt;$\alpha_i$&lt;/span&gt; is interpreted as an &quot;output elasticity&quot;, what is &lt;span class=&quot;math-container&quot;&gt;$\beta_{ij}$&lt;/span&gt; interpreted as?&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2018-12-26T10:08:24.557" Title="what is the interpretation of $\beta_{ij}$ in the translog production function?" Tags="&lt;microeconomics&gt;&lt;econometrics&gt;" AnswerCount="3" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26128" PostTypeId="2" ParentId="26126" CreationDate="2018-12-23T17:54:11.250" Score="3" Body="&lt;p&gt;You may interpret &lt;span class=&quot;math-container&quot;&gt;$\alpha_i$&lt;/span&gt; as the output elasticity &lt;em&gt;regarding input factor&lt;/em&gt; &lt;span class=&quot;math-container&quot;&gt;$x_i$&lt;/span&gt;, keeping other factors &lt;span class=&quot;math-container&quot;&gt;$x_j, j\neq i$&lt;/span&gt; constant. &lt;span class=&quot;math-container&quot;&gt;$\beta_{ij}$&lt;/span&gt; is an indicator for complementarities in production, i.e. how much does the addition of one percent of both factors &lt;span class=&quot;math-container&quot;&gt;$x_i$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$x_j$&lt;/span&gt; add to &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt;. Since there is the factor 0.5, and since &lt;span class=&quot;math-container&quot;&gt;$\alpha_i$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\alpha_j$&lt;/span&gt; are relevant too, the interpretation is not that straightforward.&lt;/p&gt;&#xA;" OwnerUserId="17735" LastEditorUserId="17735" LastEditDate="2018-12-24T08:51:40.553" LastActivityDate="2018-12-24T08:51:40.553" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="26130" PostTypeId="1" CreationDate="2018-12-24T02:03:36.677" Score="1" ViewCount="17" Body="&lt;p&gt;&lt;strong&gt;&lt;em&gt;Are my housing prices/taxes more influenced by the $40M beach house a few miles away from my home or those in the lower-class well beyond my county line?&lt;/em&gt;&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assuming a few basics:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;there are differing economic classes &lt;/li&gt;&#xA;&lt;li&gt;each lower one (ideally) graduates to the next higher one&lt;/li&gt;&#xA;&lt;li&gt;we are, rather I am, somewhere at the upper-end of well-off&lt;/li&gt;&#xA;&lt;li&gt;Area: SoCal, near the beach&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/7uTph.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/7uTph.png&quot; alt=&quot;class graduation&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Full disclosure, this question is to satisfy a disagreement; in order not to taint the question, my side of the dispute will not be identified.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The 2 differing assertions are:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;my home prices are more affected by a fewer number of wealthy homeowners near my neighborhood.&lt;/li&gt;&#xA;&lt;li&gt;my home prices are more affected by a vastly greater number of poor/blue collar renters/homeowners nowhere near my home.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;The supporting argument for assertion #2 is that those people at the lowest end of the spectrum are renting/buying in such great quantities that the supply is exhausted. Subsequently, all home prices, even those hundreds of miles away in higher-classes, are affected through a &quot;ripple effect&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Extra kudos for those with more understandable answers. The final assumption, &lt;em&gt;I'm not an economist&lt;/em&gt;.&lt;/p&gt;&#xA;" OwnerUserId="20572" LastActivityDate="2018-12-24T02:03:36.677" Title="primary impact on real estate prices/taxes" Tags="&lt;finance&gt;&lt;elasticity&gt;&lt;applied-econometrics&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26132" PostTypeId="2" ParentId="26106" CreationDate="2018-12-24T04:41:45.127" Score="0" Body="&lt;p&gt;Hint: a set is closed if its complement is open, and if a bundle &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; is strictly unaffordable, &lt;span class=&quot;math-container&quot;&gt;$p \cdot x &amp;gt; w$&lt;/span&gt;, every nearby bundle is also unaffordable.&lt;/p&gt;&#xA;" OwnerUserId="14901" LastActivityDate="2018-12-24T04:41:45.127" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26135" PostTypeId="1" CreationDate="2018-12-24T14:12:20.610" Score="1" ViewCount="406" Body="&lt;p&gt;I've heard a lot of different economists bullet point a few main ideas as to why money is necessary. However, I'd like to get an ultimate rundown list. What are the major reasons why money is necessary for a culture to thrive?&lt;/p&gt;&#xA;" OwnerUserId="20570" LastActivityDate="2018-12-27T10:35:55.610" Title="Why is Money Necessary?" Tags="&lt;money&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="26137" PostTypeId="2" ParentId="26126" CreationDate="2018-12-24T21:40:13.713" Score="-1" Body="&lt;p&gt;There is no meaningfull interpretation of   the coefficients of most nonlinear in &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; production function.  The &lt;span class=&quot;math-container&quot;&gt;$\beta $&lt;/span&gt; terms correspond to the second order Taylor development of &lt;span class=&quot;math-container&quot;&gt;$\log(y)$&lt;/span&gt; wrt &lt;span class=&quot;math-container&quot;&gt;$\log(x)$&lt;/span&gt; and allow substitution (or complmentarity) between inputs that go beyond the homothetic Cobb-Douglas case (in which the substitution patern is very specific). The &lt;span class=&quot;math-container&quot;&gt;$\beta$&lt;/span&gt; also allow elasticities of &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; wrt &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; (or the shares of input cost in sales if firms are profit maximizing) to deviate from the constant terms &lt;span class=&quot;math-container&quot;&gt;$\alpha$&lt;/span&gt; and to vary with &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;. &lt;/p&gt;&#xA;" OwnerUserId="20576" LastEditorUserId="20576" LastEditDate="2018-12-25T20:07:55.620" LastActivityDate="2018-12-25T20:07:55.620" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26139" PostTypeId="2" ParentId="26097" CreationDate="2018-12-25T06:44:32.360" Score="2" Body="&lt;p&gt;Yes there are. Two big ones are:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Why are some nations rich and why are some nations poor?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;What are the causes of large scale involuntary unemployment of resources and individuals (I.e. a depression).&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="20426" LastActivityDate="2018-12-25T06:44:32.360" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26140" PostTypeId="2" ParentId="26097" CreationDate="2018-12-25T06:51:53.203" Score="2" Body="&lt;p&gt;Another: Why did the Industrial Revolution begin in England/Northwest Europe rather than anywhere else?&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2018-12-25T06:51:53.203" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="26141" PostTypeId="1" CreationDate="2018-12-25T13:39:14.570" Score="1" ViewCount="52" Body="&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Walras%27s_law&quot; rel=&quot;nofollow noreferrer&quot;&gt;Walras's law&lt;/a&gt; is stated for an exchange market: each agent comes to the market with a certain endowment of each commodity, a price-vector is determined, and the demand of each agent is the best bundle that the agent can afford by selling his endowment in the given prices. Walras's law says that, in any price-vector, the total value of the excess demand (i.e., the price-vector times the excess-demand vector) is zero.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is a different model called a &lt;a href=&quot;https://en.wikipedia.org/wiki/Fisher_market&quot; rel=&quot;nofollow noreferrer&quot;&gt;Fisher market&lt;/a&gt;, in which each agent comes with a certain budget of fiat money, the market-manager comes with a fixed quantity of each commodity, a price is determined, and the demand of each agent is the best bundle that the agent can afford with his given budget. &#xA;In such a market, it does not seem true that the total value of the excess demand is zero. For example, if the prices are very low, then all agents will want to buy all commodities, so the excess demand will be positive. &#xA;Is there a variant of Walras's law that holds in a Fisher market?&lt;/p&gt;&#xA;" OwnerUserId="385" LastEditorUserId="385" LastEditDate="2018-12-25T14:17:27.650" LastActivityDate="2018-12-25T14:17:27.650" Title="Walras's law in a Fisher market" Tags="&lt;general-equilibrium&gt;&lt;markets&gt;&lt;price&gt;&lt;walrasian&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="26143" PostTypeId="2" ParentId="26097" CreationDate="2018-12-25T14:06:47.937" Score="1" Body="&lt;p&gt;Here are a few that come to mind.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;strong&gt;Bargaining&lt;/strong&gt;: How are bargaining outcomes determined?&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;Market failure:&lt;/strong&gt; Why do markets fail, and what are the welfare consequences of their failures? Suppose the answers include moral hazard, limited commitment, adverse selection, and externalities. Then, how can governments or private entities counteract these problems and their associated welfare losses?&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;Macroforecasting&lt;/strong&gt;: Is it possible to forecast macroeconomic and financial time series with enough accuracy to be useful for policy, corporate, or personal decision-making?&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;Market structure&lt;/strong&gt;: How is market structure determined, and how does market structure affect output and consumer welfare? &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="7088" LastActivityDate="2018-12-25T14:06:47.937" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26144" PostTypeId="1" AcceptedAnswerId="26503" CreationDate="2018-12-25T22:09:49.343" Score="6" ViewCount="1228" Body="&lt;p&gt;Ive been having difficulty deriving the translog production function defined as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\ln y=\alpha_0+\sum_{i=1}^n\alpha_i \ln x_i+\frac{1}{2}\sum_{i=1}^n\sum_{j=1}^n\ \beta_{ij}\ln x_i\ln x_j $$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know we start with a log-log production function. &#xA;&lt;span class=&quot;math-container&quot;&gt;$$\ln y=\alpha_0+\sum_{i=1}^n\alpha_i\ln x_i$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;the next step from what i recall is to take the taylor series of this function around the point &lt;span class=&quot;math-container&quot;&gt;$x_i=0$&lt;/span&gt;. the reason why this is an issue is because &lt;span class=&quot;math-container&quot;&gt;$\ln(0)$&lt;/span&gt; is undefined.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How exactly is this function derived? &lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2019-05-02T09:23:50.720" Title="Deriving the translog production function" Tags="&lt;microeconomics&gt;&lt;econometrics&gt;&lt;production-function&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26145" PostTypeId="2" ParentId="26144" CreationDate="2018-12-25T23:55:34.190" Score="4" Body="&lt;p&gt;The idea is indeed to Taylor expand the production function. To justify it, you can start with the constant elasticity of substitution function, which in the two-factor case can be written &lt;a href=&quot;https://en.wikipedia.org/wiki/Cobb%E2%80%93Douglas_production_function#Relationship_to_the_CES_production_function&quot; rel=&quot;nofollow noreferrer&quot;&gt;as&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;Y = A[\alpha K^\gamma + (1 - \alpha)L^\gamma]^{1/\gamma} \tag{1}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;in this case &lt;span class=&quot;math-container&quot;&gt;$X_1 = K$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$X_2 = L$&lt;/span&gt;. Now we expand &lt;span class=&quot;math-container&quot;&gt;$\ln Y$&lt;/span&gt; around &lt;span class=&quot;math-container&quot;&gt;$\gamma = 0$&lt;/span&gt; (recall the CES approximates to a cobb-douglas production function when &lt;span class=&quot;math-container&quot;&gt;$\gamma \approx0).$&lt;/span&gt; &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\gamma^0$&lt;/span&gt; term&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\lim_{\gamma \to 0} \ln Y = \ln (A K^\alpha L^{1 - \alpha}) \tag{2}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\gamma^1$&lt;/span&gt; term&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{eqnarray}&#xA;\lim_{\gamma \to 0} \frac{\partial \ln Y}{\partial \gamma} &amp;amp;=&amp;amp; \lim_{\gamma \to 0}\frac{\alpha  K^{\gamma } \ln (L)+(1-\alpha ) l^{\gamma } \log (L)}{\gamma &#xA;   \left(\alpha  K^{\gamma }+(1-\alpha ) L^{\gamma }\right)}-\frac{\ln \left(\alpha &#xA;   K^{\gamma }+(1-\alpha ) L^{\gamma }\right)}{\gamma ^2}\\&#xA;&amp;amp;=&amp;amp; \frac{1}{2} (1 - \alpha) \alpha  (\ln (K)-\ln (L))^2 \tag{3}&#xA;\end{eqnarray}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Up to first order we have then&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{eqnarray}&#xA;\ln Y &amp;amp;\approx&amp;amp; \color{blue}{(\ln Y)_{\gamma = 0}} + \color{red}{\left(\frac{\partial \ln Y}{\partial \gamma}\right)_{\gamma = 0} \gamma} \\&#xA;&amp;amp;\stackrel{(2),(3)}{=}&amp;amp; \color{blue}{\ln A + \alpha \ln K + (1 - \alpha) \ln L} + \color{red}{\frac{1}{2}\alpha(1 - \alpha)\gamma [\ln K - \ln L]^2} \\&#xA;&amp;amp;=&amp;amp; \ln A + \alpha \ln X_1 + (1 - \alpha) \ln X_2 + \frac{\alpha \gamma (1 -\alpha)}{2}\left[\ln^2 X_1 -2\ln X_1\ln X_2 + \ln^2 X_2 \right] \\&#xA;&amp;amp;=&amp;amp; \alpha_0 + \sum_{i = 1}^2 \alpha_i \ln X_i + \frac{1}{2}\sum_{i, j = 1}^2 \beta_{ij}\ln X_i \ln X_j \tag{3}&#xA;\end{eqnarray}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is naturally extended to &lt;span class=&quot;math-container&quot;&gt;$n &amp;gt; 2$&lt;/span&gt; as &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\ln Y = \alpha_0 + \sum_{i = 1}^n \alpha_i \ln X_i + \frac{1}{2}\sum_{i, j = 1}^n \beta_{ij}\ln X_i \ln X_j&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="14419" LastEditorUserId="8815" LastEditDate="2019-01-18T17:44:13.230" LastActivityDate="2019-01-18T17:44:13.230" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26146" PostTypeId="2" ParentId="26126" CreationDate="2018-12-26T10:08:24.557" Score="3" Body="&lt;p&gt;Maybe a little sketch maybe helpful here. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Consider a one dimensional case first&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\ln y = \alpha_0 + \alpha_1 \ln x + \frac{1}{2}\beta_{11}\ln^2x \tag{1}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At first order (that is, ignore &lt;span class=&quot;math-container&quot;&gt;$\ln^2 x$&lt;/span&gt;), note that &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\frac{{\rm d}\ln y}{{\rm d}\ln x} = \alpha_1 \tag{2}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;i.e. &lt;span class=&quot;math-container&quot;&gt;$\alpha_1$&lt;/span&gt; is just the logarithmic slope of the output function (a.k.a elasticity), so it basically can help you identify the difference between the two plots below&#xA;&lt;a href=&quot;https://i.stack.imgur.com/rsugH.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/rsugH.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now the second term, for that one note that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\frac{{\rm d}^2\ln y}{{\rm d}\ln^2 x} = \beta_{11} \tag{3}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;there's no mystery involved in the factor &lt;span class=&quot;math-container&quot;&gt;$2$&lt;/span&gt; in Eq. (1), just there to make things simpler. Again, this is just the second derivative of the output function, so it can help you tell the difference between the two cases below&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/55Ylr.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/55Ylr.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now comes the trick, &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;How does this extend to higher dimensions? &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Well Eq.(1) still holds&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\alpha_k = \frac{\partial \ln y}{\partial \ln x_k}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;so &lt;span class=&quot;math-container&quot;&gt;$\alpha_k$&lt;/span&gt; is the elasticity keeping all other factors constant. Or in geometric terms &lt;span class=&quot;math-container&quot;&gt;$\boldsymbol{\alpha} = \nabla_{\ln {\bf x}} \ln y$&lt;/span&gt;. An the second derivatives (Hessian) are simply &lt;span class=&quot;math-container&quot;&gt;$\beta_{jk}$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\frac{\partial^2 \ln y}{\partial \ln x_k \partial \ln x_l} = \frac{1}{2}(\beta_{kl} + \beta_{lk})&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the matrix with entries &lt;span class=&quot;math-container&quot;&gt;$\beta_{kl}$&lt;/span&gt; is diagonal, then the interpretation above is the same, it is just expressing the convexity of the production. If it is not, then you need to look for the eigenvalues of the matrix &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\boldsymbol{H} = \frac{1}{2}(\boldsymbol{\beta} + \boldsymbol{\beta}^T)&#xA;$$&lt;/span&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;which always exist and are real, since &lt;span class=&quot;math-container&quot;&gt;$\boldsymbol{H} = \boldsymbol{H}^T$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="14419" LastActivityDate="2018-12-26T10:08:24.557" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26147" PostTypeId="1" CreationDate="2018-12-26T10:56:32.657" Score="2" ViewCount="115" Body="&lt;p&gt;In &lt;a href=&quot;https://www.elsevier.com/books/auction-theory/krishna/978-0-12-374507-1&quot; rel=&quot;nofollow noreferrer&quot;&gt;Auction Theory&lt;/a&gt;, Krishna writes that:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;a bidder who faces a stochastically higher distribution of bids–in the&#xA;  sense of reverse hazard rate dominance–will bid higher&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;(This follows the proof of proposition 4.4 in the section 'Weakness Leads to Aggression'.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Supposedly, this is 'easy to see' - however, I am having trouble seeing it! I would be grateful if someone could explain why this is true.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My (unsuccessful) efforts so far:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I bid &lt;span class=&quot;math-container&quot;&gt;$b$&lt;/span&gt; when my valuation is &lt;span class=&quot;math-container&quot;&gt;$v$&lt;/span&gt;, then (under risk neutrality) my expected utility is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$(v - b)F(b)$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where &lt;span class=&quot;math-container&quot;&gt;$F(b)$&lt;/span&gt; is the cumulative distribution function of all the bids apart from mine (and thus the probability that I win the auction).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Maximising my expected utility with respect to &lt;span class=&quot;math-container&quot;&gt;$b$&lt;/span&gt;, we obtain the first order condition&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$(v - b)f(b) - F(b) = 0$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which implies that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$b = v - \frac{F(b)}{f(b)}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A distribution &lt;span class=&quot;math-container&quot;&gt;$G$&lt;/span&gt; is stochastically higher than a distribution &lt;span class=&quot;math-container&quot;&gt;$F$&lt;/span&gt; in the sense of reverse hazard rate dominance when, for every &lt;span class=&quot;math-container&quot;&gt;$b$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\frac{g(b)}{G(b)} &amp;gt; \frac{f(b)}{F(b)}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, if &lt;span class=&quot;math-container&quot;&gt;$f(b)/F(b)$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$g(b)/G(b)$&lt;/span&gt; do not depend on &lt;span class=&quot;math-container&quot;&gt;$b$&lt;/span&gt;, it is obvious from the first order condition that I will bid higher when facing a stochastically higher distribution of bids. However, it is not clear to me what happens in the general case where the 'hazard rates' may depend on &lt;span class=&quot;math-container&quot;&gt;$b$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Many thanks in advance!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Bonus question:&lt;/strong&gt; When my bids increase, will my new distribution of bids 'stochastically dominate' my old distribution (in the sense of the reverse hazard rate)?&lt;/p&gt;&#xA;" OwnerDisplayName="user17900" LastEditorDisplayName="user17900" LastEditDate="2018-12-27T13:15:55.583" LastActivityDate="2021-05-15T21:02:25.223" Title="Best-responding to a stochastically higher distribution of bids" Tags="&lt;auctions&gt;&lt;probability&gt;" AnswerCount="1" CommentCount="4" FavoriteCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26148" PostTypeId="2" ParentId="26135" CreationDate="2018-12-26T16:45:14.643" Score="2" Body="&lt;p&gt;There are issues with this question as currently written. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I will attempt to offer a partial answer by responding with a different question. If money did not exist, how would governments in modern developed countries impose taxes?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Historically, rulers would impose taxes in kind: forcing peasants to serve in the army, or taking a portion of the harvest. This is not particularly easy to see how a modern government could achieve this in a politically acceptable fashion.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So if you can find a way to allow taxation without money, you have found a way for money to not be necessary in a modern developed country.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2018-12-26T16:45:14.643" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26149" PostTypeId="2" ParentId="25876" CreationDate="2018-12-26T20:27:44.900" Score="4" Body="&lt;p&gt;Why not using the number of workers? And simply replacing sales (or output) by workers in the HHI or C4 indices. I saw this in the literature, but where? May be in a report of the German &quot;Monopolkomission&quot;...  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT: I found an example for France. The share &lt;span class=&quot;math-container&quot;&gt;$C_{10}$&lt;/span&gt; of the production of the 10 biggest firms is very correlated with their share in total employment (at the sectoral level). The correlation coefficient is about 0.96. Note, however, that their production share often tend to be higher than their employment share, maybe due to increasing returns to scale.&lt;br&gt;&#xA;Source: Insee, GR2 – Concentration des groupes : part des 4 ou 10 premiers groupes (NES 114 postes)&lt;br&gt;&#xA;&lt;a href=&quot;https://www.insee.fr/fr/statistiques/2381764?sommaire=2381775&amp;amp;q=concentration&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.insee.fr/fr/statistiques/2381764?sommaire=2381775&amp;amp;q=concentration&lt;/a&gt;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/ZfbOq.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/ZfbOq.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="20576" LastEditorUserId="20576" LastEditDate="2019-01-26T20:06:36.313" LastActivityDate="2019-01-26T20:06:36.313" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26151" PostTypeId="2" ParentId="26135" CreationDate="2018-12-26T23:07:37.823" Score="2" Body="&lt;ol&gt;&#xA;&lt;li&gt;Store of value. &lt;/li&gt;&#xA;&lt;li&gt;Medium of exchange. &lt;/li&gt;&#xA;&lt;li&gt;Unit of account. &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;I doubt one can easily think of a benefit offered by money not covered by one of 1-3. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I reccomend reading the &lt;a href=&quot;https://ideas.repec.org/a/aea/aejmic/v6y2014i1p290-314.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;experimental work done by Camera&lt;/a&gt; on the emergence of money in an experimental economy. Fascinating stuff. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit: Whoever added the hyperlink (I think Densep) ... thanks! It inspired me to also link &lt;a href=&quot;https://www.chapman.edu/research/institutes-and-centers/economic-science-institute/about-us/gabriele-camera.aspx&quot; rel=&quot;nofollow noreferrer&quot;&gt;Camera's website&lt;/a&gt;. If you look through his CV you will find a few other highly relevant, very interesting, and well executed papers. &lt;/p&gt;&#xA;" OwnerUserId="1655" LastEditorUserId="1655" LastEditDate="2018-12-27T10:35:55.610" LastActivityDate="2018-12-27T10:35:55.610" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26152" PostTypeId="2" ParentId="26147" CreationDate="2018-12-27T12:33:05.073" Score="0" Body="&lt;p&gt;Here is a sketch of an answer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As noted in the question, the optimal &lt;span class=&quot;math-container&quot;&gt;$b$&lt;/span&gt; must satisfy&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$b = v - \frac{F(b)}{f(b)}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let us define the function &lt;span class=&quot;math-container&quot;&gt;$h(b) = v - F(b)/f(b)$&lt;/span&gt;. Our problem is to find the the fixed points of the function &lt;span class=&quot;math-container&quot;&gt;$h(b)$&lt;/span&gt;, i.e. the &lt;span class=&quot;math-container&quot;&gt;$b$&lt;/span&gt; such that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$b = h(b)$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What can we say about &lt;span class=&quot;math-container&quot;&gt;$h(b)$&lt;/span&gt;? Assuming there is a unique optimal bid, it crosses the 45 degree line exactly once. Moreover, assuming that bids cannot be negative, i.e. &lt;span class=&quot;math-container&quot;&gt;$F(b) = 0$&lt;/span&gt;, it follows that &lt;span class=&quot;math-container&quot;&gt;$h(0) = v$&lt;/span&gt;. Thus, assuming that &lt;span class=&quot;math-container&quot;&gt;$v &amp;gt; 0$&lt;/span&gt;, the function &lt;span class=&quot;math-container&quot;&gt;$h(b)$&lt;/span&gt; starts off above the 45 degree line.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, when the opponent bids are 'stochastically higher', the function &lt;span class=&quot;math-container&quot;&gt;$h(b)$&lt;/span&gt; moves upwards in the sense that the 'new' function lies everywhere above &lt;span class=&quot;math-container&quot;&gt;$h(b)$&lt;/span&gt;. It thus seems reasonably clear that the unique fixed point must increase, though admittedly I lack a conclusive proof of this fact.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am also unsure about the bonus question (whether my new bids seem stochastically higher in the sense of the reverse hazard rate).&lt;/p&gt;&#xA;" OwnerDisplayName="user17900" LastEditorDisplayName="user17900" LastEditDate="2018-12-27T15:13:56.747" LastActivityDate="2018-12-27T15:13:56.747" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26154" PostTypeId="1" CreationDate="2018-12-27T17:38:58.603" Score="2" ViewCount="80" Body="&lt;p&gt;These are the admittedly somewhat disparate pieces of information gleaned from separate sources that the question arose from.&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;According to The living wage foundation the real cost of living in the UK is &lt;a href=&quot;https://www.livingwage.org.uk/what-real-living-wage&quot; rel=&quot;nofollow noreferrer&quot;&gt;£9 an hour&lt;/a&gt;.&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Assuming a 37 hour week this comes to £17,375 a year.&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;According to the &lt;a href=&quot;http://www.compareyourincome.org/income_inequality_in_the_united_kingdom&quot; rel=&quot;nofollow noreferrer&quot;&gt;OECD&lt;/a&gt; half those in the UK between 35 &amp;amp; 44 have incomes (not necessarily from earnings) of £17,000 or less.&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;p&gt;&lt;em&gt;From the OECD link provided tab through to the third page (selecting the age range &amp;amp; nation as you go), then drag the marker on the ring around to the 17,000 GBP point &amp;amp; tab on through to &amp;quot;Where your household stands: In reality&amp;quot;&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Put together those statements would seem to suggest half or more of the UK population may not be being paid enough to do much more than subsist (it doesn't but the question stands).&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;&lt;em&gt;Though it should be noted that the OECD figures are after tax &amp;amp; I believe that the Living Wage Foundation's figures are pre-tax, also that the OECD sight compares like with like, results from one set of circumstances can't be used to extrapolate average results for the whole population.&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Some comment on the validity of the information provided is OK of course but the real question is what do current economic models predict as the outcomes for an economy with a disparity like this?&lt;/p&gt;&#xA;" OwnerUserId="17908" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2019-03-03T16:55:51.237" Title="What predictions do economic models make for an economy where 50% of the population earn less than the cost of living?" Tags="&lt;labor-economics&gt;&lt;wages&gt;" AnswerCount="0" CommentCount="12" FavoriteCount="1" ClosedDate="2018-12-29T16:01:25.550" ContentLicense="CC BY-SA 4.0" />
  <row Id="26158" PostTypeId="1" AcceptedAnswerId="26239" CreationDate="2018-12-27T22:48:52.057" Score="1" ViewCount="432" Body="&lt;p&gt;I'm having trouble understanding the steps in showing that a Homothetic production function's cost function must be expressible in the form &lt;span class=&quot;math-container&quot;&gt;$C(w, q) = a(w)b(q)$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since the production function is homothetic, I know that the optimal cost minimizing input ratio given the same input costs must be exactly the same for different quantities of output i.e. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\frac{H^j(w,q)}{H^i(w,q)} = \frac{H^j(w,q')}{H^i(w,q')}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Rearranging this we arrive at the ratio:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\frac{H^i(w,q)}{H^i(w,q')} = \frac{H^j(w,q)}{H^j(w,q')}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This makes sense because in order to the maintain the input ratio constant, we would need both cost-minimizing inputs to increase by the same factor when going from &lt;span class=&quot;math-container&quot;&gt;$q$&lt;/span&gt; to &lt;span class=&quot;math-container&quot;&gt;$q'$&lt;/span&gt;. However, the proof then states that &quot;for the above to true &lt;strong&gt;it is clear that the ratio must be independent of w&lt;/strong&gt;, thus, setting &lt;span class=&quot;math-container&quot;&gt;$q' = 1$&lt;/span&gt;&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\frac{H^1(w,q)}{H^1(w,1)}= \frac{H^2(w,q)}{H^2(w,1)} = \cdots =\frac{H^m(w,q)}{H^m(w,1)} = b(q)&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and so&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;H^i(w,q) = b(q)H^i(w, 1)&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The steps after this to get to &lt;span class=&quot;math-container&quot;&gt;$C(w, q) = a(w)b(q)$&lt;/span&gt; is pretty understandable and straightforward for me.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, what I don't understand is how you can clearly see that the ratio must be independent of &lt;strong&gt;w&lt;/strong&gt;. Surely the ratio just states that for a given &lt;strong&gt;w&lt;/strong&gt; the inputs must increase by the same factor/ratio. But how does that imply that the ratio has to be exactly the same for all &lt;strong&gt;w&lt;/strong&gt;? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Edit&lt;/strong&gt;: for those who are asking, this comes from an exercise question in Frank Cowell's textbook: Microeconomics: Principles and Analysis.&lt;/p&gt;&#xA;" OwnerUserId="20326" LastEditorUserId="20326" LastEditDate="2018-12-30T14:40:24.030" LastActivityDate="2019-01-02T10:53:00.467" Title="Derive the cost function for a Homothetic production function" Tags="&lt;microeconomics&gt;&lt;production-function&gt;&lt;cost-functions&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26159" PostTypeId="1" CreationDate="2018-12-27T23:30:19.783" Score="1" ViewCount="26" Body="&lt;p&gt;Is it correct to state year 2018 inflation rate of 2.2% is very low? Is it correct to state that even though the commodity prices have not increased, the increased money supply coming from the numerous rounds of quantitative easing found its way into the stock market and the bull market in the past few years were fueled largely by this influx of money supplies rather than the increased productivity of the economy?&lt;/p&gt;&#xA;" OwnerUserId="10298" LastEditorUserId="10298" LastEditDate="2018-12-28T04:23:30.173" LastActivityDate="2018-12-28T04:23:30.173" Title="Why is the measured year 2018 inflation rate low despite rounds of quantitative easing?" Tags="&lt;inflation&gt;&lt;monetary-policy&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26164" PostTypeId="1" CreationDate="2018-12-28T06:53:36.483" Score="3" ViewCount="172" Body="&lt;p&gt;&lt;strong&gt;Disclaimer&lt;/strong&gt;: I am neither a social scientist nor an economist. I hope the ESE is the right place to ask this question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Disclaimer 2&lt;/strong&gt;: I do &lt;strong&gt;not&lt;/strong&gt; intend to spark an ideologically driven discussion here. Please keep any non-professional opinions to yourself.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Recently I have been exposed to discussions about the &quot;gender wage gap&quot; and similar concepts (such as race wage gaps), mostly through popular media. As always with scientific topics in popular media, and especially in this particularly politicized case, people tend to throw about contradicting studies, misinterpret studies, claim the other side's studies are false due to not adjusting for one variable or another.. you know what I'm talking about. Reporting on the subject tends to be poor, probably due to ideological reasons (e.g. &lt;a href=&quot;https://www.theguardian.com/money/2018/apr/04/gender-pay-gap-figures-reveal-eight-in-10-uk-firms-pay-men-more&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; and &lt;a href=&quot;https://www.theguardian.com/money/2018/dec/27/uk-black-and-ethnic-minorities-lose-32bn-a-year-in-pay-gap&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I want to look at the facts myself. Luckily I am a mathematician, so I believe to be able to handle the statistics and methodology questions in such papers. Also I don't really have a horse in this particular political race, so I think I can look at it from a reasonably neutral position.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Could you please provide links to the more relevant literature regarding this issue, &lt;strong&gt;or that is in some way relevant to the issue&lt;/strong&gt;? Preferably papers that are particularly transparent regarding their ways of data collection and interpretation, and if possible even provide their raw data (is that common in economics / social sciences?).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you have an opinion on the issue, which you probably do, please try to provide literature supporting your opinion, as well as the best literature you know of that attempts to refute your opinion. If you are not a &lt;a href=&quot;https://en.wikipedia.org/wiki/Cargo_cult_science&quot; rel=&quot;nofollow noreferrer&quot;&gt;cargo cult scientist&lt;/a&gt;, which I assume you are not, then this should be possible. Do feel free to indicate where you think that literature went wrong.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Edit&lt;/strong&gt;&#xA;&lt;a href=&quot;https://stats.stackexchange.com/questions/384740/x-post-reference-request-gender-wage-gap-minority-wage-gap&quot;&gt;X-post&lt;/a&gt;, because I didn't know where to post (sorry).&lt;/p&gt;&#xA;" OwnerUserId="20599" LastEditorUserId="20599" LastEditDate="2019-01-02T04:10:37.460" LastActivityDate="2019-01-03T09:04:56.483" Title="Reference request: Gender wage gap / Minority wage gap" Tags="&lt;reference-request&gt;&lt;labor-economics&gt;&lt;data-request&gt;&lt;statistics&gt;&lt;wages&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26169" PostTypeId="1" CreationDate="2018-12-28T10:47:54.817" Score="0" ViewCount="54" Body="&lt;p&gt;Is there any website that shows statistics of import crude oil and commodities to China daily or monthly? &lt;/p&gt;&#xA;" OwnerUserId="20600" LastEditorUserId="42" LastEditDate="2018-12-29T04:18:47.153" LastActivityDate="2020-06-22T04:06:15.610" Title="Where can I find the statistics of import crude oil to China?" Tags="&lt;data-request&gt;&lt;china&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26170" PostTypeId="1" CreationDate="2018-12-28T12:03:14.400" Score="1" ViewCount="194" Body="&lt;p&gt;Marginal cost and average cost are both a u-curve. They cross in the competitive equilibrium. If we divide one by the other, is the ratio the degree of competition?   Ratio is 1 in perfect competition. What is the name of this quantity, MC/AC?&lt;/p&gt;&#xA;" OwnerUserId="20409" LastActivityDate="2019-01-31T14:01:35.290" Title="what is the marginal cost divided by the average cost" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26171" PostTypeId="2" ParentId="26169" CreationDate="2018-12-28T12:20:30.263" Score="0" Body="&lt;p&gt;There are many statistics here: &lt;a href=&quot;https://fred.stlouisfed.org/tags/series?t=china%3Bimports&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://fred.stlouisfed.org/tags/series?t=china%3Bimports&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The UN has an excelent website with monthly trade flows: &lt;a href=&quot;https://comtrade.un.org/monthly/Public/ReleaseInfo.aspx&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://comtrade.un.org/monthly/Public/ReleaseInfo.aspx&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="15121" LastActivityDate="2018-12-28T12:20:30.263" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26172" PostTypeId="1" AcceptedAnswerId="26311" CreationDate="2018-12-28T12:46:41.397" Score="0" ViewCount="38" Body="&lt;p&gt;According to the Living Wage Foundation the &quot;real living wage&quot; in the UK is &lt;a href=&quot;https://www.livingwage.org.uk/what-real-living-wage&quot; rel=&quot;nofollow noreferrer&quot;&gt;£9 an hour&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which assuming a 37 hour week &amp;amp; rounding to the nearest whole GBP amounts to £17,375&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Formula used ((9*37)/7)*365.25&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;I don't know how many hours a week or what the annual figure is that the LWF assumes or uses so I've had to just pick a number (37 hours a week in this instance) &amp;amp; calculate from there, so if anyone can provide the correct number of hours (or better yet their annual rather than hourly rate) please do.&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've spent a fair amount of time cruising the &lt;a href=&quot;https://www.ons.gov.uk/&quot; rel=&quot;nofollow noreferrer&quot;&gt;ONS&lt;/a&gt; &amp;amp; other sites trying to come up with an accurate figure for what % of people earn less than this but simply can't find anything (so far) to provide it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So does anyone have this figure or a site they could direct me to that has this information?&lt;/p&gt;&#xA;" OwnerUserId="17908" LastEditorUserId="17908" LastEditDate="2018-12-28T13:31:48.683" LastActivityDate="2019-01-07T17:05:32.157" Title="Is there any reliable data on what % of the UK population currently earn less than £17,300 annually?" Tags="&lt;labor-economics&gt;&lt;statistics&gt;&lt;wages&gt;&lt;information&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26175" PostTypeId="1" CreationDate="2018-12-28T15:57:21.560" Score="0" ViewCount="69" Body="&lt;p&gt;I'm looking at this equation here:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$y = \frac{ra}{r+x}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; = market value of land&lt;/li&gt;&#xA;&lt;li&gt;&lt;span class=&quot;math-container&quot;&gt;$r$&lt;/span&gt; = real interest rate, set at 0.01&lt;/li&gt;&#xA;&lt;li&gt;&lt;span class=&quot;math-container&quot;&gt;$a$&lt;/span&gt; = land value, set at 1&lt;/li&gt;&#xA;&lt;li&gt;&lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; = tax rate&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I don't really understand this equation conceptually.&lt;/p&gt;&#xA;" OwnerUserId="20605" LastEditorUserId="14419" LastEditDate="2018-12-30T05:25:53.377" LastActivityDate="2018-12-30T05:52:44.063" Title="Why doesn't land value go to 0 when tax rate goes to 100%?" Tags="&lt;taxation&gt;&lt;value&gt;&lt;land&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="26176" PostTypeId="2" ParentId="26164" CreationDate="2018-12-28T16:24:48.160" Score="1" Body="&lt;p&gt;I'm not totally in the field, but from my view there is plenty of evidence on gender wage gap. The one thing I frequently hear in seminar talks is that, in the U.S., once you net out other reasons of unequal pay, such as age, experience, education, race etc, there is hardly any general gender wage gap. Another major fact is that women are predominantly working in low-paying sectors (e.g. care or education versus finance). This points to the fact that one has to look into the reasons for the gender wage gap, e.g. the wage penalty of mothers. For a non-technical introduction with further references, you may have a look &lt;a href=&quot;https://wol.iza.org/articles/equal-pay-legislation-and-the-gender-wage-gap&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="17735" LastEditorUserId="17735" LastEditDate="2019-01-02T18:05:53.283" LastActivityDate="2019-01-02T18:05:53.283" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="26178" PostTypeId="2" ParentId="25775" CreationDate="2018-12-28T19:52:30.450" Score="1" Body="&lt;p&gt;(Bottom in bold is a partial TL;DR)&lt;/p&gt;&#xA;&lt;p&gt;&lt;strong&gt;The definition your book gives you only seems incoherent because you take &amp;quot;people act to make themselves better off&amp;quot; (your book's definition) as the same as (or similar enough to) &amp;quot;fulfills their desire for happiness&amp;quot; (your characterization or additional characterization in the question you presented).&lt;/strong&gt; Let's ignore the whole sunk costs aspect of this question for now, as I think it is a diversion from a deeper misunderstanding with your question.&lt;/p&gt;&#xA;&lt;p&gt;Imagine if someone burned all their money because they believed doing so would cause it to grow back in the form of plants that sprout lots of 100 dollar bills. They may be acting in a way that makes them &amp;quot;happy&amp;quot; (at least for them), but one would be hard pressed to say they are acting in a way that makes them &amp;quot;better off&amp;quot;. You can argue that &amp;quot;making themselves better off&amp;quot; encompasses some sort of foresight to it as well. Once the money burner realizes that there will be no money growing plants coming out of the ground, they will no longer be happy, so they will not have done what is rational even by the definition that you gave. Pursuing what makes you happy or what makes you well off, we would take it to mean to do this across your whole life, not just go off of what you think is right in the moment before thinking things through.&lt;/p&gt;&#xA;&lt;p&gt;What if this money burner never became unhappy? What if they sat there and waited for money growing plants to sprout until they starved to death, and that they were still relatively happy the whole time? I don't think anyone would intuitively call this rational behavior.&lt;/p&gt;&#xA;&lt;p&gt;So what confuses me about this question is that you accuse the book of not having a rigorous enough definition to encompass what rationality is; that is, you say sunk costs is a specific example where the book's definition of rationality doesn't fall in line with what we would find to be intuitive, or, fitting with your particular characterization of rationality, to &amp;quot;fulfill their desire for happiness&amp;quot;. But your characterization of rationality has its own problems too.&lt;/p&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;Admittedly, the classical economic definition of rationality is not meant to completely match what laypeople would think of when they think of rationality. It is meant as part of a framework for thinking about economic issues in an organized way, and an introductory textbook is only going to try to give you a broad picture for how to think about the basic concepts, rather than bore you with the fine epistemological details of what it means for a good citizen to be &amp;quot;rational&amp;quot;.&lt;/p&gt;&#xA;&lt;p&gt;But even just using common sense, you can argue that honoring sunk costs is still &amp;quot;irrational&amp;quot;.&lt;/p&gt;&#xA;&lt;p&gt;A sunk cost is a cost that is &lt;em&gt;unrecoverable, or not worth recovering due to opportunity costs.&lt;/em&gt; So when choosing to put extra money into a wide variety of other choices you have to pursue, you should not even be thinking about the money you've already put it. That's just logical sense. You might say, what if I put just a little more money into something and then I get a reward from it? Then the cost is not unrecoverable here, but is it worth recovering? For example, what if I was training a worker and they don't seem to be learning. Should I continue putting money into this worker if they might eventually learn? The answer here is that it would depend on the opportunity cost of just finding another worker who maybe will learn faster with less training and money. But people will get hung up on the money that is already put into the existing worker that you've already hired, and that is what characterizes the sunk cost fallacy. It is the failure to adequately consider the opportunity costs of alternative options that contextualizes how economists think about the sunk cost fallacy.&lt;/p&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;Maybe all this exposition is not very compelling or tedious to follow. In that case, let's just shoot straight here. What &lt;em&gt;is&lt;/em&gt; the rigorous definition of rationality that contextualizes how economists talk about rationality?&lt;/p&gt;&#xA;&lt;p&gt;From &lt;strong&gt;Microeconomic Theory&lt;/strong&gt; by &lt;em&gt;Mas-Colell, Whinston, and Greene&lt;/em&gt;, we have&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;&lt;strong&gt;Definition 1.B.1:&lt;/strong&gt; The preference relation &lt;span class=&quot;math-container&quot;&gt;$\succeq$&lt;/span&gt; is rational if it possesses the following two properties:&lt;/p&gt;&#xA;&lt;p&gt;(i) &lt;em&gt;Completeness:&lt;/em&gt; For all &lt;span class=&quot;math-container&quot;&gt;$x, y \in X$&lt;/span&gt;, we have that &lt;span class=&quot;math-container&quot;&gt;$x \succeq y$&lt;/span&gt; or &lt;span class=&quot;math-container&quot;&gt;$y \succeq x$&lt;/span&gt; (or both).&lt;/p&gt;&#xA;&lt;p&gt;(ii) &lt;em&gt;Transitivity:&lt;/em&gt; For all &lt;span class=&quot;math-container&quot;&gt;$x, y, z \in X$&lt;/span&gt;, if &lt;span class=&quot;math-container&quot;&gt;$x \succeq y$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$y \succeq z$&lt;/span&gt;, then &lt;span class=&quot;math-container&quot;&gt;$x \succeq z$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;In laymen's terms, completeness just means you have an opinion on all your options, whether one is better, worse, or indifferent to any other option. Transitivity just means if you like one thing better than a second thing, and the second thing better than a third thing, you have to like your first thing better than the third thing.&lt;/p&gt;&#xA;&lt;p&gt;Completeness is usually where this definition runs into some raised eyebrows. Very few people will consider every option with every other option. Some people may completely ignore certain options and not think about them. That is something for behavioral economics to look at. But this definition of rationality does not leave room for inadequate consideration of opportunity costs when thinking about sunk costs, which is the main concern when we talk about sunk costs.&lt;/p&gt;&#xA;&lt;p&gt;If you do get some sort of intrinsic value from &amp;quot;honoring&amp;quot; a sunk cost, some sort of abstract happy feeling or whatever, then it is not necessarily irrational in the economic sense. But most likely if someone goes off of this feeling, maybe they are not considering every option, and that would make it irrational. With my example of the money burner at the beginning, you have to have some sort of realistic expectations of what you can do with your resources, the opportunity cost or pursuing some other course of action, and it has to have some sort of careful thought put into it. &lt;strong&gt;You can pursue whatever you like based on if it makes you happy, and you can argue that that is a more compelling version of what rationality is to real people. But economists use the sunk cost fallacy to show that going for what makes us happy in practice (we commit the sunk cost fallacy all the time) is not necessarily what makes you better off.&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="4251" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2018-12-28T19:52:30.450" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26179" PostTypeId="1" AcceptedAnswerId="26185" CreationDate="2018-12-28T21:05:33.863" Score="1" ViewCount="23" Body="&lt;p&gt;I am reading some lecture notes on asset pricing, and they use the term &quot;ex-dividend&quot; price of an asset.&#xA;I googled and found that ex-dividend means the time between announcement and payment of a dividend.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, what does it mean by ex-dividend price? What does the word 'ex-&quot; refer to?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank for your help in advance!&lt;/p&gt;&#xA;" OwnerUserId="20566" LastActivityDate="2018-12-29T09:00:40.323" Title="Ex-dividend (Asset Pricing)" Tags="&lt;asset-pricing&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26182" PostTypeId="1" AcceptedAnswerId="26191" CreationDate="2018-12-29T00:46:10.043" Score="3" ViewCount="132" Body="&lt;p&gt;I was reading through Jan Brueckner's &amp;quot;Lectures on Urban Economics&amp;quot; (2011), which is a &amp;quot;rigorous, but non-technical&amp;quot; explanation of various topics in urban economics. It was supposed to be light holiday reading, but my goofy existence wondered about how to do the math for a particular section. The consumer model at the start of chapter 2 is based off of his work in a specific chapter from the Handbook of Regional and Urban Economics. You can find the more detailed article &lt;a href=&quot;https://www.sciencedirect.com/science/article/pii/S1574008087800068&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;, but a &lt;a href=&quot;http://www.socsci.uci.edu/%7Ejkbrueck/course%20readings/handbook%20chapter.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;non-paywalled version here&lt;/a&gt; may be more useful to refer to. I will distinguish between referring to the simpler &amp;quot;lectures&amp;quot; and the &amp;quot;Muth-Mills article&amp;quot; that I have linked to.&lt;/p&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;The very simple urban model has everyone commute to a point in the center of the city and everyone has the same preferences. There is a cost of commuting and there are two goods to buy, dwelling size which is rented out, and some all encompassing consumer good.&lt;/p&gt;&#xA;&lt;p&gt;Mathematically, the problem is:&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\max_{\{c, q \}} \quad v(c, q)$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\text{s.t.} \quad c + pq = y - tx$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$c$&lt;/span&gt; is consumption (a numeraire good), &lt;span class=&quot;math-container&quot;&gt;$p$&lt;/span&gt; is the rental price per square foot, &lt;span class=&quot;math-container&quot;&gt;$q$&lt;/span&gt; is the square feet of dwelling space, &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; is the identical income everyone gets from working, &lt;span class=&quot;math-container&quot;&gt;$t$&lt;/span&gt; is the constant price of driving per mile, and &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; is the distance in miles from the city center. And of course &lt;span class=&quot;math-container&quot;&gt;$v$&lt;/span&gt; is the utility function.&lt;/p&gt;&#xA;&lt;p&gt;Since all consumers are identical in this model, equilibrium price is characterized by whether you get the same utility no matter where you choose to live. If you live in the suburbs (further from the city center), you pick a lot of dwelling space but less consumption, and your commute is longer. If you live closer to the city you pick a smaller dwelling space and more consumption, with a smaller commute time.&lt;/p&gt;&#xA;&lt;p&gt;The indifference curve he draws in the lectures implies convex preferences, so we will keep that in mind for characterizing &lt;span class=&quot;math-container&quot;&gt;$v$&lt;/span&gt;. His main conclusion in the lectures is that &lt;span class=&quot;math-container&quot;&gt;$p$&lt;/span&gt; falls as &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; increases, and &lt;span class=&quot;math-container&quot;&gt;$q$&lt;/span&gt; rises and &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; rises.&lt;/p&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;Intuitively, this all makes perfect sense to me, but although I can find &lt;span class=&quot;math-container&quot;&gt;$\frac{\partial p}{\partial x}$&lt;/span&gt;, I cannot find &lt;span class=&quot;math-container&quot;&gt;$\frac{\partial q}{\partial x}$&lt;/span&gt;, even following along with the Muth-Mills article, there is a total derivative that is giving me trouble.&lt;/p&gt;&#xA;&lt;p&gt;I found &lt;span class=&quot;math-container&quot;&gt;$\frac{\partial p}{\partial x}$&lt;/span&gt; by simply rearranging the budget constraint so that it read&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$p = \frac{y - tx - c}{q}$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;and the derivative is:&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\frac{\partial p}{\partial x} = - \frac{t}{q}$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;The same cannot be done for &lt;span class=&quot;math-container&quot;&gt;$\frac{\partial q}{\partial x}$&lt;/span&gt;, as the sign would not be correct, and I thought about why and figured it probably has to do something with the fact that &lt;span class=&quot;math-container&quot;&gt;$q$&lt;/span&gt; is chosen conditionally on &lt;span class=&quot;math-container&quot;&gt;$p$&lt;/span&gt;. It was here that I then turned to the Muth-Mills article.&lt;/p&gt;&#xA;&lt;p&gt;In it, the maximization substitutes for &lt;span class=&quot;math-container&quot;&gt;$c$&lt;/span&gt; by incorporating the budget constraint.&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\max_q \quad v(y - tx - pq, q)\tag{1}$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;The first order condition sets the marginal rate of substitution equal to the price ratio:&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\frac{v_2(y - tx - pq, q)}{v_1(y - tx - pq, q)} = p \tag{2}$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;And in equilibrium you have to reach the same utility no matter where you choose to live in the city. (So rather than fix price, we fix utility in this model.)&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$v(y - tx - pq, q) = u \tag{3}$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;The article then asks us to take the total derivative of &lt;span class=&quot;math-container&quot;&gt;$(3)$&lt;/span&gt; with respect to &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; and arrive at:&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$-v_1 \left( t + \frac{\partial p}{\partial x} q + p \frac{\partial q}{\partial x}\right) + v_2 \frac{\partial q}{\partial x} = 0 \tag{4}$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;And since &lt;span class=&quot;math-container&quot;&gt;$(2)$&lt;/span&gt; implies &lt;span class=&quot;math-container&quot;&gt;$v_2 = pv_1$&lt;/span&gt;, the article then plugs this into &lt;span class=&quot;math-container&quot;&gt;$(4)$&lt;/span&gt; to find the comparative static for &lt;span class=&quot;math-container&quot;&gt;$p$&lt;/span&gt; given a change in &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;:&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\frac{\partial p}{\partial x} = - \frac{t}{q}\tag{5}$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;Finally, the article reaches some form of the comparative static I am interested in:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;&lt;em&gt;&amp;quot;Note that since utility is constant, the increase in &lt;span class=&quot;math-container&quot;&gt;$q$&lt;/span&gt; corresponds exactly to the substitution effect of the housing price decrease. Formally, it follows that&lt;/em&gt;&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\frac{\partial q}{\partial x} = \eta\frac{\partial p}{\partial x} \tag{6}$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;&lt;em&gt;where &lt;span class=&quot;math-container&quot;&gt;$\eta &amp;lt; 0$&lt;/span&gt; is the slope of the appropriate income-compensated (constant-utility) demand curve.&amp;quot;&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;So my &lt;strong&gt;main question&lt;/strong&gt; really is just how do you fill in the steps to calculate the total derivative of &lt;span class=&quot;math-container&quot;&gt;$(3)$&lt;/span&gt;? I think I will feel &lt;em&gt;really&lt;/em&gt; quite silly when I see the answer, but I cannot seem to work out where the dependencies are in trying to setup the chain rule here.&lt;/p&gt;&#xA;&lt;p&gt;The closest thing I have gotten to a coherent attempt was to express the total derivative as:&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\frac{\partial v(y - tx - pq, q)}{\partial x} = \frac{\partial v}{\partial (y - tx - pq)} \cdot \frac{\partial (y - tx - pq)}{\partial x} + \frac{\partial v}{\partial q} \cdot \frac{\partial q}{\partial x}$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;but I am not sure if this is correct or how to proceed (how to further break up the first set of partials into appropriate parts for the chain rule).&lt;/p&gt;&#xA;&lt;p&gt;&lt;strong&gt;Additionally&lt;/strong&gt;, I am wondering how to arrive at &lt;span class=&quot;math-container&quot;&gt;$(6)$&lt;/span&gt;, which I figure is some sort of Slutsky's decomposition, but I have not touched this part of the model yet. I will give a bonus for this harder section because typing up a bunch of matrices does not seem like much fun. Hopefully someone out there over the holidays is around to help out, and thanks in advance.&lt;/p&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;&lt;strong&gt;References:&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;p&gt;Brueckner, Jan K. &amp;quot;The structure of urban equilibria: A unified treatment of the muth-mills model.&amp;quot; In Handbook of Regional and Urban Economics, vol. 2, pp. 821-845. Elsevier, 1987.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2018-12-29T16:39:45.203" Title="Brueckner's basic urban model, comparative statics" Tags="&lt;comparative-statics&gt;&lt;urban-economics&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="26183" PostTypeId="2" ParentId="14760" CreationDate="2018-12-29T01:19:26.150" Score="0" Body="&lt;p&gt;These are excellent questions. Automation and robotics have been recently presented in the news as this new phenomenon which is it a bit crazy making for me as someone who has been studying this since the 90s because they present like it just started happening.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Automation is eating jobs and has been doing so since at least the 90s, it did not just start at the turn of the 21st Century. It may have even started in the late 80s.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Automation also eats profits, since automation turns labor, services and goods into a commodity. When something is commoditized the price drops because the goods and services are interchangeable and can be produced almost anywhere.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Tablets and iPads can be assembled anywhere and the software can be coded anywhere.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Big profits flow from scarcity, that is, when demand exceeds supply. If supply exceeds demand, prices fall and profits vanish.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The cost of automation and robotics is falling dramatically. This lowers the cost of entry for smaller, hungrier, more nimble competitors and lowers the cost of increasing production.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So not only can robots assemble those parts for the tablets and iPads, but the profit margins are razor-thin because they're commodities and so yes, software is already free, but the economy is not this single monolith, its a complex system and each industry has its own politics. For example, in my opinion, there already exists a car for every woman, man, child, baby and two dogs, but the price of automobiles continues to go up, that's the internal political nonsense that goes on in the car industry, but that's another topic for another day.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Automation increases supply and lowers costs, so not only is it deadly to the jobs of yesterday its deadly to profits as well.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So although you are thinking about our economy in terms of &quot;lazy individuals&quot; who refuse to adapt or die. As a student of economics and businessperson I am looking at the big picture, but not necessarily disagreeing with you.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Aside from some lazy individuals, you didn't look at the industries themselves. The automobile is fighting tooth and nail to not go the way of the music industry whose profits were cut it half by Napster and that technology.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So they lobby their state officials to refuse to allow the direct sales of Tesla in a futile effort and other dumb stuff they do.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then there is Ebay, Wal-Mart, YouTube and many others whom have disrupted the industry of yesterday in their own way.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The profits that are going to be bypassed by a bicycle tire manufacturer because you and I used Wal-Mart or Ebay to purchase that tire and YouTube to learn how to fix our flat is an order of magnitude higher.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I myself bypassed the politics of begging a book publisher to look at my work to pubishing my own books on Amazon.com. Sure I don't have the huge marketing resources, but if the topic I cover in them ever go viral, not a single dime will go these publishing houses and I own the rights to revise and republish as I wish.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Unlike a human worker, a robot does not require health and dental insurance, workers compensation, 401(k)s, and all the other costs of labor overhead.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As socio-economist Immanuel Wallerstein has observed, the cost of labor has been rising globally as a result of structural forces that are immune to productivity gains, recessions, tax credits and other credits:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;The 'deruralization' of the world is on a fast upward curve.&lt;/li&gt;&#xA;&lt;li&gt;Externalized costs (i.e., in treating raw materials to make them ready for production, it creates toxic waste, cleaning up that environmental waste becomes a part of the productivity costs.)&lt;/li&gt;&#xA;&lt;li&gt;Taxation to pay for social services which also becomes a part of productivity costs (Wallerstein, 2000, pp. 261-263).&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;These trends are especially visible in China, which has seen wages soar, costs of pollution control soar and demand for state services soar.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So where does this leave us regardless of whether we adapt to this new economy or not?&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Technology no longer creates more jobs than it destroys, so ignore what your politician is telling you, they don't know.&lt;/li&gt;&#xA;&lt;li&gt;Profits decline as automation commoditizes labor, goods and services globally.&lt;/li&gt;&#xA;&lt;li&gt;Digital and robotic tools are falling in price while the cost of human labor inexorably rises.&lt;/li&gt;&#xA;&lt;li&gt;As costs of automation plummet, barriers to entry fall and competition arises, pushing everyone into automation if they wish to survive (and lobbying their politicians to fix the game like the automobile and education-cartel industry).&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;As profits fall and jobs are eliminated, the tax base narrows and the state collects less tax revenue. Even the state must automate to reduce costs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Put all these together and the conclusion is inescapable: the conventional narrative solutions are wishful thinking. Whether its the clamoring for putting the breaks on automation or demanding the state create more jobs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sure they have the Fed which can lower the interest rate to near zero to borrow money to create these jobs, but creating tens of millions of jobs on borrowed money? That's unsustainable. How will we pay the money back if certain jobs are gone forever? And no they will not be replaced with other equivalents, just more wishful thinking there. So in that sense, yes, adapt or die, figure out what the economy finds as value and do that I guess, but don't forget there is also your local community economy and however you can create value there, the advantage is, while it may be lower income or profit, but your skills will not be tradeable (i.e. bakery, barber shop, bike shop or whatever), meaning someone in India will not be able to take your place in that very local venture.&lt;/p&gt;&#xA;" OwnerUserId="20035" LastActivityDate="2018-12-29T01:19:26.150" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26185" PostTypeId="2" ParentId="26179" CreationDate="2018-12-29T09:00:40.323" Score="2" Body="&lt;p&gt;When a firm announces a dividend, it pledges to pay a given amount at a given date (&lt;span class=&quot;math-container&quot;&gt;$t_p$&lt;/span&gt;) to its stock holders. As traded shares may change hands frequently, the firm defines who has the right to claim the dividend as the shares owners at a given date (&lt;span class=&quot;math-container&quot;&gt;$t_e$&lt;/span&gt;), that usually is some date between the announcement date and the payment date. During the &lt;span class=&quot;math-container&quot;&gt;$t_e$&lt;/span&gt; to &lt;span class=&quot;math-container&quot;&gt;$t_p$&lt;/span&gt; period, the stock can trade, but its buyers won't have the right to receive the dividend, even though it hasn't been paid yet. This is why we say ex-dividend, because the share has no longer attached the right to claim the next dividend.&lt;/p&gt;&#xA;" OwnerUserId="20281" LastActivityDate="2018-12-29T09:00:40.323" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26186" PostTypeId="1" AcceptedAnswerId="26195" CreationDate="2018-12-29T10:44:51.693" Score="1" ViewCount="19" Body="&lt;p&gt;I have the following regression equation (panel data):&#xA;&lt;span class=&quot;math-container&quot;&gt;$Y = f(X_1, X_2, X_3, X_4)$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;After obtaining CIPS and CADF statistics, &lt;span class=&quot;math-container&quot;&gt;$X_1$&lt;/span&gt; results to be stationary for both intercept and intercept + trend, whereas &lt;span class=&quot;math-container&quot;&gt;$X_2$&lt;/span&gt; is stationary only for intercept + trend. &lt;span class=&quot;math-container&quot;&gt;$X_3$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$X_4$&lt;/span&gt; are contrariwise non stationary in neither case.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Because of these results, I was wondering whether running a co-integration test makes sense (since if I'm not wrong, all the variables should be &lt;span class=&quot;math-container&quot;&gt;$I(1)$&lt;/span&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, I was wondering whether to proceed with using a first difference for &lt;span class=&quot;math-container&quot;&gt;$X_2$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$X_3$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$X_4$&lt;/span&gt;, or only for &lt;span class=&quot;math-container&quot;&gt;$X_3$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$X_4$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you very much.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Kodi&lt;/p&gt;&#xA;" OwnerUserId="20612" LastEditorUserId="14419" LastEditDate="2018-12-30T05:25:14.483" LastActivityDate="2018-12-30T05:25:14.483" Title="When only half of the independent variables are non stationary, does it make sense to run a cointegration test?" Tags="&lt;co-integration&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26187" PostTypeId="2" ParentId="26158" CreationDate="2018-12-29T12:10:25.150" Score="0" Body="&lt;p&gt;There must be an error in your proof.  Where does your proof come from?&#xA;The part &quot;for the above to true it is clear that the ratio must be independent of &lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt;,&quot; cannot be True.  Your ratio must be independent of &lt;span class=&quot;math-container&quot;&gt;$q$&lt;/span&gt; but not of &lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt;.&#xA;Take for instance the Cobb-Douglas case (which corresponds to a homothetic production function) for a counter example. See Diewert or Chambers for a proof of your result:&lt;br&gt;&#xA;Chambers, Robert G., 1988, Applied Production Analysis, Cambridge University Press.&lt;br&gt;&#xA;Diewert, E., 1982, &quot;Duality approaches to microeconomic theory&quot;, in Handbook of Mathematical Economics, Volume 2.&lt;br&gt;&#xA;In the Cobb Douglas case, the production function &lt;span class=&quot;math-container&quot;&gt;$$q=x_1^\alpha x_2^\beta$$&lt;/span&gt; yields the first order conditions &lt;span class=&quot;math-container&quot;&gt;$$\frac{w_1}{\lambda}=\alpha\frac{q}{x_1}$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\frac{w_2}{\lambda}=\beta\frac{q}{x_2},$$&lt;/span&gt; so that optimal input demand satisfy (in your notations) &lt;span class=&quot;math-container&quot;&gt;$$\frac{x_1}{x_2}=\frac{\alpha}{\beta}\frac{w_2}{w_1} \equiv \frac{c_1(w)}{c_2(w)},$$&lt;/span&gt; which is independent of &lt;span class=&quot;math-container&quot;&gt;$q$&lt;/span&gt; and implies (show it) that &lt;span class=&quot;math-container&quot;&gt;$$x_1=H^1(w,q)=c_1(w)b(q),$$&lt;/span&gt; &lt;span class=&quot;math-container&quot;&gt;$$x_2=H^2(w,q)=c_2(w)b(q).$$&lt;/span&gt; It follows that the cost function &lt;span class=&quot;math-container&quot;&gt;$$c(w,q)=w_1H^1(w,q)+w_2H^2(w,q)=a(w)b(q),$$&lt;/span&gt; with &lt;span class=&quot;math-container&quot;&gt;$a(w)=...$&lt;/span&gt;. A similar derivation holds for the more general homothetic case, because by definition of homotheticity, the production technology can then be written as &lt;span class=&quot;math-container&quot;&gt;$$y=f(x)=g(h(x))$$&lt;/span&gt; where h is homogeneous of degree one...&lt;/p&gt;&#xA;" OwnerUserId="20576" LastEditorUserId="20576" LastEditDate="2018-12-30T15:40:17.550" LastActivityDate="2018-12-30T15:40:17.550" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="26191" PostTypeId="2" ParentId="26182" CreationDate="2018-12-29T16:12:12.423" Score="3" Body="&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\require{cancel}$&lt;/span&gt;&#xA;Start with the fact that &lt;span class=&quot;math-container&quot;&gt;$v = v(c, q)$&lt;/span&gt; and use the &lt;a href=&quot;https://en.wikipedia.org/wiki/Triple_product_rule&quot; rel=&quot;nofollow noreferrer&quot;&gt;triple product rule&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\left(\frac{\partial v}{\partial c}\right)\left(\frac{\partial c}{\partial q}\right)\left(\frac{\partial q}{\partial v}\right) = -1\tag{1}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now use &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\color{orange}{c = y - tx - pq} ~~\Rightarrow~~~ \frac{\partial c}{\partial q} = -p \tag{2}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;to conclude&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\frac{\displaystyle{\frac{\partial v}{\partial q}}}{\displaystyle{\frac{\partial v}{\partial c}}} = -\frac{\partial c}{\partial p} = +p \tag{3}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now call&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{eqnarray}&#xA;\color{blue}{v_1} &amp;amp;=&amp;amp; \color{blue}{\frac{\partial v}{\partial c}} \\&#xA;\color{red}{v_2} &amp;amp;=&amp;amp; \color{red}{\frac{\partial v}{\partial q}} \tag{4}&#xA;\end{eqnarray}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And you reach to the conclusion&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ \bbox[5px,border:2px solid blue]&#xA;{&#xA;\frac{v_2(c, q)}{v_1(c, q)} = p&#xA;} \tag{5}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;now that this is done, we just need to use the chain rule&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{eqnarray}&#xA;\frac{\partial v}{\partial x} &amp;amp;=&amp;amp; \color{blue}{\frac{\partial v}{\partial c}} \frac{\partial c}{\partial x} + \color{red}{\frac{\partial v}{\partial q}} \frac{\partial q}{\partial x} \\&amp;amp;=&amp;amp; &#xA;\color{blue}{v_1}\frac{\partial}{\partial x}\left(\color{orange}{y - tx - pq} \right) + \color{red}{v_2} \frac{\partial q}{\partial x} \\&#xA;&amp;amp;=&amp;amp; v_1\left(\cancelto{0}{\frac{\partial y}{\partial x}} - t\cancelto{1}{\frac{\partial x}{\partial x}} - p\frac{\partial q}{\partial x}  - q \frac{\partial p}{\partial x}\right) + v_2 \frac{\partial q}{\partial x} \\&#xA;&amp;amp;=&amp;amp; -v_1 \left(t + p \frac{\partial q}{\partial x} + q \frac{\partial p}{\partial x}\right) + v_2 \frac{\partial q}{\partial x}&#xA;\end{eqnarray}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since you fix &lt;span class=&quot;math-container&quot;&gt;$u$&lt;/span&gt; then &lt;span class=&quot;math-container&quot;&gt;$v = u = {\rm const}$&lt;/span&gt;, so that the l.h.s of this last expression is 0 and &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ \bbox[5px,border:2px solid blue]&#xA;{&#xA;-v_1 \left(t + p \frac{\partial q}{\partial x} + q \frac{\partial p}{\partial x}\right) + v_2 \frac{\partial q}{\partial x} = 0&#xA;} \tag{6}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="14419" LastEditorUserId="14419" LastEditDate="2018-12-29T16:39:45.203" LastActivityDate="2018-12-29T16:39:45.203" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="26194" PostTypeId="2" ParentId="25775" CreationDate="2018-12-29T19:33:09.803" Score="1" Body="&lt;p&gt;In microeconomics people are rational if they act to maximize their utility function.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What goes into the utility function? Anything that is relevant when they choose, which is of course up to debate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Often economists are content to accept a first order approximation of what matters and should therefore be included in the utility function, namely monetary compensation alone.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This might be a reasonable approximation of behavior in certain markets or situation. It is fair to assume that if sunk cost or previous debts are large enough than this  would trump most considerations (would you not declare bankruptcy in almost any but the most peculiar circumstances if you owed several million dollars?). It might not be fair if costs themselves are small or there are  future reputational costs (you'd probably enjoy more your friendship over 10 dollars). &lt;/p&gt;&#xA;" OwnerUserId="6023" LastActivityDate="2018-12-29T19:33:09.803" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26195" PostTypeId="2" ParentId="26186" CreationDate="2018-12-29T23:26:23.917" Score="0" Body="&lt;p&gt;For cointegration analysis all variables should be of the same order of integration. However this being said it depends on how much you trust your stationarity tests. Most unit root tests are riddled with low power problems especially in small samples (see some textbook on econometrics like Stock &amp;amp; Watson introductory econometrics for more details and sources).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Moreover, if the broader literature suggest that all the variables are let’s say I(1) I would even disregard the unit root tests results as they may be just false positives/negatives.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, if you want you can use the Pesaran bounds approach to cointegration which allows for both stationary and nonstationary variables being estimated within one model, although cointegration can only happen between stationary variables. This approach is usually not in textbooks yet so you might wanna check the original paper “&lt;a href=&quot;http://Bounds%20testing%20approaches%20to%20the%20analysis%20of%20level%20relationships&quot; rel=&quot;nofollow noreferrer&quot;&gt;Bounds testing approaches to the analysis of level relationships” &lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="15517" LastActivityDate="2018-12-29T23:26:23.917" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26198" PostTypeId="2" ParentId="26175" CreationDate="2018-12-30T05:52:44.063" Score="1" Body="&lt;p&gt;The correct answer is that it does not. It goes to zero as tax rate increases to infinity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reason for that is that the rent derived from land (assuming away any necessary land maintenance) can be thought of as a windfall gain. As a result all incidence of burden from such tax must fall on the holder of the land. Already If the tax is equal or above 100% the whole rent is confiscated and hence the holder of land would be willing to sell it away for nothing, although in the model you shown 100% tax rate would not reduce the property value to zero but to:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$y=\frac{ra}{r+1}=\frac{0.01}{1.01}\approx0.0099&amp;gt;0$$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="15517" LastActivityDate="2018-12-30T05:52:44.063" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26202" PostTypeId="2" ParentId="9678" CreationDate="2018-12-30T15:00:05.267" Score="2" Body="&lt;p&gt;A significant difference is who ultimately pays the tax, i.e. its &lt;a href=&quot;https://en.wikipedia.org/wiki/Tax_incidence&quot; rel=&quot;nofollow noreferrer&quot;&gt;incidence&lt;/a&gt;. This is more straightforward in the case of VAT, which is ideally(*) and &lt;a href=&quot;https://www.imf.org/external/pubs/ft/wp/2015/wp15214.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;usually(**)&lt;/a&gt; and paid by consumers... which also means the VAT is a &lt;a href=&quot;https://en.wikipedia.org/wiki/Regressive_tax&quot; rel=&quot;nofollow noreferrer&quot;&gt;regressive tax&lt;/a&gt;; some recent historical analyses found that (the introduction of) &lt;a href=&quot;https://www.tandfonline.com/doi/full/10.1080/00220388.2017.1400015&quot; rel=&quot;nofollow noreferrer&quot;&gt;VAT tends to increase some measures of inequality&lt;/a&gt;, but not others. Don't be fooled by the fact that &lt;a href=&quot;https://krugman.blogs.nytimes.com/2010/11/17/why-im-soft-on-sales-taxes/&quot; rel=&quot;nofollow noreferrer&quot;&gt;(developed) countries with high VAT usually have good social nets&lt;/a&gt;. The two issues don't necessarily go hand in hand as the more obscure cases of &lt;a href=&quot;http://www.ipedr.com/vol11/37-W00015.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Bangladesh&lt;/a&gt; or &lt;a href=&quot;http://pubdocs.worldbank.org/en/632981520461235859/EU-IG-Report-Fiscal-Redistribution.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Croatia&lt;/a&gt; illustrate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(*) &quot;Consumption is the preferred tax base&quot; cf. James, &lt;em&gt;The Rise of the Value-Added Tax&lt;/em&gt;, CUP 2015, p. 20&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(**): There is something to be said about VAT cuts, which are often &lt;a href=&quot;https://www.nber.org/papers/w23849&quot; rel=&quot;nofollow noreferrer&quot;&gt;not passed&lt;/a&gt; on to consumers much.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for VAT being a &quot;good&quot; tax, that depends on whether you agree with its premises and effects. One that I didn't (yet) mention, but is also central to VAT design (also p.20 in James' book) is that &quot;Efficiency trumps in the efficiency-equity trade-off when designing taxes&quot;. This actually goes hand-in-hand with the target tax base because &quot;Consumption is a less mobile base and therefore a more efficient and reliable base than income, especially highly mobile capital income&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The incidences of the corporate taxes is a &lt;a href=&quot;https://ideas.repec.org/p/cbo/wpaper/41511.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;more difficult topic&lt;/a&gt;. It's generally accepted that in a non-closed economy &lt;a href=&quot;https://voxeu.org/article/incidence-corporate-taxation-and-implications-tax-progressivity&quot; rel=&quot;nofollow noreferrer&quot;&gt;capital and labor share the corporate tax&lt;/a&gt;. The relative weights seem to depend on the relative mobility of labor vs capital. But clearly it has a different incidence than VAT.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Generally speaking, people who label consumption-based taxes good and (corporate or personal) income taxes bad have taken a fairly extreme position in the &lt;a href=&quot;https://www.nber.org/papers/w12307&quot; rel=&quot;nofollow noreferrer&quot;&gt;income-vs-consumption taxes debate&lt;/a&gt;. As for the mostly &lt;a href=&quot;https://repository.law.umich.edu/cgi/viewcontent.cgi?article=1039&amp;amp;context=articles&quot; rel=&quot;nofollow noreferrer&quot;&gt;theoretical debate&lt;/a&gt; on the either-or matter:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;a primary goal of the income tax historically was seen as redistributing wealth from the rich to everyone else. This explains why&#xA;  it was first adopted in the United States, and it also explains why the&#xA;  income tax is persistently maintained today in developing countries&#xA;  that could satisfy their entire revenue needs by the VAT. Even&#xA;  though the personal income tax in these countries has a spotty record,&#xA;  they insist on maintaining it because of its symbolic potential in&#xA;  achieving redistribution [...]&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;From a welfarist perspective, it then is argued, wealth can have&#xA;  value only when it is consumed--otherwise, as Daniel Shaviro has&#xA;  stated (and as Bankman and Weisbach repeat), it is merely the same&#xA;  as Monopoly money, and of no real value. Once this premise is established, it becomes easy to &quot;prove&quot; mathematically that a consumption tax is just as good at redistribution as an income tax (although this is only true for those types of consumption tax that are imposed on all consumption; prepaid consumption taxes like the flat tax do not reach economic rents, and therefore do not tax all consumption)&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Opponents of the consumption tax sometimes have argued (following the lead of Henry Simons) that unconsumed wealth is an independent source of welfare to the individuals who possess it because it&#xA;  confers security, political power, or social standing. Bankman and&#xA;  Weisbach argue that these types of intangible benefits also flow ultimately from consumption value and are reduced by taxing consumption. I am not persuaded, since the super-rich will never consume&#xA;  most of their wealth, so it is hard to see what motivates them to accumulate it if the only value of wealth is in consumption. This debate&#xA;  within the welfarist tradition will doubtless go on&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="6210" LastEditorUserId="6210" LastEditDate="2018-12-30T17:50:49.027" LastActivityDate="2018-12-30T17:50:49.027" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26203" PostTypeId="1" CreationDate="2018-12-30T18:03:12.093" Score="1" ViewCount="75" Body="&lt;p&gt;I want to convert GBP in 1968 to USD in 2018, in order to &quot;translate&quot; an amount paid by an individual in Britain fifty years ago. My intention is that an American reader today will be able to better understand the value of the money if it is given in inflation-adjusted USD.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In 1968, £1 exchanged to \$2.38. \$1 in 1968 adjusts to \$7.22 in 2018. £1 in 1968 adjusts to £17.02 in 2018. Finally, £1 exchanges to \$1.34 in 2018.&lt;sup&gt;[1]&lt;/sup&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we do the exchange first, then £1 (1968) is equivalent to \$17.18 (2018). If we adjust for inflation first, then £1 (1968) is equivalent to \$22.81 (2018). Which is the correct way to do this? Why?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Addendum:&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An &lt;a href=&quot;https://economics.stackexchange.com/a/15087&quot;&gt;answer to a similar question&lt;/a&gt; suggests that the exchange rate, in some form, should be commutative with inflation adjustment:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Also, it does not matter which transformation you do first, as its purely multiplicative.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I am not sure whether the author is referring to calculations using the formula that he defines as the &quot;real exchange rate&quot; as &quot;purely multiplicative&quot;, or whether he/she meant that the exchange rate and inflation are ideally always going to be commutative (and therefore this case deviates from the ideal by a degree). The answer does not go into very much detail and it is beyond my understanding of economics to determine what the &quot;respective price level&quot; between Britain and the US is in 1968 or 2018.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;sup&gt;&lt;sup&gt;[1]&lt;/sup&gt;&#xA;I am getting my inflation data from &lt;a href=&quot;https://www.officialdata.org&quot; rel=&quot;nofollow noreferrer&quot;&gt;officialdata.org&lt;/a&gt;. While I have found on other websites slightly different conversion factors for inflation since 1968 in both currencies, they are only a few cents different from the figures I used here. The nominal exchange rate is, by contrast, an historical fact.&lt;/sup&gt;&lt;/p&gt;&#xA;" OwnerUserId="20625" LastEditorUserId="20625" LastEditDate="2018-12-31T06:19:48.200" LastActivityDate="2019-01-04T02:31:18.637" Title="How to convert an historic value denoted in foreign currency to a modern value in local currency?" Tags="&lt;inflation&gt;&lt;exchange-rates&gt;&lt;history&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26204" PostTypeId="2" ParentId="18998" CreationDate="2018-12-30T18:26:25.400" Score="0" Body="&lt;p&gt;The Cobb-Douglas production function is so popular, only because it is one of the very few functions for which you can compute explicitly input demand (and output supply) functions. The Cobb-Douglas production function is usually used at the bachelor level (lectures, exams and exercises) because we can solve the system of first order conditions. However, this functional form is very restrictive, and its validity is empirically rejected. So that at master levels, we restate microeconomic theory using unrestricted forms for the production function (see e.g. the Mas Colell et al. textbook), and use either the implicite function theorem or duality theory for deriving comparative static results.&lt;/p&gt;&#xA;" OwnerUserId="20576" LastActivityDate="2018-12-30T18:26:25.400" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26207" PostTypeId="2" ParentId="26203" CreationDate="2018-12-31T04:10:49.080" Score="1" Body="&lt;p&gt;For what purpose?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Money over time acts as inflation rate, wage bundle, production good bundle, %gdp, %gdp/capita. Each represents a different “meaning” of money over time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The US and UK economies have different consumption bundles, wage structures, skill structures, industrial structures, government policy, market agents and social meanings. 1968UK and 2018UK also vary and 1968UK and 2018UK vary in these domains. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your question is unanswerable without the commodity or expense, the volume or market (wholesale, retail, government) and the purpose.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;See measuringworth.com for essays. &lt;/p&gt;&#xA;" OwnerUserId="19898" LastActivityDate="2018-12-31T04:10:49.080" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26220" PostTypeId="1" CreationDate="2019-01-01T08:34:02.487" Score="1" ViewCount="69" Body="&lt;p&gt;From 2015 to 2018 the ECB increased the money supply by around 20% (around 6% y/y), with a GDP increase rate under 1%. Yet the inflation rate remained under 2%. A back-of-the-envelope calculation would expect a much larger inflation rate (around 5% or more). What happened?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;UPDATE: here is my calculation: using a quantity of money model: &lt;span class=&quot;math-container&quot;&gt;$Y P = v M$&lt;/span&gt; &#xA;where &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt; is the GDP, &lt;span class=&quot;math-container&quot;&gt;$P$&lt;/span&gt; is the price level, &lt;span class=&quot;math-container&quot;&gt;$v$&lt;/span&gt; is the money velocity and &lt;span class=&quot;math-container&quot;&gt;$M$&lt;/span&gt; is the money supply, then the inflation (rate of variation of &lt;span class=&quot;math-container&quot;&gt;$P$&lt;/span&gt;) is the rate of variation of &lt;span class=&quot;math-container&quot;&gt;$M$&lt;/span&gt; less the variation of &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt;, that is about 6% - 1% = 5%&lt;/p&gt;&#xA;" OwnerUserId="20643" LastEditorUserId="20643" LastEditDate="2019-01-02T19:59:56.660" LastActivityDate="2019-02-11T23:02:40.540" Title="Why did it take so much QE by the ECB to raise the Eurozone inflation to 2%?" Tags="&lt;macroeconomics&gt;&lt;inflation&gt;&lt;money-supply&gt;&lt;euro-area&gt;" AnswerCount="2" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="26221" PostTypeId="1" CreationDate="2019-01-01T08:34:59.937" Score="0" ViewCount="243" Body="&lt;p&gt;Consider estimation of the following population regression function: &#xA;&lt;span class=&quot;math-container&quot;&gt;$G{Y_{it}} = {\beta _0} + {\beta _1}IN{F_{it}} + {\beta _2}DE{M_i} + {\beta _3}POI{L_t} + {\varepsilon _{it}}$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where:&#xA;&lt;span class=&quot;math-container&quot;&gt;$GY_{it}$&lt;/span&gt; = percentage growth in real GDP per capita in country &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; in year &lt;span class=&quot;math-container&quot;&gt;$t$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$INF_{it}$&lt;/span&gt; = percentage rate of inflation in country &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; in year &lt;span class=&quot;math-container&quot;&gt;$t$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$DEM_i$&lt;/span&gt; = 1 if country &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; is a democracy, 0 otherwise&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$POIL_t$&lt;/span&gt; = a price index of crude oil on the world market. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you were to explore estimation with fixed effects both for countries and for years of observation. Which coefficients in the above model could be estimated?&#xA; &lt;strong&gt;&lt;em&gt;Suppose that INF and POIL are correlated over time, and INF is correlated with DEM&#xA;across countries. Do the omitted variables in the fixed effects estimate result in&#xA;inconsistent estimates? Why?&lt;/em&gt;&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My guess is that the estimates are biased and consistent but I haven't been able to figure out why.&lt;/p&gt;&#xA;" OwnerUserId="12847" LastEditorUserId="12847" LastEditDate="2019-01-01T15:45:34.930" LastActivityDate="2020-05-25T21:05:25.627" Title="Fixed Effects Estimation and Inconsistency" Tags="&lt;econometrics&gt;&lt;time-series&gt;&lt;paneldata&gt;&lt;fixed-effects&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26224" PostTypeId="2" ParentId="26170" CreationDate="2019-01-01T13:17:43.187" Score="1" Body="&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$MC/AC$&lt;/span&gt; is not a quantity, it is a function. More precisely it would be written as &lt;span class=&quot;math-container&quot;&gt;$MC(y)/AC(y)$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is true that in a competitive setting in the long-run equilibrium &lt;span class=&quot;math-container&quot;&gt;$MC(y^*) = AC(y^*)$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, this can also be true in a monopoly setting. For example in the special case when &lt;span class=&quot;math-container&quot;&gt;$C(y) = c y$&lt;/span&gt; where &lt;span class=&quot;math-container&quot;&gt;$c \in \mathbb{R}_+$&lt;/span&gt;, you have&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\forall y: \ MC(y) = c = AC(y).&#xA;$$&lt;/span&gt;&#xA;Also the monopolist's profit-maximizing &lt;span class=&quot;math-container&quot;&gt;$y^*$&lt;/span&gt; is independent of any fixed costs &lt;span class=&quot;math-container&quot;&gt;$F$&lt;/span&gt;, but &lt;span class=&quot;math-container&quot;&gt;$AC(y^*)$&lt;/span&gt; is not. For example if the inverse demand function is &lt;span class=&quot;math-container&quot;&gt;$p(y) = 1 - y$&lt;/span&gt; and the cost function is &lt;span class=&quot;math-container&quot;&gt;$C(y) = y^2 + F$&lt;/span&gt; then&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{align*}&#xA;y^* &amp;amp; = \arg\max_y (1 - y)y - y^2 - F = 1/4 \\&#xA;MC(y^*) &amp;amp; = 2y^* = 1/2 \\&#xA;AC(y^*) &amp;amp; = y^* + F/y^* = 1/4 + 4F. &#xA;\end{align*}&lt;/span&gt;&#xA;In this case&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\begin{array}{lcl}&#xA;MC(y^*)/AC(y^*) &amp;lt; 1 &amp;amp; \mbox{ if } &amp;amp; F &amp;gt; 1/8 \\&#xA;MC(y^*)/AC(y^*) = 1 &amp;amp; \mbox{ if } &amp;amp; F = 1/8 \\&#xA;MC(y^*)/AC(y^*) &amp;gt; 1 &amp;amp; \mbox{ if } &amp;amp; F &amp;lt; 1/8.&#xA;\end{array}&#xA;$$&lt;/span&gt;&#xA;Yet there is exactly one firm in the market, so there is no competition in the classical sense. Nor is it the case that the firm is a natural monopoly at &lt;span class=&quot;math-container&quot;&gt;$F = 1/8$&lt;/span&gt;. This could mean that this is the 'efficient level of competition', but it is not the case, because when  &lt;span class=&quot;math-container&quot;&gt;$F = 1/8$&lt;/span&gt; we have&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{align*}&#xA;y^* &amp;amp; = 1/4 \\&#xA;p(y^*) &amp;amp; = 3/4 \\&#xA;AC(y^*) &amp;amp; = 1/2 \\&#xA;\text{Profits} &amp;amp; = 1/16 &amp;gt; 0. &#xA;\end{align*}&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2019-01-01T13:23:47.610" LastActivityDate="2019-01-01T13:23:47.610" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26225" PostTypeId="1" AcceptedAnswerId="26275" CreationDate="2019-01-01T13:22:27.370" Score="1" ViewCount="39" Body="&lt;p&gt;I have annual GDP, annual CPI, monthly exchange rate, and monthly export data. I would like to go for estimation being monthly stock return as the dependent variable. What are the methods to treat the annual figures in to monthly and/or the monthly in to annual? Please, I need your recommendations or books to read?&lt;/p&gt;&#xA;" OwnerUserId="20537" LastEditorUserId="20537" LastEditDate="2019-01-09T14:43:18.040" LastActivityDate="2019-01-09T14:43:18.040" Title="How to treat different frequencies of a time series data?" Tags="&lt;inflation&gt;&lt;gdp&gt;&lt;paneldata&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26226" PostTypeId="1" AcceptedAnswerId="26229" CreationDate="2019-01-01T14:35:11.830" Score="1" ViewCount="35" Body="&lt;p&gt;Let a monopolist have constant MC = c, with no fixed costs. If &lt;span class=&quot;math-container&quot;&gt;$p(c)$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$q(c)$&lt;/span&gt; are the profit maximising price and output as a function of MC and the market demand schedule is given by &lt;span class=&quot;math-container&quot;&gt;$q = D(p)$&lt;/span&gt;, how does the monopolists' profit vary with a small change in MC? This is what I have so far: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Maximised profits is given by:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;π = p(c)q(c) - cq(c)&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Differentiating w.r.t c:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\frac{dπ(c)}{dc} = q(c)[p'(c) - 1] + q'(c)[p(c) - c]&#xA;$$&lt;/span&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first term &lt;span class=&quot;math-container&quot;&gt;$q(c)[p'(c) - 1]$&lt;/span&gt; is clearly positive because &lt;span class=&quot;math-container&quot;&gt;$q(c) &amp;gt; 0$&lt;/span&gt; and for a monopolist &lt;span class=&quot;math-container&quot;&gt;$[p'(c) - 1]$&lt;/span&gt; is also positive because: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;p(c) = \frac{c}{1+\frac{1}{Ɛ}}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;p'(c) = \frac{1}{1+\frac{1}{Ɛ}}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and for there to be a profit maximising level of output, &lt;span class=&quot;math-container&quot;&gt;$Ɛ &amp;lt; -1$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;p'(c) =  \frac{1}{1+\frac{1}{Ɛ}}&amp;gt; 1&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the second term, &lt;span class=&quot;math-container&quot;&gt;$q'(c)$&lt;/span&gt; is clearly negative since higher MC leads to higher price and therefore lower quantity. &lt;span class=&quot;math-container&quot;&gt;$[p(c) - c] &amp;gt; 0$&lt;/span&gt; since for a monopolist &lt;span class=&quot;math-container&quot;&gt;$p &amp;gt; MC = c$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At this stage, the effect on profits of a rise in MC is ambiguous since both terms have opposing effects (one is positive, other is negative) and how profits change depends on the magnitude of the two terms. How can we quantify the effects or at least know the relative magnitudes of both terms to find how profits will change to an increase in MC?&lt;/p&gt;&#xA;" OwnerUserId="20326" LastActivityDate="2019-01-01T18:29:27.827" Title="Effect of changing MC on monopolists' maximised profits" Tags="&lt;monopoly&gt;&lt;profit-maximization&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26227" PostTypeId="1" AcceptedAnswerId="26244" CreationDate="2019-01-01T14:36:34.127" Score="1" ViewCount="150" Body="&lt;p&gt;The question I am given is the following: Consider an economy that has only three goods, mineral water, orange juice, and wine available in ﬁxed amounts, and three agents, A, B and C. So in this economy agents have no money initially. There are perfectly competitive markets for these three goods. The agents are not allowed to hold any negative amount of goods. Answer the following questions.&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;&lt;strong&gt;(a)&lt;/strong&gt; Suppose that A owns all the mineral water, B owns all the orange juice, and C owns all the wine. A only likes orange juice, B only likes wine, and C only likes mineral water. What are the equilibrium prices for mineral water, orange juice and wine and the equilibrium quantities consumed by each individual?&lt;/p&gt;&#xA;&lt;p&gt;&lt;strong&gt;(b)&lt;/strong&gt; Now suppose that A owns everything and A only likes drinking orange juice, both B and C own nothing, both B and C like drinking wine only. Discuss the equilibrium quantities consumed by each individual.&lt;/p&gt;&#xA;&lt;p&gt;&lt;strong&gt;(c)&lt;/strong&gt; Now suppose that A equally likes these three goods, B equally likes the mineral water and orange juice, but does not like wine at all, and C only likes wine. Without considering who owns mineral water, orange juice, or wine initially, what allocations are Pareto optimal?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;My question is about sub-questions &lt;strong&gt;(b)&lt;/strong&gt; and &lt;strong&gt;(c)&lt;/strong&gt;. For &lt;strong&gt;(b)&lt;/strong&gt;, if A owns everything and B and C own nothing, apparently there will be no trade. So what is the point for asking this question? For &lt;strong&gt;(c)&lt;/strong&gt;, if there is no utility function, how could I tell what is Pareto optimal? I really wish someone could teach me how to answer this kind of question and show me some examples. Thank you, and I wish you a happy new year.&lt;/p&gt;&#xA;" OwnerUserId="20645" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2019-01-02T19:15:27.597" Title="A question about the exchange economy" Tags="&lt;microeconomics&gt;&lt;competitive-equilibrium&gt;&lt;pure-exchange-economy&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26228" PostTypeId="1" AcceptedAnswerId="26234" CreationDate="2019-01-01T16:24:43.610" Score="0" ViewCount="136" Body="&lt;p&gt;Are the interest payments on government debt to be considered in the structural or the cyclical budget balance?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think, since it's independent on the state of the economy, then they should go to the structural budget balance, but I'm not sure.&lt;/p&gt;&#xA;" OwnerUserId="118" LastActivityDate="2019-01-02T00:52:47.593" Title="Is debt servicing in the structural or cyclical budget balance?" Tags="&lt;government-debt&gt;&lt;public-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26229" PostTypeId="2" ParentId="26226" CreationDate="2019-01-01T18:29:27.827" Score="1" Body="&lt;p&gt;If MC increases, profits need to go down. Let &lt;span class=&quot;math-container&quot;&gt;$\pi (q(c))$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\pi' (q(c'))$&lt;/span&gt; denote profits before and after the cost increase. Observe that producing &lt;span class=&quot;math-container&quot;&gt;$q(c')$&lt;/span&gt; was feasible when the marginal cost was low and, therefore, it must be the case that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ \pi (q(c))=[p(q(c))-c]q(c)\geq[p(q(c'))-c]q(c').$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In addition, we have that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$[p(q(c'))-c]q(c')&amp;gt;[p(q(c'))-c']q(c')=\pi' (q(c')),$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which gives us &lt;span class=&quot;math-container&quot;&gt;$\pi (q(c))&amp;gt;\pi' (q(c')).$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="20281" LastActivityDate="2019-01-01T18:29:27.827" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26231" PostTypeId="2" ParentId="26221" CreationDate="2019-01-01T19:18:36.787" Score="2" Body="&lt;ul&gt;&#xA;&lt;li&gt;You can't identify the effect of oil price when Year FE are applied, since the world oil price is perfectly correlated with year Fixed Effects. &lt;/li&gt;&#xA;&lt;li&gt;You can't identify the democracy indicator if you country does not change its value in your observed period. &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;For the other variables, it should be possible to obtain estimates. You should apply a fairly large sample to avoid collinearity issues (sth like 100 countries, 50 years). Further problems with your model are reverse causality, i.e. does growth cause inflation?&lt;/p&gt;&#xA;" OwnerUserId="17735" LastActivityDate="2019-01-01T19:18:36.787" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="26234" PostTypeId="2" ParentId="26228" CreationDate="2019-01-02T00:52:47.593" Score="0" Body="&lt;p&gt;The IMF methodology to determine the structural balance is given here: &lt;a href=&quot;https://www.imf.org/en/Publications/WP/Issues/2016/12/30/The-Structural-Budget-Balance-The-IMFs-Methodology-3162&quot; rel=&quot;nofollow noreferrer&quot;&gt;link to article.&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would summarise the methodology as: the sensitivity of budget components to the deviation of actual output from potential is estimated, as well as that deviation (the output gap). Taken together, that gives an estimate of the effect of the cycle on the budget balance.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is unclear what estimates for their sensitivity of interest payments is, but since bond payments are contractually fixed, they are invariant to the state of the cycle. Only newly-issued debt costs are affected by current interest rates. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The only way that interest payments would be considered non-structural is that a steady-state interest rate is calculated, and this deviation from actual is used to determine the effect of the cycle. Based on the IMF document, this was not done in their methodology (on page 7, the author states that the only expenditure adjusted was  unemployment benefits). Realistically speaking, such an adjustment would be complex (how much are 10-year bond yields affected by current conditions?), and the effect is small in most countries (since the bulk of outstanding debt has long duration in most countries).&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2019-01-02T00:52:47.593" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26235" PostTypeId="1" AcceptedAnswerId="26248" CreationDate="2019-01-02T01:19:17.280" Score="2" ViewCount="46" Body="&lt;p&gt;Banks are constantly transferring electronic dollars to each other. There must be an entity that tracks how many digital dollars each bank has.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does the Federal Reserve have &quot;accounts&quot; for banks? In general, do national banks have accounts for banks that use their currency?&lt;/p&gt;&#xA;" OwnerUserId="20651" LastEditorUserId="4988" LastEditDate="2019-01-04T11:13:29.213" LastActivityDate="2019-01-04T11:13:29.213" Title="Does the Federal Reserve have bank accounts for banks?" Tags="&lt;central-banking&gt;&lt;federal-reserve&gt;&lt;united-states&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26236" PostTypeId="2" ParentId="24258" CreationDate="2019-01-02T01:57:21.393" Score="1" Body="&lt;p&gt;&lt;strong&gt;Explaining the shape of the horizontal range&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the very short run, the AS curve is perfectly price-elastic (i.e. on the diagram, it is a horizontal line). It is also referred to as the Keynesian range. In this time period, firms respond to a rise in demand for their product without considering the effects of the rising demand, such as higher prices. This can be generalised for most firms, but not all. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can look at the example of a book shop or a food stall. It is highly unlikely for these business owners to revise their prices on daily basis based on their past sales records. Prices are more likely reviewed on a yearly basis, or at some longer time intervals. Regular price revision could complicate simple business accounting and may also dispel customers, especially if your price revisions keep increasing the price. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are some firms that are able to change prices based on instantaneous demand. These would include the ride-hailing service providers, such as Uber and Grab. Their computer algorithms are programmed to respond their market conditions of the moment and price according to the level of demand at that instant. Firms that are able to do this are more of an exception rather than the norm. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another way to view it would be from the resource employment viewpoint. In this time period, the real national output/income is much lower than the full employment level. Thus, there is an abundance of un-utilised or under-utilised resources. Should there be an increase in aggregate demand, the spare capacity will allow producers to increase output production easily without incurring high costs. Hence, there is no pressure on the general price level to increase. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Explaining the shape of the vertical range&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the long run, &lt;strong&gt;prices do not keep rising&lt;/strong&gt;. The AS curve is simply perfectly price-inelastic (i.e. on the diagram, it is a vertical line). This is also called the classical range of the AS curve. In the LR, all firms in the economy reach their full employment level (i.e. resources have been fully-utilised to their maximum capacity) and there is no demand-deficient unemployment. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Price levels are fully flexible as all firms will make adjustments to their prices in response to changes in demand. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This is what the vertical line indicates, not what you have mentioned. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The model I have learnt for the AS curve is a hybrid model, which is also depicted by the &lt;a href=&quot;https://en.wikipedia.org/wiki/Aggregate_supply&quot; rel=&quot;nofollow noreferrer&quot;&gt;Wiki page for AS&lt;/a&gt;. The &quot;short run&quot; here essentially corresponds to your so-called &quot;very short run&quot;. The &quot;long run&quot; here is the same as yours. &lt;/p&gt;&#xA;" OwnerUserId="18212" LastEditorUserId="18212" LastEditDate="2019-01-02T07:14:30.620" LastActivityDate="2019-01-02T07:14:30.620" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26237" PostTypeId="1" CreationDate="2019-01-02T04:08:01.770" Score="1" ViewCount="197" Body="&lt;p&gt;The &lt;a href=&quot;https://en.m.wikipedia.org/wiki/Big_Mac_Index&quot; rel=&quot;nofollow noreferrer&quot;&gt;Big Mac index&lt;/a&gt; is frequently mentioned in media, but I could never understand how it makes any sense. According to Wiki:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The Big Mac Index is published by The Economist as an informal way of measuring the purchasing power parity (PPP) between two currencies and provides a test of the extent to which market exchange rates result in goods costing the same in different countries.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Essentially the index is trying to say that if a Big Mac is more expensive in Switzerland compared to India, then the Indian rupee is undervalued or conversely that the Swiss franc is overvalued. But why would a Big Mac cost the same in all countries? Labor costs vary widely between different countries and so do costs such as real estate. There are even significant differences within the same country - a Big Mac in central London will cost you more than a Big Mac in a highway restaurant. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So why is the index taken at face value by anyone? How does it measure anything except the cost of producing a burger in different countries?&lt;/p&gt;&#xA;" OwnerUserId="8307" LastActivityDate="2019-01-03T22:48:52.500" Title="Why are Big Macs supposed to cost the same around the world?" Tags="&lt;price-index&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26238" PostTypeId="2" ParentId="26237" CreationDate="2019-01-02T04:53:29.763" Score="2" Body="&lt;p&gt;Because of the &lt;a href=&quot;https://en.wikipedia.org/wiki/Law_of_one_price&quot; rel=&quot;nofollow noreferrer&quot;&gt;Law of One Price&lt;/a&gt;, identical products are supposed to cost the same in different places. Since McDonald's applies standards for all the individual franchisees, the product is supposed to be identical even if it isn't perfectly identical. The law assumes there are no transportation costs. If lower costs exist in one place and there are no transportation costs you would move enough product until costs equalize. When the costs equalize the product price can equalize. This is not realistic for perishable products. The problems with this &quot;law&quot; are described in the &lt;a href=&quot;https://en.wikipedia.org/wiki/Big_Mac_Index#Limitations&quot; rel=&quot;nofollow noreferrer&quot;&gt;limitations secton of the Big Mac Index entry in wikipedia&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="6868" LastEditorUserId="6868" LastEditDate="2019-01-03T21:51:23.223" LastActivityDate="2019-01-03T21:51:23.223" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26239" PostTypeId="2" ParentId="26158" CreationDate="2019-01-02T10:53:00.467" Score="0" Body="&lt;p&gt;The fact the ratio is independent of &lt;strong&gt;w&lt;/strong&gt; comes from one of the properties of homothetic functions. A homothetic function by definition is a monotonic transformation of a homogenous function. Thus, for any homothetic function, a known result is that &lt;span class=&quot;math-container&quot;&gt;$Φ(z_1) = Φ(z_2)$&lt;/span&gt; implies that &lt;span class=&quot;math-container&quot;&gt;$Φ(tz_1) = Φ(tz_2)$&lt;/span&gt; for any input combination &lt;span class=&quot;math-container&quot;&gt;$z_1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$z_2$&lt;/span&gt;. Thus, for any two input combinations/ratios along the same isoquant (i.e. &lt;span class=&quot;math-container&quot;&gt;$Φ(z_1) = Φ(z_2)$&lt;/span&gt;) and &lt;strong&gt;therefore any price ratio&lt;/strong&gt; (since for a homothetic function price ratio = MRTS is solely determined by input ratio) multiplying by the exact same factor &lt;span class=&quot;math-container&quot;&gt;$t$&lt;/span&gt; gets you from the isoquant where &lt;span class=&quot;math-container&quot;&gt;$Φ(z_1) = Φ(z_2)$&lt;/span&gt; to &lt;span class=&quot;math-container&quot;&gt;$Φ(tz_1) = Φ(tz_2)$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a result, the ratio above is independent of the price &lt;strong&gt;w&lt;/strong&gt; (i.e. which point along the isoquant you are) because no matter where it is, you always have to multiply by the same t to get from q to q', which in my case is the ratio &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;t = \frac{H^i(w,q)}{H^i(w,q')} = \frac{H^j(w,q)}{H^j(w,q')}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="20326" LastActivityDate="2019-01-02T10:53:00.467" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26240" PostTypeId="1" AcceptedAnswerId="26241" CreationDate="2019-01-02T11:59:34.727" Score="3" ViewCount="39" Body="&lt;p&gt;It is my understanding that not only government but also local authorities issue &lt;a href=&quot;https://en.wikipedia.org/wiki/Municipal_bond&quot; rel=&quot;nofollow noreferrer&quot;&gt;bonds&lt;/a&gt;.&#xA;This &lt;a href=&quot;https://money.stackexchange.com/questions/22337/does-total-us-public-debt-include-state-debt&quot;&gt;answer on Money and Finance Stack Exchange&lt;/a&gt; suggests that such debts are not accounted in the computation of the government debt  (At least for the US). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Questions:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Is there an estimate of the total municipal bond per countries?&lt;/li&gt;&#xA;&lt;li&gt;Could a very indebted country try to reduce his debt to GDP ratio forcing local authorities to issue more bond and thus reducing the government spending? If yes, is there any country that attempted this strategy?&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="16368" LastEditorUserId="4988" LastEditDate="2019-01-04T11:13:23.267" LastActivityDate="2019-01-04T11:13:23.267" Title="Can debt to GDP ratio be reduced transfering debt to local autorities?" Tags="&lt;government-debt&gt;&lt;bonds&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26241" PostTypeId="2" ParentId="26240" CreationDate="2019-01-02T12:23:09.247" Score="3" Body="&lt;p&gt;To answer your second question: a country could probably do that, but it would achieve not much more thereby than clean up that particular statistic. In Europe, the Treaty of Maastricht that specifies the maximum debt-to-gdp ratio a country can have pertains to the whole government sector, which is defined so as to include local authorities (see this explanation on the site of the Belgian government &lt;a href=&quot;https://www.debtagency.be/en/datagovernmentdebtdebt&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.debtagency.be/en/datagovernmentdebtdebt&lt;/a&gt;). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't know the situation in the U.S., but I think it can be assumed that in general any state or international institution that wants to know about another state's debt levels will not only look at the debt-to-gdp ratio.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In an analogous case, most E.U. officials are aware that the United States unemployment rate is on average lower than the European version partly because of differences in labour force participation, which works 'behind the scenes' of the official statistic (&lt;a href=&quot;http://bruegel.org/2017/09/employment-in-europe-and-the-us-the-eus-remarkable-strength/&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://bruegel.org/2017/09/employment-in-europe-and-the-us-the-eus-remarkable-strength/&lt;/a&gt;). &lt;/p&gt;&#xA;" OwnerUserId="20591" LastEditorUserId="20591" LastEditDate="2019-01-03T13:52:14.947" LastActivityDate="2019-01-03T13:52:14.947" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="26244" PostTypeId="2" ParentId="26227" CreationDate="2019-01-02T19:15:27.597" Score="0" Body="&lt;p&gt;&lt;strong&gt;Hint:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These exercises seem to be encouraging you to think about the &lt;strong&gt;First Welfare Theorem&lt;/strong&gt;, and whether it will hold. Recall the theorem which states that if markets are competitive (price takers), markets are complete (full information), and that consumers are locally non-satiated, then &lt;em&gt;every competitive equilibrium should be Pareto optimal&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For each sub-question, there is at least one agent whose preferences are not locally non-satiated. For part &lt;strong&gt;(b)&lt;/strong&gt;, you are correct that there will be no trade. That is, you are at a competitive equilibrium. You should discuss if the allocation is Pareto optimal. If the allocation is PO, prove it, and if not, show a counterexample.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For part &lt;strong&gt;(c)&lt;/strong&gt;, you do not need to know the utility functions of each agent to do this question. Since we only care about utility up to a monotonic transformation, you can in theory make up a utility function that fits agent A's description. In this case, all three drinks are perfect substitutes, so you can express agent A's utility as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$u_A(m, j, w) = m + j +w$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or any monotonic transformation of that. But this is not necessary. You can solve &lt;strong&gt;(c)&lt;/strong&gt; with just the definition of a Pareto optimal allocation and some intuition. Hope this helps.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2019-01-02T19:15:27.597" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="26245" PostTypeId="1" AcceptedAnswerId="26263" CreationDate="2019-01-02T21:06:35.137" Score="3" ViewCount="211" Body="&lt;p&gt;My understanding is that by raising interest rates, domestic CPI indices are less likely to rise signicantly. However, raising interest rates also attracts capital inflows and can create asset bubbles. Can these asset bubbles not influence the level of inflation? It seems that a high demand for a country’s currency might indirectly cause inflation through asset bubbles even in a floating system. (I’m thinking specifically about the Bundesbank using rates to combat inflation)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any thoughts appreciated. &lt;/p&gt;&#xA;" OwnerUserId="19128" LastEditorUserId="19128" LastEditDate="2019-01-02T21:13:49.177" LastActivityDate="2019-01-04T09:38:09.367" Title="How does raising interest rates calm inflation?" Tags="&lt;macroeconomics&gt;&lt;inflation&gt;&lt;interest-rate&gt;" AnswerCount="3" CommentCount="3" FavoriteCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="26246" PostTypeId="2" ParentId="26245" CreationDate="2019-01-02T22:55:44.963" Score="3" Body="&lt;p&gt;I will give you some simplified thoughts in three brief sections:&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;The traditional view is that higher rates increase the cost of investment and increase the opportunity cost of spending (rather than saving). This places downward pressure on prices. Another way to think about this (opportunity cost part) is considering that higher rates reduce liquidity, which in turn reduces the demand for goods and services. &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Asset prices typically move in the opposite direction of interest rates. So, raising rates to cool inflation would actually, according to the common understanding, place downward pressure on asset prices. However, if one looks into the data, one can see that there are co-movements in asset prices and rates. These co-movements are the basis of Karadi's newest paper that is currently R&amp;amp;R'd. However, Gali does have a paper suggesting a link between rates and asset bubbles wherein increasing interest rates can impact the short-run behavior of rational bubbles. &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Higher rates can encourage capital inflows. This can cause currency appreciation. This generates its own set of issues. &lt;/p&gt;&#xA;" OwnerUserId="1655" LastEditorUserId="1655" LastEditDate="2019-01-03T16:10:56.460" LastActivityDate="2019-01-03T16:10:56.460" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="26248" PostTypeId="2" ParentId="26235" CreationDate="2019-01-03T00:13:13.857" Score="2" Body="&lt;p&gt;The exact details of payment systems vary from country-to-country. The payments systems handle the multitude of transactions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But if we are willing to simplify away the complexity of payment processing, private banks do have an account at the central bank, and transfers between banks are effectively transfers between those accounts. The central bank is a bank, and this is exactly how banks will handle transfers between its own customers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These balances are generically referred to as &lt;em&gt;settlement balances&lt;/em&gt;, but in a country with reserve requirements (like the United States), these will be refered to as &lt;em&gt;bank reserves&lt;/em&gt;. It is fairly easy to find discussions of bank reserve operations on the internet.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2019-01-03T00:13:13.857" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26249" PostTypeId="1" CreationDate="2019-01-03T01:12:50.720" Score="0" ViewCount="229" Body="&lt;p&gt;What are the mechanism that explains this, and does this help explain the U.S.-China trade deficits?&lt;/p&gt;&#xA;" OwnerUserId="20657" LastActivityDate="2019-10-03T20:02:40.430" Title="How does a budget deficit help grow a trade deficit?" Tags="&lt;international-trade&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26250" PostTypeId="2" ParentId="21770" CreationDate="2019-01-03T01:14:08.857" Score="1" Body="&lt;p&gt;&lt;strong&gt;&lt;em&gt;Neumark and Wascher&lt;/em&gt;&lt;/strong&gt; did a lot of work on the minimum wage in the 90s and 00s, including their 1992 piece &lt;strong&gt;&lt;a href=&quot;https://journals.sagepub.com/doi/abs/10.1177/001979399204600105&quot; rel=&quot;nofollow noreferrer&quot;&gt;&quot;Employment Effects of Minimum and Subminimum Wages: Panel Data on State Minimum Wage Laws&quot;&lt;/a&gt;&lt;/strong&gt;. A non-paywalled version of the article can be &lt;a href=&quot;http://www.uh.edu/~adkugler/Neumark%26Wascher.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;found here&lt;/a&gt;. It includes use of panel data (cross sectional data that you are interested in can be considered a special case of panel data) to study the effects of the minimum wage on employment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From page 65:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&quot;Another possible source of bias arises from the potential endogeneity of state minimum wage levels. If state legislators choose the timing of minimum wage increases to correspond to periods in which minimum wage increases will have the smallest (or perhaps least noticed) disemployment effects, the estimated minimum wage effects in Table 2 will be biased upward...&quot;&lt;/em&gt; &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;They too were concerned with endogeneity between the minimum wage and employment, so their solution was to use a fixed-effects specification and put in state and year effects in the first stage of the regression, with the instrument being &lt;strong&gt;&lt;em&gt;&quot;the [adjusted] mean of the minimum wage level in all geographically bordering states&quot;&lt;/em&gt;&lt;/strong&gt; (p. 65). Their data was from US states. So the setup for their study could be a useful starting point for you, or those interested in a similar question to this.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;As Tobias mentioned, you can also use political variables as an instrument. In &lt;em&gt;Lemas (2004)&lt;/em&gt;, &lt;strong&gt;&lt;a href=&quot;http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.422.1475&amp;amp;rep=rep1&amp;amp;type=pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Political Variables as Instruments for the Minimum Wage&lt;/a&gt;&lt;/strong&gt;, lags for the endogenous variable (min. wage) can be used with serially uncorrelated errors, but if that does not hold, you can use political measures such as &lt;strong&gt;influence-weighted politicians' support for or against the minimum wage&lt;/strong&gt;, among other measures that can be found in section 4.2. of the paper.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2019-01-03T01:14:08.857" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26251" PostTypeId="2" ParentId="26220" CreationDate="2019-01-03T01:41:36.470" Score="0" Body="&lt;p&gt;To quote from this &lt;a href=&quot;https://en.wikipedia.org/wiki/Quantity_theory_of_money#Fisher&amp;#39;s_equation_of_exchange&quot; rel=&quot;nofollow noreferrer&quot;&gt;Wikipedia link&lt;/a&gt;...&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;a 10% increase in M could be accompanied by a&#xA;  change of 1/(1 + 10%) in V &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;If the model is true, it seems the velocity of money is not a constant. This is the answer.&lt;/p&gt;&#xA;" OwnerUserId="6868" LastEditorUserId="6868" LastEditDate="2019-01-04T02:09:08.507" LastActivityDate="2019-01-04T02:09:08.507" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26252" PostTypeId="2" ParentId="26164" CreationDate="2019-01-03T05:07:49.707" Score="2" Body="&lt;p&gt;There are a lot of possible places to start when looking at the literature on gender or racial wage discrimination/differentials. Preferably, it'd be good to look at the literature on labor supply as a whole (e.g. Mincer equation, work-leisure tradeoffs etc.), but we could be here all day discussing papers related to modelling wages in general (I am happy to provide some if you would like.) I will do my best to summarize the theoretical and empirical literature I give reference to below. Let us look at differentials.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;em&gt;Becker (1973)&lt;/em&gt;&lt;/strong&gt;, &lt;strong&gt;&lt;a href=&quot;https://www.journals.uchicago.edu/doi/abs/10.1086/260084&quot; rel=&quot;nofollow noreferrer&quot;&gt;A Theory of Marriage: Part I&lt;/a&gt;&lt;/strong&gt; was some of the earlier work on family economics, where men and women would tend to pick each other for marriage based on their relative strengths. To put it roughly, though people tend to like marrying others who are the same height, race, education level, etc., the theoretical model set up by Becker predicted that because families care about work (employment), leisure, and household production, there'd end up being some sort of division of labor so that all these needs were met.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;em&gt;Mincer and Polachek (1974)&lt;/em&gt;&lt;/strong&gt;, &lt;strong&gt;&lt;a href=&quot;https://www.nber.org/chapters/c2973.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Family Investments in Human Capital: Earnings of Women&lt;/a&gt;&lt;/strong&gt; and others would build off of this earlier body of work when looking at the effects of education and work training on wages. This paper in particular argued that the expectations of market activity, particularly regarding raising children, would affect how much women would pursue education or work training, and would effect how employers would want to pay women over time. If women are more likely than men to leave the workforce to spend time raising a child, then their wage-age profile will change. Intuitively, even before a child is born, women might get paid less because future &lt;em&gt;expectations&lt;/em&gt; of productivity affect wages and individual investment into skills.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;em&gt;Becker (1971)&lt;/em&gt;&lt;/strong&gt;, &lt;strong&gt;&lt;a href=&quot;https://books.google.com/books?id=50qHcSNVVEMC&amp;amp;printsec=frontcover&amp;amp;source=gbs_ge_summary_r&amp;amp;cad=0#v=onepage&amp;amp;q&amp;amp;f=false&quot; rel=&quot;nofollow noreferrer&quot;&gt;The economics of discrimination&lt;/a&gt;&lt;/strong&gt; is a gigantic book written as a lot of the basis for modelling economic discrimination. There's a lot to sift through and I'm not super well-read in that area, but the gist of the model set up here is you can distinguish between &lt;em&gt;prejudice&lt;/em&gt; which is where employers may have a preference for certain type of worker that shows up in the utility function, and &lt;em&gt;discrimination&lt;/em&gt;, which is the explicit unequal treatment of equals; that is, unequal outcomes. Although there may be prejudice from employers, depending on the search model used, if there are enough jobs by non-prejudiced employers, we may not see any discrimination in outcomes.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Even after controlling for confounding variables that could affect the wage gap between women and men, or between races, there is some discrimination in outcomes on the basis of race and gender.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;em&gt;Dougherty (2004)&lt;/em&gt;&lt;/strong&gt; &lt;strong&gt;&lt;a href=&quot;http://eprints.lse.ac.uk/20034/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Why is the rate of return to schooling higher for women than for men?&lt;/a&gt;&lt;/strong&gt; uses the Oaxaca decompositions in E. Sommer's answer to look at why the rate of return to education seems to be higher for women than for men. In this paper, one theory looked at was that better educated women are more willing/able to compete with men to push back against gender discrimination, hence why it seems the rate of return is higher. The paper has some support for this finding.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;em&gt;Lang and Lehmann (2011)&lt;/em&gt;&lt;/strong&gt; &lt;strong&gt;&lt;a href=&quot;https://www.nber.org/papers/w17450.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Racial Discrimination in the Labor Market: Theory and Empirics&lt;/a&gt;&lt;/strong&gt; notes that while taste/preference frameworks combined with search models are able to explain a lot of differences between wages and unemployment duration, these models are not so good at showing differences in unemployment rates themselves. Statistical models (employers have some sort of imperfect information that leads to discriminatory outcomes through, for example, self-confirming stereotypes) can explain magnitudes of wage differences well, but not much about employment. This paper tried to combine elements of the two approaches.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This above article is a particularly good one to look at (and should not be too much of a problem to sift through if you have a good math background). I don't think I can do justice trying to summarize the breadth of their results here in a reasonable amount of time, so check it out on your own if you like.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;There are a lot of good articles in labor economics that look at gender and racial discrimination but those are a few I've picked out to give some brief summaries on. Some of the ones I've not mentioned, but which are important to the literature are listed below. Just because I chose not to summarize them does not mean the below articles are particularly less important. I just have my own time constraints. My presentation of the existing literature is also not comprehensive, but hopefully a good starting point for others.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope some of these resources prove useful to you and future users.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;em&gt;Further Reading&lt;/em&gt;&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Oaxaca-Blinder Decomposition:&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Blinder, Alan S. &quot;Wage discrimination: reduced form and structural estimates.&quot; Journal of Human resources (1973): 436-455.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Oaxaca, Ronald. &quot;Male-female wage differentials in urban labor markets.&quot; International economic review (1973): 693-709.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Labor Supply/Compensating Differentials:&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Oaxaca, Ronald L., and Michael R. Ransom. &quot;On discrimination and the decomposition of wage differentials.&quot; Journal of econometrics 61, no. 1 (1994): 5-21.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Rosenzweig, Mark R., and T. Paul Schultz. &quot;The demand for and supply of births: Fertility and its life cycle consequences.&quot; The American Economic Review 75, no. 5 (1985): 992-1015.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Henderson, Daniel J., Solomon W. Polachek, and Le Wang. &quot;Heterogeneity in schooling rates of return.&quot; Economics of Education Review 30, no. 6 (2011): 1202-1214.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Goldin, Claudia, Katz, Lawrence F, and Kuziemko, Ilyana, “The Homecoming of American                         College Women: The Reversal of the College Gender Gap”, Journal of Economic                             Perspectives 20(4), 2006, 133-156&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Blau, Francine D., and Lawrence M. Kahn. &quot;The US gender pay gap in the 1990s: Slowing convergence.&quot; ILR Review 60, no. 1 (2006): 45-66.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Mobius, Markus M., and Tanya S. Rosenblat. &quot;Why beauty matters.&quot; American Economic Review 96, no. 1 (2006): 222-235.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Lang, Kevin, Michael Manove, and William T. Dickens. &quot;Racial discrimination in labor markets with posted wage offers.&quot; American Economic Review 95, no. 4 (2005): 1327-1340.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="4251" LastEditorUserId="4251" LastEditDate="2019-01-03T05:57:01.063" LastActivityDate="2019-01-03T05:57:01.063" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="26253" PostTypeId="2" ParentId="26249" CreationDate="2019-01-03T05:25:19.240" Score="1" Body="&lt;p&gt;It all boils down to the macroeconomic identity&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ (G -T) \equiv (S – I) +(M-X), $$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; stands for exports, &lt;span class=&quot;math-container&quot;&gt;$M$&lt;/span&gt; for imports, &lt;span class=&quot;math-container&quot;&gt;$G$&lt;/span&gt; is government spending, &lt;span class=&quot;math-container&quot;&gt;$T$&lt;/span&gt; are taxes, &lt;span class=&quot;math-container&quot;&gt;$S$&lt;/span&gt; private savings and &lt;span class=&quot;math-container&quot;&gt;$I$&lt;/span&gt; private investment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given &lt;span class=&quot;math-container&quot;&gt;$S-I$&lt;/span&gt;, the larger is the budget déficit, the larger the trade deficit is. &lt;span class=&quot;math-container&quot;&gt;$S-I$&lt;/span&gt; can be thought of as the private sector excess financing ability. With this amount, it needs to finance both the budget deficit and pay for the difference between what it is able to sell abroad and what it buys abroad. If, as in the US, &lt;span class=&quot;math-container&quot;&gt;$S-I$&lt;/span&gt; is not too large (due to low &lt;span class=&quot;math-container&quot;&gt;$S$&lt;/span&gt;), as soon as the government incurs in a budget deficit, a trade deficit will appear.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This does not tell us with which specific country the trade deficit will happen. However, it does tell us that those countries with high &lt;span class=&quot;math-container&quot;&gt;$S-I$&lt;/span&gt; and low budget deficits (or even surpluses) need to be running trade surpluses, and this is the case of China (or Germany).&lt;/p&gt;&#xA;" OwnerUserId="20281" LastEditorUserId="20281" LastEditDate="2019-01-04T11:33:04.430" LastActivityDate="2019-01-04T11:33:04.430" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26254" PostTypeId="2" ParentId="26164" CreationDate="2019-01-03T09:04:56.483" Score="1" Body="&lt;p&gt;I'd suggest&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;&lt;a href=&quot;http://scholar.harvard.edu/files/goldin/files/dynamics_of_the_gender_gap_for_young_professionals_in_the_financial_and_corporate_sectors.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Dynamics of the Gender Gap for Young Professionals in the Financial and Corporate Sectors&lt;/a&gt;&quot;, published in the 2010 &lt;em&gt;American Economic Review&lt;/em&gt; by Bertrand, Goldin, and Katz.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here's the abstract:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;The careers of MBAs from a top US business school are studied to&#xA;  understand how career dynamics differ by gender. Although male and&#xA;  female MBAs have nearly identical earnings at the outset of their&#xA;  careers, their earnings soon diverge, with the male earnings advantage&#xA;  reaching almost 60 log points a decade after MBA completion. Three&#xA;  proximate factors account for the large and rising gender gap in&#xA;  earnings: differences in training prior to MBA graduation, differences&#xA;  in career interruptions, and differences in weekly hours. The greater&#xA;  career discontinuity and shorter work hours for female MBAs are&#xA;  largely associated with motherhood.&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Goldin also wrote a neat, scientifically-backed popular article on the topic at &lt;a href=&quot;https://www.vox.com/2017/9/8/16268362/gender-wage-gap-explained&quot; rel=&quot;nofollow noreferrer&quot;&gt;Vox&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2019-01-03T09:04:56.483" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26256" PostTypeId="1" AcceptedAnswerId="26276" CreationDate="2019-01-03T11:45:42.690" Score="1" ViewCount="254" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/HyylL.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/HyylL.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hi! I am trying to understand the problem above, and was wondering if someone could help me with the last question. I think I am fine with all other questions. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is my attempt: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(i)&#xA;The fiscal multiplier is &lt;span class=&quot;math-container&quot;&gt;$\frac{1}{1-c} \Delta G$&lt;/span&gt;, as it is the infinite sum &lt;span class=&quot;math-container&quot;&gt;$ \Delta G + c\Delta G + c^2\Delta G + ... $&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Depends on c because the increase in government spending first leads to an increase in Y, which leads to an increase in C, which then leads to another increase in Y, but this time the increase in only &lt;span class=&quot;math-container&quot;&gt;$cY$&lt;/span&gt;, as part of the income is saved. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(ii) Balanced budget multiplier is 1, as &lt;span class=&quot;math-container&quot;&gt;$\Delta Y = \frac{1}{1-c} \Delta G + \frac{-c}{1-c} \Delta T$&lt;/span&gt; with &lt;span class=&quot;math-container&quot;&gt;$ \Delta T = \Delta G$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This means that an increase in government spending that is matched by an identical increase in lump sum taxed increases output by the same amount as the increase in G (and T).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(iii) &lt;span class=&quot;math-container&quot;&gt;$$\Delta Y = \frac{\Delta X}{0.01} = 100$$&lt;/span&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This means that giving me an additional unit of currency will increase total income by 100, as it feeds back into income and consumption infinitely. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(iv) This is the question where I would like some guidance. Here is my work so far: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;We have: &#xA;&lt;span class=&quot;math-container&quot;&gt;$$ C= a + c(Y-T) - d\alpha Y$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The multiplier associated with an increase in G should now be: &#xA;&lt;span class=&quot;math-container&quot;&gt;$$\frac{1}{1-c} + \frac{1}{1-d\alpha}$$&lt;/span&gt;&#xA;The first part is the &quot;old multiplier, the second is the effect of the new part of the consumption function? I am not sure that this is correct, happy to receive comments!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This would mean that &lt;span class=&quot;math-container&quot;&gt;$c=d\alpha$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And then, the multiplier associated with an increase in T:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;1st round: Y increases by &lt;span class=&quot;math-container&quot;&gt;$c\Delta T$&lt;/span&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;2nd round: C increases by &lt;span class=&quot;math-container&quot;&gt;$c^2\Delta T + d\alpha \Delta T = 2 c^2\Delta T$&lt;/span&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Then Y increases by &lt;span class=&quot;math-container&quot;&gt;$2 c^2\Delta T$&lt;/span&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;3rd round: C increases by &lt;span class=&quot;math-container&quot;&gt;$4 c^3\Delta T$&lt;/span&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Does this mean that the multiplier is this sum: &lt;span class=&quot;math-container&quot;&gt;$$2^0C^1\Delta T + 2^1C^2\Delta T + 2^2C^2\Delta T + ... $$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And then the balanced budget multiplier would be this last result + 1 (the other multiplier, from the increase in G)? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'd be super grateful to anyone who could help me with question (iv)! &lt;/p&gt;&#xA;" OwnerUserId="20662" LastActivityDate="2019-01-04T11:30:17.413" Title="Keynesian Cross and Balanced Budget Multiplier" Tags="&lt;macroeconomics&gt;&lt;keynesian-economics&gt;" AnswerCount="1" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26258" PostTypeId="1" AcceptedAnswerId="26259" CreationDate="2019-01-03T12:57:31.057" Score="7" ViewCount="90" Body="&lt;p&gt;Considering that markets open in different time zones, in general the opening and closing times are different.&#xA;I suppose that a stock market opening later (in the same day) receive information on the other markets opening earlier.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think I should take into account this if I want to implement i.e. Granger causality analysis and I have daily stock indices prices. What could be a proper method to approach the problem? &lt;/p&gt;&#xA;" OwnerUserId="19611" LastActivityDate="2019-01-04T10:46:04.260" Title="How time zones affects causality?" Tags="&lt;stock-market&gt;&lt;causality&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26259" PostTypeId="2" ParentId="26258" CreationDate="2019-01-03T13:55:52.827" Score="5" Body="&lt;p&gt;I'm skeptical that this will work. I'm concerned that for the sort of shock that is large enough to be interesting and large enough to study that stock prices will move before they open. You could potentially measure this by looking at the changes in stock price from close to open, but I'm not sure what you'd be measuring. Are changes in Tokyo stock prices in any meaningful sense causing the changes in NYSE price? Or is it simply that all stock prices are moving at once, but you can't easily see the NYSE stock prices until the exchange opens? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In support of this concern, consider that there are (thin but functioning) after hours trading markets in many securities. In addition, through the use of &lt;a href=&quot;https://en.wikipedia.org/wiki/American_depositary_receipt&quot; rel=&quot;nofollow noreferrer&quot;&gt;American Depositary Receipts&lt;/a&gt;, it is also possible to trade US stocks on foreign stock exchanges. As such, for many or even most securities, markets are almost always open for those willing to pay higher transaction costs. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;That said, there is some evidence that when stock exchanges are closed that markets are meaningfully affected. See, for example, &lt;a href=&quot;https://www.sciencedirect.com/science/article/pii/0304405X80900215&quot; rel=&quot;nofollow noreferrer&quot;&gt;Stock returns and the weekend effect&lt;/a&gt; (French 1980).  &lt;a href=&quot;https://academic.oup.com/rfs/article-abstract/3/1/37/1576528&quot; rel=&quot;nofollow noreferrer&quot;&gt;Stock Market Structure and Volatility&lt;/a&gt;  (Stoll and Whaley (1990)) contribute to the litterature showing the expected returns and return volatility are different when stock exchanges are closed, including at night. While both important papers, they provide dated evidence. More recent evidence from &lt;a href=&quot;https://www.sciencedirect.com/science/article/pii/S0169207013000472&quot; rel=&quot;nofollow noreferrer&quot;&gt;Overnight stock returns and realized volatility&lt;/a&gt; (Ahoniemia and Lanneb (2013)) shows that shares, while stock markets are closed, continue to show different return volatility from when stock markets are open through 2007. &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2019-01-04T10:46:04.260" LastActivityDate="2019-01-04T10:46:04.260" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26261" PostTypeId="1" CreationDate="2019-01-03T16:06:02.530" Score="-3" ViewCount="116" Body="&lt;p&gt;why isnt private sector savings defined as &lt;span class=&quot;math-container&quot;&gt;$S=Y-T-C-I$&lt;/span&gt; ?&#xA;afterall, savings is the money you have left over after you net off from your income ALL of what you have paid out.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$Y, T , C$&lt;/span&gt; And &lt;span class=&quot;math-container&quot;&gt;$I$&lt;/span&gt; are the standard things every 1st year macro class in the world teaches they are (output/income/outgo , taxes, consumption , and investment)&lt;/p&gt;&#xA;" OwnerUserId="20559" LastEditorUserId="17735" LastEditDate="2019-01-06T09:54:59.850" LastActivityDate="2019-01-07T17:42:04.120" Title="why isnt private sector savings defined as $S=Y-T-C-I$?" Tags="&lt;macroeconomics&gt;" AnswerCount="2" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26263" PostTypeId="2" ParentId="26245" CreationDate="2019-01-03T19:59:43.340" Score="2" Body="&lt;p&gt;You wrote:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;How does raising interest rates calm inflation?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;If a central bank increases the overnight interest rate, longer term interest rates of government bonds might also rise. The longer term rate of government bonds can approximate the expectation of a series of short term rates. Everybody has a different series in mind so long term rates might decrease rather than increase.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If a private bank can earn risk free by investing overnight or longer term at attractive (higher) rates then they will invest less in individuals and businesses seeking to borrow to consume and purchase investment goods (like equipment and structures and software). If less is consumed and fewer investment goods are purchased then the rate of inflation will be lower.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An asset bubble in gold or Bitcoin is not likely to cause inflation because they are not major inputs in production. There is gold plate in electronics but not all connectors are gold plated. The ones that are not gold seem to work okay. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If oil production is constrained by a cartel, I do not know if that can be called an asset bubble but it can cause inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An asset bubble in real estate can lead to higher rents which is inflationary. Since rents might have been contracted for a year or more the effect on inflation might be attenuated. Since governments often regulate housing rent the effect on inflation might be attenuated. The effect on rent is attenuated since wages change more slowly so ability to pay changes more slowly than real estate prices. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the graph you can see inflation increased in 1999 and 2005. There was a internet and computer stock &quot;asset bubble&quot; and a real estate &quot;asset bubble&quot; in effect at those times, respectively. It seems CPI inflation can be affected by &quot;asset bubbles&quot;. CPI without food and energy also seems to have been affected but not to a large degree. There were times in the chart when inflation was much higher than at these times. This suggests that in the current economic regime asset bubbles might not be the most important risk for inflation and asset bubbles caused by capital inflow might not be either. Perhaps these should not be considered to have been bubbles since some of these assets actually had higher prices in 2018 than in 1999 and 2005, probably even after adjusting for inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/KUbeF.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/KUbeF.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You wrote:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;However, raising interest rates also attracts capital inflows and can&#xA;  create asset bubbles. Can these asset bubbles not influence the level of inflation?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I doubt that higher interest rates that attract capital inflow into a particular currency creates an asset bubble because if the higher interest rate attracts the investment, it is usually an investment into an interest yielding security or deposit. When that happens, the price goes up and the interest rate goes down and so it ceases to be an attractive interest rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When a currency is highly valued because of capital inflow it can attenuate inflation because imports become less expensive. The net effect of various forces on the inflation rate depends on the particulars.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If locals are a significant contributor to an asset bubble and it coincides with an economic expansion and higher inflation there might be high interest rates because of high loan demand or action by the central bank or both.  If locals &quot;believe in&quot; the bubble then that might attract capital inflow at the same time. Outsiders might not be the main cause and they might not be the original impetus. This suggests that the cause is the inflation and the effect is the interest rates; not the other way around.&lt;/p&gt;&#xA;" OwnerUserId="6868" LastEditorUserId="6868" LastEditDate="2019-01-04T02:13:34.383" LastActivityDate="2019-01-04T02:13:34.383" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26264" PostTypeId="2" ParentId="26237" CreationDate="2019-01-03T22:48:52.500" Score="0" Body="&lt;p&gt;Humans like to eat fatty proteins, sugars and carbohydrates. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Big Macs are a standardised commodity internationally.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Big Macs rapidly satiate household daily Big Mac effective consumption desires.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The local prices of Big Macs reflect the social value of satiation (ie socially constructed wage for standard, or average, labour power).  Both eaters and makers. The making of the Big Mac is standardised with a standard set of mechanisation and labour discipline in the factory. The Big Mac decomposes potential labour power to actually exerted labour in a standard form. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Big Macs regularise the value composition of the wage, ie the cost of reproducing labour, and thus allow an attempt to equate prices in terms of local standards of living, safety, hours of labour and intensity of labour.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Big Mac index produces “social labour power” by allowing an equation of the varying elements of labour power costs internationally. It offers recomputation of prices on the firm foundation of the human desire to stuff itself with dairy and meat grease regularly. Building on this PPP labour power regularisation of national or sub-national socially average labour, it allows a useful time series. Momentary labour power values can be computed in PPP and then compared against inflation, %GDP or %GDP/cap.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The commodity bundle used might be small, but it is delicious and represents and atavistic desire to consume heated dead things supplied by others in a standardised commodity form. &lt;/p&gt;&#xA;" OwnerUserId="19898" LastActivityDate="2019-01-03T22:48:52.500" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26265" PostTypeId="1" AcceptedAnswerId="26278" CreationDate="2019-01-03T23:48:58.117" Score="1" ViewCount="82" Body="&lt;p&gt;I'm starting to study the Keynesian theory, and I have just read that the increase of interest rate (&lt;span class=&quot;math-container&quot;&gt;$r$&lt;/span&gt;) will lower the price level (&lt;span class=&quot;math-container&quot;&gt;$P$&lt;/span&gt;). I tried to understand this using the IS-LM model (I mean, visually through the curves or through the equations), but I am stuck at this reasoning.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I consider the LM curve and its idea, we will eventually see the following curve:&#xA;&lt;a href=&quot;https://i.stack.imgur.com/TSkXK.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/TSkXK.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This represents the interest rate in the y-axis and real money in the x-axis. Now, if I want to know the effect of an increase in &lt;span class=&quot;math-container&quot;&gt;$r$&lt;/span&gt; (from &lt;span class=&quot;math-container&quot;&gt;$r_1$&lt;/span&gt; to &lt;span class=&quot;math-container&quot;&gt;$r_2$&lt;/span&gt;), I can say that the real money will be lower, and considering &lt;span class=&quot;math-container&quot;&gt;$M$&lt;/span&gt; constant, this implies that &lt;span class=&quot;math-container&quot;&gt;$P$&lt;/span&gt; increases. I am aware that this result is obviously not correct, how could I understand this change in &lt;span class=&quot;math-container&quot;&gt;$r$&lt;/span&gt; in terms of the IS-LM curves correctly? &lt;/p&gt;&#xA;" OwnerUserId="20666" LastActivityDate="2019-01-05T22:37:44.153" Title="IS-LM - Effect of interest rate on price level" Tags="&lt;keynesian-economics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26266" PostTypeId="2" ParentId="26249" CreationDate="2019-01-04T01:24:21.837" Score="0" Body="&lt;p&gt;If what you have in mind via your question is the well-known macroeconomic identity &lt;span class=&quot;math-container&quot;&gt;$C + S + T ≡ Y ≡ C + I + G + X$&lt;/span&gt;, read &lt;a href=&quot;http://econospeak.blogspot.com/2016/12/the-identity-equals-causation-fallacy.html?m=1&quot; rel=&quot;nofollow noreferrer&quot;&gt;The Identity-Equals-Causation Fallacy, Yet Again&lt;/a&gt;. Below, an extract that addresses your &lt;strong&gt;&lt;em&gt;How&lt;/em&gt;&lt;/strong&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;There is no causation at work here. Net exports does not cause net borrowing (budget deficit), nor is it the other way around; they are identical to one another, different ways of recording the same economic events.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;hr&gt;&#xA;In conclusion, while addressing your US-&lt;em&gt;vs&lt;/em&gt;-China concern: the accounting-like shortcut that consists of saying that USA debt to China is actually used to import goods from China is not the factual reality, &lt;em&gt;only an accounting one&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;&lt;em&gt;How&lt;/em&gt;&lt;/strong&gt; does a budget deficit help grow a trade deficit?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The causality has to be considered in the opposite direction. The real (and simplified) story behind is that, when importing/buying goods from another country, a U.S. private company is not doing so from a local one who would pays taxes and thus generates tax revenues for the U.S. government, which would in turn allow the latter to contract less debt when e.g. ensuring the continuity of its social system.&lt;/p&gt;&#xA;" OwnerUserId="10247" LastEditorUserId="10247" LastEditDate="2019-01-06T19:00:27.440" LastActivityDate="2019-01-06T19:00:27.440" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="26267" PostTypeId="2" ParentId="26220" CreationDate="2019-01-04T01:51:49.603" Score="1" Body="&lt;p&gt;Because commercial banks have used injected liquidities to consolidate their balance sheet instead of stimulating demands by creating credits (that did not previously exist when they make loans). This is called the &lt;a href=&quot;https://en.m.wikipedia.org/wiki/Money_multiplier&quot; rel=&quot;nofollow noreferrer&quot;&gt;money multiplier&lt;/a&gt; effect. The multiplier was &lt;em&gt;somehow&lt;/em&gt; blocked (to ~&lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt;) because of their precaution behaviour, and so was the money velocity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On March 10, 2016, the ECB has even considered the possibility of giving 200€ per month and per person to stimulate inflation. And this with the main idea of circumventing the commercial-bank system. This unconventional monetary policy is called &lt;a href=&quot;https://en.m.wikipedia.org/wiki/Helicopter_money&quot; rel=&quot;nofollow noreferrer&quot;&gt;monetary helicopter&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="10247" LastEditorUserId="10247" LastEditDate="2019-01-12T22:22:06.867" LastActivityDate="2019-01-12T22:22:06.867" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="26268" PostTypeId="2" ParentId="25883" CreationDate="2019-01-04T01:59:04.300" Score="0" Body="&lt;p&gt;The Allais paradox is a challenge to the &lt;strong&gt;independence&lt;/strong&gt; axiom of expected utility representation. With monetary outcomes in the lotteries, you might have utility representation that was risk averse, risk neutral, or risk loving. Regardless of your utility, your preferences should not violate the independence axiom. If you are risk averse or risk loving, clearly the marginal value of money is not constant, but this is not a requirement to show independence can be violated. Independence rather is a prerequisite for expected utility representation in the first place.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;The problem with the experiment above, as is, is that the lottery outcomes are rankings rather than on a scale. You can no longer geometrically represent lotteries on a simplex.  An easy amendment to this is to just have some numerical grade assigned instead of letter grades. Preferences among simple lotteries in this case however might now violate continuity. A &quot;low&quot; B+ is the same as a &quot;high&quot; B+, so a lot of number grades might have the same preference until a particular jump. The comments in EnergyNumbers's answer also suggest that the grading scale might be discrete rather than continuous.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So if anything, that is another problem altogether.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2019-01-04T01:59:04.300" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26269" PostTypeId="2" ParentId="26203" CreationDate="2019-01-04T02:13:00.923" Score="0" Body="&lt;p&gt;The difference you get is due to the different methods that are followed (in the two countries over the period of time) to compute inflation rates. If those were &lt;em&gt;exact&lt;/em&gt;, then you would witness the putative commutativity. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Have you tried to make your calculations backward? Tracing year after year any potential spread? Hopefully, approaches have been standardized and you may notice &lt;em&gt;when&lt;/em&gt; by doing so.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;BTW, I would go for using only the country's trajectory of inflation rates that would (subjectively admittedly) &lt;em&gt;look&lt;/em&gt; the most exact, the most exhaustive &lt;strong&gt;&lt;em&gt;or&lt;/em&gt;&lt;/strong&gt; the most consensual. In the latter case, USA's would be the one to consider.&lt;/p&gt;&#xA;" OwnerUserId="10247" LastEditorUserId="10247" LastEditDate="2019-01-04T02:31:18.637" LastActivityDate="2019-01-04T02:31:18.637" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26270" PostTypeId="2" ParentId="26225" CreationDate="2019-01-04T03:06:47.543" Score="0" Body="&lt;p&gt;As there are no other answers, I will offer an informal answer. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Converting from annual to monthly data is effectively inserting information into the series. As a result, the choice of conversion will affect the analysis. It is safer to convert everything to the lowest frequency (annual), as that has much less effect on results.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To convert monthly to annual data, two standard techniques are to either take the latest value (December) or the annual average. It would make sense to have the choice aligned with the methodology for the annual data.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Unfortunately, I do not have books to suggest that cover this topic.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2019-01-04T03:06:47.543" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="26271" PostTypeId="1" CreationDate="2019-01-04T04:41:36.403" Score="1" ViewCount="342" Body="&lt;p&gt;I was just reading my economics notes when I stumbled upon this paragraph:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Singapore has a very open economy and imports most of its inputs and necessities, which means that MPM is likely to be very high. Also, Singapore has a high savings rate due to its compulsory savings scheme, leading to a high MPS. The high marginal propensity to withdraw means that the multiplier &lt;em&gt;k&lt;/em&gt; is small. Hence, any government injection is not likely to lead to a much greater change in national income. &lt;strong&gt;This is why government injection is not effective in achieving actual economic growth in Singapore.&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I think the analysis given to support why MPC would be small in Singapore and hence, why the multiplier would be small is valid. However, I find the last statement particularly dubious. Even if theoretically, the MPC = 0, &lt;em&gt;k&lt;/em&gt; would still be 1, i.e. the autonomous injection by the government will be fully equal to the increase in the real national income. Wouldn't that still mean that an autonomous injection by the government would still be effective in growing the economy, i.e. increase the national output? Because whatever amount forked out by the government would go to increasing the real national income by the same amount and hence, a significant increase in AD would still take place. &lt;/p&gt;&#xA;" OwnerUserId="18212" LastActivityDate="2019-06-03T10:03:00.353" Title="The reality of the multiplier effect" Tags="&lt;macroeconomics&gt;&lt;government&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26272" PostTypeId="2" ParentId="25883" CreationDate="2019-01-04T08:37:14.290" Score="1" Body="&lt;p&gt;I am not sure I understand the problems outlined in the other answers. Seems to me that if we assume students maximize their expected utility and lotteries A1 and B2 (or B1 and A2) are chosen by someone, we would have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{align*}&#xA;100\% \ U(B) &amp;amp; &amp;gt; 10\% \ U(A) + 89\% \ U(B) + 1\% \ U(F) \\&#xA;\\&#xA;11\% \ U(B) + 89\% \ U(F) &amp;amp; &amp;lt; 10\% \ U(A) + 90\% \ U(F)&#xA;\end{align*}&lt;/span&gt;&#xA;which are contradictory. There is no need to assume anything about the function &lt;span class=&quot;math-container&quot;&gt;$U$&lt;/span&gt; for these to be contradictory.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One runs into the usual problem of trying to elicit true preferences in a poll, but so does the original paradox.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2019-01-04T08:37:14.290" CommentCount="8" ContentLicense="CC BY-SA 4.0" />
  <row Id="26274" PostTypeId="2" ParentId="26245" CreationDate="2019-01-04T09:38:09.367" Score="1" Body="&lt;p&gt;Inflation, as measured by CPI, is showing the rate of change in prices for a basket of goods. If demand increases rapidly for the goods in the basket (or supply decreases), with all other things remaining equal, then under traditional economic theory inflation would rise&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Increasing interest rates raises the opportunity cost of spending now versus saving. If more money is saved, less is spent so there is less demand for goods, less upwards pressure on prices and less inflation impact&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This works at both the consumer and corporate/investor levels. If a company is deciding whether to invest or not it will use a discount rate which incorporates the cost of money. If interest rates go up this benchmark goes up so an investment in an asset may no longer be made if it is better on a risk adjusted basis to save the money and earn interest rather than making a risky investment or asset purchase &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The effect is the same - less money in circulation, less being spent on goods and assets and therefore less inflation&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note this is all from an economics theory perspective and use of interest rates to manage inflation is a cornerstone of Monetary Economics - whether this works in practice either in the short-or long-term is a topic of debate &lt;/p&gt;&#xA;" OwnerUserId="20669" LastActivityDate="2019-01-04T09:38:09.367" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26275" PostTypeId="2" ParentId="26225" CreationDate="2019-01-04T11:13:04.457" Score="1" Body="&lt;p&gt;CPI is a stock while GDP is a flow. Re-sampling of stocks to higher frequencies can be approximated with a number of choices, but probably the most common is linear interpolation. In some contexts filling forward and filling backward are common. But in principle you could fit any function you want through all the points you have and use the values from the function instead. Flows are a bit more complicated because annual flows are the sum of monthly flows. Dividing the annual flow into twelfths across the entire year is analogous to filling forward or filling backward (depending on what month of the year is the date of annual measurement). For example, if GDP is 144 and measured in December of 2018, assigning every month in 2018 a value of 12 is similar to filling backwards. But again, as long as you remember that the flows are supposed to add up across months to equal or approximate annual flows you can you a number of functional forms to approximate them. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is a big topic. I recommend searching for papers related to &quot;&lt;a href=&quot;https://scholar.google.com/scholar?hl=en&amp;amp;as_sdt=0,21&amp;amp;q=interpolate%20time%20series&quot; rel=&quot;nofollow noreferrer&quot;&gt;interpolated time series&lt;/a&gt;&quot;. &lt;a href=&quot;http://www.math.ucsd.edu/~politis/PAPER/editor.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Resampling and Subsampling for Financial Time Series&lt;/a&gt; by E Paparoditis, DN Politis might be a good, if advanced, place to start. &lt;a href=&quot;https://ec.europa.eu/eurostat/ramon/statmanuals/files/KS-DT-05-030-EN.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Modeling and Forecasting Time Series Sampled at Different Frequencies&lt;/a&gt; by Casals, Jerez, and Sotoca is another useful reference. In comparing the effectiveness different methods, &lt;a href=&quot;https://res.mdpi.com/water/water-09-00796/article_deploy/water-09-00796-v3.pdf?filename=&amp;amp;attachment=1&quot; rel=&quot;nofollow noreferrer&quot;&gt;Interpolation in Time Series: An Introductive Overview of Existing Methods, Their Performance Criteria and Uncertainty Assessment&lt;/a&gt; by Lepot, Aubin, and Clemens provides a nice list of methods but doesn't focus on the stock versus flow distinction. &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Deterministic methods (fill forward or back)&lt;/li&gt;&#xA;&lt;li&gt;Nearest-neighbor&lt;/li&gt;&#xA;&lt;li&gt;Polynomial interpolation&lt;/li&gt;&#xA;&lt;li&gt;Distance weighting methods&lt;/li&gt;&#xA;&lt;li&gt;Fourier transformation based methods&lt;/li&gt;&#xA;&lt;li&gt;Regression models&lt;/li&gt;&#xA;&lt;li&gt;Auto-regressive models&lt;/li&gt;&#xA;&lt;li&gt;Machine learning based methods&lt;/li&gt;&#xA;&lt;li&gt;Kernel methods&lt;/li&gt;&#xA;&lt;li&gt;K-nearest neighbors&lt;/li&gt;&#xA;&lt;li&gt;Box-Jenkins models&lt;/li&gt;&#xA;&lt;li&gt;Kriging-based methods&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="69" LastActivityDate="2019-01-04T11:13:04.457" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26276" PostTypeId="2" ParentId="26256" CreationDate="2019-01-04T11:30:17.413" Score="1" Body="&lt;p&gt;The fiscal multiplier in (iv) would arise from&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ Y = C+I+G$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ Y = a + c(Y-T)-d\alpha Y +G+I.$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This can be rearranged as &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$Y(1-c+d\alpha)=a-cT+G+I,$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and, therefore, the fiscal multiplier would be&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\frac{1}{1-c+d\alpha}.$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In order for this to equal &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt;, you just need &lt;span class=&quot;math-container&quot;&gt;$d\alpha=c.$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that setting &lt;span class=&quot;math-container&quot;&gt;$d\alpha=c$&lt;/span&gt; in your &quot;multiplier&quot; does not yield 1:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\frac{1}{1-c}+\frac{1}{1-d\alpha}=\frac{1}{1-c}+\frac{1}{1-c}=\frac{2}{1-c}.$$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="20281" LastActivityDate="2019-01-04T11:30:17.413" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26278" PostTypeId="2" ParentId="26265" CreationDate="2019-01-04T16:48:58.370" Score="2" Body="&lt;p&gt;There are two different way to present the IS-LM model, one with a vertical money supply line, and one with a horizontal interest rate line. Consider the second one, as it represents better what central banks actually do nowadays.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the r goes up, this means the central bank has increased its benchmark interest rate (it can mean a host of other things, but I am assuming your IS-LM model does not include risk premia and the like). The horizontal r line shifts upward. The point where this line intersects the money demand line implies that the real money supply is lower. This does not tell us much: it just tells us that the central bank, in order to achieve the higher interest rate it wants, has decreased the nominal money supply M, so that, given the money demand, the interest rate goes up. One could represent this equally well with a vertical line, as I mentioned, but that representation makes it seem as if the central bank targets a given level of money supply. It does not: it targets the interest rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Anyway, Patricio is right in saying that, to really track what happens to P, you need the AS-AD model. However, the basic mechanics can be understood intuitively in the IS-LM. The shift in money supply shifts the LM curve leftward, so Y decreases. We move upwards left along the IS curve, as the increased interest rate (endogenously) decreases I (the opportunity cost of investing is larger, so less people invest). The resulting decrease in demand lowers the price level (this is just basic S-D logic, no AS-AD needed). If the central bank wants to keep to its target interest rate, it further increases the M in response to the decrease in P, so as to keep M/P at the level conforming to its target interest rate. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are some more dynamics in the AS-AD curves after this that have to do with wage rigidity and inflation expectations, but I will leave it at that, as I don't know if you've seen this already. &lt;/p&gt;&#xA;" OwnerUserId="20591" LastEditorUserId="20591" LastEditDate="2019-01-05T22:37:44.153" LastActivityDate="2019-01-05T22:37:44.153" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26279" PostTypeId="1" CreationDate="2019-01-04T20:28:08.537" Score="1" ViewCount="186" Body="&lt;p&gt;The idea of what a public utility is, economically, &lt;em&gt;rather than just legally&lt;/em&gt; is &lt;a href=&quot;https://www.jstor.org/stable/2548908?seq=1#page_scan_tab_contents&quot; rel=&quot;nofollow noreferrer&quot;&gt;not a new point of discussion&lt;/a&gt;. Philosophers like John Stuart Mill argued for the public provision of water and gas, based on them being natural monopolies (&lt;a href=&quot;http://philosophyfaculty.ucsd.edu/faculty/rarneson/Courses/Mill,%20Principles%20of%20Political%20Economy,%20Book%20V,%20Chapter%20XI-%20Library%20of%20Economics%20and%20Liberty.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;see here, V.11.36&lt;/a&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Public utilities are a type of public good provision related to services that may have a tendency to form a natural monopoly. Natural monopolies are cases where it may be more efficient to have one provider rather than competing providers for a service, due to large economies of scale, large barriers to entry, inelastic demand of consumers, the need for over-engineering (being able to provide for peak demands), among other factors. Providing tap water, gas, or electricity, usually requires a lot of infrastructure that is expensive to put into place, so this is one example of why these goods do not have a lot of competition in their provision, as these goods tend to exhibit naturally monopolistic tendencies.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Although the internet requires a large infrastructure and may have large economies of scale, it does not seem to neatly fit the idea of a public good. A public good is usually non-rivalrous and non-excludable, but the internet however seems to definitely be excludable, and in some places, rivalrous, at least partially (sharing bandwidth with your extended family and/or your neighbor who downloads a lot of mysterious content). There is also a laymen argument to be made that the internet could be a luxury good instead of a necessity, making it inappropriate to regulate as a public utility.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;There is some evidence that monopolies or oligopolistic competition in related industries, such as cable television, &lt;a href=&quot;https://www.journals.uchicago.edu/doi/abs/10.1086/508310&quot; rel=&quot;nofollow noreferrer&quot;&gt;decrease the quality of its provision in the absence of regulation&lt;/a&gt;, but my concern is not to debate regulation with this question. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;My question is, what economic literature is there for characterizing the economic properties of the internet, either as a public utility as opposed to a luxury or something else?&lt;/strong&gt; &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In discussing the answer to this question, papers regarding whether the internet should be regulated as a public utility may pop up, and that is okay. But the primary question I have is not what the nature of regulation should be, if any.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastEditorUserId="4251" LastEditDate="2019-01-06T22:05:27.937" LastActivityDate="2019-01-06T22:05:27.937" Title="Can the internet be characterized as a public utility?" Tags="&lt;reference-request&gt;&lt;monopoly&gt;&lt;public-economics&gt;&lt;public-goods&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="26280" PostTypeId="1" CreationDate="2019-01-05T09:28:20.997" Score="3" ViewCount="102" Body="&lt;p&gt;How are wages distributed globally? Wages do not follow a normal distribution, do they? Is wealth distributed in the same way or differently?&lt;/p&gt;&#xA;" OwnerUserId="20674" LastActivityDate="2019-01-06T18:56:04.977" Title="Statistical distribution of wages and wealth" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;wages&gt;&lt;wealth&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="26281" PostTypeId="2" ParentId="26280" CreationDate="2019-01-05T12:05:30.117" Score="4" Body="&lt;p&gt;&lt;strong&gt;&lt;em&gt;Globally&lt;/em&gt;&lt;/strong&gt;, there is Lakner and Milanovik (2015)'s elephant graph:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/BNnBW.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/BNnBW.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;hr&gt;&#xA;Hellebrandt and Mauro (2015)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/a9E4g.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/a9E4g.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Thus, the two previous distributions look like bimodal log-normal distributions.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;hr&gt;&#xA;or &lt;a href=&quot;https://en.wikipedia.org/wiki/Cumulative_distribution_function&quot; rel=&quot;nofollow noreferrer&quot;&gt;CDF&lt;/a&gt;s, as in &lt;a href=&quot;https://rads.stackoverflow.com/amzn/click/1592409660&quot; rel=&quot;nofollow noreferrer&quot;&gt;MacAskill's book &lt;em&gt;Doing Good Better&lt;/em&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/bQMdk.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/bQMdk.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Did not find something strictly related to wages. For most of people, income may be a good proxy of wages.&lt;/p&gt;&#xA;" OwnerUserId="10247" LastEditorUserId="10247" LastEditDate="2019-01-06T18:56:04.977" LastActivityDate="2019-01-06T18:56:04.977" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="26283" PostTypeId="2" ParentId="26280" CreationDate="2019-01-05T17:13:29.307" Score="2" Body="&lt;p&gt;Both distributions are often modelled log-normal, with a substantial number of zeros. A pareto distribution is also sometimes used (&lt;a href=&quot;https://eml.berkeley.edu/~saez/piketty-saezNBER12handbook.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Piketty &amp;amp; Saez (2012), p.32&lt;/a&gt;) for modelling the distribution of top incomes. Wealth distributions are also in general far more skewed than wage (or income) distributions.&lt;/p&gt;&#xA;" OwnerUserId="17735" LastActivityDate="2019-01-05T17:13:29.307" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26284" PostTypeId="1" AcceptedAnswerId="26306" CreationDate="2019-01-05T20:32:23.280" Score="3" ViewCount="246" Body="&lt;p&gt;In my introductory econometrics course, we have been discussing the GM-assumptions and homoskedasticity. Unfortunately, I have some confusions and interlinked questions, so I am wondering if somebody could help me with my understanding please?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;model: &lt;span class=&quot;math-container&quot;&gt;$y_i = \beta_0 + \beta_1 x_i + u_i  $&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;What is the difference between &lt;span class=&quot;math-container&quot;&gt;$E[u] = 0$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$E[u|x] = 0$&lt;/span&gt;? Does the first imply the latter?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand that the latter marks that the conditional mean, ie that the expected value of &lt;span class=&quot;math-container&quot;&gt;$u$&lt;/span&gt; is &lt;span class=&quot;math-container&quot;&gt;$\sigma^2$&lt;/span&gt; irrespective of &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;, but isn't this implied by the unconditional mean? Is one of them a stronger assumption? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Do the above imply &lt;span class=&quot;math-container&quot;&gt;$cov(u,x) = 0$&lt;/span&gt; and how? What is the difference between &lt;span class=&quot;math-container&quot;&gt;$cov(y,x)$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$cov(u_i,x_i)$&lt;/span&gt;?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We have stated that the homoskedasticity assumption implies zero covariance between &lt;span class=&quot;math-container&quot;&gt;$u$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;, but how does it come? And why is it labelled a &quot;weaker assumption&quot; (at least by Woolridge)? What really confuses me is that we often use the notation &lt;span class=&quot;math-container&quot;&gt;$cov(u_i,x_i)$&lt;/span&gt; instead of &lt;span class=&quot;math-container&quot;&gt;$cov(u,x)$&lt;/span&gt; - is there any difference? If the first one relates to a specific &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;, does it really have a meaning at all?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Apologies if these questions are rather trivial. And thank you very much for your help!&lt;/p&gt;&#xA;" OwnerUserId="18990" LastEditorUserId="18990" LastEditDate="2019-01-26T10:49:58.617" LastActivityDate="2019-05-26T21:02:27.217" Title="Confusion over homoskedacity assumption" Tags="&lt;econometrics&gt;" AnswerCount="2" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26287" PostTypeId="1" AcceptedAnswerId="26291" CreationDate="2019-01-06T03:44:02.723" Score="1" ViewCount="35" Body="&lt;blockquote&gt;&#xA;&lt;p&gt;Suppose that we have the following inequality:&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$u( y- d) - u(y-d') \ge u(y' - d) - u( y' -d')$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;p&gt;The concavity of &lt;span class=&quot;math-container&quot;&gt;$u$&lt;/span&gt; together with &lt;span class=&quot;math-container&quot;&gt;$y\le y'$&lt;/span&gt; then implies that &lt;span class=&quot;math-container&quot;&gt;$d \le d'$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;I sometimes come across this problem in economic papers, but I don't understand the logic behind this. Can anyone explain this?&lt;/p&gt;&#xA;" OwnerUserId="17957" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2019-01-06T12:02:54.830" Title="Implication of the concavity of u" Tags="&lt;microeconomics&gt;&lt;theory&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26288" PostTypeId="2" ParentId="25718" CreationDate="2019-01-06T04:25:18.700" Score="1" Body="&lt;p&gt;The bank runs were not caused by the crash; they were both caused by the same phenomena.  In the run-up to the crash banks around the United States sent requests to city banks and the reserve banks for gold.  In part due to the poor information collection system at the time, there was no way for the Fed to distinguish between a heating up economy and a true shortage of gold.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Fed interpreted the requests for gold as a heating up economy and so contracted the money supply by 3%.  This exacerbated the shortage of gold around the United States.  It quickly propagated through the world financial system because of the shared gold standard.  The market crashed because banks were issuing margin loans at up to 90% of value.  The older system in use, before the Fed, was to create a banking suspension where banks would collect gold, but not disburse gold.  The Fed made that functionally impossible forcing runs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The thing to remember about stocks is that they are purchased with your spare money.  Given a choice of eating food or buying shares in Apple, people will choose food.  When the money supply contracted, funds didn't exist for businesses to continue operations, to pay employees, so people sold stocks.  The sales forced margin calls, which triggered more sales, which triggered more margin calls and so forth.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The NY Fed did provide liquidity at the beginning of the crisis, but the Board of Governors were still convinced that the contraction was necessary and forced the end of the NY Fed's liquidity provision.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The stock market was the thermometer, not the cause.  The system had become sick.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To be fair to the Fed, it was itself part of a much larger set of global events without an information base to act on.  It was also true for the Bank of England or the main European banks.  The gold standard propagated economic issues in ways that were not understood at the time. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;When World War II ended the nations of the world created a variety of treaty organizations such as the United Nations and the OECD to prevent such a sequence of events happening again.  The problem is that restricting those events from happening means that some large business owners miss out on opportunities and so there is pressure to dissolve or weaken the treaty organizations.  In addition, the major nations sometimes endanger the system.  You can see this very directly through the actions of the Trump administration.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The postwar era institutions really do need reform as the threats have changed, but the political will to protect the world doesn't play well in local political processes.&lt;/p&gt;&#xA;" OwnerUserId="11321" LastActivityDate="2019-01-06T04:25:18.700" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26289" PostTypeId="1" CreationDate="2019-01-06T04:56:34.747" Score="1" ViewCount="18" Body="&lt;p&gt;I was reading a wikipedia article about the evolution of global financial system: &lt;a href=&quot;https://en.wikipedia.org/wiki/Global_financial_system#Interwar_period:_1915%E2%80%931944&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://en.wikipedia.org/wiki/Global_financial_system#Interwar_period:_1915%E2%80%931944&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the passage about the pre-WWI financial system, it is written that&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;[Immediately before the outbreak of WWI,] European tensions and&#xA;  increasing political uncertainty motivated investors to chase&#xA;  liquidity, prompting commercial banks to borrow heavily from London's&#xA;  discount market. As the money market tightened, discount lenders began&#xA;  rediscounting their reserves at the Bank of England rather than&#xA;  discounting new pounds sterling.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;What do &quot;rediscounting reserves&quot; and &quot;discounting new pounds sterling&quot; mean?&lt;/p&gt;&#xA;" OwnerUserId="20679" LastActivityDate="2019-01-06T04:56:34.747" Title="What does it mean when a discount lender &quot;rediscount[s] reserves&quot;?" Tags="&lt;macroeconomics&gt;&lt;financial-economics&gt;&lt;central-banking&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26291" PostTypeId="2" ParentId="26287" CreationDate="2019-01-06T10:09:53.293" Score="0" Body="&lt;p&gt;I think you have the inequality sign wrong. The inequality as you write it cannot hold. To see this, consider the numerical case where &lt;span class=&quot;math-container&quot;&gt;$y=4 &amp;gt; y'=3, d=1 &amp;lt; d'=2$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$u= \sqrt(x)$&lt;/span&gt;. I let you do the calculation yourself. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I suppose the correct inequality is: &#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{equation} u(y−d)−u(y−d') \leq u(y'−d)−u(y′−d′) \end{equation}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This equation holds true due to the curvature of a concave function. If you're on the upward sloping part of the function, the closer you are to the summit, the flatter the slope. So the vertical distance between the images of the two points in the domain on the left side of the equation is smaller than the same on the right side if &lt;span class=&quot;math-container&quot;&gt;$y&amp;gt;y'$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$d \leq d'$&lt;/span&gt;, and equal if &lt;span class=&quot;math-container&quot;&gt;$y=y'$&lt;/span&gt;. On the downward sloping part it's the other way around. The set of inequality conditions imply each other. Changing one inequality requires changing the others. You can check this for yourself by picking points on a concave curve that satisfy the inequalities.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is really just an elaborate version of &lt;span class=&quot;math-container&quot;&gt;$|x| \leq |y|$&lt;/span&gt;, where if &lt;span class=&quot;math-container&quot;&gt;$x \leq 0, y \leq x$&lt;/span&gt; and if &lt;span class=&quot;math-container&quot;&gt;$x \geq 0, y \geq x$&lt;/span&gt;. &#xA;I hope this answers your question. &lt;/p&gt;&#xA;" OwnerUserId="20591" LastEditorUserId="20591" LastEditDate="2019-01-06T11:13:26.577" LastActivityDate="2019-01-06T11:13:26.577" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26292" PostTypeId="2" ParentId="26261" CreationDate="2019-01-06T10:44:53.913" Score="2" Body="&lt;p&gt;In a closed economy, which is what you have because you are not considering net exports, &lt;strong&gt;&lt;em&gt;I=S&lt;/em&gt;&lt;/strong&gt;, so the definition of output is &lt;strong&gt;&lt;em&gt;Y=C+I+G&lt;/em&gt;&lt;/strong&gt;. This is because output equals total final-good expenditure on consumption, government final good expenditure (i.e. excluding transfers to consumers like benefits), and investment. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that &lt;strong&gt;&lt;em&gt;S&lt;/em&gt;&lt;/strong&gt; is not included in this definition because to do so would be to double-count investment (however I could substitute it in for &lt;strong&gt;&lt;em&gt;I&lt;/em&gt;&lt;/strong&gt;. Likewise, I have included &lt;strong&gt;&lt;em&gt;G&lt;/em&gt;&lt;/strong&gt;, or government expenditure, instead of &lt;strong&gt;&lt;em&gt;T&lt;/em&gt;&lt;/strong&gt; because this allows for a more flexible definition where the government doesn't necessarily run a balanced budget. However, not that if &lt;strong&gt;&lt;em&gt;G=T&lt;/em&gt;&lt;/strong&gt; then you could substitute &lt;strong&gt;&lt;em&gt;T&lt;/em&gt;&lt;/strong&gt; into the equation instead. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you substitute &lt;strong&gt;&lt;em&gt;S=I&lt;/em&gt;&lt;/strong&gt; and then rearrange for &lt;strong&gt;&lt;em&gt;S&lt;/em&gt;&lt;/strong&gt; you will fine you get &lt;strong&gt;&lt;em&gt;S=Y-C-G&lt;/em&gt;&lt;/strong&gt;, which I presume is the definition you have come across previously.&lt;/p&gt;&#xA;" OwnerUserId="20682" LastActivityDate="2019-01-06T10:44:53.913" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="26293" PostTypeId="1" CreationDate="2019-01-06T12:20:12.777" Score="2" ViewCount="1028" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/ydABa.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/ydABa.png&quot; alt=&quot;enter image description here&quot; /&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;L_t = \gamma(\pi_t - \pi_t^\otimes)^2 + \hat{Y}_t^2&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Central banks loss function is given by the equation above. This loss is increasing and convex in the distance from the inflation target, i.e. the marginal loss increases at a faster rate than the increase in the distance from the target.&lt;/p&gt;&#xA;&lt;p&gt;In Figure 1, we can visualise the preferences using indifference curves, where the ellipses have the center being the desired point (0, &lt;span class=&quot;math-container&quot;&gt;$\pi_t^\otimes$&lt;/span&gt; = Target inflation point.) (saturation point - bliss point)&lt;/p&gt;&#xA;&lt;p&gt;It is hard for me to see how the different ellipses are indifference curves, or convex from in the difference from target?. Any explanation would help a lot.&lt;/p&gt;&#xA;" OwnerUserId="20683" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2019-01-07T00:20:51.153" Title="Central bank loss function" Tags="&lt;macroeconomics&gt;&lt;monetary-policy&gt;&lt;central-banking&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26294" PostTypeId="1" CreationDate="2019-01-06T14:48:30.367" Score="2" ViewCount="566" Body="&lt;p&gt;Is the supply of output for a monopolist less elastic than that of a perfectly competitive firm with the same production function? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;On one hand, it seems impossible to calculate the elasticity of supply for a monopolist since it has no supply curve (i.e. no explicit relationship between quantity supplied and prices since it determines both quantity and therefore indirectly, prices by producing where MR = MC). As a result, it would be impossible to calculate the elasticity of supply for a monopolist and the above statement is false.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, it would seem to make sense that the elasticity of supply is lower for a monopolist because if for example there is an increase in demand, leading to higher prices, the additional output produced by a competitive firm would be higher than a monopolist as the monopolist would tend to restrict output to keep prices higher. Thus, the monopolist's supply is less elastic and responsive to price changes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Both sets of reasoning seem to be correct to me. What am I missing? &lt;/p&gt;&#xA;" OwnerUserId="20326" LastActivityDate="2019-01-07T11:39:12.810" Title="Elasticity of Supply for a Monopolist" Tags="&lt;elasticity&gt;&lt;monopoly&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26295" PostTypeId="1" CreationDate="2019-01-06T15:08:46.217" Score="0" ViewCount="82" Body="&lt;p&gt;I am reading LS book, on Chapter 8 - Complete Markets (3rd version). There is an example on page 264 that I am quite confused. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I attach the picture of the example here under.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't understand why we have a history (0,0,0,...,0,1,1)? since if &lt;span class=&quot;math-container&quot;&gt;$s_t=0$&lt;/span&gt;, then &lt;span class=&quot;math-container&quot;&gt;$s_{t+1} = 0$&lt;/span&gt; for sure, right?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or the authors means the history here is in order &lt;span class=&quot;math-container&quot;&gt;$(s_t, s_{t-1},....,s_1,s_0)$&lt;/span&gt;,&#xA;so it makes sense since we know that &lt;span class=&quot;math-container&quot;&gt;$s_0=1, s_1=1$&lt;/span&gt;, but isn't it quite weird, since we usually write a history &lt;span class=&quot;math-container&quot;&gt;$h_t=(s_0,s_1,...s_t)$&lt;/span&gt; right?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Anyone has an idea? Really appreciate your help!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/Ni5qb.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Ni5qb.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="20566" LastActivityDate="2020-09-28T05:00:35.057" Title="LS book (Recursive Macro Theory). Chapter8: Complete Market" Tags="&lt;complete-markets&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26296" PostTypeId="1" AcceptedAnswerId="26304" CreationDate="2019-01-06T15:50:26.737" Score="4" ViewCount="49" Body="&lt;p&gt;I am reading LS book &quot;Recursive Macroeconomics Theory&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this book, as well as in some online lecture notes on the Internet. They often denote, for example, &lt;span class=&quot;math-container&quot;&gt;$\pi_t(s^t)$&lt;/span&gt; for probability that history &lt;span class=&quot;math-container&quot;&gt;$s^t$&lt;/span&gt; happens at time &lt;span class=&quot;math-container&quot;&gt;$t$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But I wonder, if we are mentioning &lt;span class=&quot;math-container&quot;&gt;$s^t$&lt;/span&gt;, it implies time is &lt;span class=&quot;math-container&quot;&gt;$t$&lt;/span&gt;. So, why don't we just make it simple by writing &lt;span class=&quot;math-container&quot;&gt;$\pi(s^t)$&lt;/span&gt; instead?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank in advance for any help!&lt;/p&gt;&#xA;" OwnerUserId="20566" LastEditorUserId="14419" LastEditDate="2019-01-08T14:50:59.470" LastActivityDate="2019-01-08T14:50:59.470" Title="Probability of history occurring at time $t$" Tags="&lt;macroeconomics&gt;&lt;complete-markets&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26297" PostTypeId="2" ParentId="26293" CreationDate="2019-01-06T16:33:51.990" Score="3" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;The intuitive way&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Draw the function &lt;span class=&quot;math-container&quot;&gt;$L_t$&lt;/span&gt;, the graph below is build with &lt;span class=&quot;math-container&quot;&gt;$\gamma = 0.8$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\pi_t^\otimes = 1$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/MC0qI.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/MC0qI.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Convex in this context means that the function &lt;span class=&quot;math-container&quot;&gt;$L_t$&lt;/span&gt; looks like a bowl, just one well defined minimum. And if you cut it with a horizontal plane, the result is an ellipse.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/ISzGm.gif&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/ISzGm.gif&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The formal way&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Just for convenience, define the variable &lt;span class=&quot;math-container&quot;&gt;$p_t = \pi_t - \pi_t^\otimes$&lt;/span&gt; so the function becomes&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;L_t(p_t, Y_t) = \gamma p_t^2 + Y_t^2 \tag{B1}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First note that if &lt;span class=&quot;math-container&quot;&gt;$\gamma &amp;gt; 0$&lt;/span&gt;  then &lt;span class=&quot;math-container&quot;&gt;$L_t(p_t, Y_t) \ge 0$&lt;/span&gt;. To prove convexity you just need to show that for any pair &lt;span class=&quot;math-container&quot;&gt;$(p_{t,1},Y_{t,1})$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$(p_{t,2},Y_{t,2})$&lt;/span&gt; the condition&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;L_t(t p_{t,1} + (1 - t)p_{t,2}, t Y_1 + (1 - t)Y_{t,2}) &amp;lt; tL_t(p_{t,1}, Y_t) + (1 -t)L_t(p_{t,2}, Y_{t,2}) \tag{B2}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;holds for &lt;span class=&quot;math-container&quot;&gt;$ 0 &amp;lt; t &amp;lt; 1$&lt;/span&gt;. This is actually fairly easy to show&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{eqnarray}&#xA;L_t(t p_{t,1} + (1 - t)p_{t,2}, t Y_1 + (1 - t)Y_{t,2}) &amp;amp;=&amp;amp; \gamma[t p_{t,1} + (1 - t)p_{t,2}]^2 + (t Y_1 + (1 - t)Y_{t,2})^2 \\&#xA;&amp;amp;\vdots &amp;amp; \\&#xA;&amp;amp;=&amp;amp; t [\gamma p_{t,1}^2 + Y_{t,1}^2] + (1 - t) [\gamma p_{t,2}^2 + Y_{t,2}^2] \\&#xA;&amp;amp;&amp;amp;\quad + t(1 - t) [\gamma(p_{t,1} - p_{t,2})^2 + (Y_{t,1} - Y_{t,2})^2] \\&#xA;&amp;amp;=&amp;amp; tL_t(p_{t,1}, Y_t) + (1 -t)L_t(p_{t,2}, Y_{t,2}) \\&#xA;&amp;amp;&amp;amp;\quad \underbrace{t(1 - t)L_t(p_{t,1} - p _{t_2}, Y_{t,1} - Y_{t,2})}_{&amp;gt; 0} \\&#xA;&amp;amp;&amp;lt; &amp;amp; tL_t(p_{t,1}, Y_t) + (1 -t)L_t(p_{t,2}, Y_{t,2}) \tag{B3}&#xA;\end{eqnarray}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So &lt;span class=&quot;math-container&quot;&gt;$L_t$&lt;/span&gt; is convex. To show that indifference curves are ellipses, just fix &lt;span class=&quot;math-container&quot;&gt;$L_t$&lt;/span&gt; to a constant value, let's say &lt;span class=&quot;math-container&quot;&gt;$A &amp;gt; 0$&lt;/span&gt; then we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;A = \gamma p_t^2+ Y_t^2 ~~\Rightarrow~~ \frac{p_t^2}{A/\gamma} + \frac{Y_t}{A} = 1 \tag{B4}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which are just ellipses centered at &lt;span class=&quot;math-container&quot;&gt;$p_t = 0 = \pi_t - \pi_t^\otimes$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$Y_t = 0$&lt;/span&gt; with axis lengths &lt;span class=&quot;math-container&quot;&gt;$\sqrt{A/\gamma}$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\sqrt{A}$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="14419" LastEditorUserId="14419" LastEditDate="2019-01-07T00:20:51.153" LastActivityDate="2019-01-07T00:20:51.153" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26298" PostTypeId="2" ParentId="10483" CreationDate="2019-01-06T17:46:23.800" Score="3" Body="&lt;p&gt;Here is some evidence from third-party colleagues who have been to Japan in the 90s and recently visited again last year. He informed me that prices were the same as in the 90s or lower.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is definitely the result of deflation working in Japan.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another example of deflation in action is a report you can read here:&#xA;&lt;a href=&quot;https://www.ozy.com/fast-forward/back-to-the-future-japanese-youth-flee-cities-for-the-countryside/87547&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.ozy.com/fast-forward/back-to-the-future-japanese-youth-flee-cities-for-the-countryside/87547&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;While here in the United States, most people don't get why someone like myself who works in the tech/economics field would want to own a small farming business, the youth of Japan do get it and they are moving back to rural villages and renting large traditional farm houses and adjoining land for $200/month, which is a fraction of what they were paying in cramped up studios in the city. This is an example of deflation in action where young Japanese citizens are abandoning costly housing, transportation, etcetera and adopting lifestyles that generate far less income and far lower expenses, both are deflationary.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So what are the consequences for these young people in Japan? Less stress, better health, higher quality of life overall? You would have to read the article and make your own conclusion.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You were not specific on consequences for whom.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Bank of Japan has tripled its asset purchases:&lt;a href=&quot;https://i.stack.imgur.com/rzNFt.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/rzNFt.png&quot; alt=&quot;BOJ Balance Sheet 2017&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This has had little apparent effect on conventional measures of inflation. The purpose is to offset deflationary declines but it has not worked and its starting to burden the State. So those are consequences the State of Japan will have to deal with. They may try to pass that off to its citizens the way our government does here, but as you have seen above, more and more Japanese are fleeing to a simpler life in the countryside.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;All this new spending on the part of the BOJ may lead to mal-investment and systemic asymmetries that will eventually destabilize the entire financial system.&lt;/p&gt;&#xA;" OwnerUserId="20035" LastActivityDate="2019-01-06T17:46:23.800" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26302" PostTypeId="2" ParentId="26294" CreationDate="2019-01-06T20:45:23.000" Score="2" Body="&lt;p&gt;Elastic with respect to which variable?&lt;br&gt;&#xA;Contrary to what is said in some bachelor textbooks, the monopoly has a supply curve, but it cannot directly be seen on the MR=MC Figure. &#xA;As the price is endogenous in the case of monopoly, the price elasticity of supply is not defined, unless you have some exogenous variable shifting the price. For instance if the inverse output demand function is &lt;span class=&quot;math-container&quot;&gt;$p=P(y,z)$&lt;/span&gt; where &lt;span class=&quot;math-container&quot;&gt;$z$&lt;/span&gt; denotes an exogenous variable (population size, aggregate unemployment rate, etc), then it is possible to compute the elasticity, even in the case of a monopoly. Then you can compare the responsiveness to shifts to &lt;span class=&quot;math-container&quot;&gt;$z$&lt;/span&gt; in both the competitive and the monopoly cases. At the monopoly optimum, the condition &lt;span class=&quot;math-container&quot;&gt;$$P(y,z)+\frac{\partial P}{\partial y}(y,z)y=c'(y)$$&lt;/span&gt; implicitly defines the supply function &lt;span class=&quot;math-container&quot;&gt;$y^*(z)$&lt;/span&gt; and it can be shown by the implicite function theorem that &lt;span class=&quot;math-container&quot;&gt;$$\frac{\partial y^*}{\partial z}(z)=-\frac{\partial P/\partial z +y^*\partial^2P/\partial y\partial z}{2\partial P/\partial y+y^*\partial^2P/\partial y^2-c''},$$&lt;/span&gt; where for simplicity I omitted the arguments of the different functions. From the second order condition for an optimum, we know that the denominator is negative. It turns out that for demand shifts &lt;span class=&quot;math-container&quot;&gt;$z$&lt;/span&gt; which increase &lt;span class=&quot;math-container&quot;&gt;$P$&lt;/span&gt; the monopoly output increases (provided the term &lt;span class=&quot;math-container&quot;&gt;$y^*\partial^2P/\partial y\partial z$&lt;/span&gt; is well behaved, if &lt;span class=&quot;math-container&quot;&gt;$P$&lt;/span&gt; is linear in &lt;span class=&quot;math-container&quot;&gt;$z$&lt;/span&gt; for instance).  In the competitive case, the comparable expression is &lt;span class=&quot;math-container&quot;&gt;$$\frac{\partial y^c}{\partial z}(z)=\frac{\partial P/\partial z }{c''},$$&lt;/span&gt; which is positive as well. Now compare both expressions, and conclude…. As we are interested in elasticities, we should actually compare &lt;span class=&quot;math-container&quot;&gt;$$\frac{\partial y^*}{\partial z}\frac{z}{y^*}(z) \text{ and } \frac{\partial y^c}{\partial z}\frac{z}{y^c}(z),$$&lt;/span&gt; and consider that &lt;span class=&quot;math-container&quot;&gt;$y^*&amp;gt;y^c$&lt;/span&gt;. If the inverse demand is linear, comparison is easy, but is involved in general as it depends on global properties of all functions involved in the expressions above.&lt;/p&gt;&#xA;" OwnerUserId="20576" LastEditorUserId="20576" LastEditDate="2019-01-07T11:39:12.810" LastActivityDate="2019-01-07T11:39:12.810" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26303" PostTypeId="2" ParentId="25657" CreationDate="2019-01-06T20:51:25.470" Score="2" Body="&lt;p&gt;You will gain in flexibility and generality by adding more terms and avoid to impose restrictions on substitution between inputs and returns to scale, that are usually rejected (when tested).&lt;/p&gt;&#xA;" OwnerUserId="20576" LastActivityDate="2019-01-06T20:51:25.470" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26304" PostTypeId="2" ParentId="26296" CreationDate="2019-01-07T00:14:59.067" Score="2" Body="&lt;p&gt;You are right, it is the same thing. Actually, later on the book the density over the history &lt;span class=&quot;math-container&quot;&gt;$s^t = [s_t, s_{t-1}, \cdots, s_0]$&lt;/span&gt; is written as &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\pi(s^t) = \pi(s_t|s_{t-1}) \cdots \pi (s_1|s_0)\pi(s_0) \tag{2.3.1}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where &lt;span class=&quot;math-container&quot;&gt;$\pi(s_0)$&lt;/span&gt; denotes the probability of the initial state (or &lt;span class=&quot;math-container&quot;&gt;$\pi_0(s_0)$&lt;/span&gt; if you wish), and &lt;span class=&quot;math-container&quot;&gt;$\pi(s|s')$&lt;/span&gt; is a transition probability.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that Eq. (2.3.1) encapsulates the the probability of obtaining a given history in a Markov process, since &lt;span class=&quot;math-container&quot;&gt;${\rm Prob}(s_t|s_{t-1}, s_{t-2}\cdots,s_0) = {\rm Prob}(s_t|s_{t-1}) = \pi(s_t|s_{t-1})$&lt;/span&gt;. This just to show that &lt;span class=&quot;math-container&quot;&gt;$\pi_t(s^t)\color{blue}{\equiv}\pi(s^t)$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="14419" LastActivityDate="2019-01-07T00:14:59.067" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26305" PostTypeId="2" ParentId="26295" CreationDate="2019-01-07T00:47:49.977" Score="1" Body="&lt;p&gt;Since this is a Markov chain&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{eqnarray}&#xA;\pi_t(0,0,\cdots,1,1) &amp;amp;=&amp;amp;  \color{blue}{\pi(s_t = 0 | s_{t - 1} = 0)} \cdots \color{magenta}{\pi(s_2 = 0 | s_{1} = 1)} \color{red}{\pi(s_1 = 1 | s_{0} = 1)}\color{orange}{\pi(s_0 = 1)} \\&#xA;&amp;amp;=&amp;amp; \color{blue}{1} \times \cdots\times \color{magenta}{0.5}\times\color{red}{1}\times \color{orange}{1} = 0.5&#xA;\end{eqnarray}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But you are right if &lt;span class=&quot;math-container&quot;&gt;$t &amp;gt; 2$&lt;/span&gt; then &lt;span class=&quot;math-container&quot;&gt;$\pi(s_{t + 1}  = 0 | s_{t} = 0) = 1$&lt;/span&gt;, so if &lt;span class=&quot;math-container&quot;&gt;$s_t = 0$&lt;/span&gt; then &lt;span class=&quot;math-container&quot;&gt;$s_{t + 1} = 0$&lt;/span&gt;, but at &lt;span class=&quot;math-container&quot;&gt;$t = 2$&lt;/span&gt; there's a 50/50 chance that the state changes from &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt; to &lt;span class=&quot;math-container&quot;&gt;$0$&lt;/span&gt;, so the state may remain &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt; as in the first history, or switch to &lt;span class=&quot;math-container&quot;&gt;$0$&lt;/span&gt; as the second one&lt;/p&gt;&#xA;" OwnerUserId="14419" LastActivityDate="2019-01-07T00:47:49.977" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26306" PostTypeId="2" ParentId="26284" CreationDate="2019-01-07T00:52:21.937" Score="6" Body="&lt;p&gt;Intuitive explanation might help.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;(i) &lt;span class=&quot;math-container&quot;&gt;$E[u]=0$&lt;/span&gt; vs &lt;span class=&quot;math-container&quot;&gt;$E[u|x]=0$&lt;/span&gt;:&lt;/strong&gt; Imagine partitioning the population by the value of &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; so that each slice of population has the same value of &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; in it. You can then get the mean of &lt;span class=&quot;math-container&quot;&gt;$u$&lt;/span&gt; for each slice. &quot;&lt;span class=&quot;math-container&quot;&gt;$E[u|x]=0$&lt;/span&gt;&quot;, which is a shortcut notation of &quot;&lt;span class=&quot;math-container&quot;&gt;$E[u|x=c]=0$&lt;/span&gt; for (almost) all &lt;span class=&quot;math-container&quot;&gt;$c$&lt;/span&gt;&quot;, means that the average of &lt;span class=&quot;math-container&quot;&gt;$u$&lt;/span&gt; in every partition is zero. You can also get the mean of &lt;span class=&quot;math-container&quot;&gt;$u$&lt;/span&gt; for the whole population. &quot;&lt;span class=&quot;math-container&quot;&gt;$E[u]=0$&lt;/span&gt;&quot; means that the average of &lt;span class=&quot;math-container&quot;&gt;$u$&lt;/span&gt; for the whole population is zero.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, let &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; be years of education. &lt;span class=&quot;math-container&quot;&gt;$E[u|x]=0$&lt;/span&gt; means that the average of &lt;span class=&quot;math-container&quot;&gt;$u$&lt;/span&gt; for those with 9 years of education is zero, the average of &lt;span class=&quot;math-container&quot;&gt;$u$&lt;/span&gt; for those with 10 years of education is zero, etc., while &lt;span class=&quot;math-container&quot;&gt;$E[u]=0$&lt;/span&gt; means that the average of &lt;span class=&quot;math-container&quot;&gt;$u$&lt;/span&gt; for the whole population is zero.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You see that &quot;&lt;span class=&quot;math-container&quot;&gt;$E[u|x]=0$&lt;/span&gt;&quot; implies some sort of &quot;&lt;span class=&quot;math-container&quot;&gt;$u$&lt;/span&gt; being not related with &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;&quot;, and it's called &lt;em&gt;mean independence&lt;/em&gt;. On the other hand, &lt;span class=&quot;math-container&quot;&gt;$E[u]=0$&lt;/span&gt; does not say anything about the relationship between &lt;span class=&quot;math-container&quot;&gt;$u$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;. &lt;span class=&quot;math-container&quot;&gt;$E[u]=0$&lt;/span&gt; makes sense without &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; ever being involved, while &lt;span class=&quot;math-container&quot;&gt;$E[u|x]=0$&lt;/span&gt; makes sense only in relation to &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;(ii) &lt;span class=&quot;math-container&quot;&gt;$var(u)=\sigma^2$&lt;/span&gt; vs &lt;span class=&quot;math-container&quot;&gt;$var(u|x)=\sigma^2$&lt;/span&gt;:&lt;/strong&gt; Imagine partitioning the population by the value of &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;. You can get the variance of &lt;span class=&quot;math-container&quot;&gt;$u$&lt;/span&gt; for every slice. '&lt;span class=&quot;math-container&quot;&gt;$var(u|x)=\sigma^2$&lt;/span&gt;' means the variance of &lt;span class=&quot;math-container&quot;&gt;$u$&lt;/span&gt; for every partition is &lt;span class=&quot;math-container&quot;&gt;$\sigma^2$&lt;/span&gt;. Here, the key point is that &lt;span class=&quot;math-container&quot;&gt;$\sigma^2$&lt;/span&gt; is a constant and is not involved with &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;. It means that all the slices have the same variance. &lt;span class=&quot;math-container&quot;&gt;$var(u|x)=\sigma^2$&lt;/span&gt; is very informative. Next, you can also get the variance of &lt;span class=&quot;math-container&quot;&gt;$u$&lt;/span&gt; for the whole population, and &lt;span class=&quot;math-container&quot;&gt;$var(u)=\sigma^2$&lt;/span&gt; means that that variance (of &lt;span class=&quot;math-container&quot;&gt;$u$&lt;/span&gt; for the whole population) is denoted &lt;span class=&quot;math-container&quot;&gt;$\sigma^2$&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$\sigma^2$&lt;/span&gt; is just a notation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$var(u|x)$&lt;/span&gt; can depend on &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; (heteroskedasticity), but it is totally nonsense to question whether &lt;span class=&quot;math-container&quot;&gt;$var(u)$&lt;/span&gt; depends on &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; because &lt;span class=&quot;math-container&quot;&gt;$var(u)$&lt;/span&gt; has nothing to do with &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; from the beginning (unless you mean &lt;span class=&quot;math-container&quot;&gt;$var(u|x)$&lt;/span&gt; by &lt;span class=&quot;math-container&quot;&gt;$var(u)$&lt;/span&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;(iii) &lt;span class=&quot;math-container&quot;&gt;$cov(x,u)=0$&lt;/span&gt;:&lt;/strong&gt; This just means that &lt;span class=&quot;math-container&quot;&gt;$cov(x,u)=0$&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$cov(a,b)$&lt;/span&gt; is defined as &lt;span class=&quot;math-container&quot;&gt;$E[(a-Ea)(b-Eb)]$&lt;/span&gt;. In your case, &lt;span class=&quot;math-container&quot;&gt;$cov(x,u)=E[xu]$&lt;/span&gt; because &lt;span class=&quot;math-container&quot;&gt;$E[u]=0$&lt;/span&gt;. If you need intuition about the meaning of &lt;span class=&quot;math-container&quot;&gt;$cov(x,u)=0$&lt;/span&gt;, imagine you have &lt;span class=&quot;math-container&quot;&gt;$(x,u)$&lt;/span&gt; values plotted on the XY plane for the whole population, with &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; on the horizontal axis and &lt;span class=&quot;math-container&quot;&gt;$u$&lt;/span&gt; on the vertical axis. You draw a nice straight line (where being straight is important). &lt;span class=&quot;math-container&quot;&gt;$cov(x,u)=0$&lt;/span&gt; means that the straight line is horizontal. It says something about &lt;span class=&quot;math-container&quot;&gt;$u$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; being not related, and when it happens, we say that &quot;&lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$u$&lt;/span&gt; are uncorrelated.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$E[u|x]=0$&lt;/span&gt; implies &lt;span class=&quot;math-container&quot;&gt;$cov(x,u)=0$&lt;/span&gt; but not vice versa, which is the reason why &lt;span class=&quot;math-container&quot;&gt;$cov(x,u)$&lt;/span&gt; is &lt;strong&gt;weaker&lt;/strong&gt; than &lt;span class=&quot;math-container&quot;&gt;$E[u|x]=0$&lt;/span&gt;. You can prove it using the law of iterated expectations: &lt;span class=&quot;math-container&quot;&gt;$E[xu] = E[xE(u|x)] = E[x\cdot 0]=E[0]=0$&lt;/span&gt;. For a counter example for the other way around, suppose that &lt;span class=&quot;math-container&quot;&gt;$x\sim N(0,1)$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$u=x^2-1$&lt;/span&gt;. Then &lt;span class=&quot;math-container&quot;&gt;$E[u|x]=x^2-1$&lt;/span&gt;, which is not zero except &lt;span class=&quot;math-container&quot;&gt;$x=\pm 1$&lt;/span&gt; but &lt;span class=&quot;math-container&quot;&gt;$cov(x,u) = E[x(x^2-1)] = E[x^3]-E[x]=0-0=0$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;(iv) What is the difference between &lt;span class=&quot;math-container&quot;&gt;$cov(y,x)$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$cov(u,x)$&lt;/span&gt;?&lt;/strong&gt; If &lt;span class=&quot;math-container&quot;&gt;$y=\beta_0 + \beta_1 x +u$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$cov(y,x) = cov(\beta_0+\beta_1 x+u,x) = \beta_1 cov(x,x) + cov(u,x)$&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$cov(x,x) = var(x)$&lt;/span&gt; by definition. That's the difference.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;ADD:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've just noticed the OP's confusion about &lt;span class=&quot;math-container&quot;&gt;$cov(x_i,u_i)$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$cov(x,u)$&lt;/span&gt;. First, &lt;span class=&quot;math-container&quot;&gt;$cov(x,u)$&lt;/span&gt; can be intuitively understood as the population property explained above in (iii). &lt;span class=&quot;math-container&quot;&gt;$cov(x,u)$&lt;/span&gt; is about the population, and does not say anything about the sample. The notation &lt;span class=&quot;math-container&quot;&gt;$cov(x_i,u_i)$&lt;/span&gt; is on the other hand about the sample, and should in fact mean something like &quot;&lt;span class=&quot;math-container&quot;&gt;$cov(x_i,u_i)$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$i=1,\ldots,n$&lt;/span&gt;&quot;, i.e., &lt;span class=&quot;math-container&quot;&gt;$cov(x_1,u_1)$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$cov(x_2,u_2)$&lt;/span&gt;, ..., and &lt;span class=&quot;math-container&quot;&gt;$cov(x_n,u_n)$&lt;/span&gt;. They are all the same if the first person, the second person, ..., the &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt;th person are independent random draws from the same population (which is the meaning of &lt;span class=&quot;math-container&quot;&gt;$iid$&lt;/span&gt;). If they are drawn from different populations, &lt;span class=&quot;math-container&quot;&gt;$cov(x_i, u_i)$&lt;/span&gt; may be different for different &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;, but I am pretty sure you are assuming &lt;span class=&quot;math-container&quot;&gt;$iid$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, what is &lt;span class=&quot;math-container&quot;&gt;$cov(x_1,u_1)$&lt;/span&gt; then? This is the hard part. To understand its meaning, you should understand that &lt;span class=&quot;math-container&quot;&gt;$(x_1,u_1)$&lt;/span&gt; is a &lt;em&gt;random vector&lt;/em&gt;, whose value can change when you repeat sampling in your thought experiments. (This will keep confusing you until you understand this point.) The &quot;first person&quot; in the sample will keep changing when you repeat drawing the sample over and over again in your mind, and thus the &lt;span class=&quot;math-container&quot;&gt;$(x_1,u_1)$&lt;/span&gt; value will keep changing over repeated samples. So, as you repeat sampling indefinitely, the values of &lt;span class=&quot;math-container&quot;&gt;$x_1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$u_1$&lt;/span&gt; will change and make a (joint) distribution. &lt;span class=&quot;math-container&quot;&gt;$cov(x_1,u_1)$&lt;/span&gt; is the covariance of that joint distribution. Likewise, you can understand &lt;span class=&quot;math-container&quot;&gt;$cov(x_2,u_2)$&lt;/span&gt; as the covariance of &lt;span class=&quot;math-container&quot;&gt;$x_2$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$u_2$&lt;/span&gt; over the repeated samples. If you keep drawing the first observation independently from the same population as you talk about &lt;span class=&quot;math-container&quot;&gt;$cov(x,u)$&lt;/span&gt;, then &lt;span class=&quot;math-container&quot;&gt;$cov(x_1,u_1) = cov(x,u)$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So when we talk about the population property, we use the notation &lt;span class=&quot;math-container&quot;&gt;$cov(x,u)$&lt;/span&gt;. When we talk about the covariance of &lt;span class=&quot;math-container&quot;&gt;$x_1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$u_1$&lt;/span&gt; (over repeated samples), we use the notation &lt;span class=&quot;math-container&quot;&gt;$cov(x_1,u_1)$&lt;/span&gt;. The notation &lt;span class=&quot;math-container&quot;&gt;$cov(x_i,u_i)$&lt;/span&gt; is a (sloppy) shortcut notation of &lt;span class=&quot;math-container&quot;&gt;$cov(x_1,u_1), \ldots, cov(x_n,u_n)$&lt;/span&gt;. &quot;&lt;span class=&quot;math-container&quot;&gt;$cov(x_i,u_i)$&lt;/span&gt;&quot; itself does not make much sense until you say what &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; is, like in &quot;&lt;span class=&quot;math-container&quot;&gt;$cov(x_i,u_i)$&lt;/span&gt; is zero for every &lt;span class=&quot;math-container&quot;&gt;$i=1,\ldots,n$&lt;/span&gt;&quot;, or &quot;&lt;span class=&quot;math-container&quot;&gt;$cov(x_i,u_i)$&lt;/span&gt; is nonzero for every &lt;span class=&quot;math-container&quot;&gt;$i=1,\ldots,n$&lt;/span&gt; but they are the same for all &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;.&quot; The statement &quot;&lt;span class=&quot;math-container&quot;&gt;$cov(x_i,u_i)=0$&lt;/span&gt;&quot; is usually a lazy (or clumsy) writing of &quot;&lt;span class=&quot;math-container&quot;&gt;$cov(x_i,u_i)=0$&lt;/span&gt; for all &lt;span class=&quot;math-container&quot;&gt;$i=1,\ldots,n$&lt;/span&gt;&quot;, which means &lt;span class=&quot;math-container&quot;&gt;$cov(x_1,u_1)=0$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$cov(x_2,u_2)=0$&lt;/span&gt;, ..., &lt;span class=&quot;math-container&quot;&gt;$cov(x_n,u_n)=0$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerUserId="10775" LastEditorUserId="10775" LastEditDate="2019-01-28T11:25:41.770" LastActivityDate="2019-01-28T11:25:41.770" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26307" PostTypeId="1" CreationDate="2019-01-07T06:42:50.450" Score="0" ViewCount="899" Body="&lt;p&gt;Slope of budget line= change in y/ change in x and also  Marginal rate of substitution= change in y/ change in x. If the definitions are same of both then what is the difference between the two? I mean 1. Slope of the budget line will be number of units of good y that the consumer is willing to sacrifice for an additional unit of good x. 2. The marginal rate of substitution (MRS) is the amount of a good that a consumer is willing to give up for another good. Here both definitions means the same, right?&lt;/p&gt;&#xA;" OwnerUserId="20689" LastEditorUserId="20689" LastEditDate="2019-01-07T07:14:03.120" LastActivityDate="2019-01-07T09:15:30.207" Title="Differences between Slope of budget line and MRS?" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="26308" PostTypeId="2" ParentId="26307" CreationDate="2019-01-07T09:15:30.207" Score="7" Body="&lt;p&gt;Not really, you're right in that (loosely speaking) the MRS is the amount of one good someone &lt;strong&gt;is willing&lt;/strong&gt; to give up in order to get an additional unit of another good. However, the slope of the budget line measures the amount of one good someone &lt;strong&gt;has&lt;/strong&gt; to give up in order to get an additional unit of another good. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the first case, only &lt;em&gt;preferences&lt;/em&gt; matter, whereas in the second only &lt;em&gt;prices&lt;/em&gt; are relevant.&lt;/p&gt;&#xA;" OwnerUserId="20281" LastActivityDate="2019-01-07T09:15:30.207" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26311" PostTypeId="2" ParentId="26172" CreationDate="2019-01-07T15:26:23.263" Score="1" Body="&lt;p&gt;&lt;a href=&quot;https://www.gov.uk/government/statistics/percentile-points-from-1-to-99-for-total-income-before-and-after-tax/&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.gov.uk/government/statistics/percentile-points-from-1-to-99-for-total-income-before-and-after-tax/&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The ONS has freely available data on the percentile points of the income distribution as estimated from the Survey of Personal Incomes. The data is collected on a yearly basis, and is currently designated as &quot;Percentile points from 1 to 99 for total income before and after tax&quot;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You should be able to calculate the answer to your question approximately with this information and some linear interpolation. If you really want the exact number, you probably need the actual micro-data, which I'm guessing you will need to submit a request for, unless the ONS anonymized it. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You should check whether these still need to be deflated to get real income.&lt;/p&gt;&#xA;" OwnerUserId="20591" LastEditorUserId="20591" LastEditDate="2019-01-07T17:05:32.157" LastActivityDate="2019-01-07T17:05:32.157" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26312" PostTypeId="2" ParentId="26261" CreationDate="2019-01-07T17:42:04.120" Score="2" Body="&lt;p&gt;Savings are defined as that part of income that is not spent on consumption nor paid in taxes to the government. We do not focus on what is done with savings but, rather, on how much of the disposable income is not spent on consumption. In colloquial terms &lt;em&gt;investment&lt;/em&gt; has a wider meaning than in economics. For instance we'd say &quot;I've invested \$10.000 in the stock market.&quot; For economists, in order for an expenditure to qualify as &lt;em&gt;investment,&lt;/em&gt; it needs to be on capital goods. Therefore, buying shares of stock is not considered as an investment, but just an allocation of savings.&lt;/p&gt;&#xA;" OwnerUserId="20281" LastActivityDate="2019-01-07T17:42:04.120" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="26313" PostTypeId="1" CreationDate="2019-01-07T18:02:50.323" Score="1" ViewCount="29" Body="&lt;p&gt;Assume the marginal cost is strictly increasing and always larger than the fixed cost - in particular, at &lt;span class=&quot;math-container&quot;&gt;$q=0$&lt;/span&gt; (no production). Does it imply that the efficient scale is equal to zero? (Define efficient scale as the non-negative level of production q that minimizes the average cost.) Assume &lt;span class=&quot;math-container&quot;&gt;$q$&lt;/span&gt; is one-dimensional and all cost functions are continuously differentiable.&lt;/p&gt;&#xA;" OwnerUserId="20692" LastEditorUserId="69" LastEditDate="2019-01-08T14:52:13.763" LastActivityDate="2019-01-08T14:52:13.763" Title="Efficient Scale is necessarily equal to zero if $MgC(q=0) &gt;$ Fixed Cost?" Tags="&lt;cost-functions&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26316" PostTypeId="2" ParentId="21474" CreationDate="2019-01-07T19:04:44.117" Score="2" Body="&lt;p&gt;Leontief did not use total capital stock for his calculation of capital/labor requirements in the export/import sector. He measured 'requirements per million dollars of exports and imports replacements', and this for various industries (Leontief, 1953, section III, table 2). So he also did not use total capital &lt;em&gt;stock&lt;/em&gt;, he used capital requirements AKA capital inputs. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;He did provide summary statistics on the total capital and labor required per million dollars of total output for each industry. This might have confused you. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that he obtained these numbers only after computing them from available data, and he discusses their accuracy in the same section. &lt;/p&gt;&#xA;" OwnerUserId="20591" LastActivityDate="2019-01-07T19:04:44.117" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26317" PostTypeId="1" CreationDate="2019-01-07T19:55:45.987" Score="2" ViewCount="26" Body="&lt;blockquote&gt;&#xA;&lt;p&gt;&amp;quot;Simple” situations (where it is easy to predict which strategies will be chosen by the different agents):&lt;/p&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Each participant has a strategy that outperforms all others regardless of the strategies adopted by its partners.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;How can everybody have a strategy that outperforms everybody else's strategy?&lt;/p&gt;&#xA;" OwnerUserId="18009" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2019-01-07T20:50:29.203" Title="Definition of &quot;simple situation&quot; is ambiguous" Tags="&lt;game-theory&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26318" PostTypeId="2" ParentId="26317" CreationDate="2019-01-07T20:50:29.203" Score="3" Body="&lt;p&gt;Consider the typical prisoner’s dilemma,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\begin{array}{|c|c|c|}\hline&#xA;&amp;amp;{\rm confess}&amp;amp; {\rm lie} \\ \hline &#xA;{\rm confess} &amp;amp; \color{red}{-8},\color{blue}{-8} &amp;amp; \color{red}{0},\color{blue}{-10} \\ \hline&#xA;{\rm lie} &amp;amp; \color{red}{-10},\color{blue}{0} &amp;amp; \color{red}{-1},\color{blue}{-1} \\ \hline&#xA;\end{array}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this case it is easy to predict that each player should play confess, regardless of the the selection made by the other player. Or in the words of the problem:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The best strategy (the one that outperforms other strategies) is to confess regardless of the strategy adopted by other players&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="14419" LastActivityDate="2019-01-07T20:50:29.203" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26319" PostTypeId="1" AcceptedAnswerId="26320" CreationDate="2019-01-07T21:08:04.253" Score="2" ViewCount="40" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/JaEJO.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/JaEJO.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;This is an image of page 133 of Microeconomics; Gravell and Rees.In the fourth line there is a statement about the slope of those curves. Can anyone please explain me the reason??&lt;/p&gt;&#xA;" OwnerUserId="20100" LastActivityDate="2019-01-07T22:38:27.280" Title="Short-run and Long-run cost against the price of the variable input" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26320" PostTypeId="2" ParentId="26319" CreationDate="2019-01-07T22:38:27.280" Score="1" Body="&lt;p&gt;Everything comes from the constraint&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;C(p, \gamma^0) \leq S(p, \gamma^0, z^0_k) \tag{C.17}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By construction at &lt;span class=&quot;math-container&quot;&gt;$p_0$&lt;/span&gt; these two things are equal:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;C(p^0, \gamma^0) = S(p^0, \gamma^0, z^0_k) \tag{1}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider a very small &lt;em&gt;positive&lt;/em&gt; number &lt;span class=&quot;math-container&quot;&gt;$\delta p_i$&lt;/span&gt;, and note that (I dropped the other components of &lt;span class=&quot;math-container&quot;&gt;$p$&lt;/span&gt; since they remain constant)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{align}&#xA;C(p_i^0 - \delta p_i^0, \gamma^0) &amp;amp;&amp;lt;  S(p^0_i - \delta p_i^0, \gamma^0, z^0_k) \\ &#xA;C(p_i^0 - \delta p_i^0, \gamma^0) - C(p_i^0, \gamma^0) &amp;amp;&amp;lt;  S(p^0_i - \delta p_i^0, \gamma^0, z^0_k) - C(p_i^0, \gamma^0)\\&#xA;C(p_i^0 - \delta p_i^0, \gamma^0) - C(p_i^0, \gamma^0) &amp;amp;&amp;lt;  S(p^0_i - \delta p_i^0, \gamma^0, z^0_k) - S(p_i^0, \gamma^0, z_k^0) \\&#xA;\frac{C(p_i^0 - \delta p_i^0, \gamma^0) - C(p_i^0, \gamma^0)}{\delta p_i^0} &amp;amp;&amp;lt;  \frac{S(p^0_i - \delta p_i^0, \gamma^0, z^0_k) - S(p_i^0, \gamma^0, z_k^0)}{\delta p_i^0}\\&#xA;\lim_{\delta p_i^0\to 0^+}\frac{C(p_i^0 - \delta p_i^0, \gamma^0) - C(p_i^0, \gamma^0)}{\delta p_i^0} &amp;amp;&amp;lt;  \lim_{\delta p_i^0\to 0^+} \frac{S(p^0_i - \delta p_i^0, \gamma^0, z^0_k) - S(p_i^0, \gamma^0, z_k^0)}{\delta p_i^0} \\&#xA;-\frac{\partial C}{\partial p_i} &amp;amp;&amp;lt; -\frac{\partial S}{\partial p_i}&#xA;\end{align}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;or in other words,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\frac{\partial C}{\partial p_i} &amp;gt; \frac{\partial S}{\partial p_i} ~~\mbox{for}~~ p_i &amp;lt; p_i^0 \tag{2}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;or in plain English: &lt;span class=&quot;math-container&quot;&gt;$S$&lt;/span&gt; is flatter than &lt;span class=&quot;math-container&quot;&gt;$C$&lt;/span&gt; for &lt;span class=&quot;math-container&quot;&gt;$p_i &amp;lt; p_i^0$&lt;/span&gt;. You can repeat the same argument for &lt;span class=&quot;math-container&quot;&gt;$p_i &amp;gt; p_i^0$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="14419" LastActivityDate="2019-01-07T22:38:27.280" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="26322" PostTypeId="1" AcceptedAnswerId="26325" CreationDate="2019-01-08T03:20:56.203" Score="0" ViewCount="35" Body="&lt;p&gt;I am working on a small project regarding PE ratio of SP500,for which I need historic earning per share data of SP500. I searched finance yahoo, but it has only prices data. Could anyone tell me the website where one can obtain it?&lt;/p&gt;&#xA;" OwnerUserId="20350" LastEditorUserId="108" LastEditDate="2019-01-08T07:26:51.777" LastActivityDate="2019-01-08T08:58:43.573" Title="How to find data about earning per share of S&amp;P 500" Tags="&lt;data-request&gt;&lt;stock-market&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26323" PostTypeId="1" AcceptedAnswerId="26324" CreationDate="2019-01-08T08:16:47.870" Score="0" ViewCount="85" Body="&lt;p&gt;i guess a) NEW house&#xA;b) buying shares in a domestic company in an IPO&#xA;c) investment in a personal business , eg taxi driver buying a NEW taxi, shop owner buying his shop or renovating it&lt;/p&gt;&#xA;&#xA;&lt;p&gt;what about paying for school for kids? (improvement of human capital)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;what about land improvement, eg building a parking lot, or new apartment building , &lt;/p&gt;&#xA;&#xA;&lt;p&gt;what about in farming, is maintenance = investment? eg is putting in fertilizer investment?&lt;br&gt;&#xA;i guess that maintenance is not investment , only IMPROVEMENT could be investment.  eg trucking in better quality soil would be investment ?&lt;/p&gt;&#xA;" OwnerUserId="20559" LastActivityDate="2019-01-08T08:52:59.263" Title="what are Investments (as defined in macroeconomics) that Households make?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26324" PostTypeId="2" ParentId="26323" CreationDate="2019-01-08T08:32:22.563" Score="3" Body="&lt;p&gt;The terms &lt;em&gt;investment&lt;/em&gt; and &lt;em&gt;capital&lt;/em&gt; are highly confusing because they are different in everyday language and in economics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Definitions in economics:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;strong&gt;Investment&lt;/strong&gt; is the purchase of any (new) capital goods.&lt;/li&gt;&#xA;&lt;li&gt;A &lt;strong&gt;capital good&lt;/strong&gt; is any good that is used to produce other goods.&lt;/li&gt;&#xA;&lt;li&gt;A &lt;strong&gt;good&lt;/strong&gt; is anything that satisfies human wants.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;(a) By convention, a house counts as a capital good, the idea (or fiction) being that it generates a stream of housing services over time. Hence, the purchase of a new house counts as investment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(b) A share in a company does not count as a capital good, because it cannot be used to produce other goods and services.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(c) A taxi driver buying a NEW taxi and a shop-owner buying a NEW shop both count, because as in (a), the idea is that these goods in turn generate a stream of taxi/retail services over time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The use of fertilizer counts as intermediate consumption (i.e. the use of intermediate goods in the production of other goods and services).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Generally, &lt;strong&gt;major&lt;/strong&gt; improvements to existing buildings also count as investment. So a shop-owner renovating his shop, building a parking lot, a new apartment building all count.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, ordinary maintenance and repairs do not count as investment (they instead count as intermediate consumption). As you can probably guess, in practice this gets tricky because it can be difficult to distinguish between a &quot;major improvement&quot; and an &quot;ordinary repair&quot;. (See &lt;a href=&quot;https://books.google.com/books?id=gQWmAdwdI8gC&amp;amp;pg=PA8&amp;amp;dq=%22Another,%20less%20familiar,%20example%20of%20the%20intrinsic%20difficulty%20of%20trying%20to%20draw%20a%20dichotomy%22&quot; rel=&quot;nofollow noreferrer&quot;&gt;UN SNA 1.56&lt;/a&gt;.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Paying for improvements in human capital does not count as investment. (See &lt;a href=&quot;https://books.google.com/books?id=gQWmAdwdI8gC&amp;amp;pg=PA8&amp;amp;dq=%22It%20is%20often%20proposed%20that%20expenditures%20on%20staff%20training%20and%20education%20should%20be%20classified%20as%20gross%20fixed%20capital%20formation%20as%20a%20form%20of%20investment%20in%20human%20capital.%22&quot; rel=&quot;nofollow noreferrer&quot;&gt;UN SNA 1.54 and 1.55&lt;/a&gt;, which also discusses how like you, many argue that this &lt;em&gt;should&lt;/em&gt; count as investment, but right now, by convention, it does not. Schooling counts as consumption, while training by companies counts as intermediate consumption. Perhaps in future editions of the SNA it will be counted as investment.)&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastEditorDisplayName="user18" LastEditDate="2019-01-08T08:52:59.263" LastActivityDate="2019-01-08T08:52:59.263" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="26325" PostTypeId="2" ParentId="26322" CreationDate="2019-01-08T08:58:43.573" Score="0" Body="&lt;p&gt;A &lt;a href=&quot;https://www.google.com/search?q=S%26P+500+p%2Fe+ratio&quot; rel=&quot;nofollow noreferrer&quot;&gt;Google search&lt;/a&gt; turns up sites like &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://www.wsj.com/mdc/public/page/2_3021-peyield.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.wsj.com/mdc/public/page/2_3021-peyield.html&lt;/a&gt; &lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://www.multpl.com/table?f=m&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.multpl.com/table?f=m&lt;/a&gt; &lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.macrotrends.net/2577/sp-500-pe-ratio-price-to-earnings-chart&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.macrotrends.net/2577/sp-500-pe-ratio-price-to-earnings-chart&lt;/a&gt; &lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://ycharts.com/indicators/sp_500_pe_ratio&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://ycharts.com/indicators/sp_500_pe_ratio&lt;/a&gt; &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;which slightly disagree about whether the current trailing ratio is just above or just below 20&lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2019-01-08T08:58:43.573" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26327" PostTypeId="1" CreationDate="2019-01-08T11:46:27.207" Score="0" ViewCount="610" Body="&lt;p&gt;The characteristic feature of indifference curve is that it will not touch the X axis or Y axis. But as a special case it will touch the Y axis if the combination is between Money and Commodity. &quot;If money is taken on Y-axis, then IC curve can touch oy-axis&quot; here we have taken 'money' on Y-axis and 'commodity' on X-axis. Here my doubt is could we use indifference curve for one commodity? If so please explain me with an example.&lt;img src=&quot;https://i.stack.imgur.com/5S0vE.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;" OwnerUserId="20701" LastActivityDate="2019-01-08T12:34:11.847" Title="feature of indifference curve" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;" AnswerCount="2" CommentCount="6" ClosedDate="2019-02-11T18:35:45.580" ContentLicense="CC BY-SA 4.0" />
  <row Id="26328" PostTypeId="2" ParentId="26327" CreationDate="2019-01-08T12:20:51.553" Score="2" Body="&lt;p&gt;An indifference curve can touch the axes, take for example the case of perfect substitutes, if the consumer his utility is given by&#xA; U=x1+x2&#xA; then obviously he is indifferent between bundle (10,0) and (0,10). So not touching the axes is not a characteristic of indifference curves as such, even though in the case of Cobb-Douglas functions it holds.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for your other concern, whether an indifference curve can take as input only one good, with the other input being money: this is perfectly possible, it is even a more general case than the indifference curve for two goods. In the case of the inputs x1= a good and m=money held by the consumer we can formalize the utility maximization problem in the following way: &#xA;max U=u(x1,m)&#xA;Subject to the constraint: b=p1x1+m&#xA;As you see the standard form can be used with just one change: the price of a unit money held is of course 1.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And now the more general case, again let x1 be a good the consumtion of which we are interested in and now let y be the MONEY SPENT on all other goods. Now again we can use the modification of the budget constraint above. That is: price of y is 1. &#xA;In short: anything can be an input in an utility function, just think about your own preferences: you dont just enjoy goods, you enjoy holding money and giving to charity etc. but also spending time with friends/family, with some modifications all this can be put in the form of a utility maximization problem and thus an indifference curve can be constructed for any two inputs, holding other inputs fixed.&lt;/p&gt;&#xA;" OwnerUserId="18214" LastActivityDate="2019-01-08T12:20:51.553" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26329" PostTypeId="2" ParentId="26327" CreationDate="2019-01-08T12:34:11.847" Score="0" Body="&lt;p&gt;As already mentioned by others indifference curves can touch the axes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think that here some confusion arises from the language that people usually use. When we say being indifferent between two goods we mean between holding or consuming two goods. And indifference curve gives you all bundles that satisfy this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the same manner you can be indifferent between goods and services, goods and leisure or as in your example goods and money.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To construct indifference curve you need just two alternatives. Here you don’t have indifference curve for one good with itself but an indifference curve for two alternatives, one holding money which you may like to do and second alternative is purchasing given good.&lt;/p&gt;&#xA;" OwnerUserId="15517" LastActivityDate="2019-01-08T12:34:11.847" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26334" PostTypeId="1" CreationDate="2019-01-09T03:57:58.950" Score="1" ViewCount="279" Body="&lt;p&gt;I am reading Modern Microeconomics by Koutsoyiannis. In a Non Collusive Cournot Duopoly model with two firms, zero costs and linear demand curve. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Firm A produces half the total market demand to maximise revenue.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/29zSq.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/29zSq.jpg&quot; alt=&quot;Diagram&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Further, Firm B takes A's output as given and operates on the left over demand curve eD' and produces 1/4th of output (AB).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now Firm A in period 3 should respond by taking the leftover demand curve e'D' and produce &lt;span class=&quot;math-container&quot;&gt;$\frac{1}{2}$&lt;/span&gt; of the leftover market that is &lt;span class=&quot;math-container&quot;&gt;$ (1 - \frac{1}{2} - \frac{1}{4})\frac{1}{2} = \frac{1}{8}th $&lt;/span&gt; of total market output. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But it is mentioned&#xA;&lt;a href=&quot;https://i.stack.imgur.com/C9wu8.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/C9wu8.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="19546" LastActivityDate="2020-02-25T19:46:24.927" Title="Non Collusive Cournot Duopoly model with two firms, zero costs and linear demand curve" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;oligopoly&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26336" PostTypeId="1" CreationDate="2019-01-09T04:24:05.970" Score="0" ViewCount="583" Body="&lt;p&gt;Perfect substitute- Pepsi and Coca-Cola and Imperfect substitute- Tea and Coffee . Here why tea and coffee considered imperfect substitute?&lt;/p&gt;&#xA;" OwnerUserId="20707" LastActivityDate="2019-01-09T08:25:37.500" Title="Imperfect substitute" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26337" PostTypeId="2" ParentId="26334" CreationDate="2019-01-09T08:23:03.777" Score="1" Body="&lt;p&gt;The temporal constraints (i.e. what happens in a period) are not very clear in this question. It is likely that the good sold is not a durable good and hence there is no &quot;leftover demand&quot; between periods, demand is simply 'reset'.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In period 2 leftover demand appears because firm B assumes firm A will not change its production from period 1.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then in period 3 firm A will best respond to the unchanging production of firm B from period 2.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2019-01-09T08:23:03.777" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="26338" PostTypeId="2" ParentId="26336" CreationDate="2019-01-09T08:25:37.500" Score="2" Body="&lt;p&gt;Any two specific goods can be perfect substitutes, imperfect substitutes or even complements depending on the &lt;strong&gt;preferences.&lt;/strong&gt; It's not goods themselves, but our preferences towards them what make them substitutes or complements. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, when many people have similar preferences towards those goods, it is common to characterize goods as being, for instance &lt;strong&gt;imperfect substitutes.&lt;/strong&gt; Apparently, you have no qualms about Pepsi and Coca-Cola being imperfect substitutes, and I guess that's because it agrees with your own preferences towards them. Tea and Coffee are imperfect substitutes for many people, who may drink sometimes one and sometimes the other. Of course, they're not substitutes at all for people who only drink Tea or only drink Coffee. The fact that we colloquially say that they are imperfect substitutes should be understood as most people thinking of them as such.&lt;/p&gt;&#xA;" OwnerUserId="20281" LastActivityDate="2019-01-09T08:25:37.500" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26340" PostTypeId="1" CreationDate="2019-01-09T10:26:40.700" Score="0" ViewCount="248" Body="&lt;p&gt;I am calculating the price elasticity as a starting point to find a theoretical optimal price that would maximize our revenue.&lt;br&gt;&#xA;I am looking at &lt;strong&gt;2 years data&lt;/strong&gt; and to use the price elasticity formula, I am considering &lt;strong&gt;monthly values separately&lt;/strong&gt; &lt;em&gt;(this also because given the strong seasonality we have, i would expect different elasticity per month and I would like to suggest different prices every month).&lt;/em&gt;   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To get the &lt;strong&gt;monthly Price Elasticity&lt;/strong&gt;, I calculate for each month Prices and Quantities of the respective year: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\frac{(Q^{2018} - Q^{2017})/Q^{2017}}{(P^{2018} - P^{2017})/P^{2017}}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Question 1:&lt;/strong&gt; Is this correct? Using aggregated monthly data is enough? What if I had also 2016 data? How could I put this extra information in the formula? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Question 2:&lt;/strong&gt; Could I use daily data to calculate the price elasticity? Could I plot 2 years data and use the linear trend line for the elasticity calculation? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks in advance, any help is highly appreciated!&lt;/p&gt;&#xA;" OwnerUserId="20710" LastEditorUserId="20710" LastEditDate="2019-01-11T12:55:15.430" LastActivityDate="2021-03-02T20:06:15.667" Title="Monthly price elasticity and possibility of using daily values" Tags="&lt;microeconomics&gt;&lt;elasticity&gt;&lt;price&gt;&lt;pricing&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26342" PostTypeId="1" AcceptedAnswerId="34327" CreationDate="2019-01-09T11:51:26.960" Score="0" ViewCount="80" Body="&lt;p&gt;I ran an empirical analysis on recent interest rate changes of European central banks on Swiss equity prices and found statistically significant results. A 1 percentage point increase in interest rates would lead to a around 5% increase in the daily return of equities on the day the monetary policy announcement was made. For bond prices my results show that this would lead to a negative impact on bond prices of about 1%, which is what I would have expected for equities too. So how can it be that the short term response of equity prices to a rise in interest rates is positive?&lt;/p&gt;&#xA;" OwnerUserId="20449" LastActivityDate="2020-03-06T00:30:37.203" Title="Can central bank interest rate hikes lead to a price gain in equities?" Tags="&lt;macroeconomics&gt;&lt;econometrics&gt;&lt;finance&gt;&lt;monetary-policy&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26344" PostTypeId="1" AcceptedAnswerId="26347" CreationDate="2019-01-09T12:43:49.077" Score="1" ViewCount="47" Body="&lt;p&gt;I have a monthly time series with 2015=100. I want it to be in 2010=100. How could I do so?&#xA;It is from 195901 to 201407.&lt;/p&gt;&#xA;" OwnerUserId="20412" LastActivityDate="2019-01-09T16:07:15.600" Title="How can I re-base monthly financial time series" Tags="&lt;time-series&gt;&lt;base-year&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26345" PostTypeId="1" AcceptedAnswerId="26353" CreationDate="2019-01-09T15:14:18.430" Score="0" ViewCount="18" Body="&lt;p&gt;is there a way in NIPA accounts to see a measure of size/change in private debt stock , and how is it measured?&#xA;if not then how is it measured?&lt;/p&gt;&#xA;" OwnerUserId="20559" LastActivityDate="2019-01-10T02:01:00.387" Title="is there a way in NIPA accounts to see a measure of size/change in private debt stock?" Tags="&lt;macroeconomics&gt;&lt;debt&gt;&lt;saving&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26347" PostTypeId="2" ParentId="26344" CreationDate="2019-01-09T16:07:15.600" Score="0" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;I have a monthly time series with 2015=100. I want it to be in&#xA;  2010=100. How could I do so?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Unless I am misunderstanding your question, you need to multiply every entry by &lt;span class=&quot;math-container&quot;&gt;$$100/X_{2010}$$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="18552" LastActivityDate="2019-01-09T16:07:15.600" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26348" PostTypeId="1" CreationDate="2019-01-09T18:19:19.540" Score="2" ViewCount="214" Body="&lt;p&gt;Consider an exchange economy with two goods (Good 1 and 2) and two individuals (&lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$B$&lt;/span&gt;):&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt;'s utility function is &lt;span class=&quot;math-container&quot;&gt;$u_A(x_{A_1}, x_{A_2}) = 2x_{A_1} + 5x_{A_2}$&lt;/span&gt; &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$B$&lt;/span&gt;'s utility function is &lt;span class=&quot;math-container&quot;&gt;$u_B(x_{B_1}, x_{B_2}) = 3x_{B_1} + 7x_{B_2}$&lt;/span&gt; &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt;'s initial endowment is &lt;span class=&quot;math-container&quot;&gt;$(\omega_{A_1}, \omega_{A_2}) = (4, 6)$&lt;/span&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$B$&lt;/span&gt;'s initial endowment is &lt;span class=&quot;math-container&quot;&gt;$(\omega_{B_1}, \omega_{B_2}) = (10, 2)$&lt;/span&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The core condition requires:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;2x_{A_1} + 5x_{A_2} \geq 2\omega_{A_1} + 5\omega_{A_2} = 2 \times 4 + 5 \times 6 = 38&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;3x_{B_1} + 7x_{B_2} \geq 3\omega_{B_1} + 7\omega_{B_2} = 3 \times 10 + 7 \times 2 = 44&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The line with  equation &lt;span class=&quot;math-container&quot;&gt;$2x_{A_1} + 5x_{A_2} = 38$&lt;/span&gt; hits the left boundary at:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;(x_{A_1}, x_{A_2}) = (0,38/5), ~~~~(x_{B_1}, x_{B_2}) = (14, 2/5)&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The line with equation &lt;span class=&quot;math-container&quot;&gt;$3x_{B_1} + 7x_{B_2} = 44$&lt;/span&gt; hits the left boundary at:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ &#xA;(x_{A_1}, x_{A_2}) = (0,54/7) ~~~ (x_{B_1}, x_{B_2}) = (14, 2/7)&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't understand how these intercepts have been calculated. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've used the MRS and endowment point to calculate the &lt;span class=&quot;math-container&quot;&gt;$(x_{A_1}, x_{A_2})$&lt;/span&gt;&#xA;intercepts correctly:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$x_{A_2} = -\frac{2}{5}x_{A_1} + \frac{38}{5}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But get an incorrect &lt;span class=&quot;math-container&quot;&gt;$(x_{B_1}, x_{B_2})$&lt;/span&gt; intercept:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;x_{A_1} = 14, ~~ x_{A_2} = 2 &#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Please can someone enlighten me? No worries if you can't.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Alex&lt;/p&gt;&#xA;" OwnerUserId="20720" LastEditorUserId="14419" LastEditDate="2019-01-10T13:48:38.007" LastActivityDate="2019-01-11T00:24:38.267" Title="How to calculate the intercept of an indifference curve in an Edgeworth box?" Tags="&lt;microeconomics&gt;&lt;free-trade&gt;&lt;exchange&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26350" PostTypeId="1" CreationDate="2019-01-09T21:14:39.650" Score="1" ViewCount="19" Body="&lt;p&gt;Say I would like to investigate whether a particular product feature affects its sales. We would like to match products based on feature vs non-feature. But the sales also depends on the retailers who sell the products, like marketing expense, ect. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this case, I would like to match at both product level and retailer level. Is there any matching method addressing the issue? Or just combine all the features, both products and retailers, together and do the matching as usual?&lt;/p&gt;&#xA;" OwnerUserId="6858" LastActivityDate="2019-01-09T21:14:39.650" Title="matching methods from multiple entities" Tags="&lt;econometrics&gt;&lt;matching&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="26351" PostTypeId="2" ParentId="26342" CreationDate="2019-01-09T21:20:41.877" Score="1" Body="&lt;p&gt;perhaps flight to quality? ie reduced expectations of euro equity profits cause equity reallocation out of euro into chf.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and increased eur bond yields perhaps cause bonds reallocation out of chf into eur because of a) higher , ie more attractive coupons , b) eurchf xchange rate perhaps expected to strengthen&lt;/p&gt;&#xA;" OwnerUserId="20559" LastActivityDate="2019-01-09T21:20:41.877" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26352" PostTypeId="2" ParentId="26340" CreationDate="2019-01-09T23:12:33.813" Score="0" Body="&lt;p&gt;What you're trying to approximate is the quantity &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\gamma(t) = \frac{{\rm d}\ln Q(t)}{{\rm d}\ln P(t)}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\gamma = \gamma(t)$&lt;/span&gt; is a function of time, the better sampling you have of &lt;span class=&quot;math-container&quot;&gt;$P$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$Q$&lt;/span&gt; the better estimation of &lt;span class=&quot;math-container&quot;&gt;$\gamma$&lt;/span&gt; you are going to get. Imagine you have one sample every &lt;span class=&quot;math-container&quot;&gt;$h$&lt;/span&gt; units of time. From what I can read &lt;span class=&quot;math-container&quot;&gt;$h  = 1 ~{\rm month}$&lt;/span&gt;, what you can do to measure &lt;span class=&quot;math-container&quot;&gt;$\gamma$&lt;/span&gt; at time &lt;span class=&quot;math-container&quot;&gt;$t_k$&lt;/span&gt; is calculate&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\frac{{\rm d}\ln P(t_k)}{{\rm d}t} \approx \frac{\ln P(t_k) - \ln P(t_k - h)}{h} \tag{1}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;with a similar expression for &lt;span class=&quot;math-container&quot;&gt;$Q$&lt;/span&gt;. But this is really bad in general, here's a better approach&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\frac{{\rm d}\ln P(t_k)}{{\rm d}t} \approx \frac{-2\ln P(t_k + 2h) + 8\ln P(t_k + h) - 8\ln P(t_k - h) + \ln P(t_k - 2h)}{12h} \tag{2}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So to give you an idea, if you are measuring the elasticity on (&lt;span class=&quot;math-container&quot;&gt;$t_k$&lt;/span&gt; = November 2018) with data measured each month, you will need to know the prices and quantities for (&lt;span class=&quot;math-container&quot;&gt;$t_k - 2h = $&lt;/span&gt; September 2018), (&lt;span class=&quot;math-container&quot;&gt;$t_k - h = $&lt;/span&gt; October 2018), (&lt;span class=&quot;math-container&quot;&gt;$t_k + h = $&lt;/span&gt; December 2018) and (&lt;span class=&quot;math-container&quot;&gt;$t_k + 2h = $&lt;/span&gt; January 2019).&lt;/p&gt;&#xA;" OwnerUserId="14419" LastActivityDate="2019-01-09T23:12:33.813" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="26353" PostTypeId="2" ParentId="26345" CreationDate="2019-01-10T02:01:00.387" Score="1" Body="&lt;p&gt;What you want is the &lt;a href=&quot;https://www.federalreserve.gov/releases/z1/current/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Flow of Funds&lt;/a&gt; (which measures transactions and levels of assets and liabilities), not the National Income and Product Accounts, which primarily measure output and (mostly, though not entirely, physical) capital stock. &lt;/p&gt;&#xA;" OwnerUserId="264" LastActivityDate="2019-01-10T02:01:00.387" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="26354" PostTypeId="1" AcceptedAnswerId="26358" CreationDate="2019-01-10T03:03:05.220" Score="0" ViewCount="80" Body="&lt;p&gt;This is a basic question, but I am new to macro models. The question is from Romer's text. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume a household only has one member and has no initial wealth, and the household lives for two periods. We have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$U=\ln(c_1)+b\ln(1-l_1)+e^{-\rho}[\ln(c_2)+b\ln(1-l_2)],$$&lt;/span&gt;&#xA;where &lt;span class=&quot;math-container&quot;&gt;$c_i=w_il_i$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\rho$&lt;/span&gt; is a discount rate in &lt;span class=&quot;math-container&quot;&gt;$(0,1)$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The text says &quot;Because of the logarithmic functional form, the elasticity of substitution between leisure in the two periods is &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt;.&quot; I tried to verify that the elasticity is &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt; as the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let U_1 denote partial derivative of U with respect to &lt;span class=&quot;math-container&quot;&gt;$l_1$&lt;/span&gt;. Similar for &lt;span class=&quot;math-container&quot;&gt;$U_2$&lt;/span&gt;. Then,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$E_{21}=\frac{d\ln(l_2/l_1)}{d\ln(U_1/U_2}=(\frac{dl_2}{l_2}-\frac{dl_1}{l_1})/(\frac{dU_1}{U_1}-\frac{dU_2}{U_2}),$$&lt;/span&gt;&#xA;where &lt;span class=&quot;math-container&quot;&gt;$U_1=\frac{1}{U_1}-\frac{b}{1-l_1}$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$dU_1=(-\frac{1}{l_1^2}-\frac{b}{(1-l_1)^2})dl_1$&lt;/span&gt;. How chould &lt;span class=&quot;math-container&quot;&gt;$E_{21}=1$&lt;/span&gt;? In fact, I got something super messy. Therefore, I doubt if my approach is correct or not. Maybe my formula is not correct? Thanks in advance!&lt;/p&gt;&#xA;" OwnerUserId="20721" LastActivityDate="2019-01-10T12:52:19.983" Title="Elasticity of substitution between leisure in two periods" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;labor-economics&gt;&lt;elasticity&gt;&lt;elasticity-of-substituion&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26355" PostTypeId="1" CreationDate="2019-01-10T03:54:44.527" Score="1" ViewCount="465" Body="&lt;p&gt;I get the basic intuition that at higher prices, produces would be willing to produce more, but I feel like theory can only take my understanding so far. I want to know what are the real world determining factors for supply curves. At the risk if making the question too broad, I would like to look at 3 common text book supply curves: flat line, upward sloping and exponential:&#xA;&lt;a href=&quot;https://i.stack.imgur.com/TvrYZ.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/TvrYZ.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Example&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Actually I'm not focused on any one particular industry, but to keep the scope within reason, let's assume the industry is a classic one: car production. Let's say there are three companies in this car industry and each company has a different supply curve, just like the ones pictured above.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Question&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;If we could peek under the hood of these car companies' inner workings (pardon the pun) what major differences would we find? That is to say, given each company has a differently shaped supply curve, what is likely to be different about the companies?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Note:&lt;/strong&gt; I'm not after an exhaustive list; I think just a handful of well-articulated points would allow me to connect the dots. You can expand on whatever you think is most suitable (technology, distribution, government regulation, market segmentation, ect)&lt;/p&gt;&#xA;" OwnerUserId="12212" LastActivityDate="2019-01-10T03:54:44.527" Title="Real world examples of supply curve shapes" Tags="&lt;microeconomics&gt;&lt;supply-and-demand&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26356" PostTypeId="2" ParentId="13419" CreationDate="2019-01-10T07:03:58.340" Score="-2" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/5r6sK.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/5r6sK.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The US Federal debt has only been increasing year on year... from 2009 - 2014 it increased from &lt;span class=&quot;math-container&quot;&gt;$10 trillion to $&lt;/span&gt;18 trillion. I don't know why you believe it steadily fell over this time.&lt;/p&gt;&#xA;" OwnerUserId="20724" LastActivityDate="2019-01-10T07:03:58.340" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26357" PostTypeId="2" ParentId="16444" CreationDate="2019-01-10T07:25:32.383" Score="0" Body="&lt;p&gt;Here is how you can calculate it with SQL:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;with balances as (&#xA;    select '2018-01-01' as date, balance&#xA;    from unnest([1,2,3,4,5]) as balance -- Gini coef: 0.2666666666666667&#xA;    union all&#xA;    select '2018-01-02' as date, balance&#xA;    from unnest([3,3,3,3]) as balance -- Gini coef: 0.0&#xA;    union all&#xA;    select '2018-01-03' as date, balance&#xA;    from unnest([4,5,1,8,6,45,67,1,4,11]) as balance -- Gini coef: 0.625&#xA;),&#xA;ranked_balances as (&#xA;    select date, balance, row_number() over (partition by date order by balance desc) as rank&#xA;    from balances&#xA;)&#xA;SELECT date, &#xA;    -- (1 − 2B) https://en.wikipedia.org/wiki/Gini_coefficient&#xA;    1 - 2 * sum((balance * (rank - 1) + balance / 2)) / count(*) / sum(balance) AS gini&#xA;FROM ranked_balances&#xA;GROUP BY date&#xA;ORDER BY date ASC&#xA;-- verify here http://shlegeris.com/gini&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Explanation is here &lt;a href=&quot;https://medium.com/@medvedev1088/calculating-gini-coefficient-in-bigquery-3bc162c82168&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://medium.com/@medvedev1088/calculating-gini-coefficient-in-bigquery-3bc162c82168&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="20725" LastActivityDate="2019-01-10T07:25:32.383" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26358" PostTypeId="2" ParentId="26354" CreationDate="2019-01-10T12:46:05.580" Score="0" Body="&lt;p&gt;I think there are two problems with your calculations. First, as &lt;span class=&quot;math-container&quot;&gt;$l_i$&lt;/span&gt; is the time devoted to work, you should care about &lt;span class=&quot;math-container&quot;&gt;$\frac{d\ln\frac{1-l_2}{1-l_1}}{d\ln (U_1/U_2)},$&lt;/span&gt; rahter than the &lt;span class=&quot;math-container&quot;&gt;$\frac{d\ln\frac{l_2}{l_1}}{d\ln (U_1/U_2)}$&lt;/span&gt; you consider. Second, I don't think your &lt;span class=&quot;math-container&quot;&gt;$U_i$&lt;/span&gt; are correct (perhaps it's caused by first). I get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\begin{matrix} U_1=\frac{b}{1-l_1} &amp;amp; U_2=\frac{be^{-\rho}}{1-l_1}\end{matrix},$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;that results in the marginal rate of substitution being&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$MRS=\frac{U_1}{U_2}=\frac{1-l_2}{1-l_1}\frac{1}{e^{-\rho}}.$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you take the logarithm, you get &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\ln MRS = \ln \frac{1-l_2}{1-l_1}+\ln\frac{1}{e^{-\rho}},$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where it is useful to observe that the last term of the RHS is a constant. Now, the total differential is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ d\ln MRS = d\ln \frac{1-l_2}{1-l_1}+0,$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and you get the desired result.&lt;/p&gt;&#xA;" OwnerUserId="20281" LastEditorUserId="20281" LastEditDate="2019-01-10T12:52:19.983" LastActivityDate="2019-01-10T12:52:19.983" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26359" PostTypeId="2" ParentId="13419" CreationDate="2019-01-10T15:42:01.623" Score="2" Body="&lt;p&gt;For considering a question like this, because the Federal Reserve remits seigniorage to the Treasury, it can be helpful to integrate the balance sheet of the central bank and the treasury and consider them as a single entity. Since QE involves the purchase of higher interest rate long dated debt and financing that purchase with lower interest rate central bank reserves, it has the effect of reducing the federal government's costs to finance its debt. Since debt is a major category of spending, &lt;a href=&quot;https://www.thebalance.com/interest-on-the-national-debt-4119024&quot; rel=&quot;nofollow noreferrer&quot;&gt;as of 2018 about 6-7 percent of the budget&lt;/a&gt;, is it fair to say that, all else equal, that the deficit would have been larger without QE, because all other spending would be the same except debt service which would be smaller. However, the hope of QE was that it would improve the economy, which would raise government revenues (higher tax collections) and reduce government spending (say from lower unemployment, disability, and social security benefits), which would further reduce the deficit. The size of these latter effects seem to be in dispute. Some people think that QE had little macroeconomic consequence (&lt;a href=&quot;https://onlinelibrary.wiley.com/doi/full/10.1111/j.1468-0297.2012.02549.x&quot; rel=&quot;nofollow noreferrer&quot;&gt;The Macroeconomic Effects of Large‐scale Asset Purchase Programmes&lt;/a&gt;) but others think they juiced GDP and presumably tax revenues by a substantial amount (&lt;a href=&quot;https://onlinelibrary.wiley.com/doi/full/10.1111/j.1468-0297.2012.02555.x&quot; rel=&quot;nofollow noreferrer&quot;&gt;Assessing the Economy‐wide Effects of Quantitative Easing&lt;/a&gt;, &lt;a href=&quot;https://www.sciencedirect.com/science/article/pii/S109094431530137X#s0060&quot; rel=&quot;nofollow noreferrer&quot;&gt;Counterfactual analysis in macroeconometrics: An empirical investigation into the effects of quantitative easing&lt;/a&gt;). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, as a matter of political economy, it is possible that QE, by lowering the cost of debt service, makes deficit financing look relatively more attractive. This should cause some increase in government spending (because it is cheap) and therefore an increase in the deficit. This suggests that the theoretical effect of QE on the deficit is ambiguous. &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2019-01-11T12:56:52.040" LastActivityDate="2019-01-11T12:56:52.040" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26362" PostTypeId="1" CreationDate="2019-01-10T20:38:39.580" Score="3" ViewCount="94" Body="&lt;p&gt;If one country introduces UBI, what prevents other countries from taking advantage of that and supplying cheaper (no need to finance a UBI scheme!) goods to the original country and outcompeting the local industries? Does UBI automatically mean high international trade tariffs?&lt;/p&gt;&#xA;" OwnerUserId="20733" LastEditorUserId="1601" LastEditDate="2019-01-10T20:58:02.457" LastActivityDate="2019-02-27T23:01:45.327" Title="Is Universal Basic Income compatible with free international trade?" Tags="&lt;international-trade&gt;&lt;taxation&gt;&lt;tariffs&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26364" PostTypeId="2" ParentId="26348" CreationDate="2019-01-11T00:24:38.267" Score="1" Body="&lt;p&gt;In an edgeworth box model the total amount of goods must be constant. In your problem this translates to&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{eqnarray}&#xA;x_{A_1} + x_{B_1} &amp;amp;=&amp;amp; \omega_{A_1} + \omega_{B_1} = 10 + 4 = 14 \tag{1}\\&#xA;x_{A_2} + x_{B_2} &amp;amp;=&amp;amp; \omega_{A_2} + \omega_{B_2} = 6 + 2 = 8 \tag{2}\\&#xA;\end{eqnarray}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So let's consider the first intercept&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;(x_{A_1}, x_{A_2}) = (0, 38/5) \tag{3}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which you properly derived. If you replace these values in Eq. (1) you get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;0 + x_{B_1} = 14 ~~~\Rightarrow~~~ x_{B_1} = 14 \tag{4}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and if you replace in Eq. (2) you get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\frac{38}{5} + x_{B_2} = 8 ~~~\Rightarrow~~~ x_{B_2} = \frac{2}{5} \tag{5}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So there you have it&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;(x_{A_1}, x_{A_2}) = (0,38/5), ~~~(x_{B_1}, x_{B_2}) = (14,2/5)&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can do the same for the other intercept, I will leave that for you to complete&lt;/p&gt;&#xA;" OwnerUserId="14419" LastActivityDate="2019-01-11T00:24:38.267" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26365" PostTypeId="1" CreationDate="2019-01-11T00:27:21.277" Score="-1" ViewCount="115" Body="&lt;p&gt;To make it easier, let's imagine USA exports nothing and imports nothing (or the exports have the same value with the imports = 0 trade deficit = the country exports the same amount of jobs as it is importing).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And then, the next year, USA starts importing ceramics from China, paying 1 billion dollars for it. Other than that, it does export nothing and it does import nothing (or it keeps the trade deficit at 0).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That means some American ceramic workers will lose their jobs because the jobs will be exported (outsourced) to China.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is: to make an average, how many jobs are lost by such a trade deficit, in an industry of reference, as the ceramic industry for example?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I'm asking for is an estimate because it's clear you can't measure it exactly - it depends on many factors. So an average estimate is a very good answer.&lt;/p&gt;&#xA;" OwnerUserId="5161" LastActivityDate="2019-01-11T19:14:21.610" Title="What is the relation between the trade deficit and the outsourcing of jobs?" Tags="&lt;labor-economics&gt;&lt;international-trade&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26366" PostTypeId="1" AcceptedAnswerId="26368" CreationDate="2019-01-11T00:28:38.180" Score="0" ViewCount="41" Body="&lt;p&gt;I quote the first few paras. of &lt;a href=&quot;https://www.reddit.com/r/explainlikeimfive/comments/7smiok/eli5_what_are_people_in_the_stock_exchange/dt5y625/&quot; rel=&quot;nofollow noreferrer&quot;&gt;this Reddit comment&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;[1.] Imagine you had a business selling lollipops at school. Since you can&#xA;  buy a bag of 100 for \$10, you can sell them for 25¢ a piece for a&#xA;  profit. &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;[2.] But you don't have \$10. But there is profit to be made for all if&#xA;  people give you the money. So you ask your friends to &lt;strong&gt;invest&lt;/strong&gt;. They&#xA;  each give you \$1 and you give them (and yourself) some &lt;strong&gt;stock&lt;/strong&gt; in&#xA;  the &lt;strong&gt;venture&lt;/strong&gt; - a promise to split the profit. You guys buy a bag,&#xA;  and in one week, you sell all your lollipops for 25¢ each. &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;[3.] So now you have 0 lollipops and 25¢ x 100 = \$25 Awesome!  Maybe you&#xA;  pay yourself a market rate for your job in the venture as salesman&#xA;  (you're also an employee since you sold the pops) - say \$5 So you have&#xA;  \$20 to split 10 ways. Everybody makes \$2 from their \$1 investment -&#xA;  everybody wins. you could pay them back their \$1 investment and&#xA;  another \$1 profit - this extra is called a &lt;strong&gt;dividend&lt;/strong&gt;. &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;[4.] Now, would your investors go in again next week? Sure! You're doubling&#xA;  their money. And you ran out of lollipops right? So maybe get everyone&#xA;  together to vote and we all agree at a &lt;strong&gt;shareholder meeting&lt;/strong&gt; to skip&#xA;  the dividend and turn the venture into a &lt;strong&gt;business&lt;/strong&gt; that reinvests&#xA;  the profit into 2 bags of lollipops and make money even faster. &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;[5.] Next week you sell out again. Since you're just one sales guy, you&#xA;  still only cost \$5 and your &lt;strong&gt;profit margin&lt;/strong&gt; has risen. You can now&#xA;  buy 4.5 bags of lollipops each week. Your business is growing!&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;See para. 5: &lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;6&quot;&gt;&#xA;&lt;li&gt;&lt;p&gt;how has my profit margin risen? The profit is the same in the sales in 1 and 4?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;why can I &quot;buy 4.5 bags of lollipops each week&quot;? Is the author just postulating this? Or does this follow from my 2 sales? &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="4020" LastActivityDate="2019-01-11T03:05:51.080" Title="How has my profit margin risen?" Tags="&lt;profits&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26367" PostTypeId="1" CreationDate="2019-01-11T01:56:54.780" Score="0" ViewCount="52" Body="&lt;p&gt;If the last dollar spent on commodity X gives him less marginal utility, he will withdraw this amount from X and spend it on Y if it gives him higher marginal utility. Here consumer how can consumer withdraw amount from x and spend it on y?&lt;/p&gt;&#xA;" OwnerUserId="20736" LastActivityDate="2019-01-11T11:12:12.030" Title="Consumer behaviour" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;" AnswerCount="1" CommentCount="0" ClosedDate="2019-01-31T14:25:48.683" ContentLicense="CC BY-SA 4.0" />
  <row Id="26368" PostTypeId="2" ParentId="26366" CreationDate="2019-01-11T03:05:51.080" Score="2" Body="&lt;p&gt;The margin with 1 bag was \$25 (revenue) / \$15 (labor + materials), or ~166%. The margin with 2 bags, assuming no additional labor costs, is \$50/$25, or 200%.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When this business plans out expenditures on labor and materials for the third time around, it has \$50 cash, enough to pay $5 for labor and up to of 4.5 bags of candy.&lt;/p&gt;&#xA;" OwnerUserId="2852" LastActivityDate="2019-01-11T03:05:51.080" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26370" PostTypeId="1" CreationDate="2019-01-11T04:33:24.917" Score="1" ViewCount="31" Body="&lt;p&gt;I'm asking about etymology, and not &lt;a href=&quot;https://www.reddit.com/r/explainlikeimfive/comments/7smiok/eli5_what_are_people_in_the_stock_exchange/dt6qyuo/&quot; rel=&quot;nofollow noreferrer&quot;&gt;what these options are&lt;/a&gt;. The answers beneath don't feel convincing; can't 'call' and 'put' be interchanged in them? I'll abbreviate Call Option to CO, and Put Option to PO. From &lt;a href=&quot;https://quant.stackexchange.com/a/33349/31928&quot;&gt;Quant SE&lt;/a&gt;: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Not as much on origin of this, but some analogy that I find helpful:&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&lt;strong&gt;Call&lt;/strong&gt; - think of an open auction when bidders call out their prices for an auctioned item. So with a call option you've got a privilege to&#xA;  &lt;em&gt;call the strike price&lt;/em&gt;, effectively having a right &lt;strong&gt;to buy&lt;/strong&gt; the underlying asset.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&lt;strong&gt;Put&lt;/strong&gt; - think that you own a privilege to &lt;em&gt;put the asset for sale at the strike price&lt;/em&gt;, effectively having a right &lt;strong&gt;to sell&lt;/strong&gt; the&#xA;  underlying asset.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Mind that for an option buyer this is optional to exercise it, yet for&#xA;  the option writer it's an &lt;strong&gt;obligation&lt;/strong&gt; to transact, should the buyer&#xA;  opt to exercise it.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;But can't I be said to:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;for a CO, &quot;put&quot; (to the CO seller) to buy the security at the strike price (for a CO)? &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;for a PO, &quot;call&quot; (to the CO seller) to sell the security at the strike price?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;From &lt;a href=&quot;https://www.quora.com/Why-is-a-call-option-called-as-such-as-opposed-to-a-put-option-What-is-the-etymology-behind-such-names#&quot; rel=&quot;nofollow noreferrer&quot;&gt;Quora&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;When you buy a call and exercise it you are receiving stock that you have &quot;called&quot; up from the person that sold you the call, the right to buy.&#xA;  When you buy a put you have purchased the right to sell the stock, or &quot;put it&quot; to the person who sold you the put. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Again, can't I say that a:&lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;3&quot;&gt;&#xA;&lt;li&gt;&lt;p&gt;CO is when a CO seller &quot;puts&quot; the call option to the CO buyer? &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;PO is when a PO buyer is &quot;calling&quot; the PO seller to buy the security from the buyer?  &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="4020" LastActivityDate="2019-01-11T04:33:24.917" Title="Why is a call option called 'call', and put option called 'put'?" Tags="&lt;definition&gt;" AnswerCount="0" CommentCount="2" ClosedDate="2019-01-14T15:44:33.887" ContentLicense="CC BY-SA 4.0" />
  <row Id="26371" PostTypeId="2" ParentId="26367" CreationDate="2019-01-11T11:12:12.030" Score="2" Body="&lt;p&gt;I think the problem is with the tenses. All the analysis is made before actual transactions take place. We are evaluating an hypothetical situation: A consumer considering buying a bundle &lt;span class=&quot;math-container&quot;&gt;$a=(x_1,y_1)$&lt;/span&gt; realizes that if she did, the marginal utility of the last dollar spent on &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; would be lower than that of the last dollar spent on &lt;span class=&quot;math-container&quot;&gt;$y.$&lt;/span&gt; We observe that switching expenditure from &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; to &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt; would result in larger total utility. And since we expect consumers to maximize their utility, they will do so. This results in the consumer withdrawing part from the expenditure in &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; and spending on &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt; &lt;strong&gt;with respect to the hypothetical bundle&lt;/strong&gt; &lt;span class=&quot;math-container&quot;&gt;$a$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="20281" LastActivityDate="2019-01-11T11:12:12.030" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26372" PostTypeId="1" AcceptedAnswerId="26373" CreationDate="2019-01-11T11:38:11.790" Score="0" ViewCount="46" Body="&lt;p&gt;When the economy of a government is facing a deficit, why can't the government just increase the taxes to pay for its expenses? I've read that it should rather borrow money, because increasing the taxes would not solve the problem.&lt;/p&gt;&#xA;" OwnerUserId="20666" LastEditorUserId="264" LastEditDate="2019-01-11T17:08:13.623" LastActivityDate="2019-01-11T17:08:13.623" Title="Government deficit" Tags="&lt;fiscal-policy&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26373" PostTypeId="2" ParentId="26372" CreationDate="2019-01-11T14:11:34.270" Score="4" Body="&lt;p&gt;Firstly, a fiscal deficit is not very surprising. Governments normally want to keep its stock of liabilities (government-issued money and bonds) at least stable as a percentage of GDP. (This provides safe assets for the private sector.) Most economies normally have nominal GDP growing in steady state. The implication is that a steady state deficit is needed to grow government liabilities in line with nominal GDP.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the deficit is larger than that steady state level, the debt/GDP ratio will rise, which is a concern for many people. The issue with rasing taxes to control this is that under any Keynesian model, the tax hike will reduce growth. This is unwelcome if the reason for the deficit was that growth was low.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that this is a politically controversial topic, so I just outlined the Keynesian objection (which is fairly standard), but I would note that not every economist would agree with the Keynesian assessment. There was a large debate about austerity policies (attempting to cut the deficit via cutting government spending) after the Financial Crisis. You could probably look up questions about austerity policies to get more information.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2019-01-11T14:11:34.270" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="26374" PostTypeId="2" ParentId="5468" CreationDate="2019-01-11T14:32:37.163" Score="1" Body="&lt;p&gt;Core as a nice and simple &quot;real world&quot; example of a quasilinear utility function:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Angela is a farmer who values two things: grain (which she consumes)&#xA;  and free time. She values grain at some constant amount relative to&#xA;  free time, independently of how much grain she already has.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Therefor, the indifference curves has the property that the MRS depends only on free time: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/4Bvtd.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/4Bvtd.png&quot; alt=&quot;Indifference curves with the property that the MRS depends only on free time. &quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A utility function with the property that the marginal rate of substitution (MRS) between  and  depends only on  is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(,) = () + &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course, this is not evidence but an imaginary case that help understand where such function may be useful.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Source (full text): &lt;a href=&quot;https://core-econ.org/the-economy/book/text/leibniz-05-04-01.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://core-econ.org/the-economy/book/text/leibniz-05-04-01.html&lt;/a&gt; .&lt;/p&gt;&#xA;" OwnerUserId="10836" LastActivityDate="2019-01-11T14:32:37.163" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26377" PostTypeId="1" CreationDate="2019-01-11T17:52:19.900" Score="2" ViewCount="395" Body="&lt;p&gt;For a Cournot Duopoly game with Linear Demand functions, we need to find the optimal quantity of each firm such that profit is maximised. Given the linearity of the Demand curves, we will obtain a quadratic profit function. Since profit function is strictly concave and quasiconcave, we can ensure a unique maximum, i.e. a unique optimal quantity for the firm to produce. The above explaination is for a 'standard' game with Linear Demand function, say, &lt;span class=&quot;math-container&quot;&gt;$max(a-bq,0)$&lt;/span&gt;, with cost function, say, &lt;span class=&quot;math-container&quot;&gt;$C_i=c_iq_i$&lt;/span&gt; for, say, a duopoly, &lt;span class=&quot;math-container&quot;&gt;$q=q_1+q_2$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I need to understand is that if we have non-linear demand function, such that we cannot ensure a unique optimal quantity for profit maximisation (which would be the Best Response function), how would the Nash Equilibria or Equilibrium be obtained? That said, is it possible for a Cournot game, or for that matter, any game to have more than one Best Response? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm still a bit rusty on the concepts, please bear with me. Is what I'm trying to understand, right conceptually? What am I missing? &lt;/p&gt;&#xA;" OwnerUserId="18398" LastActivityDate="2019-04-22T12:11:26.403" Title="Best Response Functions for Cournot" Tags="&lt;microeconomics&gt;&lt;game-theory&gt;&lt;self-study&gt;&lt;firm&gt;&lt;theory-of-the-firm&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26378" PostTypeId="1" CreationDate="2019-01-11T18:01:11.467" Score="3" ViewCount="133" Body="&lt;p&gt;This is probably an extremely basic question, however I'm still unclear about the answer. In a typical supply and demand curve graph, such as &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/2m1jG.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/2m1jG.jpg&quot; alt=&quot;A simple typical supply demand curve&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;the equilibrium price is said to be &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;the only price where the plans of consumers and the plans of producers agree—that is, where the amount of the product consumers want to buy (quantity demanded) is equal to the amount producers want to sell (quantity supplied) &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;and &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;if a market is not at equilibrium, then economic pressures arise to move the market toward the equilibrium price and the equilibrium quantity.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;But why should this be so? In the above figure, at the \$1.80 price the demand is 500, netting the supplier a 500*\$1.8=\$900 revenue. Which is higher than the $1.4*600=\$840 revenue it would get at the equilibrium price. And even though at the \$1.80 price the supply exceeds demand, the supplier could just choose not to produce more than the 500 demanded at that price. Or if it does produce it, it could store it somewhere for the future, for example. As a rational agent, the supplier wants to maximize its revenue, so dropping their price to the equilibrium price would be counterproductive to that goal.&lt;/p&gt;&#xA;" OwnerUserId="20744" LastActivityDate="2019-01-11T18:16:05.677" Title="Basic question about why supply/demand should move to the equilibrium price?" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26379" PostTypeId="2" ParentId="26378" CreationDate="2019-01-11T18:16:05.677" Score="4" Body="&lt;p&gt;What you write is true in a monopoly situation, but not when there are multiple firms on the supply side.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, when equilibrium is discussed in this context people usually mean competitive equilibrium, that is equilibrium in a market where many firms compete. So at price \$1.80 several suppliers want to sell an aggregate amount of about 680 gallons. However demand is only 500 gallons. This would prompt the suppliers who are worried about not being able to unload all their stock to offer it at a slightly lower price, say \$1.79, undercutting their rivals' price. The idea is that by lowering the price somewhat you can greatly increase your market share, and unload your stock, to the general dissatisfaction of your rivals, who are now stuck with their own surplus gasoline.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus \$1.80 is not an equilibrium price, as suppliers have incentives to unilaterally push their own prices down.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2019-01-11T18:16:05.677" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26380" PostTypeId="2" ParentId="26365" CreationDate="2019-01-11T19:14:21.610" Score="1" Body="&lt;p&gt;An estimate cannot be reasonably (let alone objectively) given without &lt;em&gt;a priori&lt;/em&gt; knowledge of the specific industry.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;That means some American ceramic workers will lose their jobs because&#xA;  the jobs will be exported (outsourced) to China.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Not necessarily. Apparently you are assuming that there would be an &lt;em&gt;oversupply&lt;/em&gt; of ceramics, but an increase of importations of ceramic from China could be purely in response to a spike in US demand. Also the assumption that there are US producers/suppliers of ceramics might be inaccurate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Even if the assumption of US production of ceramics is accurate, you would need to know beforehand certain characteristics of the US ceramic industry. For instance, US production might be largely automated, whence the presumed loss of jobs in the US would be negligible.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Likewise, policies of the sort of &quot;&lt;em&gt;buy local&lt;/em&gt;&quot; might be prevalent in some industries, in which case imports would end up being returned and therefore inconsequential.&lt;/p&gt;&#xA;" OwnerUserId="18552" LastActivityDate="2019-01-11T19:14:21.610" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="26381" PostTypeId="2" ParentId="24326" CreationDate="2019-01-11T21:37:23.467" Score="-1" Body="&lt;p&gt;When you start importing products from China, you are exporting your jobs to China. It's called outsourcing of jobs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That's ok as long as you are also exporting products in China, and then China is also outsourcing their jobs into the USA.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Say USA is importing Chinese cars valued at $10 billion. That removes say 10,000 jobs from the American car making industry and those jobs are sent to China.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But you also export cars to China - valued at $10 billion. That removes 10,000 jobs from the Chinese car making industry and those jobs are sent to the USA.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's ok to have high amounts of international trade. What is not ok is to have a trade deficit. If your imports are above your capacity to export, that means the American jobs are sent into China&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These &quot;economic experts&quot; Etalia is talking about are always trying to create confusion and to convince you that you have to increase the poverty in order improve the economy. And they are intensely promoted by the mainstream media. That's the very reason why I'm not watching the media since many years ago and I recommend everyone else to do the same.&lt;/p&gt;&#xA;" OwnerUserId="5161" LastEditorUserId="5161" LastEditDate="2019-01-11T21:44:43.580" LastActivityDate="2019-01-11T21:44:43.580" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26382" PostTypeId="1" CreationDate="2019-01-12T02:53:24.157" Score="3" ViewCount="246" Body="&lt;p&gt;I have heard the saying, &quot;Bad money drives good money out of circulation,&quot; (&lt;a href=&quot;https://en.wikipedia.org/wiki/Gresham%27s_law&quot; rel=&quot;nofollow noreferrer&quot;&gt;Gresham's Law&lt;/a&gt;) many times.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm wondering if it's true, what it really means. What's good money? What's bad money? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And if this is true, what evidence do we have and do we know why this happens?&lt;/p&gt;&#xA;" OwnerUserId="20748" LastEditorDisplayName="user18" LastEditDate="2019-01-12T03:13:08.610" LastActivityDate="2019-01-17T23:06:37.887" Title="Does Bad Money Drive Good Money Out Of Circulation" Tags="&lt;money-supply&gt;&lt;money&gt;" AnswerCount="4" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26383" PostTypeId="1" AcceptedAnswerId="27604" CreationDate="2019-01-12T05:05:51.577" Score="5" ViewCount="135" Body="&lt;p&gt;To my knowledge, the idea of representing weak-order with a function dates back to Cantor. So my questions are: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) Was Cantor the first person to rigorize these kinds of representation? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) Were there anyone in the ancient world who (though not rigorously) developed the idea of representing social choice or preference by a function? &lt;/p&gt;&#xA;" OwnerUserId="13381" LastEditorUserId="1601" LastEditDate="2019-03-08T06:21:11.417" LastActivityDate="2019-04-03T02:45:53.530" Title="Who was the inventor of Utility function?" Tags="&lt;mathematical-economics&gt;&lt;utility&gt;&lt;history&gt;&lt;history-economic-thought&gt;&lt;economic-history&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26384" PostTypeId="2" ParentId="26382" CreationDate="2019-01-12T06:18:48.340" Score="1" Body="&lt;p&gt;Gresham's law has to do with commodity money. When several types of commodity money are available (e.g., both gold and silver coins), the one with the lowest quality will drive the rest out of circulation. The underlying idea is that everyone will try to hoard the &quot;good money&quot; while using the &quot;bad money&quot; for payments.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You have a full description of this issue in &lt;a href=&quot;https://en.wikipedia.org/wiki/Gresham%27s_law&quot; rel=&quot;nofollow noreferrer&quot;&gt;wikipedia&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="20281" LastActivityDate="2019-01-12T06:18:48.340" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26385" PostTypeId="1" CreationDate="2019-01-12T07:11:08.557" Score="0" ViewCount="249" Body="&lt;p&gt;It is hard to imagine such a game. Here is an example from wikipedia:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Suppose you are playing a game of chess against an opponent who will be paid some substantial amount of money if a particular event happens (an arrangement of pieces, for instance), but you do not know what the event is. In this case you have perfect information, since you know what each move of the opponent is. However, since you do not know the payoff function of the other player (which will affect its behavior even if it does not alter your own victory conditions), it is a game of incomplete information.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Do such game situations exist in real life?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What kind of equilibria can we observe?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there a dominant strategy that could be adopted in such a game? Is there a way to maximize your gain even though you don't know all the details? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Still in the chess example, you might start forming some beliefs after a few moves, if you notice for instance that the opponent is always sacrificing his pawns for nothing, maybe in his desired position he needs to have a certain amount of pawns... Or if given the opportunity to exchange queens and in a classical game of chess it would have been advantageous, but he doesn't do it, assuming he takes rational decisions, perhaps it is absolutely necessary for him to keep the queen in order to win with the altered rules.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You might assign certain probabilities to the different possible goals of your opponent and update them with every move he makes.&lt;/p&gt;&#xA;" OwnerUserId="18009" LastEditorUserId="18009" LastEditDate="2019-01-12T10:32:40.550" LastActivityDate="2019-04-22T17:41:00.463" Title="Games with perfect but incomplete information in real life" Tags="&lt;game-theory&gt;" AnswerCount="2" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="26387" PostTypeId="1" CreationDate="2019-01-12T15:39:57.520" Score="1" ViewCount="77" Body="&lt;p&gt;First of all I am new to Economics. I'm a B.Sc.(Mathematics) final year student. I was curious to learn Economics so I started with &quot;Economics in one lesson&quot; by Henry Hazlitt.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this book I encountered few phrases like 'inflation' and 'purchasing power'. On Wikipedia I started reading about &lt;a href=&quot;https://en.wikipedia.org/wiki/Purchasing_power&quot; rel=&quot;nofollow noreferrer&quot;&gt;purchasing power&lt;/a&gt;. I was even unable to understand its first paragraph. The first para goes like:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Purchasing power (sometimes retroactively called adjusted for inflation) is the number and quality or value of goods and services that can be purchased with a unit of currency. For example, if one had taken one unit of currency to a store in the 1950s, it is probable that it would have been possible to buy a greater number of items than would be the case today, indicating that one would have had a greater purchasing power in the 1950s. Currency can be either a commodity money, like gold, silver and bitcoin, or fiat money emitted by government sanctioned agencies.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Suppose I have  10,000 in the year 2000 and at the same time my friend also have  10,000. We both wanted to save this money for future. I decided to put this cash in my lock whereas my friend decided to buy gold of it. For simplicity say my friend bought 1 kg of gold.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now in year 2010, after 10 years, due to inflation, our purchasing power is reduced. &lt;strong&gt;Now my question is that in this 10 year period due to inflation the price of gold is also high, so for the same amount of 10,000 my purchasing power is reduced much more than my friend's. Why or how?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As I said I'm new to Economics so please be simple while explaining.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any suggestions for further reading will also be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="20750" LastEditorUserId="1601" LastEditDate="2019-01-12T21:39:37.647" LastActivityDate="2019-01-12T21:39:37.647" Title="How purchasing power reduces when currency is commodity money(say gold)" Tags="&lt;inflation&gt;&lt;purchasing-power-partity&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26388" PostTypeId="2" ParentId="26387" CreationDate="2019-01-12T18:30:44.513" Score="1" Body="&lt;p&gt;Here is a chart from &lt;em&gt;The Economist&lt;/em&gt; in July 2010 showing the nominal and real (i.e. inflation adjusted) price of gold in US dollars back to 1970.  The nominal price later continued to rise until 2012 and then fell, and it is currently at about its 2010 level; the real price also rose and then fell and is currently below its 2010 level.  The lines would look different in other currencies&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/uVoVc.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/uVoVc.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So while the purchasing power of most currencies including the US dollar tends to fall over ten-year periods due to inflation, the purchasing power of gold (shown by the real line) may rise or fall depending on precisely which ten-year period you choose.  For example it rose from 2000 to 2010 and from 1970 to 1980 but fell from 1980 to 1990 and from 1990 to 2000; indeed from 1980 to 2000 the purchasing power of gold fell faster than the purchasing power of the dollar&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An additional consideration is that you can &lt;em&gt;store&lt;/em&gt; your currency in a bank by depositing it, and you can then receive interest on it, which may offset the decline in the purchasing power. If you store gold in a bank, the bank is likely to charge you a storage fee and you will not receive interest &lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2019-01-12T18:30:44.513" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26389" PostTypeId="2" ParentId="26387" CreationDate="2019-01-12T18:35:22.190" Score="0" Body="&lt;p&gt;The price of a specific commodity (e.g., gold) need not have gone up, it can have changed in any direction. Your friend bought an asset that, in your example, increased in value. As such, it provided protection against the general increase in prices. It could have turned out that the price of gold fell during that period and she was worse off than you. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In order to determine the impact of rising prices on the purchasing power of money, we use price indices to 'deflate' the monetary values. Say the price index was 100 in 2000 and 125 in 2010. In keeping with your example, assume the price of gold was 10,000 per kg in 2000 and 12,000 per kg in 2010. If both your and your friend's purchasing power in 2000 was 10,000, we'd say that yours would have been reduced to &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$10,000 \frac{100}{125}=8,000.$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We'd say that the \$10,000 you still have in 2010 are equivalent to \$8,000 dollars of 2000. Sometimes we speak of the 10,000 year 2010 dollars as &quot;8,000 year 2000 dollars.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For your friend things are a little better:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$12,000 \frac{100}{125}=9,600.$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You'd both be worse off, but your friend would have lost only 400 year 2000 dollars to the 2,000 year 2000 dollars you lost. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course this is heavily dependent of what has happened to the price of gold during that period. If, instead, it had fallen to 9,000, then your friend's gold investment is worse than your money investment, because its year 2000 dollars value would be&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$9,000 \frac{100}{125}=7,200.$$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="20281" LastActivityDate="2019-01-12T18:35:22.190" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26390" PostTypeId="2" ParentId="5021" CreationDate="2019-01-12T20:52:44.550" Score="0" Body="&lt;p&gt;No impact because the constant will be eliminated after you do FOC's/first order conditions when you divide FOC of X1 by FOC of X2 to simplify for x1 and x2 &lt;/p&gt;&#xA;" OwnerUserId="20752" LastActivityDate="2019-01-12T20:52:44.550" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26393" PostTypeId="1" AcceptedAnswerId="26398" CreationDate="2019-01-13T00:39:03.663" Score="5" ViewCount="62" Body="&lt;p&gt;In a finite Bayesian game, in most textbooks, a type of player &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; is defined as &lt;span class=&quot;math-container&quot;&gt;$\theta_i\in\Theta_i$&lt;/span&gt;. Little is said about the &quot;nature&quot; of the set of types.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, could we have a two-element set &lt;span class=&quot;math-container&quot;&gt;$\Theta_i=\{(a,b),(c,d)\}$&lt;/span&gt;? If I am not mistaken this means that &lt;span class=&quot;math-container&quot;&gt;$\Theta_i$&lt;/span&gt; is a subset of &lt;span class=&quot;math-container&quot;&gt;$\mathbb{R^2}$&lt;/span&gt;, right?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the common prior then, we could have, for example, &lt;span class=&quot;math-container&quot;&gt;$\mathbb{P}((a,b))=p$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\mathbb{P}((c,d))=1-p$&lt;/span&gt;. Both probabilities describe the joint probability distribution that Nature assigns the types to the players.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this allowed in the definition of a Bayesian game?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'd appreciate any help. Thank you.&lt;/p&gt;&#xA;" OwnerUserId="20754" LastActivityDate="2019-01-13T09:10:18.770" Title="Bayesian game and the set of types" Tags="&lt;game-theory&gt;&lt;bayesian-game&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26394" PostTypeId="1" CreationDate="2019-01-13T03:51:32.200" Score="-2" ViewCount="130" Body="&lt;p&gt;Consider a nation whose money is entirely digital (like Bitcoin), but centralized (unlike Bitcoin). Furthermore, the total money supply is fixed, i.e. money cannot be created nor destroyed. To be clear, not even the government can create or destroy money. Money can only be transferred between individuals, businesses and government. In a nutshell, this represents the entire monetary system. At any given point in time, the amount of money owned by an individual or a business divided by the total money supply represents their share of purchasing power at that particular point in time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That’s pretty straightforward, but the tax system is where it gets weird. It involves none of the taxes we are accustomed to (e.g. income taxes, payroll taxes, consumption taxes, property taxes, capital gains taxes, inheritance taxes, etc.) All taxes are replaced with a single tax: a flat tax on the amount of money owned. This tax would be automatically levied at a pre-determined frequency (e.g. every month). For example, through a democratic process, let’s say that we agree that the we should be taxed at 36% annually. Then, every month, every individual and every business would be taxed at a flat rate of 3% of the amount of money they owned. This flat tax could be made arbitrarily progressive if part of it is used to provide a UBI. Of course, how that money is spent by the government would be decided, again, through a democratic process. Also, in reality, this tax would be levied by the different levels of government (e.g. federal, state and local). This has implications, but I won’t go over them here for the sake of brevity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Unlike our current taxes, this tax fits perfectly with Adam Smith’s four criteria of good taxes (&lt;a href=&quot;https://en.wikipedia.org/wiki/Theories_of_taxation&quot; rel=&quot;nofollow noreferrer&quot;&gt;Theories of taxation&lt;/a&gt;):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;“They are (1) proportionate to incomes or ability to pay, (2) certain rather than arbitrary, (3) payable at times and in ways convenient to the taxpayers and (4) cheap to administer and collect.”&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Only the third criterion is debatable, but I think it would be as convenient as a tax can be. At least, you wouldn’t have to hire someone or spend hours to complete your tax return. On top of that, here are some obvious advantages of this tax system:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;It eliminates all problems associated with physical money (e.g.&#xA;unwanted destruction, wearing and counterfeiting)&lt;/li&gt;&#xA;&lt;li&gt;It eliminates all possibilities of tax avoidance and tax evasion, and&#xA;hopefully all the IQ points that go into those activities can shift&#xA;towards something more valuable&lt;/li&gt;&#xA;&lt;li&gt;It eliminates the power to create and destroy money from government,&#xA;so no more hidden taxes in the form of inflation&lt;/li&gt;&#xA;&lt;li&gt;It eliminates the power to create and destroy money from commercial&#xA;banks, which is a major source of economic instability (e.g. bank&#xA;runs simply can’t occur under this system)&lt;/li&gt;&#xA;&lt;li&gt;It makes it easier to track the economic state of the nation (e.g.&#xA;for issues like income distribution)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;That said, it fundamentally changes the nature of money, which is a legitimate concern. Currently, money can be used as a pseudo store of value (“pseudo” because inflation slowly decreases its value over time). In this alternative system, the value of money would probably increase over time (because its fixed supply would almost certainly caused slow deflation). However, money could not be used as a store of value since the same earned money would be taxed over and over (and that wouldn't make up for the deflation). Thus, in order to save, money would have to be invested in a physical or financial asset that can be redeemed for money at a later time and/or that slowly pays dividends. This would require significant human adaptation on how we conceptualize money. In order for this system to work, it’s crucial that this digital money reflects purchasing power. Perhaps, human beings would simply reject the idea of that money as having any value and would immediately move towards another form of money. It’s hard to image how it would play out in real life.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My questions are:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Has that type of taxation ever been considered in the economic field&#xA;devoted to the study of taxation? If so, can you point me to it?&lt;/li&gt;&#xA;&lt;li&gt;How would this actually play out? (in your opinion, or according to the economic literature)&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="20757" LastEditorUserId="20758" LastEditDate="2019-03-24T16:45:03.667" LastActivityDate="2019-03-24T16:45:03.667" Title="Would taxing money owned (as a share of purchasing power) be a better form of taxation?" Tags="&lt;taxation&gt;&lt;money-supply&gt;&lt;money&gt;&lt;optimal-taxation&gt;&lt;quantity-theory-of-money&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26395" PostTypeId="1" CreationDate="2019-01-13T05:18:19.363" Score="0" ViewCount="65" Body="&lt;p&gt;I have highlighted four highlighted numbers in the UN &lt;em&gt;System of National Accounts&lt;/em&gt; (&lt;a href=&quot;https://books.google.com/books?id=gQWmAdwdI8gC&amp;amp;pg=PA31&quot; rel=&quot;nofollow noreferrer&quot;&gt;p. 31, Table 2.13&lt;/a&gt;). My question is: What are these numbers?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/ilH7g.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/ilH7g.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My guesses:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;6 = Compensation paid by foreign firms to resident employees.&lt;/li&gt;&#xA;&lt;li&gt;2 = Compensation paid by resident firms to foreign employees.&lt;/li&gt;&#xA;&lt;li&gt;44 = Property income paid by foreigners to residents.&lt;/li&gt;&#xA;&lt;li&gt;38 = Property income paid by residents to foreigners.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I'm sure the answer is somewhere in the document (700 pages and not exactly user friendly), but I can't find it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When answering my question, please cite where in the document you found the answer.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Also, how is the number 1864 obtained from the numbers above?&lt;/p&gt;&#xA;" OwnerDisplayName="user20317" LastEditorDisplayName="user20317" LastEditDate="2019-01-13T06:12:17.577" LastActivityDate="2021-03-02T04:03:50.330" Title="Specific question about some figures in national accounts" Tags="&lt;national-accounts&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26398" PostTypeId="2" ParentId="26393" CreationDate="2019-01-13T09:10:18.770" Score="4" Body="&lt;p&gt;Sure.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the two type case there is an alternate solution that is frequently used. If &lt;span class=&quot;math-container&quot;&gt;$a \neq c$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$b \neq d$&lt;/span&gt;, that is the types are really different in both attributes, then you can define a function &lt;span class=&quot;math-container&quot;&gt;$f$&lt;/span&gt; for which&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;b = f(a), \hskip 20pt d = f(c).&#xA;$$&lt;/span&gt;&#xA;Whatever you need the second attribute for, this way it becomes a function of the first one, and the values of the first attribute completely define the type space.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Example:&#xA;&lt;br&gt; In &lt;a href=&quot;https://www.jstor.org/stable/1882010?seq=1#page_scan_tab_contents&quot; rel=&quot;nofollow noreferrer&quot;&gt;Spence's model of job market signaling&lt;/a&gt;, people have a type that shows how much they are worth to a company, how hard working they are. It is assumed that the cost associated with getting a degree is a function of this type as well, and harder workers get a degree more easily. One way to show this would be to include both worth to the employer and cost of getting a degree in the type attributes, but Spence only defined the types and gave some functions that mapped to these values.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2019-01-13T09:10:18.770" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26399" PostTypeId="1" CreationDate="2019-01-13T09:38:20.227" Score="1" ViewCount="17" Body="&lt;p&gt;The supply elasticity at a point is the willingness to produce more or less after the price has changed (due to whatever reason?).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\mu_{Q,P}=\frac{\partial Q_S/Q_S}{\partial P/P}=\frac{\partial Q_S}{\partial P}\cdot\frac{P}{Q_S}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where &lt;span class=&quot;math-container&quot;&gt;$Q_S$&lt;/span&gt; is the quantity supply function, &lt;span class=&quot;math-container&quot;&gt;$P$&lt;/span&gt; is the price. &lt;span class=&quot;math-container&quot;&gt;$\frac{P}{Q_S}$&lt;/span&gt; is the current ratio (the one at the point of measurement or at equilibrium) of price to quantity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Imagine there are three different suppliers with different supply functions &lt;span class=&quot;math-container&quot;&gt;$Q_1,Q_2,Q_3$&lt;/span&gt; For low prices some suppliers won't be able to afford to produce so there will only be one supplier for example. for a certain range &lt;span class=&quot;math-container&quot;&gt;$(p_0,p_1]$&lt;/span&gt; we can have that two firms are producing, and for &lt;span class=&quot;math-container&quot;&gt;$P\in(p_1,\infty)$&lt;/span&gt; all three firms are producing. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this example it just so happens that the aggregate supply function is continuous.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Say the equilibrium price is &lt;span class=&quot;math-container&quot;&gt;$p_1$&lt;/span&gt; and the aggregate supply is &lt;span class=&quot;math-container&quot;&gt;$Q_S(p_1)=Q_1(p_1)+Q_2(p_2)$&lt;/span&gt; (only two out of three firms produce for this price). If the slope of &lt;span class=&quot;math-container&quot;&gt;$Q_S$&lt;/span&gt; is some number &lt;span class=&quot;math-container&quot;&gt;$\alpha$&lt;/span&gt; at that point, (on the left, because on the right supplier 3 also produces and so the slope is different, say &lt;span class=&quot;math-container&quot;&gt;$\beta\ne\alpha$&lt;/span&gt;), then the supply elasticity is &lt;span class=&quot;math-container&quot;&gt;$\alpha\cdot \frac{p_1}{Q_1(p_1)+Q_2(p_1)}$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since the slope on the right of &lt;span class=&quot;math-container&quot;&gt;$p_1$&lt;/span&gt; is beta, and the aggregate supply function is continuous (that implies &lt;span class=&quot;math-container&quot;&gt;$Q_1(p_1)+Q_2(p_1)=Q_S(p_1)=\lim\limits_{p\rightarrow p_1\\p&amp;gt; p_1}Q_1(p)+Q_2(p)+Q_3(p)$&lt;/span&gt;) the supply elasticity is &lt;span class=&quot;math-container&quot;&gt;$$\beta\cdot \frac{p_1}{Q_1(p_1)+Q_2(p_1)+Q_3(p_1)}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can the &quot;right and left&quot; elasticities be different in absolut value?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How should we understand a market where supply elasticity is not continuous at the equilibrium?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;NB: if we had to impose that the elasticity has to be continuous that would be imposing &lt;span class=&quot;math-container&quot;&gt;$$Q_3(p_1)=\frac{(\beta-\alpha)(Q_1(p_1)+Q_2(p_1))}{\alpha}$$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="18009" LastEditorUserId="18009" LastEditDate="2019-01-13T12:10:54.127" LastActivityDate="2019-01-13T12:10:54.127" Title="Supply elasticity on a piece-wise linear supply function" Tags="&lt;supply-and-demand&gt;&lt;elasticity&gt;&lt;aggregate-production&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26400" PostTypeId="2" ParentId="12924" CreationDate="2019-01-13T10:49:33.590" Score="0" Body="&lt;p&gt;A debt is considered a lot when the borrower defaults on that debt. Why? Because countries just like companies and individuals must not borrow more than it could pay back. The lower debt to GDP ratio, the better. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The most important factor to borrowing country's credibility is its ability to pay back loans plus interest on schedule. This is achieved in two ways which can be used in parallel:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Indirect tactical finance by lending to local startup companies and projects at interest rate not less than the foreign borrowing interest rate. Here the government lends the private sector to jump-start new projects that should enhance country's economic development, by increasing GDP in the short term. &lt;/li&gt;&#xA;&lt;li&gt;Direct strategic finance by starting new public sector owned and operated projects or in partnership with the private sector. These projects focus on comprehensive economic development, which must enhance industrial and agricultural growth, to a point where country's exports grow allowing more foreign currency to flow into the country, which is later used to service the foreign debt and increase GDP, reducing the percentage of external debt-to-GDP. &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;The most important factor in external or foreign loans is that it is spent on income producing projects not public operational expenses or military uses. This is where under-developed countries go wrong because they don't understand how to plan their priorities properly. &lt;/p&gt;&#xA;" OwnerUserId="20764" LastEditorUserId="4020" LastEditDate="2020-05-08T16:01:37.120" LastActivityDate="2020-05-08T16:01:37.120" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26401" PostTypeId="1" AcceptedAnswerId="26402" CreationDate="2019-01-13T13:09:20.413" Score="3" ViewCount="1790" Body="&lt;p&gt;Let's consider a relationship between &lt;span class=&quot;math-container&quot;&gt;$ y $&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$ x $&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$ y = a x^b $&lt;/span&gt;. Taking log on both sides, we have &lt;span class=&quot;math-container&quot;&gt;$$ \log y = \log a + b \log x $$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, my textbook, Nicholson and Snyder's Basic Principles and Extensions derives the relationship between elasticity and the logarithm of the two variables thus:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ \eta = b = \frac{ d \log y}{d \log x} $$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, I understand that &lt;span class=&quot;math-container&quot;&gt;$ d \log y = \frac 1y dy $&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$ d \log x = \frac 1x \ dx $&lt;/span&gt;. So I understand why we can write &lt;span class=&quot;math-container&quot;&gt;$ \eta = \frac {d \log y}{d \log x} $&lt;/span&gt;. What I don't understand is: why does &lt;span class=&quot;math-container&quot;&gt;$ b $&lt;/span&gt;, which is the power on the variable &lt;span class=&quot;math-container&quot;&gt;$ x $&lt;/span&gt;, equal &lt;span class=&quot;math-container&quot;&gt;$ \eta $&lt;/span&gt;?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here's a snapshot from the book:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/2TRHv.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/2TRHv.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="6486" LastActivityDate="2021-04-06T13:22:13.810" Title="Elasticity and logarithms" Tags="&lt;elasticity&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="26402" PostTypeId="2" ParentId="26401" CreationDate="2019-01-13T13:21:40.223" Score="8" Body="&lt;p&gt;Because &lt;span class=&quot;math-container&quot;&gt;$a$&lt;/span&gt; is a parameter, and so&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\eta = \frac{ d \log y}{d \log x} = \frac{ d \log a + d \ b \log x}{d \log x} = 0 + b.&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2021-04-06T13:22:13.810" LastActivityDate="2021-04-06T13:22:13.810" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26403" PostTypeId="1" AcceptedAnswerId="26404" CreationDate="2019-01-13T13:30:56.683" Score="2" ViewCount="147" Body="&lt;p&gt;Consider an indirect utility function on the form &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$v^{i}(\textbf{p},w^{i}) = a^{i}(\textbf{p}) + b^{i}(\textbf{p})w^{i}$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where &lt;span class=&quot;math-container&quot;&gt;$\textbf{p}$&lt;/span&gt; is a vector of prices and &lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt; denotes income of individual &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;. I want to find the restrictions on &lt;span class=&quot;math-container&quot;&gt;$a^{i}(\textbf{p})$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$b^{i}(\textbf{p})$&lt;/span&gt; such that the preferences are homothetic. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I start by using Roy's identity to find the Marshallian demand for good &lt;span class=&quot;math-container&quot;&gt;$j$&lt;/span&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$x_{j}(\textbf{p},w^{i}) = -(\frac{\partial a^{i}}{\partial p_{j}} + \frac{\partial b^{i}(\textbf{p})}{\partial p_{j}} w^{i})/b^{i}(\textbf{p})$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To check for homothetic preferences I find an expression for &lt;span class=&quot;math-container&quot;&gt;$\frac{x_{j}}{x_{k}}$&lt;/span&gt; such that it is independent of income. I find that &lt;span class=&quot;math-container&quot;&gt;$\frac{x_{j}}{x_{k}} = \frac{(\frac{\partial a^{i}(\textbf{p})}{\partial p_{j}}+\frac{\partial b^{i}(\textbf{p})}{\partial p_{j}}w^{i})}{(\frac{\partial a^{i}(\textbf{p})}{\partial p_{k}}+\frac{\partial b^{i}(\textbf{p})}{\partial p_{k}}w^{i})}$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So (assuming I have not made an error differentiating), the expression is independent of income as long as &lt;span class=&quot;math-container&quot;&gt;$\frac{\partial b^{i}(\textbf{p})}{\partial p_{k}} = \frac{\partial b^{i}(\textbf{p})}{\partial p_{j}} = 0$&lt;/span&gt; and there is no restriction needed on &lt;span class=&quot;math-container&quot;&gt;$a^{i}(\textbf{p})$&lt;/span&gt; other than it needs to be differentiable.&lt;/p&gt;&#xA;" OwnerUserId="11767" LastActivityDate="2019-01-13T15:50:02.130" Title="Homothetic preferences from indirect utility" Tags="&lt;microeconomics&gt;&lt;preferences&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26404" PostTypeId="2" ParentId="26403" CreationDate="2019-01-13T14:04:27.780" Score="2" Body="&lt;p&gt;Your conclusion is a bit hasty:&lt;br&gt;&#xA;(i) why did you implicitly exclude the case &lt;span class=&quot;math-container&quot;&gt;$a^i(\textbf{p})=0$&lt;/span&gt;?&lt;br&gt;&#xA;(ii) if your individual is rational then &lt;span class=&quot;math-container&quot;&gt;$v^i$&lt;/span&gt; is homogeneous of degree zero in &lt;span class=&quot;math-container&quot;&gt;$(\textbf{p},w^i)$&lt;/span&gt; which has implications on &lt;span class=&quot;math-container&quot;&gt;$a^i$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$b^i$&lt;/span&gt;... Your demand system should also satisfy the budget constraint (adding-up).&lt;/p&gt;&#xA;" OwnerUserId="20576" LastEditorUserId="20576" LastEditDate="2019-01-13T15:50:02.130" LastActivityDate="2019-01-13T15:50:02.130" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="26405" PostTypeId="2" ParentId="26401" CreationDate="2019-01-13T14:25:33.233" Score="7" Body="&lt;p&gt;Differentiating both sides of the equation with respect to &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;, using the &lt;a href=&quot;https://en.wikipedia.org/wiki/Chain_rule&quot; rel=&quot;noreferrer&quot;&gt;chain rule&lt;/a&gt; for the left hand side and noting that, since &lt;span class=&quot;math-container&quot;&gt;$a$&lt;/span&gt; is a parameter, &lt;span class=&quot;math-container&quot;&gt;$da/dx=0$&lt;/span&gt;:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\frac{1}{y}\frac{dy}{dx}=b\frac{1}{x}$$&lt;/span&gt;&#xA;Rearranging:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\frac{dy/y}{dx/x}=\eta=b$$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="1417" LastEditorUserId="1417" LastEditDate="2019-01-13T17:57:34.410" LastActivityDate="2019-01-13T17:57:34.410" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26406" PostTypeId="2" ParentId="26394" CreationDate="2019-01-13T15:02:38.443" Score="0" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Would this alternative monetary and tax system work?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Although in a non-digital context, what you propose resembles a &lt;em&gt;wealth tax&lt;/em&gt;, which has been abolished in several countries (the Yellow Vests in France are pushing to &lt;a href=&quot;https://www.wsj.com/articles/france-could-keep-wealth-tax-in-bid-to-placate-yellow-vests-1544025588&quot; rel=&quot;nofollow noreferrer&quot;&gt;restore&lt;/a&gt; that barbarism, though).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Inflation and changes in purchase power can still occur in the system you devise because keeping currency at a constant level does not guarantee that supply and/or utility will remain constant.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider a scenario where laziness becomes a trend and people decide to stop showing up at work. That trend would exacerbate the scarcity of goods and services, which ultimately will be reflected in systemic bottlenecks and in the government's failure to fulfill its obligations and responsibilities. BTW, some of those bottlenecks are likely to hinder the government's efforts against tax evasion and its ability to track the economic state of the nation reliably.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Furthermore, the implementation of digital currencies itself poses another disruptive factor in the &quot;overall tracking of money: the loss of digital currency due to the owner's inability (whether factual or falsely alleged) to recover the private key of his bitcoins. That entails an evident risk of tax evasion, even if only for the prospect that the next democratic process will result in a lower tax rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Without a doubt, holders of digital currency will try to move their money out to foreign economies where tax policies are more favorable.&lt;/p&gt;&#xA;" OwnerUserId="18552" LastActivityDate="2019-01-13T15:02:38.443" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="26408" PostTypeId="1" CreationDate="2019-01-13T21:35:48.630" Score="1" ViewCount="52" Body="&lt;p&gt;Army A has a single plane which can strike one of three possible targets, A, B and C. Army B has one anti-aircraft gun that can be assigned to one of the three targets to guard it. The value of each target, &lt;span class=&quot;math-container&quot;&gt;$v_k$&lt;/span&gt; is &lt;span class=&quot;math-container&quot;&gt;$v_A&amp;gt;v_B&amp;gt;v_C&amp;gt;1$&lt;/span&gt;. Army A can destroy the target only when it is unguarded and A attacks. Army A wishes to maximize the damage whilst Army B wishes to minimize the damage. Find all Nash Equilibria.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I tried formulating the game into a &lt;span class=&quot;math-container&quot;&gt;$3*3$&lt;/span&gt; payoff matrix game, by giving Army A &lt;span class=&quot;math-container&quot;&gt;$0$&lt;/span&gt; if the target it aimed at was guarded and the value of the target if it was unguarded. &#xA;Similarly, for payoffs of Army 2, I assigned &lt;span class=&quot;math-container&quot;&gt;$-v_k$&lt;/span&gt; added to the valuations of other two target which were not destroyed, if Army A succeeded in destroying the target and &lt;span class=&quot;math-container&quot;&gt;$v_A+v_B+v_C$&lt;/span&gt; if Army A failed to destroy any target, i.e., by aiming at a guarded post.&#xA;Given this setup, I found that there was no Pure Strategy Nash Equilibria in the game. I do not know how to proceed with the Mixed Strategy Nash Equilibria, if any. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm very doubtful of the approach that I tried to employ. I would really appreciate a little help! &lt;/p&gt;&#xA;" OwnerUserId="18398" LastActivityDate="2019-01-16T19:58:29.707" Title="Nash Equilibria in Target Destroying-Guarding Game" Tags="&lt;game-theory&gt;&lt;self-study&gt;&lt;nash-equilibrium&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26409" PostTypeId="1" CreationDate="2019-01-13T22:37:32.373" Score="2" ViewCount="95" Body="&lt;p&gt;I see some discussion that the reasoning for the construction of a tax rate function is the utility function. Whould &lt;span class=&quot;math-container&quot;&gt;$u=\ln\ln w$&lt;/span&gt; function where &lt;span class=&quot;math-container&quot;&gt;$u$&lt;/span&gt; is the utility and &lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt; the wealth give a regressive tax rate?&lt;/p&gt;&#xA;" OwnerUserId="10298" LastActivityDate="2019-02-13T12:01:35.287" Title="A utility function that gives a regressive tax rate" Tags="&lt;utility&gt;&lt;optimal-taxation&gt;" AnswerCount="1" CommentCount="0" ClosedDate="2019-02-28T17:46:50.393" ContentLicense="CC BY-SA 4.0" />
  <row Id="26410" PostTypeId="1" CreationDate="2019-01-14T00:13:10.347" Score="-2" ViewCount="51" Body="&lt;p&gt;I have a  simple payoff matrix defined here: &lt;a href=&quot;https://prnt.sc/m6rp5m&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://prnt.sc/m6rp5m&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My question is: If both players play all 4 strategies with 1/4 probability, does that lead to nash equilibrium?&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can't quite figure this out. I know how to check if pure stratigies lead to nash equilibrium. You assume the row/columns player sticks to a strategy and check if the other player is incentivized to play differently.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'd love a pointer or two in the right direction.&lt;/p&gt;&#xA;" OwnerUserId="18737" LastActivityDate="2019-01-17T22:00:11.633" Title="Mixed Strategies -- Does this lead to Nash equilibrium?" Tags="&lt;game-theory&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="26411" PostTypeId="1" AcceptedAnswerId="26521" CreationDate="2019-01-14T00:31:25.560" Score="2" ViewCount="211" Body="&lt;p&gt;In Hal Varian's Microeconomic analysis (page 213) he discusses the &lt;a href=&quot;https://aae.wisc.edu/aae705/References/Deaton_AIDS.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Almost Ideal demand system&lt;/a&gt;. There he describes the AIDS system as follows:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The almost ideal demand system (AIDS) has an expenditure function of the following form:&#xA;  &lt;span class=&quot;math-container&quot;&gt;$$e(\boldsymbol{p},u)=a(p)+b(p)u$$&lt;/span&gt;&#xA;  where&#xA;  &lt;span class=&quot;math-container&quot;&gt;$$a(p)=a_0+\sum_ia_i\log p_i+\frac{1}{2}\sum_i\sum_j\gamma^*_{ij}\log p_i\log p_j $$&lt;/span&gt;&#xA;  &lt;span class=&quot;math-container&quot;&gt;$$b(p)=\beta_0\prod p_i^{\beta_i}$$&lt;/span&gt;&#xA;  &lt;span class=&quot;math-container&quot;&gt;$$...$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So I know &lt;span class=&quot;math-container&quot;&gt;$a(p)$&lt;/span&gt; is a second order approximation of &lt;span class=&quot;math-container&quot;&gt;$p$&lt;/span&gt; on our expenditure function, however i am having difficulty understanding what exactly &lt;span class=&quot;math-container&quot;&gt;$b(p)$&lt;/span&gt; is.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is &lt;span class=&quot;math-container&quot;&gt;$b(p)$&lt;/span&gt;?&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="8815" LastEditDate="2019-01-15T05:18:51.077" LastActivityDate="2019-01-25T01:09:57.637" Title="what is $b(p)$ in the Almost Ideal Demand System?" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;" AnswerCount="2" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="26412" PostTypeId="2" ParentId="26411" CreationDate="2019-01-14T01:05:08.453" Score="2" Body="&lt;p&gt;In the original article by &lt;em&gt;Deaton and Muellbauer&lt;/em&gt; (1980), &lt;a href=&quot;http://www.princeton.edu/~deaton/downloads/An_Almost_Ideal_Demand_System.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;An Almost Ideal Demand System&lt;/a&gt;, they characterize the expenditure (cost) function for the class of PIGLOG preferences as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\log c(u, p) = (1-u) \log \{a(p)\} + u \log \{b(p)\}\tag{1}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where they go on to describe in intuitive terms:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot; With some exceptions (see the Appendix), &lt;span class=&quot;math-container&quot;&gt;$u$&lt;/span&gt; lies between &lt;span class=&quot;math-container&quot;&gt;$0$&lt;/span&gt; (subsistence) and &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt; (bliss) so that the positive linearly homogeneous functions &lt;span class=&quot;math-container&quot;&gt;$a(p)$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$b(p)$&lt;/span&gt; can be regarded as the costs of subsistence and bliss, respectively. &quot; (p. 313)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Some algebra gets you equations &lt;span class=&quot;math-container&quot;&gt;$(2)$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$(3)$&lt;/span&gt; in the paper, which are analogous forms of the equations you have above.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2019-01-14T01:05:08.453" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="26413" PostTypeId="1" CreationDate="2019-01-14T04:08:16.350" Score="0" ViewCount="57" Body="&lt;p&gt;I'm not sure where to ask and, since this is not Personal Finance, I'm gonna ask it here.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here's my situation: for the past 2 years, I hired and trained a team of Filipino workers. They are paid in USD and receive a 8% raise every year and x% for inflation. The workers then take their pay and exchange it for PHP.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When I came up with the analysis 2 years ago, I used the inflation data for Philippines to figure out the yearly inflation raise.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, this year's inflation rate was 5.5%, which is ungodly high IMO; which got me thinking. Then, it occurred to me that I should have used the US Inflation rate the whole time!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My logic is that, if the price of goods increase in the Philippines, it wouldn't matter because the USD to PHP exchange rate would change so that US$1 would be worth more Pesos. If I recall correctly, Russian was experiencing a lot of inflation a few years ago. The price of the Ruble dropped; so, if Russian employees were paid USD, they were safe from the inflation, even if they exchanged their money every pay period.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this logic correct? Let me know. I gotta fix their pay.&lt;/p&gt;&#xA;" OwnerUserId="20825" OwnerDisplayName="MoneyBag" LastActivityDate="2019-01-14T19:59:16.457" Title="Paying Filipino workers in USD. What should the inflation rate be?" Tags="&lt;currency&gt;&lt;inflation&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="26416" PostTypeId="2" ParentId="26409" CreationDate="2019-01-14T11:33:40.027" Score="1" Body="&lt;p&gt;I don't see how the log-log utility function you specify would justify a regressive tax rate. In a simple setup, where government engaged in lump sum spending that had to be financed by a consumption or labor income tax, the log-log utility function would have all the same properties as more typical linear, quadratic, CRRA, and CARA utility functions. quasi-concave, increasing, weakly declining marginal utility, etc. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Usually the motivation for a regressive tax rate isn't the utility function over wealth. It is some other feature of the model, like taxes on wealth discouraging capital formation and therefore harming the productivity of poor households by making them less productive &lt;a href=&quot;https://eml.berkeley.edu/~saez/course/Judd_JPubE(1985).pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;(Judd (1985)&lt;/a&gt;). Or some feature of the production function is tied to the income of the rich or high productivity specifically, consider this new paper Jones (2018):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;This paper considers the taxation of top incomes when the following&#xA;  conditions apply: (i) new ideas drive economic growth, (ii) the reward&#xA;  for creating a successful innovation is a top income, and (iii)&#xA;  innovation cannot be perfectly targeted by a separate research subsidy&#xA;  — think about the business methods of Walmart, the creation of Uber,&#xA;  or the “idea” of Amazon.com. These conditions lead to a new term in&#xA;  the Saez (2001) formula for the optimal top tax rate: by slowing the&#xA;  creation of the new ideas that drive aggregate GDP, top income&#xA;  taxation reduces everyone’s income, not just the income at the top.&#xA;  When the creation of ideas is the ultimate source of economic growth,&#xA;  this force sharply constrains both revenue-maximizing and&#xA;  welfare-maximizing top tax rates. &lt;strong&gt;For example, for extreme parameter&#xA;  values, maximizing the welfare of the middle class requires a &#xA;  negative top tax rate: the higher income that results from the subsidy&#xA;  to innovation more than makes up for the lost redistribution.&lt;/strong&gt; More&#xA;  generally, the calibrated model suggests that incorporating ideas and&#xA;  economic growth cuts the optimal top marginal tax rate substantially&#xA;  relative to the basic Saez calculation&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Source: &lt;a href=&quot;https://www8.gsb.columbia.edu/faculty-research/sites/faculty-research/files/finance/Macro%20Workshop/toptax.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Taxing Top Incomes in a World of Ideas&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2019-01-14T11:33:40.027" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26417" PostTypeId="1" CreationDate="2019-01-14T11:54:42.213" Score="0" ViewCount="67" Body="&lt;p&gt;I am following a paper where a production function of this type is used. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$Y=\left [\beta K^{- \rho}+\alpha \eta \left (\frac{K}{L} \right )^{-c(1+\rho)}L^{- \rho}   \right ]^{-1/\rho}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is a modified version of a CES where in addition there is the term &lt;span class=&quot;math-container&quot;&gt;$\alpha \eta \left (\frac{K}{L} \right )^{-c(1+\rho)}$&lt;/span&gt; which multiply the &lt;span class=&quot;math-container&quot;&gt;$L$&lt;/span&gt; factor. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;em&gt;I was therefore wondering. What may be the economic justification interpretation for adding this factor?&lt;/em&gt;&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="19586" LastActivityDate="2019-01-14T11:54:42.213" Title="Economic interpretation of a CES production function" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;economic-growth&gt;&lt;production-function&gt;&lt;aggregate-production&gt;" AnswerCount="0" CommentCount="8" ContentLicense="CC BY-SA 4.0" />
  <row Id="26418" PostTypeId="1" CreationDate="2019-01-14T13:53:57.380" Score="2" ViewCount="73" Body="&lt;p&gt;Suppose that we have some data-points &lt;span class=&quot;math-container&quot;&gt;$x_1, ..., x_n$&lt;/span&gt; and want to test a model that specifies a stochastic process which supposedly generated the data points. For example, we might want to test the hypothesis that every &lt;span class=&quot;math-container&quot;&gt;$x_i$&lt;/span&gt; was generated by a normal distribution with some mean and variance. In such cases, textbooks tell us to&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Derive the distribution of the &lt;em&gt;sample mean&lt;/em&gt; under the assumption that the probabilistic model is correct.&lt;/li&gt;&#xA;&lt;li&gt;Compute the probability of observing the observed sample mean or one that is 'more extreme'.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;This process gives us a p-value which we can use to evaluate the probabilistic model. Calculating p-values for different probabilistic models allows us to compare the models.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is simple: when calculating p-values, why do we consider the distribution of the sample mean (i.e. why is the sample mean our 'test statistic')? Why not use the median, mode, lower quartile, or any other function of the data? For that matter, why not do the natural thing and just compute the joint density &lt;span class=&quot;math-container&quot;&gt;$f(x_1, ..., x_n)$&lt;/span&gt;?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To be clear, I understand why we might focus on the sample mean if one's hypothesis does not specify a probabilistic process that generated the data. The reason is that, regardless of the distribution that generated the data, one might hope that the sample mean is distributed approximately normally (the central limit theorem). However, often one's hypothesis directly specifies the probabilistic process that generated one's data. I am asking whether there is any good reason to focus on the sample mean in this instance.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Edit&lt;/strong&gt;: since an example has been requested, I will explain the particular problem that motivated the question. I am testing the predictions of Nash Equilibrium using some experimental data. In this case, the unique BNE is in mixed strategies, so the model I seek to test is probabilistic. I am wondering how to proceed when assessing the model's 'fit' (and comparing its fit to that of other theoretical models).&lt;/p&gt;&#xA;" OwnerDisplayName="user17900" LastEditorDisplayName="user17900" LastEditDate="2019-01-15T15:37:05.937" LastActivityDate="2019-01-21T19:04:03.810" Title="Using the sample mean to test hypotheses" Tags="&lt;econometrics&gt;&lt;statistics&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26420" PostTypeId="1" CreationDate="2019-01-14T16:35:29.990" Score="2" ViewCount="82" Body="&lt;p&gt;National Income is the total value of all services and goods that are produced within a country and the income that comes from abroad for a particular period, normally one year.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Gross Domestic Product is defined as the value of the goods and services generated within a country. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;By definitions,&#xA;National income= Income from within the country and from abroad.&#xA;GDP=Income within the country. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here my doubt is I have seen in some textbooks why national income is referred as GDP and vice versa in measuring methods of national income?&lt;/p&gt;&#xA;" OwnerUserId="20771" LastEditorUserId="20771" LastEditDate="2019-01-14T16:43:41.353" LastActivityDate="2019-01-16T15:36:45.130" Title="National income referred as GDP?" Tags="&lt;macroeconomics&gt;&lt;national-income&gt;" AnswerCount="3" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26422" PostTypeId="2" ParentId="26413" CreationDate="2019-01-14T16:55:15.057" Score="1" Body="&lt;p&gt;Your employees are at risk of PHP inflation; you are not, so you should be paying in USD, and adjusting for USD inflation if you want to.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Yes your reasoning is correct. If you increase their pay by US inflation, in theory the exchange rate to PHP should increase MORE due to the higher PHP inflation (relative to USD). So when they convert their USD to PHP, their resulting PHP income would reflect PHP inflation.&lt;/p&gt;&#xA;" OwnerUserId="12663" LastEditorUserId="12663" LastEditDate="2019-01-14T19:59:16.457" LastActivityDate="2019-01-14T19:59:16.457" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="26423" PostTypeId="1" AcceptedAnswerId="26427" CreationDate="2019-01-14T19:54:02.680" Score="1" ViewCount="327" Body="&lt;p&gt;It is well-known that a rational, continuous and monotone preference relation &lt;span class=&quot;math-container&quot;&gt;$\succeq$&lt;/span&gt; defined on &lt;span class=&quot;math-container&quot;&gt;$\mathbb{R}^L$&lt;/span&gt; admits a utility representation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would like to understand why monotonicity is required. In other words, what is an example of a rational and continuous but non-monotone preference relation that does not have a utility representation?&lt;/p&gt;&#xA;" OwnerUserId="4667" LastActivityDate="2019-01-14T22:43:34.567" Title="Example of a rational and continuous preference relation that does not admit a utility representation" Tags="&lt;consumer-theory&gt;&lt;decision-theory&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="26427" PostTypeId="2" ParentId="26423" CreationDate="2019-01-14T21:37:56.497" Score="3" Body="&lt;p&gt;A &lt;strong&gt;necessary&lt;/strong&gt; condition for a preference relation to be represented by a utility function is that the preference relation is rational (where a &quot;utility function&quot; is a real-valued function that assigns a higher or equal numerical value to bundle A than to bundle B, when A is weakly preferred to B).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Preferences are &lt;strong&gt;rational&lt;/strong&gt; when they are &lt;strong&gt;complete&lt;/strong&gt; (I can express my preferences for all conceivable bundles), and &lt;strong&gt;transitive&lt;/strong&gt; (If I weakly prefer A to B and B to C, then I weakly prefer A to C).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given rationality, a &lt;strong&gt;sufficient&lt;/strong&gt; condition is that the rational preference relation is &lt;strong&gt;continuous&lt;/strong&gt;, i.e. if it is preserved under limits. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, the related utility function is also continuous.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Monotonicity is a property where we go from quantities to preferences, after assuming desirability (&quot;goods&quot; rather than &quot;bads&quot;). Local nonsatiation is actually the weaker assumption that is required for most of the theory.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2019-01-14T22:43:34.567" LastActivityDate="2019-01-14T22:43:34.567" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26429" PostTypeId="2" ParentId="26418" CreationDate="2019-01-15T01:52:18.733" Score="0" Body="&lt;p&gt;&lt;strong&gt;Background:&lt;/strong&gt; If we are interested in the mean of the population distribution, we use the sample mean. If we are interested in the median of the population distribution, we use the sample median. If we are interested in the whole distribution, we can use some distance between the empirical CDF and the hypothetical CDF among others; if you use the uniform distance, you have the &lt;a href=&quot;https://en.wikipedia.org/wiki/Kolmogorov%E2%80%93Smirnov_test&quot; rel=&quot;nofollow noreferrer&quot;&gt;Kolmogorov-Smirnov test&lt;/a&gt;. If we are interested in the density, we use an estimated density for testing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In many econometric problems, interesting hypotheses are expressed in terms of averages (e.g., average treatment effects, the effect of a change in years of education on log wage, etc.) and we use sample means or variants (such as OLS estimators). In other instances (e.g., when interested in quantiles or normality of the distribution), sample means are not used.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;To your question:&lt;/strong&gt; Is there any good reason to focus on the sample mean when one's hypothesis directly specifies the whole probability process? I think one important reason is that sample means are often easy to deal with and sometimes the only thing simple enough for theoretical development. It's kind of a necessary condition for the hypothesis to be true.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;PS:&lt;/strong&gt; It would be better to have a particular example.&lt;/p&gt;&#xA;" OwnerUserId="10775" LastActivityDate="2019-01-15T01:52:18.733" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26430" PostTypeId="1" CreationDate="2019-01-15T04:04:05.860" Score="3" ViewCount="109" Body="&lt;p&gt;Suppose &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt; are two random variables where &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; has SOSD (second order stochastic dominance) over &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt;. Let &lt;span class=&quot;math-container&quot;&gt;$g(\cdot)$&lt;/span&gt; be a monotonic function and &lt;span class=&quot;math-container&quot;&gt;$X'  = g(X)$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$Y' = g(Y)$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Under what conditions of &lt;span class=&quot;math-container&quot;&gt;$g(\cdot)$&lt;/span&gt; &lt;span class=&quot;math-container&quot;&gt;$X'$&lt;/span&gt; has SOSD over &lt;span class=&quot;math-container&quot;&gt;$Y'$&lt;/span&gt;? I know that if &lt;span class=&quot;math-container&quot;&gt;$g$&lt;/span&gt; is linear, SOSD property is reserved. Is there any sufficient and necessary conditions of &lt;span class=&quot;math-container&quot;&gt;$g$&lt;/span&gt; that assures SOSD property?&lt;/p&gt;&#xA;" OwnerUserId="20775" LastEditorUserId="20068" LastEditDate="2019-04-20T17:18:02.150" LastActivityDate="2020-04-02T04:04:10.513" Title="Transformation of random variables and second order stochastic dominance" Tags="&lt;statistics&gt;&lt;decision-theory&gt;&lt;risk&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26431" PostTypeId="2" ParentId="21652" CreationDate="2019-01-15T10:21:46.703" Score="3" Body="&lt;p&gt;Here is a fact sheet by the OECD about the effects of competition. It is mostly concerned with growth and productivity, but also discusses the effects on poor consumers and prices. It cites a wide range of empirical studies that you might find of interest. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.oecd.org/daf/competition/2014-competition-factsheet-for-print-en.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.oecd.org/daf/competition/2014-competition-factsheet-for-print-en.pdf&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;OECD, Factsheet on how competition policy affects macro-economic outcomes, 2014.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/pxJTw.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/pxJTw.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="20591" LastEditorDisplayName="user18" LastEditDate="2019-03-01T10:28:42.767" LastActivityDate="2019-03-01T10:28:42.767" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26434" PostTypeId="1" CreationDate="2019-01-15T14:39:19.687" Score="1" ViewCount="45" Body="&lt;p&gt;Basically, my question is regarding the calculation of book value of assets in tobin's q formula.&lt;/p&gt;&#xA;" OwnerUserId="20779" LastActivityDate="2019-01-15T14:39:19.687" Title="How to calculate Tobin's Q as a measure of banks' performance?" Tags="&lt;corporate-governance&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26435" PostTypeId="1" AcceptedAnswerId="39805" CreationDate="2019-01-15T16:30:12.463" Score="3" ViewCount="157" Body="&lt;p&gt;I have a &lt;strong&gt;high-frequency panel dataset&lt;/strong&gt; on the order of &lt;span class=&quot;math-container&quot;&gt;$i=150$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$t=5000$&lt;/span&gt;. I am interested in studying the causal impact of a treatment with the following characteristics:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;The same unit can be treated several times   &lt;/li&gt;&#xA;&lt;li&gt;Different units can be treated at different times   &lt;/li&gt;&#xA;&lt;li&gt;The effect of the treatment does not spill over beyond the current time period&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Here is an example of treatment over time (where black indicates treated, and the y axis contains a row for each unit &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/kyiIn.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/kyiIn.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is an example of a treated unit (black) and a comparison unit (blue) when treatment is administered (red), where the &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; axis is an outcome of interest:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/ap8JB.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/ap8JB.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Coming from the perspective of causal inference / program evaluation, it seems like the natural approach is to use some sort of &lt;strong&gt;difference-in-differences&lt;/strong&gt; flavored model, where treated units act as controls for untreated units at different points in time. However, I am struggling to find an analogy in the literature. &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Typically, in example diff-and-diff models I have seen, units are treated only once, control units are never treated, and the treatment persists into the future. &lt;/li&gt;&#xA;&lt;li&gt;Also, with such a long time horizon autocorrelation seems problematic, and time-varying, individual-level seasonal fixed effects are likely necessary. Consequently, I expect that I need to make some modifications to the basic panel approach of including fixed effects for &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$t$&lt;/span&gt;.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;My question is:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;strong&gt;Have people used diff-in-diff analyses with similar datasets?&lt;/strong&gt; If so, could you point me to some sample papers?&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;Is there an alternative approach that would be be better suited to this setting?&lt;/strong&gt; If so, are there relevant references? (e.g. from macro, finance, time series literature).&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Thanks for any guidance you can provide.&lt;/p&gt;&#xA;" OwnerUserId="16237" LastActivityDate="2020-09-19T19:41:11.453" Title="Difference-in-differences with long time horizon and repeated treatments" Tags="&lt;applied-econometrics&gt;&lt;time-series&gt;&lt;paneldata&gt;&lt;causality&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="26437" PostTypeId="1" CreationDate="2019-01-15T18:17:04.237" Score="1" ViewCount="46" Body="&lt;p&gt;In his &lt;a href=&quot;https://faculty.wharton.upenn.edu/wp-content/uploads/2012/04/Fader_hardie_jim_07.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;How To Project Customer Retention&lt;/a&gt;, Fader computes the expected tenure of a customer according to &lt;span class=&quot;math-container&quot;&gt;$$E = \sum_{t=0}^{\infty}S(t)$$&lt;/span&gt; where &lt;span class=&quot;math-container&quot;&gt;$S(t)$&lt;/span&gt; is the &lt;a href=&quot;https://en.wikipedia.org/wiki/Survival_function&quot; rel=&quot;nofollow noreferrer&quot;&gt;Survival Function&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;From a purely mathematical standpoint, expectation is calculated via &lt;span class=&quot;math-container&quot;&gt;$$E[X] = \sum_{x \in X} xP(X=x).$$&lt;/span&gt; Hence, I would expect expected tenure formula to be &lt;span class=&quot;math-container&quot;&gt;$$E = \sum_{t=0}^{\infty}tS(t).$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can anyone shed some light on this? &lt;/p&gt;&#xA;" OwnerUserId="20783" LastActivityDate="2019-02-15T00:02:45.660" Title="Calculating expected tenure of a customer" Tags="&lt;microeconomics&gt;&lt;finance&gt;&lt;marketing&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26438" PostTypeId="2" ParentId="26418" CreationDate="2019-01-15T18:35:11.730" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;My question is simple: when calculating p-values, why do we consider the distribution of the sample mean (i.e., why is the sample mean our 'test statistic')? Why not use the median, mode, lower quartile, or any other function of the data? For that matter, why not do the natural thing and just compute the joint density &lt;span class=&quot;math-container&quot;&gt;$f(x1,...,x_n)$&lt;/span&gt;?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So, you have entered into two deep questions.  The first is “why the mean?”  The second is implicit in your joint distribution question, “why use the sampling distribution?”&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I will answer the second before the first because the answer of the first depends somewhat upon the second.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are two broad families of statistical methodologies, the Bayesian methods, and the null hypothesis methods.  Null hypothesis methods are sampling based methods.  Bayesian methods are generative methods.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Because of the nature of your question, I am going to overgeneralize a little bit to make the answer shorter than a book.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are several reasons to use one class of problem over the other, and there are circumstances where you would only use one specific class of solution.  They are not interchangeable.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If one computed the joint density, &lt;span class=&quot;math-container&quot;&gt;$f(x_1\dots{x_n})$&lt;/span&gt;, one would fail because a probability can only exist with respect to a model.  Implicitly, you have a model in mind with the joint density, but it does matter to call it out.  In a Bayesian framework, that joint density would be the density averaged over all possible models and all possible parameters.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are a couple of specific reasons to use Bayesian methods.  The first is if you have prior knowledge.  For example, let us assume that you know &lt;span class=&quot;math-container&quot;&gt;$\mu=1,000,000$&lt;/span&gt; is almost impossible, but &lt;span class=&quot;math-container&quot;&gt;$\mu=5$&lt;/span&gt; is quite probable.  That is the definition of prior information.  You know something.  It might be vague.  It might be unbelievably vague, but it is also not true ignorance either.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you have prior knowledge, then non-Bayesian methods are inadmissible solutions.  A solution is considered admissible if the estimator cannot be stochastically dominated by another estimator.  Now admissibility is only one possible criterion.  It implies that for a given data set, the Bayesian method will be intrinsically the least risky to use and the most accurate when averaged over the sample space.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A second reason to use a Bayesian method is that they generate coherent strategies.  A strategy is coherent if a bookie that is taking all finite bets at the bookie’s stated prices, cannot be gamed into a sure loss by a crafty actor or set of actors.  Null hypothesis methods are not coherent.  If you use a null hypothesis method in a game, they can create sure losses for a bookie.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider the case of an inverse roulette wheel, where the ball is dropped, and the wheel spun.  Instead of betting what number it will land on, the croupier sees where the ball lands, but the players cannot see it.  Instead, the croupier tosses two fair coins.  If a coin comes up heads, then the croupier reveals the value one place to the left of the true value; otherwise, the croupier reveals one value to the right.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The sample space is &lt;span class=&quot;math-container&quot;&gt;$\{\{L,L\},\{R,R\},\{R,L\},\{L,R\}\}$&lt;/span&gt;.  To make this concrete, consider a wheel where the number came up 17.  They will either be given the set, &lt;span class=&quot;math-container&quot;&gt;$\{16,16\}$&lt;/span&gt;,&lt;span class=&quot;math-container&quot;&gt;$\{16,18\}$&lt;/span&gt;, or &lt;span class=&quot;math-container&quot;&gt;$\{18,18\}$&lt;/span&gt;.  Obviously, if you receive &lt;span class=&quot;math-container&quot;&gt;$\{16,18\}$&lt;/span&gt; you should bet 17, but what should you do otherwise?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If, for example, you should receive &lt;span class=&quot;math-container&quot;&gt;$\{16,16\}$&lt;/span&gt;, Bayesian decision theory says you should toss a fair coin and either bid on 15 or 17.  You will win 75% of the time.  Frequentist decision theory says that the minimum variance unbiased estimator is 16.  You can check that for yourself.  You should bid 16.  Of course, sixteen is an impossible value, known with probability one.  You will win 50% of the time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the bookie placed odds using Frequentist decision theory but you played as a Bayesian, you would rake in the cash.  The Frequentist odds are not coherent.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Although not obvious yet, this is the start of the answer to the first question on the mean.  And, in fact, you do want to be careful.  If you have a Bayesian model, you do not want to test it with a null hypothesis method.  Conversely, if you have a Frequentist model, you do not want to test it with Bayesian methods.  They would produce different predictions.&#xA;So far, we have two reasons to use the joint distribution via Bayes theorem.  The first is accuracy.  The second is coherence.  So why use a null hypothesis method?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first reason to choose a null hypothesis method is that you have no prior information.  The nice thing about null hypothesis methods is that they work equally well regardless of the true value of the parameter.  That is not true for a Bayesian method.  They do not work equally well for all possible values of a parameter.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the example above, where you felt you could all but rule out &lt;span class=&quot;math-container&quot;&gt;$\mu=1,000,000$&lt;/span&gt; would be problematic if &lt;span class=&quot;math-container&quot;&gt;$\mu=1,000,000$&lt;/span&gt; as you would have underweighted the possibility of the case.  Bayesian methods weight the sample based on prior knowledge.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As well, they minimize the maximum possible loss you could face from drawing an unfortunate sample.  The minimum variance unbiased estimator and the maximum likelihood estimator generate sampling distributions that are worst-case distributions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Bayesian methods, generally speaking, minimize the average loss you would expect to receive from drawing an unfortunate sample.  In the absence of prior information, it is challenging to minimize an average loss when you have nothing to compare to the sample.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The second reason is that you truly have a &lt;em&gt;sharp&lt;/em&gt; null hypothesis.  Bayesian methods have no clean or nice way to handle a hypothesis of the form &lt;span class=&quot;math-container&quot;&gt;$\mu=k$&lt;/span&gt;.  This is because samples are not random in Bayesian thinking.  You saw the sample.  It is a fact.  It cannot be &lt;em&gt;random&lt;/em&gt; as there is no uncertainty in it.  Parameters are uncertain in Bayesian thought.  You cannot see them; you cannot know what they are.  The &lt;span class=&quot;math-container&quot;&gt;$\Pr(\mu=k)$&lt;/span&gt; is intrinsically zero.  It is one point over an infinite number of points.  The measure of a single point from an infinite number is zero.  On the other hand, Bayesian methods handle solutions over regions fine.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The third reason is that you need an unbiased estimator for some reason.  Assuring an estimator is unbiased is expensive.  There can be a huge loss of information to assure it is unbiased.  You may need a sample size many times larger than a biased Bayesian estimator to get the same result.  All Bayesian estimators are biased estimators.  Bayesian methods optimize the trade-off between bias and accuracy, though as the sample size becomes arbitrarily large, the Bayesian method will converge to the true parameters, so it becomes a just barely biased estimator.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These differences answer the question of using the joint distribution of the data to determine the probability versus using the sampling distribution of the model to determine a probability.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you decide you want to use a Bayesian method, then you solve &lt;span class=&quot;math-container&quot;&gt;$\Pr(\mu\le{k}|{X})$&lt;/span&gt;, for example, instead of &lt;span class=&quot;math-container&quot;&gt;$\Pr({X}|\mu\le{k})$&lt;/span&gt;.  The converse is true for the null hypothesis method.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now as to using the mean for a sampling distribution.  There are several reasons for this.  The first is that in most standard cases, the mean is the most efficient estimator of the parameter.  Secondly, all unbiased estimation has quadratic loss buried inside of it somewhere.  Even if you are making an estimate based on the median, that is the mean rank.  While the median minimizes absolute linear loss, it minimizes quadratic loss in rank space.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That takes us back to stochastic dominance.  If you have two unbiased estimators, say the sample mean, and the sample median, but the sampling distribution of the sample mean stochastically dominates the sampling distribution of the sample median, then why would you use the median?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You see the median begin to be used, generally, when robustness is a concern rather than power.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you want to know the probability your model is true, given the data that you saw, then you use a Bayesian method.  If you want to know the probability of seeing data as extreme or more extreme than likely under your hypothesized value, then you use a null hypothesis method.  If you use a Bayesian method, then it depends on the joint density of the actual sample.  If you use a null hypothesis  method, then you will use the sampling distribution of the model to condition the data.  The mean will tend to be used due to issues of efficiency and power and not any other statistic.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;EDIT&lt;/strong&gt;&#xA;If your hypothesis concern is model selection, then you should use a Bayesian method.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Bayesian methods treat a model as a parameter.  It uses the data to determine which model is most probable.  You can have any number of models you like and any number of parameters.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/fLoUa.gif&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/fLoUa.gif&quot; alt=&quot;model selection&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Model selection by information criterion maps to stylized Bayesian posterior densities, but do not make their assumptions explicit.  Bayesian methods allow you to let the data select the model.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;EDIT&lt;/strong&gt;&#xA;For clarity, let us imagine that we have two possible models that data are drawn from.  Model one is &lt;span class=&quot;math-container&quot;&gt;$$\frac{1}{\pi}\frac{1}{1+(x-\mu)^2}.$$&lt;/span&gt;  Model two is &lt;span class=&quot;math-container&quot;&gt;$$\lambda\exp{[-\lambda{x}]}.$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\Pr(M_1;\mu|X)=\frac{\prod_{i=1}^n\frac{1}{\pi}\frac{1}{1+(x-\mu)^2}\Pr(\mu|M_1)\Pr(M_1)}{\int_{\mu\in\Theta}\prod_{i=1}^n\frac{1}{\pi}\frac{1}{1+(x-\mu)^2}\Pr(\mu|M_1)\Pr(M_1)\mathrm{d}\mu+\int_{\lambda\in\Theta}\prod_{i=1}^n\lambda\exp{[-\lambda{x}]}\Pr(\lambda|M_2)\Pr(M_2)\mathrm{d}\lambda}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\Pr(M_2;\lambda|X)=\frac{\prod_{i=1}^n\lambda\exp{[-\lambda{x}]}\Pr(\lambda|M_2)\Pr(M_2)}{\int_{\mu\in\Theta}\prod_{i=1}^n\frac{1}{\pi}\frac{1}{1+(x-\mu)^2}\Pr(\mu|M_1)\Pr(M_1)\mathrm{d}\mu+\int_{\lambda\in\Theta}\prod_{i=1}^n\lambda\exp{[-\lambda{x}]}\Pr(\lambda|M_2)\Pr(M_2)\mathrm{d}\lambda}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first probability statement &lt;span class=&quot;math-container&quot;&gt;$\Pr(M_1;\mu|X)$&lt;/span&gt; can be reduced to &lt;span class=&quot;math-container&quot;&gt;$\Pr(M_1|X)$&lt;/span&gt; by marginalization so that &lt;span class=&quot;math-container&quot;&gt;$$\Pr(M_1|X)=\int_{\mu\in\Theta}\Pr(M_1;\mu|X)\mathrm{d}\mu.$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The same can be done for model two so that you can find the probability of model two as &lt;span class=&quot;math-container&quot;&gt;$$\Pr(M_2|X)=\int_{\lambda\in\Theta}\Pr(M_2;\lambda|X)\mathrm{d}\lambda.$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since &lt;span class=&quot;math-container&quot;&gt;$\Pr(M_1|X)+\Pr(M_2|X)=1$&lt;/span&gt;, it follows that these probability statements are the probability that these are the true models in nature given the data you have seen.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the first model &lt;span class=&quot;math-container&quot;&gt;$\mu$&lt;/span&gt; which is the median and the mode as this distribution has no mean or variance vanishes from the probability statement in the last line.  A point value is never calculated because it is marginalized out.   Likewise, &lt;span class=&quot;math-container&quot;&gt;$\lambda$&lt;/span&gt; which is &lt;span class=&quot;math-container&quot;&gt;$1/mean$&lt;/span&gt; is also never calculated as a point statistic.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These extra parameters are called nuisance parameters and their integral has to be solved, but only to make the integral vanish.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When solving Bayesian model selection, the parameters are nuisances and you need them as placeholders for calculation purposes, but you have to make them vanish.  If you didn't, then you could have points where model one was more likely than model two, but other points where that relationship is reversed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Imagine that &lt;span class=&quot;math-container&quot;&gt;$\Pr(M_1|X)=99.99\%$&lt;/span&gt;, it would follow that &lt;span class=&quot;math-container&quot;&gt;$\Pr(M_2|X)=.01\%$&lt;/span&gt; and you could ignore model 2.  I once tested seventy-eight models of bankruptcy.  One model had a posterior probability of about 57%.  the second model had a posterior probability of about 43%.  The remaming 76 models had a combined probability of &lt;span class=&quot;math-container&quot;&gt;$1/10000$&lt;/span&gt; of one percent.  I could exclude the 76 models, but I couldn't exclude two models as both were approximately equally likely to be the data generating function.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Although I bypassed the problem using model averaging, that is I averaged the two regressions together by weighting one result by .57 and the other by .43, what it really meant was that I was close, but not quite there and that some similar convex combination of the two sets of variables were what mattered.&lt;/p&gt;&#xA;" OwnerUserId="11321" LastEditorUserId="11321" LastEditDate="2019-01-21T19:04:03.810" LastActivityDate="2019-01-21T19:04:03.810" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="26439" PostTypeId="1" AcceptedAnswerId="26449" CreationDate="2019-01-15T18:35:41.780" Score="2" ViewCount="99" Body="&lt;p&gt;Some of you might know of US politician Alexandria Ocasio-Cortez, a member of the Democratic Party as well as the Democratic Socialists of America. In a recent interview she had on 60 Minutes, she suggested the idea of raising the top marginal tax to 70% for income above 10 million dollars. The recent conversation surrounding this proposal is unsurprisingly heated (though mostly unproductive, as people struggle to understand what a marginal tax rate entails).&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;My question is what recent literature is there for determining the optimal top marginal tax rate of a country?&lt;/em&gt; &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;For example, in &lt;strong&gt;&lt;a href=&quot;https://www.nber.org/papers/w17616&quot; rel=&quot;nofollow noreferrer&quot;&gt;Piketty, Saez, and Stantcheva (2011)&lt;/a&gt;&lt;/strong&gt;, the optimal marginal tax rate they estimate is 83% (on a cursory search through the paper, I cannot find for what level of income though) looking at labor supply and tax avoidance elasticities, but also at a &quot;compensating bargaining&quot; elasticity that tends to make the optimal rate higher than other models they cite.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A good answer will briefly explain what the literature you cite argues for, with some criticisms and/or defenses of the literature and its possible shortcomings. Recent literature of course is preferred, but if an older model is needed to explain newer ones, it is fine to cite those too.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastActivityDate="2019-01-17T12:19:49.303" Title="Optimal Top Marginal Tax Rates" Tags="&lt;reference-request&gt;&lt;optimal-taxation&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26440" PostTypeId="1" CreationDate="2019-01-15T22:34:12.430" Score="1" ViewCount="139" Body="&lt;p&gt;Quantitative easing is an unconventional monetary policy in which a central bank&#xA;purchases government securities or other securities from the market in order to lower interest rates and increase the money supply. Quantitative easing increases the money supply by flooding financial institutions with capital in an effort to promote increased lending and liquidity. When short-term interest rates are at or approaching zero, and when the printing of new banknotes isn't an option, quantitative easing can be considered.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;MY QUESTION IS :&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;in what circumstance would quantitative easing allow a central bank to move the change in the price level back in line with its inflation target&lt;/p&gt;&#xA;" OwnerUserId="20785" LastActivityDate="2019-02-17T15:02:05.567" Title="Quantitative easing" Tags="&lt;inflation&gt;&lt;monetary-policy&gt;&lt;quantitative-easing&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26441" PostTypeId="2" ParentId="26420" CreationDate="2019-01-15T22:38:10.793" Score="2" Body="&lt;p&gt;The degree of precision with which the various terms for these economic aggregates are used may vary with the context.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But if one is trying to be strictly correct, three distinctions should be borne in mind:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Gross v Net: net meaning net of a deduction for depreciation of capital.&lt;/li&gt;&#xA;&lt;li&gt;Domestic v National: national being inclusive of net property income from abroad (ie income earned by nationals from assets located abroad, less income earned by foreigners from domestically located assets) and also, as Kenny LJ points out, similar net international flows relating to employment income and taxes and subsidies.&lt;/li&gt;&#xA;&lt;li&gt;At factor cost v At market prices: the latter being inclusive of indirect taxes.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;In terms of these distinctions: GDP is clearly gross and domestic.  National income, without further clarification, could be either gross or net, but it is clearly not domestic.  So GDP and national income are conceptually distinct, although they could be numerically the same if national income is measured gross and the property income and other flows as above from and to abroad happen to net to zero.&lt;/p&gt;&#xA;" OwnerUserId="1417" LastEditorUserId="1417" LastEditDate="2019-01-16T09:26:05.970" LastActivityDate="2019-01-16T09:26:05.970" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26442" PostTypeId="2" ParentId="26437" CreationDate="2019-01-15T23:25:19.993" Score="1" Body="&lt;p&gt;I am going to use a &lt;span class=&quot;math-container&quot;&gt;$t$&lt;/span&gt;-continuos scenario, and then discretization follows naturally.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Call &lt;span class=&quot;math-container&quot;&gt;$f(t)$&lt;/span&gt; the distribution function of the variable &lt;span class=&quot;math-container&quot;&gt;$t$&lt;/span&gt;. The survival function is just&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;S(t) = \int_t^{+\infty}f(u)~{\rm d}u \tag{1} = 1 - \int_0^t f(u)~{\rm d}u &#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is pretty clear from here that &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\frac{{\rm d}S}{{\rm d}t} = -f(t) \tag{2}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and that &lt;span class=&quot;math-container&quot;&gt;$\lim_{t\to\infty}S(t) = 0$&lt;/span&gt;. Now consider the integral&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{eqnarray}&#xA;\require{cancel}&#xA;\mathbb{E}[t] &amp;amp;=&amp;amp; \int_0^{+\infty} t f(t) ~{\rm dt} &#xA;\stackrel{(2)}{=} -\int_0^{+\infty} t \frac{{\rm d}S}{{\rm d}t}~{\rm d}t  \\&#xA;&amp;amp;=&amp;amp; -\int_0^{+\infty} \left[\frac{{\rm d}(t S)}{{\rm d}t} - \cancelto{1}{\frac{{\rm d}t}{{\rm d}t}} S\right] {\rm d}t \\&#xA;&amp;amp;=&amp;amp; -\cancelto{0}{\strut{t S}\big\rvert_{0}^{+\infty}} +  \int_0^{+\infty}S(t)~{\rm d}t &#xA;\end{eqnarray}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So in summary&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\mathbb{E}[t] = \int_0^{+\infty}S(t)~{\rm d}t \tag{3}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now you can move to discrete time and represent this in the form&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\mathbb{E}[t] = \sum_{t = 0}^{+\infty} S(t) \delta &#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;for some small number &lt;span class=&quot;math-container&quot;&gt;$\delta$&lt;/span&gt;. In the paper you cite, they choose &lt;span class=&quot;math-container&quot;&gt;$\delta = 1$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="14419" LastActivityDate="2019-01-15T23:25:19.993" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26445" PostTypeId="2" ParentId="14625" CreationDate="2019-01-16T04:08:51.990" Score="2" Body="&lt;p&gt;The term &lt;strong&gt;gross private domestic investment (GPDI)&lt;/strong&gt; seems to be used only by the US. The term &lt;strong&gt;gross fixed capital formation (GFCF)&lt;/strong&gt; is used by the rest of the world (but not by the US). (This is thus simply the US being exceptional as usual by using its own terminology and methodology.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Roughly, the difference is this: &lt;strong&gt;Ignoring inventories, GFCF includes government investment, while GPDI does.&lt;/strong&gt; More precisely, the difference is this: &lt;span class=&quot;math-container&quot;&gt;$$\begin{alignat*}{1}&#xA;\text{GFCF} &amp;amp; =\text{Gross private domestic fixed investment}+\text{Gross government fixed investment}\\&#xA; &amp;amp; =\text{GPDI}-\text{Change in private inventories}+\text{Gross government fixed investment}.&#xA;\end{alignat*}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To elaborate just a little, the rest of the world follows the UN System of National Accounts (SNA, 2008), while the US does not. In the usual identity &lt;span class=&quot;math-container&quot;&gt;$Y=C+I+G+NX$&lt;/span&gt;, we have the following differences between the UN SNA and the US:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/VsYtV.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/VsYtV.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;If you are looking at countries other than the US, then you may not be able to find data for GPDI so easily. In which case, you may want to use GFCF.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Conversely, if you're looking at only the US, then you'll probably want to use GPDI.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course, in your analysis, you should be clear about what precisely your statistic, be it GFCF or GPDI, is supposed to measure.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastEditorDisplayName="user18" LastEditDate="2019-01-16T08:20:31.940" LastActivityDate="2019-01-16T08:20:31.940" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26446" PostTypeId="2" ParentId="26420" CreationDate="2019-01-16T04:20:58.670" Score="2" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/CkNfc.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/CkNfc.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, if there is no abroad (i.e. the economy is a closed one or what is called an autarky), then GNI = GDP.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Source: &lt;a href=&quot;https://www.google.com/books/edition/System_of_National_Accounts_2008/gQWmAdwdI8gC?hl=en&amp;amp;gbpv=1&amp;amp;dq=%22Gross%20national%20income%20(GNI)%20is%20defined%20as%20GDP%20plus%20compensation%20of%20employees%20receivable%20from%20abroad%20plus%20property%20income%20receivable%20from%20abroad%20plus%20taxes%20less%20subsidies%20on%20production%20receivable%20from%20abroad%20less%20compensation%20of%20employees%20payable%20abroad%20less%20property%20income%20payable%20abroad%20and%20less%20taxes%20plus%20subsidies%20on%20production%20payable%20abroad%22&amp;amp;pg=PA333&amp;amp;printsec=frontcover&quot; rel=&quot;nofollow noreferrer&quot;&gt;UN System of National Accounts (2008, p. 333)&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2019-01-16T04:20:58.670" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26447" PostTypeId="2" ParentId="26395" CreationDate="2019-01-16T08:41:38.367" Score="0" Body="&lt;p&gt;Para 2.43 explains the difference between the ‘uses’ and ‘resources’ sides of the account. The columns then refer to different sectors, where you are highlighting transactions with the ‘rest of the world’ sector. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/CaBUO.jpg&quot; alt=&quot;Para 2.43 Rules of accounting&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the numbers you refer to, the left-hand side is uses:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;6 = compensation of employees paid out to the ‘rest of the world’ sector.&#xA;44 = property income paid out to the rest of the world sector.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The right-hand side is resources:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2 = compensation of employees paid into this economy by/from the rest of the world sector.&#xA;38 = property income paid into this economy, by/from the rest of the world sector. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit: you also asked how the 1,864 is derived. The balancing item for this account should be calculated as total resources less total uses (although I just tried it and got 1,854). There are separate gross and net balances, where the difference is consumption of fixed capital (depreciation of assets).&lt;/p&gt;&#xA;" OwnerUserId="18276" LastEditorUserId="18276" LastEditDate="2019-01-16T09:08:55.937" LastActivityDate="2019-01-16T09:08:55.937" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26448" PostTypeId="2" ParentId="26410" CreationDate="2019-01-16T11:04:10.213" Score="0" Body="&lt;p&gt;In mixed strategies NE, you choose to act (based on that you know the payoffs of the second player) based on the probability that makes the other player indifferent. Still the strategy is not defined as a typical pure strategies case, rather than you mention that A will randomize with probability x and B will randomize(between his actions) with probability y.&#xA;Try to read Felix Munoz Garcia  game theory book, it very good with examples and strays from scratch to advanced.&lt;img src=&quot;https://i.stack.imgur.com/mCFkN.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;" OwnerUserId="20793" LastActivityDate="2019-01-16T11:04:10.213" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26449" PostTypeId="2" ParentId="26439" CreationDate="2019-01-16T12:33:37.047" Score="2" Body="&lt;p&gt;The literature on optimal income taxation kicked off with &lt;a href=&quot;https://www.jstor.org/stable/pdf/1910538.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Diamond, Mirrlees (1971)&lt;/a&gt;. In their model, people differ only by ability, i.e. the highest earning person is the most productive one. As a consequence, any marginal tax rate on this person will be detrimental to production and hence to social welfare (in this model). Therefore, the optimal top marginal tax rate is zero! &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The main innovation was initiated by Emmanuel Saez (&lt;a href=&quot;http://www.nber.org/papers/w7628.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Saez (2001)&lt;/a&gt; and &lt;a href=&quot;http://www.nber.org/papers/w18521.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Piketty, Saez (2012)&lt;/a&gt;). The basic idea is that the social planner maximizes a social welfare function (SWF) that captures the fact that individuals are to some degree inequality averse. Plus, they allow the introduction of welfare weights, i.e. a normative decision on whose well-being matters for the society as a whole. The innovation of this literature is the formulation, that allows to calculate an optimal tax rate based on observable (or, rather, estimatable) figures. This is referred to as the &lt;em&gt;sufficient statistic&lt;/em&gt; approach. See e.g. Eq.7 in Piketty, Saez (2012) for the optimal top tax rate &lt;span class=&quot;math-container&quot;&gt;$\tau$&lt;/span&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\tau = \frac{1-g}{1-g+a *e} $$&lt;/span&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This depends only on three parameters: &lt;span class=&quot;math-container&quot;&gt;$e$&lt;/span&gt; is the extent to which top income earners are able to dodge the tax. In the basic model, this is only labor supply, but later contributions (incuding the one you cite, but also &lt;a href=&quot;https://www.jstor.org/stable/pdf/23269968.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Saez et al. (2012)&lt;/a&gt;, [yes, Saez again]) acknowledge that there are many other avoidance strategies. &lt;span class=&quot;math-container&quot;&gt;$g$&lt;/span&gt; is the social welfare weight of the top-income earners and &lt;span class=&quot;math-container&quot;&gt;$a$&lt;/span&gt; is an indicator of the income distribution.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The optimal top marginal tax rates above 70% stems basically from the assumption that &lt;span class=&quot;math-container&quot;&gt;$g$&lt;/span&gt; is zero, i.e. society as a whole does not really care about the richest. Another key factor is the magnitude of &lt;span class=&quot;math-container&quot;&gt;$e$&lt;/span&gt;. If I argue that with a sufficiently high top tax rate, all millionaires will leave the country, I assume a high &lt;span class=&quot;math-container&quot;&gt;$e$&lt;/span&gt;, which drives down &lt;span class=&quot;math-container&quot;&gt;$\tau$&lt;/span&gt;. There are also researchers that came up with different values for &lt;span class=&quot;math-container&quot;&gt;$a$&lt;/span&gt;. One quite well-known criticism is from &lt;a href=&quot;https://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.23.4.147&quot; rel=&quot;nofollow noreferrer&quot;&gt;Mankiw et al. (2009)&lt;/a&gt;. They back up their arguments however, e.g. on less reliable data, which is why I don't find it very substantiated at least on the top tax rate issue.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a general discussion on optimal taxation beyond the top tax rate, see also &lt;a href=&quot;https://www.aeaweb.org/articles/pdf/doi/10.1257/jep.25.4.165&quot; rel=&quot;nofollow noreferrer&quot;&gt;Diamond and Saez (2011)&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Summing up, the Saez literature is a great tool to link data and economic theory and has been heavily used. Empirically, estimating the various margins of &lt;span class=&quot;math-container&quot;&gt;$e$&lt;/span&gt; is very difficult and has been tried numerous times. The top tax rate of 70% or higher is debatable as it has some normative settings. But overall, this literature has made compelling arguments in favor of progressive taxation and higher taxation of inheritances. It might be my personal bias, but I'm not aware of any fundamental, substantiated criticism to the Saez approach.&lt;/p&gt;&#xA;" OwnerUserId="17735" LastEditorUserId="17735" LastEditDate="2019-01-17T12:19:49.303" LastActivityDate="2019-01-17T12:19:49.303" CommentCount="9" ContentLicense="CC BY-SA 4.0" />
  <row Id="26450" PostTypeId="1" CreationDate="2019-01-16T13:34:29.467" Score="2" ViewCount="1313" Body="&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Output_elasticity&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://en.wikipedia.org/wiki/Output_elasticity&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;If the production function contains only one input, then the output elasticity is also an indicator of the degree of returns to scale. If the coefficient of output elasticity is greater than 1, then production is experiencing increasing returns to scale. If the coefficient is less than 1, then production is experiencing decreasing returns to scale. If the coefficient is 1, then production is experiencing constant returns to scale. Note that returns to scale may change as the level of production changes.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, the above is clear for 1 input. But what if the production function has two ore more inputs? Capital, labor, materials, etc? Can anyone show the proof?&lt;/p&gt;&#xA;" OwnerUserId="20795" LastActivityDate="2019-01-16T21:53:46.233" Title="What's the relationship between Output elasticity and Returns to scale?" Tags="&lt;production-function&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26451" PostTypeId="2" ParentId="26420" CreationDate="2019-01-16T15:36:45.130" Score="2" Body="&lt;p&gt;GNI is simply a new name for GNP. It is GDP plus net primary income from abroad (i.e. with primary income paid abroad treated as negative). Primary income is described in Chapter 11 of the IMF BOP manual&lt;/p&gt;&#xA;&#xA;&lt;p&gt;GNDI is GNI plus net secondary income from abroad (and similarly secondary income paid abroad is treated as negative). Net secondary income from abroad is the same thing as is meant by net current transfers from abroad: see Chapter 12 of the IMF BOP manual&lt;/p&gt;&#xA;" OwnerUserId="20796" LastActivityDate="2019-01-16T15:36:45.130" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26455" PostTypeId="2" ParentId="26450" CreationDate="2019-01-16T16:40:37.793" Score="5" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/2B890.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/2B890.png&quot; alt=&quot;Plotted for a=2&quot;&gt;&lt;/a&gt;&lt;br&gt;&#xA;Define the production function &lt;span class=&quot;math-container&quot;&gt;$Q=f(x_1,..,x_k)$&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$x_i$&lt;/span&gt; denotes the ith input.&#xA;Next recall that the total differential of output can be written as&lt;br&gt;&#xA; &lt;span class=&quot;math-container&quot;&gt;$\Delta Q = \sum_{i=1}^{\ k}\frac{\partial Q}{\partial x_i}\Delta x_i$&lt;/span&gt;&lt;br&gt;&#xA; Now we are interested in returns to scale, which is the change in output due to the multiplication of every input with a constant. We can write: &lt;span class=&quot;math-container&quot;&gt;$x_{1i}=ax_i$&lt;/span&gt;, for every x where a is a constant and the subscript 1 means the new x due to the multiplication. It follows that: &#xA; &lt;span class=&quot;math-container&quot;&gt;$\Delta x =x_{1i}-x_i =ax_i-x_i=(a-1)x_i$&lt;/span&gt;&lt;br&gt;&#xA; Substitute this last result into the total differential. We obtain:&lt;br&gt;&#xA;   &lt;span class=&quot;math-container&quot;&gt;$\Delta Q = \sum_{i=1}^{\ k}\frac{\partial Q}{\partial x_i}\ (a-1)x_i$&lt;/span&gt;&lt;br&gt;&#xA;  which can be rewritten as&lt;br&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$\Delta Q = (a-1)\sum_{i=1}^{\ k}\frac{\partial Q}{\partial x_i}\ x_i $&lt;/span&gt;&lt;br&gt;&#xA; Now recall that the output elasticity with respect to an input i can be written as&lt;br&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$\epsilon\ = \frac{\partial Q}{\partial x_i}\ \frac{x_i}{\ Q}$&lt;/span&gt;&lt;br&gt;&#xA;rewrite this to the expression&lt;br&gt;&#xA; &lt;span class=&quot;math-container&quot;&gt;$\epsilon\ Q = \frac{\partial Q}{\partial x_i}\ x_i$&lt;/span&gt;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Substitute this result into the last version of the  total differential which becomes:&lt;br&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$\Delta Q = (a-1)\sum_{i=1}^{\ k}\ \epsilon\ Q = (a-1)Q\sum_{i=1}^{\ k}\ \epsilon$&lt;/span&gt;&lt;br&gt;&#xA;Rewriting this we obtain the multiplicator of the output associated with multiplication of every input with &lt;span class=&quot;math-container&quot;&gt;$a$&lt;/span&gt;:&lt;br&gt;&#xA; &lt;span class=&quot;math-container&quot;&gt;$\frac{Q_1}{Q} = (a-1) \sum_{i=1}^{\ k} \epsilon +1$&lt;/span&gt;&lt;br&gt;&#xA;Where &lt;span class=&quot;math-container&quot;&gt;$Q_1$&lt;/span&gt; is output ex post.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From this last expression it can be immediatly seen that constant returns to scale (&lt;span class=&quot;math-container&quot;&gt;$ax \implies aQ$&lt;/span&gt;) follow from the sum of elasticities being equal to 1, increasing returns to scale from it being greater than 1 and decreasing when it's smaller than 1.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The graph is plotted for a=2. In red all points which correspond to decreasing returns to scale, in green for increasing returns to scale. Further, it can be seen that&lt;br&gt;&#xA; &lt;span class=&quot;math-container&quot;&gt;$\sum_{i=1}^{\ k} \epsilon = 1 \implies \frac{Q_1}{Q} = a$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="18214" LastEditorUserId="18214" LastEditDate="2019-01-16T21:53:46.233" LastActivityDate="2019-01-16T21:53:46.233" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26456" PostTypeId="1" CreationDate="2019-01-16T16:59:40.263" Score="1" ViewCount="133" Body="&lt;p&gt;I was wondering whether anyone might be able to help me or at least push me in the right direction with this New Keynesian Model. I apparently have that the household function is as follows:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/BrZje.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/BrZje.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Furthermore, for final and intermediate goods producers, I have that: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/rzamS.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/rzamS.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/3VTs8.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/3VTs8.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for market clearing and as for monetary and fiscal policy, I further have that:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/bAYuh.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/bAYuh.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/DXkJw.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/DXkJw.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I am having issues with is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(1) Finding the relevant F.O.C. for the households and the firms (assume that sigma does not equal 1) for the utility function. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(2) Showing that the set of log-linear equations can be expressed as:&#xA;&lt;a href=&quot;https://i.stack.imgur.com/uPB2O.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/uPB2O.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I hope there will be some generous and helpful souls out there who can give me a helping hand! I greatly appreciate any type of help!&lt;/p&gt;&#xA;" OwnerUserId="20798" LastEditorUserId="20798" LastEditDate="2019-01-16T18:11:32.360" LastActivityDate="2019-01-16T18:11:32.360" Title="FOC and Log Linerizations" Tags="&lt;macroeconomics&gt;&lt;new-keynesian-economics&gt;" AnswerCount="0" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26457" PostTypeId="1" CreationDate="2019-01-16T18:40:03.027" Score="0" ViewCount="29" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/U32Pp.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/U32Pp.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How to the IS curve linearised around the structural equilibrium?, what is the math behind it?&lt;/p&gt;&#xA;" OwnerUserId="20683" LastActivityDate="2019-01-16T18:40:03.027" Title="Linearisation of the IS curve?" Tags="&lt;macroeconomics&gt;&lt;mathematical-economics&gt;&lt;monetary-policy&gt;&lt;self-study&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="26458" PostTypeId="2" ParentId="26408" CreationDate="2019-01-16T19:58:29.707" Score="2" Body="&lt;p&gt;Excuse the formatting for the game's normal form. This is a zero sum game, so I've written only the payoffs for the attacker:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\begin{pmatrix}&#xA;    A|D &amp;amp; a &amp;amp; b &amp;amp; c\\&#xA;\hline&#xA;a &amp;amp; 0 &amp;amp; v_{A} &amp;amp; v_{A}\\&#xA;b &amp;amp; v_{B} &amp;amp; 0 &amp;amp; v_{B}\\&#xA;c &amp;amp; v_{C} &amp;amp; v_{C} &amp;amp; 0&#xA;\end{pmatrix}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Evidently, since &lt;span class=&quot;math-container&quot;&gt;$v_{A} &amp;gt; v_{B} &amp;gt; v_{C}$&lt;/span&gt;, there may be payoffs such that there exists some &lt;span class=&quot;math-container&quot;&gt;$\lambda$&lt;/span&gt; such that &lt;span class=&quot;math-container&quot;&gt;$(1-\lambda)v_{B} &amp;gt; v_{C}$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\lambda v_{A} &amp;gt; v_{C}$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, suppose that the parameters are such that there exists such a &lt;span class=&quot;math-container&quot;&gt;$\lambda$&lt;/span&gt; e.g. &lt;span class=&quot;math-container&quot;&gt;$v_{A} = 20$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$v_{B} = 10$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$v_{C} = 1$&lt;/span&gt;. In this case, &lt;span class=&quot;math-container&quot;&gt;$c$&lt;/span&gt; is strictly dominated and so we can eliminate &lt;span class=&quot;math-container&quot;&gt;$c$&lt;/span&gt; from the support of the attacker's mixed strategy, and hence we may also eliminate &lt;span class=&quot;math-container&quot;&gt;$c$&lt;/span&gt; from the support of the defender's mixed strategy. Write the new matrix as &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\begin{pmatrix}&#xA;    A|D &amp;amp; a &amp;amp; b\\&#xA;\hline&#xA;a &amp;amp; 0 &amp;amp; v_{A}\\&#xA;b &amp;amp; v_{B} &amp;amp; 0\\&#xA;\end{pmatrix}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence, the unique mixed strategy equilibrium is &lt;span class=&quot;math-container&quot;&gt;$p := \Pr(a|A) = \frac{v_{B}}{v_{A}+v_{B}}$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$q := \Pr(a|D) = \frac{v_{A}}{v_{A}+v_{B}}$&lt;/span&gt;. Note that as the value of target &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt; increases, the attacker will actually attack it more &lt;em&gt;infrequently&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If, &lt;span class=&quot;math-container&quot;&gt;$c$&lt;/span&gt; is not dominated (strict or weak) then the algebra becomes more tedious, but the unique equilibrium will be a mixed strategy with full support over all three pure strategies. I leave this to you.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, I leave to you the case in which &lt;span class=&quot;math-container&quot;&gt;$c$&lt;/span&gt; is only &lt;em&gt;weakly&lt;/em&gt; dominated. Hint: In general there can be weakly dominated strategies in support of a mixed strategy equilibrium, but if the opponent's mixed strategy has full support, there cannot be.&lt;/p&gt;&#xA;" OwnerDisplayName="user11305" LastActivityDate="2019-01-16T19:58:29.707" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26461" PostTypeId="1" CreationDate="2019-01-17T11:38:03.000" Score="1" ViewCount="54" Body="&lt;p&gt;In the proof of the existence of the Walrasian equilibrium, there is a map defined using the Max map. Why this map is defined in this way?I am reading &quot; Microeconomics; Gravelle, Rees&quot;. On page 257 the authors define the mapping in the picture. The reason is that they want to use the Brouwer's Fixed Point Theorem. First, they define a mapping from the set of normalized price vectors to the set of excess demand vectors (Z). Then they have to define another mapping from the set of excess demand vectors to the set of normalized price vectors, and they have defined it as the mapping in the attached image. I wonder how the fixed point of the composition of these two functions is the equilibrium?&lt;a href=&quot;https://i.stack.imgur.com/I9Ot2.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/I9Ot2.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="20100" LastEditorUserId="20100" LastEditDate="2019-01-17T12:42:40.030" LastActivityDate="2019-01-17T12:42:40.030" Title="Existence of the general equilibrium" Tags="&lt;mathematical-economics&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="26462" PostTypeId="1" CreationDate="2019-01-17T13:59:42.993" Score="1" ViewCount="21" Body="&lt;p&gt;For instance, in the introduction of this &lt;a href=&quot;https://economics.mit.edu/files/16338&quot; rel=&quot;nofollow noreferrer&quot;&gt;paper&lt;/a&gt; (first paragraph), talking about Figure 1, they say that labor demand is measured as the real wage bill normalized by population.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is it common to measure it with the wage bill? But isn't the wage bill an equilibrium result of the interaction between demand and supply?&lt;/p&gt;&#xA;" OwnerUserId="17875" LastEditorUserId="6168" LastEditDate="2019-01-17T23:04:11.737" LastActivityDate="2019-01-17T23:04:11.737" Title="How is labor demand measured?" Tags="&lt;macroeconomics&gt;&lt;labor-economics&gt;&lt;wages&gt;&lt;technology&gt;&lt;national-accounts&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26463" PostTypeId="1" CreationDate="2019-01-17T14:59:23.107" Score="1" ViewCount="21" Body="&lt;p&gt;I am working on energy integration modelling in a system with prosumers. I was wondering if there is any well-known theory or model in the economics literature for markets (specially multi-commodity merkets) where market's players can be producer and consumer at the same time.&lt;/p&gt;&#xA;" OwnerUserId="20805" LastActivityDate="2019-01-17T14:59:23.107" Title="Market modelling with prosumers" Tags="&lt;reference-request&gt;&lt;energy-economics&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26465" PostTypeId="1" AcceptedAnswerId="26468" CreationDate="2019-01-17T18:07:55.397" Score="1" ViewCount="150" Body="&lt;p&gt;There are many arguments that &lt;a href=&quot;https://www.hoover.org/research/why-socialism-fails&quot; rel=&quot;nofollow noreferrer&quot;&gt;socialism&lt;/a&gt; &lt;a href=&quot;http://www.aei.org/publication/why-socialism-always-fails/&quot; rel=&quot;nofollow noreferrer&quot;&gt;doesn't&lt;/a&gt; &lt;a href=&quot;https://www.linkedin.com/pulse/10-reasons-socialism-doesnt-work-we-need-less-government-david-atkin/&quot; rel=&quot;nofollow noreferrer&quot;&gt;work&lt;/a&gt;. It's becoming an increasingly popular topic as congresspeople such as Bernie Sanders and Alexandria Ocasio-Cortez push for policies that are considered to be socialist.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, the articles about why socialism fails generally cite multiple different reasons, and there seems to be no clear argument.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The only reason why something would fail practically when it should work theoretically is that &lt;em&gt;it is making incorrect assumptions about the world&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;What assumptions does socialism make in order to work theoretically, and why aren't those assumptions accurate reflections of the world?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Please note that this question takes the standpoint that there are incorrect assumptions in the theoretical basis of socialism, and is trying to identify weak points in this theoretical basis. It may be true that socialism does work, or that there's a version of socialism that works - this question is specifically asking about what parts might &lt;em&gt;not&lt;/em&gt; work. Similar questions may be asked about capitalism, or other economic theories.)&lt;/p&gt;&#xA;" OwnerUserId="20809" LastActivityDate="2019-01-17T19:35:21.397" Title="Why does socialism not work?" Tags="&lt;theory&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ClosedDate="2019-01-23T11:46:20.420" ContentLicense="CC BY-SA 4.0" />
  <row Id="26466" PostTypeId="1" CreationDate="2019-01-17T18:29:14.260" Score="6" ViewCount="111" Body="&lt;p&gt;Last week in class, my professor described indifference curves in the context of modelling consumer choice with multiple goods. He defined a partial-ordering operator &lt;span class=&quot;math-container&quot;&gt;$\prec$&lt;/span&gt; and an equivalence operator &lt;span class=&quot;math-container&quot;&gt;$\sim$&lt;/span&gt; to manipulate tuples that satisfied the budget constraint problem. So far, so good. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But then we went on to explore the behavior of indifference curves and I noticed that the &lt;span class=&quot;math-container&quot;&gt;$\sim$&lt;/span&gt; was assumed to be reflexive, symmetric, and transitive. We learnt that indifference curves never intersect and that there is a completeness property that says that for all the tuples in our domain space belong to an indifference curve.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At this point, &lt;strong&gt;indifference curves looks like textbook equivalence classes&lt;/strong&gt; to me, but &lt;em&gt;I would like confirmation&lt;/em&gt; and perhaps some context from an economics perspective.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First of all, why not call them &quot;equivalence classes&quot; or openly saying that &quot;indifference curves are equivalence classes&quot;. Second, does that mean that if I prove something about equivalence classes, then it automatically transfers to indifference curves in the context of this economic model? &lt;/p&gt;&#xA;" OwnerUserId="20810" LastEditorUserId="20810" LastEditDate="2019-01-17T18:40:58.963" LastActivityDate="2019-04-22T11:35:49.477" Title="Indifference curves and equivalence classes" Tags="&lt;mathematical-economics&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26467" PostTypeId="2" ParentId="22119" CreationDate="2019-01-17T18:34:32.480" Score="7" Body="&lt;p&gt;(Edited)&#xA;Here is the working paper. Enjoy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Rothschild, M., and J. E. Stiglitz, &quot;Equilibrium in Competitive Insurance Markets,&quot; Technical Report No. 170, IMSSS Stanford University, 1975.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://drive.google.com/file/d/1MXb3OcOQc_lxNYC4CzsNTTax9_3Q_4UN/view?usp=sharing&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://drive.google.com/file/d/1MXb3OcOQc_lxNYC4CzsNTTax9_3Q_4UN/view?usp=sharing&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="20073" LastEditorUserId="20073" LastEditDate="2019-01-18T18:27:25.993" LastActivityDate="2019-01-18T18:27:25.993" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="26468" PostTypeId="2" ParentId="26465" CreationDate="2019-01-17T19:35:21.397" Score="3" Body="&lt;p&gt;Socialism doesn't work because an elite does not like to give up their privileges easily. After it took a wave of bourgeous revolution over a number of centuries to force the aristocracy to give up their powers and to enter a power-sharing agreement with the bourgeois which led to the decline of feudalism. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Marx suggested that this movement would not stop with the bourgeois, but would then go on to animate the so called third estate.  This indeed did occur over the 20C, but in the final analysis, not successfully and this has led to some people to say that Socialism does not work. The other side of this thesis is that it was simply &lt;em&gt;strangled&lt;/em&gt; at birth, and this is what the Trumans policy of &lt;em&gt;containment&lt;/em&gt; amounted to.&lt;/p&gt;&#xA;" OwnerUserId="13857" LastActivityDate="2019-01-17T19:35:21.397" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26470" PostTypeId="1" CreationDate="2019-01-17T21:35:20.073" Score="0" ViewCount="708" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/HFEaa.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/HFEaa.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Looking at the Neoclassical growth model, I have hard time understanding what dot over a variable mean? I know it is short for taking the derivative with respect to time, I don't understand the meaning behind it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/ziNpk.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/ziNpk.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The second question concerns the Euler equation for consumption. What does it tell us? And is c(t)dot/c(t) the growth rate of consumption?&lt;/p&gt;&#xA;" OwnerUserId="20683" LastActivityDate="2019-01-17T23:26:22.850" Title="Dot over a variable, Neoclassical growth model?" Tags="&lt;macroeconomics&gt;&lt;mathematical-economics&gt;&lt;economic-growth&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26471" PostTypeId="1" CreationDate="2019-01-17T21:47:57.720" Score="1" ViewCount="79" Body="&lt;p&gt;Contra the a certain fetishisation of Adam Smiths thought he wrote:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The vile maxim of the masters of mankind: all for ourselves and nothing for other people.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I'm assuming that this is from his Magnus Opus, &lt;em&gt;The Wealth of Nations&lt;/em&gt;. Is this correct? What is the context in which he felt he had to make such an observation? &lt;/p&gt;&#xA;" OwnerUserId="13857" LastActivityDate="2019-01-18T19:28:42.750" Title="Where did Adam Smith write the following and in what context?" Tags="&lt;adam-smith&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26472" PostTypeId="1" CreationDate="2019-01-17T21:51:10.363" Score="2" ViewCount="390" Body="&lt;p&gt;According to Chomsky, Adam Smith distingushes between equality of opportunity and equality of condition and that he supported the latter over the former. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Although I have come across the former term and have some appreciation of what it means, I have not come across the latter term. What does Adam Smith mean by it?&lt;/p&gt;&#xA;" OwnerUserId="13857" LastActivityDate="2019-01-18T04:08:06.557" Title="What does Adam Smith mean by equality of condition?" Tags="&lt;adam-smith&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26473" PostTypeId="2" ParentId="26410" CreationDate="2019-01-17T22:00:11.633" Score="0" Body="&lt;p&gt;No, it's not an equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the column player uses the uniform mixed strategy &#xA;&lt;span class=&quot;math-container&quot;&gt;$$\sigma_C = (1/4, 1/4, 1/4, 1/4),$$&lt;/span&gt; &#xA;then the four actions available to the row player have the values &lt;span class=&quot;math-container&quot;&gt;$-1/4$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$+1/4$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$-1/4$&lt;/span&gt;, and &lt;span class=&quot;math-container&quot;&gt;$+1/4$&lt;/span&gt;, respectively. These values are not identical, so the uniform strategy&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\sigma_R = (1/4, 1/4, 1/4, 1/4)$$&lt;/span&gt;&#xA;is not a best response for the row player. Specifically, a strategy &lt;span class=&quot;math-container&quot;&gt;$\sigma_R$&lt;/span&gt; can only by a best response to &lt;span class=&quot;math-container&quot;&gt;$\sigma_C = (1/4, 1/4, 1/4, 1/4)$&lt;/span&gt; if it assigns probability 0 to the first and third row.&lt;/p&gt;&#xA;" OwnerUserId="20813" LastActivityDate="2019-01-17T22:00:11.633" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26474" PostTypeId="2" ParentId="26382" CreationDate="2019-01-17T22:22:22.223" Score="0" Body="&lt;p&gt;It happens when two commodities are perceived of having unequal &lt;em&gt;values&lt;/em&gt;, but being subject to externalities that enforce the equality of their &lt;em&gt;prices&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For instance, if I draw a smiley face on a dollar bill, that dollar bill might be rejected by certain machines or clerks, and thus have a value less than an ordinary dollar. But since the bill is legal tender, its price is not up for negotiation. People will be thus incentivized against &quot;buying&quot; the dollar bill for a commodity worth one dollar, and this will cause it to fall out of circulation.&lt;/p&gt;&#xA;" OwnerUserId="20813" LastActivityDate="2019-01-17T22:22:22.223" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26475" PostTypeId="2" ParentId="26382" CreationDate="2019-01-17T22:48:00.610" Score="0" Body="&lt;p&gt;Money is a store of value and whilst today we have paper money and digital money originally it was thought money itself should be represented by something valuable: hence bronze, silver and gold coinage. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Good money is money whose commodity value is roughly equal to its face value. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Bad money is money whose commodity value is much less than its face value. One reason for the term bad money is that the coinage has been debased. For example, a gold coin which is in fact mostly bronze. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now obviously, as the good coinage is intrinsically worth more we can exchange it for a much larger amount of bad coinage which is intrinsically worth a lot less. Hence bad money drives out good money. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's not a term that makes much sense in the modern money system where money is represented both by paper and digitally, in other words, by law. &lt;/p&gt;&#xA;" OwnerUserId="13857" LastActivityDate="2019-01-17T22:48:00.610" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26476" PostTypeId="2" ParentId="26382" CreationDate="2019-01-17T23:06:37.887" Score="0" Body="&lt;p&gt;Gresham's law is old, predating the modern widespread use of fiat currency by centuries. So &lt;strong&gt;the first thing to know for Gresham's law is that it's talking about coinage with significant commodity value&lt;/strong&gt; (the coins themselves are valuable because they are made of valuable material.) The next thing to know about is &quot;debasement&quot;. It's an ancient approach to try and cover shortages of valuable metals. Basically, &lt;em&gt;use less gold/silver/whatever when you make coins&lt;/em&gt; and you can now pay off your debts and obligations with something that's technically the same but has less intrinsic/commodity value. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Gresham's law most obviously applies when a government first debases a currency - you've now got a large number of coins on the street that are legally the same but which possess a differences in intrinsic value. People move as quickly as they can to use the newer, debased currency to pay for things while hoarding every single one of the older, better coins they can. This quickly makes it so that the majority of coins in circulation are the newer, debased type. In this case, the &lt;strong&gt;&quot;bad&quot; currency is the new, debased currency with less intrinsic value. The &quot;good&quot; currency is the old, purer currency with more intrinsic value.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you want evidence, I can show you a modern example. The United States does, in fact, mint a silver dollar (comprised of 99+% silver) which has a nominal value of one dollar.  As in, if you really wanted to, you could use it to buy a soda at McDonald's or something. You could use them to pay traffic fines... but &lt;strong&gt;you'd be an absolute fool to pay for anything with a silver dollar, and nobody is ever going to pay you with one except as a joke/gift&lt;/strong&gt;. They're worth over 15 dollars just in terms of raw silver, so using a silver dollar to buy something is like throwing away 14 dollars. Instead, anybody with sense uses dollar bills to pay for stuff if they're not just paying electronically.&lt;/p&gt;&#xA;" OwnerUserId="12499" LastActivityDate="2019-01-17T23:06:37.887" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26478" PostTypeId="2" ParentId="26470" CreationDate="2019-01-17T23:26:22.850" Score="2" Body="&lt;p&gt;Maybe an example will help you. Imagine you start working at a company today and they offer you a salary of &lt;span class=&quot;math-container&quot;&gt;$50,000$&lt;/span&gt; USD with a promise of raising it to &lt;span class=&quot;math-container&quot;&gt;$55,000$&lt;/span&gt; USD next year. At the same date your boss is also hired with a salary of &lt;span class=&quot;math-container&quot;&gt;$100,000$&lt;/span&gt; USD which will be raised to &lt;span class=&quot;math-container&quot;&gt;$110,000$&lt;/span&gt; next year. Surely you will think it is unfair your boss will get a lot more next year than you will. But let's look at it from another perspective&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;For you&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\frac{\text{Salary}(\text{today} + 1\text{yr}) - \text{Salary}(\text{today})}{\text{Salary}(\text{today})} = \frac{55,000 -50,000}{50,000} = 0.1$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;For your boss&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\frac{\text{Salary}(\text{today} + 1\text{yr}) - \text{Salary}(\text{today})}{\text{Salary}(\text{today})} = \frac{110,000 -100,000}{100,000} = 0.1$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which is exactly the same number, people usually call this a relative increment, which in this case is &lt;span class=&quot;math-container&quot;&gt;$10\%$&lt;/span&gt;. So from this point of view it is the pretty fair. To make this a bit more technical call &lt;span class=&quot;math-container&quot;&gt;$S$&lt;/span&gt; the salary,  &lt;span class=&quot;math-container&quot;&gt;$t$&lt;/span&gt; today, and &lt;span class=&quot;math-container&quot;&gt;$\Delta t$&lt;/span&gt; make it 1 year, so that the equations above becomes&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\frac{S(t + \Delta t) - S(t)}{S(t)} = r \Delta t&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where &lt;span class=&quot;math-container&quot;&gt;$r$&lt;/span&gt; is the example above just means an increment of &lt;span class=&quot;math-container&quot;&gt;$10\%/{\rm yr}$&lt;/span&gt;. Now let's organize this a bit&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\frac{1}{S(t)} \frac{S(t + \Delta t) - S(t)}{\Delta t} = r &#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And from this, you probably will recognize the notion of derivative. If you take &lt;span class=&quot;math-container&quot;&gt;$\Delta t$&lt;/span&gt; a &lt;em&gt;very&lt;/em&gt; small number you will get&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\frac{1}{S}\frac{{\rm d}S}{{\rm d}t} = r \equiv \frac{\dot{S}}{S}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that this is just fancy notation to represent a fractional change of the quantity &lt;span class=&quot;math-container&quot;&gt;$S$&lt;/span&gt;. In other words: how much does the quantity &lt;span class=&quot;math-container&quot;&gt;$S$&lt;/span&gt; change in a moment, compared with this current value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In most cases the quantity &lt;span class=&quot;math-container&quot;&gt;$r$&lt;/span&gt; is not a constant, but depends on time. Such in your second expression, but do not loose track of the meaning there: It tells you how the relative change of quantity &lt;span class=&quot;math-container&quot;&gt;$c$&lt;/span&gt; is affected by other factors. For example &lt;span class=&quot;math-container&quot;&gt;$r$&lt;/span&gt; will make it grow, but &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt; will make it decrease (because it is substracting)&lt;/p&gt;&#xA;" OwnerUserId="14419" LastActivityDate="2019-01-17T23:26:22.850" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26480" PostTypeId="1" AcceptedAnswerId="26523" CreationDate="2019-01-17T23:55:55.430" Score="1" ViewCount="39" Body="&lt;p&gt;Working through the math which gives the following profit function for a bank but I can't seem to solve this first order condition. The profit function is defined as follows,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;\pi_t = p_{k,t-1} R^L_{k,t-1} L_{k,t-1} + (1-p_{k,t-1}) \frac{L_{k,t-1}}{\int_0^1 L_{k,t-1}dk} \tau \theta_{t-1} a_{t-1} - R^D_{t-1} L_{k,t-1} + \mu_t^B \bigg( \int_0^1 \bigg[\bigg(\frac{R_t^L + \eta \frac{1}{\theta_t}}{R^L_{k,t}+ \eta \frac{1}{\theta_{k,t}}} \bigg)^{\epsilon} x_t + \gamma^L s_{k,t-1} \bigg] dj - L_{k,t} \bigg) &#xA;\end{equation}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and the FOC they get for &lt;span class=&quot;math-container&quot;&gt;$L_{k,t}$&lt;/span&gt;,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;\partial L_{k,t}: p_{k,t} R^L_{k,t} + (1-p_{k,t}) \frac{\tau \theta_t a_t}{\int_0^1 L_{k,t} dk} - R^D_t - \mu_B =0&#xA;\end{equation}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can't seem to make sense of this differentiation of the integral. I have been looking at Leibniz integral rule all day. My understanding was that the following holds when the bounds of the integral are constants,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;\frac{\partial}{\partial x} \bigg( \int_0^1 f(x) dx \bigg) = \frac{\partial}{\partial x} f(x) dx \Big|_0^1&#xA;\end{equation}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Using this rule I can't get what the result showen is. Am I incorrect or is this example incorrect?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Much appreciated.&lt;/p&gt;&#xA;" OwnerUserId="20815" LastActivityDate="2019-01-21T23:10:18.900" Title="Differentiating through this integral in banking loans?" Tags="&lt;macroeconomics&gt;&lt;banking&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26481" PostTypeId="1" AcceptedAnswerId="26502" CreationDate="2019-01-18T00:05:13.033" Score="1" ViewCount="812" Body="&lt;p&gt;My professor for Int. Trade insists on using his unfinished notes as a basis for the class, so I'm looking for an alternative.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The syllabus goes as follows:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Gains from trade&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Free trade equilibrium and offer curves&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Applications of the basic trade model&#xA;Tariffs and welfare&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Trade preferences&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Ricardian model&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The hecksher ohlin model- fixed coefficients&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The theory of international capital flows&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As background: by this point we've had a few micro and macro courses, industrial organization, public economics, game theory, optimization, and linear algebra.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks in advance&lt;/p&gt;&#xA;" OwnerUserId="5174" LastActivityDate="2019-01-18T20:58:50.937" Title="What's a good textbook on International Trade?" Tags="&lt;international-trade&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26482" PostTypeId="1" CreationDate="2019-01-18T00:47:16.570" Score="2" ViewCount="289" Body="&lt;p&gt;This is the production function (two input factors: &lt;span class=&quot;math-container&quot;&gt;$x_1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$x_2$&lt;/span&gt;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$q=A[δx_1^ρ+(1-δ)x_2^ρ]^{\frac{1}{ρ}} $$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If distribution factor &lt;span class=&quot;math-container&quot;&gt;$δ$&lt;/span&gt; is set to increase, what are the economic impacts on these two input factors? Substitution elasticity remains unchanged.&lt;/p&gt;&#xA;" OwnerUserId="20816" LastEditorUserId="6168" LastEditDate="2019-01-18T22:03:23.793" LastActivityDate="2019-02-19T21:01:40.320" Title="What is the economic meaning of distribution parameter in a CES-production function?" Tags="&lt;production-function&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26483" PostTypeId="1" CreationDate="2019-01-18T02:01:21.463" Score="1" ViewCount="30" Body="&lt;p&gt;newbie here.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Q1 -&lt;/strong&gt; What needs to be done by the Argentinian government for their currency to regain back its strength?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Q2 -&lt;/strong&gt; Why has the Argentine Peso depreciated against the U.S Dollar for more than 18 years? What started the reasoning?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Many thanks to all that contribute to answering. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Kind regards&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Nicholas &lt;/p&gt;&#xA;" OwnerUserId="20817" LastActivityDate="2019-01-18T02:01:21.463" Title="The Crisis of Argentina" Tags="&lt;microeconomics&gt;&lt;inflation&gt;&lt;exchange-rates&gt;&lt;foreign-exchange&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26484" PostTypeId="2" ParentId="26472" CreationDate="2019-01-18T04:08:06.557" Score="4" Body="&lt;p&gt;The term &quot;equality of condition&quot; can also be thought of as &quot;equality of outcome.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this context, it refers to the idea that people in a society/state have approximately the same overall quality of life, regardless of opportunity, socioeconomic circumstances, prejudicial treatment, advantages/disadvantages, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is an oversimplification but, to put it another way, you could think of equality of &lt;strong&gt;&lt;em&gt;opportunity&lt;/em&gt;&lt;/strong&gt; (in regards to material wealth, access to luxuries, health and quality of life, etc.) as &quot;equalizing how people start&quot; and equality of &lt;strong&gt;&lt;em&gt;condition&lt;/em&gt;&lt;/strong&gt; as &quot;equalizing how people finish.&quot;&lt;/p&gt;&#xA;" OwnerUserId="20812" LastActivityDate="2019-01-18T04:08:06.557" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26486" PostTypeId="1" CreationDate="2019-01-18T09:59:46.607" Score="1" ViewCount="60" Body="&lt;p&gt;I am planing a panel data analysis evaluating a continuous policy intervention. I do have individual level data. I would like to account for individual fixed-effects. However, the explanatory variable does not vary on individual level, but only on state level. The response variable is on individual level. Is that a problem?&lt;/p&gt;&#xA;" OwnerUserId="20821" LastActivityDate="2020-06-11T17:04:30.483" Title="Fixed-Effects on individual level with explanatory variable on state level" Tags="&lt;fixed-effects&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="26487" PostTypeId="2" ParentId="26481" CreationDate="2019-01-18T12:01:47.993" Score="1" Body="&lt;p&gt;Krugman, Obstfeld and Melitz - International Trade: Theory and Policy, is a good textbook. My professor used it to supplement his course on International Trade (advanced undergraduate level). Even though he did not follow the textbook closely, I enjoyed reading the full chapters, and it contributed to my understanding of the issues. &lt;/p&gt;&#xA;" OwnerUserId="20591" LastActivityDate="2019-01-18T12:01:47.993" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="26488" PostTypeId="2" ParentId="10218" CreationDate="2019-01-18T12:08:33.280" Score="1" Body="&lt;p&gt;For current data, you could use a scraping program to collect data from firms' websites. This was the approach taken by a recent paper for airline pricing, so it would definitely work for your first example. In general, it should work for any market that has a significant online presence with universal price quoting. Retail sales should more or less satisfy that description. Grocery stores too nowadays, at least the big ones. See the paper cited for more info on its methods.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But, as your question pertains to the evolution over time, you'd need past data as well. Have a look at The Billion Prices Project at MIT and Harvard. &lt;a href=&quot;http://www.thebillionpricesproject.com/datasets/&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.thebillionpricesproject.com/datasets/&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Williams, K. R. (2017). Dynamic Airline Pricing and Seat Availability (Cowles Foundation Discussion Papers No. 2103). Cowles Foundation for Research in Economics, Yale University. Retrieved from &lt;a href=&quot;https://ideas.repec.org/p/cwl/cwldpp/2103.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://ideas.repec.org/p/cwl/cwldpp/2103.html&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="20591" LastEditorUserId="20591" LastEditDate="2019-01-18T12:19:22.437" LastActivityDate="2019-01-18T12:19:22.437" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26489" PostTypeId="2" ParentId="26440" CreationDate="2019-01-18T14:13:13.993" Score="1" Body="&lt;p&gt;If your question is &quot;in what circumstance&quot;, 123's comment is correct: when the zero lower bound (ZLB) on the central bank benchmark interest rate is binding, i.e. when that interest rate is zero, and negative rates are undesirable. Sometimes the ZLB can actually be negative, cause banks will still hold some reserves with the central bank under a negative interest rate, but there will still be a lower bound on that. At one point, banks will not keep any deposits at the central bank anymore, and it will be incapable of further influencing the market interest rates via its benchmark rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If your question is &quot;how do central banks move inflation back to its target with QE&quot;, the (simplified) answer is as follows. There are multiple channels through which QE affects the real economy. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, &lt;strong&gt;the portfolio rebalancing channel&lt;/strong&gt; denotes the dynamic whereby the large-scale purchase of long-term bonds and other safe assets with newly printed money lowers borrowing costs, raises asset prices and thereby ultimately generates wealth effects and stimulates spending. It does so by compressing the term spread and as a result driving investors out of such assets into riskier, shorter-term ones (Joyce et. al., 2013, p.673-9). This broad channel can be divided into more detailed ones that describe the substitutability of assets in terms of types of risk, safety and liquidity (Krishnamurty and Vissings-Jorgensen, 2011, p.219-223). Altavilla et. al. (2015) find evidence that term spreads have been strongly reduced as a result of ECB QE, mostly by reducing duration and credit risk, and that spill-over into non-targeted assets has been substantial because of the low financial stress at the time of the program’s implementation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Secondly, via the &lt;strong&gt;signalling channel&lt;/strong&gt;, the announcement of LSAPs increases inflation expectations and lowers long-term interest rates by altering the bank’s incentive structure, exposing its balance sheet to rate rise losses, and thus credibly committing the central bank to keeping interest rates low in the future (Bhattari et. al., 2015). This channel also affects the exchange rate, which depreciates as a result of expectation changes (Andrade et. al., 2016, p. 27-9; Carlo et. al., 2015, p.39). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thirdly, &lt;strong&gt;the liquidity or bank funding channel&lt;/strong&gt;, which stimulates credits and loans at lower rates by increasing liquidity in the financial sector and depressing money market rates (Bernoth et. al., 2015, p.32).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;All these channels contribute towards raising inflation, either indirectly through the inflationary effects of an increase in economic activity, or directly through raising inflation expectations. &lt;/p&gt;&#xA;" OwnerUserId="20591" LastActivityDate="2019-01-18T14:13:13.993" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26490" PostTypeId="2" ParentId="26486" CreationDate="2019-01-18T14:28:34.657" Score="1" Body="&lt;p&gt;If you want to do unit-fixed effects (so eliminating any unobserved variable that varies cross-sectionally but remains the same over time), this should not be a problem, at least assuming that your explanatory variable varies over time (be it a dummy that is 1 in the year the policy was administered and 0 otherwise, or a continuous variable that changes over time according to the intensity of the policy treatment). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It does not matter that the variable is on state level, as long as the policy varies over time. However, if you only have individual observations for the one state that introduced the policy, you will not be able to interpret your results counterfactually. For that you would need similar individuals observed over the same period of time in a state that did not introduce the policy (and apply difference-in-difference or something of the sort). &lt;/p&gt;&#xA;" OwnerUserId="20591" LastActivityDate="2019-01-18T14:28:34.657" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="26493" PostTypeId="1" AcceptedAnswerId="26494" CreationDate="2019-01-18T15:11:04.817" Score="2" ViewCount="35" Body="&lt;p&gt;For example, in some sports, the use performance enhancing drugs is considered undesirable, but it is difficult or impossible to be competitive unless you use performance enhancing drugs.  So, the use of performance enhancing drugs becomes this sort of undesirable dominant strategy that is a struggle to control.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Other examples abound.  Is there a succinct term in the economics field for such phenomena?  &lt;/p&gt;&#xA;" OwnerUserId="14072" LastActivityDate="2019-01-18T15:34:58.763" Title="Term for the phenomenon when an undesirable but competitive strategy dominates" Tags="&lt;dominant-strategy&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26494" PostTypeId="2" ParentId="26493" CreationDate="2019-01-18T15:34:58.763" Score="2" Body="&lt;p&gt;A game outcome that is Pareto optimal or Pareto efficient is one where no one player can be made better off without making at least one player worse off. So a Nash equilibrium can easily be Pareto sub-optimal (or Pareto inefficient), which means that it is possible to one player can be made better off without making at least one player worse off. However, &quot;&lt;a href=&quot;http://complexitylabs.io/pareto-optimal-games/&quot; rel=&quot;nofollow noreferrer&quot;&gt;The interesting thing about the prisoner’s dilemma is that all options are Pareto optimal except for the unique equilibrium, which is for both to defect.&lt;/a&gt;&quot; &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2019-01-18T15:34:58.763" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26495" PostTypeId="1" AcceptedAnswerId="26505" CreationDate="2019-01-18T16:45:28.320" Score="2" ViewCount="1213" Body="&lt;p&gt;Does this utility function have increasing/decreasing or constant marginal utility?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$ U(x,y) = x^2 y^2 $&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, &lt;span class=&quot;math-container&quot;&gt;$ f_x = 2xy^2 $&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$ f_{xx} = 2y^2 $&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$ f_y = 2yx^2 $&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$f_{yy} = 2x^2 $&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$ f_{xx} $&lt;/span&gt; has no &lt;span class=&quot;math-container&quot;&gt;$ x $&lt;/span&gt; term in it -- so is the marginal utillity of &lt;span class=&quot;math-container&quot;&gt;$ x$&lt;/span&gt; constant or increasing? It increases as &lt;span class=&quot;math-container&quot;&gt;$ y $&lt;/span&gt; increases, of course, but it stays constant if we increase &lt;span class=&quot;math-container&quot;&gt;$ x $&lt;/span&gt;. My textbook says that this is a case of increasing marginal utility, but I don't understand &lt;strong&gt;why&lt;/strong&gt;. Similar problem for &lt;span class=&quot;math-container&quot;&gt;$ f_{yy} $&lt;/span&gt; , which has no &lt;span class=&quot;math-container&quot;&gt;$ y $&lt;/span&gt; term.&lt;/p&gt;&#xA;" OwnerUserId="6486" LastActivityDate="2019-01-18T23:52:23.410" Title="When can I say that a utility function has constant marginal utility?" Tags="&lt;utility&gt;&lt;marginal&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26497" PostTypeId="2" ParentId="26495" CreationDate="2019-01-18T17:27:27.447" Score="3" Body="&lt;p&gt;Marginal utility tells you how the utility changes as you alter x. That is the first derivative, which here is a function of x. This means it is increasing. The rate of that increase is constant as long as y is fixed (second derivative).&lt;/p&gt;&#xA;" OwnerUserId="159" LastEditorUserId="159" LastEditDate="2019-01-18T23:52:23.410" LastActivityDate="2019-01-18T23:52:23.410" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26498" PostTypeId="1" CreationDate="2019-01-18T17:29:54.567" Score="1" ViewCount="457" Body="&lt;p&gt;Let's say we have an utility function, &lt;span class=&quot;math-container&quot;&gt;$ U(x,y) = \sqrt{x \cdot y} $&lt;/span&gt;. The indifference curve associated with this is &lt;strong&gt;convex&lt;/strong&gt;, while the function itself is quasi concave (because it satisfies &lt;span class=&quot;math-container&quot;&gt;$ f_{xx} f_x^2 - 2 f_{12} f_1 f_2 + f_{yy} f_y^2 $&lt;/span&gt;). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, can we say that an utillity function is quasi-concave if the indifference curve is convex (and vice-versa)?&lt;/p&gt;&#xA;" OwnerUserId="6486" LastActivityDate="2019-01-18T18:25:40.537" Title="If a utility function is quasi-concave, can we say that the IC curve associated with it is convex?" Tags="&lt;utility&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26499" PostTypeId="2" ParentId="26498" CreationDate="2019-01-18T18:25:40.537" Score="3" Body="&lt;p&gt;In your example the IC curve is not convex in the usual meaning of the word convex when applied to sets. What you probably mean is that the IC curve implicitly defines a convex function &lt;span class=&quot;math-container&quot;&gt;$f$&lt;/span&gt; where &lt;span class=&quot;math-container&quot;&gt;$f(x) = y$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If this is indeed what you mean then as long as you also assume that &lt;span class=&quot;math-container&quot;&gt;$U$&lt;/span&gt; represents monotone preferences, then the quasi-concavity of &lt;span class=&quot;math-container&quot;&gt;$U$&lt;/span&gt; will imply the 'convexity' of the IC curve and vice-versa. In this case the upper contour set of any level of &lt;span class=&quot;math-container&quot;&gt;$U$&lt;/span&gt; will be a convex set, the lower border of which is the 'convex' IC you mention.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2019-01-18T18:25:40.537" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26500" PostTypeId="2" ParentId="26471" CreationDate="2019-01-18T19:28:42.750" Score="3" Body="&lt;p&gt;This (paraphrase) appears in Book III, Chapter IV of &lt;em&gt;The Wealth of Nations&lt;/em&gt;. Smith is discussing how, in his opinion, towns engaged in commerce and manufacturing have contributed to the improvement and cultivation of their country.&lt;/p&gt;&#xA;&lt;p&gt;Specifically, the quote appears in the context of a discussion about feudalism, and kings being unable to control the violence of feudal lords on page 448 (line breaks and emphasis mine for clarity):&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;But what all the violence of the feudal institutions could never have&#xA;effected, the silent and insensible operation of foreign commerce and&#xA;manufactures gradually brought about.&lt;/p&gt;&#xA;&lt;p&gt;These gradually furnished the&#xA;great proprietors with something for which they could exchange the&#xA;whole surplus produce of their lands, and which they could consume&#xA;themselves, without sharing it either with tenants or retainers. &lt;strong&gt;All&#xA;for ourselves, and nothing for other people, seems, in every age of&#xA;the world, to have been the vile maxim of the masters of mankind.&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Smith continues:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;As&#xA;soon, therefore, as they could find a method of consuming the whole&#xA;value of their rents themselves, &lt;strong&gt;they had no disposition to share them&#xA;with any other persons.&lt;/strong&gt; For a pair of diamond buckles, perhaps, or for&#xA;something as frivolous and useless, they exchanged the maintenance,&#xA;or, what is the same thing, the price of the maintenance of 1000 men&#xA;for a year, and with it the whole weight and authority which it could&#xA;give them. &lt;strong&gt;The buckles, however, were to be all their own, and no&#xA;other human creature was to have any share of them; whereas, in the&#xA;more ancient method of expense, they must have shared with at least&#xA;1000 people.&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;p&gt;With the judges that were to determine the preference,&#xA;this difference was perfectly decisive; and thus, for the&#xA;gratification of the most childish, the meanest, and the most sordid&#xA;of all vanities they gradually bartered their whole power and&#xA;authority.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;So, Smith seems to be making a greater historical observation about civilization while specifically discussing the concentration of power, greed, and wealth as it was in feudal society.  Hopefully this helps explain the context of the observation a bit.&lt;/p&gt;&#xA;" OwnerUserId="20812" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2019-01-18T19:28:42.750" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26501" PostTypeId="1" AcceptedAnswerId="26507" CreationDate="2019-01-18T19:57:12.127" Score="1" ViewCount="105" Body="&lt;p&gt;Is there a measure of similarity for economies?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, I would like to find the world economies most similar to the UK.&lt;/p&gt;&#xA;" OwnerUserId="5505" LastActivityDate="2019-01-19T08:30:30.900" Title="Is there a measure of similarity for economies?" Tags="&lt;international-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26502" PostTypeId="2" ParentId="26481" CreationDate="2019-01-18T20:58:50.937" Score="2" Body="&lt;p&gt;&lt;a href=&quot;https://www.macmillanihe.com/page/detail/International-Economics/?K=9781319127640&quot; rel=&quot;nofollow noreferrer&quot;&gt;International Economics&lt;/a&gt; by Alan M. Taylor and Robert C. Feenstra is a good alternative, as &lt;a href=&quot;https://www.wiley.com/en-us/International+Trade-p-9780470408797&quot; rel=&quot;nofollow noreferrer&quot;&gt;International Trade&lt;/a&gt; by John Mclaren, which is more original.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you look for a more advanced textbook, which discusses the underlying assumptions of the trade models, the reference is &lt;a href=&quot;https://press.princeton.edu/titles/10615.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Advanced International Trade&lt;/a&gt; by Robert C. Feenstra.&lt;/p&gt;&#xA;" OwnerUserId="6168" LastActivityDate="2019-01-18T20:58:50.937" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26503" PostTypeId="2" ParentId="26144" CreationDate="2019-01-18T21:15:47.837" Score="2" Body="&lt;p&gt;The translog is a second order Taylor development of &lt;span class=&quot;math-container&quot;&gt;$$\log y = f(\log x) $$&lt;/span&gt; in &lt;span class=&quot;math-container&quot;&gt;$\log x$&lt;/span&gt; around an arbitrary point &lt;span class=&quot;math-container&quot;&gt;$x_0 \ne 0$&lt;/span&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\log y = f(\log x_0) + \frac{\partial f}{\partial \log x^T}(\log x_0)\cdot(\log x-\log x_0) + \frac{1}{2}(\log x-\log x_0)^T\frac{\partial^2 f}{\partial \log x\log x^T}(\log x_0)\cdot(\log x-\log x_0) $$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$=\alpha_0+\alpha_x^T \log x+\frac{1}{2}\log x^TB\log x $$&lt;/span&gt;&#xA;where this last reparameterization is obtained when defining:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\alpha_0=f(\log x_0) - \frac{\partial f}{\partial \log x^T}(\log x_0)\cdot\log x_0 + \frac{1}{2}\log x_0^T\frac{\partial^2 f}{\partial \log x\log x^T}(\log x_0)\cdot\log x_0$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\alpha_x=\frac{\partial f}{\partial \log x}(\log x_0) - \frac{\partial^2 f}{\partial \log x\log x^T}(\log x_0)\log x_0$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$B=\frac{\partial^2 f}{\partial \log x\log x^T}(\log x_0). $$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="20576" LastEditorUserId="20576" LastEditDate="2019-01-18T22:20:21.173" LastActivityDate="2019-01-18T22:20:21.173" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26504" PostTypeId="1" CreationDate="2019-01-18T21:30:43.580" Score="1" ViewCount="73" Body="&lt;p&gt;Based on the quoted section &amp;amp; example below:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Why would the Franc or USD fall in price vs the other if they are both fixed to gold; why would having less gold cause paper money to contract? &lt;/li&gt;&#xA;&lt;li&gt;Why would economic growth cause upward pressure on the price of gold in terms of goods and services; yet, downward pressure on the dollar prices of goods and services.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;When a country joined the gold standard its exchange rate against other member countries became fixed. If the exchange rate of, say, the US dollar against the French franc were to fall, then it would be cheaper for American importers of French goods to pay in gold than in depreciated dollars. Gold would flow to France. The US would have less gold to back its supply of paper dollars, which would then contract, pushing up the value of the dollar until it returned to its official price in terms of gold&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Thank you!&lt;/p&gt;&#xA;" OwnerUserId="20769" LastActivityDate="2019-01-19T17:16:53.170" Title="Currencies fixed to gold" Tags="&lt;inflation&gt;&lt;currency&gt;&lt;deflation&gt;&lt;currency-exchange&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26505" PostTypeId="2" ParentId="26495" CreationDate="2019-01-18T21:32:15.603" Score="5" Body="&lt;p&gt;Marginal utility (of &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;) in your case is &lt;span class=&quot;math-container&quot;&gt;$U_x(x,y)=2xy^2$&lt;/span&gt;. You use the sign of the derivative of MU, namely &lt;span class=&quot;math-container&quot;&gt;$U_{xx}$&lt;/span&gt;, to tell whether MU is increasing, constant, or decreasing. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Specifically, you have &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;increasing MU if &lt;span class=&quot;math-container&quot;&gt;$U_{xx}&amp;gt;0$&lt;/span&gt;,&lt;/li&gt;&#xA;&lt;li&gt;constant MU if &lt;span class=&quot;math-container&quot;&gt;$U_{xx}=0$&lt;/span&gt;, and &lt;/li&gt;&#xA;&lt;li&gt;decreasing MU if &lt;span class=&quot;math-container&quot;&gt;$U_{xx}&amp;lt;0$&lt;/span&gt;.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;In your case, assuming that &lt;span class=&quot;math-container&quot;&gt;$y&amp;gt;0$&lt;/span&gt;, you'd have &lt;span class=&quot;math-container&quot;&gt;$U_{xx}&amp;gt;0$&lt;/span&gt;, hence increasing MU.&lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2019-01-18T21:32:15.603" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26506" PostTypeId="1" AcceptedAnswerId="26508" CreationDate="2019-01-19T06:17:13.630" Score="2" ViewCount="477" Body="&lt;p&gt;In Macroeconomics, we learn that the circular flow diagram is a simple economic model that illustrates the flows of goods and services through the economy. Can the arrow that connects the &quot;Financial Market&quot; sector of the economy to the &quot;Firm&quot; sector be double-headed? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Traditionally, in the class, I've learned that Firms borrow money from the financial market to make investments in capital (so the arrow is always pointing from the Financial Market to the Firms), but I've never seen a situation where money flows from the Firms into the Financial Market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can this occur? And if so, can you give an example of when?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks!&lt;/p&gt;&#xA;" OwnerUserId="20826" LastActivityDate="2019-01-19T09:20:50.667" Title="Can money flow from Firms into the Financial Market in the Circular Flow?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26507" PostTypeId="2" ParentId="26501" CreationDate="2019-01-19T08:30:30.900" Score="3" Body="&lt;p&gt;To the best of my knowledge, there isn't. Ant that is actually a good thing, the economic structure of a country is usually a fairly complicated thing to be able to simplify it with a single number. You could, on the other hand, create an aggregate of measurements and try to look for patterns, e.g. you can see the behavior of macroeconomic variables such as &lt;a href=&quot;https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)_per_capita&quot; rel=&quot;nofollow noreferrer&quot;&gt;gdp&lt;/a&gt;, &lt;a href=&quot;https://en.wikipedia.org/wiki/List_of_countries_by_inflation_rate&quot; rel=&quot;nofollow noreferrer&quot;&gt;inflation rate&lt;/a&gt; and &lt;a href=&quot;https://en.wikipedia.org/wiki/List_of_countries_by_unemployment_rate&quot; rel=&quot;nofollow noreferrer&quot;&gt;unemployment&lt;/a&gt;, and based on those decide which countries are similar to each other.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And that is why &lt;a href=&quot;https://en.wikipedia.org/wiki/Cluster_analysis&quot; rel=&quot;nofollow noreferrer&quot;&gt;clustering analysis&lt;/a&gt; is for. In the plot below I used Principal Component Analysis (just to reduce the dimensionality of the problem and be able to graphically display what's going on) to show 4 clusters fo countries. Each color is a &lt;a href=&quot;https://en.wikipedia.org/wiki/K-means_clustering&quot; rel=&quot;nofollow noreferrer&quot;&gt;k-means&lt;/a&gt; cluster, the axis are just the two firs principal components &lt;span class=&quot;math-container&quot;&gt;$x_1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$x_2$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/LkTEL.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/LkTEL.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I also added some of the countries on each cluster so you can see their similarity. For example, the &lt;span class=&quot;math-container&quot;&gt;$\color{blue}{\rm blue}$&lt;/span&gt; cluster has large gdp, low unemployment, whereas countries in the &lt;span class=&quot;math-container&quot;&gt;$\color{green}{\rm green}$&lt;/span&gt; cluster are not doing so well: high inflation, high unemployment and low gdp. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The cluster that you are interested in has these values (as of 2017)&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;                 country     gdp  inflation  unemployment&#xA;---------------------------------------------------------&#xA;9              Australia   55692       1.95           5.3&#xA;13               Austria   47347       2.08           5.1&#xA;17               Belgium   43488       2.13           6.2&#xA;15                Canada   45094       1.60           5.6&#xA;8                Denmark   56630       1.15           4.8&#xA;14               Finland   45927       0.75           7.2&#xA;20                France   39932       1.03           8.9&#xA;16               Germany   44769       1.74           3.3&#xA;3                Iceland   70248       1.76           2.9&#xA;4                Ireland   68710       0.34           5.3&#xA;19                Israel   40272       0.24           3.7&#xA;22                 Japan   38448       0.47           2.4&#xA;0             Luxembourg  105863       1.73           5.0&#xA;11           Netherlands   48555       1.38           3.5&#xA;18           New Zealand   41572       1.85           3.9&#xA;2                 Norway   75389       1.88           4.0&#xA;5                  Qatar   61024       0.40           0.6&#xA;12            San Marino   47595       1.05           8.0&#xA;10                Sweden   52925       1.79           6.3&#xA;1            Switzerland   80637       0.53           2.4&#xA;23  United Arab Emirates   37732       1.97           1.6&#xA;21        United Kingdom   39800       2.69           4.0&#xA;6          United States   59792       2.13           3.9&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;" OwnerUserId="14419" LastActivityDate="2019-01-19T08:30:30.900" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26508" PostTypeId="2" ParentId="26506" CreationDate="2019-01-19T09:20:50.667" Score="2" Body="&lt;p&gt;Yes! I put together this sketch to show it&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/zDNcS.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/zDNcS.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Households can save money in banks, which inject money into the financial market&lt;/li&gt;&#xA;&lt;li&gt;They are later compensated the form of a rate of return&lt;/li&gt;&#xA;&lt;li&gt;Firms can borrow money &lt;/li&gt;&#xA;&lt;li&gt;Later they need to pay an interest. This way the money flows from the firms back to the financial market&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="14419" LastActivityDate="2019-01-19T09:20:50.667" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="26509" PostTypeId="1" CreationDate="2019-01-19T09:36:53.383" Score="1" ViewCount="24" Body="&lt;p&gt;I have to replicate &lt;a href=&quot;https://doi.org/10.1007/s10690-009-9086-4&quot; rel=&quot;nofollow noreferrer&quot;&gt;Liu &amp;amp; Morley (2009)&lt;/a&gt; on Polish data. They compare different methods of forecasting volatility in terms of Mean Absolute Error and other metrics. They use Hang Seng Index.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I don't understand is where do they take &quot;actual volatility&quot; from to compute these errors? They claim to use a formula &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$MAE = \frac{1}{\tau}\sum^{T+\tau}_{t=T+1}|h_t-s_t^2|,$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where &lt;span class=&quot;math-container&quot;&gt;$\tau$&lt;/span&gt; is the number of forecasted periods, &lt;span class=&quot;math-container&quot;&gt;$h_i$&lt;/span&gt; is obtained from GARCH and &lt;span class=&quot;math-container&quot;&gt;$s_i^2$&lt;/span&gt; is this &quot;actual volatility&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I had to forecast rates of return, I could calculate ex post errors with no problem because rates of return is what I have in raw data to compare forecasted values to. But volatility?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Liu, W., &amp;amp; Morley, B. (2009). Volatility forecasting in the hang seng index using the GARCH approach. Asia-Pacific Financial Markets, 16(1), 51-63.&lt;/p&gt;&#xA;" OwnerUserId="20829" LastEditorUserId="7215" LastEditDate="2019-07-01T12:16:44.713" LastActivityDate="2019-07-01T12:16:44.713" Title="Calculating volatility forecast errors - how to obtain &quot;actual volatility&quot; for comparison?" Tags="&lt;econometrics&gt;&lt;replication&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26510" PostTypeId="1" CreationDate="2019-01-19T10:18:31.700" Score="2" ViewCount="17" Body="&lt;p&gt;If the UK were to leave the EU without a Withdrawal Agreement in place it defaults to WTO trading terms.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does the WTO have a mechanism to accommodate such a transition?&lt;/p&gt;&#xA;" OwnerUserId="5505" LastActivityDate="2019-01-19T10:18:31.700" Title="Does the WTO have a mechanism to accommodate states transitioning trade regimes?" Tags="&lt;international-trade&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26512" PostTypeId="2" ParentId="26504" CreationDate="2019-01-19T17:16:53.170" Score="2" Body="&lt;ol&gt;&#xA;&lt;li&gt;When it is said that currencies are 'fixed' against each other, they are &lt;strong&gt;maintained&lt;/strong&gt; fixed. The exchange rate will still keep fluctuating, as there is obviously still a supply of and demand for the currency. The goal of the central bank is just to keep it within a certain range. In the case of a gold standard, the central bank basically guarantees gold as accepted currency. That makes that, if the U.S. dollar depreciates against the French dollar, U.S. producers will prefer to pay in gold, as your excerpt states. This basically reduces the supply of dollars, and the demand for French francs (how old is that textbook?!). So you can see that by guaranteeing the use of gold as a currency, the exchange rate automatically readjusts to a fixed level. &#xA;But the key is that is still fluctuates! This point is easier to appreciate in case a currency is pegged against another one. In that case, the central bank will actively intervene in the market for the foreign currency to keep the domestic currency within a certain band, by selling its foreign reserves. In the case of a gold standard, there is a sort of decentralized intervention: the central bank's guarantee incentivizes producers and consumers to use the form of currency (gold or cash) that is cheapest to them, and that way, both forms' prices continually readjust wrt each other. &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="20591" LastActivityDate="2019-01-19T17:16:53.170" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26513" PostTypeId="1" CreationDate="2019-01-19T18:05:34.090" Score="0" ViewCount="25" Body="&lt;p&gt;I'm currently working on a problem that says the following :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At first we had a number N of firms in perfectly competitive industry,the exercice gives us the total cost and the Market Demand with p as the market price . After studying this case ( Consumer surplus, market equilibrum and firm profit ) the exercice adds the following :&quot;The government decides that each firm in the industry must pay a license fee of 12 per period, whether they produce an output or not &quot; and from this we should find the market price and what output maximizes firm profit and level of firm profit.&#xA;I don't know how to interpret the license fee, is it a tax? the only exercises i've seen so far are with a per unit tax applied to the producer .&lt;/p&gt;&#xA;" OwnerUserId="20833" LastActivityDate="2019-01-19T18:05:34.090" Title="Market price, output that maximize the price and level of firm profit after applying a license fee" Tags="&lt;microeconomics&gt;&lt;taxation&gt;&lt;competitive-equilibrium&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="26517" PostTypeId="1" AcceptedAnswerId="26518" CreationDate="2019-01-20T10:40:57.673" Score="1" ViewCount="889" Body="&lt;p&gt;I'm a 12th-grade student doing a school research paper evaluating the effectiveness of the recent increase in Additional Buyers Stamp Duty in the Singapore Housing market. This tax is directly imposed by the government on the consumer after the purchase of housing has been made. So will this have a demand-side effect (I know this isn't really applicable because it's macroeconomics, but contractionary fiscal policy like increasing income tax decreases Consumption and is responsible for a leftward shift in Aggregate Demand) like income taxes? Or will it have the conventional leftward shift in Supply curve (but I'm not sure how this is the case as there is no tax incidence on the producer)? Any help would be great, Thanks!&lt;/p&gt;&#xA;" OwnerUserId="20835" LastActivityDate="2019-01-20T11:19:40.547" Title="Can Direct Taxes on the consumers have a impact on the Demand (rather than supply)?" Tags="&lt;microeconomics&gt;&lt;supply-and-demand&gt;&lt;housing&gt;&lt;taxes&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26518" PostTypeId="2" ParentId="26517" CreationDate="2019-01-20T11:19:40.547" Score="2" Body="&lt;p&gt;In microeconomics you can analyze tax incidence on supply demand graph. If you levy tax on consumers this will shift demand curve to the right. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, this does not mean that whole tax burden rests with consumers. The tax drives a wedge between the price that consumers pays and the price that consumers receive. The whole tax burden is the triangle ABC and you can see that this triangle is split in half by original price. The upper half that cuts into consumer surplus is the tax incidence on consumers and lower half tax incidence on producers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The tax incidence depends on elasticity of supply and demand. The more inelastic demand relative to supply the more tax burden is shifted to consumer and the more inelastic supply the more tax burden is shifted to producers. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am not familiar with Singapore’s real estate market but usually the housing market is thought to have elastic demand and relatively inelastic supply so the tax incidence should fall more on suppliers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/dBPVF.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/dBPVF.jpg&quot; alt=&quot;tax incidence: tax on consumers.&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now to your macro question. First of all tax on a single market should not even had any macroeconomic impact in general. When we talk about increasing taxes in macroeconomic classes we usually mean that across whole economy for example increasing VAT that affects all markets.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But let’s for now suppose in Singapore housing market is such a great share of GDP that taxes there have macroeconomic impact. Well this would first in short run shift aggregate demand to the left to new equilibrium with lower prices and GDP but in a long run the equilibrium GDP will be determined by long run supply curve of the economy. As firms adjust to the new prices GDP will go eventually back to the same level but at lower overall price level.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is the example of macroeconomic effects of aggregate demand shifts. In the picture demand shifts due to decrease in investment but taxes would work the same way.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/lEqZ8.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/lEqZ8.jpg&quot; alt=&quot;macroeconomic effects of negative aggregate demand shock&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="15517" LastActivityDate="2019-01-20T11:19:40.547" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26519" PostTypeId="1" CreationDate="2019-01-20T13:49:49.447" Score="-1" ViewCount="912" Body="&lt;p&gt;In Consumer Choice, we frequently encounter budget lines and indifference curves. For a given budget line, the optimization point is at the point where the indifference curve is just tangent to the budget line. For example, here is a graph used to illustrate how inferior goods behave with increases in income:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/vNt0w.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/vNt0w.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here, as the budget line shifts to &lt;span class=&quot;math-container&quot;&gt;$ I_3 $&lt;/span&gt;, we're shown that consumption of &lt;span class=&quot;math-container&quot;&gt;$ z $&lt;/span&gt;, an inferior good, decreases. My question is: what's stopping me from drawing the indifference curve elsewhere? Why can't I draw the indifference curve tangent to &lt;span class=&quot;math-container&quot;&gt;$ I_3 $&lt;/span&gt;, just right of &lt;span class=&quot;math-container&quot;&gt;$ z_1 $&lt;/span&gt; so that &lt;span class=&quot;math-container&quot;&gt;$ z_3 &amp;gt; z_1 $&lt;/span&gt;? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sure, the MRS should be equal to the ratio of the price of the goods, but we can show that anywhere along the budget line, right? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, I understand that we can't draw the IC in a way that they intersect. So, I can't draw the IC for &lt;span class=&quot;math-container&quot;&gt;$ I_3 $&lt;/span&gt; towards the end of &lt;span class=&quot;math-container&quot;&gt;$ I_3 $&lt;/span&gt; (near the x-axis) because it'll intersect other indifference curves -- but how do we know where to draw the IC? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words, I can only reproduce this diagram for inferior goods because I've seen it. If I had to graphically represent this without having seen it earlier, there is no way I'd have figured that &lt;span class=&quot;math-container&quot;&gt;$ z_3 $&lt;/span&gt; is lesser than &lt;span class=&quot;math-container&quot;&gt;$ z_1 $&lt;/span&gt;. &lt;/p&gt;&#xA;" OwnerUserId="6486" LastActivityDate="2019-01-21T08:12:51.427" Title="Budget lines and Indifference curves: How do you figure where exactly you should draw the IC tangent to a budget line?" Tags="&lt;consumer-theory&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="26520" PostTypeId="1" CreationDate="2019-01-20T15:29:33.050" Score="0" ViewCount="55" Body="&lt;p&gt;If the Greek government defaults on its bonds issued by French and German investment banks, how does that prevent the French and German governments from paying back the money that they owe to investment banks in other Euro countries?&lt;/p&gt;&#xA;" OwnerUserId="20230" LastEditorUserId="8481" LastEditDate="2020-05-04T09:37:42.093" LastActivityDate="2020-05-04T09:37:42.093" Title="Greek Debt Crisis" Tags="&lt;macroeconomics&gt;&lt;government-debt&gt;&lt;international-economics&gt;&lt;bonds&gt;&lt;euro-area&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="26521" PostTypeId="2" ParentId="26411" CreationDate="2019-01-20T20:27:22.447" Score="1" Body="&lt;p&gt;So I did a little bit of digging around on this and it seems to be a result from the indirect  &lt;a href=&quot;https://en.wikipedia.org/wiki/Stone%E2%80%93Geary_utility_function&quot; rel=&quot;nofollow noreferrer&quot;&gt;Stone-Geary utility function&lt;/a&gt;. Not 100% sure on this but i'm pretty sure&lt;sup&gt;**&lt;/sup&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Recall that the stone-geary utility function is defined as the following:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$U(x_1,...,x_n)=\prod_{i=1}^n(x_i-\gamma_i)^{\beta_i}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that the marshallian demands for stone-geary preferences are defined as:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$x^*_i=\gamma_i+\frac{\beta_i}{p_i}\left(m-\sum_{j=1}^np_j\gamma_j\right) \forall\ \ i\neq j$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;subbing this result into our utility function to obtain our indirect utility function we get:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$V(x^*_1,...,x^*_n)=\prod_{i=1}^n(x^*_i-\gamma_i)^{\beta_i}$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$V(p_1,...,p_n,m)=\prod_{i=1}^n\left(\gamma_i+\frac{\beta_i}{p_i}\left(m-\sum_{j=1}^np_j\gamma_j\right)-\gamma_i\right)^{\beta_i}$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$V(p_1,...,p_n,m)=\prod_{i=1}^n\left(\frac{\beta_i}{p_i}\left(m-\sum_{j=1}^np_j\gamma_j\right)\right)^{\beta_i}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Multiplying both sides by &lt;span class=&quot;math-container&quot;&gt;$\prod_{i=1}^np_i^{\beta_i}$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\prod_{i=1}^n\frac{1}{\beta_i^{\beta_i}}$&lt;/span&gt; we get:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\prod_{i=1}^n\frac{1}{\beta_i^{\beta_i}}\prod_{i=1}^np_i^{\beta_i}V=\prod_{i=1}^n(m-\sum_{j=1}^np_j\gamma_j)^{\beta_i}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;recalling that throughout the literature &lt;span class=&quot;math-container&quot;&gt;$\beta_0$&lt;/span&gt; has been defined as an &quot;unestimatiable parameter&quot; let: &lt;span class=&quot;math-container&quot;&gt;$\prod_{i=1}^n\frac{1}{\beta_i^{\beta_i}}=\beta_0$&lt;/span&gt; and having &lt;span class=&quot;math-container&quot;&gt;$V(p_1,...,p_n,m)$&lt;/span&gt; fixed at some level of utility &lt;span class=&quot;math-container&quot;&gt;$u$&lt;/span&gt; we therefore have:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\beta_0\prod_{i=1}^n p_i^{\beta_i}u=\prod_{i=1}^n(m-\sum_{j=1}^np_j\gamma_j)^{\beta_i}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;notice how this is very similar to &lt;span class=&quot;math-container&quot;&gt;$b(p)$&lt;/span&gt; as defined by varian&lt;sup&gt;*&lt;/sup&gt;. thus it would represent a function which is essentially cobb-douglas preferences centered on income levels above subsistence (stone-geary) &lt;em&gt;in terms of money&lt;/em&gt; (not goods).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This shows how spending shaped by prefernces when our consumer is no longer trying to eke out a living.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we were to take a second order taylor approximation of the RHS around &lt;span class=&quot;math-container&quot;&gt;$p_j$&lt;/span&gt; (note that we cover all of our prices in our system) we get:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\beta_0\prod_{i=1}^n p_i^{\beta_i}u=\log(m)-a_0-\sum_ia_i\log p_i-\frac{1}{2}\sum_i\sum_j\delta^*_{ij}\log p_i\log p_j$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which is in turn:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\beta_0\prod_{i=1}^n p_i^{\beta_i}u=\log\left(\frac{m}{P}\right)$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where&#xA; &lt;span class=&quot;math-container&quot;&gt;$$\log(P)=a_0+\sum_ia_i\log p_i+\frac{1}{2}\sum_i\sum_j\delta^*_{ij}\log p_i\log p_j$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reason why we use the LHS term is used instead of the RHS term is because of the construction of the AIDS system as an expenditure function which requires that utility to be apart of it by definition.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;TL;DR This was an attempt to understand why we use a parameter that we end up subbing out from the Almost Ideal Demand System.  &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;sub&gt;*One may ask, that this isn't entirely true since Deaton and Muellbauer (1980) define &lt;span class=&quot;math-container&quot;&gt;$\log\{b(p)\}=log\{a(p)\}+\beta_0\prod_{i=1}^n p_i^{\beta_i}$&lt;/span&gt; however since this goes away as a result of the definitions used in the structure of the PIGLOG system, id think its alright.&lt;/sub&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;sub&gt;** see Castellón's,Boonsaeng's and Carpio's&#xA; paper &lt;a href=&quot;https://www.researchgate.net/profile/Carlos_Carpio2/publication/241750470_Demand_System_Estimation_in_the_Absence_of_Price_Data_an_Application_of_Stone-Lewbel_Price_Indices/links/0c960532c6a65a32dc000000/Demand-System-Estimation-in-the-Absence-of-Price-Data-an-Application-of-Stone-Lewbel-Price-Indices.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Demand System Estimation in the Absence of Price Data: an Application of&#xA;Stone-Lewbel Price Indices&lt;/a&gt; page 6&lt;/sub&gt;&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="8815" LastEditDate="2019-01-25T01:09:57.637" LastActivityDate="2019-01-25T01:09:57.637" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26522" PostTypeId="2" ParentId="26520" CreationDate="2019-01-20T20:39:44.483" Score="1" Body="&lt;p&gt;If you borrow money from person &lt;em&gt;A&lt;/em&gt; and lend it to person &lt;em&gt;B&lt;/em&gt;, how does person &lt;em&gt;B&lt;/em&gt;'s default prevent you from paying back what you owe to person &lt;em&gt;A&lt;/em&gt;? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;That hypothetical situation is essentially the same between banks and governments among various countries, except that the number of entities is much greater than three (you, person A, and person B), thereby exacerbating the chances of contagion, panic, and a &lt;a href=&quot;https://en.wikipedia.org/wiki/Domino_effect&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;domino effect&lt;/em&gt;&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="18552" LastActivityDate="2019-01-20T20:39:44.483" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26523" PostTypeId="2" ParentId="26480" CreationDate="2019-01-20T20:44:30.007" Score="1" Body="&lt;p&gt;In generic notation, we examine&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\frac {d}{df} \left(\frac {f(x)}{\int_0^1 f(x) dx}\right)$$&lt;/span&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that we take the derivative with respect to &lt;span class=&quot;math-container&quot;&gt;$f$&lt;/span&gt; not with respect to &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;. Applying the standard rules we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\frac {d}{df} \left(\frac {f(x)}{\int_0^1 f(x) dx}\right) = \frac{\int_0^1 f(x) dx-f\cdot \left[\frac{d}{df}\int_0^1 f(x) dx\right]}{\left(\int_0^1 f(x) dx\right)^2}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ \frac{d}{df}\int_0^1 f(x) dx = 0$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;because this definite integral, having specific values as integration limits, is a number, a constant, not a function. So we end up with &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\frac {d}{df} \left(\frac {f(x)}{\int_0^1 f(x) dx}\right) = \frac {1}{\int_0^1 f(x) dx}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;that validates the obtained f.o.c.   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Leibniz rule for differentiating under the integral sign does not enter the picture here.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2019-01-21T23:10:18.900" LastActivityDate="2019-01-21T23:10:18.900" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="26524" PostTypeId="2" ParentId="26482" CreationDate="2019-01-20T20:55:07.613" Score="1" Body="&lt;p&gt;In &lt;a href=&quot;https://economics.stackexchange.com/a/399/61&quot;&gt;this answer&lt;/a&gt; you can see that &lt;span class=&quot;math-container&quot;&gt;$\delta$&lt;/span&gt; becomes the exponent in the Cobb-Douglas function as &lt;span class=&quot;math-container&quot;&gt;$\rho \to 0$&lt;/span&gt;, i.e. as the elasticity of substitution becomes unity.&lt;br&gt;&#xA;The exponent in the Cobb-Douglas production function is the output elasticity of the input(s), but also, it is the &quot;output share&quot; of each factor, under competitive conditions. This is why the scholars that introduced the C.E.S. function named this parameter &quot;distribution parameter&quot;.&lt;br&gt;&#xA;So you can start thinking from there.  &lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2019-01-20T20:55:07.613" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26525" PostTypeId="1" CreationDate="2019-01-20T22:41:09.237" Score="3" ViewCount="36" Body="&lt;p&gt;The cost of household appliances and TVs are part of the Inflation Index.&#xA;It is well known fact that modern appliances and TVs last 1/3 -1/2 time as comparing to 10-20 years ago and every time we buy new item the government collects the taxes. &#xA;Should we prorate the price of the item to it's durability and longevity?&#xA; For example, if the stove price has not changed and is about \$1000, but it lasts only 1/3 of the time it used to work in the past, then its real price for the purpose of calculating the inflation index must be \$3000. Would you agree?&lt;/p&gt;&#xA;" OwnerUserId="20843" LastEditorUserId="20812" LastEditDate="2019-01-29T20:32:53.620" LastActivityDate="2019-01-29T20:32:53.620" Title="Inflation index and longevity of modern household appliances" Tags="&lt;inflation&gt;" AnswerCount="0" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26526" PostTypeId="2" ParentId="25718" CreationDate="2019-01-20T23:31:14.847" Score="0" Body="&lt;p&gt;It was a much different time back then. Gold and silver were considered money. A majority of banks where not members of the Federal Reserve. The business of creating money by banks was to count deposits of other banks' notes as cash. So during the roaring twenties there was a huge creation of &lt;code&gt;money&lt;/code&gt;. A demand on deposit for gold and silver was the norm. The stock market bubble was fueled by this money creation. Everyone was buying the market on credit. The market failed and that debt could not be paid back with money that did not exist. As a majority of deposits were counted as notes rather than cash, banks had no way to meet the demands for deposits.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These days, because of the Glass-Steagall act, commercial and investment banking are separate entities. You would keep your deposits at a commercial bank where risky investments of your deposit are not allowed. Also, these days, there is no demand on deposits in gold and silver; only Federal Reserve Notes.&lt;/p&gt;&#xA;" OwnerUserId="20844" LastActivityDate="2019-01-20T23:31:14.847" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="26529" PostTypeId="2" ParentId="26519" CreationDate="2019-01-21T08:12:51.427" Score="0" Body="&lt;p&gt;In order to know the exact bundle for that maximizes utility, you need to know what the consumer's preferences are. Nevertheless, if you knew that good &lt;span class=&quot;math-container&quot;&gt;$z$&lt;/span&gt; is an inferior good for this particular consumer at &lt;strong&gt;her current income level&lt;/strong&gt;, you should still be able to draw this diagram. The only thing you need is to recall the definition of an inferior good: a good is said to be inferior if as income increases its consumption decreases. This alone implies that &lt;span class=&quot;math-container&quot;&gt;$z_3&amp;lt;z_2.$&lt;/span&gt; Observe that in the diagram the budget constraint is drawn for three income levels. As income increases from &lt;span class=&quot;math-container&quot;&gt;$m_1$&lt;/span&gt; to &lt;span class=&quot;math-container&quot;&gt;$m_2,$&lt;/span&gt; consumption of goes from &lt;span class=&quot;math-container&quot;&gt;$z_1$&lt;/span&gt; to &lt;span class=&quot;math-container&quot;&gt;$z_2,$&lt;/span&gt; implying that &lt;span class=&quot;math-container&quot;&gt;$z$&lt;/span&gt; is an inferior good. If income increases further to &lt;span class=&quot;math-container&quot;&gt;$m_3,$&lt;/span&gt; consumption needs to reduce relative to &lt;span class=&quot;math-container&quot;&gt;$z_2.$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that it could have been the case that as income grew from &lt;span class=&quot;math-container&quot;&gt;$m_1$&lt;/span&gt; to &lt;span class=&quot;math-container&quot;&gt;$m_2$&lt;/span&gt; consumtion of &lt;span class=&quot;math-container&quot;&gt;$z$&lt;/span&gt; increased, but from &lt;span class=&quot;math-container&quot;&gt;$m_2$&lt;/span&gt; to &lt;span class=&quot;math-container&quot;&gt;$m_3$&lt;/span&gt; it decreased. This is why I emphasized the role of consumer income: a given good may be normal at some income levels and then inferior for other, presumably larger, income levels.&lt;/p&gt;&#xA;" OwnerUserId="20281" LastActivityDate="2019-01-21T08:12:51.427" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26533" PostTypeId="1" AcceptedAnswerId="26556" CreationDate="2019-01-21T14:43:06.930" Score="1" ViewCount="1773" Body="&lt;p&gt;Consider a very basic model of moral hazard with two possible effort levels &lt;span class=&quot;math-container&quot;&gt;$e_L&amp;lt;e_H$&lt;/span&gt; and two possible levels of output &lt;span class=&quot;math-container&quot;&gt;$y_L&amp;lt;y_H$&lt;/span&gt;. If the agent doesn't participate, they get utility of &lt;span class=&quot;math-container&quot;&gt;$\bar{u}$&lt;/span&gt;. If they participate, they get &lt;span class=&quot;math-container&quot;&gt;$E[u(w)|e]-c(e)$&lt;/span&gt; where &lt;span class=&quot;math-container&quot;&gt;$u'(w) &amp;gt; 0$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$u''(w) &amp;lt; 0$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$c(e_L)&amp;lt;c(e_L)$&lt;/span&gt;. In other words, the agent is risk averse and dislikes effort. Putting in more effort raises the chance that output is high, i.e. &lt;span class=&quot;math-container&quot;&gt;$P(y=y_H)=p$&lt;/span&gt; if &lt;span class=&quot;math-container&quot;&gt;$e=e_H$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$P(y=y_H)=q$&lt;/span&gt; if &lt;span class=&quot;math-container&quot;&gt;$e=e_L$&lt;/span&gt; where &lt;span class=&quot;math-container&quot;&gt;$1&amp;gt;p&amp;gt;q&amp;gt;0$&lt;/span&gt;. The principal chooses a contract &lt;span class=&quot;math-container&quot;&gt;${w_H, w_L}$&lt;/span&gt; which specifies a wage following &lt;span class=&quot;math-container&quot;&gt;$y=y_H$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$y=y_L$&lt;/span&gt; respectively. Since they are risk neutral, they choose &lt;span class=&quot;math-container&quot;&gt;$w_H$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$w_L$&lt;/span&gt; to maximise &lt;span class=&quot;math-container&quot;&gt;$E[y - w]$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let us suppose that the principal wishes to induce &lt;span class=&quot;math-container&quot;&gt;$e=e_H$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The optimal contract must satisfy an 'incentive compatibility' constraint:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$pu(w_H)+(1-p)u(w_L)-e_H\geq qu(w_H)+(1-q)u(w_L)-e_L$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the optimal contract, this must hold with equality ('bind'). If I recall correctly, this has something to do with optimal risk sharing (more precisely, that the principal doesn't want to expose the agent to `unnecessary' risk). However, I would be very grateful if anyone could provide a more precise (but ideally still intuitive) explanation for why this must be the case.&lt;/p&gt;&#xA;" OwnerDisplayName="user17900" LastEditorDisplayName="user17900" LastEditDate="2019-01-23T12:24:31.803" LastActivityDate="2019-01-24T20:32:38.573" Title="Why does the incentive compatibility constraint bind (moral hazard)?" Tags="&lt;microeconomics&gt;&lt;information&gt;" AnswerCount="2" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="26534" PostTypeId="1" AcceptedAnswerId="26543" CreationDate="2019-01-21T15:11:48.073" Score="0" ViewCount="52" Body="&lt;p&gt;When comparing asymptotic variances, you usually conclude that a covariance matrix A is more efficient whenever the difference B - A ≥ 0 (where ≥ 0 means that the difference is a positive semidefinite matrix).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, this comparison involves all elements in the matrices - both the diagonal elements (asymptotic variances of each beta estimator) and the off-diagonal ones (covariances between estimators) -, while we are usually interested in estimators for a particular beta coefficient having small standard errors.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Could anyone explain why is this method preferred to a comparison that entails only the diagonal elements? Could it be the case that some diagonal element is smaller in B while B - A ≥ 0?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you!&lt;/p&gt;&#xA;" OwnerUserId="20850" LastActivityDate="2019-01-23T16:16:04.643" Title="Smaller variance of estimators in matrix sense" Tags="&lt;econometrics&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="26535" PostTypeId="1" CreationDate="2019-01-21T15:53:58.193" Score="1" ViewCount="38" Body="&lt;p&gt;Is it possible that a country could use the money in its sovereign wealth fund to invest in different country's Stock Market and use the dividends to finance its government thus increasing spending while keeping down taxes?  Or could a country grant a corporate total monopoly on its domestic market and force it to compete in international markets to bring in foreign exchange and take a reasonable amount of dividend from the company to finance the government activities?&lt;/p&gt;&#xA;" OwnerUserId="20851" LastActivityDate="2019-01-21T15:53:58.193" Title="Can a government invest in public companies so their dividends can finance the government" Tags="&lt;macroeconomics&gt;&lt;finance&gt;&lt;taxation&gt;&lt;stock-market&gt;&lt;government-debt&gt;" AnswerCount="0" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26536" PostTypeId="2" ParentId="26533" CreationDate="2019-01-21T21:03:32.250" Score="0" Body="&lt;p&gt;The idea behind the incentive compatibility constraint is that the expected utility when doing the high effort level needs to be as least as large as the one the agent would obtain from doing the low effort level. There are many contracts that satisfy the IC. Given that the agent is risk averse, i.e., has strictly convex indiference curves, the further the asymmetric information contract deviates from the symmetric information contract, the higher will be the expected payoff the agent receives. Of course, the higher the expected payoff for the agent, the lower the expected payoff for the principal. Hence, the principal will choose that contract that a) provides the agent with just her reservation utility and b) the IC is satisfied as an equality.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Perhaps what you have in mind is that, since the expected utility for the agent is the same irrespective of the effort level she exerts, she may as well end up doing the low effort level anyway. But recall that the agent is &lt;strong&gt;indifferent&lt;/strong&gt; between the two effort levels, and, therefore, we can assume that she chooses to do the high effort level. &lt;/p&gt;&#xA;" OwnerUserId="20281" LastEditorUserId="20281" LastEditDate="2019-01-23T17:58:12.983" LastActivityDate="2019-01-23T17:58:12.983" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="26540" PostTypeId="1" CreationDate="2019-01-22T08:47:42.983" Score="1" ViewCount="15" Body="&lt;p&gt;I was going through &lt;a href=&quot;https://www.nber.org/papers/w19086.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;this paper by Aghion et al&lt;/a&gt;. I wanted some clarification on some of the computations. I understood the process uptil the normalization on page 22. Then we can get some policy rules for the economy based on those variables and equations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't precisely know how to proceed from here and it seems like an indication that I am not clear on what I am doing. After they get their policy rules, they go ahead and get optimal long run taxes. I am not sure how I should use my policy rules to get to that result.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Before reading the methodology I would've thought that all we would do was to calculate the steady states of the transformed equations, get some societal welfare function in terms of the transformed stationary equations, and iterate over taxes in the steady state and see what gave us the highest welfare. But the paper seems to want to transform the variables to the untransformed versions before that.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help/references would be great. I am using Dynare to solve a very similar problem, but I don't know exactly what to do after I have solved for the policy rules of the transformed variables.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks&lt;/p&gt;&#xA;" OwnerUserId="20857" LastActivityDate="2019-01-22T08:47:42.983" Title="Optimal Tax Rates on BGP" Tags="&lt;taxation&gt;&lt;dsge&gt;&lt;computation&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="26543" PostTypeId="2" ParentId="26534" CreationDate="2019-01-22T12:01:10.800" Score="1" Body="&lt;p&gt;Relative efficiency between two unbiased estimators &lt;span class=&quot;math-container&quot;&gt;$\widehat{\theta }_{A}$&lt;/span&gt;&#xA;and &lt;span class=&quot;math-container&quot;&gt;$\widehat{\theta }_{B}$&lt;/span&gt; of an unknown parameter vector &lt;span class=&quot;math-container&quot;&gt;$\theta _{0}\in &#xA;\mathbb{R}^{K}$&lt;/span&gt; is usually defined as follow (see for instance Ruud, 2001).&#xA;The estimator &lt;span class=&quot;math-container&quot;&gt;$\widehat{\theta }_{A}$&lt;/span&gt; is said to be efficient relative to &lt;span class=&quot;math-container&quot;&gt;$&#xA;\widehat{\theta }_{B}$&lt;/span&gt; if we have:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$ \mathrm{V}\left[ \widehat{\theta }_{A}\right] \equiv \Omega _{A}&amp;lt;&amp;lt;\Omega&#xA;_{B}\equiv \mathrm{V}\left[ \widehat{\theta }_{B}\right] .$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If &lt;span class=&quot;math-container&quot;&gt;$\Omega _{B}-\Omega _{A}$&lt;/span&gt; is positive definite, then the diagonal terms&#xA;of &lt;span class=&quot;math-container&quot;&gt;$\Omega _{B}$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\Omega _{A}$&lt;/span&gt; are necessarily such that &lt;span class=&quot;math-container&quot;&gt;$\sigma&#xA;_{Bii}^{2}&amp;gt;\sigma _{Aii}^{2}.$&lt;/span&gt; Indeed if &lt;span class=&quot;math-container&quot;&gt;$v^{T}\left( \Omega _{B}-\Omega&#xA;_{A}\right) v&amp;gt;0$&lt;/span&gt; for any &lt;span class=&quot;math-container&quot;&gt;$v\neq 0$&lt;/span&gt; then for &lt;span class=&quot;math-container&quot;&gt;$v=e_{i}$&lt;/span&gt; we catch the diagonal&#xA;terms out of &lt;span class=&quot;math-container&quot;&gt;$\Omega _{B}-\Omega _{A}$&lt;/span&gt; and find that &lt;span class=&quot;math-container&quot;&gt;$\sigma&#xA;_{Bii}^{2}&amp;gt;\sigma _{Aii}^{2}.$&lt;/span&gt; The converse, however, it is not true: the&#xA;mere conditions &lt;span class=&quot;math-container&quot;&gt;$\sigma _{Bii}^{2}&amp;gt;\sigma _{Aii}^{2}$&lt;/span&gt; do not garantee that &lt;span class=&quot;math-container&quot;&gt;$&#xA;\Omega _{B}-\Omega _{A}$&lt;/span&gt; be positive definite. Covariances matter.  &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;The answer to your second question is: no it never happens that &lt;span class=&quot;math-container&quot;&gt;$\sigma _{Bii}^{2}&amp;lt;\sigma _{Aii}^{2}$&lt;/span&gt; when &lt;span class=&quot;math-container&quot;&gt;$\Omega _{B}&amp;gt;&amp;gt;\Omega _{A}$&lt;/span&gt;.  &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The answer to your first question is: it is important to consider all covariance terms. If we want that the confidence ellipse (at any threshold) of &lt;span class=&quot;math-container&quot;&gt;$\widehat{\theta }_{A}$&lt;/span&gt; be nested within the confidence ellipse of &lt;span class=&quot;math-container&quot;&gt;$\widehat{\theta }_{B}$&lt;/span&gt; then we need &lt;span class=&quot;math-container&quot;&gt;$\Omega _{A}&amp;lt;&amp;lt;\Omega _{B}$&lt;/span&gt; and not just &lt;span class=&quot;math-container&quot;&gt;$\sigma _{Aii}^{2}&amp;lt;\sigma _{Bii}^{2}$&lt;/span&gt;.   &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;See Ruud, (2001, chapter 9) for a proof and detailed explanations. An example is provided here, illustrating that the confidence ellipses are nested when &lt;span class=&quot;math-container&quot;&gt;$\Omega _{B}-\Omega _{A}$&lt;/span&gt; positive definite, and not nested if &lt;span class=&quot;math-container&quot;&gt;$\Omega _{B}-\Omega _{A}$&lt;/span&gt; is not positive definite.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Example: &#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{eqnarray*}&#xA;\widehat{\theta }_{A}\left( a\right) &amp;amp;\sim &amp;amp;\mathcal{N}\left( 0,\Omega&#xA;_{A}\left( a\right) \right) ,\qquad \widehat{\theta }_{B}\sim \mathcal{N}%&#xA;\left( 0,\Omega _{B}\right) \\&#xA;\Omega _{A}\left( a\right) &amp;amp;=&amp;amp;\left( &#xA;\begin{array}{cc}&#xA;4 &amp;amp; a \\ &#xA;a &amp;amp; 9%&#xA;\end{array}%&#xA;\right) ,\qquad \Omega _{B}=\left( &#xA;\begin{array}{cc}&#xA;5 &amp;amp; 0 \\ &#xA;0 &amp;amp; 10%&#xA;\end{array}%&#xA;\right).&#xA;\end{eqnarray*}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For &lt;span class=&quot;math-container&quot;&gt;$a=0$&lt;/span&gt; the matrix &lt;span class=&quot;math-container&quot;&gt;$\Omega _{B}-\Omega _{A}\left( 0\right) $&lt;/span&gt; is positive&#xA;definite and the &lt;span class=&quot;math-container&quot;&gt;$95\%$&lt;/span&gt; threshold confidence ellipses are nested. The Figure&#xA;below (left panel) represents the iso-curves centered on &lt;span class=&quot;math-container&quot;&gt;$\theta _{0}=0$&lt;/span&gt; and&#xA;whose equations are given by &lt;span class=&quot;math-container&quot;&gt;$v^{T}\left( \Omega _{A}\left( 0\right) \right)&#xA;^{-1}v=5.99$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$x^{T}\Omega _{B}^{-1}x=5.99$&lt;/span&gt; and illustrates that for &lt;span class=&quot;math-container&quot;&gt;$a=0$&lt;/span&gt;&#xA;the later is nested within the former. This is no longer true for &lt;span class=&quot;math-container&quot;&gt;$a=-5$&lt;/span&gt;&#xA;(right panel) in which case &lt;span class=&quot;math-container&quot;&gt;$\Omega _{B}-\Omega _{A}\left( -5\right) $&lt;/span&gt; is no&#xA;longer positive definite. In this case the probability that &lt;span class=&quot;math-container&quot;&gt;$\widehat{\theta &#xA;}_{A}$&lt;/span&gt; is further away than &lt;span class=&quot;math-container&quot;&gt;$\widehat{\theta }_{B}$&lt;/span&gt; from the true value &lt;span class=&quot;math-container&quot;&gt;$%&#xA;\theta _{0}=0$&lt;/span&gt; is positive, and &lt;span class=&quot;math-container&quot;&gt;$\widehat{\theta }_{A}$&lt;/span&gt; is no longer&#xA;efficient (case with &lt;span class=&quot;math-container&quot;&gt;$a=-5$&lt;/span&gt;) relatively to &lt;span class=&quot;math-container&quot;&gt;$\widehat{\theta }_{B}$&lt;/span&gt;. Note&#xA;that the variances always satisfy &lt;span class=&quot;math-container&quot;&gt;$\sigma _{Bii}^{2}&amp;gt;\sigma _{Aii}^{2}$&lt;/span&gt; but&#xA;this is not sufficient for the ellipses to be nested, the covariances must&#xA;also satisfy &lt;span class=&quot;math-container&quot;&gt;$\left( \sigma _{B11}^{2}-\sigma _{A11}^{2}\right) \left(&#xA;\sigma _{B22}^{2}-\sigma _{A22}^{2}\right) -\left( \sigma _{B12}-\sigma&#xA;_{A12}\right) ^{2}&amp;gt;0$&lt;/span&gt;, which is not the case in this example for &lt;span class=&quot;math-container&quot;&gt;$a=-5$&lt;/span&gt;.&#xA;&lt;a href=&quot;https://i.stack.imgur.com/eGGuO.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/eGGuO.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="20576" LastEditorUserId="20576" LastEditDate="2019-01-23T16:16:04.643" LastActivityDate="2019-01-23T16:16:04.643" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="26544" PostTypeId="1" AcceptedAnswerId="26553" CreationDate="2019-01-22T13:22:36.377" Score="1" ViewCount="64" Body="&lt;p&gt;&lt;strong&gt;Statement:&lt;/strong&gt; If a monopoly is producing a quantity for which its MR is negative, its total profit cannot be positive.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this statement correct or incorrect, and why?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've read a lot about this, but sources tend to discuss maximizing profitability, while the question above presumes that MR &amp;lt; 0 (and obviously smaller than MC) but wonders about profitability in this scenario.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My hunch is that yes, it is possible, but I'm struggling to prove it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit: this getting downvoted is the reason why SE is deteriorating at the rate it is. I’ll go look for a more welcoming community.&lt;/p&gt;&#xA;" OwnerUserId="20861" LastEditorUserId="20861" LastEditDate="2019-01-22T16:48:53.743" LastActivityDate="2019-01-25T07:32:05.467" Title="microeconmics: can a monopolistic firm be profitable if its marginal revenue is negative?" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="5" FavoriteCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26545" PostTypeId="1" AcceptedAnswerId="26546" CreationDate="2019-01-22T13:59:43.337" Score="1" ViewCount="70" Body="&lt;p&gt;In that paper, they consider the following production function:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$Y = F(A_KK,A_LL)$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;K denotes capital, L is labor, and &lt;span class=&quot;math-container&quot;&gt;$A_K$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$A_L$&lt;/span&gt; denote capital-augmenting&#xA;  and labor-augmenting technology, respectively. We assume throughout&#xA;  that F is continuously differentiable, concave, and exhibits constant&#xA;  returns to scale. Let &lt;span class=&quot;math-container&quot;&gt;$F_K$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$F_L$&lt;/span&gt; denote the derivatives of F with&#xA;  respect to capital and labor. We focus on competitive labor markets,&#xA;  which implies that the equilibrium wages is equal to the marginal&#xA;  product of labor:&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$W = A_L F_L(A_KK,A_LL)$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why? Shouldn't simply be:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$W = F_L(A_KK,A_LL)$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Without the &lt;span class=&quot;math-container&quot;&gt;$A_L$&lt;/span&gt; multiplying the derivative?&lt;/p&gt;&#xA;" OwnerUserId="17875" LastActivityDate="2019-01-22T15:04:29.407" Title="Factor-augmenting technologies (Acemoglu and Restrepo 2018c)" Tags="&lt;macroeconomics&gt;&lt;labor-economics&gt;&lt;theory&gt;&lt;technology&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26546" PostTypeId="2" ParentId="26545" CreationDate="2019-01-22T15:04:29.407" Score="2" Body="&lt;p&gt;Chain rule! To make it simple call &lt;span class=&quot;math-container&quot;&gt;$\tilde{L} = A_L L$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\tilde{K} = A_K K$&lt;/span&gt;, so that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;Y = F(\tilde{K}, \tilde{L})&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;so that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\frac{\partial Y}{\partial L} = \frac{\partial \tilde{L}}{\partial L}\frac{\partial F}{\partial \tilde{L}} = A_L F_L(A_K K, A_L L)&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;the trick here is that you should read &lt;span class=&quot;math-container&quot;&gt;$F_L$&lt;/span&gt; as the derivative of &lt;span class=&quot;math-container&quot;&gt;$F$&lt;/span&gt; with respect to its second argument.&lt;/p&gt;&#xA;" OwnerUserId="14419" LastActivityDate="2019-01-22T15:04:29.407" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="26547" PostTypeId="1" AcceptedAnswerId="26551" CreationDate="2019-01-22T15:51:44.253" Score="0" ViewCount="375" Body="&lt;p&gt;Out of these options,&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;shampoo&lt;/li&gt;&#xA;&lt;li&gt;apples&lt;/li&gt;&#xA;&lt;li&gt;ice cream&lt;/li&gt;&#xA;&lt;li&gt;hotels&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Why is &lt;strong&gt;apple&lt;/strong&gt; considered to be the best example of commodity in a perfectly competitive industry? And Why not others?&lt;/p&gt;&#xA;" OwnerUserId="16437" LastActivityDate="2019-01-23T09:21:02.590" Title="In a perfectly competitive industry, why is apple considered best example of commodity?" Tags="&lt;microeconomics&gt;&lt;production-function&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ClosedDate="2019-01-24T11:53:43.220" ContentLicense="CC BY-SA 4.0" />
  <row Id="26548" PostTypeId="1" AcceptedAnswerId="30564" CreationDate="2019-01-22T16:43:56.460" Score="0" ViewCount="661" Body="&lt;p&gt;If &lt;span class=&quot;math-container&quot;&gt;$U_A(x_A,y_A)=x_Ay_A$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$U_B(x_B,y_B)=min(x_B,y_B)$&lt;/span&gt; and the total endowments are (8,4), is the Pareto set given by the line joining the kinks of B (black line shown in the diagram)? Shouldn't the bottom left origin and the flat portion on the horizontal axis also be Pareto efficient?&#xA;Suppose we are at the bottom left origin, there is no way to improve one person's utility without hurting the other. By this definition, the origin should be included in the Pareto set. Please point out any flaw in the logic.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/nm8wq.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/nm8wq.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="18507" LastEditorUserId="18507" LastEditDate="2019-01-24T04:33:37.200" LastActivityDate="2019-08-28T17:06:00.840" Title="Pareto set with Cobb-Douglas and Leontief preferences" Tags="&lt;general-equilibrium&gt;&lt;pareto-efficiency&gt;&lt;leontief&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26549" PostTypeId="1" CreationDate="2019-01-22T17:14:03.853" Score="3" ViewCount="188" Body="&lt;p&gt;If protectionism is injurious to a state, is the success of mercantilist China &lt;em&gt;in spite of&lt;/em&gt; its protectionist measures?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Furthermore, if the academic consensus is that most instances of protectionism are akin to using self-harm in retaliation to a perceived offensive measure, why is it still so prevalent (for example the EU Common Agricultural Policy)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;References:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Protectionism is used for a number of reasons, some of which are&#xA;  outlined here, but is generally acknowledged to be ineffective and&#xA;  harmful to a country’s economic interests in the longer term. This is&#xA;  because it prevents the mutual gains from trade being realised, and,&#xA;  by restricting competition, limits the incentives for firms to improve&#xA;  their efficiency.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/43315/11-718-protectionism.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/43315/11-718-protectionism.pdf&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Our main conclusion is that, in all the scenarios we consider,&#xA;  protectionism is not an effective tool for macroeconomic stimulus.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.nber.org/papers/w24353&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.nber.org/papers/w24353&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="5505" LastEditorUserId="5505" LastEditDate="2019-01-25T11:09:40.370" LastActivityDate="2019-01-25T11:09:40.370" Title="If protectionism is injurious to a state, is the success of mercantilist China in spite of its protectionist measures?" Tags="&lt;protectionism&gt;" AnswerCount="2" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="26551" PostTypeId="2" ParentId="26547" CreationDate="2019-01-22T20:28:25.177" Score="3" Body="&lt;p&gt;In a perfectly competitive industry model, out of the examples given, the apple is the commodity with the least differentiation in the market. It is considered to be a &lt;strong&gt;homogeneous product&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A person (in this model) is unlikely to care about finding a specific type of apple from a certain company that uses a certain type of advertising. They just want to buy &quot;an apple.&quot; All things being equal, they will probably just purchase the apple with the lowest price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The other examples of shampoo, hotels, and ice cream are &lt;strong&gt;heterogeneous&lt;/strong&gt;  in that these products have many ways of distinguishing their features from competing products. Design, advertising, packaging, utility, and other features stand out in addition to sensory features. Pricing can vary significantly since suppliers can make their products stand out from competing products.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;(In reality, apples have a lot of variation, but in the model of perfect competition we just assume apples are of about identical size, taste, texture, weight, shape, etc. Apples are a classic example of a homogenous commodity, but not a perfect one because apples are not identical in the real world. However, they are probably more similar to a consumer comparing products than the other given options.)&lt;/em&gt;&lt;/p&gt;&#xA;" OwnerUserId="20812" LastActivityDate="2019-01-22T20:28:25.177" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26553" PostTypeId="2" ParentId="26544" CreationDate="2019-01-22T22:16:45.960" Score="2" Body="&lt;p&gt;As a counterexample to the statement, consider the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let demand be &lt;span class=&quot;math-container&quot;&gt;$p=10-q$&lt;/span&gt;, so that &lt;span class=&quot;math-container&quot;&gt;$MR=10-2q$&lt;/span&gt;. Suppose there’s no cost, so that profit equals revenue. If the monopolist produces at &lt;span class=&quot;math-container&quot;&gt;$q=6$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$MR=-2&amp;lt;0$&lt;/span&gt;, but &lt;span class=&quot;math-container&quot;&gt;$TR=(10-6)6=24&amp;gt;0$&lt;/span&gt;, thus contradicting the statement. &lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2019-01-22T22:16:45.960" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="26554" PostTypeId="2" ParentId="26549" CreationDate="2019-01-23T02:15:46.007" Score="4" Body="&lt;p&gt;I am not an expert on this issue, but pending an expert's answer on this matter, here are my two cents.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;1. It is not true that there is a consensus that protectionism is almost always a bad thing for a country.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Many slightly non-orthodox economists (e.g. Dani Rodrik, Chang Ha-Joon) have pointed out that protectionism is a perfectly good strategy that many developing/industrializing countries have adopted, including the US in the 19th century, Japan and Korea in the 20th, and now China in the 21st.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I believe Rodrik and Chang's main argument for protectionism in this context is the infant industry argument. Another argument is the second-best argument. See &lt;a href=&quot;https://economics.stackexchange.com/a/20867/18&quot;&gt;this other answer of mine&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;2. China's protectionism has been selective.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In my vague impression as a non-expert, in most industries in which China exports heavily (except perhaps steel), there has been little protection and great competition. Think for example of clothing and the electronics manufacturing base centered around the Pearl River Delta and Shenzhen. These are industries in which every cost advantage and innovation are ruthlessly and instantly seized upon, to the advantage of both producers and consumers (including consumers around the world).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I believe the IT industry is where China engages most heavily in protectionism. As is well known to the man on the street, many technology platforms like Google, Facebook, and YouTube do not operate in China either because they have been outright banned or because of the onerous censorship requirements. The result is that local substitutes have flourished (Baidu/Sogou for search, WeChat/Weibo/QQ for social media, Tudou for video, Taobao/Alibaba for ecommerce) and Tencent and Alibaba are among the worlds largest firms, even though most people outside China may know little of them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But perhaps the greater bone of contention is China's &quot;theft&quot; of intellectual property (IP). As an explicit/implicit condition of entry, tech firms trying to enter China are usually forced to hand over their IP. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Again, these are merely my vague impressions and hopefully an expert can back these up or correct me with more concrete facts and statistics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;3. One argument against protectionism is that it provokes retaliation, which can be damaging.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, for the past many decades, the many countries to which China exports have shown great restraint and retaliated little. These are for reasons that I am not sure about and which I hope an expert will explain. (Perhaps this is simply the same restraint that has been somewhat shown -- not always consistently and often arbitrarily -- to other developing countries in the past.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is now changing with the aggressive trade war launched by Trump and there are now indeed fears and perhaps even signs that China may be suffering as a result of this trade war. Huawei and ZTE are two Chinese companies that have suffered heavily from the US's uncertain on-and-off bans in the past year.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This however is to not to say that Trump's trade war is the best approach. See for example this recent piece by the right-wing, pro-trade Cato Institute (&lt;a href=&quot;https://www.cato.org/publications/policy-analysis/disciplining-chinas-trade-practices-wto-how-wto-complaints-can-help&quot; rel=&quot;noreferrer&quot;&gt;&quot;Disciplining China’s Trade Practices at the WTO - How WTO Complaints Can Help Make China More Market-Oriented&quot;, Nov 2018&lt;/a&gt;). I think many economists would agree that if China does indeed engage in protectionism and one wishes to retaliate, then the means of retaliation should be through multilateral, rules-based organizations like the WTO, and not unilateral, arbitrary trade wars such as those currently being undertaken by Trump.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;4. Your example of the EU Common Agricultural Policy.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think economists are almost universally agreed that protection for agriculture in rich countries is bad for most parties (the only beneficiaries being the farmers who receive the subsidies). I have never come across any modern economist defending any such policies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Besides, I am not aware that China engage in much agricultural protectionism and indeed, I don't think this is what people think of when talking of China's protectionism. (Recently China has imposed heavier tariffs on pork and soybeans imports from the US, but these I believe are merely strategic retaliatory measures against Trump's trade war.)&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastEditorDisplayName="user18" LastEditDate="2019-01-23T02:27:06.747" LastActivityDate="2019-01-23T02:27:06.747" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26555" PostTypeId="2" ParentId="26548" CreationDate="2019-01-23T02:34:47.347" Score="3" Body="&lt;p&gt;The bottom right origin is actually not in the Pareto set.  At that point, &lt;span class=&quot;math-container&quot;&gt;$(x_A,y_A)=(8,0)$&lt;/span&gt;, so &lt;span class=&quot;math-container&quot;&gt;$U_A(x_A,y_A)=0$&lt;/span&gt;.  Similarly, &lt;span class=&quot;math-container&quot;&gt;$(x_B,y_B)=(0,4)$&lt;/span&gt;, so &lt;span class=&quot;math-container&quot;&gt;$U_B(x_B,y_B)=0$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As an example, &lt;span class=&quot;math-container&quot;&gt;$B$&lt;/span&gt; could give one unit of &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; to &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt; and thereby raise &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt;'s utility to 8 without hurting &lt;span class=&quot;math-container&quot;&gt;$B$&lt;/span&gt;'s own utility (which would remain zero).  As a matter of fact, any allocation other than the top left origin is a Pareto improvement over the bottom right origin.&lt;/p&gt;&#xA;" OwnerUserId="10043" LastActivityDate="2019-01-23T02:34:47.347" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26556" PostTypeId="2" ParentId="26533" CreationDate="2019-01-23T02:37:20.093" Score="0" Body="&lt;p&gt;The principal faces two constraints: The individual rationality (IR, or participation) constraint: &#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;pu(w_H)+(1-p)u(w_L)-e_H\ge \overline u, \tag{IR}&#xA;\end{equation}&lt;/span&gt;&#xA;and the incentive compatibility (IC) constraint: &#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;pu(w_H)+(1-p)u(w_L)-e_H\geq qu(w_H)+(1-q)u(w_L)-e_L. \tag{IC}&#xA;\end{equation}&lt;/span&gt;&#xA;Suppose IR holds with &lt;span class=&quot;math-container&quot;&gt;$&amp;gt;$&lt;/span&gt;, i.e. it doesn't bind. Then it means principal is paying too much for the bad outcome; the principal can increase profit by lowering &lt;span class=&quot;math-container&quot;&gt;$w_L$&lt;/span&gt; without violating either IR (by supposition it's not binding) or IC (since &lt;span class=&quot;math-container&quot;&gt;$p&amp;gt;q$&lt;/span&gt;). It follows that IR must hold with &lt;span class=&quot;math-container&quot;&gt;$=$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now that IR binds, if IC doesn't, then it means the principal is &quot;over-paying&quot; the agent to induce high effort. In particular, it must be that the principal is over-paying for the good outcome. To increase profit, the principal could reduce &lt;span class=&quot;math-container&quot;&gt;$w_H$&lt;/span&gt;. At the same time, to ensure that IR is not violated, &lt;span class=&quot;math-container&quot;&gt;$w_L$&lt;/span&gt; has to increase by an appropriate amount so that IR still binds. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lowering &lt;span class=&quot;math-container&quot;&gt;$w_H$&lt;/span&gt; and raising &lt;span class=&quot;math-container&quot;&gt;$w_L$&lt;/span&gt; effectively reduces the risk in the agent's compensation, since the two outcomes are now closer. As a result, the efficiency cost incurred by letting the agent bear risk due to incomplete information is reduced. The saving would thus accrue to the principal as profit. Therefore, IC must bind at the optimum.  &lt;/p&gt;&#xA;" OwnerUserId="42" LastEditorUserId="42" LastEditDate="2019-01-24T20:32:38.573" LastActivityDate="2019-01-24T20:32:38.573" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="26557" PostTypeId="1" CreationDate="2019-01-23T05:38:24.593" Score="1" ViewCount="24" Body="&lt;p&gt;My question is about &lt;a href=&quot;https://scholar.harvard.edu/files/mankiw/files/jep.ballmankiw.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;NAIRU&lt;/a&gt; (&lt;em&gt;Non-Accelerating Inflation Rate of Unemployment&lt;/em&gt;) and its relevance with respect to the European Central Bank's monetary policy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have read somewhere that &lt;em&gt;Philips Curve&lt;/em&gt; have been discredited because they are considered too simplistic. Is that the case for NAIRU as well? As I understand it, NAIRU estimates can have catastrophic error factors. Are economist capable of estimating it reliably? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Bonus points if you can provide some practical context about its relevance (or lack thereof) with respect to the eurozone. Or orient me to resources that would help.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://scholar.harvard.edu/files/mankiw/files/jep.ballmankiw.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;1&lt;/a&gt; Ball, L., &amp;amp; Mankiw, N. G. (2002). The NAIRU in theory and practice. Cambridge, MA: National Bureau of Economic Research.&lt;/p&gt;&#xA;" OwnerUserId="20810" LastActivityDate="2019-01-23T05:38:24.593" Title="Does the European Central Bank still conduct monetary policy under the assumption of NAIRU?" Tags="&lt;econometrics&gt;&lt;monetary-policy&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26562" PostTypeId="1" CreationDate="2019-01-23T18:20:37.667" Score="2" ViewCount="21" Body="&lt;p&gt;I've been doing some self study on the Almost Ideal Demand System, and have been hearing a lot about the Rotterdam demand system developed by &lt;a href=&quot;https://en.wikipedia.org/wiki/Henri_Theil&quot; rel=&quot;nofollow noreferrer&quot;&gt; Henri Theil&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've been looking for resources on google scholar that provide an overview on it however I'm having difficulty finding anything comprehensive. Anyone on Econ.SE with slides/papers to reccomend or have a basic overview of the model they can share here?&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2019-01-23T18:20:37.667" Title="Resources on the Rotterdam demand system" Tags="&lt;econometrics&gt;&lt;reference-request&gt;&lt;demand-system-estimation&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26563" PostTypeId="1" CreationDate="2019-01-23T19:00:25.143" Score="2" ViewCount="16" Body="&lt;p&gt;Some precious metal price come almost exclusively from their value as an investement, as gold, while some others like palladium or osmium have important uses in industries. But lately those metals also gained attention as a location of capital. Are there some estimations of how much of the price come from use as ivestement vs use in industry and others?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Precious_metal&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://en.wikipedia.org/wiki/Precious_metal&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="16292" LastActivityDate="2019-01-23T19:00:25.143" Title="How much precious metals prices come from their use as investement vs practical use" Tags="&lt;investment&gt;&lt;price&gt;&lt;value&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26566" PostTypeId="1" CreationDate="2019-01-24T02:29:13.840" Score="2" ViewCount="157" Body="&lt;p&gt;I am looking at the proof of NE survives the iterated removal of strictly dominated strategies (MWG, ex 8.D.2) and in the solution manual, authors say something like if a mixed strategy is strictly dominated (by another mixed strategy say s), then we can find a pure strategy in the support of that strictly dominated mixed strategy that is strictly dominated (by s). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My intuition told me that this statement is (of course) correct, but can someone give me a hint on how to show it formally?&lt;/p&gt;&#xA;" OwnerUserId="20875" LastEditorUserId="11590" LastEditDate="2020-11-17T23:43:59.130" LastActivityDate="2020-11-17T23:43:59.130" Title="If a mixed strategy is strictly dominated, then there is a strictly dominated pure strategy in its support?" Tags="&lt;game-theory&gt;&lt;nash-equilibrium&gt;&lt;mwg&gt;" AnswerCount="0" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="26568" PostTypeId="1" AcceptedAnswerId="26625" CreationDate="2019-01-24T04:25:56.660" Score="4" ViewCount="200" Body="&lt;p&gt;I am curious about &lt;em&gt;how&lt;/em&gt; government purchases crowd out the private sector (if it does). If we look at a graph of the composition of US GDP, it seems that government purchases and investment are somewhat negatively correlated. It's obvious during WWII that government purchases skyrocketed while investment shrank significantly.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am wondering about the intuition behind why this happens. If I had to guess, it's because at a given snapshot in time, the capital and labor in the economy is limited, and if the government is spending more money to use capital goods and labor, then there are less capital goods to go around for the investment. Is that line of thinking correct?&lt;/p&gt;&#xA;" OwnerUserId="20877" LastActivityDate="2020-10-02T01:26:05.480" Title="How do government purchases crowd out the private sector?" Tags="&lt;gdp&gt;&lt;investment&gt;&lt;government-spending&gt;" AnswerCount="3" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26570" PostTypeId="1" CreationDate="2019-01-24T06:15:20.937" Score="0" ViewCount="471" Body="&lt;p&gt;Assume  a random sample X1, ..., Xn with a normal distribution with mean μ and variance σ2.  How do we know the following estimator is unbiased, but inconsistent?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/ScSm5.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/ScSm5.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="20878" LastActivityDate="2019-01-26T16:10:34.133" Title="Unbiased but inconsistent estimator" Tags="&lt;econometrics&gt;&lt;regression&gt;" AnswerCount="2" CommentCount="1" ClosedDate="2019-02-01T23:26:46.927" ContentLicense="CC BY-SA 4.0" />
  <row Id="26574" PostTypeId="1" CreationDate="2019-01-24T11:26:57.117" Score="1" ViewCount="260" Body="&lt;p&gt;I understand the fact that marginal revenue is less than price because in the monopoly firm faces a downward sloping demand curve.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As well as, by expanding output firm is going to lower the all the cost of its previous outputs as well.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, I don't fully get the picture how this is appropriate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there any good example in real life?&lt;/p&gt;&#xA;" OwnerUserId="20269" LastActivityDate="2019-01-24T15:25:03.897" Title="Reason for marginal revenue is less than price in monopoly" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="0" ClosedDate="2019-02-15T19:48:39.460" ContentLicense="CC BY-SA 4.0" />
  <row Id="26575" PostTypeId="1" CreationDate="2019-01-24T15:00:57.720" Score="0" ViewCount="58" Body="&lt;p&gt;Suppose that you have to estimate a Non-linear production function (for instance a Cobb-Douglas or a CES) by using Non-linear LS (and hence without log-linearization). You have just aggregate time series on GDP at constant prices, the Capital stock at constant prices and the level of Employment. What kind of adjustment should be done to the variable in order to obtain consistent estimation of the parameters?&lt;/p&gt;&#xA;" OwnerUserId="19586" LastActivityDate="2019-02-26T02:31:09.727" Title="Estimation of a Non-linear production function with Non-linear least squares" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;econometrics&gt;&lt;mathematical-economics&gt;&lt;statistics&gt;" AnswerCount="0" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="26576" PostTypeId="2" ParentId="26570" CreationDate="2019-01-24T15:15:15.823" Score="1" Body="&lt;p&gt;When an estimator is consistent, the sampling distribution of the estimator converges to the true parameter value being estimated as the sample size increases.&lt;/p&gt;&#xA;" OwnerUserId="20883" LastActivityDate="2019-01-24T15:15:15.823" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26578" PostTypeId="2" ParentId="26574" CreationDate="2019-01-24T15:25:03.897" Score="0" Body="&lt;p&gt;Most internet providers rarely consider to decrease their price to win market shares. One possible reason could be because the additional revenue P(Y) from a new costumer joining the provider, would not compensate for the total loss of revenue P'(Y)Y from the group of regular subscribers (Y = several millions?). Instead, most providers invest a lot of effort to discriminate between these two groups and try to propose interesting prices only for new subscribers.&#xA;In &quot;real life&quot;, you may not observe such a foolish thing, and will find only few concrete examples of monopolies having reduced their price in the hope of winning market shares. It is not because you do not observe such a behavior, that monopoly theory is useless. Quite the contrary, the chapter explains why you rarely observe such a foolish behavior.&lt;/p&gt;&#xA;" OwnerUserId="20576" LastActivityDate="2019-01-24T15:25:03.897" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26580" PostTypeId="1" AcceptedAnswerId="30085" CreationDate="2019-01-24T17:09:29.030" Score="3" ViewCount="459" Body="&lt;p&gt;There is a market economy with technology given by:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$Y = K^\alpha L^{1-\alpha} \tag{1}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Firms behave competitively and input prices are:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$r = \alpha K^{\alpha-1}L^{1-\alpha} = \alpha(\frac{L}{K})^{1-\alpha} \tag{2} $$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$w = (1-\alpha) K^\alpha L^{-\alpha} = (1-\alpha) (\frac{L}{K})^{-\alpha} \tag{3}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can solve for &lt;span class=&quot;math-container&quot;&gt;$\frac{L}{K}$&lt;/span&gt;, and obtain the following expression:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$r = \alpha (1-\alpha)^{\frac{1-\alpha}{\alpha}}w^{\frac{\alpha-1}{\alpha}} \tag{4}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which is a function that links the prices independently of the inputs combination. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) Is this correct?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) What is the economic interpretation of the last result?&lt;/p&gt;&#xA;" OwnerUserId="17875" LastEditorUserId="61" LastEditDate="2019-01-24T23:24:34.157" LastActivityDate="2019-07-07T14:52:14.060" Title="Cobb-Douglas production function, given $w$ get $r$ regardless of input levels. Why?" Tags="&lt;macroeconomics&gt;&lt;labor-economics&gt;&lt;production-function&gt;&lt;technology&gt;&lt;capital&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26581" PostTypeId="1" CreationDate="2019-01-24T17:24:13.000" Score="0" ViewCount="27" Body="&lt;p&gt;Suppose I have the following relationship between output &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt;, capital stock &lt;span class=&quot;math-container&quot;&gt;$k$&lt;/span&gt; and total factor productivity &lt;span class=&quot;math-container&quot;&gt;$tfp$&lt;/span&gt;,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\frac{\partial y}{\partial t}=\frac{\partial k}{\partial tfp}*\frac{\partial tfp}{\partial t}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then taking the logs, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ln\bigg(\frac{\partial y}{\partial t}\bigg)=ln\bigg(\frac{\partial k}{\partial tfp}*\frac{\partial tfp}{\partial t}\bigg)$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ \iff \%\Delta y= \%\Delta k_{tfp}+\%\Delta tfp_t$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where the last equation is the percentage change in &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; as the sum of the elasticity of &lt;span class=&quot;math-container&quot;&gt;$k$&lt;/span&gt; to &lt;span class=&quot;math-container&quot;&gt;$tfp$&lt;/span&gt; and the change in &lt;span class=&quot;math-container&quot;&gt;$tfp$&lt;/span&gt; over time. Am I evaluating these logs correctly?&lt;/p&gt;&#xA;" OwnerUserId="20253" LastActivityDate="2019-01-24T17:24:13.000" Title="Logs and percentage change in equation" Tags="&lt;microeconomics&gt;&lt;economic-growth&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="26582" PostTypeId="2" ParentId="26580" CreationDate="2019-01-24T17:31:29.327" Score="3" Body="&lt;p&gt;A clarification: The values &lt;span class=&quot;math-container&quot;&gt;$w,r$&lt;/span&gt; are not independent of input combinations: you have already solved for &lt;span class=&quot;math-container&quot;&gt;$K/L$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) Unless you assume that the price of the output is equal to 1, there is a minor mistake, as output prices affect factor prices.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) If there is a profit maximizing pair &lt;span class=&quot;math-container&quot;&gt;$(K,L)$&lt;/span&gt;, then for all &lt;span class=&quot;math-container&quot;&gt;$\alpha \in \mathbb{R}_+$&lt;/span&gt; &lt;span class=&quot;math-container&quot;&gt;$(\alpha K,\alpha L)$&lt;/span&gt; will also be profit maximizing. This is because the production function you are looking at has constant returns to scale (CRS). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A consequence of CRS is that if the function is differentiable then both marginal products will be homogeneous of degree zero, hence &lt;span class=&quot;math-container&quot;&gt;$r$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt; will only determine the ratios of &lt;span class=&quot;math-container&quot;&gt;$K$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$L$&lt;/span&gt;, not their level.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2019-01-24T17:31:29.327" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="26583" PostTypeId="2" ParentId="26580" CreationDate="2019-01-24T23:23:37.567" Score="3" Body="&lt;p&gt;This is a subtle issue. First let's present a numerical example to see the head-scratching riddle.&#xA;Assume &lt;span class=&quot;math-container&quot;&gt;$$\alpha =1/2 \implies Y = K^{1/2}L^{1/2}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and that the exogenously given input prices are &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$r=1/8,\,\, w=4.$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The f.o.c are&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\begin{cases} \frac {Y}{2K} = 1/8 \\&#xA;\\&#xA;\frac{Y}{2L} = 4 \end{cases} \implies K/4 = 8L \implies \left(L/K\right)^* = 1/32$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This gives us the value of &lt;span class=&quot;math-container&quot;&gt;$L/K$&lt;/span&gt; that satisfies both first-order conditions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But let's follow the OP's logic, and write/solve the f.o.c. as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\begin{cases} \frac {K^{1/2}L^{1/2}}{2K} = 1/8 \\&#xA;\\&#xA;\frac{K^{1/2}L^{1/2}}{2L} = 4 \end{cases} \implies \begin{cases} \frac {L}{K} = 1/16 \\&#xA;\\&#xA;\frac{L}{K} = 1/64 \end{cases}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Oops.&lt;/strong&gt; The system now seems impossible. But it appears that just above we have solved the exact same system. And we didn't do any illegal math operation, like dividing by zero or anything so how is it possible to obtain the above contradictory results?...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But indeed we did something &quot;illegal&quot;, although not in terms of mathematical operations in the narrow sense: by solving each f.o.c. &lt;strong&gt;&lt;em&gt;separately&lt;/em&gt;&lt;/strong&gt; with respect to &lt;span class=&quot;math-container&quot;&gt;$L/K$&lt;/span&gt; we transformed a problem of optimizing a bivariate function that &lt;em&gt;leads&lt;/em&gt; to a system with two unknowns and two equations, into a problem of directly solving a system with &lt;em&gt;&lt;strong&gt;one&lt;/strong&gt;&lt;/em&gt; unknown (&lt;span class=&quot;math-container&quot;&gt;$L/K$&lt;/span&gt;), and two equations.&lt;br&gt;&#xA;No surprise then that it will have a solution only for specific combinations of the exogenous parameters, which is expressed by eq. &lt;span class=&quot;math-container&quot;&gt;$(4)$&lt;/span&gt; of the OP.  But this is no longer  the profit maximizing problem of the competitive firm. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another way to say it is that, given that what is treated as exogenous here is the input prices, not all input ratios satisfy the f.o.c. &lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2019-01-25T11:57:17.003" LastActivityDate="2019-01-25T11:57:17.003" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="26586" PostTypeId="1" CreationDate="2019-01-25T03:09:59.620" Score="0" ViewCount="44" Body="&lt;p&gt;In the &lt;em&gt;Sydney Morning Herald&lt;/em&gt;, May 1982 Galbraith is on record for saying:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Wealth, in even the most improbable of cases, manages to convey an aspect of intelligence.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;As an economist Galbraith would have had a chance to have to observe men with great wealth at close quarters, so one supposes that this acerbic little comment is drawn from life. But did he mean something more important by it, or was it simply a joke on his part at the expense of the wealthy?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;note:&lt;/strong&gt; I’ve tagged it as macroeconomics as I couldn’t hink of the right tag this should be filed under. Any sensible suggestions will be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="13857" LastActivityDate="2019-01-25T05:19:42.910" Title="Is this a joke by Galbraith or did he have something more serious on mimd?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26588" PostTypeId="2" ParentId="26586" CreationDate="2019-01-25T03:33:09.090" Score="1" Body="&lt;p&gt;Not having read the article, I do not know the context in which this quote was made. But I believe it is in line with a view he also expressed elsewhere — that &lt;strong&gt;people mistake wealth for intelligence.&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;p&gt;In e.g. &lt;em&gt;A Short History of Financial Euphoria&lt;/em&gt; (&lt;a href=&quot;https://books.google.com/books?id=MSV2qipgf9IC&amp;amp;pg=PT18&amp;amp;dq=%22The%20basic%20situation%20is%20wonderfully%20clear.%22&quot; rel=&quot;nofollow noreferrer&quot;&gt;1993 edition, pp. 13–16&lt;/a&gt;), he writes:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;The basic situation is wonderfully clear. In all free-enterprise (once called capitalist) attitudes there is a strong tendency to believe that the more money, either as income or assets, of which an individual is possessed or with which he is associated, the deeper and more compelling his economic and social perception, the more astute and penetrating his mental processes. Money is the measure of capitalist achievement. The more money, the greater the achievement and the intelligence that supports it.&lt;/p&gt;&#xA;&lt;p&gt;Further, in a world where for many the acquisition of money is difficult and the resulting sums palpably insufficient, the possession of it in large amount seems a miracle. Accordingly, possession must be associated with some special genius. This view is then reinforced by the air of self-confidence and selfapproval that is commonly assumed by the affluent. On no matter is the mental inferiority of the ordinary layman so rudely and abruptly stated: &amp;quot;I'm afraid that you simply don't understand financial matters. &amp;quot; In fact, such reverence for the possession of money again indicates the shortness of memory, the ignorance of history, and the consequent capacity for self- and popular delusion just mentioned. Having money may mean, as often in the past and frequently in the present, that the person is foolishly indifferent to legal constraints and may, in modern times, be a potential resident of a minimum-security prison. Or the money may have been inherited, and, notoriously, mental acuity does not pass in reliable fashion from parent to offspring. On all these matters, a more careful examination of the presumed financial genius, a sternly detailed interrogation to test his or her intelligence, would frequently and perhaps normally produce a different conclusion. Unfortunately the subject is rarely available for such scrutiny; that, too, wealth or seeming financial competence often excludes.&lt;/p&gt;&#xA;&lt;p&gt;Finally and more specifically, we compulsively associate unusual intelligence with the leadership of the great financial institutionsthe large banking, investment-banking, insurance, and brokerage houses. The larger the capital assets and income flow controlled, the deeper the presumed financial, economic, and social perception.&lt;/p&gt;&#xA;&lt;p&gt;In practice, the individual or individuals at the top of these institutions are often there because, as happens regularly in great organizations, theirs was mentally the most predictable and, in consequence, bureaucratically the least inimical of the contending talent. He, she, or they are then endowed with the authority that encourages acquiescence from their subordinates and applause from their acolytes and that excludes adverse opinion or criticism. They are thus admirably protected in what may be a serious commitment to error.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerDisplayName="user18" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2019-01-25T05:19:42.910" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26589" PostTypeId="1" AcceptedAnswerId="26601" CreationDate="2019-01-25T03:44:17.560" Score="1" ViewCount="135" Body="&lt;p&gt;In the US, the drug &lt;em&gt;sofisbuvir&lt;/em&gt;, brand name &lt;em&gt;sovaldir&lt;/em&gt;, and used to treat  liver disease hepatitis C, was launched with a price tag of $1000 a pill; and in the UK, the manufacturer Gilead recommended a twelve week course that costs £35,000.&lt;/p&gt;&#xA;&lt;p&gt;There are roughly 160,000 people in the UK that require treatment and unprecedentedly the NHS chose to phase the drug in. This obviously has to do with the cost of the drug.&lt;/p&gt;&#xA;&lt;p&gt;Why are so many pharmaceutical drugs so expensive?&lt;/p&gt;&#xA;" OwnerUserId="13857" LastEditorUserId="6168" LastEditDate="2020-08-03T09:57:43.460" LastActivityDate="2020-08-03T09:57:43.460" Title="Why are so many pharmaceutical drugs so expensive?" Tags="&lt;microeconomics&gt;&lt;monopoly&gt;" AnswerCount="2" CommentCount="4" ClosedDate="2019-02-11T15:59:27.450" ContentLicense="CC BY-SA 4.0" />
  <row Id="26591" PostTypeId="2" ParentId="17176" CreationDate="2019-01-25T05:58:31.263" Score="0" Body="&lt;p&gt;According to Hayek in his book &lt;strong&gt;The Road to Serfdom&lt;/strong&gt;, &lt;em&gt;coercion&lt;/em&gt; is actually neccessary for a free market though of course it’s not seen as such as its part of the legal framework within which the free market operates. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, strong &lt;em&gt;regulatory&lt;/em&gt; powers of scrutiny and intervention are required to prevent monopolies from forming; and also to break them up when they have formed. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A perfectly competitive market is a mathematical hypothesis used to understand the broad contours of economic theory. It misses out a great deal - for example, questions of assymmetry and power and where these are invested. &lt;/p&gt;&#xA;" OwnerUserId="13857" LastEditorUserId="13857" LastEditDate="2019-01-25T07:02:13.043" LastActivityDate="2019-01-25T07:02:13.043" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26594" PostTypeId="2" ParentId="11088" CreationDate="2019-01-25T06:21:31.533" Score="0" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Some famous examples of failed infant industries &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The nuclear fusion industry, despite more than half a century of trying through various technical fixes and subterfuges has failed to get anywhere. If it didn’t promise so much it surely would have been killed off by now. &lt;/p&gt;&#xA;" OwnerUserId="13857" LastActivityDate="2019-01-25T06:21:31.533" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26595" PostTypeId="1" CreationDate="2019-01-25T06:24:22.337" Score="0" ViewCount="42" Body="&lt;p&gt;So I'm reading mankiw&quot;s principles of economics and I'm in the chapter about the influence of monetary and fiscal policy on Aggregate demamd. &#xA;The part about nominal Interest rates and liquidity traps left me confused and I didn't really understand what it meant. Can anyone elucidate the role of short run interest rates and their effect on the economy?&#xA;More specifically, can anyone explain this particular paragraph:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;Some economists have suggested that the possibility of hitting the zero lower bound for interest rates justifies setting the target rate of inflation well above zero. Under zero inflation, the real interest rate, like the nominal interest, can never fall below zero. But if the normal rate of inflation is, say, 4 percent, then the central bank can easily push the real interest rate to negative 4 percent by lowering the nominal interest rate toward zero. Thus, moderate inflation gives monetary policymakers more room to stimulate the economy when needed, reducing the risk of hitting the zero lower bound and having the economy fall into a liquidity trap.&quot;&lt;/p&gt;&#xA;" OwnerUserId="19413" LastActivityDate="2019-07-30T20:30:13.640" Title="what is the Relationship between Zero nominal interest rates and liquidity traps" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26596" PostTypeId="1" AcceptedAnswerId="26599" CreationDate="2019-01-25T07:00:35.747" Score="2" ViewCount="89" Body="&lt;p&gt;I find it kind of odd that we are not experiencing any significant inflation recent years despit the low rates and quantitative easings.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there a consensus why this is the case among economists? If not, what are the mos popular explanations?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am refering to countries in weastern EU and USA.&lt;/p&gt;&#xA;" OwnerUserId="8383" LastEditorUserId="8383" LastEditDate="2019-01-25T13:33:45.707" LastActivityDate="2019-01-25T13:33:45.707" Title="Is there consensus on why inflation is not rising?" Tags="&lt;macroeconomics&gt;&lt;inflation&gt;" AnswerCount="2" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="26597" PostTypeId="2" ParentId="26549" CreationDate="2019-01-25T07:14:35.643" Score="-2" Body="&lt;p&gt;It’s difficult to disentangle exactly what you are asking in this question because of the poor grammar.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It’s been pointed out that both the UK and US have both employed protectionist measures to protect their economies before they were judged strong enough to compete. Sometimes these measures can last for some time. For example Ha Joon Chang in his book on the illusions of capitalism wrote that the textile industry in Britain was protected for around a century, if not more. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The modern twist on this is that protectionism can occur whilst still loudly proclaiming the benefits of ‘free trade’. &lt;/p&gt;&#xA;" OwnerUserId="13857" LastActivityDate="2019-01-25T07:14:35.643" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="26599" PostTypeId="2" ParentId="26596" CreationDate="2019-01-25T07:56:25.473" Score="1" Body="&lt;p&gt;If your question is about Europe, yes there is. Inflation took time to rise because commercial banks have used injected liquidities to consolidate their balance sheet instead of stimulating demands by creating credits (that did not previously exist when they make loans). This is called the &lt;a href=&quot;https://en.m.wikipedia.org/wiki/Money_multiplier&quot; rel=&quot;nofollow noreferrer&quot;&gt;money multiplier&lt;/a&gt;. The multiplier was &lt;em&gt;somehow&lt;/em&gt; blocked (to ~&lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt;) because of their precaution behavior.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On &lt;a href=&quot;https://en.wikipedia.org/wiki/Helicopter_money#In_the_Eurozone&quot; rel=&quot;nofollow noreferrer&quot;&gt;March 10, 2016&lt;/a&gt;, the &lt;a href=&quot;https://www.ecb.europa.eu/home/html/index.en.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;ECB&lt;/a&gt; has even considered the possibility of giving 200€ per month and per person to stimulate inflation. And this with the main idea of circumventing the commercial-bank system. This unconventional monetary policy is called &lt;a href=&quot;https://en.m.wikipedia.org/wiki/Helicopter_money&quot; rel=&quot;nofollow noreferrer&quot;&gt;monetary helicopter&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="10247" LastActivityDate="2019-01-25T07:56:25.473" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="26600" PostTypeId="2" ParentId="26596" CreationDate="2019-01-25T08:06:01.983" Score="0" Body="&lt;p&gt;I’m not a professional economist so take what I say with a pinch of salt; but my understanding is that the central bank in Germany, one of the strongest central banks in Europe, has very strong regulations and policies against re-igniting inflation because of the effects of hyper-inflation during the inter-war period. &lt;/p&gt;&#xA;" OwnerUserId="13857" LastActivityDate="2019-01-25T08:06:01.983" CommentCount="7" ContentLicense="CC BY-SA 4.0" />
  <row Id="26601" PostTypeId="2" ParentId="26589" CreationDate="2019-01-25T08:22:01.353" Score="5" Body="&lt;p&gt;Prices are high because drug firms have monopoly power, granted to them by the patent system. In addition the demand for the drugs is fairly inelastic because once you fall seriously ill you're often willing to pay a high price for the cure. If your insurance covers it, you won't even directly notice the price. So the companies can charge almost any price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now the patent system is there for a good reason: developing drugs is expensive and if not patented others may use your hard-obtained knowledge to their advantage, without paying for it. Therefore, if your patent is granted you get monopoly power for a while to recapture your investment, on the condition that when the patent expires the knowledge can be used by anyone.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is no doubt that developing drugs is expensive but whether it justifies the prices charged is a different matter. The pharmaceutical industry is generally unwilling to reveal its costs for good reasons, and that makes estimating profit margins hard.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Part of the question is normative anyway because what would we consider &quot;excessive&quot; profit? What costs are justified when it comes to someone's health?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A fairly old article in the J of Economic Perspectives on this interplay can be found here:&#xA;&lt;a href=&quot;https://www.aeaweb.org/articles?id=10.1257/jep.7.3.97&quot; rel=&quot;noreferrer&quot;&gt;https://www.aeaweb.org/articles?id=10.1257/jep.7.3.97&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for tags: microeconomics would certainly be better suited as would monopoly&lt;/p&gt;&#xA;" OwnerUserId="12186" LastEditorUserId="12186" LastEditDate="2019-01-25T08:42:05.287" LastActivityDate="2019-01-25T08:42:05.287" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26603" PostTypeId="1" AcceptedAnswerId="26738" CreationDate="2019-01-25T12:57:59.863" Score="1" ViewCount="71" Body="&lt;p&gt;Say someone is looking for a job, but the ones they can find either don't give them the right compensation (businesses pay them too low) or is not the type of work they're looking for. So they stay at home until they find one. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is such a person considered to be unemployed by official data? I understand different countries may have different policies about this -- but how is this predominantly tackled?&lt;/p&gt;&#xA;" OwnerUserId="6486" LastActivityDate="2019-02-04T10:24:05.567" Title="If someone stays at home because they can't find the type of job they want, are they included in unemployment numbers?" Tags="&lt;statistics&gt;&lt;unemployment&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26604" PostTypeId="1" CreationDate="2019-01-25T13:00:21.137" Score="0" ViewCount="31" Body="&lt;p&gt;I was looking to find countries with the toughest regulations on loans(general loans not any specific ones)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By that I mean:&#xA; I mainly care to know where it is toughest for people to get a loan from a bank. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To consider is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;•   where requirements are highest for people to qualify for a loan&lt;/p&gt;&#xA;&#xA;&lt;p&gt;•   where banks do the most thorough checks in a persons financial status (like SCHUFA in Germany)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;•   where do banks have to pass the most audits and tests to prove their business is legit&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I was looking at IWF Data but could not really get that sort of info from there.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am basically looking to invest in Banks and want to find the best country to do that based on their banking infrastructure. I want to find lenders that make SURE their clients pay by setting the bar very high (I know that doesn’t mean they won’t default anyways) &lt;/p&gt;&#xA;" OwnerUserId="20890" LastActivityDate="2019-04-12T11:01:35.250" Title="What country has the highest requirements for loans?" Tags="&lt;finance&gt;&lt;banking&gt;&lt;investment&gt;&lt;debt&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="26605" PostTypeId="1" AcceptedAnswerId="26620" CreationDate="2019-01-25T16:09:12.830" Score="0" ViewCount="106" Body="&lt;p&gt;There is one agent with utility function given by:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;U(c,l) = \frac{c^{1-\sigma}}{1-\sigma}-\frac{l^{1+\gamma}}{1+\gamma}\tag{1}&#xA;\end{equation}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With budget constraint:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;c_{t} + k_{t+1}   = (1+r_t)k_{t} + l_tw_t \tag{2}&#xA;\end{equation}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The technology in the economy is a standard Cobb-Douglas with CRS:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;Y = K^{\alpha}L^{1-\alpha}\tag{3}&#xA;\end{equation}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The FOC of the utility-maximization problem are:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{align}&#xA;	c_{t+1} &amp;amp;= c_{t} [\beta (1+r_{t+1})] ^{\frac{1}{\sigma}}\tag{4}\\&#xA;	%&#xA;	c_{t}^{\sigma} l_{t}^{\gamma} &amp;amp;= w\tag{5}\\&#xA;	%&#xA;\end{align}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;While the FOCs of the profit-maximizing problem are:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$r = \alpha K^{\alpha-1}L^{1-\alpha} \tag{6}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$w = (1-\alpha) K^\alpha L^{-\alpha} \tag{7}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the steady state, equation (4) implies the following&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;r   = \frac{1-\beta}{\beta}\tag{8}&#xA;\end{equation}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence, to solve for the steady state, we need to solve for the following system of equation:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;C = rK + wL \tag{9}&#xA;\end{equation}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;C^{\sigma} L^{\gamma} =w\tag{10}&#xA;\end{equation}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$r = \alpha K^{\alpha-1}L^{1-\alpha} \tag{11}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$w = (1-\alpha) K^\alpha L^{-\alpha} \tag{12}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where the unknowns are &lt;span class=&quot;math-container&quot;&gt;$C, K, L,w$&lt;/span&gt; (&lt;span class=&quot;math-container&quot;&gt;$r$&lt;/span&gt; is known).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But from here I can't solve for the exact values of these variables. What information I miss? &lt;/p&gt;&#xA;" OwnerUserId="17875" LastEditorUserId="17875" LastEditDate="2019-01-26T18:02:28.930" LastActivityDate="2019-01-26T19:10:04.843" Title="Solve for the steady state with CRS Cobb-Douglas, problem with the system of equations" Tags="&lt;macroeconomics&gt;&lt;production-function&gt;&lt;general-equilibrium&gt;" AnswerCount="1" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="26606" PostTypeId="1" CreationDate="2019-01-25T16:46:22.767" Score="1" ViewCount="10" Body="&lt;p&gt;Is this a statistical thing or...? It seems very abstract to me, haha!&lt;/p&gt;&#xA;" OwnerUserId="14877" LastActivityDate="2019-01-25T16:46:22.767" Title="How is the level of full employment in an economy determined?" Tags="&lt;macroeconomics&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26608" PostTypeId="1" CreationDate="2019-01-25T18:11:50.793" Score="2" ViewCount="36" Body="&lt;p&gt;I am trying to reconcile the derivation of a demand equation with what I actually run in an OLS model. After solving  &lt;span class=&quot;math-container&quot;&gt;$$max_{x_1,x_2}U(x_1,x_2)= \alpha ln(x_1) + \beta ln(x_2)$$&lt;/span&gt; subject to &lt;span class=&quot;math-container&quot;&gt;$$p_1x_1+p_2x_2=m$$&lt;/span&gt; I get the familiar derived demand equation &lt;span class=&quot;math-container&quot;&gt;$x_1^*=p_1m\frac{\alpha}{\alpha+\beta}$&lt;/span&gt;. So far, this lines up with intuition. I see a price, an income, and some parameters. However, for a lot of goods that are estimated in the literature via OLS, economists also include demographic information like race, age, and sex. How can this be justified by the demand equation? The only two options I see are that income or the parameters are functions of these variables. Typically, most data sets will have some measure of income observed so that rules income out, and leaves only the parameters. Does this mean when I write an OLS equation like this &lt;span class=&quot;math-container&quot;&gt;$$X_i=\beta_0 + \beta_1 M_i + \beta_2demographics_i$$&lt;/span&gt; I am somehow implicitly imposing that my &lt;span class=&quot;math-container&quot;&gt;$\alpha$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\beta$&lt;/span&gt; from above are functions of demographics?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks for any input. I'd also really appreciate any papers/articles that talk about this topic specifically, so far I haven't had any luck finding them.&lt;/p&gt;&#xA;" OwnerUserId="19084" LastEditorUserId="19084" LastEditDate="2019-01-25T18:30:07.460" LastActivityDate="2019-01-25T18:30:07.460" Title="Demand equation with demographics" Tags="&lt;utility&gt;&lt;regression&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26610" PostTypeId="1" AcceptedAnswerId="26612" CreationDate="2019-01-25T22:34:32.870" Score="1" ViewCount="86" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/5ulI0.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/5ulI0.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hi all. According to google we have:&#xA;China GDP 2017=12.24 trillion USD&#xA;China GDP 2016=11.19 trillion USD&#xA;Therefore&#xA;China GDP 2017 growth rate=(12.24-11.19)/11.19=0.0938 that is approximately 9.4%&#xA;However according to google China GDP growth rate 2017 is equal to 6.9%&#xA;Why those numbers do not correspond?&lt;/p&gt;&#xA;" OwnerUserId="20894" LastEditorDisplayName="user18" LastEditDate="2019-01-26T02:31:57.430" LastActivityDate="2019-01-26T02:32:56.200" Title="Why Chinese GDP does not correspond to Chinese GDP growth rate?" Tags="&lt;gdp&gt;&lt;china&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="26611" PostTypeId="1" AcceptedAnswerId="26614" CreationDate="2019-01-26T01:12:05.290" Score="3" ViewCount="192" Body="&lt;p&gt;According to &lt;a href=&quot;https://en.wikipedia.org/wiki/Gross_domestic_product&quot; rel=&quot;nofollow noreferrer&quot;&gt;Wikipedia&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Gross domestic product (GDP) is a monetary measure of the market value of all the final goods and services produced in a period of time, often annually or quarterly. Nominal GDP estimates are commonly used to determine the economic performance of a whole country or region, and to make international comparisons.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;But what if a country has a product which is massively or at least moderately produced and consumed only locally, either for tradition or any other reason. And the exports of this product are non existent or at best minimum. In the case the exports are non existent, the international market value of this product would be zero, wouldnt be? Or does the national market value counts in this case? Also, if the international market exists but it's minimum, and most of the production can only be consumed localy, does all those unsalable products value contribute to the GDP value?&lt;/p&gt;&#xA;" OwnerUserId="8165" LastEditorDisplayName="user18" LastEditDate="2019-01-26T04:15:20.033" LastActivityDate="2019-01-26T04:26:32.520" Title="Do products which are only produced and consumed locally contribute to GDP value?" Tags="&lt;gdp&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26612" PostTypeId="2" ParentId="26610" CreationDate="2019-01-26T02:26:36.247" Score="5" Body="&lt;p&gt;Google's figures for China's GDP are simply taken from the World Bank's &quot;GDP (current US\$)&quot; (&lt;a href=&quot;https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG&quot; rel=&quot;noreferrer&quot;&gt;NY.GDP.MKTP.CD&lt;/a&gt;):&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;2016: 11190992550229.5 USD -- Google rounds this off to US\$11.19 trillion.&lt;/li&gt;&#xA;&lt;li&gt;2017: 12237700479375 USD -- Google rounds this off to US\$12.24 trillion.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;(As you point out, the growth rate from the above figures should be &lt;a href=&quot;https://www.google.com/search?&amp;amp;q=12237700479375%2F11190992550229.5-1%3D&quot; rel=&quot;noreferrer&quot;&gt;≈9.4%&lt;/a&gt;.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Google's figure of 6.9% for China's 2017 GDP growth is simply taken from the World Bank's &quot;GDP growth (annual %)&quot; (&lt;a href=&quot;https://data.worldbank.org/indicator/NY.GDP.MKTP.CD&quot; rel=&quot;noreferrer&quot;&gt;NY.GDP.MKTP.KD.ZG&lt;/a&gt;). Which, as you point out, is a discrepancy with our computed 9.4%.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But look at the &quot;Details&quot; on the last linked page, which explains:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Annual percentage growth rate of GDP at market prices based on constant local currency. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;That is, the growth rate is calculated from the World Bank's &quot;GDP (constant LCU)&quot; (&lt;a href=&quot;https://data.worldbank.org/indicator/NY.GDP.MKTP.KN&quot; rel=&quot;noreferrer&quot;&gt;NY.GDP.MKTP.KN&lt;/a&gt;), for which we have these China figures:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;2016: 73521858296478.3 CNY&lt;/li&gt;&#xA;&lt;li&gt;2017: 78594866518935.4 CNY&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;And now we do indeed get the figure of &lt;a href=&quot;https://www.google.com/search?&amp;amp;q=78594866518935.4%2F73521858296478.3-1%3D&quot; rel=&quot;noreferrer&quot;&gt;6.9%&lt;/a&gt;.*&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The lesson here is that when making GDP comparisons across time or space, there are some adjustments that one can choose to make. What adjustments one makes can lead to different results.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;*A little strangely, the 6.9% is exactly precise. Which suggests that instead of calculating the growth rate using estimated GDP figures, the World Bank's GDP figures for China are calculated &lt;em&gt;using&lt;/em&gt; the estimated 6.9% growth rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In general, with national income and product accounts (NIPA), there is a great deal of crude estimation and sausage making. You shouldn't take too much faith in any numbers past the first one or two significant figures. This is especially the case for China where, in addition to measurement difficulties faced everywhere, economic data are manipulated for political purposes.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastEditorDisplayName="user18" LastEditDate="2019-01-26T02:32:56.200" LastActivityDate="2019-01-26T02:32:56.200" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26613" PostTypeId="2" ParentId="22438" CreationDate="2019-01-26T03:36:52.373" Score="0" Body="&lt;p&gt;Having mulled over this for a while, I think the answer is actually quite simple. While luxury goods might have some of the highest margins and highest prices per unit, they don't actually make the producers the most money because of the low quantities in which they are sold. So I think my summary might have been ill formulated. Instead of “produce what is most expensive”, a better summary would be “produce what is most profitable”.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Clearly luxury goods are not what is most profitable. Currently this would rather be high-tech services such as data analysis and reliable forecasts.&lt;/p&gt;&#xA;" OwnerUserId="18565" LastActivityDate="2019-01-26T03:36:52.373" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26614" PostTypeId="2" ParentId="26611" CreationDate="2019-01-26T04:26:32.520" Score="6" Body="&lt;p&gt;Yes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;1. You seem to believe that goods and services that are not exported may not be counted.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is false. (Almost) all goods and services are counted, even if they are not exported.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;2. The only exception is (intangible) services produced for one's own consumption.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Examples: Mowing one's lawn, making one's meals, and cleaning one's home are not counted in GDP.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that (tangible) goods produced for one's own consumption &lt;em&gt;are&lt;/em&gt; counted in GDP. For example, the crops produced and consumed by a rural household are counted in GDP, even though they are not sold on the market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(There is one exception to the exception, which is that housing services &quot;generated&quot; by one's home &lt;em&gt;is&lt;/em&gt; counted in GDP.).&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2019-01-26T04:26:32.520" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="26616" PostTypeId="1" CreationDate="2019-01-26T13:25:25.540" Score="0" ViewCount="35" Body="&lt;p&gt;Is there some commonly known indicator that is defined as:  Minimum wage divided by cost of living? I mean, I could call it that way, but perhaps people already have this indicator with a certain specific name or they have a better one for the purpose I'm looking for. &lt;/p&gt;&#xA;" OwnerUserId="18744" LastActivityDate="2019-01-26T20:47:31.127" Title="Minimum wage divided by cost of living?" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="26617" PostTypeId="2" ParentId="26616" CreationDate="2019-01-26T13:57:13.890" Score="2" Body="&lt;p&gt;There is the Kaitz-Index, which relates the minimum wage to the average hourly wage, thus facilitating cross-country comparisons on the minimum wage level. The OECD has compiled it &lt;a href=&quot;https://stats.oecd.org/Index.aspx?DataSetCode=MIN2AVE&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;. There you'll also find other metrics comparing minimum wage levels across countries. &lt;/p&gt;&#xA;" OwnerUserId="17735" LastEditorUserId="17735" LastEditDate="2019-01-26T20:47:31.127" LastActivityDate="2019-01-26T20:47:31.127" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="26619" PostTypeId="2" ParentId="26570" CreationDate="2019-01-26T16:10:34.133" Score="0" Body="&lt;p&gt;Picking some samples from the distribution and calculate the average always gives you unbiased estimate. Even if you only pick the first (i.i.d) observation from the data, it is an unbiased estimator. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To ensure that it is consistent, you need to have &lt;span class=&quot;math-container&quot;&gt;$\forall \epsilon$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$P(|\hat{\mu}-\mu|&amp;gt;\epsilon) = 0$&lt;/span&gt; as your sample size goes to infinity. Here, notice that since you are using the first 30 observations from the data, your &lt;span class=&quot;math-container&quot;&gt;$\hat{\mu} \sim N(\mu,\frac{\sigma^2}{30})$&lt;/span&gt; even the sample size goes to infinity. Given that normal distribution has a full support over the real line, for any (nonnegative) &lt;span class=&quot;math-container&quot;&gt;$\epsilon$&lt;/span&gt; you choose, your probability does not converge to 0. Hence it is not consistent. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If an estimator is unbiased and its variance converges to 0, then your estimator is also consistent but on the converse, we can find funny counterexample that a consistent estimator has positive variance. So we need to think about this question from the definition of consistency and converge in probability. &lt;/p&gt;&#xA;" OwnerUserId="20875" LastActivityDate="2019-01-26T16:10:34.133" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26620" PostTypeId="2" ParentId="26605" CreationDate="2019-01-26T19:10:04.843" Score="1" Body="&lt;p&gt;1) Instead of &lt;span class=&quot;math-container&quot;&gt;$(9)$&lt;/span&gt; use&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$C = K^{\alpha}L^{1-\alpha} \tag{9*}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) Equation &lt;span class=&quot;math-container&quot;&gt;$(10)$&lt;/span&gt; is not correct. For constant population &lt;span class=&quot;math-container&quot;&gt;$N$&lt;/span&gt; and identical agents,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$c^{\sigma} l^{\gamma} =  w \implies (C/N)^{\sigma} (L/N)^{\gamma} =  w \implies C^{\sigma} L^{\gamma} = N^{\sigma +\gamma}w \tag{10*}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Insert &lt;span class=&quot;math-container&quot;&gt;$(9^*)$&lt;/span&gt; in &lt;span class=&quot;math-container&quot;&gt;$(11)$&lt;/span&gt; and solve for &lt;span class=&quot;math-container&quot;&gt;$C$&lt;/span&gt; as a function of &lt;span class=&quot;math-container&quot;&gt;$K$&lt;/span&gt;, using &lt;span class=&quot;math-container&quot;&gt;$(8)$&lt;/span&gt; for &lt;span class=&quot;math-container&quot;&gt;$r$&lt;/span&gt;. Substitute back in &lt;span class=&quot;math-container&quot;&gt;$(9^*)$&lt;/span&gt; and solve for &lt;span class=&quot;math-container&quot;&gt;$K$&lt;/span&gt; as a function of &lt;span class=&quot;math-container&quot;&gt;$L$&lt;/span&gt;. Insert into &lt;span class=&quot;math-container&quot;&gt;$(12)$&lt;/span&gt; and you will get &lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt; as a function of parameters. Etc.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2019-01-26T19:10:04.843" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="26622" PostTypeId="1" AcceptedAnswerId="26624" CreationDate="2019-01-26T20:09:40.460" Score="4" ViewCount="9415" Body="&lt;p&gt;In my economics textbook, it states that when calculating GDP using the income approach, depreciation should be added. Specifically, GDP = Employee Compensation + Taxes less subsidies on businesses + Net operating surplus on businesses + Depreciation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The example it provides is that if some people are running a fruit stand, their capital will endure some wear and tear. As a result,&quot;some of their income is implicitly a compensation for this wear and tear&quot;, which is depreciation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am confused about how adding depreciation fits into the idea of the income approach. How does the capital stock depreciating fit into the incomes of households? It seems like depreciation has nothing to do with the income of the fruit stand, for example. &lt;/p&gt;&#xA;" OwnerUserId="20877" LastActivityDate="2020-03-11T20:37:54.960" Title="Why is depreciation added to the GDP with the income approach?" Tags="&lt;gdp&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26624" PostTypeId="2" ParentId="26622" CreationDate="2019-01-26T23:57:34.070" Score="3" Body="&lt;p&gt;In national income and products accounting (NIPA), the word &lt;em&gt;gross&lt;/em&gt; (usually*) means including depreciation, while &lt;em&gt;net&lt;/em&gt; means excluding depreciation. We have:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Gross domestic product (GDP) = Employee compensation + Taxes less subsidies on businesses + &lt;em&gt;Gross&lt;/em&gt; operating surplus on businesses&lt;/li&gt;&#xA;&lt;li&gt;&lt;em&gt;Net&lt;/em&gt; operating surplus on businesses = &lt;em&gt;Gross&lt;/em&gt; operating surplus on businesses - Depreciation&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;And hence:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Gross domestic product (GDP) = Employee compensation + Taxes less subsidies on businesses + &lt;em&gt;Net&lt;/em&gt; operating surplus on businesses + Depreciation&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;You are exactly correct when you wonder why we include depreciation in National Income. Conceptually, what we are more interested in is &lt;em&gt;Net&lt;/em&gt; domestic product (NDP), which excludes depreciation:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;em&gt;Net&lt;/em&gt; domestic product (NDP) = GDP - Depreciation = Employee compensation + Taxes less subsidies on businesses + &lt;em&gt;Net&lt;/em&gt; operating surplus on businesses&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;However, depreciation is difficult to estimate. And so often, we simply look at GDP. This is why GDP is the more frequently quoted, even though conceptually we'd prefer to use NDP.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Example.&lt;/strong&gt; In 2018, a country had 100 workers (labor) using 100 tractors (capital) to produce agricultural products. We find that in 2018, the country produced \$1M worth of agricultural products and paid out \$800,000 to the 100 workers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence, in our NIPA accounts, we have:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Employee compensation = \$800,000.&lt;/li&gt;&#xA;&lt;li&gt;So, Gross operating surplus on businesses = Total income - Employee compensation = \$1M - \$800,000 = \$200,000.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;This \$200,000 goes to the owners of capital, i.e. the 100 tractors. The key is to understand that &quot;gross operating surplus&quot; is the residual (the leftover term) after any compensation paid out to employees and any taxes (less subsidies) paid. (For simplicity we assume there are no taxes/subsidies.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And now we have:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;GDP = Employee compensation + Gross operating surplus on businesses = \$800,000 + \$200,000 = \$1M.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;We now have to estimate depreciation (i.e. wear and tear on the tractors), which in the real world is difficult, but in our made-up example here we'll just say is \$50,000. Then:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Net operating surplus = Gross operating surplus - Depreciation = \$200,000 - \$50,000 = \$150,000.&lt;/li&gt;&#xA;&lt;li&gt;NDP = Employee compensation + Net operating surplus = GDP - Depreciation = \$950,000.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;*Confusingly, there is also another sense in which the words &lt;em&gt;gross&lt;/em&gt; and &lt;em&gt;net&lt;/em&gt; are used in NIPA (and also more commonly in daily life) — example: Net lending = Lending - Borrowing. See &lt;a href=&quot;https://www.google.com/books/edition/System_of_National_Accounts_2008/gQWmAdwdI8gC?hl=en&amp;amp;gbpv=1&amp;amp;dq=%22With%20very%20few%20exceptions,%20in%20the%20SNA%22&amp;amp;pg=PA23&amp;amp;printsec=frontcover&quot; rel=&quot;nofollow noreferrer&quot;&gt;2.72&lt;/a&gt; in the UN System of National Accounts (2008).&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastEditorDisplayName="user18" LastEditDate="2019-01-28T02:12:58.837" LastActivityDate="2019-01-28T02:12:58.837" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="26625" PostTypeId="2" ParentId="26568" CreationDate="2019-01-27T00:06:46.413" Score="0" Body="&lt;p&gt;Making the naïve and somewhat incorrect &lt;strong&gt;assumption that savings are fixed&lt;/strong&gt;, every dollar that goes to government spending (e.g. defence, health, education, roads) is a dollar taken away from private investment. This is what is meant by &lt;em&gt;crowding out&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;A bit more precisely, we have in a closed economy the following identity: &lt;span class=&quot;math-container&quot;&gt;$$Y=C+I+G.$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We define savings by &lt;span class=&quot;math-container&quot;&gt;$$S:=Y-C-G.$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And hence, &lt;span class=&quot;math-container&quot;&gt;$$S=I.$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, making the naïve and somewhat incorrect &lt;strong&gt;assumption that &lt;span class=&quot;math-container&quot;&gt;$S$&lt;/span&gt; is fixed&lt;/strong&gt;, if &lt;span class=&quot;math-container&quot;&gt;$G$&lt;/span&gt; rises by &lt;span class=&quot;math-container&quot;&gt;$\$1$&lt;/span&gt;, then it must necessarily be that &lt;span class=&quot;math-container&quot;&gt;$I$&lt;/span&gt; falls by &lt;span class=&quot;math-container&quot;&gt;$\$1$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;The argument above is that sometimes given by opponents of increased government spending.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Supporters of increased government spending counter that the &lt;strong&gt;assumption that savings are fixed&lt;/strong&gt; is naïve and somewhat incorrect. Savings are not fixed, they say. In particular, when &lt;span class=&quot;math-container&quot;&gt;$G$&lt;/span&gt; rises by &lt;span class=&quot;math-container&quot;&gt;$\$1$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt; may also rise, so that &lt;span class=&quot;math-container&quot;&gt;$I$&lt;/span&gt; need not mechanically fall by &lt;span class=&quot;math-container&quot;&gt;$\$1$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But even if this counterargument is correct, there will still probably be at least &lt;em&gt;some&lt;/em&gt; crowding out. That is, when &lt;span class=&quot;math-container&quot;&gt;$G$&lt;/span&gt; rises by &lt;span class=&quot;math-container&quot;&gt;$\$1$&lt;/span&gt;, it is likely that &lt;span class=&quot;math-container&quot;&gt;$I$&lt;/span&gt; falls by some amount less than &lt;span class=&quot;math-container&quot;&gt;$\$1$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastEditorDisplayName="user18" LastEditDate="2019-01-27T04:45:59.153" LastActivityDate="2019-01-27T04:45:59.153" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="26626" PostTypeId="1" AcceptedAnswerId="26628" CreationDate="2019-01-27T02:09:29.240" Score="0" ViewCount="194" Body="&lt;p&gt;Given a Cobb Douglas  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$Y_t = A (K_t^\alpha L_t^{1-\alpha}) $&lt;/span&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$ K_{t+1} = sY_t + (1-\delta) K_t$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How do we get the multiplier on productivity to be equal to &lt;span class=&quot;math-container&quot;&gt;$ \frac{1}{1-\alpha}$&lt;/span&gt;? &#xA;I understand that if productivity increases, output increases, thus we get more capital and thereby more output and so on. But I can't reach this multiplier.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My Attempt: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If have x increase in A, &#xA;then &#xA;&lt;span class=&quot;math-container&quot;&gt;$Y_t=(1+x)A (K_t^\alpha L_t^{1-\alpha})  $&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That is an x increase in Y. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$ K_{t+1} = s(1+x)A (K_t^\alpha L_t^{1-\alpha})  + (1-\delta) K_t$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$Y_{t+1}=(1+x)A * K_{t+1}^\alpha *L_{t+1}^{1-\alpha} $&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$Y_{t+1}=  (1+x)A * (s(1+x)A (K_t^\alpha L_t^{1-\alpha})  + (1-\delta) K_t)^\alpha  * L_{t+1}^{1-\alpha} $&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think the increase here should be &lt;span class=&quot;math-container&quot;&gt;$x * \alpha $&lt;/span&gt; but I can't see it.&#xA;so that for a unit increase in productivity i.e x=1;&#xA; &lt;span class=&quot;math-container&quot;&gt;$\Delta Y  =  1 + \alpha + \alpha^2 +... =\frac{1}{1-\alpha} $&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also in the steady state we  have, &#xA; &lt;span class=&quot;math-container&quot;&gt;$ Y = A^\frac{1}{1-\alpha} * \frac{s}{\delta}^\frac{\alpha}{1-\alpha} * L$&lt;/span&gt;&#xA;taking logs we have that percentage change in A increases Y by &lt;span class=&quot;math-container&quot;&gt;$\frac{1}{1-\alpha}$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerUserId="20906" LastEditorDisplayName="user18" LastEditDate="2019-01-27T03:59:37.823" LastActivityDate="2019-01-27T03:59:37.823" Title="How to Calculate the productivity multiplier?" Tags="&lt;macroeconomics&gt;&lt;economic-growth&gt;&lt;cobb-douglas&gt;&lt;solow&gt;&lt;growth-accounting&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="26628" PostTypeId="2" ParentId="26626" CreationDate="2019-01-27T03:41:20.637" Score="3" Body="&lt;p&gt;Let &lt;span class=&quot;math-container&quot;&gt;$y=Y/L$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$k=K/L$&lt;/span&gt; be the per-worker levels of output and capital. Observe that &lt;span class=&quot;math-container&quot;&gt;$y=Ak^\alpha$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Steady state is given by: &lt;span class=&quot;math-container&quot;&gt;$$k^*=sy^*+(1-\delta)k^*,$$&lt;/span&gt; or &lt;span class=&quot;math-container&quot;&gt;$$k^*=sA(k^*)^\alpha+(1-\delta)k^*.$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Doing the algebra: &lt;span class=&quot;math-container&quot;&gt;$$k^*=\left(\frac{sA}{\delta}\right)^{\frac{1}{1-\alpha}}.$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And: &lt;span class=&quot;math-container&quot;&gt;$$y^*=A\left(\frac{sA}{\delta}\right)^{\frac{\alpha}{1-\alpha}}=A^{\frac{1}{1-\alpha}}\left(\frac{s}{\delta}\right)^{\frac{\alpha}{1-\alpha}}.$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am not sure what is meant by the &quot;multiplier on productivity&quot;. I would interpret this term to be the answer to the question, &quot;Given a small unit change in &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt;, what is the resultant change in &lt;span class=&quot;math-container&quot;&gt;$y^*$&lt;/span&gt;?&quot; That is, the following expression: &lt;span class=&quot;math-container&quot;&gt;$$\frac{\partial y^*}{\partial A}=\frac{1}{1-\alpha}A^{\frac{\alpha}{1-\alpha}}\left(\frac{s}{\delta}\right)^{\frac{\alpha}{1-\alpha}}.$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, clearly, this does not correspond to your desired answer. So I suspect what is really meant is the &lt;strong&gt;elasticity of &lt;span class=&quot;math-container&quot;&gt;$y^*$&lt;/span&gt; with respect to &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt;&lt;/strong&gt;: &lt;span class=&quot;math-container&quot;&gt;$$\frac{\partial y^*}{\partial A}\div \frac{y^*}{A}=\frac{1}{1-\alpha}.$$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2019-01-27T03:41:20.637" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26629" PostTypeId="1" CreationDate="2019-01-27T05:25:35.960" Score="-1" ViewCount="24" Body="&lt;p&gt;&quot;If a firm produces 1000 shirts (finished products), expecting to keep an inventory of 100 shirts at the end of the year.&quot; Here &#xA;Why a firm keep an inventory of 100 shirts ? &#xA;What is the need of it? &#xA;If the firm sold all 1000 shirts there is no need to keep inventory right? &#xA;If we carry unsold of those 100 shirts to next year, who will going to buy it because of they are already old products compared to coming year there are new products produced?&lt;/p&gt;&#xA;" OwnerUserId="20908" LastEditorUserId="20908" LastEditDate="2019-01-27T05:35:25.270" LastActivityDate="2019-01-27T12:34:29.520" Title="Inventory based question" Tags="&lt;macroeconomics&gt;&lt;national-income&gt;" AnswerCount="1" CommentCount="0" ClosedDate="2019-02-08T03:03:27.793" ContentLicense="CC BY-SA 4.0" />
  <row Id="26633" PostTypeId="2" ParentId="26629" CreationDate="2019-01-27T12:34:29.520" Score="2" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;If a firm produces 1000 shirts (finished products), expecting to keep an inventory of 100 shirts at the end of the year.&quot; Here Why a firm keep an inventory of 100 shirts ?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Expectation&lt;/em&gt; is different than &lt;em&gt;preference&lt;/em&gt;. A company might prefer to sell everything, yet be realistic enough to rule out the scenario of being able to sell its entire merchandise this year.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Other than expectations and sales forecast, retaining a portion of the inventory this year could make more sense in terms of fiscal planning. That will depend on the company's numbers, any subsidies or benefits for which it intends to qualify, the expenses it can deduct, and the particulars of a so-called &lt;a href=&quot;https://en.wikipedia.org/wiki/Progressive_tax&quot; rel=&quot;nofollow noreferrer&quot;&gt;&quot;progressive&quot; tax&lt;/a&gt; regime.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It could also be the case that the company anticipates an increase in the price of shirts at the end of the year. By setting a portion [of the inventory] aside, the company tries to ensure that it will be able to take advantage of the price increase.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;who will going to buy it because of they are already old products compared to coming year there are new products produced?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Shirts are not &quot;perishable&quot; goods. Generally speaking, they can be as useful in year &lt;em&gt;n+1&lt;/em&gt; as in year &lt;em&gt;n&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The text where you read that exercise or exercise might refer to something entirely different, though.&lt;/p&gt;&#xA;" OwnerUserId="18552" LastActivityDate="2019-01-27T12:34:29.520" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26635" PostTypeId="2" ParentId="19763" CreationDate="2019-01-27T16:57:44.837" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Reducing food wastage should in theory reduce demand for food&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Let's examine this claim in a simple static framework. Assume preferences over two goods like&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$U(x_1,x_2) = a\ln x_1 + (1-a)\ln x_2  \tag{1}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where &lt;span class=&quot;math-container&quot;&gt;$x_1$&lt;/span&gt; is food and subject to waste, while &lt;span class=&quot;math-container&quot;&gt;$x_2$&lt;/span&gt; is not subject to waste. Now, the quantity in the utility function is not the quantity purchased but the quantity actually consumed. Waste appears in the budget constraint as, say, a mark up in the quantity that is desired to be consumed,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$p_1\cdot(1+d)x_1^c + p_2x_2 = I, \;\;\;d\geq 0$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In order for the consumer to consume &lt;span class=&quot;math-container&quot;&gt;$x_1^c$&lt;/span&gt;, it must purchase &lt;span class=&quot;math-container&quot;&gt;$x_1^d=(1+d)x_1^c$&lt;/span&gt; quantity due to waste.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Lagrangean here is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\Lambda = a\ln x_1^c + (1-a)\ln x_2 + \lambda \Big[I-p_1\cdot(1+d)x_1^c - p_2x_2\Big]$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first order condtions are&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\frac a {x_1^c} = \lambda p_1(1+d),\;\;\; \frac {1-a} {x_2} = \lambda p_2$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From which we obtain &lt;span class=&quot;math-container&quot;&gt;$\lambda = 1/I$&lt;/span&gt; and so the demand function for food&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$x_1^c(1+d) = \frac a {p_1}I$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note carefully that &quot;desired quantity to be consumed&quot; is &lt;em&gt;not&lt;/em&gt; determined independently from the waste factor.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Summing over all &lt;span class=&quot;math-container&quot;&gt;$N$&lt;/span&gt; identical consumers,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$X_1^d = X_1^c (1+d) = N\cdot \frac a {p_1} I$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is the right-hand-side that expresses the market demand curve in a price-quantity graph -and in it, food waste does not appear. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume that  the waste factor is reduced to &lt;span class=&quot;math-container&quot;&gt;$d' &amp;lt; d$&lt;/span&gt;, without this affecting the supply curve. It follows that the demand curve will not be affected either, and so neither the equilibrium price: what will happen is that consumers will continue to demand/purchase the same quantity, &lt;em&gt;but they will now consume more of the good&lt;/em&gt;, since waste has somehow been reduced.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;We see that the OP's argument that reduction in food waste will lead to a shift in the demand curve, rests on a crucial and implicit assumption: that the amount consumed given current waste, &lt;em&gt;is a point of satiation&lt;/em&gt;, namely that consumers consume &quot;all they want&quot; irrespective of prices and income, and so if waste is reduced, they will not want to increase their actual consumption, and so they will demand/purchase less since the dead-burden of waste has been reduced.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For people that do not go hungry, there may indeed be the impression that they actually consume at their point of satiation. But this is not at all certain.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sometime back, I remember reading about a new coating material that could reduce all friction from glass or plastic. One possible consequence? Bottles of sauce (like tomato ketchup, mayonnaise etc) if coated with this material, would totally and easily empty down to the very last drop. Are we sure that this would mean that the consumers would end up buying less bottles because each bottle would now &quot;last longer&quot;? Or they would end up eating a little more sauce per meal? &lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2019-01-27T17:15:30.727" LastActivityDate="2019-01-27T17:15:30.727" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="26636" PostTypeId="1" CreationDate="2019-01-27T21:46:00.347" Score="0" ViewCount="28" Body="&lt;p&gt;Let there be two companies &lt;span class=&quot;math-container&quot;&gt;$U_{1}$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$U_{2}$&lt;/span&gt; where, initially &lt;span class=&quot;math-container&quot;&gt;$U_{1}$&lt;/span&gt; produces and sells &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; units at &lt;span class=&quot;math-container&quot;&gt;$p=18$&lt;/span&gt;. Production costs are &lt;span class=&quot;math-container&quot;&gt;$C_{U_{1}}(x)=\frac{1}{6}x^3$&lt;/span&gt; and in the process &lt;span class=&quot;math-container&quot;&gt;$a$&lt;/span&gt; units of greenhouse gas is emitted, where &lt;span class=&quot;math-container&quot;&gt;$x=20a$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;I then calculated the profit-maximizing output &lt;span class=&quot;math-container&quot;&gt;$x^{*}=6$&lt;/span&gt;, while the&#xA;  units of GHG emitted is &lt;span class=&quot;math-container&quot;&gt;$a^{*}=0,3$&lt;/span&gt; and the profit is&#xA;  &lt;span class=&quot;math-container&quot;&gt;$G_{U_{1}}(x^{*})=72$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Next assume that the second company &lt;span class=&quot;math-container&quot;&gt;$U_{2}$&lt;/span&gt; starts producing. It produces &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; units of a different good, so that &lt;span class=&quot;math-container&quot;&gt;$U_{1}$&lt;/span&gt; profits from it. Namely &lt;span class=&quot;math-container&quot;&gt;$G_{1}(x)=18x-\frac{1}{6}x^3+4y$&lt;/span&gt;, while &lt;span class=&quot;math-container&quot;&gt;$U_{1}$&lt;/span&gt;'s production has a negative effect on the profit of &lt;span class=&quot;math-container&quot;&gt;$U_{2}$&lt;/span&gt;, namely &lt;span class=&quot;math-container&quot;&gt;$G_{U_{2}}(y)=24y-y^2-200a$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;I then determined the profit-maximizing output of &lt;span class=&quot;math-container&quot;&gt;$U_{2}$&lt;/span&gt; which is&#xA;  &lt;span class=&quot;math-container&quot;&gt;$y^{*}_{U_{2}}=12$&lt;/span&gt; as well as the profit&#xA;  &lt;span class=&quot;math-container&quot;&gt;$G_{2}(y^{*})=144-200\frac{6}{20}=84$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Now my problem:&lt;/strong&gt;&#xA;How high would an emission tax &lt;span class=&quot;math-container&quot;&gt;$t$&lt;/span&gt; have to be, so that &lt;span class=&quot;math-container&quot;&gt;$U_{1}$&lt;/span&gt; selects the most efficient number of units to produce, meaning that the effects on &lt;span class=&quot;math-container&quot;&gt;$U_{2}$&lt;/span&gt; are completely internalized. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Normally, if &lt;span class=&quot;math-container&quot;&gt;$U_{1}$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$U_{2}$&lt;/span&gt; were producing the same goods I would simply look at maximizing &lt;span class=&quot;math-container&quot;&gt;$G_{1}+G_{2}$&lt;/span&gt;, however, &lt;span class=&quot;math-container&quot;&gt;$U_{1}$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$U_{2}$&lt;/span&gt; are producing different goods. Surely, in order for &lt;span class=&quot;math-container&quot;&gt;$U_{1}$&lt;/span&gt; to internalize the negative effects it has on &lt;span class=&quot;math-container&quot;&gt;$U_{2}$&lt;/span&gt;, it needs to completely halt its production. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What am I supposed to do?&lt;/p&gt;&#xA;" OwnerUserId="20912" LastActivityDate="2019-01-27T21:46:00.347" Title="Question on Finding the Correct Emission Tax $t$" Tags="&lt;microeconomics&gt;&lt;profit-maximization&gt;&lt;social-choice&gt;&lt;externalities&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="26638" PostTypeId="1" CreationDate="2019-01-27T23:43:56.390" Score="3" ViewCount="101" Body="&lt;p&gt;The classical supply and demand theory states that prices and quantities of a given good (in a perfectly competitive market) are determined by the supply and demand of that good, a shift in the demand curve, for example, would change the equilibrium prices, but how exactly does that work, can't imagine a firm owner saying 'Ok guys, the supply curve for our product shift to the right, time to raise prices&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can grasp how a price above the equilibrium would go down (the producers would not sell, so they lower the price because less profit is better than no profit)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But how can an increase in demand drive prices up?&lt;/p&gt;&#xA;" OwnerUserId="20915" LastEditorDisplayName="user18" LastEditDate="2019-06-28T01:50:06.947" LastActivityDate="2019-06-28T13:18:33.690" Title="By what means do prices change?" Tags="&lt;microeconomics&gt;&lt;supply-and-demand&gt;&lt;classical-economics&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26642" PostTypeId="2" ParentId="19763" CreationDate="2019-01-28T11:36:31.417" Score="4" Body="&lt;p&gt;As far as I know, there are no economic studies studying the effect of food waste on food prices. In part, this may be due to &lt;a href=&quot;https://academic.oup.com/ajae/article-abstract/99/5/1148/3868245?redirectedFrom=fulltext&quot; rel=&quot;nofollow noreferrer&quot;&gt;difficulties in measuring food waste&lt;/a&gt;, as noted by a commenter. However, a more fundamental difficulty stems from a lack of 'exogenous' variation in food waste. The amount of food waste may vary significantly between places and times, but so do other factors (taxes, technology, consumer demand) which also influence the price of food.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In light of the lack of empirical studies on this topic, allow me to discuss it from a more theoretical point of view. You write&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Reducing food wastage should in theory reduce demand for food, thereby&#xA;  driving food prices down.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;There are therefore two questions here:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;If people cut back on food waste, will their demand for food fall?&lt;/li&gt;&#xA;&lt;li&gt;If demand for food falls, will food prices fall?&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;In my view, the answers are 'yes' and 'maybe, maybe not'. Let me address these questions in turn.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Question 1&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Alecos has produced an interesting argument as to why a reduction in food waste could have no effect (or even increase) demand for food. Essentially, he models a reduction in food waste as an exogenous decrease in the price of food. When the price of food falls, we consume more of it. However, for a given level of consumption, our demand for food falls. With logarithmic utility, these factors cancel out; but in principle, either factor could be more important (so food demand could increase or decrease).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;While this is an intriguing argument, I find it rather unconvincing. First, many people cut back on food waste precisely to reduce the amount of food they buy. It would be perverse to claim that such people 'respond' to their reduction in food waste by buying more food. Second, in modern economies, people are already satisfying (and often exceeding) their calorific requirements. Hence, the binding constraint on the quantity (not necessarily quality) of food purchased is how much food they want to eat, not the amount of food they waste. Third, as a modelling choice, I think we should view 'food waste' as an active choice which consumers make as opposed to some parameter to which consumers optimally react. I doubt that Alecos' conclusion would hold once recognise that wasting food is a choice, though of course we could check this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In my view, things are more simple. If people waste less food, their consumption of food will not significantly change. As a result, their demand for food must fall.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Question 2&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, I am not so confident that a fall in demand will lead to a fall in prices. To simplify, let us suppose that food is produced by identical perfectly competitive suppliers in a market with free entry. In that case, it can be shown that each producer will produce at the level that minimises their average cost; and that the market price will equal this average cost. Hence, the market price does not depend on demand.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Naturally, this is just market structure and it may be useful to think about others (e.g. oligopoly). However, I think that you will find that the effect of demand on prices is often ambiguous and depends on the economies of scale that are present in the industry.&lt;/p&gt;&#xA;" OwnerDisplayName="user17900" LastEditorDisplayName="user17900" LastEditDate="2019-01-28T17:33:43.797" LastActivityDate="2019-01-28T17:33:43.797" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26643" PostTypeId="2" ParentId="14966" CreationDate="2019-01-28T18:15:01.147" Score="1" Body="&lt;p&gt;According to the Authors Guild, Amazon &quot;routinely takes a loss&quot; on book sales to ensure market domination.  &lt;a href=&quot;https://www.authorsguild.org/industry-advocacy/amazons-taking-another-bite-publishing-pie&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.authorsguild.org/industry-advocacy/amazons-taking-another-bite-publishing-pie&lt;/a&gt;.  This and  other answers probably have bearing on the Amazon vs. Barnes and Noble price differences.&lt;/p&gt;&#xA;" OwnerUserId="20926" LastActivityDate="2019-01-28T18:15:01.147" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26645" PostTypeId="2" ParentId="26638" CreationDate="2019-01-28T20:50:16.490" Score="3" Body="&lt;p&gt;The simplest method would be to watch how quickly your inventory is depleted.  If your baseline is that you sell 1000 widgets a day at a dollar per widget and suddenly you're selling 1250 widgets a day (or selling out of the 1000 widgets your factory can produce a day by early afternoon), it is reasonable to believe that the demand curve has shifted to the right (there demand at a price of $1/ widget has risen by 25%) and to respond by raising prices.  From that same baseline, if you're suddenly only selling 750 widgets a day, it is reasonable to assume that the demand curve has shifted to the left and that you need to respond by lowering prices.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the real world, think of the hot toy every Christmas.  If your supply of Tickle Me Elmo dolls fly off the shelves minutes after you get them and grown adults are fighting each other in the store to get their hands on one, it's a pretty safe bet that you're selling them at below equilibrium prices.  If the Furbies on the same shelf sit there for months without selling, you've probably priced them above the equilibrium price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course, in reality, stores may have additional methods.  They can look around at what other people are selling items for.  They can do market research to survey customers and potential customers to determine the demand.  Online, they can show people different prices for the same product and see how that impacts purchase decisions.  &lt;/p&gt;&#xA;" OwnerUserId="20928" LastActivityDate="2019-01-28T20:50:16.490" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26646" PostTypeId="1" CreationDate="2019-01-28T21:06:05.287" Score="0" ViewCount="193" Body="&lt;p&gt;In macroeconomics, I understand that nominal wage (W) is your wage in dollars, while real wage (W/P) is what you can get for that wage (in apples, etc...). But is this the same thing as &quot;nominal income&quot; and &quot;real wage&quot;? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If so, can the nominal income go up while the real income declines? And what would be a proper example of this? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've researched this question online, but all searches were fruitless and failed to explain this simply. All help is greatly appreciated. Thank you.&lt;/p&gt;&#xA;" OwnerUserId="20927" LastEditorUserId="6009" LastEditDate="2019-01-28T23:08:19.350" LastActivityDate="2019-01-28T23:54:31.970" Title="Is nominal/real income and nominal/real wage the same? If so, is it possible for your nominal income to rise as your real income falls?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26647" PostTypeId="2" ParentId="26362" CreationDate="2019-01-28T22:41:19.587" Score="3" Body="&lt;p&gt;There is nothing to prevent other countries &quot;taking advantage&quot; of an export market's UBI.  However, I don't think that that implies a country introducing a UBI would need to increase tariffs, and I have never heard this being advocated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since UBI hasn't been implemented on a large scale, there is little compelling evidence on what its effects will be, but a lot of speculation on what they might be.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, it is important to observe that countries' cost bases already differ &lt;em&gt;a lot&lt;/em&gt; in terms of firms' tax burdens and unskilled wage rates.  Countries with high taxes and high wages don't typically sustain them through protectionist tariffs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Second, it is suggested that UBI may lower a lot of government costs, so that the impact on firms' tax burden would not be as large as you might expect.  For example, &lt;a href=&quot;https://www.weforum.org/agenda/2017/01/why-we-should-all-have-a-basic-income/&quot; rel=&quot;nofollow noreferrer&quot;&gt;UBI would replace many benefits&lt;/a&gt; (e.g. job seeker and housing benefits) reducing administration costs, especially for means-tested benefits.  &lt;a href=&quot;https://en.wikipedia.org/wiki/Basic_income#cite_note-56&quot; rel=&quot;nofollow noreferrer&quot;&gt;It is argued&lt;/a&gt; that it would reduce physical and mental healthcare costs &lt;a href=&quot;https://www.healthpovertyaction.org/news-events/key-facts-poverty-and-poor-health/&quot; rel=&quot;nofollow noreferrer&quot;&gt;related to poverty&lt;/a&gt;, which could be particularly important in countries like the UK that have free universal healthcare alongside &lt;a href=&quot;https://www.independent.co.uk/news/business/news/uk-poverty-the-charts-that-show-the-true-state-of-low-income-britain-a7031666.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;substantial poverty&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Third, it is unclear what effect a UBI would have on wages.  Since workers' basic cost of living is (at least partially) covered, it is possible that wages could fall.  There would certainly be a political argument for reducing the minimum wage.  Depending on how the cost of UBI is distributed, this could more than offset the tax burden on firms.  It is also well established that a lot of traditional benefits result in very high effective marginal tax rates on part-time work (as earned income is offset by reduced benefits); a UBI is likely to improve the financial incentive for unemployed people to do small amounts of work in a lot of countries, even if wages were somewhat lower.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, it is largely unknown how UBI might affect a country's comparative advantage and productivity.  For instance, &lt;a href=&quot;https://evonomics.com/universal-basic-income-accelerates-innovation-reducing-fear-failure/&quot; rel=&quot;nofollow noreferrer&quot;&gt;some&lt;/a&gt; (&lt;a href=&quot;https://www.forbes.com/sites/washingtonbytes/2017/06/06/universal-basic-income-is-not-an-innovation-policy/#1ad8d43b2e8f&quot; rel=&quot;nofollow noreferrer&quot;&gt;not all&lt;/a&gt;) suggest that UBI would drive innovation by giving people the time and space to pursue an invention or start a business under less financial pressure.  This would lead to more value-added jobs, which is how countries typically manage to compete internationally while sustaining high wages and tax rates.&lt;/p&gt;&#xA;" OwnerUserId="16631" LastActivityDate="2019-01-28T22:41:19.587" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26648" PostTypeId="1" AcceptedAnswerId="26650" CreationDate="2019-01-28T23:09:35.777" Score="2" ViewCount="71" Body="&lt;p&gt;Let's say Sally either wants to coke or pizza, but never both. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am aware of the standard consumer preferences, such as Perfect Complements as well as Perfect Substitutes. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But I have never heard of the above case regarding Sally. Is there a particular name for this preference type?&lt;/p&gt;&#xA;" OwnerUserId="20912" LastActivityDate="2019-01-29T02:49:59.173" Title="Consumer Preference when Consumer only consumes $A$ or $B$" Tags="&lt;microeconomics&gt;&lt;preferences&gt;&lt;perfect-complements&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26649" PostTypeId="2" ParentId="26646" CreationDate="2019-01-28T23:54:31.970" Score="1" Body="&lt;p&gt;Wages are a subset of income.  Your income includes your wages but it also includes other sources of income such as dividends and interest.  If your only source of income is a job, then income and wages are the same thing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is certainly possible that nominal wages would rise while real wages fall.  Imagine that you earn 50,000 at a job in 2019.  Inflation runs at 5% a year.  And say that at the end of 2019 your boss says that you're getting a 2,000 raise so your salary in 2020 will be 52,000.  In nominal terms, your wages increased from 50,000 to 52,000, a 4% increase.  But since inflation was 5%, your 52,000 salary in 2020 will buy less than your 50,000 salary bought in 2019-- you would have needed a 5% raise (2,500) in order to keep pace with inflation.  Your nominal wage increased but your real wage decreased.  &lt;/p&gt;&#xA;" OwnerUserId="20928" LastActivityDate="2019-01-28T23:54:31.970" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26650" PostTypeId="2" ParentId="26648" CreationDate="2019-01-29T02:49:59.173" Score="1" Body="&lt;p&gt;If Sally only prefers &lt;em&gt;A&lt;/em&gt; or &lt;em&gt;B&lt;/em&gt; but not both, this could be an example of &lt;strong&gt;Independent Goods&lt;/strong&gt;. These are goods that are neither complements nor substitutes, and changes with one good generally do not affect the other.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, with the information about Sally's preferences, it sounds to me like it &lt;em&gt;could&lt;/em&gt; also be an example of &lt;strong&gt;Cross-Category Substitute Goods&lt;/strong&gt;. These are goods that can substitute (imperfectly) for one another. Consumers may find one good more satisfying than the other based on their individual preferences and utility function.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;i.e.&lt;/em&gt; perhaps Sally wants a slice of pizza or Coke, and both cost \$1.&#xA;  She prefers the taste of Coke so she generally chooses it, but one day the price of Coke goes up to \$2. She&#xA;  may be satisfied to a similar degree purchasing pizza until the price&#xA;  of Coke comes back down. On a different day, she may want to purchase 2&#xA;  pizzas for the same amount as 1 Coke. There are many possible outcomes with&#xA;  cross-category substitutes.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It's a little unusual and subjective, because both goods in the example are in consumable food/drink categories, but one good satisifies hunger and the other good satisfies thirst. Thus, it's hard to think of one being a replacement for the other unless one thinks of them both being sweets or snack items. (One common example uses a chocolate chip cookie and a chocolate chip granola bar in place of Coke and pizza.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If this isn't the exact term you're looking for, I hope this helps you on the right track at least.&lt;/p&gt;&#xA;" OwnerUserId="20812" LastActivityDate="2019-01-29T02:49:59.173" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26651" PostTypeId="1" CreationDate="2019-01-29T03:08:27.437" Score="0" ViewCount="146" Body="&lt;ol&gt;&#xA;&lt;li&gt;Inventory change=last period's ending inventory- the current period's ending inventory.&lt;/li&gt;&#xA;&lt;li&gt;Change in inventory= production of the firm during the year- sale of the firm during the year&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;No doubt in (1) but in (2) &quot;production of the firm during the year- sale of the firm during the year&quot; tells about remaining part which is unsold. How could we say unsold product is &quot;change in inventory&quot;?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Numerical example to this?&#xA;Gross value added (GVA) = Value of sales by the firm + Value of change in inventories – Value of intermediate goods used by the firm.&lt;/p&gt;&#xA;" OwnerUserId="20929" LastEditorUserId="59" LastEditDate="2021-03-19T18:44:33.340" LastActivityDate="2021-04-18T18:59:35.707" Title="Change in inventory" Tags="&lt;macroeconomics&gt;&lt;nonexpert&gt;&lt;national-income&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26652" PostTypeId="2" ParentId="26651" CreationDate="2019-01-29T03:27:57.050" Score="0" Body="&lt;p&gt;&lt;strong&gt;Example.&lt;/strong&gt; In 2018, TATA Motors produced 100,000 cars and sold 70,000. So, the remaining unsold 30,000 cars are added to TATA Motors's inventory (in practical terms, they may be sitting in some warehouses or carparks). Hence, the change in inventory is +30,000 cars.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2019-01-29T03:27:57.050" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26655" PostTypeId="1" CreationDate="2019-01-29T11:23:08.097" Score="2" ViewCount="47" Body="&lt;p&gt;At lunch we pondered, how much a hypothetical investor would have to pay for a whole city.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What would the combined value of all real estate in a large city (like Munich) be?&#xA;Is there a way to estimate this even halfway reliably?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course there are buildings, that won't ever be for sale, like public buildings or cultural heritage. These should probably be excluded from the computation.&lt;/p&gt;&#xA;" OwnerUserId="20934" LastActivityDate="2019-01-31T21:51:40.567" Title="Hypothetical price of a city (e.g. Munich)" Tags="&lt;investment&gt;" AnswerCount="1" CommentCount="0" ClosedDate="2019-02-11T15:58:08.927" ContentLicense="CC BY-SA 4.0" />
  <row Id="26657" PostTypeId="1" CreationDate="2019-01-29T12:54:30.373" Score="0" ViewCount="136" Body="&lt;p&gt;Regarding this great animation:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.visualcapitalist.com/animation-the-worlds-10-largest-economies-by-gdp-1960-today/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Animation: The World’s 10 Largest Economies by GDP (1960-Today)&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I have the following questions:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Why did Germany's GDP shrink so much from 1995 to 2000, while the GDP of the US grew very healthily? &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;What was the factor of US growth in that period and why did other economies did so poorly, especially Germany's? &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Is it because the GDP is counted in US dollars which makes other countries' GDP under-counted?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="13081" LastEditorUserId="8481" LastEditDate="2020-05-04T09:37:30.003" LastActivityDate="2020-05-04T09:37:30.003" Title="German economic growth in the 20th century" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;&lt;economic-growth&gt;&lt;germany&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26658" PostTypeId="1" CreationDate="2019-01-29T14:32:01.400" Score="0" ViewCount="1658" Body="&lt;p&gt;Putting price on the vertical axis and quantity on the horizontal axis, is the Slutsky demand steeper or flatter than the Hicksian demand curve? If I calculate the Slutsky and Hicksian substitution effects for a normal good (Cobb-Douglas), I get Slutsky substitution effect greater than Hicksian substitution effect. Shouldn' t that mean that Hicksian demand is steeper than Slutsky? I have seen the opposite being drawn in some lecture notes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/3DgfH.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/3DgfH.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="18507" LastActivityDate="2019-01-29T16:34:59.923" Title="Is the Hicksian demand curve steeper or flatter than Slutsky demand?" Tags="&lt;consumer-theory&gt;&lt;slutsky-equation&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26661" PostTypeId="1" CreationDate="2019-01-29T20:41:03.693" Score="3" ViewCount="104" Body="&lt;p&gt;Oliver Hart, a Nobel Price winning economist, made the following case against privately founded prisons in an interview from 2017: “&lt;em&gt;There are some things that are difficult to specify [in a contract between a government and a private prison]. One is the quality of the guards. A private company may have incentives to hire cheaper, less trained guards and yet still be within the contract.&lt;/em&gt;”&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is this type of contractual problem called? Why does it occur?&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Hello everyone,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm struggling with the question above.&#xA;It is from and old exam in my lecture 'Organization and Management' (consisting mostly of contract theory).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think the question is either aiming for:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;'Incompleteness of contracts' since the &quot;quality of guards is hard to specify&quot;. Probably because the quality is observable but not verifiable (or specifying the quality would be too costly) OR&lt;/li&gt;&#xA;&lt;li&gt;'Adverse Selection' since the government does not know what kind of cost function a private company would have (for the quality of the guards) prior to signing the contract.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Now that I wrote that I feel like it must be the former just because it makes sense to me.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What do you think? May the contractual problem at hand also be something entirely different?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you in advance,&#xA;Chris&lt;/p&gt;&#xA;" OwnerUserId="20939" LastActivityDate="2019-11-17T16:50:12.723" Title="What kind of contractual problem is this?" Tags="&lt;contract-theory&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26663" PostTypeId="2" ParentId="26657" CreationDate="2019-01-29T23:48:04.130" Score="1" Body="&lt;p&gt;Actually the real GDP of Germany did not shrink between 1995 - 2000. In fact between those years it was growing. Below I posted picture of Germany’s real GDP from &lt;a href=&quot;https://fred.stlouisfed.org/series/CLVMNACSCAB1GQDE#&quot; rel=&quot;nofollow noreferrer&quot;&gt;Fred dataset (&lt;/a&gt;which is very good source often used in research) which shows that the real GDP did not shrink in that time window. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reason why it looks like the GDP of Germany was shrinking is that the scale in the animation is changing at the same time as bars causing confusion. If you actually pay attention to the video you will see x axis changing and that’s why it looks like the Germany’s GDP is decreasing even though it was growing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In general be aware of videos with fancy effects that just obscure the actual data instead of helping to understand them - plain time series graph on log scale would give much more info in this case.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/1GiR6.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/1GiR6.jpg&quot; alt=&quot;Real GDP of Germany&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="15517" LastActivityDate="2019-01-29T23:48:04.130" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="26665" PostTypeId="1" CreationDate="2019-01-30T10:48:13.153" Score="1" ViewCount="50" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/TRGaD.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/TRGaD.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This is from Hopkins and Kornienko (2004) : Running to keep in the same place. The above proof is for the proposition 1 in this paper. I don't understand how the mean value theorem is applied in this case. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As far as I am concerned, the mean value theorem is &lt;span class=&quot;math-container&quot;&gt;$\frac{f(b) - f(a)}{b-a} = f'(c)$&lt;/span&gt; for &lt;span class=&quot;math-container&quot;&gt;$c \in (a,b)$&lt;/span&gt;. Rearranging this, it should be &lt;span class=&quot;math-container&quot;&gt;$f(b)-f(a) - f'(c)(b-a) = 0$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However,  this definition is not exactly used in this case. If we see the first application of the mean value theorem,  I think that &lt;span class=&quot;math-container&quot;&gt;$f'(c)$&lt;/span&gt; is equivalent to &lt;span class=&quot;math-container&quot;&gt;$(V_1(x_1, z-px_1) - pV_2(x_1, z-px_1))(\alpha + G(\check{z}))$&lt;/span&gt;. I don't understand why it is &lt;span class=&quot;math-container&quot;&gt;$G(\check{z})$&lt;/span&gt; instead of &lt;span class=&quot;math-container&quot;&gt;$G(z)$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, I think &lt;span class=&quot;math-container&quot;&gt;$f(b)- f(a)$&lt;/span&gt; is equivalent to &lt;span class=&quot;math-container&quot;&gt;$    V(x(z), z-px(z)) (G(z) - G(\check{z})) $&lt;/span&gt; in this case. But, I don't understand how do this. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I appreciate if you give some help or hint. &lt;/p&gt;&#xA;" OwnerUserId="17957" LastActivityDate="2019-01-30T10:48:13.153" Title="Understanding the proof using the mean value theorem" Tags="&lt;microeconomics&gt;" AnswerCount="0" CommentCount="2" FavoriteCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26667" PostTypeId="2" ParentId="26589" CreationDate="2019-01-30T13:05:11.123" Score="3" Body="&lt;p&gt;The answer of Maarten Punt describes the mechanism in action very well.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'd like give my view your last question.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Q. Is there a cure for high prices in the pharmaceutical industry?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The high prices are based on the monopoly granted by patents. The patents are there to protect the inventor, but it can be argued that in the case of medicine they give too much power to the inventor. I'd say we want a system that is fair to both consumer and inventor. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is fairness? That is subjective, but I can sketch an imprecise picture. In my opinion fairness means that the inventor makes a profit on the investment, similar to the profit ratios in other industries. For the consumer it means that he does not have to pay all his retirement money for a pill that costs a small fraction of that for research and production. In case of a public health insurance: taxes are not paid to let the pharmaceutical company CEO drive a Bugatti car.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How could this come about? Two ideas.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The most rigorous system change is removal of the patent system for medicines.&lt;br&gt;&#xA;To still do the research needed for development of medicine, dedicated (state sponsored) laboratories could be set up. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another option is that research and production are disconnected. Research institutes can sell the right to produce medicine at a certain price, where the maximum is set by a third party (sufficient to cover all research costs with one license). Exclusive licenses are not allowed. In that way, when a medicine is successful, another production company can buy the rights as well, effectively reducing the price for medicine. Due to the economics of scale, the research costs will only have a very limited effect on the price of the end product.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These are suggestions. However, I believe that after improvement and tuning both ideas could work better than the current system. &lt;/p&gt;&#xA;" OwnerUserId="20942" LastActivityDate="2019-01-30T13:05:11.123" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26670" PostTypeId="1" CreationDate="2019-01-30T16:42:21.547" Score="4" ViewCount="67" Body="&lt;p&gt;Suppose we are interested in the effect of some 'treatment' on some outcome of interest. A common practice is to select a group of people and then &lt;em&gt;randomly&lt;/em&gt; choose some fraction (often half) to receive the treatment. The remaining people are untreated (i.e. the 'control'). As shown in (e.g.) &lt;a href=&quot;http://home.cerge-ei.cz/kaliskova/files/aqm2/Angrist%20Pischke.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Angrist and Pischke&lt;/a&gt;, the difference in mean outcomes between the groups is then an unbiased estimate of the average causal effect of the treatment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;While such a procedure does give us an unbiased estimate, it does not ensure that the treatment and control group are 'balanced' on observable criteria. For example, although on average there will be the same fraction of men in the treated and untreated groups, in our actual sample there are likely to be a higher fraction of men in one group. In such a situation, it seems natural to simply take some men from the 'overly male' group and place them in the 'overly female group' until the gender ratio is the same in both groups. (If we wanted, we could select the men we choose randomly.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some questions:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;If we do this, will the difference in mean outcomes between treated and untreated groups remain an unbiased estimate of the causal effect?&lt;/li&gt;&#xA;&lt;li&gt;If so, why is this not done in all RCTs?&lt;/li&gt;&#xA;&lt;li&gt;If not, how do we trade-off the benefits of achieving 'balance' against the possible bias that we are introducing?&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Optional extra: I am aware that this procedure seems rather similar to 'stratification'. However, my understanding is that, after stratifying, people do not compare mean outcomes for the treated and untreated groups (rather, they compare mean outcomes for every subsample on which they stratified, or equivalently run a regression with stratification dummies). If my proposal is indeed equivalent to stratification, my question is then equivalent to the question why we need these dummies and what are the costs and benefits of stratification.&lt;/p&gt;&#xA;" OwnerDisplayName="user17900" LastEditorDisplayName="user17900" LastEditDate="2019-01-30T18:50:22.407" LastActivityDate="2019-01-31T00:43:59.060" Title="Randomisation and balance in experiments" Tags="&lt;econometrics&gt;&lt;randomized-experiment&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26671" PostTypeId="1" AcceptedAnswerId="26675" CreationDate="2019-01-30T16:52:31.800" Score="0" ViewCount="196" Body="&lt;p&gt;As far as I understand in both cases we are seeking money that we don't have and would like to borrow.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That being said what I find even more misleading is the fact that as a nominal interest rate increase credit increases.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If anyone could clarify this that would be absolutely amazing.&lt;/p&gt;&#xA;" OwnerUserId="19689" LastEditorUserId="1601" LastEditDate="2019-01-30T17:34:05.773" LastActivityDate="2019-01-31T09:18:39.980" Title="difference between demand for money and credit" Tags="&lt;macroeconomics&gt;&lt;money&gt;&lt;credit&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26673" PostTypeId="1" CreationDate="2019-01-30T17:18:30.590" Score="1" ViewCount="50" Body="&lt;p&gt;What is the difference between these two things? How is PCE price different from PCE quantity? Also, I am confused about the difference between PCE quantity and measure of real output. For example, what is the difference between PCE quantity and Industrial Production? &lt;/p&gt;&#xA;" OwnerUserId="20946" LastActivityDate="2021-03-29T19:54:38.857" Title="What is the difference between personal consumption expenditure price and PCE quantity?" Tags="&lt;macroeconomics&gt;&lt;industrial-organisation&gt;&lt;definition&gt;&lt;input-output&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26674" PostTypeId="2" ParentId="26671" CreationDate="2019-01-30T17:44:55.540" Score="0" Body="&lt;p&gt;I'm not sure what's the nature of the question but:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Credit isn't necessarily linked to money. It's linked to the fact that people desire to consume today rather than tomorrow. You can have credit, borrowing and an interest rate in a cashless economy.&lt;/li&gt;&#xA;&lt;li&gt;Demand for money could be abstracted as an extra term in the utility function and/or a cash-in-advance restriction, meaning that the individual seeks to hold money because it makes them happy and allows him to pay for real goods. This, in turn, leads to demand for money.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="7857" LastActivityDate="2019-01-30T17:44:55.540" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="26675" PostTypeId="2" ParentId="26671" CreationDate="2019-01-30T18:16:38.023" Score="0" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;That being said what I find even more misleading is the fact that as a nominal interest rate increase credit increases.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This is the so-called &lt;a href=&quot;https://en.wikipedia.org/wiki/Fisher_hypothesis&quot; rel=&quot;nofollow noreferrer&quot;&gt;Fisher Effect&lt;/a&gt;. You have to consider things upside down and, actually, the importance of money supply in the story.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;Credits&quot; (here and there) stimulate demands (here and there) in the national economy. If supplies stay constant -- which it does empirically, at leasts temporarily --, markets will reach a new equilibrium via prices rising due to these stimulated demands, which generates inflation. Finally, higher inflation means higher nominal rates. Why? Because higher inflation (here and there) actually means higher (nominal) returns on equity (here and there). Incidentally, commercial banks (have to attract deposits and) will adjust their (saving) rates accordingly.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But remember that only &lt;strong&gt;real&lt;/strong&gt;ity matters when getting an idea of the &quot;performance&quot; of an economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;hr&gt;&#xA;Regarding your main question... The word &quot;credit&quot; as such, is used to describe the &lt;em&gt;scriptural&lt;/em&gt; ex-nihilo creation of money by commercial banks (and its debt counterpart). When the credit is reimbursed, the money is &lt;em&gt;scripturally&lt;/em&gt; destroyed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Money demand, in contrast, can refer to any type of demand for money, be it stemming from final consumers, firms or even commercial banks themselves. Thus, money demand is conceptually a bigger &lt;em&gt;set&lt;/em&gt; than that that we can associate to credits.&lt;/p&gt;&#xA;" OwnerUserId="10247" LastEditorUserId="10247" LastEditDate="2019-01-31T09:18:39.980" LastActivityDate="2019-01-31T09:18:39.980" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="26677" PostTypeId="1" CreationDate="2019-01-30T20:39:18.643" Score="0" ViewCount="69" Body="&lt;p&gt;A question I got on an exam that I think I messed up on:&#xA;If we have cross elasticity of 0 (x &amp;amp; y are independent), can x be an inferior good? I answered with a yes. Am I wrong?&lt;/p&gt;&#xA;" OwnerUserId="20950" LastActivityDate="2019-01-30T20:39:18.643" Title="Is there a possibility to have an inferior good (x) in a utility function where x &amp; y have 0 cross elasticity?" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;elasticity&gt;" AnswerCount="0" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="26678" PostTypeId="1" AcceptedAnswerId="26700" CreationDate="2019-01-30T20:42:09.293" Score="0" ViewCount="58" Body="&lt;p&gt;Say Company A has a monopoly producing product E, at a constant marginal cost of &lt;span class=&quot;math-container&quot;&gt;$3$&lt;/span&gt; USD. Say the ideal number of units produced is &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt; unit which produces a profit of &lt;span class=&quot;math-container&quot;&gt;$2$&lt;/span&gt; USD (=&lt;span class=&quot;math-container&quot;&gt;$P_{A}$&lt;/span&gt;). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Next, Company B wants to enter the market and produce product E at a marginal cost &lt;span class=&quot;math-container&quot;&gt;$3$&lt;/span&gt; USD, but it has initially invested &lt;span class=&quot;math-container&quot;&gt;$\frac{1}{2}P_{A}$&lt;/span&gt; in order to enter the market. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Question:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$1.$&lt;/span&gt; Under Cournot Competition, should Company B enter the market. Why/Why not?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$2.$&lt;/span&gt; Under Bertrand Competition, should Company B enter the market. Why/Why not?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ideas: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$1.$&lt;/span&gt; No, since we are in Cournot competition, the price is determined by the total units that both Company A &amp;amp; B produce together. If Company B were also to produce, it would drive the price down as a result of excess supply, eventually forcing the price below the marginal cost, thus not profitable&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$2.$&lt;/span&gt; Yes, the price is driven down until the marginal cost. Although Company B will earn &lt;span class=&quot;math-container&quot;&gt;$\frac{1}{2}P_{A}$&lt;/span&gt; less than company A.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Do my answers suffice, or rather, are they correct, and touch on the right point? &lt;/p&gt;&#xA;" OwnerUserId="20912" LastEditorUserId="19689" LastEditDate="2019-02-03T15:09:13.667" LastActivityDate="2019-02-03T15:09:13.667" Title="Should Company B enter the market in the following cases" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;elasticity&gt;&lt;monopoly&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="26679" PostTypeId="2" ParentId="26670" CreationDate="2019-01-30T20:51:51.340" Score="1" Body="&lt;p&gt;Ok, I am far from an econometrician, but my train of thought would be as follows:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By using random assignment we have two groups that are &lt;em&gt;on average&lt;/em&gt; equal to one another on &lt;strong&gt;all&lt;/strong&gt; aspects. As you rightly point out due to sampling variation there will be differences.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My worry would be that if I start &quot;correcting&quot; those after randomization (as per your example with gender distribution) I introduce other differences between the groups in say age or even an unobserved but important characteristic.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Stratification is different as it is done upfront. You have a characteristic that you know is different for different groups so you take the random samples within those groups. As a rather naive example: we know that the effect of taking anticonception pills is rather different for men and women, so if you wanted to test the effect of the pill on fertility you could stratify by sex and then do a random assignment within the sexes.&lt;/p&gt;&#xA;" OwnerUserId="12186" LastActivityDate="2019-01-30T20:51:51.340" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="26680" PostTypeId="1" CreationDate="2019-01-30T20:57:54.927" Score="1" ViewCount="18" Body="&lt;p&gt;In a mixed economy like the UK to what extent are wages a function of Government policy?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Presumably at the bottom of the pay scale the minimum wage could be said to be a function of Government. And the rate of wage increase up the skills ladder could be related to the availability of cheap/low-skilled labour, which could be said to be function of migration policy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But presumably the market itself remains an important (the most important) element in wages?&lt;/p&gt;&#xA;" OwnerUserId="5505" LastActivityDate="2019-01-30T20:57:54.927" Title="In a mixed economy like the UK to what extent are wages a function of Government policy?" Tags="&lt;wages&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26681" PostTypeId="2" ParentId="10122" CreationDate="2019-01-30T23:02:21.133" Score="1" Body="&lt;p&gt;Generally the problem is unsolvable because you haven't specified the randomization procedure of the whole experiment. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But let Y be the value of the envelope you picked, and X the other envelope. The answer is then &lt;span class=&quot;math-container&quot;&gt;$E[X|Y=y]$&lt;/span&gt; - which is a &lt;a href=&quot;http://en.wikipedia.org/wiki/Conditional_expectation&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;conditional expectation&lt;/em&gt;&lt;/a&gt; . However, assuming a most general distribution of Y, Y is uniformly drawn from all of &lt;span class=&quot;math-container&quot;&gt;$\mathbb{R}$&lt;/span&gt;. But then &lt;span class=&quot;math-container&quot;&gt;$Pr(Y=y)=0$&lt;/span&gt;, and by the &lt;a href=&quot;http://en.wikipedia.org/wiki/Borel%E2%80%93Kolmogorov_paradox&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;Borel–Kolmogorov&lt;/em&gt;&lt;/a&gt; paradox the expectation is unsolvable. &lt;/p&gt;&#xA;" OwnerUserId="20933" LastEditorUserId="20933" LastEditDate="2019-01-31T23:14:39.890" LastActivityDate="2019-01-31T23:14:39.890" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26682" PostTypeId="2" ParentId="26661" CreationDate="2019-01-30T23:53:51.937" Score="-1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;What is this type of contractual problem called? Why does it occur?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;That sounds like a inconsequential, &quot;trivia&quot; question which has neither relation to the doctrine of &lt;em&gt;contract law&lt;/em&gt; nor relevance to how contracts work in the real world. Other than considerations of &lt;em&gt;utility&lt;/em&gt; and &lt;em&gt;budget constraints&lt;/em&gt;, it is unclear to what extent the &lt;em&gt;contract theory&lt;/em&gt; covered pursuant to that lecture refers (or should refer) to the legal doctrine of &lt;em&gt;contract law&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The difficulty of specifying the quality of guards has nothing to do with the fact that the contract is entered by a public entity and a private one. A government needs to reasonably define the specifications of any service, regardless of whether or not that service will be outsourced.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The government does not need to know a counterparty's cost function. Legally speaking, what matters is whether both parties &lt;em&gt;knowingly and willfully&lt;/em&gt; accept the terms of their contract. Economically speaking, the government only needs to compare (for a given list of minimal specs) the numeric output of its own cost function versus the price tag proposed by the private entity. Alternatively, for a government would have to assess whether for a given budget the provided services will satisfy the government's needs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As an analogy, when you buy a product, the only aspects that should matter to you are the &lt;em&gt;utility&lt;/em&gt; you would obtain from the product and &lt;em&gt;your budget constraint&lt;/em&gt;, not how much it costs the manufacturer to produce that good. It would be bizarre for a party to make its requirements dependent primarily on the counterparty's &lt;em&gt;cost&lt;/em&gt; function.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;May the contractual problem at hand also be something entirely different?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Yes, at least from the legal standpoint. For instance, the lack of specificity in a contract permits the party who is &lt;strong&gt;not&lt;/strong&gt; the draftsman of the contract to invoke the doctrine of &lt;a href=&quot;https://en.wikipedia.org/wiki/Contra_proferentem&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;contra proferentem&lt;/em&gt;&lt;/a&gt; (that doctrine allows the private entity &quot;&lt;em&gt;to hire cheaper, less trained guards and yet still be within the contract&lt;/em&gt;&quot;).&lt;/p&gt;&#xA;" OwnerUserId="18552" LastActivityDate="2019-01-30T23:53:51.937" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26683" PostTypeId="2" ParentId="26670" CreationDate="2019-01-31T00:22:09.993" Score="1" Body="&lt;p&gt;The idea is that for causal inference you want to be able to treat the control group as a counterfactual. In the ideal world you would wanna be able to observe parallel world where the same people who you give treatment don’t get one.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now simple random sample promises to deliver this because as long as everyone has really random and most importantly equal chance to be included then the distribution of unobservables should be the same between groups and you should have no bias.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, if you are taking random samples (especially if they are not really big) you may end up by a chance with a sample where let’s say 90% of control is only men and only 10% women. In that case you may wanna balance this out because then the control may not really be good counterfactual. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This does not mean that you can balance it in whatever way you want. People should be moved between groups on random to avoid bias or even better both control and treatment groups should be mixed and you should randomize again and then check the distribution. If the number of men/women between treatment/control is not statistically significantly different proceed with the experiment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The goal is always to create the best counterfactual possible. This could be actually done even without simple random sampling at all for example by using propensity score matching. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sometimes you may even need to conduct/observe field experiment where randomization is not possible, but there are still techniques that attempt to find a good counterfactual (you may wanna look at differences in differences or synthetic control approach).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In fact in simple OLS biased coefficient can be expressed as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ E[\beta]= \beta + \gamma \frac{cov(x,e)}{var(x)}$$&lt;/span&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where the second term is bias. Hence to get rid of bias you want to make sure the independent variable is also independent on error term &lt;span class=&quot;math-container&quot;&gt;$cov(x,e)=0$&lt;/span&gt;. Simple random sampling can help you achieve that but it’s not panacea. If sample is highly unbalanced with just by chance all women being in control and men in treatment, then treatment won’t be really independent of unobservables.&lt;/p&gt;&#xA;" OwnerUserId="15517" LastEditorUserId="15517" LastEditDate="2019-01-31T00:43:59.060" LastActivityDate="2019-01-31T00:43:59.060" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26687" PostTypeId="1" CreationDate="2019-01-31T02:42:50.680" Score="1" ViewCount="388" Body="&lt;p&gt;Mas-Collel, Winston and Green's Microeconomic Theory (3rd edition), states that the continuity of a preference relation implies the upper and lower contour sets of a bundle are closed. I would like to know why.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/KyDFI.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/KyDFI.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Definition of continuous preference relation:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/ey4Fi.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/ey4Fi.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Definition of open set:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/sad1D.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/sad1D.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Definition of closed set:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/jabNb.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/jabNb.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="6099" LastActivityDate="2019-01-31T02:42:50.680" Title="By continuity, the upper and lower contour sets of a bundle are closed" Tags="&lt;microeconomics&gt;" AnswerCount="0" CommentCount="0" ClosedDate="2019-02-06T10:34:13.507" ContentLicense="CC BY-SA 4.0" />
  <row Id="26690" PostTypeId="1" AcceptedAnswerId="26724" CreationDate="2019-01-31T10:31:49.497" Score="0" ViewCount="36" Body="&lt;p&gt;Robert Ashford has written about his proposal for a better, inclusive capitalism, but I don't understand the method. For example, take a look at &lt;a href=&quot;http://ashford.mit.edu/sites/default/files/documents/G84.%20TEFR%20OctNov2012_Broadening%20Capital%20Acquisition.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;this article&lt;/a&gt;. All is very obscure. It seems to be about paying workers with shares, but I don't quite understand it. Why would companies expand their shares? That lowers their price. Can't see how this would work. Is anyone familiar with his proposals?&lt;/p&gt;&#xA;" OwnerUserId="15121" LastActivityDate="2019-02-03T11:45:24.460" Title="Help understanding this inclusive capitalism proposal" Tags="&lt;capitalism&gt;" AnswerCount="1" CommentCount="1" ClosedDate="2019-02-04T09:28:28.290" ContentLicense="CC BY-SA 4.0" />
  <row Id="26692" PostTypeId="1" CreationDate="2019-01-31T11:39:58.793" Score="1" ViewCount="16" Body="&lt;p&gt;Apology in advance if this question seems too elementary. I am intrigued by this article I came across,&lt;a href=&quot;https://www.forbes.com/sites/warrenmeyer/2013/12/10/do-we-care-about-income-inequality-or-absolute-well-being/#7e4da75f629b&quot; rel=&quot;nofollow noreferrer&quot;&gt;Do We Care About Income Inequality, or Absolute Well-Being?&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And in the article the author was trying to make a percentile by percentile comparison, which is very interesting, but I am slightly skeptical about the conclusion the author was trying to drive at. The concept of PPP is conceptually pretty straight forward, but unfotrunately I can't find the detailed construction methodology on World Bank. What I am trying to figure out is this: in the price level calculation, how did the economists taken into account the almost zero education and healthcare cost of some wellfare states.  The charts cited states that tax and transfer was taken into account, but I am not sure if it means only direct transfer or if it includes service provided like education and healthcare. I think to most people, a tin of coke cost twice as much in Europe for example,  probably won't affect their living standard significantly; But say the off-the-chart private school tuition fees would significantly influence one's living standard, assuming one has children. I wonder if the PPP income level taken that into account? Please note I just want to know the facts, not political ramble.  I also would appreciate if someone could provide some additional resources on this topic. &lt;/p&gt;&#xA;" OwnerUserId="4953" LastActivityDate="2019-01-31T11:39:58.793" Title="Does PPP measure conversion taken into account government service and taxes?" Tags="&lt;inequality&gt;&lt;purchasing-power-partity&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26693" PostTypeId="1" AcceptedAnswerId="26695" CreationDate="2019-01-31T16:12:09.977" Score="3" ViewCount="169" Body="&lt;p&gt;A lot of my family is concerned about a future insulin shortage and it's reported that this shortage is growing.  When I read articles from Harvard about it, &lt;a href=&quot;http://harvardpolitics.com/united-states/how-insulin-became-unaffordable/&quot; rel=&quot;nofollow noreferrer&quot;&gt;they imply it's pure greed&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;There are no generic insulins. Over the past twenty years, prices for the most commonly prescribed “analog” insulins have risen from about $20 per vial to well over \$250 per 10 mL vial, an over 700% increase after accounting for inflation. In contrast, insulin today costs roughly five dollars per vial to produce. With deductibles far outpacing wages, insulin has become unaffordable even for well-off Americans.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;If it costs us 5 dollars to produce, why don't we all start insulin companies and sell it for $15, attracting all the business (as well as popularity since we have better prices).  Is greed really the issue, or is there another economic explanation, like the resources involved in insulin-making are in a shortage?  Or the regulation of producers?  Or the possible lawsuits producers face if they make a mistake? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It sounds like anyone could compete against these greedy companies and put them out of business.  What am I missing?&lt;/p&gt;&#xA;" OwnerUserId="17807" LastEditorUserId="1601" LastEditDate="2019-01-31T16:18:05.743" LastActivityDate="2019-01-31T16:19:53.723" Title="Economics Behind the Insulin Shortage?" Tags="&lt;supply-and-demand&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26695" PostTypeId="2" ParentId="26693" CreationDate="2019-01-31T16:19:53.723" Score="6" Body="&lt;p&gt;You are missing patents. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I recommend reading the paper &quot;&lt;a href=&quot;https://static1.squarespace.com/static/58011633197aea95712e5e2f/t/596cf3f4e45a7cff8a3d3656/1500312565180/Why+is+there+no+generic+insulin.pdf&quot; rel=&quot;noreferrer&quot;&gt;Why Is There No Generic Insulin? Historical Origins&#xA;of a Modern Problem&lt;/a&gt;&quot; by doctors Greene and Riggs.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;...high costs of&#xA;  pharmaceutical research and development are&#xA;  often invoked to justify the high price tags of new&#xA;  medications. Although the price point of effective new drugs — from hepatitis cures to new&#xA;  agents for heart failure — may initially be out of&#xA;  reach for many patients, market laws predict&#xA;  that drugs with strong demand should become&#xA;  more accessible after market exclusivity ends&#xA;  and generic competition begins. Since 1984,&#xA;  when the Drug Price Competition and Patent&#xA;  Term Restoration Act was passed, pharmaceutical innovation and access have been balanced on&#xA;  that premise: innovative drugs are rewarded&#xA;  with high prices during their window of patent&#xA;  protection, and generic competition reduces&#xA;  prices thereafter.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;[...] incremental innovation has repeatedly precluded the formation of a generic insulin industry in North America when earlier&#xA;  patents expired. The history of insulin hasn’t followed the standard chronology of pharmaceutical innovation, in which patent monopolies predictably give way to generic competition.&#xA;  &lt;br&gt;&#xA;  Viewed in historical perspective, insulin is not&#xA;  a single entity but a family of related products&#xA;  that has evolved through incremental improvements. Subsequent iterations of insulin represented actual innovations, each one being safer,&#xA;  more effective, or more convenient than its predecessor. And yet after generations of incremental&#xA;  innovation, insulin may be no more affordable&#xA;  than it was when the original patent holders&#xA;  sold their stake for $1 to ensure access to this&#xA;  essential medicine. &lt;br&gt;&#xA;  Pharmaceutical-industry analysts have described a repatenting tactic called evergreening,&#xA;  in which a series of related patents — often on&#xA;  metabolites or optical isomers — extend the life&#xA;  of a product after initial patent expiration.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2019-01-31T16:19:53.723" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26697" PostTypeId="2" ParentId="26655" CreationDate="2019-01-31T21:13:25.883" Score="2" Body="&lt;p&gt;A rough estimation technic consists in &lt;em&gt;(i)&lt;/em&gt; getting the &lt;em&gt;half&lt;/em&gt; of the Gross Urban Product (GUP), thinking of it as a perpetual yearly &lt;em&gt;net&lt;/em&gt; income flow (i.e. a profit flow) attributable to the entire city as such, and &lt;em&gt;(ii)&lt;/em&gt; dividing it by the average cost of capital that is immobilized locally, say, &lt;span class=&quot;math-container&quot;&gt;$2\%$&lt;/span&gt;, minus the GUP's growth rate, say, &lt;span class=&quot;math-container&quot;&gt;$1\%$&lt;/span&gt; &lt;em&gt;(both real and assumed constant over an infinite horizon)&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the case of &lt;a href=&quot;https://en.m.wikipedia.org/wiki/Munich_Metropolitan_Region&quot; rel=&quot;nofollow noreferrer&quot;&gt;Munich&lt;/a&gt; it would be&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\frac{1}{2}\frac{GUP_{2018}}{.02 - .01} = 105\text{E}^{11}€$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$10.5$&lt;/span&gt; trillions euros, actually calculated using the &lt;a href=&quot;https://en.m.wikipedia.org/wiki/Dividend_discount_model&quot; rel=&quot;nofollow noreferrer&quot;&gt;DD Model&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that public infrastructures are not excluded from the above valuation since the city is considered as an indivisible whole.&lt;/p&gt;&#xA;" OwnerUserId="10247" LastEditorUserId="10247" LastEditDate="2019-01-31T21:51:40.567" LastActivityDate="2019-01-31T21:51:40.567" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26699" PostTypeId="1" CreationDate="2019-01-31T23:14:29.217" Score="1" ViewCount="83" Body="&lt;p&gt;I've built a model that I am trying to solve in Matlab. The model has Dixit-Stiglitz preferences and &lt;span class=&quot;math-container&quot;&gt;$m$&lt;/span&gt; goods, so admits a price index of the following form:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$ P = \bigg[ \sum_m p_m^{1-\varepsilon} \bigg]^{\frac{1}{1-\varepsilon}} $&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would like to normalise this to 1. That is, everything in my model would be in terms of the final goods basket. However, the goods prices are already determined by the following well-known equation&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$ p_m = P^{1-\varepsilon} \bigg[ \frac{I}{Y_m} \bigg]^{1/\varepsilon} $&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where &lt;span class=&quot;math-container&quot;&gt;$I$&lt;/span&gt; is total income (you can think of it as &lt;span class=&quot;math-container&quot;&gt;$\sum_m p_m Y_m$&lt;/span&gt;) and &lt;span class=&quot;math-container&quot;&gt;$Y_m$&lt;/span&gt; is production of good &lt;span class=&quot;math-container&quot;&gt;$m$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Furthermore, given a set of wages and rental rates (supplied as a &quot;guess&quot; for Matlab's fsolve), the FOCs already (over)identify the capital and labour levels, and so &lt;span class=&quot;math-container&quot;&gt;$Y_m$&lt;/span&gt; is determined, pinning down &lt;span class=&quot;math-container&quot;&gt;$p_m$&lt;/span&gt;. It seems like I can't set the price index &lt;span class=&quot;math-container&quot;&gt;$P =1$&lt;/span&gt;?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What shall I do? Shall I include the &lt;span class=&quot;math-container&quot;&gt;$P-1=0$&lt;/span&gt; equation in my Matlab solver (adding to the overidentification issues!)? Shall I calibrate &lt;span class=&quot;math-container&quot;&gt;$\varepsilon$&lt;/span&gt; to ensure &lt;span class=&quot;math-container&quot;&gt;$P=1$&lt;/span&gt;? Or do you have any other advice? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you so much! &lt;/p&gt;&#xA;" OwnerUserId="20959" LastActivityDate="2019-02-01T10:14:43.103" Title="Can I normalise the Dixit-Stiglitz price index to 1?" Tags="&lt;macroeconomics&gt;&lt;mathematical-economics&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="26700" PostTypeId="2" ParentId="26678" CreationDate="2019-02-01T00:45:28.230" Score="1" Body="&lt;p&gt;Knowing that demand is linear, we can deduce from the two points on the demand curve, &lt;span class=&quot;math-container&quot;&gt;$(q,p)\in\{(1,2),(2,3)\}$&lt;/span&gt;, that the demand function is &lt;span class=&quot;math-container&quot;&gt;$p=7-2q$&lt;/span&gt;, which is consistent with the Company A's profit maximizing quantity being &lt;span class=&quot;math-container&quot;&gt;$2$&lt;/span&gt; units (assuming no fixed cost). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If B enters the market and competes in quantity, the Cournot outcome is &lt;span class=&quot;math-container&quot;&gt;$q_A=q_B=\frac23$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$p=\frac{13}3$&lt;/span&gt;. Taking into account B's fixed cost of &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt; for entering the market, its profit is &#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;\left(\frac{13}3-3\right)\frac23-1=-\frac19&amp;lt;0.&#xA;\end{equation}&lt;/span&gt;&#xA;Hence it's not profitable for B to enter. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If B enters the market and competes in price, the Bertrand outcome is &lt;span class=&quot;math-container&quot;&gt;$p_A=p_B=3$&lt;/span&gt;. In this case, revenue is equal to the cost of production, so B makes zero profit (absent the entry cost). However, given the positive cost of entry, B would be making a loss if it enters the market.&lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2019-02-01T00:45:28.230" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26701" PostTypeId="1" CreationDate="2019-02-01T06:14:13.160" Score="1" ViewCount="272" Body="&lt;p&gt;My textbook, &lt;strong&gt;&lt;em&gt;Microeconomic Theory&lt;/em&gt;&lt;/strong&gt; by &lt;em&gt;Mas-Colell, Whinston, and Green&lt;/em&gt; states that given a preference relation &lt;span class=&quot;math-container&quot;&gt;$\succsim$&lt;/span&gt; on &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt;, &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;Strict preference relation&lt;/strong&gt; &lt;span class=&quot;math-container&quot;&gt;$\succ$&lt;/span&gt; is defined by &#xA;  &lt;span class=&quot;math-container&quot;&gt;$ x \succ y \iff x \succsim y \text{ but not } y \succsim x $&lt;/span&gt;&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&lt;strong&gt;Indifference relation&lt;/strong&gt; &lt;span class=&quot;math-container&quot;&gt;$\sim$&lt;/span&gt; is defined by &#xA;  &lt;span class=&quot;math-container&quot;&gt;$ x \sim y \iff x \succsim y \text{ and } y \succsim x $&lt;/span&gt;&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&lt;strong&gt;Completeness property&lt;/strong&gt;: For all &lt;span class=&quot;math-container&quot;&gt;$x,y \in X$&lt;/span&gt;, we have either &lt;span class=&quot;math-container&quot;&gt;$x \succsim y$&lt;/span&gt; or &lt;span class=&quot;math-container&quot;&gt;$y \succsim x$&lt;/span&gt; or both.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Suppose &lt;span class=&quot;math-container&quot;&gt;$\succsim$&lt;/span&gt; on &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; is complete. Define &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt; to be the truth set of &lt;span class=&quot;math-container&quot;&gt;$x \succsim y$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$B$&lt;/span&gt; to be the truth set of &lt;span class=&quot;math-container&quot;&gt;$y \succsim x$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since &lt;span class=&quot;math-container&quot;&gt;$\succsim$&lt;/span&gt; is complete, &lt;span class=&quot;math-container&quot;&gt;$A \cup B$&lt;/span&gt; is the universal set. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, &lt;span class=&quot;math-container&quot;&gt;$x \succ y \iff x \succsim y \land \lnot (y \succsim x)$&lt;/span&gt;, hence the truth set of &lt;span class=&quot;math-container&quot;&gt;$x \succ y$&lt;/span&gt; is &lt;span class=&quot;math-container&quot;&gt;$A \setminus B$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Next, &lt;span class=&quot;math-container&quot;&gt;$y \succ x \iff y \succsim x \land \lnot (x \succsim y)$&lt;/span&gt;, hence the truth set of &lt;span class=&quot;math-container&quot;&gt;$y \succ x$&lt;/span&gt; is &lt;span class=&quot;math-container&quot;&gt;$B \setminus A$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, &lt;span class=&quot;math-container&quot;&gt;$x \sim y \iff x \succsim y \land y \succsim x$&lt;/span&gt;, hence the truth set of &lt;span class=&quot;math-container&quot;&gt;$x \sim y$&lt;/span&gt; is &lt;span class=&quot;math-container&quot;&gt;$A \cap B$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Using the identity &lt;span class=&quot;math-container&quot;&gt;$A \cup B = (A \setminus B) \sqcup (A \cap B) \sqcup (B \setminus A)$&lt;/span&gt;, is it safe to say that &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;If &lt;span class=&quot;math-container&quot;&gt;$\succsim$&lt;/span&gt; is complete, then for any &lt;span class=&quot;math-container&quot;&gt;$x,y \in X$&lt;/span&gt; exactly one of &lt;span class=&quot;math-container&quot;&gt;$x \succ y$&lt;/span&gt; or &lt;span class=&quot;math-container&quot;&gt;$x \sim y$&lt;/span&gt; or &lt;span class=&quot;math-container&quot;&gt;$y \succ x$&lt;/span&gt; holds. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="20961" LastActivityDate="2019-02-01T07:02:14.690" Title="Completeness Axiom in Preference Relation" Tags="&lt;preferences&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="26703" PostTypeId="2" ParentId="26699" CreationDate="2019-02-01T08:37:56.987" Score="1" Body="&lt;p&gt;To me it depends. If you are dealing with price indexes that are somehow distributed spatially, i.e. you have &lt;span class=&quot;math-container&quot;&gt;$P_i \ \text{for} \ i=\text{NY},...,\text{CH}$&lt;/span&gt; it would make no sense to normalize only one of them. I say &quot;&lt;em&gt;only&lt;/em&gt;&quot; because it would be &lt;em&gt;a priori&lt;/em&gt; impossible to normalize them all since, say, transport costs would ineluctably force them to be different.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you are dealing with a unique price-index, I see no reason of why you could not do so. Indeed, note that you have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$ p_m = P(p_m)^{1-\varepsilon} \bigg[ \frac{I}{Y_m} \bigg]^{1/\varepsilon}$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which underlies an under-identified system. So, yes you can include the &lt;span class=&quot;math-container&quot;&gt;$P-1=0$&lt;/span&gt; equation in your solver.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regarding the contradiction it creates with your (over-identifying) wages and rental rates, to me it looks like you should take things upside-down. Under Dixit-Stiglitz monopolistic market, firms set their price by assuming a constant elasticity of substitution (CES), &lt;span class=&quot;math-container&quot;&gt;$\varepsilon &amp;gt; 1$&lt;/span&gt;, and profit maximization leads to a constant mark-up on variable cost&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$p_m = \frac{\varepsilon}{\varepsilon - 1} c_m(w_m)$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where &lt;span class=&quot;math-container&quot;&gt;$c_m(w_m)$&lt;/span&gt; is the unitary labor cost of producer &lt;span class=&quot;math-container&quot;&gt;$m$&lt;/span&gt;, function of wages &lt;span class=&quot;math-container&quot;&gt;$w_m$&lt;/span&gt;. So there are &lt;em&gt;a priori&lt;/em&gt; nothing to guess &lt;em&gt;freely&lt;/em&gt; at that level, just use the relation you have between prices and wages. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, the level of capital, &lt;span class=&quot;math-container&quot;&gt;$K_m$&lt;/span&gt;, should be set before any king of GE-resolution. Indeed this is a &quot;calibrating&quot; characteristic and I do not see why -- at least given the content of your question -- you want its obtention to be melt with that of the general-equilibrium (GE) vector of prices.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would not calibrate &lt;span class=&quot;math-container&quot;&gt;$\varepsilon$&lt;/span&gt; if I were you, since there is a big narrative behind the choice of its value: this is somehow representative of the &quot;market depth&quot;, see Rivera-Batiz (1988) for an intuition about the level of elasticity that might be chosen. Do you want your narrative to be chosen by your solver?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, you say that we can think of &lt;span class=&quot;math-container&quot;&gt;$I_m$&lt;/span&gt; as &lt;span class=&quot;math-container&quot;&gt;$\sum_m p_m Y_m$&lt;/span&gt;, which is (only) true at equilibrium... But how is your &lt;span class=&quot;math-container&quot;&gt;$I_m$&lt;/span&gt; formed ? It looks like each consumer also possesses her own firm (given that &lt;span class=&quot;math-container&quot;&gt;$I$&lt;/span&gt; is indexed by &lt;span class=&quot;math-container&quot;&gt;$m$&lt;/span&gt;)? Is it &lt;span class=&quot;math-container&quot;&gt;$I_m = w_m + K_mr_m$&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$r_m$&lt;/span&gt; is the rate of return of the firm &lt;span class=&quot;math-container&quot;&gt;$m$&lt;/span&gt; ?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Need more precisions from you to go further.&lt;/p&gt;&#xA;" OwnerUserId="10247" LastEditorUserId="10247" LastEditDate="2019-02-01T10:14:43.103" LastActivityDate="2019-02-01T10:14:43.103" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26704" PostTypeId="1" AcceptedAnswerId="26705" CreationDate="2019-02-01T14:30:20.700" Score="1" ViewCount="296" Body="&lt;p&gt;Consider a very simple version of the Solow model with discrete time, a fixed population size and no technological progress (a fuller description of the assumptions is outlined &lt;a href=&quot;http://www.karlwhelan.com/Macro2/Notes9.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;). Capital is at 'steady state' when the total amount of depreciation equals the total amount of saving; graphically, this occurs at the intersection of the blue and purple functions below:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/H0yPI.gif&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/H0yPI.gif&quot; alt=&quot;Solow model&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider the adjustment process to the steady state. I have often heard it claimed that the lower capital starts, the faster growth will be. Hence, the model predicts that poor countries will grow faster than rich countries, assuming that these countries are the same in all other respects ('conditional convergence'). However, looking at the graph here, it seems that at a very low level of capital, growth will actually be very slow. The reason is that the savings function (blue) is barely above the depreciation line (purple), so the increase in capital is small. As capital increases, the gap between these functions gets larger, so the growth rate should increase. Eventually, however, the gap begins to get smaller, and growth does indeed slow down (as commonly claimed).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course, I have been discussing the growth rate in capital, while we are interested in the growth rate in output. And indeed the marginal product is capital monotonically falls as capital increases. Is this what ensures that the growth rate in capital is always falling? Or is there still a period when the growth rate in output is increasing?&lt;/p&gt;&#xA;" OwnerDisplayName="user17900" LastActivityDate="2019-02-01T14:49:18.467" Title="The growth rate in the Solow model" Tags="&lt;macroeconomics&gt;&lt;economic-growth&gt;&lt;solow&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26705" PostTypeId="2" ParentId="26704" CreationDate="2019-02-01T14:49:18.467" Score="1" Body="&lt;p&gt;It seems you are confounding growth and growth rate.  The difference between the blue and purple curves, i. e. growth,  may be small when capital is small, but the ratio of the difference to  capital, i. e. the growth rate will indeed be larger the closer capital is to zero.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2019-02-01T14:49:18.467" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26706" PostTypeId="1" CreationDate="2019-02-01T15:15:36.633" Score="1" ViewCount="30" Body="&lt;p&gt;Hi  I needed some clarification on something. I have three variables: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;span class=&quot;math-container&quot;&gt;$V_1$&lt;/span&gt; which is an indicator of an interest rate risk premia &lt;/li&gt;&#xA;&lt;li&gt;&lt;span class=&quot;math-container&quot;&gt;$V_2$&lt;/span&gt; which is an indicator of a credit risk premia &lt;/li&gt;&#xA;&lt;li&gt;&lt;span class=&quot;math-container&quot;&gt;$V_3$&lt;/span&gt; which is an indicator of a liquidity risk premia. &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;While in theory the relationship of: &#xA;&lt;span class=&quot;math-container&quot;&gt;$$V_1 = V_2 + V_3$$&lt;/span&gt; should hold; I'm struggling to find a good modelling technique that can decompose &lt;span class=&quot;math-container&quot;&gt;$V_1$&lt;/span&gt; into subcomponents that relate to &lt;span class=&quot;math-container&quot;&gt;$V_2$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$V_3$&lt;/span&gt;. I am searching for something beyond a vector auto-regressive model.&#xA;My question is would State space modelling help me in this decomposition.&lt;/p&gt;&#xA;" OwnerUserId="20966" LastEditorUserId="17735" LastEditDate="2019-02-02T13:56:20.750" LastActivityDate="2019-02-02T13:56:20.750" Title="Decomposition of interest rate risk" Tags="&lt;econometrics&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26708" PostTypeId="1" CreationDate="2019-02-01T17:33:02.110" Score="1" ViewCount="65" Body="&lt;p&gt;[&lt;img src=&quot;https://i.stack.imgur.com/FOThJ.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What does it mean that GMM is robust to distributional assumptions?&lt;/p&gt;&#xA;" OwnerUserId="20683" LastActivityDate="2019-02-04T13:00:13.153" Title="features of Generalised Method of Moments estimation" Tags="&lt;econometrics&gt;&lt;self-study&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26709" PostTypeId="1" AcceptedAnswerId="26711" CreationDate="2019-02-01T18:05:54.727" Score="4" ViewCount="438" Body="&lt;p&gt;I am confused on the concept of &lt;strong&gt;static game with complete but imperfect information&lt;/strong&gt; and its consequences on the equilibrium definition. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose we have 2 players. Each player &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; chooses action &lt;span class=&quot;math-container&quot;&gt;$Y_i\in \{A,B\}$&lt;/span&gt;. Actions are chosen simultaneously by the two players. Simultaneity=static in my mind. Is it the case actually?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Each player &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; gets a payoff &lt;span class=&quot;math-container&quot;&gt;$\Pi^i(Y_1, Y_2)$&lt;/span&gt; at the end of the game.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We assume complete information, i.e., players know the values&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\begin{cases}&#xA;\Pi^1(A,B),\Pi^1(A,A),\Pi^1(B,B),\Pi^1(B,A)\\&#xA;\Pi^2(A,B),\Pi^2(A,A),\Pi^2(B,B),\Pi^2(B,A)\\&#xA;\end{cases}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An equilibrium concept that we can use in this context is Pure Strategy Nash Equilibrium: &lt;span class=&quot;math-container&quot;&gt;$(Y_1, Y_2)$&lt;/span&gt; is a PSNE if&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\begin{cases}&#xA;\Pi^1(Y_1, Y_2)\geq \Pi^1(\tilde{Y}_1, Y_2)\\&#xA;\Pi^2(Y_1, Y_2)\geq \Pi^1(Y_1, \tilde{Y}_2)\\&#xA;\end{cases}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Question&lt;/strong&gt;: What does it mean assuming the players have imperfect information in this case? Would that be in contrast with any of my claims above? Would that change the equilibrium notion? Is Pure Strategy Nash Equilibrium still applicable? &lt;a href=&quot;https://economics.stackexchange.com/questions/13292/imperfect-vs-incomplete-information&quot;&gt;This&lt;/a&gt; question is related but it does not clarify exactly my point.&lt;/p&gt;&#xA;" OwnerUserId="1505" LastEditorUserId="1505" LastEditDate="2019-02-01T18:24:41.917" LastActivityDate="2019-02-01T23:03:10.097" Title="Static game with complete but imperfect information" Tags="&lt;game-theory&gt;&lt;nash-equilibrium&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26710" PostTypeId="2" ParentId="26708" CreationDate="2019-02-01T19:16:25.523" Score="3" Body="&lt;p&gt;It is a fancy, confusing and indirect way to say that GMM, being a Method-of-Moments estimator, &lt;em&gt;does not require&lt;/em&gt; distributional assumptions in order to estimate regression coefficients, just like Ordinary Least Squares, and in contrast to maximum likelihood that needs to make distributional assumptions. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The wording is confusing, because &quot;robust to distributional assumptions&quot; means that we get consistent estimates even if we have made the wrong distributional assumptions.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2019-02-04T13:00:13.153" LastActivityDate="2019-02-04T13:00:13.153" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26711" PostTypeId="2" ParentId="26709" CreationDate="2019-02-01T23:03:10.097" Score="4" Body="&lt;p&gt;&lt;strong&gt;Complete information&lt;/strong&gt; means every player has common knowledge of the structure of the game, in particular, everyone's preference over outcomes and the realization of the relevant state variables.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Perfect information&lt;/strong&gt; means every player has common knowledge of the entire history of play up to the point where they are about to make a decision. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Static games are considered to be of &lt;em&gt;complete information&lt;/em&gt; because the players know each other's payoffs in all possible outcomes (and there's no uncertainty about any state variable here), as you rightly noticed. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reason why static games are usually considered to be of imperfect information is due to the extensive form representation of such games (see figure below). Since static games emphasize &lt;em&gt;strategic simultaneity&lt;/em&gt; (making a decision without knowledge of what the other player has chosen) as opposed to &lt;em&gt;temporal simultaneity&lt;/em&gt; (making a decision at the same time as the other player), the extensive form of such games usually feature one player moving first while the second player chooses without observing the first player's choice. This lack of information about the first mover therefore leads to &lt;em&gt;imperfect information&lt;/em&gt;, i.e. player 2 does not have knowledge of part of the history of the game. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is why &lt;strong&gt;perfect information&lt;/strong&gt; is sometimes characterized as an extensive form game in which every information set is a singleton.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/d4pG0.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/d4pG0.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2019-02-01T23:03:10.097" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26712" PostTypeId="1" CreationDate="2019-02-02T00:13:21.040" Score="1" ViewCount="22" Body="&lt;p&gt;Hi I am working on a problem set in my macroeconomics course. I have a hard time figuring out how to get started on one of the problems.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The set-up is the following. A price-taking firm maximizes:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\max_{L_{t},K_{t},I_{t}} E_{0} [\sum_{t=0}^{\infty}\prod_{s=0}^{t}(1+r_{s})^{-1}\{(1-\tau)K_{t}^{\alpha}L_{t}^{1-\alpha}-w_{t}L_{t}-I_{t}(1+a(I_{t}/K_{t}-\delta)) \}]$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;subject to:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$K_{t} = (1-\delta)K_{t-1}+I_{t-1}$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$K_{0}$&lt;/span&gt; is given, &lt;span class=&quot;math-container&quot;&gt;$w_{t},r_{t}$&lt;/span&gt; are stochastic, &lt;span class=&quot;math-container&quot;&gt;$\delta$&lt;/span&gt; is the rate of capital depriciation, &lt;span class=&quot;math-container&quot;&gt;$I$&lt;/span&gt; is the gross investment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;The question is the following:&lt;/strong&gt;&#xA;Let &lt;span class=&quot;math-container&quot;&gt;$q$&lt;/span&gt;   be  the  Lagrange  multiplier  on  the  constraint  (it’s  also  Tobin’s  Q).  Derive  the  first  order conditions for optimization with respect to &lt;span class=&quot;math-container&quot;&gt;$L, I$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$K$&lt;/span&gt;. Given &lt;span class=&quot;math-container&quot;&gt;$q$&lt;/span&gt;, what information is needed  to  establish  optimal  level  of  investment?  Log-linearize  the  FOC  for  investment.  Suppose  we  observe  &lt;span class=&quot;math-container&quot;&gt;$I, K$&lt;/span&gt;,  and  &lt;span class=&quot;math-container&quot;&gt;$q$&lt;/span&gt;. How  would  you  estimate  the  parameter  &lt;span class=&quot;math-container&quot;&gt;$a$&lt;/span&gt; using  this  equation?  How  would  you  interpret  the  error  term  in  this  regression?  What  are  the  properties  of  the  error  term  given  your  interpretation  (e.g.,  serial  correlation,  correlation  with other variables, etc.)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have set up the Lagrangian setting &lt;span class=&quot;math-container&quot;&gt;$\prod_{s=0}^{t}(1+r_{s})^{-1}=R_{t}$&lt;/span&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$       \mathcal{L} =  E_{0} \big\{ \sum_{t=0}^{\infty} R_{t} \left[ (1-\tau)K_{t}^{\alpha}L_{t}^{1-\alpha} -w_{t}L_{t} -I_{t}(1+a(\frac{I_{t}}{K_{t}}-\delta)) + q_{t}(-K_{t}+(1-\delta)K_{t-1}+I_{t-1}) \right]\big\}$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and derived the following FOCs:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$        \frac{\partial \mathcal{L}}{\partial L_{t}} = R_{t} \left[ (1-\tau)(1-\alpha)K_{t}^{\alpha}L_{t}^{-\alpha}-w_{t} \right]  = 0 \Leftrightarrow W_{t} = MPL_{t},\\&#xA;        \frac{\partial \mathcal{L}}{\partial I_{t}} = R_{t} \left[ -1 -2a \frac{I_{t}}{K_{t}} + a\delta \right]  +E_{t}[R_{t+1}q_{t+1}]  = 0  \Leftrightarrow 1 +2a \frac{I_{t}}{K_{t}} - a\delta  = E_{t}[(1+r_{t+1})^{-1} q_{t+1}],\\&#xA;        \frac{\partial \mathcal{L}}{\partial K_{t}} = R_{t} \left[ (1-\tau) \alpha K_{t}^{\alpha-1}L_{t}^{1-\alpha} + a \left( \frac{I_{t}}{K_{t}} \right)^{2} - q_{t} \right]  +E_{t}[R_{t+1}q_{t+1}(1-\delta)]  = 0, \\&#xA;         \Leftrightarrow  (1-\delta)^{-1}(q_{t}-(1-\tau) \alpha K_{t}^{\alpha-1}L_{t}^{1-\alpha} - a \left( \frac{I_{t}}{K_{t}} \right)^{2})  = E_{t}[(1+r_{t+1})^{-1} q_{t+1}].$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But I have a hard time seeing how I would log-linearize &lt;span class=&quot;math-container&quot;&gt;$1 +2a \frac{I_{t}}{K_{t}} - a\delta  = E_{t}[(1+r_{t+1})^{-1} q_{t+1}]$&lt;/span&gt; to something useful in terms of a regression. I hope somebody can help explain how I should go from here? or if I have made a misstake in my derivations.&lt;/p&gt;&#xA;" OwnerUserId="20969" LastActivityDate="2019-02-02T00:13:21.040" Title="Estimation of investment adjustment costs" Tags="&lt;macroeconomics&gt;&lt;regression&gt;&lt;investment&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26714" PostTypeId="1" AcceptedAnswerId="26716" CreationDate="2019-02-02T09:09:52.803" Score="2" ViewCount="109" Body="&lt;p&gt;Take a two-stage game with complete information and simultaneous actions in each state: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(1) Player 1 and 2 simultaneously choose action &lt;span class=&quot;math-container&quot;&gt;$a_1\in A_1$&lt;/span&gt;  and&#xA;&lt;span class=&quot;math-container&quot;&gt;$a_2\in A_2$&lt;/span&gt; respectively.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(2) Player 1 and 2 observe the outcome of the 1st stage&#xA;&lt;span class=&quot;math-container&quot;&gt;$(a_1, a_2)$&lt;/span&gt;, then simultaneously choose action  &lt;span class=&quot;math-container&quot;&gt;$a_3\in A_3$&lt;/span&gt; and&#xA;&lt;span class=&quot;math-container&quot;&gt;$a_4\in A_4$&lt;/span&gt; respectively.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Payoffs are &lt;span class=&quot;math-container&quot;&gt;$u_i(a_1, a_2, a_3, a_4)$&lt;/span&gt; for &lt;span class=&quot;math-container&quot;&gt;$i = 1,2$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Suppose that I do the following (typically called backward induction):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(A) find the functions &lt;span class=&quot;math-container&quot;&gt;$a^*_3(a_1,a_2)$&lt;/span&gt;  and &lt;span class=&quot;math-container&quot;&gt;$a^*_4(a_1,a_2)$&lt;/span&gt; such that &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\begin{cases}&#xA;a_3^*(a_1, a_2)\in argmax_{a_3(\cdot)}u_1(a_1, a_2, a_3(a_1, a_2), a_4(a_1, a_2))\\&#xA;a_4^*(a_1, a_2)\in argmax_{a_4(\cdot)}u_2(a_1, a_2, a_3(a_1, a_2), a_4(a_1, a_2))\\&#xA;\end{cases}&#xA;$$&lt;/span&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(B) find &lt;span class=&quot;math-container&quot;&gt;$a_1^*, a_2^*$&lt;/span&gt; such that&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\begin{cases}&#xA;a_1^*\in argmax_{a_1}u_1(a_1, a_2, a^*_3(a_1, a_2), a^*_4(a_1, a_2))\\&#xA;a_2^*\in argmax_{a_2}u_2(a_1, a_2, a^*_3(a_1, a_2), a^*_4(a_1, a_2))\\&#xA;\end{cases}&#xA;$$&lt;/span&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Which equilibrium notion I'm I applying?&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Basically, in (A) I find the pure strategy Nash Equilibrium of stage 2, for each possible action played in stage 1; in (B) I find the pure strategy Nash Equilibrium of stage 1, given the solution from (A).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How is &lt;span class=&quot;math-container&quot;&gt;$\{a_1^*, a_2^*, a^*_3(a_1, a_2), a^*_4(a_1, a_2)\}$&lt;/span&gt; called?&lt;/p&gt;&#xA;" OwnerUserId="1505" LastActivityDate="2019-02-02T10:21:04.373" Title="Solving a two stage game by backward induction: which is the equilibrium notion?" Tags="&lt;game-theory&gt;&lt;nash-equilibrium&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26716" PostTypeId="2" ParentId="26714" CreationDate="2019-02-02T10:21:04.373" Score="3" Body="&lt;p&gt;It is called a &lt;a href=&quot;https://en.wikipedia.org/wiki/Subgame_perfect_equilibrium&quot; rel=&quot;nofollow noreferrer&quot;&gt;subgame perfect equilibrium.&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2019-02-02T10:21:04.373" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26717" PostTypeId="1" AcceptedAnswerId="26730" CreationDate="2019-02-02T10:32:33.350" Score="1" ViewCount="65" Body="&lt;p&gt;Suppose I attend college with 10k tuition fee per year meanwhile I have a part time job for 5k annually. After 3 years, I get a job for 45 years and earn 40k each year. What is my net present value in term of interate rate x?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I did try to form a formula like this, is it correct?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/n6y1z.gif&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/n6y1z.gif&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="20765" LastActivityDate="2019-02-03T13:07:35.803" Title="Net present value of studying?" Tags="&lt;microeconomics&gt;&lt;finance&gt;&lt;investment&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26722" PostTypeId="1" CreationDate="2019-02-02T14:41:48.060" Score="3" ViewCount="149" Body="&lt;p&gt;I'm currently at a McDonald's in Norway &lt;em&gt;(so, not a country where labour is dirt cheap, even for relatively unqualified jobs)&lt;/em&gt;, and I'm struck by how manual every process is, from cooking the meat to assembling burgers to serving. &#xA;The fries-making process is particularly baffling. It goes like this:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;An employee pours frozen fries in a basket and dunks it in oil&lt;/li&gt;&#xA;&lt;li&gt;After a while, an alarm rings and an employee has to come to manually raise the basket from the oil&lt;/li&gt;&#xA;&lt;li&gt;An employee put the fries in a bin and salt them with a handheld salt shaker&lt;/li&gt;&#xA;&lt;li&gt;The employee shovels the fries into little bags that are brought to the trays&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;It seems like it would be trivial to automate away the second step here &lt;em&gt;(for example by having the basket rise by itself after a set time)&lt;/em&gt;, and not that hard to have the rest done by a machine either.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Other industries employing unqualified labour, like groceries stores, have spent considerably more money and effort into automating their checkout lines, for example. Why hasn't the fast food industry followed suit?&lt;/p&gt;&#xA;" OwnerUserId="20975" LastEditorUserId="19689" LastEditDate="2019-02-03T13:29:03.423" LastActivityDate="2019-04-05T03:02:35.487" Title="Why is there so little automation at McDonald's?" Tags="&lt;microeconomics&gt;&lt;automation&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26724" PostTypeId="2" ParentId="26690" CreationDate="2019-02-02T22:30:28.393" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Robert Ashford has written about his proposal for a better, inclusive&#xA;  capitalism, but I don't understand the method. For example, take a&#xA;  look at this article. All is very obscure.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Can't see how this would work.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The article is altogether too sketchy, idealistic, contradictory, very flawed, with too many unfilled gaps and motley elements. Much of it sounds like campaign promises, but a &quot;&lt;em&gt;broader distribution of capital acquisition and income&lt;/em&gt;&quot; is not the panacea the article purports.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Initially, the authors admit that &quot;&lt;em&gt;production generally becomes increasingly more capital intensive&lt;/em&gt;&quot; (p.70) and that &quot;&lt;em&gt;capital [keeps] doing an ever-increasing portion of the total work&lt;/em&gt;&quot; (p.71). Despite that, the authors &quot;predict&quot; that a broadening of capital acquisition will lead to &quot;fuller employment of labor&quot; and that &quot;&lt;em&gt;the present demand [...] [of] employment would increase&lt;/em&gt;&quot; (p.71) (even by virtue of the market's anticipation of that broadening!), that it &quot;&lt;em&gt;should&lt;/em&gt; be reflected in increased employment of labor&quot; (p.73).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That twist is unrealistic and makes no sense. Simply put, it would be absurd for a profit-maximizing agent to invest on labor even though (or despite that) he knows that labor keeps being increasingly replaced by capital.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The principle of &lt;em&gt;decreasing marginal utility&lt;/em&gt; strikes the authors' presumption that higher levels of income will consistently lead to greater demand of goods and services. The authors purport that, unlike the &quot;Keynesian analysis&quot;, binary growth would continue materializing in the long run. But they do not (and cannot) articulate how their proposal would overcome the decreasing marginal utility in the long run, or why this would be any different in the aggregate. In short, the authors appear to ignore the notion of &lt;em&gt;oversupply&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The article posits that its so-called &quot;binary economic approach&quot; can also enhance &quot;&lt;em&gt;the prospects for achieving environmental sustainability&lt;/em&gt;&quot; (p.70). But then it admits that it is optimistic and doubtful that &quot;&lt;em&gt;binary growth would in the aggregate be greener growth[,] because [...] too many people may also prefer to spend their enhanced capital income on brown rather than greener products and services&lt;/em&gt;&quot; (p.73). The article ends up requiring an &quot;active role&quot; from the government &quot;&lt;em&gt;with respect to [...] environmental sustainability issues&lt;/em&gt;&quot; (p.73).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The article also goes from the initial premise that its proposal would require &quot;no government command&quot; (p.70) to proposing that the government embrace an &quot;active role&quot; in defining where to promote a &quot;qualified&quot; binary financing&quot;  as well as to determine which producers shall be subjected to &quot;&lt;em&gt;more stringent [standards] than [the] mandatory standards imposed on all producers&lt;/em&gt;&quot; (p.73). That governmental active role also includes the implementation of a &quot;credit reinsurance entity modeled after the FHA home loan reinsurance program&quot; (p.74).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The article is so poorly written and so incongruous that it significantly hurts the &quot;prestige&quot; and &lt;em&gt;value&lt;/em&gt; of the authors' credentials (listed at the end: J.D. &amp;amp; Ph.D. holders). The only thing for which I would praise the article is the call for a reduction of tax rates. Putting aside the terrible &quot;quality&quot; of the article, it appears as if one team of authors wrote pages 70-71 and their opponents wrote pages 73-74. &lt;/p&gt;&#xA;" OwnerUserId="18552" LastEditorUserId="18552" LastEditDate="2019-02-03T11:45:24.460" LastActivityDate="2019-02-03T11:45:24.460" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26725" PostTypeId="2" ParentId="26717" CreationDate="2019-02-02T22:49:06.217" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;I did try to form a formula like this, is it correct?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;No. You need to include the NPV of all years. Right now you are only considering two of those years (and it is not clear which year you refer to in the 2nd term).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, it is unclear from the problem whether tuition is paid in the beginning of each year or at the end thereof.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The discounting factor in the 2nd term is wrong. The discounting factor for a cash flow at the end of year &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt; is &lt;span class=&quot;math-container&quot;&gt;$$1/(1+x)^n$$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerUserId="18552" LastActivityDate="2019-02-02T22:49:06.217" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="26728" PostTypeId="1" CreationDate="2019-02-03T07:08:30.643" Score="5" ViewCount="195" Body="&lt;p&gt;For example, in the US:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In 1834, the United States fixed the price of gold at $20.67 per ounce, where it remained until 1933. (&lt;a href=&quot;https://www.econlib.org/library/Enc/GoldStandard.html&quot; rel=&quot;noreferrer&quot;&gt;EconLib&lt;/a&gt;)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Does this mean that anyone with US\$20.67 could walk up to any bank in the US and demand an ounce of gold? Conversely, could anyone with an ounce of gold demand US\$20.67 in paper money from any bank?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or were the rules of redemption more restrictive than that?&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastEditorDisplayName="user18" LastEditDate="2019-02-03T07:14:02.683" LastActivityDate="2020-10-20T19:26:20.337" Title="Under the gold standard, how did the redemption of gold work in practice?" Tags="&lt;money&gt;&lt;gold-standard&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26729" PostTypeId="1" AcceptedAnswerId="26734" CreationDate="2019-02-03T13:01:37.760" Score="4" ViewCount="437" Body="&lt;p&gt;Based on my economics book, monotonic transformations for a utility function can look something like this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$f(u) = u + 17 $&lt;/span&gt; or even like this: &lt;span class=&quot;math-container&quot;&gt;$f(u) = u^3$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That being said what it purpose in the case of the utility function, as far as I know, the number of the utility doesn't matter to us (the only thing that matters is if it's bigger or smaller than the utility of another bundle)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The book explains it in the following way:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;monotonic transformation is a way of transforming one set of numbers into&#xA;  another set of numbers in a way that preserves the order of the&#xA;  numbers.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Though it the order stays the same why would we do it in the first place?&lt;/p&gt;&#xA;" OwnerUserId="19689" LastActivityDate="2019-02-03T20:08:05.147" Title="Purpose of a monotonic transformations in utility functions" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;utility&gt;&lt;measuring-utility&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26730" PostTypeId="2" ParentId="26717" CreationDate="2019-02-03T13:07:35.803" Score="1" Body="&lt;p&gt;To calculate the net present value of studying, you need to consider:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;the cash flow over your working life if you study;&lt;/li&gt;&#xA;&lt;li&gt;the cash flow over your working life if you do not study.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;You have the information to infer 1.  But the information you provide does not enable you to infer 2, so you cannot calculate the net present value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The key information that is missing is how much you would have been able to earn in each of the 48 years if you did not study.  Suppose for example that you would have earned 25k per annum in each year.  Then the effect of studying would be that in each of the first 3 years, you would be worse off by 25k + 10k - 5k = 30k, and in each of the next 45 years you would be better off by 40k - 25k = 15k.  The net present value from studying, given a discount rate &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;, is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$NPV = \displaystyle\sum_{n=1}^3\bigg(\frac{-30}{(1+x)^n}\bigg) + \displaystyle\sum_{n=4}^{48}\bigg(\frac{15}{(1+x)^n}\bigg)$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This assumes that all cash flows are at the end of the relevant year and would need adjusting if any are at the beginning of or during a year.&lt;/p&gt;&#xA;" OwnerUserId="1417" LastActivityDate="2019-02-03T13:07:35.803" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26732" PostTypeId="2" ParentId="26722" CreationDate="2019-02-03T14:18:45.247" Score="1" Body="&lt;p&gt;Automation would increase the upfront cost of opening a McDonald restaurant. Which wouldn't be a good thing for its franchise business.&#xA;Also, you have to take into account that by automating its store McDonald's will drastically increase its electricity consumption (which will not only increase its costs overall but might impact its brand image in terms of global warming). So in other words, automation wouldn't be such a cheap alternative.&lt;/p&gt;&#xA;" OwnerUserId="19689" LastActivityDate="2019-02-03T14:18:45.247" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26734" PostTypeId="2" ParentId="26729" CreationDate="2019-02-03T17:01:24.547" Score="2" Body="&lt;p&gt;Utility is subjective, and as you wrote, &quot;it doesn't matter to us&quot;, but only to the person who orders her choices. We are not able to quantify a subjective concept like the utility of another person, but each person can do this for herself.&#xA;This is the reason why utility is ordinal, which means that only the order of the numbers matters, and not the way we are measuring these numbers: if 10 &gt; 3.123456, then the first bundle is preferred to the second one, by the person who orders her choices. And this ordering does not change if you change the units of measurement, and measure utility with square roots, exp, logs, (positive) power functions, etc. You can try to measure this in dollars if you want, you will never be able to measure utility.&lt;/p&gt;&#xA;" OwnerUserId="20576" LastActivityDate="2019-02-03T17:01:24.547" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26735" PostTypeId="2" ParentId="26729" CreationDate="2019-02-03T20:08:05.147" Score="3" Body="&lt;p&gt;Certain calculations using utility require utility functions to have some particular properties. The point of bringing up the invariance of preferences represented by different utility functions that are just monotonic transformations of each other is to show that these utility-based calculations are not entirely dependent on the utility functions that you happen to choose. The same results should at least hold up to order-preserving transformations.&lt;/p&gt;&#xA;" OwnerUserId="20985" LastActivityDate="2019-02-03T20:08:05.147" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26736" PostTypeId="1" CreationDate="2019-02-03T22:55:07.587" Score="0" ViewCount="151" Body="&lt;p&gt;Can someone clarify the difference between nominal and real growth of monetary base? I believe it is the policy of some central banks to target for example 0% nominal growth in the monetary base. What would an example of 0% real growth target be - nominal growth of say 2% but inflation also of 2%? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are there advantages or specific motivations of designing policy according to one vs the other?&lt;/p&gt;&#xA;" OwnerUserId="19565" LastActivityDate="2019-02-05T08:20:16.690" Title="Nominal vs real growth of monetary base" Tags="&lt;macroeconomics&gt;&lt;monetary-policy&gt;&lt;money-supply&gt;&lt;central-banking&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26738" PostTypeId="2" ParentId="26603" CreationDate="2019-02-04T03:09:00.683" Score="2" Body="&lt;p&gt;This may vary depending on the country. But for the US, there are 3 criteria:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;People are classified as unemployed if&lt;/p&gt;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;they do not have a job;&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;have actively looked for work in the prior 4 weeks; and&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;are currently available for work.&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Criteria #1 and #3 are fairly straightforward. Criterion #2 may be a little subjective and so we have the following clarification:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Actively looking for work may consist of any of the following activities:&lt;/p&gt;&#xA;&lt;pre&gt;&lt;code&gt;Contacting:&#xA;    An employer directly or having a job interview&#xA;    A public or private employment agency&#xA;    Friends or relatives&#xA;    A school or university employment center&#xA;Submitting resumes or filling out applications&#xA;Placing or answering job advertisements&#xA;Checking union or professional registers&#xA;Some other means of active job search&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;So if your someone has &lt;strong&gt;actively looked for work in the prior 4 weeks&lt;/strong&gt; (which includes the above activies), then she is counted as unemployed. Otherwise, she isn't.&lt;/p&gt;&#xA;&lt;p&gt;Source: BLS, &lt;a href=&quot;https://www.bls.gov/cps/cps_htgm.htm#unemployed&quot; rel=&quot;nofollow noreferrer&quot;&gt;&amp;quot;Who is counted as unemployed?&amp;quot;&lt;/a&gt;, which also gives some of the major questions (in the BLS survey) that determine employment status.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2019-02-04T03:09:00.683" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26742" PostTypeId="1" CreationDate="2019-02-04T08:04:58.367" Score="1" ViewCount="281" Body="&lt;p&gt;What does an increase in the real effective exchange rate signify? I read from a news report that (localized for India):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Furthermore, REER is calculated in such a way that an increase in its&#xA;  value signifies appreciation of the rupee. If we assume that the rupee&#xA;  was “fairly&quot; priced in the base year (when the index was set to 100,&#xA;  currently 2004-05), REER of more than 100 indicates that the rupee is&#xA;  overvalued. Since the current value of the trade-weighted REER index&#xA;  is around 115, we see several experts claiming that the rupee is 15%&#xA;  overvalued.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Link to article: &lt;a href=&quot;https://www.livemint.com/Opinion/6nlCPOcpAw2l0MKUZfv8AN/Is-the-rupee-overvalued-or-undervalued.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.livemint.com/Opinion/6nlCPOcpAw2l0MKUZfv8AN/Is-the-rupee-overvalued-or-undervalued.html&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand that the REER is calculated using:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Bilateral real exchange rate with various trading partners&lt;/li&gt;&#xA;&lt;li&gt;Weights assigned to these rates according to trade activity&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;But, I still can't understand what exactly an increase in REER means. If it increases by 10% (say), what exactly does it mean on the ground? And why is it overvalued if it's above 100 -- does that mean a currency is never rightly valued if it's not constant at 100? That'd mean that the REER shouldn't change at all from the base year --- otherwise a currency is &lt;strong&gt;never&lt;/strong&gt; rightly valued. How can that happen?&lt;/p&gt;&#xA;" OwnerUserId="6486" LastActivityDate="2019-02-04T08:04:58.367" Title="What does an increase in REER signify?" Tags="&lt;international-trade&gt;&lt;exchange-rates&gt;&lt;international-economics&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26744" PostTypeId="2" ParentId="26603" CreationDate="2019-02-04T10:24:05.567" Score="1" Body="&lt;p&gt;Just to give more background: The International Labor Organization (ILO) has defined &lt;a href=&quot;https://www.ilo.org/global/statistics-and-databases/statistics-overview-and-topics/WCMS_470304/lang--en/index.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;guidelines&lt;/a&gt;&#xA;on how statistical offices should define employment statuses. As Kenny_LJ pointed out, the key is &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;to be capable to work (i.e. not disabeld, sick, pregnant, retired etc.) &lt;/li&gt;&#xA;&lt;li&gt;to be actively looking for a job&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;It seems the BLS is complying with these ;)&lt;/p&gt;&#xA;" OwnerUserId="17735" LastActivityDate="2019-02-04T10:24:05.567" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26746" PostTypeId="1" AcceptedAnswerId="26749" CreationDate="2019-02-04T13:18:26.080" Score="2" ViewCount="50" Body="&lt;p&gt;How credible is the suggestion that specific parties distort price discovery (&lt;em&gt;rig&lt;/em&gt; the market) of a given asset by buying/selling corresponding futures contracts or any other derivatives.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Should these position not unwind at some point causing a reversal effect?&lt;/p&gt;&#xA;" OwnerUserId="8980" LastEditorUserId="8980" LastEditDate="2019-02-04T13:33:17.903" LastActivityDate="2019-02-04T21:23:48.183" Title="Can futures buying/selling distort price discovery?" Tags="&lt;financial-markets&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26747" PostTypeId="1" CreationDate="2019-02-04T17:43:59.483" Score="3" ViewCount="54" Body="&lt;p&gt;I'm referring to the Econometrica (1994) &lt;a href=&quot;https://pdfs.semanticscholar.org/8714/260129e51abb09fd89d6ff79065af17bb106.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;paper&lt;/a&gt; by Imbens and Angrist. In particular, I don't really understand the random variables &lt;span class=&quot;math-container&quot;&gt;$D_i(z)$&lt;/span&gt; (defined on page 468). Could you please provide me with intuition about them and explain why, specifically, for &lt;span class=&quot;math-container&quot;&gt;$z\neq w$&lt;/span&gt;, &#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;D_i(z)-D_i(w)&#xA;$$&lt;/span&gt;&#xA;can only be either &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$-1$&lt;/span&gt;? I understand that, in order to get &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt; or &lt;span class=&quot;math-container&quot;&gt;$-1$&lt;/span&gt;, the authors are looking at 2 scenarios &lt;span class=&quot;math-container&quot;&gt;$0-1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$1-0$&lt;/span&gt;. But why are the remaining scenarios &lt;span class=&quot;math-container&quot;&gt;$1-1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$0-0$&lt;/span&gt; excluded? &lt;/p&gt;&#xA;" OwnerUserId="5875" LastEditorUserId="5875" LastEditDate="2019-02-04T19:50:41.410" LastActivityDate="2019-02-05T14:21:33.173" Title="Imbens and Angrist (1994): the $D_i(z)$ variables" Tags="&lt;econometrics&gt;&lt;instrumental-variable&gt;&lt;treatment-effect&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26749" PostTypeId="2" ParentId="26746" CreationDate="2019-02-04T21:23:48.183" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Can futures buying/selling distort price discovery?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Yes, that is plausible although will not necessarily be the case. I will focus on put &amp;amp; call options.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider the &lt;a href=&quot;https://en.wikipedia.org/wiki/Put%E2%80%93call_parity&quot; rel=&quot;nofollow noreferrer&quot;&gt;put-call parity&lt;/a&gt;, which I rewrite as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$S+P=C+K*exp(-rt)$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where &lt;em&gt;S&lt;/em&gt; denotes the stock [price], &lt;em&gt;P&lt;/em&gt; put, &lt;em&gt;C&lt;/em&gt; call, and &lt;em&gt;K&lt;/em&gt; the strike price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Buying enough call options will increase &lt;em&gt;C&lt;/em&gt;. If that were the only change in the market (regarding this stock), that would &quot;break&quot; the put-call parity and therefore an arbitrage opportunity would ensue.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since K is fixed, the only possible changes to offset &lt;em&gt;C&lt;/em&gt;'s increase are an increase of &lt;em&gt;P&lt;/em&gt; and/or of &lt;em&gt;S&lt;/em&gt;. An agent who notices &lt;em&gt;C&lt;/em&gt; going up is likely to interpret that someone else has information in the sense that &lt;em&gt;S&lt;/em&gt; will go up.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Unless that agent also has information in the opposite direction, it would be irrational for him to buy &lt;em&gt;P&lt;/em&gt; in his attempt to take advantage of the arbitrage opportunity. Thus, he is likelier to buy &lt;em&gt;S&lt;/em&gt; instead of &lt;em&gt;P&lt;/em&gt; at least while the put-call parity is restored. Buying &lt;em&gt;S&lt;/em&gt; tends increase its price (as is the case with &lt;em&gt;any&lt;/em&gt; financial instrument).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Similarly, in the event of &lt;em&gt;C&lt;/em&gt;'s increase, the agent might set up a strategy that consists of taking a short position on &lt;em&gt;C&lt;/em&gt; and hedge it by taking a long position on &lt;em&gt;S&lt;/em&gt; (he might have to borrow because &lt;em&gt;C&lt;/em&gt;&amp;lt;&lt;em&gt;S&lt;/em&gt;, but that is irrelevant to the point). Opening that long position tends to increase &lt;em&gt;S&lt;/em&gt;.&lt;/p&gt;&#xA;" OwnerUserId="18552" LastActivityDate="2019-02-04T21:23:48.183" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="26750" PostTypeId="1" CreationDate="2019-02-04T22:49:03.600" Score="4" ViewCount="232" Body="&lt;p&gt;I recently read The Big Short by Michael Lewis in which the depiction of the role of subprime mortgage lending in the US and then run away speculation on CDOs are shown to be the central and primary cause of the 2008 financial crisis.  Then today I watched a lecture called The Third Industrial Revolution (&lt;a href=&quot;https://www.youtube.com/watch?v=QX3M8Ka9vUA&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.youtube.com/watch?v=QX3M8Ka9vUA&lt;/a&gt;) by Jeremy Rifkin in which he portrays the 2008 subprime mortgage crash as being an &quot;aftershock&quot; of the real financial &quot;earthquake&quot; which was international oil prices hitting $147/barrel 6 months prior to the 2008 crisis.  He continues this analogy by insisting global policy makers are, when they bail out the banks who invested in subprime mortgages or change investing laws, &quot;trying to address the aftershock rather than the earthquake.&quot;  I have never heard this view of the situation and am ignorant as to how international oil pricing functions and affects the world economy.  How do people in the know square the relative significance of the US subprime mortgage investment bubble with this international oil price situation when trying to label the root causes of the 2008 global financial crisis?&lt;/p&gt;&#xA;" OwnerUserId="20998" LastActivityDate="2019-09-13T02:53:18.040" Title="Was the 2008 financial crisis caused more by the US subprime mortgage lending or more by an international energy and oil pricing crisis?" Tags="&lt;macroeconomics&gt;&lt;financial-crises&gt;&lt;energy-economics&gt;&lt;oil&gt;&lt;economic-crisis&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26751" PostTypeId="2" ParentId="26728" CreationDate="2019-02-04T23:09:00.323" Score="4" Body="&lt;p&gt;It depended on the year and if a banking suspension was in effect in the town.  In 1834 it was absolutely true that you could walk up to a bank and demand one ounce of gold or in some time periods silver for \$20.67.  Of course, you would have to accumulate \$20.67 which was a lot of money.  The Treasury would demand upon receipt of a banknote any and all gold represented by those notes at all times during this period.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You should double check the amount because I thought it was pegged at $20 over that time period.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Temin, Peter.  The Jacksonian economy  Norton New York  1969&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;EDIT&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The converse was not true unless it was a minted coin.  The period was known as the free banking era.  I hadn't noticed the converse question.  You should read Temin's book.  There are also other books on the free banking era.  Paper money was not printed by the United States until Lincoln authorized the creation of demand notes under an 1861 Act.  See&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Statutes at Large.  37th Congress, 1st Session. Chapter XLVI.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="11321" LastEditorUserId="11321" LastEditDate="2019-07-05T19:34:09.407" LastActivityDate="2019-07-05T19:34:09.407" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26752" PostTypeId="1" CreationDate="2019-02-04T23:11:34.650" Score="1" ViewCount="87" Body="&lt;p&gt;What happens if we assume that there is incomplete information to the prisoner's dilemma game?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, suppose we have the following matrix with the utilities &lt;span class=&quot;math-container&quot;&gt;$T&amp;gt;R&amp;gt;P&amp;gt;S$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$2R&amp;gt;S+T$&lt;/span&gt; with only &lt;span class=&quot;math-container&quot;&gt;$2$&lt;/span&gt; players and &lt;span class=&quot;math-container&quot;&gt;$2$&lt;/span&gt; actions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/k9VZf.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/k9VZf.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With &lt;span class=&quot;math-container&quot;&gt;$\Theta_i=\{\underline{\theta},\bar{\theta}\}$&lt;/span&gt;, does this mean that we have &lt;span class=&quot;math-container&quot;&gt;$2$&lt;/span&gt; subgames (ex-interim) where we fix player &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt;'s type and assign probabilities to player &lt;span class=&quot;math-container&quot;&gt;$2$&lt;/span&gt;'s types? Is this is the correct way to analyze the game?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If there is a paper studying the one-shot Prisoner's dilemma as a Bayesian game, I'd appreciate it very much if you share it with me!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you.&lt;/p&gt;&#xA;" OwnerUserId="20754" LastActivityDate="2019-02-05T19:13:41.240" Title="Prisoner's dilemma as a Bayesian one-shot game" Tags="&lt;game-theory&gt;&lt;nash-equilibrium&gt;&lt;bayesian-game&gt;" AnswerCount="0" CommentCount="8" ContentLicense="CC BY-SA 4.0" />
  <row Id="26755" PostTypeId="2" ParentId="26736" CreationDate="2019-02-05T08:20:16.690" Score="1" Body="&lt;p&gt;For this question, its useful to work off of the equation of exchange. &#xA;Let's start with the equation: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;MV=PY &lt;/p&gt;&#xA;&#xA;&lt;p&gt;M = the money supply, V = Velocity of Money, P = Price level, Y = real output&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Log both sides&lt;/p&gt;&#xA;&#xA;&lt;p&gt;ln(MV)=ln(PY)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Split the terms up according to log properties&lt;/p&gt;&#xA;&#xA;&lt;p&gt;ln(M) + ln(V) = ln(P) + ln(Y)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Take the derivative of each term so that we have &lt;/p&gt;&#xA;&#xA;&lt;p&gt;dM/M + dV/V = dP/P + dY/Y &lt;/p&gt;&#xA;&#xA;&lt;p&gt;to define each of these, dM/M = the rate of change of the money supply(nominal), dV/V = the rate of change of the money velocity, dP/P is the inflation rate, and dY/Y is the real GDP growth rate. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Real Money growth is but a simple algebraic manipulation by doing as such: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;dM/M - dP/P = dY/Y - dV/V&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Real Money growth = dY/Y - dV/V&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Real money growth must be correlated with real GDP growth. The money supply can only be said to have increased in &quot;real&quot; terms if the quantity of goods and services that the money supply can purchase has increased. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So we can see that if we wanted to have 0% real money growth, we would simply need to have the rate of change of the money supply be equal to the inflation rate, or alternatively the real GDP growth rate be equal to the rate of change of the money velocity. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, we can also see clearly that a nominal money supply increase of 0% is likely undesirable. If dM/M is just 0, then a positive value on the right side, which is to mean that real GDP is expanding faster than money velocity is increasing, the result will be deflation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As to policy implications, central banks usually no longer target monetary aggregates, as they tend to be unreliable and volatile. Central banks these days target interest rates or alternatively there is some interest in targeting a certain growth of the nominal GDP, which is just the MV of the MV=PY equation (or P*Y if you like). The main disadvantage of interest targeting is that the central bank can be said to have &quot;run out of ammo&quot; in a sense when it pushes interest rates down to the zero lower bound. This is to mean that the target rate can not go below zero, so the stance of the Fed cannot become more expansionary past this point. This is important as the stance of the Fed is derived from the position of the target rate relative to the natural rate of interest. If there is a shortfall in spending in the economy, and the natural rate of interest falls to zero, then The Federal Reserve can be said to have no power in this situation. Even if it were to drop interest rates to zero, the effect would be a neutral stance, which is highly undesirable in a recession. Recommended reading on the subject: &lt;a href=&quot;https://www.brookings.edu/blog/ben-bernanke/2017/04/12/how-big-a-problem-is-the-zero-lower-bound-on-interest-rates/&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.brookings.edu/blog/ben-bernanke/2017/04/12/how-big-a-problem-is-the-zero-lower-bound-on-interest-rates/&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="21001" LastActivityDate="2019-02-05T08:20:16.690" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26756" PostTypeId="1" AcceptedAnswerId="26763" CreationDate="2019-02-05T11:54:52.500" Score="2" ViewCount="22" Body="&lt;p&gt;I have a bit of a problem understanding the stock market price listings for the London stock market. I am mainly concerned with Argentinian government bonds. So far, I have always used the Investor's Monthly Manual for bond prices. That was fine as long as I only needed monthly data. However, I now need daily data.  So I turned to the London Times for bond prices. However, there the bond prices are listed in a somewhat different format. In order to check whether I understand these prices I tried to check the Times prices against the Investor's Monthly Manual (IMM) prices. However, I cannot really make sense of it. For example, if I look up the last day price of the Argentinian 1886-1887 loan for November 1911 in the IMM, I get 104.5. See here:&#xA;&lt;a href=&quot;https://imgur.com/a/6cdMKWs&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://imgur.com/a/6cdMKWs&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I look up the same bond in the &quot;Business Done&quot; section of the Times I get the following prices: 29 Nov 1911: 104 7/8 3/8 and 1 December: 104 7/8 1/2 [the 30 Nov issue does not have any bond price listings]. Here are the pages from the Times:&#xA;&lt;a href=&quot;https://imgur.com/a/vt17mWx&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://imgur.com/a/vt17mWx&lt;/a&gt;&#xA;&lt;a href=&quot;https://imgur.com/a/J2LZbL4&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://imgur.com/a/J2LZbL4&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would be grateful for any advice as to how to read the bond prices with the double fractions in the Times and for any explanation why there is a difference between the IMM and Times.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you!&lt;/p&gt;&#xA;" OwnerUserId="21002" LastActivityDate="2019-02-05T20:41:15.663" Title="Need help reading early 20th century stock market list" Tags="&lt;history&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26757" PostTypeId="2" ParentId="26747" CreationDate="2019-02-05T14:21:33.173" Score="2" Body="&lt;p&gt;I hope this meets your idea for intuition, but equation 1 comes from using the Law of Total Expectation with the independence condition (Condition 1). There are four possible values of &lt;span class=&quot;math-container&quot;&gt;$D_i(z)-D_i(w)$&lt;/span&gt;. &lt;span class=&quot;math-container&quot;&gt;$$D_i(z)=D_i(w)=1$$&lt;/span&gt; &lt;span class=&quot;math-container&quot;&gt;$$D_i(z)=D_i(w)=0$$&lt;/span&gt; &lt;span class=&quot;math-container&quot;&gt;$$D_i(z)&amp;gt;D_i(w)$$&lt;/span&gt; &lt;span class=&quot;math-container&quot;&gt;$$D_i(z)&amp;lt;D_i(w)$$&lt;/span&gt;. Consider the LHS of (1). &lt;span class=&quot;math-container&quot;&gt;$$E[(D_i(z)-D_i(w))*(Y_i(1)-Y_i(0))]$$&lt;/span&gt; From the four possibilities above it is clear that this expectation only takes on a value other than 0 when the last two are true, where the third option gives a value of 1 and the fourth a value of -1. So then using the Law of Total Expectation with the independence condition yields the equality from the paper.&lt;/p&gt;&#xA;" OwnerUserId="19084" LastActivityDate="2019-02-05T14:21:33.173" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="26758" PostTypeId="2" ParentId="26750" CreationDate="2019-02-05T15:04:43.687" Score="3" Body="&lt;p&gt;It's worth differentiating between the financial crisis of 2007-2009, and the recession that began in December 2007.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The financial crisis was indeed caused by a &lt;a href=&quot;https://www.nber.org/papers/w15223&quot; rel=&quot;nofollow noreferrer&quot;&gt;run on wholesale funding&lt;/a&gt; that was precipitated by significant losses on real estate, &lt;a href=&quot;https://www.nber.org/papers/w21261&quot; rel=&quot;nofollow noreferrer&quot;&gt;both subprime and otherwise&lt;/a&gt;. As noted in the first link, stresses in wholesale funding first appeared in August 2007. At that time, oil prices (WTI) were still \$70-\$80/barrel. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Losses to financial institutions during the crisis that can reasonably be linked to oil are limited, and the timing is all wrong, so it's not credible to suggest that the increase in oil prices would have led to a financial crisis absent the actual mechanism (run on wholesale funding, significant losses on real estate assets) by which the financial crisis occurred.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That said, it's certainly likely that oil prices contributed to the recession that began in December 2007, as &lt;a href=&quot;https://www.brookings.edu/wp-content/uploads/2009/03/2009a_bpea_hamilton.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;documented&lt;/a&gt; by James Hamilton, though the severity of this recession was in large part &lt;a href=&quot;https://www.imf.org/external/np/seminars/eng/2012/fincrises/pdf/ch8.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;due to the fact&lt;/a&gt; that there was a financial crisis:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Recessions associated with financial crises have been more severe and&#xA;  longer lasting than recessions associated with other shocks.&#xA;  Recoveries from such recessions have been typically slower, associated&#xA;  with weak domestic demand and tight credit conditions.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Thus, oil prices are likely to have contributed to pushing the economy into recession, which may have worsened credit losses, fueling the stresses in the financial sector, but it's not credible to claim that they were a primary factor in causing the financial crisis, as compared to the structural vulnerabilities relating to wholesale funding and securitized assets.&lt;/p&gt;&#xA;" OwnerUserId="264" LastEditorUserId="264" LastEditDate="2019-03-08T03:19:55.947" LastActivityDate="2019-03-08T03:19:55.947" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26763" PostTypeId="2" ParentId="26756" CreationDate="2019-02-05T20:41:15.663" Score="0" Body="&lt;p&gt;I am unfamiliar with this style of notation, but in my opinion it seems likely that the double fractions denote buy and sell prices. I.e. on Nov 29th 1911 the sell price was 104 3/8 and the buy price was 104 7/8. This gets you an average or mid price of 104 1/2 = 104.5.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is also possible that the two numbers denote the daily opening and closing prices, but the variation seems small for this.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2019-02-05T20:41:15.663" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="26765" PostTypeId="1" AcceptedAnswerId="26766" CreationDate="2019-02-06T01:01:51.810" Score="1" ViewCount="36" Body="&lt;p&gt;During WWII and after Pearl Harbor, the United States issued the Hawaii overprint notes because they feared the possibility that if the Japanese captured Hawaii they would also control a considerable amount of USD bills [1].&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I found this piece of trivia not only interesting but also made me wonder why this could be an issue? Does this mean it is also an issue if say today China starts hoarding stacks of American dollars?&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Hawaii_overprint_note&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://en.wikipedia.org/wiki/Hawaii_overprint_note&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="21007" LastActivityDate="2019-02-06T02:10:11.607" Title="Why is it a problem if a considerable amount of currency is hoarded by the enemy of the issuing government?" Tags="&lt;currency&gt;&lt;foreign-exchange&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26766" PostTypeId="2" ParentId="26765" CreationDate="2019-02-06T01:55:43.017" Score="2" Body="&lt;p&gt;If the Japanese captured Hawaii and hence also all the dollar bills in Hawaii, then the problem would not be that they &quot;hoarded&quot; these dollars, but that they would have been able to &lt;strong&gt;use&lt;/strong&gt; these dollars (to buy other goods and services).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And so the purpose of the Hawaiian overprint notes was this: they &quot;&lt;a href=&quot;https://currencyandcoin.com/us-paper-currency/hawaii-overprints/&quot; rel=&quot;nofollow noreferrer&quot;&gt;would&lt;/a&gt; be worthless in the hands of the enemy, but could be used as money in Hawaii as long as the U.S. maintained control.&quot;&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;I have noticed that laypersons tend to be unduly worried about the possible effects of &quot;hoarding&quot; (as evidenced for example by the questions on this site &lt;a href=&quot;https://economics.stackexchange.com/search?q=hoarding&quot;&gt;about&lt;/a&gt; &lt;a href=&quot;https://economics.stackexchange.com/search?q=hoard&quot;&gt;hoarding&lt;/a&gt;). There seems to be a myth that hoarding cash can somehow cause damage to other parties. But in fact, under most circumstances, it is those who do the hoarding that suffer, while those who aren't hoarding benefit.*&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If China &quot;hoards&quot; US dollars that were acquired through legitimate, peaceful means, then this is no bad thing for the US.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Say China sells T-shirts and other goods to the US in exchange for \$1 trillion in dollar bills. That is, the US receives these goods and simply gives China a bunch of paper money. China then &quot;hoards&quot; these \$1T in paper money. Then this is no bad thing for the US. The US will simply have acquired \$1T worth of T-shirts and other goods, while China will have acquired a lot of paper that is useless so long as it is &quot;hoarded&quot; and unused. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Indeed, the value of this paper will tend to depreciate. In fact, the US can cause the value of this paper to depreciate by simply printing more dollars. And in a state of war, the US could even undertake drastic measures such as declaring those \$1T useless or achieving this effect by requiring all US citizens (and possibly other non-Chinese parties) to exchange their dollar bills for new legal ones.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;*One important exception to this is the &lt;strong&gt;underground economy&lt;/strong&gt;. When cash is hoarded, this can negatively affect those in the underground economy who rely heavily on cash to facilitate transactions.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastEditorDisplayName="user18" LastEditDate="2019-02-06T02:10:11.607" LastActivityDate="2019-02-06T02:10:11.607" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="26767" PostTypeId="1" CreationDate="2019-02-06T03:43:31.670" Score="-1" ViewCount="735" Body="&lt;p&gt;For utility function U= ln(x)+Y&#xA;How do I determine if MRS(yx) is diminishing or not for this question?&#xA;I got Mu(x)=1/x and Mu(y)= 1&#xA;MRS(yx)=Mu(y)/Mu(x)= 1/1/x = x&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does this mean that MRS(yx) is diminishing and why? I checked around online but I couldn't find examples where MRS just equals a variable. And does it also satisfy the law of diminishing Mu?&lt;/p&gt;&#xA;" OwnerUserId="21010" LastActivityDate="2019-03-08T21:01:15.340" Title="Marginal rate of substitution(yx) question" Tags="&lt;microeconomics&gt;&lt;marginal&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26768" PostTypeId="1" CreationDate="2019-02-06T04:53:10.863" Score="0" ViewCount="52" Body="&lt;p&gt;Utility function: U=X+XY and I=XPx+YPy&#xA;Good Y is a composite good, so Py= 1&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What would be the demand function for good X?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I got Mux=1+y and Muy=x and since Mux/Px=Muy/Py&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1+y/Px=x/py&lt;/p&gt;&#xA;&#xA;&lt;p&gt;so that I=XPx+(Xpx-1)Py---&gt; X=(I+Py)/(Px(1+Py)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this correct? Or am I supposed to set Py= to 1 in the calculations so that it would instead be X= (I+1)/2Px?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, would it be correct to say that these are substitutes? And good X is a normal good?&lt;/p&gt;&#xA;" OwnerUserId="21011" LastActivityDate="2019-02-06T10:16:19.243" Title="Microeconomics, deriving demand equations from utility unction" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26769" PostTypeId="1" AcceptedAnswerId="26770" CreationDate="2019-02-06T06:52:49.457" Score="0" ViewCount="30" Body="&lt;p&gt;I have a very simple question, what is the meaning, if any, of this?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I.e. Economically what does the following calculation mean?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\left(\frac{(Q1\cdot P1)+(Q2\cdot P2)+(Q3\cdot P3)}{Q1 + Q2 + Q3}\right)&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider the values being in a table like the one shown below:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\begin{array}{c|lcr}&#xA;n &amp;amp; \text{Factory A Generation of good x} &amp;amp; \text{Factory B Generation of good x} &amp;amp; \text{Market price for good x} \\&#xA;\hline&#xA;1 &amp;amp; Q1 &amp;amp; Q1 &amp;amp; P1 \\&#xA;2 &amp;amp; Q2 &amp;amp; Q2 &amp;amp; P2 \\&#xA;3 &amp;amp; Q3 &amp;amp; Q3 &amp;amp; P3 &#xA;\end{array}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you!&lt;/p&gt;&#xA;" OwnerUserId="21013" LastEditorUserId="1601" LastEditDate="2019-02-06T07:21:22.420" LastActivityDate="2019-02-06T14:59:17.200" Title="What does the sun product of price times quantity divided by average price" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;price-index&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26770" PostTypeId="2" ParentId="26769" CreationDate="2019-02-06T07:25:51.257" Score="1" Body="&lt;p&gt;Note that &lt;span class=&quot;math-container&quot;&gt;$Q_i P_i$&lt;/span&gt; is the total revenue from good &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;. So dividing total revenue from all goods by the amount produced of all of them should give us something like &quot;average revenue per item produced&quot;?&lt;/p&gt;&#xA;" OwnerUserId="18167" LastActivityDate="2019-02-06T07:25:51.257" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26772" PostTypeId="1" CreationDate="2019-02-06T09:41:07.507" Score="1" ViewCount="304" Body="&lt;p&gt;in the economics book that I'm reading right now it is written that this utility function:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$u(x_1,x_2) = 2x_1 + x_2$$&lt;/span&gt;&#xA;yields indifference curves with a slope of &lt;span class=&quot;math-container&quot;&gt;$−2$&lt;/span&gt;.&#xA;Could someone please explain me how they found the &lt;span class=&quot;math-container&quot;&gt;$-2$&lt;/span&gt;? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Initially, I was thinking that they derivated the utility function in respect of &lt;span class=&quot;math-container&quot;&gt;$x_1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$x_2$&lt;/span&gt; but this would give &lt;span class=&quot;math-container&quot;&gt;$2$&lt;/span&gt; instead of &lt;span class=&quot;math-container&quot;&gt;$-2$&lt;/span&gt;. Thank you very much for your help&lt;/em&gt;&lt;/p&gt;&#xA;" OwnerUserId="19689" LastActivityDate="2019-02-06T17:38:18.593" Title="indifference curve slope from utility function" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;preferences&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26773" PostTypeId="2" ParentId="26768" CreationDate="2019-02-06T10:16:19.243" Score="1" Body="&lt;p&gt;You're right in that &lt;span class=&quot;math-container&quot;&gt;$\frac{1+y}{p_x}=\frac{x}{p_y}$&lt;/span&gt;. This implies that &lt;span class=&quot;math-container&quot;&gt;$yp_y=xp_x-p_y$&lt;/span&gt;, and using this in the budget constraint &lt;span class=&quot;math-container&quot;&gt;$I=xp_x+yp_y$&lt;/span&gt; yields&#xA;&lt;span class=&quot;math-container&quot;&gt;$ I =xp_x+xp_x-p_y=2xp_x-p_y$&lt;/span&gt; or&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$x=\frac{I+p_y}{2p_x}.$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In order to determine whether these goods are gross substitutes (or complements), you need to compute &lt;span class=&quot;math-container&quot;&gt;$\frac{\partial x}{\partial p_y}$&lt;/span&gt; and observe that this is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\frac{\partial x}{\partial p_y}=\frac{1}{2p_x}&amp;gt;0.$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This means that increases in the price of &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; are associated with increases in the consumption of &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;, a behaviour that corresponds to gross substitutes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for whether &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; is a normal good, you need to determine if increases in income are associated with increases or decreases in its consumption, so we calculate&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\frac{\partial x}{\partial I}=\frac{1}{2p_x}&amp;gt;0.$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As consumption of &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; increases with &lt;span class=&quot;math-container&quot;&gt;$I$&lt;/span&gt;, we say that &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; is a normal good (has positive income elasticity).&lt;/p&gt;&#xA;" OwnerUserId="20281" LastActivityDate="2019-02-06T10:16:19.243" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26774" PostTypeId="2" ParentId="26772" CreationDate="2019-02-06T10:22:00.803" Score="3" Body="&lt;p&gt;Hint: First find the total derivative of &lt;span class=&quot;math-container&quot;&gt;$u(x_1,x_2)$&lt;/span&gt;, set it to zero as utility does not change along an indifference curve, then solve for &lt;span class=&quot;math-container&quot;&gt;$dx_2/dx_1$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="12186" LastEditorUserId="12186" LastEditDate="2019-02-06T10:42:37.610" LastActivityDate="2019-02-06T10:42:37.610" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="26778" PostTypeId="1" AcceptedAnswerId="26808" CreationDate="2019-02-06T13:22:12.123" Score="1" ViewCount="77" Body="&lt;p&gt;Conside the following Cobb-Douglas Production Function:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$Y_t=\bar AK_t^{1/3}\bar L^{2/3}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The growth rate of per capita GDP for this equation in continuous time is &lt;span class=&quot;math-container&quot;&gt;$\frac{y'_t}{y_t}= \frac{1}{3K_t}$&lt;/span&gt; where &lt;span class=&quot;math-container&quot;&gt;$y_t=\frac{Y_t}{\bar L}$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Using the Law of Motion of Capital:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\Delta K_{t+1}=\bar sY_t-dK_t \implies \frac{\Delta K_{t+1}}{K_t}=\bar s \frac{Y_t}{K_t}-d$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where &lt;span class=&quot;math-container&quot;&gt;$\bar s$&lt;/span&gt; represents the savings rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And Capital-Output Ratio in Steady State:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\frac{K^*}{Y^*}=\frac{\bar s}{\bar d}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where &lt;span class=&quot;math-container&quot;&gt;$\bar d$&lt;/span&gt; represents the depreciation rate&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Prove that the growth rate of per capita GDP is equal to&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\frac{1}{3} \bar s \frac{Y^*}{K^*} (\frac{(K^*)^{2/3}}{K_t^{2/3}} -1)$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have no idea how am I supposed to get the equation from &lt;span class=&quot;math-container&quot;&gt;$\frac{y'_t}{y_t}= \frac{1}{3K_t}$&lt;/span&gt;, because it seems like this is not derived by substitution.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;After some work, I realised that the following equation looks somewhat like:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\frac{1}{3} \bar s \frac{Y^*}{K^*} (\frac{(K^*)^{2/3}}{K_t^{2/3}} -1) =\frac{1}{3} \bar d \frac{\Delta K_{t+1}}{K_t}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Appreciate it if anyone can provide me with some advice on how I should go on further! Many thanks!&lt;/p&gt;&#xA;" OwnerUserId="21019" LastActivityDate="2019-02-08T15:52:05.393" Title="Growth Rate of Solow Model" Tags="&lt;solow&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26779" PostTypeId="2" ParentId="26772" CreationDate="2019-02-06T13:30:13.597" Score="2" Body="&lt;p&gt;The easy way is to set utility constant &lt;span class=&quot;math-container&quot;&gt;$u_0$&lt;/span&gt;, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, &lt;span class=&quot;math-container&quot;&gt;$u_0 = 2x_1+x_2$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$x_2$&lt;/span&gt; as a function of &lt;span class=&quot;math-container&quot;&gt;$x_1$&lt;/span&gt; is &lt;span class=&quot;math-container&quot;&gt;$u_0-2x_1 = x_2$&lt;/span&gt;, this is the indifference curve for a given level of utility. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As you can see the indifference curve is linear with slope -2.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regards&lt;/p&gt;&#xA;" OwnerUserId="21018" LastEditorUserId="21018" LastEditDate="2019-02-06T17:38:18.593" LastActivityDate="2019-02-06T17:38:18.593" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26784" PostTypeId="1" AcceptedAnswerId="26787" CreationDate="2019-02-06T15:43:26.093" Score="0" ViewCount="35" Body="&lt;p&gt;Can Eurozone countries issue their own bonds, or is this a delegated competency?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If not, how do such countries raise funds for big uncosted spending such as infrastructure projects?&lt;/p&gt;&#xA;" OwnerUserId="5505" LastEditorUserId="5505" LastEditDate="2019-02-06T15:48:37.437" LastActivityDate="2019-02-06T17:12:30.657" Title="Can Eurozone countries issue their own bonds?" Tags="&lt;european-union&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26785" PostTypeId="1" AcceptedAnswerId="26854" CreationDate="2019-02-06T15:52:03.510" Score="1" ViewCount="34" Body="&lt;p&gt;What levers are typically available to a Government to exit an economic downturn?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can think of currency devaluation, efficiency improvements and infrastructure spending (possibly using funds raised by borrowing).&lt;/p&gt;&#xA;" OwnerUserId="5505" LastActivityDate="2019-02-12T18:43:01.367" Title="What levers are typically available to a Government to exit an economic downturn?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26786" PostTypeId="1" AcceptedAnswerId="26815" CreationDate="2019-02-06T17:06:53.283" Score="1" ViewCount="56" Body="&lt;p&gt;If I understand correctly, when a state joins a monetary union it relinquishes its ability to competitively devalue/increase the money supply during downturns.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another mechanism Governments use to work their way out of downturns is to participate in the economy themselves, for example by undertaking infrastructure projects. Does monetary union somehow limit the ability to use this lever too?&lt;/p&gt;&#xA;" OwnerUserId="5505" LastActivityDate="2019-02-09T14:14:03.553" Title="Can monetary union work without fiscal union?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26787" PostTypeId="2" ParentId="26784" CreationDate="2019-02-06T17:12:30.657" Score="2" Body="&lt;p&gt;Issuing bond is indeed the competence of the individual states. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, you can buy 10 year bonds both from Italy and Germany, both of which are Eurozone countries:&#xA;&lt;a href=&quot;https://www.investing.com/rates-bonds/de-10y-vs-it-10y&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.investing.com/rates-bonds/de-10y-vs-it-10y&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2019-02-06T17:12:30.657" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26790" PostTypeId="2" ParentId="26767" CreationDate="2019-02-06T20:52:44.683" Score="0" Body="&lt;p&gt;Wauw, I'm completely baffled by the questions on this site. Many of them are extremely basic. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The indifference curves (for u = 100 and depending on whether you express y as function of x or x as a function of y are):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/ysoaY.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/ysoaY.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As the MRS is the magnitude of the slope of the indifference curve we have that (see graph) when expressing x as a function of y that the slope of the indifference curve becomes much steeper as x becomes larger. Remember that x is on the second axis. This is in accordance with mrs(yx) = x. As x becomes larger (moving up along the second axis) the slope becomes steeper (or MRS becomes larger). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the second example (which I think is much simpler) MRS(xy) = 1/x and as x becomes larger clearly the slope is going towards 0. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regards &lt;/p&gt;&#xA;" OwnerUserId="21018" LastActivityDate="2019-02-06T20:52:44.683" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26793" PostTypeId="1" CreationDate="2019-02-06T23:40:27.570" Score="2" ViewCount="142" Body="&lt;p&gt;I am confused about the following statement from Wikipedia:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;A mixed strategy is an assignment of a probability to each pure strategy. This allows for a player to randomly select a pure strategy. &lt;strong&gt;Since probabilities are continuous, there are infinitely many mixed strategies available to a player.&lt;/strong&gt;&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How do we check the Nash equilibrium inequality then?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, in Bayesian games with player set &lt;span class=&quot;math-container&quot;&gt;$N=\{1,2,\ldots,n\}$&lt;/span&gt;, the equilibrium is defined as the strategy profile &lt;span class=&quot;math-container&quot;&gt;$s=(s_i,s_{-i})$&lt;/span&gt; such that, we have &lt;span class=&quot;math-container&quot;&gt;$$EU_i(s_i,s_{-i})\geq EU_i(s_i',s_{-i}),$$&lt;/span&gt; for all &lt;span class=&quot;math-container&quot;&gt;$s_i'\in S_i$&lt;/span&gt;, for all &lt;span class=&quot;math-container&quot;&gt;$i\in N$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$s_i'\neq s_i$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In many texts, &lt;span class=&quot;math-container&quot;&gt;$S_i$&lt;/span&gt; is defined as the function &lt;span class=&quot;math-container&quot;&gt;$S_i:\Theta_i\to\Pi(A_i)$&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$\Theta_i$&lt;/span&gt; is the type set and &lt;span class=&quot;math-container&quot;&gt;$\Pi(A_i)$&lt;/span&gt; is the probability distribution over the actions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How is it possible to have infinitely many mixed strategies? What is &lt;span class=&quot;math-container&quot;&gt;$S_i$&lt;/span&gt; exactly, a set or a function?&lt;/p&gt;&#xA;" OwnerUserId="20754" LastEditorUserId="20754" LastEditDate="2019-02-07T01:55:30.463" LastActivityDate="2020-09-10T10:33:28.263" Title="Mixed Strategies in Bayesian Games" Tags="&lt;game-theory&gt;&lt;bayesian-game&gt;" AnswerCount="1" CommentCount="9" ContentLicense="CC BY-SA 4.0" />
  <row Id="26794" PostTypeId="1" CreationDate="2019-02-07T01:46:56.077" Score="0" ViewCount="45" Body="&lt;p&gt;I was studying microeconomics and I confess I am not the brightest person for maths and sorry if this is very dumb but I get that we CAN normalize the income and I get where it comes from and how it is done, but I don't understand WHY do we have to do that. Can't we still do the maximization problem? I read further and understood that it is to &quot;fix&quot; a line in the box with slope Px/Py (with Py being the normalized price), I still don't understand why. What is the problem of finding the Pareto optimum in a freely moving point? Is it only to represent the budget constraint in the box?&#xA;I am probably missing a fundamental calculus/microeconomic fact.&lt;/p&gt;&#xA;" OwnerUserId="21027" LastActivityDate="2019-02-07T13:10:22.580" Title="Why do we have to normalize the income of consumers when working with an Edgeworth Box in a simple trade model with Pareto optima?" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;optimization&gt;&lt;pareto-efficiency&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26796" PostTypeId="1" AcceptedAnswerId="34286" CreationDate="2019-02-07T08:07:37.813" Score="3" ViewCount="55" Body="&lt;p&gt;Does anyone have a good book on the &lt;strong&gt;history of Muni Bonds&lt;/strong&gt; that focuses on the reasons why they grew in popularity, adoption, and gov policy souring them. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Background on why I need this info&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am writing a paper for my college history class, titled when wall street met main street. We are allowed to self select a topic and I chose to focus on the change in  the bond markets and that relationship with the public.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I think could be a great topic is the rise &lt;strong&gt;lease revenue bonds&lt;/strong&gt; for funding prisons, and how this has played out.&lt;/p&gt;&#xA;" OwnerUserId="21029" LastEditorUserId="1601" LastEditDate="2019-02-07T12:18:22.630" LastActivityDate="2020-03-04T15:23:14.303" Title="History of Municipal Bonds" Tags="&lt;reference-request&gt;&lt;bonds&gt;&lt;history&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26797" PostTypeId="1" CreationDate="2019-02-07T08:40:47.733" Score="2" ViewCount="45" Body="&lt;p&gt;I use the OECD's &lt;a href=&quot;https://stats.oecd.org/glossary/detail.asp?ID=2722&quot; rel=&quot;nofollow noreferrer&quot;&gt;Total Support Estimates (TSE)&lt;/a&gt;, which I think is a proper measure of total agricultural subsidies (but correct me if I'm wrong). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;China's TSE is by far the largest at \$239B in 2017 and even its per-capita TSE (PPP*) is higher than the US's.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/sgrCG.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/sgrCG.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here are some explanations I have come across for why agriculture is heavily subsidized in the rich democracies:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Rural voters wield disproportionate power.&lt;/li&gt;&#xA;&lt;li&gt;The costs (of the subsidies) are diffuse and so no single voter has much incentive to organize/lobby against the subsidies.&lt;/li&gt;&#xA;&lt;li&gt;Voter inattention: The voters who pay for the subsidies are simply unaware that they are doing so.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;However, China is not a democracy and so it would seem that the above explanations do not apply. So what explains China's large agricultural subsidies? &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;*I think (but am not sure) the TSEs given by the OECD have not been corrected for PPP. And so, I have taken the liberty of converting them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://docs.google.com/spreadsheets/d/1fYQGE_4gCauK6Vbr1dGAmhr75vQgmjiIAiLs6adZg3Q/edit?usp=sharing&quot; rel=&quot;nofollow noreferrer&quot;&gt;Google spreadsheet with data and sources&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2019-02-07T11:19:52.570" Title="Why does China spend so much on agricultural/farming subsidies?" Tags="&lt;political-economy&gt;&lt;agriculture&gt;&lt;subsidies&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26798" PostTypeId="2" ParentId="26797" CreationDate="2019-02-07T11:19:52.570" Score="1" Body="&lt;p&gt;The first thing that comes to mind is food security. China has a large population to feed and does not want to depend on foreign nations for its food. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A (speculative)  second reason may be prevention of domestic unrest. The largest share of China's population still lives in rural areas, and by supporting farmers they may silence protests. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A recent article analysing the drivers of China's agricultural policies by Lopez et al., including the fairly recent shift from taxes to subsidies can be found here: &#xA;&lt;a href=&quot;https://www.sciencedirect.com/science/article/pii/S0305750X1630211X&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.sciencedirect.com/science/article/pii/S0305750X1630211X&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="12186" LastActivityDate="2019-02-07T11:19:52.570" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26799" PostTypeId="2" ParentId="26794" CreationDate="2019-02-07T13:10:22.580" Score="1" Body="&lt;p&gt;If you by normalizing income mean normalizing one of the prices then yes you do not have to normalize it, but it makes everything easier since only the relative price matters. &#xA;All price vectors (2 dimensions) that solves the problem will have the same ratio. There are therefore usually infinitely many price vectors that solves the problem.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regards&lt;/p&gt;&#xA;" OwnerUserId="21018" LastActivityDate="2019-02-07T13:10:22.580" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26800" PostTypeId="2" ParentId="26796" CreationDate="2019-02-07T13:13:11.197" Score="2" Body="&lt;p&gt;&lt;a href=&quot;https://www.goodreads.com/book/show/4442632-the-guide-to-municipal-bonds&quot; rel=&quot;nofollow noreferrer&quot;&gt;The Guidebook to Municipal Bonds: The History, the Industry, the Mechanics&lt;/a&gt; (1991) by George J. Malvin&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Tax Policy Center Briefing Book on &lt;a href=&quot;https://www.taxpolicycenter.org/briefing-book/what-are-municipal-bonds-and-how-are-they-used&quot; rel=&quot;nofollow noreferrer&quot;&gt;The State of State (and Local) Tax Policy&lt;/a&gt; might be a good place to call.&lt;/p&gt;&#xA;" OwnerUserId="20995" LastEditorUserId="69" LastEditDate="2020-03-04T15:23:14.303" LastActivityDate="2020-03-04T15:23:14.303" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26802" PostTypeId="2" ParentId="13879" CreationDate="2019-02-07T13:38:38.097" Score="0" Body="&lt;p&gt;When there is a decrease in the amount of hours worked and an increase in output (production/GDP) this will increase productivity of labour. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;According to some sources, the growth in labor productivity depends on three main factors: investment and saving in physical capital, new technology and human capital.&lt;/p&gt;&#xA;" OwnerUserId="20995" LastActivityDate="2019-02-07T13:38:38.097" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26803" PostTypeId="2" ParentId="19347" CreationDate="2019-02-07T14:07:36.640" Score="1" Body="&lt;p&gt;The BLS has a manual by Katharine G. Abraham (1998) on the subject.&#xA;&lt;a href=&quot;https://www.bls.gov/lpc/iprprody.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.bls.gov/lpc/iprprody.pdf&lt;/a&gt;&#xA;page 17 and page 21;  covers outputs and inputs respectively.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Measuring output:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;“The specification and measurement of output is the single most troublesome problem&#xA;in computing productivity. It is a more serious problem for government service&#xA;than for private sector organizations. Some of the problems are endemic to a specific&#xA;government activity; others are more general in nature.”&#xA;…&#xA;“For most public sector output measures, physical quantities are used to calculate the&#xA;outputs.”&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Measuring inputs:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;“Two labor measures that are commonly used to measure private sector productivity are the number of hours and the number of persons. These two measures impart very different information and for this reason both are calculated. The preferred measure is the number of hours because this measure reflects the time worked to produce the outputs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hours are the preferred measure for government too, but governmental units do not usually collect these data. Instead, most governments collect and use the number of full-time-equivalent employees.”&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The OECD has put out an article on the subject but at the country of Finland&#xA;&lt;a href=&quot;http://www.oecd.org/sdd/na/2666079.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.oecd.org/sdd/na/2666079.pdf&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="20995" LastActivityDate="2019-02-07T14:07:36.640" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26805" PostTypeId="1" CreationDate="2019-02-07T22:36:04.480" Score="2" ViewCount="177" Body="&lt;p&gt;In their &lt;a href=&quot;https://www.uh.edu/~bsorense/Rothschild&amp;amp;Stiglitz.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;pathbreaking paper&lt;/a&gt;, Rothschild and Stiglitz define the RS Equilibrium as a set of contracts such that,&#xA;i) each firm breaks even&#xA;ii) there exists no other contracts making non-negative profits when offered.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And they show that no pooling equilibrium exists and there may only be a separating equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this separating equilibrium, high risks get full coverage but low risks only partial coverage with premia equal to loss probabilities respectively.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What would you think about another separating contract bundle, in which high risks are cross-subsidised by low risks, as shown in the graph with red insurance lines and green indifference curves (G, H)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When the new bundle is offered, high risks would prefer it to E and low risks to F (see the indifference curves). And high risks are indifferent between G and H, as in the usual separating equilibrium. Of course, this new bundle wouldn’t make an equilibrium as the yellow shaded area attracts low risks only and it might be the case similar to pooling. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, wouldn’t the possibility of such bundles lead the usual separating contract to an instability? The new bundle making a non-negative profit seems to violate the second condition of Rothschild-Stiglitz equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/HDJsb.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/HDJsb.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Numerical Example&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Utility function: natural log &lt;/li&gt;&#xA;&lt;li&gt;Initial wealth=100&lt;/li&gt;&#xA;&lt;li&gt;Loss in case of accident=90&lt;/li&gt;&#xA;&lt;li&gt;Loss probability of low risks=0.1&lt;/li&gt;&#xA;&lt;li&gt;Loss probability of high risks=0.9&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;1) Incentive Compatibility Constraint for Original RS Eq.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;log(100-0.9*90)=0.9*log(100-0.1*x-90+x)+0.1*log(100-0.1*x)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where x is the partial coverage amount that low risks receive in original RS eq.&#xA;Matlab calculates;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;x=6.455383900159773&lt;/li&gt;&#xA;&lt;li&gt;Utility(Low risks)= 4.424718438632044&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;2) Low risks subsidising high risks&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Add 0.08 to the premium of low risks and subtract the same amount from high risks. (P.S: This is just an example, I also have the number maximising the utility)&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;new coverage=15.424194558495868&lt;/li&gt;&#xA;&lt;li&gt;new utility(low risks)=4.452073664660258&lt;/li&gt;&#xA;&lt;li&gt;utility of high risks=3.265759410767051 (same for full coverage at higher premium and partial coverage at lower premium)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;P.S: There is no need for computing the utility of high risks because they obviously reach to a higher utility level by still receiving a full coverage with a cheaper premium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, we see that new bundle beats the original RS bundle, doesn't it?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Below are the Matlab codes I made use of:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;code&gt;y=0.08 %subsidy amount&#xA;ICC = @(x) log(100-(0.9-y)*90) - 0.9*log(100-90-(0.1+y)*x+x) - 0.1*log(100-(0.1+y)*x); %Incentive Compatibility Constraint&#xA;z = fzero(ICC,50); %coverage amount of low risks WRT ICC&#xA;z&#xA;u=0.1*log(100-90-z*y+z)+0.9*log(100-z*y) %utility of low risks&lt;/code&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit: I also might have a general algebraic proof, but I need to verify it and will share it here afterwards.&lt;/p&gt;&#xA;" OwnerUserId="20073" LastEditorUserId="20073" LastEditDate="2019-02-09T19:20:28.047" LastActivityDate="2019-12-10T12:00:51.437" Title="Rotschild&amp;Stiglitz (RS) Equilibrium" Tags="&lt;adverse-selection&gt;" AnswerCount="1" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="26806" PostTypeId="1" CreationDate="2019-02-08T04:38:29.070" Score="6" ViewCount="684" Body="&lt;p&gt;&lt;strong&gt;National food self-sufficiency&lt;/strong&gt; is an idea that appeals to many non-economists.&lt;/p&gt;&#xA;&lt;p&gt;For example, George W. Bush (&lt;a href=&quot;https://books.google.com/books?id=YnuegHp61zgC&amp;amp;pg=PA920&quot; rel=&quot;noreferrer&quot;&gt;2001&lt;/a&gt;):&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;It’s important for our Nation to be able to grow foodstuffs to feed our people. Can you imagine a country that was unable to grow enough food to feed the people? It would be a nation that would be subject to international pressure. It would be a nation at risk. And so when we’re talking about American agriculture, we’re really talking about a national security issue.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;I believe that in contrast, most economists view this as a bad idea.&lt;/p&gt;&#xA;&lt;p&gt;For example, &lt;em&gt;The Economist&lt;/em&gt; (&lt;a href=&quot;https://www.economist.com/node/11453701/print?story_id=11453701&quot; rel=&quot;noreferrer&quot;&gt;2008-05-29&lt;/a&gt;), writing during the &lt;a href=&quot;https://en.wikipedia.org/wiki/2007%E2%80%9308_world_food_price_crisis&quot; rel=&quot;noreferrer&quot;&gt;2007–08 food crisis&lt;/a&gt;:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;The argument for self-sufficiency is easiest to counter. Anyone who believes autarky is the route to food security should look at starving North Korea. In world markets trade barriers, not the lack of them, have exacerbated the mess. The commodities that have seen the biggest price spikes are those which tend to be traded least. Only 6% of global rice production, for instance, flows across borders. Unilateral export restrictions, such as those imposed by Vietnam and India, have made matters worse. Global supply is disrupted and domestic farmers discouraged from producing more. The route to deeper, less volatile markets lies through freer trade and fewer distortions. The notion that free trade precludes food security is plainly wrong-headed.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Mohanty (&lt;a href=&quot;https://www.scribd.com/document/100376123/RT-Vol-11-No-3-Rice-facts&quot; rel=&quot;noreferrer&quot;&gt;2012&lt;/a&gt;):&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;in the long run, major rice-consuming countries that pursue self-sufficiency may be in danger. If these countries achieved self-sufficiency, import demand for rice would fall. This would push exporters, such as Thailand, Vietnam, and Pakistan, to cut back on their production to reduce exportable surplus and use their lands in planting other profitable crops.&lt;/p&gt;&#xA;&lt;p&gt;The global rice market, which is relatively small compared with that of other major crops such as wheat, corn (maize), and soybeans, is likely to become even smaller if rice-consuming countries vigorously pursue self-sufficiency. A consequence of a smaller market is greater price volatility and, the smaller the market size, the more the prices have to move in response to any supply and demand shock.&lt;/p&gt;&#xA;&lt;p&gt;In a year of low production, prices will rise rapidly; in a year of higher production, prices will fall rapidly with greater volatility. This is particularly worrisome since rice production can fluctuate greatly from year to year, at the whim of nature. And, if climate change predictions are realized, extreme weather conditions will be more frequent, leading to regular price spikes in the rice market. ...&lt;/p&gt;&#xA;&lt;p&gt;A strong global market is essential to achieve global food security for rice. This does not mean that countries should give up rice production and depend on foreign rice. Every country has the basic right to produce enough food for its citizens and this is particularly true for rice, a staple for the world’s poorest of the poor. However, countries might be wiser to try to increase production by improving yield in a sustainable manner rather than pursuing self-sufficiency at any cost.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;My question: &lt;strong&gt;Have there been any economists who have argued &lt;em&gt;in favor&lt;/em&gt; of national food self-sufficiency and what are some of their arguments?&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;NB. The price of rice rose dramatically during the 2007–08 food crisis (&lt;a href=&quot;https://www.indexmundi.com/commodities/?commodity=rice&amp;amp;months=360&quot; rel=&quot;noreferrer&quot;&gt;source&lt;/a&gt;):&lt;/p&gt;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/XxgcM.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/XxgcM.png&quot; alt=&quot;enter image description here&quot; /&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2019-02-12T19:34:56.913" Title="What arguments are there in favor of national food self-sufficiency?" Tags="&lt;international-trade&gt;&lt;free-trade&gt;&lt;agriculture&gt;&lt;food&gt;" AnswerCount="3" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="26807" PostTypeId="2" ParentId="26805" CreationDate="2019-02-08T13:25:32.023" Score="1" Body="&lt;p&gt;It is important to remember that figures are not proofs. Minor mistakes in the figure are hard to detect but can change the outcome. Algebra is much more reliable. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Right now in your figure the low risk type consumers have indifference curves that are upward sloping somewhere. It seems though that is not critical here. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The visualisation of subsidies seems to be the bigger issue.  You need G and H to be the same distance away from their respective original zero profit lines. Thus the 'new' isoprofit lines should run parallel to the old ones, and at the exact same distance.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems to me that it is impossible to place GH on these lines while preserving incentive compatibility because of the relative slopes. However, this is also not proof. If you outline an exact GH pair and type up the equations that you think show that they constitute an improvement while being incentive compatible, you may get better answers (as well as a better understanding of the model).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT&#xA;&lt;br&gt;&#xA;It seems to me, that in your numerical example the subsidies do not cancel each other out. It is not enough to change the rates by the same percentage, because the different types do not buy the same amount of insurance.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It costs &lt;span class=&quot;math-container&quot;&gt;$8\% \cdot 90 = 7.2$&lt;/span&gt; to subsidize the high risk types, but only &lt;span class=&quot;math-container&quot;&gt;$8\% \cdot 15.4242 \approx 2.78$&lt;/span&gt; is collected from additional fees on the low risk types. If there are the same number of people in both types, this will not work. But it seems to work if there are for example three times as many low risk people. I actually find this very surprising. I checked both IC constraints and all the utilities, and everything seems to check out. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your new offers will definitely not be an equilibrium though. As long as one insurer offers the high risk insurance, other insurers can offer just the low risk one. With no high risk customers to subsidize, they will make a profit. By moving the high risk offer a bit more to the right they can siphon off all the low risk consumers from the cross-subsidizing insurance company, who will then suffer losses. So I guess the RS equilibrium is a kind of long run equilibrium.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2019-02-09T14:47:55.167" LastActivityDate="2019-02-09T14:47:55.167" CommentCount="12" ContentLicense="CC BY-SA 4.0" />
  <row Id="26808" PostTypeId="2" ParentId="26778" CreationDate="2019-02-08T15:52:05.393" Score="1" Body="&lt;p&gt;I do not directly see what intuition you are supposed to get from this growth rate equation, and the resulting math exercise but here is a sketch of the proof.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First determine the steady state capital by setting &lt;span class=&quot;math-container&quot;&gt;$\Delta K_{t+1}=0$&lt;/span&gt; and solving for &lt;span class=&quot;math-container&quot;&gt;$K^*$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Substitute this value for the &lt;span class=&quot;math-container&quot;&gt;$(K^*)^{(2/3)}$&lt;/span&gt; in the fraction. Replace the &lt;span class=&quot;math-container&quot;&gt;$ \frac{Y^*}{K^*}$&lt;/span&gt; in the same expression with the value that you get capital-output steady state ratio, and work the &lt;span class=&quot;math-container&quot;&gt;$d$&lt;/span&gt; into the parentheses.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The expression you have now can be shown to be the same as the growth rate of &lt;span class=&quot;math-container&quot;&gt;$y_t$&lt;/span&gt; that can be found from the production function.&lt;/p&gt;&#xA;" OwnerUserId="12186" LastActivityDate="2019-02-08T15:52:05.393" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26809" PostTypeId="2" ParentId="8291" CreationDate="2019-02-08T16:24:47.750" Score="1" Body="&lt;p&gt;Here is a short lists of study’s that looks at the on the reliance of JOLTS data as well as make comparisons to other similar data sets.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Analysis of JOLTS Research Estimates by Size of Firm October 2012- &#xA; Katherine Bauer Klemmer&#xA;&lt;a href=&quot;https://www.bls.gov/osmr/pdf/st120060.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.bls.gov/osmr/pdf/st120060.pdf&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;ADJUSTED ESTIMATES OF WORKER FLOWS AND JOB OPENINGS IN JOLTS-  Steven Davis,  R. Jason Faberman, John Haltiwanger, Ian Rucker (2018).&#xA;&lt;a href=&quot;http://faculty.chicagobooth.edu/steven.davis/pdf/MS_ch5_StevenDavis-et-al_p315-370.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://faculty.chicagobooth.edu/steven.davis/pdf/MS_ch5_StevenDavis-et-al_p315-370.pdf&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Help-Wanted Advertising and Job Vacancies- Rob Valletta – Federal Reserve San Francisco&#xA;&lt;a href=&quot;https://www.frbsf.org/economic-research/publications/economic-letter/2005/january/help-wanted-advertising-and-job-vacancies/&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.frbsf.org/economic-research/publications/economic-letter/2005/january/help-wanted-advertising-and-job-vacancies/&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;UNDERSTANDING ONLINE JOB ADS DATA  - Anthony Carnevale, Tamara Jayasundera, Dmitri Repnikov &#xA;&lt;a href=&quot;https://cew.georgetown.edu/wp-content/uploads/2014/11/OCLM.Tech_.Web_.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://cew.georgetown.edu/wp-content/uploads/2014/11/OCLM.Tech_.Web_.pdf&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Reliability of JOLTS Estimates&#xA;&lt;a href=&quot;https://www.bls.gov/jlt/jltreliability.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.bls.gov/jlt/jltreliability.htm&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="20995" LastActivityDate="2019-02-08T16:24:47.750" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26810" PostTypeId="1" AcceptedAnswerId="26811" CreationDate="2019-02-08T20:23:28.797" Score="2" ViewCount="101" Body="&lt;p&gt;In the formulation of the Tragedy of the Commons below, what does &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt; exactly represent? Is a threshold? The text is from plato.stanford.edu website on Kuhn's Prisoner's dilemma.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, it says that &lt;span class=&quot;math-container&quot;&gt;$\bf D$&lt;/span&gt; strongly dominates &lt;span class=&quot;math-container&quot;&gt;$\bf C$&lt;/span&gt; for all players, and so rational players would choose &lt;span class=&quot;math-container&quot;&gt;$\bf D$&lt;/span&gt; and achieve &lt;span class=&quot;math-container&quot;&gt;$0$&lt;/span&gt;, while preferring that everyone would choose &lt;span class=&quot;math-container&quot;&gt;$\bf C$&lt;/span&gt; and obtain &lt;span class=&quot;math-container&quot;&gt;$C+B$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't understand the last part. The reason &lt;span class=&quot;math-container&quot;&gt;$\bf D$&lt;/span&gt; dominates &lt;span class=&quot;math-container&quot;&gt;$\bf C$&lt;/span&gt; is because either the player gets &lt;span class=&quot;math-container&quot;&gt;$B$&lt;/span&gt; or &lt;span class=&quot;math-container&quot;&gt;$0$&lt;/span&gt; which are better from &lt;span class=&quot;math-container&quot;&gt;$C+B$&lt;/span&gt; or &lt;span class=&quot;math-container&quot;&gt;$C$&lt;/span&gt;. Why would rational players prefer everybody to cooperate?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/kQ0lw.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/kQ0lw.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="20754" LastActivityDate="2019-02-09T02:09:59.270" Title="Understanding a multi-player Tragedy of the Commons game" Tags="&lt;game-theory&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26811" PostTypeId="2" ParentId="26810" CreationDate="2019-02-09T02:02:01.627" Score="3" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;what does  exactly represent? Is a threshold?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Yes, &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt; is the threshold above which the benefit &lt;span class=&quot;math-container&quot;&gt;$B$&lt;/span&gt; realizes. Think of this as a situation where a public good with benefit &lt;span class=&quot;math-container&quot;&gt;$B$&lt;/span&gt; is provided only if more than half of the population votes for it. &lt;span class=&quot;math-container&quot;&gt;$C$&lt;/span&gt; is the cost of voting, and &lt;span class=&quot;math-container&quot;&gt;$n=\lceil\frac12N\rceil$&lt;/span&gt; is the smallest integer greater than half of the population size (&lt;span class=&quot;math-container&quot;&gt;$N$&lt;/span&gt;).&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Why would rational players prefer everybody to cooperate?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;While a rational player would choose &lt;span class=&quot;math-container&quot;&gt;$\mathbf{D}$&lt;/span&gt; regardless of what others would choose, he/she would still prefer the outcome with benefit &lt;span class=&quot;math-container&quot;&gt;$B$&lt;/span&gt; to the outcome with &lt;span class=&quot;math-container&quot;&gt;$0$&lt;/span&gt; benefit. Hence, he/she would prefer everyone else chooses &lt;span class=&quot;math-container&quot;&gt;$\mathbf{C}$&lt;/span&gt;, i.e. bearing the cost of providing benefit &lt;span class=&quot;math-container&quot;&gt;$B$&lt;/span&gt;, while he/she enjoys &lt;span class=&quot;math-container&quot;&gt;$B$&lt;/span&gt; without incurring any cost by choosing &lt;span class=&quot;math-container&quot;&gt;$\mathbf{D}$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Additionally, suppose there are &lt;span class=&quot;math-container&quot;&gt;$N$&lt;/span&gt; players, and that &lt;span class=&quot;math-container&quot;&gt;$n&amp;lt;N-1$&lt;/span&gt;. Then with all the other &lt;span class=&quot;math-container&quot;&gt;$N-1$&lt;/span&gt; players playing &lt;span class=&quot;math-container&quot;&gt;$\mathbf{C}$&lt;/span&gt;, it doesn't really matter if the remaining player chooses &lt;span class=&quot;math-container&quot;&gt;$\mathbf{C}$&lt;/span&gt; or &lt;span class=&quot;math-container&quot;&gt;$\mathbf{D}$&lt;/span&gt;. So arguably it's less morally objectionable for the last player to choose &lt;span class=&quot;math-container&quot;&gt;$\mathbf{D}$&lt;/span&gt;. &lt;/p&gt;&#xA;" OwnerUserId="42" LastEditorUserId="42" LastEditDate="2019-02-09T02:09:59.270" LastActivityDate="2019-02-09T02:09:59.270" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26813" PostTypeId="1" CreationDate="2019-02-09T06:11:27.417" Score="0" ViewCount="423" Body="&lt;p&gt;My textbook says that &quot;if a weak preference relation is complete and transitive, the strict preference relation MUST be asymmetric and negatively transitive&quot;. Now, I think I understand why it must be asymmetric - all strict preference relations are asymmetric, correct? However, I don't understand why it is negatively transitive. If the weak preference is transitive, couldn't the strict preference also be transitive?&lt;/p&gt;&#xA;" OwnerUserId="21042" LastEditorUserId="108" LastEditDate="2019-02-09T11:06:06.670" LastActivityDate="2019-02-09T11:06:06.670" Title="If a weak preference relation is complete and transitive, why is the strict preference relation negatively transitive?" Tags="&lt;microeconomics&gt;&lt;preferences&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26814" PostTypeId="2" ParentId="26813" CreationDate="2019-02-09T06:37:00.600" Score="1" Body="&lt;p&gt;I think your confusion here stems from misinterpreting negative transitivity to mean &quot;not transitive&quot;. But that's not what it means. It is perfectly possible for a binary relation to be both transitive and negatively transitive, as is the case here with the strict preference relation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Definition 1.&lt;/strong&gt; A binary relation &lt;span class=&quot;math-container&quot;&gt;$\mathcal{R}$&lt;/span&gt; is &lt;em&gt;transitive&lt;/em&gt; if: &lt;span class=&quot;math-container&quot;&gt;$$x \mathcal{R} y \text{ and } y \mathcal{R} z \implies x \mathcal{R} z.$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Definition 2.&lt;/strong&gt; A binary relation &lt;span class=&quot;math-container&quot;&gt;$\mathcal{R}$&lt;/span&gt; is &lt;em&gt;negatively transitive&lt;/em&gt; if: &lt;span class=&quot;math-container&quot;&gt;$$x \not\mathcal{R} y \text{ and } y \not\mathcal{R} z \implies x \not\mathcal{R} z.$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Those are forward slashes over the &lt;span class=&quot;math-container&quot;&gt;$\mathcal{R}$&lt;/span&gt;'s meaning &quot;not&quot;. The LaTeX &quot;not&quot; here isn't quite working as well as I'd like.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The strict preference relation &lt;span class=&quot;math-container&quot;&gt;$\succ$&lt;/span&gt; is both transitive &lt;em&gt;and&lt;/em&gt; negatively transitive.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;It is &lt;em&gt;transitive&lt;/em&gt; because &lt;span class=&quot;math-container&quot;&gt;$(x \succ y \text{ and } y \succ z)$&lt;/span&gt; implies &lt;span class=&quot;math-container&quot;&gt;$x \succ z.$&lt;/span&gt;&lt;/li&gt;&#xA;&lt;li&gt;It is &lt;em&gt;negatively transitive&lt;/em&gt; because &lt;span class=&quot;math-container&quot;&gt;$(x \not\succ y \text{ and } y \not\succ z)$&lt;/span&gt;  is equivalent to &lt;span class=&quot;math-container&quot;&gt;$(y \succsim x \text{ and } z \succsim y)$&lt;/span&gt;, which, by the transitivity of &lt;span class=&quot;math-container&quot;&gt;$\succsim$&lt;/span&gt;, implies &lt;span class=&quot;math-container&quot;&gt;$z \succsim x$&lt;/span&gt; or &lt;span class=&quot;math-container&quot;&gt;$x \not\succ z$&lt;/span&gt;.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2019-02-09T06:37:00.600" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26815" PostTypeId="2" ParentId="26786" CreationDate="2019-02-09T14:14:03.553" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Can monetary union work without fiscal union?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Yes, and that facilitates a comparison of economies &amp;amp; policies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that the governmental participation you outline (tending to government's prominence in an economy) is only one approach of policy making. Another, opposite approach is &lt;a href=&quot;https://www.investopedia.com/terms/n/neoliberalism.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;neoliberalism&lt;/a&gt;, whereby a government's role in an economy is mostly supervisory and promotes market freedom.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is the absence of fiscal union what allows a government to make the domestic economy more competitive by lowering taxes. And in a context of monetary union, the spectrum of fiscal differences becomes more evident, which streamlines an assessment of which economies or policies are more effective. In short, the combination of monetary union and lack of fiscal union is the &quot;best of both worlds&quot;.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;for example by undertaking infrastructure projects. Does monetary union somehow limit the ability to use this lever too?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It certainly does because monetary union removes a degree of freedom: The members of a monetary union are subject to an additional constraint necessary to preserve stability of the currency they have in common.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But more important is that the constraint that ensues from a monetary union makes it more difficult for a government to go too far on policies that ultimately are detrimental or unsustainable.&lt;/p&gt;&#xA;" OwnerUserId="18552" LastActivityDate="2019-02-09T14:14:03.553" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="26816" PostTypeId="2" ParentId="26806" CreationDate="2019-02-09T19:49:44.820" Score="2" Body="&lt;p&gt;I recognize that I cannot prove a negative and claim &quot;no economists want this&quot;, but I will caution that there will be &lt;em&gt;few&lt;/em&gt; economists with an interest in food independence (being a food autarky) because it is fundamentally opposed by well-accepted economic theory, the Ricardian Trade model.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Take a look at the Ricardian Trade model. &lt;a href=&quot;https://d3bxy9euw4e147.cloudfront.net/oscms-prodcms/media/documents/Microeconomics2e-OP_TYV1xIr.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Here's a link to a nice micro textbook I use (open source)&lt;/a&gt;. Chapter 19 covers trade and the Ricardian model basically suggests a good trade can always be reached. It's always preferable to specialize in some good and trade for what we need (with open trade policies).  Overall consumption will increase for us as a result, even if we are vastly larger in every relevant production capacity.   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Most exceptions I have seen (arguments for closing trade) involve highly technical/industrial goods being restricted for import in developing countries. This encourages native development of those technical industries, hopefully furthering development. Even these fringe cases are a rare exception, not the rule.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A few other arguments revolve around security. Conflict, in general, is bad for overall consumption and typically best avoided. But, if there is some sort of security benefit to food independence, that benefit is heavily reduced by the inefficiencies of such policies. &lt;/p&gt;&#xA;" OwnerUserId="4185" LastActivityDate="2019-02-09T19:49:44.820" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26817" PostTypeId="1" CreationDate="2019-02-09T20:51:43.607" Score="0" ViewCount="50" Body="&lt;p&gt;So, the average cost threshold protocol is a theoretical protocol for crowd funding club goods (it can also be used to crowd fund public goods, but I'll only focus on club goods in this post). It is explained &lt;a href=&quot;http://blog.felixbreuer.net/2013/01/20/average-cost-threshold-protocol.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;, but I'll give a brief summary.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's say someone created a club good. As an example, I'll say the good is a ebook titled &quot;Introduction to the Bean trade&quot;. The author decides to sell it using protocol.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To do this, he comes up with some price &lt;span class=&quot;math-container&quot;&gt;$R$&lt;/span&gt;. This is how much total revenue he wants to accrue by selling the book. He then announces to the public that he is selling his book using the average cost threshold protocol, and what value he assigned &lt;span class=&quot;math-container&quot;&gt;$R$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, potential buyers announce how valuable they think the book is to them (they could lie, but as it turns out there is no incentive to do so). Let &lt;span class=&quot;math-container&quot;&gt;$V_i$&lt;/span&gt; be the value consumer &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; announced.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, most likely using a computer, a price &lt;span class=&quot;math-container&quot;&gt;$P$&lt;/span&gt; is calculated. This price &lt;span class=&quot;math-container&quot;&gt;$P$&lt;/span&gt; must the minimum price such that &lt;span class=&quot;math-container&quot;&gt;$|B_p|P = R$&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$B_p$&lt;/span&gt; is the set of consumers such that &lt;span class=&quot;math-container&quot;&gt;$P \le V_i$&lt;/span&gt;. If such a price does not exist, the protocol failed, and no products or money change hands. It can however be attempted again if wanted, and may succeed if there are more buyers or the buyers announce a higher value. (In an actual implementation, if no &lt;span class=&quot;math-container&quot;&gt;$P$&lt;/span&gt; is found, you can just wait until more buyers show up, instead of requiring them all to announce it at the same time.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, all customers in &lt;span class=&quot;math-container&quot;&gt;$B_p$&lt;/span&gt; pay the author &lt;span class=&quot;math-container&quot;&gt;$P$&lt;/span&gt; and the author gives each of them a copy of the ebook. The author has made his revenue &lt;span class=&quot;math-container&quot;&gt;$R$&lt;/span&gt;, as intended, and the customers got a copy of the ebook in exchange for a price no greater than how much they valued it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The protocol is usually defined in such a way that more potential customers may announce prices, and previous potential customers who were not in &lt;span class=&quot;math-container&quot;&gt;$B_P$&lt;/span&gt; may change their prices. If this causes the value of &lt;span class=&quot;math-container&quot;&gt;$P$&lt;/span&gt; to change to &lt;span class=&quot;math-container&quot;&gt;$P'$&lt;/span&gt;, new customers pay &lt;span class=&quot;math-container&quot;&gt;$P'$&lt;/span&gt; to the author and previous customers are refunded &lt;span class=&quot;math-container&quot;&gt;$P - P'$&lt;/span&gt;. However, for simplicity, I will say that protocol ends immediately after failing or a transaction being made.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Anyways, now for the paradox. If a custom believes that the book has value &lt;span class=&quot;math-container&quot;&gt;$V_i$&lt;/span&gt;, and they announce this price, then three things can happen:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;The protocol fails or &lt;span class=&quot;math-container&quot;&gt;$V_i &amp;lt; P$&lt;/span&gt;. They do not pay, nor do they get the book. Their net gain is &lt;span class=&quot;math-container&quot;&gt;$0$&lt;/span&gt;.&lt;/li&gt;&#xA;&lt;li&gt;The protocol succeeds with &lt;span class=&quot;math-container&quot;&gt;$P = V_i$&lt;/span&gt;. They pay &lt;span class=&quot;math-container&quot;&gt;$P$&lt;/span&gt; and get the book of value &lt;span class=&quot;math-container&quot;&gt;$V_i$&lt;/span&gt;. Their net gain is &lt;span class=&quot;math-container&quot;&gt;$0$&lt;/span&gt;.&lt;/li&gt;&#xA;&lt;li&gt;The protocol succeeds with &lt;span class=&quot;math-container&quot;&gt;$P &amp;gt; V_i$&lt;/span&gt;. They pay &lt;span class=&quot;math-container&quot;&gt;$P$&lt;/span&gt; and get the book of value &lt;span class=&quot;math-container&quot;&gt;$V_i$&lt;/span&gt;. Their net gain is &lt;span class=&quot;math-container&quot;&gt;$V_i - P$&lt;/span&gt;, which is positive.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The problem is that the net gain is always positive. I was under the impression that there are no guaranteed gains in economics. If there was, everyone would be using this all the time until people ran out of ideas for club goods.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here are some potential explanations I thought of, but I have an issue with each one:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;If the protocol fails, the author eats the price of the book. A small modification can be made to fix this, however. Have the customers announce their prices before he writes, so he can determine if &lt;span class=&quot;math-container&quot;&gt;$P$&lt;/span&gt; will exist. The only risk to him then is if he fails to complete the book. This risk can probably be factored into &lt;span class=&quot;math-container&quot;&gt;$R$&lt;/span&gt;. So the author would have a risk, but he would still probably take it (since he has to take it to write the book anyways, regardless of how he sells it), and the customers still have no risk.&lt;/li&gt;&#xA;&lt;li&gt;The author created value when he wrote the book, so of course the average gain will be positive. However, even when creating value guaranteed gains should not exist, since otherwise everyone would create value that way.&lt;/li&gt;&#xA;&lt;li&gt;The customers announce a price higher than their true &lt;span class=&quot;math-container&quot;&gt;$V_i$&lt;/span&gt; for some reason, which makes incurring a loss a possibility. However, the possibility still remains that they &lt;em&gt;could have&lt;/em&gt; gotten a guaranteed gain, so the paradox remains.&lt;/li&gt;&#xA;&lt;li&gt;The value of the book turns out to be less than the customer anticipated. For example, maybe the bean trade goes into decline. However, it should be possible to hedge something like this out. The customer can also require the author to publish a set of standards the book will meet before they announce a price, and make the payment contingent on the book meeting those standards. The customer can also announce a value that is a conservative estimate of the book's value.&lt;/li&gt;&#xA;&lt;li&gt;The customer incurs an opportunity cost by locking up their funds. This will not be recouped if they are not in &lt;span class=&quot;math-container&quot;&gt;$B_P$&lt;/span&gt;. This can be resolved by making sure it is quickly determined what &lt;span class=&quot;math-container&quot;&gt;$P$&lt;/span&gt; is after the values are announced, if it exists. This way the customer only needs to lock up their funds if they are in &lt;span class=&quot;math-container&quot;&gt;$B_P$&lt;/span&gt;. When they announce their value, they can deduct the expected opportunity cost from it.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;So, what is going on? What does it seem like this protocol results in a possibility of a gain without a possibility of a loss?&lt;/p&gt;&#xA;" OwnerUserId="5716" LastEditorDisplayName="user18" LastEditDate="2019-02-10T02:34:09.293" LastActivityDate="2021-02-26T05:00:24.993" Title="Why does it seem like the average cost threshold protocol has a possible gain but no chance of loss?" Tags="&lt;risk&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26818" PostTypeId="2" ParentId="26806" CreationDate="2019-02-09T21:48:46.317" Score="5" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Have there been any economists who have argued in favor of national&#xA;  food self-sufficiency and what are some of their arguments?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I am not knowledgeable of literature in that direction, but some of the arguments in the aforementioned excerpts are flawed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Simply put, self-sufficiency does not preclude free trade. The excerpt of &lt;em&gt;The Economist&lt;/em&gt; certainly admits that &quot;&lt;em&gt;The notion that free trade precludes food security is plainly wrong-headed&lt;/em&gt;&quot;, but it still misses subtle differences between &lt;em&gt;security&lt;/em&gt; and &lt;em&gt;self-sufficiency&lt;/em&gt;: (1) the latter intrinsically entails more autonomy; and (2) the cost of reliance on international markets might ultimately outweigh the costs of pursuing self-sufficiency.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The undeveloped mention of &quot;starving North Korea&quot; in &lt;em&gt;The Economist&lt;/em&gt; improperly conflates the notion of food self-sufficiency and North Korea's policy of generalized isolationism. But, more generally, a country may prioritize food self-sufficiency without necessarily imposing trade barriers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that &lt;em&gt;The Economist&lt;/em&gt; article mentions Vietnam and India as examples of economies with &lt;em&gt;export&lt;/em&gt; restrictions. But an &lt;em&gt;export&lt;/em&gt; restriction is consistent with the purposes of self-sufficiency: It aims at ensuring that the domestic production of the commodity is not depleted by international markets &lt;em&gt;prematurely&lt;/em&gt; (that is, prior to satisfying the domestic demand). An increased volatility in international markets as a result of the &lt;em&gt;export restriction&lt;/em&gt; becomes irrelevant to the domestic economy if the net effect is that its population is not deprived of the commodity it produces.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Likewise, the issue of &quot;&lt;em&gt;domestic farmers [being] discouraged from producing more&lt;/em&gt;&quot; has to do with policy (sub-)optimality regarding the &lt;em&gt;excedents&lt;/em&gt; from self-sufficiency. It is not a defect inherent to self-sufficiency.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Mohanty's position fares better in that he rather discourages &quot;&lt;em&gt;pursuing self-sufficiency at any cost&lt;/em&gt;&quot;. But his argument of &lt;em&gt;climate change predictions&lt;/em&gt; is self-defeating because a concentration of supply exacerbates a bottleneck risk --and therewith its potential severity-- of a commodity trade. The global impact of extreme weather conditions is predictably worse in the context of fewer exporters than if sources of supply are geographically more diversified because more economies pursue self-sufficiency.&lt;/p&gt;&#xA;" OwnerUserId="18552" LastActivityDate="2019-02-09T21:48:46.317" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26819" PostTypeId="1" CreationDate="2019-02-09T22:12:59.717" Score="1" ViewCount="51" Body="&lt;p&gt;Does visitor export include the purchase of airline tickets? If so, I would assume that it only counts airline businesses that are established in the country of question.&lt;/p&gt;&#xA;" OwnerUserId="21051" LastActivityDate="2019-03-12T06:00:47.210" Title="Does Visitor Export Include Airline Tickets?" Tags="&lt;gdp&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26820" PostTypeId="1" AcceptedAnswerId="26825" CreationDate="2019-02-09T22:14:17.157" Score="1" ViewCount="212" Body="&lt;p&gt;I need to prove that Constant Absolute Risk Aversion (CARA) is equivalent to &#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{gather}&#xA;\int u'(x)dF(x) = u'(c(F,u))&#xA;\end{gather}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where &lt;span class=&quot;math-container&quot;&gt;$u(x)$&lt;/span&gt; is a Bernoulli utility function, &lt;span class=&quot;math-container&quot;&gt;$F$&lt;/span&gt; is the distribution of the lottery and &lt;span class=&quot;math-container&quot;&gt;$c(F,u)$&lt;/span&gt; is the certainty equivalent. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I started from the fact that CARA is defined as &lt;span class=&quot;math-container&quot;&gt;$-\frac{u''(x)}{u'(x)}=a$&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$a$&lt;/span&gt; is a constant and that the certainty equivalent is defined as &lt;span class=&quot;math-container&quot;&gt;$u(c(F,u))=\int u(x)dF(x)$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I tried to mix up the two definitions but I am a bit lost with the interaction of integration and differentiation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Do you have any hint?&lt;/p&gt;&#xA;" OwnerUserId="6773" LastActivityDate="2019-02-10T22:37:00.333" Title="Constant absolute risk aversion and certainty equivalent" Tags="&lt;microeconomics&gt;&lt;risk-aversion&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26821" PostTypeId="2" ParentId="26817" CreationDate="2019-02-10T02:40:12.040" Score="0" Body="&lt;p&gt;Your error is this:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;I was under the impression that there are no guaranteed gains in economics.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In general, &lt;strong&gt;any voluntary exchange produces gains for both parties&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Example.&lt;/em&gt; I buy an apple from Walmart for &lt;span class=&quot;math-container&quot;&gt;$\$1$&lt;/span&gt;. I gain, because I value the apple at more than &lt;span class=&quot;math-container&quot;&gt;$\$1$&lt;/span&gt;. Walmart also gains, because the cost of selling the apple is less than &lt;span class=&quot;math-container&quot;&gt;$\$1$&lt;/span&gt; for Walmart.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In your example, both the producer (the writer) and the consumers (the buyers of the book) can gain from voluntary exchange. This is exactly what economics says and there is no paradox.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(P.S. This is a very important insight in economics that is not sufficiently stressed, perhaps because it seems so simple.)&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;I'm not sure where your above error comes from -- perhaps you could elaborate. (I suspect it might be due to confusion with the Efficient Markets Hypothesis or perhaps the model of perfect competition?)&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastEditorDisplayName="user18" LastEditDate="2019-02-10T02:51:55.260" LastActivityDate="2019-02-10T02:51:55.260" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26822" PostTypeId="1" CreationDate="2019-02-10T04:20:22.287" Score="0" ViewCount="107" Body="&lt;p&gt;On &lt;a href=&quot;https://youtu.be/0qyx6eDkrmw?t=303&quot; rel=&quot;nofollow noreferrer&quot;&gt;this segment of the Tucker Carlson show&lt;/a&gt;, interviewing &lt;a href=&quot;https://www.lawschool.cornell.edu/faculty/bio_robert_hockett.cfm&quot; rel=&quot;nofollow noreferrer&quot;&gt;Robert Hockett&lt;/a&gt;, as an advisor to Rep. Octavio-Cortez on the proposed &lt;a href=&quot;https://www.gp.org/green_new_deal&quot; rel=&quot;nofollow noreferrer&quot;&gt;Green New Deal&lt;/a&gt;, the following interchange ensues:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Tucker: &amp;quot;On the low end, this will be the most expensive thing the US has ever undertaken, including rural electrification, the Second World War,... And I'm just kind of wondering in a country that has more debt than GDP, how would we pay for that?&amp;quot;&lt;/p&gt;&#xA;&lt;p&gt;RH: &amp;quot;Here's the key, [...], here is the take away - I want you to remember this; I hope everybody will remember this - inflation is a relation, right? It's the relation between the quantity of money and the quantity of goods. Now, if the money that you're spending is resulting in the production of a great many more goods, you have no inflation problem: more production absorbs more expenditure. The problem with the $7 trillion dollars that we spent during the Bush years, and of course, in the last tax cut is that it wasn't actually productive, but note that even that didn't bring about inflation.&amp;quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Clearly, Robert Hockett seems to imply that in the absence of inflation, the high debt-to-GDP ratio is not an issue.&lt;/p&gt;&#xA;&lt;p&gt;The question is:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;&lt;strong&gt;Can inflation (or absence thereof) be used as a sole indicator that the debt-to-GDP ratio is (not) having deleterious consequences?&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;In fact it would seem as though inflation would help repay the debt by making it cheaper, and that the real problem would come in the absence of inflation, having to service the interest on the debt  through tax increases, or more debt...&lt;/p&gt;&#xA;&lt;p&gt;Note the following passage in &lt;a href=&quot;https://economics.stackexchange.com/a/16519/11778&quot;&gt;this answer by Brian Romanchuk&lt;/a&gt;:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;...it is reasonably safe to argue that greater interest payments will squeeze out other spending if we want to keep inflation around a target level.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;So interest on the debt would crowd out spending in other areas if inflation is to be contained. Naturally, there is the big distorting effect of the \$US acting as a haven investment strategy, potentially nullifing any linear relationship between debt and inflation. In fact it makes sense to consider the US as an aside case given that the $US is &lt;em&gt;the&lt;/em&gt; &lt;a href=&quot;https://en.wikipedia.org/wiki/Reserve_currency&quot; rel=&quot;nofollow noreferrer&quot;&gt;reserve currency&lt;/a&gt;.&lt;/p&gt;&#xA;&lt;p&gt;With all these caveats, inflation could act as an indirect indicator that the debt-to-GDP ratio is hard to manage.&lt;/p&gt;&#xA;&lt;p&gt;That being said, it seems like a specious argument to claim that the stability of inflation following the last two rounds of tax cuts should be reassuring when two thirds of the US Budget go to non-discretionary spending as it is, and the projected cost of servicing the debt is about to surpass military spending, according to the &lt;a href=&quot;https://www.nytimes.com/2018/09/25/business/economy/us-government-debt-interest.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;NY Times&lt;/a&gt;:&lt;/p&gt;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/61uVp.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/61uVp.png&quot; alt=&quot;enter image description here&quot; /&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&lt;p&gt;But this is a comment more directed to the argument in this case than to the actual question about the value of inflation as a metric of too-high a ratio.&lt;/p&gt;&#xA;" OwnerUserId="11778" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2021-03-03T18:00:44.950" Title="Debt-to-GDP ratio in connection to inflation" Tags="&lt;macroeconomics&gt;&lt;inflation&gt;&lt;government-debt&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="26823" PostTypeId="2" ParentId="26819" CreationDate="2019-02-10T05:49:51.070" Score="1" Body="&lt;p&gt;The UN SNA (&lt;a href=&quot;https://books.google.com/books?id=gQWmAdwdI8gC&amp;amp;pg=PA42&amp;amp;dq=%22planes%20belonging%20to%20a%20domestic%20airline%20are%20always%20assets%20of%20the%20domestic%20economy%20regardless%20of%20where%20in%20the%20world%20they%20happen%20to%20be.%22&quot; rel=&quot;nofollow noreferrer&quot;&gt;2008, p. 42&lt;/a&gt;) has this to say:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;planes belonging to a domestic airline are always assets of the domestic economy regardless of where in the world they happen to be.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So, conceptually,* we should include in our country's GDP any services provided by any planes belonging to domestic airlines. And so for example, the fare paid in a Ryanair (based in Ireland) one-way ticket from Paris (France) to Berlin (Germany) would be counted in Ireland's GDP.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Conceptually, an export is any good or service sold by residents to non-residents. So, if the above one-way ticket were purchased by an Irish resident, then it should be counted as consumption in Ireland's GDP. If it were instead purchased by an Irish non-resident, then it should instead be counted as exports in Ireland's GDP. (I don't know though if in practice they actually make this distinction.)&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;*In practice, I am not sure how exactly this is done by national statistical agencies. My suspicion is that they probably don't consider each ticket sold and instead just look at aggregate figures provided by domestic airlines, e.g. their profits.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastEditorDisplayName="user18" LastEditDate="2019-02-10T05:56:35.927" LastActivityDate="2019-02-10T05:56:35.927" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26825" PostTypeId="2" ParentId="26820" CreationDate="2019-02-10T22:37:00.333" Score="2" Body="&lt;p&gt;This is perhaps not the best way to prove the statement. But notice that a CARA utility is equivalent to having the general functional form:&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;u(x)=-\alpha \mathrm e^{-ax-b}+\beta,\quad\text{where $a,\alpha&amp;gt;0$ and $b,\beta\in\mathbb R$}.&#xA;\end{equation}&lt;/span&gt; &#xA;Knowing this, the rest should be straightforward. &lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2019-02-10T22:37:00.333" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="26826" PostTypeId="2" ParentId="26340" CreationDate="2019-02-10T23:38:34.877" Score="0" Body="&lt;p&gt;There are a couple of things that you are going to want to keep in mind as you do this type of analysis. You want to be careful not to base your conclusions on too little data. It sounds like you would be basing your monthly elasticity estimates on two data points (the month in 2018 and the month in 2017). Unless your sales data is remarkably stable, this is likely to be highly influenced by noise in the data.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Additionally, the time period that you use in estimating elasticity should be determined by the frequency of price changes and the frequency of sales. For example, if you only observe price changes once per year, this type of analysis will likely be ineffective. I would recommend plotting your observed price and sales points at the weekly or monthly level. This will give you a sense of how noisy your data is. If the plots that you create look relatively stable, then, as you discussed, you can think about fitting a demand curve to the data and calculating elasticity using the equation of the fitted curve.&lt;/p&gt;&#xA;" OwnerUserId="21058" LastActivityDate="2019-02-10T23:38:34.877" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26827" PostTypeId="1" CreationDate="2019-02-11T02:06:34.687" Score="2" ViewCount="717" Body="&lt;p&gt;I have this question for microecon that asks do the following utility functions represent the same preferences:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$u(x_1, x_2) = x1 \cdot x2, \; v(x_1, x_2) = \ln x_1 + \ln x_2$&lt;/span&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$u(x_1, x_2) = x1 \cdot x2, \; v(x_1, x_2) = x_1 + x_2$&lt;/span&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;How do I go about approaching this problem since they are two different functions?&lt;/p&gt;&#xA;" OwnerUserId="21060" LastEditorUserId="20068" LastEditDate="2019-04-07T18:54:30.513" LastActivityDate="2019-04-07T18:54:30.513" Title="How can two different utility functions represent the same preferences?" Tags="&lt;utility&gt;&lt;preferences&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="26831" PostTypeId="1" CreationDate="2019-02-11T11:31:02.807" Score="2" ViewCount="23" Body="&lt;p&gt;Context: &lt;a href=&quot;https://www.theguardian.com/uk-news/2018/nov/27/one-in-four-uk-workers-covered-national-living-wage-underpaid-low-pay-commission&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.theguardian.com/uk-news/2018/nov/27/one-in-four-uk-workers-covered-national-living-wage-underpaid-low-pay-commission&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why is it that employers can seemingly get away without paying the full NLW? Surely they would be worried that their workers will observe their pay packets and realise that they are illegally underpaying them?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lastly, a quote from the article above: &quot;The figures from the Low Pay Commission may also include data errors, as well as cover some workers who receive benefits such as accommodation in lieu of pay.&quot; Legally, does the NMW have to be purely in monetary terms or can it take other remunerative forms (accommodation subsidies etc).&lt;/p&gt;&#xA;" OwnerUserId="16275" LastEditorUserId="1601" LastEditDate="2019-02-11T16:55:46.673" LastActivityDate="2019-02-11T16:55:46.673" Title="Why is underpayment so prevalent? (23% of those who are 25 and are entitled to the UK's National Living Wage are underpaid!)?" Tags="&lt;microeconomics&gt;&lt;minimum-wage&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26834" PostTypeId="1" AcceptedAnswerId="26837" CreationDate="2019-02-11T16:52:57.083" Score="0" ViewCount="84" Body="&lt;p&gt;so I know that usually the income curve is equal to:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$x_1p_1 + x_2p_2 = m$$&lt;/span&gt;&#xA;if we rearrange this equation we get that the demand for good one (&lt;span class=&quot;math-container&quot;&gt;$x_1$&lt;/span&gt;) is equal to:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$x_1 = \frac{m-x_2p_2}{p_1}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;None the less in my book it is said that:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The demand for good 1 is &lt;span class=&quot;math-container&quot;&gt;$x_1 = \frac {m}{(p_1 + p_2)}$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;if anyone could explain me why &lt;span class=&quot;math-container&quot;&gt;$x_1 = \frac {m}{(p_1 + p_2)}$&lt;/span&gt; instead of &lt;span class=&quot;math-container&quot;&gt;$x_1 = \frac{m-x_2p_2}{p_1}$&lt;/span&gt; that would be greatly appreciated. many thanks in advance.&lt;/p&gt;&#xA;" OwnerUserId="19689" LastActivityDate="2019-02-11T22:28:07.587" Title="What is the reason behind the demand function of a perfect complement good?" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;perfect-complements&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26837" PostTypeId="2" ParentId="26834" CreationDate="2019-02-11T22:28:07.587" Score="3" Body="&lt;p&gt;Suppose you have &lt;span class=&quot;math-container&quot;&gt;$M=20$&lt;/span&gt; to spend on shoes. Left shoes cost &lt;span class=&quot;math-container&quot;&gt;$p_L=5$&lt;/span&gt; and right shoes cost &lt;span class=&quot;math-container&quot;&gt;$p_R=5$&lt;/span&gt;. A bundle, &lt;span class=&quot;math-container&quot;&gt;$(x_L,x_R)$&lt;/span&gt; consists of &lt;span class=&quot;math-container&quot;&gt;$x_L$&lt;/span&gt; pairs of left shoes and &lt;span class=&quot;math-container&quot;&gt;$x_R$&lt;/span&gt; pairs of right shoes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How would you figure out how many of each type of shoe to buy? Probably the reasoning would go like this:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;You only ever want to buy shoes in pairs (consisting of a left and a right shoe). So instead of asking how many left shoes and right shoes to buy, you can define a new good called &quot;pairs of shoes&quot; and ask how many units of this new good to buy.&lt;/li&gt;&#xA;&lt;li&gt;The price of a pair is &lt;span class=&quot;math-container&quot;&gt;$p_P=p_L+p_R=10$&lt;/span&gt;. Thus, you can afford to buy up to &lt;span class=&quot;math-container&quot;&gt;$\frac{M}{p_P}=\frac{M}{p_L+p_R}$&lt;/span&gt; pairs (two pairs in our example).&lt;/li&gt;&#xA;&lt;li&gt;Since you need one left shoe to make each pair, the number of left shoes you buy is simply the same as the number of pairs calculated in step 2: &lt;span class=&quot;math-container&quot;&gt;$x_L=\frac{M}{p_L+p_R}$&lt;/span&gt;, or two left shoes. Likewise, you need to buy &lt;span class=&quot;math-container&quot;&gt;$x_R=\frac{M}{p_L+p_R}$&lt;/span&gt; right shoes.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="108" LastActivityDate="2019-02-11T22:28:07.587" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26839" PostTypeId="1" AcceptedAnswerId="26885" CreationDate="2019-02-12T05:04:49.090" Score="4" ViewCount="81" Body="&lt;p&gt;In a normal form game with two players, we call a joint strategy &lt;span class=&quot;math-container&quot;&gt;$s=(s_1,s_2)$&lt;/span&gt; a Pareto optimal outcome if for no joint strategy &lt;span class=&quot;math-container&quot;&gt;$s'$&lt;/span&gt;, for all players &lt;span class=&quot;math-container&quot;&gt;$i\in\{1,2\}$&lt;/span&gt;, we have &lt;span class=&quot;math-container&quot;&gt;$$u_i(s')\geq u_i(s)\qquad(1)$$&lt;/span&gt; and also at least for one player &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; &lt;span class=&quot;math-container&quot;&gt;$$u_i(s')&amp;gt;u_i(s).\qquad(2)$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The social welfare of &lt;span class=&quot;math-container&quot;&gt;$s$&lt;/span&gt; is defined as &lt;span class=&quot;math-container&quot;&gt;$$\sum_{i=1}^{2}u_i(s).\qquad(3)$$&lt;/span&gt; If the social welfare of &lt;span class=&quot;math-container&quot;&gt;$s$&lt;/span&gt; is maximal, then the joint strategy &lt;span class=&quot;math-container&quot;&gt;$s$&lt;/span&gt; is a social optimum.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I want to use these definitions in a Bayesian game where the utility functions are defined as &lt;span class=&quot;math-container&quot;&gt;$u_i:A\times\Theta\to\mathbb{R}$&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt; is the action set and &lt;span class=&quot;math-container&quot;&gt;$\Theta$&lt;/span&gt; is the type set.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can we simply replace &lt;span class=&quot;math-container&quot;&gt;$u_i(s)$&lt;/span&gt; in &lt;span class=&quot;math-container&quot;&gt;$(1),(2),(3)$&lt;/span&gt; with &lt;span class=&quot;math-container&quot;&gt;$u_i(a,\theta)$&lt;/span&gt;? Or we have to consider the expected utility of a player?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How should we write the definitions if the game is in the ex-ante stage?&lt;/p&gt;&#xA;" OwnerUserId="20754" LastActivityDate="2019-02-14T06:51:39.137" Title="Social Welfare and Pareto Optimality in a Bayesian Game" Tags="&lt;game-theory&gt;&lt;bayesian-game&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26840" PostTypeId="2" ParentId="15558" CreationDate="2019-02-12T06:13:41.287" Score="0" Body="&lt;p&gt;The cause of the wage and productivity growth gap varies a lot by each sector so it's useful to look at that data.  If&#xA;we look at a breakdown of the &lt;a href=&quot;https://www.bls.gov/opub/btn/volume-6/understanding-the-labor-productivity-and-compensation-gap.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;last 30 years&lt;/a&gt;, we can probably try to understand things in a more nuanced fashion:&#xA;&lt;img src=&quot;https://cdn-images-1.medium.com/max/1600/1*yOyWIkEZ-NIkwpM8FPjRHA.png&quot; alt=&quot;cumulative growth in productivity and wages&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The erosion of labor unions (directly and indirectly) probably accounts for some of the failure to translate productivity into wage growth but it's important to not forget labor productivity is synonymous with labor efficiency.  &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;In the retail, wholesale, and transportation and warehousing sectors, in the past large amounts of time used to be spent checking inventories.  Today this needs to happen much less often and therefore makes labor more efficient.  Software automatically calculates what inventory needs to be restocked and optimizes the process by which it's done.  Labor has been reduced to flesh drones that are utilized much more efficiently.&lt;/li&gt;&#xA;&lt;li&gt;In the wholesale sector, in the past workers had simple 8 hour schedules.  Today, Amazon workers only work for while there are packages that need to be processed so labor is fully utilized.&lt;/li&gt;&#xA;&lt;li&gt;In manufacturing, it's just in time manufacturing processes and better automation.&lt;/li&gt;&#xA;&lt;li&gt;In the information sector, email and instant messaging increases efficiency in communication.  Googling answers to common problems saves workers hundreds of millions to billion hours a year easily.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;There are other factors certainly but the biggest law passed 50 years ago that's contributed most to the rise of productivity without wage growth is Moore's Law.  In the end, software has made us all much more efficient commodities.&lt;/p&gt;&#xA;" OwnerUserId="21071" LastEditorUserId="21071" LastEditDate="2019-02-12T06:28:42.337" LastActivityDate="2019-02-12T06:28:42.337" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26841" PostTypeId="1" CreationDate="2019-02-12T06:56:30.573" Score="0" ViewCount="75" Body="&lt;p&gt;I have a basic question&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What are the different means/mechanisms available to address supply-demand imbalance?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The answers that come to my mind are :&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Using pricing  (when demand &gt; supply)&lt;/li&gt;&#xA;&lt;li&gt;Using rationing (when demand &gt; supply)&lt;/li&gt;&#xA;&lt;li&gt;Preempting the imbalance by gathering precise demand information (when supply &gt; demand) &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Are there any other means available to address situations when demand &gt; supply and supply &gt; demand?&lt;/p&gt;&#xA;" OwnerUserId="21073" LastActivityDate="2021-05-19T07:04:25.370" Title="supply-demand imbalance" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="1" ClosedDate="2021-05-24T14:40:52.997" ContentLicense="CC BY-SA 4.0" />
  <row Id="26842" PostTypeId="1" CreationDate="2019-02-12T09:47:01.250" Score="0" ViewCount="51" Body="&lt;p&gt;Can anyone help me find a nice introduction (possibly popular economics) into the field of black market economics.&lt;/p&gt;&#xA;" OwnerUserId="21074" LastActivityDate="2019-02-12T09:47:01.250" Title="Book recommendation: first year economics course" Tags="&lt;microeconomics&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="26843" PostTypeId="1" CreationDate="2019-02-12T11:25:46.700" Score="1" ViewCount="39" Body="&lt;p&gt;In a 2nd price option, if all the player choice their bids independently, the optimal strategy is to bid their valuation. However, in some situations, their decisions can effect each other.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, an over bidder could announce that they will bid \$1000000 for a painting worth \$1000. This would cause all the bidders to not bid (since now there is no point), and the over bidder pays $0 since there were no other bids.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A solution to the over bidder is a spiter, who predicts the bid of and underbids the highest bidder by 1 cent, forcing them to pay their bid. However, the spiter presents a new problem. If the players know their is a spiter, they will bid like they would in a first price auction, since they know they will end up paying whatever they bid. Even worse is a shill, someone who colludes with auctioneer to underbid the highest bidder by a cent. If they accidentally win (if they overestimated the highest bid), the auctioneer can secretly refund the purchase. If they succeed, however, they can share the extra revenue with the auctioneer, meaning that they have an incentive to succeed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is, are there any modifications you can make to the auction to solve this? Of course, you could just say &quot;no over bidders, spiters, or shills allowed&quot;, but I would prefer a mathematical solution.&lt;/p&gt;&#xA;" OwnerUserId="5716" LastEditorUserId="42" LastEditDate="2019-02-12T19:40:02.657" LastActivityDate="2019-02-13T04:31:15.317" Title="Is there a way to eliminate shilling, spiting, and overbidding in second price auctions?" Tags="&lt;auctions&gt;" AnswerCount="2" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26844" PostTypeId="2" ParentId="26822" CreationDate="2019-02-12T13:04:25.810" Score="0" Body="&lt;p&gt;The premise that a high debt-to-GDP ratio will imply higher inflation is questionable. If we look at the data for the United States, there appears to be a negative correlation: the ratio was lowest in the high inflation period of the 1970s to early 1980s.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://fred.stlouisfed.org/graph/?g=mX1I&quot; rel=&quot;nofollow noreferrer&quot;&gt;link to FRED graph&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As hinted by your question, growing the denominator (nominal GDP) lowers the ratio.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Unless one believes in the Fiscal Theory of the Price Level (described in other questions), there is no obvious link between the debt ratio and inflation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we drop the focus on the ratio and look at government spending, we arrive at the theory of Functional Finance: the constraint on government spending is inflation. That is, we need to look at the size of the deficit, what the government is purchasing now, etc.; the debt ratio just tells us about historical spending.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.levyinstitute.org/publications/functional-finance&quot; rel=&quot;nofollow noreferrer&quot;&gt;Link to Kelton article on Functional Finance.&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It looks like your question is really about the validity of Functional Finance, but you have written it up as being about the debt-to-GDP ratio.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2019-02-12T13:04:25.810" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="26849" PostTypeId="1" AcceptedAnswerId="26855" CreationDate="2019-02-12T16:22:45.087" Score="1" ViewCount="36" Body="&lt;p&gt;Are services included in the calculation of a trade deficit?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Presumably measuring service exports is more difficult/less accurate(?) than for goods?&lt;/p&gt;&#xA;" OwnerUserId="5505" LastActivityDate="2019-02-12T18:48:16.157" Title="Are services included in the calculation of a trade deficit?" Tags="&lt;international-trade&gt;&lt;balance-of-trade&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26851" PostTypeId="1" AcceptedAnswerId="26853" CreationDate="2019-02-12T17:04:48.137" Score="0" ViewCount="18" Body="&lt;p&gt;If someone has probability p(n) of being alive after n periods and p(n) is known with p(n) = 0 for n &gt;= m, and if he has log utility of consumption, and his utilities are additive over time, and interest rates and inflation are zero, can one derive the fraction of wealth he should consume in each period? I think that the amount of wealth he sets aside for a period is proportional to the probability he will be alive then but have not proven it. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have solved the two-period case. If he starts with one unit of wealth, and he has probability p of living to a second period, and no probability of living after that, and he has log utility of spending, then his total utility is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;U(x) = log(x) + p*log(1-x)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;U'(x) = 1/x - p/(1-x)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Setting U'(x) = 0 gives&lt;/p&gt;&#xA;&#xA;&lt;p&gt;p*x = 1-x&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So &lt;/p&gt;&#xA;&#xA;&lt;p&gt;x = 1/(1+p)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which makes sense. If p = 1 he is guaranteed to be alive in the 2nd time period, and he splits consumption equally between the two time periods. If p = 0 he spends all his wealth in the first period.&lt;/p&gt;&#xA;" OwnerUserId="21081" LastActivityDate="2019-02-12T18:19:09.363" Title="Optimal spending over several periods with log utility and uncertain lifetime" Tags="&lt;utility&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26852" PostTypeId="1" AcceptedAnswerId="26901" CreationDate="2019-02-12T17:45:39.030" Score="0" ViewCount="26" Body="&lt;p&gt;What are “passports” in the context of financial services?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have also heard the term “passporting rights.”&lt;/p&gt;&#xA;" OwnerUserId="5505" LastActivityDate="2019-02-15T13:33:34.177" Title="What are financial service “passports”?" Tags="&lt;financial-markets&gt;&lt;european-union&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26853" PostTypeId="2" ParentId="26851" CreationDate="2019-02-12T18:14:07.197" Score="0" Body="&lt;h1&gt;Hint&lt;/h1&gt;&#xA;&lt;p&gt;Generalizing from your 2-period exercise, let &lt;span class=&quot;math-container&quot;&gt;$N=m-1$&lt;/span&gt; be the last possible period of being alive. The problem to solve is&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;\max_{\{c_n\}_{n=0}^N}\;u(c_0)+p(1)u(c_1)+\cdots+p(N)u(c_N)&#xA;=\max_{\{c_n\}_{n=0}^N}\;\sum_{n=0}^Np(n)\log(c_n)&#xA;\end{equation}&lt;/span&gt;&#xA;subject to a lifetime budget constraint: &lt;span class=&quot;math-container&quot;&gt;$c_0++c_1+\cdots+c_N=y$&lt;/span&gt; where &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; is the lifetime income.&lt;/p&gt;&#xA;" OwnerUserId="42" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2019-02-12T18:19:09.363" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26854" PostTypeId="2" ParentId="26785" CreationDate="2019-02-12T18:43:01.367" Score="2" Body="&lt;p&gt;The usual policy options are.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Monetary policy - lower interest rates and/or expand the monetary base. &lt;/li&gt;&#xA;&lt;li&gt;Fiscal policy - expand the fiscal deficit (government spends more and/or taxes less).&lt;/li&gt;&#xA;&lt;li&gt;If the value of the currency is controlled, devalue.&lt;/li&gt;&#xA;&lt;li&gt;If there are controls on lending (now rare in the developed countries), loosen them.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Something like efficiency improvements (how can the government endure this?) may help long-term growth rates, but it is unclear whether they will have an immediate impact. For example, if increasing efficiency involves firing workers, there would be a further reduction in household demand, which will not be corrected until they can find new jobs.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2019-02-12T18:43:01.367" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26855" PostTypeId="2" ParentId="26849" CreationDate="2019-02-12T18:48:16.157" Score="1" Body="&lt;p&gt;The standard is that they are. For example, see the current report on the trade in goods and services for the United States: &lt;a href=&quot;https://www.bea.gov/data/intl-trade-investment/international-trade-goods-and-services&quot; rel=&quot;nofollow noreferrer&quot;&gt;link to BEA website; latest report.&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2019-02-12T18:48:16.157" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26856" PostTypeId="1" AcceptedAnswerId="26884" CreationDate="2019-02-12T19:23:13.780" Score="2" ViewCount="116" Body="&lt;p&gt;When countries commit &quot;economic crimes&quot; — i.e., theft of intellectual property, dumping, currency manipulation — are sanctions effective at making them stop?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am specifically looking for examples of failure or success, or studies that have been done as to their effectiveness.&lt;/p&gt;&#xA;" OwnerUserId="17834" LastEditorUserId="8481" LastEditDate="2020-05-07T02:14:47.357" LastActivityDate="2020-05-07T02:14:47.357" Title="Do sanctions work?" Tags="&lt;reference-request&gt;&lt;international-trade&gt;&lt;international-economics&gt;&lt;sanctions&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26858" PostTypeId="2" ParentId="26806" CreationDate="2019-02-12T19:34:56.913" Score="3" Body="&lt;p&gt;The main argument for food self-sufficiency---endorsed by Bush in the quote you have---is that being dependant on other countries for food reduces the power a country can hope to wield on an international level.  However valid or invalid, this is an argument that an economist would be very unlikely to make, as economists tend to focus their work exclusively on trade and ignore the political implications of the policies their endorse.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, the answer to your first question would be that when a country is food self-sufficient, that could allow it to have a greater voice in international debate and make it less vulnerable to exploitation by other countries.  Further, one could argue that by becoming food self-sufficient, countries make it harder for each other to conduct war and so make war less likely.  The answer to your second question is no; talk to a political scientist.&lt;/p&gt;&#xA;" OwnerUserId="17834" LastActivityDate="2019-02-12T19:34:56.913" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26859" PostTypeId="1" CreationDate="2019-02-12T19:39:05.003" Score="1" ViewCount="25" Body="&lt;p&gt;Is there an academic consensus on whether a trade deficit is good/bad or neither?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And if that country is in a monetary union, does the answer change because the wealth moved out of the country can be utilised elsewhere (whereas, for example, a pound can only be used as legal tender in the UK)?&lt;/p&gt;&#xA;" OwnerUserId="5505" LastActivityDate="2019-02-12T19:39:05.003" Title="Are trade deficits good/bad or neither?" Tags="&lt;international-trade&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26861" PostTypeId="2" ParentId="26856" CreationDate="2019-02-12T21:36:07.783" Score="1" Body="&lt;p&gt;Economic sanctions  typically a ban on trade, possibly limited to certain sectors such as armaments, or with certain exceptions (such as food and medicine)Targeted Sanctions. These tools may include various forms of trade barriers, tariffs, and restrictions on financial transactions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;While the goals of sanctions are to force a country to alter its behavior, there is much variation as to how the sanctions are leveled and to whom they target. Sanctions can target a country as a whole, as in the case of an embargo on a country’s exports (e.g. U.S. sanctions on Cuba). They can also target specific industries, such as an embargo on the sale of weapons of petroleum. Another example is since 1979, the United States and European Union have prohibited the import or export of goods and services to Iran.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;According to some sources:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The success of sanctions varies in accordance with how many parties are involved. Bilateral sanctions are more effective than unilateral sanctions, but the success rate, in general, is fairly low. In many circumstances, the sanctions caused economic harm without changing the target country's policies. Sanctions are ultimately blunt tools of foreign policy, because their deployment is rarely precise enough to affect only the target economy, and because they presuppose that economic harm will lead to the sort of political pressure that will benefit the instigating country. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.investopedia.com/articles/economics/10/economic-sanctions.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.investopedia.com/articles/economics/10/economic-sanctions.asp&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, try :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why Economic Sanctions Do Not Work&#xA;Author(s): Robert A. Pape &#xA;&lt;a href=&quot;https://www.jstor.org/stable/2539263?seq=1#metadata_info_tab_contents&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.jstor.org/stable/2539263?seq=1#metadata_info_tab_contents&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Conversely&lt;/p&gt;&#xA;&#xA;&lt;p&gt;13 times that economic sanctions really worked.  By Adam Taylor April 28, 2014.  Washington Post&#xA;&lt;a href=&quot;https://www.washingtonpost.com/news/worldviews/wp/2014/04/28/13-times-that-economic-sanctions-really-worked/?utm_term=.2891e591faad&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.washingtonpost.com/news/worldviews/wp/2014/04/28/13-times-that-economic-sanctions-really-worked/?utm_term=.2891e591faad&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="20995" LastActivityDate="2019-02-12T21:36:07.783" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26862" PostTypeId="2" ParentId="26843" CreationDate="2019-02-12T21:45:50.523" Score="3" Body="&lt;p&gt;&lt;strong&gt;Overbidding&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The second price auction has an equilibrium in which player 1 bids a very large amount and all other players bid zero. None of the losing bidders have a profitable deviation because they would have to pay more than their value to win. People usually ignore this equilibrium because not bidding is weakly dominated. But we should acknowledge that it is indeed an equilibrium because it is relevant for some practical applications. A big challenge, for example, in spectrum auctions is convincing new entrants to show up to bid when everyone expects the big incumbents will win all of the licenses.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;One way to eliminate this equilibrium is to make it &lt;em&gt;strictly&lt;/em&gt; dominant for players to submit a bid. This can be done, for example, by modifying the auction in the following way:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;1) run a second price auction as normal.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;2) with probability &lt;span class=&quot;math-container&quot;&gt;$1-\epsilon$&lt;/span&gt;, determine the allocation and payments as usual. With probability &lt;span class=&quot;math-container&quot;&gt;$\epsilon$&lt;/span&gt;, ignore the bid of the highest bidder and give the item to the second highest bidder (who pays the third highest bid). &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Even very small &lt;span class=&quot;math-container&quot;&gt;$\epsilon$&lt;/span&gt; will suffice to make is strictly dominant for everyone to bid. Thus, the efficiency loss from this scheme can be kept relatively small.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2019-02-12T21:45:50.523" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26863" PostTypeId="2" ParentId="20565" CreationDate="2019-02-12T22:46:14.187" Score="-1" Body="&lt;p&gt;-Game Theory and Real Options:&#xA;Analysis of Land Value and Strategic Decisions&#xA;in Real Estate Development- Chun Kit So ( Timothy So )&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://dspace.mit.edu/bitstream/handle/1721.1/84171/867636352-MIT.pdf?sequence=2&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://dspace.mit.edu/bitstream/handle/1721.1/84171/867636352-MIT.pdf?sequence=2&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;-Course blog for INFO 2040/CS 2850/Econ 2040/SOC 2090&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Using Game Theory to Understand the Housing Crisis of 2008 &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://blogs.cornell.edu/info2040/2017/09/11/using-game-theory-to-understand-the-housing-crisis-of-2008/&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://blogs.cornell.edu/info2040/2017/09/11/using-game-theory-to-understand-the-housing-crisis-of-2008/&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;-Why housing price in Hong Kong is so high? An explanation in game theory&#xA;Ho-Yin Yue1* • King-Tai Leung 2 • Lee-Kei Fung - Economics and Business Letters&lt;/p&gt;&#xA;" OwnerUserId="20995" LastActivityDate="2019-02-12T22:46:14.187" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26866" PostTypeId="1" CreationDate="2019-02-13T02:33:56.987" Score="1" ViewCount="48" Body="&lt;p&gt;My question concerns a household's utility function U(c,l). We're told that the partial derivatives dU/dc and dU/dl &gt; 0, and the second order partial derivatives are negative. Now, can I assume anything about the sign of the partial derivatives Ucl (or Ulc)?&lt;/p&gt;&#xA;" OwnerUserId="21084" LastActivityDate="2019-02-20T21:35:09.267" Title="Can I make this assumption about the utility function?" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26867" PostTypeId="2" ParentId="26843" CreationDate="2019-02-13T04:31:15.317" Score="0" Body="&lt;p&gt;Ubiquitous has a good answer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To add: a shill works the same way as a hidden reserve price. So any literature on one should be applicable to the other.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Shills are especially damaging, if they can act after seeing every one else's bids. You can get around that with some cryptography that has all bidders commit to their bid before anyone reveals.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Or a alternatively a third party trusted to offer this kind of commitment service, but not needed to be trusted with eg handling money.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can probably extent Ubiquitous' idea of ignoring the highest bid with low probability and going for the second highest to giving any of the top &lt;span class=&quot;math-container&quot;&gt;$k$&lt;/span&gt; bids a small chance of winning, so that more than &lt;span class=&quot;math-container&quot;&gt;$k-1$&lt;/span&gt; shills would be needed to make not bidding your true value a better strategy.&lt;/p&gt;&#xA;" OwnerUserId="11798" LastActivityDate="2019-02-13T04:31:15.317" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26868" PostTypeId="1" CreationDate="2019-02-13T04:45:12.563" Score="0" ViewCount="249" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/U65j4.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/U65j4.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Textbook:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;Suppose that a new pizza assembly line improves the pizza production process and that the development of the new assembly line does not require the use of more of society's resources. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Although the ability to produce wings has not changed, the new pizza making technology causes the production possibilities frontier to expand outward from &lt;span class=&quot;math-container&quot;&gt;$PPF_1$&lt;/span&gt; to &lt;span class=&quot;math-container&quot;&gt;$PPF_2$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is now possible for society to produce more of both because the improvement in pizza making technology allows a redeployment of the labor force that also increases the production of wings.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My question:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand that improvement in pizza making technology will allow the same amount of workers to produce more. But why is it assumed that workers can be allocated to make more wings?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If for example, at point A, we produce 200 wings and 70 pizzas with 10 workers making wings and 10 workers making pizzas. Why at point B, do we produce 220 wings and 80 pizzas? I think it could be 200 wings and 80 pizzas because how do you know that its not still 10 workers making wings and 10 workers making pizzas (just more efficiently)?&lt;/p&gt;&#xA;" OwnerUserId="12859" LastEditorUserId="12859" LastEditDate="2019-02-13T04:50:43.580" LastActivityDate="2019-03-15T10:00:20.630" Title="How Does Production Possibility Curve Shift (Partially)?" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26869" PostTypeId="1" CreationDate="2019-02-13T05:02:36.500" Score="0" ViewCount="17" Body="&lt;p&gt;Suppose I have n individuals and n unique, indivisible objects of potential value. I want to allocate those objects so as to make total welfare as great as possible, subject to the constraint that no single individual is hurt too badly by the allocation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, if this were a voting situation where we were choosing a single policy, one approach would be to use the Borda count (BC) The BC is sometimes said to promote consensus, as it considers the rankings of everyone in such a way that it rarely selects an outcome preferred by the majority if there is a substantial minority that can not live with it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is also pretty easy to understand and to administer. It produces an outcome from rankings (semi-strict directed graphs (ties allowed) over each person's own allocation (only), without requiring inter-personally comparable cardinal utility. As a result, it is most justified when individuals can be said to hold their preferences with comparable intensity, or if we choose to regard them as comparable because we believe that everyone's preferences should be given equal weight.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So my question is whether there is a feasible algorithm to allocate n items among n individuals in such a way as to maximize the BC. Assume that n is large enough that a brute force approach of testing every possible outcome is infeasible.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would also welcome pointers to other algorithms likely to produce comparably good results overall with a lower computational cost.&lt;/p&gt;&#xA;" OwnerUserId="12668" LastActivityDate="2019-02-13T05:02:36.500" Title="Feasible approaches to allocate n unique indivisable items among n individuals" Tags="&lt;social-choice&gt;&lt;voting&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="26871" PostTypeId="1" CreationDate="2019-02-13T09:50:04.237" Score="2" ViewCount="45" Body="&lt;p&gt;I'm interested in the elasticity price demand that predicts that as a resource becomes more scarce, it gets more expensive. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regarding oil price this isn't clear. Is there an example of a resource that has nearly disappeared ? What was the evolution of its price ?&lt;/p&gt;&#xA;" OwnerUserId="21089" LastActivityDate="2019-03-17T20:01:35.450" Title="What's an example of a resource, raw material that has become scarce?" Tags="&lt;elasticity&gt;&lt;price&gt;&lt;resource-economics&gt;&lt;nonrenewable-resources&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26872" PostTypeId="2" ParentId="26868" CreationDate="2019-02-13T09:52:36.633" Score="1" Body="&lt;p&gt;Perhaps in order to produce 80 pizzas you don't need 10 workers but just 8 and the extra 2 workers can now produce wings.&lt;/p&gt;&#xA;" OwnerUserId="20281" LastActivityDate="2019-02-13T09:52:36.633" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26874" PostTypeId="1" AcceptedAnswerId="26880" CreationDate="2019-02-13T11:17:37.533" Score="2" ViewCount="51" Body="&lt;p&gt;Let's say that there is a hotel owner &lt;span class=&quot;math-container&quot;&gt;$(H)$&lt;/span&gt; and a woodworker &lt;span class=&quot;math-container&quot;&gt;$(W)$&lt;/span&gt; working in close proximity to one another. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The woodworker produces &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; units to sell at market at &lt;span class=&quot;math-container&quot;&gt;$p_{x}=6,5$&lt;/span&gt;. From the woodworking activities, noise pollution is created that is measured by &lt;span class=&quot;math-container&quot;&gt;$a = \frac{1}{2}x$&lt;/span&gt;, and to protect workers' hearing &lt;span class=&quot;math-container&quot;&gt;$W$&lt;/span&gt; incurs costs of &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt; unit of money per noise pollution unit &lt;span class=&quot;math-container&quot;&gt;$a$&lt;/span&gt;. Other costs of &lt;span class=&quot;math-container&quot;&gt;$W$&lt;/span&gt; are at &lt;span class=&quot;math-container&quot;&gt;$\frac{1}{8}x^{2}$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It follows that &lt;span class=&quot;math-container&quot;&gt;$\pi_{W}=6,5x-\frac{1}{8}x^{2}-\frac{1}{2}x$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and &lt;span class=&quot;math-container&quot;&gt;$\pi_{H}=7g-\frac{1}{4}g^2-2a$&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$g$&lt;/span&gt; is the number of guests. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, I have calculated that the social optimum at which &lt;span class=&quot;math-container&quot;&gt;$H,W$&lt;/span&gt; produce are &lt;span class=&quot;math-container&quot;&gt;$x = 20$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$g = 14$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Question: The noise pollution will only be allowed if, for every noise pollution unit &lt;span class=&quot;math-container&quot;&gt;$a$&lt;/span&gt; an emissions certificate at price &lt;span class=&quot;math-container&quot;&gt;$e$&lt;/span&gt; is purchased. &lt;span class=&quot;math-container&quot;&gt;$H$&lt;/span&gt; is given permission to sell these, under the premise that he will sell them at a welfare-maximzing price. Calculate &lt;span class=&quot;math-container&quot;&gt;$e$&lt;/span&gt; and determine &lt;span class=&quot;math-container&quot;&gt;$\pi_{H}^{\operatorname{new}}$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My idea:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Looking at &lt;span class=&quot;math-container&quot;&gt;$\pi_{W}=6,5x-\frac{1}{8}x^{2}-\frac{1}{2}x-e a=6,5x-\frac{1}{8}x^{2}-\frac{1}{2}x-e \frac{1}{2}x$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\frac{\partial \pi_{W}}{\partial x}=6-\frac{1}{4}x-\frac{e}{2}=0$&lt;/span&gt; and since social optimum is &lt;span class=&quot;math-container&quot;&gt;$x = 20$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\Rightarrow e = 2$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But in the solution set, it states &lt;span class=&quot;math-container&quot;&gt;$e=1$&lt;/span&gt;... What have I done wrong?&lt;/p&gt;&#xA;" OwnerUserId="20912" LastActivityDate="2019-07-14T00:02:15.500" Title="Have I found the correct Emission Price" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;optimization&gt;&lt;social-welfare&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26875" PostTypeId="1" CreationDate="2019-02-13T16:14:02.360" Score="0" ViewCount="214" Body="&lt;p&gt;Assume a labor-intensive production function:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$Q(L)=L^\beta$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Find demand of labor that maximizes profits (unconditional demand &lt;span class=&quot;math-container&quot;&gt;$L(p,w,r)$&lt;/span&gt;), the demand of labor that minimizes costs (unconditional demand &lt;span class=&quot;math-container&quot;&gt;$L(q,w,r))$&lt;/span&gt;, the supply function &lt;span class=&quot;math-container&quot;&gt;$(Q(L(p,w,r))$&lt;/span&gt;), and the benefits &lt;span class=&quot;math-container&quot;&gt;$(\pi(L(p,w,r))$&lt;/span&gt; if:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;a)&lt;/strong&gt; &lt;span class=&quot;math-container&quot;&gt;$\beta&amp;gt;1$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;b)&lt;/strong&gt; &lt;span class=&quot;math-container&quot;&gt;$\beta=1$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the first case (increasing returns to scale) I am able to Maximize profits by getting the First Order Conditions, etc., and finding &lt;span class=&quot;math-container&quot;&gt;$L(p,w,r))$&lt;/span&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$L(p,w,r))=(w/p\beta)^{1/\beta-1}$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, by replacing &lt;span class=&quot;math-container&quot;&gt;$L(p,w,r))$&lt;/span&gt; into the benefits:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\pi(L(p,w,r)=p*(w/p\beta)^{\beta/\beta-1}-w*(w/p\beta)^{1/\beta-1}$&lt;/span&gt; (It can be simplified by doing more algebra).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By replacing &lt;span class=&quot;math-container&quot;&gt;$L(p,w,r))$&lt;/span&gt; into the production function:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$Q(L(p,w,r)=(w/p\beta)^{\beta/\beta-1}$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, the conditioned (on a production of &quot;q&quot;) labor demand is given by:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$L(q,w,r)=q^{1/\beta}$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, for the second case (constant returns to scale) I am not able to get the First Order Conditions and so on for obtaining the benefits, the supply function, etc. Thus, I would like to know how to address this problem.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would appreciate any help,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks in advance&lt;/p&gt;&#xA;" OwnerUserId="21093" LastActivityDate="2019-02-13T16:14:02.360" Title="Profit Maximization and Returns to Scale" Tags="&lt;microeconomics&gt;&lt;firm&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="26878" PostTypeId="1" CreationDate="2019-02-13T19:40:26.653" Score="0" ViewCount="486" Body="&lt;p&gt;&lt;strong&gt;Context:&lt;/strong&gt; I was &lt;a href=&quot;https://www.youtube.com/watch?v=OrfM5UD-Azk&quot; rel=&quot;nofollow noreferrer&quot;&gt;watching a video&lt;/a&gt; about Venezuela, and, it all started with capital flight due to poor confidence in the government. The government tried to stop it, and in the process it created a bubble in the exchange market, causing smuggling and exportation into neighboring countries highly profitable in order to buy the dollar outside Venezuela and to sell at high prices in the bubble inside Venezuela. I can see how that causes inflation (same money supply chasing less domestic goods). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But then, the video said: if the foreign exchange market is open in order to end the bubble once and for all, allowing the currency to depreciate to its normal levels, thus allowing capital flight to happen in the first place, it would trigger more and more inflation (in hyper levels). And that's when I bugged me. I started searching in other sources, for instance &lt;a href=&quot;https://www.economicshelp.org/blog/14264/economics/impact-of-money-leaving-the-economy/&quot; rel=&quot;nofollow noreferrer&quot;&gt;this one&lt;/a&gt;, and several of them said that &lt;em&gt;capital flight can indeed trigger inflation&lt;/em&gt;. But why?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Let's focus on capital flight:&lt;/strong&gt; It is my understanding, that capital flight shifts the supply curve of a given currency in the exchange market, causing its depreciation with respect to, say, the dollar. But then.....:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(1) Shouldn't it cause a deflation? Currency is less and less available (due to flight) for the purchase of domestic goods, thus.. deflation. That is, a smaller amount of currency chasing the same goods.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(2) But also, capital flight is done with saved money, instead of money reserved for purchases, and that means aggregate demand is not affected much, meaning, purchases are done as normal, and normal life follows. Surely, that doesn't mean a deflation, but it doesn't mean an inflation either.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(3) Consider this: Assume for whatever reason, interest rates has fallen. This means, borrowing money is cheaper, and that is likely to cause a shift in aggregate demand and domestic consumption, possibly boosting the economy, and causing some inflation in the process. However, with capital flight, there's less and less investment done inside the nation, so, the supply of investment shifts, causing an increase of interest rates -- which again, should tend to cause a deflation due to a decrease in the money supply (basically, the reverse reasoning of lower interest rates).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My question:&lt;/strong&gt; Why does capital flight can trigger inflation? What is wrong with my reasoning in these three situations?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am not an economist.. so... forgive me if this is such a simple question.&lt;/p&gt;&#xA;" OwnerUserId="21097" LastActivityDate="2019-07-13T23:02:25.357" Title="Why does capital flight cause inflation?" Tags="&lt;macroeconomics&gt;&lt;inflation&gt;&lt;international-trade&gt;&lt;currency&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26879" PostTypeId="2" ParentId="26878" CreationDate="2019-02-13T21:06:58.327" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;(1) Shouldn't it cause a deflation? Currency is less and less&#xA;  available (due to flight) for the purchase of domestic goods, thus..&#xA;  deflation. That is, a smaller amount of currency chasing the same&#xA;  goods.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The dollar is less available, whereas the purchase power of the bolivar (Venezuela's domestic currency, apropos of your example) becomes negligible: To buy the same goods, today Venezuelans need more bolivars than in the past. Inflation comprises two factors: economic activity and purchase power. In cases like this, inflation is driven up by the bolivar's drastic loss of purchase power.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;(2) But also, capital flight is done with saved money, instead of&#xA;  money reserved for purchases, and that means aggregate demand is not&#xA;  affected much, meaning, purchases are done as normal, and normal life&#xA;  follows. Surely, that doesn't mean a deflation, but it doesn't mean an&#xA;  inflation either.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Capital flight results in a reduction of supply. If demand remains unchanged, then the intersection of supply and demand curves occurs at a higher &lt;em&gt;equilibrium price&lt;/em&gt;. That means that the bolivar has lost purchase power.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;(3) Consider this: Assume for whatever reason, interest rates has&#xA;  fallen. This means, borrowing money is cheaper, and that is likely to&#xA;  cause a shift in aggregate demand and domestic consumption, possibly&#xA;  boosting the economy, and causing some inflation in the process.&#xA;  However, with capital flight, there's less and less investment done&#xA;  inside the nation, so, the supply of investment shifts, causing an&#xA;  increase of interest rates -- which again, should tend to cause a&#xA;  deflation due to a decrease in the money supply (basically, the&#xA;  reverse reasoning of lower interest rates).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It is difficult to make conjectures where a situation gets out of control. In broad terms, the relation between interest rates and money supply can certainly break down when chaos strikes the markets. But even in a less-than-extreme scenario, that relation may hold and yet the &lt;em&gt;net effect&lt;/em&gt; can still be a higher level of prices.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also keep in mind that printing extra money to honor the government's bonds contributes to depreciation of the domestic currency, and interest rates might not be high enough to attract lenders.&lt;/p&gt;&#xA;" OwnerUserId="18552" LastActivityDate="2019-02-13T21:06:58.327" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="26880" PostTypeId="2" ParentId="26874" CreationDate="2019-02-13T22:23:34.763" Score="1" Body="&lt;p&gt;To calculate the &lt;em&gt;socially&lt;/em&gt; optimal level of &lt;span class=&quot;math-container&quot;&gt;$e$&lt;/span&gt;, you should look at &lt;span class=&quot;math-container&quot;&gt;$\pi_W+\pi_H$&lt;/span&gt; (presumably that's also how you come up with the socially optimal &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;). At &lt;span class=&quot;math-container&quot;&gt;$x=20$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$e=1$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The intuition is that the woodworker's production creates an externality of &lt;span class=&quot;math-container&quot;&gt;$-2a=-x$&lt;/span&gt; on the hotel. Since the hotel has to right to ban noise pollution, the woodworker would have to compensate the hotel for its cost from putting up with the noise. At social optimum, the marginal compensation (&lt;span class=&quot;math-container&quot;&gt;$e$&lt;/span&gt;) should exactly cover the marginal external cost (&lt;span class=&quot;math-container&quot;&gt;$-1$&lt;/span&gt;). Hence &lt;span class=&quot;math-container&quot;&gt;$e=1$&lt;/span&gt; at the social optimum.&lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2019-02-13T22:23:34.763" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26882" PostTypeId="1" CreationDate="2019-02-13T22:50:25.197" Score="1" ViewCount="131" Body="&lt;p&gt;I have started studying the Pareto efficiency notion in Game theory. The definition I am familiar with is this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Strategy profile &lt;span class=&quot;math-container&quot;&gt;$\mathbf{s}$&lt;/span&gt; Pareto dominates strategy &lt;span class=&quot;math-container&quot;&gt;$\mathbf{s}'$&lt;/span&gt; if for all &lt;span class=&quot;math-container&quot;&gt;$i\in\mathcal{N}$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$u_i(\mathbf{s})\geq u_i(\mathbf{s}')$&lt;/span&gt;, and there exists some &lt;span class=&quot;math-container&quot;&gt;$j\in\mathcal{N}$&lt;/span&gt; for which &lt;span class=&quot;math-container&quot;&gt;$u_j(\mathbf{s})&amp;gt;u_j(\mathbf{s}')$&lt;/span&gt;. Strategy profile &lt;span class=&quot;math-container&quot;&gt;$\mathbf{s}$&lt;/span&gt; is Pareto optimal, or strictly Pareto efficient, if there does not exist another strategy profile &lt;span class=&quot;math-container&quot;&gt;$\mathbf{s}'\in S$&lt;/span&gt; that Pareto dominates &lt;span class=&quot;math-container&quot;&gt;$\mathbf{s}$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am interested in finite normal form games, for example, the &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt;-player Prisoner's dilemma. Clearly, for &lt;span class=&quot;math-container&quot;&gt;$n=2$&lt;/span&gt; we have three Pareto outcomes and it's not too difficult to derive them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But my concern is with a large number of players and non-constant utilities, how do we check the Pareto efficiency outcomes?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there a better, more efficient way to compute the efficiency of different outcomes of a game? Maybe the price of anarchy? I am not sure.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'd appreciate any help or hint. Thank you&lt;/p&gt;&#xA;" OwnerUserId="20754" LastActivityDate="2019-02-13T23:41:50.220" Title="Pareto Efficiency Outcomes in Games" Tags="&lt;game-theory&gt;&lt;pareto-efficiency&gt;" AnswerCount="0" CommentCount="7" ContentLicense="CC BY-SA 4.0" />
  <row Id="26884" PostTypeId="2" ParentId="26856" CreationDate="2019-02-14T00:34:33.483" Score="4" Body="&lt;p&gt;A rather comprehensive overview is provided by &lt;a href=&quot;https://piie.com/bookstore/economic-sanctions-reconsidered-3rd-edition-paper&quot; rel=&quot;nofollow noreferrer&quot;&gt;Hufbauer et al&lt;/a&gt;, who examine the efficacy of almost 200 instances of economic sanctions. Overall, they find that economic sanctions 'work' in around 1/3 of cases.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is a caveat, however. Economic sanctions are usually used in combination with other foreign policy measures (diplomacy, the threat of war, etc.) It is the absence of further investigation, it is not obvious whether it was the sanctions or these other measures that led to the desired change in the target's behaviour. Hence, the 1/3 figure should probably be viewed more as an upper bound on the efficacy of economic sanctions.&lt;/p&gt;&#xA;" OwnerDisplayName="user17900" LastActivityDate="2019-02-14T00:34:33.483" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26885" PostTypeId="2" ParentId="26839" CreationDate="2019-02-14T01:16:21.090" Score="5" Body="&lt;p&gt;While it is a bit unusual to describe a &lt;em&gt;strategy profile&lt;/em&gt; as being Pareto optimal, especially in the context of Bayesian games, I guess you can still define Pareto optimality in different stages of such games as follows. Recall that in a Bayesian game, a pure strategy is a function &lt;span class=&quot;math-container&quot;&gt;$s_i:\Theta_i\to A_i$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;A strategy profile &lt;span class=&quot;math-container&quot;&gt;$s(\theta)=(s_1(\theta_1),\dots,s_n(\theta_n))$&lt;/span&gt; is&#xA;  &lt;strong&gt;ex ante Pareto optimal&lt;/strong&gt; if  &lt;span class=&quot;math-container&quot;&gt;\begin{equation} \mathbb E_\theta [u_i(s(\theta);\theta)]\ge \mathbb&#xA; E_\theta[u_i(s'(\theta);\theta)],\quad\text{$\forall i$ and $\forall&#xA; s'(\theta)$} \end{equation}&lt;/span&gt; where the above inequality is strict for&#xA;  some &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;. [&lt;span class=&quot;math-container&quot;&gt;$\mathbb E_\theta$&lt;/span&gt; means taking expectation over the state&#xA;  vector &lt;span class=&quot;math-container&quot;&gt;$\theta$&lt;/span&gt;.]&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;A strategy profile &lt;span class=&quot;math-container&quot;&gt;$s(\theta)=(s_1(\theta_1),\dots,s_n(\theta_n))$&lt;/span&gt; is&#xA;  &lt;strong&gt;ex post Pareto optimal&lt;/strong&gt; if, given a particular realization of states &lt;span class=&quot;math-container&quot;&gt;$\bar\theta=(\bar\theta_1,\dots,\bar\theta_n)$&lt;/span&gt;, &#xA;  &lt;span class=&quot;math-container&quot;&gt;\begin{equation} u_i(s(\bar\theta);\bar\theta)\ge&#xA; u_i(s'(\bar\theta);\bar\theta),\quad\text{$\forall i$ and $\forall&#xA; s'(\bar\theta)$} \end{equation}&lt;/span&gt; where the above inequality is strict&#xA;  for some &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="42" LastEditorUserId="42" LastEditDate="2019-02-14T06:51:39.137" LastActivityDate="2019-02-14T06:51:39.137" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26888" PostTypeId="1" AcceptedAnswerId="26907" CreationDate="2019-02-14T14:48:24.023" Score="0" ViewCount="56" Body="&lt;p&gt;I'm trying to make the argument that our Sales go up when prices for all our Products are 30% off. Which I believe should be our new Regular Price. but our Demand Curve doesn't support this. Should I be setting up the demand curve differently? on a per product basis? or package size?&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;I sell our food product in different package sizes&#xA;2oz, 4oz, 9oz , 16oz 3.5lb&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Normalized the time our products were at that price. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/RQQCA.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/RQQCA.png&quot; alt=&quot;Demand Curve&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="21107" LastActivityDate="2019-02-15T19:38:07.047" Title="Demand Curve Price not perfectly elastic" Tags="&lt;supply-and-demand&gt;&lt;elasticity&gt;&lt;price&gt;&lt;demand-system-estimation&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26890" PostTypeId="1" CreationDate="2019-02-14T17:22:40.643" Score="0" ViewCount="46" Body="&lt;p&gt;I am taking AP Macroeconomics, and am about 2/3 of the way through the curriculum. We have learned about various supply-demand graphs, and right now we are working on the market for money. I have noticed that with every model we learn about, there are a set of rules to remember which tell whether something will be a shift in the supply-demand graph. However, it is not ideal to have to remember these rules for every model we have looked at.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there any general rule for what events will definitely cause a movement, and what events will definitely cause a shift?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks!&lt;/p&gt;&#xA;" OwnerUserId="21109" LastActivityDate="2019-02-15T01:47:48.603" Title="Is there a definitive way to tell if an action causes a movement or shift in a supply-demand graph?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26891" PostTypeId="1" AcceptedAnswerId="27702" CreationDate="2019-02-14T19:21:27.083" Score="1" ViewCount="1234" Body="&lt;p&gt;I'm having some confusion with using the terminology of MRS. For example, let's take up this question:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;If good 1 is a “neutral,” what is its marginal rate of substitution for good 2?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The answer is:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Zero—if you take away some of good 1, the consumer needs zero units&#xA;  of good 2 to compensate him for his loss.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The question is asking for the MRS of good 2. The answer interprets this question as &quot;how much of good 2 will one need to give up for a loss in good 1?&quot;. In that case, it is, of course, 0. But, you can just as easily interpret the question as: &quot;How much of good 1 will one need to give up for a loss in good 2?&quot; -- in which case, the answer is infinity -- the consumer would not want to give up any amount of good 1 for a loss in good 2. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a different question, this was asked: &quot;What is your marginal rate of substitution of \$1 bills for \$5 bills?&quot;. And the answer was &quot;5&quot;. So, in this question, the good after the word &quot;of&quot; (\$1 bills) is what you're giving up. In other words, the answer is the answer to the question: &quot;How many \$1 bills would you give up for a \$5 bill?&quot; So this answer interprets the question in completely the opposite way.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To phrase it more clearly, when someone asks: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;What is the MRS of good 1 for good 2?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;How should I interpret it? Is it &quot;how much good 2 you would give up for an increase in good 1?&quot; or &quot;How much good 1 you would give up for an increase in good 2?&quot;&lt;/p&gt;&#xA;" OwnerUserId="6486" LastEditorUserId="6486" LastEditDate="2019-02-14T19:35:49.987" LastActivityDate="2020-11-11T11:05:38.880" Title="MRS of good X for good Y" Tags="&lt;microeconomics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26892" PostTypeId="1" AcceptedAnswerId="26909" CreationDate="2019-02-14T20:17:29.890" Score="2" ViewCount="2789" Body="&lt;p&gt;Im reading alot on public finance and have been seeing alot of mention of measuring &quot;general equilibrium effects&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know what general equilibrium is, but i dont know what general equilibrium effects are.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What are general equilibrium effects?&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2019-02-15T20:56:49.963" Title="What are general equilibrium effects?" Tags="&lt;microeconomics&gt;&lt;econometrics&gt;&lt;welfare-economics&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26894" PostTypeId="1" CreationDate="2019-02-14T20:48:10.747" Score="0" ViewCount="84" Body="&lt;p&gt;I have a panel data model as following,&#xA;&lt;span class=&quot;math-container&quot;&gt;$$Y_{it}=intercept +B_1X_{it}+B_2Q_{it}+error_{it}$$&lt;/span&gt;   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;where &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; is for firm and &lt;span class=&quot;math-container&quot;&gt;$t$&lt;/span&gt;= time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt;= trade credit demand, &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt;= inventory cycle, as inventory moves faster firms demand more trade credit. On the other hand because trade credit means extra inventory, the cycle would be affected by it, too.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know that the model suffers from endogeneity because &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt; affects &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; and in return &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; affects &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt;. Would it be a valid procedure if I tried to work around this issue by assigning a dummy variable and not use &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; in the analysis at all by calculating first yearly average for the cycle and assign 1 if a firm is above the average for that year and 0 if below it.  Maybe the code I am using may clarify any vagueness.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;in the R code below.&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;mydata=mydata%&amp;gt;%group_by(year)%&amp;gt;%mutate(mean_x=mean(x)) &#xA;mydata=mydata%&amp;gt;%mutate(Dummy=case_when(X&amp;gt;=mean_x~1, TRUE~0))&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;and the model becomes as following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$Y_{it}=intercept+B_1 Dummy+B_2 Q_{it}+error_{it}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I hope I am clear enough. thanks in advance!&lt;/p&gt;&#xA;" OwnerUserId="21096" LastEditorUserId="10775" LastEditDate="2019-02-15T17:12:39.887" LastActivityDate="2019-03-17T18:02:25.503" Title="Endogeneity problem with a dummy variable" Tags="&lt;econometrics&gt;&lt;paneldata&gt;&lt;endogeneity&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26895" PostTypeId="2" ParentId="26890" CreationDate="2019-02-15T01:47:48.603" Score="1" Body="&lt;p&gt;The supply and demand curves are plotted as functions of price. Hence:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Changes in price will result in movements.&lt;/li&gt;&#xA;&lt;li&gt;Changes in anything else will result in shifts.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2019-02-15T01:47:48.603" CommentCount="15" ContentLicense="CC BY-SA 4.0" />
  <row Id="26898" PostTypeId="2" ParentId="26894" CreationDate="2019-02-15T11:20:16.737" Score="1" Body="&lt;p&gt;No, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't see how the dummy variable you are proposing would give you the same (or even similar) analysis as in the original model. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would recommend dealing with the endogeneity in another way. IV estimation, or one of the more recent methods, difference-in-difference, matching etc. One of the will be suitable.  &lt;/p&gt;&#xA;" OwnerUserId="19137" LastActivityDate="2019-02-15T11:20:16.737" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="26901" PostTypeId="2" ParentId="26852" CreationDate="2019-02-15T13:33:34.177" Score="1" Body="&lt;p&gt;The EU passporting system for banks and financial services companies enables firms that are authorised in any EU or EEA state to trade freely in any other with minimal additional authorisation. These passports are the foundation of the EU single market for financial services.&lt;/p&gt;&#xA;" OwnerUserId="19137" LastActivityDate="2019-02-15T13:33:34.177" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26902" PostTypeId="2" ParentId="6941" CreationDate="2019-02-15T15:36:33.307" Score="0" Body="&lt;p&gt;Consider how the world worked prior to the use of money. We were hunter/gatherers. The best way to survive was to cooperate as a part of a community. Earning a living was all about having enough of the essentials to live from day to day. The essentials in this context are food, clothing and shelter. Importantly, as a community the goods collected were distributed across the community according to need. There was no concept of hoarding, indeed no need for hoarding - food did not keep for long, there was no sense of fashion and so clothing was worn primarily for warmth, and no one needed more than a single modest home (typically a cave or a wooden hut). Instead there was a symbiotic relationship between the individual and the community (a united we stand, divided we fall type philosophy to life).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now fast forward to the introduction of money which ultimately led to a specialisation of labour (Adam Smith type economic principles). Now people could be greedy. They could hoard money. They did not need to work for the benefit of the community generally, but instead for their own insatiable appetite for more. Inheritance became possible. Inequality ensued. Then we saw game theory defeating community and, more importantly, working to the detriment of the economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We are all familiar with Keynsian economics and spending multipliers which boost GDP and contribute to higher employment, better standards of living, etc. Hoarding of money works counter to Keynsian principles.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So it is easy to see that if there were a means of removing the negative aspects of a fiat currency and defeating the hoarding of money that society as a whole would benefit. The expiry of money (which is not the same as inflation) might achieve that objective.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Inflation results in a price/wage spiral which is incredibly damaging for an economy and if wages keep up with prices then this would not achieve the same objective as that discussed above in relation to the expiry of money.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is very much a utopian idea because all else being equal, if such a system were to be introduced in a single jurisdiction then people would simply hoard wealth elsewhere. However, it is an interesting academic exercise.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ultimately, we would need to replicate the hunter/gatherer model. So each day a person would start with a clean slate. Each person would only need enough food to survive and so anything hunted or gathered that day which was surplus to requirement would be shared before it perished or maybe exchanged for something else (food for clothing or for tools that somebody else had made that day perhaps). In this way people's time is measured more fairly. I spend my day hunting, you spend your day collecting fruit and vegetables while someone else makes clothing from the skins of yesterday's kills. At the end of the day everyone eats and everyone is clothed. Everyone is happy and tomorrow we go again.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the way that this may work is a day to day currency. Based on your contribution to the community that day (which could also be in terms of non-tangible services such as teaching, nursing, etc.) you would be entitled to share in the output of the community (food, clothing, etc.) according to need. Tomorrow the currency for today becomes obsolete and we go again.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How much better might our society be if we were able to implement such a model?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem that we have is that we live in a very complex society now which requires infrastructure investment. How might we develop a currency that expires and also encourage long term investments (buildings of roads, airports, etc). This takes us on a path to nationalisation of all infrastructure which tends towards a flawed communist model (so let us not dwell on that any more).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The banking model to fund infrastructure projects is reliant on the hoarding of wealth and the encouragement of investment. Catch 22.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another problem is in quantification of productivity of each person. Does money become something that represents time expended rather than the value of the output - so we invent a &quot;time bank&quot;. That might be fairer as nurses and teachers would be paid the same hourly rate as Hollywood actors or football stars. But logistically, who becomes the arbiter of time banked by each person each day?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It would again require full centralisation. Each person delivers their output to a central power and is provided with all that they need (are we heading back to a communist model again - I fear that this is where such a model always ends up).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Perhaps the imperfections of money are simply the price that we have to pay for living in a capitalist society for which there appears to be no credible alternative. It is the least worst mechanism which is probably why we have evolved economically as we have to where we are today.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sorry!&lt;/p&gt;&#xA;" OwnerUserId="21114" LastEditorUserId="21114" LastEditDate="2019-02-15T15:54:51.650" LastActivityDate="2019-02-15T15:54:51.650" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26903" PostTypeId="2" ParentId="6941" CreationDate="2019-02-15T16:23:44.023" Score="1" Body="&lt;p&gt;With this system, the face value of a bill is a somewhat irrelevant upper limit on what the bill is actually worth. A \$10 bill might be worth $10 at the time it's printed, but it's worth \$0 after expiration, and somewhere in the middle during the interim (a \$10 bill might be worth only \$5 a week before it expires). The currency no longer serves its principal purpose as a fixed and agreed-upon store of value. There's no fixed number of how many \$10 bills I'd have to give you to settle a \$10 debt, as it will depend on how old each of those bills is.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a system such as this, the logical thing to do is to move all your money into non-expiring assets, and exchange for cash only when needed. As this seems to only apply to printed money, I could keep my money electronically in a bank account (not physical bills), or in some other store of value like gold or diamonds. No one should ever hold cash that they don't plan to immediately spend. This is completely different than normal inflation, because with inflation, prices rise and purchasing power decreases, but the store of value is irrelevant - everyone experiences inflation regardless of whether they hold cash or gold. Here, only people who hold physical bills experience &quot;inflation,&quot; so abandoning the currency is a great way to retain purchasing power over time.&lt;/p&gt;&#xA;" OwnerUserId="7030" LastActivityDate="2019-02-15T16:23:44.023" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26905" PostTypeId="1" CreationDate="2019-02-15T18:16:26.423" Score="1" ViewCount="32" Body="&lt;p&gt;I am of the understanding that an Economy is broken down as follows:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Traditional;&lt;/li&gt;&#xA;&lt;li&gt;Command;&lt;/li&gt;&#xA;&lt;li&gt;Market;&lt;/li&gt;&#xA;&lt;li&gt;Mixed.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Each Economy being made up of Sectors, which in turn, are made up of Industries.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Simply put, what defines a Sector?  I understand that it is the broad categorisation of its associated Industries but is there some kind of universal criteria that need to be met for a term to be viewed as a Sector?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I say criteria, as I come across many interpretations of what a Sector is.  For example, some sources state that a Sector is made up as follows:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Primary;&lt;/li&gt;&#xA;&lt;li&gt;Secondary;&lt;/li&gt;&#xA;&lt;li&gt;Tertiary;&lt;/li&gt;&#xA;&lt;li&gt;Quaternary;&lt;/li&gt;&#xA;&lt;li&gt;Quinary.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Other sources then approach sectors from a sense of ownership as follows:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Public/State Sector;&lt;/li&gt;&#xA;&lt;li&gt;Private Sector;&lt;/li&gt;&#xA;&lt;li&gt;Voluntary Sector.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Then there are the other sources who look at Sectors from the view of a Broad Categorisation of Products/Services.  For example:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Financial;&lt;/li&gt;&#xA;&lt;li&gt;Healthcare;&lt;/li&gt;&#xA;&lt;li&gt;Hospitality.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;As well as terms seemingly being used interchangeably, it also appears that some sources see Sectors as Industries and vice versa.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any clarity, on the differentiation, would be greatly appreciated. &lt;/p&gt;&#xA;" OwnerUserId="17980" LastActivityDate="2019-02-16T01:53:05.123" Title="What is an Economic Sector?" Tags="&lt;industrial-organisation&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26907" PostTypeId="2" ParentId="26888" CreationDate="2019-02-15T19:38:07.047" Score="0" Body="&lt;p&gt;Counting your quantity in ounces makes sense, I wouldn't change that (I assume each point is a total sales/price combination at a given time?). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you want to look at the impact of a &lt;em&gt;percentage&lt;/em&gt; change in your price, you should take the logarithm of price. A .3 change in log(price) is roughly equivalent to a 30% change in price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That said, you do in fact see a downward slope on your demand curve, which indicates that a drop in price is correlated with an increase in sales, although it's a general negative relationship and there's nothing special about 30% in particular (I wouldn't expect there to be!). So you're pretty much showing what you want (discounting issues about statistical significance, or causal identification - if these prices aren't set randomly this isn't technically showing you a demand curve).&lt;/p&gt;&#xA;" OwnerUserId="12848" LastActivityDate="2019-02-15T19:38:07.047" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="26908" PostTypeId="2" ParentId="26871" CreationDate="2019-02-15T19:42:46.050" Score="2" Body="&lt;p&gt;Some examples you might consider:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Fine art when the artist dies (this doesn't reduce the number of works by that artist, but does reduce the number of works that can be expected to exist in the future)&lt;/li&gt;&#xA;&lt;li&gt;The electromagnetic spectrum - there are a bunch of interesting resources concerning auctions for space on the spectrum&lt;/li&gt;&#xA;&lt;li&gt;Short .com domain names&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="12848" LastActivityDate="2019-02-15T19:42:46.050" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26909" PostTypeId="2" ParentId="26892" CreationDate="2019-02-15T20:56:49.963" Score="1" Body="&lt;p&gt;The expression &quot;&lt;em&gt;general equilibrium&lt;/em&gt;&quot; refers to the work by Kenneth Arrow, Gerard Debreu, Leon Walras, and many others. In its strictest sense, it is the indirect impact of a policy/event that is due to the reaction of prices to the policy/event. Sometimes but not always this indirect impact offsets the beneficial impacts of the policy or event.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Sounds abstract?&lt;/strong&gt; Let me give you an example. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;An oil field is discovered in a small town in Texas.&lt;/strong&gt; As the oil exploration company develops the field, that generates jobs and higher incomes. Looks great, because local businesses will enjoy higher revenues and unemployed workers may find employment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Yet, there can be some substantial general equilibrium effects that partly offset  the positive consequences of this beneficial event:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;The prices of many products will rise. Housing is going to be more expensive as higher-income workers are going to try to purchase houses in the town. Restaurant meals and haircuts will become more expensive.&lt;/li&gt;&#xA;&lt;li&gt;A positive consequence: there will be fancier restaurants and hair salons in town. The higher incomes will attract more talented chefs and better hairdressers.&lt;/li&gt;&#xA;&lt;li&gt;There may be more congestion on the road, as more workers means more cars.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Sometimes the general equilibrium effects are such that the beneficial consequences of the event are almost entirely offset (more expensive, more congestion, more pollution). Sometimes the general equilibrium effects are small and can be ignored. If, for instance, there were already a lot of empty homes in this small town, the additional workforce and income won't drive house prices up. Workers will merely buy the existing stock of houses.&lt;/p&gt;&#xA;" OwnerUserId="10482" LastActivityDate="2019-02-15T20:56:49.963" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26910" PostTypeId="2" ParentId="26905" CreationDate="2019-02-16T01:53:05.123" Score="1" Body="&lt;p&gt;The division of the economy into sectors is arbitrary, meaning there is no universally accepted division of the economy. It is contextually dependent. &lt;/p&gt;&#xA;" OwnerUserId="21118" LastActivityDate="2019-02-16T01:53:05.123" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26913" PostTypeId="1" CreationDate="2019-02-16T12:05:36.120" Score="2" ViewCount="41" Body="&lt;p&gt;Random example, but let's say I'm examining the effect of a health program on influenza cases in India. They just randomly start the program in 7 of the 29 states. I have data on the number of flu cases in every state for a few years before and after the program was initiated. So I can run a diff-in-diff:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;F = B0 + B1(Post*Treat),&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where F is the # of flu cases, and B1 is the treatment effect, and I find B1 to be neg and significant. But what if the underlying population changed during these years? If untreated states' population grew relative to treated states, that might explain the difference rather than an effective program. So how do I control for population? I've read that using the rate instead of total number of cases is problematic (denominator of the outcome would be pop, which causes issues in the regression as I understand), but I don't think I can just do:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;F = B0 + B1(Post*Treat) + B3(logPop), &lt;/p&gt;&#xA;&#xA;&lt;p&gt;where logPop is log population (obviously), right? Assume I have the data of population for each state for every year.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you for all help!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;P.S. I use R, so any answers that put it in terms of R would be a plus&lt;/p&gt;&#xA;" OwnerUserId="21123" LastEditorUserId="20068" LastEditDate="2019-04-16T16:06:26.900" LastActivityDate="2019-04-16T16:06:26.900" Title="How to control for population in Difference-in-Difference?" Tags="&lt;econometrics&gt;&lt;statistics&gt;&lt;applied-econometrics&gt;&lt;r&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26914" PostTypeId="1" AcceptedAnswerId="27330" CreationDate="2019-02-16T13:51:54.120" Score="0" ViewCount="85" Body="&lt;p&gt;In my textbook, borrowing from abroad is listed as one of the method to increase the value of a currency by shifting its demand curve to the right. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;If the country borrows from abroad, its loans will come in the form of foreign exchange, which when converted into [its currency] will cause an increase in the demand for [it] and hence a rightward shift in the demand curve toward D1.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I (and a group of friends) am not quite sure how this works, given that borrowing from another country and converting the funds to their own currency should increase the supply of it, leading to a rightward shift of the supply curve instead.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Please help us out by clarifying the explanation from the textbook. Thanks!&lt;/p&gt;&#xA;" OwnerUserId="21124" LastEditorUserId="21124" LastEditDate="2019-02-16T14:51:03.787" LastActivityDate="2019-03-18T15:24:11.703" Title="Question about maintaining fixed exchange rates" Tags="&lt;exchange-rates&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26915" PostTypeId="2" ParentId="26914" CreationDate="2019-02-16T14:38:13.793" Score="0" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;In my textbook, borrowing from abroad is listed as one of the method to increase the value of a currency&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The textbook is wrong. Borrowing from abroad tends to impact the exchange rate in a way that purchase power of the domestic currency &lt;em&gt;decreases&lt;/em&gt;. A &lt;em&gt;lower purchase power&lt;/em&gt; is the opposite of &lt;em&gt;increased value&lt;/em&gt;.&lt;/p&gt;&#xA;" OwnerUserId="18552" LastActivityDate="2019-02-16T14:38:13.793" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26917" PostTypeId="1" CreationDate="2019-02-16T20:09:33.043" Score="1" ViewCount="244" Body="&lt;p&gt;Lets say the U.S. imports a brand new Ferrari that costs $600,000. I know that it would take away from the U.S. GDP since it's considered an import. However, if a consumer buys that Ferrari from the U.S., would it also add to the GDP (consumption) and cancel out the imports? What would happen if it just sat in U.S. warehouses unsold? Is it still adding to the GDP (investment) to cancel out with imports? &lt;/p&gt;&#xA;" OwnerUserId="21127" LastActivityDate="2019-02-17T14:48:16.170" Title="How Do Imports Affect GDP" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;&lt;consumption&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26918" PostTypeId="1" CreationDate="2019-02-16T21:37:34.303" Score="0" ViewCount="66" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/33YKJ.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/33YKJ.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I need to find the startegy sets for the two players in this game. I understand that the game has only one subgame, that is, the entire game.&#xA;I cannot seem to understand the strategy sets of the players. For player &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt;, I believe the startegy set should be &lt;span class=&quot;math-container&quot;&gt;$s_1={Ll, Lr, Rl, Rr}$&lt;/span&gt;. Since the game is a simultaneous move game, I cannot understand why player &lt;span class=&quot;math-container&quot;&gt;$2$&lt;/span&gt;'s actions, given a singular information set, are different, i.e., &lt;span class=&quot;math-container&quot;&gt;$U, D, P, Q$&lt;/span&gt;, although I understand that this is a simultaneous move by players. Please help me understand the game and find SPNE for the same. Thanks!&lt;/p&gt;&#xA;" OwnerUserId="18398" LastEditorUserId="18398" LastEditDate="2019-02-17T17:31:42.070" LastActivityDate="2019-02-17T17:31:42.070" Title="Strategy sets and SPNE" Tags="&lt;microeconomics&gt;&lt;game-theory&gt;&lt;self-study&gt;&lt;extensive-games&gt;" AnswerCount="0" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="26920" PostTypeId="1" CreationDate="2019-02-17T01:54:49.593" Score="0" ViewCount="79" Body="&lt;p&gt;If everyone's income were public information, would purely profit-seeking sellers benefit from charging different prices to people based on their different incomes? My intuition says yes because a buyer's demand for some good at a given price depends on that buyer's situation in life, including income. It seems to me that prices could be better optimized if customer information on an individual level were taken into consideration.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But I'm not sure about this. I lack the mathematical know-how to think about this thoroughly. It seems plausible that the optimal price would be the same for all customers due to competition causing prices to converge ...or something along those lines. The Wikipedia page on price discrimination brings up the issue of discount buyers reselling goods for a profit, but I think this could be avoided by limiting the quantity of a discounted good a customer can buy, and it's not an issue at all if the good can't be resold. That page also refrences coupons as an example of price discrimination because only people with a low enough income can benefit from spending time on clipping coupons.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So I think there are already some successful forms of mild price discrimination, but it doesn't seem all that common, possibly because there isn't a way for customers to prove his/her income. Could price discrimination based on income work at a larger scale if people could prove their incomes, and could this help reduce inequality? &lt;/p&gt;&#xA;" OwnerUserId="18412" LastEditorUserId="18412" LastEditDate="2019-02-17T05:54:08.087" LastActivityDate="2020-03-15T05:39:36.957" Title="What if price were a function of buyer's income?" Tags="&lt;inequality&gt;&lt;pricing&gt;&lt;price-theory&gt;&lt;price-discrimination&gt;" AnswerCount="2" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="26924" PostTypeId="1" CreationDate="2019-02-17T07:28:47.200" Score="0" ViewCount="39" Body="&lt;p&gt;Is it true that when the overall money supply decreases, that the demand for money decreases and the demand for bonds and securities both increase?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand that to increase the money supply, the central bank uses cash reserves to pay for bonds. I’ve been thinking about this for a while, but does this lead to an increase in demand for the bonds and a decrease in demand for money or is it the other way around?&lt;/p&gt;&#xA;" OwnerUserId="21134" LastEditorUserId="7538" LastEditDate="2019-02-17T10:57:28.763" LastActivityDate="2019-03-19T21:02:31.037" Title="Is it true that when the overall money supply decreases, that the demand for money decreases and the demand for bonds and securities both increase?" Tags="&lt;macroeconomics&gt;&lt;monetary-policy&gt;&lt;money-supply&gt;&lt;federal-reserve&gt;&lt;bonds&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26925" PostTypeId="2" ParentId="26920" CreationDate="2019-02-17T11:09:03.440" Score="1" Body="&lt;p&gt;This is just perfect price discrimination. Happens sometimes with niche drugs (where drug makers can know the ability of people to pay). In this scenario, consumer surplus is completely captured by suppliers.&lt;/p&gt;&#xA;" OwnerUserId="21135" LastActivityDate="2019-02-17T11:09:03.440" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26926" PostTypeId="2" ParentId="26917" CreationDate="2019-02-17T14:48:16.170" Score="1" Body="&lt;p&gt;In the expenditure measure of GDP &lt;span class=&quot;math-container&quot;&gt;$$Y = C + I + G + (X – M)$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;imports &lt;span class=&quot;math-container&quot;&gt;$M$&lt;/span&gt; appear to reduce GDP.  However, this only offsets the consumption &lt;span class=&quot;math-container&quot;&gt;$C$&lt;/span&gt; met by imports; if instead the money had not been spent on a Ferrari but had instead just been saved (and possibly lent abroad so it has no other effect on GDP) then GDP would have the same.   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is a slight effect on GDP if a Ferrari dealership in the US was involved in the transaction: its margin (the final sale price minus the import cost) would count as value added in GDP and would appear in the expenditure measure since the consumption amount would exceed the import amount.&lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2019-02-17T14:48:16.170" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26927" PostTypeId="2" ParentId="26924" CreationDate="2019-02-17T19:24:01.550" Score="1" Body="&lt;p&gt;The quantity of money supplied has nothing to do with either the demand function of money or the demand function for bonds.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If there are changes in monetary policy such that the quantity of money supplied in equilibrium changes, then the quantity of money supplied clearly increases. In most models it is assumed that demand for money is decreasing in the nominal interest rate, so one way to achieve an increase in demand for money is to decrease the nominal interest rate. As people will hold more of their wealth in money, they will hold less in bonds.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2019-02-17T19:24:01.550" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26928" PostTypeId="1" AcceptedAnswerId="26932" CreationDate="2019-02-17T20:24:09.370" Score="0" ViewCount="116" Body="&lt;p&gt;I was given an English task in which the teacher has asked us to do a presentation/speech on Capitalism. The thing is he didn't specify which aspects (historical, economical and the political) we should be focusing on as the concept is rather vague. Thus, I was wondering if anyone here could suggest some points that the presentation should contain (we'll be using slides), and some references (movies, books and videos) so as to enlighten the class more on the concept with simple ideas. Thanks in advance.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;PS: I don't study history nor economics nor politics, so the presentation will be just for general culture.&lt;/p&gt;&#xA;" OwnerUserId="21137" LastEditorUserId="21137" LastEditDate="2019-02-17T22:55:42.893" LastActivityDate="2019-02-18T01:46:17.587" Title="Key points for a speech on Capitalism" Tags="&lt;political-economy&gt;&lt;history&gt;&lt;history-economic-thought&gt;&lt;capitalism&gt;&lt;economic-history&gt;" AnswerCount="2" CommentCount="2" ClosedDate="2019-02-20T21:05:33.480" ContentLicense="CC BY-SA 4.0" />
  <row Id="26929" PostTypeId="2" ParentId="26928" CreationDate="2019-02-17T20:54:57.403" Score="0" Body="&lt;p&gt;Search for 'Milton Friedman' on youtube, he was a nobel prize winning economist, probably the best advocate of capitalism, especially his Q&amp;amp;A's with college students are very entertaining and also very accessible.&lt;/p&gt;&#xA;" OwnerUserId="18214" LastActivityDate="2019-02-17T20:54:57.403" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26930" PostTypeId="1" AcceptedAnswerId="26946" CreationDate="2019-02-17T21:20:40.090" Score="4" ViewCount="201" Body="&lt;p&gt;I am trying to compute the (pure strategy) Nash equilibria of some discrete auctions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;More precisely, let us define the strategy of each player as a function mapping from every valuation that they might have to their bid (i.e. the 'bidding function'). Let us suppose that each player's valuation is drawn from some finite set and that their bid must belong to this same (finite) set. I am interested in finding the set of bidding functions, one for each player, such that each player's bidding function is optimal given the bidding functions of all the other players.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If it makes things easier, we can assume that valuations are symmetric (i.e. each player's valuation is generated by the same probability distribution) and that there are only two players. Ideally, however, we would proceed without these simplifications. I am interested in computing the equilibrium for the first price sealed bid and all pay auctions (in the latter, you pay your bid even if you lose; in the former, you don't.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have considered writing down the discrete auction game in normal form and finding the equilibria using software like Gambit. However, this would seem tricky since the strategy space is so large.  For example, if a player chooses bids from &lt;span class=&quot;math-container&quot;&gt;$ \{1,...,10\} $&lt;/span&gt; and draws values from &lt;span class=&quot;math-container&quot;&gt;$ \{1,...,10\} $&lt;/span&gt;, then already they have &lt;span class=&quot;math-container&quot;&gt;$10^{10}$&lt;/span&gt; pure strategies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does anyone have any ideas about how to proceed here?&lt;/p&gt;&#xA;" OwnerDisplayName="user17900" LastEditorDisplayName="user17900" LastEditDate="2019-03-17T20:01:18.760" LastActivityDate="2019-03-17T20:01:18.760" Title="Computing pure strategy Nash equilibria in finite games" Tags="&lt;game-theory&gt;&lt;nash-equilibrium&gt;&lt;computation&gt;&lt;bayesian-game&gt;" AnswerCount="1" CommentCount="11" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26932" PostTypeId="2" ParentId="26928" CreationDate="2019-02-18T01:46:17.587" Score="0" Body="&lt;p&gt;Capitalism is a system where the owners of capital can voluntarily choose to put make their resources available for the production of goods and services.  If I own a car, I could put it to use as an Uber driver, but I do not have to do so.  In the simplest capitalist system, the owners of capital control the means of production.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Its extreme opposite is a communist system where the workers own and control the means of production.  For that to work, however, there cannot be any private property.  Otherwise, you would have to steal a car to be an Uber driver.  There are cars, but no private ones.  The production exists at the control of society. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first problem with capitalism, in its simplest form, is that owners are, essentially, small kings and queens or maybe dictators.  Unlike a democratic government where people vote, the owners can command the workers or take away their employment.  They do not own their jobs and have no property rights to their jobs.  Unlike a union representative who is elected by the workers, managers are appointed without democratic control.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The balance of this system tends to be unions.  That gives workers the power to own, to a limited degree, their job.  The German system mandates that all workplaces must be unionized and that all corporate board of directors appoint a minority of directors from the non-manager workers.  There are also employee-owned businesses in the United States.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The second problem with capitalism is the misproduction of public goods and the presence of external costs.  Certain types of goods will be produced in the wrong amount in a free market.  For private goods such as green beans, this is not a problem.  However, for certain types of public goods or quasi-goods such as roads, police protection, healthcare, and education a market system is inefficient.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The other issue is when there are external costs.  An external cost happens when a third party has to pay the costs created by a transaction between two other parties.  Pollution is a good example of this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, if capitalism sounds bad, communism is worse, even in its simplest case.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The fatal problem with communism is that there is no private property, so prices do not mean anything.  Prices in a capitalistic system represent the change in the relative scarcity of a good.  They allow people to reallocate their purchases for their budgets without needing a complex, wasteful and costly information system.  For a private good, such as green beans, prices contain all the information about the relative scarcity and the relative desirability of the product.  It impounds all the public information about the desirability and scarcity of the good and all of the private information that people wouldn't voluntarily provide.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Condoms are a good example.  If everyone had to broadcast their condom preferences and uses then condom use would decline.  The public information about condoms would imply that we need very few.  The private information would imply we need a lot.  If there is a sudden surge of purchases, then prices will increase, and people will change their behavior in response to this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a communist system, someone has to work out from only public information on how many items to produce of every type and quality.  Furthermore, they have to work out all of the needed ingredients in the correct proportion.  If two things require steel, then the amount of steel necessary has to be mined, refined and milled first.  That takes tremendous planning.  The average grocery store carries 35,000 distinct items.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;How do you account for the unexpected in such a system such as a fish harvest that was less than planned?  For canned tuna, you will now need less aluminum, but you have to have a way to instantly convey that knowledge.  For an excess harvest, you will either need more aluminum or refrigeration facilities.  Prices can change instantly.  If a fish harvest starts to come in heavy and they try to order additional aluminum cans, then the prices of the can will start to go up.  The price of fish will fall, but the price of cans will go up.   This will affect soda sales, which will affect chemical and water sales and so forth.  Pretty quickly the entire planet's prices adjust.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These tend to generate two different cultures.  Capitalism injects a form of class system of owners and workers.  Some individuals can gain great power.  After all, owners of systems can decide the rules for those who use it.  This has become obvious with Facebook or Google.  They can choose what you see, how you see it and control what you believe to be true.  People aspire to be owners and may look down upon workers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A McDonald's worker provides you with sustenance.  The food is really good.  It isn't as good as you may get at a restaurant run by Gordon Ramsey, but it is good.  Why is that worker less than Jeff Bezos?  How does the person who provides you with food have less dignity?  How is one human worth less than another?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Communism, in its best case, creates a lot of waste and provides no incentive to work hard.  It is simply too difficult to determine what to build, in what quantities and at what qualities.  Furthermore, since no one owns anything you cannot get ahead. Working hard gets you the same thing as working little.  In the worst case, it requires violence to get output as well as corruption.  How can I make you work hard, I can not provide your family with enough food or I can make you vanish forever.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Socialism isn't the middle of the two.  It's a third case.  It also isn't well defined.  Someone like Bernie Sanders or AOC wouldn't be considered socialists in Europe; they would be considered conservatives.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Socialism can mean the government owning some industries, but not generally all.  It has private property, but the government can compete against its citizens in some industries.  In the United States, for example, the mortgage industry is heavily controlled by government-created entities such as Fannie Mae or Ginne Mae.  These were originally federal agencies.  The original agency was created because there were massive foreclosures in process and the nation was on the verge of collapse.  Sometimes, when capitalism fails, the taxpayer pays the price.  Congress intended to disband the agency when it was no longer necessary, but powerful interests kept its existence by privatizing it and selling shares to private owners subject to very strong Congressional control.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Socialist societies currently have higher standards of living than those of US citizens.  It is 4x more likely to become a millionaire in Denmark than in America.  In European societies, it has created a system where people are entitled to vacations, sick time, child care and health care.  There is a question as to whether this is a good thing or a bad thing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would make two suggestions.  First, go to a library and visit a reference librarian.  They will be able to get you good citations and articles on the cultural effects of these systems.  There are a ton of good books on communism, capitalism, and socialism.  The second is to go to YouTube and watch videos on comparative economic systems.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Who owns and controls what determines what type of culture you can have.  Think of just a hundred years ago when women couldn't generally own property in the US.  What culture did that create?  What about now when women are equal?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have only touched the shallowest elements of this topic.  You should watch a YouTube video on the Trabant.  The iPhone could never happen in a communist country because it isn't necessary.  The Trabant is a worst-case example of what happens, but although it is an extreme case it illustrates the culture it creates.&lt;/p&gt;&#xA;" OwnerUserId="11321" LastActivityDate="2019-02-18T01:46:17.587" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="26937" PostTypeId="1" AcceptedAnswerId="26997" CreationDate="2019-02-18T12:50:16.113" Score="1" ViewCount="65" Body="&lt;p&gt;I have a linear rational expectation model that is in the King-Watson form: &lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;AE_{t}y{t+1} = By_{t} + C_{0}x_{t} + C_{1}x{t+1}  (1)&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;with the driving process &lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;x_{t}     = Q \delta_{t}                          (2)&#xA;delta_{t} = \rho \delta_{t-1} + G \espilson_{t}   (3)&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;I have a fairly large system and would like to solve it using a different algorithm than the King-Watson one, such as the Anderson-Moore algorithm (but am completely open to anything fast). However, I have so far failed in implementing the KW in Anderson-Moore. Any ideas on &lt;strong&gt;(i) how to solve the problem using the Anderson-Moore algo,&lt;/strong&gt; or &lt;strong&gt;(ii) a different algorithm that can be used?&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note, my system of equations in (1) is about 1000 lines.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is a toy example for parameterization&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;A  = [1,0,0,0;0,1,0,0;0,0,-1,-1;0,0,0,0];&#xA;B  = [0,0,1,0;0,0,0,1;0,0,-1.1,0;0,-0.7,0,1];&#xA;C  = [0,0;0,0;4,1;3,-2];&#xA;Q  = [1,0;0,1];&#xA;RHO= [0.9,0.1;0.05,0.2];&#xA;G  = [1,0;0,1];&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;which should yield&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;\Pi = [1,0,0,0; 0,1,0,0;0,1.225, -21.0857, 3.15714; 0, 0.7, -3, 2];&#xA;M   = [0,1.225, -21.0857, 3.15714; 0, 0.7, -3, 2; 0,0,0.9,0.1; 0,0,0.05,0.2];&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;" OwnerUserId="16282" LastActivityDate="2019-02-22T16:53:27.713" Title="Solving a LRE model in King-Watson form using alternative algorithms" Tags="&lt;macroeconomics&gt;&lt;rational-expectations&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26941" PostTypeId="1" CreationDate="2019-02-18T15:20:12.743" Score="4" ViewCount="49" Body="&lt;p&gt;A large number of US economists have signed a &lt;a href=&quot;https://www.econstatement.org/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Statement on Carbon Dividends&lt;/a&gt;, advocating a revenue neutral carbon tax as the best policy measure to reduce carbon emissions and so mitigate climate change.  The statement also advocates (para IV) a &lt;em&gt;border carbon adjustment system&lt;/em&gt; to ensure that such a carbon tax would not encourage carbon leakage (ie transfer of production to another country with a laxer carbon regime) and damage US competitiveness.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What are good sources explaining how a border carbon adjustment system might work, the pros and cons of such a system, and lessons from attempts (if any, anywhere in the world) to operate such a system?&lt;/p&gt;&#xA;" OwnerUserId="1417" LastActivityDate="2020-09-18T13:54:30.723" Title="Sources on Border Carbon Adjustment" Tags="&lt;reference-request&gt;&lt;environmental-economics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26943" PostTypeId="1" CreationDate="2019-02-18T16:26:01.540" Score="-1" ViewCount="55" Body="&lt;p&gt;On a perfectly competitive market, a buyer wants to buy a used good. He is willing to pay &lt;span class=&quot;math-container&quot;&gt;$30$&lt;/span&gt; for a badly used good, and &lt;span class=&quot;math-container&quot;&gt;$60$&lt;/span&gt; for a nicely used good.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The seller is willing to sell a badly used good for a minimum of &lt;span class=&quot;math-container&quot;&gt;$30$&lt;/span&gt;, and a nicely used good for a minimum of &lt;span class=&quot;math-container&quot;&gt;$50$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The buyer can't distinguish which goods are badly/nicely used, but he knows that &lt;span class=&quot;math-container&quot;&gt;$40\%$&lt;/span&gt; of the goods are badly used, and &lt;span class=&quot;math-container&quot;&gt;$60\%$&lt;/span&gt; are nicely used. &lt;strong&gt;What is the market equilibrium for a used good, and is it an efficient outcome?&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;When talking about equilibrium, I try to use &lt;span class=&quot;math-container&quot;&gt;$supply = demand$&lt;/span&gt;. But this doesn't apply to this question If I were to calculate the expected value, I would get;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$EV[buyer]=0.4*30+0.6*60=48 $$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$EV[seller]=0.4*30+0.6*50=42 $$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But &lt;span class=&quot;math-container&quot;&gt;$EV[buyer]$&lt;/span&gt; can't be put equal to &lt;span class=&quot;math-container&quot;&gt;$EV[seller]$&lt;/span&gt;, so I don't know how to go about it.&lt;/p&gt;&#xA;" OwnerUserId="19820" LastActivityDate="2019-04-22T11:26:16.247" Title="What's the market equilibrium price for the used good?" Tags="&lt;microeconomics&gt;&lt;competitive-equilibrium&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26946" PostTypeId="2" ParentId="26930" CreationDate="2019-02-18T23:28:48.853" Score="3" Body="&lt;p&gt;If &lt;span class=&quot;math-container&quot;&gt;$10^{10}$&lt;/span&gt; pure strategies is too large for Gambit, it'll likely be too large for any other software as well. In the comments, I suggested that you could first compute the expected payoffs for each player in a separate program such as Matlab/R/Excel, and then export the resulting matrix to Gambit where the BNEs can be calculated. This way, you may be able to save some resources for Gambit on converting the game into its Bayesian normal form. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you're okay with &lt;em&gt;significantly&lt;/em&gt; reducing the dimension of your problem, then you can rely solely on Gambit (or, &lt;a href=&quot;http://gte.csc.liv.ac.uk/index/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Game Theory Explorer (GTE)&lt;/a&gt;, which is now a part of the Gambit project). In the following example done in GTE, I assumed that bidder &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;'s valuation and strategy spaces are binary: &lt;span class=&quot;math-container&quot;&gt;$V_i=S_i=\{0,1\}$&lt;/span&gt; for &lt;span class=&quot;math-container&quot;&gt;$i=1,2$&lt;/span&gt;. The values are assumed to be uniformly distributed. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, you enter the game in its extensive form. In the figure below, the four branches at the top correspond to Nature's choices that determine the valuations. From left to right, the branches represent the valuation profiles &lt;span class=&quot;math-container&quot;&gt;$(v_1,v_2)=(0,0)$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$(0,1)$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$(1,0)$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$(1,1)$&lt;/span&gt; respectively, each occurring with probability &lt;span class=&quot;math-container&quot;&gt;$1/4$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/b2qz1.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/b2qz1.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;After you finish entering the extensive form game, press the &quot;Matrix Layout&quot; tab to see the (automatically calculated) Bayesian normal form. There's a gear button at the top that will compute the BNE of the game.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/JXsNq.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/JXsNq.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The result looks like the following. In this case, the result was returned in seconds (in part thanks to the relatively small dimension of the problem). The unique BNE, in which each player bids zero regardless of their value, was found.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/Wqq0Q.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Wqq0Q.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can of course try to increase the size of the value/strategy space. This method would also allow you to specify asymmetric distributions of bidder values. However, GTE only solves two-player games. But Gambit seems to be able to solve games with more than two players.&lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2019-02-18T23:28:48.853" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26947" PostTypeId="1" CreationDate="2019-02-19T02:13:03.387" Score="2" ViewCount="71" Body="&lt;p&gt;&lt;a href=&quot;https://books.google.com/books?id=FWOZJhYclPMC&amp;amp;pg=PA24&amp;amp;dq=%22Pareto%E2%80%99s%20proof%20of%20the%20immeasurability%20of%20utility%22&quot; rel=&quot;nofollow noreferrer&quot;&gt;Wong (1978, 2002, &lt;em&gt;Foundations of Paul Samuelson's Revealed Preference Theory&lt;/em&gt;)&lt;/a&gt;, repeatedly refers to &quot;Pareto’s proof of the immeasurability of utility&quot;. What was this proof?&lt;/p&gt;&#xA;" OwnerDisplayName="user20317" LastActivityDate="2019-02-19T03:56:27.323" Title="What was &quot;Pareto's proof of the immeasurability of utility&quot;?" Tags="&lt;utility&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26948" PostTypeId="1" AcceptedAnswerId="26949" CreationDate="2019-02-19T02:20:12.313" Score="1" ViewCount="149" Body="&lt;p&gt;&lt;a href=&quot;http://www.differencebetween.net/business/difference-between-gdp-and-gdp-per-capita/&quot; rel=&quot;nofollow noreferrer&quot;&gt;this site&lt;/a&gt; summarizes the difference between GDP and GDP per capita as:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;1. GDP is a measure of a nation a­s economic health while GDP per capita takes into account&#xA;the reflection of such economic health into an individual citizen a­s perspective.&#xA;2. GDP measures the nation a­s wealth while GDP per capita roughly determines the standard&#xA;of living in a particular country.&#xA;3. GDP normally increase as the population increase while GDP per capita may decrease when&#xA;population increases.&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Since real gdp is just gdp adjusted for inflation, would the same definition summarized for GDP vs GDP per capita hold true for Real GDP vs Real GDP per capita?&lt;/p&gt;&#xA;" OwnerUserId="21155" LastActivityDate="2019-02-19T03:01:22.493" Title="real gdp per capita vs real gdp" Tags="&lt;gdp&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26949" PostTypeId="2" ParentId="26948" CreationDate="2019-02-19T02:31:55.453" Score="2" Body="&lt;p&gt;Yes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Example.&lt;/strong&gt; In 2017, a country's GDP was \$100 and its population was 100.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In 2018, its GDP was \$110, its population was 105, and the price level rose by 3%. Then:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;2017 GDP per capita was &lt;span class=&quot;math-container&quot;&gt;$\$100 \div \ 100 = \$1$&lt;/span&gt;.&lt;/li&gt;&#xA;&lt;li&gt;2017 Real GDP per capita (in 2017 prices) was also &lt;span class=&quot;math-container&quot;&gt;$\$1.$&lt;/span&gt;&lt;/li&gt;&#xA;&lt;li&gt;2018 GDP per capita was &lt;span class=&quot;math-container&quot;&gt;$\$110 \div \ 105 \approx \$1.048$&lt;/span&gt;.&lt;/li&gt;&#xA;&lt;li&gt;2018 Real GDP per capita (in 2017 prices) was &lt;span class=&quot;math-container&quot;&gt;$\$1.048 \div 1.03 \approx \$1.017$&lt;/span&gt;.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerDisplayName="user18" LastEditorDisplayName="user18" LastEditDate="2019-02-19T03:01:22.493" LastActivityDate="2019-02-19T03:01:22.493" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26950" PostTypeId="2" ParentId="26947" CreationDate="2019-02-19T03:56:27.323" Score="4" Body="&lt;p&gt;I think the &quot;immeasurability of utility&quot; refers to what we know today as the non-uniqueness of utility representation. The word &quot;utility&quot; also has a slightly different meaning there. As Pareto notes in the mathematical appendix to his 1909 book, &lt;em&gt;Manual of Political Economy&lt;/em&gt; (limited preview on &lt;a href=&quot;https://books.google.com/books?id=43NYAwAAQBAJ&amp;amp;lpg=PP1&amp;amp;pg=PA309#v=onepage&amp;amp;q&amp;amp;f=false&quot; rel=&quot;nofollow noreferrer&quot;&gt;Google Books&lt;/a&gt;), the &quot;utility&quot; measure is &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;the measure of pleasure provided by the combination [of quantities of consumption goods], or [...] the measure of the value in use, the utility, the &lt;em&gt;rareté&lt;/em&gt; (Walras), the ophelimity of this consumption. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;He goes on to prove that there is a lack of a one-to-one correspondence between quantities of consumption and the indices of indifference curves (which are the candidate for measuring utility). Therefore he concludes that indifference curves are merely the index of utility (i.e. pleasure), not the measure of it. &lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2019-02-19T03:56:27.323" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26951" PostTypeId="1" AcceptedAnswerId="26955" CreationDate="2019-02-19T05:37:10.053" Score="2" ViewCount="261" Body="&lt;p&gt;Imagine that there are 5 buyers (B1,...,B5) with maximum willingness to pay as follows:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;B1 = &lt;span class=&quot;math-container&quot;&gt;$5&#xA;B2 = $&lt;/span&gt;4&#xA;B3 = &lt;span class=&quot;math-container&quot;&gt;$3&#xA;B4 = $&lt;/span&gt;2&#xA;B5 = $1&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Imagine that there are 5 sellers (S1,...,S5) with minimum selling prices as follows:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;S1 = &lt;span class=&quot;math-container&quot;&gt;$5&#xA;S2 = $&lt;/span&gt;4&#xA;S3 = &lt;span class=&quot;math-container&quot;&gt;$3&#xA;S4 = $&lt;/span&gt;2&#xA;S5 = $1&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;I now present two hypothetical situations:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;SITUATION 1: Each buyer is matched to the seller with the corresponding price.&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this case, the quantity traded = 5 units&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;SITUATION 2: Match B1 with S5, B2 with S4, B3 with S3, B4 with S2 and B5 with S1.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this case, the quantity traded is equal to 3 units since the last two trades cannot happen.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;DISCUSSION AND QUESTION&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Obviously, these are two extreme situations. However, it seems to highlight an interesting point, namely, what assumptions do we have to make about &quot;reserve prices&quot; of buyers and sellers, and the way they interact with each other, in order for us to be able to calculate the equilibrium point? In other words, there seems to be more than meets the eye with the idea of calculating the equilibrium point from the supply and demand curves alone. &lt;/p&gt;&#xA;" OwnerUserId="5591" LastActivityDate="2019-02-19T21:03:43.037" Title="What are the assumptions behind calculating the market equilibrium from supply and demand curves?" Tags="&lt;general-equilibrium&gt;&lt;markets&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26952" PostTypeId="2" ParentId="26951" CreationDate="2019-02-19T07:06:01.023" Score="1" Body="&lt;p&gt;The central assumption which implies the existence of equilibrium price is perfect information between buyers and seller. Under conditions of perfect information, it is impossible for any one seller to hide their price from a particular subset of buyers. For instance, if Seller 5 offers Buyer 5 the good for \$1, he would necessarily have to extend the same offer to all other buyers as well. Of course, given that buyer's 1-4 are willing to pay more than \$1 for the good, it is irrational for Seller 5 to offer the good for 1$ as he could make more offering it for \$2 and selling it to say, Buyer 3. Of course, this brings up the fact that the assumption of the pursuit of profit maximization of behalf of sellers is also a necessary assumption to assure the existence of an equilibrium price. However, profit maximization is usually assumed throughout ALL economic theory with the exception of a few fringe models. On the other hand, the presence of perfect information cannot be assumed a priori to the same degree as profit maximization; it considerably varies from context to context. (For instance, there is always perfect information within instances perfect competition, while in certain cases of oligopolistic market structures, information can be wildly asymmetric between the parties involved.)&lt;/p&gt;&#xA;" OwnerUserId="21143" LastActivityDate="2019-02-19T07:06:01.023" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26954" PostTypeId="2" ParentId="26943" CreationDate="2019-02-19T11:50:17.630" Score="0" Body="&lt;p&gt;Ask yourself a few questions: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;1). If the buyer doesn't know, does the seller. If so why would they have the same probabilities? &#xA;2). Is the scenario realistic in a perfectly competitive market (absolutely no!)&#xA;3). In another type of market surely the seller decides what they want to receive and it is up to the buyer whether they buy it or not. It's surely not the case where a buyer can demand to pay a certain price!&lt;/p&gt;&#xA;" OwnerUserId="19137" LastActivityDate="2019-02-19T11:50:17.630" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="26955" PostTypeId="2" ParentId="26951" CreationDate="2019-02-19T20:43:56.017" Score="3" Body="&lt;p&gt;Public information about prices--not necessarily about costs or willingness to pay--is indeed the key here. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If S5 is willing to sell to B5 at $1, she must also be willing to sell to any other buyer at this price. Given the low price, there would be an over-demand for the unit sold by S5, and a resulting upward pressure on the price asked by S5. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Similarly, if B1 is willing to pay S1 $5 for a unit, he must also be willing pay the same amount to the other sellers for one unit. Then Sellers with lower costs will rush to compete for B1's business, thereby creating a downward pressure on the amount bid by B1. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The process settles when the market reaches equilibrium described by your second scenario, where three units are traded at $3/unit. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In Vernon Smith's &lt;a href=&quot;https://www.jstor.org/stable/1861810&quot; rel=&quot;nofollow noreferrer&quot;&gt;canonical market experiment&lt;/a&gt; (and countless replications thereafter) wherein buyers and sellers with varying values/costs trade in a double auction,  the equilibrium outcome predicted by theory, rather than the assortative matching outcome described in your situation 1, is observed. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is also related to the &lt;a href=&quot;https://en.wikipedia.org/wiki/Law_of_one_price&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;strong&gt;Law of One Price&lt;/strong&gt;&lt;/a&gt;. &lt;/p&gt;&#xA;" OwnerUserId="42" LastEditorUserId="42" LastEditDate="2019-02-19T21:03:43.037" LastActivityDate="2019-02-19T21:03:43.037" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26956" PostTypeId="1" AcceptedAnswerId="26957" CreationDate="2019-02-19T20:49:13.213" Score="2" ViewCount="3196" Body="&lt;p&gt;The utility function for perfect substitutes is defined as U(X,Y) = aX + bY. If the two goods X&amp;amp;Y are imperfect substitutes what would be their utility function?&lt;/p&gt;&#xA;" OwnerUserId="21161" LastActivityDate="2019-02-20T16:54:21.590" Title="Imperfect Substitutes and Utility Funcitions" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;consumer-theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26957" PostTypeId="2" ParentId="26956" CreationDate="2019-02-19T22:23:23.793" Score="2" Body="&lt;p&gt;In general, any utility function that produces non-linear and downward sloping indifference curves will feature imperfect substitutability between goods. (By considering only &lt;em&gt;goods&lt;/em&gt;, we're implicitly assuming &amp;quot;more is preferred to less&amp;quot;, or positive marginal utility, for each good.) In other words, look at the marginal rate of substitution and see if it depends on the quantity of either good; if it does, then there is imperfect substitutability.&lt;/p&gt;&#xA;&lt;h1&gt;Examples&lt;/h1&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Quasi-linear utility: &lt;span class=&quot;math-container&quot;&gt;$u(x,y)=v(x)+y$&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$v(x)$&lt;/span&gt; is non-linear in &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; (e.g. &lt;span class=&quot;math-container&quot;&gt;$v(x)=\sqrt x$&lt;/span&gt;)&lt;/li&gt;&#xA;&lt;li&gt;Additively separable utility: &lt;span class=&quot;math-container&quot;&gt;$u(x,y)=g(x)+h(y)$&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$g,h$&lt;/span&gt; are non-linear functions&lt;/li&gt;&#xA;&lt;li&gt;Cobb-Douglas: &lt;span class=&quot;math-container&quot;&gt;$u(x,y)=x^\alpha y^\beta$&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$\alpha,\beta$&lt;/span&gt; are constants&lt;/li&gt;&#xA;&lt;li&gt;&lt;s&gt;Leontief (perfect complement): &lt;span class=&quot;math-container&quot;&gt;$\style{text-decoration:line-through}{u(x,y)=\min\{\alpha x,\beta y\}}$&lt;/span&gt;&lt;/s&gt; [Leontief utility function features &lt;em&gt;non&lt;/em&gt;substitutability rather than imperfect substitutability.]&lt;/li&gt;&#xA;&lt;li&gt;CES utility: &lt;span class=&quot;math-container&quot;&gt;$u(x,y)=\left(\alpha x^\rho+\beta y^\rho\right)^{1/\rho}$&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$\rho\ne1$&lt;/span&gt;. Note that the class of CES utility functions includes Cobb-Douglas (as &lt;span class=&quot;math-container&quot;&gt;$\rho\to0$&lt;/span&gt;), Leontief (as &lt;span class=&quot;math-container&quot;&gt;$\rho\to-\infty$&lt;/span&gt;), and linear utility (as &lt;span class=&quot;math-container&quot;&gt;$\rho=1$&lt;/span&gt;) as special cases.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;p&gt;This &lt;a href=&quot;http://www.econ.ucla.edu/sboard/teaching/econ11_09/econ11_09_lecture2.pdf#page=15&quot; rel=&quot;nofollow noreferrer&quot;&gt;lecture note&lt;/a&gt; by Simon Board has examples and indifference curves corresponding to the cases above.&lt;/p&gt;&#xA;" OwnerUserId="42" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2019-02-20T16:54:21.590" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="26960" PostTypeId="1" CreationDate="2019-02-20T13:28:59.913" Score="0" ViewCount="123" Body="&lt;p&gt;I recently read up on the Society for Worldwide Interbank Financial Telecommunication (SWIFT). As faar as I understood it was up until recently the only provider of a system to exchange money internationaly between different entities.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(There are other national systems)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now I saw that china is developing its own system called Cross-Border Inter-Bank Payments System (CIPS). This system is still using SWIFT to communicate with certain entities but can also connect them directly.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also the Instrument in Support of Trade Exchanges (INSTEX) is beeing created by France, Germany and the UK. This system is not connected to SWIFT and currently only allows goods to be traded.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Did I understand it right that those systems are partwise competitors and are there more such systems?&lt;/p&gt;&#xA;" OwnerUserId="21168" LastActivityDate="2019-04-26T20:08:36.230" Title="What international payment systems do exist?" Tags="&lt;international-trade&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26961" PostTypeId="1" CreationDate="2019-02-20T17:49:44.900" Score="0" ViewCount="131" Body="&lt;p&gt;In my economics class, we saw a proof that if an allocation &lt;span class=&quot;math-container&quot;&gt;$ ((\hat x_h), (\hat y_f)), h\in H$&lt;/span&gt; (the set of households), &lt;span class=&quot;math-container&quot;&gt;$f\in F$&lt;/span&gt; (the set of firms) is Pareto optimal/efficient, it must necessarily be a solution to the maximization problem:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ max \quad U_1(x_1) $$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Subject to:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ U_h(x_h) \ge U_h(\hat x_h), h=2,...,m $$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$ x_h, y_f \quad feasible \quad \forall h \in H, \ f \in F $$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$ \sum_{h=1}^m x_h \le \omega + \sum_{f=1}^r y_f $$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where &lt;span class=&quot;math-container&quot;&gt;$\omega$&lt;/span&gt; is the total endowment in the economy, m is the total number of households, r is the total number of firms, and &lt;span class=&quot;math-container&quot;&gt;$U_h:\mathbb{R}^n_+ \to \mathbb{R}$&lt;/span&gt; is the utility function of household h. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am curious if anyone can give me a simple example in a pure exchange economy (so obviously removing the firms from what is given above) where the utilities are such that &lt;span class=&quot;math-container&quot;&gt;$\hat x_h$&lt;/span&gt; solves the maximization problem, but is NOT Pareto optimal (i.e. something showing that the converse of the statement above does not always hold). Preferably, I'd like to be able to draw it in an Edgeworth box, to convince myself of the need for additional assumptions on the utility function(s) to make the fact that &lt;span class=&quot;math-container&quot;&gt;$\hat x_h$&lt;/span&gt; is a solution a sufficient condition for &lt;span class=&quot;math-container&quot;&gt;$\hat x_h$&lt;/span&gt; being Pareto optimal. &lt;/p&gt;&#xA;" OwnerUserId="21170" LastEditorUserId="1601" LastEditDate="2019-03-06T08:41:24.923" LastActivityDate="2019-04-05T09:01:00.280" Title="Solution to maximization not Pareto efficient" Tags="&lt;utility&gt;&lt;pareto-efficiency&gt;&lt;proof&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26962" PostTypeId="1" AcceptedAnswerId="26963" CreationDate="2019-02-20T19:27:03.353" Score="2" ViewCount="105" Body="&lt;ul&gt;&#xA;&lt;li&gt;Consider the following &lt;span class=&quot;math-container&quot;&gt;$2$&lt;/span&gt; player finite extensive game. Player &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt; moves first. She must choose an integer from &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt; to &lt;span class=&quot;math-container&quot;&gt;$10$&lt;/span&gt;, and place that number of matchsticks on the table. Next, Player &lt;span class=&quot;math-container&quot;&gt;$2$&lt;/span&gt; must add to this by picking an integer from &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt; to &lt;span class=&quot;math-container&quot;&gt;$10$&lt;/span&gt;, and adding that number of matchsticks to the ones placed by Player &lt;span class=&quot;math-container&quot;&gt;$2$&lt;/span&gt;. This game goes on until the player places matchsticks such that the total number reaches &lt;span class=&quot;math-container&quot;&gt;$30$&lt;/span&gt;, hence winning the game.&lt;/li&gt;&#xA;&lt;li&gt;Describe what choices Player &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt; must make to win this game, what number must she start with; then given the choice of Player &lt;span class=&quot;math-container&quot;&gt;$2$&lt;/span&gt;, what number must she pick and so forth. &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;For the above question, I found that playing &lt;span class=&quot;math-container&quot;&gt;$8$&lt;/span&gt; in the first round would ensure that Player &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt; wins the game, given he plays rationally. &#xA;I used the logic of backward induction, very vaguely though. In the last stage, for Player &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt; to win, he must ensure that the sum of matchsticks on the table is &lt;em&gt;greater than or equal to &lt;span class=&quot;math-container&quot;&gt;$20$&lt;/span&gt;&lt;/em&gt;, thus ensuring that Player &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt; can choose a number between &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt; to &lt;span class=&quot;math-container&quot;&gt;$10$&lt;/span&gt; such that sum becomes &lt;span class=&quot;math-container&quot;&gt;$30$&lt;/span&gt; and he wins. &#xA;For this, it must be the case that in the second last stage of the game, player &lt;span class=&quot;math-container&quot;&gt;$2$&lt;/span&gt; chooses a number which can never be less than &lt;span class=&quot;math-container&quot;&gt;$19$&lt;/span&gt;, so that the only available options for him would be to make the sum greater than or equal to &lt;span class=&quot;math-container&quot;&gt;$20$&lt;/span&gt;, but not more than &lt;span class=&quot;math-container&quot;&gt;$29$&lt;/span&gt;. &#xA;In the previous stage to the above Player &lt;span class=&quot;math-container&quot;&gt;$2$&lt;/span&gt; move stage, Player &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt; must ensure that he makes the sum &lt;span class=&quot;math-container&quot;&gt;$19$&lt;/span&gt;. Thus moving backwards, I came to the conclusion that playing &lt;span class=&quot;math-container&quot;&gt;$8$&lt;/span&gt; guarantees a win for Player &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt;. If Player &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt; plays &lt;span class=&quot;math-container&quot;&gt;$8$&lt;/span&gt; in the first round, Player &lt;span class=&quot;math-container&quot;&gt;$2$&lt;/span&gt; can only make the sum greater than &lt;span class=&quot;math-container&quot;&gt;$8$&lt;/span&gt; and less than &lt;span class=&quot;math-container&quot;&gt;$19$&lt;/span&gt;, such that in next stage, Player &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt; can choose such a number so as to make the sum &lt;span class=&quot;math-container&quot;&gt;$19$&lt;/span&gt;. Now Player &lt;span class=&quot;math-container&quot;&gt;$2$&lt;/span&gt; can choose any number and lose since the sum will never be greater than &lt;span class=&quot;math-container&quot;&gt;$29$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is the only winning strategy I could find for Player &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt;. I am not sure if this is correct or whether there are more winning strategies. Please help me in finding the complete winning strategy for Player &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt;. Also, how do we  formally write down the strategy (winning) set? &lt;span class=&quot;math-container&quot;&gt;$8$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$11-s_j^1$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$11-s_j^2$&lt;/span&gt; is the only way I could think of writing the strategy set. Please correct me. Thanks a lot!&lt;/p&gt;&#xA;" OwnerUserId="18398" LastActivityDate="2019-02-21T08:44:58.007" Title="Matchstick Game" Tags="&lt;microeconomics&gt;&lt;game-theory&gt;&lt;self-study&gt;&lt;extensive-games&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26963" PostTypeId="2" ParentId="26962" CreationDate="2019-02-20T20:50:36.633" Score="3" Body="&lt;p&gt;You've established that a player getting to 8 or 19 seals a win. You want to understand whether player 1 has any options other than starting with 8, to win.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider it from player 2's perspective. What is player 2's best strategy if player 1 picks a number less than 8? What is player 2's best strategy if player 1 picks 9 or 10?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The answer to both, is contained in the first sentence I wrote above.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2019-02-20T20:50:36.633" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="26964" PostTypeId="2" ParentId="26961" CreationDate="2019-02-20T20:52:07.203" Score="1" Body="&lt;p&gt;An example with two agents and two goods: let&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;U_1(x) = 0, \hskip 20pt U_2(x) = x_1+x_2, \hskip 20pt w = (1,1).&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this case allocating all the goods, so (1,1) to the first consumer solves the above problem. Even though any other feasible allocation fulfills the conditions, none of them gives a higher utility to the first consumer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Yet this allocation is clearly not Pareto-optimal, allocating (1,1) to the second consumer would be a Pareto-improvement.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2019-02-20T20:52:07.203" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26965" PostTypeId="1" AcceptedAnswerId="26983" CreationDate="2019-02-20T20:52:48.470" Score="2" ViewCount="29" Body="&lt;p&gt;As I understand it countries negotiate free trade agreements in services using the WTO GATS.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But what are some of the barriers to the transnational exchange of services that an FTA would seek to address?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Surely something as ephemeral as a service can be sold across national borders easily because there are few or no physical components?&lt;/p&gt;&#xA;" OwnerUserId="5505" LastEditorUserId="5505" LastEditDate="2019-02-20T21:04:12.827" LastActivityDate="2019-02-21T17:44:33.903" Title="What are some of the barriers to trading services?" Tags="&lt;international-trade&gt;&lt;wto&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26966" PostTypeId="1" CreationDate="2019-02-20T20:57:22.217" Score="0" ViewCount="45" Body="&lt;p&gt;One of the ways corporations trade transnationally in the face of local restrictions on market access is to set up subsidiary companies or regional offices from which trade is conducted.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If such subsidiaries bypass the restrictions, what is the remaining purpose of FTAs?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is it that the subsidiary model is itself inefficient, or that it distorts the market to favour larger market incumbents who can afford such subsidiary creation, or that there are additional restrictions that this model does not mollify? Or something else?&lt;/p&gt;&#xA;" OwnerUserId="5505" LastActivityDate="2019-02-20T20:57:22.217" Title="If regional subsidiaries bypass trade restrictions, why are FTAs needed?" Tags="&lt;international-trade&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="26967" PostTypeId="2" ParentId="26866" CreationDate="2019-02-20T21:11:00.363" Score="1" Body="&lt;p&gt;No.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In general, based on the information you have, there are no results you can infer for the partial derivatives &lt;span class=&quot;math-container&quot;&gt;$U_{cl}$&lt;/span&gt; / &lt;span class=&quot;math-container&quot;&gt;$U_{lc}$&lt;/span&gt;. In this context they could be anything.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As to what you are allowed to assume is a different story. You can assume anything in general, of course. Nevertheless, there is no way to check if your assumptions would be correct in this case.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastActivityDate="2019-02-20T21:11:00.363" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26968" PostTypeId="2" ParentId="26866" CreationDate="2019-02-20T21:35:09.267" Score="1" Body="&lt;p&gt;For a &quot;well-behaved&quot; bivariate utility function as regards utiliy maximiaztion, we need the Hessian matrix of partial derivatives to be negative definite, which translates into&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$U_{cc}&amp;lt;0, \;\;\;U_{ll}&amp;lt;0,\;\;\; U_{cc}U_{ll} - \left[U_{cl}\right]^2 &amp;gt;0$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\implies |U_{cl} | &amp;lt; \sqrt{U_{cc}U_{ll}}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first two conditions you have by assumption, the third condition poses a constraint on the relative magnitude in absolute value of the cross-partial, although not on its sign: it has to be smaller in absolute terms than the geometric average of the own-second derivatives, at least at the optimal point.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I notice that in many research papers it is assumed that the cross-partial is zero (utility additive in consumption and leisure).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Nevertheless, this is a good opportunity to apply some economic/behavioral thinking: what would it mean, as regards the relation between consumption and leisure to have &lt;span class=&quot;math-container&quot;&gt;$U_{cl} &amp;lt;0$&lt;/span&gt;? What would it mean to have &lt;span class=&quot;math-container&quot;&gt;$U_{cl} &amp;gt;0$&lt;/span&gt; ?&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2019-02-20T21:35:09.267" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26969" PostTypeId="1" CreationDate="2019-02-20T23:10:05.790" Score="0" ViewCount="62" Body="&lt;p&gt;The stationary points that we derive by solving the first order conditions of the Lagrangian are those points global optimum points or local optimum points?&lt;/p&gt;&#xA;" OwnerUserId="21161" LastActivityDate="2019-02-21T01:35:49.663" Title="Constrained Optimization using Lagrangian method" Tags="&lt;mathematical-economics&gt;&lt;optimization&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26970" PostTypeId="1" AcceptedAnswerId="27922" CreationDate="2019-02-21T00:03:36.177" Score="0" ViewCount="510" Body="&lt;p&gt;The &quot;Guess 2/3 of the average&quot; game (&lt;a href=&quot;https://en.wikipedia.org/wiki/Guess_2/3_of_the_average&quot; rel=&quot;nofollow noreferrer&quot;&gt;Wikipedia&lt;/a&gt;) is a game in which n people guess what 2/3 of the average of their guesses will be, and where the numbers are restricted to the integer (in this case) numbers between 0 and 100, inclusive. The winner is the one closest to the 2/3 average.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By iterated deletion of weakly dominated strategies, it is easy to show that all integers but 0 and 1 vanish because it is possible to rule out iteratively those numbers who cannot be 2/3 of the average of the played numbers. For example, the first step is to eliminate all the integers above 66 because even though everybody will play 100, 2/3*100 = 66.67, thus this is the maximum value the right number could reach. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, my question is which are the pure and mixed strategy Nash equilibria of this game? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Winning the game gives a payoff of 1, losing a payoff of 0. If there is a tie, the payoff is distributed uniformly among the winners. The pure NE should be playing 0, while I am totally lost about the mixed strategy one.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does anybody know how to proceed?&lt;/p&gt;&#xA;" OwnerUserId="6773" LastActivityDate="2019-04-22T11:21:18.203" Title="Guess 2/3 of the average with integers - mixed strategy equilibria?" Tags="&lt;microeconomics&gt;&lt;game-theory&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26971" PostTypeId="2" ParentId="26969" CreationDate="2019-02-21T01:35:49.663" Score="2" Body="&lt;p&gt;In general, FOCs produce local, not necessarily global, optima. Consider &#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;\max_x\;f(x)=x \sin(x) \quad\text{s.t. $x\in[0,7]$}.&#xA;\end{equation}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As the plot below shows, &lt;span class=&quot;math-container&quot;&gt;$f(x)$&lt;/span&gt; has three stationary points in the domain &lt;span class=&quot;math-container&quot;&gt;$[0,7]$&lt;/span&gt;: &lt;span class=&quot;math-container&quot;&gt;$x_1=0$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$x_2\approx 2.03$&lt;/span&gt;, and &lt;span class=&quot;math-container&quot;&gt;$x_3\approx4.91$&lt;/span&gt;. Among them, &lt;span class=&quot;math-container&quot;&gt;$x_2$&lt;/span&gt; is the local maximum that would be picked up by the FOC. However, the global maximum happens at the boundary, where &lt;span class=&quot;math-container&quot;&gt;$x=7$&lt;/span&gt;. Since &lt;span class=&quot;math-container&quot;&gt;$f'(7)\ne0$&lt;/span&gt;, the global maximum would be missed if you rely only on the FOC. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/QQURN.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/QQURN.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2019-02-21T01:35:49.663" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="26972" PostTypeId="1" CreationDate="2019-02-21T03:38:03.320" Score="0" ViewCount="42" Body="&lt;p&gt;Starting: supply curve &lt;span class=&quot;math-container&quot;&gt;$y=x+10$&lt;/span&gt; and demand curve &lt;span class=&quot;math-container&quot;&gt;$y = -x+30$&lt;/span&gt; with equilibrium at (10, 20).&lt;a href=&quot;https://i.stack.imgur.com/GsM4F.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/GsM4F.png&quot; alt=&quot;&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem states that DEMAND shifts leftwards by 3 units and to find the new equilibrium. My professor did not specifically state the two equations, but a 1 to 1 relationship is implied, so I was able to find them. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Meaning that for example, the original supply curve would be a line consisting of points &lt;span class=&quot;math-container&quot;&gt;$(10,20), (11,21), (9,19)$&lt;/span&gt;, etc. and the demand curve would have points &lt;span class=&quot;math-container&quot;&gt;$(10,20), (11,19), (9,21)$&lt;/span&gt;, etc. So slope of &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$-1$&lt;/span&gt;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With equilibrium at &lt;span class=&quot;math-container&quot;&gt;$(10, 20)$&lt;/span&gt;. My professor goes on to complete the problem by moving 3 units leftward from 10 on the x-axis and 3 units down from 20 on the y-axis. His new equilibrium is &lt;span class=&quot;math-container&quot;&gt;$(7, 17)$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I didn't think that it was an accurate way to represent/find the new equilibrium. Supply/demand graphs are supposed to shift at every point. I then plugged it into a graph and found that it was incorrect.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;DEMAND shifts leftwards by 3 to create a new DEMAND curve &lt;span class=&quot;math-container&quot;&gt;$y=-x+27$&lt;/span&gt; with equilibrium at &lt;span class=&quot;math-container&quot;&gt;$(8.5, 18.5)$&lt;/span&gt; which is not &lt;span class=&quot;math-container&quot;&gt;$(7, 17)$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Was the professor wrong?&lt;/p&gt;&#xA;" OwnerUserId="12859" LastEditorUserId="12859" LastEditDate="2019-02-21T04:05:21.890" LastActivityDate="2019-02-21T04:05:21.890" Title="Supply/Demand Shift (Find New Equilibrium)" Tags="&lt;microeconomics&gt;&lt;supply-and-demand&gt;" AnswerCount="0" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="26975" PostTypeId="1" CreationDate="2019-02-21T07:35:42.157" Score="2" ViewCount="149" Body="&lt;p&gt;I am reading Ryan-Collins et al. (2013, &lt;em&gt;Where Does Money Come From? A Guide to the UK Monetary and Banking System&lt;/em&gt;). I think I understand how banks create new money whenever they make a loan.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Using their example in 4.2, when a bank loans say £10,000 to Robert, their assets increase by the £10,000 loan and their liabilities also increase by £10,000 in the form of a deposit into Robert's new account. The latter deposit is the new money created by the bank.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, I do not understand how:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;the bank creates new money when it ... pays its staff salaries or bonuses.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Say the bank pays its own staff Jane £5,000. What happens to the bank's balance sheet?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think a deposit of £5,000 is made into Jane's bank account -- this is the new money created and is recorded under the bank's liabilities. But is there any corresponding change in assets?&lt;/p&gt;&#xA;" OwnerDisplayName="user20317" LastEditorDisplayName="user20317" LastEditDate="2019-02-21T07:49:16.373" LastActivityDate="2019-10-23T15:17:59.610" Title="How does a bank create new money when it pays its own staff?" Tags="&lt;finance&gt;&lt;banking&gt;&lt;money&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26977" PostTypeId="2" ParentId="26962" CreationDate="2019-02-21T08:44:58.007" Score="0" Body="&lt;p&gt;The backtracking method you used is a good one. Now that you found a solution, it is nice to discover some patterns and generalizations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We could generalize this game to reaching any goal G with any choice of integer from n to N. You can find that the winning strategy is making sure that you reach any number G-(n+N)*i, where i is an integer. These are all the winning spots. The lowest winning spot can be found by G modulus (n+N) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Mathematical games are fun, aren't they?&lt;/p&gt;&#xA;" OwnerUserId="20942" LastActivityDate="2019-02-21T08:44:58.007" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="26979" PostTypeId="1" CreationDate="2019-02-21T13:27:09.377" Score="-1" ViewCount="180" Body="&lt;p&gt;I'm struggling with this question. Please help out with the correct formula. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;how to find the elasticity of log(y) =β0+β1log(x).&lt;/p&gt;&#xA;" OwnerUserId="21182" LastActivityDate="2019-02-21T14:11:51.580" Title="how to find the elasticity of log(y) =β0+β1log(x)" Tags="&lt;econometrics&gt;" AnswerCount="1" CommentCount="0" ClosedDate="2019-02-27T09:03:51.457" ContentLicense="CC BY-SA 4.0" />
  <row Id="26980" PostTypeId="2" ParentId="26979" CreationDate="2019-02-21T14:11:51.580" Score="1" Body="&lt;p&gt;This is a standard log-linear model.&#xA;&lt;span class=&quot;math-container&quot;&gt;$log(y)=b_0+b_1log(x)$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We know that elasticity is equal to &#xA;&lt;span class=&quot;math-container&quot;&gt;$e=\frac{dy}{dx}.\frac{x}{y}$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can differentiate the regression equation with respect to &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; and then substitute the value of &lt;span class=&quot;math-container&quot;&gt;$\frac{dy}{dx}$&lt;/span&gt; in the elasticity function to get the value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\frac{1}{y}.\frac{dy}{dx}=\frac{b_1}{x}$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore &lt;span class=&quot;math-container&quot;&gt;$\frac{dy}{dx}=b_1\frac{y}{x}$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now substitute it into the elasticity function&#xA;&lt;span class=&quot;math-container&quot;&gt;$e=b_1\frac{y}{x}\frac{x}{y}$&lt;/span&gt;&#xA;which equals &lt;span class=&quot;math-container&quot;&gt;$b_1$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Notice that this is a constant. &lt;/p&gt;&#xA;" OwnerUserId="18398" LastActivityDate="2019-02-21T14:11:51.580" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26981" PostTypeId="2" ParentId="26975" CreationDate="2019-02-21T14:35:47.580" Score="0" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;is there any corresponding change in assets?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Yes. Broadly speaking, salaries, dividends, and other expenses come from interest and fees the bank charges its customers for loans and other services. Thus, the accrued fees and interest are assets which presumably compensate the salary liabilities.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the event that expenses such as salaries outweigh the bank's inflows (that is, the change in assets that comes in the form of interest/fees/etc.), the bank would offset those liabilities via deductions from its capital. Keep in mind that a bank's (or any entity's) balance sheet needs to preserve the equation &lt;span class=&quot;math-container&quot;&gt;$$Assets=Liabilities+Capital$$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="18552" LastEditorUserId="18552" LastEditDate="2019-02-22T18:41:01.650" LastActivityDate="2019-02-22T18:41:01.650" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="26983" PostTypeId="2" ParentId="26965" CreationDate="2019-02-21T17:44:33.903" Score="1" Body="&lt;p&gt;If you look at the four different ways that international service trade is categorised by the GATS, that will help you think about what sort of constraints are faced.  The four GATS &quot;modes&quot; are:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Cross border (the most simple): a firm in country A supplies a service to customers in country B.&lt;/li&gt;&#xA;&lt;li&gt;Consumption abroad: someone from country B visits A and uses a service there.&lt;/li&gt;&#xA;&lt;li&gt;Commercial presence: a firm in country A sets up a subsidiary in B to supply B's customers.&lt;/li&gt;&#xA;&lt;li&gt;Presence of natural persons: a firm in country A moves staff to B to provide services there.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Some example constraints, by mode:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Some countries don't allow their citizens to hold accounts with foreign banks.&lt;/li&gt;&#xA;&lt;li&gt;The US historically not allowing its citizens to visit Cuba.  (Mode 2 constraints are the rarest.)&lt;/li&gt;&#xA;&lt;li&gt;Rules specifying that service companies must be 51% owned by locals have been common in various countries.&lt;/li&gt;&#xA;&lt;li&gt;All immigration law places restrictions on this.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="16631" LastActivityDate="2019-02-21T17:44:33.903" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26986" PostTypeId="1" CreationDate="2019-02-21T20:47:46.183" Score="0" ViewCount="98" Body="&lt;p&gt;I live in an Asian country in which the average monthly salary is maybe 300-400 dollars but things (apart from exported goods like laptops or smartphones) are reasonably cheap compared to their price in the US for instance.&lt;br&gt;&#xA;One pizza is around 3 dollars, you can rent a decent hotel room with less than 20 dollars and average monthly rent for apartments in our capital city is around 150 dollars. &#xA;my question is why doesn't our government scale up everything like 5 times so the pizza would cost 15$ but at the same time salary is 2000 dollars?&lt;br&gt;&#xA;That wouldn't make any difference for us but now our country seems to be a heaven for foreign tourists and I think this can make things better.&lt;br&gt;&#xA;I know I'm not the first person that this idea has crossed his mind but can't figure it out what are the technical issues which prevent this idea from happening.  &lt;/p&gt;&#xA;" OwnerUserId="21185" LastEditorUserId="21185" LastEditDate="2019-02-22T09:23:23.273" LastActivityDate="2021-03-03T01:00:50.090" Title="why doesn't every country scale up the prices to the international level?" Tags="&lt;international-trade&gt;&lt;exchange-rates&gt;&lt;development-economics&gt;" AnswerCount="1" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26987" PostTypeId="1" CreationDate="2019-02-21T20:52:51.180" Score="1" ViewCount="93" Body="&lt;p&gt;From LLN, we have &lt;span class=&quot;math-container&quot;&gt;$\text{plim}  Y_n=\mu$&lt;/span&gt;. Now you have &lt;span class=&quot;math-container&quot;&gt;$W_n=Y^3_n$&lt;/span&gt;, what is the probability limit of &lt;span class=&quot;math-container&quot;&gt;$W_n$&lt;/span&gt;?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Please help me answer this and thank you! &lt;/p&gt;&#xA;" OwnerUserId="21182" LastEditorUserId="17735" LastEditDate="2019-02-22T11:19:05.620" LastActivityDate="2019-02-26T05:10:23.730" Title="Simple Econometric question" Tags="&lt;econometrics&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="26990" PostTypeId="2" ParentId="26975" CreationDate="2019-02-22T01:07:55.750" Score="2" Body="&lt;p&gt;If an employee performed work there is a liability called &quot;current liabilities&quot;. Paying into the employee's account is just changing one kind of liability into another kind of  liability of the same size so total liabilities is unchanged and total assets is unchanged. The new liability is a recorded as a deposit. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Paying the employee with an amount of cash reduces assets and reduces liabilities. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;@IñakiViggers is correct, of course, that part of the assets were the result of interest earned and fees charged. My answer addresses only what happens at the instant in time the employee is paid.&lt;/p&gt;&#xA;" OwnerUserId="6868" LastEditorUserId="6868" LastEditDate="2019-02-22T04:41:07.847" LastActivityDate="2019-02-22T04:41:07.847" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26991" PostTypeId="1" CreationDate="2019-02-22T02:27:19.813" Score="2" ViewCount="539" Body="&lt;p&gt;In the Bank of England's &lt;em&gt;Quarterly Bulletin&lt;/em&gt;, 2014 Q1, McLeay, Radia, &amp;amp; Thomas write a pair of articles titled:&lt;/p&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/money-in-the-modern-economy-an-introduction&quot; rel=&quot;nofollow noreferrer&quot;&gt;&amp;quot;Money in the modern economy: an introduction&amp;quot;&lt;/a&gt; and&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/money-creation-in-the-modern-economy&quot; rel=&quot;nofollow noreferrer&quot;&gt;&amp;quot;Money creation in the modern economy&amp;quot;&lt;/a&gt;.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;p&gt;I believe they subscribe to what &lt;a href=&quot;https://www.sciencedirect.com/science/article/pii/S1057521914001070&quot; rel=&quot;nofollow noreferrer&quot;&gt;Werner (2014)&lt;/a&gt; calls the &lt;strong&gt;credit creation theory of banking&lt;/strong&gt;. From their Overview:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;In the modern economy, most money takes the form of bank deposits. But how those bank deposits are created is often misunderstood: the principal way is through commercial banks making loans. &lt;strong&gt;Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money.&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;p&gt;The reality of how money is created today differs from the description found in some economics textbooks:&lt;/p&gt;&#xA;&lt;p&gt;• Rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits.&lt;/p&gt;&#xA;&lt;p&gt;• In normal times, the central bank does not fix the amount of money in circulation, nor is central bank money ‘multiplied up’ into more loans and deposits.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;These two articles were published in the BoE's &lt;em&gt;Quarterly Bulletin&lt;/em&gt;, so I had initially assumed that what they were saying was the mainstream/widely-accepted/orthodox view. On further reading (e.g. of Werner, 2014), I discovered though that this might not be so and am now slightly confused as to what, if any, the mainstream view is.&lt;/p&gt;&#xA;&lt;p&gt;My main question is this: &lt;strong&gt;Is the above description of money creation largely accurate?&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;p&gt;Follow-up questions: Does this description differ from what is written in most textbooks and academic papers and books? (And if so, why? Is it because the above description is a relatively recent development? Or the above description has been true for a long time now, but has simply not been incorporated into textbooks and economists' models?)&lt;/p&gt;&#xA;" OwnerDisplayName="user20317" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2019-09-07T11:33:59.573" Title="Is money mostly created (out of nothing) by banks making loans?" Tags="&lt;finance&gt;&lt;monetary-policy&gt;&lt;banking&gt;&lt;money&gt;" AnswerCount="3" CommentCount="7" FavoriteCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="26992" PostTypeId="1" AcceptedAnswerId="26994" CreationDate="2019-02-22T04:33:07.730" Score="1" ViewCount="185" Body="&lt;p&gt;I am trying to create a PPC, in which there are two goods (e.g. apples and oranges).&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;My question is, does it matter which goods are plotted on the x or y-axes? The opportunity cost per good remains the same, but I was wondering what the convention is.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="21188" LastActivityDate="2019-02-23T07:45:42.607" Title="Constructing a Production Possibility Curve (PPC)" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26993" PostTypeId="1" CreationDate="2019-02-22T11:26:28.573" Score="1" ViewCount="73" Body="&lt;p&gt;I have access to some lecture notes on Global games (following the model of Carlsson and van Damme (1993)) showing how to derive the players posterior beliefs. But I don't really grasp how players with uniform priors and uniform signals derive their posterior.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have the following information:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ex ante each state &lt;span class=&quot;math-container&quot;&gt;$x \in [-1,5]$&lt;/span&gt; is equally likely, so &lt;span class=&quot;math-container&quot;&gt;$x \sim U(-1,5)$&lt;/span&gt;. Where &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; is a payoff.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then player &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; draw an iid signal from &lt;span class=&quot;math-container&quot;&gt;$U(x-\varepsilon, x+\varepsilon)$&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$\varepsilon$&lt;/span&gt; is a (small) number. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The posterior is then given by &lt;span class=&quot;math-container&quot;&gt;$p(x | x_i) = \frac{p(x_i | x) p(x)}{p(x_i)} = &#xA;\begin{cases}&#xA;0 \quad &amp;amp;\text{if } x_i \notin [x - \varepsilon, x + \varepsilon] \\&#xA;\frac{5 * 1/6}{5 * 2 \varepsilon / 6} = \frac{1}{2 \varepsilon} \quad &amp;amp;\text{else}&#xA;\end{cases}$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can someone explain how to derive the relevant expressions for &lt;span class=&quot;math-container&quot;&gt;$p(x_i | x)$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$p(x_i)$&lt;/span&gt;?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Carlson and van Damme “Global Games and Equilibrium Selection”, Econometrica, Vol. 61, No. 5 (Sep., 1993), pp. 989-1018&lt;/p&gt;&#xA;" OwnerUserId="21191" LastActivityDate="2019-02-22T11:26:28.573" Title="Global games: How to derive posterior with uniform prior and signal" Tags="&lt;game-theory&gt;&lt;probability&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26994" PostTypeId="2" ParentId="26992" CreationDate="2019-02-22T11:31:03.563" Score="2" Body="&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$ \textbf{Answer:}  $&lt;/span&gt;&#xA;Simply put, it does not matter which good goes on which axis as long as the relationship between the two goods is adjusted for correctly.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\textbf{Explanation:}$&lt;/span&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This can be done as long as the relationship (i.e. the PPC curve) is correctly maintained, that is the function is inverted when you change between the x and y axis.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\textbf{For Example:} $&lt;/span&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose you were given the ppf which was linearly defined &lt;span class=&quot;math-container&quot;&gt;$good_1$&lt;/span&gt; as a function of &lt;span class=&quot;math-container&quot;&gt;$good_2$&lt;/span&gt;  by: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$good_1(good_2)= -a\times good_2 +b$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\implies good_1= -a\times good_2 +b$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;graphically this can be seen as; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/1bC5v.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/1bC5v.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By inverting the function, we now make &lt;span class=&quot;math-container&quot;&gt;$good_2$&lt;/span&gt; a function of &lt;span class=&quot;math-container&quot;&gt;$good_1$&lt;/span&gt; (i.e. &lt;span class=&quot;math-container&quot;&gt;$good_2(good_1)$&lt;/span&gt;), which simplistically means solving &lt;span class=&quot;math-container&quot;&gt;$good_1= -a\times good_2 +b$&lt;/span&gt; for &lt;span class=&quot;math-container&quot;&gt;$good_2 $&lt;/span&gt;; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ good_2(good_1)=-\frac{1}{a}\times good_1 +\frac{b}{a}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;i.e. From this&#xA;&lt;span class=&quot;math-container&quot;&gt;$$good_1= -a\times good_2 +b$$&lt;/span&gt;&#xA;to this&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\implies good_2=-\frac{1}{a}\times good_1 +\frac{b}{a}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and graphically: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/yzABA.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/yzABA.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can see that everything is the same, except that our axes are different but the relationship between the two good is exactly the same. The relationship is now inverted to accommodate the change of &quot;perspective&quot; between having &lt;span class=&quot;math-container&quot;&gt;$good_1$&lt;/span&gt; or &lt;span class=&quot;math-container&quot;&gt;$ good_2$&lt;/span&gt; in the axis, which is graphically seen by the change in the intercepts. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$*$&lt;/span&gt; I apologise if this is not mathematically rigours, and would appreciate any feedback! &lt;/p&gt;&#xA;" OwnerUserId="14175" LastEditorUserId="5557" LastEditDate="2019-02-23T07:45:42.607" LastActivityDate="2019-02-23T07:45:42.607" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="26995" PostTypeId="1" CreationDate="2019-02-22T11:54:01.793" Score="0" ViewCount="254" Body="&lt;p&gt;In National Accounts production approach, can there situations whereby the Output of a company is far lower than the Intermediate consumption therefore the Value added is negative? &lt;/p&gt;&#xA;" OwnerUserId="21192" LastActivityDate="2019-02-24T08:17:32.583" Title="Is it possible for Gross value added be negative on a company level?" Tags="&lt;national-accounts&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="26996" PostTypeId="1" AcceptedAnswerId="27005" CreationDate="2019-02-22T12:13:36.500" Score="1" ViewCount="50" Body="&lt;p&gt;If the industry is dominated by a few major large retailers like Walmart and target with thousands of many other small supermarkets around the country, what is the market structure of the industry? is it a perfect competition or an oligopoly? &lt;/p&gt;&#xA;" OwnerUserId="21189" LastActivityDate="2019-02-23T00:27:13.980" Title="Supermarkets industry market structure" Tags="&lt;markets&gt;&lt;oligopoly&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="26997" PostTypeId="2" ParentId="26937" CreationDate="2019-02-22T12:45:54.773" Score="2" Body="&lt;p&gt;The two approaches specify the linear rational expectations problem somewhat differently, but one can reconcile the solutions they produce.  In addition to the difference in the equation system specification, KW use the &quot;predetermined variables&quot; concept while AM does not.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;King and Watson (KW) address a model of the form&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;  A E_t y_{t+1} = B y_t + C_0E_t x_t +C_1 x_{t+1}\\&#xA;  x_t=Q \delta_t +G \epsilon_t\\&#xA;  \delta_t=\rho \delta_{t-1}\\&#xA;  y_t=&#xA;  \begin{bmatrix}&#xA;    \Lambda_t\\k_t&#xA;  \end{bmatrix}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;the &lt;span class=&quot;math-container&quot;&gt;$k_t$&lt;/span&gt; are predetermined variables.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The algorithm produces solutions of the form&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA; y_t=\Pi s_t\\&#xA;  s_t=M s_{t-1} + \bar{G} \epsilon_t\\&#xA;  s_t=&#xA;  \begin{bmatrix}&#xA;    k_t\\ \delta_t&#xA;  \end{bmatrix}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Anderson Moore (AM) cast the problem as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;  H_{-1} w_{t-1} + H_0 w_t + H_{+1} E_t{w_{t+1}} = \psi_{\epsilon} \epsilon_t + \psi_c&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and produce solutions of the form&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;  w_t=R w_{t-1}+ \phi \psi_\epsilon \epsilon_t + (I-F)^{-1}\phi\psi_c&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where &#xA;&lt;span class=&quot;math-container&quot;&gt;$$  \phi=(H_0+H_{+1}R)^{-1}\,\, \text{and} \,\, F=-\phi H_{+1}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the AM setup, the &lt;span class=&quot;math-container&quot;&gt;$w_{t-1} $&lt;/span&gt; are given as data and cannot be affected by the &lt;span class=&quot;math-container&quot;&gt;$\epsilon_t$&lt;/span&gt; or&#xA;the  current or future values of &lt;span class=&quot;math-container&quot;&gt;$w_{t+i}\in, \{w_t,w_{t+1},\ldots\}$&lt;/span&gt;.&#xA;  In KW,  the ``predetermined'' variables at time t depend only on the already realized shocks.  So the&#xA;&lt;span class=&quot;math-container&quot;&gt;$\epsilon_t$&lt;/span&gt; only influences future &lt;span class=&quot;math-container&quot;&gt;$k_{t+i} \in \{k_{t+1},k_{t+2},\ldots\}$&lt;/span&gt;  Consequently, to square AM and KW, the dating of some of the model variables&#xA;and their time subscripts  will differ.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Set&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA; w_t=&#xA;  \begin{bmatrix}&#xA;\Lambda_{t}\\    k_{t+1}\\x_t\\  \delta_t&#xA;  \end{bmatrix}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We will need to partition the KW &lt;span class=&quot;math-container&quot;&gt;$A=&#xA;\begin{bmatrix}&#xA;  A_1&amp;amp;A_2&#xA;\end{bmatrix}&#xA;$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$B=\begin{bmatrix}&#xA;  B_1&amp;amp;B_2&#xA;\end{bmatrix}$&lt;/span&gt;&#xA; matrices to accomodate  these differences.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Construct the AMA &lt;span class=&quot;math-container&quot;&gt;$H$&lt;/span&gt; as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;H_{-1}=\begin{bmatrix}&#xA;  0&amp;amp;-B_1&amp;amp;0&amp;amp;0  \\&#xA;  0&amp;amp;0&amp;amp;0&amp;amp;-Q\\&#xA;  0&amp;amp;0&amp;amp;0&amp;amp;-\rho&#xA;\end{bmatrix}\\&#xA;H_{0}=\begin{bmatrix}&#xA;  -B_2&amp;amp;A_1&amp;amp;-C_0&amp;amp;0  \\&#xA;  0&amp;amp;0&amp;amp;I&amp;amp;0\\&#xA;  0&amp;amp;0&amp;amp;0&amp;amp;I&#xA;\end{bmatrix}\\&#xA;H_{+1}=\begin{bmatrix}&#xA;  A_2&amp;amp;0&amp;amp;-C_1&amp;amp;0  \\&#xA;  0&amp;amp;0&amp;amp;0&amp;amp;0\\&#xA;  0&amp;amp;0&amp;amp;0&amp;amp;0&#xA;\end{bmatrix}$$&lt;/span&gt; and &#xA;&lt;span class=&quot;math-container&quot;&gt;$$\psi_c=0 \,\, \psi_\epsilon=&#xA;\begin{bmatrix}&#xA;0\\  0\\G\\0&#xA;\end{bmatrix}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, we will find that&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;  R=&#xA;  \begin{bmatrix}&#xA;    0&amp;amp;M_{\Lambda,k}&amp;amp;0&amp;amp;M_{\Lambda,\delta}\\&#xA;    0&amp;amp;M_{k,k}&amp;amp;0&amp;amp;M_{k,\delta}\\&#xA;    0&amp;amp;0&amp;amp;0&amp;amp;M_{x,\delta}\\&#xA;    0&amp;amp;0&amp;amp;0&amp;amp;M_{\delta,\delta}\\&#xA;  \end{bmatrix}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So that for KW&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;  M=&#xA;  \begin{bmatrix}&#xA;    M_{k,k}&amp;amp;M_{k,\delta}\\&#xA;    0&amp;amp;M_{\delta,\delta}\\&#xA;  \end{bmatrix}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\phi \psi_\epsilon=&#xA;\begin{bmatrix}&#xA;\bar{\bar{G}}\\&#xA;  \bar{G}&#xA;\end{bmatrix}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The KW solution for &lt;span class=&quot;math-container&quot;&gt;$\Lambda_t$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$\Pi_\Lambda$&lt;/span&gt; can be found by expressing the first few rows of R as a linear combination of the next few rows of R.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;  \begin{bmatrix}&#xA;      M_{\Lambda,k}&amp;amp;M_{\Lambda,\delta} &#xA;  \end{bmatrix}= \Pi_\Lambda&#xA;\begin{bmatrix}&#xA;      M_{k,k}&amp;amp;M_{k,\delta}\\&#xA;\end{bmatrix}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;See also&#xA;Gary Anderson. Solving linear rational expections models: A horse race. Computational Economics, 31:95–113, March 2008.&lt;/p&gt;&#xA;" OwnerUserId="21194" LastEditorUserId="21194" LastEditDate="2019-02-22T16:53:27.713" LastActivityDate="2019-02-22T16:53:27.713" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27002" PostTypeId="1" CreationDate="2019-02-22T19:51:50.523" Score="1" ViewCount="24" Body="&lt;p&gt;Consider the following New Keynesian DSGE Model with standard notation:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\pi_t = \kappa y_t + \gamma_f \mathbb{E}_t[\pi_{t+1}] + \gamma_b \pi_{t-1},$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$y_t = \mathbb{E}_t[y_{t+1}] - \frac{1}{\sigma}(i_t - \mathbb{E}_t[\pi_{t+1}] - r_t^n),$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$i_t = \rho + \phi_{\pi}\pi_t + \phi_y y_t + v_t.$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How would one go about deriving sufficient conditions for the existence of a unique non-explosive equilibrium under rational expectations? I'm familiar with a method for doing this when &lt;span class=&quot;math-container&quot;&gt;$\gamma_b=0$&lt;/span&gt; (such that the Phillips curve is non-hybrid), but I have been unable to find any litterature on the case of a hybrid Phiilips curve.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any input is appreciated very much, thanks!&lt;/p&gt;&#xA;" OwnerUserId="20232" LastEditorUserId="20232" LastEditDate="2019-02-22T20:05:42.940" LastActivityDate="2019-02-22T20:05:42.940" Title="Deriving Sufficient Conditions For Existence of Unique Non-Explosive Equilibrium In DSGE Model With Hybrid New Keynesian Phillips Curve" Tags="&lt;macroeconomics&gt;&lt;dsge&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27003" PostTypeId="1" CreationDate="2019-02-22T20:18:59.430" Score="1" ViewCount="160" Body="&lt;p&gt;I have 2 related questions that i think are straightforward but am worried I have over-simplified!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(i) Suppose the demand curve is downward sloping and the supply curve is upwards &#xA;sloping. Suppose also that I have estimated the price elasticity of demand &lt;span class=&quot;math-container&quot;&gt;$ \frac{\partial ln(D)}{\partial ln(p)}  $&lt;/span&gt;, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can I obtain the responsiveness &lt;em&gt;of&lt;/em&gt; price &lt;em&gt;to&lt;/em&gt; demand simply by taking the reciprocal?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$ \dfrac{1}{ \frac{\partial ln(D)}{\partial ln(p)}} = \frac{\partial ln(p)}{\partial ln(D)}  $&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By analogy to discrete changes, the rearrangement below seems to work&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$ \dfrac{1}{ \frac{\Delta D}{\Delta p} \cdot\frac{p}{D}}  = \frac{\Delta p}{\Delta D} \cdot \frac{D}{p} $&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or do I also need an estimate of the price elasticity of supply?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(ii) Relatedly, now suppose I also have the price elasticity of supply, and that I want to estimate the responsiveness of the supply curve to shifts in the demand curve (with the mechanism being that some positive shock to the demand curve raises prices, which incentivises firms to supply more output). Is the following valid?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$ \dfrac{ \frac{\partial ln(S)}{\partial ln(p)}}{  \frac{\partial ln(D)}{\partial ln(p)}} = \frac{\partial ln(S)}{\partial ln(p)} \cdot \frac{\partial ln(p)}{\partial ln(D)} = \frac{\partial ln(S)}{\partial ln(D)}  $&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks loads for your help, and apologies if I missed a similar question&lt;/p&gt;&#xA;" OwnerUserId="21200" LastActivityDate="2019-02-22T20:18:59.430" Title="Does the reciprocal of the price elasticity of demand have an interpretation?" Tags="&lt;supply-and-demand&gt;" AnswerCount="0" CommentCount="7" ContentLicense="CC BY-SA 4.0" />
  <row Id="27005" PostTypeId="2" ParentId="26996" CreationDate="2019-02-23T00:27:13.980" Score="0" Body="&lt;p&gt;Oligopoly is best understood as occuring when firms behave strategically: when firms decide how much to produce, under oligopoly they will take into account the optimal responses of other firms.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you have a long tail of small firms, beyond a certain size these firms won't have much influence at all on prices and will act as 'price-takers'. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So either the firms are large enough to have an impact - in which case everyone is an oligopolist, or they are small enough not to matter much - in which case the market is still oligopolistic because only the larger firms matter. Note competition authorities regularly block mergers in markets with 2-3 large firms and a bunch of very small ones: E.g. the European Commission's DG Comp has just blocked Siemens/Alstom given the large market shares of these firms, despite the fact that they face competition from a few smaller suppliers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Only if all firms were small / had to act as price takers would you have something (that might approximate) perfect competition&lt;/p&gt;&#xA;" OwnerUserId="21200" LastActivityDate="2019-02-23T00:27:13.980" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27007" PostTypeId="2" ParentId="24361" CreationDate="2019-02-23T04:30:22.490" Score="0" Body="&lt;p&gt;I think an argument for why seller care about SPA is that by making the mechanism strategy proof, it would increase efficiency for the bidders so that a large amount of items can be sold in a short amount of time. (e.g. ad on search engines, google probably does not want to deal with ppl trying to strategize, attempt to gain info about competitor, etc etc.) &lt;/p&gt;&#xA;" OwnerUserId="21203" LastActivityDate="2019-02-23T04:30:22.490" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27008" PostTypeId="1" AcceptedAnswerId="27009" CreationDate="2019-02-23T05:13:45.483" Score="1" ViewCount="147" Body="&lt;p&gt;Suppose we want to model a real-world phenomenon as an &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt;-player Prisoner's Dilemma.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To be more specific, suppose we use RM Dawes' paper &quot;The commons dilemma game: An n-person mixed-motive game with a dominating strategy for defection, 1973&quot; which generally formalize the Prisoner's Dilemma for &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt; players along with a tragedy of the commons (Hardin's tragedy 1968).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Although modelling might seem &quot;easy,&quot; how one can properly analyze in Game theory? How can we justify the validity of the game with the real world?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, even if we model the real-world phenomenon as a Prisoner's Dilemma, what would be some of the potential solutions to prevent the tragedy?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To be more exact, what are some of the standard methodologies to prevent universal defection?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'd appreciate any help.&lt;/p&gt;&#xA;" OwnerUserId="20754" LastActivityDate="2019-02-23T12:30:00.917" Title="Potential solutions of the $n$-player Prisoner's Dilemma" Tags="&lt;game-theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27009" PostTypeId="2" ParentId="27008" CreationDate="2019-02-23T08:02:35.437" Score="3" Body="&lt;p&gt;All the insights to your question about the n-player game carry over from the 2-player game. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The validity in the real world is justified to the extent and in the same way as for the 2-player game, with all its caveats. An n-player game, however is even more realistic, because it is more general and many economic issues involve more than 2 players. Consider for example global geopolitical issues that require coordination, such as climate change or nuclear bombs. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The potential solutions are the same as for the 2-player game as well. Notably, in repeated games over time, reputational effects and retaliation can matter. If those who play the non-cooperative strategy (which is the &quot;bad&quot; action that leads to the prisoner's dilemma outcome that is worse for everyone) are punished over time, then the problem you describe can be overcome. Denesp in his comment to this answer gives some examples.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reason a static prisoner's dilemma always has a non-pareto-optimal equilibrium (i.e. why it poses a societal problem) is because it is played once or is a one-shot game without the possibility to punish deviators later on. If players interact frequently with each other, (the threat of) retaliation can help overcome the dilemma. There are a number of such strategies. One of the more famous ones to look up would be &quot;tit for tat&quot;.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastEditorUserId="5557" LastEditDate="2019-02-23T12:30:00.917" LastActivityDate="2019-02-23T12:30:00.917" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="27012" PostTypeId="1" CreationDate="2019-02-23T18:55:58.187" Score="2" ViewCount="121" Body="&lt;p&gt;I'm talking about bonds, stocks, and the sort.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand that an individual investor that's planning to invest, say, 50% of his savings, may require a higher expected gain to go for a riskier investment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, if risk can be diversified away, wouldn't people with enough money, even if they are risk averse, choose the investment opportunities with highest expected value and diversify among them? Wouldn't then any investment with higher-than-average expected value be flooded with money until they almost don't pay more?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is it that...&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;most risky investment options are too correlated to allow for almost all of the excess risk to dissolve?&lt;/li&gt;&#xA;&lt;li&gt;risk premiums only happen in markets with limitted access or that don't work like the ideal 101 market in a relevant way?&lt;/li&gt;&#xA;&lt;li&gt;some other reason?&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="21207" LastEditorUserId="21207" LastEditDate="2019-02-24T04:43:28.343" LastActivityDate="2019-02-24T04:43:28.343" Title="Why do riskier investments pay more?" Tags="&lt;investment&gt;&lt;risk&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27013" PostTypeId="1" CreationDate="2019-02-23T22:13:16.573" Score="0" ViewCount="43" Body="&lt;p&gt;Is the development of market rate housing independent of the development of affordable housing? Can anyone provide evidence that supports or refutes this?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is my thinking. While I have yet to find direct evidence for the affirmative, I did find &lt;a href=&quot;https://www.brookings.edu/wp-content/uploads/2016/06/paganofinal.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; that:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;A recent survey examining vacant land and abandoned structures in 70 cities found that: On average, fifteen percent of a city's land was deemed vacant. This total includes widely varying types of land, ranging from undisturbed open space to abandoned, contaminated brownfields. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I also found &lt;a href=&quot;http://www.law.nyu.edu/sites/default/files/Been%20Ellen%20O%27Regan%20supply_affordability_Oct%2026%20revision.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; that:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;But it is not necessarily the case that the land where market-rate housing (or a mixture of market rate and affordable housing) is proposed would otherwise be used entirely for affordable housing. The land might continue to be too costly to support affordable housing, even if the land could not be used for housing for higher income households, because there are other uses (such as office or other commercial space) competing for the land. Also, the reasons affordable housing is not provided in larger quantities go far beyond the lack of land and include the inadequacy of funding to pay for construction, financing costs and operating costs. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This tells me that disallowing market rate housing may not create space for affordable housing, however does this really show independence of the two? This also tells me that there are other factors that affect the development of affordable housing besides land. Would the fact that these factors include &quot;inadequacy of funding to pay for construction financing costs and operating costs&quot; support the affirmative side of my question? I think they would unless it could be shown that market rate housing development affects these factors in affordable housing development, i.e., construction and operation costs. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Essentially, is there evidence that developing market rate housing necessarily comes at the consequence of the development of affordable housing?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think that this comes down to simple economics, however, if this question belongs on a different Stack Exchange site, please let me know.  &lt;/p&gt;&#xA;" OwnerUserId="21210" LastEditorUserId="21210" LastEditDate="2019-02-23T22:21:18.917" LastActivityDate="2019-02-23T22:21:18.917" Title="Is the development of market rate housing independent of the development of affordable housing?" Tags="&lt;macroeconomics&gt;&lt;housing&gt;" AnswerCount="0" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="27014" PostTypeId="2" ParentId="27012" CreationDate="2019-02-24T02:47:55.593" Score="3" Body="&lt;p&gt;&lt;strong&gt;(1)&lt;/strong&gt; You have already correctly pointed out that &lt;strong&gt;correlation&lt;/strong&gt; makes it difficult to diversify away all the risk.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;(2)&lt;/strong&gt; You have also correctly alluded to the fact that most people are &lt;strong&gt;risk averse&lt;/strong&gt; and hence that risky products tend to have a &lt;strong&gt;risk premium&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;(3)&lt;/strong&gt; What you have not mentioned -- and what I think is most important in the real world -- is the &lt;strong&gt;uncertainty premium&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;The &lt;strong&gt;distinction between risk and uncertainty&lt;/strong&gt; is usually credited to Frank Knight (&lt;a href=&quot;https://archive.org/details/riskuncertaintyp00knigrich/page/42&quot; rel=&quot;nofollow noreferrer&quot;&gt;1921, pp. 43–48&lt;/a&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where we can quite precisely calculate probabilities and expected values, such as with lottery tickets and roulette wheels, we have &lt;strong&gt;risk&lt;/strong&gt;. Where we cannot, such as with most real-world events, we have &lt;strong&gt;uncertainty&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Example.&lt;/strong&gt; Asset &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt; pays &lt;span class=&quot;math-container&quot;&gt;$\$100$&lt;/span&gt; with probability (w.p.) &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt; and so has expected value &lt;span class=&quot;math-container&quot;&gt;$\$100$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Asset &lt;span class=&quot;math-container&quot;&gt;$B$&lt;/span&gt; pays &lt;span class=&quot;math-container&quot;&gt;$\$300$&lt;/span&gt; w.p. &lt;span class=&quot;math-container&quot;&gt;$0.5$&lt;/span&gt; but loses &lt;span class=&quot;math-container&quot;&gt;$\$100$&lt;/span&gt; w.p. &lt;span class=&quot;math-container&quot;&gt;$0.5$&lt;/span&gt;. So, the expected value of &lt;span class=&quot;math-container&quot;&gt;$B$&lt;/span&gt; is: &lt;span class=&quot;math-container&quot;&gt;$$0.5 \times \$300 + 0.5 \times (-\$100) = \$100.$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Each asset has the same expected value &lt;span class=&quot;math-container&quot;&gt;$\$100$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;(2)&lt;/strong&gt; Nonetheless, because most people are &lt;strong&gt;risk averse&lt;/strong&gt;, most people would prefer &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt; to &lt;span class=&quot;math-container&quot;&gt;$B$&lt;/span&gt;. That is, they'd be willing to pay more for &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt; than &lt;span class=&quot;math-container&quot;&gt;$B$&lt;/span&gt;. Or equivalently, &lt;span class=&quot;math-container&quot;&gt;$B$&lt;/span&gt; would command a &lt;strong&gt;risk premium&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But any such risk premium should be small in the real world, since in the real world, as you've pointed out, there will probably be &lt;strong&gt;(i)&lt;/strong&gt; ways to diversify away the risk; and also &lt;strong&gt;(ii)&lt;/strong&gt; sufficiently many risk-neutral or risk-seeking individuals who bid away the risk premium.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;(3)&lt;/strong&gt; But the real world is rarely like the above example, which involves &lt;strong&gt;risk&lt;/strong&gt;. The real world usually involves &lt;strong&gt;uncertainty&lt;/strong&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Example.&lt;/strong&gt; Asset &lt;span class=&quot;math-container&quot;&gt;$C$&lt;/span&gt; is a US government bond that will pay out &lt;span class=&quot;math-container&quot;&gt;$\$100$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Asset &lt;span class=&quot;math-container&quot;&gt;$D$&lt;/span&gt; is a stock that -- based on your data, models, and analysis -- you expect will pay out &lt;span class=&quot;math-container&quot;&gt;$\$300$&lt;/span&gt; w.p. &lt;span class=&quot;math-container&quot;&gt;$0.5$&lt;/span&gt; but lose &lt;span class=&quot;math-container&quot;&gt;$\$100$&lt;/span&gt; w.p. &lt;span class=&quot;math-container&quot;&gt;$0.5$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Again, each of assets &lt;span class=&quot;math-container&quot;&gt;$C$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$D$&lt;/span&gt; has expected value &lt;span class=&quot;math-container&quot;&gt;$\$100$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But now, even if you're risk-neutral, you'd probably prefer &lt;span class=&quot;math-container&quot;&gt;$C$&lt;/span&gt; to &lt;span class=&quot;math-container&quot;&gt;$D$&lt;/span&gt;. That is, you'd pay more for asset &lt;span class=&quot;math-container&quot;&gt;$C$&lt;/span&gt; than asset &lt;span class=&quot;math-container&quot;&gt;$D$&lt;/span&gt;. Equivalently, asset &lt;span class=&quot;math-container&quot;&gt;$D$&lt;/span&gt; has an &lt;strong&gt;uncertainty premium&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reason is that you do not (and should not) completely trust your data, models, and analysis. There are fundamental limits to your knowledge over and beyond mere &lt;strong&gt;risk&lt;/strong&gt; -- we may call such epistemological limits &lt;strong&gt;uncertainty&lt;/strong&gt;.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2019-02-24T02:47:55.593" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27015" PostTypeId="2" ParentId="26995" CreationDate="2019-02-24T08:17:32.583" Score="1" Body="&lt;p&gt;Yes, it can happen if a company is selling things for less than it cost it to produce them, though for obvious reasons this doesn't happen very often (or at least not over any great length of time) as it usually doesn't make sense to continue producing in those circumstances.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You might see it occasionally, for example, in small farm businesses.  These can have high subsidies on production to begin with (which get subtracted in the calculation of GVA, narrowing the loss needed to bring it below zero), have few or no employees (just a self-employed farmer, so no or low fixed wages/CoE to be paid out), and a bad harvest or loss of livestock could result in the business not producing enough output to make GVA positive for a particular year.&lt;/p&gt;&#xA;" OwnerUserId="5550" LastActivityDate="2019-02-24T08:17:32.583" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27016" PostTypeId="1" AcceptedAnswerId="30317" CreationDate="2019-02-24T11:08:37.847" Score="2" ViewCount="50" Body="&lt;p&gt;Are there any good books or blogs on Economics in Competition Policy?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am primarily interested in US and EU.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know of the &lt;a href=&quot;https://www.cambridge.org/hu/academic/subjects/economics/industrial-economics/competition-policy-theory-and-practice?format=HB&amp;amp;isbn=9780521816632&quot; rel=&quot;nofollow noreferrer&quot;&gt;Motta&lt;/a&gt; and &lt;a href=&quot;https://www.amazon.co.uk/Economics-Competition-Law-Application-Measurement/dp/0421931906&quot; rel=&quot;nofollow noreferrer&quot;&gt;Bishop-Walker&lt;/a&gt; books but I would like something with more details on the economic methods.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;E.g.: &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;more details on the econometric methods &lt;/li&gt;&#xA;&lt;li&gt;more details on acquiring or cleaning data&lt;/li&gt;&#xA;&lt;li&gt;more details on the industrial organization (or other) models used&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2019-02-24T12:44:22.337" LastActivityDate="2019-07-27T06:20:49.327" Title="Sources on competition policy" Tags="&lt;reference-request&gt;&lt;competition-authority&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27018" PostTypeId="1" CreationDate="2019-02-24T14:21:28.927" Score="0" ViewCount="147" Body="&lt;p&gt;Under    rational   expectations    and no  nominal  rigidities,    aggregate   output  is  sensitive    to &#xA;___________ supply  and ___________ demand  shocks.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;a) Anticipated, anticipated&lt;br&gt;&#xA;(b) Anticipated,    unanticipated&lt;br&gt;&#xA;(c) Unanticipated,  anticipated&lt;br&gt;&#xA;(d) Unanticipated,  unanticipated&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My attempt:&#xA;The answer is (d) unanticipated, unanticipated&lt;br&gt;&#xA;There is no nominal rigidity, so an expected demand shock would lead to a change in expected prices. Both Aggregate Demand and Supply curves would move so that output remains at full employment. All real variables will remain unchanged.&lt;br&gt;&#xA;So only an unanticipated demand shock would cause output to change in the short run.&lt;br&gt;&#xA;On the supply side, only unanticipated shocks would cause changes in output, eg. sudden increase in oil prices. &lt;/p&gt;&#xA;" OwnerUserId="20417" LastActivityDate="2019-02-24T14:21:28.927" Title="Rational expectations" Tags="&lt;macroeconomics&gt;" AnswerCount="0" CommentCount="15" ContentLicense="CC BY-SA 4.0" />
  <row Id="27021" PostTypeId="1" CreationDate="2019-02-25T00:22:19.743" Score="1" ViewCount="27" Body="&lt;p&gt;As question title states, does going from one country with a much stronger exchange rate, or a moderately higher exchange rate, in comparison to a country you visit always mean you get more bang for your 'buck'?&lt;/p&gt;&#xA;" OwnerUserId="21215" LastEditorUserId="1601" LastEditDate="2019-02-25T05:17:49.950" LastActivityDate="2019-02-25T05:27:07.730" Title="Does a strong exchange rate always mean a cheap holiday regardless of where you are from and going?" Tags="&lt;exchange-rates&gt;&lt;international-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27023" PostTypeId="2" ParentId="27021" CreationDate="2019-02-25T05:27:07.730" Score="1" Body="&lt;p&gt;If by &quot;stronger exchange rate&quot; you mean you get more units of the local currency for a dollar (or whatever currency your home country has) then no, not at all. In fact, in economics the term &quot;stronger exchange rate&quot; is not used in this context. People sometimes say that currency A is growing stronger compared to currency B, but this only means that the exchange rate is improving, it does not say if the number is large or small.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you want to know whether you get more bang for your 'buck' then what matters is purchasing power: how many goods in the foreign country you can buy for the currency units you got for your dollar. Assuming an exchange rate of &lt;span class=&quot;math-container&quot;&gt;$E$&lt;/span&gt; units of currency X per one dollar, and a foreign price &lt;span class=&quot;math-container&quot;&gt;$p^*$&lt;/span&gt; for some good, you can buy &lt;span class=&quot;math-container&quot;&gt;$E/p^*$&lt;/span&gt; units of said good. You can compare this number for different countries to see how far your money will go. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The comparison is made somewhat difficult by the fact that the ratio will probably differ for different goods. Economists usually construct price indices to go around this problem. However no price index is perfect, each one is made to suit a distinct purpose. Basically you would have to look at the price of the goods that you are likely to buy during your stay.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2019-02-25T05:27:07.730" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27024" PostTypeId="1" CreationDate="2019-02-25T06:46:35.600" Score="0" ViewCount="45" Body="&lt;p&gt;If i have time series regression &lt;span class=&quot;math-container&quot;&gt;$R_{i,t} = \alpha + \beta x_1 + \gamma x_2 + \delta x_3 + \varepsilon_i$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this case, how can I conduct test statistic of &lt;span class=&quot;math-container&quot;&gt;$\beta - \gamma$&lt;/span&gt;? Is it to use unpaired two sample?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(&lt;a href=&quot;http://www.sthda.com/english/wiki/t-test-formula&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.sthda.com/english/wiki/t-test-formula&lt;/a&gt;)&lt;/p&gt;&#xA;" OwnerUserId="21220" LastEditorUserId="17735" LastEditDate="2019-02-25T16:10:21.000" LastActivityDate="2019-02-25T19:05:48.617" Title="How to do test statistic on difference in two independent variables?" Tags="&lt;econometrics&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27026" PostTypeId="1" CreationDate="2019-02-25T07:33:18.270" Score="2" ViewCount="432" Body="&lt;p&gt;How do small firms survive in an oligopoly if large firms already dominate a huge amount of market share in the market? in terms of the supermarket industry between large supermarkets and small grocery stores around the country. &lt;/p&gt;&#xA;" OwnerUserId="21189" LastEditorUserId="21189" LastEditDate="2019-02-25T07:57:27.097" LastActivityDate="2019-02-25T13:39:36.393" Title="How do small firms survive in an oligopoly?" Tags="&lt;oligopoly&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27027" PostTypeId="2" ParentId="27026" CreationDate="2019-02-25T10:42:52.447" Score="6" Body="&lt;p&gt;When there are few big firms and many smaller firms with a small market share, economists speak about a market with a competitive fringe. The smaller firms are price takers, have higher marginal and average costs and a lower markup than bigger firms. They have often a lower rate of profit than big firms. Although markets with heterogeneous firms are often not presented in textbooks, the economic literature is full with contributions investigating heterogenous firms. This is more realistic, but somewhat more complicated than the homogenous firm framework. Existence and unicity of the short- and long-run equilibrium are not always guaranteed.&lt;br&gt;&#xA;Small firms survive because they have often smaller sunk costs (entry and exit costs) than larger firms, and often pay lower wages.&lt;/p&gt;&#xA;" OwnerUserId="20576" LastEditorUserId="20576" LastEditDate="2019-02-25T13:39:36.393" LastActivityDate="2019-02-25T13:39:36.393" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27028" PostTypeId="2" ParentId="27016" CreationDate="2019-02-25T11:36:55.703" Score="0" Body="&lt;p&gt;The following reference could be a nice complement if you are looking for a modern micro/IO textbook presenting as non-technically as possible, the results related to imperfect competition, firms' entry and exit, concentration, pricing, etc. There is no empirical treatment, however.&lt;br&gt;&#xA;Bellflamme, P. and M. Peitz, 2010, Industrial organization - markets and strategies, Cambridge University Press.&lt;br&gt;&#xA;As far as I can say, few data are publicly available for confidentiality reasons, but you should have a look on the webpages of some journals making data available along with the corresponding article they publish: American Economic Review, Journal of Applied Econometrics, Journal of Business and Economic Statistics or Econometrica... for instance.&lt;/p&gt;&#xA;" OwnerUserId="20576" LastEditorUserId="20576" LastEditDate="2019-02-25T13:40:32.107" LastActivityDate="2019-02-25T13:40:32.107" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27029" PostTypeId="1" AcceptedAnswerId="29392" CreationDate="2019-02-25T14:30:42.850" Score="3" ViewCount="320" Body="&lt;p&gt;I am trying to understand the statmement that 'public information kills insurance opportunity' -- referred to as &lt;a href=&quot;https://faculty.fuqua.duke.edu/~qc2/BA532/1971%20AER%20Hirshleifer.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Hirshleifer effect&lt;/a&gt;. Does it (in general) lead to some undesirable outcomes? Could you explain that to me with a simple example? For me it is easy to form examples of trade breaking when there is asymmetric information (adverse selection for example) and that having an undesirable effects. But I am not able to fully grasp the meaning and consequences of Hirshleifer effect. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks &lt;/p&gt;&#xA;&#xA;&lt;p&gt;UPDATE: Here is what I thought could be a simple example. Suppose there are two periods (&lt;span class=&quot;math-container&quot;&gt;$t_0, t_1$&lt;/span&gt;) and two possible states of nature (&lt;span class=&quot;math-container&quot;&gt;$s_1,s_2 $&lt;/span&gt;) that arise in period &lt;span class=&quot;math-container&quot;&gt;$t_1$&lt;/span&gt;. Suppose there are two agents. The first agent has an income stream that pays off only in state &lt;span class=&quot;math-container&quot;&gt;$s_1$&lt;/span&gt; while, second agent's income stream pays off only in state &lt;span class=&quot;math-container&quot;&gt;$s_2$&lt;/span&gt;. Consumption happens only in &lt;span class=&quot;math-container&quot;&gt;$t_1$&lt;/span&gt; and both agents prefer to consume in both the states than in just one (Inada condition as consuption goes to 0 is not satisfied) and more is always better. If at &lt;span class=&quot;math-container&quot;&gt;$t_0$&lt;/span&gt;, neither agent knows the state at &lt;span class=&quot;math-container&quot;&gt;$t_1$&lt;/span&gt; then they might enter into a trade that ensures them positive consumption across both the states.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand, if, in &lt;span class=&quot;math-container&quot;&gt;$t_0$&lt;/span&gt;, state is already revealed publicly (in this example even privately to one agent) an agent who has a positive pay-off in &lt;span class=&quot;math-container&quot;&gt;$t_1$&lt;/span&gt; would not be interested in any trade with the unlucky agent.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this way of thinking in the example correct?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks for any comment         &lt;/p&gt;&#xA;" OwnerUserId="2904" LastEditorUserId="2904" LastEditDate="2019-02-28T17:49:20.093" LastActivityDate="2019-05-18T11:24:38.110" Title="Insurance and Hirshleifer effect" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;asymmetric-information&gt;&lt;information&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27030" PostTypeId="2" ParentId="11792" CreationDate="2019-02-25T16:46:59.180" Score="1" Body="&lt;p&gt;Not much point in writing a lot about an equation that any sovereign debt analyst should know. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sustainability definitely has to do with debt/gdp, the prevailing interest rate for sustaining that debt and the primary balance that the country can run. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The IMF has a nice enough preso on this: &lt;a href=&quot;https://www.imf.org/external/region/tlm/rr/pdf/aug7.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Fiscal and Debt Sustainability&lt;/a&gt; and I'd recommend going there before looking for other answers on this forum. &lt;/p&gt;&#xA;" OwnerUserId="19110" LastActivityDate="2019-02-25T16:46:59.180" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27033" PostTypeId="2" ParentId="26987" CreationDate="2019-02-26T02:11:36.020" Score="1" Body="&lt;p&gt;The comments have the answer. Let &lt;span class=&quot;math-container&quot;&gt;$\{X_n\}_{n=1}^{\infty}$&lt;/span&gt; be a sequence of iid random variables with &lt;span class=&quot;math-container&quot;&gt;$E(X_1)=\mu$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$Var(X_1)=\sigma^2$&lt;/span&gt; with &lt;span class=&quot;math-container&quot;&gt;$\mu,\sigma^2&amp;lt;\infty$&lt;/span&gt;. Define &lt;span class=&quot;math-container&quot;&gt;$Y_n=\frac{1}{n}\sum_{i=1}^n X_i.$&lt;/span&gt; By WLLN, &lt;span class=&quot;math-container&quot;&gt;$\text{plim}Y_n=\mu.$&lt;/span&gt; Since &lt;span class=&quot;math-container&quot;&gt;$f(x)=x^3$&lt;/span&gt; is a continuous function, by the continuous mapping theorem, &lt;span class=&quot;math-container&quot;&gt;$\text{plim}f(Y_n)=\text{plim}Y_n^3=f(\mu)=\mu^3.$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="21226" LastEditorUserId="21226" LastEditDate="2019-02-26T05:10:23.730" LastActivityDate="2019-02-26T05:10:23.730" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27038" PostTypeId="1" CreationDate="2019-02-26T19:28:44.670" Score="0" ViewCount="476" Body="&lt;p&gt;Mas-Collel, Winston and Green's Microeconomic Theory (3rd editions) offers two definitions of the upper contour set:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://i.stack.imgur.com/Io86C.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Io86C.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://i.stack.imgur.com/9e199.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/9e199.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;How can the equivalence between the two definitions be proved?&lt;/p&gt;&#xA;" OwnerUserId="6099" LastEditorUserId="6099" LastEditDate="2019-02-26T21:29:02.207" LastActivityDate="2019-02-26T21:29:02.207" Title="Equivalence of definitions of upper contour sets" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;" AnswerCount="0" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="27040" PostTypeId="1" CreationDate="2019-02-26T21:06:47.107" Score="0" ViewCount="27" Body="&lt;p&gt;So far, I can observe the following contradictory evidences what I perceive from the media.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Statement group #1. In the press, there are repeated reports from different sources about missing specialists in magnitude like many ten thousands - keyword here is the IT Fachkräftemangel. They write about growing numbers of open positions etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Statement group #2. In social media, like comments to such articles, especially on heise.de, they say it would be kind of employer propaganda to attract more people to the market (through studying and immigration) to be able to pay less. So, actually, the demand is much more for cheap workforce to save money.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Evidence #1. If I check salary statistics from surveys and also hour rates in Gulp, and what I know from my HR contacts in many companies, payment indeed grows a little bit but high salaries are featured for almost unrealistic profiles, which in my opinion would mostly likely map to two-three people both by skills and responsibilities range (but do not correspond to a two- or threefold salary of course).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So I from the above I could judge like the following. From what I know about the market laws and demand/offer correlation, actually growing real demand in workforce should lead to exploding salaries and hourly rates or at least growth comparable to growth of market leaders , shouldn't it? Which renders the statements group #2 to be closer to the real situation?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are the above evidences enough to judge like proposed, or have I missed something?&lt;/p&gt;&#xA;" OwnerUserId="13716" LastActivityDate="2019-02-27T19:56:31.597" Title="Understanding what's in the frequently reported and discussed high demand in IT specialists in Germany - is the IT Fachkräftemangel real?" Tags="&lt;supply-and-demand&gt;&lt;technology&gt;&lt;empirical-evidence&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27041" PostTypeId="1" AcceptedAnswerId="27045" CreationDate="2019-02-27T03:49:12.210" Score="4" ViewCount="605" Body="&lt;p&gt;I want to explain perfect competition to students using a few practical examples without going into much of the theory. But I want it to be theoretically accurate and I don't want to claim that those are examples of 'perfect competition'. I am thinking about calling it 'near perfect competition', but I wonder if there is a conventional term for a market that is close to perfect competition. &lt;a href=&quot;https://en.wikipedia.org/wiki/Perfect_competition&quot; rel=&quot;noreferrer&quot;&gt;This wikipedia article&lt;/a&gt; mentions 'close-to-perfect competition' but I'm not sure if that's a conventional term.&lt;/p&gt;&#xA;" OwnerUserId="6231" LastActivityDate="2019-02-27T07:56:10.347" Title="What would you call a real market that is close to perfect competition?" Tags="&lt;competition&gt;&lt;definition&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27042" PostTypeId="1" CreationDate="2019-02-27T03:50:29.030" Score="0" ViewCount="677" Body="&lt;p&gt;I have got some confusion in trying to explain why a trade surplus is going to lead to an increase in the exchange rate. The usual logic goes as follows.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Export X &gt; Import M&lt;/li&gt;&#xA;&lt;li&gt;Demand for the country's currency increase&lt;/li&gt;&#xA;&lt;li&gt;Appreciation happens&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;What confuses me is step 2. &lt;strong&gt;Why the demand for the country's currency increase?&lt;/strong&gt; I know that there is certainly a high demand for the country's currency because money is needed to buy its exports, but the demand is high does NOT mean the demand is INCREASING. Why can't the demand for the currency just stay high, but constant, so foreigners can get their needed money to buy exports? &lt;/p&gt;&#xA;" OwnerUserId="19048" LastActivityDate="2019-07-29T07:01:55.250" Title="Why a current account surplus is bond to lead to an appreciation of a currency?" Tags="&lt;exchange-rates&gt;&lt;balance-of-trade&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27043" PostTypeId="1" CreationDate="2019-02-27T04:51:55.837" Score="0" ViewCount="926" Body="&lt;p&gt;The IMF's &lt;a href=&quot;https://www.imf.org/external/datamapper/datasets/GDD&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;Global Debt Database&lt;/em&gt;&lt;/a&gt; (&lt;a href=&quot;http://www.imf.org/external/datamapper/GDD/GlobalDebtDatabase.xlsx&quot; rel=&quot;nofollow noreferrer&quot;&gt;Excel&lt;/a&gt;, &lt;a href=&quot;http://www.imf.org/external/datamapper/GDD/GlobalDebtDatabase.zip&quot; rel=&quot;nofollow noreferrer&quot;&gt;Stata&lt;/a&gt;) lists data for:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;strong&gt;General government debt (GG)&lt;/strong&gt;; and&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;Central government debt (CG)&lt;/strong&gt;.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;What are the conceptual differences between these two items?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For convenience here are some of the data on &lt;a href=&quot;https://docs.google.com/spreadsheets/d/16Io_t9Fd5p92NSmKgClZlPX3q4QLEXCD_tyvB2N1ago/edit#gid=0&quot; rel=&quot;nofollow noreferrer&quot;&gt;a Google spreadsheet&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Quick observations:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;For many countries, only data for one of these two items are listed. &lt;/li&gt;&#xA;&lt;li&gt;And for those countries for which data for both are listed, the difference &lt;span class=&quot;math-container&quot;&gt;$d = CG - GG$&lt;/span&gt; is small. Exceptions include Cyprus (&lt;span class=&quot;math-container&quot;&gt;$d = 41.2\%$&lt;/span&gt;) and Canada (&lt;span class=&quot;math-container&quot;&gt;$d = -50.6\%$&lt;/span&gt;).&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerDisplayName="user20317" LastActivityDate="2019-02-27T11:15:58.290" Title="General government debt vs central government debt?" Tags="&lt;government-debt&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27044" PostTypeId="1" AcceptedAnswerId="27047" CreationDate="2019-02-27T05:16:06.450" Score="3" ViewCount="125" Body="&lt;p&gt;Given a direct mechanism, we define a buyer's expected utility &lt;span class=&quot;math-container&quot;&gt;$u(\theta)$&lt;/span&gt; conditional on her type being &lt;span class=&quot;math-container&quot;&gt;$\theta$&lt;/span&gt; by &lt;span class=&quot;math-container&quot;&gt;$u(\theta)=\theta q(\theta)-t(\theta)$&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$q:[\underline{\theta},\bar{\theta}]\to[0,1]$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$t:[\underline{\theta},\bar{\theta}]\to\mathbb{R}$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We also define that a direct mechanism is incentive-compatible if truth-telling is optimal for every &lt;span class=&quot;math-container&quot;&gt;$\theta\in[\underline{\theta},\bar{\theta}]$&lt;/span&gt;, i.e., &lt;span class=&quot;math-container&quot;&gt;$$u(\theta)\geq \theta q(\theta')-t(\theta'),\quad\forall\theta,\theta'\in[\underline{\theta},\bar{\theta}].$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;LEMMA&lt;/strong&gt;: For an incentive-compatible direct mechanism, we want to show that for all &lt;span class=&quot;math-container&quot;&gt;$\theta$&lt;/span&gt; that &lt;span class=&quot;math-container&quot;&gt;$u$&lt;/span&gt; is differentiable, we have &lt;span class=&quot;math-container&quot;&gt;$u'(\theta)=q(\theta)$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;PROOF&lt;/strong&gt;: Consider any &lt;span class=&quot;math-container&quot;&gt;$\theta$&lt;/span&gt; for which &lt;span class=&quot;math-container&quot;&gt;$u$&lt;/span&gt; is differentiable. Let &lt;span class=&quot;math-container&quot;&gt;$\delta&amp;gt;0$&lt;/span&gt;. Then by incentive compatibility, we have the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/dwdPG.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/dwdPG.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't understand how from incentive compatibility it follows the first and second inequality 2.6 and 2.8. How can we use the same &lt;span class=&quot;math-container&quot;&gt;$\theta$&lt;/span&gt; in the proof while the definition clearly states &lt;span class=&quot;math-container&quot;&gt;$u(\theta)\geq \theta q(\theta')-t(\theta'),\forall\theta,\theta'$&lt;/span&gt;?&lt;/p&gt;&#xA;" OwnerUserId="20754" LastEditorUserId="1601" LastEditDate="2019-02-27T07:26:09.857" LastActivityDate="2019-02-28T13:55:27.767" Title="Mechanism Design: Proving that the expected utility is differentiable" Tags="&lt;mathematical-economics&gt;&lt;game-theory&gt;&lt;mechanism-design&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27045" PostTypeId="2" ParentId="27041" CreationDate="2019-02-27T05:41:19.200" Score="3" Body="&lt;p&gt;I don't think there is a standard term for what you'd want to refer to. I'd consider the following good candidates though: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Near-perfect / almost-perfect / close-to-perfect / epsilon-perfect competition (the last of course comes from the notion of &lt;a href=&quot;https://en.wikipedia.org/wiki/Epsilon-equilibrium&quot; rel=&quot;nofollow noreferrer&quot;&gt;epsilon-equilibrium&lt;/a&gt; in game theory) &lt;/li&gt;&#xA;&lt;li&gt;Markets with low concentration, or lowly / sparsely concentrated markets (based on the empirical measure of &lt;a href=&quot;https://en.wikipedia.org/wiki/Concentration_ratio#Concentration_levels&quot; rel=&quot;nofollow noreferrer&quot;&gt;concentration ratio&lt;/a&gt;)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="42" LastActivityDate="2019-02-27T05:41:19.200" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27047" PostTypeId="2" ParentId="27044" CreationDate="2019-02-27T07:25:50.787" Score="5" Body="&lt;p&gt;By definition we have&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\begin{align*}&#xA;u(\theta) &amp;amp; = \theta q(\theta)-t(\theta) \\&#xA;\\&#xA;u(\theta + \delta) &amp;amp; = (\theta + \delta) q(\theta + \delta)-t(\theta + \delta)&#xA;\end{align*}&#xA;$$&lt;/span&gt;&#xA;By incentive compatibility (where &lt;span class=&quot;math-container&quot;&gt;$\theta + \delta$&lt;/span&gt; is the true type, &lt;span class=&quot;math-container&quot;&gt;$\theta$&lt;/span&gt; is the false type) we have&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;u(\theta + \delta) \geq (\theta + \delta) q(\theta)-t(\theta)&#xA;$$&lt;/span&gt;&#xA;Using these (I used square brackets for clearer notation, there is no mathematical function to them)&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\begin{align*}&#xA;u(\theta + \delta) - u(\theta) &amp;amp; =&#xA;\left[(\theta + \delta) q(\theta + \delta)-t(\theta + \delta)\right] -&#xA;\left[\theta q(\theta)-t(\theta)\right]  \\&#xA;\\&#xA;u(\theta + \delta) - u(\theta) &amp;amp; \geq&#xA;\left[(\theta + \delta) q(\theta)-t(\theta)\right] -&#xA;\left[\theta q(\theta)-t(\theta)\right]&#xA;\end{align*}&#xA;$$&lt;/span&gt;&#xA;This also holds if you divide by &lt;span class=&quot;math-container&quot;&gt;$\delta &amp;gt; 0$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Similar argument for 2.8., using true type &lt;span class=&quot;math-container&quot;&gt;$\theta - \delta$&lt;/span&gt; instead of &lt;span class=&quot;math-container&quot;&gt;$\theta + \delta$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2019-02-27T07:54:27.127" LastActivityDate="2019-02-27T07:54:27.127" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27048" PostTypeId="2" ParentId="27041" CreationDate="2019-02-27T07:56:10.347" Score="6" Body="&lt;p&gt;I do not have a special term, but I give this analogy:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;We know what a triangle is. But in the real world, it is impossible to draw a perfect triangle and there do not exist examples of perfect triangles.&lt;/p&gt;&#xA;&lt;p&gt;Similarly, we have just learnt what perfect competition is. But in the real world, there do not exist examples of perfect competition. Nonetheless, here are some examples of real-world markets that come &amp;quot;close to&amp;quot; perfect competition ...&lt;/p&gt;&#xA;&lt;p&gt;We stress that these markets are not actual examples of perfect competition. (To repeat, such examples do not exist.) Instead, these are merely examples that come &amp;quot;close to&amp;quot; perfect competition.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerDisplayName="user18" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2019-02-27T07:56:10.347" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27049" PostTypeId="2" ParentId="27043" CreationDate="2019-02-27T08:46:51.800" Score="2" Body="&lt;p&gt;Both concepts refer to different levels of government. For the U.S., for example, central government debt refers to the debt by the federal government, while general government debt refers to overall debt, including states and municipalities. Depending on how fiscal federalism is designed, different levels might be affected differently by the business cycle.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &lt;a href=&quot;https://stats.oecd.org/index.aspx?r=210917#&quot; rel=&quot;nofollow noreferrer&quot;&gt;OECD&lt;/a&gt; offers the same indicators, with some information on how they are defined. I copy from there:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Data are within the framework of the System of National Accounts (SNA), a set of internationally agreed concepts, definitions, classifications and rules for national accounting. Using SNA terminology, general government consists of central, state and local governments, and social security funds. State government is only applicable to the nine OECD countries that are federal states: Australia, Austria, Belgium, Canada, Germany, Mexico, Spain (considered a quasi-federal country), Switzerland and the United States. Debt is a commonly used concept, defined as a specific subset of liabilities identified according to the types of financial instruments included or excluded. Generally, it is defined as all liabilities that require payment or payments of interest or principal by the debtor to the creditor at a date or dates in the future. All debt instruments are liabilities, but some liabilities such as shares, equity and financial derivatives are not debt.&#xA;  Debt is thus obtained as the sum of the following liability categories, whenever available/applicable in the financial balance sheet of the general government sector: currency and deposits; debt securities; loans; and other liabilities (i.e. insurance, pension and standardised guarantee schemes, other accounts payable, as well as, in some cases special drawing rights - SDRs). According to the SNA, most debt instruments are valued at market prices, when appropriate (although some countries might not apply this valuation, in particular for debt securities).&#xA;  The treatment of government liabilities in respect of their employee pension plans is diverse across countries, making international comparability difficult. In particular, according to the former 1993 SNA, only the funded component of the government employee pension plans was reflected in its liabilities. However, the 2008 SNA recognises the importance of the liabilities of employers’ pension schemes, regardless of whether they are funded or unfunded. For pensions provided by government to their employees, countries have some flexibility in the recording of the unfunded liabilities in the core tables; this has also been followed by the ESA 2010, its European equivalent (although a new supplementary table will be added showing liabilities and associated flows of all pension schemes, whether funded or unfunded). Some OECD countries, such as Australia, Canada, Iceland, Sweden and the United States (including others whose data source is the IMF Economic Outlook) record employment-related pension liabilities, funded or unfunded, in government debt data. For those countries (except non-OECD ones), an adjusted government debt ratio is calculated by excluding from the debt these unfunded pension liabilities. Government debt used here is recorded on a gross basis, not adjusted by the value of government-held assets.&#xA;  The SNA definition of debt differs from the definition applied under the Maastricht Treaty, which is used to assess EU fiscal positions.&#xA;  Gross domestic product (GDP) is the standard measure of the value of goods and services produced by a country during a period.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The reason for countries reporting only one indicator could be that the respective statistical office simply only report one number. For small countries, general government debt might be by and large equated with central government debt if there is no relevant fiscal capacity below the central government.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The explanation for Cyprus might be that the central government had to bail out banks recently, leaving the non-negligible budgets of municipalities unaffected, but this is a bit speculative.&lt;/p&gt;&#xA;" OwnerUserId="17735" LastEditorUserId="17735" LastEditDate="2019-02-27T11:15:58.290" LastActivityDate="2019-02-27T11:15:58.290" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27050" PostTypeId="1" CreationDate="2019-02-27T10:40:05.630" Score="1" ViewCount="338" Body="&lt;p&gt;When a country's central bank buys that same country's government securities, is this exactly equivalent to printing money?&lt;/p&gt;&#xA;&lt;p&gt;There seems to be no agreement on this.&lt;/p&gt;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.federalreserve.gov/faqs/money_12853.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;Federal Reserve FAQ&lt;/a&gt;:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Is the Federal Reserve printing money in order to buy Treasury securities?&lt;/p&gt;&#xA;&lt;p&gt;No.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Carlo_Cottarelli&quot; rel=&quot;nofollow noreferrer&quot;&gt;Carlo Cottarelli&lt;/a&gt; (&lt;a href=&quot;https://www.brookings.edu/book/what-we-owe/&quot; rel=&quot;nofollow noreferrer&quot;&gt;2017&lt;/a&gt;, &lt;a href=&quot;https://books.google.com/books?id=L9UBDgAAQBAJ&amp;amp;pg=PA68&amp;amp;dq=%22central%20banks,%20by%20printing%20money,%20can%20help%20governments%20spend%20more%20than%20they%20collect%20in%20taxes%22&quot; rel=&quot;nofollow noreferrer&quot;&gt;Ch. 7 &amp;quot;Printing money&amp;quot;&lt;/a&gt;):&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;central banks, by printing money, can help governments spend more than they collect in taxes. The difference (the deficit) can be bridged by borrowing not from private savers but from the central bank, primarily through the central bank’s purchase of government securities. Public debt increases, but if the securities are held by the central bank, any interest paid to it goes back to the government, which receives its profits even in countries where the government formally does not own the central bank. In other words, the portion of public debt held by the central bank is not to be regarded as real debt, at least not in the immediate future. This is essentially what has happened to varying degrees in many advanced countries, which have continued to run sizable deficits since 2008.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Who is correct? (Or, why the seeming disagreement?)&lt;/p&gt;&#xA;&lt;p&gt;Concrete example: Say John is hired to mow the White House lawn for \$100. What then is the difference between the following two scenarios?&lt;/p&gt;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;The US Treasury prints a \$100 note, then uses it to pay John.&lt;/li&gt;&#xA;&lt;li&gt;The US Treasury issues a \$100 bond that the Fed buys, then uses the \$100 deposited in its account to pay John.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerDisplayName="user20317" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2021-02-25T21:02:50.217" Title="When a central bank buys government securities, is this exactly equivalent to printing money?" Tags="&lt;government-debt&gt;&lt;money&gt;" AnswerCount="5" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27051" PostTypeId="1" AcceptedAnswerId="27058" CreationDate="2019-02-27T13:31:29.980" Score="3" ViewCount="216" Body="&lt;ul&gt;&#xA;&lt;li&gt;Construct a pair of startegies for the ultimatum game (&lt;span class=&quot;math-container&quot;&gt;$T=1$&lt;/span&gt; bargaining game), that constitutes a Nash Equilibrium and together support the outcome that there is no agreement reached by the two players and the payoffs are zero to each. Show that the disagreement outcome can be supported by a Nash Equilibrium regardless of the number of bargaining periods. &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I understand that in a bargaining game if &lt;span class=&quot;math-container&quot;&gt;$T=1$&lt;/span&gt;  then any division of surplus &lt;span class=&quot;math-container&quot;&gt;$x^*$&lt;/span&gt; belonging to &lt;span class=&quot;math-container&quot;&gt;$[0,1]$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$(v_1, v_2)=(x^*,1-x^*)$&lt;/span&gt; can be supported as a Nash Equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the question given above, I'm supposed to find a strategy such that there is no agreement reached and both players end up getting &lt;span class=&quot;math-container&quot;&gt;$0$&lt;/span&gt; each. I have some trouble thinking about such strategies and whether it would constitute a Nash Equilibrium. One pair I could think of is: Player &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt;'s strategy is to offer, say, &lt;span class=&quot;math-container&quot;&gt;$(x^*,1-x^*)=(0.6,0.4)$&lt;/span&gt; and Player &lt;span class=&quot;math-container&quot;&gt;$2$&lt;/span&gt;'s strategy is &lt;em&gt;Accept any offer &lt;span class=&quot;math-container&quot;&gt;$(1-x^*)$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$&amp;gt;$&lt;/span&gt; or &lt;span class=&quot;math-container&quot;&gt;$=$&lt;/span&gt; &lt;span class=&quot;math-container&quot;&gt;$0.5$&lt;/span&gt;&lt;/em&gt;. Hence we see that Player &lt;span class=&quot;math-container&quot;&gt;$2$&lt;/span&gt; will reject the strategy. However, I cannot understand how a Nash Equilibrium startegy can be constructed (since the above stated startegy is clearly not optimal). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another strategy could be, Player &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt; proposes &lt;span class=&quot;math-container&quot;&gt;$(0,1)$&lt;/span&gt;, and Player 2's strategy is &lt;em&gt;Accept only strictly positive offers, i.e., reject &lt;span class=&quot;math-container&quot;&gt;$0$&lt;/span&gt;&lt;/em&gt;. However, this strategy cannot be Nash Equilibrium because the first mover has no Best Response. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Please help me understand the question. Hints for the next part would also be appreciated. Thank You!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Reference: Game Theory: An Introduction, Steven Tadelis&lt;/em&gt;&lt;/p&gt;&#xA;" OwnerUserId="18398" LastActivityDate="2019-02-27T22:04:32.743" Title="Disagreement in Strategic Bargaining" Tags="&lt;game-theory&gt;&lt;self-study&gt;&lt;nash-equilibrium&gt;&lt;bargaining&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27052" PostTypeId="2" ParentId="27044" CreationDate="2019-02-27T14:10:20.253" Score="2" Body="&lt;p&gt;Let &lt;span class=&quot;math-container&quot;&gt;$u(x)=xq(x)-t(x)$&lt;/span&gt;. Incentive compatibility dictates that &lt;span class=&quot;math-container&quot;&gt;$xq(x)-t(x)\geq xq(z)-t(z)$&lt;/span&gt;, when &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; is the observed private value. Using a little algebraic manipulation, it can be shown that,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$xq(x)-t(x)+zq(z)\geq xq(z)-t(z)+zq(z)$&lt;/span&gt;, or&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$u(x)+zq(z)\geq u(z)+xq(z)$&lt;/span&gt;, or&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$u(x)\geq u(z) +(x-z)q(z)$&lt;/span&gt;. Let this be &lt;span class=&quot;math-container&quot;&gt;$(1)$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Similarly, &lt;span class=&quot;math-container&quot;&gt;$zq(z)-t(z)\geq zq(x)-t(x)$&lt;/span&gt;, when &lt;span class=&quot;math-container&quot;&gt;$z$&lt;/span&gt; is the observed private value. Thus, from here as well, we have &lt;span class=&quot;math-container&quot;&gt;$u(z)\geq u(x) +(z-x)q(x)$&lt;/span&gt;. Let this expression be &lt;span class=&quot;math-container&quot;&gt;$(2)$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From &lt;span class=&quot;math-container&quot;&gt;$(1)$&lt;/span&gt;, we have &lt;span class=&quot;math-container&quot;&gt;$\cfrac{u(x)-u(z)}{x-z} \geq q(z)$&lt;/span&gt;. Similarly, from &lt;span class=&quot;math-container&quot;&gt;$(2)$&lt;/span&gt;, we have &lt;span class=&quot;math-container&quot;&gt;$\cfrac{u(x)-u(z)}{x-z} \leq q(x)$&lt;/span&gt;. Now, we have the expression, &#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{align*}&#xA;q(z) \leq \cfrac{u(x)-u(z)}{x-z} \leq q(x)  \\ -(3)&#xA;\end{align*}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;EDIT&lt;/strong&gt;&#xA;As correctly pointed out by TheoreticalEconomist, if  &lt;span class=&quot;math-container&quot;&gt;$x &amp;gt; z$&lt;/span&gt;, expression &lt;span class=&quot;math-container&quot;&gt;$(3)$&lt;/span&gt; tells us that &lt;span class=&quot;math-container&quot;&gt;$q(x)$&lt;/span&gt; is monotone. Also, as &lt;span class=&quot;math-container&quot;&gt;$u$&lt;/span&gt; is a convex function, it is absolutely continuous. This tells us that &lt;span class=&quot;math-container&quot;&gt;$u$&lt;/span&gt; is differentiable almost everywhere. Thus, wherever &lt;span class=&quot;math-container&quot;&gt;$u$&lt;/span&gt; is differentiable, we have &lt;span class=&quot;math-container&quot;&gt;$u'(x) = q(x)$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerUserId="16340" LastEditorUserId="16340" LastEditDate="2019-02-28T13:55:27.767" LastActivityDate="2019-02-28T13:55:27.767" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="27054" PostTypeId="2" ParentId="27050" CreationDate="2019-02-27T15:32:45.263" Score="0" Body="&lt;p&gt;I think that although the Fed is not actually &lt;em&gt;printing&lt;/em&gt; money, it is &lt;em&gt;creating&lt;/em&gt; money by increasing bank's reserves.&lt;/p&gt;&#xA;" OwnerUserId="20281" LastActivityDate="2019-02-27T15:32:45.263" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27055" PostTypeId="1" CreationDate="2019-02-27T19:01:14.497" Score="3" ViewCount="407" Body="&lt;p&gt;I recently made my first trip to a foreign country. I'm quite amazed by how things work. Why are things priced differently at different places? Is the bed-sheet that I bought from that country &lt;em&gt;worth&lt;/em&gt; the same in my country? I brought my bed-sheet there in \$40 while the same will cost less than \$10 in my country.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, I learnt about utility through &lt;a href=&quot;https://www.youtube.com/watch?v=e7S8jWh6AEs&quot; rel=&quot;nofollow noreferrer&quot;&gt;this&lt;/a&gt; video. I'm just in an awe. These things are so beautiful yet not visibly understandable to me. I'm sad as well as happy I didn't learn about any of these in my school. Sad because I potentially wouldn't have ever studied it. Happy because I can learn this thing with interest, as the school and university I attended have usually taught me in a way that makes things dull. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My background is bachelors in Computer Science. I'm decent at maths. I would like to ask you for book recommendations that will help me get some idea of how things work from an economic standpoint. How banks work, how loan works, what is money etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would like you to suggest me two kinds of books:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;That are example based, easy, concise, less mathematical but more story based.&lt;/li&gt;&#xA;&lt;li&gt;That are mathematical and cover these theory in details.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Thanks.&lt;/p&gt;&#xA;" OwnerUserId="20677" LastActivityDate="2019-03-01T10:29:00.713" Title="Book recommendations: Introduction to economics" Tags="&lt;self-study&gt;&lt;books&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="27056" PostTypeId="2" ParentId="27040" CreationDate="2019-02-27T19:56:31.597" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;is the IT Fachkräftemangel real?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It is not. Reports fail to filter out the abundance of fake job posts with which intermediaries saturate --and obfuscate-- the labor market. This is the actual reason why intermediaries hardly ever give candidates any concrete information about the alleged job positions. Consequently, reports headlining a &quot;shortage of skilled professionals&quot; are meaningless.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To a great extent this also happens in the U.S., Canada, and perhaps other regions. But the fact that one same position is advertised by several intermediaries (very often their list of requirements being the same, verbatim) obviously does not mean that there are several open positions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The broad unawareness regarding this issue allows for &lt;em&gt;air castles&lt;/em&gt; when it comes to discussing the pseudo &quot;shortage&quot; of labor supply in labor markets.&lt;/p&gt;&#xA;" OwnerUserId="18552" LastActivityDate="2019-02-27T19:56:31.597" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27057" PostTypeId="2" ParentId="27050" CreationDate="2019-02-27T20:33:26.500" Score="1" Body="&lt;p&gt;Not exactly. It is a manipulation of bank reserves. These reserves do not necessarily enter into circulation. For example, look at the data on excess reserves throughout QE. Expansionary policy exploded reserves but much of the money 'created' during QE did not enter into circulation and we maintained low, stable inflation despite operating at the ZLB for 7(ish) years. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;edit -- A more straightforward answer: No. One of these increases cash in circulation and the other does not. &lt;/p&gt;&#xA;" OwnerUserId="1655" LastEditorUserId="1655" LastEditDate="2019-12-01T20:23:03.800" LastActivityDate="2019-12-01T20:23:03.800" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27058" PostTypeId="2" ParentId="27051" CreationDate="2019-02-27T22:04:32.743" Score="3" Body="&lt;p&gt;Consider:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Proposer offers &lt;span class=&quot;math-container&quot;&gt;$0$&lt;/span&gt; &lt;/li&gt;&#xA;&lt;li&gt;Receiver always rejects the offer regardless of the amount &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;You should be able to argue that this is a pair of mutually best responding strategies for &lt;span class=&quot;math-container&quot;&gt;$T=1$&lt;/span&gt;. The &lt;span class=&quot;math-container&quot;&gt;$T&amp;gt;1$&lt;/span&gt; cases follow a similar logic.&lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2019-02-27T22:04:32.743" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27060" PostTypeId="2" ParentId="27055" CreationDate="2019-02-28T06:38:50.683" Score="6" Body="&lt;p&gt;It's great that you're developing an interest in economics. I would suggest Mankiw's Principles of Economics to start with. I believe it meets both your requirements and covers the two major areas of economics, microeconomics and macroeconomics, so you would get a decent overview of this field of study. Good luck!&lt;/p&gt;&#xA;" OwnerUserId="20417" LastActivityDate="2019-02-28T06:38:50.683" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27061" PostTypeId="2" ParentId="27055" CreationDate="2019-02-28T06:41:07.643" Score="3" Body="&lt;p&gt;In the first category of books that are story-based and very well done, supported by academic research, I recommend the &lt;a href=&quot;http://freakonomics.com/books/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Freakonomics books&lt;/a&gt; by University of Chicago economist &lt;a href=&quot;http://pricetheory.uchicago.edu/levitt/Freakonomics.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Steven Levitt&lt;/a&gt; and New York Times journalist &lt;a href=&quot;http://freakonomics.com/about/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Stephen J. Dubner&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Freakonomics: A Rogue Economist Explores the Hidden Side of Everything.&lt;/li&gt;&#xA;&lt;li&gt;SuperFreakonomics.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The &lt;a href=&quot;http://freakonomics.com/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Freakonomics Blog&lt;/a&gt; with a radio program is also amazing. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Update&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;em&gt;Why is Freakonomics worth reading?&lt;/em&gt;&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Steve Levitt is a top economist and was the winner of the 2003 John Bates Clark Medal, awarded by the American Economic Association to &quot;that American economist under the age of forty who is adjudged to have made a significant contribution to economic thought and knowledge&quot;. The chapters are based on Levitt's academic papers, which are peer-reviewed and published in top journals.&lt;/li&gt;&#xA;&lt;li&gt;Steven Dubner is an award-winning author, journalist, and podcast and radio host. Check and listen to &lt;a href=&quot;http://freakonomics.com/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Freakonomics Radio&lt;/a&gt;.&lt;/li&gt;&#xA;&lt;li&gt;A person who has no idea about what economics is can easily connect with the content of the book.&lt;/li&gt;&#xA;&lt;li&gt;Freakonomics is a best seller. First published in the U.S. in 2005, it went on to sell more than 4 million copies around the world, in 35 languages. Many reviews of the book have been published. I like this &lt;a href=&quot;https://medium.com/@jeffallenwang/book-review-freakonomics-a-rogue-economist-explains-the-hidden-side-to-everything-75dc7c150d60&quot; rel=&quot;nofollow noreferrer&quot;&gt;recent one&lt;/a&gt;. At least I share this feeling: &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;What I particularly liked about it was that although the majority of the time you are reading the book [...] you feel like there is no structure. But in the end, you realize that like most things, everything in the world is connected in a weird yet magical way. It’s a weird thought. It allowed the book to flow because you felt like with every chapter you were learning about something new and unique — as if the book was just a “fun facts” book — but overall, you realize that the core concepts were all driven by the same thing: &lt;strong&gt;incentives&lt;/strong&gt;.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;ol start=&quot;5&quot;&gt;&#xA;&lt;li&gt;Almost every chapter has strong advocates for and against! I see controversy as an important driver for good research. The book was first published in 2005 and some empirical results, based on good data (another good point of the book) have been &lt;a href=&quot;https://en.wikipedia.org/wiki/Freakonomics&quot; rel=&quot;nofollow noreferrer&quot;&gt;re-examined&lt;/a&gt;. &lt;/li&gt;&#xA;&lt;li&gt;The book has attracted criticism and ... envy! &lt;a href=&quot;http://arielrubinstein.tau.ac.il/articles/FreakFreakonomics.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Ariel Rubinstein&lt;/a&gt;, another top economist, criticized the book in a fun way. In one of his afterwords he wondered: &quot;Am I envious of Steve Levitt?&quot; Perhaps... &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="6168" LastEditorUserId="6168" LastEditDate="2019-02-28T17:34:54.773" LastActivityDate="2019-02-28T17:34:54.773" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="27062" PostTypeId="1" CreationDate="2019-02-28T09:29:54.037" Score="0" ViewCount="53" Body="&lt;p&gt;There is a long literature on stock return predicabtility. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;When I read papers I see lots of authors still using granger causality tests. It is still prominently taught in undergrad and grad classess. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But we do we continue to persist with this when many have shown that they are often not robust to even a little bit of ambiguity. Whether this is persistent variables or in the presense of heteroskedasticity. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why do people continue to use it?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why is it so important?&lt;/p&gt;&#xA;" OwnerUserId="19137" LastActivityDate="2019-07-29T01:02:00.310" Title="Stock return predictability. Why do papers continue to use Granger Causality tests" Tags="&lt;capital-returns&gt;&lt;causality&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27063" PostTypeId="1" CreationDate="2019-02-28T22:33:05.503" Score="2" ViewCount="15" Body="&lt;p&gt;I'm not sure if this is the correct Stackexchange site for this question, but I am interested in the economic and environmental effects of food waste reduction. A common policy proposal to reduce food waste is to standardize expiration dates of food so that consumers do not mistakenly discard food before it has spoiled. However it's not easy to assess the effectiveness of the policy without knowing the baseline frequencies of the different types of expiration date (use by, best if used by, sell by, etc.) Is anyone aware of a study or survey that has tried to quantify how often retailers and/or manufacturers use each different type of expiration date label? It would be great to have data for individual food types as well if that exists. This question refers to the USA but I would be interested in data from any country.&lt;/p&gt;&#xA;" OwnerUserId="21251" LastEditorUserId="42" LastEditDate="2019-02-28T23:56:14.817" LastActivityDate="2019-02-28T23:56:14.817" Title="Data source for the relative frequency of different kinds of expiration date by retailers? (use by, sell by, best by)" Tags="&lt;reference-request&gt;&lt;data-request&gt;&lt;agriculture&gt;&lt;food&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27064" PostTypeId="1" AcceptedAnswerId="27093" CreationDate="2019-02-28T22:52:47.947" Score="-1" ViewCount="321" Body="&lt;p&gt;A consumer has the following utility function and income.&#xA;(, ) =1/2 * ln  + 1/2 * ln y&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Price of  = Price of  = 100. &#xA;Income = 1000&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose that the consumer gets 2 redeemable coupons for a unit of x each, which cannot be sold.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I drew the budget constraint. However, I cannot find its equation to optimize it.&lt;/p&gt;&#xA;" OwnerUserId="21252" LastActivityDate="2019-03-03T05:14:43.743" Title="How to find the optimal consumption basket?" Tags="&lt;microeconomics&gt;&lt;optimization&gt;" AnswerCount="1" CommentCount="0" ClosedDate="2019-03-03T06:12:33.097" ContentLicense="CC BY-SA 4.0" />
  <row Id="27065" PostTypeId="2" ParentId="27062" CreationDate="2019-03-01T00:53:10.537" Score="2" Body="&lt;p&gt;Because the papers which use these methods are not properly refereed. That's why you should read papers published in high impact factor journals. &lt;/p&gt;&#xA;" OwnerUserId="6009" LastActivityDate="2019-03-01T00:53:10.537" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27067" PostTypeId="2" ParentId="7" CreationDate="2019-03-01T06:19:57.257" Score="1" Body="&lt;p&gt;&lt;strong&gt;1. Governments can raise taxes.&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;p&gt;Governments can compel a large swathe of the population to give it unrequited transfers known as taxes. Households cannot.&lt;/p&gt;&#xA;&lt;p&gt;&lt;strong&gt;2. Governments can print money&lt;/strong&gt; (at least those that enjoy monetary sovereignty).&lt;/p&gt;&#xA;&lt;p&gt;Governments can print pieces of paper that will be gladly accepted as payment for goods and services. Households cannot.&lt;/p&gt;&#xA;&lt;p&gt;Note though that this power is not a widow's cruse. The limiting factor, constraint, or trade-off is inflation. See this discussion: &lt;a href=&quot;https://theconversation.com/why-the-federal-budget-is-not-like-a-household-budget-35498&quot; rel=&quot;nofollow noreferrer&quot;&gt;Smith (2014)&lt;/a&gt;.&lt;/p&gt;&#xA;&lt;p&gt;&lt;strong&gt;3. People die.&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;p&gt;There is thus a (literal) deadline at which a person's assets and debts must be resolved. A person cannot remain in debt forever.&lt;/p&gt;&#xA;&lt;p&gt;In contrast, there is no obvious deadline for governments. A government &lt;em&gt;can&lt;/em&gt; be in debt for pretty much forever:&lt;/p&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;The US has been in debt every year since its founding (&lt;a href=&quot;https://www.treasurydirect.gov/govt/reports/pd/histdebt/histdebt.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;TreasuryDirect.gov&lt;/a&gt; — the debt came close to zero in 1835–36).&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The UK has been in debt every year since at least 1694 (&lt;a href=&quot;http://www.centreformacroeconomics.ac.uk/Discussion-Papers/2017/CFMDP2017-27-Paper.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Ellison &amp;amp; Scott, 2017&lt;/a&gt;, Fig 1).&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;p&gt;Yes, a high and rising debt is undesirable.&lt;/p&gt;&#xA;&lt;p&gt;However, if say a government consistently maintains a 40% debt-to-GDP ratio for 200 years, then most economists would consider this perfectly healthy and sustainable. In contrast, it is not generally possible for an individual to be in debt to the tune of 40% of her annual income for 200 consecutive years.&lt;/p&gt;&#xA;&lt;p&gt;&lt;strong&gt;4. Governments can borrow at much lower interest rates&lt;/strong&gt; (thanks to the above factors).&lt;/p&gt;&#xA;&lt;p&gt;On &lt;a href=&quot;https://www.treasurydirect.gov/govt/rates/pd/avg/2019/2019_01.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;2019-01-31&lt;/a&gt;, the US government's average interest rate was 2.574%. This is lower than the rate at which most Americans would be able to borrow and certainly much lower than their credit card interest rates.&lt;/p&gt;&#xA;&lt;p&gt;&lt;strong&gt;5. Government budgets directly influence economic growth.&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;p&gt;When an individual decides not to buy a new fridge, this does not affect her income. But when government cuts spending, this likely reduces national income, which, by the way, also tends to reduce the government's own income (i.e. tax revenue).&lt;/p&gt;&#xA;&lt;p&gt;Conversely, when an individual buys a new fridge, this expenditure does not increase her income. One individual's expenditure adds to others' income, but not to her own.&lt;/p&gt;&#xA;&lt;p&gt;But when government increases spending (on anything other than imports), this does result in increased national income. A country's expenditure is its own income.&lt;/p&gt;&#xA;&lt;p&gt;When an individual suffers a fall in income, it may be prudent for her to cut back on her expenses. In contrast, when a country suffers a recession, it is not usually prudent for its government to reduce spending.&lt;/p&gt;&#xA;&lt;hr /&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Every family in America has to balance their budget. Every small business. Should we expect anything less from a great nation? (Jeb Hensarling, &lt;a href=&quot;https://www.congress.gov/congressional-record/2011/11/17/house-section/article/h7782-1&quot; rel=&quot;nofollow noreferrer&quot;&gt;2011&lt;/a&gt;.)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;The above is a common piece of rhetoric used by pro-balanced-budget politicians. There are two mistakes.&lt;/p&gt;&#xA;&lt;p&gt;First, as already alluded to above, we have the fallacy of composition: What is true of the parts need not be true of the whole.&lt;/p&gt;&#xA;&lt;p&gt;Second, the premise is not even true. Many families and businesses do not have balanced budgets and are in debt.&lt;/p&gt;&#xA;&lt;p&gt;This though is not necessarily a bad thing. An individual in law school, a family that's just bought a home, and a firm that's just built a factory may all be in debt, but we do not &lt;em&gt;ipso facto&lt;/em&gt; disapprove of them.&lt;/p&gt;&#xA;&lt;p&gt;Likewise, if a government spends its money on productive and legitimate uses (and not mostly on fireworks and bridges to nowhere), we should not condemn it simply because it is running a deficit.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2019-03-01T06:19:57.257" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27069" PostTypeId="2" ParentId="27042" CreationDate="2019-03-01T06:55:16.427" Score="1" Body="&lt;p&gt;We have the following cases: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) No capital mobility:&#xA;If there is no capital mobility, the trade balance is necessarily zero in equilibrium i.e. exports equal imports. When there is a trade surplus, there is an excess of demand for domestic currency over supply of domestic currency. In equilibrium, this surplus must be eliminated to ensure that demand equals supply. So the exchange rate must appreciate, reducing exports and increasing imports for the domestic country until the trade balance is in equilibrium. It doesn't matter if the demand is increasing or not, any excess or deficit must be eliminated by a change in the exchange rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) Capital mobility:&#xA;In this case, the Balance of Payments must be zero in equilibrium. This includes the current account(exports and imports) and the capital account (trade in assets with the foreign country). Here a trade surplus or deficit can exist as long as the capital inflows balance it out. If there is a deficit, there must be net capital inflows (borrowing from abroad) and vice versa. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope this helps. &lt;/p&gt;&#xA;" OwnerUserId="20417" LastActivityDate="2019-03-01T06:55:16.427" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27070" PostTypeId="1" AcceptedAnswerId="27074" CreationDate="2019-03-01T07:05:06.493" Score="3" ViewCount="131" Body="&lt;p&gt;I came across a True/False question in my economics problem set:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Is the following statement true or false?&lt;br&gt;&#xA;  &quot;A monopolist can practice&#xA;  third-degree price discrimination in the two markets it serves.&#xA;  Quantity demanded at any positive price is always higher in market 1&#xA;  than in market 2. Therefore, when the monopolist profit maximizes, it&#xA;  will certainly charge a higher price in market 1 than in market 2.&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The answer is false. However, I do not understand why it is false. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I considered two cases, case 1 where the monopolist charges both markets a uniform price. If the monopolist practices price discrimination, profits will increase for the monopolist, and price charged in market 1 will be higher than market 2. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Case 2 is where only market 1 (since it is the &quot;strong&quot; market) is served under uniform pricing. By price discriminating, monopolist will also serve market 2 as it generates profit, and price in market 1 is higher than in market 2. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why then is the statement false? Am I missing out another case? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help is greatly appreciated! Thank you. &lt;/p&gt;&#xA;" OwnerUserId="15054" LastActivityDate="2019-03-01T08:29:32.850" Title="3rd Degree Price Discrimination" Tags="&lt;microeconomics&gt;&lt;monopoly&gt;&lt;industrial-organisation&gt;&lt;price-discrimination&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27071" PostTypeId="1" CreationDate="2019-03-01T07:26:55.097" Score="1" ViewCount="23" Body="&lt;p&gt;I'm looking for a book which may help to design a self-sustainable small  settlement, which can maintain its own economy with limited connections to the outside world. Prefereably it should answer questions like:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;What population is sufficient for such a town or village?&lt;/li&gt;&#xA;&lt;li&gt;How to model microeconomics of such a settlment?&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="21254" LastActivityDate="2019-03-01T17:48:20.130" Title="Is there book or research on economically sustainable design of town or village?" Tags="&lt;macroeconomics&gt;&lt;reference-request&gt;&lt;self-study&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27072" PostTypeId="2" ParentId="26657" CreationDate="2019-03-01T07:36:06.277" Score="4" Body="&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$1.$&lt;/span&gt; My guess is that your videographic's data were simply from the World Bank's &lt;a href=&quot;https://data.worldbank.org/indicator/NY.GDP.MKTP.CD&quot; rel=&quot;noreferrer&quot;&gt;GDP (current US\$)&lt;/a&gt;. This is nominal GDP in US\$ and does not take into account &lt;strong&gt;(a)&lt;/strong&gt; changes in the exchange rate; or &lt;strong&gt;(b)&lt;/strong&gt; inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\color{red}{\text{2.}}$&lt;/span&gt; And it turns out that the chief culprit here is &lt;strong&gt;(a)&lt;/strong&gt;. To correct for &lt;strong&gt;(a)&lt;/strong&gt;, we look instead at &lt;a href=&quot;https://data.worldbank.org/indicator/NY.GDP.MKTP.CN&quot; rel=&quot;noreferrer&quot;&gt;GDP (current LCU)&lt;/a&gt;, where Germany's LCU = Local Currency Unit is the euro.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\color{blue}{\text{3.}}$&lt;/span&gt; We can also further correct for &lt;strong&gt;(b)&lt;/strong&gt; by looking at &lt;a href=&quot;https://data.worldbank.org/indicator/NY.GDP.MKTP.KN&quot; rel=&quot;noreferrer&quot;&gt;GDP (constant LCU)&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/KUurc.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/KUurc.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;P.S. I would not trust the website VisualCapitalist.com. Here for example, it simply took this videographic from a &lt;a href=&quot;https://twitter.com/Jalbella/status/1057745261001408525&quot; rel=&quot;noreferrer&quot;&gt;tweet&lt;/a&gt;, which in turn gives no sources.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2019-03-01T07:36:06.277" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27073" PostTypeId="1" CreationDate="2019-03-01T07:51:05.127" Score="0" ViewCount="79" Body="&lt;p&gt;Will the outcome of Brexit have any positive impact on the UK market? Are there any available studies on this topic?&lt;/p&gt;&#xA;" OwnerUserId="21255" LastActivityDate="2020-03-25T17:02:45.350" Title="How will the UK's economy be affected, if it will be a hard Brexit?" Tags="&lt;political-economy&gt;&lt;united-kingdom&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="27074" PostTypeId="2" ParentId="27070" CreationDate="2019-03-01T08:22:41.817" Score="3" Body="&lt;p&gt;Here is a counterexample (i.e. an example showing that the given statement is false). Assumptions:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;The cost of producing each unit of the good is \$1.&lt;/li&gt;&#xA;&lt;li&gt;All consumers are exactly identical, with each consumer willing to pay up to \$10 for one unit of the good. (Also, each consumer is willing to pay at most \$0 for a second unit of the good.)&lt;/li&gt;&#xA;&lt;li&gt;Market 1 has 200 consumers, while Market 2 has 100. (And so, it is true that &quot;quantity demanded at any positive price is always higher in market 1 than in market 2.&quot;†)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Since all the consumers are exactly identical, the profit-maximizing price in both markets is simply the maximum each consumer is willing to pay, namely \$10 (and the producer will produce 300 units of the good). Thus, it is false that the monopolist &quot;will certainly charge a higher price in market 1 than in market 2&quot;.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;†This statement is actually wrong. At a sufficiently-high price, the quantity demanded of a good in any two markets will be equal to zero. To correct this statement, one would either change &quot;always higher&quot; to &quot;no lower&quot; or append to the start of this statement &quot;if quantity demanded is non-zero, then ...&quot;&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastEditorDisplayName="user18" LastEditDate="2019-03-01T08:29:32.850" LastActivityDate="2019-03-01T08:29:32.850" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27075" PostTypeId="1" AcceptedAnswerId="27077" CreationDate="2019-03-01T10:27:48.087" Score="4" ViewCount="977" Body="&lt;p&gt;I understand that quasi-linear functions have a general form&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$U(x_1,x_2,...,x_n,y) = f(x_1,x_2,...,x_n) + y$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and that for a quasi-linear function, the &lt;strong&gt;income effect&lt;/strong&gt; with respect to the other variables of the function (&lt;span class=&quot;math-container&quot;&gt;$x_1,x_2,...,x_n$&lt;/span&gt;) are all &lt;span class=&quot;math-container&quot;&gt;$0$&lt;/span&gt;, i.e., &lt;strong&gt;income has no effect&lt;/strong&gt; on the consumption of those goods.&#xA;I also read online that a if a &lt;strong&gt;preference is quasi-linear, then indifference curves are parallel&lt;/strong&gt;. &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;However, I came across this function, &lt;span class=&quot;math-container&quot;&gt;$U(x,y)=e^xy$&lt;/span&gt;, where the income effect with respect to &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; is &lt;span class=&quot;math-container&quot;&gt;$0$&lt;/span&gt;, when the price of &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; changed. Is this also a quasi-linear function, since IE is &lt;span class=&quot;math-container&quot;&gt;$0$&lt;/span&gt;? Plotting the graph of this function, I see that the indifference curves are actually not parallel. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/DiIZJ.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/DiIZJ.png&quot; alt=&quot;&lt;span class=&quot;math-container&quot;&gt;$U(x,y)$&lt;/span&gt;&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="21259" LastActivityDate="2019-03-01T18:55:46.917" Title="Quasi-Linear Functions" Tags="&lt;microeconomics&gt;&lt;utility&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27076" PostTypeId="2" ParentId="27055" CreationDate="2019-03-01T10:29:00.713" Score="1" Body="&lt;p&gt;In the story category I also very much recommend Robert Frank's the economic naturalist. It is basically a collection of stories written by his students explaining everyday's little mysteries with economic principles such as that benefits need to outweigh costs, competition and when it does (not) work, and disagreement between socially desired and market outcomes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Robert Frank also has a textbook together with Ben Bernanke, Kate Antonovics and Ori Heffetz, but I haven't had the opportunity to look at it yet. &lt;/p&gt;&#xA;" OwnerUserId="12186" LastActivityDate="2019-03-01T10:29:00.713" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27077" PostTypeId="2" ParentId="27075" CreationDate="2019-03-01T11:44:02.757" Score="6" Body="&lt;p&gt;The indifference curves are not &quot;parallel&quot;, as they are not straight lines. They are however shifted, that is they are supposed to maintain vertical distance regardless of the value of &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The curves you map maintain horizontal distance regardless of &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt;. That is because the non-linear variable here is &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt;, not &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;. The curves are still shifted, but along the other axis. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Taking the logarithm of the utility function you get&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;x + \ln y&#xA;$$&lt;/span&gt;&#xA;which is more clearly quasi linear. &lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="12186" LastEditDate="2019-03-01T18:55:46.917" LastActivityDate="2019-03-01T18:55:46.917" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27078" PostTypeId="2" ParentId="27073" CreationDate="2019-03-01T12:25:50.153" Score="1" Body="&lt;p&gt;The UK government published &quot;&lt;a href=&quot;https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/781768/Implications_for_Business_and_Trade_of_a_No_Deal_Exit_on_29_March_2019.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Implications for Business and Trade of a No Deal Exit on 29 March 2019&lt;/a&gt;&quot; on Tuesday.&lt;/p&gt;&#xA;" OwnerUserId="16631" LastActivityDate="2019-03-01T12:25:50.153" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27081" PostTypeId="2" ParentId="27071" CreationDate="2019-03-01T17:48:20.130" Score="1" Body="&lt;p&gt;I would suggest the &lt;a href=&quot;https://www.sciencedirect.com/handbook/handbook-of-regional-and-urban-economics&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;Handbook of Regional and Urban Economics&lt;/em&gt;&lt;/a&gt;. It currently has 5 volumes and collects papers on the theories and empirics of urban/city design. Selected chapters that may potentially address your questions include: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.sciencedirect.com/science/article/pii/S1574008087800196&quot; rel=&quot;nofollow noreferrer&quot;&gt;City size and place as policy issues&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.sciencedirect.com/science/article/pii/S1574008087800160&quot; rel=&quot;nofollow noreferrer&quot;&gt;Financing urban public services&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.sciencedirect.com/science/article/pii/S1574008087800044&quot; rel=&quot;nofollow noreferrer&quot;&gt;The theory of urban residential location&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.sciencedirect.com/science/article/pii/S1574008087800056&quot; rel=&quot;nofollow noreferrer&quot;&gt;Therories of urban business location&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.sciencedirect.com/science/article/pii/S157400809980008X&quot; rel=&quot;nofollow noreferrer&quot;&gt;Urban labour markets&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.sciencedirect.com/science/article/pii/S1574008099800091&quot; rel=&quot;nofollow noreferrer&quot;&gt;Urban housing markets: Theory and policy&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.sciencedirect.com/science/article/pii/S1574008004800051&quot; rel=&quot;nofollow noreferrer&quot;&gt;Micro-Foundations of Urban Agglomeration Economies&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="42" LastActivityDate="2019-03-01T17:48:20.130" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27082" PostTypeId="1" CreationDate="2019-03-02T00:12:54.900" Score="3" ViewCount="103" Body="&lt;p&gt;Take India as an example. India has been losing most of its bright minds to the west. India also ranks low in development. I would like to get a definitive answer to this cause-effect type question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If India had somehow ensured that its talented people could not leave the country or If India had prevented its bright and ambitious minds from getting enticed and seduced by the west, would those bright minds have been forced to figure out how to improve India's infrastructure thereby resulting in India's development?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or is it the other way, i.e., a nation's development is mostly (&gt;80%) decided by the quality of its political leadership? The quality of Indian polity has been really bad since 1947. This is not a judgment but a plain fact. So is it that even if we had retained the bright ones they would have made no difference to India's future?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Could you give a data-intensive answer with stats? Do give intuitive arguments also to back it up.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My thesis is that a nation's polity decides the economic fate of the nation, not its talent pool because talent can be trained by the government of the day whenever it wants to. In India, people are not talented because they are born so talented but because competition forces that in the over-populated society. So my claim is that the fact that Indians have become so successful in the USA where they hold key policy-making positions should not be a cause of alarm. Had they been in India also, they could not have made any difference. And whenever the nation's polity improves, the nation will create any amount of required talent it requires just like monkeys can be trained any time you want them to perform in a circus.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is my thesis wrong? I hear strong views on both sides and i cannot just make up my mind as to which side to follow. Please don't just give subjective answers/opinions (i know i have!). Provide some rigor and facts.&lt;/p&gt;&#xA;" OwnerUserId="21264" LastEditorUserId="21264" LastEditDate="2019-03-02T00:27:35.000" LastActivityDate="2019-03-02T19:31:13.150" Title="Does brain drain really affect a nation's growth trajectory?" Tags="&lt;labor-economics&gt;&lt;economic-growth&gt;&lt;development-economics&gt;&lt;migration&gt;&lt;human-capital&gt;" AnswerCount="1" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27083" PostTypeId="1" CreationDate="2019-03-02T03:05:24.577" Score="2" ViewCount="104" Body="&lt;p&gt;In banking, are the three terms &lt;em&gt;capital&lt;/em&gt;, &lt;em&gt;net worth&lt;/em&gt;, and &lt;em&gt;equity&lt;/em&gt; simply identical and exact synonyms?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If not, how do they differ?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Aside: And what about in other contexts? For example, does the same hold more generally in corporate finance? What about in economics in general? I believe in economics, &lt;em&gt;capital&lt;/em&gt; is usually used to refer to something quite different.)&lt;/p&gt;&#xA;" OwnerDisplayName="user20317" LastActivityDate="2020-03-26T10:00:46.660" Title="In the context of banking, how (if at all) do the terms 'capital', 'net worth', and 'equity' differ?" Tags="&lt;banking&gt;&lt;definition&gt;&lt;economic-terms&gt;&lt;capital&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27084" PostTypeId="2" ParentId="27083" CreationDate="2019-03-02T06:37:46.233" Score="2" Body="&lt;p&gt;Consider this...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/FCmDA.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/FCmDA.png&quot; alt=&quot;image of a balance sheet&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A bank's capital is used to finance the purchase of assets. Those assets are mostly loans made to households and businesses and governments. When a loan is made the bank is &quot;buying&quot; the future payments of the borrower. This suggests the whole right side of the balance sheet is capital because it takes the entire right side to finance the purchase of all of the left side. Some of the capital is the bank's own debt or equivalently, the liabilities, which is owed to depositors and bond holders. The remainder of the capital is called equity which is what the common and preferred shareholders own. The value of all the shares or of all the &quot;stock&quot; (as in stock market) is the equity. Stockholders and shareholders and equity owners are the same thing. Confusingly &quot;the stock in a business&quot; is the assets (in blue on the left) but the &quot;stock&quot; (also known as the shares) are the smaller part called equity (in teal on the right). In order to control all the assets (in blue) you have to own the equity (in teal) so that is why the word &quot;stock&quot; is used to refer to the teal part and also the blue part. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Net worth is assets minus liabilities so it is the same thing as equity. &quot;Net worth&quot; is the usual term when speaking of the equity of an individual or a household. When speaking of the equity of a company sometimes stock market participants call it &quot;book value&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't think non-bank companies think of these terms any differently than banks. In any company there is the distinction between physical capital which is always on the left side, and financial capital which are the two parts on the right side. If the company has some cash or other valuable paper on hand then there is also some financial capital on the left side (held as an asset). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The above diagram is useful in the context of accounting and finance but less useful in the context of economics. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think economists use the word capital to refer to an accumulation of value, in other words assets. In economics capital has the connotation of being an accumulation rather than a flow. For example savings are an accumulation of a flow of income. (Capital) accumulations can be land, structures, equipment, software, patents, copyrights, and human capital (skilled people and educated people), and other assets. &lt;/p&gt;&#xA;" OwnerUserId="6868" LastEditorUserId="6868" LastEditDate="2019-03-02T07:26:42.443" LastActivityDate="2019-03-02T07:26:42.443" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27087" PostTypeId="1" CreationDate="2019-03-02T10:45:05.817" Score="1" ViewCount="305" Body="&lt;p&gt;In many countries governments have made laws that bar themselves from creating money directly. Instead they have to go via a circuitous route involving the creation of bonds. This means that the government has to go into debt in order to create more money. The reason for this self imposed restriction seems obvious to me - it is a kind of advertising to prospective purchasers of government bonds. It says &quot;don't worry about us devaluing your bonds through excessive money creation because we have written it in stone that we're never going to do that&quot;. If it wasn't for this assurance then government bonds would be harder to sell.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Whatever the reasoning - after many years being interested in this question I have never come across any official explanation. Surely somewhere there must be a record of how these restrictions came into existence. Where are these records?&lt;/p&gt;&#xA;" OwnerUserId="5081" LastEditorUserId="5081" LastEditDate="2019-03-06T17:31:18.017" LastActivityDate="2020-12-31T19:06:10.640" Title="When and why did governments impose restrictions on money creation" Tags="&lt;money&gt;" AnswerCount="4" CommentCount="10" ContentLicense="CC BY-SA 4.0" />
  <row Id="27088" PostTypeId="2" ParentId="27082" CreationDate="2019-03-02T19:31:13.150" Score="-1" Body="&lt;p&gt;You have asked a very relevant question, and you must be new to economics or have not got a clue about economics of growth/development. And, you will not be able to get a 'definitive' answer to your question - it is not easy, and there is probably none! Should there be a definitive answer, we would not have to spend years doing PhD in economics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are plenty of resources which could give you a better grasp of the issue. &#xA;For a start, read &lt;a href=&quot;https://www.amazon.co.uk/Why-Nations-Fail-Origins-Prosperity/dp/1846684307&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.amazon.co.uk/Why-Nations-Fail-Origins-Prosperity/dp/1846684307&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="6009" LastActivityDate="2019-03-02T19:31:13.150" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27089" PostTypeId="2" ParentId="26661" CreationDate="2019-03-02T20:52:06.867" Score="2" Body="&lt;p&gt;This looks like a case of incomplete contracts, or what is sometimes known as non-contractibility.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;In the principal/agent paradigm, adverse selection arises when an informed agent transacts with an uninformed principal and, in particular, the principal cannot distinguish between desirable and undesirable agent trading partners.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't think your example is a good fit for adverse selection: here the principal would be the government and the agent would be the prison company. But the quality uncertainty concerns the guards rather than the agent itself, and the government is not directly interacting with the guards here.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From the world of information asymmetries, this looks more like a situation of &lt;em&gt;moral hazard&lt;/em&gt; where the agent is not incentivised to act in the prinipal's interests. Moral hazard is only really a problem when you Cann't write a contract stipulating thet the agent should behave in the principal's interests. This could be for various reasons&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;the agent's action can't be directly observed;&lt;/li&gt;&#xA;&lt;li&gt;while the angel't action cab be observed, its badness can't be objectively &lt;em&gt;verified&lt;/em&gt; (i.e., it can't be conclusively proven in court that the action was bad, so a court could never enforce the contract);&lt;/li&gt;&#xA;&lt;li&gt;the number of contingencies is so large that it is impossible to write a contract specifying all of them&lt;/li&gt;&#xA;&lt;li&gt;there is no relevant authority to enforce the contract (e.g., a drug dealer and his supplier can't write a meaningful contract because they can't exactly expect a court to enforce it)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="108" LastActivityDate="2019-03-02T20:52:06.867" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27091" PostTypeId="1" CreationDate="2019-03-03T02:44:17.160" Score="1" ViewCount="36" Body="&lt;p&gt;It seems the highest-frequency consumer price index (CPI) data available is monthly. How does one convert weekly or daily price data into real prices?&lt;/p&gt;&#xA;" OwnerUserId="21273" LastEditorUserId="6168" LastEditDate="2019-03-03T08:05:17.050" LastActivityDate="2019-03-03T08:05:17.050" Title="How does one deflate weekly price data?" Tags="&lt;econometrics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27092" PostTypeId="1" CreationDate="2019-03-03T03:17:59.167" Score="0" ViewCount="11" Body="&lt;p&gt;Consider a running variable &lt;span class=&quot;math-container&quot;&gt;$a$&lt;/span&gt;, and a cutoff &lt;span class=&quot;math-container&quot;&gt;$a_0$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are two regulatory variables, &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$z$&lt;/span&gt;. Both variables jump around &lt;span class=&quot;math-container&quot;&gt;$a_0$&lt;/span&gt;, in the sense of fuzzy regression discontinuity design (RDD) setting.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can I disentangle the effects of two regulatory changes on &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; by using &lt;span class=&quot;math-container&quot;&gt;$1(a&amp;gt;a_0)$&lt;/span&gt; as an instrument variable for &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$z$&lt;/span&gt;?&lt;/p&gt;&#xA;" OwnerUserId="21219" LastEditorUserId="6168" LastEditDate="2019-03-03T08:08:16.833" LastActivityDate="2019-03-03T08:08:16.833" Title="Multiple regulatory changes at the cutoff" Tags="&lt;econometrics&gt;" AnswerCount="0" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="27093" PostTypeId="2" ParentId="27064" CreationDate="2019-03-03T05:14:43.743" Score="0" Body="&lt;p&gt;You need to optimize as if the budget constraint was a regular straight line, taking in account the new maximum consumption of x.&#xA;If the solution is unaffordable because it has too many units of y, then the optimum is as many as you can get of y, using all the coupons for x .&lt;/p&gt;&#xA;" OwnerUserId="21252" LastActivityDate="2019-03-03T05:14:43.743" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27094" PostTypeId="2" ParentId="27091" CreationDate="2019-03-03T05:29:25.127" Score="1" Body="&lt;p&gt;You don’t. CPI is a proxy for the fantastical concept of a real price. Any measure will have theoretical implications (Australia’s CPI makes some very funny housing assumptions, for example).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As the measure is a proxy for a theorised but unreachable category, and as the measure is only available at its noted frequencies you can’t create a line. Part of the measure is its frequency. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is impossible for two reasons:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;proxies are just that&lt;/li&gt;&#xA;&lt;li&gt;a measure which is grounded in theoretical assumptions and produced with a frequency can’t be resolved smaller than that frequency&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;You might look into producing a new measure acting as a proxy with a desired frequency, but only state agents and historians tend to go about these windmill fights. &lt;/p&gt;&#xA;" OwnerUserId="19898" LastActivityDate="2019-03-03T05:29:25.127" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27096" PostTypeId="1" CreationDate="2019-03-03T11:27:19.893" Score="0" ViewCount="445" Body="&lt;p&gt;I am a beginner economics student and recently, I have been learning about how balance of payments surpluses are important for a country to control the value of its currency using its accumulated foreign reserves. In the case of the free floating exchange rate regimes (e.g. Russia), by default, the foreign reserves account is empty. This makes perfect sense since the country does not need any reserve assets to manipulate the value of the currency. Does that mean to say that the balance of payments position is always &quot;neutral&quot; (i.e. neither deficit nor surplus) for a country with a freely-floating exchange rate regime and that the BOP position is irrelevant for such a country since the current account and capital and financial accounts automatically balance each other? &lt;/p&gt;&#xA;" OwnerUserId="18212" LastActivityDate="2020-07-26T10:06:00.667" Title="Balance of payments and the free floating exchange rate system" Tags="&lt;exchange-rates&gt;&lt;balance-of-payments&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27097" PostTypeId="1" CreationDate="2019-03-03T14:30:20.023" Score="1" ViewCount="18" Body="&lt;p&gt;I want to use the U.S. data from the World Inequality Database for a VAR analysis. However, I am confused as to why the series for the top 10% income share only runs back to 1962, while the series for the top 10% average income runs back to 1913. As there is data on total national income that runs back even farther, why has the 10% income share not been computed? I looked at some of the documentation but couldn't find an answer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://wid.world/data/&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://wid.world/data/&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I realize this is a very specific question. I am hoping someone closely acquainted with the data, or even someone who worked on the data, might be able to help. Thank you.  &lt;/p&gt;&#xA;" OwnerUserId="20591" LastActivityDate="2019-03-03T16:47:04.987" Title="World Inequality Database: Top 10% Income Share U.S. vs. Top 10% Average Income" Tags="&lt;data-request&gt;&lt;inequality&gt;&lt;national-income&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27098" PostTypeId="1" CreationDate="2019-03-03T16:03:46.003" Score="0" ViewCount="38" Body="&lt;p&gt;Suppose I have a regression of the form:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;Y_{it}=\beta X_{it}+\beta_{2}X_{it}\times D_{i}+\alpha_{i}+\epsilon_{it}&#xA;$$&lt;/span&gt;&#xA; In the above, we have information by country-year on &lt;span class=&quot;math-container&quot;&gt;$Y_{it}$&lt;/span&gt; and&#xA;two regressors: &lt;span class=&quot;math-container&quot;&gt;$X_{it}$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$D_{i}$&lt;/span&gt;. &lt;span class=&quot;math-container&quot;&gt;$X_{it}$&lt;/span&gt; is time varying,&#xA;but &lt;span class=&quot;math-container&quot;&gt;$D_{i}$&lt;/span&gt; is fixed for each country over time. &lt;span class=&quot;math-container&quot;&gt;$\alpha_{i}$&lt;/span&gt; measures&#xA;the country fixed effect. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is: can &lt;span class=&quot;math-container&quot;&gt;$\beta_{2}$&lt;/span&gt; be identified?&#xA;As a fixed effects procedure uses only within-country variation, and&#xA;as &lt;span class=&quot;math-container&quot;&gt;$D_{i}$&lt;/span&gt; does not vary over time, how is &lt;span class=&quot;math-container&quot;&gt;$\beta_{2}$&lt;/span&gt; separately&#xA;identified from &lt;span class=&quot;math-container&quot;&gt;$\beta?$&lt;/span&gt; I ran the regression and did find that&#xA;it was identified. Am I missing something?&lt;/p&gt;&#xA;" OwnerUserId="5233" LastEditorUserId="20591" LastEditDate="2019-03-03T17:03:27.247" LastActivityDate="2019-03-03T17:03:27.247" Title="Fixed Effects: Identifying coefficient for interaction term with a constant" Tags="&lt;paneldata&gt;" AnswerCount="0" CommentCount="9" ContentLicense="CC BY-SA 4.0" />
  <row Id="27099" PostTypeId="2" ParentId="27097" CreationDate="2019-03-03T16:47:04.987" Score="1" Body="&lt;p&gt;I have actually found an answer to my own question. In case anyone's interested, I found the data on the top 10%'s income share going back to 1913 on dr. Mark Frank's website - he collaborated on the construction WID. I suppose the series have gone missing / were excluded for some reason on the WID's platform? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.shsu.edu/~eco_mwf/inequality.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.shsu.edu/~eco_mwf/inequality.html&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="20591" LastActivityDate="2019-03-03T16:47:04.987" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27103" PostTypeId="1" CreationDate="2019-03-03T21:37:19.883" Score="0" ViewCount="301" Body="&lt;p&gt;I've spent considerable amount of time on this question, in vain. It is from one of the competitive exams for admission to a grad econ program. Help would be tremendously appreciated. Thanks.   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;An economy comprises of a consolidated household sector, a firm sector and the&#xA;government. The household supplies labour &lt;span class=&quot;math-container&quot;&gt;$L$&lt;/span&gt; to the firm. The firm produces a single good &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt; by means of a production function &lt;span class=&quot;math-container&quot;&gt;$$Y = F(L);\ F'(L) &amp;gt; 0,\ F′′(L) &amp;lt; 0 $$&lt;/span&gt; and&#xA;maximizes profits &lt;span class=&quot;math-container&quot;&gt;$$Π = PY −WL $$&lt;/span&gt; where &lt;span class=&quot;math-container&quot;&gt;$P$&lt;/span&gt; is the price of &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$W$&lt;/span&gt; is the wage rate.    &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The household, besides earning wages, is also entitled to the profits of the firm. The household maximizes utility &lt;span class=&quot;math-container&quot;&gt;$U$&lt;/span&gt;, given by:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$U = \frac12lnC\ +\frac12ln (\frac{M}{P}) \ - d(L)$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where &lt;span class=&quot;math-container&quot;&gt;$C$&lt;/span&gt; is consumption of the good and &lt;span class=&quot;math-container&quot;&gt;$\frac{M}P$&lt;/span&gt; is real balance holding. The term &lt;span class=&quot;math-container&quot;&gt;$d(L)$&lt;/span&gt; denotes the disutility from supplying labour; with &lt;span class=&quot;math-container&quot;&gt;$ d'(L) &amp;gt; 0,\ d′′(L) &amp;gt; 0 $&lt;/span&gt;. The household's budget constraint is given by:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$PC + M = WL + Π + \bar{M} - PT $$&lt;/span&gt; ;&#xA;where &lt;span class=&quot;math-container&quot;&gt;$\bar{M}$&lt;/span&gt;  is the money holding the household begins with, M is the holding they end up with and &lt;span class=&quot;math-container&quot;&gt;$T$&lt;/span&gt; is the real taxes levied by the government. The government's demand for the good is given by &lt;span class=&quot;math-container&quot;&gt;$G$&lt;/span&gt;.The government's budget constraint is given by:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$M - \bar{M} = PG - PT$$&lt;/span&gt;&#xA;Goods market clearing implies: &lt;span class=&quot;math-container&quot;&gt;$Y = C + G$&lt;/span&gt;    &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(a) Prove that &lt;span class=&quot;math-container&quot;&gt;$\frac{dY}{dG} ∈ (0,1)$&lt;/span&gt;, and that government expenditure crowds out private consumption (i.e., &lt;span class=&quot;math-container&quot;&gt;$\frac{dC}{dG} &amp;lt; 0 $&lt;/span&gt;)  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(b) Show that everything else remaining the same, a rise in &lt;span class=&quot;math-container&quot;&gt;$\bar{M}$&lt;/span&gt; leads to an equiproportionate rise in &lt;span class=&quot;math-container&quot;&gt;$P$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="20640" LastActivityDate="2019-03-03T21:37:19.883" Title="Question about an economy with 3 components household, firm and government with functions given" Tags="&lt;macroeconomics&gt;&lt;utility&gt;&lt;production-function&gt;&lt;profit-maximization&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27104" PostTypeId="2" ParentId="27096" CreationDate="2019-03-03T23:50:37.487" Score="1" Body="&lt;p&gt;The Balance of Payments are a form of double-entry bookkeeping and so in theory should always balance overall  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If official reserves do not change because the currency is floating freely and the Central Bank or Treasury is not intervenening, then a country's current account balance should be offset exactly by the financial/capital account balance.  But measuring this is difficult, which is why you often see a &quot;statistical discrepancy&quot;, for example in row 100 of page 10 of &lt;a href=&quot;https://www.bea.gov/system/files/2018-12/trans318.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;the US Balance of Payments&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But the individual flows matter, and it might then be wrong to say &quot;the BOP position is irrelevant&quot;, at least in the medium to long term. A country with a persistent current account deficit will need to see net inward financial flows, which may be desirable if it leads to increased real investment and later to increased output, but may be less desirable if it merely leads to greater indebtedness and the need to pay for that debt  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Meanwhile a country with a persistent current account surplus is effectively continually exporting more than it needs to pay for imports, so reducing its consumption and standard of living; this may make sense if it later intends to increase consumption with the income from its investments abroad, but otherwise is unnecessary and potentially wasteful and can lead to a failure of these unbalanced investments, as happened with German banks' speculative assets in the USA during the financial crisis  &lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2019-03-03T23:50:37.487" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27105" PostTypeId="1" CreationDate="2019-03-04T02:59:06.333" Score="0" ViewCount="21" Body="&lt;p&gt;Suppose I have a function of a varying values represented by randomness. A stock or price of a commodity would be a good example.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is the average return for that stock on any given interval of prices?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let average return be defined as the most likely return achieved given two bounds.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've come up with an initial hypothesis for my average value function.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt; be the average value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let &lt;span class=&quot;math-container&quot;&gt;$x_i \in [0,M]$&lt;/span&gt;&#xA;Where &lt;span class=&quot;math-container&quot;&gt;$M$&lt;/span&gt; is the most recent index for a price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$A = \sum_{x=0}^M \frac{1}{M} \sum_{y=x}^M \frac{1}{M -y+x} f(x,y)&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let &lt;span class=&quot;math-container&quot;&gt;$f(x,y)$&lt;/span&gt; be the return using an arbitrary strategy between the intervals &lt;span class=&quot;math-container&quot;&gt;$[x,y]$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this a good indicator for any return? Does this say more about the stock or commodity or the strategy itself? &lt;/p&gt;&#xA;" OwnerUserId="21284" LastActivityDate="2019-03-04T02:59:06.333" Title="Average Return for Commodity" Tags="&lt;stock-market&gt;&lt;price&gt;&lt;commodities&gt;" AnswerCount="0" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="27107" PostTypeId="1" CreationDate="2019-03-04T09:44:34.177" Score="2" ViewCount="47" Body="&lt;p&gt;When the single currency was planned, there was no internet and there all currency exchange was manual. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Today the web can automatically convert prices using multiplication of the numbers in the price field, and robotic cash exchange can count and exchange currencies better and cheaper than a human exchange. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does the UK suffer an considerable economic handicap from having not adopted the Euro? Is the single currency concept nearly obsolete? &lt;/p&gt;&#xA;" OwnerUserId="10997" LastEditorUserId="6168" LastEditDate="2019-03-04T20:40:16.013" LastActivityDate="2019-03-05T06:36:01.783" Title="Is an EU single currency still a trade advantage in 2019?" Tags="&lt;international-trade&gt;&lt;currency&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27109" PostTypeId="2" ParentId="27107" CreationDate="2019-03-04T21:23:46.160" Score="4" Body="&lt;p&gt;Very good points about the role of modern tools (the web, robotic cash exchange, etc.) are raised. The  classic argument is that trade should expand within the eurozone following (1) increase in price transparency, (2) elimination of currency conversion costs, and (3) elimination of exchange rate fluctuations.   &lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Are the classical arguments challenged by modern tools?&lt;/h2&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Price comparison across border is surely much easier today with the web than it was in the nineties.&lt;/li&gt;&#xA;&lt;li&gt;In  its  report  &lt;a href=&quot;http://ec.europa.eu/economy_finance/publications/pages/publication_summary7520_en.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;One  Market  One  Money&lt;/a&gt;,  the  European  Commission  (1990)  calculates  that  eliminating  costs  of  conversion  of  currencies  and  costs  of  cover  for  exchange  risk  will reduce costs by .25 to .5 of 1 percent of total output in the EU. The report also stresses additional  gains  that  would  come  from  the  elimination  of  “in-house  costs”  associated  with multiple  units  of  account.  These  are  reductions  in  costs  connected  with  record  keeping,  accounting and decision-making. The question: How much lower are the conversion costs thanks to modern tools? Even if they are now lower, they are still positive.&lt;/li&gt;&#xA;&lt;li&gt;Despite modern tools, exchange rates still fluctuate.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;So, the adoption of the single currency may still boost trade. &lt;/p&gt;&#xA;&#xA;&lt;h2&gt;The role of modern arguments&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;To these classical arguments, we can add more subtle ones. For instance, in some industries, components cross borders many times before being assembled and sold as a final  good,  even  a  small  reduction  in  transaction  costs  can  increase  trade  flows non-linearly (&lt;a href=&quot;https://ideas.repec.org/p/hhs/iiessp/0746.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Flam and Nordstrom, 2006&lt;/a&gt;). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a series of papers, &lt;a href=&quot;http://graduateinstitute.ch/home/research/centresandprogrammes/ctei/ctei_people/baldwin_home.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Richard Baldwin&lt;/a&gt; adds that adopting a single currency may (1) reduce collusion among competitors and eliminate pricing mark-ups and enhance trade (&lt;a href=&quot;https://poseidon01.ssrn.com/delivery.php?ID=161070001067084076084125087028007123120047030012065075094106114097003027100007065120049062054045104022006118118004089015123015071007062035082093090003085096113071064003102077124064089094106090026089099111104104123005098124120071109028102074070094&amp;amp;EXT=pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;p. 63-64&lt;/a&gt;); (2) increase the entry of small firms by reducing the fixed cost of trade.&lt;/p&gt;&#xA;" OwnerUserId="6168" LastEditorUserId="6168" LastEditDate="2019-03-05T06:36:01.783" LastActivityDate="2019-03-05T06:36:01.783" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27114" PostTypeId="1" AcceptedAnswerId="27138" CreationDate="2019-03-05T03:21:07.417" Score="0" ViewCount="99" Body="&lt;p&gt;The Fed's website has a FAQ &quot;&lt;a href=&quot;https://www.federalreserve.gov/faqs/currency_12770.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;Is U.S. currency still backed by gold?&lt;/a&gt;&quot;. Part of the answer writes:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The Congress has specified that Federal Reserve Banks must hold collateral equal in value to the Federal Reserve notes that the Federal Reserve Bank puts in to circulation. This collateral is chiefly held in the form of U.S. Treasury, federal agency, and government-sponsored enterprise securities.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In 2017, there were \$41.6B in notes in circulation (&lt;a href=&quot;https://www.federalreserve.gov/paymentsystems/coin_currcircvolume.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;source&lt;/a&gt;). (Of course, the Fed's &lt;a href=&quot;https://fred.stlouisfed.org/series/WALCL&quot; rel=&quot;nofollow noreferrer&quot;&gt;total assets&lt;/a&gt; vastly dwarf this figure -- they are around \$4T now, but were over \$700B even in the years before the financial crisis.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Three questions about the above statement:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;The statement presumably refers to some specific law passed by Congress. What was this law and when was it passed?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Does the Fed specifically earmark some portion of its assets as &quot;collateral&quot; for the notes in circulation? For example, in 2017, did the Fed have \$41.6B in assets specially earmarked as &quot;collateral&quot; for the \$41.6B in circulating notes?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Does the Fed actually keep any record of this? (This was one thing I was looking for but unable to find.)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerDisplayName="user20317" LastActivityDate="2019-03-06T23:01:06.710" Title="Fed must hold collateral equal in value to notes in circulation" Tags="&lt;central-banking&gt;&lt;money&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27118" PostTypeId="1" CreationDate="2019-03-05T19:04:48.423" Score="2" ViewCount="40" Body="&lt;p&gt;I am currently working on a large sample of textual data from news articles. I was just wondering whether there exists any studies which tries to explain the market anomaly known as &quot;The-Day-Of-The-Week effect&quot; or the &quot;Weekend Effect&quot; with news articles or news in general?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What kind of news can impact the stock market in such a way?&lt;/p&gt;&#xA;" OwnerUserId="21296" LastEditorUserId="1601" LastEditDate="2019-03-05T20:49:10.867" LastActivityDate="2019-03-06T06:38:47.320" Title="The impact of news in the stock market?" Tags="&lt;microeconomics&gt;&lt;reference-request&gt;&lt;time-series&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27119" PostTypeId="1" AcceptedAnswerId="27121" CreationDate="2019-03-05T19:34:05.133" Score="1" ViewCount="146" Body="&lt;p&gt;In RS model, where there are only two risk types (high and low risks), there is no pooling equilibrium but a separating one (when there are sufficiently large number of high risks.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Additionally, they state that if there are continuum of risk types, there can never be an equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have 2 questions:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;I am trying to understand the analytical proof of the continuum case. I have the technical report of their paper and will provide that section here. However, I think the proof is not well-organised and I appreciate a clear explanation to the proof.**&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;In the proof, there is a section (highlighted) stating &quot;necessary condition for existence is that..&quot; and giving an inequality afterwards. To my understanding, this inequality gives how large the high risk population should be in order to guarantee the separating equilibrium. (Please let me know if I am wrong at this point). However, they take the derivative of the incentive compatibility constraint to derive this inequality, i.e. they take the derivative of an inequality to reach another inequality. Don't you think this approach is wrong as taking the derivative of an inequality does not have to yield another inequality?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;** In the continuum case, I understand their reasoning that it is enough to show the inexistence of an equilibrium by only showing the inexistence for 2 close risk types, and they start from the maximisation problem of low risks. However, rest is foggy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/wriJL.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/wriJL.png&quot; alt=&quot;Section of the report referencing the appendix&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/0l4h2.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/0l4h2.png&quot; alt=&quot;Proof-Part 1&quot;&gt;&lt;/a&gt;&#xA;&lt;a href=&quot;https://i.stack.imgur.com/PkSg2.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/PkSg2.png&quot; alt=&quot;Proof-Part 2&quot;&gt;&lt;/a&gt;&#xA;&lt;a href=&quot;https://i.stack.imgur.com/s8ISt.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/s8ISt.png&quot; alt=&quot;Proof-Part 3(end)&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="20073" LastActivityDate="2019-03-05T20:55:56.490" Title="Rothschild-Stiglitz (RS) Separating Equilibrium" Tags="&lt;adverse-selection&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27120" PostTypeId="2" ParentId="27050" CreationDate="2019-03-05T20:50:38.420" Score="4" Body="&lt;p&gt;I don't know if you are aware that you are using the word &quot;print&quot; abusively but:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The U.S. Treasury controls the printing of money in the United States. However, the Federal Reserve Bank has control of the money supply through its power to create credit with interest rates and reserve requirements.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Source : &lt;a href=&quot;https://www.investopedia.com/ask/answers/082515/who-decides-when-print-money-us.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.investopedia.com/ask/answers/082515/who-decides-when-print-money-us.asp&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus both are correct. Clearly a CB does not increase the money supply by creating credits &lt;strong&gt;&lt;em&gt;in order to&lt;/em&gt;&lt;/strong&gt; buy governments securities. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It does so with other goals in mind, such as forging economic cycles, maintaining financial stability, reconfiguring the debt market and/or stimulating money multipliers in the national economy. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A CB (theoretically)(and indirectly) buys government securities in an inflation-neutral manner &lt;span class=&quot;math-container&quot;&gt;$\iff$&lt;/span&gt; no money printed &lt;span class=&quot;math-container&quot;&gt;$\iff$&lt;/span&gt; it uses the existing &quot;stock of (scriptural) cash&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;hr&gt;&#xA;The difference between your two scenarios is the notion of debt. Strongly putting aside the fact that your &lt;em&gt;ex-nihilo&lt;/em&gt; first scenario literally makes no sense without a credit underlier. &lt;/p&gt;&#xA;" OwnerUserId="10247" LastEditorUserId="10247" LastEditDate="2019-03-06T06:58:23.200" LastActivityDate="2019-03-06T06:58:23.200" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27121" PostTypeId="2" ParentId="27119" CreationDate="2019-03-05T20:55:56.490" Score="3" Body="&lt;p&gt;I recommend reading &lt;a href=&quot;https://www2.bc.edu/thomas-chemmanur/phdfincorp/MF891%20papers/Riley_1979.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;'Informational Equilibrium'&lt;/a&gt; by John Riley (1979). It discusses this setting more generally. How the &quot;insurance model&quot; of Rotschild and Stiglitz is a special case of this is presented on pg. 335, and then Theorem 3 on pg. 343 is what you need. The proof is not trivial, but - in my opinion - well presented. &lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2019-03-05T20:55:56.490" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27122" PostTypeId="2" ParentId="27118" CreationDate="2019-03-05T21:08:17.583" Score="2" Body="&lt;p&gt;I don't know about the &quot;Weekend Effect&quot; but a paper by Scott R. Baker, Nick Bloom, and Steven J. Davis try to answer to the question &lt;a href=&quot;http://faculty.chicagobooth.edu/steven.davis/pdf/What%20Triggers%20Stock%20Market%20Jumps%207%20January%202018.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;What triggers stock market jumps?&lt;/a&gt;. They show that some news can indeed impact the stock market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Drawing on &lt;strong&gt;next-­‐day newspaper accounts&lt;/strong&gt;, they develop new evidence about the forces that trigger large daily jumps in national stock and bond markets. They read and code next-­‐day interpretations of 200 or more daily jumps per country in recent decades, yielding five main results. &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;The Global Financial Crisis (GFC) of 2008-­‐09 exhibits very high counts of daily equity market jumps around the world. Looking back to 1885 for the U.S., the Great Depression is the only period with equal or greater jump frequency.  &lt;/li&gt;&#xA;&lt;li&gt;U.S. developments trigger equity market jumps across the globe, especially during the GFC. Jumps sourced to the U.S. are hugely more important than jumps sourced to Europe except for European countries, where the counts are similar.  &lt;/li&gt;&#xA;&lt;li&gt;Policy news triggers about 20-­‐25% of equity market jumps in most advanced economies and a larger share in other countries (e.g., China=33%, and India=46%).  &lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;News about the macroeconomic performance and outlook&lt;/strong&gt; accounts for 23-­‐38% of equity market jumps in advanced economies, and less in other countries.  &lt;/li&gt;&#xA;&lt;li&gt;For U.S. government bond yields, &lt;strong&gt;news about the macroeconomy&lt;/strong&gt; triggers 65% of the jumps; adding news about monetary policy as well accounts for 93% of the jumps.  &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;See also Nick Bloom's &lt;a href=&quot;https://voxeu.org/article/uncertainty-shock-will-cause-recession-evidence-16-previous-episodes&quot; rel=&quot;nofollow noreferrer&quot;&gt;CEPR Vox column&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="6168" LastEditorUserId="6168" LastEditDate="2019-03-06T06:38:47.320" LastActivityDate="2019-03-06T06:38:47.320" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27123" PostTypeId="2" ParentId="26722" CreationDate="2019-03-06T02:13:07.350" Score="1" Body="&lt;p&gt;In Norway the average McDonalds employee &lt;a href=&quot;https://www.mcdonalds.com/no/nb-no.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;makes $16 an hour.&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lets estimate that the average McDonalds store makes 50 baskets of fries every day. &#xA;Lets estimate that it takes on average 30 seconds to pour fries into the fryer. 30 seconds to remove the fries from the fryer. 30 seconds to pour salt on the fries and 30 seconds pour the fries into the paper bags. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This means that on average McDonald's spends 100 min worth of labor (30 sec * 4 times * 50 baskets) a day on making fries, which costs them $26.66 per day. Now on top of making fries this employee can also help customers, clean up the store, and perform other tasks as well when they're not making fries.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lets imagine the alternative, some automated machine that makes fries automatically. You'd need some contraption where you load it up with frozen fries (requires a human paid minimum wage to load it), it has to have some really fancy software that detects when fries are running low so that it can start the frying process at the right time, has to salt the fries, and then place them in a bag. If this complicated machine breaks you have to hire a very expensive repairman to fix it and you still need to hire some employee making $16 an hour to load the machine and interact with customers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The cost to maintain this machine would far outweigh the relatively minor cost in labor with the status quo, not to mention the fact that you're going to need an employee either way unless you can fully automate all operations of the store.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;All things considered, for how amazingly useful people are, they're fairly cheap to hire as compared to some over-engineered solution.&lt;/p&gt;&#xA;" OwnerUserId="10245" LastActivityDate="2019-03-06T02:13:07.350" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27124" PostTypeId="1" AcceptedAnswerId="27194" CreationDate="2019-03-06T02:19:43.877" Score="3" ViewCount="192" Body="&lt;p&gt;Under Islamic law (Sharia), any interest is considered usury and is prohibited. This makes banking in Islamic ruled countries difficult as the normal way for banks to create profit is through lending money at a rate of interest. Rather, Islamic banks work by profit sharing or buy-sell method (e.g. when asking for a mortgage, the bank buys a house and sells back to the borrower at a higher price).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is: how successful is this model of Islamic banking? Does it make more money? Are there any advantages that this model gives not present in the regular banking doctrine?&lt;/p&gt;&#xA;" OwnerUserId="21304" LastActivityDate="2019-06-17T13:23:37.077" Title="How successful is the Islamic banking model?" Tags="&lt;banking&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27125" PostTypeId="1" AcceptedAnswerId="27128" CreationDate="2019-03-06T07:41:23.897" Score="1" ViewCount="83" Body="&lt;p&gt;If strict preferences over three outcomes x, y and z, do not satisfy transitivity, so that &lt;span class=&quot;math-container&quot;&gt;$x \succ y \succ z \succ x$&lt;/span&gt;, then these preferences cannot be represented by a utility function.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this statement true or false? Can anyone explain it to me?&lt;/p&gt;&#xA;" OwnerUserId="21305" LastEditorUserId="5145" LastEditDate="2019-03-06T17:23:26.673" LastActivityDate="2019-03-06T17:23:26.673" Title="Strict preference and utility function" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27128" PostTypeId="2" ParentId="27125" CreationDate="2019-03-06T15:54:28.737" Score="2" Body="&lt;p&gt;In fact, we don not even call them preferences. In order for a binary relationship to be a &lt;em&gt;preference&lt;/em&gt; relationship, it must be both &lt;strong&gt;complete&lt;/strong&gt; and &lt;strong&gt;transitive.&lt;/strong&gt; The main goal of modelling preferences is to understand choice. And we cannot understand choice unless preferences are a quasi-order, i.e., one can rank alternatives (with ties allowed). In the case you mention, &lt;span class=&quot;math-container&quot;&gt;$x \succ y \succ z \succ x$&lt;/span&gt;, we would not know how to rank them. Further, it is clear that no function &lt;span class=&quot;math-container&quot;&gt;$u(·)$&lt;/span&gt; can reproduce this ranking, as transitivity of real numbers makes it impossible to have &lt;span class=&quot;math-container&quot;&gt;$u(x)&amp;gt;u(y)&amp;gt;u(z)&amp;gt;u(x)$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that this is different from &lt;span class=&quot;math-container&quot;&gt;$x \sim y \sim z.$&lt;/span&gt; In this case you could say &quot;no ranking exists&quot; (although, perhaps it would be more adequate to say that &quot;any ranking is consistent with the preferences&quot;). In these circumstances, the utility function does exist, as it only must happen that &lt;span class=&quot;math-container&quot;&gt;$u(x)=u(y)=u(z)$&lt;/span&gt;. &lt;/p&gt;&#xA;" OwnerUserId="20281" LastActivityDate="2019-03-06T15:54:28.737" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27130" PostTypeId="1" CreationDate="2019-03-06T16:39:13.620" Score="1" ViewCount="36" Body="&lt;p&gt;I must represent in extended (tree) form the following Game Theory problem:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;A committee of experts must recommend a policy &lt;span class=&quot;math-container&quot;&gt;$a_1\in \mathbb R$&lt;/span&gt; to Congress. Congress will then choose a policy &lt;span class=&quot;math-container&quot;&gt;$a_2\in \mathbb R$&lt;/span&gt;. The result of this policy is uncertain, determined by &lt;span class=&quot;math-container&quot;&gt;$x = a_2 + w$&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt; is random variable uniformly distributed between &lt;span class=&quot;math-container&quot;&gt;$[0,1]$&lt;/span&gt;, chosen by the &amp;quot;nature&amp;quot; player. The experts know the value of &lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt;, but the Congressmen are only aware that &lt;span class=&quot;math-container&quot;&gt;$w\sim U[0,1]$&lt;/span&gt;. The benefits to the congressmen and the experts are given by &lt;span class=&quot;math-container&quot;&gt;$-x^2$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$-(x - 0.5)^2$&lt;/span&gt;, respectively.&lt;/p&gt;&#xA;&lt;p&gt;So, the sequence of the game is the following: the nature player &amp;quot;chooses&amp;quot; &lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt;, then the experts choose an &lt;span class=&quot;math-container&quot;&gt;$a_1$&lt;/span&gt; to recommend, and finally the congressmen choose &lt;span class=&quot;math-container&quot;&gt;$a_2$&lt;/span&gt;, the acutal policy.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;My problem is the following: I can't figure out a way to represent the fact that the experts know the value of the continuous &lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt;, but the congressmen don't.&lt;/p&gt;&#xA;" OwnerUserId="21313" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2019-12-01T08:39:54.287" Title="How can I represent players with different information given continuous choice ranges?" Tags="&lt;game-theory&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27133" PostTypeId="2" ParentId="16465" CreationDate="2019-03-06T17:29:51.043" Score="1" Body="&lt;p&gt;In an extensive form game, a continuous action space is typically drawn using an arc connecting two branches representing the upper and lower bounds of the action space. One can additionally draw a circle around the arc to indicate that the nodes after those actions all belong to the same information set. The following are a couple of examples:&lt;/p&gt;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/rpSFU.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/rpSFU.png&quot; alt=&quot;enter image description here&quot; /&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/hYegY.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/hYegY.png&quot; alt=&quot;enter image description here&quot; /&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&lt;p&gt;&lt;sub&gt;Related: &lt;a href=&quot;https://tex.stackexchange.com/a/272276/18228&quot;&gt;How to draw game trees with continuous action space in LaTeX&lt;/a&gt;.&lt;/sub&gt;&lt;/p&gt;&#xA;" OwnerUserId="42" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2019-03-06T17:29:51.043" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27134" PostTypeId="1" AcceptedAnswerId="27136" CreationDate="2019-03-06T20:30:07.707" Score="6" ViewCount="128" Body="&lt;p&gt;It just seems like a way to get around money creation limits imposed by liquidity requirements. For example if a bank creates new money by extending new morgages then securitizes them and resells them, the bank is effectively printing money and giving it to itself to boost it's liquidity ratio, which in turn allows the bank to extend more morgages and resell them ad infinitum!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Maybe it's actually good that banks can do this? I'd like to know if this is a responsible business practice that's good for the economy as a whole (maybe allowing for cheaper mortgages) or if it's only in the interest of bank shareholders (at the expense of destabilizing the economy).&lt;/p&gt;&#xA;" OwnerUserId="18412" LastActivityDate="2019-03-06T22:44:34.200" Title="Why are banks allowed to resell mortgages?" Tags="&lt;banking&gt;&lt;money-supply&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27136" PostTypeId="2" ParentId="27134" CreationDate="2019-03-06T22:33:38.570" Score="6" Body="&lt;p&gt;A bank selling mortgages does not, by itself, increase the money supply.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To see this, work through the balance sheet implications step-by-step:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;A bank makes a mortgage loan, swapping cash assets on its balance sheet for a mortgage asset. The customer receives cash. At this stage, the money supply has been increased.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;2a. A bank sells a mortgage to another bank, swapping cash and mortgage assets between the two, but without increasing the money supply.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2b. A bank sells a mortgage to something that is not a bank, reversing what it did when it made the mortgage loan: the bank ends up with a cash asset and loses the mortgage asset, while the not-a-bank entity loses cash, decreasing the money supply.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;They key here is that expansions or contractions of the money supply arising out of banking have everything to do with the the extent to which banks in the aggregate are lending cash that has been deposited with them (i.e., deposit liabilities). It’s a stock, not a flow, so you have to analyze the balance sheet impacts of what happens when banks sell an asset, paying attention to how the buyer is financing the purchase, to understand what the effect on the money supply is.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The (glaring) exception to this is that many entities that hold mortgages act effectively like banks, but aren’t banks. They’re often referred to as “shadow banks.” There are a lot of different types of entities that do this, but a simple, clean example is a mortgage REIT. If a REIT buys a mortgage security, it will likely fund it by doing a repo (basically borrowing money but with collateral) with a money market mutual fund, which is lending out its depositors’ money, just like a bank.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One note: In responding, I’m deliberately ignoring the part about liquidity requirements, because money creation by banks can be (and has historically been) bound at different times and for different entities by liquidity, capital, or reserve requirements, but liquidity requirements in the US are not generally intended to constrain money creation per se, but rather as a prudential measure. More specifically, GSE MBS is a Level 1 “high-quality liquid asset” under the liquidity coverage ratio, so swapping mortgages once they’ve received a GSE wrap doesn’t actually do anything to improve a bank’s liquidity ratio. &lt;/p&gt;&#xA;" OwnerUserId="264" LastEditorUserId="264" LastEditDate="2019-03-06T22:44:34.200" LastActivityDate="2019-03-06T22:44:34.200" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="27137" PostTypeId="1" AcceptedAnswerId="27153" CreationDate="2019-03-06T22:41:58.380" Score="0" ViewCount="44" Body="&lt;p&gt;My understanding of forex exchange is that when there are two currencies &lt;code&gt;cur1&lt;/code&gt; and &lt;code&gt;cur2&lt;/code&gt;, they are balanced in the world with a certain rate. People who buy &lt;code&gt;cur1&lt;/code&gt; at a high rate and sell in a lower rate effectively end up paying for the profit which someone has made by selling &lt;code&gt;cur1&lt;/code&gt; when the rate was high and buying when the rate was lower.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a hypothetical world where no one sells their reserve of &lt;code&gt;cur2&lt;/code&gt; but people having &lt;code&gt;cur1&lt;/code&gt; reserves keep on buying &lt;code&gt;cur2&lt;/code&gt;, how will the system be balanced? Who will gain or loose to compensate for the imbalance created? Please correct me if you think the question is incorrect or missing something.&lt;/p&gt;&#xA;" OwnerUserId="21317" LastActivityDate="2019-03-07T16:15:26.930" Title="Who looses Forex if someone gains?" Tags="&lt;money&gt;&lt;foreign-exchange&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="27138" PostTypeId="2" ParentId="27114" CreationDate="2019-03-06T23:01:06.710" Score="1" Body="&lt;ol&gt;&#xA;&lt;li&gt;Section 16 of the Federal Reserve Act, 1913. &lt;/li&gt;&#xA;&lt;li&gt;No, the Fed’s accounting generally follows the standard convention, where assets=liabilities+equity. All of its assets count as collateral; no particular assets are “earmarked” as collateral. By construction, the Fed holds assets against all its liabilities (mostly deposits), not just Federal Reserve Notes. &lt;/li&gt;&#xA;&lt;li&gt;Yes, you can see the assets and liabilities of the Fed in its &lt;a href=&quot;https://www.federalreserve.gov/releases/h41/current/default.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;H.4.1 release&lt;/a&gt;. &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="264" LastActivityDate="2019-03-06T23:01:06.710" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27139" PostTypeId="2" ParentId="9258" CreationDate="2019-03-07T03:48:18.553" Score="0" Body="&lt;p&gt;To understand trade/currency conflict with China we have to look at a few of the major moving parts.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Renminbi (RMB or yuan) is fixed to the dollar, the pair trade as one unit against all other currencies. So in global trade your currency is either fixed against a standard such as gold or floated freely against each other.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;I am unable to understand the need for a country devaluating it's own currency. How would it help that country?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So as the dollar gains in strength, being that the yuan is pegged to the dollar as I just explained, it also gains in strength, which means that China has to devalue its own currency so it will not gain some much strength. Why is that a bad thing for China?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A much stronger USD would end up making Chinese goods more expensive everywhere on the globe except the United States. That said, a stronger or weaker dollar has no effect on the cost of Chinese goods in dollars as the yuan is pegged to the dollar.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The action of devaluing is then done in relation to the cost of dollars relative to Euros, Yen, etcetera.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words, what matters to China, is the dollars relative value to its other's trading partners currencies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So when you hear that China is engaged in a currency war, its because people take China's devaluation of its own currency as a way to gain competitive advantage in affairs of trade.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So a currency war is known as a country devaluing its own currency to gain a trade advantage over another country. Many currency wars lead to this beggar-thy-neighbor situation of one nation remedying its own economic problems by worsening the economic problems of another nation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So as a necromancer of Stack Exchange questions, answering a three year old post and anticipating someone commenting on that fact, its good to revisit and refresh the answer to these questions because it seems that our current administration here in the United States have seen the folly of beggar-thy-neighbor currency wars and have decided to strengthen instead of weakening the USD. Unfortunately, this is leading to a decline in the global competitiveness of China.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Keep in mind that, in effect, the United States exports credit to China and imports goods and dollars back. So the real issue to be observing in order to understand this complex topic is looking at the credit underlying the trade between U.S. and China.&lt;/p&gt;&#xA;" OwnerUserId="20035" LastActivityDate="2019-03-07T03:48:18.553" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27142" PostTypeId="1" CreationDate="2019-03-07T04:42:56.270" Score="0" ViewCount="48" Body="&lt;p&gt;Let's suppose that it costs producers a minimum of &lt;em&gt;y&lt;/em&gt; dollars to produce a widget (it may actually cost more, depending on the producer, but that is the bare minimum). In a competitive equilibrium, where there are several producers of this identical widget, would the selling price of the widget be $y? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Please explain your reasoning.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;EDIT:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have arrived at the selling price of $y based on &lt;a href=&quot;https://www.economics.utoronto.ca/osborne/2x3/tutorial/CEFRM.HTM&quot; rel=&quot;nofollow noreferrer&quot;&gt;this algorithm&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="5591" LastEditorUserId="5591" LastEditDate="2019-03-07T10:12:07.027" LastActivityDate="2019-04-08T20:03:50.767" Title="Selling price of a widget at competitive equilibrium" Tags="&lt;markets&gt;&lt;competitive-equilibrium&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27144" PostTypeId="1" AcceptedAnswerId="27176" CreationDate="2019-03-07T07:02:36.120" Score="0" ViewCount="45" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;How to read PPP$ aloud?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;That is in a paper that I should read loud in a presentation, but I don't know the most &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is it &quot;purchasing power parity in US Dollar,&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;or &quot;purchasing power parity in terms of US Dollar,&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;or ... ?&lt;/p&gt;&#xA;" OwnerUserId="21323" LastActivityDate="2019-03-09T05:23:23.140" Title="How to read PPP$ aloud?" Tags="&lt;purchasing-power-partity&gt;" AnswerCount="1" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="27145" PostTypeId="1" AcceptedAnswerId="27181" CreationDate="2019-03-07T10:11:58.703" Score="4" ViewCount="3445" Body="&lt;p&gt;Pareto efficiency is defined in Wikipedia as: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Pareto efficiency or Pareto optimality is a state of allocation of&#xA;  resources from which it is impossible to reallocate so as to make any&#xA;  one individual or preference criterion better off without making at&#xA;  least one individual or preference criterion worse off.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;And it has similar definitions in other sources.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's say in a Prisoner's dilemma game, A is confession, B is tie.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The strategies with results are:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;(A, A) = -6, -6&#xA;(A, B) = 0, -10&#xA;(B, A) = -10, 0&#xA;(B, B) = -1, -1&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Nash equilibrium is (A, A), also both confessing, and it's not Pareto efficient because by moving from (A, A) to (B, B), both could improve the result (form -6 to -1, also by 5).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But why is (A, B) and (B, A) not Pareto efficient? In both cases, no player can be made better off without making another player worse off.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Moving from (A, B) to (B, B) makes &quot;player 2&quot; better off (from -10 to -1) but makes &quot;player 1&quot; worse off (from 0 to -1).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Moving from (A, B) to (A, A) makes &quot;player 2&quot; better off (from -10 to -6) but makes &quot;player 1&quot; worse off (from 0 to -6).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Moving from (A, B) to (B, A) makes &quot;player 2&quot; better off (from -10 to 0) but makes &quot;player 1&quot; worse off (from 0 to -10).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So moving from (A, B) to any other combination makes one player worse off. That's the case with (B, A) too. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;So why is (A, B) and (B, A) not Pareto efficient?&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="19275" LastActivityDate="2021-03-16T21:52:06.487" Title="Definition of Pareto efficiency and prisoner's dilemma" Tags="&lt;game-theory&gt;&lt;pareto-efficiency&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27146" PostTypeId="1" CreationDate="2019-03-07T12:36:40.903" Score="0" ViewCount="63" Body="&lt;p&gt;Which conversion factor / formula should be used to convert USD2005 PPP per-capita GDP to USD2011 PPP per-capita GDP for different countries? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have found an identical question, but without a clear, satisfactory answer here:&#xA;&lt;a href=&quot;https://economics.stackexchange.com/questions/14479/conversion-of-gdp-ppp-international-2005-into-gdp-ppp-international-2011&quot;&gt;Conversion of GDP PPP International \$ 2005 into GDP PPP International \$ 2011&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="21326" LastEditorUserId="21326" LastEditDate="2019-03-07T13:22:14.050" LastActivityDate="2021-03-28T10:04:55.433" Title="Convert USD2005 PPP per-capita GDP to USD2011 PPP per-capita GDP for a number of countries" Tags="&lt;gdp&gt;&lt;purchasing-power-partity&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27148" PostTypeId="1" CreationDate="2019-03-07T13:14:25.533" Score="0" ViewCount="26" Body="&lt;p&gt;I am trying to calculate the Net Present Value for a theoretical project in which, unlike most examples in textbooks and on internet tutorials, investments do not only happen in t=0, but they also occur in later years.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My assumption is that investment expenditures occur at the beginning of each year, while operating expenditures (incomes minus costs) occur at the end of each year.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have tried to illustrate that with the image below. The image shows the t=0 point, the 3 years considered in the analysis and the facts that the Investment expenditures (Inv) occur at the beginning of the year, while the operating expenditures (op) at the end.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/eUpA2m.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/eUpA2m.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question then is, would the following formula be correct in order to calculate the total NPV of the project? Is it ok to discount the &lt;span class=&quot;math-container&quot;&gt;$Inv_y$&lt;/span&gt; costs with the &lt;span class=&quot;math-container&quot;&gt;$(1+d)^{y-1}$&lt;/span&gt; and the &lt;span class=&quot;math-container&quot;&gt;$Op$&lt;/span&gt; with &lt;span class=&quot;math-container&quot;&gt;$(1+d)^y$&lt;/span&gt;?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$NPV = - \sum_{y=1}^{y=3} \frac{Inv_y}{(1+d)^{y-1}} - \sum_{y=1}^{y=3} \frac{Op_y}{(1+d)^{y}}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For me, it makes sense since, for instance, the &lt;span class=&quot;math-container&quot;&gt;$Inv_1$&lt;/span&gt; occurs &quot;now&quot;, while the &lt;span class=&quot;math-container&quot;&gt;$Op_1$&lt;/span&gt; occurs 1 year later. A similar thinking applies to the rest of the &lt;span class=&quot;math-container&quot;&gt;$Inv$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$Op$&lt;/span&gt; expenditures.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any feedback will be greatly appreciated!&lt;/p&gt;&#xA;" OwnerUserId="21314" LastEditorUserId="21314" LastEditDate="2019-03-07T16:42:57.270" LastActivityDate="2019-03-07T16:42:57.270" Title="Net Present Value with investments in multiple phases" Tags="&lt;microeconomics&gt;&lt;discount&gt;" AnswerCount="0" CommentCount="4" FavoriteCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27149" PostTypeId="2" ParentId="27142" CreationDate="2019-03-07T14:06:31.400" Score="1" Body="&lt;p&gt;The long run equilibrium price should be &lt;span class=&quot;math-container&quot;&gt;$\$ y,$&lt;/span&gt; however, in the short run, we only know that price must be higher that the minimum average variable cost (of which no info is given).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the long run all production takes place at the minimum average cost. All firms with average cost higher than &lt;span class=&quot;math-container&quot;&gt;$\$y$&lt;/span&gt; will either adapt their technology and reduce their costs or exit the market. &lt;/p&gt;&#xA;" OwnerUserId="20281" LastEditorUserId="20281" LastEditDate="2019-03-09T19:41:30.933" LastActivityDate="2019-03-09T19:41:30.933" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="27152" PostTypeId="1" CreationDate="2019-03-07T15:59:36.533" Score="1" ViewCount="90" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/bH8Hg.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/bH8Hg.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is what I understood&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Using Backward Induction, I inferred that buyer offers a price, say, &lt;span class=&quot;math-container&quot;&gt;$P$&lt;/span&gt; and the seller will sell only if &lt;span class=&quot;math-container&quot;&gt;$P \geq c(I)$&lt;/span&gt;. Setting the lowest possible Price that will ensure that Seller sells the good would mean that buyer offers &lt;span class=&quot;math-container&quot;&gt;$P=c(I)$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The payoff to Seller would be &#xA;&lt;span class=&quot;math-container&quot;&gt;$U_S=P-C(I)-I$&lt;/span&gt;&#xA;Putting &lt;span class=&quot;math-container&quot;&gt;$P=C(I)$&lt;/span&gt; gives&#xA;&lt;span class=&quot;math-container&quot;&gt;$U_S=C(I)-C(I)-I$&lt;/span&gt;&#xA;which would be negative.&#xA;Therefore, seller would choose not to invest, that is, &lt;span class=&quot;math-container&quot;&gt;$I=0$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The subgame perfect strategy is Seller chooses to &lt;em&gt;not invest&lt;/em&gt;, and Buyer &lt;em&gt;offers &lt;span class=&quot;math-container&quot;&gt;$P=C(I)$&lt;/span&gt;&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this the correct way to write the Subgame Strategy? Also, for the Social Optimum, I understand that we are supposed to find optimal &lt;span class=&quot;math-container&quot;&gt;$U_B+U_S$&lt;/span&gt;, i.e., &lt;span class=&quot;math-container&quot;&gt;$P-C(I)-I+v-P$&lt;/span&gt;, but I don't know how to proceed. Help would be appreciated! &lt;/p&gt;&#xA;" OwnerUserId="18398" LastEditorUserId="18398" LastEditDate="2019-03-07T16:08:01.070" LastActivityDate="2019-03-07T16:08:01.070" Title="Take It Or Leave It Strategy: Social Optimum" Tags="&lt;microeconomics&gt;&lt;game-theory&gt;&lt;self-study&gt;&lt;nash-equilibrium&gt;&lt;bargaining&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27153" PostTypeId="2" ParentId="27137" CreationDate="2019-03-07T16:15:26.930" Score="1" Body="&lt;p&gt;The foreign exchange market is a huge over-the-counter market, primarily intermediated by large dealer banks with subsidiaries around the world (sometimes referred to as “money center” banks).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A buyer or seller of a currency is almost certainly at or trading with one of these banks. The dealer banks make money via a “spread,” where every buyer or seller of a currency effectively pays the dealer they’re trading with. For example, if 1 cur1 = 1 cur2, a buyer of cur2 might have to pay 1.01 cur1 for it, and a seller of cur2 might receive 0.99 cur1 for it, with the dealer taking .01 on both sides. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The forex market is large and highly competitive, and balance between the prices of any two currencies is just determined by supply and demand— as people trade cur1 for cur2, the supply of cur1 at dealer banks will rise, and the supply of cur2 will fall, so the price of cur2 will rise relative to cur1.  From a practical standpoint, as more people trade cur1 for cur2, a dealer bank will have to replenish its reserves of cur2, which it will often do by borrowing it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In my opinion, the simplest way to think about all this is to remember that the primary source of demand for any currency is people who want the stuff denominated in that currency (be it consumer goods, financial or real assets, etc.). When more people want that stuff, relative to the stuff in other currency areas, the price of that stuff (i.e., the value of the currency) rises. For example, Canada is a huge oil exporter, and if you want Canadian oil, you first have to get Canadian dollars. As a result, when demand for oil rises, the value of the Canadian dollar rises. &lt;/p&gt;&#xA;" OwnerUserId="264" LastActivityDate="2019-03-07T16:15:26.930" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="27154" PostTypeId="1" AcceptedAnswerId="27159" CreationDate="2019-03-07T19:33:17.657" Score="3" ViewCount="205" Body="&lt;p&gt;In informal discussions about public policy, I often hear the claim that the government should not intervene in a certain way, because the citizens know what is good for them better than the politicians. As an example, a discussion about a public housing program can proceed like this:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Supporter: The government should help the poor by giving them apartments for a low rent.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Opposer: It is better to help the poor by just giving them cash. For a fixed government expense, giving cash is better than giving apartments, since the poor can use the cash  either for renting apartments or for buying other things that are more important for them.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Supporter: But if you give them cash, they might waste all the money on alcohol or gambling and will remain homeless.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Opposer: &lt;strong&gt;A citizen knows what's best for him/her better than the politicians&lt;/strong&gt;. If a citizen decides that the best way to use the money is buying alcohol or gambling, then this provides the highest increase in utility, and thus it is the best way to help him/her.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;There are many things to say about this claim, but here I do not ask whether this claim is correct or not - my question is: does such claim appear also in main-stream economic publications? For example, is such claim mentioned in a paper published in a respectable economics journal (in the context of public economics)? If not, is it mentioned in a blog-post by a respectable economist?&lt;/p&gt;&#xA;" OwnerUserId="385" LastEditorUserId="385" LastEditDate="2019-03-08T06:45:37.390" LastActivityDate="2019-03-08T16:52:26.820" Title="&quot;The citizens know their own utility functions better than the politicians&quot;" Tags="&lt;reference-request&gt;&lt;public-economics&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27155" PostTypeId="1" AcceptedAnswerId="27156" CreationDate="2019-03-07T22:06:21.013" Score="3" ViewCount="544" Body="&lt;p&gt;If &lt;strong&gt;only&lt;/strong&gt; weak-ordering and continuity is assumed, &quot;ICs&quot; can definitely intersect.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we assume Monotonicity or convexity in addition to weak-ordering, then we can get &quot;no cross of IC&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But those two assumptions are argueably too strong. In some real world scenarios they are violated. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are there any weaker assumptions for the &quot;IC cannot cross&quot;?  &lt;/p&gt;&#xA;" OwnerUserId="13381" LastEditorUserId="13381" LastEditDate="2019-03-07T23:06:46.523" LastActivityDate="2019-03-07T23:06:46.523" Title="What is the assumption behind &quot;indifference curve does not cross&quot;?" Tags="&lt;microeconomics&gt;&lt;utility&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27156" PostTypeId="2" ParentId="27155" CreationDate="2019-03-07T23:02:09.543" Score="6" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;If only weak-ordering and continuity is assumed, ICs can definitely intersect.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This is not true. First, if you're speaking of indifference &lt;em&gt;curves&lt;/em&gt;, you'd already be assuming either local non-satiation or monotonicity. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's speak of indifference &lt;em&gt;sets&lt;/em&gt; instead. The analogue of two sets, &lt;span class=&quot;math-container&quot;&gt;$I_1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$I_2$&lt;/span&gt;, &quot;crossing&quot; each other can be formalized as &lt;span class=&quot;math-container&quot;&gt;$I_1\ne I_2$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$I_1\cap I_2\ne \varnothing$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Take two alternatives &lt;span class=&quot;math-container&quot;&gt;$x_1,x_2\in X$&lt;/span&gt; and define two indifference sets as follows:&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{align}&#xA;I_1:=\{x\in X:x\sim x_1\}\quad\text{and}\quad I_2:=\{x\in X:x\sim x_2\}. &#xA;\end{align}&lt;/span&gt;&#xA;WLOG, assume that &lt;span class=&quot;math-container&quot;&gt;$x_1\succ x_2$&lt;/span&gt;, so that &lt;span class=&quot;math-container&quot;&gt;$I_1\ne I_2$&lt;/span&gt;. If we allow &lt;span class=&quot;math-container&quot;&gt;$I_1$&lt;/span&gt; to &quot;cross&quot; &lt;span class=&quot;math-container&quot;&gt;$I_2$&lt;/span&gt;, then &lt;span class=&quot;math-container&quot;&gt;$I_1\cap I_2$&lt;/span&gt; must be non-empty. Let &lt;span class=&quot;math-container&quot;&gt;$\bar x\in I_1\cap I_2$&lt;/span&gt; be an element in the intersection. By the transitivity of the indifference relation &lt;span class=&quot;math-container&quot;&gt;$\sim$&lt;/span&gt;, we have &lt;span class=&quot;math-container&quot;&gt;$x_1\sim \bar x$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\bar x\sim x_2$&lt;/span&gt;, implying &lt;span class=&quot;math-container&quot;&gt;$x_1\sim x_2$&lt;/span&gt;. But this is contradictory to our assumption that &lt;span class=&quot;math-container&quot;&gt;$x_1\succ x_2$&lt;/span&gt;. The contradiction therefore suggests that transitivity, a property of the weak ordering, is violated. &lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2019-03-07T23:02:09.543" CommentCount="8" ContentLicense="CC BY-SA 4.0" />
  <row Id="27157" PostTypeId="1" CreationDate="2019-03-08T00:28:58.600" Score="0" ViewCount="24" Body="&lt;p&gt;I'm particularly wondering about what implications the abolition of private property had for families. Since private property was to be abolished, I assume houses were not legally allowed to be traded between individuals, whether as gifts, inheritance, etc. What were the limits of this? How much giftgiving was allowed? Were gifts above a certain monetary value disallowed, or did they need to carry some &quot;productive&quot; essence, in the way that some will argue for a distinction between private/productive and personal property?&lt;/p&gt;&#xA;" OwnerUserId="21332" LastActivityDate="2019-03-08T00:28:58.600" Title="What were the limits of trade and exchange in the Soviet Union? What about other communist countries?" Tags="&lt;political-economy&gt;&lt;free-trade&gt;&lt;economic-history&gt;&lt;communism&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="27158" PostTypeId="1" AcceptedAnswerId="27160" CreationDate="2019-03-08T01:25:21.570" Score="4" ViewCount="306" Body="&lt;p&gt;For a study in the adoption of new technology, a student and I are developing a questionnaire that will poll domain experts on their opinions of what their &lt;em&gt;colleagues&lt;/em&gt; would think about benefits/drawbacks of adopting a particular technology. This is research in social science/business but not strictly game theory, and as we are not economists, we don't know the literature.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Have economists/game theorists investigated questions of the type &lt;em&gt;What do you think other people would think&lt;/em&gt;? If several experts can, say, draw technology acceptance distribution functions that reflect their own beliefs about the community's attitude toward a particular strength or weakness of a new technology, then the geometrical average of those distribution functions could be a starting point for inquiry into ranking the relative importance of a set of several strengths and weaknesses. Has this been done before? By whom?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We are not asking for a tutorial here, just a pointer to where should we should start looking for prior art.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Full disclosure: I asked this question on SE/Psychology and Neuroscience and did not receive meaningful answers.&lt;/p&gt;&#xA;" OwnerUserId="21319" LastEditorUserId="42" LastEditDate="2019-03-08T03:41:46.620" LastActivityDate="2019-03-12T06:18:05.290" Title="Questions of the type &quot;What do you think other people would think?&quot;" Tags="&lt;reference-request&gt;&lt;game-theory&gt;&lt;bayesian-game&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27159" PostTypeId="2" ParentId="27154" CreationDate="2019-03-08T01:50:57.410" Score="6" Body="&lt;p&gt;This idea in the title of your question sometimes falls under the name of &lt;strong&gt;consumer sovereignty&lt;/strong&gt;.†&lt;/p&gt;&#xA;&lt;p&gt;&lt;em&gt;Macmillan Dictionary of Modern Economics&lt;/em&gt; (edited by David W. Pearce, &lt;a href=&quot;https://books.google.com/books?id=wEhdDwAAQBAJ&amp;amp;pg=PA78&amp;amp;dq=%22The%20idea%20that%20the%20CONSUMER%20is%20the%20best%20judge%20of%20his%20or%20her%20own%20welfare.%22&quot; rel=&quot;noreferrer&quot;&gt;1992&lt;/a&gt;):&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;&lt;strong&gt;consumer sovereignty.&lt;/strong&gt; The idea that the CONSUMER is the best judge of his or her own welfare. This assumption underlies the theory of consumer behaviour and through it the bulk of economic analysis including the most widely accepted optimum in WELFARE ECONOMICS, the PARETO OPTIMUM. The notion is, however, challenged in that governments do provide MERIT GOODS, while ADVERTISING is held, especially by J.K. GALBRAITH, to distort consumers' preferences.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;William Vickrey (&lt;em&gt;Microstatics&lt;/em&gt;, 1964, p. 217):&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;consumers are to be considered the court of final recourse as to the relative satisfactions that they derive from different situations, and that they are capable of predicting accurately the satisfaction which they will derive from the consumption of various contemplated combinations of goods.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Abba Lerner (&amp;quot;The Economics and Politics of Consumer Sovereignty&amp;quot;, &lt;a href=&quot;https://www.jstor.org/stable/1821551&quot; rel=&quot;noreferrer&quot;&gt;1972&lt;/a&gt;):&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;The basic idea of consumer sovereignty is really very simple: arrange for everybody to have what he prefers whenever this does not involve any extra sacrifice for anybody else. … One of the deepest scars of my early youth was etched when my teacher told me, “You do not want that,” after I had told her that I did. I would not have been so upset if she had said that I could not have it, whatever it was, or that it was very wicked of me to want it. What rankled was the denial of my personality—a kind of rape of my integrity. I confess I still find a similar rising of my hackles when I hear people's preferences dismissed as not genuine, because influenced or even created by advertising, and somebody else telling them what they “really want.”&lt;/p&gt;&#xA;&lt;p&gt;… as an economist I must be concerned with the mechanisms for getting people what they want, no matter how these wants were acquired.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Joel Waldfogel (&amp;quot;Does Consumer Irrationality Trump Consumer Sovereignty?&amp;quot;, &lt;a href=&quot;https://www.mitpressjournals.org/doi/10.1162/003465305775098107&quot; rel=&quot;noreferrer&quot;&gt;2005&lt;/a&gt;):&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;According to economic theory, individual utility—and social welfare—are maximized when individuals make their own consumption choices. This justifies the doctrine of consumer sovereignty that underlies standard lessons of economics: for example, that lump-sum grants are more efficient than price-changing subsidies or government grants in kind. An obvious corollary is that consumption choices made by others tend to generate less satisfaction than one’s own choices&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Lester Thurow (&amp;quot;Cash Versus In-Kind Transfers&amp;quot;, &lt;a href=&quot;https://www.jstor.org/stable/pdf/1816041.pdf&quot; rel=&quot;noreferrer&quot;&gt;1974&lt;/a&gt;):&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;the received wisdom of economics seems to support transfers in cash (the 'New Federalism') rather than in kind. Governments may modify the market distribution of purchasing power, but then should stand aside and allow consumer sovereignty plus competitive markets to work. Any further intervention lowers consumer utility below what it otherwise could be. In a federal government, presumably an ideal system of cash transfers would consist of unrestricted cash transfers from the federal government to individuals and to state and local governments, who would in turn make unrestricted cash transfers to individuals. The result would be an optimum distribution of income within each area with each individual free to make his own expenditure decisions.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;†I avoid the term &lt;em&gt;consumer sovereignty&lt;/em&gt; because it is a rather muddled and vague term that has at least two distinct interpretations other than the one given above. Rather than use the term &lt;em&gt;consumer sovereignty&lt;/em&gt;  at all, to express the ideas discussed here, I would simply say that:&lt;/p&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&amp;quot;Each individual is the best judge of her own welfare&amp;quot;; and&lt;/li&gt;&#xA;&lt;li&gt;&amp;quot;In general, cash transfers are better than in-kind transfers&amp;quot;.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerDisplayName="user18" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2019-03-08T01:50:57.410" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27160" PostTypeId="2" ParentId="27158" CreationDate="2019-03-08T03:40:59.753" Score="7" Body="&lt;p&gt;&lt;strong&gt;Epistemic game theory&lt;/strong&gt; would be the closest (sub-)field that deals with questions involving higher order beliefs among interacting agents. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &lt;a href=&quot;http://faculty.wcas.northwestern.edu/~msi661/EpistemicGameTheory-131120.pdf&quot; rel=&quot;noreferrer&quot;&gt;introductory article by Dekel and Siniscalchi&lt;/a&gt; is a good entry point to the literature. From its introduction:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Epistemic game theory formalizes assumptions about rationality and mutual beliefs in a formal language, then studies their behavioral implications in games. Specifically, it asks: what do different notions of rationality and different assumptions about what players believe about ... what others believe about the rationality of players imply regarding play in a game?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&quot;&lt;a href=&quot;https://plato.stanford.edu/entries/epistemic-game/&quot; rel=&quot;noreferrer&quot;&gt;Epistemic Foundations of Game Theory&lt;/a&gt;&quot; on the Stanford Encyclopedia of Philosophy has a less technical introduction. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is also a strand of literature in &lt;strong&gt;behavioral economics&lt;/strong&gt; that studies cognitive hierarchies. The theories there are developed mostly to explain behaviors in the lab settings. &lt;a href=&quot;https://econweb.ucsd.edu/~vcrawfor/CCGIJEL13.pdf&quot; rel=&quot;noreferrer&quot;&gt;Crawford, Costa-Gomes, and Iriberri (2013)&lt;/a&gt; provide a good summary. &lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2019-03-08T03:40:59.753" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27162" PostTypeId="1" AcceptedAnswerId="27163" CreationDate="2019-03-08T10:14:48.567" Score="1" ViewCount="437" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Consider that good X and good Y are complements and good X is a Giffen good. If I increase the price of good X, what affect does this have on the price and quantity demanded of good Y?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;My reasoning was as follows. An increase in the price of good X will increase the quantity demanded of good X (as it is a Giffen Good). Increasing the quantity demanded of good X decreases the price of good Y (as they are complements). A decrease in price of good Y will increase the quantity demanded of good Y (Law of Demand).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is wrong. The correct answer according to my textbook is that both the price and quantity demanded of good Y will increase.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How can this be?&lt;/p&gt;&#xA;" OwnerUserId="21337" LastActivityDate="2019-03-08T12:14:33.443" Title="Giffen Goods &amp; Complementary Goods" Tags="&lt;microeconomics&gt;&lt;giffen-goods&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27163" PostTypeId="2" ParentId="27162" CreationDate="2019-03-08T12:14:33.443" Score="4" Body="&lt;p&gt;If &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt; are complements, an increase in the quantity demanded of &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; also implies an increase in the demand for &lt;span class=&quot;math-container&quot;&gt;$Y.$&lt;/span&gt; This is why both the price and the quantity of &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt; will also have to increase.&lt;/p&gt;&#xA;" OwnerUserId="20281" LastActivityDate="2019-03-08T12:14:33.443" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="27164" PostTypeId="1" CreationDate="2019-03-08T15:50:10.793" Score="3" ViewCount="222" Body="&lt;p&gt;I'm running a difference-in-differences (DID) regression on panel data as follows:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ Y_{it} = \beta_{0} + \beta_{1}Treat_{i}\times Post_{t} + \mathbf{\Pi}\mathbf{X}_{it} + \tau_{i} + \gamma_{t} +\varepsilon_{it}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where &lt;span class=&quot;math-container&quot;&gt;$\tau_{i}$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\gamma_{t}$&lt;/span&gt; are company and year fixed effects, respectively. &lt;span class=&quot;math-container&quot;&gt;$Treat_i$&lt;/span&gt; equals 1 for treated companies and 0 for control companies and &lt;span class=&quot;math-container&quot;&gt;$Post_t$&lt;/span&gt; equals 1 for years 2010-2012 and 0 for years 2007-2009. These main effects are subsumed by the fixed effects. &lt;span class=&quot;math-container&quot;&gt;$\mathbf{X}_{it}$&lt;/span&gt; is a vector of control variables. Standard errors are robust and clustered by company. &lt;span class=&quot;math-container&quot;&gt;$\beta_1$&lt;/span&gt; is the difference-in-differences estimator that I'm interested in.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When I run the regression as is, the parallel trends assumption appears satisfied, i.e., when I replace the &lt;span class=&quot;math-container&quot;&gt;$Post_{t}$&lt;/span&gt; in &lt;span class=&quot;math-container&quot;&gt;$Treat_{i}\times Post_{t}$&lt;/span&gt; with separate year indicators, the coefficients for the pre-intervention years are not significantly different from zero. The post-intervention years are also not significantly different from zero (consistent with the fact that the estimated &lt;span class=&quot;math-container&quot;&gt;$\beta_1$&lt;/span&gt; in the original regression is not significant).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, the pre-intervention dependent variable and control variables differ substantially between the treatment and control groups. This motivates me to utilize a reweighting technique which results in an improved counterfactual. Specifically, I use entropy balancing (Hainmueller, 2012), although I don't think the particular matching method will be relevant to my question (e.g., it might be easier to imagine that I use propensity score weights). I include the average pre-intervention values of the dependent variable as well as other covariates as the conditioning variables. When I run the same regression as above but include the entropy weights, the parallel trends assumption is also satisfied but now the estimate of &lt;span class=&quot;math-container&quot;&gt;$\beta_1$&lt;/span&gt; is significant.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My question is this:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since the parallel trends assumption seems to be satisfied in both the original DID and in the DID combined with matching, is there a reliable source that justifies using the matching DID over the original DID? The first three papers cited below seem to suggest that the DID combined with matching provides more accurate estimates because it reduces bias, but I am not familiar enough with the literature to be sure that I am interpreting these papers correctly.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Edit:&lt;/strong&gt; I'm digesting Ferraro and Miranda (2017) some more and my sense is that an insignificant result may be the result of heterogeneous treatment effects (p310): &quot;...the constant treatment effect is hard to believe when the treated and untreated units, despite having similar trends, have very different levels of fixed characteristics (like home size and age) that affect water use.&quot; Any thoughts on this would be greatly appreciated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Citations:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Imbens, Guido W. and Jeffrey M. Wooldridge. 2009. Recent&#xA;developments in the econometrics of program evaluation. Journal of&#xA;Economic Literature 47, no. 1: 5-86.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ferraro, Paul J., and Juan José Miranda. &quot;Panel data designs and estimators as substitutes for randomized controlled trials in the evaluation of public programs.&quot; Journal of the Association of Environmental and Resource Economists 4, no. 1 (2017): 281-317.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Heckman, James J., Hidehiko Ichimura, and Petra Todd. 1997. Matching as an econometric evaluation estimator: Evidence from evaluating a job training program. Review of Economic Studies 64 (4): 605–54.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hainmueller, Jens. &quot;Entropy balancing for causal effects: A multivariate reweighting method to produce balanced samples in observational studies.&quot; Political Analysis 20, no. 1 (2012): 25-46.&lt;/p&gt;&#xA;" OwnerUserId="21341" LastEditorUserId="21341" LastEditDate="2019-03-09T15:55:22.483" LastActivityDate="2019-03-09T15:55:22.483" Title="Combining Difference-in-Differences with Matching Methods When Parallel Trends Are Met in Unmatched Data" Tags="&lt;econometrics&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27166" PostTypeId="2" ParentId="26383" CreationDate="2019-03-08T16:15:05.930" Score="1" Body="&lt;p&gt;Gérard Debreu precisely defined the conditions required for a preference ordering to be representable by a utility function.&lt;/p&gt;&#xA;" OwnerUserId="21369" LastActivityDate="2019-03-08T16:15:05.930" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27167" PostTypeId="1" CreationDate="2019-03-08T16:51:06.910" Score="2" ViewCount="196" Body="&lt;p&gt;Given a 2X2 model (2 goods, 2 inputs), if the factor intensities (capital/labour ratio) of the two goods along the Pareto set are unequal, then we get a concave PPF. Can we get a convex PPF in some cases, for example with increasing returns to scale? &lt;/p&gt;&#xA;" OwnerUserId="18507" LastActivityDate="2019-03-10T04:03:51.720" Title="When is the PPF convex to the origin?" Tags="&lt;production-function&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27168" PostTypeId="2" ParentId="27154" CreationDate="2019-03-08T16:52:26.820" Score="2" Body="&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Free_to_Choose&quot; rel=&quot;nofollow noreferrer&quot;&gt;Free to Choose&lt;/a&gt; by &lt;a href=&quot;https://en.wikipedia.org/wiki/Milton_Friedman&quot; rel=&quot;nofollow noreferrer&quot;&gt;the 1976 Nobel Prize winner Milton Friedman.&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can hear the arguments directly from Friedman in this &lt;a href=&quot;https://www.youtube.com/watch?v=D3N2sNnGwa4&amp;amp;list=PL4742023192B69941&quot; rel=&quot;nofollow noreferrer&quot;&gt;ten part video.&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="6868" LastActivityDate="2019-03-08T16:52:26.820" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27169" PostTypeId="1" AcceptedAnswerId="27182" CreationDate="2019-03-08T17:39:23.113" Score="1" ViewCount="20" Body="&lt;p&gt;I was confused by a statement in an article from Paul Krugman in the NY Times:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The reason America runs persistent trade deficits isn’t that we’ve&#xA;  given away too much in trade deals, it’s that we have low savings&#xA;  compared with other countries.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.nytimes.com/2019/03/07/opinion/trump-deficit.html?action=click&amp;amp;module=Opinion&amp;amp;pgtype=Homepage&quot; rel=&quot;nofollow noreferrer&quot;&gt;Source: NYT&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Intuitively I thought a trade imbalance was simply exports minus imports, and had nothing to do with savings.  I saw some referenced equation demonstrating its &quot;truth&quot;, but I still don't understand it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My questions:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Is he talking about personal savings, as in how much is in people's bank accounts?  Or is it about government savings, as in taxes minus expenditures?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Any hints to help intuitively shed light on how savings would affect a trade imbalance, which seems unrelated to me?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="21344" LastEditorUserId="1601" LastEditDate="2019-03-09T12:39:11.420" LastActivityDate="2019-03-09T12:39:11.420" Title="how is a trade imbalance related to domestic savings?" Tags="&lt;gdp&gt;&lt;balance-of-trade&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27173" PostTypeId="1" AcceptedAnswerId="27174" CreationDate="2019-03-09T02:56:06.187" Score="1" ViewCount="336" Body="&lt;p&gt;The economy is a one-good two individual endowment economy in which individual &lt;span class=&quot;math-container&quot;&gt;$i’s$&lt;/span&gt; preferences are given by &lt;span class=&quot;math-container&quot;&gt;$_(_)=_$&lt;/span&gt;, for ∈1,2, and the feasibility constraint on the amount of x available is &lt;span class=&quot;math-container&quot;&gt;$_1+_2=ω$&lt;/span&gt;.&#xA;&lt;br&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We need to show that the equation of the utility possibilities frontier for this economy is &lt;span class=&quot;math-container&quot;&gt;$_2=ω−_1$&lt;/span&gt;&#xA;&lt;br&gt;&lt;br&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Setting up the Lagrange constrained optimisation function.&lt;br&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Max &lt;span class=&quot;math-container&quot;&gt;$U_1(x_1)= x_1$&lt;/span&gt; subject to: &lt;br&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$U_2(x_2) = x_2$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$x_1 + x_2 = w$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$L = x_1 + \lambda x_2 + \mu (w - x_1 - x_2)$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$\lambda$&lt;/span&gt; shows how small changes to &lt;span class=&quot;math-container&quot;&gt;$x_2$&lt;/span&gt; affect &lt;span class=&quot;math-container&quot;&gt;$U_1$&lt;/span&gt;, and &lt;span class=&quot;math-container&quot;&gt;$\mu$&lt;/span&gt; shows how small changes to the amount of x available in the economy affect &lt;span class=&quot;math-container&quot;&gt;$U_1$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Partial differentiation of all variables:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\frac {\partial L}{\partial x_1} = 1 - \mu = 0 \rightarrow \mu = 1$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\frac {\partial L}{\partial x_2} =  \lambda - \mu = 0 \rightarrow \mu = \lambda$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\frac {\partial L}{\partial \lambda} = x_2 = 0 $$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\frac {\partial L}{\partial \mu} = w - x_1 - x_2 = 0$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$x_0 = 0$&lt;/span&gt;, so the Pareto Efficient point found involves the allocation where individual 1 receives all of x.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\mu = \lambda$&lt;/span&gt;,so individual 1 is affected equally by changes to &lt;span class=&quot;math-container&quot;&gt;$x_2$&lt;/span&gt; and by how much x is available in the economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm unsure how to conclude this, demonstrate that &lt;span class=&quot;math-container&quot;&gt;$_2=ω−_1$&lt;/span&gt;, or if I'm even on the right track. Could anybody please advise?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also any feedback on my use of LaTex is also welcome, very new to using it. &lt;/p&gt;&#xA;" OwnerUserId="21347" LastActivityDate="2019-04-08T05:01:25.253" Title="Solving for Pareto Efficient Utility Possibility Frontier using constrained optimisation" Tags="&lt;utility&gt;&lt;pareto-efficiency&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27174" PostTypeId="2" ParentId="27173" CreationDate="2019-03-09T04:33:03.977" Score="1" Body="&lt;p&gt;The first constraint you have, &lt;span class=&quot;math-container&quot;&gt;$U_2(x_2)=x_2$&lt;/span&gt;, is not really a constraint. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since points on the UPF is Pareto optimal, you should instead have &lt;span class=&quot;math-container&quot;&gt;$U_2(x_2)\ge \bar u$&lt;/span&gt; or &lt;span class=&quot;math-container&quot;&gt;$x_2\ge \bar u$&lt;/span&gt; as a constraint, where &lt;span class=&quot;math-container&quot;&gt;$\bar u$&lt;/span&gt; is some arbitrary level of utility for individual 2 on the UPF. In other words, given that we're keeping individual 2's utility to be no lower than &lt;span class=&quot;math-container&quot;&gt;$\bar u$&lt;/span&gt;, how best can we make individual 1's utility as high as possible with the available resources. &lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2019-03-09T04:33:03.977" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="27175" PostTypeId="2" ParentId="27146" CreationDate="2019-03-09T05:15:06.437" Score="0" Body="&lt;p&gt;Any real figure is based on a basket of goods, obviously, and here, we have a representative basket that is common to &lt;em&gt;all&lt;/em&gt; countries across the world. When purchasing power parity prices are recalculated (as with any price index that is recalculated), the weighting of goods in the basket changes. Goods that have improved in technology will be more valuable than those same goods from a decade ago&amp;mdash;this would push up the price index unless the weights on those goods are reduced, to reflect that the nature of those goods have changed, and that people buy them more parsimoniously.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, PPP figures from 2011 will be based on a basket that contain multiple items inside it, which have different weights to the 2005 figures. Different countries produce goods at different levels of technology&amp;mdash;some countries power ahead in technology, whilst others lag behind&amp;mdash;so this causes the representation of the PPP basket to diverge from what is actually consumed in those countries (I imagine the PPP basket attempts to find the average representation). Thus, in the recalculated figures (from 2011) you will find different growth rates for the countries compared to the 2005 figures.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In short, you will need to know the weightings for all the goods in the baskets from 2005 and 2011 (and the levels of output in those categories for each country) in order to process the recalculation! It is not simply a matter of changing the base year, because the basket has changed.&lt;/p&gt;&#xA;" OwnerUserId="175" LastActivityDate="2019-03-09T05:15:06.437" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27176" PostTypeId="2" ParentId="27144" CreationDate="2019-03-09T05:23:23.140" Score="2" Body="&lt;p&gt;It isn't necessary to stress that these figures are pegged to the &lt;em&gt;US&lt;/em&gt; dollar. A PPP dollar is a dollar in its own right. Thus, simply saying &quot;The budget is three billion purchasing power parity dollars&quot; is good. Mentioning PPP in the context of a US project is unnecessary.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The World Bank uses the phrase &quot;international dollars&quot; on &lt;a href=&quot;https://data.worldbank.org/indicator/PA.NUS.PPP&quot; rel=&quot;nofollow noreferrer&quot;&gt;its data portal&lt;/a&gt;, so you can say &quot;international dollars&quot; if you are willing to explain what that means to anyone unfamiliar with that phrase. That phrase has the advantage that it is shorter, so it is less cumbersome to say out loud.&lt;/p&gt;&#xA;" OwnerUserId="175" LastActivityDate="2019-03-09T05:23:23.140" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27177" PostTypeId="1" CreationDate="2019-03-09T05:29:42.980" Score="-1" ViewCount="36" Body="&lt;p&gt;At first, I was confused by how y keeps increasing after depreciation exceeds savings, then I finally found what was truly bothering me. The fact that when depreciation exceeds savings, capital per worker should be negatively affected whereas, in reality, it keeps increasing along the x-axis. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Help!&lt;/p&gt;&#xA;" OwnerUserId="21348" LastActivityDate="2019-03-09T07:05:33.533" Title="Here's a question about the solow model" Tags="&lt;macroeconomics&gt;&lt;mathematical-economics&gt;&lt;economic-growth&gt;&lt;solow&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ClosedDate="2019-03-14T09:28:49.903" ContentLicense="CC BY-SA 4.0" />
  <row Id="27178" PostTypeId="2" ParentId="27087" CreationDate="2019-03-09T05:45:29.577" Score="1" Body="&lt;p&gt;In any healthy economy, the central bank is independent of the executive government. (Since the central bank can be thought of as part of the 'government', I want to be specific about which parts of government I am referring to&amp;mdash;by &quot;executive&quot; I mean the body of people who are in power and who administer policies.) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This separation is in order to separate fiscal policy from monetary policy, as this makes it easier to achieve monetary policy objectives. Otherwise, the executive could enforce money creation merely to achieve some objective, such as increased government spending or a decrease of local-currency denominated debt, but this would send inflation skyrocketing. Instead, the executive (through the Treasury) sells bonds on the open market. Any entity is free to buy those Treasury bonds, and the price is determined by the market. (An executive that controls the central bank and forces them to buy Treasury bonds is not really independent of the central bank&amp;mdash;it is just a show.) So, the Treasury selling bonds is how the executive raises money for itself, but it also increases the demand for money, so the central bank needs to be part of the group of entities that buy the bonds, in order for interest rates to remain unchanged. Needless to say, when the central bank buys bonds, it is increasing the supply of money.&lt;/p&gt;&#xA;" OwnerUserId="175" LastActivityDate="2019-03-09T05:45:29.577" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27179" PostTypeId="1" AcceptedAnswerId="27183" CreationDate="2019-03-09T06:10:43.897" Score="1" ViewCount="259" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;If there is news that shops are having a sale on dress shoes (beginning right now), will it shift the demand curve for this good?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I initially said yes, as a sale should increase the quantity demanded of dress shoes (resulting in a shift in the demand curve).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, the answer in my textbook says no. I do not understand.&lt;/p&gt;&#xA;" OwnerUserId="21337" LastEditorUserId="5557" LastEditDate="2019-03-09T13:23:54.363" LastActivityDate="2019-03-28T21:02:39.340" Title="Effect of Promotional Sales on a Demand Curve" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27180" PostTypeId="2" ParentId="27177" CreationDate="2019-03-09T07:05:33.533" Score="2" Body="&lt;p&gt;The following graph shows a point at which the total amount of depreciation is greater than savings. This &lt;em&gt;decreases&lt;/em&gt; the amount of capital per effective worker, over time, shown by the arrow pointing downwards and to the left.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/IntDM.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/IntDM.png&quot; alt=&quot;Solow growth with depreciation higher than savings&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="175" LastActivityDate="2019-03-09T07:05:33.533" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27181" PostTypeId="2" ParentId="27145" CreationDate="2019-03-09T10:43:42.753" Score="5" Body="&lt;p&gt;(A, B) and (B, A) are in fact Pareto efficient.&lt;/p&gt;&#xA;&lt;p&gt;I believe that your confusion may be because when discussing the Pareto inefficiency of the Prisoner's dilemma equilibrium, we always discuss (B,B) as the Pareto efficient alternative to (A,A) and (almost) never discuss (A,B) or (B,A).&lt;/p&gt;&#xA;&lt;p&gt;Keep in mind that Pareto efficiency always requires a starting point to be evaluated. I.e. one way to determine if a case is Pareto efficient is to ask &amp;quot;Starting from this point, is there any other allocation that is a Pareto improvement?&amp;quot;. Here a Pareto improvement is a case making at least one person better off and no one worse off.&lt;/p&gt;&#xA;&lt;p&gt;A natural starting point of discussion is the Nash equilibrium (A,A). Starting from there, only (B,B) is a Pareto improvement, which suffices to show that (A,A) is not Pareto efficient. That is what economists like to emphasize about the Prisoner's Dilemma and why textbook discussions focus on (B,B).&lt;/p&gt;&#xA;&lt;p&gt;However, if your starting point is (A,B) or (B,A) then there are no Pareto improvements possible, as you argue. Hence, both those cases are Pareto efficient as well. However, note that these are not very interesting starting points anyway, because they are not Nash equilibria and therefore a bit irrelevant to discuss.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastEditorUserId="5557" LastEditDate="2021-03-16T21:52:06.487" LastActivityDate="2021-03-16T21:52:06.487" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27182" PostTypeId="2" ParentId="27169" CreationDate="2019-03-09T10:44:44.850" Score="1" Body="&lt;p&gt;When Krugman talks about savings, he is presumably talking about the difference between production and consumption (personal consumption and government consumption) in a country as a whole. Although measured in monetary terms, this is really about stuff, i.e. goods and services. It is not about personal savings of money in a bank. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some of the difference will be used to make things producing stuff for the future, i.e. as investment. In a closed economy, in this sense savings must equal investment, since building up stocks of stuff for future use would also count as investment, while simply wasting the excess stuff would make it not count as valuable production.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In an open economy, it is possible for production and use (consumption and investment) to differ, and so it is possible for savings and investment to differ.   If use exceeds production, i.e. investment exceeds saving, the extra stuff has to come from somewhere, namely as net imports of stuff.  If production exceeds use, i.e. saving exceeds investment, then the extra stuff has to go somewhere, namely as net exports.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So what Krugman is saying is that having a trade deficit is associated with production being less than use, and so with savings in this sense being less than investment.  So he is suggesting that the US trade deficit is associated with low savings.  Using his definitions, that is almost tautologically true as a matter of arithmetic. It is also more coherent than Trump's simple &lt;em&gt;exports good, imports bad&lt;/em&gt;, which is little more than saying &lt;em&gt;send stuff abroad but do not get stuff back&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Krugman's next step is to say that the US trade deficit is a &lt;em&gt;consequence&lt;/em&gt; of low savings. That is putting a suggestion of causality into the relationships, something much less obvious. It also raises the question of how to change the position; elsewhere it appears that Krugman would not support efforts to reduce consumption or investment. He would welcome increased production; so too would Trump.   &lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2019-03-09T10:44:44.850" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27183" PostTypeId="2" ParentId="27179" CreationDate="2019-03-09T12:39:43.187" Score="3" Body="&lt;p&gt;Your textbook is correct. I believe you are confusing an increase in demand and a shift in the demand curve and conflating the quantity demanded with the demand curve.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The quantity demanded is just how much of the good the consumers want in &lt;strong&gt;one particular case&lt;/strong&gt; (e.g. for &lt;strong&gt;one&lt;/strong&gt; given price). The demand curve tells you the quantity that would be demanded in all cases (for &lt;strong&gt;any&lt;/strong&gt; given price).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Demand can increase without a shift in the curve, as there can be a movement &lt;strong&gt;along&lt;/strong&gt; the original curve itself.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A shift in the demand curve, would mean that there is a different (in your case higher) demand at &lt;strong&gt;&lt;em&gt;all&lt;/em&gt;&lt;/strong&gt; prices. For example, if the income of the consumers increases, you might expect there to be more demand for the good at &lt;strong&gt;any&lt;/strong&gt; given price. Concretely, a shift would mean that previously there were two pairs of shoes being demanded at a price of 50\$ and after the shift there are three pairs of shoes being demanded at a price of 50\$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The sale on shoes in your example does not cause such an effect. The sale lowers prices, which increases demand (the quantity demanded). It is equivalent to a movement along the demand curve. Before there were e.g. two pairs of shoes being demanded at 50\$ and now the price is e.g. 25\$ so the demanded quantity equals 4 pairs of shoes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words, take a demand curve and use any point on the curve as the situation before the sale. After the sale you have a lower price. Finding the quantity that corresponds to that price &lt;strong&gt;on that same curve&lt;/strong&gt; will yield a higher demand, without shifting the curve.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastEditorUserId="5557" LastEditDate="2019-03-28T21:02:39.340" LastActivityDate="2019-03-28T21:02:39.340" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27184" PostTypeId="1" CreationDate="2019-03-09T14:00:12.670" Score="-2" ViewCount="38" Body="&lt;p&gt;I don't understand why we can replace &lt;code&gt;y&lt;/code&gt; with &lt;code&gt;e&lt;/code&gt;:&#xA;&lt;a href=&quot;https://i.stack.imgur.com/kt4rk.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/kt4rk.png&quot; alt=&quot;proof&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Mainly, why can we simply replace y with e, given that y is defined as:&#xA;&lt;a href=&quot;https://i.stack.imgur.com/kU7MH.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/kU7MH.png&quot; alt=&quot;y definition&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks in advance!&lt;/p&gt;&#xA;" OwnerUserId="21350" LastActivityDate="2019-03-10T07:05:17.687" Title="Why can we replace dependent variable y with the residuals e?" Tags="&lt;variance&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27185" PostTypeId="1" CreationDate="2019-03-09T14:52:06.620" Score="0" ViewCount="100" Body="&lt;p&gt;Compute the optimal choice for a consumer with the following utility function:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$u(x_1, x_2) =\max \{\min(2x_1, x_2), \min(x_1, 2x_2)\}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm familiar with computing optimal choice for perfect complements but this has 2 expressions and I'm stumped with how to go about doing this. I'd also appreciate if anyone could explain what exactly is happening in a function like this.&lt;/p&gt;&#xA;" OwnerUserId="21351" LastEditorUserId="61" LastEditDate="2019-03-09T15:06:38.053" LastActivityDate="2019-03-09T15:23:53.947" Title="Optimal choice for a weird leontief function" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;consumer-theory&gt;&lt;consumption&gt;&lt;leontief&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27187" PostTypeId="2" ParentId="27185" CreationDate="2019-03-09T15:23:53.947" Score="2" Body="&lt;p&gt;One needs to go case-by-case and arrive at a utility function with branches. To get you started, if &lt;span class=&quot;math-container&quot;&gt;$x_1 &amp;lt; x_2/2 \implies \min(2x_1,x_2) = 2x_1$&lt;/span&gt;, but then also &lt;span class=&quot;math-container&quot;&gt;$\min(x_1,2x_2) = x_1$&lt;/span&gt;. Therefore in this case, &lt;span class=&quot;math-container&quot;&gt;$u(x_1,x_2) = 2x_1$&lt;/span&gt;. etc &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are two other intervals to consider as regards the relation between &lt;span class=&quot;math-container&quot;&gt;$x_1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$x_2$&lt;/span&gt;, so in all you will obtain a utility function with three branches. The middle one will be a &lt;span class=&quot;math-container&quot;&gt;$\max$&lt;/span&gt; operator, and it can usefully be split in two, resulting in four branches.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2019-03-09T15:23:53.947" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27188" PostTypeId="2" ParentId="27184" CreationDate="2019-03-09T15:32:37.050" Score="1" Body="&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\big[ I-W(W'W)^{-1}W'+WC\big]y = \big[ I-W(W'W)^{-1}W'+WC\big](W\beta + e)$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$=\big[ I-W(W'W)^{-1}W'+WC\big]W\beta + \big[ I-W(W'W)^{-1}W'+WC\big] e$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Analyzing the first term,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\big[ I-W(W'W)^{-1}W'+WC\big]W\beta = W\beta - W(W'W)^{-1}W'W\beta + WCW\beta$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Simplyfying the inverse, we get &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$...= WCW\beta$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So &lt;em&gt;if&lt;/em&gt; &lt;span class=&quot;math-container&quot;&gt;$$CW = 0$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;the whole first term is zero.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2019-03-09T15:32:37.050" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27189" PostTypeId="1" CreationDate="2019-03-09T15:41:24.307" Score="0" ViewCount="710" Body="&lt;p&gt;If a consumer has locally non-satiated preferences, which of these 2 bundles is preferred and why?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Bundle A: (1,3)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Bundle B: (4,2)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is what I've reasoned from my very limited understanding of LNS preferences. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The distance between the two bundles has to be less than the radius of a ball around one of the bundles for the other bundle to be preferred. A ball around bundle A can't have a radius larger than 1, thus bundle B isn't preferred. However, a ball around bundle B can have a radius large enough so that Bundle A is within the ball. So bundle A is preferred.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm very unsure of this reasoning and I'd appreciate it if anyone could correct me where I'm wrong or help improve my answer.&lt;/p&gt;&#xA;" OwnerUserId="21351" LastActivityDate="2019-04-08T21:01:35.353" Title="Question about Locally non-satiated preferences" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;&lt;preferences&gt;&lt;consumption&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="27190" PostTypeId="1" CreationDate="2019-03-09T16:45:16.990" Score="4" ViewCount="276" Body="&lt;p&gt;I have little to no experience in economics and would enjoy a simple answer, if possible. Additionally, I base this question on subjective data, so I might be completely wrong in my assumptions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT: The title was deemed confusing. What I mean by &quot;food&quot; is any ready-to- or close to ready-to-eat meal. Restaurant meals definitely qualify, but so do frozen meals that might need a microwave/oven. I'm unsure about instant ramen, since I can hardly imagine enough people consuming enough ramen to create economic pressure on the rest of the food industry. Anything requiring attentive cooking disqualifies, so e.g. pasta is out.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Having some experience in preparing food for groups of people of up to 50, I could easily observe economies of scale working, driving the price per meal down as the number of participants (and thereby meals) increased. Roughly speaking, I'd spend about 3\$ on a meal for myself, 2\$/meal for 2-3 people, 1\$/meal for 10 people, and so on.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT: I should emphasize I'm not asking about a specific price, but rather use them to show the difference between expectation and reality. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So I would expect companies preparing hundreds or thousands of meals per day (i.e. restaurants) to sell meals at comparably low prices. Now most restaurants don't work like that and prepare every meal when it's ordered and I'd assume customers pay because they value the experience more than the food itself.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But why aren't there any places selling decent meals for .5\$? My explanations don't quite satisfy me:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;They do exist, it's called McDonalds. The prices aren't that low because there is an organizational overhead, at some point the number of people required rises linearly with the food that can be distributed. I'm not quite satisfied by this, because if it were driven by economics of scale, I'd expect similar concepts for better quality meals.&lt;/li&gt;&#xA;&lt;li&gt;They do exist, they are called soup kitchens. At some point, the prices are just so low that demanding the actual price causes people to question it's quality. I.e. when selling food for .1\$/meal, people start wondering what's wrong with it. The only way people accept these prices is by acting as a charity, giving the meals away for free and generating money through donations, rather than meals sold. But wouldn't that mean there should be something like for-profit soup kitchens? I know a pay-as-you wish restaurant in my city, they rely heavily on economics of scale, and still invest about 4\$/meal.&lt;/li&gt;&#xA;&lt;li&gt;Rent is the essential problem. A restaurant can only seat so many people, and prices &#xA;would drop drastically enough only at higher numbers. In that case, wouldn't bigger restaurants or restaurants owning their venue offer cheaper food?&lt;/li&gt;&#xA;&lt;li&gt;In the thought of all of the above, the solution are frozen foods. Prepared in huge quantities at industrial scale, they may be shipped anywhere and are storable, even selling in stores is possible. Then again, the cheapest frozen food I know still costs around 1\$/serving (and is by no means a full meal). There is actually a company sponsored by the red cross delivering frozen meals to elderly people, which has prices starting at 3\$/meal.&lt;/li&gt;&#xA;&lt;li&gt;People just don't accept cheap food. Though possible, there is a much stronger social component to eating, driving people to avoid low priced food as to avoid a status-penalty. But there are cheaper places (e.g. cafeterias) in existence, already associated with a status-penalty, so why would even cheaper food result in unbearable status penalties?&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="21353" LastEditorUserId="21353" LastEditDate="2019-03-11T09:21:17.103" LastActivityDate="2019-03-13T19:13:22.713" Title="Why doesn't economy of scale bring down prices of food?" Tags="&lt;economies-of-scale&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27191" PostTypeId="2" ParentId="17362" CreationDate="2019-03-09T19:04:21.097" Score="4" Body="&lt;p&gt;I was also thinking about this today and found the following counterexample. &#xA;Take the game &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;    \begin{matrix}&#xA;       &amp;amp; L &amp;amp; R \\&#xA;    T &amp;amp; 2,2 &amp;amp; 0,2 \\&#xA;    B &amp;amp; 0,2 &amp;amp; 1,1 \\&#xA;    \end{matrix}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(T,L) is the unique pure strategy NE, but there is a NE in which player 1 plays T and player 2 plays L with probability &lt;span class=&quot;math-container&quot;&gt;$p\geq 1/3$&lt;/span&gt;.&#xA;I think it is true though that there will be no completely mixed NE in a game with a unique pure NE.&lt;/p&gt;&#xA;" OwnerUserId="19363" LastActivityDate="2019-03-09T19:04:21.097" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27192" PostTypeId="2" ParentId="27189" CreationDate="2019-03-09T20:40:38.223" Score="1" Body="&lt;p&gt;Consider a locally non-satiated preference represented by the utility function&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;u(x,y)=-(x-4)^2(y-2)^2&#xA;\end{equation}&lt;/span&gt;&#xA;It is easy to verify that &lt;span class=&quot;math-container&quot;&gt;$u(4,2)=0&amp;gt;-9=u(1,3)$&lt;/span&gt;. Therefore &lt;span class=&quot;math-container&quot;&gt;$B$&lt;/span&gt; is strictly preferred to &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;p&gt;Likewise, you can construct a locally non-satiated preference, one represented by &lt;span class=&quot;math-container&quot;&gt;$$u(x,y)=-(x-1)^2(y-3)^2,$$&lt;/span&gt; under which &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt; is strictly preferred to &lt;span class=&quot;math-container&quot;&gt;$B$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;What local non-satiation does is that it rules out indifference &amp;quot;zones&amp;quot;, so that we're left with indifference &lt;em&gt;curves&lt;/em&gt;. Hence, with local non-satiation alone, it's impossible to tell whether one alternative is preferred to another.&lt;/p&gt;&#xA;&lt;p&gt;The following figures from Jehle and Reny (2011) illustrate preferences with local non-satiation (Fig 1.3) and without it (Fig 1.2).&lt;/p&gt;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/N8Hjl.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/N8Hjl.png&quot; alt=&quot;enter image description here&quot; /&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&lt;p&gt;&lt;sub&gt;Axioms 1 through 4' are completeness, transitivity, continuity, and local non-satiation, respectively.&lt;/sub&gt;&lt;/p&gt;&#xA;" OwnerUserId="42" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2019-03-09T20:50:45.810" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27193" PostTypeId="2" ParentId="27190" CreationDate="2019-03-09T21:42:56.707" Score="0" Body="&lt;p&gt;Food and restaurant meals are not the same thing so perhaps the title is not what you intended. Your text is mostly about restaurants and cafeterias and delivered meals so I will assume the title is wrong. If a new restaurant intends to own the property inside of which it operates it would not make a difference to the price of restaurant meals because they would still have to pay for the property instead of renting the property. Mortgage lending makes renting and ownership similar. If a restaurant pays no rent and has no loan and has lower costs as a result and charges lower meal prices as a result; that restaurant is not a restaurant: it is some kind of hybrid entity that is a charity plus restaurant. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think the premise of the question is wrong: your own experience shows that larger scale reduces the average cost. The other question: why not 0.50 USD restaurant meals is actually not proper in this forum because you're not supposed to have multiple questions in a single post. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regardless, I think eventually restaurant meals will seem to cost 0.50 USD but not literally that much. &quot;Seem to&quot; means the price will seem to be less expensive than it is today. If technology improves at a rate of 1% per year and inflation increases the price at 2% per year, the meals will seem cheaper as a percentage of the average wage but they will nominally cost more. In other words even the poorest people living in the poorest parts of the world will be able to eat restaurant meals even when the price per restaurant meal is 100 USD. This is a mathematical certainty when technology improves slower than the rate of inflation. Given that the poorest people do not eat in restaurants often we probably need technology to continue to improve, albeit, I would note that &lt;a href=&quot;https://en.wikipedia.org/wiki/Les_Mis%C3%A9rables&quot; rel=&quot;nofollow noreferrer&quot;&gt;some poor people do not cook for themselves&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The only way to see 0.50 USD restaurant meals is to have no inflation and wait for technology to improve. (I have a broad definition for technology which includes industrial organization as well as science and engineering.) Since major central banks intend there to be 2% inflation and it seems (thus far) to be plausible we will not see 0.50 USD restaurant meals.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some people might say Japan is the exception when it comes to inflation but other people might say we just haven't waited long enough to say anything. The inflation picture from Japan...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/HGJWa.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/HGJWa.png&quot; alt=&quot;Japan inflation&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you think this chart says that perhaps Japan demonstrates that a country might end up with less than 2% inflation that is not the same as saying it is zero inflation. If you suppose some people do think it will be zero percent inflation and that the rest of the world is &lt;a href=&quot;https://www.youtube.com/watch?v=XedDyR0opow&quot; rel=&quot;nofollow noreferrer&quot;&gt;turning Japanese&lt;/a&gt; then in fact there will be 0.50 USD restaurant meals (which is about 56 JPY). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The other possibility is that 0.50 USD restaurant meals will arise when technology improves faster than the inflation rate. Since we would be predicting two rates when one rate is already hard enough to confidently predict it is hard to justify such a prediction. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;The bottom line:&lt;/strong&gt; A large scale does reduce the average cost and you said so yourself. Since you mentioned a target price of 0.5 USD and also 0.1 USD it seems your inquiry is not specific to the price. I doubt if a specific price target for a restaurant meal is your concern. Rather, you are asking why we do not have  &lt;em&gt;prices that are lower than they are today&lt;/em&gt;. The answer is that as technology improves everything becomes more affordable for even the poorest people. That means prices are not lower than they are today because of the state of technology. This would include the organization of specific enterprises such as restaurants and within the food processing industry, industrial organization, agricultural science, engineering, and other considerations.  A limitation on this phenomenon is where technology cannot substitute for the services of people but that probably does not apply to restaurants in the long run. &lt;strong&gt;The actual price is not important; only the price as a percentage of the average wage. I am not talking about the average wage in restaurants but the average wage in the entire economy. Central banks have not yet changed their 2% inflation target so it is more important to focus on the rate of technology change. We might take Robert Gordon's forecast productivity growth rate as an estimate of technology change. Robert Gordon's forecast is 1.2%. Given the targeted 2% inflation rate and the forecast productivity growth rate of 1.2% the price of restaurant meals is more likely to increase than to decrease. Of course different parts of the economy will experience different changes in productivity so the price of restaurant meals will not necessarily increase at the rate of 0.8% per year.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://qz.com/633080/the-rise-and-fall-of-american-productivity-growth/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Link to an interview that cites Robert Gordon's productivity growth estimate near the time of his book &quot;The Rise and Fall of American Growth&quot; (2016)&lt;/a&gt;. &lt;/p&gt;&#xA;" OwnerUserId="6868" LastEditorUserId="6868" LastEditDate="2019-03-13T19:13:22.713" LastActivityDate="2019-03-13T19:13:22.713" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27194" PostTypeId="2" ParentId="27124" CreationDate="2019-03-09T21:44:17.150" Score="4" Body="&lt;p&gt;In &lt;a href=&quot;https://www.ey.com/Publication/vwLUAssets/ey-world-islamic-banking-competitiveness-report-2016/%24FILE/ey-world-islamic-banking-competitiveness-report-2016.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Ernst &amp;amp; Young 2016 Report&lt;/a&gt; we read (p. 17) that for the period 2010-2014 the Average Return on Equity for &quot;Participation Banks&quot; (this is the secular name of Banks under Sharia) was &lt;span class=&quot;math-container&quot;&gt;$12.6$&lt;/span&gt;% compared to &lt;span class=&quot;math-container&quot;&gt;$14.5$&lt;/span&gt;% of the &quot;comparable conventional&quot; banking. Although the ROE is lower, it is not that lower.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We also read that in the same period (p. 10), the assets of International Participation Banks grew by &lt;span class=&quot;math-container&quot;&gt;$16$&lt;/span&gt;% yearly on average. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It looks like a profitable way of doing business with strong growth.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;From a philosophical point of view one should ask: &lt;em&gt;how bankers in Participation banks view what they do?&lt;/em&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are they viewing their business model as essentially a way to cheat the religious doctrine-turned secular law, and everything they do they &quot;translate&quot; it into &quot;what was the interest earned&quot; or, after accepting the constraint that they won't do banking business in the traditional way, they explore &lt;em&gt;different ways of making available funds earn a return?&lt;/em&gt;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The two examples offered by the OP are very useful: &lt;strong&gt;first,&lt;/strong&gt; &quot;profit sharing&quot; makes a Participation bank more like a &lt;strong&gt;joint venture enterprise&lt;/strong&gt; -and it reminds us of Ancient Greek bankers (they were the first bankers), whose bulk of business consisted of funding ships to travel and trade around the Mediterranean Sea, for a share of the profits. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Second&lt;/strong&gt;, when a Participation Bank, instead of loaning an amount of money for a house-buy against a mortgage, buys the house and sells it to the interested party at a higher price (to be paid gradually through installments), it may appear as just a trick to avoid calling it &quot;loan with interest&quot;, but a large construction firm that constructs houses and then sells them with a long-term payment plan, does nothing different. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So it appears that Participation banks use very standard ways to do business, only, they are ways that we usually associate with other sectors of the economy, and this is why they may appear &quot;strange&quot; for the banking sector.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As regards the pros and cons of Islamic Banking, there are many studies, for example &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://openknowledge.worldbank.org/bitstream/handle/10986/3929/WPS5446.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;strong&gt;Beck, T., Demirgüç-Kunt, A., &amp;amp; Merrouche, O. (2010). Islamic vs. conventional banking: Business model, efficiency and stability. The World Bank.&lt;/strong&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where the abstract reads&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;This paper discusses Islamic banking products and interprets them in the context of financial intermediation theory. Anecdotal evidence&#xA;  shows that many of the conventional products can be redrafted as&#xA;  Sharia compliant products, so that the differences are smaller than&#xA;  expected. Comparing conventional and Islamic banks and controlling for&#xA;  other bank and country characteristics, the authors find few&#xA;  significant differences in business orientation, efficiency, asset&#xA;  quality, or stability. While Islamic banks seem more cost-effective&#xA;  than conventional banks in a broad cross-country sample, this finding&#xA;  reverses in a sample of countries with both Islamic and conventional&#xA;  banks. However, conventional banks that operate in countries with a&#xA;  higher market share of Islamic banks are more cost-effective but less&#xA;  stable. There is also consistent evidence of higher capitalization of&#xA;  Islamic banks and this capital cushion plus higher liquidity reserves&#xA;  explains the relatively better performance of Islamic banks during the&#xA;  recent crisis.&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="61" LastEditorUserId="4816" LastEditDate="2019-06-17T13:23:37.077" LastActivityDate="2019-06-17T13:23:37.077" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27196" PostTypeId="2" ParentId="27190" CreationDate="2019-03-10T01:28:13.263" Score="2" Body="&lt;p&gt;In the US at least, purchases and wages &lt;a href=&quot;https://www.statista.com/statistics/196609/revenue-by-cost-factor-of-us-fast-food-restaurant-industry/&quot; rel=&quot;nofollow noreferrer&quot;&gt;cost more&lt;/a&gt; than rent for a fast-food type business:&lt;/p&gt;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/bumvF.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/bumvF.png&quot; alt=&quot;enter image description here&quot; /&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&lt;p&gt;Purchases include some other hidden labor costs (drivers for transportation etc.) I'm not sure what's in the &amp;quot;other&amp;quot; category, perhaps insurance, lawyers etc.&lt;/p&gt;&#xA;&lt;p&gt;And I'm guessing in Europe (where you are) &amp;quot;value menus&amp;quot; might not be as common as in the US. These are &lt;a href=&quot;http://business.time.com/2014/01/14/fast-food-chains-are-desperate-to-kill-the-dollar-menu/&quot; rel=&quot;nofollow noreferrer&quot;&gt;loss leaders&lt;/a&gt; in the US by the way, i.e. the restaurants lose money on $1 double cheeseburgers (but they are required to sell them in order to keep the franchise.) Or so the story went around 2014. And you're not the only price-sensitive customer. A lot of McDonalds' US customers &lt;a href=&quot;https://www.eater.com/2018/1/30/16937672/mcdonalds-comeback-stock-price-all-day-breakfast-delivery&quot; rel=&quot;nofollow noreferrer&quot;&gt;apparently were&lt;/a&gt;:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;In January 2018 McDonald’s finally brought back its dollar menu after a five-year hiatus, marking the return of a deal structure that had been displaced by alternative — and less popular — offers, like the McPick $2. The removal of the dollar menu coincided with the company’s initial decline, and its return makes it competitive among other chains with similar value menus, such as Taco Bell and Wendy’s.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;If you want even lower prices in the short run, your best bet might be that Amazon buys a fast food chain. They're known to sell &lt;a href=&quot;http://www.fruitnet.com/fpj/article/174033/amazon-whole-foods-deal-is-juggernaut-disruptor&quot; rel=&quot;nofollow noreferrer&quot;&gt;entire categories of products at a loss&lt;/a&gt;.&lt;/p&gt;&#xA;&lt;p&gt;And depending whom you choose to believe, McDonalds &lt;a href=&quot;https://www.apnews.com/94aeb5b5c5fa48f7a0d6629ee51a8674&quot; rel=&quot;nofollow noreferrer&quot;&gt;did&lt;/a&gt; or &lt;a href=&quot;https://www.restaurantbusinessonline.com/financing/kiosks-wont-save-labor-costs-least-not-immediately&quot; rel=&quot;nofollow noreferrer&quot;&gt;din't&lt;/a&gt; envisage labor cost savings when rolling out kiosks to replace cashiers. Their statements on that have been somewhat vague and thus interpretable insofar. I find it a bit hard to believe that a company which &lt;a href=&quot;https://livinghistoryfarm.org/farminginthe50s/life_16.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;pioneered&lt;/a&gt; low food costs by cutting on labor didn't consider that as a factor; flashback to the 50s:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;The [McDonalds] burgers sold for 15-cents, about half of what a burger cost at regular diners of the time.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;And I think you might have some misconception about the level of scale needed to cut costs substantially (say by half). You expect to pay half as much per meal by ordering 10, but you are hardly in a position of bargaining power here given the scale of a large food chain. In contrast, the actual economies of scale achievable have long been realised when nation-wide (and later world-wide) franchise chains &lt;a href=&quot;https://livinghistoryfarm.org/farminginthe50s/life_16.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;appeared&lt;/a&gt;:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;The predominance of fast food restaurants changed the food supply chain all the way down to the farmer. McDonald's quickly became the single largest buyer of beef, pork, potatoes and apples in the U.S. That gave them tremendous economic clout.&lt;/p&gt;&#xA;&lt;p&gt;The fast food system is all about standardization, and so when the companies went looking for someone to supply their meat, they choose to deal with their large, corporate counterparts in the packing industry. IBP began to produce &amp;quot;boxed beef,&amp;quot; where the final cuts of beef, including hamburger, were produced at the processing plant rather than the local grocery. IBP became the largest supplier of hamburger meat to the fast food industry.&lt;/p&gt;&#xA;&lt;p&gt;Kentucky Fried Chicken buys all of its chickens from huge suppliers like Perdue, Tyson and Pilgrim's Pride. McDonald's gets its fish products from the giant supplier Gorton's of Gloucester.&lt;/p&gt;&#xA;&lt;p&gt;Because consumers with busy lifestyles needed food fast, the chains needed raw materials in standardized packages. So, meat packers needed a consistent supply of standardized animals to produce their meat. They couldn't afford to deal with the uncertainty of many, small family farms. So, livestock producers became bigger and bigger. McDonald's and other chains have also been accused of using their huge buying power to keep farm produce prices artificially low.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;What you really want is technological progress at any of these levels, because the foreseeable economies of scale are already there.&lt;/p&gt;&#xA;&lt;p&gt;And (being focused on restaurants), you might not know &lt;a href=&quot;https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3489136/&quot; rel=&quot;nofollow noreferrer&quot;&gt;that&lt;/a&gt;&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Chicken is America's favorite meat today, surpassing beef and pork. Chicken consumption per capita has nearly doubled in recent decades, whereas consumption of beef and pork has declined or stagnated. [...]&lt;/p&gt;&#xA;&lt;p&gt;Far from being automatic, these changes are the consequence of technological and organizational innovations that have made chicken products cheaper, abundant, and more diverse over the last century. This transformation is directly related to the rise of new lead firms and governance structures in the chicken value chain. The increased sophistication of processed chicken has given rise to a set of firms known as integrators, which vertically integrate through ownership a wide range of activities from breeding to processing and distribution. The shift to away-from-home consumption favored fast food giants like KFC and McDonald's, whose mass demand for processed chicken required higher levels of explicit coordination by the integrators. [...]&lt;/p&gt;&#xA;&lt;p&gt;The chicken value chain is characterized by a hierarchical governance structure made up of a few large integrators and tight coordination between them and large food retailers and fast food chains. The integrators have become highly concentrated as well. Two leading integrators, Pilgrim's Pride and Tyson Food, accounted for 48% of the US market in 2006, up from 30% in 1996. They exert great power over the entire value chain by connecting a wide array of activities from inputs to distribution. [...]  Their linkages with thousands of contract growers, mostly small farm owners, can be portrayed as a &lt;em&gt;captive&lt;/em&gt; relationship, where the growers heavily depend on the integrators for market access and resources. Meanwhile, the integrators have relational or modular linkages with large food retailers and fast food chains, which are now highly concentrated.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;The latter paper goes into some detail into what the captive relationship consists of, but I'd be digressing too much detailing all that here; the high-level definition is that it is &amp;quot;a means to maintain control over the growing process with minimal ownership&amp;quot; (compare this with franchise model). How far vertical integration goes (and thus &lt;a href=&quot;https://www.investopedia.com/terms/e/economiesofscope.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;economies of scope&lt;/a&gt;) is limited by some legal issues like antitrust legislation.&lt;/p&gt;&#xA;" OwnerUserId="6210" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2019-03-10T03:38:02.960" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27198" PostTypeId="2" ParentId="27184" CreationDate="2019-03-10T07:05:17.687" Score="2" Body="&lt;p&gt;You are not replacing &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; with &lt;span class=&quot;math-container&quot;&gt;$e$&lt;/span&gt;. We are replacing &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; with &lt;span class=&quot;math-container&quot;&gt;$\hat{y}+\hat{e}$&lt;/span&gt;, which is the fitted value of &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt;, given by &lt;span class=&quot;math-container&quot;&gt;$X\hat{\beta}$&lt;/span&gt;, plus the estimated value of the residual, given by &lt;span class=&quot;math-container&quot;&gt;$y-X\hat{\beta}$&lt;/span&gt;. So, by construction, &lt;span class=&quot;math-container&quot;&gt;$$X\hat{\beta}+\hat{e}=X\hat{\beta}+y-X\hat{\beta}=y$$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerUserId="21356" LastActivityDate="2019-03-10T07:05:17.687" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27199" PostTypeId="1" AcceptedAnswerId="27202" CreationDate="2019-03-10T12:12:06.847" Score="1" ViewCount="60" Body="&lt;p&gt;I know that in a Nash Equilibrium, no player can profitably deviate from the equilibrium strategy assuming that the strategies of the other players remain the same. My question is, what if a player can deviate to a different strategy that generates an equivalent payoff? Would this no longer be a Nash Equilibrium?&lt;/p&gt;&#xA;" OwnerUserId="20439" LastActivityDate="2019-03-10T15:12:52.483" Title="Non-negative deviations from Nash Equilibrium" Tags="&lt;game-theory&gt;&lt;nash-equilibrium&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27202" PostTypeId="2" ParentId="27199" CreationDate="2019-03-10T15:12:52.483" Score="3" Body="&lt;p&gt;It depends on whether the other players' strategies in the initial equilibrium are still best responses to the deviator's new strategy. For example, &lt;span class=&quot;math-container&quot;&gt;$(T,L)$&lt;/span&gt; is the unique NE in the game below. Player 1 (the row player) can deviate from &lt;span class=&quot;math-container&quot;&gt;$T$&lt;/span&gt; to &lt;span class=&quot;math-container&quot;&gt;$B$&lt;/span&gt; without hurting his own payoff, but &lt;span class=&quot;math-container&quot;&gt;$(B,L)$&lt;/span&gt; is not a NE, since &lt;span class=&quot;math-container&quot;&gt;$L$&lt;/span&gt; is not a best response to &lt;span class=&quot;math-container&quot;&gt;$B$&lt;/span&gt; in this game. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{array}{|c|c|c|}\hline&#xA;&amp;amp;L&amp;amp;R\\\hline&#xA;T&amp;amp;1,1&amp;amp;2,0\\\hline&#xA;B&amp;amp;1,0&amp;amp;0,1\\\hline&#xA;\end{array}&lt;/span&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course you can easily construct a game where such a unilateral deviation still leads to a NE. As the game below shows, player 1's deviation from &lt;span class=&quot;math-container&quot;&gt;$T$&lt;/span&gt; to &lt;span class=&quot;math-container&quot;&gt;$B$&lt;/span&gt; is still without loss of profit, but it changes the NE from &lt;span class=&quot;math-container&quot;&gt;$(T,L)$&lt;/span&gt; to &lt;span class=&quot;math-container&quot;&gt;$(B,L)$&lt;/span&gt;. There are also infinitely many other possible deviations for player 1 if you consider deviations in mixed strategies.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{array}{|c|c|c|}\hline&#xA;&amp;amp;L&amp;amp;R\\\hline&#xA;T&amp;amp;1,1&amp;amp;2,0\\\hline&#xA;B&amp;amp;1,2&amp;amp;0,1\\\hline&#xA;\end{array}&lt;/span&gt; &lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2019-03-10T15:12:52.483" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27204" PostTypeId="1" CreationDate="2019-03-10T16:50:25.223" Score="1" ViewCount="51" Body="&lt;p&gt;My understanding:&#xA; Normally, selling a product has an increasing marginal cost per unit produced. Very often this increases more and more due to poor allocation of resources (diminishing returns). This sets up the firm's graph where MR=MC and gives them a quantity to produce and price to charge.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question(s):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, what happens when the product is software?&#xA;Selling another product doesn't cost the firm anything, as all (most) of the costs are in development (with the exception of upkeep and bug fixes). &#xA;How do they determine what price to charge?&#xA;Would there be any reason to limit quantity?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Looking at video games specifically, Fortnite and Apex Legends have cost hundreds of thousands or millions of dollars to create then release free to play, with extra incentives to purchase if the player is invested in the game. Would this business strategy work anywhere else? Why or why not? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks in advance, feel free to answer as few or many as possible, I just find this topic really interesting.&lt;/p&gt;&#xA;" OwnerUserId="21367" LastActivityDate="2019-03-10T16:50:25.223" Title="Economics of Selling Software" Tags="&lt;microeconomics&gt;&lt;supply-and-demand&gt;&lt;software&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27206" PostTypeId="2" ParentId="4931" CreationDate="2019-03-10T22:58:36.657" Score="0" Body="&lt;p&gt;Not directly, but if you paid for the house by taking on new mortgage you would create additional money to be spend by the seller.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Imagine before the sale you had $10k savings and both you seller earned and spend nothing more or less than the year before; GDP in this year would not be affected if you haven't exchanged the house.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now if you took 90k mortgage and handed 100k to the seller you would have kept your income/spending the same so you would not increase GDP.&#xA;BUT seller would now have new $100k to spend and if he/she spends all of it GDP would boom. &lt;/p&gt;&#xA;" OwnerUserId="21370" LastEditorUserId="21370" LastEditDate="2019-03-10T23:07:37.640" LastActivityDate="2019-03-10T23:07:37.640" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27207" PostTypeId="1" CreationDate="2019-03-11T01:20:20.463" Score="5" ViewCount="66" Body="&lt;p&gt;I am reading the 1992 paper of Bikchandani, Hirshleifer and Welch on information cascades. They claim and prove that, given an environment of sequential decision making, an information cascade will always form. The proof is in the appendix of their paper and involves some statistical arguments that are not clear to me. A simpler proof in the body of the paper is considering groups of two individuals making a decision in sequence. For n even, P(no cascade after n individual decisions in sequence) = P (no cascade after first 2 people) * P(no cascade after next 2 people) * ... * P(no cascade after last 2 people) that ends up being &lt;span class=&quot;math-container&quot;&gt;$(p-p^2)^{n/2}$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This argument is clearer to me, but it seems made after the realization that two identical announcements are needed to start a cascade. Also, it seems calculated from the perspective of being outside the experiment, e.g. the moderator of the experiment who knows that p means a H (high signal) and 1-p refers to L (low signal) and &lt;strong&gt;not from the perspective of participants who should take into account being in both states of the world&lt;/strong&gt;. This is my understanding of the above term. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why is there no loss of generality in arriving at &lt;span class=&quot;math-container&quot;&gt;$(p-p^2)^{n/2}$&lt;/span&gt; not considering both states of the world? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have also been reading Banerjee's 1992 paper on herding. I would be very grateful for any sources that explain these papers and any notes on information cascades.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Addition: I understood how to interpret the formula above by reading Zhukov's slides and looking at the tree diagram he displays from Hirshleifer: &lt;a href=&quot;http://leonidzhukov.net/hse/2014/socialnetworks/lectures2/lecture6.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://leonidzhukov.net/hse/2014/socialnetworks/lectures2/lecture6.pdf&lt;/a&gt;. My problem was with interpreting the tree diagram that he shows, but I understood it after I accompanied Zhukov's slides with what Bikchandani et al. wrote. Thank you to the below commenter for the answer, too.&lt;/p&gt;&#xA;" OwnerUserId="21371" LastEditorUserId="23139" LastEditDate="2019-05-13T14:34:15.287" LastActivityDate="2019-05-13T14:34:15.287" Title="How to interpret the proof that information cascades will form?" Tags="&lt;probability&gt;" AnswerCount="0" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27209" PostTypeId="1" CreationDate="2019-03-11T04:13:13.513" Score="1" ViewCount="105" Body="&lt;p&gt;In the first chapter of &lt;a href=&quot;http://assets.press.princeton.edu/chapters/s9890.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Kreps (2013)&lt;/a&gt;, there is a proof that the choice function satisfies choice coherence. Kreps writes:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/vVgqb.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/vVgqb.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I do not understand how the third sentence of (b) logically follows from the previous two sentences. How do we necessarily know that there is a third commodity, z, in A? There might just be two commodities. Furthermore, how do we necessarily know that u(z) &gt; u(y)? Why can't the consumer possibly be indifferent between z and y?&lt;/p&gt;&#xA;" OwnerUserId="13618" LastEditorUserId="1601" LastEditDate="2019-03-11T05:55:29.067" LastActivityDate="2019-03-12T19:31:08.000" Title="Proof of Choice Coherence in Kreps (2013)" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;preferences&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27210" PostTypeId="2" ParentId="27209" CreationDate="2019-03-11T05:58:47.963" Score="1" Body="&lt;p&gt;If there is no &lt;span class=&quot;math-container&quot;&gt;$z \in A$&lt;/span&gt; such that&#xA;&lt;span class=&quot;math-container&quot;&gt;$u(z) &amp;gt; u(y)$&lt;/span&gt; (perhaps because no other &lt;span class=&quot;math-container&quot;&gt;$z$&lt;/span&gt; exists, perhaps for other reasons)&#xA;then by definition of &lt;span class=&quot;math-container&quot;&gt;$c_u$&lt;/span&gt; we know that &lt;span class=&quot;math-container&quot;&gt;$y \in c_u(A)$&lt;/span&gt;. This would contradict the assumption of the third sentence, that &lt;span class=&quot;math-container&quot;&gt;$y \notin c_u(A)$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;If, moreover, &lt;span class=&quot;math-container&quot;&gt;$y \notin c_u(A)$&lt;/span&gt;...&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2019-03-11T05:58:47.963" CommentCount="9" ContentLicense="CC BY-SA 4.0" />
  <row Id="27211" PostTypeId="1" AcceptedAnswerId="27217" CreationDate="2019-03-11T09:21:34.643" Score="3" ViewCount="195" Body="&lt;p&gt;Suppose we are playing a game where the Action set for Player 1 is &lt;span class=&quot;math-container&quot;&gt;$(a,b)$&lt;/span&gt;, for Player 2 is &lt;span class=&quot;math-container&quot;&gt;$(c,d)$&lt;/span&gt;, and for Player 3 is &lt;span class=&quot;math-container&quot;&gt;$(L,M,R)$&lt;/span&gt;. Assume that for Player 3, the action &lt;span class=&quot;math-container&quot;&gt;$M$&lt;/span&gt; is weakly dominated by some mix between &lt;span class=&quot;math-container&quot;&gt;$L$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$R$&lt;/span&gt;. I am attempting to find all of the possible mixed equilibria. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let &lt;span class=&quot;math-container&quot;&gt;$p$&lt;/span&gt; be the probability that Player 1 chooses &lt;span class=&quot;math-container&quot;&gt;$a$&lt;/span&gt;, let &lt;span class=&quot;math-container&quot;&gt;$q$&lt;/span&gt; be the probability that Player 2 chooses &lt;span class=&quot;math-container&quot;&gt;$c$&lt;/span&gt;, and let &lt;span class=&quot;math-container&quot;&gt;$r_1, r_2, r_3$&lt;/span&gt; be the probabilities that Player 3 choose &lt;span class=&quot;math-container&quot;&gt;$L, M, R$&lt;/span&gt; respectively. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have two questions:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, because action &lt;span class=&quot;math-container&quot;&gt;$M$&lt;/span&gt; is weakly dominated for Player 3, does everyone assume that &lt;span class=&quot;math-container&quot;&gt;$r_2=0$&lt;/span&gt;? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Second, the probabilities &lt;span class=&quot;math-container&quot;&gt;$p$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$q$&lt;/span&gt; are subject to the constraint that Player 3 be indifferent between his/her own actions. Does Player 3 need to be indifferent between &lt;span class=&quot;math-container&quot;&gt;$L$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$M$&lt;/span&gt;, and &lt;span class=&quot;math-container&quot;&gt;$R$&lt;/span&gt;, or just between &lt;span class=&quot;math-container&quot;&gt;$L$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$R$&lt;/span&gt;, since &lt;span class=&quot;math-container&quot;&gt;$M$&lt;/span&gt; is weakly dominated?&lt;/p&gt;&#xA;" OwnerUserId="20439" LastActivityDate="2019-03-11T22:00:51.873" Title="Necessary indifference conditions in mixed equilibrium" Tags="&lt;game-theory&gt;&lt;nash-equilibrium&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27212" PostTypeId="1" AcceptedAnswerId="27268" CreationDate="2019-03-11T09:54:29.383" Score="1" ViewCount="395" Body="&lt;p&gt;The problem is basic utility maximization subject to a budget constraint with &#xA;&lt;span class=&quot;math-container&quot;&gt;$$u(x,y) = min\{x+y,4\sqrt{x},4\sqrt{y}\}$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$p_x = 1, p_y = 1, M = 4$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I will have to first plot the Indifference Curves. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am able to figure out the following: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If &lt;span class=&quot;math-container&quot;&gt;$x &amp;lt; y: u(x,y) = min\{x+y, 4\sqrt x\}$&lt;/span&gt;, &lt;br&gt; else &lt;span class=&quot;math-container&quot;&gt;$u(x,y) = min\{x+y, 4\sqrt y\}$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But I get stuck here. For ex: if I am in the region where &lt;span class=&quot;math-container&quot;&gt;$x&amp;lt;y$&lt;/span&gt;, I can't find the sub-region where &lt;span class=&quot;math-container&quot;&gt;$x+y &amp;lt; 4 \sqrt x$&lt;/span&gt; or &lt;span class=&quot;math-container&quot;&gt;$x+y &amp;gt; 4 \sqrt x$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Cheers!&lt;/p&gt;&#xA;" OwnerUserId="21361" LastEditorUserId="21222" LastEditDate="2019-03-16T21:33:55.713" LastActivityDate="2019-03-16T21:33:55.713" Title="Utility maximimization for unusual Leontief utility function" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;utility&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="27217" PostTypeId="2" ParentId="27211" CreationDate="2019-03-11T21:25:48.883" Score="3" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;First, because action &lt;span class=&quot;math-container&quot;&gt;$M$&lt;/span&gt; is weakly dominated for Player 3, does everyone assume that &lt;span class=&quot;math-container&quot;&gt;$r_2=0$&lt;/span&gt;? &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Without seeing the game you're considering, it's hard to tell. But the general answer is No. Weakly dominated strategies &lt;em&gt;can&lt;/em&gt; be played in a Nash equilibrium (either mixed or pure). In the following game, both &lt;span class=&quot;math-container&quot;&gt;$B$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$C$&lt;/span&gt; are weakly dominated strategies for both players. But each player randomizing between them in any proportion is still a NE. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{array}{|c|c|c|c|}&#xA;\hline &amp;amp; A &amp;amp; B&amp;amp;C\\\hline &#xA;A&amp;amp;1,1&amp;amp;0,0&amp;amp;0,0\\\hline &#xA;B&amp;amp;0,0&amp;amp;0,0&amp;amp;0,0\\\hline &#xA;C&amp;amp;0,0&amp;amp;0,0&amp;amp;0,0\\\hline&#xA;\end{array}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Does Player 3 need to be indifferent between &lt;span class=&quot;math-container&quot;&gt;$L$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$M$&lt;/span&gt;, and &lt;span class=&quot;math-container&quot;&gt;$R$&lt;/span&gt;, or just between &lt;span class=&quot;math-container&quot;&gt;$L$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$R$&lt;/span&gt;, since &lt;span class=&quot;math-container&quot;&gt;$M$&lt;/span&gt; is weakly dominated?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The indifference condition for MSNE applies to pure strategies &lt;em&gt;in the support of the equilibrium mixed strategy&lt;/em&gt;. If &lt;span class=&quot;math-container&quot;&gt;$M$&lt;/span&gt; is played with positive probability in equilibrium, then you'd need indifference across all three. If &lt;span class=&quot;math-container&quot;&gt;$M$&lt;/span&gt; is played with zero probability, then you'd need &lt;span class=&quot;math-container&quot;&gt;$u_3(\sigma_1,\sigma_2,L)=u_3(\sigma_1,\sigma_2,R)\ge u_3(\sigma_1,\sigma_2,M)$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;More generally, the &lt;strong&gt;necessary and sufficient conditions&lt;/strong&gt; for a Nash equilibrium (either pure or mixed) are summarized in the following theorem: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;A strategy profile &lt;span class=&quot;math-container&quot;&gt;$(\sigma_1,\dots,\sigma_n)$&lt;/span&gt; is a Nash equilibrium if and only if for all &lt;span class=&quot;math-container&quot;&gt;$i=1,\dots,n$&lt;/span&gt;, &#xA;  &lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;u_i(s_i,\sigma_{-i})= u_i(s_i',\sigma_{-i}), \qquad \forall s_i,s_i'\in\mathrm{supp}(\sigma_i)&#xA;\end{equation}&lt;/span&gt;&#xA;  and &#xA;  &lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;u_i(s_i,\sigma_{-i})\ge u_i(s_i',\sigma_{-i}), \qquad \forall s_i\in\mathrm{supp}(\sigma_i)\text{ and }\forall s_i'\notin\mathrm{supp}(\sigma_i).&#xA;\end{equation}&lt;/span&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Hence, we see that the indifference condition is only required for pure strategies in the support of the equilibrium mixed strategy but not necessarily outside it. &lt;/p&gt;&#xA;" OwnerUserId="42" LastEditorUserId="42" LastEditDate="2019-03-11T22:00:51.873" LastActivityDate="2019-03-11T22:00:51.873" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27219" PostTypeId="2" ParentId="27158" CreationDate="2019-03-12T03:36:05.707" Score="3" Body="&lt;p&gt;It's basically what Keynes called the «&lt;a href=&quot;https://en.wikipedia.org/wiki/Keynesian_beauty_contest&quot; rel=&quot;nofollow noreferrer&quot;&gt;beauty contest&lt;/a&gt;». Back then the newspaper offered rewards to the person that was able to guess who where the pretiest girls (determined by the poll). &#xA;My english is bad (french student). hope i was a little help. &lt;/p&gt;&#xA;" OwnerUserId="20887" LastEditorUserId="1601" LastEditDate="2019-03-12T06:18:05.290" LastActivityDate="2019-03-12T06:18:05.290" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27220" PostTypeId="1" CreationDate="2019-03-12T03:39:08.727" Score="0" ViewCount="69" Body="&lt;p&gt;In &lt;em&gt;The Bankers' New Clothes: What's Wrong with Banking and What to Do about It&lt;/em&gt; (2013), Admati &amp;amp; Hellwig recommend much higher equity requirements:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Requiring that banks’ equity be at least on the order of 20–30 percent of their total assets would make the financial system substantially safer and healthier.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;In contrast, under Basel III:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Banks’ equity can still be as low as 3 percent of their total assets.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Admati &amp;amp; Hellwig make some persuasive arguments. However, I am wondering:&lt;/p&gt;&#xA;&lt;p&gt;&lt;strong&gt;What are the costs or trade-offs of requiring banks to have higher equity?&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;p&gt;Admati &amp;amp; Hellwig repeatedly claim that there are no costs or trade-offs whatsoever (see quotes below). But if so, why wouldn't they recommend even higher equity ratios like 50% or even 100%? Why stop at 20–30%?&lt;/p&gt;&#xA;&lt;p&gt;This leads me to think that there must be costs or trade-offs which they haven't mentioned. However, I am not sure what these are and hence my question.&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;if banks have much more equity, the financial system will be safer, healthier, and less distorted. From society’s perspective, the benefits are large and the costs are hard to find; there are virtually no trade-offs. ...&lt;/p&gt;&#xA;&lt;p&gt;the view that there are significant trade-offs is flawed ...&lt;/p&gt;&#xA;&lt;p&gt;long-term benefits of much higher equity requirements are large, and the costs are hard to find. ...&lt;/p&gt;&#xA;&lt;p&gt;Best of all, these many critical benefits of significantly higher equity requirements could be obtained at virtually no cost to society. Taxpayers would save on subsidies, and the public would benefit from a more stable and healthier financial system. There are therefore no trade-offs associated with this approach. &lt;strong&gt;Society would obtain large benefits for free.&lt;/strong&gt; [&lt;em&gt;Emphasis added.&lt;/em&gt;]&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerDisplayName="user20317" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2021-03-02T09:02:45.250" Title="What are the costs of requiring banks to have more equity?" Tags="&lt;banking&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27221" PostTypeId="1" CreationDate="2019-03-12T09:02:29.663" Score="1" ViewCount="18" Body="&lt;p&gt;&lt;strong&gt;I'm looking for a list (csv/json/api...) of all marketplaces (New York Stock Exchange...) and the financial products&lt;/strong&gt; that are offered on those market places.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Preferrably worlwide but US and EU will be fine.&#xA;A small description of products with their fields (PHARMA, TECH, AGRO...) will be greatly appreciated.&lt;/p&gt;&#xA;" OwnerUserId="18520" LastActivityDate="2019-03-12T09:02:29.663" Title="Where to find a list of marketplaces (NYSE,LSE) and the financial products they offer?" Tags="&lt;stock-market&gt;" AnswerCount="0" CommentCount="7" ContentLicense="CC BY-SA 4.0" />
  <row Id="27222" PostTypeId="1" AcceptedAnswerId="27272" CreationDate="2019-03-12T11:39:35.050" Score="3" ViewCount="132" Body="&lt;p&gt;Assume we have a model of OVG where there are 2 overlapping generations, &lt;em&gt;youngs&lt;/em&gt; and &lt;em&gt;olds&lt;/em&gt;, the agents are two period living. The utility function is logaritmic, and the production function is Cobb-Douglas.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have to show that the solution for the social planner does not coincide with the equilibrium from the market.&#xA;The social planner solves:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\max  \ln(c_t^y)+\beta \ln(c_{t}^o)$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$s.t.$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$c_t^y+\frac{c_t^o}{1+n}+k_{t+1}(1+n)-k_t=f(k_t)$$&lt;/span&gt;&#xA;Where the units are expressed in per capita terms and &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt; represents the population growth rate.&#xA; The FOC for the social planner is &#xA;&lt;span class=&quot;math-container&quot;&gt;$$\frac{c_{t}^o}{c_t^y}=\beta(1+n)$$&lt;/span&gt;&#xA;We know that in steady state the level of consumption is actually constant i.e.&#xA;&lt;span class=&quot;math-container&quot;&gt;$c_t^o=c^o$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$c^y_t=c^y$&lt;/span&gt;.&#xA;What I am not getting is if I should replace this on the constraint in order to obtain the values of S.S. or if I need to take the FOC with respect to the &lt;span class=&quot;math-container&quot;&gt;$k$&lt;/span&gt;.&#xA;I am a little bit lost, since I've already solved the problem for the market economy but I am having a hard time figuring out how to proceed.&#xA;Any hint will be greatly appreciated.&lt;/p&gt;&#xA;" OwnerUserId="19921" LastActivityDate="2019-03-15T19:11:38.053" Title="Overlapping Generations model: Social Planner solution" Tags="&lt;macroeconomics&gt;&lt;economic-growth&gt;&lt;steady-state&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27224" PostTypeId="2" ParentId="27209" CreationDate="2019-03-12T19:31:08.000" Score="1" Body="&lt;p&gt;The English translation of &lt;span class=&quot;math-container&quot;&gt;$c_u(A)=\{x\in A:u(x)\ge u(y) \text{ for all }y\in A\}$&lt;/span&gt; is &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$c_u(A)$&lt;/span&gt; is a subset of elements in the set &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt; that satisfies the following condition: if an element is in &lt;span class=&quot;math-container&quot;&gt;$c_u(A)$&lt;/span&gt; then &lt;strong&gt;this element must generate a utility no lower than any other element in the set &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt;&lt;/strong&gt;. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In other words, &lt;span class=&quot;math-container&quot;&gt;$c_u(A)$&lt;/span&gt; contains the decision maker's most-preferred element(s) in &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that &quot;&lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;&quot; in the definition is &lt;em&gt;any&lt;/em&gt; element in &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt; that satisfies the bolded condition above, and &quot;&lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt;&quot; is &lt;em&gt;any&lt;/em&gt; element in &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt; (without further restrictions). I emphasize the word &lt;em&gt;any&lt;/em&gt; to highlight the fact that &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; are merely placeholders and therefore do not refer to specific elements in either set. In fact, we may well have defined &lt;span class=&quot;math-container&quot;&gt;$c_u(A)$&lt;/span&gt; as &lt;span class=&quot;math-container&quot;&gt;$\{y\in A: u(y)\ge u(x)  \text{ for all }x\in A\}$&lt;/span&gt; and the interpretation/English translation will be exactly the same (i.e. verbatim) as in the quote-block above. &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Let's work through an example. Let there be three possible alternatives, denoted as follows:&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;a_1=\text{one \$5 bill}, \qquad &#xA;a_2=\text{one \$10 bill}, \qquad &#xA;a_3=\text{two \$5 bills}. &#xA;\end{equation}&lt;/span&gt;&#xA;Further suppose that the decision maker cares only about the total amount of money in each alternative, and thus &#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;u(a_2)=u(a_3)&amp;gt;u(a_1).&#xA;\end{equation}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Example 1.&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Let &lt;span class=&quot;math-container&quot;&gt;$A=\{a_1,a_2,a_3\}$&lt;/span&gt; and let's forget about &lt;span class=&quot;math-container&quot;&gt;$B$&lt;/span&gt; for now. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;&lt;strong&gt;Suppose &lt;span class=&quot;math-container&quot;&gt;$x,y\in A$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$x\in c_u(A)$&lt;/span&gt;.&lt;/strong&gt;&quot; The first part of the sentence (before &quot;and&quot;) suggests that both &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; (again, placeholders here) can be either &lt;span class=&quot;math-container&quot;&gt;$a_1$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$a_2$&lt;/span&gt;, or &lt;span class=&quot;math-container&quot;&gt;$a_3$&lt;/span&gt;, but the second part of the sentence (after &quot;and&quot;) rules out &lt;span class=&quot;math-container&quot;&gt;$x=a_1$&lt;/span&gt; since &lt;span class=&quot;math-container&quot;&gt;$a_1$&lt;/span&gt; is not one of the most preferred alternatives.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;&lt;strong&gt;Then &lt;span class=&quot;math-container&quot;&gt;$u(x)\ge u(y)$&lt;/span&gt;.&lt;/strong&gt;&quot; This follows from &lt;span class=&quot;math-container&quot;&gt;$x\in c_u(A)$&lt;/span&gt;, since &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; is either &lt;span class=&quot;math-container&quot;&gt;$a_2$&lt;/span&gt; or &lt;span class=&quot;math-container&quot;&gt;$a_3$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; is either &lt;span class=&quot;math-container&quot;&gt;$a_1$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$a_2$&lt;/span&gt;, or &lt;span class=&quot;math-container&quot;&gt;$a_3$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;&lt;strong&gt;If &lt;span class=&quot;math-container&quot;&gt;$y\notin c_u(A)$&lt;/span&gt;, then &lt;span class=&quot;math-container&quot;&gt;$u(z)&amp;gt;u(y)$&lt;/span&gt; for some &lt;span class=&quot;math-container&quot;&gt;$z\in A$&lt;/span&gt;.&lt;/strong&gt;&quot; The &quot;if&quot; part of this sentence restricts &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; to be only &lt;span class=&quot;math-container&quot;&gt;$a_1$&lt;/span&gt;, because if &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; were either &lt;span class=&quot;math-container&quot;&gt;$a_2$&lt;/span&gt; or &lt;span class=&quot;math-container&quot;&gt;$a_3$&lt;/span&gt;, it would have been included in the set &lt;span class=&quot;math-container&quot;&gt;$c_u(A)$&lt;/span&gt;. Consequently, since &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; is not one of the most preferred alternatives, some element in &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt; must be strictly preferred to &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt;, and we know that this &quot;some element&quot; must be either &lt;span class=&quot;math-container&quot;&gt;$a_2$&lt;/span&gt; or &lt;span class=&quot;math-container&quot;&gt;$a_3$&lt;/span&gt;. [The textbook uses the variable &lt;span class=&quot;math-container&quot;&gt;$z$&lt;/span&gt; instead of &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; because it wants to allow for the possibility that &lt;span class=&quot;math-container&quot;&gt;$z\in A$&lt;/span&gt; but &lt;span class=&quot;math-container&quot;&gt;$z\notin B$&lt;/span&gt;. Otherwise, it would have used &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; instead.] &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The rest of the proof should be straightforward from here on. &lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Example 2.&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Let &lt;span class=&quot;math-container&quot;&gt;$A=\{a_1,a_2\}$&lt;/span&gt;. I'll leave you to verify that in this example, the textbook's proof works in the same way without loss of generality. &lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2019-03-12T19:31:08.000" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="27228" PostTypeId="1" CreationDate="2019-03-13T04:44:07.630" Score="54" ViewCount="10769" Body="&lt;p&gt;Sorry this might be borderline off-topic (and I am an economics layman at best), but I found this rather puzzling and would like to know why this is happening.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I just came across &lt;a href=&quot;https://www.news.com.au/national/breaking-news/qld-farmers-to-protest-coles-1lt-milk/news-story/0cce4910d585803f4e23caadbfd1ce91&quot; rel=&quot;noreferrer&quot;&gt;an article&lt;/a&gt; which documents another development in the quarrels between Australian milk farmers and big supermarket chains. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As I understand it, the farmers demand that supermarkets charge higher prices for milk and then pass on the additional revenue back to the farmers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When I think of the free market, I would expect this to be unnecessary, as the farmers could charge more when they sell the milk to the supermarkets or, if that doesn't work (why wouldn't it?), some farmers would stop milk production leading to milk scarcity leading to higher prices or, more importantly, higher revenue for the farmers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What am I missing?&lt;/p&gt;&#xA;" OwnerUserId="21392" LastActivityDate="2019-03-17T04:14:32.953" Title="Why do Australian milk farmers need to protest supermarkets' milk price?" Tags="&lt;free-market&gt;" AnswerCount="7" CommentCount="5" FavoriteCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="27229" PostTypeId="1" CreationDate="2019-03-13T04:49:06.043" Score="1" ViewCount="25" Body="&lt;p&gt;When running an economics experiment, how and where are experimental graduate students supposed to obtain the surveys (such as standard measures of altruism, risk aversion, social dominance...) that often come at the end of experiments (so that researchers can &quot;control for altruism&quot; etc)? Do researchers purchase such measures / inventories, or are they part of the public domain and can be freely copied from previous research papers that use them? I am interested in using those from my own field as well as using one that is not from my own field (the Bem Sex Role Inventory) that appears to not be readily available online -- at least not for free.&lt;/p&gt;&#xA;" OwnerUserId="21393" LastActivityDate="2019-03-13T17:12:15.017" Title="How to obtain standard surveys / measures to use at end of experiment to &quot;control for altruism&quot; etc?" Tags="&lt;experimental-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27230" PostTypeId="2" ParentId="27228" CreationDate="2019-03-13T05:14:23.057" Score="46" Body="&lt;p&gt;&lt;em&gt;Please also see the new &lt;strong&gt;Additional Addendum&lt;/strong&gt; at the bottom written a few days after I first wrote this answer.&lt;/em&gt;&lt;/p&gt;&#xA;&lt;p&gt;You are correct and not missing anything. Absent good reasons to the contrary (and none have been given here), we may presume that the free market works.&lt;/p&gt;&#xA;&lt;p&gt;If the Queensland milk industry is being &amp;quot;squeezed&amp;quot;, then this suggests that there are simply too many dairies and some should shut down.&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;&amp;quot;We've got 370 dairies in Queensland at the moment, that could get down to 150 in eight to 10 years' time, and there will be more imported milk,&amp;quot; he [Farmer McInnes] added.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Farmer McInnes's alarmist scenario illustrates a commonly-held economic fallacy that probably arises from the common tendency to think about everything in binary terms.&lt;/p&gt;&#xA;&lt;p&gt;To him, it's either:&lt;/p&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Queensland raises the price of milk by 10 cents a litre and thereby preserves its 370 dairies; OR&lt;/li&gt;&#xA;&lt;li&gt;Queensland does not raise the price of milk and thus sees a catastrophic fall in the number of dairies from 370 to 150.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;p&gt;Such binary or all-or-nothing thinking is a failure to recognise how to free market works. The free market is capable of making &lt;strong&gt;marginal adjustments&lt;/strong&gt;.&lt;/p&gt;&#xA;&lt;p&gt;If at present, the Queensland milk industry is being &amp;quot;squeezed&amp;quot;, then this suggests that there are simply too many dairies relative to demand. What should naturally happen is:&lt;/p&gt;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;The least profitable/productive dairies voluntarily shut down.&lt;/li&gt;&#xA;&lt;li&gt;Supply will fall.&lt;/li&gt;&#xA;&lt;li&gt;The price of milk will rise to the point at which the remaining dairies are happy with the prices they receive.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&lt;p&gt;The end result is that the number of dairies will fall, but probably by only a handful and not catastrophically to 150 (I don't even know where he gets this number from).&lt;/p&gt;&#xA;&lt;p&gt;But even if the number of Queensland dairies does fall to 150, then this is not necessarily a bad thing, so long as this fall is a result of natural market adjustments.&lt;/p&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;&lt;strong&gt;Lengthy addendum.&lt;/strong&gt; Producers seeking government/public protection have always made certain specious arguments. Here in this article, in addition to the main such argument refuted above, several other of such arguments were also made. They are well worth refuting:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;the costs are enormous.&lt;/p&gt;&#xA;&lt;p&gt;Drought has led to soaring grain prices, making it more expensive for farmers to feed their herds on top of costs like water and power. ...&lt;/p&gt;&#xA;&lt;p&gt;10 cents is the difference between getting by and making a profit, but have invested too much to pull out.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Under the free market or capitalist system, individuals take risk and can then enjoy either rewards or losses.&lt;/p&gt;&#xA;&lt;p&gt;Suppose instead that these farmers instead benefited from low grain prices and enjoyed profits of 20 cents per litre of milk sold. Should consumers then have stood outside supermarkets demanding that milk prices be lowered by 10 cents per litre?&lt;/p&gt;&#xA;&lt;p&gt;This would, of course, have been absurd -- but it is also exactly what the present farmers are doing.&lt;/p&gt;&#xA;&lt;p&gt;At play here is also some sort of strange morality, in which it is thought &amp;quot;fair&amp;quot; that consumers &amp;quot;should&amp;quot; help pay for producers' costs.&lt;/p&gt;&#xA;&lt;p&gt;But suppose I spend 20 years of my life creating what I (and no one else) consider to be a magnificent work of art. Should I then protest when nobody out there is willing to pay me $1M for this work of art and all the years of hard work I put in? No. Consumers (be it of milk or my magnificent artwork) are free to pay whatever they like and need not be coerced into paying more than they'd like.&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Mr McInnes runs ... a family farm that's been operating for 104 years&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Here the age of the farm was simply included without comment. This is an emotive argument based on age/history/tradition that clearly has some appeal.&lt;/p&gt;&#xA;&lt;p&gt;It is not altogether invalid. Some communities/countries may collectively decide that certain things (like farms or art performances) are worth promoting, preserving, and hence subsidising or being otherwise protected from market forces.&lt;/p&gt;&#xA;&lt;p&gt;However, such subsidies should be made clear, transparent, and explicit. And ideally, they should arise through the democratic process, rather than through a few farmers' protest outside a supermarket.&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;[raising the price of milk by 10 cents per litre] would only cost consumers an extra \$8 a year.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;This, by itself, is not an argument at all. Why should each milk consumer in Queensland have to pay \$8 more per year to milk producers? Should they also each pay \$8 more to Queensland's avocado producers, the King of Thailand, or Mel Gibson?&lt;/p&gt;&#xA;&lt;p&gt;Just because a cost is perceived to be small (and I personally do not perceive paying an extra A$8 a year for milk to be small) doesn't mean we can ignore the cost. Instead, every cost must be weighed against the corresponding benefits. And here, no benefits whatsoever have been articulated, other than that of helping out a few dairy farmers. And no reason has been given for why dairy farmers are any worthier of special help than are avocado farmers, the King of Thailand, or Mel Gibson.&lt;/p&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;&lt;strong&gt;Another addendum.&lt;/strong&gt; My answer above has been correctly criticised for being overly theoretical. And so I have spent a little more time studying the specifics of the Australian dairy industry. One particularly important reference is the &lt;strong&gt;Australian Competition &amp;amp; Consumer Commission's (ACCC) &lt;em&gt;&lt;a href=&quot;https://www.accc.gov.au/focus-areas/inquiries/dairy-inquiry-0/final-report&quot; rel=&quot;nofollow noreferrer&quot;&gt;Dairy Inquiry: Final report&lt;/a&gt;&lt;/em&gt;&lt;/strong&gt; (April 2018).&lt;/p&gt;&#xA;&lt;p&gt;It turns out that there are &lt;strong&gt;market failures&lt;/strong&gt; in the Australian dairy industry.†&#xA;However, these market failures are not what everyone here has assumed.&lt;/p&gt;&#xA;&lt;p&gt;A little background: On January 26 2011 (Australia Day), the supermarket chain Coles began its milk price war by offering $1-a-litre milk. Soon after, two other chains, Woolworths and Aldi, followed suit (see e.g. &lt;a href=&quot;https://theconversation.com/vital-signs-why-more-expensive-milk-wont-help-farmers-much-112145&quot; rel=&quot;nofollow noreferrer&quot;&gt;this story&lt;/a&gt;).&lt;/p&gt;&#xA;&lt;p&gt;Everyone has thus assumed that the &amp;quot;villain&amp;quot; in this story is the supermarkets (and especially Coles). However, it turns out that the &amp;quot;villain&amp;quot; (if there must be one) is instead the &lt;strong&gt;processors&lt;/strong&gt;, which are another intermediary between the dairy farmers and the supermarkets.&lt;/p&gt;&#xA;&lt;p&gt;According to the &lt;em&gt;Dairy Inquiry&lt;/em&gt; (p. xii), the key market failures arise from:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;the strong bargaining power imbalance and information asymmetry in farmer-processor relationships.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;The &lt;em&gt;Dairy Inquiry&lt;/em&gt; issues 8 recommendations (pp. xxv–xxvii). All 8 pertain to rectifying the power imbalance and information asymmetry between the farmers and the processors. All 8 are contractual and informational. All 8 pertain to increasing clarity, transparency, simplicity, and the ease with which farmers can switch between processors in the farmer-processor contracts.&lt;/p&gt;&#xA;&lt;p&gt;Importantly, &lt;strong&gt;the ACCC does not recommend raising supermarket prices as a possible solution&lt;/strong&gt;:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;The ACCC did not obtain any evidence that supermarket pricing, including $1 per litre milk, has a direct impact on farmgate prices ... farmers’ lack of bargaining power means that they are unlikely to benefit from an increase in the retail (or wholesale) prices of private label milk or other dairy products. Even if  processors were to receive higher wholesale prices from sales to supermarkets, this does not mean the processors will pay farmers any more than they have to secure milk.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;A common lay reaction to many economic problems is to call for artificial price floors. (Indeed, the Australian Labor Party has &lt;a href=&quot;https://www.abc.net.au/news/rural/2019-02-20/labor-to-set-milk-floor-price-if-elected-in-2019/10827322&quot; rel=&quot;nofollow noreferrer&quot;&gt;proposed&lt;/a&gt; doing so with milk prices if it wins the federal elections -- this is thus evidently a popular &amp;quot;fix&amp;quot;.)&lt;/p&gt;&#xA;&lt;p&gt;However, economists know that artificial price (and quantity) restrictions are generally a bad idea and usually cause even more problems. If there are market failures, then &lt;strong&gt;we should try to address those market failures directly, instead of using artificial price restrictions.&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;p&gt;For example, if there are externalities, then one possibility is to use the appropriate Pigovian taxes and subsidies.&lt;/p&gt;&#xA;&lt;p&gt;And in this particular example, the market failure is that of uneven bargaining power and information asymmetries between farmers and processors. Therefore, the economist's preferred solution is not a milk price floor, but to tackle the market failure directly, namely by reducing the information asymmetries between farmers and producers.&lt;/p&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;†I never claimed otherwise. In particular, I never claimed, as has been caricatured by some of my opponents, that the Australian dairy industry is a perfectly competitive and free market. I merely claimed that all of the arguments in the originally-cited article were invalid and failed to explain what, if any, the market failures or imperfections were.&lt;/p&gt;&#xA;&lt;p&gt;&lt;em&gt;All&lt;/em&gt; markets in the real world are imperfect. The onus is on one to explain and ideally quantify what the market failures are. That way we can better understand the problems and find a better solution, instead of simply screaming for a price floor whenever there is perceived &amp;quot;unfairness&amp;quot;/&amp;quot;injustice&amp;quot;/&amp;quot;exploitation&amp;quot;.&lt;/p&gt;&#xA;&lt;p&gt;I have also deliberately put &amp;quot;villain&amp;quot; in scare quotes. In economics, we are less interested in looking for the &amp;quot;villain&amp;quot; or someone to blame than in trying to find solutions for each problem. And there usually are solutions, once we set aside our moral outrage.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2019-03-17T04:14:32.953" CommentCount="7" ContentLicense="CC BY-SA 4.0" />
  <row Id="27231" PostTypeId="2" ParentId="27228" CreationDate="2019-03-13T08:10:04.600" Score="13" Body="&lt;p&gt;Getting milk from the dairy farm to the retailer is too expensive for individual farms to manage on their own, with transporting, processing and packaging. There are also a host of consumer and health regulations that prevent dairy farms selling direct to consumers without first processing the milk. They are dependent on distribution networks to buy and collect the milk. Thus they have little bargaining power when it comes to negotiating the price, it often comes down to accepting what is offered as a take-it-or-leave-it deal. Some would liken it to paying &quot;protection&quot; to racketeers, except this is legal. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Farmers are also generally not well educated in areas such as economics or marketing, and so the quotes and sound bites are emotive and often a simplistic view of what would solve the problem as they see it. In this case, Coles charging 10 cents per litre more and passing that 10 cents back to the farmers would approximately &lt;strong&gt;&lt;em&gt;double&lt;/em&gt;&lt;/strong&gt; what they earn from their milk. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The supermarkets sell their own brand milk for about \$1.00 per litre, other brands are more expensive. But regardless of the brand, farmers typically get \$0.08 - \$0.15 per litre.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Possibly the only alternative solution that would deliver more money back to the farmers is if they were to organise into a collective, which could bring significant bargaining power, and dictate for what price they will sell their milk. The two main obstacles to this, however, are that the farmers are mostly parties to a supply contract which they would either have to break, at the risk of being sued for breach of contract, or wait until it expires, and the risk of falling foul of the various laws designed to protect consumers from anti-competitive practices such as price-fixing.&lt;/p&gt;&#xA;" OwnerUserId="21396" LastEditorUserId="21396" LastEditDate="2019-03-13T13:15:13.773" LastActivityDate="2019-03-13T13:15:13.773" CommentCount="9" ContentLicense="CC BY-SA 4.0" />
  <row Id="27235" PostTypeId="2" ParentId="27228" CreationDate="2019-03-13T09:58:26.177" Score="70" Body="&lt;p&gt;I would like to contradict Kenny LJ explicitly on his claim that &quot;the free market works&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It only works if the market is actually free, i.e. competition exists. Which, you can argue, is not the case in the milk market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;What you are looking at is a &lt;a href=&quot;https://en.wikipedia.org/wiki/Cartel&quot; rel=&quot;noreferrer&quot;&gt;cartel&lt;/a&gt;&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Excuse me for citing numbers for the &lt;em&gt;German&lt;/em&gt; market, not Australia, as I am more familiar with that market and have numbers ready that I don't have for Australia. I am quite confident, however, that while the ratios might differ a bit, the overall structure will be the same.)&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;There are about &lt;strong&gt;100.000 milk farmers&lt;/strong&gt; in Germany, producing about 28 million tons of milk per year. As Mick pointed out, however, they are in the farming / production business, not in the transportation / processing business, so they have to sell their milk to dairies. There are just over &lt;strong&gt;100 dairies&lt;/strong&gt; in Germany.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And most of them have a monopoly on their region, meaning they're the only dairy a farmer &lt;em&gt;could&lt;/em&gt; sell to.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Those dairies sell the processed milk to supermarket chains and other retailers / business consumers. About 60% of all the milk produced is sold by &lt;strong&gt;less than a half-dozen major supermarket chains&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Milk is a highly regulated food product, meaning that one dairy's milk is effectively the same as any other. There is &lt;strong&gt;very little competition in quality&lt;/strong&gt;. The dairies don't even have &quot;a product&quot;, the milk ends up packaged in the &lt;em&gt;supermarket&lt;/em&gt; brand:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Woolworths has bumped the cost of its own-brand milk by 10 cents a litre, but Coles has refused to follow suit because it might burden customers.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So the only competition is in the price. &lt;strong&gt;Whoever &lt;em&gt;sells&lt;/em&gt; cheapest.&lt;/strong&gt; Customers buy the milk where it's cheapest (supermarket), because they simply do not have any realistic option to go for a &quot;premium&quot; milk product that's provided by middle- or small-sized, or regional, producers at a sustainable price with a transparent premium for the producer as well. It's just not available. There are &quot;bio&quot; brands, but that label is only saying something about how the cattle is kept and fed -- the price dynamics still apply:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The supermarket buys where it's cheapest (dairy), and the dairy tells the milk farmers how much they are willing to pay, take it or leave it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A farmer that is not willing to sell his milk at the price the dairy dictates (even if it's at a loss), will not get his milk to market &lt;em&gt;at all&lt;/em&gt;, but still have running costs to pay. Which means he'll be out of business pretty quick, forced to sell his business, land, and lifestock to some bigger farmer that is able to use scaling effects to produce at a lower price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You could claim that this is the result of an oversaturated market, that less milk on the market would drive the prices up. That is correct, in a way, but the market &lt;em&gt;is&lt;/em&gt; oversaturated &lt;em&gt;because&lt;/em&gt; producing large quantities of milk as cheap as possible is the only bargaining chip the producers &lt;em&gt;have&lt;/em&gt; in a market where literally no-one is going to a farmer to buy produce. Rising prices would not equate to rising margins for the farmers, as they simply have no control over the supply chain.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Concentration of power at the retailer end, a lack of competition in quality, and the inability of the producer to cut out the middle man (dairies) or create a meaningful &quot;premium&quot; market means the retailer is dictating the price, to the point where producer's margins are minimized and the only way to be a profitable producer is by economics of scale -- large combines swallow medium and small-sized producers, and the retailers are able to push the price even lower, repeating the cycle.&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is beneficial to the customer insofar as that the product (milk in this case) is available at every supermarket and extremely cheap. But it comes at a high cost, destroying middle- and small-sized milk farms (and dairies!) in a race to the bottom. Which also includes a race for the most milk-efficient cattle, to the exclusion of all other considerations.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Refuting Kenny LJ's wholesale dismissal of regulation:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Suppose instead that these farmers instead benefited from low grain prices and enjoyed profits of 20 cents per litre of milk sold. Should consumers then have stood outside supermarkets demanding that milk prices be lowered by 10 cents per litre?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The consumers wouldn't have had to, as the supermarket chain would already, preemptively, have realized the opportunity to lower prices (to stay competitive to the &lt;em&gt;other&lt;/em&gt; supermarket chains who would have done the same).&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Addendum:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In answer to a comment by @horns, &lt;em&gt;this is a matter of official record and investigation&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Rewe was sentenced to 20.8 million Euro antitrust fine in May 2013. Spar was sentenced to 3 million Euro antitrust fine in November 2014. (Just two I was able to duckduckgo ad-hoc.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Quoting the &lt;a href=&quot;https://www.bundeskartellamt.de/SharedDocs/Meldung/EN/Pressemitteilungen/2017/13_03_2017_Milch.html&quot; rel=&quot;noreferrer&quot;&gt;German Antitrust Office&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Our investigations have shown that the contracts between milk producers and dairies in Germany have long periods of notice and duration. In addition, farmers in Germany are generally obliged to supply the milk they produce exclusively to their respective dairy. There is virtually no possibility for them to switch to another dairy. This is a problem for farmers and hinders possible newcomers on the dairy side or dairies wishing to extend their activities. Another widespread practice is that the price of raw milk is set only after delivery and is based on reference prices and market information systems.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Also from that article:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The Bundeskartellamt questioned 89 private and co-operative dairies, which in 2015 procured approx. 30.9 million tonnes of raw milk. This is equivalent to around 98 % of the total milk supply volume. The authority's investigations have shown that in 2015 97.8% of the volume of raw milk covered by the investigations was sold subject to exclusive supply obligations. In addition, contracts for more than half of the raw milk supply volume can only be terminated with at least two years' notice.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;There is no effective competition.&lt;/em&gt;&lt;/p&gt;&#xA;" OwnerUserId="21401" LastEditorUserId="21401" LastEditDate="2019-03-14T18:03:43.810" LastActivityDate="2019-03-14T18:03:43.810" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="27237" PostTypeId="2" ParentId="26604" CreationDate="2019-03-13T10:35:29.583" Score="1" Body="&lt;p&gt;A good starting point would be the &quot;&lt;a href=&quot;http://www.doingbusiness.org/en/data/exploretopics/getting-credit&quot; rel=&quot;nofollow noreferrer&quot;&gt;getting credit&lt;/a&gt;&quot; subindex of the Doing Business rankings compiled by the World Bank.  There is also an &lt;a href=&quot;http://www.doingbusiness.org/en/methodology/getting-credit&quot; rel=&quot;nofollow noreferrer&quot;&gt;explanation of the methodology&lt;/a&gt;.  This is supposed to be a test of the business environment, i.e. rules laid down by the government and central bank rather than about the behaviour of market participants.&lt;/p&gt;&#xA;" OwnerUserId="16631" LastActivityDate="2019-03-13T10:35:29.583" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27238" PostTypeId="2" ParentId="27228" CreationDate="2019-03-13T12:12:06.170" Score="8" Body="&lt;p&gt;Not sure about Australia, but in America it's quite common for a large retailer to simply dictate to the producers the price they will purchase the commodity from them for.  If a farmer's primary customer can simply declare that they will be paying 5% less for a product, the farmer really does not have much recourse.    Or, if for whatever reason the expenses increase, the farmer either eats that cost, or it gets passed on. Unfortunately, they are not a storefront that can make up for it by selling to more customers -- they have their major customers, and they sell it to them.    So if that major customer simply refuses to pay it, the farmer has no recourse. &lt;/p&gt;&#xA;" OwnerUserId="21412" LastActivityDate="2019-03-13T12:12:06.170" CommentCount="7" ContentLicense="CC BY-SA 4.0" />
  <row Id="27241" PostTypeId="1" AcceptedAnswerId="27242" CreationDate="2019-03-13T15:16:15.073" Score="2" ViewCount="175" Body="&lt;p&gt;According to &lt;a href=&quot;https://www.statista.com/statistics/188185/percent-chance-from-preceding-period-in-real-gdp-in-the-us/&quot; rel=&quot;nofollow noreferrer&quot;&gt;statista.com&lt;/a&gt;, US Q4 GDP growth rate was 2.6% over the economy in Q3. However, why is the annualized growth rate for the US therefore not be a sum of all 4 quarters if their definition of QoQ growth is basically how much the economy grew over the previous quarter? i.e. why is according to statista, the GDP growth of the US in 2018-19 only 2.9%, and not 2.6 + 3.4 + 4.2 + 2.2? &lt;/p&gt;&#xA;" OwnerUserId="19814" LastActivityDate="2019-03-13T16:38:01.517" Title="GDP Growth QoQ vs YoY: Why do the figures not match?" Tags="&lt;gdp&gt;&lt;united-states&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27242" PostTypeId="2" ParentId="27241" CreationDate="2019-03-13T16:38:01.517" Score="3" Body="&lt;p&gt;Because those data are Seasonally adjusted annual rate: &lt;a href=&quot;https://en.wikipedia.org/wiki/Seasonally_adjusted_annual_rate&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://en.wikipedia.org/wiki/Seasonally_adjusted_annual_rate&lt;/a&gt;&#xA;&lt;a href=&quot;https://i.stack.imgur.com/gv4Tv.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/gv4Tv.jpg&quot; alt=&quot;From &amp;#39;more information tab&amp;#39;&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="21426" LastActivityDate="2019-03-13T16:38:01.517" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27244" PostTypeId="2" ParentId="27229" CreationDate="2019-03-13T17:12:15.017" Score="1" Body="&lt;p&gt;In experimental economics, the classic ways to measure/control for participants' social preferences are variants of the following games: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;The &lt;a href=&quot;https://en.wikipedia.org/wiki/Ultimatum_game&quot; rel=&quot;nofollow noreferrer&quot;&gt;ultimatum game&lt;/a&gt; measures a participant's preference for fairness or justice. &lt;/li&gt;&#xA;&lt;li&gt;The &lt;a href=&quot;https://en.wikipedia.org/wiki/Dictator_game&quot; rel=&quot;nofollow noreferrer&quot;&gt;dictator game&lt;/a&gt; measures a participant's other-regarding preference. &lt;/li&gt;&#xA;&lt;li&gt;The &lt;a href=&quot;https://en.wikipedia.org/wiki/Dictator_game#Variants&quot; rel=&quot;nofollow noreferrer&quot;&gt;trust game&lt;/a&gt; measures the level of trust and trustworthiness among a group of participants. &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Risk preferences (and time preferences/impatience) can be elicited using either of the following: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Multiple price lists (see &lt;a href=&quot;https://www.aeaweb.org/articles?id=10.1257/000282802762024700&quot; rel=&quot;nofollow noreferrer&quot;&gt;Holt &amp;amp; Laury (2001)&lt;/a&gt;) &lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://link.springer.com/article/10.1007/s11166-013-9170-z&quot; rel=&quot;nofollow noreferrer&quot;&gt;BRET&lt;/a&gt; (Bomb Risk Elicitation Task) &lt;/li&gt;&#xA;&lt;li&gt;Convex Time Budget (CTB) method (for time preference, see &lt;a href=&quot;https://econweb.ucsd.edu/~jandreon/Publications/AER12-AS-Estimation.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Andreoni &amp;amp; Sprenger (2012)&lt;/a&gt;)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The games other than CTB are simple enough to be ran in the &quot;survey&quot; form, e.g. with pencil/paper. There are also free computer programs (e.g. &lt;a href=&quot;https://www.ztree.uzh.ch/en.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;zTree&lt;/a&gt;) that implement those games. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;NB. If your main audience is economists, you'd also want to run these games in an &lt;em&gt;incentivzed&lt;/em&gt; way, namely participants get paid and their earnings are directly related to their choices in those games. Responses to survey questions, especially the hypothetical type, do not get much credit from economists. &lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2019-03-13T17:12:15.017" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27247" PostTypeId="1" AcceptedAnswerId="27290" CreationDate="2019-03-13T20:07:42.797" Score="1" ViewCount="64" Body="&lt;p&gt;In a sequential game, where there are 8 pizzas.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Player 1 decides number of pizzas he wants. Let's call it S1 (strategy of player 1), and S1 = 5 means player one decided to get 5 pizzas.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then player 2 decides number of pizzas he wants, and player 2 knows what player 1 decided. Let's call it S2 (strategy of player 2), and S2 = 5 means player two decided to get 5 pizzas.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the S1 + S2 &gt; 8 then both players get 0 pizzas.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Else, the players get the number of pizzas that they decided to get, also player 1 gets S1 pizzas and player two gets S2 pizzas.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In &quot;solutions&quot; to exercises to an assignment about strategies, they have written the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;S1* and S2* are &quot;Nash equilibrium&quot; strategies of the player 1 and player 2.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Find all the Nash equilibrium in pure strategies in this sequential game.&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;(1) S1* ∈ {0, 1, 2, 3, 4, 5, 6, 7, 8} and&#xA;S2*(S1) = 8 - S1   if   S1 = S1*,&#xA;S2*(S1) &amp;gt; 8 - s1   if   S1 &amp;gt; S1*,&#xA;S2*(S1) ∈ {0, 1, 2, 3, 4, 5, 6, 7, 8}   if   S1 &amp;lt; S1*&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;What does it mean that S1 &gt; S1* or S1 &amp;lt; S1*&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It means The player 1 decides a number of pizza which is greater than 8?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What does the notations above mean?&lt;/p&gt;&#xA;" OwnerUserId="19275" LastEditorUserId="19275" LastEditDate="2019-03-14T09:33:00.800" LastActivityDate="2019-03-15T23:28:04.940" Title="What does these &quot;strategy notations&quot; mean?" Tags="&lt;game-theory&gt;&lt;nash-equilibrium&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27248" PostTypeId="1" CreationDate="2019-03-13T22:34:32.133" Score="0" ViewCount="38" Body="&lt;p&gt;Can monetary policy affect potential output growth? And if yes, how is this consistent with the neoclassical thesis's of money neutrality in the long run?&lt;/p&gt;&#xA;" OwnerUserId="21336" LastEditorUserId="18552" LastEditDate="2019-03-14T13:01:15.300" LastActivityDate="2019-04-13T14:02:00.590" Title="Monetary policy and potential output growth" Tags="&lt;monetary-policy&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27250" PostTypeId="1" CreationDate="2019-03-13T23:55:55.990" Score="3" ViewCount="21" Body="&lt;p&gt;Modern conglomerate mergers differ from those from decades ago as, even though they takeover smaller companies, they have a more narrow focus on related business and, in order to be successful, have an extremely rigorous financial control and seek to be as efficient as possible.&#xA;Research I've read shows that there's not enough evidence to say that old conglomerate mergers (1980's) distorted or reduced competition, however, I can't find research on modern firms.&#xA;Do you have any knowledge on this? If you can link articles it would be great.&lt;/p&gt;&#xA;" OwnerUserId="21448" LastEditorUserId="42" LastEditDate="2019-03-14T01:43:03.417" LastActivityDate="2019-03-14T01:43:03.417" Title="Are modern conglomerate mergers better or worse for economic competition?" Tags="&lt;microeconomics&gt;&lt;reference-request&gt;&lt;industrial-organisation&gt;&lt;competition&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27251" PostTypeId="2" ParentId="27220" CreationDate="2019-03-14T01:50:41.847" Score="2" Body="&lt;p&gt;If banks are forced to hold 20-30% of their assets as common equity, their cost of capital is much higher. This is because the expected return on equity needs to be close to other industries, and that generally is much higher than interest rates. Typical targets for return on equity are around 20%, even in the modern low interest rate environment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The result is that banks are much less competitive versus non-bank finance, and so would lose market share. Since non-bank financial entities are less well regulated, the risk to the system would rise if they take over lending. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the immediate question is: how exactly can regulators stop all risk migrating to non-bank finance? Considering the flexibility of contract law, that is not easy, since financing arrangements can be embedded into almost any commercial contract (e.g., accounts receivable). You cannot just look at existing non-bank financial practices, you need to deal with any new structures that pop up to take advantage of the situation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Once that question is answered, we would then need to figure out how to get borrowing rates to be a relatively reasonable spread over government bonds, since the lending spreads have to cover the return on equity for 20-30% of the balance sheet.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2019-03-14T01:50:41.847" CommentCount="8" ContentLicense="CC BY-SA 4.0" />
  <row Id="27252" PostTypeId="2" ParentId="27228" CreationDate="2019-03-14T03:31:41.433" Score="7" Body="&lt;p&gt;Other answers and comments have outlined the general economic principles at work here. Here are the details unique to Australia:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Two companies, Coles and Woolworths, control the majority of the supermarket sales in the country. Critics call them a &quot;duopoly.&quot; There are other stores, but the big two dominate. Their control of the market allows them to effectively dictate prices to some of their suppliers.&lt;/li&gt;&#xA;&lt;li&gt;From 2011 to 2018 they were competing aggressively on the price of basic store-brand milk (presumably at little or no direct profit to themselves or dairy farmers; the major supermarkets may have profited indirectly by attracting customers away from smaller chains, who then buy profitable non-milk items).&lt;/li&gt;&#xA;&lt;li&gt;Coles is still selling milk cheaper in 2019 than it was in 2010.&lt;/li&gt;&#xA;&lt;li&gt;Last year Woolworths sold a limited run of &quot;drought relief&quot; milk at an increased price, marketed as helping out struggling dairy farmers. A significant number of customers chose to pay 10% extra (for the same product with a different label). Woolworths have now raised the price of their basic store-brand milk and dairy farmers want Coles to do the same.&lt;/li&gt;&#xA;&lt;li&gt;Dairy farmers feel that pegging the consumer price of milk to $1/L for 8+ years while the prices of every other consumer product went up at the normal rate is not the kind of market behaviour they want to see.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="21451" LastActivityDate="2019-03-14T03:31:41.433" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27254" PostTypeId="1" CreationDate="2019-03-14T08:11:00.080" Score="2" ViewCount="44" Body="&lt;p&gt;In a domestic market, there exist multiple (around 5) multi-product state-owned enterprises. In a few products, SOEs compete with private enterprises while in the majority of products, the SOEs share the market among themselves. Economies of scale and scope exist in the industry. What could be the rationale of having multiple State-owned enterprises in the domestic market? I have tried looking at the academic literature but most of them analyze competition between private and  State-owned enterprise. I would like to have examples of competition existing between multiple state-owned enterprises in any country setting.&lt;/p&gt;&#xA;" OwnerUserId="8467" LastActivityDate="2019-03-14T08:11:00.080" Title="Can State Owned Enterprises compete with each other without a private enterprise in a market? Examples" Tags="&lt;competition&gt;&lt;public-economics&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27256" PostTypeId="2" ParentId="27248" CreationDate="2019-03-14T13:06:53.450" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Can monetary policy affect potential output growth?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Yes. Otherwise, central banks would be indifferent to quantitative easing and other measures.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;how is this consistent with the neoclassical thesis's of money neutrality in the long run?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It is not. The &lt;a href=&quot;https://www.investopedia.com/terms/n/neutrality_of_money.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;premise&lt;/a&gt; that &quot;&lt;em&gt;new money neither creates nor destroys machines&lt;/em&gt;&quot; sounds accurate only &lt;em&gt;in isolation&lt;/em&gt;. But in the real world, companies bind themselves to financial (as well as fiscal) obligations which are in terms of &lt;em&gt;nominal&lt;/em&gt; variables.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Certain monetary policies may render those companies cash-strapped, thereby triggering liquidity crises, bankruptcies, higher cost of financing, emigration of skilled workforce, and other effects. Altogether, this may result in structural changes in the economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, while the thesis assumes that the &lt;a href=&quot;https://www.investopedia.com/terms/n/neutrality_of_money.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;aggregate supply curve is vertical&lt;/a&gt;, it misses the logical notion that this curve may shift to the left or to the right in the long run.&lt;/p&gt;&#xA;" OwnerUserId="18552" LastActivityDate="2019-03-14T13:06:53.450" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="27258" PostTypeId="1" CreationDate="2019-03-14T16:23:19.020" Score="1" ViewCount="29" Body="&lt;p&gt;I've been thinking about this a lot and I am not sure I have understood correctly. I was thinking about, for example, migrant workers who send a portion of their income back home, or wealthy individuals who hold money in offshore accounts (in a foreign currency).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Very often I see these sorts of scenarios represented as money being &quot;lost&quot; by the source economy and gained by the destination economy. However, if one thinks about the transactions involved, what is actually happening is that value is being exchanged between two isolated economies. Similar to (to use a tired plumbing analogy) a heat exchanger which transfers heat from one plumbing system to another whilst the medium (currency) within each system never directly interacts.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If somebody transfers their money from one economy to another via an FX trade, they purchase, for example, Dollars with their Euros and they now have some Euros which represent the value previously represented by their Dollars, whilst the Dollars they previously had are taken by whomever sold the Euros and put back into the Dollar economy they came from.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, there is no change in the quantity of money in either economy, so there are no gains or losses. Have I understood correctly?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The only potential downside I can see is that there may be a subsequent imbalance in wealth distribution in the destination economy, but that's the opposite of the way it is presented where the downside is on the source economy. Does this make sense?&lt;/p&gt;&#xA;" OwnerUserId="5603" LastActivityDate="2019-03-14T16:23:19.020" Title="What is the impact of money &quot;sent&quot; to another country?" Tags="&lt;money-supply&gt;&lt;money&gt;&lt;foreign-exchange&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27261" PostTypeId="1" CreationDate="2019-03-14T17:01:43.967" Score="3" ViewCount="73" Body="&lt;p&gt;Let's say an entrepreneur can choose between starting a business in a competitive market with zero economic profit, and starting a business in a market that is not perfectly competitive with positive economic profit. We would perhaps expect in an equilibrium that there would be no competitive markets unless there were no opportunities for economic profit anywhere. Where could I find more information on the structure of markets in this regard?&lt;/p&gt;&#xA;" OwnerUserId="21474" LastActivityDate="2019-04-14T20:01:45.383" Title="Understanding agents selecting among markets" Tags="&lt;industrial-organisation&gt;&lt;markets&gt;&lt;theory&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27262" PostTypeId="2" ParentId="27228" CreationDate="2019-03-14T17:17:01.047" Score="5" Body="&lt;p&gt;Farmers cannot operate as ideal model businesses that can just turn off and on without impact. Only large corporations can even approach that level of abstract capitalism.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;More specifically farmers &#xA;(1) have certain minimum expenses both for family and farm related (loan payments),&#xA;(2) are not diversified to get income from other product lines, &#xA;(3) have little/no work knowledge or capital to get into diversification&#xA;(4) limited ability to instantly increase or decrease the milk cows in production&#xA;    especially without significant surge losses. Cows cannot be stored like machinery.&#xA;    In fact if whole industry kills cows beef sale price plummets and &#xA;    it takes 2-3 years to &quot;manufacture&quot; many replacement cows on milk price upturn.&lt;br&gt;&#xA;(5) Can sell significant volumes of milk only to the major grocery wholesalers. Direct &#xA;    sales to end customers fell off rapidly during 1930s-1950s, and is not viable for &#xA;    the vast majority of farmers today.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So basically farmers are economically trapped and unable to respond to market faster than 2-3 year time frames. Economically and politically its pretty easy for grocery stores to out last any actions farmers take. Stopping production? Most the blame would go to farmers even if all the independents could stick together. The government might even just seize assets in the name of the public good.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Typically wise grocery store chains in highly urbanized areas worldwide use this to take over private farming. They simply pay farmers low because they control sales. Eventually the store can buy out bankrupt farmers for a few cents on the dollar then hire the farmers back at low fixed wages. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the end its true the grocery businesses assume most the economic risks. But grocery corporations usually curtail any chance of decent living doing farming as well. Wages after takeover generally aren't the sort to support much of a family and definitely not sending kids to higher education.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the issue is the coming end of a way of life. Whether that is really intrinsically bad is debatable. Certainly going to stir up emotions among the adherents. But as a society It might be best to treat them as just another cult that refused to fit with the modern world. Maybe even need to fund mandatory government deprogramming and reeducation.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;...Because big money WILL find a way around any such protections put up to protect this lifestyle based on old agricultural tech. And probably ways to pervert such an effort to make things even worse.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I do note that farmers who just want to remain independent might be able survive by going high tech in some way -- especially ways that allow faster more economic ways to respond to the market and economics. Perhaps &quot;synthetic&quot; milk not produced by a cow but closer than a pure factory. &quot;Udder in a vat&quot; 2.0!!!!&lt;/p&gt;&#xA;" OwnerUserId="21475" LastActivityDate="2019-03-14T17:17:01.047" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27265" PostTypeId="1" CreationDate="2019-03-14T22:59:18.443" Score="1" ViewCount="48" Body="&lt;p&gt;Consider the following imaginary lottery (motivated by &#xA;Massachusetts' &lt;a href=&quot;https://www.reuters.com/article/idUS343652371320120810&quot; rel=&quot;nofollow noreferrer&quot;&gt;Cash WinFall&lt;/a&gt;):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Ticket money obtained in the previous draw are given to the participants of the next draw proportionally to the ticket price they pay.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;For example, suppose that in the first draw people bought tickets costing 5 million dollars, and in the second draw - costing 1 millions; if I bought a 1 dollar ticket in the second draw, then I win 5 dollars; and that's for sure, no minuscule probabilities, cool! People will like it and buy more tickets in the third draw, say 10 millions, and win 10 cents for a dollar spent, that is lose 90 cents overall; in the fourth draw almost nobody will like to take part, people buy tickets costing only 0.5 million, and win 20 dollars for one dollar spent, cool again! And so on...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course, the organizer will have to take a share, say 10% of ticket price, but it seems that it does not really change the mechanism, that is ticket money fluctuating up and down.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Such a strange lottery looks like something from a stock market - so &lt;strong&gt;can one really model it there&lt;/strong&gt;?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;P. S. English is not native to me, so please feel free to correct the question.&lt;/p&gt;&#xA;" OwnerUserId="21484" LastEditorDisplayName="user18" LastEditDate="2019-03-15T01:21:16.317" LastActivityDate="2019-03-15T01:48:31.983" Title="Is this lottery like stock market?" Tags="&lt;stock-market&gt;" AnswerCount="1" CommentCount="1" ClosedDate="2019-03-24T16:38:49.953" ContentLicense="CC BY-SA 4.0" />
  <row Id="27267" PostTypeId="1" CreationDate="2019-03-15T00:45:04.857" Score="1" ViewCount="48" Body="&lt;p&gt;I'm currently looking at New Institutional Economics and I can't get my head around the assumption of the neoclassical irrelevance theorem stated by the neoclassical economics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It doesn't matter whether the factors of production are owned or rented by their users&#xA;(see Samuelson 1 957, 894: &quot;Remember that in a perfectly competitive&#xA;market it really doesn't matter who hires whom: so have labor&#xA;hire ' capital, ' . . .&quot; )&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can't seem to find an explanation for that statement. Can someone explain it in terms of neoclassical thinking?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Best Regards&lt;/p&gt;&#xA;" OwnerUserId="21486" LastActivityDate="2019-05-09T09:02:10.403" Title="Ownership in Neoclassical Economics/Property Rights Question" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27268" PostTypeId="2" ParentId="27212" CreationDate="2019-03-15T01:26:21.390" Score="1" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/8cj8R.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/8cj8R.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&#xA;Above is a plot of the indifference curves for &lt;span class=&quot;math-container&quot;&gt;$U=1,2,...,8$&lt;/span&gt; and also for &lt;span class=&quot;math-container&quot;&gt;$U=8.5$&lt;/span&gt; that I made in MATLAB. For &lt;span class=&quot;math-container&quot;&gt;$P_x=P_y=1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$m=4$&lt;/span&gt;, the budget constraint is simply the the line &lt;span class=&quot;math-container&quot;&gt;$y=4-x$&lt;/span&gt; (not pictured here, but easy to visualize). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Notice this budget constraint overlaps the &lt;span class=&quot;math-container&quot;&gt;$U=4$&lt;/span&gt; indifference curve (fourth contour from the origin) on the line segment connecting &lt;span class=&quot;math-container&quot;&gt;$(1,3)$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$(3,1)$&lt;/span&gt;. Any other point on the budget line would yield &lt;span class=&quot;math-container&quot;&gt;$U&amp;lt;4$&lt;/span&gt;, hence consuming on the line segment connecting &lt;span class=&quot;math-container&quot;&gt;$(1,3)$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$(3,1)$&lt;/span&gt; is optimal. But since all of these bundles correspond to &lt;span class=&quot;math-container&quot;&gt;$U=4$&lt;/span&gt;, the optimal bundle is not unique, but could be any bundle on this line segment. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is the MATLAB code that generated the plot: &lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;u=zeros(60,60);&#xA;for i=1:60;&#xA;    for j=1:60&#xA;        u(i,j)=min([(i+j)/10 4*sqrt(i/10) 4*sqrt(j/10)]);&#xA;    end&#xA;end&#xA;figure&#xA;contour(u,[1 2 3 4 5 6 7 8 8.5]);&#xA;ylabel('Good Y')&#xA;xlabel('Good X')&#xA;grid on&#xA;grid minor&#xA;xt = get(gca, 'XTick');                                 % 'XTick' Values&#xA;set(gca, 'XTick', xt, 'XTickLabel', xt/10) &#xA;yt = get(gca, 'YTick');                                 % 'XTick' Values&#xA;set(gca, 'YTick', yt, 'YTickLabel', yt/10) &#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;" OwnerUserId="21222" LastEditorUserId="21222" LastEditDate="2019-03-16T20:02:34.293" LastActivityDate="2019-03-16T20:02:34.293" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27269" PostTypeId="2" ParentId="27265" CreationDate="2019-03-15T01:48:31.983" Score="1" Body="&lt;p&gt;Theoretically, the fair value of a company is based on its earnings prospects (or its expected dividends, which is related to earnings). Since not everyone agrees on those prospects, and technical issues hit (investors need to sell for some reason), stock prices fluctuate. However, the fundamental value of a company is relatively stable from day-to-day, regardless of the volume of trading. This valuation stability is quite different from your proposed lottery system, where the value is entirely based on previous purchase volume.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2019-03-15T01:48:31.983" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27270" PostTypeId="1" AcceptedAnswerId="27271" CreationDate="2019-03-15T02:10:31.660" Score="6" ViewCount="133" Body="&lt;p&gt;Consider the following simple linear demand system (in vector notation) with n different products&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Demand: &lt;span class=&quot;math-container&quot;&gt;$\quad\mathbf{q=B\left(a-p\right)}$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Inverse demand: &lt;span class=&quot;math-container&quot;&gt;$\quad\mathbf{p=a-B^{-1}q}$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where &lt;span class=&quot;math-container&quot;&gt;$\mathbf{p}$&lt;/span&gt; is the vector of prices and &lt;span class=&quot;math-container&quot;&gt;$\mathbf{q}$&lt;/span&gt; is the vector of quantities supplied. The Jacobians of these two equations&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\dfrac{\partial\mathbf{q}}{\partial\mathbf{p}}=-\mathbf{B}\quad$&lt;/span&gt;&#xA;  and  &lt;span class=&quot;math-container&quot;&gt;$\quad\dfrac{\partial\mathbf{p}}{\partial\mathbf{q}}=-\mathbf{B}^{-1}$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;tell you how prices react to a change in quantity supplied and vice-versa. Now, consider the example:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\mathbf{B}=\left[\begin{array}{cc}&#xA;\frac{4}{3} &amp;amp; -\frac{2}{3}\\&#xA;-\frac{2}{3} &amp;amp; \frac{4}{3}&#xA;\end{array}\right]\quad$&lt;/span&gt; so that &lt;span class=&quot;math-container&quot;&gt;$\quad\mathbf{B}^{-1}=\left[\begin{array}{cc}&#xA;1 &amp;amp; .5\\&#xA;.5 &amp;amp; 1&#xA;\end{array}\right]$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;then it is easy to see that, for some product &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\dfrac{\partial q_{i}}{\partial p_{i}}\neq\left(\dfrac{\partial p_{i}}{\partial q_{i}}\right)^{-1}$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand that that is true mathematically and will generally be the case, but what does it mean in terms of economic intuition? Why does the demand curve for product &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;  slope differently depending on whether I put &lt;span class=&quot;math-container&quot;&gt;$q_{i}$&lt;/span&gt; on the vertical axis rather than the horizontal axis?&lt;/p&gt;&#xA;" OwnerUserId="15658" LastEditorUserId="15658" LastEditDate="2019-03-29T03:51:32.940" LastActivityDate="2019-03-29T03:51:32.940" Title="Econ Intuition for Jacobian inverse in demand system" Tags="&lt;elasticity-of-substituion&gt;&lt;linear-algebra&gt;&lt;demand&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27271" PostTypeId="2" ParentId="27270" CreationDate="2019-03-15T03:11:48.523" Score="7" Body="&lt;p&gt;For the 2x2 case being considered, write&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\mathbf{B}=\left[\begin{array}{cc}&#xA;b_{1,1} &amp;amp; b_{1,2}\\&#xA;b_{2,1} &amp;amp; b_{2,2}&#xA;\end{array}\right].\quad$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It follows that the element (1,1) in &lt;span class=&quot;math-container&quot;&gt;$B^{-1}$&lt;/span&gt; is given by &lt;span class=&quot;math-container&quot;&gt;$\frac{b_{2,2}}{b_{1,1}b_{2,2}-b_{1,2}b_{2,1}}$&lt;/span&gt;. Notice that &#xA;&lt;span class=&quot;math-container&quot;&gt;$$\frac{\partial q_1(p_1,p_2)}{\partial p_1}=(\frac{\partial p_1(q_1,q_2)}{\partial q_1 })^{-1}$$&lt;/span&gt;&#xA;implies &#xA;&lt;span class=&quot;math-container&quot;&gt;$$b_{1,1}=(\frac{b_{2,2}}{b_{1,1}b_{2,2}-b_{1,2}b_{2,1}})^{-1},$$&lt;/span&gt;&#xA;which can only occur if either &lt;span class=&quot;math-container&quot;&gt;$b_{1,2}=0$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$b_{2,1}=0,$&lt;/span&gt; or both.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To better understand the intuition for this result, consider the demand function &lt;span class=&quot;math-container&quot;&gt;$q_1(p_1,p_2).$&lt;/span&gt; Suppose we are interested in the demand curve for good 1 when &lt;span class=&quot;math-container&quot;&gt;$p_2=\tilde{p_2}$&lt;/span&gt;, which is a plot of the function &lt;span class=&quot;math-container&quot;&gt;$q_1(p_1,\tilde{p_2})$&lt;/span&gt; with &lt;span class=&quot;math-container&quot;&gt;$p_1$&lt;/span&gt; on the vertical axis and &lt;span class=&quot;math-container&quot;&gt;$q_1$&lt;/span&gt; on the horizontal axis. The slope of this demand curve is given by &lt;span class=&quot;math-container&quot;&gt;$(\frac{\partial q_1(p_1,p_2)}{\partial p_1})^{-1}=-\frac{1}{b_{1,1}}$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now consider the inverse demand for good 1, which gives us maximum marginal willingness to pay for good 1 conditional on quantities of good 1 and good 2. If we want to plot this demand curve we must fix the quantity of good 2, say at &lt;span class=&quot;math-container&quot;&gt;$x_2=\tilde{x_2}.$&lt;/span&gt; Suppose we want this demand curve to correspond to the demand curve we plotted for &lt;span class=&quot;math-container&quot;&gt;$q_1(p_1,\tilde{p_2})$&lt;/span&gt;, meaning &lt;span class=&quot;math-container&quot;&gt;$\tilde{x_2}$&lt;/span&gt; must be the quantity demanded at &lt;span class=&quot;math-container&quot;&gt;$\tilde{p_2}$&lt;/span&gt;. However, to find the quantity demanded of good 2 at &lt;span class=&quot;math-container&quot;&gt;$\tilde{p_2}$&lt;/span&gt;,we must condition on the price of good 1. Likewise, to find the marginal willingness to pay of good 2 at quantity &lt;span class=&quot;math-container&quot;&gt;$\tilde{x_2}$&lt;/span&gt;, we must condition on the quantity of good 1. Both of the previous statements make no sense, as we are trying to plot the relationship between &lt;span class=&quot;math-container&quot;&gt;$x_1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$p_1$&lt;/span&gt;, so we cannot fix either of them. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The basic intuition is that when we invert &lt;span class=&quot;math-container&quot;&gt;$B$&lt;/span&gt; to solve for inverse demands, we are accounting for the effects of cross-price effects in writing our marginal willingness to pay (inverse demand) functions. In economics terms, the following two expressions are not equal unless cross-price effects are zero:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Marginal effect of the quantity of good 1 on willingness-to-pay for good 1, conditional on the  quantity of good 2.&lt;/li&gt;&#xA;&lt;li&gt;Inverse of the marginal effect of the price of good 1 on quantity demanded of good 1, conditional on the price of good 2.  &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="21222" LastEditorUserId="21222" LastEditDate="2019-03-16T01:51:27.603" LastActivityDate="2019-03-16T01:51:27.603" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27272" PostTypeId="2" ParentId="27222" CreationDate="2019-03-15T04:19:20.090" Score="1" Body="&lt;p&gt;Start by writing the Lagrangian (as it sounds like you have already done):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$L=\sum_{t=0}^{\infty} \{\beta^t(\ln C_t^y + \ln C_t^o) + \lambda_t (C_t^y +\frac{C_t^o}{1+n} +k_{t+1}(n+1)-k_t-f(k_t))\}.$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First order conditions are given by &#xA;&lt;span class=&quot;math-container&quot;&gt;$$\frac{\partial L}{\partial C_t^y} = \frac{\beta^t}{C_t^y} +\lambda_t = 0$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\frac{\partial L}{\partial C_t^o} = \frac{\beta^t}{C_t^o} +\frac{\lambda_t}{1+n} = 0$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\frac{\partial L}{\partial k_{t+1}} = \lambda_{t-1}(1+n) -  \lambda_t(1 + f'(k_t)) = 0$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\frac{\partial L}{\partial \lambda_{t}} = C_t^y +\frac{C_t^o}{1+n} +k_{t+1}(n+1)-k_t-f(k_t)=0.$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First notice the first two equations give us &#xA;&lt;span class=&quot;math-container&quot;&gt;$$\frac{C_t^y}{C_t^o} = 1+n.$$&lt;/span&gt;&#xA;Also notice that the first equation implies &lt;span class=&quot;math-container&quot;&gt;$\lambda_t = -\frac{\beta^t}{C_t^y}$&lt;/span&gt;. Substituting this into our third equation gives &#xA;&lt;span class=&quot;math-container&quot;&gt;$$\frac{\beta^{t+1}}{C_{t+1}^y}(1+n) = \frac{\beta^{t}}{C_{t}^y}(1+n)(1 + f'(k_t)$$&lt;/span&gt;&#xA;or equivalently&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\frac{\beta C_t^n}{C_{t+1}^y} = (1 + f'(k_t)).$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, we can write our system of four equations with three equations, having removed &lt;span class=&quot;math-container&quot;&gt;$\lambda$&lt;/span&gt; from the system:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\frac{C_t^y}{C_t^o} = 1+n$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\frac{\beta C_t^y}{C_{t+1}^y} = (1 + f'(k_t)).$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$C_t^y +\frac{C_t^o}{1+n} +k_{t+1}(n+1)-k_t-f(k_t)=0.$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Dropping time subscripts, i.e. applying the steady-state condition, gives&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\frac{C^y}{C^o} = 1+n$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\beta = (1 + f'(k)).$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$C^y +\frac{C^o}{1+n} +nk-f(k)=0.$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence, you are left with a system of three equations with three unknowns &lt;span class=&quot;math-container&quot;&gt;$C^y$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$C^o$&lt;/span&gt;, and &lt;span class=&quot;math-container&quot;&gt;$k$&lt;/span&gt;. Solve the system to arrived at a steady-state solution.&lt;/p&gt;&#xA;" OwnerUserId="21222" LastEditorUserId="21222" LastEditDate="2019-03-15T19:11:38.053" LastActivityDate="2019-03-15T19:11:38.053" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27273" PostTypeId="1" AcceptedAnswerId="27274" CreationDate="2019-03-15T05:35:42.643" Score="-2" ViewCount="138" Body="&lt;p&gt;I’ve been given this true false question: Consider the minimization of wL + rK given F(K, L) &lt;span class=&quot;math-container&quot;&gt;$\geq$&lt;/span&gt; Q with F(K, L) strictly increasing in K and L. The conditional factor demands K*(Q, w, r) and L*(Q, w, r) would definitely change if w doubles and r triples. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I’m inclined to say this is false, because I can imagine a scenario where a firm far prefers labor to capital, so the amount of labor employed stays the same after the change, but I’m not sure how to find a function with those properties. &lt;/p&gt;&#xA;" OwnerUserId="21489" LastActivityDate="2019-03-15T06:48:39.723" Title="Changing Constant Factor Demands" Tags="&lt;microeconomics&gt;&lt;producer-theory&gt;&lt;firm&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27274" PostTypeId="2" ParentId="27273" CreationDate="2019-03-15T06:48:39.723" Score="0" Body="&lt;p&gt;Consider &lt;span class=&quot;math-container&quot;&gt;$F(K, L) = \min(2L + K, L + 2K)$&lt;/span&gt;. Check that conditional factor demands satisfy :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$K^*(Q = 9, w = 1, r = 1) = L^*(Q = 9, w = 1, r = 1) = 3$&lt;/span&gt;&#xA;and&#xA;&lt;span class=&quot;math-container&quot;&gt;$K^*(Q = 9, w = 2, r = 3) = L^*(Q = 9, w = 2, r = 3) = 3$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, the statement is false.&lt;/p&gt;&#xA;" OwnerUserId="11824" LastActivityDate="2019-03-15T06:48:39.723" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="27275" PostTypeId="2" ParentId="27228" CreationDate="2019-03-15T09:58:35.530" Score="1" Body="&lt;p&gt;Your economical assumptions are completely correct. There are too many farmers/dairies and the least profitable should shut down.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What you are missing is that the least profitable farmers are, well farmers. They know no other trade and have probably inherited it. They can't easily switch jobs and they probably do not want to give up 'the family business.'&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So they are turning this into a political/moral issue. There are a few things that help tremendously:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Nations always subsidize farmers to stay independent. Farming is an inherently political issue.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;All farmers benefit from higher selling prices or subsidies. So even the most profitable support the case.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Farmers enjoy a good public image, even when they're not profitable or their treatment of animals isn't professional.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="21494" LastActivityDate="2019-03-15T09:58:35.530" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27276" PostTypeId="1" AcceptedAnswerId="27282" CreationDate="2019-03-15T11:40:36.477" Score="3" ViewCount="1078" Body="&lt;p&gt;I derived demand, given a Cobb-Douglas utility function but I am not really sure if I did it correctly. I am especially struggling with the sum signs and the subscripts of &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; &amp;amp; &lt;span class=&quot;math-container&quot;&gt;$j$&lt;/span&gt;. It would be really great if someone could check. I want to maximize utility for 2 goods, here &lt;span class=&quot;math-container&quot;&gt;$j$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\ u(x_i)=\prod_{i=1}^n x^a_i       $&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\ s.t.:M=\sum_{j=1}^n p_jx_j      $&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\ L= \sum_{i=1}^n a_ilogx_i+\lambda(M-\sum_{j=1}^np_jx_j) $&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$ (1)\frac{\partial L}{\partial x_i} = \frac{a_i}{ x_i}-\lambda p_i=0$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$ (2)\frac{\partial L}{\partial x_j} = \frac{a_j}{ x_j}-\lambda p_j=0$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$ (3)\frac{\partial L}{\partial \lambda} = M-\sum_{j=1}^np_jx_j=0$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;from (1) and (2) it follows:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$ \frac{p_i}{x_i} = \frac{a_i/x_i}{a_j/x_j}=\frac{a_ix_j}{a_jx_i}$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$ x_j = \frac{p_ja_jx_i}{p_ja_j}$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$ x_j$&lt;/span&gt; into (3)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$ M = \sum_{j=1}^np_j(\frac{p_ja_jx_i}{p_j/a_j})=0$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$ x_i=  \frac{a_iM}{\sum_{j=1}^na_jp_j}$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Furthermore I would like to interpret what happens if we have an efficency shock for good &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;. Meaning, good &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; becomes cheaper. This leads to an increase in relative income. So &lt;span class=&quot;math-container&quot;&gt;$M$&lt;/span&gt; increases which leads to an increased demand for good &lt;span class=&quot;math-container&quot;&gt;$x_i$&lt;/span&gt;, rest hold constant. Is that correct?&lt;/p&gt;&#xA;" OwnerUserId="21496" LastEditorUserId="21496" LastEditDate="2019-03-15T17:00:41.700" LastActivityDate="2019-03-15T17:08:00.607" Title="Demand derived from Cobb-Douglas utility, interpretation, check" Tags="&lt;utility&gt;&lt;cobb-douglas&gt;&lt;demand&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="27277" PostTypeId="1" CreationDate="2019-03-15T13:15:41.223" Score="0" ViewCount="51" Body="&lt;p&gt;On 2016-11-08, the Government of India &lt;a href=&quot;http://www.rashminsanghvi.com/articles/taxation/domestic-taxation/pdf/Annexure%20to%20Demonetisation%20Article.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;announced&lt;/a&gt; that it had:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;decided to cancel the legal tender character of the High Denomination bank notes of Rs.500 and Rs.1000 denominations issued by RBI till now.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;What were the effects of this demonetisation? Have there been any estimates of its net benefits or costs? And all things considered, was it a good idea?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(&lt;a href=&quot;https://en.wikipedia.org/wiki/2016_Indian_banknote_demonetisation&quot; rel=&quot;nofollow noreferrer&quot;&gt;Wikipedia article&lt;/a&gt;, &lt;a href=&quot;https://economics.stackexchange.com/questions/25507/the-effects-of-demonetisation/25521&quot;&gt;related question&lt;/a&gt;.)&lt;/p&gt;&#xA;" OwnerUserId="21498" LastEditorDisplayName="user18" LastEditDate="2019-03-17T06:19:02.953" LastActivityDate="2019-03-17T06:19:02.953" Title="What were the effects of the 2016 Indian banknote demonetisation?" Tags="&lt;money&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27278" PostTypeId="1" AcceptedAnswerId="27299" CreationDate="2019-03-15T14:26:42.617" Score="3" ViewCount="51" Body="&lt;p&gt;Look at the following payoff matrix, there are two stage Nash equlibria, and we consider a infinitely repeated game with discount factor &lt;span class=&quot;math-container&quot;&gt;$\delta\in(0,1)$&lt;/span&gt;, can players sustain an average payoff of (2,2) under any strategy? (I am confused because the individually rational(i.e. minmax) payoff is (3,3)) If not, why?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/ERLim.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/ERLim.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="10520" LastActivityDate="2019-03-16T13:53:17.950" Title="Can repeated game sustain a discounted average payoff that is not individually rational?" Tags="&lt;game-theory&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27280" PostTypeId="1" CreationDate="2019-03-15T15:13:26.890" Score="3" ViewCount="81" Body="&lt;p&gt;With about 50 hours of productivity a week, including work, cooking, etc. I can complete the tasks and pay the expenses necessary to live about a week. Subtract maybe 5 hours of labor that goes into personal savings, and 45 hours of weekly work affords me 168 hours (1 week) of life.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus the number of hours of &quot;life&quot; that a single productivity hour buys me is about 3.7. I'd imagine in parts of the developing world, this can get as low as 2 or even 1.5, while for the best earners in the cheapest markets, this may exceed 1000, though obviously with very high earners, the meaning of &quot;life expenses&quot; is very much up to interpretation. But I just made this metric up.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there a formalized, existing metric for how many hours one gains from a single hour of &quot;work&quot;?&lt;/p&gt;&#xA;" OwnerUserId="11173" LastActivityDate="2020-12-04T21:04:45.680" Title="Existing metric for personal productivity hours needed per life hour?" Tags="&lt;econometrics&gt;&lt;mathematical-economics&gt;&lt;data-request&gt;&lt;statistics&gt;" AnswerCount="1" CommentCount="3" FavoriteCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27281" PostTypeId="2" ParentId="27278" CreationDate="2019-03-15T16:00:25.377" Score="3" Body="&lt;p&gt;I'm inclined to say &lt;span class=&quot;math-container&quot;&gt;$(2,2)$&lt;/span&gt; is not sustainable, though I don't have a formal proof at the moment. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To achieve an average payoff of &lt;span class=&quot;math-container&quot;&gt;$(2,2)$&lt;/span&gt;, the players must play &lt;span class=&quot;math-container&quot;&gt;$(H,H)$&lt;/span&gt; in some stages. But then a player can deviate to playing &lt;span class=&quot;math-container&quot;&gt;$L$&lt;/span&gt; and avoid any subsequent punishments by ensuring that he can always get at least &lt;span class=&quot;math-container&quot;&gt;$3$&lt;/span&gt;, which is better than &lt;span class=&quot;math-container&quot;&gt;$2$&lt;/span&gt;. &lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2019-03-15T16:00:25.377" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27282" PostTypeId="2" ParentId="27276" CreationDate="2019-03-15T16:45:16.827" Score="3" Body="&lt;p&gt;From (1) and (2) you get &#xA;&lt;span class=&quot;math-container&quot;&gt;$$\frac{x_j}{x_i}=\frac{a_j p_i}{a_i p_j},$$&lt;/span&gt;&#xA;or equivalently,&#xA;&lt;span class=&quot;math-container&quot;&gt;$$x_j =\frac{a_j p_i}{a_i p_j} x_i.$$&lt;/span&gt;&#xA;Substituting this into equation 3 for &lt;span class=&quot;math-container&quot;&gt;$j=2,...,n$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$i=1$&lt;/span&gt; (solving for the demand function for good 1) we get&#xA;&lt;span class=&quot;math-container&quot;&gt;$$M=p_1x_1 + \sum_{j=2}^n p_j  \frac{a_j p_1}{a_1 p_j} x_1$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$M=p_1x_1 + \sum_{j=2}^n  \frac{a_j p_1}{a_1} x_1$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$M=p_1x_1 + \frac{p_1}{a_1} x_1\sum_{j=2}^n a_j $$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$M=p_1x_1(1 + \frac{1}{a_1}\sum_{j=2}^n a_j). $$&lt;/span&gt;&#xA;Finally, solving for &lt;span class=&quot;math-container&quot;&gt;$x_1$&lt;/span&gt; we get&#xA;&lt;span class=&quot;math-container&quot;&gt;$$x_1^* = \frac{M}{p_1}(1+ \frac{\sum_{j=2}^n a_j}{a_1})^{-1}$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$x_1^* =\frac{a_1}{\sum_{j=1}^n a_j} \frac{M}{p_1}.$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Analogously, &#xA;&lt;span class=&quot;math-container&quot;&gt;$$x_i^*=\frac{a_i}{\sum_{j=1}^n a_j} \frac{M}{p_i},$$&lt;/span&gt;&#xA;for &lt;span class=&quot;math-container&quot;&gt;$i=1,...,n$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As is always the case for demand functions derived from a Cobb-Douglas utility function, the consumer spends a constant share of income on each good. To see this, rearrange the previous equation to get&#xA;&lt;span class=&quot;math-container&quot;&gt;$$p_ix_i^*=\frac{a_i}{\sum_{j=1}^n a_j} M,$$&lt;/span&gt;&#xA;for &lt;span class=&quot;math-container&quot;&gt;$i=1,...,n$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerUserId="21222" LastEditorUserId="21222" LastEditDate="2019-03-15T17:08:00.607" LastActivityDate="2019-03-15T17:08:00.607" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27284" PostTypeId="2" ParentId="27280" CreationDate="2019-03-15T17:21:04.813" Score="2" Body="&lt;p&gt;It seems to me this seminal paper has looked at the question&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.jstor.org/stable/2228949?seq=1#metadata_info_tab_contents&quot; rel=&quot;nofollow noreferrer&quot;&gt;Gary Becker - A Theory of the Allocation of Time&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can use economic intuition to establish the value of one hour of work in terms of one hour of life. Suppose you have a consumer/worker that has to choose how much time to devote to work or leisure. His total daily hours allotment is  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$24=h+\ell$&lt;/span&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;where &lt;span class=&quot;math-container&quot;&gt;$h$&lt;/span&gt; is the number of hours worked and &lt;span class=&quot;math-container&quot;&gt;$\ell$&lt;/span&gt; is the number of hours of leisure. He values leisure according to some utility function &lt;span class=&quot;math-container&quot;&gt;$u(\cdot)$&lt;/span&gt; and his total utility also depends on the amount of goods &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; consumed&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$U(x,\ell)=x+u(\ell)$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;he earns a hourly wage &lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt;. He spends all of his income in this single consumption good, which we assume has a nominal price of 1$. Therefore he has the following budget constraint&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$x=wh$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, if the consumer/worker is choosing optimally how much to work the margin, it must be true that, on the margin, one hour of leisure has the same value as one hour of work&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\dfrac{\partial u}{\partial\ell}=w$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words, he must be indifferent on the margin between working &#xA;1 more minute or using it for leisure. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To know the value of every hour of leisure we need to know of course the function &lt;span class=&quot;math-container&quot;&gt;$u(\cdot)$&lt;/span&gt;. But at least on the margin, if you want to know what's the value of one unit of time not spent on work - there you have it: it's the hourly wage rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Becker suggested you could use that intuition to include leisure and household production in GDP. You should weight all hours not spent on work by their respective wage rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With regards to your initial question: how many hours of &quot;life&quot; do you gain for every hour of work? It should be 1, otherwise you're not choosing your leisure time optimally.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;R.I.P. Gary Becker, Nobel Prize in Economics. I had the privilege of attending his last Price Theory course at UChicago before he died. He lectured on this.&lt;/p&gt;&#xA;" OwnerUserId="15658" LastEditorUserId="15658" LastEditDate="2019-03-15T17:35:39.480" LastActivityDate="2019-03-15T17:35:39.480" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27285" PostTypeId="2" ParentId="27261" CreationDate="2019-03-15T19:53:02.337" Score="1" Body="&lt;p&gt;If a market has free entry, then profit will tend to zero in the long run. Monopolistic competition and perfect competition are both characterized by zero long-run profit. Of course a firm would prefer to enter a market in which long run profits can be earned, but such markets are characterized by barriers to entry. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To better understand this, consider a market in which firms can enter with entry cost &lt;span class=&quot;math-container&quot;&gt;$c$&lt;/span&gt;. Then, in long-run equilibrium, the profit that will be earned by incumbent firms cannot exceed &lt;span class=&quot;math-container&quot;&gt;$c$&lt;/span&gt;, otherwise potential entrants would have an incentive to enter the market.  &lt;/p&gt;&#xA;" OwnerUserId="21222" LastActivityDate="2019-03-15T19:53:02.337" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27286" PostTypeId="1" CreationDate="2019-03-15T20:22:24.150" Score="9" ViewCount="177" Body="&lt;p&gt;I am looking for a book on game theory, but I am not looking for a textbook. What I am after is more of a narrative form book that still provides valuable insights about game theory that I can pick up for my night-time reading. I am in my first year of an Economics PhD program, so I do enough difficult reading/thinking during the day. What I'd like is a more heuristic breakdown of some famous games, light on math, that explains using more words rather than complex notation (of which I get enough of during lectures), or perhaps a book about events surrounding game theory over the years that can give me valuable insights into &quot;game theory thinking.&quot; In other words, a book about game theory that isn't overly academic.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any and all recommendations are welcome and appreciated. &lt;/p&gt;&#xA;" OwnerUserId="20310" LastEditorUserId="1601" LastEditDate="2019-03-15T20:30:52.430" LastActivityDate="2021-03-02T22:05:48.320" Title="Game Theory Book" Tags="&lt;reference-request&gt;&lt;game-theory&gt;&lt;books&gt;" AnswerCount="6" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27287" PostTypeId="2" ParentId="27286" CreationDate="2019-03-15T22:42:27.383" Score="5" Body="&lt;p&gt;&quot;The Art of Strategy: A Game Theorist's Guide to Success in Business and Life&quot; By Dixit and Nalebuff. It's recommended by Steven Levitt so I guess it is fun.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And also &quot;Thinking, Fast and Slow&quot; is a great book if you are interested on behavioral econ.&lt;/p&gt;&#xA;" OwnerUserId="10520" LastEditorUserId="6168" LastEditDate="2019-03-16T08:14:27.827" LastActivityDate="2019-03-16T08:14:27.827" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27288" PostTypeId="2" ParentId="27247" CreationDate="2019-03-15T22:56:59.297" Score="1" Body="&lt;p&gt;Note that Nash equilibrium means no one can benefit from unilateral deviation.&#xA;In this case, if &lt;span class=&quot;math-container&quot;&gt;$s_1 = s_{1}^*$&lt;/span&gt; (i.e. Nash Equilibrium), then it must be that &lt;span class=&quot;math-container&quot;&gt;$s_1+s_2=8$&lt;/span&gt; since otherwise, player 1 or 2 can deviate and benefit (for example, if &lt;span class=&quot;math-container&quot;&gt;$s_1+s_2&amp;lt;8$&lt;/span&gt;, p1 can order more to let &lt;span class=&quot;math-container&quot;&gt;$s_{1}^{\prime}+s_2=8$&lt;/span&gt; and benefit).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, back to your question, any pair that makes &lt;span class=&quot;math-container&quot;&gt;$s_{1}+s_{2}=8$&lt;/span&gt; is a Nash equilibrium, so, there are 9 NEs, with &lt;span class=&quot;math-container&quot;&gt;$s_{1}^{*}\in\{0,\cdots,8\}$&lt;/span&gt;, and given a  &lt;span class=&quot;math-container&quot;&gt;$s_{1}^{*}$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$s_{2}^{*}=8-s_{1}^{*}$&lt;/span&gt;. I guess the notation &lt;span class=&quot;math-container&quot;&gt;$s1&amp;gt;s^{*}$&lt;/span&gt;is confusing, it should mean that given a fixed &lt;span class=&quot;math-container&quot;&gt;$s_{1}^{*}$&lt;/span&gt;, if p1 deviates to &lt;span class=&quot;math-container&quot;&gt;$s_{1}&amp;lt;s_{1}^{*}$&lt;/span&gt;, then p2's best response is to increase his number from &lt;span class=&quot;math-container&quot;&gt;$s_{2}^*$&lt;/span&gt; to &lt;span class=&quot;math-container&quot;&gt;$s_2$&lt;/span&gt; and make &lt;span class=&quot;math-container&quot;&gt;$s_2+s_1=8$&lt;/span&gt; again. &lt;/p&gt;&#xA;" OwnerUserId="10520" LastActivityDate="2019-03-15T22:56:59.297" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27289" PostTypeId="1" CreationDate="2019-03-15T23:19:03.783" Score="3" ViewCount="124" Body="&lt;p&gt;I've been reading Henry Hazlitt's Economics in One Lesson and he said something about free trade and tariffs that I don't quite understand. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;He uses the example of buying cheaper English sweaters over more expensive domestic sweaters. He says, &quot;By buying English sweaters they furnish the English with dollars to buy American goods here. This is in fact the only way in which the British can eventually make use of these dollars.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I guess this another way of saying current account deficit = capital account surplus. That makes sense. What I don't understand is why importing goods from other countries necessitates that they invest that money back in the US. In his example, why are we able to pay other countries in American dollars instead of, say, British pounds, but the British are only permitted to pay the US in US dollars? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I hope this question makes sense. Thanks for any clarification you can provide. &lt;/p&gt;&#xA;" OwnerUserId="21509" LastEditorUserId="1601" LastEditDate="2019-03-19T11:08:40.407" LastActivityDate="2019-03-19T18:10:05.730" Title="Question about tariffs in Henry Hazlitt's Economics in One lesson" Tags="&lt;international-trade&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27290" PostTypeId="2" ParentId="27247" CreationDate="2019-03-15T23:28:04.940" Score="4" Body="&lt;p&gt;The above post is pretty close (+1), but has not mentioned the subgame perfect Nash Equilibrium and the notation &lt;span class=&quot;math-container&quot;&gt;$s_2^*=8-s_1^*$&lt;/span&gt; might be misleading, as it implies that player 2's Nash Equilibrium strategy is a function of &lt;span class=&quot;math-container&quot;&gt;$s_1$&lt;/span&gt;, which would mean the best response for player 1 could not be anything less than 8. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;First consider the action set for each player (each has the same action set):&#xA;&lt;span class=&quot;math-container&quot;&gt;$$a_1 \in \{0,1,2,...,8\}$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$a_2 \in \{0,1,2,...,8\}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First consider the strategy set for each player:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$s_1 \in \{0,1,2,...,8\}$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$s_2(s_1) \in \{f: \{0,1,2,...,8\} \rightarrow \{0,1,2,...,8\}\}.$$&lt;/span&gt;&#xA;Notice that player 1's strategy set is the same as her action set, since player 1 cannot condition her action on player 2's action before moving. On the other hand, player 2's strategy set is the set of all functions mapping player 1's action set into player 2's action set. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we consider the definition of a Nash Equilibrium,and carefully consider the strategy sets for each player, we can see there are at least 10 Pure Strategy Nash Equilibria: &#xA;&lt;span class=&quot;math-container&quot;&gt;$$(s_1^*,s_2^*) \in \{(0,8),(1,7),(2,6),(3,5),(4,4),(5,3),(6,1),(7,1),(8,0),(8,8-s_1)\}.$$&lt;/span&gt;&#xA;In the first 9 equilibria listed (i.e. those the first poster was describing), firm 2's equilibrium strategy is simply a number, not a function that depends on player 1's strategy (e.g. &lt;span class=&quot;math-container&quot;&gt;$s_2(s_1)=4$&lt;/span&gt;). Notice these would be the equilibria if this were a static game (meaning player 2 did not observe player 1's choice before choosing an action). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The last equilibrium listed &lt;span class=&quot;math-container&quot;&gt;$(8,8-s_1)$&lt;/span&gt; is the subgame perfect Nash Equilibrium. To see why, we must use backward induction. Starting with player 2's move, we have 9 possible subgames (one for each of the possible actions chosen by player 1). For the arbitrary subgame in which &lt;span class=&quot;math-container&quot;&gt;$s_1=C$&lt;/span&gt;, player 2's best response is to choose the action corresponding to &lt;span class=&quot;math-container&quot;&gt;$8-C$&lt;/span&gt;. We can generalize this across the 9 subgames and deduce that the strategy &lt;span class=&quot;math-container&quot;&gt;$s_2(s_1)=8-s_1$&lt;/span&gt; forms a Nash Equilibrium in each of these 9 proper subgames. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So we have determined that in the subgame perfect Nash Equilibrium, player 2 must choose strategy &lt;span class=&quot;math-container&quot;&gt;$s_2(s_1)=8-s_1$&lt;/span&gt;. We must now find player 1's best response, which can easily be seen to be &lt;span class=&quot;math-container&quot;&gt;$s_1=8$&lt;/span&gt;. Thus the 10th Nash Equilibrium listed above is the subgame perfect Nash Equilibrium. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You might be inclined to argue that &lt;span class=&quot;math-container&quot;&gt;$(8,0)$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$(8,8-s_1)$&lt;/span&gt; are equivalent outcomes, but they are not. The former cannot be a subgame perfect Nash Equilibrium since player 2's strategy &lt;span class=&quot;math-container&quot;&gt;$s_2(s_1)=0$&lt;/span&gt; does not form a Nash Equilibrium in every proper subgame (e.g. in the subgame where player 1 had chosen &lt;span class=&quot;math-container&quot;&gt;$s_1=7$&lt;/span&gt;, player 2 would still have chosen &lt;span class=&quot;math-container&quot;&gt;$s_2(7)=0$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerUserId="21222" LastActivityDate="2019-03-15T23:28:04.940" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27291" PostTypeId="2" ParentId="8935" CreationDate="2019-03-15T23:56:15.230" Score="2" Body="&lt;p&gt;I think standard in Bertrand competition with different constant marginal cost is another assumption in case of equal prices. Instead of sharing demand equally, you could assume that in case of equal prices the more efficient firms supplies the entire demand. As a result, all price pairs &lt;span class=&quot;math-container&quot;&gt;$p_1=p_2=p$&lt;/span&gt; with &lt;span class=&quot;math-container&quot;&gt;$p \in [c_1,c_2]$&lt;/span&gt; constitute an equilibrium. All prices &lt;span class=&quot;math-container&quot;&gt;$p \in [c_1,c_2)$&lt;/span&gt; are a bit weird because firm 2 prices below marginal cost. However, that does not matter, because --by assumption-- firm 1 serves the entire demand. &#xA;As an alternative, you can discretize the price space (e.g., prices are a multiple of, say, &lt;span class=&quot;math-container&quot;&gt;$\varepsilon =1$&lt;/span&gt;cent). Then you can construct similar equilibria in which only firm 1 trade. That is, prices &lt;span class=&quot;math-container&quot;&gt;$p_1 =p$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$p_2=p+\varepsilon$&lt;/span&gt; for any &lt;span class=&quot;math-container&quot;&gt;$p \in [c_1,c_2]$&lt;/span&gt; constitute an equilibrium.&lt;/p&gt;&#xA;" OwnerUserId="11590" LastActivityDate="2019-03-15T23:56:15.230" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27293" PostTypeId="1" CreationDate="2019-03-16T03:53:56.757" Score="0" ViewCount="27" Body="&lt;p&gt;1) In my textbook, it is said that overnight rate is quarter of a percent below the bank rate, so does it mean that if bank rate is 5%, then overnight rate is 4.75%? What is the point of borrowing from the central bank then if it is cheaper to borrow from another commercial bank?&#xA;2) Is overnight rate the same as federal funds rate?&#xA;3) It is also said that if the overniht rate is too high, it discourages commercial banks to borrow from the central bank, why?&lt;/p&gt;&#xA;" OwnerUserId="21510" LastActivityDate="2019-03-17T17:44:12.737" Title="Why would a commercial bank borrow from another commercial bank instead of the central bank?(more questions inside)" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="1" ClosedDate="2019-03-18T09:12:12.147" ContentLicense="CC BY-SA 4.0" />
  <row Id="27294" PostTypeId="1" AcceptedAnswerId="27295" CreationDate="2019-03-16T04:07:41.987" Score="3" ViewCount="39" Body="&lt;p&gt;What does it mean for two random variables to be &quot;identically distributed&quot;? Does it mean that they come from the same probability distribution?&lt;/p&gt;&#xA;" OwnerUserId="21511" LastActivityDate="2019-03-16T04:22:03.513" Title="Independently and Identically distributed random variables" Tags="&lt;econometrics&gt;&lt;statistics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27295" PostTypeId="2" ParentId="27294" CreationDate="2019-03-16T04:22:03.513" Score="4" Body="&lt;p&gt;Suppose &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt; are iid random variables. The 'identically distributed' part means both random variables have the same distribution function (cdf). Formally this can be stated as &#xA;&lt;span class=&quot;math-container&quot;&gt;$$F_X(z)=F_Y(z),$$&lt;/span&gt;&#xA;where &lt;span class=&quot;math-container&quot;&gt;$F_X(\cdot)$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$F_Y(\cdot)$&lt;/span&gt; are the marginal cdfs of &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt;, respectively. The 'independently distributed' part means the joint cdf of &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt;, denoted &lt;span class=&quot;math-container&quot;&gt;$F_{XY}(x,y)$&lt;/span&gt; is simply the product of the marginal cdfs &lt;span class=&quot;math-container&quot;&gt;$F_X(x)$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$F_Y(y)$&lt;/span&gt;, i.e. &#xA;&lt;span class=&quot;math-container&quot;&gt;$$F_{XY}(x,y)=F_X(x)F_Y(y).$$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="21222" LastActivityDate="2019-03-16T04:22:03.513" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27296" PostTypeId="2" ParentId="27286" CreationDate="2019-03-16T08:30:01.210" Score="4" Body="&lt;p&gt;I am not going to recommend a book but &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;a &lt;a href=&quot;http://www.sscnet.ucla.edu/polisci/faculty/chwe/austen/dixit2005.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;short paper&lt;/a&gt; by Avinash Dixit Prof at Princeton and published in the Journal of Education where it talks about restoring fun to game theory. He suggests using interactive games to be played in the classroom or in computer clusters,  clips  from  movies  to  be  screened  and  discussed,  and  excerpts  from novels and historical books to be read and discussed.&lt;/li&gt;&#xA;&lt;li&gt;and an &lt;a href=&quot;https://ncase.me/trust/&quot; rel=&quot;nofollow noreferrer&quot;&gt;interactive game theory simulator&lt;/a&gt; that shows how trust and mistrust evolve.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Update&lt;/strong&gt;&#xA;Let me recommend &lt;a href=&quot;https://www.penguinrandomhouse.com/books/20886/the-predictioneers-game-by-bruce-bueno-de-mesquita/9780812979770/&quot; rel=&quot;nofollow noreferrer&quot;&gt;The Predictioneer's Game&lt;/a&gt;, written by Bruce Bueno de Mesquita a political scientist. A book praised by 2 Nobel Prize-winning economists!&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;“Bruce Bueno de Mesquita has demonstrated the power of using game&#xA;  theory and related assumptions of rational and self-seeking behavior&#xA;  in predicting the outcome of important political and legal processes.&#xA;  No one will fail to appreciate and learn from this well-written and&#xA;  always interesting account of his procedures.”—Kenneth Arrow.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;“The Predictioneer’s Game teaches us that we can predict how a&#xA;  conflict may be resolved if we carefully consider the incentives for&#xA;  all parties in the conflict.  In an extraordinary range of&#xA;  applications, from ancient history to tomorrow’s headlines, Bruce&#xA;  Bueno de Mesquita demonstrates the power of the game-theoretic&#xA;  approach.”—Roger B. Myerson.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="6168" LastEditorUserId="6168" LastEditDate="2019-03-16T21:52:03.417" LastActivityDate="2019-03-16T21:52:03.417" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27297" PostTypeId="1" AcceptedAnswerId="27308" CreationDate="2019-03-16T10:58:52.390" Score="4" ViewCount="196" Body="&lt;p&gt;Some measures of the money supply include governments bonds... but I wonder to what degree governments bonds can be considered money.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;IMHO the degree to which X can be thought of as money equals the degree to which you can easily buy things with X. What can you buy with bonds? If your answer is that &quot;you can sell your bonds for money and then buy things&quot; - that simply underlines that the bonds themselves were not money.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Perhaps some mega purchases like buying companies could involve the transfer of bonds directly?? I have no idea how common this is.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are there any other reasons that bonds can be considered money?&lt;/p&gt;&#xA;" OwnerUserId="5081" LastActivityDate="2019-03-19T12:52:03.730" Title="Is it reasonable to consider government bonds as money" Tags="&lt;money&gt;" AnswerCount="3" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27298" PostTypeId="2" ParentId="27286" CreationDate="2019-03-16T13:39:15.187" Score="2" Body="&lt;p&gt;I really like &lt;a href=&quot;https://rads.stackoverflow.com/amzn/click/com/B00LZ7GQJQ&quot; rel=&quot;nofollow noreferrer&quot; rel=&quot;nofollow noreferrer&quot;&gt;&quot;Who Gets What — and Why&quot; by Al Roth&lt;/a&gt;.&#xA;This book is not about game theory per se, but about an important application of game theoretic concepts. Since you are doing a PhD, you do not need a book explaining the concepts. This book is about market design and incentives. I think it is a very accessible introduction to (and celebration of) the field. Even for non-economists it is an interesting read.&lt;/p&gt;&#xA;" OwnerUserId="11590" LastActivityDate="2019-03-16T13:39:15.187" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27299" PostTypeId="2" ParentId="27278" CreationDate="2019-03-16T13:53:17.950" Score="3" Body="&lt;p&gt;I think the result you are looking for is Lemma 2 (p.7) of these &lt;a href=&quot;https://drive.google.com/file/d/0Bz9XuTKbxavEZGY3ODE4MGMtYmJhZi00NGM4LTkwZDYtZWU3NzU0ZWEyMWFi/view&quot; rel=&quot;nofollow noreferrer&quot;&gt;lecture notes&lt;/a&gt; by Johannes Hörner. Also see the papers he references in the end.&#xA;There is a formal proof, but the idea is exactly what Herr K. wrote in his post.&#xA;In your repeated game, all players must have an average payoff of at least 3 in Nash equilibrium.&lt;/p&gt;&#xA;" OwnerUserId="11590" LastActivityDate="2019-03-16T13:53:17.950" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27300" PostTypeId="1" AcceptedAnswerId="27302" CreationDate="2019-03-16T14:42:29.073" Score="5" ViewCount="227" Body="&lt;p&gt;Im a little confused about the difference of these two concepts, especially the convergence of probability. I understand that &lt;span class=&quot;math-container&quot;&gt;$X_{n} \overset{p}{\to} Z $&lt;/span&gt;  if    &lt;span class=&quot;math-container&quot;&gt;$Pr(|X_{n} - Z|&amp;gt;\epsilon)=0$&lt;/span&gt; for any &lt;span class=&quot;math-container&quot;&gt;$\epsilon &amp;gt;0$&lt;/span&gt; when &lt;span class=&quot;math-container&quot;&gt;$n \rightarrow \infty$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I just need some clarification on what the subscript &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt; means and what &lt;span class=&quot;math-container&quot;&gt;$Z$&lt;/span&gt; means. Is &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt; the sample size? is &lt;span class=&quot;math-container&quot;&gt;$Z$&lt;/span&gt; a specific value, or another random variable? If it is another random variable, then wouldn't that mean that convergence in probability implies convergence in distribution? Also, Could you please give me some examples of things that are convergent in distribution but not in probability?&lt;/p&gt;&#xA;" OwnerUserId="21511" LastActivityDate="2019-03-17T18:09:07.733" Title="Convergence in probability and convergence in distribution" Tags="&lt;econometrics&gt;&lt;statistics&gt;" AnswerCount="1" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27301" PostTypeId="2" ParentId="27297" CreationDate="2019-03-16T15:00:02.477" Score="2" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Are there any other reasons that bonds can be considered money?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Yes to the extent that:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(1) government bonds typically have much greater liquidity than corporate bonds as well as other instruments which might not even be broadly traded; and &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(2) it is unusual/unlikely for a government to default on its obligations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Unlike non-governmental entities, a government is oftentimes aided by the central bank through policies such as quantitative easing (printing money) or modification of requirements of banks' reserves. The goal is that the resulting supply of money preserve stability of the value of government bonds, thereby corresponding with the stability of purchase power of money.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;What can you buy with bonds? If your answer is that &quot;you can sell your&#xA;  bonds for money and then buy things&quot; - that simply underlines that the&#xA;  bonds themselves were not money.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Then you would have to conclude that foreign currencies cannot be considered money either, because first you would have to convert them to money that is accepted in the domestic economy in order to buy goods and services.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am not suggesting that government bonds and domestic currency are perfect substitutes. My point is that government bonds satisfy key conceptual attributes of money.&lt;/p&gt;&#xA;" OwnerUserId="18552" LastEditorUserId="18552" LastEditDate="2019-03-16T15:05:46.307" LastActivityDate="2019-03-16T15:05:46.307" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="27302" PostTypeId="2" ParentId="27300" CreationDate="2019-03-16T15:09:09.980" Score="5" Body="&lt;p&gt;I will attempt to explain the distinction using the simplest example: the sample mean. Suppose we have an iid sample of random variables &lt;span class=&quot;math-container&quot;&gt;$\{X_i\}_{i=1}^n$&lt;/span&gt;. Then define the sample mean as &lt;span class=&quot;math-container&quot;&gt;$\bar{X}_n$&lt;/span&gt;. As the sample size grows, our value of the sample mean changes, hence the subscript &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt; to emphasize that our sample mean depends on the sample size. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Noting that &lt;span class=&quot;math-container&quot;&gt;$\bar{X}_n$&lt;/span&gt; itself is a random variable, we can define a sequence of random variables, where elements of the sequence are indexed by different samples (sample size is growing), i.e. &lt;span class=&quot;math-container&quot;&gt;$\{\bar{X}_n\}_{n=1}^{\infty}$&lt;/span&gt;. The weak law of large numbers (WLLN) tells us that so long as &lt;span class=&quot;math-container&quot;&gt;$E(X_1^2)&amp;lt;\infty$&lt;/span&gt;, that &#xA;&lt;span class=&quot;math-container&quot;&gt;$$plim\bar{X}_n = \mu,$$&lt;/span&gt;&#xA;or equivalently &#xA;&lt;span class=&quot;math-container&quot;&gt;$$\bar{X}_n \rightarrow_P \mu,$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where &lt;span class=&quot;math-container&quot;&gt;$\mu=E(X_1)$&lt;/span&gt;. Formally, convergence in probability is defined as&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\forall \epsilon&amp;gt;0, \lim_{n \rightarrow \infty} P(|\bar{X}_n - \mu| &amp;lt;\epsilon)=1. $$&lt;/span&gt;&#xA;In other words, the probability of our estimate being within &lt;span class=&quot;math-container&quot;&gt;$\epsilon$&lt;/span&gt; from the true value tends to 1 as &lt;span class=&quot;math-container&quot;&gt;$n \rightarrow \infty$&lt;/span&gt;. Convergence in probability gives us confidence our estimators perform well with large samples.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Convergence in distribution tell us something very different and is primarily used for hypothesis testing. Under the same distributional assumptions described above, CLT gives us that&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\sqrt{n}(\bar{X}_n-\mu) \rightarrow_D N(0,E(X_1^2)).$$&lt;/span&gt;&#xA;Convergence in distribution means that the cdf of the left-hand size converges at all continuity points to the cdf of the right-hand side, i.e.&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\lim_{n \rightarrow \infty} F_n(x) = F(x),$$&lt;/span&gt;&#xA;where &lt;span class=&quot;math-container&quot;&gt;$F_n(x)$&lt;/span&gt; is the cdf of &lt;span class=&quot;math-container&quot;&gt;$\sqrt{n}(\bar{X}_n-\mu)$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$F(x)$&lt;/span&gt; is the cdf for a &lt;span class=&quot;math-container&quot;&gt;$N(0,E(X_1^2))$&lt;/span&gt; distribution. Knowing the limiting distribution allows us to test hypotheses about the sample mean (or whatever estimate we are generating). &lt;/p&gt;&#xA;" OwnerUserId="21222" LastEditorUserId="21222" LastEditDate="2019-03-17T18:09:07.733" LastActivityDate="2019-03-17T18:09:07.733" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27303" PostTypeId="2" ParentId="27286" CreationDate="2019-03-16T15:55:11.093" Score="7" Body="&lt;p&gt;I will also recommend &lt;a href=&quot;http://www.artofstrategy.net/&quot; rel=&quot;noreferrer&quot;&gt;The Art of Strategy&lt;/a&gt; by Dixit and Nabebuff.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But do also check out &lt;a href=&quot;http://www.veryshortintroductions.com/view/10.1093/actrade/9780199218462.001.0001/actrade-9780199218462&quot; rel=&quot;noreferrer&quot;&gt;Game Theory: A Very Short Introduction&lt;/a&gt; by Ken Binmore.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am not sure how much game theory you will learn from the recommended books by Kahneman or Roth (the Kahneman book is not about game theory; the Roth book is about matching and touches on game theory rather tangentially.)&lt;/p&gt;&#xA;" OwnerDisplayName="user17900" LastActivityDate="2019-03-16T15:55:11.093" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27305" PostTypeId="1" CreationDate="2019-03-16T18:43:07.400" Score="0" ViewCount="36" Body="&lt;p&gt;Does anyone here have experience with GARCH-MIDAS? I estimated a garch midas model using the package mfGARCH and I have to choose the lag K that corresponds to the model with the minimum BIC. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;The problem is&lt;/strong&gt; that I Don't know where to stop since the BIC continues to decrease each time I increase the Lag K ( this was the case until i reached K=70 which I find unrealistic ! ). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is that common ? Or, is there any additional condition to fix the lag K  (the significance of some parameters in the output, for instance...).&lt;/p&gt;&#xA;" OwnerUserId="21514" LastActivityDate="2019-03-16T18:43:07.400" Title="How to define the optimal lag K in GARCH-MIDAS?" Tags="&lt;finance&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="27306" PostTypeId="1" CreationDate="2019-03-16T22:28:55.773" Score="0" ViewCount="55" Body="&lt;p&gt;PFA the image below. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/rNvrF.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/rNvrF.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As there are n firms in the market, and a tax of t moves up the cost curves of an individual firm by t units, shouldn't the cost curve of the market move up by n*t units? If yes, why does the book move the curves up only by t units. If no, could you please explain where my reasoning is going wrong?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks&lt;/p&gt;&#xA;" OwnerUserId="21517" LastActivityDate="2020-12-23T05:44:42.933" Title="Getting a market supply curve from firm supply curve" Tags="&lt;supply-and-demand&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27307" PostTypeId="2" ParentId="27306" CreationDate="2019-03-17T02:03:37.523" Score="2" Body="&lt;p&gt;The important thing to note is that the unit on the vertical axis is &lt;strong&gt;dollars per unit&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So if there is a tax of &lt;span class=&quot;math-container&quot;&gt;$\$t$&lt;/span&gt; per unit, then the market supply curve will move up by &lt;span class=&quot;math-container&quot;&gt;$ \$ t$&lt;/span&gt;. (And not by &lt;span class=&quot;math-container&quot;&gt;$ \$nt $&lt;/span&gt; as you have suggested.)&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2019-03-17T02:03:37.523" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27308" PostTypeId="2" ParentId="27297" CreationDate="2019-03-17T03:22:28.103" Score="2" Body="&lt;p&gt;Unfortunately, economists have no consensus definition of money.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, I do think the definition given by Ryan-Collins et al. (2013, Ch. 1.2.1) in &lt;em&gt;&lt;a href=&quot;https://www.amazon.co.uk/dp/1521043892/&quot; rel=&quot;noreferrer&quot;&gt;Where Does Money Come From?&lt;/a&gt;&lt;/em&gt; strikes the right balance between generality, common sense, theoretical considerations, and history (emphasis added):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Defining money is surprisingly difficult. In &lt;em&gt;Where Does Money Come From?&lt;/em&gt; we cut through the tangled historical and theoretical debate to identify that &lt;strong&gt;anything widely accepted as payment, particularly by the Government as payment of tax, is money&lt;/strong&gt;. This includes bank credit because although an IOU from a friend is not acceptable at the tax office or in the local shop, an IOU from a bank most definitely is.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;By this definition then, government bonds are &lt;strong&gt;not&lt;/strong&gt; money, because they are not acceptable &quot;at the tax office or the local shop&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, the US &lt;a href=&quot;https://www.irs.gov/payments&quot; rel=&quot;noreferrer&quot;&gt;Internal Revenue Service&lt;/a&gt; does not appear to accept US government bonds as tax payments. I do not know of any other tax authority that does.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One peculiar exception is the Venezuelan government which sometimes make payments using its own bonds -- see e.g. this &lt;a href=&quot;http://archive.is/k04iy&quot; rel=&quot;noreferrer&quot;&gt;2018 WSJ story&lt;/a&gt;) where it paid a Canadian mining firm bonds with a market value of $88.5M. But of course, the Venezuelan government is quite peculiar and I suspect that it would not accept its own bonds as payment from anyone.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Here are two other clues or indications that government bonds are not money:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;strong&gt;Open market operations.&lt;/strong&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;At least before the crisis, a central bank such as the US Fed would increase/decrease the money supply by buying/selling US government bonds.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If US government bonds were money, then such operations would not have their intended effect.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;strong&gt;Government bonds as collateral.&lt;/strong&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Consider for example a repurchase agreement (repo), which is like a pawn:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Chase has a one-month \$100 US government bond and would like to borrow \$99 for a week. Google has \$99 it'd like to lend for a week. So, what they could do is this: Chase gives Google the \$100 bond as collateral and Google gives Chase \$99. One week later, Chase repays Google \$99.01 (where the extra one cent is Google's reward or interest for this loan), while Google returns Chase the \$100 bond. (If Chase defaults, i.e. fails to repay the \$99.01, then Google keeps the \$100 bond which it can redeem for \$100 in another three weeks.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If US government bonds were money, then there'd be no point in the above transaction. Chase would just use the \$100 US government bond for whatever purposes it needs, instead of having to borrow \$99 from Google.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Perhaps some mega purchases like buying companies could involve the transfer of bonds directly?? I have no idea how common this is.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Yes, this could happen (we actually already have something like this in the above repo agreement).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, this would be more akin to a barter trade, such as when a farmer trades two pigs for a cow with another farmer. However, in such a barter trade,we would not consider either the pigs or the cow money.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Likewise, we would not consider the government bonds swapped in exchange for some other asset (say a building) money.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2019-03-17T03:22:28.103" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="27310" PostTypeId="2" ParentId="9329" CreationDate="2019-03-17T10:58:38.393" Score="0" Body="&lt;p&gt;In New Zealand, \$1,478,507. This is based on a total tax revenue of \$86,597,000,000 divided by the population of 4,779,943 multiplied by our average life expectancy of 81.61 years.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The motivation of this answer is: &quot;In the context of the government, what is the average value of each person in terms of gross tax revenue?&quot;&lt;/p&gt;&#xA;" OwnerUserId="21521" LastEditorUserId="21521" LastEditDate="2019-03-29T06:34:19.077" LastActivityDate="2019-03-29T06:34:19.077" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27311" PostTypeId="2" ParentId="4524" CreationDate="2019-03-17T12:35:12.427" Score="1" Body="&lt;p&gt;Let me add one more point in favor of the first-price auction.&#xA;According to the definitions of Mohammad Akbarpour and Shengwu Li, it is the only mechanism that is both credible and static. Roughly speaking, credible means that, given the auction rules, the auctioneer cannot cheat by misrepresenting other bidders reports. For example, a second-price auction is not credible because the auctioneer could claim that the second-highest bid is just an &lt;span class=&quot;math-container&quot;&gt;$\varepsilon$&lt;/span&gt; below the winning bid and thereby the price is raised.&#xA;Read the full paper and slides &lt;a href=&quot;https://web.stanford.edu/~mohamwad/&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;. &lt;a href=&quot;https://www.gsb.stanford.edu/insights/rigged-auctions-why-top-bidders-dont-always-feel-winners&quot; rel=&quot;nofollow noreferrer&quot;&gt;This article&lt;/a&gt; is an easy read on the paper.&lt;/p&gt;&#xA;" OwnerUserId="11590" LastActivityDate="2019-03-17T12:35:12.427" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27312" PostTypeId="1" AcceptedAnswerId="27315" CreationDate="2019-03-17T16:20:33.473" Score="1" ViewCount="48" Body="&lt;p&gt;I understand that in multiple regression &#xA;&lt;span class=&quot;math-container&quot;&gt;$$\sum_{}^{} X_{i,j}\hat{u}_{i} = 0 $$&lt;/span&gt;&#xA; but I do not understand how my textbook says that if we include the intercept in the regression (&lt;span class=&quot;math-container&quot;&gt;$X_{i,0} = 1$&lt;/span&gt;)then we get:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\sum_{}^{} \hat{u}_{i} = 0$$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="21511" LastEditorUserId="1601" LastEditDate="2019-03-17T17:10:22.230" LastActivityDate="2019-04-07T00:31:58.857" Title="Sum of residuals in multiple regression equals 0" Tags="&lt;econometrics&gt;&lt;statistics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27313" PostTypeId="2" ParentId="27297" CreationDate="2019-03-17T16:59:23.987" Score="5" Body="&lt;p&gt;Short answer: Yes, there's another important reason that government bonds are often considered money, which is the role they play as a store of value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are three dimensions of money that form the long-standing textbook definition of money (&lt;strong&gt;see Mankiw, “Principles of Economics, 8th Edition.” p. 605&lt;/strong&gt;):&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Use as a medium of exchange (i.e., its value for settlement of claims).&lt;/li&gt;&#xA;&lt;li&gt;Use as a store of value (the degree to which it is a &quot;safe asset”).&lt;/li&gt;&#xA;&lt;li&gt;Use as a unit of account (the degree to which it is used to denominate claims).&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;In the modern framework different assets are considered to fulfill these dimensions to differing degrees, which is why different measures of money include or exclude different assets. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, the state of the art is not to think of assets as being either &quot;money&quot; or &quot;not money,&quot; but to think of different assets as being more or less &quot;money-like,&quot; or having differing degrees of &quot;moneyness.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Dimension three, for example, is generally fulfilled only by physical cash and claims on banks. Claims aren't settled for &quot;20 units&quot; of Treasury bonds, they're settled for a certain par value of those bonds, denominated in dollars. So clearly Treasury bonds are not at all money-like along this dimension.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Dimension one, the one you raise in your question, is fulfilled by Treasury bonds to a greater degree than one might expect, though still only to a very limited amount. While Treasuries are not used for settlement in the real economy, they are used for settlement somewhat frequently in the financial system, which is responsible for a disproportionate amount of financial transactions (though even in finance they are used far less often than settlement for cash). For example, Treasuries are commonly used in securities lending transactions to obtain other securities, and they're often used to meet default and liquidity fund obligations to central counterparties.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where Treasury bonds shine, though, is on dimension two, their use as a &quot;store of value,” or as a “&lt;a href=&quot;https://www.nber.org/papers/w22210.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;safe asset&lt;/a&gt;.” Per Gorton:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Safe assets play a critical role in an(y) economy. A “safe asset” is an asset that is (almost always) valued at face value without expensive and prolonged analysis. That is, by design there is no benefit to producing (private) information about its value. And this is common knowledge. Consequently, agents need not fear adverse selection when buying or selling safe assets. Safe assets can easily be used to exchange for goods or services or to exchange for another asset. &lt;strong&gt;These short-term safe assets are money or money-like.&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The “short-term” part of this refers to the fact that their usefulness as a store of value rises as their residual maturity (and thus their &lt;a href=&quot;https://en.wikipedia.org/wiki/Bond_duration&quot; rel=&quot;nofollow noreferrer&quot;&gt;duration&lt;/a&gt;, or sensitivity to changes in interest rates) falls. Once their residual maturity falls below three months, they're treated for accounting purposes as being equivalent to cash, because their value isn't likely to change significantly in response to changes in the interest rate environment (this is true under both US GAAP and &lt;a href=&quot;https://www.iasplus.com/en/standards/ias/ias7&quot; rel=&quot;nofollow noreferrer&quot;&gt;IFRS&lt;/a&gt;):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Cash and cash equivalents comprise cash on hand and demand deposits, together with short-term, highly liquid investments that are readily convertible to a known amount of cash, and that are subject to an insignificant risk of changes in value. Guidance notes indicate that an investment normally meets the definition of a cash equivalent when it has a maturity of three months or less from the date of acquisition.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Importantly, Treasury bonds solve a very real problem for many firms that have large cash balances, which is that for large-value claims, they are actually more money-like than bank deposits. This is because there's a limit on deposit insurance (currently in the U.S., \$250k per bank, per account type, of which there are two, so \$500k per bank). As a result, for firms that hold large amounts of cash, bank deposits become a relatively poor form of money, because they're not eligible for the government guarantee. As a result, if the bank fails, they're exposed to both credit and liquidity risk (they may not get all their money back, and even if they do, it may not be available for quite a long time).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is actually why firms frequently either hold balances in institutional money funds that do repos against government securities, or lend them in repo themselves— it allows them to upgrade what would otherwise unsecured claims on banks to claims that are secured by Treasury bonds, highlighting the &quot;safe asset&quot; role that these bonds play.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A very good summary of this concept, the &quot;hierarchy of money,&quot; can be found in Pozsar's &quot;&lt;a href=&quot;https://econpapers.repec.org/scripts/search.pf?ft=pozsar&quot; rel=&quot;nofollow noreferrer&quot;&gt;Shadow Banking: The Money View&lt;/a&gt;.&quot; As he discusses in the paper, for many financial market participants, safety (dimension two) is more important than settlement value (dimension one) (emphasis mine):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;[T]here is a strong case for the introduction of a new set&#xA;  of monetary aggregates that track the supply of money and money-like claims held not for real&#xA;  economy but for financial economy transactions. The Federal Reserve’s M2 aggregate measures the&#xA;  money demand of households and has been used to analyze growth dynamics and threats to price&#xA;  stability. Because the bulk of money claims included in M2 are insured, it was built following a&#xA;  hierarchy based on transactional liquidity. But for institutional cash pools, money begins where M2&#xA;  ends, and as the crisis has shown, intra-system holdings of uninsured money market instruments can&#xA;  pose threats to financial stability. &lt;strong&gt;Institutional cash pools hold money claims mostly for portfolio&#xA;  management reasons and because they are too large to be eligible for deposit insurance, their focus is&#xA;  on money claims’ safety – that is, proximity to the government – first, and transactional liquidity&#xA;  second.&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This is, of course, why the Fed had to create the Reverse Repurchase Program. Without it, cash lenders in repo were occasionally so eager to exchange their &quot;cash&quot; in the form of claims on banks for claims on Treasuries that they were willing to accept negative real (and, in certain circumstances, negative nominal) yields on general collateral repos against Treasuries— they were literally willing to pay to hold Treasuries rather than bank deposits. As a result, the Fed set up the RRP to allow their counterparties to do unlimited amounts of repo at a fixed rate, setting a floor under short rates in money markets.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, there is a &lt;a href=&quot;https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2976902&quot; rel=&quot;nofollow noreferrer&quot;&gt;good working paper&lt;/a&gt; out of the Federal Reserve, authored in part by former Fed governor Jeremy Stein, that goes into further detail on the use of Treasuries as money-like claims. &lt;/p&gt;&#xA;" OwnerUserId="264" LastEditorUserId="264" LastEditDate="2019-03-19T12:52:03.730" LastActivityDate="2019-03-19T12:52:03.730" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="27314" PostTypeId="1" CreationDate="2019-03-17T17:03:02.927" Score="0" ViewCount="106" Body="&lt;p&gt;I’m doing some practice questions and I found this one about calculating produit net. I know that produit net or surplus is the amount that has to be paid to the landlords, and which becomes available at the start of the whole process all over again. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I also know that 1/2 of the expenditure revenue goes to the productive sector (farmers) and 1/2 goes to the sterile sector. Farmers produce 100% of it, and the sterile sector sends 50% to the farmers. Basically a zig zag table. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My questions: what does the attached table mean (why is there a purchasing industry and a producing industry), and what is the produit net? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks &lt;img src=&quot;https://i.stack.imgur.com/RFrA5.jpg&quot; alt=&quot;picture of the table&quot;&gt;&lt;/p&gt;&#xA;" OwnerUserId="21525" LastActivityDate="2020-08-08T23:04:20.463" Title="Leontief Tableau Économique (produit net)" Tags="&lt;history&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27315" PostTypeId="2" ParentId="27312" CreationDate="2019-03-17T17:08:45.760" Score="3" Body="&lt;p&gt;Completing the notation with the indices&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\forall j: \sum_{i=1}^{n} X_{i,j}\hat{u}_{i} = 0.&#xA;$$&lt;/span&gt;&#xA;As you say, if &lt;span class=&quot;math-container&quot;&gt;$X_0$&lt;/span&gt; is the constant then&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\forall i: X_{i,0} = 1.&#xA;$$&lt;/span&gt;&#xA;Inputing &lt;span class=&quot;math-container&quot;&gt;$j = 0$&lt;/span&gt; into the first equation&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\begin{align*}&#xA;\sum_{i=1}^{n} X_{i,0}\hat{u}_{i} &amp;amp; = 0 \\&#xA;\\&#xA;\sum_{i=1}^{n} 1\hat{u}_{i} &amp;amp; = 0 \\&#xA;\\&#xA;\sum_{i=1}^{n} \hat{u}_{i} &amp;amp; = 0.&#xA;\end{align*}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2019-03-17T17:08:45.760" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27316" PostTypeId="2" ParentId="27293" CreationDate="2019-03-17T17:44:12.737" Score="1" Body="&lt;ol&gt;&#xA;&lt;li&gt;Yes, the “overnight rate” in the inter-bank market would be 4.75%, based on that description. The idea is that banks borrow from each other, not the central bank; the central bank is just providing back up facilities to cap the interbank rate. The objective is that banks need to convince other private sector entities that they are solvent, and not just the central bank.&lt;/li&gt;&#xA;&lt;li&gt;The most important inter-bank market for domestic USD transactions is the Fed Funds market, but there is also the London inter-bank market.&lt;/li&gt;&#xA;&lt;li&gt;This question was vague. Keeping the lending facility at a higher rate than the inter-bank rate keeps banks borrowing from themselves, for the reason noted earlier. The spread matters, not the absolute level (which was possibly implied by the question).&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2019-03-17T17:44:12.737" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27317" PostTypeId="2" ParentId="24076" CreationDate="2019-03-17T18:31:00.797" Score="0" Body="&lt;p&gt;Here is an example of a mechanism &quot;out in the wild&quot;. I take &quot;the wild&quot; literary, but I won't be specific because I am not a biologist and I am making this up from the top of my head.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose two predators spotted some easy to get food source, and their value for the prey is their private information, i.e., a random variable &lt;span class=&quot;math-container&quot;&gt;$v_i$&lt;/span&gt;. It would be efficient to auction off the food with an appropriately designed auction. Instead the predators could fight and the one who exerts more effort in the fight wins the food as a price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Each player &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; maximizes his payoff&#xA;&lt;span class=&quot;math-container&quot;&gt;$$G(e_i)v_i - e_i - \delta(e_j),$$&lt;/span&gt;&#xA;where &lt;span class=&quot;math-container&quot;&gt;$e_i$&lt;/span&gt; is the effort of player &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;, and this player wins the fight with probability &lt;span class=&quot;math-container&quot;&gt;$G(e_i)$&lt;/span&gt;, the probability that he put in more effort than player &lt;span class=&quot;math-container&quot;&gt;$j$&lt;/span&gt;. The (by assumption) linear cost of effort has to be incurred independent of winning or losing the fight. On top, some damage &lt;span class=&quot;math-container&quot;&gt;$\delta(e_j)$&lt;/span&gt; from the opponent is incurred.&#xA;To solve for the optimal effort as a function of the value &lt;span class=&quot;math-container&quot;&gt;$v_i$&lt;/span&gt;, you can approach the problem like an all-pay auction.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An all-pay auction can also be interpreted as other forms of contests. It can also be used to model political lobbying activity. You can use insights from auction theory to solve for the optimal strategy in a plethora of allocation mechanisms. Think about queeuing or wars of attrition and so on.&lt;/p&gt;&#xA;" OwnerUserId="11590" LastActivityDate="2019-03-17T18:31:00.797" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27318" PostTypeId="1" AcceptedAnswerId="27322" CreationDate="2019-03-17T19:05:02.230" Score="0" ViewCount="792" Body="&lt;p&gt;A dominant firm operates in various markets. In one of these markets, it is a monopolist and produces with the following cost function: C(q1) = 5q1. The market demand is P = 1005 - Q. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(a) Find the profit maximizing P and q1 and profit. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(b) A new fringe firm with C = 28,900 + (qf^2)/4 enters the market. The fringe firm acts as a price taker and maximizes its profits. The dominant firm, after the entry , subtracts the fringe firm's supply and behaves as a monopolist for the residual demand. Find the new profit maximizing P, q1, qf and profits as well.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My attempt for (a):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;P = 1005 - Q. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;MR = 1005 - 2Q. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;MR = MC. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;1005 - 2Q = 5&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Q = 500&lt;/p&gt;&#xA;&#xA;&lt;p&gt;P = 505&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Profit = 505 x 500 - 5 x 505 = 249975&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hopefully I'm right.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My real problem is I'm stuck on (b). I'm not familiar with price taker. I did read my course book but it wasn't that helpful. I'd appreciate if anyone can help me, thank you. Please let me know if (a) was right as well&lt;/p&gt;&#xA;" OwnerUserId="21502" LastEditorUserId="21222" LastEditDate="2019-03-17T21:23:33.407" LastActivityDate="2019-03-17T21:23:33.407" Title="Profit maximizing, Quantity and Price with Dominant Firm and Competitive Fringe" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27319" PostTypeId="2" ParentId="27314" CreationDate="2019-03-17T19:05:18.623" Score="1" Body="&lt;p&gt;In this transaction table, farmers produce 5 as a &lt;em&gt;producing industry&lt;/em&gt; and consumes 2 (out of 5) as a &lt;em&gt;purchasing industry&lt;/em&gt;. This means that they retain 2 as food for themselves and sell the remaining. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A &lt;em&gt;hint&lt;/em&gt;: The physiocratic &quot;net product&quot; is equivalent to agricultural rent payment.&lt;/p&gt;&#xA;" OwnerUserId="6168" LastEditorUserId="6168" LastEditDate="2019-03-17T19:45:55.903" LastActivityDate="2019-03-17T19:45:55.903" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27320" PostTypeId="2" ParentId="25921" CreationDate="2019-03-17T19:13:57.853" Score="1" Body="&lt;p&gt;A direct mechanism is just a mechanism in which the action space of each participant is equal to the type space and an outcome function maps these type reports into an outcome.&#xA;There is no requirement that this type report has to be equal to the true type. That is the answer to your question &quot;Are we assuming this is a truthful report?&quot; is NO.&#xA;However, in an incentive-compatible or truthful direct mechanism, players prefer to reveal their true type.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Take an arbitrary (direct or indirect) mechanism in which all participants &lt;span class=&quot;math-container&quot;&gt;$i \in I$&lt;/span&gt; can take one or more actions from some action space and together all players' actions determine some outcome. A strategy in this game maps a private type &lt;span class=&quot;math-container&quot;&gt;$t_i$&lt;/span&gt; into actions &lt;span class=&quot;math-container&quot;&gt;$\sigma_i (t_i)$&lt;/span&gt;. Hence, a type profile &lt;span class=&quot;math-container&quot;&gt;$t = (t_i)_{i \in I}$&lt;/span&gt; leads to an equilibrium action profile &lt;span class=&quot;math-container&quot;&gt;$\sigma(t)=(\sigma_i(t_i))_{i \in I}$&lt;/span&gt; which then leads to an outcome determined by the mechanisms outcome function &lt;span class=&quot;math-container&quot;&gt;$o_{indirect} (\sigma(t))$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Instead of letting the participants play some complicated game, we can ask all participants for their type and then &quot;let the mechanism play the game for them&quot;. That is, each player reports her type &lt;span class=&quot;math-container&quot;&gt;$t_i$&lt;/span&gt; and the mechanism takes the type profile &lt;span class=&quot;math-container&quot;&gt;$t$&lt;/span&gt; and maps it into an outcome &lt;span class=&quot;math-container&quot;&gt;$o_{direct}(t) = o_{indirect} (\sigma(t))$&lt;/span&gt; for all &lt;span class=&quot;math-container&quot;&gt;$t$&lt;/span&gt;.&#xA;We have replicated the indirect mechanism. Is it incentive compatible to report the TRUE type? Yes, it is, because &lt;span class=&quot;math-container&quot;&gt;$\sigma$&lt;/span&gt; is an equilibrium in the original mechanism. If a participant had an incentive to report some type &lt;span class=&quot;math-container&quot;&gt;$t'_i \neq t_i$&lt;/span&gt;, there would also be a profitable deviation &lt;span class=&quot;math-container&quot;&gt;$\sigma_i (t'_i) \neq \sigma_i (t_i)$&lt;/span&gt; in the indirect mechanism. A contradiction to &lt;span class=&quot;math-container&quot;&gt;$\sigma$&lt;/span&gt; being an equilibrium. Note that this equilibrium does not have to be in dominant strategies.&lt;/p&gt;&#xA;" OwnerUserId="11590" LastActivityDate="2019-03-17T19:13:57.853" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27321" PostTypeId="2" ParentId="21294" CreationDate="2019-03-17T20:46:04.883" Score="2" Body="&lt;p&gt;This analogy is due to &lt;a href=&quot;https://www.jstor.org/stable/1831886&quot; rel=&quot;nofollow noreferrer&quot;&gt;Bulow and Roberts&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Think of a diagram from Econ 101 with price on the vertical axis and quantity on the horizontal axis and consider a monopolist with constant marginal cost of zero. Given a demand curve, you can draw the marginal revenue and find the monopoly quantity where this function intersects the axis.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now take that same diagram and interpret &quot;quantity&quot; as &quot;probability that a buyer accepts price &lt;span class=&quot;math-container&quot;&gt;$p$&lt;/span&gt;&quot;, i.e., &lt;span class=&quot;math-container&quot;&gt;$q = 1- F(p)$&lt;/span&gt;. Now, maximize revenue &lt;span class=&quot;math-container&quot;&gt;$pq=q F^{-1}(1-q)$&lt;/span&gt; wrt &lt;span class=&quot;math-container&quot;&gt;$q$&lt;/span&gt; to reach some form of the well known marginal revenue = marginal cost. The derivative of the revenue above is&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\frac{\partial pq}{\partial q} = F^{-1}(1-q) - \frac{q}{f(F^{-1}(1-q)} = v - \frac{1-F(v)}{f(v)}, $$&lt;/span&gt;&#xA;where I replaced &lt;span class=&quot;math-container&quot;&gt;$q=1- F(p)$&lt;/span&gt; and set &lt;span class=&quot;math-container&quot;&gt;$p=v$&lt;/span&gt;. This is Myerson's virtual value. The expected revenue of an optimal auction is the expectation of the highest virtual value. The part &lt;span class=&quot;math-container&quot;&gt;$\frac{1-F(v)}{f(v)}$&lt;/span&gt; is the information rent, which takes care of the fact that you don't bid your true value in a first-price auction.&lt;/p&gt;&#xA;" OwnerUserId="11590" LastActivityDate="2019-03-17T20:46:04.883" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27322" PostTypeId="2" ParentId="27318" CreationDate="2019-03-17T21:08:19.793" Score="1" Body="&lt;p&gt;Your answer for part (a) is correct. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For part (b) you need to first determine what's called 'residual demand', which can intuitively be thought of as 'leftover' demand given how much the competitive fringe will produce. Denote residual quantity demanded as &lt;span class=&quot;math-container&quot;&gt;$Q_r$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Marginal cost for the competitive fringe is:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$MC_f=\frac{d}{dQ_f} C_f = \frac{Q_f}{2}.$$&lt;/span&gt;&#xA;To find the supply function for the competitive fringe set &lt;span class=&quot;math-container&quot;&gt;$MC_f=P$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$Q_f=2P.$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To find residual demand, subtract fringe supply from &lt;strong&gt;direct&lt;/strong&gt; market demand (not inverse market demand). Direct market demand is given by &#xA;&lt;span class=&quot;math-container&quot;&gt;$$Q=1005-P$$&lt;/span&gt;&#xA;so residual demand is&#xA;&lt;span class=&quot;math-container&quot;&gt;$$Q_r=Q-Q_f=1005-P-2P$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$Q_r=1005-3P.$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Rearranging residual demand gives inverse residual demand of &#xA;&lt;span class=&quot;math-container&quot;&gt;$$P=335-\frac{Q_r}{3},$$&lt;/span&gt;&#xA;which gives residual marginal revenue of&#xA;&lt;span class=&quot;math-container&quot;&gt;$$MR_r=335-\frac{2Q_r}{3}.$$&lt;/span&gt;&#xA;First find the profit-maximizing output for the leader firm by setting &lt;span class=&quot;math-container&quot;&gt;$MR_r=MC$&lt;/span&gt;:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$335-\frac{2Q_r}{3}=5$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$Q_r=495.$$&lt;/span&gt;&#xA;To find the leader's profit-maximizing price, plug &lt;span class=&quot;math-container&quot;&gt;$Q_r$&lt;/span&gt; into inverse residual demand to get&#xA;&lt;span class=&quot;math-container&quot;&gt;$$P=335-\frac{Q_r}{3}=335-165=170.$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, we can find the quantity supplied by the fringe by plugging the leader's price into the fringe supply function&#xA;&lt;span class=&quot;math-container&quot;&gt;$$Q_f=2P=2*170=340.$$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="21222" LastActivityDate="2019-03-17T21:08:19.793" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27323" PostTypeId="1" AcceptedAnswerId="27324" CreationDate="2019-03-17T21:37:03.270" Score="3" ViewCount="46" Body="&lt;p&gt;If I regress wages on education and the dummy variable gender using a linear conditional expectation function (wage = a + b(education) + c(gender)), how can I test that the slope b is the same for both males and females? i.e. the returns to education are the same?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Intuitively, I was thinking that one could conduct simple linear regressions of wage on education for males and females separately and then do a two-sample hypothesis test for whether the slope estimates are significantly different. Would this introduce issues with the omitted variable gender? Thank you.&lt;/p&gt;&#xA;" OwnerUserId="21527" LastEditorUserId="1601" LastEditDate="2019-03-17T21:41:06.793" LastActivityDate="2019-03-17T21:41:16.233" Title="Multivariate linear regression: how to test for whether the slopes are the same?" Tags="&lt;statistics&gt;&lt;regression&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27324" PostTypeId="2" ParentId="27323" CreationDate="2019-03-17T21:41:16.233" Score="2" Body="&lt;p&gt;Estimate the model &#xA;&lt;span class=&quot;math-container&quot;&gt;$$W_i=a_1+a_2E_i+a_3G_i+a_4E_iG_i+\epsilon_i,$$&lt;/span&gt;&#xA;where &lt;span class=&quot;math-container&quot;&gt;$W,E,G$&lt;/span&gt; denote wage, education, and an indicator for gender (e.g. 1 if male, 0 if female), respectively. The term &lt;span class=&quot;math-container&quot;&gt;$EG$&lt;/span&gt; is an interaction term obtained by multiplying the gender dummy by education. A simple t-test of the hypothesis &lt;span class=&quot;math-container&quot;&gt;$H_0: a_4=0$&lt;/span&gt; will tell you if the effects of additional education on wage are significantly different for different genders. &lt;/p&gt;&#xA;" OwnerUserId="21222" LastActivityDate="2019-03-17T21:41:16.233" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="27325" PostTypeId="1" AcceptedAnswerId="36982" CreationDate="2019-03-18T01:39:14.757" Score="6" ViewCount="239" Body="&lt;p&gt;The Lucas (1978) asset pricing model seems to be one of the workhorse models in finance / asset pricing models. It also seems to be the case that the environment, with claims to &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt; (exogenous) productive units traded, features complete markets. I have also seen another version of this model with the agent trading a single stock and a single bond that the instructor told me had complete markets.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To me, this is not obvious at all -- the agent does not have access to Arrow securities for each state, or something of that sort. In fact, in the original paper, the states are continuous, and this makes it even harder for me think about market completeness.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can anyone tell me why (or perhaps why not) this model features market completeness?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be greatly appreciated (or pointers to relevant links would work). Thanks!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Edit #1:&lt;/strong&gt; ----------------------------------------&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Just to clarify, while I understand that in equilibrium the net holdings (of all the identical agents) must be zero, my concern was that having access to AD securities vs. not having access may have asset pricing implications. What I mean by this is that although the outcome in terms of asset holdings must (almost by construction) be equal in any case, but perhaps the presence of AD securities may distort the prices of other assets (e.g. equity claims &quot;trees&quot;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Intuitively, perhaps the price of trees must be different in the presence of AD securities to offset the agent's desire to hold the AD securities in equilibrium. My next logical step in determining whether or not this is the case, was to think about whether the markets were complete or not in the first place -- if markets were already complete, then the additional AD securities are &quot;redundant&quot; is some sense, and prices should not change. If markets are incomplete, my initial intuition was that this may possibly have consequences (not in asset positions, but in prices).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To me, this is not obvious at all, and something I would really like to see a proof of. &lt;/p&gt;&#xA;" OwnerUserId="21529" LastEditorUserId="21529" LastEditDate="2019-03-21T20:31:01.617" LastActivityDate="2020-06-02T01:19:18.857" Title="Does the Lucas (1978) asset pricing model feature complete markets?" Tags="&lt;asset-pricing&gt;" AnswerCount="2" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="27328" PostTypeId="2" ParentId="25091" CreationDate="2019-03-18T12:20:45.647" Score="2" Body="&lt;p&gt;You can interprete &lt;span class=&quot;math-container&quot;&gt;$c_1 \in \{0,1\}$&lt;/span&gt; as &quot;I have the tea&quot; and &quot;I don't have the tea&quot;, and this tea is valued &lt;span class=&quot;math-container&quot;&gt;$v=13$&lt;/span&gt;. &lt;span class=&quot;math-container&quot;&gt;$c_2$&lt;/span&gt; is just a wealth transfer, i.e., it is &lt;span class=&quot;math-container&quot;&gt;$-p$&lt;/span&gt; if the tea is bought and &lt;span class=&quot;math-container&quot;&gt;$0$&lt;/span&gt; if the purchase is rejected.&#xA;Gain-loss utility is assesed separately in each dimension. Such that &#xA;&lt;span class=&quot;math-container&quot;&gt;$$n(c|r) = n_1(c_1|r_1) + n_2(c_2|r_2).$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In your case the reference point is &lt;span class=&quot;math-container&quot;&gt;$\widehat r =(1,-30)$&lt;/span&gt;. In words, the buyer expects to purchase the good at price 30.&#xA;In a PE, it must be that given this reference point&#xA;&lt;span class=&quot;math-container&quot;&gt;$$U (\widehat r| \widehat r) \geq U ( c | \widehat r) \quad \forall c.$$&lt;/span&gt;&#xA;That is, the buyer prefers to execute his plan.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This leads to utility&#xA;&lt;span class=&quot;math-container&quot;&gt;$$U (\widehat r| \widehat r) = v * 1 - 30 + 0 = 13-30=-17.$$&lt;/span&gt;&#xA;Suppose instead that the buyer does not buy the good. In pure strategies and with a fixed price, there are only two options &quot;buy at price 30&quot;, &lt;span class=&quot;math-container&quot;&gt;$(1,30)$&lt;/span&gt; and not buying, &lt;span class=&quot;math-container&quot;&gt;$(0,0)$&lt;/span&gt;.&#xA;That is, she does not spend &lt;span class=&quot;math-container&quot;&gt;$p$&lt;/span&gt; of her wealth and does not get the good with value &lt;span class=&quot;math-container&quot;&gt;$v$&lt;/span&gt;,&#xA;&lt;span class=&quot;math-container&quot;&gt;$$U ((0,0)| \widehat r) = v * 0 - 0 \:+ \quad \lambda(v*0-v*1) \:+ \quad (0-(-30)), $$&lt;/span&gt;&#xA;where the first part is the consumption utility from not buying, zero.&#xA;The second part is the loss-utility from not having the good weighted by the loss-aversion parameter &lt;span class=&quot;math-container&quot;&gt;$\lambda$&lt;/span&gt;. He does not have the good, so he feels a loss of &lt;span class=&quot;math-container&quot;&gt;$v$&lt;/span&gt;, the value of the good. The third part is the gain-utility from saving 30 bucks.&#xA;Hence,&#xA;&lt;span class=&quot;math-container&quot;&gt;$$U ((0,0)| \widehat r) =30 - \lambda v = -22$$&lt;/span&gt;&#xA;with the given parameters. We can verify the given PE.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$v$&lt;/span&gt; is the value of the good. Think of this setting as separable consumption utility&#xA;&lt;span class=&quot;math-container&quot;&gt;$$m (c) = m_1 (c_1) + m_2(c_2)$$&lt;/span&gt;&#xA;with &lt;span class=&quot;math-container&quot;&gt;$m_1 (c_1) = v c_1$&lt;/span&gt;, i.e., if you have the good you garner &lt;span class=&quot;math-container&quot;&gt;$v$&lt;/span&gt; and otherwise zero. &#xA;The money just enters linearly &lt;span class=&quot;math-container&quot;&gt;$m_2 (c_2) = c_2$&lt;/span&gt;. Gain-loss utility is always evaluated with respect to consumption utility, see the paper. That is, &#xA;actually &#xA;&lt;span class=&quot;math-container&quot;&gt;$$n_i (c_i|r_i)  = \mu [m_i (c_i) - m_i(r_i)]$$&lt;/span&gt;&#xA;with the given &quot;universal gain-loss function&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT: &lt;strong&gt;To make this useful for all&lt;/strong&gt;, let me mention the paper corresponding to this model: &lt;a href=&quot;https://onlinelibrary.wiley.com/doi/abs/10.3982/TE1274&quot; rel=&quot;nofollow noreferrer&quot;&gt;Heidhues and Kőszegi (TE, 2014)&lt;/a&gt;. See how they define the product and the money dimension, &lt;span class=&quot;math-container&quot;&gt;$k^v =v b$&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$b$&lt;/span&gt; is the &lt;span class=&quot;math-container&quot;&gt;$c_1$&lt;/span&gt; of your model (buying or not buying), and &lt;span class=&quot;math-container&quot;&gt;$k^p=-bp$&lt;/span&gt;. This paper has interesting insights on the impact of consumer loss aversion on pricing and it supersedes their earlier paper.&lt;/p&gt;&#xA;" OwnerUserId="11590" LastEditorUserId="11590" LastEditDate="2019-03-20T10:10:03.133" LastActivityDate="2019-03-20T10:10:03.133" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27330" PostTypeId="2" ParentId="26914" CreationDate="2019-03-18T15:24:11.703" Score="0" Body="&lt;p&gt;It is important to distinguish between the currency market (people buying and selling currency &lt;em&gt;in exchange for other currency&lt;/em&gt;) with the goods market.  The textbook is focusing on the currency market.  The government using local currency to buy goods isn't an increase in the supply of local currency &lt;em&gt;in the currency market&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The textbook is assuming that the government receives a loan in international currency (dollars, say) and uses that money to purchase local currency from the market -- from people and companies that are looking to sell local currency.  The supply (people willing to sell local currency &lt;em&gt;for dollars&lt;/em&gt;) doesn't change.  The number of units of local currency in circulation doesn't change.  The demand for local currency (people willing to buy local currency for dollars) increases because the government is suddenly doing this a lot, so the demand curve shifts.&lt;/p&gt;&#xA;" OwnerUserId="16631" LastActivityDate="2019-03-18T15:24:11.703" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27331" PostTypeId="1" CreationDate="2019-03-18T15:42:37.867" Score="2" ViewCount="974" Body="&lt;p&gt;In deriving our ordinary least squares estimates, we can partially differentiate the sum of squared errors &lt;span class=&quot;math-container&quot;&gt;$\sum_{i=1}^{n} {e_i^2} = \sum_{i=1}^{n} {(Y_i- \hat{\alpha}-\hat{\beta}X_i )^2}$&lt;/span&gt; with respect to our estimators &lt;span class=&quot;math-container&quot;&gt;$\hat{\alpha}$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\hat{\beta}$&lt;/span&gt; to get the following first order conditions:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\frac{\delta SSR}{\delta \hat{\alpha}}= -2\sum_{i=1}^{n} {e_i}=-2\sum_{i=1}^{n} {(Y_i- \hat{\alpha}-\hat{\beta}X_i)}=0$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\frac{\delta SSR}{\delta \hat{\beta}}= -2\sum_{i=1}^{n} {X_i e_i}=-2\sum_{i=1}^{n} X_i {(Y_i- \hat{\alpha}-\hat{\beta}X_i)}=0$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How can we then prove that the sum of squared residuals is a global minimum?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Firstly, can I confirm that the Hessian looks like this?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{array}{cc}&#xA;   2n &amp;amp; 2\sum_{i=1}^{n}X_i  \\&#xA;   2\sum_{i=1}^{n}X_i  &amp;amp; 2\sum_{i=1}^{n}(X_i)^2  \\&#xA;  \end{array}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Secondly, how can I show that the determinant of this Hessian is positive definite, i.e. &lt;span class=&quot;math-container&quot;&gt;$ 4[n \sum_{i=1}^{n}(X_i)^2 - (\sum_{i=1}^{n}X_i)^2]&amp;gt;0?$&lt;/span&gt; The presentation bears some resemblance to the population variance formula, and I know that variance must be non-negative, but I'm wondering how to move on. Is there some way to factorise this? Thank you.&lt;/p&gt;&#xA;" OwnerUserId="21527" LastEditorUserId="21527" LastEditDate="2019-03-18T15:50:21.120" LastActivityDate="2019-03-20T10:58:47.827" Title="OLS estimator derivation: second-order condition to prove global minimum?" Tags="&lt;regression&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27332" PostTypeId="1" CreationDate="2019-03-18T15:44:53.303" Score="2" ViewCount="48" Body="&lt;p&gt;I am seeking a quantitavely and logically satisfying answer to the question I will outline below. It could be in a form of a book/article reference and ideally have as little ideological bias as possible. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What are the macro- and micro-economic factors (if any) that contribute to the (perhaps only apparent) wage disparity and disparity in the 'financial quality of life' in different countries? By 'financial quality of life' I mean how much goods one can buy with their disposable income. I specifically want to focus on people in low-paid jobs. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let me sketch out what I mean with an example. Suppose John lives in a fairly large city in the UK (let's take Glasgow for instance). John is a young adult (say 25yo) in perfect health, but has no formal qualifications, no family, no savings and does not own a property. He starts a full-time job as a waiter/barista at a local pub/cafe chain. His hourly wage is £10 (the official minimum wage is about to increase to £8.21 and let's say his employer is a bit more generous). He works 40 hours per week, so his avarage monthly earnings is about £1700 (4 weeks plus a bit). His yearly income tax works out as £1710, so about £140 per month. He rents a cheap one-bedroom property in a slightly run-down area of Glasgow (but within walking distance to a subway station) for £500 per month. With all the bills and council tax and a subway pass let's say it all adds up to £750. This leaves him with about £800 of disposable income. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now imagine his Polish counterpart, Jan, living in Warsaw. Assume their circumstances are identical. As a barista, Jan can expect to earn about 15PLN per hour after tax (~£3/h), so his monthly take-home pay is about 2600PLN. He might be able to find a small one-bedroom apartment in a remote area of Warsaw (but with a bus connection) for about 1200PLN, so let's just assume that all his housing and commuting related expenses round up to 1500PLN. It leaves him with about 1100PLN of disposable income (~£220). [note that this is a generous description, reality can be harsher]&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is most striking, however, is that many of the goods that can be bought with their disposable income are very similarly priced in both countries. Let's take groceries. A discount chain Lidl operates in both countries and offers very similar prices on many of the everyday life products. Let's take coffee. A large Americano at Starbucks in the UK costs roughly £2.50, and a large Amercino at Starbucks in Poland costs about 13PLN (~£2.20). Similar things can be said about beer prices in pubs, fast-food chains, takeaways, but also gym memberships, holidays, etc. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are there any nicely laid-out and well-understood ideas in Economics that explain such disparities? I can think of two ideologically-charged: a 'leftist' would argue that it is due to legislation about workers rights and the greed of employers. Is it simply true that, say, a Starbucks chain in Poland earns more money than in the UK due to lower labour costs? Why is Starbucks (or Lidl) not significantly cheaper in Poland than in the UK? On the other hand, one can also argue that it is a simple consequence of the disparity of GDP per capita in these countries and that once Poland catches up with the UK, things will naturally improve. Likewise, one can refer to the fact that London is an international finance centre and this brings in a lot wealth that then 'trickles down' to the rest of the country. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can see some merit in both explanations and I appreciate that there are no definite answers here. Are there any books/articles that discuss this in a logically rigorous way? There is a number of interesting thoughts to be explored here. What would happen if a much higher minimum wage was introduced in Poland? What would happen if the minimum wage legislation in the UK would be scrapped? Are there any negative side-effects to the situation in the UK?  What is the quickest way for Poland to reach the quality of wages the UK currently enjoys? Of course the example of the UK and Poland is arbitrary. One can compare the UK and US as well and so on. The more general the analysis, the better. Many thanks for any comments you might have!&lt;/p&gt;&#xA;" OwnerUserId="21540" LastActivityDate="2021-03-02T14:08:40.817" Title="Economics of disparity in wages and in 'financial quality of life'" Tags="&lt;taxation&gt;&lt;price&gt;&lt;wages&gt;&lt;minimum-wage&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="27334" PostTypeId="2" ParentId="27331" CreationDate="2019-03-18T18:09:12.120" Score="1" Body="&lt;p&gt;The conditions you derive guarantee that &lt;span class=&quot;math-container&quot;&gt;$(\hat{\alpha}, \hat{\beta})$&lt;/span&gt; occur where SSE is locally minimized. Since our estimates are unique, i.e. there is a unique parameter vector that satisfies our first-order conditions, we know the selected parameter vector minimizes the objective function in the interior of the parameter space.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To determine whether this is a global minimum, you would compare the SSE under our estimates to the boundary points. For a simple linear regression as you've described, the parameter space is &lt;span class=&quot;math-container&quot;&gt;$\mathbb{R}^2$&lt;/span&gt;, and is therefore unbounded so &lt;span class=&quot;math-container&quot;&gt;$(\hat{\alpha}, \hat{\beta})$&lt;/span&gt; globally minimizes SSE. In contrast, if you had, for example, the restriction that a parameter was non-negative, checking the boundary condition would matter for determining a global minimum of SSE. &lt;/p&gt;&#xA;" OwnerUserId="21222" LastEditorUserId="21222" LastEditDate="2019-03-18T18:15:33.830" LastActivityDate="2019-03-18T18:15:33.830" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27335" PostTypeId="1" CreationDate="2019-03-18T19:08:03.577" Score="-1" ViewCount="73" Body="&lt;p&gt;I have a course in game theory coming up, and I decided to look at the curriculum, which is a book by a guy called Gibbons on game theory.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I skimmed it, but it seems that the core theory can be summarized in 4 categories: nash equilibrium models, dynamic subgame perfect nash models, bayesian models and perfect bayesian models.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I did not quite understand perfect bayesian models, but, in less than 1 hour, I feel like I properly grasped the 3 other concepts:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Nash models: static game where equilibrium is when all players are simultaneously choosing their best responses to the opponents' strategies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Dynamic nash: same as above, but the nash equilibrium needs to hold in every &quot;subgame&quot;. So we can do this just by backwards induction.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Bayesian nash: same as Nash model, except we replace our utility with expected utility.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I mean, that seems insanely easy and simple. Is this really all there is to game theory?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The book by Gibbons I mentioned above only has these 4 concepts as its main theory: the rest is just application to different economic settings....&lt;/p&gt;&#xA;" OwnerUserId="21547" LastActivityDate="2019-03-18T19:32:31.133" Title="Is game theory supposed to be this easy?" Tags="&lt;game-theory&gt;" AnswerCount="1" CommentCount="2" ClosedDate="2019-03-20T09:52:20.930" ContentLicense="CC BY-SA 4.0" />
  <row Id="27336" PostTypeId="2" ParentId="27335" CreationDate="2019-03-18T19:32:31.133" Score="5" Body="&lt;p&gt;Easy is relative, quite a few students struggle with these concepts. It is also worthwhile to note that the title of the book is &quot;&lt;strong&gt;A Primer&lt;/strong&gt; in Game Theory&quot;. If you are bored during the course you are more than welcome to help yourself to one of the more advanced books, such as the one from &lt;a href=&quot;https://rads.stackoverflow.com/amzn/click/com/0262650401&quot; rel=&quot;noreferrer&quot; rel=&quot;nofollow noreferrer&quot;&gt;Osborne and Rubinstein&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You could also try to prove that all finite games have a Nash-equilibrium. This result is 70 years old, but most would consider it non-trivial. Not von Neumann though, who is alleged to have said to Nash&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;That's trivial, you know. That's just a fixed point theorem.&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Because again, easy is relative.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2019-03-18T19:32:31.133" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27337" PostTypeId="1" CreationDate="2019-03-18T19:33:54.127" Score="4" ViewCount="54" Body="&lt;p&gt;Let &lt;span class=&quot;math-container&quot;&gt;$N \subset \mathbb N$&lt;/span&gt; denote the set of players and &lt;span class=&quot;math-container&quot;&gt;$v : 2^N \to \mathbb R$&lt;/span&gt; , &lt;span class=&quot;math-container&quot;&gt;$v(\emptyset) = 0$&lt;/span&gt;, the characteristic function.&#xA;We call &lt;span class=&quot;math-container&quot;&gt;$(N,v)$&lt;/span&gt; a cooperative transferable utility (TU) &lt;a href=&quot;https://en.wikipedia.org/wiki/Cooperative_game_theory&quot; rel=&quot;nofollow noreferrer&quot;&gt;game&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Definition 1.&lt;/strong&gt; &#xA;A game &lt;span class=&quot;math-container&quot;&gt;$(N,v)$&lt;/span&gt; is called convex, if for all &lt;span class=&quot;math-container&quot;&gt;$S,T \subseteq N$&lt;/span&gt; it holds that&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{align}&#xA;v(S \cup T) + v(S \cap T) \geq v(S) + v(T) \tag{C.1}.&#xA;\end{align}&lt;/span&gt;&#xA;In &lt;a href=&quot;https://www.sciencedirect.com/science/article/pii/S0899825607000164&quot; rel=&quot;nofollow noreferrer&quot;&gt;Hafalir (2007, p. 255)&lt;/a&gt; it says that Def. (1) is equivalent to the following statement.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Definition 2.&lt;/strong&gt;&lt;br&gt;&#xA;A game &lt;span class=&quot;math-container&quot;&gt;$(N,v)$&lt;/span&gt; is called convex, if for all &lt;span class=&quot;math-container&quot;&gt;$S,T \subseteq N$&lt;/span&gt; with &lt;span class=&quot;math-container&quot;&gt;$|S \setminus T| = |T \setminus S| \leq 1$&lt;/span&gt; it holds that&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{align}&#xA;v(S \cup T) + v(S \cap T) \geq v(S) + v(T) \tag{C.2}.&#xA;\end{align}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is no proof of the statement, but the author refers to &lt;a href=&quot;https://www.cambridge.org/core/books/axioms-of-cooperative-decision-making/481FCBCDD15F3CCEE2FE381E7BF17B3D&quot; rel=&quot;nofollow noreferrer&quot;&gt;Moulin (1988, p. 112)&lt;/a&gt;. But here it only gives an equivalent for Definition 1. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Definition 1'.&lt;/strong&gt;&lt;br&gt;&#xA;A game &lt;span class=&quot;math-container&quot;&gt;$(N,v)$&lt;/span&gt; is called convex, if for all &lt;span class=&quot;math-container&quot;&gt;$i \in N$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$S \subset T \subset N \setminus \{i\}$&lt;/span&gt; it holds that&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{align}&#xA;v(S \cup \{i\}) - v(S) \leq v(T \cup \{i\}) - v(T) \tag{C.3}.&#xA;\end{align}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Definitions 1. and 1'. are standard. I never heard of 2. though. I have a problem, however, where I can show that Def. 2. is satisfied. And now I'm wondering how to show the equivalence of Def. 2. with either 1. or 1.'.&lt;/p&gt;&#xA;" OwnerUserId="4266" LastEditorUserId="4266" LastEditDate="2019-03-19T18:00:21.163" LastActivityDate="2019-03-19T18:04:17.640" Title="Convex games: equivalence of definitions" Tags="&lt;mathematical-economics&gt;&lt;cooperative-game-theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27338" PostTypeId="1" CreationDate="2019-03-18T23:39:35.740" Score="1" ViewCount="64" Body="&lt;p&gt;This is something that confuses me a bit when I see my book solve game theory problems.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When solving a model's equilibrium (like a subgame perfect nash equilibrium), the book will &lt;em&gt;assume&lt;/em&gt; that a certain situation occurs in that equilibrium. For example, in a model with some firms setting prices and some consumers who have to make a decision to buy a product, it might assume that in equilibrium, all consumers buy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then it proceeds to solve for the actual equilibrium, while it always uses the assumption that they all buy. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;When having solved for the equilibrium, it checks that it indeed holds in this equilibrium that all consumers buy, by e.g. showing that no consumers have an incentive to not buy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why is this acceptable? Isn't the derivation of the equilibrium flawed because you made an unwarranted assumption? &lt;/p&gt;&#xA;" OwnerUserId="21548" LastActivityDate="2019-09-28T23:02:10.317" Title="When solving game theory problems, how can you &quot;assume&quot; that the equilibrium strategy will lead to something happening?" Tags="&lt;game-theory&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27339" PostTypeId="1" AcceptedAnswerId="27341" CreationDate="2019-03-19T01:05:25.600" Score="0" ViewCount="80" Body="&lt;p&gt;&lt;a href=&quot;https://redd.it/3y2puk&quot; rel=&quot;nofollow noreferrer&quot;&gt;This r/badeconomics post&lt;/a&gt; avouches:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;blockquote&gt;&#xA;    &lt;p&gt;[JP Morgan] received more than $390 billion in financial assistance from the Fed. &lt;/p&gt;&#xA;  &lt;/blockquote&gt;&#xA;  &#xA;  &lt;p&gt;Sanders has repeated this lie for several years. He gets the \$390bn number from &lt;a href=&quot;http://www.gao.gov/new.items/d11696.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Table 8 of this report [p. 131 on the printed page, or 144/266 of the PDF]&lt;/a&gt; but forgets to adjust for the length of the loans. Table 9 [p. 132 on the printed page, or 145/266 of the PDF] adjusts for the term of the loan and finds that JP Morgan received about $31 billion in assistance, one-tenth of Sanders' amount. So he's established that he can't read a GAO report.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Why ought Sanders use the term-adjusted borrowing? What's wrong with using the not term-adjusted total transaction amount? &lt;/p&gt;&#xA;" OwnerUserId="4020" LastActivityDate="2019-03-28T03:00:27.287" Title="Why's Bernie Sanders wrong to allege that JP Morgan received more than $390 billion in financial assistance from the Fed?" Tags="&lt;federal-reserve&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27341" PostTypeId="2" ParentId="27339" CreationDate="2019-03-19T02:06:19.360" Score="4" Body="&lt;p&gt;&lt;strong&gt;Example 1.&lt;/strong&gt; If I repeatedly make 365 one-day \$1 loans to you over the course of 365 days, then the unadjusted loans (or &quot;financial assistance&quot;) I make to you are \$365.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, in effect I've simply lent you \$1 for one year. So, the &lt;em&gt;term-adjusted&lt;/em&gt; (or we could say &lt;em&gt;year-adjusted&lt;/em&gt;) loans I've made to you are only \$1. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Example 2.&lt;/strong&gt; Loan A: I make you a one-day \$365 loan. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Loan B: I make you a one-year \$1 loan.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Both Loans A and B are \$1 term-adjusted loans.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But note that they are not obviously &lt;em&gt;exactly&lt;/em&gt; equivalent. Most would consider Loan A a bigger favor than Loan B. This though is debatable. But in any case, the point here is that nobody would consider these two Loans to be &lt;em&gt;exactly&lt;/em&gt; equivalent.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;This is explained in the cited document, paragraph above Table 9 and again in the Note to Table 9. An example is also given on pp. 130–1:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Table 8 aggregates total dollar transaction amounts by adding the total dollar amount of all loans but does not adjust these amounts to reflect differences across programs in the term over which loans were outstanding. For example, an overnight PDCF loan of \$10 billion that was renewed daily at the same level for 30 business days would result in an aggregate amount borrowed of \$300 billion although the institution, in effect, borrowed only \$10 billion over 30 days. In contrast, a TAF loan of \$10 billion extended over a 1-month period would appear as \$10 billion. As a result, the total transaction amounts shown in table 8 for PDCF are not directly comparable to the total transaction amounts shown for TAF and other programs that made loans for periods longer than overnight.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;The cited Sanders quote is not obviously &quot;stupid&quot; though, as the Reddit commenter suggests. Example:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Say in an emergency, the Fed has to lend \$10T to Bank A for just &lt;strong&gt;one day&lt;/strong&gt;. By the above procedure, we'd translate into to a term- or year-adjusted loan of \$10T ÷ 365 ≈ \$27.4B.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Say the Fed also lends \$27.4B to Bank B for &lt;strong&gt;one year&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's not clear that the degree of assistance the Fed provided to both banks is equivalent. Most would say that the Fed did Bank A a bigger favor.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastEditorDisplayName="user18" LastEditDate="2019-03-28T03:00:27.287" LastActivityDate="2019-03-28T03:00:27.287" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="27342" PostTypeId="2" ParentId="27325" CreationDate="2019-03-19T04:20:38.943" Score="4" Body="&lt;p&gt;It seems to me that we might as well say that markets are complete. It seems to me to be somewhat inconsequential since this is a representative agent model and that market clearing requires that the only assets that the agent may hold in positive net supply are the &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt; trees. The prices of all Arrow-Debreu securities may be inferred from shadow prices. Suppose the optimization problem is rewritten such that the agent may invest in the &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt; trees plus the set of all Arrow-Debreu securities. (There will be redundancies---I'm hand-waving a little.) The market clearing conditions say that, in equilibrium, the agent must have a unit holding in each of the &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt; trees and zero holdings in the rest of the assets and the price of each of these securities in equilibrium must be set to support these holdings. Since market completeness is a matter of whether or not the agent may trade in all of these securities, we may interpret the situation a two different ways: either the agent &lt;em&gt;can&lt;/em&gt; invest in the Arrow-Debreu securities (as well as the trees) but the AD securities must be in zero net supply or the agent &lt;em&gt;cannot&lt;/em&gt; invest in the AD securities (only in the trees). In either case, the result is the same.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand, if you had a model with more than one agent and they had different endowment processes, then the question of market completeness would matter for equilibrium outcomes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Reference&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Take a look at the &lt;a href=&quot;https://www.ssc.wisc.edu/~nwilliam/Econ714_files/lect1-18.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;notes here&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;We have used the equilibrium of the model to determine a single price,&#xA;  the price of a tree. With trading in trees, markets are complete.&#xA;  However we can introduce additional (redundant) assets and use the&#xA;  same approach to determine their prices.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/zAGLF.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/zAGLF.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&#xA;&lt;a href=&quot;https://i.stack.imgur.com/e4L0Q.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/e4L0Q.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Additional Note:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your question is somewhat related to the question asked here: &lt;a href=&quot;https://economics.stackexchange.com/q/1616/59&quot;&gt;&quot;Complete Markets in Continuous Time&quot;&lt;/a&gt;. See the solutions given there. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In addition, you can also find a discussion in these &lt;a href=&quot;https://www.princeton.edu/~markus/teaching/Eco525/07%20MultiperiodModel_a.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;notes&lt;/a&gt; by Markus Brunnermeier:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;If the horizon is infinite, the number of events is also infinite.&#xA;  Does that imply that we need an infinite number of assets to make the&#xA;  market complete? &lt;/p&gt;&#xA;  &#xA;  &lt;ul&gt;&#xA;  &lt;li&gt;List item&#xA;  &#xA;  &lt;ul&gt;&#xA;  &lt;li&gt;Do we need assets with all possible times to maturity and events to have a complete market?&lt;/li&gt;&#xA;  &lt;/ul&gt;&lt;/li&gt;&#xA;  &lt;li&gt;No. Dynamic completion.&#xA;  &#xA;  &lt;ul&gt;&#xA;  &lt;li&gt;Arrow (1953) and Guesnerie and Jaffray (1974)&lt;/li&gt;&#xA;  &lt;/ul&gt;&lt;/li&gt;&#xA;  &lt;/ul&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The conclusion, which is in the slide titled &quot;How many assets to complete market?&quot;, is that, in discrete time, it depends on the &quot;branching number&quot; (see the slides) and that, in continuous time, you can get complete markets simply with a risk-free bond and &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt; independent risky assets where &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt; is the number of independent Brownian motion underlying the economy.&lt;/p&gt;&#xA;" OwnerUserId="59" LastEditorUserId="59" LastEditDate="2019-03-21T20:54:08.193" LastActivityDate="2019-03-21T20:54:08.193" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27343" PostTypeId="2" ParentId="27289" CreationDate="2019-03-19T09:23:32.930" Score="2" Body="&lt;p&gt;The author is simplifying things a bit, of course, given the concise nature of the publication.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I believe the main point he is trying to make is that in the long run, current accounts will be balanced. Suppose, following the author, that the domestic economy (us) is the U.S. So, if we buy cheaper British sweaters today, eventually American goods will be purchased in return.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The idea, is that the US dollar is legal tender only (or primarily) in the United States. The British may accept the dollar as payment for their sweaters, but only because they know it will be accepted as legal tender by others (e.g. the U.S.) and others accept it only because the U.S. accepts it. This circular thinking only closes with the U.S. and hence with U.S. goods being purchased at some point. If the U.S. stopped accepting dollars, then dollars would stop being accepted (almost) everywhere. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The British may also pay the Americans in pounds. However, the same logic applies. Americans only accept pounds, because eventually those pounds will be accepted elsewhere as payment, which hinges on the UK accepting pounds as legal tender. They are eventually only (or primarily) accepted in the UK then, e.g. for buying British sweaters. However, this case already starts with American goods being purchased, which is the author's point.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another alternative would be the Americans paying in pounds. However, for Americans to get pounds, they would have had to sell good to the British in some form at some point. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In all cases, trade (through cheaper products abroad, e.g. British sweaters) involves American good eventually being purchased. &lt;/p&gt;&#xA;" OwnerUserId="5557" LastEditorUserId="5557" LastEditDate="2019-03-19T18:10:05.730" LastActivityDate="2019-03-19T18:10:05.730" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27344" PostTypeId="2" ParentId="27331" CreationDate="2019-03-19T16:51:37.803" Score="3" Body="&lt;p&gt;It seems that you working on the right lines. By multiplying out the brackets, it can easily be verified that &lt;span class=&quot;math-container&quot;&gt;$n\sum{X}_i^2 - (\sum{X}_i)^2 = n\sum{(X_i - \bar{X}})^2$&lt;/span&gt; where &lt;span class=&quot;math-container&quot;&gt;$\bar{X}$&lt;/span&gt; is the mean. As you yourself spotted, this is basically a standard expression for the variance. From this, it follows that &lt;span class=&quot;math-container&quot;&gt;$n\sum{X}_i^2 - (\sum{X}_i)^2 &amp;gt; 0$&lt;/span&gt; provided that &lt;span class=&quot;math-container&quot;&gt;$X_i \neq \bar{X}$&lt;/span&gt; for some &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Incidentally, you also need to verify that one of the second derivatives is positive (say &lt;span class=&quot;math-container&quot;&gt;$SSR{_{\alpha\alpha}}&amp;gt;0$&lt;/span&gt;) which follows directly from your Hessian.&lt;/p&gt;&#xA;" OwnerDisplayName="user17900" LastEditorDisplayName="user17900" LastEditDate="2019-03-20T10:58:47.827" LastActivityDate="2019-03-20T10:58:47.827" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27345" PostTypeId="2" ParentId="27337" CreationDate="2019-03-19T18:04:17.640" Score="1" Body="&lt;p&gt;Define the marginal contribution of &lt;span class=&quot;math-container&quot;&gt;$i \in N$&lt;/span&gt; to any &lt;span class=&quot;math-container&quot;&gt;$C \subseteq N \setminus \{i\}$&lt;/span&gt; by&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{align}&#xA;m_i(C) = v(C \cup \{i\}) - v(C). &#xA;\end{align}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We are going to show C.1 &lt;span class=&quot;math-container&quot;&gt;$\Rightarrow$&lt;/span&gt; C.2 &lt;span class=&quot;math-container&quot;&gt;$\Rightarrow$&lt;/span&gt; C.3 &lt;span class=&quot;math-container&quot;&gt;$\Rightarrow$&lt;/span&gt; C.1.&#xA;Note that C.1 &lt;span class=&quot;math-container&quot;&gt;$\Rightarrow$&lt;/span&gt; C.2 is trivially true.&#xA;If C.1 holds for all &lt;span class=&quot;math-container&quot;&gt;$S,T \subseteq N$&lt;/span&gt;, then C.2 must hold for all &lt;span class=&quot;math-container&quot;&gt;$S,T \subseteq N$&lt;/span&gt; with the restriction &lt;span class=&quot;math-container&quot;&gt;$|S \setminus T| = |T \setminus S| = 1$&lt;/span&gt;.&#xA;In order to show C.2 &lt;span class=&quot;math-container&quot;&gt;$\Rightarrow$&lt;/span&gt; C.3 consider any &lt;span class=&quot;math-container&quot;&gt;$S \subseteq T \subseteq N \setminus \{i\}$&lt;/span&gt;.&#xA;Let &lt;span class=&quot;math-container&quot;&gt;$T \setminus S = \{j_1, \ldots, j_k\}$&lt;/span&gt; and define &lt;span class=&quot;math-container&quot;&gt;$S_\ell := T_{\ell-1} \cup \{i\}$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$T_\ell := T_{\ell-1} \cup \{j_\ell\}$&lt;/span&gt; for &lt;span class=&quot;math-container&quot;&gt;$\ell \in \{1,\ldots,k\}$&lt;/span&gt; with &lt;span class=&quot;math-container&quot;&gt;$T_0 = S$&lt;/span&gt;.&#xA;Note that &#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{align}&#xA;\begin{split}&#xA;T_{k-1} &amp;amp;~= T_{k-2} \cup \{j_{k-1}\} \\&#xA;&amp;amp;~= T_{k-3} \cup \{j_{k-2}\} \cup \{j_{k-1}\} = T_{k-3} \cup \{j_{k-2},j_{k-1}\}\\&#xA;&amp;amp; ~ \vdots\\&#xA;&amp;amp;~ =  T_0 \cup \{j_1,\ldots,j_{k-1}\}\\&#xA;&amp;amp;~ = S \cup \{j_1,\ldots,j_{k-1}\}\\&#xA;&amp;amp;~ = T \setminus \{j_k\}&#xA;\end{split}&#xA;\end{align}&lt;/span&gt;&#xA;Since &lt;span class=&quot;math-container&quot;&gt;$|S_\ell \setminus T_\ell| = |T_\ell \setminus S_\ell| = 1$&lt;/span&gt; we can apply C.2, i.e.&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{align}&#xA;\begin{split}&#xA;&amp;amp;v(S_\ell \cup T_\ell) + v(S_\ell \cap T_\ell) \geq v(S_\ell) + v(T_\ell)\\&#xA;\Longleftrightarrow \quad &amp;amp;v(T_{\ell-1} \cup\{i, j_\ell\}) + v(T_{\ell-1}) \geq v(T_{\ell-1} \cup \{i\}) + v(T_{\ell-1} \cup \{j_\ell\})\\&#xA;\Longleftrightarrow \quad &amp;amp;v(T_{\ell-1} \cup\{i, j_\ell\}) - v(T_{\ell-1} \cup \{j_\ell\}) \geq v(T_{\ell-1} \cup \{i\}) - v(T_{\ell-1})\\&#xA;\Longleftrightarrow \quad &amp;amp;m_i(T_{\ell-1} \cup\{j_\ell\}) \geq m_i(T_{\ell-1})\\&#xA;\Longleftrightarrow \quad &amp;amp;\sum_{\ell=1}^k{m_i(T_{\ell-1} \cup\{j_\ell\})} \geq \sum_{\ell=1}^k{m_i(T_{\ell-1})}\\[2mm]&#xA;\Longleftrightarrow \quad &amp;amp;\sum_{\ell=1}^{k-1}{m_i(T_{\ell-1} \cup\{j_\ell\})} + m_i(T_{k-1} \cup\{j_k\}) \geq m_i(T_0) + \sum_{\ell=2}^k{m_i(T_{\ell-1})}\\[2mm]&#xA;\Longleftrightarrow \quad &amp;amp;\sum_{\tau=2}^{k}{m_i(T_{\tau-2} \cup\{j_{\tau-1}\})} + m_i((T \setminus \{j_k\}) \cup\{j_k\}) \geq m_i(S) + \sum_{\ell=2}^k{m_i(T_{\ell-1})}\\[2mm]&#xA;\Longleftrightarrow \quad &amp;amp;\sum_{\tau=2}^{k}{m_i(T_{\tau-1})} + m_i(T) \geq m_i(S) + \sum_{\ell=2}^k{m_i(T_{\ell-1})}\\&#xA;\Longleftrightarrow \quad &amp;amp; m_i(T) \geq m_i(S)&#xA;\end{split}&#xA;\label{eq:pvex}&#xA;\end{align}&lt;/span&gt;&#xA;The bottom line corresponds to C.3.&#xA;The final step C.3 &lt;span class=&quot;math-container&quot;&gt;$\Rightarrow$&lt;/span&gt; C.1 is provided in Moulin (1988, p. 113). &lt;/p&gt;&#xA;" OwnerUserId="4266" LastActivityDate="2019-03-19T18:04:17.640" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27346" PostTypeId="1" CreationDate="2019-03-19T18:32:32.543" Score="1" ViewCount="58" Body="&lt;p&gt;Suppose a monopolist faces the following inverse demand function : &#xA;&lt;span class=&quot;math-container&quot;&gt;$p = exp(-Q)$&lt;/span&gt;&#xA;The monopolist can produce any positive level of output with zero variable cost. Its fixed cost is &lt;span class=&quot;math-container&quot;&gt;$F$&lt;/span&gt;. Find the profit-maximising output for two cases (i) when &lt;span class=&quot;math-container&quot;&gt;$F = 0.1$&lt;/span&gt; and (ii) when &lt;span class=&quot;math-container&quot;&gt;$F= 0.5$&lt;/span&gt;.&#xA;I tried solving it using, &lt;span class=&quot;math-container&quot;&gt;$MR=MC$&lt;/span&gt;, the latter in this case is zero, so in both the cases I am getting 1 as the answer, and I am not sure if it is correct!&lt;/p&gt;&#xA;" OwnerUserId="21555" LastEditorUserId="21555" LastEditDate="2019-03-19T19:06:48.020" LastActivityDate="2019-03-19T19:06:48.020" Title="Profit Maximisation for a Monopolist" Tags="&lt;monopoly&gt;" AnswerCount="0" CommentCount="4" FavoriteCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27349" PostTypeId="1" CreationDate="2019-03-19T23:29:05.063" Score="0" ViewCount="250" Body="&lt;p&gt;The financial media have reported that...&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In general, Fed officials appear to have converged to a minimum&#xA;  balance sheet of roughly $3.5 trillion, which means the runoff would&#xA;  end in the second half of the year&#xA;  &lt;a href=&quot;https://www.marketwatch.com/story/fed-seen-revealing-how-and-when-it-will-stop-shedding-balance-sheet-assets-2019-03-18&quot; rel=&quot;nofollow noreferrer&quot;&gt;Link&lt;/a&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;and it was also reported to come specifically from Chair Powell...&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;the chairman has said that the reduction in its bond holdings will end&#xA;  soon, with a balance sheet probably no lower than around $3.5 trillion &lt;a href=&quot;https://www.seattlepi.com/news/article/3-things-to-watch-for-from-the-Federal-Reserve-on-13699788.php&quot; rel=&quot;nofollow noreferrer&quot;&gt;Link&lt;/a&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The level of 3.5 T USD will be arrived at, at the rate of 50 B USD per month as described here at this &lt;a href=&quot;https://www.federalreserve.gov/newsevents/pressreleases/monetary20190130a1.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;link&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How was the target level of 3.5 T USD determined? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/4SWWD.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/4SWWD.png&quot; alt=&quot;Image&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="6868" LastEditorUserId="6868" LastEditDate="2019-03-23T23:06:13.207" LastActivityDate="2019-03-23T23:06:13.207" Title="How did the Federal Reserve determine 3.5T USD in assets?" Tags="&lt;federal-reserve&gt;" AnswerCount="0" CommentCount="5" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27350" PostTypeId="1" CreationDate="2019-03-20T00:44:22.647" Score="4" ViewCount="90" Body="&lt;p&gt;My professor claims that a company want the value of its stocks will be as high as possible. Why should the company care? The company &quot;minds its own business&quot; and make its money. Why should it cares if the value of its stocks is \$25 or \$300?&lt;/p&gt;&#xA;" OwnerUserId="21558" LastEditorDisplayName="user18" LastEditDate="2019-03-20T01:13:02.297" LastActivityDate="2019-03-21T11:31:49.737" Title="Why does a company want the value of its stocks to be as high as possible?" Tags="&lt;stock-market&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27352" PostTypeId="2" ParentId="27350" CreationDate="2019-03-20T01:12:39.087" Score="1" Body="&lt;p&gt;One way of raising funds is by issuing new (additional) shares. The price of the new shares will largely depend on the current share price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, companies usually prefer that their share price is \$300 rather than \$25, so that any new issue raises more funds.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2019-03-20T01:12:39.087" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27353" PostTypeId="2" ParentId="27350" CreationDate="2019-03-20T02:15:33.143" Score="3" Body="&lt;p&gt;The board of directors is supposed to represent (or work for the interests of) share owners. Share owners prefer higher prices if and when they want to sell their shares. The board chooses the CEO and will retain the CEO if he helps share owners realize their preferences.&lt;/p&gt;&#xA;" OwnerUserId="6868" LastActivityDate="2019-03-20T02:15:33.143" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27357" PostTypeId="1" AcceptedAnswerId="27370" CreationDate="2019-03-20T04:14:50.383" Score="1" ViewCount="148" Body="&lt;p&gt;When we have perfect elasticity, the demand curve is a horizontal line and the elasticity of demand coefficient is equal to infinity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How do we arrive at a solution equal to infinity?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We know that &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Elasticity of Demand Coefficient = Change in Quantity Demanded /&#xA;  Change in Price &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;If we change price by &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;, how do we get what the change in quantity demanded is if there is no quantity demanded at the new price?&lt;/p&gt;&#xA;" OwnerUserId="12859" LastActivityDate="2019-12-25T19:14:38.010" Title="How to Calculate Price Elasticity of Demand When Perfectly Elastic?" Tags="&lt;microeconomics&gt;&lt;elasticity&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27358" PostTypeId="1" AcceptedAnswerId="27363" CreationDate="2019-03-20T04:27:33.503" Score="5" ViewCount="81" Body="&lt;p&gt;Consider an example of a risk-neutral seller that has two distinct indivisible goods for sale. The seller wants to maximize the expected revenue. The buyer's utility is &lt;span class=&quot;math-container&quot;&gt;$$I_av_a+I_bv_b-t,$$&lt;/span&gt; where &lt;span class=&quot;math-container&quot;&gt;$I_a,I_b$&lt;/span&gt; are indicators of whether the buyer gets good &lt;span class=&quot;math-container&quot;&gt;$a$&lt;/span&gt; or &lt;span class=&quot;math-container&quot;&gt;$b$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$t$&lt;/span&gt; is the monetary transfer. Both &lt;span class=&quot;math-container&quot;&gt;$v_a,v_b$&lt;/span&gt; are the types of the buyer (willingness to buy the good).&#xA;&lt;em&gt;Let &lt;span class=&quot;math-container&quot;&gt;$v_a$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$v_b$&lt;/span&gt; be i.i.d. draws from a uniform distribution on &lt;span class=&quot;math-container&quot;&gt;$[0,1]$&lt;/span&gt;.&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume a seller quotes three prices: &lt;span class=&quot;math-container&quot;&gt;$p_a,p_b,p_{ab}$&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$p_{ab}\leq p_a+p_b$&lt;/span&gt;. What is the optimal choice of &lt;span class=&quot;math-container&quot;&gt;$p_a,p_b,p_{ab}$&lt;/span&gt;?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The textbook (T. Borgers, An Intro to the theory of Mechanism Design) I am studying simply says that this is a simple calculus problem and gives the solution as &lt;span class=&quot;math-container&quot;&gt;$$p_a=p_b=2/3\\&#xA;p_{ab}=\frac{4-\sqrt{2}}{3}.$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am not sure how to do that. I'd appreciate any help or hint. Thank you.&lt;/p&gt;&#xA;" OwnerUserId="20754" LastEditorUserId="11590" LastEditDate="2019-03-20T14:25:03.067" LastActivityDate="2019-03-20T17:07:56.050" Title="Screening theory: Bundling problem" Tags="&lt;game-theory&gt;&lt;mechanism-design&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27359" PostTypeId="1" CreationDate="2019-03-20T10:05:19.127" Score="1" ViewCount="19" Body="&lt;p&gt;The &lt;a href=&quot;https://en.wikipedia.org/wiki/Rhine%E2%80%93Main%E2%80%93Danube_Canal&quot; rel=&quot;nofollow noreferrer&quot;&gt;Main-Danube Canal&lt;/a&gt; is an essential link in the main waterway connecting Western and Easter Europe:&lt;/p&gt;&#xA;&lt;p&gt;&lt;img src=&quot;https://upload.wikimedia.org/wikipedia/commons/thumb/8/87/Constanta-Rotterdam_DE.PNG/800px-Constanta-Rotterdam_DE.PNG&quot; alt=&quot;map&quot; /&gt;&lt;br /&gt;&#xA;&lt;em&gt;Source: &lt;a href=&quot;https://commons.wikimedia.org/wiki/File:Constanta-Rotterdam_DE.PNG&quot; rel=&quot;nofollow noreferrer&quot;&gt;Wikimedia Commons&lt;/a&gt;&lt;/em&gt;&lt;/p&gt;&#xA;&lt;p&gt;Freight traffic, in particular container traffic, has seen dramatic decline since it was finished in 1992:&lt;/p&gt;&#xA;&lt;p&gt;&lt;img src=&quot;https://upload.wikimedia.org/wikipedia/commons/thumb/d/df/Main-Donau-Kanal_Container_001.svg/1024px-Main-Donau-Kanal_Container_001.svg.png&quot; alt=&quot;container traffic&quot; /&gt;&lt;br /&gt;&#xA;&lt;em&gt;Source: &lt;a href=&quot;https://commons.wikimedia.org/wiki/File:Main-Donau-Kanal_Container_001.svg&quot; rel=&quot;nofollow noreferrer&quot;&gt;Wikimedia Commons&lt;/a&gt;&lt;/em&gt;&lt;br /&gt;&#xA;The figure title says: &lt;em&gt;Transportierte Container (TEU) auf dem Main-Donau-Kanal 1995 bis 2012&lt;/em&gt;, meaning &lt;em&gt;Transported containers (TEU) on the Main-Danube Canal&lt;/em&gt;.&lt;/p&gt;&#xA;&lt;p&gt;That is a very spectacular decline, in particular from the peak in 2000 to the low point in 2008.  I understand that water traffic has disadvantages compared to other modes, but that was as true in the 1990s as it is today.  What are some circumstances that have changed between the 1995-2000 period and the early 2010s that could explain this dramatic decline?&lt;/p&gt;&#xA;" OwnerUserId="332" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2019-03-20T10:05:19.127" Title="What causes the dramatic decline in container traffic on the Main-Danube canal?" Tags="&lt;infrastructure&gt;&lt;transportation&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27361" PostTypeId="1" AcceptedAnswerId="27367" CreationDate="2019-03-20T12:52:15.477" Score="3" ViewCount="48" Body="&lt;p&gt;Suppose we have a nice symmetric game with &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt; players, i.e. each player's action space is the same compact interval of the real line. I am tasked with identifying all of the rationalizable action profiles, and I am wondering if this set of action profiles will include profiles other than the unique symmetric Nash equilibrium. I know that there are often more rationalizable action profiles than there are Nash equilibria, but I'm specifically interested in nice symmetric games.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Starting with the initial action set for player &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;, denoted &lt;span class=&quot;math-container&quot;&gt;$A_i$&lt;/span&gt;, I have iterated the rationalization operator twice so far, and as expected, the set of available actions shrinks, and always includes the Nash equilibrium action. Is there some point when iterating the rationalization operator will cease to reduce the set of available actions?&lt;/p&gt;&#xA;" OwnerUserId="20439" LastEditorUserId="20439" LastEditDate="2019-03-20T22:29:43.127" LastActivityDate="2019-03-21T18:32:01.023" Title="Rationalizable action profiles in nice symmetric games" Tags="&lt;game-theory&gt;&lt;nash-equilibrium&gt;&lt;dominant-strategy&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27363" PostTypeId="2" ParentId="27358" CreationDate="2019-03-20T14:04:45.247" Score="6" Body="&lt;p&gt;Consider the incentive and participation constraints. That is, look at which buyer types would choose which option.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A buyer does not buy anything if &#xA;&lt;span class=&quot;math-container&quot;&gt;$$v_a &amp;lt; p_a \quad v_b &amp;lt; p_b \quad v_a +v_b &amp;lt; p_{ab}.$$&lt;/span&gt;&#xA;A buyer chooses only good &lt;span class=&quot;math-container&quot;&gt;$i \in \{a,b\}$&lt;/span&gt; with &lt;span class=&quot;math-container&quot;&gt;$j\neq i$&lt;/span&gt; if&#xA;&lt;span class=&quot;math-container&quot;&gt;$$v_i - p_i \geq 0 \quad v_i - p_i \geq v_i + v_j - p_{ab}.$$&lt;/span&gt;&#xA;Otherwise she chooses the bundle.&#xA;With the assumption of independent uniformly distributed values, it then requires some caution to derive the probabilities of each event.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, you want to maximize your profit given by&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{align}&#xA;(1-p_a)(p_{ab}-p_a) p_a + (1-p_b)(p_{ab}-p_b) p_b + \\&#xA;\left( \frac{(p_a + p_b - p_{ab})^2}{2} + (1 - p_a) (1 + p_a - p_{ab}) + (1 - p_b) (1 + p_b - p_{ab}) \\&#xA;- (1 - p_a) (1 - p_b) \right) p_{ab},&#xA;\end{align}&lt;/span&gt;&#xA;which is super annoying, but Mathematica suggests that your solution is correct.&lt;/p&gt;&#xA;" OwnerUserId="11590" LastEditorUserId="11590" LastEditDate="2019-03-20T17:07:56.050" LastActivityDate="2019-03-20T17:07:56.050" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27367" PostTypeId="2" ParentId="27361" CreationDate="2019-03-20T19:02:27.757" Score="4" Body="&lt;p&gt;Isn't the mixed extension of matching pennies a good example of this? The strategies &lt;span class=&quot;math-container&quot;&gt;$p,q$&lt;/span&gt; are both elements of &lt;span class=&quot;math-container&quot;&gt;$[0,1]$&lt;/span&gt;, and&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\begin{align*}&#xA;U_1(p,q) &amp;amp; = pq + (1-p)(1-q) \\&#xA;\\&#xA;U_2(p,q) &amp;amp; = p(1-q) + (1-p)q.&#xA;\end{align*}&#xA;$$&lt;/span&gt;&#xA;There is a unique Nash-equilibrium at &lt;span class=&quot;math-container&quot;&gt;$p = q = 1/2$&lt;/span&gt; but all &lt;span class=&quot;math-container&quot;&gt;$p$&lt;/span&gt; and all &lt;span class=&quot;math-container&quot;&gt;$q$&lt;/span&gt; are rationalizable, because in the equilibrium all strategies are best responses.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Even if you were to edit your definition of symmetry to include symmetric utility functions, a game with&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;U(p,q) = -(1/2 - p)^2 \cdot (1/2 - q)^2&#xA;$$&lt;/span&gt;&#xA;yields the same result.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;If you insist on some shrinkage one could easily edit the utility function to&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;U(p,q) = - 1 \text{ if } p+q \leq 6/10. &#xA;$$&lt;/span&gt;&#xA;Then some strategies - the ones under &lt;span class=&quot;math-container&quot;&gt;$1/10$&lt;/span&gt; - would not be rationalizable.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2019-03-21T18:32:01.023" LastActivityDate="2019-03-21T18:32:01.023" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27368" PostTypeId="1" AcceptedAnswerId="27369" CreationDate="2019-03-20T20:57:28.257" Score="-1" ViewCount="420" Body="&lt;p&gt;In a Bertrand competition with differentiated goods where firms set the prices sequentially, we have the following demand functions:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;q1 is quantity of goods demanded for firm 1&#xA;q2 is quantity of goods demanded for firm 2&#xA;p1 and p2 are prices of goods for firm 1 and firm 2.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;q1 = 16 - 2*p1 + p2&#xA;q2 = 16 - 2*p2 + p1&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The marginal cost is 4. No fixed costs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The profit function for firm 1 is: &#xA;TR1 = p1*(16 - 2*p1 + p2) - (16 - 2*p1 + p2)*4&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The profit function for firm 2 is: &#xA;TR2 = p2*(16 - 2*p2 + p1) - (16 - 2*p2 + p1)*4&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Firm 1 sets the price first, firm 2 sets the price after. It's a squential game.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How can I write the strategies of firm 2?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Isn't it just S(p1) = 6 + 1/4*p1 ?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How is p1 = p2 = 8 a Nash equilibrium?&lt;/p&gt;&#xA;" OwnerUserId="19275" LastActivityDate="2019-03-20T21:39:01.373" Title="Sequential Bertrand game with differentiated goods, how to write the strategies of firm 2" Tags="&lt;game-theory&gt;&lt;nash-equilibrium&gt;&lt;dynamic-games&gt;" AnswerCount="1" CommentCount="3" ClosedDate="2019-03-26T07:42:34.513" ContentLicense="CC BY-SA 4.0" />
  <row Id="27369" PostTypeId="2" ParentId="27368" CreationDate="2019-03-20T21:39:01.373" Score="1" Body="&lt;p&gt;You have the profit function of firm 2 in terms of prices &lt;span class=&quot;math-container&quot;&gt;$p_1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$p_2$&lt;/span&gt;.&#xA;Then, you can find &lt;span class=&quot;math-container&quot;&gt;$p_2^*(p_1)$&lt;/span&gt;, the optimal reaction of firm 2 for any observed price &lt;span class=&quot;math-container&quot;&gt;$p_1$&lt;/span&gt;.&#xA;Firm 1 anticipates this reaction. So you can plug &lt;span class=&quot;math-container&quot;&gt;$p_2^*(p_1)$&lt;/span&gt; into the profit function of firm 1 and maximize it with respect to &lt;span class=&quot;math-container&quot;&gt;$p_1$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerUserId="11590" LastActivityDate="2019-03-20T21:39:01.373" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27370" PostTypeId="2" ParentId="27357" CreationDate="2019-03-20T22:31:49.163" Score="1" Body="&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\epsilon_D=\frac{\% \Delta Q_D}{\% \Delta P}$$&lt;/span&gt;&#xA;A perfectly elastic demand curve is horizontal, meaning we quantity demanded can change by any amount without changing price (any quantity can be sold at the price corresponding the vertical intercept). Hence, for any change in quantity, &lt;span class=&quot;math-container&quot;&gt;$\% \Delta P=0$&lt;/span&gt;. While we cannot strictly divide by zero, in the limit, the ratio is infinity. &lt;/p&gt;&#xA;" OwnerUserId="21222" LastEditorUserId="21222" LastEditDate="2019-03-20T23:49:58.147" LastActivityDate="2019-03-20T23:49:58.147" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27372" PostTypeId="1" CreationDate="2019-03-21T10:21:27.053" Score="2" ViewCount="32" Body="&lt;p&gt;I have been looking into expectation-based loss aversion following Kőszegi-Rabin (2005, 2007). In particular, I find their choice-acclimating personal equilibrium (CPE) interesting, but it has a feature that I find rather odd.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My question is: Is there substantial evidence that people choose stochastically dominated lotteries? Are there experimental studies (in addition to the crazy one below) that can support this prediction of CPE? Or has someone cleverly exploited a data set to point out this behavior in the field?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let me clarify what I am after:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In CPE, a player makes makes a consumption plan and expects to follow it through such that it becomes her reference point, and this plan must be better than any other available plan. That is, outcome lottery and reference lottery are the same.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;For any choice set &lt;span class=&quot;math-container&quot;&gt;$D$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$F \in D$&lt;/span&gt; is a CPE if &lt;span class=&quot;math-container&quot;&gt;$U (F | F ) \geq U (F' | F') \quad \forall F' \in D$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;If you want to know how &lt;span class=&quot;math-container&quot;&gt;$U$&lt;/span&gt; looks like, &lt;a href=&quot;https://www.aeaweb.org/articles?id=10.1257/aer.97.4.1047&quot; rel=&quot;nofollow noreferrer&quot;&gt;here is the paper&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In their Proposition 7, they show that people may choose stochastically dominated lotteries in CPE if losses hurt sufficiently badly.&#xA;Let me quote the authors:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;consider a lottery &lt;span class=&quot;math-container&quot;&gt;$F$&lt;/span&gt; that yields &lt;span class=&quot;math-container&quot;&gt;$w + g&amp;gt; w$&lt;/span&gt; with probability &lt;span class=&quot;math-container&quot;&gt;$p&amp;gt;0$&lt;/span&gt; and&#xA;  &lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt; with probability &lt;span class=&quot;math-container&quot;&gt;$1 -p$&lt;/span&gt;. Then &#xA;  &lt;span class=&quot;math-container&quot;&gt;\begin{aligned}&#xA;U(w + F|w +F) &amp;amp;=  [p (w + g)+(1-p)w] +   [p (1-p) \mu (g) + p (1-p) \mu (-g) \\&#xA;&amp;amp;= w + pg [1- (1-p)\eta (\lambda-1)].&#xA;\end{aligned}&lt;/span&gt;&#xA;  If &lt;span class=&quot;math-container&quot;&gt;$\eta(\lambda-1)&amp;gt;1$&lt;/span&gt;, which is a calibrationally plausible situation, the decision&#xA;  maker prefers &lt;span class=&quot;math-container&quot;&gt;$p=0$&lt;/span&gt; over a small &lt;span class=&quot;math-container&quot;&gt;$p&amp;gt; 0$&lt;/span&gt;. Intuitively, raising&#xA;  expectations of getting &lt;span class=&quot;math-container&quot;&gt;$g$&lt;/span&gt; makes an outcome of&#xA;  no gain feel more painful. To avoid such disappointments,&#xA;  the person would rather give up the&#xA;  fragile hope of making gains. In fact, if gain-loss&#xA;  utility is sufficiently important, reducing&#xA;  exposure to sensations of loss is the decision&#xA;  maker’s central concern.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Avoiding disappointment does not sound completely crazy, but I wonder if such risk preferences are observed in situations &quot;that matter&quot;. Their example with the prisoner seems extremely constructed to me. They also refer to an experiment by &lt;a href=&quot;https://academic.oup.com/qje/article/121/4/1283/1855222&quot; rel=&quot;nofollow noreferrer&quot;&gt;Gneezy, List and Wu&lt;/a&gt;, in which people pay more for a \$50 gift card than for a lottery over a \$50 and a \$100 gift card, which seems outrageously crazy to me. I am inclined to say that these people just did not understand the questions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there evidence that such behavior is prevalent?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Because -- if people play CPE and &lt;span class=&quot;math-container&quot;&gt;$\lambda$&lt;/span&gt; estimates are on point -- it must be. Under CPE and the commonly used linear kinked &lt;span class=&quot;math-container&quot;&gt;$\mu$&lt;/span&gt; with &lt;span class=&quot;math-container&quot;&gt;$\eta=1$&lt;/span&gt;, players prefer first-order stochastically dominated lotteries if &lt;span class=&quot;math-container&quot;&gt;$\lambda &amp;gt;2$&lt;/span&gt;.&#xA;Conventionally, &quot;losses loom about twice as large as gains&quot;, meaning &lt;span class=&quot;math-container&quot;&gt;$\frac{1+\eta \lambda}{1+\eta } \approx 2 \Rightarrow \lambda \approx 3$&lt;/span&gt;. There are multiple studies backing up this parameter estimate. Therefore, under CPE we should see these crazy risk preferences all the time. Do we? I certainly don't have that feeling.&lt;/p&gt;&#xA;" OwnerUserId="11590" LastEditorUserId="11590" LastEditDate="2019-03-21T10:57:14.043" LastActivityDate="2019-03-21T10:57:14.043" Title="Dominated lotteries in CPE" Tags="&lt;reference-request&gt;&lt;behavioral-economics&gt;&lt;risk-aversion&gt;&lt;uncertainty&gt;&lt;loss-aversion&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27373" PostTypeId="2" ParentId="27350" CreationDate="2019-03-21T11:31:49.737" Score="1" Body="&lt;p&gt;Objectively, the value of a share is the discounted stream of dividends. That is, an investor buys a share because she expects the firm to distribute dividends (which are at least positively correlated to profits). &#xA;Different traders may have different beliefs regarding these dividends and their beliefs are aggregated in a price &quot;on the market&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The board of directors is elected by the shareholders. The shareholders either want to keep the stock and continuously receive large dividends or they want to sell at a high price. If you want to keep your job in the board, you want to make shareholders happy and you do this by running a successful business in the sense of high profits &lt;span class=&quot;math-container&quot;&gt;$\rightarrow$&lt;/span&gt; high dividends &lt;span class=&quot;math-container&quot;&gt;$\rightarrow$&lt;/span&gt; high stock prices &lt;span class=&quot;math-container&quot;&gt;$\rightarrow$&lt;/span&gt; happy investors &lt;span class=&quot;math-container&quot;&gt;$\rightarrow$&lt;/span&gt; job security and high salary for the CEO (you).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The idea behind this is &lt;a href=&quot;https://en.wikipedia.org/wiki/Shareholder_value&quot; rel=&quot;nofollow noreferrer&quot;&gt;shareholder value&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="11590" LastActivityDate="2019-03-21T11:31:49.737" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27374" PostTypeId="1" CreationDate="2019-03-21T14:11:35.017" Score="1" ViewCount="686" Body="&lt;p&gt;According to the following definition:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;q-complements/substitutes (q is for quantity).&#xA;Input x and y are complements if the marginal product of x is increasing in quantity of y.&#xA;Input x and y are substitutes if the marginal product of x is decreasing in quantity of y. &#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Complements are sometimes called &quot;imperfect substitute&quot;. See, for instance,&lt;a href=&quot;https://economics.mit.edu/files/11574&quot; rel=&quot;nofollow noreferrer&quot;&gt;this paper&lt;/a&gt; (Autor et al. 2003), page 1286-1287.&lt;/p&gt;&#xA;" OwnerUserId="17875" LastEditorUserId="17875" LastEditDate="2019-03-25T10:58:14.997" LastActivityDate="2019-03-25T10:58:14.997" Title="What is the difference between imperfect substitutes and complements in a production function?" Tags="&lt;microeconomics&gt;&lt;production-function&gt;" AnswerCount="0" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27375" PostTypeId="1" CreationDate="2019-03-21T14:56:43.877" Score="2" ViewCount="86" Body="&lt;p&gt;What would happen to nominal income and wages if the money supply were fixed (100% reserve banking). Would real wages increase, even though nominal wages would stay the same or even decrease?&lt;/p&gt;&#xA;" OwnerUserId="21568" LastActivityDate="2021-05-11T18:05:05.587" Title="Real Income and a Fixed Money Supply" Tags="&lt;macroeconomics&gt;&lt;inflation&gt;&lt;monetary-policy&gt;&lt;banking&gt;&lt;money&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27376" PostTypeId="1" CreationDate="2019-03-21T19:50:23.887" Score="2" ViewCount="33" Body="&lt;p&gt;As the term paper of development economics in BSc, I am assigned this topic but I have no idea where to begin with. Of course I can’t look up every economic policy that was ever made then check whether it failed in a developing country but succeeded in a developed one. Can anyone suggest me a book or any article which might be of any use to me?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks!&lt;/p&gt;&#xA;" OwnerUserId="18148" LastEditorUserId="6168" LastEditDate="2019-03-21T20:14:54.077" LastActivityDate="2019-04-20T21:01:10.177" Title="Finding an economic policy that worked in a developed country but failed in a developing one" Tags="&lt;development-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27378" PostTypeId="2" ParentId="22475" CreationDate="2019-03-21T20:03:04.360" Score="2" Body="&lt;p&gt;The term &amp;quot;continuation value&amp;quot; is usually used to refer to an aggregation of utility in future periods. In the case of &lt;span class=&quot;math-container&quot;&gt;$U_t = u(C_t) + \beta E_t[u(C_{t+1})]$&lt;/span&gt;,&#xA;&lt;span class=&quot;math-container&quot;&gt;$u_t$&lt;/span&gt; is the flow of utility per period and &lt;span class=&quot;math-container&quot;&gt;$U_t$&lt;/span&gt; is an aggregate of &lt;span class=&quot;math-container&quot;&gt;$u_t$&lt;/span&gt; over all time periods &lt;span class=&quot;math-container&quot;&gt;$t$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$t+1$&lt;/span&gt;. The quantity &lt;span class=&quot;math-container&quot;&gt;$\beta E_t[u(C_{t+1})]$&lt;/span&gt; is the expected discounted continuation value and is in the same units as &lt;span class=&quot;math-container&quot;&gt;$u(C_t)$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;p&gt;Recursive utility works similarly. The difference is that utility over multiple time periods can't be easily aggregated. In the expected utility case, it's aggregated using a weighted sum of expectations. To see this, I'll show how you can write an expected utility function in recursive form. This should make the continuation value used in discussions of recursive utility easier to understand.&lt;/p&gt;&#xA;&lt;p&gt;Again, let &lt;span class=&quot;math-container&quot;&gt;$u_t$&lt;/span&gt; be the flow of utility per period. Suppose that&#xA;&lt;span class=&quot;math-container&quot;&gt;$U_t$&lt;/span&gt; is an aggregate of &lt;span class=&quot;math-container&quot;&gt;$u_t$&lt;/span&gt; over all time periods from time &lt;span class=&quot;math-container&quot;&gt;$t$&lt;/span&gt; into the future.&#xA;Sometimes &lt;span class=&quot;math-container&quot;&gt;$u_t$&lt;/span&gt; is referred to as the &amp;quot;per-period utility function&amp;quot;. An economic actor making decisions in time &lt;span class=&quot;math-container&quot;&gt;$t$&lt;/span&gt; maximizes &lt;span class=&quot;math-container&quot;&gt;$U_t$&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$u_\tau$&lt;/span&gt; for &lt;span class=&quot;math-container&quot;&gt;$\tau = t, t+1, t+2,...$&lt;/span&gt; are simply the components that make up &lt;span class=&quot;math-container&quot;&gt;$U_t$&lt;/span&gt;.&#xA;Consider the case of CRRA utility:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;U_0 \equiv E_0 \sum_{t=0}^\infty \beta^t \frac{C_t^{1-\gamma}}{1-\gamma}.&#xA;$$&lt;/span&gt;&#xA;Let &lt;span class=&quot;math-container&quot;&gt;$u_t = \frac{C_t^{1-\gamma}}{1-\gamma}$&lt;/span&gt; and let&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;U_t = E_t \sum_{\tau=t}^\infty \beta^{\tau-t} \frac{C_\tau^{1-\gamma}}{1-\gamma}.&#xA;$$&lt;/span&gt;&#xA;Then,&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;U_t = &#xA;E_t \sum_{\tau=t}^\infty \beta^{\tau-t} u_\tau&#xA;$$&lt;/span&gt;&#xA;and we can represent utility here recursively,&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;U_t = u_t + \beta U_{t+1}.&#xA;$$&lt;/span&gt;&#xA;In the expected utility case of CRRA, &lt;span class=&quot;math-container&quot;&gt;$U_t$&lt;/span&gt; is simply a weighted sum of future per-period utility. Epstein-Zin utility is a case in which &lt;span class=&quot;math-container&quot;&gt;$U_t$&lt;/span&gt; is an aggregate of future per-period utility, but it cannot be expressed as a simple weighted sum.&#xA;Rather, &lt;span class=&quot;math-container&quot;&gt;$U_t=((1-\beta)C_t^{1-\rho}+\beta (\mathcal{R}_t(U_{t+1}))^{1-\rho})^{1/(1-\rho)}$&lt;/span&gt;,&#xA;where &lt;span class=&quot;math-container&quot;&gt;$\mathcal R$&lt;/span&gt; is a &amp;quot;certainty equivalent&amp;quot; operator.&lt;/p&gt;&#xA;" OwnerUserId="59" LastEditorUserId="59" LastEditDate="2021-02-22T22:26:09.870" LastActivityDate="2021-02-22T22:26:09.870" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27379" PostTypeId="2" ParentId="27376" CreationDate="2019-03-21T20:24:25.110" Score="1" Body="&lt;p&gt;In his book &lt;a href=&quot;https://mitpress.mit.edu/books/elusive-quest-growth&quot; rel=&quot;nofollow noreferrer&quot;&gt;The Elusive Quest for Growth: Economists' Adventures and Misadventures in the Tropics&lt;/a&gt;, William Easterly discusses the failed efforts of states to use education, family planning, and debt forgiveness as means to grow out of poverty. You may find one policy that worked in developed countries.&lt;/p&gt;&#xA;" OwnerUserId="6168" LastActivityDate="2019-03-21T20:24:25.110" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27382" PostTypeId="1" CreationDate="2019-03-21T21:52:49.750" Score="0" ViewCount="183" Body="&lt;p&gt;If everyone in the US was given $1000 per month, paid for by a goods and services tax of 10%, would prices then skyrocket, making the extra money useless?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, if I wanted to buy products X, Y, Z in a given month, which each cost \$200, then \$1000 would obviously pay for that. But would merchants all raise their prices drastically higher, since they know everyone has free money and can afford the higher prices? Would this cause so much inflation that the extra $1000 would effectively become meaningless?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit: This question is unique from the possible duplicate, because it specifies an income amount, tax amount, and source of the tax which can be input into economic models to get a specific answer.&lt;/p&gt;&#xA;" OwnerUserId="21571" LastEditorUserId="1601" LastEditDate="2019-03-23T07:01:17.077" LastActivityDate="2019-03-23T07:01:17.077" Title="Would $1000/mo UBI funded by 10% goods and services tax cause prices to skyrocket, making the divident useless?" Tags="&lt;inflation&gt;&lt;basic-income&gt;" AnswerCount="0" CommentCount="13" ClosedDate="2019-03-24T16:36:41.173" ContentLicense="CC BY-SA 4.0" />
  <row Id="27383" PostTypeId="1" AcceptedAnswerId="27415" CreationDate="2019-03-21T23:03:29.433" Score="0" ViewCount="29" Body="&lt;p&gt;I would like to see data for private and public student loans and their default rate over time&lt;/p&gt;&#xA;" OwnerUserId="14816" LastEditorUserId="14816" LastEditDate="2019-03-22T17:44:05.750" LastActivityDate="2019-03-23T11:22:36.430" Title="US Student debt volume and default rate data source" Tags="&lt;data-request&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27384" PostTypeId="2" ParentId="27375" CreationDate="2019-03-22T00:45:29.260" Score="0" Body="&lt;p&gt;Roughly speaking nominal wages should remain fixed but things would still get invented and production would become ever ore efficient. So real wages would increase as deflation boosted the purchasing power of your wages.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, it may not be such a good idea to have a completely fixed money supply and deflation - it may become unstable if people noticed that storing money under your mattress was a perfectly effective way to save. If many savers started doing this then it could induce cycles of bubbles and crashes in the value of money. It would probably be better to deliberately increase the money supply by a few percent each year - just enough so that people were not inclined to save simply by storing money.&lt;/p&gt;&#xA;" OwnerUserId="5081" LastActivityDate="2019-03-22T00:45:29.260" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27388" PostTypeId="1" CreationDate="2019-03-22T02:46:38.520" Score="1" ViewCount="222" Body="&lt;p&gt;How did Soros make money by shorting the pound? When he sold the pound and made its price to decrease, he had to buy it back again to return the amount he borrowed, but doesn't buying the pound raise its price, so that he should not make any profit?&lt;/p&gt;&#xA;" OwnerUserId="21573" LastActivityDate="2019-03-25T06:21:08.147" Title="Soros shorting the pound" Tags="&lt;currency&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27389" PostTypeId="1" CreationDate="2019-03-22T04:21:22.017" Score="0" ViewCount="15" Body="&lt;p&gt;When we calculate the variance of a time series with autocorrelation, we need to do some shrinkage to get the correct value. What about say we have two time series, X, Y. both have autocorrelations. Will that effect the correlation Cor(X, Y)? What about the Cov(X, Y)? What kind of adjustment is needed?&lt;/p&gt;&#xA;" OwnerUserId="7923" LastActivityDate="2019-03-22T04:21:22.017" Title="covariance of autocorrelated time series" Tags="&lt;econometrics&gt;&lt;time-series&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27390" PostTypeId="1" AcceptedAnswerId="27394" CreationDate="2019-03-22T05:29:53.423" Score="5" ViewCount="366" Body="&lt;p&gt;I keep hearing that R-squared does not really matter in economics research and that due to the unpredictable human nature, economics research regressions tend to have low R-squared.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But how much is too low for even economics research?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am asking this because one of the regressions I ran has an R-squared of around 1%. Is it still okay?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And, in general, what is a low R-squared in economics?&lt;/p&gt;&#xA;" OwnerUserId="21576" LastEditorUserId="1601" LastEditDate="2019-03-22T05:32:34.740" LastActivityDate="2021-01-18T02:41:43.957" Title="What R-squared is a low R-squared?" Tags="&lt;econometrics&gt;&lt;statistics&gt;&lt;regression&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27391" PostTypeId="2" ParentId="13224" CreationDate="2019-03-22T06:24:17.820" Score="-1" Body="&lt;p&gt;I actually have been thinking about this theory as well. In fact, the improvement of education and gender equality together produce more educated woman. Educated woman would want to contribute to the society even after marriage hence produce more dual income household. In the beginning, maybe there is only a small percentage of dual income household. They are more willing to pay more to get a house which drive the price higher. Eventually more single income household become dual income household in order to afford a house. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;How about those investor who flip real estate property to make money? I don't think they are the real reason because eventually someone will buy the house and stay inside. Based on supply and demand, if there aren't so many household who can afford an expensive house, there will be less sale and the price won't go up so fast.&lt;/p&gt;&#xA;" OwnerUserId="21577" LastActivityDate="2019-03-22T06:24:17.820" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27393" PostTypeId="1" CreationDate="2019-03-22T08:36:34.063" Score="1" ViewCount="920" Body="&lt;p&gt;I'm not a native speaker so please excuse my English.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When they draw the result that the central bank's monetary supply determine the inflation rate, didn't they suppose many variables sticky?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With &lt;strong&gt;money supply&lt;/strong&gt; matching up with the &lt;strong&gt;demand&lt;/strong&gt;, they start their train of logic as follows. &lt;strong&gt;MV = PY&lt;/strong&gt;, here the &lt;strong&gt;Y&lt;/strong&gt; is fixed since it's exogenous, and &lt;strong&gt;V&lt;/strong&gt; is fixed for the convenience of computation, so &lt;strong&gt;M&lt;/strong&gt; controls the &lt;strong&gt;P&lt;/strong&gt;... Okay I get that part, but what I wonder is that, when you fix the &lt;strong&gt;V&lt;/strong&gt;, doesn't that make the &lt;strong&gt;k&lt;/strong&gt; also fixed, which means &lt;strong&gt;kY&lt;/strong&gt;, &lt;strong&gt;the money demand function&lt;/strong&gt; is eventually fixed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, how can they manipulate the &lt;strong&gt;M&lt;/strong&gt; when they assumed &lt;strong&gt;M&lt;/strong&gt; equals to the &lt;strong&gt;&lt;em&gt;fixed&lt;/em&gt;&lt;/strong&gt; &lt;strong&gt;demand of money&lt;/strong&gt;?&lt;/p&gt;&#xA;" OwnerUserId="21565" LastActivityDate="2019-03-23T07:00:47.180" Title="I don't understand the MV = PY" Tags="&lt;quantity-theory-of-money&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27394" PostTypeId="2" ParentId="27390" CreationDate="2019-03-22T08:43:34.980" Score="8" Body="&lt;p&gt;Disclaimer: this answer comes from a microeconomic research perspective.  Time series / macroeconomic specialists will likely have other perspectives.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is no general rule for what's &lt;em&gt;too&lt;/em&gt; low across the entire field of economics.  Yes, microeconomic models (i.e., individual-level observations) will tend to give low R-squared values (often in single percentage point digits) because there are so many factors that can affect human outcomes, a lot of which just cannot be observed.  But more generally, R-squared will depend on your data and model, specifically the nature of your dependent variable, any transformations you may have applied to the variable, what explanatory variables you include and what variables you exclude.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In Economics research, R-squared is rarely of concern because predictive power is often not the main goal.  Instead, economists focus on finding reliable estimates of coefficients for variables of interest and deriving useful inferences from the structure of the model and the estimated values of its parameters.  And standard error of the regression is considered a better metric than R-squared because it comes in the units of the dependent variable, provides the absolute measure of the typical distance that the data points fall from the regression line, and it scales the width of all confidence intervals calculated from the model.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Source for some of the points included in this answer: &lt;a href=&quot;https://people.duke.edu/~rnau/rsquared.htm&quot; rel=&quot;noreferrer&quot;&gt;https://people.duke.edu/~rnau/rsquared.htm&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="21454" LastActivityDate="2019-03-22T08:43:34.980" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27395" PostTypeId="2" ParentId="27393" CreationDate="2019-03-22T09:58:29.243" Score="1" Body="&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$M\cdot V=P\cdot Y \Leftrightarrow M=\frac{P}{V}\cdot Y\\&#xA;\frac{1}{V}=k \Leftrightarrow M=kPY$&lt;/span&gt;&#xA;So suppose we keep &lt;span class=&quot;math-container&quot;&gt;$V$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt; fixed and vary &lt;span class=&quot;math-container&quot;&gt;$M$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$P$&lt;/span&gt; varies as well and this means &lt;span class=&quot;math-container&quot;&gt;$kPY$&lt;/span&gt; also varies (because of P). More specifically when money supply goes up while keeping velocity and output constant, the price level has to rise,(raising money demand to equal money supply). &lt;/p&gt;&#xA;" OwnerUserId="18214" LastEditorUserId="18214" LastEditDate="2019-03-22T12:24:19.880" LastActivityDate="2019-03-22T12:24:19.880" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27397" PostTypeId="1" AcceptedAnswerId="27436" CreationDate="2019-03-22T16:01:10.790" Score="0" ViewCount="735" Body="&lt;p&gt;I am looking at the following exercise and struggling with the solution proposed by my microeconomics book.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;A consumer spends all his income on two goods, X and Y. The prices he paid and the quantities he consumed last year are as follows: PX = 15, X = 20, PY = 25, and Y = 30. &#xA;  We assume the consumer's preferences follow the 5 properties for preference ordering (complete, transitive, more-is-better, convex, continuous).&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;If the prices next year are PX = 6 and PY = 30, and the consumer's income is 1,020, will he be better or worse off than he was in the previous year? (Assume that his tastes do not change.)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;For the Solution we first find the consumer's budget constraint of last year:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;M = PX * X + PY * Y = 15 * 20 + 25 * 30 = 1050&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;We need to ask can he buy last year’s bundle given the new prices?&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;PXnew * X + PYnew * Y = 6 * 20 + 30 * 30 = 1020&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Given that the consumer can still afford last year's bundle, he must be (in my opinion) at least as well off. I am working with a economics book and the solution proposed in the book claims, that the consumer must be better off using the following figure as explanation:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/7SQP5.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/7SQP5.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am wondering, couldn't the indifference curve that is tangent to the bundle at X = 20, Y = 30 for the last year, also be tangent to a point on the new budget constraint and equal the highest indifference curve that can be reached? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there an explanation, given the 5 properties of preference ordering that the consumer MUST be better off.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have added the image below to clarify my question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/pQKZx.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/pQKZx.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am wondering whether the indifference curve in red in the image could look like this and imply that the satisfaction level is not increasing as the consumer will stay on the same indifference curve but consume a different combination of X and Y.&lt;/p&gt;&#xA;" OwnerUserId="21581" LastEditorUserId="21581" LastEditDate="2019-03-24T10:13:27.120" LastActivityDate="2019-03-24T11:17:55.063" Title="Finding Optimal Bundle and Change in Satisfaction after Changes in Budget Constraint" Tags="&lt;microeconomics&gt;&lt;preferences&gt;" AnswerCount="2" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="27398" PostTypeId="2" ParentId="27393" CreationDate="2019-03-22T16:30:55.853" Score="2" Body="&lt;p&gt;Money demand is fixed because it depends on the real economy....that's an assumption. &#xA;So when M changes only P can change. That's the theory. It's not really a theory. Just an accounting equality, since V is never defined exogenously. It's bad economics. :/&lt;/p&gt;&#xA;" OwnerUserId="21582" LastActivityDate="2019-03-22T16:30:55.853" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27399" PostTypeId="1" CreationDate="2019-03-22T16:36:32.767" Score="3" ViewCount="42" Body="&lt;p&gt;For part of a project, I wanted to see if electricity consumption causes GDP in Colorado. I initially intended to follow the approach of Mozumder and Marathe (2007), who use a VECM approach, but that requires cointegration.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm not sure what to do now. I tried the Toda-Yamamoto method but my errors seem to be serially correlated...&lt;/p&gt;&#xA;" OwnerUserId="21583" LastActivityDate="2019-03-22T18:41:57.373" Title="If two variables are not cointegrated, can one still cause the other?" Tags="&lt;econometrics&gt;&lt;time-series&gt;&lt;co-integration&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27400" PostTypeId="1" AcceptedAnswerId="27510" CreationDate="2019-03-22T16:49:00.033" Score="-1" ViewCount="48" Body="&lt;p&gt;Wikipedia lists &lt;a href=&quot;https://en.wikipedia.org/wiki/Deflation&quot; rel=&quot;nofollow noreferrer&quot;&gt;Deflation&lt;/a&gt; as a bad thing, but I'm assuming that the article makes the assumption that the currency is a fiat currency (as opposed to cryptocurrency). I understand the general principle of deflation being a bad thing, especially if the government in question is actually printing more money as governments are want to do...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Wikipedia article does make a good point about debt, as most newly printed money (as I understand it) is loaned out for interest to local business etc to allow for proper growth of the economy, and during deflation, debt increases in value, which is the opposite of what is usually happening in modern society.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But my question is regarding cryptocurrencies that are not issued or controlled by governments. Do the same factors (or others) mean that once, for example, all bitcoins have been 'mined' that the supply will be fixed and deflation will begin... how would that be a bad thing?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This question is not a duplicate of &quot;&lt;a href=&quot;https://economics.stackexchange.com/questions/21763/is-any-aspect-of-the-cryptocurrency-adoption-violating-a-widely-held-economic-te&quot;&gt;Is any aspect of the cryptocurrency adoption violating a widely held economic tenet?&lt;/a&gt;&quot; because this is a focused question asking about a specific part of how cryptocurrencies work and whether or not &quot;deflation&quot; is still bad given the context in which cryptocurrencies are created and used. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are upper limits to the amount of circulating 'units' bad, and should cryptocurrencies change their monetary policies to avoid the pitfalls of defaltion? &lt;/p&gt;&#xA;" OwnerUserId="21584" LastEditorUserId="21584" LastEditDate="2019-03-26T14:00:53.980" LastActivityDate="2019-03-28T13:35:56.077" Title="Effect of a Deflationary Cryptocurrency" Tags="&lt;cryptocurrency&gt;&lt;deflation&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="27401" PostTypeId="2" ParentId="24204" CreationDate="2019-03-22T17:09:49.247" Score="0" Body="&lt;p&gt;Cryptocurrencies are technology, but their value comes from a &quot;social contract&quot;, people agree that the &quot;asset&quot; created by the blockchain is of some worth. You can take the bitcoin code, make a copy, change a few parameters and rename it to &quot;myCoin&quot; and sell those coins to your friends, but there would be no social contract in place to give it value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Cryptocurrencies dont HAVE to be decentralised, they can and probably will be issued by governments in the future (and I suppose Venezuela has already), bitcoin is what is called a &quot;permissionless&quot; crypto, meaning you don't have a central authority to appeal too if someone steals all your coins, but &quot;&lt;a href=&quot;https://monax.io/learn/permissioned_blockchains/&quot; rel=&quot;nofollow noreferrer&quot;&gt;permissioned&lt;/a&gt;&quot; cryptocurrencies will allow a central authority to have the final say, think about land tokenized onto a blockchain, the local government in charge should be administering it, and your land shouldn't be able to be stolen from out beneath you like bitcoin could (&quot;sorry mom, we have to move, Bob got our private key and stole our house&quot;). Also, bitcoin can't be inherited without making plans to specifically do just that, think about the Canadian crypto-exchange that lost access after the guy in charge died, no one had access to the private keys, so no court could make a ruling to move the money, cause it's not possible without the lost private keys.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Technically, Venezuela issued their own currency, but the trust is not there in the government, so that lack of trust extends to their self-issued cryptocurrency as well.&lt;/p&gt;&#xA;" OwnerUserId="21584" LastActivityDate="2019-03-22T17:09:49.247" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27403" PostTypeId="2" ParentId="21763" CreationDate="2019-03-22T17:26:00.003" Score="0" Body="&lt;p&gt;for an interesting read, there is this &lt;a href=&quot;https://www.sec.gov/comments/sr-cboebzx-2019-004/srcboebzx2019004-4934624-178449.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;PDF&lt;/a&gt; detailing a comment about a recent Bitcoin EFT (exchange traded funds) proposal, and in it he outlines how bitcoin isn't a currency for various reasons, but ignores that it actually IS being used as a currency.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.sec.gov/comments/sr-cboebzx-2019-004/srcboebzx2019004-4934624-178449.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.sec.gov/comments/sr-cboebzx-2019-004/srcboebzx2019004-4934624-178449.pdf&lt;/a&gt; (link at the top to the sixth response details nine currencies in history and how they were created, and hence why he thinks bitcoin is not a currency)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;p.s. I don't agree with the overall opinion in the pdf, but it is an interesting read&lt;/p&gt;&#xA;" OwnerUserId="21584" LastActivityDate="2019-03-22T17:26:00.003" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27404" PostTypeId="1" AcceptedAnswerId="27512" CreationDate="2019-03-22T17:45:27.320" Score="4" ViewCount="204" Body="&lt;p&gt;This problem is an example given in Vijay Krishna's &lt;em&gt;Auction Theory&lt;/em&gt; (2nd Edition, Chapter-6, Example 6.2). The problem is as follows:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose &lt;span class=&quot;math-container&quot;&gt;$S_1,S_2$&lt;/span&gt;, and &lt;span class=&quot;math-container&quot;&gt;$T $&lt;/span&gt; are uniformly and independently distributed on &lt;span class=&quot;math-container&quot;&gt;$[0,1]$&lt;/span&gt;. There are two bidders.Bidder 1 receives the signal &lt;span class=&quot;math-container&quot;&gt;$X1=S1+T$&lt;/span&gt;,and bidder 2 receives the signal &lt;span class=&quot;math-container&quot;&gt;$X_2=S_2+T$&lt;/span&gt;. The object has a common value for both the bidders, &lt;span class=&quot;math-container&quot;&gt;$V=(X_1+X_2)/2$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, we are required to find out the bidding strategy for a first price auction. The equilibrium bidding function is given as &lt;span class=&quot;math-container&quot;&gt;$\beta(x)=\int_0^xv(y,y) \,dL(y|x)$&lt;/span&gt;. &lt;span class=&quot;math-container&quot;&gt;$L(y|x)$&lt;/span&gt; is further equal to &lt;span class=&quot;math-container&quot;&gt;$\exp(-\int_y^x\,\frac{g(t|t)}{G(t|t)}\,dt)$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have four questions:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;ol&gt;&#xA;  &lt;li&gt;How are &lt;span class=&quot;math-container&quot;&gt;$X_1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$X_2$&lt;/span&gt; affiliated?&lt;/li&gt;&#xA;  &lt;li&gt;How is &lt;span class=&quot;math-container&quot;&gt;$\frac{g(t|t)}{G(t|t)}$&lt;/span&gt; calculated in this example?&lt;/li&gt;&#xA;  &lt;li&gt;How do I find the joint density of &lt;span class=&quot;math-container&quot;&gt;$X_1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$X_2$&lt;/span&gt;?&lt;/li&gt;&#xA;  &lt;li&gt;How do I find the conditional density of &lt;span class=&quot;math-container&quot;&gt;$X_2$&lt;/span&gt; given that &lt;span class=&quot;math-container&quot;&gt;$X_1=x$&lt;/span&gt;?&lt;/li&gt;&#xA;  &lt;/ol&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="16340" LastEditorUserId="11590" LastEditDate="2019-03-28T20:56:17.863" LastActivityDate="2019-03-28T20:56:17.863" Title="Auctions with affiliation" Tags="&lt;self-study&gt;&lt;auctions&gt;" AnswerCount="1" CommentCount="7" FavoriteCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27405" PostTypeId="2" ParentId="27399" CreationDate="2019-03-22T18:12:00.877" Score="2" Body="&lt;p&gt;Causality between time-series variables does not require the two to be cointegrated. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, cointegration requires that each series be &lt;span class=&quot;math-container&quot;&gt;$I(1)$&lt;/span&gt;. It is certainly possible for two &lt;span class=&quot;math-container&quot;&gt;$I(0)$&lt;/span&gt; series to follow a causal relationship (or two &lt;span class=&quot;math-container&quot;&gt;$I(d)$&lt;/span&gt; variables for that matter). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Second, cointegration implies a long-run equilibrium among the series, which is not required for a causal relationship. A long-run equilibrium between two time series variables &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; implies that&#xA;&lt;span class=&quot;math-container&quot;&gt;$$y_t-a-bx_t$$&lt;/span&gt;&#xA;is a stationary process. In other words, if shocks are 'turned off', the values of &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; will converge such that &lt;span class=&quot;math-container&quot;&gt;$y_t=a+bx_t$&lt;/span&gt;. &lt;/p&gt;&#xA;" OwnerUserId="21222" LastEditorUserId="21222" LastEditDate="2019-03-22T18:41:57.373" LastActivityDate="2019-03-22T18:41:57.373" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="27407" PostTypeId="1" CreationDate="2019-03-23T02:13:12.980" Score="1" ViewCount="69" Body="&lt;p&gt;I assume that investing is more useful than consuming for society as a whole, at least in the long run. But then why isn't the government taxing consumption more and investment less? This would create market pressure for people to invest more. Is it because it would increase inequality, and increasing marginal tax on consumption would be too difficult to implement (much more difficult than for taxes on income)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;ETA: by taxing investment I mean taxing dividends and capital gains&lt;/p&gt;&#xA;" OwnerUserId="21587" LastEditorUserId="21587" LastEditDate="2019-03-23T17:26:12.430" LastActivityDate="2019-03-25T01:29:30.020" Title="Why tax investment?" Tags="&lt;taxation&gt;&lt;investment&gt;&lt;optimal-taxation&gt;" AnswerCount="2" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="27408" PostTypeId="2" ParentId="27332" CreationDate="2019-03-23T03:29:29.720" Score="-1" Body="&lt;p&gt;Labour theories of value following the Marxist model of socially necessary skill averaged labour can explain why commodities locally produced and consumed have similar proportional hours of labour income costs. This also explains why highly mechanised products have prices varying between markets. &lt;/p&gt;&#xA;" OwnerUserId="19898" LastActivityDate="2019-03-23T03:29:29.720" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27409" PostTypeId="2" ParentId="27397" CreationDate="2019-03-23T03:34:33.350" Score="0" Body="&lt;p&gt;I understand what you though, the old indifference curve sure can touch but cannot conclude to be the optimal one. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As the evidence of the money he can pay 1050 of the last year budget but for this year he could only use just 1020 to buy the same combination of those goods with the same utility so that means he still can buy and consume more with the relative purchasing power. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I will just use 2 assumptions that are &quot;more is better&quot;, &quot;no bliss point&quot;. It is said that the budget which has shown or given here is not significant to the level that the consumer will keep and not spend so that as he can spend he will and with &quot;no bliss point&quot; that means this consumption is too small and yet not to the level that he will have negative marginal utility.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, as he can buy the old combination with the lesser price so he can allocate the leftover budget for either of two goods.&lt;/p&gt;&#xA;" OwnerUserId="17897" LastActivityDate="2019-03-23T03:34:33.350" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27411" PostTypeId="2" ParentId="27407" CreationDate="2019-03-23T06:54:37.177" Score="1" Body="&lt;p&gt;On your assumption &quot;I assume that investing is more useful than consuming for society as a whole, at least in the long run.&quot; This is not necessarily true.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Imagine if all factories were geared towards investment. There would be a lot of heavy industry, to pour concrete, cast steel and make intricate machinery but all of it would go to build new factories. There would be a bare minimum of textiles for people to wear, as building additional textile factories would mean we could build less factories that create more resources to invest. The same goes for other goods: no consumer electronics, no playing cards, no fancy foods, etc. However, investment would grow very quickly, as we built more and more factories. Yet perhaps you agree that this is not &quot;more useful [...] for society&quot; than also having some consumption at the expense of investment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a more formal model, see the Solow growth model.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2019-03-23T06:54:37.177" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27412" PostTypeId="2" ParentId="27393" CreationDate="2019-03-23T07:00:47.180" Score="0" Body="&lt;p&gt;I'm the OP. I've solved it. What I was missing was that the fixed supply is nothing but the 'real supply'.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1.real demand = kY (fixed)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2.real supply = M/P (fixed)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When they said &quot;the central bank controls the money supply&quot;, it meant it manipulate the M only. So P should also change by the same rate to make the whole 'real' supply, M/P, equal to kY. It was so easy. I kind of feel stupid now :D&lt;/p&gt;&#xA;" OwnerUserId="21565" LastActivityDate="2019-03-23T07:00:47.180" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27415" PostTypeId="2" ParentId="27383" CreationDate="2019-03-23T11:22:36.430" Score="2" Body="&lt;p&gt;With regard to your title, I assume you're looking for data for the US. This &lt;a href=&quot;https://nces.ed.gov/pubs2018/2018410.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;report from the U.S. Department of Education&lt;/a&gt; presents data and selected findings about the repayment of &lt;strong&gt;federal student loans&lt;/strong&gt; using data from the 2015 Federal Student Aid Supplements to two Beginning Postsecondary Students Longitudinal Studies (BPS). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The report focuses on two cohorts of borrowers: those who began their postsecondary education in the 1995–96 academic year (BPS:96/01) and those who began in the 2003–04 academic year (BPS:04/09). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The report presents estimates of both cohorts' cumulative borrowing, repayment, and &lt;strong&gt;default&lt;/strong&gt; statuses as of June 30, 2015, some 20 years after the 1995–96 cohort and 12 years after the 2003–04 cohort began postsecondary education.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Interesting key findings&lt;/h2&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Some 55% of students in the 1995–96 cohort and 63% of the 2003–04 cohorttook out federal education loans within 12 years of entering postsecondary education.&lt;/li&gt;&#xA;&lt;li&gt;Overall, 25% of borrowers in the 1995–96 cohort had defaulted on at least one loan within 20 years of beginning postsecondary education, and 14% defaulted on their most recent loan.&lt;/li&gt;&#xA;&lt;li&gt;Among borrowers in the 2003–04 cohort, 45% of those who had never attained a credential and were not enrolled in 2009 had defaulted on a loan within 12 years. Among those who attained undergraduate certificates, the rate of defaulting within 12 years was 44%; for associate's degree recipients, it was 22%; and for bachelor's degree recipients, it was 8%.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="6168" LastActivityDate="2019-03-23T11:22:36.430" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27416" PostTypeId="1" CreationDate="2019-03-23T11:31:08.090" Score="0" ViewCount="77" Body="&lt;p&gt;I am new to dynare. I am trying to replicate the calibration of the paper '&lt;a href=&quot;https://www.google.co.in/url?sa=t&amp;amp;source=web&amp;amp;rct=j&amp;amp;url=https://www.dallasfed.org/assets/documents/institute/events/2009/090320durate.pdf&amp;amp;ved=2ahUKEwjm8LqYv5jhAhVHiXAKHWfJDAYQFjABegQIBxAB&amp;amp;usg=AOvVaw0b182OZmztje52hZqGKGZK&amp;amp;cshid=1553352023866&quot; rel=&quot;nofollow noreferrer&quot;&gt;Structural transformation and aggregate productivity&lt;/a&gt;' by Margarida Duarte and Diego Restuccia. (Picture attached) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this calibration technique, some parameters are known while others (b and &lt;span class=&quot;math-container&quot;&gt;$\rho$&lt;/span&gt;) are estimated such that the squared difference between data and model moments reduces. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My problem is - in all the calibration exercises that I saw regarding macroeconomics models in Dynare, all the parameter values are assumed and model is calibrated by computing future period values using these initial period values of variables and parameters. [Picture attached] &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is how can we do calibration by generalized methods of moments in Dynare? Is it possible? Can someone provide me the document or any kind of information will be helpful. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/gEzVQ.jpg&quot; alt=&quot;Structural Transformation by Margarida Duarte&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/waKxv.jpg&quot; alt=&quot;Calibration Code&quot;&gt;&lt;/p&gt;&#xA;" OwnerUserId="18929" LastEditorUserId="18929" LastEditDate="2019-03-26T02:39:04.960" LastActivityDate="2019-03-26T02:39:04.960" Title="Generalized method of moments in Dynare" Tags="&lt;macroeconomics&gt;&lt;computation&gt;&lt;dynare&gt;" AnswerCount="0" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="27417" PostTypeId="1" CreationDate="2019-03-23T13:16:57.930" Score="0" ViewCount="12" Body="&lt;p&gt;I am attempting to write a program in Python that monitors a single currency pair, GPB/NZD to be specific. My main focus will be to run constant calculations every 2 to 3 minutes in order to give feedback to me when certain indicators have been observed in the current stream of data I am processing which will send me an email.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is purely a solo project I am wanting to develop but I am having trouble finding some good indicators that I could somewhat utilise in giving myself feedback on current market strength. I don't want to use anything that entails pages of algo calculations but I am willing to mimic some currently used indicators that are a simple examples of strong market movement.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;tl;dr: Does anyone know technical names of currency pair indicators used to give feedback on market strength between a currency pair that could be calculated by myself using Python?&lt;/p&gt;&#xA;" OwnerUserId="14755" LastActivityDate="2019-03-23T13:16:57.930" Title="Commonly used indicators for currency pair strength?" Tags="&lt;finance&gt;&lt;currency&gt;&lt;stock-market&gt;&lt;trading&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27419" PostTypeId="1" CreationDate="2019-03-23T15:09:57.973" Score="2" ViewCount="1889" Body="&lt;p&gt;I've been been brushing up on my micoreocnomics lately and I came across a question in Perloff that looked really simple, but for some reason I am struggling to answer:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume we are in the long run and each firm in a competitive market has a cost function &lt;span class=&quot;math-container&quot;&gt;$C = q^2$&lt;/span&gt; and market demand is &lt;span class=&quot;math-container&quot;&gt;$Q = 24 - p$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Determine the long-run equilibrium price, quantity per firm, market quantity and number of firms. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Attempt&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the long run, profits are &lt;span class=&quot;math-container&quot;&gt;$0$&lt;/span&gt;, therefor firms should enter until &lt;span class=&quot;math-container&quot;&gt;$MC = AC$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$MC = 2Q$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$AC = Q$&lt;/span&gt;. Setting them equal to another we get:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$2Q = Q$&lt;/span&gt;, which implies &lt;span class=&quot;math-container&quot;&gt;$Q = 0$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However this result seems incorrect to me, could someone please point me in the right direction. I feel like I am getting this weird result because my AC curve is linear whereas it is usually U shaped.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks&lt;/p&gt;&#xA;" OwnerUserId="16530" LastActivityDate="2019-03-24T09:57:30.330" Title="Finding long run equilibrium price, quantity and number of firms with a linear average cost function" Tags="&lt;microeconomics&gt;&lt;profit-maximization&gt;&lt;producer-theory&gt;&lt;long-run&gt;" AnswerCount="0" CommentCount="8" FavoriteCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27420" PostTypeId="2" ParentId="16862" CreationDate="2019-03-23T16:31:59.717" Score="1" Body="&lt;p&gt;A classical economic explanation for the phenomenon you describe is that the gift giver does not know the receivers preferences well enough. Prominently, Joel Waldfogel makes this point in his fun paper &lt;a href=&quot;https://www.jstor.org/stable/2117564&quot; rel=&quot;nofollow noreferrer&quot;&gt;&quot;The Deadweight Loss of Christmas&quot;&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;I find that holiday gift giving destroys between one-third and one-tenth of the value of gifts.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This article pops up in the public domain every year around the holidays (&lt;a href=&quot;https://www.nytimes.com/2014/12/21/upshot/an-economist-goes-christmas-shopping.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;example&lt;/a&gt; in the NYT) and its idea of course also applies to all other gift-giving-and-receiving situations.&#xA;Of course many people (including economists) disagree with that notion and you find quite a lot of comments and replies on that paper in the AER, just type the title of the paper into google.scholar.&lt;/p&gt;&#xA;" OwnerUserId="11590" LastActivityDate="2019-03-23T16:31:59.717" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27423" PostTypeId="1" CreationDate="2019-03-23T22:09:33.783" Score="1" ViewCount="34" Body="&lt;p&gt;I'm looking for Private Savings (Sp), Investment (I), Taxes (T), Government Spending (G) for India.&lt;/p&gt;&#xA;" OwnerUserId="21596" LastActivityDate="2019-03-24T01:58:49.477" Title="Where's a good place to find Information on Non-OCED countries?" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;&lt;balance-of-trade&gt;&lt;national-accounts&gt;&lt;balance-of-payments&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27425" PostTypeId="1" CreationDate="2019-03-23T23:32:42.933" Score="0" ViewCount="21" Body="&lt;p&gt;in an RCT, I have 3 different treatment groups and one control group. The size of the control group is around 1000 while the size of other groups are just above 300. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To test balance I used ANOVA and Welch test, which show that several variables are unbalanced. Can I draw a smaller random sample (400) from the control group so that the sizes of all groups are relatively equal?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Actually after doing that only one variable is unbalanced. So would it cause any problems if I want to draw a smaller sample just for more balance? Thanks!&lt;/p&gt;&#xA;" OwnerUserId="21597" LastActivityDate="2019-03-23T23:32:42.933" Title="Can I draw a smaller sample from one treatment group?" Tags="&lt;econometrics&gt;&lt;development-economics&gt;&lt;randomized-experiment&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27427" PostTypeId="2" ParentId="27423" CreationDate="2019-03-24T01:58:49.477" Score="1" Body="&lt;p&gt;The &lt;a href=&quot;https://www.imf.org/en/Data&quot; rel=&quot;nofollow noreferrer&quot;&gt;IMF Data&lt;/a&gt;, the &lt;a href=&quot;http://data.un.org/countryData/Home/Countries&quot; rel=&quot;nofollow noreferrer&quot;&gt;UN Country Data&lt;/a&gt; or the &lt;a href=&quot;https://data.worldbank.org/country/india&quot; rel=&quot;nofollow noreferrer&quot;&gt;World Bank Open Data&lt;/a&gt; should be good data sources covering a wide range of countries.&lt;/p&gt;&#xA;" OwnerUserId="12304" LastActivityDate="2019-03-24T01:58:49.477" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27428" PostTypeId="1" CreationDate="2019-03-24T02:18:23.750" Score="0" ViewCount="4468" Body="&lt;p&gt;How do I derive the demand function from&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$U=y + 2\sqrt{x}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Currently I have &lt;span class=&quot;math-container&quot;&gt;$MRS = \frac{1}{\sqrt{x}} = \frac{P_x}{P_y}$&lt;/span&gt;, so, &lt;span class=&quot;math-container&quot;&gt;$P_y = P_x\sqrt{x}$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Using the budget line: &lt;span class=&quot;math-container&quot;&gt;$$I = xP_x + yP_y \implies I = xP_x +y(P_x\sqrt{x})$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which simplifies to &lt;span class=&quot;math-container&quot;&gt;$$x = \frac{2I + y^2 P_x \pm y\sqrt{Px(4I+y^2P_x)}}{2P_x}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm not sure if this is correct, should I have did &lt;span class=&quot;math-container&quot;&gt;$MRS = \frac{1}{\sqrt&#xA;{x}} = \frac{P_x}{P_y}$&lt;/span&gt;, so, &lt;span class=&quot;math-container&quot;&gt;$P_x = \frac{P_y}{\sqrt{x}}$&lt;/span&gt; instead and substitute &lt;span class=&quot;math-container&quot;&gt;$\frac{P_y}{\sqrt{x}}$&lt;/span&gt; into budget line? How do I determine what to substitute into the budget line?&lt;/p&gt;&#xA;" OwnerUserId="21599" LastEditorUserId="20068" LastEditDate="2019-04-07T18:25:38.157" LastActivityDate="2019-05-07T19:04:10.683" Title="Deriving demand function from utility function" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27429" PostTypeId="2" ParentId="27428" CreationDate="2019-03-24T03:19:52.153" Score="1" Body="&lt;p&gt;This is an example of quasilinear utility. In general, a quasilinear utility function takes the form &#xA;&lt;span class=&quot;math-container&quot;&gt;$$u(x,y)=f(x)+y.$$&lt;/span&gt;&#xA;The perfect substitutes utility function, for example, is a special case of the quasilinear utility function. One feature of quasilinear utility is that the MRS is independent of at least one of the two goods:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\frac{\frac{\partial u(x,y)}{\partial x}}{\frac{\partial u(x,y)}{\partial y}}=f'(x),$$&lt;/span&gt;&#xA;meaning the slope of indifference curves is independent of the quantity of good &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Marshallian demand functions satisfy the equations:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$ f'(x)=\frac{P_x}{P_y}$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$I=P_xx+P_yy,$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which come from the first-order conditions of the constrained maximization problem. We can solve for the Marshallian demand function for &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; directly from the first equation:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$x^*=f'^{-1}(\frac{P_x}{P_y}).$$&lt;/span&gt;&#xA;Substituting this into your second equation gives &#xA;&lt;span class=&quot;math-container&quot;&gt;$$I=P_xf'^{-1}(\frac{P_x}{P_y})+P_yy$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$y^*=\frac{I-P_xf'^{-1}(\frac{P_x}{P_y})}{P_y}.$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In your example, we get&#xA;&lt;span class=&quot;math-container&quot;&gt;$$x^*=(\frac{P_y}{P_x})^2.$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$y^*=\frac{I-P_x(\frac{P_y}{P_x})^2}{P_y}.$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is a fundamental problem with your solution. You write a demand function for &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; that depends on the quantity of &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt;. Demand functions depend either on &lt;span class=&quot;math-container&quot;&gt;$(P_x,P_y,I)$&lt;/span&gt;, if Marshallian, or &lt;span class=&quot;math-container&quot;&gt;$(P_x,P_y,U)$&lt;/span&gt;, if Hicksian.&lt;/p&gt;&#xA;" OwnerUserId="21222" LastEditorUserId="21222" LastEditDate="2019-03-24T04:17:02.107" LastActivityDate="2019-03-24T04:17:02.107" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27432" PostTypeId="1" AcceptedAnswerId="27437" CreationDate="2019-03-24T08:13:45.870" Score="2" ViewCount="116" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/KRHvD.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/KRHvD.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know the answer is A.  but I need an explanation on why. I thought government savings would decrease since they have less tax revenue, shifting savings left and interest rates up. I could see how public savings could also increase due to this new taxation cut but consumers would spend part of the tax break, resulting in less of an increase in savings compared to decrease in government savings. What am I missing here? Thanks. &lt;/p&gt;&#xA;" OwnerUserId="21127" LastActivityDate="2019-03-24T21:21:23.083" Title="Predicting Shifts in Supply and Demand for Loanable Funds" Tags="&lt;macroeconomics&gt;&lt;supply-and-demand&gt;&lt;interest-rate&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27434" PostTypeId="1" AcceptedAnswerId="27435" CreationDate="2019-03-24T10:09:53.040" Score="2" ViewCount="163" Body="&lt;p&gt;From the appendix after the chapter 4 in Macroeconomics 7th edition by Gregory Mankiw.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;To keep the math as simple as possible, we posit a money demand function that is linear in the natural logarithms of all the variables. The money demand function is&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$m_t − p_t = −\gamma( p_{t+1} − p_t)$&lt;/span&gt;,&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;where &lt;span class=&quot;math-container&quot;&gt;$m_t$&lt;/span&gt; is the log of the quantity of money at time t, &lt;span class=&quot;math-container&quot;&gt;$p_t$&lt;/span&gt; is the log of the price level at time t, and &lt;span class=&quot;math-container&quot;&gt;$\gamma$&lt;/span&gt; is a parameter that governs the sensitivity of money demand to the rate of inflation. By the property of logarithms, &lt;span class=&quot;math-container&quot;&gt;$m_t − p_t$&lt;/span&gt; is the log of real money balances, and &lt;span class=&quot;math-container&quot;&gt;$p_{t+1} − p_t$&lt;/span&gt; is the inflation rate between period t and period t+1. This equation states that if inflation goes up by 1 percentage point, real money balances fall by &lt;span class=&quot;math-container&quot;&gt;$\gamma$&lt;/span&gt; percent.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Shouldn't &lt;span class=&quot;math-container&quot;&gt;$(p_{t+1} - p_t)$&lt;/span&gt; be the &lt;strong&gt;log of&lt;/strong&gt; inflation rate? Why it says just &quot;the inflation rate&quot;?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;blockquote&gt;&#xA;  &lt;p&gt;This equation states that if inflation goes up by 1 percentage point, real money balances fall by &lt;span class=&quot;math-container&quot;&gt;$\gamma$&lt;/span&gt; percent.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;My math level is like that of a high school. Would anyone be so nice and explain this for me? To me, it doesn't make sense at all. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\ln \frac{M}{P} = \ln (\frac{p_{t+1}}{p_t})^{-\gamma} \rightarrow \frac{M}{P} = (\frac{p_{t+1}}{p_t})^{-\gamma}$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, if the &lt;span class=&quot;math-container&quot;&gt;$(p_{t+1} - p_t)$&lt;/span&gt; is just the &lt;strong&gt;log&lt;/strong&gt; of inflation rate, then &lt;span class=&quot;math-container&quot;&gt;$\frac{p_{t+1}}{p_t}$&lt;/span&gt; is the inflation rate and,&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;inflation goes up by 1 percentage point&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;would mean &lt;span class=&quot;math-container&quot;&gt;$\frac{p_{t+1}}{p_t}$&lt;/span&gt; is going to get +1, right? But I couldn't possibly think it would result the fall of &lt;span class=&quot;math-container&quot;&gt;$\frac{M}{P}$&lt;/span&gt; by the &lt;span class=&quot;math-container&quot;&gt;$\gamma$&lt;/span&gt; point. What am I missing?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And secondly, if the &lt;span class=&quot;math-container&quot;&gt;$(p_{t+1} - p_t)$&lt;/span&gt; is just the inflation rate,(not the log of any) then it bugs me more than the former. So, +1 change to the inflation rate is like nothing but that we would get &quot;&lt;span class=&quot;math-container&quot;&gt;$−\gamma(1 + p_{t+1} − p_t)$&lt;/span&gt;&quot; at the right side, right? How could this be the case?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="21565" LastEditorUserId="1601" LastEditDate="2019-03-24T10:19:21.257" LastActivityDate="2019-03-24T10:19:21.257" Title="Need a math help for the Cagan's model in macroeconomics" Tags="&lt;mathematical-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27435" PostTypeId="2" ParentId="27434" CreationDate="2019-03-24T10:19:06.357" Score="3" Body="&lt;p&gt;The answer to both your questions is that for small &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; values&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\ln(1+x) \approx x,&#xA;$$&lt;/span&gt;&#xA;the difference being less than &lt;span class=&quot;math-container&quot;&gt;$x^2/2$&lt;/span&gt;. (Proof by Taylor-approximation.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So if inflation is around 10%, then the absolute error from this type of approximation is less then 0.5%, which is pretty good.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This should also answer your second question, as the approximation&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\gamma x \approx \ln(1+ \gamma x),&#xA;$$&lt;/span&gt;&#xA;works as well.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It may also be worthwhile to look into &lt;a href=&quot;https://en.wikipedia.org/wiki/Elasticity_(economics)#Mathematical_construct&quot; rel=&quot;nofollow noreferrer&quot;&gt;elasticity&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2019-03-24T10:19:06.357" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27436" PostTypeId="2" ParentId="27397" CreationDate="2019-03-24T11:17:55.063" Score="0" Body="&lt;p&gt;I think I have figured the answer out myself.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given the rule to find the optimal bundle, we know that the consumer will pick the bundle for which the slope of the budget constraint is equal to the marginal rate of substitution (MRS):&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;PX/PY = MRS&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;We know that that the old budget constraint is steeper than the new budget constraint. That means that the indifference curve needs to enter the space underneath the new budget constraint as the slope at the point where the budget constraints intersect is steeper than of the new budget constraint. This also means there needs to be a parallel indifference curve that allows the consumer to reach a higher level of satisfaction.&lt;/p&gt;&#xA;" OwnerUserId="21581" LastActivityDate="2019-03-24T11:17:55.063" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27437" PostTypeId="2" ParentId="27432" CreationDate="2019-03-24T12:16:42.910" Score="0" Body="&lt;p&gt;The best way to think about this in terms of an intro course is to break down “total savings” into “private savings” plus “public savings.”&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Private savings: Y-T-C&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Public savings: T-G&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you sum these, taxes drop out, so changes in the level of taxation do not affect the supply of loanable funds. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, this tax change specifically affects the taxation of savings. It’s a decrease in the tax on interest income, which should spur households to save more and consume less. Thus, the result of the change is an increase in private savings. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Not to confuse the issue too much, as I don’t know how you’re being taught, but I will note that the notion that government “savings” contribute to loanable funds is disputed, as it involves an implicit assumption that government spending does not result in productive investments. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;From a practical standpoint, it’s often better to think of government borrowing as contributing to the demand for loanable funds instead, though many intro courses do not teach it this way. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Most governments (outside of typically oil-producing nations that have sovereign wealth funds) are net debtors, so even if they run a surplus, that shows up primarily as a decrease in government bonds outstanding (i.e., lower demand for funds).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you think about it this way, then you can let changes in the level of taxation be neutral with respect to the supply of loanable funds, but you’ll still see “crowding out” effects as a result of deficits, as the increased demand for funds results in a higher equilibrium interest rate. &lt;/p&gt;&#xA;" OwnerUserId="264" LastEditorUserId="264" LastEditDate="2019-03-24T21:21:23.083" LastActivityDate="2019-03-24T21:21:23.083" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27438" PostTypeId="2" ParentId="27388" CreationDate="2019-03-24T14:27:32.357" Score="2" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;How did Soros make money by shorting the pound?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;As a preamble, it is important to keep in mind the context in which this occurred: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Two years earlier (in 1990), the UK government had made the controversial and &lt;em&gt;largely political&lt;/em&gt; decision of becoming a member of the Exchange Rate Mechanism (ERM);&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;eventually, the macroeconomic reality presented a dilemma to UK&#xA;policymakers: (1) to devaluate the pound, or (2) to raise interest rates;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;the UK government discarded devaluating the pound because the extent of an effective devaluation would discredit the UK government's ERM decision and be politically detrimental;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;but UK policymakers also refused to raise interest rates, since that would strangle UK's already troubled economy and trigger another crisis (e.g., borrowers ending up with negative equity).&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Soros was able to close his short position profitably because:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;when the UK decided to enter ERM,&#xA;the UK unilaterally chose a sterling/DMark exchange rate which was recklessly high &lt;em&gt;from the start&lt;/em&gt; (and impliedly, without anticipation or consideration of complications that could subsequent ensue in the economy);&lt;/li&gt;&#xA;&lt;li&gt;the UK government stubbornly embraced the ERM as the magic solution&#xA;for its economy, and it ignored the macroeconomic growing disparities between German economy and that of the UK &amp;amp; members of the ERM;&lt;/li&gt;&#xA;&lt;li&gt;the Deutsche Bundesbank decided to raise its interest rates so as to curb the inflation in Germany as well as the costly process of Germany's reunification;&lt;/li&gt;&#xA;&lt;li&gt;the UK ministers' political stand was so arrogant that they naively presumed they could compel the Deutsche Bundesbank to tailor its policies so as to help the UK ministers avoid the discredit and embarrassment for having made the wrong decision as to joining the ERM;&lt;/li&gt;&#xA;&lt;li&gt;after Italy devaluated its currency in 1992, there was mounting pressure or expectation that the UK would have to follow suit due to the systemic imbalances that were ensuing;&lt;/li&gt;&#xA;&lt;li&gt;Soros (or his company) was not the only entity selling/shorting pounds in the critical days of September of 1992;&lt;/li&gt;&#xA;&lt;li&gt;in the morning of September 16, the UK government raised rates from&#xA;10% to 12%, thereby fueling the selling of pounds because the markets&#xA;interpreted the abrupt raise of rates as a sign of weakness;&lt;/li&gt;&#xA;&lt;li&gt;hours later, the UK government desperately raised the rates to 15%;&lt;/li&gt;&#xA;&lt;li&gt;short time later that day, the UK government suddenly desisted from its attempt to keep the pound within the ERM range, at which point the pound went in free&#xA;fall (also the increase to 15% was withdrawn).&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Buying pounds back so as to close Soros's short position simply could not reverse the free-fall of the pound that resulted from UK government's prolonged stubbornness/arrogance and its subsequent, sudden erraticism.&lt;/p&gt;&#xA;" OwnerUserId="18552" LastEditorUserId="18552" LastEditDate="2019-03-24T14:38:08.040" LastActivityDate="2019-03-24T14:38:08.040" CommentCount="8" ContentLicense="CC BY-SA 4.0" />
  <row Id="27440" PostTypeId="1" CreationDate="2019-03-24T16:42:27.180" Score="2" ViewCount="72" Body="&lt;p&gt;In the most recent (Mar. 20, 2019) FOMC Press conference, Powell said this:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;So, global economy was a tailwind for the United States&#xA;  in 2017.  That was the year of synchronized global growth, and we&#xA;  began 2018 expecting and hoping for  more of the same. What happened&#xA;  instead is that the global economy started to gradually slow,  and now&#xA;  we see a situation where the European economy has slowed substantially&#xA;  and so has the  Chinese economy, although the European economy more.&#xA;  And just as strong global growth was a  tailwind, weaker global growth&#xA;  can be a headwind to our economy.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;h2&gt;Question&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;His logic makes sense, and yes this is a world of interconnected financial markets, but I still wonder is Powell's assertion axiomatic here with the larger community of economists? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Just merely playing devil's advocate, I would suspect that because of the Eurozone troubles in recent years, this helped the dollar stay stronger than it would have otherwise, citaris paribus. Not to say that currency valuation is everything, but is there really no counter argument for Powell's stance?&lt;/p&gt;&#xA;" OwnerUserId="12212" LastActivityDate="2019-03-26T12:51:18.617" Title="Is weak global economy always a &quot;headwind&quot;?" Tags="&lt;macroeconomics&gt;&lt;economic-growth&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27442" PostTypeId="2" ParentId="27407" CreationDate="2019-03-25T01:23:01.660" Score="1" Body="&lt;p&gt;There is something called &lt;em&gt;productive&lt;/em&gt; consumption. The coal and the iron a steelmill consumes are productive consumption, as steel cannot be produced without consumption of coal and iron.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Plus, the bread and cloth workers for the steelmill consume are also productive consumption, as the workers would not be able to work without eating and dressing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consequently, taxing the consumption of coal, iron, cloth, and bread, is to tax investment - the investment the steelmill makes in buying iron and coal, and in paying wages to its workers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Evidently, not all products have such characteristic. But the products the consumption of which is not productive consumption are those more likely to be bought with dividends. As such, dividends are not investment (though obviously they can be invested once they have been distributed). On the contrary, they are divestment: money taken away from the company's productive processes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am not sure of what you mean by &quot;I mean taxing dividends and capital gains&quot;. If this means you are equating &quot;dividends and capital gains&quot; with &quot;investment&quot;, then it seems to me you are mistaken; low taxes on dividends favour lazy behaviour of capitalists, low rates of investment, and even lower rates of innovation. If you mean the opposite, ie, that government should tax dividends instead of the money that is invested in the company, then yes, the functioning of a capitalist economy would benefit from such a policy - up to the point when it is already at full employment; at that point, it would probably provoke overinvestment, multiplication of bottlenecks, increase of inefficiency, and, at the limit, political unrest and upper class opposition to the policy itself.&lt;/p&gt;&#xA;" OwnerUserId="15747" LastEditorUserId="15747" LastEditDate="2019-03-25T01:29:30.020" LastActivityDate="2019-03-25T01:29:30.020" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27444" PostTypeId="2" ParentId="27388" CreationDate="2019-03-25T05:20:11.837" Score="2" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;When he sold the pound and made its price to decrease&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;You're assuming incorrectly that Soros was the main driver of the fall in the price of the pound. But that's not what happened. The pound fell (against the Deutsche Mark) because the UK central bank gave up on propping the pound (by buying excess pounds off the market) to the ERM-mandated levels.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;he had to buy it back again to return the amount he borrowed&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Indeed he had to buy it back, but it was cheaper then.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;but doesn't buying the pound raise its price, so that he should not make any profit?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It will raise somewhat, but not as much as it had fallen, because the central bank wasn't trying to return the pound to the old (ERM-mandated) level anymore. Unless the market as whole decided to appreciate the pound to old level, which didn't happen, there was a difference to be pocketed by shorting.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And if you want the real Soros 1992 story, it's &lt;a href=&quot;https://www.forbes.com/sites/steveschaefer/2015/07/07/forbes-flashback-george-soros-british-pound-euro-ecb/#1b65b9776131&quot; rel=&quot;nofollow noreferrer&quot;&gt;more complicated&lt;/a&gt; than a simple short selling.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;We mentioned that Soros played a complex game.  Here's how it went.  Soros expected the following: the breakdown of the ERM and a substantial realignment of European currencies; a dramatic drop in European interest rates; a decline for European stock markets.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;So, rather than simply shorting the weak currencies, he also placed simultaneous bets on interest rates and securities markets that would be affected by the currency realignments.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;In carrying out this operation, Soros and his aides sold short sterling to the tune of about \$7 billion, bought the mark to the tune of \$6 billion and, to a lesser extent, bought the French franc.  As a parallel play they bought as much as \$500 million worth of British stocks even while they were shorting sterling, figuring that equities often rise after a currency devalues.  Soros also went long German and French bonds, while shorting those countries' equities.  Soros' reasoning on the French and German markets was that upward valuation was bad for equities but was good for bonds because it would lead to lower interest rates. [...]&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Because of his strong credit, Soros was able to maintain all these positions with just \$1 billion in collateral.  He was margined to the eyebrows, but he wasn't really gambling.  [...]&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Here's how his leveraged positions worked out: The pound dropped 10%, the mark and franc both rose roughly 7%, the London stock market gained 7%, German and French bonds were up about 3% apiece, and the German and French stock markets briefly rallied, but basically remained flat. [...]&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;FORBES has learned that since early October [1992] Soros has substantially decreased the size of his hedge.  He has bought pounds and sold marks to cover most of his short position in sterling. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Basically Soros anticipated correctly most of those short-term movements.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another fact not mentioned above whas the UK had bluffed with interest rates of 10-15% on Black Wednesday, but (since they were unsustainable due to the poor growth/state of the UK economy), they were &lt;a href=&quot;https://www.theguardian.com/business/2012/sep/13/black-wednesday-bad-day-conservatives&quot; rel=&quot;nofollow noreferrer&quot;&gt;quickly&lt;/a&gt; cut to around 6% by the end of the year. That alone should tell you that pound had to fall over that period relative to Mark because the economy of the latter was revving up (due to the German reunification which caused both growth and inflation), which caused the Bundesbank to raise interest rates in the same period.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So Soros (and quite a few others) correctly bet that the narrow band of exchange volatility allowed by the ERM was unsuitable to economies with such diverse trends and so that the ERM, which was a political desideratum with poor economic legs, would collapse. The rest is basically details.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally it's also a matter of central bank's currency reserves and their willingness to spend them to maintain a (politically mandated) rate; or at least giving the impression that they would. &lt;a href=&quot;http://aei.pitt.edu/7014/1/sevilla_christina.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Contrast&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;September 16: Black Wednesday: During the day, the Bank of&#xA;  England spent approximately 15 billion pounds in support of sterling, representing roughly 50 percent of the total reserves available to it. Other central banks, particularly the Bundesbank and the Banque&#xA;  de France, bought an additional 5 billion pounds [but the effort ultimately failed].  Britain blamed the Bundesbank for the sterling crisis, charging that Bundesbank leaks&#xA;  suggesting that a realignment was necessary had undermined the position of the pound.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;September 18-23: The successful Franco-German defense of the franc.&#xA;  With the outcome of the French referendum in doubt, the franc fell to within one centime of its floor against the D-mark and devaluation seemed imminent. But the tide was reversed by vocal and public support for the franc by the Bundesbank -- &quot;the franc is in no way at risk. The franc is a very strong currency which has achieved inherent stability. On the contrary, it is a candidate for appreciation&quot; -- and an&#xA;  unprecedented coordinated intervention effort. It was later revealed that the Banque de France spent 160 billion francs (\$33.5 billion) of foreign currency in defense of the franc in late September; the Bundesbank was reported to have spent somewhere between 10 to 30 billion marks (\$6.7 to \$20 billion)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;To put more simply: where do you think all that money went?&lt;/p&gt;&#xA;" OwnerUserId="6210" LastEditorUserId="6210" LastEditDate="2019-03-25T06:21:08.147" LastActivityDate="2019-03-25T06:21:08.147" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27445" PostTypeId="1" AcceptedAnswerId="27669" CreationDate="2019-03-25T08:21:48.237" Score="3" ViewCount="201" Body="&lt;p&gt;Given the demand function, &lt;span class=&quot;math-container&quot;&gt;$ q = kp^{-\epsilon} $&lt;/span&gt;, how do I calculate the elasticity? As a result, I do know that the elasticity when the demand function is in this form is &lt;span class=&quot;math-container&quot;&gt;$ - \epsilon $&lt;/span&gt;. But I'd like to know how. I also found a derivation online that proceeded like this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(1) Take logarithm on both sides&#xA;(2) Differentiate on boths ides&#xA;(3) You'll get: &lt;span class=&quot;math-container&quot;&gt;$$ \frac {\text{d} \ln(q)}{\text{d} \ln (p)} = - \epsilon $$&lt;/span&gt;&#xA;(4) The LHS of the above equation is simply elasticity. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;How does &lt;span class=&quot;math-container&quot;&gt;$$  \frac {\text{d} \ln(q)}{\text{d} \ln (p)} $$&lt;/span&gt; represent elasticity?&lt;/p&gt;&#xA;" OwnerUserId="6486" LastEditorUserId="1601" LastEditDate="2019-03-25T19:01:56.537" LastActivityDate="2019-04-07T00:33:56.500" Title="Elasticity when the demand function is given" Tags="&lt;elasticity&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27447" PostTypeId="1" AcceptedAnswerId="27448" CreationDate="2019-03-25T09:48:14.867" Score="1" ViewCount="204" Body="&lt;p&gt;I suspect that what I'm actually asking here is just a basic calculus question, which I have overwrought, but I wanted to ask it here to make sure before taking it to SEMaths.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the Jones Introductory Macroeconomics textbook, he says that we don't really need to know the calculus for HOW Euler's Equation is derived, which is true, but I'm having a hard time moving on without it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We start with the lifetime utility function:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$U= u(c_{today}) + \beta u(c_{future})$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$c$&lt;/span&gt; is a quantity consumed, &lt;span class=&quot;math-container&quot;&gt;$u()$&lt;/span&gt; is a utility function, &lt;span class=&quot;math-container&quot;&gt;$\beta$&lt;/span&gt; is a ratio parameter to account for impatience. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then we use the intertemporal budget constraint to express &lt;span class=&quot;math-container&quot;&gt;$c_{future}$&lt;/span&gt; in terms of &lt;span class=&quot;math-container&quot;&gt;$c_{today}$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$U= u(c_{today}) + \beta u[(1 + R)(\bar{X} - c_{today})]$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$R$&lt;/span&gt; is real interest rate, &lt;span class=&quot;math-container&quot;&gt;$\bar{X}$&lt;/span&gt; is total lifetime wealth&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The next step is the one I don't understand, and probably just comes down to my own poor calculus. We are told to take the derivative of the previous equation with respect to &lt;span class=&quot;math-container&quot;&gt;$c_{today}$&lt;/span&gt; in order to arrive at &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$u'(c_{today}) + \beta u(c_{future})(1+R)(-1)=0$&lt;/span&gt; OR&#xA;&lt;span class=&quot;math-container&quot;&gt;$u'(c_{today}) = \beta (1+R)u'(c_{future})$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand that we've applied the sum rule of differentiation, meaning we take the derivative of &lt;span class=&quot;math-container&quot;&gt;$u(c_{today})$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\beta u[(1 + R)(\bar{X} - c_{today})]$&lt;/span&gt; separately. And since in the context of this problem the utiltiy function is a black box, we just express it as &lt;span class=&quot;math-container&quot;&gt;$u'(c_{today})$&lt;/span&gt;. No problem.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, when I look at the second part, &lt;span class=&quot;math-container&quot;&gt;$\beta u[(1 + R)(\bar{X} - c_{today})]$&lt;/span&gt;, I do not understand what rule has been applied. It appears to be the chain rule, but if I'm reading it correctly, then &lt;span class=&quot;math-container&quot;&gt;$(1 + R)(\bar{X} - c_{today})$&lt;/span&gt; is the &lt;em&gt;argument&lt;/em&gt; of the utility function. The chain rule, as I understand it, would only apply to the &lt;em&gt;value&lt;/em&gt; of the function. After performing the differentiation, some values have somehow moved from being arguments of a function to being part of the equation. Considering that, for this exercise, the utility funciton is a black box with an unknown relationship, how are we allowed to apply any of our differentiation rules to the arguments?&lt;/p&gt;&#xA;" OwnerUserId="21609" LastEditorUserId="21609" LastEditDate="2019-03-25T10:09:26.613" LastActivityDate="2019-03-26T09:08:59.060" Title="How is the Euler Equation for Consumption derived from from intertemporal budget constraint and lifetime utility function in basic macroeconomics" Tags="&lt;macroeconomics&gt;&lt;utility&gt;&lt;consumption&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27448" PostTypeId="2" ParentId="27447" CreationDate="2019-03-25T10:03:30.113" Score="0" Body="&lt;p&gt;It is simply the chain rule, or you could see it from the total differential. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let &lt;span class=&quot;math-container&quot;&gt;$C_1$&lt;/span&gt; be consumption today and &lt;span class=&quot;math-container&quot;&gt;$C_2$&lt;/span&gt; be future consumption. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the second part you have &lt;span class=&quot;math-container&quot;&gt;$U(C_2 (C_1) )$&lt;/span&gt;, i.e. a utility function dependending on &lt;span class=&quot;math-container&quot;&gt;$C_2$&lt;/span&gt;, which is itself (through the budget constraint you used) a function of &lt;span class=&quot;math-container&quot;&gt;$C_1$&lt;/span&gt;. You take the derivative of U with respect to &lt;span class=&quot;math-container&quot;&gt;$C_1$&lt;/span&gt;, which equals:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$d U/d C_1 = \partial U(C_2)/ \partial C_2 * d C_2 / d C_1$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first part is just &lt;span class=&quot;math-container&quot;&gt;$ \partial U(C_2)/ \partial C_2 = U'(C_2)$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From what you have written, it seems that you understand that &lt;span class=&quot;math-container&quot;&gt;$C_2(C_1)=(1 + R)(\bar{X} - C_1)$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Taking the derivative of that for the second factor in the multiplication above yields the result.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastEditorUserId="5557" LastEditDate="2019-03-26T09:08:59.060" LastActivityDate="2019-03-26T09:08:59.060" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="27451" PostTypeId="2" ParentId="27445" CreationDate="2019-03-25T11:07:28.483" Score="1" Body="&lt;p&gt;Suppose we have the function &lt;span class=&quot;math-container&quot;&gt;$y=ln(x)$&lt;/span&gt; Take the first order derivative:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\frac{d y}{d x}=\frac{1}{x}$$&lt;/span&gt; Multiply both sides by &lt;span class=&quot;math-container&quot;&gt;$dx$&lt;/span&gt;:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$dy=\frac{dx}{x} $$&lt;/span&gt; In words:a change in the natural logarithm due to an infinitesmal small change in &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; is equal to the relative change in &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; due to an infinitesmal change in &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;, in your example this means that &lt;span class=&quot;math-container&quot;&gt;$dln(q)=\frac{dq}{q}$&lt;/span&gt; This is exactly what you're interested in, namely the relative change in &lt;span class=&quot;math-container&quot;&gt;$q$&lt;/span&gt;. So indeed &lt;span class=&quot;math-container&quot;&gt;$\frac{dln(q)}{dln(p)} \approx \frac{\Delta q/q}{\Delta p/p} $&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="18214" LastEditorUserId="18214" LastEditDate="2019-03-25T14:37:14.803" LastActivityDate="2019-03-25T14:37:14.803" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27452" PostTypeId="2" ParentId="27447" CreationDate="2019-03-25T11:33:45.633" Score="0" Body="&lt;p&gt;With thanks to @bbk and their probably more straightforward answer above, here is how I managed to understand it without partial differentiation. The key was understanding lifetime consumption as a function of a function. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Start with maximum lifetime utility as the sum of two utility functions&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$U_M = u(C_T) + \beta u(C_F)$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then use the intertemporal budget constraint to show that, when we're maximising consumption, future consumption can be expressed as a function of today's consumption&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$C_F(C_T) = (1 + R)(\bar{X} - C_T)$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Go back to our original equation and replace &lt;span class=&quot;math-container&quot;&gt;$C_F$&lt;/span&gt; with &lt;span class=&quot;math-container&quot;&gt;$C_F(C_T)$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$U_M = u(C_T) + \beta u(C_F(C_T))$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And when I look at it this way, the application of the chain rule is intuitive.&lt;/p&gt;&#xA;" OwnerUserId="21609" LastEditorUserId="21609" LastEditDate="2019-03-26T08:50:41.230" LastActivityDate="2019-03-26T08:50:41.230" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27453" PostTypeId="1" CreationDate="2019-03-25T12:33:15.087" Score="1" ViewCount="327" Body="&lt;p&gt;In a simple OLS regression we calculate the estimator Beta by dividing the covariance of x and y by the variance of x. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;How do we calculate the estimator Beta if we regress the mean of a variable (at time t) on the mean of its lagged variable (at time t-1) ?:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/1T7GH.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/1T7GH.png&quot; alt=&quot;OLS regression of mean of y on the mean of y lag&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="20821" LastEditorUserId="20821" LastEditDate="2019-03-25T15:17:29.287" LastActivityDate="2019-03-25T15:17:29.287" Title="How do we calculate Beta in a OLS regression of the mean of y on the mean of lag of y?" Tags="&lt;econometrics&gt;&lt;regression&gt;" AnswerCount="0" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="27455" PostTypeId="1" AcceptedAnswerId="27476" CreationDate="2019-03-25T16:43:08.810" Score="0" ViewCount="24" Body="&lt;p&gt;What is open offer in simple terms? What is its meaning in cases of taking over the major stakes in other company?&lt;/p&gt;&#xA;" OwnerUserId="21612" LastActivityDate="2019-03-26T14:05:42.603" Title="Open offer made by companies to take over" Tags="&lt;stock-market&gt;&lt;investment&gt;&lt;multinational-companies&gt;" AnswerCount="1" CommentCount="1" ClosedDate="2019-03-27T22:33:41.973" ContentLicense="CC BY-SA 4.0" />
  <row Id="27458" PostTypeId="1" CreationDate="2019-03-25T20:58:45.830" Score="2" ViewCount="23" Body="&lt;p&gt;When using tax and transfer microsimulation models, a common approach for calculating marginal tax rates is to recalculate the tax liability when adding $1 to earnings. This will take into account various tax laws that interact in complex ways.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, this will generally miss the effects of cliffs, such as losing Medicaid, ACA subsidies, or SSDI, unless a household is $1 below the threshold.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there a best practice to deal with this? A couple ideas come to mind:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Recalculate the tax liability for multiple changes to earnings, such as &lt;span class=&quot;math-container&quot;&gt;$1, $&lt;/span&gt;100, $1,000, etc., and weigh the results by the distance (e.g. &lt;code&gt;1/x&lt;/code&gt;).&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Make copies of the underlying data, varying the initial earnings within some range, e.g. +/- $1,000, possibly oversampling near the true earnings (e.g. triangular distribution).&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="1650" LastActivityDate="2019-03-26T07:37:11.350" Title="Calculating marginal tax rates when near a cliff" Tags="&lt;taxation&gt;&lt;welfare-economics&gt;&lt;marginal&gt;&lt;simulations&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27459" PostTypeId="1" AcceptedAnswerId="27463" CreationDate="2019-03-25T21:56:34.557" Score="1" ViewCount="64" Body="&lt;p&gt;In Mankinw's Macroeconomics, he mentions that public and private savings form national saving, which ends up in the financial sector, which then people and firms use to purchase investment goods. But what happens in real life? If the US federal government runs a budget surplus, where does it go?&lt;/p&gt;&#xA;" OwnerUserId="20877" LastActivityDate="2019-03-26T01:47:06.393" Title="Where do public savings go?" Tags="&lt;government-spending&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27460" PostTypeId="1" AcceptedAnswerId="27461" CreationDate="2019-03-25T22:13:03.330" Score="4" ViewCount="115" Body="&lt;p&gt;Suppose that &lt;span class=&quot;math-container&quot;&gt;$n\geq 2$&lt;/span&gt; bidders compete in a second price auction. Each bidder &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; knows their own valuation &lt;span class=&quot;math-container&quot;&gt;$v_i$&lt;/span&gt;, but only knows the distribution generating the valuations of the other players. Valuations are independently, continuously and symmetrically distributed. Define a (pure) strategy of a player as a function mapping from each valuation that they might have to a bid &lt;span class=&quot;math-container&quot;&gt;$b$&lt;/span&gt;; and define a (pure strategy) equilibrium as a set of (pure) strategies, one for each player, such that each player's strategy maximises their expected payoff given the strategies of the other players.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this context, it is well known that it is weakly dominant for each player to bid their valuation, i.e. set &lt;span class=&quot;math-container&quot;&gt;$b(v_i) = v_i$&lt;/span&gt;. However, are there are other (pure strategy) equilibria of this game?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One point that perhaps should be clarified: in some discussion of second price auctions that I have seen, people define each player's strategy as their bid (a number) not their bidding functions. Here I am interested in the game obtained by defining strategies as functions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Edit:&lt;/strong&gt; in response to some helpful examples from @Giskard, we may wish to restrict attention to equilibria that (i) involve deviations from truthful bidding that occur with positive measure (ii) survive natural refinements that we might want to apply.&lt;/p&gt;&#xA;" OwnerDisplayName="user17900" LastEditorDisplayName="user17900" LastEditDate="2019-03-26T11:26:22.300" LastActivityDate="2019-03-26T11:26:22.300" Title="Are there multiple equilibria in the second price auction?" Tags="&lt;microeconomics&gt;&lt;game-theory&gt;&lt;auctions&gt;&lt;bayesian-game&gt;" AnswerCount="1" CommentCount="3" FavoriteCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27461" PostTypeId="2" ParentId="27460" CreationDate="2019-03-25T22:29:09.230" Score="3" Body="&lt;p&gt;Sure. An example: if both valuations are drawn from the &lt;span class=&quot;math-container&quot;&gt;$[0,1]$&lt;/span&gt; interval then the strategies&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;b_1(v_1) = v_1&#xA;$$&lt;/span&gt;&#xA;and&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;b_2(v_2) =&#xA;\left\{\begin{array}{cc}&#xA;v_2 &amp;amp; \text{ if } v_2 &amp;lt; 1 \\&#xA;5 &amp;amp; \text{ if } v_2 = 1.&#xA;\end{array}\right.&#xA;$$&lt;/span&gt;&#xA;Another, slightly more annoying equilibrium for &lt;span class=&quot;math-container&quot;&gt;$v_1,v_2 \in [0,1]$&lt;/span&gt;:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\begin{align*}&#xA;b_1(v_1) &amp;amp; = 0 \\&#xA;b_2(v_2) &amp;amp; = 2.&#xA;\end{align*}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;EDIT: The truth-telling bidding strategies are weakly dominant strategies. If we only allow trembling hand perfect equilibria, players assign positive probabilities (in this case densities) to all truncated strategy profiles. In such a setting, the weakly dominant strategies become strictly dominant. (Because of sequential rationality even zero measure deviations such as my first example are eliminated.) In a game where all players have strictly dominant strategies, there is only one equilibrium.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2019-03-26T07:28:38.703" LastActivityDate="2019-03-26T07:28:38.703" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="27462" PostTypeId="2" ParentId="27440" CreationDate="2019-03-25T23:08:33.743" Score="1" Body="&lt;p&gt;Randomly, I came across a compelling counter-argument just today which I will share below. I'm not sure I buy into this theory whole-heartedly, but there are some valid points and it's worth reading through, even just for the sake of generating more discussion:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;America benefits when everybody is worried about problems abroad, and&#xA;  as a result of that they buy dollars. What does that do for America?&#xA;  Well, a stronger dollar keeps a lid on consumer prices for Americans&#xA;  and it keeps a lid on interest rates for Americans. Also if people are&#xA;  buying into dollars and dollar denominated assets, it helps sustain&#xA;  asset prices. That's a double win; the worse things get abroad the&#xA;  better things get in the United States. But it works the same way in&#xA;  reverse. When people have a more optimistic outlook on global growth,&#xA;  then they don't need the dollar as a safe haven. And now the dollar&#xA;  starts to fall. That means we now have upward pressure on consumer&#xA;  prices. That puts upward pressure on US interest rates. And that puts&#xA;  downward pressure on US assets, because there is no longer demand for&#xA;  US treasury bonds, for US stocks, for US real estate, because now&#xA;  people want to invest internationally. That's where the money will go&#xA;  because that's where investors will find growth, and that will in turn&#xA;  hurt the US economy. -- Peter Schiff&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="12212" LastActivityDate="2019-03-25T23:08:33.743" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27463" PostTypeId="2" ParentId="27459" CreationDate="2019-03-26T01:21:52.387" Score="3" Body="&lt;p&gt;Most governments (outside of typically oil-producing nations that have sovereign wealth funds) are net debtors, so public deficits show up as increases in government debt outstanding, and public surpluses (public saving) show up as decreases in debt outstanding.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the model used in Mankiw’s book, the assumption is that government spending never constitutes investment (i.e, it doesn’t create productive capital). In that model, it’s also assumed that households hold government debt: government debt just soaks up some of the funds that would otherwise be available as “loanable funds” to private firms to produce “productive capital,” shifting the supply curve to the left. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, in that model, the quantity axis represents something like “private investment,” and government saving shows up as an outward shift in the supply curve, which results in lower interest rates and more private investment. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There’s another way of thinking about it, which doesn’t require that one assume that government spending never forms capital like roads, bridges, airports, etc., nor that government deficits are paid for directly out of private saving. In that model, government deficits just show up as increases in demand for loanable funds, which increases interest rates. Implicitly, this does still mean that less private sector investment will occur. The opposite is of course true for government surpluses. The interpretation of the quantity axis then changes to something like “amount of financial intermediation.”&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Either model of loanable funds is, of course, a radical simplification of how financial intermediation works, and like anything in an intro course, it’s worth remembering that tons of caveats apply. &lt;/p&gt;&#xA;" OwnerUserId="264" LastEditorUserId="264" LastEditDate="2019-03-26T01:44:20.807" LastActivityDate="2019-03-26T01:44:20.807" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27464" PostTypeId="2" ParentId="27459" CreationDate="2019-03-26T01:47:06.393" Score="0" Body="&lt;p&gt;The US has a very large debt and has been in debt since at least the 1830s. So any annual budget surplus simply goes towards paying off the debt.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In countries that have net savings, these go to the country's reserves. Some countries have their own special investment funds to invest these surplus funds — e.g. Singapore, Norway.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2019-03-26T01:47:06.393" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27465" PostTypeId="1" CreationDate="2019-03-26T02:06:47.250" Score="0" ViewCount="44" Body="&lt;p&gt;If we look at the equation for national Savings = S(priv) + S(pub) = [Y-C+Tran-T]  + [T-G-Tran] = Y - C - G . We see that Tax falls out of the equation. Therefore, does that mean changes in taxation policy don't directly affect the Supply of Loanable funds? If this is the case, and we assume consumption isn't constant, then giving individuals massive tax cuts should influence them to consume and/or save more money. This should increase total savings and shift the supply right and interest rates down, allowing for greater investment in capital, leading to growth in economy. Looking at this, why is it that tax cuts are seen as being bad for economic growth? &lt;/p&gt;&#xA;" OwnerUserId="21127" LastActivityDate="2019-03-26T02:45:29.333" Title="Tax Cuts Affect on Economy?" Tags="&lt;macroeconomics&gt;&lt;interest-rate&gt;&lt;government-debt&gt;&lt;investment&gt;&lt;saving&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27466" PostTypeId="2" ParentId="27465" CreationDate="2019-03-26T02:45:29.333" Score="2" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Tax falls out of the equation.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Based on your model, tax can still be in the equation, but it is hidden inside of your &lt;span class=&quot;math-container&quot;&gt;$C$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$G$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, as you mentioned, if consumption is not constant, then adjusting the tax rate will change &lt;span class=&quot;math-container&quot;&gt;$C$&lt;/span&gt; (lower &lt;span class=&quot;math-container&quot;&gt;$T$&lt;/span&gt; higher &lt;span class=&quot;math-container&quot;&gt;$C$&lt;/span&gt;). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But the tax rate is also imbued in your &lt;span class=&quot;math-container&quot;&gt;$G$&lt;/span&gt;- the government must have some budget. In a balanced budget, &lt;span class=&quot;math-container&quot;&gt;$G=T$&lt;/span&gt;, which can be a model constraint.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We may not impose &lt;span class=&quot;math-container&quot;&gt;$G=T$&lt;/span&gt;, but suppose revenue must be a tenth of government spending; &lt;span class=&quot;math-container&quot;&gt;$$G = \frac{T}{10}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, lower taxes &lt;em&gt;must&lt;/em&gt; lower government spending (thus lowering &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt;), &lt;em&gt;or&lt;/em&gt; imply higher taxes in the future (See &lt;a href=&quot;https://en.wikipedia.org/wiki/Ricardian_equivalence&quot; rel=&quot;nofollow noreferrer&quot;&gt;Ricardian equivalence&lt;/a&gt;)&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;giving individuals massive tax cuts should influence them to consume and/or save more money&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This is true, but we must consider the effects on &lt;span class=&quot;math-container&quot;&gt;$G$&lt;/span&gt; and a looming future &lt;span class=&quot;math-container&quot;&gt;$\tau$&lt;/span&gt; due to massive tax cuts now.&lt;/p&gt;&#xA;" OwnerUserId="6102" LastActivityDate="2019-03-26T02:45:29.333" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27467" PostTypeId="1" CreationDate="2019-03-26T05:08:35.143" Score="1" ViewCount="28" Body="&lt;p&gt;Some context here.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm from India and over here around 80% of the public work in the informal unaccounted sector.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Yesterday, the main opposition party said that if they're elected, they'd compensate each individual who's earning less than 12K per month.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, if someone earns 5K, govt will add 7K or if someone earns 10K, govt will add 2K&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But as almost 80% of the people belong to the unaccounted informal sector, how would govt come to know the exact figures?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Okay 1 easy way to guess would be how much money an individual spends, how much money in the bank etc but don't you think people will have an incentive to show lower incomes?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How would the govt know the exact figures then.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;PS- I'm not concerned from where the govt gets the money to balance, I'm only concerned regarding the validity of the income figures.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks!&lt;/p&gt;&#xA;" OwnerUserId="20964" LastActivityDate="2019-04-25T22:00:45.180" Title="How to account income from the informal sector?" Tags="&lt;labor-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27468" PostTypeId="2" ParentId="25168" CreationDate="2019-03-26T06:18:39.007" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Can a bank use its excess reserves to purchase stocks?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Central banks do buy private assets, in particular, equities, but also corporate bonds as well. What is the extent of it? Potential implications to the economy? overall economic system? moral hazard issues?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For over 8 years as of 2017 at least, central banks have been buying immense sums of sovereign bonds, corporate bonds and equities either directly like the Swiss Central Bank has been buying Apple and Amazon. Bank of Japan has been making huge purchases of ETFs, Exchange Traded Funds which is unprecedented in a non-crisis situation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One study claimed upwards of $2 trillion in assets have been purchased by central banks around the world.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Central banks are funding corporations via buying directly from the issuer, the corporation. That's different than how its done normally.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At the marketplace they would have to compete, so central banks are overstepping the market by buying directly from corporations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So yes that leads to distortions of valuations and price discovery and risk to name a few I can remember right now.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are they not then picking winners and losers is a question that has been asked.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The central bank balance sheet has all the FANG stocks, Facebook, Apple, Netflix and Google. This is distorting the market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The market is based on transparent information being available.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When there is information asymmetry, its considered illegal. The market requires a free flow of information if its going to have the necessary foundation for price discovery, risk assessment and so on.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So by continuing this behavior the banks are robbing the market of information and when you do that, then you've crippled all the other participants from being able to make an accurate assessment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When you strip out information from the market it makes it more fragile and more unstable, its no longer an open market, but intentionally favoring a few large cap stocks.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Planned protection buying in a crisis is acceptable, but this has been going on in a recovery, answering why that is would be just speculation on my part.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So more to the point of the second part of your question regarding the average Joe. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For Generation Xers like myself and Millennials, our income is lagging, much higher student loan debt. So I have a zero funded IRA, despite being frugal.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Generation Xers and Millennials do not have any money to buy equities and Baby Boomers are starting to draw on pension funds. Who is going to fund the retirees? My generation certainly cannot and neither can Millennials.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Japanese central bank already owns 30% of the entire Japanese equities market as of summer of 2017. Thats a significant percentage, what happens when it goes to 50% or higher? How will that affect the average Joe in Japan?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This behavior is raising the risk in the equities market. What is the consequence of that in a crisis situation? More buying by central banks in a market crash? What if central banks start selling? That in itself would create a crisis because they are now a buyer of size.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/uWuVB.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/uWuVB.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Central banks have generated a tremendous increase in total financial system leverage (credit/liquidity) and yet GDP has been in a downtrend since I was in elementary school.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In general, this creates a widening divide between the sales/profits and productivity economy that the average Joe exists in and the stock market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you observe carefully, the narrative of our healthy economy is no longer how many jobs are being created or how many average joes bought homes and so on. Instead, you hear everyone is doing great, just look at that stock market, obviously the stock market doing great is not representative of our incomes because we don't own equities of any real significance, at least I don't.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the long run however, the stock market will lose its signaling capacity as more and more people are becoming aware of the contrast between what the stock market signals and what the real-economy is displaying. Eventually that leads to a loss of trust in the idea that a market is an open, transparent market. If that trust is lost, central banks will lose the whole belief from the general public that the stock market represents the real economy.&lt;/p&gt;&#xA;" OwnerUserId="20035" LastActivityDate="2019-03-26T06:18:39.007" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27470" PostTypeId="2" ParentId="27458" CreationDate="2019-03-26T07:37:11.350" Score="1" Body="&lt;p&gt;The marginal tax rate is supposed to reflect incentives for the individual. In order to derive a meaningful metric, the calculation should hence try to reflect the actual decision an individual is facing. An increase in \$1 pay is probably not something people are considering. If, however, someone earning \$10 per hour considers to increase his/her labor supply from 35 to 37 hours per week, you will end up with a pay increase of sth like \$1,000 per year. So I'm rather sympathetic to the \$1,000 step than to the $1 step.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &lt;a href=&quot;http://www.oecd.org/els/soc/OECD-Tax-Benefit-model-Methodology.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;OECD&lt;/a&gt; also applies a change in hours worked to obtain the change in gross income used for calculating marginal tax rates.&lt;/p&gt;&#xA;" OwnerUserId="17735" LastActivityDate="2019-03-26T07:37:11.350" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27473" PostTypeId="2" ParentId="27440" CreationDate="2019-03-26T12:51:18.617" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;And just as strong global growth was a tailwind, weaker global growth can be a headwind to our economy. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Powell does make some good points.&lt;br&gt;&#xA;Since the United States is not an autarky, we benefit from the increased trade when the global economy is doing well; conversely, the country's economy suffers when there is less international activity in our markets.  &lt;/p&gt;&#xA;&#xA;&lt;h2&gt;But...&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Powell's assertion is by no means axiomatic.&lt;br&gt;&#xA;Take, for example, the current global economic situation.  As Powell asserts, &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;the global economy started to gradually slow, and now we see a situation where the European economy has slowed substantially and so has the Chinese economy... &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;(with some financial mangers asserting that Europe and China are already in a recession).&lt;br&gt;&#xA;Yet, the United States is seeing the &lt;a href=&quot;https://abcnews.go.com/Business/wireStory/run-bull-run-longest-bull-market-61539283&quot; rel=&quot;nofollow noreferrer&quot;&gt;largest bull market in history&lt;/a&gt; with the bull market expected to continue despite the uncertainty.  &lt;/p&gt;&#xA;" OwnerUserId="27" LastActivityDate="2019-03-26T12:51:18.617" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27474" PostTypeId="1" CreationDate="2019-03-26T12:53:32.567" Score="3" ViewCount="43" Body="&lt;p&gt;I am doing a project on technological change in the job market, that is the substitution of routine occupations and increasing demand for high-skilled jobs.&#xA;I have done some research on this and now I am seeking extra sources of advice. I was wondering if anyone could recommend me a model which would be applicable to present technological change or job-market flows with? &#xA;Thank you in advance!&lt;/p&gt;&#xA;" OwnerUserId="21619" LastActivityDate="2019-03-26T21:22:32.627" Title="Technological unemployment" Tags="&lt;unemployment&gt;&lt;technology&gt;&lt;technological-progress&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27475" PostTypeId="2" ParentId="27474" CreationDate="2019-03-26T13:16:51.203" Score="1" Body="&lt;p&gt;It would be helpful if you could let us know the papers you found, some of the background experience you have, and some more specifics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.bu.edu/econ/files/2015/05/Robots_Are_Us_3-29-20151.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;This&lt;/a&gt; might be a useful paper nonetheless.&lt;/p&gt;&#xA;" OwnerUserId="6102" LastActivityDate="2019-03-26T13:16:51.203" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="27476" PostTypeId="2" ParentId="27455" CreationDate="2019-03-26T14:05:42.603" Score="1" Body="&lt;p&gt;An &quot;&lt;a href=&quot;https://www.investopedia.com/terms/o/openoffer.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;Open Offer&lt;/a&gt;&quot; is not necessarily the same as a &quot;corporate takeover.&quot;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;An &quot;open offer&quot; (as defined by the link above) is &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;the opportunity to purchase stock at a price that is lower than the current market price &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;An &quot;open offer&quot; is primarily used to raise funds for the company.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, it is also important to note that, in an &quot;open offer,&quot; &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;a company allows existing shareholders to purchase additional shares directly from the company in proportion to what they currently own. This is to prevent dilution to existing shareholders &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Since the existing shareholders own the same proportion of stocks both before and and after the &quot;open offer,&quot; the leadership of the company does not necessarily change.  &lt;/p&gt;&#xA;" OwnerUserId="27" LastActivityDate="2019-03-26T14:05:42.603" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27477" PostTypeId="1" AcceptedAnswerId="30631" CreationDate="2019-03-26T14:09:47.587" Score="2" ViewCount="60" Body="&lt;p&gt;Soy is a commodity and the main export of Argentina. It is said Argentina has 40 million of hectares of arable land and it produces food for 400 million persons and that potentially could make food for 600 millions. I can't confirm this is true but it's said by the president of one of the main agrarian organizations of Argentina, probably with statistics made by them and/or data of the national institute of agrarian technology.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Africa it's said to have 600 million hectares of arable land, which is 15 times the arable land of Argentina. What would happen to the prices of soy related commodities if Africa proportionally introduces 15 times more soy related products to the world? Take any soy product you want for the answer, soy bean if you want for example. Can this be calculated? I've heard of prices simulations predictions for other commodities when introduced or retrieved from the market, such as oil, so I suppose this can be calculated.&lt;/p&gt;&#xA;" OwnerUserId="8165" LastEditorUserId="69" LastEditDate="2019-08-23T17:27:42.777" LastActivityDate="2019-08-23T19:45:23.403" Title="What impact would introducing 15 times more soy worldwide do to the price of soy?" Tags="&lt;supply-and-demand&gt;&lt;price&gt;&lt;commodities&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27478" PostTypeId="2" ParentId="12706" CreationDate="2019-03-26T15:20:31.880" Score="2" Body="&lt;p&gt;Cochrane has made the material from his Coursera course available online on his &lt;a href=&quot;http://faculty.chicagobooth.edu/john.cochrane/teaching/asset_pricing.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;personal website&lt;/a&gt;. This includes all of the video lectures (both &lt;a href=&quot;https://www.youtube.com/playlist?list=PLAXSVuGaw0KxTEN_cy-RCuEzzRdnF_xtx&quot; rel=&quot;nofollow noreferrer&quot;&gt;part 1&lt;/a&gt; and &lt;a href=&quot;https://www.youtube.com/playlist?list=PLAXSVuGaw0KxVUym8IRkObSbUPEFaSbPt&quot; rel=&quot;nofollow noreferrer&quot;&gt;part 2&lt;/a&gt;). &#xA;John notes that &quot;it should be open and free to anyone, including all the quizzes, problem sets and exams.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can read a &lt;a href=&quot;https://johnhcochrane.blogspot.com/2016/08/asset-pricing-mooc-resurrected.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;post about it on his blog&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="59" LastActivityDate="2019-03-26T15:20:31.880" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27479" PostTypeId="2" ParentId="27477" CreationDate="2019-03-26T16:09:32.283" Score="0" Body="&lt;p&gt;Some of the wording of your question makes it hard to understand. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the supply of soy in the world increased, we represent this as a rightward shift in supply. This lowers the world price, and increases the quantity supplied in the world. (If Africa represents a noticeable increase in world supply.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, note that if the &lt;em&gt;supply&lt;/em&gt; did not increase, but the &lt;em&gt;quantity supplied&lt;/em&gt; did increase, this represents a movement along the curves, and no shifts. In this case, we may have a surplus of soy goods, with no price change. &lt;/p&gt;&#xA;" OwnerUserId="6102" LastActivityDate="2019-03-26T16:09:32.283" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27480" PostTypeId="1" CreationDate="2019-03-26T17:42:06.437" Score="1" ViewCount="18" Body="&lt;p&gt;Say a catastrophic worldwide event is predicted likely for exactly 100 years from now, but it will not affect anyone til then. Say a large meteor hit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Would markets budge much?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My only relevant observation is governments tend to invest in the future, but begrudgingly. (Climate change). So there will be some money in disaster aversion etc.&lt;/p&gt;&#xA;" OwnerUserId="5664" LastEditorUserId="5664" LastEditDate="2019-03-27T02:24:04.190" LastActivityDate="2019-03-27T02:24:04.190" Title="Effect of prediction of later catastrophe" Tags="&lt;markets&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27481" PostTypeId="1" CreationDate="2019-03-26T18:19:24.683" Score="1" ViewCount="167" Body="&lt;p&gt;I need a little help with the question. I understand that since both players have two types each, there will be 4 different payoff matrices to be considered, &lt;span class=&quot;math-container&quot;&gt;$(S,S)$&lt;/span&gt;,&lt;span class=&quot;math-container&quot;&gt;$(S,W)$&lt;/span&gt;,&lt;span class=&quot;math-container&quot;&gt;$(W,S)$&lt;/span&gt;,&lt;span class=&quot;math-container&quot;&gt;$(W,W)$&lt;/span&gt;, each type occuring with equal probability. &#xA;I found that in each of these four payoff matrices, &lt;span class=&quot;math-container&quot;&gt;$(A,NA),(NA,A),(N,N)$&lt;/span&gt; will have the respective payoffs: &lt;span class=&quot;math-container&quot;&gt;$(10,0),(0,10),(0,0)$&lt;/span&gt;.&#xA;The &lt;span class=&quot;math-container&quot;&gt;$(A,A)$&lt;/span&gt; action will have payoffs &lt;span class=&quot;math-container&quot;&gt;$(-6,-6),(4,-8),(-8,4),(-8,-8)$&lt;/span&gt; respectively. &#xA;Have I modelled the question correctly? Also, please help me with the BNE as well. I understand that we need to check for deviations, using prior beliefs; however, it seems too tedious to work out. How do I find all Pure Startegy BNE?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/TXBQO.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/TXBQO.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="18398" LastEditorUserId="18398" LastEditDate="2019-03-26T18:24:24.753" LastActivityDate="2020-01-22T12:02:35.307" Title="Bayesian Nash Equilibria: Strong and Weak Types" Tags="&lt;microeconomics&gt;&lt;game-theory&gt;&lt;self-study&gt;&lt;bayesian-game&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27482" PostTypeId="2" ParentId="27480" CreationDate="2019-03-26T18:45:21.277" Score="1" Body="&lt;p&gt;This is a very open ended question, that could be researched. I can start to give some direction. For a realistic answer, one of the most important assumptions to your questions is how strongly everyone believes a meteor will hit 100 years from now, and second, how strongly everyone believes it is preventable/management. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider Two Scenarios:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A. The meteor will hit in 100 years. In the first 2 years, we developed a solution to it all, and everyone is convinced it will work. Will markets budge much? Probably not much afterward. Depending on the cost of the solution (\$1 million vs. \$10 trillion) markets may have moved.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;B. The meteor will hit in 100 years. &lt;em&gt;Everyone&lt;/em&gt; has fully accepted there is nothing we can do about it, and we all &lt;em&gt;will&lt;/em&gt; be annihilated. Market &lt;em&gt;will&lt;/em&gt; budge significantly, especially as the date gets closer. People's investment for future will change, how we think about raising kids, etc. How markets will change would be pretty hard to describe, but there may be outside literature that postulates ideas.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Overall, the biggest factor is humanities belief in their future. You can start by modeling the distribution of humanity that believes we will exist for &lt;span class=&quot;math-container&quot;&gt;$t$&lt;/span&gt; more years. This now gets into probability theory. &lt;/p&gt;&#xA;" OwnerUserId="6102" LastActivityDate="2019-03-26T18:45:21.277" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27483" PostTypeId="1" CreationDate="2019-03-26T19:45:07.657" Score="2" ViewCount="78" Body="&lt;p&gt;In continuous games, the probability distributions over the players' strategy spaces are infinite. How then is it even possible to then derive a mixed-strategy nash equilibrium?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One would have to show that the mixed-strategy of one player is the best possible mixed-strategy response to the strategy of another player. In the continuous case, how is this even possible? How do you maximize over &quot;all possible probability distributions&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can anybody provide a clue?&lt;/p&gt;&#xA;" OwnerUserId="21623" LastEditorUserId="10402" LastEditDate="2019-04-13T18:21:35.593" LastActivityDate="2019-04-14T09:21:23.547" Title="What trick can be used to calculate mixed-equilibria?" Tags="&lt;game-theory&gt;&lt;nash-equilibrium&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27484" PostTypeId="2" ParentId="27474" CreationDate="2019-03-26T21:22:32.627" Score="0" Body="&lt;p&gt;Two interesting papers with theory and evidence &lt;a href=&quot;http://pascual.scripts.mit.edu/research/robots_jobs/robots_jobs.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Robots and Jobs: Evidence from US Labor Markets&lt;/a&gt; and &lt;a href=&quot;http://pascual.scripts.mit.edu/research/ai_restrepo/ai_restrepo.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Artificial Intelligence, Automation and Work&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="6168" LastActivityDate="2019-03-26T21:22:32.627" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27485" PostTypeId="2" ParentId="27467" CreationDate="2019-03-26T21:31:52.527" Score="1" Body="&lt;p&gt;Check this interesting report of the International Labor Office on &lt;a href=&quot;http://www.ilo.org/wcmsp5/groups/public/---ed_emp/---emp_policy/documents/publication/wcms_210443.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Measurement of the Informal Economy&lt;/a&gt;. They raise and discuss the &lt;strong&gt;Key Challenges&lt;/strong&gt;:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;The paucity of data&lt;/li&gt;&#xA;&lt;li&gt;Why is measurement important?&lt;/li&gt;&#xA;&lt;li&gt;Conceptualizing the informal economy (Employment in the informal sector and informal&#xA;sector enterprises)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="6168" LastActivityDate="2019-03-26T21:31:52.527" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27486" PostTypeId="1" CreationDate="2019-03-27T01:02:51.430" Score="1" ViewCount="57" Body="&lt;p&gt;A lot of explanations about this matter depend on the fact that the foreign cash could be seen as a foreign assets. They say like &quot;if you export a car and earn 100 yen, then it means that you have now the Japanese assets which are worth \$1 (suppose the exchange rate is 0.01) and this means $1 is invested into those yen money, so this implicitly alludes that the one dollar is flowed outward into Japan.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Okay, I get this so far. But what if I exchange the yen money with dollar at the Japanese bank before I come back to the US? I can see that clearly when I guess at the Japanese side. They got their yen money back into their money market, and it means the supply has been increased. But when I think about this from the view point of US side, well, I just don't get it at all. I went to Japan, sold a product, received yen, exchanged into dollar, and came back; The only things have come back to US are I and the dollar I earned. How can you see this as a dollar outflow?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or what if I export the car to Zimbabwe where they use US dollar as an official money now? Exporting a car and earning nothing but 1 US dollar, then how come this is the outflow?&lt;/p&gt;&#xA;" OwnerUserId="21565" LastActivityDate="2019-03-27T01:02:51.430" Title="Why is it so hard to understand NCO = NE?" Tags="&lt;open-economy-macro&gt;&lt;balance-of-trade&gt;" AnswerCount="0" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="27487" PostTypeId="2" ParentId="11793" CreationDate="2019-03-27T01:15:55.327" Score="1" Body="&lt;p&gt;Neglecting technology parameters and assuming constant returns to scale, the parameters &lt;span class=&quot;math-container&quot;&gt;$\sigma$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\gamma$&lt;/span&gt; are jointly estimable via dynamic (least squares) programming.&#xA;See &lt;a href=&quot;https://arxiv.org/pdf/1902.01052.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;this paper&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="21626" LastActivityDate="2019-03-27T01:15:55.327" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27488" PostTypeId="2" ParentId="27483" CreationDate="2019-03-27T03:12:13.767" Score="0" Body="&lt;p&gt;I am not sure if you are looking for a very abstract, intuitive trick for finding mixed Nash equilibrium, or just an example of how to possibly find one. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I will assume the latter.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose we have the following game:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;L \ \ \ \     \ \ |\ \ R &#xA;\\&#xA;U (1,1) | (0,0)&#xA;\\&#xA;D (0,0) | (1,1)&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Clearly &lt;span class=&quot;math-container&quot;&gt;$(U,L)$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$(D,R)$&lt;/span&gt; are NE (they are pure NE). However, there is a mixed strategy NE too. How can we find this?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We do the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose Player 1 mixes, going &lt;span class=&quot;math-container&quot;&gt;$U$&lt;/span&gt; with probability &lt;span class=&quot;math-container&quot;&gt;$\alpha$&lt;/span&gt;, and &lt;span class=&quot;math-container&quot;&gt;$D$&lt;/span&gt; with probability &lt;span class=&quot;math-container&quot;&gt;$1-\alpha$&lt;/span&gt;. (So &lt;span class=&quot;math-container&quot;&gt;$\alpha \in [0,1]$&lt;/span&gt;) That means Player 2 must have the &lt;em&gt;same expected outcome&lt;/em&gt; whether they go &lt;span class=&quot;math-container&quot;&gt;$L$&lt;/span&gt; or &lt;span class=&quot;math-container&quot;&gt;$R$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, we can express Player 2's strategy like this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If they went &lt;span class=&quot;math-container&quot;&gt;$L$&lt;/span&gt;, their expected pay-off is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$1\times \alpha + 0 \times (1-\alpha) = \alpha$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If they went &lt;span class=&quot;math-container&quot;&gt;$R$&lt;/span&gt;, their expected pay-off is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$0 \times \alpha + 1 \times (1-\alpha) = 1 -\alpha$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Remember, their expected outcome from &lt;span class=&quot;math-container&quot;&gt;$L$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$R$&lt;/span&gt; must be equal, thus:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\alpha = 1-\alpha \Rightarrow 2\alpha = 1 \Rightarrow \alpha = \frac{1}{2}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What we just did is solve for Player 1's mixed strategy- going &lt;span class=&quot;math-container&quot;&gt;$U$&lt;/span&gt; with probability &lt;span class=&quot;math-container&quot;&gt;$\frac{1}{2}$&lt;/span&gt;, and &lt;span class=&quot;math-container&quot;&gt;$D$&lt;/span&gt; with probability &lt;span class=&quot;math-container&quot;&gt;$1-\frac{1}{2} = \frac{1}{2}$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can find Player 2's probabilities in a similar way. Note that the process to do this is different depending on the type of game- but their main &quot;trick&quot; here is noting in mixed strategy equilibrium, expected outcomes over the strategies must be equal.&lt;/p&gt;&#xA;" OwnerUserId="6102" LastActivityDate="2019-03-27T03:12:13.767" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27490" PostTypeId="1" CreationDate="2019-03-27T05:20:19.130" Score="6" ViewCount="141" Body="&lt;p&gt;It seems generally accepted that &lt;a href=&quot;https://www.imf.org/en/Publications/WP/Issues/2018/03/05/How-Well-Do-Economists-Forecast-Recessions-45672&quot; rel=&quot;noreferrer&quot;&gt;recessions are hard to forecast&lt;/a&gt;, in both onset and intensity, but the bias seems to be toward rosy outlooks:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The main finding is that, while forecasters are generally aware that recession years will be different from other years, they miss the magnitude of the recession by a wide margin until the year is almost over. Forecasts during non-recession years are revised slowly; in recession years, the pace of revision picks up but not sufficiently to avoid large forecast errors. [...] Strong booms are also missed, providing suggestive evidence for Nordhaus’ (1987) view that behavioral factors—the reluctance to absorb either good or bad news—play a role in the evolution of forecasts.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Of course, this may be put in simpler terms as forecasting having a &lt;a href=&quot;https://www.economist.com/finance-and-economics/2016/01/09/a-mean-feat&quot; rel=&quot;noreferrer&quot;&gt;bias towards things staying on the current course&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm curious if there are historically significant examples where the consensus forecasting (or at least that of some major institutions) predicted a [bad] recession that failed to materialize.&lt;/p&gt;&#xA;" OwnerUserId="6210" LastEditorUserId="6210" LastEditDate="2019-03-27T05:25:47.553" LastActivityDate="2019-05-06T05:45:40.483" Title="Predicted recessions that never happened" Tags="&lt;economic-growth&gt;&lt;history&gt;&lt;forecasting&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27491" PostTypeId="2" ParentId="19651" CreationDate="2019-03-27T05:55:27.883" Score="1" Body="&lt;p&gt;This is an excellent question and it deserves a good answer and I will try my best here.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So what is a reserve currency? A reserve currency is a currency that other nations use for making global payments, loans and foreign exchange reserves.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The four currencies that are considered global are the US dollar (USD), the Euro, the Japanese Yen and China's RMB (yuan).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, what happens to a bank when it runs out of reserve currency, well, it depends who the bank is, where its located and what the reserve currency is that they have run out of.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you are one of the four currency nations then you are exporting your currency, but you have to export enough into the global system to support the demand for payments, loans and reserves. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Central banks in general could also issue lines of credit which require payment in one of the four reserve currencies mentioned above.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This becomes part of someone's job at these banks to ensure that there is a harmonious balance on the balance sheet at all times between exporting currency, issuing credit and demanding payments.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lets take a case study such as the EU banks where they had issued loans in Euros, and the fatal consequence of that started to become clear in 2016. Emerging market borrowers were forced to default as their currencies weaken against the Euro and the USD, driving the costs of servicing their debt denominated in Euros and USD higher.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Someone mentioned Venezuela above and yes this is what happened to them. Not that they ran out of foreign currency, but that the cost of servicing their debt denominated in USD and Euros soared to the extent that it weakened their own currency, in addition to their policy of expropriating businesses that did not belong to the government and other policies which finally lead to foreign investment high tailing it out of there and a vote of no-confidence for the now dead Bolivar.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Even nations have credit reports and credit ratings and you can imagine when they run into that kind of trouble, their ratings drop.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In my opinion, the system of reserve currencies is dysfunctional for everyone, creating and incentivizing fatal imbalances in trade, yields and debt. Some look to a basket of currencies from the World Bank known as Special Drawing Rights or SDRs as the solution, but all this does is tighten the coherence of a system that's already dangerously hyper-coherent, that is, highly susceptible to contagion.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But the concept of reserve currency and the balancing act that banks have to go through with it is not perfect and even gold had its limitations. Anyway, I hope this is some semblance of an answer or gets you closer to your answer.&lt;/p&gt;&#xA;" OwnerUserId="20035" LastActivityDate="2019-03-27T05:55:27.883" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27492" PostTypeId="2" ParentId="27490" CreationDate="2019-03-27T08:19:22.603" Score="4" Body="&lt;p&gt;One example is &lt;a href=&quot;https://www.gov.uk/government/news/britain-to-enter-recession-with-500000-uk-jobs-lost-if-it-left-eu-new-treasury-analysis-shows&quot; rel=&quot;nofollow noreferrer&quot;&gt;this UK Government analysis&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;Britain’s economy would be tipped into a year-long recession, with at least 500,000 jobs lost and GDP around 3.6% lower, following a vote to leave the EU, new Treasury analysis launched today by the Prime Minister and Chancellor shows…Speaking at B&amp;amp;Q in Eastleigh, Hampshire, the Prime Minister and Chancellor set out the Treasury’s analysis of the impact on the nation’s economy over the immediate period of two years following a vote to leave. This analysis shows that such a decision would cause an immediate and profound economic shock across the country&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;But growth has been consistently positive in the almost three-year period since the vote.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/3kTq2.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/3kTq2.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm not sure this a very good example, because there are clear political incentives surrounding this forecast, which might mean it was less than sincere.&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2019-03-27T14:25:03.270" LastActivityDate="2019-03-27T14:25:03.270" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27497" PostTypeId="2" ParentId="27481" CreationDate="2019-03-27T18:16:46.460" Score="1" Body="&lt;p&gt;Modeling the game as four separate matrices does not capture the fact that each general knows his army strength but not the strength of the other army. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given the small action space, it may help if you could first visualize the game in an extensive form, with Nature deciding army strengths at the beginning, and each army general observing their type before making the attack or not decisions. (Of course, this step is not necessary if you have a good mental image of what the game looks like.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can then try to convert the extensive form game into its Bayesian normal form. Hint: each general has four pure strategies: attack or not when their army is strong and attack or not when their army is weak. The BNE can then be solved easily in the Bayesian normal form. &lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2019-03-27T18:16:46.460" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27498" PostTypeId="1" CreationDate="2019-03-27T18:56:03.980" Score="3" ViewCount="42" Body="&lt;p&gt;I'm a graduate student in mathematics, with a casual knowledge of economics, so please let me know if this question is a non-sequitur or off base.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here's the intuition I'm trying to capture: Suppose corporation A has a good year and makes a lot of profit, and corporation B, their competitor, has a bad year wherein they have a net loss. It seems that the following year, corporation B has a relative competitive advantage, in that they have a lower tax burden. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a system with no corporate tax—and thus no tax loss carryforward—it seems that corporation B wouldn't have this advantage which might give them some time to recover. In a system with a very high corporate tax, this benefit would be even greater.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Value judgments about the utility of a high corporate tax aside, is there anything to the idea that corporate taxes can serve as a sort of &quot;insurance policy&quot; wherein companies with a bad year are more likely to survive?&lt;/p&gt;&#xA;" OwnerUserId="21635" LastActivityDate="2019-11-21T07:47:29.920" Title="Can corporate tax loss carryforward function like a sort of insurance policy?" Tags="&lt;taxation&gt;&lt;corporate-finance&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27499" PostTypeId="1" CreationDate="2019-03-27T23:10:28.693" Score="0" ViewCount="3388" Body="&lt;p&gt;What is the &lt;span class=&quot;math-container&quot;&gt;$\beta$&lt;/span&gt;-&lt;span class=&quot;math-container&quot;&gt;$\delta$&lt;/span&gt; model? How does it relate to present bias and the present value calculation?&lt;/p&gt;&#xA;" OwnerUserId="21636" LastEditorUserId="42" LastEditDate="2019-03-28T15:09:30.023" LastActivityDate="2019-03-28T15:12:52.000" Title="The beta delta model" Tags="&lt;microeconomics&gt;&lt;behavioral-economics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27501" PostTypeId="2" ParentId="27499" CreationDate="2019-03-28T00:24:16.223" Score="5" Body="&lt;p&gt;The &lt;span class=&quot;math-container&quot;&gt;$\beta$&lt;/span&gt;-&lt;span class=&quot;math-container&quot;&gt;$\delta$&lt;/span&gt; model, otherwise known as the &lt;em&gt;quasi-hyperbolic discounting&lt;/em&gt; model, is introduced as an alternative to the traditional &lt;em&gt;exponential discounting&lt;/em&gt; which suffers the problem of being inconsistent with empirical evidence. &lt;/p&gt;&#xA;&#xA;&lt;h1&gt;Exponential Discounting&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;Traditionally, economists use exponential discounting to capture the fact that things in the future has less value compared to things at present. Such a model presumes a &lt;strong&gt;constant discount factor&lt;/strong&gt; &lt;span class=&quot;math-container&quot;&gt;$\delta$&lt;/span&gt;, which is used to weight utilities in different periods. For instance, the present value of one's utility from consumption over the next &lt;span class=&quot;math-container&quot;&gt;$T$&lt;/span&gt; periods can be written as &#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;u(x_0)+\delta u(x_1)+\delta^2u(x_2)+\cdots+\delta^Tu(x_T)=\sum_{t=0}^T\delta^tu(x_t),&#xA;\end{equation}&lt;/span&gt;&#xA;where &lt;span class=&quot;math-container&quot;&gt;$x_t$&lt;/span&gt; is the consumption/investment decision made at time &lt;span class=&quot;math-container&quot;&gt;$t$&lt;/span&gt;. If we let &lt;span class=&quot;math-container&quot;&gt;$u(x_t)$&lt;/span&gt; be the amount of money earned in period &lt;span class=&quot;math-container&quot;&gt;$t$&lt;/span&gt;, then the above formula is also the usual way to calculate the present value of a stream of income. From a theoretical perspective, the exponential discounting model has the desirable feature that it produces dynamically consistent choices. That is, choices deemed as optimal today will still be considered optimal at arbitrary points in the future. &lt;/p&gt;&#xA;&#xA;&lt;h1&gt;Issue with Exponential Discounting&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;Despite the theoretical appeals of exponential discounting, evidence suggests that this model does not measure well against actual human choices. The classic example involves two sets of choices: &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Getting \$100 today vs. Getting \$101 tomorrow &lt;/li&gt;&#xA;&lt;li&gt;Getting \$100 30 days from today vs. Getting \$101 31 days from today&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;When presented with these two choices, most people would choose to get \$100 today but would choose to wait one more day for the extra dollar. This is a clear violation of exponential discounting. If people are exponential discounters with a constant discount factor &lt;span class=&quot;math-container&quot;&gt;$\delta$&lt;/span&gt;, then choosing \$100 today implies &#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;u(\$100)&amp;gt;\delta u(\$101).\tag{1}&#xA;\end{equation}&lt;/span&gt;&#xA;But choosing \$101 31 days from today implies &#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;\delta^{30}u(\$100)&amp;lt;\delta^{31}u(\$101)\quad\Rightarrow\quad u(\$100)&amp;lt;\delta u(\$101).\tag{2}&#xA;\end{equation}&lt;/span&gt;&#xA;The incompatibility between &lt;span class=&quot;math-container&quot;&gt;$(1)$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$(2)$&lt;/span&gt; suggests that exponential discounting is not a very good descriptive model of people's time preference. &lt;/p&gt;&#xA;&#xA;&lt;h1&gt;Quasi-Hyperbolic Discounting&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;The above example illustrates that people have a strong &quot;bias&quot; toward current consumption, or receiving a reward &lt;em&gt;today&lt;/em&gt; as opposed to any future date. In other words, the values of all future (&lt;span class=&quot;math-container&quot;&gt;$t\ge1$&lt;/span&gt;) rewards/utility are downplayed relative to the reward/utility of the current period (&lt;span class=&quot;math-container&quot;&gt;$t=0$&lt;/span&gt;). Therefore, based on the exponential discounting model, the quasi-hyperbolic discounting model introduces an extra parameter &lt;span class=&quot;math-container&quot;&gt;$\beta$&lt;/span&gt; that captures this bias towards the present. The mathematical formulation is as follows: &#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;u(x_0)+\beta\bigl(\delta u(x_1)+\delta^2u(x_2)+\cdots+\delta^Tu(x_T)\bigr)=u(x_0)+\beta\sum_{t=1}^T\delta^tu(x_t).&#xA;\end{equation}&lt;/span&gt;&#xA;The parameter &lt;span class=&quot;math-container&quot;&gt;$\beta$&lt;/span&gt; is the &lt;strong&gt;present bias parameter&lt;/strong&gt;, as it measure the extent to which future outcomes are weighed relative to the current one. Usually &lt;span class=&quot;math-container&quot;&gt;$\beta$&lt;/span&gt; is assumed to be less than &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt;, so that future utilities weigh less than the present one. But it is easy to see that if &lt;span class=&quot;math-container&quot;&gt;$\beta=1$&lt;/span&gt;, then we get exponential discounting as a special case where there is no present bias. With an appropriately chosen &lt;span class=&quot;math-container&quot;&gt;$\beta$&lt;/span&gt;, we can therefore reconcile the inconsistency in equations &lt;span class=&quot;math-container&quot;&gt;$(1)$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$(2)$&lt;/span&gt;. &lt;/p&gt;&#xA;" OwnerUserId="42" LastEditorUserId="42" LastEditDate="2019-03-28T15:12:52.000" LastActivityDate="2019-03-28T15:12:52.000" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27502" PostTypeId="1" CreationDate="2019-03-28T00:41:59.810" Score="1" ViewCount="118" Body="&lt;p&gt;Every night, all 60 inhabitants of a tiny village visit one of the village’s taverns (not necessarily the same tavern) and an average of 75 strangers do the same. Both the villagers and the strangers are willing to pay up to $3 for a drink, and no one ever buys more than one. But, whereas the strangers pick any tavern at random, the villagers compare prices and go to the cheapest. The market is in free-entry equilibrium and each tavern’s costs of providing q drinks a night are C(q) = 36.75 +0.1q +0.03q^2. What do the taverns charge for a drink?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have solved this question but couldn't understand why in the end there were 3 low price and 2 high price taverns? How do I figure out how many low price and high price taverns there is? Is there a method?&lt;/p&gt;&#xA;" OwnerUserId="21551" LastActivityDate="2019-03-28T00:41:59.810" Title="Tourist Natives Model" Tags="&lt;industrial-organisation&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27503" PostTypeId="2" ParentId="10052" CreationDate="2019-03-28T01:59:57.473" Score="-1" Body="&lt;p&gt;In short, yes markets are short sighted because they only price goods and services in the here and now. They lack the mechanisms to measure the lifecycle costs of the goods, the degradation of wildlife that we obtain through hunting and fishing, the loss of soil depletion via farming and the opportunity cost of what could have been done with money squandered on consumption and so on.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The decline of the coral reef or the wild Salmon population does not make it into price discovery.&lt;/p&gt;&#xA;" OwnerUserId="20035" LastActivityDate="2019-03-28T01:59:57.473" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27506" PostTypeId="1" CreationDate="2019-03-28T10:00:25.663" Score="0" ViewCount="49" Body="&lt;p&gt;Could someone explain in full detail to someone that does not understand much what would happen if a country refused to pay its pubic debt?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Someone told me if this happens banks would fall and citizens wouldn't have jobs and savings, but I cannot link these two events. How are these events related? How does one thing lead to another?&lt;/p&gt;&#xA;" OwnerUserId="21639" LastEditorUserId="12891" LastEditDate="2019-03-28T10:25:42.810" LastActivityDate="2019-03-29T02:47:52.017" Title="What would happen if a country defaulted on its public debt?" Tags="&lt;government-debt&gt;&lt;political-economy&gt;&lt;political&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27507" PostTypeId="2" ParentId="27506" CreationDate="2019-03-28T10:57:16.453" Score="4" Body="&lt;p&gt;A “full explanation” would be extremely long; depending on the situation, a great many things would happen.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For developing countries, defaults are typically on debt in foreign currency, issued under foreign law. They will end up in legal fights with bondholders, and/or end up dealing with the IMF (or other body) to restructure their debt. Economic problems will revolve around being cut off from the financial markets, such as the currency markets.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The scenario you are describing seems to more about countries that issue debt in their own currency, under their own law (for example, the United States, Japan, Canada, etc.) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For most of these countries, the government is a large borrower. If they refuse to make any payments on debts (which is rare; defaults are often partial), this would represent a loss that is comparable to one year’s production or income (GDP). This would represent severe losses for many savers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Furthermore, banks hold government bonds to manage their liquidity. Meanwhile, they have very little equity when compared to the size of their balance sheets. Large losses on their bond portfolios would likely result in their bankruptcy. Their bankruptcy would then cause losses on their lenders - bank bond holders, depositors. Furthermore, a bankrupt bank cannot extend new loans, and so any businesses that survived would have a difficult time to borrow to fund expansion. As a result, there would be massive job losses.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In practice, defaults are rarely total (except after wars/revolutions),so we do not see the full potential effects. However, even partial defaults - such as in Greece after the Financial Crisis - typically result is a depression. (I suggest that you look up the Greek debt crisis for an example. The Greek situation is different than developed countries outside the euro, since it does not control the currency it is borrowing in, and so was forced to deal with supranational bodies.)&lt;/p&gt;&#xA;" OwnerUserId="12891" LastEditorUserId="12891" LastEditDate="2019-03-28T19:42:21.503" LastActivityDate="2019-03-28T19:42:21.503" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27509" PostTypeId="1" CreationDate="2019-03-28T12:03:13.067" Score="1" ViewCount="31" Body="&lt;p&gt;I had read twice the paper Economics and Knowledge and it seems to me like he is arguing against equilibrium analysis, but I don't know if I'm misunderstanding his arguments.&lt;/p&gt;&#xA;" OwnerUserId="21641" LastEditorUserId="1601" LastEditDate="2019-03-28T12:08:01.030" LastActivityDate="2019-03-28T12:08:01.030" Title="Is Hayek in pro or in con of Equilibrium?" Tags="&lt;general-equilibrium&gt;&lt;history-economic-thought&gt;" AnswerCount="0" CommentCount="0" ClosedDate="2019-03-28T21:58:39.253" ContentLicense="CC BY-SA 4.0" />
  <row Id="27510" PostTypeId="2" ParentId="27400" CreationDate="2019-03-28T13:35:56.077" Score="-1" Body="&lt;p&gt;Found an article highlighting how inflation &quot;impoverishes wealth generators&quot;...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://mises.org/wire/central-banks-shouldnt-fight-deflation&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://mises.org/wire/central-banks-shouldnt-fight-deflation&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which is not written with cryptocurrencies in mind, but does talk about &quot;creating money out of nothing&quot;, which is kinda how most cryptocurrencies begin, but just like how physics equations break down at t=0 (start of the universe), once established and being used as a currencies, the deflationary monetary policies of cryptocurrencies appear to generally be a good thing.&lt;/p&gt;&#xA;" OwnerUserId="21584" LastActivityDate="2019-03-28T13:35:56.077" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27511" PostTypeId="1" CreationDate="2019-03-28T14:44:48.417" Score="0" ViewCount="41" Body="&lt;p&gt;I am not familiar with economics but does anybody know any reference about cournot competition with strategic consumers? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words, is there any known competition where both producer and consumer can behave strategically and set the prices?&lt;/p&gt;&#xA;" OwnerUserId="20805" LastActivityDate="2019-05-22T13:03:20.730" Title="cournot competition with strategic consumers" Tags="&lt;reference-request&gt;&lt;competition&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="27512" PostTypeId="2" ParentId="27404" CreationDate="2019-03-28T16:23:37.760" Score="4" Body="&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Roughly speaking, &lt;span class=&quot;math-container&quot;&gt;$X_1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$X_2$&lt;/span&gt; are affiliated because they have the common component &lt;span class=&quot;math-container&quot;&gt;$T$&lt;/span&gt;. That is, if &lt;span class=&quot;math-container&quot;&gt;$X_1$&lt;/span&gt; is large, &lt;span class=&quot;math-container&quot;&gt;$X_2$&lt;/span&gt; tends to be large as well, because a large &lt;span class=&quot;math-container&quot;&gt;$X_1$&lt;/span&gt; makes a large &lt;span class=&quot;math-container&quot;&gt;$T$&lt;/span&gt; likelier than without this information.&#xA;The variables are affiliated if for the joint density &lt;span class=&quot;math-container&quot;&gt;$f_{X_1,X_2}$&lt;/span&gt; &#xA;&lt;span class=&quot;math-container&quot;&gt;$$f_{X_1,X_2} (x',y)  f_{X_1,X_2} (x,y') \geq f_{X_1,X_2} (x,y) f_{X_1,X_2} (x',y') \quad \forall x'\geq y, y'\geq y,$$&lt;/span&gt;&lt;br&gt;&#xA;which here holds with equality. That is, they are weakly affiliated. See below.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;In Krishna's book &lt;span class=&quot;math-container&quot;&gt;$G$&lt;/span&gt; (resp. &lt;span class=&quot;math-container&quot;&gt;$g$&lt;/span&gt;) is usually the CDF (resp. density) of the highest value among the other bidders, &lt;span class=&quot;math-container&quot;&gt;$Y_1$&lt;/span&gt;. Here, there is only one other bidder such that &lt;span class=&quot;math-container&quot;&gt;$Y_1=X_2$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$g(y|x) = f_{X_2|X_1=x}(y |x)$&lt;/span&gt;. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Now, my answers only help you if you know how to find the joint density.&#xA;Here is what we want to find:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/CE0xY.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/CE0xY.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&#xA; So, how to get there?&lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;3&quot;&gt;&#xA;&lt;li&gt;&lt;span class=&quot;math-container&quot;&gt;$S_1,S_2, T$&lt;/span&gt; are i.i.d. draws from the uniform distribution.&#xA;Let us first consider the joint CDF of &lt;span class=&quot;math-container&quot;&gt;$X_1, X_2$&lt;/span&gt; conditional on &lt;span class=&quot;math-container&quot;&gt;$T=t$&lt;/span&gt;. That is easy, because they are independent now! Once we have this conditional CDF, we use that&#xA;&lt;span class=&quot;math-container&quot;&gt;$$F_{X_1,X_2} (x,y) = \int_0^1 F_{X_1,X_2|T=t}(x,y|t) f_T (t) dt,$$&lt;/span&gt;&#xA;where &lt;span class=&quot;math-container&quot;&gt;$f_T(t)= 1$&lt;/span&gt; if &lt;span class=&quot;math-container&quot;&gt;$t\in [0,1]$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$f_T(t)= 0$&lt;/span&gt; otherwise.&#xA;Then, we take derivatives with respect to &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; to find &lt;span class=&quot;math-container&quot;&gt;$f_{X_1,X_2}(x,y)$&lt;/span&gt;. This should look like what Krishna has in his picture or alternatively, like the function in the appendix of &lt;a href=&quot;https://academic.oup.com/restud/article-abstract/65/2/185/1580729&quot; rel=&quot;nofollow noreferrer&quot;&gt;Avery (ReStud 1998)&lt;/a&gt;, where the example is from (I guess). &#xA;These calculations are cumbersome work with a bunch of case distinctions and thus it is easy to mess up, but you start with &#xA;&lt;span class=&quot;math-container&quot;&gt;$$F_{X_1,X_2|T=t}(x,y|t) = \mbox{Pr}(X_1&amp;lt;x,X_2&amp;lt;y|T=t) = \mbox{Pr}(S_1&amp;lt;x-t,S_2&amp;lt;y-t)$$&lt;/span&gt; &#xA;and then pay attention to the support of the uniform distribution. The CDF is &lt;span class=&quot;math-container&quot;&gt;$F_{S_1}(s)=s$&lt;/span&gt; for &lt;span class=&quot;math-container&quot;&gt;$s\in [0,1]$&lt;/span&gt; and zero for smaller &lt;span class=&quot;math-container&quot;&gt;$s$&lt;/span&gt; and one for larger &lt;span class=&quot;math-container&quot;&gt;$s$&lt;/span&gt;.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Let us take an exemplary region, &lt;span class=&quot;math-container&quot;&gt;$y&amp;gt;x&amp;gt;1$&lt;/span&gt;:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$F_{X_1,X_2}(x,y) = \int_0^{x-1} 1 dt + \int_{x-1}^{y-1}(x-t)dt+ \int_{y-1}^1 (x-t)(y-t)dt,$$&lt;/span&gt;&#xA;which gives us something of which Mathematica says it has a derivateive &lt;span class=&quot;math-container&quot;&gt;$\partial x \partial y$&lt;/span&gt; equal to &lt;span class=&quot;math-container&quot;&gt;$2-y$&lt;/span&gt;. Now, we can verify one of the regions of Krishna's graphic.&#xA;One more for fun, if &lt;span class=&quot;math-container&quot;&gt;$x&amp;lt;y&amp;lt;1$&lt;/span&gt;,&#xA;&lt;span class=&quot;math-container&quot;&gt;$$f_{X_1,X_2}(x,y) = \frac{\partial^2}{\partial x \partial y} \left( \int_0^x (x-t)(y-t) dt + \int^1_x 0 dt \right) = x.$$&lt;/span&gt;&#xA;And so on. Now, you can go back to my reply 1.&lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;4&quot;&gt;&#xA;&lt;li&gt;The conditional density of is given by the equation&#xA;&lt;span class=&quot;math-container&quot;&gt;$$f_{X_1,X_2} (x,y) = f_{X_1|X_2=y} (x|y) f_{X_2} (y),$$&lt;/span&gt;&#xA;where&#xA;&lt;span class=&quot;math-container&quot;&gt;$$f_{X_2}(y) = \begin{cases} y &amp;amp;\mbox{if } y \in [0,1] \\&#xA;2-y &amp;amp;\mbox{if } y \in [1,2],&#xA;\end{cases} $$&lt;/span&gt;&#xA;which follows from the fact that &lt;span class=&quot;math-container&quot;&gt;$X_2 =S_2+T$&lt;/span&gt;, and &lt;span class=&quot;math-container&quot;&gt;$S_2$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$T$&lt;/span&gt; are independently uniformly distributed. You get there with &lt;a href=&quot;https://math.stackexchange.com/questions/357672/density-of-sum-of-two-uniform-random-variables-0-1&quot;&gt;convolution&lt;/a&gt;. What you get should look like this plot from the Avery paper&lt;a href=&quot;https://i.stack.imgur.com/GAPpm.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/GAPpm.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Then, you integrate to find &lt;span class=&quot;math-container&quot;&gt;$G(y|x)$&lt;/span&gt; and go back to my reply 2.&lt;/p&gt;&#xA;" OwnerUserId="11590" LastEditorUserId="11590" LastEditDate="2019-03-28T16:44:12.540" LastActivityDate="2019-03-28T16:44:12.540" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27514" PostTypeId="1" CreationDate="2019-03-29T02:09:32.880" Score="-2" ViewCount="39" Body="&lt;p&gt;How is consumer patience modelled? My first thought was &quot;discount factors, but the problem is that it doesn't seem to capture the intuitive notion of what being patient means. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, the following sounds very reasonable (see Coase Conjecture):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;A monopolist selling a durable good loses market power if consumers become increasingly patient.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;But if we model patience using discount factors, this result does not hold. For example, say consumer utility across two periods is &lt;span class=&quot;math-container&quot;&gt;$$U(c_1, c_2) = c_1 + \beta c_2$$&lt;/span&gt; where &lt;span class=&quot;math-container&quot;&gt;$c_1, c_2$&lt;/span&gt; is consumption in the two periods and &lt;span class=&quot;math-container&quot;&gt;$\beta$&lt;/span&gt; is a discount factor. If &lt;span class=&quot;math-container&quot;&gt;$\beta = 1$&lt;/span&gt;, then the consumers are very patient, because they place equal value on the consumption in both periods. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, that means that utility is &lt;span class=&quot;math-container&quot;&gt;$c_1 + c_2$&lt;/span&gt;. This is strictly greater than &lt;span class=&quot;math-container&quot;&gt;$c_1 + \beta c_2$&lt;/span&gt; for &lt;span class=&quot;math-container&quot;&gt;$\beta &amp;lt; 1$&lt;/span&gt;. Therefore, the &lt;em&gt;utility of the consumer is strictly higher&lt;/em&gt; across any level of consumption &lt;span class=&quot;math-container&quot;&gt;$\{(c_1, c_2) \in \mathbb{R}^2\}$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Clearly that would mean that the firm gets &lt;em&gt;more market power&lt;/em&gt;, because their consumer base is now &lt;strong&gt;strictly better off&lt;/strong&gt; from buying their products than they were before.&lt;/p&gt;&#xA;" OwnerUserId="21650" LastActivityDate="2019-04-22T10:57:46.200" Title="How is patience modelled?" Tags="&lt;consumer-theory&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27515" PostTypeId="2" ParentId="27506" CreationDate="2019-03-29T02:16:40.677" Score="1" Body="&lt;p&gt;There's actually &lt;a href=&quot;https://doi.org/10.17016/IFDP.2018.1239&quot; rel=&quot;nofollow noreferrer&quot;&gt;empirical research&lt;/a&gt; by the Fed on this, and it backs up well what Brian said:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Armed with new dataset containing over one hundred foreign-law defaults and over sixty&#xA;domestic-law defaults, over the period 1980-2015, we document the following key regularities about sovereign defaults. First, selective defaults exist and are frequent. Since 1980,&#xA;about two-thirds of the defaults have involved either foreign-law bonds or domestic-law&#xA;bonds selectively. We also document that the number of domestic-law defaults has steadily&#xA;increased over time. Second, output, credit, and imports dynamics are different in different default episodes. Domestic defaults are associated with drops in private sector credit.&#xA;Conversely, external defaults have a strong effect on imports and have less of an impact on&#xA;credit. Third, we find that domestic defaults are more frequent in countries with small credit&#xA;markets, while external defaults are more frequent in countries where imports are small.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Both kinds of &lt;a href=&quot;https://en.wikipedia.org/wiki/Credit_crunch#Effects&quot; rel=&quot;nofollow noreferrer&quot;&gt;crunches (credits&lt;/a&gt;, imports) do however have impact on the population.&lt;/p&gt;&#xA;&lt;p&gt;Also a (fairly obvious) fact mentioned in the Fed paper&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;governments may operate selective defaults on local-currency debt through inflation [therefore] the credibility of monetary policy is crucial to determine returns in the sovereign debt market.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Getting to the knock-on effects, using an OECD data set for 1960–2007, the IMF &lt;a href=&quot;https://www.imf.org/external/pubs/ft/wp/2008/wp08274.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;found that&lt;/a&gt;:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;recessions associated with credit crunches and house price busts tend to be deeper and longer than other recessions [...] A recession, if one occurs, can start as late as four to five quarters after the onset of a credit crunch or housing bust. [...] In particular, although recessions&#xA;accompanied with severe credit crunches or house price busts last only three months longer,&#xA;they typically result in output losses two to three times greater than recessions without such&#xA;financial stresses.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;I can't find a broad survey of import crunches, but you can look &lt;a href=&quot;https://www.caracaschronicles.com/2017/01/11/the-zucaritas-principle/&quot; rel=&quot;nofollow noreferrer&quot;&gt;at some reporting from Venezuela&lt;/a&gt; to see what that looks like in extreme cases:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Early last year, Kellogg’s caused some waves by unveiling the ridiculous “ecological” Frosted Flakes box above, with a sad, colorless Tony looking distinctly less than grrrrrrrrreat.&lt;/p&gt;&#xA;&lt;p&gt;It’s easy enough to figure out what happened there: amid the almighty imports crunch, Kellogg’s couldn’t import the stuff it needed to produce the traditional, colorful Zucaritas boxes we all remember from childhood. Maybe they couldn’t get the dollars to bring in the right kinds of ink, or some industrial precursor to them, or the right kind of cardboard…who knows? The dollars they needed for some key bit of the process weren’t around…and some unfortunate sap in the marketing department got stuck having to put ecological lipstick on that macroeconomic pig.&lt;/p&gt;&#xA;&lt;p&gt;The kind of predicament Kellogg’s faced is a pretty general feature of the Venezuelan economy. It’s not quite true to say we don’t have an industrial sector, we do! It’s just that that sector is deeply enmeshed in globalized supply chains. There are very, very few products where the entire supply chain is fully internal to Venezuela (rum, maybe?) For the most part, Venezuelan industry is in the same predicament Kellogg’s found itself in: it has a few links on the supply chain and depends on foreign suppliers for others.&lt;/p&gt;&#xA;&lt;p&gt;The supplies, the inputs, the materials and spare parts and machines and tools it takes to run Venezuela’s companies have to be bought abroad. [...] Without imports of light oil to mix with domestic heavy oil so the damn stuff will flow through pipelines, its production would wither!&lt;/p&gt;&#xA;&lt;p&gt;[...]&lt;/p&gt;&#xA;&lt;p&gt;The Venezuelan economy’s reliance on imported intermediate goods, supplies and inputs is the reason Miguel Angel Santos likes to say that one not-terrible approximation to Venezuelan GDP is just to take your gross imports figure and multiply it by 4 or 5. It’s not the world’s most subtle estimation mechanism, but it nicely captures this basic insight that vast swathes of the Venezuelan economy just can’t work without imports.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;So basically how badly an import crunch affects everything else depends how interconnected imports are to everything else. Which in a modern economy is pretty well interconnected.&lt;/p&gt;&#xA;" OwnerUserId="6210" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2019-03-29T02:47:52.017" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27516" PostTypeId="1" AcceptedAnswerId="27517" CreationDate="2019-03-29T03:38:35.980" Score="1" ViewCount="211" Body="&lt;p&gt;From Macroeconomics 7th edition by Gregory Mankiw, p166.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Here’s a numerical example. Suppose that 1 percent of the employed lose their jobs each month (&lt;span class=&quot;math-container&quot;&gt;$s$&lt;/span&gt; = 0.01). This means that on average jobs last 100 months, or about 8 years. Suppose further that 20 percent of the unemployed find a job each month ( &lt;span class=&quot;math-container&quot;&gt;$f$&lt;/span&gt; = 0.20), so that spells of unemployment last 5 months on average. Then the steady-state rate of unemployment is&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\frac U L = \frac {0.01} {0.01 + 0.20}&#xA;= 0.0476.$&lt;/span&gt;&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The rate of unemployment in this example is about 5 percent.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Well, here I don't get this part.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;This means that on average jobs last 100 months&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;To me, the fact that 0.01 times 100 months comes to be 1, looks very plausible in a sense. But I don't get the process in it. &#xA;My guess was like as follows. If anyone among 100 people loses their job monthly, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(suppose they can never be reemployed, which is the opposite in the text book; I'm not sure that this matters on the issue here)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;then the first guy loses after 1 month, second guy 2 months, ...&#xA;So we can add up all their work period 1+2+3+...+100 which is 5050, and divide it with 100 people, then we get 50.50 months per person. What am I missing?&lt;/p&gt;&#xA;" OwnerUserId="21565" LastEditorUserId="1601" LastEditDate="2019-03-29T09:45:48.050" LastActivityDate="2019-03-29T09:45:48.050" Title="Average employment length" Tags="&lt;mathematical-economics&gt;&lt;unemployment&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27517" PostTypeId="2" ParentId="27516" CreationDate="2019-03-29T03:49:08.290" Score="3" Body="&lt;p&gt;This is simply the &lt;a href=&quot;https://en.wikipedia.org/wiki/Geometric_distribution&quot; rel=&quot;nofollow noreferrer&quot;&gt;geometric distribution&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A job lasts 1 month with probability &lt;span class=&quot;math-container&quot;&gt;$s$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A job lasts 2 months with probability &lt;span class=&quot;math-container&quot;&gt;$(1-s)s$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A job lasts 3 months with probability &lt;span class=&quot;math-container&quot;&gt;$(1-s)^2s$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\vdots$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A job lasts &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt; months with probability &lt;span class=&quot;math-container&quot;&gt;$(1-s)^{n-1}s$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence, the average length of a job is: &lt;span class=&quot;math-container&quot;&gt;$$\begin{align*}&#xA; &amp;amp; 1\cdot s+2\left(1-s\right)s+3\left(1-s\right)^{2}s+\dots+n\left(1-s\right){}^{n-1}s+\dots\\&#xA;= &amp;amp; \left[s+\left(1-s\right)s+\left(1-s\right)^{2}s+\dots\right]+\left[\left(1-s\right)s+\left(1-s\right)^{2}s+\dots\right]+\dots\\&#xA;= &amp;amp; \frac{s}{1-\left(1-s\right)}+\frac{1-s}{1-\left(1-s\right)}+\frac{\left(1-s\right)^{2}}{1-\left(1-s\right)}+\dots=\frac{s}{s}+\frac{1-s}{s}+\frac{\left(1-s\right)^{2}}{s}+\dots\\&#xA;= &amp;amp; \frac{1}{s}\left(s+s\left(1-s\right)+s\left(1-s\right)^{2}+\dots\right)=\frac{1}{s}\frac{s}{1-\left(1-s\right)}=\frac{1}{s}.&#xA;\end{align*}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the specific numerical example given by Mankiw, we have &lt;span class=&quot;math-container&quot;&gt;$s=0.01$&lt;/span&gt; and hence the average length of a job is &lt;span class=&quot;math-container&quot;&gt;$1/s=100$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2019-03-29T03:49:08.290" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27524" PostTypeId="2" ParentId="20594" CreationDate="2019-03-29T13:27:58.647" Score="2" Body="&lt;p&gt;You may need to provide more information for a clear answer. How does the mechanism look like in detail? What is the goal you want to achieve?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regarding your first question, it is not &quot;necessary&quot; to show that a mechanism is prior-free but it is a nice-to-have feature. Whether it is of first-order importance, as always, depends on the circumstances.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, &lt;a href=&quot;https://pubsonline.informs.org/doi/abs/10.1287/moor.6.1.58&quot; rel=&quot;nofollow noreferrer&quot;&gt;Myerson's&lt;/a&gt; optimal (revenue-maximizing) auction requires that the seller allocates her object to the buyer with the highest &quot;virtual valuation&quot;, &lt;span class=&quot;math-container&quot;&gt;$v_i - \frac{1-F_i(v_i)}{f_i(v_i)}$&lt;/span&gt;. This construction depends on &lt;span class=&quot;math-container&quot;&gt;$F_i$&lt;/span&gt; (the cdf of &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;'s value distribution) and its derivative. That is, in order to design the optimal auction, the seller needs a prior about &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;'s value - and if this belief is way off, the designed auction can be far from optimal.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As another example, consider a bidder in a first-price auction. How should this bidder figure out an optimal bid if they have no clue about how the other bidders' valuations are distributed? Do they even know the mean or even the support of this distribution?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If a seller simply wants to allocate her good efficiently, i.e., to the buyer with the highest value, she can set a second-price auction without a reserve price. It is a (weakly) dominant strategy for each bidder to bid the true value and no knowledge about priors is required (for the bidders or the designer).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A participant in your double auction may know the support &lt;span class=&quot;math-container&quot;&gt;$[0,1]$&lt;/span&gt;, but what is the optimal price to be submitted if they don't know the value distributions? So what goal do you want to achieve with this double auction?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Mechanism designers refer to research weakening assumptions on common priors as following the &quot;Wilson doctrine&quot; (yeah...) because of this quote:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Game  theory  has  a  great  advantage  in  explicitly  analyzing  the&#xA;  consequences  of  trading rules that presumably are really common&#xA;  knowledge; it is deficient to the extent it assumes other features to&#xA;  be common knowledge, such as one player’s probability assessment about&#xA;  another’s preferences or information. &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;I foresee the progress of game&#xA;  theory as depending on successive reductions in the base of common&#xA;  knowledge required to conduct useful analyses of practical problems.&#xA;  Only by repeated weakening of common knowledge assumptions will the&#xA;  theory approximate reality. Wilson (1987)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Bergemann and Morris have done some nice research on this issue. Maybe you want to read this &lt;a href=&quot;https://cpb-us-w2.wpmucdn.com/campuspress.yale.edu/dist/3/352/files/2010/11/0700000057-Bergemann-Vol8-MIC-057.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;essay&lt;/a&gt; or get a copy of their &lt;a href=&quot;https://rads.stackoverflow.com/amzn/click/com/B00ANYSGZO&quot; rel=&quot;nofollow noreferrer&quot; rel=&quot;nofollow noreferrer&quot;&gt;book&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="11590" LastActivityDate="2019-03-29T13:27:58.647" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27528" PostTypeId="1" CreationDate="2019-03-29T20:36:31.150" Score="1" ViewCount="764" Body="&lt;p&gt;My textbook says the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;Perfectly competitive markets only achieve productive efficiency if you assume that there are no economies of scale in the industry.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why is this the case? And by &quot;in the industry&quot; does it mean external economies of scale? &lt;/p&gt;&#xA;" OwnerUserId="21664" LastEditorUserId="1601" LastEditDate="2019-03-29T22:11:11.123" LastActivityDate="2020-02-18T15:48:33.687" Title="Perfectly competitive firms. Economies of scale" Tags="&lt;microeconomics&gt;" AnswerCount="4" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27529" PostTypeId="1" CreationDate="2019-03-29T22:45:13.740" Score="0" ViewCount="43" Body="&lt;p&gt;I've been estimating some non-linear Macroeconomic models.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a field, do we care about complex roots of the autoregressive matrix? Is there any reason to think the real word processes have real roots?&lt;/p&gt;&#xA;" OwnerUserId="4938" LastActivityDate="2019-03-30T12:11:54.723" Title="Are Complex Roots in Macroeconomics OK?" Tags="&lt;macroeconomics&gt;&lt;time-series&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27531" PostTypeId="1" CreationDate="2019-03-30T08:10:59.450" Score="1" ViewCount="35" Body="&lt;p&gt;In physics the occurence of &lt;a href=&quot;https://en.wikipedia.org/wiki/Resonance&quot; rel=&quot;nofollow noreferrer&quot;&gt;resonance&lt;/a&gt; is explained and widely understood in its linear form and subject to research in &lt;a href=&quot;https://en.wikipedia.org/wiki/Nonlinear_resonance&quot; rel=&quot;nofollow noreferrer&quot;&gt;nonlinear resonance&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Example for instance are resonant frequencies of objects.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now it is not so much of a stretch of imagination to look for resonance in economic times series.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Correlation_and_dependence&quot; rel=&quot;nofollow noreferrer&quot;&gt;Correlation&lt;/a&gt; is only a linear measure of linking time series and it doesnt explain the mechanism for resonance.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can we explain selloffs and squeezes by resonant interactions of a complex system and is it possible to detect resonance in stock price time series of multiple stocks?&lt;/p&gt;&#xA;" OwnerUserId="21668" LastActivityDate="2019-03-30T08:10:59.450" Title="Is there such a thing as resonance in economic underliers?" Tags="&lt;mathematical-economics&gt;&lt;time-series&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27533" PostTypeId="1" CreationDate="2019-03-30T11:48:55.863" Score="3" ViewCount="36" Body="&lt;p&gt;I'm trying to model/understand the following intuition:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Company makes a product&lt;/li&gt;&#xA;&lt;li&gt;Product gets sold, company makes a profit&lt;/li&gt;&#xA;&lt;li&gt;Company does something with the profit to become &quot;better&quot; at what they do: hire better people, improve their technology, etc&lt;/li&gt;&#xA;&lt;li&gt;Company makes a better product&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Most of the theories I've come across seem to assume companies operate at a constant efficiency. How do you model company improvements (both product and process innovations) that come from profits? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The broader question I'm trying to understand is - how to you measure/correlate/predict company improvements from profitability? &lt;/p&gt;&#xA;" OwnerUserId="21671" LastEditorUserId="21671" LastEditDate="2019-04-01T06:00:39.193" LastActivityDate="2019-04-01T06:00:39.193" Title="Are that models that explain how companies become more efficient?" Tags="&lt;microeconomics&gt;&lt;investment&gt;&lt;innovation&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="27534" PostTypeId="2" ParentId="27529" CreationDate="2019-03-30T12:11:54.723" Score="1" Body="&lt;p&gt;As regards dynamic convergence and stability, complex roots are associated either with a stable orbit around the fixed point, or with convergence to the fixed point by damped oscillations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Check also &lt;a href=&quot;https://wordpress.com/post/alecospapadopoulos.wordpress.com/197&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://wordpress.com/post/alecospapadopoulos.wordpress.com/197&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2019-03-30T12:11:54.723" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27535" PostTypeId="1" CreationDate="2019-03-30T15:11:21.213" Score="3" ViewCount="53" Body="&lt;p&gt;Using the following nested CES function &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/0Q2o7.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/0Q2o7.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have backed out augmentation indices &lt;span class=&quot;math-container&quot;&gt;$A_L$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$A_E$&lt;/span&gt;. Where &lt;span class=&quot;math-container&quot;&gt;$A_L$&lt;/span&gt; is a labour-augmenting technical change index and &lt;span class=&quot;math-container&quot;&gt;$A_E$&lt;/span&gt; is an energy-augmenting technical change index. &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt; is GDP, &lt;span class=&quot;math-container&quot;&gt;$K$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$L$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$E$&lt;/span&gt; are factors of production.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Implied technical change indices are shown below:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/P0jq1.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/P0jq1.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What puzzles me is that the energy-augmenting technical change index &lt;span class=&quot;math-container&quot;&gt;$A_E$&lt;/span&gt; is downward sloping (or has a negative growth rate). Usually, one would expect technical change to have a positive trend or at least no trend (no growth). I am now trying to make sense of this result.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One possible explanation I can think of is the presence of energy efficiency rebound effect. As energy-specific technologies are introduced, greater quantities of energy is consumed since the technical progress reduces the price of effective energy. Cheap energy induces greater consumption offsetting the efficiency gains.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would appreciate your comments and suggestions.&lt;/p&gt;&#xA;" OwnerUserId="20729" LastEditorUserId="1601" LastEditDate="2019-03-30T16:28:36.017" LastActivityDate="2019-03-30T16:28:36.017" Title="Can technical change have a negative growth rate?" Tags="&lt;macroeconomics&gt;&lt;production-function&gt;&lt;energy-economics&gt;&lt;directed-technical-change&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27536" PostTypeId="2" ParentId="27528" CreationDate="2019-03-30T15:25:11.103" Score="0" Body="&lt;p&gt;Q1: In the long run, firms operate at the lowest cost point on LRAC curve in perfectly competitive market. That's to say that all scale economies are competed away. Thus, perfectly competitive firms produce at the lowest cost point (on LRAC) which results in productive efficiency.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If there are scale economies to make, firms have yet to achieve productive efficiency by undercutting competition. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Q2: Yes, there are no internal/external economies of scale.&lt;/p&gt;&#xA;" OwnerUserId="20729" LastActivityDate="2019-03-30T15:25:11.103" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27537" PostTypeId="1" AcceptedAnswerId="27542" CreationDate="2019-03-30T20:13:01.750" Score="0" ViewCount="133" Body="&lt;p&gt;I am reading &lt;strong&gt;&lt;em&gt;Monetary policy, inflation, and the business cycle: an introduction to the new Keynesian framework and its applications&lt;/em&gt;&lt;/strong&gt; by Gali.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In section 3.1 he presents/defines the consumption as&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;C_t:= \left(\int^1_0C_t(i)^{\frac{\epsilon-1}{\epsilon}}di\right)^{\frac{\epsilon}{\epsilon-1}}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\epsilon$&lt;/span&gt; is the elasticity of substitution and &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; indexes the goods available for consumption. It is related to the New Keynesian Model.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Can someone give me &lt;em&gt;verbal&lt;/em&gt; explanation of why it make sense to define the consumption this way?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$C_t(i):$&lt;/span&gt; How should interpret the &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;-line? &lt;/p&gt;&#xA;" OwnerUserId="6611" LastEditorUserId="1601" LastEditDate="2019-03-31T09:40:35.540" LastActivityDate="2019-03-31T14:11:38.257" Title="Why consumption is defined as $ C_t:= \left(\int^1_0C_t(i)^{\frac{\epsilon-1}{\epsilon}}di\right)^{\frac{\epsilon}{\epsilon-1}} $" Tags="&lt;macroeconomics&gt;&lt;consumption&gt;&lt;new-keynesian-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27538" PostTypeId="1" AcceptedAnswerId="27550" CreationDate="2019-03-30T21:34:17.987" Score="3" ViewCount="100" Body="&lt;p&gt;Marginal cost of production always increases, while marginal benefit of production decreases. As far as I understand, that is why the supply curve has positive slope and the demand curve negative slope.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't understand, though, how this can be compatible with the &quot;economies of scale&quot; everyone is always talking about. One theory says increased production should increase marginal opportunity costs, while another says it should &lt;em&gt;decrease&lt;/em&gt; marginal opportunity cost. So, what is actually going on?&lt;/p&gt;&#xA;" OwnerUserId="21674" LastActivityDate="2019-04-01T13:42:12.533" Title="How do you reconcile the Law of Increasing Opportunity Costs and Economies of Scale?" Tags="&lt;microeconomics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27539" PostTypeId="1" AcceptedAnswerId="27543" CreationDate="2019-03-31T05:00:25.343" Score="0" ViewCount="40" Body="&lt;p&gt;Say that a company has a debt of 10 million $US&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But from that debt, the company has to pay 2 million $US today. The rest of the debt has to be payed next year and later.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there a term for the debt that has to be paid today?&lt;/p&gt;&#xA;" OwnerUserId="5161" LastActivityDate="2019-03-31T21:34:32.680" Title="What's the term for the debt you have to pay today?" Tags="&lt;debt&gt;&lt;definition&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27540" PostTypeId="1" AcceptedAnswerId="27546" CreationDate="2019-03-31T06:36:33.077" Score="1" ViewCount="26" Body="&lt;p&gt;Are the retirement plans insured in the USA? Or the clients of the pension funds can lose their pensions completely in case the pension funds are going bankrupt?&lt;/p&gt;&#xA;" OwnerUserId="5161" LastActivityDate="2019-03-31T12:38:06.533" Title="Are the retirement plans insured in the USA?" Tags="&lt;finance&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27541" PostTypeId="1" CreationDate="2019-03-31T09:13:56.590" Score="1" ViewCount="23" Body="&lt;p&gt;Is my understanding correct:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;In history (ancient, medieval) money was directly created by governments, therefore any monetary expansion meant 100% net profit for government, which could be used to finance whatever governemnt needs. The problem was that government (King) had strong incentive to create too much money, which caused serious inflation.&lt;/li&gt;&#xA;&lt;li&gt;In modern states money is created by central bank, which lends them to private banks, which lend them further. Profit is generated by interest from this lending. The beneficiary of this profit is whoever owns shares in the involved banks. Those are typically wealthy people who have more savings. The government is typically rather borrowing (and paying interests) due deficit spending.&lt;/li&gt;&#xA;&lt;li&gt;Monetary expansion and resulting inflation goes at the expense of everybody else in the economy (those who owns money, but does not own money-issuing authorities). While in the old system government benefited at the expense of everybody else, in the new system bankers and share-holders benefit at the expense of everybody else. In the old system monetary expansion was like property-tax (i.e. decreasing inequality). In the new system it increase inequality as mostly rich people own shares of money-issuing authorities. &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="21675" LastEditorUserId="1601" LastEditDate="2019-03-31T09:39:02.327" LastActivityDate="2019-03-31T09:39:02.327" Title="Who profits from monetary expansion?" Tags="&lt;monetary-policy&gt;&lt;quantity-theory-of-money&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="27542" PostTypeId="2" ParentId="27537" CreationDate="2019-03-31T09:42:46.317" Score="1" Body="&lt;p&gt;For some reason Ubiquitous edited this information into the question, rather posting it as an answer:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; indexes the goods available for consumption&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Integrals are just sums with a lot of components (technically infinite). Here the space of goods is assumed to have large dimension, rather than just consisting of two or three types of goods.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2019-03-31T14:11:38.257" LastActivityDate="2019-03-31T14:11:38.257" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27543" PostTypeId="2" ParentId="27539" CreationDate="2019-03-31T09:45:20.210" Score="2" Body="&lt;p&gt;Are you thinking of &quot;due debt&quot;?&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2019-03-31T09:45:20.210" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27545" PostTypeId="1" CreationDate="2019-03-31T10:23:24.493" Score="1" ViewCount="123" Body="&lt;p&gt;Recently I heard from Richard Koo's video, that central banks have injected so much money to the banking system. There is enough reserves in the U.S. banking system to increase money supply 16 times. In other words, according to Richard Koo, the inflation should have been around 1600% over the last 10 years. However, as per the inflation reported by the federal reserve, it is still under 2%.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand that the asset prices have gone up in the last 10 years in terms of stock prices and housing prices. But why is inflation still low? &lt;/p&gt;&#xA;" OwnerUserId="21681" OwnerDisplayName="nsivakr" LastEditorUserId="6210" LastEditDate="2019-04-01T06:00:33.460" LastActivityDate="2019-04-01T06:00:33.460" Title="Why inflation is still reported low?" Tags="&lt;inflation&gt;&lt;quantitative-easing&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="27546" PostTypeId="2" ParentId="27540" CreationDate="2019-03-31T12:38:06.533" Score="3" Body="&lt;p&gt;The &lt;a href=&quot;https://www.pbgc.gov/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Pension Benefit Guaranty Corporation&lt;/a&gt; is the government entity responsible for insuring private sector pensions against the event that a corporation cannot pay their obligations.&lt;/p&gt;&#xA;" OwnerUserId="264" LastActivityDate="2019-03-31T12:38:06.533" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27547" PostTypeId="2" ParentId="27545" CreationDate="2019-03-31T13:43:45.810" Score="4" Body="&lt;p&gt;There's a pretty simple answer to that.  The money injected into the banking system does not acquire any velocity- it just gets redeposited at the Fed.  If they had spent the same amount of money into the general economy in the form of goods and services, then you would have seen higher inflation.  &lt;/p&gt;&#xA;" OwnerUserId="13062" LastActivityDate="2019-03-31T13:43:45.810" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27548" PostTypeId="1" CreationDate="2019-03-31T16:19:31.290" Score="3" ViewCount="262" Body="&lt;p&gt;In my study I will look for the relationship between the Gini coefficient and trade, FDI and other variables. However, as I was regressing it... the result turn out to be insignificant. My data that I used then were 'trade as a percentage to GDP' and 'FDI as a percentage to GDP'.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand, when I regress it with just the total of trade and FDI... it brings a somewhat significant result.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can I drop the 'as a perentage of GDP'? And just use the total trade and FDI without that?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Plus I only have 16 years worth of data, though.&lt;/p&gt;&#xA;" OwnerUserId="21678" LastEditorUserId="8855" LastEditDate="2019-04-01T06:00:40.197" LastActivityDate="2020-03-07T03:49:15.877" Title="What's the use of '% to GDP' type of variables?" Tags="&lt;macroeconomics&gt;&lt;regression&gt;" AnswerCount="4" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27549" PostTypeId="2" ParentId="27548" CreationDate="2019-03-31T17:45:45.837" Score="5" Body="&lt;p&gt;Imagine that I am trying to determine whether eating corn has any effect on your height. I see that in the US, total corn consumption is 20 million tons per year (made up number, all others will be made up as well) and adding up the heights of the 300 million citizens we get 500 million meters. Similar statistics for France are 4 million tons per year and 100 million meters. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Total American corn consumption was higher, as well as total American height.&#xA;Is this because corn has an effect on height? Or is it that both statistics are likely to be proportional to the size of the country (measured here by population)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Depending on what your exact hypothesis is, you may want to filter out size effects by measuring these statistics of the national accounts as % of GDP. &lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2019-04-03T07:42:45.740" LastActivityDate="2019-04-03T07:42:45.740" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27550" PostTypeId="2" ParentId="27538" CreationDate="2019-03-31T18:51:36.207" Score="5" Body="&lt;p&gt;You are correct that an uniformly increasing cost of production cannot exist alongside economies of scale. A constant returns to scale production function is homogeneous of degree one:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$ f(\lambda x, \lambda y) =  \lambda  \cdot f(x, y)$$&lt;/span&gt;&#xA;That is, when you double all the inputs you also double the output. An increasing returns to scale production function is one for &lt;span class=&quot;math-container&quot;&gt;$\lambda &amp;gt; 1$&lt;/span&gt; (so that you actually increase the resources) in which &lt;span class=&quot;math-container&quot;&gt;$f(\lambda x, \lambda y) &amp;gt;  \lambda  \cdot f(x, y)$&lt;/span&gt;  (e.g. double the inputs and more than double the outputs for at least some combinations of inputs). However, it is problematic for a production function to have increasing returns to scale for all levels of inputs. Increasing returns to scale means fewer and fewer inputs are needed for each marginal unit of output. This generally means that marginal cost of production is also falling. This has all sorts of bizarre consequences, including the potential for indeterminacy (multiple equilibrium levels of output), downward sloping supply curves, and equilibrium non-existence. We also don't generally think it is true in reality. It is widely observed that beyond a certain scale most industries do not exhibit further returns to scale. For some industries, like dry cleaning, this scale is quickly reached, for others, like automobile manufacturing or social networks it may be very large indeed. But we generally believe that eventually the marginal cost of production will rise with scale. Even if we bought exactly the same car in same color, we'd still eventually want so many that the cost of labor, rubber, and metal would rise from that demand, driving up the marginal cost. We also face dis-economies of scale like managerial incentive problems and other  difficulties of managing and controlling an increasingly large institution.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is worth noting that you can have increasing returns to scale but decreasing marginal product of inputs. For example, the production function:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$y(\ell, k) = \ell ^ {.75} \cdot k ^ {0.6}$$&lt;/span&gt;&#xA;has increasing returns to scale:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$y(\lambda \ell, \lambda k) = \lambda^{1.35} \ell ^ {.75} \cdot k ^ {0.6} &amp;gt; \lambda \cdot  \ell ^ {.75} \cdot k ^ {0.6} $$&lt;/span&gt;&#xA;But holding fixed the other input, we can see that the marginal product of both &lt;span class=&quot;math-container&quot;&gt;$\ell$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$k$&lt;/span&gt; are decreasing in that input. E.g.:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$ \frac{\partial y}{\partial \ell} = 0.75 \ell ^ {-0.25} \cdot k ^ {0.6}$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$ = 0.75 \frac{k ^ {0.6}} {\ell ^ {0.25}} $$&lt;/span&gt;&#xA;Similarly:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$ \frac{\partial y}{\partial k} = 0.6 \ell ^ {0.75} \cdot k ^ {-0.4}$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$ = 0.6 \frac{\ell ^ {0.75}} {k ^ {0.4}} $$&lt;/span&gt;&#xA;We could also continue this and show that the second derivatives here were both negative, which means decreasing marginal product from each input&#xA;&lt;span class=&quot;math-container&quot;&gt;$$ \frac{\partial^2 y}{\partial \ell^2}  = -0.75\cdot 0.25 \frac{k ^ {0.6}}{ \ell ^ {1.25}}$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$ \frac{\partial^2 y}{\partial k^2}  = -0.6\cdot 0.4 \frac{\ell ^ {0.75}}{ \ell ^ {1.4}}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note the cross-partial  is positive, which is how this economy still has increasing returns to scale:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$ \frac{\partial y}{\partial \ell} \frac{\partial y}{\partial k} = 0.75 \cdot 0.6 \frac{1} { \ell ^ {0.25} \cdot k ^ {0.4}} &amp;gt; 0 $$&lt;/span&gt;&#xA;which is positive.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Both arguments show that the marginal product of the input decreases as the quantity of that input rises. This holds even though the production function shows increasing returns (and is actually homogeneous of degree 1.35). &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2019-04-01T13:42:12.533" LastActivityDate="2019-04-01T13:42:12.533" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27551" PostTypeId="1" AcceptedAnswerId="27580" CreationDate="2019-03-31T20:07:54.053" Score="1" ViewCount="62" Body="&lt;p&gt;I have a question regarding a pooled OLS regression. Basically, I’m not sure I’m writing out the equation properly.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The data is on feature films released between 2006 and 2016 (11 years); box office revenue is the dependent variable. What I’m interested in is the coefficient of the variable &lt;em&gt;CritSentiment&lt;/em&gt; and if it increases over time (&lt;em&gt;CritSentiment&lt;/em&gt; is a binary variable that takes the value 1 if critical reception for a film is positive and 0 otherwise).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So aside from a bunch of film-specific controls (such as production budget), I’m including yearly time dummies to control for any trend-effects, as well as interaction terms between these time dummies and &lt;em&gt;CritSentiment&lt;/em&gt;. The coefficients of these interaction terms should measure the estimated difference between the coefficient of &lt;em&gt;CritSentiment&lt;/em&gt; in year &lt;em&gt;t&lt;/em&gt; and the coefficient in the (omitted) base year.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\textit{Revenue}_{it} = \alpha + \beta_1 \textit{Budget}_{it} + \ ... \ + \beta_{15} CritSentiment_{it} \ + \sum_{t=1}^{11-1} \gamma_t Year_t \ + \sum_{t=1}^{11-1} \delta_{t} Year_{it} CritSentiment_{it} \ + \epsilon_{it}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I’m unsure about is basically just whether the above equation correctly assigns the &lt;em&gt;i&lt;/em&gt; and &lt;em&gt;t&lt;/em&gt; subscripts, which I find a bit confusing (especially when it comes to the intercept and interaction terms).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks a lot in advance.&lt;/p&gt;&#xA;" OwnerUserId="21679" LastActivityDate="2019-04-01T23:10:19.490" Title="Correct Equation for Pooled OLS Regression (with Time Dummies and Interaction Terms)" Tags="&lt;regression&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27552" PostTypeId="2" ParentId="27548" CreationDate="2019-03-31T20:35:25.170" Score="2" Body="&lt;p&gt;Complementing @Giskard's answer, when you are using &quot;trade as a perentage of gdp&quot; or &quot;FDI as a percentage of GPD&quot;, you are measuring the extent to which an economy is open to trade, or to inflows and outflows of international investment. Thus, &quot;trade as a perentage of gdp&quot; measures a country's trade openness, while increasing trade per se does not necessarily increase trade openness (for example a country may produce more and export more). Thus, the use of &quot;trade&quot; and &quot;trade as a percentage of GDP&quot; measures different economic phenomena.&lt;/p&gt;&#xA;" OwnerUserId="6168" LastActivityDate="2019-03-31T20:35:25.170" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27553" PostTypeId="1" AcceptedAnswerId="27555" CreationDate="2019-03-31T21:09:34.347" Score="1" ViewCount="416" Body="&lt;p&gt;&lt;a href=&quot;https://wolfstreet.com/2018/10/09/why-did-qe-money-printing-not-cause-consumer-price-inflation/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Wolfstreet claims that&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;It’s true that despite QE globally – not just in Japan – there has been relatively little consumer price inflation in the countries whose central banks perpetrated it. But it has caused enormous asset-price inflation. We call it the “Everything Bubble” where practically all asset classes globally have become ludicrously inflated.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Is this correct? I'm having doubts because what is a bubble is usually hard to define. How is this &quot;everything bubble&quot; different from just growth that QE is supposed to stimulate?&lt;/p&gt;&#xA;" OwnerUserId="6210" LastActivityDate="2020-05-08T09:54:22.367" Title="Did (or can) quantitative easing cause an &quot;everything bubble&quot;?" Tags="&lt;asset-pricing&gt;&lt;quantitative-easing&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27554" PostTypeId="2" ParentId="27539" CreationDate="2019-03-31T21:34:32.680" Score="2" Body="&lt;p&gt;Debt due today is an example of a &lt;a href=&quot;https://www.investopedia.com/terms/c/currentliabilities.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;current liability&lt;/a&gt;, although that term also includes liabilities due within one year, and is contrasted with long-term liabilities which are those due in more than one year.&lt;/p&gt;&#xA;" OwnerUserId="1417" LastActivityDate="2019-03-31T21:34:32.680" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27555" PostTypeId="2" ParentId="27553" CreationDate="2019-03-31T21:55:29.613" Score="2" Body="&lt;p&gt;It’s an editorial opinion, and it’s hard to give it a technical meaning. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The distinction being made in the text is between growth in the “real economy” - which would be measured by GDP and/or consumer price inflation - and growth in asset values. For example, there could be no direct job creation because of QE, just equity prices going up.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, this is an opinion/claim that is hard to evaluate. One argument is that QE would first lower term interest rates (by reducing the stock of debt outstanding and/or signalling that the policy rate would be lower for longer), and this should raise other asset values by decreasing discount rates. (Please note that how QE affected interest rates was the subject of some theoretical controversy; I believe that other questions here discuss this. I am summarising one standard interpretation.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The idea is that there is a link between rising asset prices and economic activity (known as the &lt;em&gt;wealth effect&lt;/em&gt;). Since we do not know how many jobs would have been created in the absence of QE, we cannot be sure how large this effect is.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2019-03-31T21:55:29.613" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27556" PostTypeId="2" ParentId="27553" CreationDate="2019-03-31T22:35:39.170" Score="0" Body="&lt;p&gt;A &lt;a href=&quot;https://www.philadelphiafed.org/-/media/research-and-data/publications/economic-insights/2016/q1/eiq116_did-quantitative_easing_work.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;2016 Phil Fed paper&lt;/a&gt; does mention toward the end that&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;a policy of prolonged monetary accommodation has increased risk-taking behavior among investors. With yields on long-term assets very low, investors&#xA;  may allot a greater share of their portfolios to riskier assets,&#xA;  such as stocks or high-yield corporate “junk” bonds. Such&#xA;  “reaching for yield” leaves investors’ portfolios more sensitive&#xA;  to interest rate changes and market volatility. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So possibly there's a behavioral component there to worry about. But this is probably explaining only a small part of the &quot;everything bubble&quot;. I suspect even this component may be hard to quantify. But this seems to predict a &quot;biased bubble&quot; toward the riskier assets, rather than everything. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And &lt;a href=&quot;https://doi.org/10.1080/13504851.2017.1324604&quot; rel=&quot;nofollow noreferrer&quot;&gt;a paper&lt;/a&gt; that I've just discovered has as abstract:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Expansionary monetary policy is necessary to respond to financial crises. However, if Central Bank asset purchase initiatives are too large or last too long, they can lead to explosive increases in asset prices which add to the risk of a future crisis. This article employs two models including the Campbell–Shiller and Generalized Supremum Augmented Dickey Fuller techniques to search for bubbles in the US equity, housing and bond markets over the past eight years. Although, we find that prices in equities and housing have risen following Federal Reserve intervention, there is little indication of asset price bubbles. There is evidence of explosive bond price increases from September of 2011 to February of 2013.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So it looks like excessive QA could do that (in theory), but there's little evidence that (as implemented by the Fed) it did any.&lt;/p&gt;&#xA;" OwnerUserId="6210" LastEditorUserId="6210" LastEditDate="2019-03-31T22:55:44.183" LastActivityDate="2019-03-31T22:55:44.183" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27557" PostTypeId="1" CreationDate="2019-04-01T00:17:54.497" Score="2" ViewCount="68" Body="&lt;p&gt;If, for instance, my dependent variable is some happiness index, and my independent variable is a dummy for whether they experienced some randomly occurred natural disaster. I am trying to analyze the effect of having experienced that disaster on the happiness index.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am using a fixed effects model.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have basically two interrelated questions:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;What I read so far is that in regressions, control variables need to be correlated with both (primary) x and y variables. If that is the case I do not see a lot of variables that are correlated with both the disaster and happiness, besides:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Wealth (the poor are affected more by the disaster; wealth is also correlated to happiness)&lt;/li&gt;&#xA;&lt;li&gt;Some disaster-induced variable like dummies for whether the disaster affected their water source, whether they had to live in a temporary shelter (tents), whether their livestock was killed, etc., which are all correlated with happiness.&#xA;However, I also think that if I control for both of these factors, then I am controlling for the mechanism in which an individual's happiness could be affected by the disaster, i.e. taking away the effect of the earthquake-induced factors in the second point above. Am I thinking correctly?&lt;/li&gt;&#xA;&lt;/ul&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Is it plausible to control for factors like age, education, etc.? These factors influence happiness (may even influence post-disaster happiness), but these variables like age are not directly correlated with whether they experienced disaster or not. Am I thinking correctly?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="21576" LastActivityDate="2019-04-01T07:50:43.403" Title="Should the control variables in an econometric regression be correlated with both the dependent and the primary independent variables?" Tags="&lt;econometrics&gt;&lt;regression&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27558" PostTypeId="1" CreationDate="2019-04-01T01:06:34.110" Score="4" ViewCount="378" Body="&lt;p&gt;The &lt;a href=&quot;https://www.federalreserve.gov/aboutthefed/section2a.htm&quot; rel=&quot;noreferrer&quot;&gt;Federal Reserve Act Section 2A&lt;/a&gt; states:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy's long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Three goals are given, namely:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Maximum employment;&lt;/li&gt;&#xA;&lt;li&gt;Stable prices; and&lt;/li&gt;&#xA;&lt;li&gt;Moderate long-term interest rates.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;So why is it that many (or even most) writings* usually refer only to the dual mandate, i.e. the first two goals of maximum employment and stable prices? Why do they seem to ignore the third goal of moderate long-term interest rates?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is it because the third goal is less important? Or perhaps because the third goal somehow follows automatically if the first two are fulfilled?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;*Examples: &lt;a href=&quot;https://www.chicagofed.org/research/dual-mandate/dual-mandate&quot; rel=&quot;noreferrer&quot;&gt;Chicago Fed&lt;/a&gt;, &lt;a href=&quot;https://www.richmondfed.org/publications/research/economic_brief/2011/eb_11-12&quot; rel=&quot;noreferrer&quot;&gt;Richmond Fed&lt;/a&gt;, &lt;a href=&quot;https://www.stlouisfed.org/open-vault/2018/august/federal-reserve-dual-mandate&quot; rel=&quot;noreferrer&quot;&gt;St. Louis Fed&lt;/a&gt;. Indeed, the last says the following but gives no explanation:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;But wait a minute: None of this sounds like a dual mandate. Rather, it sounds as if Congress has given the Fed three mandates—if not four. Over the years, the mandates were boiled down to two: maximum employment and price stability. And now, some say the central bank can focus on price stability.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerDisplayName="user14083" LastEditorDisplayName="user14083" LastEditDate="2019-04-01T01:11:38.780" LastActivityDate="2019-04-06T00:00:25.973" Title="Why are the Fed's goals often described as the &quot;dual mandate&quot; and not the &quot;triple mandate&quot;?" Tags="&lt;inflation&gt;&lt;interest-rate&gt;&lt;central-banking&gt;&lt;unemployment&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27559" PostTypeId="1" CreationDate="2019-04-01T02:31:38.383" Score="1" ViewCount="53" Body="&lt;p&gt;In the quarter ended in March, IBM’s revenues rose by 5.1 percent to \$19.1 billion, and its gross profits were up by 6.1 percent to \$8.25 billion. There were a whole bunch of things that affected the bottom line in the quarter, including a settlement of two audits by the US Internal Revenue Service that gave it back \$810 million, but IBM then took \$610 million in restructuring charges for unspecified layoffs. The company also took some charges – IBM’s chief financial officer, Jim Cavanaugh, did not say how much – that pushed its overall systems business into the red ink.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why did US IRS gave 810 to IBM? and what do they mean by saying bottom line?&lt;/p&gt;&#xA;" OwnerUserId="20393" LastEditorDisplayName="user18" LastEditDate="2019-04-01T02:42:06.827" LastActivityDate="2021-04-20T18:00:49.350" Title="What do they mean by “bottom line” and why did US IRS turned back 810 millions to IBM? and what do they mean by “unspecified “ layoffs?" Tags="&lt;reference-request&gt;&lt;data-request&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="27560" PostTypeId="1" CreationDate="2019-04-01T04:53:25.930" Score="1" ViewCount="308" Body="&lt;p&gt;Mishkin (2016, p. 476) writes:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Barriers to free trade such as &lt;strong&gt;tariffs&lt;/strong&gt; (taxes on imported goods) and &lt;strong&gt;quotas&lt;/strong&gt; (restrictions on the quantity of foreign goods that can be imported) can affect the exchange rate. Suppose the United States increases its tariff or puts a lower quota on Japanese steel. These increases in trade barriers increase the demand for American steel, and the dollar tends to appreciate because American steel will still sell well even with a higher value of the dollar. &lt;strong&gt;&lt;em&gt;Increasing trade barriers causes a country’s currency to appreciate in the long run.&lt;/em&gt;&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I do not quite understand why this is so.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here are two simple thought experiments where the US imposing trade barriers might cause the USD to depreciate:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;The US imposes a quota on the import of Japanese steel. However, US demand for Japanese steel is inelastic, so that the JPY required to buy the quota of Japanese steel is actually higher than before. Since demand for JPY rises, the USD depreciates.&lt;/li&gt;&#xA;&lt;li&gt;Say that soybeans are the only US export and foreigners want USD only to buy US soybeans. Say now that the US bans the export of soybeans. Then wouldn't demand for USD fall, so that the USD falls?&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerDisplayName="user14083" LastActivityDate="2019-04-01T10:29:10.120" Title="&quot;Increasing trade barriers causes a country’s currency to appreciate&quot;?" Tags="&lt;international-trade&gt;&lt;currency&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="27561" PostTypeId="2" ParentId="27553" CreationDate="2019-04-01T06:02:45.717" Score="-1" Body="&lt;p&gt;While it is difficult or impossible to prove that QE has created the Everything Bubble, look at it the other way around. Don’t look at the consequences, but look at what’s changed in the financial world. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Rates are near zero in the rest of the world. US has raised rates a little since crisis and considers stopping or even lowering.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Investors have heavily invested into real estate since crisis. Europe which has negative or near zero rates has rapid increases of property prices.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A larger proportion of the general population is investing into stocks, and convinced it’s the right thing to do. Stocks have been only going up since crisis (at least in US). The general public is fed the lesson that the share market is the place to invest and put your money if you want &lt;strong&gt;any&lt;/strong&gt; return for the future.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This has fed social investing apps like BUX, Robinhood, eToro etc. Investing in general helped by Internet 3.0 has exploded. Margin Trading is en vogue.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This scenario shares some similarity to the financial crisis from the 1920‘s.&#xA;Back then the officials even were promising a golden age of wealth through shares. People were borrowing money to buy shares posting the shares in return as collateral.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;More specifically QE directly increases money supply, thereby devaluing the USD. The route taken by Europe was different — lower rates and debt buyback and pushing rates lower on long terms. Devaluing the USD and increasing money supply had to have created some kind of asset inflation. That’s just simply economics. Now why it is not noticeable in common inflation numbers is not known and open to debate. Some argue that the way the CPI figures for instance are calculated is skewed and not calculated correctly to represent inflation. Also CPI is only one subset of everything. It’s a fact that real estate is getting too expensive for the regular workers, people are getting priced out of the market, and rents are rising too fast compared to wages. There is inflation there for sure!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;TLDR&lt;/strong&gt;;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Yes. It is very likely this is the Everything Bubble. &#xA;In which way this will burst and what will be the trigger  — no one is able to say yet. Most likely candidate is &lt;strong&gt;corporate credit&lt;/strong&gt;, since low rates have fueled a corporate credit expansion unlike any time before (think Netflix, Tesla and unicorns).&lt;/p&gt;&#xA;" OwnerUserId="21668" LastEditorUserId="4020" LastEditDate="2020-05-08T09:54:22.367" LastActivityDate="2020-05-08T09:54:22.367" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27563" PostTypeId="1" CreationDate="2019-04-01T06:45:18.980" Score="2" ViewCount="57" Body="&lt;p&gt;I have a 'hobbyist' interest in economics (read several popular science econ books and listen to a lot of podcasts). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Recently I've been trying to take this further by looking at courses in economics. I have a strong maths background (PhD in stats), and I find a lot of early undergraduate courses interesting, but they often seem to ignore the underlying maths, so feel like they are missing out some important detail. On the other hand, I find graduate level courses a good level but feel like they don't build my economics 'intuition'; which I get the impression is very important to develop economic thinking.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is are there any resources that offer a good balance between the two? I'm particularly interested in macro, but any micro resources would also be interesting.&lt;/p&gt;&#xA;" OwnerUserId="21683" LastActivityDate="2019-04-01T06:51:41.517" Title="Resources for mathematician trying to develop (macro)economic thinking?" Tags="&lt;macroeconomics&gt;&lt;books&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27564" PostTypeId="2" ParentId="27563" CreationDate="2019-04-01T06:51:41.517" Score="1" Body="&lt;p&gt;You might be interested in David Romer's Advanced Macroeconomics. It's a grad-level textbook that includes grad-level math, but the focus is off the math and on the intuition. It doesn't spend much time going over certain tools, like dynamic programming, so it gets a bit hand-wave-y at some points, but it sounds like this might be the right balance for you.  &lt;/p&gt;&#xA;" OwnerUserId="19544" LastActivityDate="2019-04-01T06:51:41.517" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27566" PostTypeId="2" ParentId="27557" CreationDate="2019-04-01T07:50:43.403" Score="2" Body="&lt;p&gt;First of all, you mentioned that the disasters you are dealing with are &quot;randomly&quot; occurring.  So I want to provide the following as food for thought:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is an important question here about what your &quot;disaster&quot; variable actually measures and at what level it was &quot;randomized&quot; (if at all).  If it is measured in spatial terms (was an individual at this particular place when disaster occurred), it is hard to imagine that this would be a binary variable (you experienced a disaster or not) and not something measured on a scale (how much damage you area experienced), unless treatment and control groups are far away from each other.  But in that case, it is hard to imagine that this variable would be random (both groups having equal probability of experiencing the same or similar type of disaster).  If it is measured in temporal terms (was there a disaster on day x) and there is no spatial variation in the data, then it is also not clear whether this variable is random because a lot of places experience the same disaster year after year and changes can be made over time in the same location based on previous experiences to better plan for future events.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But if the variable is, in fact, random, then by the beauty of randomized treatment you don't need to worry about control variables because the treatment variable is exogenous.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Question 1:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In answering your questions, I am going to assume that your &quot;disaster&quot; variable is not random, which seems like a more reasonable assumption.  I am also thinking of &quot;experiencing a disaster&quot; not just as whether you were in that place or time when the disaster occurred, but as something that had a physical/physiological/mental affect on you.  If it meant just being in that place or time then it is hard to think of anything affecting someone being in that place or time without specific context.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So we have to think about possible confounding variables.  Do any variables exist that affect whether someone &quot;experiences&quot; a disaster and that also independently affect someone's happiness level?  Yes, wealth fits that criteria, as a wealthier individual may have better safeguards in place (like earthquake or flood insurance) to allow them to deal with the impact of a disaster.  Other possible variables are age and health level.  Health affects happiness and during times of disasters those living in nursing homes or having chronic conditions like kidney failure or COPD are more affected by loss of power, for example.  Similarly, whether someone lives alone can be a confounder.  Occupation can be possibly, as emergency workers may be more impacted by disasters or some other professionals may be better trained to deal with the consequences of disasters.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your thinking about not controlling for disaster-induced variables is correct.  You should not control for variables that are themselves not fixed at the time of &quot;treatment&quot;.  They should be allowed to change when your &quot;treatment&quot; variable changes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Question 2:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Like I said above, I would think of age as a confounding variable in the relationship between experiencing a disaster and happiness.  But if you have variables that you believe do not directly affect &quot;experience&quot; of a disaster but that do affect happiness, then it is still recommended to include them in the model because this reduces the error variance in the model (i.e., standard errors of coefficient estimates will be reduced).&lt;/p&gt;&#xA;" OwnerUserId="21454" LastActivityDate="2019-04-01T07:50:43.403" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27570" PostTypeId="2" ParentId="27538" CreationDate="2019-04-01T13:03:25.810" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;Marginal cost of production always increases&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;No, this depends on the assumption made about the properties of the production function. If it exhibits constant returns to scale, marginal cost is constant and equal to average cost.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An increasing marginal cost (in the output) is compatible with the production function exhibiting decreasing returns to scale.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2019-04-01T13:03:25.810" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27572" PostTypeId="2" ParentId="9023" CreationDate="2019-04-01T13:24:14.873" Score="-2" Body="&lt;p&gt;A apartment is usually a set price for all the same units as for real estate pricing they usually base what the monthly payment will be from how much was put down on the house and how many years you choose to pay it off. Not saying that there can't be similar in pricing which depends on where you are living such as city and state.Indaina Reia provide a new real estate guidlines.&lt;/p&gt;&#xA;" OwnerUserId="21689" LastActivityDate="2019-04-01T13:24:14.873" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27573" PostTypeId="2" ParentId="27558" CreationDate="2019-04-01T13:47:16.640" Score="1" Body="&lt;p&gt;The textbook answer is that the interest-rate objective is considered redundant (implied by) price stability, in the long run, i.e. low inflation is expected to bring down interest rates anyway.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's interesting that Congress actually added the (3rd) interest rate objective in 1975-1977. Maybe there's some historical context that explains their insistence on it. I don't know more.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;As for &quot;some say the central bank can focus on price stability&quot; that's an allusion to ECB's primary mandate (sometimes/unofficially called &quot;single mandate&quot;), no doubt.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;And hat-tip to BKay for bringing this up, there are indeed more similarities between the Fed and ECB; even though &lt;a href=&quot;http://mitsloan.mit.edu/shared/ods/documents/?DocumentID=2358&quot; rel=&quot;nofollow noreferrer&quot;&gt;not by law&lt;/a&gt;...&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;As&#xA;  explained in the 9th edition of the Federal Reserve’s Purposes and Functions, published in&#xA;  2005: “Stable prices in the long run are a precondition for maximum sustainable output&#xA;  growth and employment as well as moderate long-term interest rates.” In 2004, Chairman&#xA;  Greenspan pointed to the primacy of price stability in explaining the success of Federal&#xA;  Reserve policy since 1979. As he explained, this resulted from “maximizing the probabilities&#xA;  of achieving our goals of price stability and the maximum sustainable growth that we&#xA;  associate with it” (Greenspan, 2004).&#xA;  With this interpretation of the Federal Reserve’s mandate, closer comparison with that of&#xA;  the ECB suggests more similarities than differences. This is because while the mandate of&#xA;  the ECB explicitly recognizes the primacy of price stability, it does not ignore other&#xA;  objectives. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Furthermore, &lt;a href=&quot;https://www.boeckler.de/pdf/v_2008_07_27_arestis_lecture_1.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;analysis&lt;/a&gt; of actual macro models used by the ECB and the Fed (as they were in 2008 anyway) points to a number of &quot;real&quot; similarities, including the fact that neither is strictly IT (Inflation Targeting) in the sense of NCM (New Consensus Macroeconomics)... unlike that of the Bank of England, which was found to be IT.&lt;/p&gt;&#xA;" OwnerUserId="6210" LastEditorUserId="6210" LastEditDate="2019-04-06T00:00:25.973" LastActivityDate="2019-04-06T00:00:25.973" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27574" PostTypeId="2" ParentId="27559" CreationDate="2019-04-01T14:31:12.340" Score="0" Body="&lt;p&gt;As regards your second question,&lt;br&gt;&#xA;&quot;Bottom line&quot; is a descriptive term for profits/losses, visualizing that when we calculate whether we had profit or loss,  we start writing revenues then expenses and at the end we have a line that tells us the difference between the two. But since it is the &quot;last line&quot; it is also at the &quot;bottom&quot; of what we have written, hence &quot;bottom line&quot;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sometimes it is also used figuratively to indicate the &quot;end result&quot; of something other than financial activity, especially with an intent to brush away reasons and excuses why something did not happen or happened inadequately.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2019-04-01T14:31:12.340" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27575" PostTypeId="2" ParentId="27558" CreationDate="2019-04-01T14:47:04.533" Score="1" Body="&lt;p&gt;As @Fizz suggests, the moderate long-term interest rates mandate is considered redundant:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Just how is the Fed supposed to serve the national interest with this&#xA;  strange instrument called monetary policy? Under the terms of the&#xA;  Federal Reserve Act, as amended, Congress has directed the Fed to&#xA;  promote “maximum employment, stable prices, and moderate long-term&#xA;  interest rates.” That sounds like three goals, but the phrase is often&#xA;  called the Fed’s “dual mandate” because the interest rate objective is&#xA;  considered redundant. Price stability will almost certainly bring low&#xA;  long-term interest rates in its wake.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2125943&quot; rel=&quot;nofollow noreferrer&quot;&gt;Blinder (2012)&lt;/a&gt;, noting that Blinder is a former Vice Chairman of the Board of Governors of the Federal Reserve System.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is a literature that says that not only are there two mandates but that effectively that there are one, there is no real trade off between the two.  &lt;a href=&quot;https://www.sciencedirect.com/science/article/pii/S0304393214001007&quot; rel=&quot;nofollow noreferrer&quot;&gt;BLANCHARD and GALÍ (2007)&lt;/a&gt; (Real Wage Rigidities and the New Keynesian Mode) criticize this approach, which can be shown to be present only in some models.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;From a welfare point of view, the model implies that it is desirable&#xA;  to stabilize inflation and to stabilize the output gap. Equation (1)&#xA;  implies that the two goals do not conflict: Stabilizing inflation also&#xA;  stabilizes the output gap. Thus, for example, in response to an&#xA;  increase in the price of oil, the best policy is to keep inflation&#xA;  constant;doing so implies that output remains equal to its natural&#xA;  level. This property, which we shall call the divine coincidence&#xA;  contrasts with a widespread consensus on the undesirability of&#xA;  policies that seek to fully stabilize inflation at all times and at&#xA;  any cost in terms of output. That consensus underlies the medium-term&#xA;  orientation adopted by most inflation targeting central banks&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Or, said another way:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;...[T]hese findings suggest that the strong focus on inflation&#xA;  stabilization by prominent central banks like the ECB is sufficient&#xA;  for macroeconomic stabilization, and that the focus on resource&#xA;  utilization in the Fed's mandate is redundant or even harmful.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.imf.org/~/media/Files/Publications/WP/2017/wp17164.ashx&quot; rel=&quot;nofollow noreferrer&quot;&gt;Davide Debortoli, Jinill Kim, Jesper Lindé, and Ricardo Nunes (2017)&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2019-04-01T17:23:56.193" LastActivityDate="2019-04-01T17:23:56.193" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27576" PostTypeId="1" CreationDate="2019-04-01T16:25:58.063" Score="2" ViewCount="73" Body="&lt;p&gt;A rich person can own companies, shares, houses used for renting etc. that are worth billions of $US. That is the wealth that is generating income. I would call it &lt;em&gt;income-generating wealth&lt;/em&gt; or &lt;em&gt;income+jobs-generating wealth&lt;/em&gt; or &lt;em&gt;growth-generating wealth&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand, the rich person can own wealth like cash, bank accounts, houses, yachts, land used for playing golf etc. that is not used to generate income - this is a wealth that he is using for enjoying life. I would call this wealth &lt;em&gt;leisure wealth&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A rich person can have an income-generating wealth worth billions of $US and in the same time it can have a leisure wealth that is close to zero. He/she can also have an income that is equal with the medium income. And then he/she can have only his own wage as a leisure wealth.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are fundamental differences between the &lt;em&gt;income-generating wealth&lt;/em&gt; and &lt;em&gt;leisure wealth&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;The income-generating wealth is actually used to spin the wheel of the economy and it is also directly creating jobs.&lt;/li&gt;&#xA;&lt;li&gt;In the same time, the leisure wealth is used by the rich person in order to actually live like a rich guy - or to live like an average citizen - depending of his/her choice. The leisure wealth is owned on personal name (not assets owned by a company of the owner) and it's for personal use - i.e. not used by any clients (like the houses for rent)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I think there should be distinct terms for the two in order to make a clear distinction between them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there an already invented term for the wealth that I'm calling &lt;em&gt;leisure wealth&lt;/em&gt;?&lt;/p&gt;&#xA;" OwnerUserId="5161" LastEditorUserId="5161" LastEditDate="2019-04-05T01:32:08.447" LastActivityDate="2019-04-05T15:12:48.967" Title="Is there a term for the personal wealth that is not used to generate income?" Tags="&lt;definition&gt;&lt;wealth&gt;" AnswerCount="2" CommentCount="7" ContentLicense="CC BY-SA 4.0" />
  <row Id="27577" PostTypeId="1" CreationDate="2019-04-01T16:40:57.970" Score="0" ViewCount="11" Body="&lt;p&gt;The bank accounts are insured for up to $250,000 per account - &lt;a href=&quot;https://www.investopedia.com/ask/answers/08/fdic-insured-bank-account.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;link&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But how much is the amount insured for retirement plans? Say for example that one person payed one million $US in total to the retirement fund for his future retirement. In case the pension fund is going bankrupt, then how much money that person will be compensated?&lt;/p&gt;&#xA;" OwnerUserId="5161" LastActivityDate="2019-04-01T16:40:57.970" Title="How much is the amount insured for retirement plans in the USA?" Tags="&lt;finance&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="27579" PostTypeId="1" CreationDate="2019-04-01T19:18:23.743" Score="1" ViewCount="57" Body="&lt;p&gt;&lt;strong&gt;QUESTION:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume there are two types of products, labelled &lt;span class=&quot;math-container&quot;&gt;$l$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt;. Firms compete in the market by choosing which product to sell and then choosing the quantities. Let &lt;span class=&quot;math-container&quot;&gt;$Q_n$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$Q_l$&lt;/span&gt; denote the total demand of product &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$l$&lt;/span&gt;, respectively. Let the inverse demand functions be given by:&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{align*}&#xA;&amp;amp; P_l(Q_l, Q_n) = (a+\gamma) - Q_n - (1+\delta)Q_l \\&#xA;&amp;amp; P_n(Q_l, Q_n) = a - Q_n - Q_l&#xA;\end{align*}&lt;/span&gt;&#xA;where &lt;span class=&quot;math-container&quot;&gt;$P_l$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$P_n$&lt;/span&gt; denote the prices of product &lt;span class=&quot;math-container&quot;&gt;$l$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt;, respectively, and &lt;span class=&quot;math-container&quot;&gt;$a$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$\gamma$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$\delta$&lt;/span&gt; are all constants greater than zero. Let &lt;span class=&quot;math-container&quot;&gt;$q_l^i$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$q_n^i$&lt;/span&gt; denote the &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;th firm's output of product &lt;span class=&quot;math-container&quot;&gt;$l$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt;, respectively. Let &lt;span class=&quot;math-container&quot;&gt;$X_l^i$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$X_n^i$&lt;/span&gt; denote the output of the other firms producing product &lt;span class=&quot;math-container&quot;&gt;$l$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt;, respectively. Let &lt;span class=&quot;math-container&quot;&gt;$N_n$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$N_l$&lt;/span&gt; denote the number of firms selling product &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$l$&lt;/span&gt;, respectively. Let the marginal cost of producing the &lt;span class=&quot;math-container&quot;&gt;$l$&lt;/span&gt; product be &lt;span class=&quot;math-container&quot;&gt;$c_n + c_p$&lt;/span&gt; and the marginal cost of producing the &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt; product be &lt;span class=&quot;math-container&quot;&gt;$c_n$&lt;/span&gt;. Find all the sub-game perfect Nash equilibria in this game.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My working so far:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have almost solved the question but I am stuck towards the end of my working. What I've done so far is as follows. First, fix the number of firms selling each product and solve for the equilibrium quantity choices. Then, we can solve for the equilibrium number of firms making each product. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A firm choosing to sell the &lt;span class=&quot;math-container&quot;&gt;$l$&lt;/span&gt; product earns profits:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\pi_l = (P_l - c_n - c_p)q_l^i \ \cdots \ (1) $$&lt;/span&gt;&#xA;while a firm choosing to sell the &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt; product earns profits:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\pi_n = (P_n - c_n )q_n^i \ \cdots \ (2) $$&lt;/span&gt;&#xA;Noting that &lt;span class=&quot;math-container&quot;&gt;$Q_l = q_l^i + X_l^i$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$Q_n = q_n^i + X_n^i$&lt;/span&gt; and substituting into the above and then taking first-order conditions with respect to &lt;span class=&quot;math-container&quot;&gt;$q_l^i$&lt;/span&gt; (for &lt;span class=&quot;math-container&quot;&gt;$(1)$&lt;/span&gt;) and &lt;span class=&quot;math-container&quot;&gt;$q_n^i$&lt;/span&gt; (for &lt;span class=&quot;math-container&quot;&gt;$(2)$&lt;/span&gt;), respectively, yields:&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{align*}&#xA;&amp;amp; (a+\gamma) - (1+\delta)X_l^i - Q_n - (c_n + c_p) - 2(1+\delta)q_l^i = 0 \ \cdots \ (1') \\&#xA;&amp;amp; a - X_n^i - Q_l - c_n - 2q_n^i =0 \ \cdots \ (2')&#xA;\end{align*}&lt;/span&gt;&#xA;From &lt;span class=&quot;math-container&quot;&gt;$(1')$&lt;/span&gt;, the best response function of a firm choosing to sell &lt;span class=&quot;math-container&quot;&gt;$q_l^i$&lt;/span&gt; of product &lt;span class=&quot;math-container&quot;&gt;$l$&lt;/span&gt; is given by&#xA;&lt;span class=&quot;math-container&quot;&gt;$$q_l^i = \frac{(a+\gamma) - (1+\delta)X_l^i - Q_n - (c_n + c_p)}{2(1+\delta)}  $$&lt;/span&gt;&#xA;but noting that &lt;span class=&quot;math-container&quot;&gt;$X_l^i = Q_l - q_l^i$&lt;/span&gt;, we have&#xA;&lt;span class=&quot;math-container&quot;&gt;$$q_l^i = \frac{(a+\gamma) - (1+\delta)Q_l - Q_n - (c_n + c_p)}{1+\delta} \ \cdots \ (3)  $$&lt;/span&gt;.&#xA;From &lt;span class=&quot;math-container&quot;&gt;$(2')$&lt;/span&gt;, the best response function of a firm choosing to sell &lt;span class=&quot;math-container&quot;&gt;$q_n^i$&lt;/span&gt; of product &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt; is given by&#xA;&lt;span class=&quot;math-container&quot;&gt;$$q_n^i = \frac{a-X_n^i - Q_l - c_n}{2}  $$&lt;/span&gt;&#xA;but noting that &lt;span class=&quot;math-container&quot;&gt;$X_n^i = Q_n - q_n^i$&lt;/span&gt;, we have&#xA;&lt;span class=&quot;math-container&quot;&gt;$$q_n^i = a-Q_n-Q_l-c_n \ \cdots \ (4)$$&lt;/span&gt;.&#xA;Since the right-hand sides of &lt;span class=&quot;math-container&quot;&gt;$(3)$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$(4)$&lt;/span&gt; are constants, the first-order conditions imply that firms making the same product produce the same quantity in equilibrium. Since there are &lt;span class=&quot;math-container&quot;&gt;$N_n$&lt;/span&gt; firms making &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$N_l$&lt;/span&gt; firms making &lt;span class=&quot;math-container&quot;&gt;$l$&lt;/span&gt;, therefore:&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{align*}&#xA;&amp;amp; Q_l = N_lq_l^i \\&#xA;&amp;amp; Q_n = N_nq_n^i. &#xA;\end{align*}&lt;/span&gt;&#xA;Substituting in &lt;span class=&quot;math-container&quot;&gt;$(3)$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$(4)$&lt;/span&gt; we have the following:&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{align*}&#xA;&amp;amp; Q_l = N_l\left(\frac{(a+\gamma) - (1+\delta)Q_l - Q_n - (c_n + c_p)}{1+\delta}\right) \ \cdots \ (5) \\&#xA;&amp;amp; Q_n = N_n\left(a-Q_n-Q_l-c_n\right) \ \cdots \ (6)&#xA;\end{align*}&lt;/span&gt;&#xA;Solving &lt;span class=&quot;math-container&quot;&gt;$(5)$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$(6)$&lt;/span&gt; simultaneously for &lt;span class=&quot;math-container&quot;&gt;$Q_l$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$Q_n$&lt;/span&gt;, we obtain the total sales of each product (with each firm selling a given product, selling the same amount):&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{align*}&#xA;&amp;amp; Q_l(N_l, N_n) = \lambda N_l\left((N_n+1)(a + \gamma - c_n - c_p) - N_n(a-c_n) \right) \ \cdots \ (7) \\&#xA;&amp;amp; Q_n(N_l, N_n) = \lambda N_n\left((1+\delta)(N_l+1)(a-c_n) - N_l(a+\gamma - c_n - c_p) \right) \ \cdots \ (8)&#xA;\end{align*}&lt;/span&gt;&#xA;where &#xA;&lt;span class=&quot;math-container&quot;&gt;$$\lambda = \frac{1}{(1+\delta)(N_l+1)(N_n+1) - N_lN_n} $$&lt;/span&gt;. Therefore in equilibrium, the quantities chosen by firms selling &lt;span class=&quot;math-container&quot;&gt;$l$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt; are, respectively:&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{align*}&#xA;&amp;amp; q_l(N_l, N_n) = \frac{Q_l(N_l, N_n)}{N_l} \\&#xA;&amp;amp; q_n(N_l, N_n) = \frac{Q_n(N_l, N_n)}{N_n}&#xA;\end{align*}&lt;/span&gt;&#xA;To find the sub-game perfect Nash equilibrium, we need an additional property, that is, no firm can have an incentive to switch and produce the other product. The profits of firms producing &lt;span class=&quot;math-container&quot;&gt;$l$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt;, respectively, are given by&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{align*}&#xA;&amp;amp; \pi_l^i(N_l, N_n) = \left[a+\gamma - Q_n(N_l, N_n) - (1+\delta)Q_l(N_l, N_n) - c_n - c_p \right]q_l(N_l, N_n) \\&#xA;&amp;amp; \pi_n^i(N_l, N_n) = \left[a - Q_n(N_l, N_n) - Q_l(N_l, N_n) - c_n \right]q_n(N_l, N_n).&#xA;\end{align*}&lt;/span&gt;&#xA;One can show that &lt;span class=&quot;math-container&quot;&gt;$\pi_l^i(N_l, N_n)$&lt;/span&gt; is decreasing in &lt;span class=&quot;math-container&quot;&gt;$N_l$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\pi_n^i(N_l, N_n)$&lt;/span&gt; is decreasing in &lt;span class=&quot;math-container&quot;&gt;$N_n$&lt;/span&gt;. Let &lt;span class=&quot;math-container&quot;&gt;$N = N_l + N_n$&lt;/span&gt; denote the total firms in the market, then two types of equilibria can be summarized as follows:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;If &lt;span class=&quot;math-container&quot;&gt;$\pi_l(1, N-1) &amp;lt; \pi_n(0, N)$&lt;/span&gt;, each of the &lt;span class=&quot;math-container&quot;&gt;$N$&lt;/span&gt; firms sells &lt;span class=&quot;math-container&quot;&gt;$q_n^* = Q_n(0,N)/N$&lt;/span&gt; of product &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt; where &lt;span class=&quot;math-container&quot;&gt;$Q_n$&lt;/span&gt; satisfies &lt;span class=&quot;math-container&quot;&gt;$(8)$&lt;/span&gt; and no firms sell product &lt;span class=&quot;math-container&quot;&gt;$l$&lt;/span&gt;.&lt;/li&gt;&#xA;&lt;li&gt;If &lt;span class=&quot;math-container&quot;&gt;$\pi_n(N-1, 1) &amp;lt; \pi_l(N, 0)$&lt;/span&gt;, each of the &lt;span class=&quot;math-container&quot;&gt;$N$&lt;/span&gt; firms sells &lt;span class=&quot;math-container&quot;&gt;$q_l^* = Q_l(N,0)/N$&lt;/span&gt; of product &lt;span class=&quot;math-container&quot;&gt;$l$&lt;/span&gt; where &lt;span class=&quot;math-container&quot;&gt;$Q_l$&lt;/span&gt; satisfies &lt;span class=&quot;math-container&quot;&gt;$(7)$&lt;/span&gt; and no firms sell product &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt;.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;The intuition behind equilibrium listed in 1. above is simple to see. If &lt;span class=&quot;math-container&quot;&gt;$\pi_l(1, N-1) &amp;lt; \pi_n(0, N)$&lt;/span&gt;, then we have&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\underbrace{\pi_l(N,0) &amp;lt; \cdots &amp;lt; \pi_l(1, N-1)}_{\text{Since} \ \pi_l^i(N_l, N_n) \ \text{is decreasing in} \ N_l } &amp;lt; \underbrace{\pi_n(0, N) &amp;lt; \cdots &amp;lt; \pi_n(N-1, 1)}_{\text{Since} \ \pi_n^i(N_l, N_n) \ \text{is decreasing in} \ N_n }$$&lt;/span&gt;&#xA;Therefore, in equilibrium, any firm that is producing &lt;span class=&quot;math-container&quot;&gt;$l$&lt;/span&gt; are strictly better off by deviating to producing &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt;, so every firm will produce &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt; in equilibrium. The intuition for 2. is similar. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Where I am stuck:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am told that there is another equilibrium which is characterized as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;If the number of firms in the market and the parameter values are such that the monopoly profits from selling one product exceed the Cournot profits if all firms sell the other product, then, ignoring integer problems, equilibrium is found by setting the profits from selling the two products equal and so &lt;span class=&quot;math-container&quot;&gt;$N_l^*$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$N_n^*$&lt;/span&gt; satisfy&lt;/em&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA; (1+\delta)(N_l^* + 1)(a - c_n)^2\left[(1+\delta)(N_l^*+1)(N-N_l^* + 1) - (N-N_l^*)^2 \right] = (N-N_l^* +1)(a+\gamma - c_n - c_p)^2\left[(1+\delta)(N-N_l^*+1)(N_l^*+1) - (N_l^*)^2 \right]  \ \cdots \ (9) $$&lt;/span&gt;&#xA; &lt;span class=&quot;math-container&quot;&gt;$$ N_n^* = N - N_l^*  \ \cdots \ (10) $$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;If &lt;span class=&quot;math-container&quot;&gt;$\pi_l(1, N-1) \ge \pi_n(0, N)$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\pi_n(N-1, 1) \ge \pi_l(N, 0)$&lt;/span&gt;, then &lt;span class=&quot;math-container&quot;&gt;$N_l^*$&lt;/span&gt; firms sell &lt;span class=&quot;math-container&quot;&gt;$q_l^* = Q_l(N_l^*, N_n^*)/N_l^*$&lt;/span&gt; of &lt;span class=&quot;math-container&quot;&gt;$l$&lt;/span&gt;; &lt;span class=&quot;math-container&quot;&gt;$N_n^*$&lt;/span&gt; sell &lt;span class=&quot;math-container&quot;&gt;$q_n^* =  Q_n(N_l^*, N_n^*)/N_n^*$&lt;/span&gt; of &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt; when equations (7), (8), (9), and (10) are satisfied.&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is the reasoning behind this equilibrium? Specifically, how do Equations (9) and (10) come about? And what exactly are &lt;span class=&quot;math-container&quot;&gt;$N_n^*$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$N_l^*$&lt;/span&gt; and how do they come about in the construction of the equilibrium?&lt;/p&gt;&#xA;" OwnerUserId="14416" LastActivityDate="2019-04-01T19:18:23.743" Title="Cournot competition subgame perfect Nash equilibrium with two products" Tags="&lt;microeconomics&gt;&lt;game-theory&gt;&lt;nash-equilibrium&gt;&lt;competition&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27580" PostTypeId="2" ParentId="27551" CreationDate="2019-04-01T22:38:45.507" Score="1" Body="&lt;p&gt;I am not sure if I understand your research question correctly, but you may be trying to determine if the effect of critical reception on a film's revenue changes over time.  That means you only have one observation per film with its revenue and film-specific control variable values (including year of release and single critical reception value) saved in multiple variables.  In that case, this is the model equation you should have:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/IkLBt.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You should not have both &lt;code&gt;i&lt;/code&gt; and &lt;code&gt;t&lt;/code&gt; subscripts for any film-specific variables if you only have one set of values per film.  The &lt;code&gt;i&lt;/code&gt; subscript is used on all film-related variables, including year of release.  I included &lt;code&gt;t&lt;/code&gt; superscripts to make it clear that there are multiple &lt;code&gt;Year&lt;/code&gt; variables.  And if you are not doing a fixed effects model (film fixed effects), there should not be any subscript on the intercept term.&lt;/p&gt;&#xA;" OwnerUserId="21454" LastEditorUserId="21454" LastEditDate="2019-04-01T23:10:19.490" LastActivityDate="2019-04-01T23:10:19.490" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27581" PostTypeId="1" AcceptedAnswerId="27589" CreationDate="2019-04-01T23:41:08.993" Score="3" ViewCount="268" Body="&lt;p&gt;A convex relation is that &lt;span class=&quot;math-container&quot;&gt;$x\succeq y$&lt;/span&gt; implies &lt;span class=&quot;math-container&quot;&gt;$\alpha x+(1-\alpha)y\succeq y$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let &lt;span class=&quot;math-container&quot;&gt;$&amp;gt;_{FOSD}$&lt;/span&gt; be &lt;span class=&quot;math-container&quot;&gt;$\succ$&lt;/span&gt;, is the FOSD convex? Intuitively it seems convex.&lt;/p&gt;&#xA;" OwnerUserId="13381" LastEditorUserId="13381" LastEditDate="2019-04-03T03:54:29.313" LastActivityDate="2019-04-03T03:54:29.313" Title="Is First Order Stochastic Dominance (FOSD) relation convex?" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;decision-theory&gt;&lt;theory&gt;&lt;probability&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27584" PostTypeId="1" AcceptedAnswerId="27595" CreationDate="2019-04-02T06:20:48.033" Score="3" ViewCount="99" Body="&lt;p&gt;I am reading &lt;strong&gt;Monetary policy, inflation, and the business cycle: an introduction to the new Keynesian framework and its applications&lt;/strong&gt; by Gali.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this question I am going to use the output &lt;span class=&quot;math-container&quot;&gt;$Y_t$&lt;/span&gt; as an example. I am going to use the notation from Gali.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; is notation for the &lt;em&gt;steady state&lt;/em&gt;. &lt;/li&gt;&#xA;&lt;li&gt;&lt;span class=&quot;math-container&quot;&gt;$y_t^n$&lt;/span&gt; is notation for the &lt;em&gt;the natural level&lt;/em&gt; of output.&lt;/li&gt;&#xA;&lt;li&gt;&lt;span class=&quot;math-container&quot;&gt;$\tilde{y}_t = y_t-y_t^n$&lt;/span&gt; is the &lt;em&gt;output gap&lt;/em&gt;: deviation from the natural level.&lt;/li&gt;&#xA;&lt;li&gt;&lt;span class=&quot;math-container&quot;&gt;$\hat{y}_t = y_t-y$&lt;/span&gt; is the deviation from steady state.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;My question is: &lt;strong&gt;Intuitively speaking, what is the difference between &lt;em&gt;steady state level&lt;/em&gt; and &lt;em&gt;natural level&lt;/em&gt;?&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note: &lt;span class=&quot;math-container&quot;&gt;$y_t = \log Y_t$&lt;/span&gt; &lt;/p&gt;&#xA;" OwnerUserId="6611" LastActivityDate="2019-04-02T20:46:37.057" Title="How to interpret the difference between natural level and steady state in Macroeconomic theory" Tags="&lt;macroeconomics&gt;&lt;new-keynesian-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27585" PostTypeId="1" AcceptedAnswerId="27590" CreationDate="2019-04-02T08:59:37.100" Score="2" ViewCount="586" Body="&lt;p&gt;I have a 16 year time series (annual frequency with 16 observations). I will conduct an OLS regression. In this setting do I need a unit root test?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Do you have additional suggestions for things that I should do to pre-analyze my data? &lt;/p&gt;&#xA;" OwnerUserId="21696" LastEditorUserId="69" LastEditDate="2019-04-02T17:48:29.063" LastActivityDate="2019-04-02T23:51:58.130" Title="Are unit root tests necessary or useful on small samples of time series data?" Tags="&lt;macroeconomics&gt;&lt;regression&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27586" PostTypeId="1" CreationDate="2019-04-02T11:33:24.977" Score="0" ViewCount="25" Body="&lt;p&gt;&lt;a href=&quot;https://www.bankofengland.co.uk/knowledgebank/what-is-legal-tender&quot; rel=&quot;nofollow noreferrer&quot;&gt;Bank of England&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;English banknotes aren’t legal tender in Scotland. Scottish notes aren’t legal tender in England or Scotland.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.scotbanks.org.uk/banknotes/legal-position.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Committee of Scottish Bankers&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Scottish Bank notes are not Legal Tender, not even in Scotland.  In fact, no banknote whatsoever (including Bank of England notes!) qualifies for the term 'legal tender' north of the border and the Scottish economy seems to manage without that legal protection.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Both pages also go on to argue that legal tender has little practical significance.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But people &lt;em&gt;do&lt;/em&gt; in fact attach some significance to this, with the result that Scottish banknotes are less widely accepted than they would otherwise be.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And so, why does the UK not simply declare/legislate that these notes be granted the status of legal tender? What are the costs of doing so?&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;A similar situation also exists with Singapore and Brunei currency (which are interchangeable), with the similar result that Brunei currency is often not accepted in Singapore. See e.g. this &lt;a href=&quot;https://www.todayonline.com/singapore/will-you-take-my-brunei-note&quot; rel=&quot;nofollow noreferrer&quot;&gt;2017 story&lt;/a&gt;. &lt;/p&gt;&#xA;" OwnerDisplayName="user14083" LastEditorDisplayName="user14083" LastEditDate="2019-04-02T12:05:37.683" LastActivityDate="2019-04-02T12:05:37.683" Title="What would be the costs of declaring/legislating that Scottish banknotes be legal tender?" Tags="&lt;money&gt;&lt;law&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="27588" PostTypeId="1" AcceptedAnswerId="27614" CreationDate="2019-04-02T14:07:47.837" Score="5" ViewCount="85" Body="&lt;p&gt;I am wondering whether there is a model of oligopolies in which we have some intermediate case of Bertrand and Cournot competition. What I do not mean by &quot;intermediate&quot; is the mixed Bertrand - Cournot game in which one firm sets a price and the other sets a quantity. What I also do not mean (I think) is monopolistic competition in which goods are not perfect substitutes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Rather, I mean a model in which there are degrees of commitment to prices and quantities. For example, a cookie producer can softly commit to a cookie amount by only purchasing a certain number of ovens and softly commit to a price by printing the price on the cookie boxes. At some extra cost, it is however possible to later scramble to rent an extra oven or to reprint price labels. I am wondering whether this has been modeled anywhere. Ideal would be a parametric version with the parameter indicating whether we are in the pure Bertrand or in the Cournot case. &lt;/p&gt;&#xA;" OwnerUserId="5635" LastActivityDate="2019-04-04T08:43:40.907" Title="Intermediate Case of Bertrand and Cournot" Tags="&lt;reference-request&gt;&lt;competition&gt;&lt;producer-theory&gt;" AnswerCount="1" CommentCount="10" FavoriteCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27589" PostTypeId="2" ParentId="27581" CreationDate="2019-04-02T17:18:06.817" Score="7" Body="&lt;p&gt;The first order stochastic dominance relation is convex. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;An easy way to prove this is to use the property that a cdf &lt;span class=&quot;math-container&quot;&gt;$F$&lt;/span&gt; FOSD another cdf &lt;span class=&quot;math-container&quot;&gt;$G$&lt;/span&gt; if and only if &lt;span class=&quot;math-container&quot;&gt;$F(x)\le G(x)$&lt;/span&gt; for all &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;. That is, &lt;span class=&quot;math-container&quot;&gt;$F$&lt;/span&gt; FOSD &lt;span class=&quot;math-container&quot;&gt;$G$&lt;/span&gt; if and only if the graph of &lt;span class=&quot;math-container&quot;&gt;$F$&lt;/span&gt; is never above the graph of &lt;span class=&quot;math-container&quot;&gt;$G$&lt;/span&gt;. It is then easy to show that &lt;span class=&quot;math-container&quot;&gt;$F$&lt;/span&gt; is never above any convex combination &lt;span class=&quot;math-container&quot;&gt;$H(x)=\alpha F(x)+(1-\alpha)G(x)$&lt;/span&gt;, which in turn is never above &lt;span class=&quot;math-container&quot;&gt;$G$&lt;/span&gt;. &lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2019-04-02T17:18:06.817" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27590" PostTypeId="2" ParentId="27585" CreationDate="2019-04-02T17:47:01.130" Score="1" Body="&lt;p&gt;Cochrane (1991) says that unit root tests have low power, so you need lots of data (at best) to distinguish among non-unit root alternatives:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;This paper exploits the fact that any time series with a unit root can&#xA;  decomposed into a stationary series and a random walk. Since the&#xA;  random walk component can have arbitrarily small variance, tests for&#xA;  unit roots or trend stationarity have arbitrarily low power in finite&#xA;  samples. Furthermore, there are unit root processes whose likelihood&#xA;  functions and autocorrelation functions are arbitrarily close to&#xA;  those of any given stationary processes and vice versa, so there are&#xA;  stationary and unit root processes for which the result of any&#xA;  inference is arbitrarily close in finite samples.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.308.7613&amp;amp;rep=rep1&amp;amp;type=pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;A critique of the application of unit root tests&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, depending on the test and the realistic alternative, this may be fine. David N. DeJong, John C. Nankervis, N.E.Savin, Charles H. Whiteman (1992): &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Monte Carlo methods are used to study the size and&#xA;  power of serial-correlation-corrected versions of the Dickey-Fuller&#xA;  (1979,1981) unit root tests appropriate when the time series has&#xA;  unknown mean. The modifications do not cause serious size distortions&#xA;  or power deterioration in the white noise case. While studies in the&#xA;  literature have investigated the operating characteristics of these&#xA;  tests in the presence of moving average errors, of particular concern&#xA;  in this paper is the performance of these procedures in the presence&#xA;  of autoregressive errors. The Philips and Perron (1988) and Choi and&#xA;  Philips (1991) procedures are found to suffer from serious size&#xA;  distortions and have very low power when errors are autoregressively&#xA;  correlated. We conclude that even in the most favorable cases, these&#xA;  tests perform poorly against trend-stationary alternatives which are&#xA;  plausible for annual, quarterly, and monthly macroeconomic time&#xA;  series. The augmented Dickey-Fuller procedure, on the other hand, is&#xA;  reasonably well-behaved.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.sciencedirect.com/science/article/pii/030440769290090E&quot; rel=&quot;nofollow noreferrer&quot;&gt;The power problems of unit root test in time series with autoregressive errors&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My impression is things have improved a bit in the power of more cutting edge estimators. See Haldrup and Jansson (2005)&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;A frequent criticism of unit root tests concerns the poor power and&#xA;  size properties that many of such tests exhibit. However, the past&#xA;  decade or so intensive research has been conducted to alleviate these&#xA;  problems and great advances have been made. The present paper provides&#xA;  a selective survey of recent contributions to improve upon both size&#xA;  and power of unit root tests and in so doing the approach of using&#xA;  rigorous statistical optimality criteria in the development of such&#xA;  tests is stressed. In addition to presenting tests where improved size&#xA;  can be achieved by modifying the standard Dickey-Fuller class of&#xA;  tests, the paper presents theory of optimal testing and the&#xA;  construction of power envelopes for unit root tests under different&#xA;  conditions allowing for serial correlation, deterministic components,&#xA;  assumptions regarding the initial condition, non-Gaussian errors, and&#xA;  the use of covariates.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1147594&quot; rel=&quot;nofollow noreferrer&quot;&gt;Improving Size and Power in the Unit Root Testing&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Nevertheless, I can't help thinking that 16 annual observations is not much data to discipline time series estimation, and there will likely be lots of somewhat plausible specifications you will not be able to reject. Instead, you could use economy theory to justify the functional form and the statistical tests you use. For example, in efficient markets (crudely), price levels are highly serially correlated (random walks) but returns are independent. So if you knew your data were in returns, you might just argue rather than test that they are not a unit root. &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2019-04-02T23:51:58.130" LastActivityDate="2019-04-02T23:51:58.130" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27591" PostTypeId="1" CreationDate="2019-04-02T18:14:45.687" Score="1" ViewCount="96" Body="&lt;p&gt;In my study, I have 5 independent variables which contains 21 observation each. However one of my independent variables have 3 gaps. What should I do? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;e,g&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would need to know the effect of education to inequality and I would like to conduct standard OLS method. However, I have one unbalanced data which have gaps unlike the rest of the data... what should I do? &#xA;per say in 1997 (no data) 1998 (0.2345) 1999 (no data) 2000 (0.3453) and then from 2001 - 2017 it has continuous data....should I just drop it and start from 2001?&lt;/p&gt;&#xA;" OwnerUserId="21696" LastEditorUserId="21696" LastEditDate="2019-04-02T19:42:15.653" LastActivityDate="2019-04-03T05:52:53.910" Title="How do I fill gaps in my data?" Tags="&lt;applied-econometrics&gt;&lt;regression&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="27592" PostTypeId="2" ParentId="3143" CreationDate="2019-04-02T18:26:46.550" Score="2" Body="&lt;p&gt;First, the interest on reserves and the fed funds rate changes:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/w3xF2.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/w3xF2.png&quot; alt=&quot;Interest on Excess Reserves and Effective Fed Funds Rate Log Scale&quot;&gt;&lt;/a&gt;&#xA;Source: &lt;a href=&quot;https://fred.stlouisfed.org/graph/?g=k4S2#0&quot; rel=&quot;nofollow noreferrer&quot;&gt;FRED&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Second, we can roughly see the pattern of the QE actions by looking at the balance sheet of the Fed. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/Mhz0B.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Mhz0B.png&quot; alt=&quot;All Federal Reserve Banks: Total Assets&quot;&gt;&lt;/a&gt;&#xA;Source: &lt;a href=&quot;https://fred.stlouisfed.org/series/WALCL#0&quot; rel=&quot;nofollow noreferrer&quot;&gt;FRED&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For details on the timing of quantitative easing actions, see Figure 2 from Fawley and Neely (2013):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/YR7Lz.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/YR7Lz.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&#xA;&lt;a href=&quot;https://i.stack.imgur.com/4d0dG.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/4d0dG.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&#xA;Source: &lt;a href=&quot;https://files.stlouisfed.org/files/htdocs/publications/review/13/01/Fawley.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Four Stories of Quantitative Easing&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2019-04-02T18:26:46.550" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27593" PostTypeId="1" AcceptedAnswerId="27597" CreationDate="2019-04-02T19:48:21.217" Score="1" ViewCount="29" Body="&lt;p&gt;I have an unbalanced panel dataset of around 3000 firms for 5 years. My goal is to see if female-owned firm are less likely to survive, so I have a logit model with female-owned dummy as the key independent variable. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The cross-sectional models for year 2007 and 2009 (if year == 2007, if year == 2009) have significant female-owned variable. However, if I try to run a fixed effect logit across all 5 years then the female-owned coefficient is highly insignificant. I have included the i.year dummies in the panel model, and interact female-owned##year2007 but so far the coefficients are not significant. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So how do I interpret this sort of results? Thank you in advance for your help! &lt;/p&gt;&#xA;" OwnerUserId="21698" LastActivityDate="2019-04-02T20:57:09.643" Title="Cross-sectional model vs panel model" Tags="&lt;paneldata&gt;&lt;stata&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27594" PostTypeId="2" ParentId="27591" CreationDate="2019-04-02T20:38:13.550" Score="3" Body="&lt;p&gt;Friend,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This situation that requires an imputation method that you must pick from.   Dealing with missing data is a sensitive matter.  Depending on which way you choice to handle missing observation will impact your project and in this case (with observations less than 100) could make your analysis poor/basis. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here are some popular options:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Impute the value of the missing data&lt;/li&gt;&#xA;&lt;li&gt;Remove a variable which has a lot of missing data and use other variables which measure similar aspects of the characteristics being studied.&lt;/li&gt;&#xA;&lt;li&gt;You could create a regression model to impute missing values.&lt;/li&gt;&#xA;&lt;li&gt;You can use the average (caution when using this method as there may be other variables in your data set that may be dependent).&lt;/li&gt;&#xA;&lt;li&gt;Duplicate the previous or nearest value.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Here is a website on some tips: &lt;a href=&quot;http://www.real-statistics.com/descriptive-statistics/missing-data/&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.real-statistics.com/descriptive-statistics/missing-data/&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is a working paper on the subject: liberalarts.utexas.edu/prc/_files/cs/Missing-Data.pdf&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Missing values is delicate subject.  Use caution and always, always, always DOCUMENT WHAT YOU ARE DOING, because others want to know and it makes your work so much better. &lt;/p&gt;&#xA;" OwnerUserId="20995" LastEditorUserId="6168" LastEditDate="2019-04-03T05:52:53.910" LastActivityDate="2019-04-03T05:52:53.910" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27595" PostTypeId="2" ParentId="27584" CreationDate="2019-04-02T20:46:37.057" Score="2" Body="&lt;p&gt;Natural level of output is equivalent to full employment output. This does not mean full employment of all resources, there is always a natural level of unemployment even in full employment output level. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Neoclassical economics: Steady state output is achieved when capital-labour ratio is stable or constant. In steady state, economy is not growing and also not in recession, all variales grow at the same rate i.e. birth rates equal death rates, capital accumulation rates equal depreciation rates, etc.&lt;/p&gt;&#xA;" OwnerUserId="6009" LastActivityDate="2019-04-02T20:46:37.057" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27597" PostTypeId="2" ParentId="27593" CreationDate="2019-04-02T20:57:09.643" Score="1" Body="&lt;p&gt;Note that the fixed effects estimates use only &lt;strong&gt;within-firms differences&lt;/strong&gt;, essentially discarding any information about differences between firms. If predictor variables vary greatly across firms but have little variation over time for each firm, then fixed effects estimates will be imprecise and have large standard errors. So, if there is not enough variation or change in gender ownership, I may expect a non significant estimate in fixed effects compared to a cross-sectional model.&lt;/p&gt;&#xA;" OwnerUserId="6168" LastActivityDate="2019-04-02T20:57:09.643" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27598" PostTypeId="1" CreationDate="2019-04-02T21:07:28.823" Score="5" ViewCount="3229" Body="&lt;p&gt;I am attempting to perform an unbalanced panel data regression in R.  My code is as follows:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;pdata &amp;lt;- plm.data(b2, index = c(&quot;ticker&quot;, &quot;year&quot;))&#xA;try1 &amp;lt;- plm(formula = logDipLoanTotal ~ PrimeFiling  + &#xA;logLiabBefore + logSalesBefore + EmplBefore + DebttoAssetRatio + &#xA;squareDebttoAssetRatio + FSCashShortTermInvestments + Percent + &#xA;NUM_OF_EMPLOYEES, data = pdata, model = &quot;within&quot;, effect = &quot;time&quot;)&#xA;summary(try1)&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;I run into the following error:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;duplicate couples (id-time) in resulting pdata.frame&#xA;to find out which, use e.g. table(index(your_pdataframe), useNA = &quot;ifany&quot;)&#xA;duplicate couples (id-time)&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;This is obvious - I am having issues because my panel data is unbalanced, where the ticker/year combination can be associated with multiple lines of data. This is because multiple &quot;deals&quot; were done in the year associated with the company ticker in the year, or sometimes no deals were run in the ticker/year combination. How do I run this kind of model in RStudio with unbalanced data? Let me know if this doesn't make sense and I can edit the question.&lt;/p&gt;&#xA;" OwnerUserId="21701" LastEditorUserId="6168" LastEditDate="2019-04-03T11:05:50.920" LastActivityDate="2020-05-21T14:18:11.710" Title="How to perform unbalanced panel data regression in R?" Tags="&lt;paneldata&gt;&lt;r&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27600" PostTypeId="1" AcceptedAnswerId="27603" CreationDate="2019-04-02T23:14:36.583" Score="4" ViewCount="100" Body="&lt;p&gt;A textbook I'm reading states (talking about the years leading up to the financial crisis):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;As long as housing prices increased, these mortgages were secure: the&#xA;  borrower &#xA;      rapidly accumulated equity in the house that could be taken out in a refinance, &#xA;      allowing the mortgage to be repaid.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;How would this work exactly? I know that many people took out home equity loans, but I'm not exactly sure how accumulated equity would end up making liabilities easier to pay back.&lt;/p&gt;&#xA;" OwnerUserId="20877" LastActivityDate="2019-04-03T02:33:47.107" Title="How does a refinance allow a mortgage to be repaid?" Tags="&lt;finance&gt;&lt;housing&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27601" PostTypeId="2" ParentId="27600" CreationDate="2019-04-03T00:29:11.060" Score="2" Body="&lt;p&gt;Let's say that you have a house that you buy for &lt;span class=&quot;math-container&quot;&gt;$P$&lt;/span&gt; dollars. You have a mortgage of &lt;span class=&quot;math-container&quot;&gt;$M$&lt;/span&gt; dollars. There is a change in the price of housing of &lt;span class=&quot;math-container&quot;&gt;$r$&lt;/span&gt; percent. Assuming no transaction costs, the home owner's equity, the value of the house after selling it and repaying the mortgage is then:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$ \max[(1+r)\cdot P - M, 0]$$&lt;/span&gt;&#xA;because if the mortgage is worth more than the house they can default, and this option makes it so the household has equity of at least zero. There is a second reason a household might default, that they are unable to pay their mortgage. The first reason is called strategic default and the second non-strategic default. In good times, when &lt;span class=&quot;math-container&quot;&gt;$r$&lt;/span&gt; is positive, the household has positive home equity and no reason for strategic default. If they are unable to make their mortgage payments (non-strategic default), they can sell their house. This allows them to pocket their home equity, protect their credit, and repay their loan. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In reality, there are complications. The lasting damage to credit scores of a default, the possibility of recourse on a mortgage, losses in house value from foreclosure, and transaction costs all complicate this picture some. But the general idea still holds. Rising house prices give households with cash flow problems the ability to sell their houses rather than default. So the strategic defaulters have no reason to default and the non-strategic defaulters can sell instead of default. This lowers default risk substantially. &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2019-04-03T02:33:47.107" LastActivityDate="2019-04-03T02:33:47.107" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27603" PostTypeId="2" ParentId="27600" CreationDate="2019-04-03T02:03:14.277" Score="3" Body="&lt;p&gt;Say you buy a house for \$100. This is paid with:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;A \$10 down payment (from your own cash). (This is your &lt;em&gt;equity&lt;/em&gt;.)&lt;/li&gt;&#xA;&lt;li&gt;A \$90 loan from a bank at 10% annual interest. (We call this a &lt;em&gt;mortgage loan&lt;/em&gt; or more simply a &lt;em&gt;mortgage&lt;/em&gt;.)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Notice you're paying a relatively high interest rate of 10% on your mortgage, perhaps because the bank is not very confident that you'll be able to repay the loan.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Say that overnight, the value of the house rises by \$50 to \$150. Now your equity has also risen by \$50, from \$10 to \$60. You can now refinance your mortgage and ask the bank to lower the interest rate on your loan, say to 5%. You are certainly happy to do this refinancing because you'll pay a lower interest rate. And the bank might be willing to oblige because it is now more confident that you'll repay the loan.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastEditorDisplayName="user18" LastEditDate="2019-04-03T02:12:58.470" LastActivityDate="2019-04-03T02:12:58.470" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="27604" PostTypeId="2" ParentId="26383" CreationDate="2019-04-03T02:45:53.530" Score="3" Body="&lt;p&gt;Not to be too obvious about it, but couldn't you just say Jeremy Bentham? The calculus of choosing bundles that maximizes pleasure specified a very simple utility function in words. &lt;/p&gt;&#xA;" OwnerUserId="10402" LastActivityDate="2019-04-03T02:45:53.530" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27605" PostTypeId="1" AcceptedAnswerId="27613" CreationDate="2019-04-03T06:23:38.310" Score="1" ViewCount="69" Body="&lt;p&gt;Say for example the US govt. is putting an extra tax of 10% on the incomes of the people earning more than the average income. To make it easier, only tax the people earning more than 110% of the medium wage.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Say for example that the US govt. is also putting an extra tax of 10% on the wealth of the rich - the individuals and families that own more than 300.000 $US&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Gather all those money in two separate accounts so everyone can see how much money are collected.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And then use all the collected money to pay a part of the internal debt of the country (the internal debt is a part of the public debt, which is actually the debt of the country).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This looks like something that might actually work but I'm asking because there are a lot of complicated and sophisticated intricacies in the field of economics, or at least that's how the experts in economy make it look like.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So I'm asking if it's possible to pay a part of the debt of the country by increasing the taxes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The people that sit on the top-half of the food chain might be affected by an extra 10% tax but for sure they will be affected much less than the poor people who would have to pay an extra 10% tax because without that 10%, the poor people might not even have the money to buy enough food for the family.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And the companies won't be affected at all. This tax is for private persons only. No extra taxes for the companies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Those 10% money are spent at this moment by the top-half of the food chain and that creates jobs for sure. But giving it to the government and then paying the financial markets to cover the debt means the money get to the financial markets and they will also spend it or they will invest it, and that also generates pretty much the same amount of jobs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the end, by paying the debt, the money get back into the pockets of the rich who own the financial markets so they should not be affected at all. By the contrary - they should be happy for getting their money back - plus some nice profit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now let's imagine another situation - say the internal debt is insignificant but the country made a huge budget deficit this year. Is it possible to cover that budget deficit (or a part of it) using such a tax?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It looks like something that might actually work but there might be some flaws in that construction, so I'm asking if it is actually possible for the govt. to do something like this.&lt;/p&gt;&#xA;" OwnerUserId="5161" LastEditorUserId="5161" LastEditDate="2019-04-03T06:52:44.227" LastActivityDate="2019-04-03T19:40:17.110" Title="Is it possible to pay the internal debt of the country and to cover the budget deficit by increasing taxes?" Tags="&lt;debt&gt;&lt;public-economics&gt;&lt;tax&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="27607" PostTypeId="2" ParentId="27598" CreationDate="2019-04-03T10:43:39.280" Score="2" Body="&lt;p&gt;It would be helpful to provide a reproductible example. In the paper &lt;a href=&quot;https://www.wu.ac.at/fileadmin/wu/d/i/iqv/Gstach/Artikel/Croissant__2008_.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Panel Data Econometrics in R: The plm Package&lt;/a&gt;, the authors explicitly mention that economic panel datasets often happen to be unbalanced, which case needs some adaptation to the methods. Hopefully, they provide a solution and the result of their work is bundled in the &lt;code&gt;plm&lt;/code&gt; add-on package.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The following example is from Arellano and Bond (1991). Employment is explained by past values of employment (two lags), current and first lag of wages and output and current value of capital.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;R&amp;gt; emp.gmm &amp;lt;- pgmm(dynformula(emp ~ wage + capital + output, lag = list(2, + 1, 0, 1),&#xA;                  log = TRUE), EmplUK, effect = &quot;twoways&quot;, model = &quot;twosteps&quot;, &#xA;                 + gmm.inst = ~log(emp), lag.gmm = list(c(2, 99))) &#xA;R&amp;gt; summary(emp.gmm)&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Call:&#xA;  Unbalanced Panel: n=140, T=7-9, N=1031&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="6168" LastActivityDate="2019-04-03T10:43:39.280" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27608" PostTypeId="1" CreationDate="2019-04-03T11:06:22.023" Score="3" ViewCount="30" Body="&lt;p&gt;I want to decompose stock index movements. I know the estimated  12 months earnings growth rate (&lt;span class=&quot;math-container&quot;&gt;$g_1$&lt;/span&gt;), estimated long run earnings growth rate (&lt;span class=&quot;math-container&quot;&gt;$g_2$&lt;/span&gt;) and the index value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am about to use two-stage dividend discount model:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$P=\frac{1+g_1}{1+r} + \frac{\frac{(1+g_1)\cdot(1+g_2)}{r-g_2}}{1+r},$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which can be simplified as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$P=\frac{1+g_1}{r-g_2}.$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The percentage change is then:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\frac{P(t+1)}{P(t)}-1= \frac{1+g_1(t+1)}{1+g_1(t)} \cdot \frac{r(t)-g_2(t)}{r(t+1)-g_2(t+1)}.$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem here is that I don't know &lt;span class=&quot;math-container&quot;&gt;$r$&lt;/span&gt;. Variable &lt;span class=&quot;math-container&quot;&gt;$r$&lt;/span&gt; cannot be solved because I am considering stock index, not a single equity. What would be the best way to decompose stock market movements using the information I have?&lt;/p&gt;&#xA;" OwnerUserId="21048" LastEditorUserId="5145" LastEditDate="2019-04-05T11:07:34.377" LastActivityDate="2019-04-05T11:07:34.377" Title="Decomposition of stock index movements" Tags="&lt;stock-market&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27610" PostTypeId="1" CreationDate="2019-04-03T14:33:57.090" Score="1" ViewCount="50" Body="&lt;p&gt;In the most basic Diamond-Mortensen-Pissarides (DMP) model we have the variable &lt;span class=&quot;math-container&quot;&gt;$V$&lt;/span&gt; which represents the present discounted value of expected profits from a vacant job. The corresponding Bellman equation is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$rV = -pc + q(\theta)(J-V)$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where &lt;span class=&quot;math-container&quot;&gt;$pc$&lt;/span&gt; is the cost of a vacant job per unit of time, &lt;span class=&quot;math-container&quot;&gt;$q(\theta)$&lt;/span&gt; is the rate at which vacancies are filled and &lt;span class=&quot;math-container&quot;&gt;$J$&lt;/span&gt; is the present discounted value of expected profits from an occupied job. If I think of a vacancy as an asset for the firm the Bellman equation makes sense but how can a vacancy be an asset? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I don't understand is the intuitive meaning of &lt;span class=&quot;math-container&quot;&gt;$V$&lt;/span&gt;. How can a vacant job result in profits for the hiring firm? Furthermore, my textbook says&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In equilibrium all profit opportunities from new jobs are exploited, driving rents from vacant jobs to zero. Therefore the equilibrium condition for the supply of vacant jobs is &lt;span class=&quot;math-container&quot;&gt;$V=0$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Again, how are there 'rents' from having a vacant job?&lt;/p&gt;&#xA;" OwnerUserId="11767" LastEditorUserId="6168" LastEditDate="2019-04-03T20:09:06.233" LastActivityDate="2019-04-03T20:50:59.210" Title="DMP Search Model - Terminology" Tags="&lt;macroeconomics&gt;&lt;labor-economics&gt;&lt;search-and-matching&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27612" PostTypeId="1" CreationDate="2019-04-03T15:24:33.967" Score="2" ViewCount="33" Body="&lt;p&gt;Let's say that we have a model with multiple equilibria. &lt;span class=&quot;math-container&quot;&gt;$c$&lt;/span&gt; refers to consumption and &lt;span class=&quot;math-container&quot;&gt;$S$&lt;/span&gt; refers to natural capital stock.&lt;br&gt;&#xA;The dynamics that describe the economy are as follows:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\dot{S}\left(t\right)=R\left(S\left(t\right)\right)-c\left(t\right)$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where &lt;span class=&quot;math-container&quot;&gt;$R(S)$&lt;/span&gt; is the function for environmental regeneration. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\dot{c}=-\frac{u_{c}\left(c\right)}{u_{cc}\left(c\right)}\left[R_{S}\left(S\right)-\rho-\frac{\bar{\psi}h_{S}\left(S\right)}{u_{c}\left(c\right)}\right]$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;is the Keynes-Ramsey equation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is simple. There is always a discussion about the fact that there may be only a unique optimal path to a fixed point among the other equilibria. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/8llh5.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/8llh5.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, in this phase diagram, when I take into account the directions of arrows, I think there is never a global optimum since for all initial condition &lt;span class=&quot;math-container&quot;&gt;$S(0)&amp;lt;S_{mid}$&lt;/span&gt;, the economy either diverges or converges to &lt;span class=&quot;math-container&quot;&gt;$S_{low}$&lt;/span&gt;. Also, for all &lt;span class=&quot;math-container&quot;&gt;$S_{0}&amp;gt;S_{mid}$&lt;/span&gt;, the economy either diverges or converges to &lt;span class=&quot;math-container&quot;&gt;$S_{high}$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, is it possible to prove the non-existence of global stability in this manner? or is there any formal (and more rigorous) way to prove the non-existence of global stability? Any hint or explanation is appreciated. Thanks in advance. &lt;/p&gt;&#xA;" OwnerUserId="2938" LastEditorUserId="2938" LastEditDate="2019-04-03T16:00:37.187" LastActivityDate="2019-04-03T16:00:37.187" Title="Global stability in a ramsey growth model with multiple equilibria" Tags="&lt;economic-growth&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27613" PostTypeId="2" ParentId="27605" CreationDate="2019-04-03T19:40:17.110" Score="1" Body="&lt;p&gt;At the time of writing, the question is far too long.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From a simplified accounting perspective:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The government fiscal deficit = all expenditures - taxes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The change in debt in a year is equal to the fiscal deficit (under simplifying assumptions).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So if the government can raise taxes without affecting anything else, the deficit becomes smaller, or turns into a surplus, in which case the debt falls.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reason why this is not normally done is that raising taxes reduces growth. The exact effect of tax increases is an object of academic and political debate. If you search for “austerity policies” you ahould be able to find a lot of information.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2019-04-03T19:40:17.110" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27614" PostTypeId="2" ParentId="27588" CreationDate="2019-04-03T20:10:00.967" Score="6" Body="&lt;p&gt;These papers could be interesting to you. First, a classical contribution:&lt;br&gt;&#xA;Singh Nirvikar and Xavier Vives, 1984. &quot;Price and Quantity Competition in a Differentiated Duopoly,&quot; RAND Journal of Economics, vol. 15(4), pages 546-554.&lt;br&gt;&#xA;And these two interesting papers, using the concept of competition toughness to reconcile Cournot and Bertrand:&lt;br&gt;&#xA;d'Aspremont, Claude &amp;amp; Dos Santos Ferreira, Rodolphe, 2009. &quot;Price-quantity competition with varying toughness,&quot; Games and Economic Behavior, 65, 62-82.&lt;br&gt;&#xA;d'Aspremont Claude and Rodolphe Dos Santos Ferreira &amp;amp; Louis-André Gérard-Varet, 2007. &quot;Competition For Market Share Or For Market Size: Oligopolistic Equilibria With Varying Competitive Toughness,&quot; International Economic Review, 48, 761-784.&lt;/p&gt;&#xA;" OwnerUserId="20576" LastEditorUserId="20576" LastEditDate="2019-04-04T08:43:40.907" LastActivityDate="2019-04-04T08:43:40.907" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27615" PostTypeId="1" AcceptedAnswerId="27623" CreationDate="2019-04-03T20:16:15.100" Score="3" ViewCount="76" Body="&lt;p&gt;The symmetric bidding strategy in a second-price auction with affiliation is given by &lt;span class=&quot;math-container&quot;&gt;$\beta(x)=v(x,x)$&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$v(x,y)=E[V_1|X_1=x,Y_1=y]$&lt;/span&gt; (here &lt;span class=&quot;math-container&quot;&gt;$Y_1$&lt;/span&gt; is the highest ordered statistic among the remaining &lt;span class=&quot;math-container&quot;&gt;$n-1$&lt;/span&gt; bidders, and bidder 1 is assumed to be the winner). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given this, the expected payment by the bidder is given as &lt;span class=&quot;math-container&quot;&gt;$E[v(Y_1,Y_1)|X_1=x,Y_1&amp;lt;x]$&lt;/span&gt;. This, I suppose, should be equal to &lt;span class=&quot;math-container&quot;&gt;$\int_0^x v(y,y)g_{Y|X}(y|x) dy$&lt;/span&gt;. The same expression is given in &lt;em&gt;Introduction To Auction Theory&lt;/em&gt; by Menezes and Monteiro. However, Vijay Krishna in his book writes &lt;span class=&quot;math-container&quot;&gt;$E[v(Y_1,Y_1)|X_1=x,Y_1&amp;lt;x]=\int_0^x v(y,y)dK(y|x)$&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$K(y|x)=\cfrac{ G_{Y|X}(y|x)}{G_{Y|X}(x|x)}$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is, are the two expressions same?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note: There is a notational difference in the two books, while Vijay Krishna uses &lt;span class=&quot;math-container&quot;&gt;$g(.),G(.)$&lt;/span&gt; for the density and the distribution, Menezes and Monteiro use &lt;span class=&quot;math-container&quot;&gt;$f(.),F(.)$&lt;/span&gt;, respectively.&lt;/p&gt;&#xA;" OwnerUserId="16340" LastEditorUserId="11590" LastEditDate="2019-04-04T16:18:40.843" LastActivityDate="2019-04-04T16:18:40.843" Title="Expected payment in a second price auction with affiliation" Tags="&lt;self-study&gt;&lt;auctions&gt;" AnswerCount="1" CommentCount="6" FavoriteCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27616" PostTypeId="1" CreationDate="2019-04-03T20:23:21.583" Score="0" ViewCount="43" Body="&lt;p&gt;I know that if the coupon rate on a bond is larger than the yield-to-maturity, then the price must be higher than the par value. Yet I have the bond price equation &lt;span class=&quot;math-container&quot;&gt;$P=\frac{c}{y}\left(1-\frac{1}{(1+y)^T}\right)+\frac{Par}{(1+y)^T}$&lt;/span&gt;, and I wonder how I manipulate this equation to show that what I mentioned above is correct. Grateful for any tips to solve this. &lt;/p&gt;&#xA;" OwnerUserId="19469" LastEditorUserId="21827" LastEditDate="2019-04-19T15:55:51.513" LastActivityDate="2019-04-19T15:55:51.513" Title="Financial economics: Bond Price" Tags="&lt;mathematical-economics&gt;&lt;finance&gt;&lt;financial-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27617" PostTypeId="2" ParentId="27610" CreationDate="2019-04-03T20:50:59.210" Score="1" Body="&lt;p&gt;A vacant job is an &lt;strong&gt;asset&lt;/strong&gt; if we consider that the firm can match with a worker and get a positive expected profit. Firms post vacancies up to a point where &lt;span class=&quot;math-container&quot;&gt;$V=0$&lt;/span&gt;. If &lt;span class=&quot;math-container&quot;&gt;$V$&lt;/span&gt; were positive, more firms would enter, would post additional vacancies, and would get a &lt;span class=&quot;math-container&quot;&gt;`&lt;/span&gt;rent' (by matching with worker).&lt;/p&gt;&#xA;" OwnerUserId="6168" LastActivityDate="2019-04-03T20:50:59.210" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27619" PostTypeId="1" CreationDate="2019-04-04T05:07:13.170" Score="2" ViewCount="159" Body="&lt;p&gt;Why is the USA not capable to pay its public debt on its own?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The country needs to create new debt in order to pay its due debt.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Not only that, but the debt is also only increasing and the country is not capable to reduce the debt. Since 2000 or so, the country is only capable to increase its debt. And the prediction is that the debt will only increase - &lt;a href=&quot;https://en.wikipedia.org/wiki/History_of_the_United_States_public_debt#/media/File:Federal_Debt_Held_by_the_Public_1790-2013.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;Link1&lt;/a&gt; - &lt;a href=&quot;https://www.heritage.org/debt/commentary/how-fast-us-public-debt-will-grow-if-we-dont-change-course&quot; rel=&quot;nofollow noreferrer&quot;&gt;Link2&lt;/a&gt; - &lt;a href=&quot;https://www.cbpp.org/research/long-term-budget-outlook-remains-challenging-but-recent-legislation-has-made-it-more&quot; rel=&quot;nofollow noreferrer&quot;&gt;Link3&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hungary and the Czech Republic are capable to pay their debt on their own but in the same time USA is not capable to pay its debt on its own. Why is that?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What makes a country not capable to pay its debt on its own?&lt;/p&gt;&#xA;" OwnerUserId="5161" LastEditorUserId="6210" LastEditDate="2019-10-28T21:46:13.510" LastActivityDate="2020-05-08T09:54:48.590" Title="Why is the USA not capable to pay its debt?" Tags="&lt;government-debt&gt;&lt;public-economics&gt;&lt;comparative-economics&gt;" AnswerCount="2" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="27620" PostTypeId="2" ParentId="26991" CreationDate="2019-04-04T05:53:37.200" Score="-1" Body="&lt;p&gt;I disagree with some aspects. Firstly money abstractly can be several different things. I consider this as axiom to modern economics until convinced otherwise. The central bank in most economy only actually &quot;prints&quot; new money via its bond coupon payment. This is never balanced and only net credit to money supply. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Actually it may be slightly more complicated. But I assume as key axiom that when a bond is issued, the coupon payment or interest is net credit to the money supply. This is different then special, inter government bonds used by the government and these special bonds are not subject to a open market. These are ideally paid back from tax revenue. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the bond coupon say 2.9% over 30 years on the principal barrowed is new money. The original principal is actually short term debit from the money supply until it is paid back. And the interest finally, a net addition to the money supply.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The primary area of disagreement I have is this. Under normal circumstances you have steady growth. For example consider China's and worlds use of the usd. Each year new entities enter the global exchange of goods and services using the dollar. Theoretically at some point the integral amount of dollars is not enough, an extreme example would be say you had 20 cars and I have 1000 computers, we each have 2 dollars, now John, born yesterday would like to sell his fathers supply of apples but has no dollars. I want apples, have too many computers and could use a car. But at todays prices I can only buy two apples. Clearly now the currency is no longer a useful tool in the real economic situation in which people can create value out of virtually nothing, improve their poor situation, and all in a beneficial, cooperative economic strategy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ideally the money is a tool which must be periodically maintenance to serve the natural economic trade, which transcends the money supply. If it is not there becomes a very natural economic force to bypass it. This is generally seen as the money losing its integrity, forcing, alternative money (oh hey there bitcoin), stealing and things perceived as crime, but are really just attempts to bypass problems with a broken tool, and proceed freely and economically.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Additionally governments have admitted to tightening the money supply in what the call monetary policy. So that if the real, underlying economics get tight, like computers, cars, and apples drying up, they can create a perceived relief from such recessions and prevent depressions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So we can see that under these assumptions the money supply is one factor in the big economic picture the others are typically much more important, like education levels, natural resources, carrying capacities, energy, population and what not.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now inside this big complex real economy, you have a the ability to net produce money in very small window where a non government loan is created inside your window, and paid back outside of it. This is then virtually creation of money. Examples of this might be taking on debt as a ceo then retiring. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are many obvious problems with this. Typically there is more interest then can be repaid, and default OR essentially freely giving money back becomes necessary, also is coupled with economic forces for currency to lose integrity, or a shift to alternate currency. This is interesting economic phenomena in its own right, a general breakdown in cooperative strategy and move to non cooperative. It is not clear which is the cause or effect. But it appears to happen naturally with out choice.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is a good picture of todays money usd which is mostly created by debt from private banks instead of by the government. It essentially relegates private and corperate banks to do what fed has done in the past. Several things are clear, the debt levels and unwillingness of the central banks to print money, instead turning to corporate bank lending- is unprecedented. Oddly enough while democratic presidents have typically been seen as progressive, modern thinkers, they have set the precedence of extremely tight monetary policy, often operating on the money supply produced under republican administrations. One can argue about the humane effects of monetary policy on the poor. Prisons overflow, homelessness rises, and apparently all at the cost of choking the economy incase of recession. If then, the let off has any real effects is debatable as well. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are some negative effects of regulation of money supplies. This is primarily inflation. In many economic models inflation does occur, as a result of growing economy. An example of this is the Euro. With Brexit the E.U. would experience a shrinking number of economic players using the euro for trade, as such we have seen negative bond rates over there to prevent inflation, possibly literally learning Euros if that is the method used to destroy bills removed from circulation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In today's times it is in my opinion we are heading to tougher times and uncertainty in the big economic picture. We have climate change, end of Moores Law, which has fueled the boom of the 90s. But even coming from the Reagan/Vulcan era 14% bond coupons, there were still problems. I view it as testing the waters and the powers which make such decisions thought, (from a long term 100 year outlook) they weren't impressed by semiconductors and that we were shakey in the knees. And quickly pulled back. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is difficult to know and interpret the vast economic signs and clues but here today after a modest pop up to 3-4% the 30 year declines ounce again towards 2% remaining flat, among the blatant debt, poverty we just have to keep in mind how complex the world is and realize we probably don't understand everything.&lt;/p&gt;&#xA;" OwnerUserId="14431" LastEditorUserId="14431" LastEditDate="2019-04-04T06:48:17.750" LastActivityDate="2019-04-04T06:48:17.750" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27621" PostTypeId="2" ParentId="5696" CreationDate="2019-04-04T09:28:33.553" Score="-1" Body="&lt;p&gt;&lt;strong&gt;Short answer:&lt;/strong&gt; Of course it is possible: tax the rich instead of taxing the poor. Put a tax on 10% on the incomes of the rich and with the collected money you will pay a part of the public debt. But pay for the internal debt first (the &lt;em&gt;public debt&lt;/em&gt; is the sum of &lt;em&gt;external debt&lt;/em&gt; and &lt;em&gt;internal debt&lt;/em&gt;). Because the internal debt is made from the debts to the retirement funds and you really don't want them to collapse.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Long answer:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Say for example the US govt. is putting an extra tax of 10% on the incomes of the people earning more than the average income. To make it easier, only tax the people earning more than 110% of the medium wage.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Say for example that the US govt. is also putting an extra tax of 10% on the wealth of the rich - the individuals and families that own more than 300.000 $US&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Gather all those money in two separate accounts so everyone can see how much money are collected.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And then use all the collected money to pay a part of the internal debt of the country (the internal debt is a part of the public debt, which is actually the debt of the country).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://economics.stackexchange.com/questions/27605/is-it-possible-to-pay-the-internal-debt-of-the-country-and-to-cover-the-budget-d&quot;&gt;Link&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;The taxing the poor &quot;alternatives&quot;:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you increase the taxes for everyone (austerity) then that will hurt the average citizen and the poor, increasing the poverty. But if you tax the rich, then they can surely afford to pay 10% of their income. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you reduce the government spending (austerity) then that will hurt the people working in the administration apparatus and of the workers of the companies that live from contracts with the government. That also means increasing the poverty.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Printing a large amount of money and then using it to pay the debts means the incomes of the people will not be adjusted to the inflation - so their buying power will be greatly reduced. And that also means dragging the poor into deeper poverty.&lt;/p&gt;&#xA;" OwnerUserId="5161" LastActivityDate="2019-04-04T09:28:33.553" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27622" PostTypeId="2" ParentId="9176" CreationDate="2019-04-04T09:45:59.140" Score="-1" Body="&lt;p&gt;For &lt;strong&gt;outsourcing&lt;/strong&gt; the jobs to China/Bangladesh etc the solution is &lt;em&gt;protectionism&lt;/em&gt; - and that doesn't mean isolationism. Just keep the trade deficit close to zero (the amount of &lt;em&gt;jobs you are exporting&lt;/em&gt; by importing goods must be close to the amount of &lt;em&gt;jobs you are importing&lt;/em&gt; by exporting goods). The trade deficit also translates into public debt (external debt to be more specific) so you really want to keep it very low.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the &lt;strong&gt;replacement with the robots&lt;/strong&gt; the solution is taxes. If the amount of unemployed people is 70% of the workforce then increase the taxes of those who do the work to 70%. They can surely afford. Imagine one person working the land can create all the food for ten persons. That means that he/she can afford to pay 90% of the food for the rest of nine people. If he/she doesn't like the idea then remove his/her licence to do the work and replace them with someone else.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Those 70% of the people who live from taxes (or basic income) don't have to sit and do nothing. The government can ask them to do all kind of work in return for the basic income: research, journalism, cleaning the streets, edit Wikipedia etc.&lt;/p&gt;&#xA;" OwnerUserId="5161" LastEditorUserId="5161" LastEditDate="2019-04-04T09:52:14.277" LastActivityDate="2019-04-04T09:52:14.277" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27623" PostTypeId="2" ParentId="27615" CreationDate="2019-04-04T11:14:24.593" Score="3" Body="&lt;p&gt;I see nothing wrong with Krishna's expression. If I had to take a guess, it would be that either Menezes and Monteiro define their &lt;span class=&quot;math-container&quot;&gt;$f_{Y|X}(y|x)$&lt;/span&gt; differently or they simply forgot to adjust the density on &lt;span class=&quot;math-container&quot;&gt;$Y_1 &amp;lt; x$&lt;/span&gt;. Both expressions are supposed to be the same.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you have some random variable &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt; with cdf &lt;span class=&quot;math-container&quot;&gt;$F$&lt;/span&gt;, density &lt;span class=&quot;math-container&quot;&gt;$f$&lt;/span&gt; and support &lt;span class=&quot;math-container&quot;&gt;$[a,b]$&lt;/span&gt;&#xA;, the following two notations say the same thing&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\int v(y) f(y) dy  = \int v(y) d F(y) \quad  \mbox{for any function } v(y).$$&lt;/span&gt;&#xA;If you condition &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt; on being &lt;span class=&quot;math-container&quot;&gt;$Y&amp;lt;x$&lt;/span&gt;, you have to adjust the cdf because the new support only goes up to &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;,&#xA;&lt;span class=&quot;math-container&quot;&gt;$$ F_{Y|Y&amp;lt;x} (y) = \begin{cases}&#xA;0 \quad &amp;amp;\mbox{if } y &amp;lt;a, \\&#xA;\frac{F(y)}{F(x)} \quad &amp;amp;\mbox{if } y \in [a,x],\\&#xA;1 \quad &amp;amp;\mbox{if } y &amp;gt;x.&#xA;\end{cases}$$&lt;/span&gt;&#xA;That way you have an expression that is one for &lt;span class=&quot;math-container&quot;&gt;$y=x$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence,&#xA;&lt;span class=&quot;math-container&quot;&gt;$$E[v(Y_1,Y_1)|X_1=x,Y_1&amp;lt;x]= \int_0^x v(y,y)d\cfrac{ G_{Y|X}(y|x)}{G_{Y|X}(x|x)}&#xA;= \int_0^x v(y,y)  \cfrac{ g_{Y|X}(y|x)}{G_{Y|X}(x|x)}   d y.  $$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="11590" LastActivityDate="2019-04-04T11:14:24.593" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="27624" PostTypeId="1" CreationDate="2019-04-04T12:09:32.343" Score="1" ViewCount="17" Body="&lt;p&gt;One of the assumptions in Euler's adding up theorem is:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Fourth, the relative shares of the factors are constant and independent of the level of the product.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Does this mean that the factors are used in fixed proportions? Does this further mean that the elasticity of substitution is 0?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If not, what is the difference between having relative shares of factors constant and fixed proportions?&lt;/p&gt;&#xA;" OwnerUserId="6486" LastActivityDate="2019-04-04T12:09:32.343" Title="If the relative share of inputs is constant in a production process, does that mean that the inputs are used in fixed proportion?" Tags="&lt;production-function&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27628" PostTypeId="2" ParentId="5696" CreationDate="2019-04-04T17:38:44.323" Score="0" Body="&lt;p&gt;It is definitely possible to have a sustained decline in debt to GDP, even at high levels.  Between 1996 and 2008 Canada managed to decrease debt to GDP from roughly 80 to 30 percent of GDP. &#xA;&lt;a href=&quot;https://i.stack.imgur.com/ye81A.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/ye81A.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&#xA;&lt;a href=&quot;https://worthwhile.typepad.com/worthwhile_canadian_initi/2014/10/the-federal-government-should-not-cut-taxes.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Worthwhile Canadian Initiative (2014)&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;How did they do it?&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The federal government achieved these reductions in debt, not with&#xA;  large tax increases, but with substantial cuts in government spending.&#xA;  While Martin’s 1995 budget did increase some taxes, the budget called&#xA;  for six to seven dollars in expenditure cuts for every dollar of&#xA;  increased taxes. Between FY1995 and FY1998, federal government program&#xA;  expenditure (government spending minus interest payments on the&#xA;  federal debt) decreased from C\$123.2 billion to C\$111.3 billion, a&#xA;  decrease of C\$11.9 billion. Moreover, because Canada’s economy&#xA;  experienced mild inflation during this time, the cut in government&#xA;  spending in real (that is, inflation-adjusted) dollars was much&#xA;  larger. In 2002 Canadian dollars, program expenditures decreased from&#xA;  C\$142.44 billion in FY1995 to C\$122.9 billion in FY1998, a real&#xA;  decrease of approximately C\$20 billion. This cut was a real decrease&#xA;  of 14 percent of the government’s budget over three years. It was not&#xA;  until FY2003 that real spending reached the high level it had been at&#xA;  in FY1995. By comparison, if the U.S. government were to cut real&#xA;  spending by 14 percent over the next three years, the budget in FY2013&#xA;  would be US\$473 billion (in 2010 dollars) less than the FY2010 budget.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.mercatus.org/system/files/Canada&amp;#39;s%20Reversed%20Budget.Henderson.5.5.11_0.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Henderson  and Anderson (2011)&lt;/a&gt; &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2019-04-04T17:38:44.323" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27629" PostTypeId="2" ParentId="27619" CreationDate="2019-04-04T18:29:51.780" Score="6" Body="&lt;p&gt;The US is in a &lt;a href=&quot;https://www.imf.org/external/pubs/ft/fandd/2014/03/prasad.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;privileged position&lt;/a&gt; of producing a currency that people in other countries want to use (as reserve). There's even a &lt;a href=&quot;https://en.wikipedia.org/wiki/Exorbitant_privilege&quot; rel=&quot;nofollow noreferrer&quot;&gt;French name&lt;/a&gt; for that. Anyway, a result of that is cheap credit for the US government:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Many believe that this dollar dominance has allowed the United States to live beyond its means, running sizable current account deficits financed by borrowing from the rest of the world at cheap interest rates. Some other countries have chafed at this “exorbitant privilege” enjoyed by the United States.­ [...]&lt;/p&gt;&#xA;&lt;p&gt;There are tangible and intangible benefits to a country whose currency serves as a reserve currency. In addition to the prestige conferred by this status, it also means access to cheap financing in the country’s domestic currency and the benefit of seigniorage revenue—the difference between the purchasing power of money and the cost of producing it—which can be extracted from both domestic and foreign holders of the currency.­&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;In more mundane terms, the Chinese (and others) don't just hold on to their reserve dollars, but they then lend them back to the US gov't.&lt;/p&gt;&#xA;&lt;p&gt;So the incentive to not be indebted is less than elsewhere.&lt;/p&gt;&#xA;&lt;p&gt;In particular, the &lt;a href=&quot;https://www.bbc.com/news/business-41248503&quot; rel=&quot;nofollow noreferrer&quot;&gt;classical idea is that&lt;/a&gt;:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Economists say the US need not ever pay its debts back entirely, so long as the economy keeps growing enough to cover the payments.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;But there are even more extreme ideas like &lt;a href=&quot;https://www.bloomberg.com/opinion/articles/2019-01-10/u-s-economy-modern-monetary-theory-bets-deficits-don-t-matter&quot; rel=&quot;nofollow noreferrer&quot;&gt;the MMT&lt;/a&gt;, which says the US can pay even less than that.&lt;/p&gt;&#xA;&lt;p&gt;Of course, you could ask, why don't the Chinese (and others) do something else with their dollars. The &lt;a href=&quot;https://www.imf.org/external/pubs/ft/fandd/2014/03/prasad.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;catch&lt;/a&gt; is that there's nothing better on the horizon, in a certain (risk averse) sense:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Moreover, there are no alternative currencies or investments that provide a similar degree of safety and liquidity in the quantities demanded by investors.&lt;/p&gt;&#xA;&lt;p&gt;The reason the United States appears so special in global finance is not just because of the size of its economy, but also because of its institutions—democratic government, public institutions, financial markets, and legal framework—which, for all their flaws, still set the standard for the world. For instance, despite the Federal Reserve’s aggressive and protracted use of unconventional monetary policies, investors worldwide still seem to trust that the Fed will not allow inflation to get out of hand and diminish the value of the dollar.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;(That was written in 2014, quantitative easing is even less controversial now.)&lt;/p&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;As for &amp;quot;can not&amp;quot;: it is a matter of time frame and it is relative to other objectives. Here are some silly ways to pay the debt (quickly):&lt;/p&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;https://www.businessinsider.com/donald-trump-default-print-money-2016-5&quot; rel=&quot;nofollow noreferrer&quot;&gt;print money&lt;/a&gt;; it will causes substantial inflation, loss of confidence etc., and not really solve the problem because a lot of costs the government faces will rise with inflation.&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;mega-austerity, i.e. cut suddenly spending, a lot. The a-word is nearly unheard of in the US, unless it's news about Europe. Largely unacceptable politically. Also a shrinking economy means less tax revenue. &lt;a href=&quot;https://aeon.co/ideas/in-a-highly-indebted-world-austerity-is-a-permanent-state-of-affairs_&quot; rel=&quot;nofollow noreferrer&quot;&gt;Classical example nowadays&lt;/a&gt;:&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Under the auspices of ‘bailouts’ from the IMF and the EU, Greece cut more than 20 per cent of GDP in spending. It lost nearly 30 per cent in final consumption.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;There's of course debate whether &lt;a href=&quot;https://qz.com/69302/austerity-is-bad-economic-policy/&quot; rel=&quot;nofollow noreferrer&quot;&gt;a little austerity will do that&lt;/a&gt;; it depends what you'd cut.&lt;/p&gt;&#xA;&lt;p&gt;But here's an example &lt;a href=&quot;https://www.theguardian.com/world/2015/jul/03/greece-overspending-defence-wages-taxation-economic-crisis&quot; rel=&quot;nofollow noreferrer&quot;&gt;what Greece cut (and didn't)&lt;/a&gt;:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;The International Monetary Fund (IMF), which joined the rescue of Greece in 2010 alongside the EU and the European Central Bank (ECB), never asked for defence cuts, but insisted on reductions to wages. So while the defence equipment budget remained intact, soldiers suffered a near 40% drop in salaries.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;And that's actually a little misleading too, because (except for defense) &lt;a href=&quot;https://www.economist.com/finance-and-economics/2018/08/02/greece-exits-its-bail-out-programme-but-its-marathon-has-further-to-go&quot; rel=&quot;nofollow noreferrer&quot;&gt;investment tanked as well&lt;/a&gt;, in fact more than the GDP did, to some 40% of the pre-crisis value.&lt;/p&gt;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/KzCBa.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/KzCBa.png&quot; alt=&quot;enter image description here&quot; /&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&lt;p&gt;Someone with better macroeconomics knowledge may be able to quickly estimate what paying the whole US debt at one would do. But since serious sources dismiss the idea off-hand, I can't find a published calculation.&lt;/p&gt;&#xA;&lt;p&gt;There's no quick fix for the debt that won't impact some other long-term goal.&lt;/p&gt;&#xA;" OwnerUserId="6210" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2020-05-07T05:42:35.623" CommentCount="13" ContentLicense="CC BY-SA 4.0" />
  <row Id="27630" PostTypeId="2" ParentId="26991" CreationDate="2019-04-04T18:32:28.190" Score="3" Body="&lt;p&gt;The monetary base (MB) contains what might be called &amp;quot;public money creation&amp;quot;, Notes and coins in circulation (outside Federal Reserve Banks and the vaults of depository institutions), Notes and coins in bank vaults (vault cash), and Federal Reserve Bank credit (required reserves and excess reserves not physically present in banks). The broadest available government measured US monetary measure is M2, which does not contain all the elements of MB, but still is an approximation of the total of private and public money creation, which includes currency, plus time, savings, and demand deposit accounts. So, what is MB/M2? What fraction of money is created by the government of the total?&lt;/p&gt;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/VKLcU.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/VKLcU.png&quot; alt=&quot;enter image description here&quot; /&gt;&lt;/a&gt;&#xA;&lt;a href=&quot;https://fred.stlouisfed.org/series/BASE#0&quot; rel=&quot;nofollow noreferrer&quot;&gt;FRED: (Monetary Base; Total)/(M2 Money Stock*1000)&lt;/a&gt;&lt;/p&gt;&#xA;&lt;p&gt;The answer is less than half. Crudely, money is mostly privately created in the US. The &amp;quot;out of nothing&amp;quot; aspect of your question is more complex. In my personal view, and I guess that's only an opinion, is that because banks are government regulated and insured institutions, forced to back each loan with reserves, and regulated to have capital for each of those loans, they cannot really be said to make this private money out of nothing.&lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2019-09-07T11:33:59.573" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27631" PostTypeId="1" CreationDate="2019-04-05T02:37:48.043" Score="0" ViewCount="24" Body="&lt;p&gt;How much is the amount of money of the US banks?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In terms of:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;assets&lt;/li&gt;&#xA;&lt;li&gt;their own money (the banks make profits and they can keep the profits for further investments)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The question is only about the banks. No retirement funds, no venture capitals, no other kind of financial institutions.&lt;/p&gt;&#xA;" OwnerUserId="5161" LastActivityDate="2019-04-05T02:48:52.230" Title="What's the combined wealth of the US banks?" Tags="&lt;banking&gt;&lt;wealth&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27632" PostTypeId="2" ParentId="27631" CreationDate="2019-04-05T02:48:52.230" Score="2" Body="&lt;p&gt;The &lt;a href=&quot;https://fred.stlouisfed.org/series/TLAACBW027SBOG&quot; rel=&quot;nofollow noreferrer&quot;&gt;total assets&lt;/a&gt; of all US commercial banks are about \$17.2 trillion.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You'll have to be clearer about what you mean by &quot;their own money&quot;. The &lt;a href=&quot;https://fred.stlouisfed.org/series/USTEQC&quot; rel=&quot;nofollow noreferrer&quot;&gt;total equity capital&lt;/a&gt; of US commercial banks is about \$1.9 trillion.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2019-04-05T02:48:52.230" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27634" PostTypeId="1" CreationDate="2019-04-05T03:45:38.933" Score="0" ViewCount="116" Body="&lt;p&gt;Is there any difference between the &lt;em&gt;equity capital&lt;/em&gt; and the &lt;em&gt;market capitalization&lt;/em&gt; of a company (or a bank)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If yes then what's the difference?&lt;/p&gt;&#xA;" OwnerUserId="5161" LastActivityDate="2019-04-06T03:42:02.260" Title="What's the difference between equity capital and market capitalization?" Tags="&lt;wealth&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27635" PostTypeId="2" ParentId="27634" CreationDate="2019-04-05T03:57:12.033" Score="3" Body="&lt;p&gt;Equity capital = Assets − Liabilities.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Market capitalization = Number of shares outstanding × Current share price.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastEditorDisplayName="user18" LastEditDate="2019-04-06T03:42:02.260" LastActivityDate="2019-04-06T03:42:02.260" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="27636" PostTypeId="2" ParentId="9260" CreationDate="2019-04-05T05:05:52.083" Score="1" Body="&lt;p&gt;I find the &amp;quot;algorithm&amp;quot; below quite useful and easy to follow. It works well for most common two-player extensive form games (that do not take a full page to draw). It also works well in games with more than two players and a sufficiently simple information structure (e.g. perfect information).&lt;/p&gt;&#xA;&lt;p&gt;The idea is that we first conjecture a &lt;em&gt;&lt;strong&gt;strategy&lt;/strong&gt;&lt;/em&gt;  for the first player (player 1). Then we find out the best responses of the subsequent player(s). Lastly we check whether the initially conjectured strategy for player 1 is a best response to the other players' best responses (to it). If it is, we have a profile of mutually best responding strategies, hence a NE; if it isn't, then we don't have any NE with the initially supposed strategy of player 1.&lt;/p&gt;&#xA;&lt;hr /&gt;&#xA;&lt;h1&gt;Algorithm for finding NE in a 2-player extensive form game&lt;/h1&gt;&#xA;&lt;p&gt;For each of player 1's pure strategy &lt;span class=&quot;math-container&quot;&gt;$s_1$&lt;/span&gt;, do the following:&lt;/p&gt;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Find player 2's best response(s) to &lt;span class=&quot;math-container&quot;&gt;$s_1$&lt;/span&gt;. Let the set of player 2's best responses be &lt;span class=&quot;math-container&quot;&gt;$B_2(s_1)$&lt;/span&gt;&lt;/li&gt;&#xA;&lt;li&gt;For each &lt;span class=&quot;math-container&quot;&gt;$s_2\in B_2(s_1)$&lt;/span&gt;,&#xA;&lt;ul&gt;&#xA;&lt;li&gt;If &lt;span class=&quot;math-container&quot;&gt;$s_1$&lt;/span&gt; is a best response to &lt;span class=&quot;math-container&quot;&gt;$s_2$&lt;/span&gt;, record &lt;span class=&quot;math-container&quot;&gt;$(s_1,s_2)$&lt;/span&gt; as NE&lt;/li&gt;&#xA;&lt;li&gt;If &lt;span class=&quot;math-container&quot;&gt;$s_1$&lt;/span&gt; is not a best response to &lt;span class=&quot;math-container&quot;&gt;$s_2$&lt;/span&gt;, then there is no NE&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&lt;hr /&gt;&#xA;&lt;h1&gt;Example with market entry game&lt;/h1&gt;&#xA;&lt;p&gt;Entrant has four pure strategies: &lt;span class=&quot;math-container&quot;&gt;$\{OF,OA,IF,IA\}$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Consider &lt;span class=&quot;math-container&quot;&gt;$OF$&lt;/span&gt;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Resident's best response is either &lt;span class=&quot;math-container&quot;&gt;$F$&lt;/span&gt; or &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt;&lt;/li&gt;&#xA;&lt;li&gt;Entrant's best responses:&#xA;&lt;ul&gt;&#xA;&lt;li&gt;If resident plays &lt;span class=&quot;math-container&quot;&gt;$F$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$OF$&lt;/span&gt; is a best response &lt;span class=&quot;math-container&quot;&gt;$\to$&lt;/span&gt; &lt;span class=&quot;math-container&quot;&gt;$(OF,F)$&lt;/span&gt; is NE&lt;/li&gt;&#xA;&lt;li&gt;If resident plays &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$IF$&lt;/span&gt; is the best response &lt;span class=&quot;math-container&quot;&gt;$\to$&lt;/span&gt; no NE&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;Consider &lt;span class=&quot;math-container&quot;&gt;$OA$&lt;/span&gt;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Resident's best response is either &lt;span class=&quot;math-container&quot;&gt;$F$&lt;/span&gt; or &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt;&lt;/li&gt;&#xA;&lt;li&gt;Entrant's best responses:&#xA;&lt;ul&gt;&#xA;&lt;li&gt;If resident plays &lt;span class=&quot;math-container&quot;&gt;$F$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$OA$&lt;/span&gt; is a best response &lt;span class=&quot;math-container&quot;&gt;$\to$&lt;/span&gt; &lt;span class=&quot;math-container&quot;&gt;$(OA,F)$&lt;/span&gt; is NE&lt;/li&gt;&#xA;&lt;li&gt;If resident plays &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$IF$&lt;/span&gt; is the best response &lt;span class=&quot;math-container&quot;&gt;$\to$&lt;/span&gt; no NE&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;Consider &lt;span class=&quot;math-container&quot;&gt;$IF$&lt;/span&gt;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Resident's best response is &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt;&lt;/li&gt;&#xA;&lt;li&gt;Entrant's best responses to &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt; is &lt;span class=&quot;math-container&quot;&gt;$IF$&lt;/span&gt; &lt;span class=&quot;math-container&quot;&gt;$\to$&lt;/span&gt; &lt;span class=&quot;math-container&quot;&gt;$(IF,A)$&lt;/span&gt; is NE&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;Consider &lt;span class=&quot;math-container&quot;&gt;$IA$&lt;/span&gt;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Resident's best response is &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt;&lt;/li&gt;&#xA;&lt;li&gt;Entrant's best responses to &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt; is &lt;span class=&quot;math-container&quot;&gt;$IF$&lt;/span&gt;, not &lt;span class=&quot;math-container&quot;&gt;$IA$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$\to$&lt;/span&gt; no NE&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;p&gt;Hence all three NEs are found.&lt;/p&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;For an example with a simple 3-player game, see &lt;a href=&quot;https://math.stackexchange.com/a/3175076/70119&quot;&gt;my answer on MSE&lt;/a&gt;.&lt;/p&gt;&#xA;&lt;p&gt;The same procedure can also be used to find perfect Bayesian equilibrium in extensive form games.&lt;/p&gt;&#xA;" OwnerUserId="42" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2019-04-05T05:05:52.083" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27637" PostTypeId="1" CreationDate="2019-04-05T05:59:46.140" Score="0" ViewCount="36" Body="&lt;p&gt;I am an undergraduate student and I am finding out if this could be a good thesis topic since I haven't encountered any text regarding this also when I found one related to this it is on the other way around like how does income affect difference on human capital between regions. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sub-question: Will increase in human capital create convergence between regions? &lt;/p&gt;&#xA;" OwnerUserId="21724" LastEditorUserId="1601" LastEditDate="2019-04-06T05:51:20.107" LastActivityDate="2019-04-06T05:51:20.107" Title="Does improvement in human capital reduces regional disparity?" Tags="&lt;human-capital&gt;" AnswerCount="0" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="27639" PostTypeId="2" ParentId="27576" CreationDate="2019-04-05T12:08:54.223" Score="2" Body="&lt;p&gt;I do not believe that your suggested definitions will hold up. Since this is a forum for questions about economics, I do not see the point of proposing a new definition here. Who is going to see it?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What you call “income generating wealth” is captured by “wealth” in its standard usages. However, what you exclude (such as bank deposits) will be included in “wealth” or “claims on wealth.” From a portfolio perspective, it makes no sense to exclude bank deposits. Furthermore, “income” is well defined, and there are assets that generate no income for the holder, and yet are wealth (for example, a personal residence). Rephrasing to include future income does not help, since the sale of a primary residence is not considered income.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Everything else would be classified as “consumer goods.” If you want to only include things that “make you look like a rich person,” you would end up with the fuzzy category of “positional goods.”&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why not include consumer goods in wealth? One of the regularities of consumer goods is that they have almost no resale value. So there’s no good way to measure its value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The lines are blurry. For a collector that buys and sells particular goods, those goods are actually assets that are expected to make a profit. However, no statistician could hope to measure the value of these exceptions.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2019-04-05T12:08:54.223" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="27640" PostTypeId="2" ParentId="27576" CreationDate="2019-04-05T15:12:48.967" Score="1" Body="&lt;p&gt;The distinction between the two is not well specified. If I own an apartment I can rent it out or I can live in it. If I own an art collection I can hang it in my house or charge others to see it. Cash in bank accounts is lent out by banks to form investments in other firms and projects. Land might be used for long walks or used for farming, natural resource extraction, or simply held for future development. Nevertheless, a useful distinction in the spirit of your question is between inputs to production and &quot;Durable Consumption&quot;. Durable consumption goods are a form of consumption good that is provides a stream of consumption services rather than totally consumed by the act of consumption. Contrast a car (durable consumption good) with a vacation (a service, which is a kind of non-durable consumption). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is the &lt;a href=&quot;https://www.stlouisfed.org/education/economic-lowdown-podcast-series/episode-2-factors-of-production&quot; rel=&quot;nofollow noreferrer&quot;&gt;St. Louis Fed on Factors of Production - The Economic Lowdown Podcast Series, Episode 2&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The first factor of production is &lt;strong&gt;land&lt;/strong&gt;, but this includes any natural&#xA;  resource used to produce goods and services. This includes not just&#xA;  land, but anything that comes from the land. Some common land or&#xA;  natural resources are water, oil, copper, natural gas, coal, and&#xA;  forests. Land resources are the raw materials in the production&#xA;  process. These resources can be renewable, such as forests, or&#xA;  nonrenewable such as oil or natural gas. The income that resource&#xA;  owners earn in return for land resources is called &lt;strong&gt;rent&lt;/strong&gt;.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The second factor of production is &lt;strong&gt;labor&lt;/strong&gt;. Labor is the effort that&#xA;  people contribute to the production of goods and services. Labor&#xA;  resources include the work done by the waiter who brings your food at&#xA;  a local restaurant as well as the engineer who designed the bus that&#xA;  transports you to school. It includes an artist's creation of a&#xA;  painting as well as the work of the pilot flying the airplane&#xA;  overhead. If you have ever been paid for a job, you have contributed&#xA;  labor resources to the production of goods or services. The income&#xA;  earned by labor resources is called &lt;strong&gt;wages&lt;/strong&gt; and is the largest source of&#xA;  income for most people.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The third factor of production is &lt;strong&gt;capital&lt;/strong&gt;. Think of capital as the&#xA;  machinery, tools and buildings humans use to produce goods and&#xA;  services. Some common examples of capital include hammers, forklifts,&#xA;  conveyer belts, computers, and delivery vans. Capital differs based on&#xA;  the worker and the type of work being done. For example, a doctor may&#xA;  use a stethoscope and an examination room to provide medical services.&#xA;  Your teacher may use textbooks, desks, and a whiteboard to produce&#xA;  education services. The income earned by owners of capital resources&#xA;  is &lt;strong&gt;interest&lt;/strong&gt;.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The fourth factor of production is &lt;strong&gt;entrepreneurship&lt;/strong&gt;. An entrepreneur&#xA;  is a person who combines the other factors of production - land,&#xA;  labor, and capital - to earn a profit. The most successful&#xA;  entrepreneurs are innovators who find new ways produce goods and&#xA;  services or who develop new goods and services to bring to market.&#xA;  Without the entrepreneur combining land, labor, and capital in new&#xA;  ways, many of the innovations we see around us would not exist. Think&#xA;  of the entrepreneurship of Henry Ford or Bill Gates. Entrepreneurs are&#xA;  a vital engine of economic growth helping to build some of the largest&#xA;  firms in the world as well as some of the small businesses in your&#xA;  neighborhood. Entrepreneurs thrive in economies where they have the&#xA;  freedom to start businesses and buy resources freely. The payment to&#xA;  entrepreneurship is &lt;strong&gt;profit&lt;/strong&gt;.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;A person might have a great deal of wealth, but all of it held in durable consumption goods which they are using (&lt;a href=&quot;https://en.wikipedia.org/wiki/Finances_of_the_British_royal_family&quot; rel=&quot;nofollow noreferrer&quot;&gt;the British royal family might be a good example of this type&lt;/a&gt;). Another person might have little consumption of any sort, but own lots of capital, land, and entrepreneurship  (&lt;a href=&quot;https://en.wikipedia.org/wiki/Hetty_Green&quot; rel=&quot;nofollow noreferrer&quot;&gt;Hetty Green&lt;/a&gt; is a famous example of this type, but so might be &lt;a href=&quot;https://en.wikipedia.org/wiki/Warren_Buffett&quot; rel=&quot;nofollow noreferrer&quot;&gt;Warren Buffet&lt;/a&gt;, at least relatively speaking). &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2019-04-05T15:12:48.967" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27641" PostTypeId="1" CreationDate="2019-04-05T15:42:10.673" Score="4" ViewCount="54" Body="&lt;p&gt;Competition between firms offering heterogenous products is often an exercise of constructing the right kind of spatial model.&lt;/p&gt;&#xA;&lt;p&gt;There is the famous Hotelling model and many other papers that model competition in a product characteristic space. I can think of examples where cars are differentiated by size, power, gas mileage, etc. These are directly measurable and interpretable features.&lt;/p&gt;&#xA;&lt;p&gt;However, are there any examples of analysis where latent features/product characteristics (interpretable or not) are used? I am thinking of the kinds of latent features that might be the product of using alternating least squares as an example, though it might be less common in economics.&lt;/p&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;Below I expand on matrix factorization, which is sometimes used for recommendations. &lt;a href=&quot;http://www.diva-portal.org/smash/get/diva2:927190/FULLTEXT01.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Example article&lt;/a&gt;.&lt;/p&gt;&#xA;&lt;p&gt;We might have a matrix of movie reviews by users,&#xA;&lt;span class=&quot;math-container&quot;&gt;$$R = \left( r_{ij} \right)_{i\in I, j\in J}.$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;Then features are extracted based on finding &lt;span class=&quot;math-container&quot;&gt;$R\approx W F^T$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;p&gt;Let &lt;span class=&quot;math-container&quot;&gt;$R$&lt;/span&gt; be &lt;span class=&quot;math-container&quot;&gt;$n\times m$&lt;/span&gt; for &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt; users and &lt;span class=&quot;math-container&quot;&gt;$m$&lt;/span&gt; movies. A number of latent features &lt;span class=&quot;math-container&quot;&gt;$k$&lt;/span&gt; can be chosen exogenously to extract. Then &lt;span class=&quot;math-container&quot;&gt;$W$&lt;/span&gt; is &lt;span class=&quot;math-container&quot;&gt;$n \times k$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$w_{il}$&lt;/span&gt; giving the weight user &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; attaches to feature &lt;span class=&quot;math-container&quot;&gt;$l$&lt;/span&gt;. A movie's &lt;span class=&quot;math-container&quot;&gt;$l$&lt;/span&gt;-ness is then given by &lt;span class=&quot;math-container&quot;&gt;$f_{jl}$&lt;/span&gt;. The user scores movie &lt;span class=&quot;math-container&quot;&gt;$j$&lt;/span&gt; according to &lt;span class=&quot;math-container&quot;&gt;$$r_{ij} = \sum_{l=1}^k w_{il}f_{jl}.$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;Here, &lt;span class=&quot;math-container&quot;&gt;$l$&lt;/span&gt;-ness is uninterpretable, simply a result of the matrix factorization and then weights &lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt; simply give linear utility weights for these features. Similar uninterpretability might also arise if many non-latent features are condensed via dimensionality reduction.&lt;/p&gt;&#xA;" OwnerUserId="14" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2019-04-12T21:50:50.973" Title="Examples of Analysis of Competition in a Latent Product Characteristic Space" Tags="&lt;reference-request&gt;&lt;competition&gt;&lt;monopolistic-competition&gt;&lt;product-differentiation&gt;" AnswerCount="0" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27642" PostTypeId="2" ParentId="9495" CreationDate="2019-04-05T15:48:01.043" Score="4" Body="&lt;p&gt;The Rawlsian welfare function, which takes the form of the min of all agent's utility, is often called the &lt;a href=&quot;https://plato.stanford.edu/entries/original-position/&quot; rel=&quot;nofollow noreferrer&quot;&gt;maximin function&lt;/a&gt;, because it maximizes minimum utility. In the spirit of that nomenclature, your function is a maximax utility function. And, apparently, this function does see some use. It is sometimes called the optimistic decision criteria, because a person evaluating projects based on their best outcome uses a similar evaluation function. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The maximax looks at the best that could happen under each action and&#xA;  then chooses the action with the largest value. They assume that they&#xA;  will get the most possible and then they take the action with the best&#xA;  best case scenario. The maximum of the maximums or the &quot;best of the&#xA;  best&quot;. This is the lotto player; they see large payoffs and ignore the&#xA;  probabilities.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://people.richland.edu/james/summer02/m160/decision.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Jones (2002), Decision Theory Notes&lt;/a&gt; &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2019-04-05T15:48:01.043" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27644" PostTypeId="1" CreationDate="2019-04-05T17:48:01.340" Score="2" ViewCount="65" Body="&lt;p&gt;I am writing about the development of mathematics in the Ancient Greece as an assigment and I have to include its relation with economics. However, I lack of sources for this topic and I only found Joseph Schumpeter: History of Economic Analysis's one early chapter. Can someone recommend me any article or book in this topic?&lt;/p&gt;&#xA;" OwnerUserId="21729" LastActivityDate="2019-09-04T19:02:10.293" Title="Greek mathematics' application in the early economic theories" Tags="&lt;reference-request&gt;&lt;history-economic-thought&gt;&lt;economic-history&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="27645" PostTypeId="1" CreationDate="2019-04-05T19:59:41.540" Score="1" ViewCount="17" Body="&lt;p&gt;There are a lot of paper that claim stocks follow a random walk and therefore not predictable. A basis for this statements often times a autocorrelation test of the returns. However, what if there is no autocorrelation in the returns time-series but there is autocorrelation in the price time-series? Wouldn't this make stock movemenst still predictable?&lt;/p&gt;&#xA;" OwnerUserId="21730" LastActivityDate="2019-04-05T19:59:41.540" Title="Stock Price vs Stock Return Autocorrelation" Tags="&lt;stock-market&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27646" PostTypeId="2" ParentId="27619" CreationDate="2019-04-05T20:29:33.910" Score="2" Body="&lt;p&gt;Fizz gave a great answer. I also wanted to add a little to the original question. &#xA;The US has no incentive to pay back its debts!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The US dollar is used as a major global Forex reserve. This helps to reduce risk in investing for the country buying US debt. The US then uses leverage to generate positive GDP above and beyond the rate of debt...rinse and repeat. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't think Hungary and the Czech Republic can be compared in terms of paying of debt. China, though an export economy versus US import economy, has $5.2T* of government debt (excluding private debt), which is more worrisome for an export economy.&lt;/p&gt;&#xA;" OwnerUserId="19412" LastEditorUserId="4020" LastEditDate="2020-05-08T09:54:48.590" LastActivityDate="2020-05-08T09:54:48.590" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="27647" PostTypeId="1" CreationDate="2019-04-05T21:30:21.763" Score="1" ViewCount="72" Body="&lt;p&gt;While &quot;&lt;a href=&quot;https://www.stlouisfed.org/publications/regional-economist/april-2011/jobless-recoveries-causes-and-consequences&quot; rel=&quot;nofollow noreferrer&quot;&gt;jobless recovery&lt;/a&gt;&quot; is often discussed in the aftermath of recessions in Western countries, it seems it's always a short-lived phenomenon. On the other hand, it looks like in other parts of the world, e.g. &lt;a href=&quot;https://www.economist.com/special-report/2010/06/03/jobless-growth&quot; rel=&quot;nofollow noreferrer&quot;&gt;South Africa&lt;/a&gt;, &lt;a href=&quot;https://www.pwc.com/ng/en/assets/pdf/structural-transformation-jobless-growth-Nigeria.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Nigeria&lt;/a&gt;, or even &lt;a href=&quot;https://asia.nikkei.com/Economy/Make-in-India-stumbles-on-jobless-growth&quot; rel=&quot;nofollow noreferrer&quot;&gt;India&lt;/a&gt; have experienced much longer periods of &quot;jobless growth&quot;; e.g. for the latter country:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Jobless growth has surfaced over the past few years as an unsettling element in India's economic picture. The 2011 census showed that the Indian economy grew at an average rate of 7.7% annually over the prior decade, while employment grew by only 1.8%.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So what are the (common) causes of jobless growth in developing countries? And if I'm not wrong about their occurrence in the West, why is it that we don't see such long periods of jobless growth in the West?&lt;/p&gt;&#xA;" OwnerUserId="6210" LastEditorUserId="6210" LastEditDate="2019-04-06T08:46:41.737" LastActivityDate="2020-04-15T22:37:13.957" Title="What are some common causes of jobless growth?" Tags="&lt;macroeconomics&gt;&lt;economic-growth&gt;&lt;unemployment&gt;&lt;comparative-economics&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="27648" PostTypeId="2" ParentId="5456" CreationDate="2019-04-05T21:36:06.217" Score="3" Body="&lt;p&gt;Klette and Kortum (2004) develop a parsimonious model of innovating firms rich enough to confront firm-level evidence. It captures the dynamics of individual heterogenous firms, describes the behavior of an industry with simultaneous entry and exit, and delivers ageneral equilibrium model of technological change. At the root of the model is a &lt;strong&gt;Poisson process&lt;/strong&gt; for a firm’s innovations with anarrival rate a function of its current R&amp;amp;D and knowledge generated by its past R&amp;amp;D.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Klette and Kortum, &quot;&lt;a href=&quot;https://1df379c8-a-c3bd8240-s-sites.googlegroups.com/a/yale.edu/kortum/Innovating%20Firms%20and%20Aggregate%20Innovation.pdf?attachauth=ANoY7coVz2P4cXcS5S4JgmSw_IwPkaFbk9lLQLedUsEYHbDxKDzcQMk7_g_oW7xSJEq_cKzR-gHC3GuNZAH8snZ8Or_LLsHvE1U5vZJo16VMf3-sLoEaejm32bsC8bSiAB9OMTMY8G1o_N_8kTpGnE6wmaCmGBKrY3uqpl3PnW2ZFVNBjso2HtqeMVRUSyX_qHG9Ko6CpRpE1Yc-NZtqfNoCNfHGE6j3e80oyVxCuY2Xg-XS5AyqHck%3D&amp;amp;attredirects=0&quot; rel=&quot;nofollow noreferrer&quot;&gt;Innovating Firms and Aggregate Innovation&lt;/a&gt;&quot;, Journal of Political Economy (2004) Vol. 112, No. 5, pp. 986-1018. &lt;/p&gt;&#xA;" OwnerUserId="6168" LastActivityDate="2019-04-05T21:36:06.217" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27653" PostTypeId="1" CreationDate="2019-04-06T04:00:49.020" Score="1" ViewCount="226" Body="&lt;p&gt;In trade, the opposite of &lt;em&gt;trade deficit&lt;/em&gt; is &lt;em&gt;trade surplus&lt;/em&gt;. In other words, the negative deficit is called surplus.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And then, what is the term for negative debt?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Say for example Bank A owes 5 million dollars to Bank B.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And then Bank A has a debt of 5 million dollars.&#xA;And bank B has a negative debt of 5 million dollars.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have the same question about negative liabilities, I'm not sure if I have to ask a separate question for that.&lt;/p&gt;&#xA;" OwnerUserId="5161" LastActivityDate="2019-04-06T05:24:49.693" Title="What is the opposite of debt?" Tags="&lt;debt&gt;&lt;definition&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="27657" PostTypeId="2" ParentId="26991" CreationDate="2019-04-06T11:19:17.450" Score="2" Body="&lt;p&gt;If you actually read the BoE links you've posted, beyond their first page, you'll see that they make the distinction between &amp;quot;base money&amp;quot; and &amp;quot;broad money&amp;quot;. Here's a figure from your first link:&lt;/p&gt;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/L10Xb.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/L10Xb.png&quot; alt=&quot;enter image description here&quot; /&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&lt;p&gt;An obvious fact in it is that credits to consumers are part of the &amp;quot;broad money&amp;quot; only.&lt;/p&gt;&#xA;&lt;p&gt;There is nothing terribly controversial about &lt;a href=&quot;https://en.wikipedia.org/wiki/Broad_money&quot; rel=&quot;nofollow noreferrer&quot;&gt;broad money&lt;/a&gt;, except that might not have an universally agreed definition&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;The European Central Bank considers all monetary aggregates from M2 upwards to be part of broad money.[2] Typically, &amp;quot;broad money&amp;quot; refers to M2, M3, and/or M4.[&lt;/p&gt;&#xA;&lt;p&gt;OECD defines &amp;quot;broad money&amp;quot; as: all banknotes and coins; bank deposits not considered long term, i.e. with an agreed maturity of up to 2 years; bank deposits redeemable at notice of up to 3 months, and similar repurchase agreements; money-market fund shares or units; and debt securities maturing within a period of up to 2 years. The typical OECD notation for &amp;quot;broad money&amp;quot; is M3&lt;/p&gt;&#xA;&lt;p&gt;Still, the exact definitions of monetary measures depend on the country. The terms will usually be more exactly defined before a discussion, whenever it is not sufficient to assume a wider definition. For the Bank of England, the &amp;quot;inescapable conclusion&amp;quot; is that &amp;quot;there can be no unique definition of 'broad money' and any choice of [a] dividing line between those financial assets included in, and those excluded from, broad money is to a degree arbitrary, and is likely over time to be invalidated by developments in the financial system.&amp;quot; Generally, &amp;quot;broad money&amp;quot; is more a term and less a fixed definition across all situations.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;&amp;quot;Base money&amp;quot; is also called &amp;quot;narrow money&amp;quot;. As for the more technical &lt;a href=&quot;http://lexicon.ft.com/Term?term=m0,-m1,-m2,-m3,-m4&quot; rel=&quot;nofollow noreferrer&quot;&gt;M-terms&lt;/a&gt;&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Different measures of money supply. Not all of them are widely used and the exact classifications depend on the country. M0 and M1, also called narrow money, normally include coins and notes in circulation and other money equivalents that are easily convertible into cash. M2 includes M1 plus short-term time deposits in banks and 24-hour money market funds. M3 includes M2 plus longer-term time deposits and money market funds with more than 24-hour maturity. The exact definitions of the three measures depend on the country. M4 includes M3 plus other deposits. The term broad money is used to describe M2, M3 or M4, depending on the local practice.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;The BoE publication from which I took the figure is basically trying to explain these notions &amp;quot;for dummies&amp;quot;.&lt;/p&gt;&#xA;&lt;p&gt;As for Werner, it is indeed unhelpful to simply call &amp;quot;broad money&amp;quot; just money. Of course, that's par for the course given his &amp;quot;pixie dust&amp;quot; conclusions. If they were universally accepted, you probably wouldn't see the base/broad money distinctions in the official publications, but for now they exist. It is incorrect to say BoE endorses Werner; even those &amp;quot;for dummies&amp;quot; BoE publications you linked don't advance the pixie dust theory.&lt;/p&gt;&#xA;&lt;p&gt;Werner's theory is basically attacking the received &lt;a href=&quot;https://en.wikipedia.org/wiki/Fractional-reserve_banking&quot; rel=&quot;nofollow noreferrer&quot;&gt;fractional reserve&lt;/a&gt; theory, an important part of which states:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;In most countries, the central bank (or other monetary authority) regulates bank credit creation, imposing reserve requirements and capital adequacy ratios. This can limit the process of [broad] money creation that occurs in the commercial banking system, and helps to ensure that banks are solvent and have enough funds to meet demand for withdrawals. However, rather than directly controlling the money supply, central banks usually pursue an interest rate target to adjust the rate of inflation and bank issuance of credit.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Werner's argument seems to be that somehow [all?] this regulation fails in practice, so commercial banks can create their own [broad] money like pixie dust. It sounds a little far fetched.&lt;/p&gt;&#xA;&lt;p&gt;One &lt;a href=&quot;https://spontaneousfinance.com/2016/01/11/a-critique-of-werners-view-on-banking/comment-page-1/&quot; rel=&quot;nofollow noreferrer&quot;&gt;critic or Werner&lt;/a&gt; says (not in an academic publication though):&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Finally, his empirical test is flawed, as was his previous one. His credit creation theory of money [...] cannot be demonstrated by making a single small loan to a virtual customer of a given bank.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Finally there is a BoE &lt;a href=&quot;https://www.bankofengland.co.uk/working-paper/2015/banks-are-not-intermediaries-of-loanable-funds-and-why-this-matters&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;working paper&lt;/em&gt; (by Jakab and Kumhof)&lt;/a&gt;, i.e. not official BoE position that is &lt;a href=&quot;https://spontaneousfinance.com/2015/06/04/endogenous-money-creation-is-back-with-a-vengeance/&quot; rel=&quot;nofollow noreferrer&quot;&gt;apparently&lt;/a&gt; sympathetic to Werner. But you haven't mentioned this paper... I found it via the same critic of Werner.&lt;/p&gt;&#xA;&lt;p&gt;And from the criticism of this latter paper, here's a reiteration of the orthodox view:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;In fact, nobody has ever denied the endogenous money creation inherent to the money multiplier [=fractional reserve] model. But this endogenous creation of deposit liabilities (inside money) is constrained by the exogenous variable of the availability of reserves (outside money), as I explained in this post. Is there a fixed limit in the absence of reserve requirements? No. But in this case banks estimate the amount of precautionary reserves and secondary reserves (i.e. mostly highly-rated/high-quality liquid securities they invest in for margin and liquidity management) they need. Apart from asset quality considerations (and other exogenously-defined factors like banking regulations), nothing prevents a bank from expanding its loan book, and hence its liabilities, ad infinitum. Except the threat of illiquidity.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Also, the general idea of endogenous broad money creation (i.e. pixie dust by the commercial banks) is &lt;a href=&quot;https://en.wikipedia.org/wiki/Endogenous_money&quot; rel=&quot;nofollow noreferrer&quot;&gt;not terribly new&lt;/a&gt;&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Endogenous money is a heterodox economic theory with several strands [...]&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;The keyword there for the purpose of your question being &lt;a href=&quot;https://en.wikipedia.org/wiki/Heterodox_economics&quot; rel=&quot;nofollow noreferrer&quot;&gt;heterodox&lt;/a&gt;.&lt;/p&gt;&#xA;&lt;p&gt;As for the McLeay paper (your 2nd link), it's hard for me to say what is their position exactly. On one hand, they hat-tip &amp;quot;There is a long literature that does recognise the ‘endogenous’ nature of money creation in practice.  See, for example, Moore (1988), Howells (1995) and Palley (1996).&amp;quot; And on the other hand they have a loong discussion of the limits to broad money creation, including  &amp;quot;(iii) The ultimate constraint on [broad] money creation is monetary policy&amp;quot;. Their argument seems to be that the control is less direct than expected, but it doesn't seem that it's entirely endogenous to the commercial banks, although I may be misreading them. In any case, this &amp;quot;ultimate constraint&amp;quot; sounds more than &amp;quot;pixie dust&amp;quot; to me. YMMV; maybe you should ask a separate question about the theory advanced in the McLeay paper.&lt;/p&gt;&#xA;&lt;p&gt;And I'm apparently not &lt;a href=&quot;https://spontaneousfinance.com/2014/03/15/the-boe-says-that-money-is-endo-exo-or-something/&quot; rel=&quot;nofollow noreferrer&quot;&gt;the only one confused&lt;/a&gt; about the message of McLeay's paper.&lt;/p&gt;&#xA;&lt;p&gt;Finally, there is the role of reserve requirements and capital requirements &lt;a href=&quot;https://economics.stackexchange.com/a/27673/6210&quot;&gt;to consider&lt;/a&gt;. They can act as additional brakes on broad money creation.&lt;/p&gt;&#xA;" OwnerUserId="6210" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2019-04-07T07:07:36.417" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27659" PostTypeId="1" CreationDate="2019-04-06T14:16:38.570" Score="1" ViewCount="31" Body="&lt;p&gt;Has any work been done to try to figure out what a productive level of wealth and income inequality is in a country? i.e. the minimum to provide incentive for 'hard' work, and necessary risk taking in investments. &lt;/p&gt;&#xA;" OwnerUserId="21741" LastActivityDate="2019-04-06T14:16:38.570" Title="Ideal levels of inequality" Tags="&lt;inequality&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="27660" PostTypeId="1" CreationDate="2019-04-06T14:54:47.847" Score="2" ViewCount="192" Body="&lt;p&gt;Interestingly, the Bank of England (BoE) is one of the few central banks that does not have &lt;a href=&quot;https://en.wikipedia.org/wiki/Reserve_requirement#Countries_without_reserve_requirements&quot; rel=&quot;nofollow noreferrer&quot;&gt;reserve requirements&lt;/a&gt;.&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Canada, the UK, New Zealand, Australia, Sweden and Hong Kong have no reserve requirements.&lt;/p&gt;&#xA;&lt;p&gt;This does not mean that banks can—even in theory—create money without limit. On the contrary, banks are constrained by capital requirements, which are arguably more important than reserve requirements even in countries that have reserve requirements. [...]&lt;/p&gt;&#xA;&lt;p&gt;Even in the United States, which retains formal (though now mostly irrelevant) reserve requirements, the notion of controlling the money supply by targeting the quantity of base money fell out of favor many years ago, and now the pragmatic explanation of monetary policy refers to targeting the interest rate to control the broad money supply.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;The first fact, i.e. that the BoE has no reserve requirements is easily confirmed from a 2014 BoE paper by &lt;a href=&quot;https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/money-creation-in-the-modern-economy&quot; rel=&quot;nofollow noreferrer&quot;&gt;McLeay et al.&lt;/a&gt;... which also strongly states the fact from the 3rd paragraph above (monetary policy as the ultimate control on &lt;a href=&quot;https://en.wikipedia.org/wiki/Broad_money&quot; rel=&quot;nofollow noreferrer&quot;&gt;broad money&lt;/a&gt; creation.)&lt;/p&gt;&#xA;&lt;p&gt;On the other hand, the (unsourced) Wikipedia claim that &lt;a href=&quot;https://en.wikipedia.org/wiki/Capital_requirement&quot; rel=&quot;nofollow noreferrer&quot;&gt;capital requirements&lt;/a&gt; are (also) a brake on the creation of broad money is, interestingly, impossible for me to find the McLeay paper. So, &lt;strong&gt;how important are capital requirements for controlling broad money supply?&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;p&gt;E.g., are there some [semi-]official statements by the major central banks:  Fed, ECB, or even BoE on this alleged importance of capital requirements as a control of broad money supply? (I know the central banks [probably] don't entirely control these capital requirements, &lt;a href=&quot;https://en.wikipedia.org/wiki/Capital_Requirements_Directives&quot; rel=&quot;nofollow noreferrer&quot;&gt;in the EU at least&lt;/a&gt;. On the other hand, it looks like the &lt;a href=&quot;https://en.wikipedia.org/wiki/Basel_III#US_version_of_the_Basel_Liquidity_Coverage_Ratio_requirements&quot; rel=&quot;nofollow noreferrer&quot;&gt;Fed does have some control&lt;/a&gt; over the capital requirements.)&lt;/p&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;FWIW, I found &lt;a href=&quot;https://positivemoney.org/how-money-works/banking-101-video-course/how-much-money-can-banks-create-banking-101-part-4/&quot; rel=&quot;nofollow noreferrer&quot;&gt;a blog&lt;/a&gt; which is partially contradicting Wikipedia:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;capital adequacy requirements don't limit the ability of banks to create money when the economy is doing well. However, they do limit the ability of banks to create money when the economy is doing badly.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="6210" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2019-06-04T13:09:01.340" Title="How important are capital requirements for controlling broad money supply?" Tags="&lt;macroeconomics&gt;&lt;money-supply&gt;&lt;banking&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27661" PostTypeId="2" ParentId="27660" CreationDate="2019-04-06T16:09:48.217" Score="2" Body="&lt;p&gt;On different banks, and at different times, different regulatory constraints may bind on their ability to create money: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;strong&gt;Reserve requirements&lt;/strong&gt; relate bank lending (bank assets) to the quantity of reserves held by that bank at the central bank. &lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;Capital requirements&lt;/strong&gt; relate bank lending to the amount of equity capital of the bank.&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;Liquidity requirements&lt;/strong&gt; relate the asset market liquidity of a bank's assets to the tenor of a bank's funding.&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;Stress tests&lt;/strong&gt; attempt to model the liquidity and/or solvency of a bank under an adverse scenario that affects the value of assets on its balance sheet and/or its funding.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;In today’s environment, capital requirements and liquidity requirements are the constraints most likely to be binding on US banks, though stress tests were also binding on some banks in the recent past. Reserve requirements don’t currently bind in the US, as banks are awash in reserves, and as noted in the question, many other countries do not have these requirements. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The fact that capital requirements are a brake on money creation is quite straightforward: if a bank that is constrained by capital requirements wishes to lend more, it must first raise costly equity capital. As a result, capital requirements are by definition a structural constraint on money creation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Having said that, capital requirements are not a tool that one uses primarily to control the money supply. Instead, they're used as a prudential measure to ensure the solvency of banks. This is because, in the framework of &lt;a href=&quot;https://books.google.com/books?id=PGI8fsGzWVsC&amp;amp;lpg=PA248&amp;amp;ots=VAHHVtIKmn&amp;amp;lr&amp;amp;pg=PA248#v=onepage&amp;amp;q&amp;amp;f=false&quot; rel=&quot;nofollow noreferrer&quot;&gt;instruments and targets&lt;/a&gt;, capital requirements are a very poor instrument with which to affect either of the two main targets of monetary policy, inflation and unemployment. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;They're a poor instrument for these purposes for at least three reasons: (1) the relationship between capital requirements and money creation is in no way linear— as noted before, capital requirements are binding on different institutions at different times, so it's difficult to predict the effects of tightening or loosening them; (2) changing capital requirements has a lot of consequences (such as the potential impact on bank solvency, and cost to banks of raising additional capital or shedding assets if a tightening of requirements puts banks over the new, lower limit); and (3) capital requirements affect only banks, while &lt;a href=&quot;https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr458.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;over half&lt;/a&gt; of financial intermediation occurs outside banks.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Conversely, interest rates are pretty good at affecting broad money supply, and in a really efficient way, as marginal lending opportunities are compared to the price of money. At the same time, interest rates are pretty useless as a prudential instrument, &lt;a href=&quot;https://www.nber.org/papers/w25649&quot; rel=&quot;nofollow noreferrer&quot;&gt;as demonstrated&lt;/a&gt; in the early 2000s.&lt;/p&gt;&#xA;" OwnerUserId="264" LastEditorUserId="264" LastEditDate="2019-04-10T21:11:47.693" LastActivityDate="2019-04-10T21:11:47.693" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="27662" PostTypeId="1" CreationDate="2019-04-06T17:23:36.987" Score="2" ViewCount="656" Body="&lt;p&gt;The argument goes that if there is deflation, the real interest rate rises, and so the burden on debtors increase (Paul Krugman says so in &lt;a href=&quot;https://krugman.blogs.nytimes.com/2010/08/02/why-is-deflation-bad/&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://krugman.blogs.nytimes.com/2010/08/02/why-is-deflation-bad/&lt;/a&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand why the real rate rises, since &lt;span class=&quot;math-container&quot;&gt;$r = i - \pi$&lt;/span&gt;, but why does that mean there's more of a &quot;burden&quot; on debtors? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I take out a loan for 1000 dollars today, and have to pay it back a year from now, why would it affect me negatively if suddenly everything became cheaper? Sure, the money I'd be paying back (1000 dollars + interest) is &quot;worth more&quot;, in the sense of being able to buy more stuff, but ... so what? Those 1000 dollars + interest had to be paid back no matter what. Who cares if its &quot;worth more&quot;? It's not my money anyways, and is due to be paid back? How exactly has my &quot;burden&quot; increased? &lt;/p&gt;&#xA;" OwnerUserId="21742" LastEditorUserId="12891" LastEditDate="2019-04-06T18:41:40.187" LastActivityDate="2019-04-07T05:59:16.617" Title="Why do falling prices hurt debtors?" Tags="&lt;deflation&gt;" AnswerCount="4" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27663" PostTypeId="2" ParentId="27662" CreationDate="2019-04-06T18:51:03.950" Score="4" Body="&lt;p&gt;If the borrower is a firm, lower prices means your output is selling for less, so you need to sell more units in order to repay the debt (assuming a constant profit margin).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For an individual, the buried assumption is that wages are also falling in the deflation. In which case, the debt is increasing relative to your wages. However, if your wages have not fallen, falling prices will make it easier for you to repay the debt (you can consume the same amount, and have more money left over to repay debt).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It makes more sense at the macro level, as deflation is normally associated with lower growth and a higher unemployment rate.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2019-04-06T18:51:03.950" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="27665" PostTypeId="1" AcceptedAnswerId="27681" CreationDate="2019-04-06T22:44:35.213" Score="4" ViewCount="87" Body="&lt;p&gt;I am trying to better understand the mechanism (if there is one) behind an inverted yield curve predicting - or causing, as some would argue - a recession. In order to do that, &lt;strong&gt;I'm trying to understand why an inverted yield curve has historically NOT been a good predictor in countries other than the US.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;See e.g. &lt;a href=&quot;https://www.aqr.com/Insights/Research/Macro-Wrap-Up/Macro-Wrap-Up-The-Yield-Curve-is-a-Very-Interesting-Topic&quot; rel=&quot;nofollow noreferrer&quot;&gt;this article by AQR&lt;/a&gt;, which discusses the track record of yield curve inversions in Australia, Japan and Germany. The authors qualitatively argue why that track record hasn't been great but don't provide much of a general framework to think about it. I suspect that they are on to something in the case of Japan: &lt;em&gt;&quot;It is possible to argue that the banking system in Japan is so broken that it doesn’t matter how steep the yield curve is, banks won’t lend anyway. But, more likely, the relationship has broken down because interest rates have been stuck at or near zero for so long. The yield curve can no longer tell you whether the Bank of Japan has raised rates too much or not, because it hasn’t raised rates at all.&quot;&lt;/em&gt; I agree that the banking system looks pretty zombified, which would explain why banks (and the economy in general) don't really react to cues from interest rates. In addition, the Bank of Japan has such an outsize weight in the market for government bonds these days that the true information content of interest rates is probably quite low. However, I don't think either of these characterizations would apply to Australia, so clearly a broader line of thinking is necessary.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Academic references and/or plain English welcome. Thanks.&lt;/p&gt;&#xA;" OwnerUserId="13349" LastEditorUserId="6210" LastEditDate="2019-04-11T10:25:28.223" LastActivityDate="2019-04-11T10:25:28.223" Title="Why is an inverted yield curve NOT a good predictor for recessions except in the US?" Tags="&lt;economic-growth&gt;&lt;interest-rate&gt;&lt;bonds&gt;&lt;comparative-economics&gt;" AnswerCount="1" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27666" PostTypeId="2" ParentId="27662" CreationDate="2019-04-06T23:49:46.857" Score="1" Body="&lt;p&gt;In economics, the &quot;cost&quot; of A is ultimately the value of what you could have had if you hadn't gotten A. If you take out a loan of \$1000 in 2018 and owe \$1100 in 2019, then the cost of the loan is whatever $1100 buys in 2019. If it buys more in 2019, then the cost has gone up.&lt;/p&gt;&#xA;" OwnerUserId="16462" LastActivityDate="2019-04-06T23:49:46.857" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27668" PostTypeId="2" ParentId="27312" CreationDate="2019-04-07T00:20:09.943" Score="1" Body="&lt;p&gt;When an intercept is included, sum of residuals in multiple regression equals 0.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In multiple regression, &#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\hat{y}_i = \beta_0 + \beta_1x_{i,1} + \beta_2x_{i,2} +…+ \beta_px_{i,p}&#xA;$$&lt;/span&gt;&#xA;In Least squares regression, the sum of the squares of the errors is minimized.&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;SSE=\displaystyle\sum\limits_{i=1}^n \left(e_i \right)^2= \sum_{i=1}^n\left(y_i - \hat{y_i} \right)^2= \sum_{i=1}^n\left(y_i -\beta_0- \beta_1x_{i,1}-\beta_2x_{i,2}-…- \beta_px_{i,p} \right)^2&#xA;$$&lt;/span&gt;&#xA;Take the partial derivative of SSE with respect to &lt;span class=&quot;math-container&quot;&gt;$\beta_0$&lt;/span&gt; and setting it to zero.&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\frac{\partial{SSE}}{\partial{\beta_0}} = \sum_{i=1}^n 2\left(y_i -\beta_0- \beta_1x_{i,1}-\beta_2x_{i,2}-…- \beta_px_{i,p} \right)^1 (-1) = -2\displaystyle\sum\limits_{i=1}^n(y_i-\hat{y_i})=-2\displaystyle\sum\limits_{i=1}^ne_i=0&#xA;$$&lt;/span&gt;&#xA;Hence, when an intercept is included, sum of residuals in multiple regression equals 0.&lt;/p&gt;&#xA;" OwnerUserId="21745" LastEditorUserId="21745" LastEditDate="2019-04-07T00:31:58.857" LastActivityDate="2019-04-07T00:31:58.857" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27669" PostTypeId="2" ParentId="27445" CreationDate="2019-04-07T00:33:56.500" Score="2" Body="&lt;p&gt;The definition of elasticity of demand with respect to price is: &lt;span class=&quot;math-container&quot;&gt;$\varepsilon_{q,p} = \frac{dq}{dp} \cdot \frac{p}{q}$&lt;/span&gt;. So in your demand function we have:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$q = kp^{-\epsilon}$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\frac{dq}{dp} = -\epsilon kp^{-\epsilon - 1}$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\varepsilon_{q,p} = \frac{dq}{dp}\cdot \frac{p}{q}  = -\epsilon kp^{-\epsilon - 1} \cdot \frac{p}{kp^{-\epsilon}} = -\epsilon$$&lt;/span&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And we have the answer you're looking for.&lt;/p&gt;&#xA;" OwnerUserId="20068" LastActivityDate="2019-04-07T00:33:56.500" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27670" PostTypeId="2" ParentId="27662" CreationDate="2019-04-07T02:08:37.460" Score="0" Body="&lt;p&gt;On 1st Jan 2020, D borrows \$1000 from C for one year. (So, D must repay C \$1000 on 1st Jan 2021.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose that apples are the only good that is produced and consumed, and that on 1st Jan 2020, the price of each apple is \$1. Then D has borrowed the equivalent of 1000 apples from C.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose there is &lt;strong&gt;50% deflation&lt;/strong&gt; over the course of 2020, so that on 1st Jan 2021, the price of each apple is \$0.50. Then D, who must still repay \$1000, must repay the equivalent of \$1000 ÷ \$0.50 = 2000 apples. The cost of D's debt has gone up.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;(Conversely, suppose there is &lt;strong&gt;100% inflation&lt;/strong&gt; over the course of 2020 so that on 1st Jan 2021, the price of each apple is \$2. Then D, who must still repay \$1000, must repay the equivalent of \$1000 ÷ \$2 = 500 apples. The cost of D's debt has gone down.)&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2019-04-07T02:08:37.460" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27671" PostTypeId="1" CreationDate="2019-04-07T04:17:57.153" Score="1" ViewCount="251" Body="&lt;p&gt;National product accounting identities imply &lt;span class=&quot;math-container&quot;&gt;$S=I$&lt;/span&gt;. Since these are flow quantities, everything saved in a particular period is invested, thus there is never an accumulated stock of savings.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this reasoning correct? If so, where do household savings during a particular year (say bank account balances) go?&lt;/p&gt;&#xA;" OwnerUserId="21748" LastActivityDate="2019-05-14T22:12:35.200" Title="If saving equals investment, can there ever be a stock of savings?" Tags="&lt;macroeconomics&gt;&lt;saving&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27672" PostTypeId="2" ParentId="27662" CreationDate="2019-04-07T05:59:16.617" Score="0" Body="&lt;p&gt;Another reason it can hurt debtors is if the debt is secured, meaning that there is an asset held against paying the debt.  If you want to sell the asset, you find that its price fell (deflation).  So it may not cover the debt.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A recent concrete example was in the United States (and other countries) in 2008.  Housing prices fell.  This left mortgages underwater, meaning that selling the house would not pay off the debt.  People would lose the entire value of the house in foreclosure but still have left over debt.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Beyond this, even with unsecured loans, you might want to sell off assets to pay debt.  But in deflation, the assets themselves have lost value.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It also may be difficult for wages to fall in deflation.  But consider that wages falling can be better than the alternative:  layoffs.  A lower wage is often better than no wage.  And in deflationary periods, layoffs are more likely than normal.  Because the contracted wages may be too expensive to pay or simply because there is insufficient demand.  And having to make debt payments with no income is itself difficult, making those debt holders much worse off.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another way wages can fall is that hours might decrease.  So your rate stays the same, but you get it for fewer hours, making your paycheck smaller.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;That's a problem with deflation.  It makes some people effectively richer (same income but lower expenses), but it makes a lot of people effectively poorer.  This is particularly bad for debt holders, as the loan price often doesn't decrease (variable rate mortgages are an example of an exception).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If your source of income stays the same, then yes, it makes no difference to your debt (and lower consumption costs may leave you with more money to pay off the debt).  But for many people, income does not stay the same.  For those people, the debt becomes harder to service.  So on average over all debt holders, the debt becomes harder to service.  &lt;/p&gt;&#xA;" OwnerUserId="68" LastActivityDate="2019-04-07T05:59:16.617" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27673" PostTypeId="2" ParentId="27660" CreationDate="2019-04-07T06:59:03.427" Score="1" Body="&lt;p&gt;I found &lt;a href=&quot;https://econpapers.repec.org/paper/cesceswps/_5f6565.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;a recent research paper (Faure and Gersbach) &quot;Money Creation and Destruction&quot;&lt;/a&gt; using equilibrium modelling to explore the issue, theoretically:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;We examine the role of capital regulation with regard to money creation. [...]&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The analysis of our model produces three main insights.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;First, with perfectly  flexible prices, i.e. prices adjusting perfectly to macroeconomic conditions, equilibria with money creation are associated with the first-best allocation, regardless of the central bank's monetary policy. If prices are rigid, there exist central bank policies for which money creation collapses or explodes. In the only equilibrium possible, in these cases, there is no financial intermediation, and an inefficient allocation occurs. Appropriate central bank policy can restore socially efficient money creation and lending.&lt;br&gt;&#xA;  Second, with price rigidities and the zero lower bound, there may&#xA;  not exist a feasible central bank monetary policy inducing socially efficient money&#xA;  creation and lending. &lt;strong&gt;Capital regulation in the form of a minimum equity ratio&#xA;  and monetary policy can jointly limit money creation and under normal economic&#xA;  conditions&lt;/strong&gt; [and?] restore the existence of equilibria with socially efficient money creation and lending.&lt;br&gt;&#xA;  Third, when prices are rigid, the central bank's choice of zero interest&#xA;  rates and appropriate capital regulation can only avoid a slump in money creation&#xA;  and lending if economic conditions are sufficiently favorable.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;[...]&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;we obtain three further main insights: First, &lt;strong&gt;in the presence of financial&#xA;  frictions, we are able to show that there are equilibria with banks only when capital&#xA;  regulation is adequately combined with monetary policy.&lt;/strong&gt; Second, we demonstrate&#xA;  that there are inefficient asymmetric equilibria with banks when prices are &#xA;  flexible and that capital requirements that are sufficiently high eliminate these inefficient equilibria with banks, so that only ecient equilibria with banks remain. Finally, we prove that the impact of a reserve requirement coupled with a haircut rule on money creation is identical to the one of a minimum equity ratio requirement.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The last bit is also interesting (although it wasn't a direct part of my question): an equivalence of sorts between capital and reserve requirements.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Trivia: they're citing McLeay (2014) as part of the motivation for their research... I suspect there will be more papers like this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Faure also has a somewhat longer PhD thesis which is basically on the same issue (based on its abstract) although the thesis has a much more click-bait/scary title &lt;a href=&quot;https://doi.org/10.3929/ethz-b-000188117&quot; rel=&quot;nofollow noreferrer&quot;&gt;&quot;Inside money creation out of thin air: a general equilibrium perspective&quot;&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="6210" LastEditorUserId="6210" LastEditDate="2019-06-04T13:09:01.340" LastActivityDate="2019-06-04T13:09:01.340" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27674" PostTypeId="1" AcceptedAnswerId="27683" CreationDate="2019-04-07T08:12:35.860" Score="1" ViewCount="38" Body="&lt;p&gt;In my introductory monetary economics course we have learned that inflation expectations can be calculated by comparing yields on index-linked and conventional bonds of equal maturity and assuming a risk neutral investor. One simple example given is:&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;A risk-neutral investor is indifferent between 1-year conventional and index-linked gilts (issued at par value, i.e. p = F) if expected returns until maturity equal:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$ (1+i) F = (1+r) (1+\pi) F $$&lt;/span&gt; so knowing &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$r$&lt;/span&gt; (from financial data), we can calculate &lt;span class=&quot;math-container&quot;&gt;$\pi$&lt;/span&gt;, the inflation expectation. &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Now this I am completely fine with, but then the lecture goes on to the following example:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Extracting inflation expectations from gilts (assuming risk&#xA;  neutrality) Use Tr 4.5pc ‘42: i = 1.71%, and IL 0.625pc ‘42: r =&#xA;  −1.66% [Tradeweb] &lt;span class=&quot;math-container&quot;&gt;$$(1 + 0.0171)^N = (1 − 0.0166)^N (1+\pi^e_N)^N$$&lt;/span&gt; &#xA;  giving &lt;span class=&quot;math-container&quot;&gt;$\pi_N^e \approx 3.43%$&lt;/span&gt; break-even inflation for a horizon of N =&#xA;  23 Years&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;My question is: &lt;strong&gt;how can this calculation be valid when the coupon rates are different for the two gilts?&lt;/strong&gt; What are the assumptions (eg issued at face value)? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My thinking is that to extract inflation expectations, we must equate the expected returns of the bonds until maturity, just as in the earlier simple example. The rate of return is however clearly tied to the coupon payments, which each need to be multiplied at the relevant accrued yield, leading to a much more complicated equation for the inflation expectation. &lt;/p&gt;&#xA;" OwnerUserId="18990" LastActivityDate="2019-04-07T14:27:21.460" Title="Extraction of Inflation Expectation from bond yields" Tags="&lt;inflation&gt;&lt;interest-rate&gt;&lt;bonds&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27675" PostTypeId="1" CreationDate="2019-04-07T10:50:49.127" Score="2" ViewCount="62" Body="&lt;p&gt;For instance, Tesco has more buying power over British farmers. How would I show this on a monopsony graph where Tesco has a surplus?&lt;/p&gt;&#xA;" OwnerUserId="21753" LastActivityDate="2021-04-26T15:12:16.193" Title="How do I use a monopsony (product market) graph to show that a firm has more buying power over a supplier?" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27676" PostTypeId="2" ParentId="27675" CreationDate="2019-04-07T11:43:07.507" Score="0" Body="&lt;p&gt;I am not sure what you mean by a monopsony graph. If you mean a graph wherein you show that Marginal Factor cost is not equal to the inverse input supply curve, then you do not need the graph at all. The fact that &lt;span class=&quot;math-container&quot;&gt;$MFC(x) \neq w_x$&lt;/span&gt; shows that the buyer has market power.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Not sure what you mean by having &quot;more buying power&quot;. &lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2019-04-07T11:43:07.507" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27677" PostTypeId="1" AcceptedAnswerId="27678" CreationDate="2019-04-07T11:53:50.587" Score="5" ViewCount="4081" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/Kq0OH.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Kq0OH.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I found this picture in my stats book but I'm now confused to what 'positive' and 'negative' is referring to. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As seen in the table below, Type 1 error is the error that its H0 is actually true but FALSEly claims that it's false. Type 2 error, on the other hand, is the error that its H0 is actually false but FALSEly claims that it's true. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So my question is, how do the pregnancy analogy and whole 'false positive' &amp;amp; 'false negative' thing make sense?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the first picture to be a type 1 error,  H0 (null hypothesis) should be &quot;The person is NOT pregnant&quot; so that &quot;You're pregnant&quot; statement becomes false. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, the second picture has the complete opposite H0, where H0 should be &quot;The person is pregnant&quot; so that &quot;You're not pregnant&quot; statement becomes false. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I thought it was really confusing because I thought false POSITIVE and false NEGATIVE corresponded to &quot;You're pregnant&quot;(positive) / &quot;You're NOT pregnant&quot;(negative)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But based on the Chart given below, that doesn't seem to make any sense. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the question is, is there anything that I'm missing here or is it just that textbook's analogy sucks? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/7SJWe.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/7SJWe.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="21749" LastEditorUserId="23891" LastEditDate="2019-08-05T18:20:48.027" LastActivityDate="2020-11-05T19:25:33.267" Title="Type - I Error &amp; Type - II Error: Pregnancy test analogy - is it legit?" Tags="&lt;statistics&gt;&lt;probability&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27678" PostTypeId="2" ParentId="27677" CreationDate="2019-04-07T12:06:30.937" Score="7" Body="&lt;p&gt;Presumably here&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;the null hypothesis is &lt;span class=&quot;math-container&quot;&gt;$H_0:$&lt;/span&gt; &lt;em&gt;You are not pregnant&lt;/em&gt;&lt;/li&gt;&#xA;&lt;li&gt;the alternative hypothesis is &lt;span class=&quot;math-container&quot;&gt;$H_1:$&lt;/span&gt; &lt;em&gt;You are pregnant&lt;/em&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;so being pregnant would be the positive result. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You take a pregnancy test&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;if the pregnancy test gives a positive result when you are not pregnant then this is a &lt;em&gt;false positive&lt;/em&gt;, a Type I error when the null hypothesis &lt;span class=&quot;math-container&quot;&gt;$H_0$&lt;/span&gt; is in fact true but has been rejected by the test  &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;if the pregnancy test gives a negative result when you are pregnant then this is a &lt;em&gt;false negative&lt;/em&gt;, a Type II error when the null hypothesis &lt;span class=&quot;math-container&quot;&gt;$H_0$&lt;/span&gt; is in fact untrue but has not been rejected by the test    &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;So in a statement of being a &lt;em&gt;true/false positive/negative&lt;/em&gt; test, the &lt;em&gt;true/false&lt;/em&gt; part is about the accuracy of the test while the &lt;em&gt;positive/negative&lt;/em&gt; part is about the result of the test rather than being the real situation&lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2019-04-07T12:06:30.937" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="27680" PostTypeId="2" ParentId="27671" CreationDate="2019-04-07T12:58:09.333" Score="3" Body="&lt;p&gt;The accounting identity assumes that anything saved &lt;em&gt;is&lt;/em&gt; an investment, i.e. something will be done with that saving in the future. It's a bit circular, I know. It's not a lagged model, i.e. there's no explicit indexing by time of the variables, unlike (e.g.) in the &lt;a href=&quot;https://en.wikipedia.org/wiki/Multiplier-accelerator_model&quot; rel=&quot;nofollow noreferrer&quot;&gt;Hansen–Samuelson model&lt;/a&gt;, which uses discrete time. There are also macroeconomic models with continuous time, e.g. &lt;a href=&quot;https://en.wikipedia.org/wiki/Ramsey%E2%80%93Cass%E2%80%93Koopmans_model&quot; rel=&quot;nofollow noreferrer&quot;&gt;Ramsey–Cass–Koopmans model&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Actually, there's a little more to be said here (as I may have committed a fallacy myself above). German economist Fabian Lindner &lt;a href=&quot;http://wer.worldeconomicsassociation.org/files/WEA-WER-4-Lindner.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;takes issue&lt;/a&gt; with those (including economics textbooks authors) who use a one-good model, like Ramsey's to model &lt;em&gt;financial&lt;/em&gt; savings:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The fallacies loanable funds theory commits might be explainable by the mis-application of some ideas and&#xA;  concepts of neoclassical growth models – especially the Ramsey (1928), Solow (1956) and Diamond (1965)&#xA;  models – to the sphere of money and finance. Those models are routinely taught in contemporary graduate&#xA;  economics classes (Blanchard and Fischer, 1989; Romer, 1996).&#xA;  The Ramsey and Solow models are models of real investment only. Financial markets, financial&#xA;  assets and financial saving do not play any role in those models. There is only one good which, for simplicity,&#xA;  will be called “corn”. Corn has three functions: it can be consumed, invested and used as a means of&#xA;  payment since wages and interest payments are made with it. Full employment is assumed.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Without money and other financial assets, the only way units can save is to increase their tangible&#xA;  assets, i.e. to invest. Given that full employment is assumed, corn production is always at its maximum in&#xA;  each period. If the corn is consumed, it cannot be invested; if it is invested, it cannot be consumed. There is&#xA;  thus a real trade-off between consumption and investment.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Only under this assumption does it indeed make&#xA;  sense to talk about a limited saving fund which is increased when it is not consumed.&#xA;  However, this trade-off between consumption and investment is not a finance constraint, but a&#xA;  resource constraint. [...]&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;In contrast to Solow’s and Ramsey’s model, Diamond’s (1965) full employment corn economy&#xA;  allows units to lend and borrow. However, they do not borrow and lend money but again the one good, corn.&#xA;  They face a triple trade-off: they can eat (=consume), plant (=invest) or lend their corn. Here, consumption&#xA;  are not consumption expenditures but the actual eating of the corn. When a unit wants to lend its corn, it can&#xA;  of course not eat it so that it has to restrain from consumption to be able to lend it. [...]&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;But since in the real world money is normally not eaten or planted&#xA;  and keeps circulating in the economy when it is spent or lent, those models cannot be any guide for the&#xA;  analysis of a monetary economy. Specifically, what is true in a one good economy – units have to consume&#xA;  less to lend and invest more – is fundamentally wrong in a monetary economy.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="6210" LastEditorUserId="6210" LastEditDate="2019-05-14T22:12:35.200" LastActivityDate="2019-05-14T22:12:35.200" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27681" PostTypeId="2" ParentId="27665" CreationDate="2019-04-07T13:01:28.677" Score="4" Body="&lt;p&gt;I’m currently researching this topic, and I have not found any single reference that answers this (... besides my work). I will summarise what I have seen.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would point out that from a research perspective, having the yield curve work is interesting, while a failure to predict recessions is not interesting. Very few journals publish articles on failed indicators, since the number of those is very large.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we ignore term premia, an inverted curve normally indicates that the bond market is pricing a cut in interest rates. The way central banks react is that they normally cut rates when recessions hit. As such, we would typically expect inversions ahead of recessions. However, the logic can break down.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Bond market participants are wrong about the forecast.&lt;/li&gt;&#xA;&lt;li&gt;The central bank cuts rates, but no recession. (U.S., 1998).&lt;/li&gt;&#xA;&lt;li&gt;Proximity to 0% makes inversion difficult (Japan, euro area).&lt;/li&gt;&#xA;&lt;li&gt;Central bank does not cut rates in response to recession (possible for euro periphery).&lt;/li&gt;&#xA;&lt;li&gt;“Technical factors” in bond market lead to flat/inverted curves (U.K., Australia.) For the U.K., pensions were forced to match the liability of duration, and there was not enough supply of long-dated bonds. For Australia, the government had surpluses, and I believe that duration supply was extremely low. (Would need access to paid bond index data to validate that claim.)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The issue is therefore not U.S. versus non-U.S., it’s just that the U.S. managed to avoid most of these factors (except in 1998 in the recent history).&lt;/p&gt;&#xA;" OwnerUserId="12891" LastEditorUserId="12891" LastEditDate="2019-04-08T10:49:51.917" LastActivityDate="2019-04-08T10:49:51.917" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27683" PostTypeId="2" ParentId="27674" CreationDate="2019-04-07T14:27:21.460" Score="4" Body="&lt;p&gt;Yes, the number you give is an approximation. If you wanted to calculate the true economic breakeven, you would need to include the effect of the lag used in the indexation process (which includes known inflation information), coupon cash flows, seasonality of inflation, etc. If there is a maturity mismatch, then you would need to decide how to handle that as well.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, the deviation between the economic breakeven and the approximation is normally small. In fact, the market convention is (or at least it was) to ignore compounding and just use the spread between quoted rates.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You would need a full fixed income pricing suite to calculate the true economic breakeven, so a course would stick to the approximation.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2019-04-07T14:27:21.460" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27684" PostTypeId="1" CreationDate="2019-04-07T15:58:37.377" Score="1" ViewCount="120" Body="&lt;ul&gt;&#xA;&lt;li&gt;&quot;The SPNE of a sequential game might not necessarily be Pareto Optimal&quot;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I understand the definitons of Nash Equilibria and Pareto Optimality and that these are not synonymous concepts. An example in reference to this question would be a Firm-Union Wage Setting Game, in which there might be &lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt; offers which provide greater payoffs to both the firm and union. &#xA;Please share some other examples for the same. Thanks! &lt;/p&gt;&#xA;" OwnerUserId="18398" LastEditorUserId="18398" LastEditDate="2019-04-07T17:21:06.753" LastActivityDate="2019-04-07T17:21:06.753" Title="SPNE and Pareto Optimality" Tags="&lt;game-theory&gt;&lt;self-study&gt;&lt;pareto-efficiency&gt;&lt;dynamic-games&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27685" PostTypeId="2" ParentId="27684" CreationDate="2019-04-07T17:09:14.953" Score="1" Body="&lt;p&gt;Proof of &quot;the SPNE of a sequential game might not necessarily be Pareto Optimal&quot;?&#xA;I don't get it, your example is a proof of this statement. So what else do you need?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you need another example, just take the prisoner's dilemma, and turn into a sequential game with imperfect information. Then, the NE is equal to the SPNE and you have an equilibrium without Pareto optimality&lt;/p&gt;&#xA;" OwnerUserId="20068" LastActivityDate="2019-04-07T17:09:14.953" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="27687" PostTypeId="1" AcceptedAnswerId="27689" CreationDate="2019-04-07T18:20:03.317" Score="2" ViewCount="1205" Body="&lt;p&gt;I have the following equation&#xA;&lt;span class=&quot;math-container&quot;&gt;$$Q_1(K, L) = AK^α L^β, A, α, β &amp;gt; 0$$&lt;/span&gt;&#xA;I'm asked to derive the isoquant curve which yields the following diagram:&#xA;&lt;a href=&quot;https://i.stack.imgur.com/l4yjH.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/l4yjH.png&quot; alt=&quot;graph&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Could anyone please explain to me how the form of the graph was found?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have 5 unknowns in this equation and I just can figure out how would it be possible to plot the graphs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you very much in advance for your help!&lt;/p&gt;&#xA;" OwnerUserId="19689" LastActivityDate="2019-04-07T18:41:48.487" Title="Plotting the isoquant curves" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27688" PostTypeId="1" AcceptedAnswerId="27691" CreationDate="2019-04-07T18:24:19.833" Score="2" ViewCount="84" Body="&lt;p&gt;I am struggling to see when, given a policy set  &lt;span class=&quot;math-container&quot;&gt;$X = {x_{1}, … , x_{m}} $&lt;/span&gt; , with &lt;span class=&quot;math-container&quot;&gt;$m &amp;gt; 1$&lt;/span&gt;, its uncovered set and top cycle set may not coincide (i.e. when the top cycle set has policies that are not in the uncovered set).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &lt;strong&gt;uncovered set&lt;/strong&gt; is defined as follows. Policy &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; covers &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; if (1) it is majority-preferred to &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt;, and (2) all policies that are majority-preferred to &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; are likewise preferred to &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt;. If there is no &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; that satisfies criteria (1) and (2), then we say that &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; is uncovered. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Next to this, the &lt;strong&gt;top cycle set&lt;/strong&gt; is defined by partitioning the policy set into k disjoint subsets, &lt;span class=&quot;math-container&quot;&gt;$${L_{1}, … , L_{k}}, \text{where} \; 1 \leq k \leq m $$&lt;/span&gt; by iteratively applying the idea of the top cycle set, where&#xA;&lt;span class=&quot;math-container&quot;&gt;$$(L_{1} = {x ∈ X | \; ∄ \; y ∈ X / L_{1} \; s.t. \; y \succ x})$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We call these subsets of &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; levels to suggest a mental picture: one can see the electoral environment as a series of levels or plateaus (if &lt;span class=&quot;math-container&quot;&gt;$k &amp;gt; 1$&lt;/span&gt;). Each plateau electorally dominates those below it: each policy at a given level is majority-preferred to all policies at lower levels. Further, every policy at a level covers all policies at lower elevations. This implies that &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt;’s uncovered set is a subset of &lt;span class=&quot;math-container&quot;&gt;$L_{1}$&lt;/span&gt;, the uncovered set of &lt;span class=&quot;math-container&quot;&gt;$X / L_{1}$&lt;/span&gt; is a subset of &lt;span class=&quot;math-container&quot;&gt;$L_{2}$&lt;/span&gt;, and so forth. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Defined constructively in this setting, a policy is in the top cycle set (&lt;span class=&quot;math-container&quot;&gt;$L_{1}$&lt;/span&gt;)  if and only if it is reachable from every other policy by a chain of straight majority preference. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Specifically, given the above definition I cannot understand why the above definition of the top cycle set &lt;em&gt;implies that &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt;’s uncovered set is a subset of &lt;span class=&quot;math-container&quot;&gt;$L_{1}$&lt;/span&gt;&lt;/em&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If anyone could think of an example or some other explanation/input for this I would greatly appreciate it. Thanks in advance! &lt;/p&gt;&#xA;" OwnerUserId="21757" LastActivityDate="2019-04-07T21:45:13.613" Title="Uncovered set versus top cycle set (voting theory)" Tags="&lt;voting&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27689" PostTypeId="2" ParentId="27687" CreationDate="2019-04-07T18:41:48.487" Score="2" Body="&lt;p&gt;Each curve shows the rate at which K can be substituted for L, or vice versa, while keeping output constant. The Marginal Rate of Technical Substitution (MRTS) equals the absolute value of the slope. The MRTS tells us how much one input a firm can sacrifice while still mainting a certain output level. Then the MRTS is equal to the following ratio: &lt;span class=&quot;math-container&quot;&gt;$$\frac{\text{Marginal Productivity of Capital } (MP_{K})}{\text{Marginal Productivity of Labour } (MP_{L})}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then the substitution of Labour (L) for Capital (K) is given by: &#xA;&lt;span class=&quot;math-container&quot;&gt;$$ MRTS_{K,L} = -dL/dK = MP_{K}/MP_{L}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, note that in your equation &lt;span class=&quot;math-container&quot;&gt;$\alpha$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$\beta$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt; are exogenous parameters (i.e. given to you). What your equation will then defined is, given these parameters, how your inputs (K and L) result in some amount of output given your production function. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can find the isoquant curve that yields that diagram by varying the fixed level of output and by &quot;playing with the fixed parameters&quot;. &lt;/p&gt;&#xA;" OwnerUserId="21757" LastActivityDate="2019-04-07T18:41:48.487" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="27690" PostTypeId="2" ParentId="26827" CreationDate="2019-04-07T18:46:38.923" Score="2" Body="&lt;p&gt;First of all, an utility function &lt;span class=&quot;math-container&quot;&gt;$u: X \rightarrow \mathbb{R}$&lt;/span&gt; represents the preference relation &lt;span class=&quot;math-container&quot;&gt;$\succsim$&lt;/span&gt; if: &lt;span class=&quot;math-container&quot;&gt;$$\forall a, b \in X, \; u(a) \geq u(b) \iff a \succsim b.$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Well, if another function &lt;span class=&quot;math-container&quot;&gt;$v: X \rightarrow \mathbb{R}$&lt;/span&gt; represents &lt;span class=&quot;math-container&quot;&gt;$\succsim$&lt;/span&gt;, then: &lt;span class=&quot;math-container&quot;&gt;$$\forall a, b \in X, \; v(a) \geq v(b) \iff a \succsim b.$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But the above implies the following: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\forall a, b \in X, \; u(a) \geq u(b) \iff v(a) \geq v(b).$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which means that both functions preserves the order relation, just as Herr K. said it. Another important part of Wikipedia's article is &lt;a href=&quot;https://en.wikipedia.org/wiki/Ordinal_utility#Uniqueness&quot; rel=&quot;nofollow noreferrer&quot;&gt;this one&lt;/a&gt;. You see, any monotonically increasing (and it must be increasing, not nondecreasing) function preserves the preference relation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So now I think you will be able to answer both questions. As a tip for the first one, think about the &lt;span class=&quot;math-container&quot;&gt;$\ln(x)$&lt;/span&gt; function: is it a monotonic increasing function?&lt;/p&gt;&#xA;" OwnerUserId="20068" LastEditorUserId="20068" LastEditDate="2019-04-07T18:51:41.513" LastActivityDate="2019-04-07T18:51:41.513" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27691" PostTypeId="2" ParentId="27688" CreationDate="2019-04-07T20:48:13.267" Score="3" Body="&lt;p&gt;This example comes from &lt;a href=&quot;https://www.jstor.org/stable/2110925&quot; rel=&quot;nofollow noreferrer&quot;&gt;Miller (1980)&lt;/a&gt; (the paper that introduced the uncovered set definition).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose that the majority's preference is defined by:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{aligned}&#xA;x \succ y \\&#xA;x \succ z \\&#xA;y \succ v \\&#xA;y \succ z \\&#xA;v \succ x \\&#xA;z \succ v&#xA;\end{aligned}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this example, we have the top cycle set &lt;span class=&quot;math-container&quot;&gt;$L_1 = \{x, y, z, v \}$&lt;/span&gt; (you can check this).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But notice that &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; is preferred to &lt;span class=&quot;math-container&quot;&gt;$z$&lt;/span&gt; and all policies that are preferred to &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; (namely &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;), are preferred to &lt;span class=&quot;math-container&quot;&gt;$z$&lt;/span&gt;. So, &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; covers &lt;span class=&quot;math-container&quot;&gt;$z$&lt;/span&gt; and the uncovered set &lt;span class=&quot;math-container&quot;&gt;$U$&lt;/span&gt; is such that &lt;span class=&quot;math-container&quot;&gt;$U = \{x, y, v\}$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$U \subset L_1$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Among other stuff that Miller proves in his paper, we have the following three:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;if there is a Condorcet winner, &lt;span class=&quot;math-container&quot;&gt;$L_1 = U$&lt;/span&gt;;&lt;/li&gt;&#xA;&lt;li&gt;if &lt;span class=&quot;math-container&quot;&gt;$L_1$&lt;/span&gt; has three elements, then &lt;span class=&quot;math-container&quot;&gt;$L_1 = U$&lt;/span&gt;;&lt;/li&gt;&#xA;&lt;li&gt;&lt;span class=&quot;math-container&quot;&gt;$U \subseteq L_1$&lt;/span&gt;.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="20068" LastEditorUserId="20068" LastEditDate="2019-04-07T21:45:13.613" LastActivityDate="2019-04-07T21:45:13.613" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27692" PostTypeId="2" ParentId="11304" CreationDate="2019-04-07T21:47:22.410" Score="5" Body="&lt;p&gt;There is a new paper forthcoming in the American Economic Review by Rebecca Diamond, Tim McQuade, &amp;amp; Franklin Qian on &lt;a href=&quot;https://web.stanford.edu/~diamondr/DMQOld.pdf&quot; rel=&quot;noreferrer&quot;&gt;The Effects of Rent Control Expansion on Tenants,Landlords, and Inequality: Evidence from San Francisco&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;They exploit quasi-experimental variation in assignment of rent control to study its&#xA;impacts on &lt;strong&gt;tenants, landlords, and the overall rental market&lt;/strong&gt;. Leveraging new data tracking individuals' migration, they find  &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;rent control increased renters' probabilities of staying at their addresses by nearly 20%. &lt;/li&gt;&#xA;&lt;li&gt;Landlords treated by rent control reduced rental housing supply by 15%, causing a 5.1% city-wide rent increase. &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Using a dynamic, neighborhood choice model, they find rent control offered large benefits to covered tenants. Welfare losses from decreased housing supply could be mitigated if insurance against rent increases were provided as government social insurance, instead of a regulated landlord mandate.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Chek out also a nice freakonomics podcast on &lt;a href=&quot;http://freakonomics.com/podcast/rent-control/&quot; rel=&quot;noreferrer&quot;&gt;Why Rent Control Doesn't Work&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="6168" LastActivityDate="2019-04-07T21:47:22.410" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27693" PostTypeId="2" ParentId="26466" CreationDate="2019-04-08T00:32:09.763" Score="0" Body="&lt;p&gt;Michael Greinecker's comment basically answers the second question, but not to leave the question unanswered, let me try to answer your first question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In most economics courses, we don't get mathematical training more than calculus and linear algebra. That means we &lt;em&gt;don't know what an equivalence class&lt;/em&gt; is. So, for economists, explaining that indifference curves are equivalence classes won't mean anything.&lt;/p&gt;&#xA;" OwnerUserId="20068" LastActivityDate="2019-04-08T00:32:09.763" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27694" PostTypeId="1" AcceptedAnswerId="27705" CreationDate="2019-04-08T05:47:35.873" Score="0" ViewCount="56" Body="&lt;p&gt;My data has issues of multicollinearity. Upon estimating, I found out that my data have high levels of &lt;a href=&quot;https://en.wikipedia.org/wiki/Variance_inflation_factor&quot; rel=&quot;nofollow noreferrer&quot;&gt;VIF&lt;/a&gt; In however I was confused as to what level of VIF can I possibly ignore the issue of multicollinearity. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As I search the web, some says that it should be less than 2.5, others 10 or 14.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My VIF results is this: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;varA: 18.74&lt;/li&gt;&#xA;&lt;li&gt;varB: 11.14&lt;/li&gt;&#xA;&lt;li&gt;varC: 10.03&lt;/li&gt;&#xA;&lt;li&gt;varD: 5.99&lt;/li&gt;&#xA;&lt;li&gt;varE: 2.86&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;What step should I probably do to address the issue? I have fixed sample size and I can't log transform my model since one of my variables ranges from a negative to positive number. &lt;/p&gt;&#xA;" OwnerUserId="21455" LastEditorUserId="17735" LastEditDate="2019-04-08T19:34:00.150" LastActivityDate="2019-04-08T22:54:29.167" Title="What is the tolerable level for multicollinearity? and possible remedial measures for it?" Tags="&lt;applied-econometrics&gt;&lt;regression&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27695" PostTypeId="1" AcceptedAnswerId="27747" CreationDate="2019-04-08T06:30:43.110" Score="13" ViewCount="220" Body="&lt;p&gt;I have a question regarding the proof of Proposition 1 in &lt;a href=&quot;http://personal.lse.ac.uk/ghatak/csr.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Besley and Ghatak (2007)&lt;/a&gt; in Appendix A of their paper. It is a quite highly cited paper but I believe there is a mistake in the proof of their Proposition 1. The model is described in Section 2. of their paper. It is a very simple model that seeks to derive the Nash equilibrium of the market. In particular, they show that &lt;span class=&quot;math-container&quot;&gt;$\theta_c^*$&lt;/span&gt; must satisfy &lt;span class=&quot;math-container&quot;&gt;$f'(n \theta_c^*) = \alpha$&lt;/span&gt; in equilibrium. In their proof in the appendix they state:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/3nfM5.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/3nfM5.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, I think there is a mistake because the package &lt;span class=&quot;math-container&quot;&gt;$(p', \widehat{\theta'})$&lt;/span&gt; does &lt;strong&gt;not&lt;/strong&gt; make each caring consumer strictly better off. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The new package &lt;span class=&quot;math-container&quot;&gt;$(p', \widehat{\theta'})$&lt;/span&gt; gives utility:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$b-p'+f(\widehat{\theta'} + (n-1)\widehat{\theta}) $$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The old package &lt;span class=&quot;math-container&quot;&gt;$(p, \widehat{\theta})$&lt;/span&gt; gives utility:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$b-p+f(n\widehat{\theta}) $$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The new package is strictly preferred to the old package iff&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$b-p'+f(\widehat{\theta'} + (n-1)\widehat{\theta}) &amp;gt; b-p+f(n\widehat{\theta})$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ f(n\widehat{\theta} + \Delta \widehat{\theta}) - f(n\widehat{\theta}) &amp;gt; \Delta p$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we make the substitution as stated in the paper: &lt;span class=&quot;math-container&quot;&gt;$\Delta p = f'(n\widehat{\theta}) \Delta \widehat{\theta}$&lt;/span&gt; and assuming we want a positive &lt;span class=&quot;math-container&quot;&gt;$\Delta \widehat{\theta}$&lt;/span&gt;, then the above becomes:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\frac{f(n\widehat{\theta} + \Delta \widehat{\theta}) - f(n\widehat{\theta})}{\Delta \widehat{\theta}} &amp;gt; f'(n \widehat{\theta}) $$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we pick a negative &lt;span class=&quot;math-container&quot;&gt;$\Delta \widehat{\theta}$&lt;/span&gt;, then the above condition becomes &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\frac{f(n\widehat{\theta} + \Delta \widehat{\theta}) - f(n\widehat{\theta})}{\Delta \widehat{\theta}} &amp;lt; f'(n \widehat{\theta}) $$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But &lt;span class=&quot;math-container&quot;&gt;$f$&lt;/span&gt; is a increasing and strictly concave function, so the above inequalities are always false. So the new package is &lt;strong&gt;never&lt;/strong&gt; preferred to the old package. Everything else in the proof is fine apart from this step and this is the most crucial step of the proof as it characterizes what &lt;span class=&quot;math-container&quot;&gt;$\widehat{\theta}$&lt;/span&gt; should be in equilibrium, if this is wrong then many other results in the paper are also wrong. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, is there a mistake in this part of the proof of the paper? And if so, is there a way to correct it so that the results still hold?&lt;/p&gt;&#xA;" OwnerUserId="14416" LastEditorUserId="14416" LastEditDate="2019-04-11T15:24:26.067" LastActivityDate="2019-04-11T16:39:03.473" Title="Nash equilibrium - mistake in proof of paper?" Tags="&lt;game-theory&gt;&lt;nash-equilibrium&gt;&lt;public-economics&gt;&lt;public-goods&gt;" AnswerCount="1" CommentCount="3" FavoriteCount="7" ContentLicense="CC BY-SA 4.0" />
  <row Id="27696" PostTypeId="1" AcceptedAnswerId="27698" CreationDate="2019-04-08T08:00:33.667" Score="2" ViewCount="130" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/gkNfY.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/gkNfY.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I approached this question in this way:&#xA;&lt;span class=&quot;math-container&quot;&gt;$(P_1,P_2), (R_1,R_2), (S_1,S_2)$&lt;/span&gt; are the Nash Equilibria of the Stage 1 game. For the given strategy to be sustained as SPNE, there should be no way unilateral deviations increase payoffs of the individuals. When &lt;span class=&quot;math-container&quot;&gt;$(Q_1,Q_2)$&lt;/span&gt; is played in stage 1, the payoff at the end of stage 2 would be &lt;span class=&quot;math-container&quot;&gt;$4+2=6$&lt;/span&gt; each.&#xA;Now if player 1 deviates to a higher payoff, by playing &lt;span class=&quot;math-container&quot;&gt;$P1$&lt;/span&gt;, the total payoff he will get after two stages would be &lt;span class=&quot;math-container&quot;&gt;$x+0$&lt;/span&gt;&#xA;Deviation would be futile if &lt;span class=&quot;math-container&quot;&gt;$x \leq 6$&lt;/span&gt;. Also, it is given tha &lt;span class=&quot;math-container&quot;&gt;$x&amp;gt;4$&lt;/span&gt;&#xA;So, one value of &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; which can sustain the above strategy as SPNE is &lt;span class=&quot;math-container&quot;&gt;$5$&lt;/span&gt;.&#xA;Please correct me where I am wrong. Thanks!&lt;/p&gt;&#xA;" OwnerUserId="18398" LastEditorUserId="11590" LastEditDate="2019-04-08T09:14:52.000" LastActivityDate="2019-04-08T09:14:52.000" Title="Repeated Game SPNE" Tags="&lt;game-theory&gt;&lt;self-study&gt;&lt;nash-equilibrium&gt;&lt;dynamic-games&gt;&lt;repeated-games&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27698" PostTypeId="2" ParentId="27696" CreationDate="2019-04-08T08:50:16.070" Score="1" Body="&lt;p&gt;In a finitely repeated game with a unique NE, the only SPNE is the repetition of the unique NE. The reason is that by backward induction the NE will be played in the last period and, hence, also in the penultimate period, and so on.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here, there are multiple NE so that the different NE can be used to reward and punish previous behavior. Your idea of how to construct such a SPNE is correct. The reward payoff in the second (so the final) period is 2 and the punishment payoff is 0 for each player.&#xA;So we only have our SPNE if &lt;span class=&quot;math-container&quot;&gt;$4+2 \geq x+0 \iff  x\leq 6$&lt;/span&gt;. Otherwise, the reward is not profitable enough (or the punishment NE not harsh enough).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If &lt;span class=&quot;math-container&quot;&gt;$x&amp;lt;4$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$(Q,Q)$&lt;/span&gt; is a NE, and repeating this NE twice would be a SPNE.&lt;/p&gt;&#xA;" OwnerUserId="11590" LastEditorUserId="11590" LastEditDate="2019-04-08T09:06:27.160" LastActivityDate="2019-04-08T09:06:27.160" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="27699" PostTypeId="1" CreationDate="2019-04-08T09:48:25.367" Score="5" ViewCount="216" Body="&lt;p&gt;Recently I read Bertrand Russell's &lt;em&gt;Political Ideals&lt;/em&gt; (1917). Although he expresses strong left-wing ideals there, he supports free trade and criticizes protectionism.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems that not any left-wing theorist agrees with Russell on this. As an example, I quote from &lt;em&gt;A Darwinian Left&lt;/em&gt; (1999) by Peter Singer:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;What capitalists failed to accomplish by a century of repressive measures against trade union leaders, the World Trade Organization... is doing for them. When barriers to imports are removed, nationally based trade unions are undermined. Now when workers in high-wage countries demand better conditions, the bosses can threaten to close the factory and import the goods from China, or some other country where wages are low and trade unionists will not cause trouble.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Now, I know that there may be different opinions on this and that's the nature of a complex subject like economics. However, I can't resist the desire to know what serious students and scholars of economics think of this argument by Singer.&lt;/p&gt;&#xA;" OwnerUserId="16376" LastActivityDate="2019-10-04T08:23:41.777" Title="A valid argument against free trade?" Tags="&lt;international-trade&gt;&lt;free-trade&gt;&lt;protectionism&gt;" AnswerCount="2" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27700" PostTypeId="2" ParentId="27699" CreationDate="2019-04-08T16:03:48.923" Score="7" Body="&lt;p&gt;I can get to more technical papers, but it's not a big secret what you have quoted. E.g. The Economist &lt;a href=&quot;https://www.economist.com/open-future/2018/05/04/a-healthy-re-examination-of-free-trades-benefits-and-shocks&quot; rel=&quot;nofollow noreferrer&quot;&gt;quotes&lt;/a&gt; MIT professor John Van Reenen:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;But just because the size of the pie expands [due to free trade], it doesn’t mean that everyone is better off. There are going to be some losers whose slice of the pie is so much smaller that they would have been better off with less trade. However, because the overall size of the pie has got bigger, the government can compensate the losers which can still make everyone better off. [...] But remember: thanks to free trade, you can afford that [better welfare programs], because the overall size of the pie is bigger.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;And Harvard prof. Dani Rodrik &lt;a href=&quot;https://drodrik.scholar.harvard.edu/files/dani-rodrik/files/populism_and_the_economics_of_globalization.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;writes&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;there is one &lt;a href=&quot;https://en.wikipedia.org/wiki/Stolper%E2%80%93Samuelson_theorem&quot; rel=&quot;nofollow noreferrer&quot;&gt;Stolper–Samuelson&lt;/a&gt;-like result that is&#xA;  extremely general, and which can be stated as&#xA;  follows. Under competitive conditions, as long as&#xA;  the importable good(s) continue to be produced at&#xA;  home – that is, ruling out complete specialization –&#xA;  there is always at least one factor of production that&#xA;  is rendered worse off by the liberalization of trade.&#xA;  In other words, trade generically produces losers.&#xA;  The proof of this result is simple enough to be&#xA;  stated quickly here. [the proof is still like half a page]&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;More recent work in trade theory has emphasized&#xA;  heterogeneity among firms and workers. These&#xA;  models have additional margins for redistribution,&#xA;  between firms and workers that otherwise look&#xA;  quite similar. &lt;a href=&quot;https://www.princeton.edu/~grossman/Matching%20and%20Sorting%20JPE.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Grossman, Helpman, &amp;amp; Kircher (2017)&lt;/a&gt;, for example, enrich the Stolper–Samuelson&#xA;  framework by considering heterogeneity within&#xA;  broad worker categories. ‘‘Managers’’ and ‘‘workers’’&#xA;  must combine in teams, and their productivity&#xA;  depends on the quality of the match. Trade liberalization induces re-matching and generates distributional effects within occupations and industries,&#xA;  in addition to the standard effects across broad&#xA;  factors of production and industries.&#xA;  Hence in all these models, redistribution is the&#xA;  flip side of the gains from trade. No pain, no gain.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;My point is not to say that these theoretical models 100% apply to the complex realities of international trade, but rather that economists are aware that under certain conditions some segment of the workforce can be worse-off with free trade... unless something else happens.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Nevertheless, the prevailing opinion among economists, or at least US academic economists &lt;a href=&quot;http://www.igmchicago.org/surveys/free-trade&quot; rel=&quot;nofollow noreferrer&quot;&gt;surveyed by IGM&lt;/a&gt; is that the long term benefits of free trade outweigh the short-term negatives (including [un]employment in some sectors).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/SjBep.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/SjBep.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As the survey additionally collected fill-in comments/responses, they are an interesting reading, but the first one (alphabetically, from Acemoglu) probably summarizes the critique you inquire about:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Economists often understate short-term employment costs, which are significant and unequally distributed, but probably less than benefits.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;As an example of empirical work evaluating such effects in a concrete context, &lt;a href=&quot;https://www.nber.org/papers/w21149.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Caliendo et al. (2015)&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;We&#xA;  find that China's import competition growth resulted in 0.6 percentage point reduction in the share&#xA;  of manufacturing employment, approximately 1 million jobs lost, or about 60% of the change in the&#xA;  manufacturing employment share not explained by a secular trend. Overall, China's shock increases&#xA;  U.S. welfare by 6.7% in the long-run and by 0.2% in the short-run with very heterogeneous effects&#xA;  across labor markets.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Related enough, a &lt;a href=&quot;http://www.igmchicago.org/surveys/inequality-populism-and-redistribution&quot; rel=&quot;nofollow noreferrer&quot;&gt;more recent IGM survey of a panel of European economists&lt;/a&gt; (some of which do work in the US though) shows that they are not blind to the effects of inequality on [liberal] democracy. The latter survey also poses questions on whether higher government spending is justified from this perspective. So compensating or at least caring for losers (not necessarily stemming from free trade alone) is also a topic that economists are not opposed to. (Whether they should talk more about it, is a different issue.)&lt;/p&gt;&#xA;" OwnerUserId="6210" LastEditorUserId="6210" LastEditDate="2019-10-03T16:21:26.463" LastActivityDate="2019-10-03T16:21:26.463" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="27701" PostTypeId="2" ParentId="27694" CreationDate="2019-04-08T17:23:04.013" Score="0" Body="&lt;p&gt;I cannot post this as a comment but researchers such as Farrar and Glauber (1976) have shown that if VIF ≥ 10, this indicates the presence of multicollinearity between explanatory variables. There is no black and white threshold for this within the literature, and it highly depends on your sources and on the person reviewing your work. Moreover, you have not made any mention of the estimator you are using, but as you may know, multicollinearity makes the OLS estimator is less precise. That being said, have you tried standardizing by subtracting the mean? More information on your model and or your own knowledge on this would be useful to get help, in my view.  &lt;/p&gt;&#xA;" OwnerUserId="21757" LastActivityDate="2019-04-08T17:23:04.013" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27702" PostTypeId="2" ParentId="26891" CreationDate="2019-04-08T18:46:05.767" Score="4" Body="&lt;p&gt;It is your second answer. From MWG:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\frac{\partial u(x^*)/\partial x_\ell}{\partial u(x^*)/\partial_k}=\frac{p_\ell}{p_k}\tag{3.D.5}$$&lt;/span&gt;&#xA;  The expression on the left of &lt;span class=&quot;math-container&quot;&gt;$\text{(3.D.5)}$&lt;/span&gt; is the &lt;em&gt;marginal rate of substitution of good &lt;span class=&quot;math-container&quot;&gt;$\ell$&lt;/span&gt; for good &lt;span class=&quot;math-container&quot;&gt;$k$&lt;/span&gt; at &lt;span class=&quot;math-container&quot;&gt;$x^*$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$MRS_{\ell k}(x^*)$&lt;/span&gt;&lt;/em&gt;; it tells us &lt;strong&gt;the amount of good &lt;span class=&quot;math-container&quot;&gt;$k$&lt;/span&gt; that the consumer must be given to compensate her for a one-unit marginal reduction in her consumption of good &lt;span class=&quot;math-container&quot;&gt;$\ell$&lt;/span&gt;&lt;/strong&gt;.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="20068" LastEditorUserId="42" LastEditDate="2019-04-08T19:47:59.723" LastActivityDate="2019-04-08T19:47:59.723" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27703" PostTypeId="1" AcceptedAnswerId="27704" CreationDate="2019-04-08T19:49:26.137" Score="3" ViewCount="212" Body="&lt;p&gt;I need to study Synthetic Control Method for my term paper. So can anyone suggest some book/literature from where I can study Synthetic Control Method on my own?.&lt;/p&gt;&#xA;" OwnerUserId="21761" LastEditorUserId="1601" LastEditDate="2019-04-08T20:19:35.337" LastActivityDate="2019-04-09T06:55:58.997" Title="Synthetic Control Method" Tags="&lt;reference-request&gt;&lt;applied-econometrics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27704" PostTypeId="2" ParentId="27703" CreationDate="2019-04-08T20:59:41.907" Score="4" Body="&lt;p&gt;There are many ressources available online&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://web.stanford.edu/~jhain/synthpage.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Synth&lt;/a&gt; is a statistical software that implements synthetic control methods for causal inference in comparative case studies with aggregate data as described in Abadie and Gardeazabal (2003), Abadie, Diamond, and Hainmueller (2010), and Abadie, Diamond, and Hainmueller (2013). The Synth package for R is also described in detail in &lt;a href=&quot;https://www.jstatsoft.org/article/view/v042i13&quot; rel=&quot;nofollow noreferrer&quot;&gt;Abadie, Diamond, and Hainmueller (2011)&lt;/a&gt;.&lt;/li&gt;&#xA;&lt;li&gt;A lecture on &lt;a href=&quot;http://yiqingxu.org/teaching/17802/synth.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Synthetic Control Methods&lt;/a&gt; from &lt;a href=&quot;http://yiqingxu.org/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Yiqing Xu&lt;/a&gt;.&lt;/li&gt;&#xA;&lt;li&gt;A video lecture by &lt;a href=&quot;https://www.youtube.com/watch?v=2jzL0DZfr_Y&quot; rel=&quot;nofollow noreferrer&quot;&gt;Alberto Abadie&lt;/a&gt; himself on  Synthetic Controls for Policy Evaluation!&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="6168" LastEditorUserId="6168" LastEditDate="2019-04-09T06:55:58.997" LastActivityDate="2019-04-09T06:55:58.997" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27705" PostTypeId="2" ParentId="27694" CreationDate="2019-04-08T22:54:29.167" Score="0" Body="&lt;p&gt;There are two potential ways out of this problem.  The first is to perform principal components analysis (PCA) to reduce your variables in use.  The second is to construct it as a Bayesian problem.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The difficulty with PCA is two-fold.  First, the results are very difficult to interpret and explain.  Second, if there is a theoretical reason for certain variables to be linked and you eliminate that link in the PCA, then regardless of how good your model works out to be, it's wrong.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Bayesian alternative is a great alternative if you have at least weak information of the relationships from information outside the sample itself, such as other studies.  Multicollinearity is a non-problem for Bayesian methods.  The only issue that would ever form would be with perfect multicollinearity, in which case you really only have one variable and you need to pick one to use.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is because of several factors.  First, Bayesian methods are intrinsically optimal methods, ex-post. All Bayesian estimators with proper priors are admissible, Frequentist estimators are admissible only to the extent they match a Bayesian estimator at every sample or match a Bayesian estimator at the limit.  This optimality, in part, comes from the fact that the likelihood function is always minimally sufficient for the parameters.  There is no way to get more information out of a data set and there is no less risky way to calculate an estimate.  Bayesian estimators cannot be stochastically dominated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;They also ignore redundant information.  This isn't from a duplicate observation, rather if information has already been encoded (not noise) into a calculation then identical information doesn't get encoded. If you have variables that covary highly, there is little independent information in the sample.  Most of the information is shared among the variables.  In Bayesian calculations, the shared information gets added one time.  Frequentist methods can have problems with multicollinearity because that isn't necessarily true for them.  That is the reason for the assumption of no linear dependence.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem with Bayesian methods is that you have to encode all outside knowledge about the relationships from whatever appears in the literature into a prior distribution.  The prior distribution encodes all the information you have about the relationships that exist outside the sample itself.  The prior is then multiplied by the likelihood of seeing the sample and is averaged over the parameter space.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The nice thing about Bayesian methods is that they are rarely less accurate than a Frequentist method and often more accurate, sometimes by orders of magnitude.  There was an example problem in the 1930s by R.A. Fisher and his criticism of the minimum variance unbiased estimator was that it could be accurate, in the sense that the errors were symmetric, but incorrect where correctness would be what we now call precision.  OLS can be very far from the true value when compared to Bayesian methods.  With large sample sizes, however, they tend to converge both in parameter estimates and accuracy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you have never performed Bayesian calculations, you will want to get professional help first.  The same is true of principal components analysis.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the case of a Bayesian method, data isn't considered a random variable.  There is no such thing as a random sample.  Data is fixed.  You saw it.  There is nothing uncertain about it.  The parameters are considered random in the sense that there is uncertainty about them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A Bayesian can say &quot;its probably raining,&quot; and it makes sense.  To a Frequentist, that is nonsensical.  It is either raining or it is not raining.  It is either 100% true or 100% false as it is a fact.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a Frequentist, it makes sense to reject a null when &lt;span class=&quot;math-container&quot;&gt;$\bar{x}&amp;gt;k$&lt;/span&gt; if being outside a range would unusual if the null is true in the sense of it being unlikely to be as extreme or more extreme.  The Bayesian might reject that rejection.  The Bayesian may ask, &quot;has anyone actually observed a result bigger than &lt;span class=&quot;math-container&quot;&gt;$\bar{x}$&lt;/span&gt;?  How do you know a more extreme result could even exist?  How can you make inferential judgments on something that has never been seen?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The weird element to principal components analysis is that it implies a geometry.  You are going to rotate reality until reality splits apart into orthogonal components.  You could also use factor analysis if you believed there were latent factors in the data.  In either case, you won't be talking about the world as you know it.  Instead, PCA will attempt to sieve out the hidden parts into new components that have no social meaning.  It becomes just math.&lt;/p&gt;&#xA;" OwnerUserId="11321" LastActivityDate="2019-04-08T22:54:29.167" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27707" PostTypeId="1" CreationDate="2019-04-09T05:15:57.257" Score="3" ViewCount="223" Body="&lt;p&gt;In &lt;em&gt;Banking: A Very Short Introduction&lt;/em&gt;, Goddard and Wilson &lt;a href=&quot;https://books.google.com/books?id=uiGhDQAAQBAJ&amp;amp;pg=PT57&amp;amp;dq=%22CP%20usually%20carries%20a%20higher%20yield%20than%20corporate%20bonds%22&quot; rel=&quot;nofollow noreferrer&quot;&gt;write&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;[Commercial paper] usually carries a higher yield than corporate bonds.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;But aren't corporate bonds longer term than commercial paper and so all else equal should pay higher yields/interest rates?&lt;/p&gt;&#xA;" OwnerDisplayName="user20317" LastActivityDate="2019-04-09T17:55:31.620" Title="Does commercial paper usually carry a higher yield than corporate bonds? Why?" Tags="&lt;finance&gt;&lt;interest-rate&gt;&lt;corporate-finance&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27708" PostTypeId="2" ParentId="27267" CreationDate="2019-04-09T08:26:00.203" Score="1" Body="&lt;p&gt;As far as I'm aware, this is what it means:&#xA;When we say a capitalist 'hires' labour, we are talking about the power dynamic here, where the capitalist has control over what the worker does, his/her wages etc. But in Samuelson's world, a perfectly competitive markets implies that contracts are complete, which means that the worker when agreeing to work for the capitalist has complete information over what the job is going to be like, when and whether their wages is going to be paid etc. If the worker didn't like the future work/wages, they wouldn't accept the job. So here with complete contracts, the hierarchy is irrelevant, it doesn't matter who hires whom, since both knows exactly what the future job conditions are. As you can see this assumption abstracts away from power dynamics and wouldn't be very useful in analysis of real world labour issues.&lt;/p&gt;&#xA;" OwnerUserId="21764" LastActivityDate="2019-04-09T08:26:00.203" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27709" PostTypeId="1" AcceptedAnswerId="27711" CreationDate="2019-04-09T11:08:16.167" Score="1" ViewCount="38" Body="&lt;p&gt;What to do if my durbin watson is found to be inconclusive? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Do I have to change my model? &lt;/p&gt;&#xA;" OwnerUserId="21766" LastEditorUserId="10775" LastEditDate="2019-04-09T12:04:18.447" LastActivityDate="2019-04-09T12:35:01.867" Title="Is inconclusive region in durbin watson a problem?" Tags="&lt;econometrics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27710" PostTypeId="2" ParentId="27707" CreationDate="2019-04-09T11:14:13.750" Score="1" Body="&lt;p&gt;The wording seems incorrect, the only thing that appears to make sense is “higher spread,” since as you note, bonds are issued with longer maturities. The yield differential would depend on the slope of the curve.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Whether “higher spread” is accurate is yet another question. I did not spend much time looking at corporate bond data, but spreads normally increase as maturity lengthens for firms that are strong credits. A bond that is secured against specific collateral might trade tighter, but most “corporate bonds” are unsecured (as opposed to asset-backed securities). However, commercial paper may have wider spreads for banks, as the bonds may be senior versus commercial paper. (I’m guessing about that.)&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2019-04-09T11:14:13.750" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27711" PostTypeId="2" ParentId="27709" CreationDate="2019-04-09T12:24:57.880" Score="3" Body="&lt;p&gt;There are cases error serial correlation is a disaster. For example, if your model is &lt;span class=&quot;math-container&quot;&gt;$y_t = \beta_0 + \beta_1 y_{t-1} + u_t$&lt;/span&gt;, then serial correlation in &lt;span class=&quot;math-container&quot;&gt;$u_t$&lt;/span&gt; means correlation of &lt;span class=&quot;math-container&quot;&gt;$y_{t-1}$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$u_t$&lt;/span&gt; (in general) and your OLS estimator is biased and inconsistent. In other cases, serial correlation does not cause endogeneity and OLS is still consistent. An example is the case the right-hand side variable is strictly exogenous. Then you can use OLS and heteroskedasticity and auto-correlation consistent (HAC) inferences, e.g., using the Newey-West standard errors.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;So my answer is &quot;it depends&quot;.&lt;/strong&gt; If some regressors become endogenous due to the error serial correlation, you will probably want to change your model. Otherwise, you can use OLS and HAC standard errors.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If your model is dynamic (&lt;span class=&quot;math-container&quot;&gt;$y_{t-1}$&lt;/span&gt; on the right-hand side), the chance is high that you need to seriously worry about serial correlation in &lt;span class=&quot;math-container&quot;&gt;$u_t$&lt;/span&gt;. This happens in many time-series and financial applications.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By the way, &lt;a href=&quot;https://www.jstor.org/stable/2986316&quot; rel=&quot;nofollow noreferrer&quot;&gt;Farebrother (1980, JRSS Series C)&lt;/a&gt; proposed Pan's procedure for &lt;span class=&quot;math-container&quot;&gt;$p$&lt;/span&gt; values for DW tests. Inconclusiveness can be avoided.&lt;/p&gt;&#xA;" OwnerUserId="10775" LastEditorUserId="10775" LastEditDate="2019-04-09T12:35:01.867" LastActivityDate="2019-04-09T12:35:01.867" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27714" PostTypeId="2" ParentId="27707" CreationDate="2019-04-09T17:01:42.583" Score="1" Body="&lt;p&gt;Is this generally speaking true? My impression is that it is not. The following figure graphs the 10-Year High Quality Market (HQM) Corporate Bond Spot Rate  (HQMCB10YR) against the 3-Month AA Nonfinancial Commercial Paper Rate  (CPN3M). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/akS5Q.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/akS5Q.png&quot; alt=&quot;10 year vs cp&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://fred.stlouisfed.org/graph/?g=nzDC&quot; rel=&quot;nofollow noreferrer&quot;&gt;Source: FRED&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In general, long maturity bonds yield more than short maturity bonds. This makes CP more likely to be lower yielding than longer dated bonds. In addition, participants in the commercial paper market tend to have superior credit quality, while longer dated bonds have a mixture of high quality and lower quality (fallen angel) borrower. So comparing average rates between these groups would be doubly likely to show that bonds had higher yields than CP. &#xA;I would think the only time that the opposite would be true would be when the yield curve was steeply inverted. In this case, when long term rates are below longer term rates, it would be more likely that bonds could have a lower yield than CP. &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2019-04-09T17:55:31.620" LastActivityDate="2019-04-09T17:55:31.620" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27718" PostTypeId="1" CreationDate="2019-04-10T02:04:24.830" Score="0" ViewCount="42" Body="&lt;p&gt;I have a question related to IV methods. Suppose I have a regression &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$Y = a + b_1 X_1 + b_2 X_2 + \epsilon$&lt;/span&gt;, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;where &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt; is a dependent variable and &lt;span class=&quot;math-container&quot;&gt;$X_1$&lt;/span&gt; is an endogenous independent variable and &lt;span class=&quot;math-container&quot;&gt;$X_2$&lt;/span&gt; is an exogenous one. I have found a variable &lt;span class=&quot;math-container&quot;&gt;$Z$&lt;/span&gt; as the instrumental variable for &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt;. The question is as follows. Suppose I now set up new variables such that &lt;span class=&quot;math-container&quot;&gt;$X_1^l(X_1^h) = 1(0)$&lt;/span&gt; if &lt;span class=&quot;math-container&quot;&gt;$X_1 \leq(&amp;gt;) a_1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$X_2^l(X_2^h) = 1(0)$&lt;/span&gt; if &lt;span class=&quot;math-container&quot;&gt;$X_2 \leq(&amp;gt;) a_2$&lt;/span&gt;. The my regression becomes&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$Y = a + c_1 X_1^l X_2^l + c_2 X_1^l X_2^h + c_3 X_1^h X_2^l + c_4 X_1^h X_2^h + \epsilon$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I want to know how to set up IV in this case. Thanks. &lt;/p&gt;&#xA;" OwnerUserId="21774" LastActivityDate="2019-04-10T02:04:24.830" Title="instrumental variables" Tags="&lt;econometrics&gt;&lt;instrumental-variable&gt;" AnswerCount="0" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="27720" PostTypeId="1" CreationDate="2019-04-10T05:45:53.263" Score="1" ViewCount="82" Body="&lt;p&gt;I am writing a paper about SAPs. Its very controversial because of all the imposed policies on the country they are lending money to, the countries tend to get poorer instead of richer. I am still a bit confused though, the IMF certainly isn't a charity organization and they wont just give away money and forget about debts etc.&#xA;On the other hand I tried researching to find any country that benefited from SAPs and I failed. If nobody ever benefited except the loaners then isn't this a very obvious scam?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My questions are the following: Was any SAP ever successful? Is there anything good about them? And do the Netherlands have any official stance regarding SAPs?&lt;/p&gt;&#xA;" OwnerUserId="21777" LastEditorUserId="21777" LastEditDate="2019-04-11T21:31:56.623" LastActivityDate="2019-04-11T21:31:56.623" Title="Structural Adjustment Programs question" Tags="&lt;macroeconomics&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27721" PostTypeId="1" CreationDate="2019-04-10T06:32:53.923" Score="1" ViewCount="29" Body="&lt;p&gt;I am learning about potential output. We have been told that it is the amount of output that an economy can produce when using its resources, such as capital and labour, at normal rates/maximum capacity. How could an expansion occur if using resources at maximum capacity is considered 'normal'? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any answers would be greatly appreciated, thanks!&lt;/p&gt;&#xA;" OwnerUserId="21778" LastActivityDate="2019-04-10T08:03:35.547" Title="Question Regarding 'Potential Output'" Tags="&lt;macroeconomics&gt;&lt;business-cycles&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27722" PostTypeId="1" AcceptedAnswerId="27724" CreationDate="2019-04-10T06:58:15.650" Score="6" ViewCount="881" Body="&lt;p&gt;A recent question elsewhere made me look at the &lt;a href=&quot;https://blogs.cornell.edu/info2040/2017/09/10/30860/&quot; rel=&quot;noreferrer&quot;&gt;&quot;madman strategy&quot;&lt;/a&gt; which actually consists of trying to make the opposite player think that he is playing a game of chicken instead of prisoner's dilemma. This can only work, of course, because in reality the payoffs are not known apriori, so an inversion of the non-cooperation payoff with the &quot;tentation&quot; payoff &lt;a href=&quot;https://math.stackexchange.com/a/647/173347&quot;&gt;does&lt;/a&gt; this game switch.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there a general name for a &quot;meta-game&quot; (my term) situation in which the payoffs are not known exactly and players are trying to influence each others' perception of the payoffs?&lt;/p&gt;&#xA;" OwnerUserId="6210" LastActivityDate="2019-04-10T07:05:45.807" Title="Is there a general name for the setup in which payoffs are not known exactly but players try to influence each other's perception of the payoffs?" Tags="&lt;game-theory&gt;&lt;definition&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27724" PostTypeId="2" ParentId="27722" CreationDate="2019-04-10T07:05:45.807" Score="6" Body="&lt;p&gt;What players are trying to do is always up for interpretation, it is not coded into the mathematics of game theory. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The madman strategy can be modelled as a &lt;a href=&quot;https://en.wikipedia.org/wiki/Bayesian_game&quot; rel=&quot;noreferrer&quot;&gt;Bayesian game&lt;/a&gt;, with different types having different payoffs, and one player sending a signal about their type, the other player observing the signal. A situation in which types are indistinguishable based on their signals is called a pooling equilibrium. &lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2019-04-10T07:05:45.807" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="27725" PostTypeId="2" ParentId="27721" CreationDate="2019-04-10T08:03:35.547" Score="2" Body="&lt;p&gt;&lt;em&gt;Potential output&lt;/em&gt; is the level of output achieved when all resources are employed and put to their most productive uses, &lt;em&gt;and&lt;/em&gt; which can be sustained over the long term.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Expansion beyond the current level of potential output usually occurs through &lt;strong&gt;technological progress&lt;/strong&gt;. This is a catch-all phrase that includes the invention of new machines, better education, improvement of workers' skills, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It can also occur through an &lt;strong&gt;expansion&lt;/strong&gt; of the &lt;strong&gt;labor force&lt;/strong&gt; and &lt;strong&gt;capital stock&lt;/strong&gt; (i.e. more workers, more &quot;machines&quot;). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another way it can occur is through &lt;strong&gt;overheating&lt;/strong&gt;. A concrete (but not common) example of overheating would be if we forced everyone to work say 20 hours a day — this might achieve a temporary boost in output, but this is probably not sustainable over the long term. Similarly, we can overwork our machinery, livestock, and other capital goods, but again this would probably not be sustainable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A more common example of overheating is during a speculative boom -- say a property boom, when due to overoptimism and other factors, we might have a period of a few years when new properties are built at a frenetic pace, so that potential output is exceeded. This, again, is not sustainable.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2019-04-10T08:03:35.547" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27726" PostTypeId="1" CreationDate="2019-04-10T09:57:07.357" Score="0" ViewCount="139" Body="&lt;p&gt;Calculating 3m annualised rates is a concept I've been struggling with for some time, but I think the below example illustrates what I am looking at trying to understand.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The past 6 months of monthly YoY inflation data for Hungary has been as follows:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/0QkOI.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/0QkOI.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From which is has been calculated that the 3m annualised rate is as follows:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/gtRGY.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/gtRGY.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How is this number calculated on a rolling basis?&lt;/p&gt;&#xA;" OwnerUserId="14128" LastActivityDate="2019-04-12T19:38:41.683" Title="Calculating 3m annualised rates" Tags="&lt;inflation&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="27727" PostTypeId="1" CreationDate="2019-04-10T10:38:36.573" Score="2" ViewCount="40" Body="&lt;p&gt;Country A has 16 million inhabitants and 2.000 MW of solar panel&#xA;generated power, also a GDP of $50.000 per capita &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Country B has 160 million inhabitants and  2 MW of solar panel&#xA;generated power, also a GDP of $10.000 per capita&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Would it be correct to say that country A has two thousand times as much solar&#xA;power because: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;If country A was as populous as B, they would have 20.000 MW in solar power. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;But if country A  was as poor as country A, they would have 4.000 MW solar power.  So, after adjusting for differences in population and&#xA;wealth, country A still has 2000 times the solar power that country B&#xA;has?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Is it correct to adjust for differences in population and&#xA;wealth in that manner, or not?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Follow up question: Is there a formal way, when comparing countries or&#xA;groups, to adjust for differences in various traits (such as&#xA;population size and GDP per capita?)&lt;/p&gt;&#xA;" OwnerUserId="21780" LastActivityDate="2019-04-10T20:35:35.450" Title="Is this a valid or legitimate way of comparing countries on traits and characteristics?" Tags="&lt;gdp&gt;&lt;population-economics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27728" PostTypeId="2" ParentId="27727" CreationDate="2019-04-10T11:05:02.210" Score="2" Body="&lt;p&gt;I have no idea whether there are formal rules, but you can emulate physical scientists and look at the units.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Dividing solar power by population is reasonable, as you get megawatts per capita. Those refer to real quantities. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, you are dividing by GDP (in a roundabout fashion). The units of GDP are (currency unit)/(year). Since megawatts are a real quantity, and thus no currency value, the resulting ratio is (megawatts)(years)/(currency unit). This does not appear to correspond to anything.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You could try to fit a model that predicts solar capacity as a function of wealth and population, and the model calculations should implicitly correct the units.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2019-04-10T11:05:02.210" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27730" PostTypeId="1" CreationDate="2019-04-10T11:38:20.640" Score="5" ViewCount="41" Body="&lt;p&gt;I'm looking for a package or a code (preferably in R) that finds the solution to the stable marriage problem with transferable utilities (Shapley and Shubik 1971). Specifically, I'm looking for one or more of the following:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;The stable allocation, given a matrix of the joint surplus&lt;/li&gt;&#xA;&lt;li&gt;The set of transfers that support this allocation&lt;/li&gt;&#xA;&lt;li&gt;Option to specify another matrix of acceptable matches&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;As far as I know, the package matchingMarkets in R find the solution to that problem only in the case of non-transferable utilities. Any ideas?&lt;/p&gt;&#xA;" OwnerUserId="21782" LastEditorUserId="42" LastEditDate="2019-04-10T15:17:15.780" LastActivityDate="2019-04-10T21:16:48.937" Title="Stable marriage problem with transferable utilities" Tags="&lt;computation&gt;&lt;search-and-matching&gt;&lt;r&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27731" PostTypeId="1" CreationDate="2019-04-10T16:49:03.203" Score="2" ViewCount="63" Body="&lt;p&gt;There are two sectors Y1 and Y2. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Composite output is given by CES form - &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/tNwYU.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/tNwYU.jpg&quot; alt=&quot;Form of Composite good&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Each sector employs Capital and Labor in combination through Cobb-Douglas Production Technology. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &lt;a href=&quot;https://www.google.co.in/url?sa=t&amp;amp;source=web&amp;amp;rct=j&amp;amp;url=https://economics.mit.edu/files/5673&amp;amp;ved=2ahUKEwiuu4-mjsrhAhWLqY8KHe4xBJMQFjACegQIARAB&amp;amp;usg=AOvVaw0lnH1Lqxau4rHFytXumpD7&quot; rel=&quot;nofollow noreferrer&quot;&gt;paper&lt;/a&gt; mentions that elasticity of substitution between products will be less than one if and only if the (short-run) elasticity of substitution between labor and capital is less than one. They donot provide any motivation behind it. Why should this be true? - Any technical or non-technical explanation will be useful. &lt;/p&gt;&#xA;" OwnerUserId="18929" LastEditorUserId="18929" LastEditDate="2019-04-12T08:17:48.273" LastActivityDate="2019-04-12T08:17:48.273" Title="Relationship between Elasticity of substitution of sectoral outputs and elasticity of substitution of inputs" Tags="&lt;macroeconomics&gt;&lt;production-function&gt;&lt;elasticity-of-substituion&gt;&lt;ces-function&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27732" PostTypeId="2" ParentId="27727" CreationDate="2019-04-10T20:35:35.450" Score="2" Body="&lt;p&gt;There are various ratios that can be calculated relating energy production to economic variables or population.  Generally they are neither correct nor incorrect: what should be asked is whether they are meaningful or useful for a particular purpose.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One commonly used ratio is &lt;a href=&quot;https://en.wikipedia.org/wiki/Energy_intensity&quot; rel=&quot;nofollow noreferrer&quot;&gt;energy intensity&lt;/a&gt;, the ratio of GDP to energy use.  Broadly, a high ratio indicates that energy is being efficiently used in the economy.  Another is &lt;a href=&quot;https://en.wikipedia.org/wiki/List_of_countries_by_energy_consumption_per_capita&quot; rel=&quot;nofollow noreferrer&quot;&gt;energy consumption per capita&lt;/a&gt;, consumption here including all energy used in the economy, not just that used by end users.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Possibly I am missing something, but I cannot see that a calculation as in your question relating an energy variable to &lt;em&gt;both&lt;/em&gt; GDP and population is especially useful.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's also important to note that &lt;a href=&quot;https://en.wikipedia.org/wiki/Electric_power&quot; rel=&quot;nofollow noreferrer&quot;&gt;electrical energy and electric power&lt;/a&gt; are distinct concepts.  Electric power can be measured as you indicate in megawatts (MW).  Electrical energy also requires a time dimension so might be measured in megawatt hours (MWh).  If a power source were to operate uniformly at all times then the energy in MWh it generated annually would simply be its power in MW multiplied by the number of hours in a year.  But many sources do not operate uniformly, eg power stations may be shut down for maintenance or run at less than full capacity due to limited supplies of fuel inputs. In the case of &lt;a href=&quot;https://www.iea.org/topics/renewables/solar/&quot; rel=&quot;nofollow noreferrer&quot;&gt;solar power&lt;/a&gt;, power output is limited to when the sun is shining. So, comparing countries A and B, the energy generated from solar depends not only on their respective installed power but also on their respective hours of sunshine, which could be quite different.  &lt;/p&gt;&#xA;" OwnerUserId="1417" LastActivityDate="2019-04-10T20:35:35.450" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27733" PostTypeId="2" ParentId="27730" CreationDate="2019-04-10T21:16:48.937" Score="1" Body="&lt;p&gt;There's two implementations that should somewhat cover your needs, &lt;code&gt;matchingR&lt;/code&gt; which does reduced-form algorithmic matching and &lt;code&gt;matchingMarkets&lt;/code&gt;, which estimates estructural matching models with some baysean tools to correct for endogeneity. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem is you're looking for some very specific models which may require some tweaks on these implementations. &lt;/p&gt;&#xA;" OwnerUserId="18167" LastActivityDate="2019-04-10T21:16:48.937" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27738" PostTypeId="1" CreationDate="2019-04-11T08:09:58.307" Score="1" ViewCount="21" Body="&lt;p&gt;From the literature of incomplete market (e.g. Aiyagary 1993,1994), it seems to be the case that:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;With complete markets, the capital distribution in the final steady&#xA;state depends on the distribution in the initial steady state.&lt;/li&gt;&#xA;&lt;li&gt;With incomplete markets, the capital distribution in the final steady&#xA;is independent from the distribution in the initial steady state.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;My first question regards the correctness of that claim. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The second one is the following: if that is correct, what is the economic intuition? Why the initial wealth (or asset, or capital) distribution is irrelevant for the steady state in incomplete market case while it matters in the complete market case?&lt;/p&gt;&#xA;" OwnerUserId="17875" LastActivityDate="2019-04-11T08:09:58.307" Title="Wealth Distribution and market incompletness" Tags="&lt;macroeconomics&gt;&lt;markets&gt;&lt;complete-markets&gt;&lt;heterogeneity&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27739" PostTypeId="1" AcceptedAnswerId="27756" CreationDate="2019-04-11T10:46:12.613" Score="2" ViewCount="219" Body="&lt;p&gt;I was working on a question that asked the opportunity costs of going to college per year given that college tuition is &lt;span class=&quot;math-container&quot;&gt;$ x $&lt;/span&gt; and the salary per year is &lt;span class=&quot;math-container&quot;&gt;$ y $&lt;/span&gt;. The answer given is &lt;span class=&quot;math-container&quot;&gt;$ x + y $&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I thought that economic costs is given by: &lt;span class=&quot;math-container&quot;&gt;$$ \text{Economic costs} = \text{Accounting costs} + \text{Opportunity Costs} $$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here, the accounting costs would be the explicit cost of tuition, while the opportunity cost would be the implicit cost of wages foregone. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is my conclusion correct? Or is economic costs synonymous with opportunity costs?  (Which makes opportunity cost equal to the &lt;em&gt;total&lt;/em&gt; cost, explicit + implicit)?&lt;/p&gt;&#xA;" OwnerUserId="6486" LastActivityDate="2019-04-12T00:58:01.333" Title="Are opportunity costs synonymous with economic costs?" Tags="&lt;opportunity-cost&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27740" PostTypeId="1" AcceptedAnswerId="27894" CreationDate="2019-04-11T11:03:31.167" Score="3" ViewCount="196" Body="&lt;p&gt;In the problem set 2 of Rubinsteins Microeconomics (btw is there a comparably nice written book on macroeconomics?) there is the following question:&#xA;Let &lt;span class=&quot;math-container&quot;&gt;$\succ_n$&lt;/span&gt; be the preference relations defined on &lt;span class=&quot;math-container&quot;&gt;$\mathbb{R}^2_+$&lt;/span&gt; by the utility &lt;span class=&quot;math-container&quot;&gt;$x_1^n + x_2^n$&lt;/span&gt;. Let the preference relations &lt;span class=&quot;math-container&quot;&gt;$\succ$&lt;/span&gt; be defined by the utility &lt;span class=&quot;math-container&quot;&gt;$\max\{x_1, x_2\}$&lt;/span&gt;. Show that &lt;span class=&quot;math-container&quot;&gt;$\succ_n$&lt;/span&gt; converge to &lt;span class=&quot;math-container&quot;&gt;$\succ$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Preference relations are said to converge if for &lt;span class=&quot;math-container&quot;&gt;$a \succ b$&lt;/span&gt; we have that &lt;span class=&quot;math-container&quot;&gt;$a \succ_m b$&lt;/span&gt; for sufficiently large &lt;span class=&quot;math-container&quot;&gt;$m$&lt;/span&gt;. I am indeed able to prove that.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now w.l.o.g. &lt;span class=&quot;math-container&quot;&gt;$x_1 = \max\{x_1, x_2\}$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$y_1 = \max\{y_1, y_2\}$&lt;/span&gt;. Assuming that &lt;span class=&quot;math-container&quot;&gt;$x_1 = y_1$&lt;/span&gt; we have &lt;span class=&quot;math-container&quot;&gt;$x \sim y$&lt;/span&gt;. But the only case when &lt;span class=&quot;math-container&quot;&gt;$x \sim_m y$&lt;/span&gt; is when also &lt;span class=&quot;math-container&quot;&gt;$x_2 = y_2$&lt;/span&gt;. In other cases we would have either &lt;span class=&quot;math-container&quot;&gt;$x \succ_m y$&lt;/span&gt; or &lt;span class=&quot;math-container&quot;&gt;$y \succ_m x$&lt;/span&gt; for all &lt;span class=&quot;math-container&quot;&gt;$m$&lt;/span&gt; (depending on &lt;span class=&quot;math-container&quot;&gt;$x_2$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$y_2$&lt;/span&gt;, the &quot;smaller component&quot;. These are actually lexicographic preferences!)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there a reason that the convergence of preference relations is done in this way to ignore such subtilities? In my opinion we should have that &lt;span class=&quot;math-container&quot;&gt;$\succeq = \lim_{n \to \infty} \succeq_n$&lt;/span&gt; iff &lt;span class=&quot;math-container&quot;&gt;$a \succeq b = \lim_{n \to \infty} a \succeq_n b$&lt;/span&gt;. &lt;/p&gt;&#xA;" OwnerUserId="21789" LastEditorUserId="21789" LastEditDate="2019-04-12T06:38:03.617" LastActivityDate="2019-05-21T11:03:20.690" Title="Preference relations defined by $x_1^n + x_2^n$ converge to $\max\{x_1, x_2\}$" Tags="&lt;utility&gt;&lt;preferences&gt;&lt;definition&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27743" PostTypeId="2" ParentId="27739" CreationDate="2019-04-11T12:05:54.983" Score="1" Body="&lt;p&gt;You have it dead on! There opportunity cost is the next best alternatives that you forgo when you decide (in this example) to go to college. Because there is always some opportunity cost to every decision, economists say that there is no such thing as a free lunch&lt;/p&gt;&#xA;" OwnerUserId="10402" LastActivityDate="2019-04-11T12:05:54.983" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27744" PostTypeId="1" CreationDate="2019-04-11T12:10:05.717" Score="1" ViewCount="49" Body="&lt;p&gt;I have 3 endogenous variables in my model and I have identified 3 (or max 4) instruments. I wanted to know appropriate test for identifying whether the instruments are weak or not given that I have heteroskedaticity (cluster option is being used) in my data. I read that one should employ the Kleibergen-Paap F statistic in this case and compare with Stock and Yogo Critical values but in the case of 3 endogenous variables the table in their paper starts with a min of 5 instruments. I am confused as to which test to employ in this case. Any suggestions would be useful in this regard.&lt;/p&gt;&#xA;" OwnerUserId="21792" LastActivityDate="2020-05-05T14:04:45.553" Title="Testing for weak instrument" Tags="&lt;stata&gt;&lt;instrumental-variable&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27745" PostTypeId="2" ParentId="27744" CreationDate="2019-04-11T12:34:49.443" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Staiger and Stock (1997) formalized the definition of “weak&#xA;  instruments” and most researchers seem to have concluded (incorrectly)&#xA;  from that work (or hearsay) that if the F-statistic on the excluded&#xA;  instruments in the first stage is greater than 10, one need worry no&#xA;  further about weak instruments.Stock and Yogo (2005) go into more&#xA;  detail and provide useful rules of thumb regarding the weakness of&#xA;  instruments based on a statistic due to Cragg and Donald (1993).&#xA;  Stock, Wright, and Yogo (2002) provide a summary of this work.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.stata.com/meeting/5nasug/wiv.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Weak instruments:  An overview and new techniques&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Austin Nichols (2006)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;While an  F-statistic cutoff of 10 may be a crude rule of thumb and not sufficient to conclude that a set of instruments are not weak, Stock, Wright, and Yogo (2002) have a table about weak instrument cutoff values that goes down to 1 instrument.&#xA;&lt;a href=&quot;https://i.stack.imgur.com/qZIOs.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/qZIOs.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&#xA;&lt;a href=&quot;https://pdfs.semanticscholar.org/a4c8/275a5f64d44ff78451197f9a31200f68d542.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;GMM, Weak Instruments, and Weak Identification&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2019-04-11T12:34:49.443" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27747" PostTypeId="2" ParentId="27695" CreationDate="2019-04-11T13:38:19.157" Score="5" Body="&lt;p&gt;The objective is to show that, as long as &lt;span class=&quot;math-container&quot;&gt;$f'(n\hat\theta)\ne \alpha$&lt;/span&gt;, a firm can always engineer a package &lt;span class=&quot;math-container&quot;&gt;$(p',\hat\theta')=(p+\Delta p,\hat\theta+\Delta \hat{\theta})$&lt;/span&gt; such that (i) a caring consumer strictly prefers this package, and (ii) the firm makes positive profits. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) Your maths are correct: the inequalities are always false when f is increasing and strictly concave. In that case, the proof in the paper is unclear.&#xA;The package &lt;span class=&quot;math-container&quot;&gt;$(p',\hat\theta')=(p+f'(n\hat\theta)\Delta \hat{\theta},\hat\theta+\Delta \hat{\theta})$&lt;/span&gt; does not satisfy (i).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) You can show the proposition with the following reasoning.&#xA;Assume &lt;span class=&quot;math-container&quot;&gt;$f'(n\hat\theta)&amp;gt;\alpha$&lt;/span&gt;. Take any &lt;span class=&quot;math-container&quot;&gt;$h$&lt;/span&gt; within the interval &lt;span class=&quot;math-container&quot;&gt;$(\alpha,f'(n\hat\theta))$&lt;/span&gt;.&#xA;For &lt;span class=&quot;math-container&quot;&gt;$\Delta \hat{\theta}$&lt;/span&gt; small enough and positive, a firm that offers the package &lt;span class=&quot;math-container&quot;&gt;$(p',\hat\theta')=(p+h\Delta \hat{\theta},\hat\theta+\Delta \hat{\theta})$&lt;/span&gt; satisfies (i) and (ii). With a first-order appoximation, we show (i): &lt;span class=&quot;math-container&quot;&gt;$$b-p'+f(\hat\theta'+(n-1)\hat\theta)&amp;gt;b-p+f(n \hat\theta),$$&lt;/span&gt;&#xA;and (ii):&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\Delta p - \alpha \Delta \theta&amp;gt;0.$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume &lt;span class=&quot;math-container&quot;&gt;$f'(n\hat\theta)&amp;lt;\alpha$&lt;/span&gt;, and take &lt;span class=&quot;math-container&quot;&gt;$h$&lt;/span&gt; within the interval &lt;span class=&quot;math-container&quot;&gt;$(f'(n\hat\theta),\alpha)$&lt;/span&gt;.&#xA;For &lt;span class=&quot;math-container&quot;&gt;$\Delta \hat{\theta}$&lt;/span&gt; small enough and &lt;strong&gt;negative&lt;/strong&gt;, a firm that offers the package &lt;span class=&quot;math-container&quot;&gt;$(p',\hat\theta')=(p+h\Delta \hat{\theta},\hat\theta+\Delta \hat{\theta})$&lt;/span&gt; satisfies (i) and (ii).&lt;/p&gt;&#xA;" OwnerUserId="4094" LastEditorUserId="4094" LastEditDate="2019-04-11T16:39:03.473" LastActivityDate="2019-04-11T16:39:03.473" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="27748" PostTypeId="1" AcceptedAnswerId="27751" CreationDate="2019-04-11T14:21:00.903" Score="0" ViewCount="171" Body="&lt;p&gt;I have a little doubt in the Job Market Signalling Game. I am referring to &lt;em&gt;A Primer in Game Theory: Gibbons, Chapter 4, Signaling Games&lt;/em&gt;&#xA;The attached paragraph refers to a Separating Equilibrium case wherein, the High Ability type player chooses to signal &lt;span class=&quot;math-container&quot;&gt;$e_s&amp;gt;e^*(H)$&lt;/span&gt;, so that the Low Ability type has no incentive to mimic High Ability type, since he/she will mimic only when &lt;span class=&quot;math-container&quot;&gt;$e$&lt;/span&gt; is between &lt;span class=&quot;math-container&quot;&gt;$e^*(H)$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$e_s$&lt;/span&gt;.&#xA;I understand the reasoning behind this. However, I cannot seem to understand why a High Type player would choose to signal thus is he/she gets a lower payoff by doing so (since it is not optimal). Is it the case that the 'loss' due to Low Ability Type mimicing him/her is greater than the 'loss' ny not playing optimal action? Does this have anything to do with sequential rationality? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm sure I'm missing something. Please help me understand the concept and what I'm wrongly inferring. Thank You! &#xA;&lt;a href=&quot;https://i.stack.imgur.com/FuEBf.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/FuEBf.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="18398" LastEditorUserId="11590" LastEditDate="2019-05-19T16:52:32.623" LastActivityDate="2019-05-19T16:52:32.623" Title="Spence's Job Market Signaling Game" Tags="&lt;game-theory&gt;&lt;self-study&gt;&lt;bayesian-game&gt;&lt;dynamic-games&gt;&lt;signaling&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27750" PostTypeId="1" CreationDate="2019-04-11T18:11:10.193" Score="0" ViewCount="98" Body="&lt;p&gt;How can you prove the theorem that Single peaked preferences imply that there are no Condorcet cycles&lt;/p&gt;&#xA;" OwnerUserId="21797" LastActivityDate="2019-04-11T22:54:57.360" Title="Single Peaked Preferences and Condorcet Cycles" Tags="&lt;political&gt;" AnswerCount="1" CommentCount="0" ClosedDate="2019-04-25T13:15:57.453" ContentLicense="CC BY-SA 4.0" />
  <row Id="27751" PostTypeId="2" ParentId="27748" CreationDate="2019-04-11T19:30:05.897" Score="1" Body="&lt;p&gt;I don't have a copy of Gibbons handy, so I cannot speak to the specific model presented there, but only generally. The intuition of the conclusion is based on the combination of the following factors:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Whenever the firm can tell the high and low types apart, it's willing to pay a high wage to high type and a low wage to low type &lt;/li&gt;&#xA;&lt;li&gt;If the firm cannot tell the two types apart, it will pay both types the same wage equal to their average productivity&lt;/li&gt;&#xA;&lt;li&gt;Low type will try to pretend to be high type whenever possible to get a higher wage (note that even the average wage is higher than the low wage)&lt;/li&gt;&#xA;&lt;li&gt;High type, in order to get the high wage as opposed to the average wage, will try to distinguish themselves from the low type whenever possible&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Hence, if &lt;span class=&quot;math-container&quot;&gt;$e^*(H)$&lt;/span&gt; is a sufficiently small cost for the low type to pay to pretend to be high type, then the high type choosing &lt;span class=&quot;math-container&quot;&gt;$e^*(H)$&lt;/span&gt; will only result in them getting the average wage instead of the high wage. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a consequence, high type would be willing to pay a bigger cost &lt;span class=&quot;math-container&quot;&gt;$e_s&amp;gt;e^*(H)$&lt;/span&gt; --- a cost so big for the low type that they won't find it profitable to pay to get the average wage, but at the same time small enough for the high type so that their gains from getting the high wage instead of the average wage outweigh such a cost --- to distinguish themselves from the low type. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The key here is to take into account the presence of the low type (and asymmetric info). They are the ones who cause the reduction of the high type's wage to the average level at cost &lt;span class=&quot;math-container&quot;&gt;$e^*(H)$&lt;/span&gt;. &lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2019-04-11T19:30:05.897" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27752" PostTypeId="2" ParentId="26069" CreationDate="2019-04-11T20:56:50.347" Score="3" Body="&lt;p&gt;I guess you learned about MDP from Reinforcement Learning since RL tries to solve MDP without parameters. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For MDP without considering Microeconomics, (Indeed MDP is a decision-making process.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;&lt;strong&gt;&lt;em&gt;Markov Decision Processes: Discrete Stochastic Dynamic Programming&lt;/em&gt;&lt;/strong&gt;&quot; by Martin Puterman &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you want an Economics based book, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;&lt;strong&gt;&lt;em&gt;Recursive Methods in Economic Dynamics&lt;/em&gt;&lt;/strong&gt;&quot; by  Nancy L. Stokey and Edward C. Prescott&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For multi-agent MDP, (there are not many books for this topic specifically  although some Economics books mention the topic)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;&lt;strong&gt;&lt;em&gt;Competitive Markov Decision Processes&lt;/em&gt;&lt;/strong&gt;&quot; by Jerzy Filar and Koos Vrieze&lt;/p&gt;&#xA;" OwnerUserId="21756" LastEditorUserId="21756" LastEditDate="2019-04-11T21:33:54.550" LastActivityDate="2019-04-11T21:33:54.550" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27753" PostTypeId="2" ParentId="27750" CreationDate="2019-04-11T22:25:50.770" Score="3" Body="&lt;p&gt;Single-peakedness of preferences is not enough to guarantee the existence of a &lt;a href=&quot;https://en.wikipedia.org/wiki/Condorcet_criterion&quot; rel=&quot;nofollow noreferrer&quot;&gt;Condorcet winner&lt;/a&gt;, a position that cannot be defeated in majority voting (hence preventing cycling). You would also need that the set of alternatives to admit a linear order (and single-peakedness is with respect to this order). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;With a linear order on alternatives and a profile of single-peaked preferences, it is easy to argue that the &quot;median voter&quot;, a position that divides the set of voters into two subsets of equal size based on whether their bliss points are on the left or right of the median position, is always a Condorcet winner. For a more rigorous presentation, I'd refer you to Proposition 21.D.1 and its proof in the &lt;a href=&quot;http://global.oup.com/ushe/product/microeconomic-theory-9780195073409&quot; rel=&quot;nofollow noreferrer&quot;&gt;MWG textbook&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;To see why the linear order on alternatives is necessary, consider the following figure (taken from &lt;a href=&quot;https://en.wikipedia.org/wiki/Condorcet_paradox&quot; rel=&quot;nofollow noreferrer&quot;&gt;Wikipedia&lt;/a&gt;):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/st2iU.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/st2iU.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here, the space of alternatives is 2-dimensional, and there is no natural way to define a linear order on &lt;span class=&quot;math-container&quot;&gt;$\mathbb R^2$&lt;/span&gt;. Voters' preferences are still single-peaked in the sense that each voter has only one bliss point. As a result, we cannot rule out cycling (non-existence of Condorcet winner) as is shown in the example.&lt;/p&gt;&#xA;" OwnerUserId="42" LastEditorUserId="42" LastEditDate="2019-04-11T22:54:57.360" LastActivityDate="2019-04-11T22:54:57.360" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27754" PostTypeId="2" ParentId="27740" CreationDate="2019-04-11T23:09:23.670" Score="1" Body="&lt;p&gt;I am assuming you're familiar with the concept of monotonic transformations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let &lt;span class=&quot;math-container&quot;&gt;$f(z)=z^n$&lt;/span&gt; be a monotonic transformation. &lt;span class=&quot;math-container&quot;&gt;$f(z)$&lt;/span&gt; is an order preserving transformation for all positive &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt;. Let &lt;span class=&quot;math-container&quot;&gt;$v:\mathbb{R_+^2} \to\mathbb{R}$&lt;/span&gt; be an utility function, where &lt;span class=&quot;math-container&quot;&gt;$v(x_1,x_2)=(x_1^n + x_2^n)^{1/n}$&lt;/span&gt;. The function &lt;span class=&quot;math-container&quot;&gt;$f(v(x_1,x_2))=((x_1^n + x_2^n)^{1/n})^n=x_1^n + x_2^n$&lt;/span&gt; will represent the same preferences as &lt;span class=&quot;math-container&quot;&gt;$v(x_1,x_2)$&lt;/span&gt;. Therefore, &lt;span class=&quot;math-container&quot;&gt;$(x_1^n + x_2^n)^{1/n}$&lt;/span&gt; should also converge to &lt;span class=&quot;math-container&quot;&gt;$\max\{x_1,x_2\}$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To prove the same, consider &lt;span class=&quot;math-container&quot;&gt;$v(x_1,x_2)=\Big(1+\cfrac{x_1^n }{x_2^n}\Big)^{1/n}x_2$&lt;/span&gt;. Assume &lt;span class=&quot;math-container&quot;&gt;$x_2 = \max\{x_1,x_2\}. $&lt;/span&gt;Now, as &lt;span class=&quot;math-container&quot;&gt;$n \to \infty$&lt;/span&gt;, two cases arise. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) If &lt;span class=&quot;math-container&quot;&gt;$x_2&amp;gt;x_1$&lt;/span&gt;, then &lt;span class=&quot;math-container&quot;&gt;$\cfrac{x_1^n }{x_2^n} \to 0$&lt;/span&gt; as &lt;span class=&quot;math-container&quot;&gt;$n \to \infty$&lt;/span&gt;. In that case, &lt;span class=&quot;math-container&quot;&gt;$v(x_1,x_2)=x_2=\max\{x_1,x_2\}$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) If &lt;span class=&quot;math-container&quot;&gt;$x_2=x_1$&lt;/span&gt;, the limit can be calculated by taking log on both sides as follows-&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{align*}&#xA;\ln(v(x_1,x_2)) = \cfrac{\ln(1+\cfrac{x_1^n }{x_2^n})}{n} +\ln(x_2) \,\,\,\,-(1)&#xA;\end{align*}&lt;/span&gt;&#xA;Since &lt;span class=&quot;math-container&quot;&gt;$x_1/x_2=1$&lt;/span&gt;,we have &lt;span class=&quot;math-container&quot;&gt;$(x_1/x_2)^n=1^n$&lt;/span&gt;. Using this in equation &lt;span class=&quot;math-container&quot;&gt;$(1)$&lt;/span&gt;, we get&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{align*}&#xA;\ln(v(x_1,x_2)) = \cfrac{\ln(1+1^n)}{n} +\ln(x_2) &#xA;\end{align*}&lt;/span&gt;&#xA;As &lt;span class=&quot;math-container&quot;&gt;$n\to \infty$&lt;/span&gt;, the term &lt;span class=&quot;math-container&quot;&gt;$\cfrac{\ln(1+1^n)}{n}$&lt;/span&gt; becomes &lt;span class=&quot;math-container&quot;&gt;$\infty/\infty$&lt;/span&gt;. This limit can be solved using L'Hospital's rule. The value of the limit(you may check it for yourself) comes out to be &lt;span class=&quot;math-container&quot;&gt;$0$&lt;/span&gt;.&#xA;Now we have &lt;span class=&quot;math-container&quot;&gt;$\ln(v(x_1,x_2)) = 0 +\ln(x_2)$&lt;/span&gt;, or, &lt;span class=&quot;math-container&quot;&gt;$v(x_1,x_2)=x_2=\max\{x_1,x_2\}$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerUserId="16340" LastActivityDate="2019-04-11T23:09:23.670" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="27756" PostTypeId="2" ParentId="27739" CreationDate="2019-04-12T00:58:01.333" Score="2" Body="&lt;p&gt;In economics, we argue that there is only one correct way to think of costs. And so, the adjectives &lt;em&gt;economic&lt;/em&gt; or &lt;em&gt;opportunity&lt;/em&gt; in front of the word &lt;em&gt;cost&lt;/em&gt; are actually superfluous — the terms &lt;em&gt;cost&lt;/em&gt;, &lt;em&gt;true cost&lt;/em&gt;, &lt;em&gt;economic cost&lt;/em&gt;, and &lt;em&gt;opportunity cost&lt;/em&gt; are all exact synonyms.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Note. If they are superfluous, then why do we use these adjectives?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One reason is to strongly emphasize that other conceptions of &quot;cost&quot; that accountants and other non-economists use (e.g. &lt;em&gt;accounting costs&lt;/em&gt;, &lt;em&gt;historic costs&lt;/em&gt;) are not quite correct.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another reason is that in practice, it may be difficult to figure out what the &lt;em&gt;true cost&lt;/em&gt; or &lt;em&gt;opportunity cost&lt;/em&gt; is. And so in practice, economists will — despite what they themselves teach in Econ 101 — often use the term &lt;em&gt;cost&lt;/em&gt; in some narrower, incorrect sense.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2019-04-12T00:58:01.333" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27759" PostTypeId="1" AcceptedAnswerId="27833" CreationDate="2019-04-12T12:38:30.120" Score="3" ViewCount="235" Body="&lt;p&gt;I am trying to understand the change of wage rate and rental rate in the Solow growth model with s = 0. It is clear that capital per capita will approach 0 (due to depreciation of capital). Also is clear to me the fact that the rental rate will rise because of decreasing marginal returns assumed on the production function. Since factors are paid their marginal products in case of Constant Returns to Scale, rental rates rise.&#xA;I am confused about the marginal product of labor overtime in a general setting. For example if I take &lt;span class=&quot;math-container&quot;&gt;$F(K,L)=K^aL^{1−a} ,0&amp;lt;a&amp;lt;1$&lt;/span&gt; , then I can see that marginal product of labor will fall if we assume constant or increasing labor force. But I am unable to show this for a general &lt;span class=&quot;math-container&quot;&gt;$F$&lt;/span&gt; with CRS. &lt;/p&gt;&#xA;" OwnerUserId="21361" LastEditorUserId="21361" LastEditDate="2019-04-15T10:03:46.973" LastActivityDate="2019-04-19T13:22:58.487" Title="Wages in Solow growth model with savings = 0" Tags="&lt;macroeconomics&gt;&lt;solow&gt;" AnswerCount="1" CommentCount="6" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27760" PostTypeId="1" AcceptedAnswerId="27771" CreationDate="2019-04-12T14:21:46.537" Score="1" ViewCount="105" Body="&lt;p&gt;This question is in context of this problem I was trying to solve:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/QwBh0.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/QwBh0.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The answer given is (a). But I think the answer is (C). My arguments are as follows:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;First, the golden rule level of capital &lt;strong&gt;corresponds&lt;/strong&gt; to one and only one savings rate, &lt;span class=&quot;math-container&quot;&gt;$ s^* $&lt;/span&gt;. &lt;/li&gt;&#xA;&lt;li&gt;Thus, to reach &lt;span class=&quot;math-container&quot;&gt;$ s^* $&lt;/span&gt;, we need to increase the savings rate (since the economy starts off below the golden rule of capital accumulation steady state). &lt;/li&gt;&#xA;&lt;li&gt;Increasing savings reduces consumption initially.&lt;/li&gt;&#xA;&lt;li&gt;But increased savings stimulate investment, which increases production, which ultimately increases income and thus **increases consumption in the long run.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Is my answer correct, speaking strictly in terms of academic Solow Model theory and with the information given in the question? If wrong, why?&lt;/p&gt;&#xA;" OwnerUserId="6486" LastEditorUserId="1601" LastEditDate="2019-04-13T09:27:56.347" LastActivityDate="2019-04-15T10:18:55.447" Title="If an economy has capital that is less than the golden rule level of capital, can we reach the golden rule without increasing the savings rate?" Tags="&lt;solow&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27761" PostTypeId="1" AcceptedAnswerId="27766" CreationDate="2019-04-12T14:30:32.887" Score="3" ViewCount="66" Body="&lt;p&gt;If I have a market in which I have constant MC, no fixed costs, and perfect competition- when would it make sense for a new firm to enter the market(granted they have the same technology)? Would I need more information about the market?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;also would the cost curves for an individual firm be 1 line since &lt;span class=&quot;math-container&quot;&gt;$AC=MC=AVC$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$MR=MC$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$P=MC$&lt;/span&gt; under perfect competition, leading to &lt;span class=&quot;math-container&quot;&gt;$P=MC=AVC=AC=MR$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and for the market&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Supply would be perfectly elastic and demand being a downward sloping curve.&lt;/p&gt;&#xA;" OwnerUserId="21800" LastEditorUserId="18167" LastEditDate="2019-04-13T02:59:04.107" LastActivityDate="2019-04-13T02:59:04.107" Title="Perfectly competitive constant MC Questions" Tags="&lt;microeconomics&gt;&lt;supply-and-demand&gt;" AnswerCount="1" CommentCount="2" ClosedDate="2019-04-17T10:19:32.607" ContentLicense="CC BY-SA 4.0" />
  <row Id="27765" PostTypeId="2" ParentId="27726" CreationDate="2019-04-12T19:38:41.683" Score="1" Body="&lt;p&gt;Let’s assume that the price index is denoted &lt;span class=&quot;math-container&quot;&gt;$p_t$&lt;/span&gt;, with &lt;span class=&quot;math-container&quot;&gt;$p_1$&lt;/span&gt; the first month, and &lt;span class=&quot;math-container&quot;&gt;$p_4$&lt;/span&gt; the fourth. To calculate the 3-month annualised rate between the 1st and 4th month, we note that :&#xA;&lt;span class=&quot;math-container&quot;&gt;$p_4 = (1 + r)^{\frac{1}{4}} p_1,$&lt;/span&gt; where &lt;span class=&quot;math-container&quot;&gt;$r$&lt;/span&gt; is the annualised inflation rate. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or: &lt;span class=&quot;math-container&quot;&gt;$(1+r) = (\frac{p_4}{p_1})^4$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We cannot calculate the price index level from the 12-month change data; you need either index levels or 1-month percentage changes.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2019-04-12T19:38:41.683" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27766" PostTypeId="2" ParentId="27761" CreationDate="2019-04-12T21:22:53.473" Score="1" Body="&lt;p&gt;Theoretically, if all firms are identical and have the same cost schedule, then the supply curve for the market should be perfectly elastic, as you stated. The side-by-side market and firm graphs would appear as follows:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/8TLXF.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/8TLXF.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is an odd situation. Typically, when there exists a surplus of a good, firms competitively lower their prices until enough firms go out of business for the surplus to no longer exist; and when there exists a shortage, firms enter the industry until the supply increases enough for the shortage to vanish. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, in this case, since firms are not distinguished by the price that they can afford to charge, the natural tendency towards equilibrium cannot occur this way. Instead, when there is a surplus, firms cannot compete by price lowering and will either survive or perish based on the random purchase choices of  buyers (if prices are the same everywhere, consumers will probably choose where they buy their goods based on other factors, like geographic proximity, aesthetic preferences, etc, but “rational” buyers in the simplified model will be indifferent). For our purposes, which firms survive and which close down will be essentially random - whichever firms happen not to sell enough of their product for whatever reason will close.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;During a shortage, it gets even weirder. Whether or not firms enter the industry depends on the location of the ATC curve (which is why I did not draw it in the above graphs). If &lt;span class=&quot;math-container&quot;&gt;$ATC &amp;lt; P_F$&lt;/span&gt; at &lt;span class=&quot;math-container&quot;&gt;$Q_F$&lt;/span&gt;, firms would enter since profits are possible and people will buy the good they produce. If &lt;span class=&quot;math-container&quot;&gt;$ATC = P_F$&lt;/span&gt; at &lt;span class=&quot;math-container&quot;&gt;$Q_F$&lt;/span&gt;, there is no telling whether firms will enter, since they will all be indifferent. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And if &lt;span class=&quot;math-container&quot;&gt;$ATC &amp;gt; P_F$&lt;/span&gt; at &lt;span class=&quot;math-container&quot;&gt;$Q_F$&lt;/span&gt;, whether there is a surplus or shortage, firms will drop dead like flies until not a one is left. If the good being produced is of any real import, the government would probably offer subsidies to incentivise the production of the good.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, &lt;strong&gt;to answer your question&lt;/strong&gt; - it would make sense for you (a firm) to enter if &lt;span class=&quot;math-container&quot;&gt;$Q&amp;lt;Q_M$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$ATC &amp;lt; P_F$&lt;/span&gt; at &lt;span class=&quot;math-container&quot;&gt;$Q_F$&lt;/span&gt;. You could also enter when &lt;span class=&quot;math-container&quot;&gt;$Q\ge Q_M$&lt;/span&gt;, but then your success or failure would be left up to chance or other factors as consumers decide whether to buy your product or your competitor’s identically-priced product.&lt;/p&gt;&#xA;" OwnerUserId="21806" LastActivityDate="2019-04-12T21:22:53.473" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27767" PostTypeId="1" AcceptedAnswerId="27768" CreationDate="2019-04-13T00:44:22.440" Score="4" ViewCount="95" Body="&lt;p&gt;My layman understanding of the Efficient Market Hypothesis is that there is so much brain power focused on the maximization of profit in the marketplace, that the market will find the best solution both in the short and in the long term.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The particular instance of &quot;Tragedy of the Commons&quot; I have in mind is global warming, for which there is a fair amount of scientific consensus that it will disturb our civilization to an extent that does not guarantee that markets will continue existing as usual (stable governments being somewhat important for markets).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So here is my question: It seems that market players are not investing in ensuring the effects of global warming are minimized (i.e. market players are not ensuring the continuing existence of a market place). &lt;strong&gt;Does this mean that the Efficient Market Hypothesis is a model that does not describe our actual reality?&lt;/strong&gt; If that is the case, how is one supposed to know when the Efficient Market Hypothesis is a good model?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A side question: Is this whole &quot;exploiting the commons before someone else exploits them, irrespective of the fact that we are all doomed without the commons&quot; more closely described by a Prisoner's Dilemma? But if that is the case, would you not expect the intelligent efficient actors in the marketplace to decide to work together to save themselves?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My education is not in economics so maybe my question is not well defined. My hope is that even if this is the case, an explanation of why the question is not well defined would be useful on its own.&lt;/p&gt;&#xA;" OwnerUserId="21808" LastActivityDate="2020-03-22T19:20:47.847" Title="Does the Efficient Market Hypothesis Solve the Tragedy of the Commons?" Tags="&lt;externalities&gt;&lt;efficient-markets&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27768" PostTypeId="2" ParentId="27767" CreationDate="2019-04-13T02:34:48.000" Score="8" Body="&lt;p&gt;Your description of the Efficient Market Hypothesis (EMH) is not correct.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The EMH simply states that asset prices fully reflect all publicly-available information. It does not make the wild claim that:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;the market will find the best solution both in the short and in the long term.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;You write:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;It seems that market players are not investing in ensuring the effects of global warming are minimized (i.e. market players are not ensuring the continuing existence of a market place). &lt;strong&gt;Does this mean that the Efficient Market Hypothesis is a model that does not describe our actual reality?&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Market players do not invest with the goal of minimizing the effects of global warming. Instead, their goal is to maximize their returns.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To the extent that their interests and those of society's (or the world's) are not aligned, we have a problem of &lt;strong&gt;externalities&lt;/strong&gt;. But this says nothing whatsoever about the EMH.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Example.&lt;/strong&gt; At a horse-racing track, individuals place bets with the goal of maximizing their winnings. They do not place bets with the goal of raising the horses' welfare or of sustaining the horse-racing business. Their goal may not align with that of the horses or the business owner. But this says nothing whatsoever about the EMH.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(What the EMH would say in this example is that the bets reflect the expected performances of the horses. The bets do not say anything about the welfare of the horses of the viability of the horse-racing business.)&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastEditorDisplayName="user18" LastEditDate="2019-04-13T02:44:03.813" LastActivityDate="2019-04-13T02:44:03.813" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27771" PostTypeId="2" ParentId="27760" CreationDate="2019-04-13T03:57:35.083" Score="2" Body="&lt;p&gt;Your reasoning is exactly correct and the answer should be C.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We are told to begin &quot;from a steady state which is below the golden rule of capital accumulation&quot;. So, &lt;span class=&quot;math-container&quot;&gt;$s&amp;lt;s_g$&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$s$&lt;/span&gt; is the initial savings rate and &lt;span class=&quot;math-container&quot;&gt;$s_g$&lt;/span&gt; is the golden-rule savings rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose that at period &lt;span class=&quot;math-container&quot;&gt;$250$&lt;/span&gt;, our savings rate jumps from &lt;span class=&quot;math-container&quot;&gt;$s$&lt;/span&gt; to &lt;span class=&quot;math-container&quot;&gt;$s_g$&lt;/span&gt;. Then the evolution of per-capita consumption looks like this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/Q9LV4.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Q9LV4.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://docs.google.com/spreadsheets/d/1Ed83aYvQFsd_2qHWx4t4UTW4rnFt3HjA_2qlqLhAPv0/edit?usp=sharing&quot; rel=&quot;nofollow noreferrer&quot;&gt;Google spreadsheet where you can play with the numbers&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastEditorDisplayName="user18" LastEditDate="2019-04-13T04:36:40.950" LastActivityDate="2019-04-13T04:36:40.950" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27772" PostTypeId="2" ParentId="3352" CreationDate="2019-04-13T04:39:02.087" Score="0" Body="&lt;p&gt;Income offer curve define as the curve which depicts the optimal choice of two goods at different levels of income at constant price. It is otherwise known as &quot;Income Expansion Path&quot;. For normal goods its shape is upward sloping starting from the origin whereas in case of inferior goods its shape is a backward bending curve.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Examples: &lt;br&gt; For perfect substitutes goods the income offer curve takes the shape of a horizontal or vertical straight line depending on the price ratio, whereas in case of perfect complements it is straight line from the origin with a positive slope.   &lt;/p&gt;&#xA;" OwnerUserId="21812" LastEditorUserId="1601" LastEditDate="2019-04-13T06:25:10.450" LastActivityDate="2019-04-13T06:25:10.450" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27773" PostTypeId="1" CreationDate="2019-04-13T07:57:15.430" Score="-2" ViewCount="508" Body="&lt;p&gt;Give an example of preferences over a countable set in which the preferences cannot be represented by a utility function that returns only integers as values.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know a utility function exist that represents preference over a countable  set. I know a few types of preferences such as lexicographic, monotonic, quasi linear. I have always dealt with utility function assuming preferences are represented by that utility function. So how to solve this question? &lt;/p&gt;&#xA;" OwnerUserId="20093" LastEditorUserId="20068" LastEditDate="2019-04-14T19:31:47.203" LastActivityDate="2019-04-14T19:31:47.203" Title="An example of preferences over a countable set that cannot be represented by a utility function" Tags="&lt;preferences&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="27776" PostTypeId="2" ParentId="27760" CreationDate="2019-04-13T10:50:56.683" Score="3" Body="&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/nwqVu.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Yes the answer should be C. I have attached an image showing the variation with time of the variables &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt;(per capita output), &lt;span class=&quot;math-container&quot;&gt;$c$&lt;/span&gt;(per capita consumption) and &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;(per capita investment). I am assuming at &lt;span class=&quot;math-container&quot;&gt;$t=t_0$&lt;/span&gt; the savings rate is increased. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The consumption per capita initially will fall because the savings rate has increased. Eventually it must go above the initial per capita consumption because of the Golden Rule condition.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Cheers!&lt;/p&gt;&#xA;" OwnerUserId="21361" LastEditorUserId="21361" LastEditDate="2019-04-15T10:18:55.447" LastActivityDate="2019-04-15T10:18:55.447" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27777" PostTypeId="2" ParentId="27773" CreationDate="2019-04-13T11:38:55.797" Score="2" Body="&lt;p&gt;There is a proposition that says:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;If there is a function &lt;span class=&quot;math-container&quot;&gt;$u: X \rightarrow \mathbb{R}$&lt;/span&gt; that represents the preference relation &lt;span class=&quot;math-container&quot;&gt;$\succsim$&lt;/span&gt;, then &lt;span class=&quot;math-container&quot;&gt;$\succsim$&lt;/span&gt; is rational.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So, the contrapositive form of this statement is:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;If &lt;span class=&quot;math-container&quot;&gt;$\succsim$&lt;/span&gt; isn't rational, then all functions &lt;span class=&quot;math-container&quot;&gt;$u$&lt;/span&gt; don't represent &lt;span class=&quot;math-container&quot;&gt;$\succsim$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So, it's a good approach to create a preference relation that isn't rational, i.e., the preference must violate transitivity or completeness.&lt;/p&gt;&#xA;" OwnerUserId="20068" LastActivityDate="2019-04-13T11:38:55.797" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27779" PostTypeId="1" AcceptedAnswerId="27780" CreationDate="2019-04-13T16:01:53.873" Score="1" ViewCount="49" Body="&lt;p&gt;I am reading this book shoe dog by phil knight. There is mention of equity in one  of the pages where the banker says *Your rate of growth is too fast for your equity *  It is very confusing. From what i have read from google i understand that Equity= Assets - liabilities. Moreover , Assets increase when the sales of a product increase.I want to know how the sales increase is dangerous for equity. &lt;a href=&quot;https://i.stack.imgur.com/y8Taa.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;There is this excerpt from the book.&lt;/a&gt;]&lt;a href=&quot;https://i.stack.imgur.com/y8Taa.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;1&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="21816" LastActivityDate="2019-04-14T09:17:37.327" Title="Equity and increase in sales" Tags="&lt;economic-growth&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27780" PostTypeId="2" ParentId="27779" CreationDate="2019-04-13T22:07:39.967" Score="1" Body="&lt;p&gt;Here is a reason why growth of a firm's sales could be too fast.  Suppose the volume of sales of the firm's product is &lt;span class=&quot;math-container&quot;&gt;$N$&lt;/span&gt; in period 0 and &lt;span class=&quot;math-container&quot;&gt;$N+\Delta$&lt;/span&gt; in period 1. Suppose also that each unit of product sells for &lt;span class=&quot;math-container&quot;&gt;$P$&lt;/span&gt;, and the cost of the inputs for one unit is &lt;span class=&quot;math-container&quot;&gt;$cP$&lt;/span&gt; where &lt;span class=&quot;math-container&quot;&gt;$0 &amp;lt; c &amp;lt; 1$&lt;/span&gt;.  Thus the profit per unit is &lt;span class=&quot;math-container&quot;&gt;$(1-c)P$&lt;/span&gt;, and total profit is &lt;span class=&quot;math-container&quot;&gt;$N(1-c)P$&lt;/span&gt; in period 0 and &lt;span class=&quot;math-container&quot;&gt;$(N+\Delta)(1-c)P$&lt;/span&gt; in period 1.  So far that looks satisfactory.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But suppose further that (as is quite possible) there is a lag of one period between purchase of the inputs to produce a unit and sale of that unit.  To keep things simple, assume there is no credit allowed on either purchases or sales, so that the cash outflow for the purchases occurs one period before the cash inflow from the associated sale.  Then in period 0 the cash inflow for period 0 sales is &lt;span class=&quot;math-container&quot;&gt;$NP$&lt;/span&gt; while the cash outflow for the inputs for the &lt;em&gt;period 1&lt;/em&gt; sales is &lt;span class=&quot;math-container&quot;&gt;$(N+\Delta)cP$&lt;/span&gt;.  Thus net cash inflow in period 0 (&lt;span class=&quot;math-container&quot;&gt;$NCI_0$&lt;/span&gt;) is given by:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$NCI_0 = NP - (N+\Delta)cP = [N - (N+\Delta)c]P$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The condition for this to be positive is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$N &amp;gt; (N+\Delta)c$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which is equivalent to:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ \Delta &amp;lt; \frac{N(1-c)}{c}\qquad(A)$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If sales growth is sufficiently fast that relation &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt; does &lt;em&gt;not&lt;/em&gt; hold, then, despite the firm being profitable, there will be a net cash outflow in period 0, and if such sales growth continues over many periods, there will be a continuing net cash outflow.  The question then is whether the firm can finance the cash outflow for long enough to see it through until a time when sales become more stable so that its profits begin to be realised in cashflow terms.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finance could in principle be via either equity or debt.  However, a growing firm is unlikely in practice to be able to obtain debt finance unless the lender is satisfied that the firm's owners are risking their own equity to a sufficient degree.  It is possible therefore for a firm's sales to be growing at a faster rate than it is likely to be able to finance given its level of equity.&lt;/p&gt;&#xA;" OwnerUserId="1417" LastEditorUserId="1417" LastEditDate="2019-04-14T09:17:37.327" LastActivityDate="2019-04-14T09:17:37.327" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27781" PostTypeId="1" CreationDate="2019-04-14T01:50:35.110" Score="3" ViewCount="310" Body="&lt;p&gt;I am trying to replicate the results of Mankiw, Romer and Weil 1992, and cannot seem to find the original data.&lt;/p&gt;&#xA;" OwnerUserId="21817" LastEditorUserId="1601" LastEditDate="2019-04-14T05:40:07.430" LastActivityDate="2019-04-15T15:34:06.247" Title="Data Set for Mankiw, Romer, and Weil 1992" Tags="&lt;macroeconomics&gt;&lt;data-request&gt;&lt;solow&gt;&lt;replication&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27782" PostTypeId="2" ParentId="27483" CreationDate="2019-04-14T09:21:23.547" Score="2" Body="&lt;p&gt;The &amp;quot;trick&amp;quot; is to identify an equilibrium action where you know (or can pin-down) the payoff. You can then impose indifference between this action's known payoff and the payoffs from other actions (which will depend on the mixing probabilities) to determine those equilibrium mixing probabilities.&lt;/p&gt;&#xA;&lt;p&gt;A nice example can be found in a Varian's &amp;quot;&lt;a href=&quot;https://www.jstor.org/stable/1803562?seq=1#page_scan_tab_contents&quot; rel=&quot;nofollow noreferrer&quot;&gt;A Model of Sales&lt;/a&gt;&amp;quot;. Let me describe a simple version of that model before discussing what it teaches us about finding continuous mixed equilibria.&lt;/p&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;&lt;strong&gt;Set up&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;p&gt;Two firms each set a price, &lt;span class=&quot;math-container&quot;&gt;$p_i$&lt;/span&gt;, for a homogeneous product they product at zero cost. There is a continuum of consumers, each willing to pay up to &lt;span class=&quot;math-container&quot;&gt;$v$&lt;/span&gt; for the product.&lt;/p&gt;&#xA;&lt;p&gt;A fraction &lt;span class=&quot;math-container&quot;&gt;$a$&lt;/span&gt; of the consumers (call them &amp;quot;shoppers&amp;quot;) will buy from whichever firm sets the lowest price (breaking ties randomly). A fraction &lt;span class=&quot;math-container&quot;&gt;$\frac{1-a}{2}$&lt;/span&gt; of the consumers (call them &amp;quot;1's captives&amp;quot;) always buy from firm &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt; (as long as &lt;span class=&quot;math-container&quot;&gt;$p_1&amp;lt;v$&lt;/span&gt;). The final  &lt;span class=&quot;math-container&quot;&gt;$\frac{1-a}{2}$&lt;/span&gt; of the consumers (call them &amp;quot;2's captives&amp;quot;) always buy from firm &lt;span class=&quot;math-container&quot;&gt;$2$&lt;/span&gt; (as long as &lt;span class=&quot;math-container&quot;&gt;$p_2&amp;lt;v$&lt;/span&gt;).&lt;/p&gt;&#xA;&lt;p&gt;You should be able to quickly check that this game has no pure strategy equilibrium (think about why we can't have an equilibrium with &lt;span class=&quot;math-container&quot;&gt;$0&amp;lt;p_1&amp;lt;p_2$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$0&amp;lt;p_1=p_2$&lt;/span&gt;, or &lt;span class=&quot;math-container&quot;&gt;$0=p_1=p_2$&lt;/span&gt;).&lt;/p&gt;&#xA;&lt;p&gt;Thus, we look for a mixed strategy equilibrium where prices are drawn from the distribution &lt;span class=&quot;math-container&quot;&gt;$F$&lt;/span&gt;. Let the support of &lt;span class=&quot;math-container&quot;&gt;$F$&lt;/span&gt; (i.e., the range of prices over which firms mix) be &lt;span class=&quot;math-container&quot;&gt;$[\underline{p},\overline{p}]$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;p&gt;No firm will ever choose &lt;span class=&quot;math-container&quot;&gt;$p_i&amp;gt;v$&lt;/span&gt; because it then serves no consumers, but could earn a profit of &lt;span class=&quot;math-container&quot;&gt;$v(1-a)/2$&lt;/span&gt; by serving its captives at a price of &lt;span class=&quot;math-container&quot;&gt;$v$&lt;/span&gt;. Thus, &lt;span class=&quot;math-container&quot;&gt;$\overline{p}\leq v$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;p&gt;A firm's profit if it sets price &lt;span class=&quot;math-container&quot;&gt;$p$&lt;/span&gt; is&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\frac{1-a}{2}p+ap[1-F(p)].$$&lt;/span&gt;&#xA;The first term is the profit from captives (who the firm serves for sure). The second term is the profit from shoppers, who are served only if the rival firm sets a higher prices (which happens with probability &lt;span class=&quot;math-container&quot;&gt;$1-F(p)$&lt;/span&gt;).&lt;/p&gt;&#xA;&lt;p&gt;&lt;strong&gt;Finding the mixed-strategy equilibrium&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;p&gt;We know that if the firm is to mix over prices &lt;span class=&quot;math-container&quot;&gt;$p$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\overline{p}$&lt;/span&gt; then it must be indifferent:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\frac{1-a}{2}p+ap[1-F(p)]=\frac{1-a}{2}\overline{p}+a\overline{p}[1-F(\overline{p})].$$&lt;/span&gt;&#xA;Notice that if we could eliminate the &lt;span class=&quot;math-container&quot;&gt;$\overline{p}$&lt;/span&gt; terms from the right-hand side then we would have an equation that could be solved for the equilibrium strategy, &lt;span class=&quot;math-container&quot;&gt;$F$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;The next part is the key to being able to find the equilibrium, so I'll put it in a box:&lt;/p&gt;&#xA;&lt;p&gt;Let's think about what happens when a firm sets &lt;span class=&quot;math-container&quot;&gt;$p_i=\overline{p}$&lt;/span&gt;. Because &lt;span class=&quot;math-container&quot;&gt;$\overline{p}$&lt;/span&gt; is the highest price ever charged in equilibrium, we know that the firm never serves the shoppers at that price (i.e., &lt;span class=&quot;math-container&quot;&gt;$F(\overline{p})=1$&lt;/span&gt;). Moreover, since the firm serves only its captives who will buy at any price below &lt;span class=&quot;math-container&quot;&gt;$v$&lt;/span&gt;, it must be the case that &lt;span class=&quot;math-container&quot;&gt;$\overline{p}=v$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;We therefore know that:&lt;/p&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;span class=&quot;math-container&quot;&gt;$\overline{p}$&lt;/span&gt; is in the support of &lt;span class=&quot;math-container&quot;&gt;$F$&lt;/span&gt;, meaning firms must be indifferent between &lt;span class=&quot;math-container&quot;&gt;$\overline{p}$&lt;/span&gt; and any other price&lt;/li&gt;&#xA;&lt;li&gt;&lt;span class=&quot;math-container&quot;&gt;$\overline{p}$&lt;/span&gt; results in profit &lt;span class=&quot;math-container&quot;&gt;$\frac{1-a}{2}\overline{p}$&lt;/span&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;span class=&quot;math-container&quot;&gt;$\overline{p}=v.$&lt;/span&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;p&gt;Putting these facts together with the indifference condition, we have&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\frac{1-a}{2}p+ap[1-F(p)]=\frac{1-a}{2}v,$$&lt;/span&gt;&#xA;which implies&#xA;&lt;span class=&quot;math-container&quot;&gt;$$F(p)=1-\frac{\frac{1-a}{2}(v-p)}{ap},$$&lt;/span&gt;&#xA;which is our mixed strategy equilibrium. The only part of the equilibrium we haven't solved is the value of &lt;span class=&quot;math-container&quot;&gt;$\underline{p}$&lt;/span&gt;. But this is easily found by solving &lt;span class=&quot;math-container&quot;&gt;$F(\underline{p})=0$&lt;/span&gt; for  &lt;span class=&quot;math-container&quot;&gt;$\underline{p}$&lt;/span&gt; now that we know &lt;span class=&quot;math-container&quot;&gt;$F(\cdot)$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;&lt;strong&gt;Final remarks&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;p&gt;The trick used in the above example is pretty useful more generally.&lt;/p&gt;&#xA;&lt;p&gt;Unless the equilibrium strategy, &lt;span class=&quot;math-container&quot;&gt;$F$&lt;/span&gt;, has an atom, we know by definition that &lt;span class=&quot;math-container&quot;&gt;$F(\underline{p})=0$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$F(\overline{p})=1$&lt;/span&gt;. Thus, if we can use &lt;em&gt;economic reasoning&lt;/em&gt; to determine the value of either &lt;span class=&quot;math-container&quot;&gt;$\overline{p}$&lt;/span&gt; or &lt;span class=&quot;math-container&quot;&gt;$\underline{p}$&lt;/span&gt; (as in the box above) then we can eliminate all of the terms that depend on &lt;span class=&quot;math-container&quot;&gt;$\overline{p}$&lt;/span&gt; (or &lt;span class=&quot;math-container&quot;&gt;$\underline{p}$&lt;/span&gt;) on the right hand side of our indifference equation and then solve for &lt;span class=&quot;math-container&quot;&gt;$F$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2019-04-14T09:21:23.547" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27783" PostTypeId="1" CreationDate="2019-04-14T10:53:07.227" Score="0" ViewCount="248" Body="&lt;p&gt;Imagine we have a DGP such that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\Delta \ln y_{it}=\beta\times\Delta\ln x_{it}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How do you interpret the &lt;span class=&quot;math-container&quot;&gt;$\beta$&lt;/span&gt; coefficient, since it is expressed in an approximation of a growth rate?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks for your help&lt;/p&gt;&#xA;" OwnerUserId="21820" LastActivityDate="2019-04-14T22:42:50.977" Title="Interpreting coefficients with Delta ln as independant and dependent variables" Tags="&lt;econometrics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27784" PostTypeId="1" AcceptedAnswerId="27792" CreationDate="2019-04-14T12:01:45.193" Score="4" ViewCount="354" Body="&lt;p&gt;I have a basic doubt on the definition of Bayesian Nash equilibrium. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Consider  the following game:&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) &lt;span class=&quot;math-container&quot;&gt;$N$&lt;/span&gt; players.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) Each player &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; has a type, assigned by nature and denoted by &lt;span class=&quot;math-container&quot;&gt;$\epsilon_i$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\epsilon_i$&lt;/span&gt; can be thought of as a random variable, that is a map from the set of states of the world &lt;span class=&quot;math-container&quot;&gt;$\Omega$&lt;/span&gt; to some real numbers. &#xA;&lt;span class=&quot;math-container&quot;&gt;$Pr$&lt;/span&gt; used below denotes the underlying &quot;true&quot; probability measure used by nature.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let &lt;span class=&quot;math-container&quot;&gt;$E_i$&lt;/span&gt; denote the support of &lt;span class=&quot;math-container&quot;&gt;$\epsilon_i$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Information structure assumption (minimal information):&lt;/strong&gt; Assume that player &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; only knows which is her own type. &#xA;Assume also that the random variables &lt;span class=&quot;math-container&quot;&gt;$\epsilon_1,...,\epsilon_N$&lt;/span&gt; are mutually independent. This implies that, by knowing her own type, a player does not get useful information about the other players' types.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;3) Each player &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; has to choose from a finite set of actions &lt;span class=&quot;math-container&quot;&gt;$A_i$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;4) &lt;span class=&quot;math-container&quot;&gt;$u_i: E_i\times (A_1\times ... \times A_N)\rightarrow \mathbb{R}$&lt;/span&gt; is the utility of player &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;5)  A pure strategy of player &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; is a function &lt;span class=&quot;math-container&quot;&gt;$s_i: E_i\rightarrow A_i$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;What is the exact definition of Bayesian Nash equilibrium? Below is what I understood, with four questions.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let &lt;span class=&quot;math-container&quot;&gt;$\sigma_{a_j}$&lt;/span&gt; be the belief of player &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; that player &lt;span class=&quot;math-container&quot;&gt;$j$&lt;/span&gt; will play &lt;span class=&quot;math-container&quot;&gt;$a_j$&lt;/span&gt; conditional on &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;'s information set (that is &lt;span class=&quot;math-container&quot;&gt;$\epsilon_i$&lt;/span&gt;). Note that &lt;span class=&quot;math-container&quot;&gt;$\sigma_{a_j}$&lt;/span&gt; is not indexed by &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;: player &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; and player &lt;span class=&quot;math-container&quot;&gt;$k$&lt;/span&gt; have the same belief that player &lt;span class=&quot;math-container&quot;&gt;$j$&lt;/span&gt; will play &lt;span class=&quot;math-container&quot;&gt;$a_j$&lt;/span&gt;, because types are mutually independent.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let &lt;span class=&quot;math-container&quot;&gt;$\sigma$&lt;/span&gt; be the vector collecting all such beliefs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given &lt;span class=&quot;math-container&quot;&gt;$\sigma$&lt;/span&gt;, let &lt;span class=&quot;math-container&quot;&gt;$(s^\sigma_1,...,s^\sigma_N)$&lt;/span&gt; be the vector of pure strategies such that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;(1)\hspace{1cm}s^\sigma_i=\text{argmax}_{s_i} \mathbb{E}_{\sigma}\Big[u_i(s_i(E_i),A_{-i})\Big|E_i\Big] \hspace{1cm} \forall i&#xA;$$&lt;/span&gt;&#xA;where &lt;span class=&quot;math-container&quot;&gt;$\mathbb{E}_{\sigma}$&lt;/span&gt; is the expectation wrto to &lt;span class=&quot;math-container&quot;&gt;$A_{-i}$&lt;/span&gt; computed using &lt;span class=&quot;math-container&quot;&gt;$\sigma$&lt;/span&gt;. Here I guess we are assuming that &lt;span class=&quot;math-container&quot;&gt;$(s^\sigma_1,...,s^\sigma_N)$&lt;/span&gt; exists. It may not exist, in which case we can use the notion of mixed strategy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let &lt;span class=&quot;math-container&quot;&gt;$\sigma^*$&lt;/span&gt; be a solution of the following system (assume it exists, again)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;(2)\hspace{1cm}\sigma_{a_i}=Pr(\text{$E_i$ takes a value such that $s_i^\sigma=a_i$}) \hspace{1cm} \forall a_i\in A_i,\forall i&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Question A)&lt;/strong&gt; We say that &lt;span class=&quot;math-container&quot;&gt;$\sigma^*$&lt;/span&gt; is a Bayesian Nash equilibrium of the game. Is this correct?  Or is it &lt;span class=&quot;math-container&quot;&gt;$(s^{\sigma^*}_1,...,s^{\sigma^*}_N)$&lt;/span&gt;? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Question B)&lt;/strong&gt; Is &lt;span class=&quot;math-container&quot;&gt;$\sigma^*$&lt;/span&gt; a &quot;mixed strategy equilibrium&quot; (sorry if this is incorrect or sloppy, I've put &quot;...&quot; on purpose)? I'm very confused regarding this point. On one hand, &lt;span class=&quot;math-container&quot;&gt;$\sigma^*$&lt;/span&gt; is a probability distribution over actions; hence, one could think that each player chooses the actual action in a lottery based on &lt;span class=&quot;math-container&quot;&gt;$\sigma^*$&lt;/span&gt;. On the other hand, &lt;span class=&quot;math-container&quot;&gt;$(s^{\sigma^*}_1,...,s^{\sigma^*}_N)$&lt;/span&gt; tells exactly what each player should actually play for a given realisation of &lt;span class=&quot;math-container&quot;&gt;$(\epsilon_1,...,\epsilon_N)$&lt;/span&gt;; hence, there is no lottery! &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Question C)&lt;/strong&gt; Sometimes, when describing a game with incomplete information, people also assume that each player &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; has a prior &lt;span class=&quot;math-container&quot;&gt;$\mu_i$&lt;/span&gt; regarding the probability distribution of &lt;span class=&quot;math-container&quot;&gt;$\epsilon_{-i}$&lt;/span&gt;. Is this somehow implicitly embedded into my characterisation of the belief vector &lt;span class=&quot;math-container&quot;&gt;$\sigma$&lt;/span&gt;?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Question D)&lt;/strong&gt; Now suppose that we are being agnostic about the information structure of the game: we could have complete information, or minimal information (as above), or hybrid cases between these two extremes.&#xA;We know that each player &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; receives a more or less informative random signal &lt;span class=&quot;math-container&quot;&gt;$\tau_i$&lt;/span&gt; about &lt;span class=&quot;math-container&quot;&gt;$\epsilon_{-i}$&lt;/span&gt; with support &lt;span class=&quot;math-container&quot;&gt;$T_i$&lt;/span&gt;.&#xA; Can we still define a Bayesian equilibrium of such &quot;relaxed&quot; game? In a book I'm reading, a Bayesian equilibrium of the &quot;relaxed&quot; game is defined as a map&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\sigma \equiv \Pi_{i=1}^n \sigma_i\text{, where $\sigma_i\equiv (\sigma^{a_i}_i \text{ }\forall a_i\in A_i) $ and $\underbrace{\sigma^{a_i}_i: E_i\times T_i \rightarrow [0,1]}_{\text{for each realisation of $\epsilon_i, \tau_i$ it gives the probability that player $i$ plays $a_i$}}$} &#xA;$$&lt;/span&gt;&#xA;Does this sound correct to you? Does writing &lt;span class=&quot;math-container&quot;&gt;$\sigma \equiv \Pi_{i=1}^n \sigma_i$&lt;/span&gt; underlie some implicit assumptions on independence or similar? How do we find &lt;span class=&quot;math-container&quot;&gt;$\sigma$&lt;/span&gt; (i.e., what should it solve)? &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Update following answer below:&lt;/strong&gt; &#xA;&lt;strong&gt;Thanks for the answer. To be sure I understood, let me update my example according to your explanations.&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume there exists a pure strategy equilibrium. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, given the belief of player &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; regarding the other players' actions (&lt;span class=&quot;math-container&quot;&gt;$\mu_i$&lt;/span&gt;), I define player &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;'s pure strategy as the function &lt;span class=&quot;math-container&quot;&gt;$s_i: E_i \rightarrow A_i$&lt;/span&gt;. Also, &lt;span class=&quot;math-container&quot;&gt;$s\equiv (s_1,..., s_N)$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Second, given the pure strategy adopted by the other players (&lt;span class=&quot;math-container&quot;&gt;$s_{-i}$&lt;/span&gt;),&lt;br&gt;&#xA;I define the belief of player &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; regarding player &lt;span class=&quot;math-container&quot;&gt;$j$&lt;/span&gt;'s action as the function &lt;span class=&quot;math-container&quot;&gt;$\mu^{j}_{i}: E_i \rightarrow \Delta(A_j)$&lt;/span&gt;. Let &lt;span class=&quot;math-container&quot;&gt;$\mu^{a_j}_i$&lt;/span&gt; denote the &lt;span class=&quot;math-container&quot;&gt;$a_j$&lt;/span&gt;th function component of &lt;span class=&quot;math-container&quot;&gt;$\mu^{j}_{i}$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I assume players form beliefs using the true probability distribution of types adopted by nature. &#xA;Hence, &lt;span class=&quot;math-container&quot;&gt;$\mu^{a_j}_{i}(\epsilon_i)= Pr(s_j(\epsilon_j)=a_j| \epsilon_i)\overbrace{=}^{\epsilon_i\perp \epsilon_j} =Pr(s_j(\epsilon_j)=a_j)\equiv \sigma_{a_j}\in [0,1]$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Notice that the function &lt;span class=&quot;math-container&quot;&gt;$\mu^{j}_{i}$&lt;/span&gt; is flat on &lt;span class=&quot;math-container&quot;&gt;$E_i$&lt;/span&gt; (because types are mutually independent) and &lt;span class=&quot;math-container&quot;&gt;$\mu^j_i=\mu^j_k$&lt;/span&gt; (because all players  form beliefs using the true probability distribution of types adopted by nature). Also, I assume that players do not coordinate, so that &lt;span class=&quot;math-container&quot;&gt;$\mu^{-i}_i=\Pi_{j\neq i} \mu^j_i$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now I define a Bayesian Nash equilibrium. Let &lt;span class=&quot;math-container&quot;&gt;$\sigma^*_i\in \Delta(A_i)$&lt;/span&gt; (with &lt;span class=&quot;math-container&quot;&gt;$\sigma^*_{a_i}$&lt;/span&gt; denoting the &lt;span class=&quot;math-container&quot;&gt;$a_i$&lt;/span&gt;th component) and &lt;span class=&quot;math-container&quot;&gt;$\sigma^*\equiv (\sigma^*_1,..., \sigma^*_N)$&lt;/span&gt;. &lt;span class=&quot;math-container&quot;&gt;$(\sigma^*,s^*)$&lt;/span&gt; is a Bayesian Nash equilibrium if &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\begin{cases} s^*_i(\epsilon_i)=argmax_{s_i(\epsilon_i)} \mathbb{E}_{\sigma^*}(u_i(s_i(\epsilon_i), s^*_{-i}(\epsilon_{-i})| \epsilon_i) &amp;amp; \forall i \\ \sigma^*_{a_i}= Pr(s^*_i(\epsilon_i)=a_i) &amp;amp; \forall a_i\in A_i, \forall i\end{cases}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;(I) Is this recap correct?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, let's remove the assumption that types are mutually independent (but still we maintain that pure strategy equilibrium exists). We need to slightly modify the definition of beliefs. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given the pure strategy adopted by the other players (&lt;span class=&quot;math-container&quot;&gt;$s_{-i}$&lt;/span&gt;),  I define the belief of player &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; regarding player &lt;span class=&quot;math-container&quot;&gt;$j$&lt;/span&gt;'s action as the function &lt;span class=&quot;math-container&quot;&gt;$\mu^{j}_{i}: E_i \rightarrow \Delta(A_i)$&lt;/span&gt;, where  &lt;span class=&quot;math-container&quot;&gt;$\mu^{a_j}_{i}(\epsilon_i)= Pr(s_j(\epsilon_j)=a_j| \epsilon_i)$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now I define a Bayesian Nash equilibrium. Let &lt;span class=&quot;math-container&quot;&gt;$\sigma^{i,*}_j: E_i\rightarrow \Delta(A_j) $&lt;/span&gt;. &#xA;Let &lt;span class=&quot;math-container&quot;&gt;$\sigma^{i,*}\equiv (\sigma^{i,*}_1,..., \sigma^{i,*}_N)$&lt;/span&gt;. Let &lt;span class=&quot;math-container&quot;&gt;$\sigma^*\equiv (\sigma^{1,*},..., \sigma^{N,*})$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$(\sigma^*,s^*)$&lt;/span&gt; is a Bayesian Nash equilibrium if &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\begin{cases} s^*_i=argmax_{s_i} \mathbb{E}_{\sigma^{i,*}}(u_i(s_i(\epsilon_i), s^*_{-i}(\epsilon_{-i})| \epsilon_i) &amp;amp; \forall i \\ &#xA;\sigma^{i,*}_{a_j}(\epsilon_i)= Pr(s^*_j(\epsilon_j)=a_j|\epsilon_i) &amp;amp; \forall i, \forall a_j\in A_j,\forall j\neq i &#xA;\end{cases}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;(II) Is this second scenario analysed correctly?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;(III) Following your definition of Bayesian Nash equilibrium, I think that &lt;span class=&quot;math-container&quot;&gt;$s^*$&lt;/span&gt; is what you call &quot;SET OF STRATEGIES&quot; and &lt;span class=&quot;math-container&quot;&gt;$\sigma^*$&lt;/span&gt; is what you call &quot;SET OF BELIEFS&quot;, correct?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;(IV) I have a last doubt: take a game where we remain agnostic about the information structure, i.e., we could have complete information, or minimal information (as above), or hybrid cases between these two extremes.&#xA;We know that, before taking a decision, each player &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; receives a  realisation of more or less informative random signal &lt;span class=&quot;math-container&quot;&gt;$\tau_i$&lt;/span&gt; about &lt;span class=&quot;math-container&quot;&gt;$\epsilon_{-i}$&lt;/span&gt; with support &lt;span class=&quot;math-container&quot;&gt;$T_i$&lt;/span&gt;. Upon receiving such a realisation, each player &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; updates her prior beliefs. Are we still assuming that, under any information structure, each player knows fully &lt;span class=&quot;math-container&quot;&gt;$Pr$&lt;/span&gt; so that he can update &quot;correctly&quot; her prior?&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="1505" LastEditorUserId="1505" LastEditDate="2019-04-15T19:45:14.427" LastActivityDate="2019-04-15T19:45:14.427" Title="Definition of Bayesian Nash equilibrium" Tags="&lt;game-theory&gt;&lt;nash-equilibrium&gt;&lt;bayesian-game&gt;&lt;asymmetric-information&gt;" AnswerCount="1" CommentCount="3" FavoriteCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27785" PostTypeId="1" CreationDate="2019-04-14T17:49:21.463" Score="1" ViewCount="10" Body="&lt;p&gt;Does anyone know if there are unified cure models (aka split population models) in time-until-employment studies that combine the mixture cure approach with the promotion time approach as described in this paper in epidemiology: &lt;a href=&quot;https://journals.sagepub.com/doi/abs/10.1177/1471082x0800900202&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://journals.sagepub.com/doi/abs/10.1177/1471082x0800900202&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="21822" LastEditorUserId="1601" LastEditDate="2019-04-14T18:00:08.320" LastActivityDate="2019-04-14T18:00:08.320" Title="Have any economics papers used unified cure models?" Tags="&lt;microeconomics&gt;&lt;reference-request&gt;&lt;labor-economics&gt;&lt;unemployment&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27786" PostTypeId="2" ParentId="24335" CreationDate="2019-04-14T19:06:48.300" Score="2" Body="&lt;p&gt;I don't know what is the definition of the &amp;quot;law of DMRS&amp;quot;, but I think what the author meant is summarized in these lines of MWG:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Proposition 3.G.2: suppose that &lt;span class=&quot;math-container&quot;&gt;$u(\cdot)$&lt;/span&gt; is a continuous utility function representing a locally nonsatiated and strictly convex preference relation &lt;span class=&quot;math-container&quot;&gt;$\succsim$&lt;/span&gt; defined on &lt;span class=&quot;math-container&quot;&gt;$\mathbb{R}^L_+$&lt;/span&gt;. Suppose also that &lt;span class=&quot;math-container&quot;&gt;$h(\cdot, u)$&lt;/span&gt; [the hicksian demand function] is continuously differentiable at &lt;span class=&quot;math-container&quot;&gt;$(p, u)$&lt;/span&gt;, and denote its &lt;span class=&quot;math-container&quot;&gt;$L\times L$&lt;/span&gt; derivative matrix [with respect to each &lt;span class=&quot;math-container&quot;&gt;$p$&lt;/span&gt;] by &lt;span class=&quot;math-container&quot;&gt;$D_p h(p, u)$&lt;/span&gt;. Then&lt;/p&gt;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$D_p h(p, u)$&lt;/span&gt; is a negative semidefinite matrix.&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$D_p h(p, u) p = 0$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Well, 1 implies that the elements of the main diagonal of the matrix are all non positive, i.e. &lt;span class=&quot;math-container&quot;&gt;$\frac{\partial h_l (p, u)}{\partial p_l} \leq 0$&lt;/span&gt; for each &lt;span class=&quot;math-container&quot;&gt;$l$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;p&gt;We say that two goods are substitutes if &lt;span class=&quot;math-container&quot;&gt;$\frac{\partial h_l (p, u)}{\partial p_k} \geq 0$&lt;/span&gt; (a positive variation in the price of &lt;span class=&quot;math-container&quot;&gt;$k$&lt;/span&gt; implies an increase in the compensated demand of &lt;span class=&quot;math-container&quot;&gt;$l$&lt;/span&gt;).&lt;/p&gt;&#xA;&lt;p&gt;Part 2 of the proposition says that &lt;span class=&quot;math-container&quot;&gt;$D_p h(p, u) p = 0$&lt;/span&gt;. But as &lt;span class=&quot;math-container&quot;&gt;$\frac{\partial h_l (p, u)}{\partial p_l} \leq 0$&lt;/span&gt;, for every &lt;span class=&quot;math-container&quot;&gt;$l$&lt;/span&gt; we must have a good &lt;span class=&quot;math-container&quot;&gt;$m$&lt;/span&gt; such that &lt;span class=&quot;math-container&quot;&gt;$\frac{\partial h_l (p, u)}{\partial p_m} \geq 0$&lt;/span&gt;, which means exactly that every good has a substitute.&lt;/p&gt;&#xA;" OwnerUserId="20068" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2019-04-14T19:06:48.300" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27787" PostTypeId="1" CreationDate="2019-04-14T19:12:43.877" Score="1" ViewCount="46" Body="&lt;p&gt;I had some difficulty in understanding this paragraph in an article explaining the movie, 'The Big Short':&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Most of us when buying a house take out a loan (mortgage) and pay back&#xA;  the purchase price over time. &lt;strong&gt;We also usually hope that the value of&#xA;  the house we buy will go up not down.&lt;/strong&gt; In the US, many people had&#xA;  come to assume that house prices would always rise, because they’d&#xA;  risen without fail for many years. This attitude saw mortgage lenders&#xA;  offering riskier and riskier loans to people &lt;strong&gt;who’d only be able to&#xA;  make payments if the price of their house continued to increase.&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.ecnmy.org/engage/the-big-short/&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.ecnmy.org/engage/the-big-short/&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="21824" LastEditorUserId="12304" LastEditDate="2019-04-14T21:30:50.047" LastActivityDate="2019-04-15T05:18:39.373" Title="I bought a house on a mortgage. If its price changes later, how will it affect the ease of repaying the loan?" Tags="&lt;housing&gt;&lt;economic-crisis&gt;" AnswerCount="2" CommentCount="0" ClosedDate="2019-04-15T07:14:20.147" ContentLicense="CC BY-SA 4.0" />
  <row Id="27790" PostTypeId="2" ParentId="27783" CreationDate="2019-04-14T20:53:31.993" Score="2" Body="&lt;p&gt;Your equation can be re-written (through the properties of logs) as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\ln(y_{it} / y_{it-1}) = \beta\ln(x_{it} / x_{it-1})&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So it becomes a log-log regression equation.  In this form, it means that if we change the ratio of &lt;span class=&quot;math-container&quot;&gt;$x_{it}$&lt;/span&gt; to &lt;span class=&quot;math-container&quot;&gt;$x_{it-1}$&lt;/span&gt; by one percent, the ratio of &lt;span class=&quot;math-container&quot;&gt;$y_{it}$&lt;/span&gt; to &lt;span class=&quot;math-container&quot;&gt;$y_{it-1}$&lt;/span&gt; will change by &lt;span class=&quot;math-container&quot;&gt;$\beta$&lt;/span&gt; percent, on average.  In other words, if &lt;span class=&quot;math-container&quot;&gt;$x_{i}$&lt;/span&gt; grows by one percent between two periods, &lt;span class=&quot;math-container&quot;&gt;$y_{i}$&lt;/span&gt; is expected to grow by &lt;span class=&quot;math-container&quot;&gt;$\beta$&lt;/span&gt; percent in that same time span. &lt;/p&gt;&#xA;" OwnerUserId="21454" LastEditorUserId="21454" LastEditDate="2019-04-14T22:42:50.977" LastActivityDate="2019-04-14T22:42:50.977" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27791" PostTypeId="2" ParentId="25375" CreationDate="2019-04-14T22:54:13.217" Score="0" Body="&lt;p&gt;As afreelunch only answered in the comment section, I'll answer it here.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The SPNE (Subgame Perfect Nash Equilibrium) is a refinement of the NE (Nash Equilibrium). So, let's call &lt;span class=&quot;math-container&quot;&gt;$S$&lt;/span&gt; the set of all SPNE and &lt;span class=&quot;math-container&quot;&gt;$N$&lt;/span&gt; the set of all NE in a game. Then:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$S \subseteq N.$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the sequential game has only one subgame (see the subgame definition &lt;a href=&quot;https://en.wikipedia.org/wiki/Subgame&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;), the game itself, then we will have. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$S = N.$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And my reasoning was right. &lt;/p&gt;&#xA;" OwnerUserId="20068" LastActivityDate="2019-04-14T22:54:13.217" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27792" PostTypeId="2" ParentId="27784" CreationDate="2019-04-14T23:01:28.710" Score="5" Body="&lt;p&gt;Bayesian Nash equilibrium is a set of strategies &lt;span class=&quot;math-container&quot;&gt;$\{\sigma_i\}$&lt;/span&gt; one for each player and some beliefs &lt;span class=&quot;math-container&quot;&gt;$\{\mu_i\}$&lt;/span&gt; also one for each player such that &lt;span class=&quot;math-container&quot;&gt;$\sigma_i$&lt;/span&gt; is a best response for player &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; given his belief, &lt;span class=&quot;math-container&quot;&gt;$\mu_i$&lt;/span&gt;, and the beliefs are Bayesian for all players, given their information. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Each strategy &lt;span class=&quot;math-container&quot;&gt;$\sigma_i$&lt;/span&gt; is a function from the set of types to a (possibly mixed) strategy: &lt;span class=&quot;math-container&quot;&gt;$\sigma_{a_i}: E_i\rightarrow \Delta(A_i)$&lt;/span&gt; I'm using &lt;span class=&quot;math-container&quot;&gt;$\Delta$&lt;/span&gt; to denote that it is a probability distribution over actions. So that for any element &lt;span class=&quot;math-container&quot;&gt;$\epsilon_i$&lt;/span&gt; the function &lt;span class=&quot;math-container&quot;&gt;$\sigma_{a_i}(\epsilon_i)$&lt;/span&gt; gives you the probability with which each action is played by player &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; (let &lt;span class=&quot;math-container&quot;&gt;$\sigma$&lt;/span&gt; denote the vector of all such functions). Note that for players to find their best responses they need to form beliefs about what other players are doing. In equilibrium those beliefs are correct, so they know that other players are using the strategies &lt;span class=&quot;math-container&quot;&gt;$\{\sigma_j\}$&lt;/span&gt; Hence the expectation in the definition you gave (which only work for pure strategies, but can easily be extended to mixed strategies). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The expectation is taken because even though you know &lt;span class=&quot;math-container&quot;&gt;$\sigma$&lt;/span&gt;, the other players might be using mixed strategies. Furthermore, even if all players are choosing pure strategies, you only know they are using &lt;span class=&quot;math-container&quot;&gt;$\sigma$&lt;/span&gt; which tells you their best response given their type. But you don't know their type, so you need to take expectations over that. That is where &lt;span class=&quot;math-container&quot;&gt;$\mu$&lt;/span&gt; comes in because you need to form beliefs about the other player's types. Here, since types are independent, learning your type provides no information about other players' types, so the prior is equal to the posterior. Thus, beliefs are Bayesian if you compute the expected value (in your first equation) according to the &quot;true&quot; probability with which nature chooses types, and the mixed strategies chosen by each player, according to &lt;span class=&quot;math-container&quot;&gt;$\sigma$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Addressing your questions directly:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A) &lt;span class=&quot;math-container&quot;&gt;$\sigma$&lt;/span&gt; is a Bayesian equilibrium. Only if you know that it is in pure strategies, then you can say that &lt;span class=&quot;math-container&quot;&gt;$(s_1^\sigma, \dots, s_N^\sigma)$&lt;/span&gt; is a Bayesian equilibrium. Note that both of them are functions from &lt;span class=&quot;math-container&quot;&gt;$E_i$&lt;/span&gt; to the set of mixed strategies and the set of pure strategiers, respectively.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;B) Hope my discussion above has clarified this. In general you want to think of &lt;span class=&quot;math-container&quot;&gt;$\sigma$&lt;/span&gt; as the equilibrium strategy (pure or mixed) and here it always entails uncertainty, because you don't know other player's types, so you might not know the pure strategy they are using.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;C) The thing about the prior is implicitly assumed in how you compute &lt;span class=&quot;math-container&quot;&gt;$E_{\sigma}(u_i(s_i(E_i), \sigma_{-i}(E_{-i})|E_i)$&lt;/span&gt; because &lt;span class=&quot;math-container&quot;&gt;$A_{-i}$&lt;/span&gt; depends on the other players' types which you don't know, but your belief about their type might depend on your own type.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;D)The notion of Bayesian Nash equilibrium can be used for general information structures, The notation &lt;span class=&quot;math-container&quot;&gt;$\sigma=\prod_{i=1}^n\sigma_i$&lt;/span&gt; is implying that each player chooses their strategy &lt;span class=&quot;math-container&quot;&gt;$\sigma_i$&lt;/span&gt; independently. (players do not collude or coordinate) this is a relatively mild assumption made most of the time. Sometimes it is useful to think that players correlate their actions (this is called a Bayes Correlated Equilibrium). Other than than the notation simply implies that &lt;span class=&quot;math-container&quot;&gt;$\sigma$&lt;/span&gt; is the vector of equilibrium strategies for each player, and each of them is a best response of other player's strategies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope this helps&lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-04-14T23:01:28.710" CommentCount="9" ContentLicense="CC BY-SA 4.0" />
  <row Id="27793" PostTypeId="2" ParentId="27787" CreationDate="2019-04-14T23:06:04.907" Score="1" Body="&lt;p&gt;If a mortaged house decreases its market price after the mortage was made, the bank is in risk in case of default - it might be unable to recover the amount it loaned. In practice this doesn't change the amount you owe to the bank or the monthly payment -  you owe the same regardless of the value of the house after making the mortage. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I believe the author meant that the people the banks were lending to would only be able to afford to pay the mortages if the economy kept on booming, and they would remain employed.&lt;/p&gt;&#xA;" OwnerUserId="12304" LastActivityDate="2019-04-14T23:06:04.907" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27795" PostTypeId="2" ParentId="9729" CreationDate="2019-04-14T23:23:27.850" Score="2" Body="&lt;p&gt;Your definition is missing that in every Bayesian game each player must have a prior &lt;span class=&quot;math-container&quot;&gt;$p_i\in\Delta(\prod_{i\in I}T_i)$&lt;/span&gt; this can be the same for all players (common prior assumption) or different. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that the existence of a prior already imposes restrictions on the types of beliefs a player can entertain (this are called consistent hierarchies of beliefs in the literature, basically this restricts players to think that someone is of type A, but behaves as a type B, or other inconsistencies that are a bit hard to put in English), in any case, players beliefs cannot be schizophrenic.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Bayesian part of it is that their interim beliefs (after they learn their own type) must be Bayesian. For example, they cannot have a prior belief that types are chosen by nature independently and with equal probability, and after learning his type assign probability 1 to some other player being of some type. This would not be Bayesian. Since you defined beliefs at the interim stage, it is hard to see how beliefs are being disciplined. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As other people mentioned, when there is a common prior, you impose further constraints on beliefs being consistent across players, this is not needed for defining a Bayesian game. To that extent, a Bayesian equilibrium only restricts beliefs to not being schizophrenic or inconsistent with learning your type. If the common prior is assumed, it also restricts players to have consistent beliefs with each other. But other than that there is no restriction of what prior beliefs can be, so they can be &quot;wrong&quot;. However, most economists think that beliefs are beliefs and saying that they are wrong is inappropriate. &lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-04-14T23:23:27.850" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27796" PostTypeId="1" AcceptedAnswerId="27798" CreationDate="2019-04-15T01:41:40.187" Score="20" ViewCount="4470" Body="&lt;p&gt;As most active users of this site know, the way the reputation system works is that everyone starts out with 1 reputation and a user can earn more reputation by asking good questions and writing exceptional answers (as well as other methods), and a user can lose reputation by writing bad questions and answers.  This way, users can make a profit or take a loss without taking/giving currency from/to another user.  Can inflation happen with a system like this?  As more reputation is gained, does it mean less?&lt;/p&gt;&#xA;" OwnerUserId="21829" LastEditorUserId="21829" LastEditDate="2019-04-17T20:55:57.790" LastActivityDate="2019-09-26T00:13:11.537" Title="Can inflation occur in a positive-sum game currency system such as the Stack Exchange reputation system?" Tags="&lt;inflation&gt;&lt;currency&gt;&lt;money&gt;" AnswerCount="5" CommentCount="6" FavoriteCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="27798" PostTypeId="2" ParentId="27796" CreationDate="2019-04-15T02:16:51.140" Score="14" Body="&lt;p&gt;In the Stack Exchange reputation &quot;economy&quot;, we can think of the reputation points as &quot;money&quot;. And the &quot;goods&quot; are:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Downvotes — cost 1 point each.&lt;/li&gt;&#xA;&lt;li&gt;Various privileges — zero cost, but unlocked only when the user reaches various thresholds.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;To my knowledge, these prices (1-point cost of each downvote and privilege thresholds) have never changed. And so, there has never been inflation. What has merely happened is that &quot;wealth&quot; (the total stock of reputation points) has kept increasing.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Response to Pere&lt;/strong&gt;, who writes:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Newer sites have lower thresholds for several privileges - for practical reasons - and those thresholds rise as the site expands. For example, being able to create tags &quot;costs&quot; 150 reputation in Economics SE, 300 reputation in Cross Validated SE and 1500 reputation in StackOverflow. Therefore, privilege prices are subject to inflation as sites grow.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Each individual SE site is its own individual &quot;economy&quot; that is sealed off from all other SE sites.¹&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And so, whether &quot;prices&quot; differ &lt;em&gt;across&lt;/em&gt; SE sites does not matter. What matters is whether &quot;prices&quot; have changed &lt;strong&gt;over time&lt;/strong&gt;, &lt;em&gt;within&lt;/em&gt; each SE site. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To my knowledge, the &lt;a href=&quot;https://economics.stackexchange.com/help/privileges&quot;&gt;privilege threshold &quot;prices&quot;&lt;/a&gt; on Economics SE have never changed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And it also seems that for the original, flagship site (Stack Overflow), &quot;prices&quot; have also not changed for many years. We can, for example, compare &lt;a href=&quot;https://stackoverflow.com/help/privileges&quot;&gt;today's&lt;/a&gt; &quot;prices&quot; with those from &lt;a href=&quot;http://web.archive.org/web/20130701032659/https://stackoverflow.com/help/privileges&quot; rel=&quot;nofollow noreferrer&quot;&gt;2013&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/joXhz.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/joXhz.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As you can see, &lt;strong&gt;all prices have remain unchanged since 2013&lt;/strong&gt;. There has therefore been zero inflation since (at least) 2013. The only change is the introduction of a &quot;new good&quot;, namely &quot;Access to site analytics&quot;, which is priced at 25,000 points.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Response to @kbelder&lt;/strong&gt;, who writes:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;What about bounties? I bet those have historically trended upwards in value&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The &quot;prices&quot; of bounties have likewise been fixed. Bounties may be offered at &quot;prices&quot; of 50, 100, 150, ..., and up to 500 points. I believe these prices have been fixed since the inception of Economics SE and at least since 2013 for all SE sites.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Moreover, bounties are pure transfers from one user to another.² It may be true that thanks to increased overall &quot;wealth&quot;, the average value of a bounty has risen (i.e. in the past, most bounties were offered at close to the minimum price of 50; whereas today higher prices are offered). However, we do not consider this &quot;inflation&quot;. Instead, we consider this to be real wealth effects.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Analogy&lt;/strong&gt;: Say that in 1919, the New Yorker on the street might on average give \$0.20 (in 2019 dollars) to a homeless person. In 2019, this might instead be \$1 (in 2019 dollars). The average real transfer from a New Yorker to a homeless person has risen five-fold &lt;strong&gt;in real terms&lt;/strong&gt;. This is not inflation. Instead, it is a consequence of increased overall wealth.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Footnotes.&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;To my knowledge, there is one thing that links reputation points across the various SE sites. This is the automatic +100 points for established user accounts that are &quot;trusted&quot; on the SE network. I'm not sure how this works. But I would say that these +100 points are relatively inconsequential and may be safely ignored. They would perhaps be the real-world equivalent of an immigrations officer giving a &quot;trusted&quot; visitor \$1 the first time that visitor arrived in that country.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;There are actually three things that can happen to a bounty. First, the full bounty is awarded (I believe this is the most common case). Second, half the bounty is awarded to the highest score (&lt;em&gt;provided&lt;/em&gt; that answer has a score of at least +2 — see Economics.SE bounty rules &lt;a href=&quot;https://economics.stackexchange.com/help/bounty&quot;&gt;here&lt;/a&gt;). Third, no bounty is awarded. In the latter two cases, we do not quite have a pure transfer; instead, we have a leaky bucket where either half or all of the points are &quot;lost to society&quot;.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerDisplayName="user18" LastEditorDisplayName="user18" LastEditDate="2019-04-16T01:20:28.093" LastActivityDate="2019-04-16T01:20:28.093" CommentCount="14" ContentLicense="CC BY-SA 4.0" />
  <row Id="27799" PostTypeId="2" ParentId="27787" CreationDate="2019-04-15T05:18:39.373" Score="1" Body="&lt;p&gt;It is because of &lt;em&gt;refinancing&lt;/em&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Banks charge interest to cover costs. Among these costs are the costs of delinquent loans. Suppose your bank has lent you X dollars, and your collateral is a house worth X dollars. The bank has some risk of your loan becoming delinquent. If your chance of delinquency decreases, the bank should be willing to let you pay a lower interest rate. If your house has increased in value to 2X dollars, it is less likely that you will default on your X dollar loan. So the bank could accept a lower interest rate. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Despite being able to do so, I am not sure why the bank would voluntarily accept to take less money. Perhaps it is in the contract that they have to, or you can threaten defaulting or early repayment. (Perhaps it is a subprime mortgage bond and reevaluation is in the bank's interest, as it can sell the bond at a higher price.) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Either way, the bank reassesses your risk and gives you a lower interest rate. Many people taking out loans were expecting this and accepted teaser loans that charged lower interest rates in the first few years of the loan. After these years the interest rates would increase to levels they could not afford - unless they refinanced the loans. They could only do this on good terms if the value of their houses went up.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I could not find an article that explains the basics of refinancing, but here is a paper on its effects:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://hbswk.hbs.edu/item/systemic-risk-and-the-refinancing-ratchet-effect&quot; rel=&quot;nofollow noreferrer&quot;&gt;Systemic Risk and the Refinancing Ratchet Effect&lt;/a&gt; by Khandani, Lo and Merton (2009).&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2019-04-15T05:18:39.373" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27800" PostTypeId="2" ParentId="27796" CreationDate="2019-04-15T07:23:37.627" Score="9" Body="&lt;p&gt;No, there is no inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Inflation is caused by a relative increase in the amount of currency, relative to the amount of scarce goods and services available.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As you note, there is a continuous increase in the amount of &quot;currency&quot; here - reputation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, reputation is not spent on &lt;strong&gt;scarce&lt;/strong&gt; goods and services. There is no meaningful limit on the number of people who can attain any given rep-based privilege. So the rep-level for a given privilege does not need to increase, when the number of people with high rep increases.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The rep-level barrier for privileges is to ensure that on the whole, the people who attain a specific privilege are familiar enough with the workings of the site, and have shown enough good behaviour, to wield it responsibly. This is not affected by the number of other people who have also reached that specific rep level.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2019-04-15T07:23:37.627" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27801" PostTypeId="2" ParentId="27796" CreationDate="2019-04-15T12:22:49.050" Score="5" Body="&lt;p&gt;Yes, there is some kind of inflation on Stack Exchange.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As pointed in other answers and in comments, reputation can be seen as a currency to buy privileges. Newer sites have lower thresholds for several privileges - for practical reasons - and those thresholds rise as the site expands. For example, being able to create tags &quot;costs&quot; 150 reputation in Economics SE, 300 reputation in Cross Validated SE and 1500 reputation in StackOverflow. Therefore, privilege prices are subject to inflation as sites grow.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, it should be noted that the economy of privileges is not a free marked one but a planned one, because privilege prices are not related to demand but set by a central authority in order to allocate the desired number of privileges.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Interestingly, bounties economy is indeed a free market one, and it would be interesting to study the evolution of the bounties offered.&lt;/p&gt;&#xA;" OwnerUserId="15629" LastActivityDate="2019-04-15T12:22:49.050" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="27804" PostTypeId="2" ParentId="27796" CreationDate="2019-04-15T12:35:27.217" Score="9" Body="&lt;h3&gt;Yes, there is inflation.&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;StackExchange was created in 2008. Anybody who had 5,000 (arbitrary value) reputation points in 2009 would have been perceived as an outstanding member. Now, having accumulated 5,000 points in ten years of participation on a much expanded site looks less impressive. Thus, achieved respect per reputation point has decreased.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The respect is not related to the absolute number of reputation points but to belonging to some top percentile of active members. As the necessary threshold increases, the value of an individual reputation point diminishes. I would call this inflation.&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;P.S.:&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;KennyLJ has commented that he conscientiously ignored &lt;em&gt;consumption externalities&lt;/em&gt; and &lt;em&gt;positional goods&lt;/em&gt; because they are tricky and generally ignored in Economics. If I interpret his comment correctly, these aspects should not be considered in the context of questions about inflation like this one.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, I think that this &lt;em&gt;&quot;consumption externality&quot;&lt;/em&gt; is the key element for understanding StackExchange. It's not an externality, but the product itself. Badges and privileges are secondary.&lt;/p&gt;&#xA;" OwnerUserId="21834" LastEditorUserId="21834" LastEditDate="2019-04-16T08:30:07.823" LastActivityDate="2019-04-16T08:30:07.823" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="27805" PostTypeId="2" ParentId="27781" CreationDate="2019-04-15T15:34:06.247" Score="3" Body="&lt;p&gt;Have you seen the GitHub Project &lt;a href=&quot;https://github.com/HariharanJayashankar/mrw1992&quot; rel=&quot;nofollow noreferrer&quot;&gt;Replicating Mankiw, Romer and Weil 1992&lt;/a&gt;? It seems to have both the data and a replication of the original results. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the curious, the paper is &lt;a href=&quot;https://academic.oup.com/qje/article-abstract/107/2/407/1838296&quot; rel=&quot;nofollow noreferrer&quot;&gt;A Contribution to the Empirics of Economic Growth&lt;/a&gt;.&#xA;Abstract:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;This paper examines whether the Solow growth model is consistent with&#xA;  the international variation in the standard of living. It shows that&#xA;  an augmented Solow model that includes accumulation of human as well&#xA;  as physical capital provides an excellent description of the&#xA;  cross-country data. The paper also examines the implications of the&#xA;  Solow model for convergence in standards of living, that is, for&#xA;  whether poor countries tend to grow faster than rich countries. The&#xA;  evidence indicates that, holding population growth and capital&#xA;  accumulation constant, countries converge at about the rate the&#xA;  augmented Solow model predicts.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="69" LastActivityDate="2019-04-15T15:34:06.247" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27806" PostTypeId="1" AcceptedAnswerId="27807" CreationDate="2019-04-15T17:47:06.583" Score="0" ViewCount="57" Body="&lt;p&gt;&lt;em&gt;I'm cross-posting this question on both &lt;a href=&quot;https://economics.stackexchange.com&quot;&gt;Economics&lt;/a&gt; and &lt;a href=&quot;https://stats.stackexchange.com/&quot;&gt;Cross Validated&lt;/a&gt; to get answers from a different perspective on each field. It is generally accepted to cross-post if the question is tailored to fit better in each community. See: &lt;a href=&quot;https://meta.stackexchange.com/a/64069/510233&quot;&gt;https://meta.stackexchange.com/a/64069/510233&lt;/a&gt;&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Cross-posted in Cross Validated: &lt;a href=&quot;https://stats.stackexchange.com/q/403213/243829&quot;&gt;https://stats.stackexchange.com/q/403213/243829&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;I'll try to be as detailed as possible to best deliver what I want to know in this question. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In economic data, there are some variables that are composed of many other variables. Mostly indices or multiples. I can think of some examples like CPI, Consumer Sentiment Index, or even EV/EBITDA, PER. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Better and more general example would be something like Wind chill Temperature Index which is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/K2kge.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/K2kge.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;code&gt;WCI&lt;/code&gt; = wind chill index, kcal/m2/h&lt;/li&gt;&#xA;&lt;li&gt;&lt;code&gt;v&lt;/code&gt; = wind velocity, m/s&lt;/li&gt;&#xA;&lt;li&gt;&lt;code&gt;Ta&lt;/code&gt; = air temperature, °C&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;What I want to know is whether a variable like WCI can have more meanings(effects) than v and Ta seperately combined.&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Based on what I learned in regression analysis from Ecnonometrics class, a simple interaction term like &lt;a href=&quot;https://i.stack.imgur.com/RFEoX.gif&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/RFEoX.gif&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt; would be interpreted as the difference in marginal effect between a control group (D=0) and a treatment group (D=1), when expressed like: &lt;a href=&quot;https://i.stack.imgur.com/nbUm1.gif&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/nbUm1.gif&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, more general interaction term like VariableA * VariableB would be interpreted as an impact of VariableA on the coefficient of VariableB, in some examples like&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;PollutionLevel = B0 + B1*Population + B2*NumberOfCars + B3*Population*NumberOfCars&#xA;= B0 + B1*Population + (B2 + B3*Population)*NumberOfCars &#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;(originally from a &lt;a href=&quot;https://stats.stackexchange.com/q/177934/243829&quot;&gt;question posted on Cross Validated&lt;/a&gt;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But I think these interpretations are too simple to capture the whole meaning(effect) of a new variable derived from other variables, which leads to other questions like: &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;What would be the interpretation of a super complex interaction term like &lt;code&gt;WCI&lt;/code&gt; in regression perspective? (and other data science methods like Random Forest or Deep Neural Network, etc if possible.) &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Would it still be valid and preferable to include an explanatory variable like &lt;code&gt;WCI&lt;/code&gt; in the model when I already have &lt;code&gt;v&lt;/code&gt; and &lt;code&gt;Ta&lt;/code&gt;? Would it make the model more accurate? &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Intuitively, I feel like people would care more about important indices but not necessarily the variables it is composed of. Can a complex interaction term derived from other variables have more effect than a simple combination of the other variables?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;The third one is related to my original question of whether one variable that is composed of other variables in a dataset can have more effect on the dependent variable. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;One example I can think of is the &lt;em&gt;steepness of the yield curve&lt;/em&gt; that is considered very important in the bond market, which is a mere slope of the interest rates of bonds with different YTM. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;People seem to care about the slope of the yield curve more than individual rates of each bond so I think it is a legit explanatory variable but it is unclear whether it is justified to introduce this new variable from existing variables or how it should be interpreted. &lt;/p&gt;&#xA;" OwnerUserId="21749" LastEditorUserId="21749" LastEditDate="2019-04-15T18:43:47.527" LastActivityDate="2019-04-15T21:51:25.970" Title="Can a complex interaction term mean more than what it's composed of?" Tags="&lt;regression&gt;&lt;bonds&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27807" PostTypeId="2" ParentId="27806" CreationDate="2019-04-15T21:51:25.970" Score="3" Body="&lt;p&gt;What you describe as &quot;complex interaction term&quot; is typically referred to as composite variable.  Interaction terms are products of two or more variables.  You also use terms like &quot;effect&quot; and &quot;meaning&quot;, which in more technical sense, seem to refer to issues of unbiasedness, accuracy, and interpretation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If a composite variable is a linear combination of other variables (e.g., their sum), then including that variable over its components will not change the predictive power of a linear regression model, though it will change the interpretation of regression coefficient(s).  If it is a non-linear combination, such as the case with your &lt;code&gt;WCI&lt;/code&gt; variable, then you will obtain different predictions in a linear regression model.  If you are interested in interpreting the effect of &lt;code&gt;WCI&lt;/code&gt; on your dependent/outcome variable (or if you believe it lies in the causal pathway and affects the interpretation of another variable of interest), then you should include &lt;code&gt;WCI&lt;/code&gt; in the model.  The interpretation will be standard for regression models, i.e., by how much the value of dependent variable is expected to change for a one-unit increase in the value of &lt;code&gt;WCI&lt;/code&gt;, holding other variables constant.  If, however, you are interested in the effect of wind velocity or temperature on the outcome, then you will have a hard time interpreting the results with &lt;code&gt;WCI&lt;/code&gt; used as explanatory variable.  Including interaction terms or composite variables can also lessen the precision of your coefficient estimates, just like it does when you have multicollinearity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In purely predictive (machine learning) models, you are most interested in the predictive power of your model, not in the interpretation of variables.  Those models readily accept &quot;engineered&quot; variables (hence, &quot;feature engineering&quot; is super important for models like random forests, though not for deep learning).  Accuracy will depend on a lot of factors, but using composite variables can certainly help.&lt;/p&gt;&#xA;" OwnerUserId="21454" LastActivityDate="2019-04-15T21:51:25.970" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27808" PostTypeId="2" ParentId="27796" CreationDate="2019-04-16T03:31:00.983" Score="3" Body="&lt;p&gt;&lt;strong&gt;&lt;em&gt;tl;dr&lt;/em&gt;-&lt;/strong&gt;  Sure, we can say that rep undergoes inflation/deflation.  However, like the US dollar or any other currency, we'd need to qualify what &lt;a href=&quot;https://en.wikipedia.org/wiki/Market_basket&quot; rel=&quot;nofollow noreferrer&quot;&gt;market basket&lt;/a&gt; we're comparing it to, as claims about inflation/deflation are meaningless without a reference.  In the case of StackExchange rep, the relevant market basket is less obvious, so it'd need to be qualified for a claim about inflation to make sense.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;h2&gt;StackExchange rep can be said to undergo inflation if the meaning of the claim is established.&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Even US currency doesn't experience inflation ideally.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, &lt;a href=&quot;https://www.in2013dollars.com/us/inflation/1950&quot; rel=&quot;nofollow noreferrer&quot;&gt;this website&lt;/a&gt; claims that &lt;span class=&quot;math-container&quot;&gt;$1\,\text{USD}_{1950}$&lt;/span&gt; (i.e., &lt;span class=&quot;math-container&quot;&gt;$\$1$&lt;/span&gt; from 1950) would be &lt;span class=&quot;math-container&quot;&gt;$10.55\,\text{USD}_{2019} .$&lt;/span&gt;  Presumably that means that &lt;span class=&quot;math-container&quot;&gt;$\$1$&lt;/span&gt; back in 1950 could've bought about &lt;span class=&quot;math-container&quot;&gt;$\$10.55$&lt;/span&gt; worth of similar products today.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Except that isn't true for technological products.  &lt;span class=&quot;math-container&quot;&gt;$\$1$&lt;/span&gt; will get you far cooler stuff today than it would've in 1950!  If we look at &lt;a href=&quot;https://en.wikipedia.org/wiki/FLOPS#Cost_of_computing&quot; rel=&quot;nofollow noreferrer&quot;&gt;the cost of floating-point operations per second (FLOP/s) over time&lt;/a&gt;, it'd seem that the US dollar has undergone wild deflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The trick behind discussing &quot;&lt;em&gt;inflation&lt;/em&gt;&quot; seems to be to put it up against a reasonable &lt;a href=&quot;https://en.wikipedia.org/wiki/Market_basket&quot; rel=&quot;nofollow noreferrer&quot;&gt;market basket&lt;/a&gt;.  We can then say that inflation between two times &lt;span class=&quot;math-container&quot;&gt;$t_0$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$t_1$&lt;/span&gt; would be&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\left[\text{inflation factor}\right]_{t_0 \to t_1}&#xA;~ \equiv ~&#xA;\frac{&#xA;\sum_{i}{w_i \, P_{i}\left(t_1\right)}&#xA;}{&#xA;\sum_{i}{w_i \, P_{i}\left(t_0\right)}&#xA;}&#xA;\,,&#xA;$$&lt;/span&gt;&#xA;where&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$w_i$&lt;/span&gt; is the weight of market-basket item &lt;span class=&quot;math-container&quot;&gt;$i ;$&lt;/span&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$P_i\left(t\right)$&lt;/span&gt; is the price of market-basket item &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; at time &lt;span class=&quot;math-container&quot;&gt;$t .$&lt;/span&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I assume that &lt;a href=&quot;https://www.in2013dollars.com/us/inflation/1950&quot; rel=&quot;nofollow noreferrer&quot;&gt;this website&lt;/a&gt; claimed an inflation of &lt;span class=&quot;math-container&quot;&gt;$\frac{10.55\,\text{USD}_{2019}}{\phantom{0}1.00\,\text{USD}_{1950}}$&lt;/span&gt; because it was looking more at stuff like food than FLOP/s.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Say a newscaster gets on TV and says that the US dollar is undergoing wild deflation, implicitly referring to a basket composed of stuff like FLOP/s.  They'd probably get a lot of flack for false reporting, right?  People would find it deceptive to speak of inflation in that sense since it's not what's normally meant by it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Likewise, we can say that reputation on StackExchange has a changing value over time.  Presumably a bounty for &lt;span class=&quot;math-container&quot;&gt;$+500\,\text{rep}$&lt;/span&gt; would have less power to entice &lt;a href=&quot;https://stackoverflow.com/users/22656/jon-skeet&quot;&gt;@JonSkeet&lt;/a&gt; now than it may've at StackOverflow's inception.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then if we judge inflation of StackOverflow rep by its power to entice @JonSkeet to deliver some service, e.g. answer a question about how to write a &lt;code&gt;for&lt;/code&gt;-loop in C#, then that inflation would be&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\left[\text{inflation factor}\right]_{\text{2009} \to 2019}&#xA;~ = ~&#xA;\frac{&#xA;P_{\text{answer}~\texttt{for}\text{-loop question}}\left(2019\right)&#xA;}{&#xA;P_{\text{answer}~\texttt{for}\text{-loop question}}\left(2009\right)&#xA;}&#xA;\,,&#xA;$$&lt;/span&gt;which might have some value, like... I dunno.  I mean, how much rep would it take to entice @JonSkeet to answer a relatively simple question on an average day &amp;ndash; I'd bet he'd do it today for a trillion-rep, if for no other reason than because it'd be funny, but we'd have to ask him!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But say that we look at the inflation of StackExchange rep with respect to how many downvotes it'll buy.  Then, in the context of non-Meta answers, that cost has been constantly &lt;span class=&quot;math-container&quot;&gt;$1\,\text{rep}$&lt;/span&gt; for a while, so it'd be something like&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\left[\text{inflation factor}\right]_{\text{?} \to 2019}&#xA;~ = ~&#xA;\frac{&#xA;1\,\text{rep}&#xA;}{&#xA;1\,\text{rep}&#xA;}&#xA;~ = ~&#xA;1&#xA;\,.&#xA;$$&lt;/span&gt;&#xA;Or we can look at the inflation of the cost to view the website's homepage, which is (and I assume always has been) &lt;span class=&quot;math-container&quot;&gt;$0\,\text{rep} .$&lt;/span&gt;  So then,&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\left[\text{inflation factor}\right]_{\text{?} \to 2019}&#xA;~ = ~&#xA;\frac{&#xA;0\,\text{rep}&#xA;}{&#xA;0\,\text{rep}&#xA;}&#xA;~ = ~&#xA;\left[\text{indeterminate}\right]&#xA;\,,&#xA;$$&lt;/span&gt;which is &lt;a href=&quot;https://en.wikipedia.org/wiki/Indeterminate_form&quot; rel=&quot;nofollow noreferrer&quot;&gt;indeterminate&lt;/a&gt; because the definition doesn't clarify how to resolve &lt;span class=&quot;math-container&quot;&gt;$\frac{0}{0} .$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;h3&gt;Conclusion&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;To sum this up:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Inflation is relative to a market basket.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Unlike in casual conversations about the US dollar, StackExchange rep doesn't have a standard market basket that someone'll assume you to be talking about if you make a claim about it.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;So, you &lt;em&gt;can&lt;/em&gt; make claims about StackExchange rep having inflation/deflation, but since it's subjective to an unassumed market basket, you'd need to clarify what the reference basket is for the claim to make sense.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="12618" LastEditorUserId="12618" LastEditDate="2019-04-16T03:36:07.907" LastActivityDate="2019-04-16T03:36:07.907" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27810" PostTypeId="1" AcceptedAnswerId="27932" CreationDate="2019-04-16T15:58:43.860" Score="0" ViewCount="20" Body="&lt;p&gt;In a simplified model in the search theory of unemployment, let &lt;span class=&quot;math-container&quot;&gt;$M=\mu{m(u,v)}$&lt;/span&gt; be the matching function where &lt;span class=&quot;math-container&quot;&gt;$u$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$v$&lt;/span&gt; is unemployment and vacancies respectively. Given &lt;span class=&quot;math-container&quot;&gt;$m(u,v)$&lt;/span&gt; has constant returns to scale and positive marginal products, how do we show that the job finding rate &lt;span class=&quot;math-container&quot;&gt;$f = M/u$&lt;/span&gt; increases with labour market tightness &lt;span class=&quot;math-container&quot;&gt;$\theta=\frac{v}{u}$&lt;/span&gt;? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given CRTS, I can rewrite &lt;span class=&quot;math-container&quot;&gt;$f$&lt;/span&gt; as follows: &lt;span class=&quot;math-container&quot;&gt;$f=\mu{m(1,\theta)}=\mu{}m(\theta)$&lt;/span&gt;. How can you then show that given positive marginal products, we have &lt;span class=&quot;math-container&quot;&gt;$\frac{df}{d\theta}&amp;gt;0?$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="20326" LastActivityDate="2019-04-22T14:42:07.860" Title="Constant Returns to Scale and Positive Marginal Products" Tags="&lt;search-and-matching&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27811" PostTypeId="1" AcceptedAnswerId="27815" CreationDate="2019-04-16T16:31:18.163" Score="1" ViewCount="41" Body="&lt;p&gt;Suppose that &lt;span class=&quot;math-container&quot;&gt;$q$&lt;/span&gt; is a k-tuple vector of prices for the k assets whose quantities are given by the k-tuple &lt;span class=&quot;math-container&quot;&gt;$\theta$&lt;/span&gt;. I have just read that in the Radner Sequential Trade Equilibrium (not sure if this goes by another name), where the trading of assets occurs in period t=0 (as opposed to t=1), the period-zero budget can be expressed as &lt;span class=&quot;math-container&quot;&gt;$q*\theta$&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$*$&lt;/span&gt; denotes the inner product, and that &lt;strong&gt;this budget is non-positive.&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I feel like I must be misunderstanding something about this particular setting, because I have no idea how a budget could possibly be non-positive, as opposed to non-negative. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can someone give me some intuition for what's happening here?&lt;/p&gt;&#xA;" OwnerUserId="20439" LastActivityDate="2019-04-16T19:19:39.063" Title="Budget constraint in Radner Sequential Trade Equilibria" Tags="&lt;microeconomics&gt;&lt;general-equilibrium&gt;&lt;asset-pricing&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27812" PostTypeId="1" CreationDate="2019-04-16T16:42:27.317" Score="0" ViewCount="28" Body="&lt;p&gt;I am looking for the list of goods that NAFTA, preferably in the format of what is subject to tariff reduction. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have found a few potential leads, but none seem to be exhaustive: &#xA;&lt;a href=&quot;https://www.investopedia.com/terms/n/nafta.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.investopedia.com/terms/n/nafta.asp&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://fas.org/sgp/crs/row/R44875.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://fas.org/sgp/crs/row/R44875.pdf&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://aic.ucdavis.edu/pub/briefs/brief21.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://aic.ucdavis.edu/pub/briefs/brief21.pdf&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://aic.ucdavis.edu/2003/02/01/role-of-nafta-in-california-agriculture-a-brief-review/&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://aic.ucdavis.edu/2003/02/01/role-of-nafta-in-california-agriculture-a-brief-review/&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is the agreement in full (if someone is familiar, perhaps they could point me to a specific chapter?):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.nafta-sec-alena.org/Home/Texts-of-the-Agreement/North-American-Free-Trade-Agreement?mvid=2&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.nafta-sec-alena.org/Home/Texts-of-the-Agreement/North-American-Free-Trade-Agreement?mvid=2&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerDisplayName="user21853" LastEditorUserId="1601" LastEditDate="2019-04-16T19:15:35.017" LastActivityDate="2019-04-16T20:01:26.570" Title="Where can I find a complete list of goods affected by NAFTA?" Tags="&lt;international-trade&gt;&lt;data-request&gt;&lt;agriculture&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="27813" PostTypeId="1" CreationDate="2019-04-16T17:04:37.980" Score="1" ViewCount="105" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/pJ3QJ.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/pJ3QJ.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is about the last part (I attached the rest for context). I don't understand the final line at all. I thought the first order condition would just be to set the derivative = 0. Very confused! Any help would be greatly appreciated! Thank you :D&lt;/p&gt;&#xA;" OwnerUserId="21854" LastActivityDate="2019-04-16T23:44:50.977" Title="Cournot's game profit maximisation first order condition question" Tags="&lt;microeconomics&gt;&lt;game-theory&gt;&lt;regulation&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27814" PostTypeId="2" ParentId="27812" CreationDate="2019-04-16T17:13:13.423" Score="1" Body="&lt;p&gt;As highlighted by @Bkay, these linked documents are likely to rot. For future users, the keyword I was missing when searching for these documents was 'tariff schedule'. The below links to 2019 tariff schedules. I suggest that in the future a user search:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;'YEAR tariff schedule COUNTRYOFINTEREST'&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It may also be useful to specify the trade agreement of interest.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For USA: Harmonized Tariff Schedule 2019 Revision 2&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Link: &lt;a href=&quot;https://hts.usitc.gov/current&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://hts.usitc.gov/current&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For Canada: Customs Tariff by Chapter (Customs Tariff 2019-1)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Link: &lt;a href=&quot;https://www.cbsa-asfc.gc.ca/trade-commerce/tariff-tarif/2019/html/tblmod-1-eng.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.cbsa-asfc.gc.ca/trade-commerce/tariff-tarif/2019/html/tblmod-1-eng.html&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For Mexico (and all three): Mexico Import Export Codes&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Link:&lt;a href=&quot;http://www.siicex-caaarem.org.mx/&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.siicex-caaarem.org.mx/&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Chapters of interest will vary by personal use. &lt;/p&gt;&#xA;" OwnerDisplayName="user21853" LastEditorDisplayName="user21853" LastEditDate="2019-04-16T20:01:26.570" LastActivityDate="2019-04-16T20:01:26.570" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27815" PostTypeId="2" ParentId="27811" CreationDate="2019-04-16T19:19:39.063" Score="1" Body="&lt;p&gt;In Radner's model each actor starts with an initial endowment, an asset vector &lt;span class=&quot;math-container&quot;&gt;$\omega$&lt;/span&gt;. You can trade this to any asset portfolio &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; that has lower or equal value, so&#xA;&lt;span class=&quot;math-container&quot;&gt;$$x * q \leq \omega * q.$$&lt;/span&gt;&#xA;Denoting asset trades by &lt;span class=&quot;math-container&quot;&gt;$\theta = x - \omega$&lt;/span&gt;, you can also express this as&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\theta * q \leq 0.&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2019-04-16T19:19:39.063" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27816" PostTypeId="2" ParentId="27813" CreationDate="2019-04-16T23:44:50.977" Score="4" Body="&lt;p&gt;To elaborate on @HerrK’s comment:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The product rule of differentiation is&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\frac{d}{dx}fg=f’g+fg’$$&lt;/span&gt;&#xA;The text in your question states that you are trying to &lt;em&gt;maximize&lt;/em&gt; the quantity&#xA;&lt;span class=&quot;math-container&quot;&gt;$$[a-Q-c]q_i$$&lt;/span&gt;&#xA;So, as you predicted, we must differentiate this and find when the derivative equals &lt;span class=&quot;math-container&quot;&gt;$0$&lt;/span&gt;. If we differentiate this with respect to &lt;span class=&quot;math-container&quot;&gt;$q_i$&lt;/span&gt; and use the product rule, setting &lt;span class=&quot;math-container&quot;&gt;$f=a-Q-c$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$g=q_i$&lt;/span&gt;, we obtain&#xA;&lt;span class=&quot;math-container&quot;&gt;$$-\frac{dQ}{dq_i}q_i+[a-Q-c]$$&lt;/span&gt;&#xA;since the derivative of &lt;span class=&quot;math-container&quot;&gt;$a-Q-c$&lt;/span&gt; with respect to &lt;span class=&quot;math-container&quot;&gt;$q_i$&lt;/span&gt; is &lt;span class=&quot;math-container&quot;&gt;$\frac{dQ}{dq_i}$&lt;/span&gt; (since &lt;span class=&quot;math-container&quot;&gt;$a,c$&lt;/span&gt; are constant) and the derivative of &lt;span class=&quot;math-container&quot;&gt;$q_i$&lt;/span&gt; w.r.t &lt;span class=&quot;math-container&quot;&gt;$q_i$&lt;/span&gt; is &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt;. Setting this equal to zero gives&#xA;&lt;span class=&quot;math-container&quot;&gt;$$-q_i\frac{dQ}{dq_i}+[a-Q-c]=0$$&lt;/span&gt;&#xA;or, equivalently,&#xA;&lt;span class=&quot;math-container&quot;&gt;$$a-Q-c=q_i \frac{dQ}{dq_i}$$&lt;/span&gt;&#xA;which is the last line of the text.&lt;/p&gt;&#xA;" OwnerUserId="21806" LastActivityDate="2019-04-16T23:44:50.977" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27817" PostTypeId="1" AcceptedAnswerId="29517" CreationDate="2019-04-17T04:32:43.280" Score="1" ViewCount="123" Body="&lt;p&gt;If I pick up a stone there and sell it to you for 1 million dollars, 1 million dollars added value is created and added to GDP. If you sell it to me for the same price, virtually nothing has happened but GDP increased by 1 million dollars.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can increase GDP by any number we want.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why do we care about GDP?&lt;/p&gt;&#xA;" OwnerDisplayName="user21856" LastActivityDate="2019-05-26T16:23:47.143" Title="Isn't it pointless to care about GDP?" Tags="&lt;gdp&gt;" AnswerCount="3" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="27818" PostTypeId="1" CreationDate="2019-04-17T09:14:41.923" Score="1" ViewCount="27" Body="&lt;p&gt;The Exchange Rate Mechanism was introduced by the European Economic Community in 1979. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It fixes the Exchange rates between currencies to a specific margin.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But how does it do this?&lt;/p&gt;&#xA;" OwnerUserId="5505" LastActivityDate="2019-04-17T21:47:55.580" Title="How did the Exchange Rate Mechanism work?" Tags="&lt;exchange&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27819" PostTypeId="2" ParentId="27817" CreationDate="2019-04-17T09:32:58.537" Score="1" Body="&lt;p&gt;Yes, GDP can indeed be inflated by meaningless circular transactions. Furthermore, GDP growth completely ignores underlying changes to a country's asset base. Corporate accounts are considerably less naive. Any company that only ever reported growth in turnover wouldn't be trusted: turnover is vanity, profit is sanity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Real increases in GDP can be a useful proxy for economic growth, because it measures the total transaction value within the economy, and historically that's been closely correlated to general perceptions of economic growth. So much so, that it's now pretty much used as &lt;em&gt;the&lt;/em&gt; definition of economic growth.&lt;/p&gt;&#xA;" OwnerUserId="44" LastEditorUserId="44" LastEditDate="2019-04-17T11:00:38.200" LastActivityDate="2019-04-17T11:00:38.200" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27821" PostTypeId="2" ParentId="27817" CreationDate="2019-04-17T11:45:36.453" Score="0" Body="&lt;p&gt;This goes back to the basics of GDP measurement. Ideally you want to say, this year my country produced 2 cars and 3 calculators (of some specific model). But then there needs to be a way to aggregate all this up to measure the size of the economy. How many calculators does a car worth?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One simple solution is to convert it to money, since it's a unit of account anyways. An important underlying assumption is that the price of the goods we're measuring is priced &quot;reasonably.&quot; One way to ensure that goods are reasonably priced is to take prices from a competitive market. So in your case the $1 million would be undercut by almost anyone.&lt;/p&gt;&#xA;" OwnerUserId="5145" LastActivityDate="2019-04-17T11:45:36.453" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27822" PostTypeId="1" AcceptedAnswerId="27824" CreationDate="2019-04-17T12:39:58.313" Score="-1" ViewCount="556" Body="&lt;p&gt;I have a question from my textbook which is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Using the Keynesian-cross analysis, assume that the consumption function is&#xA;given by C = 100 + 0.6(Y – T). If planned investment is 100 and T is 100, then&#xA;the level of G needed to make equilibrium Y equal 1,000 is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and the answer is 260.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't understand how they derived this. Could someone please explain?&lt;/p&gt;&#xA;" OwnerUserId="21632" LastActivityDate="2019-04-17T14:14:58.347" Title="Keynesian-cross analysis" Tags="&lt;production-function&gt;&lt;consumption&gt;&lt;keynesian-economics&gt;" AnswerCount="1" CommentCount="0" ClosedDate="2019-04-17T21:18:08.900" ContentLicense="CC BY-SA 4.0" />
  <row Id="27823" PostTypeId="1" AcceptedAnswerId="27825" CreationDate="2019-04-17T13:29:06.090" Score="0" ViewCount="96" Body="&lt;p&gt;Suppose we have two agents who are each assigned some initial allocation of two different goods, where the prices of each good are given. Also, suppose the utility functions for each agent are weakly concave and strictly increasing. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If, after receiving their allocations, no trades occur between the two agents, can we infer that this initial allocation represents a competitive equilibrium (CE)? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My intuition says that it may not be a CE, because perhaps agent 1 has an optimal allocation, but maybe agent 2 wishes that he could trade with agent 1 to change his (agent 2's) allocation. Although this would not be a competitive equilibrium, this scenario would still be Pareto efficient. Is my analysis correct?&lt;/p&gt;&#xA;" OwnerUserId="20439" LastActivityDate="2019-04-18T23:15:55.557" Title="Walrasian Equilibrium intuition given prices and some initial allocation" Tags="&lt;general-equilibrium&gt;&lt;pareto-efficiency&gt;&lt;competitive-equilibrium&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27824" PostTypeId="2" ParentId="27822" CreationDate="2019-04-17T14:14:58.347" Score="0" Body="&lt;p&gt;Planned Expenditure is equal to the income in equilibrium, i.e.: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$Y = C + I + G$&lt;/span&gt; (assuming a closed economy)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$100+0.6(1000-100) + 100 + G = 1000$$&lt;/span&gt;, because &lt;span class=&quot;math-container&quot;&gt;$ Y = 1000$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="21361" LastActivityDate="2019-04-17T14:14:58.347" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27825" PostTypeId="2" ParentId="27823" CreationDate="2019-04-17T16:02:44.400" Score="3" Body="&lt;p&gt;The &quot;trick&quot; of this question is that the fact that agents do not want to trade at the given prices does not mean the allocation is Pareto. The only thing you know is that if there is an allocation that is not a CE, there exists a vector of prices at which agents want to trade. Let me give an example:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You have 2 apples and I have 2 bananas. I'm willing to give you half a banana for an apple and you are willing to exchange a whole apple for a bite of a banana. Clearly, the initial allocation is not Pareto Efficient, nor a CE since it is profitable to trade and trade will occur if prices are somewhere between a bite of a banana and half a banana for an apple. The problem, however, assumes that prices are given. So in this toy example, if the price of an apple is set to one banana, there will be no trade (since I won't be willing to accept the prices). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;From the lack of trades, it cannot be assumed that you are in a CE since the prices are not allowed to adjust to allow for mutually beneficial trading. &lt;/p&gt;&#xA;" OwnerUserId="21827" LastEditorUserId="21827" LastEditDate="2019-04-18T23:15:55.557" LastActivityDate="2019-04-18T23:15:55.557" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27827" PostTypeId="2" ParentId="6706" CreationDate="2019-04-17T16:21:34.177" Score="1" Body="&lt;p&gt;Let me elaborate on the comments quickly - maybe only for the sake of this question not being &quot;unanswered&quot;.&#xA;Pareto optimality only makes sense when defined with respect to feasible allocations. That is, your basic definition above lacks an important word:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;an allocation is PO if there does not exist another &lt;strong&gt;feasible&lt;/strong&gt;&#xA;  allocation in which all players are weakly better off and at least one&#xA;  player is strictly better off.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Without this word, you can easily find an allocation that dominates &quot;A gets slices 1&amp;amp;3; B gets slices 2&amp;amp;4&quot;. For instance, you could give Alice eight additional full cakes of chocolate. However, there are no other cakes and, hence, this allocation is not feasible and therefore does not Pareto dominate what you suggest.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a result of your feasibility restriction, any allocation in which one agent gets one slice of the preferred kind and the other one gets the other three is PO.&#xA;If A gets the entire cake, she can make B better off by giving him a slice of V which she does not care about; analogously if B has the whole cake. If both agents get two connected slices, a similar improvement exists.&lt;/p&gt;&#xA;" OwnerUserId="11590" LastActivityDate="2019-04-17T16:21:34.177" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27828" PostTypeId="1" AcceptedAnswerId="27835" CreationDate="2019-04-17T17:12:39.777" Score="2" ViewCount="117" Body="&lt;p&gt;So I'm a total economics noob and I'm trying to understand some of the consequences of using vs. not using a gold standard listed on Brad DeLong's blog here: &lt;a href=&quot;https://www.bradford-delong.com/why-not-the-gold-standard-talking-points-on-the-likely-consequences-of-re-establishment-of-a-gold-st.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.bradford-delong.com/why-not-the-gold-standard-talking-points-on-the-likely-consequences-of-re-establishment-of-a-gold-st.html&lt;/a&gt;. The first point DeLong mentions is that with a gold standard an economy somewhat loses it's ability to stimulate growth by increasing the money supply. He gives the following example:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;...in the spring of 1995 the dollar weakened against the yen. Under a gold standard, such a decline in the dollar would not have been allowed: instead the Federal Reserve would have raised interest rates considerably in order to keep the value of the dollar fixed at its gold parity, and a recession would probably have followed.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It's been a while since I've taken Econ 101 so bear with me. I'm trying to work through this example with some simple test numbers to understand whats going on. Say that the U.S. is on the gold standard, and a \$1 bank note can be exchanged at any time for 1 unit of gold. In DeLong's example the dollar weakened against the yen, so let's say the exchange rate between dollar and yen was previously \$1/¥5, and now it's \$1/¥3. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have a few, potentially silly questions. First, why does the change in exchange rate change the &quot;gold parity&quot; of the dollar? If a \$1 bank note still gets you one unit of gold (since the gold standard ensures it), won't you still be able to get one unit of gold, assuming you only have U.S. dollars? Maybe this assumption is where my confusion lies? My other thought was maybe that if the dollar weakens against the yen, people with yen will be able to get more gold, which may be problematic for the U.S's gold reserves, but how does increasing interest rates address this problem? As I recall, raising interest rates reduces the amount of money circulating in the economy. But again, \$1=1 unit of gold always, so how does this change things? Sorry if this is somewhat incoherent -- any help explaining DeLong's reasoning (ideally in very, very simple terms with not a lot of jargon) would be greatly appreciated. Thanks!&lt;/p&gt;&#xA;" OwnerUserId="20274" LastActivityDate="2019-04-17T22:48:15.073" Title="Questions about the gold standard and exchange rates" Tags="&lt;exchange-rates&gt;&lt;gold-standard&gt;" AnswerCount="1" CommentCount="5" FavoriteCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27829" PostTypeId="1" AcceptedAnswerId="27832" CreationDate="2019-04-17T17:55:03.563" Score="1" ViewCount="6776" Body="&lt;p&gt;Assume there is a good that a producer sells for &lt;span class=&quot;math-container&quot;&gt;$100$&lt;/span&gt;. A consumer's willingness to pay for that good is &lt;span class=&quot;math-container&quot;&gt;$50$&lt;/span&gt;. However a government program forces consumers to purchase the good irrespective of their willingness to pay (assume budget constraints are not an issue right now). Would this imply their consumer surplus would be &lt;span class=&quot;math-container&quot;&gt;$-50$&lt;/span&gt;?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or do we reflect the negative consumer surplus as producer surplus (this doesn't make sense to me)?&lt;/p&gt;&#xA;" OwnerUserId="16530" LastActivityDate="2019-04-17T20:50:32.153" Title="Can consumer surplus be negative if a consumer is forced to make a purchase?" Tags="&lt;welfare-economics&gt;&lt;social-welfare&gt;&lt;consumer-surplus&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="27830" PostTypeId="1" CreationDate="2019-04-17T18:11:14.337" Score="0" ViewCount="60" Body="&lt;p&gt;In a certain economy, time is discrete with periods &lt;span class=&quot;math-container&quot;&gt;$t=0,1,2,...$&lt;/span&gt;. The economy is populated by many households and identical firms. The utility of a household is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\displaystyle\sum^{\infty}_{t=0}\beta^t\Big(\log c_t - \gamma L_t^{\frac{1}{\gamma}}\Big)$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where &lt;span class=&quot;math-container&quot;&gt;$c_t$&lt;/span&gt; is consumption and &lt;span class=&quot;math-container&quot;&gt;$L_t$&lt;/span&gt; is labor in hours worked. There are two assets: capital, &lt;span class=&quot;math-container&quot;&gt;$K_t$&lt;/span&gt;, and a one-period risk-free bond &lt;span class=&quot;math-container&quot;&gt;$b_t$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Capital is rented to the firms at a rate &lt;span class=&quot;math-container&quot;&gt;$v_t$&lt;/span&gt;. The law of motion for capital is &lt;span class=&quot;math-container&quot;&gt;$K_{t+1}=(1-\delta)K_t+I_T$&lt;/span&gt;. &lt;span class=&quot;math-container&quot;&gt;$I_t$&lt;/span&gt; is gross investment and &lt;span class=&quot;math-container&quot;&gt;$I_t-\delta K_t$&lt;/span&gt; is net investment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The bond, is in zero net supply and yields &lt;span class=&quot;math-container&quot;&gt;$r_t$&lt;/span&gt; per period.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Firms are owned by households and produce output &lt;span class=&quot;math-container&quot;&gt;$Y_t^p=K_t^{\alpha}L_t^{1-\alpha}$&lt;/span&gt; where &lt;span class=&quot;math-container&quot;&gt;$0&amp;lt;\alpha&amp;lt;1$&lt;/span&gt;. Wages are &lt;span class=&quot;math-container&quot;&gt;$w_t$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The government has a sequence of public spending &lt;span class=&quot;math-container&quot;&gt;$\{G_t\}_{t=0}^{\infty}$&lt;/span&gt; that will be paid with a combination of taxed bonds at a rate &lt;span class=&quot;math-container&quot;&gt;$\tau_t^b$&lt;/span&gt;, taxed net investment at a rate &lt;span class=&quot;math-container&quot;&gt;$\tau_t^I$&lt;/span&gt;, taxed labor income at a rate &lt;span class=&quot;math-container&quot;&gt;$\tau_t^w$&lt;/span&gt;, and taxed consumption at a rate &lt;span class=&quot;math-container&quot;&gt;$\tau_t^c$&lt;/span&gt;. The government cannot borrow or save, &lt;span class=&quot;math-container&quot;&gt;$Y_t=Y_t^p$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;I need to set up the firm's problem, the household's problem, and the social planner's problem but have no idea how to incorporate the tax structure.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, here is what I have for the household's problem, but I'm pretty sure it's not right:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\begin{aligned}&#xA;\max_{c_t, L_t, K_{t+1}} \quad &amp;amp; \displaystyle\sum_{t=0}^{\infty} \beta^t (c_t, L_t)\\&#xA;\textrm{s.t.} \quad &amp;amp; c_t + I_t + \tau_t = Y_t = K_t^{\alpha} L_t^{1-\alpha} + G_t\\&#xA;\end{aligned}$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'd appreciate any hints for setting up these problems.&lt;/p&gt;&#xA;" OwnerUserId="21862" LastEditorUserId="1601" LastEditDate="2019-04-18T04:56:12.693" LastActivityDate="2020-05-12T06:04:05.487" Title="Neoclassical model with proportional taxes" Tags="&lt;taxation&gt;&lt;self-study&gt;&lt;optimization&gt;&lt;bonds&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27831" PostTypeId="2" ParentId="27830" CreationDate="2019-04-17T20:45:58.183" Score="1" Body="&lt;p&gt;In your household problem you have a typo, they maximize their utility so I think you meant &lt;span class=&quot;math-container&quot;&gt;$\sum_{t=0}^\infty\beta^tu(c_t, L_t)$&lt;/span&gt;. Now their income comes from the profits of the firm &lt;span class=&quot;math-container&quot;&gt;$\pi$&lt;/span&gt; their wages &lt;span class=&quot;math-container&quot;&gt;$w_tL_t$&lt;/span&gt; and what they borrow-lend (not directly the production &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt; or government expenditures &lt;span class=&quot;math-container&quot;&gt;$G$&lt;/span&gt;) and their expenditures are consumption, paying their debts (or receiving money from what they lend yesterday) and what they pay in taxes. Obviously they only pay consumption taxes, bond taxes, and labor income taxes, since consumers don't directly invest. We usually model that investment decisions are made by firms, so investment taxes will enter the firm's problem. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In contrast, the social planner chooses everything so all taxes will be relevant for his problem. &lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-04-17T20:45:58.183" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27832" PostTypeId="2" ParentId="27829" CreationDate="2019-04-17T20:50:32.153" Score="3" Body="&lt;p&gt;Consumer surplus is their willingness to pay minus the price they pay,  and producer surplus is the price they receive minus their willingness to receive. So if you are assuming that consumers are forced to buy at a price of 100, yes the consumer surplus is negative. and according to your example, the producer surplus will be zero. You are right it does not make sense whatsoever to reflect it as producer surplus.&lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-04-17T20:50:32.153" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27833" PostTypeId="2" ParentId="27759" CreationDate="2019-04-17T20:53:47.513" Score="3" Body="&lt;p&gt;Let &#xA;&lt;span class=&quot;math-container&quot;&gt;$$Q = F(K,L)$$&lt;/span&gt;&#xA;&lt;strong&gt;Assume&lt;/strong&gt;&lt;br&gt;&#xA;a) &lt;span class=&quot;math-container&quot;&gt;$F(K,L)$&lt;/span&gt; exhibits consant returns to scale.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;We need this to aggregate from the individual firms to the total.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;b) Price taking behavior  and&lt;/p&gt;&#xA;&#xA;&lt;p&gt;c) Profit maximizing behavior  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;from the part of the firms.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, throughout the dynamic process,&#xA;&lt;span class=&quot;math-container&quot;&gt;$$w = \frac {\partial F(K,L)}{\partial L} \equiv F_L$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;i.e. the wage is equal to the marginal product of labor. For clarity, write &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\frac {\partial F(K,L)}{\partial L} \equiv h(K,L)$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\dot w = \frac {d}{dt}\frac {\partial F(K,L)}{\partial L} = \frac {d}{dt}h(K,L)= \frac {\partial h(K,L)}{\partial K}\dot K + \frac {\partial h(K,L)}{\partial L}\dot L$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\implies \dot w = F_{KL}\dot K + F_{LL}\dot L$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Assume  further&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;d) complementarity of inputs, &lt;span class=&quot;math-container&quot;&gt;$F_{KL}&amp;gt;0$&lt;/span&gt;, and  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;e) diminishing marginal productss (not in the temporal dimension but in the static dimension, due to diminishing rate of returns), &lt;span class=&quot;math-container&quot;&gt;$F_{LL}&amp;lt;0, F_{KK}&amp;lt;0$&lt;/span&gt;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, if &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\dot K &amp;lt;0, \dot L\geq 0  \implies \dot w &amp;lt;0$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The same treatment wil give us&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\dot r = F_{KK}\dot K + F_{KL}\dot L  &amp;gt;0$$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2019-04-19T13:22:58.487" LastActivityDate="2019-04-19T13:22:58.487" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27834" PostTypeId="2" ParentId="27818" CreationDate="2019-04-17T21:47:55.580" Score="1" Body="&lt;p&gt;How the system operated changed over time. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/1991/the-exchange-rate-mechanism-of-the-european-monetary-system-a-review-of-the-literature&quot; rel=&quot;nofollow noreferrer&quot;&gt;This Bank of England paper does a review of the literature.&lt;/a&gt; Rather than give an inaccurate summary, I will let you look through it.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2019-04-17T21:47:55.580" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27835" PostTypeId="2" ParentId="27828" CreationDate="2019-04-17T22:48:15.073" Score="1" Body="&lt;p&gt;I would interpret the “Gold Standard” as being all (major) countries each pegging their currency to gold, or at least to a currency pegged to gold (e.g., the U.S. dollar in the Bretton Woods system). A single country pegging its currency to gold would make gold investors happy, but it would do very little otherwise, since the currency would just float like gold prices already do.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This means that the exchange rates cannot appreciably move (there is usually a small trading band around parities). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is why that DeLong says that the decline “... would not be allowed.” That is, if tge currency was weakening within its small trading band, the central bank needs to defend the parity: typically raising interest rates. If that does not help, the government is forced to launch fiscal austerity, which shrinks the economy. This reduces imports, which will hopefully take the pressure off the exchange rate.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2019-04-17T22:48:15.073" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27838" PostTypeId="1" AcceptedAnswerId="27845" CreationDate="2019-04-18T14:22:15.690" Score="1" ViewCount="126" Body="&lt;p&gt;I am solving the following question: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose that we live in a two good world, books (x) and movies (y), with utility function given by &lt;span class=&quot;math-container&quot;&gt;$u(x,y)=min(x+2y,2x+y)$&lt;/span&gt;. Prices of books and movies are 25 and 10 respectively. Income is 1000.&#xA;Consider the following two schemes:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;The person gets one movie free on each book they purchase.&lt;/li&gt;&#xA;&lt;li&gt;In addition to buying books and movies separately you also get an option to buy a book with four movies combo pack for 50 only.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Q1. What is the optimal consumption in scheme 1? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A. (40,40)&#xA;B. (0,100)&#xA;C. (10,75)&#xA;D. None of the above&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Q2. What is the optimal consumption in scheme 2?&#xA;A. (0,100)&#xA;B. (10,75)&#xA;C. (10,80)&#xA;D. None of the above&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My working: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the first part I figured the following: &#xA;If I buy &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; books, I only have to pay for &lt;span class=&quot;math-container&quot;&gt;$y-x$&lt;/span&gt; movies, so therefore my budget constraint will look like this: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$25x + 10(y-x) = 1000$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\implies 15x + 10y = 1000$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now solving this budget constraint with the given utility function, I get the optimal consumption as &lt;span class=&quot;math-container&quot;&gt;$(40,40)$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On to the next part, I apply the same logic as above. If I buy &lt;span class=&quot;math-container&quot;&gt;$z$&lt;/span&gt; units of the combo for 50, I only have to pay for &lt;span class=&quot;math-container&quot;&gt;$x-z$&lt;/span&gt; books and &lt;span class=&quot;math-container&quot;&gt;$y-4z$&lt;/span&gt; movies. So therefore my budget constraint will look like this: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$25(x-z) + 10(y-4z) + 50z = 1000$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\implies 25x + 10y - 15z = 1000$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question here is two-fold: &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Is my reasoning correct in the above two scenarios? &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;How do I solve for the optimal consumption in the second scheme, where I have the option to buy a combo?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Thanks!&lt;/p&gt;&#xA;" OwnerUserId="21361" LastEditorUserId="21361" LastEditDate="2019-04-18T17:35:19.793" LastActivityDate="2019-04-18T19:43:13.613" Title="Utility maximization in a 2-good scenario with an option to buy a combo of the two" Tags="&lt;microeconomics&gt;&lt;utility&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27839" PostTypeId="1" AcceptedAnswerId="29007" CreationDate="2019-04-18T16:21:22.460" Score="0" ViewCount="104" Body="&lt;p&gt;I am looking for the pareto-optimal equilibrium for a central planner's problem in a simple New Keynesian model. The planner's problem is to choose &lt;span class=&quot;math-container&quot;&gt;$\{ C_{t}, H_{t}, Y_{t}, \pi_{t}, \{h_{t}(j)_{j=0}^{\infty} \}, \{y_{t}(j)_{j=0}^{\infty} \} \}_{t=0}^{\infty}$&lt;/span&gt; to maximize &lt;span class=&quot;math-container&quot;&gt;$$ U_{0} = E_{0} \sum_{t=0}^{\infty} \beta^{t}u(C_{t}, 1-H_{t}) $$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;subject to: &lt;span class=&quot;math-container&quot;&gt;$$ C_{t} = (1-\frac{\emptyset}{2}\pi_{t}^{2})Y_{t} $$&lt;/span&gt; &lt;span class=&quot;math-container&quot;&gt;$$ Y_{t} = \ [\int_{0}^{1}y_{t}^{\frac{\epsilon -1}{\epsilon}}(j)\;dj ] ^{\frac{\epsilon}{\epsilon-1}} $$&lt;/span&gt; &lt;span class=&quot;math-container&quot;&gt;$$ y_{t}(j) = A_{t}h_{t}(j) $$&lt;/span&gt; &lt;span class=&quot;math-container&quot;&gt;$$ H_{t} = \int_{0}^{1} h_{t}(j) \; dj $$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first-order conditions for this problem imply that for all &lt;span class=&quot;math-container&quot;&gt;$j$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$t$&lt;/span&gt;: &lt;span class=&quot;math-container&quot;&gt;$$ \frac{u_{l}(C_{t}, 1-H_{t})}{u_{c}(C_{t}, 1-H_{t})} = A_{t} $$&lt;/span&gt; &lt;span class=&quot;math-container&quot;&gt;$$ y_{t}(j) = Y_{t}$$&lt;/span&gt; &lt;span class=&quot;math-container&quot;&gt;$$h_{t}(j) = H_{t} $$&lt;/span&gt; &lt;span class=&quot;math-container&quot;&gt;$$ Y_{t} = A_{t}H_{t} $$&lt;/span&gt; &lt;span class=&quot;math-container&quot;&gt;$$ \pi_{t} = 0 $$&lt;/span&gt; &lt;span class=&quot;math-container&quot;&gt;$$ C_{t} = Y_{t} $$&lt;/span&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To arrive to the above implications I tried setting up the following Lagrangian:&#xA; &lt;span class=&quot;math-container&quot;&gt;$$ L_{0}(j) = E_{0} \sum_{t=0}^{\infty} \beta^{t} u(C_{t}, 1-H_{t}) + \lambda_{t}[(1-\frac{\emptyset}{2}\pi_{t}^{2})Y_{t} -C_{t}] + \mu_{t}[\ [\int_{0}^{1}y_{t}^{\frac{\epsilon -1}{\epsilon}}(j)\;dj ] ^{\frac{\epsilon}{\epsilon-1}} - Y_{t}] + \omega_{t}[A_{t}h_{t}(j)- y_{t}(j)] + \alpha_{t}[H_{t} - \int_{0}^{1} h_{t}(j) \; dj ] $$&lt;/span&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;to obtain the FOCs:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ \frac{\partial L_{0}(j)}{\partial C_{t}}: u_{c}(C_{t}, 1 - H_{t}) - \lambda_{t} = 0    $$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$ \frac{\partial L_{0}(j)}{\partial H_{t}}: -u_{H}(C_{t}, 1 - H_{t}) + \alpha_{t} = 0 $$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$ \frac{\partial L_{0}(j)}{\partial Y_{t}}: \lambda_{t}(1 - \frac{\emptyset}{2}\pi_{t}^{2}) - \mu_{t} = 0$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$ \frac{\partial L_{0}(j)}{\partial \pi_{t}}: -\emptyset \pi_{t} Y_{t} \lambda_{t} = 0 $$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$ \frac{\partial L_{0}(j)}{\partial h_{t}(j)}: \omega_{t}A_{t} - \alpha_{t} = 0 $$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$ \frac{\partial L_{0}(j)}{\partial y_{t}(j)}: \mu_{t}[\int_{0}^{1} y_{t}^{\frac{\epsilon -1}{\epsilon}}(j)]^{\frac{1}{\epsilon -1}} y_{t}^{\frac{-1}{\epsilon}}(j) - \omega_{t} = 0 $$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, I have no idea what I am doing wrong or how to get to the implications above. Any help would be very much appreciated!&lt;/p&gt;&#xA;" OwnerUserId="21757" LastActivityDate="2019-04-27T21:31:09.433" Title="Pareto efficiency (optimality conditions) in simple New Keynesian model" Tags="&lt;macroeconomics&gt;&lt;optimization&gt;&lt;new-keynesian-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27843" PostTypeId="1" AcceptedAnswerId="27844" CreationDate="2019-04-18T18:49:30.357" Score="2" ViewCount="28" Body="&lt;p&gt;When we talk about R&amp;amp;D, does it mean that the final goods of R&amp;amp;D amount to 3% of GDP? Or does it mean that a specific nation is spending an amount of money on R&amp;amp;D that is equivalent to 3% of GDP?&lt;/p&gt;&#xA;" OwnerUserId="20877" LastActivityDate="2019-04-18T19:00:32.153" Title="What does it mean when R&amp;D is &quot;3% of GDP&quot;?" Tags="&lt;gdp&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27844" PostTypeId="2" ParentId="27843" CreationDate="2019-04-18T18:53:05.680" Score="2" Body="&lt;p&gt;Expenditure, which can be thought of as a form of investment that does not involve the production of physical capital. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;First, the satellite account provides estimates of &lt;strong&gt;expenditures&lt;/strong&gt; on R&amp;amp;D that are designed to be used in conjunction with the national income and product accounts measures. Second, it treats R&amp;amp;D expenditures as a form of investment, recognizing the role R&amp;amp;D plays in adding to knowledge and in developing new and improved processes and products that lead to increases in productivity and growth. Third, it provides estimates of the stock of knowledge capital. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;[...]&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Expenditures on R&amp;amp;D can be viewed as generating future income and product. With this view, a case is made for treating them as investment, paralleling the treatment of business expenditures on structures and durable equipment, and for recognizing a stock of intangible capital, just as there is a stock of tangible capital.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Source: &lt;a href=&quot;https://apps.bea.gov/scb/account_articles/national/1194od/maintext.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;BEA’s R&amp;amp;D satellite accounts&lt;/a&gt;. &lt;/p&gt;&#xA;" OwnerUserId="264" LastEditorUserId="264" LastEditDate="2019-04-18T19:00:32.153" LastActivityDate="2019-04-18T19:00:32.153" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="27845" PostTypeId="2" ParentId="27838" CreationDate="2019-04-18T19:43:13.613" Score="1" Body="&lt;p&gt;Your answer to Q1 is correct. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For Q2, a little graphical intuition would help. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose you spend all your income on the combo, you'd be able to purchase &lt;span class=&quot;math-container&quot;&gt;$80$&lt;/span&gt; movies and &lt;span class=&quot;math-container&quot;&gt;$20$&lt;/span&gt; books. This is the point &lt;span class=&quot;math-container&quot;&gt;$(20,80)$&lt;/span&gt; on the &lt;span class=&quot;math-container&quot;&gt;$(x,y)$&lt;/span&gt;-plane. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you buy &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt; less combo, you'll have &lt;span class=&quot;math-container&quot;&gt;$76$&lt;/span&gt; movies, &lt;span class=&quot;math-container&quot;&gt;$19$&lt;/span&gt; books, and &lt;span class=&quot;math-container&quot;&gt;$\$50$&lt;/span&gt; cash. Spending the entire &lt;span class=&quot;math-container&quot;&gt;$\$50$&lt;/span&gt; on movies would move you to &lt;span class=&quot;math-container&quot;&gt;$(19,81)$&lt;/span&gt;; spending all the cash on books would move you to &lt;span class=&quot;math-container&quot;&gt;$(21,76)$&lt;/span&gt;. (Of course you can split the cash between the two goods, but it's easy see on a graph that such a split is not efficient.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, trading one combo for movies implies a relative price of 1 book for 1 movie, and trading one combo for books implies a relative price of 4 movies for 1 book. Using the information, we can plot the budget constraint as below: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The green segment, given by &lt;span class=&quot;math-container&quot;&gt;$y=100-x$&lt;/span&gt; (&lt;span class=&quot;math-container&quot;&gt;$x\in[0,20]$&lt;/span&gt;), represents trade-off between the two goods implied by switching from combos to movies. The red segment, given by &lt;span class=&quot;math-container&quot;&gt;$y=160-4x$&lt;/span&gt; (&lt;span class=&quot;math-container&quot;&gt;$x\in[20,40]$&lt;/span&gt;), represents the trade-off implied by switching from combos to books. It is clear from the graph that no other ways of using the income is more efficient. (As a reference, the budget line without the combo is plotted using the black dashed line.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given this budget constraint, it should be straightforward to solve for the optimal consumption bundle. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/ACY6L.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/ACY6L.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt; &lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2019-04-18T19:43:13.613" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27847" PostTypeId="2" ParentId="27616" CreationDate="2019-04-18T23:40:48.180" Score="1" Body="&lt;p&gt;Set the inequality &lt;span class=&quot;math-container&quot;&gt;$P&amp;gt;Par$&lt;/span&gt;, substitute the bond price equation, and then manipulate the inequality to find your result:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$P&amp;gt;Par$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\frac{c}{y}\left(1-\frac{1}{(1+y)^T}\right)+\left(\frac{Par}{(1+y)^T}\right)&amp;gt;Par$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\frac{c}{y}\left(1-\frac{1}{(1+y)^T}\right)&amp;gt;Par\left(1-\frac{1}{(1+y)^T}\right)$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\frac{c}{y}&amp;gt;Par$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let &lt;span class=&quot;math-container&quot;&gt;$c=r_cPar$&lt;/span&gt; so that &lt;span class=&quot;math-container&quot;&gt;$r_c$&lt;/span&gt; is the coupon rate (this is the fraction of the Par value that the coupon represents. Then the last equality is equivalent to&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$r_c&amp;gt;y$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, the first inequality is true if and only if all of the following inequalities are. In particular, the last inequality gives the result you are looking for.&lt;/p&gt;&#xA;" OwnerUserId="21827" LastEditorUserId="21827" LastEditDate="2019-04-19T00:07:46.653" LastActivityDate="2019-04-19T00:07:46.653" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27849" PostTypeId="1" AcceptedAnswerId="27851" CreationDate="2019-04-19T04:51:10.787" Score="2" ViewCount="24" Body="&lt;p&gt;&lt;a href=&quot;https://rads.stackoverflow.com/amzn/click/com/0813349842&quot; rel=&quot;nofollow noreferrer&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;The European Union: Politics and Policies&lt;/em&gt; (2017 6 edn)&lt;/a&gt;. &lt;a href=&quot;https://books.google.ca/books?id=4UdaDwAAQBAJ&amp;amp;lpg=PT93&amp;amp;ots=FPFhEFW2kP&amp;amp;dq=%22labor%20flexibility%20and%20wage%20flexibility%20within%22&amp;amp;pg=PT92#v=onepage&amp;amp;q=%22labor%20flexibility%20and%20wage%20flexibility%20within%22&amp;amp;f=false&quot; rel=&quot;nofollow noreferrer&quot;&gt;p. 77 Middle&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Please see the red line beneath. Doesn't low labour and wage flexibility befit a single currency? If labour and wage fluctuate, then a single currency would become unstable? &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/YvWxr.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/YvWxr.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="4020" LastActivityDate="2019-04-22T05:13:04.863" Title="Why do low labour and wage flexibility forestall a single currency?" Tags="&lt;european-union&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27850" PostTypeId="2" ParentId="4875" CreationDate="2019-04-19T05:22:31.230" Score="2" Body="&lt;p&gt;I think it depends on what exactly you want to focus on within Macroeconomics and Microeconomics. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For Microeconomics, THE book is Microeconomic Theory by Mas-Colell, Whinston and Green&#xA;For Macroeconomics, Advanced Macroeconomics by David Romer is the book &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In my opinion, both books cover the most important issues in each branch of Economics, and the development authors give is mathematically grounded. But again I would say it depends on what you want to focus on.&lt;/p&gt;&#xA;" OwnerUserId="21876" LastActivityDate="2019-04-19T05:22:31.230" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27851" PostTypeId="2" ParentId="27849" CreationDate="2019-04-19T07:25:33.510" Score="3" Body="&lt;p&gt;It's probably referring to the &lt;a href=&quot;https://ec.europa.eu/social/BlobServlet?docId=15467&amp;amp;langId=en&quot; rel=&quot;nofollow noreferrer&quot;&gt;standard OCA theory&lt;/a&gt; of the tradeoff between symmetry and flexibility, but in the latter flexibility is usually one index:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;The theory of optimal currency areas (OCA) has created a set of ideas that has an significant influence on the governance of the eurozone and on views about how this governance should be strengthened in the future. The best way to make this clear is to present the core of the OCA theory, using a well-known graphical representation of this theory (see De Grauwe (2014)). This is done in Figure 3. On the horizontal axis we set out the degree of flexibility in the labour and goods markets.&lt;/p&gt;&#xA;&lt;p&gt;&lt;strong&gt;This measures the degree to which wages and prices adjust freely to shocks and &lt;em&gt;the degree to which workers are mobile.&lt;/em&gt; We assume that these different dimensions of flexibility can be represented by one index.&lt;/strong&gt; On the vertical axis we set out the degree of symmetry between countries, i.e. the degree of co-movement (correlation) of macroeconomic variables such as output and employment. Thus, when there are a lot of asymmetric shocks we move downwards along the vertical axis. By contrast, when shocks become less asymmetric we move upwards along the vertical axis.&lt;/p&gt;&#xA;&lt;p&gt;The downward sloping OCA line represents the trade-off between symmetry and flexibility. Hence, when the degree of symmetry declines (there are more asymmetric shocks) countries in a monetary union need more flexibility to deal with these shocks.&lt;/p&gt;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/vFjtR.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/vFjtR.png&quot; alt=&quot;enter image description here&quot; /&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&lt;p&gt;The OCA-line separates the space into two zones. The OCA-zone above the OCA-line contains the collection of points at which symmetry and flexibility are high enough to guarantee that the benefits of the monetary union exceed the costs. The points below the OCA-line are the points at which symmetry and flexibility are too low, i.e. countries located in that zone will find that the costs of the monetary union exceed the benefits. The OCA-line that separates the two zones can therefore also be defined as the collection of points for which the benefits and the costs of the monetary union are equal.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;So they probably mixed up usage a little and instead of wage flexibility and &lt;a href=&quot;https://en.wikipedia.org/wiki/Labor_mobility&quot; rel=&quot;nofollow noreferrer&quot;&gt;labor &lt;em&gt;mobility&lt;/em&gt;&lt;/a&gt; they referred to &lt;a href=&quot;https://en.wikipedia.org/wiki/Labour_market_flexibility&quot; rel=&quot;nofollow noreferrer&quot;&gt;labor flexibility&lt;/a&gt; in the 2nd term. I suppose the latter may encompass the former for some broad meaning... but then it also includes wage flexibility.&lt;/p&gt;&#xA;&lt;p&gt;And if the quoted theory above isn't too accessible, a simple illustration is to consider Greece: its economy was quite unlike Germany's. So in order to respond to the (asymmetric) shock the Eurozone experienced as a whole via the Greek problem, Greek workers had to take lower pay or migrate to other EU countries. And they did both to some extent. Of course, the flexibility question/measure is how fast these two reactions happen in response to a shock.&lt;/p&gt;&#xA;&lt;p&gt;Finally, labor mobility &lt;a href=&quot;https://www.wiwiss.fu-berlin.de/forschung/veranstaltungen/rse/Papers_Winter_13_14/Borndignon_LaborMobility.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;works better&lt;/a&gt; as an automatic stabilizer if you also have  federal taxes; without these you need some other mechanism to transfer money from the income of the workers that have migrated back to the problem area of their origin.&lt;/p&gt;&#xA;" OwnerUserId="6210" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2019-04-22T05:13:04.863" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27853" PostTypeId="1" AcceptedAnswerId="27857" CreationDate="2019-04-19T11:03:52.307" Score="2" ViewCount="234" Body="&lt;p&gt;In mathematics, some relations ( sets of ordered pairs) are not functions. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know economists make use of functions. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But do they also consider relations that are not functions. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In which branch of economics could &quot;non-functional&quot; relations be useful? &lt;/p&gt;&#xA;" OwnerDisplayName="user21865" LastEditorUserId="38" LastEditDate="2019-07-03T07:33:58.173" LastActivityDate="2019-07-03T07:33:58.173" Title="Is it possible to give, in economics, an example of a relation ( set of ordered pairs) that is not a function?" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;mathematical-economics&gt;" AnswerCount="2" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="27854" PostTypeId="1" CreationDate="2019-04-19T12:34:12.290" Score="3" ViewCount="321" Body="&lt;p&gt;In the &quot;Intro to Micro&quot; approach to externalities, I've always felt uneasy as a teacher with the idea that there is something like an &quot;efficient &lt;em&gt;equilibrium&lt;/em&gt;&quot; with a single &quot;efficient price&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To keep things simple, I will focus on external costs, but everything applies symmetrically to external benefits.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The graphs you often see are similar to those in the Wikipedia article on externalities. These graphs use the term &quot;ideal equilibrium&quot; instead of &quot;efficient equilibrium&quot;, but the rest is standard (I include the captions from Wikipedia):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/IVZ9a.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/IVZ9a.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&#xA;&lt;sup&gt; &quot;Demand curve with external costs; if social costs are not accounted for price is too low to cover all costs and hence quantity produced is unnecessarily high (because the producers of the good and their customers are essentially underpaying the total, real factors of production.)&quot; (&lt;a href=&quot;https://en.wikipedia.org/wiki/Externality&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://en.wikipedia.org/wiki/Externality&lt;/a&gt;)&lt;/sup&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have of course no problem with recognizing and explaining that there is a unique efficient quantity. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My main issue is with the idea that there is a &lt;em&gt;unique &quot;ideal price&quot;&lt;/em&gt;&lt;/strong&gt; above the actual equilibrium price, and secondarily with the fact that this price is dubbed an &quot;&lt;em&gt;equilibrium&lt;/em&gt;&quot; price (however &quot;ideal&quot; or &quot;efficient&quot;). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;At first sight, it seems ok to explain that, in the presence of an external cost, the good is under-priced because the actual equilibrium price only takes private costs into account (as opposed to social cost). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, this only makes sense if we are talking about the price &lt;em&gt;for consumers&lt;/em&gt;. For producers, a higher price would mean a higher quantity supplied. So in the presence of an external cost, the good is actually &lt;em&gt;over&lt;/em&gt;priced for producers, and &lt;em&gt;under&lt;/em&gt;priced for consumers only. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is, in fact, the reason why a Pigouvian tax is a good instrument to solve the external cost problem: Because it increases the price for consumers &lt;em&gt;and&lt;/em&gt; decreases the price for producers. Under a Pigouvian tax, the efficient quantity is indeed the equilibrium quantity. However, we now have &lt;em&gt;two&lt;/em&gt; equilibrium prices (these are real equilibrium prices this time), one for consumers --- higher than the old equilibrium price --- and one for producers --- lower than the old equilibrium price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This issue becomes even more salient if, after discussing external costs in the context of the above graph, you attempt to make sense of external benefit in the context of the symmetric graph (&lt;a href=&quot;https://en.wikipedia.org/wiki/File:Positive_externality.svg&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://en.wikipedia.org/wiki/File:Positive_externality.svg&lt;/a&gt;) which again suggests that the good is &lt;em&gt;under&lt;/em&gt;priced at the actual equilibrium (whereas it is really underpriced &lt;em&gt;for producers&lt;/em&gt;, and overpriced &lt;em&gt;for consumers&lt;/em&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My questions are:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Am I missing something? Is there really a sense in which the price &lt;span class=&quot;math-container&quot;&gt;$P_S$&lt;/span&gt; in the above graph is the &quot;correct efficient price&quot; across the board, both for producers and consumers?&lt;/li&gt;&#xA;&lt;li&gt;Presentations of externalities that rely on graphs like the one above are typically agnostic about the &quot;source&quot; of the externality (whether it is a consumption or production externality) and only care about its sign (i.e., whether it is an external benefit or an external cost). I guess if we assumed that the external costs came from a consumption externality, then &lt;span class=&quot;math-container&quot;&gt;$P_S$&lt;/span&gt; would indeed an efficient price (because it would reduce &lt;em&gt;consumption&lt;/em&gt; to the efficient quantity, which is all we would care about). But then again, isn't it a stretch to call &lt;span class=&quot;math-container&quot;&gt;$P_S$&lt;/span&gt; an &quot;equilibrium&quot; price when, clearly, imposing &lt;span class=&quot;math-container&quot;&gt;$P_S$&lt;/span&gt; across the board for both consumers and producers would induce a shortage?&lt;/li&gt;&#xA;&lt;li&gt;If you were teaching externalities out of a textbook using similar graphs and terminology, how would you try to make sense of all this for your students? Depart from the textbook and explain you don't agree with the idea of an &quot;efficient equilibrium&quot; with a single &quot;efficient price&quot;? Or try to work around the issue without opposing the textbook?&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="38" LastEditorUserId="38" LastEditDate="2019-04-19T13:25:58.383" LastActivityDate="2019-04-20T02:59:56.350" Title="Is there really an &quot;efficient equilibrium *price*&quot; with externalities?" Tags="&lt;microeconomics&gt;&lt;externalities&gt;&lt;teaching&gt;" AnswerCount="3" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27855" PostTypeId="2" ParentId="23901" CreationDate="2019-04-19T12:45:42.230" Score="1" Body="&lt;p&gt;About your second question, Gérard Debreu, in his book Theory of Value, says in the notes of chapter 1 that the &lt;span class=&quot;math-container&quot;&gt;$\succsim$&lt;/span&gt; notation is due to Herstein and Milnor. So, probably, this is the origin of symbol for preferences.&lt;/p&gt;&#xA;" OwnerUserId="20068" LastActivityDate="2019-04-19T12:45:42.230" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27856" PostTypeId="1" AcceptedAnswerId="27858" CreationDate="2019-04-19T12:47:22.907" Score="0" ViewCount="56" Body="&lt;p&gt;Consider the following question:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;Given a simplified economy which produce and trade some products A,B,C etc... with N agents and a total money supply of M. What will be the price of A, B, C as measured in units of that money?&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems to me that this is one of the most fundamental questions in economics and yet I am struggling to find any papers that address it. I guess there may be some &lt;a href=&quot;https://en.wikipedia.org/wiki/Agent-based_computational_economics&quot; rel=&quot;nofollow noreferrer&quot;&gt;agent based models&lt;/a&gt; out there which address it but I don't know what keywords or phrases to use in a search. Any ideas?&lt;/p&gt;&#xA;" OwnerUserId="5081" LastActivityDate="2019-04-19T18:29:35.687" Title="The value of money in a model economy. Has this been addressed?" Tags="&lt;macroeconomics&gt;&lt;money-supply&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27857" PostTypeId="2" ParentId="27853" CreationDate="2019-04-19T12:51:41.460" Score="4" Body="&lt;p&gt;I feel that your question might be a little broad, but there are certainly many areas of economics where non-functional relations are used. Two simple examples (there are many others):&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;One of the most fundamental models of behavior in economics relies on the idea that choices can be represented by &quot;preferences&quot; which mathematically are binary relations that do not have to be functions (they very often are not, e.g., &lt;span class=&quot;math-container&quot;&gt;$A \succ B \succ C$&lt;/span&gt; is not a function, since &lt;span class=&quot;math-container&quot;&gt;$\succ = \{ (A,B), (A,C), (B,C)\}$&lt;/span&gt;.&lt;/li&gt;&#xA;&lt;li&gt;Economics also relies on &lt;em&gt;correspondences&lt;/em&gt;, or ``multivalued&quot; functions (which, depending on the definition, can be just another way to view binary relations). Correspondences are used in a lot of subfields of economics but perhaps most notably in consumer theory, where the choice set of consumer with preference &lt;span class=&quot;math-container&quot;&gt;$\succeq$&lt;/span&gt; and budget set &lt;span class=&quot;math-container&quot;&gt;$B$&lt;/span&gt; can be a &lt;em&gt;whole subset&lt;/em&gt; of the consumption space &lt;span class=&quot;math-container&quot;&gt;$C(\succ,B) \subseteq X$&lt;/span&gt; (where &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; denotes the consumption space).&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="38" LastEditorUserId="38" LastEditDate="2019-04-19T13:19:45.170" LastActivityDate="2019-04-19T13:19:45.170" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27858" PostTypeId="2" ParentId="27856" CreationDate="2019-04-19T13:18:07.937" Score="2" Body="&lt;p&gt;What you are asking about is &quot;General Equilibrium with Money&quot;, and there is literature on the matter.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To get you started, check out   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://pdfs.semanticscholar.org/21be/5b0b2a688a3f6ecacb016c987f1c08cdc0eb.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;strong&gt;Duffie, D. (1990). Money in general equilibrium theory. in Friedman and Hahn (eds), &lt;em&gt;Handbook of monetary economics&lt;/em&gt;, vol. 1, 81-100.&lt;/strong&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The chapter starts with the sentence&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;This chapter provides conditions for the existence of general &lt;strong&gt;monetary&lt;/strong&gt; equilibrium in a simple setting, and discusses the role of&#xA;  money in general equilibrium theory.&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2019-04-19T18:29:35.687" LastActivityDate="2019-04-19T18:29:35.687" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27860" PostTypeId="1" CreationDate="2019-04-19T16:24:00.753" Score="-1" ViewCount="38" Body="&lt;p&gt;I have been asked this question: &quot;Folt Industries in 2017: It sold 1000 in sweaters, it imported 200 in wool from abroad, and purchased 200 in wool from domestic suppliers, it purchased a sewing machine for 300 that deprecated by 25 in that year. It paid 600 in wages. What was Folt Industries value added in 2017?&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, I am thinking that to calculate this I just take the value of sales (1000), and subtract the money they spent on intermediate goods (200 + 250), so would their value added be 550 total? Or am I missing something. &lt;/p&gt;&#xA;" OwnerUserId="21882" LastActivityDate="2019-04-22T02:03:58.800" Title="Is deprecation included in the value added approach?" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27864" PostTypeId="2" ParentId="27854" CreationDate="2019-04-19T20:02:23.550" Score="2" Body="&lt;p&gt;The blue lines are labelled as being costs, not prices. The line labelled &quot;Private Cost&quot; represents quantity supplied for a particular cost to the consumer. The line labelled &quot;Social Cost&quot; represents the quantity supplied for a particular cost to society. While, for the former, the cost is equal to the price received by the supplier, for the latter the cost is equal to the price received by the supplier plus the externality. &lt;span class=&quot;math-container&quot;&gt;$P_S$&lt;/span&gt; therefore represents the price paid by the consumer, not the price received by the supplier.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the case of steel smelting causing air pollution, the free market price represents the equilibrium if steel consumers are required to compensate steel suppliers for the cost that suppliers incur in smelting steel. The ideal price represents the equilibrium if steel consumers are required to compensate steel suppliers for the cost the suppliers incur, and also compensate the general population for the cost that they incur through pollution.&lt;/p&gt;&#xA;" OwnerUserId="16462" LastActivityDate="2019-04-19T20:02:23.550" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27865" PostTypeId="2" ParentId="27853" CreationDate="2019-04-19T20:07:26.403" Score="1" Body="&lt;p&gt;Relations which are not functions are extremely, extremely, &lt;em&gt;extremely&lt;/em&gt; common in all fields of study, and economics is no exception. Some examples are:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Most people buy multiple different products, so the relation &quot;buys&quot; is not a function.&lt;/li&gt;&#xA;&lt;li&gt;Most companies employ multiple different people, so the relation &quot;employs&quot; is not a function.&lt;/li&gt;&#xA;&lt;li&gt;Some people work for multiple different companies, so the relation &quot;works for&quot; is not a function, either.&lt;/li&gt;&#xA;&lt;li&gt;Some pieces of property are jointly owned by multiple people, so the relation &quot;is owned by&quot; is not a function.&lt;/li&gt;&#xA;&lt;li&gt;A single product can be sold at multiple different prices, so the relation &quot;costs&quot; is not a function.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="21887" LastActivityDate="2019-04-19T20:07:26.403" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27866" PostTypeId="2" ParentId="27854" CreationDate="2019-04-20T00:14:01.723" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;ol&gt;&#xA;  &lt;li&gt;Am I missing something? Is there really a sense in which the price &lt;span class=&quot;math-container&quot;&gt;$P_S$&lt;/span&gt; in the above graph is the &quot;correct efficient price&quot; across the board, both for producers and consumers?&lt;/li&gt;&#xA;  &lt;/ol&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In Econ 101, we will often simply define &lt;em&gt;efficiency&lt;/em&gt; as that which maximizes social surplus. So yes, here &lt;span class=&quot;math-container&quot;&gt;$P_S$&lt;/span&gt; is efficient.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(By the way, in economics, we have no use for the concept of a &quot;correct&quot; price. Likewise, we have no use for the concepts of the &quot;just&quot; or &quot;fair&quot; price.)&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;ol start=&quot;2&quot;&gt;&#xA;  &lt;li&gt;... isn't it a stretch to call &lt;span class=&quot;math-container&quot;&gt;$P_S$&lt;/span&gt; an &quot;equilibrium&quot; price when, clearly, imposing &lt;span class=&quot;math-container&quot;&gt;$P_S$&lt;/span&gt; across the board for both consumers and producers would induce a shortage?&lt;/li&gt;&#xA;  &lt;/ol&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In economics, an &lt;em&gt;equilibrium&lt;/em&gt; is a situation in which no one has an incentive to change her action (given everyone else's actions). Here, &lt;em&gt;equilibrium&lt;/em&gt; is also the situation in which neither price nor quantity will tend to change.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So here, if we impose the Pigouvian tax, then &lt;span class=&quot;math-container&quot;&gt;$P_S$&lt;/span&gt; is indeed the equilibrium price. (The Pigouvian tax thus helps us attain efficiency.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But if we don't, then &lt;span class=&quot;math-container&quot;&gt;$P_S$&lt;/span&gt; is not the equilibrium price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(My suspicion is that a good deal of the confusion here arises from a failure to clearly distinguish between the concepts of &lt;em&gt;efficiency&lt;/em&gt; and &lt;em&gt;equilibrium&lt;/em&gt;.)&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;ol start=&quot;3&quot;&gt;&#xA;  &lt;li&gt;If you were teaching externalities out of a textbook using similar graphs and terminology, how would you try to make sense of all this for your students? Depart from the textbook and explain you don't agree with the idea of an &quot;efficient equilibrium&quot; with a single &quot;efficient price&quot;? Or try to work around the issue without opposing the textbook?&lt;/li&gt;&#xA;  &lt;/ol&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In your view, there seems to be some sort of confusion or difficulty here that requires resolution. My view is that there is no confusion of difficulty whatsoever — see above explanations of the concepts of &lt;em&gt;efficiency&lt;/em&gt; and &lt;em&gt;equilibrium&lt;/em&gt;.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastEditorDisplayName="user18" LastEditDate="2019-04-20T00:19:26.667" LastActivityDate="2019-04-20T00:19:26.667" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27867" PostTypeId="1" CreationDate="2019-04-20T00:20:27.767" Score="1" ViewCount="47" Body="&lt;p&gt;First I want to thank you if you pay attention to my post. I apologize if it seems elementary to you, note that I searched a lot an answer before posting.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have a particular informational framework where there are 3 events denoted A, B, C.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A= This guy is cool.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\overline{A}$&lt;/span&gt;= This guy is not cool&lt;/p&gt;&#xA;&#xA;&lt;p&gt;B= Someone is here&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\overline{B}$&lt;/span&gt;= No one is here&lt;/p&gt;&#xA;&#xA;&lt;p&gt;C= He tells me if he is cool&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\overline{C}$&lt;/span&gt;= He does not tell me if he is cool&lt;/p&gt;&#xA;&#xA;&lt;p&gt;P(A), P(B) and P(C) are the probabilities associated with these events.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I assume that if the person who can advise me is not here, she cannot tell me something.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is the probability that this guy is cool given the fact that no one is telling me something?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I propose the following formula:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$P(A|\emptyset)=\frac{p(A\cap B \cap \overline{C})+p(A\cap\overline{B})}{P(\emptyset)}$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where &lt;span class=&quot;math-container&quot;&gt;$P(\emptyset)=P(A\cap B \cap \overline{C})+P(\overline{A}\cap B \cap \overline{C})+p(\overline{B})$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Knowing the Bayes rule the previous equation bothers me because it contains a kind of union between events on the numerator. Maybe this is because there is a kind of redundancy between event B and C. My question is, is it the correct formula to compute the conditional probability in this framework?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you&lt;/p&gt;&#xA;" OwnerUserId="14418" LastEditorUserId="14418" LastEditDate="2019-04-22T06:06:50.023" LastActivityDate="2019-04-22T06:06:50.023" Title="Probability of the event knowing that I received no informations" Tags="&lt;mathematical-economics&gt;&lt;probability&gt;&lt;bayesian-game&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="27868" PostTypeId="2" ParentId="27854" CreationDate="2019-04-20T02:42:00.890" Score="1" Body="&lt;p&gt;The efficient price corresponds to the one which would lead to a Pareto Efficient Allocation. &#xA;Without market failures, this price is coming from your equilibrium between the supply and the demand. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is not important if the externality takes place between consumers-producer, consumer-consumer or even producer-producer. All would lead to an overproduction (overconsumption) of the good compared to what it is Pareto efficient. I think what it is important to get is the meaning of efficient is relative to the definition of a Pareto allocation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;According to the Pigouvian principle, if the firm pollutes it will have to compensate (as said Accumulation before) the cost of the pollution to society.&lt;br&gt;&#xA;Concerning the naming &quot;equilibrium&quot;, it is because if the State imposes the Pigouvian tax on the pollution it is a market instrument to increase or decrease the equilibrium price. Your price equilibrium by definition equalizes supply with demand. But agents in their demand (if consumers) or in their supply (if producer) will take into account this price distortion.  Therefore your equilibrium price P*(t) will be higher if the tax is positive and the quantity consumed will be reduced.&lt;/p&gt;&#xA;" OwnerUserId="14418" LastEditorUserId="14418" LastEditDate="2019-04-20T02:59:56.350" LastActivityDate="2019-04-20T02:59:56.350" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27870" PostTypeId="1" CreationDate="2019-04-20T04:38:37.050" Score="2" ViewCount="245" Body="&lt;p&gt;I read there are a couple of questions asked in this regard, but I am not quite satisfied with the provided answers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am currently doing my master's degree (expecting to pursue a PhD) in Economics, and I have been very exposed to the Mas-Colell and the book of Advanced Macroeconomics by David Romer. Just reading the books, and taking notes, I end up rewriting each book myself again. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, I want to ask what it means to you to study Economics, how is it possible to learn economics, without actually memorizing (since I think that is my problem, I try to memorize everything)? What is an efficient way to take notes (in class or from the textbook), going through the textbook and actually understanding what is being exposed? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I hope my question is appropriate for this space, just to have a little discussion if there was someone who went through similar while pursuing graduate studies.&lt;/p&gt;&#xA;" OwnerUserId="21876" LastActivityDate="2019-04-22T04:29:54.657" Title="How to efficiently study and learn Economics?" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27871" PostTypeId="2" ParentId="27870" CreationDate="2019-04-20T05:08:59.017" Score="3" Body="&lt;p&gt;I am a ph.D Student in Economics, and I am sharing my experience.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is not necessary to be able to prove everything. Each time you will have to tackle a specific issue you will have to go back to handbooks and articles that have been made.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think what is important to memorize is the global story of each chapter of these kinds of handbooks (as Mas Colell for instance). The most useful things to memorize is probably the tool you will constantly use in Microeconomics (such as optimization, linear algebra, topology), Econometrics, Games Theory and so on. &#xA;Maybe craft your own handbook based on what you learned from different lectures, books and write as many tips as you can when you are inside the subject. Then if you have to go back to your notes you will be way faster.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you have this basis, what matters is to be able to take some perspective with your subject, and to be the most relevant is the hardest thing. &#xA;Studying economics permits to shed lights on (not all) human behaviors, never forget that behind your proofs and lemmas !&lt;/p&gt;&#xA;" OwnerUserId="14418" LastEditorUserId="14418" LastEditDate="2019-04-20T19:17:50.450" LastActivityDate="2019-04-20T19:17:50.450" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="27872" PostTypeId="1" CreationDate="2019-04-20T07:54:31.680" Score="2" ViewCount="46" Body="&lt;p&gt;Robert Shiller writes (2000 &lt;em&gt;Irrational Exuberance&lt;/em&gt;, &lt;a href=&quot;https://books.google.com/books?id=_aIpBQAAQBAJ&amp;amp;pg=PA44&amp;amp;dq=%22A%20decline%20in%20crime%20rates%20also,%20on%20the%20flip%20side,%20encouraged%20materialistic%20values%20by%20making%20people%20feel%20more%20secure%22&quot; rel=&quot;nofollow noreferrer&quot;&gt;2015 3rd edition&lt;/a&gt;):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;A decline in crime rates also, on the flip side, encouraged materialistic&#xA;  values by making people feel more secure, less worried that they would be&#xA;  robbed or physically harmed. In the United States, the rate of property crimes&#xA;  per 1,000 people fell 49% between 1993 and 2003, and the rate of violent&#xA;  crimes per 1,000 people fell 55%. One could then more comfortably flaunt&#xA;  wealth, and so wealth became more attractive. Living in an ostentatious&#xA;  home was now more appealing. Fear of terrorism increased, but terrorists&#xA;  did not seem to strike wealthy people preferentially, and generally not in&#xA;  their homes. The declining crime rates in the U.S. made a capitalist lifestyle&#xA;  seem a better model for the entire world.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;These are interesting claims but Shiller does not seem to offer anything to back them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I wonder if there has been any actual research showing that &quot;a decline in crime rates ... encourage[s] materialistic values by making people feel more secure&quot;?&lt;/p&gt;&#xA;" OwnerDisplayName="user20317" LastActivityDate="2019-05-22T12:04:05.680" Title="Did/does a decline in crime rates encourage materialistic values?" Tags="&lt;capitalism&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27875" PostTypeId="1" CreationDate="2019-04-20T15:11:31.827" Score="-1" ViewCount="141" Body="&lt;p&gt;Suppose that there are two agents, 1 and 2, and two goods, honey (h) and lemon (l), and that the agents' preferences over these goods are defined by the following utility functions:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$u^1(x_h^1, x_l^1)=x_h^1+x_l^1$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$u^2(x_h^2, x_l^2)=min[x_h^2, x_l^2]$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Furthermore, suppose that the agents are assigned the following initial allocations, of the form (h,l):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$w^1=(1/2, 1/2)$$&lt;/span&gt; &#xA;&lt;span class=&quot;math-container&quot;&gt;$$w^2=(3/2, 1/2$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given these utility functions and initial allocations, one could draw an edgeworth box and compute the set of pareto efficient outcomes. Doing so, one obtains the set:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$x:=(x^1_h,x^1_l,x^2_h,x^2_l)|x^2_h=x^2_l , x_h^2\in[1/2,1].$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the above set of Pareto outcomes, I am assuming that markets clear, which is why I don't specifically mention the consumption of agent 2 (it's defined by what agent 1 does not consume). To calculate this set, I simply drew the edgeworth box and used the fact that Pareto efficiency is the set of points on the contract curve between the initial two indifference curves given by the initial allocation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My ultimate goal is to find the competitive equilibrium which I know belongs to the set of Pareto efficient consumption levels, but I don't know how to do this. I know that CE is the pair of allocations and prices that cause the allocations to solve each agents consumption problem, but I'm honestly pretty lost in all of the different equations and constraints. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Could someone help clarify exactly what needs to be done?&lt;/p&gt;&#xA;" OwnerUserId="20439" LastActivityDate="2019-04-22T04:07:41.623" Title="Computing the competitive equilibrium given initial allocation" Tags="&lt;general-equilibrium&gt;&lt;pareto-efficiency&gt;&lt;competitive-equilibrium&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27877" PostTypeId="2" ParentId="26430" CreationDate="2019-04-20T17:40:29.110" Score="1" Body="&lt;p&gt;As long as &lt;span class=&quot;math-container&quot;&gt;$g(\cdot)$&lt;/span&gt; is &lt;strong&gt;&lt;em&gt;Nondecreasing&lt;/em&gt;&lt;/strong&gt; and &lt;strong&gt;&lt;em&gt;Concave&lt;/em&gt;&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Definition: For any lotteries &lt;span class=&quot;math-container&quot;&gt;$F$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$G$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$F$&lt;/span&gt; second-order stochastically dominates &lt;span class=&quot;math-container&quot;&gt;$G$&lt;/span&gt; if and only if the decision maker weakly prefers &lt;span class=&quot;math-container&quot;&gt;$F$&lt;/span&gt; to &lt;span class=&quot;math-container&quot;&gt;$G$&lt;/span&gt; under every weakly &lt;em&gt;increasing concave&lt;/em&gt; utility function &lt;span class=&quot;math-container&quot;&gt;$u$&lt;/span&gt;. &lt;a href=&quot;https://ocw.mit.edu/courses/economics/14-123-microeconomic-theory-iii-spring-2015/lecture-notes-and-slides/MIT14_123S15_Chap4.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Link&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="21756" LastActivityDate="2019-04-20T17:40:29.110" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27878" PostTypeId="1" AcceptedAnswerId="27879" CreationDate="2019-04-20T18:20:45.817" Score="5" ViewCount="214" Body="&lt;p&gt;I'm a total noob.  Please be kind.  :)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;GDP is only calculated using &quot;end products&quot;.  This seems terribly difficult to me.  For example, is a truck an end product or a method for production?  If I'm driving myself and my family around, then it seems like an end product.  But if I'm using it on my farm, then it doesn't.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How about a computer?  If I'm using it to play video games, then it seems like an end product.  But if it's used in a hospital to manage medical records, then it seems like an intermediate product.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How are these multiple uses taken into account with GDP?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I want some metric that is the total amount of goods produced (regardless of whether or not the good produced is an end product or not).  What is the best metric for this?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you!&lt;/p&gt;&#xA;" OwnerUserId="21893" LastActivityDate="2019-04-20T20:05:30.183" Title="GDP with Intermediate Production" Tags="&lt;gdp&gt;&lt;aggregate-production&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27879" PostTypeId="2" ParentId="27878" CreationDate="2019-04-20T20:05:30.183" Score="5" Body="&lt;p&gt;You’re looking for gross output; GDP is final output. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.bea.gov/products/gross-output-industry&quot; rel=&quot;noreferrer&quot;&gt;Per the BEA&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Economy-wide, real gross output—principally a measure of an industry's sales or receipts, which includes sales to final users in the economy (GDP) and sales to other industries (intermediate inputs)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;For calculation purposes, it’s generally assumed that a firm purchasing a good (for example, a computer) is using it as an intermediate input, while a household purchasing the same good is using it as consumption (so it’s a “final sale” counted in GDP), though corrections are applied in particular cases where this assumption doesn’t hold well. Cases where households act as producers, like farms and real estate, are prime areas for these corrections. &lt;/p&gt;&#xA;" OwnerUserId="264" LastActivityDate="2019-04-20T20:05:30.183" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27880" PostTypeId="2" ParentId="19117" CreationDate="2019-04-20T21:18:08.570" Score="0" Body="&lt;p&gt;Broadly speaking, second hand sales do not add to a country's GDP. GDP is Gross Domestic Product - in other words, the total amount Produced by the country. Second hand sales do not tend to involve production, so there is no reason to include second hand sales in GDP.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, if some value is being added to the product then that value addition would certainly count.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Second hand good&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Goods sold by primary consumer to another consumer deducting the depreciation price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Depreciation denotes the wear and tear of that product or the part of that product which the primary consumer has consumed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;If product is sold without any modifications or repair&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider this example: I am buying a Pencil box for ₹30. It contains 10 pencils and I consume one pencil per day. The price of each pencil will be ₹3 obviously. The life of that Pencil box is 10 days, in monetary terms ₹3 per day. I use 8 pencils in 8 days and sell the remaining two to my enemy for ₹6.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I had brought that Pencil box for ₹30. that means I have consumed ₹24 of that product. ₹24 has been depreciated and the remaining value of that product is what is the second hand price. Thus it is a mere sharing of expenses and no value gets added whatsoever.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Compare this with a Motor bike being sold as a second hand. It may be brought for ₹50,000 but the owner sells it for ₹20,000 which means he has consumed ₹30,000 worth of that product and given the remaining to the other.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;If product undergoes some value addition.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the product is enhanced by value addition, then Depreciated price+ Value added will be the price of that good. Here depreciated price is intrinsic value as given by the above example. Extra money added is due to that value addition and this part gets added to the GDP since it is not already there but newly added.&lt;/p&gt;&#xA;" OwnerUserId="21863" LastActivityDate="2019-04-20T21:18:08.570" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27881" PostTypeId="1" CreationDate="2019-04-20T21:21:43.580" Score="3" ViewCount="51" Body="&lt;h2&gt;Question:&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Why do perfectly competitive, loss-making firms that have (AC&gt;AVC&gt;AR) shutdown but&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Firms that have (AC&gt;AR&gt;AVC) not shutdown?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;-Both of these types of firms are making a loss. How is it significant that the latter type's AVC is less than AR ? How does that affect whether it shuts down ?**&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These two graphs are for the two types of firms in perfectly competitive markets:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Loss-making firms where their AC &gt; AR &amp;amp; AVC &gt; AR that shutdown&#xA;&lt;a href=&quot;https://i.stack.imgur.com/wcQZY.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/wcQZY.png&quot; alt=&quot;diagram1&quot;&gt;&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;Loss-making firms where their AC &gt; AR &amp;amp; AVC &amp;lt; AR that don't shutdown.&#xA;&lt;a href=&quot;https://i.stack.imgur.com/ksoXb.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/ksoXb.png&quot; alt=&quot;diagram2&quot;&gt;&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="21896" LastEditorUserId="-1" LastEditDate="2019-04-23T05:32:44.673" LastActivityDate="2019-04-23T05:32:44.673" Title="Why do some perfectly competitive, loss-making firms shutdown and others don't?" Tags="&lt;microeconomics&gt;&lt;competition&gt;&lt;firm&gt;&lt;theory-of-the-firm&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27884" PostTypeId="1" CreationDate="2019-04-21T01:38:04.623" Score="2" ViewCount="17" Body="&lt;p&gt;I have encountered the term &lt;em&gt;lifeboat&lt;/em&gt; in these two contexts:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.sciencedirect.com/science/article/abs/pii/S0304393214000737&quot; rel=&quot;nofollow noreferrer&quot;&gt;Floating a “lifeboat”: The Banque de France and the crisis of 1889&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://books.google.com/books?id=-H_RAwAAQBAJ&amp;amp;pg=PA163&amp;amp;dq=%22lifeboat%20operation%22&quot; rel=&quot;nofollow noreferrer&quot;&gt;The 1974 rescue in the UK's secondary-banking crisis&lt;/a&gt;.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Is the term &lt;em&gt;lifeboat&lt;/em&gt; exactly the same as &lt;em&gt;bailout&lt;/em&gt;, but just less commonly used? Or are &lt;em&gt;lifeboats&lt;/em&gt; some special subset of &lt;em&gt;bailouts&lt;/em&gt;?&lt;/p&gt;&#xA;" OwnerDisplayName="user20317" LastEditorUserId="6210" LastEditDate="2019-04-21T08:27:37.543" LastActivityDate="2019-04-21T08:27:37.543" Title="Lifeboat vs bailout" Tags="&lt;banking&gt;&lt;definition&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27888" PostTypeId="1" CreationDate="2019-04-21T07:48:59.707" Score="5" ViewCount="166" Body="&lt;p&gt;I have read various articles about incomplete contracts, like Hart's papers and Milgrom's papers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But I have not found a paper that defines mathematically, in the most general way possible, what an contract is, and how a contract can be more, or less, &quot;incomplete&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there a general model that has as special cases the incomplete contracts studied in the literature (e.g. by Hart, Incomplete Contracts and the Theory of the Firm, and others), and perhaps also as special case the complete contracts?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Note:&lt;/strong&gt; I am not necessarily asking for a general model that can include all the &lt;strong&gt;reasons&lt;/strong&gt; for incomplete contracts (thought that would be nice too). Just a model that can be used to state how (in)complete a particular contract is, whatever the reason.&lt;/p&gt;&#xA;" OwnerUserId="21899" LastEditorUserId="6168" LastEditDate="2019-04-21T08:22:20.573" LastActivityDate="2019-04-21T08:39:10.453" Title="General mathematical model of incomplete contracts?" Tags="&lt;microeconomics&gt;&lt;principal-agent&gt;&lt;contract-theory&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27889" PostTypeId="1" CreationDate="2019-04-21T08:16:49.333" Score="1" ViewCount="124" Body="&lt;p&gt;A central tenet of libertarianism is the notion of free association–being able to socialise and enter into contracts with people of your choosing, with the corollary of being able to &lt;em&gt;refuse&lt;/em&gt; to do those things too. The obvious criticism of this would be that one could then refuse to sell to people based on their skin colour, sex, orientation, etc., which has a historical precedent pretty much all over the globe. &lt;strong&gt;Does this make economic sense, though, or does it represent a market failure?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To my non-economist eyes it looks pretty cut and dry. Say Alice has a widget store and decides to only sell to people in group A. Bob also has a widget store and sells to both groups A &amp;amp; B. Surely Bob should have a significant economic advantage here, allowing him to lower prices and stay competitive with Alice? Even if some group A customers would refuse to shop at Bob's, presumably more would be attracted to Bob's store for its lower prices?&lt;a href=&quot;https://www.aeaweb.org/articles?id=10.1257/app.20150241&quot; rel=&quot;nofollow noreferrer&quot;&gt;1&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Even if social or legal pressures meant everyone had to segregate, would this not present a gap in the market to be filled by group B store-owners, who would then sell to the underserved group Bs, with prices presumably more in line with group B incomes (if they are also economically disadvantaged compared to group A), and with the profits more likely to be redistributed amongst other group B businesses?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's a cliche that the libertarian answer to everything is that 'the market will fix it', but this does seem like a sitation where that should happen, unless government pressure countered market forces (e.g. if it was made illegal for group Bs to even open their own stores or buy stock from wholesalers willing to sell to them). &lt;strong&gt;Would the libertarian counter-claim be, then, that the existence of economic segregation can only occur when backed by state force?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.aeaweb.org/articles?id=10.1257/app.20150241&quot; rel=&quot;nofollow noreferrer&quot;&gt;1&lt;/a&gt; However, &lt;a href=&quot;https://www.aeaweb.org/articles?id=10.1257/app.20150241&quot; rel=&quot;nofollow noreferrer&quot;&gt;this paper&lt;/a&gt; does suggest that '[d]iscriminators are on average willing to forego 8 percent of their earnings to avoid a coworker of the other ethnic type'.&lt;/p&gt;&#xA;" OwnerUserId="8417" LastEditorUserId="108" LastEditDate="2019-05-22T08:01:07.857" LastActivityDate="2019-06-10T21:31:36.663" Title="Does segregation make economic sense?" Tags="&lt;market-failure&gt;&lt;discrimination&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27890" PostTypeId="2" ParentId="27888" CreationDate="2019-04-21T08:39:10.453" Score="5" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Just a model that can be used to state how (in)complete a particular contract is, whatever the reason.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;I remember a debate at the end of the 90's on &lt;a href=&quot;https://onlinelibrary.wiley.com/doi/abs/10.1111/1468-0262.00052&quot; rel=&quot;noreferrer&quot;&gt;Incomplete Contracts: Where do We Stand?&lt;/a&gt; by Jean Tirole and &lt;a href=&quot;https://www.nber.org/papers/w6726.pdf&quot; rel=&quot;noreferrer&quot;&gt;Foundations of Incomplete Contracts&lt;/a&gt; by Hart and Moore, where they develop a model that provides a rigorous foundation for the idea that contracts are incomplete, followed by &lt;a href=&quot;http://Complexity%20and%20Renegotiation:A%20Foundation%20forIncomplete%20Contracts&quot; rel=&quot;noreferrer&quot;&gt;Complexity and Renegotiation: A Foundation for Incomplete Contracts&lt;/a&gt; by Segal.&lt;/li&gt;&#xA;&lt;li&gt;Check also this book &lt;a href=&quot;https://global.oup.com/academic/product/the-impact-of-incomplete-contracts-on-economics-9780199826223?cc=fr&amp;amp;lang=en&amp;amp;&quot; rel=&quot;noreferrer&quot;&gt;The Impact of Incomplete Contracts on Economics&lt;/a&gt; (2006) by Aghion, Dewatripont, Legros, and Zingales, including &lt;a href=&quot;http://Comments%20on%20the%20Foundations%20ofIncomplete%20Contracts&quot; rel=&quot;noreferrer&quot;&gt;Comments on the Foundations of Incomplete Contracts&lt;/a&gt; by Maskin.&lt;/li&gt;&#xA;&lt;li&gt;An interesting paper by Tirole &lt;a href=&quot;http://chrome-extension://oemmndcbldboiebfnladdacbdfmadadm/http://econ.lse.ac.uk/staff/lfelli/teach/TiroleAER09.pdf&quot; rel=&quot;noreferrer&quot;&gt;Cognition and Incomplete Contracts&lt;/a&gt;: Thinking  about  contingencies,  designing  covenants,  and  seeing  through  their implications is costly. Parties to a contract accordingly use heuristics and leave it incomplete. The paper develops a model of limited cognition and examines its consequences for contractual design.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="6168" LastActivityDate="2019-04-21T08:39:10.453" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27893" PostTypeId="1" AcceptedAnswerId="27902" CreationDate="2019-04-21T10:24:15.987" Score="-1" ViewCount="74" Body="&lt;p&gt;Some of my variable shows weak collinear relationship on my dependent variable.. how should I address this? &lt;/p&gt;&#xA;" OwnerUserId="21766" LastEditorUserId="21766" LastEditDate="2019-04-23T12:15:49.440" LastActivityDate="2019-04-23T12:15:49.440" Title="When using OLS is it always necessary to drop the weak and insignificant variable?" Tags="&lt;applied-econometrics&gt;&lt;regression&gt;" AnswerCount="1" CommentCount="1" ClosedDate="2019-04-28T22:31:54.937" ContentLicense="CC BY-SA 4.0" />
  <row Id="27894" PostTypeId="2" ParentId="27740" CreationDate="2019-04-21T10:28:36.610" Score="0" Body="&lt;p&gt;A source of confusion comes from the distinction between strict and weak preferences.&#xA;Define &lt;span class=&quot;math-container&quot;&gt;$\succ_n$&lt;/span&gt; strict preferences and &lt;span class=&quot;math-container&quot;&gt;$\succsim_n$&lt;/span&gt; weak preferences. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) The sequence of preference relations &lt;span class=&quot;math-container&quot;&gt;$\succ_n$&lt;/span&gt; does &lt;strong&gt;not&lt;/strong&gt; converge to preference relation &lt;span class=&quot;math-container&quot;&gt;$\succ$&lt;/span&gt;, precisely because of the indifference case.&#xA;If we take your example with &lt;span class=&quot;math-container&quot;&gt;$x_1=y_1$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$x_1=\max(x_1,x_2)$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$y_1=\max(y_1,y_2)$&lt;/span&gt;. Assume also that &lt;span class=&quot;math-container&quot;&gt;$x_2&amp;gt;y_2$&lt;/span&gt;.&#xA;Then, for any &lt;span class=&quot;math-container&quot;&gt;$n&amp;gt;0$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$x\succ_n y$&lt;/span&gt; but we do not have &lt;span class=&quot;math-container&quot;&gt;$x\succ y$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) However, one can show that the sequence &lt;span class=&quot;math-container&quot;&gt;$\succsim_n$&lt;/span&gt; converges to &lt;span class=&quot;math-container&quot;&gt;$\succsim$&lt;/span&gt;, which is what you suggest at the end of your question. We can check that the counterexample above does not apply here: &lt;span class=&quot;math-container&quot;&gt;$x\succsim_n y$&lt;/span&gt; for &lt;span class=&quot;math-container&quot;&gt;$n&amp;gt;0$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$x\succsim y$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;3) Is there an error in Rubinstein's textbook? No. The problem set (2018 update) actually frames the question in terms of weak preferences &lt;span class=&quot;math-container&quot;&gt;$\succsim$&lt;/span&gt; (note there is still a mix of notations that is puzzling).&lt;/p&gt;&#xA;" OwnerUserId="4094" LastActivityDate="2019-04-21T10:28:36.610" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27895" PostTypeId="1" CreationDate="2019-04-21T11:11:15.993" Score="-1" ViewCount="50" Body="&lt;p&gt;How does the &lt;a href=&quot;http://www.nviegi.net/teaching/meltzer.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Meltzer-Richard model&lt;/a&gt; provide a valid justification for single peaked preferences?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It has something to do with the Envelope Theorem and showing that the middle class' preferences over tax is the median voter's preference over tax.&lt;/p&gt;&#xA;" OwnerUserId="21797" LastEditorUserId="1601" LastEditDate="2019-04-21T11:15:20.550" LastActivityDate="2019-04-21T15:12:56.043" Title="Meltzer-Richard Model and Single Peaked Preferences" Tags="&lt;social-choice&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27897" PostTypeId="2" ParentId="27872" CreationDate="2019-04-21T12:48:42.940" Score="2" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Did/does a decline in crime rates encourage materialistic values?&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;These are interesting claims but Shiller does not seem to offer&#xA;  anything to back them.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Much of it sounds quite logical, whence I would not expect the author to present evidence on that. But, despite my consistent preference for neoliberalism, I think the author's conclusion is unverifiable and is rather an opinion that leaves several gaps unaddressed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;People seek and compete to impress and to be admired. That is part of our nature. For that purpose, some people develop their talent &amp;amp; skills, others --regrettably-- get tattoos, and others who can afford it show off goods and services that they think will make them stand out. Unlike a talent or a tattoo, objects such as jewelry, cars, or the latest iPhone can get stolen or at least vandalized. Thus, it is entirely reasonable that a generalized perception of safety will make the materialistic sector uninhibited to go out and engage in a materialistic competition.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Likewise, the author's remark on terrorism follows almost from &lt;a href=&quot;https://en.m.wikipedia.org/wiki/Definitions_of_terrorism&quot; rel=&quot;nofollow noreferrer&quot;&gt;definition&lt;/a&gt;. A terrorist's targets are those he views as strategic to his political motive: typically public figures, and/or masses whose support of a regime or institution would weaken upon terrorist acts. By contrast, targeting a merely wealthy person or household would not significantly impact the public's mindset in a way that advances the terrorist's purpose.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But, as I mentioned above, the author's conclusion that&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;[t]he declining crime rates in the U.S. made a capitalist lifestyle seem&#xA;  a better model for the entire world&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;is hardly susceptible to verification, research, or consensus. That conclusion entails multiple facets and subjectivity gaps that the author apparently did not address.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For instance, Marxists will disagree with the author's conclusion by portraying the state as the mechanism specifically devised to preserve the elite's &lt;em&gt;capitalist lifestyle&lt;/em&gt;. In short, Marxist will refute any link between &quot;&lt;em&gt;declining crime rates&lt;/em&gt;&quot; and &quot;&lt;em&gt;capitalism as a better model&lt;/em&gt;&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Likewise, an analyst will dispute the adequacy of extrapolating a trend of &quot;&lt;em&gt;declining crime rates &lt;strong&gt;in the U.S.&lt;/em&gt;&lt;/strong&gt;&quot; for reaching conclusions about &lt;em&gt;what&lt;/em&gt; exactly would be &quot;&lt;em&gt;a better [economic] model &lt;strong&gt;for the entire world&lt;/em&gt;&lt;/strong&gt;&quot; (brackets and emphasis added). Much of the capitalistic lifestyle in the U.S. relies on its indebtedness, whereas already in the 1920s &lt;a href=&quot;https://en.wikipedia.org/wiki/Hjalmar_Schacht#Rise_to_President_of_the_Reichsbank&quot; rel=&quot;nofollow noreferrer&quot;&gt;Hjalmar Schacht&lt;/a&gt; was concerned about how the capitalistic lifestyle (perhaps frenzy) in Germany was &lt;a href=&quot;https://rads.stackoverflow.com/amzn/click/com/0143116800&quot; rel=&quot;nofollow noreferrer&quot; rel=&quot;nofollow noreferrer&quot;&gt;undermining the German economy&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An environmentalist, a Catholic priest, or a Buddhist monk will refute the notion that &lt;em&gt;materialistic values&lt;/em&gt; are any beneficial for a single country --let alone for the entire world--, no matter how the idea of &quot;&lt;em&gt;declining crime rates&lt;/em&gt;&quot; is slid in the argument.&lt;/p&gt;&#xA;" OwnerUserId="18552" LastEditorUserId="18552" LastEditDate="2019-04-22T11:53:15.720" LastActivityDate="2019-04-22T11:53:15.720" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27898" PostTypeId="1" AcceptedAnswerId="27899" CreationDate="2019-04-21T14:07:25.793" Score="-2" ViewCount="147" Body="&lt;p&gt;Assume that the LM curve for a small open economy with a floating exchange rate is given by Y =&#xA;200r – 200 + 2(M/P), while the IS curve is Y = 400 + 3G – 2T + 3NX – 200r. The function for NX is&#xA;NX = 200 – 100e, where e is the exchange rate. The price level (P) is fixed at 1.0. The international&#xA;interest rate is r&#xA;* = 2.5 percent.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Using the LM curve, find the equilibrium level of Y in the small open economy, if M = 100&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is,how do i find the equilibrium Y given that I don't have the values of G and T?&lt;/p&gt;&#xA;" OwnerUserId="21632" LastActivityDate="2019-04-21T14:44:30.737" Title="find the equilibrium level of Y" Tags="&lt;macroeconomics&gt;&lt;general-equilibrium&gt;&lt;open-economy-macro&gt;" AnswerCount="1" CommentCount="1" ClosedDate="2019-04-23T20:09:49.910" ContentLicense="CC BY-SA 4.0" />
  <row Id="27899" PostTypeId="2" ParentId="27898" CreationDate="2019-04-21T14:44:30.737" Score="1" Body="&lt;p&gt;I cannot post this as a comment but the question you are asked is to find the equilibrium Y using the LM curve. All the information is given to you here, &lt;span class=&quot;math-container&quot;&gt;$M = 100, P = 1, r= 0.025$&lt;/span&gt;. This will give you the equilibrium level of &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt;. Think of it this way, the LM curve and the information you are provided gives you the level of &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt; in this economy, then for an equilibrium &lt;span class=&quot;math-container&quot;&gt;$G$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$T$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$e$&lt;/span&gt; will have to be determined &quot;residually&quot; to satisfy this level (this does not preclude that the exchange rate is determined endogenously given a floating exchange rate regime). &lt;/p&gt;&#xA;" OwnerUserId="21757" LastActivityDate="2019-04-21T14:44:30.737" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27900" PostTypeId="2" ParentId="27895" CreationDate="2019-04-21T14:55:15.387" Score="1" Body="&lt;p&gt;If I understand your question correctly, single-peaked preferences simply reflect the fact that voters in the lower percentiles of the income distribution will prefer higher levels of redistribution, and voters in the upper percentiles lower levels. However, to establish this the Meltzer-Richard model draws from the work of &lt;a href=&quot;https://www.sciencedirect.com/science/article/pii/0047272777900056&quot; rel=&quot;nofollow noreferrer&quot;&gt;Robert's&lt;/a&gt; (1977), who proved that if everybody has a unique most preferred tax schedule then this implies that individuals with higher incomes have most preferred schedules with lower marginal tax rates (see Lemma 1 in particular).  &lt;/p&gt;&#xA;" OwnerUserId="21757" LastEditorUserId="21757" LastEditDate="2019-04-21T15:12:56.043" LastActivityDate="2019-04-21T15:12:56.043" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27901" PostTypeId="1" AcceptedAnswerId="27903" CreationDate="2019-04-21T15:37:24.310" Score="6" ViewCount="526" Body="&lt;p&gt;The principal-agent problem is to some extent an intuitive thing that even ancient kings must have thought about.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But what is the first journal paper that has introduced the term &quot;principal&quot; and &quot;agent&quot;, and made the first formal economic analysis of the principal-agent problem as a general phenomenon?&lt;/p&gt;&#xA;" OwnerUserId="21899" LastActivityDate="2020-05-22T10:09:13.343" Title="First paper to introduce the &quot;principal-agent problem&quot;" Tags="&lt;reference-request&gt;&lt;principal-agent&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27902" PostTypeId="2" ParentId="27893" CreationDate="2019-04-21T16:53:47.813" Score="1" Body="&lt;p&gt;Your question contains very little information so these are my two cents. Assuming your model is correctly specified and there is no underlying problem with the data you are using, there's really little you can do about this. In my experience, this is often the case where some variables are included based on the literature and the relationship found in the regression model does not necessarily reflect the hypothesized relationships. Now, assuming you are studying a relationship based on some theoretical work and that your sample isn't small (so as to have a negligible effect of insignificant variables on p-values), you should not drop variables (this is the equivalent as specifying a theoretical relationship based on the results of a regression model and it is, from a purely academic perspective, the wrong direction to work in). This is generally the case where these variables have a hypothesized relationship as predictors or serve as controls. When deciding whether the addition of these variables may create a problem in the OLS estimation you may try to run different regressions adding and excluding those variables to see if there are any important changes (e.g. in the variance explained by your model or in the overall fit). Now, as I said, there is little information provided, so I am assuming many things here. &lt;/p&gt;&#xA;" OwnerUserId="21757" LastActivityDate="2019-04-21T16:53:47.813" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="27903" PostTypeId="2" ParentId="27901" CreationDate="2019-04-21T17:05:45.393" Score="8" Body="&lt;p&gt;The term principal-agent problem is due to &lt;a href=&quot;http://www3.uah.es/econ/MicroDoct/Ross_1973_The%20economic%20theory%20of%20agency.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Ross&lt;/a&gt; (1973) (per Stiglitz, &lt;a href=&quot;https://link.springer.com/chapter/10.1007/978-1-349-20215-7_25&quot; rel=&quot;nofollow noreferrer&quot;&gt;1989&lt;/a&gt;). Other early contributions to this literature include Mirrlees (&lt;a href=&quot;https://scholar.google.co.uk/scholar?hl=fr&amp;amp;as_sdt=0%2C5&amp;amp;q=Mirrlees%2C%20J.%201974.%20Notes%20on%20welfare%20economics%2C%20information%2C%20and%20uncertainty.%20In%20Contributions%20to%20Economic%20Analysis%2C%20ed.%20M.S.%20Balch%2C%20D.L.%20McFadden%20and%20S.Y.%20Wu%2C%20Amsterdam%3A%20North-Holland.&amp;amp;btnG=&quot; rel=&quot;nofollow noreferrer&quot;&gt;1974&lt;/a&gt;, &lt;a href=&quot;http://www.course.sdu.edu.cn/G2S/eWebEditor/uploadfile/20120410084219_750513193492.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;1976&lt;/a&gt;) and Stiglitz &lt;a href=&quot;https://www.isid.ac.in/~tridip/Teaching/DevelopmentMicroeconomics/Readings/04LandMarket/01Stiglitz-ReStud1974.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;1974&lt;/a&gt;, &lt;a href=&quot;http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.467.1328&amp;amp;rep=rep1&amp;amp;type=pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;1975&lt;/a&gt;).&lt;/p&gt;&#xA;" OwnerUserId="21757" LastEditorUserId="4816" LastEditDate="2020-05-22T10:09:13.343" LastActivityDate="2020-05-22T10:09:13.343" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27904" PostTypeId="2" ParentId="27881" CreationDate="2019-04-21T19:18:26.583" Score="5" Body="&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$AVC&amp;lt;AR$&lt;/span&gt; means, without considering fixed cost, the firm is making a profit of &lt;span class=&quot;math-container&quot;&gt;$AR-AVC&amp;gt;0$&lt;/span&gt; per unit of output. Compare the two options: keep producing vs  shutdown: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Keep producing: &lt;span class=&quot;math-container&quot;&gt;$\text{Avg Profit}=\underbrace{AR-AVC}_{&amp;gt;0}-AFC$&lt;/span&gt;&lt;/li&gt;&#xA;&lt;li&gt;Shutdown: &lt;span class=&quot;math-container&quot;&gt;$\text{Avg Profit}=0-AFC$&lt;/span&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Since &lt;span class=&quot;math-container&quot;&gt;$AVC&amp;lt;AR$&lt;/span&gt;, staying in production is better since the revenues can be used to offset part of the fixed costs already incurred.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$AVC&amp;gt;AR$&lt;/span&gt; means, without considering fixed costs, the firm is making a loss of &lt;span class=&quot;math-container&quot;&gt;$AR-AVC&amp;lt;0$&lt;/span&gt; per unit of output. Compare the two options: keep producing vs shutdown: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Keep producing: &lt;span class=&quot;math-container&quot;&gt;$\text{Avg Profit}=\underbrace{AR-AVC}_{&amp;lt;0}-AFC$&lt;/span&gt;&lt;/li&gt;&#xA;&lt;li&gt;Shutdown: &lt;span class=&quot;math-container&quot;&gt;$\text{Avg Profit}=0-AFC$&lt;/span&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Since &lt;span class=&quot;math-container&quot;&gt;$AVC&amp;gt;AR$&lt;/span&gt;, shutting down leads to a smaller loss than staying in production. &lt;/p&gt;&#xA;" OwnerUserId="42" LastEditorUserId="21827" LastEditDate="2019-04-22T04:19:36.920" LastActivityDate="2019-04-22T04:19:36.920" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27905" PostTypeId="2" ParentId="27860" CreationDate="2019-04-22T02:03:58.800" Score="0" Body="&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\text {Value Added = Profits + Depreciation/Amortization + Wages}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So you cannot calculate it because you cannot calculate profits (if losses then they enter negatively), because the exercise you were given informs about purchases of materials, not how much value of materials was consumed in production. Fluctuations in Inventories matter.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2019-04-22T02:03:58.800" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27906" PostTypeId="2" ParentId="27889" CreationDate="2019-04-22T03:13:35.207" Score="1" Body="&lt;p&gt;In many models, we assume that firms simply want to maximize profits, and there are no externalities. If these assumptions are true, then a free market will be racism-free, gender-blind etc, etc. However, this is not the case in the real world. People that own and operate firms not only want to maximize profits, often they also have all kinds of biases, including social biases like racism, sexism, etc; as well as cognitive biases, for example when they want to make the firm as big as possible even if that is not profitable. In all cases, this biases necessarily mean forgoing profits. For example the paper you cite. Ross Levine has other papers on the topic.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, the question of segregation is broader than this. For some type of relationships, &quot;segregation&quot; can make economic sense. For example, if you have a common resource, like a lake that provides some fishes, limiting who has access to such lake to only people who take care of the lake and does not overfish it, can have clear advantages, and be socially efficient. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In short, segregation can be the result of a friction, like cognitive or social biases. This is not a market failure, properly speaking, but it entails some inefficiencies, so in that sense, it does not make &quot;economic sense&quot;. But you can also have segregation, being the optimal response to a situation that involves externalities (like in the example of the lake). This segregation can make &quot;economic sense&quot; in that it is individually rational, and it may or may not be socially efficient. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider an example where it is likely not socially efficient. Suppose there is a big proportion of people who are racist, and you own a restaurant. Let's assume you are not racist and you only care about maximizing profits. It is perfectly reasonable to think that you will deny service to people based on race if that will make your racist costumers more likely to visit your restaurant. This segregation makes &quot;economic sense&quot; even though it might not be socially efficient in some way or desirable (the social welfare can be measured in many ways). Notice that I needed to assume that your other customers somehow have negative externalities from you selling to racial minorities. &lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-04-22T03:13:35.207" CommentCount="7" ContentLicense="CC BY-SA 4.0" />
  <row Id="27907" PostTypeId="2" ParentId="27875" CreationDate="2019-04-22T04:07:41.623" Score="0" Body="&lt;p&gt;The easiest way is to assume some prices &lt;span class=&quot;math-container&quot;&gt;$p_h, p_l$&lt;/span&gt; and focus on only one of the goods, say lemons. Derive the demand for lemons for each agent given the assumed prices and set the sum of their demands equal to the total endowment (market clearing condition for lemons). This gives you an equation that has both prices as the only unknowns. Usually at this point is when I choose which good to be numeraire, i.e. to set its price to 1, in order to make the algebra easier. Now you have a single equation that depends on a single price and should be pretty easy to solve (given the utilities you are given). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now you have the equilibrium prices for both goods, so you can plug them in the demand for lemons you found earlier and also figure out the demand for the other good given those prices. Since one market (lemons) is cleared, the other should be too. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is a classic problem, so SPOILER ALERT, the price of both goods should be the same: 1. The logic is simple, the guy with perfect complement preferences has strong preferences for an intermediate basket (since he has positive endowment for both goods, CE cannot be in a corner), and the only way to incentivize the guy with perfect substitute preferences to take an intermediate basket is by choosing a price ratio equal to his MRS (in this example, 1). Of course I'm speaking loosely, but hopefully, that gives you some intuition.&lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-04-22T04:07:41.623" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27908" PostTypeId="2" ParentId="27870" CreationDate="2019-04-22T04:29:54.657" Score="1" Body="&lt;p&gt;The first year of a Ph.D. in econ is no-doubt a lot of work, so memorizing everything is not only extremely hard but probably pointless. You surely need to learn some techniques and develop intuition and good practices for thinking through new problems or complex mathematical arguments. However, once the prelims are done, you have to start looking out in the world and try to explain something that has not been explained before. So the earlier you start doing that, the better. You will soon realize that it is easier to understand how each topic in Mas-Collel (and other similar books or resources) connects with each other when you realize how the discipline has developed in order to be able to study increasingly more complex problems and using increasingly less restrictive assumptions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the end, your dissertation will be just that: either a study of a particular phenomenon that has not been studied before, the developing of new tools that can be used for more complex problems, or an improvement of the current tools so that things can be studied without making too many restrictive assumptions. This is by no means an exhaustive list, but hopefully, you get the point that what is really important is to be able to see the big picture, be acquainted with the tools used in the discipline, and develop the rigor to formalize social phenomena in a way that something can be learned given the data and mathematical tools we have.&lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-04-22T04:29:54.657" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27909" PostTypeId="2" ParentId="25323" CreationDate="2019-04-22T04:47:52.473" Score="1" Body="&lt;p&gt;Def 1 is wrong. An inferior good is a good for which the demand decreases after a decrease in the agent's income. (not a decrease in the price of the good). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Definition 2 is trying to define the same concept, &quot;an inferior good&quot; so it is also wrong. Instead, both definitions would be appropriate if they were describing a Giffen good. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Giffen goods are indeed a special case of an inferior good. These are goods for which the law of demand does not apply. Since their demand has a positive relationship with price. The reason why this positive relationship is possible is that when prices change, they create income and substitution effect, and when goods are inferior, these effects go in the opposite direction. Thus, if the income effect dominates the substitution effect, you get the (seemingly counter-intuitive) behavior that demand increases when prices go up, and decreases when prices go down (a Giffen good). Note that to be a Giffen good you need to be inferior, but the reverse is not necessarily true, for example, if the substitution effect dominates the income effect. &lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-04-22T04:47:52.473" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27910" PostTypeId="2" ParentId="12344" CreationDate="2019-04-22T05:00:38.967" Score="1" Body="&lt;p&gt;Another solution can arise if you allow for uncertainty and for the planner to provide private information to each player. See &lt;a href=&quot;https://www.ssrn.com/abstract=3145000&quot; rel=&quot;nofollow noreferrer&quot;&gt;Bergemann and Morris, 2018&lt;/a&gt; for a survey in what is called information design. In that way, it is not hard to see how each player can be convinced that the social allocation is its most preferred outcome with high probability such that from the ex-ante perspective, the outcome is Pareto-optimal. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course, I'm throwing a lot of details under the rug, but having asymmetric information seems like another solution to this conundrum.&lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-04-22T05:00:38.967" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27911" PostTypeId="2" ParentId="27867" CreationDate="2019-04-22T05:18:35.780" Score="1" Body="&lt;p&gt;The right denominator should be &lt;span class=&quot;math-container&quot;&gt;$P(\bar C)$&lt;/span&gt;, and the right numerator should be &lt;span class=&quot;math-container&quot;&gt;$P(A\cap \bar C)$&lt;/span&gt; since &lt;span class=&quot;math-container&quot;&gt;$\bar C$&lt;/span&gt; is the event of no receiving information, either because the guy is not there or the guy is there but gives no information. The denominator should not depend on the true state of his &quot;coolness&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;An easy way to picture this problem is by doing a diagram. Think of a square and divide it in half, say vertically where the mass (or probability) in the left side represents &lt;span class=&quot;math-container&quot;&gt;$P(A)$&lt;/span&gt; and complementary probability in the right. Then divide the square in another half, say horizontally, so that the mass in the top half represents &lt;span class=&quot;math-container&quot;&gt;$P(B)$&lt;/span&gt;. each of the resulting smaller squares contains the mass of each of the possible intersections between these two events. Finally, you can divide the top half (created in the second step) in half (say horizontally again) where that top part represents &lt;span class=&quot;math-container&quot;&gt;$P(C)$&lt;/span&gt;, and the bottom part (from this last line up to the bottom of the square) represents &lt;span class=&quot;math-container&quot;&gt;$P(\bar C)$&lt;/span&gt;. Clearly, &lt;span class=&quot;math-container&quot;&gt;$C$&lt;/span&gt; does not intersect with &lt;span class=&quot;math-container&quot;&gt;$\bar B$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\bar C$&lt;/span&gt; contains &lt;span class=&quot;math-container&quot;&gt;$\bar B$&lt;/span&gt;, as desired. And you can clearly visualize the probability you are trying to calculate. &lt;/p&gt;&#xA;" OwnerUserId="21827" LastEditorUserId="21827" LastEditDate="2019-04-22T05:59:54.037" LastActivityDate="2019-04-22T05:59:54.037" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="27912" PostTypeId="1" AcceptedAnswerId="27945" CreationDate="2019-04-22T05:19:22.270" Score="0" ViewCount="40" Body="&lt;p&gt;Under the heading &lt;a href=&quot;https://www.informdirect.co.uk/shares/what-are-unpaid-shares/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Why would a company issue unpaid shares?&lt;/a&gt; by Johnathan Korchak&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Although unpaid and partly paid shares are far less common than fully paid shares, there are a number of reasons why a company might choose to issue them:&lt;/p&gt;&#xA;&lt;p&gt;[...]&lt;/p&gt;&#xA;&lt;p&gt;[second-last bullet] In line with a strategy to implement an acquisition or merger of companies.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Under the heading &lt;a href=&quot;https://www.1stformations.co.uk/blog/a-guide-to-company-shares/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Why would I issue unpaid shares?&lt;/a&gt;&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Companies may choose to issue partly-paid or unpaid shares for a variety of reasons, including:&lt;/p&gt;&#xA;&lt;p&gt;[...]&lt;/p&gt;&#xA;&lt;p&gt;[last bullet] As part of a strategy to implement a merger or acquisition.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="4020" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2019-05-23T12:02:50.373" Title="Why'd a company issue unpaid shares, to acquire or merge companies?" Tags="&lt;profits&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27913" PostTypeId="1" AcceptedAnswerId="27916" CreationDate="2019-04-22T05:29:09.463" Score="0" ViewCount="65" Body="&lt;p&gt;I'm trying to solve a question that is quite difficult for me. I did part of the question but, bit difficult to decide the exact answer for the below question. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;After coming up with an innovative idea for a new product, you paid 4000 &#xA;to an industrial designer to draw the blueprints and found a factory in China that agreed to produce the product for you for $3 per unit (the price includes the shipping cost from China to you). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since this is a totally new and unique product, you have no idea how the demand for it would be. Therefore, before you start pricing the product and ordering large amounts from the Chinese factory, you decide to run an experiment (or a pilot study): you talk to Target and they allow you to sell your product at 11 different Target stores for 11 different prices (a different price at each store). These stores are located in areas whose residents have similar average income, so you can be certain that price (and not income) is the only factor varying among these stores. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;After 2 weeks, Target sends you the sale numbers for your product.&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;Price   Quantity Demanded&#xA;4   221&#xA;5   210&#xA;6   185&#xA;7   162&#xA;8   144&#xA;9   122&#xA;10  102&#xA;11  81&#xA;12  61&#xA;13  46&#xA;14  25&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;What they are asking is to measure the total fixed cost and the marginal cost. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can 4000 be decided as the fixed cost? If so how the marginal cost can be calculated? I believe the variable cost is 3$. This 4000 should be only the initial fixed cost. How can I calculate the marginal cost. &lt;/p&gt;&#xA;" OwnerUserId="20901" LastEditorUserId="20901" LastEditDate="2019-04-22T12:04:14.200" LastActivityDate="2019-04-22T12:04:14.200" Title="fixed an marginal cost calculation issue" Tags="&lt;microeconomics&gt;&lt;cost&gt;&lt;marginal&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27914" PostTypeId="1" AcceptedAnswerId="28973" CreationDate="2019-04-22T05:43:04.800" Score="0" ViewCount="76" Body="&lt;p&gt;I'm trying to analyze the decisions of agents in investing scarce resource like time and money into developing their product/service/offering in the presence of competition. &lt;strong&gt;&lt;em&gt;I need to know what kind of mathematics can be used to describe this process, either analytically (preferably) or in the form of an simulation algorithm.&lt;/em&gt;&lt;/strong&gt; Also, I'm working in the context of the Web and the Internet.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;For example:&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose each agent has two possible strategies: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Strategy A, or S(A), consists of a high investment cost, which has high returns in the absence of competition or other possible adverse factors. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Strategy B, or S(B), is a low investment strategy, which comes with smaller returns that are more predictable.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;In each possible strategy, there is an option of which products to produce, and also how much to specialize by differentiating these products. Each product has its own cost/benefit profile, i.e. the level of demand for each differentiated version of the product is different, and so is the cost of producing it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would like to know how to model situations like the above. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Specific questions I have in mind are:&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Is there an equilibrium that can be reached?&lt;/li&gt;&#xA;&lt;li&gt;What are the conditions under which each agent would have the incentive to invest as much as possible?&lt;/li&gt;&#xA;&lt;li&gt;What does the equilibrium look like, in terms of levels of investment and specialization.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Example reference:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;Media, aggregators, and the link economy: Strategic hyperlink formation in content networks&quot; by Chrysanthos Dellarocas, Zsolt Katona, William Rand&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I found the above paper very illuminating. I would like to find more work along these lines, but haven't been very successful at tracking down any.&lt;/p&gt;&#xA;" OwnerUserId="5591" LastEditorUserId="5591" LastEditDate="2019-04-22T05:48:42.977" LastActivityDate="2019-04-25T13:28:57.570" Title="What mathematical structure or formalism can be used for modelling strategic investment decisions of agents in the context of competition?" Tags="&lt;mathematical-economics&gt;&lt;investment&gt;&lt;markets&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="27916" PostTypeId="2" ParentId="27913" CreationDate="2019-04-22T06:35:47.387" Score="3" Body="&lt;p&gt;The marginal cost is 3. Marginal costs do not depend on the fixed cost, and when your variable costs are constant, then the marginal cost and the variable cost are the same. Note that your total cost is &lt;span class=&quot;math-container&quot;&gt;$C=FC+3q$&lt;/span&gt; and the marginal cost is always the derivative of your total cost, in this case, &lt;span class=&quot;math-container&quot;&gt;$3$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for the fixed costs, 4000 is definitely part of it, but maybe also the forgone profits from selling the goods in the various stores at sub-optimal prices, as pointed out by another response. Other's have pointed out that if you calculate the variable profits for each price, 9 gives the largest profits, so in all the other stores that you made less profits, the lost profits should probably be added to the fixed cost.&lt;/p&gt;&#xA;" OwnerUserId="21827" LastEditorUserId="21827" LastEditDate="2019-04-22T06:45:25.203" LastActivityDate="2019-04-22T06:45:25.203" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="27917" PostTypeId="1" CreationDate="2019-04-22T08:20:21.837" Score="-1" ViewCount="198" Body="&lt;p&gt;Assuming one had the power to enact such a wide-ranging change, what would the negative effects of fixing the exchange rates between all currencies at the current rates, or the mean of the last week/month/year/whatever?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The specific rates settled on are not the point of the question, nor how this could possibly come about. The crux of it is, how might this change to global finance harm human beings?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Clearly, those companies and private individuals that make a living by shifting money around would no longer be able to do so. This is a given, no need to expand on that effect which many (including me) might consider a benefit and is to a great extent, the reason I'm asking.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question is, vested interests of a tiny minority who exploit the changing rates aside, why might this be a bad thing to happen?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another way of putting it might be; Is the only benefit to fluctuating currency rates that it means some people make a lot of money by trading currencies, with zero appreciable benefits to humanity at large?&lt;/p&gt;&#xA;" OwnerUserId="21909" LastEditorUserId="19689" LastEditDate="2019-04-23T08:25:34.443" LastActivityDate="2019-04-23T08:25:34.443" Title="What negative effects would result from globally fixing currency exchange rates?" Tags="&lt;exchange-rates&gt;&lt;foreign-exchange&gt;" AnswerCount="1" CommentCount="9" ContentLicense="CC BY-SA 4.0" />
  <row Id="27918" PostTypeId="1" AcceptedAnswerId="27923" CreationDate="2019-04-22T09:37:25.280" Score="2" ViewCount="96" Body="&lt;p&gt;I know that when we have public goods we have that:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$MRT = MRS_a + MRS_b$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Though I fail to understand why does this makes Walras equilibrium inefficient.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you very much for your help!&lt;/p&gt;&#xA;" OwnerUserId="19689" LastActivityDate="2019-04-22T12:29:15.370" Title="Why is Walras equilibrium inefficient when we are dealing with public goods?" Tags="&lt;microeconomics&gt;&lt;competitive-equilibrium&gt;&lt;public-goods&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27919" PostTypeId="2" ParentId="27528" CreationDate="2019-04-22T10:40:34.883" Score="0" Body="&lt;p&gt;The story of perfect competition is that companies achieve some &quot;peak efficiency&quot; (i.e. lowest LRAC) and the market demand is satisfied by firm entry until all demand is met at this lowest cost point. This story doesn't make sense in an economies of scale situation since economies of scale are defined by declining marginal cost (and hence average cost).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Formally this can be seen with an &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt; player Cournot game with various cost structures (linear gives perfect competition, what happens if you take square root cost?) and letting &lt;span class=&quot;math-container&quot;&gt;$n \to \infty$&lt;/span&gt; to study competition in this structure.&lt;/p&gt;&#xA;" OwnerUserId="21910" LastEditorUserId="21910" LastEditDate="2019-04-22T11:50:47.337" LastActivityDate="2019-04-22T11:50:47.337" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27920" PostTypeId="2" ParentId="27514" CreationDate="2019-04-22T10:57:46.200" Score="0" Body="&lt;p&gt;There is a fundamental flaw in your reasoning and that is that you are comparing the utility values of two different consumers. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Remember that utility functions don't actually mean anything and they're just an invention to explain consumer behaviour. When you change from &lt;span class=&quot;math-container&quot;&gt;$c_1+\beta c_2$&lt;/span&gt; to &lt;span class=&quot;math-container&quot;&gt;$c_1+c_2$&lt;/span&gt; you are changing the consumer and you can't compare these utility values anymore. For example I can also change the utility function to &lt;span class=&quot;math-container&quot;&gt;$c_1+c_2+123456789$&lt;/span&gt; and my consumers have higher utility but it doesn't mean anything about market power. Never compare utility values across consumers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Next, with regards to the opening question about patience, patience can mean many different things depending on the model. Usually it has to do with discounting, but discounting isn't always a simple factor (e.g. hyperbolic discounting). It has an intuitive meaning of &quot;valuing the future more highly relative to the present&quot; but the formality changes by model. Also, if you want to talk about arbitrarily patient agents, you probably want infinite time horizon.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, with regards to the Coase conjecture, &lt;a href=&quot;https://www.jstor.org/stable/3003511&quot; rel=&quot;nofollow noreferrer&quot;&gt;Stokey&lt;/a&gt; proved it in 1981 in a very important result in mechanism design. Reading that will probably give some insight into the formality of patience.&lt;/p&gt;&#xA;" OwnerUserId="21910" LastActivityDate="2019-04-22T10:57:46.200" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27921" PostTypeId="2" ParentId="27511" CreationDate="2019-04-22T11:09:24.797" Score="1" Body="&lt;p&gt;Studying a situation where consumers and producers interact to set price is precisely the study of bargaining. Any game theory text you pick up will almost certainly cover bargaining. The text I learned from, which I enjoyed thoroughly was Osborne's &lt;strong&gt;an introduction to Game Theory&lt;/strong&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A first example of a bargaining game would be &lt;a href=&quot;https://en.m.wikipedia.org/wiki/Rubinstein_bargaining_model&quot; rel=&quot;nofollow noreferrer&quot;&gt;Rubinstein's game of alternating offers&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't think adding consumer strategic behaviour to Cournot directly would be particularly more enlightening than studying bargaining separately, since Cournot already abstracts from the price setting mechanism.&lt;/p&gt;&#xA;" OwnerUserId="21910" LastActivityDate="2019-04-22T11:09:24.797" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27922" PostTypeId="2" ParentId="26970" CreationDate="2019-04-22T11:21:18.203" Score="0" Body="&lt;p&gt;Quick note: in pure strategies for sufficiently many players, shouldn't all 1 be NE as well?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Onto mixed strategies:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To have a mixed strategy Nash equilibrium, each player needs to be indifferent between the strategies they are mixing and they must prefer all those strategies to the ones they never play.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That means players must mix only between strategies between which they have an equal probability of winning (when given all other players' strategies). I suspect you can use this to show that players must mix between 0 and 1. Then it remains to solve for whatever mixed strategies give which players indifference between 0 and 1.&lt;/p&gt;&#xA;" OwnerUserId="21910" LastActivityDate="2019-04-22T11:21:18.203" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27923" PostTypeId="2" ParentId="27918" CreationDate="2019-04-22T11:24:04.493" Score="3" Body="&lt;p&gt;In a competitive market for a private good (&lt;em&gt;y&lt;/em&gt;) individuals may consume different quantities but the equilibrium condition requires that: &lt;span class=&quot;math-container&quot;&gt;$$ \frac{\frac{\delta u^{i}}{\delta y}}{\frac{\delta u^{i}}{\delta x}} = MRS^{i}_{yx} = MRT_{yx} \; \forall \; i $$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the case of a public good (&lt;em&gt;g&lt;/em&gt;) individuals may have different MRS but consume the same amount of the public good. Then for a given amount of a public good, the marginal benefit is the &lt;strong&gt;sum&lt;/strong&gt; of individual marginal rates of substitution. Therefore, the optimal allocation must satisfy: &lt;span class=&quot;math-container&quot;&gt;$$ \sum_{i} \frac{\frac{\delta u^{i}}{\delta g}}{\frac{\delta u^{i}}{\delta x}} = \sum_{i} MRS^{i}_{gx} = MRT_{gx} $$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can easily see that both conditions are not the same. In the case of an economy with only private goods, the benefit to&#xA;society of the last unit of a private good provided (expressed as the&#xA;willingness to forgo units of another good) is equal to the benefit of the&#xA;one person in society who receives this last unit. If there are some&#xA;people who receive a higher benefit from the last unit than others, we&#xA;don’t have Pareto efficiency. Hence, the marginal benefit of a private&#xA;good must be the same across all people for the allocation to be&#xA;efficient. &lt;a href=&quot;http://jaimedv.com/eco/3c2-publi/intermediate-public-economics.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Hindriks and Myles&lt;/a&gt; explain this thoroughly if you want to read further on the Samuelson condition versus competitive equilibrium (see Chapter 8 in particular). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit: There is no benefit that producers get here. Think of the MRT as the opportunity cost of producing an extra unit of a good and of the MRS as the marginal benefit of another unit of a good. The marginal cost of a unit of public good is one unit of private good (i.e. the MRT). Therefore the rule says that an efficient allocation is achieved when the total marginal benefit of another unit of the public good, which is the sum of the individual benefits, is equal to the marginal cost of another unit. If the good were private then the marginal benefit of an extra unit can only be attained by a single individual, so there is no sum. &lt;/p&gt;&#xA;" OwnerUserId="21757" LastEditorUserId="21757" LastEditDate="2019-04-22T12:29:15.370" LastActivityDate="2019-04-22T12:29:15.370" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="27924" PostTypeId="2" ParentId="26943" CreationDate="2019-04-22T11:26:16.247" Score="0" Body="&lt;p&gt;The key to problems like this is that it cannot be simplified to one representative buyer and one representative seller.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You have shown that a buyer will not buy for more than &lt;span class=&quot;math-container&quot;&gt;$\$48$&lt;/span&gt; assuming that all sellers are in the market. How will good sellers react to this price? How will bad sellers react to this price? Who is left in the market after deciding whether they are willing to sell? How does the buyer update their expectations given this knowledge and what is their new expected value?&lt;/p&gt;&#xA;" OwnerUserId="21910" LastActivityDate="2019-04-22T11:26:16.247" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27925" PostTypeId="2" ParentId="26466" CreationDate="2019-04-22T11:35:49.477" Score="1" Body="&lt;p&gt;Yes, indifference is an equivalent relation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That was covered in other answers and comments. I'm here to point out that preference relations are not partial orders. A partial order has the property that &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$a\leq b, b\leq a \implies a=b$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This not true precisely because of indifference. Rather, preference is typically assumed to be complete and transitive which means it is a total order on the quotient &lt;span class=&quot;math-container&quot;&gt;$X/\sim$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="21910" LastActivityDate="2019-04-22T11:35:49.477" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27926" PostTypeId="2" ParentId="26385" CreationDate="2019-04-22T11:41:04.553" Score="1" Body="&lt;p&gt;A classical example of a game with perfect but incomplete information is an English auction. We know what all the bids have been up to this point but we don't know everyone's valuation of the good being auctioned.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In general, formulating a strategy in this case involves some beliefs about your opponents' payoffs. Typically these are exogenous to the game but I guess you could have some revealed preference throughout an extensive game.&lt;/p&gt;&#xA;" OwnerUserId="21910" LastActivityDate="2019-04-22T11:41:04.553" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27927" PostTypeId="2" ParentId="26377" CreationDate="2019-04-22T11:47:34.933" Score="1" Body="&lt;p&gt;In general a best response function returns a set of best responses. This can be seen in much simpler games than Cournot.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To give a degenerate example, if a player is always indifferent between their strategies, their best response function will always return the set of all their strategies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When you have best response functions that give sets with more than one element, Nash equilibrium happens when each player's play is contained in the other player's best response set.&lt;/p&gt;&#xA;" OwnerUserId="21910" LastActivityDate="2019-04-22T11:47:34.933" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27928" PostTypeId="1" AcceptedAnswerId="27934" CreationDate="2019-04-22T12:03:25.297" Score="2" ViewCount="833" Body="&lt;p&gt;Hi I was given the following price vs quantity values.&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;Price   Quantity Demanded&#xA;4   221&#xA;5   210&#xA;6   185&#xA;7   162&#xA;8   144&#xA;9   122&#xA;10  102&#xA;11  81&#xA;12  61&#xA;13  46&#xA;14  25&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;The graph was plotted as shown below.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/8NqLH.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/8NqLH.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The equation was, &lt;span class=&quot;math-container&quot;&gt;$Y = -0.0496 X + 15.133$&lt;/span&gt;. What I need to know is, I was asked to find the PED when price is &lt;span class=&quot;math-container&quot;&gt;$\$7.5$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then what I did was, I found the quantity at price &lt;span class=&quot;math-container&quot;&gt;$7.5$&lt;/span&gt; substituting to the price quantity equation. And then found the PED using the equation&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/M4YQv.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/M4YQv.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The quantity derived for price &lt;span class=&quot;math-container&quot;&gt;$7.5$&lt;/span&gt; was &lt;span class=&quot;math-container&quot;&gt;$153.89$&lt;/span&gt;. Then I calculated the PED as below. Is it correct?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\frac{(153.89-144)/144}{(7.5-8)/8} = 1.099$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;May I know whether this calculation is correct?&lt;/p&gt;&#xA;" OwnerUserId="20901" LastEditorUserId="42" LastEditDate="2019-04-22T17:37:10.700" LastActivityDate="2019-04-22T17:37:10.700" Title="Calculating Price Elasticity of Demand" Tags="&lt;microeconomics&gt;&lt;elasticity&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="27929" PostTypeId="2" ParentId="26377" CreationDate="2019-04-22T12:11:26.403" Score="0" Body="&lt;p&gt;&quot;we cannot ensure a unique optimal quantity for profit maximisation&quot;&lt;br&gt;&#xA;Yes, it is possible you can have two( or more) points as the maximum, then both of them will be the best responses.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Best Response Function, (BRF) is the function matching the opponent's decision to my best response. BRF doesn't have to be in a neat form. It can be expressed as a table or a piecewise function.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Nash Equilibrium is the point where both players best responses meet. It should be optimal against optimal. If not, it means someone can be better off by changing his/her strategy.  &lt;/p&gt;&#xA;" OwnerUserId="21756" LastActivityDate="2019-04-22T12:11:26.403" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27930" PostTypeId="1" AcceptedAnswerId="27936" CreationDate="2019-04-22T12:18:17.490" Score="1" ViewCount="250" Body="&lt;p&gt;I am trying to solve the following problem: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider a pure exchange economy with three commodities and two households with individual endowments:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$e_1=(1,2,3), e_2=(3,2,1),$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;respectively, and utility functions&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$u_1(x_{11},x_{12},x_{13})=x_{11}+2x_{12}+3x_{13}$$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$$u_2(x_{21},x_{22},x_{23})=3x_{21}+2x_{22}+x_{23}$$&lt;/span&gt;&#xA;respectively.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which of the following is the Utility Possibility Frontier?&#xA;Options: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A. &lt;span class=&quot;math-container&quot;&gt;$\displaystyle \max\left\{ u_1+\frac{u_2}{2}, u_1 + u_2, \frac{u_1}{2} +u_2 \right\}  = 32$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;B. &lt;span class=&quot;math-container&quot;&gt;$ \displaystyle \max\left\{ u_1+\frac{u_2}{3}, \frac{3}{4} u_1 + \frac{3}{4} u_2, \frac{u_1}{3} +u_2 \right\}  = 24$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;C. &lt;span class=&quot;math-container&quot;&gt;$\displaystyle \max\left\{ u_1+\frac{u_2}{3}, u_1 + u_2, \frac{u_1}{3} +u_2 \right\}  = 24$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;D. None of the Above&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My attempt: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I tried calculating the Pareto optimal allocations by taking two commodities at a time. I found out that between good &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt; and good &lt;span class=&quot;math-container&quot;&gt;$2$&lt;/span&gt;, the Pareto efficient allocations are where: &#xA;&lt;span class=&quot;math-container&quot;&gt;$$x_{21}= 4 \quad \text{or} \quad x_{12} = 4$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Similarly, between good &lt;span class=&quot;math-container&quot;&gt;$2$&lt;/span&gt; and good &lt;span class=&quot;math-container&quot;&gt;$3$&lt;/span&gt;, I find that: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$x_{22}= 4 \quad \text{or} \quad x_{13} = 4$$&lt;/span&gt;&#xA;are  Pareto optimal. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Similarly, between good &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt; and good &lt;span class=&quot;math-container&quot;&gt;$3$&lt;/span&gt;, I find that: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$x_{21}= 4 \quad \text{or} \quad x_{13} = 4$$&lt;/span&gt;&#xA;are  Pareto optimal. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also I observe that the preferences among good &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt;, good &lt;span class=&quot;math-container&quot;&gt;$2$&lt;/span&gt; and good &lt;span class=&quot;math-container&quot;&gt;$3$&lt;/span&gt; of individual 1 are: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ \text{good } 3 &amp;gt; \text{good } 2 &amp;gt; \text{good } 1 $$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And those of individual &lt;span class=&quot;math-container&quot;&gt;$2$&lt;/span&gt; are: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ \text{good } 1 &amp;gt; \text{good } 2 &amp;gt; \text{good } 3 $$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now I consider the following allocations: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$((x_{11},x_{12},4), (x_{21},x_{22},0))$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And the fact that &#xA;&lt;span class=&quot;math-container&quot;&gt;$$x_{11} + x_{21} = 4$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$x_{12} + x_{22} = 4$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I find that: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$u_1 = x_{11}+2x_{12}+3x_{13} = x_{11}+2x_{12} + 12$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$u_2 = 3x_{21}+2x_{22}+x_{23} = 3x_{21}+2x_{22}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\implies u_1 + u_2 /3 = 16 + 2x_{12} + 2/3 x_{22}$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\implies u_1 + u_2 /3 = 16 + 2/3(3x_{12} + x_{22})$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\implies u_1 + u_2 /3 = 16 + 2/3(2x_{12} + 4)$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\implies u_1 + u_2 /3 \le 24 $$&lt;/span&gt;&#xA;because &lt;span class=&quot;math-container&quot;&gt;$x_{12} \le 4$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Similarly I consider the allocation: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$((0,x_{12},x_{13}), (4,x_{22}, x_{23}))$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And find that: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ u_1 /3 + u_2 \le 24 $$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am stuck here. I am not able to see how I can take it from to the options given. Please drop hints as to how I can. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you for reading this.&lt;/p&gt;&#xA;" OwnerUserId="21361" LastActivityDate="2019-04-22T19:53:18.203" Title="Utility Possibility Frontier with two consumers and 3 commodities" Tags="&lt;microeconomics&gt;&lt;pareto-efficiency&gt;&lt;pure-exchange-economy&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27932" PostTypeId="2" ParentId="27810" CreationDate="2019-04-22T14:42:07.860" Score="0" Body="&lt;p&gt;Given &lt;span class=&quot;math-container&quot;&gt;$m(u,v)$&lt;/span&gt; is CRTS we have the property that &lt;span class=&quot;math-container&quot;&gt;$m(u,v)=\frac{\delta{m}}{\delta{v}}v+\frac{\delta{m}}{\delta{u}}u$&lt;/span&gt;. Divide by &lt;span class=&quot;math-container&quot;&gt;$v$&lt;/span&gt; to get in terms of &lt;span class=&quot;math-container&quot;&gt;$\theta$&lt;/span&gt;: &lt;span class=&quot;math-container&quot;&gt;$m(\theta)=\frac{\delta{m}}{\delta{v}}+\frac{\delta{m}}{\delta{u}}\theta$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, it clearly follows that:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\frac{df}{d\theta}=\mu\frac{dm(\theta)}{d\theta}=\mu\frac{\delta{m}}{\delta{u}}&amp;gt;0$&lt;/span&gt; given that we have positive marginal products&lt;/p&gt;&#xA;" OwnerUserId="20326" LastActivityDate="2019-04-22T14:42:07.860" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27933" PostTypeId="1" CreationDate="2019-04-22T16:36:18.183" Score="1" ViewCount="162" Body="&lt;p&gt;From what I can find on &lt;a href=&quot;https://scholar.google.com&quot; rel=&quot;nofollow noreferrer&quot;&gt;Google Scholar&lt;/a&gt; it looks like there is a pass-through effect of approximately 1/3 the amount of a Value Added Tax - with the exception of food production, which trends higher - going to the consumer. In other words, instituting a VAT results in about 1/3 of that VAT showing up as extra costs to the consumer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Please assess the accuracy of the above estimate with sources you have found.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Estimation Sources:  &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;My findings suggest that taxes levied on food are completely shifted to consumer prices, while there is little spill-over effects to most other goods.&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://academic.oup.com/ej/article-abstract/129/618/853/5289453&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://academic.oup.com/ej/article-abstract/129/618/853/5289453&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;Since the effect on prices was limited, we conclude that the burden of the VAT tax was indeed shared between producers and consumers.&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;&quot;&lt;a href=&quot;https://books.google.com/books?id=NKZ6DwAAQBAJ&amp;amp;lpg=PA27&amp;amp;ots=efM07LqoVs&amp;amp;dq=VAT%20Since%20the%20effect%20on%20prices%20was%20limited%2C%20we%20conclude%20that%20the%20burden%20of%20the%20VAT%20tax%20was%20indeed%20shared%20between%20producers%20and%20consumers&amp;amp;pg=PA27#v=onepage&amp;amp;q=VAT%20Since%20the%20effect%20on%20prices%20was%20limited,%20we%20conclude%20that%20the%20burden%20of%20the%20VAT%20tax%20was%20indeed%20shared%20between%20producers%20and%20consumers&amp;amp;f=false&quot; rel=&quot;nofollow noreferrer&quot;&gt;The Price and Welfare Effects of The Value-Added Tax: Evidence from Mexico&lt;/a&gt;&quot;&lt;/em&gt;, p27: Conclusions&lt;/p&gt;&#xA;&#xA;&lt;p&gt;General reading from:&lt;br&gt;&#xA;&lt;em&gt;&quot;&lt;a href=&quot;https://econpapers.repec.org/paper/cesceswps/_5f5531.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;Estimating VAT Pass Through&lt;/a&gt;&quot;&lt;/em&gt; By Ms. Dora Benedek, Ruud A. de Mooij, Mr. Philippe Wingender&lt;/p&gt;&#xA;" OwnerUserId="21915" LastActivityDate="2019-04-22T16:36:18.183" Title="What percentage pass-through effect do VAT taxes have?" Tags="&lt;value&gt;&lt;tax&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27934" PostTypeId="2" ParentId="27928" CreationDate="2019-04-22T17:16:24.293" Score="3" Body="&lt;p&gt;The answer will vary slightly depending on which notion of elasticity you're using. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Arc_elasticity&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;strong&gt;Arc elasticity&lt;/strong&gt;&lt;/a&gt; (or &lt;strong&gt;midpoint&lt;/strong&gt; elasticity) uses the formula&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;\epsilon^\text{arc}=\frac{Q_1-Q_0}{P_1-P_0}\cdot\frac{\frac12(Q_0+Q_1)}{\frac12(P_0+P_1)},&#xA;\end{equation}&lt;/span&gt;&#xA;where &lt;span class=&quot;math-container&quot;&gt;$\frac12(Q_0+Q_1)$&lt;/span&gt; is the midpoint between &lt;span class=&quot;math-container&quot;&gt;$Q_0$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$Q_1$&lt;/span&gt;. Note that in your case, &lt;span class=&quot;math-container&quot;&gt;$7.5$&lt;/span&gt; is the midpoint between &lt;span class=&quot;math-container&quot;&gt;$7$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$8$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Elasticity_of_a_function&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;strong&gt;Point elasticity&lt;/strong&gt;&lt;/a&gt; uses the formula&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;\epsilon^\text{point}=\frac{\mathrm dQ}{\mathrm dP}\cdot\frac{P}{Q}.&#xA;\end{equation}&lt;/span&gt;&#xA;Here, &lt;span class=&quot;math-container&quot;&gt;$\frac{\mathrm dQ}{\mathrm dP}$&lt;/span&gt; is the derivative of the demand function (evaluated at the point you want to calculate the elasticity, but it will be constant if demand is linear), and in your case, &lt;span class=&quot;math-container&quot;&gt;$P=7.5$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$Q$&lt;/span&gt; is the quantity demanded corresponding to that price. &lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2019-04-22T17:16:24.293" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27935" PostTypeId="2" ParentId="26385" CreationDate="2019-04-22T17:41:00.463" Score="1" Body="&lt;p&gt;Perfect information as the lack of uncertainty about what happened in the past (there were no hidden moves by any player, or by nature), and incomplete information as uncertainty about your opponent's payoffs, or the structure of the game. Situations like that occur all the time. Suppose that you go to a date and of course, you know all the interactions you have had before, but you don't know if the other person is will like you physically, if he/she prefers taller people, or people who are introverted, etc. You just need to think of a situation where you know all the actions that were done in the past, but you don't know the goals of other players in the game or you have uncertainty about the structure of the game itself, so forming beliefs about what their strategy will be is more tricky. &lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-04-22T17:41:00.463" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27936" PostTypeId="2" ParentId="27930" CreationDate="2019-04-22T19:53:18.203" Score="2" Body="&lt;p&gt;The utility possibility frontier (UPF) plots the maximum total combination of utilities that can be achieved, given the preferences and total resources. To fix ideas, let's suppose we are plotting &lt;span class=&quot;math-container&quot;&gt;$u_1$&lt;/span&gt; in the &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; coordinate and &lt;span class=&quot;math-container&quot;&gt;$u_2$&lt;/span&gt; in the &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; coordinate. The easiest way to find the UPF is to start with a single agent, say agent 1 and give all the resources to him, so allocation &lt;span class=&quot;math-container&quot;&gt;$(4,4,4)$&lt;/span&gt; his utility will be 24, so that point, &lt;span class=&quot;math-container&quot;&gt;$(0,24)$&lt;/span&gt;, in the plane is definitely part of the UPF (by the way this calculation already precludes option &lt;span class=&quot;math-container&quot;&gt;$a$&lt;/span&gt;). Now, think that you are going to decrease agent &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt;'s utility in order to increase agent &lt;span class=&quot;math-container&quot;&gt;$2$&lt;/span&gt;'s utility. Since we are characterizing the frontier, you want to think what is the best way to move some resources from player &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt; to player &lt;span class=&quot;math-container&quot;&gt;$2$&lt;/span&gt;. After some thought, it is obvious that the best is to take away some of good &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt; from player &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt; since he only loses &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt; util while the other player gains &lt;span class=&quot;math-container&quot;&gt;$3$&lt;/span&gt; utils. Therefore, the point &lt;span class=&quot;math-container&quot;&gt;$(3,23)$&lt;/span&gt; is also part of the &lt;span class=&quot;math-container&quot;&gt;$UPF$&lt;/span&gt; note that the line connecting this two points is &lt;span class=&quot;math-container&quot;&gt;$u_1+\frac{u_2}{3}=24$&lt;/span&gt;, (unfortunately, this realization does not narrow the possible answers, since &lt;span class=&quot;math-container&quot;&gt;$b$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$c$&lt;/span&gt; share this equation as its first argument). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, this point was found by moving of the good 1 from agent 1 to agent 2, however, there are only 4 such units, so after agent 2 has all units of good 1, in order to keep increasing her utility, the most efficient transfer is to take away from agent 1 some of the units of good 2 he enjoys. Here the loses from agent 1 equal the gains from agent 2, so we should have this defined by a line with equal coefficients: &lt;span class=&quot;math-container&quot;&gt;$\alpha u_1+\alpha u_2=C$&lt;/span&gt; both options have this format, so we only need to make sure which one is correct given that the constant is 24. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that the point where &lt;span class=&quot;math-container&quot;&gt;$x_1=(0,4,4)$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$x_2=(4,0,0)$&lt;/span&gt; is part of this line and if we compute &lt;span class=&quot;math-container&quot;&gt;$u_1(0,4,4)+u_2(4,0,0)=32\neq 24$&lt;/span&gt;, but &lt;span class=&quot;math-container&quot;&gt;$\frac34 u_1(0,4,4)+\frac 34u_2(4,0,0)=24$&lt;/span&gt;, as desired. You can conclude that the answer is &lt;span class=&quot;math-container&quot;&gt;$b$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &lt;span class=&quot;math-container&quot;&gt;$\max$&lt;/span&gt; operator ensures that the graph has the correct &quot;kink&quot; points when the type of good you are transferring from one agent to the other changes. &lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-04-22T19:53:18.203" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27940" PostTypeId="2" ParentId="27917" CreationDate="2019-04-22T22:59:13.863" Score="3" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Is the only benefit to fluctuating currency rates that it means some people make a lot of money by trading currencies, with zero appreciable benefit to humanity at large ?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;No. The main benefit of flexible exchange rates is that &lt;a href=&quot;https://en.wikipedia.org/wiki/Balance_of_payments#Rebalancing_by_changing_the_exchange_rate&quot; rel=&quot;nofollow noreferrer&quot;&gt;it allows the currencies to adjust to imbalances in the balance of payments between countries&lt;/a&gt;, itself a result of real economic differences:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;An upwards shift in the value of a nation's currency relative to others will make a nation's exports less competitive and make imports cheaper and so will tend to correct a current account surplus. It also tends to make investment flows into the capital account less attractive so will help with a surplus there too. Conversely a downward shift in the value of a nation's currency makes it more expensive for its citizens to buy imports and increases the competitiveness of their exports, thus helping to correct a deficit (though the solution often doesn't have a positive impact immediately due to the Marshall–Lerner condition). [...]&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;When a country is importing more than it exports, the supply of its own currency on the international market tends to increase as it tries to exchange it for foreign currency to pay for its imports, and this extra supply tends to cause the price to fall. BoP effects are not the only market influence on exchange rates however, they are also influenced by differences in national interest rates and by speculation.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Some economists think that some level of buffering by the central banks of exchange rates is necessary though, because exchange rates are vulnerable to speculative because they tend to converge too slowly to their &quot;real&quot; value. (The latter is sometimes called the &lt;a href=&quot;https://www.nber.org/papers/w22198&quot; rel=&quot;nofollow noreferrer&quot;&gt;PPP puzzle&lt;/a&gt;.) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;When central banks work to affect the exchange rate without changing the money supply, it' called a &lt;a href=&quot;https://www.minneapolisfed.org/research/qr/qr1032.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;&quot;sterilized intervention&quot;&lt;/a&gt;. It's somewhat controversial whether these &lt;a href=&quot;https://www.imf.org/external/pubs/ft/wp/2013/wp1311.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;work as intended&lt;/a&gt; or &lt;a href=&quot;https://www.clevelandfed.org/en/newsroom-and-events/publications/working-papers/working-papers-archives/2001-working-papers/wp-0110-sterilized-intervention--nonsterilized-intervention--and-monetary-policy.aspx&quot; rel=&quot;nofollow noreferrer&quot;&gt;not&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, a pegged system largely exports one country's (the biggest one, economically) monetary policy to the rest. This causes substantial problems if these other economies &lt;a href=&quot;https://en.wikipedia.org/wiki/Optimum_currency_area&quot; rel=&quot;nofollow noreferrer&quot;&gt;are dissimilar&lt;/a&gt;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This implicit export of monetary policy via (nearly) fixed exchange rates is thought to be a key reason why the Bretton Woods system (which nearly achieved what you ask for), &lt;a href=&quot;https://voxeu.org/article/operation-and-demise-bretton-woods-system&quot; rel=&quot;nofollow noreferrer&quot;&gt;eventually failed&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Increasing US monetary growth led to rising inflation, which spread to the rest of the world through growing US balance of payments deficits. This led to growing balance of payments surpluses in Germany and other countries. The German monetary authorities (and other surplus countries) attempted to sterilise the inflows but were eventually unsuccessful, leading to growing inflationary pressure (Darby et al. 1983). [...]&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The decision to suspend gold convertibility by President Richard Nixon on 15 August 1971 was triggered by French and British intentions to convert dollars into gold in early August. The US decision to suspend gold convertibility ended a key aspect of the Bretton Woods system. The remaining part of the System, the adjustable peg disappeared by March 1973.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;A key reason for Bretton Woods’ collapse was the inflationary monetary policy that was inappropriate for the key currency country of the system. The Bretton Woods system was based on rules, the most important of which was to follow monetary and fiscal policies consistent with the official peg. The US violated this rule after 1965 (Bordo 1993).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;N.B. The Bretton Woods minus the gold standard, thus only a nearly fixed exchanged system (but not backed by gold) is sometimes called the &lt;a href=&quot;https://en.wikipedia.org/wiki/Smithsonian_Agreement&quot; rel=&quot;nofollow noreferrer&quot;&gt;Smithsonian Agreement&lt;/a&gt;. It lasted between 1971-1973. Without a change in US monetary policy (which didn't really happen) &lt;a href=&quot;https://www.federalreservehistory.org/essays/smithsonian_agreement&quot; rel=&quot;nofollow noreferrer&quot;&gt;it couldn't have possibly worked&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;At the Smithsonian meeting, the United States agreed to devalue the dollar against gold by approximately 8.5 percent to $38 per ounce. Other countries offered to revalue their currencies relative to the dollar. The net effect was roughly a 10.7 percent average devaluation of the dollar against the other key currencies (de Vries 1976, 555).&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;At the Smithsonian meeting, countries also agreed to future talks on broader reforms of the international monetary system. Issues that would be discussed included the central role of the dollar, shared responsibility for exchange-rate stability, the future role of gold, a means for easing exchange-rate adjustment, and measures to deal with volatile financial flows. Foreign nations also agreed to comply with Nixon’s request to lessen existing trade restrictions and to assume a greater share of the military burden.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The Smithsonian Agreement did little to restore confidence in the Bretton Woods system. During 1972, speculators pushed many European currencies toward the tops of their permissible—but now wider—exchange-rate bands. By intervening, their central banks accumulated large amounts of unwanted dollars, which stoked inflationary pressures. Germany and Japan expanded their restraints on financial flows, and other countries began to follow suit.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Gold prices, a barometer of uncertainty, rose to around \$60 an ounce by mid-1972 and $90 an ounce by early 1973. Speculation was rife. On February 12, 1973, with exchange markets in Europe and Japan closed, the United States devalued the dollar by an additional 10 percent to \$42 an ounce. When markets reopened, speculation against the dollar became rampant. Within a month nearly all major currencies were floating against the dollar. The Bretton Woods system was finished (IMF 1973, 2-8).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;As you can see, (nearly) fixed exchange rates encourage rather then discourage &#xA;speculation, when there is an imbalance of payments.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now if you want to talk about erasing different currencies altogether, the imbalance of payments problem doesn't disappear but becomes a &lt;a href=&quot;https://voxeu.org/article/balance-payments-adjustment-eurozone&quot; rel=&quot;nofollow noreferrer&quot;&gt;&quot;persistent imbalance&quot;&lt;/a&gt; in development, taking the EU as an example:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;As a monetary union based on a single currency, the Eurozone was supposed to be immune from these problems, as exchange-rate risks would vanish and payment disequilibria within the area would be smoothly offset by private capital flows (James 2012). These expectations proved delusional; the sovereign debt crisis in the Eurozone in 2010-12 started as a fully-fledged balance-of-payments crisis (&lt;a href=&quot;https://voxeu.org/sites/default/files/file/Policy%20Insight%2085.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Baldwin et al. 2015&lt;/a&gt;), prompted by the accumulation of large payment imbalances between its members and reflecting persistent underlying divergences in prices and costs. [...]&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;In sum, Germany has emerged as a kind of real economic anchor of the Eurozone, forcing its preference for high savings and slow growth of domestic demand onto the other members. However, this slow growth is incompatible with the need to reduce debt and reabsorb much higher unemployment and social distress. At the same time, very low inflation further compresses the margin for change in relative prices and wages.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;And if the Eurozone (EZ) crisis needs more explaining, from Baldwin et al.:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The core reality behind virtually every crisis is the&#xA;  rapid unwinding of economic imbalances. In the&#xA;  case of the EZ Crisis, the imbalances were extremely&#xA;  unoriginal – too much public and private debt&#xA;  borrowed from abroad. From the euro’s launch till&#xA;  the Crisis, there were big capital flows from EZ core&#xA;  nations like Germany, France, and the Netherland&#xA;  to EZ periphery nations like Ireland, Portugal,&#xA;  Spain and Greece. [...]&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;All the nations stricken by the Crisis&#xA;  were running current account deficits. None of&#xA;  those running current account surpluses were hit.&#xA;  When the EZ Crisis started, there was a ‘sudden stop’&#xA;  in cross-border lending. Investors became reluctant&#xA;  to lend – especially to banks and governments in&#xA;  other nations. The special features of a monetary&#xA;  union meant that the ‘sudden stop’ was not&#xA;  precipitous (as it was, for example, in Iceland).&#xA;  Rather this ‘sudden stop with monetary-union&#xA;  characteristics’ showed up in rising risk premiums.&#xA;  The abrupt end of capital flows raised concerns&#xA;  about the viability of banks and governments in&#xA;  nations dependent on foreign lending, i.e. those&#xA;  running current account deficits.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;(If you care about Nobel lustre, &lt;a href=&quot;https://en.wikipedia.org/wiki/Christopher_A._Pissarides&quot; rel=&quot;nofollow noreferrer&quot;&gt;Pissarides&lt;/a&gt; is one of the co-authors of that last paper.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, &lt;a href=&quot;http://ec.europa.eu/economy_finance/publications/economic_paper/2013/ecp492_en.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;Gros and Alcidi&lt;/a&gt; discuss the finer differences between a hard peg (fixed exchange) and a monetary union in fairly similar economic circumstances... with a naturalistic example for the former: the BELL countries, i.e. Bulgaria, Estonia, Latvia and Lithuania (which had or have a hard peg to the Euro while not being part of the Eurozone--actually Estonia joined the Eurozone in the period under investigation). It's a little too detailed to get into that here. But as a general idea:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;From a macroeconomic point of view, there should be little difference between a monetary union and a hard peg (e.g. a currency board). There is no national monetary policy autonomy in either case and the constraint on fiscal or budgetary policy should also be essentially the same in the long run.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;In fact, however, one difference still exists. In the case of a currency board, the country can break its&#xA;  commitment to keep the exchange rate fixed without causing any problems for the country to whom the currency had been pegged (the collapse of the peg of the Argentine peso to the US dollar had no impact on the&#xA;  confidence in the dollar). However, in the case of the euro, the exit of any country would have a profound&#xA;  impact on the other member states of the currency area.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The latter event is hypothetical as we have no historical examples as far the Euro goes, but there certainly has been &lt;a href=&quot;https://en.wikipedia.org/wiki/Withdrawal_from_the_Eurozone#Economic_considerations&quot; rel=&quot;nofollow noreferrer&quot;&gt;no shortage of opinions on the matter&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="6210" LastEditorUserId="6210" LastEditDate="2019-04-23T00:52:38.320" LastActivityDate="2019-04-23T00:52:38.320" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27942" PostTypeId="1" AcceptedAnswerId="27943" CreationDate="2019-04-23T09:29:45.527" Score="0" ViewCount="56" Body="&lt;p&gt;I calculated the Marginal cost for the below question. But it seems the results are wrong&lt;/p&gt;&#xA;&#xA;&lt;p&gt;After coming up with an innovative idea for a new product, you paid 4000 to an industrial designer to draw the blueprints and found a factory in China that agreed to produce the product for you for $3 per unit (the price includes the shipping cost from China to you).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since this is a totally new and unique product, you have no idea how the demand for it would be. Therefore, before you start pricing the product and ordering large amounts from the Chinese factory, you decide to run an experiment (or a pilot study): you talk to Target and they allow you to sell your product at 11 different Target stores for 11 different prices (a different price at each store). These stores are located in areas whose residents have similar average income, so you can be certain that price (and not income) is the only factor varying among these stores.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I took the fixed cost as 4000&#xA;The variable cost was taken as 3.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/zaBEy.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/zaBEy.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When the MC was calculated, it was given as 3. I feel this is not correct and there is something not correct here.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can someone kindly point it out.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is the fixed price taken was incorrect? or the variable cost incorrect?&lt;/p&gt;&#xA;" OwnerUserId="20901" LastActivityDate="2019-04-23T09:52:45.387" Title="Marginal Cost Calculation issue" Tags="&lt;microeconomics&gt;&lt;cost&gt;&lt;marginal&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27943" PostTypeId="2" ParentId="27942" CreationDate="2019-04-23T09:52:45.387" Score="1" Body="&lt;p&gt;The marginal cost is the cost added of producing an additional unit of product. In this case the company is paying a factory in China \$3 per unit to produce the product. Assuming you have no other variable costs (i.e. costs that vary with level of output) then the cost of producing an additional unit is indeed $3.&lt;/p&gt;&#xA;" OwnerUserId="21757" LastActivityDate="2019-04-23T09:52:45.387" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="27945" PostTypeId="2" ParentId="27912" CreationDate="2019-04-23T11:02:07.027" Score="2" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Why would a company issue unpaid shares?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Possible reasons are:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;buyer's temporary lack of sufficient funds to perform the&#xA;acquisition, whence the issuer of shares is willing to grant credit for&#xA;the sake of &quot;closing the sale&quot;;&lt;/li&gt;&#xA;&lt;li&gt;fiscal planning (be it the buyer's and/or the issuer's planning) might be such&#xA;that delaying payment of shares will place him at a more convenient tax bracket&#xA;in the acquisition and/or disbursement fiscal year(s) (this is more evident in &lt;a href=&quot;https://www.moneyinstructor.com/doc/cashbased.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;cash based accounting systems&lt;/a&gt;), and/or the delay of payment will allow&#xA;him to qualify for certain tax deductions;&lt;/li&gt;&#xA;&lt;li&gt;issuer predicts the price of shares will fall (and possibly discourage prospects of merger/acquisition), so he hedges against&#xA;that risk by entering a &lt;a href=&quot;https://en.wikipedia.org/wiki/Forward_contract&quot; rel=&quot;nofollow noreferrer&quot;&gt;forward contract&lt;/a&gt; with the buyer, with the incentive --to the buyer-- that transfer of shares will be effective immediately;&lt;/li&gt;&#xA;&lt;li&gt;buyer is willing to commit to a higher price on unpaid shares so as&#xA;to anticipate upcoming legislation that will make it harder to&#xA;perform akin mergers/acquisitions.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="18552" LastActivityDate="2019-04-23T11:02:07.027" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27946" PostTypeId="1" CreationDate="2019-04-23T11:03:56.190" Score="1" ViewCount="21" Body="&lt;p&gt;One of the salient feature of single proprietorship is&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Enterprise and owner entity is same.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;What does enterprise and owner entity refer to? &lt;/p&gt;&#xA;" OwnerUserId="21923" LastActivityDate="2019-04-23T11:03:56.190" Title="Industrial ownership" Tags="&lt;finance&gt;" AnswerCount="0" CommentCount="2" ClosedDate="2019-04-26T09:00:15.397" ContentLicense="CC BY-SA 4.0" />
  <row Id="27948" PostTypeId="2" ParentId="16301" CreationDate="2019-04-23T13:38:03.910" Score="0" Body="&lt;p&gt;Considering a simplified model, as proposed by Blanchard in the book, central banks deterime M1 by buying or selling bonds, called Open Market Operations. In a contractionary open market operation, bonds will be sold and dollars will be taked out of market. When central banks do this, the bonds they sell pay a determined interest rate. Suppose that an economy is in equilibrium Money supply = Money demand, for a given interest rate; and also there are 5 billions dollars held by foreigners. If those 5 billions were actually at US economy, FED should increase bond interest in order to absorb all those excedent dollars. Finally, due to all those dollars are held out of US, FED is exempted to pay that interest to the local market.&lt;/p&gt;&#xA;" OwnerUserId="21927" LastEditorUserId="6168" LastEditDate="2019-04-23T19:46:36.040" LastActivityDate="2019-04-23T19:46:36.040" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="27952" PostTypeId="1" CreationDate="2019-04-23T18:58:37.193" Score="0" ViewCount="32" Body="&lt;p&gt;As I understand and have read the advantage of the 2nd price auction is that it encourages bidder to bid for 'true value', which I think can also be done with the 1st price sealed bid auction. I might be wrong, but I want to understand which one is better and why.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the explanation can be made in terms of auction process for online ads (google use 2nd PA for ads), that'll be wonderful. &lt;/p&gt;&#xA;" OwnerUserId="21932" LastEditorUserId="20068" LastEditDate="2019-04-23T19:43:46.533" LastActivityDate="2019-04-23T19:43:46.533" Title="Is second price auction better than first price sealed bid auction? Why?" Tags="&lt;game-theory&gt;&lt;auctions&gt;" AnswerCount="0" CommentCount="4" ClosedDate="2019-04-26T13:26:50.193" ContentLicense="CC BY-SA 4.0" />
  <row Id="27953" PostTypeId="1" CreationDate="2019-04-23T20:39:17.137" Score="2" ViewCount="81" Body="&lt;p&gt;This is the problem I've been given.&#xA;Assume the consumers’preference over current and future consumption is given by &lt;span class=&quot;math-container&quot;&gt;$U(c,c')=c^\frac{1}{2}*c'^\frac{1}{2}$&lt;/span&gt;.&lt;br&gt;&#xA;Further assume there is no government.&lt;br&gt;&#xA;1) solve for the optimal decisions: &lt;span class=&quot;math-container&quot;&gt;$c,c′$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$s$&lt;/span&gt; ? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is as far as I have come&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\max U(c,c')=c^\frac{1}{2}c'^\frac{1}{2}$&lt;/span&gt;&lt;br&gt;&#xA;s.t. &lt;span class=&quot;math-container&quot;&gt;$c+\frac{c'}{1+r}=y+\frac{y'}{1+r}$&lt;/span&gt;&lt;br&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$c, c',s \ge 0 $&lt;/span&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$L=c^\frac{1}{2}*c'^\frac{1}{2}+λ(c+\frac{c'}{1+r}-y-\frac{y'}{1+r})$&lt;/span&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(1)derv of &lt;span class=&quot;math-container&quot;&gt;$c$&lt;/span&gt;: &lt;span class=&quot;math-container&quot;&gt;$\frac{1}{2}c^{-\frac{1}{2}}*c'^\frac{1}{2}-λ=0 $&lt;/span&gt;&lt;br&gt;&#xA;(2)derv of &lt;span class=&quot;math-container&quot;&gt;$c'$&lt;/span&gt;:&lt;span class=&quot;math-container&quot;&gt;$\frac{1}{2}c^\frac{1}{2} c'^{-\frac{1}{2}}-λ\frac{1}{1+r}=0$&lt;/span&gt;&lt;br&gt;&#xA;(3)(&lt;span class=&quot;math-container&quot;&gt;$λ$&lt;/span&gt;):&lt;span class=&quot;math-container&quot;&gt;$c+\frac{c'}{1+r}=y+\frac{y'}{1+r}$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Divide equation 1 by 2 &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\frac{ \frac{1}{2}c^{-\frac{1}{2}}c'^\frac{1}{2}} {\frac{1}{2}c^\frac{1}{2}c'^{-\frac{1}{2}}}= \frac{λ}{\frac{λ}{1+r}}$&lt;/span&gt;  = &lt;span class=&quot;math-container&quot;&gt;$\frac{c'}{c}=1+r$&lt;/span&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would appreciate if someone could give some help on how to continue so I can find the optimal decisions for &lt;span class=&quot;math-container&quot;&gt;$c, c', s$&lt;/span&gt; &lt;/p&gt;&#xA;" OwnerUserId="19469" LastEditorUserId="21756" LastEditDate="2019-04-24T03:48:10.873" LastActivityDate="2020-09-15T10:00:55.143" Title="Macroeconomics two period model" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="28955" PostTypeId="1" AcceptedAnswerId="28958" CreationDate="2019-04-24T02:02:06.497" Score="3" ViewCount="728" Body="&lt;p&gt;Is it ok to use corruption as a proxy for government quality? &lt;/p&gt;&#xA;" OwnerUserId="21766" LastActivityDate="2019-04-24T03:56:16.593" Title="What is a good proxy for government quality?" Tags="&lt;macroeconomics&gt;&lt;applied-econometrics&gt;&lt;regression&gt;&lt;open-economy-macro&gt;&lt;paneldata&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="28958" PostTypeId="2" ParentId="28955" CreationDate="2019-04-24T03:56:16.593" Score="6" Body="&lt;p&gt;Using corruption is part of it but a bit restrictive way to measure government &quot;quality&quot;. You may use aggregate indicators as the one developed by the &lt;a href=&quot;https://info.worldbank.org/governance/wgi/#home&quot; rel=&quot;noreferrer&quot;&gt;Worldwide Governance Indicators (WGI) project&lt;/a&gt; from the World Bank. They reports aggregate and individual governance indicators for over 200 countries and territories over the period 1996–, for six dimensions of governance:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Voice and Accountability &lt;/li&gt;&#xA;&lt;li&gt;Political Stability and Absence of Violence    &lt;/li&gt;&#xA;&lt;li&gt;Government Effectiveness &lt;/li&gt;&#xA;&lt;li&gt;Regulatory Quality &lt;/li&gt;&#xA;&lt;li&gt;Rule of Law &lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;Control of Corruption&lt;/strong&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;em&gt;What is Governance ?&lt;/em&gt;&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;According to the WGI project Governance consists of the traditions and institutions by which authority in a country is exercised.  This includes the process by which governments are selected, monitored and replaced; the capacity of the government to effectively formulate and implement sound policies; and the respect of citizens and the state for the institutions that govern economic and social interactions among them.&lt;/p&gt;&#xA;" OwnerUserId="6168" LastActivityDate="2019-04-24T03:56:16.593" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="28959" PostTypeId="1" AcceptedAnswerId="28960" CreationDate="2019-04-24T05:16:45.430" Score="-1" ViewCount="323" Body="&lt;p&gt;Isn't MC&gt;P a better aim? Given the revenue you earn from each unit is more than cost in producing each unit? &lt;/p&gt;&#xA;" OwnerUserId="22936" LastActivityDate="2019-04-24T09:52:47.120" Title="Why is Marginal Cost = Price better than Marginal Cost &gt; Price for maximizing profit?" Tags="&lt;microeconomics&gt;" AnswerCount="2" CommentCount="3" ClosedDate="2019-04-26T21:04:06.067" ContentLicense="CC BY-SA 4.0" />
  <row Id="28960" PostTypeId="2" ParentId="28959" CreationDate="2019-04-24T06:16:23.437" Score="2" Body="&lt;p&gt;If &lt;span class=&quot;math-container&quot;&gt;$MC&amp;lt;P$&lt;/span&gt;, then the producer would want to produce one more unit of the good.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If &lt;span class=&quot;math-container&quot;&gt;$MC&amp;gt;P$&lt;/span&gt;, then she would want to produce one less unit of the good.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If &lt;span class=&quot;math-container&quot;&gt;$MC=P$&lt;/span&gt;, then she is maximizing her profits.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2019-04-24T06:16:23.437" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="28961" PostTypeId="2" ParentId="27953" CreationDate="2019-04-24T07:55:03.700" Score="1" Body="&lt;p&gt;Every lagrangian with two goods has the same two steps basically. First, find the optimal relationship between the two goods (often through derivatives). Second, plug that relationship back into the budget constraint to solve for each good.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This problem is no different and you have essentially only done step 1. So you just need to do step 2.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The idea is that now you have 2 unknowns (&lt;span class=&quot;math-container&quot;&gt;$c$&lt;/span&gt;,&lt;span class=&quot;math-container&quot;&gt;$c'$&lt;/span&gt;), so you need 2 equations. One equation is the relationship you found between consumption today and tomorrow from the first order conditions. The second equation is the the budget constraint (or equation 3 as you called it). Your equation 3 has still not been used toward solving for consumption. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Plugging in the equation for &lt;span class=&quot;math-container&quot;&gt;$c'$&lt;/span&gt; that you found into your equation 3 you get:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$c + \frac{c(1+r)}{1+r} =y+\frac{y'}{1+r}$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So &lt;span class=&quot;math-container&quot;&gt;$c= 0.5 *(y+\frac{y'}{1+r})$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now plug in this equation back into the relationship you found through the lagrangian, which was:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$c' = (1+r) c$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then you'll be done. &lt;/p&gt;&#xA;" OwnerUserId="5557" LastActivityDate="2019-04-24T07:55:03.700" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="28962" PostTypeId="1" CreationDate="2019-04-24T09:49:52.923" Score="1" ViewCount="100" Body="&lt;p&gt;Let &lt;span class=&quot;math-container&quot;&gt;$q_i \in Q = \mathbb R_+$&lt;/span&gt; denote the quantity produced by firm &lt;span class=&quot;math-container&quot;&gt;$i \in \{1,2\}$&lt;/span&gt;. Further let &lt;span class=&quot;math-container&quot;&gt;$\pi_i(q_1,q_2)  = (1-q_1-q_2)q_i$&lt;/span&gt; denote the profits of &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;. A Nash equilibrium &lt;span class=&quot;math-container&quot;&gt;$(q_1^*,q_2^*) \in Q^2$&lt;/span&gt; satisfies&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{align}&#xA;&amp;amp;\pi_1(q_1^*,q_2^*) \geq \pi_1(q_1,q_2^*) \quad \forall q_1 \in Q\\&#xA;&amp;amp;\pi_2(q_1^*,q_2^*) \geq \pi_2(q_1^*,q_2) \quad \forall q_2 \in Q. &#xA;\end{align}&lt;/span&gt;&#xA;We are considering symmetric equilibria of the form &lt;span class=&quot;math-container&quot;&gt;$q^* = q_1^* = q_2^*$&lt;/span&gt; and therefore apply the symmetric opponents form approach.&#xA;Define &lt;span class=&quot;math-container&quot;&gt;$\pi(q,q^*) = \pi_1(q,q^*)$&lt;/span&gt;.&#xA;There exists a unique symmetric root to the first order condition &lt;span class=&quot;math-container&quot;&gt;$\pi_q(q^*,q^*) = 0$&lt;/span&gt; given by &lt;span class=&quot;math-container&quot;&gt;$q^* = \frac{1}{3}$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Claim&lt;/strong&gt; The candidate &lt;span class=&quot;math-container&quot;&gt;$q = \frac{1}{3}$&lt;/span&gt; is the unique symmetric maximizer of &lt;span class=&quot;math-container&quot;&gt;$\pi(q,q^*)$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Problem: The candidate might be a minimum or saddle.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The idea: In economic settings equilibrium quantities are basically restricted by individual rationality, i.e. &lt;span class=&quot;math-container&quot;&gt;$\pi(q^*,q^*) = (1-2q^*)q^*$&lt;/span&gt; implies &lt;span class=&quot;math-container&quot;&gt;$q^* \in [0,\frac{1}{2}]$&lt;/span&gt;. Since &lt;span class=&quot;math-container&quot;&gt;$\pi(\frac{1}{3},\frac{1}{3}) = \frac{1}{9} &amp;gt; 0$&lt;/span&gt;, the claim follows. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Edit&lt;/strong&gt; I edit the question to further clarify the issue. &lt;em&gt;Suppose&lt;/em&gt; I don't have any information about concavity of &lt;span class=&quot;math-container&quot;&gt;$\pi(q,q^*)$&lt;/span&gt; w.r.t. &lt;span class=&quot;math-container&quot;&gt;$q$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A general argument:&#xA;We need to distinguish 4 cases. &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;span class=&quot;math-container&quot;&gt;$q^*$&lt;/span&gt; is a saddle and &lt;span class=&quot;math-container&quot;&gt;$\pi(q^*,q^*) &amp;gt; 0$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\pi(\infty,q^*) = \infty$&lt;/span&gt;.&lt;/li&gt;&#xA;&lt;li&gt;&lt;span class=&quot;math-container&quot;&gt;$q^*$&lt;/span&gt; is a saddle and &lt;span class=&quot;math-container&quot;&gt;$\pi(q^*,q^*) &amp;lt; 0$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\pi(\infty,q^*) = -\infty$&lt;/span&gt;. &lt;/li&gt;&#xA;&lt;li&gt;&lt;span class=&quot;math-container&quot;&gt;$q^*$&lt;/span&gt; is a minimum and &lt;span class=&quot;math-container&quot;&gt;$\pi(q^*,q^*) &amp;lt; 0$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\pi(\infty,q^*) = \infty$&lt;/span&gt;.&lt;/li&gt;&#xA;&lt;li&gt;&lt;span class=&quot;math-container&quot;&gt;$q^*$&lt;/span&gt; is a maximum and &lt;span class=&quot;math-container&quot;&gt;$\pi(q^*,q^*) &amp;gt; 0$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\pi(\infty,q^*) = -\infty$&lt;/span&gt;.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Since case 4 is considered here &lt;span class=&quot;math-container&quot;&gt;$\frac{1}{3} = \arg\max_q\pi(q,q^*)$&lt;/span&gt;. &lt;/p&gt;&#xA;" OwnerUserId="4266" LastEditorUserId="4266" LastEditDate="2019-04-30T08:17:59.320" LastActivityDate="2020-09-21T12:00:55.107" Title="Symmetric Cournot equilibrium: suffciency without second order conditon" Tags="&lt;mathematical-economics&gt;&lt;game-theory&gt;&lt;optimization&gt;" AnswerCount="1" CommentCount="4" FavoriteCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="28963" PostTypeId="2" ParentId="28959" CreationDate="2019-04-24T09:52:47.120" Score="1" Body="&lt;p&gt;Your intuition is correct (assuming that you mean &lt;span class=&quot;math-container&quot;&gt;$MC &amp;lt; P$&lt;/span&gt; rather than &lt;span class=&quot;math-container&quot;&gt;$MC &amp;gt; P$&lt;/span&gt; as you wrote). For a given level of production, profits are indeed higher when &lt;span class=&quot;math-container&quot;&gt;$MC &amp;lt; P$&lt;/span&gt; than when &lt;span class=&quot;math-container&quot;&gt;$MC = P$&lt;/span&gt;, as you'd expect from an increase in the price holding everything else constant. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So why do we say that a firm in a competitive market maximizes profit by setting &lt;span class=&quot;math-container&quot;&gt;$P = MC$&lt;/span&gt;? Because we're not looking at &lt;em&gt;an increase in the price holding everything else constant&lt;/em&gt;, we're looking at &lt;em&gt;a change in the quantity, holding price constant&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It may help to think first about the traditional model of monopoly, where a monopolist will maximize profit by choosing a quantity &lt;span class=&quot;math-container&quot;&gt;$Q$&lt;/span&gt; that sets &lt;span class=&quot;math-container&quot;&gt;$MC = MR$&lt;/span&gt;, i.e. marginal cost = marginal revenue. Then, because they're a monopolist, they can sell that quantity &lt;span class=&quot;math-container&quot;&gt;$Q$&lt;/span&gt; at a price &lt;span class=&quot;math-container&quot;&gt;$P &amp;gt; MR$&lt;/span&gt; (and so we get &lt;span class=&quot;math-container&quot;&gt;$P &amp;gt; MR = MC$&lt;/span&gt; or &lt;span class=&quot;math-container&quot;&gt;$P &amp;gt; MC$&lt;/span&gt;). This is because the monopolist has some control over their price: they can choose to go high price/low quantity or low price/high quantity. In the process of selling an additional unit, their revenue goes up (&lt;span class=&quot;math-container&quot;&gt;$MR$&lt;/span&gt;) by &lt;em&gt;less&lt;/em&gt; than the price (&lt;span class=&quot;math-container&quot;&gt;$MR &amp;lt; P$&lt;/span&gt;), since they're moving towards the &quot;low price/high quantity&quot; end of the scale - they get paid the price &lt;span class=&quot;math-container&quot;&gt;$P$&lt;/span&gt; by selling an additional unit, but they had to lower their price too and so make less on the other units they sell, making &lt;span class=&quot;math-container&quot;&gt;$MR &amp;lt; P$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That takes us back to the competitive market. In the competitive market, each firm has no control over the price and so there's no price/quantity tradeoff - whatever quantity they pick, the price stays the same. So, in a competitive market, &lt;span class=&quot;math-container&quot;&gt;$P = MR$&lt;/span&gt; by definition. So when they maximize their profit by choosing a quantity that sets &lt;span class=&quot;math-container&quot;&gt;$MR = MC$&lt;/span&gt;, since &lt;span class=&quot;math-container&quot;&gt;$P = MR$&lt;/span&gt; we get &lt;span class=&quot;math-container&quot;&gt;$P = MR = MC$&lt;/span&gt; or &lt;span class=&quot;math-container&quot;&gt;$P = MC$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Intuitively, the reason the firm in the competitive market doesn't shoot for &lt;span class=&quot;math-container&quot;&gt;$P &amp;gt; MC$&lt;/span&gt; is that the price is real darn stubborn. You can't coax it to go higher by picking a lower quantity (like you could if you were a monopoly). So it's not &quot;I'd like to pick a price higher than my &lt;span class=&quot;math-container&quot;&gt;$MC$&lt;/span&gt;&quot; because you can't pick a price. Instead, it's &quot;I may as well continue producing more and more until my &lt;span class=&quot;math-container&quot;&gt;$MC$&lt;/span&gt; meets the price&quot;. So, for a firm in a competitive market, profit is maximized at &lt;span class=&quot;math-container&quot;&gt;$P = MC$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerUserId="12848" LastActivityDate="2019-04-24T09:52:47.120" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="28964" PostTypeId="1" AcceptedAnswerId="28970" CreationDate="2019-04-24T10:48:18.093" Score="2" ViewCount="633" Body="&lt;p&gt;Question from Intermediate Microeconomics by Hal Varian:&lt;br&gt;&#xA;&quot;We claimed in the text that if preferences were monotonic, then a diagonal line through the origin would intersect each indifference curve exactly once. Can you prove this rigorously?&quot;&lt;br&gt;&#xA;What I've done:&lt;br&gt;&#xA;Preferences in the indifference curve can be represented using utility function and all the bundles that are indifferent are assigned a single value. And each value of the utility function also represents a fixed point on the diagonal line drawn through the origin. So, if one indifference curve intersects the diagonal line n times (say), then (n-1) points belong to different indifference curves and thus it would mean that the indifference curve in question has intersected another indifference curve, which is fundamentally not possible.&lt;br&gt;&#xA;Does it prove the statement satisfactorily? &lt;/p&gt;&#xA;" OwnerUserId="22940" LastEditorUserId="11590" LastEditDate="2019-04-26T15:35:06.220" LastActivityDate="2019-04-26T15:35:06.220" Title="Proof of monotonocity of preferences" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;preferences&gt;" AnswerCount="1" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="28965" PostTypeId="1" CreationDate="2019-04-24T11:37:09.610" Score="0" ViewCount="231" Body="&lt;p&gt;Suppose a government agency has a monopoly in the provision of internet connections.&#xA;The marginal cost of providing internet connections is &lt;span class=&quot;math-container&quot;&gt;$ \frac12$&lt;/span&gt;, whereas the inverse demand&#xA;function is given by: &lt;span class=&quot;math-container&quot;&gt;$p = 1 - q $&lt;/span&gt;. The official charge per connection is set at 0; thus,&#xA;the state provides a subsidy of &lt;span class=&quot;math-container&quot;&gt;$\frac12&#xA;$&lt;/span&gt;&#xA;per connection. However, the state can only provide budgetary support for the supply of &lt;span class=&quot;math-container&quot;&gt;$0.4$&lt;/span&gt; units, which it raises through taxes on consumers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Bureaucrats in charge of sanctioning internet connections are in a position&#xA;to ask for bribes, and consumers are willing to pay them in order to get connections.&#xA;Bureaucrats cannot, however, increase supply beyond &lt;span class=&quot;math-container&quot;&gt;$0.4$&lt;/span&gt; units.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(a) Find the equilibrium bribe rate per connection and the social surplus.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(b) Now suppose the government agency is privatized and the market is deregulated.&#xA;However, due large fixed costs of entry relative to demand, the privatized company&#xA;continues to maintain its monopoly. Find the new equilibrium price, bribe rate&#xA;and social surplus, specifying whether privatization increases or reduces them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(c) Suppose now a technological innovation becomes available to the privatized monopoly,&#xA;which reduces its marginal cost of providing an internet connection to &lt;span class=&quot;math-container&quot;&gt;$c$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$0 &amp;lt; c &amp;lt; \frac12$&lt;/span&gt;.&#xA;Find the range of values of &lt;span class=&quot;math-container&quot;&gt;$c$&lt;/span&gt; for which privatization increases consumer surplus.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand that the consumers will be willing to trade away all the consumer surplus as bribe to receive the connection. But each consumer has a different willingness to pay as demonstrated by their demand curve or MB. How do I find a single equilibrium bribe rate for the problem? Should I just take the &lt;span class=&quot;math-container&quot;&gt;$Total \ Benefits \ = trapezoid \ area = 0.4\frac{1 + (1-0.4)}2 $&lt;/span&gt;. And divide this area with total connection which is &lt;span class=&quot;math-container&quot;&gt;$0.4$&lt;/span&gt; and thus get the per connection average bribe.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also total taxes = total subsidy, and also consumer surplus will be just traded away as bribe. So isn't the social surplus the same overall all the time?&lt;/p&gt;&#xA;" OwnerUserId="22939" LastActivityDate="2020-01-21T01:02:55.390" Title="Numerical Question on a subsidized monopoly" Tags="&lt;microeconomics&gt;&lt;monopoly&gt;&lt;social-welfare&gt;&lt;consumer-surplus&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="28966" PostTypeId="1" CreationDate="2019-04-24T15:12:29.820" Score="1" ViewCount="58" Body="&lt;p&gt;I have a difference-in-differences analysis. My treatment is at the county level. Each county received the treatment at a certain point in time. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I want to proceed with a propensity score matching as an extension to get DiD-matching results . I know everything about PSM, however, I am not quite sure how to get the STATA command in order to:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Generate Pre- and Post-treatment dummies since I don't have a&#xA;treatment at one point in time; i.e. DD is staggered.&lt;/li&gt;&#xA;&lt;li&gt;Use the DD with &lt;a href=&quot;https://www.stata-journal.com/sjpdf.html?articlenum=st0026&quot; rel=&quot;nofollow noreferrer&quot;&gt;pscore&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="22943" LastEditorUserId="69" LastEditDate="2019-04-26T13:23:39.083" LastActivityDate="2019-04-26T13:23:39.083" Title="Difference-in-differences Matching" Tags="&lt;econometrics&gt;&lt;stata&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="28967" PostTypeId="1" CreationDate="2019-04-24T15:57:23.250" Score="1" ViewCount="100" Body="&lt;p&gt;As with all revealed preference work, when the number of goods is greater than 1, then GARP (Generalised Axiom of Revealed Preference) is not always trivially satisfied. However, is it always the case that GARP is trivially satisfied when bundles only contain one good?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My take on it is that it is possible to violate GARP when the consideration set is only 1 good. However, empirically speaking, it should never be observed, as it really does not make sense from any rational point of view (ceteris paribus).  So theoretically, it is possible to violate GARP in a 1 good economy, but this is something we would never imagine observing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(I've been having this discussion with a supervisor, and he seems to believe that GARP should never be violated with one good as it makes absolutely no sense for it to occur, despite my argument that it is theoretically possible)&lt;/p&gt;&#xA;" OwnerUserId="22944" LastEditorUserId="22944" LastEditDate="2019-04-24T19:36:42.777" LastActivityDate="2019-04-30T18:24:30.267" Title="Is GARP trivially satisfied with only 1 good?" Tags="&lt;preferences&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="28968" PostTypeId="2" ParentId="28967" CreationDate="2019-04-24T17:13:03.553" Score="2" Body="&lt;p&gt;I assume by &quot;GARP&quot; you mean &quot;Generalized Axiom of Revealed Preference&quot;. One can take GARP to be satisfied with one good, but it's a rather vacuous type of &quot;satisfied&quot;; with one good the concept &quot;preference&quot; don't really have any meaning. You can't have any preferences if there's only one option.&lt;/p&gt;&#xA;" OwnerUserId="16462" LastActivityDate="2019-04-24T17:13:03.553" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="28969" PostTypeId="1" CreationDate="2019-04-24T17:52:27.927" Score="0" ViewCount="36" Body="&lt;p&gt;So I was having a bit of trouble reasoning with the answer for this particular PED question. It goes like this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;PED=1&lt;/strong&gt;, &lt;strong&gt;Quantity Demanded=4,000 units when Price=$12&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question was:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Find the price when Quantity Demanded=20,000 units&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So I tried the easy way to do this which was to use the price in which the Total Revenue remained the same, and I got the answer Final Price= $2.4.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My problem was that I tried another method and I am not getting the answer and I want to know why .&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So PED= &lt;strong&gt;% Change in QD/ % Change in Price&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can see that the increase in Quantity Demanded is 400%. Shouldn't it stand to reason that the  decrease in Price is also 400% (I know this is impossible because a price can't fall by more than what it is at the moment) but isn't the theory that the % fall in price will equal to and be offset by the % increase in QD, resulting in the revenue remaining the same?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm sorry if this question was unnecessarily long or even confusing, it's a bit difficult to understand my own thoughts so writing them out in paragraphs helps me understand why I'm asking this question in the first place ;).&lt;/p&gt;&#xA;" OwnerUserId="22945" LastActivityDate="2019-04-24T17:52:27.927" Title="Unitary Elasticity Of Demand Question (PED=1)" Tags="&lt;elasticity&gt;" AnswerCount="0" CommentCount="4" ClosedDate="2019-04-25T11:59:20.847" ContentLicense="CC BY-SA 4.0" />
  <row Id="28970" PostTypeId="2" ParentId="28964" CreationDate="2019-04-24T18:11:40.953" Score="6" Body="&lt;p&gt;Let me pick up the discussion in the comments.&#xA;Consider any diagonal through the origin. Suppose it intersects some IC more than once. Pick two of these points and call them A and B. Because they are on a straight increasing line, one of the bundles, say B, has more of both good 1 and good 2. By monotonicity, bundle B should be preferred over A, which contradicts the statement that they are on the same IC.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If that is what you mean, your intuition is correct. However, there seems to be a jump in your argument: By saying&#xA;&quot;if one indifference curve intersects the diagonal line n times (say), then (n-1) points belong to different indifference curves&quot; you seem to be already assuming that the statement to be shown is correct and the n intersections could not exist in the first place.&lt;/p&gt;&#xA;" OwnerUserId="11590" LastActivityDate="2019-04-24T18:11:40.953" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="28972" PostTypeId="1" CreationDate="2019-04-25T11:58:58.547" Score="2" ViewCount="116" Body="&lt;p&gt;Is there an established professional standard used by economic / financial institutions for including or excluding i) the starting year/period, and ii) the end year/period when calculating real prices (i.e. when multiplying nominal values by a multiplier)? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Theoretically, there are four (mutually exclusive) possibilities&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;strong&gt;Include&lt;/strong&gt; start period inflation, &lt;strong&gt;include&lt;/strong&gt; end year inflation&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;Include&lt;/strong&gt; start period inflation, &lt;strong&gt;exclude&lt;/strong&gt; end year inflation&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;Exclude&lt;/strong&gt; start period inflation, &lt;strong&gt;include&lt;/strong&gt; end year inflation&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;Exclude&lt;/strong&gt; start period inflation, &lt;strong&gt;exclude&lt;/strong&gt; end year inflation&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;h3&gt;Example&lt;/h3&gt;&#xA;&#xA;&lt;p&gt;Converting $100 from 2008 into 2010 dollars. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose inflation was 2% in 2008, 3% in 2009, and 4% in 2010. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Applying the four methods gives four answers, like so&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Method 1&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Multiplying by the inflation in all of 2008, 2009, and 2010 (i.e. including start year and end year)&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;$100 * (1 + 0.02) * (1 + 0.03) * (1 + 0.04) = 109.26&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Method 2&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Multiplying by the inflation in all of 2008 and 2009 (not including end year)&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;$100 * (1 + 0.02) * (1 + 0.03) = 105.06&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Method 3&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Multiplying the 2008 price by the inflation in 2009 and 2010 (not including start year)&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;$100 * (1 + 0.03) * (1 + 0.04) = 107.12&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Method 4&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Multiplying by only the years in between (i.e. not including the start year nor end year)&#xA;i.e. &lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;$100 * (1 + 0.03) = 103&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Would all professionals calculate the real value the same way and, if so, which way? &lt;/p&gt;&#xA;" OwnerUserId="7027" LastEditorUserId="7027" LastEditDate="2020-03-21T02:45:24.630" LastActivityDate="2020-03-27T21:26:43.753" Title="Convention / standard methodology for calculating real prices?" Tags="&lt;inflation&gt;&lt;financial-economics&gt;&lt;money&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="28973" PostTypeId="2" ParentId="27914" CreationDate="2019-04-25T13:28:57.570" Score="2" Body="&lt;p&gt;Disclaimer: I am NOT presuming to have an answer to this question but given the lack of any sort of input I am throwing some ideas out there so hold your horses with your downvotes. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It sounds to me like this is something you can model as a game of incomplete information. As a very very basic set up (see for example &lt;a href=&quot;http://www.owlnet.rice.edu/~econ440/notes/GT07ch123Z.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Moulin&lt;/a&gt; for a detail on games), in a Bayesian form a game specifies: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;The set of &lt;span class=&quot;math-container&quot;&gt;$N$&lt;/span&gt; playes&lt;/li&gt;&#xA;&lt;li&gt;The set of pure strategies &lt;span class=&quot;math-container&quot;&gt;$X_{i}$&lt;/span&gt; for each player &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;&lt;/li&gt;&#xA;&lt;li&gt;The set of types &lt;span class=&quot;math-container&quot;&gt;$T_{i}$&lt;/span&gt; for each player &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;&lt;/li&gt;&#xA;&lt;li&gt;The set of beliefs of each player &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;, represented by a probability distribution &lt;span class=&quot;math-container&quot;&gt;$\pi_{i}(.|t_{i})$&lt;/span&gt; over &lt;span class=&quot;math-container&quot;&gt;$T_{N \text\i}$&lt;/span&gt;: one distribution for each possible type of player &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;&lt;/li&gt;&#xA;&lt;li&gt;The payoff function &lt;span class=&quot;math-container&quot;&gt;$u_{i}(x;t)$&lt;/span&gt; for each player &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$x \in X_{N}$&lt;/span&gt;, and &lt;span class=&quot;math-container&quot;&gt;$t \in T_{N}$&lt;/span&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;A Bayesian equilibrium is described by a mixed strategy (combination of strategies) for each player, conditional on his type: &lt;span class=&quot;math-container&quot;&gt;$s_{i}(t_{i}) \in \Delta(X_{i})$&lt;/span&gt;. The equilibrium property then is &lt;span class=&quot;math-container&quot;&gt;$$ \forall i,t_{i} \in T_{i}, \forall s^{'}_{i} \in \Delta(X_{i}): $$&lt;/span&gt; &#xA;&lt;span class=&quot;math-container&quot;&gt;$$ \Sigma_{t_{-i}\in T_{N \text\i}} \pi_{i}(t_{-i}|t_{i})u_{i}(s(t);t) \geq \Sigma_{t_{-i}\in T_{N \text\i}} \pi_{i}(t_{-i}|t_{i})u_{i}((s^{'}_{i},s_{-i}(t_{-i}));t) $$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;were the following notation is used &lt;span class=&quot;math-container&quot;&gt;$$ s_{j}(t)=s_{j}(t_{j}); s(t) \in \Pi_{j \in N \text\i} \Delta(X_{j})$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, if the sets &lt;span class=&quot;math-container&quot;&gt;$X_{i}$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$T_{i}$&lt;/span&gt; are finite, the game possesses at least one Bayesian equilibrium. (This is a direct consequence of Nash's theorem and you can easily find a prove online so I will not get into this). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, this is all very abstract, sort to speak. But applied in a simple way to the example you provided your components are quite straightforward: you have some set of agents who will make an investment decision with some goal in mind (obviously here is to maximize some payoff function), and a stochastic component in the returns that each investment offers. Types may refer to some heterogenity that you might want to impose on your players, and beliefs may refer to their knowledge of states of the world or other player's decisons. Now, you ask whether an equilibrium can be reached. As stated before (and of course this is just to provide you with a basic set up) under certain assumptions the existence of an equilibrium is shown. Now, figuring out that equilibrium, as well as the as the conditions under which each agent would have the incentive to invest as much as possible depends entirely on the complexity of the strategic interaction you model, and on the assumptions you make (among admittedly many others). You can make it as easy (e.g. take to agents with some payoff functions, impose known priors, make it a one shot game, and so on and you will easily find some equilibria, as uninteresting as this may be), or as difficult as you'd like it to be. In general, game theory is concerned with agents that interact, so it seems to me that there is a lot of use for you in this area given what you want to model. As you can see the notion of utility maximization is there, so this is not an issue. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, as far as the paper you mentioned and the general area I am not able to provide any help. But there are many papers out there on investment decisions and competition from that use game theoretical settings (see for example the work of &lt;a href=&quot;https://www.jstor.org/stable/3665941?seq=1#page_scan_tab_contents&quot; rel=&quot;nofollow noreferrer&quot;&gt;Smit and Ankum&lt;/a&gt;, and i'm sure some key search such as game theory investment competition will bring you many more). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am aware this is not a satisfying nor complete answer, but I am sure that if you look around at literature even outside your topic you will get a good idea on how you can develop a model (in my own experience this requires a lot of creativity and you often require &quot;inspiration&quot; from the work of others even if it does not necessarily relate to your topic so I would recommend you look at papers in general to gain some insight into the modelling component) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This other papers may provide an interesting perspective on competition (and investment) and game theory models: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://link.springer.com/chapter/10.1007/978-3-319-05951-8_37&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://link.springer.com/chapter/10.1007/978-3-319-05951-8_37&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.researchgate.net/profile/Lee_Cooper/publication/227442687_Modeling_Asymmetric_Competition/links/09e415140c23842b7f000000.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.researchgate.net/profile/Lee_Cooper/publication/227442687_Modeling_Asymmetric_Competition/links/09e415140c23842b7f000000.pdf&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1745-6622.2001.tb00332.x&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1745-6622.2001.tb00332.x&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://ieeexplore.ieee.org/abstract/document/977512&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://ieeexplore.ieee.org/abstract/document/977512&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://ieeexplore.ieee.org/abstract/document/4438796&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://ieeexplore.ieee.org/abstract/document/4438796&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I hope this is of some help&lt;/p&gt;&#xA;" OwnerUserId="21757" LastActivityDate="2019-04-25T13:28:57.570" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="28974" PostTypeId="2" ParentId="28972" CreationDate="2019-04-25T14:21:25.053" Score="0" Body="&lt;p&gt;You want to work with the price index. First, we can assume that the price index is 100 in 2008 (you would normally specify the month as well).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your definition of “inflation” for a year is vague, but if the annual inflation is the change versus the previous year, your numbers imply that the index for 2009 is &lt;span class=&quot;math-container&quot;&gt;$103 = 100 \times 1.93.$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, the index for 2010 is &lt;span class=&quot;math-container&quot;&gt;$103 \times 1.04 = 107.12$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To convert the value, use index values: (2010 value) = (2008 value)*(2010 index)/(2008 index), or \$107.12.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(This matches your method #3.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The advantage of doing it this way is that you can align the index to any particular month of the year. Your description will be hard to adapt to partial years.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2019-04-25T14:21:25.053" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="28975" PostTypeId="2" ParentId="28966" CreationDate="2019-04-25T15:26:08.817" Score="1" Body="&lt;p&gt;You can use &lt;code&gt;mark&lt;/code&gt;. For example, if the treatment was done in the year 2000, and your time variable is called &lt;code&gt;time&lt;/code&gt;, the syntax is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;code&gt;mark treatment if time &amp;gt;= 2000 &amp;amp; time &amp;lt;.&lt;/code&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where &lt;code&gt;treatment&lt;/code&gt; is the dummy that is generated.&lt;/p&gt;&#xA;" OwnerUserId="175" LastActivityDate="2019-04-25T15:26:08.817" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="28976" PostTypeId="1" CreationDate="2019-04-25T15:36:02.453" Score="1" ViewCount="118" Body="&lt;p&gt;here are 3 papers that discuss it.&#xA;it seems to me that the paradox is that, supposing a closed economy has money M raised through bank loans, then, while that economy can create goods and services and thus can grow in real terms, (ie there are aggregate real profits) it seems that there cannot be any aggregate monetary (nominal) profits since the amount (stock) of money in the economy does not change.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Marx says that under a closed economy under the gold standard , money supply can grow only via finding new gold in gold-mines , and it is ridiculous to think that profits will be equal to the gold found.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It relates to the income/expenditure/output identity of National Income Accounts / NIPA which says that income = expenditure , therefore profits = 0&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://keenomics.s3.amazonaws.com/debtdeflation_media/papers/9780230_203372_10_cha09.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://keenomics.s3.amazonaws.com/debtdeflation_media/papers/9780230_203372_10_cha09.pdf&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.economics-ejournal.org/economics/journalarticles/2010-31/version_1/at_download/file?fbclid=IwAR0Le51-&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.economics-ejournal.org/economics/journalarticles/2010-31/version_1/at_download/file?fbclid=IwAR0Le51-&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.economics-ejournal.org/economics/discussionpapers/2009-52/file&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.economics-ejournal.org/economics/discussionpapers/2009-52/file&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="20559" LastEditorUserId="20559" LastEditDate="2019-04-25T15:41:32.417" LastActivityDate="2019-05-01T11:10:47.613" Title="please help describe a) what exactly is the Paradox of Profits , b) what is the argument of these papers exactly" Tags="&lt;national-accounts&gt;&lt;profits&gt;&lt;national-income&gt;" AnswerCount="1" CommentCount="11" ContentLicense="CC BY-SA 4.0" />
  <row Id="28977" PostTypeId="1" AcceptedAnswerId="28997" CreationDate="2019-04-25T16:17:25.760" Score="6" ViewCount="154" Body="&lt;p&gt;Monotonicity means the decision maker prefer more goods than less. It is not mentioned in textbook that SARP and GARP preasumed monotonicity, implicitly.&lt;/p&gt;&#xA;&lt;p&gt;GARP: if &lt;span class=&quot;math-container&quot;&gt;$a$&lt;/span&gt; is indirectly revealed preferred to &lt;span class=&quot;math-container&quot;&gt;$b$&lt;/span&gt;, then &lt;span class=&quot;math-container&quot;&gt;$b$&lt;/span&gt; is not directly revealed strictly preferred to &lt;span class=&quot;math-container&quot;&gt;$a$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;p&gt;SARP: if &lt;span class=&quot;math-container&quot;&gt;$a$&lt;/span&gt; is indirectly revealed preferred to &lt;span class=&quot;math-container&quot;&gt;$b$&lt;/span&gt;, and &lt;span class=&quot;math-container&quot;&gt;$a\neq b$&lt;/span&gt;, then &lt;span class=&quot;math-container&quot;&gt;$b$&lt;/span&gt; is not indirectly revealed preferred to &lt;span class=&quot;math-container&quot;&gt;$a$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;p&gt;Because &lt;span class=&quot;math-container&quot;&gt;$aRb$&lt;/span&gt; (directly revealed) means &lt;span class=&quot;math-container&quot;&gt;$ap_a\geq bp_a$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$aR_sb$&lt;/span&gt; (directly revealed strictly) means &lt;span class=&quot;math-container&quot;&gt;$ap_a&amp;gt;bp_a$&lt;/span&gt;, does that implies monotonicty if we assume the price is positive?&lt;/p&gt;&#xA;" OwnerUserId="13381" LastEditorUserId="13381" LastEditDate="2021-04-18T09:50:36.893" LastActivityDate="2021-04-18T09:50:36.893" Title="GARP and SARP assumed mononticity?" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;&lt;preferences&gt;&lt;decision-theory&gt;&lt;theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="28978" PostTypeId="2" ParentId="28962" CreationDate="2019-04-25T17:02:14.563" Score="1" Body="&lt;p&gt;How can it be a minimum or saddle since for every &lt;span class=&quot;math-container&quot;&gt;$q_2$&lt;/span&gt; the profit function is strictly concave? If anything, the implicit non-negativity constraints might be binding, for example, if &lt;span class=&quot;math-container&quot;&gt;$q_2\geq 1/2$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;When the objective function is strictly concave, the first order conditions are necessary and sufficient, and the maximum is unique. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Not sure if I'm answering your question, but hopefully it helps.&lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-04-25T17:02:14.563" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="28980" PostTypeId="2" ParentId="28965" CreationDate="2019-04-25T22:05:22.663" Score="1" Body="&lt;p&gt;You probably want to assume that every consumer pays the same bribe. Also, the social surplus depends on the quantity consumed, so it might (spoiler alert: it will) change when the internet is privatized, and when the marginal cost changes.&lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-04-25T22:05:22.663" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="28982" PostTypeId="1" CreationDate="2019-04-26T08:05:46.310" Score="1" ViewCount="306" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/anTIL.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/anTIL.png&quot; alt=&quot;Graph&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There's a lot of literature describing the relationship between growth and trade, but I'm not sure what conclusions I can draw from GDP per capita (specifically) and trade in one particular year for multiple countries. The graph is a regression I ran, so the red line demonstrates a positive relationship between the two variables in that year. But I'm also confused because the R squared value is very low, indicating a weak relationship. Is this because I have included too many countries in the test or because of the many other factors playing a part? Apologies as this question is probably quite stupid, but I'm very confused.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;The task: &quot;The United Kingdom government has asked you to write a report on the relationship between gross domestic product (GDP) per capita and trade openness. In particular, they would like to know whether the sum of exports and imports as a percentage of GDP had a positive effect on GDP per capita in 2015. To allow you to do this, they make available data on GDP per capita, exports of goods and services and imports of goods and services. GDP per capita is measured in constant 2010 United States dollars and exports and imports are expressed as a percentage of GDP.&quot;&lt;/p&gt;&#xA;" OwnerUserId="21652" LastEditorUserId="6210" LastEditDate="2019-04-26T12:09:29.367" LastActivityDate="2019-04-26T23:46:44.063" Title="GDP per capita and trade relationship" Tags="&lt;gdp&gt;&lt;international-trade&gt;&lt;statistics&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="28983" PostTypeId="2" ParentId="28982" CreationDate="2019-04-26T08:33:38.750" Score="1" Body="&lt;p&gt;The reason that relationship weak is that there is a whole lot more influencing GDP than just trade. Not included in this analysis are things like commodity prices, types of exports, quality of institutions in a country, population. Countless others.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you wanted to test the hypothesis that countries with higher levels of trade tend to be larger, you probably have. With such a simple analysis, it's probably hard to get much more than this.&lt;/p&gt;&#xA;" OwnerUserId="40" LastActivityDate="2019-04-26T08:33:38.750" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="28985" PostTypeId="2" ParentId="28982" CreationDate="2019-04-26T09:26:04.653" Score="1" Body="&lt;p&gt;Your trade figures are hardly normally distributed, which makes your model very susceptible to a few outliers. The GDP data might have a similar problem. Try a log-log (or a rank-rank) plot for instance. Looking at your assignment text, it doesn't seem to inquire about (or impose) a linear relationship between the raw values.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;To summarize some stuff from the comments: two hypotheses are fairly common in the literature (but the first is much more common than the 2nd)&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;that GDP &lt;em&gt;growth&lt;/em&gt; depends on openness to trade. But as you said you are sure this wasn't your task.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Wikipedia says &quot;the trade-to-GDP ratio tends to be low in countries with large economies and large populations such as Japan and the United States, and to have a higher value in small economies&quot;. So if this was the intended causality to explore, then you have the axes swapped. &lt;a href=&quot;https://espace.library.uq.edu.au/data/UQ_246632/UQ246632_OA.pdf?Expires=1556363036&amp;amp;Signature=OqmoxuAxRE8MX3~S~mzboFANl3Zqo2BXnF~qb2adx7TJJG86Czk1hEzfKBuAjHVDFGZwFcnbvWnuipHCwC8pxT1t-M5oztRO3e5VYBzN9RMq~uoYoiHD4oHGrRISoHo2JHg8ns0cFN-QoOY-EZ4Kei9N4~smIHtXTw3MrHdrnSQtNyxKT10T9H0IbBnxM~Hmequk5cEE2EUHg9L7wQM-px3Pymf~jVmXXLwyqHUX9yMNSlM3y8W5Gsj8wOjmREGrDNTaTgKnaeWoh8tqIm5ALXoW2L~E52IApTal-x8CAvHUGdPPxQjUmSCJSlGuZZce88zjWSyrXLMUQ1GUstOHbA__&amp;amp;Key-Pair-Id=APKAJKNBJ4MJBJNC6NLQ&quot; rel=&quot;nofollow noreferrer&quot;&gt;One paper&lt;/a&gt;  says this relationship is bogus, by the way, at least if interpreted as relating trade openness:&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The trade intensity index (TII), constructed as exports plus imports divided by&#xA;  Gross Domestic Product (GDP), is the most commonly used measure for trade&#xA;  openness&#xA;   and increasingly for globalization&#xA;   as well.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The TII, however, often gives counterintuitive results when it comes to&#xA;  large countries. For instance, the U.S. is ranked way below Swaziland and&#xA;  Tajikistan by the index, and likewise China is ranked behind Cambodia and Laos&#xA;  [...]. These results are not surprising if the TII is (rightly)&#xA;  interpreted as a measure of &lt;em&gt;trade dependency&lt;/em&gt;, as large countries are expectedly&#xA;  less reliant on international trade than the small ones. However, when the index is&#xA;  used as a measure of trade openness or globalization, the results become&#xA;  counterintuitive – considering the U.S. is a core nation in the world trade system&#xA;  while Swaziland and Tajikistan are far from that, and China is also way ahead of&#xA;  its two neighbouring countries as a trading power house. In short, the TII&#xA;  ‘appears’ to understate the degree of openness of large economies relative to&#xA;  small economies. &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;In fact, this issue has been noticed by many and there are some attempts in&#xA;  the current literature to ‘correct the size bias’ through modifying the TII [...]&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="6210" LastEditorUserId="6210" LastEditDate="2019-04-26T23:46:44.063" LastActivityDate="2019-04-26T23:46:44.063" CommentCount="9" ContentLicense="CC BY-SA 4.0" />
  <row Id="28986" PostTypeId="1" CreationDate="2019-04-26T11:15:19.613" Score="1" ViewCount="819" Body="&lt;p&gt;I know that for a perfectly competitive firm, the supply curve is given by &lt;span class=&quot;math-container&quot;&gt;$p=MC \ge AVC$&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$AVC$&lt;/span&gt; is the average variable cost. &#xA;Now I get really confused when the &lt;span class=&quot;math-container&quot;&gt;$MC$&lt;/span&gt; comes out to be a constant. How do I determine the supply curve in that scenario?&lt;/p&gt;&#xA;" OwnerUserId="21361" LastEditorDisplayName="user17900" LastEditDate="2019-09-25T13:33:32.647" LastActivityDate="2019-09-25T13:33:32.647" Title="Supply curve for a competitive firm with constant MC" Tags="&lt;microeconomics&gt;&lt;supply-and-demand&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="28987" PostTypeId="2" ParentId="28986" CreationDate="2019-04-26T13:24:58.467" Score="1" Body="&lt;p&gt;You know that in a perfectly competitive market a firm's supply curve is dictated by &lt;span class=&quot;math-container&quot;&gt;$p = MC \geq AVC$&lt;/span&gt;. Supply curves can be upward sloping but they don't have to be. Graphically this is represented as: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/Nl1FO.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Nl1FO.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Marginal costs are constant, so finding the equilibrium will involve finding the quantity demanded at the given price, rather than the usual set up of &lt;span class=&quot;math-container&quot;&gt;$Q^{d} = Q^{s}$&lt;/span&gt;, because the supply curve is perfectly elastic (i.e. an increase in demand can be met without any change in the price). So rather, you find the price and substitute for price in the demand curve. That's the equilibrium quantity. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit: I am adding here a possible interpretation for MC=0&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this case you have that MC = 0. So how can this be interpreted? It is easy to see that at p=0 the quantity demanded is equal to 4, a case in which production would entail that average costs exceed marginal costs. Moreover, they do so over a wide range of output. What happens here? Well, these properties are precisely those of a natural monopoly. As a result one firm, will be able to provide a given amount of output at a lower average cost than would several competing firms. The resulting situation that you need to analyze is that of a monopolist equilibrium with zero marginal costs. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A monopolist would then have to decide at which output will the total revenue be maximized. And total revenue is maximum at the output level at which marginal revenue is equal to zero. Further, with zero marginal cost, the condition of profit maximization, i.e., the equality of marginal cost (MC) and marginal revenue (MR) can be achieved, where the latter is also equal to zero.&lt;/p&gt;&#xA;" OwnerUserId="21757" LastEditorUserId="21757" LastEditDate="2019-04-26T18:55:04.643" LastActivityDate="2019-04-26T18:55:04.643" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="28991" PostTypeId="1" CreationDate="2019-04-26T16:52:55.720" Score="0" ViewCount="24" Body="&lt;p&gt;For instance, across regions of a country or between countries.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is that different preferences for food lead to distinct relative prices in different regions or countries? Or is it the other way around: distinct relative prices lead to differences in preferences?&lt;/p&gt;&#xA;" OwnerUserId="2759" LastActivityDate="2019-04-26T16:52:55.720" Title="How are preferences related to relative prices?" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;&lt;preferences&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="28992" PostTypeId="1" CreationDate="2019-04-26T17:25:07.847" Score="7" ViewCount="105" Body="&lt;p&gt;&lt;a href=&quot;http://www.princeton.edu/~smorris/pdfs/bce.pdf&quot; rel=&quot;noreferrer&quot;&gt;Bergeman and Morris (2014)&lt;/a&gt; explain how the concept of Bayesian Correlated equilibrium contains all the robust predictions in games of incomplete information. In particular, their question is what are the possible Bayesian Nash equilibria of a game where we know each player has at least some information, but can potentially have more information. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does anyone know of a useful reference to think of refinements of the set of BCE by imposing further assumptions? For example, what if we were willing to assume that one of the players has at least as much information as every other player? What kind of refinements can we expect to maintain the nice linear properties of BCE?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any thoughts will be greatly appreciated.&lt;/p&gt;&#xA;" OwnerUserId="21827" LastEditorUserId="6210" LastEditDate="2019-06-01T19:36:45.897" LastActivityDate="2019-06-01T20:29:03.313" Title="Robust asymmetric information?" Tags="&lt;reference-request&gt;&lt;bayesian-game&gt;&lt;asymmetric-information&gt;&lt;information&gt;" AnswerCount="1" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="28996" PostTypeId="2" ParentId="26960" CreationDate="2019-04-26T20:08:36.230" Score="2" Body="&lt;p&gt;SWIFT, as a private company, only provide secure transmission of financial messages between the participants. The message types or so vast from customer payments and cheques to financial institution transfers, treasury markets, commodity transactions, Letter of Credits etc. Providing instant, secure, without any disconnection messages together with standardization of these messages are a big job for smooth payments. &#xA;SWIFT does not hold your money, my money nor does it keep an account for the beneficiary bank or remitting bank.&#xA;The main underlying money exchange is done through correspondent banking accounts between financial institutions. These accounts are called as nostro and vostro accounts. The debit or credit from and to these account will be confirmed through SWIFT messages. Before SWIFT, the Telex system is used for communication. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Chinese, CIPS is used only for Renbinmi transactions and is not a competitor to SWIFT. The member banks to this system can use it as a small network but there may be still many banks who are not a member of the system. &lt;/p&gt;&#xA;" OwnerUserId="4022" LastActivityDate="2019-04-26T20:08:36.230" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="28997" PostTypeId="2" ParentId="28977" CreationDate="2019-04-27T00:06:41.030" Score="3" Body="&lt;p&gt;Strict monotonicity of the (internal) utility function is not assumed but is implied by GARP thanks to &lt;a href=&quot;http://www.pitt.edu/~luca/ECON2100/lecture_08.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Afriat's theorem&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;GARP is equivalent to:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;There exists a continuous, strictly increasing, and concave utility function&#xA;  which rationalizes the data&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The equivalence does not hold for SARP. SARP implies GARP, but not vice-versa.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Recall the actual definitions:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Directly revealed weak preference; &lt;span class=&quot;math-container&quot;&gt;$x^a \ge^R x^b \; \text{if} \;p^ax^b \le w^a$&lt;/span&gt;&lt;/li&gt;&#xA;&lt;li&gt;Indirectly revealed strict preference: &#xA;&lt;span class=&quot;math-container&quot;&gt;$$ x^a &amp;gt;^I x^b\; \text{if } \; \exists x^{i_1}, x^{i_2}, \ldots, x^{i_m} &#xA;\; \text{such that} \; x^a \ge^R x^{i_1}, x^{i_1} \ge^R x^{i_2}, \ldots , x^{i_m} \ge^R x^b \\ \text{with at least one of these inequalities strict}$$&lt;/span&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;GARP: if &lt;span class=&quot;math-container&quot;&gt;$x^a \ge^R x^b$&lt;/span&gt;, then not &lt;span class=&quot;math-container&quot;&gt;$x^b &amp;gt;^I x^a$&lt;/span&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;an (internal) utility function &lt;span class=&quot;math-container&quot;&gt;$u:\mathbb{R}^n_+\to \mathbb{R}$&lt;/span&gt; rationalizes the data &lt;span class=&quot;math-container&quot;&gt;$\{x^i, p^i, w^i\}_{i=1}^n$&lt;/span&gt; if&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ \forall x \in \mathbb{R}^n_+, \; p^ix \le w^i\; \text{implies}\; u(x^i) \ge u(x).$$&lt;/span&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So you can argue just &quot;by inspection&quot; that GARP is a &quot;sham&quot; set up just so we get a strict (internal) utility that rationalizes the data. (Why else ask for one of those inequalities to be strict? It's actually a key to the proof.) Apparently, the GARP axiom was formulated by Afriat himself, although &lt;a href=&quot;https://journals.openedition.org/oeconomia/2742&quot; rel=&quot;nofollow noreferrer&quot;&gt;he called it&lt;/a&gt; &quot;cyclical consistency&quot;, so... draw your own conclusions how he may have come up with GARP.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The selling point of Afriat's result, as I understand it, is that you can check the &quot;rational expectation&quot; that the agent is utility maximizing (making optimal choices) by merely looking at a sample of its choices (i.e. testing this sample for GARP); furthermore, if the test is positive, you can also derive an utility function that is &quot;as good as&quot; the one that presumably generated the choices. There's an issue that the method is not robust to measurement error though.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;blockquote&gt;&#xA;    &lt;p&gt;The revealed preference principle of Samuelson … elaborated by Houthakker … easily gives a condition for the rejection of the hypothesis of existence. But the principle has been absent by which the hypothesis can be accepted or rejected on the basis of observed choice of the consumer, supposed to be finite in number; and, in the case of acceptance, a general method is needed for the actual construction of a utility function which will realize the hypothesis for the data. (Afriat, 1967, 68)&lt;/p&gt;&#xA;    &#xA;    &lt;p&gt;Afriat’s approach … was truly constructive, offering an explicit algorithm to calculate a utility function consistent with the finite amount of data, whereas the other arguments were just existence proofs. This makes Afriat’s approach much more suitable as a basis of empirical analysis. Afriat’s approach was so novel that most researchers at the time did not recognize its value. (Varian, 2006, 101)&lt;/p&gt;&#xA;  &lt;/blockquote&gt;&#xA;  &#xA;  &lt;p&gt;[...] Houthakker had proven that if demand functions satisfied SARP there would always exist a rationalizing utility function, but provided no practical way to find it, while GARP techniques provided a way to construct such a utility function.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="6210" LastEditorUserId="13381" LastEditDate="2019-04-28T16:03:07.917" LastActivityDate="2019-04-28T16:03:07.917" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="28999" PostTypeId="2" ParentId="25751" CreationDate="2019-04-27T04:54:00.967" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;a) Increase in the size and frequency of AD shocks to the economy.&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;More inclined would encourage more demand from other regional countries, which in turn supports the shortage of domestics demand&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;b) Increase in the size and frequency of money demand shocks to the economy.&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Less inclined would be better since independent currency regime provides local goverment (ie. the central/state bank) more flexibility in controling supply and demand money in order to deal with money demand shocks&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;c) Increase in the cultural similarities between the country and the country or region it is joining.&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;More inclined should be a great idea in this case as countries in that region could exchange labor and goods at lower relative cost compared to remain local currency regime&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;d) Decrease in capital mobility restrictions combined with an increase in immigration restrictions.&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;More inclined to common currency is my answer. Common currency is not the same as establishing an OCA (Optimal Currency Area) so immigration is a less-crucial criteria than capital mobility in considering a decision of commmon currency.&lt;/p&gt;&#xA;" OwnerUserId="22970" LastActivityDate="2019-04-27T04:54:00.967" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29001" PostTypeId="2" ParentId="20991" CreationDate="2019-04-27T08:00:21.240" Score="-2" Body="&lt;p&gt;Actually, in my course slides that the unique difference is that under hidden information, the principal's profit and effort of manager is one to ine, under moral hazard,  the profit is unrelated to the  effort  of manager. &lt;/p&gt;&#xA;" OwnerUserId="22973" LastActivityDate="2019-04-27T08:00:21.240" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29002" PostTypeId="1" CreationDate="2019-04-27T09:25:34.890" Score="2" ViewCount="2542" Body="&lt;p&gt;I'm currently trying to solve the following problem:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Stackelberg with 3 firms Imagine there are three firms on a  monopolistically competitive&#xA;  market. The marginal cost of produc- tion in each firm is c. The&#xA;  demand is &lt;span class=&quot;math-container&quot;&gt;$p(q) = A − Bq$&lt;/span&gt;. The leader makes a production decision &lt;span class=&quot;math-container&quot;&gt;$q_1$&lt;/span&gt;,&#xA;  then two followers make a simul- taneous decision about their&#xA;  production levels &lt;span class=&quot;math-container&quot;&gt;$q_2$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$q_3$&lt;/span&gt;. Calculate the quantity produced by firms&#xA;  in this economy, and compare it to Cournot outcome with 3 firms and to&#xA;  Stackelberg outcome with 2 firms.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My Workings&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've tried to solve the problem using the following method:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Leader (&lt;span class=&quot;math-container&quot;&gt;$q_1$&lt;/span&gt;)&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\begin{align} profit(q_1,q_2,q_3) &amp;amp;= (A - B(q_1+q_2+q_3))q_1 -cq_1 -F \\&#xA;&amp;amp; = Aq_1 - B(q_1+q_2+q_3)q_1 -cq_1 -F\\&#xA;&amp;amp; = Aq_1 - Bq_1^2 - Bq_2q_1 - Bq_3q_1 - cq_1 -F\end{align}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The I took the derivative in regards to &lt;span class=&quot;math-container&quot;&gt;$q_1$&lt;/span&gt; leaving me with this:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$profit(q_1,q_2,q_3)= A - 2Bq_1 - Bq_2 -Bq_3 -c$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally I just tried finding &lt;span class=&quot;math-container&quot;&gt;$q_1$&lt;/span&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$q_1 = \frac{A-C-Bq_2-Bq_3}{2B}$$&lt;/span&gt;&#xA;To put &lt;span class=&quot;math-container&quot;&gt;$q_1$&lt;/span&gt; into the equation and solve it for &lt;span class=&quot;math-container&quot;&gt;$q_2$&lt;/span&gt; and then &lt;span class=&quot;math-container&quot;&gt;$q_3$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;The Problem:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The begining of the solution in the answer sheet looks like this:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Solution For Stackelberg with two followers, after firm 1 made its&#xA;  move, agents 2 and 3 are making their move simultaneously knowing q1.&#xA;  So, both firms 2 and 3 maximize&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$profit(q_i) = (A−B(q_1 +q_2 +q_3)−C)q_i ⇒ q_2 = q_3 = \frac{A − C}{3B} − \frac{q_1}{3}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Question:&lt;/strong&gt;&#xA;as you can see my workings look nowhere near the answer, I've tried solving the problem using there method but I don't really understand were the &lt;span class=&quot;math-container&quot;&gt;$3$&lt;/span&gt; in &lt;span class=&quot;math-container&quot;&gt;$3B$&lt;/span&gt; comes from? and why are we using &lt;span class=&quot;math-container&quot;&gt;$q_i$&lt;/span&gt;? (also I don't quite understand why the method I used is incorrect)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you very much for your help!&lt;/p&gt;&#xA;" OwnerUserId="19689" LastEditorUserId="11590" LastEditDate="2019-05-13T10:15:45.680" LastActivityDate="2019-05-13T10:15:45.680" Title="Stackelberg with 3 firms" Tags="&lt;microeconomics&gt;&lt;industrial-organisation&gt;&lt;profit-maximization&gt;&lt;firm&gt;&lt;oligopoly&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29004" PostTypeId="2" ParentId="29002" CreationDate="2019-04-27T11:23:23.900" Score="1" Body="&lt;p&gt;Start with the second stage, this is just Cournot competition between firm 2 and firm 3. You can solve this for the Nash equilibrium by setting the first order condition for firm 2 and firm 3 and solving these two equations, taking &lt;span class=&quot;math-container&quot;&gt;$q_1$&lt;/span&gt; as given. This will give you quantities &lt;span class=&quot;math-container&quot;&gt;$q_2$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$q_3$&lt;/span&gt; in terms of &lt;span class=&quot;math-container&quot;&gt;$q_1$&lt;/span&gt; which you can then plug into the profit function of firm 1 and you can maximize &lt;em&gt;(i.e. find which &lt;span class=&quot;math-container&quot;&gt;$q_1$&lt;/span&gt; firm 1 should choose to make sure the Nash equilibrium in stage 2 will be the most favourable Nash equilibrium possible for firm 1)&lt;/em&gt;. So, step by step:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Start with the second round, find the Nash equilibrium by solving the following two equations:&#xA;\&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\pi_2'(q_1,q_2,q_3)=0\\&#xA;\pi_3'(q_1, q_2, q_3)=0$$&lt;/span&gt;&#xA;Which will give you:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$q_2=q_3=f(q_1)$$&lt;/span&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;plug this into the profit function of firm 1 and maximize this expression which has &lt;span class=&quot;math-container&quot;&gt;$q_1$&lt;/span&gt; as choice variable.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="18214" LastEditorUserId="19689" LastEditDate="2019-05-13T09:56:49.570" LastActivityDate="2019-05-13T09:56:49.570" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29007" PostTypeId="2" ParentId="27839" CreationDate="2019-04-27T21:31:09.433" Score="0" Body="&lt;p&gt;The Lagrangian is also a function of the multipliers &lt;span class=&quot;math-container&quot;&gt;$(\lambda_t, \mu_t, \omega_t, \alpha_t)$&lt;/span&gt; so you are missing their FOC's (these will give you the constraints as FOC's so if you were already taking them into account, omit my comment, please). Also, &lt;span class=&quot;math-container&quot;&gt;$-u_{H}=u_l$&lt;/span&gt; since &lt;span class=&quot;math-container&quot;&gt;$l=1-H$&lt;/span&gt; (I would re-write the second FOC, in terms of &lt;span class=&quot;math-container&quot;&gt;$u_l$&lt;/span&gt; in order to construct the first &quot;target&quot; equation that has the MRS=MRT. Finally, there are a couple of useful facts that should help you. First, note that in your 4th FOC, you have a product equal to zero, so at least one of the elements is equal to zero. Try to convince yourself, that the only possibility (so that you don't run into a contradiction with the other FOC's) is for &lt;span class=&quot;math-container&quot;&gt;$\pi_t=0$&lt;/span&gt; as required by your second-to-last target equation, and in turn implies &lt;span class=&quot;math-container&quot;&gt;$C_t=Y_t$&lt;/span&gt; (from your first constraint). Second, using the second constraint you can replace the integral in your last FOC with &lt;span class=&quot;math-container&quot;&gt;$Y_t$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This should help for further simplifying the 10 FOC's you should have, into the 6 target equations you want. &lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-04-27T21:31:09.433" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="29008" PostTypeId="1" AcceptedAnswerId="29009" CreationDate="2019-04-27T22:08:42.293" Score="1" ViewCount="299" Body="&lt;p&gt;I understand the theory behind it but in practice how is this done? &lt;/p&gt;&#xA;" OwnerUserId="22975" LastActivityDate="2019-04-28T03:38:21.153" Title="In the real world, how does a firm know their marginal costs and revenue? How do they mathematically calculate MC=MR?" Tags="&lt;profit-maximization&gt;&lt;marginal&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29009" PostTypeId="2" ParentId="29008" CreationDate="2019-04-28T00:24:48.197" Score="4" Body="&lt;p&gt;According to the orthodox economist, in the real world, firms do not consciously try to calculate &lt;span class=&quot;math-container&quot;&gt;$MC$&lt;/span&gt; or &lt;span class=&quot;math-container&quot;&gt;$MR$&lt;/span&gt;. Nor do they consciously try to produce/sell at the point where &lt;span class=&quot;math-container&quot;&gt;$MC=MR$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;p&gt;Instead, the theory you have learnt is simply theory. This theory argues that:&lt;/p&gt;&#xA;&lt;p&gt;&lt;em&gt;If&lt;/em&gt; firms are maximizing profits, &lt;em&gt;then&lt;/em&gt; they must be producing/selling at the point where &lt;span class=&quot;math-container&quot;&gt;$MC=MR$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;p&gt;This theory does not claim that firms &lt;em&gt;consciously&lt;/em&gt; seek to produce/sell at the point where &lt;span class=&quot;math-container&quot;&gt;$MC=MR$&lt;/span&gt;. Indeed, most firms do not.&lt;/p&gt;&#xA;&lt;p&gt;Nonetheless, the orthodox economist claims that thanks to the discipline of competitive markets, firms are forced to maximize profits and thus forced to produce/sell at the point where &lt;span class=&quot;math-container&quot;&gt;$MC=MR$&lt;/span&gt;. And so, as a simplifying assumption, we may assume that firms act &lt;em&gt;as if&lt;/em&gt; they are seeking to produce/sell at the point where &lt;span class=&quot;math-container&quot;&gt;$MC=MR$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;Here is one such orthodox economist (&lt;a href=&quot;https://books.google.com/books?id=6Uhev5fmBgUC&amp;amp;q=%22Consider%20the%20problem%20of%20predicting%20the%20shots%20made%20by%20an%20expert%20billiard%20player.%22&quot; rel=&quot;nofollow noreferrer&quot;&gt;Milton Friedman, 1953&lt;/a&gt;) explaining this at length with the use of the analogy of the billiards player:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Consider the problem of predicting the shots made by an expert billiard player. It seems not at all unreasonable that excellent predictions would be yielded by the hypothesis that the billiard player made his shots &lt;em&gt;as if&lt;/em&gt; he knew the complicated mathematical formulas that would give the optimum directions of travel, could estimate accurately by eye the angles, etc., describing the location of the balls, could make lightning calculations from the formulas, and could then make the balls travel in the direction indicated by the formulas. Our confidence in this hypothesis is not based on the belief that billiard players, even expert ones, can or do go through the process described; it derives rather from the belief that, unless in some way or other they were capable of reaching essentially the same result, they would not in fact be &lt;em&gt;expert&lt;/em&gt; billiard players.&lt;/p&gt;&#xA;&lt;p&gt;It is only a short step from these examples to the economic hypothesis that under a wide range of circumstances individual firms behave &lt;em&gt;as if&lt;/em&gt; they were seeking rationally to maximize their expected returns (generally if misleadingly called &amp;quot;profits&amp;quot;) and had full knowledge of the data needed to succeed in this attempt; &lt;em&gt;as if&lt;/em&gt;, that is, they knew the relevant cost and demand functions, calculated marginal cost and marginal revenue from all actions open to them, and pushed each line of action to the point at which the relevant marginal cost and marginal revenue were equal. Now, of course, businessmen do not actually and literally solve the system of simultaneous equations in terms of which the mathematical economist finds it convenient to express this hypothesis, any more than leaves or billiard players explicitly go through complicated mathematical calculations or falling bodies decide to create a vacuum. The billiard player, if asked how he decides where to hit the ball, may say that he &amp;quot;just figures it out&amp;quot; but then also rubs a rabbit's foot just to make sure; and the businessman may well say that he prices at average cost, with of course some minor deviations when the market makes it necessary. The one statement is about as helpful as the other, and neither is a relevant test of the associated hypothesis.&lt;/p&gt;&#xA;&lt;p&gt;Confidence in the maximization-of-returns hypothesis is justified by evidence of a very different character. This evidence is in part similar to that adduced on behalf of the billiard-player hypothesis-unless the behavior of businessmen in some way or other approximated behavior consistent with the maximization of returns, it seems unlikely that they would remain in business for long. Let the apparent immediate determinant of business behavior be anything at all-habitual reaction, random chance, or whatnot. Whenever this determinant happens to lead to behavior consistent with rational and informed maximization of returns, the business will prosper and acquire resources with which to expand; whenever it does not, the business will tend to lose resources and can be kept in existence only by the addition of resources from outside. The process of &amp;quot;natural selection&amp;quot; thus helps to validate the hypothesis-or, rather, given natural selection, acceptance of the hypothesis can be based largely on the judgment that it summarizes appropriately the conditions for survival.&lt;/p&gt;&#xA;&lt;p&gt;An even more important body of evidence for the maximization-of-returns hypothesis is experience from countless applications of the hypothesis to specific problems and the repeated failure of its implications to be contradicted. This evidence is extremely hard to document; it is scattered in numerous memorandums, articles, and monographs concerned primarily with specific concrete problems rather than with submitting the hypothesis to test. Yet the continued use and acceptance of the hypothesis over a long period, and the failure of any coherent, self-consistent alternative to be developed and be widely accepted, is strong indirect testimony to its worth. The evidence &lt;em&gt;for&lt;/em&gt; a hypothesis always consists of its repeated failure to be contradicted, continues to accumulate so long as the hypothesis is used, and by its very nature is difficult to document at all comprehensively. It tends to become part of the tradition and folklore of a science revealed in the tenacity with which hypotheses are held rather than in any textbook list of instances in which the hypothesis has failed to be contradicted.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerDisplayName="user18" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2019-04-28T00:36:49.837" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29010" PostTypeId="2" ParentId="28967" CreationDate="2019-04-28T02:47:54.527" Score="1" Body="&lt;p&gt;According to &lt;a href=&quot;https://books.google.com/books?id=KnTBMAab0vkC&amp;amp;printsec=frontcover#v=onepage&amp;amp;q=GARP&amp;amp;f=false&quot; rel=&quot;nofollow noreferrer&quot;&gt;Kreps (2013, p.70)&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In words, GARP is violated if any bundle chosen at given prices and income costs less at those prices than the level of income. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Hence with one good (say orange), we can construct the following simple choice that violates GARP:&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;(p,x,y)=(\$2,0,\$10).&#xA;\end{equation}&lt;/span&gt;&#xA;In other words, we observe that someone chooses not to purchase the only good available when he could easily afford &lt;span class=&quot;math-container&quot;&gt;$5$&lt;/span&gt; units of it. By definition, a bundle &lt;span class=&quot;math-container&quot;&gt;$x^i$&lt;/span&gt; is revealed to be strictly preferred to bundle &lt;span class=&quot;math-container&quot;&gt;$x^j$&lt;/span&gt; if &lt;span class=&quot;math-container&quot;&gt;$p^ix^j&amp;lt;y^i$&lt;/span&gt; (i.e. if the cost of &lt;span class=&quot;math-container&quot;&gt;$x^j$&lt;/span&gt; at price &lt;span class=&quot;math-container&quot;&gt;$p^i$&lt;/span&gt; is strictly below income &lt;span class=&quot;math-container&quot;&gt;$y^i$&lt;/span&gt;). But according to this definition, the above choice suggests that &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; is revealed to be strictly preferred to itself (note that &lt;span class=&quot;math-container&quot;&gt;$i=j$&lt;/span&gt; here since there is only one observation), which violates GARP. &lt;/p&gt;&#xA;" OwnerUserId="42" LastEditorUserId="42" LastEditDate="2019-04-30T18:24:30.267" LastActivityDate="2019-04-30T18:24:30.267" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="29011" PostTypeId="2" ParentId="29008" CreationDate="2019-04-28T03:38:21.153" Score="0" Body="&lt;p&gt;In practice, the company (manufacturer) usually plans their quantity of product for next year in Q4, based on the remaining capacity and the demand of their clients (including outstanding clients and new orders estimated by their sales staffs).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In general, the company puts high priority for run in line with demand of market, instead of optimizing the cost by mc=mr as in theory.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, some huge corporations, which have stable and big revenue sufficient to cover cost of  collecting information input for optimizing manufacturing cost, may apply that formular in their operation. I have not worked at such company so far so I do not make sure about that.&lt;/p&gt;&#xA;" OwnerUserId="22970" LastActivityDate="2019-04-28T03:38:21.153" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29016" PostTypeId="1" AcceptedAnswerId="29020" CreationDate="2019-04-28T15:11:03.030" Score="2" ViewCount="709" Body="&lt;p&gt;Consider the static Bayesian game as described below. &lt;span class=&quot;math-container&quot;&gt;$\ t_1$&lt;/span&gt; and  &lt;span class=&quot;math-container&quot;&gt;$\ _2$&lt;/span&gt;&lt;a href=&quot;https://i.stack.imgur.com/uvyEo.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/uvyEo.png&quot; alt=&quot;enter image description here&quot; /&gt;&lt;/a&gt; are the types of the row and column player respectively, which are both uniformly distributed on the interval &lt;span class=&quot;math-container&quot;&gt;$[0,1]$&lt;/span&gt;. The first part of the question is asking us to find a Bayesian Nash Equilibrium. Trivially, don't the the top left and bottom right corners correspond to equilibrium outcomes? Unless I've misunderstood the definition of a BNE.&lt;/p&gt;&#xA;" OwnerUserId="13883" LastEditorUserId="13883" LastEditDate="2020-09-03T07:09:23.273" LastActivityDate="2020-09-03T07:09:23.273" Title="Bayesian Nash Equilibria in Battle of Sexes" Tags="&lt;game-theory&gt;&lt;bayesian-game&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29017" PostTypeId="1" CreationDate="2019-04-28T15:33:37.187" Score="1" ViewCount="25" Body="&lt;p&gt;I'm trying to understand the relationship, if any, between the fact that countries have different relative prices (e.g. different 'food price-to-general consumer prices' ratios) impacts the need for purchasing power parity adjustments between countries.&lt;/p&gt;&#xA;" OwnerUserId="2759" LastActivityDate="2019-04-28T20:31:17.143" Title="Would PPP adjustments between countries be irrelevant if all countries had the same relative prices?" Tags="&lt;macroeconomics&gt;&lt;international-trade&gt;&lt;international-economics&gt;&lt;purchasing-power-partity&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29018" PostTypeId="5" CreationDate="2019-04-28T16:16:40.717" Score="0" Body="&lt;p&gt;The concept of loss aversion was introduced by Kahneman and Tversky and is an important part of prospect theory. Since then theoretical work has advanced in various directions, such as expectation-based loss aversion by Kőszegi and Rabin.&#xA;In experimental work, the endowment effect is commonly seen as a manifestation of loss aversion.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;See more:&#xA;&lt;a href=&quot;https://en.wikipedia.org/wiki/Loss_aversion&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://en.wikipedia.org/wiki/Loss_aversion&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="11590" LastEditorUserId="11590" LastEditDate="2019-04-28T19:52:08.683" LastActivityDate="2019-04-28T19:52:08.683" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29019" PostTypeId="4" CreationDate="2019-04-28T16:16:40.717" Score="0" Body="Loss aversion is a behavioral bias capturing the notion that people tend to prefer avoiding losses over acquiring equivalent gains. In economics, this bias is illustrated in theoretical, experimental and empirical work." OwnerUserId="11590" LastEditorUserId="11590" LastEditDate="2019-04-28T19:51:56.890" LastActivityDate="2019-04-28T19:51:56.890" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29020" PostTypeId="2" ParentId="29016" CreationDate="2019-04-28T16:18:16.670" Score="4" Body="&lt;p&gt;Yes, you are correct. All types &lt;span class=&quot;math-container&quot;&gt;$t_{1}$&lt;/span&gt; choose O (B) and all types &lt;span class=&quot;math-container&quot;&gt;$t_{2}$&lt;/span&gt;&#xA;choose O (B) are both Bayesian equilibria.&lt;/p&gt;&#xA;&lt;p&gt;Note that there are other Bayesian equilibrium in this game, if you are interested this is explained in detail &lt;a href=&quot;https://users.auth.gr/kehagiat/Research/GameTheory/02Courses/Course3/06-incomplete-info.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; (p. 10, see reference below) for this particular battle of the sexes with two-sided incomplete information. The basic idea is to note that in this game, each player has a continuum of types, and so the set of types is infinite. You can look for a Bayesian equilibrium in which player 1 goes to the &lt;span class=&quot;math-container&quot;&gt;$Opera$&lt;/span&gt; if &lt;span class=&quot;math-container&quot;&gt;$t_{1}$&lt;/span&gt; exceeds some critical value &lt;span class=&quot;math-container&quot;&gt;$x_{1}$&lt;/span&gt; and chooses &lt;span class=&quot;math-container&quot;&gt;$Fight$&lt;/span&gt; otherwise, and player 2 chooses to &lt;span class=&quot;math-container&quot;&gt;$Fight$&lt;/span&gt; if &lt;span class=&quot;math-container&quot;&gt;$t_{2}$&lt;/span&gt; exceeds some critical value &lt;span class=&quot;math-container&quot;&gt;$x_{2}$&lt;/span&gt; and goes to the &lt;span class=&quot;math-container&quot;&gt;$Opera$&lt;/span&gt; otherwise. To find the values &lt;span class=&quot;math-container&quot;&gt;$x_{1}$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$x_{2}$&lt;/span&gt; that make these strategies a Bayesian equilibrium you can calculate each player's expected payoffs given the other player's strategy and find the optimal values based on this.&lt;/p&gt;&#xA;&lt;p&gt;&lt;em&gt;Game Theory: Static and Dynamic Games of Incomplete Information&#xA;Branislav L. Slantchev Department of Political Science, University of California – San Diego&lt;/em&gt;&lt;/p&gt;&#xA;" OwnerUserId="21757" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2019-04-28T18:12:22.647" CommentCount="10" ContentLicense="CC BY-SA 4.0" />
  <row Id="29021" PostTypeId="1" AcceptedAnswerId="29048" CreationDate="2019-04-28T19:12:43.490" Score="4" ViewCount="92" Body="&lt;p&gt;What effect does the hiring cost have on the wage bargaining outcome (wage curve)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In Cahuc, Carcillo, and Zylberberg: &lt;em&gt;Labor Economics&lt;/em&gt;, they derive the following wage curve:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$w = z + (y-z) \frac{\gamma[r+q+\theta m(\theta)]}{r+q+\gamma \theta m(\theta)}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where &lt;span class=&quot;math-container&quot;&gt;$z$&lt;/span&gt; = unemployment benefit, &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; = marginal product of labor, &lt;span class=&quot;math-container&quot;&gt;$\gamma$&lt;/span&gt; = bargaining power of the worker, &lt;span class=&quot;math-container&quot;&gt;$r$&lt;/span&gt; = interest rate, &lt;span class=&quot;math-container&quot;&gt;$q$&lt;/span&gt; = rate of exogenous job destruction, &lt;span class=&quot;math-container&quot;&gt;$\theta$&lt;/span&gt; = labor market tightness, &lt;span class=&quot;math-container&quot;&gt;$m(\theta)$&lt;/span&gt; rate of job filling.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand, following Pissarides (2000) we get the following wage curve:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$w = (1-\gamma)z + \theta \gamma c + \gamma y$$&lt;/span&gt;&#xA;where &lt;span class=&quot;math-container&quot;&gt;$c$&lt;/span&gt; = hiring cost.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first wage curve (from Cahuc et al.) would suggest that &lt;span class=&quot;math-container&quot;&gt;$c$&lt;/span&gt; does not affect the wage curve while the second one (from Pissarides) would suggest that it does.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My thoughts so far are:&#xA;1. The wage curve tells us the outcome of bargaining but &lt;span class=&quot;math-container&quot;&gt;$c$&lt;/span&gt; does not affect bargaining because &lt;span class=&quot;math-container&quot;&gt;$c$&lt;/span&gt; is only directly relevant for &lt;span class=&quot;math-container&quot;&gt;$\Pi_V$&lt;/span&gt; (the employer's outside option) but &lt;span class=&quot;math-container&quot;&gt;$\Pi_V$&lt;/span&gt; is always zero in equilibrium. Therefore, the employer's outside option is not any worse if &lt;span class=&quot;math-container&quot;&gt;$c$&lt;/span&gt; is higher. 2. In deriving the wage curve, Pissarides substitutes labor demand into the wage curve. So, &lt;span class=&quot;math-container&quot;&gt;$c$&lt;/span&gt; enters the Pissarides' wage curve only through labor demand and not in any other way, suggesting, again, that bargaining itself is unaffected by &lt;span class=&quot;math-container&quot;&gt;$c$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, what is the effect of a change in &lt;span class=&quot;math-container&quot;&gt;$c$&lt;/span&gt; on the wage curve? Does an increase in &lt;span class=&quot;math-container&quot;&gt;$c$&lt;/span&gt; shift the wage curve?&lt;/p&gt;&#xA;" OwnerUserId="22983" LastEditorUserId="4094" LastEditDate="2019-05-01T05:55:19.267" LastActivityDate="2019-05-01T05:55:19.267" Title="Search and matching model: effect of hiring cost on wage curve" Tags="&lt;macroeconomics&gt;&lt;labor-economics&gt;&lt;unemployment&gt;&lt;search-and-matching&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29023" PostTypeId="2" ParentId="29017" CreationDate="2019-04-28T20:31:17.143" Score="1" Body="&lt;p&gt;That's correct, the PPP adjustments are made to account for the fact that living in some places is more expensive than in others. So if you are comparing two places with equal relative prices, their PPP index should be the same, and so it is irrelevant if you use the adjustment or not. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that saying that prices are the same in different countries can be quite tricky, since typically goods that can be found in some countries are not even sold in other countries. But in principle, the PPP is trying to adjust for the fact that the same 100 American dollars have a larger purchasing power in some countries than in others. &lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-04-28T20:31:17.143" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29025" PostTypeId="1" CreationDate="2019-04-28T21:07:57.007" Score="-3" ViewCount="38" Body="&lt;p&gt;The question is this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose there is a production function of &lt;span class=&quot;math-container&quot;&gt;$Q=F(K, L)=\sqrt{K}\sqrt{L}$&lt;/span&gt;. Suppose that MPC=0.8 and the labor force is growing at a rate of 0.05 per year. Also labor force participation rate is 100%.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;a. What is the steady state equilibrium capital labor ratio?&#xA;b. Is this equilibrium stable?&#xA;c. What is the corresponding level of consumption per worker?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated. &lt;/p&gt;&#xA;" OwnerUserId="22986" LastActivityDate="2019-04-28T22:29:19.810" Title="Looking for help with Solow Model Question" Tags="&lt;macroeconomics&gt;&lt;labor-economics&gt;&lt;solow&gt;&lt;capital&gt;" AnswerCount="1" CommentCount="0" ClosedDate="2019-04-29T06:52:21.223" ContentLicense="CC BY-SA 4.0" />
  <row Id="29026" PostTypeId="2" ParentId="29025" CreationDate="2019-04-28T22:23:22.287" Score="1" Body="&lt;p&gt;What is the depreciation rate (&lt;span class=&quot;math-container&quot;&gt;$\delta$&lt;/span&gt;)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assumptions:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;span class=&quot;math-container&quot;&gt;$Y_t = K_t^{\alpha} (A_tL_t)^{1-\alpha}$&lt;/span&gt;,&lt;/li&gt;&#xA;&lt;li&gt;&lt;span class=&quot;math-container&quot;&gt;$\alpha = 0.5$&lt;/span&gt; (&lt;span class=&quot;math-container&quot;&gt;$\alpha$&lt;/span&gt; = capital income share),&lt;/li&gt;&#xA;&lt;li&gt;&lt;span class=&quot;math-container&quot;&gt;$A_0 =1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$g = 0$&lt;/span&gt; (&lt;span class=&quot;math-container&quot;&gt;$g$&lt;/span&gt; = growth rate of technology),&lt;/li&gt;&#xA;&lt;li&gt;&lt;span class=&quot;math-container&quot;&gt;$s = 0.2$&lt;/span&gt; (&lt;span class=&quot;math-container&quot;&gt;$s$&lt;/span&gt; = savings rate),&lt;/li&gt;&#xA;&lt;li&gt;&lt;span class=&quot;math-container&quot;&gt;$n = 0.05$&lt;/span&gt; (&lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt; = growth rate of the labor force/population).&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Capital in the next period is equal to the capital from the current period, minus the part that depreciates, plus the extra investment (savings rate times production):&#xA;&lt;span class=&quot;math-container&quot;&gt;$$K_{t+1} = K_t(1 - \delta) + s K_t^{\alpha} (A_t L_t)^{1-\alpha}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Multiply and divide LHS by &lt;span class=&quot;math-container&quot;&gt;$A_{t+1}L_{t+1}$&lt;/span&gt; and multiply and divide RHS by &lt;span class=&quot;math-container&quot;&gt;$A_{t}L_{t}$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\frac{K_{t+1}}{A_{t+1}L_{t+1}} A_{t+1}L_{t+1} = &#xA;A_t L_t \left[(1 - \delta) \frac{K_t}{A_t L_t} + s \frac{K_t^{\alpha} (A_t L_t)^{1-\alpha}}{A_t L_t} \right] $$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then note that &lt;span class=&quot;math-container&quot;&gt;$A_t = A_0 (1+g)^t$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$L_t = L_0 (1 + n)^t$&lt;/span&gt; and capital per effective worker is &lt;span class=&quot;math-container&quot;&gt;$\tilde{k}_t = \frac{K_t}{A_t L_t}$&lt;/span&gt;. Using this, rewrite the above equation to obtain:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\tilde{k}_{t+1} = \frac{(1 - \delta) \tilde{k}_t + s \tilde{k}^\alpha_t}{(1+g)(1+n)}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the balanced growth path &lt;span class=&quot;math-container&quot;&gt;$\tilde{k}_t = \tilde{k}_{t+1} = \tilde{k}^\ast$&lt;/span&gt;. Using this, rewrite the above to get:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\tilde{k}^\ast = \left( \frac{s}{g+n+gn+\delta} \right)^{ \frac{1}{1-\alpha} } $$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since you implicitly assume that &lt;span class=&quot;math-container&quot;&gt;$A_t = 1, \forall t$&lt;/span&gt; this balanced growth path capital per effective worker is equal to capital per worker:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\tilde{k}^\ast = \frac{K}{AL} = \frac{K}{L} = \left( \frac{s}{g+n+gn+\delta} \right)^{ \frac{1}{1-\alpha} } = \left( \frac{0.2}{0.05+\delta} \right)^{2} $$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As you can see this &lt;span class=&quot;math-container&quot;&gt;$\frac{K}{L}$&lt;/span&gt; is stable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For consumption per worker, we can consume what we don't invest:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$C = Y(1 - s)$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\frac{C}{L} = \frac{Y}{L} (1 - s)$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Plugging the &lt;span class=&quot;math-container&quot;&gt;$\tilde{k}^\ast$&lt;/span&gt; from above into the production function gives us:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\tilde{y}^\ast = \frac{Y}{L} = \left( \frac{s}{g+n+gn+\delta} \right)^{\frac{\alpha}{1-\alpha}} $$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So,&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\frac{C}{L} = \left( \frac{s}{g+n+gn+\delta} \right)^{\frac{\alpha}{1-\alpha}} (1 -s) = \frac{0.16}{0.05 + \delta}$$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="22983" LastEditorUserId="22983" LastEditDate="2019-04-28T22:29:19.810" LastActivityDate="2019-04-28T22:29:19.810" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29027" PostTypeId="1" AcceptedAnswerId="29028" CreationDate="2019-04-29T00:24:06.507" Score="0" ViewCount="41" Body="&lt;p&gt;I'm studying for an economics exam and am stuck on this question:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;If consumers in Vietnam increase their demand for products that are manufactured in Mexico, which of the following will occur?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;A. The supply of Vietnamese &lt;em&gt;dong&lt;/em&gt; will decrease.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;B. The Vietnamese &lt;em&gt;dong&lt;/em&gt; will appreciate.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;C. Mexico's financial capital inflow will increase.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;D. The Mexican &lt;em&gt;peso&lt;/em&gt; will depreciate.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;E. Vietnam's financial capital inflow will increase.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The answer is &lt;strong&gt;E.&lt;/strong&gt; Can somebody explain? From my understanding, since Vietnamese &lt;em&gt;dong&lt;/em&gt; are going to Mexico to buy those manufactured products, there would be net capital &lt;em&gt;out&lt;/em&gt;flow from Vietnam, not &lt;em&gt;in&lt;/em&gt;flow. Thank you!&lt;/p&gt;&#xA;" OwnerUserId="22989" LastActivityDate="2019-04-29T00:54:43.833" Title="Help with financial capital inflow" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29028" PostTypeId="2" ParentId="29027" CreationDate="2019-04-29T00:54:43.833" Score="3" Body="&lt;p&gt;I don't like the question because money movement is a current flow and it is also capital flow.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Anyway, the current outflow (to pay for the goods from Mexico) will be matched by a capital inflow. Mexico will use the increase in earnings to buy goods and services and investments in Vietnam. If we assume proportions are constant before and after the increase in earnings, then some amount of the increase will go into investments in Vietnam. Investments are capital.&lt;/p&gt;&#xA;" OwnerUserId="6868" LastActivityDate="2019-04-29T00:54:43.833" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29029" PostTypeId="1" CreationDate="2019-04-29T07:28:39.740" Score="1" ViewCount="147" Body="&lt;p&gt;Consider a perfectly inelastic (Marshallian) demand curve for a good X. Does this good also have a vertical Hicksian demand curve?&lt;/p&gt;&#xA;" OwnerUserId="18507" LastActivityDate="2019-04-29T07:28:39.740" Title="Can there be a good which has both Hicksian and Marshallian demand curves vertical?" Tags="&lt;elasticity&gt;&lt;demand&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="29030" PostTypeId="1" AcceptedAnswerId="29031" CreationDate="2019-04-29T08:30:51.260" Score="0" ViewCount="47" Body="&lt;p&gt;I assume that it makes sense to ask for the energy costs of transportation of different goods per weight and volumetric mass &lt;a href=&quot;https://www.wikiwand.com/en/Density&quot; rel=&quot;nofollow noreferrer&quot;&gt;density&lt;/a&gt;, depending on the means of transportation (truck, train, ship, etc.) and on the distance of transportation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I assume that there are either data or plots for this, but I don't know where to find them. A typical plot I'm looking for would answer the question:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;How much energy (including losses) does it take to transport one&#xA;  metric ton of good X (having volumetric mass density &lt;span class=&quot;math-container&quot;&gt;$d$&lt;/span&gt;) by train for&#xA;  100 resp. 1000 miles, today and 100 years ago?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In case you don't find this question (or approach) sensible, please tell me why.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Background:&lt;/strong&gt; I'm planning a data visualization project of transportation of all kinds of goods. One part of the project will be the &lt;strong&gt;routes&lt;/strong&gt; of transportation: along which paths and for what distances are which volumes of goods transported? (On a global and a local level.) Another part shall be the &lt;strong&gt;costs&lt;/strong&gt; of transportation (to which finally will also count the costs of &lt;strong&gt;lifting&lt;/strong&gt; goods, e.g. in a harbour, but maybe these are negligible).&lt;/p&gt;&#xA;" OwnerUserId="22991" LastEditorUserId="22991" LastEditDate="2019-04-29T09:25:48.827" LastActivityDate="2019-04-29T11:02:45.267" Title="Costs of transportation" Tags="&lt;data-request&gt;&lt;cost&gt;&lt;energy-economics&gt;&lt;technological-progress&gt;&lt;transportation&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29031" PostTypeId="2" ParentId="29030" CreationDate="2019-04-29T10:13:44.333" Score="2" Body="&lt;p&gt;The &lt;a href=&quot;https://doi.org/10.1016/j.trd.2013.03.008&quot; rel=&quot;nofollow noreferrer&quot;&gt;paper&lt;/a&gt; &lt;em&gt;&quot;The impact of scale on energy intensity in freight transportation&quot;&lt;/em&gt; by Gucwa and Schaefer has some of the information you need. Figure 5 from that paper is presented below:&lt;a href=&quot;https://i.stack.imgur.com/yYhbh.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/yYhbh.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The site &lt;a href=&quot;https://www.shipmap.org/&quot; rel=&quot;nofollow noreferrer&quot;&gt;ShipMap.Org&lt;/a&gt; has a data visualisation of shipping routes, where you can filter by type of freight.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Disclosure: these are all colleagues of mine except Gucwa)&lt;/p&gt;&#xA;" OwnerUserId="44" LastEditorUserId="44" LastEditDate="2019-04-29T11:02:45.267" LastActivityDate="2019-04-29T11:02:45.267" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="29033" PostTypeId="1" AcceptedAnswerId="29037" CreationDate="2019-04-29T16:46:13.100" Score="2" ViewCount="109" Body="&lt;p&gt;Consider a principal-agent problem where effort is observable. Let &lt;span class=&quot;math-container&quot;&gt;$\pi$&lt;/span&gt; denote profit, let &lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt; denote the wage to be paid to the agent, and let &lt;span class=&quot;math-container&quot;&gt;$f(\pi|e)$&lt;/span&gt; denote the pdf of the profit, conditional on effort &lt;span class=&quot;math-container&quot;&gt;$e$&lt;/span&gt;. Further, &lt;span class=&quot;math-container&quot;&gt;$e \in \{e_L,e_H\}$&lt;/span&gt;. The problem for the principal is then as follows: For each level of effort, &lt;span class=&quot;math-container&quot;&gt;$e$&lt;/span&gt;: &lt;span class=&quot;math-container&quot;&gt;$$ \min_w\int w(\pi) f(\pi|e)\, d\pi$$&lt;/span&gt; subject to &lt;span class=&quot;math-container&quot;&gt;$$\int v(w(\pi)) f(\pi|e)\,d\pi - g(e) \ge \overline u$$&lt;/span&gt;&#xA;(Here, &lt;span class=&quot;math-container&quot;&gt;$v$&lt;/span&gt; is the utility function for the agent, &lt;span class=&quot;math-container&quot;&gt;$g$&lt;/span&gt; is the cost function of effort and &lt;span class=&quot;math-container&quot;&gt;$\overline u$&lt;/span&gt; is the outside option for the agent). Then, choose &lt;span class=&quot;math-container&quot;&gt;$e$&lt;/span&gt; that gives maximum profit given the wage &lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt;, which has now been solved for at each effort level.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm not sure how to take the first order conditions in the minimisation problem above. If &lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt; were the argument for the integral, it'd be manageable.&lt;/p&gt;&#xA;" OwnerUserId="13883" LastEditorUserId="13883" LastEditDate="2019-04-29T21:12:15.760" LastActivityDate="2019-04-29T22:28:35.643" Title="First order conditions in a Moral Hazard problem" Tags="&lt;microeconomics&gt;&lt;principal-agent&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29034" PostTypeId="1" AcceptedAnswerId="29038" CreationDate="2019-04-29T16:53:25.463" Score="2" ViewCount="962" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Given the regression output&#xA;  &lt;span class=&quot;math-container&quot;&gt;$$\widehat{\ln cons} = \underset{(0.6018)}{0.4054} + \underset{(0.0744)}{1.2739}\, \ln m - \underset{(0.1902)}{0.6666}\, \ln p_1 -\underset{(0.2645)}{1.6146}\, \ln p_2$$&lt;/span&gt;&#xA;  where &lt;/p&gt;&#xA;  &#xA;  &lt;ul&gt;&#xA;  &lt;li&gt;&lt;span class=&quot;math-container&quot;&gt;$\ln cons$&lt;/span&gt; is the log of chocolate consumption,&lt;/li&gt;&#xA;  &lt;li&gt;&lt;span class=&quot;math-container&quot;&gt;$\ln m$&lt;/span&gt; is the log of income,&lt;/li&gt;&#xA;  &lt;li&gt;&lt;span class=&quot;math-container&quot;&gt;$\ln p_1$&lt;/span&gt; is the log of the price of chocolate, and&lt;/li&gt;&#xA;  &lt;li&gt;&lt;span class=&quot;math-container&quot;&gt;$\ln p_2$&lt;/span&gt; is the log of the price of sweets,&lt;/li&gt;&#xA;  &lt;/ul&gt;&#xA;  &#xA;  &lt;p&gt;test whether chocolate is a luxury good.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Since &lt;span class=&quot;math-container&quot;&gt;$1.27 &amp;gt; 1$&lt;/span&gt;, it is logical to test whether &lt;span class=&quot;math-container&quot;&gt;$\beta_{\ln m}$&lt;/span&gt; could be less than &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt;. When I test elasticity, I base the null hypothesis on what is logical, as in this case if &lt;span class=&quot;math-container&quot;&gt;$\beta_{\ln m}$&lt;/span&gt; is significantly greater than &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt;, one shouldn't reject a (illogical) null hypothesis &lt;span class=&quot;math-container&quot;&gt;$\mathrm H_0: \beta_{\ln m} \geq 1$&lt;/span&gt;. So,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\mathrm H_0: \beta_{\ln m} \leq 1$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\mathrm H_1: \beta_{\ln m} &amp;gt; 1$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\displaystyle t = \frac{1.2739-1}{0.0744}\approx 3.681$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, I reject the null hypothesis in favour of the alternative that chocolates are a luxury good.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Do you agree with the way I have set up this hypothesis test? If the estimate were less than 1, I would have stated &lt;span class=&quot;math-container&quot;&gt;$\mathrm H_0: \beta_{\ln m} \geq 1$&lt;/span&gt; against the alternative &lt;span class=&quot;math-container&quot;&gt;$\mathrm H_1: \beta_{\ln m} &amp;lt; 1$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerUserId="175" LastEditorUserId="175" LastEditDate="2019-04-29T18:14:06.127" LastActivityDate="2019-04-29T20:21:42.613" Title="How does one do a hypothesis test for elasticity?" Tags="&lt;econometrics&gt;&lt;elasticity&gt;&lt;statistics&gt;&lt;hypothesis-testing&gt;" AnswerCount="1" CommentCount="7" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29035" PostTypeId="5" CreationDate="2019-04-29T16:59:25.577" Score="0" Body="" OwnerUserId="-1" LastEditorUserId="-1" LastEditDate="2019-04-29T16:59:25.577" LastActivityDate="2019-04-29T16:59:25.577" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29036" PostTypeId="4" CreationDate="2019-04-29T16:59:25.577" Score="0" Body="In statistics, hypothesis testing assesses whether data are inconsistent with a given hypothesis." OwnerUserId="175" LastEditorUserId="175" LastEditDate="2019-04-29T19:20:00.333" LastActivityDate="2019-04-29T19:20:00.333" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29037" PostTypeId="2" ParentId="29033" CreationDate="2019-04-29T19:29:51.603" Score="3" Body="&lt;p&gt;Notice that MWG choose a wage &lt;em&gt;function&lt;/em&gt; &lt;span class=&quot;math-container&quot;&gt;$w(\pi)$&lt;/span&gt; to maximize profit, not a wage &lt;em&gt;level&lt;/em&gt; &lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt;. As footnote 6 on p.481 of MWG says:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The first-order condition for &lt;span class=&quot;math-container&quot;&gt;$w(\pi)$&lt;/span&gt; is derived by taking the derivative with respect to the manager's wage at each level of &lt;span class=&quot;math-container&quot;&gt;$\pi$&lt;/span&gt; separately.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In other words, you'd treat the wage function as a variable, e.g. &lt;span class=&quot;math-container&quot;&gt;$w(\pi)=z$&lt;/span&gt;, and solve &#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;\max_{z} \int [\pi-z]f(\pi|e)\mathrm d\pi +\gamma \left[\int v(z)f(\pi|e)\mathrm d\pi-g(e)-\overline u\right],&#xA;\end{equation}&lt;/span&gt;&#xA;which will yield the FOC &#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;-f(\pi|e)+\gamma v'(z)f(\pi|e)=0. &#xA;\end{equation}&lt;/span&gt;&#xA;Substituting &lt;span class=&quot;math-container&quot;&gt;$z$&lt;/span&gt; with &lt;span class=&quot;math-container&quot;&gt;$w(\pi)$&lt;/span&gt;, you'd have condition (14.B.3) in MWG. &lt;/p&gt;&#xA;" OwnerUserId="42" LastEditorUserId="42" LastEditDate="2019-04-29T22:28:35.643" LastActivityDate="2019-04-29T22:28:35.643" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="29038" PostTypeId="2" ParentId="29034" CreationDate="2019-04-29T20:21:42.613" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Do you agree with the way I have set up this hypothesis test? If the estimate were less than 1, I would have stated &lt;span class=&quot;math-container&quot;&gt;$\mathrm H_0: \beta_{\ln m} \geq 1$&lt;/span&gt; against the alternative &lt;span class=&quot;math-container&quot;&gt;$\mathrm H_1: \beta_{\ln m} &amp;lt; 1$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Setting up null and alternative hypotheses is the first step in a t-test.  You should not set them up after computing your estimates.  In your specific example with income elasticity of demand, you set up the null and alternative correctly, meaning that you want the alternative hypothesis to be the statement about what you are trying to prove.  You should use that null and alternative regardless of what the data then tells you.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;P.S. You should report the one-sided p-value from your one-sided hypothesis test, not just the test statistic.&lt;/p&gt;&#xA;" OwnerUserId="21454" LastActivityDate="2019-04-29T20:21:42.613" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="29040" PostTypeId="1" AcceptedAnswerId="29046" CreationDate="2019-04-30T05:33:33.837" Score="0" ViewCount="19" Body="&lt;p&gt;I think in real endowment model, if there's trade cost as 't', then the MRS should be really small or large to make a consumer trade his endowment goods. Is there any model include this trade cost or market tax?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If it's true I think we can examine how much 't' can make a consumer not to use market and that can bring decrease in market exchange. So government can focus on decreasing 't' to the level of free trade(technological or even the number of markets). &lt;/p&gt;&#xA;" OwnerUserId="22999" LastEditorUserId="22999" LastEditDate="2019-04-30T05:59:42.460" LastActivityDate="2019-04-30T18:07:38.517" Title="Trade cost on Endowment model" Tags="&lt;cost&gt;&lt;cost-functions&gt;&lt;transaction-costs&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29041" PostTypeId="1" AcceptedAnswerId="29043" CreationDate="2019-04-30T09:20:24.190" Score="-1" ViewCount="37" Body="&lt;p&gt;This was a question in a test. I am looking for an explanation for the answer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Firm A's cost of producing output y &gt; 0 is c(y) = 1 + y&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Firm B's cost of producing output y is c(y) = y(1-y)^2&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Answer: Firm B can operate in a perfectly competitive industry but A cannot.&lt;/p&gt;&#xA;" OwnerUserId="23000" LastActivityDate="2019-04-30T12:08:00.443" Title="Which of the following firms can operate in a perfectly competitive industry?" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="4" ClosedDate="2019-05-01T10:28:23.410" ContentLicense="CC BY-SA 4.0" />
  <row Id="29042" PostTypeId="1" CreationDate="2019-04-30T10:24:07.030" Score="0" ViewCount="94" Body="&lt;p&gt;There are two players 1 and 2, playing a two-period public good contribution&#xA;game. The benefits from the public good per-period to each player is &lt;span class=&quot;math-container&quot;&gt;$b_1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$b_2$&lt;/span&gt;&#xA;respectively, which are common knowledge. For the provision of the public good&#xA;only one player needs to contribute. Once a player contributes and the good is&#xA;provided then both can derive the benefits. The public good lasts for only one&#xA;period and contributions are required in each period to renew it.&#xA;The per-period cost of contribution for player 1 is private information which can&#xA;take two values, &lt;span class=&quot;math-container&quot;&gt;$\underline c$&lt;/span&gt; (low type with probability &lt;span class=&quot;math-container&quot;&gt;$p$&lt;/span&gt;) and &lt;span class=&quot;math-container&quot;&gt;$\overline c$&lt;/span&gt; (high type with probability&#xA;&lt;span class=&quot;math-container&quot;&gt;$1 − p$&lt;/span&gt;) for which following condition holds &lt;span class=&quot;math-container&quot;&gt;$\underline c &amp;lt; b_1 &amp;lt; \overline c$&lt;/span&gt;. However, the cost of&#xA;contribution for player 2 takes the value &lt;span class=&quot;math-container&quot;&gt;$c_2$&lt;/span&gt; which is common knowledge and is&#xA;lower than its benefit i.e. &lt;span class=&quot;math-container&quot;&gt;$c_2 &amp;lt; b_2$&lt;/span&gt;.&#xA;The game is played as per the following sequence:&#xA;First period: Only player 1 moves. He can choose to ‘contribute’(&lt;span class=&quot;math-container&quot;&gt;$C$&lt;/span&gt;) or ‘Not to&#xA;Contribute’(&lt;span class=&quot;math-container&quot;&gt;$N$&lt;/span&gt;) towards the first period contribution of public good. If player 1&#xA;chooses &lt;span class=&quot;math-container&quot;&gt;$N$&lt;/span&gt; then both gets 0 otherwise if player 1 chooses &lt;span class=&quot;math-container&quot;&gt;$C$&lt;/span&gt; then both players get&#xA;their benefits but only player 1 pays the cost. Note that the player 2 observes the&#xA;player 1’s action of either &lt;span class=&quot;math-container&quot;&gt;$C$&lt;/span&gt; or &lt;span class=&quot;math-container&quot;&gt;$N$&lt;/span&gt; but not its type (i.e. the private information&#xA;regarding costs).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Second period: The game is played sequentially where player 2 moves first and&#xA;chooses &lt;span class=&quot;math-container&quot;&gt;$C$&lt;/span&gt; or &lt;span class=&quot;math-container&quot;&gt;$N$&lt;/span&gt;. Player 1 observes it and decides on &lt;span class=&quot;math-container&quot;&gt;$C$&lt;/span&gt; or &lt;span class=&quot;math-container&quot;&gt;$N$&lt;/span&gt;. &#xA;If at least one of them contributes then both players get their benefits bi and those who contribute&#xA;pay their respective costs. If no one contributes each gets 0.&#xA;Players discount their payoffs by &lt;span class=&quot;math-container&quot;&gt;$\delta$&lt;/span&gt;, which is common to both. In answering the&#xA;questions below, you need to write strategies and beliefs precisely.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(a) Find an equilibrium where different types of player 1 choose different actions&#xA;in first period (separating equilibrium).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(b) Find an equilibrium where different types player 1 choose the same action in&#xA;first period (pooling equilibrium).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(c) Find a hybrid equilibrium where low type of player 1 in first period chooses&#xA;&lt;span class=&quot;math-container&quot;&gt;$C$&lt;/span&gt; with probability &lt;span class=&quot;math-container&quot;&gt;$\alpha$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$N$&lt;/span&gt; with probability &lt;span class=&quot;math-container&quot;&gt;$(1 − \alpha)$&lt;/span&gt;, and player 2 in second&#xA;period randomizes between &lt;span class=&quot;math-container&quot;&gt;$C$&lt;/span&gt; with probability &lt;span class=&quot;math-container&quot;&gt;$\beta$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$N$&lt;/span&gt; with probability &lt;span class=&quot;math-container&quot;&gt;$(1 − \beta)$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have attached my workings.&lt;a href=&quot;https://i.stack.imgur.com/NHHfn.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/NHHfn.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="23002" LastEditorUserId="23002" LastEditDate="2019-05-01T04:17:47.167" LastActivityDate="2021-05-14T02:00:40.093" Title="How to approach such question of two periods and asymmetric information game?" Tags="&lt;game-theory&gt;&lt;bayesian-game&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29043" PostTypeId="2" ParentId="29041" CreationDate="2019-04-30T12:08:00.443" Score="0" Body="&lt;p&gt;In a perfectly competitive industry, we have &lt;span class=&quot;math-container&quot;&gt;$p=MC$&lt;/span&gt; in equilibrium. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If firm A prices at marginal cost, each sold unit contributes zero to profits. Because it also has to pay fixed cost 1, it makes a negative profit in a competitive market regardless of how demand looks like. That is, firm A cannot operate in a perfectly competitve industry.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For firm B, you can calculate marginal cost as &lt;span class=&quot;math-container&quot;&gt;$\frac{\partial c(y)}{\partial y} =1-4y+3y^2$&lt;/span&gt;. Consider the increasing part of this function as the supply curve. Indeed you can find demand functions that intersect this function at a price leading to nonnegative profits. That is, firm B can operate in a perfectly competitve industry.&lt;/p&gt;&#xA;" OwnerUserId="11590" LastActivityDate="2019-04-30T12:08:00.443" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29045" PostTypeId="1" AcceptedAnswerId="44175" CreationDate="2019-04-30T15:57:57.660" Score="2" ViewCount="102" Body="&lt;p&gt;I recently received my bachelors degree in economics. For fun I wanted to try to apply some micro-economic theory of finding the optimal price in a cournot competition. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I wanted to do this for a business my friend has. He's a goldsmith and has his own established goldsmith store in a city with a population of approximate 100.000 people. There are two more goldsmiths with their own store in this city. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My plan would be to only look at one product, suppose a simple and plain gold ring. Finding the marginal cost function for this should be easy. However, I struggle with thinking about how I would find the marginal revenue function to eventually find MR=MC. For the marginal revenue function I need to know the demand curve. In order to find the demand curve I need to know the the sum of utilities of individuals (for simplicity assuming that consumers are homogeneous), right? How could I estimate this utility of an individual?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Furthermore, I would believe that this market could be described as a cournot competetion (n=3) where we could assume, for simplicity, that each goldsmith would have the same marginal costs, since they all buy gold from the same supplier and the costs of effort and production wouldn't differ that much from each other. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So mainly I struggle with finding or estimating the utility function. Since a simplistic utility function could be U(p)=X-p, where X is the willingness to pay and p the price of a golden ring. But how do I find the willingness to pay of an individual. Is it perhaps possible to estimate deduce this from my friends previous years revenues or profits?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Last question. This optimal price would only be optimal in a cournot competition when the other two goldsmiths would also use the same price? Assuming that these firms are symmetric.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you have critique on my process of thought of how to approach this, please do and correct me if I mentioned something wrong about the micro-economic theory I had in mind for this application.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you for your attention :)&lt;/p&gt;&#xA;" OwnerUserId="18521" LastActivityDate="2021-05-27T11:21:44.313" Title="Trying to apply in practice the theory of finding the optimal price in a cournot competition" Tags="&lt;microeconomics&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29046" PostTypeId="2" ParentId="29040" CreationDate="2019-04-30T18:07:38.517" Score="0" Body="&lt;p&gt;You can easily think of an endowment economy with taxes, and think of the taxes as transaction costs or trading costs. I'm sure classic textbooks like Mas-Collel address this point, perhaps in an exercise. Your intuition is right, the larger &quot;t&quot; is, the more deadweight loss there is, and this is reflected by transactions that do not occur. A large enough &quot;t&quot; can prevent all transactions from occurring, just as a large enough tax can kill a market. &lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-04-30T18:07:38.517" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29048" PostTypeId="2" ParentId="29021" CreationDate="2019-04-30T19:40:29.270" Score="1" Body="&lt;p&gt;It depends on what you define as wage curve. I did not check in the textbooks, but you suggest that Pissarides and Cahuc et al. do not use the same mathemaical expression for the &quot;wage curve&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) In Cahuc et al., the expression combines the surplus sharing equation with the Bellman equations without using the free entry condition of firms. The wage &lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt; is increasing in &lt;span class=&quot;math-container&quot;&gt;$\theta$&lt;/span&gt; because a tighter market tightness improves the worker's bargaining position. There is no labor demand effect in this wage equation. Therefore, the vacancy cost does not appear.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) The Pissarides' wage curve is less straightforward to interpret. Given the positive relationship between &lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$c$&lt;/span&gt;, one could erroneously think that the vacancy cost increases the wage. The interpretation is the following.&#xA;At &lt;span class=&quot;math-container&quot;&gt;$\theta$&lt;/span&gt; fixed, a higher vacancy cost means that firms spend more to recruit. More spendings capture the fact that firms make larger job profits (free-entry condition). When firms make larger profits, workers also obtain a larger surplus due to the Nash bargaining. Thus, the wage is higher.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This definition of the wage curve does not depend on the matching technology (&lt;span class=&quot;math-container&quot;&gt;$m$&lt;/span&gt;). To understand this result, we can write the model with an abstract matching market.&#xA;With your notations, we define the value of unemployment &lt;span class=&quot;math-container&quot;&gt;$U$&lt;/span&gt;, the value of employment &lt;span class=&quot;math-container&quot;&gt;$W$&lt;/span&gt; and the value of a job for a firm &lt;span class=&quot;math-container&quot;&gt;$J$&lt;/span&gt;.&#xA;We can write the three Bellman equations, and the Nash bargaining condition with the wage:&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{align}&#xA;    &amp;amp; rU = z + R\\&#xA;    &amp;amp; rW = w+q(U-W)\\&#xA;    &amp;amp; rJ = y-w-qJ\\&#xA;    &amp;amp; w=\gamma y + (1-\gamma)rU&#xA;\end{align}&lt;/span&gt;&#xA;If a worker is employed, she produces &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; and receive &lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt;, with a risk to lose the job &lt;span class=&quot;math-container&quot;&gt;$q$&lt;/span&gt;.&#xA;If the worker is not employed, she receives &lt;span class=&quot;math-container&quot;&gt;$z$&lt;/span&gt; plus the returns from participating to a matching market &lt;span class=&quot;math-container&quot;&gt;$R$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the full model &lt;span class=&quot;math-container&quot;&gt;$R=\theta m(\theta) (W-U)$&lt;/span&gt;. Here, we do not use this structure.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We assume that each unemployed worker participating to the &quot;matching market&quot; produces &lt;span class=&quot;math-container&quot;&gt;$G$&lt;/span&gt; and obtain &lt;span class=&quot;math-container&quot;&gt;$R$&lt;/span&gt;. To participate to the market and obtain part of the gains, firms have to pay a cost &lt;span class=&quot;math-container&quot;&gt;$c$&lt;/span&gt;. If we assume that &lt;span class=&quot;math-container&quot;&gt;$G$&lt;/span&gt; is Nash-bargained, each worker obtains &lt;span class=&quot;math-container&quot;&gt;$R=\gamma G$&lt;/span&gt;, and recruiting firms share &lt;span class=&quot;math-container&quot;&gt;$(1-\gamma)Gu$&lt;/span&gt;. The average returns for a firm is &lt;span class=&quot;math-container&quot;&gt;$\frac{(1-\gamma)G u}{v}=(1-\gamma)\frac{G}{\theta}$&lt;/span&gt;.&#xA;The free entry condition implies that firms make no profits from participating to the market. Therefore, &lt;span class=&quot;math-container&quot;&gt;$(1-\gamma)\frac{G}{\theta}=c$&lt;/span&gt;.&#xA;Using the wage bargaining solution, we obtain Pissarides' wage curve using the wage bargaining solution and eliminating &lt;span class=&quot;math-container&quot;&gt;$rU$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$R$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$G$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The wage curve holds without assuming how the &quot;matching market&quot; works, we only assume that the outcome is Nash-bargained. To come back to a change in &lt;span class=&quot;math-container&quot;&gt;$c$&lt;/span&gt;. An increase in the vacancy cost &lt;span class=&quot;math-container&quot;&gt;$c$&lt;/span&gt; necessarily implies that the gain &lt;span class=&quot;math-container&quot;&gt;$G$&lt;/span&gt; is higher, ans so the wage. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;3) This is partial equilibrium analysis. If you solve for the equilibrium level of wages, you will find that &lt;span class=&quot;math-container&quot;&gt;$c$&lt;/span&gt; actually reduces the equilibrium level of wages.&lt;/p&gt;&#xA;" OwnerUserId="4094" LastActivityDate="2019-04-30T19:40:29.270" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29049" PostTypeId="1" CreationDate="2019-04-30T20:39:41.627" Score="2" ViewCount="30" Body="&lt;p&gt;I would like your help to understand the &lt;a href=&quot;https://en.wikipedia.org/wiki/Maximum_sustainable_yield&quot; rel=&quot;nofollow noreferrer&quot;&gt;Maximum sustainable yield model&lt;/a&gt;. This is what I understood with some questions. &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;We consider a population of individuals who are born, possibly reproduce themselves, and die. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;We assume that the population does not grow indefinitely, but after a certain amount of time the population reaches an equilibrium size, &lt;span class=&quot;math-container&quot;&gt;$K$&lt;/span&gt;. Time and population size are thought as continuous variables. Time spans an infinite horizon. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Specifically, the evolution of the population size over time is assumed to follow a logistic function as in Figure A of the picture below, &#xA;where &lt;span class=&quot;math-container&quot;&gt;$N(t)$&lt;/span&gt; denotes population size and &lt;span class=&quot;math-container&quot;&gt;$t$&lt;/span&gt; denotes time. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consequently, one can derive the slope of the logistic curve at each point, which we denote by &lt;span class=&quot;math-container&quot;&gt;$\frac{d N(t)}{dt}$&lt;/span&gt;. When plotting &lt;span class=&quot;math-container&quot;&gt;$\frac{d N(t)}{dt}$&lt;/span&gt; as a function of &lt;span class=&quot;math-container&quot;&gt;$N(t)$&lt;/span&gt;, one obtains Figure B of the picture below. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\frac{d N(t)}{dt}$&lt;/span&gt; can be thought of as the &quot;increase of population size that is obtained by natural processes during an infinitesimal amount of time&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose now that a firm wants to harvest individuals and that the firm's profit increases with the number of harvested individuals. Let &lt;span class=&quot;math-container&quot;&gt;$H$&lt;/span&gt; be the harvesting rate, that is &quot;amount of individuals removed from the population during an infinitesimal amount of time&quot;. Suppose that the firm wants to keep the harvesting rate constant over time. At a given point in time, &lt;span class=&quot;math-container&quot;&gt;$H$&lt;/span&gt; cannot be bigger than &lt;span class=&quot;math-container&quot;&gt;$\frac{d N(t)}{dt}$&lt;/span&gt; because otherwise the harvesting is not sustainable and the population is at risk for decline to extinction. &lt;span class=&quot;math-container&quot;&gt;$\frac{d N(t)}{dt}$&lt;/span&gt; is highest when the population size is equal to &lt;span class=&quot;math-container&quot;&gt;$N^*$&lt;/span&gt;. Hence the optimal strategy is to wait until the population has reached size &lt;span class=&quot;math-container&quot;&gt;$N^*$&lt;/span&gt; and then apply a constant harvesting rate equal to &lt;span class=&quot;math-container&quot;&gt;$H^*$&lt;/span&gt; (which, in turn, keeps the population size constant at &lt;span class=&quot;math-container&quot;&gt;$N^*$&lt;/span&gt; and does not allow it to grow until &lt;span class=&quot;math-container&quot;&gt;$K$&lt;/span&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Questions: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) Is my summary correct? For the last sentence to be true, are we assuming that &quot;waiting until the population has reached size &lt;span class=&quot;math-container&quot;&gt;$N^*$&lt;/span&gt;&quot; has no cost for the firm (or that, somehow, costs are compensated after)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) I read somewhere that the harvesting activity produces an harvested stock equal to &lt;span class=&quot;math-container&quot;&gt;$N^*$&lt;/span&gt;. What does this mean? Since the time horizon is infinite, once harvesting starts it will never stop. Therefore, how can one compute the final harvested stock?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;3) Which are other underlying assumption of the model that I have not reported in my description above?&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/C4RS9.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/C4RS9.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="1505" LastActivityDate="2019-04-30T20:39:41.627" Title="The maximum sustainable yield model: clarifications" Tags="&lt;economic-growth&gt;&lt;balanced-growth&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29050" PostTypeId="1" CreationDate="2019-04-30T21:40:12.513" Score="0" ViewCount="15" Body="&lt;p&gt;If prices/wages are flexible, with a negative shock to consumption, for example, I have heard that the real interest rate should fall to keep the demand constant (since consumption is decreasing in the interest rate), but I am confused as to how this would happen. If prices decrease, then it seems like consumption would increase, but I don't know where to go from there.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does it have to do with a response from the financial system?&lt;/p&gt;&#xA;" OwnerUserId="20877" LastActivityDate="2019-04-30T21:40:12.513" Title="How does a consumption shock decrease the real interest rate?" Tags="&lt;macroeconomics&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="29051" PostTypeId="2" ParentId="23970" CreationDate="2019-04-30T22:04:16.597" Score="0" Body="&lt;p&gt;An upward sloping / inverted yield curve itself does not guarantee anything. You've probably heard that an inverted yield curve has preceded every recession, but there have been many times where the yield curve has inverted and nothing happened.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With regards to your question, I think it's easier to think of why an inverted yield curve &lt;strong&gt;might&lt;/strong&gt; foreshadow something bad with the economy. If everything was guaranteed to be perfect in the future, the return on a 5-year bond, for example, should be roughly equal to buying five 1-year bonds. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But what happens during a recession? The fed decreases interest rates significantly. Thus, the 5-year bond would have a lower yield than a 1-year bond since people expect the interest rate to fall over sometime in the next few years. Similarly, for an upward sloping yield curve, it means that people are projecting an economy with strong growth, as they expect interest rates to increase in the future in order to prevent the economy from overheating.&lt;/p&gt;&#xA;" OwnerUserId="20877" LastActivityDate="2019-04-30T22:04:16.597" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29052" PostTypeId="1" CreationDate="2019-04-30T23:50:03.017" Score="0" ViewCount="660" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/IJguQ.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/IJguQ.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How do you find the pure Nash equilibria from this commitment game?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The SPNE is (U, ps)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Do you find the NE by finding the best response (BR) of a player to a specific strategy of the other player?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;e.g. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;BR(p)={D}&#xA;BR(q)={U}&#xA;BR(r)={D}&#xA;BR(r)={U}&lt;/p&gt;&#xA;&#xA;&lt;p&gt;BR(U)={p}&#xA;BR(D)={s}&lt;/p&gt;&#xA;" OwnerUserId="23009" LastActivityDate="2019-05-01T14:00:02.107" Title="Game Theory: finding nash equilibria of an extensive form game (game tree)" Tags="&lt;game-theory&gt;&lt;nash-equilibrium&gt;" AnswerCount="2" CommentCount="0" ClosedDate="2019-05-13T10:03:47.647" ContentLicense="CC BY-SA 4.0" />
  <row Id="29053" PostTypeId="2" ParentId="29052" CreationDate="2019-05-01T00:07:48.380" Score="1" Body="&lt;p&gt;Let me try and simplify this for you. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You're trying to calculate every possible outcome, but as you rightly assert we need to be looking at the best response of each player. At a given node (a place where a player makes a decision) they're trying to make the decision that gives them the best possible outcome.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's look at the left node of player 2. Here he can choose P,Q,R or S. Well his payoff is 4,3,2,0 respectively. If we ever reach this node player 2 will choose P (4). We can effectively &quot;delete&quot; the other options since they will never get selected.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Likewise for the right node of player 2. Here he can choose P,Q,R or S. Well his payoff is 1,4,5,6 respectively. If we ever reach this node player 2 will choose S (6). We can effectively &quot;delete&quot; the other options since they will never get selected.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Player one knows all of this. He knows that if he chooses U, player 2 will choose P, giving him a payout of 1. If he chooses D however, he will get a payout of 0 (when player 2 chooses S).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So he has to choose between U(1) or D(0). Clearly he chooses U.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This means that as long as the players are rational (an assumption we make in games like these) that we will end up at P1: U P2: P. With strategy sets of P1(U), P2(P,S).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope that helps!&lt;/p&gt;&#xA;" OwnerUserId="4808" LastActivityDate="2019-05-01T00:07:48.380" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29054" PostTypeId="2" ParentId="29052" CreationDate="2019-05-01T01:15:46.243" Score="3" Body="&lt;p&gt;For the SPNE, you want to proceed by backward induction as explained by Lee Sin. For all other NE you want to construct the normal form representation (the usual table for simultaneous games) and solve for NE as if players were choosing their actions simultaneously. Note that the actions of player 1 are &lt;span class=&quot;math-container&quot;&gt;$\{U,D\}$&lt;/span&gt;, while for player 2 are &lt;span class=&quot;math-container&quot;&gt;$\{pp, pq, pr, ps, qp, qq, qr, qs, rp, rq, rr, rs, sp, sq, sr, ss\}$&lt;/span&gt;. This will indeed be a very large table.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another way to do it is simply to look for fixed points directly. For example, assume that Player 2 plays &lt;span class=&quot;math-container&quot;&gt;$pp$&lt;/span&gt;, then the best response for player 1 is &lt;span class=&quot;math-container&quot;&gt;$D$&lt;/span&gt; but if player one chooses &lt;span class=&quot;math-container&quot;&gt;$D$&lt;/span&gt;, the best response for player 2 is either of the following actions &lt;span class=&quot;math-container&quot;&gt;$\{ps, qs, rs, ss\}$&lt;/span&gt; since &lt;span class=&quot;math-container&quot;&gt;$pp$&lt;/span&gt; is not in this set, it is not a fixed point. iterate that process for all the actions of player 2.  Try to convince yourself that there is no other NE, except for the SPNE. And think about how would you change the payoffs so that the SPNE is the same, but now there are other NE's. (Hint: would changing the payoff of the terminal node after U,p from (2,1) to (1,1) work?)&lt;/p&gt;&#xA;" OwnerUserId="21827" LastEditorUserId="21827" LastEditDate="2019-05-01T14:00:02.107" LastActivityDate="2019-05-01T14:00:02.107" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29055" PostTypeId="1" CreationDate="2019-05-01T02:50:34.627" Score="0" ViewCount="57" Body="&lt;p&gt;&lt;strong&gt;Question:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a scenario where data is bought and sold in a double-auction market, will the trading price and volatility of a given piece of data become inversely proportional to its accuracy over time?  In other words, will &quot;true&quot; data tend to propagate until there is no scarcity, while falsehoods tend to trade at higher and more volatile prices?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reason why this would be useful to know is that, if &quot;truth is cheap&quot;, then volatility and long-term price trend can be used as an indicator of accuracy. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Definition of terms:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&quot;True&quot; data is more accurate, less noisy, more useful to its buyers.  A simple example of true data would be a current and correct list of phone numbers for a set of people.&lt;/li&gt;&#xA;&lt;li&gt;&quot;False&quot; data is less accurate, noisy, obsolete, or outright wrong, less useful and more risky for its buyers.  A simple example of false data would be an old and partially incorrect list of phone numbers for a set of people.  &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Note that by these definitions, &quot;true&quot; or &quot;false&quot; is not a boolean -- a set of data can be partially false.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note also that, until the buyer tests the data, they have no way of knowing whether it is true or false -- they may need to buy two conflicting sets of the same data and test both -- this generates some intermittent demand for &quot;false&quot; data.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Hypothesis:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think the answer to this question may be &quot;yes&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sellers would tend to raise their ask prices in order to compensate for their increased risk when selling data they themselves believe to be suspect, leading to a wider bid-ask spread and lower liquidity. See the &quot;possible implementation&quot; section below for what the sellers' risk might be. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Likewise, buyers would tend to lower their bids for data that scores lower in their purchasing heuristics -- their scoring might include known prior data quality from the same seller, number of sellers offering the same data hash, age of data, etc.  Again see the &quot;implementation&quot; section below.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If a seller believes a piece of data is more correct, they will believe there to be less risk, and they will move ask prices lower in order to remain competitive.  This lowers the bid-ask spread as well as volatility of matched prices. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Motivation:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If &quot;truth is cheap&quot; turns out to be correct, then systems based on this principle could be useful both in low-level distributed algorithms and in high-level social systems and governance.  I've been pondering this question myself for a while for an open-source project I want to launch, and I figured I'd check in here before starting significant work on it. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Example:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One specific low-level problem I want to be able to solve, for example, is in choosing the most valid block of data for a particular file or record in a distributed system.  Existing distributed systems have difficulty hosting more than one economic actor on a peer-to-peer basis without explosive growth of the data itself, and a decreasing signal-to-noise ratio.  If anyone can add data to a commons regardless of validity or usefulness, then the commons tends to become more noisy over time.  The traditional cure for this is active curation by founders or their delegates.  That doesn't work as well in truly distributed systems where founders don't own most of the nodes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Traditionally, conflicts in distributed data systems are often prevented by locking before writing, and resolving conflicts when they do arise is traditionally handled by voting or merging, often with humans in the loop. Replication of data for safety in distributed systems is traditionally either manually specified or on a best-effort basis.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Possible Implementation:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think market structure likely matters a great deal in whether &quot;truth is cheap&quot; works or not. Here are some example conditions which I think would enable this:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;A subset of traders have ways of testing data for accuracy. They discard inaccurate data, and offer unlimited copies of the remainder for sale.&lt;/li&gt;&#xA;&lt;li&gt;A subset of traders need accurate data for their own internal use, and have the option of applying complex algorithms to choose between competing sellers.&lt;/li&gt;&#xA;&lt;li&gt;Sellers provide a cryptographic hash of the data in their offer, but not the data itself.  This allows the buyer to count how many sellers are offering the same data, and enables the buyer to choose the lowest price.&lt;/li&gt;&#xA;&lt;li&gt;Sellers digitally sign their offers.&lt;/li&gt;&#xA;&lt;li&gt;Sellers incur risk -- testers may sell information describing bad data, including the original offer and seller's signature.  Another possible source of risk could be contracts with some sort of forced settlement similar to options assignment.  &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;I'm obviously handwaving a lot of details in the interest of brevity, and am completely skipping over currency, accounting, and transparency of peer account balances.  Feel free to ask if something seems missing.  &lt;/p&gt;&#xA;" OwnerUserId="4994" LastEditorUserId="4994" LastEditDate="2019-05-03T21:58:24.713" LastActivityDate="2019-05-03T21:58:24.713" Title="Is truth cheap, and falsehood expensive and volatile?" Tags="&lt;microeconomics&gt;&lt;game-theory&gt;&lt;behavioral-economics&gt;" AnswerCount="1" CommentCount="8" ClosedDate="2019-05-01T11:14:40.377" ContentLicense="CC BY-SA 4.0" />
  <row Id="29056" PostTypeId="2" ParentId="29055" CreationDate="2019-05-01T03:11:26.243" Score="2" Body="&lt;p&gt;I think that your question touches on several topics. In terms of keywords to search for articles, I would use &quot;information&quot; or &quot;signals&quot; instead of &quot;data&quot;. Inaccurate signals are usually called &quot;noisy signals&quot;. One of the hurdles I see is that you are trying to talk about information as cheap or expensive, there are a couple of recent articles trying to derive formally a cost function for information of different quality (see &lt;a href=&quot;http://tamuz.caltech.edu/papers/cost_of_information.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Pomatto et al&lt;/a&gt;, working paper). Their intention is to think of information as a commodity that can be bought and sold and what is the right way to think of their cost. However, it seems to me that your notion of cost is more related to how easily truth spreads vs noise. There are plenty of models on the communication or spread of information. Its ability to spread depends on why people share information and what kind of information can they share (is it costly to produce information?). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Under the conditions you pose, it seems that everyone wants to have and sell the most accurate information available if they can perfectly measure accuracy and costlessly discard noisy information. It seems pretty straight-forward that the supply of information will increase over time, and the price of it will go down. Not sure how the conditions posed will lead to any notion of &quot;falsehood&quot; being expensive, so that might be a problem. &lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-05-01T03:11:26.243" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29059" PostTypeId="2" ParentId="28976" CreationDate="2019-05-01T11:10:47.613" Score="2" Body="&lt;p&gt;You largely answered this question yourself: you provided this reference to a Gennero Zezza paper: &lt;a href=&quot;http://www.levyinstitute.org/pubs/wp405.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;(link to paper)&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Zezza states in the second paragraph that most of the thinking about the Paradox of Profits was mistaken, as the authors used models which were not stock-flow consistent (flows disappeared). If people are arguing that there is a paradox, but do the accounting wrong, it is difficult to explain the error - since their arguments are internally inconsistent. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am not familiar with Marx’s arguments, but based on the question, he is making an argument about a fixed money supply. This adds an extra constraint, that is probably not addressed in the Zezza papper.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a single time period, there is no difficulty in generating profits. The business sector starts with \$100, pays \$90 in wages, \$10 in dividends, and then the household spends all money received to buy goods - generating \$10 in profits, which is enough to cover the dividend. Profits can be achieved also by the business sector investing in fixed capital or inventories. In any event, this can be achieved with a fixed money supply.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The only challenge is generating a steady state. Can a fixed money supply co-exist with a growing economy in steady state? This is perhaps a challenge, but the reality is that even non-financial entities can issue instruments that are used as money if the money supply is constrained. (For example, the pre-Confederation Canadian colonies had a perpetual shortage of coinage, and a wide variety of entities issued tokens that circulated as money). Since it is hard for a society to survive without government, government-issued money is normally issued in a way to grow in line with the economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Marx was writing in an era before fiat currencies had shown much ability to survive. My understanding is that his thinking did not take into account the flexibility of fiat systems.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In summary, since the argument that profits are paradoxical is based on faulty logic, it’s difficult to explain where the problems lie. One would need to delve into the details of each argument, and determine where they made the error - and it’s not necessarily always the same error.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2019-05-01T11:10:47.613" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29060" PostTypeId="1" CreationDate="2019-05-01T11:32:51.437" Score="3" ViewCount="223" Body="&lt;p&gt;I have read about incomplete contracts in the context of vertical integration of firms, in which the two contracting parties are relatively &quot;symmetric&quot; (we cannot say that one is the agent and the other the principal. Both take hidden actions that influence the other party)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In principal agent theory, I have not read anything that &lt;em&gt;explicitly&lt;/em&gt; talks about &quot;contractual incompleteness&quot; as a source of agency problems. Yet it seems intuitively that they are related.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How is contractual incompleteness related to the principal agent problem?&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Are all principal agent problems the result of incomplete contracting?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;is incomplete contracting merely one example of a source of principal agent problem?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;How, in general, are they related?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;EDIT:&lt;/strong&gt; In particular, the term &quot;admissible contract&quot; or &quot;feasible contract&quot; is used in the context of principal-agent problems. Does &quot;incompleteness&quot; of contracts simply mean that &quot;the set of admissible/feasible contracts is restricted in some important senses&quot;?&lt;/p&gt;&#xA;" OwnerUserId="21899" LastEditorUserId="21899" LastEditDate="2019-05-01T21:19:56.113" LastActivityDate="2019-05-02T07:03:07.950" Title="Relation between incomplete contracting and the principal agent problem?" Tags="&lt;principal-agent&gt;&lt;contract-theory&gt;&lt;contracts&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29064" PostTypeId="1" CreationDate="2019-05-01T17:26:16.517" Score="0" ViewCount="58" Body="&lt;p&gt;I am regressing per capita health expenditure on per capita GDP. I have 3 data columns (health expenditure, gdp, population) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So my regression function is healthexpenditure/population = b0 + b1.(gdp/population)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) My question will be what are the possible problems of this model? Is dividing dependent and independent variable with population number problematic? This is a theoritical question, I want to explore possible biases in my simple model.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) Suppose that I have plotted my data and it looks like this. Do you see a problem that are related? &lt;a href=&quot;https://i.stack.imgur.com/5a15L.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/5a15L.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="23019" LastActivityDate="2020-01-27T03:04:10.477" Title="Possible regression biases with GDP [x] vs Health expenditure [y] (both per capita)" Tags="&lt;econometrics&gt;&lt;regression&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29066" PostTypeId="2" ParentId="24352" CreationDate="2019-05-01T21:16:07.617" Score="3" Body="&lt;p&gt;There's the theory, and there's the reality.  Let's say there's an across-the-board rent tax of \$100 per property.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The theory is that if landlords could just arbitrarily increase rent by \$100, they would've done it already.  They haven't, therefore they can't.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reality is that if every landlord in the city increases rent by \$100 at the same time and with the same excuse, and if the inconvenience of moving out of the entire city outweighs the burden of paying an extra \$100 in rent each month, then (most) people will pay the \$100 and the landlords will have successfully passed off the tax to their tenants.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Over the long term, and across large scales, things will tend to even out such that landlords do end up paying for it -- the \$100 extra they get now will just cut into future increases they could've otherwise made.  But in the nitty gritty, dirty reality of people not being willing to move simply because their landlords are trying to get away with passing off the tax, the tenants can end up (at least temporarily) footing the bill regardless.&lt;/p&gt;&#xA;" OwnerUserId="23023" LastActivityDate="2019-05-01T21:16:07.617" CommentCount="9" ContentLicense="CC BY-SA 4.0" />
  <row Id="29067" PostTypeId="2" ParentId="27338" CreationDate="2019-05-01T21:25:48.830" Score="1" Body="&lt;p&gt;This is a concept that I've seen confuses a lot of people when they first encounter it. However, it is completely perfect to assume that something will happen in equilibrium, use that fact to characterize equilibrium, and then check your assumption indeed holds. This is sometimes called guess-and-verify. Remember that an equilibrium has a very precise definition, it is a set of strategies that satisfy some conditions. If you find them, and they satisfy the conditions it doesn't really matter how you found them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It might sound silly to just be guessing properties of an equilibrium and be hoping for the best. But actually, doing good guesses is hard; so there is merit to it. So long you check that your equilibrium satisfies the assumed (or guessed) property, then your original assumption is verified. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The alternative would be, in principle, to solve a game by computing for each player their best response as a function of all possible actions of every other player. And then find the intersection of these best responses. This can be an extremely hard thing to do, even for simple games like a Hotelling model where N firms set locations and prices and then consumers choose from where to buy. So making informed guesses can be a great shortcut to find an equilibrium.  &lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-05-01T21:25:48.830" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29068" PostTypeId="2" ParentId="29064" CreationDate="2019-05-02T00:19:40.137" Score="1" Body="&lt;p&gt;There could be a question of whether your model and graph should be based on a linear relationship or a log-log relationship&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The slightly widening residuals apparent in your linear graph seems to understate the real issue illustrated in a &lt;a href=&quot;http://bit.ly/2DLz2qB&quot; rel=&quot;nofollow noreferrer&quot;&gt;linear-axis graph from Gapminder&lt;/a&gt;. The green outlier at the top is the USA while the small red outliers on the right are rich but small Gulf and SEAsian countries, and the presence of both of these could exert excessive leverage on your regression coefficients&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/wkOex.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/wkOex.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This left-right disparity in residuals does not look so bad with the &lt;a href=&quot;http://bit.ly/2DJvvJp&quot; rel=&quot;nofollow noreferrer&quot;&gt;same Gapminder data plotted with log-log scales&lt;/a&gt;.  It also spreads out the big cluster of developing countries in the bottom-left corner between those which are extremely poor and those which are not so poor and so allows their relative difference to influence your model estimates     &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/J15Dd.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/J15Dd.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2019-05-02T00:19:40.137" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="29069" PostTypeId="1" CreationDate="2019-05-02T02:35:07.323" Score="4" ViewCount="49" Body="&lt;p&gt;I was wondering whether there is a neat overview over different interpretations of game theoretic solution concepts such as Nash equilibrium, Sequential Equilibrium and the like.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Textbooks I found incredibly lacking in this respect (they have the tough job of getting the mathematical definitions across). Often, for Nash equilibria they allude to some &quot;consistency&quot; or &quot;steady state&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is therefore both a reference request and perhaps a call to create a nice overview over different interpretations of equilibrium concepts in game theory. If you feel this question is too broad, it may make sense to narrow it to Nash equilibria.&lt;/p&gt;&#xA;" OwnerUserId="5635" LastActivityDate="2019-05-02T20:46:36.747" Title="Interpretation of Solution Concepts" Tags="&lt;game-theory&gt;&lt;nash-equilibrium&gt;" AnswerCount="1" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29071" PostTypeId="2" ParentId="29060" CreationDate="2019-05-02T06:58:00.987" Score="2" Body="&lt;p&gt;Not all principal-agent problems are the result of incomplete contracts, no. In fact, in most principal-agent problems, complete contracts are assumed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An &lt;strong&gt;incomplete contract&lt;/strong&gt; is one that cannot be &lt;strong&gt;contingent&lt;/strong&gt; on every possible &lt;strong&gt;outcome&lt;/strong&gt; that could occur after the contract is signed. You can't write a contract that gives out a different payment to each party under every possible circumstance, because you can't imagine every possible circumstance. For example, an American agricultural firm's profits might be affected in miniscule ways by weather in Peru. But a contract related to that firm might offer the same payouts regardless of Peru's weather.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A &lt;strong&gt;principal-agent problem&lt;/strong&gt; arises when the incentives of the principal and of the agent are not aligned, and so the agent may not act as the principal desires. For example, putting in less effort than the principal would find optimal because the agent will be the primary benefactor of additional effort. A lot of the problem arises here because the principal cannot perfectly and costlessly observe what the agent does, and so must write a contract &lt;strong&gt;contingent&lt;/strong&gt; on the &lt;strong&gt;outcome&lt;/strong&gt; of the project, rather than contingent on the agent's actions, which cannot be observed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You could, colloquially, say that the principal-agent problem is an example of incomplete contracts in the sense that you can't contract on the agent's actions. But that's not what economists mean by incomplete contracts. Incomplete contracts refers to the fact that your contract is not sensitive to every possible contingency, even though everyone will know what that contingency is after it happens, as opposed to principal-agent problems, which refer to the fact that you can't include unobservable actions of the agent in your contract, which are hidden to the principal.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for how they're related, they're both examples of problems that can make it difficult to write a contract. There are certainly models that combine the two (for example &lt;a href=&quot;https://www.jstor.org/stable/2555872?casa_token=ict_-tx5qv4AAAAA:TyRMvliNVZiCewqtSN8neiUuzyQ-j3_cz_cbEghZHL1nciqzzZ61LkRE8H51YxfxOamQpsDj5kvVFA_2KbfFy_3pYDa8E3rZa02KhFmiiX7I5Owrog-jXg&amp;amp;seq=1#metadata_info_tab_contents&quot; rel=&quot;nofollow noreferrer&quot;&gt;this&lt;/a&gt;), but one doesn't subsume the other.&lt;/p&gt;&#xA;" OwnerUserId="12848" LastEditorUserId="12848" LastEditDate="2019-05-02T07:03:07.950" LastActivityDate="2019-05-02T07:03:07.950" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="29073" PostTypeId="1" CreationDate="2019-05-02T09:25:15.420" Score="0" ViewCount="31" Body="&lt;p&gt;Are interest rates the cause of economic growth?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example there is no money in the system and bank a is lending company A a loan Y with X interest.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;how can company A pay back the loan Y with interest X when the system is just loaded with loan Y? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My conclusion is the Loan Y can only be paid back with interest when the economic is growing by other loans? &lt;/p&gt;&#xA;" OwnerUserId="23026" LastActivityDate="2019-05-02T14:22:51.510" Title="Interest rates and economic growth" Tags="&lt;macroeconomics&gt;" AnswerCount="2" CommentCount="2" ClosedDate="2019-05-09T18:29:29.897" ContentLicense="CC BY-SA 4.0" />
  <row Id="29074" PostTypeId="1" CreationDate="2019-05-02T09:34:21.390" Score="5" ViewCount="84" Body="&lt;p&gt;GARP and Afrait theorem assume that the alternative &lt;span class=&quot;math-container&quot;&gt;$x\in\mathbb R_+$&lt;/span&gt; is always positive. In some economic contexts, such as financial choices, the attribute can be negative.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I wonder if we can naturally relax the &lt;span class=&quot;math-container&quot;&gt;$\mathbb R_+$&lt;/span&gt; constraint. i.e. let &lt;span class=&quot;math-container&quot;&gt;$x\in\mathbb R$&lt;/span&gt;,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;GARP: if &lt;span class=&quot;math-container&quot;&gt;$p_i⋅x_{i+1}≤p_i⋅x_i$&lt;/span&gt; for &lt;span class=&quot;math-container&quot;&gt;$i∈\{1,...,N−1\}$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$p_N⋅x_1≤p_N⋅x_N$&lt;/span&gt;, then those inequalities must be equalities.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At a first glance, the generalization to negative number seems plausible and not problematic.&lt;/p&gt;&#xA;" OwnerUserId="13381" LastEditorUserId="13381" LastEditDate="2019-05-02T19:42:21.703" LastActivityDate="2019-05-02T19:42:21.703" Title="Afriat theorem for negative goods" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;decision-theory&gt;&lt;choice-theory&gt;&lt;demand&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="29075" PostTypeId="1" CreationDate="2019-05-02T10:49:11.373" Score="0" ViewCount="37" Body="&lt;p&gt;It has always been the conventional wisdom that businesses should be fit to survive in the market competition, that only the best businesses can survive beyond horizon of several years, that survival of some enterprise certifies both its style of conducting business and its general meaning for the society.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But Industry 4.0 and globalization has created 2 interesting trends:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Automation, robotics and artificial intelligence are providing opportunities to automate jobs, but some investment is required. So - for the first time in the human history the humans compete against machines and sometimes human labour lower the standards of remuneration to survive in this competition. So, in that way the primitive businesses emerge - those enterprises that rely on the cheap human labour and that simply do not make investment. So, if someone has no capital and if someone has enough cruelty to create mean jobs, the he or she can build up primitive business and survive the market competition relying on the cruelty of primitive, low wage jobs. The general society suffer - the society provides cheap labour, the society does no receive taxes from low wage job, the society looses could-be scientists, technologists, ethical businessman, artists and so on, so on.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Globalization and &quot;race to bottom&quot;, international and interregional competition relax the standards on labour and renumeration, sometimes countries or regions asks for any job the enterprises can provide and this is again the opportunity for the unethical people to create enterprises with precarious jobs.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;So - both those trends do very much good to the society, but those trends also create opportunities for the unhealthy, unethical companies without investment and use of technologies to emerge, so - in short - primitive businesses can exists, survive and even thrive in this new era.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My questions are:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Is there economic research about primitive business or maybe they are called differently in the economic research? There is research about financially-constrained households and how their option space is bounded and how they disturb the usual assumptions about the benefits of free market, free will and utility maximization. Maybe there is literature about primitive businesses as well?&lt;/li&gt;&#xA;&lt;li&gt;Is there normative economic research that considers the constraining the power of primitive businesses - both - by the increased regulation (e.g. common minimal standards) and by increased opportunities for the workforce to escape the trap in falling the braces of primitive businesses.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;p.s. I am aware about the usual thinking that any jobs are good in the era when automation automates away the jobs and that people should work whatever that means. But there is escape from the low standard jobs either by Universal Basic Income or by Universal Dividend (better yet) and people will not become vegetables in these settings, because, the mentally healthy people, according to Maslov et el, prefer self-realisation (science, arts, travelling, volunteering, etc., etc.) and not laziness (and there should be treatment for mentally unfit people). &lt;/p&gt;&#xA;" OwnerUserId="5373" LastActivityDate="2019-05-02T13:23:31.800" Title="Emergence of notion &quot;primitive business&quot; in the era of Industry 4.0 and globalization" Tags="&lt;microeconomics&gt;&lt;competition&gt;&lt;development-economics&gt;&lt;basic-income&gt;" AnswerCount="1" CommentCount="8" ContentLicense="CC BY-SA 4.0" />
  <row Id="29076" PostTypeId="1" AcceptedAnswerId="29077" CreationDate="2019-05-02T12:10:25.293" Score="1" ViewCount="34" Body="&lt;p&gt;If nominal GDP is, for example, \$1,620 billion in 2017 and increases to \$1,680 billion in 2018, is the growth rate 3.7%? Or does real GDP first need to be calculated using a deflator? &lt;/p&gt;&#xA;" OwnerUserId="23029" LastEditorUserId="6210" LastEditDate="2019-05-02T12:43:17.690" LastActivityDate="2019-05-02T12:43:17.690" Title="Nominal and Real GDP" Tags="&lt;inflation&gt;&lt;gdp&gt;" AnswerCount="1" CommentCount="1" ClosedDate="2019-05-09T19:12:56.007" ContentLicense="CC BY-SA 4.0" />
  <row Id="29077" PostTypeId="2" ParentId="29076" CreationDate="2019-05-02T12:33:53.613" Score="2" Body="&lt;p&gt;As you pointed out, you need to distinguish between real and nominal GDP. The 3.7% growth from 1620 to 1680 is the nominal growth. To figure out real growth, you need to know the price index of the two years.&lt;/p&gt;&#xA;" OwnerUserId="5145" LastActivityDate="2019-05-02T12:33:53.613" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29079" PostTypeId="2" ParentId="29075" CreationDate="2019-05-02T13:23:31.800" Score="3" Body="&lt;p&gt;There surely is research about the complement(s) of the (low tech) &amp;quot;primitive businesses&amp;quot;, i.e. the high-tech and/or innovative businesses.&lt;/p&gt;&#xA;&lt;p&gt;The US CES for instance publishes a &lt;a href=&quot;https://www2.census.gov/ces/wp/2016/CES-WP-16-55.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;BDS-HT&lt;/a&gt; (Business&#xA;Dynamics Statistics - High Tech) report. You can compare these with the core BDS data and get an idea how the high-tech sector differs. The US CES method of high-tech business classification is based on the number of STEM employees.&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Ultimately, High Tech industries account for about 4% of firms and 6% of employment.&lt;/p&gt;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/lJVuQ.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/lJVuQ.png&quot; alt=&quot;enter image description here&quot; /&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;So there are a lot &amp;quot;primitive businesses&amp;quot; by this standard, even in the US.&lt;/p&gt;&#xA;&lt;p&gt;A different method is used by CES for finding/reporting &amp;quot;innovative firms&amp;quot;, &lt;a href=&quot;https://www2.census.gov/ces/wp/2017/CES-WP-17-72.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;BDS-IF&lt;/a&gt;. This is based on patents (BDS-PF) and trademarks.&lt;/p&gt;&#xA;&lt;p&gt;I'm guessing the German Industrie 4.0 that motivated your question is probably similar to BDS-HT, but I don't know their exact methodology.&lt;/p&gt;&#xA;" OwnerUserId="6210" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2019-05-02T13:23:31.800" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29080" PostTypeId="2" ParentId="29073" CreationDate="2019-05-02T14:07:21.807" Score="2" Body="&lt;p&gt;Let's consider a simpler example.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You have 10 apples. With that, you can eat &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; apples and &quot;invest&quot; in the rest &lt;span class=&quot;math-container&quot;&gt;$10-x$&lt;/span&gt; apples, plant them, and each would yield two apples tomorrow. Let's say that with some optimization, you decided to eat 4 apples, saving the other 6 apples so that you could have 12 apples tomorrow. GDP would grow by 2.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this a result of &quot;interest rate&quot;? No. There's not even a bank here.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now imagine that there &lt;em&gt;is&lt;/em&gt; a bank that ask you to deposit your apples there for a day. What would you demand in return? 2 apples tomorrow for every apple you save today. That's the interest rate. The assumption is that the borrower can do something at least &lt;em&gt;as productive&lt;/em&gt; with the money he/she borrowed, and the apples would go to those who can most efficiently use them.&lt;/p&gt;&#xA;" OwnerUserId="5145" LastActivityDate="2019-05-02T14:07:21.807" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29081" PostTypeId="2" ParentId="29073" CreationDate="2019-05-02T14:22:51.510" Score="-1" Body="&lt;p&gt;I would like to say the pay back of interest rates in a debt monetary system can only be served with new debts? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Initial state: no money in the system&#xA;First step: Bank A is lending the first loan X with interest rates I to company A.&#xA;Second step company A is buying productions from Company B at the amount of X.&#xA;Third step company B is buy products from company A.&#xA;Forth step: Company A is paying back Loan X but it can’t pay interest rates I because in the System was just amount X.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where does Company A get the interest I. &#xA;In my opinion only through new debts?&lt;/p&gt;&#xA;" OwnerUserId="23026" LastActivityDate="2019-05-02T14:22:51.510" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29086" PostTypeId="2" ParentId="29069" CreationDate="2019-05-02T20:46:36.747" Score="6" Body="&lt;p&gt;One reason why there exists no ultimate overview is that these issues are still under debate. A great entry point would be the survey &quot;Foundations of Strategic Equilibrium&quot; by John Hillas and Elon Kohlberg in Volume 3 of the Handbook of Game Theory with Economic Applications. A preprint version of the survey can be found &lt;a href=&quot;https://pdfs.semanticscholar.org/a618/a4a57fa201dd023f28e5d6f76ffa34f7bd66.pdf&quot; rel=&quot;noreferrer&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="1442" LastActivityDate="2019-05-02T20:46:36.747" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29087" PostTypeId="2" ParentId="29002" CreationDate="2019-05-02T21:00:59.647" Score="0" Body="&lt;p&gt;In a scenario where there are no fixed or marginal costs, the leader gets &lt;span class=&quot;math-container&quot;&gt;$\frac{a}{2}$&lt;/span&gt; of the market share, the next follower gets &lt;span class=&quot;math-container&quot;&gt;$\frac{a}{4}$&lt;/span&gt;, third one gets &lt;span class=&quot;math-container&quot;&gt;$\frac{a}{8}$&lt;/span&gt; and the &lt;span class=&quot;math-container&quot;&gt;$n^{th}$&lt;/span&gt; firm gets &lt;span class=&quot;math-container&quot;&gt;$\frac{a}{2^{n}}$&lt;/span&gt;. In the limiting case where the number of entrants tends to &lt;span class=&quot;math-container&quot;&gt;$\infty$&lt;/span&gt;, the new entrants effectively become price takers.&lt;/p&gt;&#xA;" OwnerUserId="16338" LastActivityDate="2019-05-02T21:00:59.647" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29089" PostTypeId="1" CreationDate="2019-05-02T23:51:29.623" Score="3" ViewCount="88" Body="&lt;p&gt;Samuel Bowles &lt;a href=&quot;https://books.google.com/books?id=HAiMDU4qv0IC&amp;amp;pg=PA3&amp;amp;dq=%22At%20the%20close%20of%20the%20eighteenth%20century%20Cuba%20had%20slightly%20higher%20per%20capita%20incomes%20than%20the%20United%20States,%20and%20Haiti%20was%20probably%20the%20richest%20society%20in%20the%20world.%22&quot; rel=&quot;nofollow noreferrer&quot;&gt;writes&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;At the close of the eighteenth century ... Haiti was probably the richest society in the world.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Is the above claim true?&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2019-05-03T17:10:37.970" Title="Was Haiti the richest society in the world in the late 18th century?" Tags="&lt;economic-history&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="29090" PostTypeId="1" AcceptedAnswerId="32766" CreationDate="2019-05-03T00:20:55.780" Score="0" ViewCount="134" Body="&lt;p&gt;&lt;a href=&quot;https://www.amazon.co.uk/OSullivan-Hilliards-Law-Contract-Janet/dp/0198807821/ref=dp_ob_title_bk&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;O'Sullivan &amp;amp; Hilliard's The Law of Contract&lt;/em&gt;&lt;/a&gt; (2018 8 ed). 16.23 starts on p. 387, 16.35 on p. 391.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Right: Pindyck, Rubinfeld. &lt;a href=&quot;https://rads.stackoverflow.com/amzn/click/com/1292213310&quot; rel=&quot;nofollow noreferrer&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;Microeconomics, Global Edition&lt;/em&gt;&lt;/a&gt; (2017 9 ed). p. 152.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/OA1el.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/OA1el.jpg&quot; alt=&quot;&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.uclan.ac.uk/staff_profiles/richard-taylor.php&quot; rel=&quot;nofollow noreferrer&quot;&gt;Richard&lt;/a&gt; and &lt;a href=&quot;https://www.slaughterandmay.com/who-we-are/partners/damian-taylor/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Damian&lt;/a&gt; Taylor. &lt;a href=&quot;https://global.oup.com/academic/product/contract-law-directions-9780198836599?&amp;amp;lang=en&amp;amp;&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;Contract Law Directions&lt;/em&gt; (2019 7 ed)&lt;/a&gt;.  &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;Difference in value or cost of cure? (Section 11.3.1)&lt;/strong&gt;&lt;br&gt;&#xA;  The £2,500 award made in &lt;em&gt;Ruxley&lt;/em&gt; for Mr Forsyth’s ‘loss of amenity’ can be interpreted as&#xA;  damages for non-pecuniary loss, based on the fact that the contract was a consumer&#xA;  contract for enjoyment (see the opinions of Lords Clyde and Hutton in &lt;em&gt;Farley v Skinner&lt;/em&gt;&#xA;  (2001)). However, the award may also be interpreted as a response to the need for a&#xA;  wider principle of recovery based on the loss of ‘consumer surplus’. Consumer surplus is&#xA;  the difference in value between what a thing is worth commercially and the higher value&#xA;  at which a consumer subjectively values it. So, whilst an extra few inches on the swimming pool added no financial value, the £2,500 represented Mr Forsyth’s consumer surplus:&#xA;  to him, and him alone, the pool was a more valuable asset if it was deeper (i.e. if his&#xA;  contract was fully performed). He had contracted for this extra depth and it had not been&#xA;  provided, so you could argue that the award of £2,500 was compensation for loss of this&#xA;  consumer surplus.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I'm not a microeconomist, but these terms appear to be defined wholly differently? Or am I overlooking something similar that underlies  them? &lt;/p&gt;&#xA;" OwnerUserId="4020" LastEditorUserId="4020" LastEditDate="2019-11-17T06:40:37.027" LastActivityDate="2019-11-17T06:40:37.027" Title="How does the Contract Law definition of 'consumer surplus' relate to the Microeconomics definition?" Tags="&lt;law&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29092" PostTypeId="1" AcceptedAnswerId="29183" CreationDate="2019-05-03T07:46:11.810" Score="0" ViewCount="55" Body="&lt;p&gt;I have been learning about aggregate supply and demand. I have just read this answer which states:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;Aggregate supply is a relationship of price level and output. It is a function, or a curve, or a table. It is not a single value. If we know a particular price level, then we can determine the level of output that would correspond with that. The GDP for 2006 is determined by plugging in the price level of 2006 to the AS curve for 2006, and seeing what output is produced at that price level.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't understand, I have learnt the formula AD = C + I + G + (X - M). Wouldn't that give a specific numerical value?&lt;/p&gt;&#xA;" OwnerUserId="23031" LastActivityDate="2019-05-07T17:16:37.590" Title="If aggregate demand and supply do not have a specific value, what is the point of the formula?" Tags="&lt;supply-and-demand&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29093" PostTypeId="2" ParentId="29092" CreationDate="2019-05-03T08:52:16.207" Score="1" Body="&lt;p&gt;This should have been a comment, but I have less that 50 reputation and I am new to this site as are you. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, I think the point is clear and concise, but you may be misinterpreting it slightly. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Think of demand or supply like a pendulum swing that is being pulled by two forces. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For supply this is prices and output, prices can be pulled by output and output can be pulled by prices. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, you're right, you can get specific values, you can use the formula. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The formula is particularly useful for averages, the prices and output over time. &lt;/p&gt;&#xA;" OwnerUserId="21858" LastActivityDate="2019-05-03T08:52:16.207" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29094" PostTypeId="2" ParentId="29089" CreationDate="2019-05-03T17:10:37.970" Score="5" Body="&lt;p&gt;It has certainly been argued in various places that Haiti was the &quot;richest&quot; &lt;em&gt;colony&lt;/em&gt;.  It's obviously difficult to reconstruct modern measures of wealth such as per capita income for historical territories, and the metric of &quot;rich&quot; that mattered in the day was how much revenue could be extracted by the colonial government, so assessments may be skewed towards this.  My books are boxed at the moment, but this is what I could find based on the &lt;a href=&quot;http://understandingpower.com/files/AllChaps.pdf&quot; rel=&quot;noreferrer&quot;&gt;footnotes from Understanding Power&lt;/a&gt; (ch 10 p62).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Citing Hans Schmidt, &lt;em&gt;The United States Occupation of Haiti&lt;/em&gt;, 1915-1934, New Brunswick, NJ: Rutgers University Press, 1971, pp. 19-20:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;At the time of the French Revolution, Saint Domingue [Haiti] was the&#xA;  wealthiest European colonial possession in the Americas. As early as&#xA;  1742 the sugar production of Saint Domingue exceeded that of all the&#xA;  British West Indies, and on the eve of the revolution the colony&#xA;  accounted for more than one-third of the foreign commerce of France.&#xA;  In 1789 French trade with Saint Domingue amounted to £11 million,&#xA;  while the whole of England's colonial trade totaled only £5 million.&#xA;  In the same year the ports of Saint Domingue received 1,587 ships, a&#xA;  greater number than Marseilles, and France employed 750 ships&#xA;  exclusively for the Saint Domingue trade. The chief exports of the&#xA;  colony were sugar, coffee, cotton, indigo, molasses, and dyewoods. The&#xA;  French built an elaborate network of roads, irrigation systems, and&#xA;  magnificent plantations.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Citing Paul Farmer, &lt;em&gt;The Uses of Haiti&lt;/em&gt;, Monroe, ME: Common Courage, 1994, p. 63:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;At one time or another, the colony was first in world production of&#xA;  coffee, rum, cotton, and indigo. On the eve of the American&#xA;  Revolution, Saint-Domingue [Haiti] -- roughly the size of the modern&#xA;  state of Maryland -- generated more revenue than all thirteen North&#xA;  American colonies combined. By 1789, the colony supplied three-fourths&#xA;  of the world's sugar. Saint Domingue was, in fact, the world's richest&#xA;  colony and the busiest trade center in the New World.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;And citing Patrick Bellegarde-Smith, &lt;em&gt;Haiti: the Breached Citadel&lt;/em&gt;, Boulder, CO: Westview, 1990, pp. xviii:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In the second half of the eighteenth century... [Haiti] created more&#xA;  wealth than any other colony in the world. At that time, 50 percent of&#xA;  France's transatlantic commerce involved Haiti, and nearly 20 percent&#xA;  of the French population depended on trade with Haiti for its&#xA;  livelihood... Overall investments in the Haitian economic&#xA;  infrastructure were meager compared to the enormous profits and trade&#xA;  advantage gained by France. Economically, Saint-Domingue [Haiti] was&#xA;  the world's most profitable colony. It soon became known as &quot;the pearl&#xA;  of the Antilles&quot; and was the standard by which the profitability of&#xA;  other colonies was judged.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="16631" LastActivityDate="2019-05-03T17:10:37.970" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29095" PostTypeId="1" CreationDate="2019-05-03T18:52:41.793" Score="0" ViewCount="56" Body="&lt;p&gt;&lt;a href=&quot;https://tradingeconomics.com/united-states/employed-persons&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://tradingeconomics.com/united-states/employed-persons&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This link shows that total employment declined from March to April even though we added 263000 new jobs. Can someone explain why?&lt;/p&gt;&#xA;" OwnerUserId="23035" LastEditorUserId="6210" LastEditDate="2019-05-04T17:57:55.203" LastActivityDate="2019-07-03T20:02:45.390" Title="In April 2019 our economy created 263000 new jobs, however, total employment went down from March to April by103000 jobs. Why this difference?" Tags="&lt;unemployment&gt;&lt;united-states&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="29098" PostTypeId="1" CreationDate="2019-05-03T20:33:33.297" Score="2" ViewCount="9" Body="&lt;p&gt;The Bureau of Economic Analysis (&quot;BEA&quot;) provides consolidated data from several different government agencies. Currently they provide exports under both a Gross Domestic Product (&quot;GDP&quot;) release as well as a International Transaction release. My questions are: 1) What is the difference between these two measures and 2) What are the corresponding export series in FRED for both releases?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here are the links to the BEA data sources:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) GDP Release: &lt;a href=&quot;https://apps.bea.gov/iTable/iTable.cfm?reqid=19&amp;amp;step=2#reqid=19&amp;amp;step=2&amp;amp;isuri=1&amp;amp;1921=survey&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://apps.bea.gov/iTable/iTable.cfm?reqid=19&amp;amp;step=2#reqid=19&amp;amp;step=2&amp;amp;isuri=1&amp;amp;1921=survey&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) International Transaction Release:&#xA;&lt;a href=&quot;https://apps.bea.gov/iTable/iTable.cfm?ReqID=62&amp;amp;step=1&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://apps.bea.gov/iTable/iTable.cfm?ReqID=62&amp;amp;step=1&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I should add that I have been attempting to retrieve the data from FRED for goods and services separately (both releases). Here is a link of where I am so far:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://fred.stlouisfed.org/graph/?g=nPkt&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://fred.stlouisfed.org/graph/?g=nPkt&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="23037" LastActivityDate="2019-05-03T20:33:33.297" Title="Discrepancy of GDP and International Transaction Releases for Exports" Tags="&lt;gdp&gt;&lt;international-trade&gt;&lt;international-economics&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29099" PostTypeId="1" AcceptedAnswerId="29101" CreationDate="2019-05-03T21:14:08.960" Score="2" ViewCount="54" Body="&lt;p&gt;I am trying to grasp the concept of income- and substitution effects.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The way, I've understood it, the decomposition bundle is found, at the original indifference curve, where the slope equals that of the new budget line.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does this mean that if the price of both goods (assuming a simple model of 2 goods) change by the same percentage, the substitution effect is zero? As the slope of the budget line will remain unchanged.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This seems to intuitively make sense to me, but I would greatly appreciate a 100% confirmation, that this is correct.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you!&lt;/p&gt;&#xA;" OwnerUserId="23038" LastActivityDate="2019-05-03T23:32:46.093" Title="Substitution effect when price of both goods change by the same percentage" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;&lt;preferences&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29100" PostTypeId="1" CreationDate="2019-05-03T22:52:39.733" Score="1" ViewCount="35" Body="&lt;p&gt;If &lt;span class=&quot;math-container&quot;&gt;$\{ X_t \}$&lt;/span&gt; is a &lt;span class=&quot;math-container&quot;&gt;$I(1)$&lt;/span&gt; series and &lt;span class=&quot;math-container&quot;&gt;$\{ Y_t \}$&lt;/span&gt; is a &lt;span class=&quot;math-container&quot;&gt;$I(0)$&lt;/span&gt; series, would it cause &quot;spurious regression&quot; when regressing like &lt;span class=&quot;math-container&quot;&gt;$Y_i=\beta_0+\beta_1 X_i+u_i$&lt;/span&gt;? Thanks!&lt;/p&gt;&#xA;" OwnerUserId="21775" LastEditorUserId="21775" LastEditDate="2019-05-04T00:06:41.750" LastActivityDate="2019-05-04T12:37:36.217" Title="Spurious regressions" Tags="&lt;econometrics&gt;&lt;co-integration&gt;" AnswerCount="1" CommentCount="1" ClosedDate="2019-05-10T00:52:22.117" ContentLicense="CC BY-SA 4.0" />
  <row Id="29101" PostTypeId="2" ParentId="29099" CreationDate="2019-05-03T23:32:46.093" Score="1" Body="&lt;p&gt;Consider the budget line with 2 goods:&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;p_xx+p_yy=m&#xA;\quad\text{or}\quad &#xA;y=\frac{m}{p_y}-\frac{p_x}{p_y}x,&#xA;\end{equation}&lt;/span&gt;&#xA;where the relative price is &lt;span class=&quot;math-container&quot;&gt;$\frac{p_x}{p_y}$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose now both goods become &lt;span class=&quot;math-container&quot;&gt;$10\%$&lt;/span&gt; more expensive (e.g. due to a &lt;span class=&quot;math-container&quot;&gt;$10\%$&lt;/span&gt; tax on them). Then the budget line becomes&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;1.1p_xx+1.1p_yy=m&#xA;\quad\Leftrightarrow\quad &#xA;p_xx+p_yy=\frac{m}{1.1}&#xA;\quad\text{or}\quad &#xA;y=\frac{m}{1.1p_y}-\frac{1.1p_x}{1.1p_y}x=\frac{m}{1.1p_y}-\frac{p_x}{p_y}x&#xA;\end{equation}&lt;/span&gt;&#xA;where the relative price is still &lt;span class=&quot;math-container&quot;&gt;$\frac{p_x}{p_y}$&lt;/span&gt;. From the equations, we see that a uniform percentage change in prices produces a pure income effect (&lt;span class=&quot;math-container&quot;&gt;$m$&lt;/span&gt; drops to &lt;span class=&quot;math-container&quot;&gt;$m/1.1$&lt;/span&gt;), but no substitution effect, since the relative price remain the same after the change. &lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2019-05-03T23:32:46.093" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29102" PostTypeId="2" ParentId="29100" CreationDate="2019-05-04T02:32:24.927" Score="2" Body="&lt;p&gt;That is illegal because an I(1) series wanders ( doesn't have a constant mean )  and an I(0) series doesn't so they can't be set equal. In order to obtain a valid time series regression, the order on the LHS has to be the same as the order on the RHS. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that if both sides are I(1), then a time series regression is okay but only if what is on the RHS is cointegrated with what is on the left. If they aren't cointegrated and both are I(1), then that's what is called a spurious regression. ( i.e: a non-sensical regression ).&lt;/p&gt;&#xA;" OwnerUserId="18201" LastEditorUserId="18201" LastEditDate="2019-05-04T12:37:36.217" LastActivityDate="2019-05-04T12:37:36.217" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29104" PostTypeId="2" ParentId="29095" CreationDate="2019-05-04T07:21:27.530" Score="1" Body="&lt;p&gt;The main difference comes from the source of the data. While both figures can be found in &lt;a href=&quot;https://www.bls.gov/news.release/pdf/empsit.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;the latest BLS report&lt;/a&gt;, the +263K comes from their &lt;em&gt;establishment survey&lt;/em&gt;, which includes only non-farm jobs &lt;em&gt;as reported by employers&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Total nonfarm payroll employment increased by 263,000 in April, compared with an average monthly&#xA;  gain of 213,000 over the prior 12 months. In April, notable jobs gains occurred in professional and&#xA;  business services, construction, health care, and social assistance. (See table B-1.) &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;On the other hand, the -103K figure comes from the &lt;em&gt;household survey&lt;/em&gt; and reflects a shrinkage on the workforce (due to a decrease in labor force participation).&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The household survey includes agricultural&#xA;  workers, self-employed workers whose businesses&#xA;  are unincorporated, unpaid family workers, and&#xA;  private household workers among the employed.&#xA;  These groups are excluded from the establishment&#xA;  survey&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Furthermore, in the latter (household) survey the number of the unemployed decreased even more by 387K. The difference between 387K and 103K is about 284K which is a good enough approximation for the 263K from the establishment survey given the different methodologies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/oO11v.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/oO11v.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="6210" LastEditorUserId="1601" LastEditDate="2019-06-03T19:15:52.587" LastActivityDate="2019-06-03T19:15:52.587" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29105" PostTypeId="1" CreationDate="2019-05-04T11:38:43.663" Score="4" ViewCount="499" Body="&lt;p&gt;I'm trying to show a result that involves utility and money (the latter is in dollars). I would like to know if it is safe to assume that the units of utility is dollars? After all, in auction scenarios, we seem to deduct the bid, which is in dollars from the total utility for the item, and maximize that difference. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, am I doing the right thing in saying that a utility gain of 10 units can be equated to a gain of 10 dollars?&lt;/p&gt;&#xA;" OwnerUserId="5591" LastEditorUserId="4988" LastEditDate="2019-05-10T03:23:57.863" LastActivityDate="2019-05-20T03:24:28.333" Title="What are the units of utility?" Tags="&lt;utility&gt;&lt;measuring-utility&gt;" AnswerCount="2" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29108" PostTypeId="1" CreationDate="2019-05-04T14:17:53.367" Score="0" ViewCount="455" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/I8SZE.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/I8SZE.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hi, I have deduced that this function exhibit increasing returns to scale but I am not sure how to verify part d. My answer doesn't show that there is decreasing returns to scale but I can't be sure d is wrong. I am unsure between choosing c and d. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks &lt;/p&gt;&#xA;" OwnerUserId="20278" LastActivityDate="2021-05-23T18:03:25.407" Title="Decreasing and increasing returns to scale question" Tags="&lt;microeconomics&gt;&lt;production-function&gt;" AnswerCount="1" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="29109" PostTypeId="1" CreationDate="2019-05-04T14:28:04.020" Score="1" ViewCount="11" Body="&lt;p&gt;I understand that limited vertical integration can lead to a lowering of prices for products and services, but it seems to me that even limited horizontal integration only leads to less competition.&lt;/p&gt;&#xA;" OwnerUserId="23045" LastActivityDate="2019-05-04T14:55:45.720" Title="What are the benefits to the overall economy and consumer of horizontal integration?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29110" PostTypeId="2" ParentId="29109" CreationDate="2019-05-04T14:46:58.000" Score="2" Body="&lt;p&gt;Horizontal integration may lead to lower costs by profiting from economies of scale. If the market demand for a product is spread over many enterprises, the costs will be generally higher because there will be more fixed costs in total. Instead, if there was a single company, fixed costs would be comparatively smaller.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The effect on the overall economy would be good. Lower costs mean more money for the company and/or lower prices for consumers. The effect on the consumers is not clear. &lt;/p&gt;&#xA;" OwnerUserId="23046" LastEditorUserId="23046" LastEditDate="2019-05-04T14:55:45.720" LastActivityDate="2019-05-04T14:55:45.720" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29111" PostTypeId="1" AcceptedAnswerId="29114" CreationDate="2019-05-04T15:02:51.967" Score="2" ViewCount="457" Body="&lt;p&gt;According to the theory that I'm seeing on the internet and in textbooks, when a government wants to correct underproduction due to a positive externality of production, they can decide to subsidize the good.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/USJBq.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/USJBq.jpg&quot; alt=&quot;Diagram&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The subsidy would reduce the costs of production for the firm, and hence shift their Marginal Private Cost to the right towards the Marginal Social Cost curve. In an ideal situation, the curve could be made to actually lie on the MSC curve, and the underproduction would be completely solved.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem I have with this is that nobody talks about why it's possible for the MPC to ever get closer to the MSC curve. The formula for Social Cost is &lt;code&gt;Private cost + external cost (which is negative in the case of positive externalites of production)&lt;/code&gt;. So if I were to reduce the private cost of the good, then it's social cost would also reduce. In other words, if I move the MPC curve forward, the MSC curve should also move forward by the same amount.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Doesn't that mean the only way to get the MPC curve to actually get closer to the MSC curve is to reduce the positive externality itself (which obviously isn't done)? Or is it that people already know that the MSC curve will move, so when they're talking about the MPC curve touching the MSC curve, they're talking about the old MSC curve and not the new one?&lt;/p&gt;&#xA;" OwnerUserId="15056" LastActivityDate="2019-05-04T16:47:03.863" Title="Providing subsidies affects Marginal Private cost but not Marginal Social Cost?" Tags="&lt;microeconomics&gt;&lt;social-welfare&gt;&lt;externalities&gt;&lt;market-failure&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29112" PostTypeId="2" ParentId="29108" CreationDate="2019-05-04T15:17:32.860" Score="0" Body="&lt;p&gt;From your production function: &lt;span class=&quot;math-container&quot;&gt;$f(K,L)= 1.8(K^{0.6} + L^{0.6})^{2} \Rightarrow f(K,L) = 1.8(K^{1.2} + 2(KL)^{1.2} + L^{1.2})$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You are able to see that &lt;span class=&quot;math-container&quot;&gt;$f(\lambda K, \lambda L) \Rightarrow \lambda^{1.2} f(K,L)$&lt;/span&gt;. Say you double both your inputs. Increasing returns to scale tells you that your output will be more than doubled, which is precisely what &lt;span class=&quot;math-container&quot;&gt;$\lambda^{1.2}$&lt;/span&gt; represents. The level of &lt;span class=&quot;math-container&quot;&gt;$K$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$L$&lt;/span&gt; does not affect this conclusion.  The point where the level of &lt;span class=&quot;math-container&quot;&gt;$K$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$L$&lt;/span&gt; play a &quot;role&quot; is that for levels such that &lt;span class=&quot;math-container&quot;&gt;$K + L &amp;gt;1$&lt;/span&gt; each unit of input results in more than one unit of output (i.e.&lt;span class=&quot;math-container&quot;&gt;$f(K,L) &amp;gt; 1$&lt;/span&gt;) (again note that we are talking about levels here and not changes, which would regard the returns to scale). You can easily see this by plugging in different values into your formula. But, again, this is not to do with the returns to scale of the function so it doesn't pertain the question you are asked. &lt;/p&gt;&#xA;" OwnerUserId="21757" LastEditorUserId="21757" LastEditDate="2019-05-04T15:25:44.407" LastActivityDate="2019-05-04T15:25:44.407" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29113" PostTypeId="2" ParentId="29111" CreationDate="2019-05-04T16:46:13.447" Score="2" Body="&lt;p&gt;The amount of external cost is determined by the level of production in this framework. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the producers receive a subsidy the MPC shift to the right as you point out. That also means that for each level of cost production increases and therefore the external benefits are less, that is, they are internalizised. If the subsidy is enough the external benefits of production are zero and the MPC=MSC.&lt;/p&gt;&#xA;" OwnerUserId="12186" LastActivityDate="2019-05-04T16:46:13.447" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29114" PostTypeId="2" ParentId="29111" CreationDate="2019-05-04T16:47:03.863" Score="1" Body="&lt;p&gt;The social cost of a product is the value of the resources that are consumed for its production, irrespective of property rights (and a &quot;negative externality&quot; is nothing else than resources consumed, e.g. a contaminated river due to pollution from production reduces the &quot;natural resources&quot; of society etc).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By subzidizing the product you do not affect the amount of resources that are consumed in order to produce it. What you do is to perform a re-allocation of resources from the public purse to the private producer to increase output. So social cost remains unchanged.  &lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2019-05-04T16:47:03.863" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29116" PostTypeId="1" CreationDate="2019-05-04T17:29:05.863" Score="2" ViewCount="128" Body="&lt;p&gt;I have the following model for housing prices&lt;/p&gt;&#xA;&#xA;&lt;p&gt;price = &lt;span class=&quot;math-container&quot;&gt;$\beta_0$&lt;/span&gt; + &lt;span class=&quot;math-container&quot;&gt;$\beta_1$&lt;/span&gt; sqrft + &lt;span class=&quot;math-container&quot;&gt;$\beta_2$&lt;/span&gt; bedrooms + &lt;span class=&quot;math-container&quot;&gt;$\beta_3$&lt;/span&gt; sqrft &lt;span class=&quot;math-container&quot;&gt;$\times$&lt;/span&gt; bedrooms + &lt;span class=&quot;math-container&quot;&gt;$\beta_4$&lt;/span&gt; bathroom,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where &lt;em&gt;sqrft&lt;/em&gt; is square feet.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am confused regarding the interaction term. Should &lt;strong&gt;&lt;span class=&quot;math-container&quot;&gt;$\beta_3$&lt;/span&gt;&lt;/strong&gt; be positive or negative? I think that the effect of additional bedroom on house price is higher for larger houses. Is this correct?&lt;/p&gt;&#xA;" OwnerUserId="8276" LastEditorUserId="21454" LastEditDate="2019-05-05T07:25:18.107" LastActivityDate="2019-05-05T07:25:18.107" Title="Should coefficient on interaction term be positive or negative?" Tags="&lt;econometrics&gt;&lt;regression&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29117" PostTypeId="2" ParentId="29116" CreationDate="2019-05-04T20:55:38.287" Score="2" Body="&lt;p&gt;The coefficient of the interaction effect &lt;span class=&quot;math-container&quot;&gt;$\beta_3$&lt;/span&gt; could be either positive or negative depending on your theory. A positive value for the effect of the interaction term would indeed imply that the larger the house, the greater (more positive) the effect of bedrooms on prices is.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is a nice &lt;a href=&quot;https://www3.nd.edu/~rwilliam/stats2/l55.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;reference&lt;/a&gt; on Interaction effects between continuous variables.&lt;/p&gt;&#xA;" OwnerUserId="6168" LastEditorUserId="6168" LastEditDate="2019-05-04T21:02:26.577" LastActivityDate="2019-05-04T21:02:26.577" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29119" PostTypeId="2" ParentId="29116" CreationDate="2019-05-04T23:32:24.870" Score="3" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;I think that the effect of additional bedroom on house price is higher for larger houses. Is this correct?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;As @emeryville said, if your question is about what the result &lt;em&gt;should&lt;/em&gt; look like, different people may have different theories.  I think one can make a reasonable argument that going from 1 bedroom (small house) to 2 bedrooms should have a larger impact on the price than going from say 5 bedrooms (large house) to 6 bedrooms because the marginal value of adding an extra bedroom is larger in that case.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is maybe outside the scope of your question, but based on the wording of your question, it sounds like you have a hypothesis which may not be supported by the results of your model.  So I just want to add that this could mean that your theory was wrong, but it could also mean other things, like that there is some outlier in the dataset that greatly influences the results, or that the model was misspecified in that it does not accurately reflect the true relationship between your variables.  If your estimated result was a negative &lt;span class=&quot;math-container&quot;&gt;$\beta_{3}$&lt;/span&gt;, but the true of value of that parameter is positive, that could mean that you have some omitted variables that resulted in a biased coefficient.  For example, perhaps the neighborhood location is associated with whether the effect of adding a bedroom is higher or lower for larger houses (and location is also correlated with price).  In a downtown location, both price and size could depend on different factors than a house in a suburb and the value of additional bedroom could be different.  So you would need to add location to the regression equation to obtain an unbiased &lt;span class=&quot;math-container&quot;&gt;$\beta_{3}$&lt;/span&gt; coefficient.&lt;/p&gt;&#xA;" OwnerUserId="21454" LastActivityDate="2019-05-04T23:32:24.870" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29121" PostTypeId="2" ParentId="29105" CreationDate="2019-05-05T00:05:40.480" Score="5" Body="&lt;p&gt;No, you can not really say that. Here is the reason:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Utility is generally used to describe preferences. Let's say my happiness is described by this utility of chocolates: &lt;span class=&quot;math-container&quot;&gt;$Y(X) = X$&lt;/span&gt;. So, two chocolates will give me two units of happiness. However, by definition of preferences, I am allowed to apply monotone transformations to them. Hence, you can just transform that function to &lt;span class=&quot;math-container&quot;&gt;$Y(X) = X^2$&lt;/span&gt;. Now two chocolates will give me 4 units of happiness. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Again, by definition, this is a completely valid transformation. However, now I am getting 4 dollars instead of $2 because I simply transformed the function. For obvious reasons, you can not do that.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence, utility is unitless.&lt;/p&gt;&#xA;" OwnerUserId="18674" LastEditorUserId="6168" LastEditDate="2019-05-05T18:31:10.467" LastActivityDate="2019-05-05T18:31:10.467" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29122" PostTypeId="1" CreationDate="2019-05-05T01:58:45.177" Score="1" ViewCount="53" Body="&lt;p&gt;Here is a resource sharing model, I do not remember where I came across it, I am wondering if this is well known in econometrics. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let &lt;span class=&quot;math-container&quot;&gt;$T &amp;gt; 0$&lt;/span&gt; be the total quantity of resources. For example, ad time slot between 6:00 pm to 6:10 pm, hence &lt;span class=&quot;math-container&quot;&gt;$T = 10$&lt;/span&gt; minutes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Two ad companies are competing for time slots by bidding in some nonnegative amount of money. Let company &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt;'s bid be &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;, and company &lt;span class=&quot;math-container&quot;&gt;$2$&lt;/span&gt;'s bid be &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let &lt;span class=&quot;math-container&quot;&gt;$C &amp;gt; 0$&lt;/span&gt; be the cost of entering the bidding process.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let &lt;span class=&quot;math-container&quot;&gt;$r_x$&lt;/span&gt; be the share of ad time slot that &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; gets, and &lt;span class=&quot;math-container&quot;&gt;$r_y$&lt;/span&gt; be the share of ad time slot that &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; gets. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then &lt;span class=&quot;math-container&quot;&gt;$r_x = \dfrac{Tx}{C+x+y}$&lt;/span&gt;, and &lt;span class=&quot;math-container&quot;&gt;$r_y = \dfrac{Ty}{C + x+y}$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The utility for company &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt; is &lt;span class=&quot;math-container&quot;&gt;$U_x = m_x r_x - x$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and the utility for company &lt;span class=&quot;math-container&quot;&gt;$2$&lt;/span&gt; is &lt;span class=&quot;math-container&quot;&gt;$U_y = m_y r_y - y$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where &lt;span class=&quot;math-container&quot;&gt;$m_x, m_y$&lt;/span&gt; are the margin utility.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I wonder if anyone has seen this type of model somewhere. &lt;/p&gt;&#xA;" OwnerUserId="23052" LastActivityDate="2020-09-28T21:01:40.183" Title="Is anyone familiar with the following basic resource sharing model?" Tags="&lt;game-theory&gt;&lt;utility&gt;&lt;optimization&gt;&lt;resource-economics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29126" PostTypeId="2" ParentId="24731" CreationDate="2019-05-05T03:33:51.710" Score="1" Body="&lt;p&gt;&lt;a href=&quot;https://docsbay.net/economics-and-rapid-change-the-influence-of-population-growth&quot; rel=&quot;nofollow noreferrer&quot;&gt;Economics and Rapid Change:The Influence of Population Growth&lt;/a&gt; by Richard P. Cincotta and Robert Engelman, Population Action International October 1997 &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;For more than a decade, since the 1986 release of a seminal report by&#xA;  the U.S. National Research Council, discussion of the impact of&#xA;  population growth on economic change in developing countries has&#xA;  languished within both the demographic and economic fields. While the&#xA;  linkage between demographic and economic dynamics is undeniably&#xA;  complex, some recent findings stand out. Despite lack of clear&#xA;  evidence for this relationship in previous decades, new data make&#xA;  clear that during the 1980s, on average, population growth dampened&#xA;  the growth of per capita gross domestic product, the primary measuring&#xA;  unit of economic growth. The negative effects of rapid population&#xA;  growth appear to have weighed most heavily on the poorest group of&#xA;  countries in the developing world during the 1980s and also throughout&#xA;  the two previous decades. More positively, declines in human fertility&#xA;  in the 1970s and 1980s almost certainly helped fuel explosive economic&#xA;  growth during the 1980s and early 1990s in such East Asian countries&#xA;  as South Korea, Taiwan, Singapore, the former Hong Kong Territory,&#xA;  Thailand, Indonesia and Malaysia.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="23054" LastActivityDate="2019-05-05T03:33:51.710" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29127" PostTypeId="1" AcceptedAnswerId="29327" CreationDate="2019-05-05T04:22:50.807" Score="2" ViewCount="328" Body="&lt;p&gt;Let &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt; be a menu and &lt;span class=&quot;math-container&quot;&gt;$R$&lt;/span&gt; be a complete and transitive binary relation. Define choice correspondence generated by &lt;span class=&quot;math-container&quot;&gt;$R$&lt;/span&gt;: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$c_R(A)=\{x\in A|| xRy \ \forall y\in A\}.$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Theorem (from Kreps 1988): for any correspondence &lt;span class=&quot;math-container&quot;&gt;$c$&lt;/span&gt;, the following conditions are equivalent:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;span class=&quot;math-container&quot;&gt;$c$&lt;/span&gt; satisfies WARP&lt;/li&gt;&#xA;&lt;li&gt;There exists a transitive and complete &lt;span class=&quot;math-container&quot;&gt;$R$&lt;/span&gt; such that &lt;span class=&quot;math-container&quot;&gt;$c=c_R$&lt;/span&gt;.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Given &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt; is finite and &lt;span class=&quot;math-container&quot;&gt;$c=c_R$&lt;/span&gt;, it is obvious that &lt;span class=&quot;math-container&quot;&gt;$c$&lt;/span&gt; can be represent by a utility function. Then why do we need SARP/GARP to rationalize a choice correspondence with a utility function? What was wrong with my logics?&lt;/p&gt;&#xA;" OwnerUserId="13381" LastActivityDate="2019-05-14T22:23:29.003" Title="WARP implies completeness, transitivity and thus rationalizability. What is wrong with the statement?" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;utility&gt;&lt;supply-and-demand&gt;&lt;preferences&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29130" PostTypeId="1" CreationDate="2019-05-05T08:57:23.433" Score="0" ViewCount="346" Body="&lt;p&gt;I am trying to understand what's the difference between intermediate consumption and intermediate demand. The context is the European System of Accounts, which says that intermediate demand is the same as intermediate consumption for the total economy, but not whithin sectors. I think the difference may be related to trade margins or transport, but I can't find it. &#xA;Thank you so much&lt;/p&gt;&#xA;" OwnerUserId="23057" LastActivityDate="2020-11-04T11:01:25.243" Title="Intermediate demand vs. Intermediate consumption" Tags="&lt;consumption&gt;&lt;national-accounts&gt;&lt;demand&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29132" PostTypeId="1" CreationDate="2019-05-05T13:25:48.243" Score="0" ViewCount="48" Body="&lt;p&gt;How is the initial redistribution of resources carried out?&lt;/p&gt;&#xA;" OwnerUserId="13305" LastActivityDate="2019-05-05T15:36:30.543" Title="Does the 2nd welfare theorem involve government intervention?" Tags="&lt;public-economics&gt;&lt;welfare-economics&gt;" AnswerCount="1" CommentCount="0" ClosedDate="2019-05-08T12:58:28.780" ContentLicense="CC BY-SA 4.0" />
  <row Id="29133" PostTypeId="2" ParentId="29132" CreationDate="2019-05-05T15:36:30.543" Score="4" Body="&lt;p&gt;The second welfare theorem does not necessarily involve a government as such. It does not matter for the theorem who redistributes the resources. Nevertheless, in practice this will most likely often involve the government. &lt;/p&gt;&#xA;" OwnerUserId="5557" LastActivityDate="2019-05-05T15:36:30.543" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29134" PostTypeId="1" AcceptedAnswerId="29152" CreationDate="2019-05-05T15:48:45.740" Score="1" ViewCount="251" Body="&lt;p&gt;I am new to investing and am trying to learn about economic indicators.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When the yield curve inverted this year on March 27th, the media published articles saying that this might indicate a recession. The Federal Reserve Bank of St. Louis site tracks the &lt;a href=&quot;https://fred.stlouisfed.org/series/T10Y3M&quot; rel=&quot;nofollow noreferrer&quot;&gt;10-Year Treasury Constant Maturity Minus 3-Month Treasury Constant Maturity curve&lt;/a&gt;, with the correlation with past recessions. It tracks a few other curves, correlating them with past recessions, perhaps because they are supposed to be significant with respect to recessions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks to &lt;a href=&quot;https://money.stackexchange.com/a/107993/83711&quot;&gt;Bob Baerker's answer on the Money site&lt;/a&gt;, I was able to get raw fed rate data. With this, I learned that the 5-year Treasury Constant Maturity Minus 1-year Treasury Maturity Curve was already inverted on 24th December, 2018, and has been almost constantly inverted since then!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/PnGHY.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/PnGHY.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, why is it that nobody cares that this 5-year minus 1-year curve has been inverted since late last year, but everybody cares that the 10-year minus 3-month curve inverted this year? Why is it that the former is considered irrelevant to recessions, but the latter is considered relevant?&lt;/p&gt;&#xA;" OwnerUserId="23058" LastEditorUserId="23058" LastEditDate="2019-05-05T16:04:40.493" LastActivityDate="2019-05-06T10:02:59.697" Title="Why is the 10-Year Treasury Constant Maturity Minus 3-Month Treasury Constant Maturity Curve significant, but not the 5-year minus 1-year?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29136" PostTypeId="1" AcceptedAnswerId="29141" CreationDate="2019-05-05T19:44:51.787" Score="2" ViewCount="152" Body="&lt;p&gt;The Doha round of negotiations for the WTO had a focus on services, but that round has not been concluded.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does that mean that trade in services between trading partners without a preferential trade agreement in place, for example the EU and the USA is effectively prohibited? Or legislated for on a case-by case basis?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or is trade in services effectively unaffected by the traditional tariff model of the WTO?&lt;/p&gt;&#xA;" OwnerUserId="5505" LastEditorUserId="5505" LastEditDate="2019-05-05T19:51:55.617" LastActivityDate="2019-05-05T23:05:28.060" Title="How is trade in services conducted under the WTO in the absence of the Doha conclusion?" Tags="&lt;international-trade&gt;&lt;services&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29137" PostTypeId="2" ParentId="29136" CreationDate="2019-05-05T21:35:57.750" Score="2" Body="&lt;p&gt;It's definitely not prohibited; the US-EU trade in services is &lt;a href=&quot;https://ec.europa.eu/eurostat/web/products-eurostat-news/-/DDN-20180109-1?inheritRedirect=true&quot; rel=&quot;nofollow noreferrer&quot;&gt;worth&lt;/a&gt; some $200 billion (each way).&lt;/p&gt;&#xA;" OwnerUserId="6210" LastActivityDate="2019-05-05T21:35:57.750" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29138" PostTypeId="1" AcceptedAnswerId="29144" CreationDate="2019-05-05T22:37:09.650" Score="2" ViewCount="36" Body="&lt;p&gt;What tools or methods you use to keep up with the frontier of the field? I follow some specific papers and  authors. I was wondering what's the best way to keep up to date with relevant things with so much information there's available.&lt;/p&gt;&#xA;" OwnerUserId="15467" LastActivityDate="2019-05-05T23:38:09.330" Title="How do you keep up to date and find the most relevant papers?" Tags="&lt;self-study&gt;&lt;research&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29139" PostTypeId="1" CreationDate="2019-05-05T22:41:24.263" Score="0" ViewCount="893" Body="&lt;p&gt;I am given the following data for GDP deflator:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1997: 100.0&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1998: 100.8&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1999: 102.5&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2000: 109.9&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2001: 112.5&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2002: 115.9&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2003: 119.7&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2004: 122.1&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2005: 126.5&lt;/p&gt;&#xA;&#xA;&lt;p&gt;...and so on.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Currently, 1997 is the base year. However, I would like to rescale this index so that 2002 is the base year. Could I do this simply by solving 115.9-x=100 (x=15.9) and then subtracting 15.9 from each annual value? That is, would the following index be equivalent:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1997: 84.1&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1998: 84.9&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1999: 86.6&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2000: 94.0&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2001: 96.6&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2002: 100.0&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2003: 103.8&lt;/p&gt;&#xA;&#xA;&lt;p&gt;...and so on.&lt;/p&gt;&#xA;" OwnerUserId="21583" LastActivityDate="2019-05-07T16:58:47.170" Title="How can I adjust the base year of this price index?" Tags="&lt;macroeconomics&gt;&lt;inflation&gt;&lt;gdp&gt;&lt;price-index&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29140" PostTypeId="1" AcceptedAnswerId="29146" CreationDate="2019-05-05T23:05:13.603" Score="1" ViewCount="21" Body="&lt;p&gt;I am interested in tariffs on services.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are tariffs ever levied on services and do most-favoured nation rules apply as they do with goods?&lt;/p&gt;&#xA;" OwnerUserId="5505" LastActivityDate="2019-05-06T18:33:35.723" Title="Are tariffs ever levied on services and does MFN apply?" Tags="&lt;international-trade&gt;&lt;wto&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29141" PostTypeId="2" ParentId="29136" CreationDate="2019-05-05T23:05:28.060" Score="2" Body="&lt;p&gt;Trade in services is typically restricted by non-tariff barriers.  Examples might include:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Restrict professional service provision to your citizens and graduates of your universities, passing your qualifying exams&lt;/li&gt;&#xA;&lt;li&gt;Restrict public procurement to companies owned by citizens of your country, staffed by your citizens and with staff cleared by your security services&lt;/li&gt;&#xA;&lt;li&gt;Restrict road and sea transport to vehicles and vessels registered in your country using crews based on your citizenship&lt;/li&gt;&#xA;&lt;li&gt;Require international banks and insurance companies to comply with your regulations and deposit reserves in your central bank and buy your government debt&lt;/li&gt;&#xA;&lt;li&gt;Require service providers to have local subsidiaries incorporated and locally controlled in your country rather than branches controlled from their home county&lt;/li&gt;&#xA;&lt;li&gt;Require companies providing services in your country to comply with your environmental regulations outside your country&lt;/li&gt;&#xA;&lt;li&gt;Prevent third-country carriers from providing air services within or to/from your country&lt;/li&gt;&#xA;&lt;li&gt;Prevent information technology companies from transferring data across borders&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2019-05-05T23:05:28.060" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="29142" PostTypeId="1" CreationDate="2019-05-05T23:10:13.020" Score="2" ViewCount="14" Body="&lt;p&gt;What agreements are in place between the EU and the US to facilitate trade in services?&lt;/p&gt;&#xA;" OwnerUserId="5505" LastActivityDate="2019-05-05T23:10:13.020" Title="Are there agreements in place between the EU and the US to facilitate trade in services?" Tags="&lt;international-trade&gt;&lt;wto&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29143" PostTypeId="1" CreationDate="2019-05-05T23:14:36.693" Score="2" ViewCount="54" Body="&lt;p&gt;From the closed economy equilibrium condition &lt;span class=&quot;math-container&quot;&gt;$I = S + (T - G)$&lt;/span&gt;, how does exactly a surplus (which I assume would be used for paying debt) increases investment in the same amount? I ask that because if the govt pays &lt;span class=&quot;math-container&quot;&gt;$(T - G)$&lt;/span&gt; - assuming a surplus - to the public with a marginal propensity to consume equal to c, savings (and thus investment) would increase in &lt;span class=&quot;math-container&quot;&gt;$(1-c)*(T-G)$&lt;/span&gt; and not &lt;span class=&quot;math-container&quot;&gt;$(T - G)$&lt;/span&gt; (which is, of course, bigger). Am I losing something here?&lt;/p&gt;&#xA;" OwnerUserId="23060" LastEditorUserId="23060" LastEditDate="2019-05-09T03:15:02.510" LastActivityDate="2019-05-09T03:15:02.510" Title="How does a govt surplus increases investment?" Tags="&lt;government-debt&gt;&lt;investment&gt;&lt;fiscal-policy&gt;&lt;saving&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="29144" PostTypeId="2" ParentId="29138" CreationDate="2019-05-05T23:38:09.330" Score="4" Body="&lt;p&gt;&lt;strong&gt;Seminars&lt;/strong&gt; and &lt;strong&gt;conferences&lt;/strong&gt; are the best ways to get exposure to working papers, in addition to following specific authors. (Some of my colleagues also follow economists on Twitter, where they sometimes post new working papers.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In addition, subscribe to the email alerts from the &lt;strong&gt;journals&lt;/strong&gt; in your field/interest. This will get you up to date with what comes out in the latest issues. The AEA journals (as well as &lt;em&gt;Econometrica&lt;/em&gt;) will also send you the titles and abstracts of the articles; the Elsevier journals will only send you the TOC with the article titles only. &lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2019-05-05T23:38:09.330" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29146" PostTypeId="2" ParentId="29140" CreationDate="2019-05-06T02:48:37.133" Score="2" Body="&lt;p&gt;GATS doesn't apply tariffs, &lt;a href=&quot;https://core.ac.uk/download/pdf/7043289.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;but&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The GATS comes in two parts; firstly a framework of rules, principles and concepts which underlie&#xA;  obligations regarding measures affecting international trade in services; and, secondly, the specific&#xA;  negotiated commitments listed in countries' schedules for service sectors. The GATS covers four&#xA;  modes of supply: (1) cross-border supply; (2) supply through the movement of consumers to the&#xA;  location of the supplier; (3) supply though the establishment in a country of the commercial presence&#xA;  of legal entities from another country; and (4) the supply through natural persons of one country in the&#xA;  territory of another. &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The key articles in the GATS regarding the scheduling of commitments are Article XVI (on market&#xA;  access) and Article XVII (on national treatment). Market access as such is not defined in the GATS.&#xA;  Rather the approach of the GATS is to list six categories of measure which are prohibited unless&#xA;  specified in a countryís schedule (for each of the four modes delivery). The categories cover the&#xA;  following: (a) limitations on the number of service suppliers: (b) limitations on the value of service&#xA;  transactions or assets; (c) limitations on the number of service operations or on the quantity of service&#xA;  output: (d) limitations on the number of natural persons who may be employed; (e) limitations on the&#xA;  type legal entity through which a service is supplied; and (f) limitations on the permissible size of the&#xA;  participation of foreign capital either in terms of a maximum percentage limit on foreign shareholdings&#xA;  or in terms of the total value of an individual entityís or of aggregate foreign investment. National&#xA;  treatment is defined as treatment no less favourable than that accorded to like domestic services and&#xA;  service suppliers. Under Article XVII measures entailing deviations from national treatment are also to&#xA;  be included in a country's schedule. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Basically limitations (a)-(f) allow various forms of quotas for services from other countries.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for MFN, GATS has its &lt;a href=&quot;https://www.iatp.org/sites/default/files/MFN_and_the_GATS.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;own version/definition&lt;/a&gt; of it. Basically:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Article II of the GATS constitutes a general obligation which is, in principle, applicable across the board by all Members to all services sectors. Article II:1 of GATS states:&lt;/p&gt;&#xA;  &#xA;  &lt;blockquote&gt;&#xA;    &lt;p&gt;&quot;With respect to any measure covered by this Agreement, each Member shall accord immediately and unconditionally to services and service suppliers of any other Member treatment no less favourable than that it accords to like services and service suppliers of any other country&quot;.&lt;/p&gt;&#xA;  &lt;/blockquote&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;And as with similar WTO agreements, there were exceptions allowed&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Article II:2 states:&lt;/p&gt;&#xA;  &#xA;  &lt;blockquote&gt;&#xA;    &lt;p&gt;&quot;A Member may maintain a measure inconsistent with paragraph 1 provided that such a measure is listed in, and meets the conditions of, the Annex on Article II Exemptions&quot;. The liberalizing content of the GATS depends to a large extent on the nature of these specific commitments. &lt;/p&gt;&#xA;  &lt;/blockquote&gt;&#xA;  &#xA;  &lt;p&gt;The annex makes it clear that no new exemptions can be granted, at least by this route: any future requests to give non-MFN treatment can only be met through the WTO waiver procedures. [...]&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;While Article II applies across the board, Article XVI on market access and Article XVII on national treatment only apply to sectors included by a Member in its schedule of specific commitments.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;[... T]he &quot;Scheduling of Initial Commitments in Trade in Services: Explanatory Note&quot; states that &quot;where an MFN exemption has been granted for a measure, a Member is free to deviate from its Article II obligations, but not from its Article XVI and XVII commitments. Therefore, in such cases, a Member may accord treatment more favourable than the minimum standard to some Members, as long as all Members receive at least the that minimum standard of market access and national treatment appearing in its schedule.&quot;&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;It follows that an MFN exemption would give a Member who had made no commitments in a sector considerable freedom to discriminate. However, an MFN exemption which coexists with fully liberal market access and national treatment commitments would have little meaning - unless a Member wished to provide more favourable treatment to certain foreign suppliers than it does to its own.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="6210" LastEditorUserId="6210" LastEditDate="2019-05-06T18:33:35.723" LastActivityDate="2019-05-06T18:33:35.723" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29147" PostTypeId="1" CreationDate="2019-05-06T03:44:13.097" Score="0" ViewCount="28" Body="&lt;p&gt;Consider the comparison of two new cars. One costs \$250k and the other \$25k. One would naturally expect the quality (value) of the \$250k car to be greater than the \$25k car but does economics have a method to compute the likely increase in perceived value?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would think it would be two ... a logarithmic relationship between \$250k and \$25k ... and not ten ... a linear relationship.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In casual observation this would seem to hold true for most other commodities ... car, guitar, home, etc. Are there products which actually could be 10 times, or greater value for double the cost?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there an economic law that states there is typically a logarithmic relationship between price and value?&lt;/p&gt;&#xA;" OwnerUserId="23064" LastEditorUserId="6210" LastEditDate="2019-05-06T06:48:07.853" LastActivityDate="2019-05-06T06:48:07.853" Title="Is the relationship between cost and value typically logarithmic?" Tags="&lt;price&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29149" PostTypeId="1" AcceptedAnswerId="29172" CreationDate="2019-05-06T04:10:54.687" Score="6" ViewCount="317" Body="&lt;p&gt;One doesn't have to look very hard to find suggestions that Trump's economic policies are damaging to the US economy. &lt;a href=&quot;https://www.economy.com/mark-zandi/documents/2016-06-17-Trumps-Economic-Policies.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Example&lt;/a&gt;, &lt;a href=&quot;https://web.archive.org/web/20181221074739/https://www.washingtonpost.com/blogs/right-turn/wp/2017/01/27/economic-self-destruction-trump-style/&quot; rel=&quot;nofollow noreferrer&quot;&gt;example&lt;/a&gt;, &lt;a href=&quot;https://www.msn.com/en-nz/money/markets/opinion-roubini-president-trump-is-flirting-with-mutually-assured-economic-destruction/ar-BBRxptN&quot; rel=&quot;nofollow noreferrer&quot;&gt;example&lt;/a&gt;, &lt;a href=&quot;https://www.nytimes.com/2018/03/02/opinion/sunday/trump-trade-steel-aluminum-tarriffs.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;example&lt;/a&gt;. In fact I barely recall reading any articles in the mainstream media that said that Trump's policies are beneficial.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However all indications are (&lt;a href=&quot;https://www.msn.com/en-us/money/news/before-the-bell-the-economy-is-booming-the-labor-market-is-strong-earnings-beat-expectations-whats-next/ar-AAAVDPA&quot; rel=&quot;nofollow noreferrer&quot;&gt;example from just earlier this month&lt;/a&gt;) that the US economy is extremely healthy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why is there a disconnect? Are the economics theories wrong? Is this a case of the economy being too complicated to model, and the results in this case turned out to be incorrect? Are the economists who made those predictions politically biased? Are the indicators imperfect and conceal hidden weakness? I notice that economists also predicted that Erdogan's policies will be &lt;a href=&quot;https://www.washingtonpost.com/news/wonk/wp/2018/05/16/turkeys-leader-is-helping-to-crash-its-currency/?utm_term=.c408f23f626a&quot; rel=&quot;nofollow noreferrer&quot;&gt;destructive for the Turkish economy&lt;/a&gt;, and that panned out; I'm wondering why the predictions evidently aren't working for the US economy. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm not an economist and know little about the topic, so would prefer an elementary explanation. &lt;/p&gt;&#xA;" OwnerUserId="15607" LastEditorDisplayName="user18" LastEditDate="2019-05-07T01:06:30.137" LastActivityDate="2019-11-27T22:31:13.737" Title="If Trump's economic policies are destructive, why is the US economy so healthy?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="29150" PostTypeId="2" ParentId="27490" CreationDate="2019-05-06T05:45:40.483" Score="1" Body="&lt;p&gt;In a question here someone provided us with another example. Some Moody analysts &lt;a href=&quot;https://www.economy.com/mark-zandi/documents/2016-06-17-Trumps-Economic-Policies.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;predicted in mid-2016&lt;/a&gt; a Trump recession starting in 2018 of varying intensities depending on how much of Trump's policies got implemented:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;the&#xA;  economy will be significantly weaker if Mr.&#xA;  Trump’s economic proposals are adopted.&#xA;  Under the scenario in which all his stated&#xA;  policies become law in the manner proposed,&#xA;  the economy suffers a lengthy recession and&#xA;  is smaller at the end of his four-year term&#xA;  than when he took office (see Chart). By the&#xA;  end of his presidency, there are close to 3.5&#xA;  million fewer jobs and the unemployment&#xA;  rate rises to as high as 7%, compared with&#xA;  below 5% today. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Or under a less dramatic scenario where Congress moderated Trump:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The economy thus slides into recession&#xA;  by 2018. Recession eventually quells the&#xA;  inflation and, with unemployment rising,&#xA;  convinces the Federal Reserve to reverse&#xA;  course and ease monetary policy. Short Term interest rates quickly hit the zero lower&#xA;  bound, and the Fed resumes quantitative easing—purchases of long-term Treasury securities. [...]&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;By the time the recession ends in 2019,&#xA;  real GDP declines by 1.3%, employment falls&#xA;  sharply, and the unemployment rate peaks&#xA;  at more than 9%.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;These scenarios were both predicated on large-scale eviction of illegal immigrants (all of them in the first, just 6 million in the second.)&lt;/p&gt;&#xA;" OwnerUserId="6210" LastActivityDate="2019-05-06T05:45:40.483" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29151" PostTypeId="1" AcceptedAnswerId="29154" CreationDate="2019-05-06T08:55:54.510" Score="1" ViewCount="54" Body="&lt;p&gt;I am currently learning high school level economics and I do not understand how indirect taxation may increase net social welfare in the presence of negative production externality.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is because, from analysis of welfare in the market diagram with linear demand and supply curves, I found that the social welfare gain due to a tax correcting a negative production externality is equivalent to the welfare loss to consumers and producers from the taxation itself (resulting in no net change in total welfare).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Theoretically, this can also be explained by the fact that taxation reduces the net satisfaction of consumers, firms, and government, but increases net satisfaction in the 3rd party.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My current understanding is that correcting externalities do not cause net welfare to change, but it allows the socially optimum level of resources to be allocated to production, answering the &quot;what to produce question&quot; and allowing the economy to benefit in the long run, but I'm not at all sure.&lt;/p&gt;&#xA;" OwnerUserId="23068" LastActivityDate="2019-05-06T11:50:26.343" Title="Question regarding social welfare in the presence of externalities" Tags="&lt;social-welfare&gt;&lt;externalities&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29152" PostTypeId="2" ParentId="29134" CreationDate="2019-05-06T10:02:59.697" Score="2" Body="&lt;p&gt;As a first approximation, we can think of the 3-month bill as as being the “market forecast” of the (geometric) average of the overnight rate for the next three months, while the 1-year is the average for the next year.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a rate-hike cycle, the 1-year rate ends up much higher than the 3-month rate. This means that it will get close the the 5-year rate much faster.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Furhermore, there is presumably a greater risk premium - term premium - in the 1-year versus the 3-month maturity. This will also tend to compress the 1-/5-year slope faster.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Once the yields on the 1-year and 5-year are close, small “technical factors” in yields are much more likely to lead to an inversion. Therefore, it would be more likely to generate false positives.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reality is that market commentators and economic researchers have searched through all the various slopes to find the “best” ones for forecasting. So it is probably not safe to say that the 1/5 slope is “irrelevant.”&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In any event, yield curve slopes are hardly perfect. I discussed some of the issues in &lt;a href=&quot;https://economics.stackexchange.com/questions/27665/why-is-an-inverted-yield-curve-not-a-good-predictor-for-recessions-except-in-the&quot;&gt;this question.&lt;/a&gt; Since slopes are not infallible guides to recession forecasting, one can argue that the choice of maturities (technically, tenors is a better term) is somewhat arbitrary.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2019-05-06T10:02:59.697" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29154" PostTypeId="2" ParentId="29151" CreationDate="2019-05-06T11:50:26.343" Score="2" Body="&lt;p&gt;Your understanding is close, but not completely correct. Look at the picture below. Blue is the demand curve, Orange the marginal private costs (which in perfect competition is equal to supply). Should there be no taxation or externality the equilibrium price would be P1 and the equilibrium quantity Q1.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If there is a production externality the social costs of production are higher, illustrated by the marginal social costs in grey. The total costs to society (or the 3rd party) of the externality is the area A+B+C.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the government introduces a tax equal to the external costs of production (the tax rate per unit would be the vertical distance between the orange and grey curve) we would achieve a new equilibrium with a new higher equilibrium price P2 and a lower equilibrium quantity Q2.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The total tax burden for the company is area A. This burden was formerly carried by society and is thus not a net gain, but a transfer. Area B is also a transfer. The upper part above the black line comes from the consumers, the bottom part comes from the producers. There is more re-allocation of surplus going on, on the left hand of the dashed line because prices are higher and quantities are lower, but I haven't illustrated those to keep things simple.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Area C though is a gain. That part of the costs are no transfer from anyone and were borne by society before the externality got corrected (or again the 3rd party)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In conclusion introducing a socially optimal tax level introduces a lot of transfers, but &lt;strong&gt;also&lt;/strong&gt; a net gain in welfare.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/8tkYl.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/8tkYl.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="12186" LastActivityDate="2019-05-06T11:50:26.343" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29155" PostTypeId="1" AcceptedAnswerId="29164" CreationDate="2019-05-06T12:18:29.220" Score="0" ViewCount="48" Body="&lt;p&gt;I have an utility function given, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\ u_j(q_{j1},q_{j2} )=q^{3/4}_{1j}*q^{1/4}_{2j}  $&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\ s.t.:  y=p_1*q_{1i} +p_2*q_{2i}$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I do know that the for &lt;span class=&quot;math-container&quot;&gt;$\ q_{1j}$&lt;/span&gt; the marginal prospensity to consume is 3/4 of y given prices &lt;span class=&quot;math-container&quot;&gt;$\ p_1$&lt;/span&gt;. &#xA;But I dont acutally get how my teacher calculated the aggregated demand: &#xA;&lt;span class=&quot;math-container&quot;&gt;$\ q^*_j(p_1,p_2)=(\frac{1/4y}{p}, \frac{3/4y}{p}) $&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I  set up the Lagrangean but then end up with &lt;span class=&quot;math-container&quot;&gt;$\ p_1=\frac{1}{3}\frac{q_2}{q_1}*p_2$&lt;/span&gt;, which does not seem too helpful for me. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can someone give me a hint how to derive aggregate demand from a given utility function, please. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks &lt;/p&gt;&#xA;" OwnerUserId="21496" LastEditorUserId="21496" LastEditDate="2019-05-06T19:23:40.447" LastActivityDate="2019-05-06T19:23:40.447" Title="Aggregated demand of households given utility function" Tags="&lt;utility&gt;&lt;demand&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29156" PostTypeId="1" AcceptedAnswerId="29160" CreationDate="2019-05-06T12:45:59.527" Score="1" ViewCount="11" Body="&lt;p&gt;I am writing a paper on the financial stability of the banking sector. One factor im looking at is the amount of new loans or credit issued (credit growth). I have two different total loan measures. One measures the total loans by their utilisation while the other measures them by the credit lines spoken. Which measure would be more appropriate when regarding the financial stability of the banking sector? Im tending towards using the total credit lines which have been spoken. &lt;/p&gt;&#xA;" OwnerUserId="20449" LastActivityDate="2019-05-06T16:54:08.897" Title="Which measure of total loans is more relevant to Financial Stability?" Tags="&lt;macroeconomics&gt;&lt;finance&gt;&lt;banking&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29157" PostTypeId="1" CreationDate="2019-05-06T13:19:58.520" Score="0" ViewCount="30" Body="&lt;p&gt;Is &lt;a href=&quot;https://en.wikipedia.org/wiki/Utility&quot; rel=&quot;nofollow noreferrer&quot;&gt;utility&lt;/a&gt; merely the notion of &lt;a href=&quot;https://en.wikipedia.org/wiki/Value_(economics)&quot; rel=&quot;nofollow noreferrer&quot;&gt;value&lt;/a&gt; in the subjectivist/marginalist (aka &lt;a href=&quot;https://en.wikipedia.org/wiki/Neoclassical_economics#Overview&quot; rel=&quot;nofollow noreferrer&quot;&gt;neoclassical&lt;/a&gt;) school?&lt;/p&gt;&#xA;" OwnerUserId="6210" LastActivityDate="2019-05-06T16:49:51.967" Title="How does the notion of utility differ from that of value?" Tags="&lt;utility&gt;&lt;value&gt;&lt;history-economic-thought&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29159" PostTypeId="2" ParentId="29157" CreationDate="2019-05-06T16:35:37.270" Score="1" Body="&lt;p&gt;This turns out to be a surprisingly complicated issue. On &lt;a href=&quot;https://www.routledgehistoricalresources.com/economic-thought/essays/marginalist-or-neoclassical-economics&quot; rel=&quot;nofollow noreferrer&quot;&gt;one hand&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;‘value depends entirely upon utility’ (Jevons, 1970, pp. 139 and 77, respectively). [...]&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;For the marginalists of the first generation, a marginal utility curve incorporated the relation between a commodity and human wants; total utility was a derived concept and corresponded geometrically to the area beneath the curve (the integral, in mathematical terms). &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Gradually, it became more natural to consider utility, right from the beginning, as a a property of consumption bundle, rather than individual consumption goods. An important step in this direction was made by Edgeworth (1881). [...] Utility of a consumption basket, rather than marginal utility of individual goods, thus became the ‘primary’ concept.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;On the other hand the more commonly used notion (nowadays) of von Neumann-Morgenstern (cardinal) utility isn't the same thing as the neoclassical one, but is &lt;a href=&quot;https://link.springer.com/article/10.1007/BF00433515&quot; rel=&quot;nofollow noreferrer&quot;&gt;close enough&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;What is controversial is whether the utility function derived by the N-M method can&#xA;  be taken to reflect the true subjective utility of the individual in the sense of the&#xA;  neoclassical economists such as Edgeworth. A firm negative answer has been given: &lt;/p&gt;&#xA;  &#xA;  &lt;blockquote&gt;&#xA;    &lt;p&gt;&quot;what relationship, if any, does the N-M cardinal utility theory have to that of the&#xA;    neoclassical utility theorists? It is generally (though not universally) agreed that&#xA;    there is none - the two utility measures have nothing in common insofar as their&#xA;    cardinality is concerned&quot; (Baumol 1977, p. 431; see also Banmol 1951, 1958). &lt;/p&gt;&#xA;  &lt;/blockquote&gt;&#xA;  &#xA;  &lt;p&gt;[...]&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Baumol is right, at least formally. The N-M hypothesis does not show that the&#xA;  utility function derived, though predictive of the objective choice of the individual,&#xA;  actually reflects his subjective utility in the sense of the neoclassical. On the other hand,&#xA;  most practising economists are also right, at least effectively, in accepting the N-M&#xA;  utility indices as subjective. This is so since, as is shown below, using the same set of&#xA;  axioms as the N-M hypothesis, with only the recognition of finite sensibility (that&#xA;  human beings are not infinitely sensitive or perfectly discriminative), it can be shown&#xA;  that the utility function derived from the N-M method is in fact a subjective utility&#xA;  function in the sense of Edgeworth. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Also, the step (back) from cardinal to ordinal utility is due to Pareto&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Pareto inverted, so to speak, Edgeworth’s problem: rather than deriving the indifference curves from a prior knowledge of a utility function, he did it the other way round – his ‘primary’ concept was a series of indifference curves (later to be called ‘preference ordering’) and from them an analytical description of utility (ofelimità, in his terminology) was derived. What mattered now was the index of the indifference curves, a higher index corresponding to a higher utility. &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;He (correctly) remarked that a surface having I as ordinate was not univocally determined: in so doing he discovered what came to be known as ‘ordinal utility’: a result that first-generation marginalists would perhaps have much appreciated!&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="6210" LastEditorUserId="6210" LastEditDate="2019-05-06T16:49:51.967" LastActivityDate="2019-05-06T16:49:51.967" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29160" PostTypeId="2" ParentId="29156" CreationDate="2019-05-06T16:54:08.897" Score="0" Body="&lt;p&gt;Measuring the total loans by their utilization rate is more effective in determining the financial stability of the banking sector. These 'utilized' loans are IN EFFECT, aka, in use and simultaneously have a risk factor. Un-drawn data is not that useful because it might never be drawn and therefore pointless when determining stability measures. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My reason for saying this stems from the hard data perspective. You have hard, real data when measuring the total loans by their utilization rate. You have theoretical(not hard data, and there-fore theoretical risk factor) utilization rates when it comes to &quot;spoken&quot; credit lines available but not necessarily drawn.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope this helps.&lt;/p&gt;&#xA;" OwnerUserId="23072" LastActivityDate="2019-05-06T16:54:08.897" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="29161" PostTypeId="1" AcceptedAnswerId="29309" CreationDate="2019-05-06T17:03:41.473" Score="9" ViewCount="357" Body="&lt;p&gt;I have heard it said that mainstream economists disapprove of agent based modelling and some of the most prestigious economics journals will not accept papers that employ them. Is this true? And if so, why?&lt;/p&gt;&#xA;" OwnerUserId="5081" LastEditorUserId="108" LastEditDate="2019-05-14T06:50:48.387" LastActivityDate="2019-05-19T07:34:10.863" Title="Is the mainstream against agent based modelling?" Tags="&lt;economic-methodology&gt;&lt;methodology&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="29162" PostTypeId="2" ParentId="29161" CreationDate="2019-05-06T17:24:09.513" Score="0" Body="&lt;p&gt;So there is generally a few main reasons why mainstream economists disapprove of agent based modelling. &#xA;Individual agents are typically characterized as &lt;strong&gt;bounded rational&lt;/strong&gt;, presumed to be acting in what they perceive as their own interests, such as reproduction, economic benefit, or social status, using heuristics or simple decision-making rules.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Reason #1: People are not rational. Our markets prove that almost everyday. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Agent-based models are a kind of micro scale model that simulate the simultaneous operations and interactions of multiple agents in an attempt to re-create and predict the appearance of complex phenomena. The process is one of emergence, which some express as “the whole is greater than the sum of its parts”. &lt;strong&gt;&lt;em&gt;In other words, higher-level system properties emerge from the interactions of lower-level subsystems. Or, macro-scale state changes emerge from micro-scale agent behaviors.&lt;/em&gt;&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Reason #2: The real world does not work like this explanation above, microeconomics and macroeconomics are two entirely different things. One does not effect the other to the degree of relevance that agent based models require it to. Therefore, many mainstream economists avoid it.&lt;/p&gt;&#xA;" OwnerUserId="23072" LastActivityDate="2019-05-06T17:24:09.513" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29163" PostTypeId="2" ParentId="20008" CreationDate="2019-05-06T18:15:41.590" Score="0" Body="&lt;p&gt;So answers for this topic will be a bit... for lack of better term, murky.. or &quot;grey area&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The pricing of homes (or rent) is the strongest correlated factor to homelessness. For example, you can have a great job, make erm... $100k a year salary... and have no debt. &#xA;But if housing prices are in the multi millions across the board and rent is super high because of it... your salary doesn't matter at that point. Nor does an addiction. Or a mental illness. Yes they have a factor of correlation statistically, but the overwhelming correlative factor is income vs price. If you can't afford it, you wont have it. &#xA;It gets real grey area when you factor in things like, &quot;well maybe he/she cant afford it because they spend too much on drugs&quot;. That is definitely a factor, but the statistical correlation will almost always be a lower significance than the price of not being homeless(aka a house or apartment). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So to answer your question directly: The relationship is &lt;strong&gt;&lt;em&gt;highly consistent&lt;/em&gt;&lt;/strong&gt; across the board; but of course you will have your outliers.&lt;/p&gt;&#xA;" OwnerUserId="23072" LastActivityDate="2019-05-06T18:15:41.590" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="29164" PostTypeId="2" ParentId="29155" CreationDate="2019-05-06T18:24:51.700" Score="2" Body="&lt;p&gt;You just need to use the condition &lt;span class=&quot;math-container&quot;&gt;$$ MRS_{q_{1j},q_{2j}} = \frac{p_{1}}{p_{2}} $$&lt;/span&gt; to obtain &lt;span class=&quot;math-container&quot;&gt;$$ 3 \frac{q_{2j}}{q_{1j}} = \frac{p_{1}}{p_{2}} \;\;\;\; \text{(1)}$$&lt;/span&gt; Then solving for &lt;span class=&quot;math-container&quot;&gt;$p_{1}$&lt;/span&gt; and plugging this into the budget constraint you obtain: &lt;span class=&quot;math-container&quot;&gt;$$ y = 3p_{2} \frac{q_{2j}}{q_{1j}}q_{1j} - p_{2}q_{2j}$$&lt;/span&gt; &lt;span class=&quot;math-container&quot;&gt;$$ \Rightarrow q_{2j} = \frac{y/4}{p_{2}} $$&lt;/span&gt; Accordingly, solving for &lt;span class=&quot;math-container&quot;&gt;$p_{2}$&lt;/span&gt; from condition (1) and plugging this into the budget constraint yields: &lt;span class=&quot;math-container&quot;&gt;$$ q_{1j} = \frac{3y/4}{p_{1}} $$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;From this you can obtain your function for the aggregated demand for goods &lt;span class=&quot;math-container&quot;&gt;$q_{1j},q_{2j}$&lt;/span&gt;, as a function of the prices.  &lt;/p&gt;&#xA;" OwnerUserId="21757" LastActivityDate="2019-05-06T18:24:51.700" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29165" PostTypeId="1" AcceptedAnswerId="29313" CreationDate="2019-05-06T18:51:41.527" Score="3" ViewCount="78" Body="&lt;p&gt;From a Wired &lt;a href=&quot;https://www.wired.co.uk/article/heathrow-third-runway-plans-expansion&quot; rel=&quot;nofollow noreferrer&quot;&gt;article&lt;/a&gt; published 9 June 2018 about the proposed third Heathrow Airport runway:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;But &lt;a href=&quot;https://bucks.ac.uk/about-us/our-structure/staff-profile?profile=22115&quot; rel=&quot;nofollow noreferrer&quot;&gt;Warnock-Smith&lt;/a&gt;&lt;sup&gt;1&lt;/sup&gt; warns that Heathrow will eventually fill up again unless air travel is redistributed to make use of spare capacity at other UK airports. “Otherwise in 25 years, we will be having the same debates about a fourth runway at Heathrow,” he adds.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Did Warnock-Smith base his estimate on something (e.g. a mathematical model) or was it &quot;an off-the-cuff remark&quot;? Have there been published studies on this topic?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;sup&gt;1&lt;/sup&gt;Associate head of the School for Aviation and Security at Buckinghamshire New University&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note 1: This question does not belong on Aviation.SE. (&lt;a href=&quot;https://aviation.stackexchange.com/questions/63923/will-the-third-heathrow-runway-if-built-fill-up-within-25-years&quot;&gt;see here&lt;/a&gt;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note 2: This question does not belong on Skeptics.SE. (&lt;a href=&quot;https://skeptics.stackexchange.com/questions/43950/will-the-third-heathrow-runway-fill-up-within-25-years&quot;&gt;see here&lt;/a&gt;)&lt;/p&gt;&#xA;" OwnerDisplayName="user23076" LastEditorUserId="6210" LastEditDate="2019-05-14T15:18:42.683" LastActivityDate="2019-05-14T15:18:42.683" Title="Will the third Heathrow runway fill up within 25 years?" Tags="&lt;reference-request&gt;&lt;supply-and-demand&gt;&lt;united-kingdom&gt;&lt;transportation&gt;&lt;forecasting&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29166" PostTypeId="1" CreationDate="2019-05-06T18:58:13.053" Score="0" ViewCount="42" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/pvImz.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/pvImz.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am having one problem, which I do not understand. Let's assume the government applies ceiling price below the equilibrium price. I colored it red in my graphs. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course, supply would decrease, there would be a shortage. But why does everyone plot the supplier and consumer surplus as it is in the left picture?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's think about it. If the government says the new price is N dollars for something, this means that there are a lot more people who are willing to pay the N price. I just don't understand why we always plot it like those who are willing to pay the most will get it, since new N dollar price is now acceptable for many more people and they would grab for an item as fast as those who are willing to pay the most. What I am trying to say is, if there is a ceiling price for something, it's not affordable only for those who are willing to pay the most but by everyone who is willing to pay above the threshold of ceiling price. But I see no one plotting the model as I did on the right side of the picture. Could you please explain to me why?&lt;/p&gt;&#xA;" OwnerUserId="21814" LastEditorUserId="1601" LastEditDate="2019-05-06T20:14:25.967" LastActivityDate="2019-06-07T19:28:58.210" Title="Trying to understand ceiling in supply and demand on picture" Tags="&lt;supply-and-demand&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29167" PostTypeId="2" ParentId="29045" CreationDate="2019-05-06T19:08:36.820" Score="0" Body="&lt;p&gt;Willingness to pay, or WTP, is the most a consumer will spend on one unit of a good or service. So if you want to find it, take the most expensive gold ring that has been bought at least &lt;strong&gt;once&lt;/strong&gt; out of the 3 goldsmiths. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope this helps.&lt;/p&gt;&#xA;" OwnerUserId="23072" LastActivityDate="2019-05-06T19:08:36.820" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29168" PostTypeId="2" ParentId="29166" CreationDate="2019-05-06T19:21:56.773" Score="1" Body="&lt;p&gt;This is due to not enough supply. So yes you are correct, more people can afford it now, but because the price is less, there is not enough supply for everyone, even if they can afford more than it cost.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems you are not taking into account &lt;strong&gt;&lt;em&gt;dead weight loss&lt;/em&gt;&lt;/strong&gt;.&#xA;Here is a link to help you understand it and use it.&#xA;&lt;a href=&quot;https://corporatefinanceinstitute.com/resources/knowledge/economics/deadweight-loss/&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://corporatefinanceinstitute.com/resources/knowledge/economics/deadweight-loss/&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An inefficiency occurs since at the price ceiling quantity supplied the marginal benefit exceeds the marginal cost. This inefficiency is equal to the deadweight welfare loss.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When it comes to rent ceilings, certain things almost always happen that make the people willing to pay more in order to get the product vs people willing to pay only the rent ceiling price. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If a price ceiling is set, then there must be a way to assign who gets the low supply of the product. Of course, since there is a legal limit on the price, the price can't simply be raised. There are several ways this is done without raising the price: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Black Market: For those lucky enough to get some of the short supply, they are often better off selling what they have obtained to the demanders that will get more benefit out of it. In some cities there have been ceilings put on the apartment rent. While the demand for apartments increases, the rent remains the same. When some renters are ready to move, they sublease their apartment instead of ending their contract. If they were renting for \$500, but someone who  is  willing  to  pay  \$1000, then the subleaser can continue paying \$500 and  pocket the extra \$500 he gets from the subleasee. &lt;/p&gt;&#xA;" OwnerUserId="23072" LastEditorUserId="1601" LastEditDate="2019-05-06T20:46:14.103" LastActivityDate="2019-05-06T20:46:14.103" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="29169" PostTypeId="1" CreationDate="2019-05-06T20:41:13.957" Score="0" ViewCount="28" Body="&lt;p&gt;&lt;strong&gt;Disclaimer:&lt;/strong&gt; &lt;em&gt;I'm far from an expert on economics. I apologize if the question seems poorly asked or not clear&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Take for example the &lt;strong&gt;drug trafficking&lt;/strong&gt; business and cartels in the past. It seems to me that the production cost of illegal drug substances was quite low. Most of the usual substances back then were either a form of plant or extracted from certain kinds of plants. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In contrast, the demand of those substances was tremendous, mostly because of their unusual properties and effects on the human body.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How this &lt;em&gt;low production cost - enormously high demand&lt;/em&gt; combo affected the economy of the countries where drug trafficking was taking place?&lt;/p&gt;&#xA;" OwnerUserId="23078" LastActivityDate="2019-05-07T16:56:56.407" Title="How exactly does the black market affect a country's economy?" Tags="&lt;macroeconomics&gt;&lt;black-market&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29172" PostTypeId="2" ParentId="29149" CreationDate="2019-05-07T02:55:01.503" Score="12" Body="&lt;p&gt;&lt;strong&gt;(1) Most of Trump's proposed policies have been implemented only to a limited extent or not at all.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;He promised &lt;strong&gt;dramatic tax cuts&lt;/strong&gt;. Examples from the &lt;a href=&quot;https://www.economy.com/mark-zandi/documents/2016-06-17-Trumps-Economic-Policies.pdf&quot; rel=&quot;noreferrer&quot;&gt;June 2016 Moody's analysis&lt;/a&gt; you cited:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;em&gt;Replacing the current seven personal income tax brackets with three and reducing the top marginal rate from 39.6% to 25%.&lt;/em&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The Tax Cuts and Jobs Act 2017 (TCJA) cut the top rate, but only from &lt;a href=&quot;https://www.taxpolicycenter.org/statistics/historical-highest-marginal-income-tax-rates&quot; rel=&quot;noreferrer&quot;&gt;39.6% to 37%&lt;/a&gt;. Also, the &lt;a href=&quot;https://taxfoundation.org/2019-tax-brackets/&quot; rel=&quot;noreferrer&quot;&gt;seven brackets&lt;/a&gt; have remained.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;em&gt;Increasing the standard deduction to \$25,000 for single filers and \$50,000 for joint filers, and indexing to inflation thereafter.&lt;/em&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The TCJA &lt;a href=&quot;https://www.taxpolicycenter.org/briefing-book/how-did-tcja-change-standard-deduction-and-itemized-deductions&quot; rel=&quot;noreferrer&quot;&gt;increased the standard deductions&lt;/a&gt; from \$6,500/\$13,000 to \$12,000/\$24,000 — an impressive increase, but still less than half of what Trump had proposed. (Note also that these increases in the standard deductions were partly offset by the elimination/restriction of many deductions.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Trump &lt;a href=&quot;https://twitter.com/foxnews/status/795466736191623168&quot; rel=&quot;noreferrer&quot;&gt;promised&lt;/a&gt; to &lt;strong&gt;immediately repeal and replace Obamacare&lt;/strong&gt;. As of May 2019, this has not happened.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Trump also &lt;a href=&quot;https://www.salon.com/2018/01/22/do-trump-and-the-gop-really-want-a-daca-deal-we-already-know-the-answer/&quot; rel=&quot;noreferrer&quot;&gt;promised&lt;/a&gt; to &lt;strong&gt;deport over 11M illegal immigrants&lt;/strong&gt;. This has also not happened. In fact, under Trump, there have been fewer deportations than under Obama (e.g. in FY2018, there were &lt;a href=&quot;https://www.nytimes.com/2018/12/14/us/politics/illegal-immigrant-arrests-deportations-rise.html&quot; rel=&quot;noreferrer&quot;&gt;256,085 deportations&lt;/a&gt;, well below the Obama 2013 peak of &lt;a href=&quot;https://www.pewresearch.org/fact-tank/2014/10/02/u-s-deportations-of-immigrants-reach-record-high-in-2013/&quot; rel=&quot;noreferrer&quot;&gt;438,421&lt;/a&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The above proposals would have severely damaged the US economy. But none have been fully implemented.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;(2) The trade war.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Again it is the case that Trump falls far short of some of the wilder &quot;promises&quot; he made during his campaign (e.g. in Jan 2016, he proposed &lt;a href=&quot;https://www.nytimes.com/interactive/2016/us/elections/fact-check.html#/factcheck-64&quot; rel=&quot;noreferrer&quot;&gt;imposing 45% tariffs on China&lt;/a&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Nonetheless, to the extent that he has been &quot;successful&quot; at waging this trade war, there has been damage to the US economy. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.nber.org/papers/w25638&quot; rel=&quot;noreferrer&quot;&gt;Fajgelbaum et al. (2019)&lt;/a&gt; estimate that:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;the trade war lowered aggregate U.S. welfare in the short-run by \$7.8 billion, or 0.04% of GDP.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.nber.org/papers/w25672&quot; rel=&quot;noreferrer&quot;&gt;Amiti, Redding, &amp;amp; Weinstein (2019)&lt;/a&gt; estimate that:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;by the end of 2018, import tariffs were costing U.S. consumers and the firms that import foreign goods an additional \$3 billion per month in added tax costs and another \$1.4 billion dollars per month in deadweight welfare (efficiency) losses.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;(3) It may be too soon to tell.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or in economists' jargon, there is usually a &lt;strong&gt;policy lag&lt;/strong&gt; of months or years.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, the TCJA just came into effect in the most recent tax season (whose deadline just passed a few weeks ago in April 2019). Even if the TCJA has any effects, it will be a little while before economists are able to measure them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, as the Dec 2018 piece by Nouriel Roubini suggests, it was really only in 2018 and in particular the last few months of 2018 that Trump began to impose his economic policies:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;many trusted that at the end of the day, the “adults in the room” would restrain Trump and ensure that the administration’s policies didn’t jump the guardrails of orthodoxy. // These assumptions were more or less vindicated during Trump’s first year in office ... But things changed radically in 2018, and especially in the last few months.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;(4) That the US economy is healthy is not evidence that Trump's policies are sensible.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It could be that absent Trump's policies, the US economy might be doing even better. We can't just look at things as they are; instead, we need some sort of a counterfactual analysis.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastEditorUserId="4816" LastEditDate="2019-05-26T23:24:26.973" LastActivityDate="2019-05-26T23:24:26.973" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="29175" PostTypeId="2" ParentId="29165" CreationDate="2019-05-07T08:38:34.867" Score="0" Body="&lt;p&gt;It is difficult for anyone here to know exactly what Warnock-Smith had in mind with his comment or whether he has conducted some analysis prior to his comment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Nevertheless, he may be referring to the research on congestion in general, which has largely focused on road travel.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is well-known that, contrary to popular belief, increased capacity can make congestion worse. The reason for this is so-called &quot;induced demand&quot;. Once there is a larger capacity, a demand increase will typically follow, thereby keeping congestion at the same rate or making it even worse. One mechanism behind this increased demand is that there could be a latent demand already underlying. This means that there are consumers who want to take trips, but don't due to congestion issues. However, after the capacity increase, the realized demand increases.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This phenomenon has been observed for example with increased highway capacity, as noted in &lt;a href=&quot;https://www.click2houston.com/news/houston-commute-times-quickly-increasing_20151123154243235&quot; rel=&quot;nofollow noreferrer&quot;&gt;this&lt;/a&gt; news piece. For a literaure review on highways, see Susan Handy's 2015 article &quot;Increasing Highway Capacity Unlikely to Relieve Traffic Congestion&quot;.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastActivityDate="2019-05-07T08:38:34.867" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29176" PostTypeId="1" CreationDate="2019-05-07T11:01:39.413" Score="0" ViewCount="242" Body="&lt;p&gt;Facing a little bit of a problem with this questions, did a similar one BUT the utility function was not linear and got MRS dependent on goods (was not just a number) - here I am at a loss. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question: There are two individuals A and B, each having one unit of time which can be used either for leisure or labor (to produce a good to consume). Their utility functions are respectively: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;u&lt;sub&gt;A&lt;/sub&gt;(l&lt;sub&gt;A&lt;/sub&gt;,c&lt;sub&gt;A&lt;/sub&gt;) = 6(1-l&lt;sub&gt;A&lt;/sub&gt;) + c&lt;sub&gt;A&lt;/sub&gt; and u&lt;sub&gt;B&lt;/sub&gt;(l&lt;sub&gt;B&lt;/sub&gt;,c&lt;sub&gt;B&lt;/sub&gt;) = 10(1-l&lt;sub&gt;B&lt;/sub&gt;) + c&lt;sub&gt;B&lt;/sub&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Where 1-l&lt;sub&gt;A/B&lt;/sub&gt; is the leisure time for A/B. Furthermore, we know that A can produce 4 units of the consumption good per 1 unit of labor time, and B can produce 24 units of the consumption good per 1 unit of labor time. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The last information I transformed into: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;c&lt;sub&gt;A&lt;/sub&gt; = f(l&lt;sub&gt;A&lt;/sub&gt;) = 4l&lt;sub&gt;A&lt;/sub&gt; and c&lt;sub&gt;B&lt;/sub&gt; = g(l&lt;sub&gt;B&lt;/sub&gt;) = 24l&lt;sub&gt;B&lt;/sub&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;(where f and g are some production functions)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;I am being asked to find the set of Pareto-optimal allocations of consumption and labor.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I assume I need to start with MRS&lt;sub&gt;A&lt;/sub&gt; = -6 (or 6? never know when to use negative/positive?) and MRS&lt;sub&gt;B&lt;/sub&gt; = -10. However, I am not sure what piece of information I can get from that? I assume that indifference curves are lines, right? And that they will always cross, which then would imply that the set of Pareto-optimal points is on the boundary of Edgeworth box? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand, these guys maximize their utilities so that:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;max 6(1-l&lt;sub&gt;A&lt;/sub&gt;) + c&lt;sub&gt;A&lt;/sub&gt; = max 6(1-l&lt;sub&gt;A&lt;/sub&gt;) + 4l&lt;sub&gt;A&lt;/sub&gt; = max 6 - 2l&lt;sub&gt;A&lt;/sub&gt; &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;and&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;max 10(1-l&lt;sub&gt;B&lt;/sub&gt;) + c&lt;sub&gt;B&lt;/sub&gt; = max 10(1-l&lt;sub&gt;B&lt;/sub&gt;) + 24l&lt;sub&gt;B&lt;/sub&gt; = max 10 + 14l&lt;sub&gt;B&lt;/sub&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;meaning that l&lt;sub&gt;A&lt;/sub&gt; = 0 and l&lt;sub&gt;B&lt;/sub&gt; = 1. That is, A will spend his 1 unit of time for leisure: 1-l&lt;sub&gt;A&lt;/sub&gt; = 1-0 = 1 and B will spend his 1 unit of time for labor.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Two other questions are&lt;/strong&gt;:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Find Pareto-optimal allocations that are also envy-free.&lt;/li&gt;&#xA;&lt;li&gt;How would the analysis go when A could produce 7 units of good per 1 unit of labor time. &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;But I think I should be able to answer them, after some hints for the first part of the question. ;) &lt;/p&gt;&#xA;" OwnerUserId="23083" LastEditorUserId="23083" LastEditDate="2019-05-07T14:14:52.103" LastActivityDate="2020-11-30T20:05:35.403" Title="robinson economy with production" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;pareto-efficiency&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29177" PostTypeId="1" CreationDate="2019-05-07T13:59:27.147" Score="2" ViewCount="122" Body="&lt;p&gt;Let me apologize if my questions sound stupid to experts. I have no training in economics. I am just curious and puzzled. I couldn't find any answer to the questions below.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As far as I have understood, broadly speaking, money is created by central banks and landed to governments with interest and creating debt.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, let's take a simple example. Let's imagine a world with 10 countries and 1 central bank. The central bank gives 10B (billions) to each country (100B in total) at a 1% interest rate. At the end of the year, the world owes 101B.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Where is this extra 1B coming from?&lt;/li&gt;&#xA;&lt;li&gt;Since 1B was never created in the&#xA;first place, how can the 1B be paid back?&lt;/li&gt;&#xA;&lt;li&gt;If it turns out that   the world cannot actually ever pay back the full debt, then why do we care? What is the use of the 1B in debt?&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Of course, the countries are in business with each other. During the year some will gain money, some will lose money. The countries that managed to gain that 1% can pay back the interest, but hardly the full debt. In general, for each 1% gained by some country, others must have lost that money.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So it appears to me that with such a design &lt;strong&gt;1) the debt cannot ever be paid back&lt;/strong&gt;, &lt;strong&gt;2) someone must go bankrupt in the long run&lt;/strong&gt; and &lt;strong&gt;3) the debt can only grow over time (since it cannot be fully paid back)&lt;/strong&gt;. Is that true or am I missing something?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Just to be clear, I get why we need money. I don’t get why we need debt. Wouldn’t capitalism work as well if central banks could just distribute money around as needed without asking them back? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't think this question duplicates  &lt;a href=&quot;https://economics.stackexchange.com/questions/8318/how-is-the-interest-on-fractional-reserve-money-creation-paid&quot;&gt;this one&lt;/a&gt;. While the linked question does explain the mechanism of money and debt creation, it doesn't shine light on WHY we care about debt, nor whether  it is possible to ever pay back the world debt if it is destined to steadily increase over time.&lt;/p&gt;&#xA;" OwnerUserId="23084" LastEditorUserId="23084" LastEditDate="2020-05-10T12:08:09.913" LastActivityDate="2020-05-10T12:08:09.913" Title="Is it possible to repay the world debt? If not, why do we care?" Tags="&lt;central-banking&gt;&lt;debt&gt;" AnswerCount="1" CommentCount="14" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29178" PostTypeId="1" AcceptedAnswerId="29195" CreationDate="2019-05-07T14:38:10.630" Score="2" ViewCount="46" Body="&lt;p&gt;I am an undergrad student trying to study grad macro. I have been trying to solve exercise problem in Barro's economic growth.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The model is about adding land in the Ramsey Model. The model goes as follows:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$Y=A\Bigl[a(K^\alpha L^{1-\alpha})^\psi+(1-a)\Lambda^\psi\Bigr]^{1/\psi}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, the questions asks what condition of &lt;span class=&quot;math-container&quot;&gt;$\psi$&lt;/span&gt; can ensure that &lt;span class=&quot;math-container&quot;&gt;$Y/L$&lt;/span&gt; is constant over time, and what condition will make &lt;span class=&quot;math-container&quot;&gt;$Y/L$&lt;/span&gt; steadily decrease over time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have derived the per capita intensive form as follows:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$y(t)=A\Bigl[a(k(t)^\alpha)^\psi+(1-a)\lambda^\psi\Bigr]^{1/\psi}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, I do not grasp the meaning of how different value of &lt;span class=&quot;math-container&quot;&gt;$\psi$&lt;/span&gt; can affect the outcome. &lt;/p&gt;&#xA;" OwnerUserId="23085" LastEditorUserId="42" LastEditDate="2019-05-07T15:54:16.580" LastActivityDate="2019-05-08T11:25:31.673" Title="[Graduate Macro]Land in the Economic Growth Model: CES Function" Tags="&lt;macroeconomics&gt;&lt;economic-growth&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29179" PostTypeId="2" ParentId="29169" CreationDate="2019-05-07T16:52:07.333" Score="1" Body="&lt;p&gt;I think the question is extremely broad. The effects of drug dealing on the whole economy depend on many things, for example, on how strict is the country at enforcing the ban, how violent the drug dealers are, and what is done with the profits. The experiences in Mexico and Colombia, for example, are substantially different. While many drug lords have developed complete cities from the gains from trafficking, others have simply wasted it all. In most cases, the government is involved in the trafficking (via corruption) so it can have some positive effects in terms of govt budget, but if it becomes violent, the costs are clear. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If there is any generality I would say that the combo of low cost and huge demand makes it really hard to prohibit. There are a few studies trying to measure the economic effect of the violence of drug dealing, but any empirical work is limited due to the lack of reliable data on basically every aspect of illegal markets.&lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-05-07T16:52:07.333" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29180" PostTypeId="2" ParentId="29169" CreationDate="2019-05-07T16:56:56.407" Score="0" Body="&lt;p&gt;I agree with Gabriel. The short answer is higher corruption prevalence, higher violence/murder rates, political instability, tensions with neighboring countries/allies. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What you can &lt;em&gt;theorize&lt;/em&gt;, on a macro level, is that it is bringing in profits for the local economy. For example in Mexico's case, US dollars are coming in at profitable levels for the drugs. Thus increasing the wealth of some communities in Mexico. For broader analysis, there is not much research to go off of. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope this helps.&lt;/p&gt;&#xA;" OwnerUserId="23072" LastActivityDate="2019-05-07T16:56:56.407" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29181" PostTypeId="2" ParentId="29139" CreationDate="2019-05-07T16:58:47.170" Score="1" Body="&lt;p&gt;No, you want to re-scale proportionally, so you want to solve the equation &lt;span class=&quot;math-container&quot;&gt;$115.9x=100$&lt;/span&gt;, so that &lt;span class=&quot;math-container&quot;&gt;$x=100/115.9$&lt;/span&gt; and then multiply each value by &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;. The value for 1997, for example, should be 86.3 (after rounding).&lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-05-07T16:58:47.170" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29182" PostTypeId="2" ParentId="29122" CreationDate="2019-05-07T17:05:20.650" Score="1" Body="&lt;p&gt;This looks like a Tullock contest. I think in his model the prize from bidding (or putting in effort) is un-divisible, so &lt;span class=&quot;math-container&quot;&gt;$r_x$&lt;/span&gt; will represent the probability of winning the price. But other than re-interpreting coefficients, the setting looks identical to me. There are tons of papers on these kinds of models. Hope this helps.&lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-05-07T17:05:20.650" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29183" PostTypeId="2" ParentId="29092" CreationDate="2019-05-07T17:16:37.590" Score="1" Body="&lt;p&gt;So you learned the formula for aggregate demand and yes if you plug in all the values that the formula needs, it will give you the value of the aggregate demand. Still, you cannot say that AD is a single value, in the sense that if you plug other things in the formula, it gives a different result. What you should say is that AD is a function of C,I,G,(X-M). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What the quote is saying is that the same happens for the aggregate supply, you cannot say, AS is equal to 40, instead what you can say is that AS is a function of the price level. Sometimes you are given an explicit formula, like for AD, and sometimes you are simply given a table or a graph. In all cases, you can see that different price levels can lead to different values of the AS.&lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-05-07T17:16:37.590" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29186" PostTypeId="2" ParentId="29177" CreationDate="2019-05-07T20:48:03.703" Score="3" Body="&lt;p&gt;So there are a couple of things you want to consider:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1st: It is not true that if some country gains 1% some other country must have lost that 1% of economic growth. The economy is not a zero-sum game where the gains of one person are the losses of another one. In fact, usually, it is the opposite. Think about it this way, if the US grows by a lot it also means that they will buy more things from other countries so these countries will probably also grow faster. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;2nd: Money is just the means by which we keep track of, and do transactions. At the end, what really matters is how much stuff is produced (goods or services). That is why if some country produces more things, everyone can benefit from it. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I do understand your logic that if the Bank produces 100B of coins how can they expect to get back 101B? Once you think of it in terms of stuff, the puzzle is resolved as follows:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;The bank lends you the money so you can buy and plant seeds (these are the 10B), they expect to get back some of the benefits from this productive project after you produce apples (they could directly ask to pay back in apples, but this would be impractical, that's one of the reasons we use money, so instead  they ask you for the 10.1B). Of course, if the bank does not print more money where will the .1B come from? Well, indeed the bank will never ask for 1% interest if they know there is no physical way to actually pay it back. &lt;/li&gt;&#xA;&lt;li&gt;What really happens is that the bank understands that if an economy is growing, she needs to constantly be printing money, so people can easily do and keep track of all the transactions they do. Therefore, when they ask for the 1% interest, first this is possible, because there is more money out there in the economy, and second, they choose how much interest to charge in order to reflect that they expect you to do something productive with the money (interest also depend, of course, on how risky is your project, and other factors).&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I am over-looking the whole issue of inflation to keep things simple and explain the main logic of why banks (including the central bank) charges interests. Whenever you think about whether a debt can be paid or not; the relevant question is not if there is enough money out there to pay it. Rather the relevant question is if the money loaned is being used in a productive way so that it can later pay the interests. And if the answer is no, we care because that means that the money loaned is being wasted, instead.&lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-05-07T20:48:03.703" CommentCount="11" ContentLicense="CC BY-SA 4.0" />
  <row Id="29187" PostTypeId="2" ParentId="29176" CreationDate="2019-05-07T21:05:57.513" Score="1" Body="&lt;p&gt;Hint 1: So I think you are making a mistake by substituting their production technology into their utility: when you went from &lt;span class=&quot;math-container&quot;&gt;$\max 6(1-l_A)+c_A$&lt;/span&gt; to &lt;span class=&quot;math-container&quot;&gt;$\max 6(1-l_A)+4l_A$&lt;/span&gt;, by doing this, you are assuming that &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt; only consumes what she produces. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hint 2: Let me give you a Pareto optimal allocation: &lt;span class=&quot;math-container&quot;&gt;$B$&lt;/span&gt; spends his &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt; hour working to produce 24 units of consumption and gives them to &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt; who spends her 1 hour in leisure. This allocation is feasible (there are enough resources to do it, given the technology), and it is Pareto optimal because &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt; is the happiest, so there is no way to improve &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt;, and in order to improve &lt;span class=&quot;math-container&quot;&gt;$B$&lt;/span&gt;, you would have to decrease &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt;'s utility. Of course, this is allocation is not envy-free, but it is a Pareto optimal allocation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hint 3: I would first find all the possible allocations in order to then see which ones are Pareto, and then which ones are envy-free.&lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-05-07T21:05:57.513" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29188" PostTypeId="1" AcceptedAnswerId="29192" CreationDate="2019-05-07T22:23:00.890" Score="1" ViewCount="28" Body="&lt;p&gt;In the USA, are there import taxes (or equivalent) between states? Or is it in effect a customs union?&lt;/p&gt;&#xA;" OwnerUserId="5505" LastActivityDate="2019-05-08T06:18:13.647" Title="Are there import taxes between US states?" Tags="&lt;free-trade&gt;&lt;united-states&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29190" PostTypeId="1" AcceptedAnswerId="29214" CreationDate="2019-05-07T23:35:45.187" Score="0" ViewCount="77" Body="&lt;p&gt;So I am doing this project, which includes in calculating the Economic Metrics for a profitability analysis. I have calculated Return on Investment (ROI), Net Present Worth (NPW) and Payback Period (PP). But the problem is that the values for my project are not 'textbook like', if you can call that. I have the following.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;ROI = -60 %/yr&lt;/p&gt;&#xA;&#xA;&lt;p&gt;PP = -4 years&lt;/p&gt;&#xA;&#xA;&lt;p&gt;NPV = -200 Million&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am having trouble in understanding what the above actually mean in terms of investment. The way I have understood is the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For ROI, since it is negative, therefore the cost of the investment is way higher than the current value investment. Looking at the formula, it should mean that the we have a 60% loss every year, with regard to the actual value of the investment. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For PP, this I don't fully understand. If the payback period is negative, does it mean that the investment is never reached, but instead 3 years worth of investment is also lost? Or that the investment period should be increased by 3 years in order to get profit?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For NPV, does it mean that the outflow is 200 million higher than the inflow? Is this based on inflation or something else.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am not fully sure about the 'analysis' of these for an investment and their 'meaning'.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If anyone can help or give a hint, it will be highly appreciated.&lt;/p&gt;&#xA;" OwnerUserId="23087" LastActivityDate="2019-05-08T21:45:54.650" Title="Economic Metrics (ROI, PP, NPW)" Tags="&lt;mathematical-economics&gt;&lt;investment&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29191" PostTypeId="1" CreationDate="2019-05-08T05:01:45.090" Score="0" ViewCount="121" Body="&lt;p&gt;Suppose we have an inflation in a country with an annual 2% and we get a loan for an annual 1% (real interest). Is the money we receive free? &#xA;This is a common practice in some European countries, where the mortgages are around 1% fix rate plus the Euro Interank Offered Rate.&#xA;If so, why? Are the banks loosing money by lending in such low rates?&lt;/p&gt;&#xA;" OwnerUserId="23088" LastEditorUserId="11590" LastEditDate="2019-05-10T18:24:43.940" LastActivityDate="2021-05-30T00:03:00.237" Title="Is a loan lent with a rate under the inflation rate free money?" Tags="&lt;inflation&gt;&lt;interest-rate&gt;" AnswerCount="2" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="29192" PostTypeId="2" ParentId="29188" CreationDate="2019-05-08T06:18:13.647" Score="3" Body="&lt;p&gt;No. Such interstate taxes are prohibited by the Commerce Clause as they would be &quot;undue burdens on interstate commerce&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Commerce Clause is an evolving doctrine that has been largely developed by the courts (in particular the US Supreme Court).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The most recent development was &lt;a href=&quot;https://scholar.google.com/scholar_case?case=18077022798826184762&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;South Dakota v. Wayfair&lt;/em&gt; (2018)&lt;/a&gt;. Section A gives a summary of this doctrine's development and states:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Modern precedents rest upon two primary principles that mark the boundaries of a State’s authority to regulate interstate commerce. First, state regulations may not discriminate against interstate commerce; and second, States may not impose undue burdens on interstate commerce.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2019-05-08T06:18:13.647" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29195" PostTypeId="2" ParentId="29178" CreationDate="2019-05-08T11:25:31.673" Score="3" Body="&lt;p&gt;Suppose that the total amount of land (&lt;span class=&quot;math-container&quot;&gt;$\Lambda$&lt;/span&gt;) is fixed but the population measure increases exogenously (&lt;span class=&quot;math-container&quot;&gt;$\dot{L}&amp;gt;0$&lt;/span&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The only way the &lt;em&gt;per capita&lt;/em&gt; product (&lt;span class=&quot;math-container&quot;&gt;$y(t)$&lt;/span&gt;) remains &lt;strong&gt;constant over time&lt;/strong&gt; is when you can fully substitute capital against land. In formulas, you need to set &lt;span class=&quot;math-container&quot;&gt;$\psi=1$&lt;/span&gt; to get:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$ y(t) = A[a k(t)^\alpha + (1-a) \lambda(t)] $$&lt;/span&gt;&#xA;and, as you can see, you can always trade-off declining land per capita (&lt;span class=&quot;math-container&quot;&gt;$\lambda(t) =\frac{\Lambda}{L(t)}$&lt;/span&gt;, then &lt;span class=&quot;math-container&quot;&gt;$\dot{\lambda}&amp;lt;0$&lt;/span&gt;) with more investment in capital.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand, as soon as &lt;span class=&quot;math-container&quot;&gt;$\psi \neq 1$&lt;/span&gt;, then &lt;span class=&quot;math-container&quot;&gt;$Y/L$&lt;/span&gt; will &lt;strong&gt;steadily decrease over time&lt;/strong&gt; as a consequence of population growth in conjunction with decrease land per capita not being fully substituted by increases in capital.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This would be my intuition, hope it helps, I'm sure one can make the argument more rigorous, especially for the case of &lt;span class=&quot;math-container&quot;&gt;$\psi\neq 1$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerUserId="14692" LastActivityDate="2019-05-08T11:25:31.673" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29197" PostTypeId="1" AcceptedAnswerId="29201" CreationDate="2019-05-08T12:35:40.033" Score="0" ViewCount="638" Body="&lt;p&gt;Can someone please help me with the Lagragian and the derivation of the following objective function ? Beneath I provide the objective function, the constraint and the Euler equation that results from the maximization. Your help is very much appreciated !! &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/bl6tM.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/bl6tM.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/2ZU7r.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/2ZU7r.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/Q3hQU.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Q3hQU.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks !&lt;/p&gt;&#xA;" OwnerUserId="23092" LastActivityDate="2019-05-08T13:35:02.843" Title="Maximization problem FOC and Euler equation" Tags="&lt;macroeconomics&gt;&lt;mathematical-economics&gt;&lt;labor-economics&gt;&lt;optimization&gt;&lt;dynamic-optimization&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29198" PostTypeId="1" AcceptedAnswerId="29235" CreationDate="2019-05-08T13:11:00.783" Score="2" ViewCount="35" Body="&lt;p&gt;Any company may &quot;feel&quot; obligated towards several parties at once:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;its shareholders&lt;/li&gt;&#xA;&lt;li&gt;its employees&lt;/li&gt;&#xA;&lt;li&gt;its customers&lt;/li&gt;&#xA;&lt;li&gt;its partner companies (sub-contractors and suppliers)&lt;/li&gt;&#xA;&lt;li&gt;its country and social environment (if it is based in &lt;em&gt;one&lt;/em&gt; country)&lt;/li&gt;&#xA;&lt;li&gt;(wo)mankind in general (present and/or future)&lt;/li&gt;&#xA;&lt;li&gt;environment in general (locally and/or globally)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I wonder if this list is kind of complete - or if I've overseen important parties (what about the company itself as an economic subject?) - and more important: If there are schemes to display such obligations (&lt;a href=&quot;https://www.wikiwand.com/en/Traffic_light_rating_system&quot; rel=&quot;nofollow noreferrer&quot;&gt;traffic light rating system&lt;/a&gt; or &lt;a href=&quot;https://www.wikiwand.com/en/Pie_chart&quot; rel=&quot;nofollow noreferrer&quot;&gt;pie charts&lt;/a&gt; - depending on obligation being an &lt;a href=&quot;https://www.wikiwand.com/en/Intensive_and_extensive_properties&quot; rel=&quot;nofollow noreferrer&quot;&gt;extensive or intensive property&lt;/a&gt;) - and where I can find them realized.&lt;/p&gt;&#xA;" OwnerUserId="22991" LastEditorUserId="22991" LastEditDate="2019-05-09T16:54:52.230" LastActivityDate="2019-05-09T16:54:52.230" Title="Obligations of a company" Tags="&lt;microeconomics&gt;&lt;reference-request&gt;&lt;game-theory&gt;&lt;utility&gt;&lt;preferences&gt;" AnswerCount="1" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="29199" PostTypeId="1" AcceptedAnswerId="29200" CreationDate="2019-05-08T13:26:16.210" Score="1" ViewCount="160" Body="&lt;p&gt;I have the following True/False question:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;A single price-taking firm on the market is called a monopoly.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;As far as I know, a monopoly is a &lt;em&gt;price maker&lt;/em&gt; not a &lt;em&gt;price taker&lt;/em&gt;. That being said if it is a single firm how in the world can it not be a monopoly? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In my opinion, the answer to this question is False.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Could anyone possibly explain to me if my way of thinking is correct? and if a monopolistic firm can be a price taker?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you very much&lt;/p&gt;&#xA;" OwnerUserId="19689" LastActivityDate="2019-05-08T13:31:10.520" Title="Are monopolies always price makers?" Tags="&lt;microeconomics&gt;&lt;monopoly&gt;&lt;price&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29200" PostTypeId="2" ParentId="29199" CreationDate="2019-05-08T13:31:10.520" Score="0" Body="&lt;p&gt;You are correct. A monopoly is a price &lt;em&gt;maker&lt;/em&gt;. Not a taker.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A monopoly has the power to influence the price it charges as the good it produces does not have perfect substitutes. A price &lt;em&gt;maker&lt;/em&gt; within monopolistic competition produces goods that are differentiated in some way from its competitors' products.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I suppose a monopolistic firm &lt;em&gt;could&lt;/em&gt; be a price taker via matching random re-sellers prices on singular items, however that would be operating at a loss a majority of the time. The idea with that though is to retain the customer business for the future, not to make a single small profit on one item, one time. &lt;/p&gt;&#xA;" OwnerUserId="23072" LastActivityDate="2019-05-08T13:31:10.520" CommentCount="7" ContentLicense="CC BY-SA 4.0" />
  <row Id="29201" PostTypeId="2" ParentId="29197" CreationDate="2019-05-08T13:35:02.843" Score="1" Body="&lt;p&gt;Taking a variable as given comes from the assumptions of the model and cannot result from any optimisation problem (think simply that when a variable is taken as given it is treated as a constant in your problem so one cannot lead to the other). Here, taking the public good as given means the household is not able to choose the level of public good to maximize their discounted lifetime utility, and instead this is taken as given (i.e. for a given level of public good I can simply choose my lifetime consumption and bond holdings path to maximize my utility). As for why this is assumed it really depends on the model you are looking at (the level of public good might be fixed (although note that in your problem there is a time subscript) or any individual might be to &quot;small&quot; to exert any influence on the level, etc.) but unless you are looking to endogenously determine the optimal amount of the public good the taken as given assumption is pretty standard.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for the maximization problem, what is exactly your doubt? Have you tried setting up the Lagrangian and obtaining the FOCs to get the consumption Euler equation? &lt;/p&gt;&#xA;" OwnerUserId="21757" LastActivityDate="2019-05-08T13:35:02.843" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="29202" PostTypeId="2" ParentId="29191" CreationDate="2019-05-08T13:53:49.337" Score="0" Body="&lt;p&gt;Inflation: 2%&#xA;Interest:  1%&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This means the real rate is 3%. &#xA;So no; not free money. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Free money would be negative interest rates. &#xA;Example: Inflation: 0%.&#xA;         Interest on loan I get from the bank: -1%.&#xA;This would mean they are paying ME 1% to take the loan from the bank.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Negative interest rates are a real practice, with many historical examples that can be researched.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The banks are theoretically losing 1%(+2% inflation) on the loaned amount, however it's important to understand that deals are made among negotiations with central banks in the background that can still produce gains from this.   &lt;/p&gt;&#xA;" OwnerUserId="23072" LastActivityDate="2019-05-08T13:53:49.337" CommentCount="9" ContentLicense="CC BY-SA 4.0" />
  <row Id="29203" PostTypeId="1" CreationDate="2019-05-08T14:21:19.327" Score="0" ViewCount="79" Body="&lt;p&gt;Two players simultaneously announce a prime number less than 20.Denoting &lt;span class=&quot;math-container&quot;&gt;$p_{i}$&lt;/span&gt; the number announced by the player &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;, the payoffs are:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;-If &lt;span class=&quot;math-container&quot;&gt;$p_{1}+p_{2}&amp;lt;14$&lt;/span&gt; each player receives as payment the value of &lt;span class=&quot;math-container&quot;&gt;$p_{i}+1$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;-If &lt;span class=&quot;math-container&quot;&gt;$p_{1}+p_{2} \geq{14}$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$p_{i}&amp;lt;p_{j}$&lt;/span&gt;, player &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; receives &lt;span class=&quot;math-container&quot;&gt;$p_{j}$&lt;/span&gt; and the player &lt;span class=&quot;math-container&quot;&gt;$j$&lt;/span&gt; receive &lt;span class=&quot;math-container&quot;&gt;$20-p_{i}$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;-If &lt;span class=&quot;math-container&quot;&gt;$p_{1}+p_{2} \geq{14}$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$p_{i}=p_{j}$&lt;/span&gt;, each player receives a payoff &lt;span class=&quot;math-container&quot;&gt;$p_{i}$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Q1:My game in normal form is correct?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{array}{|c|c|c|c|}&#xA;\hline&#xA; &amp;amp; 2 &amp;amp; 3&amp;amp;5&amp;amp;7&amp;amp;11&amp;amp;13&amp;amp;17&amp;amp;19 \\ \hline&#xA;2&amp;amp;3,3&amp;amp; 3,4&amp;amp;3,6 &amp;amp; 3,8&amp;amp;3,12&amp;amp;13,18&amp;amp;17,18&amp;amp;19,18\\ \hline&#xA;3 &amp;amp; 4,3 &amp;amp; 4,4&amp;amp; 4,5&amp;amp;4,8&amp;amp;11,17&amp;amp;13,17&amp;amp;17,17&amp;amp;19,17\\ \hline&#xA; 5&amp;amp; 6,3 &amp;amp; 6,4&amp;amp; 6,6&amp;amp;6,8&amp;amp;11,15&amp;amp;13,15&amp;amp;17,15&amp;amp;19,15\\ \hline &#xA;7&amp;amp; 8,3 &amp;amp; 8,4&amp;amp; 8,6&amp;amp;7,7&amp;amp;11,13&amp;amp;13,13&amp;amp;17,13&amp;amp;19,13\\ \hline &#xA;11&amp;amp; 12,3 &amp;amp; 17,11&amp;amp; 15,11&amp;amp;13,11&amp;amp;11,11&amp;amp;13,9&amp;amp;17,9&amp;amp;19,9\\ \hline &#xA;13&amp;amp; 18,13 &amp;amp; 17,13&amp;amp; 15,13&amp;amp;13,13&amp;amp;9,13&amp;amp;13,13&amp;amp;17,7&amp;amp;19,7\\ \hline &#xA;17&amp;amp; 18,17 &amp;amp; 17,17&amp;amp; 15,17&amp;amp;13,17&amp;amp;9,17&amp;amp;7,17&amp;amp;17,17&amp;amp;19,3\\ \hline &#xA;19&amp;amp; 18,19 &amp;amp; 17,19&amp;amp; 15,19&amp;amp;13,19&amp;amp;9,19&amp;amp;7,19&amp;amp;3,19&amp;amp;19,19\\ \hline &#xA;\end{array}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Q2:There are strictly dominated strategies?&#xA;For the table, I think not. Is correct?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks!&lt;/p&gt;&#xA;" OwnerUserId="23094" LastEditorUserId="23094" LastEditDate="2019-05-08T14:29:16.420" LastActivityDate="2019-06-12T11:59:27.273" Title="Are there strictly dominated strategies?" Tags="&lt;game-theory&gt;&lt;dominant-strategy&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29204" PostTypeId="1" CreationDate="2019-05-08T15:33:34.363" Score="2" ViewCount="130" Body="&lt;p&gt;After the Second World War the new Labour government nationalised the Bank of England. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Did this give the British Government any new capabilities? For example, could the Government print money before this?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What was the purpose of this move?&lt;/p&gt;&#xA;" OwnerUserId="5505" LastEditorUserId="4988" LastEditDate="2019-05-09T23:09:47.077" LastActivityDate="2019-05-09T23:09:47.077" Title="Why was the Bank of England nationalized after World War 2?" Tags="&lt;banking&gt;&lt;united-kingdom&gt;" AnswerCount="0" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29205" PostTypeId="1" AcceptedAnswerId="29229" CreationDate="2019-05-08T16:20:58.093" Score="2" ViewCount="54" Body="&lt;p&gt;In 2011, household, financial, and business debts stood at 420% of GDP in the UK.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This doesn't sound like a very good state of affairs (am I wrong?).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If this is a negative state of affairs how did the UK arrive at such a position? Presumably someone in a position of governance monitors the macroeconomic state at all times. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If so, why was corrective action not taken at 200% (or whatever)?&lt;/p&gt;&#xA;" OwnerUserId="5505" LastActivityDate="2019-05-09T21:45:26.530" Title="How did the UK become so indebted?" Tags="&lt;debt&gt;&lt;united-kingdom&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29206" PostTypeId="1" CreationDate="2019-05-08T16:30:39.423" Score="1" ViewCount="52" Body="&lt;p&gt;The UK has run a current account deficit running into billions of GBP per annum since the turn of the century.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we apply the mindset of a household to the economy then clearly this would appear to be unsustainable. But presumably the household mindset does not exactly map onto a country's economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What macroeconomic strategy is this and why can the UK get away with this (or can't it)?&lt;/p&gt;&#xA;" OwnerUserId="5505" LastActivityDate="2019-07-06T20:47:17.833" Title="What is the economic strategy of the UK?" Tags="&lt;national-accounts&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29208" PostTypeId="1" CreationDate="2019-05-08T16:43:27.200" Score="1" ViewCount="226" Body="&lt;p&gt;Define the CES function &lt;span class=&quot;math-container&quot;&gt;$q : \mathbb R_+^n \to [0,1]$&lt;/span&gt; by&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{align}&#xA;q(x) = \left[\frac{1}{n}\sum_{j=1}^n{x_j^\frac{\sigma-1}{\sigma}}\right]^\frac{\sigma}{\sigma-1}&#xA;\end{align}&lt;/span&gt;&#xA;where &lt;span class=&quot;math-container&quot;&gt;$x \in \mathbb R_+^n$&lt;/span&gt; denote differentiated inputs, &lt;span class=&quot;math-container&quot;&gt;$\sigma \in \mathbb R_{++} \setminus \{1\} $&lt;/span&gt; the constant elasticty of substitution among inputs and &lt;span class=&quot;math-container&quot;&gt;$q(x)$&lt;/span&gt; a homogeneous output. Let &lt;span class=&quot;math-container&quot;&gt;$t \in \mathbb R_{++}^n$&lt;/span&gt; denote the input prices.&#xA;The input demand function solves&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{align}&#xA;x_i(t) &amp;amp;= \arg\max_{x_i}\{q(x)(1-q(x)) - t \cdot x\}\\&#xA;&amp;amp; = \frac{1}{2t_i^\sigma q(t^{-\sigma})}\left(1-\frac{n}{q(t^{-\sigma})^\frac{1}{\sigma}}\right)&#xA;\end{align}&lt;/span&gt;&#xA;where &lt;span class=&quot;math-container&quot;&gt;$q(t^{-\sigma}) = q(t_1^{-\sigma},\ldots,t_n^{-\sigma})$&lt;/span&gt; is given by&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{align}&#xA;q(t^{-\sigma}) = \left[\frac{1}{n}\sum_{j=1}^n{(t_j^{-\sigma})^\frac{\sigma-1}{\sigma}}\right]^\frac{\sigma}{\sigma-1} = \left[\frac{1}{n}\sum_{j=1}^n{t_j^{1-\sigma}}\right]^\frac{\sigma}{\sigma-1} \tag{1}&#xA;\end{align}&lt;/span&gt;&#xA;The cross price derivative reads&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{align}&#xA;\frac{\partial x_i(t)}{\partial t_j} = \frac{1}{2t_i^\sigma}\left(-q(t^{-\sigma})^{-2}\frac{\partial q(t^{-\sigma})}{\partial t_j}+n\left(\frac{1}{\sigma}+1\right)q(t^{-\sigma})^{-\frac{1}{\sigma}-2}\frac{\partial q(t^{-\sigma})}{\partial t_j}\right) \tag{2}&#xA;\end{align}&lt;/span&gt;&#xA;where the partial derivative of &lt;span class=&quot;math-container&quot;&gt;$(1)$&lt;/span&gt; is given by&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{align}&#xA;\frac{\partial q(t^{-\sigma})}{\partial t_j} = \frac{\sigma}{\sigma-1}\left[\frac{1}{n}\sum_{j=1}^n{t_j^{1-\sigma}}\right]^{\frac{\sigma}{\sigma-1}-1}\frac{1-\sigma}{n}t_j^{-\sigma} = -\frac{\sigma}{n}q(t^{-\sigma})^\frac{1}{\sigma}t_j^{-\sigma}&#xA;\end{align}&lt;/span&gt;&#xA;such that &lt;span class=&quot;math-container&quot;&gt;$(2)$&lt;/span&gt; becomes&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{align}&#xA;\frac{\partial x_i(t)}{\partial t_j} = \frac{1}{2t_i^\sigma t_j^\sigma q(t^{-\sigma})^2}\left(\frac{\sigma}{n}q(t^{-\sigma})^\frac{1}{\sigma} - 1 -\sigma\right).&#xA;\end{align}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In my application it turns out that the goods are complements for &lt;span class=&quot;math-container&quot;&gt;$\sigma &amp;lt; 1$&lt;/span&gt;, independent for &lt;span class=&quot;math-container&quot;&gt;$\sigma \to 1$&lt;/span&gt; and substitutes for &lt;span class=&quot;math-container&quot;&gt;$\sigma &amp;gt; 1$&lt;/span&gt;.&#xA;I cannot, however, verify this via the cross price derivative.&#xA;I thus want to show&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{align}&#xA;\frac{\partial x_i(t)}{\partial t_j}&#xA;\begin{cases}&#xA;&amp;lt;0\quad \text{for }\sigma &amp;lt; 1\\ &#xA;=0\quad \text{for }\sigma \to 1\\&#xA;&amp;gt;0\quad \text{for }\sigma &amp;gt; 1&#xA;\end{cases}&#xA;\end{align}&lt;/span&gt;&#xA;Does anyone has an idea how to approach the problem?&lt;/p&gt;&#xA;" OwnerUserId="4266" LastEditorUserId="14692" LastEditDate="2019-05-11T17:05:52.723" LastActivityDate="2019-05-11T17:05:52.723" Title="On complements and substitutes with a CES function" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;ces-function&gt;" AnswerCount="0" CommentCount="5" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29209" PostTypeId="1" CreationDate="2019-05-08T16:50:04.153" Score="1" ViewCount="21" Body="&lt;p&gt;Is foreign direct investment the principal route for funds directed offshore to return to a country?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, the UK has perpetual trade deficit. But the sterling sent overseas must make its way back into the UK economy at some point?&lt;/p&gt;&#xA;" OwnerUserId="5505" LastEditorUserId="5505" LastEditDate="2019-05-09T09:46:03.843" LastActivityDate="2019-05-09T09:46:03.843" Title="Is FDI the principal route for funds directed offshore to return to a country?" Tags="&lt;investment&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29212" PostTypeId="2" ParentId="25942" CreationDate="2019-05-08T18:56:01.193" Score="1" Body="&lt;p&gt;It all has to do with the yields of the bonds.&#xA;High bond prices = low yields. &#xA;Low bond prices = high yields. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the debt is narrowing (aka less debt), then that means investing in the bonds are safer. You do not get paid higher yields for safer investments. You get paid lower yields. So taking this into account, prices of bonds rise due to safer investments(because less debt), and bond yields go down.&#xA;Hope this helps.&lt;/p&gt;&#xA;" OwnerUserId="23072" LastActivityDate="2019-05-08T18:56:01.193" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29213" PostTypeId="2" ParentId="29203" CreationDate="2019-05-08T19:49:01.087" Score="1" Body="&lt;p&gt;I agree with Herr, the payoff matrix looks right. Also, there are no strictly dominated strategies because a strictly dominated strategy cannot be a best response for any possible belief. However, If any player believes that the other player is choosing 19, then every strategy (both pure and mixed) is a best response.&lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-05-08T19:49:01.087" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29214" PostTypeId="2" ParentId="29190" CreationDate="2019-05-08T21:45:54.650" Score="0" Body="&lt;p&gt;Based on the first and second number it seems that your investment has more costs than benefits, so if all those flows were to be brought to present value, the project will lose 200 Million. This is consistent with the fact that it has a negative return of &lt;span class=&quot;math-container&quot;&gt;$60\%$&lt;/span&gt; on average. However, the pay-back period makes no sense. I think that you probably just applied a formula and since on average you are losing money every period (&lt;span class=&quot;math-container&quot;&gt;$60\%$&lt;/span&gt;), being in this situation one less year is considered by the formula as making that money (instead of loosing it), hence &quot;the time that will take you to pay-back the investment&quot; is -4 years. You probably don't want to present that number, since this is not its natural interpretation, and instead say that the project is never paid back. &lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-05-08T21:45:54.650" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29215" PostTypeId="1" AcceptedAnswerId="29225" CreationDate="2019-05-08T21:58:17.103" Score="0" ViewCount="32" Body="&lt;p&gt;In order to achieve quantative tightening the US Government is letting debt expire and not renewing it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What does this actually mean in practice?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Presumably once money is made it is essentially impossible to remove it completely from supply?&lt;/p&gt;&#xA;" OwnerUserId="5505" LastActivityDate="2019-05-09T05:42:17.563" Title="How do you achieve quantative tightening?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="29216" PostTypeId="1" AcceptedAnswerId="29217" CreationDate="2019-05-08T22:17:26.913" Score="2" ViewCount="551" Body="&lt;p&gt;I need to derive the profit function for the following CES function: &lt;span class=&quot;math-container&quot;&gt;$$ f(z) = (\sqrt{z_{1}^{\rho} + z_{2}^{\rho}})^{1/ \rho}$$&lt;/span&gt; where &lt;span class=&quot;math-container&quot;&gt;$\rho \leq 1$&lt;/span&gt;. This is the answer that I am supposed to be getting: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If &lt;span class=&quot;math-container&quot;&gt;$ \rho &amp;lt;1$&lt;/span&gt; then&#xA;&lt;span class=&quot;math-container&quot;&gt;$$ \pi(w) = \begin{cases} &#xA;      \infty \;\;\;\;\; \text{if} &amp;amp; w_{1}^{\rho/(\rho -1)} + w_{2}^{\rho/(\rho -1)} &amp;lt;1 \\&#xA;      0 \;\;\;\;\; \text{if} &amp;amp; w_{1}^{\rho/(\rho -1)} + w_{2}^{\rho/(\rho -1)} &#xA; \geq 1\&#xA;   \end{cases}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If &lt;span class=&quot;math-container&quot;&gt;$\rho = 1$&lt;/span&gt;, then: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ \pi(w) = \begin{cases} &#xA;      0 &amp;amp; \text{if} \;\ Min\{w_{1},w_{2}\} \geq 1 \\&#xA;      \infty &amp;amp; \text{if} \;\; Min\{w_{1},w_{2}\} &amp;lt; 1 \\&#xA;   \end{cases}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Normally I simply use profit maximization or cost minimization FOCs to obtain the profit function, as well as the supply one. But I have been trying to get around this problem and I really cannot get around these results or (of particular importance) how to derive them. That being said any tips, intuition, or just help with the derivation if you're feeling particularly selfless would be greatly appreciated. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks in advance!&lt;/p&gt;&#xA;" OwnerUserId="21757" LastEditorUserId="21757" LastEditDate="2019-05-09T11:33:38.843" LastActivityDate="2020-06-05T15:10:57.417" Title="CES production function profit and supply function" Tags="&lt;production-function&gt;&lt;profit-maximization&gt;&lt;ces-function&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29217" PostTypeId="2" ParentId="29216" CreationDate="2019-05-08T23:16:47.013" Score="3" Body="&lt;p&gt;Hint: Solving for the FOC's assumes that the solution is interior, in this case, that profits are positive and smaller than &lt;span class=&quot;math-container&quot;&gt;$\infty$&lt;/span&gt;. I would recommend you to derive the cost function &lt;span class=&quot;math-container&quot;&gt;$c(y)$&lt;/span&gt; and then study its derivative. If the marginal cost is always smaller than the price of the good (probably it is assumed to be 1) then producing more is always better and profits are unbounded. However, if the marginal cost is always larger than the price, then the optimal is to produce nothing and get zero profits. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope this helps.&lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-05-08T23:16:47.013" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29218" PostTypeId="2" ParentId="29143" CreationDate="2019-05-09T00:34:24.000" Score="1" Body="&lt;p&gt;The increase in savings you described does happen, in the short-run. Remember, tho, investment and savings are flows. Accounting identities provide us truths about their ex-post behavior, not planned or desired savings. &lt;/p&gt;&#xA;" OwnerUserId="18167" LastActivityDate="2019-05-09T00:34:24.000" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29219" PostTypeId="1" CreationDate="2019-05-09T01:36:11.983" Score="2" ViewCount="58" Body="&lt;p&gt;The U.S. asked China to do this during the trade negotiations:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;China immediately will cease providing market-distorting subsidies and&#xA;  other types of government support that can contribute to the creation&#xA;  or maintenance of excess capacity in the industries targeted by the&#xA;  Made in China 2025 industrial plan;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;However, why does the U.S. think it's unfair? And also what would constitute fair subsidies since the U.S. is known to give massive subsidies to companies like Boeing and Ford? Is it me or were logic and fairness thrown completely out of the window during the U.S. trade negotiations?&lt;/p&gt;&#xA;" OwnerUserId="23098" LastActivityDate="2020-07-02T21:02:40.347" Title="According to the U.S., what constitutes as fair subsidies?" Tags="&lt;international-trade&gt;&lt;free-trade&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29221" PostTypeId="1" CreationDate="2019-05-09T02:31:56.883" Score="0" ViewCount="28" Body="&lt;p&gt;I would like to know intuitive and specific interpretation of LATE. &#xA;If all the assumptions for LATE is satisfied, we can say that the Instrument Variable (IV) has an effect to estimate X on Y. Also, LATE provides a consistent estimate of the average treatment effect &quot;only&quot; for a subgroup of the population (Compliers). It does not measure the effect of the treatment or everyone (ATE). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there more things to be added? Thanks in advance. &lt;/p&gt;&#xA;" OwnerUserId="23099" LastActivityDate="2019-05-09T02:31:56.883" Title="If all of LATE (Local Average Treatment Effect) assumptions is satisfied?" Tags="&lt;econometrics&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="29222" PostTypeId="1" CreationDate="2019-05-09T04:03:13.173" Score="1" ViewCount="41" Body="&lt;p&gt;This problem is  of Fernando Vega Redondo(Economics and the theory of games)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Exercise 2.1&lt;/strong&gt;&#xA;Let G be a game in strategic form. Prove that, for every player &#xA;&lt;span class=&quot;math-container&quot;&gt;$i\in N$&lt;/span&gt;, every mixted strategy &lt;span class=&quot;math-container&quot;&gt;$\sigma_{i}\in \Sigma_{i}$&lt;/span&gt; that assigns positive weight to a pure strategy &lt;span class=&quot;math-container&quot;&gt;$s_{i}\in S_{i}$&lt;/span&gt; that is dominated can be itself always be improved by another strategy &lt;span class=&quot;math-container&quot;&gt;$\sigma_{i}'$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is if &lt;span class=&quot;math-container&quot;&gt;$s_{i}\in S_{i}$&lt;/span&gt; is strongly dominated for some &lt;span class=&quot;math-container&quot;&gt;$\sigma_{i}$$\in \Sigma$&lt;/span&gt;&#xA;with &lt;span class=&quot;math-container&quot;&gt;$\sigma_{i}(s_{i})&amp;gt;0$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$\exists$&lt;/span&gt; &lt;span class=&quot;math-container&quot;&gt;$\sigma_{i}'\in \Sigma_{i}$&lt;/span&gt; such that &lt;span class=&quot;math-container&quot;&gt;$\forall$$s_{-i}\in S_{-i}$$: \pi_{i}(\sigma_{i}',s_{-i})&amp;gt;\pi_{i}(\sigma_{i},s_{-i})$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Q1: why they said that affirmation is obvious?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;*I would like to know if anyone could tell me how to build that mixed strategy that dominates that strategy that assigns positive probability, since it is not obvious to me.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks!&lt;/p&gt;&#xA;" OwnerUserId="23094" LastEditorUserId="14692" LastEditDate="2019-05-09T14:02:11.183" LastActivityDate="2019-05-09T14:02:11.183" Title="mixted strategy that assigns positive weight to a pure startegy that is dominated" Tags="&lt;game-theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29223" PostTypeId="2" ParentId="25903" CreationDate="2019-05-09T04:39:52.047" Score="1" Body="&lt;p&gt;The answer from the former Chair of the Federal Reserve is in a word: tradition.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.youtube.com/watch?v=2Dj9v9s9buk&quot; rel=&quot;nofollow noreferrer&quot;&gt;Chair Ben Bernanke testifying to the United States Senate.&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="6868" LastActivityDate="2019-05-09T04:39:52.047" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29224" PostTypeId="2" ParentId="29206" CreationDate="2019-05-09T05:23:39.703" Score="1" Body="&lt;p&gt;You are correct in saying that a household is not comparable to the U.K. or any other country. A household does not issue currency and bonds and typically cannot issue debt obligations that are good beyond, say, approximately 30 years. A person in a household can borrow for approximately 30 years to buy real estate but it would be difficult for that person to borrow for 100 years. Contrast this to the U.K. government which can easily borrow for 30 years and even beyond 100 years. I am reasonably sure the U.K. will collect taxes from people that haven't yet been born and it will collect taxes from companies that have not yet been founded so the value of a long maturity bond appears to be supportable. Likewise some existing U.K. companies and some that will exist in the future can sell long dated bonds.  Existing U.K. companies and those that will exist in the future will also be able to sell shares in their equity and the buyer usually has no right to sell them back to the company, ever. That could mean a long time. If the equity being sold to foreigners is land then that is sustainable only until the supply of land on the islands of the U.K. has been exhausted.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The money raised by Britons working to produce exports pays for most of the imports. Additional to that, the money raised by the U.K. government and U.K. companies selling bonds and shares can be used to buy imports as long as outsiders want to buy bonds and shares. That might be many years so it might be sustainable for a long time. I don't know if this is as much a directed or planned strategy as it is a result that spontaneously emerges from a multitude of foreigners simply wanting to own U.K. real estate and bonds and shares and the U.K. willing to sell those assets. Additional to that, the U.K. receives interest, principal repayment, and dividends from abroad. The sustainability of these depends upon the particulars. &lt;/p&gt;&#xA;" OwnerUserId="6868" LastEditorUserId="6868" LastEditDate="2019-07-06T20:47:17.833" LastActivityDate="2019-07-06T20:47:17.833" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29225" PostTypeId="2" ParentId="29215" CreationDate="2019-05-09T05:42:17.563" Score="1" Body="&lt;p&gt;When a U.S. Treasury bond matures the principle is repaid in money. If the owner of the bond is the Federal Reserve, it can reinvest the money in an asset like a U.S. Treasury bond. If the Federal Reserve wants to reduce the money supply the receipt of the money is coincident with a reduction in the account of the federal government. Since it is computerized they do not have to destroy any currency and coins; they change a number in a computer. &lt;/p&gt;&#xA;" OwnerUserId="6868" LastActivityDate="2019-05-09T05:42:17.563" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29226" PostTypeId="2" ParentId="29222" CreationDate="2019-05-09T06:15:30.063" Score="4" Body="&lt;p&gt;The &lt;strong&gt;short answer&lt;/strong&gt; is that a mixed strategy &lt;span class=&quot;math-container&quot;&gt;$\sigma_i$&lt;/span&gt; that uses with positive probability a dominated pure strategy &lt;span class=&quot;math-container&quot;&gt;$s_i$&lt;/span&gt; can always be improved by &lt;em&gt;excluding&lt;/em&gt; &lt;span class=&quot;math-container&quot;&gt;$s_i$&lt;/span&gt; from its mixing support and redistributing its &quot;probability weight&quot; to one of its dominating strategies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;More formally&lt;/strong&gt;, suppose that strategy &lt;span class=&quot;math-container&quot;&gt;$s_i'$&lt;/span&gt; dominates &lt;span class=&quot;math-container&quot;&gt;$s_i$&lt;/span&gt; (you can think of &lt;span class=&quot;math-container&quot;&gt;$s_i'$&lt;/span&gt; as a &lt;em&gt;pure&lt;/em&gt; or &lt;em&gt;mixed&lt;/em&gt; strategy itself, this does not make any difference for the argument; for simplicity I suppose &lt;span class=&quot;math-container&quot;&gt;$s_i'$&lt;/span&gt; is a pure strategy), that is &lt;span class=&quot;math-container&quot;&gt;$\forall s_{-i}\in S_{-i}: \pi(s_i',s_{-i})&amp;gt;\pi(s_i,s_{-i})$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, suppose that strategy &lt;span class=&quot;math-container&quot;&gt;$\sigma_i$&lt;/span&gt; plays strategy &lt;span class=&quot;math-container&quot;&gt;$s_i$&lt;/span&gt; with positive probability &lt;span class=&quot;math-container&quot;&gt;$p_{s_i}\in(0,1)$&lt;/span&gt;. Build strategy &lt;span class=&quot;math-container&quot;&gt;$\sigma_i'$&lt;/span&gt; as follows: identical to &lt;span class=&quot;math-container&quot;&gt;$\sigma_i$&lt;/span&gt; but replace &lt;span class=&quot;math-container&quot;&gt;$s_i$&lt;/span&gt; with &lt;span class=&quot;math-container&quot;&gt;$s_i'$&lt;/span&gt; , that is play &lt;span class=&quot;math-container&quot;&gt;$s_i$&lt;/span&gt; with probability 0 and play &lt;span class=&quot;math-container&quot;&gt;$s_i'$&lt;/span&gt; with (additional) probability &lt;span class=&quot;math-container&quot;&gt;$p_{s_i}$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By linearity of the payoff function you have, &lt;span class=&quot;math-container&quot;&gt;$\forall s_{-i}\in S_{-i}$&lt;/span&gt;:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\pi(\sigma_i',s_{-i})=p_{s_i}\pi(s_i',s_{-i}) + (1-p_{s_i})\pi(\Lambda_i,s_{-i}) &amp;gt; p_{s_i}\pi(s_i,s_{-i}) + (1-p_{s_i})\pi(\Lambda_i,s_{-i}) = \pi(\sigma_i,s_{-i})&#xA;$$&lt;/span&gt;&#xA;where &lt;span class=&quot;math-container&quot;&gt;$\Lambda_i$&lt;/span&gt;, loosely speaking, denotes the residual combination of strategies played in &lt;span class=&quot;math-container&quot;&gt;$\sigma_i$&lt;/span&gt;, apart from &lt;span class=&quot;math-container&quot;&gt;$s_i$&lt;/span&gt;, inherited by &lt;span class=&quot;math-container&quot;&gt;$\sigma_i'$&lt;/span&gt; too.&lt;/p&gt;&#xA;" OwnerUserId="14692" LastActivityDate="2019-05-09T06:15:30.063" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29228" PostTypeId="1" AcceptedAnswerId="29230" CreationDate="2019-05-09T08:03:04.720" Score="1" ViewCount="46" Body="&lt;p&gt;In order to finish a technological product, it was spent 50000 dollars (for materials, salary). 500 dollars per month is needed for support of the project (will be spend for servers). This product automated some process that required manual work for 10000 dollars per month. So, how to calculate payback period of the project? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My solution would be 50000:10000 = 5 month, but I don't know what to do with the cost of support per month. &lt;/p&gt;&#xA;" OwnerUserId="23104" LastActivityDate="2019-05-09T21:13:52.500" Title="How to calculate payback period of the project?" Tags="&lt;mathematical-economics&gt;&lt;investment&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29229" PostTypeId="2" ParentId="29205" CreationDate="2019-05-09T09:02:26.313" Score="1" Body="&lt;p&gt;A non-mainstream answer...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As &lt;a href=&quot;https://en.wikipedia.org/wiki/Steve_Keen&quot; rel=&quot;nofollow noreferrer&quot;&gt;Steve Keen&lt;/a&gt; is fond of pointing out, mainstream economists (incorrectly) think that the level of private debt has no macroeconomic effects so nobody was looking out for any unusual build up. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Keep in mind the following two facts:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Most private debt is in fact loans from banks - in other words&#xA;&lt;a href=&quot;https://en.wikipedia.org/wiki/Demand_deposit&quot; rel=&quot;nofollow noreferrer&quot;&gt;demand deposits&lt;/a&gt; - which are money. So when private debt rises,&#xA;the money supply grows.&lt;/li&gt;&#xA;&lt;li&gt;House prices are not properly reflected in standard measures of inflation.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;In the years running up to the crash of 2007/8, central banks were monitoring the level of inflation and adjusting interest rates so as to keep inflation low. There was a housing bubble which meant that house prices were rising relative to the price of everything else (i.e. stuff recorded in inflation measures). The housing boom meant that private debt (i.e. the money supply) was rising at around ten percent a year whilst inflation was running at around only two or three percent. Almost no mainstream economists thought that this was dangerous.&lt;/p&gt;&#xA;" OwnerUserId="5081" LastEditorUserId="5081" LastEditDate="2019-05-09T21:45:26.530" LastActivityDate="2019-05-09T21:45:26.530" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29230" PostTypeId="2" ParentId="29228" CreationDate="2019-05-09T09:39:40.233" Score="2" Body="&lt;p&gt;This is more finance than economics but here it is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The payback period is pretty much how much time you need to recover the initial investment. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Each month, you are saving 10000 - 500 = 9500.  Then you simply just divide 50000 by 9500. This comes out to be around 5. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I made some simplifying assumptions: Discount rate is 0. This is usually not true, so you would probably have to discount the cash flows. Note: This will probably involve monthly compounding. Check out the formula for annuity. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, just FYI: payback method often results in wrong decisions. When you have a choice, always use NPV.&lt;/p&gt;&#xA;" OwnerUserId="18674" LastEditorUserId="12186" LastEditDate="2019-05-09T20:24:54.703" LastActivityDate="2019-05-09T20:24:54.703" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29232" PostTypeId="2" ParentId="29205" CreationDate="2019-05-09T09:50:53.107" Score="0" Body="&lt;p&gt;Most countries hover around 100% of GDP or less in debt. Anything over that is pretty much considered bad. However, it really depends on why the debt increased. If it helps the economy more than the cost of interest than a lot of countries take such a huge amount of debt.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, it is harder than you think to repay debt. First, you have to pay interest. Second, funds are zero-sum. So if you use taxes to repay debt then you have to cut funding for something else. Considering the parliamentary system, the coalition may or may not have that much political capital to convince people that &quot;hey, we really need to pay that debt rather than providing healthcare, for instance.&quot; People like to pass on the responsibility of repayig to the next generation. Just one of the few reasons why you see countires take more and more debt. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope that helps.&lt;/p&gt;&#xA;" OwnerUserId="18674" LastActivityDate="2019-05-09T09:50:53.107" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29234" PostTypeId="2" ParentId="29219" CreationDate="2019-05-09T10:02:44.657" Score="0" Body="&lt;p&gt;China has a lot of problems protecting companies' trade secrets and sometimes providing globally-agreed-unfair subsidies. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A country should subsidize a company or industry &lt;strong&gt;temporarily&lt;/strong&gt; to provide a niche to grow. However, this should not make the market uncompetitive. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is no clear answer, but if government subsidy favors a company and makes it almost impossible for anyone in the industry to compete then it would be considered unfair. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ex. Providing a company subsidy to develop a 5G network. This is good since there is no outstanding infrastructure. This promotes innovation and opens up a field to compete in.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ex. Providing a company subsidy to weed out international competitors for the sake of promoting national companies. This drives down the competition and is considered bad. &lt;/p&gt;&#xA;" OwnerUserId="18674" LastActivityDate="2019-05-09T10:02:44.657" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29235" PostTypeId="2" ParentId="29198" CreationDate="2019-05-09T10:07:43.473" Score="0" Body="&lt;p&gt;A company makes decisions that have positive NPV. No list will ever be completely exhaustive since obligations are not necessarily zero-sum.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How do you increase profits for the shareholders? Mostly by taking care of the customers. How do you win customers? One way is to portray your company as environmentally friendly. This, in turn, helps the (wo)mankind and the nation. Do you see how it all pretty much ties together?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course, for a given company, one thing may be more important than the other.&lt;/p&gt;&#xA;" OwnerUserId="18674" LastActivityDate="2019-05-09T10:07:43.473" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="29237" PostTypeId="1" AcceptedAnswerId="29240" CreationDate="2019-05-09T12:44:41.067" Score="4" ViewCount="198" Body="&lt;p&gt;I would like your help to understand the definition of &lt;strong&gt;obedience&lt;/strong&gt; in an incomplete information game at p.7 of &lt;a href=&quot;http://www.princeton.edu/~smorris/pdfs/bce.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;this&lt;/a&gt; paper.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Let me summarise the definition provided in the paper. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are &lt;span class=&quot;math-container&quot;&gt;$N\in \mathbb{N}$&lt;/span&gt; players, with &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; denoting a generic player.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is a finite set of states &lt;span class=&quot;math-container&quot;&gt;$\Theta$&lt;/span&gt;, with &lt;span class=&quot;math-container&quot;&gt;$\theta$&lt;/span&gt; denoting a generic state. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A basic game &lt;span class=&quot;math-container&quot;&gt;$G$&lt;/span&gt; consists of&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;for each player &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;, a finite set of actions &lt;span class=&quot;math-container&quot;&gt;$A_i$&lt;/span&gt;, where we write &lt;span class=&quot;math-container&quot;&gt;$A\equiv A_1\times A_2\times ... \times A_N$&lt;/span&gt;, and a utility function &lt;span class=&quot;math-container&quot;&gt;$u_i: A\times \Theta \rightarrow \mathbb{R}$&lt;/span&gt;.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;a full support prior &lt;span class=&quot;math-container&quot;&gt;$\psi\in \Delta(\Theta)$&lt;/span&gt;.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;An information structure &lt;span class=&quot;math-container&quot;&gt;$S$&lt;/span&gt; consists of&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;for each player &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;, a finite set of signals &lt;span class=&quot;math-container&quot;&gt;$T_i$&lt;/span&gt;, where we write &lt;span class=&quot;math-container&quot;&gt;$T\equiv T_1\times T_2\times ... \times T_N$&lt;/span&gt;.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;a signal distribution &lt;span class=&quot;math-container&quot;&gt;$\pi: \Theta \rightarrow \Delta(T)$&lt;/span&gt;.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;A decision rule of the incomplete information game &lt;span class=&quot;math-container&quot;&gt;$(G,S)$&lt;/span&gt; is a mapping &#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\sigma: T\times \Theta\rightarrow \Delta(A)&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One way to mechanically understand the notion of the decision rule is to view &lt;span class=&quot;math-container&quot;&gt;$\sigma$&lt;/span&gt; as the strategy of an omniscient mediator who first observes the realization &lt;span class=&quot;math-container&quot;&gt;$\theta\in \Theta$&lt;/span&gt;  chosen according to &lt;span class=&quot;math-container&quot;&gt;$\psi$&lt;/span&gt; and the realization &lt;span class=&quot;math-container&quot;&gt;$t\in T$&lt;/span&gt; chosen according to &lt;span class=&quot;math-container&quot;&gt;$\pi(\cdot|\theta)$&lt;/span&gt;; and then picks a probability distribution from &lt;span class=&quot;math-container&quot;&gt;$\Delta(A)$&lt;/span&gt;, and privately announces to each player &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;, her lottery to play.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For players to have an incentive to follow the mediator's recommendation in this scenario, it would have to be the case that the recommended lottery was always preferred to any other lottery&#xA;conditional on the signal &lt;span class=&quot;math-container&quot;&gt;$t_i$&lt;/span&gt; that player &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; had received. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is reflected in the following &quot;obedience&quot; condition.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Definition:&lt;/strong&gt; The decision rule &lt;span class=&quot;math-container&quot;&gt;$\sigma$&lt;/span&gt; is obedient for &lt;span class=&quot;math-container&quot;&gt;$(G,S)$&lt;/span&gt; if, for each &lt;span class=&quot;math-container&quot;&gt;$i=1,...,N$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$t_i\in T_i$&lt;/span&gt;, and &lt;span class=&quot;math-container&quot;&gt;$a_i\in A_i$&lt;/span&gt;, we have&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\sum_{a_{-i}, t_{-i}, \theta} \psi(\theta) \pi(t_i,t_{-i}| \theta) \sigma(a_i, a_{-i}|t_i, t_{-i}, \theta) u_i(a_i, a_{-i},\theta)&#xA;$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\geq &#xA;\sum_{a_{-i}, t_{-i}, \theta} \psi(\theta) \pi(t_i,t_{-i}| \theta) \sigma(a_i, a_{-i}|t_i, t_{-i}, \theta) u_i(\tilde{a}_i, a_{-i},\theta)&#xA;$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$\forall \tilde{a}_i\in A_i$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My question:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't understand fully the LHS (or, equivalently, the RHS) expression&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\sum_{a_{-i}, t_{-i}, \theta} \psi(\theta) \pi(t_i,t_{-i}| \theta) \sigma(a_i, a_{-i}|t_i, t_{-i}, \theta) u_i(a_i, a_{-i},\theta)$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Saying it in words, this is the sum over &lt;span class=&quot;math-container&quot;&gt;$A_{-i}, T_{-i}, \Theta$&lt;/span&gt; of&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\text{[Prob that the mediator observes $(\theta, t)$]}\times\\&#xA;\text{[Prob that the mediator suggests players to play $a$ under $\sigma$,  given that he observes $(\theta, t)$]}\times\\&#xA;\text{[Profit that player $i$ gets from obeying the mediator, given that the other players obey too]}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let the product just written be denoted by &lt;span class=&quot;math-container&quot;&gt;$(\star)$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why in the second component of &lt;span class=&quot;math-container&quot;&gt;$(\star)$&lt;/span&gt; we &lt;strong&gt;DO NOT&lt;/strong&gt; condition on &lt;span class=&quot;math-container&quot;&gt;$a_i$&lt;/span&gt; by taking&lt;br&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\text{[Prob that the mediator suggests the other players to play $a_{-i}$ under $\sigma$, given that he observes $(\theta, t)$ and given that he suggests player $i$ to play $a_i$]}&#xA;$$&lt;/span&gt;&#xA;in place of &#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\text{[Prob that the mediator suggests players to play $a$ under $\sigma$,  given that he observes $(\theta, t)$]}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="1505" LastEditorUserId="8595" LastEditDate="2019-05-09T16:21:45.630" LastActivityDate="2019-05-09T16:21:45.630" Title="Bayes Correlated Equilibrium: obedience" Tags="&lt;game-theory&gt;&lt;bayesian-game&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29238" PostTypeId="1" AcceptedAnswerId="29242" CreationDate="2019-05-09T14:44:05.440" Score="2" ViewCount="22" Body="&lt;p&gt;Estimating how much of physical goods a somehow typical person or household owns today (say in the Western world, compared to former times) is not so easy I guess, but there is one single number that might tell it: the typical weight/volume per person that is transported when moving a house. (This gives not the number, kind and economic value of physical goods, but only their cumulated weight/volume, but that would be OK for me for the moment.) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Removal companies know these numbers, and I wonder if they are available somewhere,  broken down by country, state or other region of the world, and of course broken down by time. (Of course the numbers from removal companies tell only about people who can afford to hire a removal company, but that would be OK for me for the moment, too.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would find it astonishing if these numbers had not grown significantly in the last decades, but I'm open to any answer. (For example, modern people might decide to dispose many of their physical goods before moving, and re-buy them at their new location. This would be interesting in its own right.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the approach via removal companies is not found sensible: Which statistics could you recommend alternatively? What about homeowner's insurances? Or are there official detailed statistics available, say for the U.S., Europe or e.g. Germany?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(If this forum is not the right one to ask such questions: Which one would you recommend?)&lt;/p&gt;&#xA;" OwnerUserId="22991" LastActivityDate="2019-05-09T17:08:35.273" Title="Physical goods in a typical household" Tags="&lt;econometrics&gt;&lt;data-request&gt;&lt;time-series&gt;&lt;consumption&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29240" PostTypeId="2" ParentId="29237" CreationDate="2019-05-09T15:33:03.267" Score="4" Body="&lt;p&gt;To understand the &quot;Obedience&quot; inequality, notice that the player is &quot;integrating out&quot; everything that she is uncertain about, this is why the sum runs over the actions of other players, &lt;span class=&quot;math-container&quot;&gt;$a_{-i}$&lt;/span&gt;, the types of other players, &lt;span class=&quot;math-container&quot;&gt;$t_{-i}$&lt;/span&gt;, and the state of the world, &lt;span class=&quot;math-container&quot;&gt;$\theta$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first term simply gives the probability that the mediator observed &lt;span class=&quot;math-container&quot;&gt;$\theta$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the second term, note that it is proportional to the conditional probability of the other players being of type &lt;span class=&quot;math-container&quot;&gt;$t_{-i}$&lt;/span&gt; when you are of type &lt;span class=&quot;math-container&quot;&gt;$t_i$&lt;/span&gt; since &lt;span class=&quot;math-container&quot;&gt;$\pi(t_{-i}|t_i,\theta)=\frac{\pi(t_i,t_{-i}|\theta)}{\sum_{t_{-i}}\pi(t_i,t_{-i}|\theta)}$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Similarly for the third term, you probably expected there to see the conditional probability &lt;span class=&quot;math-container&quot;&gt;$\sigma(a_{-i}|a_i,t_i,t_{-i},\theta)$&lt;/span&gt;, but this term is proportional to &lt;span class=&quot;math-container&quot;&gt;$\sigma(a_i, a_{-i}|t_i,t_{-i},\theta)$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Technically speaking the agent should multiply his payoff by the probability that others play &lt;span class=&quot;math-container&quot;&gt;$a_{-i}$&lt;/span&gt;, are of type &lt;span class=&quot;math-container&quot;&gt;$t_{-i}$&lt;/span&gt; and the state is &lt;span class=&quot;math-container&quot;&gt;$\theta$&lt;/span&gt; conditional on being told to play &lt;span class=&quot;math-container&quot;&gt;$a_i$&lt;/span&gt; when being of type &lt;span class=&quot;math-container&quot;&gt;$t_i$&lt;/span&gt;, so the LHS should read:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\sum_{a_{-i}\in A_{-i}, t_{-i}\in T_{-i}, \theta\in\Theta}u_i((a_i,a_{-i}),\theta) \frac{\sigma((a_i,a_{-i})|(t_i,t_{-i}),\theta)\pi((t_i,t_{-i})|\theta)\psi(\theta)}{\sum_{a'_{-i}\in A_{-i}, t'_{-i}\in T_{-i}, \theta'\in\Theta}\sigma((a_i,a'_{-i})|(t_i,t'_{-i}),\theta')\pi((t_i,t'_{-i})|\theta')\psi(\theta')}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And the RHS will be identical except for replacing &lt;span class=&quot;math-container&quot;&gt;$a_i$&lt;/span&gt; with &lt;span class=&quot;math-container&quot;&gt;$\tilde a_i$&lt;/span&gt; in the utility function. Clearly, the denominator is constant over the sum and so can be simplified. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note: In previous versions on the paper the authors were more explicit about this derivation. &lt;/p&gt;&#xA;" OwnerUserId="21827" LastEditorUserId="21827" LastEditDate="2019-05-09T16:04:38.357" LastActivityDate="2019-05-09T16:04:38.357" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29241" PostTypeId="1" AcceptedAnswerId="29244" CreationDate="2019-05-09T16:11:31.110" Score="1" ViewCount="204" Body="&lt;p&gt;I would like your help to understand the concept of information structure in the incomplete information game at p.6-7 of &lt;a href=&quot;http://www.princeton.edu/~smorris/pdfs/bce.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;this&lt;/a&gt; paper.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Let me summarise the game as described in the paper. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are &lt;span class=&quot;math-container&quot;&gt;$N\in \mathbb{N}$&lt;/span&gt; players, with &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; denoting a generic player.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is a finite set of states &lt;span class=&quot;math-container&quot;&gt;$\Theta$&lt;/span&gt;, with &lt;span class=&quot;math-container&quot;&gt;$\theta$&lt;/span&gt; denoting a generic state. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A basic game &lt;span class=&quot;math-container&quot;&gt;$G$&lt;/span&gt; consists of&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;for each player &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;, a finite set of actions &lt;span class=&quot;math-container&quot;&gt;$A_i$&lt;/span&gt;, where we write &lt;span class=&quot;math-container&quot;&gt;$A\equiv A_1\times A_2\times ... \times A_N$&lt;/span&gt;, and a utility function &lt;span class=&quot;math-container&quot;&gt;$u_i: A\times \Theta \rightarrow \mathbb{R}$&lt;/span&gt;.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;a full support prior &lt;span class=&quot;math-container&quot;&gt;$\psi\in \Delta(\Theta)$&lt;/span&gt;.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;An information structure &lt;span class=&quot;math-container&quot;&gt;$S$&lt;/span&gt; consists of&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;for each player &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;, a finite set of signals &lt;span class=&quot;math-container&quot;&gt;$T_i$&lt;/span&gt;, where we write &lt;span class=&quot;math-container&quot;&gt;$T\equiv T_1\times T_2\times ... \times T_N$&lt;/span&gt;.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;a signal distribution &lt;span class=&quot;math-container&quot;&gt;$\pi: \Theta \rightarrow \Delta(T)$&lt;/span&gt;.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;A decision rule of the incomplete information game &lt;span class=&quot;math-container&quot;&gt;$(G,S)$&lt;/span&gt; is a mapping &#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\sigma: T\times \Theta\rightarrow \Delta(A)&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My question:&lt;/strong&gt;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I interpret &lt;span class=&quot;math-container&quot;&gt;$\pi(t|\theta)$&lt;/span&gt; as a probability that, conditional on the realisation &lt;span class=&quot;math-container&quot;&gt;$\theta$&lt;/span&gt; of the state, the players receive as signals &lt;span class=&quot;math-container&quot;&gt;$t_1,...,t_N$&lt;/span&gt;, respectively. According to the given information structure, signals are more or less informative.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If this interpretation is correct, then I'm confused about the first sentence at p.7 of the linked paper: &quot;If there is complete information, i.e., if &lt;span class=&quot;math-container&quot;&gt;$\Theta$&lt;/span&gt; is singleton, [...]&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My first guess was that complete information is characterised by specifying &lt;span class=&quot;math-container&quot;&gt;$S$&lt;/span&gt; and not by restricting the support of the state. In other words, I thought that complete information corresponds to the information structure &lt;span class=&quot;math-container&quot;&gt;$\bar{S}\equiv (\bar{T},\bar{\pi})$&lt;/span&gt; such that&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;for each player &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$\bar{T}_i=\Theta$&lt;/span&gt;.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\bar{\pi}(\theta|\theta)=1$&lt;/span&gt;.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Where am I wrong? Why the author defines complete information as having &lt;span class=&quot;math-container&quot;&gt;$|\Theta|=1$&lt;/span&gt;?&lt;/p&gt;&#xA;" OwnerUserId="1505" LastEditorUserId="8595" LastEditDate="2019-05-22T17:36:11.760" LastActivityDate="2020-06-11T16:22:14.170" Title="The concept of information structure in incomplete information games" Tags="&lt;game-theory&gt;&lt;bayesian-game&gt;" AnswerCount="3" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="29242" PostTypeId="2" ParentId="29238" CreationDate="2019-05-09T17:00:56.620" Score="2" Body="&lt;p&gt;Those are some good starting points but I would refrain from using them as the end result. There are some fatal logical jumps in your example.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Moving house: A good one to use. If I were to guess, I think the ratio should have decreased due to tech. For example, we don't have those huge t.v. nowadays. No desktops for the most part. However, be careful about how wealth plays a role. Also, people moving into cities of California would be very different than of Colorado.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think a better indicator would be the consumption category of GDP. Especially durable goods. You can find detailed numbers by year, state, category on the official website.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I hope that helps.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;References:&#xA;&lt;a href=&quot;https://www.bea.gov/data/by-place-us&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.bea.gov/data/by-place-us&lt;/a&gt;&#xA;&lt;a href=&quot;https://de.wikipedia.org/wiki/Bruttoinlandsprodukt&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://de.wikipedia.org/wiki/Bruttoinlandsprodukt&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="18674" LastEditorUserId="18674" LastEditDate="2019-05-09T17:08:35.273" LastActivityDate="2019-05-09T17:08:35.273" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="29243" PostTypeId="2" ParentId="29241" CreationDate="2019-05-09T17:14:13.463" Score="2" Body="&lt;p&gt;What you are defining is the complete information structure &lt;span class=&quot;math-container&quot;&gt;$\bar{S}$&lt;/span&gt; with &lt;span class=&quot;math-container&quot;&gt;$\bar{T}_{i}=\Theta$&lt;/span&gt; for all &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; and  &lt;span class=&quot;math-container&quot;&gt;$$ \bar{\pi}(t|\theta) = \begin{cases} \ 1, &amp;amp; \text{if} \;\; t_{i}= \theta \text{ for all} \; i \\ 0, &amp;amp; \text{otherwise}, \end{cases} $$&lt;/span&gt; for all &lt;span class=&quot;math-container&quot;&gt;$\theta \in \Theta$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that this is not the same as the case in which &lt;span class=&quot;math-container&quot;&gt;$\Theta$&lt;/span&gt; is a singleton, but it is rather an extreme information structure. The same authors define this &lt;a href=&quot;https://cpb-us-w2.wpmucdn.com/campuspress.yale.edu/dist/3/352/files/2015/06/bce-4feb13sm-with-graphs-22vwdvb.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; (Bayes Correlated Equilibrium and the Comparison of Information Structures - Bergemann &amp;amp; Morris), it beats me why they didn't include this detail in the paper you are looking at. &lt;/p&gt;&#xA;" OwnerUserId="21757" LastActivityDate="2019-05-09T17:14:13.463" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29244" PostTypeId="2" ParentId="29241" CreationDate="2019-05-09T17:18:39.123" Score="2" Body="&lt;p&gt;The two formulations are equivalent in the sense that if every type of player always learns the state of the world, there is no uncertainty and there is really no need to carry around the realized state as a variable. By assuming &lt;span class=&quot;math-container&quot;&gt;$|\Theta|=1$&lt;/span&gt; you simplify the notation without losing generality (of course you lose some information, but this is irrelevant for the purposes of that paper). If you want, you can assume that the authors' statements are true state-by-state. &lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-05-09T17:18:39.123" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29245" PostTypeId="2" ParentId="29191" CreationDate="2019-05-09T17:21:30.737" Score="-1" Body="&lt;p&gt;You have the right intuition.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, 1% is usually the real interest rate. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Real interest rate = nominal interest rate - inflation&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, you are actually, usually, paying a 3% annual rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If that is not the case, your question does not specify if 1% is nominal or real, then just having inflation of x% does not mean that you are increasing your wealth my that much each year. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Example: Inflation is 10%. The best investment opportunity provides a return of 0.5%. By the end of the year, I am still losing 9.5% of my wealth. But does that mean that I should not invest at all? If I don't then I will lose 10% which is wrose.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I hope that helps.&lt;/p&gt;&#xA;" OwnerUserId="18674" LastActivityDate="2019-05-09T17:21:30.737" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29246" PostTypeId="1" AcceptedAnswerId="29247" CreationDate="2019-05-09T17:29:02.557" Score="4" ViewCount="82" Body="&lt;p&gt;I would like your help to understand the concept of &lt;strong&gt;expansion of an information structure&lt;/strong&gt; in the incomplete information game at p.6-9 &lt;a href=&quot;http://www.princeton.edu/~smorris/pdfs/bce.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;this&lt;/a&gt; paper.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Let me summarise the game as described in the paper. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are &lt;span class=&quot;math-container&quot;&gt;$N\in \mathbb{N}$&lt;/span&gt; players, with &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; denoting a generic player.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is a finite set of states &lt;span class=&quot;math-container&quot;&gt;$\Theta$&lt;/span&gt;, with &lt;span class=&quot;math-container&quot;&gt;$\theta$&lt;/span&gt; denoting a generic state. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A basic game &lt;span class=&quot;math-container&quot;&gt;$G$&lt;/span&gt; consists of&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;for each player &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;, a finite set of actions &lt;span class=&quot;math-container&quot;&gt;$A_i$&lt;/span&gt;, where we write &lt;span class=&quot;math-container&quot;&gt;$A\equiv A_1\times A_2\times ... \times A_N$&lt;/span&gt;, and a utility function &lt;span class=&quot;math-container&quot;&gt;$u_i: A\times \Theta \rightarrow \mathbb{R}$&lt;/span&gt;.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;a full support prior &lt;span class=&quot;math-container&quot;&gt;$\psi\in \Delta(\Theta)$&lt;/span&gt;.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;An information structure &lt;span class=&quot;math-container&quot;&gt;$S$&lt;/span&gt; consists of&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;for each player &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;, a finite set of signals &lt;span class=&quot;math-container&quot;&gt;$T_i$&lt;/span&gt;, where we write &lt;span class=&quot;math-container&quot;&gt;$T\equiv T_1\times T_2\times ... \times T_N$&lt;/span&gt;.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;a signal distribution &lt;span class=&quot;math-container&quot;&gt;$\pi: \Theta \rightarrow \Delta(T)$&lt;/span&gt;.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;A decision rule of the incomplete information game &lt;span class=&quot;math-container&quot;&gt;$(G,S)$&lt;/span&gt; is a mapping &#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\sigma: T\times \Theta\rightarrow \Delta(A)&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Expansion:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider two information structures, &lt;span class=&quot;math-container&quot;&gt;$S^1\equiv (T^1, \pi^1)$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$S^2\equiv (T^2, \pi^2)$&lt;/span&gt;. We say that &lt;span class=&quot;math-container&quot;&gt;$S^*\equiv (T^*, \pi^*)$&lt;/span&gt; is a combination of &lt;span class=&quot;math-container&quot;&gt;$S^1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$S^2$&lt;/span&gt; if &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$T_i^*=T_i^1\times T_i^2$&lt;/span&gt; &lt;span class=&quot;math-container&quot;&gt;$\forall i$&lt;/span&gt;.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\pi^*:\Theta \rightarrow \Delta(T^1\times T^2)$&lt;/span&gt; has &lt;span class=&quot;math-container&quot;&gt;$\pi^1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\pi^2$&lt;/span&gt; as marginals. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;An information structure &lt;span class=&quot;math-container&quot;&gt;$S^*$&lt;/span&gt; is an expansion of an information structure &lt;span class=&quot;math-container&quot;&gt;$S^1$&lt;/span&gt; if there exists an information structure &lt;span class=&quot;math-container&quot;&gt;$S^2$&lt;/span&gt; such that &lt;span class=&quot;math-container&quot;&gt;$S^*$&lt;/span&gt; is a combination of &lt;span class=&quot;math-container&quot;&gt;$S^1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$S^2$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My question:&lt;/strong&gt;  &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;The game, as it is described by the authors, seems to assume that, before receiving the signal &lt;span class=&quot;math-container&quot;&gt;$T_i$&lt;/span&gt;, each player &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; knows &lt;strong&gt;nothing&lt;/strong&gt; about what will be the realisation of the state. I call this as the &lt;strong&gt;baseline level of information&lt;/strong&gt; assumed. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(For example, in other contexts, one may assume that the state is a vector of size &lt;span class=&quot;math-container&quot;&gt;$N\times 1$&lt;/span&gt; and,  before receiving the signal &lt;span class=&quot;math-container&quot;&gt;$T_i$&lt;/span&gt;, each player &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; knows the realisation of the &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;th component of such a vector. This would correspond to another kind of baseline level of information)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Let &lt;span class=&quot;math-container&quot;&gt;$\underline{S}$&lt;/span&gt; denote the information structure that is totally uninformative, i.e., it does not add anything to the baseline level of information assumed (also called DEGENERATE at p.26 of the linked paper). In other words, &lt;span class=&quot;math-container&quot;&gt;$\underline{S}$&lt;/span&gt; consists of &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(a) for each player &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;, a finite set of signals &lt;span class=&quot;math-container&quot;&gt;$T_i$&lt;/span&gt;, where we write &#xA;&lt;span class=&quot;math-container&quot;&gt;$T\equiv T_1\times T_2\times ... \times T_N$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(b) a signal distribution &lt;span class=&quot;math-container&quot;&gt;$\pi: \Theta \rightarrow \Delta(T)$&lt;/span&gt; such that &lt;span class=&quot;math-container&quot;&gt;$\pi(\cdot|\theta)=\tilde{\pi}$&lt;/span&gt; &lt;span class=&quot;math-container&quot;&gt;$\forall \theta \in \Theta$&lt;/span&gt; for some &lt;span class=&quot;math-container&quot;&gt;$\tilde{\pi}\in \Delta(T)$&lt;/span&gt;. In other words, the conditional probability is equal to the unconditional one and our belief on the probability distribution of the state is not updated. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Notice that there are &lt;strong&gt;many&lt;/strong&gt; ways to characterise the uninformative information structure (just by varying &lt;span class=&quot;math-container&quot;&gt;$T$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\tilde{\pi}$&lt;/span&gt;).&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Let &lt;span class=&quot;math-container&quot;&gt;$\mathcal{S}$&lt;/span&gt; denote the &lt;strong&gt;collection of all possible information structures&lt;/strong&gt;. More precisely,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\mathcal{S}\equiv \{S| T \text{ is a separable metric space}, \text{ $\pi:\Theta \rightarrow \Delta(T)$ is a probability measure on $(T,\mathcal{B}(T))$}\}&#xA;$$&lt;/span&gt;&#xA;where &lt;span class=&quot;math-container&quot;&gt;$\mathcal{B}(\cdot)$&lt;/span&gt; denotes Borel sigma algebra.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that &lt;span class=&quot;math-container&quot;&gt;$\mathcal{S}$&lt;/span&gt; contains all possible ways to characterise the uninformative information structure. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;Question:&lt;/strong&gt; Can we show that, for a given &lt;span class=&quot;math-container&quot;&gt;$\underline{S}$&lt;/span&gt;, each &lt;span class=&quot;math-container&quot;&gt;$S\in \mathcal{S}$&lt;/span&gt; is an expansion of &lt;span class=&quot;math-container&quot;&gt;$\underline{S}$&lt;/span&gt; (including &lt;span class=&quot;math-container&quot;&gt;$S=\underline{S}$&lt;/span&gt;)? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This seems to me to hold at the light of Theorem 1 combined with reading at p.26 of the paper &quot;&lt;em&gt;Now consider the case where the original information structure is degenerate (there is only one signal&#xA;which represents the prior over the states of the world). In this case, the set of Bayes correlated equilibria&#xA;correspond to joint distributions of actions and states that could arise under rational choice by a decision&#xA;maker with &lt;strong&gt;any&lt;/strong&gt; information structure&lt;/em&gt;&quot;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="1505" LastEditorUserId="8595" LastEditDate="2019-05-22T17:36:25.737" LastActivityDate="2019-05-22T17:36:25.737" Title="The concept of expansion of an information structure" Tags="&lt;game-theory&gt;&lt;bayesian-game&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29247" PostTypeId="2" ParentId="29246" CreationDate="2019-05-09T21:00:10.990" Score="3" Body="&lt;p&gt;You have to be careful what you can say is that if &lt;span class=&quot;math-container&quot;&gt;$\underline{S}$&lt;/span&gt; be given by &lt;span class=&quot;math-container&quot;&gt;$(T^1,\pi^1)$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$S$&lt;/span&gt; is any information structure, say given by &lt;span class=&quot;math-container&quot;&gt;$(T^2,\pi^2)$&lt;/span&gt;, then there exists an expansion &lt;span class=&quot;math-container&quot;&gt;$S^*$&lt;/span&gt; of &lt;span class=&quot;math-container&quot;&gt;$\underline S$&lt;/span&gt; given by &lt;span class=&quot;math-container&quot;&gt;$(T^1\times T^2, \pi^1\cdot \pi^2)$&lt;/span&gt; where &lt;span class=&quot;math-container&quot;&gt;$\pi^1\cdot \pi^2$&lt;/span&gt; is the product distribution of &lt;span class=&quot;math-container&quot;&gt;$\pi^1$&lt;/span&gt; and  &lt;span class=&quot;math-container&quot;&gt;$\pi^2$&lt;/span&gt;. Note that I have constructed the expansion, thus shown its existence.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The information structures, &lt;span class=&quot;math-container&quot;&gt;$S$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$S^*$&lt;/span&gt; are different since their support is in different spaces, &lt;span class=&quot;math-container&quot;&gt;$T^2$&lt;/span&gt; vs &lt;span class=&quot;math-container&quot;&gt;$T^1\times T^2$&lt;/span&gt;. However, they are informationally equivalent. The equivalence here is in terms of the distribution of posterior beliefs induced by &lt;span class=&quot;math-container&quot;&gt;$S$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$S^*$&lt;/span&gt;. Alternatively, if &lt;span class=&quot;math-container&quot;&gt;$\succsim$&lt;/span&gt; is the Blackwell partial order, then &lt;span class=&quot;math-container&quot;&gt;$S\succsim S^*$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$S^*\succsim S$&lt;/span&gt;. Your intuition, however, is correct, any information structure will be &quot;essentially&quot; an expansion of &lt;span class=&quot;math-container&quot;&gt;$\underline S$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-05-09T21:00:10.990" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29248" PostTypeId="2" ParentId="29228" CreationDate="2019-05-09T21:13:52.500" Score="1" Body="&lt;p&gt;Your cost today is &lt;span class=&quot;math-container&quot;&gt;$50,000$&lt;/span&gt; and your inflows in the future are &lt;span class=&quot;math-container&quot;&gt;$10,000$&lt;/span&gt; in savings, minus &lt;span class=&quot;math-container&quot;&gt;$500$&lt;/span&gt; in maintenance cost, so in total &lt;span class=&quot;math-container&quot;&gt;$9,500$&lt;/span&gt; of inflow. However money today is more valuable than money tomorrow, and this is captured by the interest rate lets suppose the interest rate is &lt;span class=&quot;math-container&quot;&gt;$r^*$&lt;/span&gt; (typically given annually) so let's transform it into a monthly rate &lt;span class=&quot;math-container&quot;&gt;$r=r^*/12$&lt;/span&gt;, then the payback period is the amount of periods &lt;span class=&quot;math-container&quot;&gt;$t$&lt;/span&gt; (here everything will be monthly, so &lt;span class=&quot;math-container&quot;&gt;$t$&lt;/span&gt; months) such that the present value of the cost equal the present value of the inflows in the future:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$50,000=\frac{9,500}{r}\left[1-\frac{1}{(1+r)^t}\right]$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Clearly, to solve for &lt;span class=&quot;math-container&quot;&gt;$t$&lt;/span&gt; you need to know &lt;span class=&quot;math-container&quot;&gt;$r$&lt;/span&gt;. The solution is probably pretty close to 5.3 months since monthly interest rates are usually very low and assuming &lt;span class=&quot;math-container&quot;&gt;$r=0$&lt;/span&gt; you get that result. (of course the formula does not work for &lt;span class=&quot;math-container&quot;&gt;$r=0$&lt;/span&gt;, but as mentioned before, in that case &lt;span class=&quot;math-container&quot;&gt;$t=50,000/9,500$&lt;/span&gt;).&lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-05-09T21:13:52.500" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29249" PostTypeId="1" AcceptedAnswerId="29250" CreationDate="2019-05-09T21:31:17.173" Score="2" ViewCount="42" Body="&lt;p&gt;For example, if I have an equation&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;y = \beta_0 + \beta_1 x_1 + \beta_2 x_2 + u&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where &lt;span class=&quot;math-container&quot;&gt;$x_1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$x_2$&lt;/span&gt; are simultaneously determined, say&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;x_1 = \gamma_0 + \gamma_1 x_2 + \gamma_2 z_1 + e&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;x_2 = \delta_0 + \delta_1 x_1 + \delta_2 z_2 + v&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Should I estimate using 2SLS or is this effect already contained when adding both variables to the main regression?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The concrete example I was thinking was for tax collection and drug cartels in Mexico:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;collection = \beta_0 + \beta_1 cartel_{memebers}+ \beta_2 GDP{per \  capita} + u&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where the presence of drug cartels negatively affects GDP but cartels choose to settle on richer towns.&lt;/p&gt;&#xA;" OwnerUserId="5174" LastEditorUserId="5174" LastEditDate="2019-05-10T03:18:29.583" LastActivityDate="2019-10-07T05:02:30.327" Title="Does it matter if there's simultaneous determination between two dependent variables?" Tags="&lt;econometrics&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="29250" PostTypeId="2" ParentId="29249" CreationDate="2019-05-09T22:42:47.457" Score="1" Body="&lt;p&gt;In your concrete example, I think 2SLS is something worth considering because the error term &lt;em&gt;u&lt;/em&gt; (of &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt;, i.e. of tax collection) is plausible in theory to be affected by presence of cartels in ways that make it more unreliable in reporting (e.g. via increased corruption). Of course you can/should test this &lt;a href=&quot;https://en.wikipedia.org/wiki/Endogeneity_(econometrics)&quot; rel=&quot;nofollow noreferrer&quot;&gt;endogeneity&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="6210" LastActivityDate="2019-05-09T22:42:47.457" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29251" PostTypeId="1" AcceptedAnswerId="29263" CreationDate="2019-05-10T00:00:09.667" Score="2" ViewCount="33" Body="&lt;p&gt;If I understand correctly, for a small country, whose supply chains needs to be transnational, protectionism introduces market inefficiency such that even unilaterally removing tariffs would be preferable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But are there any circumstances where a small country would benefit economically from a protectionist tax policy?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If for example the whole world placed high tariffs on all goods and services from a country, would this make a protectionist policy desireable?&lt;/p&gt;&#xA;" OwnerUserId="5505" LastActivityDate="2019-05-10T14:17:30.780" Title="Protectionism and smaller countries" Tags="&lt;taxation&gt;&lt;tariffs&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29252" PostTypeId="1" CreationDate="2019-05-10T02:58:37.613" Score="1" ViewCount="16" Body="&lt;p&gt;I'm not too sure if the question makes much sense, but let's assume that you get a job offer in SF, and in order to accept, you basically have to sign a 6- or 12-month contract for rent in order to be close enough to the place of employment, where the rent for a 1-bedroom apartment in SF is currently at an average rate of 3.6k/month (e.g., some 2.5k/month more than the rest of the country), whereas your relocation and signup bonus may or may not cover all such rent for the whole 6-months of the minimum lease term.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Realistically, with the employment being at-will, you can be fired at any time, including even before your first day at work — companies fail, projects and requirements change, folks move on, decision makers get questioned — happens all the time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this sample scenario, would it be correct to refer to the rent in question as an example of an &lt;strong&gt;&lt;em&gt;unfunded liability&lt;/em&gt;&lt;/strong&gt;, or partially funded if it's not fully covered by the relocation and signup bonus allowance?  Why or why not?  If not, what is it then?  When does the liability become funded or unfunded?  Does it only become unfunded only if the job is lost, or is it always unfunded if there aren't enough money in the bank account to cover the liability?  And if it is unfunded, at what point does it become funded?&lt;/p&gt;&#xA;" OwnerUserId="4552" LastActivityDate="2019-05-10T02:58:37.613" Title="Is rent on a relocation — an example of unfunded liability?" Tags="&lt;finance&gt;&lt;definition&gt;&lt;housing&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29253" PostTypeId="1" AcceptedAnswerId="29295" CreationDate="2019-05-10T04:00:44.467" Score="3" ViewCount="242" Body="&lt;p&gt;I'm sure most of you are familiar with the paper titled &quot;Bayesian Persuasion&quot; by Kamenica and Gentzkow (2011), (you can find it &lt;a href=&quot;http://faculty.chicagobooth.edu/emir.kamenica/documents/bayesianPersuasion.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I was wondering what are your thoughts as to why it is called &quot;Bayesian&quot;? I understand that the receiver creates posteriors using Bayes rule, but this is true for any standard model of incomplete information. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A related question is what is the one minute explanation you would give to describe this framework to people who are not familiar with it? Say people who know the cheap-talk literature fairly well, for example. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've tried a couple of things, with mixed results. I'm happy to discuss my ideas, but I would appreciate hearing some fresh perspective first.  Thank you.&lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-05-12T20:10:38.750" Title="Why is it called Bayesian Persuasion?" Tags="&lt;bayesian-game&gt;&lt;soft-question&gt;&lt;definition&gt;&lt;information&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29254" PostTypeId="1" CreationDate="2019-05-10T04:16:06.223" Score="-1" ViewCount="42" Body="&lt;p&gt;Where can I obtain data on hobbies of CEOs of S&amp;amp;P 500 companies?&lt;/p&gt;&#xA;" OwnerUserId="23113" LastEditorUserId="11590" LastEditDate="2019-05-10T11:51:50.820" LastActivityDate="2019-10-07T19:00:45.063" Title="Ceo hobbies and company stock price index in S&amp;P 500" Tags="&lt;scientific-method&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="29255" PostTypeId="1" AcceptedAnswerId="29264" CreationDate="2019-05-10T09:00:19.363" Score="1" ViewCount="29" Body="&lt;p&gt;Here I want to focus primarily on the potential benefits of labor market reforms such as a reduction in job security and trade union power and not their controversies. I wish to learn a few thoroughly explored reasons for how labor market reforms may decrease structural unemployment and increase the productive potential of the economy through improvement in efficiency.&lt;/p&gt;&#xA;" OwnerUserId="23068" LastActivityDate="2019-05-10T14:37:59.450" Title="How exactly does removing labor​ market rigidities reduce structural unemployment and increase potential output in an economy?" Tags="&lt;labor-economics&gt;&lt;economic-growth&gt;&lt;efficient-markets&gt;&lt;natural-rate-unemployment&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29256" PostTypeId="1" CreationDate="2019-05-10T09:19:17.143" Score="2" ViewCount="22" Body="&lt;p&gt;I was just wondering as a science major, science can be done through inductive reasoning at first by trying to gather examples and information through observation then coming to general conclusion or hypothesis on this observation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I believe that in Economics, they also have similar tools to come up with various theories which govern how our economy functions. But towards more behavioral economics, how would one test the hypothesis? Unlike natural sciences, we needs to test on human behavior, but how can one formulate predictions and testify the hypothesis if human trials are not available to a large extent?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words, how good are human sciences (such as economics) when formulating theories and coming to making predictions unlike the natural sciences? &lt;/p&gt;&#xA;" OwnerUserId="23114" LastActivityDate="2019-05-10T11:22:55.510" Title="Economics and formulating predictions" Tags="&lt;prediction&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29258" PostTypeId="1" AcceptedAnswerId="29262" CreationDate="2019-05-10T10:02:34.327" Score="2" ViewCount="129" Body="&lt;p&gt;I have wondered about the following diagram:&lt;/p&gt;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/I7nVT.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/I7nVT.png&quot; alt=&quot;Amount-Price-Diagram&quot; /&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&lt;p&gt;which shows a relationship between Price (Preis) and quantity (Menge). The supply (Angebot) curve is rising with the amount; the demand (Nachfrage) is decreasing.&lt;/p&gt;&#xA;&lt;p&gt;As a guy with some mathematical intuition, I am wondering about many things here:&lt;/p&gt;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;My teacher told me I could only read from price to quantity. Since we are speaking of bijectives functions; this is wrong.&lt;/li&gt;&#xA;&lt;li&gt;If someone is willing to buy 1 billion &amp;quot;Goods&amp;quot;, and my production cost is lower than what he offers - I will produce 1 billion &amp;quot;Goods&amp;quot; for them (assuming that I can) after I tried to get a better price - since I will make a profit after all. Therefore this diagram makes no sense; the amount the producer offers is only determined by the production cost, the production ability and the demand of the goods. The producer will always try to satisfy all demands as long as they make a profit. Naturally, they will try to bargain about the price and sell to the highest bidder in the first place.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&lt;p&gt;So how do you explain this?&lt;/p&gt;&#xA;" OwnerUserId="23116" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2019-05-10T16:30:21.203" Title="Is the price-quantity diagram fundamentally wrong?" Tags="&lt;consumer-theory&gt;&lt;price-theory&gt;" AnswerCount="3" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29259" PostTypeId="2" ParentId="29258" CreationDate="2019-05-10T11:12:31.357" Score="0" Body="&lt;p&gt;(1) If you are only looking on the graphic, then your remark is absolutely correct. However, your teacher knows how the graphic was derived, and under this background your teacher was also correct with the quoted statement. Behind the graphic some optimization problems of a representative firm and household are hidden. Since your teacher read the graphic from price to quantity, the decision variable of the firm is the price, otherwise it would be the quantity. Firms can compete on price or quantity. Thus, the supply curve of the firm is derived from the technology set, and the demand curve of the consumer from the preference set.   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(2) Concerning your second statement, we have to recognize that at the equilibrium, the price is equal to the marginal cost, that is, the last firm that enters the market makes no profit. Or to put it differently, the last unit sold in the market generates no surplus to the firm. Similar for the last consumer who enters the market has no surplus in his utility or to state it again differently, a consumer can not generate a surplus from consuming the last unit. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, the surplus of a firm associated with a given level of production is given by &lt;span class=&quot;math-container&quot;&gt;$PS(x):=p\cdot x - c(x)$&lt;/span&gt;, this implies in order to get the whole producer's surplus you have to take the integral within interval from zero to the equilibrium quantity. Analogously, for the consumer's surplus that is associated to a certain level of goods, which is given by &lt;span class=&quot;math-container&quot;&gt;$CS(x)=u(x)- p\cdot x$&lt;/span&gt;, here &lt;span class=&quot;math-container&quot;&gt;$u(x)$&lt;/span&gt; is the utility level of the consumer at level &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we interpret the graphic as you did, then there is nevertheless no bargain about the price and no competition on the first place in the market. Since, at the first place enters the firm that produces the good with lowest cost, then enters the firm with second lowest and so on till we reach the firm where the marginal cost is just equal to the equilibrium price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I hope that will clarify the facts. &lt;/p&gt;&#xA;" OwnerUserId="23117" LastActivityDate="2019-05-10T11:12:31.357" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29260" PostTypeId="2" ParentId="29256" CreationDate="2019-05-10T11:22:55.510" Score="4" Body="&lt;p&gt;That's a big one. I'm trying without claiming to be near exhaustive.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The fundamental challenge for social sciences, as you rightly point out, is the absence of carrying out experimental designs on a large scale. Introducing a minimum wage in one half a country and not so in the other half would fail because of e.g. equity concerns (why would you advantage certain workers?) or external effects (firms moving from one region to the other, differential effects on trade).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On a small scale though, you might certainly be able to run experiments which might inform you on the large scale. An example would be random assignment in school to different pedagogical approaches. Tracking students over longer period of time might yield insights on how changing things might turn out on a larger scale.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Having said that, Economics, as widely understood by the public, deals with question on the large scale. The traditional approach to those question is to set up mathematical models which describe the behavior of economic actors. These models are not fundamentally different to what natural sciences refer to as laws (...of motion, of energy conservation).  The difference is that social models do not (and cannot) claim their general validity and their reliability about the mechanism proposed. These models have been (and still are) derived from assumptions on individual (firms, households) or collective behavior (price mechanism). It is these assumptions which can be tested. They often have been tested with macro-scale regression analysis, such as explaining GDP growth by development aid to test effectiveness of those programs. While this is still done, at the research frontier such findings are by and large ignored.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Instead, Economics has undergone a so-called &lt;a href=&quot;https://www.aeaweb.org/articles?id=10.1257/jep.24.2.3&quot; rel=&quot;nofollow noreferrer&quot;&gt;Credibility Revolution&lt;/a&gt;. In a nutshell, this entails the development and application of &lt;strong&gt;quasi-experimental&lt;/strong&gt; methods which try to imitate the experimental ideal from natural sciences. If your question at hand is not feasible for a field experiment, you may look for settings where there is exogenous variation in a treatment variable that allows you identify its effect on a outcome variable of interest. There are numerous examples for this, also cited in the linked paper. One of the most famous ones is &lt;a href=&quot;https://www.nber.org/papers/w4509&quot; rel=&quot;nofollow noreferrer&quot;&gt;the comparison of increasing the minimum wage in one of two similar U.S. states&lt;/a&gt;. Exogenous variation may be geographic (compare two similar cities across a country border) or over time (a sudden reform that was not anticipated), to name just two. Nowadays, Empirical Economics tries to exploit these kind of variations with large-scale data on the micro level (the firm, the household, the individual) to come up with causal estimates on specific settings. If their findings can be confirmed by other settings, consensus on certain mechanism emerges, which might then be used to inform large scale theories. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To answer your question rightaway: Economists are not nearly as good as natural sciences regarding to the empirical basis of their theories, but they have greatly improved. On a more fundamental note, economic &quot;laws&quot; can never match the universality of natural science laws, as it's human behavior underneath.&lt;/p&gt;&#xA;" OwnerUserId="17735" LastActivityDate="2019-05-10T11:22:55.510" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29262" PostTypeId="2" ParentId="29258" CreationDate="2019-05-10T13:53:09.573" Score="5" Body="&lt;p&gt;The graph you've depicted is just very generic &lt;a href=&quot;https://en.wikipedia.org/wiki/Supply_and_demand&quot; rel=&quot;noreferrer&quot;&gt;supply and demand&lt;/a&gt; intersection, under the generic/introductory assumption that an equilibrium price exists. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Even at this level of abstraction, the demand curve is perfectly flat for a price taker, so it's not always the case that those two functions (supply or demand) are always a bijection between price and quantity. That should address some of your confusion/question (1).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Furthermore, some introductory econ texts are bad at explaining that even a this level of abstraction, the market and an individual firm may have completely different price-quantity graphs; the graph you've shown is valid for a competitive market as a whole, but not for individual producers in it. Here's standard &lt;a href=&quot;http://www.otaru-uc.ac.jp/~yamamoto/files/Jun_13.pdf&quot; rel=&quot;noreferrer&quot;&gt;textbook slide&lt;/a&gt; of the better variety, which does make this distinction.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/nWJXH.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/nWJXH.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Demand curve faced by an individual firm&#xA;  is a horizontal line&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Each firm is so small that its sales have no&#xA;  effect on market price. As a result, each&#xA;  regards market price as given.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Demand curve faced by whole market is&#xA;  downward sloping&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Shows amount of goods all consumers will&#xA;  purchase at different prices&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Your main question (2) involves a production cost, which does not appear depicted anywhere on that graph. The production cost isn't necessarily the same thing as the producers' price-output curve.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Even in the case where the market consists of only one supplier (a monopoly), so when the (producer) firm and industry graphs coincide, one needs to plot additional functions for the &lt;a href=&quot;https://en.wikipedia.org/wiki/Marginal_cost&quot; rel=&quot;noreferrer&quot;&gt;marginal return and marginal cost&lt;/a&gt; to start talking about profits. Even in this case, the discussion &lt;a href=&quot;https://www.macmillanlearning.com/catalog/static/worth/goolsbeepreview/images/goolsbee1e_ch10.pdf&quot; rel=&quot;noreferrer&quot;&gt;isn't trivial&lt;/a&gt;, e.g. it depends whether the monopoly can engage in price discrimination (sell to different consumers at different prices).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/dZrqW.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/dZrqW.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for your specific scenario in (2):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;If someone is willing to buy 1 billion &quot;Goods&quot;, and my production cost is lower than what he offers - I will produce 1 billion &quot;Goods&quot; for them (assuming that I can) after I tried to get a better price - since I will make a profit after all.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This is closer to a how a price-taking producer (aka perfect-competition producer) optimizes output. Remember from the first diagram, that the demand from its perspective is flat, so that entails a linear total revenue (or, equivalently, a constant marginal revenue):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/tUtw2.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/tUtw2.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that the demand isn't even included in this graph except implicitly as the slope of the total revenue. However, since it follows that in order to maximize profits MC = MR = P (again under the perfect competition assumption), then the marginal cost is equal to the externally set price (for a price-taking producer), so the intersection of the price (demand) and MC gives the quantity:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/PKYbJ.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/PKYbJ.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="6210" LastEditorUserId="6210" LastEditDate="2019-05-10T15:22:38.593" LastActivityDate="2019-05-10T15:22:38.593" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="29263" PostTypeId="2" ParentId="29251" CreationDate="2019-05-10T14:17:30.780" Score="4" Body="&lt;p&gt;There are sometimes cases where protectionist trade policies are a good thing. (note this is a big debate, so a bit of bias here). &#xA;Lets look at an example to make it clear...&#xA;Suppose I'm country A and you are country B.&#xA;I'm a small country, you are a large one.&#xA;My country is 100% agriculture based. Your country is completely diverse and strong in all sectors. &#xA;My country realizes it is time to diversify and become more integrated into the global economy/market. Instead of just agriculture based products, my country wants to also sell computer monitors.&#xA;Here is where the problem occurs, if my country just starts producing computer monitors and try's to sell them, people will just continue to buy your countries computer monitors because they are better quality and probably cheaper in price due to comparative advantage. So now what? What must my country do to compete with yours, and grow? Well if my country makes your products more expensive, (aka a tariff) less people will buy your monitors and more people will buy mine (only in my country). This would allow my computer monitor(tech) sector to grow on it's own, without a big bully competitor(your country in this scenario) forcing me out before I even get started. &#xA;Over time once my tech sector has grown enough to compete with yours, I would lower/get rid of the tariffs and be better off.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope this helps you understand.&lt;/p&gt;&#xA;" OwnerUserId="23072" LastActivityDate="2019-05-10T14:17:30.780" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="29264" PostTypeId="2" ParentId="29255" CreationDate="2019-05-10T14:37:59.450" Score="1" Body="&lt;p&gt;Potential benefits of labor market reforms such as a reduction in job security and trade union power:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To find the answer to a reduction in job security, just apply it to your personal life(assuming you are employed). If labor market reform comes in and puts my job at risk, I would become more competitive and work harder in order to keep my job. This reaction would apply to &lt;em&gt;most&lt;/em&gt; people. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for a reduction in union power, this is more macro scale oriented. What unions don't realize is that financially they are hurting themselves &amp;amp; their company, albeit ethically/morally/quality of life at work they are gaining. So to keep things short and not go too far into controversial topics regarding unions, if union power is &lt;em&gt;reduced&lt;/em&gt;, then market efficiency would &lt;em&gt;increase&lt;/em&gt; from a financial standpoint not only for the firm, but for the macro economy and thus the employees. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for structural unemployment, if there are market reforms structural unemployment will almost always rise in the beginning, but usually fall back down and most times dip even lower than previous levels due to efficiency gains from adapting to the reforms. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope this helps, I know it's not as detailed as you probably want it to be, but for that level of detail one must get into the controversial topics and pick a bias. &lt;/p&gt;&#xA;" OwnerUserId="23072" LastActivityDate="2019-05-10T14:37:59.450" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29265" PostTypeId="2" ParentId="29258" CreationDate="2019-05-10T14:58:58.383" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;My teacher told me I could only read from price to quantity. Since we are speaking of bijectives functions; this is wrong.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It is true that a mathematical bijection can be read both ways. Both directions (demand function and inverse demand function) are used in exposition in different economic models. However, that does not mean what the graph is trying to convey is equally conveniently readable both ways, and we often think of this direction in terms of some &quot;causal&quot; relationship. The model of competitive market generally portrays consumers and producers as price takers, that is, they observe what the price is and choose the quantity (to consume or produce) that optimise their objectives. Reading from price to quantity has apparent economic intuition: if X is more expensive, then consumers want to consume less X.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;If someone is willing to buy 1 billion &quot;Goods&quot;, and my production cost is lower than what he offers - I will produce 1 billion &quot;Goods&quot; for them (assuming that I can) after I tried to get a better price - since I will make a profit after all. Therefore this diagram makes no sense; the amount the producer offers is only determined by the production cost, the production ability and the demand of the goods. The producer will always try to satisfy all demands as long as they make a profit. Naturally, they will try to bargain about the price and sell to the highest bidder in the first place. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;First, one specific part where I think your understanding of the graph says is wrong is &quot;the amount the producer offers is only determined by [...] &lt;strong&gt;the demand of the goods&lt;/strong&gt;&quot;. The demand of the good has no bearing on the supply curve. The question that the supply curve asks is: if the the producers can sell the good at the price P per unit, how many will they want to produce/sell? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What the graph (which represents &quot;the law of supply&quot;) says is, if the price is higher, the producer is willing to produce/sell more. Intuitively, using your example, if it is feasible and optimal for you to sell one billion units of X at the price of €1 each, then you are probably willing to sell those one billion units of X at €2 each. Thus, how many units of goods you are willing to sell is non-decreasing in the price.&lt;/p&gt;&#xA;" OwnerUserId="8371" LastActivityDate="2019-05-10T14:58:58.383" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29266" PostTypeId="2" ParentId="29254" CreationDate="2019-05-10T17:56:04.100" Score="0" Body="&lt;p&gt;Here:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://hbr.org/2018/10/why-ceos-devote-so-much-time-to-their-hobbies&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://hbr.org/2018/10/why-ceos-devote-so-much-time-to-their-hobbies&lt;/a&gt;&#xA;&lt;a href=&quot;https://www.businessinsider.com/hobbies-successful-people-2017-2&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.businessinsider.com/hobbies-successful-people-2017-2&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You will have to use Google Scholar for primary research.&lt;/p&gt;&#xA;" OwnerUserId="18674" LastActivityDate="2019-05-10T17:56:04.100" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29268" PostTypeId="2" ParentId="24946" CreationDate="2019-05-10T19:09:55.917" Score="2" Body="&lt;p&gt;In general the statement is &lt;strong&gt;wrong&lt;/strong&gt;. Here is a counterexample:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose you have &lt;span class=&quot;math-container&quot;&gt;$f(k,l) = -k l^\beta$&lt;/span&gt; with &lt;span class=&quot;math-container&quot;&gt;$\beta &amp;gt;0$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$(k,l)\in\mathbb{R}^2_{++}$&lt;/span&gt; (you can interpret &lt;span class=&quot;math-container&quot;&gt;$f$&lt;/span&gt; as a production function for a &quot;&lt;em&gt;bad&lt;/em&gt;&quot; commodity). Then you have:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$f(tk,tl) = - t^{1+\beta} k l^\beta = t^{1+\beta} f(k,l) &amp;lt; t f(k,l)$$&lt;/span&gt;&#xA;so that &lt;span class=&quot;math-container&quot;&gt;$f(k,l)$&lt;/span&gt; is decreasing returns to scale. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now let's evaluate &lt;span class=&quot;math-container&quot;&gt;$ f_{ll}f_{kk} - f^2_{kl} $&lt;/span&gt;. Since &lt;span class=&quot;math-container&quot;&gt;$f$&lt;/span&gt; is linear in &lt;span class=&quot;math-container&quot;&gt;$k$&lt;/span&gt; we have that &lt;span class=&quot;math-container&quot;&gt;$f_{kk}$&lt;/span&gt; is zero, so it is &lt;span class=&quot;math-container&quot;&gt;$ f_{ll}f_{kk}$&lt;/span&gt;.  On the other hand, we have &lt;span class=&quot;math-container&quot;&gt;$f_{kl} = -\beta l^{\beta-1}$&lt;/span&gt; so that overall we have:&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;f_{ll}f_{kk} - f^2_{kl} = 0 - \left[ -\beta l^{\beta-1} \right]^2 = - \beta^2 l^{2(\beta -1)} &amp;lt;0&#xA;\end{equation}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So then, &lt;strong&gt;where is the trick&lt;/strong&gt;?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The fact is that &lt;span class=&quot;math-container&quot;&gt;$ f_{ll}f_{kk} - f^2_{kl} &amp;gt; 0$&lt;/span&gt; is &lt;strong&gt;not a sufficient condition&lt;/strong&gt; to conclude that the hessian of &lt;span class=&quot;math-container&quot;&gt;$f(k,l)$&lt;/span&gt; is negative semi-definite and so &lt;span class=&quot;math-container&quot;&gt;$f$&lt;/span&gt; is concave because you also have to impose restrictions on the sign of the principal minor of order 1 of the hessian matrix.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, provided the hessian matrix is indeed negative semi-defintie than you conclude &lt;span class=&quot;math-container&quot;&gt;$f$&lt;/span&gt; is concave and decreasing returns to scale will follow, the statement then holds.&lt;/p&gt;&#xA;" OwnerUserId="14692" LastActivityDate="2019-05-10T19:09:55.917" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29269" PostTypeId="2" ParentId="24946" CreationDate="2019-05-10T19:10:27.010" Score="1" Body="&lt;p&gt;We examine the function &lt;span class=&quot;math-container&quot;&gt;$F(K,L)$&lt;/span&gt; that is homogeneous of degree &lt;span class=&quot;math-container&quot;&gt;$\lambda &amp;lt; 1$&lt;/span&gt;. Then we have that its partial derivatives are homogeneous of degree &lt;span class=&quot;math-container&quot;&gt;$\lambda -1 $&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a homogeneous function &lt;span class=&quot;math-container&quot;&gt;$F(K,L)$&lt;/span&gt; of degree &lt;span class=&quot;math-container&quot;&gt;$\lambda$&lt;/span&gt; it holds that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$K\cdot F_K + L\cdot F_L = \lambda \cdot F(K,L)  \tag{1}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Analogously for the partial derivatives we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$F_L:\;K\cdot F_{LK} + L\cdot F_{LL} = (\lambda -1)F_L &amp;lt;0 \implies K\cdot F_{LK} &amp;lt; -L\cdot F_{LL} \tag{2} $$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$F_K: L\cdot F_{KL} + K\cdot F_{KK} = (\lambda -1)F_K &amp;lt;0 \implies L\cdot F_{KL} &amp;lt; -K\cdot F_{KK} \tag{3} $$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;If&lt;/em&gt; the cross-partial is non-negative then &lt;em&gt;necessarily&lt;/em&gt; the second partials are negative, and also both sides in the inequalities above are positive. Then multiplying per side we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$K\cdot F_{LK} \cdot L\cdot F_{KL} &amp;lt; L\cdot (-F_{LL}) \cdot K\cdot (-F_{KK})$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\implies F_{KK}\cdot F_{LL} &amp;gt; F^2_{KL}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So a &lt;em&gt;sufficient&lt;/em&gt; condition for (joint) concavity of a production function in two variables that exhibits decreasing returns to scale, is that the cross-partial derivative is non-negative. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that this sufficient condition related to the cross-partial guarantees also the &quot;first step&quot; for joint concavity, namely, that the second-order partials are negative (they alone provide for partial concavity of the production function).&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2019-05-10T19:31:11.087" LastActivityDate="2019-05-10T19:31:11.087" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29271" PostTypeId="1" CreationDate="2019-05-10T22:56:01.657" Score="1" ViewCount="22" Body="&lt;p&gt;I need some help in designing an economics experiment to test the IIA axiom. My understanding of it is if you rank A above B then if you introduce C or D, you must still always rank A above B in any order.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The experiment should be cheap to run and it needs treatment and control variables.&lt;/p&gt;&#xA;" OwnerUserId="23120" LastEditorUserId="23120" LastEditDate="2019-05-10T23:03:14.010" LastActivityDate="2019-05-10T23:03:14.010" Title="What experiment could I run in order to test the 'Independence of Irrelevant Alternatives' axiom?" Tags="&lt;mathematical-economics&gt;&lt;behavioral-economics&gt;&lt;experimental-economics&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29272" PostTypeId="1" AcceptedAnswerId="29302" CreationDate="2019-05-11T09:04:21.720" Score="3" ViewCount="72" Body="&lt;p&gt;This is from Hopkins and Kornienko (2010). In this model, &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; is investments, &lt;span class=&quot;math-container&quot;&gt;$s$&lt;/span&gt; is status, and &lt;span class=&quot;math-container&quot;&gt;$y=z-x$&lt;/span&gt; is leisure, where &lt;span class=&quot;math-container&quot;&gt;$z$&lt;/span&gt; is endowments. &lt;span class=&quot;math-container&quot;&gt;$x(r)$&lt;/span&gt; is the optimal investment, and the relative investments determine the status in the model. Here they characterize the agent with the rank, &lt;span class=&quot;math-container&quot;&gt;$r$&lt;/span&gt;, and derive the reduced form utility. But, I am not quite sure about how the envelope theorem works here. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I differentiate &lt;span class=&quot;math-container&quot;&gt;$U(r)$&lt;/span&gt; with respect to &lt;span class=&quot;math-container&quot;&gt;$r$&lt;/span&gt; and suppress the arguments, I have that&#xA;&lt;span class=&quot;math-container&quot;&gt;$$U_x x' + U_y(y'-x') + U_s s'.$$&lt;/span&gt;&#xA;I know that &lt;span class=&quot;math-container&quot;&gt;$Z'(r) = \frac{1}{g(Z(r))}$&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$g$&lt;/span&gt; is the density of &lt;span class=&quot;math-container&quot;&gt;$z$&lt;/span&gt;. This implies that the first term and third term and &lt;span class=&quot;math-container&quot;&gt;$U_yx'$&lt;/span&gt; turn out to be zero to make the above equation equal to Equation (8). My understanding is that &lt;span class=&quot;math-container&quot;&gt;$U_x = U_s = 0$&lt;/span&gt; since &lt;span class=&quot;math-container&quot;&gt;$x(r)$&lt;/span&gt; is the optimal investment. But, I don't know how to explain the elimination of &lt;span class=&quot;math-container&quot;&gt;$U_yx'$&lt;/span&gt;. Can anyone give me some help? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/uPsyM.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/uPsyM.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="17957" LastEditorUserId="11590" LastEditDate="2019-05-13T14:11:39.883" LastActivityDate="2019-05-13T18:48:43.437" Title="Envelope Theorem in Hopkins and Kornienko (2010)" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;theory&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29274" PostTypeId="2" ParentId="27660" CreationDate="2019-05-11T11:40:01.690" Score="1" Body="&lt;p&gt;Just adding in a couple points.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;“Broad” money supply definitions typically include non-bank finance, and the notion of “capital requirements” will not really apply to those actors.&lt;/li&gt;&#xA;&lt;li&gt;Even if regulators let banks do whatever they want, most banks have some notion of self-preservation. Their balance sheet expansion is limited by their ability to find &lt;em&gt;credit-worthy&lt;/em&gt; customers who &lt;em&gt;want to borrow&lt;/em&gt;. Since such customers (by definition) want to avoid default, lending growth is constrained by the non-financial sectors repayment capacity and risk tolerance.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2019-05-11T11:40:01.690" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29276" PostTypeId="2" ParentId="25387" CreationDate="2019-05-11T11:52:28.370" Score="-2" Body="&lt;p&gt;&lt;em&gt;&lt;strong&gt;UPDATE 6/18/2020&lt;/strong&gt;&lt;/em&gt;&lt;/p&gt;&#xA;&lt;p&gt;The below answer contains some interesting concepts and ideas, but is overall pretty flawed and does not reflect the MMT view of inflation. I'm going to leave the answer untouched, but am providing the much more accurate answers and sources (each is a Twitter therad):&lt;/p&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://twitter.com/mmtresources/status/1188950819326091264?s=21&quot; rel=&quot;nofollow noreferrer&quot;&gt;What inflation is NOT&lt;/a&gt;.&lt;/li&gt;&#xA;&lt;li&gt;The &lt;a href=&quot;http://twitter.com/MMTResources/status/1255689600812580865&quot; rel=&quot;nofollow noreferrer&quot;&gt;academic response&lt;/a&gt; to “What is MMT’s theory of inflation?”&lt;/li&gt;&#xA;&lt;li&gt;And finally, the &lt;a href=&quot;http://twitter.com/MMTResources/status/1261351703367933952&quot; rel=&quot;nofollow noreferrer&quot;&gt;MMT view of hyperinflation&lt;/a&gt;.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;p&gt;The above and more have been consolidated into &lt;a href=&quot;https://twitter.com/MMTResources/status/1273821252453572614&quot; rel=&quot;nofollow noreferrer&quot;&gt;a mega-thread&lt;/a&gt; (thread of threads) with everything I currently understand regarding the MMT view of inflation.&lt;/p&gt;&#xA;&lt;p&gt;&lt;em&gt;&lt;strong&gt;Original (flawed) response&lt;/strong&gt;&lt;/em&gt;&lt;/p&gt;&#xA;&lt;p&gt;The idea that “creating money causes inflation.&amp;quot; is as ridiculous as saying “birth causes crime.&amp;quot; (I mean, all criminals &lt;em&gt;&lt;strong&gt;are&lt;/strong&gt;&lt;/em&gt; born, amirite?)&lt;/p&gt;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/876WS.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/876WS.jpg&quot; alt=&quot;donald duck freaking out over the increasing price of eggs&quot; /&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&lt;p&gt;Money creation has absolutely nothing to do with inflation. Here are Modern Monetary Theory (MMT) economists &lt;a href=&quot;https://www.forbes.com/sites/johntharvey/2011/05/14/money-growth-does-not-cause-inflation/?fbclid=IwAR0dtLgRfLs3ms0xsc8-CwXSnTyT_VfoUm99IZf6i3FX4hXEt5ZQzfYIx40#62c75a2842f5&quot; rel=&quot;nofollow noreferrer&quot;&gt;John T. Harvey&lt;/a&gt; and &lt;a href=&quot;http://bilbo.economicoutlook.net/blog/?p=13834&quot; rel=&quot;nofollow noreferrer&quot;&gt;William Mitchell&lt;/a&gt; elaborating on this concept.&lt;/p&gt;&#xA;&lt;p&gt;The only thing that can be inflationary is &lt;em&gt;spending money on fully employed resources&lt;/em&gt;, where &amp;quot;fully employed&amp;quot; means, &amp;quot;No more people left to hire, no more products left for sale.&amp;quot;&lt;/p&gt;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/kvdAV.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/kvdAV.jpg&quot; alt=&quot;price of eggs zooms up&quot; /&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&lt;p&gt;Inflation is not when the price of a single product goes up. It’s not when the price of all products in an entire industry go up. Inflation is &lt;a href=&quot;https://en.wikipedia.org/wiki/Inflation&quot; rel=&quot;nofollow noreferrer&quot;&gt;defined as&lt;/a&gt; when the &amp;quot;price levels of goods and services&amp;quot; for sale in an economy (a particular currency, such as the United States Dollar) go up and continue to go up. Roughly speaking, inflation is when the price of &amp;quot;everything&amp;quot; (that an average household purchases) goes up and continues to go up&lt;/p&gt;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/uxoVm.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/uxoVm.jpg&quot; alt=&quot;enter image description here&quot; /&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&lt;p&gt;This is inflation. Is this a bad thing? What if you were 50,000 dollars in debt. Is that a bad thing? Well, how many assets do you have? $107,000?&lt;/p&gt;&#xA;&lt;pre&gt;&lt;code&gt;&lt;span class=&quot;math-container&quot;&gt;$107k - $&lt;/span&gt;50k = $57k net worth&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&lt;p&gt;So, in this particular case, $50k in debt is not a bad thing. You need the full picture!&lt;/p&gt;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/3LNRg.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/3LNRg.jpg&quot; alt=&quot;Wages rise along with prices&quot; /&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&lt;p&gt;This is inflation too. Is this a bad thing?&lt;/p&gt;&#xA;&lt;p&gt;Since your wages are keeping right up with prices, do you really care that the prices are going up?&lt;/p&gt;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/qQELJ.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/qQELJ.jpg&quot; alt=&quot;wages rising higher than prices&quot; /&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&lt;p&gt;This is inflation too. Do you really care? In this case, you can more than cover the rise in prices.&lt;/p&gt;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/zKQ2O.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/zKQ2O.jpg&quot; alt=&quot;wages suppressed&quot; /&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&lt;p&gt;This is clearly a bad thing. But why is it bad? Prices are not necessarily going up unreasonably, our wages are being kept artificially low! Our corrupt system is forcing us into poverty and private debt.&lt;/p&gt;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/kahcG.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/kahcG.jpg&quot; alt=&quot;prices artificially high&quot; /&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&lt;p&gt;This, too, is a bad thing. But, again, why? Prices are being raised artificially high. Our wages are now rising, but our corrupt system also allows companies to unfairly take advantage of us. This is price gouging.&lt;/p&gt;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/5cjoF.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/5cjoF.jpg&quot; alt=&quot;enter image description here&quot; /&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&lt;p&gt;The US pharmaceutical industry &lt;a href=&quot;https://www.nytimes.com/2015/09/21/business/a-huge-overnight-increase-in-a-drugs-price-raises-protests.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;regularly price gouges&lt;/a&gt; American citizens, and the government does absolutely nothing to stop it because they’re legally bribed to not stop it.&lt;/p&gt;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/2E0VA.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/2E0VA.jpg&quot; alt=&quot;enter image description here&quot; /&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&lt;p&gt;‪Inflation can also be a good thing! The government could increase taxes on activities that harm society, such as those that cause pollution and climate change. Artificially increasing the price – choosing to cause inflation – for the greater good. (It can be done the other way as well: decreasing taxes on activities that prevent pollution and climate change.‬)&lt;/p&gt;&#xA;&lt;p&gt;(Inflation is most definitely a good thing to the price gougers.)&lt;/p&gt;&#xA;&lt;p&gt;‪&lt;a href=&quot;https://i.stack.imgur.com/6V6gU.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/6V6gU.jpg&quot; alt=&quot;us inflation since 1960&quot; /&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&lt;p&gt;Here is actual inflation in the United States since 1960. The only substantial episodes were the 1970s OPEC oil supply shocks. They deliberately withheld their product in retaliation for our support of Israel.  (Our decision to only use fossil fuels didn’t help much.) This obviously has nothing to do with “creating money.”‬&lt;/p&gt;&#xA;&lt;p&gt;But beyond that, no inflation to be found!&lt;/p&gt;&#xA;&lt;p&gt;And yet, &lt;a href=&quot;https://citizensmedia.tv/2019/01/06/mmtcreatedcurrency/&quot; rel=&quot;nofollow noreferrer&quot;&gt;during this entire time&lt;/a&gt;, every single dollar of federal spending was financed with created currency.&lt;/p&gt;&#xA;&lt;p&gt;The point is this: &amp;quot;Inflation the Boogeyman&amp;quot; is totally different than inflation in reality. We understand the nature of inflation. We have many, many tools to prevent, measure, and respond to it. Many of those tools can be automated in order to bypass fickle and corrupt politicians.&lt;/p&gt;&#xA;&lt;p&gt;‪Finally, hyperinflation occurring in an economy such as the United States is not only unlikely, it’s absurd. &lt;a href=&quot;http://inthesetimes.com/article/21660/united-states-venezuela-modern-monetary-theory-trade-deficits-sovereignty%E2%80%AC&quot; rel=&quot;nofollow noreferrer&quot;&gt;Here is economist Fadhel Kaboub&lt;/a&gt; on the specific example of Venezuela:&lt;/p&gt;&#xA;&lt;p&gt;The primary tool (strongly) recommended by Modern Monetary Theory (MMT) is the &lt;a href=&quot;https://www.pavlina-tcherneva.net/job-guarantee&quot; rel=&quot;nofollow noreferrer&quot;&gt;Federal Job Guarantee&lt;/a&gt;, which solves the &lt;a href=&quot;https://www.dropbox.com/s/an0yi4zdypyh8mf/wp_895-tcherneva-Unemployment%20The%20Silent%20Epidemic.pdf?dl=0&quot; rel=&quot;nofollow noreferrer&quot;&gt;scourge of involuntary unemployment&lt;/a&gt; and would prevent much of inflation. It also sets up a suite of automatic stabilizers in order to bypass fickle and corrupt politicians.&lt;/p&gt;&#xA;&lt;p&gt;‪Here is &lt;a href=&quot;https://ftalphaville.ft.com/2019/03/01/1551434402000/An-MMT-response-on-what-causes-inflation/%E2%80%AC&quot; rel=&quot;nofollow noreferrer&quot;&gt;a taste of inflation in reality&lt;/a&gt;, by MMTers Economist Scott Fullwiler, and experts Rohan Greay and Nathan Tankus. For more inflation-in-reality by #MMT economists, search for &amp;quot;inflation&amp;quot; and &amp;quot;[I*]&amp;quot; on &lt;a href=&quot;http://neweconomicperspectives.org/mmt-scholarship&quot; rel=&quot;nofollow noreferrer&quot;&gt;this page&lt;/a&gt;.&lt;/p&gt;&#xA;&lt;p&gt;To learn more about MMT in general, start here:&lt;/p&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;On the web: Geoff Coventry's &lt;a href=&quot;https://modernmoneybasics.com/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Modern Money Basics&lt;/a&gt;, &lt;a href=&quot;http://neweconomicperspectives.org/&quot; rel=&quot;nofollow noreferrer&quot;&gt;New Economic Perspectives&lt;/a&gt;, and &lt;a href=&quot;https://www.nakedcapitalism.com/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Naked Capitalism&lt;/a&gt; (general news through an economically accurate lens)&lt;/li&gt;&#xA;&lt;li&gt;My pinned tweet-thread on &lt;a href=&quot;https://twitter.com/citizensmediatv/status/1107349149782065152?s=21&quot; rel=&quot;nofollow noreferrer&quot;&gt;Twitter&lt;/a&gt; contains many expert-created sources and people to follow.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="23124" LastEditorUserId="23124" LastEditDate="2020-06-20T11:54:56.750" LastActivityDate="2020-06-20T11:54:56.750" CommentCount="29" ContentLicense="CC BY-SA 4.0" />
  <row Id="29277" PostTypeId="2" ParentId="4875" CreationDate="2019-05-11T12:19:43.640" Score="2" Body="&lt;p&gt;&lt;a href=&quot;https://rads.stackoverflow.com/amzn/click/com/1137610662&quot; rel=&quot;nofollow noreferrer&quot; rel=&quot;nofollow noreferrer&quot; title=&quot;Macroeconomics&quot;&gt;Macroeconomics&lt;/a&gt; by William Mitchell, L Randall Wray, and Martin Watts. Macroeconomics through an Modern Monetary Theory (MMT) lens.&lt;/p&gt;&#xA;" OwnerUserId="23124" LastActivityDate="2019-05-11T12:19:43.640" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29278" PostTypeId="2" ParentId="21695" CreationDate="2019-05-11T12:26:52.380" Score="1" Body="&lt;p&gt;Here are two Modern Monetary Theory (MMT) experts on the IS-LM model:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The IS-LM model, according to macroeconomics expert Ellis Winningham, (his &lt;a href=&quot;http://elliswinningham.net&quot; rel=&quot;nofollow noreferrer&quot;&gt;website&lt;/a&gt;) is that it is &quot;&lt;a href=&quot;https://m.facebook.com/story/graphql_permalink/?%20graphql_id=UzpfSTEwMDAwMTQ2NTcxNjMwMDoxODE0MzA5NDU1Mjk0NTYx&quot; rel=&quot;nofollow noreferrer&quot;&gt;orthodox crap&lt;/a&gt;.&quot; and &quot;&lt;a href=&quot;https://m.facebook.com/story/graphql_permalink/?graphql_id=UzpfSTEwMDAwMTQ2NTcxNjMwMDoyMjMxNTAzMzY2OTA4NDk5&quot; rel=&quot;nofollow noreferrer&quot;&gt;rubbish&lt;/a&gt;.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;MMT core economist Stephanie Kelton is a bit more polite but no less devastating in her March Bloomberg article entitled, &lt;a href=&quot;https://www.bloomberg.com/opinion/articles/2019-03-04/krugman-s-macroeconomics-is-no-match-for-mmt&quot; rel=&quot;nofollow noreferrer&quot;&gt;The Clock Runs Down on Mainstream Keynesianism&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The IS-LM framework is a gadget that will often align with sensible real-world analysis. It may perform better than a stopped clock, but it is no match for MMT.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Here is the original architect of the I S-LM model, John Hicks, from a 1980 article in the Journal of Post Keynesian Economics:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;I accordingly conclude that the only way in which the I S-LM analysis usefully survives — as anything more than a classroom gadget, to be superseded, later on, by something better – is in application to a particular kind of causal analysis, where the use of equilibrium methods, even a drastic use of equilibrium methods, is not inappropriate.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This is also quoted on page 465 in the new Macroeconomics textbook by William Mitchell, et. al.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Based on the above, I believe it is fair to say that MMT itself considers the IS-LM model to be fatally flawed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;UPDATE: I agree that instead of just saying “it’s bad” that there should be details of why. I will look into it and add them.&lt;/p&gt;&#xA;" OwnerUserId="23124" LastEditorUserId="23124" LastEditDate="2019-05-11T22:39:35.607" LastActivityDate="2019-05-11T22:39:35.607" CommentCount="8" ContentLicense="CC BY-SA 4.0" />
  <row Id="29280" PostTypeId="1" CreationDate="2019-05-11T13:59:09.233" Score="1" ViewCount="20" Body="&lt;p&gt;In theory, retaliatory tariffs probably aren't first step in the WTO dispute resolution process.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Instead, the dispute is supposed to go through consultations, which &lt;a href=&quot;http://www.ifn.se/wfiles/wp/wp1148.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;take&lt;/a&gt; some 6.6-months on average, followed by a panel decision if necessary, which can take an additional 15.1 months etc. (Approximately two thirds of WTO-registered disputes were actually solved in the consultations stage.) Following an arbitration,&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;If defendant stays idle, or if a compliance panel (and/or the AB [Appellate Body], as the case may&#xA;  be) pronounce on the inadequacy of adopted measures, then defendant might be&#xA;  facing retaliation. The framers of the DSU did not manage to agree on a clear&#xA;  method to calculate the amount of retaliation. They used the term ‘substantially&#xA;  equivalent concessions’ that would serve as the legal benchmark for calculating&#xA;  retaliation. Disputing parties might disagree on the amount of retaliation, and&#xA;  disputes on this score will be submitted to an Arbitrator (the original panel,&#xA;  whenever possible), which will decide on the appropriate amounts (Article 22.6 of&#xA;  DSU). Awards by the Arbitrator on this score are not subject to appeal.&#xA;  Retaliation can lawfully take place only following authorization to suspend (tariff)&#xA;  concessions (that is, raise the level of customs duties on imports from the&#xA;  recalcitrant WTO member). The defendant is still under the obligation to&#xA;  eventually bring its measures into compliance, and has to observe specific reporting&#xA;  requirements to this effect (Articles 21.6 and 22.8 of DSU). Suspension of&#xA;  concessions is ‘temporary’ as per the explicit wording of the DSU (Article 22.8 of&#xA;  DSU), but no statutory deadline for its expiry is provided. Consequently, whereas&#xA;  de jure the DSU (Article 22.1) calls for ‘property rules’, that is, for the obligation to perform the contract, de facto it tolerates ‘liability rules’, that is, the possibility&#xA;  for authors of an illegality to ‘buy their way out of the contract’.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So, it looks like (in theory) retaliation in the WTO framework can only legally happen after arbitration. On the other hand, there's was no shortage of retaliatory tariffs worldwide, recently. Was this always the case for trade disputes ever since WTO or GATT came about, i.e. in practice, does retaliation often work &lt;em&gt;in parallel&lt;/em&gt; with the WTO dispute resolution? (Some statistics on this would be more interesting to me than mere opinions.)&lt;/p&gt;&#xA;" OwnerUserId="6210" LastActivityDate="2019-05-11T13:59:09.233" Title="In practice, are retaliatory tariffs the first step (or among the first steps) in the WTO dispute resolution process?" Tags="&lt;international-trade&gt;&lt;tariffs&gt;&lt;wto&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29281" PostTypeId="1" CreationDate="2019-05-11T14:59:33.323" Score="1" ViewCount="226" Body="&lt;p&gt;As far as I know, both of the first welfare theorem and the Walras law are closely tied to the invisible hand. what is the difference between them?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;thank you very much for your help&lt;/p&gt;&#xA;" OwnerUserId="19689" LastActivityDate="2019-06-17T09:03:05.597" Title="What is the Walras law vs first welfare theorem" Tags="&lt;microeconomics&gt;&lt;welfare-economics&gt;&lt;welfare&gt;&lt;walrasian&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29282" PostTypeId="1" CreationDate="2019-05-11T15:03:38.047" Score="1" ViewCount="30" Body="&lt;p&gt;I have heard that country trade deficits are primarily driven by excessive consumer spending and large public deficits, and that having the world's reserve currency means that you will have to run large trade deficits. How much of these claims actually true and supported by evidence?&lt;/p&gt;&#xA;" OwnerUserId="23098" LastActivityDate="2019-05-11T15:03:38.047" Title="Is it unreasonable to expect a country with a large public deficit and the world's reserve currency to not run trade deficits with other countries?" Tags="&lt;macroeconomics&gt;&lt;international-trade&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29283" PostTypeId="1" AcceptedAnswerId="29286" CreationDate="2019-05-11T18:45:26.633" Score="2" ViewCount="2637" Body="&lt;p&gt;I am confused as to they are the same or different?&lt;/p&gt;&#xA;" OwnerUserId="14577" LastEditorUserId="6210" LastEditDate="2019-05-12T17:26:13.500" LastActivityDate="2019-05-12T17:26:13.500" Title="Are social goods and public goods the same thing?" Tags="&lt;definition&gt;&lt;public-goods&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29284" PostTypeId="2" ParentId="29283" CreationDate="2019-05-11T18:56:30.837" Score="1" Body="&lt;p&gt;From Wikipedia:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Social goods are defined as public goods that could be delivered as private goods, but are usually delivered by the government for various reasons, including social policy, and funded via public funds like taxes. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Public_good#Social_goods&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://en.wikipedia.org/wiki/Public_good#Social_goods&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Wikipedia article also has a qualifier: &lt;em&gt;defined by whom&lt;/em&gt;?&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2019-05-11T18:56:30.837" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29285" PostTypeId="1" CreationDate="2019-05-11T20:39:13.200" Score="2" ViewCount="47" Body="&lt;p&gt;Suppose that the household faces the following problem:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\underset{ c_t , k_{t+1}, n_t } \max  \mathbb{E}_0 \sum_{t=0}^{\infty} \beta^t \ln c_t + \ln (1 - n_t)$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;subjected to &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$ k_{t+1} = A_t k_t ^{\alpha} n_t ^{1- \alpha} - c_t $&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Usually, in my macroeconomic course, we would formulate the Bellman equation as the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$ V(k, A) = \underset {c, k', n} \max \ln c + \ln (1- n) + \beta \mathbb{E} [V (k', A')] $&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, in his lecture notes, he formulated the Bellman equation as the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$ V(k, A) = \underset {c, k', n} \max \ln c + \ln (1- n) + \beta \mathbb{E} [V (k', A')] + \lambda [ A k^{\alpha} n_t ^{1- \alpha}  - c - k' ]$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I don't understand is where the expression with &lt;span class=&quot;math-container&quot;&gt;$\lambda$&lt;/span&gt; comes from? The method that we used to derive the Bellman equation does not give us the Bellman equation with the &lt;span class=&quot;math-container&quot;&gt;$\lambda$&lt;/span&gt;, but instead gives us the one without the &lt;span class=&quot;math-container&quot;&gt;$\lambda$&lt;/span&gt; expression. &lt;/p&gt;&#xA;" OwnerUserId="23125" LastActivityDate="2019-05-11T20:39:13.200" Title="Why is there a Lagrangian Multiplier in the Dynamic Programming Problem of the RBC model?" Tags="&lt;macroeconomics&gt;&lt;dynamic-programming&gt;&lt;real-business-cycles&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29286" PostTypeId="2" ParentId="29283" CreationDate="2019-05-12T02:53:59.290" Score="6" Body="&lt;p&gt;I guess it might depend on the author. Here's &lt;a href=&quot;https://books.google.com/books?id=bIzHBAAAQBAJ&amp;amp;pg=PR7&quot; rel=&quot;noreferrer&quot;&gt;another classification&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The classifications of public goods associated to agriculture identify two main categories: environmental goods and non-environmental goods (or social goods). In the first category are placed those public goods closely related to&#xA;  environmental externalities, such as farmland biodiversity, water availability and&#xA;  quality, resilience to flooding and fire, climate stability (mainly carbon storage and&#xA;  reducing greenhouse gas emission), agricultural landscape. In the second category&#xA;  are placed those public goods more related to the social dimension of agricultural&#xA;  activities, such as farm animal welfare and health, rural vitality and food security.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So under this classification social goods are non-environmental public goods.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And for some other authors, public and social goods &lt;a href=&quot;https://books.google.com/books?id=K2UCppQg0TUC&amp;amp;pg=PA101&quot; rel=&quot;noreferrer&quot;&gt;are entirely synonymous&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Turning to allocative problems and policies we note first, that the category of good and services provided by government are of the nature of public (or social goods). In the case of private goods, we found that efficiency in the competitive economic sense meant the maximization of individual utility alone [...]&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Public goods are those the consumption of which jointly by all individuals could make any one individual better off but no other individual worse off. Examples of public or social goods are public education, hightways, water and power, the postal system and so on.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;There also exists some economic dictionaries, which might reflect the wider usage of the terms.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Oxford one, in its first edition only defines public good:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;public goods Goods or services which, if they are provided at all, are open &#xA;  to use by all members of society. Examples include defence, law and order, &#xA;  and public parks and monuments. As nobody can be excluded from using &#xA;  them, public goods cannot be provided for private profit. Public goods can &#xA;  be and frequently are provided privately, by individuals and voluntary &#xA;  organizations, from motives of altruism or ostentation. Really expensive &#xA;  public goods such as defence are necessarily provided by government bodies, &#xA;  which alone have the power to raise the taxes needed to pay for them. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&quot;Social good&quot; is not defined in that one. There's a newer 3rd ed online of that dictionary, which also &lt;a href=&quot;https://www.oxfordreference.com/view/10.1093/acref/9780199237043.001.0001/acref-9780199237043?btog=chap&amp;amp;hide=true&amp;amp;page=28&amp;amp;pageSize=100&amp;amp;skipEditions=true&amp;amp;sort=titlesort&amp;amp;source=%2F10.1093%2Facref%2F9780199237043.001.0001%2Facref-9780199237043&quot; rel=&quot;noreferrer&quot;&gt;doesn't seem to define&lt;/a&gt; social good.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Likewise, The Economist &lt;a href=&quot;https://www.economist.com/economics-a-to-z/p#node-21529442&quot; rel=&quot;noreferrer&quot;&gt;defines&lt;/a&gt; only public (but not &quot;social&quot;) good &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Public goods&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Things that can be consumed by everybody in a society, or nobody at all. They have three characteristics. They are:&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;non-rival - one person consuming them does not stop another person consuming them;&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;non-excludable - if one person can consume them, it is impossible to stop another person consuming them;&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;non-rejectable - people cannot choose not to consume them even if they want to.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Examples include clean air, a national defence system and the judiciary. The combination of non-rivalry and non-excludability means that it can be hard to get people to pay to consume them, so they might not be provided at all if left to MARKET FORCES. Thus public goods are regarded as an example of MARKET FAILURE, and in most countries they are provided at least in part by GOVERNMENT and paid for through compulsory TAXATION. (See also global public goods.)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;They also define &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Global public goods&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Public goods that cannot be provided by one country acting alone but only by the joint efforts of many (strictly, all) countries. Some economists, along with global institutions such as the UN, reckon that such goods include international law and law enforcement, a stable global financial system, an open trading system, health, peace and enviromental sustainability.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;There's also a Routledge dictionary of economics, which defines (quoting 2nd ed. of that):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;public good (H4)&#xA;  A commodity or service which is available&#xA;  to everyone in a particular catchment area,&#xA;  cannot be withheld from non-payers and&#xA;  is ‘non-rival’, i.e. one person’s consumption&#xA;  does not diminish that of others. The&#xA;  main examples are national defence, sewerage,&#xA;  street lighting, lighthouses, public&#xA;  health measures such as mass vaccination,&#xA;  and scientific research. As individuals&#xA;  cannot be charged according to consumption&#xA;  for goods and services collectively&#xA;  provided, it is usual to finance their&#xA;  production by taxation. Although the&#xA;  provision of public goods was small until&#xA;  the twentieth century, writers as early as&#xA;  PETTY, SMITH and John Stuart MILL argued&#xA;  for their existence. It is not always easy to&#xA;  distinguish between a public and a private&#xA;  good as some private goods gratuitously&#xA;  benefit third parties, e.g. maintaining a&#xA;  garden in a beautiful condition confers&#xA;  pleasure on many people in the vicinity.&#xA;  See also: club good; local public good;&#xA;  mixed good; private good &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;social good (H4) see public good&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The MIT dictionary of modern economics has quite long entries, so I'll only reproduce snippets here (from 4th ed.). For public good is says among other things:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The extreme, or&#xA;  'polar', case of a 'pure' public good has been&#xA;  defined by Paul A. SAMUELSON as a good&#xA;  which is:&#xA;  1. non-rival in consumption&#xA;  2. has the characteristic of NONEXCLUDABILITY&#xA;  - that is, if the good is provided&#xA;  the producer is unable to prevent anyone&#xA;  from consuming it.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This source also defines &quot;collective goods&quot; (defined by non-excludability alone), &quot;local public good&quot; (public goods may depend on the chosen community), &quot;mixed good&quot;. The entry for the latter is quite long, and says in the end&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Mixed goods are certainly more common&#xA;  than pure public goods and possibly more&#xA;  common than private goods - thus their&#xA;  analysis is of great importance. The term&#xA;  impure public good is sometimes used to&#xA;  describe mixed goods.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The MIT dictionary does not define social good.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The New Palgrave dictionary (which is more like an encyclopedia, with articles/entries contributed by different authors) mentions (in its second edition) that &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The&#xA;  distinction between private and public or social goods arises from the mode in which benefits become&#xA;  available, i.e., rival in the one and non-rival in the other case (see Public Goods).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So that entry (which is actually on merit goods) considers the terms social and public goods synonymous. They further use the public/social goods interchangeably a few times in their entry on &lt;a href=&quot;https://en.wikipedia.org/wiki/Richard_Musgrave_(economist)&quot; rel=&quot;noreferrer&quot;&gt;Musgrave&lt;/a&gt;. Musgrave himself wrote the &quot;public finance&quot; entry for that Palgrave dictionary, and it too uses social good to mean public good at one point.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Their entry for &quot;public goods&quot; (written by Agnar Sandmo) is basically dedicated to the Samuelsonian approach to the topic. It doesn't define or mention social goods, but it does define a &quot;social welfare function&quot;, talks of &quot;social marginal cost of the public good&quot; etc. There's &lt;a href=&quot;https://link.springer.com/referencework/10.1007%2F978-1-349-58802-2?page=32#toc&quot; rel=&quot;noreferrer&quot;&gt;no entry for &quot;social goods&quot;&lt;/a&gt; in that Palgrave dictionary (even though it's 7,000+ pages long).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think the trend from all of these is clear: &lt;strong&gt;&quot;social goods&quot; are much more idiosyncratically defined, if defined at all. Most authors who do use the term &quot;social goods&quot; seem to use it synonymously with public goods&lt;/strong&gt; (unlike what Wikipedia claims, without a citation.)&lt;/p&gt;&#xA;" OwnerUserId="6210" LastEditorUserId="6210" LastEditDate="2019-05-12T04:32:55.743" LastActivityDate="2019-05-12T04:32:55.743" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29287" PostTypeId="1" AcceptedAnswerId="29307" CreationDate="2019-05-12T05:25:05.197" Score="3" ViewCount="841" Body="&lt;p&gt;From a &lt;a href=&quot;https://www.cato.org/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Cato Institute&lt;/a&gt; &lt;a href=&quot;https://www.cato.org/blog/zimbabwes-hyperinflation-correct-number-89-sextillion-percent&quot; rel=&quot;nofollow noreferrer&quot;&gt;article&lt;/a&gt; by &lt;a href=&quot;https://econ.jhu.edu/directory/steve-h-hanke/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Steve Hanke&lt;/a&gt;&lt;sup&gt;1&lt;/sup&gt; (emphasis added):&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;The Economist’s most recent infraction on Zimbabwe’s hyperinflation appeared in the May 2016 issue. The magazine claimed that the hyperinflation peaked at an annual rate of 500 billion percent. Where did this figure originate? You guessed it. That figure is buried in the IMF’s 2009 Article IV Consultation Staff Report on Zimbabwe.&lt;/p&gt;&#xA;&lt;p&gt;In reality, Zimbabwe’s annual inflation rate in September 2008 was 471 billion percent, not 500 billion percent. More importantly, Zimbabwe’s hyperinflation peaked in November, not September. &lt;strong&gt;It was then that Zimbabwe recorded the second-highest hyperinflation in history: a whopping 89.7 sextillion percent.&lt;/strong&gt; This is 179 billion times greater than the IMF’s figure.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Did Zimbabwe, at one point, record a hyperinflation of 89.7 sextillion percent? Wikipedia &lt;a href=&quot;https://en.wikipedia.org/wiki/Hyperinflation_in_Zimbabwe&quot; rel=&quot;nofollow noreferrer&quot;&gt;cites&lt;/a&gt; the IMF figure.&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;How did Steve Hanke come up with the number 89.7 sextillion?&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Is Steve Hanke's methodology accurate? Reasonable? Trustworthy?&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Why are the two numbers so different?&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&lt;p&gt;Note: Steve Hanke certainly seems to believe that inflation for some countries is higher than actually reported (e.g. the Zimbabwe article I cited, &lt;a href=&quot;https://twitter.com/steve_hanke/status/1127309149631545346&quot; rel=&quot;nofollow noreferrer&quot;&gt;this&lt;/a&gt; tweet regarding Sudan from 9 hours ago, and &lt;a href=&quot;https://twitter.com/steve_hanke/status/1127277189366468610&quot; rel=&quot;nofollow noreferrer&quot;&gt;this&lt;/a&gt; tweet regarding Argentina from 11 hours ago). Maybe this could be considered in an answer?&lt;/p&gt;&#xA;&lt;p&gt;&lt;sup&gt;1&lt;/sup&gt;&lt;a href=&quot;https://www.cato.org/people/steve-hanke&quot; rel=&quot;nofollow noreferrer&quot;&gt;Professor of Applied Economics and Co-Director of the Institute for Applied Economics, Global Health, and the Study of Business Enterprise at The Johns Hopkins University in Baltimore&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerDisplayName="user23076" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2019-05-13T21:46:33.657" Title="Did Zimbabwe have an inflation of 89.7 sextillion percent?" Tags="&lt;inflation&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29288" PostTypeId="1" CreationDate="2019-05-12T05:34:28.490" Score="2" ViewCount="170" Body="&lt;p&gt;I'm struggling with this question below for my macroeconomics course.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;If Argentina were to impose a tariff on its imports, how will the supply of Argentina's currency and its exchange rate be affected in foreign exchange markets?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;em&gt;Answer:&lt;/em&gt; Supply - Decrease. Currency - Appreciate.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think I understand, but need someone to say &quot;no&quot; or &quot;yes, but...&quot; to my rationale.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If Argentina imposes a protective tariff, that's to encourage Argentinian domestic industry and exports and discourage imports into Argentina. I know that if a country exports more than it imports (a &quot;favorable&quot; balance of trade), there is a greater demand for its goods - and thus, a greater demand for its currency - on the Foreign Exchange Market. With that said, when demand for Argentinian currency increases, the price level increases, and the Argentinian currency appreciates.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think I can also explain why supply decreases...is it because demand increases? But, we don't typically say &quot;Oh, since demand increases, I'm also going to decrease supply&quot;, though. Can somebody explain, please?&lt;/p&gt;&#xA;" OwnerUserId="22989" LastEditorUserId="6210" LastEditDate="2019-05-12T20:11:21.613" LastActivityDate="2019-05-12T20:11:21.613" Title="Effect of Import Tariff on Supply of Currency on Foreign Exchange Market" Tags="&lt;macroeconomics&gt;&lt;money-supply&gt;&lt;foreign-exchange&gt;&lt;tariffs&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29290" PostTypeId="2" ParentId="29287" CreationDate="2019-05-12T06:46:45.590" Score="7" Body="&lt;p&gt;The figures you question are from &lt;a href=&quot;https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2264895&quot; rel=&quot;noreferrer&quot;&gt;Hanke and Kwok (2009)&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;According to Hanke and Kwok (2009), yes.&lt;/li&gt;&#xA;&lt;li&gt;A stock (Old Mutual) was listed on both the London Stock Exchange (in GBP) and the Zimbabwe Stock Exchange (in Zimbabwe dollars). Under the assumptions of price arbitrage and purchasing power parity, one can infer Zimbabwe's inflation rate.&lt;/li&gt;&#xA;&lt;li&gt;I haven't carefully attempted to replicate their work, but I can see no reason to question Hanke and Kwok's general methodology.&lt;/li&gt;&#xA;&lt;li&gt;&lt;em&gt;The Economist's&lt;/em&gt; figure of 500 billion percent is for Sep 2008. (Hanke and Kwok's estimate for Sep 2008 is 471 billion percent.) The higher figure of 89.7 sextillion percent is Hanke and Kwok's estimate for the month to Nov 14, 2008.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Their Table 1:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/XhU7u.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/XhU7u.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2019-05-12T06:46:45.590" CommentCount="10" ContentLicense="CC BY-SA 4.0" />
  <row Id="29291" PostTypeId="1" CreationDate="2019-05-12T08:19:09.037" Score="2" ViewCount="116" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/0yR1d.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/0yR1d.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hello.&#xA;I'm graduate student in Japan.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This time, what I want to ask is how to solve the profit maximization problem using the image production function and derive the demand function.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This production function is a Cobb-Douglas production function, but it is also a CES type, and it is difficult for me to calculate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, the paper states that the demand function has the same shape as a general monopolistic competition or an incomplete competition model.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, the shape of the demand function is as follows.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$Q_n(j)=[P_n(j)/P_n]^{-σ}*Q_n$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where &lt;span class=&quot;math-container&quot;&gt;$P_n$&lt;/span&gt; is final good price and &lt;span class=&quot;math-container&quot;&gt;$P_n(j)$&lt;/span&gt; are intermediate goods (sector absorption) price&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you for answering.&lt;/p&gt;&#xA;" OwnerUserId="21561" LastEditorUserId="14692" LastEditDate="2019-05-12T21:53:30.167" LastActivityDate="2019-05-12T21:53:30.167" Title="Derivation of demand function" Tags="&lt;macroeconomics&gt;&lt;mathematical-economics&gt;&lt;profit-maximization&gt;&lt;cobb-douglas&gt;&lt;ces-function&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29292" PostTypeId="1" CreationDate="2019-05-12T15:19:31.137" Score="1" ViewCount="14" Body="&lt;p&gt;The following is an excerpt from Montiel's Macroeconomics in Emerging Markets (1st edition):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/nqY8m.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/nqY8m.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;B: Privately owned bonds&lt;/p&gt;&#xA;&#xA;&lt;p&gt;DC: Government bonds held by the central bank&lt;/p&gt;&#xA;&#xA;&lt;p&gt;sB*: Bonds held by foreigners, valued in foreign currency&lt;/p&gt;&#xA;&#xA;&lt;p&gt;P(G - T): Primary deficit&lt;/p&gt;&#xA;&#xA;&lt;p&gt;i: Interest rate for privately owned bonds&lt;/p&gt;&#xA;&#xA;&lt;p&gt;i': Interest rate for bonds held by foreigners&lt;/p&gt;&#xA;&#xA;&lt;p&gt;sR*: Foreign reserves, valued in foreign currency&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Δ: Variation&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Foreign reserves are held by the central bank, not by the treasury. Then, why do variations in foreign reserves affect the government's budget constraint? &lt;/p&gt;&#xA;" OwnerUserId="6099" LastEditorUserId="6099" LastEditDate="2019-05-12T18:36:20.313" LastActivityDate="2019-05-12T18:36:20.313" Title="Foreign exchange reserves in the government's budget constraint" Tags="&lt;national-accounts&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="29295" PostTypeId="2" ParentId="29253" CreationDate="2019-05-12T20:10:38.750" Score="5" Body="&lt;p&gt;In a standard cheap-talk setting, a sender (S) has better information on a state of the world and wants to communicate this information to a receiver (R) who then takes an action. However, S and R prefer different actions conditional on the state.&#xA;Importantly, S is free to send any message independent of what she knows. That is, she cannot commit to a signal given the true state. This is a complicated strategic setting, and communication may fully break down - in a babbling equilibrium any message is ignored, and R decides based on his prior.&#xA;Even equilibria with information transmission can be bad for S.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;KG give S more commitment power in the sense that she can design a signal structure and the signal realization is truthfully communicated to R. This commitment assumption helps to see this as a sort of mechanism design problem. Instead of setting rules on transfer payments, the designer manipulates the informational environment. In this problem of information design, the commitment to the signal structure determines the meaning of a signal such that &quot;babbling equilibria&quot; are circumvented.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can R be &quot;persuaded&quot; to do something S wants when R is a rational Bayesian and well aware that S wants to manipulate him? Perhaps surprisingly, the scope for manipulation is quite large. KG show how to optimally do this. The prosecutor-judge example illustrates the paper very nicely.&#xA;Essentially, KG interpret the signal structure as a distribution over posteriors and a signal realization then determines R's posterior. Can S just use any such distribution? No, S is restricted to a Bayes plausible distribution, the expected posterior must be equal to the prior! I guess that is why the &quot;Bayesian&quot; is important. Of course, R being a Bayesian is not a unique feature and quite standard, but in the same sense this word shows up all the time when analyzing standard settings, think of BNE, PBE, BCE...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, I don't like the term persuasion so much. When I think of persuasion, misrepresenting and concealing information is part of it. This is explicitly excluded in KG! Depending on the application, I find the assumption on S's commitment power quite a stretch for a persuasion. If you just consider the theory without a persuasion application in mind, a smooth way around a discussion about commitment power is to consider a setting with symmetric information: S doesn't know the state herself but designs the information structure.&lt;/p&gt;&#xA;" OwnerUserId="11590" LastActivityDate="2019-05-12T20:10:38.750" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29297" PostTypeId="1" AcceptedAnswerId="29300" CreationDate="2019-05-12T21:57:03.310" Score="1" ViewCount="589" Body="&lt;p&gt;While going through some problems as part of self-study I encountered the following True/False question:  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Q. Steven only consumes two goods: &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt;. If &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; is a Giffen good for Steven, then &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt; must be a normal good for Steven.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The given answer is True.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am unable to understand why it is necessary for the other good to be normal. Why can't it be inferior/Giffen?&lt;/p&gt;&#xA;" OwnerUserId="21361" LastEditorUserId="14692" LastEditDate="2019-05-15T13:34:10.187" LastActivityDate="2019-05-15T13:34:10.187" Title="If $X$ is a Giffen good then $Y$ must be a normal good" Tags="&lt;microeconomics&gt;&lt;elasticity&gt;&lt;elasticity-of-substituion&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29298" PostTypeId="2" ParentId="29297" CreationDate="2019-05-13T03:52:48.800" Score="-3" Body="&lt;p&gt;If the other good is inferior, the indifference curve would be shift to the left and budget constraint shift to the right when there is an increase in income. That would make the consumer have no utility maximization point. cmiiw&lt;/p&gt;&#xA;" OwnerUserId="23136" LastActivityDate="2019-05-13T03:52:48.800" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29300" PostTypeId="2" ParentId="29297" CreationDate="2019-05-13T06:38:22.477" Score="5" Body="&lt;p&gt;Reason: &lt;strong&gt;Both goods cannot be inferior.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's say originally you consume &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt;. So your budget constraint looks like&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$p_x x + p_y y = I.$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If both X and Y are inferior, when income goes down from &lt;span class=&quot;math-container&quot;&gt;$I_0$&lt;/span&gt; to &lt;span class=&quot;math-container&quot;&gt;$I'$&lt;/span&gt;, the quantity demanded for both has to go up (by definition) from &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; to &lt;span class=&quot;math-container&quot;&gt;$x'$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; to &lt;span class=&quot;math-container&quot;&gt;$y'$&lt;/span&gt;. This implies&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$p_x x' + p_y y' = I' &amp;lt; I = p_x x + p_y y.$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is a contradiction, since &lt;span class=&quot;math-container&quot;&gt;$x' &amp;gt; x$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$y' &amp;gt; y$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your question is a bit more specific. But since a Giffen good must be inferior, this answers your question as well.&lt;/p&gt;&#xA;" OwnerUserId="5145" LastActivityDate="2019-05-13T06:38:22.477" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29302" PostTypeId="2" ParentId="29272" CreationDate="2019-05-13T13:56:48.747" Score="1" Body="&lt;p&gt;From the first order condition for optimality, we know that (equation (4) in the paper):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$U_x(x,Z(r)-x,S(r))x'(r) - U_y(x,Z(r)-x,S(r))x'(r) + U_s(x,Z(r)-x,S(r))S'(r)=0.$$&lt;/span&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;When differentiating &lt;span class=&quot;math-container&quot;&gt;${\bf U}(r)$&lt;/span&gt; with respect to &lt;span class=&quot;math-container&quot;&gt;$r$&lt;/span&gt;, we find your expression:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$U_x(x(r),Z(r)-x(r),S(r))x'(r) + U_y(x(r),Z(r)-x(r),S(r))(Z'(r)-x'(r)) + U_s(x(r),Z(r)-x(r),S(r))S'(r).$$&lt;/span&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Replacing the first equation into the last one yields&#xA;&lt;span class=&quot;math-container&quot;&gt;$${\bf U}'(r)=U_y(x(r),Z(r)-x(r),S(r))Z'(r).$$&lt;/span&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, &lt;span class=&quot;math-container&quot;&gt;$Z'(r)=1/g(Z(r))$&lt;/span&gt; which gives equation (8).&lt;/p&gt;&#xA;" OwnerUserId="20576" LastEditorUserId="20576" LastEditDate="2019-05-13T18:48:43.437" LastActivityDate="2019-05-13T18:48:43.437" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29304" PostTypeId="2" ParentId="23992" CreationDate="2019-05-13T17:08:27.023" Score="0" Body="&lt;p&gt;In general, China-made cell phones are included in &lt;a href=&quot;https://www.dw.com/en/donald-trump-to-impose-tariffs-on-remaining-imports-from-china/a-48695181&quot; rel=&quot;nofollow noreferrer&quot;&gt;the latest round(s) of tariffs&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;A range of consumer products — including cell phones, computers, clothing and toys — were hit by the tariff rate increases from 10% to 25% on Friday [May 9, 2019]. Auto parts were also included.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Various US manufacturers had managed to obtain some dispensations, and it looks like &lt;a href=&quot;https://www.cultofmac.com/624858/iphone-trump-china-tariffs-apple-cost-may-2019/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Apple is one of them&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;No Apple products are included in the additional tariffs on Chinese products that went into effect this morning [...]&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Apple &lt;a href=&quot;https://www.cultofmac.com/624858/iphone-trump-china-tariffs-apple-cost-may-2019/&quot; rel=&quot;nofollow noreferrer&quot;&gt;was also spared&lt;/a&gt; in the previous round (Sep 2018):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Apple’s smartwatches and wireless earphones were among the items that were spared as the US unveiled its updated list of tariffs on US$200 billion of Chinese-made products as US President Donald Trump escalated a trade war with China on Tuesday.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Apparently Trump &lt;a href=&quot;https://www.cultofmac.com/556207/trump-promises-apple-he-wont-put-tariff-on-iphones/&quot; rel=&quot;nofollow noreferrer&quot;&gt;had personally promised Tim Cook&lt;/a&gt; back in June that Apple phones would not be affected. In November Trump apparently changed his mind somewhat, &lt;a href=&quot;https://www.foxbusiness.com/technology/trump-warns-apple-iphones-could-face-10-tariff-shares-sink&quot; rel=&quot;nofollow noreferrer&quot;&gt;mentioning&lt;/a&gt; a 10% tariff on iPhones, but apparently his administration hasn't gone through with that threat, insofar.&lt;/p&gt;&#xA;" OwnerUserId="6210" LastEditorUserId="6210" LastEditDate="2019-05-13T17:32:06.430" LastActivityDate="2019-05-13T17:32:06.430" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29307" PostTypeId="2" ParentId="29287" CreationDate="2019-05-13T21:46:33.657" Score="1" Body="&lt;p&gt;Kenny LJ's answer is good.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;One thing to be aware/ cautious of is that no economy has a single rate of inflation.  The rate of inflation for health care in the US is different from the rate of inflation for computer monitors.  In an economy with normal inflation, the rates are close enough that you can put together a basket of goods and services that the average person consumes, average together the inflation rates, and come up with a reasonably accurate single rate.  Some consumers will experience higher inflation because they spend more on sectors that are experiencing higher rates of inflation and some consumers will experience lower inflation because they spend more on sectors experiencing lower rates of inflation but you'll be reasonably close on average.  And it is far, far simpler to talk about &quot;the US rate of inflation&quot; as a single value rather than &quot;the rate of inflation for the average 70 year old in Kansas&quot; vs &quot;the rate of inflation for the average 40 year old in California&quot; even though those two rates are likely different.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When you have hyperinflation, though, you have several issues.  Different sectors still have very different inflation rates but it gets much harder to reasonably average them together because you've got huge differences in different sectors.  You're not averaging a 5% rate of inflation for health care with a -2% rate of inflation for computer monitors, you're averaging a 30% percent rate of inflation for wheat due to government subsidies with a million percent rate of inflation for un-subsidized eggs and a 20 million percent rate of inflation for steak.  The inflation rate for a store of value that allows you to (relatively) easily get money out of the country (which is what Hanke and Kwok were measuring) could easily be several orders of magnitude larger than the rate of inflation for consumable goods like food.  It is plausible that both the IMF measurements and Hanke and Kwok's measurements are decent estimates of inflation rates just for different types of goods.  Average consumers focused on buying just enough food to subsist could have been seeing a rate of inflation of 471 billion percent that peaked in September while a handful of wealthy individuals buying stocks in a desperate attempt to get money out of the country and into goods whose value was protected from hyperinflation were experiencing 89.7 sextillion percent inflation a couple of months later.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An additional issue in trying to compute the inflation rate during hyperinflation is simply the sheer rate at which prices would need to change.  At an inflation rate of 1 billion percent, prices double every 15.6 days.  At an inflation rate of 1 sextillion percent, prices double every 5.7 days.  But it often takes time for information about the rate of inflation to move through the economy-- the farmer selling eggs today knows that he needs to get more than he did yesterday but does he need 10% more or 20% more or 50% more?  And at the point that you're measuring inflation in billions or trillions of percent, the economy has broken down substantially so you're not going to have a reliable data collector gathering a lot of reliable information on the transactions that are going on.  It is entirely possible that observers in town A would see a very different inflation rate than observers in town B in a particular week because A accidentally undershot the average inflation rate in the prior week while B accidentally overshot the average inflation rate.  When you have spotty data about a fast-moving trend, that is going to add substantially to the uncertainty of the final result.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The tweets on Sudan and Argentina appear to have the same basic issue.  Hanke is measuring the rate of inflation using the black market exchange rate between dollars and the local currency.  Most average consumers in those countries are not spending a large fraction of their income buying dollars, they're buying things like food and housing in the local currency.  It is entirely possible that those average consumers are experiencing a different rate of inflation than those consumers that are trying to exchange whatever assets they still have into dollars that aren't going to be devalued by crippling inflation.  &lt;/p&gt;&#xA;" OwnerUserId="20928" LastActivityDate="2019-05-13T21:46:33.657" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29308" PostTypeId="1" AcceptedAnswerId="29373" CreationDate="2019-05-14T00:52:43.033" Score="0" ViewCount="30" Body="&lt;p&gt;I am stuck at a very simple problem:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose, I am running out of insurance, and as a result, I am incurring a the cost of A with event 1 + the cost of B with event 2. Now, I go ahead and buy an insurance that will protect me from event 1, but will incur me a total cost of C. I will remain vulnerable to Event 2.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is the total profit I am receiving from making the investment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Logical calculation is, &#xA;Prior total cost: A+B&#xA;New total cost: B+C&#xA;Total profit: (A+B)-(B+C) = A-C&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But my mind is constantly pesking me with the total profit to be: A-B-C.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am essentially doing cost-benefit analysis.&#xA;Can someone please tell me where I am wrong?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know my benefit function to be A, and not A-B. Please indicate what is wrong.&lt;/p&gt;&#xA;" OwnerUserId="23146" LastEditorUserId="1601" LastEditDate="2019-05-14T06:20:43.623" LastActivityDate="2019-05-17T06:18:31.473" Title="Simple cost analysis question" Tags="&lt;opportunity-cost&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29309" PostTypeId="2" ParentId="29161" CreationDate="2019-05-14T02:24:48.163" Score="7" Body="&lt;p&gt;I'm an outsider, so I can't speak of what the boards of prestigious economic journals think of this, but...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I suspect it has something to do with the opacity of computer simulations using agent-based models (ABM) compared to math proofs or even the statistical models that are the staple of applied econometrics... although simpler computer simulations like Monte Carlo methods are well accepted. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;E.g. &lt;a href=&quot;https://en.wikipedia.org/wiki/Arnold_Kling&quot; rel=&quot;nofollow noreferrer&quot;&gt;Arnold Kling&lt;/a&gt;, who has some academic and some Federal Reserve credentials, &lt;a href=&quot;https://www.econlib.org/archives/2011/02/agent-based_mod.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;writes&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;My concern with ABM is getting a result and not really knowing why you got it. Alternatively, if you really understand how the ABM is getting its result, you should be able to show how to get that results in a simple model, perhaps with a numerical example.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;He doesn't seem to be on the board of any journals, but I doubt his opinion is uncommon.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;BoE economist A. Turrell has written &lt;a href=&quot;https://www.bankofengland.co.uk/quarterly-bulletin/2016/q4/agent-based-models-understanding-the-economy-from-the-bottom-up&quot; rel=&quot;nofollow noreferrer&quot;&gt;a (lengthier) paper&lt;/a&gt; containing a fairly balanced (IMO) list of pros and cons of ABM. &quot;Calibration and interpretation&quot; takes most space there when it comes weaknesses. He also mentions the &lt;a href=&quot;https://en.wikipedia.org/wiki/Lucas_critique&quot; rel=&quot;nofollow noreferrer&quot;&gt;Lucas critique&lt;/a&gt; as relevant, and notes that the most fertile cases for ABM being behavioral-economics oriented, e.g. using bounded rationality, also makes them most difficult to proof against the Lucas critique.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;At least currently, the &lt;a href=&quot;https://books.google.com/books?id=Cu_2FVrso44C&amp;amp;pg=PA220&amp;amp;lpg=PA220&quot; rel=&quot;nofollow noreferrer&quot;&gt;staple of macro-economics models is DSGE&lt;/a&gt;, which nearly always include a representative-agent:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;All the different views mainstream macroeconomists have about the state of their field and about possible areas of improvement should not diminish the degree to which they converged methodologically in studying fluctuations. They all analyse such phenomena usually through a dynamic stochastic general equilibrium model with a representative agent, firmly grounded on microeconomic principles. Moreover, several of them agree with Chari (2010: 2) that “any interesting model must be a dynamic stochastic general equilibrium model. From this perspective, there is no other game in town.” Therefore, he continues, “a useful aphorism in macroeconomics is: ‘If you have an interesting and coherent story to tell, you can tell it in a DSGE model. If you cannot, your story is incoherent.’”&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Generally DSGE models assume a representative agent (in part because they need to side-step Sonnenschein–Mantel–Debreu type results).&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The theorems of Hugo Sonnenschein, Rolf Mantel and Gerard Debreu in the early 1970s established that the restrictions that generate well-behaved individual demand functions do not constrain aggregate demand functions to exhibit the same properties [...]. The new classicals sidestepped the problem of aggregation either by imagining an economy composed of identical individuals or by assuming that there is one individual who represents the whole economy, so that the solution to the optimization problem of this representative agent gives the aggregate relationships in that economy.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;There were more steps before the current new synthesis DSGE approach, but I don't want to get into that here. My point with this is that if you have an optimizing representative-agent (RA), you don't need much computer/behavioral simulation... Of course, RA models are criticized (&lt;a href=&quot;https://www.ofce.sciences-po.fr/pdf/dtravail/WP2016-11.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Fagiolo and Roventini&lt;/a&gt; summarize RA/DSGE criticism from much more famous economists, Stiglitz etc.) exactly because of this, e.g. their inability to predict (or supposedly even explain) the Great Recession etc. But this criticism seems to not be enough to dislodge DSGE from the current mainstream macro, presently. (There is a bit &lt;a href=&quot;https://economics.stackexchange.com/a/329/6210&quot;&gt;more subtlety to RA&lt;/a&gt; than what I've covered here; RA can include some sources of parametric heterogeneity but assumes a sort of &quot;structural&quot; homogeneity, if I understand that correctly.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Fagiolo and Roventini have a detailed comparison of DGSE with ACE/ABM  approaches, and while they find that the two approaches share some criticism, they point out the following difference:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The last issue worth mentioning is specific to ACE and it concerns the comparability of&#xA;  different agent-based models. DSGE models are all built using a commonly-shared set of behavioral&#xA;  rules (e.g., representative agents solving a stochastic dynamic optimization problems)&#xA;  and their empirical performance is assessed with common techniques (i.e., VAR models). This&#xA;  allows to develop a common protocol about &quot;how to do macroeconomics with DSGE models&quot;&#xA;  and it eases the comparison of the results produced by competing models. Given the relatively&#xA;  infancy of the ACE paradigm, the lack of such a widespread agreement among the ACE community&#xA;  hinders the dialogue among different ABMs, reducing the comparability of their results,&#xA;  and possibly slowing down new developments. In that respect, the development of common&#xA;  documentation guidelines (Wolf et al., 2013a), dedicated languages and platforms can surely&#xA;  improve the situation, increase the exchanges among ACE scholars, and reduce the entry cost&#xA;  to agent-based modeling.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In other words, because of its infancy, there's a lack of standardization in ACE/ABM (unlike DSGE), which presently also hinders wider adoption for the former. (As minor point of terminology, they use ACE/ABM interchangeably: &quot;ACE [agent-based computational economics] models (often called agent-based models,&#xA;ABMs)&quot;.)&lt;/p&gt;&#xA;" OwnerUserId="6210" LastEditorUserId="6210" LastEditDate="2019-05-19T07:34:10.863" LastActivityDate="2019-05-19T07:34:10.863" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29310" PostTypeId="1" AcceptedAnswerId="29316" CreationDate="2019-05-14T05:26:32.120" Score="5" ViewCount="201" Body="&lt;p&gt;Suppose no tariffs, or negligible tariffs, exist between nations A and B, and suddenly A introduces substantive tariffs on certain products A imports from B. In theory, this could lead to B and A taking turns imposing tariffs on specific products they import from each other. Given the economic benefits of tariff-free trade, this scenario requires&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(i) the optimum tariffs in one direction to depend on those in the other and&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(ii) the relationship between these to bear in mind expectations of how (i) would lead to a feedback.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm sure economists have tried to quantify this (possibly with an eye to each nation's alternative sources for goods from third parties), but I know nothing about the relevant literature. So what do models predict?&lt;/p&gt;&#xA;" OwnerUserId="10991" LastEditorUserId="1601" LastEditDate="2019-05-14T06:22:38.330" LastActivityDate="2019-05-14T13:28:28.887" Title="What is the game theory of retaliatory trade tariffs?" Tags="&lt;reference-request&gt;&lt;game-theory&gt;&lt;tariffs&gt;&lt;dynamic-games&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29313" PostTypeId="2" ParentId="29165" CreationDate="2019-05-14T08:43:31.630" Score="0" Body="&lt;p&gt;It seems that Warnock-Smith is basing his remark on the official Airports Commission forecasts (made in 2014).&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;I did find a &lt;a href=&quot;https://www.oag.com/hubfs/Free_Reports/Heathrow%20Forecast%20/The%20Heathrow%20Forecast.pdf?hsCtaTracking=b001b868-f2a4-47ef-941a-2f1d1db4b24c%7C184067d2-93da-4e3c-9fa2-948ee2b0afdc&quot; rel=&quot;nofollow noreferrer&quot;&gt;forecast&lt;/a&gt; by &lt;a href=&quot;https://en.wikipedia.org/wiki/OAG_(company)&quot; rel=&quot;nofollow noreferrer&quot;&gt;OAG&lt;/a&gt; with this conclusion about the 3rd Heathrow runway:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In our cautious assessment of the opportunities, we project that over half of&#xA;  the new capacity could be used within two years from opening, if not faster&#xA;  allowing for existing carrier expansion. For such a large capacity increase&#xA;  to be absorbed so quickly it highlights the case for new runway capacity in&#xA;  London and the South East. It also suggests that we should already have a&#xA;  third runway and perhaps be planning a second elsewhere!&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It does have some 20 pages of forecasting by segment (destination) before coming to this conclusion.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I see a weakness that it's based on the current EU Airport Slot Regulations at least for connections with the EU, so who knows what will happen with Brexit etc. They don't analyze that scenario.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, this OAG model is unconstrained, in the sense that it assume capacity at corresponding airports elsewhere will increase keeping up with demand.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Airports Commission has a much more &lt;a href=&quot;https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/374660/AC05-forecasts.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;detailed (and technical) forecast&lt;/a&gt; using various scenarios, including constrained capacity elsewhere, and considering other factors like carbon-caps. It's quite a long document and a lot of it is focused on mmpa (million passengers per annum) forecasts rather than runway capacities, but it does say this on p. 125:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;By 2050 the additional 260,000 ATM [Air Transport Movement] slots from the new Heathrow&#xA;  capacity has been fully utilised for many years in all the demand scenarios. [footnote:  Ranging from 2032 in &lt;em&gt;global growth&lt;/em&gt; to 2042 in &lt;em&gt;global fragmentation&lt;/em&gt;.]&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;These are two scenarios they ran. So it does seem that the answer (of Heathrow filling up again in 25 years) is yes in these Airports Commission forecasts. The 25 years number seems to coincide with the 2042 (-25 = 2017) forecast, so it's perhaps a rounding of a real forecast, not pulled from thin air.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also earlier in this long paper (p. 104):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The timelines illustrate that, if carbon is capped, the new runway at Heathrow is fully&#xA;  utilised by 2034 in &lt;em&gt;low-cost is king&lt;/em&gt; and by 2040 under the other four demand scenarios.&#xA;  By 2050 London City with its short-haul network would be fully utilised under three of the&#xA;  scenarios but none of the other 3 London airports would reach full capacity by 2050 under&#xA;  any of the five scenarios. &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/oSk4t.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/oSk4t.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;These scenarios have assumptions that are detailed over many pages (pp. 38-48), so I'm not going to reproduce them here.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Heathrow Airport Limited (HAL; the promoter of the Heathrow Airport&#xA;North West Runway option) has actually written &lt;a href=&quot;https://www.heathrow.com/file_source/Company/Static/PDF/Companynewsandinformation/Demand_forecasting.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;a critique&lt;/a&gt; of these government forecasts, claiming that they are too conservative; HAL claims the demand growth would be even faster.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Both of these latter documents (Airports Commission, HAL) were written/published around 2013-2014, so there is the issue of them not anticipating Brexit.&lt;/p&gt;&#xA;" OwnerUserId="6210" LastEditorUserId="6210" LastEditDate="2019-05-14T09:55:51.577" LastActivityDate="2019-05-14T09:55:51.577" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29314" PostTypeId="1" AcceptedAnswerId="29372" CreationDate="2019-05-14T09:02:05.840" Score="0" ViewCount="289" Body="&lt;p&gt;I have just read the concept of both Net Present Worth (NPW) and the External Rate of Return (ERR). This is what I have understood of these two values:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;NPW is the net discounted value of all the cash flows that occur throughout the life of project, while the discount rate is the MARR -- a rate that I have decided as a minimum rate of return for acceptance of a project. If NPW &gt; 0, accept the project else reject.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;ERR is the rate of return of the project when I reinvest the cash produced at a rate RR (Reinvestment Rate). This rate may be different than the ERR itself. If ERR &gt; MARR, accept the project, else reject it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I may have understood wrong, please correct me if I am wrong. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So both of the methods are used to make accept/reject decisions for the projects. Certainly there are perks of using one over the other, otherwise there would not be two distinct methods. Then under what conditions is one preferred over other? Or is one of the methods always better than the other in general? Why?&lt;/p&gt;&#xA;" OwnerUserId="21080" LastActivityDate="2019-05-17T06:06:13.613" Title="Under what conditions should the External Rate of Return (ERR) be used instead of Net Present Worth (NPW) and vice versa?" Tags="&lt;microeconomics&gt;&lt;financial-economics&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29315" PostTypeId="1" CreationDate="2019-05-14T09:52:55.317" Score="0" ViewCount="31" Body="&lt;p&gt;Suppose running a VAR system featuring the central bank interest rate, inflation and GDP. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Start by estimating each equation by OLS. How should you interpret the OLS residuals to these equations?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My take: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose inflation equation is estimated, then it means the OLS residuals mean that these are the shocks that only effect inflation and no other variable &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Similarly for the other two equations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Would appreciate if anyone could share their two cents?&lt;/p&gt;&#xA;" OwnerUserId="15509" LastActivityDate="2019-05-14T09:52:55.317" Title="Vector Autoregressions" Tags="&lt;macroeconomics&gt;&lt;applied-econometrics&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29316" PostTypeId="2" ParentId="29310" CreationDate="2019-05-14T10:26:28.123" Score="4" Body="&lt;p&gt;Indeed it's difficult to account for all the real-life complexities, but the basic game-theory model of trade wars is &lt;a href=&quot;https://en.wikipedia.org/wiki/Prisoner%27s_dilemma&quot; rel=&quot;nofollow noreferrer&quot;&gt;prisoner's dilemma&lt;/a&gt;, e.g.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://leadersatwork.northeastern.edu/management/trump-tariffs-and-the-prisoners-dilemma/&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://leadersatwork.northeastern.edu/management/trump-tariffs-and-the-prisoners-dilemma/&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The concept of the Prisoner’s Dilemma is important to a number of business school subjects, including economics and negotiations. The current Trump administration provides a rich opportunity to explore this concept in the context of important policy deliberations. [...]&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;This also happens between countries and is playing itself out in many of President Trump’s recent actions involving tariffs. Bilateral agreements between the U.S. and its trading partners confront the “Prisoner’s Dilemma” when it comes to the issue of tariffs. Consider when the President said on March 8, 2018, “he” will impose tariffs on steel and aluminum imports within 15 days. Tariffs represent a situation where the “rational” decision would appear to be to raise tariffs on imports and hope the other side either doesn’t or cannot. The “rational” decision typically leads to retaliation as it does in many prisoner dilemma situations.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Of course, President Trump doesn’t see tariffs as posing a prisoner’s dilemma type problem, at least in his public pronouncements: “When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win. Example, when we are down $100 billion with a certain country and they get cute, don’t trade anymore-we win big. It’s easy!” (March 2, 2018 Twitter)&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Not surprisingly, other countries threaten to retaliate. China, Canada, and the European Union have already said they would respond by enacting tariffs that could result in extensive American export losses affecting industries and farms that the President had claimed to protect. Most economists feel that a trade war is disruptive and will make the world as a whole poorer.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Perhaps the President sees international trade as similar to the construction industry; i.e., as a forum where he can exert power and his will on the other party. What works in the construction industry where Trump gained his negotiation experience may not work in the very different world of international diplomacy. The President might have had leverage in dealing with contractors. But in international trade, the U.S. accounts for 9 percent of world exports and 14 percent of imports. This would not appear to be a position of domination.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Of course, another characteristic of President Trump’s negotiation style is to stake out an extreme position (anchor) in order to both intimidate an opponent and to give room to make concessions or compromise, and this may be the case with his tariff pronouncements.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://blogs.cornell.edu/info2040/2018/09/20/the-trade-war-between-the-u-s-and-china-a-prisoners-dilemma/&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://blogs.cornell.edu/info2040/2018/09/20/the-trade-war-between-the-u-s-and-china-a-prisoners-dilemma/&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In his [FT] article “Trade wars and the prisoners’ dilemma,” Gavyn Davies draws connections between this tit-for-tat tariff game and the classic example of the prisoners’ dilemma.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Davies highlights the fact that, if the U.S. and China are truly engaged in a non-cooperative, prisoner’s-dilemma style game, they will likely end up in a “bad Nash equilibrium,” where both countries’ payoffs are worse than if they were to simply cooperate with each other. Specifically, assuming that each country continues to choose strategies that protect its best interests in a time of uncertainty, it’s likely that there will be 1-3% reduction in global output in the next several years.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;In its entirety, Davies’ article demonstrates that the game theory logic underlying the prisoner’s dilemma is omnipresent. Almost every economist and investor examining the impacts of the budding trade war has assumed that the two countries will continue to retaliate against one another without cooperation. Their models paint a dismal (albeit realistic) picture of this trade war’s global repercussions. Still, economists and investors might be better off employing the same game theory logic to illustrate the mutually beneficial benefits of cooperation. Perhaps the prisoner’s dilemma will help to show how cooperation, not just among inmates, but among countries can lead to better payoffs than self-preserving strategies.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.bloombergquint.com/global-economics/game-theory-explains-why-the-u-s-china-trade-spat-is-worsening&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.bloombergquint.com/global-economics/game-theory-explains-why-the-u-s-china-trade-spat-is-worsening&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Experts surveyed by Bloomberg News lay out four scenarios for how the U.S. trade conflict with China could end: Both sides back down, which now seems unlikely in the short term; China blinks; the U.S. blinks; or both sides keep escalating.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The “China blinks” scenario assumes President Xi Jinping won’t want to endure a downturn in the Chinese economy, which showed signs it underperformed in May. The “U.S. blinks” scenario assumes China calls Trump’s bluff, knowing how much he enjoys a strong economy, rising stock market, and the support of voters in farm states that China could target. &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The fourth scenario, in which neither blinks, is the most damaging. “We’re not there yet, but it’s scary, because it seems like we’re on a path toward major conflict, and it’s hard to see the offramp,” says Michael Smart, managing director at Rock Creek Global Advisors LLC in Washington and a former international trade director on the National Security Council.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The World Trade Organization was created to prevent exactly this kind of bluffing and brinkmanship. “Trade agreements are a way of escaping from a prisoner’s dilemma in which each country acting rationally is stuck doing something that is bad for it individually, but they can’t get out of it without a collective agreement,” says Dartmouth College economist Robert Staiger. &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The Bagwell-Staiger Theory of Trade Agreements and the &quot;Reciprocity Approach&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The WTO literature seldom fails to mention prisoner's dilemma (avoidance), &lt;a href=&quot;https://www.wto.org/english/res_e/reser_e/ersd200702_e.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;e.g.&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;At the latest since the writings of David Ricardo and John Stuart Mill the welfare-enhancing qualities&#xA;  of international trade have been common wisdom in the realm of economics (Irwin, 1996). Reality,&#xA;  however, paints a different picture: Countries are often reluctant to open up their borders to foreign&#xA;  goods and services and unwilling to liberalize trade unilaterally. Yet, there are plenty of examples that&#xA;  countries have overcome what appears to be a mercantilist and protectionist stance and engage in&#xA;  bilateral or multilateral trade agreements. What is the rationale for such cooperation? Why do&#xA;  sovereign countries contract over trade issues?&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Starting with the seminal work of Harry Johnson (1953), economists have strived to address this&#xA;  question. The basic intuition that has guided much of the literature is that countries cooperate in an&#xA;  effort to constrain unilateral &lt;a href=&quot;https://en.wikipedia.org/wiki/Beggar_thy_neighbour&quot; rel=&quot;nofollow noreferrer&quot;&gt;“beggar-thy-neighbour”&lt;/a&gt; policies. Trade protection by one country may&#xA;  reduce the welfare of trading partners; it provokes negative externalities, or spill-overs.&#xA;   The strategic&#xA;  set-up of a prisoners’ dilemma emerges. Excessive trade protection, albeit inefficient, becomes the&#xA;  dominant strategy for importing countries. The purpose of a trade agreement is to eliminate the&#xA;  inefficient restrictions on trade volumes that arise when policies are set unilaterally, and thereby offer&#xA;  governments a means to escape the prisoners’ dilemma.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Theories of trade agreements based on externalities come in two variations.&#xA;   The best-known and&#xA;  most elaborate theory of trade cooperation is based on a terms-of-trade driven prisoners’ dilemma that&#xA;  (large) countries overcome by means of concluding an international trade contract. The terms-of-trade&#xA;  school contends that it is solely the ability of economically large countries to influence world prices&#xA;  for goods and services – and their potential to actively deteriorate other states’ terms-of-trade - that&#xA;  motivates governments to conclude trade agreements. Large countries realize that the unilateral&#xA;  setting of import tariffs creates inefficiencies that can be avoided by mutual trade cooperation. This&#xA;  theory is represented most prominently by Kyle Bagwell and Robert Staiger. Their research&#xA;  programme is the only one that formally integrates an explanation of why countries cooperate on trade&#xA;  matters with an explanation of how this can be done. In other words, it currently is the only approach&#xA;  in economics that can explain both the existence of the multilateral trading system and its architecture. &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The political externalities strand of the literature, which gained prominence through the writings of&#xA;  Wilfred Ethier (2004; 2004a; 2006), is critical of the terms-of-trade approach. It alleges that “a trade&#xA;  agreement serves governments to get credit for the reduction in foreign trade barriers. International&#xA;  cooperation is not about the elimination of economic (world-price) externalities, but about political&#xA;  externalities. The latter arise when politicians in one country believe that their political status is&#xA;  directly affected by actions of politicians of another country” (Hauser and Roitinger, 2004: 652).&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Different as these rationales for trade agreements may be concerning possible policy implications,&#xA;  their basic intuition is identical: Both schools rely on a simple game set-up, where two or more&#xA;  rational players are faced with a prisoners’ dilemma situation. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;(Avoiding) prisoner's dilemma also &lt;a href=&quot;https://www.wto.org/english/res_e/reser_e/ersd200804_e.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;applies to subsidies&lt;/a&gt;, not just tariffs:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;We begin our investigation of the role for retaliation by looking at export subsidies. Bagwell and Staiger&#xA;  (2001b) show how a subsidy agreement that limits government payments and avoids subsidy escalation&#xA;  can be of value to governments of exporting firms. Without such an agreement, each government is&#xA;  tempted to subsidize its exporters so as to create a competitive advantage in a third market – i.e., a&#xA;  prisoners' dilemma problem.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It's actually not clear to me if a more formal turn-based &quot;beggar thy neighbor&quot; rather than the simpler simultaneous version (prisoner's dilemma) has received much attention game-theory wise.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since trade wars are back in fashion, perhaps we'll see more theoretical literature dealing with how they happen rather than how they are avoided...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &lt;a href=&quot;https://en.wikipedia.org/wiki/Tit_for_tat&quot; rel=&quot;nofollow noreferrer&quot;&gt;tit for tat&lt;/a&gt; strategy and the associated &lt;a href=&quot;https://en.wikipedia.org/wiki/Prisoner%27s_dilemma#The_iterated_prisoner&amp;#39;s_dilemma&quot; rel=&quot;nofollow noreferrer&quot;&gt;iterated prisoner's dilemma&lt;/a&gt; have been studied theoretically quite a bit; perhaps there's more literature relating them to trade wars...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Actually there is some literature from three decades ago how trade wars start and iterate, but it seems mired in controversy as far as modelling goes; the hypothesis  of rent-seeking by internal pressure groups adds another dimension to simpler model of the (external) trade war; this conflicting issue of modelling hasn't been fully resolved &lt;a href=&quot;https://digitalcommons.law.yale.edu/fss_papers/1746/&quot; rel=&quot;nofollow noreferrer&quot;&gt;as of then&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In &lt;em&gt;Trade Wars&lt;/em&gt;, Professor John A.C. Conybeare, a political scientist,&#xA;  employs a game-theory approach in an attempt to formalize a predictive&#xA;  theory for when trade wars will occur.  While Conybeare praises the&#xA;  rent-seeking literature for rendering trade wars &quot;more theoretically and&#xA;  empirically understandable,&quot; he finds the interest group explanation&#xA;  conveyed in that literature to be incomplete because it &quot;has largely been&#xA;  confined to examining the interindustry structure of protection within&#xA;  countries and, with a few exceptions, has not made international comparisons.&quot; In other words, Conybeare takes the position that, while interest&#xA;  groups may set the internal political agenda within a particular country,&#xA;  no interest group explanation of trade wars can be complete without an&#xA;  understanding ofthe constraints facing that country due to its bargaining&#xA;  power vis-a-vis other nations. [...]&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;In Chapter Five, he looks at the Anglo-Hanse trade wars to test his&#xA;  assertion that bilateral trade wars between large trading units will result&#xA;  in a prisoners' dilemma that will evolve into a cooperative equilibrium as&#xA;  the two sides learn to employ contingent retaliation. Unfortunately, four&#xA;  hundred years worth of trade-a sufficient time span to produce iterative&#xA;  opportunities for even the most exacting game theoretician-did not&#xA;  produce cooperation. By the author's own admission this was because&#xA;  &quot;domestic rent-seeking in conjunction with a severe public good problem in the use of the tit-for-tat strategy of retaliation&quot; caused &quot;outbreaks&#xA;  of conflict to escalate.&quot;&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;In Chapter Six, Professor Conybeare describes the Anglo-French&#xA;  trade wars beginning in 1664. These trade wars are used to illustrate the&#xA;  author's hypothesis that trade wars between two large countries should&#xA;  evolve into a cooperative interaction after some initial defection because&#xA;  such wars resemble iterative prisoners' dilemmas.3o Contrary to Professor Conybeare's general hypothesis, the trade wars lasted for over two&#xA;  hundred years and did not evolve into a cooperative equilibrium at the&#xA;  pace his model predicts. As with the Anglo-Hanse trade wars, the author&#xA;  is forced to admit that his own example &quot;illustrates the ease with which&#xA;  the effects of iteration may be' disrupted.&quot; Once again, the cause of a&#xA;  protracted trade war can be traced to domestic rent seeking. [...]&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The Chicken Wars began because of Regulation 22, promulgated in&#xA;  July, 1962, which curbed the export of frozen chickens into EEC countries. The Chicken Wars brought the powerful agricultural lobby in&#xA;  France into direct conflict with the powerful agricultural lobby in the&#xA;  United States. Not surprisingly, France, the largest poultry producer in&#xA;  the EEC, was unwilling to embrace a free trade policy whose benefits&#xA;  would be spread among consumers throughout Europe. The benefits of&#xA;  protectionism were concentrated in France and the costs were borne by&#xA;  consumers throughout Europe. Indeed, the stakes were sufficiently high&#xA;  that France might have quit the EEC had not French agricultural interests been appeased.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So a fuller (game theory) model of trade wars seem to need to account for internal groups as different players rather than treat countries as single entities. I don't know if more progress on this has been made since that book.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A somewhat &lt;a href=&quot;https://doi.org/10.1111/1467-9396.00085&quot; rel=&quot;nofollow noreferrer&quot;&gt;more recent paper&lt;/a&gt; (only two decades old) on the US-Canada wars from more than a century ago:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The classic analysis of retaliation with optimal tariffs by Johnson (1954) is shown to&#xA;  have empirical validity. The pattern of US–Canadian tariff interactions in the period&#xA;  1868–70 shows evidence of a retaliatory adjustment process of the kind described by&#xA;  Johnson. Both countries perceive they have market power and therefore think they&#xA;  can gain from applying retaliatory optimal tariffs. In the short run, changes in the tariff&#xA;  level of each country are seen to be Granger-caused by changes in the tariff of the&#xA;  other. An interpretation of that result is that a tariff innovation in one country due to&#xA;  exogenous political economic forces in one country, say a highly influential protection-&#xA;  ist lobby, is met with retaliation by the partner country which seeks to reverse the&#xA;  initial increase. This leads to a tariff war. The Granger causality tests capture the short-&#xA;  run reactions that give credence to this story.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;What is more interesting, however, are the questions about the long-run steady-state&#xA;  solution after the retaliation war ends. In the long run, the USA maintains and even&#xA;  increases the tariff shock that it initiates, while the Canadian policy tends to back down&#xA;  from the tariff shock that it initiates. This is consistent with the Kennan–Reizman&#xA;  hypothesis that big countries win tariff wars, no matter who starts it. A second long-run&#xA;  result is that the Canadian tariff demonstrates a permanent change following a US&#xA;  tariff shock; that is, the cross-country effect is positive. On the other hand, in the long&#xA;  run, the US tariff returns to its own internal equilibrium (retaliation component is&#xA;  significantly no different from zero), unaffected by innovations in the Canadian tariff.&#xA;  This result is consistent with Chan’s (1991) model of bargaining which emphasizes&#xA;  the availability of outside options. Since the USA has greater outside options, it&#xA;  chooses not to participate in a costly retaliatory war. However, since Canada is highly&#xA;  trade-dependent on the USA, its outside options are limited and the best it can do is to&#xA;  retaliate in an attempt to bring down the US tariff increase.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Interestingly, an additional inference that may be made from the study is not one&#xA;  about retaliation, but about internal political economic factors. While Canadian retali-&#xA;  ation does not succeed in reversing a US tariff increase due to political economic&#xA;  factors, US retaliation is shown to succeed in at least partially reversing a tariff&#xA;  shock caused by political economic factors. Hence, not only is the size and lower&#xA;  trade dependency of the USA vis-à-vis Canada beneficial in non-cooperative or bar-&#xA;  gaining games, but the internal political economic factors in the USA seem to be more&#xA;  stubborn in the face of retaliation than are political economic factors in Canada. It was&#xA;  perhaps in the best interest of Canada to establish the Canada–US Free Trade Agreement in which the political importance of the issue was far greater in Canada than in&#xA;  the USA.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I have to say however that &lt;a href=&quot;https://doi.org/10.1016/0304-3878(91)90035-T&quot; rel=&quot;nofollow noreferrer&quot;&gt;Chan's model&lt;/a&gt; (although based on game theory) seems pretty obscure; the paper only has 10 citation in Google scholar. The &lt;a href=&quot;https://www.jstor.org/stable/2526808&quot; rel=&quot;nofollow noreferrer&quot;&gt;Kennan-Riezman hypothesis&lt;/a&gt; (that big countries win trade wars) seems a lot more discussed, with a few hundred citations; but it doesn't seem primarily based on based on game theory; it uses an &lt;a href=&quot;https://en.wikipedia.org/wiki/Edgeworth_box&quot; rel=&quot;nofollow noreferrer&quot;&gt;Edgeworth box&#xA;&lt;/a&gt; analysis to draw its main conclusion as to the bargaining power in a trade war.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A highly-cited &lt;a href=&quot;https://www.nber.org/papers/w4280.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;1993 paper by Grossman and Helpman&lt;/a&gt; does attempt to model national-level interest groups: it includes not only the global country utility but also (domestic) political contributions in the government's utility function when doing trade negotiations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think this is still pretty limited, since it only considered campaign finance contributions as part of the latter. Potential for votes is not distributed among groups, but only modelled via the general country welfare utility function. But even this results in a pretty complicated analysis. Only by the 34th page in their paper they get to introduce the competitive model including foreign governments, which is not developed a lot. The paper notes/conclues the obvious trade-off that a national government has to face between industry lobby groups and general population welfare with respect to tariffs, and also (obviously)&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Tariff rates are highest in industries with the largest stakes in trade policy (i.e., greatest output) and in industries where foreign export supplies and mohme import demands are most inelastic. [...]&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Industry groups that are politically stronger than their counterparts abroad will secure exceptions from across-the board tariff cuts or from reductions in the levels of export promotion.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;But practically all of this involves equilibrium analyses rather than much game theory; there are no (game) iterations involved in this paper. These two authors have an even more highly cited paper title &lt;a href=&quot;https://www.nber.org/papers/w4149.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;&quot;protection for sale&quot;&lt;/a&gt; which elaborates on the costs borne by lobby/industry groups.&lt;/p&gt;&#xA;" OwnerUserId="6210" LastEditorUserId="6210" LastEditDate="2019-05-14T13:28:28.887" LastActivityDate="2019-05-14T13:28:28.887" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29318" PostTypeId="1" AcceptedAnswerId="29319" CreationDate="2019-05-14T12:43:05.713" Score="2" ViewCount="20" Body="&lt;p&gt;As far as I have understood &lt;a href=&quot;https://www.wikiwand.com/en/Emissions_trading&quot; rel=&quot;nofollow noreferrer&quot;&gt;emission right certificates&lt;/a&gt; are some kind of currency. Each company may emit as much of say CO&lt;sub&gt;2&lt;/sub&gt; as its certificates allow. Certificates may be traded, i.e. bought and sold. If a company emits more than it is allowed to it pays a fine (to the country where the pollution occurs).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is: How is it prevented that a wealthy company in a rich country buys lots of certificates (to a modest price) from a poorer company in a poorer country which in turn is forced to emit more pollutants than it is allowed to (because it sold all its certificates) - but its country doesn't force it to pay the fine.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus the intended effect of emission right certificates would be undermined. By which measures is this tried to be avoided?&lt;/p&gt;&#xA;" OwnerUserId="22991" LastActivityDate="2019-05-14T13:38:05.343" Title="International emissions trading" Tags="&lt;macroeconomics&gt;&lt;international-trade&gt;&lt;environmental-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29319" PostTypeId="2" ParentId="29318" CreationDate="2019-05-14T13:38:05.343" Score="3" Body="&lt;p&gt;There can be civil or criminal penalties applied for non-compliance.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;See for example:&#xA;&lt;a href=&quot;https://www.gov.uk/government/publications/environment-agency-enforcement-and-sanctions-policy/annex-2-climate-change-schemes-the-environment-agencys-approach-to-applying-civil-penalties&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.gov.uk/government/publications/environment-agency-enforcement-and-sanctions-policy/annex-2-climate-change-schemes-the-environment-agencys-approach-to-applying-civil-penalties&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.daera-ni.gov.uk/articles/euets-fees-charges-and-civil-penalties&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.daera-ni.gov.uk/articles/euets-fees-charges-and-civil-penalties&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;International trading schemes depend on international law. Membership of such schemes will depend on accepting an adjudication body to rule on breaches, as with any other international contractual agreement.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2019-05-14T13:38:05.343" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="29320" PostTypeId="1" CreationDate="2019-05-14T13:59:41.713" Score="1" ViewCount="26" Body="&lt;p&gt;A highly cited model of protectionism is the &lt;a href=&quot;https://www.nber.org/papers/w4149.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;&quot;protection for sale&quot;&lt;/a&gt; model or Grossman and Helpman. (For an [updated] evaluation of that model see for instance the &lt;em&gt;Advanced International Trade&lt;/em&gt; textbook of Feenstra.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However this model seems pretty limited to me in the view of Trump and Brexit. Modelling just lobby/industry groups carving/buying out &lt;em&gt;increased&lt;/em&gt; protectionism in their own niches seems overtaken by events in which narrow democratic majorities capture the &lt;em&gt;entire&lt;/em&gt; trade policy in a protectionist matter. Now (other) industry/trade groups seem to fight for niches in the opposite direction, i.e. being exempted from the overall tariffs increase; see &lt;a href=&quot;https://economics.stackexchange.com/a/29304/6210&quot;&gt;Apple as an example&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are there economic models that account for this new reality? (To some extent, this requires only a fairly trivial extension of &quot;protection for sale&quot;, i.e. in an elevated protectionist environment, there will be groups lobbying for less protectionism, and their [anti-protectionist] niche-carving success will depend on their political clout (as a mirror of the process of buying protectionism). On the other hand, the conditions for a majoritarian capture of [increased] overall protectionism in a democracy doesn't seem so trivial.)&lt;/p&gt;&#xA;" OwnerUserId="6210" LastEditorUserId="6210" LastEditDate="2019-05-14T14:27:15.710" LastActivityDate="2019-05-14T14:27:15.710" Title="Are there political economy models that include a &quot;majority capture&quot; of (protectionist) trade policy?" Tags="&lt;reference-request&gt;&lt;international-trade&gt;&lt;political-economy&gt;&lt;protectionism&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29321" PostTypeId="1" AcceptedAnswerId="29323" CreationDate="2019-05-14T15:32:59.923" Score="1" ViewCount="17" Body="&lt;p&gt;Given a total consummation of 1000 and a total revenue of 2000 with &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Cat 1 =&gt; elasticity of 0.5; MPC of 0.1&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Cat 2 =&gt; elasticity of 1, MPC of 0.3&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How would I go about to calculating the % of the total revenue for each category?&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;I tried using both these formulas&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://chart.googleapis.com/chart?cht=tx&amp;amp;chl=%5C%5CMPC%3D%5Cfrac%7B%5CDelta%20C%7D%7B%5CDelta%20Y%7D&quot; alt=&quot;mpc&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://chart.googleapis.com/chart?cht=tx&amp;amp;chl=Elasticity%3D%5Cfrac%7B%5Cfrac%7B%5CDelta%20C%7D%7BC%7D%7D%7B%5Cfrac%7B%5CDelta%20Y%7D%7BY%7D%7D&quot; alt=&quot;elasticity&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and tried to figure out the first category by assuming the variation of revenue to be 2000 (2000-0) and the initial consummation to be 0.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://chart.googleapis.com/chart?cht=tx&amp;amp;chl=0.5%3D%5Cfrac%7B%5Cfrac%7BC_%7B2%7D-0%7D%7B1000%7D%7D%7B%5Cfrac%7B2000-0%7D%7B2000%7D%7D&quot; alt=&quot;whatidid&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which gives me a value of 500 for c2. But then, using the MPC formula, it does not seem to make any sense&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://chart.googleapis.com/chart?cht=tx&amp;amp;chl=0.1%5Cneq%20%5Cfrac%7B500-0%7D%7B2000-0%7D&quot; alt=&quot;hmm&quot;&gt;&lt;/p&gt;&#xA;" OwnerUserId="23153" LastActivityDate="2019-05-14T19:42:11.960" Title="Finding the % of the total consummation by category using elasticity and MPC" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29323" PostTypeId="2" ParentId="29321" CreationDate="2019-05-14T16:31:22.607" Score="0" Body="&lt;p&gt;Notice that the elasticity can be written as &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\frac{\Delta C}{\Delta Y}\cdot\frac{Y}{C}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So for category &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt; you have &lt;span class=&quot;math-container&quot;&gt;$$\frac{\Delta C_1}{\Delta Y}\cdot\frac{Y}{C_1}=0.5$$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$$MPC_1=\frac{\Delta C_1}{\Delta Y}=0.1$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This gives you &#xA;&lt;span class=&quot;math-container&quot;&gt;$$0.1\cdot\frac{Y}{C_1}=0.5$$&lt;/span&gt;&#xA;which by reordering yields to&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\frac{C_1}{Y}=\frac{1}5$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Similarly &lt;span class=&quot;math-container&quot;&gt;$$\frac{C_2}{Y}=\frac{3}{10}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally notice that &lt;span class=&quot;math-container&quot;&gt;$C=C_1+C_2=1000$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$Y=2000$&lt;/span&gt;, hence we must have that &lt;span class=&quot;math-container&quot;&gt;$\frac{C}{Y}=\frac{C_1+C_2}{Y}=0.5$&lt;/span&gt; which is satisfied since&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\frac{1}5+\frac{3}{10}=0.5$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Since we have that &lt;span class=&quot;math-container&quot;&gt;$2C=Y$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$100\%$&lt;/span&gt; of revenue comes from &lt;span class=&quot;math-container&quot;&gt;$C$&lt;/span&gt; is straightforward to see that the &lt;span class=&quot;math-container&quot;&gt;$\%$&lt;/span&gt; of revenue associated with each category are twice this numbers)&lt;/p&gt;&#xA;" OwnerUserId="19921" LastEditorUserId="19921" LastEditDate="2019-05-14T19:42:11.960" LastActivityDate="2019-05-14T19:42:11.960" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29324" PostTypeId="1" CreationDate="2019-05-14T18:44:06.267" Score="1" ViewCount="48" Body="&lt;p&gt;I wondered if someone would be willing to provide an intuitive presentation of the so-called integrability of demand/integrability conditions. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My own knowledge of these conditions is that they're the conditions required of an individual (and subsequently a market) to be acting 'rationally', (i.e. consistently maximising/or minimising welfare using price signals)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My own interpretation is that these conditions are required so that economics is an economic science, adhering to certain predictable laws (such as the compensated law of demand). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Economic behaviour should therefore be time-invariant, path-independent , universal, and not subject to illusion. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Homogeneity of degree should hold (money units do not matter in economic decision making, instead it is relative prices).&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Individuals maximise consumption (MRS = price ratio)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Behaviour is characterised by symmetry (universality). Compensated change in demand for X, given a change in Y is the same as the compensated change in demand for Y, given the change in X.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I wondered if my interpretation here is the correct one?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am especially interested to here some intuitive explanations of Slutsky Symmetry with real world examples, and also an intuitive explanation of 'negative semidefinite' beyond that it must chracterise a 'concave utility function'.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Would be nice to hear everybody's input on these matters, and really get to the essence of the topic matter.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Best,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Andrew&lt;/p&gt;&#xA;" OwnerUserId="23154" LastActivityDate="2019-05-14T18:44:06.267" Title="Integrability of Demand" Tags="&lt;microeconomics&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29325" PostTypeId="2" ParentId="29161" CreationDate="2019-05-14T19:31:27.477" Score="5" Body="&lt;p&gt;The &lt;em&gt;Journal of Economic Dynamics and Control&lt;/em&gt;, a decent if not &quot;the most prestigious&quot; journal (&lt;a href=&quot;https://ideas.repec.org/top/top.journals.all.html&quot; rel=&quot;noreferrer&quot;&gt;ranked 48th&lt;/a&gt; by IDEAS/RePEc), did publish a special issue on agent-based computational economics back in 2001 introducing the method to the discipline. In its &lt;a href=&quot;https://www.sciencedirect.com/science/article/pii/S0165188900000270&quot; rel=&quot;noreferrer&quot;&gt;introductory article&lt;/a&gt;, Leigh Tesfatsion, a leading figure in this field, wrote:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Agent-based computational economics (ACE) is the computational study of economies modelled as evolving systems of autonomous interacting agents. ACE is thus a specialization to economics of the basic complex adaptive systems paradigm (Holland, 1992).&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;[...]&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;As with any new methodology, initial excitement over possibilities must give way to careful research that demonstrates more concretely both its advantages and its limitations. This special issue on ACE, together with the companion special issue on ACE scheduled to appear in &lt;em&gt;Computational Economics&lt;/em&gt;, will give readers a chance to judge for themselves the potential of the ACE methodology and the extent to which convincing results have been achieved to date. To help guide the reader through these special issues, the following section provides an article synopsis.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Numerous papers using agent-based modeling (ABM) subsequently appeared in this journal. To list a few: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Branch and McGough (2010) &quot;Dynamic predictor selection in a new Keynesian model with heterogeneous expectations&quot; &lt;/li&gt;&#xA;&lt;li&gt;Dosi et al. (2015) &quot;Fiscal and monetary policies in complex evolving economies&quot;&lt;/li&gt;&#xA;&lt;li&gt;Gualdi et al. (2015) &quot;Tipping points in macroeconomic agent-based models&quot;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;ABM papers that appear in other &quot;mainstream&quot; journals: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Geanakoplos et al. (2012) &quot;Getting at Systemic Risk via an Agent-Based Model of the Housing Market&quot;, &lt;em&gt;American Economic Review: Papers and Proceedings&lt;/em&gt;&lt;/li&gt;&#xA;&lt;li&gt;De Grauwe (2012) &quot;Booms and busts in economic activity: A behavioral explanation&quot;, &lt;em&gt;Journal of Economic Behavior &amp;amp; Organization&lt;/em&gt;&lt;/li&gt;&#xA;&lt;li&gt;Popoyan et al. (2017) &quot;Taming macroeconomic instability: Monetary and macro-prudential policy interactions in an agent-based model&quot;, &lt;em&gt;Journal of Economic Behavior &amp;amp; Organization&lt;/em&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Thus I'm more inclined to believe that ABM's under-representation (so-to-speak) in economics is due to its nicheness rather than objections from the mainstream. &lt;/p&gt;&#xA;" OwnerUserId="42" LastEditorUserId="42" LastEditDate="2019-05-14T19:40:53.923" LastActivityDate="2019-05-14T19:40:53.923" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29326" PostTypeId="1" CreationDate="2019-05-14T20:22:15.233" Score="1" ViewCount="30" Body="&lt;p&gt;Example: Apple. People &quot;overpay&quot; for their products, money that ends up in corporate savings and not in their competitors' coffers, sort of a black hole because Apple doesn't see enough investment opportunities. Let's assume these savings are in the form of government bonds. Is this type of money flow deflationary? Are there studies about money flow/inflation impact by different savings types? Is there a general rule how savings vs investments affect inflation?&lt;/p&gt;&#xA;" OwnerUserId="23155" LastActivityDate="2019-05-14T20:22:15.233" Title="Are corporate savings deflationary?" Tags="&lt;inflation&gt;&lt;investment&gt;&lt;saving&gt;&lt;deflation&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29327" PostTypeId="2" ParentId="29127" CreationDate="2019-05-14T22:23:29.003" Score="2" Body="&lt;p&gt;In &lt;em&gt;Notes on the Theory of Choice&lt;/em&gt; (assuming this is what you refer to by &quot;Kreps (1988)&quot;), Kreps does not appear to mention WARP as such. But he does refer to &quot;Houthakker's axiom&quot; (Houthakker 1950, &lt;em&gt;Economica&lt;/em&gt;), which is actually SARP, not WARP. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your conditions 1 and 2 are equivalent if there are only two goods. If there are more than two goods, WARP in condition 1 must be replaced by SARP to preserve the equivalence. Jehle and Reny (2011) have an intuitive explanation for this: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;[W]ith two goods, the pairwise ranking of bundles implied through revealed preference turns out to have no intransitive cycles. [...] And when this is so, there will be a utility representation generating the choice function.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;SARP basically posits conditions that explicitly rule out intransitive cycles in revealed preferences with a general &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt;-good environment. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;WARP/SARP differ from GARP in that the former presumes the availability of infinitely many choice data to build a choice &lt;em&gt;function&lt;/em&gt; with, whereas GARP only requires a finite set of choice data. &lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2019-05-14T22:23:29.003" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29328" PostTypeId="1" CreationDate="2019-05-14T22:41:34.173" Score="4" ViewCount="47" Body="&lt;p&gt;Lately I was struck by different studies concluding median job tenure at Google, Facebook, Amazon, Microsoft and Apple is 1 to 2 years, very low compared to the Bureau of labor statistics which is a little over 4 years average job tenure.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sources: &#xA;&lt;a href=&quot;https://deeptalent.com/blog/tenure-length-tech-titans-compared/&quot; rel=&quot;nofollow noreferrer&quot;&gt;DeepTalent&lt;/a&gt;&#xA;&lt;a href=&quot;https://www.payscale.com/data-packages/employee-loyalty/full-list&quot; rel=&quot;nofollow noreferrer&quot;&gt;Payscale&lt;/a&gt;&#xA;&lt;a href=&quot;https://www.paysa.com/blog/wp-content/uploads/2017/07/DisruptorsA8.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;Paysa&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Turnover is uniformly described in literature as costly and avoidable. Given the fact they have near unlimited power for generous policies, that they let turnover get this high comes as surprising, possibly is a result of a cost calculation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is tech giants turnover cheap or unavoidable ? How do they manage turnover costs, generally speaking ?&lt;/p&gt;&#xA;" OwnerUserId="23156" LastActivityDate="2019-05-18T10:48:18.553" Title="How do tech giants manage turnover costs?" Tags="&lt;technology&gt;&lt;labor-cost&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29330" PostTypeId="1" CreationDate="2019-05-14T23:29:21.450" Score="1" ViewCount="140" Body="&lt;p&gt;Could it ever be economically viable, once technology allows, to create robot consumers to replace humans if demand was so low because of automation and reduced spending power/unemployment or is there simply no way to make robot consumers pay?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am envisaging a future in which elite consumption has risen, but not enough to offset a huge decline in mass consumption. In that scenario, I was wondering if robot consumers could keep capitalism afloat? I am trying to check out for something I am writing whether such a thing could work economically ie whether there could be a profit in it for the producers and owners of the robots, I don’t think they could ever be economically autonomous because of the build and running costs. But could robot demand be sold or rented for example by the producers/owners to other companies to consume their products? There might be some state investment as well under the banner of demand stimulation? Or is it as the first reply argued, that this is just an economically illogical premise because the maths (profit) just can’t work because of cost of building and maintain the robots?&lt;/p&gt;&#xA;" OwnerUserId="23158" LastEditorUserId="11590" LastEditDate="2019-05-15T13:39:41.727" LastActivityDate="2019-05-20T04:53:32.010" Title="Could robots replace humans as consumers?" Tags="&lt;macroeconomics&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29331" PostTypeId="2" ParentId="29330" CreationDate="2019-05-15T05:04:33.923" Score="2" Body="&lt;p&gt;&lt;em&gt;Short answer&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Perhaps your concern about stimulating demand is explained by the &lt;a href=&quot;https://en.wikipedia.org/wiki/Parable_of_the_broken_window&quot; rel=&quot;nofollow noreferrer&quot;&gt;broken window fallacy&lt;/a&gt;. The fallacy is the belief that there is a social benefit to income that is concomitant with a loss in a stock of wealth.  Instead of using a stone to break a window you want to use a robot.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Longer answer&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You said &quot;demand was so low because of automation&quot;. I think automation increases valuable output so it increases income so it increases demand. I think you suggested a nonsensical premise. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think current day robots are economically viable since there is a market for them. As @Fizz correctly says they use spare parts and they also use energy, usually electricity. Presumably they produce more value than they consume, otherwise nobody would buy one. What is a robot and what is the owner of the robot are hard to separate since robots do not have what I might call autonomy under the law. They are chattel. As chattel, you might say it is the combined unit of the owner plus robot that is the consumer and the producer. The owner might be a corporation. Robots can mechanically pay for goods and services but since it's not an autonomous individual it is really the owner that is paying, using the owner's money. The robot itself does not own money. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the law changes to recognize robots as autonomous individuals, not chattel, not slaves, then their individual output would add to GDP and their individual consumption of goods and services would add to aggregate demand. They already do add to these economic measures, but as part of a combined unit of owner plus robot.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You asked if robots can replace human consumers. Yes, robots as autonomous individuals can replace humans as consumers of goods and services. When a robot as an autonomous individual consumes a rival good, a human cannot consume the same. I think this is easy to understand if we consider electricity. If a robot as an autonomous individual runs, swims, and bicylces a triathlon, it will use energy that a human could not have used to air condition their condominium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Rivalry_(economics)&quot; rel=&quot;nofollow noreferrer&quot;&gt;Link to a description of rival goods.&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;ADDENDUM&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You have edited your question so I am posting an addendum. In this addendum I will assume that the law changed to recognize robots as autonomous individuals.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If elite consumption increases by one dollar and consumption by non-elites decreases by two dollars, aggregate consumption will decrease but that is a transitory problem. The lower level of consumption will soon be matched with a lower level of output. Nobody will persist in producing goods that will obviously fail to sell. I sense your question is about permanent effects and you did not specifically express a concern about transitory problems. One reason it is transitory is because when people stop producing goods that do not sell they switch to producing something that does and when that happens the economic recession comes to an end. Consider that there is the &quot;permanent&quot; phenomenon of productivity improvement which will eventually cause income and consumption to increase for elites and non-elites and so the lower level of non-elite consumption is temporary.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You asked if a robot consumer will &quot;keep capitalism afloat&quot;. If the non-elite, motivated by a &lt;em&gt;temporarily&lt;/em&gt; lower living standard, desire to vote to switch to a non-capitalism regime I think the robot consumer producer has an uncertain effect in that aspect. The robot consumer will consume some rival goods while also producing some rival goods. In the long run the robot producer consumer will be powerful and it will produce much and consume much. They will be part of the elite. Under a progressive tax system human elites and robot elites will be taxed at a higher rate than non-elites. It might be the progressive tax system, not as much the existence of robot consumer producers, that helps the non-elite. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since I am assuming robots are recognized as autonomous individuals I will not answer the questions involving owners of robots and robots being sold and rented.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You seem very concerned about the cost to build and operate robots. These costs are always decreasing because of the permanent phenomenon of technology improvement.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You seem to persist in being concerned about stimulating demand. I refer you to the beginning of my answer that said low demand because of automation is nonsensical. We do not need robots to stimulate demand of rival goods. The destruction of rival goods is sufficient to stimulate demand. &lt;/p&gt;&#xA;" OwnerUserId="6868" LastEditorUserId="6868" LastEditDate="2019-05-20T04:53:32.010" LastActivityDate="2019-05-20T04:53:32.010" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29333" PostTypeId="1" AcceptedAnswerId="29334" CreationDate="2019-05-15T11:06:49.313" Score="0" ViewCount="21" Body="&lt;p&gt;I find it quite hard to get a clear picture of what the income numbers in &lt;a href=&quot;https://www.gapminder.org/dollar-street/matrix&quot; rel=&quot;nofollow noreferrer&quot;&gt;Gapminder's Dollar Street&lt;/a&gt; tell. How to compare \$27 in Burundi with \$10,098 in China? What would it mean that the family in Burundi is 500 times &quot;poorer&quot; than the family in China?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are two aspects that are unclear to me:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Wouldn't it be a better measure (than income is) to quantify how much of the money one needs to lead a &quot;normal healthy&quot; life one has at ones disposal (in percent)? How is this measure called? &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;What about self-suppliers (what many families in poorer countries are)? They own and need less money (income) than others do, but how is the value of their self-supplying work measured?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;In the context of self-supply: Wouldn't &quot;belongings&quot; be a better measure than &quot;income&quot;?&lt;/p&gt;&#xA;" OwnerUserId="22991" LastEditorUserId="22991" LastEditDate="2019-05-15T11:17:17.443" LastActivityDate="2019-05-15T11:36:55.273" Title="Gapminder's Dollar Street and the role of self-supply" Tags="&lt;econometrics&gt;&lt;utility&gt;&lt;money&gt;&lt;value&gt;&lt;poverty&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29334" PostTypeId="2" ParentId="29333" CreationDate="2019-05-15T11:36:55.273" Score="2" Body="&lt;p&gt;On &lt;a href=&quot;https://www.gapminder.org/dollar-street/about&quot; rel=&quot;nofollow noreferrer&quot;&gt;Gapminder's website&lt;/a&gt; they write&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;If you have a question, maybe it's already answered in our Q&amp;amp;A.&#xA;  &lt;br&gt; &lt;a href=&quot;https://docs.google.com/document/d/13u87BWz450cqvqr4TaiWi84yiNa5MOItr46_g1xRcTY/edit?usp=sharing&quot; rel=&quot;nofollow noreferrer&quot;&gt;Q&amp;amp;A&lt;/a&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The underlined text links to a Google document, which answers several questions. Under one of these answers&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The households’ door numbers represent the consumption values (US dollars) that each adult in the household has per month. This figure comes from a combination of the household’s self-reported consumption and income levels. We then checked official cost of living data in each country to adjust the values for purchasing power parity (PPP) and converted the value into US dollars.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;there is a link to a further Google document titled &lt;a href=&quot;https://drive.google.com/drive/folders/0B9jWD65HiLUnRm5ZNWlMSU5GNEU&quot; rel=&quot;nofollow noreferrer&quot;&gt;Detailed income calculations for Dollar Street&lt;/a&gt;. This second one seems to answer your question, but it is several pages long, so I will not copy paste its full body of text here.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2019-05-15T11:36:55.273" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="29336" PostTypeId="1" CreationDate="2019-05-15T12:38:37.353" Score="0" ViewCount="17" Body="&lt;p&gt;Free cash flow (FCF) can be obtained by &#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\text{FCF}=(\text{Revenues}-\text{Cost}-\text{Depreciation})(1-\tau)+\text{Depreciation}-\text{Capital Expenditures}-\Delta(\text{Net Working Capital})&#xA;$$&lt;/span&gt;&#xA;where &lt;span class=&quot;math-container&quot;&gt;$\tau$&lt;/span&gt; is the corporate tax rate and&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\Delta(\text{Net Working Capital})=\Delta(\text{Cash}+\text{Inventory}+\text{Receivables}-\text{Payables})&#xA;$$&lt;/span&gt;&#xA;is the increase in net working capital over the period of interest. Besides inventory, all of these items appear to be monetary, except for depreciation which only affects the FCF through taxation, and so that contribution is also monetary. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But what about inventory? A change in inventory does not generate any monetary gains or losses, or does it? If it does not, how come a change in inventory is included in the calculation of the FCF?&lt;/p&gt;&#xA;" OwnerUserId="4230" LastActivityDate="2019-05-15T13:33:28.087" Title="Relevance of change in Inventory in calculation of Free Cash Flow" Tags="&lt;corporate-finance&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29337" PostTypeId="2" ParentId="29336" CreationDate="2019-05-15T12:46:14.610" Score="1" Body="&lt;p&gt;When you manufacture a product, you incur some production cost. However, you do not account for this production cost in the &lt;span class=&quot;math-container&quot;&gt;$\text{Cost}$&lt;/span&gt; line of the income statement until you actually sell the product. While the product is sitting in your inventory waiting to be sold, you have already incurred some (actual, monetary) cost that is not visible in the &lt;span class=&quot;math-container&quot;&gt;$\text{Cost}$&lt;/span&gt; line. That is why you have to adjust the reported &lt;span class=&quot;math-container&quot;&gt;$\text{Cost}$&lt;/span&gt; by &lt;span class=&quot;math-container&quot;&gt;$\Delta\text{Inventory}$&lt;/span&gt; to obtain the actual, monetary cost for the period. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is why &lt;span class=&quot;math-container&quot;&gt;$\Delta\text{Inventory}$&lt;/span&gt; belongs in the FCF calculation.&lt;/p&gt;&#xA;" OwnerUserId="4230" LastEditorUserId="4230" LastEditDate="2019-05-15T13:33:28.087" LastActivityDate="2019-05-15T13:33:28.087" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29339" PostTypeId="2" ParentId="5584" CreationDate="2019-05-15T14:24:21.353" Score="5" Body="&lt;p&gt;French economist Jean-Baptiste Michau has &lt;a href=&quot;https://doi.org/10.1016/j.jet.2018.04.011&quot; rel=&quot;noreferrer&quot;&gt;published&lt;/a&gt; in 2018 a relatively simple model of secular stagnation:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;To investigate secular stagnation, I add two features to a standard Ramsey model with money: (i) Households have a preference for wealth; (ii) Wages are downward rigid. In this framework, there exists a frictionless neoclassical steady state equilibrium characterized by a low natural real interest rate. In addition, if wages are sufficiently rigid and the natural real interest rate sufficiently low, then there also exists a Keynesian secular stagnation steady state characterized by under-employment, low inflation, and a binding zero lower bound on the nominal interest rate. As wages become more flexible, the Keynesian steady state diverges away from the neoclassical steady state, until wages are so flexible that it ceases to exist. If monetary policy is excessively restrictive, then the secular stagnation steady state is the unique steady state equilibrium of the economy. The optimal policy response to secular stagnation is to move the economy to the neoclassical steady state. This can either be achieved by raising the central bank's inflation ceiling or by taxing wealth and subsidizing investment in physical capital. This optimal tax policy is revenue-neutral.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;A free prior version of that paper &lt;a href=&quot;https://hal-polytechnique.archives-ouvertes.fr/hal-01211667/document&quot; rel=&quot;noreferrer&quot;&gt;is available on HAL&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Insofar this paper of Michau doesn't have a lot of citations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As an aside, as the US economy got better, so have the critics of secular stagnation (as applying to the US now or as relevant even during the post-2008 recovery) sharpened their criticism, e.g. &lt;a href=&quot;https://www.socialeurope.eu/the-myth-of-secular-stagnation&quot; rel=&quot;noreferrer&quot;&gt;Stiglitz has a 2018 piece&lt;/a&gt; against it, saying that secular stagnations was used as an excuse for an insufficient stimulus/reform (of the more redistributive kind Stiglitz favors). Summers has written &lt;a href=&quot;https://www.socialeurope.eu/setting-the-record-straight-on-secular-stagnation&quot; rel=&quot;noreferrer&quot;&gt;a response&lt;/a&gt; to that piece.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Dutch economists van den End and Hoeberichts have published (also in 2018) &lt;a href=&quot;https://doi.org/10.1016/j.japwor.2018.03.001&quot; rel=&quot;noreferrer&quot;&gt;an empirical assessment&lt;/a&gt; for some OECD countries whether low real interest rates are a driver of secular stagnation:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;We empirically test whether there is a causal link between the real interest rate and the natural rate of interest, which could be a harbinger of secular stagnation if the real rate declines. Outcomes of VAR models for seven OECD countries show that a fall in the real rate indeed affects the natural rate. This causality is significant for Japan in all model specifications, for Canada, France, UK and Germany in some specifications and it is not significant for the US and Italy. The policy implication is that to avoid secular stagnation, expansionary monetary policy to reduce the real rate is less effective than policies aimed at raising the natural rate.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.nber.org/papers/w23077.pdf&quot; rel=&quot;noreferrer&quot;&gt;Acemogulu and Restrepo (2017)&lt;/a&gt; studied empirically whether aging population is causing secular stagnation, and they find that it didn't happen, i.e. automation compensated for population aging:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Several recent theories emphasize the negative effects of an aging population on economic&#xA;  growth, either because of the lower labor force participation and productivity of older workers or&#xA;  because aging will create an excess of savings over desired investment, leading to secular&#xA;  stagnation. We show that there is no such negative relationship in the data. If anything, countries&#xA;  experiencing more rapid aging have grown more in recent decades. We suggest that this&#xA;  counterintuitive finding might reflect the more rapid adoption of automation technologies in&#xA;  countries undergoing more pronounced demographic changes, and provide evidence and&#xA;  theoretical underpinnings for this argument.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Acemogulu and Restrepo seem to be using GDP per capita for their counterpoint, which may or may not be what Hansen intended (he didn't give more technical formulation, apparently).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In contrast to these last two papers, Eggertsson, Mehrotra and Robbins have an &lt;a href=&quot;https://www.nber.org/papers/w23093.pdf&quot; rel=&quot;noreferrer&quot;&gt;updated (2017) paper&lt;/a&gt; claiming that US is/was experiencing a secular stagnation (up to 2015 at least):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;This paper formalizes and quantifies the secular stagnation hypothesis, defined as a persistently&#xA;  low or negative natural rate of interest leading to a chronically binding zero lower bound (ZLB).&#xA;  Output-inflation dynamics and policy prescriptions are fundamentally different from those in the&#xA;  standard New Keynesian framework. Using a 56-period quantitative life cycle model, a standard&#xA;  calibration to US data delivers a natural rate ranging from –1:5% to –2%, implying an elevated&#xA;  risk of ZLB episodes for the foreseeable future. We decompose the contribution of demographic&#xA;  and technological factors to the decline in interest rates since 1970 and quantify changes required&#xA;  to restore higher rates.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I guess the standard comment about the dismal science applies at this point.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, I was curious where they break down the contribution of technological and demographic factors, but I can't seem find it explicitly in their 90-page paper. I guess they just mean the (negative coefficient for the) labor share for the former (in tables A.7-A.13).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There's also an empirical &lt;a href=&quot;https://www.econstor.eu/bitstream/10419/187457/1/rome-wp-2017-12.pdf&quot; rel=&quot;noreferrer&quot;&gt;2017 EU-focused paper&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Is secular stagnation—a period of persistently lower growth such as that seen following the&#xA;  financial crisis of 2008/09—a valid concern for euro-area countries? We tackle this question&#xA;  using the well-established Laubach-Williams model to estimate the unobservable equilibrium&#xA;  real interest rate and compare it to the actual real rate. In light of the considerable increase in&#xA;  heterogeneity among EU member countries since the beginning of the financial crisis, we&#xA;  apply our approach to twelve euro-area countries to provide country-level answers to the&#xA;  question of secular stagnation. The presence of secular stagnation in a number of euro-area&#xA;  countries has important implications for ECB decision-making (i.e., voting power in the&#xA;  Governing Council) and EU governance. Our results indicate that secular stagnation is not a&#xA;  significant threat to most euro-area countries, with one possible exception: Greece.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;And using basically the same methodology (as the previous paper), but a different (longer) time frame, different conclusions are drawn in &lt;a href=&quot;https://doi.org/10.1016/j.jinteco.2017.01.004&quot; rel=&quot;noreferrer&quot;&gt;another 2017 paper&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;U.S. estimates of the natural rate of interest – the real short-term interest rate that would prevail absent transitory disturbances – have declined dramatically since the start of the global financial crisis. For example, estimates using the Laubach–Williams (2003) model indicate the natural rate in the United States fell to close to zero during the crisis and has remained there into 2016. Explanations for this decline include shifts in demographics, a slowdown in trend productivity growth, and global factors affecting real interest rates. This paper applies the Laubach–Williams methodology to the United States and three other advanced economies – Canada, the Euro Area, and the United Kingdom. We find that large declines in trend GDP growth and natural rates of interest have occurred over the past 25 years in all four economies. These country-by-country estimates are found to display a substantial amount of comovement over time, suggesting an important role for global factors in shaping trend growth and natural rates of interest.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;And an ECB economist studying the US data points out in &lt;a href=&quot;https://www.ecb.europa.eu/pub/pdf/scpwps/ecb.wp2168.en.pdf?f96cbabbb688074b3156b4541b358daf&quot; rel=&quot;noreferrer&quot;&gt;a 2018 paper&lt;/a&gt; that there's additional (obvious too) reason recently, deleveraging:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;I extend the model of Laubach and Williams (2003) by introducing an explicit role for the financial cycle in the joint estimation of the natural rates of interest, unemployment and output,&#xA;  and the sustainable growth rate of the US economy. By incorporating the financial cycle --&#xA;  arguably an omitted variable from the system -- the model is able to deliver more plausible&#xA;  estimates of business cycle dynamics. The sustained decline in the natural rate of interest in&#xA;  recent decades is confirmed, but I estimate that strong and persistent headwinds due to financial&#xA;  deleveraging have lowered temporarily the natural rate on average by around 1 p.p. below its&#xA;  long-run trend over 2008-14. This may have impaired the effectiveness of interest rate cuts to&#xA;  stimulate the economy and lift inflation back to target in the immediate aftermath of the GFC.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The only firm conclusion I can draw from all of these is that secular stagnation is hot topic for research still/nowadays.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another thing I've noticed is that these last two papers seem to deliberately eschew using the &quot;secular stagnation&quot; term explicitly; it only appears in their references. I suspect their authors might dislike it for its imprecision and/or multiple meanings (Hansen's vs Summers'); they are largely addressing/using the latter (Summers'), implicitly.&lt;/p&gt;&#xA;" OwnerUserId="6210" LastEditorUserId="6210" LastEditDate="2019-05-15T16:23:16.697" LastActivityDate="2019-05-15T16:23:16.697" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="29340" PostTypeId="1" AcceptedAnswerId="29357" CreationDate="2019-05-15T16:00:57.130" Score="1" ViewCount="121" Body="&lt;p&gt;I'm having trouble with a question from Ariel Rubinstein's book, Lecture Notes in Microeconomic Theory. It's the problem 2 from Problem Set 7. Here's the question:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Show that the utility function &lt;span class=&quot;math-container&quot;&gt;$u(L) = \mathbb E(L) - (\mathbb E(L))^2 - var(L)$&lt;/span&gt; is consistent with vNM assumptions. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Where &lt;span class=&quot;math-container&quot;&gt;$\mathbb E(L)$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$var(L)$&lt;/span&gt; are the expected value and the variance of the lotteries, respectively.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So here's what I thought: we know the following set of implications&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\text{Function is linear} \implies \text{Has the expected utility form} \implies \succsim \text{satisfies vNM assumptions.}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, it suffices to show that &lt;span class=&quot;math-container&quot;&gt;$u(L)$&lt;/span&gt; is linear. As we know that &lt;span class=&quot;math-container&quot;&gt;$var(L) = \mathbb E(L^2) - (\mathbb E(L))^2$&lt;/span&gt;, let's rewrite our utility function.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$u(L) = \mathbb E(L) - (\mathbb E(L))^2 - (\mathbb E(L^2) - (\mathbb E(L))^2) = \mathbb E(L) - \mathbb E(L^2).$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Take two lotteries, &lt;span class=&quot;math-container&quot;&gt;$L$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$M$&lt;/span&gt;. We should have that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$U(\alpha L + (1 - \alpha)M) = \alpha U(L) + (1-\alpha ) U(M) \qquad \alpha \in [0,1].$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, &lt;span class=&quot;math-container&quot;&gt;$$U(\alpha L + (1 - \alpha)M) = \mathbb E(\alpha L + (1 - \alpha)M) - \mathbb E((\alpha L + (1 - \alpha)M)^2) = \alpha \mathbb E(L) + (1-\alpha)\mathbb E(M) - \alpha^2 \mathbb E(L^2) - 2\alpha (1 - \alpha)\mathbb E(LM) - (1 - \alpha)^2 \mathbb E(M^2).$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But the above isn't equal to &lt;span class=&quot;math-container&quot;&gt;$$\alpha U(L) + (1-\alpha ) U(M) = \alpha (\mathbb E(L) - (\mathbb E(L))^2) + (1 - \alpha)(\mathbb E(M) - (\mathbb E(M))^2).$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can you guys help me to see where I got it wrong?&lt;/p&gt;&#xA;" OwnerUserId="20068" LastEditorUserId="11590" LastEditDate="2019-05-15T20:08:52.390" LastActivityDate="2019-05-16T16:02:30.367" Title="Expected Utility with expected value and variance" Tags="&lt;microeconomics&gt;&lt;expected-utility&gt;&lt;proof&gt;" AnswerCount="2" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="29341" PostTypeId="1" CreationDate="2019-05-15T16:51:12.247" Score="0" ViewCount="36" Body="&lt;p&gt;I'm looking to estimate a VAR, one of the variables in this VAR is the log of industrial production, and another is the log of the consumer price index. Will I need to difference these to get consistent estimates? Or will leaving them as is be fine?&lt;/p&gt;&#xA;" OwnerUserId="13883" LastActivityDate="2019-05-15T16:51:12.247" Title="Stationarity of log industrial index and log CPI" Tags="&lt;macroeconomics&gt;&lt;econometrics&gt;&lt;time-series&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29342" PostTypeId="1" AcceptedAnswerId="29346" CreationDate="2019-05-15T19:30:50.947" Score="3" ViewCount="189" Body="&lt;p&gt;As far as I understand people like them, because they fit the data quite well when compared to VAR's for example while also having an economic interpretation.&#xA;They appear to explain observations in a more general way than VAR's.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However for me personally that point falls flat as I can not convince myself to see the assumptions (everything is differentiable instead of discrete, goods don't depend on each other for production, people have no skills, etc.) to be a sensible simplification of reality. So I'm left wondering if DSGE models fit the data &lt;em&gt;despite&lt;/em&gt; their assumptions. After all they have quite a number of parameters, which might make them quite flexible.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or do DSGE models fit the data better than VAR's or other models like neural networks?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Did people investigate the &quot;expressiveness&quot; of DSGE models? With expressiveness I mean the set of functions(DSGE models predict inflation as a function of time for example) you can approximate by choosing the parameters of a given DSGE model.&lt;/p&gt;&#xA;" OwnerUserId="23151" LastEditorUserId="23151" LastEditDate="2019-05-16T08:24:53.093" LastActivityDate="2019-05-19T10:17:31.240" Title="What is the appeal of DSGE models?" Tags="&lt;macroeconomics&gt;&lt;econometrics&gt;&lt;dsge&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="29343" PostTypeId="2" ParentId="29340" CreationDate="2019-05-15T19:57:02.563" Score="2" Body="&lt;p&gt;It would suffice to show that &lt;span class=&quot;math-container&quot;&gt;$U$&lt;/span&gt; is linear. But is &lt;span class=&quot;math-container&quot;&gt;$U$&lt;/span&gt; necessarily linear if it satisfies the vNM axioms?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hint: No.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2019-05-15T20:12:23.580" LastActivityDate="2019-05-15T20:12:23.580" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="29345" PostTypeId="2" ParentId="26054" CreationDate="2019-05-15T21:08:24.270" Score="1" Body="&lt;p&gt;Let &lt;span class=&quot;math-container&quot;&gt;$c = 0$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$Q_k = \sum_{i = 1}^k{q_i}$&lt;/span&gt;.&#xA;For &lt;span class=&quot;math-container&quot;&gt;$j = n$&lt;/span&gt; the best response is given by&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{align}&#xA;b_n(Q_{n-1}) = \arg\max_{q_n}(1 - Q_{n-1} - q_n)q_n = \frac{1- Q_{n-1}}{2}.&#xA;\end{align}&lt;/span&gt;&#xA;For &lt;span class=&quot;math-container&quot;&gt;$j = n-1$&lt;/span&gt; the best response is given by&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{align}&#xA;b_{n-1}(Q_{n-2}) =&amp;amp; \arg\max_{q_{n-1}}(1 - Q_{n-2} - q_{n-1} - b_n(Q_{n-1}))q_{n-1} = \frac{1- Q_{n-2}}{2}.&#xA;\end{align}&lt;/span&gt;&#xA;It can be shown that for any &lt;span class=&quot;math-container&quot;&gt;$k \in \{1,\ldots,n\}$&lt;/span&gt; the best response is thus given by&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{align}&#xA;b_k(Q_{k-1}) = \arg\max_{q_k}\left(1 - Q_{k-1} - q_k - \sum_{\ell=k+1}^n{b_\ell}(Q_{\ell-1})\right)q_{n-1} = \frac{1- Q_{k-1}}{2}.&#xA;\end{align}&lt;/span&gt;&#xA;Note that &lt;span class=&quot;math-container&quot;&gt;$q_1^* = b_1(0) = \frac{1}{2}$&lt;/span&gt;.&#xA;It then follows&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{align}&#xA;q_n^* = b_n(Q^*_{n-1}) =&amp;amp; \frac{1 - (q_1^* + q_2^* + q_3^* + \ldots + q_{n-1}^*)}{2}\\&#xA;=&amp;amp; \frac{1 - \left(q_1^* + \frac{1 - q_1^*}{2} + \frac{1 - q_1^* - q_2^*}{2} + \ldots + \frac{1 - (q_1^* + q_2^* + q_3^* + \ldots + q_{n-2}^*)}{2}\right)}{2}\\&#xA;=&amp;amp; \frac{1 - \left(q_1^* + \frac{1 - q_1^*}{2} + \frac{1 - q_1^* - \frac{1 - q_1^*}{2}}{2} + \ldots + \frac{1 - \left(q_1^* + \frac{1 - q_1^*}{2} + \frac{1 - q_1^* - q_2^*}{2} +\ldots + q_{n-2}^*\right)}{2}\right)}{2}\\&#xA;\vdots\\&#xA;=&amp;amp; \frac{1-q_1^*}{2^{n-1}}\\&#xA;=&amp;amp; \frac{1}{2^n}&#xA;\end{align}&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="4266" LastActivityDate="2019-05-15T21:08:24.270" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29346" PostTypeId="2" ParentId="29342" CreationDate="2019-05-15T22:13:32.200" Score="1" Body="&lt;p&gt;To summarize what I wrote below, there seem to be at least two points:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;In the Smets and Wouters (ECB) research, which is apparently responsible for a lot of the fame of DSGE, they indeed found it superior in forecasting accuracy to (B)VARs, especially long-term. On the other hand, other research (including some by other ECB researchers) doesn't seem to be so uniformly conclusive in this (accuracy) regard. Alas, it doesn't look like there is anything resembling a systematic review on this issue; perhaps the variations in data sets and methodology preclude one.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;In the more academic realm, proponents of DSGE (e.g. Christiano) argue that DSGE has deep explanatory powers for some inflation-related lags, making them easy to understand.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;I'm sure someone will give you a more technical answer, but basically DSGE &lt;a href=&quot;https://www.newyorkfed.org/medialibrary/media/research/economists/delnegro/erq206_delnegro.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;works well&lt;/a&gt; for monetary policy (inflation targeting) etc. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Part of the recent popularity of DSGE models is due to work by Smets and&#xA;  Wouters (2003), who document that a modified version of a New Keynesian model&#xA;  developed by Christiano, Eichenbaum, and Evans (2005) is able to track and forecast&#xA;  euro area time series as well as, if not better than, a vector autoregression (VAR) estimated with Bayesian techniques. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In other areas like fiscal policy DSGE &lt;a href=&quot;https://www.youtube.com/watch?v=NBDIbxjk0S8&quot; rel=&quot;nofollow noreferrer&quot;&gt;hasn't seen&lt;/a&gt; that much success/application, insofar anyway.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, the New Keynesian DSGEs have their critics, particularly in the Minneapolis Fed; see &lt;a href=&quot;https://www.minneapolisfed.org/research/wp/wp664.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Chari, Kehoe, and McGrattan&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Proponents of the New Keynesian model argue that it is promising for two reasons. It&#xA;  represents a detailed economy that can generate the type of wedges we see in the data from&#xA;  interpretable primitive shocks; and second, it has enough microfoundations that both their&#xA;  shocks and parameters are structural, in that they can reasonably be argued to be invariant&#xA;  to monetary policy shocks. A model with both of these features would potentially be useful&#xA;  for monetary policy analysis.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;We disagree. We argue that these models cannot generate the type of wedges we see&#xA;  in the data from interpretable primitive shocks. And it is doubtful that many of the features&#xA;  added on in the quantitative implementation of the models are structural. Hence, the models&#xA;  are not yet useful for policy analysis.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;(The first paper I quoted from is from the Atlanta Fed.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, VAR and DSGE are not orthogonal or alternative as you suggest; from the Atlanta paper:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;It has long been recognized (for example, Sims 1980) that a tight relationship exists between dynamic&#xA;  equilibrium models and VARs. Imagine the following thought experiment, where for&#xA;  the moment the vector of DSGE model parameters is fixed. We generate 1 million&#xA;  observations from the DSGE model—that is, we generate a sequence of shocks&#xA;  (monetary policy, technology, etc.), feed them trough the DSGE model, and obtain&#xA;  artificial data. Next, we estimate a VAR with p lags on these artificial data. If the&#xA;  DSGE model is covariance stationary, then the estimated VAR provides an approximation to the DSGE model with the property that its first p autocovariances are&#xA;  equivalent to the first p autocovariances of the DSGE model. By including more and&#xA;  more lags we can in principle match more and more autocovariances and increase the&#xA;  accuracy of the VAR approximation of the DSGE model. Now imagine that the data&#xA;  generation is repeated using different parameter values for the DSGE model. As long&#xA;  as the DSGE model parameter space is small compared to the VAR parameter space,&#xA;  a restriction function can be traced that maps the DSGE parameters into a VAR&#xA;  parameter subspace. Hence, estimating a DSGE model is (almost) like estimating a&#xA;  VAR with cross-equation restrictions. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;That paper is somewhat limited (empirically) in that it looks at a single (New Keynesian) DSGE and VAR-izes it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a more general comparison see: Raffaella Giacomini, &lt;a href=&quot;https://www.emeraldinsight.com/doi/abs/10.1108/S0731-9053%282013%290000031001&quot; rel=&quot;nofollow noreferrer&quot;&gt;The Relationship Between DSGE and VAR Models&lt;/a&gt;. It does mention some caveats e.g.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;a meaningful discussion of the relationship between DSGE and VAR&#xA;  models can only be carried out in the context of log-linearized DSGE models, taking for granted&#xA;  the adequacy of the linear approximation and ignoring possible nonlinear dynamics that cannot&#xA;  be replicated by linear VAR models.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It goes on to point out that non-linear DSGEs are (still) a minority in current research, but that that sub-field appears to be growing pretty fast.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The claim to DSGE empirical superiority (as estimated by the more widespread Bayesian techniques, rather than by embedding in VARs) is probably in the narrow(er) context of specific papers; the &lt;a href=&quot;https://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp722.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;2007-updated Smets and Wouter&lt;/a&gt; does indeed make such claims. In the short term, they only find a a difference for unconstrained VARs and they find that a BVAR model does as well as their DSGE; but for a longer forecast they indeed found their DSGE superior to both VAR/BVAR.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In this Section we compare the out-of-sample forecast performance of the estimated DSGE model with&#xA;  that of various VARs estimated on the same data set. The marginal likelihood, which can be interpreted as&#xA;  a summary statistic for the model’s out-of-sample prediction performance, forms a natural benchmark for&#xA;  comparing the DSGE model with alternative specifications and other statistical models. However, a Sims (2003) has pointed out it is important to use a training sample in order to standardize the prior&#xA;  distribution across widely different models. In order to check for robustness, we also consider a more&#xA;  traditional out-of-sample RMSE forecast exercise in this section. &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/1ACuy.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/1ACuy.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Table 2 compares the marginal likelihood of the DSGE model and various unconstrained VAR models,&#xA;  all estimated over the full sample period (1966:1 – 2004:4) and using the period 1956:1 – 1965:4 as a&#xA;  training sample. Several results are worth emphasizing. First, the tightly parameterized DSGE model&#xA;  performs much better than an unconstrained VAR in the same vector of observable variables, Υt (first&#xA;  column of Table 2). &lt;strong&gt;The bad empirical performance of unconstrained VARs may not be too surprising, as&#xA;  it is known that over-parameterized models typically perform poorly in out-of-sample forecast exercises.&lt;/strong&gt;&#xA;  One indication of this is that the marginal likelihood of the unconstrained VAR model deteriorates&#xA;  quickly as the lag order increases. For that reason, in the second column of Table 2, we consider the&#xA;  Bayesian VAR model proposed by Sims and Zha (1998). This BVAR combines a Minnesota-type prior&#xA;  (see Litterman, 1984) with priors that take into account the degree of persistence and cointegration in the&#xA;  variables. In order to allow the data to decide on the degree of persistence and cointegration, in this&#xA;  BVAR we enter real GDP, consumption, investment and the real wage in log levels. When setting the&#xA;  tightness of the prior, we choose a set of parameters recommended by Sims (2003) for quarterly data.&#xA;  The second column of Table 2 shows that &lt;strong&gt;the marginal likelihood of the Sims-Zha BVAR increases&#xA;  significantly compared to the unconstrained VAR. Moreover, the best BVAR model (BVAR(4)) does as&#xA;  well as the DSGE model.&lt;/strong&gt;&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Overall, the comparison of marginal likelihoods shows that the estimated DSGE model can compete with&#xA;  standard BVAR models in terms of empirical one-step-ahead prediction performance. These results are&#xA;  confirmed by a more traditional out-of sample forecasting exercise reported in Table 3. Table 3 reports&#xA;  out-of-sample RMSEs for different forecast horizons over the period 1990:1 to 2004:4. For this exercise the VAR(1), BVAR(4) and DSGE model were initially estimated over the sample 1966:1 - 1989:4. The&#xA;  models were then used to forecast the seven data series contained in Υt from 1990:1 to 2004:4, whereby&#xA;  the VAR(1) and BVAR(4) models were re-estimated every quarter, whereas the DSGE model was reestimated every year. The measure of overall performance reported in the last column of Table 3 is the&#xA;  log determinant of the uncentered forecast error covariance matrix. &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/wo11f.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/wo11f.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The out-of-sample forecast statistics confirm the good forecast performance of the DSGE model relative&#xA;  to the VAR and BVAR models. At the one-quarter ahead horizon, the BVAR(4) and the DSGE model&#xA;  improve with about the same magnitude over the VAR(1) model, confirming the results from Table 2.&#xA;  However, &lt;strong&gt;over longer horizons up to three years, the DSGE model does considerably better than both the&#xA;  VAR(1) and BVAR(4) model. Somewhat surprisingly, the BVAR(4) model performs worse than the&#xA;  simple VAR(1) model at longer horizons.&lt;/strong&gt; Moreover, the improvement appears to be quite uniform across&#xA;  the seven macro variables.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;However, there's somewhat &lt;a href=&quot;https://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1110.pdf?53c580698c61fce2bc9269b12113439d&quot; rel=&quot;nofollow noreferrer&quot;&gt;newer (2009) ECB paper&lt;/a&gt; by different authors (Kolasa, Rubaszek, and Skrzypczyński) with less sweeping conclusions:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In the case of ination, the DSGE and DSGE-VAR&#xA;  models with the maximum lag set to 3 and 4 are characterized by the lowest RMSFEs. The SPF [Survey of Professional Forecasters]&#xA;  and BVAR(4) are insignicantly less accurate, while the BVAR and low-order DSGE-VAR models are&#xA;  found to be the worst. Finally, the RMSFEs for interest rate forecasts formulated by all methods are&#xA;  comparable.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;(There's a &lt;a href=&quot;https://www.jstor.org/stable/23320065&quot; rel=&quot;nofollow noreferrer&quot;&gt;2012 peer-reviewed version of that paper&lt;/a&gt;, if you care about that. And As an aside, somewhat disappointingly, &lt;a href=&quot;https://doi.org/10.1016/j.ijforecast.2014.05.001&quot; rel=&quot;nofollow noreferrer&quot;&gt;adding&lt;/a&gt; (corporate) financial market frictions to their DSGE model did not uniformly improve forecasts, but adding housing market frictions did help especially with crises.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another paper which focuses on hybrid DSGE models (&lt;a href=&quot;http://cadmus.eui.eu/handle/1814/18136&quot; rel=&quot;nofollow noreferrer&quot;&gt;Paccagnini, 2011&lt;/a&gt;) has this introductory note:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;from an econometric point of view, the performance of a DSGE model is often&#xA;  tested against an estimated Vector Autoregressive model (VAR). This procedure requires a Data&#xA;  Generating Process (DGP) that is consistent with the theoretical economic model and has a finite-order VAR representation. However, the statistical representation of a DSGE model is an exact&#xA;  VAR only when all the endogenous variables are observable; otherwise, a more complex Vector&#xA;  Autoregressive Moving Average model (VARMA) is needed. As far as the VARMA representation&#xA;  is concerned, several papers (see Cooley and Dwyer (1998), Chari, Kehoe and McGrattan (2005),&#xA;  Christiano, Eichenbaum and Vigfusson (2006), Ravenna (2007) and Fernandez-Villaverde, Rubio-Ramirez, Sargent and Watson (2007)) have discussed the conditions required to find an infinite-&#xA;  order VAR representation and a infinite-order VAR truncation in general terms. Moreover, the VAR is densely parameterized and appears to be misspecified and a Bayesian approach is preferred.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;And the results of this paper are not amazing for DSGE:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Two forecasting exercises have been implemented on US quarterly economy data: the first one&#xA;  considering a simple forecasting one-step-ahead strategy with different samples, and the second a&#xA;  h-steps ahead evaluation with a rolling forecasting estimation. In the first exercise, the last part of&#xA;  the sample from 2007 onwards, which is the Great Contraction period, was not taken into account.&#xA;  The main results show that the hybrid models, such as the DSGE-VAR and the DSGE-FAVAR give&#xA;  the most accurate forecasts for smaller forecasting samples. Instead, a FAVAR model outperforms&#xA;  the other models when we consider a long forecasting sample. The second forecasting experiment&#xA;  uses a rolling sample with the Great Contraction period included. The best forecasting performance&#xA;  is produced by VAR, BVAR and FAVAR, with the exception of real GDP where for h-steps ahead&#xA;  larger than 2 the DSGE-FAVAR outperforms the alternative models.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/GIswv.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/GIswv.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/RhIaz.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/RhIaz.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;As a side-note to that last paper, FAVAR was &lt;a href=&quot;https://www.ecb.europa.eu/pub/conferences/shared/pdf/20170929_advances_in_short_term_forecasting/Paper_4_Beyeler_Kaufmann.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;apparently&lt;/a&gt; favored/suggested by Bernanke.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;These (not always clear) accuracy contests aside, DSGE advocates &lt;a href=&quot;https://www.nber.org/papers/w16074.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;claim&lt;/a&gt; that it supposedly has deep explanatory power for inflation: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The new monetary DSGE models are of interest not just because they represent laboratories for the analysis of important monetary policy questions. They are also of interest because&#xA;  they appear to resolve a classic empirical puzzle about the effects of monetary policy. It has&#xA;  long been thought that it is virtually impossible to explain the very slow response of inflation&#xA;  to a monetary disturbance without appealing to completely implausible assumptions about&#xA;  price frictions (see, e.g., Mankiw (2000)). However, it turns out that modern DSGE models&#xA;  do provide an account of the inertia in inflation and the strong response of real variables to&#xA;  monetary policy disturbances, without appealing to seemingly implausible parameter values.&#xA;  Moreover, the models simultaneously explain the dynamic response of the economy to other shocks. We review these important findings. We explain in detail the contribution of each&#xA;  feature of the consensus medium-sized New Keynesian model in achieving this result.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The econometric technique that is particularly suited to the shock-based analysis described in the previous paragraph, is the one that matches impulse response functions estimated by vector autoregressions (VARs) with the corresponding objects in a model. Using&#xA;  US macroeconomic data, we show how the parameters of the consensus DSGE model are&#xA;  estimated by this impulse-response matching procedure. The advantage of this econometric&#xA;  approach is transparency and focus. The transparency reflects that the estimation strategy&#xA;  has a simple graphical representation, involving objects - impulse response functions - about&#xA;  which economists have strong intuition. The advantage of focus comes from the possibility of studying the empirical properties of a model without having to specify a full set of&#xA;  shocks. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="6210" LastEditorUserId="6210" LastEditDate="2019-05-19T10:17:31.240" LastActivityDate="2019-05-19T10:17:31.240" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29347" PostTypeId="1" CreationDate="2019-05-16T01:52:22.830" Score="1" ViewCount="8" Body="&lt;p&gt;I understand that this may still be a contentious issue, but are there some estimates how long it took before the Hawley–Smoot Tariffs impacted US growth significantly and/or how long it took for them to have their maximum impact on US growth (of course relative to some counterfactual scenarios).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And if somehow the same source(s) estimate the [time lagged] effects of the earlier 1922 tariffs, which were &lt;a href=&quot;https://www.economist.com/christmas-specials/2008/12/18/the-battle-of-smoot-hawley&quot; rel=&quot;nofollow noreferrer&quot;&gt;also significant&lt;/a&gt; tariff-wise... that would be also interesting to know.&lt;/p&gt;&#xA;" OwnerUserId="6210" LastEditorUserId="6210" LastEditDate="2019-05-16T02:03:46.103" LastActivityDate="2019-05-16T02:03:46.103" Title="How long did it take before the Hawley–Smoot Tariffs reached their peak effect on US growth?" Tags="&lt;macroeconomics&gt;&lt;economic-growth&gt;&lt;united-states&gt;&lt;tariffs&gt;&lt;economic-history&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29350" PostTypeId="1" AcceptedAnswerId="29366" CreationDate="2019-05-16T09:42:19.040" Score="1" ViewCount="211" Body="&lt;pre&gt;&lt;code&gt;Price  Quantity   TR      TC   Profit   MR    MC&#xA;6         0       0       3     -3     -     -&#xA;6         1       6       5      1     6     2&#xA;6         2       12      8      4     6     3&#xA;6         3       18      12     6     6     4&#xA;6         4       24      17     7     6     5&#xA;6         5       30      23     7     6     6&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Consider table above. If my understanding is correct, optimal quantity equals 5, because at this point MR = MC. &#xA;But after producing 5th widget, profit does not increase.&#xA;Then why is producing 5 widgets considered to be profit maximizing quantity, but not 4?&lt;/p&gt;&#xA;" OwnerUserId="23169" LastActivityDate="2019-05-16T20:08:25.443" Title="Why marginal revenue must equal marginal cost?" Tags="&lt;microeconomics&gt;" AnswerCount="2" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="29351" PostTypeId="1" CreationDate="2019-05-16T10:18:36.283" Score="1" ViewCount="170" Body="&lt;p&gt;Simple supply and demand economics would suggest that the huge increase in the supply of rooms to rent by Airbnb should have reduced the price of rental significantly in those cities where Airbnb is most popular. However, this appears not to have happened. Why is that?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are, for example, &lt;a href=&quot;https://www.bbc.co.uk/news/business-47910700&quot; rel=&quot;nofollow noreferrer&quot;&gt;~80,000&lt;/a&gt; airbnb listings in London alone and only &lt;a href=&quot;https://www.statista.com/statistics/487966/number-hotels-london-by-room-amount-united-kingdom/&quot; rel=&quot;nofollow noreferrer&quot;&gt;~1500 hotels with ~146,000&lt;/a&gt; hotel rooms.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In fact, it is argued that Airbnb &lt;a href=&quot;https://www.urbaneconomics.nl/airbnb/&quot; rel=&quot;nofollow noreferrer&quot;&gt;increases&lt;/a&gt; prices! &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Our empirical results show that the overall causal impact of Airbnb on&#xA;  property values can be large. For example, in areas within 5km of Los&#xA;  Angeles’s central business district the price increase has been 14%.&#xA;  Within 2.5km of beaches, the price increase due to Airbnb has been&#xA;  almost 10%.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;How can this be?&lt;/p&gt;&#xA;" OwnerUserId="23170" LastEditorUserId="6210" LastEditDate="2019-05-16T17:55:55.447" LastActivityDate="2019-05-16T17:55:55.447" Title="Why hasn't the huge increase in supply provided by Airbnb decreased prices?" Tags="&lt;supply-and-demand&gt;&lt;applied-econometrics&gt;" AnswerCount="2" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29354" PostTypeId="2" ParentId="29351" CreationDate="2019-05-16T14:54:06.127" Score="0" Body="&lt;p&gt;Some people argue that Airbnb increased the price in the &lt;strong&gt;long-term&lt;/strong&gt; rental housing market because owners of apartments change their properties from long-term rental to short-term rental housing, and thus the supply of the long-term rental apartments has decreased.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have never heard that Airbnb increased the price in the short-term rental housing. But if that is the case, perhaps the demand for the short-term rental in that city has increased? It would be possible that the city has become more attractive for tourists because of more choices for short-term apartments.&lt;/p&gt;&#xA;" OwnerUserId="23172" LastActivityDate="2019-05-16T14:54:06.127" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29355" PostTypeId="1" AcceptedAnswerId="29364" CreationDate="2019-05-16T14:59:26.027" Score="0" ViewCount="50" Body="&lt;p&gt;Consider a simple game between P1 and P2 shown in Figure 1.&#xA;&lt;a href=&quot;https://i.stack.imgur.com/ZilMC.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/ZilMC.png&quot; alt=&quot;Figure1&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We consider a Perfect Bayesian Equilibrium. P1 uses a cutoff strategy based on his &lt;span class=&quot;math-container&quot;&gt;$c_1$&lt;/span&gt; that has the Cumulative Distribution Function of &lt;span class=&quot;math-container&quot;&gt;$F$&lt;/span&gt;. If his &lt;span class=&quot;math-container&quot;&gt;$c_1$&lt;/span&gt; is lower than a threshold &lt;span class=&quot;math-container&quot;&gt;$c_1^*$&lt;/span&gt;, which depends on P2's strategy, P1 takes the strategy &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Similarly, P2 uses a cutoff strategy based on his &lt;span class=&quot;math-container&quot;&gt;$c_2$&lt;/span&gt; that has the Cumulative Distribution Function of &lt;span class=&quot;math-container&quot;&gt;$G$&lt;/span&gt;. If his &lt;span class=&quot;math-container&quot;&gt;$c_2$&lt;/span&gt; is lower than a threshold &lt;span class=&quot;math-container&quot;&gt;$c_2^*$&lt;/span&gt;, which depends on P1's strategy, P2 takes the strategy &lt;span class=&quot;math-container&quot;&gt;$a$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We denote the optimal cutoff strategies as &lt;span class=&quot;math-container&quot;&gt;$F(c_1^*)$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$G(c_2^*)$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose the game has slightly changed as shown in Figure 2.&#xA;&lt;a href=&quot;https://i.stack.imgur.com/FLxCS.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/FLxCS.png&quot; alt=&quot;Figure 2&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now P1 has one more turn. Suppose that, given the initial &lt;span class=&quot;math-container&quot;&gt;$F(c_1^*)$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$G(c_2^*)$&lt;/span&gt;, we set P1's gain from the strategy j as always being equal to the strategy k. We assume that P1 takes the strategy j if P1 is indifferent between j and k.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this case, does P2 still continue to use the same cutoff strategy &lt;span class=&quot;math-container&quot;&gt;$G(c_2^*)$&lt;/span&gt;? For P2, the node from the path &lt;span class=&quot;math-container&quot;&gt;$k$&lt;/span&gt; is never reached while P2 cannot verify it. As long as P2 uses the same cutoff strategy &lt;span class=&quot;math-container&quot;&gt;$G(c_2^*)$&lt;/span&gt;, P1 will take the strategy &lt;span class=&quot;math-container&quot;&gt;$j$&lt;/span&gt;. I am wondering if P2's threat is credible.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the new game, P2's gain remains unchanged. However, P2 may try to increase his gain by deviating from the optimal cutoff strategy &lt;span class=&quot;math-container&quot;&gt;$G(c_2^*)$&lt;/span&gt; if P1 never use the strategy k. But, P1 will be aware of it and may use the strategy k again. If so, P2 will again use the same optimal cutoff strategy &lt;span class=&quot;math-container&quot;&gt;$G(c_2^*)$&lt;/span&gt;. I got stuck here.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I appreciate any help.&lt;/p&gt;&#xA;" OwnerUserId="23172" LastActivityDate="2019-05-16T19:55:24.960" Title="Credible Threat in the Perfect Bayesian Equilibrium" Tags="&lt;microeconomics&gt;&lt;game-theory&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="29356" PostTypeId="2" ParentId="29351" CreationDate="2019-05-16T15:54:58.850" Score="2" Body="&lt;p&gt;To summarize what's detailed below:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Most research finds some small hotel price decreases following Airbnb entry. But the substitution effect between hotels and Airbnb is hardly 1:1.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Furthermore, some research even found increases in hotel revenues in some areas where Airbnb appeared; this is hypothesized to be due to more discriminatory prices that the hotels can practice because Airbnb customers are generally thought to be more  price sensitive and once they largely leave the hotel market, the hotels are left with less price-sensitive customers, on average.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;You are further confusing the substitution/competition of Airbnb with hotels with the effect of Airbnb on long-term rents and/or (residential) property prices. The effect of Airbnb on the latter is indeed generally found to be contrary to that on the hotel market, i.e. because Airbnb offers more (and higher-profit) options to residence owners, an increase in &lt;em&gt;long-term&lt;/em&gt; rent prices and property prices is observed in some (but not all) areas where Airbnb operates.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Your research (on hotels) is probably not sensitive enough to &lt;a href=&quot;https://www.epi.org/publication/the-economic-costs-and-benefits-of-airbnb-no-reason-for-local-policymakers-to-let-airbnb-bypass-tax-or-regulatory-obligations/&quot; rel=&quot;nofollow noreferrer&quot;&gt;small effects&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;There is evidence that Airbnb increases the supply of short-term travel accommodations and slightly lowers prices.  [...]&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Airbnb is essentially a positive supply shock to short-term accommodations. Like all positive supply shocks, it should be expected to lower prices. There is some accumulating evidence that Airbnb does exactly this. Zervas, Proserpio, and Byers (2017) examine the effect of Airbnb expansion across cities in Texas. They find that each 10 percent increase in the size of the Airbnb market results in a 0.4 percent decrease in hotel room revenue. They find that most of this revenue decline is driven by price declines. Evidence of the positive supply shock is particularly evident in the 10 American cities where Airbnb’s presence is largest. Dogru, Mody, and Suess (2019) find a negative correlation between Airbnb expansion and hotels’ average daily rates in the 10 U.S. cities with the largest Airbnb presence.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Also, Airbnb and hotels are not necessarily perfect substitutes:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Further, it is possible that by substituting more strongly for a less-expensive slice of the traditional hotel market—leisure travel as opposed to business travel, for example—that Airbnb introduction might actually be associated with raising measured short-term travel accommodation prices, through a composition effect.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;See &lt;a href=&quot;https://en.wikipedia.org/wiki/Elasticity_of_substitution&quot; rel=&quot;nofollow noreferrer&quot;&gt;elasticity of substitution&lt;/a&gt; for the theoretical notion.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, an MA &lt;a href=&quot;http://beccle.no/files/2016/12/Masteroppgave_NSY2.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;thesis/study in Norway&lt;/a&gt; (not cited in that review) seems to support this idea of hardly perfect substitutability of hotels and Airbnb:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;I find that a 10 % increase in Airbnb supply decreases hotel&#xA;  revenue by 0.3 %. This effect is around 20 times smaller than the effect on hotel revenue of an increase in hotel supply. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;As for your last claim &quot;In fact, it is argued that Airbnb increases prices!&quot; that &lt;a href=&quot;https://www.urbaneconomics.nl/airbnb/&quot; rel=&quot;nofollow noreferrer&quot;&gt;source&lt;/a&gt; seems to be talking about property prices:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Our empirical results show that the overall causal impact of Airbnb on property values can be large. For example, in areas within 5km of Los Angeles’s central business district the price increase has been 14%. Within 2.5km of beaches, the price increase due to Airbnb has been almost 10%. This shows that in areas that are attractive to tourists, increases in property values are substantial, while in areas without much tourist demand (e.g. Pasadena), effects are small.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I don't see any contradiction with the findings about hotels.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also (long-term) rental prices being increased by Airbnb by offering another (short-term) use for the same (residential) resources is consistent with this increase in property prices. Going back to my first (EPI) link:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The single biggest potential cost imposed by Airbnb comes in the form of higher housing costs for city residents if enough properties are converted from long-term housing to short-term accommodations. If property owners take dwellings that were available for long-term leases and convert them to short-term Airbnb listings, this increases the supply of short-term rentals (hence driving down their price) but decreases the supply of long-term housing, increasing housing costs for city residents.  [...]&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The mirror image of Airbnb’s positive supply shock to short-term travel accommodations is its negative supply shock to long-term housing options.  [...]&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Airbnb—though relatively new—is already having a measurable effect on long-term housing supply and prices in some of the major cities where it operates. For example, Merante and Horn (2016) examine the impact of Airbnb on rental prices in Boston. The authors construct a rich data set by combining data on weekly rental listings from online sources and data from Airbnb listings scraped from web pages. They find that each 12 Airbnb listings per census tract leads to an increase in asking rents of 0.4 percent. It is important to note that this is a finding of causation, not just correlation. [...]&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Barron, Kung, and Proserpio (2018) undertake a similar exercise with different data. They create a data set that combines Airbnb listings, home prices and rents from the online real estate firm Zillow, and time-varying ZIP code characteristics (like median household income and population) from the American Community Survey (ACS). To account for the fact that rents and Airbnb listings might move together even if there is no causal relationship (for example, if both are driven by the rising popularity of a given city), they construct an instrumental variable to identify the causal effect of rising Airbnb listings on rents. Using this instrument, they find that a 10 percent increase in Airbnb listings in a ZIP code leads to a 0.42 percent increase in ZIP code rental prices and a 0.76 percent increase in house prices. They also find that the increase in rents is larger in ZIP codes with a larger share of nonowner-occupied housing. Finally, like Merante and Horn, they find evidence that Airbnb listings are correlated with a rise in landlords shifting away from long-term and toward short-term rental operations.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;If you want results that appear more genuinely paradoxical, there is a &lt;a href=&quot;https://www.tse-fr.eu/sites/default/files/TSE/documents/ChaireJJL/PolicyPapers/2016_30_12_pp_understanding_airbnb_in_14_european_cities_coyle_yeung_v.3.1.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;2016 paper with those&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;This paper gives an overview of the activities of Airbnb in 14 European cities. Since&#xA;  Airbnb provides an online accommodation platform linking property owners and&#xA;  visitors, it could potentially affect both the hotel market and the domestic rental market&#xA;  in the localities in which it operates. We discuss the structure and the segmentation of&#xA;  the accommodation market, and then present some descriptive statistics on Airbnb&#xA;  activities in the 14 cities. Finally, we present some estimates of the impact of Airbnb on&#xA;  hotels and on rents, among the first estimates for European markets. &lt;strong&gt;We find Airbnb’s&#xA;  presence in a market has a negative effect on hotel occupancy rates, but a positive&#xA;  effect on total hotel revenue and the average daily rate they charge.&lt;/strong&gt;  In the two cities we&#xA;  consider, the platform’s impact on the rental market is ambiguous, suggesting local&#xA;  market conditions are important. [...]&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;We find that a rise in the number of Airbnb listings in a city was associated over this&#xA;  period with a fall in the average hotel occupancy rate, but an increase in the average&#xA;  daily rate received by hotels. The combined effect on total hotel revenues was&#xA;  ambiguous to slightly positive. On the other hand, the arrival of Airbnb is positively&#xA;  correlated with the rental price index in London, but not in Berlin.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;However even the seemingly paradoxical divergence between hotel occupancy and their revenues (observed in Europe) has an (elasticity-based) explanation:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Business travellers are much more able or&#xA;  willing to pay for convenience and reliability. For example, Airbnb hosts can cancel&#xA;  reservations at short notice and the platform does not penalize the hosts who renege on&#xA;  their promises, or compensate the users who find themselves nowhere to stay at short&#xA;  notice. The informality of the sharing economy does not (yet) sustain service norms. On&#xA;  the other hand, we always expect hotels to observe their promises. By screening out&#xA;  budget travellers, hotels may be better able to identify customers with less price-elastic&#xA;  demand and thus possibly even raise prices and obtain higher revenue thanks to the&#xA;  greater scope for price discrimination. Thus the entry of flexible low cost supply could in&#xA;  effect push up the prices and revenues of some hoteliers, though low-cost hotels may&#xA;  suffer. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Relevant theoretical notions for this last para: &lt;a href=&quot;https://en.wikipedia.org/wiki/Price_elasticity_of_demand&quot; rel=&quot;nofollow noreferrer&quot;&gt;price elasticity of demand&lt;/a&gt; (PED); &lt;a href=&quot;https://en.wikipedia.org/wiki/Price_discrimination&quot; rel=&quot;nofollow noreferrer&quot;&gt;price discrimination&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Unfortunately, empirically testing this latter hypothesis that customers with lower PED go to hotels, wasn't done in that study. This requires more data on the customers than supply-side statistics convey.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is however some corroborating &lt;a href=&quot;http://shura.shu.ac.uk/23916/7/Tabari_Impact_of_airbnb_%28VoR%29.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;independent research&lt;/a&gt; that confirms that Airbnb customers in the UK have the same age profile as low-cost/economy hotel customers.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;people&#xA;  aged 25–34 years are the largest group of users of&#xA;  Airbnb.  [...]&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Economy hotels are the most popular among&#xA;  people aged 25–34 years. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;(Of course, age is not a perfect proxy for income or elasticity of demand.)&lt;/p&gt;&#xA;" OwnerUserId="6210" LastEditorUserId="6210" LastEditDate="2019-05-16T17:33:55.300" LastActivityDate="2019-05-16T17:33:55.300" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29357" PostTypeId="2" ParentId="29340" CreationDate="2019-05-16T16:02:30.367" Score="2" Body="&lt;p&gt;While it is true that a function has the expected utility form if and only if it is linear (in probabilities), it is not the case that &lt;em&gt;any&lt;/em&gt; linear function can represent a preference that satisfies the vNM axioms. The expected utility theorem simply says that when a preference satisfies the vNM axioms, &lt;strong&gt;there exists&lt;/strong&gt; a linear utility function that represents it. The theorem does not say, in particular, that &lt;em&gt;all&lt;/em&gt; linear utility function represents a preference that satisfies the axioms. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, as @Giskard mentioned, utility representation of a vNM-consistent preference does not have to take the expected utility form. For instance, if &lt;span class=&quot;math-container&quot;&gt;$()$&lt;/span&gt; is a linear expected utility function representing a vNM-consistent preference, then &lt;span class=&quot;math-container&quot;&gt;$()=[()]^2$&lt;/span&gt; is another utility function representing the same preference, except that it is a non-linear (or non-vNM) expected utility function.&lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2019-05-16T16:02:30.367" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29358" PostTypeId="1" AcceptedAnswerId="29361" CreationDate="2019-05-16T16:04:11.243" Score="0" ViewCount="58" Body="&lt;p&gt;The US president Donald Trump has repeated said that China will pay for the tariffs he has or plans to impose on Chinese goods entering the US. Many commentators has said that tariffs are paid at time of import by the importer, and that those costs are simply passed onto the consumer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What would be the consequences if, instead of adding a tariff cost to the item being imported, the US Government instead deducted the same amount from the US debt that the Chinese Government owns? This would make it literally true that the Chinese are now paying for the trade deficit, and it would automatically stop once the Chinese no longer own US debt.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Besides making lenders extremely wary of buying US debt, what could be the economic repercussions from such a decision?&lt;/p&gt;&#xA;" OwnerUserId="23173" LastActivityDate="2019-05-16T22:39:47.960" Title="What if China did pay US tariffs?" Tags="&lt;tariffs&gt;" AnswerCount="2" CommentCount="3" ClosedDate="2019-05-17T01:03:41.943" ContentLicense="CC BY-SA 4.0" />
  <row Id="29359" PostTypeId="2" ParentId="29350" CreationDate="2019-05-16T16:40:20.233" Score="0" Body="&lt;p&gt;Literally from the definition of Marginal Cost; it is the cost of producing one additional unit. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As your marginal revenue remains constant, pretty clear that you are going to make the maximum profits as the curves intersect at MC = MR. In the specific case that you consider, YES, you can choose either of 4 units or 5 units to be produced but, as Maarten said, your profits will definitely rise if you consider Optimal Production -2 units VS -1 unit in a general scenario. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is the simple the reason why we say that MC = MR equilibrium is the optimal point to maximize profits. Doesn't mean you can't reach a similar state of profits before it can happen, just that MC = MR will for sure give you a maximal profit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, emphasis on the point Discrete Quantities. Under a continuous distribution, your profits will keep increasing as long as the next extra unit produced will sell for more than it's production cost; i.e. till MC tends to the value of MR.&lt;/p&gt;&#xA;" OwnerUserId="15652" LastActivityDate="2019-05-16T16:40:20.233" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29360" PostTypeId="1" AcceptedAnswerId="29363" CreationDate="2019-05-16T18:04:47.567" Score="0" ViewCount="30" Body="&lt;p&gt;In the 'chicken' game, (stop,go) and (go, stop) are the two pure strategy Nash equilibrium profiles. If the game is played once, does it make more sense to use the rationalizability solution concept? The way I think of it is, that if we can't correctly predict the rival's action, then we might end up not coordinating. Thus, although Nash equilibrium gives a sharper prediction, rationalizability is more realistic to use, given that crashes do happen!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any thoughts? &lt;/p&gt;&#xA;" OwnerUserId="18507" LastActivityDate="2019-05-16T19:23:12.240" Title="Rationalizability or Nash equilibrium" Tags="&lt;game-theory&gt;&lt;nash-equilibrium&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29361" PostTypeId="2" ParentId="29358" CreationDate="2019-05-16T18:19:00.080" Score="0" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;the US Government instead deducted the same amount from the US debt that the Chinese Government owns&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;That would be equivalent to a partial &lt;a href=&quot;https://en.wikipedia.org/wiki/Sovereign_default&quot; rel=&quot;nofollow noreferrer&quot;&gt;sovereign default&lt;/a&gt; of the US: we don't like you, therefore our bonds you own are now worth less/crap.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.imf.org/~/media/Files/News/Seminars/2018/091318SovDebt-conference/chapter-7-sovereign-default.ashx&quot; rel=&quot;nofollow noreferrer&quot;&gt;More technically&lt;/a&gt;, it would be a repudiation of (some) sovereign debt:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Repudiation happens when the sovereign rejects its obligation to pay, which could&#xA;  happen before or after any payment is due. Governments typically avoid questioning&#xA;  the validity of their debts, or announcing their intention not to pay before missing a&#xA;  payment, since in practice, repudiation carries all the traumatic consequences of&#xA;  payment default [...]. Repudiation may go hand in hand with&#xA;  governments questioning the legitimacy of one or more obligations. The literature on&#xA;  “Odious Debt” includes a handful of examples (King 2016, Lienau 2014). In 2008,&#xA;  Ecuador claimed that two bonds issued by a previous government were illegitimate and&#xA;  pledged not to pay them. It launched a buyback offer the following year in the shadow&#xA;  of the illegitimacy claim, and ultimately secured nearly 2/3 debt relief with more than&#xA;  90 percent of the creditors participating.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;[...]&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Repudiation [...] is rare in modern times. Repudiations most often&#xA;  occur after a regime change, and examples of repudiations include those in the wake of&#xA;  communist revolutions—such as Russia in 1917, China in 1949, and Cuba in 1960; Rhodesia&#xA;  in 1965, after its unilateral declaration of independence from the United Kingdom; Zaire in&#xA;  1979; Ghana in 1979 and 1982; and North Korea in 1976.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Repudiation can go hand-in-hand with the concept of “odious debt,” which posits that a&#xA;  government is not obligated to pay for those debts incurred by a previous government contrary&#xA;  to the interests of the public. Though, the concept has strong moral appeal, it is difficult to&#xA;  define odious debt in a sufficiently limited way to allow its practical application (Reinhart and&#xA;  Rogoff 2009). The doctrine has not gained traction with arbitrators, courts, or credit rating agencies (Gelpern 2007; Blair 2014) and, the earlier example of Ecuador aside, states tend not to assert it explicitly.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;As for effects, that's harder to predict. China would probably accelerate its sales of US treasuries, since the US move you propose is not going to impact all their holdings at once. The sooner they would sell, the fewer losses they would incur over time from the proposed US tax-like measure. On the other hand, selling too much too soon would hurt them too by dropping the price too much.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Russia substantially reduced its holding of US treasuries &lt;a href=&quot;https://money.cnn.com/2018/07/30/investing/russia-us-debt-treasury/index.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;in 2018&lt;/a&gt;, presumably just based on fears:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Between March and May, Russia's holdings of US Treasury bonds plummeted by $81 billion, representing 84% of its total US debt holdings. [...]&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&quot;One theory is that this was Russia's revenge for US sanctions,&quot; said [Jason ] Bush [an analyst at consulting firm Eurasia Group].&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Another theory is that Moscow feared further US sanctions that could cause its holdings of US debt to be frozen or even seized.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The Russian side didn't acknowledge this explicitly, but their central baker said something like&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Russia assesses &quot;all the risks: financial economic and geopolitical.&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Russia however held a lot fewer US treasuries, only around 1/12 of China's even at their peak holdings. So Russia could sell the bulk of theirs relatively quickly.&lt;/p&gt;&#xA;" OwnerUserId="6210" LastEditorUserId="6210" LastEditDate="2019-05-16T22:39:47.960" LastActivityDate="2019-05-16T22:39:47.960" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="29362" PostTypeId="1" CreationDate="2019-05-16T18:42:45.027" Score="3" ViewCount="42" Body="&lt;p&gt;The Nash bargaining solution selects the unique solution to the maximization problem &lt;span class=&quot;math-container&quot;&gt;$\max_{s_1, s_2 } (s_1 - d_1) (s_2 - d_2)$&lt;/span&gt; such that the solution satisfy the following axioms : &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Invariance &lt;/li&gt;&#xA;&lt;li&gt;Symmetry &lt;/li&gt;&#xA;&lt;li&gt;Pareto efficiency&lt;/li&gt;&#xA;&lt;li&gt;Independence of irrelevant alternatives&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Does replacing the maximization problem by &lt;span class=&quot;math-container&quot;&gt;$\max_{s_1, s_2 } (s_1 - d_1)^{\alpha}  (s_2 - d_2)^{1-\alpha}$&lt;/span&gt;  (i.e. give different bargaining power to the players) change the list of axioms satisfied by the former maximization problem ? From my understanding symmetry will be no longer be satisfied, but does that affect other axioms as well? &lt;/p&gt;&#xA;" OwnerUserId="23092" LastEditorUserId="23092" LastEditDate="2019-05-17T12:10:44.347" LastActivityDate="2019-05-17T12:10:44.347" Title="Asymmetric Nash Bargaining" Tags="&lt;microeconomics&gt;&lt;game-theory&gt;&lt;labor-economics&gt;&lt;nash-equilibrium&gt;&lt;bargaining&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="29363" PostTypeId="2" ParentId="29360" CreationDate="2019-05-16T19:23:12.240" Score="1" Body="&lt;p&gt;Rationalizability is a solution concept that is robust to small misspecifications about the information players have, as well as the payoffs of their actions. I do think it provides reasonable predictions in situations where Nash equilibrium requires coordination or precise beliefs about other players actions or beliefs, especially when players have not had enough opportunity to learn the game. This is a long way to say that I agree with you regarding the chicken game. Though I believe that the most common outcome is that all players decide to wait longer than necessary, that's the main coordination problem that signs, lights, and rules solve, I  believe. &lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-05-16T19:23:12.240" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29364" PostTypeId="2" ParentId="29355" CreationDate="2019-05-16T19:55:24.960" Score="0" Body="&lt;p&gt;I am going to assume that &lt;span class=&quot;math-container&quot;&gt;$F$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$G$&lt;/span&gt; are continuous distribution functions (I.e. players are playing properly mixed strategies). If this is not the case there is not enough information to answer your question. Given that assumption, player 1 and 2 must be indifferent among their actions in game 1 given the strategies of the other player. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the second game, you are assuming that the node given by &lt;span class=&quot;math-container&quot;&gt;$x,k$&lt;/span&gt; is never reached (since &lt;span class=&quot;math-container&quot;&gt;$j$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$k$&lt;/span&gt; give the same payoff and when indifferent, player 1 always choose &lt;span class=&quot;math-container&quot;&gt;$j$&lt;/span&gt;). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Under that behavioral assumption (which must be verified to be consistent with equilibrium), player 2 must believe she is at the node &quot;&lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt;&quot; with probability 1. Since Player 2's beliefs have changed with respect to game 1, the mixed strategy given by &lt;span class=&quot;math-container&quot;&gt;$G$&lt;/span&gt; is, in general, no longer optimal (unless &lt;span class=&quot;math-container&quot;&gt;$a$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$b$&lt;/span&gt; give the same payoff regardless of the action of player 1). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In short, player 2 will, in general, not use the same strategy in the first and the second game; so threatening to use &lt;span class=&quot;math-container&quot;&gt;$G$&lt;/span&gt; is not credible. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Btw all threats are credible in a PBE since strategies are best responses given some beliefs that are Bayesian. &lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-05-16T19:55:24.960" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="29365" PostTypeId="2" ParentId="29358" CreationDate="2019-05-16T20:02:53.700" Score="0" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Repeated, partial sovereign default makes so much sense.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It's important to understand regarding default that it's a one-time decision. Announcing default for the future is announcing in the present. If everybody know a bond is going to be paid 80 instead of 100 promised, it won't exchange as 100 in the market, that's why it's &lt;em&gt;current&lt;/em&gt; value decreases.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And, economists generally don't consider sovereign default very lightly. By devaluating sovereign assets, the obligation market would crunch, and liquidity with it. In the same time, to counter the problem of lenders refusing to lend to a &quot;bad student&quot; (and lacking liquidity to do so anyway), the US would have to raise taxes or cut spending to compensate for deficit and/or borrow at high rates. Even for a small default &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consequences could be like a 2008 scenario : liquidity crisis, banks refusing to lend, company have harder time to access credit, lower growth, and ultimately consequences on employment and purchasing power, across all countries having invested directly or indirectly in US treasure. Moreover, the US would have screwed at a diplomatic level, opening itself for retaliation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In comparison, it makes much more sense to simply raise taxes to address debt. The end result are the same, the taxpayers will get less, but this is much more controlled, and politically much easier to support.&lt;/p&gt;&#xA;" OwnerUserId="23156" LastEditorUserId="23156" LastEditDate="2019-05-16T20:16:47.803" LastActivityDate="2019-05-16T20:16:47.803" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29366" PostTypeId="2" ParentId="29350" CreationDate="2019-05-16T20:08:25.443" Score="0" Body="&lt;p&gt;The condition &lt;span class=&quot;math-container&quot;&gt;$MC=MR$&lt;/span&gt; comes from studying the case where you can produce any quantity, for example, &lt;span class=&quot;math-container&quot;&gt;$4.0, 4.1, 4.41, 4.987$&lt;/span&gt; or any fraction of production. In that case (under some general conditions), &lt;span class=&quot;math-container&quot;&gt;$MC=MR$&lt;/span&gt; will give you the unique quantity that maximizes profits. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In contrast, in your table, you can only produce whole units, for example, &lt;span class=&quot;math-container&quot;&gt;$3, 4, 5$&lt;/span&gt;, etc. In that case, &lt;span class=&quot;math-container&quot;&gt;$MC=MR$&lt;/span&gt; is an approximate condition to find the optimal profits and usually, it gives you the unique solution. Your example is special in the sense that there are 2 optimal quantities and the &lt;span class=&quot;math-container&quot;&gt;$MC=MR$&lt;/span&gt; condition only gives you one such solution, but you can actually choose either. &lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-05-16T20:08:25.443" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29368" PostTypeId="1" CreationDate="2019-05-16T22:35:55.807" Score="3" ViewCount="102" Body="&lt;p&gt;As a layman, I've always understood that there is a general consensus amongst economists that &quot;immigration is economically beneficial&quot; to rich Western countries (like Britain) who have aging populations because the influx of young economically active workers contributes to the economy (and tax coffers) and thereby supports the old economically inactive population.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But this seems quite obviously short-sighted.  Those immigrants will themselves grow old—and assuming that they remain in their new host countries, they will add to the economic burden of the elderly populations for future generations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is such immigration therefore not just kicking today's problems into the future, where it will have compounded and be exponentially worse?&lt;/p&gt;&#xA;" OwnerUserId="23176" LastActivityDate="2020-11-07T20:03:05.453" Title="Does migration exacerbate (albeit delay) the problem of aging, economically-inactive populations in Western societies?" Tags="&lt;macroeconomics&gt;&lt;labor-economics&gt;&lt;economic-growth&gt;&lt;unemployment&gt;&lt;migration&gt;" AnswerCount="2" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="29370" PostTypeId="2" ParentId="29330" CreationDate="2019-05-17T05:21:42.637" Score="0" Body="&lt;p&gt;There are a lot of fuzzy terms in your question, as it has been pointed out. For example, the demand of a good is what it is, there is no concept of being too low or too high. Perhaps if you are a producer you may have the opinion that it is too low because you are not making a profit, but that doesn’t not mean it is actually “too low”. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I’m not sure how to think of your question, because for it to make sense to have robots consuming something, they must be consuming a service that is valuable. For example when I sell you something the cost of producing must be lower than the benefit of consuming it. If the robots derive no benefit, then this is economically un-viable. However, I can imagine scenarios were robots may benefit from buying oil or energy, or parts they might need to keep running (this is very sci-fiction, but so is your question ;-) ). Likewise I can imagine situations were someone else benefits from the robots’ consumption. In fact, we currently have examples of this. You can buy views and likes in your social media content by robots. This is, you are literally paying for robots to consume some videos or posts. This can make your channel more popular and increase subscriptions by real humans or increase the monetization from advertisement. Again we see that for this to be economically viable, the cost of the transaction, must be lower than the benefit of it. Otherwise, the practice will die away eventually.&lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-05-17T05:21:42.637" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29371" PostTypeId="2" ParentId="29368" CreationDate="2019-05-17T05:32:04.430" Score="2" Body="&lt;p&gt;I don’t really see the connection you are drawing. As @Fizz has pointed out, immigration usually happens over time and maybe when immigrants grow old there will be more immigrants to support all of the new old. Likewise, in many countries immigrants tend to have more children than non-immigrants, so that will attenuate the aging problem. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If anything it should be something to check case-by-case, but I don’t see any causal relationship between immigration and the “aging problem”. I see how just mechanically these two are related, but I don’t expect the relationship to have any particular systematic pattern. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It feels to me like you are saying that taking more exams is bound to lower your average grade. Of course more exams will impact your average grade, but it really can go up or down depending on many other factors.&lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-05-17T05:32:04.430" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29372" PostTypeId="2" ParentId="29314" CreationDate="2019-05-17T06:06:13.613" Score="2" Body="&lt;p&gt;Investment protects are inherently risky, and when calculating either of these numbers many assumptions need to be made. From projecting what future inflows and outflows will be, to deciding what rate of return to use to discount these projects payoffs. As far as I know, usually both measures are calculated and considered when making a decision since they give a slightly different information. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, the NPW needs to assume some rate at which to discount payoffs, in your example you call it the MARR, the choice of such rate can be controversial, while the calculation of the ERR does not need to assume any rate. For example I can show you a project with a very high NPW, but this high number may only be due to the fact that I chose a very low MARR, this will be evident because the ERR will necessarily be low. The two measures give a more complete picture. Likewise, I can give you a project that has a very high ERR, but the actual level of the value of the project can be tiny, this will be reflected by the fact that the NPW will be a small positive number.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the MARR is not controversial, the king of all measures is certainly the NPW, as it literally tells you how valuable is a project. But there are many ways to tinker with the NPW and make it look better so complementary measures give you a better picture of the quality of the project.&lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-05-17T06:06:13.613" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29373" PostTypeId="2" ParentId="29308" CreationDate="2019-05-17T06:18:31.473" Score="0" Body="&lt;p&gt;This feels like trying to read your mind, so I’m probably wrong. I will venture an answer regardless :D . I think that what is happening is that the benefit from buying the insurance is certainly the reduction in exposure: A-C. However maybe you are thinking about the remaining exposure after buying the insurance, in that case it is (A-C) + B. So I think you are thinking about the total costs after buying insurance while the question was asking about the change in costs. I prefer the term exposure, but I thought that using your terms will make the exposition  clear. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;P.S. I hope it is understood that we are not literally adding costs, since they occur in different states of the world, but rather using it as a short hand notation to focus on the relevant issues.&lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-05-17T06:18:31.473" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29374" PostTypeId="2" ParentId="29281" CreationDate="2019-05-17T06:25:43.757" Score="-1" Body="&lt;p&gt;They are hugely different!! The Walras law is a mathematical result that simplifies the task of characterizing prices and maybe it’s deeper meaning is that price levels are irrelevant in a perfectly competitive economy, rather relative prices is what matters.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In contrast, the first welfare theorem is way more than a mathematical result. It states that any equilibrium of a perfectly competitive market is Pareto efficient. This one is indeed related to the invisible hand argument in favor of capitalism, It’s implication is basically the markets are awesome, since they always lead to socially desirable outcomes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course both theorems depend on assumptions (as they should), and these are debatable, but their implications are hugely distinct.&lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-05-17T06:25:43.757" CommentCount="8" ContentLicense="CC BY-SA 4.0" />
  <row Id="29375" PostTypeId="1" AcceptedAnswerId="29385" CreationDate="2019-05-17T09:48:22.347" Score="2" ViewCount="140" Body="&lt;p&gt;The concept of a &lt;a href=&quot;https://www.wikiwand.com/en/Market_basket&quot; rel=&quot;nofollow noreferrer&quot;&gt;market or consumer basket&lt;/a&gt; is quite intuitive. I assume a market basket for a given country tells for which goods an average person spends how much of her money.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To be able to compare market baskets between different countries (and cultures) their (groups of) items must be chosen quite generically (such that they make sense everywhere in the world). The official German market basket as found &lt;a href=&quot;https://www.wikiwand.com/de/Warenkorb&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; includes the following groups of items:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;01 Food and non-alcoholic beverages&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;02 Tabacco and alcoholic beverages&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;03 Clothing and shoes&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;04 Housing and energy&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;05 Furniture&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;06 Health&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;07 Transportation&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;08 Telecommunication&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;09 Leisure, culture&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;10 Education&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;11 Hotel, restaurants&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;12 Other&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I wonder if this market basket makes sense everywhere in the world, or if there are significantly different ones around. Maybe there is an international standard? If so: Where can I find a good overview and comparison of this market basket all over the world?&lt;/p&gt;&#xA;" OwnerUserId="22991" LastActivityDate="2019-05-18T12:46:17.763" Title="Market baskets: cross-border comparisons" Tags="&lt;microeconomics&gt;&lt;econometrics&gt;&lt;consumer-theory&gt;&lt;consumption&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29377" PostTypeId="2" ParentId="23829" CreationDate="2019-05-17T12:28:50.193" Score="0" Body="&lt;p&gt;use the platform &quot; Thinkorswim &quot;. You will find exactly what you are looking for, and even more. Totally free. &lt;/p&gt;&#xA;" OwnerUserId="23072" LastActivityDate="2019-05-17T12:28:50.193" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29378" PostTypeId="2" ParentId="29328" CreationDate="2019-05-17T12:38:47.093" Score="1" Body="&lt;p&gt;Companies like Google and FB are talent focused. Turnover is high for a few reasons:&#xA; 1). Because the employees tend to be VERY good at what they do, thus their opportunities are vast; and people tend to gravitate towards who pays the most.&#xA; 2). Stress. &#xA; 3). Contracts. Many employees in these big firms tend to only have short term contracts for specific projects. &#xA; 4). These companies demand some of the best talent and work, and if an employee isn't reaching par consistently, no reason to keep them.&#xA;I'm sure there are more reasons, but those are researchable. =-) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope this helps.&lt;/p&gt;&#xA;" OwnerUserId="23072" LastActivityDate="2019-05-17T12:38:47.093" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29383" PostTypeId="2" ParentId="29281" CreationDate="2019-05-17T16:10:40.637" Score="1" Body="&lt;p&gt;Walras' law describes market equilibria conditions, which states roughly speaking that if there exists within an exchange economy market equilibria for &lt;span class=&quot;math-container&quot;&gt;$n-1$&lt;/span&gt; good markets, then the last good market &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt; is also in equilibrium. Thus, we have a market system with &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt; equations and &lt;span class=&quot;math-container&quot;&gt;$n-1$&lt;/span&gt; independent variables, where the last market is linear dependent from the other &lt;span class=&quot;math-container&quot;&gt;$n-1$&lt;/span&gt; markets.   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, the first Welfare Theorem of Arrow states that for every exchange economy with convex preferences, every Walrasian equilibrium is Pareto efficient.   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The implication of the first Welfare Theorem is that we need no central planner to achieve a Pareto efficient outcome in an exchange economy. The Pareto efficient outcome is based on decentralized decisions within the exchange economy. If we now introduce transaction costs and incomplete information into the system, then it should be obvious that every decentralized economy is doing better than every centralized one due to the information problem.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Update:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I forget to mention some interesting implications of Walras' law. The law reveals to us that we have only one degree of freedom. This implies that a central instance can only fix one price level, for instance, that of the numeraire good, the others prices of the markets are determined by the market forces. Hence, a central instance has no control on them. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To make this argument more precise, let us apply this law to a central bank policy. We have only one degree of freedom, the central bank can now fix either the interest rate of the money market or a price index, but not both. If it fixes the interest rate, it has to accept the price levels and therefore the inflation rate, and vice versa for the price index. This also implies that a central bank cannot simultaneously targeting the price index and the unemployment rate of an economy.&lt;/p&gt;&#xA;" OwnerUserId="23117" LastEditorUserId="23117" LastEditDate="2019-05-18T08:38:44.687" LastActivityDate="2019-05-18T08:38:44.687" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29384" PostTypeId="1" CreationDate="2019-05-17T19:03:10.240" Score="1" ViewCount="14" Body="&lt;p&gt;Accountable Care Organizations were created by the Affordable Care Act in 2011 in order to improve quality of care and reduce costs for patients and are part of a change from fee-for-service payments towards value-based payments in healthcare.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As I understand it, groups of doctors and hospitals participating in an ACO are encouraged to meet health outcome targets for their patients. ACOs that reduce unnecessary procedures, visits and hospital stays, are rewarded with a share of the savings.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;According to the National Association of ACOs &quot;As of January 2019, there are 538 Medicare ACOs serving more than 12.3 million beneficiaries with hundreds more commercial and Medicaid ACOs serving millions of additional patients.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So far, so good. However if a non-ACO provider is bringing in significantly more revenue by encouraging unnecessary procedures, visits and hospital stays, it's not clear to me why they would voluntarily join an ACO to be &quot;rewarded&quot; with a percentage of their lost revenue?! Are there other incentives I'm not aware of? &lt;/p&gt;&#xA;" OwnerUserId="8043" LastActivityDate="2019-05-17T19:03:10.240" Title="What is the financial incentive for physicians and hospitals to join an Accountable Care Organization (ACO)?" Tags="&lt;health-economics&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29385" PostTypeId="2" ParentId="29375" CreationDate="2019-05-17T21:45:02.547" Score="2" Body="&lt;p&gt;It's very likely that that these major categories in the hierarchy of goods in the market basket differ somewhat by country.  The sub-categories within these major groups are even more likely to differ across countries, as the market basket is supposed to reflect the purchases of a typical consumer, and typical purchases are obtained from consumption surveys of the population.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the U.S., the eight major categories used for calculating the rate of inflation (Consumer Price Index) are:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Food and Beverages&lt;/li&gt;&#xA;&lt;li&gt;Housing (includes furnishings)&lt;/li&gt;&#xA;&lt;li&gt;Apparel&lt;/li&gt;&#xA;&lt;li&gt;Transportation&lt;/li&gt;&#xA;&lt;li&gt;Medical&lt;/li&gt;&#xA;&lt;li&gt;Recreation&lt;/li&gt;&#xA;&lt;li&gt;Education and Communication&lt;/li&gt;&#xA;&lt;li&gt;Other Goods and Services&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;In Canada, the major groups are:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Food and non-alcoholic beverages&lt;/li&gt;&#xA;&lt;li&gt;Shelter&lt;/li&gt;&#xA;&lt;li&gt;Household operations, furnishings and equipment&lt;/li&gt;&#xA;&lt;li&gt;Clothing and footwear&lt;/li&gt;&#xA;&lt;li&gt;Transportation&lt;/li&gt;&#xA;&lt;li&gt;Health and personal care&lt;/li&gt;&#xA;&lt;li&gt;Recreation, education and reading&lt;/li&gt;&#xA;&lt;li&gt;Alcoholic beverages, tobacco products and recreational cannabis  &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Sources:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;U.S. CPI Handbook of Methods (&lt;a href=&quot;https://www.bls.gov/opub/hom/pdf/cpihom.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.bls.gov/opub/hom/pdf/cpihom.pdf&lt;/a&gt;)&lt;/li&gt;&#xA;&lt;li&gt;The Canadian Consumer Price Index Reference Paper (&lt;a href=&quot;https://www150.statcan.gc.ca/n1/en/pub/62-553-x/62-553-x2019001-eng.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www150.statcan.gc.ca/n1/en/pub/62-553-x/62-553-x2019001-eng.pdf&lt;/a&gt;)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="21454" LastActivityDate="2019-05-17T21:45:02.547" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29386" PostTypeId="1" AcceptedAnswerId="29399" CreationDate="2019-05-18T00:43:02.577" Score="-1" ViewCount="107" Body="&lt;p&gt;One of the consequences of Lucas' critique is that models must be microfounded. On the other side, Sonnenschein-Mantel-Debreu (SMD) theorem claims that microfoundation doesn't have any repercussion on aggregate economics. Then what does Lucas says about SMD? is there a counterargument to SMD? are there any additional conditions at the micro level to generate nice behaved aggregate demand?&lt;/p&gt;&#xA;" OwnerUserId="13288" LastEditorDisplayName="user18" LastEditDate="2019-05-18T02:36:06.983" LastActivityDate="2019-05-19T07:12:59.143" Title="SMD and Lucas critique" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;general-equilibrium&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29387" PostTypeId="2" ParentId="24389" CreationDate="2019-05-18T03:18:49.497" Score="0" Body="&lt;p&gt;The three classical &lt;a href=&quot;https://en.wikipedia.org/wiki/Factors_of_production&quot; rel=&quot;nofollow noreferrer&quot;&gt;factors of production&lt;/a&gt; (per Adam Smith, David Ricardo, and their contemporaries) are Land, Labor, and Capital.  As discussed on &lt;a href=&quot;https://en.wikipedia.org/wiki/Land_(economics)&quot; rel=&quot;nofollow noreferrer&quot;&gt;the wikipedia article for land&lt;/a&gt; the &quot;income derived from ownership or control of natural resources is referred to as rent.&quot;  This largely coincides with the intuitive notion of paying rent, hence the name.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Technically, the amount paid by a renter to the owner of land is called &quot;contract rent&quot; and includes not just the economic rent but also a return to capital (interest) on the improvements made to the land (e.g. buildings, infrastructure, etc.) as well as compensation for risk.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For political reasons, other economists attempted to modify these definitions in the late 19th / early 20th centuries, primarily in an attempt to diminish the influence of economist and politician &lt;a href=&quot;https://en.wikipedia.org/wiki/Henry_George&quot; rel=&quot;nofollow noreferrer&quot;&gt;Henry George&lt;/a&gt;.  Since that time, the role of Land has either been subsumed into Capital, or ignored outright.  Alternate definitions of &quot;Economic Rent&quot; have been offered that leave out any reference to Land.  This has led directly to the confusion you experience, since it makes the terminology seem arbitrary and/or irrelevant.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Put simply, economic rent is called that because it corresponds to the payment made to the owner of land (or associated natural resources) and modern economic theory has been structured so as to disguise that relationship.&lt;/p&gt;&#xA;" OwnerUserId="23023" LastEditorUserId="23023" LastEditDate="2019-05-19T18:21:44.507" LastActivityDate="2019-05-19T18:21:44.507" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29388" PostTypeId="2" ParentId="29328" CreationDate="2019-05-18T03:23:53.150" Score="0" Body="&lt;p&gt;Having done a bit of research, i found a few things to explain the phenomenon.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Companies like these are in demand of profile that are scarce resource on the market and are willing to acquire the best of them at any cost. In order to do so, they aggressively market their open positions, salaries and supposed employee happiness. This is especially true for Google and Facebook, might be less so for others.&lt;/li&gt;&#xA;&lt;li&gt;Many employees then realize &lt;a href=&quot;https://www.businessinsider.fr/us/google-employees-worst-things-about-working-at-google-2016-12&quot; rel=&quot;nofollow noreferrer&quot;&gt;things aren't so bright than advertised&lt;/a&gt;. The salary might be good, but their input is not valued as much as promised, they have trouble changing things, or find themselves unchallenged. There are management issues, and issues related to the fact the company they work being too big to provide key roles to everyone.&lt;/li&gt;&#xA;&lt;li&gt;Being highly qualified and on demand, employees can find other opportunities at any time, and are targets of aggressive job marketing from other companies as well.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Another factor is that since tech giants also serve as a selling point on one's CV, they might as well hire people already planning a limited experience to improve their career perspectives, but I found little evidence supporting that it'd be a massive factor.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So I came to the conclusion that the high turnover is the result part of the market being tense, part of the management (e.g. being too greedy for high profiles and then being unable to challenge them), and part of the company size, factors that are fairly hard to fight.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regarding costs, the answer would be then the costs are left partly unmanaged because of how difficult it is to address the root causes of these departures. Being well established, the companies simply pay it with the return of past investments.&lt;/p&gt;&#xA;" OwnerUserId="23156" LastEditorUserId="23156" LastEditDate="2019-05-18T10:48:18.553" LastActivityDate="2019-05-18T10:48:18.553" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29390" PostTypeId="1" CreationDate="2019-05-18T10:50:42.590" Score="-1" ViewCount="70" Body="&lt;p&gt;How people can be sure that somebody, cooperating with central bank (or working in it), is not creating money in digital or paper form for themself, so that nobody else notices it?&lt;/p&gt;&#xA;" OwnerUserId="23190" LastEditorUserId="23190" LastEditDate="2019-06-16T07:25:48.160" LastActivityDate="2019-06-16T07:25:48.160" Title="How do people check or trust that central bank is not cheating?" Tags="&lt;banking&gt;&lt;money-supply&gt;&lt;central-banking&gt;&lt;technology&gt;&lt;national-bank&gt;" AnswerCount="1" CommentCount="6" ClosedDate="2019-06-11T17:50:58.567" ContentLicense="CC BY-SA 4.0" />
  <row Id="29391" PostTypeId="1" CreationDate="2019-05-18T10:59:20.300" Score="-1" ViewCount="89" Body="&lt;p&gt;In many economic charts with demand and supply curve, people often say the demand curve goes down with more quantity. But I will give you a really practical example, why I think they are wrong.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Imagine one can of coke is 1\$ in the shop.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;now if quantity is 2 it means I am willing to pay 2\$ for two cans.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;3 for 3\$&#xA;4 for 4\$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It means the curve will go up with the quantity.&lt;/p&gt;&#xA;" OwnerUserId="21814" LastEditorUserId="11590" LastEditDate="2019-05-18T14:26:04.593" LastActivityDate="2019-05-18T14:36:12.950" Title="Why is demand curve always going down?" Tags="&lt;microeconomics&gt;&lt;supply-and-demand&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29392" PostTypeId="2" ParentId="27029" CreationDate="2019-05-18T11:24:38.110" Score="0" Body="&lt;p&gt;Here is what I thought could be a simple example. Suppose there are two periods (&lt;span class=&quot;math-container&quot;&gt;$t_0, t_1$&lt;/span&gt;) and two possible states of nature (&lt;span class=&quot;math-container&quot;&gt;$s_1,s_2 $&lt;/span&gt;) that arise in period &lt;span class=&quot;math-container&quot;&gt;$t_1$&lt;/span&gt;. Suppose there are two agents. The first agent has an income stream that pays off only in state &lt;span class=&quot;math-container&quot;&gt;$s_1$&lt;/span&gt; while, second agent's income stream pays off only in state &lt;span class=&quot;math-container&quot;&gt;$s_2$&lt;/span&gt;. Consumption happens only in &lt;span class=&quot;math-container&quot;&gt;$t_1$&lt;/span&gt; and both agents prefer to consume in both the states than in just one (Inada condition as consuption goes to 0 is not satisfied) and more is always better. If at &lt;span class=&quot;math-container&quot;&gt;$t_0$&lt;/span&gt;, neither agent knows the state at &lt;span class=&quot;math-container&quot;&gt;$t_1$&lt;/span&gt; then they might enter into a trade that ensures them positive consumption across both the states.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand, if, in &lt;span class=&quot;math-container&quot;&gt;$t_0$&lt;/span&gt;, state is already revealed publicly (in this example even privately to one agent) an agent who has a positive pay-off in &lt;span class=&quot;math-container&quot;&gt;$t_1$&lt;/span&gt; would not be interested in any trade with the unlucky agent.&lt;/p&gt;&#xA;" OwnerUserId="2904" LastActivityDate="2019-05-18T11:24:38.110" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29393" PostTypeId="2" ParentId="29391" CreationDate="2019-05-18T11:46:17.823" Score="1" Body="&lt;p&gt;Price in the context of demand and supply analysis normally means price &lt;em&gt;per unit&lt;/em&gt;. Suppose as you say the shop charges \$1 per can.  At that price per can there will be a maximum number, say &lt;span class=&quot;math-container&quot;&gt;$N$&lt;/span&gt;, of cans you are willing to buy (within the relevant time period). The combination of price \$1 and quantity &lt;span class=&quot;math-container&quot;&gt;$N$&lt;/span&gt; defines one point on your individual demand curve.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;That single point cannot indicate whether the curve is upward or downward sloping.  To determine the direction of slope would require knowledge of the maximum number of cans you would be willing to buy at different unit prices.  &lt;/p&gt;&#xA;" OwnerUserId="1417" LastActivityDate="2019-05-18T11:46:17.823" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29394" PostTypeId="2" ParentId="29390" CreationDate="2019-05-18T12:33:10.240" Score="2" Body="&lt;p&gt;In modern economies, “money” is a liability of some entity. If it creates “money,” it is adding to its own liabilities. (E.g., bank deposits are liabilities of banks, and so if they just increased their deposits without offsetting lending activity, they just lowered their net worth.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The only “cheating” is counterfeiting: issuing instruments that pretend to be liabilities of some other entity. Most large retailers have systems to detect counterfeit currency, so this is already a known factor. As for electronic money, security against fraudulent transactions (similar in effect to counterfeiting) is also an ongoing concern.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What about the government? There are many people who question the truthfulness of government statistics. However, the developed countries publish comprehensive statistical databases, and it is possible to cross-check the data against the other sources, as well as private data. (As an example, Chinese GDP statistics were often compared to electricity generation statistics, which were viewed as more reliable by market analysts.) Given the high levels of scrutiny of macroeconomic data, it is unclear to what extent data can be falsified.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2019-05-18T12:33:10.240" CommentCount="7" ContentLicense="CC BY-SA 4.0" />
  <row Id="29395" PostTypeId="2" ParentId="29375" CreationDate="2019-05-18T12:34:46.013" Score="1" Body="&lt;p&gt;The EU has a harmonized CPI methodology (&lt;a href=&quot;https://www.ecb.europa.eu/stats/macroeconomic_and_sectoral/hicp/html/index.en.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;HICP&lt;/a&gt;). It has sometimes been applied (e.g. in OECD/G-20 contexts) to the US for comparison purposes. There's more to methodological harmonization than what goes in the basket (e.g. which areas are covered or the formulas used for aggregation).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There's also an attempt to standardized the basket in UN's &lt;a href=&quot;https://unstats.un.org/unsd/class/revisions/coicop_revision.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;COICOP&lt;/a&gt;; alas few countries use that as-is.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some selected quotes from a &lt;a href=&quot;http://www.oecd.org/sdd/prices-ppp/CPI-G20-methodology.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;G-20 CPI paper&lt;/a&gt;, which is quite detailed:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The preference for the use of the HICP, when available, rather than the national CPI is&#xA;  founded on the fact that Eurostat has developed a harmonised approach and a single set of definitions&#xA;  in order to arrive at comparable measures of inflation in the EU. Given the higher comparability of the &#xA;  HICPs, the use of HICPs when available is considered appropriate for the compilation of the CPI G-20&#xA;  aggregate. The availability among G-20 economies is as follows:&lt;/p&gt;&#xA;  &#xA;  &lt;ul&gt;&#xA;  &lt;li&gt;HICPs for the European Union covering all current 28 Member States: data from January&#xA;  1996 (including HICPs for France, Germany, Italy, and the United Kingdom);&lt;/li&gt;&#xA;  &lt;li&gt;HICP for Turkey: data from January 1996;&lt;/li&gt;&#xA;  &lt;li&gt;Experimental HICP for the United States that differs from the US National CPI in two major&#xA;  aspects. The US HICP (i) includes the rural population, and (ii) excludes owner occupied&#xA;  housing. However, for reasons of prominence, main uses and timeliness (the US HICP is&#xA;  published with a delay of one or two months with historical data starting in January 1998&#xA;  only) the use of the US national CPI is preferred in the calculation of the G-20 aggregate.&lt;/li&gt;&#xA;  &lt;/ul&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Also&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;France, Germany, Italy, and Turkey publish both HICPs and national CPIs.&#xA;   The&#xA;  methodology used for the HICPs differs from the methodology used for the compilation of the&#xA;  national CPIs. [...] In general terms, the main methodological differences between the HICP and the national&#xA;  CPIs are as follows:&#xA;  1. Coverage: Excluded from HICPs are: Narcotics (COICOP / HICP 02.3); Imputed rentals for&#xA;  housing, including rentals of owner-occupiers (04.2); Games of chance (gambling) (09.4.3);&#xA;  FISIM (financial intermediation services indirectly measured) (12.5.2); and part of personal&#xA;  care services n.e.c. (12.1.3 ) (example: prostitution);&#xA;  2. Treatment of subsidized healthcare and education: the HICP includes the net price paid by&#xA;  consumers (after reimbursements);&#xA;  3. Formula used for elementary aggregates: the HICP use is ratios of arithmetic mean prices&#xA;  and/or ratios of geometric means;&#xA;  4. Geographical and population coverage: the HICP covers all expenditures on the territory of&#xA;  the country concerned, whether made by residents or non-residents (e.g. tourists).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Regarding baskets in (other) G-20 countries:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The COICOP classification of consumer expenditures and prices on goods and services by&#xA;  purpose is only strictly applied by Korea and South Africa, while the COICOP/HICP classification&#xA;  (which is the COICOP classification adapted to the needs of the HICP) is used for the European Union&#xA;  and by Turkey. The other G-20 economies use national classifications which in some countries, such&#xA;  as Australia and Japan are consistent with COICOP at the highest level. Table 7 gives an overview of&#xA;  the systems of classification used and highlights the specific exclusions or inclusions by country. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/wK45m.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/wK45m.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/lhBUs.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/lhBUs.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/yDZCi.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/yDZCi.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is more to say about housing costs as well, in terms of methodological variation between countries, but I'm omitting that here; the paper covers it in detail too.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also the CPI aggregation method may differ between countries:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The compilation of a CPI consists of two main stages: 1) the calculation of unweighted price&#xA;  indices (mostly price ratios) for elementary aggregates, and 2) the weighted aggregation of these&#xA;  elementary price indices for higher level aggregates. [...]&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Methods used for combining prices to give elementary&#xA;  aggregates vary widely among the individual countries of the G-20, the geometric mean (Jevons&#xA;  index) is the method most commonly used (10 countries plus France, Italy and the United Kingdom).&#xA;  All G-20 economies use a Laspeyres-type formula for their published CPIs [but there are some variations in details for that as well].&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;There's also a table with those aggregation/index formulas per country, in the G-20 paper.&lt;/p&gt;&#xA;" OwnerUserId="6210" LastEditorUserId="6210" LastEditDate="2019-05-18T12:46:17.763" LastActivityDate="2019-05-18T12:46:17.763" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29396" PostTypeId="2" ParentId="29391" CreationDate="2019-05-18T14:25:50.880" Score="0" Body="&lt;p&gt;What you wrote does not seem to be closely connected to what economists mean by a demand curve.&#xA;The demand curve shows how much of the good consumers are willing (and able) to buy at a given price. It is customary to graph the inverse of this function, and this inverse demand &lt;span class=&quot;math-container&quot;&gt;$P(q)$&lt;/span&gt; is indeed downward sloping. The main reason behind this is that marginal utility is typically decreasing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider your coke example and suppose you are on the beach. For a first can of coke, you might be willing to pay, say, \$2 because you are thirsty. For the second can it is probably less, say, \$1 because you just had a can. For the third, it is even less. Even less for the next one and so on. The more you consume of a good the less you value one additional unit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another reason could be a substitution effect. That is, you buy more cans of coke when, all else equal, its price decreases because coke is now relatively cheaper than Sprite and Pepsi.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The demanded quantity also can go up because of an income effect. That is, you can afford more cans of coke when the price goes down.&lt;/p&gt;&#xA;" OwnerUserId="11590" LastActivityDate="2019-05-18T14:25:50.880" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29397" PostTypeId="2" ParentId="29391" CreationDate="2019-05-18T14:36:12.950" Score="0" Body="&lt;p&gt;There are two things you are confusing here: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;1.- The willingness to pay for something is completely independent of what the price in the store is. We think of the willingness to pay as something that buyers have regardless of prices. For example, maybe the price of sodas is only \$3 but my willingness to pay is \$10 on really hot days, while more like \$1 on a winter day. Clearly, I will not buy in the winter and definitely buy in the summer. How many will I buy? Well, we don't really have enough information. Maybe the second unit of soda on a summer day is only valuable \$2 to me (in which case I won't buy it), or maybe my willingness to pay is now \$5 (in which case I will buy it). What about the third can of soda in this scenario, we clearly need more information again, etc. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Notice that if the price of soda goes up to \$6, that will have no impact whatsoever on my willingness to pay. It will only have an impact on my decision of whether to buy or not, but not on my intrinsic willingness to pay. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;2.- In the demand graph, we always plot price per unit, as explained by @Adam Bailey,  so in your example, you have a single point (i.e. when the price is \$1 dollar), so you cannot really say if it's going up or down. Further, you are making something funky with quantities, because what we mean by quantity in the demand graph is &quot;the maximum amount of sodas that will be bought at that price (per soda)&quot;. So if the quantity is 100 and the price is \$1.5 the total dollar amount will be \$150, but the price is still \$1.5. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this last case, we say that &quot;at a price of \$1.5, 100 units are demanded&quot;, and conversely you can say that &quot;preferences of consumers are such that exactly 100 units are associated with a willingness to pay of at least \$1.5&quot; (no-one uses the last one, but it may help you connect all the concepts).&lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-05-18T14:36:12.950" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29398" PostTypeId="2" ParentId="29386" CreationDate="2019-05-18T14:49:17.223" Score="0" Body="&lt;p&gt;I think that one solution to Lucas' critique is to micro-found your econometric model, but his critique is broader. I think it means that if you don't consider seriously that agents are optimizing, you may assume that some parameters will be invariant to policy changes, when they may not be. If SMD states that when looking at aggregate data, some properties of individual agent models do not follow, then this can be reflected in your econometric model so that your model is still not assuming some parameters to be policy invariant when they are not. I don't really see any tension between these two.&lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-05-18T14:49:17.223" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29399" PostTypeId="2" ParentId="29386" CreationDate="2019-05-18T16:05:32.807" Score="2" Body="&lt;p&gt;Basically the Lucas solution to SMD was the representative agent (which brought its own problems).&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://eprints.uwe.ac.uk/38198/1/1806-%20DSGE%20Models%20and%20the%20Lucas%20Critique%20%28WP%29.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Not everyone&lt;/a&gt; agrees that microfounding solves/addresses the Lucas critique:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;My claim is that the current debate about DSGE models and&#xA;  the Lucas Critique should be understood through a historical perspective—&#xA;  namely, through the development, during the 1980s and 1990s, of two rival&#xA;  interpretations of Lucas (1976). On the one hand, the RBC approach advocated for what I will call a “theoretical interpretation” of the Critique; on&#xA;  the other hand, Keynesians championed what I will call an “empirical interpretation” of the Critique. These interpretations were rival with respect&#xA;  to their assessment of the following proposition: do microfoundations imply&#xA;  parameters’ stability?&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;[The] RBC approach argues that microfoundations do imply parameters’ stability. [...] Conversely, following the empirical interpretation of the Critique, Keynesians argue that microfoundations do not imply parameters’ stability. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Now if you're asking about Lucas himself, he &lt;a href=&quot;https://books.google.com/books?id=TBUqu6hiHLgC&amp;amp;pg=PA133&quot; rel=&quot;nofollow noreferrer&quot;&gt;did apparently&lt;/a&gt; see microfoundations as the/main answer, well apparently to everything that ailed macroeconomics:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The most interesting developments in macroeconomic theory seem to be&#xA;  describable as the reincorporation of aggregative problems such as inflation&#xA;  and the business cycle within the general framework of 'microeconomic'&#xA;  theory. &lt;strong&gt;If these developments succeed, the term 'macroeconomic' will simply&#xA;  disappear from use and the modifier 'micro' will become superfluous. We&#xA;  will simply speak, as did Smith, Ricardo, Marshall and Walras, of economic&#xA;  theory.&lt;/strong&gt; If we are honest, we will have to face the fact that at any given time&#xA;  there will be phenomena that are well-understood from the point of view of&#xA;  the economic theory we have, and other phenomena that are not. We will be&#xA;  tempted, I am sure, to relieve the discomfort induced by discrepancies&#xA;  between theory and facts by saying that the ill-understood facts are the&#xA;  province of some other, different kind of economic theory. Keynesian&#xA;  'macroeconomics' was, I think, a surrender (under great duress) to this temptation.&#xA;  It led to the abandonment, for a class of problems of great importance,&#xA;  of the use of the only 'engine for the discovery of truth' that we have in&#xA;  economics. (Lucas 1987, pp. 107-8)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;However the Lucas research programme &lt;a href=&quot;https://books.google.com/books?id=Cu_2FVrso44C&amp;amp;pg=PA8&quot; rel=&quot;nofollow noreferrer&quot;&gt;was hardly without flaws&lt;/a&gt;...&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The theorems of Hugo Sonnenschein, Rolf&#xA;  Mantel and Gerard Debreu in the early 1970s established that the restrictions&#xA;  that generate well-behaved individual demand functions do not&#xA;  constrain aggregate demand functions to exhibit the same properties [...]. &lt;strong&gt;The new classicals sidestepped&#xA;  the problem of aggregation either by imagining an economy composed of&#xA;  identical individuals or by assuming that there is one individual who&#xA;  represents the whole economy, so that the solution to the optimization&#xA;  problem of this representative agent gives the aggregate relationships in that&#xA;  economy. In fact, they adopted the representative-agent model from the&#xA;  optimal-growth literature of the 1960s.&lt;/strong&gt;&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&lt;strong&gt;Using such models, Lucas and others developed the characteristic conclusions&#xA;  of the new classical school, such as the ineffectiveness of monetary&#xA;  policy with respect to the real economy (see Hoover 1988). Policy ineffectiveness&#xA;  was widely regarded by Keynesians as a politically conservative&#xA;  conclusion.&lt;/strong&gt; Initially, it was interpreted as a direct consequence of the&#xA;  rational-expectations hypothesis, which was then regarded as politically&#xA;  suspect. Later, economists came to see that the assumptions of flexible&#xA;  prices and perfect competition were the critical factors in the policy&#xA;  ineffectiveness proposition. Once a wedge had been driven between policy&#xA;  ineffectiveness and the assumption of rational expectations, the rational expectations&#xA;  hypothesis was accepted by a wider spectrum of macroeconomists&#xA;  [...]. New Keynesians found that rational&#xA;  expectations did not rule out an important role for the government in&#xA;  stabilizing the economy.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In other words, in order to side-step SMD you can assume the representative agent and &quot;microfound&quot; on that, but that can give you worse headaches in terms of conclusions.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The hegemonic claims of microfoundations are most often justified with&#xA;  reference to the sort of problems highlighted by the Lucas critique. But&#xA;  what justifies the hegemony of the representative agent? Mainstream macroeconomists&#xA;  are rarely explicit on this question; but, implicitly, the argument&#xA;  seems to be that the assumption of a representative, optimizing, agent&#xA;  is mainly technical – both a compromise between the ambitions and the&#xA;  computational capacities of the macroeconomist and a convenient way to&#xA;  introduce a welfare measure for the evaluation of economic policy. The&#xA;  implicit argument is what Hoover refers to as “eschatological justification”:&#xA;  “the representative-agent model is but the starting point for a series of fuller&#xA;  and richer models that eventually will provide the basis for an adequate&#xA;  macromodel, and that, therefore, the current generation of models is&#xA;  entitled to credence” (Hoover 2006: 146 [...]&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The&#xA;  representative-agent program elevates the claims of microeconomics in&#xA;  some version or other to the utmost importance, while at the same time not&#xA;  acknowledging that the very microeconomic theory it privileges undermines,&#xA;  in the guise of the Sonnenschein–Debreu–Mantel theorem, the&#xA;  likelihood that the utility function of the representative agent will be any&#xA;  direct analogue of a plausible utility function for an individual agent.&#xA;  Kirman’s (1992) survey article on the representative agent, which highlights&#xA;  the lack of analogy, is well-cited; yet, it is striking that almost all of the&#xA;  citations are by critics of the representative-agent program; there is little&#xA;  evidence that advocates have even noticed the argument against their&#xA;  approach.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Solow was one of the critics of the representative-agent approach. In response:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Chari and Kehoe responded to the criticisms by&#xA;  Solow that they considered of substance. They recognize that the challenges&#xA;  facing modern macroeconomics are not small, but reject Solow’s&#xA;  criticisms to the use of a representative agent and to their claim that&#xA;  macroeconomics is now firmly grounded in economic theory. With respect&#xA;  to the representative agent hypothesis, Chari and Kehoe (2008: 247) state&#xA;  that modern macroeconomics does not end with such hypothesis, and in&#xA;  fact it does not end “too far from where Solow prefers”: “Most of macroeconomic&#xA;  research over the last 20 years has precisely been about incorporating&#xA;  the heterogeneity and the rich interactions that Solow seems to think&#xA;  it needs.” They argue that macroeconomists just start with a representative&#xA;  agent and then enrich the model “with the detail necessary to answer the&#xA;  question at hand” (p. 248). They also criticize Solow for his use in his&#xA;  growth papers of a single production function with aggregate labor and&#xA;  stock of capital, with which he “sacrificed realism for an abstraction that&#xA;  has proven invaluable” (p. 247)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The more recent works cited there:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;ul&gt;&#xA;  &lt;li&gt;&lt;p&gt;Solow, Robert M. (2008). The State of Macroeconomics. Journal of Economic&#xA;  Perspectives, 22 (1):243–6&lt;/p&gt;&lt;/li&gt;&#xA;  &lt;li&gt;&lt;p&gt;Chari, V. V., and Patrick J. Kehoe (2006). Modern Macroeconomics in Practice:&#xA;  How Theory Is Shaping Policy. Journal of Economic Perspectives, 20 (4):3–28.&lt;/p&gt;&lt;/li&gt;&#xA;  &lt;li&gt;&lt;p&gt;Chari, V. V., and Patrick J. Kehoe (2008). Response from V. V. Chari and Patrick J.&#xA;  Kehoe. Journal of Economic Perspectives, 22 (1):247–9.&lt;/p&gt;&lt;/li&gt;&#xA;  &lt;/ul&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Also, the representative-agent approach has pretty much become identified with DGSE:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;All the different views mainstream macroeconomists have about the state&#xA;  of their field and about possible areas of improvement should not diminish&#xA;  the degree to which they converged methodologically in studying fluctuations.&#xA;  They all analyse such phenomena usually through a dynamic stochastic&#xA;  general equilibrium model with a representative agent, firmly&#xA;  grounded on microeconomic principles. Moreover, several of them agree&#xA;  with Chari (2010: 2) that “any interesting model must be a dynamic&#xA;  stochastic general equilibrium model. From this perspective, there is no&#xA;  other game in town.” Therefore, he continues, “a useful aphorism in&#xA;  macroeconomics is: ‘If you have an interesting and coherent story to tell,&#xA;  you can tell it in a DSGE model. If you cannot, your story is incoherent.’”&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;See &lt;a href=&quot;https://economics.stackexchange.com/questions/29342/what-is-the-appeal-of-dsge-models/29346&quot;&gt;What is the appeal of DSGE models?&lt;/a&gt; for further on DGSE's success story.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But of course there comes &lt;a href=&quot;https://www.ofce.sciences-po.fr/pdf/dtravail/WP2016-11.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;the (nearly standard now, post-2008) critique&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The representative-agent (RA) assumption prevent DSGE models to address distributional&#xA;  issues, which are one of the major cause of the Great Recession and they are fundamental for&#xA;  studying the effects of policies. [...]&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The RA assumption coupled with the implicit presence of a Walrasian auctioneer, which&#xA;  sets prices before exchanges take place, rule out almost by definition the possibility of interactions carried out by heterogeneous individuals. This prevents DSGE model to accurately study&#xA;  the dynamics of credit and financial markets. Indeed, the assumption that the representative&#xA;  agent always satisfies the transversality condition, removes the default risk from DSGE models&#xA;  (Goodhart, 2009). As a consequence, agents face the same interest rate (no risk premia) and&#xA;  all transactions can be undertaken in capital markets without the need of banks. The abstraction from default risks does not allow DSGE models to contemplate the conflict between&#xA;  price and financial stability that Central Banks always face (Howitt, 2011): they just care about&#xA;  the nth-order distortions caused by price misallignments which can eventually result in inflation&#xA;  without considering the huge costs of financial crisis (Stiglitz, 2011, 2015). No surprise that&#xA;  DSGE models work fine in normal time but they are unequipped not only to forecast but also&#xA;  to explain the current crisis (Goodhart, 2009; Krugman, 2011)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;There is a bit &lt;a href=&quot;https://economics.stackexchange.com/a/329/6210&quot;&gt;more subtlety to RA&lt;/a&gt; than what I've covered here; RA can include some sources of parametric heterogeneity but assumes a sort of &quot;structural&quot; homogeneity, if I understand that correctly.&lt;/p&gt;&#xA;" OwnerUserId="6210" LastEditorUserId="6210" LastEditDate="2019-05-19T07:12:59.143" LastActivityDate="2019-05-19T07:12:59.143" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29402" PostTypeId="1" CreationDate="2019-05-18T20:41:52.570" Score="0" ViewCount="95" Body="&lt;p&gt;How could I construct a 3x3 simultaneous game with 2 players with no equilibrium in pure strategies but 1 is mixed strategies .&#xA;I am able to write down one with no pure strategy Nash equilibrium but how would I then know if only one mixed strategy would show not more?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I was thinking if I could eliminate one row and one column ,I.e they are strictly dominated in mixed strategies then I would only get 1 MSNE otherwise I get a continuum of mixed strategy Nash  equilibria’s is that right? &lt;/p&gt;&#xA;" OwnerUserId="21157" LastActivityDate="2019-06-17T22:03:25.420" Title="Construction of a 3x3 simultaneous game" Tags="&lt;game-theory&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29403" PostTypeId="1" CreationDate="2019-05-18T21:29:08.267" Score="1" ViewCount="21" Body="&lt;p&gt;In my economics lectures, we are going through Keynes vs Friedman. As far as I got we have a downward sloping IS curve in the IS-LM model. We get this curve from the Keynesian cross when the rate of interest decrease and plant expenditure/investment increase and thus output grows. However, my lecturer also mentioned Keynes trying to criticize monetarism says that IS curve can be perfectly inelastic, therefore outward shift in LM won't affect the output much but will reduce the interest rate, whereas Friedman side has IS curve as usual downward sloping, thus making investors interest rate elastic. How is this possible? Seems like I am missing something, could you help? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What are the general assumptions about interest rate in a restatement of Quantity Theory of Money by Friedman? and what are the assumptions that Keynes made regarding interest rate?&lt;/p&gt;&#xA;" OwnerUserId="23193" LastActivityDate="2019-05-18T21:29:08.267" Title="Difference between IS curve viewed by Keynes and by Friedman" Tags="&lt;macroeconomics&gt;&lt;money-supply&gt;&lt;keynesian-economics&gt;&lt;quantity-theory-of-money&gt;&lt;friedman&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29404" PostTypeId="2" ParentId="29402" CreationDate="2019-05-18T21:51:10.670" Score="2" Body="&lt;p&gt;Eliminating a column and a row strategy is a nice idea. If the remaining 2x2 game has no pure strategy Nash equilibria (PSNE) than Nash's theorem guarantues you exactly one MSNE.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However there are also very trivial 3x3 games with zero PSNE and exactly one MSNE, e.g. rock-paper-scissors.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2019-05-18T21:51:10.670" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="29406" PostTypeId="1" CreationDate="2019-05-19T02:59:54.413" Score="0" ViewCount="37" Body="&lt;p&gt;Consider two people have a mutually advantageous relationship. That is, if both dedicate more effort to the relationship both improve. Specifically, each individual chooses a level of effort &#xA;&lt;span class=&quot;math-container&quot;&gt;$x_{i}\in [0,1]$&lt;/span&gt; and the payoff of the person &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\pi_{i}(x_{i},x_{j})=cx_{i}+x_{i}x_{j}-x^2_{i}$&lt;/span&gt;. where &lt;span class=&quot;math-container&quot;&gt;$c$&lt;/span&gt; is constan &lt;span class=&quot;math-container&quot;&gt;$c\in [0,1]$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Verify conditions that guarantee the existence of Nash equilibrium in pure strategies and determine such equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;QUESTIONS:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Q1: for the equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\pi_{i}(x_{j})=cx_{j}+x_{i}x_{j}-x^2_{i}$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\max_{\mathbf{x}_{i}\in [0,1]} \pi_{i}(x_{j})=\max_{\mathbf{x}_{i}\in [0,1]}(cx_{i}+x_{i}x_{j}-x^2_{i})$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First order conditions &lt;span class=&quot;math-container&quot;&gt;$c+x_{j}-2x_{i}=0$&lt;/span&gt; &#xA;                        &lt;span class=&quot;math-container&quot;&gt;$$x_{i}=\dfrac{c+x_{j}}{2}$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$\max_{\mathbf{x}_{j}\in [0,1]} \pi_{j}(x_{i})=\max_{\mathbf{x}_{j}\in [0,1]}(cx_{j}+x_{j}x_{i}-x^2_{j})$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First order conditions &lt;span class=&quot;math-container&quot;&gt;$c+x_{i}-2x_{j}=0$&lt;/span&gt;&#xA; &lt;span class=&quot;math-container&quot;&gt;$$x_{j}=\dfrac{c+x_{i}}{2}$$&lt;/span&gt;&#xA;So then I can say &lt;span class=&quot;math-container&quot;&gt;$x_{i}=x_{j}=c$&lt;/span&gt; is nash equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is correct?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Q2: (Conditions for existence).&#xA;I think that I must verify the conditions of the theorem(Debreu. 1952;Fan, 1952;Glicksberg, 1952): Let &lt;span class=&quot;math-container&quot;&gt;$G$&lt;/span&gt; be a game in strategic form such that, for each &lt;span class=&quot;math-container&quot;&gt;$i=1,2,...,n, S_{i}\subset \mathbb{R^{m}}$&lt;/span&gt; is compact and convex, and the function &lt;span class=&quot;math-container&quot;&gt;$\pi_{i}:S_{1}\times...\times S_{n}\rightarrow \mathbb{R}$&lt;/span&gt; is continuous in &lt;span class=&quot;math-container&quot;&gt;$s=(s_{1},s_{2},...,s_{n})$&lt;/span&gt; and quasi-concave in &lt;span class=&quot;math-container&quot;&gt;$s_{i}$&lt;/span&gt;.Then, the game &lt;span class=&quot;math-container&quot;&gt;$G$&lt;/span&gt; has a Nash equilirbium in pure strategies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\rho:[0,1]\rightrightarrows [0,1]$&lt;/span&gt; where &lt;span class=&quot;math-container&quot;&gt;$\rho_{i}(x_{j})=arg \max_{x_{i}\in [0,1]}\pi_{i}(x_{j})$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;*&lt;span class=&quot;math-container&quot;&gt;$S\neq \phi$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;*&lt;span class=&quot;math-container&quot;&gt;$S=[0,1]$&lt;/span&gt; is compact.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;*&lt;span class=&quot;math-container&quot;&gt;$\rho_{i}(x_{j}) \neq \phi$&lt;/span&gt; and convex...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But&#xA;The teacher indicates that it is not the theorem that must be analyzed. But I think he can be wrong.&#xA;Do you recommend that I continue with this?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or who will be asking me to apply?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks for your help.&lt;/p&gt;&#xA;" OwnerUserId="23094" LastActivityDate="2019-05-19T02:59:54.413" Title="Condition for a Nash equilibrium" Tags="&lt;microeconomics&gt;&lt;game-theory&gt;&lt;nash-equilibrium&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29408" PostTypeId="2" ParentId="3033" CreationDate="2019-05-19T06:20:46.250" Score="1" Body="&lt;p&gt;In current mainstream macro practice, the representative-agent (RA) assumption (of DSGE models and nearly identified with them) &lt;a href=&quot;https://books.google.com/books?id=Cu_2FVrso44C&amp;amp;pg=PA8&quot; rel=&quot;nofollow noreferrer&quot;&gt;side-steps the SMD&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The theorems of Hugo Sonnenschein, Rolf&#xA;  Mantel and Gerard Debreu in the early 1970s established that the restrictions&#xA;  that generate well-behaved individual demand functions do not&#xA;  constrain aggregate demand functions to exhibit the same properties [...]. &lt;strong&gt;The new classicals sidestepped&#xA;  the problem of aggregation either by imagining an economy composed of&#xA;  identical individuals or by assuming that there is one individual who&#xA;  represents the whole economy, so that the solution to the optimization&#xA;  problem of this representative agent gives the aggregate relationships in that&#xA;  economy. In fact, they adopted the representative-agent model from the&#xA;  optimal-growth literature of the 1960s.&lt;/strong&gt;&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Using such models, Lucas and others developed the characteristic conclusions&#xA;  of the new classical school, such as the ineffectiveness of monetary&#xA;  policy with respect to the real economy (see Hoover 1988). Policy ineffectiveness&#xA;  was widely regarded by Keynesians as a politically conservative&#xA;  conclusion. Initially, it was interpreted as a direct consequence of the&#xA;  rational-expectations hypothesis, which was then regarded as politically&#xA;  suspect. Later, economists came to see that the assumptions of flexible&#xA;  prices and perfect competition were the critical factors in the policy&#xA;  ineffectiveness proposition. Once a wedge had been driven between policy&#xA;  ineffectiveness and the assumption of rational expectations, the rational expectations&#xA;  hypothesis was accepted by a wider spectrum of macroeconomists&#xA;  [...]. New Keynesians found that rational&#xA;  expectations did not rule out an important role for the government in&#xA;  stabilizing the economy.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;[...]&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The representative-agent program elevates the claims of microeconomics in some version or other to the utmost importance, while at the same time not acknowledging that the very microeconomic theory it privileges undermines, in the guise of the Sonnenschein–Debreu–Mantel theorem, the likelihood that the utility function of the representative agent will be any direct analogue of a plausible utility function for an individual agent. Kirman’s (1992) survey article on the representative agent, which highlights the lack of analogy, is well-cited; yet, it is striking that almost all of the citations are by critics of the representative-agent program; there is little evidence that advocates have even noticed the argument against their approach. [...]&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;All the different views mainstream macroeconomists have about the state of their field and about possible areas of improvement should not diminish the degree to which they converged methodologically in studying fluctuations. They all analyse such phenomena usually through a dynamic stochastic general equilibrium model with a representative agent, firmly grounded on microeconomic principles. Moreover, several of them agree with Chari (2010: 2) that “any interesting model must be a dynamic stochastic general equilibrium model. From this perspective, there is no other game in town.” Therefore, he continues, “a useful aphorism in macroeconomics is: ‘If you have an interesting and coherent story to tell, you can tell it in a DSGE model. If you cannot, your story is incoherent.’”&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;But RA/DGSE has brought its own problems/critics... &lt;a href=&quot;https://www.ofce.sciences-po.fr/pdf/dtravail/WP2016-11.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;especially post-2008&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The representative-agent (RA) assumption prevent DSGE models to address distributional issues, which are one of the major cause of the Great Recession and they are fundamental for studying the effects of policies. [...]&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The RA assumption coupled with the implicit presence of a Walrasian auctioneer, which sets prices before exchanges take place, rule out almost by definition the possibility of interactions carried out by heterogeneous individuals. This prevents DSGE model to accurately study the dynamics of credit and financial markets. Indeed, the assumption that the representative agent always satisfies the transversality condition, removes the default risk from DSGE models (Goodhart, 2009). As a consequence, agents face the same interest rate (no risk premia) and all transactions can be undertaken in capital markets without the need of banks. The abstraction from default risks does not allow DSGE models to contemplate the conflict between price and financial stability that Central Banks always face (Howitt, 2011): they just care about the nth-order distortions caused by price misallignments which can eventually result in inflation without considering the huge costs of financial crisis (Stiglitz, 2011, 2015). No surprise that DSGE models work fine in normal time but they are unequipped not only to forecast but also to explain the current crisis (Goodhart, 2009; Krugman, 2011)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;There is a bit &lt;a href=&quot;https://economics.stackexchange.com/a/329/6210&quot;&gt;more subtlety to RA&lt;/a&gt; than what I've covered here; RA can include some sources of parametric heterogeneity but assumes a sort of &quot;structural&quot; homogeneity, if I understand that correctly.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This RA-solution to SMD has become the main theoretical attack surface against DSGE models, as far as I can tell. It's also found in the ACE/ABM (computational/agent-based modelling) literature, &lt;a href=&quot;https://www.ofce.sciences-po.fr/pdf/dtravail/WP2016-11.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;e.g. Fagiolo and Roventini&lt;/a&gt; basically reiterate the above:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;First, the well-known Sonnenschein (1972), Mantel (1974), Debreu (1974) theorems prove&#xA;  that the uniqueness and stability of the general equilibrium cannot be attained even if one places&#xA;  stringent and unrealistic assumptions about agents. Moreover, Saari and Simon (1978) show&#xA;  that an inffnite amount of information is required to reach the equilibrium for any initial price&#xA;  vector.&#xA;  Given such nihilist conclusions, neoclassical economists took the short-cut of the representative&#xA;  agent (RA) to obtain stable and unique equilibrium. Indeed, if the choices of heterogeneous&#xA;  agents collapse to the RA ones, one can circumvent all the aggregation problems and develop&#xA;  GE macroeconomic models with rigorous Walrasian micro-foundations grounded on rationality&#xA;  and constrained optimization.&#xA;  However, the RA assumption is far from being innocent: there are (at least) four reasons for which it cannot be defended (Kirman, 1992) [...]&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="6210" LastEditorUserId="6210" LastEditDate="2019-05-19T07:50:00.643" LastActivityDate="2019-05-19T07:50:00.643" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29411" PostTypeId="1" CreationDate="2019-05-19T11:30:47.017" Score="1" ViewCount="96" Body="&lt;p&gt;Going by some ECB models/estimates &lt;a href=&quot;https://www.ecb.europa.eu/press/key/date/2018/html/ecb.sp180406.en.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;from last year&lt;/a&gt;, protectionism would result in negative consequences pretty fast, e.g.&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;For illustration, I will use the results of simulations carried out by ECB staff using both the ECB's global model and the IMF’s multi-country model. As with all models, the uncertainties involved mean precise estimates from these scenarios should be treated with caution, but they are useful to explain the different channels at work.&lt;/p&gt;&#xA;&lt;p&gt;To illustrate the potential effects of rising protectionism, I do not want to dwell on the specifics of the tariffs currently being discussed. This would miss the bigger picture. I rather want to consider a hypothetical scenario where the United States raises tariffs on all imports of goods by 10 percentage points, and its trading partners impose the equivalent on US exports.&lt;/p&gt;&#xA;&lt;p&gt;According to our model simulations, such a scenario would have significant adverse effects on the global economy, including, and in particular, on the economy that raises tariffs in the first place. Specifically, real economic activity in the United States could be up to 2½% lower than in the baseline in the first year alone. [Gives some reasons for this.]&lt;/p&gt;&#xA;&lt;p&gt;In other words, the overall scenario is clearly a net negative for the world economy as a whole. According to ECB staff simulations, world trade in goods could fall by up to 3% already in the first year after the change in tariffs and world GDP by up to 1%. Euro area GDP would also decline, but by less than in the US.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;They don't make any longer term estimates for the effects of such tariffs, just mention that the EU would have been worse of by 1/5 without the economic integration since the 1950s.&lt;/p&gt;&#xA;&lt;p&gt;Frankly it looks doubtful that US economy is showing any of that (short-term) trouble.&lt;/p&gt;&#xA;&lt;p&gt;Are there any theoretical models of protectionism that predict short-term gain but medium or long-term loss for a country?&lt;/p&gt;&#xA;&lt;p&gt;(Well, there's one &lt;a href=&quot;https://www.bis.org/speeches/sp180825.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;BIS paper&lt;/a&gt; that advances a sort of short-term masking effect for the current US economy by advanced shipments/stockpiling:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;It’s paradoxical that the United States is starting to put obstacles in the road at a time when its&#xA;economy is firing on all cylinders. Even looking through the short-term boost to GDP in the latest quarter [citing data from July 2018]&#xA;– ironically enough, partly owing to companies bringing forward cross-border shipments to skirt tariffs –&#xA;its short-term prospects are promising. But in the long term, protectionism will bring not gain, but only&#xA;pain. Not just for the United States, but for us all.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;But this looks to me fairly anecdotal...)&lt;/p&gt;&#xA;" OwnerUserId="6210" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2021-02-07T19:03:00.230" Title="Are there economic models that predict (only) a medium/long-term negative effect of protectionism?" Tags="&lt;macroeconomics&gt;&lt;international-trade&gt;&lt;economic-growth&gt;&lt;protectionism&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29412" PostTypeId="2" ParentId="29411" CreationDate="2019-05-19T12:19:11.357" Score="0" Body="&lt;p&gt;This is not exactly what I was looking for, but seems &quot;good enough&quot;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I found a recent empirical &lt;a href=&quot;https://www.imf.org/en/Publications/WP/Issues/2019/01/15/Macroeconomic-Consequences-of-Tariffs-46469&quot; rel=&quot;nofollow noreferrer&quot;&gt;paper by IMF staff (Furceri et al., 2018)&lt;/a&gt; applying Jorda’s local projection method to a panel of data of 151 countries over 1963-2014. They found/predict negative effects from the first year after the measures are introduced, but the effect size on output looks pretty small and given the confidence band it can well still go up for some years after the measures are introduced.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/FUFeG.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/FUFeG.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;They also have bunch robustness checks (alternative models) which mostly preserve/confirm that conclusion&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/wYjrO.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/wYjrO.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &quot;drop early years (&amp;lt;1980)&quot; seems to produce a different enough result on output though (in that robustness graph), but I can't find any commentary on that particular check in the paper. I guess it's because it still falls within the 90% confidence region of the base model. The paper does point out in its introduction that older data had more protectionism:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Our panel of annual data is long if unbalanced,&#xA;  covering 1963 through 2014; more recent data is of greater relevance, but older data&#xA;  contains more protectionism. Since little protectionism remains in rich countries, we use a&#xA;  broad span of 151 countries, including 34 advanced and 117 developing countries.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;As an US addendum, regarding the Trump economy in particular, Kenny LJ &lt;a href=&quot;https://economics.stackexchange.com/a/29172/6210&quot;&gt;answered&lt;/a&gt; another (much broader) question by citing/meniotining &lt;a href=&quot;https://www.nber.org/papers/w25638&quot; rel=&quot;nofollow noreferrer&quot;&gt;Fajgelbaum et al. (March, 2019)&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;We analyze the impacts of the 2018 trade war on the U.S. economy. We estimate import demand and export supply elasticities using changes in U.S. and retaliatory tariffs over time. Imports from targeted countries declined 31.5% within products, while targeted U.S. exports fell 11.0%. We find complete pass-through of U.S. tariffs to variety-level import prices. Using a general equilibrium framework that matches these elasticities, we compute the aggregate and regional impacts. Annual consumer and producer losses from higher costs of imports were \$68.8 billion (0.37% of GDP). After accounting for higher tariff revenue and gains to domestic producers from higher prices, the aggregate welfare loss was \$7.8 billion (0.04% of GDP). U.S. tariffs favored sectors located in politically competitive counties, but retaliatory tariffs offset the benefits to these counties. We find that tradeable-sector workers in heavily Republican counties were the most negatively affected by the trade war.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So noticeable effect on trade already, but very small on GDP, percentage-wise. Given the IMF/Fuceri model, we don't really expect a large impact on GDP anyway. &lt;/p&gt;&#xA;" OwnerUserId="6210" LastEditorUserId="6210" LastEditDate="2019-05-19T13:06:32.460" LastActivityDate="2019-05-19T13:06:32.460" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29413" PostTypeId="1" CreationDate="2019-05-19T13:38:42.077" Score="-1" ViewCount="655" Body="&lt;p&gt;I’ve been studying about monetary policy comittee.&lt;/p&gt;&#xA;" OwnerUserId="23200" LastEditorUserId="15828" LastEditDate="2019-05-19T16:37:08.620" LastActivityDate="2019-05-19T16:37:08.620" Title="Does the Bank of England have the ability to set reserve requirements for commercial banks?" Tags="&lt;macroeconomics&gt;&lt;monetary-policy&gt;&lt;central-banking&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29414" PostTypeId="2" ParentId="29413" CreationDate="2019-05-19T14:37:36.060" Score="1" Body="&lt;p&gt;Yes, the Bank of England is the regulatory authority in the UK which sets reserve requirements for commercial banks.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A short overview of the Bank of England's history regarding money supply and reserve requirements can be found here:&#xA;&lt;a href=&quot;http://qed.econ.queensu.ca/noftp/faculty/bergin/econ320/BOE.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://qed.econ.queensu.ca/noftp/faculty/bergin/econ320/BOE.pdf&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;More information on how commercial banks hold reserves can be found in the famous Red Book:&#xA;&lt;a href=&quot;https://www.bankofengland.co.uk/-/media/boe/files/sterling-monetary-framework/annual-report-2017-18&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.bankofengland.co.uk/-/media/boe/files/sterling-monetary-framework/annual-report-2017-18&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Although the UK does not at present have a minimum reserve requirement, commercial banks nonetheless must be well capitalised in accordance with BoE regulation on the counter-cyclical capital buffer. (I mention this because one reason central banks have minimum reserve requirements is also in relation to capital requirements/buffering, as well as traditional liquidity and rate setting reasons.)&lt;/p&gt;&#xA;" OwnerUserId="15828" LastActivityDate="2019-05-19T14:37:36.060" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29416" PostTypeId="1" CreationDate="2019-05-19T16:13:48.740" Score="1" ViewCount="104" Body="&lt;p&gt;What is the value of an individual piece of currency itself based on the efficiencies it allows in trade, in contrast to the value it represents?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, people often talk (complain) about the cost of manufacture of a single US cent coin being greater than one cent &amp;mdash; but to me, this seems an irrelevant comparison.  A single coin will be used in many, &lt;em&gt;many&lt;/em&gt; transactions over its lifetime, facilitating the efficient transfer of (possibly) thousands &amp;mdash; or tens of thousands &amp;mdash; of dollars.  Surely &lt;em&gt;that&lt;/em&gt; is worth far more than one cent.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Without use of that coin, the parties involved may have had to round prices up/down, purchase multiple items at once, or forego certain transactions altogether.  Smaller denominations are useful by the same logic that drives public companies to split their shares, making it possible for people to purchase just a single piece of &quot;penny candy&quot; if they would like, as opposed to being forced to buy &quot;five for a nickel&quot; (or none at all.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Beyond that, physical currency has a value simply in facilitating efficient trade.  If there weren't enough coins to go around, merchants may have to wait for somebody else to spend them (or the government may have to mint more, which raises its own issues since that also involves introduction of additional inflationary value) before customers have enough to conduct trades.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I realize these are somewhat unrealistic scenarios, since in practice there are typically enough pieces of currency around that trade isn't significantly impacted.  But this shouldn't change the fact that the currency is still increasing the efficiency of trade, in however minor a way, and that in virtue of the &lt;em&gt;large&lt;/em&gt; number of trades in which those pieces of currency will (likely) be involved, the aggregated value becomes quite significant.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I want to strongly emphasize here that I am &lt;em&gt;not&lt;/em&gt; looking for answers that address things like forex value, etc.  I've found it extremely difficult to even research this topic because of the multiple meanings of all the terms involved (just try searching for &quot;use value of currency&quot; and you'll see what I mean) and a satisfactory answer need only point me in the direction of appropriate articles/books, so long as they directly address the aspect of currency in which I'm interested here.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;EDIT:&lt;/strong&gt; I should also clarify that I'm not primary interested in coins.  That's just an example.  I'm interested in how to estimate the value that a currency provides through facilitating financial transactions, regardless of the physical nature of the currency (e.g. paper, metal, whatever.)&lt;/p&gt;&#xA;" OwnerUserId="23023" LastEditorUserId="23023" LastEditDate="2019-05-21T04:11:21.813" LastActivityDate="2019-05-21T07:55:51.657" Title="Value of Currency Itself" Tags="&lt;currency&gt;&lt;value&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29417" PostTypeId="5" CreationDate="2019-05-19T17:10:47.363" Score="0" Body="&lt;p&gt;Typical signaling games are the Spence (1973) education model and the Beer-Quiche game by Cho &amp;amp; Krebs (1987).&#xA;Signaling games usually have many Perfect Bayesian equilibria which are grouped into pooling and separating equilibria (and hybrids thereof). Because of this multiplicity a large literature on equilibrium refinements, such as the intuitive criterion or divinity, has emerged.&lt;/p&gt;&#xA;" OwnerUserId="11590" LastEditorUserId="11590" LastEditDate="2019-05-28T13:48:52.467" LastActivityDate="2019-05-28T13:48:52.467" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29418" PostTypeId="4" CreationDate="2019-05-19T17:10:47.363" Score="0" Body="In signaling games, an informed sender moves first. Their action may &quot;signal&quot; information about the sender's type to an uniformed receiver who then acts based on an updated belief." OwnerUserId="11590" LastEditorUserId="11590" LastEditDate="2019-05-20T21:32:23.603" LastActivityDate="2019-05-20T21:32:23.603" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29419" PostTypeId="2" ParentId="3086" CreationDate="2019-05-19T19:58:00.890" Score="0" Body="&lt;p&gt;While it's true that the value of the land is based (largely) on the improvements made to surrounding land, this value remains the same regardless of who owns the land.  Selling it to your neighbor would not diminish its value vis-a-vis proximity the improvements already made on your neighbor's land.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think what you're really pointing out is the difficulty involved in &lt;em&gt;assessing&lt;/em&gt; the unimproved value of land.  In many cases, the value that (e.g.) Georgists would attribute to the land itself is instead counted as part of the capital improvements.  For instance, note that houses in expensive locations (such as the San Francisco Bay Area) are often assessed at significantly more than identical houses in other, less expensive areas.  This is, of course, complete nonsense.  Houses aren't actually more valuable simply because they sit on valuable land.  It's the &lt;em&gt;land&lt;/em&gt; that is more valuable &amp;mdash; but there are enough vested interests (real estate agents, tax policy, etc.) that they have managed to distort the assessment process in their favor.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Addendum:&lt;/strong&gt; note also that the unimproved value of the land will &lt;em&gt;itself&lt;/em&gt; increase in virtue of improvements made to the land.  I think perhaps this more directly addresses your point &amp;mdash; it's not just the improvements on the &lt;em&gt;surrounding&lt;/em&gt; land, but on the very same land on which those improvements are made.  Disentangling &lt;em&gt;that&lt;/em&gt; value from the value of the capital improvements themselves is, clearly, also a difficult problem of assessment.&lt;/p&gt;&#xA;" OwnerUserId="23023" LastEditorUserId="23023" LastEditDate="2019-05-19T20:08:04.700" LastActivityDate="2019-05-19T20:08:04.700" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29420" PostTypeId="2" ParentId="21299" CreationDate="2019-05-19T20:19:23.807" Score="2" Body="&lt;p&gt;I think most confusion surrounding the terms &quot;economic rent&quot; and &quot;rent-seeking&quot; stem from an incorrect understanding of what rent really is.  Contrary to more modern (re-)definitions, rent is merely the portion of economic surplus claimed by the owner of land (or natural resources associated with land.)  It really has very little to do with &quot;productive activity&quot; or the &quot;amount over and above that required to keep a factor of production&quot; or anything of the sort.  Historically, these alternate definitions were developed specifically to reduce the influence of economist and politician Henry George, around the turn of the last century.  Since that time, economic theory has continued to develop along the same lines, without a clear understanding as to why Land suddenly disappeared as a factor of production.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So yes, renting out your land to somebody else is often &amp;mdash; but not always &amp;mdash; rent-seeking.  If you purchased the land at a lower price and it has since appreciated in virtue of increased demand, capital improvements made by your neighbors, public infrastructure, etc. and you are able to rent out that land to somebody else at a price higher than the normal interest rate (on the amount of your original investment, plus the costs of any capital improvements you have made) then the difference is indeed economic rent.  However, if you purchase a rental property at (near) equilibrium pricing and charge market rent, you are most likely &lt;em&gt;not&lt;/em&gt; collecting any economic rent, but rather &quot;contract rent&quot; instead.  If the area becomes more desirable over time, and market rents increase, then &lt;em&gt;that&lt;/em&gt; difference then becomes economic rent.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;All economic rent is unearned income, but the mistake most modern economists make is in thinking the opposite is true as well.&lt;/p&gt;&#xA;" OwnerUserId="23023" LastActivityDate="2019-05-19T20:19:23.807" CommentCount="7" ContentLicense="CC BY-SA 4.0" />
  <row Id="29422" PostTypeId="2" ParentId="14115" CreationDate="2019-05-19T22:14:32.837" Score="0" Body="&lt;p&gt;Henry George's economic theories and politics were influential enough around the turn of the last century to attract a significant number of opponents, who had vested interests in land speculation and rent-seeking in general.  As such, they promoted an alternate formulation of economic theory that reduced/ignored the role of land as one of the primary factors of production.  Most modern economic theory has been built on this new foundation, even though the original (largely political) reasons for doing so have long since been forgotten.  So nowadays you find extremely convoluted definitions of &quot;economic rent&quot; that attempt to ignore the role of land, and conflation of George's ideas with communism or socialism or other inappropriate connections.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The bottom line is that most economists (and most people, period) know very little about the history of economic thought, and vastly underestimate the role that political posturing played in its early development.  George's theories are the victim of his political popularity, and our modern theories of economics are all the worse off as a result.&lt;/p&gt;&#xA;" OwnerUserId="23023" LastActivityDate="2019-05-19T22:14:32.837" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29424" PostTypeId="2" ParentId="6941" CreationDate="2019-05-19T22:52:09.387" Score="0" Body="&lt;p&gt;RBI can print expiration date on notes. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Cons &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Inconvenience to people when they change currencies.&lt;/li&gt;&#xA;&lt;li&gt;People has to go to bank whenever they want to get them changed. &lt;/li&gt;&#xA;&lt;li&gt;People will face loss if they forget to get the expired notes changed. &lt;/li&gt;&#xA;&lt;li&gt;People might face loss if they receive counterfeit by mistake. &lt;/li&gt;&#xA;&lt;li&gt;Govt. has to spend money to print such notes every now and then.&lt;/li&gt;&#xA;&lt;li&gt;Vendors might not accept currencies that expires in few days time. &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Pros. &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Since people are forced to take the currencies to the bank for new notes or to deposit, and counterfeit will be caught if they are present. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Nobody will be willing to keep such currencies beyond the date of expiration. They will be forced to surrender such notes at the Bank to get them exchanged. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;It will become inconvenient to people who keep cash in bulk quantities beyond the date of expiration. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;There will be a window period to get the expired notes exchanged provided they inform the bank in advance that the rightful owner has few of them. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;They will be forced to use plastic currencies as it is difficult to verify the date printed on it. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Only higher denominations carry such expiration date. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Fraudsters will stop making counterfeits every now and them as it becomes difficult to get exchanged. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Argument that has not relevance&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;People can exchange their currencies to gold or anything they wish. &lt;/li&gt;&#xA;&lt;li&gt;This will curb black money (Black money doesn't have a traceable source of income.)&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="23205" LastActivityDate="2019-05-19T22:52:09.387" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29426" PostTypeId="1" CreationDate="2019-05-20T00:38:54.450" Score="0" ViewCount="27" Body="&lt;p&gt;For what values &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; the profile &lt;span class=&quot;math-container&quot;&gt;$(D,L)$&lt;/span&gt; is Pareto optimal?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{array}{c|ccc}&#xA;&amp;amp; L  &amp;amp; R \\ \hline&#xA;U &amp;amp; x,5 &amp;amp; x+2,y  \\&#xA;D&amp;amp; 1,-1 &amp;amp; x,0 \\&#xA;\end{array}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is correct &lt;span class=&quot;math-container&quot;&gt;$x&amp;lt;1$&lt;/span&gt; ?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I suppose this because &lt;span class=&quot;math-container&quot;&gt;$D$&lt;/span&gt; should not be weakly dominated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And &lt;span class=&quot;math-container&quot;&gt;$y&amp;lt;5$&lt;/span&gt; for the same argument.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is these values enough to answer that &lt;span class=&quot;math-container&quot;&gt;$(D,L)$&lt;/span&gt; is Pareto optimal?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks!&lt;/p&gt;&#xA;" OwnerUserId="23094" LastActivityDate="2019-05-20T00:38:54.450" Title="Optimal pareto in two-person game" Tags="&lt;microeconomics&gt;&lt;game-theory&gt;&lt;nash-equilibrium&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29427" PostTypeId="1" AcceptedAnswerId="29430" CreationDate="2019-05-20T01:06:54.913" Score="4" ViewCount="1211" Body="&lt;p&gt;(After-transfer) income inequality and wealth inequality are obviously not the same thing, but I would intuitively expect that, all else equal, they would be reasonably well correlated across countries. Looking at the lists of countries ranked &lt;a href=&quot;https://en.wikipedia.org/wiki/List_of_countries_by_income_equality#UN_and_CIA_list_%E2%80%93_income_ratios_and_Gini_indices&quot; rel=&quot;nofollow noreferrer&quot;&gt;by income inequality&lt;/a&gt; and &lt;a href=&quot;https://en.wikipedia.org/wiki/List_of_countries_by_distribution_of_wealth#List&quot; rel=&quot;nofollow noreferrer&quot;&gt;by wealth inequality&lt;/a&gt;, this appears to be more or less the case - with one glaring exception. As of the year 2000, Denmark's income Gini coefficient of 0.226 was the lowest listed in the OECD, and one of the lowest on the world (third-lowest, although that's as of 2011) - but its wealth Gini coefficient of 0.808 was the third-&lt;em&gt;highest&lt;/em&gt; in the world.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there something unique about Denmark's economy that explains the gigantic disparity between its income and wealth inequality?&lt;/p&gt;&#xA;" OwnerUserId="14832" LastActivityDate="2019-05-20T08:31:55.063" Title="Why does Denmark have such a huge disparity between its income and wealth Gini coefficients?" Tags="&lt;inequality&gt;&lt;national-income&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29428" PostTypeId="2" ParentId="29427" CreationDate="2019-05-20T02:57:12.077" Score="0" Body="&lt;p&gt;Denmark has compulsory funded pensions (both public and private) which contributes greatly to savings (and thus wealth) among those with jobs.  It also has an extensive public welfare system funded by extremely high tax rates, which tends to equalize income levels.  So, to put it succinctly:  Denmark has a public policy of taxing high earners in order to subsidize those at the lower end, while public and private pensions (which tend to be much larger than in other developed nations) are of primary benefit to the high earners.&lt;/p&gt;&#xA;" OwnerUserId="23023" LastActivityDate="2019-05-20T02:57:12.077" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29429" PostTypeId="2" ParentId="29105" CreationDate="2019-05-20T03:24:28.333" Score="0" Body="&lt;p&gt;It depends on the type of utility.  Generally speaking, utility is either considered to be an &lt;em&gt;ordinal&lt;/em&gt; value (one that permits monotone / order-preserving transformations, such as squaring or taking the logarithm) or a &lt;em&gt;cardinal&lt;/em&gt; value (one that only permits scaling by a constant factor, such as multiplying all values by three.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Traditionally, the standard unit for cardinal utility is the &quot;util&quot; (which is a made-up unit created specifically for this purpose.)  But you can substitute any other cardinal measure you like, including dollars.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note:  In economics, one more often sees reference to ordinal utility.  In voting theory, you may find more references to cardinal utility.&lt;/p&gt;&#xA;" OwnerUserId="23023" LastActivityDate="2019-05-20T03:24:28.333" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29430" PostTypeId="2" ParentId="29427" CreationDate="2019-05-20T05:09:22.863" Score="2" Body="&lt;p&gt;The disparity exists because a high income taxes level income inequality but &lt;a href=&quot;https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4841595/&quot; rel=&quot;nofollow noreferrer&quot;&gt;do little&lt;/a&gt; to fix wealth inequality.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Wealth inequality is always higher than labor income inequality, due to income originated from wealth (or capital income), such as rents, dividends or royalties and the increase of asset values [6]. This source of income accounts for a large portion of the national income (˜ 20%-35% [11]), hence its substantial effect on wealth inequality. Additionally, though labor income accounts for most of the national income produced in all western economies, only a relatively small fraction of it contributes to accumulating personal wealth due to taxation and spending. [...]&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/cyae6.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/cyae6.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;There is an obvious positive correlation between wealth and income inequality. However, it is a characteristic of mainly poor countries. The correlation between the Gini indices for the middle-high and high levels of income is 0.23, while for the low and middle income countries it is 0.68.  [...]&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Mathematically, increasing the average tax rate reduces the disposable income, hence effectively reduces savings. However, the relatively limited range of average income tax rates makes its effect on wealth inequality relatively low, in practice. Therefore, it can be concluded that progressive income tax is likely to be an impractical measure for affecting wealth distribution, as suggested previously [20, 25, 36, 52]. This non-trivial effect of income on wealth inequality is originated from the imperfect correlation existing between income and wealth [18, 21, 23, 24]. When income tax is increased, the top earners, who are not necessarily the wealthiest individuals in the population, have a larger difficulty of accumulating wealth, with respect to the wealthiest. On the other hand, it barely affects the wealthiest individuals. Therefore, such an increase might even deepen the wealth gap. When decreasing income tax, the opposite effect will therefore occur. In addition, progressive taxation, which might have a significant effect on the distribution of income, will have a small effect on wealth inequality. Therefore, we conclude that affecting income inequality or changing the average income tax in order to effect wealth inequality are likely to be ineffective means. An evidence for this can be found in the economies of Denmark and Sweden, two of the most equal countries in terms of income in the world, with a high tax burden, in which wealth inequality is among the highest within the OECD countries [53].&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;If I can find out why wealth inequality is so high in Denmark, I'll add more details about that, but the above address why one should not really expect super strong correlation between wealth and income inequality, which I take it to be the main question here.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I could find out quickly is that wealth inequality in Denmark &lt;a href=&quot;http://cphpost.dk/news/denmarks-wealth-inequality-gap-continues-to-widen.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;continued to rise&lt;/a&gt;, as of 2015.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The new figures reveal that the poorest 10 percent in Denmark had average assets of 211,000 kroner in 2015, 13,000 kroner less than the year before, while the wealthiest 10 percent owned average assets of 6.76 million kroner – an increase of 375,000 kroner compared to 2014. [...]&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The figures revealed that Denmark’s richest 10 percent now own as much as 70 percent of the rest of the population put together – a clear indication the government didn’t need to consider any more reforms aimed at benefiting the wealthiest Danes.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This actually gets even more intriguing because until 1998 Denmark &lt;a href=&quot;https://www.nber.org/papers/w24371&quot; rel=&quot;nofollow noreferrer&quot;&gt;had&lt;/a&gt; one of the highest wealth taxes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There might be an explanation with the data from the graph above, which is from the early 2000's, because pension funds were &lt;em&gt;not&lt;/em&gt; included in wealth back then, as calculated by the Danish tax authority:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The Danish wealth data are considered of a very high quality, and they have been fruitfully&#xA;  used to study retirement savings (Chetty et al. 2014), intergenerational wealth mobility (Boserup&#xA;  et al. 2014), and the accuracy of survey responses (Kreiner et al. 2015). The data does have two&#xA;  limitations, however. First, they exclude funded pension wealth before 2012, because such assets&#xA;  were not subject to wealth taxation. [...] Second, there is a break in the data in 1997 when the wealth tax was abolished. After 1997, while the Danish administration continued to collect wealth data from third parties, it stopped&#xA;  asking households to self-report assets not reported by third parties.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I guess this emphasizes why wealth inequality is a lot harder to measure (than income inequality). If &quot;very high quality&quot; wealth data has those kinds of issues...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Anyway, here's a more detailed analysis of wealth inequality trends in Denmark:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Figure 1 shows wealth shares in three broad classes: the bottom 50%, the next 40%, and the top&#xA;  10%. Measured in this way, wealth inequality has been relatively stable in Denmark over the last&#xA;  three decades. Throughout the period, the bottom 50% of the distribution owns a tiny fraction of&#xA;  aggregate wealth: their assets are barely higher than their debts. Therefore, almost all wealth is&#xA;  owned by the richest half of the population, and it is shared about equally between the middle&#xA;  40% and the top 10%. While the wealth shares in the figure are overall stable, wealth inequality&#xA;  did increase somewhat from the mid 1980s to the early 1990s. During this time, the top 10% wealth&#xA;  share grew while the bottom 50% wealth share shrank. This evolution was driven by the dynamics&#xA;  of asset prices, in particular housing prices, which fell significantly during this period. Because the&#xA;  share of housing in asset portfolios tends to be decreasing in the level of wealth, housing slumps&#xA;  hurt the bottom more than the top, leading to a rise in wealth inequality. &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/TMQmE.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/TMQmE.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So if you want to know the source of the wealth inequality in Denmark, you have too look further back in history, and unfortunately there's apparently not much good data for that.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The same paper goes on comparing the rise in wealth inequality with the US, and finds that in Denmark it was raising more slowly, especially in the top 1% and top 0.1%. They also find that dropping the wealth taxes didn't change this pattern, however, they attribute this to an &quot;equalizing force&quot;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;One important confounding reason why wealth inequality has stabilized in Denmark (despite wealth tax cuts) is&#xA;  likely to be the sharp rise of pension wealth, from around 50% of national income in the late 1980s to 178% in 2014.&#xA;  Because pension wealth is relatively equally distributed, rising pension wealth tends to reduce inequality. As shown by&#xA;  Chetty et al. (2014), automatic employer contributions to retirement accounts increase pension and total wealth substantially&#xA;  for middle-class Danish households.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="6210" LastEditorUserId="6210" LastEditDate="2019-05-20T08:31:55.063" LastActivityDate="2019-05-20T08:31:55.063" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29435" PostTypeId="1" CreationDate="2019-05-20T14:39:51.847" Score="1" ViewCount="14" Body="&lt;p&gt;An &lt;a href=&quot;https://www.ecb.europa.eu/explainers/tell-me/html/seigniorage.en.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;ECB page&lt;/a&gt; notes that:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;As euro banknotes travel freely across borders, at any one time the number of banknotes in circulation registered at each national central bank can vary enormously. The figure for one bank could even be zero or negative. For example, when German tourists seeking a Latin adventure take euro banknotes issued by the Deutsche Bundesbank with them to Spain, these notes are finally lodged at the Banco de España. As banknote issuance is an entirely demand-driven process, this means that the Banco de España would now need to put fewer notes into circulation because it is benefiting from the notes crossing the Pyrenees. For this reason, the central banks in the euro area balance out the amount earned on banknote issuance among themselves.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;How do the &lt;a href=&quot;https://en.wikipedia.org/wiki/Eurosystem#Current_members&quot; rel=&quot;nofollow noreferrer&quot;&gt;Eurozone central banks&lt;/a&gt; (yes the plural is correct in this case) do that balancing?&lt;/p&gt;&#xA;" OwnerUserId="6210" LastEditorUserId="6210" LastEditDate="2019-05-20T14:47:04.603" LastActivityDate="2019-05-20T14:47:04.603" Title="How is seigniorage redistributed in the Eurozone?" Tags="&lt;currency&gt;&lt;central-banking&gt;&lt;euro-area&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29437" PostTypeId="1" CreationDate="2019-05-20T15:12:54.043" Score="1" ViewCount="37" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Consider a society of individuals who receive an income of \$10, 000 pesos if they are healthy and \$100 pesos if they are sick. There are two types of individuals: some who get sick with a probability of p and others who are sick with probability of p′ bigger than p. There are equal numbers of&#xA;  individuals of each type in the population. All individuals are CRRA expected utility maximizers&#xA;  with the relative risk-aversion coefficient equal to 1&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;a) supposing insurance companies can observe the agents’ types, what are the actuarially fair&#xA;  rates they would charge each type for insurance?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;a) R1= p, R2=p´ &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;b) supposing insurance companies can’t observe the types, what would be the actuarially fair rate&#xA;  they would charge if every individual were obliged to buy insurance ?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;b) R=1/2p+1/2p´ &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;c) if only full insurance is available, which agents would insure at the rate in (b)? Does your&#xA;  answer depend on the probabilities of being sick?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;c) Individuals who are sick because they have p´bigger than p &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;d) given your answer in (c), would the insurance companies be willing to offer such a rate if&#xA;  individuals were free to choose, whether to buy insurance or not?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;d) No, because they only attract sick customers. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;e) if an insurance company could offer people who choose not to be insured in (c) a partial insurance contract, can it profitably do so? What is the most insurance that can be offered.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;e) By incentive compatibility constraint&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;f) is your answer in (e) Pareto efficient? If not, could the inefficiency be resolved by forcing&#xA;  everybody to buy insurance? Explain&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I can not answer f) Pareto efficiency&lt;/p&gt;&#xA;" OwnerUserId="23212" LastEditorUserId="8891" LastEditDate="2019-05-20T23:16:33.797" LastActivityDate="2019-05-20T23:16:33.797" Title="I can not answer f) Pareto efficiency" Tags="&lt;microeconomics&gt;" AnswerCount="0" CommentCount="2" ClosedDate="2019-05-24T10:45:45.173" ContentLicense="CC BY-SA 4.0" />
  <row Id="29438" PostTypeId="1" CreationDate="2019-05-20T17:57:27.270" Score="0" ViewCount="63" Body="&lt;p&gt;The question asks for player B's equilibrium strategy, hence shouldn't player B choose the strategy that gives the highest payoff after player A's move? Why does player B choose 4 over 5 and 6 over 8 when he should choose the one with the highest payoff? I don't get why the answer should be B in this case... &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/f9bCl.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/f9bCl.png&quot; alt=&quot;Question&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/gXQF0.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/gXQF0.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="23211" LastActivityDate="2019-06-20T07:16:14.557" Title="Sequential game equilibrium strategy question" Tags="&lt;microeconomics&gt;&lt;game-theory&gt;&lt;extensive-games&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="29439" PostTypeId="2" ParentId="29416" CreationDate="2019-05-20T18:34:47.310" Score="1" Body="&lt;p&gt;The value of something, in this case money, is based on it's demand; and since you want the value based on it's efficiency, not what it can purchase, you are looking for the value of money based on how efficient money is.&#xA;I believe I have just the answer for you. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your missing variable is the Velocity of Money. &#xA;The demand for money and the Velocity of Money are inversely related. (your question emphasizes this point, &quot;in contrast to the value it represents?&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The velocity of money (or the velocity of circulation of money&quot;) is a measure of how fast money passes from one holder to the next. It is most commonly measured as the income velocity of money, which is the frequency at which the average unit of currency is used to purchase newly domestically-produced goods and services within a given time period. In other words, it is the number of times one unit of money is spent to buy goods and services per unit of time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Vt = PT/M&lt;br&gt;&#xA;where &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Vt is the velocity of money for all transactions in a given time frame;&lt;/li&gt;&#xA;&lt;li&gt;P is the price level;&lt;/li&gt;&#xA;&lt;li&gt;T is the aggregate real value of transactions in a given time frame; and&lt;/li&gt;&#xA;&lt;li&gt;M is the total nominal amount of money in circulation on average in the economy.&#xA;Thus PT is the total nominal amount of transactions per period.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Hope this helps.&lt;/p&gt;&#xA;" OwnerUserId="23072" LastActivityDate="2019-05-20T18:34:47.310" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="29440" PostTypeId="2" ParentId="11512" CreationDate="2019-05-20T18:51:52.100" Score="-2" Body="&lt;p&gt;I just want to add one important but neglected fact about the compound growth and doubling time.  The frightening fact is that it will take a very short period of time to consume an enormous amount of resource &lt;strong&gt;in the later years of compound growth&lt;/strong&gt;.  The doubling time is 72 divided by the growth rate.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, if we assume 3% annual growth in resource consumption (thus 24 years is the doubling time), it will take only the next 48 years (two doubling times) to consume the remaining 64% of the total resource.  At year 120, 64% of resources are available and we are happy (because we still have plenty of resources remaining).  However, it will take an additional 48 years to consume the remaining 64%.  See Dr. Albert Bartlett: Arithmetic, Population, and Energy in Wiki.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sangdon Lee&lt;/p&gt;&#xA;&#xA;&lt;p&gt;dX/dt = 0.03*X  (X is the cumulative resource consumed)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;dY/dt = - 0.03*X  (Y is the remaining resources), &lt;/p&gt;&#xA;&#xA;&lt;p&gt;X(0)=1, Y(0)=100.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/2NVRE.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/2NVRE.png&quot; alt=&quot;Table of simulation outcome&quot;&gt;&lt;/a&gt;&#xA;&lt;a href=&quot;https://i.stack.imgur.com/Jm8OR.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Jm8OR.png&quot; alt=&quot;Stock and flow diagram&quot;&gt;&lt;/a&gt;&#xA;&lt;a href=&quot;https://i.stack.imgur.com/f9CUW.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/f9CUW.png&quot; alt=&quot;Graph of simulation outcome&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="23213" LastEditorUserId="23213" LastEditDate="2019-05-20T19:03:30.977" LastActivityDate="2019-05-20T19:03:30.977" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29441" PostTypeId="1" AcceptedAnswerId="29445" CreationDate="2019-05-20T19:07:04.807" Score="-1" ViewCount="218" Body="&lt;p&gt;My work out shows constant MRTS and also increasing returns to scale. I thought the answer was C as I only found increasing marginal products of labour and capital. I really don't see how the answer is d.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have double checked my working also, I don't think I made any mistakes...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks&lt;a href=&quot;https://i.stack.imgur.com/sEBjV.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/sEBjV.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&#xA;&lt;a href=&quot;https://i.stack.imgur.com/VJr4n.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/VJr4n.jpg&quot; alt=&quot;&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="23211" LastActivityDate="2019-05-20T23:31:32.730" Title="MRTS question involving production function" Tags="&lt;microeconomics&gt;&lt;production-function&gt;&lt;marginal&gt;" AnswerCount="1" CommentCount="0" ClosedDate="2019-05-24T10:46:55.513" ContentLicense="CC BY-SA 4.0" />
  <row Id="29442" PostTypeId="1" CreationDate="2019-05-20T21:49:10.483" Score="-1" ViewCount="28" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/P0q8F.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/P0q8F.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For this question the answer is b which is the TR of group 2. If price is the same, my question is why isn't the demand function of group 1 considered? Why is the TR of group 1 omitted?&lt;/p&gt;&#xA;" OwnerUserId="23211" LastActivityDate="2019-05-20T21:59:33.410" Title="Price discrimination question" Tags="&lt;microeconomics&gt;&lt;monopoly&gt;&lt;price-discrimination&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29443" PostTypeId="2" ParentId="29442" CreationDate="2019-05-20T21:59:33.410" Score="2" Body="&lt;p&gt;To sell 45 units to group 2 implies a price of &lt;span class=&quot;math-container&quot;&gt;$220-2Q_2=130$&lt;/span&gt;. At that price, demand from group 1 is zero. Indeed, the very most any consumer in group 1 is willing to pay is &lt;span class=&quot;math-container&quot;&gt;$100$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2019-05-20T21:59:33.410" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29444" PostTypeId="1" AcceptedAnswerId="29446" CreationDate="2019-05-20T23:07:59.587" Score="0" ViewCount="42" Body="&lt;p&gt;​Hi, I don't get how the answer of d is deduced in this question because I don't think I made any mistakes in my calculation and have also used all the information given. After knowing L is 800, I found out the did 200*Q which gives me 5656 and I worked out the profit to be negative but it is not -15000. What did I do wrong in my calculation?&#xA;&lt;a href=&quot;https://i.stack.imgur.com/lpWuF.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/lpWuF.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&#xA;Thanks&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/hwzZx.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/hwzZx.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="23211" LastActivityDate="2019-05-21T00:49:30.583" Title="Production function involving profit maximisation" Tags="&lt;microeconomics&gt;&lt;production-function&gt;&lt;profit-maximization&gt;&lt;marginal&gt;&lt;cost-functions&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29445" PostTypeId="2" ParentId="29441" CreationDate="2019-05-20T23:31:32.730" Score="0" Body="&lt;p&gt;This function is a Cobb-Douglas type production function. This family of functions has the general form &lt;span class=&quot;math-container&quot;&gt;$ Q = f(x_1,x_2) = A \cdot x_1^a \cdot x_2^b $&lt;/span&gt;. For your specific question, &lt;span class=&quot;math-container&quot;&gt;$ A = 1, x_1 = l, x_2 = k, a = 1, b = 0.5 $&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;These functions have an interesting property, which is handy to keep in mind (you can show this using the same logic you used in your answer)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;i) if &lt;span class=&quot;math-container&quot;&gt;$ a+b &amp;gt; 1 $&lt;/span&gt;, then the functions exhibits increasing returns to scale;&#xA;ii) if &lt;span class=&quot;math-container&quot;&gt;$ a+b = 1 $&lt;/span&gt;, then the functions exhibits constant returns to scale;&#xA;iii) if &lt;span class=&quot;math-container&quot;&gt;$a+b &amp;gt; 1 $&lt;/span&gt;, then the functions exhibits decreasing returns to scale.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, the function you presented has increasing returns to scale. Now, in regards to the marginal productivity of the factors, we have:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;i) &lt;span class=&quot;math-container&quot;&gt;$ MP_L = \frac{\partial Q}{\partial L} = K^{0.5} $&lt;/span&gt;. But we want to check whether &lt;span class=&quot;math-container&quot;&gt;$ MP_L $&lt;/span&gt; is increasing or decreasing, so we take the second derivative of Q with respect to L: &lt;span class=&quot;math-container&quot;&gt;$ \frac{\partial^2 Q}{\partial L^2} = \frac{\partial MP_L}{\partial L} = 0 $&lt;/span&gt;, thus L has constant marginal returns;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;ii) Doing the same for K, we arrive at &lt;span class=&quot;math-container&quot;&gt;$ \frac{\partial MP_K}{\partial K} &amp;lt; 0 $&lt;/span&gt;, which means K has decreasing marginal returns.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This alone would eliminate all alternatives but &lt;strong&gt;d&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, for the sake of completeness: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$ MRTS_{K,L} = \frac{MP_L}{MP_K} $&lt;/span&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;but we showed that &lt;span class=&quot;math-container&quot;&gt;$ MP_L $&lt;/span&gt; is constant and &lt;span class=&quot;math-container&quot;&gt;$ MP_K $&lt;/span&gt; is decreasing, thus &lt;span class=&quot;math-container&quot;&gt;$ MRTS_{K,L} $&lt;/span&gt; is also decreasing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you still have any doubts, feel free to ask.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Kind regards,&#xA;Pedro.&lt;/p&gt;&#xA;" OwnerUserId="8521" LastActivityDate="2019-05-20T23:31:32.730" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29446" PostTypeId="2" ParentId="29444" CreationDate="2019-05-21T00:38:48.107" Score="1" Body="&lt;p&gt;Max &lt;a href=&quot;https://i.stack.imgur.com/29prg.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/29prg.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then you have: Max &lt;a href=&quot;https://i.stack.imgur.com/fAMWo.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/fAMWo.png&quot; alt=&quot;200*L^(0.5) - 10*L - 16000&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which gives you: &lt;a href=&quot;https://i.stack.imgur.com/8TZ8L.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/8TZ8L.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So L = 100, and you have a loss of 15000&lt;/p&gt;&#xA;" OwnerUserId="15467" LastEditorUserId="15467" LastEditDate="2019-05-21T00:49:30.583" LastActivityDate="2019-05-21T00:49:30.583" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="29447" PostTypeId="1" AcceptedAnswerId="29451" CreationDate="2019-05-21T01:06:01.387" Score="6" ViewCount="75" Body="&lt;p&gt;Background: from a Microeconomics course,&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$F$&lt;/span&gt; is a cdf. In other words, if &lt;span class=&quot;math-container&quot;&gt;$F$&lt;/span&gt; has a density function &lt;span class=&quot;math-container&quot;&gt;$f$&lt;/span&gt;, then &#xA;  &lt;span class=&quot;math-container&quot;&gt;$$F(z)={\int_{-\infty}^z f(x) dx}  $$&lt;/span&gt;&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Write the Bernoulli utility function &lt;span class=&quot;math-container&quot;&gt;$u: \mathbb R_+ \rightarrow \mathbb R$&lt;/span&gt; such that the preference is represented by&lt;br&gt;&#xA;  &lt;span class=&quot;math-container&quot;&gt;$$U(F) = \int u(z) dF(z)$$&lt;/span&gt;&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;If &lt;span class=&quot;math-container&quot;&gt;$F$&lt;/span&gt; has density &lt;span class=&quot;math-container&quot;&gt;$f$&lt;/span&gt;, then &lt;span class=&quot;math-container&quot;&gt;$U(F) = \int u(z) f(z)dz$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I am unfamiliar with the notation &lt;span class=&quot;math-container&quot;&gt;$dF(z)$&lt;/span&gt;, and don't quite understand what this means. Can someone help?&lt;/p&gt;&#xA;" OwnerUserId="22996" LastActivityDate="2019-05-21T07:03:46.317" Title="Meaning of $dF(z)$ in expected utility framework" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;expected-utility&gt;&lt;definition&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29448" PostTypeId="2" ParentId="29416" CreationDate="2019-05-21T04:06:45.010" Score="1" Body="&lt;p&gt;Before the availability of electronic money, the intrinsic value of currency might be estimated as the value of all gains from trade under a currency regime minus the value of all gains from trade under a barter regime plus the value of human time saved via the use of currency minus the cost to produce the physical currency. Since the nature of trade is incomparable between the two regimes the value of time saved is hard to estimate. Since the nature of trade is incomparably improved, the volume of trade is incomparable between the two regimes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The gains from trade is the total improvement in the welfare of each   trader as a result of the trade having taken place. Measure welfare in smiles or sense of well being or dollars or whatever.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;After the availability of electronic money, the intrinsic value of currency might be estimated to have been reduced by the amount of revenue necessary to support the provision of electronic payment services. Since banks want customer loyalty so they can sell  various other services it might be hard to know how much you would have to pay to receive electronic payment services alone. The value of these services is more explicit at businesses such as Paypal and Western Union and Remitly but these do not constitute the bulk of services in use.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lastly, people are concerned about the cost to mint coins not because they fail to recognize the value of the existence of currency. They are concerned about the illegal arbitrage of melting coins to be sold for the value of the metal. This is temporarily remedied by the mint when it collects old coins and re-manufactures using less expensive alloys. They are also concerned that small denominations are not worth the time to count them.&lt;/p&gt;&#xA;" OwnerUserId="6868" LastEditorUserId="6868" LastEditDate="2019-05-21T07:55:51.657" LastActivityDate="2019-05-21T07:55:51.657" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="29450" PostTypeId="2" ParentId="29438" CreationDate="2019-05-21T04:54:48.913" Score="3" Body="&lt;p&gt;I think the question has a typo. Whoever wrote it was trying to make you think about the fact that a, c and d are not even properly defined strategies for player B. This is because a strategy must specify what player B would do in all possibly scenarios he might face. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, the typo comes from the fact that b is not part of a NE. If the first payoff instead of being (3,5) it was (5,3) then b will be an equilibrium strategy for B. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your intuition is partially right, for it to be an NE strategy it had to choose the highest payoffs on the path of play. If it was a SPNE it would have to choose the highest payoffs in all subgames, not only the ones that are reached in equilibrium.&lt;/p&gt;&#xA;" OwnerUserId="21827" LastEditorUserId="1601" LastEditDate="2019-06-20T07:16:14.557" LastActivityDate="2019-06-20T07:16:14.557" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29451" PostTypeId="2" ParentId="29447" CreationDate="2019-05-21T05:01:20.753" Score="7" Body="&lt;p&gt;Not all cdf’s have a density function, (for example if &lt;span class=&quot;math-container&quot;&gt;$F$&lt;/span&gt; is not differentiable). However, when they do have a density, the notation &lt;span class=&quot;math-container&quot;&gt;$dF(z)$&lt;/span&gt; is equivalent to &lt;span class=&quot;math-container&quot;&gt;$f(z)dz$&lt;/span&gt;. When performing integrals. However, even if the density does not exists, you can still write the expectation using the notation &lt;span class=&quot;math-container&quot;&gt;$dF(z)$&lt;/span&gt;. The details of what it actually means and the subtle differences can be learned in any measure theory course. But hopefully this short explanation helps you not freak out every time you see that notation.&lt;/p&gt;&#xA;" OwnerUserId="21827" LastEditorUserId="1601" LastEditDate="2019-05-21T07:03:46.317" LastActivityDate="2019-05-21T07:03:46.317" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29452" PostTypeId="1" CreationDate="2019-05-21T06:17:00.337" Score="0" ViewCount="26" Body="&lt;p&gt;So i want to make a research about the impact of this program to community empowerment and infrastructure in villages. But the problem is the program itself (at the first year) implemented to almost all villages across countries. So can i use propensity score matching to evaluate this program?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So i have the data of villages level in 2014 (before the program is implemented) and villages level data in 2018 (after the program is implemented). Can i combine the data into cross-sectional and find the matching?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you everyone:)&lt;/p&gt;&#xA;" OwnerUserId="23136" LastActivityDate="2019-05-21T06:17:00.337" Title="Using Propensity Score Matching to evaluate non randomized and fully implemented village fund program" Tags="&lt;econometrics&gt;" AnswerCount="0" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="29456" PostTypeId="1" AcceptedAnswerId="29469" CreationDate="2019-05-21T12:52:28.697" Score="1" ViewCount="29" Body="&lt;p&gt;I would like your help to understand the concept of &lt;strong&gt;combination/expansion of an information structure&lt;/strong&gt; in the incomplete information game at p.6-9 &lt;a href=&quot;http://www.princeton.edu/~smorris/pdfs/bce.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;this&lt;/a&gt; paper.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Let me summarise the game as described in the paper. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are &lt;span class=&quot;math-container&quot;&gt;$N\in \mathbb{N}$&lt;/span&gt; players, with &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; denoting a generic player.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is a finite set of states &lt;span class=&quot;math-container&quot;&gt;$\Theta$&lt;/span&gt;, with &lt;span class=&quot;math-container&quot;&gt;$\theta$&lt;/span&gt; denoting a generic state. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A basic game &lt;span class=&quot;math-container&quot;&gt;$G$&lt;/span&gt; consists of&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;for each player &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;, a finite set of actions &lt;span class=&quot;math-container&quot;&gt;$A_i$&lt;/span&gt;, where we write &lt;span class=&quot;math-container&quot;&gt;$A\equiv A_1\times A_2\times ... \times A_N$&lt;/span&gt;, and a utility function &lt;span class=&quot;math-container&quot;&gt;$u_i: A\times \Theta \rightarrow \mathbb{R}$&lt;/span&gt;.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;a full support prior &lt;span class=&quot;math-container&quot;&gt;$\psi\in \Delta(\Theta)$&lt;/span&gt;.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;An information structure &lt;span class=&quot;math-container&quot;&gt;$S$&lt;/span&gt; consists of&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;for each player &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;, a finite set of signals &lt;span class=&quot;math-container&quot;&gt;$T_i$&lt;/span&gt;, where we write &lt;span class=&quot;math-container&quot;&gt;$T\equiv T_1\times T_2\times ... \times T_N$&lt;/span&gt;.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;a signal distribution &lt;span class=&quot;math-container&quot;&gt;$\pi: \Theta \rightarrow \Delta(T)$&lt;/span&gt;.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;A decision rule of the incomplete information game &lt;span class=&quot;math-container&quot;&gt;$(G,S)$&lt;/span&gt; is a mapping &#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\sigma: T\times \Theta\rightarrow \Delta(A)&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Combination/Expansion:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider two information structures, &lt;span class=&quot;math-container&quot;&gt;$S^1\equiv (T^1, \pi^1)$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$S^2\equiv (T^2, \pi^2)$&lt;/span&gt;. We say that &lt;span class=&quot;math-container&quot;&gt;$S^*\equiv (T^*, \pi^*)$&lt;/span&gt; is a combination of &lt;span class=&quot;math-container&quot;&gt;$S^1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$S^2$&lt;/span&gt; if &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$T_i^*=T_i^1\times T_i^2$&lt;/span&gt; &lt;span class=&quot;math-container&quot;&gt;$\forall i$&lt;/span&gt;.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\pi^*:\Theta \rightarrow \Delta(T^1\times T^2)$&lt;/span&gt; has &lt;span class=&quot;math-container&quot;&gt;$\pi^1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\pi^2$&lt;/span&gt; as marginals. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;An information structure &lt;span class=&quot;math-container&quot;&gt;$S^*$&lt;/span&gt; is an expansion of an information structure &lt;span class=&quot;math-container&quot;&gt;$S^1$&lt;/span&gt; if there exists an information structure &lt;span class=&quot;math-container&quot;&gt;$S^2$&lt;/span&gt; such that &lt;span class=&quot;math-container&quot;&gt;$S^*$&lt;/span&gt; is a combination of &lt;span class=&quot;math-container&quot;&gt;$S^1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$S^2$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Question 1:&lt;/strong&gt;  Is it correct to say that &lt;span class=&quot;math-container&quot;&gt;$S^*$&lt;/span&gt; is &lt;em&gt;at least as informati&lt;/em&gt;ve as &lt;span class=&quot;math-container&quot;&gt;$S^1$&lt;/span&gt;?&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Question 2:&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The game described above assumes that, before privately receiving the signal, each player &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; knows nothing about what will be the realisation of the state. I call this &quot;baseline level of information&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let &lt;span class=&quot;math-container&quot;&gt;$\underline{S}$&lt;/span&gt; denote an information structure that is totally uninformative, i.e., it does not add anything to the baseline level of information assumed (also called DEGENERATE at p.26 of the linked paper). In other words, &lt;span class=&quot;math-container&quot;&gt;$\underline{S}$&lt;/span&gt; consists of &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(a) for each player &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;, a finite set of signals &lt;span class=&quot;math-container&quot;&gt;$\underline{T}_i$&lt;/span&gt;, where we write &#xA;  &lt;span class=&quot;math-container&quot;&gt;$\underline{T}\equiv \underline{T}_1\times \underline{T}_2\times ... \times \underline{T}_N$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(b) a signal distribution &lt;span class=&quot;math-container&quot;&gt;$\underline{\pi}: \Theta \rightarrow \Delta(\underline{T})$&lt;/span&gt; such that &lt;span class=&quot;math-container&quot;&gt;$\underline{\pi}(\cdot|\theta)=\tilde{\pi}$&lt;/span&gt; &lt;span class=&quot;math-container&quot;&gt;$\forall \theta \in \Theta$&lt;/span&gt; for some &lt;span class=&quot;math-container&quot;&gt;$\tilde{\pi}\in \Delta(\underline{T})$&lt;/span&gt;. In other words, the conditional probability is equal to the unconditional one and players' belief about the probability distribution of the state is not updated. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let &lt;span class=&quot;math-container&quot;&gt;$\mathcal{S}$&lt;/span&gt; denote the collection of all possible information structures. More precisely,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\mathcal{S}\equiv \{S| T \text{ is a separable metric space}, \text{ $\pi:\Theta \rightarrow \Delta(T)$ is a probability measure on $(T,\mathcal{B}(T))$}\}&#xA;$$&lt;/span&gt;&#xA;where &lt;span class=&quot;math-container&quot;&gt;$\mathcal{B}(\cdot)$&lt;/span&gt; denotes Borel sigma algebra.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that &lt;span class=&quot;math-container&quot;&gt;$\underline{S}\in \mathcal{S}$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Is it correct to say that&lt;/strong&gt;: &lt;span class=&quot;math-container&quot;&gt;$\forall S \in \mathcal{S}$&lt;/span&gt; where &lt;span class=&quot;math-container&quot;&gt;$S\equiv ((T_i)_{i=1}^N, \pi)$&lt;/span&gt;, there exists a combination &lt;span class=&quot;math-container&quot;&gt;$S^*\in \mathcal{S}$&lt;/span&gt; of &lt;span class=&quot;math-container&quot;&gt;$\underline{S}$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$S$&lt;/span&gt; such that &lt;span class=&quot;math-container&quot;&gt;$S^*$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$S$&lt;/span&gt; are informationally equivalent. In particular, one can set &lt;span class=&quot;math-container&quot;&gt;$S^*\equiv ((\underline{T}_i\times T_i)_{i=1}^N, \underline{\pi}\times \pi)$&lt;/span&gt;. Therefore, every &lt;span class=&quot;math-container&quot;&gt;$S\in \mathcal{S}$&lt;/span&gt; is at least as informative as &lt;span class=&quot;math-container&quot;&gt;$\underline{S}$&lt;/span&gt;. &lt;/p&gt;&#xA;" OwnerUserId="1505" LastEditorUserId="8595" LastEditDate="2019-05-22T17:36:39.063" LastActivityDate="2019-05-22T17:36:39.063" Title="Implications of the concepts of combination/expansion of an information structure" Tags="&lt;game-theory&gt;&lt;bayesian-game&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29458" PostTypeId="1" CreationDate="2019-05-21T17:27:14.080" Score="2" ViewCount="43" Body="&lt;p&gt;I was reading a paper by Korinek and Simsek (published in the AER in 2016). The version I cite is an IMF Working paper from 2014. The authors essentially describe an economy which has two types of agents: borrowers and lenders. The model starts at Period 0 and goes on infinitely. From period 1 onwards, the borrowers suddenly face borrowing constraints and are forced to deleverage. From period 2 onwards, there are borrowing constraints, but nothing else changes. The authors say:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In the following, we make two simplifying assumptions. First, starting date &lt;span class=&quot;math-container&quot;&gt;$t = 2$&lt;/span&gt;, we assume that the output from the tree is a constant &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; and there are no further shocks. Second, we let the discount factors of the two agents &#xA;  &lt;span class=&quot;math-container&quot;&gt;$\beta^l=\beta^b=\beta$&lt;/span&gt;. Together,&#xA;  these two assumptions imply that the economy will be in a steady state starting date 2 in which debt is constant at &lt;span class=&quot;math-container&quot;&gt;$d_t = d_2$&lt;/span&gt;.....&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Question: I'm not sure why we suddenly enter a steady state. It seems a little intuitive but is not entirely convincing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The link to the paper: &lt;a href=&quot;https://www.imf.org/external/pubs/ft/wp/2014/wp14129.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.imf.org/external/pubs/ft/wp/2014/wp14129.pdf&lt;/a&gt;\&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The quoted part is on page 29.&lt;/p&gt;&#xA;" OwnerUserId="13883" LastEditorUserId="13883" LastEditDate="2019-05-22T10:05:10.583" LastActivityDate="2019-05-22T10:05:10.583" Title="Steady State in Korinek and Simsek (2014)" Tags="&lt;macroeconomics&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29459" PostTypeId="1" CreationDate="2019-05-21T20:41:45.093" Score="0" ViewCount="22" Body="&lt;p&gt;The formula for today's consumption is defined as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$C = Y - T -S^P $$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That being said the consumption of tomorrow is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$C' = Y' - T' + S^P(1+r)$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Could anyone possibly explain to me why the saving becomes positive in tomorrow's consumption formula? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you very much for your help&lt;/p&gt;&#xA;" OwnerUserId="19689" LastActivityDate="2019-05-21T20:41:45.093" Title="lifetime consumption explained" Tags="&lt;macroeconomics&gt;&lt;consumption&gt;&lt;saving&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="29460" PostTypeId="1" CreationDate="2019-05-21T21:41:47.270" Score="0" ViewCount="149" Body="&lt;p&gt;Suppose the velocity of circulation (V) is constant. Annual growth rate of real GDP is 5%. The money&#xA;supply grows by 14% per year. Use the quantity theory of money to calculate the inflation rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My solution: &#xA;Given M: 14%, V: Constant, Y: 5%, P: ? &lt;br /&gt;&#xA;M * V = P * Y &lt;br /&gt;&#xA;14 * V = P * 5 &lt;br /&gt;&#xA;P = 14/5, am I right? &lt;br /&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If not, could you please lead me to the right answer..thanks&lt;/p&gt;&#xA;" OwnerUserId="23217" LastActivityDate="2019-06-21T03:03:20.380" Title="Quantity theory of money" Tags="&lt;macroeconomics&gt;&lt;inflation&gt;&lt;money-supply&gt;&lt;money&gt;&lt;quantity-theory-of-money&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29461" PostTypeId="1" AcceptedAnswerId="29466" CreationDate="2019-05-21T23:35:42.880" Score="2" ViewCount="224" Body="&lt;p&gt;By &quot;contraction economics&quot; I mean theories and work based on the assumption that the population of a country will decline over time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An example might be a paper looking at the housing market for Japan over the next 50 years (if it assumed that population decline continued over that time).&lt;/p&gt;&#xA;" OwnerUserId="23219" LastEditorUserId="6210" LastEditDate="2019-05-22T08:44:41.417" LastActivityDate="2019-05-22T09:08:40.103" Title="What is the proper term for &quot;contraction economics?&quot;" Tags="&lt;macroeconomics&gt;&lt;definition&gt;&lt;population-economics&gt;&lt;demographics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29462" PostTypeId="2" ParentId="29460" CreationDate="2019-05-22T02:08:48.063" Score="2" Body="&lt;p&gt;M * V = P * Y is not in a form of growth rate, so it needs to be changed into&lt;/p&gt;&#xA;&#xA;&lt;p&gt;ΔM + ΔV = ΔP + ΔY&#xA;Because V is constant, then&lt;/p&gt;&#xA;&#xA;&lt;p&gt;14 + 0 = ΔP + 5&lt;/p&gt;&#xA;&#xA;&lt;p&gt;ΔP = 9%&lt;/p&gt;&#xA;&#xA;&lt;p&gt;ΔP = Change in price = inflation&lt;/p&gt;&#xA;" OwnerUserId="23136" LastActivityDate="2019-05-22T02:08:48.063" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29464" PostTypeId="1" CreationDate="2019-05-22T08:42:46.477" Score="0" ViewCount="278" Body="&lt;p&gt;Imagine that there are 3 firms in a monopolistic market, F1, F2 and F3. Firms 1 and 2 are incumbent firms and act simultaneously whereas Firm 3 observes the actions of both firms before deciding whether to enter. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;All firms face a market price of &lt;span class=&quot;math-container&quot;&gt;$P(Q) = 16-q_1-q_2-q_3$&lt;/span&gt;. Incumbent firms face a production cost of &lt;span class=&quot;math-container&quot;&gt;$C_i (q_i) = 4q_i$&lt;/span&gt; for &lt;span class=&quot;math-container&quot;&gt;$i= 1,2$&lt;/span&gt;. Firm 3 faces a production cost of &lt;span class=&quot;math-container&quot;&gt;$C_3(q_3) = 4 + 4q_3$&lt;/span&gt;. Find both firm 3 and firm 1's payoff.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand that I need to take firm 3's best response function which is &#xA;&lt;span class=&quot;math-container&quot;&gt;$$0.5  (12-q_2-q_1)$$&lt;/span&gt; &#xA;but I am not sure where to go from there. Do I substitute this back into the price equation? I tried doing this but it wouldn't yield any definitive answers. Thanks!&lt;/p&gt;&#xA;" OwnerUserId="23214" LastEditorUserId="11590" LastEditDate="2019-05-25T10:38:41.827" LastActivityDate="2019-05-30T00:58:53.573" Title="Stackelberg Oligopoly 3 firms" Tags="&lt;microeconomics&gt;&lt;game-theory&gt;&lt;industrial-organisation&gt;&lt;oligopoly&gt;" AnswerCount="1" CommentCount="3" ClosedDate="2019-06-11T08:29:21.440" ContentLicense="CC BY-SA 4.0" />
  <row Id="29465" PostTypeId="1" AcceptedAnswerId="29468" CreationDate="2019-05-22T08:55:52.060" Score="2" ViewCount="58" Body="&lt;p&gt;I would like your help to understand the definition of &lt;strong&gt;Bayes Correlated Equilibrium (BCE)&lt;/strong&gt; in an incomplete information game at p.7 of &lt;a href=&quot;http://www.princeton.edu/~smorris/pdfs/bce.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;this&lt;/a&gt; paper.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Let me summarise the definition provided in the paper. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are &lt;span class=&quot;math-container&quot;&gt;$N\in \mathbb{N}$&lt;/span&gt; players, with &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; denoting a generic player.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is a finite set of states &lt;span class=&quot;math-container&quot;&gt;$\Theta$&lt;/span&gt;, with &lt;span class=&quot;math-container&quot;&gt;$\theta$&lt;/span&gt; denoting a generic state. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A basic game &lt;span class=&quot;math-container&quot;&gt;$G$&lt;/span&gt; consists of&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;for each player &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;, a finite set of actions &lt;span class=&quot;math-container&quot;&gt;$A_i$&lt;/span&gt;, where we write &lt;span class=&quot;math-container&quot;&gt;$A\equiv A_1\times A_2\times ... \times A_N$&lt;/span&gt;, and a utility function &lt;span class=&quot;math-container&quot;&gt;$u_i: A\times \Theta \rightarrow \mathbb{R}$&lt;/span&gt;.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;a full support prior &lt;span class=&quot;math-container&quot;&gt;$\psi\in \Delta(\Theta)$&lt;/span&gt;.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;An information structure &lt;span class=&quot;math-container&quot;&gt;$S$&lt;/span&gt; consists of&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;for each player &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;, a finite set of signals &lt;span class=&quot;math-container&quot;&gt;$T_i$&lt;/span&gt;, where we write &lt;span class=&quot;math-container&quot;&gt;$T\equiv T_1\times T_2\times ... \times T_N$&lt;/span&gt;.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;a signal distribution &lt;span class=&quot;math-container&quot;&gt;$\pi: \Theta \rightarrow \Delta(T)$&lt;/span&gt;.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;A decision rule of the incomplete information game &lt;span class=&quot;math-container&quot;&gt;$(G,S)$&lt;/span&gt; is a mapping &#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\sigma: T\times \Theta\rightarrow \Delta(A)&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Definition of BCE:&lt;/strong&gt; The decision rule &lt;span class=&quot;math-container&quot;&gt;$\sigma$&lt;/span&gt; is a BCE for the game &lt;span class=&quot;math-container&quot;&gt;$(G,S)$&lt;/span&gt; if, for each &lt;span class=&quot;math-container&quot;&gt;$i=1,...,N$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$t_i\in T_i$&lt;/span&gt;, and &lt;span class=&quot;math-container&quot;&gt;$a_i\in A_i$&lt;/span&gt;, we have&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\sum_{a_{-i}, t_{-i}, \theta} \psi(\theta) \pi(t_{-i}|t_i, \theta) \sigma(a_{-i}| a_i,t_i, t_{-i}, \theta) u_i(a_i, a_{-i},\theta)&#xA;$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\geq &#xA;\sum_{a_{-i}, t_{-i}, \theta} \psi(\theta) \pi(t_{-i}|t_i, \theta) \sigma(a_{-i}| a_i,t_i, t_{-i}, \theta) u_i(\tilde{a}_i, a_{-i},\theta)&#xA;$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$\forall \tilde{a}_i\in A_i$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Question:&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;1)&lt;/strong&gt; I don't follow how the conditional expectation is computed in the definition. Consider for example the left hand side (LHS) and let me go through each step by using the notation &lt;span class=&quot;math-container&quot;&gt;$Pr(\cdot)$&lt;/span&gt; to generically denote any probability distribution. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The LHS is the expected payoff of player &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; where the expectation is computed wrto anything that is unknown to him conditional on what he knows. Hence,&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\sum_{a_{-i}, \theta, t_{-i}} u_i(a_{-i},a_i, \theta) \times Pr(a_{-i}, \theta, t_{-i}| t_i, a_i)=&#xA;$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\sum_{a_{-i}, \theta, t_{-i}} u_i(a_{-i},a_i, \theta) \times Pr(a_{-i}| \theta, t_{-i}, t_i, a_i)\times Pr(\theta, t_{-i}| t_i, a_i)=&#xA;$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\sum_{a_{-i}, \theta, t_{-i}} u_i(a_{-i},a_i, \theta) \times \underbrace{Pr(a_{-i}| \theta, t_{-i}, t_i, a_i)}_{\equiv \sigma(a_{-i}| a_i,t_i, t_{-i}, \theta) \text{ [OK!]}}\times \underbrace{Pr(t_{-i}|\theta, t_i, a_i)}_{\equiv \pi(t_{-i}|t_i, \theta)? \text{ Where is $a_i$?} }\times \underbrace{Pr(\theta| t_i, a_i)}_{\equiv \psi(\theta)?\text{ Where are $t_i, a_i$?}}=&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are we assuming &lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) &lt;span class=&quot;math-container&quot;&gt;$t_{-i}\perp a_i $&lt;/span&gt;, conditional on &lt;span class=&quot;math-container&quot;&gt;$\theta, t_i$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) &lt;span class=&quot;math-container&quot;&gt;$\theta \perp t_i, a_i$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;2)&lt;/strong&gt; How does the definition of BCE simplify to when &lt;span class=&quot;math-container&quot;&gt;$N=1$&lt;/span&gt;?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From reading at p.25 of the linked paper, it seems that a BCE is still intended as mapping from state and signal &lt;strong&gt;to a probability distribution over actions&lt;/strong&gt;. From reading at p.26 of the linked paper, the authors then say &quot;[...] In that case, the set of BCE correspond to joint distribution of actions &lt;strong&gt;and states&lt;/strong&gt; [...]&quot;. I'm confused. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, when &lt;span class=&quot;math-container&quot;&gt;$N=1$&lt;/span&gt;, how does the definition of BCE differ from the definition of Bayesian Nash Equilibrium?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;3)&lt;/strong&gt; Just as a curiosity, what it is the reason of including the adjective &quot;&lt;strong&gt;correlated&lt;/strong&gt;&quot;?&lt;/p&gt;&#xA;" OwnerUserId="1505" LastEditorUserId="8595" LastEditDate="2019-05-22T17:32:47.097" LastActivityDate="2019-05-22T17:44:55.413" Title="Clarification on the definition of Bayes Correlated Equilibrium" Tags="&lt;game-theory&gt;&lt;bayesian-game&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29466" PostTypeId="2" ParentId="29461" CreationDate="2019-05-22T09:08:40.103" Score="1" Body="&lt;p&gt;It doesn't look like there's an established term. Combine &quot;demographic decline&quot;, &quot;population decline&quot; or even &quot;fertility decline&quot; (although this doesn't imply population decline) with whatever you are interested in (markets, economic growth etc.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These papers (if macro) usually get JEL-tagged &quot;J11 Demographic Trends, Macroeconomic Effects, and Forecasts&quot; in combination with whatever is getting modeled, &lt;a href=&quot;https://doi.org/10.1080/00343400701654228&quot; rel=&quot;nofollow noreferrer&quot;&gt;e.g.&lt;/a&gt; &quot;Scotland the Grey: A Linked Demographic–Computable General Equilibrium (CGE) Analysis of the Impact of Population Ageing and Decline&quot; is tagged with J11 and a bunch of R1x codes, the latter for regional economics/models.&lt;/p&gt;&#xA;" OwnerUserId="6210" LastActivityDate="2019-05-22T09:08:40.103" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29467" PostTypeId="2" ParentId="29464" CreationDate="2019-05-22T10:33:52.513" Score="1" Body="&lt;p&gt;You are right that you first have to find F3's best-response function. F1 and F2 take as given this reaction of F3 to whatever they produce.&#xA;Hence, you plug this best-response function into the incumbents' profit maximization problem. In that way, you take care of the fact that the incumbents anticipate F3's reaction, indirectly determining &lt;span class=&quot;math-container&quot;&gt;$q_3$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You should also check if the resulting reaction quantity &lt;span class=&quot;math-container&quot;&gt;$q_3$&lt;/span&gt; is non-negative! It can be optimal to deter the entry of F3 completely.&lt;/p&gt;&#xA;" OwnerUserId="11590" LastActivityDate="2019-05-22T10:33:52.513" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29468" PostTypeId="2" ParentId="29465" CreationDate="2019-05-22T14:21:45.513" Score="3" Body="&lt;p&gt;I think the reason you're having difficulty is that your definition is actually not equivalent to Bergemann and Morris' definition of BCE, except under specific assumptions which include the ones you state regarding independence. However, in general, we do not wish to make these assumptions. (For example, assuming that &lt;span class=&quot;math-container&quot;&gt;$t_{-i}$&lt;/span&gt; is independent of &lt;span class=&quot;math-container&quot;&gt;$a_i$&lt;/span&gt; conditional on &lt;span class=&quot;math-container&quot;&gt;$\theta$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$t_i$&lt;/span&gt; means that the mediator cannot reveal any additional information about other players' types once they have revealed the state to a player. This seems unnecessarily restrictive.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the paper, a BCE induces a probability distribution &lt;span class=&quot;math-container&quot;&gt;$\Pr$&lt;/span&gt; that satisfies&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ \sum_{a_{-i},t_{-i},\theta}\Pr(a_i,a_{-i},t_i,t_{-i},\theta) u_i(a_i,a_{-i},\theta) \ge \sum_{a_{-i},t_{-i},\theta} \Pr(a_i,a_{-i},t_i,t_{-i},\theta) u_i(a^\prime_i,a_{-i},\theta) $$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;for all &lt;span class=&quot;math-container&quot;&gt;$a_i^\prime \in A_i$&lt;/span&gt;. If we wish to express this inequality in terms of player &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;'s expected utility given their information, then we divide both sides by &lt;span class=&quot;math-container&quot;&gt;$\Pr(a_i,t_i)$&lt;/span&gt;. Similarly, from the inequality &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ \sum_{a_{-i},t_{-i},\theta}\Pr(a_{-i},t_{-i},\theta \vert a_i,t_i) u_i(a_i,a_{-i},\theta) \ge \sum_{a_{-i},t_{-i},\theta} \Pr(a_{-i},t_{-i},\theta \vert a_i, t_i) u_i(a^\prime_i,a_{-i},\theta), $$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;we can multiply both sides by &lt;span class=&quot;math-container&quot;&gt;$\Pr(a_i,t_i)$&lt;/span&gt; to recover the first expression above. To see how this squares with your calculation, notice that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ \begin{align*} \Pr(a_{-i}\vert a_i,t_i,t_{-i},\theta) \Pr(t_{-i}\vert a_i,t_i,\theta)\Pr(\theta\vert a_i,t_i) \Pr(a_i,t_i) &amp;amp;= \Pr(a_{-i},t_{-i},\theta \vert a_i, t_i) \Pr(a_i,t_i) \\&#xA;&amp;amp;= \Pr(a_i,a_{-i},t_i,t_{-i},\theta) \\&#xA;&amp;amp;= \Pr(a_i,a_{-i}\vert t_i,t_{-i},\theta) \Pr(t_i,t_{-i} \vert \theta) \Pr(\theta)\\&#xA;&amp;amp;= \sigma(a_i,a_{-i}\vert t_i,t_{-i},\theta) \pi(t_i,t_{-i} \vert \theta) \psi(\theta).&#xA;\end{align*} $$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In particular, we have that &lt;span class=&quot;math-container&quot;&gt;$$ \Pr(a_{-i}\vert a_i,t_i,t_{-i},\theta) \Pr(t_{-i}\vert a_i,t_i,\theta)\Pr(\theta\vert a_i,t_i) = \frac{\sigma(a_i,a_{-i}\vert t_i,t_{-i},\theta) \pi(t_i,t_{-i} \vert \theta) \psi(\theta)}{\Pr(a_i,t_i)}. $$&lt;/span&gt; This makes it difficult to get the decomposition you want without making needlessly strong independence assumptions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When &lt;span class=&quot;math-container&quot;&gt;$N=1$&lt;/span&gt;, there is only one player, so the equilibrium is (in some sense) degenerate. However, the difference between one-player BCE and one-player BNE is that the BCE set is larger, and includes any BNE. (Indeed, this is true even when &lt;span class=&quot;math-container&quot;&gt;$N&amp;gt;1$&lt;/span&gt;.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For your second question:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;a BCE is still intended as mapping from state and signal &lt;strong&gt;to a probability distribution over actions&lt;/strong&gt;. From reading at p.26 of the linked paper, the authors then say &quot;[...] In that case, the set of BCE correspond to joint distribution of actions &lt;strong&gt;and states&lt;/strong&gt; [...]&quot;. I'm confused. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Formally, a BCE is a probability distribution of actions for each realisation of the state and signals. This probability distribution &lt;em&gt;induces&lt;/em&gt; a joint distribution over actions and states. Just integrate out &lt;span class=&quot;math-container&quot;&gt;$(t_i,t_{-i})$&lt;/span&gt; in &lt;span class=&quot;math-container&quot;&gt;$\Pr(a_i,a_{-i},t_i,t_{-i},\theta)$&lt;/span&gt; to get that joint distribution.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, this equilibrium concept is called Bayes Correlated Equilibirum because it extends our definition of correlated equilibrium (defined by Aumann for complete information games) to games of incomplete information, in the same way that Bayes-Nash equilibrium extends Nash equilibrium.&lt;/p&gt;&#xA;" OwnerUserId="8595" LastEditorUserId="8595" LastEditDate="2019-05-22T17:44:55.413" LastActivityDate="2019-05-22T17:44:55.413" CommentCount="11" ContentLicense="CC BY-SA 4.0" />
  <row Id="29469" PostTypeId="2" ParentId="29456" CreationDate="2019-05-22T15:45:37.310" Score="1" Body="&lt;p&gt;Answer to Question 1: Yes. To see this, note that for every combination of elements of &lt;span class=&quot;math-container&quot;&gt;$T^1\times T^2$&lt;/span&gt; in the support of &lt;span class=&quot;math-container&quot;&gt;$\pi^*$&lt;/span&gt; you get a, possibly different, posterior. To show &lt;span class=&quot;math-container&quot;&gt;$\pi^*$&lt;/span&gt; is at least as informative as &lt;span class=&quot;math-container&quot;&gt;$\pi^1$&lt;/span&gt; you need these posteriors to be a mean-preserving spread the posteriors induced by &lt;span class=&quot;math-container&quot;&gt;$\pi^1$&lt;/span&gt; (there are actually several characterizations of Blackwell's partial order, I'm thinking there is a more elegant proof, but this is the one I can think of right now). You can easily show this is the case if you average up the posteriors induced by &lt;span class=&quot;math-container&quot;&gt;$S^*$&lt;/span&gt;, over the realizations of &lt;span class=&quot;math-container&quot;&gt;$T^2$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Answer to Question 2: Yes. For any signal &lt;span class=&quot;math-container&quot;&gt;$S$&lt;/span&gt;, you can find a &quot;trivial&quot; expansion by combining it with &lt;span class=&quot;math-container&quot;&gt;$\underline \pi$&lt;/span&gt;, so the resulting signal &lt;span class=&quot;math-container&quot;&gt;$S^*$&lt;/span&gt; (which is informationally equivalent to &lt;span class=&quot;math-container&quot;&gt;$S$&lt;/span&gt;) is at least as informative than &lt;span class=&quot;math-container&quot;&gt;$\underline S$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In that sense, Bayesian decision makers can never have less information than their prior. &lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-05-22T15:45:37.310" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29471" PostTypeId="2" ParentId="27528" CreationDate="2019-05-22T18:18:19.923" Score="1" Body="&lt;p&gt;Put simply, a competitive market is one with a larger number of smaller firms &amp;mdash; but economies of scale are best exploited by a smaller number of larger firms. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This doesn’t mean that a competitive market &lt;em&gt;can’t&lt;/em&gt; take advantage of economies of scale, just that such a market is only &lt;em&gt;guaranteed&lt;/em&gt; to reach productive efficiency if the size of the firm isn’t a factor. &lt;/p&gt;&#xA;" OwnerUserId="23023" LastActivityDate="2019-05-22T18:18:19.923" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29473" PostTypeId="1" CreationDate="2019-05-23T04:47:11.350" Score="3" ViewCount="719" Body="&lt;p&gt;I see this to be a prevalent trend - companies too often launch products at much higher prices than they know is gonna lead to good sales numbers, only to reduce the price &lt;strong&gt;&lt;em&gt;drastically&lt;/em&gt;&lt;/strong&gt; after a few months. And by the time they do so, they lose any competitive advantage they might have had, and thus can't &quot;recover&quot; any more as far as product sales are concerned.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's take a concrete example - the Razer Phone 2. They knew people didn't know much about the brand when it was launched, as Razer is new into making phones. Thus, it only made sense to have launched it for something more reasonable, like $600 perhaps. But no, they launched it for \$800-850. And of course, it didn't sell well. And now after 2-3 months, its price is \$500. But it lost traction - all the excitement that was there when it was first launched about its gaming capabilities is not so fresh in people's minds anymore. Moreover, there are other products at competitive prices that are more value for money. Why couldn't they have launched it for \$600 in the first place?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another example - Blackberry. They were all but practically dead after a few years of not catching on the Android train. Then they decided to adopt Android a couple years back, and launched a phone (I can't remember its name). It was a good product, but again, they priced it &lt;strong&gt;&lt;em&gt;ridiculously high&lt;/em&gt;&lt;/strong&gt; for a company coming back from dead, and making a first product with a new technology for them. Of course it didn't sell well. But had they launched for half the price, I strongly think the phone would have sold well. I know I for one would have bought that phone, but for around \$400 - not for \$750.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is the reason greed or over-optimism? Surely that can't be right? Don't they want to sell more products, and thus get more profits?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;P.S. I am not a finance student or economics student. Just a layman trying to understand why so many companies go for seemingly stupid product pricing.&lt;/p&gt;&#xA;" OwnerUserId="8001" LastEditorUserId="8001" LastEditDate="2019-05-26T04:38:05.187" LastActivityDate="2019-05-26T04:38:05.187" Title="Why do companies launch products at much higher prices, only to reduce the price drastically after a few months?" Tags="&lt;price&gt;&lt;pricing&gt;&lt;technology&gt;&lt;price-theory&gt;" AnswerCount="4" CommentCount="6" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29474" PostTypeId="1" AcceptedAnswerId="29531" CreationDate="2019-05-23T06:15:47.787" Score="-1" ViewCount="80" Body="&lt;p&gt;I was travelling recently and realised that dollars, euros, British pounds and Swiss francs all have more or less the same worth (i.e. 1 dollar &lt;span class=&quot;math-container&quot;&gt;$\cong $&lt;/span&gt;1 pound &lt;span class=&quot;math-container&quot;&gt;$\cong$&lt;/span&gt; 1 euro &lt;span class=&quot;math-container&quot;&gt;$\cong $&lt;/span&gt; 1 chf). This was not the case when I was a child.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there a trend here or am I interpolating to much? Are different currencies evolving over time towards all being equal?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;PS: Please don't just answer 'yes' or 'no'. Whatever the answer is, I will wonder why it is so.&lt;/p&gt;&#xA;" OwnerUserId="23229" LastActivityDate="2019-05-28T15:22:04.247" Title="Are currencies equilibrating?" Tags="&lt;currency&gt;&lt;international-economics&gt;&lt;currency-exchange&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29475" PostTypeId="1" AcceptedAnswerId="29498" CreationDate="2019-05-23T07:42:47.577" Score="0" ViewCount="40" Body="&lt;p&gt;I am currently working on a research project regarding the introduction of mandatory earnings guidance regulation in multiple countries within a time span of 10 years (staggered adoption). As I can see that my results depend on the FE I use, I tried to figure out how to determine which FE I have to use in this setting. Literature doesn't give a clear answer as different authors use different FE in similar models (firm, year, country, industry or a combination of those four). That's why I wanted to ask the community: Is there any rule-of-thumb or a precise answer on which FE I do have to include in my multi-year multi-country model (using linear model with an unbalanced dataset) in the form of: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Market liquidity measure = b0 + Analyst_following * x1 + US_Listing * x2 + IFRS_User * x3 + MarketCapitalization * x4 + ShareVolatility * x6 + e&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I have detailed firm level data for all variables. I would suggest industry-year FE, but don't have any arguments why I should use them (just intuition). Is there any clear guidance on which FE to use or any recommendation for a book adressing this topic in an inuitive way? Most books deal with social research questions (using e.g. race as FE as it does not change) but it is hard for me to transfer this logic to a business regulation setting...&#xA;What I want to measure is, &lt;strong&gt;whether the staggered adoption of the regulation has a significant impact on market/stock liquidity&lt;/strong&gt;. Dependant/independant variables are derived from well-established papers in my field.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help appreciated!&lt;/p&gt;&#xA;" OwnerUserId="23230" LastEditorUserId="23230" LastEditDate="2019-05-23T16:16:56.450" LastActivityDate="2019-05-24T14:31:18.793" Title="How to determine correct fixed effects in linear regression model using unbalanced paneldata" Tags="&lt;regression&gt;&lt;paneldata&gt;&lt;fixed-effects&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="29476" PostTypeId="1" AcceptedAnswerId="29487" CreationDate="2019-05-23T13:05:52.340" Score="0" ViewCount="51" Body="&lt;p&gt;Let &lt;span class=&quot;math-container&quot;&gt;$L$&lt;/span&gt;,&lt;span class=&quot;math-container&quot;&gt;$L'$&lt;/span&gt; be two lotteries over the real numbers. Let &lt;span class=&quot;math-container&quot;&gt;$u$&lt;/span&gt; be an increasing Bernoulli utility function. Let &lt;span class=&quot;math-container&quot;&gt;$F_L$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$F_{L'}$&lt;/span&gt; be the CDFs of the two lotteries. We wish to show that &#xA;&lt;span class=&quot;math-container&quot;&gt;$$L \succ_{FOSD} L' \iff \mathbb E(u(L))\geq \mathbb E(u(L')).$$&lt;/span&gt;&#xA;I am able to prove the necessity. I am not able to prove sufficiency. I get an expression like &lt;span class=&quot;math-container&quot;&gt;$\int u'(x) f_L dx \leq \int u'(x) f_{L'} dx$&lt;/span&gt; after integrating by parts, but am unable to proceed after that.&#xA;This is not a homework problem.&lt;/p&gt;&#xA;" OwnerUserId="13883" LastEditorUserId="11590" LastEditDate="2019-05-23T22:41:18.470" LastActivityDate="2019-05-23T22:41:18.470" Title="First Order Stochastic Domination and lottery preferences" Tags="&lt;microeconomics&gt;&lt;expected-utility&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29477" PostTypeId="2" ParentId="29473" CreationDate="2019-05-23T13:18:03.307" Score="4" Body="&lt;p&gt;Two very general reasons are:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;1)&lt;/strong&gt; High prices at the beginning target &quot;early adopters&quot; - people that have a higher &quot;willingness to pay&quot; for a new product just to have it first. Early adopters know that they pay more, and they 're ok with it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;2)&lt;/strong&gt; As regards consumer reaction, it is much better to reduce prices than to increase prices. So sometimes prices are set high to &quot;feel&quot; the market response and then adjust accordingly.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Note:&lt;/strong&gt; these are very general and &quot;universal&quot; reasons for the phenomenon. The degree to which are qualified in each special case, market, country, etc its a matter of examination. Also, in some circumstances other strategic considerations may lead to the opposite action: start very low to &quot;sweep the market&quot; (price self-subsidy) in order to drive competitors out/increase market share, and then start increasing prices when market has become &quot;captive&quot; to a degree.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2019-05-23T13:18:03.307" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29478" PostTypeId="1" CreationDate="2019-05-23T13:27:44.930" Score="0" ViewCount="67" Body="&lt;p&gt;How can I obtain investment level data by state in the US?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I want to analyse how Public investment vs Private Investment responded to TFP shocks on a state level, so I am looking for Gross Private Domestic Investments, Residential and Non Residential investments for each state.&lt;/p&gt;&#xA;" OwnerUserId="21935" LastEditorUserId="11590" LastEditDate="2019-05-25T17:00:32.687" LastActivityDate="2020-10-08T19:48:43.740" Title="How can I obtain State level Investment in the US?" Tags="&lt;macroeconomics&gt;&lt;data-request&gt;" AnswerCount="1" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="29480" PostTypeId="2" ParentId="29473" CreationDate="2019-05-23T14:32:01.493" Score="2" Body="&lt;p&gt;It’s a form of price discrimination. Early adopters are willing to pay more, and so the product is launched at a higher price to capture that value. If they launched at the lower price, then early adopters would be paying a lower price than they’d otherwise be willing to pay. &lt;/p&gt;&#xA;" OwnerUserId="23023" LastActivityDate="2019-05-23T14:32:01.493" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29481" PostTypeId="1" AcceptedAnswerId="29489" CreationDate="2019-05-23T14:42:45.200" Score="0" ViewCount="24" Body="&lt;p&gt;I run the following function:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$Y_{it} = a_0+a_1*X_{it}+K*a_3+\epsilon_{it}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where &lt;span class=&quot;math-container&quot;&gt;$X_{it}=M_{it}/N_{it}$&lt;/span&gt; is a generated variable. I got data &lt;span class=&quot;math-container&quot;&gt;$Y_{it}$&lt;/span&gt; for the period from 2010 to 2015. Due to data unavailable , I just got data &lt;span class=&quot;math-container&quot;&gt;$M_{it}$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$N_{it}$&lt;/span&gt;(two resources) in 2010, &lt;span class=&quot;math-container&quot;&gt;$K$&lt;/span&gt; is other control variables.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Actually, I run this&#xA;&lt;span class=&quot;math-container&quot;&gt;$$Y_{i2010-2015} = a_0+a_1* M_{i2010}/N_{i2010} +K*a_3+\epsilon_{it}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there any problem to run this model? Can I use coefficient &lt;span class=&quot;math-container&quot;&gt;$a_1$&lt;/span&gt; to explain the allocation of resources?&lt;/p&gt;&#xA;" OwnerUserId="6255" LastEditorUserId="6255" LastEditDate="2019-05-23T15:42:34.320" LastActivityDate="2019-05-24T00:44:09.450" Title="ratio independent time-invariant variable" Tags="&lt;econometrics&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29482" PostTypeId="1" AcceptedAnswerId="29486" CreationDate="2019-05-23T17:04:53.783" Score="-1" ViewCount="45" Body="&lt;p&gt;I would like to know if my understanding about how to find a maximum of the function when some parameters are unknown is correct.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider the following maximization problem.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\max_{x}V=\int_0^{a(x)}y(x)dF(t)+\int_{a(x)}^{\infty}z(x)dF(t)$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where &lt;span class=&quot;math-container&quot;&gt;$x\geq0$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$y'(x)&amp;gt;0$&lt;/span&gt;, and &lt;span class=&quot;math-container&quot;&gt;$z'(x)&amp;gt;0.$&lt;/span&gt; If &lt;span class=&quot;math-container&quot;&gt;$x\to\infty$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$z(x)\to \overline{z}$&lt;/span&gt;. &lt;span class=&quot;math-container&quot;&gt;$F$&lt;/span&gt; is the cumulative distribution function of &lt;span class=&quot;math-container&quot;&gt;$t$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The function &lt;span class=&quot;math-container&quot;&gt;$a(x)$&lt;/span&gt; is non-monotonic in &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;if &lt;span class=&quot;math-container&quot;&gt;$x=0$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$a(x)=0$&lt;/span&gt;,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;if &lt;span class=&quot;math-container&quot;&gt;$0&amp;lt;x&amp;lt;\infty$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$a(x)&amp;gt;0$&lt;/span&gt;,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and if &lt;span class=&quot;math-container&quot;&gt;$x\to\infty$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$a(x)=0$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this maximization problem, if we increase &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;, the first term in the right side first increases and then decreases to zero because of the nonmonotonicity of &lt;span class=&quot;math-container&quot;&gt;$a(x)$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If &lt;span class=&quot;math-container&quot;&gt;$y(x^*)+z(x^*)&amp;gt; y(x) +z(x)$&lt;/span&gt; for any &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;, the objective function &lt;span class=&quot;math-container&quot;&gt;$V$&lt;/span&gt; is maximized at &lt;span class=&quot;math-container&quot;&gt;$x=x^*$&lt;/span&gt;, and the maximum value is &lt;span class=&quot;math-container&quot;&gt;$\int_0^{a(x^*)}y(x^*)dF(t)+\int_{a(x^*)}^{\infty}z(x^*)dF(t)$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If &lt;span class=&quot;math-container&quot;&gt;$y(x)+z(x)&amp;lt;\overline{z}$&lt;/span&gt; for any &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;, the objective function &lt;span class=&quot;math-container&quot;&gt;$V$&lt;/span&gt; is maximized at &lt;span class=&quot;math-container&quot;&gt;$x=\infty$&lt;/span&gt;, and the maximum value is &lt;span class=&quot;math-container&quot;&gt;$\int_{0}^{\infty}\overline{z}dF(t)$&lt;/span&gt;. The first term in the right side is zero.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would appreciate it if someone could tell me if my understanding is correct. If it is incorrect, where did I make a mistake?&lt;/p&gt;&#xA;" OwnerUserId="23172" LastEditorUserId="23172" LastEditDate="2019-05-23T17:16:32.023" LastActivityDate="2019-05-23T19:27:51.510" Title="Maximization when parameters are unknown" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29483" PostTypeId="2" ParentId="88" CreationDate="2019-05-23T17:40:03.767" Score="0" Body="&lt;p&gt;It's easy to solve this &quot;paradox&quot;. For value of any product is determined by amount of labour spent on it. For water,  it's naturally available in abundance. U can just go to river and drink it. No one is going to question u about it because there's no human labour involved in it. But then try not to pay bills (if u recieve one)  for municipality or any official water supply. U will be questioned. Because there's labour added in construction of pipelines through which it flowd,  cost of storage in lakes,  purification etc. Now compare it to diamonds. Diamonds are scarce,  secondly it requires machinary,  post processing after extracting it and to find places where u can get it. For this reason they are expensive. It ultimately proves only this thing that utility is not going to determine prices. As Marx himself said and even so called vulgar marginalists must agree that &quot;If we could succeed at a small expenditure of labour, in converting carbon into diamonds, their value might fall below that of bricks&quot;. So answer to this &quot;paradox&quot; Is given by Marx itself and it perfectly fits in problem. There r many answers which can actually counter many arguments of marginalists,  even argument of supply and demand,  but it seems like so called &quot;marxist economists&quot; Haven't studied capital itself. There lies victory of vulgaris! &lt;/p&gt;&#xA;" OwnerUserId="23235" LastActivityDate="2019-05-23T17:40:03.767" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29484" PostTypeId="2" ParentId="8892" CreationDate="2019-05-23T17:45:42.273" Score="1" Body="&lt;p&gt;In the title you ask about perfectly inelastic demand; in the text it is about perfectly elastic demand. I guess you want to know about the latter. So you can skip one of the paragraphs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let us define PED as this absolute vale&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\varepsilon_p = \left| \frac{d Q / Q}{dP / P} \right|,$$&lt;/span&gt;&#xA;(otherwise it is a non-positive value, this is just a convention).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In general, both perfectly elastic and inelastic demand are defined in the limit. As always, the math gets a little fishy when &lt;span class=&quot;math-container&quot;&gt;$\infty$&lt;/span&gt; is involved (or if you want to divide by zero). To stay sane, it helps to think of an &quot;infinite quanity&quot; as it is used in economics as &quot;very, very, very large &lt;em&gt;approaching&lt;/em&gt; infinity&quot; or as &quot;as much as possible&quot;. Similarly, think of a good with an &quot;infinite price&quot; as a good that &quot;nobody can buy&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With &lt;strong&gt;perfectly inelastic&lt;/strong&gt; demand, price changes do not affect demanded quantity &lt;span class=&quot;math-container&quot;&gt;$q$&lt;/span&gt;. &#xA;As an example, think of a life-saving drug. How must the price change that you demand &lt;span class=&quot;math-container&quot;&gt;$q'&amp;lt;q$&lt;/span&gt; instead of &lt;span class=&quot;math-container&quot;&gt;$q$&lt;/span&gt;? Well, you always demand &lt;span class=&quot;math-container&quot;&gt;$q$&lt;/span&gt; - it doesn't happen. How can we express &quot;it doesn't happen&quot;? We can say that you would only consume less than &lt;span class=&quot;math-container&quot;&gt;$q$&lt;/span&gt; if the price becomes some number that is larger than any real number. Now think about a limit approaching this benchmark case of a vertical demand curve, some sequence of very steep declining lines. Then for any &lt;span class=&quot;math-container&quot;&gt;$dQ/Q&amp;lt;0$&lt;/span&gt; it must be that &lt;span class=&quot;math-container&quot;&gt;$dP/P$&lt;/span&gt; approaches infinity. Similarly, for a demanded quantity &lt;span class=&quot;math-container&quot;&gt;$q'&amp;gt;q$&lt;/span&gt;, i.e., &lt;span class=&quot;math-container&quot;&gt;$dQ/Q&amp;gt;0$&lt;/span&gt;, &quot;the good has to be thrown at you&quot;. For a meaningful sequence approaching the perfectly inelastic demand, you have to ignore the restriction that prices are positive -- it must be that &lt;span class=&quot;math-container&quot;&gt;$dP/P \rightarrow - \infty$&lt;/span&gt;. Hence, &lt;span class=&quot;math-container&quot;&gt;$\varepsilon_p \rightarrow 0$&lt;/span&gt;.&#xA;Alternatively, don't think in limits, but ask the reverse question. Instead of &quot;how must the price change that my demanded quantity changes&quot;, ask &quot;how do I change my demanded quanity if the price changes&quot;? The answer is, not at all: &lt;span class=&quot;math-container&quot;&gt;$dQ/Q =0$&lt;/span&gt; for any &lt;span class=&quot;math-container&quot;&gt;$dP/P$&lt;/span&gt;, making the PED always zero. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;With &lt;strong&gt;perfectly elastic&lt;/strong&gt; demand, an arbitrarily large quantity can be sold at some market price &lt;span class=&quot;math-container&quot;&gt;$p$&lt;/span&gt;. As an example, think of a \$100 bill or a (hypothetical) perfectly competitive market. &quot;Arbitratily large&quot; does not mean infinity, which is not a real number. &#xA;Again ask, how does the price have to change that my demanded quantity changes? By definition, any quantity is demanded at price &lt;span class=&quot;math-container&quot;&gt;$P$&lt;/span&gt;. That is, the price does not have to change at all. Hence, &lt;span class=&quot;math-container&quot;&gt;$dP/P=0$&lt;/span&gt; for any &lt;span class=&quot;math-container&quot;&gt;$dQ/Q$&lt;/span&gt;. Then &lt;span class=&quot;math-container&quot;&gt;$\varepsilon_p$&lt;/span&gt; is not well-defined (you divide by zero), but you can think of a sequence of very flat declining lines that approach the horizontal demand such that &lt;span class=&quot;math-container&quot;&gt;$dP/P\rightarrow 0$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\varepsilon_p \rightarrow \infty$&lt;/span&gt;.&#xA;You can again also ask the reverse question: how does demanded quantity change when the price changes. For this just consider the limit again (and ignore the restricion to positive quanitites). If a \$100 bill is offered at \$99.99, demanded quantity goes to infinity. If a \$100 bill is offered at \$100.01, demanded quantity goes to minus infinity -- you would want to sell your bills. That is, &lt;span class=&quot;math-container&quot;&gt;$dQ/Q \rightarrow  \mbox{sign}(dP/P) (-\infty)$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\varepsilon_p \rightarrow \infty$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerUserId="11590" LastActivityDate="2019-05-23T17:45:42.273" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29485" PostTypeId="1" CreationDate="2019-05-23T18:09:38.190" Score="0" ViewCount="70" Body="&lt;p&gt;I have found two great resources to learn about the distribution of goods (of any kind) all over the world:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;https://www.gapminder.org/&quot; rel=&quot;nofollow noreferrer&quot;&gt;gapminder&lt;/a&gt; (Hans Rosling)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;http://ourworldindata.org&quot; rel=&quot;nofollow noreferrer&quot;&gt;ourworldindata&lt;/a&gt; (Max Roser)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;By reading their &quot;about&quot; sections they seem to be quite similar in approach: &quot;Things are not going perfect but better than they seem&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For me it's hard to find out which other providers next to &lt;strong&gt;gapminder&lt;/strong&gt; and &lt;strong&gt;ourworldindata&lt;/strong&gt; are there around: providing similar access to similar data in a similar way (visual), with a similar (but possibly quite different) approach.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any hints are welcome.&lt;/p&gt;&#xA;" OwnerUserId="22991" LastActivityDate="2019-06-14T08:37:09.927" Title="Gapminder and OurWorldInData" Tags="&lt;econometrics&gt;&lt;reference-request&gt;&lt;statistics&gt;" AnswerCount="1" CommentCount="2" ClosedDate="2019-06-03T13:25:41.000" ContentLicense="CC BY-SA 4.0" />
  <row Id="29486" PostTypeId="2" ParentId="29482" CreationDate="2019-05-23T19:06:21.107" Score="1" Body="&lt;p&gt;Disclaimer: I'm assuming you are integrating over &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have a problem with your first inequality. Since &lt;span class=&quot;math-container&quot;&gt;$y(x)$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$z(x)$&lt;/span&gt; are monotonically increasing (strictly) with respect to &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;, there cannot exists an &lt;span class=&quot;math-container&quot;&gt;$x^*$&lt;/span&gt; such that &lt;span class=&quot;math-container&quot;&gt;$y(x^*)+z(x^*)&amp;gt;y(x)+z(x)$&lt;/span&gt; for all &lt;span class=&quot;math-container&quot;&gt;$x\geq 0$&lt;/span&gt;. So the  statement is vacuously true.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The second observation seems correct to me.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In general, you could use the &lt;a href=&quot;https://en.wikipedia.org/wiki/Leibniz_integral_rule&quot; rel=&quot;nofollow noreferrer&quot;&gt;Leibniz rule&lt;/a&gt; to study the FOC's assuming the solution is interior. Note that your first inequality is not necessary for an interior solution. So the fact that it cannot occur does not mean there cannot be an interior solution.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note as well that even if &lt;span class=&quot;math-container&quot;&gt;$y(x)&amp;gt;\bar z$&lt;/span&gt; for some values of &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;, the solution can still be at &lt;span class=&quot;math-container&quot;&gt;$x=\infty$&lt;/span&gt; (assuming you can choose such a value of &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;, of course).&lt;/p&gt;&#xA;" OwnerUserId="21827" LastEditorUserId="21827" LastEditDate="2019-05-23T19:27:51.510" LastActivityDate="2019-05-23T19:27:51.510" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29487" PostTypeId="2" ParentId="29476" CreationDate="2019-05-23T22:39:28.410" Score="1" Body="&lt;p&gt;Suppose &lt;span class=&quot;math-container&quot;&gt;$L \succ_{FOSD} L'$&lt;/span&gt; and let &lt;span class=&quot;math-container&quot;&gt;$L$&lt;/span&gt; have CDF &lt;span class=&quot;math-container&quot;&gt;$F$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$L'$&lt;/span&gt; have CDF &lt;span class=&quot;math-container&quot;&gt;$G$&lt;/span&gt;.&#xA;That is, let &#xA;&lt;span class=&quot;math-container&quot;&gt;$$F(x) \leq G(x) \quad \forall x \quad \mbox{or} \quad 1-F(x) \geq 1-G(x) \quad \forall x. $$&lt;/span&gt;&#xA;Now consider two lotteries, one is &lt;span class=&quot;math-container&quot;&gt;$L'$&lt;/span&gt; and the other one is &lt;span class=&quot;math-container&quot;&gt;$L'$&lt;/span&gt; but instead of paying out &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; it pays out&#xA;&lt;span class=&quot;math-container&quot;&gt;$$y(x) = F^{-1}(G(x)) \geq x,$$&lt;/span&gt;&#xA;where the inequality follows by FOSD. That is, the lottery always pays out more. So everyone with an increasing utility function (more is better) prefers the second lottery. How are the payoffs from this lottery distributed?&#xA;&lt;span class=&quot;math-container&quot;&gt;$$Pr(y(X) \leq y) = Pr ( F^{-1}(G(X)) \leq y ) = Pr ( X \leq G^{-1}(F(y)))= &#xA;G(G^{-1}(F(y)))= F(y).$$&lt;/span&gt;&#xA;Thus,&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\mathbb E[u(L)]= \int u (y(x)) d F(y(x)) = \int u (y(x)) d G(x) &#xA;\geq \int u (x) d G(x) = \mathbb E[u(L')]$$&lt;/span&gt;&#xA;for any increasing &lt;span class=&quot;math-container&quot;&gt;$u$&lt;/span&gt; by the &lt;span class=&quot;math-container&quot;&gt;$y(x)\geq x$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The other direction would be that &lt;span class=&quot;math-container&quot;&gt;$\mathbb E[u(L)]\geq \mathbb E[u(L')]$&lt;/span&gt; for all increasing &lt;span class=&quot;math-container&quot;&gt;$u$&lt;/span&gt; implies &#xA;&lt;span class=&quot;math-container&quot;&gt;$L \succ_{FOSD} L'$&lt;/span&gt;. Let's show the equivalent statement that if &lt;span class=&quot;math-container&quot;&gt;$L$&lt;/span&gt; does not FOSD &lt;span class=&quot;math-container&quot;&gt;$L'$&lt;/span&gt;, then there is at least one increasing &lt;span class=&quot;math-container&quot;&gt;$\widetilde u$&lt;/span&gt; such that  &lt;span class=&quot;math-container&quot;&gt;$\mathbb E[\widetilde u(L)]&amp;lt; \mathbb E[\widetilde u(L')]$&lt;/span&gt;.&#xA;If there exists some &lt;span class=&quot;math-container&quot;&gt;$z$&lt;/span&gt; such that &lt;span class=&quot;math-container&quot;&gt;$1-F(z) &amp;lt; 1-G(z)$&lt;/span&gt;, then there is the increasing utility function&#xA;&lt;span class=&quot;math-container&quot;&gt;$$ \widetilde u (x) =\begin{cases}&#xA;1 \mbox{ if } x&amp;gt; z\\&#xA;0 \mbox{ if } x \leq z \end{cases}$$&lt;/span&gt;&#xA;such that&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\mathbb E[\widetilde u(L)]= 1-F(z)  &amp;lt; 1-G(z) = \mathbb E[\widetilde u(L')].$$&lt;/span&gt;&#xA;That's it.&lt;/p&gt;&#xA;" OwnerUserId="11590" LastActivityDate="2019-05-23T22:39:28.410" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29488" PostTypeId="1" AcceptedAnswerId="29526" CreationDate="2019-05-24T00:32:17.030" Score="1" ViewCount="70" Body="&lt;p&gt;I have read that the Independence of Irrelevant Alternatives axiom in expected utility theory implies the fact that compound lotteries are equally preferred to their reduced form simple lotteries. However, I am unable to prove this. I'm sure that the proof should be easy, but I just can't see it.&#xA;I read it here: &lt;a href=&quot;http://www.econport.org/content/handbook/decisions-uncertainty/basic/von.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.econport.org/content/handbook/decisions-uncertainty/basic/von.html&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="13883" LastEditorUserId="13883" LastEditDate="2019-05-24T00:39:39.907" LastActivityDate="2019-05-27T16:44:20.353" Title="Independence and Reduction Axioms" Tags="&lt;microeconomics&gt;&lt;expected-utility&gt;&lt;proof-reference&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29489" PostTypeId="2" ParentId="29481" CreationDate="2019-05-24T00:44:09.450" Score="1" Body="&lt;p&gt;Given that you have one value for this &lt;span class=&quot;math-container&quot;&gt;$M/N$&lt;/span&gt; allocation variable per individual, it can be considered a time-invariant explanatory variable.  If you estimate this model without including individual fixed effects (which control for all unobserved time-invariant differences between individuals), you will be estimating a pooled cross-section regression, which will allow you to get an estimate of &lt;span class=&quot;math-container&quot;&gt;$a_{1}$&lt;/span&gt; but which will ignore the panel dimension of your data.  As a result, the estimate of this coefficient and all other coefficients will be based on the assumption that the model applies in the same manner to every individual (individuals are not unique) and that there are no effects across time.  (You could include dummy variables for each year in the model and do a joint test on those dummies to see if the assumption about the effect of time is valid, though you would not be able to include any other variables that vary only over time.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you, however, wanted to estimate a fixed effects model because you thought that there are unique attributes of individuals that do not vary across time (in other words, you thought that outcomes of the same individual were correlated in different periods), you would not be able to use this kind of time-invariant explanatory variable in the model.  This is because in a fixed effects model, coefficients are identified using only variation over time within each individual.  So if a variable varies only across individuals, but not over time, then its effects cannot be identified at all in a fixed-effects model.&lt;/p&gt;&#xA;" OwnerUserId="21454" LastActivityDate="2019-05-24T00:44:09.450" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29490" PostTypeId="2" ParentId="29473" CreationDate="2019-05-24T06:35:15.777" Score="4" Body="&lt;p&gt;In addition to (intertemporal) price discrimination, there's a parallel process of ramping up production. Especially with tech products, they can have bugs at the beginning, even with all the precautions during design/prototyping. So a massive launch at high production volume is more risky. (Lower production volume also implies higher unit price; see economies of scale.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you look how chipmakers tier their products, they almost always launch a flagship first, which usually high price and small market, then the tech &quot;trickles down&quot; to a more mass-market product (that usually has lower specs than the flagship). But as this mass-market product takes hold it also lowers the appeal of the flagship somewhat. So it is a more complicated process if you consider the company's entire product range than just a single (flagship) product.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the first issue; I could locate some (fairly cited) &quot;seminal&quot; literature; but there's a lot of it out there--the topic has been massively researched:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Stokey, Nancy L. 1979. &quot;Intertemporal Price Discrimination.&quot; Quarterly Journal of Economics 94:355-71.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;This paper covers both the basic case of heterogeneous consumers and the case when production unit cost falls over time, but it doesn't cover stuff like incomplete information or self-competition from alternative products.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As an aside, even temporary (&quot;sales&quot;/discount) low prices are related to the same issue of intertemporal price discrimination; see&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Sobel, J., 1984. &quot;The timing of sales.&quot; The Review of Economic Studies 51, 353–368.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Another fairly cited theoretical paper is &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Besanko, D. &amp;amp; Winston, W. (1990), &quot;Optimal Pricing Skimming by a Monopolist Facing Rational Consumers&quot;, Management Science 36(5), 555-567&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;It assumes that the producer doesn't know apriori the value that consumers attach to a product and that consumers anticipate future price drops, so there's an iterated game being played in which the producer discovers the prices that consumers are willing to pay. This model also leads to an optimal strategy of decreasing price over time, but with lesser profits for the producer than in more simplistic models.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since I couldn't find an applied paper on actual devices (insofar), from an &lt;a href=&quot;https://econpapers.repec.org/RePEc:kap:qmktec:v:5:y:2007:i:3:p:239-292&quot; rel=&quot;nofollow noreferrer&quot;&gt;2004/2006 applied paper&lt;/a&gt; on console video-games, which formulated a model inspired from actual strategies of producers, in which competition is apparently not much of a concern due to apparently weak substitutability of video game titles, and in which the unit production cost doesn't really change over time, but capturing the price premium from &quot;hardcore&quot; games is important. The model this paper uses is a more elaborate version of the Besanko &amp;amp; Winston model, but here is their empirical justification for applying such a model:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;All video-games exhibit&#xA;  consistent patterns of price cutting from their times of introduction. Our interviews with managers&#xA;  in the industry revealed that much of the motivation for this price cutting arises from the desire to&#xA;  sell to the segment of high valuation “hardcore gamers” initially, and to cut prices over time to sell to&#xA;  the “mass market”. This closely parallels the price discrimination incentive. On the cost-side,&#xA;  production of video-games is characterized by a constant marginal cost structure. Marginal costs&#xA;  correspond to royalty fees paid by the game manufacturer to the hardware console manufacturer (i.e.&#xA;  Sony), and also the costs of producing and packaging each CD-ROM title, both of which were&#xA;  constant over the time-period of the data. Hence, falling marginal costs are unlikely to be an issue in&#xA;  pricing over time. Further, competition from other games is also unlikely to be driving force behind&#xA;  falling prices. Given the large number of games in the market (over 600 for the Sony Playstation&#xA;  alone), and the fairly unique characteristics of each game, we find video-games to be weak substitutes for each other. The observed price data also reveal that the rates at which prices fall are&#xA;  not explained by competitive conditions in the market, a feature corroborated by managers in the&#xA;  industry. Hence, this industry forms an almost ideal setting to study the value of intertemporal&#xA;  price discrimination policies in practice. Given the features of our empirical application, we work&#xA;  with a monopolistic model of pricing that ignores competitive considerations.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;[...] We learned that the typical rules-of-thumb used for pricing share&#xA;  many similarities to our model. First, estimates are used to assess the evolution in the size of the&#xA;  potential market. Our interviews also revealed that managers revise game-prices periodically,&#xA;  cutting prices if sales are low, and keeping prices high if realized sales are high. We interpret this&#xA;  heuristic as indicating that the total sales of the game is an important state variable for the firm’s&#xA;  pricing decision. This is roughly consistent with the model since the theoretical state variables, the&#xA;  segment sizes, are a function of cumulative sales of the game until that time period. The model&#xA;  assumes that managers know the distribution of consumer types and can, therefore, translate the&#xA;  observed sales of the game into segment sizes, which form the “payoff relevant” state variables for&#xA;  the pricing decision. Managers are also aware that high willingness-to-pay “hardcore gamers”&#xA;  sustain initial high prices, which have to be lowered once the game becomes “main-stream”. This adherers to the notion of price discrimination over time. As a reviewer pointed out, this heuristic&#xA;  thumb-rule for price cutting is also consistent with managers cutting prices to reflect lower&#xA;  valuations of consumers for older games. To the extent that such “novelty” effects are common across&#xA;  segments, these are captured by our model via the game-specific shocks to utility [...].&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;A relevant question here is whether it is the retailer, rather than the manufacturer (as in our&#xA;  model), that is initiating the observed price-cuts in the data. For instance, it could be that wholesale&#xA;  prices from the manufacturer are constant, and the retailer is cutting prices over time due to reasons&#xA;  unrelated to intertemporal price discrimination. For example, falling retail prices could arise from&#xA;  retailers rapidly clearing inventory of low-selling games to free up shelf-space for new releases. Our&#xA;  interviews with managers in the industry however, indicated that game manufacturers do&#xA;  periodically initiate cuts to wholesales prices, which are mostly passed through to consumers by&#xA;  retailers. Further, we found that the industry typically implements excess inventory return policies&#xA;  within the manufacturer-retailer channel, whereby retailers can return unsold stocks of games back&#xA;  to the manufacturer, making retail price-cutting to clear inventory a less compelling explanation.&#xA;  Nevertheless, in the absence of retail-level inventory data, we are unable to rule out this explanation&#xA;  completely.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Devices however aren't as unsubstituitable as video games. There exist fairly &#xA;sophisticated models (based on optimal stopping) of demand segmentation; e.g.&#xA;I found an &lt;a href=&quot;https://doi.org/10.1111/j.1465-7295.2012.00501.x&quot; rel=&quot;nofollow noreferrer&quot;&gt;analysis of the PC printer market&lt;/a&gt; from this perspective, which assumes that the prices fall exogenously (from the consumer perspective). But apparently the problem gets fiendishly complicated when such consumer models (i.e. with partially substitutable products along multiple dimensions) have to be combined with (iterated) supply-side price models; insofar I haven't found a paper that analyzes supply and pricing in the context of more complex demand models like this...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;According to a &lt;a href=&quot;https://doi.org/10.1287/educ.1053.0019&quot; rel=&quot;nofollow noreferrer&quot;&gt;2005 review by Ryzin and Talluri&lt;/a&gt; (which summarizes the theoretical works I mentioned above in more technical terms, so it's a good read in that respect)&#xA;there was not much research on dynamic price models for multiple (competing) products; they only point out to &lt;a href=&quot;https://doi.org/10.1287/mnsc.1030.0147&quot; rel=&quot;nofollow noreferrer&quot;&gt;one such (2004) paper&lt;/a&gt; on airfare pricing (by the same authors), in which the competing products are different classes (economy vs business).  Also, airfares generally see a different intertemporal price discrimination pattern (relative to durable goods) with the price for a given airfare generally increasing over time due to business customers making last minute reservations/decisions. They also mentioned that multiple-product models are apparently very sensitive to the substitution function, so difficult to generalize. There was also no specific research mentioned on dynamic pricing oligopoly models, but an opinion piece was cited that such models might not even be too useful since the rational-behavior expectation might not hold for (a small number of) competitors; so monopoly models were the staple of dynamic pricing research up to that date. I haven't found a more recent review insofar.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;The 1972 Coase conjecture (negative result), which Ubiquitous highlighted can indeed be consider seminal in the sense that it spurred the research on actual dynamic pricing models that do allow for the price discrimination that is often seen in practice; e.g. &lt;a href=&quot;https://www.springer.com/gp/book/9780387980188&quot; rel=&quot;nofollow noreferrer&quot;&gt;one book&lt;/a&gt; said&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The seminal work on inter-temporal&#xA;  sales is Coase (1972) which demonstrates that, given a durable product with an&#xA;  infinite number of selling opportunities over time, a monopolist will eventually&#xA;  decrease a product’s price to its marginal cost because consumers will anticipate&#xA;  this decrease and will wait for discounts (the famous Coase conjecture). Numerous&#xA;  papers that followed laid out conditions in which the Coase conjecture may not&#xA;  hold (Stokey 1979, Besanko and Winston 1990, and DeGraba 1995).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The first two of these I've already mentioned above. The &lt;a href=&quot;https://www.jstor.org/stable/2555920&quot; rel=&quot;nofollow noreferrer&quot;&gt;DeGraba paper&lt;/a&gt; is about the producer creating an artificial shortage in the first period. This strategy is also considered relevant to the consumer electronics and related (e.g. gaming) industries; the DeGraba paper exemplified it with some console videogames shortage at launch. In the (simplest) DeGraba model of buying frenzy, with a limited total number of potential customers (&lt;em&gt;n&lt;/em&gt;):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;the monopolist wants to sell to customers when they&#xA;  are uninformed, because all uninformed customers have the same valuation for the good (equal to the common expected valuation). Thus, a single price could capture all of this willingness to pay from &lt;em&gt;n&lt;/em&gt; - 1 customers. Once customers become informed they no&#xA;  longer have homogeneous valuations, so the potential to capture all of this surplus with&#xA;  a single price vanishes.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;More &lt;a href=&quot;https://doi.org/10.1111/poms.12394&quot; rel=&quot;nofollow noreferrer&quot;&gt;recent works&lt;/a&gt; on buying frenzies exemplify them with Apple products (at launch). More generally the reason for the frenzy (for a rational consumer and in a dynamic [at least two-period] pricing model) is&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;buying frenzies occur when customers are sufficiently uncertain about their valuations of the product and when they discount the future sufficiently but not excessively.  [...] such frenzies can have a significantly positive&#xA;  effect on firm profits and partially recover the loss due to non-commitment to future prices. [...]&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;If customers are relatively informed about the product&#xA;  and do not value the waiting option, the firm does&#xA;  not have any incentives to ration demand. Buying&#xA;  frenzies are more likely to occur when customers are&#xA;  initially uncertain about their preferences for the&#xA;  product and benefit from waiting to learn their preferences.&#xA;  Such uncertainty is more likely with respect to&#xA;  an innovative product that will match the needs of&#xA;  some customers but not others which may explain&#xA;  why frenzies are common for new electronic products&#xA;  (e.g., the iPhone) than for similar, “me too” products&#xA;  (e.g., Android phones) that are released later. It is&#xA;  therefore reasonable to assume that customers have&#xA;  more uncertainty about new products than about&#xA;  knockoffs produced later.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;There also some alternative behavioral-economics models for buying frenzies, which don't assume full rationality from the consumer. One of these, &lt;a href=&quot;http://faculty.london.edu/nsavva/StockOuts_Nov2015.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Papanastasiou  et al.&lt;/a&gt; observes that&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;scarcity strategies appear to be employed even when prices are fixed&#xA;  and availability in the long-term is ample&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In their Bayesian-learning model (of consumers)&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;[induced] product scarcity may act as an effective substitute for dynamic pricing, allowing the firm to approximate dynamic-pricing outcomes while charging a fixed price&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So it seems controversial that [producer induced] buying frenzies are (always) related to later price drops... which is why I left this issue for the end.&lt;/p&gt;&#xA;" OwnerUserId="6210" LastEditorUserId="6210" LastEditDate="2019-05-24T13:26:19.277" LastActivityDate="2019-05-24T13:26:19.277" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29491" PostTypeId="2" ParentId="29473" CreationDate="2019-05-24T07:25:39.430" Score="4" Body="&lt;p&gt;I want to flesh out the answers from Alecos Papadopoulos and Bill Clark to make sure it's clear why a firm might want to reduce prices over time—known as intertemporal price discrimination.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose there are two groups of potential customers: enthusiasts (who love the product) and laymen (who aren't very interested in the product). Enthusiasts are willing to pay \$800; laymen are only willing to pay \$600. Suppose there are 100 consumers in each group.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Uniform price&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What would happen if the firm sets a single price, &lt;span class=&quot;math-container&quot;&gt;$p$&lt;/span&gt;, that doesn't vary over time?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If &lt;span class=&quot;math-container&quot;&gt;$p$&lt;/span&gt; is low enough then both groups of consumer are willing to buy, so the seller would earn &lt;span class=&quot;math-container&quot;&gt;$200p$&lt;/span&gt;. The highest such price is &lt;span class=&quot;math-container&quot;&gt;$p=600$&lt;/span&gt;, so the seller would earn &lt;span class=&quot;math-container&quot;&gt;$600\times200=120,000$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Alternatively, the seller could choose a higher price such that the enthusiasts would still be willing to buy, but the laymen would not. The seller then serves only 100 consumers and the highest such price is &lt;span class=&quot;math-container&quot;&gt;$p=800$&lt;/span&gt; The most the seller could make would therefore be &lt;span class=&quot;math-container&quot;&gt;$800\times 100=80,000$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Conclusion so far: if the firm were to set a single constant price, the best price would be a fairly low one (\$600) to serve the whole market.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Intertemporal discrimination&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Notice that if the firm sets a price of \$600 then it is leaving money on the table because the enthusiasts would have been willing to pay more.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This means that the firm might be able to do better by changing its price over time. Suppose the firm sets two prices: in year one the price is &lt;span class=&quot;math-container&quot;&gt;$p_1=800$&lt;/span&gt; and in year two the price is &lt;span class=&quot;math-container&quot;&gt;$p_2=600$&lt;/span&gt;. The laymen certainly won't buy in year one because the price is too high. But if the enthusiasts buy in year one and the laymen buy in year two then the firm earns &lt;span class=&quot;math-container&quot;&gt;$(100\times 800)+(100\times 600)=140,000$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is higher than the maximum achievable with a uniform price (120,000). Intertemporal price discrimination allows the firm to earn more than even the best uniform price because it allows the firm to charge a high price to those willling to pay a lot and a lower price to those willing to pay less.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;There's a major &lt;em&gt;but&lt;/em&gt; here: for the intertemporal discrimination scheme to work, the enthusiasts have to buy in year one. But if they are smart and figure out that the price will be reduced in the future, why don't they just wait until they can buy at a lower price (this issue is known as &lt;a href=&quot;https://en.wikipedia.org/wiki/Coase_conjecture&quot; rel=&quot;nofollow noreferrer&quot;&gt;the Coase Conjecture&lt;/a&gt;). There are various possible answers, but one that often seems quite plausible is simply that people are impatient. So long as enthusiasts are at least a little bit impatient, they would rather buy at a high price now than wait for a price cut that might not come for months. Then, if the firm can commit not to cut its price immediately it will be able to sell to enthusiasts at a higher price by exploiting their unwillingness to wait. You can read about other ways out of the Coase conjecture &lt;a href=&quot;https://vita.mcafee.cc/Bin/Pricing/Handout5.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lastly, I picked a simple example with (only) two types of consumer and known willingness to pay to keep things simple. But this idea is remarkably general.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2019-05-24T07:25:39.430" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29492" PostTypeId="2" ParentId="29485" CreationDate="2019-05-24T09:14:50.023" Score="1" Body="&lt;p&gt;On income distribution, there is the &lt;a href=&quot;https://wid.world/&quot; rel=&quot;nofollow noreferrer&quot;&gt;World Inequality Database&lt;/a&gt;. On poverty, the &lt;a href=&quot;http://iresearch.worldbank.org/PovcalNet/povOnDemand.aspx&quot; rel=&quot;nofollow noreferrer&quot;&gt;World Bank&lt;/a&gt; provides lots of comparable figures, although I believe these are the same data as in gapminder. &lt;/p&gt;&#xA;" OwnerUserId="17735" LastEditorUserId="17735" LastEditDate="2019-06-14T08:37:09.927" LastActivityDate="2019-06-14T08:37:09.927" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29494" PostTypeId="1" CreationDate="2019-05-24T12:23:52.287" Score="1" ViewCount="117" Body="&lt;p&gt;This is a sightly unconventional question, but I want to know whether marketing efforts can be considered as a factor of production. After all, if no one knows about your product, you can't make a profit. Also, marketing efforts may, in some or most cases, show diminishing returns. It is a kind of labor.&lt;/p&gt;&#xA;" OwnerUserId="5591" LastActivityDate="2019-05-24T13:24:59.147" Title="Can marketing efforts be considered to be a factor of production?" Tags="&lt;microeconomics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29496" PostTypeId="2" ParentId="29494" CreationDate="2019-05-24T12:41:07.543" Score="0" Body="&lt;p&gt;Why not? Production factors include any human input by definition, and thus marketing efforts are included, needless to say.&lt;/p&gt;&#xA;" OwnerUserId="23172" LastActivityDate="2019-05-24T12:41:07.543" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29497" PostTypeId="2" ParentId="29494" CreationDate="2019-05-24T13:24:59.147" Score="2" Body="&lt;p&gt;Marketing is obviously relevant. We can observe that firms spend money on marketing. If it had no effect, they wouldn't do it. Whether it is a &quot;factor of production&quot; depends on your definition. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In my book, a factor of production is any input that &lt;em&gt;directly&lt;/em&gt; contributes to the production (creation) of the good or service. That is, it enters some production function &lt;span class=&quot;math-container&quot;&gt;$f$&lt;/span&gt; that maps &quot;factors of production&quot; into &quot;output&quot;, a quantity of the produced good. In that sense, marketing is &lt;em&gt;not&lt;/em&gt; a factor of production, because it has no &lt;em&gt;direct&lt;/em&gt; effect on how many goods are produced. In my eyes, marketing is supposed to influence the &lt;em&gt;demanded&lt;/em&gt; quantity, not the produced quantity. Of course the two are related, but not directly.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.cambridge.org/us/academic/subjects/economics/industrial-economics/industrial-organization-markets-and-strategies-2nd-edition&quot; rel=&quot;nofollow noreferrer&quot;&gt;Belleflamme and Peitz&lt;/a&gt; have a nice subsection on adverstising (6.1), where they discuss three distinct aspects of how advertising (which I use synonomously with marketing) affects demand: it can be persuasive, informative or complimentary. Such a distinction matters, because the welfare effects differ. For instance, informative ads may increase welfare as consumers can make better-informed choices, whereas persuasive ads may decrease welfare as it distorts consumers' real preferences.&lt;/p&gt;&#xA;" OwnerUserId="11590" LastActivityDate="2019-05-24T13:24:59.147" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29498" PostTypeId="2" ParentId="29475" CreationDate="2019-05-24T14:31:18.793" Score="0" Body="&lt;p&gt;It seems that you have firm-level panel data over multiple industries in multiple countries.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Year fixed effects&lt;/em&gt; control for trends. Do not omit them. For others, a general rule is: ___ FE's control for time-invariant heterogeneity across different ____, but do not control for heterogeneity within the same ____. You replace ____ with &quot;firm&quot;, &quot;industry&quot;, &quot;country&quot;, &quot;industry-country&quot;, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Firm FE's successfully control for all firm-level time-invariant effects that are possibly correlated with the RHS variables. So you compare different years within the same firm. In contrast, industry FE's control for time-invariant effects (that are possibly correlated with the RHS variables) across different industries, but do not control for firm-level heterogeneity (fixed effects) within the same industry. And so on. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I personally think a model with firm FE (and year effects) is easiest to defend using. If you can explain why firms within the same industry are homogenous, you can use industry FE, etc.&lt;/p&gt;&#xA;" OwnerUserId="10775" LastActivityDate="2019-05-24T14:31:18.793" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29499" PostTypeId="2" ParentId="27889" CreationDate="2019-05-24T18:07:29.943" Score="1" Body="&lt;p&gt;Models have been constructed that show, at least, how discrimination can rationally self-perpetuate.  For instance, in &lt;em&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/The_Elusive_Quest_for_Growth&quot; rel=&quot;nofollow noreferrer&quot;&gt;The Illusive Quest for Growth&lt;/a&gt;&lt;/em&gt;, &lt;a href=&quot;https://en.wikipedia.org/wiki/William_Easterly&quot; rel=&quot;nofollow noreferrer&quot;&gt;William Easterly&lt;/a&gt; describes a model in which employers maintain discrimination through rational expectations, implying that government policy is needed to disturb the perverse equilibrium (&lt;a href=&quot;https://abridge.me.uk/doku.php?id=the_elusive_quest_for_growth#increasing_returnsleaks_matches_and_traps&quot; rel=&quot;nofollow noreferrer&quot;&gt;paraphrased&lt;/a&gt; from &quot;Increasing Returns: Leaks, Matches and Traps&quot;):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Easterly extends this idea of traps to explain variation in income by geography and race purely on the basis of a difference of initial conditions, because under increasing returns variation tends to be self-reinforcing. He proposes a race model in which whites begin as high-skill and blacks low-skill. If there is any segregation in economic enterprise between the races then it may be rational for whites to seek education and blacks to not. Furthermore, if there are costs associated with uncovering the true educational level of a particular worker, it may be rational for a white employer to only select whites rather than pay to discover the true educational level, on the basis that the probability that a white is high-skill is high, and for a black, it is low. If white employers are known to use this policy, then it will be rational for whites to pursue education and for blacks not to: even without a legal or geographical divide, the perpetuation of a racial income disparity can be rationally self-reinforcing.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="16631" LastEditorUserId="4816" LastEditDate="2019-06-10T21:31:36.663" LastActivityDate="2019-06-10T21:31:36.663" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29501" PostTypeId="1" CreationDate="2019-05-24T20:16:31.033" Score="1" ViewCount="444" Body="&lt;p&gt;I built an Input-Output table (IOT) with the industryXindustry format because I thought it was a building block to build a social accounting matrix (SAM). But now I realize that I can't transpose the data from the IOT into the SAM because the SAM requires an industryXcommodity format and does not support industryXindustry or commodityXcommodity flows. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the question is, how am I supposed to transfer data from the IOT to the SAM? They are supposed to be one of the main sources of information to build a SAM...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Many thanks!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sarah&lt;/p&gt;&#xA;" OwnerUserId="23243" LastActivityDate="2020-06-19T01:05:25.437" Title="How to build a Social Accounting Matrix from an Input-Output Table?" Tags="&lt;input-output&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29502" PostTypeId="1" AcceptedAnswerId="29520" CreationDate="2019-05-24T22:27:39.257" Score="1" ViewCount="119" Body="&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\succsim$&lt;/span&gt; is a weak order over &lt;span class=&quot;math-container&quot;&gt;$\mathbb R^L$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a closed budget set &lt;span class=&quot;math-container&quot;&gt;$B\subset\mathbb R^L$&lt;/span&gt;, define demand correspondence: &lt;span class=&quot;math-container&quot;&gt;$$D(B)=\{x\in B|x\succsim y\forall y\in B\}$$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We know that &lt;span class=&quot;math-container&quot;&gt;$D$&lt;/span&gt; is always none empty and both upper and lower hemi-continuous, can we conclude that &lt;span class=&quot;math-container&quot;&gt;$\succsim$&lt;/span&gt; is continuous? Can we conclude that &lt;span class=&quot;math-container&quot;&gt;$D$&lt;/span&gt; is rationalizable by a utility function?&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;My approach: For the first question, I guess we can first show that &lt;span class=&quot;math-container&quot;&gt;$D$&lt;/span&gt; is rationalizable by a utility function &lt;span class=&quot;math-container&quot;&gt;$u$&lt;/span&gt;. Secondly, since &lt;span class=&quot;math-container&quot;&gt;$D$&lt;/span&gt; is continuous, &lt;span class=&quot;math-container&quot;&gt;$u$&lt;/span&gt; must be continuous, and &lt;span class=&quot;math-container&quot;&gt;$\succsim$&lt;/span&gt; is continuous. But I doubt this approach will work, because the second step seems not work.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the second part, if &lt;span class=&quot;math-container&quot;&gt;$\succsim$&lt;/span&gt; is continuous then it is represented by a continuous utility function. Even if &lt;span class=&quot;math-container&quot;&gt;$\succsim$&lt;/span&gt; is not continous, it must be upper-semi continuous and we can still find a upper semi-continuous utility rationalization for &lt;span class=&quot;math-container&quot;&gt;$D$&lt;/span&gt; by Rader theorem.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;We could consider a simpler version of the problem: Let the demand function be continuous, is the preference relation also continuous? (This is proved by Mas-Colell in 1978, I think)&lt;/p&gt;&#xA;" OwnerUserId="13381" LastEditorUserId="13381" LastEditDate="2019-05-26T19:26:06.617" LastActivityDate="2019-05-26T19:26:06.617" Title="Demand correspondence is both upper and lower hemi-continuous; is the preference continuous?" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;preferences&gt;&lt;decision-theory&gt;&lt;rationality&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29503" PostTypeId="1" AcceptedAnswerId="29507" CreationDate="2019-05-25T13:34:02.907" Score="1" ViewCount="498" Body="&lt;p&gt;So i have this information:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose that 60% of your portfolio is invested in Johnson &amp;amp; Johnson (JNJ) and the remainder is invested in Ford. You expect that over the coming year JNJ will give a return of 8% and Ford, 18.8%. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then I know that expected return on the portfolio is simply a weighted average of the expected returns on the individual stocks:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Expected portfolio return = (.60 × 8) + (.40 × 18.8) = 12.3%&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, then the book says:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We said earlier that if the two stocks were perfectly correlated, the standard deviation of the portfolio would lie 40% of the way between the standard deviations of the two stocks.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There have been no other calculations on the book and only after this statement should i start the calculations in order to understand the portfolio risk.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can somebody please tell me where this 40% is coming from ? Thanks!&lt;/p&gt;&#xA;" OwnerUserId="21642" LastActivityDate="2019-05-26T00:25:25.913" Title="How to calculate standard deviation of a portfolio?" Tags="&lt;stock-market&gt;&lt;bonds&gt;&lt;portfolio-theory&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29504" PostTypeId="2" ParentId="28972" CreationDate="2019-05-25T15:29:45.530" Score="3" Body="&lt;p&gt;This is not an issue of &quot;established practice&quot;, but of methodological and conceptual consistency.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In theoretical models, for &quot;real&quot; magnitudes we write, say &lt;span class=&quot;math-container&quot;&gt;$W_R = W_N/P$&lt;/span&gt; where &lt;span class=&quot;math-container&quot;&gt;$P$&lt;/span&gt; is the &quot;price index&quot; and we're done.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But in reality, in order to obtain an actual &lt;em&gt;value&lt;/em&gt; for this price index (and hence also of inflation), we must specify a &lt;em&gt;base period&lt;/em&gt;, against which we will evaluate the price index for the other periods (past and future). This in practice means that we set the value of the price index at the base period equal to &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt; (or &lt;span class=&quot;math-container&quot;&gt;$100$&lt;/span&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the OP's example, the base period is 2010, since they want to express a 2008 amount in &quot;2010 dollars&quot;. Let's see then:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &quot;start period inflation&quot; is an indication of how much prices increased in 2008 compared to 2007. This cannot be relevant to the task at hand. We are examining the relation between 2008 and 2010, the year 2007 is out of the picture.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So &lt;strong&gt;conclusion 1: &quot;Start period inflation&quot; is NEVER included in the calculations.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This immediately eliminates the first two possibilities stated by the OP, as being wrong.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then the issue is, do we include &quot;end-period inflation&quot;? In our example, end period inflation is how much prices increased in 2010 compared to 2009. This is certainly relevant to the task at hand, because we are examining the evolution from 2008 to 2010, and 2009 lies inside.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So &lt;strong&gt;conclusion 2: &quot;end period inflation&quot; is ALWAYS included in the calculations.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Combined the two conclusions, tell us that &quot;possibility 3&quot; is what should and is being used.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And it is also evidently logical, because, in order to have the same purchasing power in 2010 as in 2008, we want to cover for the prices increases that happened in 2009 compared to 2008, and the price increases that happened in 2010 compared to 2009.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2019-05-25T15:29:45.530" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29506" PostTypeId="2" ParentId="29501" CreationDate="2019-05-25T23:46:13.177" Score="1" Body="&lt;p&gt;IOTs are usually derived from Supply and Use tables, which have an industry by commodity format.  If you used these to derive your IOT, then you can use those to build your SAM, though note you need both the Supply AND Use tables for this. You end up with something that looks roughly like what you see on slide 7 &lt;a href=&quot;https://www.un.org/en/development/desa/policy/capacity/presentations/manila/6_sam_mams_philippines.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; - with both commodity and activity (industry) rows and commodity and activity columns in your SAM.  If you have the data to support it, this is probably the preferred way to go about structuring a SAM.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, if you only have an industry by industry IOT, you can still build a SAM from that (with additional data from the country's National Accounts or another source), and this approach is far from uncommon.  Instead of having separate activity and commodity rows and columns, you'll only have activity rows and columns, but you can still construct a SAM (though you may have to combine some of the non-IOT cells in your SAM to get the structure to work).  As an example to hand, &lt;a href=&quot;https://www.strath.ac.uk/media/departments/economics/fairse/Social_Accounting_Matrix_for_Scotland.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; is a paper outlining the construction of a SAM for Scotland using an industry by industry format (as Scotland is a part of the UK, it also shows an approach to constructing a SAM using estimates when full National Accounts data outside the IOT are not available).&lt;/p&gt;&#xA;" OwnerUserId="5550" LastActivityDate="2019-05-25T23:46:13.177" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29507" PostTypeId="2" ParentId="29503" CreationDate="2019-05-26T00:25:25.913" Score="1" Body="&lt;p&gt;You could say the return on Johnson &amp;amp; Johnson is a random variable &lt;span class=&quot;math-container&quot;&gt;$R_J$&lt;/span&gt; with expected value &lt;span class=&quot;math-container&quot;&gt;$\mu^{\,}_J$&lt;/span&gt; and variance &lt;span class=&quot;math-container&quot;&gt;$E[(R_P-\mu^{\,}_P)^2] = \sigma^2_J$&lt;/span&gt;, and on Ford is &lt;span class=&quot;math-container&quot;&gt;$R_F$&lt;/span&gt; with expected value  &lt;span class=&quot;math-container&quot;&gt;$\mu^{\,}_F$&lt;/span&gt; and variance &lt;span class=&quot;math-container&quot;&gt;$E[(R_F-\mu^{\,}_F)^2] = \sigma^2_F$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$R_J$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$R_F$&lt;/span&gt; perfectly correlated means &lt;span class=&quot;math-container&quot;&gt;$\frac{\mathbb E[(R_J-\mu^{\,}_J)(R_F-\mu^{\,}_F)]}{\sigma^{\,}_J\,\sigma^{\,}_F}=1$&lt;/span&gt; so &lt;span class=&quot;math-container&quot;&gt;$\mathbb E[(R_J-\mu^{\,}_J)(R_F-\mu^{\,}_F)] = \sigma^{\,}_J\sigma^{\,}_F$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now consider your portfolio &lt;span class=&quot;math-container&quot;&gt;$60\%$&lt;/span&gt; Johnson &amp;amp; Johnson and &lt;span class=&quot;math-container&quot;&gt;$40\%$&lt;/span&gt; Ford.  It has return &lt;span class=&quot;math-container&quot;&gt;$R_P= 0.6 R_J +0.4 R_F$&lt;/span&gt; with expected value &lt;span class=&quot;math-container&quot;&gt;$\mu^{\,}_P= 0.6 \mu^{\,}_J +0.4 \mu^{\,}_F$&lt;/span&gt; by linearity of expectation, so the actual return and expected return are &lt;span class=&quot;math-container&quot;&gt;$40\%$&lt;/span&gt; of the way from the corresponding figures for Ford to the figures for Johnson &amp;amp; Johnson&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now consider the variance of the return on the portfolio &lt;span class=&quot;math-container&quot;&gt;$$\sigma^2_P = \mathbb E[(R_P-\mu^{\,}_P)^2] \\= \mathbb E[(0.6 (R_J-\mu^{\,}_J) +0.4 (R_F-\mu^{\,}_F))^2] \\ = 0.6^2 \sigma^2_J +2\times  0.6 \times 0.4 \sigma^{\,}_J\,\sigma^{\,}_F + 0.4^2 \sigma^2_F \\= (0.6 \sigma^{\,}_J + 0.4 \sigma^{\,}_F)^2 $$&lt;/span&gt;&#xA;so taking square roots gives &lt;span class=&quot;math-container&quot;&gt;$\sigma^{\,}_P = 0.6 \sigma^{\,}_J + 0.4 \sigma^{\,}_F$&lt;/span&gt;, i.e. the standard deviation of the return on the portfolio is  again &lt;span class=&quot;math-container&quot;&gt;$40\%$&lt;/span&gt; of the way from the corresponding figure for Ford to the figure for Johnson &amp;amp; Johnson&lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2019-05-26T00:25:25.913" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29508" PostTypeId="1" AcceptedAnswerId="29519" CreationDate="2019-05-26T07:39:35.510" Score="0" ViewCount="86" Body="&lt;p&gt;&lt;strong&gt;Problem&lt;/strong&gt;: According to Wulf Gaertner’s (2009, p. 13) &lt;em&gt;A Primer in Social Choice Theory&lt;/em&gt;, any strictly increasing transformation of an individual’s ordinal utility function is informationally equivalent. He says that: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;“The only thing which matters in terms of available information is&#xA;  whether, say, commodity bundle &lt;span class=&quot;math-container&quot;&gt;$a$&lt;/span&gt; is preferred to or indifferent to or&#xA;  dispreferred to commodity bundle &lt;span class=&quot;math-container&quot;&gt;$b$&lt;/span&gt; or, expressed in terms of utility&#xA;  indices, whether &lt;span class=&quot;math-container&quot;&gt;$a$&lt;/span&gt; has a higher or equally high or lower utility index&#xA;  than &lt;span class=&quot;math-container&quot;&gt;$b$&lt;/span&gt;.”&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This makes sense, however, when I looked up the definition of a `strictly increasing function/transformation’ I became confused regarding how this would allow one to represent cases of indifference as well as cases of strict preference.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ken Binmore’s (1983, p. 109) &lt;em&gt;Mathematical Analysis: A Straightforward Approach&lt;/em&gt; formally defines an increasing and strictly increasing function as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Increasing function: &lt;span class=&quot;math-container&quot;&gt;$\forall x,y \in X: (x &amp;gt; y) \Longrightarrow ( \ f(x) \geq f(y) \ )$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Strictly increasing function: &lt;span class=&quot;math-container&quot;&gt;$\forall x,y \in X: (x &amp;gt; y) \Longrightarrow ( \ f(x) &amp;gt; f(y) \ )$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So a strictly increasing transformation in utility terms–––for individual &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;–––would (I think) be defined formally as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Strictly increasing transformation: &lt;span class=&quot;math-container&quot;&gt;$\forall x,y \in X: ( \ u_i(x) &amp;gt; u_i(y) \ ) \Longrightarrow ( \ f(u_i(x)) &amp;gt; f(u_i(y)) \ )$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But, since this is defined solely in terms of strict inequality (&lt;span class=&quot;math-container&quot;&gt;$ \ u_i(x) &amp;gt; u_i(y) \ $&lt;/span&gt;) I’m confused as to how this can allow for cases where an individual is indifferent between two alternatives: &lt;span class=&quot;math-container&quot;&gt;$xI_iy = ( \ u_i(x) = u_i(y) \ )$&lt;/span&gt;. Or cases of three or more alternatives where &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; strictly prefers some and is indifference regarding others: e.g. &lt;span class=&quot;math-container&quot;&gt;$ ( \ u_i(x) = u_i(y) \ ) &amp;gt; u_i(z) $&lt;/span&gt;. Wouldn’t these be ordering cases, where the orderings are not characterised by strict inequality of utilities?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Duplication information:&lt;/strong&gt; I am aware that a question very similar to this has been asked before by Eric '3ToedSloth' (&lt;a href=&quot;https://economics.stackexchange.com/questions/18373/ordinal-utility-and-monotonic-transformations&quot;&gt;Ordinal utility and monotonic transformations&lt;/a&gt;). Eric '3ToedSloth'’s question was focused on the definitions of both ordinal-scaled utility functions and monotone transformations. He also mentioned the difficulty of representing indifference. The reason that I have asked this question is that the accepted answer (by 201p) was focused on answering the question by showing that increasing (/weakly monotone) transformations destroy ordering information, rather than the issue which I am most confused about: how ordinal utility functions (defined in terms of strictly increasing transformations) can represent indifference. (There is a chance that 201p’s answer did cover this, but I am too stupid to be able to see it). Ideally I would have posed this as a clarificatory comment, but I lack the reputation level to post one. I am happy for my question to be closed if the community thinks it is too similar :).&lt;/p&gt;&#xA;" OwnerUserId="18988" LastEditorUserId="18988" LastEditDate="2019-05-26T15:17:24.183" LastActivityDate="2019-05-26T16:59:50.030" Title="If an ordinal-scaled utility function is defined via strictly increasing transformation, how can it represent a case of indifference?" Tags="&lt;utility&gt;&lt;preferences&gt;&lt;social-welfare&gt;&lt;social-choice&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29510" PostTypeId="1" CreationDate="2019-05-26T12:32:10.577" Score="1" ViewCount="27" Body="&lt;p&gt;&lt;a href=&quot;https://www.barrons.com/articles/europe-is-now-a-bigger-trade-villain-than-china-51558118723&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.barrons.com/articles/europe-is-now-a-bigger-trade-villain-than-china-51558118723&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The above articles state that trade imbalances are a bad thing and that if a government doesn't enact social and economic policies to make sure people are spending more instead of producing more it will lead to trade surpluses and these trade surpluses are a bad thing. The article mentions a decline in social aid spending and policies towards improving its manufacturing competitiveness. How does any of this make any sense? Is this just an opinion or do most economists agree with this assertion that countries should aim to reduce surpluses through consumption if a country like the U.S. has a major savings deficit?&lt;/p&gt;&#xA;" OwnerUserId="23098" LastActivityDate="2019-05-26T12:32:10.577" Title="Do countries have an obligation to match their savings and consumption rate with that of the U.S.?" Tags="&lt;macroeconomics&gt;&lt;international-trade&gt;&lt;international-economics&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29511" PostTypeId="5" CreationDate="2019-05-26T15:38:59.017" Score="0" Body="" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2019-05-26T15:38:59.017" LastActivityDate="2019-05-26T15:38:59.017" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29512" PostTypeId="4" CreationDate="2019-05-26T15:38:59.017" Score="0" Body="An efficiency standard based on the idea that the most efficient outcomes are those where no individual can be made better-off without making at least one other worse-off." OwnerUserId="108" LastEditorUserId="108" LastEditDate="2019-05-26T15:38:59.017" LastActivityDate="2019-05-26T15:38:59.017" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29513" PostTypeId="5" CreationDate="2019-05-26T15:40:27.787" Score="0" Body="" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2019-05-26T15:40:27.787" LastActivityDate="2019-05-26T15:40:27.787" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29514" PostTypeId="4" CreationDate="2019-05-26T15:40:27.787" Score="0" Body="The study of equilibrium when individual agents have no power to influence market-level variables like prices or quantities." OwnerUserId="108" LastEditorUserId="108" LastEditDate="2019-05-26T15:40:27.787" LastActivityDate="2019-05-26T15:40:27.787" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29515" PostTypeId="5" CreationDate="2019-05-26T15:41:22.763" Score="0" Body="" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2019-05-26T15:41:22.763" LastActivityDate="2019-05-26T15:41:22.763" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29516" PostTypeId="4" CreationDate="2019-05-26T15:41:22.763" Score="0" Body="A branch of statistics that studies the likelihood of uncertain events occurring." OwnerUserId="108" LastEditorUserId="108" LastEditDate="2019-05-26T15:41:22.763" LastActivityDate="2019-05-26T15:41:22.763" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29517" PostTypeId="2" ParentId="27817" CreationDate="2019-05-26T16:23:47.143" Score="1" Body="&lt;p&gt;Economic transactions are recorded from &lt;em&gt;registered&lt;/em&gt; businesses only. That is, &lt;strong&gt;informal&lt;/strong&gt; trades are not recorded. In your example, trading a stone wouldn't be a registered business activity. However, let's assume it is.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;GDP is the final value of goods and services produced, so as dismalscience says, intermediate goods are not recorded. Let company A sell a stone to company B. The stone that company B holds would be seen as an intermediate good, as the product that company B sells uses that stone as an input. In this example, the intermediate good is coincidentally also the final good (no value is added). The value of the stone will only be counted once.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That being said, stones don't get sold for \$1 million. Even if two parties signed a contract that forces the second party to sell the stone back to the first party, they would both be in the same situation after the two transactions&amp;mdash;the first party would have the stone, and the second party would have their \$1 million. (There is a disincentive to do this because the government will tax it.) The same logic can be extended to a collection of parties who pass on the stone to each other in a circle. In the end, they all are back at square one. It is plausible that (given the difficulty with which one secures \$1 million credit) people aren't motivated to skew GDP figures by engaging in this type of activity, also given the costs involved with the activity such as tax.&lt;/p&gt;&#xA;" OwnerUserId="175" LastActivityDate="2019-05-26T16:23:47.143" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29519" PostTypeId="2" ParentId="29508" CreationDate="2019-05-26T16:59:50.030" Score="0" Body="&lt;p&gt;I think you are most confused about what is meant by “defined in terms of strictly increasing transformations” or being “informationally equivalent. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You should think it in the following way, a utility function represents someone’s preferences if the function gives a higher/lower/equal value from bundle a than from bundle b if that person prefers more/less/the same bundle a than bundle b. Suppose that such function is &lt;span class=&quot;math-container&quot;&gt;$u(x)$&lt;/span&gt;, then you can ask, is there a unique function with such properties (I.e. that represents the person’s preferences) and the answer is NO. Any strictly increasing monotonic transformation of &lt;span class=&quot;math-container&quot;&gt;$u(x)$&lt;/span&gt;, say &lt;span class=&quot;math-container&quot;&gt;$f(u(x))$&lt;/span&gt; is also a function describing the preferences of the person. Hence we say that these two are valid representations, and are equivalent (or informationally equivalent). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that whenever you are comparing two bundles you can use any one of the possible representations, and the “strictly increasing monotonic transformation” part is just to check if two functions are equivalent representations of preferences. &lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-05-26T16:59:50.030" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="29520" PostTypeId="2" ParentId="29502" CreationDate="2019-05-26T17:18:20.057" Score="2" Body="&lt;p&gt;I think that you should proceed by contradiction assume D is continuous, but &lt;span class=&quot;math-container&quot;&gt;$\succsim$&lt;/span&gt; is not, then for a bundle either the more preferred than or the less preferred than sets are not closed. Choose the problematic set and choose a set B appropriately to get a contradiction of the existence of a maximum (remember that not closed sets might not admit a maximum), this will give you the desired contradiction. Once preferences are continuous, remains to check completeness of preferences to use the classic theorem that if preferences are complete, transitive and continuous, then a utility function representation exists. &lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-05-26T17:18:20.057" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29522" PostTypeId="2" ParentId="26284" CreationDate="2019-05-26T21:02:27.217" Score="0" Body="&lt;p&gt;Just to add on to the previous answer, since I do not have enough reputation to comment:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In general, for random variables &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$\mathop{{}\mathbb{E}}[Y|X = x]$&lt;/span&gt; indicates what the expected value of &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt; is, given that &lt;span class=&quot;math-container&quot;&gt;$X = x$&lt;/span&gt;. Note that this is a real number! Further, if &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt; are independent, then &lt;span class=&quot;math-container&quot;&gt;$\mathop{{}\mathbb{E}}[Y|X = x] = \mathop{{}\mathbb{E}}[Y]$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, we can use this to define the conditional expectation of &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt; given &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; as a random variable, defined on the range of X:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\mathop{{}\mathbb{E}}[Y|X](x) = \mathop{{}\mathbb{E}}[Y|X = x]$$&lt;/span&gt;&#xA;This is a random variable because we do not know apriori the value of &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt;. &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; is the value the random variable &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; takes depending on the outcome.&#xA;Thus, the 'source' of randomness is &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An important relation is:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\mathop{{}\mathbb{E}}[Y] = \mathop{{}\mathbb{E}}[\mathop{{}\mathbb{E}}[Y|X]]$$&lt;/span&gt;&#xA;where the outermost expectation is with respect to the value &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; takes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can now answer your question. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\mathop{{}\mathbb{E}}[u|x] = 0$&lt;/span&gt; for all &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; implies &lt;span class=&quot;math-container&quot;&gt;$\mathop{{}\mathbb{E}}[u] = 0$&lt;/span&gt; using the above relation, and noting that the expectation of a constant random variable is the same constant (here, &lt;span class=&quot;math-container&quot;&gt;$0$&lt;/span&gt;).&lt;/p&gt;&#xA;" OwnerUserId="23256" LastActivityDate="2019-05-26T21:02:27.217" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29523" PostTypeId="1" CreationDate="2019-05-27T07:53:27.700" Score="0" ViewCount="35" Body="&lt;p&gt;Evening my name is Nick and I am a high school student from Fairfield California and I’m 17, my super hyper theatrical question is about a substitute to college in order to create more efficiency in the economy. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Much of Europe has “apprenticeships” along with colleges however the studies I have been able to read have shown more efficiency in apprentices rather than college graduates.  My ideas is that if we could have businesses ensnare a more extreme internship “apprenticeships” not only will we be able to ensure a new and younger work force in the United States but help with student debt. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;By working directly for the company you would be able to learn the SPECIFIC skills one would need for that job and utilize it probably much earlier then a college graduate. With Bachelor degrees taking an average of 4 years for most studies and masters being 6 the amount of time is really holding back a potential young labor force and many of those whom I have studied and Kent in my personal life that have graduated college have said I learned after I got my job only my FIRST year of college taught me what I needed to understand before I got into my profession these people I’ve lent being architects, engineers, managers and more. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So in order to have a better labor force for certain jobs I believe it would be advisable to instate the young labor force after high school as an avail race option to company’s carrying there professions. This would also solver the student debt crisis which only holds down the young labor force even more and while apprenticeship would still create a debt learning a profession for free without getting paid would be much more beneficial then colleges option of not being paid and having to pay massive amounts of money in order to achieve ones professions. In order to convince companies of this I would propose tax right offs and subsidies to companies which due so and increased taxes on those who don’t. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;After a period of time I believe 8-12 years progress should be observed by that point and depending on results the decision of whether or not to keep this new apprenticeship system would be worth the tax right offs and government subsidies in order to decide whether or not to continue. If No then it will just become a concept that fades away over time and if yes the government will utilize it. &#xA;However abolishing college is my last goal but college does have an extreme control on the future labor force which is why I propose this. College surplus can buy time to manage themselves and profession found not very effective with apprenticeships will remain college dominant keeping colleges around. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I say all this because my profession I wish to achieve is petroleum engineering and the dozens I have spoke to at chevron and shell all had similar answers after about my first two years of college I was ready to start learning what my company specifically teaches me everything else I learned was just inefficient at least in the sense of benefiting the majority of engineers in my field, and this does not just only apply to petroleum engineers. So ultimately I just find this idea to seek a balance of college and apprenticeships, jobs which are capable of very easily teaching its own new employed everything they need to specifically know and understand in order to achieve efficiency for there industry or firm especially with government assistance and those that differ to probably remain in college. I believe this balance would both improve the economy in long run and secure a younger, more efficient labor force for the United States.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However my fears have predicted a few errors, one being if companies simply do not apply because at the time of doing this the content may be at full employment possibly. Another fear being if the transaction is to fast and college surplus or even default money supply runs out to quickly causing shut downs across the country thus completely running the future workforce. The last fear I’ve been able to think of is that with company creating more efficient employees threw specific trading if the company were to go out of business then mass structural unemployment could develop unless easy adaption happens to be available but now seems more unlikely by not achieving college degrees. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you so much for taking the time to read my long idea it’s just been what I have been able to comprise together as a long term economic theory to help grow the economy threw a hopefully more efficient and younger labor force, a reply would be amazing for feedback I would love to hear. &lt;/p&gt;&#xA;" OwnerUserId="23261" LastEditorUserId="21827" LastEditDate="2019-05-27T17:05:13.077" LastActivityDate="2019-05-27T17:05:13.077" Title="Would apprenticeships improve the economy long term?" Tags="&lt;macroeconomics&gt;&lt;public-economics&gt;&lt;soft-question&gt;&lt;education-economics&gt;" AnswerCount="0" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="29524" PostTypeId="2" ParentId="29474" CreationDate="2019-05-27T13:51:04.460" Score="0" Body="&lt;p&gt;This would only be the case if the currencies were fixed to each other. This was the case when the gold standard was still implemented for example, exchange rates would still fluctuate but should be the same in the long run. The mission of most central banks today is to ensure price stability. Hence in a perfect world the US dollar would buy the same amount of goods as a Swiss franc would in Switzerland or a euro in Europe. This is called &lt;a href=&quot;https://en.wikipedia.org/wiki/Purchasing_power_parity&quot; rel=&quot;nofollow noreferrer&quot;&gt;purchasing power parity&lt;/a&gt;. The nominal value of currency is theoretically arbitrary as long as the real value is the same.&lt;/p&gt;&#xA;" OwnerUserId="20449" LastActivityDate="2019-05-27T13:51:04.460" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29525" PostTypeId="1" AcceptedAnswerId="29527" CreationDate="2019-05-27T16:28:19.053" Score="2" ViewCount="53" Body="&lt;p&gt;Imagine I have a CES production function&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ Y_{\sigma}   = Z [ \sum_{i=1}^N  \alpha_{i} X_i^{\frac{\sigma}{1-\sigma}}]^{\frac{1-\sigma}{\sigma}}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know that as &lt;span class=&quot;math-container&quot;&gt;$\sigma \to 1$&lt;/span&gt;, the corresponding production function becomes the Cobb-Douglas production function&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$Y_1  = Z  \prod_{i=1}^N X_{i}^{\alpha_i}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is, is the same true for the corresponding cost functions? That is, if I have the CES cost function&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$C_{\sigma} = \frac{1}{Z} [\sum_{i=1}^N \alpha_i^{\sigma} P_i^{1-\sigma}]^{\frac{1}{1-\sigma}}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is it true that as &lt;span class=&quot;math-container&quot;&gt;$\sigma \to 1$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$C_{\sigma}$&lt;/span&gt; converges to the following Cobb-Douglas cost function?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$C_1 = \frac{1}{Z} \prod_{i=1}^N P_i^{\alpha_i}$$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="13989" LastActivityDate="2019-06-26T17:02:20.300" Title="Continuity of Prices for Constant Elasticity of Substitution Production Functions" Tags="&lt;production-function&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29526" PostTypeId="2" ParentId="29488" CreationDate="2019-05-27T16:44:20.353" Score="1" Body="&lt;p&gt;You can find in many textbooks (for example Mas-Collel, Winston and Green) that the Independence of irrelevant alternatives axiom implies that preferences over lotteries are linear with respect to the probabilities of each event. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, a compound lottery is of the form: &lt;span class=&quot;math-container&quot;&gt;$\mathcal{L}''=\alpha\mathcal{L}+(1-\alpha)\mathcal{L}'$&lt;/span&gt;, If &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$B$&lt;/span&gt; are the outcomes of the simple lottery &lt;span class=&quot;math-container&quot;&gt;$\mathcal{L}$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$C$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$D$&lt;/span&gt; are the outcomes of the other simple lottery, &lt;span class=&quot;math-container&quot;&gt;$\mathcal{L}'$&lt;/span&gt;. Then, the compound lottery can be seen as a simple lottery with four outcomes, given the linearity in probabilities: &lt;span class=&quot;math-container&quot;&gt;$\mathcal{L}''=\alpha\left(\beta A+(1-\beta)B\right)+(1-\alpha)\left(\gamma C+(1-\gamma)D\right)$&lt;/span&gt;. &lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-05-27T16:44:20.353" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29527" PostTypeId="2" ParentId="29525" CreationDate="2019-05-27T16:54:31.980" Score="1" Body="&lt;p&gt;I think so. I didn't work out the proof myself but found in Wikipedia another version of the CES production function that has the same shape as your cost production function by replacing &lt;span class=&quot;math-container&quot;&gt;$1-\sigma$&lt;/span&gt; with &lt;span class=&quot;math-container&quot;&gt;$r$&lt;/span&gt;. Here is the &lt;a href=&quot;https://en.wikipedia.org/wiki/Constant_elasticity_of_substitution&quot; rel=&quot;nofollow noreferrer&quot;&gt;link&lt;/a&gt;. The exponents in the parameters &lt;span class=&quot;math-container&quot;&gt;$\alpha_i$&lt;/span&gt; should cause no further complication.&lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-05-27T16:54:31.980" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29528" PostTypeId="1" AcceptedAnswerId="43829" CreationDate="2019-05-27T22:26:05.087" Score="8" ViewCount="158" Body="&lt;p&gt;A Homothetic Utility is where&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\forall x,y, \forall a \in \mathbb{R}_+: \ u(ax,ay)=au(x,y) &#xA;$$&lt;/span&gt; (or its monotonic transformation).&lt;/p&gt;&#xA;&lt;p&gt;A linear Homothetic utility is defined as &lt;span class=&quot;math-container&quot;&gt;$$&#xA;\forall x,y, \forall a \in \mathbb{R}_+: \ u(ax+b,ay+c)=au(x+b,y+c) &#xA;$$&lt;/span&gt;&#xA;where &lt;span class=&quot;math-container&quot;&gt;$b,c$&lt;/span&gt; are constants.&lt;/p&gt;&#xA;&lt;p&gt;This preference has very similar property as the homothetic preference. In fact, if we simply translate the coordinate system in the direction of (b,c), then the preference becomes homothetic.&lt;/p&gt;&#xA;&lt;p&gt;Are there any works covering this property? I've checked a lot of theory papers in homothetic preference but found no luck.&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Homothetic Preferences by James DOW· and Sergio Ribeiro da Costa&#xA;WERLANG&lt;/p&gt;&#xA;&lt;p&gt;Homothetic and weakly homothetic preferences by J.C. Candeal, E.&#xA;Indurain&lt;/p&gt;&#xA;&lt;p&gt;Linear-homothetic  preferences, by B Datta, H Dixon&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="13381" LastEditorUserId="13381" LastEditDate="2021-05-19T21:52:37.927" LastActivityDate="2021-05-19T21:52:37.927" Title="Linear Homothetic Utility" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;utility&gt;&lt;supply-and-demand&gt;&lt;preferences&gt;" AnswerCount="1" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="29529" PostTypeId="1" AcceptedAnswerId="29532" CreationDate="2019-05-27T23:10:07.237" Score="0" ViewCount="1410" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/GdVbZ.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/GdVbZ.jpg&quot; alt=&quot;Market Failure (negative externalities diagram&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why does the social cost supply curve in a negative externalities diagram have a steeper gradient than the private cost to firms?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I assumed it should only be shifted upwards as the negative social costs are directly proportional to the production quantity? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any explanation is greatly appreciated.  &lt;/p&gt;&#xA;" OwnerUserId="23264" LastActivityDate="2019-05-28T08:29:27.583" Title="Understanding the gradient of the social cost curve in a market failure/ negative externalities diagram" Tags="&lt;supply-and-demand&gt;&lt;market-failure&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29530" PostTypeId="1" CreationDate="2019-05-28T03:27:51.110" Score="0" ViewCount="29" Body="&lt;p&gt;I know this is a large question, so I'm looking for a broad, general understanding only. &lt;strong&gt;Are there any principles using which it may be decided to meet a societal need using a public project rather than private enterprise, in a free market economy?&lt;/strong&gt; What are all the factors that need to be considered? Moreover, is the government only supposed to provide public goods?&lt;/p&gt;&#xA;" OwnerUserId="5591" LastActivityDate="2019-05-28T03:27:51.110" Title="How is it decided whether a societal need should be met by using a public project or private enterprise?" Tags="&lt;public-goods&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="29531" PostTypeId="2" ParentId="29474" CreationDate="2019-05-28T07:58:22.983" Score="1" Body="&lt;p&gt;There is no economic reason for currencies to do so. There might be psychological reasons, but it seems that is not the case, as (for example) the gap between the Indian rupee and the US dollar has been steadily widening.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.poundsterlinglive.com/bank-of-england-spot/historical-spot-exchange-rates/usd/USD-to-INR&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.poundsterlinglive.com/bank-of-england-spot/historical-spot-exchange-rates/usd/USD-to-INR&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There have also been cases where the exchange rate was such a large number that a country just decided to slash several zeros from their currency. (&lt;a href=&quot;https://en.wikipedia.org/wiki/Revaluation_of_the_Turkish_Lira&quot; rel=&quot;nofollow noreferrer&quot;&gt;An example.&lt;/a&gt;) There would be no need for this if the natural tendency was to gravitate towards one.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2019-05-28T15:22:04.247" LastActivityDate="2019-05-28T15:22:04.247" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29532" PostTypeId="2" ParentId="29529" CreationDate="2019-05-28T08:29:27.583" Score="3" Body="&lt;p&gt;It simply depends on the shape of the marginal external damages. If the &lt;strong&gt;total&lt;/strong&gt; damages are linear in output, then the &lt;strong&gt;marginal&lt;/strong&gt; damages are constant, and the gradient of the marginal social cost is the same as that of the marginal private cost. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the &lt;strong&gt;total&lt;/strong&gt; damages are quadratic (or some other form with increasing &lt;em&gt;marginal&lt;/em&gt; damages), the marginal social cost has a steeper slope than the marginal private cost.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a simple example: if the marginal &lt;em&gt;private&lt;/em&gt; costs are &lt;span class=&quot;math-container&quot;&gt;$MPC(Q)=70+2Q$&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$Q$&lt;/span&gt; is quantity produced and &lt;em&gt;total&lt;/em&gt; damages are &lt;span class=&quot;math-container&quot;&gt;$D(Q)=50Q$&lt;/span&gt;, then marginal external damages are &lt;span class=&quot;math-container&quot;&gt;$MED=50$&lt;/span&gt; and the marginal social costs of production would be:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$MSC=MPC+MED=70+2Q+50=120+2Q$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If in contrast the damage function would be &lt;span class=&quot;math-container&quot;&gt;$D(Q)=50Q+2Q^2$&lt;/span&gt;, then marginal external damages would be &lt;span class=&quot;math-container&quot;&gt;$MED=50+4Q$&lt;/span&gt; and the marginal social costs of production:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$MSC=MPC+MED=120+6Q$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As you can see the latter has a steeper slope than the original MPC, whereas the former does not.&lt;/p&gt;&#xA;" OwnerUserId="12186" LastActivityDate="2019-05-28T08:29:27.583" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29533" PostTypeId="1" CreationDate="2019-05-28T11:19:44.687" Score="0" ViewCount="57" Body="&lt;p&gt;I need to find the income, sales, equity and assets of Microsoft, Google and Apple for U.S. and outside of U.S. I see these information in the income stamens as a whole. But I need to know how much it is for the U.S. and how much it is for outside of U.S. I've been able to see in the annual report of Microsoft such a division for income and sales. But the other two isn't there. None of those are also available in Google's annual report. Can somebody please let me know where should I look?&lt;/p&gt;&#xA;" OwnerUserId="23269" LastActivityDate="2021-03-19T20:04:25.383" Title="Where can I find the data for income, equity, assets and sales of a company that is presented in terms of U.S. and outside of US.?" Tags="&lt;reference-request&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29536" PostTypeId="1" AcceptedAnswerId="29553" CreationDate="2019-05-28T17:01:19.550" Score="1" ViewCount="82" Body="&lt;p&gt;I am following Chapter 8 (&quot;Heteroskedasticity&quot; p. 259) in the 6th edition of Woolridge &lt;em&gt;Introductory Econometrics: A Modern Approach&lt;/em&gt; and I don't understand one piece of the transformation of our model.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For fGLS, we assume [1] &lt;span class=&quot;math-container&quot;&gt;$Var(u|\boldsymbol{x}) = \sigma^2exp(\delta_0 +\delta_1x_1+\delta_2x_2+...+\delta_kx_k)$&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$x_i, x_2,...,x_k$&lt;/span&gt; are the independent variables appearing in the regression model and the &lt;span class=&quot;math-container&quot;&gt;$\delta_j$&lt;/span&gt; are unknown parameters.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, we use the definition of conditional variance to say &lt;span class=&quot;math-container&quot;&gt;$Var(u|\boldsymbol{x}) = E(u^2|\boldsymbol{x}$&lt;/span&gt;), since our zero conditional mean assumption tells us that &lt;span class=&quot;math-container&quot;&gt;$(E(u))^2$&lt;/span&gt; is zero.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Now, here is where I'm stuck&lt;/strong&gt;: Wooldridge says that our assumption [1] above allows us to write &lt;span class=&quot;math-container&quot;&gt;$u^2=\sigma^2exp(\delta_0 +\delta_1x_1+\delta_2x_2+...+\delta_kx_k)v$&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$v$&lt;/span&gt; has a mean equal to unity, conditional on &lt;span class=&quot;math-container&quot;&gt;$\boldsymbol{x}=x_1,x_2, ...,x_k$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can someone please help me to develop an intuition for this last step that Wooldridge has taken?  Essentially, it seems like we've assumed that &lt;span class=&quot;math-container&quot;&gt;$E(u^2|\boldsymbol{x})=\frac{u^2}{v}$&lt;/span&gt; and I don't understand why or the properties that allow us to do this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've found this paper &lt;a href=&quot;https://www.econ.uzh.ch/dam/jcr:e3cddc1b-f89d-4fb4-9474-c2c380355d69/joe_2017.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.econ.uzh.ch/dam/jcr:e3cddc1b-f89d-4fb4-9474-c2c380355d69/joe_2017.pdf&lt;/a&gt; to be useful (specifically, assumption #6 on p. 2), but it doesn't leave me with much intuition for what we're doing and why, especially because I'm fairly new to econometrics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks-&lt;br&gt;&#xA;Maurus&lt;/p&gt;&#xA;" OwnerUserId="23272" LastEditorUserId="23272" LastEditDate="2019-05-28T17:19:10.927" LastActivityDate="2020-09-11T21:12:29.663" Title="Heteroskedasticity assumption in fGLS into linear form?" Tags="&lt;econometrics&gt;&lt;heteroskedasticity&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29537" PostTypeId="1" AcceptedAnswerId="29576" CreationDate="2019-05-28T17:22:09.893" Score="0" ViewCount="63" Body="&lt;p&gt;I estimated the CES function (&lt;a href=&quot;https://en.wikipedia.org/wiki/Constant_elasticity_of_substitution&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://en.wikipedia.org/wiki/Constant_elasticity_of_substitution&lt;/a&gt;) using national accounts data for France. I got (using notation in wikipedia):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;a = 1.19&#xA;r = -0.48&lt;/p&gt;&#xA;&#xA;&lt;p&gt;so the term next to capital is negative (-0.19). Is this possible? What does it mean? I don't see anywhere in that website a restriction on the sign of &quot;a&quot;. My textbook does not state restrictions either. Is it fine? Or is it a problem?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any thoughts on the issue?&lt;/p&gt;&#xA;" OwnerUserId="23273" LastEditorUserId="23273" LastEditDate="2019-05-30T07:53:40.503" LastActivityDate="2019-05-30T08:40:55.377" Title="Can a CES parameter be negative?" Tags="&lt;production-function&gt;&lt;structural-estimation&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="29541" PostTypeId="1" AcceptedAnswerId="29573" CreationDate="2019-05-28T18:41:32.490" Score="3" ViewCount="121" Body="&lt;p&gt;QE meant that the monetary base increased dramatically, yet we don't see such a large reaction in money supply (I am thinking of M4 for the UK) nor in inflation. Why is this money not being lent out? Are banks keeping large excess reserves for fear of a crash?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know this is a quite common question but I still don't understand what the accepted answer is here.&lt;/p&gt;&#xA;" OwnerUserId="22942" LastActivityDate="2019-05-30T04:13:01.817" Title="What happened to the money multiplier after QE?" Tags="&lt;macroeconomics&gt;&lt;central-banking&gt;&lt;quantitative-easing&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29542" PostTypeId="1" CreationDate="2019-05-28T18:44:09.507" Score="0" ViewCount="75" Body="&lt;p&gt;I have been trying to build a social accounting matrix (SAM) after building an input-output table (IOT). In the IOT, I had to distinguish between total intermediate demand (which includes import of intermediate products) and domestic intermediate demand (which excludes imports). Therefore, I had to look at trade data to perform a breakdown of imports per intermediate and final products.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I was wondering if SAMs also used this breakdown of imports information. Since IOTs are used as a source of information to build a SAM, I figured it would. I know SAMs include intermediate demand information (see the following image, it's called intermediate inputs), but I don't know if it refers to total demand or domestic demand. Does anyone know? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks in advance!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/jBDDo.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/jBDDo.png&quot; alt=&quot;A social accounting matrix&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="23243" LastActivityDate="2021-02-17T11:04:25.413" Title="When building a social accounting matrix, do you input domestic intermediate demand or total intermediate demand?" Tags="&lt;national-accounts&gt;&lt;input-output&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29543" PostTypeId="1" AcceptedAnswerId="29545" CreationDate="2019-05-28T18:49:57.407" Score="-3" ViewCount="62" Body="&lt;p&gt;How to approach questions like these:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a two player static game with a discrete strategic space that permits each player to chose one of the four possible strategies what is the maximum number of NASH Equilibrium for the game&lt;/p&gt;&#xA;" OwnerUserId="22979" LastActivityDate="2019-05-28T20:01:37.510" Title="NASH equilibrium" Tags="&lt;microeconomics&gt;&lt;game-theory&gt;&lt;self-study&gt;&lt;nash-equilibrium&gt;" AnswerCount="1" CommentCount="1" ClosedDate="2019-05-30T03:09:49.600" ContentLicense="CC BY-SA 4.0" />
  <row Id="29545" PostTypeId="2" ParentId="29543" CreationDate="2019-05-28T20:01:37.510" Score="1" Body="&lt;p&gt;Firsly, understand what a Nash Equilibrium (NE) is.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Simply put, a Nash Equilibrium is a state, where neither player has a reason to defect. So neither player can become better off by playing a different strategy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Maximum number of NE is probably an extreme case, where it may help to draw the game in normal form and understand why there are multiple nash equilibria.&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;                    Player 1&#xA;                 A      B     C    D&#xA;              A (a,b) (c,d) ...&#xA;  Player 2    B   ...&#xA;              C&#xA;              D&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;In this case, the maximum number of NE's exists, when payoffs in all outcomes are the same. Then all outcomes are a NE. So the maximum number would be 16, because you have 16 possible strategy pairs in pure strategies and infinitely many in mixed strategies.&lt;/p&gt;&#xA;" OwnerUserId="20172" LastActivityDate="2019-05-28T20:01:37.510" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29546" PostTypeId="2" ParentId="5867" CreationDate="2019-05-28T20:10:13.420" Score="0" Body="&lt;p&gt;A simpler way to answer this question is to say that Fractional Banking allows currency to do more work.&#xA;If I stop stuffing my savings into my mattress and bank them instead, and then the bank lends it out, then that money is doing double work.&#xA;A central bank is there to make sure this process - the creation of credit - is orderly by essentially insuring private banks.&#xA;No modern system of production based on demand can exist without it.&#xA;Either mass poverty or forced labor and forced investment are the historic alternatives.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The only alternative I can see is for the gov't to take over the entire insurance industry.&#xA;This would be essentially a system of Social Security for companies.&lt;/p&gt;&#xA;" OwnerUserId="23276" LastActivityDate="2019-05-28T20:10:13.420" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29550" PostTypeId="1" CreationDate="2019-05-28T21:17:18.123" Score="2" ViewCount="37" Body="&lt;p&gt;I have panel data where firms disappear from failure and mergers. Conditional on existing as a stand alone firm, I observe all firms. However, I am differencing two periods (Late - Early), and the probability of being in the second period partly depends on X. I am interested in:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$ y_{late, i} - y_{early, i} = \beta_0 + \beta_1 * (x_{late, i} - x_{early, i}) + \epsilon_i $$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am concerned about the selection bias biasing my results. My intuition is that this is a special case of sample selection, and therefore that if the disappearance is randomly done or determined solely by the value of &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; that the resulting estimates are unbiased. Alternatively, if the sample is determined by the value of &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; then the resulting estimates are biased. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I believe I am safe here because in my setting, censoring is driven by &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; and little based on &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are there special concerns due to the panel setting or the use of differencing? Are there key references in this area for dealing with this issue? I couldn't find anything specific to the panel setting in &lt;a href=&quot;https://rads.stackoverflow.com/amzn/click/com/B01GMI2OD4&quot; rel=&quot;nofollow noreferrer&quot; rel=&quot;nofollow noreferrer&quot;&gt;Cameron and Trivedi (2005)&lt;/a&gt;. &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2019-05-28T21:17:18.123" Title="How to know when survivorship bias is a problem" Tags="&lt;econometrics&gt;&lt;paneldata&gt;&lt;selection-bias&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29551" PostTypeId="1" CreationDate="2019-05-28T21:54:52.743" Score="1" ViewCount="28" Body="&lt;p&gt;Seeing as the Bank of England is free to create money, is the interest it receives meaningful? What does the bank do with it?&lt;/p&gt;&#xA;" OwnerUserId="13720" LastEditorUserId="6210" LastEditDate="2019-05-29T03:44:28.227" LastActivityDate="2019-05-29T03:44:28.227" Title="What does the Bank of England do with the interest it receives?" Tags="&lt;central-banking&gt;&lt;united-kingdom&gt;" AnswerCount="0" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="29552" PostTypeId="2" ParentId="29533" CreationDate="2019-05-29T02:32:20.147" Score="1" Body="&lt;p&gt;Have you tried the &lt;a href=&quot;https://www.mergentonline.com/login.php&quot; rel=&quot;nofollow noreferrer&quot;&gt;Mergent&lt;/a&gt; database?  If you're part of a University system, Mergent is a typical offering through University libraries.  Your University librarian should be able to help you find and navigate it if necessary.&lt;/p&gt;&#xA;" OwnerUserId="23272" LastEditorUserId="23272" LastEditDate="2019-05-29T13:07:16.253" LastActivityDate="2019-05-29T13:07:16.253" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29553" PostTypeId="2" ParentId="29536" CreationDate="2019-05-29T06:41:45.567" Score="2" Body="&lt;p&gt;I'm using the 4th edition, but the content should be the same.  It sounds like you are asking how he got from&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;Var(u|\boldsymbol{x}) = \sigma^2exp(\delta_0 +\delta_1x_1+\delta_2x_2+...+\delta_kx_k)&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;to&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;u^2=\sigma^2exp(\delta_0 +\delta_1x_1+\delta_2x_2+...+\delta_kx_k)v&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As you correctly noted, &lt;span class=&quot;math-container&quot;&gt;$Var(u|\boldsymbol{x}) = E(u^2|\boldsymbol{x})$&lt;/span&gt; under the zero conditional mean expectation assumption (&lt;span class=&quot;math-container&quot;&gt;$E(u|\boldsymbol{x}) = 0$&lt;/span&gt;).  So that allows us to replace the left-hand side of the equation, as Wooldridge did.  &lt;span class=&quot;math-container&quot;&gt;$E(u^2|\boldsymbol{x})$&lt;/span&gt; turned into &lt;span class=&quot;math-container&quot;&gt;$u^2$&lt;/span&gt; because &lt;span class=&quot;math-container&quot;&gt;$u^2 = E(u^2|\boldsymbol{x}) + \epsilon$&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$\epsilon$&lt;/span&gt; is the component of &lt;span class=&quot;math-container&quot;&gt;$u^2$&lt;/span&gt; that's uncorrelated with any function of &lt;span class=&quot;math-container&quot;&gt;$\boldsymbol{x}$&lt;/span&gt;.  That component could have been left in at this stage, but it can be removed because later on it would turn into a part of the error term anyway that does not affect the fitted values from the regression of &lt;span class=&quot;math-container&quot;&gt;$log(u^2)$&lt;/span&gt; on &lt;span class=&quot;math-container&quot;&gt;$\boldsymbol{x}$&lt;/span&gt; (i.e., part of &lt;span class=&quot;math-container&quot;&gt;$e$&lt;/span&gt; in the next equation in the book).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the right-hand side of the equation, Wooldridge adds &lt;span class=&quot;math-container&quot;&gt;$v$&lt;/span&gt;, which has a mean equal to unity, conditional on &lt;span class=&quot;math-container&quot;&gt;$\boldsymbol{x} = (x_1, x_2, ..., x_k)$&lt;/span&gt;.  That means that given some set of values for &lt;span class=&quot;math-container&quot;&gt;$\boldsymbol{x}$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$v$&lt;/span&gt; is expected to have a multiplicative factor effect of &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt; on &lt;span class=&quot;math-container&quot;&gt;$u^2$&lt;/span&gt; (in other words, no effect).  By introducing this term to the equation (and assuming that it is independent of &lt;span class=&quot;math-container&quot;&gt;$\boldsymbol{x}$&lt;/span&gt;), we can then convert it into the error term &lt;span class=&quot;math-container&quot;&gt;$e$&lt;/span&gt; in the subsequent equation:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;log(u^2) = \alpha_0 + \delta_1x_1+\delta_2x_2+...+\delta_kx_k+e&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;because taking a log of a variable that has a mean of &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt; will give us a variable that has a mean of &lt;span class=&quot;math-container&quot;&gt;$0$&lt;/span&gt; plus some constant (equal to the negative of the mean of the log values of the original variable &lt;span class=&quot;math-container&quot;&gt;$v$&lt;/span&gt;).  That constant is moved to the constant term (that's why this last equation has &lt;span class=&quot;math-container&quot;&gt;$\alpha_0$&lt;/span&gt; instead of &lt;span class=&quot;math-container&quot;&gt;$\delta_0$&lt;/span&gt;) and we are left with an equation that can be estimated using OLS.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;P.S. The &lt;span class=&quot;math-container&quot;&gt;$v$&lt;/span&gt; in this book is not the same &lt;span class=&quot;math-container&quot;&gt;$v$&lt;/span&gt; that you found in Assumption 6 in the linked paper.  There it is a function, not a variable.&lt;/p&gt;&#xA;" OwnerUserId="21454" LastActivityDate="2019-05-29T06:41:45.567" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29554" PostTypeId="2" ParentId="29542" CreationDate="2019-05-29T08:39:16.853" Score="0" Body="&lt;p&gt;It depends on the structure of the particular SAM, although in the case of the diagram you've provided, intermediate inputs should include any imports (as should final demand and exports - in other words, you should be using the Combined Use table to populate this SAM, not the Domestic Use table).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can work this out by looking at the commodity balance identity.  Rows of the SAM must sum to the same total as the corresponding column of the SAM.  For commodities, the SAM structure requires:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Domestic sales + Tariffs + Imports = Intermediate inputs + Final Demand + Exports&lt;/p&gt;&#xA;&#xA;&lt;p&gt;i.e. total supply of commodities = total use of commodities (note that this is also the row balancing condition for the Supply-Use tables).  Since imports are included on the left hand side, they need to be included on the right hand side as well.&lt;/p&gt;&#xA;" OwnerUserId="5550" LastActivityDate="2019-05-29T08:39:16.853" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29555" PostTypeId="1" AcceptedAnswerId="29565" CreationDate="2019-05-29T08:48:12.540" Score="1" ViewCount="194" Body="&lt;p&gt;Is the real interest rate component of interest (excluding default risk premium, etc) inherently rent seeking?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The real interest rate is typically considered to repay the opportunity cost of lending money, however, note that there is some degree of circularity in this definition: if charging of interest were prohibited on grounds of being rent-seeking, then the opportunity cost of lending would be less. So the question remains.&lt;/p&gt;&#xA;" OwnerUserId="13720" LastActivityDate="2019-05-30T01:23:55.033" Title="Is charging of interest inherently rent seeking?" Tags="&lt;interest-rate&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29556" PostTypeId="2" ParentId="29541" CreationDate="2019-05-29T09:05:59.220" Score="2" Body="&lt;p&gt;You may want to look at the following paper by &lt;a href=&quot;https://m.tau.ac.il/~alexcuk/pdf/Cukierman%202017.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Cukierman (2017)&lt;/a&gt;. The author compares inflation for a period of identical base expansion in post Lehman US and hyper-inflationary Germany in the 1920s. They mention exactly what you said, that banks have increased their reserves at the Fed. In the US this has not translated into a heightened demand for goods and services as was the case in Germany. Furthermore the author cites fundamental differences in the economical and institutional circumstances as a reason for the difference in transmission. I suggest reading the paper for a more in depth explanation. &lt;/p&gt;&#xA;" OwnerUserId="20449" LastActivityDate="2019-05-29T09:05:59.220" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29559" PostTypeId="2" ParentId="29555" CreationDate="2019-05-29T10:36:32.797" Score="3" Body="&lt;p&gt;rent is about uncompetitive markets. In very competitive banking sector, interest will still exist. So it's not rent seeking. If laws forbide charging real interests, no private bank would be on business.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you look at Investopedia for &quot;Economic rent&quot;, you find:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;Economic rent&quot; is a term that defines an amount of money earned that exceeds that which is economically or socially necessary. This can occur, for example, when a buyer working to attain a good or service that is considered exclusive makes an offer prior to hearing what a seller considers an acceptable price. Market imperfections thus lead to the rise of economic rents; it would not exist if markets were perfect since competitive pressures would drive down prices. Economic rents should not be confused with normal profits or surpluses that arise in the course of competitive capitalist production. This term also differs from the traditional use of the word &quot;rent,&quot; which applies to payments received in exchange for temporary use of a particular good or property, such as land or housing.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Notice: &quot;Market imperfections thus lead to the rise of economic rents; it would not exist if markets were perfect since competitive pressures would drive down prices. &quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Bill's definition is the &quot;old version&quot;, which is not what you mean by &quot;rent&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.investopedia.com/terms/e/economicrent.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.investopedia.com/terms/e/economicrent.asp&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="23273" LastEditorUserId="23273" LastEditDate="2019-05-29T17:23:31.080" LastActivityDate="2019-05-29T17:23:31.080" CommentCount="13" ContentLicense="CC BY-SA 4.0" />
  <row Id="29560" PostTypeId="1" CreationDate="2019-05-29T14:13:48.513" Score="1" ViewCount="17" Body="&lt;p&gt;According to &lt;em&gt;Gneezy and Rustichini&lt;/em&gt; the presence of an extrinsic reward in activities with a level of &lt;strong&gt;intrinsic motivation&lt;/strong&gt; (e.g. volunteering) reduces intrinsic motivation, thus it may determine opposite results from the expected.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I wonder whether there is any research about &lt;strong&gt;the effect a price may have in crowding out intrinsic motivation compared to a fine&lt;/strong&gt;. &lt;em&gt;Michael Sandel&lt;/em&gt; faces this topic in &lt;em&gt;&quot;the moral limits of market&quot;&lt;/em&gt;, however he does not provide any empirical evidence. Do you know any &lt;strong&gt;research&lt;/strong&gt; that can be used to support this thesis?&lt;/p&gt;&#xA;" OwnerUserId="23283" LastEditorUserId="6210" LastEditDate="2019-05-30T02:40:51.080" LastActivityDate="2019-05-30T02:40:51.080" Title="Do you know any paper that discuss the effect of the deterrence of fines of individuals' behaviours? What is the difference between a fine a fee?" Tags="&lt;reference-request&gt;&lt;consumer-theory&gt;&lt;behavioral-economics&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29561" PostTypeId="2" ParentId="29533" CreationDate="2019-05-29T15:00:45.907" Score="0" Body="&lt;p&gt;this is a good source of data for countries all around the world: &lt;a href=&quot;https://www.thomsonreuters.com/en/products-services/government/market-data-and-analytics.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.thomsonreuters.com/en/products-services/government/market-data-and-analytics.html&lt;/a&gt; &lt;/p&gt;&#xA;" OwnerUserId="23273" LastActivityDate="2019-05-29T15:00:45.907" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29562" PostTypeId="2" ParentId="29536" CreationDate="2019-05-29T16:18:11.383" Score="1" Body="&lt;p&gt;Let us write &lt;span class=&quot;math-container&quot;&gt;$\mathbf{x}\delta = \delta_0 + \delta_1 x_1 + \cdots + \delta_k x_k$&lt;/span&gt; for notational brevity. If &lt;span class=&quot;math-container&quot;&gt;$u^2 = \sigma^2 \exp(\mathbf{x}\delta) v$&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$E(v|\mathbf{x})=1$&lt;/span&gt;, then it is indeed true that&#xA;&lt;span class=&quot;math-container&quot;&gt;$$E(u^2|\mathbf{x}) = \sigma^2 \exp(\mathbf{x}\delta) E(v|\mathbf{x}) = \sigma^2 \exp(\mathbf{x}\delta).$$&lt;/span&gt;&#xA;The LHS is &lt;span class=&quot;math-container&quot;&gt;$Var(u|\mathbf{x})$&lt;/span&gt; by definition when &lt;span class=&quot;math-container&quot;&gt;$E(u|\mathbf{x})=0$&lt;/span&gt; as you noted.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that &lt;span class=&quot;math-container&quot;&gt;$u^2 = \sigma^2 \exp(\mathbf{x}\delta) v$&lt;/span&gt; is not the only possible path to &lt;span class=&quot;math-container&quot;&gt;$E(u^2|\mathbf{x}) = \sigma^2 \exp(\mathbf{x}\delta)$&lt;/span&gt;. Another possibility is &lt;span class=&quot;math-container&quot;&gt;$u^2 = \sigma^2 \exp(\mathbf{x}\delta) + v$&lt;/span&gt; with &lt;span class=&quot;math-container&quot;&gt;$E(v|\mathbf{x})=0$&lt;/span&gt;, which also implies &lt;span class=&quot;math-container&quot;&gt;$E(u^2|\mathbf{x}) = \sigma^2 \exp(\mathbf{x}\delta)$&lt;/span&gt;. Wooldridge chooses the multiplicative model &lt;span class=&quot;math-container&quot;&gt;$u^2 = \sigma^2 \exp(\mathbf{x}\delta) v$&lt;/span&gt; with &lt;span class=&quot;math-container&quot;&gt;$E(v|\mathbf{x})=1$&lt;/span&gt; because he wants to take log (note &lt;span class=&quot;math-container&quot;&gt;$v&amp;gt;0$&lt;/span&gt; is also needed) and have a linear model. AlexK gives a nice explanation on the derivation of the linear model.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Wait. Why is taking log so important? It's because we want the fitted values to be &lt;em&gt;strictly positive&lt;/em&gt; (by applying its inverse function, exp) for all &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;. It is also so nice that a linear model is derived, which is extremely easy to estimate. A model like &lt;span class=&quot;math-container&quot;&gt;$u^2 = \exp(\mathbf{x}\delta) + \varepsilon$&lt;/span&gt; or &lt;span class=&quot;math-container&quot;&gt;$u^2 = (\mathbf{x}\delta)^2 +\varepsilon$&lt;/span&gt; with &lt;span class=&quot;math-container&quot;&gt;$E(\varepsilon|\mathbf{x})=0$&lt;/span&gt; also give strictly positive fitted values but it's not a linear model so estimation is hard.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To add a bit more technical details. We need that &lt;span class=&quot;math-container&quot;&gt;$v$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\mathbf{x}$&lt;/span&gt; are mutually &lt;em&gt;independent&lt;/em&gt; so that &lt;span class=&quot;math-container&quot;&gt;$\log(v)$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\mathbf{x}$&lt;/span&gt; are mutually independent. Then after taking log, we have&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\log (u^2) = \log(\sigma^2) + \mathbf{x} \delta + \log(v),$$&lt;/span&gt;&#xA;where &lt;span class=&quot;math-container&quot;&gt;$E[\log(v)|\mathbf{x}] = E[\log(v)]$&lt;/span&gt; is a (nonzero) constant independent of &lt;span class=&quot;math-container&quot;&gt;$\mathbf{x}$&lt;/span&gt;, and we have a standard linear model after adjusting the intercept. Actually, we don't even need &lt;span class=&quot;math-container&quot;&gt;$E(v|\mathbf{x})=1$&lt;/span&gt;. All we need is that &lt;span class=&quot;math-container&quot;&gt;$v$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\mathbf{x}$&lt;/span&gt; are mutually independent.&lt;/p&gt;&#xA;" OwnerUserId="10775" LastActivityDate="2019-05-29T16:18:11.383" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29563" PostTypeId="1" AcceptedAnswerId="29610" CreationDate="2019-05-29T16:24:44.703" Score="-1" ViewCount="102" Body="&lt;p&gt;According to Keynes, the prosperity of a population is measured by the aggregated income of each individual. Spending this income keeps the economy away from a depression. If there is too much hoarding of cash, the economy enters a depression. Hence, if savings are not invested, incomes must consequently decline.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The above seems to make sense only if economies compete with other economies. Otherwise, I don't see how incomes can decline. Shouldn't they stay constant?&lt;/p&gt;&#xA;" OwnerUserId="23284" LastEditorUserId="11590" LastEditDate="2019-06-01T13:23:58.907" LastActivityDate="2019-06-02T06:00:00.327" Title="Why incomes should decline in equilibrium state" Tags="&lt;general-equilibrium&gt;&lt;keynesian-economics&gt;&lt;capitalism&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="29564" PostTypeId="2" ParentId="29555" CreationDate="2019-05-29T16:51:20.427" Score="3" Body="&lt;p&gt;I don't think this is the case. In principle, the party lending the money could instead use it to make a productive project herself with some expected return, so that expected return is the opportunity cost of those funds. Alternatively, the resources could be used for consumption today, which (due to impatience) is more valuable than consumption tomorrow. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;These are some examples of the real opportunity cost of the money lent. As with any price, of course, if the market is not competitive, then you should expect some markup or &quot;rent-seeking&quot; behavior. My argument is that even if the market was perfectly competitive, you should still expect the real interest rate to be positive. &lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-05-29T16:51:20.427" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="29565" PostTypeId="2" ParentId="29555" CreationDate="2019-05-29T17:16:59.347" Score="1" Body="&lt;p&gt;No.  Interest is the portion of economic surplus that goes to Capital, whereas Rent is the portion going to Land (with Wages going to Labor.)  These are the classical &lt;a href=&quot;https://en.wikipedia.org/wiki/Factors_of_production&quot; rel=&quot;nofollow noreferrer&quot;&gt;Factors of Production&lt;/a&gt; going back to Adam Smith, David Ricardo, and the very beginnings of modern economic theory. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The neoclassical &lt;em&gt;redefinition&lt;/em&gt; of economic rent is the source of the confusion here.  Historically, that redefinition happened primarily to discredit the views of economist and politician &lt;a href=&quot;https://en.wikipedia.org/wiki/Henry_George&quot; rel=&quot;nofollow noreferrer&quot;&gt;Henry George&lt;/a&gt; (in the late 1800s) but we've been stuck with the terribly confusing definition ever since.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is an excellent paper by Mason Gaffney that details the historical motivations: &lt;a href=&quot;http://masongaffney.org/publications/K1Neo-classical_Stratagem.CV.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Neo-classical Economics as a Stratagem&#xA;against Henry George&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is a more recent notion that &quot;rent&quot; is defined in terms of its properties:  being unearned, being the result of a lack of competition, etc.  All of these are derivative, secondary aspects.  Rent comes from exclusive control &amp;mdash; typically granted by government &amp;mdash; over some resource.  Historically, land was the canonical example of such exclusive control.  But nowadays, we have not just real property but &quot;intellectual property&quot; and monopoly rights granted in the form of exclusive use of portions of the electromagnetic spectrum, rights of way granted for the laying of utility cables, exclusive rights to operate (e.g.) taxi service within a specific area, etc.  These are all forms of &quot;land&quot; in a more general sense, and all of them generate economic rent in virtue of those monopoly rights.  Clearly such exclusive control &lt;em&gt;also&lt;/em&gt; results in a lack of competition, unearned income, etc.  But again, those are merely &lt;em&gt;consequences&lt;/em&gt; of the monopoly rights; they do not define rent.  A lack of competition may simply be due to market inefficiency, in which case it is not rent.  It's just inefficiency.  Rent &lt;em&gt;only&lt;/em&gt; arises when one party is granted monopoly rights over a resource.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Once you recognize that &lt;em&gt;all&lt;/em&gt; rent comes from control of a resource granted through monopoly rights, distinguishing between rent, interest, and wages becomes very simple.  It is only the confused definitions that make it difficult.&lt;/p&gt;&#xA;" OwnerUserId="23023" LastEditorUserId="23023" LastEditDate="2019-05-30T01:23:55.033" LastActivityDate="2019-05-30T01:23:55.033" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29566" PostTypeId="1" CreationDate="2019-05-29T23:40:31.400" Score="2" ViewCount="56" Body="&lt;p&gt;In Economic Growth and particularly dynamic optimization. My professor taught us that an intertemporal allocation is a dynamic optimum(Pareto Optimum) only if(necessary condition) at any given instance it is a stationary(instant, contemporary) optimum.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I questioned about patents. We are sacrificing the present for R&amp;amp;D. We are creating a monopoly to give incentives for R&amp;amp;D. So obviously it cannot be at present, instantly pareto optimal. Nonetheless couldn't patents help? Since probably they give incentives for R&amp;amp;D?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The professor replied saying that this is exactly why some researchers in Industrial Organization defy, question patents and their benefits.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Could pharmaceuticals work just as well or even better with no patents? In work just as well I mean the intensity of the incentives for R&amp;amp;D.&lt;/p&gt;&#xA;" OwnerUserId="23287" LastEditorUserId="6210" LastEditDate="2019-05-30T02:37:01.890" LastActivityDate="2019-05-30T02:37:01.890" Title="Are there any studies, academic papers or articles that defy &quot;common&quot; knowledge&quot;, i.e that patents give an incentive for R&amp;D to private business?" Tags="&lt;reference-request&gt;&lt;economic-growth&gt;&lt;industrial-organisation&gt;&lt;mechanism-design&gt;&lt;intellectual-property&gt;" AnswerCount="0" CommentCount="9" ContentLicense="CC BY-SA 4.0" />
  <row Id="29567" PostTypeId="1" CreationDate="2019-05-29T23:44:21.447" Score="1" ViewCount="41" Body="&lt;p&gt;I'm stuck with a derivation from Gali's book. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the version 2008, I can't get eq. (7) from chapter 3. All is ok until the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;(1-\epsilon)\log\pi_{t}=\log(\theta+(1-\theta)\exp[(1-\epsilon)(\log{P_{t}^{*}}-\log{P_{t-1}}])&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm not sure how to do the log-linear approximation of eq. above to get this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\pi_{t}=(1-\theta)(p^{*}-p_{t-1})&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Please if someone could help me I will appreciate it a lot. Thanks!&lt;/p&gt;&#xA;" OwnerUserId="23288" LastEditorUserId="23288" LastEditDate="2019-05-30T13:54:56.193" LastActivityDate="2019-05-30T13:54:56.193" Title="log linearization around steady state (price dynamics)" Tags="&lt;macroeconomics&gt;&lt;new-keynesian-economics&gt;&lt;log-linearization&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29569" PostTypeId="1" AcceptedAnswerId="29570" CreationDate="2019-05-30T01:56:20.810" Score="1" ViewCount="29" Body="&lt;p&gt;Supposing someone is struggling to pay the rent in an urban area, and they don't have anything tying them down to any one place, would it make sense to move to a rural area where the rent is much lower? Or are cities generally better for low-income people because of the services like food banks, etc.?&lt;/p&gt;&#xA;" OwnerUserId="23290" LastEditorUserId="23023" LastEditDate="2019-05-30T11:48:55.393" LastActivityDate="2019-05-30T11:48:55.393" Title="Is it better for low-income people to live in the countryside where it's cheap or in the city where there are more services?" Tags="&lt;labor-economics&gt;&lt;housing&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29570" PostTypeId="2" ParentId="29569" CreationDate="2019-05-30T02:00:17.287" Score="1" Body="&lt;p&gt;It depends not just on the cost of living, but on the available means of income (wages) relative to each location.  Rural areas may have cheaper rent, but they often have fewer employment opportunities.  The right balance will often depend on the skills/qualifications of the individual.&lt;/p&gt;&#xA;" OwnerUserId="23023" LastActivityDate="2019-05-30T02:00:17.287" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29571" PostTypeId="2" ParentId="20386" CreationDate="2019-05-30T02:11:35.503" Score="2" Body="&lt;p&gt;Something missing from more traditional analyses is that a significant number of people may move to a new (expensive) location, take a job that pays a wage insufficient to cover living expenses, and burn through their savings until they're forced to relocate.  This happens quite often in &quot;fashionable&quot; locations such as San Francisco.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is actually a strong argument in favor of a higher minimum wage in such places, even taking a &quot;hard-line&quot; position that such laws only result in the loss of low-paying jobs &amp;mdash; because such jobs are a &quot;trap&quot; that lures people (with savings) into an unsustainable situation in which they are exploited until they run out of savings, at which point they are replaced by somebody else with savings to exploit.  Eliminating all jobs that pay wages insufficient to actually live (on an ongoing basis) in expensive markets guarantees that such &quot;exploit the newcomers&quot; economies cannot persist for very long.&lt;/p&gt;&#xA;" OwnerUserId="23023" LastActivityDate="2019-05-30T02:11:35.503" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29572" PostTypeId="1" AcceptedAnswerId="29581" CreationDate="2019-05-30T03:19:58.967" Score="1" ViewCount="170" Body="&lt;p&gt;I've been reading up a bit on &lt;a href=&quot;https://en.wikipedia.org/wiki/Heterodox_economics&quot; rel=&quot;nofollow noreferrer&quot;&gt;heterodox economics&lt;/a&gt; as well as watched some of the lectures online and quite frankly, I'm having a hard time figuring out whats are the unique features of this school of thought.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Meaning that it seems to me (as of now) one can learn about uncertainty from standard economics textbooks and read up on Marxian economics and seemingly find little to be gained from this approach.Though I could be not very open minded in this regard.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This all being said, what are some of the unique features of heterodox economics that one wouldn't necessarily be exposed otherwise?&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="11590" LastEditDate="2019-05-30T12:00:40.513" LastActivityDate="2019-05-31T04:37:20.113" Title="what are some unique features of heterodox economics?" Tags="&lt;history-economic-thought&gt;&lt;soft-question&gt;" AnswerCount="2" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="29573" PostTypeId="2" ParentId="29541" CreationDate="2019-05-30T03:34:13.997" Score="2" Body="&lt;p&gt;According to &lt;a href=&quot;https://www.oxfordhandbooks.com/view/10.1093/oxfordhb/9780190626198.001.0001/oxfordhb-9780190626198-e-12&quot; rel=&quot;nofollow noreferrer&quot;&gt;Gambacorta and Mizen (2019)&lt;/a&gt; a number of factors explain the 2008 crisis (and insofar post-crisis) multiplier:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;banks factor in may more things than the interest rate nowadays, of their own accord&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;they are also obligated to comply with more regulatory oversight&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Before the global financial crisis, the world was a simpler and more innocent place [...]. Although there were many risks that had not been properly priced into funding&#xA;  costs for banks, lending was funded at the margin in relation to short-term market rates&#xA;  that closely followed policy rates. Since then, that innocence has been lost, and funding&#xA;  costs reflect a range of risks that were small and largely ignored previously. The&#xA;  academic work on interest-rate pass-through reflects this more complex environment,&#xA;  allowing for a blend of funding sources that combine to give information on the cost of&#xA;  bank funding, which can often depart from policy rates by some margin. New channels of&#xA;  transmission have been developed to reflect the bank lending, bank capital, and risk-taking&#xA;  channels, which take on greater significance in the postcrisis world. Similarly,&#xA;  since monetary policy has been conducted using FG [forward guidance], the impact has been on&#xA;  future rather than current financial-market conditions requiring models that allow banks&#xA;  to form forecasts of future funding costs. Unconventional policies relying on liquidity&#xA;  operations, asset purchases, and conditional lending schemes have influenced long-term&#xA;  rates of interest rather than overnight rates, and new approaches have been developed to&#xA;  consider the effects of these policies on banks. Despite many concerns about the&#xA;  weakening of monetary transmission, the results of these new developments have pointed&#xA;  to a strong and robust relationship between policy measures and the retail rates that&#xA;  affect households and firms. In this respect, central banks can be reassured that the&#xA;  innovations in the making of monetary policy in the postcrisis era have proven effective in maintaining control over lending and deposit rates.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;What can we expect in the future for interest-rate pass-through and monetary&#xA;  transmission? Institutional change is under way, as part of the process that aims to avoid&#xA;  a repeat of the crisis in 2007–2008. Banks are now regulated to a greater degree, and&#xA;  liquidity and capital buffers are mandated to avoid dangers of illiquidity and insolvency&#xA;  among individual banks spilling over into the banking system as a whole. The Basel&#xA;  Committee on Banking Supervision will introduce reforms in the form of Basel III to strengthen the regulation, supervision, and risk management of the banking sector. These&#xA;  measures aim to improve the banking sector’s ability to absorb shocks arising from&#xA;  financial and economic stress, whatever the source, to improve risk management and&#xA;  governance of banks and strengthen banks’ transparency and disclosures.&#xA;  Microprudential regulation will help raise the resilience of individual banking institutions&#xA;  to periods of stress, while macroprudential regulation will reduce system-wide risks that&#xA;  can build up across the banking sector as well as the procyclical amplification of these&#xA;  risks over time. These changes will increase the cost of certain types of funding and at&#xA;  the same time reduce the risks associated with banks, which may reduce the costs of&#xA;  others.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;A number of empirical studies are cited in support, mostly from the EU, e.g.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Banerjee, A., V. Bystrov, and P. D. Mizen. 2017. “Structural Factor Analysis of Interest Rate Pass Through in Four Large Euro Area Economies.” Working Papers in Economics 17/07, University of Canterbury, Department of Economics and Finance.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Harimohan, Rashmi, Michael McLeay, and Garry Young. 2016. “Pass-Through of Bank&#xA;Funding Costs to Lending and Deposit Rates: Lessons from the Financial Crisis.” Bank of&#xA;England working paper 590.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Identifying the new channels of transmission seems a pretty active area of research.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://voxeu.org/article/quantitative-easing-and-hot-potato-effect&quot; rel=&quot;nofollow noreferrer&quot;&gt;Rhyan and Whelan (2019)&lt;/a&gt; mention that the most influential theory insofar seems to be the &quot;portfolio rebalancing channel&quot;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;money multipliers in the US, the UK, and the euro area dropped sharply following the introduction of QE, an outcome which is at odds with the predictions of a textbook money multiplier framework. The QE literature has instead focused mainly on the effect of changes in the net supply of bonds to the private sector in reducing bond yields, i.e. a portfolio rebalancing channel (e.g. Gagnon et al. 2011).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.ijcb.org/journal/ijcb11q1a1.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;Gagnon et al. (2011)&lt;/a&gt; (&quot;The Financial Market Effects of the Federal Reserve's Large-Scale Asset Purchases&#xA;&quot;) has some 700 citations in Google Scholar. A more recent paper like that from the Euro area is &lt;a href=&quot;https://www.ecb.europa.eu/pub/pdf/scpwps/ecb.wp2125.en.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Albertazzi et al., 2018&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Basically QE has rendered the usual crediting done by banks less attractive, so there's a shift (&quot;portfolio rebalance&quot;) toward riskier assets/loans. But there's apparently more regulatory limit on those.&lt;/p&gt;&#xA;" OwnerUserId="6210" LastEditorUserId="6210" LastEditDate="2019-05-30T04:13:01.817" LastActivityDate="2019-05-30T04:13:01.817" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29574" PostTypeId="1" CreationDate="2019-05-30T05:17:11.560" Score="2" ViewCount="82" Body="&lt;p&gt;In this question, I'm referring to &quot;web spam&quot; on search engines (not email spam), such as placing misleading keywords on one's web page so that a pornographic site, for example, would get a lot of traffic that isn't necessarily related to what the site has to offer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am interested in understanding the dynamics, or rather, the economics behind this kind of activity, preferably with some numbers as examples or as data.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Links to studies are also appreciated.&lt;/p&gt;&#xA;" OwnerUserId="5591" LastActivityDate="2019-05-31T15:58:52.220" Title="What are the economics behind web spam?" Tags="&lt;incentives&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29575" PostTypeId="2" ParentId="29572" CreationDate="2019-05-30T07:52:49.263" Score="-1" Body="&lt;p&gt;This might help: &lt;a href=&quot;https://academic.oup.com/cje/article/43/3/527/5150014&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://academic.oup.com/cje/article/43/3/527/5150014&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Abstract&#xA;  This paper revisits the conception of heterodox economics advanced by Tony Lawson in 2006 and critically assesses its reception. I consider the bearing of later contributions—most importantly, his 2013 paper ‘What is this “school” called neoclassical economics’—in which Lawson further develops his analysis of heterodox economics. The goal is to provide additional clarity to the discussion.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="23273" LastActivityDate="2019-05-30T07:52:49.263" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29576" PostTypeId="2" ParentId="29537" CreationDate="2019-05-30T08:40:55.377" Score="0" Body="&lt;p&gt;To elaborate on my comment above, whether there's a &quot;restriction&quot; on the possible values of &lt;span class=&quot;math-container&quot;&gt;$a$&lt;/span&gt; depends on your assumptions about the production function.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you assume that all inputs into the production function contribute positively to the final output, then it must be that &lt;span class=&quot;math-container&quot;&gt;$a \in (0, 1)$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since you estimated the parameter, you might want to check the confidence interval of the estimated parameter. You can do a one-sided test if &lt;span class=&quot;math-container&quot;&gt;$a &amp;lt; 1$&lt;/span&gt;, for example.&lt;/p&gt;&#xA;" OwnerUserId="5145" LastActivityDate="2019-05-30T08:40:55.377" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29579" PostTypeId="2" ParentId="29574" CreationDate="2019-05-30T17:43:23.003" Score="2" Body="&lt;p&gt;I used to work for a major online advertising network, and it's pretty much an open secret in the industry that a substantial portion of ad impressions are either bot-generated, scams to exploit misleading search engine results, or both.  There are typically several layers of &quot;middlemen&quot; involved between the company whose products are being advertised and the websites running the ads, and everybody has a financial incentive to keep their mouths shut about the rampant fraud involved.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The basic economics is this:  an unscrupulous website joins an advertising network (which often have insufficient resources dedicated to their review/approval process for new websites joining their network) and then either purchases botnet traffic (at a lower price than they're receiving in ad revenue) or tries to pull in search engine traffic through misleading search terms, for as long as they can get away with it.  They're typically caught fairly quickly, but by that time they may have made several hundred (or several thousands) of dollars in profit.  Then they register a new scam website and repeat the process.  Remember:  websites are typically paid for the ads that &lt;em&gt;appear&lt;/em&gt; on their website, even if nobody ever clicks on them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since nobody in the entire industry is really interested in exposing this aspect of the business, it may be difficult to find actual studies.  I'll take a look though, and would suggest that &quot;fraud in online advertising&quot; is the appropriate search phrase.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Update:&lt;/strong&gt; It looks like the Wikipedia article on &lt;a href=&quot;https://en.wikipedia.org/wiki/Ad_fraud&quot; rel=&quot;nofollow noreferrer&quot;&gt;Ad Fraud&lt;/a&gt; has a number of references that may serve as a good starting point.  An online search turns up a good number of results as well, although many of them appear to be marketing material for software that claims to help prevent/stop ad fraud.&lt;/p&gt;&#xA;" OwnerUserId="23023" LastActivityDate="2019-05-30T17:43:23.003" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29580" PostTypeId="1" CreationDate="2019-05-31T04:01:17.790" Score="0" ViewCount="39" Body="&lt;p&gt;A question I have seen in my microeconomics textbook is as follows:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider a monopoly supply to both a domestic and foreign market, where the market demands are:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Yd(pd) = 20 - 2pd, hence pd(yd) = 10 - Yd/2&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Yf(pf) = 20 - pf, hence pf(Yf) = 20 - Yf&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Total cost = .5Y^2 +20&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Total output, Y = Yd + Yf&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We are assuming the monopolist cannot price discriminate and therefore pf = pd = p&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We are asked what price should the monopolist now set for its output? What quantity will it sell to each market?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To solve this question i first calculated the new total market demand, or aggregate demand by summing both the foreign and domestic markets. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;D(p) = 20 - 3p + 20 - p = 40 -3p, hence p = 40/3 - Y/3&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I then calculated total revenue and marginal revenue.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;TR = (40/3)Y - (Y^2)/3 , hence MR = 40/3 - 2Y/3&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I then calculated marginal cost. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;MC = Y &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I then solved for Y where MR = MC and substituted the value into the market price function. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Y = 40/3 - 2Y/3, hence Y = 8, p(8) = 32/3&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My problem arises when i substitute this value for P into the domestic market's output function to calculate how many units will now be supplied to the domestic market. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Yd(8) = 20 - 2(32/3) = -4/3&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My interpretation of this is that the monopoly is purchasing 4/3 units from the domestic market to sell into the international market, however this concept is not familiar to me. Having a negative answer for units does not sit well with me. Any guidance as to something i did wrong in calculating the question or an economic interpretation of the solution would be much appreciated! I am very confused. &lt;/p&gt;&#xA;" OwnerUserId="23295" LastEditorDisplayName="user18" LastEditDate="2019-07-01T01:26:08.753" LastActivityDate="2019-07-31T02:00:55.123" Title="Can a monopoly supply negative units to one of its two markets?" Tags="&lt;microeconomics&gt;&lt;price-discrimination&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29581" PostTypeId="2" ParentId="29572" CreationDate="2019-05-31T04:15:34.273" Score="2" Body="&lt;p&gt;Among the references in the paper hinted by indigo_luc, there's one &lt;a href=&quot;https://doi.org/10.1111/j.1536-7150.2011.00774.x&quot; rel=&quot;nofollow noreferrer&quot;&gt;(Mearman, 2011)&lt;/a&gt;, which [was apparently the first that] has surveyed some (43) self-styled heterodox economists and applied factor analysis as well as cluster analysis to their ideas:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;[The first factor is addressed in the next para.] The second&#xA;  factor has high loadings on class, power, labor, gender and (negatively)&#xA;  markets. Factor 2 might thus be called a “radical” (or perhaps&#xA;  Marxist-feminist) grouping. Factor 3 might be an “Austrian” grouping,&#xA;  associating uncertainty, individualism and fallibilism. Factor 4 is&#xA;  perhaps a “Post Keynesian” group that stresses money and history.&#xA;  Factor 5 suggests an “ecological economics” group that stresses natural&#xA;  systems, but also the use of mathematics.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Factor 1 might be called a mainstream factor. Significantly, this&#xA;  factor groups rational, equilibrium and scarcity. This may reflect a bias&#xA;  within heterodox economics as to what constitutes the mainstream:&#xA;  i.e., if heterodox economists associate scarcity, equilibrium and rationality&#xA;  with the mainstream, they may reject them more easily. The&#xA;  finding also partly supports Davis’ (2009) definition of the mainstream&#xA;  in terms of equilibrium, rationality and individualism. However, the&#xA;  adoption of individualism by Austrian economists means that the&#xA;  adoption of individualism alone cannot be a definition of the mainstream;&#xA;  it also complicates the division between mainstream and&#xA;  heterodox. Further, the mean scores for “mainstream concepts,”&#xA;  although consistently lower than heterodox concepts, are consistently&#xA;  non-zero. Also, although there was a significant negative correlation&#xA;  between mainstream and heterodox, the correlation coefficient was&#xA;  only |0.438|, meaning that many respondents regard themselves&#xA;  mainly as clearly defined heterodox economists—yet with an important&#xA;  element of mainstream economics thrown in. Heterodox economists&#xA;  are a mixture of concepts and influences. An alternative&#xA;  interpretation is that heterodox and mainstream are overlapping categories.&#xA;  This would be significant given that treatments of mainstream&#xA;  and heterodox often treat them as strictly distinct. The other clear&#xA;  finding for this group is that in terms of concepts, heterodox economics&#xA;  remains a concatenation of ideas (echoing Lee’s (2010) term) and&#xA;  groupings of individuals.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;As for cluster analysis:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Cluster A, the largest, is&#xA;  characterized by a rejection of the label “mainstream” and to some&#xA;  extent of mainstream concepts (apart from individuals and markets).&#xA;  The second feature of cluster A is an acceptance of the label as&#xA;  heterodox and pluralist and a matching acceptance of general heterodox&#xA;  concepts such as class, uncertainty, fallibilism, power, money and&#xA;  history. It could be argued that this cluster exemplifies the recently&#xA;  developing picture of heterodoxy as being non-mainstream but pluralist,&#xA;  with a concern for methodological issues. Almost all of the&#xA;  female respondents to the survey are in this group, although it is far&#xA;  from clear why this would occur.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Cluster B is different, exhibiting&#xA;  much stronger rejection of the mainstream and its concepts, maximum&#xA;  scores for class and labor and much lower scores than the other&#xA;  clusters for uncertainty and fallibilism. Methodologically this group&#xA;  scored much higher than cluster A on the need for maths in&#xA;  economics. Cluster B seems like a Marxist group and indeed its cluster&#xA;  members are self-identified radicals.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Cluster C is different from clusters A and B in that it does not&#xA;  reject the label of being mainstream, whilst accepting the labels of&#xA;  heterodox and pluralist. This cluster is similar to cluster A but more&#xA;  pluralist. The members of this cluster reject the strict distinctions&#xA;  between the three categories. Further, although this cluster accepts&#xA;  many of the traditional heterodox concepts such as power, labor&#xA;  and class, it also accepts mainstream notions such as rational, equilibrium,&#xA;  positive, maths and crucially, scarcity. Above, when factor&#xA;  analysis was conducted, a factor was extracted that was labeled&#xA;  “mainstream” whereas the view of cluster C suggests instead this use&#xA;  of mainstream concepts alongside heterodox ones is another exhibition&#xA;  of pluralism. Unfortunately these individuals are difficult to&#xA;  identify from the information gleaned so it is difficult to draw too&#xA;  many conclusions. It should also be noted that in the dendrogram,&#xA;  arguably cluster C might have been split into two, so perhaps not&#xA;  too much coherence should be expected.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Cluster D is in some ways&#xA;  the most interesting cluster because it contains most of the cases&#xA;  identified as peripheral. The cluster score for mainstream is similar&#xA;  to cluster C, but the score for heterodox is lower. Accordingly,&#xA;  scores for core heterodox concepts such as class, power, gender&#xA;  and particularly labor are clearly lower than for the other clusters.&#xA;  As a corollary, cluster D’s scores for individuals, markets and rational&#xA;  are much higher than for the other clusters. Looking at the&#xA;  cases who are members of this cluster, they appear to be&#xA;  members of underrepresented elements of heterodox thought, such&#xA;  as behavioral economics, Austrian economics and American&#xA;  institutionalism.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="6210" LastEditorUserId="6210" LastEditDate="2019-05-31T04:37:20.113" LastActivityDate="2019-05-31T04:37:20.113" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29582" PostTypeId="2" ParentId="29580" CreationDate="2019-05-31T04:41:27.127" Score="1" Body="&lt;p&gt;Marginal cost is only guaranteed to be equal to marginal revenue in optima where &lt;span class=&quot;math-container&quot;&gt;$Y &amp;gt; 0$&lt;/span&gt; (and when the profit function is concave, but in your case it is). If &#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;MC(0) &amp;gt; MR(0)&#xA;$$&lt;/span&gt;&#xA;the producing the first unit results in a loss, and a profit maximizing monopolist would not produce at all (if the profit function is concave).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An example: I am willing to buy golf ball sized diamonds from you. I am willing to pay 5 dollars for the first, 4 dollars for the second, 3 dollars for the third and so on, ending in 0 dollars for the sixth and any further units. How many golf ball sized diamonds will you sell me?&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2019-05-31T04:41:27.127" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29583" PostTypeId="1" CreationDate="2019-05-31T04:51:14.530" Score="1" ViewCount="16" Body="&lt;p&gt;As I understand it, tariffs are used to generate revenue for governments and also punish suppliers or influence their respective governments.  Usually the end user pays the tariff.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there a metric that is used to measure which stakeholder is impacted?&lt;/p&gt;&#xA;" OwnerUserId="10161" LastActivityDate="2019-05-31T04:51:14.530" Title="Tariff impact measurement" Tags="&lt;tariffs&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29584" PostTypeId="2" ParentId="25255" CreationDate="2019-05-31T09:54:35.423" Score="0" Body="&lt;p&gt;I too have pondered this question. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I found a neat definition from the book 'Existence and Optimality of Competitive Equilibria' by Charalambos D. Aliprantis, Donald J. Brown, Owen (see page 9). I quote it here: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;Mathematically, a 'convex to the origin' curve is described by saying that if &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$B$&lt;/span&gt; are any two points on the curve, then a ray passing through the origin &lt;span class=&quot;math-container&quot;&gt;$O$&lt;/span&gt; and any point &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; on the line segment &lt;span class=&quot;math-container&quot;&gt;$AB$&lt;/span&gt; will meet the curve at most at one point &lt;span class=&quot;math-container&quot;&gt;$D$&lt;/span&gt; between &lt;span class=&quot;math-container&quot;&gt;$O$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt;&quot;. EDIT - this should read 'at exactly one point &lt;span class=&quot;math-container&quot;&gt;$D$&lt;/span&gt; between &lt;span class=&quot;math-container&quot;&gt;$0$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; as opposed to at most one; the author appears to have made an error. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/46RmD.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/46RmD.png&quot; alt=&quot;Taken from the same source&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Under this definition, a curve shaped like the left-half of a U-shaped parabola, but never reaching a point at which its derivative is 0, is the type of nice convex to the origin indifference curve we dream about as economists. If we were to allow the slope of the indifference curve to become positive after some point then it will be possible to find draw a line from the origin that crosses two points of the curve, in which case the curve would not be convex to the origin. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;When a utility function is a function of two variables x and y, an indifference curve is convex to the origin if the derivative of the indifference curves are always negative and the second derivatives are positive. That is, the indifference curves slope downwards always but the slope of the slope increases (from a negative value to a less negative value) as we move to the right. That is, the marginal rate of substitution (the negative of the slope of the indifference curve or equivalently, the magnitude of the slope of the indifference curve) decreases as we move to the right along an indifference curve. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Best, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Dutchman &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;em&gt;Edit&lt;/em&gt;&lt;/strong&gt; in response to Giskard's comment: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Giskard is right, the definition would need to be amended to exactly one. &lt;/p&gt;&#xA;" OwnerUserId="23299" LastEditorUserId="23299" LastEditDate="2019-06-02T10:27:49.357" LastActivityDate="2019-06-02T10:27:49.357" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29586" PostTypeId="1" AcceptedAnswerId="29588" CreationDate="2019-05-31T12:37:57.517" Score="0" ViewCount="2162" Body="&lt;p&gt;So i have this question:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume the following data for U&amp;amp;P Company: Debt (D) = &lt;span class=&quot;math-container&quot;&gt;$100 million; Equity (E) =$&lt;/span&gt;300 million; rD = 6%; rE = 12%; and TC = 30%. Calculate the after-tax weighted average cost of capital (WACC):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know that the formula is indeed&lt;/p&gt;&#xA;&#xA;&lt;p&gt;After tax WACC=(1-TC)rD(D/V) + rE(E/V).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If i correctly replace all the numbers i get that the after tax wacc is 6%. For example, in order to get D/V i do 100/130 since V=E+D=130.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However on the answer sheet it states that :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;After tax WACC=  (1/4)(1 - 0.3)(6) + (3/4)(12) = 10.05%. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I do not understand this answer; where is the (1/4) and the (3/4) coming from ? Shouldn't D/V=100/130 and E/V=30/130? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks for the help!&lt;/p&gt;&#xA;" OwnerUserId="21642" LastActivityDate="2019-05-31T12:43:43.183" Title="How to calculate the after tax WACC" Tags="&lt;taxation&gt;&lt;debt&gt;&lt;capital-returns&gt;&lt;opportunity-cost&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29587" PostTypeId="2" ParentId="29574" CreationDate="2019-05-31T12:42:41.820" Score="1" Body="&lt;p&gt;I am not a data person. So I can only provide insights into the theoretical incentives behind the phenomenon. Moreover I think that there are multiple forms of such web spam and each is rooted in distinct incentives. Hence, there is not a single true answer.&#xA;Let me first express my view on classical (email) spam and relate it to what you have in mind. I will do this in this answer by using a baby model any undergrad could come up with. Then, I will point to search diversion incentives of an intermediary in a second answer building on the model by Hagiu and Jullien (RAND 2011). You (and the community) can then choose what fits best.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;em&gt;Classical spam&lt;/em&gt;&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I guess the classical incentives behind (email) spam arise because the marginal cost &lt;span class=&quot;math-container&quot;&gt;$c$&lt;/span&gt; is vanishingly small while benefits &lt;span class=&quot;math-container&quot;&gt;$b$&lt;/span&gt; are comparatively large, &lt;span class=&quot;math-container&quot;&gt;$c \approx 0, b&amp;gt;c$&lt;/span&gt;. Although only extremely few people click the spam link, it can pay off to send a ridiculous amount of emails, because some do click and thereby end up on the homepage.&#xA;The spammer maximizes &lt;span class=&quot;math-container&quot;&gt;$(b-c)q$&lt;/span&gt; which is strictly increasing in &lt;span class=&quot;math-container&quot;&gt;$q$&lt;/span&gt;, the quantity of emails sent. Hence, she chooses the maximal possible amount &lt;span class=&quot;math-container&quot;&gt;$q$&lt;/span&gt;, i.e., send the spam to any address available.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The benefit &lt;span class=&quot;math-container&quot;&gt;$b$&lt;/span&gt; here is that each visitor to the homepage may buy a good or generate ad revenue. In the first case, &lt;span class=&quot;math-container&quot;&gt;$b=p_1 p_2 V$&lt;/span&gt;, with &lt;span class=&quot;math-container&quot;&gt;$p_1&amp;gt;0$&lt;/span&gt; being the probability of the average email reader actually clicking the link and &lt;span class=&quot;math-container&quot;&gt;$p_2$&lt;/span&gt; the probabiliry of buying a (possibly fraudulent) good from the spammer (or transferring money to the Nigerian prince) and &lt;span class=&quot;math-container&quot;&gt;$V&amp;gt;&amp;gt;0$&lt;/span&gt; being a large profit from this transaction. Since &lt;span class=&quot;math-container&quot;&gt;$c \approx 0$&lt;/span&gt;, spam pays even for extremely low probabilities &lt;span class=&quot;math-container&quot;&gt;$p=p_1p_2$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Alternatively, the spammer is just an intermediary that leads possible customers to a seller's homepage. This intermediary then gets paid either per visit or per transaction.&#xA;Both lead to the same model as above. The seller would be willing to pay the spammer some fixed amount &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; per visitor with &lt;span class=&quot;math-container&quot;&gt;$x \in [0,p_2V]$&lt;/span&gt; such that spammer and seller can agree on some spam benefit &lt;span class=&quot;math-container&quot;&gt;$b \in (c,pV]$&lt;/span&gt;, and the above model applies. If the seller pays some share &lt;span class=&quot;math-container&quot;&gt;$s$&lt;/span&gt; of &lt;span class=&quot;math-container&quot;&gt;$pV$&lt;/span&gt; per transaction, we can also arrive at the same model with &lt;span class=&quot;math-container&quot;&gt;$b=spV&amp;gt;c$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Alternatively, the link just leads to a homepage full of ads. Then, the spammer gets paid per click on the ad or per second the ad is watched. Both is isomorphic to the model above with additional middlemen. Another alternative is that the link downloads malware, resulting in the same model with &lt;span class=&quot;math-container&quot;&gt;$V$&lt;/span&gt; being the value from successful infiltration of the malware and &lt;span class=&quot;math-container&quot;&gt;$p$&lt;/span&gt; being the probability of a successful undetected download.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Instead of &lt;span class=&quot;math-container&quot;&gt;$q$&lt;/span&gt; being a quantity of emails sent it could be an additional keyword for search engines. Since adding one more keyword is quasi costless and attracts an additional number of expected visitors &lt;span class=&quot;math-container&quot;&gt;$r&amp;gt;0$&lt;/span&gt;, we arrive at a similar model with &lt;span class=&quot;math-container&quot;&gt;$(rb-c)q$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This baby model abstracted away from a lot, but I think this is crucial incentives are rooted in very low marginal cost and the law of large numbers. Of course spam bothers people and engaging in it comes with a loss of reputation. For that reason, you do not see established firms doing it.&lt;/p&gt;&#xA;" OwnerUserId="11590" LastEditorUserId="11590" LastEditDate="2019-05-31T13:18:27.310" LastActivityDate="2019-05-31T13:18:27.310" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29588" PostTypeId="2" ParentId="29586" CreationDate="2019-05-31T12:43:43.183" Score="0" Body="&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$V=E+D=300+100=400$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\frac{E}{V}=\frac{3}{4}$&lt;/span&gt; and &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\frac{D}{V}=\frac{1}{4}$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You probably overlooked one zero and thought equity was 30, but in your question you yourself state that &lt;span class=&quot;math-container&quot;&gt;$E=300$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerUserId="18214" LastActivityDate="2019-05-31T12:43:43.183" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29591" PostTypeId="1" AcceptedAnswerId="29767" CreationDate="2019-05-31T15:56:00.487" Score="3" ViewCount="99" Body="&lt;p&gt;I wonder about the role of migrant workers in a general economic context.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Migrant working appears all over the world and on many time and space scales:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;around cities (e.g. commuters)&lt;/li&gt;&#xA;&lt;li&gt;inside countries (more and better paid work in the North than in the South (e.g. Italy) or in the West than in the East (e.g. Germany))&lt;/li&gt;&#xA;&lt;li&gt;continent wide (e.g. Europe: West-East, North-South)&lt;/li&gt;&#xA;&lt;li&gt;world wide (e.g. Europe-Africa, North America-South America)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Overall, migrant workers who send some money back to their families seem to make use of &lt;a href=&quot;https://www.wikiwand.com/en/Arbitrage&quot; rel=&quot;nofollow noreferrer&quot;&gt;arbitrage&lt;/a&gt;, i.e. taking &quot;riskless advantage of price and loan differences&quot;. (This doesn't mean that the advantage is effortless: The workers and their families pay the heavy price of being torn.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But this is not the issue of my question. My question is more general and concerns national economics in general and sustainability.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the (richer) &quot;host countries&quot; (where the money is earned) the economical effect of sending money out (deflation) may be negligible, but for the (poorer) &quot;home countries&quot; (where the money is sent to) the effect may be significant:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;inflation (more money than goods)&lt;/li&gt;&#xA;&lt;li&gt;social conflicts (envy-driven)&lt;/li&gt;&#xA;&lt;li&gt;accelerated emigration (of workers and experts)&lt;/li&gt;&#xA;&lt;li&gt;in sum: an economical downward spiral&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;There's just one positive effect that I can imagine:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;compensation of otherwise economic injustice (by historical or actual reasons)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Is there a general opinion about migrant working seen economically from the perspective of the &quot;home countries&quot; (where the money is sent to)? To which extent and how long does this way of economic exchange work? I'd like to learn more about this.&lt;/p&gt;&#xA;" OwnerUserId="22991" LastEditorUserId="22991" LastEditDate="2019-06-06T17:49:34.957" LastActivityDate="2019-06-13T14:17:21.900" Title="Remittance: Migrant workers sending money to their families" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;migration&gt;" AnswerCount="1" CommentCount="14" ContentLicense="CC BY-SA 4.0" />
  <row Id="29592" PostTypeId="2" ParentId="29574" CreationDate="2019-05-31T15:58:52.220" Score="0" Body="&lt;p&gt;This is an alternative explanation. Here, the &quot;spam&quot; due to &quot;misleading keywords&quot; on search engines does not work through the mechanism in my previous post. Instead, an intermediary platform diverts a customer to garner referral fees.&#xA;Through your browsing history, the platform has good information about your taste. &#xA;Through a recommendation mechanism, a search platform can direct attention to a particular product. Is this recommended product the one that suits your taste best?&#xA;&lt;a href=&quot;https://onlinelibrary.wiley.com/doi/full/10.1111/j.1756-2171.2011.00136.x&quot; rel=&quot;nofollow noreferrer&quot;&gt;Hagiu and Jullien (RAND 2011)&lt;/a&gt; raise the point that it might not be.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;em&gt;Search diversion&lt;/em&gt;&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose there are only two products &lt;span class=&quot;math-container&quot;&gt;$i \in \{A,B\}$&lt;/span&gt;, and two types of consumers, one tends to prefer good &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt; and good &lt;span class=&quot;math-container&quot;&gt;$B$&lt;/span&gt;. The consumer incurs a cost &lt;span class=&quot;math-container&quot;&gt;$c$&lt;/span&gt; for visiting each good-&lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; homepage/shop and can visit the sellers only sequentially. The value for the good is learned upon inspection. There is an intermediary who knows the consumers type and leads the consumer to the first shop.  The intermediary gets an exogenous per-visit fee for each consumer she leads to a seller. Because of this incentive to generate traffic, the intermediary may like to divert the search process in the sense that it leads you to the least preferred product first. The authors also show that the diversion process is a mechanism to influence the seller prices on the platform.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that the consumer in this model actually likes both goods, and the valuations are independent draws from different distributions (the preferred good's value is drawn from a better uniform distribution). That is, this model does not apply to a setting in which you look for a hotel room and end up on a scam homepage that nobody values. Since the valuations are independent it also does not apply to a setting in which you look for adidas trainers and are diverted to the nike shop. More like, good &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt; are sunglasses and good &lt;span class=&quot;math-container&quot;&gt;$B$&lt;/span&gt; is a watch.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also note that the intermediary commits to the diversion process publicly before the consumer decides to use its service. If it is known that the intermediary likely diverts, then consumers with high search costs prefer not to use the intermediary.&lt;/p&gt;&#xA;" OwnerUserId="11590" LastActivityDate="2019-05-31T15:58:52.220" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29597" PostTypeId="1" AcceptedAnswerId="29598" CreationDate="2019-06-01T11:54:24.227" Score="1" ViewCount="157" Body="&lt;p&gt;I learnt that if the service provided is of non-rival and non-excludable in nature, the problem of free riding occurs and the provider may not get a profit. I can understand how non-excludability results in free riding but I couldn't uderstand the effect of&lt;br&gt;&#xA;  non-rivalry. In the book I read, street performance was cited as an example for non-rival and non-excludable service. The following is an excerpt from the book 'Day to day economics' by  Satish Y. Deodhar&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;at a given market price, the relative buying power of different consumers might exclude some of them from buying the car or the toothpaste. In the case of the street-performing couple, this ‘excludability’ feature is missing, because they cannot prevent individuals—either physically or by charging an appropriate price—from viewing the performance. Thus, due to the non-rivalry and the non-excludability of the service which they provide, the problem of free riding occurs, and the market fails to deliver—ergo, the street performers cannot run a profitable business.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Is there any service that is rival and non-excludable? If so, how is it different from the previous case with regard to free riding?&lt;/p&gt;&#xA;" OwnerUserId="21931" LastActivityDate="2019-06-01T13:00:32.917" Title="Rival and non excludable products" Tags="&lt;free-riding&gt;" AnswerCount="2" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="29598" PostTypeId="2" ParentId="29597" CreationDate="2019-06-01T12:49:06.930" Score="1" Body="&lt;p&gt;To continue the example of the street performer: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose there are two people offering the performer money, but in exchange they want her to perform different songs. Person A prefers song A while person B prefers song B. Whoever offers the higher sum gets their wish. In this case there is rivalry between the consumers. Yet there is also non-excludability: Even if someone loses the bidding war, they can listen to the song chosen by the other person.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that the rivalry results in higher profits than if both people preferred song A played, because then they would have had no incentive to bid against each other due to non-excludability.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2019-06-01T12:49:06.930" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29599" PostTypeId="2" ParentId="29597" CreationDate="2019-06-01T13:00:32.917" Score="1" Body="&lt;p&gt;Putting my comment into a short answer, rivalry can in some sense exacerbate the problem of free riding.&#xA;In a free-riding problem, it is not possible to exclude non-payers from consumption, which results in overconsumption and underprovision of the good. This is a issue for public goods, which are non-excludable and non-rival. It is even more of an issue, in the &lt;a href=&quot;https://en.wikipedia.org/wiki/Tragedy_of_the_commons&quot; rel=&quot;nofollow noreferrer&quot;&gt;tragedy of the commons&lt;/a&gt;. For instance, fish in the sea are hard to exclude, but they are rival: I cannot catch a fish that you already caught. Overconsumption leads to even bigger problems with such goods, because the consumption of an unexcludable non-payer comes with a negative externality.&lt;/p&gt;&#xA;" OwnerUserId="11590" LastActivityDate="2019-06-01T13:00:32.917" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="29600" PostTypeId="1" AcceptedAnswerId="29602" CreationDate="2019-06-01T13:36:52.807" Score="1" ViewCount="70" Body="&lt;p&gt;The context pertaining to which I have asked this question is same as that of the question linked below&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;a href=&quot;https://economics.stackexchange.com/questions/29597/rival-and-non-excludable-products&quot;&gt;Rival and non excludable products&lt;/a&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In the linked question, a few examples of rival and non-excludable products were given like fish in ocean. But fish is a natural resource and nobody is selling fish to the fishermen. So my doubt is that whether it is possible to sell a rival non excludable product(not a service)?&lt;/p&gt;&#xA;" OwnerUserId="21931" LastActivityDate="2021-04-30T08:30:24.807" Title="Is it possible to sell a rival and non-excludable product?" Tags="&lt;markets&gt;&lt;free-riding&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="29602" PostTypeId="2" ParentId="29600" CreationDate="2019-06-01T16:31:24.460" Score="4" Body="&lt;p&gt;A good is excludable if people can be prevented from using it. If one person is using any rival good then this good won't be available for others. You asked about rival and non-excludable good such as Common-pool resources. Examples of Common-pool resources is fisheries, forests, groundwater basins, oil fields and so on. Unlike pure public goods, common-pool resources face the problem of overuse (the tragedy of commons).&lt;/p&gt;&#xA;&lt;p&gt;Let's see the case of fisheries you talked about. Generally, fishermen are free to fish in the sea. The tragedy of the commons problem tells us that each of the fishermen will try to catch more fishes as they are rival goods, unlike public goods. Therefore, this common pool resource of sea fishes will be vulnerable to get extinct or get empty due to overuse. To reduce the chances of this happening, government or any common group will be given authority to manage it and reduce the overuse of it. Nobel prize winner economist, Elinor Ostrom noticed this and talked about collective-choice arrangements and effective monitoring of common-pool resources.&#xA;Coming to your doubt, CPRs may or may not be sold. Talking about Sand in the river basin (another example of  CPR) there is an example of selling of rights to mine or excavate sand. Also, there is a prohibition of fish mining from the area where fishes are endangered species.  due to over mining or preserving the bio-diversity.&#xA;Therefore, it depends on the situation whether Common pool resources can be sold or not.&lt;/p&gt;&#xA;" OwnerUserId="21868" LastEditorUserId="21868" LastEditDate="2021-04-30T08:30:24.807" LastActivityDate="2021-04-30T08:30:24.807" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29603" PostTypeId="1" CreationDate="2019-06-01T16:57:33.983" Score="2" ViewCount="40" Body="&lt;p&gt;I would like to ask two questions. What are decent schools to study Economics of Education for a PhD? My second question is if there is anybody who could recommend me a good book or research papers that can be a good introduction to this subject.&lt;/p&gt;&#xA;" OwnerUserId="21876" LastActivityDate="2019-06-01T16:57:33.983" Title="Economics of Education" Tags="&lt;education-economics&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29605" PostTypeId="2" ParentId="28992" CreationDate="2019-06-01T20:29:03.313" Score="3" Body="&lt;p&gt;It seems to me based on the &lt;a href=&quot;https://cpb-us-w2.wpmucdn.com/campuspress.yale.edu/dist/3/352/files/2010/11/02_BergemannMorris_571webdb-yo8zo1.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;2019 JEL review&lt;/a&gt; of the same authors that they had published more-or-less what you ask about in a 2015 paper about monopolies and price discrimination (as an application of their BCE theory); see section 5 (and 5.1 in particular) in the 2019 paper. Here the relevant information is the monopolist's knowledge of the consumers valuation. Here are some snippets:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The set of&#xA;  BCE is precisely the set of outcomes that can&#xA;  arise with additional information for a given&#xA;  basic game and prior information structure. If there are properties that hold for all&#xA;  BCE, we have identified predictions that are&#xA;  robust to the exact information structure.&#xA;  Identifying the best or worst outcome that&#xA;  can arise under some information structure&#xA;  according to some objective function as criterion is the same as solving an information&#xA;  design problem where the designer is maximizing or minimizing that criterion. In this&#xA;  section, we will review two such economic&#xA;  applications of information design. We will&#xA;  highlight the implications of this approach in&#xA;  the context of third-degree price discrimination. &#xA;  (Bergemann, Brooks, and Morris 2015) [...]&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;A classic issue in the economic analysis&#xA;  of monopoly is the impact of discriminatory&#xA;  pricing on consumer and producer surplus.&#xA;  A monopolist engages in third-degree price&#xA;  discrimination if he uses additional information about consumer characteristics to offer&#xA;  different prices to different segments of the&#xA;  aggregate market. Bergemann, Brooks, and&#xA;  Morris (2015) characterize what could happen to consumer and producer surplus for all&#xA;  possible segmentations of the market. &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;One can provide some elementary bounds&#xA;  on consumer and producer surplus in any&#xA;  market segmentation. First, consumer surplus must be nonnegative as a consequence&#xA;  of the participation constraint: a consumer&#xA;  will not buy the good at a price above his valuation. Second, the producer must get at least&#xA;  the surplus that he could get if there was no&#xA;  segmentation and he had no additional information beyond the prior distribution. In this case, an optimal policy is always to offer the&#xA;  product with probability one at a given price&#xA;  to all buyers. We therefore refer to it as uniform monopoly price, and correspondingly,&#xA;  uniform monopoly profit. Third, the sum&#xA;  of consumer and producer surplus cannot&#xA;  exceed the total social value that is generated by the good, which is willingness-to-pay&#xA;  minus unit cost of production. The shaded&#xA;  right-angled triangle in figure 5 illustrates&#xA;  these three bounds.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/6hued.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/6hued.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The main result in Bergemann, Brooks,&#xA;  and Morris (2015) is that every welfare outcome satisfying these constraints is attainable by some market segmentation. This is&#xA;  the entire shaded triangle in figure 5. If the&#xA;  monopolist has no information beyond the&#xA;  prior distribution of valuations, there will&#xA;  be no segmentation. The producer charges&#xA;  the optimal monopoly price and gets the&#xA;  associated monopoly profit, and consumers&#xA;  receive a positive surplus; this is marked by&#xA;  point A in figure 5. If the monopolist has&#xA;  complete information, then he can charge&#xA;  each buyer his true valuation, i.e., engage in&#xA;  perfect or first-degree price discrimination;&#xA;  this is marked by point B. The point marked&#xA;  C is where consumer surplus is maximized;&#xA;  the outcome is efficient and the consumer&#xA;  gets all the surplus gains over the uniform&#xA;  monopoly profit. At the point marked D,&#xA;  social surplus is minimized by holding producer surplus down to uniform monopoly&#xA;  profits and holding consumer surplus down&#xA;  to zero.&#xA;  The main result states that we can make&#xA;  only very weak predictions about producer&#xA;  and consumer surplus. It can be understood&#xA;  as the outcome of a set of metaphorical&#xA;  information design problems. If an information designer wanted to maximize consumer surplus, she would choose point C.&#xA;  If she wanted minimize consumer surplus,&#xA;  or producer surplus, or any weighted combination of the two, she could choose point&#xA;  D. Any other point on the boundary of the&#xA;  triangle is the solution to some maximization&#xA;  problem of the information designer defined&#xA;  by some preferences over producer and consumer surplus.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The information design problem has a&#xA;  very clear literal interpretation in the case&#xA;  where the monopolist knows the consumer’s&#xA;  valuation. She can then achieve perfect price&#xA;  discrimination at point B. However, giving a&#xA;  literal information design interpretation of&#xA;  point C is more subtle. We would need to&#xA;  identify an information designer who knew&#xA;  consumers’ valuations and committed to&#xA;  give partial information to the monopolist&#xA;  in order to maximize the sum of consumers’ welfare. Importantly, even though the&#xA;  disclosure rule is optimal for consumers as&#xA;  a group, individual consumers would not&#xA;  have an incentive to truthfully report their&#xA;  valuations to the information designer, given&#xA;  the designer’s disclosure rule, since they&#xA;  would want to report themselves to have low&#xA;  values.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;[...] One can show&#xA;  that any point where the monopolist is&#xA;  held down to his uniform monopoly profits with no information beyond the prior&#xA;  distribution—including outcomes A, C,&#xA;  and D in figure 5—can be achieved with&#xA;  the same segmentation. In this segmentation, consumer surplus varies because the&#xA;  monopolist is indifferent between charging&#xA;  different prices. [They then give a numerical example, which I omit here.]&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;[...] Roesler and Szentes (2017) consider a&#xA;  related information design problem in which&#xA;  a single buyer can design her own information about her value before she is facing a&#xA;  monopolist seller. While the analysis of the&#xA;  third-degree price discrimination proceeds&#xA;  as a one-player application, the arguments&#xA;  extend to many-player settings. Bergemann,&#xA;  Brooks, and Morris (2017a) pursue the question of how private information may impact&#xA;  the pricing behavior in a many-buyer environment. There, we derive results about&#xA;  equilibrium behavior in the first-price auction that hold across all common-prior information structures. The results that we obtain&#xA;  can be used for a variety of applications, e.g.,&#xA;  to partially identify the value distribution in&#xA;  settings where the information structure is&#xA;  unknown and to make informationally robust&#xA;  comparisons of mechanisms.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="6210" LastActivityDate="2019-06-01T20:29:03.313" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29608" PostTypeId="1" CreationDate="2019-06-02T00:15:49.433" Score="1" ViewCount="44" Body="&lt;p&gt;Let &lt;span class=&quot;math-container&quot;&gt;$u(x,y)=f(x)+y$&lt;/span&gt; be a quasilinear utility. Now we rotate it by 45 degrees, (such that the &lt;span class=&quot;math-container&quot;&gt;$x-$&lt;/span&gt;axis becomes the direction of &lt;span class=&quot;math-container&quot;&gt;$(1,1)$&lt;/span&gt;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$v(x,y)=f(x-y)+x+y$&lt;/span&gt;. Is &lt;span class=&quot;math-container&quot;&gt;$v$&lt;/span&gt; also a quasilinear utility? What is its name? It share many similarity with quasilinear utility such as parallel indifference curves. Being a rotation of quasilinear utility seems like the iff condition of parallel indifference curve.&lt;/p&gt;&#xA;" OwnerUserId="13381" LastEditorUserId="13381" LastEditDate="2019-06-02T19:39:40.203" LastActivityDate="2019-06-02T19:39:40.203" Title="Rotation of Quasilinear Utility" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;decision-theory&gt;&lt;theory&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29610" PostTypeId="2" ParentId="29563" CreationDate="2019-06-02T05:46:37.690" Score="0" Body="&lt;p&gt;Actually, the &lt;a href=&quot;https://en.wikipedia.org/wiki/Paradox_of_thrift&quot; rel=&quot;nofollow noreferrer&quot;&gt;paradox of thrift&lt;/a&gt;, which is one name for what you're talking about...&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The paradox states that an increase in autonomous saving leads to a decrease in aggregate demand and thus a decrease in gross output which will in turn lower total saving. [...]&lt;/p&gt;&#xA;  &#xA;  &lt;blockquote&gt;&#xA;    &lt;p&gt;For although the amount of his own saving is unlikely to have any significant influence on his own income, the reactions of the amount of his consumption on the incomes of others makes it impossible for all individuals simultaneously to save any given sums. Every such attempt to save more by reducing consumption will so affect incomes that the attempt necessarily defeats itself. It is, of course, just as impossible for the community as a whole to save less than the amount of current investment, since the attempt to do so will necessarily raise incomes to a level at which the sums which individuals choose to save add up to a figure exactly equal to the amount of investment.&lt;/p&gt;&#xA;    &#xA;    &lt;p&gt;— John Maynard Keynes, The General Theory of Employment, Interest and Money, Chapter 7, p. 84&lt;/p&gt;&#xA;  &lt;/blockquote&gt;&#xA;  &#xA;  &lt;p&gt;The theory is referred to as the &quot;paradox of thrift&quot; in Samuelson's influential Economics of 1948, which popularized the term.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;... assumes a closed economy:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;the paradox assumes a closed economy in which savings are not invested abroad (to fund exports of local production abroad). Thus, while the paradox may hold at the global level, it need not hold at the local or national level: if one nation increases savings, this can be offset by trading partners consuming a greater amount relative to their own production, i.e., if the saving nation increases exports, and its partners increase imports. This criticism is not very controversial, and is generally accepted by Keynesian economists as well,[15] who refer to it as &quot;exporting one's way out of a recession&quot;. They further note that this frequently occurs in concert with currency devaluation[16] (hence increasing exports and decreasing imports), and cannot work as a solution to a global problem, because the global economy is a closed system – not every nation can increase net exports.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The two citations there are two (NYT) blog posts by Krugman.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, outside of strictly Keynesian perspectives, &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;particularly neoclassical economists, criticize this theory on three principal grounds. &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The first criticism is that, following Say's law and the related circle of ideas, if demand slackens, prices will fall (barring government intervention), and the resulting lower price will stimulate demand (though at lower profit or cost – possibly even lower wages). This criticism in turn has been questioned by New Keynesian economists, who reject Say's law and instead point to evidence of sticky prices as a reason why prices do not fall in recession; this remains a debated point.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The second criticism is that savings represent loanable funds, particularly at banks, assuming the savings are held at banks, rather than currency itself being held (&quot;stashed under one's mattress&quot;). Thus an accumulation of savings yields an increase in potential lending, which will lower interest rates and stimulate borrowing. So a decline in consumer spending is offset by an increase in lending, and subsequent investment and spending. Two caveats are added to this criticism. Firstly, if savings are held as cash, rather than being loaned out (directly by savers, or indirectly, as via bank deposits), then loanable funds do not increase, and thus a recession may be caused – but this is due to holding cash, not to saving per se. Secondly, banks themselves may hold cash, rather than loaning it out, which results in the growth of excess reserves – funds on deposit but not loaned out. This is argued to occur in liquidity trap situations, when interest rates are at a zero lower bound (or near it) and savings still exceed investment demand. Within Keynesian economics, the desire to hold currency rather than loan it out is discussed under liquidity preference.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;[The 3rd criticism, relating to the closed economy assumption, was already mentioned in the previous quote above.]&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Although supposedly the &quot;second criticism&quot; is advanced by neoclassical economists, Wikipedia is citing an Austrian-school source (Roger Garrison) for that part. &lt;/p&gt;&#xA;" OwnerUserId="6210" LastEditorUserId="6210" LastEditDate="2019-06-02T06:00:00.327" LastActivityDate="2019-06-02T06:00:00.327" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29611" PostTypeId="1" CreationDate="2019-06-02T11:23:59.693" Score="0" ViewCount="75" Body="&lt;p&gt;I am trying to understand to what degree tariffs (or other restrictions like quotas) were the cause of the trade imbalances between the US and China. One might imagine that it was simply a matter of the Chinese making goods more efficiently... So what exactly were (pre-Trump) the level of tariffs (or other restrictions) in US-China trade? Were they actually asymmetric?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;EDIT:&lt;/strong&gt; I found a page about quotas by country on Wikipedia &lt;a href=&quot;https://en.m.wikipedia.org/wiki/List_of_countries_by_tariff_rate&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;. It suggests that typical Chinese import tariffs are 7.5% and those in the US are 1.66% - that doesn't feel like enough of an asymmetry to explain the massive trade imbalance... maybe there are some legal or quota issues I have yet to discover...&lt;/p&gt;&#xA;" OwnerUserId="5081" LastEditorUserId="5081" LastEditDate="2019-06-16T09:13:37.173" LastActivityDate="2019-07-16T10:01:55.190" Title="Chinese tarriffs (pre-tradewar)" Tags="&lt;international-trade&gt;&lt;usa&gt;&lt;tariffs&gt;&lt;china&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29612" PostTypeId="1" CreationDate="2019-06-02T13:50:56.143" Score="-1" ViewCount="140" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/jqCnm.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/jqCnm.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How do I know the specification in (3.2) is a chi-square distribution with df &#xA;k-1? and why is it the case that the asymptotic variance of &lt;span class=&quot;math-container&quot;&gt;$\hat{\beta}_{FD}- \hat{\beta}_{OLS}$&lt;/span&gt; is simply the difference of asymptotic variance of &lt;span class=&quot;math-container&quot;&gt;$\hat\beta_{FD}$&lt;/span&gt; and that of &lt;span class=&quot;math-container&quot;&gt;$\hat\beta_{OLS}$&lt;/span&gt;?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;*FD refers to first-difference method&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Could someone help me with it? Still struggling figuring it out. Many thanks.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The following is the material from William H. Greene's Econometric analysis 7th edition, p.379  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/QaWGA.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/QaWGA.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="23318" LastEditorUserId="23318" LastEditDate="2019-06-03T04:51:53.803" LastActivityDate="2020-10-25T18:04:05.413" Title="Regarding some econometric problems" Tags="&lt;econometrics&gt;&lt;statistics&gt;&lt;paneldata&gt;" AnswerCount="1" CommentCount="5" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29613" PostTypeId="1" CreationDate="2019-06-02T15:08:32.960" Score="3" ViewCount="343" Body="&lt;p&gt;A &quot;no deal&quot; Brexit is presented in negative terms.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In such a scenario the UK would set tariff schedules in line with trade strategy and protect domestic industry/agriculture with tariff rate quotas.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The UK would lose tariff-free exports into the EU and the markets with which the EU currently has free trade agreements (the two main ones being Japan and Canada). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The non-weighted average MFN global tariff is &lt;a href=&quot;https://www.wto.org/english/thewto_e/20y_e/wto_20_brochure_e.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;9%&lt;/a&gt;. The weighted average tariff for UK exports into the EU is estimated to be around &lt;a href=&quot;http://www.civitas.org.uk/content/files/potentialpostbrexittariffcostsforeuuktrade.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;4.5%&lt;/a&gt; in this scenario. Natural movements in currency value are of this order of magnitude.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There would be increased trade friction for the &lt;a href=&quot;https://fullfact.org/europe/uk-eu-trade/&quot; rel=&quot;nofollow noreferrer&quot;&gt;44%&lt;/a&gt; of our exports that are sent to the EU. British exporters would have to follow the customs rules used by other 3rd-country exporters to the EU like China and the USA.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This would be a major change. Most countries export to the EU under these terms. Our reliance on services mean this change would be economically bounded.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The productive base of the UK would re-orient around the new status-quo with some sectors decreasing in competitiveness and diminishing and some increasing and expanding. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The overall success/failure of the new status quo would be determined by the wider economic strategy rather than tariff changes that are mostly small.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why is a negative long-term forecast necessitated?&lt;/p&gt;&#xA;" OwnerUserId="5505" LastEditorUserId="6210" LastEditDate="2019-06-02T21:42:17.257" LastActivityDate="2019-09-17T15:14:43.390" Title="The economics of a &quot;no deal&quot; Brexit" Tags="&lt;macroeconomics&gt;&lt;economic-growth&gt;&lt;united-kingdom&gt;&lt;european-union&gt;&lt;forecasting&gt;" AnswerCount="5" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29614" PostTypeId="1" AcceptedAnswerId="29622" CreationDate="2019-06-02T15:57:34.777" Score="-2" ViewCount="35" Body="&lt;p&gt;I dont know how to demonstrate homogeneity degree of this function&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$(X-\alpha)^{\beta}(Y)^{1-\beta}$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any idea?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks.&lt;/p&gt;&#xA;" OwnerUserId="21646" LastActivityDate="2019-06-03T00:06:27.050" Title="How can i determine the homogeneity degree of Stone Gaery function?" Tags="&lt;consumer-theory&gt;&lt;producer-theory&gt;" AnswerCount="1" CommentCount="1" ClosedDate="2019-06-05T07:54:16.920" ContentLicense="CC BY-SA 4.0" />
  <row Id="29615" PostTypeId="1" AcceptedAnswerId="29629" CreationDate="2019-06-02T18:23:08.577" Score="0" ViewCount="292" Body="&lt;p&gt;So i have this question:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;RainMan Inc. is in the business of producing rain upon request. They must decide between two investment projects; a new airplane for seeding rain clouds or a new weather control machine built by Dr. Nutzbaum. The discount rate for the new airplane is 9%, while the discount rate for the weather machine is 39% (it happens to be higher risk). Which investment should the company select and why?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Cash flow of airplane= -900,500,600 (life span of 2 years)&#xA;Cash flow of weather machine=-900,550,600,685 (life span of 3 years)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I proceed calculating the NPV of the airplane=63.72 and the NPV of the weather machine=61.29.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I calculate the annuity factor of the airplane which is 1.759 and the annuity factor of the weather machine which is 1.60935.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then the annuity payment of the airplane is 36.38 and the annuity payment of the weather machine is 38.08.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It would appear to me that since the annuity payment (or the equivalent annual annuity) of the payment is lower, then it should be chosen &lt;/p&gt;&#xA;&#xA;&lt;p&gt;HOWEVER! Thesere are the possible answers to the question :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A) Airplane, because it has a higher equivalent annual cash flow &lt;/p&gt;&#xA;&#xA;&lt;p&gt;B) Airplane, because it has a higher NPV &lt;/p&gt;&#xA;&#xA;&lt;p&gt;C) Weather machine, because it has a higher NPV &lt;/p&gt;&#xA;&#xA;&lt;p&gt;D) Weather machine, because it has a higher equivalent annual cash flow&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The answer on the sheet states to choose D. It says that since they have different life spans the weather machine has a higher EAA and should be accepted.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My current knowledge has taught me to choose the project with the lowest equivalent annual annuity . Other questions on my text book had answers that preffered projects with lower equivalent annual annuities.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then what am i doing wrong ? Am i confusing the equivalent annual cost principle with the equivalent annual annuity approach which states to choose the project with the highest equivalent annuity ?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am quite confused since the methods used to calculate the EAA and the EAC appear to be the same on my answer sheet ( different questions obviously ) but yet this question tells me to choose the highest annuity payment and some the lowest?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The other question in which the answer was to choose the project with the lowest EAC is this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Two machines, A and B, which perform the same functions, have the following costs and lives. Machine A has a PV of costs of 6000 and its life is equal to 5 years. Machine B has a PV of costs of 8000 and its life is 7 years. Which machine would you choose? The two machines are mutually exclusive and the cost of&#xA;capital is 15 percent.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Yet again i would still do the same process (other than calculating the NPV which is already states) and i would come to the conclusion that the EAC(A) is 1789.89 and the EAC(B) is 1922.88. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The possible answers to this question are:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A) Machine B, because it has longer life&lt;/p&gt;&#xA;&#xA;&lt;p&gt;B) Machine A, because it has lower PV costs &lt;/p&gt;&#xA;&#xA;&lt;p&gt;C) Machine B, because the EAC is $1,922.88 &lt;/p&gt;&#xA;&#xA;&lt;p&gt;D) Machine A, because the EAC is $1,789.89&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then obviously I would choose D (which is correct since the EAC of machine A is 1789.89 which is indeed lower than B)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Please explain in the simplest way possible what i am not understanding. Thank you !&lt;/p&gt;&#xA;" OwnerUserId="21642" LastActivityDate="2019-06-03T18:32:02.983" Title="Interpeting equivalent annual cash flows" Tags="&lt;finance&gt;&lt;cost&gt;&lt;corporate-finance&gt;&lt;discount-rate&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29616" PostTypeId="1" AcceptedAnswerId="29652" CreationDate="2019-06-02T18:54:41.597" Score="-1" ViewCount="68" Body="&lt;p&gt;a current account deficit (CAD) means you have money leaking out of your country and going to ROW (rest of world).  i see here (&lt;a href=&quot;https://www.imf.org/external/region/tlm/rr/pdf/fpp5.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.imf.org/external/region/tlm/rr/pdf/fpp5.pdf&lt;/a&gt;) that it can be 'funded' via a number of ways.  but why is borrowing locally not one of the ways?&#xA;i am guessing maybe its something to do with that if you borrow locally, then yes money is created , but thats only Inside Money, whereas the money leaking out was Outside Money = HPM = Bank Reserves + Notes&amp;amp;Coins?&lt;/p&gt;&#xA;" OwnerUserId="20559" LastActivityDate="2019-06-04T19:44:27.810" Title="why is it always said that a CAD must be financed by borrowing from foreign countries" Tags="&lt;debt&gt;&lt;balance-of-payments&gt;" AnswerCount="4" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29617" PostTypeId="2" ParentId="29616" CreationDate="2019-06-02T19:00:29.970" Score="0" Body="&lt;p&gt;The current account deficit is an effect, not a cause. The cause is cause of a current account deficit is more foreign borrowing than foreign lending -- that imbalance must be accounted for somewhere, and that place is the CAD.  &lt;/p&gt;&#xA;" OwnerUserId="12054" LastActivityDate="2019-06-02T19:00:29.970" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29618" PostTypeId="2" ParentId="29616" CreationDate="2019-06-02T20:51:58.610" Score="2" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;A current account deficit is when a country imports more goods, services, and capital than it exports. The current account measures trade plus transfers of capital. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.thebalance.com/current-account-deficit-definition-components-and-causes-3305831&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.thebalance.com/current-account-deficit-definition-components-and-causes-3305831&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When a country imports goods, it has to pay for them. That means it moves money from the importing goods. When it exports goods, money moves into the country. If imports are more than exports, then the net effect of the imports and exports is for money to go out of the country. There are three basic places this money can be coming from: external debt, printing money (which in a way is debt), or drawing down cash reserves. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Internal borrowing can't account for the deficit, because each dollar of internally borrowing is, by definition, matched with a dollar of internal lending. &lt;/p&gt;&#xA;" OwnerUserId="16462" LastActivityDate="2019-06-02T20:51:58.610" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29619" PostTypeId="2" ParentId="29613" CreationDate="2019-06-02T21:39:50.453" Score="1" Body="&lt;p&gt;Maybe someone can get into more details, but &lt;a href=&quot;https://www.lse.ac.uk/europeanInstitute/LSE-Commission/Hearing-11---The-impact-of-Brexit-on-jobs-and-economic-growth-sumary.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;generally speaking&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The range of estimates is large, from a loss of GDP of nearly ten percentage points (in the least&#xA;  attractive trade and inward investment scenarios modelled by the Treasury, NIESR and the Centre&#xA;  for Economic Performance at LSE)&#xA;  1&#xA;  to a gain of four points (Minford, for Economists for Brexit&#xA;  – a&#xA;  clear outlier) – see figure 1.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/dPj19.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/dPj19.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The main reason for the differences lies in the assumptions made about shifting from the&#xA;  current access that the UK has to the EU single market to a new regime in which the UK&#xA;  faces restrictions. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Those were from 2016 estimates/papers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, economists were not terribly good at predicting Brexit-related effects insofar, at least short term; see &lt;a href=&quot;https://economics.stackexchange.com/a/27492/6210&quot;&gt;https://economics.stackexchange.com/a/27492/6210&lt;/a&gt; While the gloom and doom may have been overstated, some effects are apparent already, in &lt;a href=&quot;https://www.bloomberg.com/opinion/articles/2019-01-14/the-economic-damage-of-brexit-in-charts&quot; rel=&quot;nofollow noreferrer&quot;&gt;some analyses&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/6V2fM.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/6V2fM.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Apparently the chilling effect of Brexit on investments may have been a real thing (but that assumes the counterfactual dotted trend was a sure thing).&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;As a sort of an update, some days ago (Sep 3, 2019) UNCTAD has posted &lt;a href=&quot;https://unctad.org/en/pages/newsdetails.aspx?OriginalVersionID=2176&quot; rel=&quot;nofollow noreferrer&quot;&gt;an article&lt;/a&gt; on the narrower issue of potential UK losses in a &quot;no deal&quot; scenario due to continuity trade agreements with other countries not yet agreed.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In relation to exports to countries with which the UK has not yet secured the continuation of preferential access, the UK could face substantially higher MFN tariffs, especially on agricultural products. For example, processed food products could face an average increase in tariffs of about 17 percent. Similarly, apparel, textiles and motor vehicles would also face substantially higher tariffs. In value, most of the losses would be concentrated in motor vehicles (about USD\$750 million) and in chemicals (USD\$200 million).&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;[...]&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Among the countries which currently grant preferences to the EU but for which the UK has not yet reached an agreement to grant continued preferential market access, Turkey, South Africa, Canada,  Mexico, Japan, Egypt and Morocco are the markets where the UK is expected to have larger export losses. In particular, the UK is expected to lose about USD\$500 million  of exports in the Turkey market, about 5 percent of its exports to Turkey. In South Africa, the UK is expected to lose about USD\$240 million, equivalent to about 9 percent of its exports to South Africa.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;There's an update to the update as well. On Sep 11, the UK has &lt;a href=&quot;https://www.bbc.com/news/uk-47213842&quot; rel=&quot;nofollow noreferrer&quot;&gt;announced&lt;/a&gt; an &quot;agreement in principle&quot; with South Africa and with a few other, smaller countries from Africa.&lt;/p&gt;&#xA;" OwnerUserId="6210" LastEditorUserId="6210" LastEditDate="2019-09-15T22:39:48.297" LastActivityDate="2019-09-15T22:39:48.297" CommentCount="8" ContentLicense="CC BY-SA 4.0" />
  <row Id="29620" PostTypeId="2" ParentId="29613" CreationDate="2019-06-02T21:53:25.857" Score="0" Body="&lt;p&gt;I decided to edit the post to bring it in line with my area of expertise.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question is, why the UK will be worse off after a no deal Brexit.  Why could it not be economically favorable?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The answer is simple: by leaving the EU, the cost of doing business will rise in all cases and lower in none.  The default tariffs are higher than existing tariffs.  They are a sales tax.  The loss of cooperative agreements in service industries is the functional equivalent to tariffs and are probably more damaging.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You may ask, “why could we not just create a new trade deal?”  You can, but trade deals are very slow things to construct.  It is miraculous that Theresa May’s government had anything at all to show Parliament.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;All major global firms run optimization routines, and they will shift those routines by the amount of the new tariffs.  It is a mistake to look at the average tariff rates.  They do not matter.  For some types of goods, the tariffs are not going to matter, but for others, it is likely the entire flow will stop. The UK will have the default tariffs, and everyone trading with the UK will be required to use the generic tariffs. They are item specific. It is incredibly dangerous to speak in terms of average tariffs. That is a meaningless number.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I wore the average clothing required in most cities in temperate zones around the world, I would freeze to death or die of heat exhaustion in many of them. The issue is variability, not the central tendency. The question is how much of a percentage shift in tariffs will happen minus the effect of added transport costs and the impact of changes in rental spaces for warehousing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What will happen is that the entire world will be kicked out of equilibrium. The UK will have to compensate for the higher costs by cutting other costs such as wages. In other words, there will be more lower paying jobs to compensate for the added costs created by Brexit. There also could be shifts in interest rates, but it isn't clear without a model as to which way it would go.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the UK to expand in real terms, rather than nominal terms, it will have to create technologies not present anywhere else. That will require an increase in immigration. All cities of large size require constant immigration. For geographically large countries like the United States and China, much of the immigration comes from within the country. They are also constantly suffering from emigration out as people are constantly moving to new places once they are no longer in the city of best fit. It is why there is so much fight in the heavily populated places in the US against the Trump administration. The lifeblood of all major cities is the constant movement of people in and out to make the city relevant. God save you if you are Detroit USA, and you only have outflows.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem is that what most people want are high skilled workers, but that is costly. It costs a lot to hire a general when there are many privates who can eventually be trained to be generals. Plus, high skill immigrants often prefer to live in communities with people of their country of origin. Genius is randomly and uniformly distributed in any population group and is independent of parental income. Also, if you hire someone who has already developed technologies, it is unlikely the marginal gain to the UK will be much as that marginal gain was likely captured by prior employers. For the UK to grow, it is going to need robust immigration at all levels of skill.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the UK to grow in real terms, it needs to negotiate trade deals after the equilibrium shifts. Imagine, for example, all sheep herding in the UK ends due to tariffs. Imagine it shifts to France, Germany, and Austria. Those three countries will not allow a trade agreement which will take away their newfound income. It isn't possible to enact trade deals until someone sees which industries in the UK go away forever and the low wage workers created from the former high wage workers expand an industry that previously was not that important. It may be that furniture making will increase, though I doubt it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The UK will need to enculturate innovation. The UK needs to make sure that it is the destination for the new industry, whatever it may be. The UK is likely to have a cadre of highly trained former bankers running around. With a pay cut, all that skill is going to be useful to someone.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In short, Brexit with no deal has no upside for the UK.  There will be a handful of individuals who will be better off, some may be much better off, but most will be worse off.  The UK has historical competitive advantages, on a comparative basis, in several industries.  The changes are going to knock those out, and the UK will need to rebuild.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To use an American analogy, the UK needs to learn to play baseball and give up the advantages of playing basketball.  Basketball is a cooperative game.  If one viewed the other European countries as members of the team, then in basketball, you gain the strengths of the other members.  That is surrendered.  Baseball requires everyone to execute their skills with excellence at every point in time.  It doesn’t require any cooperation and requires an enormous amount of autonomy.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The UK will need to execute with excellence.  It will have to find ways to excel on its own and it will have to find a way to do so without slowing down.&lt;/p&gt;&#xA;" OwnerUserId="11321" LastEditorUserId="11321" LastEditDate="2019-06-02T22:39:03.733" LastActivityDate="2019-06-02T22:39:03.733" CommentCount="7" ContentLicense="CC BY-SA 4.0" />
  <row Id="29621" PostTypeId="2" ParentId="29616" CreationDate="2019-06-02T22:33:33.000" Score="0" Body="&lt;p&gt;I think you're referring to slide 19 in that presentation, which seems self-explanatory to me&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Financing a CA deficit:&lt;/p&gt;&#xA;&lt;p&gt;– Equity investment into the country, E&lt;br /&gt;&#xA;– Borrowing (accumulation of foreign debt, D)&lt;br /&gt;&#xA;– Drawing down foreign assets, FA (bank deposits abroad, or reserves of monetary authorities)&lt;/p&gt;&#xA;&lt;p&gt;To the extent&#xA;a CA deficit is not financed by equity&#xA;investment or a drawdown of foreign assets, external&#xA;debt is increasing.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;So there are two ways to avoid accumulating foreign debt outlined in there.&lt;/p&gt;&#xA;&lt;p&gt;Since that presentation was given in Myanmar (and is mostly about that country), the context is one of developing countries, so printing your their currency to pay for their CA deficit (which is US dollar denominated in that presentation) isn't an option in that context. Of course, if you are the US, that idea might &lt;a href=&quot;https://www.theglobalist.com/trump-trade-deficit-china-economy/&quot; rel=&quot;nofollow noreferrer&quot;&gt;pop&lt;/a&gt; in someone's head...&lt;/p&gt;&#xA;&lt;p&gt;For (someone in) Myanmar to borrow US dollars from an internal Myanmar source in order to pay for [excess] imports, how does that internal source get a hold of US dollars in the first place? It's ultimately [i.e. ignoring more Myanmar intermediaries] through one of the there sources outlined in that slide.&lt;/p&gt;&#xA;" OwnerUserId="6210" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2019-06-02T23:05:01.680" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29622" PostTypeId="2" ParentId="29614" CreationDate="2019-06-03T00:06:27.050" Score="1" Body="&lt;p&gt;If the function &lt;span class=&quot;math-container&quot;&gt;$ f(x,y) = (x-\alpha)^\beta \cdot y^{1-\beta} $&lt;/span&gt; is homogeneous of degree &lt;span class=&quot;math-container&quot;&gt;$ k $&lt;/span&gt;, then it must be true that&#xA; &lt;span class=&quot;math-container&quot;&gt;$ f(\lambda x, \lambda y) = \lambda^k \cdot f(x,y) $&lt;/span&gt; for &lt;span class=&quot;math-container&quot;&gt;$ \lambda \in \mathbb{R} $&lt;/span&gt; and some constant &lt;span class=&quot;math-container&quot;&gt;$ k $&lt;/span&gt;. But see that:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$ f(\lambda x, \lambda y) = (\lambda x-\alpha)^\beta \cdot (\lambda y)^{1-\beta} \neq \lambda^k \cdot (x-\alpha)^\beta \cdot y^{1-\beta} $&lt;/span&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;unless it should happen that &lt;span class=&quot;math-container&quot;&gt;$ \alpha = 0 $&lt;/span&gt;. In that case, the function will be homogeneous of degree one.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Kind regards,&#xA;Pedro.&lt;/p&gt;&#xA;" OwnerUserId="8521" LastActivityDate="2019-06-03T00:06:27.050" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29625" PostTypeId="1" CreationDate="2019-06-03T08:33:12.553" Score="1" ViewCount="37" Body="&lt;p&gt;Is there a pull of skilled workforce from rural to urban areas, i.e. is this scientifically described?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Especially in the European Union.&lt;/p&gt;&#xA;" OwnerUserId="1564" LastActivityDate="2019-06-04T04:51:35.290" Title="Is there a pull of skilled workforce from rural to urban areas?" Tags="&lt;education-economics&gt;&lt;migration&gt;&lt;urban-economics&gt;&lt;european-union&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29626" PostTypeId="2" ParentId="29625" CreationDate="2019-06-03T13:09:34.053" Score="1" Body="&lt;p&gt;Yes, this was written about at some length in &lt;a href=&quot;https://en.wikipedia.org/wiki/Progress_and_Poverty&quot; rel=&quot;nofollow noreferrer&quot;&gt;Progress and Poverty&lt;/a&gt; by the American economist &lt;a href=&quot;https://en.wikipedia.org/wiki/Henry_George&quot; rel=&quot;nofollow noreferrer&quot;&gt;Henry George&lt;/a&gt; in the late 1800s.&lt;/p&gt;&#xA;" OwnerUserId="23023" LastActivityDate="2019-06-03T13:09:34.053" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29627" PostTypeId="2" ParentId="29612" CreationDate="2019-06-03T16:16:59.597" Score="0" Body="&lt;p&gt;The first screenshot (reference?) assumes that OLS is efficient when &lt;span class=&quot;math-container&quot;&gt;$\alpha_i=0$&lt;/span&gt; for all &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;. That is, it is assumed that the idiosyncratic errors are &lt;span class=&quot;math-container&quot;&gt;$iid$&lt;/span&gt; so OLS achieves asymptotic efficiency under the null hypothesis. Let &lt;span class=&quot;math-container&quot;&gt;$(\hat\alpha_{ols}, \hat\beta_{ols}')'$&lt;/span&gt; be the OLS estimator, where the dimension of &lt;span class=&quot;math-container&quot;&gt;$\hat\beta_{ols}$&lt;/span&gt; is &lt;span class=&quot;math-container&quot;&gt;$k-1$&lt;/span&gt;. Then Hausman's results imply that&#xA;&lt;span class=&quot;math-container&quot;&gt;$$avar(\hat\beta_{fd} - \hat\beta_{ols}) = avar(\hat\beta_{fd}) - avar(\hat\beta_{ols}).$$&lt;/span&gt;&#xA;[Algebra is given in Greene's textbook. You shouldn't switch the order of the RHS terms as it should be positive semidefinite.]&#xA;Note that&#xA;&lt;span class=&quot;math-container&quot;&gt;$$avar(\hat\beta_{fd} - \hat\beta_{ols}) = avar(\hat\beta_{ols} - \hat\beta_{fd})$$&lt;/span&gt;&#xA;so it does not matter which one comes first. The key implication of Hausman's result is that the variance of the difference equals the difference of the variances (if one is efficient). The result that &lt;span class=&quot;math-container&quot;&gt;$nT (\hat\beta_{fd} - \hat\beta_{ols})' \hat{avar}(\hat\beta_{fd} - \hat\beta_{ols})^{-1} (\hat\beta_{fd} - \hat\beta_{ols}) \to \chi^2_{k-1}$&lt;/span&gt; is rather straightforward because the dimension of &lt;span class=&quot;math-container&quot;&gt;$\hat\beta$&lt;/span&gt;'s is &lt;span class=&quot;math-container&quot;&gt;$(k-1)\times 1$&lt;/span&gt;. [If &lt;span class=&quot;math-container&quot;&gt;$\xi_n \to N(0, C)$&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$\xi_n$&lt;/span&gt; is &lt;span class=&quot;math-container&quot;&gt;$m\times 1$&lt;/span&gt;, then &lt;span class=&quot;math-container&quot;&gt;$\xi_n' \hat{C}^{-1} \xi_n \to_d \chi^2_{m}$&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$\hat{C}$&lt;/span&gt; is a consistent estimator of &lt;span class=&quot;math-container&quot;&gt;$C$&lt;/span&gt;.] The &lt;span class=&quot;math-container&quot;&gt;$nT$&lt;/span&gt; factor is there because &lt;span class=&quot;math-container&quot;&gt;$avar(z)$&lt;/span&gt; is the asymptotic variance of &lt;span class=&quot;math-container&quot;&gt;$\sqrt{nT}$&lt;/span&gt; times &lt;span class=&quot;math-container&quot;&gt;$z$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hausman's test is a general tool, which can be used for any efficient estimator. In your original question, OLS is efficient (because it is assumed so by the author of the document though it is not clearly stated so) so Hausman's test can be used for the comparison of an inefficient estimator (FD) and an efficient estimator (OLS). In the RE/FE testing, RE is efficient by assumption so Hausman's test can be used. There are lots of other examples of Hausman tests.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;BTW, the assumption that the idiosyncratic errors are &lt;span class=&quot;math-container&quot;&gt;$iid$&lt;/span&gt;, which is generally required for the efficiency of OLS or RE, is very strong, and is not satisfied by typical panel applications. For the panel model &lt;span class=&quot;math-container&quot;&gt;$y_{it} = \alpha_i + x_{it}\beta + e_{it}$&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$x_{it}$&lt;/span&gt; is strictly exogenous, &lt;span class=&quot;math-container&quot;&gt;$e_{it}$&lt;/span&gt; represents factors other than time-invariant factors (&lt;span class=&quot;math-container&quot;&gt;$\alpha_i$&lt;/span&gt;) and &lt;span class=&quot;math-container&quot;&gt;$x_{it}$&lt;/span&gt;. I see no strong reasons why &lt;span class=&quot;math-container&quot;&gt;$e_{it}$&lt;/span&gt; should be serially independent. (This is similar to a time-series model with strictly exogenous regressors. The Newey-West (heteroskedasticity and autocorrelation consistent) estimator is developed to handle this case.) The Hausman test using OLS and FD is based on the strong assumption that there is no heteroskedasticity or autocorrelation in &lt;span class=&quot;math-container&quot;&gt;$e_{it}$&lt;/span&gt;. If &lt;span class=&quot;math-container&quot;&gt;$e_{it}$&lt;/span&gt; is serially correlated or heteroskedastic, OLS is not efficient under the null hypothesis that &lt;span class=&quot;math-container&quot;&gt;$\alpha_i$&lt;/span&gt; is constant, and the mentioned Hausman test fails.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Simlarly, the Hausman test of RE vs FE relies on the efficiency of RE, which again requires that &lt;span class=&quot;math-container&quot;&gt;$e_{it}$&lt;/span&gt; is &lt;span class=&quot;math-container&quot;&gt;$iid$&lt;/span&gt; (loosely speaking). But again there are no strong reasons why &lt;span class=&quot;math-container&quot;&gt;$e_{it}$&lt;/span&gt; should be so. (It's different for dynamic models which require serial independence for identification.)&lt;/p&gt;&#xA;" OwnerUserId="10775" LastEditorUserId="10775" LastEditDate="2019-06-03T16:22:43.533" LastActivityDate="2019-06-03T16:22:43.533" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="29628" PostTypeId="2" ParentId="20631" CreationDate="2019-06-03T17:52:31.463" Score="0" Body="&lt;p&gt;The best books to look at as a beginner are &lt;a href=&quot;https://www.amazon.co.uk/Introduction-Econometrics-Update-Global-James/dp/1292071311/ref=sr_1_1?crid=1Q12WTUL8D49V&amp;amp;keywords=introduction+to+econometrics&amp;amp;qid=1559583656&amp;amp;s=gateway&amp;amp;sprefix=introduction+to+econ%2Caps%2C193&amp;amp;sr=8-1&quot; rel=&quot;nofollow noreferrer&quot;&gt;Introduction to Econometrics&lt;/a&gt; by Stock and Watson, and &lt;a href=&quot;https://www.amazon.co.uk/Introductory-Econometrics-Modern-Approach-Economics/dp/130527010X/ref=sr_1_1?crid=1P42U2532R5VF&amp;amp;keywords=wooldridge+introductory+econometrics&amp;amp;qid=1559583795&amp;amp;s=gateway&amp;amp;sprefix=woold%2Caps%2C149&amp;amp;sr=8-1&quot; rel=&quot;nofollow noreferrer&quot;&gt;Introductory Econometrics: A Modern Approach&lt;/a&gt; by Wooldridge.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, if you have a good knowledge of Linear Algebra, I would also consider the grad school textbook &lt;a href=&quot;https://www.amazon.co.uk/Econometric-Analysis-International-William-Greene/dp/0273753568/ref=sr_1_1?crid=3AW962UH5PC4H&amp;amp;keywords=greene+econometric+analysis&amp;amp;qid=1559583886&amp;amp;s=books&amp;amp;sprefix=greene+econometri%2Caps%2C146&amp;amp;sr=1-1&quot; rel=&quot;nofollow noreferrer&quot;&gt;Econometric Analysis&lt;/a&gt; by Greene. I much prefer learning econometrics using linear algebra, as it is a lot cleaner, with relatively fewer annoying summation signs. Bruce Hansen's notes (&lt;a href=&quot;https://www.ssc.wisc.edu/~bhansen/econometrics/Econometrics.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.ssc.wisc.edu/~bhansen/econometrics/Econometrics.pdf&lt;/a&gt;) are also an excellent resource, but may also assume some maturity with maths and stats. It covers time series as well, which is important for macroeconometrics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Speaking of time series, which is crucial in macroeconomics, the classic book is &lt;a href=&quot;https://www.amazon.co.uk/Time-Analysis-James-Douglas-Hamilton/dp/0691042896/ref=sr_1_1?crid=1OGJYWAN5MMUE&amp;amp;keywords=hamilton+time+series&amp;amp;qid=1559584105&amp;amp;s=books&amp;amp;sprefix=hamilton+time%2Cstripbooks%2C147&amp;amp;sr=1-1&quot; rel=&quot;nofollow noreferrer&quot;&gt;Time Series Analysis&lt;/a&gt; by Hamilton. Another great book is &lt;a href=&quot;https://www.amazon.co.uk/New-Introduction-Multiple-Time-Analysis/dp/3540262393/ref=sr_1_1?qid=1559584187&amp;amp;refinements=p_27%3AHelmut+Lutkepohl&amp;amp;s=books&amp;amp;sr=1-1&quot; rel=&quot;nofollow noreferrer&quot;&gt;Multiple Time Series Analysis&lt;/a&gt; by Lütkepohl. Finally, to catch up with modern techniques in macroeconomics, have a look at &lt;a href=&quot;https://econweb.ucsd.edu/~vramey/research/Shocks_HOM_Ramey.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;this excellent paper&lt;/a&gt; by Ramey.&lt;/p&gt;&#xA;" OwnerUserId="13883" LastActivityDate="2019-06-03T17:52:31.463" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29629" PostTypeId="2" ParentId="29615" CreationDate="2019-06-03T18:32:02.983" Score="1" Body="&lt;p&gt;You're missing the distinction between costs and benefits. In your first probem you have positive NPVs and therefore the equivalent annual value is the equivalent annual cashflows that &lt;strong&gt;comes in.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In your second problem you have costs only. Converting that that to an EAV means converting it to an annual cash flow that &lt;strong&gt;goes out.&lt;/strong&gt; Obviously you want the former to be as large as possible and the latter to be as small as possible.&lt;/p&gt;&#xA;" OwnerUserId="12186" LastActivityDate="2019-06-03T18:32:02.983" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29630" PostTypeId="1" AcceptedAnswerId="29665" CreationDate="2019-06-03T20:13:42.063" Score="1" ViewCount="28" Body="&lt;p&gt;I ran a regression on 20 assets to estimate their beta with different methods. I would like to see the differences of these estimation differences in terms of mean-variance optimal portfolio. How can I do that?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem is that I do not see clearly the role that the estimated beta plays in portfolio optimization empirically. A mean-variance optimization with N assets should be something like&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$min_{\textbf{w}}$&lt;/span&gt; &lt;span class=&quot;math-container&quot;&gt;$\textbf{w}^{'}\textbf{V}\textbf{w}$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;subject to&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\textbf{w}^{'}E(R)=\bar{R}$&lt;/span&gt;,&lt;span class=&quot;math-container&quot;&gt;$\textbf{w}^{'}\textbf{I}=1$&lt;/span&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where w are the weights of the N assets, our choice variable. &lt;span class=&quot;math-container&quot;&gt;$\textbf{V}$&lt;/span&gt; is the covariance matrix of the returns, &lt;span class=&quot;math-container&quot;&gt;$\bar{R}$&lt;/span&gt; is the target return, &lt;span class=&quot;math-container&quot;&gt;$\textbf{I}$&lt;/span&gt; is just a vector of ones and &lt;span class=&quot;math-container&quot;&gt;$E(R)$&lt;/span&gt; is the vector of expected returns of our assets.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &quot;unknowns&quot; are V and E(R), should I use historical returns to replace them? If yes, then what is the use of the betas in portfolio optimization? none? or maybe should I use the betas to get the values of E(R) and V?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I do not understand, could someone provide a mini-guide to get from betas to the optimizing portfolio?&lt;/p&gt;&#xA;" OwnerUserId="23326" LastActivityDate="2019-06-05T16:55:19.907" Title="Estimated betas and optimal portfolio" Tags="&lt;portfolio-theory&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29631" PostTypeId="2" ParentId="11304" CreationDate="2019-06-04T01:08:04.603" Score="0" Body="&lt;p&gt;This question already has an accepted answer, which addresses the economic drawbacks of rent control quite well.  I did want to contribute one additional aspect that hasn't really been addressed:  Rent control can be viewed as a form of (limited) compensation to residents/tenants, for their contribution to making their neighborhoods desirable places to live (and thus driving up property values.)  This is especially clear in the case of commercial tenants (a popular restaurant nearby is certainly a boost to local property values) but also holds true for residential tenants.  Part of the process of gentrification is that (typically) younger, hipper bohemian types move into a formerly low-rent neighborhood, and in virtue of their mere presence (and those of the businesses they frequent/establish/work at) they make the neighborhood more desirable.  While difficult to quantify, there is nonetheless real value being created, and in a fair market those tenants would receive some form of compensation.&lt;/p&gt;&#xA;" OwnerUserId="23023" LastActivityDate="2019-06-04T01:08:04.603" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29632" PostTypeId="1" AcceptedAnswerId="29635" CreationDate="2019-06-04T01:52:08.430" Score="1" ViewCount="391" Body="&lt;p&gt;Consider a typical macro firm set-up where the capital can be produced from output goods using a linear technology. It costs some X units of output good to make a unit of the capital, and the capital production is instantaneous. For simplicity, let the numeraire be the output good.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The typical law of motion of the capital is (with a geometric depreciation rate):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$k_t=k_{t-1}(1-\delta)+i_t$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The firm's technology meets the typical strictly concave, increasing, Inada, and TFP conditions: the amount of capital invested by a firm at time &lt;span class=&quot;math-container&quot;&gt;$t$&lt;/span&gt; produces output &lt;span class=&quot;math-container&quot;&gt;$y_t$&lt;/span&gt; at time &lt;span class=&quot;math-container&quot;&gt;$t+1$&lt;/span&gt; where &lt;span class=&quot;math-container&quot;&gt;$A&amp;gt;0$&lt;/span&gt; denotes the TFP.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$y_{t+1}=Af(k_t)$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\textbf{My question}:$&lt;/span&gt;&#xA;How do you understand the &lt;span class=&quot;math-container&quot;&gt;$\textit{investment TIMING}$&lt;/span&gt; in the law of motion of capital? I read it as the capital that is available today is the sum of what you have carried over from yesterday as depreciated capital plus how much you invest. But how do you interpret this rearrangement:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$i_t=k_t-k_{t-1}(1-\delta)$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So if I stand at &lt;span class=&quot;math-container&quot;&gt;$t$&lt;/span&gt;, then I have the following sources for capital, correct?:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(1) &lt;span class=&quot;math-container&quot;&gt;$(1-\delta)k_{t-1}$&lt;/span&gt;: This simply what I carried over as depreciated capital&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(2) &lt;span class=&quot;math-container&quot;&gt;$k_t$&lt;/span&gt;: The capital I obatained from my linear production technology using the capital I used yesterday. (The remainder of unused capital is depreciated and carried over as in (1))&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But why is (2)-(1), today's firm investment?&lt;/p&gt;&#xA;" OwnerUserId="8560" LastActivityDate="2019-06-04T16:37:45.783" Title="The TYPICAL law of motion of capital" Tags="&lt;macroeconomics&gt;&lt;capital&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29633" PostTypeId="1" CreationDate="2019-06-04T02:24:46.233" Score="1" ViewCount="53" Body="&lt;p&gt;In countries where littering is a problem and the regulations and rules alone cannot give the desired effect due to vary high population,large surface area,etc.. ,will it be effective if the government starts buying garbage on a price per kg basis?&#xA;(This money spent can be compensated by reducing the number of sanitary workers and other departments if this method proves effective)&lt;/p&gt;&#xA;" OwnerUserId="21931" LastEditorUserId="21931" LastEditDate="2019-06-04T02:30:48.333" LastActivityDate="2019-06-04T10:33:55.500" Title="Policy to maintain cleanliness" Tags="&lt;environmental-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29634" PostTypeId="2" ParentId="29625" CreationDate="2019-06-04T04:02:08.917" Score="2" Body="&lt;p&gt;It somewhat depends what you mean by that. The process is more complicated with migrants to cities also acquiring skills/education there, &lt;a href=&quot;https://oxfordre.com/economics/view/10.1093/acrefore/9780190625979.001.0001/acrefore-9780190625979-e-153&quot; rel=&quot;nofollow noreferrer&quot;&gt;e.g.&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Another important piece of work related to education-based motivation is &lt;a href=&quot;https://pdfs.semanticscholar.org/5c70/5849af7a8f5361b23a760ee5ac3c7275dbda.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Lucas (2004)&lt;/a&gt;, who constructs a two-sector model where the urban sector pays a higher wage due to its high-skilled jobs which are not available to rural workers. Unskilled rural agents migrate to cities to accumulate human capital and invest in skills. Households’ preferences are isoelastic and they supply one unit of time endowment to either work or invest in human capital. Rural production uses labor and land; it has diminishing returns because land is fixed in quantity. The urban production technology is linear and requires only skilled labor input. Human capital investment can only take place in cities and labor is free to move between sectors. Rural–urban migration takes place once and for all with the growth rate of production of the urban (rural) sector changes from zero (one) to a constant positive level (zero). &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This is somewhat of a no-brainer, you don't expect PhDs in AI to just pop up in rural areas and then migrate to cities...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There's a monster &lt;a href=&quot;https://ec.europa.eu/social/main.jsp?catId=738&amp;amp;langId=en&amp;amp;pubId=8156&amp;amp;furtherPubs=yes&quot; rel=&quot;nofollow noreferrer&quot;&gt;EU document&lt;/a&gt; (some 350 pages) published in 2018 on migration patterns inside the Union.  As far as I can tell from that (its summary is poor), already [mostly the younger] skilled workers prefer to move to another EU country (with better wages, less corruption, etc.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For healthcare workers, which the EU study spends a lot of time on, within a given EU country, there's indeed a more acute shortage in the rural areas (p. 266). However across EU countries healthcare workers may migrate from an urban area e.g. in Greece to a rural area in the UK, all because of pay, prospects etc. (p. 269)&lt;/p&gt;&#xA;" OwnerUserId="6210" LastEditorUserId="6210" LastEditDate="2019-06-04T04:51:35.290" LastActivityDate="2019-06-04T04:51:35.290" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29635" PostTypeId="2" ParentId="29632" CreationDate="2019-06-04T06:16:20.807" Score="3" Body="&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$k_t$&lt;/span&gt; is your capital after investment, so if you subtract the capital you carried over from last period, &lt;span class=&quot;math-container&quot;&gt;$k_{t-1}(1-\delta)$&lt;/span&gt;, you obtain the amount that must have been invested in order to have &lt;span class=&quot;math-container&quot;&gt;$k_t$&lt;/span&gt; of capital today. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Remember that &lt;span class=&quot;math-container&quot;&gt;$k$&lt;/span&gt; is a stock variable, while &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; is a flow variable. This is why the flow &lt;span class=&quot;math-container&quot;&gt;$i_t$&lt;/span&gt; is the difference between the current and the former stock: &lt;span class=&quot;math-container&quot;&gt;$k_t-k_{t-1}(1-\delta)$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-06-04T06:16:20.807" CommentCount="8" ContentLicense="CC BY-SA 4.0" />
  <row Id="29636" PostTypeId="1" CreationDate="2019-06-04T08:51:22.080" Score="0" ViewCount="38" Body="&lt;p&gt;We all know that the formula for GDP I'd given by&lt;/p&gt;&#xA;&#xA;&lt;p&gt;GDP = C + I + G + NX&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would like to know, whether I am right in deducing that when consumers and industry pay taxes, or when there are import and export taxes I suppose, these do not increase the value of C and I in the equation. Instead, these increase the value of G, provided that the money supplied in taxes to the government is spent.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this correct?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks.&lt;/p&gt;&#xA;" OwnerUserId="21639" LastActivityDate="2019-06-04T09:27:22.460" Title="Taxes and GDP, where do these come in in the formula?" Tags="&lt;gdp&gt;&lt;taxes&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29637" PostTypeId="2" ParentId="29636" CreationDate="2019-06-04T09:27:22.460" Score="1" Body="&lt;p&gt;In this equation:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;GDP = C + I + G + NX&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Taxes come from a combination of C+I but are offset by an increase in G.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any government taxation which is not spent is an investment, so remains part of I.&lt;/p&gt;&#xA;" OwnerUserId="40" LastActivityDate="2019-06-04T09:27:22.460" CommentCount="7" ContentLicense="CC BY-SA 4.0" />
  <row Id="29639" PostTypeId="2" ParentId="29633" CreationDate="2019-06-04T10:33:55.500" Score="2" Body="&lt;p&gt;How effective it will be in the end depends on how the policy is shaped and enforced exactly.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Buying garbage is in fact the same as subsidizing people to pick-up the garbage. In theory, by setting the subsidy at the appropriate level (where the marginal damage of an additional kg of litter on the street equals the marginal cost of picking up that garbarge and handing it in) one would achieve the &quot;optimal amount of litering&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I do see a problem though,especially for the longer term. If people get paid for handing in their garbage, there are no incentives to reduce the overall amount of garbage, in fact people might be tempted to buy products that come with extra packaging so they can cash in on the garbage. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think a better solution in the long term would be a tax on material that is likely to end-up on the streets.&lt;/p&gt;&#xA;" OwnerUserId="12186" LastActivityDate="2019-06-04T10:33:55.500" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29640" PostTypeId="1" AcceptedAnswerId="29657" CreationDate="2019-06-04T10:50:06.897" Score="1" ViewCount="74" Body="&lt;p&gt;Or does progressive marginal taxation imply that it is a progressive average taxation?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here, I mean that if &lt;span class=&quot;math-container&quot;&gt;$T(Y)$&lt;/span&gt; is a tax function of income, marginal tax rate would be &lt;span class=&quot;math-container&quot;&gt;$dT/dY$&lt;/span&gt; and average tax rate would be &lt;span class=&quot;math-container&quot;&gt;$T(Y)/Y$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerUserId="22996" LastActivityDate="2019-06-06T12:34:45.147" Title="Can a progressive marginal taxation be regressive in terms of average tax rate?" Tags="&lt;taxation&gt;&lt;public-economics&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29641" PostTypeId="1" CreationDate="2019-06-04T13:30:22.947" Score="3" ViewCount="78" Body="&lt;p&gt;A 2012 IMF Working paper by Benes and Kumhof &lt;a href=&quot;https://www.imf.org/external/pubs/ft/wp/2012/wp12202.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;&quot;The Chicago Plan Revisited &#xA;&quot;&lt;/a&gt; has this abstract, finding in favor of the Chicago Plan an all counts basically:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;At the height of the Great Depression a number of leading U.S. economists advanced a&#xA;  proposal for monetary reform that became known as the Chicago Plan. It envisaged the&#xA;  separation of the monetary and credit functions of the banking system, by requiring 100%&#xA;  reserve backing for deposits. Irving Fisher (1936) claimed the following advantages for this&#xA;  plan: (1) Much better control of a major source of business cycle fluctuations, sudden&#xA;  increases and contractions of bank credit and of the supply of bank-created money.&#xA;  (2) Complete elimination of bank runs. (3) Dramatic reduction of the (net) public debt.&#xA;  (4) Dramatic reduction of private debt, as money creation no longer requires simultaneous&#xA;  debt creation. We study these claims by embedding a comprehensive and carefully calibrated&#xA;  model of the banking system in a DSGE model of the U.S. economy. We find support for all&#xA;  four of Fisher's claims. Furthermore, output gains approach 10 percent, and steady state&#xA;  inflation can drop to zero without posing problems for the conduct of monetary policy. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Interestingly, that paper even has &lt;a href=&quot;https://en.wikipedia.org/wiki/The_Chicago_Plan_Revisited&quot; rel=&quot;nofollow noreferrer&quot;&gt;a Wikipedia article&lt;/a&gt; but the only criticism mentioned there is from Austrians. I suspect however that the Chicago Plan couldn't be all that uncontroversial with mainstream either, as it would pretty much eliminate the fractional reserve etc. Has this DSGE model of Benes and Kumhof, validating the Chicago Plan with such rosy outlooks (10% improvement in output etc.) received any critical commentary in mainstream/orthodox sources?&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;I also found &lt;a href=&quot;https://www.researchgate.net/profile/Kristofer_Dittmer/publication/268210566_100_percent_reserve_banking_A_critical_review_of_green_perspectives/links/5b8ce550299bf1d5a73a1124/100-percent-reserve-banking-A-critical-review-of-green-perspectives.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;a paper&lt;/a&gt; by Dittmer (2015) about the topic (of full reserve banking) in &lt;em&gt;Ecological Economics&lt;/em&gt;, but this journal is also rather heterodox. And another &lt;a href=&quot;http://eprints.whiterose.ac.uk/103348/3/FontanaFull%20Reserve%20Banking.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Sawyer and Fontana (2016)&lt;/a&gt; in the leading journal of heterodox economics...  (N.B.: the article in &lt;em&gt;Ecological Economics&lt;/em&gt; is probably in part motivated by the fact that the Green Party of England and Wales has incorporated this full-reserve banking proposal in their platform; strangely enough, the former paper doesn't mention this fact, but the latter one does.)&lt;/p&gt;&#xA;" OwnerUserId="6210" LastEditorUserId="6210" LastEditDate="2019-06-05T02:07:01.563" LastActivityDate="2019-06-05T15:23:11.793" Title="Is there any mainstream criticism of the Benes-Kumhof conclusion that the Chicago Plan would improve the US economy nowadays?" Tags="&lt;macroeconomics&gt;&lt;reference-request&gt;&lt;economic-growth&gt;&lt;banking&gt;&lt;dsge&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29642" PostTypeId="2" ParentId="29640" CreationDate="2019-06-04T14:56:57.167" Score="3" Body="&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\frac{\partial\frac{T(Y)}{Y}}{\partial Y}= \frac{T'(Y)}{Y} - \frac{T(Y)}{Y^2}&#xA;$$&lt;/span&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This can only be smaller than 0 if &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ T'(Y) &amp;lt; \frac{T(Y)}{Y} $$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words, the marginal tax rate needs to be smaller than the average tax rate. This can't happen because you start with an average tax rate of zero and a positive marginal tax rate. From then on, in a progressive scheme, the tax due increases faster than taxable income. Progressive taxation is actually characterized by the fact that the marginal tax rate exceeds the average one. &lt;a href=&quot;https://papers.ssrn.com/sol3/papers.cfm?abstract_id=931128&quot; rel=&quot;nofollow noreferrer&quot;&gt;See here, p.27&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="17735" LastEditorUserId="1601" LastEditDate="2019-06-04T15:03:18.673" LastActivityDate="2019-06-04T15:03:18.673" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="29643" PostTypeId="1" CreationDate="2019-06-04T15:37:12.230" Score="1" ViewCount="94" Body="&lt;p&gt;A statement from Ponssard and Zamir &quot;Zero-sum sequential games with incomplete information&quot; at the bottom of the first page reads&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;AM's result is for zero-sum two-person games in which the two players move simultaneously. This includes of course games in which the moves are made sequentially: Player I moves first, player II is informed of player I's move and then makes his own move. (Such a game can be looked at as a simultaneous game after redefining the pure strategies of player II.)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I am curious about the last statement in parentheses. How does one &quot;redefine&quot; the strategies of the follower to make the game simultaneous move?&lt;/p&gt;&#xA;" OwnerUserId="6108" LastActivityDate="2019-10-02T19:02:45.493" Title="Convert a sequential move game into a simultaneous move game" Tags="&lt;game-theory&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29644" PostTypeId="2" ParentId="29632" CreationDate="2019-06-04T16:37:45.783" Score="1" Body="&lt;p&gt;According to how you've defined the firm's LOMOC, investment produces capital simultaneously. That is, &lt;span class=&quot;math-container&quot;&gt;$i_t = k_t - (1-\delta)k_{t-1}$&lt;/span&gt; defines how much capital the firm created in period &lt;span class=&quot;math-container&quot;&gt;$t$&lt;/span&gt;. If you want a delayed investment function, you could simply set the LOMOC to &lt;span class=&quot;math-container&quot;&gt;$k_t = (1-\delta)k_{t-1} + i_{t-1}$&lt;/span&gt;. In this setting, firms invest output into capital in period &lt;span class=&quot;math-container&quot;&gt;$t-1$&lt;/span&gt;, then realize their investment in period &lt;span class=&quot;math-container&quot;&gt;$t$&lt;/span&gt;. &lt;/p&gt;&#xA;" OwnerUserId="19987" LastActivityDate="2019-06-04T16:37:45.783" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29645" PostTypeId="1" AcceptedAnswerId="30195" CreationDate="2019-06-04T16:53:20.427" Score="3" ViewCount="340" Body="&lt;p&gt;In macroeconomics and macroeconomic models, shocks, innovations, and disturbances are very prominent and often mentioned in the literature.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In general, is there a difference between macroeconomic shocks, disturbances, and innovations, or can these terms be used interchangeably? &lt;/p&gt;&#xA;" OwnerUserId="8630" LastActivityDate="2019-07-18T22:36:57.070" Title="Difference between shocks, innovations and disturbances" Tags="&lt;macroeconomics&gt;&lt;definition&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29647" PostTypeId="2" ParentId="29643" CreationDate="2019-06-04T17:43:13.260" Score="1" Body="&lt;p&gt;This is basically the idea that any extensive form game has a normal form representation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www.sfu.ca/~shihenl/302/Strategies%20Memo.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.sfu.ca/~shihenl/302/Strategies%20Memo.pdf&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerDisplayName="user23333" LastEditorDisplayName="user23333" LastEditDate="2019-06-04T18:30:17.013" LastActivityDate="2019-06-04T18:30:17.013" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29649" PostTypeId="1" CreationDate="2019-06-04T18:34:41.963" Score="1" ViewCount="20" Body="&lt;p&gt;I'm asking this board for resources and figures on the Soviet command economy, &lt;strong&gt;specifically good places to start&lt;/strong&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand this question has political connotations, and that there are claims of obfuscation and misunderstanding from both command and market camps, but I am asking for the most perspicacious and academic assessment of the performance of the Soviet command economy. &lt;strong&gt;I am skeptical about claims against its effectiveness.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would be interested in resources that support other countries attempting the command economy.&lt;/p&gt;&#xA;" OwnerUserId="21224" LastEditorUserId="21224" LastEditDate="2019-06-05T03:54:00.107" LastActivityDate="2019-06-05T03:54:00.107" Title="Reference Request for Planned Economies" Tags="&lt;reference-request&gt;" AnswerCount="0" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="29651" PostTypeId="1" CreationDate="2019-06-04T19:03:34.910" Score="0" ViewCount="92" Body="&lt;p&gt;I am also finding it difficult to understand what are the fundamental differences between analysing optimal bundles between concave and convex functions ?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does it also happen that the optimal bundle in strictly concave function is &lt;span class=&quot;math-container&quot;&gt;$not $&lt;/span&gt; a boundary condition ?&#xA;Thanks.&lt;/p&gt;&#xA;" OwnerUserId="22939" LastActivityDate="2019-06-04T19:03:34.910" Title="Finding the optimal consumption bundle given the strictly concave utility function $v(x,y) = U(x) +y$?" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;&lt;optimization&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29652" PostTypeId="2" ParentId="29616" CreationDate="2019-06-04T19:37:04.317" Score="0" Body="&lt;p&gt;ok i think i have figured out the answer to my question!  the answer is indeed that borrowing locally, ie the private sector borrowing from itself, cannot possibly help in funding the CAD because the private sectors borrowings from itself always net out to ZERO  , ie private sector's indebtedness to itself is ZERO always!  this is because if A borrows from B 100, then A's debt to B is 100, and B's credit to A is 100, ie B's debt to A is -100 , so total of the debt of A and B is 100+-100 = ZERO.  The key here is to think in terms of total net debt of the private sector to itself, rather than think of total gross debts (which in my example are 100 as for total gross debt, you do not net off the credit).&#xA;So while the CAD may cause a redistribution of private debt to itself between various sectors of itself, eg between firms and household , poor and rich , or an increase in gross debts within itself,  it has no affect on total private debt to itself.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And in particular , if the CAD is bigger than the budget deficit , then money is leaking out of private sector so private sector is dissaving , so private sectors holdings of foreign assets (assets in gov sector or foreign sector, eg holdings of money , treasuries , and foreign equities, foreign properties, foreign assets) must fall and private sectors debts owed to foreign countries rises, and also, foreigners holdings of your countries assets may increase.&lt;/p&gt;&#xA;" OwnerUserId="20559" LastEditorUserId="20559" LastEditDate="2019-06-04T19:44:27.810" LastActivityDate="2019-06-04T19:44:27.810" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29657" PostTypeId="2" ParentId="29640" CreationDate="2019-06-05T05:52:59.543" Score="1" Body="&lt;p&gt;In comments it was clarified that &lt;span class=&quot;math-container&quot;&gt;$T(Y) = 0$&lt;/span&gt; and continuity are not assumed. In this case there are several counterexamples, a relatively simple one being&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;T(Y) = \left\{&#xA;\begin{array}{ll} &#xA;1 + 20\%Y &amp;amp; \text{if } Y \leq 5 \\&#xA;40\% Y &amp;amp; \text{if } Y &amp;gt; 5.&#xA;\end{array}&#xA;\right. &#xA;$$&lt;/span&gt;&#xA;Here the taxation is progressive, but the average tax rate &lt;span class=&quot;math-container&quot;&gt;$T(Y)/Y$&lt;/span&gt; is close to infinite near &lt;span class=&quot;math-container&quot;&gt;$Y = 0$&lt;/span&gt; as&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\lim_{Y \to 0} \frac{1}{Y} + 20\% = \infty,&#xA;$$&lt;/span&gt;&#xA;and &lt;span class=&quot;math-container&quot;&gt;$T(Y)/Y$&lt;/span&gt; is smaller later, e.g. &lt;span class=&quot;math-container&quot;&gt;$T(5)/5 = 2/5$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As long as &lt;span class=&quot;math-container&quot;&gt;$T(0) &amp;gt; 0$&lt;/span&gt; or there is a positive jump at any income level &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt;, the average tax rate may not be monotonically increasing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(The reader may use the math of the cost functions &lt;span class=&quot;math-container&quot;&gt;$AC,MC$&lt;/span&gt; to examine this.)&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2019-06-06T12:34:45.147" LastActivityDate="2019-06-06T12:34:45.147" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="29658" PostTypeId="1" AcceptedAnswerId="29775" CreationDate="2019-06-05T08:58:55.180" Score="0" ViewCount="94" Body="&lt;p&gt;I am preparing for an exam. I have found an old exam but I have no solutions for it, so I tried to solve it, but I dont know if I did it correctly and need therefore your help. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem looks as follows: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ultimatum game, proposer (Player 1) and responder (Player 2) bargain about the &#xA; distribution of 80 Euro. The proposer offers an amount&lt;span class=&quot;math-container&quot;&gt;$\ [0; 80]$&lt;/span&gt; to the responder&#xA;who may accept or reject this offer. If responder accepts, he gets&lt;span class=&quot;math-container&quot;&gt;$\ z_2$&lt;/span&gt; and the proposer gets&lt;span class=&quot;math-container&quot;&gt;$\ z_1=80-z_2$&lt;/span&gt;. In case of rejection, both get nothing. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;I am looking for the subgame perfect Nash equilibrium.&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\ U_i=z_i-0,4max(z_i-z_j,0)-0,8max(z_j-z_i,0) , i\neq j , \epsilon (1,2)  $&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First of all, I am confused since usually the assumption is &lt;span class=&quot;math-container&quot;&gt;$ \underline{\beta&amp;gt;\alpha}$&lt;/span&gt;. This, does not apply here in my opinion. Since the term &lt;span class=&quot;math-container&quot;&gt;$\ 0,4max(z_i-z_j,0)$&lt;/span&gt; expresses envy, where the&lt;span class=&quot;math-container&quot;&gt;$\ 0,4$&lt;/span&gt; is generally expressed as an &lt;span class=&quot;math-container&quot;&gt;$\alpha$&lt;/span&gt;, but given here as a number. On the other side, the term&lt;span class=&quot;math-container&quot;&gt;$\ 0,8max(z_j-z_i,0)$&lt;/span&gt; expresses fariness, generally given by the preference paramter &lt;span class=&quot;math-container&quot;&gt;$\beta$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Anyway,  I tried to solve it via backwardinduction as follows:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2nd Stage:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;i) Responder accepts if &lt;span class=&quot;math-container&quot;&gt;$\ z_2&amp;gt;z_1$&lt;/span&gt; and it holds that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\ U_2=z_2-0,4(z_2-z_1)&amp;gt;0$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\ z_2&amp;gt;0,4(z_2-z_1)$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think, this condition will never be satisfied, because the propeser will never offer more than half of the amount in question, the 80 Euro here in this example? For me that is the reason why the term  &lt;span class=&quot;math-container&quot;&gt;$\ 0,4max(z_i-z_j,0)$&lt;/span&gt; in the utility function just gets zero. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;ii) Responder accepts if &lt;span class=&quot;math-container&quot;&gt;$\ z_1\geq z_2$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\ U_2=z_2-0,8(z_1-z_2)&amp;gt;0$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\ z_2&amp;gt;0,4(z_1-z_2)$&lt;/span&gt;  with &lt;span class=&quot;math-container&quot;&gt;$\ z_1=80-z_2$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\ z_2&amp;gt;0,4(80-2z_2)$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\ z_2&amp;gt;\frac{320}{13} $&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think, I dont need the 1. Stage anymore since I already calculated the optimal share of the 80? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;That is: &lt;span class=&quot;math-container&quot;&gt;$ z_2*= \frac{320}{13}+\varepsilon $&lt;/span&gt; , where &lt;span class=&quot;math-container&quot;&gt;$\varepsilon $&lt;/span&gt; is the smallest possible amount to add.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$ z_1*= 80-\frac{320}{13}-\varepsilon $&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Questions: &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Is my categorization regarding envy and fairness correct?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Is it of any importance for calcutlations that &lt;span class=&quot;math-container&quot;&gt;$\beta&amp;gt;\alpha$&lt;/span&gt;?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Is it correct that&lt;span class=&quot;math-container&quot;&gt;$\ z_2&amp;gt;z_1$&lt;/span&gt; will never be fullfilled?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Is my subgame Nash equilibrium correct?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Did I miss something?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Is there a more easy approach, if preferences towards envy and fairness are given? &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;I would be very greatful for some help on this problem. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Many thanks in advance. &lt;/p&gt;&#xA;" OwnerUserId="21496" LastEditorUserId="21496" LastEditDate="2019-06-05T09:04:03.000" LastActivityDate="2019-06-13T15:35:02.723" Title="Fehr &amp; Schmidt, ultimatum game, inequaltiy aversion, perfect subgame Nash equilibrium" Tags="&lt;microeconomics&gt;&lt;game-theory&gt;&lt;nash-equilibrium&gt;&lt;inequality&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29659" PostTypeId="1" AcceptedAnswerId="29663" CreationDate="2019-06-05T11:19:52.587" Score="2" ViewCount="110" Body="&lt;p&gt;Take a two-stage game with complete information and simultaneous actions in each state: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(1) Player 1 and 2 simultaneously choose action &lt;span class=&quot;math-container&quot;&gt;$a_1\in A_1$&lt;/span&gt;  and&#xA;&lt;span class=&quot;math-container&quot;&gt;$a_2\in A_2$&lt;/span&gt; respectively.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(2) Player 1 and 2 observe the outcome of the 1st stage&#xA;&lt;span class=&quot;math-container&quot;&gt;$(a_1, a_2)$&lt;/span&gt;, then simultaneously choose action  &lt;span class=&quot;math-container&quot;&gt;$a_3\in A_3$&lt;/span&gt; and&#xA;&lt;span class=&quot;math-container&quot;&gt;$a_4\in A_4$&lt;/span&gt; respectively.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Payoffs are &lt;span class=&quot;math-container&quot;&gt;$u_i(a_1, a_2, a_3, a_4)$&lt;/span&gt; for &lt;span class=&quot;math-container&quot;&gt;$i = 1,2$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;As equilibrium concept I use subgame perfect Nash equilibrium. I find it by&#xA;backward induction: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(A) find the &lt;strong&gt;functions&lt;/strong&gt; &lt;span class=&quot;math-container&quot;&gt;$a^*_3(\cdot)$&lt;/span&gt;  and &lt;span class=&quot;math-container&quot;&gt;$a^*_4(\cdot)$&lt;/span&gt; such that &lt;span class=&quot;math-container&quot;&gt;$\forall (a_1,a_2)\in A_1\times A_2$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\begin{cases}&#xA;a_3^*(a_1, a_2)\in argmax_{a_3(\cdot)}u_1(a_1, a_2, a_3(a_1, a_2), a_4(a_1, a_2))\\&#xA;a_4^*(a_1, a_2)\in argmax_{a_4(\cdot)}u_2(a_1, a_2, a_3(a_1, a_2), a_4(a_1, a_2))\\&#xA;\end{cases}&#xA;$$&lt;/span&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(B) find &lt;span class=&quot;math-container&quot;&gt;$(a_1^*, a_2^*)\in A_1\times A_2$&lt;/span&gt; such that&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\begin{cases}&#xA;a_1^*\in argmax_{a_1}u_1(a_1, a_2, a^*_3(a_1, a_2), a^*_4(a_1, a_2))\\&#xA;a_2^*\in argmax_{a_2}u_2(a_1, a_2, a^*_3(a_1, a_2), a^*_4(a_1, a_2))\\&#xA;\end{cases}&#xA;$$&lt;/span&gt; &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Question: a subgame perfect Nash equilibrium is&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\{a_1^*, a_2^*, \underbrace{a^*_3(\cdot), a^*_4(\cdot)}_{\text{Functions}}\}&#xA;$$&lt;/span&gt;&#xA;or&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\{a_1^*, a_2^*, \underbrace{a^*_3(a_1^*), a^*_4(a_2^*)}_{\text{Point in the image set of the functions $a^*_3(\cdot), a^*_4(\cdot)$}}\}&#xA;$$&lt;/span&gt;&#xA;?&lt;/p&gt;&#xA;" OwnerUserId="1505" LastActivityDate="2019-06-05T15:12:01.077" Title="Definition of subgame perfect Nash equilibrium" Tags="&lt;game-theory&gt;&lt;dynamic-games&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29660" PostTypeId="1" CreationDate="2019-06-05T12:45:24.827" Score="0" ViewCount="239" Body="&lt;p&gt;I've learned what the principle of &lt;a href=&quot;https://www.wikiwand.com/en/Supply_and_demand&quot; rel=&quot;nofollow noreferrer&quot;&gt;supply and demand&lt;/a&gt; says, and would paraphrase it like this:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;The price of a good is at equilibrium when supply and demand are&#xA;equal.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Or with other words:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;The price of a good is dictated by the principle of supply and&#xA;demand when supply and demand are equal.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;My question is:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;How does the principle (or even law) of supply and demand work in practice? Which&#xA;forces force the price to be at equilibrium?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;That's what I came up with (a very raw model):&lt;/p&gt;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;The producer or seller of a product notices that the product sells better than before.&lt;/li&gt;&#xA;&lt;li&gt;From this he draws the conclusion that there is a bigger need for the product: consumers want to have it more urgently than before.&lt;/li&gt;&#xA;&lt;li&gt;That means, consumers will probably be willing to pay a higher price for it than the current one.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&lt;p&gt;Now there are different cases:&lt;/p&gt;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;The producer can produce as much of the good as he could sell.&lt;/strong&gt; He does so and sells it for the old price (making people happy). Or he takes a higher price (because he can, but not too high).&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;The producer can &lt;em&gt;not&lt;/em&gt; produce as much of the good as he could sell.&lt;/strong&gt; &lt;br&gt;a) He doesn't want to grow, so he produces as much as he can and&#xA;sells it for the old price (&amp;quot;first come first serve&amp;quot;). Or he takes a higher price (but not too high).&lt;br&gt;&#xA;b) He grows (taking credits) and raises the price to compensate the interests to be paid. Or he raises the price even more (because he can, but not too high).&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Which of these scenarios is mainly responsible for rising prices&#xA;in case a good is demanded more strongly?&lt;/p&gt;&#xA;&lt;p&gt;And what is responsible for rising prices of goods with no rise of demand? (Is this only a collateral effect?)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="22991" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2021-03-02T21:01:30.253" Title="The law of supply and demand - How does it work?" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;inflation&gt;&lt;supply-and-demand&gt;" AnswerCount="3" CommentCount="7" ContentLicense="CC BY-SA 4.0" />
  <row Id="29661" PostTypeId="1" CreationDate="2019-06-05T13:15:27.937" Score="2" ViewCount="116" Body="&lt;p&gt;Learning from different sources I got the impression that the &lt;a href=&quot;https://www.wikiwand.com/en/European_Central_Bank&quot; rel=&quot;nofollow noreferrer&quot;&gt;European Central Bank&lt;/a&gt; targets at a inflation rate of 2% (not sure along which time scale actually).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can it be explained by general principles why a (long-term) inflation rate of 2% seems optimal?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or does it depend on the current economic situation, and in some scenarios an inflation rate of 0%, 1%, or even 5% or deflation would be optimal (in the short or mid run)? But in the long run always 2%?&lt;/p&gt;&#xA;" OwnerUserId="22991" LastEditorUserId="22991" LastEditDate="2019-06-05T13:49:24.240" LastActivityDate="2019-06-06T13:23:53.693" Title="Why is an inflation rate of 2% optimal?" Tags="&lt;macroeconomics&gt;&lt;inflation&gt;" AnswerCount="1" CommentCount="3" FavoriteCount="2" ClosedDate="2019-06-14T15:48:08.500" ContentLicense="CC BY-SA 4.0" />
  <row Id="29663" PostTypeId="2" ParentId="29659" CreationDate="2019-06-05T14:38:01.893" Score="2" Body="&lt;p&gt;An equilibrium consists of a profile of &lt;em&gt;strategies&lt;/em&gt;, which specifies an action for every player at each possible contingency. Since each action profile &lt;span class=&quot;math-container&quot;&gt;$(a_1,a_2)$&lt;/span&gt; is a contingency, the SPE must include functions &lt;span class=&quot;math-container&quot;&gt;$a^*_3(a_1,a_2), a^*_4(a_1,a_2)$&lt;/span&gt; that specifies what to do at those contingencies. &lt;/p&gt;&#xA;" OwnerUserId="42" LastEditorUserId="42" LastEditDate="2019-06-05T15:12:01.077" LastActivityDate="2019-06-05T15:12:01.077" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29664" PostTypeId="2" ParentId="29641" CreationDate="2019-06-05T15:23:11.793" Score="1" Body="&lt;p&gt;&lt;a href=&quot;https://scholar.princeton.edu/sites/default/files/markus/files/equivalenceprivatepublicmoney.01jan2019.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;On the Equivalence of Private and Public Money&lt;/a&gt; is a 2019 working paper by Brunnermeier and Niepelt that addresses this issue:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;We propose a generic model of money and liquidity.  We provide&#xA;  sufficient conditions under which a swap of private (inside) against&#xA;  public (outside) money leaves the equilibrium allocation and price&#xA;  system unchanged. We apply the results to Central Bank Digital&#xA;  Currency,  the “Chicago Plan,”  and the Indian de-monetization&#xA;  experiment.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This is their exercise:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;As a result of these developments, debates about the “right” monetary&#xA;  architecture resurface and classic questions about the nature of money&#xA;  return to the fore.  A key point of contention concerns the optimal&#xA;  balance between public and private money. Proponents of a strong&#xA;  government role fear that private money creation breeds instability&#xA;  and shifts seignorage rents from taxpayers to shareholders.  In the&#xA;  “Chicago Plan” of the 1930s and the  recently  rejected  Swiss &#xA;  constitutional  referendum  on  “Vollgeld”  (sovereign  money), they&#xA;  propose to severely restrict or even ban money creation by anyone&#xA;  except the central bank.  Less drastic proposals aim at electronic&#xA;  Central Bank Digital Currency (CBDC) for use by non-banks.  Monetary&#xA;  authorities in countries such as Canada, Singapore, and Sweden&#xA;  currently evaluate the introduction of such “Reserves for All;” the&#xA;  Banco Central del Uruguay has successfully tested the model; and other&#xA;  central banks consider it.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Skeptics, on the other hand, warn of severe macroeconomic risks due to&#xA;  the replace- ment of private by public means of payment.  In their&#xA;  view, a reduction of bank issued inside money will hamper credit&#xA;  extension by banks to firms and households, with negative&#xA;  implications for growth;  and the introduction of CBDC will provide a&#xA;  safe haven asset for depositors to run into at the slightest hint of a&#xA;  crisis, rendering bank runs more likely and thereby threatening&#xA;  financial stability.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;To assess these arguments, we develop a generic model of money and&#xA;  liquidity.  Within this framework, we establish sufficient conditions&#xA;  under which it is irrelevant whether the public  or  the  private &#xA;  sector  issues  means  of  payment.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;They summarize their results as follows:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;We  apply  our  results  to  two  proposals  for  monetary  reform: &#xA;  CBDC,  and  the  more drastic “Chicago Plan.”  We find that the&#xA;  introduction of CBDC need not change macroeconomic outcomes,&#xA;  independently of whether deposits are subject to bank runs or not.  If&#xA;  bank runs are a feature of the current system then the equivalent&#xA;  monetary regime with CBDC has state contingent transfers from the&#xA;  private sector to the central bank; if it does not, for instance due&#xA;  to a generous deposit insurance scheme, then no such transfers are&#xA;  needed.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Contrary to the prevailing view that CBDC would make bank runs more&#xA;  likely, our analysis concludes that it might well make them less&#xA;  likely.  With pass-through funding, the central bank becomes a large&#xA;  depositor that internalizes run externalities, unlike small&#xA;  depositors.  This makes the financial system less fragile. Regarding&#xA;  the Chicago Plan, we also find that the conditions for equivalence are&#xA;  met provided that banks receive appropriate compensation for lost&#xA;  seignorage rents, or that the  ownership  structure  of  banks  is &#xA;  aligned  with  the  distributions  of  tax  burdens.   An important&#xA;  motivation for the “Vollgeld” proposal to outlaw banks from creating&#xA;  liquid assets  was  that  banks  should  be  forced  to  relinquish &#xA;  these  rents.   This  would  transfer seignorage from bank&#xA;  shareholders to taxpayers, undermining wealth-neutrality.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;We also apply our results to the recent Indian de-monetization&#xA;  experiment.  We find that it could not have been neutral because&#xA;  cash-based transactions at black-market prices could not have been&#xA;  replaced by deposit-based transactions.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In contrast, there is a Bank of England working paper that strongly disagrees.&lt;a href=&quot;https://www.bankofengland.co.uk/working-paper/2016/the-macroeconomics-of-central-bank-issued-digital-currencies&quot; rel=&quot;nofollow noreferrer&quot;&gt;The macroeconomics of central bank issued digital currencies&lt;/a&gt; by Barrdear and Kumhof (2016):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;We study the macroeconomic consequences of issuing central bank&#xA;  digital currency (CBDC) -- a universally accessible and&#xA;  interest-bearing central bank liability, implemented via distributed&#xA;  ledgers, that competes with bank deposits as medium of exchange.  In a&#xA;  DSGE model calibrated to match the pre-crisis United States, we find&#xA;  that CBDC issuance of 30% of GDP, against government bonds, could&#xA;  permanently raise GDP by as much as 3%, due to reductions in real&#xA;  interest rates, distortionary taxes, and monetary transaction costs. &#xA;  Countercyclical CBDC price or quantity rules, as a second monetary&#xA;  policy instrument, could substantially improve the central bank’s&#xA;  ability to stabilise the business cycle.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="69" LastActivityDate="2019-06-05T15:23:11.793" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29665" PostTypeId="2" ParentId="29630" CreationDate="2019-06-05T16:55:19.907" Score="1" Body="&lt;p&gt;Let me begin with noting that models such as the CAPM have been extensively falsified, beginning with Mandelbrot in 1963 and ending with the Fama-MacBeth testing in 1973.  Other falsifications followed, but really, it has been a zombie theory since the early seventies.  The difficulty is that the falsification has been like the Michaelson-Morley experiments in the 1880s.  Once they were done, classical physics was falsified, but Plank and Einstein were not around yet.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have a paper in peer review proposing a new stochastic calculus for options pricing and portfolio construction, but there is nothing resembling a consensus on a replacement.  The math is very different.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The core of your problem can understood in two equations.  The first is &lt;span class=&quot;math-container&quot;&gt;$x_{t+1}=\mu{x}_t+\epsilon_{t+1}$&lt;/span&gt;.  The second is &lt;span class=&quot;math-container&quot;&gt;$r_t=\frac{p_{t+1}q_{t+1}}{p_tq_t}-1$&lt;/span&gt;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the first equation, for someone to be willing to invest, &lt;span class=&quot;math-container&quot;&gt;$\mu&amp;gt;1$&lt;/span&gt;.  It was proven in 1958 that this problem has no meaningful solution in Frequentist statistics.  The CAPM is a Frequentist model.  For the CAPM, this means that &lt;span class=&quot;math-container&quot;&gt;$\tilde{w}=R\bar{w}+\varepsilon$&lt;/span&gt; only has a solution when &lt;span class=&quot;math-container&quot;&gt;$R$&lt;/span&gt; is known, which is an assumption of the math underlying the model.  In other words, models such as the CAPM and Black-Scholes depend on it being true that people know the true values of the parameters.  If they do not, it is known that these models cannot be solved.  The argument has been that the market behaves &lt;em&gt;as if&lt;/em&gt; it knew the parameters.  A Bayesian derivation of the CAPM results in a Cauchy likelihood not a normal one.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The second equation makes returns a function of data rather than a known parameter.  As such, it must be derived.  I have a paper deriving the distribution of returns.  The distribution is the product of the ratio of prices and the ratio of volumes if dividends are ignored.  Dividends create their own complications.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, from auction theory, it can be determined that the dominant element of the resulting mixture distribution is the truncated Cauchy distribution.  It has no first moment, so &lt;span class=&quot;math-container&quot;&gt;$\beta$&lt;/span&gt; cannot exist as described in the CAPM.  That is different from saying that it cannot be found.  Such a thing implies the non-existence of the population parameter as the model describes it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I left out the logarithmic models for two reasons.  First, the CAPM has additive errors.  Second, the distribution created by taking the log of Cauchy distributed variables is the hyperbolic secant distribution. It has no covariance structure in the multivariate form, so the CAPM is defeated anyway.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A short proof that the CAPM cannot function would be to note that if &lt;span class=&quot;math-container&quot;&gt;$q_t=q_{t+1}$&lt;/span&gt; which rules out mergers and bankruptcies and &lt;span class=&quot;math-container&quot;&gt;$\delta_t=0,\forall{t}$&lt;/span&gt; and there are no dividends, then return is &lt;span class=&quot;math-container&quot;&gt;$\frac{p_{t+1}}{p_1}$&lt;/span&gt;.  Because stocks are sold in a double auction, there is no winner’s curse.  The rational behavior is to bid your expectation.  Using the assumption of many buyers and sellers from the CAPM, the limiting distribution of the limit book must be normal.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you center the distribution of prices around the equilibrium prices and assume the market is approximately in equilibrium, ruling out things such as a liquidity crisis, then you end up with a bivariate normal distribution.  The equilibrium return &lt;span class=&quot;math-container&quot;&gt;$r^*=\frac{p_{t+1}^*}{p_t^*}$&lt;/span&gt;.  Errors could be thought of as excess return, plus or minus.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Noting that the slope is the same as the tangent of the angle, you quickly get very close to the Cauchy distribution by observing that &lt;span class=&quot;math-container&quot;&gt;$$\theta=\tan^{-1}(r).$$&lt;/span&gt;  The arctangent is the kernel of the cumulative density function of the Cauchy distribution.  The angle is, minimally, a transform of returns via the Cauchy distribution.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Solving for the ratio of two normal distributions by integrating around the equilibrium rather than (0,0), in other words treating the equilibrium as the location of no error, or conceptually by operating in the error space rather than the price space, give you a Cauchy distribution.  It is well known in statistics that the ratio of two normal distributions centered around zero is a Cauchy.  By treating the equilibrium as zero, it still comes out a Cauchy distribution truncated at -100%.  If there exists just one stock that didn't pay a dividend, then the CAPM is intrinsically falsified.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the answer to your question is, there isn’t a solution.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you want to optimize a portfolio, use the Kelly bet instead.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Visually, I took the returns for Carnival Cruises, I didn't subtract one, I just took the ratio.  I performed a kernel density estimate having removed the return from dividends to make it consistent with the above.  I then mapped the truncated Cauchy distribution from the maximum likelihood estimator.  As you can see, even if everything I wrote above is false, there cannot be a &lt;span class=&quot;math-container&quot;&gt;$\beta$&lt;/span&gt; as described in the CAPM.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/8rgqE.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/8rgqE.png&quot; alt=&quot;CCL&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are actually three ways to improve the fit, but I used the method most quants would use instead.&lt;/p&gt;&#xA;" OwnerUserId="11321" LastActivityDate="2019-06-05T16:55:19.907" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29668" PostTypeId="2" ParentId="29661" CreationDate="2019-06-05T23:20:03.223" Score="4" Body="&lt;p&gt;In an &lt;a href=&quot;https://www.thetimes.co.uk/article/were-paying-the-price-for-not-cutting-harder-vw6dksgnfwh&quot; rel=&quot;nofollow noreferrer&quot;&gt;article in the Times&lt;/a&gt;, &lt;a href=&quot;https://en.wikipedia.org/wiki/Jon_Moulton&quot; rel=&quot;nofollow noreferrer&quot;&gt;Jon Moulton&lt;/a&gt; stated:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;The Bank [of England] has had this [2%] inflation target for more than a&#xA;  decade yet it lacks any theoretical basis.&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;EDIT:&lt;/strong&gt; Just in case you are interested, I have a theory about optimal inflation. If you wish money to be neutral - i.e. be a &lt;a href=&quot;https://en.wikipedia.org/wiki/Veil_of_money&quot; rel=&quot;nofollow noreferrer&quot;&gt;Veil over Barter&lt;/a&gt; then you would like money to behave as closely as possible to ordinary &quot;stuff&quot; that gets bought and sold. One property that the bulk of goods have is that they decay over time, i.e. they rot, rust, become obsolete etc etc. If you consider the average decay rate of &quot;stuff&quot; to be X% then inflation should be such that money loses its value at a rate of X% too. I'd say that the decay rate of &quot;stuff&quot; is generally greater than 2%, my feeling is that it is more like 5% or so.&lt;/p&gt;&#xA;" OwnerUserId="5081" LastEditorUserId="5081" LastEditDate="2019-06-06T13:23:53.693" LastActivityDate="2019-06-06T13:23:53.693" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29670" PostTypeId="1" CreationDate="2019-06-06T04:57:12.130" Score="2" ViewCount="33" Body="&lt;p&gt;This is all hypothetical. I understand indifference curves. However, I don't understand how they are produced. I read this question, and the survey answer made sense to me...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://economics.stackexchange.com/questions/14892/research-design-indifference-curves-and-budget-lines&quot;&gt;Research Design: Indifference curves and budget lines&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I read this paper...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://people.ischool.berkeley.edu/~hal/Papers/2005/revpref.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://people.ischool.berkeley.edu/~hal/Papers/2005/revpref.pdf&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It talks about creating indifference curves from prices individuals are willing to pay for certain goods, household budgets, and time series data from aggregate consumption.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, if I had a list of prices that individuals would be willing to pay for a unit of bread, and I had a list of prices that various individuals would be willing to pay for a unit of kale, how would I find the points for an indifference curve?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I had household budgets where I saw how much each household paid for x units of bread, and y units of kale, how would I find the points for indifference curves?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, if I had a list of years, and the quantities consumed of bread and kale in a region. How would I find the points for the relevant indifference curves?&lt;/p&gt;&#xA;" OwnerUserId="23351" LastActivityDate="2019-06-06T04:57:12.130" Title="I have a dataset. How do I convert this data into Indifference Curves?" Tags="&lt;microeconomics&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29671" PostTypeId="1" AcceptedAnswerId="36854" CreationDate="2019-06-06T08:48:58.237" Score="0" ViewCount="45" Body="&lt;p&gt;A lot of data, including indexes, rely on surveys. For example, Purchasing Managers' Index.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(1) Why people answer these surveys (is there any benefit)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(2) How to make sure the data is correct? What if people randomly fill in the survey, or intentionally give incorrect data?&lt;/p&gt;&#xA;" OwnerUserId="23353" LastActivityDate="2020-05-24T01:31:55.727" Title="Why people respond to surveys like that of Purchasing Managers' Index?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29673" PostTypeId="1" CreationDate="2019-06-06T11:05:51.997" Score="0" ViewCount="29" Body="&lt;p&gt;How does Arrow's Impossible Theorem show that the only aggregation rule that works is Dictatorship. Couldn't we have a Non-dictatorship with IIA or a Non-Dictatorship with Pareto Efficiency?&lt;/p&gt;&#xA;" OwnerUserId="23009" LastActivityDate="2019-06-06T16:40:31.357" Title="Arrows Theorem: Dictatorship" Tags="&lt;political-economy&gt;&lt;social-choice&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29674" PostTypeId="1" AcceptedAnswerId="29676" CreationDate="2019-06-06T11:21:20.663" Score="3" ViewCount="511" Body="&lt;p&gt;I understand that zero economic profit does not equal to zero accounting profit. It means that every resource that goes into the production is perfectly utilized considering alternative uses in the economy and nothing more. If every company in the economy is earning zero economic profit, can they contribute to real economic growth? (Ceteris paribus)&lt;/p&gt;&#xA;" OwnerUserId="23354" LastEditorUserId="23354" LastEditDate="2019-06-06T16:15:55.963" LastActivityDate="2019-06-06T16:15:55.963" Title="If every company in the economy earns zero economic profit, can they contribute to real economic growth?" Tags="&lt;economic-growth&gt;&lt;profits&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29675" PostTypeId="1" AcceptedAnswerId="29692" CreationDate="2019-06-06T11:49:46.213" Score="0" ViewCount="29" Body="&lt;p&gt;Reading an article about how many IT divisions of big companies in Japan, became seperate companies. The motivation is apparently to turn them in profit centers. Can anyone explain how becoming a seperate company would be profitable for the original company?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Extract from article:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;Software development is a critically important part of the Japanese IT sector.  The software developers can be categorized into three groups – Maker, User, and Independent System Integrator (so-called SIer). The Maker group consists of computer manufacturers and their subsidiary companies which provide total system solutions including software development and support as well as hardware. Representative companies are Fujitsu, NEC, Hitachi and IBM.  Companies in the User group are former IT divisions which were spun off from parent “user” companies in order to transform themselves into profit centers from cost centers. Most of the large players in financial, manufacturing, and trading sectors keep vertical relationships with their IT subsidiary companies. &quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Source: &lt;a href=&quot;https://clutejournals.com/index.php/IJMIS/article/download/838/822/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Evaluating The Strategic Implications&#xA;Of Japanese IT Offshore Outsourcing&#xA;In China And India&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="23355" LastEditorUserId="23023" LastEditDate="2019-06-07T14:43:37.457" LastActivityDate="2019-06-07T14:43:37.457" Title="How does a division of a company spinning off from it's 'parent' company change it from a cost center to a profit center?" Tags="&lt;supply-and-demand&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29676" PostTypeId="2" ParentId="29674" CreationDate="2019-06-06T12:19:50.917" Score="4" Body="&lt;p&gt;The standard measure of the size of an economy is total &lt;em&gt;income&lt;/em&gt;. Profit is just one type of income (accruing to owners of firms). Wages that accrue to the workers in a firm can increase, which can be taken from the profit of the firm. In that way, income from other sources can continue to increase even though firms earn zero profit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Other sources of income are rent (from land), and interest (from owning productively-used capital), but I'll stick to wages to keep it simple.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, you can see that there are different markets at play&amp;mdash;the labour market, the market for land, and the market for capital (or input goods). The important thing is that one does not, for example, simply take profit away from firm owners and give it to labourers. It must be a result of equilibrium in these markets. So, for example, if equilibrium in the labour market determines that wages for that sector must be high (e.g. due to scarcity of skills or an abundance of demand for those skills), then that high wage is just a cost of production that firms in that sector must swallow, in order to produce in that sector. Even though competition drives profits down to zero, all the other firms in that sector will also be having to pay the market wage rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm answering your question in a highly theoretical fashion, but then again, zero economic profit across the economy is a highly theoretical situation itself.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Edit:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To clarify, I'm arguing that aggregate income can increase through other forms of remuneration, even though profits stay at zero.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you had a &lt;em&gt;ceteris paribus&lt;/em&gt; clause that said these additional income sources remained the same, then economic activity would remain constant (i.e. growth would be zero). Take note that even if the wage rate (or interest rate or price of renting land) remained the same, an increase in the number of firms entering the market would increase economic activity. So, this &lt;em&gt;ceteris paribus&lt;/em&gt; clause is not so much talking about the rate of remuneration remaining constant, but rather the aggregate level of income from other sources remaining constant.&lt;/p&gt;&#xA;" OwnerUserId="175" LastEditorUserId="175" LastEditDate="2019-06-06T13:58:54.443" LastActivityDate="2019-06-06T13:58:54.443" CommentCount="12" ContentLicense="CC BY-SA 4.0" />
  <row Id="29679" PostTypeId="2" ParentId="29673" CreationDate="2019-06-06T16:00:25.010" Score="1" Body="&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Arrow%27s_impossibility_theorem&quot; rel=&quot;nofollow noreferrer&quot;&gt;Arrow's Impossibility Theorem&lt;/a&gt; merely states that (with a ranked voting method) we cannot simultaneously satisfy IIA, Pareto Efficiency, Non-dictatorship and unrestricted domain.  You &lt;em&gt;can&lt;/em&gt; satisfy any subset of those conditions, though.  So Non-dictatorship with IIA is fine &amp;mdash; so long as you're willing to drop Pareto Efficiency.  Similarly, Non-dictatorship and Pareto Efficiency can be satisfied &amp;mdash; if you drop IIA.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can also use a system that is &lt;em&gt;not&lt;/em&gt; ranked, such as &lt;a href=&quot;https://en.wikipedia.org/wiki/Cardinal_voting&quot; rel=&quot;nofollow noreferrer&quot;&gt;Cardinal Voting&lt;/a&gt; although there is some debate as to  how to adapt the IIA criterion in such cases, and some such systems nonetheless fail &lt;em&gt;different&lt;/em&gt; &lt;a href=&quot;https://en.wikipedia.org/wiki/Category:Electoral_system_criteria&quot; rel=&quot;nofollow noreferrer&quot;&gt;criteria&lt;/a&gt; not addressed by Arrow, such as the &lt;a href=&quot;https://en.wikipedia.org/wiki/Majority_criterion&quot; rel=&quot;nofollow noreferrer&quot;&gt;Majority Criterion&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Unrestricted domain has more to do with how to decide which candidates are eligible to appear on the ballot, and which voters are allowed to vote in general, and so isn't usually considered as one of the criteria that can be relaxed... it's more a formality in Arrow's theorem, than the other criteria.)&lt;/p&gt;&#xA;" OwnerUserId="23023" LastEditorUserId="23023" LastEditDate="2019-06-06T16:40:31.357" LastActivityDate="2019-06-06T16:40:31.357" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29680" PostTypeId="1" CreationDate="2019-06-06T16:10:25.273" Score="0" ViewCount="41" Body="&lt;p&gt;In international relationships, often the interacting agents are countries. For example, countries negotiate, sign agreements, give loans to each other, trade, etc. Thus it is interesting whether these interactions are analyzed analogously to economic interactions between individuals, starting with the assumption that each country has a utility function.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Utility functions of countries are mentioned the context of a fair division procedure called &lt;a href=&quot;https://en.wikipedia.org/wiki/Adjusted_winner_procedure#Use_cases&quot; rel=&quot;nofollow noreferrer&quot;&gt;adjusted winner&lt;/a&gt;. This procedure has been applied (hypothetically) to some international agreements, such as the Israeli-Egypt peace treaty, the Spratley islands disputes,  and the Panama Canal treaty. In each of these cases, the authors assume that each of the two involved countries has a cardinal utility function over the debated issues, and apply the procedure to find a fair and efficient agreement.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is: are there other papers in international economics that assume such 'utility function' of countries?&lt;/p&gt;&#xA;" OwnerUserId="385" LastActivityDate="2019-06-08T08:04:50.083" Title="Utility functions of countries" Tags="&lt;reference-request&gt;&lt;international-economics&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29682" PostTypeId="1" CreationDate="2019-06-06T16:28:32.420" Score="1" ViewCount="36" Body="&lt;p&gt;I have learned a bit how the &lt;a href=&quot;https://www.wikiwand.com/en/Consumer_price_index&quot; rel=&quot;nofollow noreferrer&quot;&gt;consumer price index&lt;/a&gt; (= inflation rate) &lt;a href=&quot;https://www.destatis.de/DE/Presse/Pressekonferenzen/2019/HGG_VPI/HGG_VPI_Uebersicht.html?nn=238906&quot; rel=&quot;nofollow noreferrer&quot;&gt;in Germany&lt;/a&gt; is calculated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's a complex process, which takes into account a lot of measured values (mainly specific prices for specific goods along specific distribution channels) and complex weightings (taking into account the volume of distribution channels). At some point in the process, when consumer price indices of Germany's &lt;a href=&quot;https://www.wikiwand.com/en/Federated_state&quot; rel=&quot;nofollow noreferrer&quot;&gt;federated states&lt;/a&gt; have been calculated, a weighted average consumer price index is calculated for Germany as a whole.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As I have learned, the weight by which a federated state enters the Germany-wide average index used to be proportional to its &lt;strong&gt;population&lt;/strong&gt; (until approx. 2002-2005, &lt;a href=&quot;https://www.wikiwand.com/de/Gerhard_Schr%C3%B6der&quot; rel=&quot;nofollow noreferrer&quot;&gt;Gerhard Schröder&lt;/a&gt;'s reign?, I did not verify), but since then it's the &lt;strong&gt;&quot;market volume&quot;&lt;/strong&gt;, i.e. the total amount of money spent by households in the state. (I don't know the correct technical term.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This may make sense from an macroeconomical or monetary/fiscal perspective, but it feels somehow &quot;unjust&quot;. In the long run it might be to the benefit of all (even the poorer states with lesser market volume), but how do I know, and at first sight it seems &quot;unfair&quot; in the sense of &quot;&lt;a href=&quot;https://www.wikiwand.com/en/One_man,_one_vote&quot; rel=&quot;nofollow noreferrer&quot;&gt;one man, one vote&lt;/a&gt;&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So I wonder, if there are good arguments that this way of calculating the Germany-wide consumer price index is &quot;fair&quot; and to the same benefit for all, or if &amp;ndash; in the long run &amp;ndash; it privileges the richer (or maybe the poorer) states?&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;For a layman like me, this question is not easy to answer. It strongly&#xA;  depends on how the officially calculated and reported consumer price&#xA;  index (= inflation rate) affects (by very different measures) the&#xA;  overall but also the regionally distributed wealth of a state or&#xA;  nation.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;What I don't know (and didn't try to find out) is how the &lt;a href=&quot;https://www.wikiwand.com/en/Harmonised_Index_of_Consumer_Prices&quot; rel=&quot;nofollow noreferrer&quot;&gt;harmonized index of consumer prices&lt;/a&gt; for the whole EU takes the single EU-members into account: by population or by market volume? My same questions would hold on this higher level, too.&lt;/p&gt;&#xA;" OwnerUserId="22991" LastEditorUserId="22991" LastEditDate="2019-06-06T17:53:24.987" LastActivityDate="2019-06-06T19:08:20.020" Title="Puzzle: Fairness of consumer price indices" Tags="&lt;macroeconomics&gt;&lt;inflation&gt;&lt;price-level&gt;&lt;fairness&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29683" PostTypeId="1" AcceptedAnswerId="29690" CreationDate="2019-06-06T16:55:02.667" Score="2" ViewCount="78" Body="&lt;p&gt;Dynamic, Sequential, Stochastic, Extensive form and Evolutionary games. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know what all of them mean very roughly.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I want to clarify them.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As I understand Extensive form is a description of a game, not the type of a game. But Some use Extensive form game as a type of game.&lt;br&gt;&#xA;&lt;strong&gt;So, is Extensive form game sequential game?&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can anybody clarify the definitions of all these terms and relationships/differences?&lt;/p&gt;&#xA;" OwnerUserId="21756" LastEditorUserId="21756" LastEditDate="2019-06-06T17:15:14.717" LastActivityDate="2019-06-06T20:27:51.870" Title="Sequential Game is Extensive form game?" Tags="&lt;game-theory&gt;&lt;dynamic-games&gt;&lt;extensive-games&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29684" PostTypeId="1" CreationDate="2019-06-06T17:45:41.413" Score="2" ViewCount="67" Body="&lt;p&gt;I'm trying to predict the income of graduates of certain Master's programs n years after graduation, using the American Community Survey individual level dataset to calibrate my equation. It gives me observations of individuals listing their income, age, degree program, and other variables, but doesn't tell me years since graduation or years in the workforce. How can I best predict income n years after graduation?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'd like my final product to be a regression equation of the form: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;income_year_n = starting_salary(many variables) * (1+rate_of_raises)^n&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My initial approach is along the lines of:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;The youngest people with this degree are 23 years old. They all must have graduated the previous year. Use them to calibrate the starting_salary function. &lt;/li&gt;&#xA;&lt;li&gt;The next youngest group is 24. They must either have one year of experience, or have just graduated. I know roughly the proportion for each, because I know how many 23 year olds there are in the dataset, but I don't know which are the new graduates and which graduated last year. &lt;/li&gt;&#xA;&lt;li&gt;The next youngest is 25, this group has either 0, 1, or 2 years of experience, and I know the proportions for each. &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;And so on. This feels like the beginning of an approach that would work, but I can't figure out how to go from this data to a regression equation that predicts income after a certain number of years. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any ideas? I know there's no perfect solution, I'm looking for a close-enough hack to actually use the equation in the real world. Anything would be greatly appreciated, thanks a ton. &lt;/p&gt;&#xA;" OwnerUserId="23358" LastActivityDate="2021-02-26T01:01:35.167" Title="How to predict income n years after graduation using income dataset with age, but not graduation year?" Tags="&lt;econometrics&gt;&lt;statistics&gt;&lt;applied-econometrics&gt;&lt;micro-data&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29686" PostTypeId="2" ParentId="29682" CreationDate="2019-06-06T19:08:20.020" Score="2" Body="&lt;p&gt;The economic purpose of the CPI is to convert nominal units of consumption (goods and services) into real units of consumption. I understand that the CPI is used for other many purposes, but that's the economic purpose. For example, say that there  is one consumption good, corn, and corn is priced in denarii. We know that in 2010 50 billion denarii of corn was consumed while in 2018 100 billion denarii of corn was consumed. Was more corn consumed in 2010 or 2018? To answer this, you need to know the price of a kilogram of corn in denarii in 2010 and 2018. Say that &lt;span class=&quot;math-container&quot;&gt;$P_{2010}=25\:denarii/kilogram$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$P_{2018}=100\:denarii / kilogram$&lt;/span&gt; In this case consumption was 2 billion kilograms in 2010 and 1 billion kilograms in 2018. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;When we get to multiple goods there is a complication because you can't add up or otherwise compare quantities of different goods. Therefore, it is convenient to pick a common &lt;a href=&quot;https://en.wikipedia.org/wiki/Num%C3%A9raire&quot; rel=&quot;nofollow noreferrer&quot;&gt;numeraire&lt;/a&gt;. In the example, if we pick 2010 dollars as the numeraire then we see that consumption was 50 billion 2010 denarii in 2010 and 25 billion 2018 denarii in 2018. Both versions tell the same story, that real consumption was halved in 2018 relative to 2010. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This same logic holds when there are multiple goods. Let &lt;span class=&quot;math-container&quot;&gt;$t=0$&lt;/span&gt; be the base (numeraire) year and &lt;span class=&quot;math-container&quot;&gt;$t=\tau$&lt;/span&gt; be the year of comparison:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$Real\: t=\tau\: Output\:in\:t=0\:prices =Expenditure_{good\:1,\tau}\cdot P_{1,0} / P_{1,\tau} + Expenditure_{good\:2,\tau} \cdot P_{2,0} / P_{2,\tau}\ldots + Expenditure_{good\:n,\tau} \cdot P_{n,0} / P_{n,\tau}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Recall that expenditures are prices times quantities, so expenditures divided by prices are quantities. &#xA;&lt;span class=&quot;math-container&quot;&gt;$$Real\: t=\tau\: Output\:in\:t=0\:prices =Q{1,\tau}\cdot P_{1,0}  + Q{2,\tau} \cdot P_{2,0} \ldots + Q{n,\tau} \cdot P_{n,0}$$&lt;/span&gt;&#xA;While nominal output is:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$Nominal\: t=\tau\: Output\:in\:t=\tau\:prices = Q{1,\tau}\cdot P_{1,\tau}  + Q{2,\tau} \cdot P_{2,\tau} \ldots + Q{n,\tau} \cdot P_{n,\tau}$$&lt;/span&gt;&#xA;This lets us define the CPI:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\frac{Nominal\: t=\tau\: Output\:in\:t=\tau\:prices}{Real\: t=\tau\: Output\:in\:t=0\:prices} = CPI_{\tau}$$&lt;/span&gt; &#xA;That is, the relative change in the price level is the relative change in each prices weighted by the size of their expenditures. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For welfare purposes, it is important to understand that there are income and substitution effects from price changes. We can buy more of relatively cheaper goods and less of relatively expensive ones. A high price of a good we consume makes us effectively poorer. Both income and substitution can change our consumption bundles, and the &lt;a href=&quot;https://en.wikipedia.org/wiki/Price_index&quot; rel=&quot;nofollow noreferrer&quot;&gt;Paasche, Laspeyres, and Fisher indices&lt;/a&gt; are attempts to deal with these issues. And there are other complications like changes in product availability, change in quality and features, and other measurement issues. But the overall idea is as above. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, if we are interested in making consumption comparisons across time, there really is only one way to do it, to weight the changes in prices by expenditures, and this means over-weighting the consumption of the risk because the consume more.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What happens if the weighted average change in the prices of the goods consumed by the poor is different than that of the rich? In this case the index is going to look more like the consumption of the rich than the poor. That, in and of itself, is not unfair, it is just an accounting result. This can become unfair when taxes and benefits are tied to indexed values. So, for example, if the goal is to guarantee everyone a minimum real income, and prices go up faster for the bundle consumed by the poor than the rich, the real value of a fixed benefit will go down.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This shows that the CPI is not the ideal index for all purposes. In my eyes, it is valuable to know (or at least well approximate) the real consumption output. If the goal is instead to create an index for the benefits of the poor to preserve their real value then a separate index should be made for that purpose. The sensible goal of tying the index to its purpose leads to a proliferation of indices. In addition to the CPI, the US has the producer price index ( measure of intermediate good pricing), the personal consumption expenditures index (&lt;a href=&quot;https://www.clevelandfed.org/newsroom-and-events/publications/economic-trends/2014-economic-trends/et-20140417-pce-and-cpi-inflation-whats-the-difference.aspx&quot; rel=&quot;nofollow noreferrer&quot;&gt;CPI is based on a survey of what households are buying; the PCE is based on surveys of what businesses are selling&lt;/a&gt;), and a &lt;a href=&quot;https://www.bls.gov/opub/ted/2012/ted_20120302_data.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;consumer price index for the elderly&lt;/a&gt;. There probably are many others. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To my knowledge, there is no regularly updated government price index for the consumption of the poor. However &lt;a href=&quot;https://www.bls.gov/opub/mlr/1996/09/art5full.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Garner, Johnson, and Kokoski (1996)&lt;/a&gt; do develop such an index, and find it is very similar in trends to that of the more general CPI. &lt;a href=&quot;https://pubs.aeaweb.org/doi/pdf/10.1257/jep.23.2.77&quot; rel=&quot;nofollow noreferrer&quot;&gt;Broda, Leibtag,  and Weinstein (2009)&lt;/a&gt; and find &quot;By examining scanner data on thousands of household purchases we find that the poor pay less —not more—for the goods they purchase.&quot; However, there does seem to be some contrary evidence more recently like &lt;a href=&quot;https://economics.stackexchange.com/questions/29682/puzzle-fairness-of-consumer-price-indices#29682&quot;&gt;Inflation May Hit the Poor Hardest&lt;/a&gt; (Casselman (2014)).&lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2019-06-06T19:08:20.020" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29688" PostTypeId="2" ParentId="29675" CreationDate="2019-06-06T19:26:01.887" Score="0" Body="&lt;p&gt;The next sentence in the article says &quot;Some of those spin-offs expanded their business to get contracts with other companies.&quot; I imagine this is how they become profitable: rather than having an IT department strictly to serve your own company's needs, which is purely a cost, have it sell its services to many other companies, making it a profit center. &lt;/p&gt;&#xA;" OwnerUserId="23358" LastActivityDate="2019-06-06T19:26:01.887" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29690" PostTypeId="2" ParentId="29683" CreationDate="2019-06-06T20:27:51.870" Score="5" Body="&lt;p&gt;First of all, you can differentiate between &lt;strong&gt;static&lt;/strong&gt; (essentially all players move simultaneously and only once) and &lt;strong&gt;dynamic&lt;/strong&gt; (essentially non-static) games.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An &lt;strong&gt;extensive&lt;/strong&gt;-form game is essentially a game tree. This form of presentation makes sense when looking at games where players move sequentially. However, you could also represent a simultaneous-move game in a game tree. It just doesn't add any insights over the normal form (matrix).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Game trees are a great tool to present dynamic games such as standard &lt;strong&gt;sequential&lt;/strong&gt;-move games with perfect and complete information (player 1 moves first, player 2 observes the move and reacts, and so on), and they can also be used to present games of incomplete information or games of imperfect information.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Repeated&lt;/strong&gt; games are dynamic games in which the same static stage game is repeated multiple times. Such games are dynamic but usually not represented in extensive-game form. If the stage game is not always exactly the same, but instead the game to be played in each period depends on a state, we speak of a &lt;strong&gt;stochastic&lt;/strong&gt; game. How the state transitions from one state to the other can depend on the actions played before (and pure chance). Strictly speaking, A repeated game is a stochastic game with only a single state.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have never heard the term &quot;&lt;strong&gt;evolutionary&lt;/strong&gt; game&quot; without &quot;theory&quot; following. I am not sure if there is a definition of &quot;evolutionary games&quot;. However, I see evolutionary game theory as a subfield of game theory that deals with certain forms of dynamic games and also different underlying assumptions. In particular, there is often no &quot;common knowledge of rationality&quot; and often players find their &quot;optimal&quot; strategy by trial and error without really knowing what they are doing.&lt;/p&gt;&#xA;" OwnerUserId="11590" LastActivityDate="2019-06-06T20:27:51.870" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="29691" PostTypeId="2" ParentId="29684" CreationDate="2019-06-06T20:52:34.353" Score="0" Body="&lt;p&gt;I think you're looking for false precision, here.  &quot;Years since graduation&quot; is already a step function with an essentially arbitrary cutoff (should it really matter to your model that much if somebody is one day shy of being at the end of +1 years, versus one day into +2 years?  the actual difference is a few days.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Just use age minus 23, or just use age in your model.  It shouldn't impact things that much either way.&lt;/p&gt;&#xA;" OwnerUserId="23023" LastActivityDate="2019-06-06T20:52:34.353" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29692" PostTypeId="2" ParentId="29675" CreationDate="2019-06-06T22:04:56.457" Score="1" Body="&lt;p&gt;The parent company pays (roughly) the same amount for IT services as it did before, but those payments are now counted as income for the &lt;em&gt;spinoff&lt;/em&gt; company.  It's mostly an accounting trick, although as Aidan O'Gara pointed out, the new spinoff may take on other clients and start to generate additional income that way.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that some companies use a form of internal currency to track inter-departmental services.  In such situations, departments providing critical infrastructure (such as IT) can often build up a hefty surplus of this internal currency, which can sometimes be spent by managers on internal &quot;perks&quot; for employees (free meals in the company cafeteria, free transportation home from work in a company limo, etc.)  I enjoyed such perks (working in a software support department as an otherwise low-paid intern) at a Wall Street firm in the 1990s.  However, if such internal accounting is denominated in &lt;em&gt;actual&lt;/em&gt; currency &amp;mdash; as it was when I worked at a public university &amp;mdash; then it can lead to flawed apples-to-oranges comparisons by some departments, in which they (incorrectly) believe it is cheaper to use an outside vendor rather than the institution's internal department, due to local optimization that ignores economies of scale or the needs of other departments.&lt;/p&gt;&#xA;" OwnerUserId="23023" LastEditorUserId="23023" LastEditDate="2019-06-06T22:11:31.993" LastActivityDate="2019-06-06T22:11:31.993" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29694" PostTypeId="1" CreationDate="2019-06-06T23:32:14.383" Score="1" ViewCount="54" Body="&lt;p&gt;I'm doing a college assignment (creating a software product) in Computer Science and have been given a template for the part of the report about economics. At one moment it states the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;code&gt;To calculate overhead expenses we must multiply our overall salary by the coefficient of overhead expenses.&lt;/code&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And later in the text it assumes that this coefficient is 1.2 without any context or explanation. This makes absolutely no sense to me. Am I missing something or is it wrong? If it is wrong, how am I supposed to calculate overhead expenses if every reasonable expense is already accounted for?&lt;/p&gt;&#xA;" OwnerUserId="23362" LastActivityDate="2019-11-04T10:02:05.300" Title="How are you supposed to calculate overhead expenses?" Tags="&lt;labor-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29695" PostTypeId="1" AcceptedAnswerId="29697" CreationDate="2019-06-07T00:36:04.420" Score="0" ViewCount="21" Body="&lt;p&gt;In an economy with stochastic overlapping generations of firms, how do we easily understand the measure of new firms born?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The set-up states:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;In each period, measure &lt;span class=&quot;math-container&quot;&gt;$\rho\in(0,1)$&lt;/span&gt; of new firms are born and are endowed with net worth &lt;span class=&quot;math-container&quot;&gt;$w_0&amp;gt;0$&lt;/span&gt;. Firms survive to the next period with probability &lt;span class=&quot;math-container&quot;&gt;$(1-\rho)$&lt;/span&gt; and hence the measure of firms alive in every period is 1.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\textbf{My Question:}$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;What is the measure of firms?&lt;/li&gt;&#xA;&lt;li&gt;How does the measure of firms relate to the firm's survival probability onto the next period?&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;I think I am not understanding clearly when the author uses these related but distinct terms. Can someone explain easily?&lt;/p&gt;&#xA;" OwnerUserId="8560" LastActivityDate="2019-06-07T09:53:15.323" Title="Measure of New Firms Born in Each Period" Tags="&lt;macroeconomics&gt;&lt;firm&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29696" PostTypeId="1" CreationDate="2019-06-07T09:51:58.227" Score="1" ViewCount="207" Body="&lt;p&gt;I am trying to us a Log-linear model to derive an elasticity. However, some of my Xs are negative numbers. Being as the model relies on the natural log of the Ys and the Xs, how can this model work when the natural log can only be taken of X&gt;0? &lt;/p&gt;&#xA;" OwnerUserId="23363" LastActivityDate="2019-06-07T15:02:59.527" Title="How do you use a Log-linear model when you have negative Xs?" Tags="&lt;elasticity&gt;&lt;log-linearization&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="29697" PostTypeId="2" ParentId="29695" CreationDate="2019-06-07T09:53:15.323" Score="2" Body="&lt;p&gt;I don't know your model. Just some general input:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems that you have a model with a continuum of firms. That is, there are many firms and each one is strategically small. In mathematics, a measure of a set is a way to express the size of this set. Hence, the measure of firms alive represents &quot;how many firms are active&quot;. The authors normalize this measure to 1. If it helps, think of 1 million individual small firms and think of &quot;measure 1&quot; as a normalization of this million.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In your model, each period a only a fraction &lt;span class=&quot;math-container&quot;&gt;$(1- \rho)$&lt;/span&gt; of this measure 1 survives and additional measure &lt;span class=&quot;math-container&quot;&gt;$\rho$&lt;/span&gt; of firms are &quot;born&quot;. Thus, the total measure of firms remains 1.&#xA;Again, it may help to think of it as a normalization of a large finite number. For example, if &lt;span class=&quot;math-container&quot;&gt;$\rho=0.5$&lt;/span&gt;, only 500 000 out of 1 000 000 firms from last period survive and 500 000 additional firms are created such that there are still 1 000 000 firms.&lt;/p&gt;&#xA;" OwnerUserId="11590" LastActivityDate="2019-06-07T09:53:15.323" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29698" PostTypeId="2" ParentId="29694" CreationDate="2019-06-07T09:54:40.593" Score="1" Body="&lt;p&gt;Estimating overhead expenses by applying a coefficient to salaries can make sense in some circumstances.  In an organisation which is mainly office-based, overheads may consist mainly of the costs of office space, office running costs (electricity, cleaning, etc), computer equipment and support, and (depending on the local jurisdiction) payroll-related and property-related taxes. Using a fixed coefficient will always be an approximation to actual costs, but sometimes it can be a fairly good one, especially if the organisation has a fairly &quot;flat&quot; structure with most staff being on similar salaries and having similar office and computing needs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a manufacturing organisation with much capital equipment this approach would be inappropriate. &lt;/p&gt;&#xA;" OwnerUserId="1417" LastActivityDate="2019-06-07T09:54:40.593" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29700" PostTypeId="1" AcceptedAnswerId="29790" CreationDate="2019-06-07T12:33:59.550" Score="5" ViewCount="189" Body="&lt;p&gt;I’ve seen definitions of “the core” that rely on some specific assumptions, such as that the game is one of a transfer of resources, or that there is “transferability of utility” (presumably intending to capture the notion of money being the source of this).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But what is the most general definition of the core? Can we talk about the core of any arbitrary game, or does the concept fundamentally only work for specific types of games?&lt;/p&gt;&#xA;" OwnerUserId="11146" LastActivityDate="2019-06-15T23:54:30.257" Title="What is the most general definition of “the core” in game theory?" Tags="&lt;game-theory&gt;&lt;cooperative-game-theory&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29702" PostTypeId="1" AcceptedAnswerId="29712" CreationDate="2019-06-07T13:32:00.383" Score="0" ViewCount="406" Body="&lt;p&gt;So i have this question: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;After spending 3 million on research, Better Mousetraps has developed a new trap. The project requires an initial investment in plant and equipment of 6 million. This investment will be depreciated straight line over 5 years to a value of zero, but when the project comes to an end in 5 years the equipment can , in fact, be sold for 500,000. The firm believes that working capital at each date must be maintained at 10% of the next years forecasted sales. Production costs are estimated at 1.50 per trap and the traps will be sold for 4 each. Sales forecasted are given in the following table. The firm pays tax at 35% and the required rate of return on the project is 12%. What is the NPV?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The image attached is the answer to the problem under the form of a table.&#xA;&lt;a href=&quot;https://i.stack.imgur.com/XiIbd.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/XiIbd.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The only thing i do not understand in this calculation is why , under year 5 in the table, in the capital investment row, it says that the capital investment is 325. Where is this number coming from ? Thanks!&lt;/p&gt;&#xA;" OwnerUserId="21642" LastActivityDate="2019-06-07T22:36:21.623" Title="How to calculate capital investment?" Tags="&lt;finance&gt;&lt;taxation&gt;&lt;investment&gt;&lt;corporate-finance&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29705" PostTypeId="2" ParentId="29696" CreationDate="2019-06-07T15:02:59.527" Score="2" Body="&lt;p&gt;The elasticity of Y with respect to X is often estimated by running a regression like this:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$ \ln Y = \alpha + \beta \ln X + error$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, this isn't always applicable because it is perfectly fine to ask what is the percent change in Y to a percent change in X even if X or Y are negative. There are other issues too, like the fact that the elasticity may not be constant over X. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's go back to the textbook (&lt;a href=&quot;https://rads.stackoverflow.com/amzn/click/com/B01JXTU60C&quot; rel=&quot;nofollow noreferrer&quot; rel=&quot;nofollow noreferrer&quot;&gt;Varian (1992), p. 235&lt;/a&gt;) for the definition of the elasticity of &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt; with respect to &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt;:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$ \epsilon(Y,X) =\frac{\partial Y}{\partial X} \cdot \frac{X}{Y} $$&lt;/span&gt;&#xA;Which equals another common definition of the elasticity:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$=\frac{\partial \ln Y}{\partial \ln X}$$&lt;/span&gt;&#xA;which we often use when estimating the elasticity with linear regressions. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, the advantage of the first form is that you don't have to use the log function to evaluate it. All you need is a local estimate of the derivative, X, and Y. &#xA;One strategy would be just to do that. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, what you are doing could well be nonsensical because percentage changes are weird when working with negative values. For example, consider X going from -11 to -10. This is a 9.1 percent decrease in X ((-10-11)/-11). However, this is is an increase in X! Going from 11 to 10 is also a 9.1 percent decrease in X. What would be the economic conditions where we think going from -11 to -10 and +11 to +10 would have the same effect on demand? &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2019-06-07T15:02:59.527" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29708" PostTypeId="2" ParentId="29166" CreationDate="2019-06-07T19:28:58.210" Score="1" Body="&lt;p&gt;This is because economists typically assume that consumers with the highest valuation of the good will be the first to market. You can think of individuals with higher valuations for a good as being more vigilant or more investigative in finding the good. A good source is here: &lt;a href=&quot;https://pressbooks.bccampus.ca/uvicecon103/chapter/4-6-price-controls/&quot; rel=&quot;nofollow noreferrer&quot;&gt;price controls&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="10559" LastActivityDate="2019-06-07T19:28:58.210" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29710" PostTypeId="1" CreationDate="2019-06-07T20:56:23.337" Score="2" ViewCount="168" Body="&lt;p&gt;In the solution to the problem below provided by my professor he applies a first order condition to the lagrangian for c&lt;sub&gt;t&lt;/sub&gt;, getting p&lt;sub&gt;t&lt;/sub&gt; for the partial derivative of the argument &quot;&lt;span class=&quot;math-container&quot;&gt;$\frac{d}{dc_t(t)} \int p_t(w)*c_t(w)dw$&lt;/span&gt;&quot;. This is puzzling to me since the derivative of a indefinite integral of c&lt;sub&gt;t&lt;/sub&gt; should be c&lt;sub&gt;t&lt;/sub&gt; not 1. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What's going on with this derivative and is it correct?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\frac{d}{dc_t(t)} \int p_t(w)*c_t(w)dw$&lt;/span&gt; = &lt;span class=&quot;math-container&quot;&gt;$p_t(w)$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/96hZU.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/96hZU.png&quot; alt=&quot;Problem description&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit: Removed hand written notes.&lt;/p&gt;&#xA;" OwnerUserId="23010" LastEditorUserId="23010" LastEditDate="2019-06-08T20:14:46.720" LastActivityDate="2019-07-10T02:02:10.247" Title="Dixit Stiglitz price index FOC?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29712" PostTypeId="2" ParentId="29702" CreationDate="2019-06-07T22:36:21.623" Score="1" Body="&lt;p&gt;Presumably the &lt;span class=&quot;math-container&quot;&gt;$\$325K$&lt;/span&gt; represents the sale of the equipment.  It is positive while the purchase of the equipment was shown as &lt;span class=&quot;math-container&quot;&gt;$-\$6,000K$&lt;/span&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question says &lt;span class=&quot;math-container&quot;&gt;$\$500K$&lt;/span&gt;, but that there has been depreciation down to zero (also shown in the table five times as &lt;span class=&quot;math-container&quot;&gt;$\$1200K$&lt;/span&gt;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The depreciation has led to lower taxes being paid, so tax at a rate of &lt;span class=&quot;math-container&quot;&gt;$35\%$&lt;/span&gt; is due on the sale of the equipment, and &lt;span class=&quot;math-container&quot;&gt;$\$500K \times (1-0.35)=\$325K$&lt;/span&gt; is the net benefit to the company from the sale&lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2019-06-07T22:36:21.623" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29715" PostTypeId="1" AcceptedAnswerId="29721" CreationDate="2019-06-08T01:21:37.130" Score="0" ViewCount="72" Body="&lt;p&gt;My Lagrangian is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$L=\sum\limits_{t=0}^T \beta^tU(f(k_t)-k_{t+1})+\sum\limits_{t=0}^T\lambda_t(f(k_t)-k_{t+1}).$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My FOC for &lt;span class=&quot;math-container&quot;&gt;$[k_{t+1}]$&lt;/span&gt; is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\beta^tU'(f(k_t)-k_{t_1}^*)(-1)-\lambda_t^*+\beta^{t+1}U'(f(k_{t+1}^*-k_{t+2})+\lambda^*_{t+1}f'(k_{t+1})^*=0$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\textbf{My Question:}$&lt;/span&gt;&#xA;I try to recover from their FOC and backtrack, but how did they get (5) as the Euler Equation on page 11?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Their EE is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\beta f'(k_t)U'[f(k_t-k_{t+1})]=U'[f(k_{t-1})-k_t]$&lt;/span&gt; for &lt;span class=&quot;math-container&quot;&gt;$t=1,...,T$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Reference:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Stokey, N., R. Lucas, and E. Prescott, Recursive Methods in Economic Dynamics, Harvard Univ. Press, 1989&lt;/p&gt;&#xA;" OwnerUserId="8560" LastEditorUserId="8560" LastEditDate="2019-06-09T08:00:27.273" LastActivityDate="2019-06-09T08:00:27.273" Title="Stokey, Lucas (1989) p 11 FOC" Tags="&lt;macroeconomics&gt;&lt;optimization&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29716" PostTypeId="2" ParentId="29680" CreationDate="2019-06-08T08:04:50.083" Score="1" Body="&lt;p&gt;Caveat: my familiarity with the international agreement literature is limited to that of environmental and resource economics problems.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For those cases instead of a utility function the usual approach is to formulate the problem in terms of costs and benefits for countries' economies as a whole.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When it comes to environmental problems this usually boils down to individual benefits of pollution versus collective damages, or its inverse individual abatement costs versus collective benefits. For resource problems it is individual profits (or consumption) from harvest versus the collective diminishing returns in terms of stock growth or increasing harvest costs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Active authors in this field are a.o. Scott Barrett, Carlo Carraro, Michael Finus in terms of environment and Marco Lindroos and Pedro Pintassilgo for fisheries.&lt;/p&gt;&#xA;" OwnerUserId="12186" LastActivityDate="2019-06-08T08:04:50.083" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29717" PostTypeId="1" AcceptedAnswerId="29720" CreationDate="2019-06-08T09:24:37.787" Score="1" ViewCount="124" Body="&lt;p&gt;This is a standard income, leisure tradeoff model.&#xA;&lt;span class=&quot;math-container&quot;&gt;$$ \max_{c,l}  \min\{c; l\} $$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$s.t. \space c = w(1-t)(1-l)$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$l$&lt;/span&gt; is leisure (where total time is 1),&#xA;&lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt; is wage, &lt;span class=&quot;math-container&quot;&gt;$c$&lt;/span&gt; is consumption, and &lt;span class=&quot;math-container&quot;&gt;$t$&lt;/span&gt; is the labor income tax.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I was asked to &lt;strong&gt;show that this income tax is effectively a lump sum tax.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The definition for lump sum tax is as follows: A tax whose value is independent of the individual's behavior.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Individuals can do nothing to avoid the lump sum tax, and there are no relative price changes. I guess that the utility function had something to do with it, but I do not see how the tax can be viewed as a lump sum tax.&lt;/p&gt;&#xA;" OwnerUserId="22996" LastEditorUserId="1601" LastEditDate="2019-06-08T10:28:11.220" LastActivityDate="2019-06-11T11:28:32.120" Title="Show that this income tax is effectively a lump sum tax" Tags="&lt;microeconomics&gt;&lt;taxation&gt;&lt;public-economics&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29718" PostTypeId="2" ParentId="25903" CreationDate="2019-06-08T14:42:23.240" Score="-1" Body="&lt;p&gt;Gold happens to be an asset class. More importantly it is priced along with other asset classes, as it cannot be valued. Afterall it doesn't have any cashflow. More of it related to psychological bearing. You can price it relatively to index values, other commodities prices, etc. It is also said that it is a measure of faith in Central Bankers and considered as an hedging tool against expansion and debasement of money.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Reasons to hoard could be more than one:&#xA;It can be inflation, strategic ~ now this one depends on the perspective of the owner&#xA;Buy so that it can be sold to liquidate at some future point in time to use for expenditures and other various reasons. I mean one can have various motives to own it as an asset class. In short it can have any of the below reasons:&#xA;Trading&#xA;Investing&#xA;Risk&#xA;Collateral&#xA;As countries (I presume Govt) don't ponder much into speculation hence that can be ruled out.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can further check the money supplies and interest rates of each countries and compares with gold prices along with quantities they happen to own if you have access to data at your end&lt;/p&gt;&#xA;" OwnerDisplayName="user23320" LastActivityDate="2019-06-08T14:42:23.240" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29719" PostTypeId="1" CreationDate="2019-06-08T15:01:08.267" Score="0" ViewCount="52" Body="&lt;p&gt;Ms. A earns 25,000 dollars in period 1 and 15,000 dollars in period 2. Mr. B earns 15,000 dollars in period 1 and 30,000 dollars in period 2. they can borrow money at an interest rate of 200% and can lend money at an interest rate of 0%. They both like consumption in period 1 (&lt;span class=&quot;math-container&quot;&gt;$C_1$&lt;/span&gt;) and consumption in period 2 (&lt;span class=&quot;math-container&quot;&gt;$C_2$&lt;/span&gt;) and their preferences are such that their chosen consumption bundles will always lie on their budget lines.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;a) Write down the equations of their budget constraints and draw their budget lines in the same figure by plotting consumption in period 1 (&lt;span class=&quot;math-container&quot;&gt;$C_1$&lt;/span&gt;) on x-axis and consumption in period 2 (&lt;span class=&quot;math-container&quot;&gt;$C_2$&lt;/span&gt;) on Y-axis.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(b)Given the income profile and the market interest rates, Mr.B chooses to borrow 5000 dollars in period 1. Give an example of a consumption profile (i.e, &lt;span class=&quot;math-container&quot;&gt;$C_1, C_2$&lt;/span&gt;) such that, if Ms.A chooses this profile we know for sure that Ms.A and Mr.B have different preferences for consumption in period 1 (&lt;span class=&quot;math-container&quot;&gt;$C_1$&lt;/span&gt;) and consumption in period 2 (&lt;span class=&quot;math-container&quot;&gt;$C_2$&lt;/span&gt;). Give an explanation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(c)Suppose now that ms.A and Mr.B have the same preferences for &lt;span class=&quot;math-container&quot;&gt;$C_1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$C_2$&lt;/span&gt; and as in part (b), Mr.B borrows 5000 dollars in period 1.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;i. Suppose that ms.A chooses to be a lender in period 1. Find out, with a clear explanation, the maximum amount that she will lend in period 1 consistent with the fact that they have the same preferences for &lt;span class=&quot;math-container&quot;&gt;$C_1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$C_2$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;ii. Explain whether Mr.B is better off than Ms.A&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;my attempt:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;a) for A:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$C_2^A=(Y_1^A-C_1^A)(1+r) + Y_2^A$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;for borrow this becomes: &lt;span class=&quot;math-container&quot;&gt;$C_2^A=(C_1^A-25,000)(1+200/100)+15,000$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;or, &lt;span class=&quot;math-container&quot;&gt;$ C_2^A=3C_1^A-60000$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;for lend this becomes: &lt;span class=&quot;math-container&quot;&gt;$C_2^A=(25,000-C_1^A)(1+0/100)+15,000$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;or, &lt;span class=&quot;math-container&quot;&gt;$C_2^A=40,000-C_1^A$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;my idea was to supersede one over the other and draw the kinked budget line but the borrow budget line in this case is totally below the x-axis and similarly for Mr.B. So, my initial plan fails. I'm clueless about (b) and (c). Please shed some light. Thank you in advance!!&lt;/p&gt;&#xA;" OwnerUserId="14458" LastEditorUserId="14458" LastEditDate="2019-06-08T15:57:48.137" LastActivityDate="2019-06-08T15:57:48.137" Title="two period consumption problem" Tags="&lt;microeconomics&gt;&lt;self-study&gt;" AnswerCount="0" CommentCount="6" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29720" PostTypeId="2" ParentId="29717" CreationDate="2019-06-08T15:02:25.827" Score="2" Body="&lt;p&gt;A lump sum tax is a tax which only has an income effect, it has the equivalent effect of reducing the agent's wealth. In particular, it has no substitution effect, it does not incentivise the agent to switch between &lt;span class=&quot;math-container&quot;&gt;$c$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$l$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In your case the agent's optimal choice of &lt;span class=&quot;math-container&quot;&gt;$c$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$l$&lt;/span&gt; is given by:&#xA;&lt;span class=&quot;math-container&quot;&gt;$(c^*,l^*)=\left(\frac{w(1-t)}{1+w(1-t)},\frac{w(1-t)}{1+w(1-t)}\right)$&lt;/span&gt; &#xA;(show this)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is easy to see that increasing &lt;span class=&quot;math-container&quot;&gt;$t$&lt;/span&gt; is equivalent to decreasing &lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerUserId="22942" LastEditorUserId="16462" LastEditDate="2019-06-11T11:28:32.120" LastActivityDate="2019-06-11T11:28:32.120" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29721" PostTypeId="2" ParentId="29715" CreationDate="2019-06-08T15:52:42.313" Score="0" Body="&lt;p&gt;Your FOC is correct. They took the FOC a step further and concluded that &lt;span class=&quot;math-container&quot;&gt;$\lambda_t=0$&lt;/span&gt; for &lt;span class=&quot;math-container&quot;&gt;$t&amp;lt;T$&lt;/span&gt;. I quote from page 11:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;To obtain these conditions note that since &lt;span class=&quot;math-container&quot;&gt;$f(0)=0$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$U'(0)=\infty$&lt;/span&gt;, it is clear that the inequality constraints in (4) do not bind and it is clear that &lt;span class=&quot;math-container&quot;&gt;$k_{T+1}=0$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The intuition is that the inequality constraints will only bind when you consume all capital today (&lt;span class=&quot;math-container&quot;&gt;$k_{t+1}=0$&lt;/span&gt;) or you invest all your capital and consume nothing today (&lt;span class=&quot;math-container&quot;&gt;$k_{t+1}=f(k_t))$&lt;/span&gt;. Both of these cases (save the former when &lt;span class=&quot;math-container&quot;&gt;$t=T$&lt;/span&gt;) imply that you will be consuming nothing for at least one period. Combining this with the MU being infinite at zero, obviously this cannot be optimal. &lt;/p&gt;&#xA;" OwnerDisplayName="user23333" LastEditorDisplayName="user23333" LastEditDate="2019-06-08T16:19:02.687" LastActivityDate="2019-06-08T16:19:02.687" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29724" PostTypeId="2" ParentId="25137" CreationDate="2019-06-08T17:45:06.990" Score="1" Body="&lt;p&gt;The wayback machine has snapshots: &lt;a href=&quot;https://web.archive.org/web/20120217010359/http://www.delta.ens.fr/XIX/&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://web.archive.org/web/20120217010359/http://www.delta.ens.fr/XIX/&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="21500" LastActivityDate="2019-06-08T17:45:06.990" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29725" PostTypeId="1" AcceptedAnswerId="29726" CreationDate="2019-06-08T19:49:35.267" Score="1" ViewCount="162" Body="&lt;p&gt;As part of self study towards an entrance exam, I am solving the following question. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are two consumers in the economy and two goods, one private and one public. The utilities of the consumers is given by: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$u_1(x_1,y) = x_1+6\sqrt y$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$u_2(x_2,y = x_2 + 10\sqrt y$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where &lt;span class=&quot;math-container&quot;&gt;$x_i$&lt;/span&gt; is the quantity of the private good and &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; is the quantity of the public good consumed. Initial endowments of the private goods: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\omega_1 = 40, \omega_2 = 60$$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A unit of private good can be converted one-for-one to a public good. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My attempt: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Pareto Efficient level of public good is determined by the equation: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$|MRS_1| + |MRS_2| = MC(G) \quad (1)$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where &lt;span class=&quot;math-container&quot;&gt;$MRS_1 = \frac{MU_G}{MU_{x_1}}$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$MRS_2 = \frac{MU_G}{MU_{x_2}}$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$MC(G)$&lt;/span&gt; is the marginal cost of providing the public good. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Solving &lt;span class=&quot;math-container&quot;&gt;$(1)$&lt;/span&gt; with the given utility functions I get: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\frac{3}{\sqrt y} + \frac{5}{\sqrt y} = 1$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\implies y = 64$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, the Pareto efficient level of public good is &lt;span class=&quot;math-container&quot;&gt;$y=64$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question asks to select the Pareto Inefficient bundle &lt;span class=&quot;math-container&quot;&gt;$(x_1,x_2,y)$&lt;/span&gt; amongst the following: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A. &lt;span class=&quot;math-container&quot;&gt;$(50,0,50)$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;B. &lt;span class=&quot;math-container&quot;&gt;$(90,0,10)$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;C. &lt;span class=&quot;math-container&quot;&gt;$(0,80,20)$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;D. &lt;span class=&quot;math-container&quot;&gt;$(16,20,64)$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think all of A, B and C are Pareto Inefficient. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The given answer is C.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks for reading my question.&lt;/p&gt;&#xA;" OwnerUserId="21361" LastEditorUserId="21361" LastEditDate="2019-06-09T20:39:57.713" LastActivityDate="2019-06-09T20:39:57.713" Title="Pareto Efficient level of Public Good" Tags="&lt;pareto-efficiency&gt;&lt;public-goods&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29726" PostTypeId="2" ParentId="29725" CreationDate="2019-06-08T23:32:40.507" Score="3" Body="&lt;p&gt;The social welfare maximizing outcome you computed (by equating the sum of marginal benefits to marginal cost) is just &lt;em&gt;one of&lt;/em&gt; the Pareto efficient outcomes. Although maximization of joint utilities is a sufficient condition for Pareto efficiency, it is not a necessary condition. Pareto efficiency is defined by the lack of Pareto improvement -- a reallocation of resources to make at least someone better off without making any other worse off. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Option C is not Pareto efficient because a Pareto improvement exists. At &lt;span class=&quot;math-container&quot;&gt;$(0,80,20)$&lt;/span&gt;, &#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;u_1(0,20)=0+6\sqrt{20}\approx 26.83 \qquad &#xA;u_2(80,20)=80+10\sqrt{20}\approx124.72. &#xA;\end{equation}&lt;/span&gt;&#xA;Observe that at this bundle, consumer 2's MU for the good &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; is &lt;span class=&quot;math-container&quot;&gt;$5/\sqrt{20}\approx1.11$&lt;/span&gt; and his MU for &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; is &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt;. Therefore, increasing one unit of good &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; at the expense of one less unit of &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; is utility enhancing for consumer 2. At the same time, one extra &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; benefits consumer 1 as well. So we can easily verify that &lt;span class=&quot;math-container&quot;&gt;$(0,79,21)$&lt;/span&gt; is a Pareto improvement over &lt;span class=&quot;math-container&quot;&gt;$(0,80,20)$&lt;/span&gt;:&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;u_1(0,21)=0+6\sqrt{21}\approx27.495 \qquad &#xA;u_2(79,21)=79+10\sqrt{21}\approx124.83&#xA;\end{equation}&lt;/span&gt;&#xA;where both consumers experience higher utilities.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a similar way, you should be able to verify that no Pareto improvements exist for options A, B, and D.&lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2019-06-08T23:32:40.507" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29727" PostTypeId="2" ParentId="29710" CreationDate="2019-06-08T23:36:52.537" Score="1" Body="&lt;p&gt;A good way to think about this is to think about the cases where there are a finite number of goods, indexed by &lt;span class=&quot;math-container&quot;&gt;$\omega \in \Omega$&lt;/span&gt;. In this case, the partial derivative is&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;p(\omega) = \frac{\partial}{\partial c(\omega)} \sum_{\omega' \in \Omega} p(\omega') c(\omega').&#xA;$$&lt;/span&gt;&#xA;The case in which &lt;span class=&quot;math-container&quot;&gt;$\Omega$&lt;/span&gt; is a continuum of goods follows as a sort of limiting extension. See that even this finite sum can be expressed as an integral, given the proper measure &lt;span class=&quot;math-container&quot;&gt;$\mu$&lt;/span&gt;:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\sum_{\omega \in \Omega} p(\omega) c(\omega) = \int_{\Omega} p(\omega) c(\omega) \,\mu(\mathrm d \omega).&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You mention,&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;This is puzzling to me since the derivative of a indefinite integral&#xA;  of &lt;span class=&quot;math-container&quot;&gt;$c_t$&lt;/span&gt; should be &lt;span class=&quot;math-container&quot;&gt;$c_t$&lt;/span&gt;, not 1.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;If you provided your reasoning for this, it would be easier to see where the confusion is. In any case, hope this helps! &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, this guide may provide further assistance: &lt;a href=&quot;http://www.columbia.edu/~jid2106/td/dixitstiglitzbasics.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;The basics of “Dixit-Stiglitz lite”&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="59" LastEditorUserId="59" LastEditDate="2019-06-10T01:40:14.283" LastActivityDate="2019-06-10T01:40:14.283" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29728" PostTypeId="1" AcceptedAnswerId="29729" CreationDate="2019-06-08T23:58:22.637" Score="1" ViewCount="132" Body="&lt;p&gt;If we restrict the consumption at &lt;span class=&quot;math-container&quot;&gt;$\mathbb R_+^n$&lt;/span&gt;, then it seems like we are implicitly assuming that the Engel curve pass through the origin, so the iff condition would be homothetic preference.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, if we let &lt;span class=&quot;math-container&quot;&gt;$x\in\mathbb R^n$&lt;/span&gt;, other classes of preference would also give linear Engel curves. For example, those represented by a quasi linear utility in two dimensions: &lt;span class=&quot;math-container&quot;&gt;$u(x)=x_1+f(x_2)$&lt;/span&gt;; in this case, the Engel curves are parallel lines.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;It could be assumed that, as in the standard consumer theory, the preference is non-satiated and continuous, so the indifference sets are curves.&lt;/p&gt;&#xA;" OwnerUserId="13381" LastEditorUserId="13381" LastEditDate="2019-06-09T15:35:14.500" LastActivityDate="2019-06-09T15:42:21.657" Title="What is the iff condition for a preference with linear Engel curves (all Engal curves are linear)?" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29729" PostTypeId="2" ParentId="29728" CreationDate="2019-06-09T09:13:04.713" Score="3" Body="&lt;p&gt;Are negative incomes (perhaps even negative prices) also allowed? Unless they are, non-horizontal or non-vertical lines are impossible as Engel curves because they have to intersect the negative quadrant of the coordinate system. I will come back to this later.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Without additional restrictions (perhaps a lot of additional restrictions) on the preference relations, for any non-negative sloped line I can fabricate a utility function such that the line will be its Engel curve.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let the line &lt;span class=&quot;math-container&quot;&gt;$L$&lt;/span&gt; consist of the points &lt;span class=&quot;math-container&quot;&gt;$((x,y)\in\mathbb{R}^2|c = a \cdot x + b \cdot y)$&lt;/span&gt; where &lt;span class=&quot;math-container&quot;&gt;$a,b,c \in \mathbb{R}$&lt;/span&gt;. I will denote this set of points by &lt;span class=&quot;math-container&quot;&gt;$L$&lt;/span&gt;, the line. It is assumed that we are talking about an actual line, so &lt;span class=&quot;math-container&quot;&gt;$a,b$&lt;/span&gt; are not simultaneously equal to &lt;span class=&quot;math-container&quot;&gt;$0$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let &#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;U(x,y) = \left\{\begin{array}{lc}&#xA;\arctan (b \cdot x + a \cdot y) &amp;amp; \text{ if } (x,y) \in L \\&#xA;-\pi &amp;amp; \text{ if } (x,y) \notin L. &#xA;\end{array}&#xA;\right.&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Claim&lt;/strong&gt; The utility function will always be maximized by a point on &lt;span class=&quot;math-container&quot;&gt;$L$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is easy, because &lt;span class=&quot;math-container&quot;&gt;$\arctan$&lt;/span&gt; maps to &lt;span class=&quot;math-container&quot;&gt;$(-\frac{\pi}{2},\frac{\pi}{2})$&lt;/span&gt;, thus its points always yield greater utility than other points. We specified that the slope of &lt;span class=&quot;math-container&quot;&gt;$L$&lt;/span&gt; is non-negative, so for any positive price pair the budget line will cross it, enabling us to chose a point on &lt;span class=&quot;math-container&quot;&gt;$L$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;We now come back to the question of whether income &lt;span class=&quot;math-container&quot;&gt;$I$&lt;/span&gt; can be negative. If they can be, than every point &lt;span class=&quot;math-container&quot;&gt;$L$&lt;/span&gt; will be a solution of the consumers utility maximization problem for a certain &lt;span class=&quot;math-container&quot;&gt;$I,p_x,p_y$&lt;/span&gt;. The reason for this is that &lt;span class=&quot;math-container&quot;&gt;$b \cdot x + a \cdot y$&lt;/span&gt; creates an ordering of the points of &lt;span class=&quot;math-container&quot;&gt;$L$&lt;/span&gt;. (Lines perpendicular to &lt;span class=&quot;math-container&quot;&gt;$L$&lt;/span&gt; have a slope of &lt;span class=&quot;math-container&quot;&gt;$-b/a$&lt;/span&gt;, these are the level curves of &lt;span class=&quot;math-container&quot;&gt;$b \cdot x + a \cdot y$&lt;/span&gt;.) Select a point &lt;span class=&quot;math-container&quot;&gt;$(x_0,y_0) \in L$&lt;/span&gt;. By setting &lt;span class=&quot;math-container&quot;&gt;$I$&lt;/span&gt; to&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;I = p_x \cdot x_0 + p_y \cdot y_0,&#xA;$$&lt;/span&gt;&#xA;the consumer has barely enough money to purchase this basket. If &lt;span class=&quot;math-container&quot;&gt;$L$&lt;/span&gt; is non-negative sloped and prices are positive then no points with higher utility are attainable.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;The construction I gave is not unique. One could also use the continuous utility function&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\hat{U}(x,y) = \min\left(a \cdot \left(x - \frac{c}{a} \right); - b \cdot y\right)&#xA;$$&lt;/span&gt;&#xA;to achieve the same result. (If &lt;span class=&quot;math-container&quot;&gt;$a = 0$&lt;/span&gt; one may use&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\hat{U}(x,y) = \min\left(a \cdot x; - b \cdot \left(y - \frac{c}{b} \right)\right)&#xA;$$&lt;/span&gt;&#xA;instead.)&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2019-06-09T15:42:21.657" LastActivityDate="2019-06-09T15:42:21.657" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29732" PostTypeId="2" ParentId="12328" CreationDate="2019-06-09T15:20:20.047" Score="2" Body="&lt;p&gt;Companies can issue new stock (pending board &amp;mdash; and regulatory &amp;mdash; approval) in “public offerings” and stock buybacks are basically the opposite of this. Typically a company will do this in order to keep their stock price above a certain level.  For practical purposes, this simply inflates the voting power of the remaining publicly traded shares &amp;mdash; the company cannot vote its own shares. The company &lt;em&gt;could&lt;/em&gt; simply de-issue the shares they purchase, but will often instead hold them as an asset on their books, because they intend to resell them back into the public market at some later date, and its easier for them to do that than to go through the hassle of re-issuing new stock and doing another public offering. Sometimes, companies that are essentially still under the control of the founders &amp;mdash; even though they have done an initial public offering and are now publicly traded &amp;mdash; will do a secondary offering in which the company itself purchases stock from the founders, and sells &lt;em&gt;that&lt;/em&gt; stock on the market, rather than actually issuing new stock. &lt;/p&gt;&#xA;" OwnerUserId="23023" LastActivityDate="2019-06-09T15:20:20.047" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29733" PostTypeId="2" ParentId="8203" CreationDate="2019-06-09T15:24:48.897" Score="0" Body="&lt;p&gt;Large investment firms already operate 24 hours a day in many cases, because they trade in different exchanges around the world that operate in different time zones. So from a practical standpoint, all that would change if individual exchanges went to a 24 hour schedule would be an increase in such activity. You’d also see less market movement at the opening of an exchange, since news coming in overnight (while exchanges are currently closed for trading) could be acted upon immediately. &lt;/p&gt;&#xA;" OwnerUserId="23023" LastActivityDate="2019-06-09T15:24:48.897" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29734" PostTypeId="1" AcceptedAnswerId="29737" CreationDate="2019-06-09T16:38:48.970" Score="2" ViewCount="101" Body="&lt;p&gt;Let &lt;span class=&quot;math-container&quot;&gt;$u$&lt;/span&gt; be a continuous utility function on &lt;span class=&quot;math-container&quot;&gt;$\mathbb R^2_+\setminus\{0\}$&lt;/span&gt;. Consider the following three conditions:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Local &lt;strong&gt;non satiation&lt;/strong&gt; says that for any &lt;span class=&quot;math-container&quot;&gt;$x \in X$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\epsilon &amp;gt; 0$&lt;/span&gt;, there exists &lt;span class=&quot;math-container&quot;&gt;$y \in X$&lt;/span&gt; such that &lt;span class=&quot;math-container&quot;&gt;$d(x,y) &amp;lt; \epsilon$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$U(x) &amp;lt; U(y)$&lt;/span&gt;.&lt;/li&gt;&#xA;&lt;li&gt;Local non satiation* says that for any &lt;span class=&quot;math-container&quot;&gt;$x \in X$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\epsilon &amp;gt; 0$&lt;/span&gt;, there exists &lt;span class=&quot;math-container&quot;&gt;$y \in X$&lt;/span&gt; such that &lt;span class=&quot;math-container&quot;&gt;$d(x,y) &amp;lt; \epsilon$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$U(x) \neq U(y)$&lt;/span&gt;.&lt;/li&gt;&#xA;&lt;li&gt;The indifference sets of &lt;span class=&quot;math-container&quot;&gt;$U$&lt;/span&gt; are curves.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;As a standard result, (1) implies (3) and (3) implies(1). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Obviously, (1) implies (2) so (3) also implies (2). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can (2) also imply (1) and (3)？&lt;/p&gt;&#xA;" OwnerUserId="13381" LastActivityDate="2019-06-09T22:25:19.460" Title="A weaker definition of local non-satiation can also imply indifference &quot;curve&quot;" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;supply-and-demand&gt;&lt;consumer-theory&gt;&lt;decision-theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29737" PostTypeId="2" ParentId="29734" CreationDate="2019-06-09T22:25:19.460" Score="4" Body="&lt;p&gt;(2) does not imply (1). Consider a utility function with &quot;circular indifference curves&quot;, e.g. &lt;span class=&quot;math-container&quot;&gt;$u(x,y)=-(x-1)^2-(y-1)^2$&lt;/span&gt;. At the bliss point &lt;span class=&quot;math-container&quot;&gt;$(1,1)$&lt;/span&gt;, the function satisfies (2) but violates (1).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(2) does imply (3), and the proof should be similar to the one showing that (1) implies (3). &lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2019-06-09T22:25:19.460" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29738" PostTypeId="1" CreationDate="2019-06-10T00:25:10.977" Score="0" ViewCount="20" Body="&lt;p&gt;Assume a sovereign state that functions like a joint stock corporation does: it will be comprised of shareholders and its &quot;stateshares&quot; will have a market value since they are tradeable. Now assume that most wealth has to be held in these stateshares. This means if your private wealth goes up 10% in market value, then you will need to increase your stateshare wealth by 10% to make sure most of your wealth is always in stateshares. The point of this hypothetical regulation is to make sure the aggregate economic interest in increasing the stateshare market value is larger than all the other aggregate economic interests combined.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now the question is about this hypothetical regulation's effect on economic productivity. The argument is that because a capitalist will have to either sell off or mortgage part of his quickly appreciating asset to afford to buy an asset appreciating at the average rate, then the incentive to create a quickly-appreciating asset disappears. Thus, economic productivity disappears.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This argument is not convincing to me though. I believe the incentive to grow my own personal enterprise is still strong even though I would have to mortgage part of my enterprise as it grows in value to buy more stateshares.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are my doubts correct? If not, why does economic productivity suffer under this hypothetical mandatory wealth distribution?&lt;/p&gt;&#xA;" OwnerUserId="20556" LastActivityDate="2019-06-10T00:25:10.977" Title="Question about the effect on economic productivity due to a hypothetical wealth distribution requirement" Tags="&lt;wealth&gt;" AnswerCount="0" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="29740" PostTypeId="1" AcceptedAnswerId="29789" CreationDate="2019-06-10T01:40:30.360" Score="0" ViewCount="49" Body="&lt;p&gt;Consider the following social planner's problem, hand-waving the usual assumptions on the preference, technology, endowment, and inelastic supply of labor:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$V(k_o^*)= max_{\{c_t,k_{t+1}\}_{t=0}^{\infty}}\quad \sum\limits_{t=0}^\infty \beta^t U(c_t)$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;s.t. &lt;span class=&quot;math-container&quot;&gt;$\quad c_t+k_{t+1}=f(k_t)+(1-\delta)k_t$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$c_t,k_{t+1}\geq0, k_o=k_o^*$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\textbf{My Question}$&lt;/span&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Q1) Is the following a correct description of what happens in &lt;span class=&quot;math-container&quot;&gt;$t=0,1$&lt;/span&gt;?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(a) The economy starts with the given preference, technology, and endowment &lt;span class=&quot;math-container&quot;&gt;$k_o^*$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(b) The planner chooses how much to put into the production and leave as to carried on as undepreciated capital to the next period. In other words:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(i) A fraction of &lt;span class=&quot;math-container&quot;&gt;$k_o^*$&lt;/span&gt; is devoted to into the technology &lt;span class=&quot;math-container&quot;&gt;$f(\cdot)$&lt;/span&gt;.&lt;br&gt;&#xA;(ii) The rest is simply carried onto the next period with the penalty of depreciation .&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(c) Still in &lt;span class=&quot;math-container&quot;&gt;$t=0$&lt;/span&gt; and with (b)-(i), the technology produces &lt;span class=&quot;math-container&quot;&gt;$y_t$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(d) The consumer makes a choice as to how much to consume and invest from &lt;span class=&quot;math-container&quot;&gt;$y_t$&lt;/span&gt; as &lt;span class=&quot;math-container&quot;&gt;$c_t+i_t=y_t$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(e) In &lt;span class=&quot;math-container&quot;&gt;$t=1$&lt;/span&gt;, the capital stock for tomorrow is defined as, &lt;span class=&quot;math-container&quot;&gt;$k_1=(1-\delta)k_o^*+i_t$&lt;/span&gt;, how much you left over from the initial capital stock to be carried over to &lt;span class=&quot;math-container&quot;&gt;$t=1$&lt;/span&gt; plus how much you decided to leave out from the production as investment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Q2) In the social planner's problem, we have control vectors as a sequence of &lt;span class=&quot;math-container&quot;&gt;$c_t$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$k_{t+1}$&lt;/span&gt;. These are two distinct control vectors, because the sequence &lt;span class=&quot;math-container&quot;&gt;$\{c_t\}_{t=0}^\infty$&lt;/span&gt; requires the decision to be made after what you get from the production within the same period, but the decision of how much of the capital stock to have tomorrow involves how much of the capital stock today you will leave to be carried over to tomorrow in addition to the investment decision. For example, if for some reason, the capital stock is perishable, this &lt;span class=&quot;math-container&quot;&gt;$\delta=1$&lt;/span&gt;, our choice variable would be only &lt;span class=&quot;math-container&quot;&gt;$c_t$&lt;/span&gt; as &lt;span class=&quot;math-container&quot;&gt;$c_t$&lt;/span&gt; determines the level of &lt;span class=&quot;math-container&quot;&gt;$i_t$&lt;/span&gt;, which in turn determines the level of &lt;span class=&quot;math-container&quot;&gt;$k_{t+1}$&lt;/span&gt;, correct? Is &lt;span class=&quot;math-container&quot;&gt;$k_{t+1}$&lt;/span&gt; not a control variable?&lt;/p&gt;&#xA;" OwnerUserId="8560" LastEditorUserId="8560" LastEditDate="2019-06-10T06:16:56.257" LastActivityDate="2019-06-14T18:02:04.380" Title="Typical Growth Model Social Planner Problem" Tags="&lt;macroeconomics&gt;&lt;economic-growth&gt;&lt;optimization&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29741" PostTypeId="1" AcceptedAnswerId="29743" CreationDate="2019-06-10T05:11:44.113" Score="4" ViewCount="354" Body="&lt;p&gt;In the literature on social welfare functionals, the only example I've seen of a functional which meets all of Arrow's conditions–––or at least utility analogues of Arrow's conditions–––plus invariance regarding ordinal level comparability is Rawls' maximin. E.g. Sen in &lt;em&gt;On Weights and Measures&lt;/em&gt; (1977, p. 1544) cites maximin as his case of a functional meeting all of these conditions. Maximin orders the alternatives by the welfare of individual who is worst off. I assume that the inverse of maximin–––i.e.  the alternatives are ordered by the welfare of individual who is best off–––would also meet these conditions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there any work on other social welfare functionals which meet all these conditions? (I'm aware that if we tweak these conditions slightly we can derive other functionals, but I'm interested in the case in which we keep them unaltered.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If not, is this evidence that maximin, and its inverse, are the only normatively sensible social welfare functionals that meets all these conditions? Or is it just evidence that people aren't so interested in this set of conditions? (If there is a clear reason why this set of conditions is uninteresting, I'd love to hear it).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks for any help!&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Utility analogues of Arrow’s conditions:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Utility analogues of Arrow’s conditions are Arrow’s conditions redefined for Sen’s welfare functional framework.  Instead of taking a profile of orderings as input, Sen's functional takes a profile of utility functions as input: &lt;span class=&quot;math-container&quot;&gt;$U \ = \ &amp;lt;u_{i_1}(X), \ u_{i_2}(X), \ \dots \ , \ u_{i_n}(X)&amp;gt;$&lt;/span&gt;. &lt;span class=&quot;math-container&quot;&gt;$U$&lt;/span&gt; is defined on &lt;span class=&quot;math-container&quot;&gt;$X \times N$&lt;/span&gt;; each individual, &lt;span class=&quot;math-container&quot;&gt;$i \in N $&lt;/span&gt;, is paired with each alternative, &lt;span class=&quot;math-container&quot;&gt;$x \in X$&lt;/span&gt;, and the result of each pairing is the utility derived by &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; from &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;. &lt;span class=&quot;math-container&quot;&gt;$\mathcal{U} \ = \ \{U^1, \ U^2, \ \dots \ , \ U^n \}$&lt;/span&gt; is the set of all possible utility profiles. &lt;span class=&quot;math-container&quot;&gt;$\mathcal{U^*}$&lt;/span&gt; is the set of all utility profiles which meet a particular domain restriction. &lt;span class=&quot;math-container&quot;&gt;$\mathcal{R}$&lt;/span&gt; is the set of all possible orderings of &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt;. A social welfare functional can then be defined as: &lt;span class=&quot;math-container&quot;&gt;$f: \ \mathcal{U^*} \longrightarrow \mathcal{R}$&lt;/span&gt;. The final ordering given by profile &lt;span class=&quot;math-container&quot;&gt;$U^1$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$f(U^1)$&lt;/span&gt;, is denoted: &lt;span class=&quot;math-container&quot;&gt;$R_{U^1}$&lt;/span&gt;. We can then define utility analogues of Arrow's conditions: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Unrestricted Domain&lt;span class=&quot;math-container&quot;&gt;$’$&lt;/span&gt;:&lt;/em&gt; The domain of &lt;span class=&quot;math-container&quot;&gt;$f$&lt;/span&gt; is the set of all possible utility profiles: &lt;span class=&quot;math-container&quot;&gt;$\mathcal{U}^* \ = \ \mathcal{U}$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Weak Pareto&lt;span class=&quot;math-container&quot;&gt;$’$&lt;/span&gt;&lt;/em&gt;: &lt;span class=&quot;math-container&quot;&gt;$\forall x, y \in X$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$\forall i \in N$&lt;/span&gt;: &lt;span class=&quot;math-container&quot;&gt;$( \ u_i(x) \ &amp;gt; \ u_i(y) \ ) \ \Longrightarrow \ (xPy)$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Non-Dictatorship&lt;span class=&quot;math-container&quot;&gt;$’$&lt;/span&gt;&lt;/em&gt;: &lt;span class=&quot;math-container&quot;&gt;$f$&lt;/span&gt; does not single out one individual &lt;span class=&quot;math-container&quot;&gt;$i \in N$&lt;/span&gt; such that, &lt;span class=&quot;math-container&quot;&gt;$\forall U \in \mathcal{U^*}, \ \forall x, y \in X$&lt;/span&gt;: &lt;span class=&quot;math-container&quot;&gt;$( \ u_i(x) \ &amp;gt; \ u_i(y) \ ) \ \Longrightarrow \ (xPy)$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Independence of Irrelevant Utilities&lt;/em&gt;: &lt;span class=&quot;math-container&quot;&gt;$\forall U^1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$U^2$&lt;/span&gt; &lt;span class=&quot;math-container&quot;&gt;$\in \mathcal{U^*}, \ \forall x, y \in X$&lt;/span&gt;: &lt;span class=&quot;math-container&quot;&gt;$(\forall i \in N \ (( \ u^1_i(x) = u^2_i(x) \ ) \land ( \ u^1_i(y) = u^2_i(y) \ )) \ \Longrightarrow \ (( \ x R_{U^1} y \ ) \ \Longleftrightarrow \ ( \ x R_{U^2} y \ ))$&lt;/span&gt;. &lt;/p&gt;&#xA;" OwnerUserId="18988" LastEditorUserId="18988" LastEditDate="2019-06-10T19:18:20.100" LastActivityDate="2019-06-10T19:18:20.100" Title="Do any social welfare functionals, other than maximin, meet all of Arrow's conditions plus invariance regarding ordinal level comparability?" Tags="&lt;welfare-economics&gt;&lt;social-welfare&gt;&lt;social-choice&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29742" PostTypeId="1" CreationDate="2019-06-10T05:56:19.363" Score="0" ViewCount="28" Body="&lt;p&gt;So I'm reading Varian intermediate microeconomics and in chapter one it's about housing. Suppose we have a inner ring and a outer ring in a city where there is a university. In the inner ring supply is limited and everyone who can't afford it or whos reservation price is too low, moves to the outer ring. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose we have a intersection of supply and demand. Now there the price should be set. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But why not increase the price for a subset of the houses since not everyone has the same reservation price couldn't you price housing in a way that everyone get's a house for his reservation price and no dollar less?&lt;/p&gt;&#xA;" OwnerUserId="23382" LastActivityDate="2019-06-10T05:56:19.363" Title="Why should houses have the same price for a given supply" Tags="&lt;microeconomics&gt;&lt;supply-and-demand&gt;&lt;housing&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="29743" PostTypeId="2" ParentId="29741" CreationDate="2019-06-10T14:00:43.447" Score="5" Body="&lt;p&gt;There are at least two other examples of SWFs that satisfy these conditions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first is a &lt;strong&gt;&lt;em&gt;positional dictatorship&lt;/em&gt;&lt;/strong&gt;.  Let &lt;em&gt;N&lt;/em&gt; be the number of individuals (assume it is fixed).  For any &lt;em&gt;k&lt;/em&gt; between 1 and &lt;em&gt;N&lt;/em&gt;, the &lt;em&gt;k&lt;/em&gt;th positional dictatorship SWF orders social alternatives in terms of the preferences of the &quot;&lt;em&gt;k&lt;/em&gt;th best off&quot; agent.  Formally, given any social alternative &lt;em&gt;x&lt;/em&gt;, let &lt;strong&gt;v&lt;/strong&gt;(&lt;em&gt;x&lt;/em&gt;), be the vector of utilities of all individuals for &lt;em&gt;x&lt;/em&gt;, but ordered from lowest to highest.  The  &lt;em&gt;k&lt;/em&gt;th positional dictatorship SWF is then defined by the &lt;em&gt;k&lt;/em&gt;th component of the function &lt;strong&gt;v&lt;/strong&gt;.  If &lt;em&gt;k&lt;/em&gt;=1, we get the maximin.  If &lt;em&gt;k=N&lt;/em&gt;, then we get the &quot;maximax&quot; ---what you call the &quot;inverse&quot; of the maximin.  If &lt;em&gt;k&lt;/em&gt;=[&lt;em&gt;N&lt;/em&gt;/2], we get effectively &quot;dictatorship of the median individual&quot;.   The point is not that these rules are normatively attractive (they aren't) ---but they satisfy your axioms.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another possibility is the so-called &lt;strong&gt;&lt;em&gt;leximin&lt;/em&gt;&lt;/strong&gt; or &lt;strong&gt;&lt;em&gt;lexicographical maximin&lt;/em&gt;&lt;/strong&gt; rule.  This is the lexicographical extension of the maximin, obtained by ranking social alternatives according to the vector-valued function &lt;strong&gt;v&lt;/strong&gt; from the previous paragraph, but with coordinates treated &lt;em&gt;lexicographically&lt;/em&gt;.  Thus, alternative &lt;em&gt;x&lt;/em&gt; is better than alternative &lt;em&gt;y&lt;/em&gt; if it has a higher minimum utility value. If &lt;em&gt;x&lt;/em&gt; and &lt;em&gt;y&lt;/em&gt; yield the &lt;em&gt;same&lt;/em&gt; minimum utility, then we compare them by looking at the utilities of the &lt;em&gt;second&lt;/em&gt;-worst off individual in &lt;em&gt;x&lt;/em&gt; and &lt;em&gt;y&lt;/em&gt;.  If &lt;em&gt;these&lt;/em&gt; individuals &lt;em&gt;also&lt;/em&gt; have the same utility, then we look at the &lt;em&gt;third&lt;/em&gt;-worst off individuals, and so on.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This SWF is very similar to maximin, but it satisfies a stronger version of the Pareto axiom.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For more information, I suggest you look at the 2002 article by Claude d'Aspremont and Louis Gevers entitled &quot;Social welfare functionals and interpersonal comparability&quot;, which is Chapter 10 of the &lt;em&gt;Handbook of Social Choice and Welfare volume I&lt;/em&gt; (Arrow, Sen and Suzumura, eds.).  You could also look at Chapter 2 of the book &lt;em&gt;Axioms of Cooperative Decision-Making&lt;/em&gt;, by Hervé Moulin (1988).  In particular, Theorem 2.4 on page 40 of Moulin's book might be useful to you:  it says (roughly) that the positional dictatorships and their extensions (such as leximin) are the &lt;em&gt;only&lt;/em&gt; SWFs satisfying ordinal level comparability and a few other mild conditions.&lt;/p&gt;&#xA;" OwnerUserId="8759" LastActivityDate="2019-06-10T14:00:43.447" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29745" PostTypeId="1" AcceptedAnswerId="29788" CreationDate="2019-06-10T16:07:30.093" Score="2" ViewCount="300" Body="&lt;p&gt;I'm currently reading &lt;strong&gt;Varian's Intermediate Microeconomics&lt;/strong&gt; and what struck me, is this statement on page 89 of the 8th edition.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;ol start=&quot;4&quot;&gt;&#xA;  &lt;li&gt;If everyone faces the same prices for the two goods, then everyone will&#xA;  have the same marginal rate of substitution, and will thus be willing to&#xA;  trade off the two goods in the same way.&lt;/li&gt;&#xA;  &lt;/ol&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I mean, I see the mathematics behind it, but it still seems kind of hard for me to grasp intuitively. Could someone provide me with examples or another explanation to clear things up ?&lt;/p&gt;&#xA;" OwnerUserId="23382" LastActivityDate="2020-01-29T17:14:38.523" Title="Everyone has the same marginal rate of substitution" Tags="&lt;microeconomics&gt;&lt;supply-and-demand&gt;&lt;preferences&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29746" PostTypeId="1" CreationDate="2019-06-10T17:10:26.897" Score="-1" ViewCount="1061" Body="&lt;p&gt;What is the basic difference between Nash equilibrium and Bayesian equilibrium?&lt;/p&gt;&#xA;" OwnerUserId="23387" LastActivityDate="2019-06-12T09:36:26.157" Title="The difference between a Nash equilibrium and Bayesian Nash equilibrium" Tags="&lt;game-theory&gt;&lt;nash-equilibrium&gt;&lt;bayesian-game&gt;" AnswerCount="1" CommentCount="2" ClosedDate="2019-06-11T17:48:17.417" ContentLicense="CC BY-SA 4.0" />
  <row Id="29748" PostTypeId="2" ParentId="10201" CreationDate="2019-06-10T21:50:56.210" Score="3" Body="&lt;p&gt;Land values tend to increase with population density, because it is typically possible to put the land to more productive use.  A store operating in a dense urban core will have more potential customers, more access to public infrastructure (e.g. electricity, communications networks, those roads you mention, public transportation that makes it easier for more customers to visit the store, etc.) and any number of other external factors that contribute to such land being more desirable.  Since more high-wage jobs also tend to be available in such places, there is more access to desirable public and private places (e.g. museums, theaters, upscale businesses) people are also generally willing to pay more to live in such places.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Roads, on the other hand, are generally built and paid for by the government.  The government almost &lt;em&gt;never&lt;/em&gt; collects the full use value for the things they make, and so roads are drastically underpriced, in terms of the charge consumers must pay (if there is any such use fee at all.)&lt;/p&gt;&#xA;" OwnerUserId="23023" LastActivityDate="2019-06-10T21:50:56.210" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29749" PostTypeId="2" ParentId="10201" CreationDate="2019-06-11T03:33:21.867" Score="3" Body="&lt;p&gt;It is largely a political rather than economic matter.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Like carbon taxes, congestion pricing is supported by most economists, but not by most of the public. To the public, congestion pricing is an explicit, highly visible cost they have to bear, while the corresponding benefits are nebulous.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where there is sufficient political will, congestion pricing has been introduced. For example, Singapore's technocratic and authoritarian government has successfully run congestion pricing since the 1970s. Some European cities (notably London) have also now run congestion pricing for quite some years.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Even in the US, there is now more traction for the idea. New York City's congestion pricing was just passed (in 2019) and will come into effect in 2021.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2019-06-11T03:33:21.867" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29750" PostTypeId="1" AcceptedAnswerId="29751" CreationDate="2019-06-11T16:36:44.867" Score="2" ViewCount="161" Body="&lt;p&gt;I feel like Wikipedia may be misleading me in a subtle or egregious way.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The very first line of &lt;a href=&quot;https://en.wikipedia.org/wiki/Scarcity&quot; rel=&quot;nofollow noreferrer&quot;&gt;Scarcity&lt;/a&gt; is:  &quot;Scarcity is the limited availability of a commodity...&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It does, of course, helpfully provide that &quot;a &lt;a href=&quot;https://en.wikipedia.org/wiki/Commodity&quot; rel=&quot;nofollow noreferrer&quot;&gt;commodity&lt;/a&gt; is an economic good or service that has full or substantial fungibility...&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question, then, is:  Does it really make no sense in economics to discuss the scarcity of non-fungible goods?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(In the interest of full disclosure, my interest in the subject is mostly related to thinking around whether post-scarcity has anything at all to say about non-commodities, but that's quite a different set of questions.)&lt;/p&gt;&#xA;" OwnerUserId="23394" LastActivityDate="2019-06-11T16:52:02.597" Title="Does scarcity apply only to commodities?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="3" FavoriteCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29751" PostTypeId="2" ParentId="29750" CreationDate="2019-06-11T16:52:02.597" Score="5" Body="&lt;p&gt;For completeness, you might want to include the definition of &lt;a href=&quot;https://en.wikipedia.org/wiki/Fungibility&quot; rel=&quot;noreferrer&quot;&gt;Fungibility&lt;/a&gt; as well:  &quot;In economics, fungibility is the property of a good or a commodity whose individual units are essentially interchangeable, and each of its parts is indistinguishable from another part.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you have a collection of objects, and each object is (in some relevant sense) interchangeable with any of the other objects, then they are &lt;em&gt;fungible&lt;/em&gt; and thus a &lt;em&gt;commodity&lt;/em&gt;.  If there aren't very many of them, they may be &lt;em&gt;scarce&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, if you have a collection of objects, none of which are interchangeable with any others in a relevant sense, then they are essentially unique objects.  You could still say that they were &lt;em&gt;scarce&lt;/em&gt; (there is only one of each) but not that they are &lt;em&gt;commodities&lt;/em&gt;... though in practice, people typically don't refer to unique objects as &lt;em&gt;scarce&lt;/em&gt;.&lt;/p&gt;&#xA;" OwnerUserId="23023" LastActivityDate="2019-06-11T16:52:02.597" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29752" PostTypeId="2" ParentId="29746" CreationDate="2019-06-11T17:08:24.643" Score="2" Body="&lt;p&gt;Roughly speaking, Bayesian Equilibrium is an extension of Nash Equilibrium for games of incomplete information. In these types of games, players do not know the state of nature (but know the set of possible states of nature). The Bayesian approach is most useful in dynamic games (Perfect Bayesian Equilibrium).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, if you are playing poker with people you don't know, you are uncertain about the other players' risk preferences: they could either shy away from risk or be more daring. You start out with some prior about their risk aversion and choose your strategy so as to maximize your expected payoff given that prior. As the game progresses, you will gather evidence from the hands played and update your belief about each player's risk preference accordingly.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A Perfect Bayesian Equilibrium puts all these elements together: you have some prior belief (probability distribution) about the opponent's type, which you update according to Bayes' rule as the game progresses; and a strategy that is consistent with this belief. Finally, as in Subgame Perfect Equilibrium, PBE imposes that optimal play and Bayesian updating happens in every subgame (that is reached with positive probability).&lt;/p&gt;&#xA;" OwnerUserId="23393" LastEditorUserId="23393" LastEditDate="2019-06-12T09:36:26.157" LastActivityDate="2019-06-12T09:36:26.157" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29754" PostTypeId="1" AcceptedAnswerId="29756" CreationDate="2019-06-12T00:04:21.713" Score="0" ViewCount="59" Body="&lt;p&gt;Consider an exponential discount factor &lt;span class=&quot;math-container&quot;&gt;$\delta\in(0,1)$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Similarly, consider an exponential discount &lt;span class=&quot;math-container&quot;&gt;$\textit{function}$&lt;/span&gt;: &lt;span class=&quot;math-container&quot;&gt;$g(t)=\delta^t$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, is defining the discount &lt;span class=&quot;math-container&quot;&gt;$\textit{rate}$&lt;/span&gt; as below a correct way of defining one? My intuition is that the discount rate represents the rate at which the discount function decays:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\rho=\frac{\frac{-dg(t)}{dt}}{g(t)}.$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="8560" LastActivityDate="2019-06-12T07:28:14.043" Title="discount factor, function, and rate" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;discount-rate&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29755" PostTypeId="1" CreationDate="2019-06-12T04:48:54.967" Score="0" ViewCount="84" Body="&lt;p&gt;Obviously there are caveats with GDP, if you build a bridge to nowhere it counts as GDP, but if you mow your own lawn or volunteer to pick up garbage it doesn't count, and so forth and so on. However, assuming unemployment is low, then one could argue people would have less time to preoccupy themselves with volunteer work and contribute to the &quot;economy&quot; as measured by GDP. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I had Germany in mind at the time of writing, so use Germany as a default for the economy in question for this post. Nonetheless, at the risk of going too broad, I think this question can just as easily be posed for the general case. So feel free to broaden the scope beyond Europe.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Question&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;What is the prevailing theory behind a country exhibiting low unemployment but also low or even negative growth in gdp?&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;For brevity, you can specify which GDP you assume (inflation-adjusted, income approach or expenditure approach) or for robustness you can try to address low unemployment coupled with low gdp growth implications under all 3 measures of GDP&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="12212" LastEditorUserId="12212" LastEditDate="2019-06-12T05:23:47.290" LastActivityDate="2019-06-17T05:53:53.047" Title="What is low unemployment and low gdp growth symptomatic of?" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;&lt;economic-growth&gt;&lt;unemployment&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="29756" PostTypeId="2" ParentId="29754" CreationDate="2019-06-12T07:28:14.043" Score="4" Body="&lt;p&gt;Given a discount function &lt;span class=&quot;math-container&quot;&gt;$g(t)$&lt;/span&gt;, the &lt;strong&gt;discount rate&lt;/strong&gt; is the rate at which the discount function declines over time. If time is discrete, then the (possibly time-varying) discount rate is&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;\rho(t)=-\frac{g(t)-g(t-1)}{g(t)}.&#xA;\end{equation}&lt;/span&gt;&#xA;If we divide each period into &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt; equal intervals and let &lt;span class=&quot;math-container&quot;&gt;$n\to\infty$&lt;/span&gt;, then we get the discount rate in continuous time as&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;\rho(t)=-\frac{g'(t)}{g(t)},&#xA;\end{equation}&lt;/span&gt;&#xA;which is the same as your expression. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The (possibly time-varying) &lt;strong&gt;discount factor&lt;/strong&gt; is defined as &#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;\delta(t)=\frac{g(t)}{g(t-1)}.&#xA;\end{equation}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With exponential discounting, the discount rate is constant, i.e. &lt;span class=&quot;math-container&quot;&gt;$\rho(t)=\rho$&lt;/span&gt; for all &lt;span class=&quot;math-container&quot;&gt;$t$&lt;/span&gt;, and the (discrete time) discount function is given by &#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;g(t)=\frac{1}{(1+\rho)^t}=\delta^t&#xA;\end{equation}&lt;/span&gt;&#xA;where &lt;span class=&quot;math-container&quot;&gt;$\delta=\frac{1}{1+\rho}$&lt;/span&gt; is the constant discount factor. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The continuous time analogs are &#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{align}&#xA;g(t)&amp;amp;=\mathrm e^{-\rho t}\\&#xA;\delta(t)=\delta&amp;amp;=\mathrm e^{-\rho}&#xA;\end{align}&lt;/span&gt;&#xA;Again, these are obtained by dividing each time period into &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt; equal intervals and observing that &lt;span class=&quot;math-container&quot;&gt;$\lim_{n\to\infty}(1+\frac{\rho}{n})^{-nt}=\mathrm e^{-\rho t}$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2019-06-12T07:28:14.043" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="29757" PostTypeId="1" CreationDate="2019-06-12T08:34:16.890" Score="0" ViewCount="474" Body="&lt;p&gt;I understand from an intuitive sense that decreasing monotonic transformations will skew the choices and ordinality.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But mathematically the &lt;span class=&quot;math-container&quot;&gt;$F'(U(x,y))$&lt;/span&gt; just cancels out each other out in numerator and denominator when we take the MRS and thus gives us the same MRS as our old utility function. But this cancelling out can also happen with decreasing monotonic transformations. Then why bar them from use ?&lt;/p&gt;&#xA;" OwnerUserId="22939" LastActivityDate="2019-07-14T18:00:41.803" Title="The mathematical proof of a monotonic utility transformation does not restrict the use of strictly decreasing monotonic functions. Why bar them?" Tags="&lt;utility&gt;&lt;consumer-theory&gt;&lt;preferences&gt;&lt;choice-theory&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29758" PostTypeId="2" ParentId="29203" CreationDate="2019-06-12T11:26:26.113" Score="1" Body="&lt;p&gt;&lt;strong&gt;Q1&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your table seems to be correct. Here is a quick Python implementation for generating the payoffs:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;def payoff_calculator(x, y):&#xA;    if x+y &amp;lt; 14:&#xA;        return (x+1,y+1)&#xA;    else:&#xA;        if x==y:&#xA;            return (x,y)&#xA;        else:&#xA;            return (y,20-x) if x &amp;lt; y else (20-y,x)&#xA;&#xA;primes = [2,3,5,7,11,13,17,19]&#xA;payoffs = [[payoff_calculator(i,j) for i in primes] for j in primes]&#xA;&#xA;for row in payoffs:&#xA;    print(*row)&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Result&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;(3, 3) (4, 3) (6, 3) (8, 3) (12, 3) (18, 13) (18, 17) (18, 19)&#xA;(3, 4) (4, 4) (6, 4) (8, 4) (17, 11) (17, 13) (17, 17) (17, 19)&#xA;(3, 6) (4, 6) (6, 6) (8, 6) (15, 11) (15, 13) (15, 17) (15, 19)&#xA;(3, 8) (4, 8) (6, 8) (7, 7) (13, 11) (13, 13) (13, 17) (13, 19)&#xA;(3, 12) (11, 17) (11, 15) (11, 13) (11, 11) (9, 13) (9, 17) (9, 19)&#xA;(13, 18) (13, 17) (13, 15) (13, 13) (13, 9) (13, 13) (7, 17) (7, 19)&#xA;(17, 18) (17, 17) (17, 15) (17, 13) (17, 9) (17, 7) (17, 17) (3, 19)&#xA;(19, 18) (19, 17) (19, 15) (19, 13) (19, 9) (19, 7) (19, 3) (19, 19)&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Q2&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You are right, there are no strictly dominated strategies here. This is because each action is a best response to some opponent action. For example, 2 is a best response to opponent moves 13, 17, and 19, 3 is a best response to 11, 13, 17, and 19, and so on. Similarly, there is no strictly dominant strategy. For example, 19 is a best response to 2, 3, 5, 7, and 19, but not to 11, 13, or 17.&lt;/p&gt;&#xA;" OwnerUserId="23393" LastEditorUserId="23393" LastEditDate="2019-06-12T11:59:27.273" LastActivityDate="2019-06-12T11:59:27.273" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29761" PostTypeId="1" CreationDate="2019-06-12T13:04:24.753" Score="0" ViewCount="123" Body="&lt;p&gt;The concept of limited liability in corporate law is widespread all over the world. Limited liability means, that owners of a company can only loose their capital invested into the company - the shares - as opposed to being liable with their whole private equity. My question is simple:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does this benefit the economy as a whole or is this just a legal trick by corporate crooks?&lt;/p&gt;&#xA;" OwnerUserId="18743" LastActivityDate="2019-06-18T02:02:25.283" Title="Is the concept of limited liability in corporate law beneficial to economy" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;&lt;law&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29762" PostTypeId="2" ParentId="29757" CreationDate="2019-06-12T13:35:45.000" Score="0" Body="&lt;p&gt;Ordinal levels of measurement (of which ordinal utility is but one example) are often &lt;em&gt;defined&lt;/em&gt; in terms of their properties with respect to monotonic transformations.  They show up in voting theory, economics, nonparametric statistics, and a variety of other places.  In short, they're used for a lot more than just the Marginal Rate of Substitution.  So while using a monotone &lt;em&gt;decreasing&lt;/em&gt; mapping may not impact &lt;em&gt;some&lt;/em&gt; calculations (where a double negative will cancel out, essentially) it will certainly impact others.&lt;/p&gt;&#xA;" OwnerUserId="23023" LastActivityDate="2019-06-12T13:35:45.000" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29763" PostTypeId="2" ParentId="5044" CreationDate="2019-06-12T13:44:07.030" Score="0" Body="&lt;p&gt;There are four basic &lt;a href=&quot;https://en.wikipedia.org/wiki/Level_of_measurement&quot; rel=&quot;nofollow noreferrer&quot;&gt;levels of measurement&lt;/a&gt; in statistical theory:  &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;nominal (also referred to as &quot;categorical&quot;)&lt;/li&gt;&#xA;&lt;li&gt;ordinal&lt;/li&gt;&#xA;&lt;li&gt;interval&lt;/li&gt;&#xA;&lt;li&gt;ratio&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;(Note that interval and ratio are sometimes collectively referred to as &quot;cardinal&quot; data.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;They are sometimes defined in terms of which kind of mathematical transformations are allowed on a given dataset, without changing the relevant properties (distinguishability, order, and relative/absolute magnitude.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ordinal data allows for any monotonic transformation of the data &amp;mdash; also called &quot;order-preserving&quot; transformations.  If utility is taken to be of the ordinal type (which is typically &amp;mdash; though not &lt;em&gt;always&lt;/em&gt;, and not &lt;em&gt;historically&lt;/em&gt; &amp;mdash; the case) then such transformations are permitted, and will not impact the results of any allowed calculations on the data.  This is not unique to utility; &lt;em&gt;any&lt;/em&gt; ordinal data will allow for such transformations.&lt;/p&gt;&#xA;" OwnerUserId="23023" LastActivityDate="2019-06-12T13:44:07.030" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29767" PostTypeId="2" ParentId="29591" CreationDate="2019-06-12T18:35:47.443" Score="1" Body="&lt;p&gt;There are actually more pros then cons for the &quot;home countries&quot; in my opinion, and I have official/credible sources to back this opinion up.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Financial remittances have been recognized as an important developmental vehicle associated with migration. Financial remittance flows have steadily increased in volume from the 1990s to the present day. In 2017, migrants sent an estimated $466 billion to families in developing countries. &lt;strong&gt;Money sent home from abroad is shown to be more stable than both private debt and portfolio equity flows, and several times larger than international development aid.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An estimated 800 million people worldwide are directly supported by remittances from relatives and loved ones abroad, &lt;strong&gt;according to the International Fund for Agricultural Development (IFAD).&lt;/strong&gt; &lt;em&gt;Remittances lift families out of poverty, improve health and nutrition conditions, increase education opportunities for children, improve housing and sanitation, promote entrepreneurship and reduce inequality.&lt;/em&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, apart from financial remittances, transnational communities also contribute by way of 'social remittances' - the flow of skills, knowledge, ideas and values that migrants transmit home. &lt;em&gt;The impact of social remittances was most strongly felt in areas such as education, health, employment, business and aspects of governance, &lt;strong&gt;found a study conducted by IOM in Tanzania in 2014&lt;/strong&gt;.&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In short, there is a lot work to be done. IOM, UN Migration Agency, in partnership with specialized organizations, civil society, academia and the private sector, have engaged in several concrete projects and initiatives aimed at improving knowledge of social and financial remittance usage and corridors. They have conducted studies on the impact of remittances on families and communities, and worked to enhance the development impact of remittances, financial inclusion and diaspora engagement. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT to address cons: &#xA;There are indeed cons; let's look at the ones you pointed out:             inflation: I think most people would say this form of inflation is insignificant when you compare it the global economic perspective. There is a literal currency war between most if not all of the worlds nations, going on for a while now, where advanced economies are technically importing inflation to emerging market economies. These amounts are huge and when you factor in our topic here, it makes our topic a bit insignificant in comparison. See: &lt;a href=&quot;https://en.wikipedia.org/wiki/Currency_war&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://en.wikipedia.org/wiki/Currency_war&lt;/a&gt;&#xA;James Rickards also has a great book on the subject.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for social conflicts, this is a pretty micro oriented con, and a bit political as well. I'm afraid I don't have much knowledge on this one.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For accelerated emigration, this is perhaps the biggest con, but is easily countered in the long run. Here's why: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think it is commonly accepted that most of the skilled workers &lt;strong&gt;in the long run&lt;/strong&gt; wish to return to their home country/their families. When these workers leave their home countries, the country loses the potential GDP input of said workers. What do they gain in return? Cash inflow. Which we already accepted doesn't have much of a significant effect on inflation. What that cash inflow does do is increase consumption and investment a little bit, which promotes the prosperity potential of the country in the long run. Assuming this consumption and investment is aimed at long term growth for the home country, the workers would eventually come back(their original goal in the first place) to a stable economic system(that they inadvertently helped create) and provide further.&lt;/p&gt;&#xA;" OwnerUserId="23072" LastEditorUserId="23072" LastEditDate="2019-06-13T14:17:21.900" LastActivityDate="2019-06-13T14:17:21.900" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29768" PostTypeId="1" CreationDate="2019-06-12T21:07:39.167" Score="0" ViewCount="131" Body="&lt;p&gt;In the process of building a social accounting matrix for Panama, I am trying to understand what capital refers to. The Panamanian National Accounts have tables on capital, but they describe gross capital formation. In a social accounting matrix, gross capital formation represents investment and not capital. So what does capital mean?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/k4m34.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/k4m34.jpg&quot; alt=&quot;A social accounting matrix&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I was also wondering if capital was included as part of Gross Value Added (GVA) and, if so, could it be calculated using GVA data?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you!&lt;/p&gt;&#xA;" OwnerUserId="23243" LastActivityDate="2021-03-04T21:01:20.173" Title="In a social accounting matrix, what does Capital refer to?" Tags="&lt;national-accounts&gt;&lt;input-output&gt;" AnswerCount="1" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29770" PostTypeId="1" AcceptedAnswerId="29772" CreationDate="2019-06-13T04:27:56.130" Score="2" ViewCount="51" Body="&lt;p&gt;In particular Mortgage-backed securities. I've read from a book that underestimating the risk of default is tantamount to overestimating the value of the bond, giving rise to a bubble in MBS. I'm unclear of how that works. &#xA;My guess is that since the probability of default risk is low, thus banks give out lower coupon rates. Investors buy MBS up because they are safer, demand for MBS increase, price of these MBS pushed up.&lt;/p&gt;&#xA;" OwnerUserId="23406" LastEditorUserId="10247" LastEditDate="2019-06-13T16:29:31.703" LastActivityDate="2019-06-14T17:46:46.513" Title="Relationship between default risk and value of bond" Tags="&lt;bonds&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29771" PostTypeId="1" AcceptedAnswerId="29785" CreationDate="2019-06-13T08:10:38.543" Score="0" ViewCount="157" Body="&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{align}&#xA;	V(W)=\max\limits_{W'\in[0,W]}\qquad&amp;amp; u(W-W')+\beta V(W')\qquad\forall W&#xA;\end{align}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\textbf{My Question}$&lt;/span&gt;: Why is the unknown in the Bellman equation &lt;span class=&quot;math-container&quot;&gt;$V(W)$&lt;/span&gt; itself? Isn't the choice variable tomorrow's state, &lt;span class=&quot;math-container&quot;&gt;$W'$&lt;/span&gt;?&lt;/p&gt;&#xA;" OwnerUserId="8560" LastActivityDate="2019-06-14T17:03:34.497" Title="What is unknown in Bellman Equation?" Tags="&lt;macroeconomics&gt;&lt;dynamic-programming&gt;&lt;bellman-equations&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29772" PostTypeId="2" ParentId="29770" CreationDate="2019-06-13T10:27:45.907" Score="2" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;[...] underestimating the risk of default is tantamount to overestimating the value of the bond.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The reason behind this is simply due to &lt;a href=&quot;https://en.wikipedia.org/wiki/Bond_valuation&quot; rel=&quot;nofollow noreferrer&quot;&gt;how bonds are priced&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;P = \sum_{n=1}^N \frac{C + M[{I_{n=N}}]}{(1+i)^n}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; is the contractual interest rate, &lt;span class=&quot;math-container&quot;&gt;$C$&lt;/span&gt; is the coupon payment, &lt;span class=&quot;math-container&quot;&gt;$N$&lt;/span&gt; is the number of payments, &lt;span class=&quot;math-container&quot;&gt;$I_{n=N}$&lt;/span&gt; is an indicator function taking the value of &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt; when &lt;span class=&quot;math-container&quot;&gt;$n=N$&lt;/span&gt; is &lt;span class=&quot;math-container&quot;&gt;$true$&lt;/span&gt; or &lt;span class=&quot;math-container&quot;&gt;$0$&lt;/span&gt; otherwise, &lt;span class=&quot;math-container&quot;&gt;$P$&lt;/span&gt; is the market price of the bond, &lt;span class=&quot;math-container&quot;&gt;$M$&lt;/span&gt; is the value of the bond at maturity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; goes up, &lt;span class=&quot;math-container&quot;&gt;$P$&lt;/span&gt; goes down and vice versa, see&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/D8Jl5.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/D8Jl5.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\rightarrow$&lt;/span&gt; if &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; is underestimated, &lt;span class=&quot;math-container&quot;&gt;$P$&lt;/span&gt; will be overestimated. &lt;strong&gt;Indeed, it is &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; which, via a &lt;a href=&quot;https://en.wikipedia.org/wiki/Risk_premium#Finance&quot; rel=&quot;nofollow noreferrer&quot;&gt;premium&lt;/a&gt;, internalizes the default risk consideration and is an increasing quantity of it.&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="10247" LastEditorUserId="10247" LastEditDate="2019-06-13T13:43:33.433" LastActivityDate="2019-06-13T13:43:33.433" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29773" PostTypeId="2" ParentId="5044" CreationDate="2019-06-13T13:59:05.943" Score="11" Body="&lt;p&gt;You're right that it's a bit counterintuitive that the shape of the indifference curves shouldn't change when you transform the utility function. The reason is that you are transforming along an axis that is perpendicular to the plane where the indifference curve lives.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's imagine we have two goods, x and y, and let's say that the original utility function is given by &lt;span class=&quot;math-container&quot;&gt;$U(x,y)=x^\frac{1}{3}y^\frac{2}{3}$&lt;/span&gt;. We can create a 3D plot of the utility function where &lt;span class=&quot;math-container&quot;&gt;$z = U(x,y)$&lt;/span&gt;. Any transformation &lt;span class=&quot;math-container&quot;&gt;$f(z)$&lt;/span&gt; will work on the z dimension. In the following example, the transformation &lt;span class=&quot;math-container&quot;&gt;$f(\cdot)$&lt;/span&gt; is multiplying the utility function by a positive scalar&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/1Qf7H.gif&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/1Qf7H.gif&quot; alt=&quot;Scalar multiplication of utility function&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you look down on the &lt;span class=&quot;math-container&quot;&gt;$x-y$&lt;/span&gt; plane from above, you will notice that you can plot an indifference curve through a point on that plane and it will look identical before and after the transformation. Note that it will not be the same indifference curve because the utility level will change under the transformation. Going back to the multiplication example, let's look at the indifference curve (red line) that goes through the bundle &lt;span class=&quot;math-container&quot;&gt;$(x,y) = (10,10)$&lt;/span&gt; (red dot). Regardless of the multiplier, the indifference curve maintains its shape but the associated utility level increases from 10 to 20.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/aDuUM.gif&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/aDuUM.gif&quot; alt=&quot;Scalar multiplication, shifting indifference curves&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have also included other level curves, for utility levels 4, 8, 12, ... 40. Note that as the factor with which we multiply the original utility function gets larger, these level curves get squeezed into the lower left corner.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can see the same thing happening with other monotonic transformations, for example translation (adding a constant) and power transformation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/mLNdy.gif&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/mLNdy.gif&quot; alt=&quot;Adding a constant&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/QSXL3.gif&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/QSXL3.gif&quot; alt=&quot;Power transformation&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="23393" LastActivityDate="2019-06-13T13:59:05.943" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29774" PostTypeId="2" ParentId="29771" CreationDate="2019-06-13T14:21:24.707" Score="1" Body="&lt;p&gt;What you want to maximize is the discounted stream of utility over time. To that end, you can set control variables over time (subject to some constraints, like technology, budget...). We are ultimately interested in the optimal setting of these variables (called the optimal policy).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Bellman's main insight is the principle of optimality (reminiscent of backward induction/subgame perfectness in game theory): suppose you choose some action today as part of an optimal policy, then the remaining action sequence must be part of an optimal policy from tomorrow on.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Before turning to the policy, we solve for the value function (this part is called the prediction problem). For a discrete action space, you could actually draw a complete decision tree and solve via backward induction. The more feasible, tractable, and elegant solution is to write the problem recursively with respect to the continuation value of the problem. Solving the Bellman Equation will give you that value function &lt;span class=&quot;math-container&quot;&gt;$V(\cdot)$&lt;/span&gt;, which is the &lt;em&gt;optimal&lt;/em&gt; discounted value of the objective function, given the state you are in and an optimal policy from that state onwards. Note that the solution is thus a function, not a value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From there, you can back out the sequence of actions (policy) that produces the optimal outcome. This part is called the control problem. Having solved the prediction problem, this is easy: the value function takes today's state and action as input and gives you the continuation value. So for each state, compute the continuation value for each possible action and pick the action that has the highest continuation value.&lt;/p&gt;&#xA;" OwnerUserId="23393" LastEditorUserId="23393" LastEditDate="2019-06-14T11:16:54.827" LastActivityDate="2019-06-14T11:16:54.827" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="29775" PostTypeId="2" ParentId="29658" CreationDate="2019-06-13T15:35:02.723" Score="2" Body="&lt;p&gt;There are a couple of things here. First of all, envy is when your own payoff is smaller than the other player's payoff, which is the case when &lt;span class=&quot;math-container&quot;&gt;$z_i&amp;lt;z_j$&lt;/span&gt;. So the coefficients here are &lt;span class=&quot;math-container&quot;&gt;$0.8$&lt;/span&gt; for envy and &lt;span class=&quot;math-container&quot;&gt;$0.4$&lt;/span&gt; for compassion (envy looms larger).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Solving the game using backward induction, we need to first find the minimum value that player 2 is willing to accept. A purely self-regarding player will accept any positive offer from player 1. But with fairness preferences, player 2 will actually decline low positive offers as unfair. To find the threshold, we first note that player 2 gets a utility of &lt;span class=&quot;math-container&quot;&gt;$0$&lt;/span&gt; if she declines the offer (in which case both receive 0 payoff). Suppose player 1 offers player 2 an amount &lt;span class=&quot;math-container&quot;&gt;$z_2$&lt;/span&gt;. Player 1 would keep the remainder, &lt;span class=&quot;math-container&quot;&gt;$80-z_2$&lt;/span&gt;. The utility is piece-wise linear, with a kink at 40 (equal split), like this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/y9dMU.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/y9dMU.png&quot; alt=&quot;Utility function&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We need to find the value for &lt;span class=&quot;math-container&quot;&gt;$z_2$&lt;/span&gt; where player 2's utility crosses the x-axis (red dot). Since this happens below 40, the relevant part of the utility function is the envy case. Thus, we solve &lt;span class=&quot;math-container&quot;&gt;$z_2-0.8(80-z_2-z_2)=0$&lt;/span&gt;, which turns out to be &lt;span class=&quot;math-container&quot;&gt;$z_2^0=\frac{320}{13}\approx 24.6$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Knowing the acceptance threshold we can now turn to player 1. Player 1 has the same Fehr-Schmidt preferences as player 2. Since the utility function is strictly increasing in own payoff, player 1 wants to keep as much of the pie as possible. Anticipating player 2's acceptance threshold, player 1 will offer &lt;span class=&quot;math-container&quot;&gt;$z_2^0=\frac{320}{13}$&lt;/span&gt;, maybe adding a small &lt;span class=&quot;math-container&quot;&gt;$\varepsilon$&lt;/span&gt; to resolve player 2's indifference.&lt;/p&gt;&#xA;" OwnerUserId="23393" LastActivityDate="2019-06-13T15:35:02.723" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29776" PostTypeId="2" ParentId="29771" CreationDate="2019-06-13T16:53:18.267" Score="0" Body="&lt;p&gt;Not sure what problem you are solving.&#xA;But, the next state can be stochastic and the reward can be stochastic.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, In Inventory problem, your action is the number of items you purchase now. But next state can be calculated by &lt;strong&gt;current inventory(current state) + new purchase(action) - demand(unknown factor)&lt;/strong&gt; therefore it will be stochastic. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In stochastic problem usually, you have Expectation in your objective function.&lt;/p&gt;&#xA;" OwnerUserId="21756" LastActivityDate="2019-06-13T16:53:18.267" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29777" PostTypeId="2" ParentId="29768" CreationDate="2019-06-13T17:01:15.737" Score="0" Body="&lt;p&gt;You need to take care here as capital appears twice in your table; once as a factor of production, and once as an &quot;institution&quot; (although it's really better thought of as a capital account).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;Profit&quot; in the first column basically refers to Gross Operating Surplus in national accounts, and it's paid by industries (activities) to the capital factor - GOS can be considered the earnings of the capital factor of production (analagous to wages being the earnings of the labour factor).  Looking at the capital factor column, you can see that these earnings are in turn &quot;paid&quot; to the household sector.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The capital account, on the other hand, &quot;receives&quot; savings from government and households, and &quot;spends&quot; on Investment/Gross Fixed Capital Formation (and possibly valuables and inventories too depending on how your SAM is set up). The row=column balance on this account is just the typical Savings = Net Investment accounting identity.&lt;/p&gt;&#xA;" OwnerUserId="5550" LastActivityDate="2019-06-13T17:01:15.737" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29778" PostTypeId="1" CreationDate="2019-06-14T00:59:24.947" Score="0" ViewCount="27" Body="&lt;p&gt;Specifically, I am looking for the standard neoclassical growth model, but the labour decision is based on either search or matching theory instead of a Walrasian labour mechanism.&lt;/p&gt;&#xA;" OwnerUserId="23125" LastEditorUserId="11590" LastEditDate="2019-06-14T19:20:49.467" LastActivityDate="2019-06-14T19:20:49.467" Title="Has there been an applications of search and matching theory in the Neoclassical Growth Model?" Tags="&lt;macroeconomics&gt;&lt;labor-economics&gt;&lt;economic-growth&gt;&lt;unemployment&gt;&lt;search-and-matching&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29779" PostTypeId="1" CreationDate="2019-06-14T01:36:40.127" Score="1" ViewCount="33" Body="&lt;p&gt;Each player can contribute to the project with non-negative effort.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Player 1's utility is &lt;span class=&quot;math-container&quot;&gt;$u_1=e_1(1+e_2-s\cdot e_1)$&lt;/span&gt; where &lt;span class=&quot;math-container&quot;&gt;$s\in [0,1]$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Player 2's utility is &lt;span class=&quot;math-container&quot;&gt;$u_2=e_2(1+e_1-e_2)$&lt;/span&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For case 1, each player contributes to the project simultaneously.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For case 2, player 1 moves first then play 2 moves next&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I cannot find a Nash equilibria (SPNE for case 2) if &lt;span class=&quot;math-container&quot;&gt;$s$&lt;/span&gt; is less than  &lt;span class=&quot;math-container&quot;&gt;$1/4$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I draw best a response diagram, the two best response functions do not intersect. But I don't think that &lt;span class=&quot;math-container&quot;&gt;$e_1=0$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$e_2=0$&lt;/span&gt; is a Nash equilibrium, since they have would have an incentive to exert more than &lt;span class=&quot;math-container&quot;&gt;$0$&lt;/span&gt; effort.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can &lt;span class=&quot;math-container&quot;&gt;$e_1=\infty$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$e_2=\infty$&lt;/span&gt; be a nash equilibrium?&lt;/p&gt;&#xA;" OwnerUserId="23421" LastEditorUserId="21827" LastEditDate="2019-06-14T16:20:13.197" LastActivityDate="2019-06-14T16:20:13.197" Title="I cannot find for this Simple shared effort level game" Tags="&lt;game-theory&gt;&lt;nash-equilibrium&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29780" PostTypeId="1" CreationDate="2019-06-14T02:11:30.817" Score="1" ViewCount="196" Body="&lt;p&gt;This question is related to economics on the blockchain. Bonding curves are becoming popular; however, it is a bit concerning that the price on an asset is predetermined by a mathematical function. Will the use of bonding curves distort or somehow disrupt the market? In my opinion bonding curves are the wrong mechanism to use in a market economy. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose the real value of an asset is significantly smaller than the sell curve. The sell curve allows me to sell only at a specified price (the price that corresponds to the current volume of issued tokens). How is this mechanism market efficient? It seems that this mechanism will work for curation markets, but it will not work as an automated market maker for assets similar to equity securities. Please, correct me if I'm wrong.&lt;/p&gt;&#xA;" OwnerUserId="23422" LastEditorUserId="23422" LastEditDate="2019-06-22T11:50:30.773" LastActivityDate="2019-06-22T11:50:30.773" Title="bonding curves and the market" Tags="&lt;markets&gt;&lt;cryptocurrency&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29781" PostTypeId="1" AcceptedAnswerId="29801" CreationDate="2019-06-14T06:09:07.807" Score="0" ViewCount="22" Body="&lt;p&gt;Do they use &quot;Direct Stock Plans,&quot; or some other method?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Not sure if this is the right place to ask, but I'm curious.&lt;/p&gt;&#xA;" OwnerUserId="11033" LastEditorUserId="12891" LastEditDate="2019-06-15T16:12:54.253" LastActivityDate="2019-06-15T16:20:09.553" Title="How do stockbrokers purchase shares?" Tags="&lt;investment&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29782" PostTypeId="1" AcceptedAnswerId="29806" CreationDate="2019-06-14T10:05:59.707" Score="1" ViewCount="160" Body="&lt;p&gt;So i have this question on leverage and cost of capital:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Leverage and the cost of capital Gamma Airlines has an asset beta of 1.5. The risk-free interest rate is 6%, and the market risk premium is 8%. Assume the capital asset pricing model is correct. Gamma pays taxes at a marginal rate of 35%. Draw a graph plotting Gam- ma’s cost of equity and after-tax WACC as a function of its debt-to-equity ratio D/E, from no debt to D/E = 1.0. Assume that Gamma’s debt is risk-free up to D/E = .25. Then the interest rate increases to 6.5% at D/E = .5, 7% at D/E = .8, and 8% at D/E = 1.0. As in Problem 21, you can assume that the firm’s overall beta (βA) is not affected by its capital structure or the taxes saved because debt interest is tax-deductible.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The answer sheet is this ( only a part of the table is shown)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;..&lt;a href=&quot;https://i.stack.imgur.com/v1A0o.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/v1A0o.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand how they got to the RA and how it doesn't change according to the capital structure.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I also know how to calculate D/V from D/E.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem is that i dont seem to understand which formula I should use to calculate RE.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If , for example, i use this formula&lt;/p&gt;&#xA;&#xA;&lt;p&gt;RE=RA+(RA-RD)D/E for D/E equal to 0.10 i get &lt;/p&gt;&#xA;&#xA;&lt;p&gt;RE=0.180+(0.180-0.06) · 0.10 = 0.192 which is not 0.1941.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then which formula should i use ?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;R=rf+B(rm-rf)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why do i need to calculate DV?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Somebody please explain how i can get accurate results of RE using which formula? Thanks i greatly appreciate it.&lt;/p&gt;&#xA;" OwnerUserId="21642" LastActivityDate="2019-06-15T23:34:52.527" Title="How to calculate cost of equity?" Tags="&lt;finance&gt;&lt;stock-market&gt;&lt;financial-economics&gt;&lt;capital-returns&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29783" PostTypeId="2" ParentId="29779" CreationDate="2019-06-14T10:54:30.017" Score="2" Body="&lt;p&gt;You are right, there is no equilibrium for &lt;span class=&quot;math-container&quot;&gt;$s\leq \frac{1}{4}$&lt;/span&gt;. Note that Nash's theorem only guarantees the existence of an equilibrium in finite games (which this game is not). (Also note that &lt;span class=&quot;math-container&quot;&gt;$0$&lt;/span&gt; is not in the best-response set of any of the two players, so we know that, if there were an equilibrium, it would not contain zero effort by any player.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To get an intuition of what is going on, consider the plot below, which shows the best response functions for the two players, with  &lt;span class=&quot;math-container&quot;&gt;$s=\frac{1}{4}$&lt;/span&gt;. As you point out, the lines do not intersect. Suppose we start at point &lt;span class=&quot;math-container&quot;&gt;$(0,0)$&lt;/span&gt;, and let each player revise their action in turn, holding the other player's action constant (dashed line). Player 1 will update their action to &lt;span class=&quot;math-container&quot;&gt;$e_1=2$&lt;/span&gt;, the best response to &lt;span class=&quot;math-container&quot;&gt;$e_2=0$&lt;/span&gt;. But then, player 2 will update their action to &lt;span class=&quot;math-container&quot;&gt;$e_2=\frac{3}{2}$&lt;/span&gt;. This goes on ad infinitum, never reaching an equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/YHGQx.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/YHGQx.png&quot; alt=&quot;Best response diagram&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="23393" LastEditorUserId="23393" LastEditDate="2019-06-14T13:18:00.417" LastActivityDate="2019-06-14T13:18:00.417" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29784" PostTypeId="2" ParentId="29770" CreationDate="2019-06-14T14:44:46.383" Score="1" Body="&lt;p&gt;I like @keepAlive's answer, but I thought it might be more accessible to discuss this question in a simpler setting. &#xA;Imagine that a \$100 face amount bond that lasts for one period. If the bond does not default than at the end of the period then it pays a coupon &lt;span class=&quot;math-container&quot;&gt;$c$&lt;/span&gt; and returns the face amount. The bond defaults with probability &lt;span class=&quot;math-container&quot;&gt;$P_{d}$&lt;/span&gt; and then returns zero. Assume the appropriate discount rate is &lt;span class=&quot;math-container&quot;&gt;$r$&lt;/span&gt;. What is this bond worth?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ P_{bond} = \frac{0}{(1+r)^0} + (1- P_{d})\cdot \frac{100+c}{(1+r)^1} + (P_{d})\cdot \frac{0}{(1+r)^1} $$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$ = (1- P_{d})\cdot \frac{100+c}{(1+r)} $$&lt;/span&gt;&#xA;But assume that you are mistaken, and you estimate a default rate that is too small (that is &lt;span class=&quot;math-container&quot;&gt;$\hat{P}_{d} &amp;lt;  P_{d}$&lt;/span&gt;). You should infer the bond is worth:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$ \hat{P}_{bond} = (1- \hat{P}_{d})\cdot \frac{100+c}{(1+r)}$$&lt;/span&gt;&#xA;Which implies the difference in price is:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$ \hat{P}_{bond} - P_{bond} = (1- \hat{P}_{d})\cdot \frac{100+c}{(1+r)} - (1- P_{d})\cdot \frac{100+c}{(1+r)}$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$ = (P_{d} - \hat{P}_{d})\cdot \frac{100+c}{(1+r)}$$&lt;/span&gt;, which by construction is positive. Therefore, assuming that the default rate is too low implies that you will overestimate the value of the bond all other things equal (even if you get the other parameters correct). &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2019-06-14T17:46:46.513" LastActivityDate="2019-06-14T17:46:46.513" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29785" PostTypeId="2" ParentId="29771" CreationDate="2019-06-14T17:03:34.497" Score="4" Body="&lt;p&gt;The original problem was probably of the form &lt;span class=&quot;math-container&quot;&gt;$$\max_{\{W_t\}_{t=1}^\infty}\sum_{t=0}^\infty \beta^t u(W_t-W_{t+1}),$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\mbox{s.t. } W_{t+1}\in[0,W_t] \ \forall \ t,  ~~ W_0 \mbox{ given}$$&lt;/span&gt;&#xA;When formulated that way there is no need to solve for any function &lt;span class=&quot;math-container&quot;&gt;$V$&lt;/span&gt;, but the infinite elements of the sequence &lt;span class=&quot;math-container&quot;&gt;${\{W_t\}}_{t=1}^\infty$&lt;/span&gt; are all choice variables. Bellman's main insight is that (under some conditions) the problem can be simplified. Instead of solving for an infinite number of variables, you could solve for a single &quot;policy function&quot; that tells you what to do each period as a function of the current state variables, and a &quot;value function&quot; that summarizes what is the value (in terms of today) of inducing each possible state in the future. Even if there is no uncertainty, it is clear that this value function is an endogenous object, since it must somehow capture the future stream of utility as a single function of the future state. In your case, that function is  &lt;span class=&quot;math-container&quot;&gt;$V(W')$&lt;/span&gt;. This is why the Bellman equation: &#xA;&lt;span class=&quot;math-container&quot;&gt;$$V(W)=\max_{W'\in[0,W]} u(W-W')+\beta V(W')$$&lt;/span&gt;&#xA;has two properties: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) it lacks the subscripts on the &lt;span class=&quot;math-container&quot;&gt;$W$&lt;/span&gt;'s, this reflects that you will solve for &lt;span class=&quot;math-container&quot;&gt;$W'$&lt;/span&gt; as a function of &lt;span class=&quot;math-container&quot;&gt;$W$&lt;/span&gt;, i.e. the policy function. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) has a new object, &lt;span class=&quot;math-container&quot;&gt;$V$&lt;/span&gt;, that was not in the original problem and it is a function of &lt;span class=&quot;math-container&quot;&gt;$W$&lt;/span&gt; (or &lt;span class=&quot;math-container&quot;&gt;$W'$&lt;/span&gt;) and just by eyeballing the two problems you can see that for them to be equivalent &lt;span class=&quot;math-container&quot;&gt;$V$&lt;/span&gt; must be the discounted sum of future payoffs assuming future actions are also optimal. So it is not a choice variable, but definitely, an endogenous object that you need to find when solving the problem.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can see that the problem of optimally choosing infinitely many objects is transformed into one of choosing a finite number (2) of functions, which are infinite-dimensional objects. Brilliant!&lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-06-14T17:03:34.497" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="29786" PostTypeId="2" ParentId="10918" CreationDate="2019-06-14T17:06:07.553" Score="3" Body="&lt;p&gt;I know that this is an old question, but I thought I'd add an answer in case it's helpful to others with a similar question. My interpretation of the original question was that the question asker was looking for a concrete example of how a production function and a transformation function might be related. So I am providing a simple example. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose we have a firm that produces a single output, &lt;span class=&quot;math-container&quot;&gt;$ q$&lt;/span&gt;, using a Cobb-Douglas production function of the following form: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ q\le f(x_1,x_2)=x_1^\alpha x_2^\beta $$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That is, &lt;span class=&quot;math-container&quot;&gt;$ f(x_1,x_2) $&lt;/span&gt; describes the maximum amount of &lt;span class=&quot;math-container&quot;&gt;$ q$&lt;/span&gt; that can be produced by a firm with this technology. So the production possibilities set, &lt;span class=&quot;math-container&quot;&gt;$ \mathbf Y$&lt;/span&gt;, is the set of all vectors &lt;span class=&quot;math-container&quot;&gt;$ \mathbf y=(-x_1,-x_2,q), \mathbf y\subseteq \mathbb R^3 $&lt;/span&gt; (in this case - clearly could be extended to &lt;span class=&quot;math-container&quot;&gt;$ \mathbb R^n $&lt;/span&gt;), such that the inequality above holds. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ \mathbf Y=\{\mathbf y|q\le f(x_1,x_2)\} $$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that the vector has negative signs on &lt;span class=&quot;math-container&quot;&gt;$ x_1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$ x_2$&lt;/span&gt; because they are &lt;em&gt;inputs&lt;/em&gt;, while the output, &lt;span class=&quot;math-container&quot;&gt;$ q$&lt;/span&gt;, is positive. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;An equivalent way to represent this is as a &lt;strong&gt;transformation function&lt;/strong&gt;, &lt;span class=&quot;math-container&quot;&gt;$ F: \mathbb R^3 \to \mathbb R$&lt;/span&gt;, where &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ F(\mathbf y) = q-x_1^\alpha x_2^\beta $$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Using this notation, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ \mathbf Y=\{\mathbf y|F(\mathbf y) \le 0 \} $$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where &lt;span class=&quot;math-container&quot;&gt;$ F(\mathbf y) \le 0 $&lt;/span&gt; implies that the first inequality is satisfied. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is fairly simple to interpret when there is only one output; however the concept of a transformation function is useful because it allows us to think about production technologies that might use multiple inputs and produce multiple outputs. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I hope this is useful! &lt;/p&gt;&#xA;" OwnerUserId="21170" LastActivityDate="2019-06-14T17:06:07.553" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29787" PostTypeId="2" ParentId="29757" CreationDate="2019-06-14T17:15:42.637" Score="1" Body="&lt;p&gt;The single most important feature that we care about a utility function is that if a bundle &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; is preferred to a bundle &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt; then &lt;span class=&quot;math-container&quot;&gt;$U(X)&amp;gt;U(Y)$&lt;/span&gt; (with weak inequalities whenever appropriate). This is how we define a utility function. You can immediately see that if a function has that property, any monotonic increasing transformation of it will also have that property. However, if the transformation is decreasing, call it &lt;span class=&quot;math-container&quot;&gt;$V(X)=f(U(X))$&lt;/span&gt; with &lt;span class=&quot;math-container&quot;&gt;$f'&amp;lt;0$&lt;/span&gt;, then &lt;span class=&quot;math-container&quot;&gt;$V(X)&amp;lt;V(Y)$&lt;/span&gt; i.e. now &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; gives less utility. Therefore, we see that &lt;span class=&quot;math-container&quot;&gt;$V$&lt;/span&gt; cannot represent the same preferences. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What about the MRS invariance property? Well, once you understand that utility representations are not unique, (or unique up to monotonic increasing transformations), you can ask what is constant across all functions that represent the same preferences? The answer is: they have the same MRS. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can clearly see that it is necessary for two functions to have the same MRS if they represent the same preferences, but it is not sufficient. As you pointed out, decreasing transformations also have the same MRS. Note however, that the interpretations of the MRS slightly changes when  considering monotonic decreasing transformations. &lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-06-14T17:15:42.637" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29788" PostTypeId="2" ParentId="29745" CreationDate="2019-06-14T17:36:55.317" Score="3" Body="&lt;p&gt;There are a couple of assumptions driving this result. For instance, all agents are assumed to have preferences and a budget such that their optimal bundle is interior. For example, budget constraints were people cannot afford food are ruled out. Likewise, situations, where someone does not like one of these goods or has very strong substitutions patterns between a pair of goods, are also ruled out.  All preferences are assumed well-behaved (monotonic and strictly convex). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Secondly, the market is competitive, so all people face the same prices not only for tomatoes but also for airplanes, wages, etc. This almost never happens in reality, but in some cases, it is a good approximation. For example, when considering shopping for breakfast, the relative prices between cereal and yogurt and eggs roughly reflect the willingness for every person to substitute one good for another. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is a striking result and I see it more of a theoretical benchmark whose main intuition is that prices contain a whole lot of information about how people are willing to substitute one good for another. When they don't, it is very interesting to understand why. &lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-06-14T17:36:55.317" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29789" PostTypeId="2" ParentId="29740" CreationDate="2019-06-14T18:02:04.380" Score="1" Body="&lt;p&gt;Q1: Your bullet point (b) is not how we usually interpret capital, it is usually not assumed that &lt;span class=&quot;math-container&quot;&gt;$k_0$&lt;/span&gt; is divided between &lt;span class=&quot;math-container&quot;&gt;$k_0^p$&lt;/span&gt;, and &lt;span class=&quot;math-container&quot;&gt;$k_0^s$&lt;/span&gt; the capital we use to produce and the capital we store for next period. Instead, we assume all the capital is used for production, but using it for production does not delete it,  it only depreciates it. For example, if you use your machines to produce pizza that does not mean that they are obsolete to be used next period. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you want you could add to the model that un-used capital does not get depreciated, but it is an easy exercise to show that under very general conditions it will never be optimal to leave capital un-used. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So I do not agree with your interpretation in (e), typically &lt;span class=&quot;math-container&quot;&gt;$k_1=(1-\delta)k_0+i_0$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Q2: This question is not particular of the dynamic model you present, but I think that the infinite sequences are messing up with your intuition. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider this simple example. If I say that you can choose to buy chocolate (at a price of \$2) or cheese (at a price of \$4), but you only have \$10 dollars (sorry this are rough times :P ), it is clear that if you are to spend all your money on these two goods, then choosing how much chocolate to buy, immediately pins down how much cheese you will buy. However, the fact that this is true does not change the nature that both amounts of chocolate and cheese are your choice variables. The budget constraint may allow you to re-formulate this problem as one where you only choose how much chocolate to buy (since cheese would be implicit), but this will only be a technique to simplify the original problem. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Something similar happens here. So to be concise, both sequences &lt;span class=&quot;math-container&quot;&gt;$\{c_t,k_{t+1}\}_{t=0}^\infty$&lt;/span&gt; are control variables even if they have a simple linear relationship between them through the law of motion. &lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-06-14T18:02:04.380" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="29790" PostTypeId="2" ParentId="29700" CreationDate="2019-06-14T18:51:58.277" Score="2" Body="&lt;p&gt;We can talk of the core for any arbitrary game. To explain how let me compare it directly to how we define non-cooperative games. In a standard non-cooperative game we define Players, &lt;span class=&quot;math-container&quot;&gt;$I$&lt;/span&gt;, action sets for each player, &lt;span class=&quot;math-container&quot;&gt;$A_i$&lt;/span&gt; for each &lt;span class=&quot;math-container&quot;&gt;$i\in I$&lt;/span&gt; and payoff functions that map any profile of actions to payoffs &lt;span class=&quot;math-container&quot;&gt;$u_i: A\rightarrow \mathbb{R}$&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$A=\prod_{i\in I} A_i$&lt;/span&gt;. Finally the solution concept, for example, Nash equilibrium, correlated equilibrium or rationalizability is a condition on these objects that we think are a good prediction of what will happen. For instance, Nash equilibrium predicts that every player is best responding to a correct belief about what other players are doing. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The  Core is another solution concept, however, the language developed so far is not sufficient, because the idea of the core is that it predicts that no group of people (or coalition) will have a profitable deviation. It is clear that now the unit of analysis are groups of people, so the &quot;agents&quot; in this setup are the elements of &lt;span class=&quot;math-container&quot;&gt;$P(I)$&lt;/span&gt;, the power set of &lt;span class=&quot;math-container&quot;&gt;$I$&lt;/span&gt;, which contains all possible groups of people, so you will need to define the action sets for each of these groups. A natural way could be that if &lt;span class=&quot;math-container&quot;&gt;$C\in P(I)$&lt;/span&gt; then &lt;span class=&quot;math-container&quot;&gt;$A_C=\prod_{i\in I\cap C} A_i$&lt;/span&gt;, i.e. the coalition &lt;span class=&quot;math-container&quot;&gt;$C$&lt;/span&gt; can choose the actions of all its players. It is clearly not the only possibility, maybe you want to allow for players to have some autonomy within the coalition, but let's say you define action sets that way. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You will also have to define payoff functions for each possible coalition. Again a natural way could be to define &lt;span class=&quot;math-container&quot;&gt;$u_C=\sum_{i\in iI\cap C} u_i$&lt;/span&gt;, i.e. the sum of utilities of players in the coalition. Note that your assumption on this coalition utility will necessarily come with some assumptions of how you substitute between players' utilities within the coalition.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, you will have to define which coalitions are possible to co-exist. For example, can players belong to multiple coalitions or not? Again a natural way would be to rule out this possibility so that in equilibrium each player must belong to only one coalition, i.e. &lt;span class=&quot;math-container&quot;&gt;$C\cap C'=\emptyset$&lt;/span&gt;. This language will allow you to define that the core will be a situation where all players belong to a coalition, each coalition chooses an action for each of their players and there is no subset of players that will rather separate from their current coalition to form another one and choose a  different profile of actions. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hopefully, I  have made clear that I needed to make several assumptions just to be able to define the core. Especially if I want to have some counterpart with the original non-cooperative game I started with. This is cumbersome.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think this is why, to some extent, the way some of the literature developed was by not subordinating the definition of core (intrinsically a cooperative solution concept) to the terminology of a non-cooperative game. One way to do it is by directly defining a payoff function for each player from being part of a coalition &lt;span class=&quot;math-container&quot;&gt;$V_i(C)$&lt;/span&gt; for each player where &lt;span class=&quot;math-container&quot;&gt;$C\in P(I)$&lt;/span&gt; (this notation has implicit that being in a coalition can probably imply different actions on your part). The core is then a partition of players (each player belongs to a coalition, say &lt;span class=&quot;math-container&quot;&gt;$i\in C_i^*$&lt;/span&gt;) such that there is no coalition &lt;span class=&quot;math-container&quot;&gt;$C'\in P(I)$&lt;/span&gt; such that for all &lt;span class=&quot;math-container&quot;&gt;$i\in C'$&lt;/span&gt;, you have &lt;span class=&quot;math-container&quot;&gt;$V_i(C')\geq V_i(C_i^*)$&lt;/span&gt; and with strict inequality for some &lt;span class=&quot;math-container&quot;&gt;$i\in C'$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Clearly, this last formulation has fewer assumptions than my first formulation. However, it is also clear that it does have assumptions. The main ones (at least for me) is that suffices to know what coalition you belong to figuree out your payoff (i.e. no externalities between coalitions). And the other important assumption is that players can only belong to one coalition. This is restrictive in many situations, for example, politicians that belong to multiple interest groups, etc. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Depending on what you are willing to assume about the nature of cooperation and deviations from cooperation, you will get a different-looking definition of core, but the general principle is the same. The core is the prediction that captures that no subgroup of players has incentives to coordinate and improve their condition. So the concept is not bound to specific kinds of games, but I think that there is no consensus on how to apply it universally to all kinds of games. &lt;/p&gt;&#xA;" OwnerUserId="21827" LastEditorUserId="21827" LastEditDate="2019-06-15T23:54:30.257" LastActivityDate="2019-06-15T23:54:30.257" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="29791" PostTypeId="2" ParentId="29611" CreationDate="2019-06-14T19:05:56.117" Score="1" Body="&lt;p&gt;First a disclaimer: Trade imbalances are something that we should expect to happen, especially between two massive economies like the US and China. In fact, it will probably be very hard to find a pair of countries that don't have a trade imbalance (unless they don't trade at all). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This does not mean that there is something wrong necessarily, however, a lot of the discussion seems to think that tariffs are solving a problem or making it worse when trade balances are not necessarily positive or negative.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, more directly to your point, the trade balance depends on many things. To list a few: the economic growth of both countries, their relative efficiency on tradable goods, the terms of trade, the relative exchange rates, and whether they are controlled or not, the tariffs or restrictions to trade, the relative purchasing power, the real interest rates in each country, etc. I think that the US and China are very different countries, so it will be quite heroic to try to explain everything with a single variable like tariffs. The trade imbalance is certainly  the result of multiple economic conditions. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sure enough, if you want to reduce how much you import from a country, tariffs will help, but the real question is why would you want to do this?&lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-06-14T19:05:56.117" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29792" PostTypeId="2" ParentId="29778" CreationDate="2019-06-14T19:19:13.230" Score="1" Body="&lt;p&gt;Search and matching models are fairly standard in macroeconomics. I guess this is fair to say since &lt;a href=&quot;https://www.nobelprize.org/prizes/economic-sciences/2010/press-release/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Peter Diamond, Dale Mortensen, and Christopher Pissarides won the Nobel prize in 2010&lt;/a&gt;. These are the names behind the canonical DMP model that most graduate students have to study in their first year. Although I am not a macroeconomist, I am confident to say that search models recognized as a key ingredient to explain unemployment in equilibrium. I suggest to watch the interview with Per Krusell on the Nobel prize homepage and read the &lt;a href=&quot;https://www.nobelprize.org/prizes/economic-sciences/2010/advanced-information/&quot; rel=&quot;nofollow noreferrer&quot;&gt;scientific background&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="11590" LastActivityDate="2019-06-14T19:19:13.230" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29794" PostTypeId="1" AcceptedAnswerId="29800" CreationDate="2019-06-15T03:51:17.763" Score="0" ViewCount="31" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;NX ≡ (S-I) + (T-G)&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Read this as “the trade balance (net exports) is identical to the sum&#xA;  of net savings (savings minus investment) and the government’s budget&#xA;  surplus or deficit (taxes minus spending).”  This is not a theory of&#xA;  what causes what; it’s an identity, different ways of expressing the&#xA;  same “what”.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://econospeak.blogspot.com/2016/12/the-identity-equals-causation-fallacy.html?m=1&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://econospeak.blogspot.com/2016/12/the-identity-equals-causation-fallacy.html?m=1&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since the government spending less won't impact negatively savings, especially if savings is already low (people will save more because they will want insurance, etc.) and won't necessarily lead to companies spending a lot more to offset it, it will most of the time lead in a reduced trade deficit. It seems that although cause/effect relationship in a large system is complex and goes both ways, the government spending less will in almost all cases lead to a reduction in trade deficit. Is this true?&lt;/p&gt;&#xA;" OwnerUserId="23098" LastActivityDate="2019-06-15T16:11:03.403" Title="Does diminishing government spending lead to a reduction in trade deficit?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29795" PostTypeId="1" CreationDate="2019-06-15T10:33:37.127" Score="2" ViewCount="98" Body="&lt;p&gt;I am having difficulty understanding the problem below:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given CDFs &lt;span class=&quot;math-container&quot;&gt;$F_1, ..., F_n$&lt;/span&gt;, prove that the allocation rule of a second-price auction with bidder-specific reserve prices is monotone. The item is rewarded to the bidder with the highest bid that meets his reserve price. The reserve price of bidder &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; is &lt;span class=&quot;math-container&quot;&gt;$r_i = _i^{-1}(t)$&lt;/span&gt; where &lt;span class=&quot;math-container&quot;&gt;$_i$&lt;/span&gt; is the virtual valuation function&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\phi_i(v_i) = v_i - \frac{1 - F_i(v_i)}{f_i(v_i)}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and &lt;span class=&quot;math-container&quot;&gt;$t$&lt;/span&gt; is chosen such that &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$Pr\left[\max_i _i(v_i) \ge t\right] = 1/2.$$&lt;/span&gt; &#xA;Since the virtual valuations are determined before the auction (if I understand it correctly), how does the reserve prices affect the monotonicity of the allocation rule? The behavior is still the same: if you keep on increasing your bid, you'll have a higher chance of getting the price. How should I go about this?&lt;/p&gt;&#xA;" OwnerUserId="23434" LastEditorUserId="21827" LastEditDate="2019-06-17T16:17:53.983" LastActivityDate="2019-06-17T16:17:53.983" Title="Monotonicity of second price auctions with bidder-specific reserve prices" Tags="&lt;game-theory&gt;&lt;auctions&gt;&lt;mechanism-design&gt;" AnswerCount="1" CommentCount="6" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29800" PostTypeId="2" ParentId="29794" CreationDate="2019-06-15T16:11:03.403" Score="1" Body="&lt;p&gt;I will give an overview based on the analysis of Chapter 6 of “Monetary Economics: An Integrated Approach to Credit, Money Income, Production and Wealth” by Wynne Godley and Marc Lavoie. This is a Post-Keynesian textbook; neoclassical economists might debate the exact model structure, but their models probably give qualitatively similar results.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There’s a lot of issues buried in your question. One immediate problem is that we should not really look at just the government deficit: what the government is doing also matters. For example, the government could decrease spending in aggregate, yet greatly increase its imports (e.g. defense spending) and so the trade deficit could get worse. We will assume that something like that is not happening.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Arguing that government spending “will not impact savings” (as the question is now stated) is incorrect. Savings desires might well be unchanged, but changing government spending changes incomes, and so actual saving will change. Furthermore, cutting spending presumably has some multiplier effect (the precise level of the multiplier is hotly debated), and this will affect investment plans.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the model in “Monetary Economics,” cutting government spending reduces the trade deficit. Since it is a multi-equation system that is solved simultaneously, one needs to be careful about verbal descriptions of mechanisms. However, I would describe the mechanism as follows: reduced government spending reduces national GDP, and this implies less imports (since imports are a fixed propensity to import out of all spending). As a result, the trade deficit falls, but it is not 1:1 with the reduction in spending - as your question phrasing (at the time of writing this answer) suggests.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One could debate the model structure, but I cannot think of many model structures that would suggest that the trade deficit would widen in response to government spending cuts. The implication is that the real debate is about the coefficient that relates the size of the cut in government spending to the trade deficit reduction. In almost any model, that coefficient would be parameter dependent, and so one would need to look at observed data to come up with a prediction for the real world.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2019-06-15T16:11:03.403" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="29801" PostTypeId="2" ParentId="29781" CreationDate="2019-06-15T16:20:09.553" Score="1" Body="&lt;p&gt;Technically, a stock broker &lt;em&gt;brokers&lt;/em&gt; stock purchases: they execute transactions for clients. That is, they buy on the behalf of clients. (This is not true for bonds, where the practice is that they sell clients bonds from their inventories.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Direct stock purchase plans are aimed at individuals, to the best of my knowledge. Brokers might help set up such purchases, but historically they existed as a way to buy equities without using a broker.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A broker will transact in two forms.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Primary market: buying shares directly from the company, such as in an initial public offering (IPO) or secondary offering.&lt;/li&gt;&#xA;&lt;li&gt;Secondary market: buying shares from other entities on stock exchanges or other markets (“dark pools”, etc.).&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2019-06-15T16:20:09.553" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29804" PostTypeId="1" AcceptedAnswerId="29807" CreationDate="2019-06-15T22:03:58.067" Score="0" ViewCount="49" Body="&lt;blockquote&gt;&#xA;&lt;pre&gt;&lt;code&gt;NX ≡ (S-I) + (T-G)&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;  &#xA;  &lt;p&gt;Read this as “the trade balance (net exports) is identical to the sum&#xA;  of net savings (savings minus investment) and the government’s budget&#xA;  surplus or deficit (taxes minus spending).” This is not a theory of&#xA;  what causes what; it’s an identity, different ways of expressing the&#xA;  same “what”.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I understand how savings, tax revenues and government spending may impact current account, but I don't understand how investment would negatively impact current account, it doesn't seem to be right or even make sense. How does Google investing millions in the local economy contribute to the trade deficit?&lt;/p&gt;&#xA;" OwnerUserId="23098" LastActivityDate="2019-06-16T00:35:28.577" Title="How does investment have a negative impact on the current account (trade balance)?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29806" PostTypeId="2" ParentId="29782" CreationDate="2019-06-15T23:27:37.603" Score="1" Body="&lt;p&gt;Your formula is wrong. The derivation for the cost of equity &lt;span class=&quot;math-container&quot;&gt;$r_E$&lt;/span&gt; is actually:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$r_A = r_D(1-t)\frac{D}{V}+r_E \frac{E}{V}\\&#xA;r_E \frac{E}{V} = r_A -  r_D(1-t)\frac{D}{V}\\&#xA;r_E = r_A \frac{V}{E} -  r_D(1-t)\frac{D}{V} \times\frac{V}{E}\\&#xA;\mathbf{r_E = r_A \frac{V}{E} -  r_D(1-t)\frac{D}{E}}$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since &lt;span class=&quot;math-container&quot;&gt;$\frac{D}{V}=\frac{D}{D+E}=0.09091$&lt;/span&gt; when &lt;span class=&quot;math-container&quot;&gt;$r_A=0.1941$&lt;/span&gt;, then &lt;span class=&quot;math-container&quot;&gt;$E=10$&lt;/span&gt; which means &lt;span class=&quot;math-container&quot;&gt;$D=0.10E=1$&lt;/span&gt;, making &lt;span class=&quot;math-container&quot;&gt;$V=D+E=11$&lt;/span&gt; for use in the above.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$r_E = 0.180 \times\frac{11}{10}-0.06(1-0.35)\times 0.10 = 0.1941$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="23410" LastEditorUserId="23410" LastEditDate="2019-06-15T23:34:52.527" LastActivityDate="2019-06-15T23:34:52.527" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29807" PostTypeId="2" ParentId="29804" CreationDate="2019-06-16T00:35:28.577" Score="2" Body="&lt;p&gt;Balance of payments is composed of:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;the capital account (foreign assets and foreign liabilities)&lt;/li&gt;&#xA;&lt;li&gt;and current account (includes exports and imports)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;One way to define the current account is savings minus domestic investment, &lt;span class=&quot;math-container&quot;&gt;$S-I$&lt;/span&gt;. When &lt;span class=&quot;math-container&quot;&gt;$S&amp;lt;I$&lt;/span&gt;, a country's investing has to be financed by capital inflows, or investment from foreign countries. This is a &lt;strong&gt;deficit on the current account&lt;/strong&gt;, making the country a net borrower that must seek matching capital inflows like foreign direct investment, that are a credit on the capital account (&lt;strong&gt;capital account surplus&lt;/strong&gt;). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Whereas, when &lt;span class=&quot;math-container&quot;&gt;$S&amp;gt;I$&lt;/span&gt;, the excess savings are used to invest in foreign opportunities abroad, creating a &lt;strong&gt;current account surplus&lt;/strong&gt; that makes the country a net lender, giving a &lt;strong&gt;capital account deficit&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In relation to the current account, a &lt;strong&gt;trade deficit&lt;/strong&gt; is not identical but is a component of the current account. When there is a current account deficit, a trade deficit happens (imports exceed exports, where imports are not to be confused with investments &lt;span class=&quot;math-container&quot;&gt;$I$&lt;/span&gt;) because the country does not produce everything it needs and needs to borrow from overseas in order to pay for imports. From &lt;a href=&quot;https://gregmankiw.blogspot.com/2006/07/current-acccount-vs-trade-deficit.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Greg Mankiw&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;when we write Y=C+I+G+NX, what is NX? The answer depends on how we define Y. If Y is Gross Domestic Product, then NX is the trade balance. If Y is Gross National Product, then NX is the current account.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Even though a trade deficit sounds bad, standard of living usually increases from a wider variety of imported goods and services, and prices are pushed downwards curbing inflation, but only for so long.&lt;/p&gt;&#xA;" OwnerUserId="23410" LastActivityDate="2019-06-16T00:35:28.577" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29811" PostTypeId="2" ParentId="19210" CreationDate="2019-06-16T02:39:42.077" Score="6" Body="&lt;p&gt;As many have stated before me, you can't just throw electricity away if you produce too much—it has to go somewhere. If you put more power into the system than the resistant (or consumption) in the system, it is like spinning your bike faster while you bike downhill, the generators start spinning faster, and the frequency increase above 50 Hz.&lt;/p&gt;&#xA;&lt;p&gt;The second problem is that many power plants just can't shut down. Nuclear power plants take days to turn off, coal plants hours. They, therefore, are willing to pay almost infinitely much to avoid having to ramp down production on short notice.&lt;/p&gt;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/SKnDW.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/SKnDW.png&quot; alt=&quot;Nord Pool Bid Curves&quot; /&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&lt;p&gt;Here is a plot of the bid curves on Nord Pool (the electricity market for Norway, Sweden, Danmark, Finland, Estonia, Lithuania and Latvia) two weeks ago, when the price was especially low, just 4.1 EUR/MWh, for one hour, 4am, at night. (You can find a &lt;a href=&quot;https://youtu.be/YaDiZ9z4KsY?t=3967&quot; rel=&quot;nofollow noreferrer&quot;&gt;video/animation of how the bid curves vary in the same period on YouTube&lt;/a&gt;.)&lt;/p&gt;&#xA;&lt;p&gt;You can see that over 22 000 MW (MWh/h) of the power provided are willing to produce power no matter how negative the prices become. Around 10 000 MW of this is nuclear power. The rest is probably coal, some other slow responsive thermal power plants, and some producers that won't be bothered with adjusting their production (small power plants, etc.).&lt;/p&gt;&#xA;&lt;p&gt;Ca. 10 000 of the power provided, 6200 MW of which is wind, bid around 0 EUR/MWh. Since it is impossible to store energy wind producers and hydropower producers without reservoirs are willing to sell for nothing, however, they can turn off quickly if prices becomes negative. Ca. 30 000 MW of the power provided are regulable power, mostly gas and hydropower from reservoirs, that bid around 25–50 EUR/MWh.&lt;/p&gt;&#xA;&lt;p&gt;Notice also how insensitive consumers are to prices. Demand is slightly higher if the price becomes negative, but it is almost nothing, only ca. 1000 MW.&lt;/p&gt;&#xA;&lt;p&gt;In the extreme event that prices would fall below 22 000 MW you can easily see how prices would spike down quite extremely. In the Nordic market(*) where much of the production is regulatable hydropower, this is very unlikely.&lt;/p&gt;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/v014K.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/v014K.png&quot; alt=&quot;Spot price and power sources in Germany December 2017&quot; /&gt;&lt;/a&gt;&#xA;&lt;strong&gt;Spot price and power so in Germany December 2017&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;p&gt;The problem in Germany is two folded. First, they have a lot more nuclear, coal, small power producers and other unregulated power sources, than in the Nordic market. So when energy demand is low and the wind suddenly starts blowing and generates 80% of the power needed, like it did on Christmas eve 2017 (see Chart), you get too much energy.&lt;/p&gt;&#xA;&lt;p&gt;However, normally you would expect wind power producers to turn off their turbines, when the price becomes negative. The problem is, as I have understood it, that renewable producers are guaranteed a minimum price for each unit of energy produced. So instead of bidding 0 EUR/MWh, they too bid infinite negative prices. It's only when the spot price is negative for more than six hours, renewable power producers are not guaranteed the minimum price anymore.&lt;/p&gt;&#xA;&lt;p&gt;(*) For some individual price areas in the Nordic market, like Danmark, it is more likely with negative prices. However, data on bid curves for induvidual price areas are not public available.&lt;/p&gt;&#xA;" OwnerUserId="20957" LastEditorUserId="20957" LastEditDate="2020-08-15T21:56:05.160" LastActivityDate="2020-08-15T21:56:05.160" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29812" PostTypeId="2" ParentId="29645" CreationDate="2019-06-16T03:59:32.943" Score="2" Body="&lt;p&gt;In Greene &quot;Econometric Analysis&quot; the &lt;strong&gt;disturbance&lt;/strong&gt; of linear regression,&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\epsilon_t = y_t - \mathbf{x_t}\boldsymbol{\beta}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;is estimated with the &lt;strong&gt;residual&lt;/strong&gt;,&#xA;&lt;span class=&quot;math-container&quot;&gt;$$e_t = y_t - \mathbf{x_t b}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the text, disturbances &lt;span class=&quot;math-container&quot;&gt;$\epsilon_t$&lt;/span&gt; are also called &lt;strong&gt;innovations&lt;/strong&gt;. Qualitative events in an economy that impact a process or model's variables or error term are &lt;strong&gt;shocks&lt;/strong&gt;.&lt;/p&gt;&#xA;" OwnerUserId="23410" LastActivityDate="2019-06-16T03:59:32.943" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29813" PostTypeId="1" CreationDate="2019-06-16T08:53:44.110" Score="0" ViewCount="405" Body="&lt;p&gt;I need an example of a &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Convex, non-monotonic preference&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Non-convex, monotonic preference&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I figured that an example of non-convex, monotonic utility preference could be &lt;span class=&quot;math-container&quot;&gt;$U(x,y)=x^2+y^2$&lt;/span&gt;.&#xA;For convex, non-monotonic preference, I cannot think of a standard example. As far as my understanding goes, lexicographic preferences are convex, but I don't think these are non monotonic. &#xA;Please help me figure out the examples so that I can conceptually understand monotonicity and convexity.   &lt;/p&gt;&#xA;" OwnerUserId="18398" LastActivityDate="2019-06-19T12:07:16.627" Title="Preference: Convexity and Monotonicity" Tags="&lt;microeconomics&gt;&lt;preferences&gt;&lt;self-study&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="29814" PostTypeId="1" CreationDate="2019-06-16T09:01:41.320" Score="0" ViewCount="19" Body="&lt;p&gt;Say you have two countries A and B. Suppose we have a situation where country A's currency can purchase much more in country B than the other way round. What causes this phenomenen? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is it possible to have a situation with two equally well off countries, but where one country's currency can purchase more goods abroad? &lt;/p&gt;&#xA;" OwnerUserId="5515" LastActivityDate="2019-06-16T17:01:44.593" Title="Purchasing power of currency abroad" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;&lt;currency&gt;&lt;currency-exchange&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29816" PostTypeId="2" ParentId="29814" CreationDate="2019-06-16T17:01:44.593" Score="1" Body="&lt;p&gt;Well in principle you could. Let's suppose there are two countries that do not trade a lot. Then even if their economic growth is relatively similar, we should not expect their exchange rate to be 1:1. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The exchange rate is a price, so if country A likes more the goods and services from country B than vice-versa, you should expect currency B to have a larger purchasing power than currency A. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, The demand for goods from abroad is correlated with income, so if both countries have relatively similar economic growths, and they trade a lot with each other, the relative purchasing power of their currencies will tend to be similar. &lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-06-16T17:01:44.593" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29817" PostTypeId="2" ParentId="29761" CreationDate="2019-06-16T17:26:40.210" Score="4" Body="&lt;p&gt;It is beneficial (at least, mostly beneficial). Investments are risky, and business projects fail all the time at no fault of the entrepreneur. By bounding the risk profile of corporations, you give incentives for more people to start a business and look out for funding. Let me explain myself with a super simple example.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose there was a project that has a 60% chance of being successful and create 10k jobs, and economic welfare to the community with a value estimated to be 500K Dollars. However, with  40% probability, it will fail and the initial investment of 150K Dollars will be lost. The entrepreneur lacks sufficient funds for the initial investment (let's assume it has to be fully funded by investors). If there was no limited liability, it is clear that most entrepreneurs will not do the project. Only entrepreneurs with sufficiently low risk aversion or sufficiently large pockets will be willing to raise the money (or use their own) and do the risky project with those odds. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You see that a project that is arguably welfare enhancer is not made, because it is too risky. Limited liability smooths things out by distributing the risk of a project among all the investors. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Clearly, this example is super simple and I have abstracted from principal-agent problems, entrepreneur fraud, situations where the success of the project depends on the entrepreneur's risk aversion, etc. There are many papers dealing with these issues (and others), but the main argument for limited liability is captured in this toy model. So yes, a very strong case can be made to conclude that it is beneficial. &lt;/p&gt;&#xA;" OwnerUserId="21827" LastEditorUserId="21827" LastEditDate="2019-06-17T05:12:02.457" LastActivityDate="2019-06-17T05:12:02.457" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="29818" PostTypeId="2" ParentId="29795" CreationDate="2019-06-16T17:43:57.723" Score="1" Body="&lt;p&gt;Some thoughts. If this was a SPA without a reserve price, the monotonicity of the allocation rule is trivial. When the reserve price is uniform across bidders then the allocation rule is clearly weakly monotonic now; since for low bids, increasing them might not change the probability of allocation. The only thing that makes this problem different is that the reserve prices are bidder-specific. So one possibility is that you only need to show that the logic for the previous monotonicity is still valid in this setup. Probably while trying to show that the logic still goes through you will find out if there is some extra argument you will have to make in order to still have the monotonicity. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, I might worry that by increasing my bid I might increase my own reserve price, or decrease the reserve price of some other bidder and thus reduce my probability of being allocated the good. &lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-06-16T17:43:57.723" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="29819" PostTypeId="1" AcceptedAnswerId="29822" CreationDate="2019-06-16T19:53:49.307" Score="1" ViewCount="39" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$NX ≡ (S-I) + (T-G)$$&lt;/span&gt;&#xA;  Read this as “the trade balance (net exports) is identical to the sum of net savings (savings minus investment) and the government’s budget surplus or deficit (taxes minus spending).” This is not a theory of what causes what; it’s an identity, different ways of expressing the same “what”.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Let's say the U.S. had a &lt;span class=&quot;math-container&quot;&gt;$NX$&lt;/span&gt; or trade deficit of &lt;span class=&quot;math-container&quot;&gt;$500$&lt;/span&gt; billion dollars and overnight the U.S. forced countries around the world to buy &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt; trillion dollars of U.S. military equipment giving the U.S. a trade surplus of &lt;span class=&quot;math-container&quot;&gt;$500$&lt;/span&gt; billion. Does this mean that the equation: &lt;span class=&quot;math-container&quot;&gt;$NX ≡ (S-I) + (T-G)$&lt;/span&gt; doesn't take into account non-macroeconomics factors and therefore is wrong?&lt;/p&gt;&#xA;" OwnerUserId="23098" LastEditorUserId="21827" LastEditDate="2019-06-16T23:38:26.630" LastActivityDate="2019-06-16T23:38:26.630" Title="Why doesn't the trade balance equation take into account the value of products sold by the U.S.?" Tags="&lt;macroeconomics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29820" PostTypeId="2" ParentId="29819" CreationDate="2019-06-16T20:28:02.953" Score="1" Body="&lt;p&gt;That equation is an &lt;em&gt;accounting identity&lt;/em&gt;, it is valid and true for any society and in any time. What you don't seem to understand is that it relates &lt;em&gt;flows&lt;/em&gt;, not stocks. That is, it only informs you that if look at these aggregates over the same time period (a day, month, quarter, semester, year, etc) then trade balance equals private domestic savings and the public sector's primary result. &lt;/p&gt;&#xA;" OwnerUserId="18167" LastActivityDate="2019-06-16T20:28:02.953" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29822" PostTypeId="2" ParentId="29819" CreationDate="2019-06-16T21:54:43.213" Score="4" Body="&lt;p&gt;If foreign countries suddenly bought &lt;span class=&quot;math-container&quot;&gt;$\$1$&lt;/span&gt; trillion worth of stuff, presumably the US would supply this out of existing inventories (i.e. stocks of goods).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Before anything else happens, this represents a reduction of investment in the US and your equation would continue to balance since the increase in &lt;span class=&quot;math-container&quot;&gt;$NX$&lt;/span&gt; would be offset by a reduction in &lt;span class=&quot;math-container&quot;&gt;$I$&lt;/span&gt; (which has a negative sign in your national accounts identity).  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What would happen next is probably that the manufacturers would make more stuff to bring inventories back towards previous levels, increasing investment. They and their workers may pay taxes on their income.  They may import some more stuff.  What is left may add to savings.  But throughout this process the national accounts identity will remain true.  &lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2019-06-16T21:54:43.213" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="29823" PostTypeId="5" CreationDate="2019-06-17T05:30:49.313" Score="0" Body="" OwnerUserId="-1" LastEditorUserId="-1" LastEditDate="2019-06-17T05:30:49.313" LastActivityDate="2019-06-17T05:30:49.313" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29824" PostTypeId="4" CreationDate="2019-06-17T05:30:49.313" Score="0" Body="For questions about Bayesian games. These are strategic interactions when one or more players have incomplete information about other players. General topics of games with asymmetric information may use this tag." OwnerUserId="21827" LastEditorUserId="1601" LastEditDate="2019-06-17T11:34:38.733" LastActivityDate="2019-06-17T11:34:38.733" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29825" PostTypeId="2" ParentId="29755" CreationDate="2019-06-17T05:53:53.047" Score="2" Body="&lt;p&gt;One simple explanation can just be that unemployment is artificially low. Perhaps many people went out of the labor force (i.e. stopped looking for a job) after a long period of not being able to find one, and now they don't count as unemployed in the data. Similarly, maybe the economy is not growing enough to create good jobs, but many people are partially employed so that the unemployment rate looks artificially low again because even though people have jobs, they might want to work more hours, but can't.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There might be other more interesting causes, but I think that exploring them will require to zoom in a particular country and take into account the institutional details, etc.&lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-06-17T05:53:53.047" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29828" PostTypeId="1" CreationDate="2019-06-17T11:16:30.147" Score="1" ViewCount="41" Body="&lt;p&gt;I have my own novice theory that bank pays you interest for your deposit so that the value of principal amount remains the same in the future (as due to inflation, the price of the commodity will rise and our principal amount will not be able to buy the same amount of things). Is this theory true.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Because if not, then I have to way to con the banks, this is how it will be done:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As we know that Rs 10 would have bought me more good (lets say that good is 1 kg of aluminium) in the year 2010 than in 2020 (which only gets us 800 gram of aluminium for the same amount). Now instead of depositing Rs 10 cash to banks (lets say interest is 10% per decade) I will deposit an equivalent amount of aluminium. So in 2020 I will have more aluminium at a premium price (i.e. 1.1 Kg aluminium at Rs 13.75 and compare it with the usual Rs 11 for cash deposit ). I will take advantage of both interest and inflation.&lt;/p&gt;&#xA;" OwnerUserId="21617" LastActivityDate="2019-06-17T20:08:59.253" Title="Relation between Inflation and Bank deposit interest rate?" Tags="&lt;interest-rate&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="29829" PostTypeId="1" CreationDate="2019-06-17T13:09:11.990" Score="4" ViewCount="99" Body="&lt;p&gt;Large economies like the US and China use tariffs as trade weapons while retaining competitiveness because they have the critical mass to encapsulate supply chains and avoid the cost of cross-border inefficiency.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Smaller economies cannot avoid the domestic costs associated with cross-border trade because they cannot avoid depending on cross border trade for supply chains.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are these statements correct? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If so, does this lead to divergent trade strategies different sized economies? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Do smaller countries typically lean towards much freer trade out of necessity, while the largest economies like China and the US can afford and possibly even benefit from protectionism?&lt;/p&gt;&#xA;" OwnerUserId="5505" LastEditorUserId="5505" LastEditDate="2019-06-20T11:37:48.760" LastActivityDate="2019-06-20T19:45:10.737" Title="Is protectionism more suited to large economies?" Tags="&lt;international-trade&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29830" PostTypeId="1" AcceptedAnswerId="29879" CreationDate="2019-06-17T13:21:49.220" Score="0" ViewCount="63" Body="&lt;p&gt;If a state places a tariff on a good, domestic manufacturers of that good become more price-competitive in the domestic market at the expense of overseas suppliers. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Could this be said to be a policy choice that subsidises that industry?&lt;/p&gt;&#xA;" OwnerUserId="5505" LastEditorUserId="27" LastEditDate="2019-06-21T17:24:35.843" LastActivityDate="2019-06-21T17:24:35.843" Title="Can tariffs be said to subsidise domestic industry?" Tags="&lt;international-trade&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29833" PostTypeId="2" ParentId="29829" CreationDate="2019-06-17T16:43:29.297" Score="0" Body="&lt;p&gt;&lt;strong&gt;No -- protectionism is viable for small economies.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is illustrated by various &quot;&lt;a href=&quot;https://en.wikipedia.org/wiki/Local_purchasing&quot; rel=&quot;nofollow noreferrer&quot;&gt;Buy Local&lt;/a&gt;&quot; movements which operate on scales as small as a single city.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm not aware of any studies examining the overall economic impact of this approach, but they don't seem to be losing any popularity.&lt;/p&gt;&#xA;" OwnerUserId="23394" LastActivityDate="2019-06-17T16:43:29.297" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29835" PostTypeId="2" ParentId="29828" CreationDate="2019-06-17T20:08:59.253" Score="1" Body="&lt;p&gt;The US doesn't have a long time series of deposit interest rates available for free. However, they do have one month CD data from 1966 to 2013. This is a short term loan to a bank, that pays a slightly higher interest rate than a savings account. It is widely available across banks and FDIC insured for smaller balances. The following figure compares those one month CD interest rates with the rate of inflation:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/jYo5h.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/jYo5h.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The correlation coefficient between these two series is 0.72. So they do move together (which is not surprising). However, you can see that there are long periods where there are large differences between the two series. Sometimes these differences are positive and other times they are negative. &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2019-06-17T20:08:59.253" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29841" PostTypeId="1" CreationDate="2019-06-18T09:50:51.703" Score="0" ViewCount="110" Body="&lt;p&gt;I'm trying to understand valuation of the Euro BUND Future.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As to my understanding, the price of the future should be:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;The price of a government bond issued by the Federal Republic of Germany&lt;/li&gt;&#xA;&lt;li&gt;That bond must have a maturity date between 8.5 and 10.5 years from expiration of the futures contract&lt;/li&gt;&#xA;&lt;li&gt;The bond must have an issue volume of at least 5 billion EUR&lt;/li&gt;&#xA;&lt;li&gt;The price is converted by a conversion factor. That factor depends on the coupon. The conversion factor crosses 1 at a coupon of 6%.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Now, the current price of the September contract of the Euro BUND future (FGBLU19) is (at the time of writing) 172.35 EUR.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now I looked up bonds that meet the criteria, and found: ISIN &lt;a href=&quot;https://www.onvista.de/anleihen/BUNDANL-V-00-30-Anleihe-DE0001135143&quot; rel=&quot;nofollow noreferrer&quot;&gt;DE0001135143&lt;/a&gt; (in German, it's tricky getting quotes for German bonds in English).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now to my checklist:&#xA; - Maturity date is January 4th, 2030. From September 6th, 2019 (Futures contract expires) that's less than 10.5 years and clearly more than 8.5 years.&#xA; - Issued by Federal Republic of Germany, checks out&#xA; - Issue volume more than 9 billion, fine&#xA; - Coupon is 6.25%, that's even more than 6%. Conversion factor should be even better than the 1 I'm assuming (it should be 1 at 6%)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now the current price (as of writing) of this bond is 170.59%.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Even without the conversion factor (which should make things even better), that looks to me like an arbitrage of 1.75% (when selling a futures contract and buying the bond, holding till September).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finding that big of an arbitrage so easily makes me skeptical, so I'm assuming I'm overlooking something. What is it?&lt;/p&gt;&#xA;" OwnerUserId="23462" LastEditorUserId="59" LastEditDate="2021-03-11T04:15:29.000" LastActivityDate="2021-04-10T07:03:15.280" Title="Euro BUND Future CTD Bond" Tags="&lt;bonds&gt;&lt;nonexpert&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29842" PostTypeId="2" ParentId="29841" CreationDate="2019-06-18T10:14:22.060" Score="0" Body="&lt;p&gt;Sometimes it helps writing it down, I think I figured it out:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;I forgot the interest between September and January&lt;/li&gt;&#xA;&lt;li&gt;At 6.25%, that's around 2.1% for four months&lt;/li&gt;&#xA;&lt;li&gt;That roughly matches the discrepancy I've noticed, with the conversion factor that could very well check out&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;So, problem solved, I guess.&lt;/p&gt;&#xA;" OwnerUserId="23462" LastActivityDate="2019-06-18T10:14:22.060" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29844" PostTypeId="1" AcceptedAnswerId="29856" CreationDate="2019-06-18T12:18:33.770" Score="0" ViewCount="73" Body="&lt;p&gt;Bike sharing seems to have originated in China.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And it has spread to the UK. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And at least a decade on it continues to spread into the provinces. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So it has longevity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So what are the economics of this industry?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At first glance it would appear to be a horrible model: lots of liability, lots of maintenance, lots of criminality and endless opportunity for annoyance through dumped bikes causing inconvenience.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So what is the economic model of bike sharing?&lt;/p&gt;&#xA;" OwnerUserId="5505" LastEditorUserId="5505" LastEditDate="2019-06-18T12:42:34.903" LastActivityDate="2019-06-18T21:23:16.873" Title="What are the economics of bike sharing companies?" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="29845" PostTypeId="1" AcceptedAnswerId="29851" CreationDate="2019-06-18T12:43:48.810" Score="0" ViewCount="16" Body="&lt;p&gt;Coase Theorem says that if the transaction fee is negligible then we will have an efficient allocation of resources.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In some of the samples, they quote that it doesn't matter who has the right to pollute. If people own the river, they will sue polluters and get money. If the polluters own the river, the people will pay the polluters to stop polluting.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems that the Coase Theorem presume that if a deal can be made, it will be made.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What about if both the polluters and the river owners (the people) can be better off by striking some deals but they don't make deals because they wait till better deals come along.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Say the river owners want more money for pollution?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can I say that the transaction costs go up?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Notice that once they agree they can just pay with a credit card and hence there is no transaction fee. However, they play a game of chicken first or whatever to get deals coming up.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does that mean transaction costs go up and hence, Coase Theorem fails?&lt;/p&gt;&#xA;" OwnerUserId="17884" LastActivityDate="2019-06-18T17:15:03.993" Title="What counts as transactions fee in Coase Theorem?" Tags="&lt;transaction-costs&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29846" PostTypeId="1" AcceptedAnswerId="29877" CreationDate="2019-06-18T13:29:57.647" Score="2" ViewCount="80" Body="&lt;p&gt;One common definition of recession is &quot;two consecutive quarters of negative GDP growth&quot;. GDP growth affects other variables, such as stock prices, interest rates, unemployment, and personal income. Has research found there to be a nonlinearity such that GDP growth falling from 0.5% to -0.5% has a bigger effect on other variables than GDP falling from say 1.5% to 0.5%?&lt;/p&gt;&#xA;" OwnerUserId="21081" LastActivityDate="2019-06-19T21:28:33.020" Title="Do recessions matter?" Tags="&lt;gdp&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29847" PostTypeId="2" ParentId="29846" CreationDate="2019-06-18T13:42:14.507" Score="0" Body="&lt;p&gt;Not all components of the economy vary with the same intensity. As you can see in the figure below, consumption is about as volatile as output (GDP), but investment is much, much more volatile. You can also see the grey bars, which indicate NBER recession dates for the US, line up nicely with these dips in investment. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/BQknk.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/BQknk.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2019-06-18T13:42:14.507" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29848" PostTypeId="1" AcceptedAnswerId="29861" CreationDate="2019-06-18T14:57:43.667" Score="0" ViewCount="26" Body="&lt;p&gt;I trust we're all familiar with the &lt;a href=&quot;https://en.wikipedia.org/wiki/Paradox_of_value&quot; rel=&quot;nofollow noreferrer&quot;&gt;Paradox of Value&lt;/a&gt; -- that queer state of affairs in which diamonds, which are not good for anything, are very expensive, while water, which we all need to not die, is very cheap.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This has always reminded me of similar oddities in the labour market -- that a professional player of sports is paid millions of dollars a year, while a kindergarten teacher is paid much more modestly.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Am I correct in thinking that these are two sides of the same coin?  Do the various resolutions of the Paradox also serve to explain the labour market?  Or are there important differences between goods and labour that make this sort of approach unhelpful?&lt;/p&gt;&#xA;" OwnerUserId="23394" LastActivityDate="2019-06-19T03:21:01.420" Title="Is the Paradox of Value relevant to the value of labour?" Tags="&lt;value&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29850" PostTypeId="1" CreationDate="2019-06-18T17:10:29.457" Score="1" ViewCount="110" Body="&lt;p&gt;From what I understand a lot of calculus is used at university level when studying economics and some finance courses (correct me if I'm wrong) but I was just wondering if economists and financial analysts actually use calculus in their actual jobs on a day to day basis.&lt;/p&gt;&#xA;" OwnerUserId="23468" LastActivityDate="2019-06-18T18:04:30.473" Title="Do real life economists and financial analysts actually use calculus in their jobs?" Tags="&lt;stochastic-calculus&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29851" PostTypeId="2" ParentId="29845" CreationDate="2019-06-18T17:15:03.993" Score="3" Body="&lt;p&gt;Transaction costs (or fees, though I have always heard it as costs) is anything that complicates or prevents a transaction. This includes the example you are suggesting, but also things like the costs of suing, or if many people own the river and it is hard for them to organize and strike a deal. Maybe the legal system is terrible and people break deals all the time with impunity, etc, etc. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What you want to say in such cases is that transaction costs are high. Only if something changes that make it harder to strike a deal, it would be appropriate to say that transaction costs increase. &lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-06-18T17:15:03.993" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29852" PostTypeId="2" ParentId="29850" CreationDate="2019-06-18T17:22:37.757" Score="3" Body="&lt;p&gt;Yes, whether you do research and you need to study a new model and characterize optimal behavior, or if you are studying data and you are estimating any model that is not linear you use calculus on a regular basis. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Even though computers are very powerful and can save the time and energy of doing calculations (including finding derivatives), often times having a firm knowledge of the maths behind what the computer is doing can save tons of time and improve the performance of algorithms.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That being said, it is also true that many economists can get by only knowing the minimum of calculus, since a lot of the tools that the market values the most from economists require, instead,  a firm grasp of probability, statistics and good economic intuition. &lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-06-18T17:22:37.757" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29854" PostTypeId="2" ParentId="29850" CreationDate="2019-06-18T18:04:30.473" Score="3" Body="&lt;p&gt;I have never used calculus in my non-academic jobs. I didn't do sports, speak German (except when socializing), program Excel VBAs or directly apply what I have learned about product line management either, yet all these were taught to me at university. A lot of things you learn are indirectly useful, in that they let you see a more complete picture or that other things build on them. E.g. if you can program in Visual Basic you can probably learn other high level languages relatively quickly.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Calculus is a must for a thorough understanding of probability theory, which is fairly useful for understanding statistics which is a must if you want to work with any kind of real data (e.g. sales numbers) and be good at it - this is optional.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2019-06-18T18:04:30.473" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29856" PostTypeId="2" ParentId="29844" CreationDate="2019-06-18T18:49:29.117" Score="1" Body="&lt;p&gt;Interest is their profitability mechanism. Pretty much everything else is a cost.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's make an example:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;I start a bike share business.&lt;/li&gt;&#xA;&lt;li&gt;I buy 100 bikes. Costs me \$10K.&lt;/li&gt;&#xA;&lt;li&gt;I make the fee of using the bikes so cheap, lots and lots of people have no problem using them as its so cheap.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Here is the catch: To cover my liability (lost bikes, stolen, wrecked, etc.) there is a  one time fee (before you can use any of my bikes) that is a 100% REFUNDABLE security deposit of \$50 (you get your \$50 back whenever you want, so it's still cheap for you).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Everyone's \$50 adds up to quite a lot of money just sitting earning no money. But I want to make money. So what do I do? I invest it in super safe short/medium term bonds or whatever I want at a low/decent interest rate and collect my profit.&lt;/p&gt;&#xA;" OwnerUserId="23072" LastEditorUserId="23023" LastEditDate="2019-06-18T21:23:16.873" LastActivityDate="2019-06-18T21:23:16.873" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="29859" PostTypeId="1" AcceptedAnswerId="29864" CreationDate="2019-06-19T02:25:27.593" Score="0" ViewCount="75" Body="&lt;p&gt;I'm trying to apply (ideally empirical-backed) economic theory to an age-old cliche.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;We must be very articulate about the assumptions, because if it's a total collapse of the dollar, then that money would just be as useful as tinder. Maybe it would be warranted if there was a run on the banks but the dollar still retained value. It's a difficult call though.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Question&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;What must we assume in terms of underlying economic conditions for someone with a giant pile of cash under their mattress to be favored over someone with their savings in a bank?&lt;/p&gt;&#xA;" OwnerUserId="12212" LastActivityDate="2019-06-19T07:00:53.423" Title="In what kind of economic environment would the cliche of &quot;keeping money under the mattress&quot; be warranted?" Tags="&lt;macroeconomics&gt;&lt;banking&gt;&lt;decision-theory&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29860" PostTypeId="2" ParentId="29859" CreationDate="2019-06-19T03:12:09.110" Score="2" Body="&lt;p&gt;A fractional-reserve bank typically creates a lot of value by lending out your money to people while you are not using it. If you decide to take out your money on any given day, your dollar might not be there, but if not, someone else’s is! The bank will give you their dollar and wait for yours to come back from a loan.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, during a bank run, many loans are going to default. So your dollar might not make it back, and if you’re not quick, you can’t take out someone else’s dollar cause they already got it back. Therefore your money could disappear.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;No one can come into your house and take your dollar out from under your mattress though...&lt;/p&gt;&#xA;" OwnerUserId="23470" LastEditorUserId="1601" LastEditDate="2019-06-19T07:00:53.423" LastActivityDate="2019-06-19T07:00:53.423" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29861" PostTypeId="2" ParentId="29848" CreationDate="2019-06-19T03:21:01.420" Score="1" Body="&lt;p&gt;Both of these things can be thought of as Supply/Demand problems where the relevant concept is actually &lt;em&gt;how&lt;/em&gt; Demand is decided.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, let’s look at diamonds. Diamonds are of value because people give them as gifts, proposals can hinge on them, etc. Now why that is a question of history or sociology, but the key idea is that people want them and will pay to make sure they can also give them as gifts. It wouldn’t be fun to plan a proposal, get on a knee, and pull out a Ring-Pop..&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Diamonds and water are both of high demand! The difference is that supply of diamonds is small, so people will have to compete via price to get their diamond whereas water is relatively abundant. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Professional sports players too follow this pattern. What’s really important for basketball fans is seeing the absolute best players compete. There’s a reason middle school teams don’t sell out stadiums. So the demand is not for an average basketball player, it’s for the best basketball player. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The supply of truly spectacular basketball players is small (as the majority of draft busts can show) and therefore their salaries are quite high. Teachers are relatively abundant, so their salaries are a low (tragically so).&lt;/p&gt;&#xA;" OwnerUserId="23470" LastActivityDate="2019-06-19T03:21:01.420" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29863" PostTypeId="1" AcceptedAnswerId="29865" CreationDate="2019-06-19T04:17:09.450" Score="0" ViewCount="48" Body="&lt;p&gt;I am currently struggling trying to find the short-run equilibrium price, output per firm, and profit per firm if &lt;span class=&quot;math-container&quot;&gt;$190$&lt;/span&gt; firms supply the market. I am given &lt;span class=&quot;math-container&quot;&gt;$p=102-1/2Q$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$C(q)=5q-6q^2+3q^3$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;First I started off with &lt;span class=&quot;math-container&quot;&gt;$P=MC$&lt;/span&gt;. &#xA;So &lt;span class=&quot;math-container&quot;&gt;$P=9q^2-12q+5$&lt;/span&gt;, thus &lt;span class=&quot;math-container&quot;&gt;$9q^2-12q+(5-P)=0$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, I Used the quadratic equation and came out with &lt;span class=&quot;math-container&quot;&gt;$q=2/3+1/3\sqrt{p-1}$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then I did &lt;span class=&quot;math-container&quot;&gt;$Q=nq=190\left(2/3+1/3\sqrt{p-1}\right)$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Equating demand and supply I obtained &lt;span class=&quot;math-container&quot;&gt;$P\approx 2.32$&lt;/span&gt; and then plugged back into &lt;span class=&quot;math-container&quot;&gt;$q\approx2/3+1/3\sqrt{2.32-1}$&lt;/span&gt; to get &lt;span class=&quot;math-container&quot;&gt;$q\approx1.05$&lt;/span&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, I plugged &lt;span class=&quot;math-container&quot;&gt;$q$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$P$&lt;/span&gt; into &lt;span class=&quot;math-container&quot;&gt;$\pi=q\cdot P-C(q)$&lt;/span&gt; and came up with &lt;span class=&quot;math-container&quot;&gt;$\pi\approx 0.33$&lt;/span&gt;. This just seems crazy to me! I have tried for the past few days over and over again to understand, but I am completely lost. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be greatly appreciated!&lt;/p&gt;&#xA;" OwnerUserId="23474" LastEditorUserId="21827" LastEditDate="2019-06-19T05:47:39.927" LastActivityDate="2019-06-19T05:53:56.657" Title="Industrial Economics" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;industrial-organisation&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="29864" PostTypeId="2" ParentId="29859" CreationDate="2019-06-19T05:03:23.387" Score="2" Body="&lt;p&gt;If institutions are fragile, it could be preferable to keep your money under the mattress. For example, in developing countries banks tend to charge ridiculous fees for &quot;managing your account&quot; unless you keep a minimum amount of money in it (I am thinking of Mexico 10 years ago). Thus for the low and middle class, it was better to store their money outside of the banking system. Even though they might lose value due to inflation and is less safe, the banks usually give no interest on deposit accounts anyway, and may even charge fees for no good reason.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The second scenario that I can think of is not exactly to save it under the mattress, but it is also very common, especially in countries where financial inclusion is very low (usually because it is expensive to have an account), people come up with ways to save money among themselves, for example using a Rosca (a rotating savings and credit association). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lastly, when using the banking system implies huge transaction costs. This is obvious for people that engage in illegal activities, they have tons of cash in their hands, but they can only deposit them in smaller batches using tons of people in order to not be detected. This makes them leave a lot of it in cash. Probably they don't leave it under the mattress, because it would not fit, but let's say under a house. These kinds of restrictions end up affecting also people that earn money legally, but the nature of their business is in cash and face the same transaction costs. Then, it can be more cost-efficient to keep some money out if the banking system. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope this helps. I'm also not sure a bank run is a good example, but for sure if there is the one I would run to take my money out of the bank. It is better to gamble and have the money in my hands (even if there is a chance it will lose its value) than having it in the bank and still lose it if the currency loses its value, or not being  able to use my money if it still has value.&lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-06-19T05:03:23.387" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29865" PostTypeId="2" ParentId="29863" CreationDate="2019-06-19T05:41:02.033" Score="0" Body="&lt;p&gt;I went over your calculations and they seem to be right. In principle, this is a valid answer, but I understand that the numbers seem suspicious. Are you sure this is the right problem? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Update: everything checks. I think your answer is correct, although it looks &quot;weird&quot; for a textbook problem.&lt;/p&gt;&#xA;" OwnerUserId="21827" LastEditorUserId="21827" LastEditDate="2019-06-19T05:53:56.657" LastActivityDate="2019-06-19T05:53:56.657" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="29866" PostTypeId="1" AcceptedAnswerId="29868" CreationDate="2019-06-19T06:11:37.133" Score="0" ViewCount="33" Body="&lt;p&gt;An urn contains equal number of green and red balls. Suppose you are playing the following game. You draw one ball at random from the urn and note its colour. The ball is then placed back in the urn, and the selection process is repeated. Each time a green ball is picked you get 1 Rupee. The first time you pick a red ball, you pay 1 Rupee and the game ends. Your expected income from this game is..&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The answer given is 0 but shouldn't it be positive as the as the income rises if you consecutively draw the green ball? Please help me clarify this doubt.&lt;/p&gt;&#xA;" OwnerUserId="21014" LastActivityDate="2019-06-19T06:46:55.140" Title="Expected Income Question" Tags="&lt;expected-utility&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29867" PostTypeId="1" CreationDate="2019-06-19T06:32:22.427" Score="4" ViewCount="61" Body="&lt;p&gt;In Avengers Infinity Wars the villain snaps his fingers and wipes out 50% of all living creatures.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;His rationale is that it will save people from starvation and collapse due to resource exhaustion in a finite universe.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Presumably the impact of the loss of half the workforce and half the consumers would threaten to implode the economy as many markets would effectively lose half their consumers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assuming governments and industry were able to in some way function after the snap, would  they reach for the tools they're used to deploying in economic downturns and try to stablise the economy through a massive stimulus package to fill the gap left by the missing consumers?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Would the intent of such a stimulus be to permanently negate the snap by enabling the remaining population to consume double the resources they previously did? Would it be successful?&lt;/p&gt;&#xA;" OwnerUserId="23392" LastEditorUserId="11590" LastEditDate="2019-06-19T18:21:17.277" LastActivityDate="2019-06-19T23:42:17.917" Title="How should the government react to 50% of the population being wiped out?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="29868" PostTypeId="2" ParentId="29866" CreationDate="2019-06-19T06:46:55.140" Score="2" Body="&lt;p&gt;Think of all the possible outcomes. For example, if your first ball is red you loose 1 rupee (this has probability 1/2), if you instead get one green ball and then one red ball you end up with  0 rupees (this has probability 1/4), if instead you get at first 2 green balls and then a red one, you end up with 1 rupee (this has probability 1/8), etc. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The expected value is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$E(V)=(-1)\frac12+(0)\frac14+(1)\frac18+(2)\frac1{16}\dots=\sum_{n=1}^\infty(n-2)\frac{1}{2^n}=0$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The last equality comes from two well-known results: &lt;span class=&quot;math-container&quot;&gt;$\sum_{n=1}^\infty\frac{n}{2^n}=2$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\sum_{n=1}^\infty\frac{1}{2^n}=1$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-06-19T06:46:55.140" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29870" PostTypeId="1" AcceptedAnswerId="29873" CreationDate="2019-06-19T10:10:01.243" Score="2" ViewCount="76" Body="&lt;p&gt;I'm puzzled &lt;em&gt;why&lt;/em&gt;, in the following optimal-choice problem, good &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; depends on price &lt;span class=&quot;math-container&quot;&gt;$p_y$&lt;/span&gt; but the opposite is not true. Should not the sign of &lt;span class=&quot;math-container&quot;&gt;$\frac{\partial x}{\partial p_y}$&lt;/span&gt; be the same of &lt;span class=&quot;math-container&quot;&gt;$\frac{\partial y}{\partial p_x}$&lt;/span&gt;?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Optimal-choice problem&lt;/strong&gt;: given prices &lt;span class=&quot;math-container&quot;&gt;$p_x$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$p_y$&lt;/span&gt; and income &lt;span class=&quot;math-container&quot;&gt;$m$&lt;/span&gt; find the optimal demand function for &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; and for &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt;:&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;\max_{x,y} \{x\cdot(y+6)\} \qquad \text{s.t. } p_x x+p_y y \leq m \tag{1}&#xA;\end{equation}&lt;/span&gt;&#xA;after imposing &lt;span class=&quot;math-container&quot;&gt;$MRS_{xy}=p_x/p_y$&lt;/span&gt; and substituting back in the budget constraint I find:&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;x = \frac{m + 6p_y}{2p_x} \qquad\qquad y = \frac{m}{2p_y}-3 \tag{2}&#xA;\end{equation}&lt;/span&gt;&#xA;so that &lt;span class=&quot;math-container&quot;&gt;$sign\left(\frac{\partial x}{\partial p_y}\right) = sign\left(  \frac{6}{2p_x}\right)\neq sign\left(\frac{\partial y}{\partial p_x}\right) = 0$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;What I would like to understand better:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;How can this happen? I remember having read somewhere in MWG that the  price-derivative matrix should be (even!) symmetric. Can you provide me with some explanation and/or some reference? Alternatively, is there any mistake in the calculations?&lt;/li&gt;&#xA;&lt;li&gt;Provided the situation described above can happen [i.e. &lt;span class=&quot;math-container&quot;&gt;$sign\left(\frac{\partial x}{\partial p_y}\right)\neq sign\left(\frac{\partial y}{\partial p_x}\right)$&lt;/span&gt;], I would be very happy if you can come up with some &quot;real world&quot; examples of that.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="14692" LastEditorUserId="14692" LastEditDate="2019-06-19T10:18:32.547" LastActivityDate="2021-05-25T22:53:28.817" Title="Asymmetric (in sign) cross-price derivatives in consumer-theory problem" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29872" PostTypeId="2" ParentId="29813" CreationDate="2019-06-19T12:07:16.627" Score="2" Body="&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$u_1(x, y) = -(x-1)^2 - (y-1)^2$&lt;/span&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$u_2(x, y) = -|x-1| - |y-1|$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;are examples of utility functions that are concave, and therefore represent the preferences that are convex. Also, these preferences are not monotonic.&lt;/p&gt;&#xA;" OwnerUserId="11824" LastActivityDate="2019-06-19T12:07:16.627" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29873" PostTypeId="2" ParentId="29870" CreationDate="2019-06-19T15:52:09.113" Score="3" Body="&lt;p&gt;MWG proposition 3.G.2 is the one you’re thinking of, but that applies to Hicksian demand’s hessian (constant utility). What you solved for is the Walrasian demand, so we want to look at the Slutsky matrix.&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$S_{lk}(p,w) = \partial x_l(p,w) / \partial p_k + \partial x_l(p,w)/ \partial w * x_k(p,w)$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;First term: uncompensated change in demand of good &lt;em&gt;l&lt;/em&gt; due to a change in &lt;span class=&quot;math-container&quot;&gt;$p_k$&lt;/span&gt; (when multiplied by &lt;span class=&quot;math-container&quot;&gt;$\partial p_k$&lt;/span&gt;)&lt;/p&gt;&#xA;&lt;p&gt;Second term: effect of wealth change on demand of good &lt;em&gt;l&lt;/em&gt; (when&#xA;multiplied by &lt;span class=&quot;math-container&quot;&gt;$\partial p_k$&lt;/span&gt;) [https://scholar.harvard.edu/files/basilico/files/mwg_flashcards.pdf]&lt;/p&gt;&#xA;&lt;p&gt;If you check the symmetry of this matrix (in our case &lt;em&gt;l&lt;/em&gt; and &lt;em&gt;k&lt;/em&gt; are &lt;em&gt;x&lt;/em&gt; and &lt;em&gt;y&lt;/em&gt;), I believe it should work out.&lt;/p&gt;&#xA;" OwnerUserId="23470" LastEditorUserId="27855" LastEditDate="2021-05-25T22:53:28.817" LastActivityDate="2021-05-25T22:53:28.817" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29874" PostTypeId="2" ParentId="10218" CreationDate="2019-06-19T16:06:21.957" Score="1" Body="&lt;p&gt;As said previously, for current data you probably need to do some webscraping yourself. (There are tools out there to download for free.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have also found this paper, which might be relevant:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Benjamin Reed Shiller, 2013. &quot;&lt;a href=&quot;http://benjaminshiller.com/images/First_Degree_PD_Using_Big_Data_Jan_27,_2014.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;First Degree Price Discrimination Using Big Data&lt;/a&gt;,&quot; Working Papers 58, Brandeis University, Department of Economics and International Businesss School, revised Jan 2014.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;They mainly used comscore data, but looking through the references may be worthwhile for you. &lt;/p&gt;&#xA;" OwnerUserId="23467" LastEditorUserId="23023" LastEditDate="2019-06-19T22:52:04.607" LastActivityDate="2019-06-19T22:52:04.607" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29875" PostTypeId="2" ParentId="29867" CreationDate="2019-06-19T19:15:58.567" Score="1" Body="&lt;p&gt;Let's break the problem into two parts. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Part one is the negative shocks to supply and demand from half the consumers and half the producers never coming back. This is a permanent negative real shock, and it isn't clear that the government can do much about those with fiscal or monetary policy. The Avengers Endgame movie also suggests widespread and long lasting mental health issues that the government might have a helpful role in mitigating. One could also imagine changes in immigration policy now that a substantial number of homes are now vacant. With an infrastructure base built for twice as many people resources could be redirected to other purposes. However, in the long run things should be largely &lt;a href=&quot;https://en.wikipedia.org/wiki/Neutrality_of_money&quot; rel=&quot;nofollow noreferrer&quot;&gt;neutral&lt;/a&gt;. The US had half as many people in 1950 and the economy functioned. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Part two is the transitory shocks from disruption from some companies or teams losing members and being unable to produce. It is possible that the government could mitigate the disruption by lowering interest rates, cutting taxes, and resorting to other forms of emergency transfers (like perhaps opening the strategic petroleum reserves or changing federal law enforcement priorities to allow federal police to assist with local matters). They might also try to stabilize a banking system where almost half of consumer loans were never to be repaid. Some resources might also be redirected to handle the abandoned housing, cars, and other infrastructure and millions of abandoned pets and livestock would need assistance. &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2019-06-19T23:42:17.917" LastActivityDate="2019-06-19T23:42:17.917" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29877" PostTypeId="2" ParentId="29846" CreationDate="2019-06-19T21:28:33.020" Score="0" Body="&lt;p&gt;Whether it matters depends on what you are interested in. Some variables might be unaffected. However, many of the interesting ones are.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Most importantly, unemployment rises during recessions in a marked fashion. &lt;a href=&quot;https://fred.stlouisfed.org/series/UNRATE&quot; rel=&quot;nofollow noreferrer&quot;&gt;(Link to FRED data, recessions are highlighted automatically).&lt;/a&gt; You do not see such trend changes around other wiggles in GDP growth rates. In addition to the worries about job losses, there are knock-on effects, such as increased consumer defaults.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It also shows up in other areas. For example, bond yields typically fall around recessions. &lt;a href=&quot;https://fred.stlouisfed.org/series/DGS10&quot; rel=&quot;nofollow noreferrer&quot;&gt;(Link to FRED data, recessions are highlighted.)&lt;/a&gt; The central bank typically reacts by cutting rates &lt;a href=&quot;https://fred.stlouisfed.org/series/FEDFUNDS&quot; rel=&quot;nofollow noreferrer&quot;&gt;(as seen in the effective fed funds rate)&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;One simplified reason for rate cuts around recessions is that many economists argue that “potential GDP” for the US grows at around 2%/year (rough estimate for the sake of argument), so that if GDP is contracting at -0.5% per year, it is falling short of the potential growth path by 2.5% per year. Meanwhile, a dip from 2.5% to 1.5% (for example) is a non-event since the economy has transitioned from slightly above potential growth to slightly below potential.  (Please note that this explanation is perhaps over-simplified, since there some controversy about potential GDP.) As such, there is a “nonlinearity” in the effect; we care more about contracting GDP, since that implies a wider deviation from potential.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, the “two quarters of contracting GDP” is not used by the NBER in setting recession dates. &lt;a href=&quot;https://www.nber.org/cycles/recessions.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;(Link to NBER description.)&lt;/a&gt; There needs to be a “significant decline” in economic activity. The hypothetical possibility of a dip from 0.5% to -0.5% might not be enough to be declared a recession. Such events are relatively rare in the developed countries, and might be dismissed as a “technical recession” that is not viewed as significant. (I have been looking at these data in some developed countries, and cannot recall seeing any. Japan is a better candidate, but I have not looked at that data yet.)&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2019-06-19T21:28:33.020" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29878" PostTypeId="2" ParentId="29613" CreationDate="2019-06-20T02:00:57.690" Score="1" Body="&lt;p&gt;Brexit economic forecasts usually assume that Brexit will happen and nothing more than Brexit. In other words forecasters will not assume other changes which may be pro-growth. For example they will not likely assume the &quot;Singapore on the Thames&quot; outcome because we do not know if it is politically feasible or realistic. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;All else equal, countries tend to trade near rather than far so Brexit may be a welfare reducing event.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Gravity_model_of_trade&quot; rel=&quot;nofollow noreferrer&quot;&gt;Link to Wikipedia on the so called gravity model of trade.&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is why a post-Brexit forecast of GDP in 2030 will tend to be less than the non-Brexit forecast.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course in the very long run the tendency to trade near rather than far becomes less significant. More trade will occur over greater distances because of decreasing transportation costs and convergence in cultures and convergence in per capita incomes between countries, even distant ones. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Between now and say, the year 2030, transportation and culture will probably still matter a significant amount so the proximity and cultural similarities with the EU suggest GDP will be higher in the &quot;remain&quot; scenario. If the Brexit scenario has less trade, as is likely, then you have an explanation for an adverse GDP forecast. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.city.ac.uk/__data/assets/pdf_file/0005/356558/CPRMay2017.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Link to a description of Singapore on the Thames.&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="6868" LastEditorUserId="6868" LastEditDate="2019-07-02T16:51:26.800" LastActivityDate="2019-07-02T16:51:26.800" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29879" PostTypeId="2" ParentId="29830" CreationDate="2019-06-20T02:41:40.477" Score="2" Body="&lt;p&gt;This is how I read your question: &lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;If a state places a tariff on a good,             &amp;lt;- added a comma here&#xA;domestic manufacturers of that good become&#xA;more price-competitive in the domestic market&#xA;at the expense of overseas suppliers.&#xA;&#xA;Could this be said to be a policy choice that subsidies that industry?&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Assuming the country is a small and could not affect world price, then the answer is yes. To be more precise, an import tariff is equivalent to product-specific subsidy PLUS a consumption tax of that product.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Subsidy + consumption tax:&lt;/strong&gt; Domestic producers gain the subsidized amount for each unit sold. Buyers pay for that extra amount the producers gain.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Tariff:&lt;/strong&gt; The price of import goods (world price) rises, so domestic producers can sell at a higher price. The buyers are the ones who pay for that price difference.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;Credible&quot; sources:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;http://internationalecon.com/Trade/Tch95/T95-3.php&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://internationalecon.com/Trade/Tch95/T95-3.php&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.cairn.info/revue-reflets-et-perspectives-de-la-vie-economique-2004-1-page-25.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.cairn.info/revue-reflets-et-perspectives-de-la-vie-economique-2004-1-page-25.htm&lt;/a&gt;, Section 4&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="5145" LastActivityDate="2019-06-20T02:41:40.477" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="29880" PostTypeId="1" CreationDate="2019-06-20T05:12:20.550" Score="0" ViewCount="41" Body="&lt;p&gt;Large economies can affect world prices by applying import tariffs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this because they definitionally comprise a substantial portion of global consumption, and hence by shifting production domestically they can shift the world price equilibrium?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is the mechanism of action? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, if the USA comprises 25% of auto consumption, if they apply a tariff &lt;code&gt;t&lt;/code&gt; to autos, that will presumably lower the quantity demanded outside of the US as US consumers are incentivised to buy locally. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What effect on global price might this have?&lt;/p&gt;&#xA;" OwnerUserId="5505" LastEditorUserId="5505" LastEditDate="2019-06-20T08:56:58.940" LastActivityDate="2019-06-20T08:56:58.940" Title="By what mechanism do large economies affect world price with tariffs?" Tags="&lt;international-trade&gt;" AnswerCount="0" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="29881" PostTypeId="1" CreationDate="2019-06-20T05:23:17.900" Score="0" ViewCount="39" Body="&lt;p&gt;Is the set of subsidies exactly the same as the set of things that subsidise?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Put another way: can there exist something that subsidises that is not a subsidy?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or are there two definitions of a subsidy: the narrow economic definition, and a wider definition that includes (for example) everything that has the effect of a subsidy.&lt;/p&gt;&#xA;" OwnerUserId="5505" LastEditorUserId="5505" LastEditDate="2019-06-20T05:43:02.547" LastActivityDate="2021-01-31T01:02:50.340" Title="Can there exist something that subsidises that is not a subsidy" Tags="&lt;subsidies&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29882" PostTypeId="2" ParentId="29881" CreationDate="2019-06-20T06:36:57.993" Score="1" Body="&lt;p&gt;My answer relies on two quotes. The first one:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;A rose by any other name would smell as sweet&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;And the second one is from the definition of State Aid by the &lt;a href=&quot;http://ec.europa.eu/competition/state_aid/overview/index_en.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;European Union's competition authority&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;State aid is defined as an advantage in any form whatsoever conferred on a selective basis to undertakings by national public authorities. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;There is a difference between illegal state aid and subsidies, but the difference is in the &quot;selective basis&quot;. Aid in any form that confers an advantage is aid.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2019-06-20T06:36:57.993" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29883" PostTypeId="1" CreationDate="2019-06-20T09:52:10.527" Score="0" ViewCount="66" Body="&lt;p&gt;Can a market be seen as a set of nodes (market actors) connected by edges with bandwidth and latency characteristics?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are these terms used in economics?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If so would an import tariff affect bandwidth and/or latency?&lt;/p&gt;&#xA;" OwnerUserId="5505" LastActivityDate="2019-06-20T16:23:50.647" Title="Bandwidth, latency and price" Tags="&lt;markets&gt;" AnswerCount="4" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="29884" PostTypeId="2" ParentId="29883" CreationDate="2019-06-20T11:02:42.303" Score="1" Body="&lt;p&gt;I’m an ex-electrical engineer, so I’m familiar with the concept of bandwidth. Within academic economics, I’ve never seen bandwidth used in standard economics contexts. (Latency is a time delay, and shows up. However, time lags in this context are on the order of months, and are obviously not the result of delays due to communications, rather decision-making.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Update: see the answer by Ubiquitous for some references. I am unfamiliar with them, but based on the description, it’s an analogy to bandwidth, and not the formal electrical engineering bandwidth concept, related to the limit for data transmission down a pipe.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In finance, high frequency trading is literally a set of actors sending high frequency trading signals at each other. They are very concerned about these concepts. However, most people probably think of that as finance not economics, but the line between finance and economics is blurry at times.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is the new field of agent-based models, which are a set of connected actors (nodes). Bandwidth is not really an issue in economics context, since the effective minimum time step is about one working day - it is extremely rare for people to change jobs within a single working day, so production (which needs workers) is a slow-moving process.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Outside of academia, there are non-economists who write about the subject (on blogs, etc., I am technically one of those people). One of them may have tried to work the concept in.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for your example of a tariff, it shows the limited usefulness of those concepts. The decision to import a good versus buying locally is already a complex decision, and there is already paperwork, etc. The addition of a tariff adds just one more thing to be taken into account. The increment of time associated with the increase in decision complexity is very small when compared to the shipping time of goods.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastEditorUserId="12891" LastEditDate="2019-06-20T12:14:54.687" LastActivityDate="2019-06-20T12:14:54.687" CommentCount="8" ContentLicense="CC BY-SA 4.0" />
  <row Id="29885" PostTypeId="2" ParentId="29883" CreationDate="2019-06-20T11:37:18.930" Score="4" Body="&lt;p&gt;There is an active body of research on network economics. See, for example,&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://press.princeton.edu/titles/8767.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Social and Economic Networks&lt;/a&gt; by Jackson&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://press.princeton.edu/titles/8538.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Connections&lt;/a&gt; by Goyal&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;for an introduction to the topic.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These models occasionally use weighted edges (&quot;bandwidth&quot;) to model economic phenomena. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm not aware of work making use of the concept of latency, except when literally modelling latency (as in models of network congestion). An example of such a paper (though without the notion of nodes or edges) is &lt;a href=&quot;https://onlinelibrary.wiley.com/doi/full/10.1111/j.1756-2171.2010.00107.x&quot; rel=&quot;nofollow noreferrer&quot;&gt;Net neutrality and investment incentives&lt;/a&gt; by Choi and Kim.&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2019-06-20T11:44:08.867" LastActivityDate="2019-06-20T11:44:08.867" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29886" PostTypeId="2" ParentId="29883" CreationDate="2019-06-20T11:52:00.240" Score="1" Body="&lt;p&gt;By definition, a market is just a set of agents endowed with a preference relation over a set of goods. In some fashion, agents are nodes to trades; that is, each agent is a base on which a trade can occur.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you look at things this way, then yes, a market may be seen as a set of nodes. I've seen some marketing papers that apply the term &quot;capillarity&quot; to refer to the bandwidth that an agent can affect other agents, much more like a biology term than an engineering one.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These are unusual terms in economics literature, but they may be applied if you base yourself on the logical definition of the terms. Also, yes, taxes are a bandwidth reducing parameter, since they affect the price vector of the market and the supply and demand of a certain good. Since they reduce the total number of agents (or nodes) included in transactions, they reduce the bandwidth of the trades.&lt;/p&gt;&#xA;" OwnerUserId="23487" LastEditorUserId="23023" LastEditDate="2019-06-20T14:35:08.880" LastActivityDate="2019-06-20T14:35:08.880" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29888" PostTypeId="1" AcceptedAnswerId="29889" CreationDate="2019-06-20T12:54:40.033" Score="0" ViewCount="59" Body="&lt;p&gt;Many people want to try socialism because of valid criticisms of capitalism. So, are there any good ideas on improving the problems of capitalism before we go down the path of socialism? &lt;/p&gt;&#xA;" OwnerUserId="23417" LastActivityDate="2019-06-20T14:03:23.533" Title="How can capitalism be improved?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="1" ClosedDate="2019-06-20T20:49:36.240" ContentLicense="CC BY-SA 4.0" />
  <row Id="29889" PostTypeId="2" ParentId="29888" CreationDate="2019-06-20T14:03:23.533" Score="0" Body="&lt;p&gt;19th Century American Economist &lt;a href=&quot;https://en.wikipedia.org/wiki/Henry_George&quot; rel=&quot;nofollow noreferrer&quot;&gt;Henry George&lt;/a&gt; argued that the real conflict wasn't between Labor and Capital, but rather between the owners of Land and everybody else.  Neoclassical reformulation of the &lt;a href=&quot;https://en.wikipedia.org/wiki/Factors_of_production&quot; rel=&quot;nofollow noreferrer&quot;&gt;factors of production&lt;/a&gt; essentially merged Capital with Land, erasing the distinction and setting the stage for the current Socialism/Communism vs. Capitalism conflict we've had ever since.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Georgism&quot; rel=&quot;nofollow noreferrer&quot;&gt;Georgists&lt;/a&gt; today support a return to the earlier model, which points to a middle way between the two extremes.  They argue that by taxing &lt;a href=&quot;https://en.wikipedia.org/wiki/Economic_rent&quot; rel=&quot;nofollow noreferrer&quot;&gt;economic rent&lt;/a&gt; (the logical extension of payments made for the use of Land) governments can make infrastructure projects self-financing, eliminate the root causes of financial speculation (and the boom/bust cycles they trigger) and reduce inequality &amp;mdash; all while maintaining (or increasing) the freedom of markets.&lt;/p&gt;&#xA;" OwnerUserId="23023" LastActivityDate="2019-06-20T14:03:23.533" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29890" PostTypeId="1" CreationDate="2019-06-20T14:17:25.687" Score="0" ViewCount="152" Body="&lt;p&gt;I have panel data (N = 10, T = 20), which I intend to run a series of regressions on. I first want to see if my data are stationary in levels or in differences. To do this, I have been performing Levin-Lin-Chu unit root tests in Stata with the -xtunitroot llc- command. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My issue is that I noticed that you can select a maximum number of lags for AIC to select from and changing this maximum number changes the outcomes of my tests. I'm not sure what I'm supposed to set it at or whether I should be including lags at all.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, the Stata FAQ gives the following relevant example using the -xtunitroot llc- command: &lt;a href=&quot;https://www.stata.com/features/overview/panel-data-unit-root-tests/&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.stata.com/features/overview/panel-data-unit-root-tests/&lt;/a&gt;. I don't understand why they add the &quot;lags(aic 10)&quot; component, whether I should add such a component, and if so, what number I should you instead of 10.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help is greatly appreciated!&lt;/p&gt;&#xA;" OwnerUserId="21583" LastActivityDate="2019-06-20T14:17:25.687" Title="Should I include lags in an LLC unit root test?" Tags="&lt;econometrics&gt;&lt;applied-econometrics&gt;&lt;time-series&gt;&lt;stata&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="29891" PostTypeId="2" ParentId="29883" CreationDate="2019-06-20T16:23:50.647" Score="1" Body="&lt;p&gt;The concepts are used; the language usually is not.  Nodes come from graph theory, so you will see nodes and edges.  Latency is generally discussed using the term of art &quot;lags.&quot;  Bandwidth isn't used as a term, but the concept has long been present in the distinction between stock and flows.  It also is covered in discussions of congestion and capacity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Tariffs impact both information and capacity.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The information content is delayed because many contracts are fixed contracts.  Because the idea of a US trade war was unthinkable, the increase in tariffs was left out of deals.  New agreements will incorporate the added duties when they expire.  It will also begin adding in a tariff risk fee as well.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To a lesser extent, that would also be true for Brexit, but the lag time between approval and implementation has allowed most contracts to expire and readjust.  The information will not be reported contemporaneously, though.  Some things, such as income taxes, have a long lag between incidence and payment.  It is the payment that is of consequence.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Secondarily, the tariffs move the equilibrium, but no one knows in advance where that will be.  A process of tatonnement has to happen to incorporate the impact of the added import duties.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A tariff shifts the supply curve, reducing the global capacity to deliver goods and services, other things constant.  China, for example, has retaliated against the United States by &lt;em&gt;lowering&lt;/em&gt; the tariffs of every country except the United States.  In doing so, Trump won the trade war, for the rest of the world, and is losing it for the United States.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The lowering of tariffs is a signal of friendliness.  It is a way for China to say, &quot;we are not mean like the Americans, come trade with us instead.&quot;  On its own, it increases the long-run capacity of other nations and the purchasing power of China's citizens.  In the short-run, it is of little consequence.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are certain capacity issues that will be permanent, even if Trump ended the trade war today.  The United States threatened the food safety of China.  It is building farms.  Those farms will permanently replace U.S. farmers and add planetary capacity, permanently reducing food prices unless US farms declare bankruptcy and the land is reused for other purposes or there is enough of a population increase.&lt;/p&gt;&#xA;" OwnerUserId="11321" LastActivityDate="2019-06-20T16:23:50.647" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29892" PostTypeId="1" CreationDate="2019-06-20T17:47:16.267" Score="0" ViewCount="67" Body="&lt;p&gt;I have a quick question about how arbitrage works. Let's say that there are two investments:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Invest in a two-year zero&lt;/li&gt;&#xA;&lt;li&gt;Invest in a one-year zero and then reinvest into a forward contract from year one to year two.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;The no arbitrage principle theoretically states that since one could make unlimited money, these two investment strategies must be priced equally. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am a little confused as to how one would take advantage of this arbitrage opportunity. Suppose investment 2 costs more than investment 1. I suppose I would have to somehow borrow money and sell investment 2, take that money and put it in investment 1, and then pay back investment 2? I'm really not sure who I would be borrowing from and how I would be able to sell. If someone could give me a step-by-step process on how to take advantage of a hypothetical arbitrage opportunity, that would be greatly appreciated.&lt;/p&gt;&#xA;" OwnerUserId="20877" LastActivityDate="2019-06-21T00:00:47.323" Title="How would one take advantage of this arbitrage opportunity?" Tags="&lt;finance&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29893" PostTypeId="2" ParentId="29780" CreationDate="2019-06-20T17:51:17.430" Score="1" Body="&lt;p&gt;I’ll try to succinctly explain bonding curves and then discuss benefits. Let’s look at a typical bonding curve where the buy price formula and the and sell price formula are equal:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/Ohqum.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Ohqum.jpg&quot; alt=&quot;&quot;&gt;&lt;/a&gt;&lt;sup&gt;&lt;i&gt; from &lt;a href=&quot;https://medium.com/@simondlr/tokens-2-0-curved-token-bonding-in-curation-markets-1764a2e0bee5&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://medium.com/@simondlr/tokens-2-0-curved-token-bonding-in-curation-markets-1764a2e0bee5&lt;/a&gt; &lt;/i&gt;&lt;/sup&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The way the formula works is look at the current amount of tokens purchased (supply) and charge the price given by the formula for the next token. As people sell, the supply goes down and as people buy, the supply goes up. The total amount of money put into the token is the area under the curve.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At any point you can buy a token and sell it back and get your money. However, if you buy at &lt;span class=&quot;math-container&quot;&gt;$q_1$&lt;/span&gt;, wait and more people buy (not guaranteed!) then you can sell at a higher price at &lt;span class=&quot;math-container&quot;&gt;$q_2$&lt;/span&gt;. To make profit, you should only buy if you think others will buy after you as well.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At the end of the day, total money paid in will be total money paid out, but the smartest who buy early and sell at high supplies (buy &lt;span class=&quot;math-container&quot;&gt;$q_2$&lt;/span&gt; and sell &lt;span class=&quot;math-container&quot;&gt;$q_1$&lt;/span&gt;) will make money while those who buy when it’s “hot” and sell when supply is low (buy &lt;span class=&quot;math-container&quot;&gt;$q_2$&lt;/span&gt; and sell &lt;span class=&quot;math-container&quot;&gt;$q_1$&lt;/span&gt;) will lose money. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, sometimes the sell curve is below the buy curve:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/GxGHN.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/GxGHN.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this case, the area between the buy and sell curve is revenue that will typically go to a company. There is money making opportunities, but because the sell curve grows slowly, it only really benefits the earliest buyers. &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;So what are these any good for?&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;The Buy curve equals the Sell curve: &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;This kind of market is good for content curation. It’s easiest explained by an example (borrowed from &lt;a href=&quot;https://medium.com/@simondlr/tokens-2-0-curved-token-bonding-in-curation-markets-1764a2e0bee5&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://medium.com/@simondlr/tokens-2-0-curved-token-bonding-in-curation-markets-1764a2e0bee5&lt;/a&gt;):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Meme Factory: A Game of Curation &amp;amp; The Trading of Dank Memes&#xA;  Meme Factory from District0x will be a game where users can create dank memes and bond tokens to each meme according to its own bonding curve. This becomes a game where users then bet on the popularity of each meme. Bonded early to a dank meme and got out at the top? You successfully traded a dank meme and just made a profit.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The question each time is: do you think this meme is dank and funny enough that others will want to bet after you on this too?&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Ultimately, whilst this game is being played, these memes are also being curated themselves: more tokens bonded to a meme is a signal that is a funnier meme than a meme with fewer bonded tokens. This is an emergent outcome.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;By people trying to make money, they will curate popular content as a byproduct (social surplus from private motives!)&lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;2&quot;&gt;&#xA;&lt;li&gt;The Buy curve &gt; the Sell curve:&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;It’s very hard to start a community because the first members don’t have many people to interact with and it’s very laborious to create stuff that other people will want to join and see. It’s especially hard if you have to pay to join! &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, notice that if you enter early the sell curve is super close to the buy curve, so you have low risk of joining a community (because you can sell right back). And the upside is, if you work on the community to gather members and create fun content then more people will pay to enter. All of a sudden your share is worth a lot! This incentivized people to value their community and make money while doing so.&lt;/p&gt;&#xA;" OwnerUserId="23470" LastActivityDate="2019-06-20T17:51:17.430" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29894" PostTypeId="2" ParentId="29829" CreationDate="2019-06-20T18:05:55.297" Score="0" Body="&lt;p&gt;There’s obviously a lot of discussion on this in economics and the answers are mixed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The book &lt;a href=&quot;https://rads.stackoverflow.com/amzn/click/com/B00B3M47VC&quot; rel=&quot;nofollow noreferrer&quot; rel=&quot;nofollow noreferrer&quot;&gt;How Asia Works&lt;/a&gt; gives examples of how protectionism helped many Asian countries develop in the 80s:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What he argues is that spending governmental subsidies on “infant industries” alone is not sufficient. The Asian countries that succeeded entering high technology industries conditioned subsidies on exports.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, foreign countries (USA and Europe for example) really don’t like this and may charge tariffs to try and stop competitions countries from developing industries. It turns out though, that for political reasons import-heavy countries will deal with the competition for lower prices. So to some extent, a little protectionism has been shown to work. For other examples, Ha-Joon Chang’s book Bad Samaritans details the history of small countries successful protectionism (USA and England a long time ago used protectionism for instance).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Import-heavy large economies tend to prefer free trade because it makes their imports cheaper (mutually low tariffs) and  Export-heavy large economies prefer free trade for similar reasons.&lt;/p&gt;&#xA;" OwnerUserId="23470" LastActivityDate="2019-06-20T18:05:55.297" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29895" PostTypeId="2" ParentId="29829" CreationDate="2019-06-20T19:45:10.737" Score="2" Body="&lt;p&gt;This is partially opinion-based. Even if we were able to calculate all the effects, we can still argue if variant A is &lt;em&gt;better&lt;/em&gt; than variant &lt;em&gt;B&lt;/em&gt; or vice versa.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't think that protectionism is suited to any economy. It typically protects local producers at a cost for local consumers. Local producers have less competition on local market, which allows higher prices or worse products, lower efficiency and so on. The winner is not the nation/state. The winner is just the producer, at expense of consumers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Considering just relations between two states, protectionism damages both of them. It prevents usage of &lt;a href=&quot;https://en.m.wikipedia.org/wiki/Comparative_advantage&quot; rel=&quot;nofollow noreferrer&quot;&gt;comparative advantages&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It might look like some big players like USA can more or less ignore rest of the world and produce locally everything they need. Well, they probably can, but at some cost. They can ignore manufacturing in China and build phones locally. Those phones would be quite more expensive and less competitive on both local and global market. They can force some advantage for local vendors on local market (at some cost for local consumers), but this does not help the companies on global market. Even with comparable level of isolation, United States could be richer than, say, North Korea or Iran. But they would be nowhere as rich as they are now. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;By the way, there is some evidence of damages of de facto protectionism in large countries: &lt;a href=&quot;https://en.m.wikipedia.org/wiki/International_sanctions_during_the_Ukrainian_crisis&quot; rel=&quot;nofollow noreferrer&quot;&gt;sanctions on Russia&lt;/a&gt;. You might argue this is not protectionism. However, it has quite similar consequences – it inhibits international trade. The reason does not matter, the result seems to be the same.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Maybe it would be more disasterous* for a small country. But I don't think protectionism is useful even for large country.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;*) in per-capita metrics&lt;/p&gt;&#xA;" OwnerUserId="23352" LastActivityDate="2019-06-20T19:45:10.737" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29897" PostTypeId="2" ParentId="29892" CreationDate="2019-06-21T00:00:47.323" Score="1" Body="&lt;p&gt;Hi: Don't think of a specific case. Just think of investment A and investment B and assume that the return on both investments is the same. Also, assume that investment A costs more to invest in than investment B. In that case, you would sell some amount, X, of investment A to Mr. Pushover and buy the same amount, X, of  investment B with the proceeds from Mr. Pushover ( and you'll have a little left over since A costs more than B. Call  what's left, L, for leftover ).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, when the investment horizon is complete, you pay Mr. Pushover the return with the return that you made from investing in B.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But,  now you still have L left so you made L with no risk. That's the arbitrage. I hope that helps. To summarize, if two investments return the same thing, they have to cost the same thing or else there's an arbitrage.&lt;/p&gt;&#xA;" OwnerUserId="18201" LastActivityDate="2019-06-21T00:00:47.323" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29898" PostTypeId="1" CreationDate="2019-06-21T01:00:01.017" Score="0" ViewCount="196" Body="&lt;p&gt;From my understanding, when the money supply curve shifts to the right, interest rates go down, it follows that the price level decreases and the prices should go down?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks in advance.&lt;/p&gt;&#xA;" OwnerUserId="23493" LastActivityDate="2021-05-15T09:07:41.360" Title="Why do prices go up when the central bank increases money supply?" Tags="&lt;macroeconomics&gt;&lt;interest-rate&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29899" PostTypeId="1" AcceptedAnswerId="29901" CreationDate="2019-06-21T01:15:35.703" Score="1" ViewCount="130" Body="&lt;p&gt;Facebook has come up Libra its version of crypto-currency.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The unique feature of Libra is the &quot;reserve&quot; which backs Libra. The reserve is supposed to be held in stable global currencies (USD, GBP, JPY and EUR).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a Libra coin to be created and equivalent amount of local currency (based on exchange rate) needs to be transferred to Libra reserve. I am assuming that during this transfer the local currency is converted to USD/GBP/JPY/EUR and then transferred to the reserve.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Essentially for every Libra that is in circulation its equivalent amount is held in its reserve.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given this, I am assuming that:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Libra would behave like Hong Kong dollar against USD and it would remain stable against USD, GBP, JPY and EUR&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;There would be volatility in the price of Libra against the local currency (except for USD, GBP, JPY and EUR). &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Are these assumptions right?&lt;/p&gt;&#xA;" OwnerUserId="23488" LastEditorUserId="23488" LastEditDate="2019-06-24T02:14:30.143" LastActivityDate="2019-06-24T02:14:30.143" Title="Facebook's Libra - Why would it vary in value" Tags="&lt;currency&gt;&lt;exchange-rates&gt;&lt;cryptocurrency&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29900" PostTypeId="1" CreationDate="2019-06-21T03:02:13.340" Score="0" ViewCount="31" Body="&lt;p&gt;I just need to know that how to make a data series of real government expenditures using nominal government expenditure data series. &lt;/p&gt;&#xA;" OwnerUserId="23494" LastActivityDate="2020-05-10T15:29:24.640" Title="Nominal and real government expenditure" Tags="&lt;macroeconomics&gt;&lt;government&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29901" PostTypeId="2" ParentId="29899" CreationDate="2019-06-21T07:41:02.553" Score="3" Body="&lt;p&gt;It will vary in value because trust in it will fluctuate just as trust in facebook fluctuates.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There will also be volatility as trust varies in confidence in the payment system; its integrity and security; how exchangeable it is; its exposure to fraud,  to tax, to money-laundering investigations&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For holders, there is also significant counter-party risk in whether Facebook chooses to honour their holding. And the majority voting rights in Facebook are vested in a single person. So their counterparty is, in some regards, essentially one man and his whims.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2019-06-21T07:41:02.553" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29902" PostTypeId="1" CreationDate="2019-06-21T14:14:59.973" Score="1" ViewCount="27" Body="&lt;p&gt;Does the &lt;a href=&quot;https://en.wikipedia.org/wiki/Gravity_model_of_trade&quot; rel=&quot;nofollow noreferrer&quot;&gt;gravity model of trade&lt;/a&gt; apply equally for goods and services?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Naively it would seem that the more ephemeral services would be less impacted by it?&lt;/p&gt;&#xA;" OwnerUserId="5505" LastActivityDate="2019-06-21T14:14:59.973" Title="Does the gravity model of trade apply equally for goods and services?" Tags="&lt;international-trade&gt;" AnswerCount="0" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="29903" PostTypeId="1" AcceptedAnswerId="29904" CreationDate="2019-06-21T17:47:56.090" Score="3" ViewCount="102" Body="&lt;p&gt;I would like your help to use the correct terminology to define a &lt;strong&gt;Bayes Correlated Equilibrium (BCE)&lt;/strong&gt; and a &lt;strong&gt;Bayesian Nash Equilibrium (BNE)&lt;/strong&gt; in a &lt;strong&gt;&quot;game&quot; with one player&lt;/strong&gt;. The notion of BCE in an &lt;span class=&quot;math-container&quot;&gt;$N$&lt;/span&gt;-player game has been introduced in &lt;a href=&quot;http://www.princeton.edu/~smorris/pdfs/bce.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;this&lt;/a&gt; paper. &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Let me describe the game and give the notion of BCE and BNE in an &lt;span class=&quot;math-container&quot;&gt;$N$&lt;/span&gt;-player game. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are &lt;span class=&quot;math-container&quot;&gt;$N\in \mathbb{N}$&lt;/span&gt; players, with &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; denoting a generic player.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is a finite set of states &lt;span class=&quot;math-container&quot;&gt;$\Theta$&lt;/span&gt;, with &lt;span class=&quot;math-container&quot;&gt;$\theta$&lt;/span&gt; denoting a generic state. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A &quot;basic game&quot; &lt;span class=&quot;math-container&quot;&gt;$G$&lt;/span&gt; consists of&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;for each player &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;, a finite set of actions &lt;span class=&quot;math-container&quot;&gt;$A_i$&lt;/span&gt;, where we write &lt;span class=&quot;math-container&quot;&gt;$A\equiv A_1\times A_2\times ... \times A_N$&lt;/span&gt;, and a utility function &lt;span class=&quot;math-container&quot;&gt;$u_i: A\times \Theta \rightarrow \mathbb{R}$&lt;/span&gt;.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;a full support prior &lt;span class=&quot;math-container&quot;&gt;$\psi\in \Delta(\Theta)$&lt;/span&gt;.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;An &quot;information structure&quot; &lt;span class=&quot;math-container&quot;&gt;$S$&lt;/span&gt; consists of&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;for each player &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;, a finite set of signals &lt;span class=&quot;math-container&quot;&gt;$T_i$&lt;/span&gt;, where we write &lt;span class=&quot;math-container&quot;&gt;$T\equiv T_1\times T_2\times ... \times T_N$&lt;/span&gt;.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;a signal distribution &lt;span class=&quot;math-container&quot;&gt;$\pi: \Theta \rightarrow \Delta(T)$&lt;/span&gt;.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;A decision rule of the incomplete information game &lt;span class=&quot;math-container&quot;&gt;$(G,S)$&lt;/span&gt; is a mapping &#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\sigma: T\times \Theta\rightarrow \Delta(A)&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A mixed strategy of player &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; of the incomplete information game &lt;span class=&quot;math-container&quot;&gt;$(G,S)$&lt;/span&gt; is a mapping &#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\beta_i: T_i\rightarrow \Delta(A_i)&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Definition of BCE:&lt;/strong&gt; The decision rule &lt;span class=&quot;math-container&quot;&gt;$\sigma$&lt;/span&gt; is a BCE for the game &lt;span class=&quot;math-container&quot;&gt;$(G,S)$&lt;/span&gt; if, for each &lt;span class=&quot;math-container&quot;&gt;$i=1,...,N$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$t_i\in T_i$&lt;/span&gt;, and &lt;span class=&quot;math-container&quot;&gt;$a_i\in A_i$&lt;/span&gt;, we have&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\sum_{a_{-i}, t_{-i}, \theta} \psi(\theta) \pi(t_{-i},t_i| \theta) \sigma(a_{-i}, a_i|t_i, t_{-i}, \theta) u_i(a_i, a_{-i},\theta)&#xA;$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\geq &#xA;\sum_{a_{-i}, t_{-i}, \theta} \psi(\theta) \pi(t_{-i},t_i| \theta) \sigma(a_{-i}, a_i|t_i, t_{-i}, \theta) u_i(\tilde{a}_i, a_{-i},\theta)&#xA;$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$\forall \tilde{a}_i\in A_i$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Definition of BNE:&lt;/strong&gt; The strategy profile &lt;span class=&quot;math-container&quot;&gt;$(\beta_1,...,\beta_N)$&lt;/span&gt; is a BNE for the game &lt;span class=&quot;math-container&quot;&gt;$(G,S)$&lt;/span&gt; if, for each &lt;span class=&quot;math-container&quot;&gt;$i=1,...,N$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$t_i\in T_i$&lt;/span&gt;, and &lt;span class=&quot;math-container&quot;&gt;$a_i\in A_i$&lt;/span&gt; such that &lt;span class=&quot;math-container&quot;&gt;$\beta(a_i|t_i)&amp;gt;0$&lt;/span&gt;, we have&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\sum_{a_{-i}, t_{-i}, \theta} \psi(\theta) \pi(t_{-i},t_i| \theta) \Pi_{j\neq i} \beta_j(a_j|t_j) u_i(a_i, a_{-i},\theta)&#xA;$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\geq &#xA;\sum_{a_{-i}, t_{-i}, \theta} \psi(\theta) \pi(t_{-i},t_i| \theta) \Pi_{j\neq i} \beta_j(a_j|t_j)  u_i(\tilde{a}_i, a_{-i},\theta)&#xA;$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$\forall \tilde{a}_i\in A_i$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Question:&lt;/strong&gt; &lt;strong&gt;when &lt;span class=&quot;math-container&quot;&gt;$N=1$&lt;/span&gt;&lt;/strong&gt;, I've understood from the various versions of the paper I linked that the following terminology may be appropriate. Could you check and provide better suggestions, if any?&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$S$&lt;/span&gt; is called &quot;experiment&quot; in the sense studied by Blackwell (1951; 1953), rather than &quot;information structure&quot;. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$G$&lt;/span&gt; is called &quot;decision problem&quot;, rather than &quot;basic game&quot;.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The player is called &quot;decision maker&quot;. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The BCE concept is referred to as &quot;one-player BCE&quot;. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Also, how would you refer to the BNE concept with one player?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Lastly, are there other crucial papers in the literature introducing the concept of BCE when &lt;span class=&quot;math-container&quot;&gt;$N=1$&lt;/span&gt;? Or the paper linked is still a valid reference?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="1505" LastEditorUserId="1505" LastEditDate="2019-06-21T17:55:15.613" LastActivityDate="2019-06-21T20:01:30.517" Title="The notions of Bayes Correlated Equilibrium and Bayesian Nash Equilibrium in a game with one player" Tags="&lt;game-theory&gt;&lt;bayesian-game&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29904" PostTypeId="2" ParentId="29903" CreationDate="2019-06-21T20:01:30.517" Score="1" Body="&lt;ul&gt;&#xA;&lt;li&gt;The terms experiment and information structure are used interchangeably by the literature, so both terms are valid regardless of &lt;span class=&quot;math-container&quot;&gt;$N$&lt;/span&gt;.&lt;/li&gt;&#xA;&lt;li&gt;I agree if &lt;span class=&quot;math-container&quot;&gt;$N=1$&lt;/span&gt; there is really no game, and it is rather a single-agent decision problem (or decision problem with uncertainty), and yes, you don't have a player, rather a decision maker.&lt;/li&gt;&#xA;&lt;li&gt;For the same token, you don't want to say the solution concept if BNE, instead you want to say that the agent maximizes his expected utility given the information she received. &lt;/li&gt;&#xA;&lt;li&gt;I was not aware of the term &quot;one-player BCE&quot; but Bergemann and Morris coined the term BCE, so if that is how they call it, it is correct.&lt;/li&gt;&#xA;&lt;li&gt;In terms of other references, &lt;a href=&quot;https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1941708&quot; rel=&quot;nofollow noreferrer&quot;&gt;this&lt;/a&gt; is an earlier version of that same paper. However, I think that the paper you linked is the right paper for citing the concept of BCE. &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;In &lt;a href=&quot;https://www.aeaweb.org/articles?id=10.1257/jel.20181489&quot; rel=&quot;nofollow noreferrer&quot;&gt;this&lt;/a&gt; later paper, the same two authors made the remarkable connection that the problem of &lt;a href=&quot;https://faculty.chicagobooth.edu/emir.kamenica/documents/bayesianPersuasion.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Bayesian Persuasion&lt;/a&gt; popularized by Kamenica and Gentzkow could be interpreted in light of the concept of BCE when &lt;span class=&quot;math-container&quot;&gt;$N=1$&lt;/span&gt;. So perhaps, this later reference of BM can be useful if you want to explore more the case of &lt;span class=&quot;math-container&quot;&gt;$N=1$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-06-21T20:01:30.517" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="29905" PostTypeId="1" CreationDate="2019-06-21T22:39:14.710" Score="0" ViewCount="23" Body="&lt;p&gt;Is there a name for a consumption tax that basically captures the GDP (all goods and services produced in the nation)?&lt;/p&gt;&#xA;" OwnerUserId="23500" LastActivityDate="2019-07-01T23:54:26.737" Title="Name for a tax that captures all goods and services produced?" Tags="&lt;gdp&gt;&lt;tax&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29906" PostTypeId="2" ParentId="29905" CreationDate="2019-06-21T22:47:10.623" Score="2" Body="&lt;p&gt;Value-Added Taxes (VAT) are supposed to capture most goods and services produced in the private sector, but there can be exceptions within a country’s laws.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Even if the exceptions were eliminated, there are some non-market components to GDP that would be missed (e.g. imputed values, like the “rental value of owner-occupied housing”). (You need to go into each country’s GDP definition to find the list of imputations.)&lt;/p&gt;&#xA;" OwnerUserId="12891" LastEditorUserId="12891" LastEditDate="2019-07-01T23:54:26.737" LastActivityDate="2019-07-01T23:54:26.737" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29907" PostTypeId="1" AcceptedAnswerId="29943" CreationDate="2019-06-21T23:36:40.273" Score="0" ViewCount="645" Body="&lt;p&gt;In Microeconomic Theory (3rd Edition), Mas-Collel, Whinston and Green state that the property of free disposal implies the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$Y - \mathbb{R}^L_+ \subset Y $&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/g3qmb.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/g3qmb.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Y: Production set&lt;/p&gt;&#xA;&#xA;&lt;p&gt;y: Production vector&lt;/p&gt;&#xA;&#xA;&lt;p&gt;L: Amount of commodities considered&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why does this formula means that the extra amount of inputs or outputs can be disposed of or eliminated at no cost?&lt;/p&gt;&#xA;" OwnerUserId="6099" LastActivityDate="2019-06-24T19:24:49.023" Title="Free Disposal: the production set less the vector space of positive reals" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29911" PostTypeId="1" CreationDate="2019-06-22T05:40:28.473" Score="0" ViewCount="86" Body="&lt;p&gt;Capital represents the loss-absorbing capacity of a bank. I do not understand how shares issued in the past provide any indication of a bank's loss-absorbing capacity. I understand that common equity does not carry with it an obligation to repay, but it is not like banks can &quot;draw down&quot; on the value of its outstanding share in the event it experiences severe losses.&lt;/p&gt;&#xA;" OwnerUserId="13618" LastActivityDate="2019-06-22T06:43:43.363" Title="Why is common stock included in bank capital?" Tags="&lt;banking&gt;&lt;regulation&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29912" PostTypeId="2" ParentId="29911" CreationDate="2019-06-22T06:32:29.873" Score="0" Body="&lt;p&gt;It is included at book value (not at market value) since that is the actual cash that was injected.&#xA;So banks can indeed use this cash&lt;/p&gt;&#xA;" OwnerUserId="20559" LastActivityDate="2019-06-22T06:32:29.873" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29913" PostTypeId="2" ParentId="29911" CreationDate="2019-06-22T06:43:43.363" Score="2" Body="&lt;p&gt;Equity/stock/capital does absorb losses. Here is a stylized example:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ann creates a new bank. She puts in \$100 of her own money. This \$100 is her equity/stock/capital.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;She borrows another \$900 (debt). (For simplicity we'll assume that all debt/loans have an interest rate of 0%.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;She has a total of \$1,000. She lends all of it to Bob.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A little later, Bob is able to repay only \$925. So, \$75 was lost on this loan.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This \$75 loss is entirely absorbed by the equity/stock/capital, which now falls from \$100 to \$25.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2019-06-22T06:43:43.363" CommentCount="8" ContentLicense="CC BY-SA 4.0" />
  <row Id="29914" PostTypeId="2" ParentId="25387" CreationDate="2019-06-22T07:03:07.713" Score="-1" Body="&lt;p&gt;Printing money does not cause inflation.  How could it?  What matters is whats done with it, not its mere existence.&#xA;Inflation is caused by demand for goods and services continuously exceeding supply.&#xA;Eg cost push, when supply is low, eg oil in the 70s, or demand pull , eg in a evonomy that is growing very fast/overheating .&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The quantity theory of money says MV=PQ and so some will say this says that an increase in M (=money supply, eg by printing money) will cause an increase in P (price level).  However this assumes that V (velocity) and Q (quantity) do not change, which is a prepostorous assumption!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The expression printing money has been used so consistently in the context of weimar germany that it always brings up that feeling but ofcourse the problem in germany then was that there was massive debts in foreign currencies they were forced to pay and massive shortages of goods, (eg due to frances annexation of the Rhineland ) lots of strikes, in general utter pandemonium, meltdown!&lt;/p&gt;&#xA;" OwnerUserId="20559" LastActivityDate="2019-06-22T07:03:07.713" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29915" PostTypeId="1" CreationDate="2019-06-22T15:58:50.640" Score="0" ViewCount="30" Body="&lt;p&gt;I'm researching the source of profit. In Marx I've found the following passage:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;If then, speaking broadly, and embracing somewhat longer periods, all&#xA;  descriptions of commodities sell at their respective values, it is&#xA;  nonsense to suppose that profit, not in individual cases; but that the&#xA;  constant and usual profits of different trades spring from the prices&#xA;  of commodities, or selling them at a price over and above their value.&#xA;  The absurdity of this notion becomes evident if it is generalized.&#xA;  What a man would constantly win as a seller he would constantly lose&#xA;  as a purchaser. It would not do to say that there are men who are buyers without being sellers, or consumers without being producers. What these people pay to the producers, they must first get from them for nothing. If a man first takes your money and afterwards returns that money in buying your commodities, you will never enrich yourselves by selling your commodities too dear to that same man. This sort of transaction might diminish a loss, but would never help in realizing a profit.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Karl Marx - &quot;Value, Price and Profit&quot;, 1865, the last pararaph in section VI &quot;Value and labour&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I can't construct a numerical example which could illustrate this logic for me. It seems like even critics of Marx didn't argue against this passage just like it was very clear to them. But it not clear for me. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Please check my logic. Consider a capitalist who has costs of 10 USD per unit including others' margins of 5 USD. According to Marx she has to sell for at least 10+5=15 USD and it will be just a zero profit. But mathematically 15-10=5 USD and it's not zero. May be Marx means that these 5 USD of profit will be unavoidably spent for a bare survival of the capitalist. But why, if so?&lt;/p&gt;&#xA;" OwnerUserId="23506" LastEditorUserId="11590" LastEditDate="2019-06-22T17:25:14.693" LastActivityDate="2019-06-23T18:30:15.717" Title="Why the source profit is not only trade markups?" Tags="&lt;price&gt;&lt;political-economy&gt;&lt;value&gt;&lt;marxism&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29917" PostTypeId="1" AcceptedAnswerId="29919" CreationDate="2019-06-22T16:52:36.880" Score="3" ViewCount="158" Body="&lt;p&gt;I have the following question. I consider AGV mechanism which is as follows:&#xA;&lt;span class=&quot;math-container&quot;&gt;$u_i(x,\theta_i) = v_i(k,\theta_i) + t_i $&lt;/span&gt; is an utility function where &lt;span class=&quot;math-container&quot;&gt;$x = (k,t_1,...,t_n)$&lt;/span&gt; vector of alternatives. There are N agents. We choose &lt;span class=&quot;math-container&quot;&gt;$k^*$&lt;/span&gt; such that &lt;span class=&quot;math-container&quot;&gt;$\sum v_i(k^*(\theta) ,\theta_i) \ge \sum v_i(k^*,\theta_i) $&lt;/span&gt; and take &#xA;&lt;span class=&quot;math-container&quot;&gt;$$t_i(\theta) = E_{\tilde{\theta}_{-i}}\Big[ \sum_{i \neq j}v_j(k^*(\theta_i,\tilde{\theta}_{-i}),\tilde{\theta}_j)\Big] + h_i(\theta_{-i}) = \xi_i(\theta_i) + h_i(\theta_{-i}). $$&lt;/span&gt;&#xA;Also we define&#xA;&lt;span class=&quot;math-container&quot;&gt;$$h_i(\theta_{-i}) = - \frac{1}{N-1} \sum_{i\neq j}\xi_j(\theta_j)$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now I want to check whether is it true or not that this mechanism satisfies ex post individual rationality. There are some sources claiming that AGV mechanism violates ex post IR but satisfies ex ante IR.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ex post IR is the following property:&#xA;Mechanism &lt;span class=&quot;math-container&quot;&gt;$\phi$&lt;/span&gt; satisfies ex post IR iff &lt;span class=&quot;math-container&quot;&gt;$\forall \ \theta, \forall \ i $&lt;/span&gt; we have: &lt;span class=&quot;math-container&quot;&gt;$v_i(k;\theta_i)+t_i\ge 0$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So here we have:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$v_i(k;\theta_i) + \xi_i(\theta_i) \ge \frac{1}{N-1}\sum_{j\neq i} \xi_j(\theta_j)$$&lt;/span&gt; &#xA;In general there are now reasons for this inequality to hold. But what might be an example that this inequality is violated?&lt;/p&gt;&#xA;" OwnerUserId="23508" LastEditorUserId="23508" LastEditDate="2019-06-22T18:50:11.163" LastActivityDate="2019-06-22T20:53:44.630" Title="AGV mechanism and Individual rationality" Tags="&lt;mechanism-design&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29919" PostTypeId="2" ParentId="29917" CreationDate="2019-06-22T19:55:02.720" Score="2" Body="&lt;p&gt;The simplest example I could cook up. I might have messed up somewhere.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider the provision of a public good with two agents, &lt;span class=&quot;math-container&quot;&gt;$n=2$&lt;/span&gt;. Let the type space be such that &lt;span class=&quot;math-container&quot;&gt;$\theta \in \{0,1\}$&lt;/span&gt;, and both types are equally likely. Either the good is provided, &lt;span class=&quot;math-container&quot;&gt;$k=1$&lt;/span&gt;, and total cost &lt;span class=&quot;math-container&quot;&gt;$c=2/3$&lt;/span&gt; occurs, or the good is not provided, &lt;span class=&quot;math-container&quot;&gt;$k=0$&lt;/span&gt;, which is costless.&#xA;Let &#xA;&lt;span class=&quot;math-container&quot;&gt;$$v_i (k; \theta_i) = k  (\theta_i - \frac{c}{2}).$$&lt;/span&gt;&#xA;That is, either the good is not provided and nobody pays or it is provided and both share the cost. Of course transfers can be used to compensate.&#xA;It is efficient to provide if at least one agent values the good, i.e., has a type of 1. AGV leads to this efficient rule &lt;span class=&quot;math-container&quot;&gt;$k^* (1,1)=k^* (0,1)=k^* (1,0)=1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$k^* (0,0)=0$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then,&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\xi_i (1) = \frac{1}{2} \left( v_j(k^*(1,0);0) + v_j(k^*(1,1);1) \right)&#xA;= \frac{1}{2} (0+1 - c) = \frac{1}{6},$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\xi_i (0) = \frac{1}{2} \left( v_j(k^*(0,0);0) + v_j(k^*(0,1);1) \right)&#xA;= \frac{1}{2} (0+1- c/2) = \frac{1}{3},$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, suppose &lt;span class=&quot;math-container&quot;&gt;$(\theta_i,\theta_j)=(0,1)$&lt;/span&gt;. Then,&#xA;&lt;span class=&quot;math-container&quot;&gt;$$v_i(1;0)+\xi_i(0) = 0 - \frac{1}{3}  + \frac{1}{3}= 0 &amp;lt; \xi_j (1) = \frac{1}{6}.$$&lt;/span&gt;&#xA;So, we don't have ex-post IC in that case.&lt;/p&gt;&#xA;" OwnerUserId="11590" LastEditorUserId="11590" LastEditDate="2019-06-22T20:53:44.630" LastActivityDate="2019-06-22T20:53:44.630" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="29920" PostTypeId="2" ParentId="29898" CreationDate="2019-06-23T04:57:19.140" Score="1" Body="&lt;p&gt;Price levels are not necessarily linked to interest rates, especially real rates.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Speaking strictly from an IS-LM standpoint, an expansionary monetary policy will increase the real money supply and depress interest rates, holding output constant. This will cause a rightward shift in the LM curve; holding money demand constant, the relative value of currency must fall.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Speaking practically, lower rates reduce the hurdle rate for investments and thus promote asset inflation. Further, the lower rates will also find their way into consumer credit, increasing purchasing power among consumers and thus driving up prices of consumer goods. Mind that the former precedes the latter by a good couple years.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope that answered your question.&lt;/p&gt;&#xA;" OwnerUserId="21503" LastActivityDate="2019-06-23T04:57:19.140" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29921" PostTypeId="1" CreationDate="2019-06-23T07:26:14.863" Score="2" ViewCount="49" Body="&lt;p&gt;Human capital is an important part of GDP forecasting. Do the models in use today view humans as &quot;blank slate&quot;, meaning they can be educated to the same level, or do they take into account heritability of human abilities?&lt;/p&gt;&#xA;" OwnerUserId="23513" LastActivityDate="2019-06-27T19:32:17.543" Title="Do mainstream economic models use the blank-slate view of humans?" Tags="&lt;gdp&gt;&lt;human-capital&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29922" PostTypeId="1" AcceptedAnswerId="29924" CreationDate="2019-06-23T12:09:33.630" Score="3" ViewCount="98" Body="&lt;p&gt;I'm confronted with the following situation: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;First of all nature decides which of two games is played. Then each of two players make a simultaneous move, but only player I knows which game is played. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;How can I display this information in extensive form?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The root will be the nature, which decides whether Game I or Game II is played. Now we have two additional layers for each game. Now I would use an information set to display that the moves are taken simultaneously, but how can I display that only player I knows about which game is played?&lt;/p&gt;&#xA;" OwnerUserId="13821" LastActivityDate="2019-06-23T12:29:42.783" Title="Confusion about multiple information Sets" Tags="&lt;game-theory&gt;&lt;bayesian-game&gt;&lt;extensive-games&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29924" PostTypeId="2" ParentId="29922" CreationDate="2019-06-23T12:29:42.783" Score="5" Body="&lt;p&gt;You could represent the game in extensive form like this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/wCcn4.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/wCcn4.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The dashed lines enclose player 2's information set. This encompasses all of player 2's nodes because player 2 observes neither nature's nor player 1's choice. Player 1's information sets are the two singleton nodes because player 1 knows which branch nature has chosen.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2019-06-23T12:29:42.783" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29925" PostTypeId="2" ParentId="29915" CreationDate="2019-06-23T18:30:15.717" Score="-1" Body="&lt;p&gt;Because an extraordinary profit can also be derived from preferences, and brand. Why would you pay 4x more on an Iphone? Apple's ability to raise its price is not due to the market power it has, but rather to consumer preference, brand preference. Just answered only what was in the title and not on the basis of Marx's theories&lt;/p&gt;&#xA;" OwnerUserId="23516" LastActivityDate="2019-06-23T18:30:15.717" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29927" PostTypeId="1" CreationDate="2019-06-23T21:28:43.083" Score="0" ViewCount="31" Body="&lt;p&gt;I am reading &quot;The Theory of Moral Sentiments&quot; by Adam Smith. There's a lot of technical, and/or dated language. Is there a good companion to read this with?&lt;/p&gt;&#xA;" OwnerUserId="23519" LastEditorUserId="11590" LastEditDate="2019-06-24T07:53:06.877" LastActivityDate="2019-06-24T07:53:06.877" Title="Is There a Good Companion for Theory of Moral Sentiments" Tags="&lt;reference-request&gt;&lt;adam-smith&gt;" AnswerCount="0" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="29928" PostTypeId="2" ParentId="29921" CreationDate="2019-06-23T21:33:32.060" Score="3" Body="&lt;p&gt;Standard economic treatments of skill generally assume that people have some baseline level of skill (human capital) which varies over people, and also that skill (human capital) can be improved via education or other methods.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Most of the time, models don't specify &lt;em&gt;why&lt;/em&gt; baseline skill varies over individuals, but heritability would presumably be one reason. There are certainly some generational or evolutionary models that assume that parent and child baseline skill levels are correlated, which is in effect a heritability assumption.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for GDP forecasting specifically, most GDP forecasting methods focus more on education level as the primary (or only) measure of human capital (both the average level and its distribution), but this is likely because baseline skill can't be measured very well, and can be proxied pretty effectively by education anyway because of selection effects.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, in short, no, economic models aren't blank-slate, although using education as the only measure of human capital, which is sometimes done for pragmatic reasons, does look a tiny bit like a blank-slate assumption.&lt;/p&gt;&#xA;" OwnerUserId="12848" LastActivityDate="2019-06-23T21:33:32.060" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29929" PostTypeId="1" CreationDate="2019-06-23T21:53:15.967" Score="0" ViewCount="389" Body="&lt;p&gt;What are the main reasons of high mortgage rates in USA compared to central Europe? In central Europe mortgage rates are about 75%-100% lower than in USA.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For data on mortgage rates see:&#xA;&lt;a href=&quot;https://www.numbeo.com/cost-of-living/country_price_rankings?itemId=106&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.numbeo.com/cost-of-living/country_price_rankings?itemId=106&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="18743" LastEditorUserId="18743" LastEditDate="2019-06-25T12:37:57.707" LastActivityDate="2019-07-25T13:01:45.160" Title="Why are mortgage rates in USA so high compared to Europe?" Tags="&lt;interest-rate&gt;&lt;international-economics&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29930" PostTypeId="1" AcceptedAnswerId="29935" CreationDate="2019-06-24T00:00:10.750" Score="1" ViewCount="109" Body="&lt;p&gt;I am reading a macro-finance article that deals with asset financing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;While it defines the gross interest rate to be &lt;span class=&quot;math-container&quot;&gt;$R$&lt;/span&gt;, it defines the net interest rate to be &lt;span class=&quot;math-container&quot;&gt;$r\equiv R-1$&lt;/span&gt;. In equilibrium, the interest rate on one-period loan is said to be &lt;span class=&quot;math-container&quot;&gt;$R=\frac{1}{\beta}$&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$\beta$&lt;/span&gt; is the discount factor applied to the dividends firms obtain over an infinite horizon. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\textbf{My Question}:$&lt;/span&gt; How do you interpret the difference between &lt;span class=&quot;math-container&quot;&gt;$R$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$r$&lt;/span&gt;? Is it conventional to define net interest in macro-finance literature in this way?&lt;/p&gt;&#xA;" OwnerUserId="8560" LastEditorUserId="8560" LastEditDate="2019-06-24T09:18:28.930" LastActivityDate="2019-06-24T14:57:28.387" Title="Gross interest rate ($R$) v. Net interest rate ($R-1$)" Tags="&lt;macroeconomics&gt;&lt;interest-rate&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29931" PostTypeId="1" AcceptedAnswerId="29942" CreationDate="2019-06-24T01:17:41.777" Score="0" ViewCount="20" Body="&lt;p&gt;A general return on investment (ROI) formula is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;\text{ROI}=\frac{\text{Net Profit}}{\text{Total Investment}}.&#xA;\end{equation}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But if you think about an investment that requires some sort of down payment, thus it is deemed as leverated return on investment (LROI), what would be a sensible way to compute such return? Specifically, I am interested in having &lt;span class=&quot;math-container&quot;&gt;$\textit{down payment}$&lt;/span&gt; in the denominator. Think of a construction project or home investment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;\text{LROI}=\frac{\text{?}}{\text{Down Payment}}.&#xA;\end{equation}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any suggestions?&lt;/p&gt;&#xA;" OwnerUserId="8560" LastActivityDate="2019-06-24T19:09:02.217" Title="Leveraged Return on Investment" Tags="&lt;macroeconomics&gt;&lt;investment&gt;&lt;capital-returns&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29932" PostTypeId="1" CreationDate="2019-06-24T03:40:02.497" Score="0" ViewCount="53" Body="&lt;p&gt;Essentially, I'm trying to determine if there is a correlation between a drop in GDP per capita (e.g. during the 2008 financial crisis, Australia's GDP per capita dropped from USD \$49,000 to $42,000 2009) and the average income.&lt;/p&gt;&#xA;" OwnerUserId="23520" LastActivityDate="2019-06-26T21:50:50.920" Title="Does a drop in GDP per capita, with the population staying around the same, mean people on average are poorer?" Tags="&lt;gdp&gt;&lt;population-economics&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29933" PostTypeId="2" ParentId="29932" CreationDate="2019-06-24T04:15:17.173" Score="1" Body="&lt;p&gt;Technically yes, but mind the fact that GDP per capita is, by definition, an arithmetic mean of a country's income; meaning that it measures directly the average economy's aggregate output per person in the country. 'Average income' can be interpreted in a number of ways, one of which is GDP-per-capita, but another is median income (50th percentile income), which can tell a very different story (particularly around recessions).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At face value, the question seems to answer itself since 'GDP-per-capita' and 'average income' are generally used interchangeably; however there is evidently some nuance here. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I hope I've answered your question.&lt;/p&gt;&#xA;" OwnerUserId="21503" LastEditorUserId="21827" LastEditDate="2019-06-24T17:58:23.657" LastActivityDate="2019-06-24T17:58:23.657" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29935" PostTypeId="2" ParentId="29930" CreationDate="2019-06-24T09:03:42.980" Score="2" Body="&lt;p&gt;It is often conventional. R is the amount of the loan plus the interest and r is just the interest rate. So R=1+r.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose you borrow 100€ at a 10% interest rate. The interest you pay is 10€, since 10% of 100 is 10. That is where r comes in, with an interest rate of r=10%=0.1.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand, R is the rate implied by that interest rate r plus the original amount, so it is relevant for the total you pay back. Before adding interest payments, you must pay back 100% of the original loan or 1x the original loan, so R=1+r=110%=1.1.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, in our example, with R you pay back 100×1.1= 110€, while with r we have a payment of 100×0.1=10€.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastEditorUserId="5557" LastEditDate="2019-06-24T14:57:28.387" LastActivityDate="2019-06-24T14:57:28.387" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29937" PostTypeId="1" AcceptedAnswerId="29940" CreationDate="2019-06-24T11:45:49.647" Score="6" ViewCount="247" Body="&lt;p&gt;I have read this paragraph in a book (Jehle, Reny: Advanced Microeconomic Theory):&lt;a href=&quot;https://i.stack.imgur.com/z6yLk.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/z6yLk.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't quite understand why Hicksian demand curves aren't directly observable? What does observable stand for in this context?&#xA;I can create a Hicksian demand function, which I then can differentiate for prices and so on, so why can I not observe them?&lt;/p&gt;&#xA;" OwnerUserId="23467" LastActivityDate="2019-06-24T18:21:58.073" Title="Why are Hicksian demand curves unobservable" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29940" PostTypeId="2" ParentId="29937" CreationDate="2019-06-24T18:21:58.073" Score="4" Body="&lt;p&gt;Observable just means directly measured by data. In that sense, Marshallian demand is observable because we can see people's optimal consumptions of a certain good for different prices and the same income. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In contrast, the Hicksian demand is the optimal consumption after a change in price and after adjusting income so that the same utility is achieved. Given that utility cannot be directly measured (i.e. is not observable) the Hicksian demand is also not observable. Anything we conclude about the Hicksian demand is due to the Slutsky equation that relates it to measurable things: the slopes of the Marshallian demand and the Engel curve (&lt;span class=&quot;math-container&quot;&gt;$\frac{\partial x_i(\cdot)}{\partial y}$&lt;/span&gt;), and the quantity demanded. &lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-06-24T18:21:58.073" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29941" PostTypeId="2" ParentId="29929" CreationDate="2019-06-24T19:04:12.567" Score="1" Body="&lt;p&gt;The European Central Bank has held interest rates to an extremely low level, in large part in an attempt to boost the economies of member countries in the wake of the most recent worldwide financial crisis.  The United States economy has had a stronger recovery, and so rates in the US have risen in recent years.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This article, &quot;&lt;a href=&quot;https://www.businessinsider.com/negative-interest-rates-europe-property-prices-2019-5&quot; rel=&quot;nofollow noreferrer&quot;&gt;How Europeans' household net worth is 'now exclusively driven' by negative interest rates&lt;/a&gt;&quot; provides some detail and explanation as to why rates in the EU continue to be held to such a low level.&lt;/p&gt;&#xA;" OwnerUserId="23023" LastActivityDate="2019-06-24T19:04:12.567" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29942" PostTypeId="2" ParentId="29931" CreationDate="2019-06-24T19:09:02.217" Score="1" Body="&lt;p&gt;I am not sure I understand your question. In most projects, the bulk of the investment is a down payment, so the ROI is meant to capture precisely that. I.e. the average return that the money you put in the project will yield. This has in mind that the total investment is mostly done today and the returns come in the future.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you restrict the denominator to only be the down payment, you seem to want to capture the average return of the money you initially put into the project (excluding the returns that are derived due to money put into the project after the down payment). The problem is how you attribute how much of the future profits are due to the initial down payment and how much due to the investments that are done in the middle of the project, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is why  I think  that the ROI is already capturing the notion you want. If the project will not require a lot of money after the down payment, then the denominators will not be so different anyway. However if the project might require a lot more money after the initial down payment, it is harder to claim that X amount of the net profits can be attributed exclusively to the initial down payment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You are correct that the ROI does not provide any information about leverage, so maybe you want to complement it with some other ratio like (down payment)/(total investment) or another over-the-counter financial ratio. However, considering a measure like net profits/down payment will seem very deceiving to me.&lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-06-24T19:09:02.217" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29943" PostTypeId="2" ParentId="29907" CreationDate="2019-06-24T19:24:49.023" Score="2" Body="&lt;p&gt;So the way that &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt; is defined is such that negative values are  inputs and positive values are outputs. For example, if I used 3 units of labor, and 2 of capital to produce 10 pencils, that will be reflected as a single vector in &lt;span class=&quot;math-container&quot;&gt;$\mathbb{R}^3$&lt;/span&gt; equal to &lt;span class=&quot;math-container&quot;&gt;$[-3;-2;10]\in Y$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Notice that subtracting 1 unit to either the first or the second element of that vector will mean that I used more inputs to produce the same output, for example, &lt;span class=&quot;math-container&quot;&gt;$[-3;-3;-10]$&lt;/span&gt;. Similarly, if I subtract one unit to the third element, it would mean that I produced less output with the same inputs. For example &lt;span class=&quot;math-container&quot;&gt;$[-3;-2;9]$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Both of these operations, respect the idea of free disposal (so long as you are subtracting units, not adding to them). Moreover, any notion of free disposal can be represented by one of these operations: i.e producing less with the same inputs, or using more inputs to produce the same. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore you can conclude that a production set, &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt;, satisfies free disposal if and only if &lt;span class=&quot;math-container&quot;&gt;$Y-\mathbb{R}^L_+\subset Y$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-06-24T19:24:49.023" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29944" PostTypeId="1" CreationDate="2019-06-25T05:56:20.650" Score="1" ViewCount="22" Body="&lt;p&gt;I was reading about the benefits and harms of securitisation.  A research piece suggested &quot;Reducing overreliance on the banking system&quot; with 2 sub-points:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Corporates can access to the funding sources directly&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Banks can distribute their existing risk and thus free up their balances to undertake more lending &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;I was wondering if the second point actually isn't valid if point 1 is true.  Considering a closed system, when the corporates get funding from investors directly instead of banks, although the banks free up their balance sheet (on the demand side), investors also pull out money from the banks at the same time (supply side).  In this sense, only point 1 is true (transfer of lending entity) where point 2 is not beneficial since there is actions in the supply side (provision of saving/deposit from investors).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is my argument valid?  Discussions welcomed.&lt;/p&gt;&#xA;" OwnerUserId="18321" LastEditorUserId="4816" LastEditDate="2019-12-30T02:25:48.943" LastActivityDate="2019-12-30T02:25:48.943" Title="Societal benefits of Securitisation (e.g. Asset Backed Securities)" Tags="&lt;securities&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29947" PostTypeId="2" ParentId="19913" CreationDate="2019-06-25T14:24:04.423" Score="1" Body="&lt;p&gt;Though there may not be a set definition of &amp;quot;capitalism&amp;quot; chisled in stone somewhere, there are general principles that economists agree are implied in capitalism and that capitalism implies.&lt;/p&gt;&#xA;&lt;p&gt;Take, for example, the two below definitions of &amp;quot;capitalism&amp;quot;:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;[A]n economic system characterized by private or corporate ownership of capital goods, by investments that are determined by private decision, and by prices, production, and the distribution of goods that are determined mainly by competition in a free market -- &lt;a href=&quot;https://www.merriam-webster.com/dictionary/capitalism&quot; rel=&quot;nofollow noreferrer&quot;&gt;Merriam-Webster Dictionary&lt;/a&gt;&lt;/p&gt;&#xA;&lt;p&gt;Capitalism is an economic system in which private individuals or businesses own capital goods. The production of goods and services is based on supply and demand in the general market—known as a market economy—rather than through central planning—known as a planned economy or command economy. -- &lt;a href=&quot;https://www.investopedia.com/terms/c/capitalism.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;Investopedia&lt;/a&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Both definitions provide two elements necessary for &amp;quot;capitalism&amp;quot;:&#xA;(1) private individual / corporate business ownership of capital goods and&#xA;(2) private decisions based on the given market's supply and demand curves (and the factors influencing those curves).&lt;/p&gt;&#xA;" OwnerUserId="27" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2019-06-25T14:24:04.423" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29952" PostTypeId="1" CreationDate="2019-06-25T20:49:25.767" Score="1" ViewCount="40" Body="&lt;p&gt;In the Keynesian model, &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;to make as much profit as possible, firms will choose the level of the&#xA;  real wage that gets the most effort from workers for each dollar of&#xA;  real wages paid&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/YEI4G.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/YEI4G.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Source: Macroeconomics, 10e&#xA;Andrew B. Abel, Ben S. Bernanke, Dean Croushore&#xA;Copyright © 2020 Book ID: 1FR37TIEM0I&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I think this is assuming that worker effort is equivalent to output, which is equivalent to revenue.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But why does maximizing revenue/cost maximize profit?  I get why maximizing revenue-cost would maximize profit (because revenue-cost is the definition of profit).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assuming revenue is r(w) and wage is w, we are setting &lt;span class=&quot;math-container&quot;&gt;$\frac{\partial}{\partial w}\frac{r(w)}{w}=0$&lt;/span&gt;, which is &lt;span class=&quot;math-container&quot;&gt;$\frac{r'(w)w-r(w)}{w^2}=0$&lt;/span&gt;, so &lt;span class=&quot;math-container&quot;&gt;$r'(w)w-r(w)=0$&lt;/span&gt;.  But how is that the same as &lt;span class=&quot;math-container&quot;&gt;$\frac{\partial}{\partial w}(r(w)-w)=0$&lt;/span&gt; or &lt;span class=&quot;math-container&quot;&gt;$r'(w)-1=0$&lt;/span&gt; which is profit maximization?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Not sure if I am thinking about this the right way.&lt;/p&gt;&#xA;" OwnerUserId="23538" LastEditorUserId="21827" LastEditDate="2019-06-27T05:13:35.197" LastActivityDate="2019-06-27T05:13:35.197" Title="Why equilibrium efficiency wage maximizes worker effort per dollar wage" Tags="&lt;wages&gt;&lt;profit-maximization&gt;" AnswerCount="0" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="29953" PostTypeId="1" AcceptedAnswerId="29958" CreationDate="2019-06-25T20:51:23.860" Score="0" ViewCount="48" Body="&lt;p&gt;Consider the following single-agent choice problem under uncertainty. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let &lt;span class=&quot;math-container&quot;&gt;$V$&lt;/span&gt; be the state of the world with support &lt;span class=&quot;math-container&quot;&gt;$\mathcal{V}$&lt;/span&gt; and probability distribution &lt;span class=&quot;math-container&quot;&gt;$P_V\in \Delta(\mathcal{v})$&lt;/span&gt;. First, let nature draw a realisation &lt;span class=&quot;math-container&quot;&gt;$v$&lt;/span&gt; of &lt;span class=&quot;math-container&quot;&gt;$V$&lt;/span&gt; from &lt;span class=&quot;math-container&quot;&gt;$P_V$&lt;/span&gt;. &#xA;Then, let the decision maker choose an action &lt;span class=&quot;math-container&quot;&gt;$y\in \mathcal{Y}$&lt;/span&gt;, with &lt;span class=&quot;math-container&quot;&gt;$\mathcal{Y}$&lt;/span&gt; finite, without observing &lt;span class=&quot;math-container&quot;&gt;$v$&lt;/span&gt;. Upon the decision has been made, the decision maker gets a payoff &lt;span class=&quot;math-container&quot;&gt;$u(y,v)$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, suppose that &lt;span class=&quot;math-container&quot;&gt;$\mathcal{Y}\equiv \{1,2,3\}$&lt;/span&gt;. &lt;span class=&quot;math-container&quot;&gt;$V$&lt;/span&gt; is a &lt;span class=&quot;math-container&quot;&gt;$3\times 1$&lt;/span&gt; random vector, &lt;span class=&quot;math-container&quot;&gt;$V\equiv (V_1,V_2,V_3)$&lt;/span&gt;. &lt;span class=&quot;math-container&quot;&gt;$P_V$&lt;/span&gt; is the 3-variate standard normal distribution. &lt;span class=&quot;math-container&quot;&gt;$u(y,v)\equiv v_y$&lt;/span&gt;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;What is the definition of an optimal strategy for the decision maker in this setting?&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm thinking about using &quot;a sort of&quot; Bayesian Nash equilibrium for a single-agent setting, i.e., an optimal strategy is &lt;span class=&quot;math-container&quot;&gt;$P_Y\in \Delta(\mathcal{Y})$&lt;/span&gt; such that, &lt;span class=&quot;math-container&quot;&gt;$\forall y\in \mathcal{Y}$&lt;/span&gt; such that &lt;span class=&quot;math-container&quot;&gt;$P_Y(y)&amp;gt;0$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\forall \tilde{y}\neq y$&lt;/span&gt;, &#xA;we have that &#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\sum_{v\in \mathcal{V}} u_i(y,v)P_V(v)\geq \sum_{v\in \mathcal{V}} u_i(\tilde{y},v)P_V(v)&#xA;$$&lt;/span&gt;&#xA;that is, in my example, &#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\sum_{v\in \mathcal{V}} (v_y -v_{\tilde{y}}) P_V(v)\geq 0&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But maybe a &lt;strong&gt;pure&lt;/strong&gt; strategy is what people use? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is &lt;strong&gt;existence and uniqueness&lt;/strong&gt; obvious (at least in my example with a normal distribution)? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Could you also provide a reference discussing &lt;strong&gt;definition, existence, multiplicity&lt;/strong&gt;?&lt;/p&gt;&#xA;" OwnerUserId="1505" LastActivityDate="2019-06-25T23:00:23.457" Title="Optimal strategy in a single-agent choice problem under uncertainty" Tags="&lt;decision-theory&gt;&lt;bayesian-game&gt;&lt;uncertainty&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29954" PostTypeId="1" CreationDate="2019-06-25T20:59:02.557" Score="0" ViewCount="546" Body="&lt;p&gt;From Perloff 2008e solved 2.2:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Q: Show that the elasticity of demand is a constant e if the demand function is log-linear, ln Q=ln A+e ln p.&#xA;A: Differentiating with respect to p, we find that (dQ/dp)/Q=e/p.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where did 'dQ/dp' come from in the numerator? &lt;/p&gt;&#xA;" OwnerUserId="23539" LastActivityDate="2019-06-25T21:28:08.650" Title="Constant elasticity proof for log-linear demand curve" Tags="&lt;supply-and-demand&gt;&lt;elasticity&gt;&lt;log-linearization&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29955" PostTypeId="1" AcceptedAnswerId="29959" CreationDate="2019-06-25T21:17:24.957" Score="0" ViewCount="46" Body="&lt;p&gt;I would like your help to better understand the possibility of using the notion of &lt;strong&gt;Bayes Correlated Equilibrium (BCE)&lt;/strong&gt; in a &lt;strong&gt;single-agent decision problem with uncertainty&lt;/strong&gt; to make predictions on optimal strategies that are robust to the belief environment. The notion of BCE is provided in &lt;a href=&quot;http://www.princeton.edu/~smorris/pdfs/bce.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;this&lt;/a&gt; paper for a generic &lt;span class=&quot;math-container&quot;&gt;$N$&lt;/span&gt;-player game. &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Consider the following single-agent choice problem under uncertainty. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let &lt;span class=&quot;math-container&quot;&gt;$V$&lt;/span&gt; be the state of the world with support &lt;span class=&quot;math-container&quot;&gt;$\mathcal{V}$&lt;/span&gt; and probability distribution &lt;span class=&quot;math-container&quot;&gt;$P_V\in \Delta(\mathcal{v})$&lt;/span&gt;. First, let nature draw a realisation &lt;span class=&quot;math-container&quot;&gt;$v$&lt;/span&gt; of &lt;span class=&quot;math-container&quot;&gt;$V$&lt;/span&gt; from &lt;span class=&quot;math-container&quot;&gt;$P_V$&lt;/span&gt;. &#xA;Then, let the decision maker choose an action &lt;span class=&quot;math-container&quot;&gt;$y\in \mathcal{Y}$&lt;/span&gt;, with &lt;span class=&quot;math-container&quot;&gt;$\mathcal{Y}$&lt;/span&gt; finite, without observing &lt;span class=&quot;math-container&quot;&gt;$v$&lt;/span&gt;. Upon the decision has been made, the decision maker gets a payoff &lt;span class=&quot;math-container&quot;&gt;$u(y,v)$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, suppose that &lt;span class=&quot;math-container&quot;&gt;$\mathcal{Y}\equiv \{1,2,3\}$&lt;/span&gt;. &lt;span class=&quot;math-container&quot;&gt;$V$&lt;/span&gt; is a &lt;span class=&quot;math-container&quot;&gt;$3\times 1$&lt;/span&gt; random vector, &lt;span class=&quot;math-container&quot;&gt;$V\equiv (V_1,V_2,V_3)$&lt;/span&gt;. &lt;span class=&quot;math-container&quot;&gt;$P_V$&lt;/span&gt; is the 3-variate standard normal distribution. &lt;span class=&quot;math-container&quot;&gt;$u(y,v)\equiv v_y$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Before choosing an action, the decision maker can receive &lt;strong&gt;at least&lt;/strong&gt; one  signal to refine her prior (&lt;strong&gt;minimal&lt;/strong&gt; amount of information). I assume that this minimal signal is completely uninformative (&lt;strong&gt;degenerate&lt;/strong&gt; information structure).  &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Now, I want to use Theorem 1 in Bergemann and Morris (2016) to characterise the set of optimal strategies under minimal assumptions on the amount of information that is processed by the decision maker (degenerate in this case). To do that, I introduce the notion of one-player Bayesian Correlated Equilibrium (BCE).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A one-player BCE of the game described is a probability distribution &lt;span class=&quot;math-container&quot;&gt;$P_{Y,V}\in \Delta(\mathcal{Y}\times \mathcal{V})$&lt;/span&gt; such that:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) &lt;span class=&quot;math-container&quot;&gt;$\forall v \in \mathcal{V}$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\sum_{y\in \mathcal{Y}}P_{Y,V}(y,v)=P_V(v)$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) &lt;span class=&quot;math-container&quot;&gt;$\forall y\in \mathcal{Y}$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\forall \tilde{y}\neq y$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\sum_{v\in \mathcal{V}} (v_y-v_{\tilde{y}}) \times P_{Y,V}(y,v)\geq 0&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Question: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) Is it obvious that a BCE exists and is unique in my example?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) Suppose now that I know &lt;strong&gt;for sure&lt;/strong&gt; that the decision maker does not have any information in addition to the degenerate information structure. How would I characterise an optimal strategy in such a case (without the necessity of being robust to possibly richer belief environments)? How would that definition differ from the BCE definition given above?&lt;/p&gt;&#xA;" OwnerUserId="1505" LastEditorUserId="1505" LastEditDate="2019-06-25T21:26:27.187" LastActivityDate="2019-06-25T23:33:03.213" Title="Robust predictions in single-agent decision problem with uncertainty" Tags="&lt;game-theory&gt;&lt;decision-theory&gt;&lt;bayesian-game&gt;&lt;uncertainty&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29957" PostTypeId="2" ParentId="29954" CreationDate="2019-06-25T21:28:08.650" Score="2" Body="&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\frac{dlnQ}{dp}=\frac{dlnQ}{dQ} \frac{dQ}{dp}$&lt;/span&gt; thus:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\frac{dQ}{dp}=\frac{dlnQ}{dp} \frac{dQ}{dlnQ}$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since we know that if &lt;span class=&quot;math-container&quot;&gt;$f(x)=lnx \Rightarrow f'(x)=\frac{1}{x}\Rightarrow \frac{1}{f'(x)}=x$&lt;/span&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;We replace &lt;span class=&quot;math-container&quot;&gt;$\frac{dQ}{dlnQ}$&lt;/span&gt;&#xA;by &lt;span class=&quot;math-container&quot;&gt;$Q$&lt;/span&gt;. You get:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\frac{dQ}{dp}=\frac{dlnQ}{dp} Q$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is readily found that &#xA;&lt;span class=&quot;math-container&quot;&gt;$\frac{dlnQ}{dp}= \frac{e}{p}$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So our expression for the derivative of &lt;span class=&quot;math-container&quot;&gt;$Q$&lt;/span&gt; wrt &lt;span class=&quot;math-container&quot;&gt;$p$&lt;/span&gt; now reads:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\frac{dQ}{dp}=\frac{e}{p} Q$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Divide both sides by &lt;span class=&quot;math-container&quot;&gt;$Q$&lt;/span&gt; and you get &lt;span class=&quot;math-container&quot;&gt;$\frac{dQ/Q}{dp}=\frac{dQ/dp}{Q}=\frac{e}{p}$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Elasticity is now found by simply multiplying both sides by &lt;span class=&quot;math-container&quot;&gt;$p$&lt;/span&gt;, you get:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\frac{dQ}{dp} \frac{p}{Q} \equiv \eta=e$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="18214" LastActivityDate="2019-06-25T21:28:08.650" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29958" PostTypeId="2" ParentId="29953" CreationDate="2019-06-25T23:00:23.457" Score="1" Body="&lt;p&gt;Your problem can be simply expressed as &#xA;&lt;span class=&quot;math-container&quot;&gt;$$\arg\max_{y\in\mathcal{Y}}\sum_{v\in\mathcal{V}}u_i(y,v)P_V(v)$$&lt;/span&gt;&#xA;Note that the subscript in &lt;span class=&quot;math-container&quot;&gt;$u_i$&lt;/span&gt; is un-necessary. Furthermore, this is not a game so &quot;mixed strategies&quot; are only a solution if the maximum is not unique, but you should not worry about them  (more on that later). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, note that the maximization problem is equivalent to the inequality you present. Presenting it as a maximization problem is more akin to how you solve a single agent problem, and circumvents the need to specify the quantifiers. However, strictly speaking,  it only characterizes &quot;pure strategies&quot;, (a better term would be deterministic actions), but this is, really, without loss of generality. A probabilistic action is justified only when the maximizer is not unique, in which case the &lt;span class=&quot;math-container&quot;&gt;$\arg\max$&lt;/span&gt; operator will already be giving you a set, and any mixture between the maximizers in that set would be optimal. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Besides being more clear, another benefit from presenting it as a maximization problem is that you can use standard theorems to guarantee existence and uniqueness, for example, if &lt;span class=&quot;math-container&quot;&gt;$\mathcal{Y}$&lt;/span&gt; is finite then &lt;span class=&quot;math-container&quot;&gt;$\sum u(y,v)P_V(v)$&lt;/span&gt; is continuous in &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; (using the discrete metric) and Weierstrass ensures the existence of a solution. In general  you need a &lt;span class=&quot;math-container&quot;&gt;$\mathcal{Y}$&lt;/span&gt; to be compact and &lt;span class=&quot;math-container&quot;&gt;$\sum u(y,v)P_V(v)$&lt;/span&gt; to be  continuous in &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt;. Uniqueness is a bit more tricky, but if &lt;span class=&quot;math-container&quot;&gt;$\sum u(y,v)P_V(v)$&lt;/span&gt; is strictly concave with respect to &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt;, then uniqueness is guarantied.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In your particular example given the finiteness of the action space, existence is trivial, but not uniqueness. Knowing that &lt;span class=&quot;math-container&quot;&gt;$P_V$&lt;/span&gt; is normal is not enough since we don't know anything about the shape of &lt;span class=&quot;math-container&quot;&gt;$u(\cdot)$&lt;/span&gt;. &lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-06-25T23:00:23.457" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="29959" PostTypeId="2" ParentId="29955" CreationDate="2019-06-25T23:33:03.213" Score="1" Body="&lt;p&gt;1) Given that &lt;span class=&quot;math-container&quot;&gt;$\mathcal{Y}$&lt;/span&gt; is finite, it is obvious that the BCE is not an empty set (or it exists). Remember that the set of BCE's is the set of decisions that are optimal for some belief about &lt;span class=&quot;math-container&quot;&gt;$\mathcal{V}$&lt;/span&gt; that could be formed (as a posterior belief) after observing some signal and having a prior &lt;span class=&quot;math-container&quot;&gt;$P_V$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To show there is at least one distribution satisfying the definition if BCE, you can consider an uninformative signal. Given that there is only a finite set of actions, one of them must maximize the expected utility given the prior. If there is more than one, randomize among them as you please. Let the optimal action be &lt;span class=&quot;math-container&quot;&gt;$P_Y^*$&lt;/span&gt; (in this notation I capture both situations where the maximizer is unique and when there is more than one maximizer) and define &lt;span class=&quot;math-container&quot;&gt;$P_{Y,V}=P_Y^*P_V$&lt;/span&gt;, then such a distribution constitutes a BCE.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, you should not expect uniqueness because if there was only one distribution that constitutes a, or if BCE was a singleton (since we usually think of BCE as a set), then information is essentially irrelevant. It would mean that there is an action in &lt;span class=&quot;math-container&quot;&gt;$\mathcal{Y}$&lt;/span&gt; that is the best action regardless of any extra information you might receive. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) To characterize this, simply find the optimal strategy when the belief is equal to the prior, &lt;span class=&quot;math-container&quot;&gt;$P_V$&lt;/span&gt;. If you want to  put it in terms of the two expressions you have, then &lt;span class=&quot;math-container&quot;&gt;$P_{Y,V}$&lt;/span&gt; must  be a product distribution, i.e &lt;span class=&quot;math-container&quot;&gt;$P_{Y,V}(y,v)=P_Y(y)\cdot P_V(v)$&lt;/span&gt; for some &lt;span class=&quot;math-container&quot;&gt;$P_Y(y)\in\Delta(\mathcal{Y})$&lt;/span&gt; (This will capture the fact that the player has no further information beyond the prior and so it cannot correlate his actions with the state of the world). The second inequality will pin down &lt;span class=&quot;math-container&quot;&gt;$P_Y$&lt;/span&gt;. In fact, using the notation from the previous bullet point, it should be equal to &lt;span class=&quot;math-container&quot;&gt;$P_Y^*$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-06-25T23:33:03.213" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29962" PostTypeId="1" AcceptedAnswerId="29964" CreationDate="2019-06-26T10:02:56.743" Score="1" ViewCount="146" Body="&lt;p&gt;Can you share your recommendations for corporate finance if you have any?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A slightly more detailed version would be better:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, something like:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Advanced Undergrad: Varian's &lt;span class=&quot;math-container&quot;&gt;$\textit{Intermediate Microeconomics}$&lt;/span&gt;&lt;br&gt;&#xA;Ph.D. 1st-year: MWG's &lt;span class=&quot;math-container&quot;&gt;$\textit{Microeconomic Theory}$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An example for corporate finance would be lke:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;MBA-level:  ~&lt;br&gt;&#xA;Corporate Finance Theory-specific:  ~&lt;br&gt;&#xA;Ph.D. level: ~&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks!&lt;/p&gt;&#xA;" OwnerUserId="8560" LastActivityDate="2020-11-23T08:09:04.650" Title="Corporate Finance Book Recommendations" Tags="&lt;corporate-finance&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29964" PostTypeId="2" ParentId="29962" CreationDate="2019-06-26T15:31:19.093" Score="3" Body="&lt;p&gt;frequent Corporate Finance textbooks are&lt;/p&gt;&#xA;&#xA;&lt;p&gt;MBA level - &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Berk and de Marzo (2017) - &lt;em&gt;Corporate Finance&lt;/em&gt;, 4th ed. (Stanford)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Advanced undergrad and corp theory-specific - &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Grinblatt and Titman - &lt;em&gt;Financial Markets &amp;amp; Corporate Strategy&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;PhD 1st year level - &#xA;strictly articles from &lt;em&gt;Journal of Finance&lt;/em&gt;, &lt;em&gt;Review of Financial studies&lt;/em&gt;, etc, that empirically look at mergers and acquisitions, corporate governance, debt-shareholder agency problems, etc. Seminars on the subject typically have participants play discussants of existing recent work.&lt;/p&gt;&#xA;" OwnerUserId="23410" LastActivityDate="2019-06-26T15:31:19.093" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29966" PostTypeId="1" CreationDate="2019-06-26T17:51:02.477" Score="0" ViewCount="29" Body="&lt;p&gt;The European Single Market is (obviously) a Single Market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are Single Markets also free trade areas?&lt;/p&gt;&#xA;" OwnerUserId="5505" LastActivityDate="2019-06-28T03:23:21.133" Title="Is the European Single Market a Free Trade Area?" Tags="&lt;international-trade&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29967" PostTypeId="2" ParentId="29932" CreationDate="2019-06-26T21:50:50.920" Score="2" Body="&lt;p&gt;Regardless of the population size, what matters in terms of income is real or nominal terms. The gdp per capita may rise despite a constant population for the economy. But is it real terms that’s what matters. In an environment where the inflation skyrockets, gdp per capita is misleading. &lt;/p&gt;&#xA;" OwnerUserId="23544" LastActivityDate="2019-06-26T21:50:50.920" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29969" PostTypeId="1" CreationDate="2019-06-27T00:05:56.900" Score="3" ViewCount="132" Body="&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;I willfully don't define &amp;quot;long run&amp;quot;, as I'm certain you economists can do this better! Please edify me on a reasonable number, and I can edit this post.&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;I quote Malkiel's definition of &amp;quot;semi-strong&amp;quot; beneath. As he doesn't believe in the EMH's strong form, and he knows far more about finance than I, I too don't believe in it.&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Doesn't the EMH's semi-strong form jar with &lt;a href=&quot;https://money.stackexchange.com/questions/81126/why-should-we-expect-stocks-to-go-up-in-the-long-term#comment137497_81129&quot;&gt;explanations on Personal Finance SE on why stocks can be expected to rise in the long run&lt;/a&gt;?&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;Burton Malkiel. &lt;a href=&quot;https://www.amazon.ca/Random-Walk-Down-Wall-Street/dp/1324002182/ref=dp_ob_title_bk&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;A Random Walk Down Wall Street&lt;/em&gt; (12 edn 2019)&lt;/a&gt;. Anyone know the page numbers?&lt;/p&gt;&#xA;&lt;h3&gt;THE SEMI-STRONG AND STRONG FORMS OF THE EFFICIENT-MARKET HYPOTHESIS (EMH)&lt;/h3&gt;&#xA;&lt;p&gt;The academic community has rendered its judgment. Fundamental analysis is no better than technical analysis in enabling investors to capture above-average returns. Nevertheless, given its propensity for splitting hairs, the academic community soon fell to quarreling over the precise definition of fundamental information. Some said it was what is known now; others said it extended to the hereafter. It was at this point that what began as the strong form of the efficient-market hypothesis split into two. The “semi-strong” form says that no public information will help the analyst select undervalued securities. The argument here is that the structure of market prices already takes into account any public information that may be contained in balance sheets, income statements, dividends, and so forth; professional analyses of these data will be useless. The “strong” form says that absolutely nothing that is known or even knowable about a company will benefit the fundamental analyst. According to the strong form of the theory, not even “inside” information can help the investors.&lt;br /&gt;&#xA;      The strong form of the EMH is obviously an overstatement. It does not admit the possibility of gaining from inside information. Nathan Rothschild made millions in the market when his carrier pigeons brought him the first news of Wellington’s victory at Waterloo before other traders were aware of the victory. But today, the information superhighway carries news far more swiftly than carrier pigeons. And Regulation FD (Fair Disclosure) requires companies to make prompt public announcements of any material news items that may affect the price of their stock. Moreover, insiders who do profit from trading on the basis of nonpublic information are breaking the law. The Nobel laureate Paul Samuelson summed up the situation as follows:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;If intelligent people are constantly shopping around for good value, selling those stocks they think will turn out to be overvalued and buying those they expect are now undervalued, the result of this action by intelligent investors will be to have existing stock prices already have discounted in them an allowance for their future prospects. Hence, to the passive investor, who does not himself search for under- and overvalued situations, there will be presented a pattern of stock prices that makes one stock about as good or bad a buy as another. To that passive investor, chance alone would be as good a method of selection as anything else.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;      This is a statement of the EMH—the efficient-market hypothesis. The “narrow” (weak) form of the EMH says that technical analysis—looking at past stock prices—cannot help investors. Prices move from period to period very much like a random walk. The “broad” (semi-strong and strong) forms state that fundamental analysis is not helpful either. All that is known concerning the expected growth of the company’s earnings and dividends, all of the possible favorable and unfavorable developments affecting the company that might be studied by the fundamental analyst, is already reflected in the price of the company’s stock. Thus, purchasing a fund holding all the stocks in a broad-based index will produce a portfolio that can be expected to do as well as any managed by professional security analysts.&lt;/p&gt;&#xA;" OwnerUserId="4020" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2019-07-11T16:24:01.447" Title="Doesn't the semi-strong form of the EMH conflict with expecting stock indices to increase in the long run?" Tags="&lt;efficient-markets&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29970" PostTypeId="1" AcceptedAnswerId="29979" CreationDate="2019-06-27T01:03:31.367" Score="1" ViewCount="138" Body="&lt;p&gt;Consider the following quote from the book, &lt;span class=&quot;math-container&quot;&gt;$\textit{Men at Arms}$&lt;/span&gt; by Terry Pratchett. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;“The reason that the rich were so rich, Vimes reasoned, was because they managed to spend less money.  &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Take boots, for example. He earned thirty-eight dollars a month plus allowances. A really good pair of leather boots cost fifty dollars. But an affordable pair of boots, which were sort of OK for a season or two and then leaked like hell when the cardboard gave out, cost about ten dollars. Those were the kind of boots Vimes always bought, and wore until the soles were so thin that he could tell where he was in Ankh-Morpork on a foggy night by the feel of the cobbles. &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;But the thing was that good boots lasted for years and years. A man who could afford fifty dollars had a pair of boots that'd still be keeping his feet dry in ten years' time, while the poor man who could only afford cheap boots would have spent a hundred dollars on boots in the same time and would still have wet feet.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;This was the Captain Samuel Vimes 'Boots' theory of socioeconomic unfairness.”&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;With what Pratchett wrote, I was thinking about a car-buying decision by a newly wed couple.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider two cars:&lt;br&gt;&#xA;1. Durable Car: sturdy, long-lasting, and safe for even kids when they are born. Looking ahead for about 10-15 years usage wihtout too much maintain break downs.&lt;br&gt;&#xA;2. Cheap Car: inexpensive, easy for commute, but expect maintenance cost to be high and possibly totaled withint 6-9 years.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Their financing needs are:&lt;br&gt;&#xA;1. Durable Car down payment: USD 10,000&lt;br&gt;&#xA;2. Cheap Car down payment: USD 2,000&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Their monthly leasing fees are:&lt;br&gt;&#xA;1. Durable car monthly leasing fee: USD 200&lt;br&gt;&#xA;2. Cheap car monthly leasing fee: USD 300&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are two newly wed couples: a financially affluent one, and a poverty stricken one.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Control all other factors such as credit score of both couples, financing terms and horizon, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;According to Pratchett, the poor couple would always resort to the cheap car option while the rich couple always resorts to the durable car option. Do you agree? What are your thoughts?&lt;/p&gt;&#xA;" OwnerUserId="8560" LastActivityDate="2019-06-27T21:31:28.600" Title="Boots' Theory by Pratchett" Tags="&lt;decision-theory&gt;&lt;choice-theory&gt;" AnswerCount="1" CommentCount="15" ContentLicense="CC BY-SA 4.0" />
  <row Id="29971" PostTypeId="1" CreationDate="2019-06-27T06:23:57.280" Score="0" ViewCount="18" Body="&lt;p&gt;Let's begin by mapping out some context by assuming the following goals of implementing QE:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;prevent dire systemic liquidity concerns&lt;/li&gt;&#xA;&lt;li&gt;reach inflation targets&lt;/li&gt;&#xA;&lt;li&gt;manage expectations in the private sector&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;If I'm not mistaken, the vast majority of QE has been government debt securities. However, in principle, any asset class could be bought under by issuing central bank liabilities. &lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Question&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;If my understanding is correct that any asset class can be bought by issuing a liability (central bank money), then why have we only seen government debt securities be purchased historically? Would a broader range of asset purchases not help the Fed with the goals of QE as listed in the above bullet points?&lt;/p&gt;&#xA;" OwnerUserId="12212" LastActivityDate="2019-06-27T06:23:57.280" Title="Why the historically narrow asset class purchases from QE" Tags="&lt;macroeconomics&gt;&lt;monetary-policy&gt;&lt;federal-reserve&gt;&lt;quantitative-easing&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29972" PostTypeId="1" AcceptedAnswerId="29978" CreationDate="2019-06-27T18:06:46.063" Score="0" ViewCount="18" Body="&lt;p&gt;Consider a decision maker choosing an action, &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt;, from the finiteset &lt;span class=&quot;math-container&quot;&gt;$\mathcal{Y}$&lt;/span&gt;, possibly without having complete information about the state of the world. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;More precisely, let &lt;span class=&quot;math-container&quot;&gt;$V$&lt;/span&gt; be a &lt;em&gt;continuously&lt;/em&gt; distributed random variable (or vector) representing the state of the world, with support, &lt;span class=&quot;math-container&quot;&gt;$\mathcal{V}$&lt;/span&gt;. Let &lt;span class=&quot;math-container&quot;&gt;$P_{V}\in \Delta(\mathcal{V})$&lt;/span&gt; be the probability distribution of &lt;span class=&quot;math-container&quot;&gt;$V$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Nature draws a realisation, &lt;span class=&quot;math-container&quot;&gt;$v$&lt;/span&gt;, of &lt;span class=&quot;math-container&quot;&gt;$V$&lt;/span&gt; from &lt;span class=&quot;math-container&quot;&gt;$P_{V}$&lt;/span&gt;. The decision maker is not aware of &lt;span class=&quot;math-container&quot;&gt;$v$&lt;/span&gt;. However, she can refine her prior, &lt;span class=&quot;math-container&quot;&gt;$P_{V}$&lt;/span&gt;, upon reception of a private signal which may be informative about the state of the world. In particular, let &lt;span class=&quot;math-container&quot;&gt;$T$&lt;/span&gt; be a random variable (or vector) representing the private signal received the decision maker, with support &lt;span class=&quot;math-container&quot;&gt;$\mathcal{T}$&lt;/span&gt;. Let &lt;span class=&quot;math-container&quot;&gt;$P_{T|v}\in \Delta(\mathcal{T})$&lt;/span&gt; be the probability distribution of &lt;span class=&quot;math-container&quot;&gt;$T$&lt;/span&gt; conditional on &lt;span class=&quot;math-container&quot;&gt;$v$&lt;/span&gt;.&lt;br&gt;&#xA;Nature draws a realisation, &lt;span class=&quot;math-container&quot;&gt;$t$&lt;/span&gt;, of &lt;span class=&quot;math-container&quot;&gt;$T$&lt;/span&gt; from &lt;span class=&quot;math-container&quot;&gt;$P_{T|v}$&lt;/span&gt;. The decision maker observes &lt;span class=&quot;math-container&quot;&gt;$t$&lt;/span&gt;, uses the Bayes rule to update &lt;span class=&quot;math-container&quot;&gt;$P_{V}$&lt;/span&gt; with the posterior &lt;span class=&quot;math-container&quot;&gt;$P_{V|t}\in \Delta(\mathcal{V})$&lt;/span&gt;, and chooses an action, &lt;span class=&quot;math-container&quot;&gt;$y\in \mathcal{Y}$&lt;/span&gt;. Finally, the decision maker receives a payoff, &lt;span class=&quot;math-container&quot;&gt;$u(y, v)$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let us now define an optimal strategy of the decision maker. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A (mixed) strategy is &lt;span class=&quot;math-container&quot;&gt;$P_{Y|T}\equiv \{P_{Y|t}\in \Delta(\mathcal{Y}): t\in \mathcal{T}\}$&lt;/span&gt;,  collecting probability distributions of  &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt; conditional on every realisations &lt;span class=&quot;math-container&quot;&gt;$t$&lt;/span&gt; of &lt;span class=&quot;math-container&quot;&gt;$T$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A  strategy &lt;span class=&quot;math-container&quot;&gt;$P_{Y|T}$&lt;/span&gt; is optimal if it allows the decision maker to maximise her expected payoff:  &lt;span class=&quot;math-container&quot;&gt;$\forall t\in \mathcal{T}$&lt;/span&gt;,  &lt;span class=&quot;math-container&quot;&gt;$\forall y\in \mathcal{Y}$&lt;/span&gt; such that &lt;span class=&quot;math-container&quot;&gt;$P_{Y|t}(y)&amp;gt;0$&lt;/span&gt;, and  &lt;span class=&quot;math-container&quot;&gt;$\forall \tilde{y}\in \mathcal{Y}\setminus \{y\}$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\int_{ \mathcal{V}} u(y,v) P_{T|v}(t)  P_{V}(\text{d}v) \geq \int_{ \mathcal{V}} u(\tilde{y}, v) P_{T|v}(t) P_{V}(\text{d} v;\theta_v). $$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Question:&lt;/strong&gt; does an optimal strategy always exists f&lt;strong&gt;or any information structure&lt;/strong&gt; &lt;span class=&quot;math-container&quot;&gt;$S\equiv (\mathcal{T}, P_{T|V})$&lt;/span&gt;? Could you make an example on non-existence, if any?&lt;/p&gt;&#xA;" OwnerUserId="1505" LastActivityDate="2019-06-27T20:31:21.923" Title="Existence of optimal strategy in a choice problem with uncertainty and information structure" Tags="&lt;decision-theory&gt;&lt;bayesian-game&gt;&lt;uncertainty&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29973" PostTypeId="1" CreationDate="2019-06-27T18:18:28.990" Score="0" ViewCount="49" Body="&lt;p&gt;So i have this question&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/3dbRU.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/3dbRU.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And i have no clue on how to get to verifying that that function on the answer sheet is a potential Cournot game.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I started answering the question like this, but then i got lost when calculating the MC since i only have &lt;em&gt;c&lt;/em&gt; as a unit cost and not total cost.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But probably i was answering the question in a wrong way.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Please tell me if i am.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/OpfbD.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/OpfbD.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Could you show me the steps on how to get to the function which is a potential for the Cournot game ? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have learning disabilities and I have difficulties grasping on to hard concepts like these. If you could show me clear and simple steps to get to the answer it would be greatly appreciated ! Thanks!&lt;/p&gt;&#xA;" OwnerUserId="23552" LastEditorUserId="11590" LastEditDate="2019-06-27T19:49:21.973" LastActivityDate="2019-06-27T20:15:01.720" Title="How to solve for the potential of a cournot duopoly problem?" Tags="&lt;game-theory&gt;&lt;potential-game&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29974" PostTypeId="2" ParentId="29921" CreationDate="2019-06-27T19:32:17.543" Score="1" Body="&lt;p&gt;This would mainly be observed as &quot;endowments&quot;, such as in intergenerational macro models which use (e.g.) 1 or more representative households in relation to resources initially available to individuals, who then face various constraints (generally modelled as a differential market interest rate for borrowers and savers). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am not aware of reputable works which delve into the matter of whether all humans are identically formable, or re-formable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Among other things, it would be difficult to sustain any reliable theory on the matter without having assured all individuals to have perfectly equal access to all resources required to obtain resources required to earn market income, such as identical access to learning resources in the household, identical access to learning resources outside of the household, and identical access to networks and opportunities both within and outside of learning environments. All of those would necessitate substantial changes, which are opposed by vested interests who appear to prefer to be able to take advantage of the status quo to preferentially distribute opportunity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the above-specified reasons, it is unlikely that debates about whether human are identically formable, or re-formable, will achieve mainstream status in economics. That is not to say that there is not value in at least some works in this area, and associated debate that it may provoke.&lt;/p&gt;&#xA;" OwnerUserId="16499" LastActivityDate="2019-06-27T19:32:17.543" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29975" PostTypeId="2" ParentId="29613" CreationDate="2019-06-27T19:44:50.057" Score="0" Body="&lt;p&gt;How much is sovereignty worth? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This should be balanced against potential short-term costs of Brexit. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Among other things, one will retain the ability to purchase &quot;champagne&quot; from its region of tradition, cultivation and origin in France (but only &quot;sparkling wine&quot; if produced outside of that region). But, will be assured of access to a veggie &quot;burger&quot; and also to grains and pulses reformulated into &quot;fake meat&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A negative long-term forecast would be largely due to assumptions inherent in many economic models that the world after a specified change will function identically to the world before the specified change, with the exception of the one or handful of changes specifically modelled. It is one thing to change a 0 to a 0.09 (9%) in an existing model. But reality may evolve differently than what can be readily modelled empirically using economic theory. &lt;/p&gt;&#xA;" OwnerUserId="16499" LastActivityDate="2019-06-27T19:44:50.057" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29976" PostTypeId="2" ParentId="29973" CreationDate="2019-06-27T20:15:01.720" Score="3" Body="&lt;p&gt;A function &lt;span class=&quot;math-container&quot;&gt;$P(q_1,q_2)$&lt;/span&gt; is said to be the potential function of a game if its derivatives, coincide with the marginal payoff of each player. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So for example, in your case, if you have that the  payoff of a firm is its profit. Let me call it &lt;span class=&quot;math-container&quot;&gt;$\pi_1(q_1,q_2)=TR-TC=p\cdot q_1-c\cdot q_1$&lt;/span&gt; for firm 1 and &lt;span class=&quot;math-container&quot;&gt;$\pi_2(q_1,q_2)=TR-TC=p\cdot q_2-c\cdot q_2$&lt;/span&gt; for firm 2, then to check that P is the potential of this game you want to check that &lt;span class=&quot;math-container&quot;&gt;$\frac{\partial P(q_1,q_2)}{\partial q_1}=\frac{\partial \pi_1(q_1,q_2)}{\partial q_1}$&lt;/span&gt; and that &lt;span class=&quot;math-container&quot;&gt;$\frac{\partial P(q_1,q_2)}{\partial q_2}=\frac{\partial \pi_2(q_1,q_2)}{\partial q_2}$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem is not asking you to solve for the optimal quantity just yet, so &lt;span class=&quot;math-container&quot;&gt;$MR=MC$&lt;/span&gt; will not quite help you (at least not in that specific question).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To see more aboutthe definition of a &quot;potential function&quot; and a &quot;potential game&quot; see &lt;a href=&quot;https://en.wikipedia.org/wiki/Potential_game&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-06-27T20:15:01.720" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29978" PostTypeId="2" ParentId="29972" CreationDate="2019-06-27T20:31:21.923" Score="1" Body="&lt;p&gt;Yes, an optimal strategy always exists for any information structure. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Proof: 1st- the set &lt;span class=&quot;math-container&quot;&gt;$\mathcal{Y}$&lt;/span&gt; is finite (thus compact). 2nd- for each state of the world, &lt;span class=&quot;math-container&quot;&gt;$v$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$u(y,v)$&lt;/span&gt; is continuous in &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; using the discrete metric. 3rd- Given the linearity of integrals, for each &lt;span class=&quot;math-container&quot;&gt;$t\in\mathcal{T}$&lt;/span&gt; we have that &lt;span class=&quot;math-container&quot;&gt;$\int_{\mathcal{V}}u(y,u)P_{T|v}(v)P_V(dv)$&lt;/span&gt; is also continuous in &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt;. Therefore Weierstrass theorem ensures the existence of a minimum and a maximum. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let &lt;span class=&quot;math-container&quot;&gt;$y^*_t$&lt;/span&gt; be one such maximizer when the signal is &lt;span class=&quot;math-container&quot;&gt;$t$&lt;/span&gt; (note it can be different for each signal realization, and that the maximizer might not be unique. In the latter case, I arbitrarily choose one for simplicity). Finally, define &lt;span class=&quot;math-container&quot;&gt;$P_{Y|T}(y|t)=\mathbb{1}\{y=y^*_t\}$&lt;/span&gt;. I.e. to play &lt;span class=&quot;math-container&quot;&gt;$y^*_t$&lt;/span&gt; with probability one when the signal is &lt;span class=&quot;math-container&quot;&gt;$t$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this setup, existence might only fail if &lt;span class=&quot;math-container&quot;&gt;$\mathcal{Y}$&lt;/span&gt; was not compact, or if &lt;span class=&quot;math-container&quot;&gt;$u(y,v)$&lt;/span&gt; was not continuous with respect to &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt;. Note I said might, even if these two conditions are not present, an optimal might still exist. &lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-06-27T20:31:21.923" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29979" PostTypeId="2" ParentId="29970" CreationDate="2019-06-27T21:31:28.600" Score="4" Body="&lt;p&gt;Rampini elaborates on your idea (and also the Pratchett quote) &lt;a href=&quot;https://www.aeaweb.org/articles?id=10.1257/aer.20170995&quot; rel=&quot;nofollow noreferrer&quot;&gt;in his AER article &quot;Financing Durable Assets&quot;&lt;/a&gt;. See the abstract:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;This  paper  studies  how  the  durability  of  assets  affects    financing.  We  show  that  more  durable  assets  require  larger  down  payments  making them harder to finance, because durability affects the price of assets and hence the overall financing need more than their  collateral value.  Durability  affects  technology  adoption,  the  choice  between  new and used capital, and the rent versus buy decision. Constrained firms invest in less durable assets and buy used assets. More  durable assets  are  more  likely  to  be  rented.  Economies  with  weak  legal  enforcement invest more in less durable, otherwise dominated assets and are net importers of used assets.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Similarly, Orhun and Palazzolo study this argument in &lt;a href=&quot;https://journals.sagepub.com/doi/full/10.1177/0022243718821660&quot; rel=&quot;nofollow noreferrer&quot;&gt;&quot;Frugality Is Hard to Afford&quot;&lt;/a&gt; in the context of bulk buying large packets at low prices vs. only being able to buy small packets.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Intertemporal savings strategies, such as bulk buying or accelerating purchase timing to take advantage of a good deal, provide long-term savings in exchange for an increase in immediate spending. Although households with limited financial resources stand to benefit the most from these strategies, they are less likely to make use of them. The authors provide causal evidence that liquidity constraints impede low-income households’ ability to use these strategies, above and beyond the impact of other constraints. Exploiting recurring variation in household liquidity, this study shows that when low-income households have more liquidity, they partially catch up to higher-income households’ ability to use intertemporal savings strategies. The findings provide guidance to marketing managers and researchers regarding targeted promotional design and measurement of deal-proneness. For policy makers, they suggest a new path for decreasing the higher prices low-income households have been documented to pay for everyday goods. Policies have traditionally focused on increasing financial literacy or access to supermarkets. Our work suggests that providing greater liquidity can help low-income households make better use of savings opportunities already available to them.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="11590" LastActivityDate="2019-06-27T21:31:28.600" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29980" PostTypeId="1" CreationDate="2019-06-27T23:23:20.980" Score="0" ViewCount="27" Body="&lt;p&gt;&quot;The term &lt;span class=&quot;math-container&quot;&gt;$\left(c_{0}+IQ+G-c_{1}T\right)$&lt;/span&gt; is that part of the demand for goods that does not depend on output here (&lt;span class=&quot;math-container&quot;&gt;$c_{1}$&lt;/span&gt; is mpc).&quot;&#xA;Can someone please explain how will you interpret government spending (mpc &lt;span class=&quot;math-container&quot;&gt;$\times$&lt;/span&gt; taxes). What does actually this part of the equation tell?&lt;/p&gt;&#xA;" OwnerUserId="23554" LastEditorUserId="20324" LastEditDate="2019-06-28T09:13:04.377" LastActivityDate="2019-06-28T09:13:04.377" Title="Autonomous spending" Tags="&lt;gdp&gt;&lt;consumption&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29981" PostTypeId="2" ParentId="29966" CreationDate="2019-06-28T03:23:21.133" Score="1" Body="&lt;p&gt;Free trade area means there's no customs checking goods traded within that area.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From Wikipedia:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The European Single Market, Internal Market or Common Market is a single market which seeks to guarantee the free movement of goods, capital, services, and labour – the &quot;four freedoms&quot; – within the European Union (EU).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So goods are traded freely within the EU, and hence EU is an FTA.&lt;/p&gt;&#xA;" OwnerUserId="5145" LastActivityDate="2019-06-28T03:23:21.133" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29983" PostTypeId="1" CreationDate="2019-06-28T04:53:24.963" Score="1" ViewCount="75" Body="&lt;p&gt;I'm interested in estimating the effect of the &lt;span class=&quot;math-container&quot;&gt;$event_t$&lt;/span&gt; variable in the price volatility of a financial instrument with the following model &#xA;&lt;span class=&quot;math-container&quot;&gt;$$V_t = \beta_0 + \beta_1 \ |\Delta p_t| + \beta_2 \ event_t + u_t$$&lt;/span&gt; &#xA;where &lt;span class=&quot;math-container&quot;&gt;$t = \{0, 14, 28, 42, 70, \dots ,364\}$&lt;/span&gt; represents the first day of every odd week; &lt;span class=&quot;math-container&quot;&gt;$\Delta p_t = p_t - p_{t-1}$&lt;/span&gt; is the price difference between the current day and the day (not two weeks) before; &lt;span class=&quot;math-container&quot;&gt;$V_t =  \frac{1}{5}\sqrt{\sum_{i=t+2}^{t + 6} \Delta p_i^2}$&lt;/span&gt; is the volatility in the days (not weeks) after the event; and &lt;span class=&quot;math-container&quot;&gt;$u_t$&lt;/span&gt; is the error term.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can safely assume that the market is efficient in the sense that two-week-old  prices don't help to predict the price of the current week. i.e. &lt;span class=&quot;math-container&quot;&gt;$E(p_t| p_{t-14}, p_{t-28}, \dots) = E(p_t)$&lt;/span&gt;. However, this assumption doesn't guarantee there in no serial correlation between &lt;span class=&quot;math-container&quot;&gt;$p_t$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$p_{t-1}$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the case was with &lt;span class=&quot;math-container&quot;&gt;$t= \{0, 1, 2, 3, 4, \dots ,365\}$&lt;/span&gt;, then test for serial correlation would make sense to decide if I estimate the model using methods such as OLS or Cochrane-Orcutt. Since I'm taking a biweekly series with the dependent variable lagged by a day, I'm not sure if I should test for serial correlation. And if so, how?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Edit&lt;/strong&gt;&#xA;Following @markleeds advise, a more sensible model is do a daily regression and add a dummy variable when the event occurs:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$V_t = \beta_0 + \beta_1 \ |\Delta p_t| + \beta_2 \ d\_event_t + \beta_3 \ d\_event_t \cdot event_t + u_t,$$&lt;/span&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;with &lt;span class=&quot;math-container&quot;&gt;$t = \{1, 2, 3, \dots ,365\}$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$d\_event_t$&lt;/span&gt; is a dummy that takes one when the event occurs and zero otherwise; &lt;span class=&quot;math-container&quot;&gt;$event_t$&lt;/span&gt; is a continuous variable; &lt;span class=&quot;math-container&quot;&gt;$\Delta p_t = p_t - p_{t-1}$&lt;/span&gt; is the price difference between the current day and the day before; &lt;span class=&quot;math-container&quot;&gt;$V_t =  \frac{1}{5}\sqrt{\sum_{i=t+2}^{t + 6} \Delta p_i^2}$&lt;/span&gt; is the volatility; and &lt;span class=&quot;math-container&quot;&gt;$u_t$&lt;/span&gt; is the error term.&lt;/p&gt;&#xA;" OwnerUserId="7709" LastEditorUserId="7709" LastEditDate="2019-06-29T01:31:30.033" LastActivityDate="2019-06-29T01:31:30.033" Title="Dynamic model and serial correlation" Tags="&lt;econometrics&gt;" AnswerCount="0" CommentCount="16" ContentLicense="CC BY-SA 4.0" />
  <row Id="29984" PostTypeId="2" ParentId="26638" CreationDate="2019-06-28T10:14:58.787" Score="3" Body="&lt;p&gt;I like Justin's answer but I would  point out that (fortunately) sellers don't even need to know about Supply, Demand, and Equilibria to react and adjust their prices as the theory suggests.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is one of the  stories I tell my students in Intro to Micro and which does not require sellers (or buyers for that sake) to have any understanding or abstract notion of S&amp;amp;D theory (if someone wants to add pictures, feel free to edit):&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Suppose supply increases, which  changes the equilibrium from &lt;span class=&quot;math-container&quot;&gt;$(P_1,Q_1)$&lt;/span&gt; to &lt;span class=&quot;math-container&quot;&gt;$(P_2,Q_2)$&lt;/span&gt; with &lt;span class=&quot;math-container&quot;&gt;$P_2 &amp;lt; P_1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$Q_2 &amp;gt; Q_1$&lt;/span&gt;.&lt;/li&gt;&#xA;&lt;li&gt;At the initial equilibrium price of &lt;span class=&quot;math-container&quot;&gt;$P_1$&lt;/span&gt;, there is now a &lt;em&gt;surplus&lt;/em&gt; with &lt;span class=&quot;math-container&quot;&gt;$Q_S(P_1) &amp;gt; Q_D(P_1)$&lt;/span&gt;.&lt;/li&gt;&#xA;&lt;li&gt;This means there are &quot;a lot&quot; of people (&lt;span class=&quot;math-container&quot;&gt;$Q_S(P_1)$&lt;/span&gt;) who would happily supply a unit of the good at &lt;span class=&quot;math-container&quot;&gt;$P_1$&lt;/span&gt; (because their WTS is higher than &lt;span class=&quot;math-container&quot;&gt;$P_1$&lt;/span&gt;), but only &quot;a few&quot; (&lt;span class=&quot;math-container&quot;&gt;$Q_D(P_1)$&lt;/span&gt;) who  would like to buy (because their WTP is lower than &lt;span class=&quot;math-container&quot;&gt;$P_1$&lt;/span&gt;).&lt;/li&gt;&#xA;&lt;li&gt;In this situation, should we really expect the price to remain at &lt;span class=&quot;math-container&quot;&gt;$P_1$&lt;/span&gt;? I.e., should we expect suppliers to keep posting a price of &lt;span class=&quot;math-container&quot;&gt;$P_1$&lt;/span&gt;? If that was the case, many producers would not sell at all. That can mean either that their inventory would start growing (if they are in a market where they have to produce before they sell), or that some willing producers will be left idle (if they are in a more flexible &quot;sell as you go&quot; kind of market).&lt;/li&gt;&#xA;&lt;li&gt;Either way, producers who do not sell at a price of &lt;span class=&quot;math-container&quot;&gt;$P_1$&lt;/span&gt; will easily notice it. They could remain idle or exit the market. But most likely, they will try to do something about it and stay in business before considering exiting the market. &lt;/li&gt;&#xA;&lt;li&gt;In a  surplus, many of the producers who do not sell have  a &lt;span class=&quot;math-container&quot;&gt;$WTS &amp;lt; P_1$&lt;/span&gt;. In other words: they have some margin for action in the form of price reduction. Rather than going out of business, they will try to convince the few &lt;span class=&quot;math-container&quot;&gt;$Q_D(P_1)$&lt;/span&gt; buyers to buy from them instead of their competitors. There are many ways to do that (increase quality,...) but in the short run, the  easiest way is probably to decrease your price somewhere between your WTS and &lt;span class=&quot;math-container&quot;&gt;$P_1$&lt;/span&gt;.&lt;/li&gt;&#xA;&lt;li&gt;This is how prices start spiraling down towards the new equilibrium, simply because producers obsreve that they are not selling, and they try to do something about it by lowering their price (while still making a producer surplus and selling above their WTS).&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Notice that all producers need to know are prices and their WTS in order to behave &quot;appropriately&quot; (they also need to observe whether or not they sell). In particular, it is not required for them to think in terms of (aggregate) S&amp;amp;D, understand what an equilibrium is,... In this sense, the price  adjustment mechanism can be a purely decentralized one.&lt;/li&gt;&#xA;&lt;/ul&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;By the way, you can tell a similar story where &lt;em&gt;consumers&lt;/em&gt; are active in pushing prices down. In a surplus, consumers have some  &quot;market power&quot;.  They see producers line-up at their door begging them to buy from them instead of their competitors at the current surplus price of &lt;span class=&quot;math-container&quot;&gt;$P_1$&lt;/span&gt;. As a consumer, what will you do in that  situation? Will you stay &quot;idle&quot;, pick you producer at random, and pay &lt;span class=&quot;math-container&quot;&gt;$P_1$&lt;/span&gt;? Or would you rather tell one of the producers &quot;I'll buy from you instead of your competitors, but only if you offer me a lower price than &lt;span class=&quot;math-container&quot;&gt;$P_1$&lt;/span&gt;&quot;?.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You write:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;I can grasp how a price above the equilibrium would go down (the producers would not sell, so they lower the price because less profit is better than no profit)&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;But how can an increase in demand drive prices up?&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The story  is similar and somewhat symmetrical for increases in demand.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When demand increases, staying at the old equilibrium price &lt;span class=&quot;math-container&quot;&gt;$P_1$&lt;/span&gt; leads to a shortage. This means if we stayed at &lt;span class=&quot;math-container&quot;&gt;$P_1$&lt;/span&gt;, not all consumers get to buy a unit of the good. These consumers can stay idle (unlikely) or try to convince producers to sell to them instead of other consumers (more likely). In the second case, the easiest way  to succeed is for consumers with &lt;span class=&quot;math-container&quot;&gt;$WTP &amp;gt; P_1$&lt;/span&gt; to tell producers &quot;I'll pay you more than &lt;span class=&quot;math-container&quot;&gt;$P_1$&lt;/span&gt; (but still less than my WTP) if you promise you will sell your product to me rather than another consumer&quot;, which initiates an upward price-trend.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the story where producers are active, under the shortage at the price of &lt;span class=&quot;math-container&quot;&gt;$P_1$&lt;/span&gt; producers see consumers line-up for a chance to buy a unit of their good. Producers may think that all the consumers lining-up have a WTP of exactlyu &lt;span class=&quot;math-container&quot;&gt;$P_1$&lt;/span&gt; (unlikely) or that some of them have a WTP of more than &lt;span class=&quot;math-container&quot;&gt;$P_1$&lt;/span&gt; (more likely). In the second case, producers know they can increase their price --- at least ever so slighlty --- while still selling their unit of the good. This clearly raises their producer surplus and we should expect them to so, which again initiates an upward price-trend.&lt;/p&gt;&#xA;" OwnerUserId="38" LastEditorUserId="38" LastEditDate="2019-06-28T13:18:33.690" LastActivityDate="2019-06-28T13:18:33.690" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29985" PostTypeId="1" CreationDate="2019-06-28T12:32:42.607" Score="1" ViewCount="23" Body="&lt;p&gt;I need data for these long run(atleast 10year forward) macroeconomic parameters from 2000, meaning I need forecasted data as in 2000 for 2010 so I can backtest my model with actual realised data: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Long run aggregate gdp growth&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Long run population forecast by age groups&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Long run inflation forecast&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Current account deficit forecasts&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Kindly provide me all available sources to such data. &lt;/p&gt;&#xA;" OwnerUserId="23523" LastActivityDate="2019-06-28T13:58:54.357" Title="Sources for macro economic forecast data" Tags="&lt;data-request&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29986" PostTypeId="2" ParentId="10756" CreationDate="2019-06-28T13:42:24.410" Score="0" Body="&lt;p&gt;&quot;Causal identification&quot;, addressed in your problem description and other answers, is different from &quot;model identification&quot; = &quot;parameter identification&quot; which is a slightly more general requirement.&lt;br&gt;&#xA;It means that with an infinitely large sample of observations, parameters in a model could be estimated to distinct values.  That is,  different values of the parameters in a model must lead to different predictions (probability distributions) about observables.  This issue is often called the Identification Problem.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The title of your post (question) suggests a more general answer is needed than addressing only identification in the case of causal inference.&lt;/p&gt;&#xA;" OwnerUserId="23557" LastEditorUserId="23557" LastEditDate="2019-06-28T13:48:37.460" LastActivityDate="2019-06-28T13:48:37.460" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29987" PostTypeId="2" ParentId="29985" CreationDate="2019-06-28T13:58:54.357" Score="1" Body="&lt;p&gt;GDP: If I remember correctly, Congressional budget office offers 10-12 yr forward potential gdp every quarter, from which you can derive predicted potential growth. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;PopGrowth: U.S. Census has this data&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Inflation: Fed Res/Philidelphia provides inflation forecast&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Account deficit: All the sources for 5 or more years forecast in int. trade are either proprietary or highly unreliable. Best of luck in your search.&lt;/p&gt;&#xA;" OwnerUserId="23559" LastActivityDate="2019-06-28T13:58:54.357" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29988" PostTypeId="1" CreationDate="2019-06-28T15:30:26.487" Score="2" ViewCount="263" Body="&lt;p&gt;I have been reading &lt;em&gt;Economics and Consumer Behavior&lt;/em&gt; by Angus Deaton and John Muellbauer, specifically reading up on &lt;strong&gt;Composite Commodity Theorem&lt;/strong&gt;, which states:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;if prices move in parallel to each other, then the corresponding group of commodities can be treated as a single good. (page 120 in the book)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This is a pretty mind blowing result (well at least for me), however im yet to find an actual proof for the theorem in the literature.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;is there a proof for this result?&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="20576" LastEditDate="2019-06-30T16:52:54.240" LastActivityDate="2019-07-01T11:27:36.663" Title="Is there a proof for composite commodity theorem?" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;consumer-theory&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29989" PostTypeId="1" AcceptedAnswerId="29991" CreationDate="2019-06-28T18:14:47.307" Score="0" ViewCount="40" Body="&lt;p&gt;My textbook gives these two equations including the real interest rate and says that the second equation (b) can be arrived at from the first (a), but doesn't explain how.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;r&lt;sub&gt;r&lt;/sub&gt; = Real Interest Rate, r = Nominal Interest Rate, i = Inflation&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Equation (a):&#xA;&lt;span class=&quot;math-container&quot;&gt;$$Growth\ in\ Purchasing\ Power=1+r_r = \displaystyle\frac{1+r}{1+i}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Equation (b):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$Real\ Interest\ Rate = r_r = \displaystyle\frac{r-i}{1+i}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;br&gt;I'm feeling slightly obtuse but I've been away from math quite a while, and can't figure out how to rearrange the first formula into the second one.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What are the exact equation steps necessary to get from: &lt;span class=&quot;math-container&quot;&gt;$ r_r = \displaystyle\frac{1+r}{1+i}-1$&lt;/span&gt; ⇒ &lt;span class=&quot;math-container&quot;&gt;$r_r = \displaystyle\frac{r-i}{1+i}$&lt;/span&gt; ?&lt;/p&gt;&#xA;" OwnerUserId="5501" LastActivityDate="2019-06-28T19:25:21.117" Title="Relationship between Growth in Purchasing Power and Real Interest Rate equations" Tags="&lt;interest-rate&gt;&lt;purchasing-power-partity&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29990" PostTypeId="1" CreationDate="2019-06-28T18:45:55.503" Score="0" ViewCount="23" Body="&lt;p&gt;The next recession is coming up soon and I've been wondering how effective our expansionary monetary policy will be. The interest rate doesn't have a ton of room to be lowered and bond yields are half of what they were before the great recession, which leads me to my question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since QE suppresses bond yields, if bond yields start out low already and can't be lowered much more, does that mean QE would fail to stimulate investment? And if so, might the government start purchasing other assets like corporate bonds or stocks?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or am i wrong and bond yields do not effect QE? Maybe QE does not seek to lower bond yields but to only increase market liquidity? (though low-yield treasuries are pretty liquid already)&lt;/p&gt;&#xA;" OwnerUserId="18412" LastActivityDate="2019-06-28T18:45:55.503" Title="Do low bond yields make QE ineffective" Tags="&lt;quantitative-easing&gt;" AnswerCount="0" CommentCount="9" ContentLicense="CC BY-SA 4.0" />
  <row Id="29991" PostTypeId="2" ParentId="29989" CreationDate="2019-06-28T19:25:21.117" Score="1" Body="&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$Growth\ in\ Purchasing\ Power=1+r_r = \displaystyle\frac{1+r}{1+i}$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also it is given that &lt;span class=&quot;math-container&quot;&gt;$real\ interest \ rate=r_r$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$real\ interest \ rate=(1+r_r)-1=\frac{1+r}{1+i}-1=\frac{1+r}{1+i}-\frac{1+i}{1+i}=\frac{r-i}{1+i}$$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="18214" LastActivityDate="2019-06-28T19:25:21.117" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29992" PostTypeId="2" ParentId="29988" CreationDate="2019-06-28T20:55:27.357" Score="3" Body="&lt;p&gt;There is this nice expository note:&lt;br&gt;&#xA;Carter M., 1995, &quot;An expository note on the composite commodity theorem,&quot; Economic Theory, 5, 175-179&lt;br&gt;&#xA;and an interesting generalization by&lt;br&gt;&#xA;Lewbel, A., 1996, &quot;Aggregation without Separability: A Generalized Composite Commodity Theorem,&quot; American Economic Review, 86, 524-543. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;EDIT:&lt;/strong&gt;&lt;br&gt;&#xA;One reason why it is difficult to find a proof of the theorem, is that the so called &quot;composite commodity theorem&quot; does not really have the mathematical status of a theorem. &#xA;It is more a principle directly following from the reparameterization below.&lt;br&gt;&#xA;Let &lt;span class=&quot;math-container&quot;&gt;$x\in \mathbb{R}^J_+$&lt;/span&gt; denotes the disaggregate demand system, which depends on the price vector &lt;span class=&quot;math-container&quot;&gt;$p \in \mathbb{R}^J_+$&lt;/span&gt;, and the budget &lt;span class=&quot;math-container&quot;&gt;$b&amp;gt;0$&lt;/span&gt;. The relative prices are denoted by &lt;span class=&quot;math-container&quot;&gt;$\alpha = p/\textbf{p}$&lt;/span&gt; where the aggregate price index is &lt;span class=&quot;math-container&quot;&gt;$\textbf{p} \in \mathbb{R_+}$&lt;/span&gt;. If &lt;span class=&quot;math-container&quot;&gt;$\alpha $&lt;/span&gt; is a vector of constants, we can simplify the demand system such that it depends only upon the aggregate price &lt;span class=&quot;math-container&quot;&gt;$\bf{p}$&lt;/span&gt;: &#xA;&lt;span class=&quot;math-container&quot;&gt;$$ x(p,b) = x(\alpha \mathbf{p},b) \equiv \mathbf{x}(\mathbf{p},b).  $$&lt;/span&gt;&#xA;Note that now &lt;span class=&quot;math-container&quot;&gt;$\mathbf{x}:\mathbb{R^2_+} \rightarrow \mathbb{R}^J_+$&lt;/span&gt;.&#xA;If one is also interested in aggregating the elementary quantities, it is (for instance) possible to define the aggregate composite quantity as:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$ \mathbf{X}(\mathbf{p},b) = \alpha^T\mathbf{x}(\mathbf{p},b),  $$&lt;/span&gt; where &lt;span class=&quot;math-container&quot;&gt;$ \mathbf{X}:\mathbb{R^2_+} \rightarrow \mathbb{R}_+$&lt;/span&gt;. In this case, the elementary and aggregate expenditures are the same, in the sense that: &lt;span class=&quot;math-container&quot;&gt;$$\mathbf{p}\mathbf{X}(\mathbf{p},b)=p^Tx(p,b).$$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="20576" LastEditorUserId="-1" LastEditDate="2019-07-01T11:27:36.663" LastActivityDate="2019-07-01T11:27:36.663" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29994" PostTypeId="1" AcceptedAnswerId="29997" CreationDate="2019-06-29T01:05:45.007" Score="0" ViewCount="40" Body="&lt;p&gt;Assuming the stock market/housing market crash decreased consumer wealth, decreased business confidence, and decreased expected appreciation rates on houses (thus increasing perceived user cost of residential capital), the IS curve shifted left at the onset of the Great Recession (in the IS-LM model):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/Wz3xMm.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Wz3xMm.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But this indicates that real interest rates would have fallen.  Given that there was a liquidity crisis at the onset of the recession, I am guessing this did not happen.  Did it?  And if not, how could a liquidity crisis be accounted for in the IS-LM model?&lt;/p&gt;&#xA;" OwnerUserId="23538" LastActivityDate="2019-06-29T13:27:30.507" Title="Did real interest rates decrease during the Great Recession" Tags="&lt;investment&gt;&lt;consumption&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29995" PostTypeId="1" CreationDate="2019-06-29T01:30:49.870" Score="8" ViewCount="63" Body="&lt;p&gt;Imagine I have a continuum of different goods indexed by &lt;span class=&quot;math-container&quot;&gt;$\omega \in [0,1]$&lt;/span&gt;. I have a household which consumes a quantity &lt;span class=&quot;math-container&quot;&gt;$C(\omega)$&lt;/span&gt; of good &lt;span class=&quot;math-container&quot;&gt;$\omega$&lt;/span&gt;, and pays a price &lt;span class=&quot;math-container&quot;&gt;$P(\omega)$&lt;/span&gt;. The household has a budget equal to 1, and has a linear utility function.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$U(C) = \int_{0}^1 C(\omega) d\omega $$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The consumer chooses her consumption bundle by solving the problem&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\max_{C} U(C) $$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$ \text{Subject to}:  \int_{0}^1 P(\omega) C(\omega) d\omega \leq 1.$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is with regards to the fact that this problem seems ill-defined. If I were to go ahead solve the optimization problem, I would have the consumer choose&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$C(\omega) = \begin{cases} \frac{1}{P(\omega)} \text{ if } P(\omega) =  \min_{\omega'} P(\omega') \\ 0 \text{ otherwise.} \end{cases}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, this means that  &lt;span class=&quot;math-container&quot;&gt;$U(C) = \int_{0}^1 C(\omega) d\omega = 0$&lt;/span&gt;, and &lt;span class=&quot;math-container&quot;&gt;$\int_{0}^1 P(\omega)C(\omega) = 0$&lt;/span&gt; since &lt;span class=&quot;math-container&quot;&gt;$C(\omega) = 0$&lt;/span&gt; almost everywhere. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there a mathematically more robust way of defining this problem? One approach I've seen is using Dirac delta functions, but I'm not sure that's right. That is, defining&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$U(C) = \int_{0}^1 C(\omega) \delta_{\omega} d\omega$$&lt;/span&gt;&#xA;where &lt;span class=&quot;math-container&quot;&gt;$\delta(\omega)$&lt;/span&gt; is a ``function'' which is equal to &lt;span class=&quot;math-container&quot;&gt;$+\infty$&lt;/span&gt; at &lt;span class=&quot;math-container&quot;&gt;$\omega$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$0$&lt;/span&gt; everywhere else.&lt;/p&gt;&#xA;" OwnerUserId="13989" LastActivityDate="2019-11-27T19:02:55.427" Title="Perfect Substitution with a Continuum of goods?" Tags="&lt;microeconomics&gt;&lt;firm&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="29996" PostTypeId="2" ParentId="18553" CreationDate="2019-06-29T09:48:11.577" Score="5" Body="&lt;p&gt;I know this was a while ago now but here is the excel file.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;UPDATE: As somebody highlighted this is not the original 2010 file, but it does include the key raw data and some helpful instructions. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is the link to the video of where I go through the process step - by - step: &lt;a href=&quot;https://www.youtube.com/watch?v=ItGMz0ERvcw&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.youtube.com/watch?v=ItGMz0ERvcw&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope this helps,&#xA;EBW.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.dropbox.com/s/aw3yb8u2mvr599p/SDM-Workshop%208-student%20version.xlsx?dl=0&quot; rel=&quot;nofollow noreferrer&quot;&gt;Excel file&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="23562" LastEditorUserId="23562" LastEditDate="2019-07-06T09:02:26.613" LastActivityDate="2019-07-06T09:02:26.613" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="29997" PostTypeId="2" ParentId="29994" CreationDate="2019-06-29T13:27:30.507" Score="1" Body="&lt;p&gt;The Great Recession precipitated in the financial sector, as a liquidity crisis, as I'm sure you know. It didn't precipitate in the real sector. I would represent that in the theoretical framework as a decrease in the stock of money:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/RhSUM.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/RhSUM.png&quot; alt=&quot;Money market&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That is because there was a lack of liquidity. The evidence is that interest rates soared. That is, the inter-bank lending rate soared, along with the increase in the perceived riskiness of financial instruments. The above shift correlates to a leftward shift of the LM curve.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The constraint on credit had real effects&amp;mdash;a recession. The traditional way to smooth a recession is through monetary policy, but the Fed reached the lower limit when lowering the federal funds rate&amp;mdash;a so-called &quot;liquidity trap&quot;. So further, non-traditional methods were needed to address the recession (such as quantitative easing, where risky securities were purchased by the Fed in an attempt to lower those interest rates, and they also sought to lower forward interest rates).&lt;/p&gt;&#xA;" OwnerUserId="175" LastActivityDate="2019-06-29T13:27:30.507" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29998" PostTypeId="1" CreationDate="2019-06-29T16:36:04.453" Score="1" ViewCount="30" Body="&lt;p&gt;Wikipedia says:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;'Fermi's golden rule describes a system which begins in an eigenstate, &lt;span class=&quot;math-container&quot;&gt;${\displaystyle |i\rangle } |i\rangle$&lt;/span&gt; , of an unperturbed Hamiltonian, &lt;span class=&quot;math-container&quot;&gt;$H_0$&lt;/span&gt; and considers the effect of a perturbing Hamiltonian, &lt;span class=&quot;math-container&quot;&gt;$H'$&lt;/span&gt; applied to the system. If &lt;span class=&quot;math-container&quot;&gt;$H'$&lt;/span&gt; is time-independent, the system goes only into those states in the continuum that have the same energy as the initial state. If &lt;span class=&quot;math-container&quot;&gt;$H'$&lt;/span&gt; is oscillating sinusoidally as a function of time (i.e. it is a harmonic perturbation) with an angular frequency &lt;span class=&quot;math-container&quot;&gt;$ω$&lt;/span&gt;, the transition is into states with energies that differ by &lt;span class=&quot;math-container&quot;&gt;$ħω$&lt;/span&gt; from the energy of the initial state.&lt;br&gt;&#xA;  'In both cases, the transition probability per unit of time from the initial state &lt;span class=&quot;math-container&quot;&gt;${\displaystyle |i\rangle } |i\rangle$&lt;/span&gt;  to a set of final states &lt;span class=&quot;math-container&quot;&gt;${\displaystyle |f\rangle } |f\rangle$&lt;/span&gt;  is essentially constant.'&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Does anyone know of an Econ paper which uses this? Alternatively, what might an application of it be?&lt;/p&gt;&#xA;" OwnerUserId="5775" LastEditorUserId="23570" LastEditDate="2019-06-30T16:53:20.960" LastActivityDate="2019-06-30T16:53:20.960" Title="Application of 'Fermi's Golden Rule' to Economics" Tags="&lt;financial-economics&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="29999" PostTypeId="1" CreationDate="2019-06-29T22:46:09.043" Score="0" ViewCount="25" Body="&lt;p&gt;I'm working o a model where &lt;strong&gt;&lt;em&gt;corporate revenue / world GDP&lt;/em&gt;&lt;/strong&gt; is a dependent variable of some stuff (based on the model proposed in this paper: &lt;a href=&quot;http://www.scielo.br/scielo.php?pid=S1807-76922009000200002&amp;amp;script=sci_abstract&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.scielo.br/scielo.php?pid=S1807-76922009000200002&amp;amp;script=sci_abstract&lt;/a&gt;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thing is, I'm not an Economist, so I'm not sure exactly which measures of GDP to use.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the World Bank website there are four GDP measures: Constant 2010 USD, Current USD, Constant LCU and current LCU.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The companies operate in different currencies and are multinationals, so I was thinking about converting revenues to USD by each year's exchange rate (as recorded by OECD) and dividing it by &lt;strong&gt;&lt;em&gt;Current USD GDP&lt;/em&gt;&lt;/strong&gt; values provided by the World Bank.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does this make sense?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The other way I was thinking is taking constant 2010 USD GDP and inflate/deflate revenues based on CPI Growth (as recorded by OECD) for each currency used in the consolidated income statements of the companies (some companies use Euros and others Yen).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which one of these would make more sense? If neither one, how would you do it?&lt;/p&gt;&#xA;" OwnerUserId="23565" LastEditorUserId="23565" LastEditDate="2019-06-29T23:14:33.450" LastActivityDate="2019-06-29T23:14:33.450" Title="Best way to measure company size relative to world GDP" Tags="&lt;inflation&gt;&lt;gdp&gt;&lt;corporate-finance&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30002" PostTypeId="2" ParentId="29995" CreationDate="2019-06-30T16:23:32.147" Score="1" Body="&lt;p&gt;Seems like the problem specified as specified right now should have as solution &lt;span class=&quot;math-container&quot;&gt;$C(\omega)=\frac{\delta(\omega)}{P(\omega)}$&lt;/span&gt; if &lt;span class=&quot;math-container&quot;&gt;$P(\omega)=\min_{\omega'} P(\omega')$&lt;/span&gt; and zero otherwise. The solution proposed cannot be optimal because the budget constraint is not depleted. If we let &lt;span class=&quot;math-container&quot;&gt;$\omega^*$&lt;/span&gt; be the index of the cheapest good, the indirect utility would be then &lt;span class=&quot;math-container&quot;&gt;$U^*(P(w))=1/P(\omega^*)$&lt;/span&gt;. &lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-06-30T16:23:32.147" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30005" PostTypeId="1" CreationDate="2019-07-01T11:59:21.500" Score="1" ViewCount="113" Body="&lt;p&gt;For example, when I go to the grocery, and peruse the various goods for sale on the shelves, there is at least a 99.9% chance that any given product is produced for-profit.  Even &quot;Newman's Own&quot;, which gives all of it's profits to charity, is classified as being for-profit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why are there no non-profit brands of, e.g. breakfast cereal, whose goal is to simply provide consumers with a healthy and affordable morning meal, but not to make a profit?&lt;/p&gt;&#xA;" OwnerUserId="14072" LastActivityDate="2019-07-25T15:26:30.250" Title="Why are there not more competitive nonprofits?" Tags="&lt;profit-maximization&gt;&lt;profits&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30006" PostTypeId="1" AcceptedAnswerId="30011" CreationDate="2019-07-01T13:07:26.043" Score="1" ViewCount="38" Body="&lt;p&gt;My question seems trivial but I have a particular issue I don't understand. If there's a price ceiling above the price equilibrium, the customers can still use the ceiling as leverage when negotiating, and thus negotiate a lower price. Then the ceiling does have an effect.&lt;/p&gt;&#xA;" OwnerUserId="23575" LastActivityDate="2019-07-04T12:18:45.753" Title="Why do non-binding price ceilings have no effect?" Tags="&lt;macroeconomics&gt;&lt;general-equilibrium&gt;&lt;price-theory&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30007" PostTypeId="1" CreationDate="2019-07-01T13:26:28.863" Score="1" ViewCount="166" Body="&lt;p&gt;This is definition of Radner Equilibrium from Microeconomic Theory (Mas-Collel, Whinston and Green - Third Edition).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/7XKJV.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/7XKJV.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm confused about two conditions:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\sum_k q_k \cdot z_{ki} \le 0$&lt;/span&gt; (in yellow)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The autors state that this is budget restriction. I wonder how the sum of transactions times the price could be different from zero: if Adam sells a stock for 10 dollars to Ben, the investment positions for Adam and Ben will be, respectively, -10 and 10, summing to &lt;span class=&quot;math-container&quot;&gt;$-10+10=0$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\sum_i z^*_{ki} \le 0$&lt;/span&gt; (in purple)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is proposed as a feasibility condition. Why?&lt;/p&gt;&#xA;" OwnerUserId="6099" LastEditorUserId="6099" LastEditDate="2019-07-02T10:20:33.733" LastActivityDate="2019-07-15T16:50:42.493" Title="Conditions for Radner Equilibrium" Tags="&lt;microeconomics&gt;&lt;general-equilibrium&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30008" PostTypeId="1" CreationDate="2019-07-01T14:21:47.097" Score="1" ViewCount="15" Body="&lt;p&gt;We all know that if the government impose a tax on a product, then tax revenue is less than loss in consumer and producer surplus. This is known as deadweight loss.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We also know that taxing is a contractionary fiscal policy. Imposing a tax reduces inflation. So the &lt;strong&gt;real&lt;/strong&gt; value of the social welfare is actually increased in this way.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a result, some of the deadweight loss is conpensated by reduction in inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Is this line of reasoning valid?&lt;/strong&gt; If it is true, then does the reduction in inflation completely conpensate the loss or only partially conpensate it? If this is not true, what's wrong?&lt;/p&gt;&#xA;" OwnerUserId="19048" LastActivityDate="2019-07-01T14:21:47.097" Title="Does the contractionary monetary effect of tax conpensate for its deadweight loss?" Tags="&lt;inflation&gt;&lt;taxation&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30009" PostTypeId="2" ParentId="30005" CreationDate="2019-07-01T16:22:35.560" Score="0" Body="&lt;p&gt;The answer to that is kind of tricky. I haven't found any literature directly discussing the relation between non-profit structures and market share, but here are a few ideas.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Usually for-profit companies try to maximize (surprise!) their profit-function in the long-run, even though they might focus on other stuff like market share or prestige in the short- or even medium-term. That is because shareholders in for-profit companies (for the sake of argument, let's define 'shareholders' more broadly than in the conventional sense) try to maximize their own consumption as well, meaning they will try to raise they're budgets to elevate their possible consumption, subsequently increasing their utility.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Non-profits on the other hand focus on some other thing to maximize. For the most part, their goals are idealistically driven, for example minimizing global CO2 output, or maximizing survivability rates of marine life.&#xA;It wouldn't make sense for a nutrition company to focus on maximizing market sharewhich would lead to a noticably increased presence on the shelves, without returning to a profit-maximization routine in the long-run.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Keep in mind that in economics, monetary value is (beside other functions like driving down transaction costs) just a way to approximate a certain good's real value. Cost-minimzation, which is typically done within a profit-maximization routine, could be seen as a constant re-evaluation of the value of goods used for producing something else. &lt;/p&gt;&#xA;" OwnerUserId="23467" LastActivityDate="2019-07-01T16:22:35.560" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30011" PostTypeId="2" ParentId="30006" CreationDate="2019-07-01T17:31:57.947" Score="1" Body="&lt;p&gt;You are completely right. If in your setup negotiating is an important feature of how prices are set, then even a non-binding price ceiling matters. Search models in labor economics became popular for showing a feature like this. Not with a price ceiling, but with a price floor. In particular when we study minimum wages. In the labor market, the assumption that wages are negotiated is reasonable and then the level of minimum wage affects equilibrium even if it is non-binding. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The conclusion that a non-binding price ceiling has no effect on equilibrium stems from the assumption that markets are competitive. Prices are not negotiated, they are simply posted and people can either buy or not buy. In that case you should not expect a non-binding price ceiling to have any effect.&lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-07-01T17:31:57.947" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30012" PostTypeId="1" AcceptedAnswerId="30014" CreationDate="2019-07-01T19:10:20.683" Score="0" ViewCount="182" Body="&lt;p&gt;I would like to show for a randomly distributed variable &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; with CDF &lt;span class=&quot;math-container&quot;&gt;$F(\cdot)$&lt;/span&gt; , given a Bernoulli utility function &lt;span class=&quot;math-container&quot;&gt;$u(x)$&lt;/span&gt; the following property holds:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The certainty equivalent, &lt;span class=&quot;math-container&quot;&gt;$CE(\cdot)$&lt;/span&gt;, is smaller than the expected value, &lt;span class=&quot;math-container&quot;&gt;$\mathbb E(\cdot)$&lt;/span&gt;, if and only if the decision maker is risk-averse. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$CE(F,u) \leq \int_{-\infty}^{\infty} x dF(x) \quad  \forall F(\cdot)$$&lt;/span&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;By Jensens Inequality for risk-averse agents we have: &#xA;&lt;span class=&quot;math-container&quot;&gt;$$\int_{-\infty}^{\infty} u(x) f(x)dx \leq u(\int_{-\infty}^{\infty} x f(x) dx)$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know that the CE is defined as: &#xA;&lt;span class=&quot;math-container&quot;&gt;$u(CE) = \mathbb E(U(X)) = \int_{-\infty}^{\infty} f(x)u(x)\,dx$&lt;/span&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$u(CE)  \leq u(\int_{-\infty}^{\infty} x f(x) dx)$$&lt;/span&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;and&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$CE \leq \int_{-\infty}^{\infty} x f(x) dx$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is it possible to kind of invert the u() function is we assume it is strictly increasing?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I also thought about rearranging it to: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$u(CE) = \int_{-\infty}^{\infty} f(x) dx * \int_{-\infty}^{\infty} u(x) dx$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;but I fail to see how that helps.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I thought perhaps showing that the risk premium is positive for risk-averse agents is equivalent but I could not get started either. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would be glad for a hint to work out the solution myself.&lt;/p&gt;&#xA;" OwnerUserId="13313" LastEditorUserId="11590" LastEditDate="2019-07-01T19:25:52.277" LastActivityDate="2019-07-01T19:42:48.610" Title="Proof: Risk averse; Certainty Equivalent smaller than expected value" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;expected-utility&gt;&lt;risk&gt;&lt;risk-aversion&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30013" PostTypeId="1" CreationDate="2019-07-01T19:27:39.990" Score="1" ViewCount="40" Body="&lt;p&gt;I'm looking for some empirical studies into sectoral comovement. In particular, I'm interested in how manufacturing and services industries move together both in the long run and over the course of a business cycle. Most importantly, I'd like to know more about how the performance of manufacturing affects the performance of services. Are there any papers on this topic that you'd recommend?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So far I've only found a few papers which study sectoral comovement in more general terms and a few which only touched on this topic very briefly as an aside.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Many thanks!&lt;/p&gt;&#xA;" OwnerUserId="22983" LastActivityDate="2019-11-29T15:32:52.837" Title="Empirical research into sectoral comovement" Tags="&lt;macroeconomics&gt;&lt;empirical-evidence&gt;&lt;business-cycles&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30014" PostTypeId="2" ParentId="30012" CreationDate="2019-07-01T19:42:48.610" Score="0" Body="&lt;p&gt;You basically have the proof, just remember that for any function &lt;span class=&quot;math-container&quot;&gt;$f(x)$&lt;/span&gt; strictly increasing, then &lt;span class=&quot;math-container&quot;&gt;$f(a)\leq f(b)$&lt;/span&gt; if and only if &lt;span class=&quot;math-container&quot;&gt;$a\leq b$&lt;/span&gt;. It is also true that for any strictly increasing function its inverse exists, but there is probably no need for that. &lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-07-01T19:42:48.610" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30015" PostTypeId="1" CreationDate="2019-07-01T22:32:26.167" Score="1" ViewCount="37" Body="&lt;p&gt;Most beginner level economics books include explanations why it is most effecient most of the time to allow free trade in the market of goods and services. (e.g. the theory of comparative advantage) However, few of them talks about similar things for financial markets (e.g. stock exchange, forex). The books will tell you how those financial instruments work, but they do not discuss whether it is the most efficient to allow free transactions in financial markets (just like the free trade in goods/services markets). Could anyone tell me if there are any theories on the topic?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What makes me curious is that, despite their huge role in our life, financial instruments are not classed as any factors of production, and seems to create no value economically. For example, fund managers are NOT enterpreneurs. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So should the government intervene to prevent speculation, or should they not intervene? &lt;strong&gt;Is there any theory on this?&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="19048" LastActivityDate="2019-07-03T11:22:56.847" Title="Is it the most efficient to allow free transactions in financial markets?" Tags="&lt;finance&gt;&lt;free-market&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30016" PostTypeId="1" CreationDate="2019-07-02T01:11:16.997" Score="0" ViewCount="119" Body="&lt;p&gt;What's the difference between &quot;industrial capitalism&quot; and &quot;agrarian capitalism&quot; and &quot;mercantilism&quot; and the &quot;industrial revolution&quot; and the 20th century ideas of &quot;Keynesianism&quot;?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is agrarian capitalism- plantations, industrial capitalism- the exploitation of women working in clothing factories?&lt;/p&gt;&#xA;" OwnerUserId="23577" LastEditorUserId="11590" LastEditDate="2019-07-02T11:02:57.540" LastActivityDate="2021-02-17T20:09:15.917" Title="What is &quot;industrial capitalism&quot;?" Tags="&lt;definition&gt;&lt;history&gt;&lt;keynesian-economics&gt;&lt;capital&gt;&lt;economic-history&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30017" PostTypeId="1" AcceptedAnswerId="30018" CreationDate="2019-07-02T01:27:47.417" Score="0" ViewCount="23" Body="&lt;p&gt;A decrease in the cost of borrowing (interest rate) will case&#xA;a) the demand for loanable funds to increase.&#xA;b) the supply of loanable funds to decrease.&#xA;c) both A and B.&#xA;d) either A or B, but not both.&#xA;e) none of the above.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The answer is e, but why? Doesn't a decrease in the interest rate will cause people to save less, but it causes firms to invest more? Why is the answer not c?&lt;/p&gt;&#xA;" OwnerUserId="23578" LastActivityDate="2019-07-02T01:59:14.183" Title="A decrease in the cost of borrowing (interest rate) will case" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30018" PostTypeId="2" ParentId="30017" CreationDate="2019-07-02T01:59:14.183" Score="3" Body="&lt;p&gt;I believe this is a trick question testing to see if the introductory economics student has overcome the usual confusion over &quot;demand vs quantity demanded&quot; and &quot;supply vs quantity supplied&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When the price of an apple falls, this may cause &lt;em&gt;quantity demanded&lt;/em&gt; or &lt;em&gt;quantity supplied&lt;/em&gt; (of apples) to change, but cannot cause &lt;em&gt;demand&lt;/em&gt; or &lt;em&gt;supply&lt;/em&gt; to change.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Similarly, when the interest rate (or the price of loanable funds) changes, this may cause &lt;em&gt;quantity demanded&lt;/em&gt; or &lt;em&gt;quantity supplied&lt;/em&gt; (of loanable funds) to change, but cannot cause &lt;em&gt;demand&lt;/em&gt; or &lt;em&gt;supply&lt;/em&gt; to change. Hence, the answer is E.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2019-07-02T01:59:14.183" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30019" PostTypeId="2" ParentId="30013" CreationDate="2019-07-02T09:36:40.237" Score="1" Body="&lt;p&gt;A relevant paper could be:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Veldkamp, Laura &amp;amp; Wolfers, Justin, 2007. &quot;Aggregate shocks or aggregate information? Costly information and business cycle comovement,&quot; Journal of Monetary Economics, Elsevier, vol. 54(Supplemen), pages 37-55, September. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;NBER Working Paper version: &lt;a href=&quot;https://www.nber.org/papers/w12557&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.nber.org/papers/w12557&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Published version: &lt;a href=&quot;https://www.sciencedirect.com/science/article/abs/pii/S0304393207000529&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.sciencedirect.com/science/article/abs/pii/S0304393207000529&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="5557" LastActivityDate="2019-07-02T09:36:40.237" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30020" PostTypeId="1" CreationDate="2019-07-02T12:37:36.283" Score="1" ViewCount="337" Body="&lt;p&gt;&lt;strong&gt;Setting:&lt;/strong&gt; We have two choices of goods &lt;span class=&quot;math-container&quot;&gt;$(x_1,y_1)$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$(x_2,y_2)$&lt;/span&gt; from the set of choices &lt;span class=&quot;math-container&quot;&gt;$[-1,1]^2$&lt;/span&gt;. Moreover, we have the following preference relation &lt;span class=&quot;math-container&quot;&gt;$$(x_1,y_1)\mathcal{R}(x_2,y_2)\iff |x_1|\geq|x_2|\&amp;gt;\&amp;gt;\text{or}\&amp;gt;\&amp;gt; |y_1|\geq|y_2|$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Question:&lt;/strong&gt; We have to check if there exists a utility function reprensation of this preference relation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My attempt:&lt;/strong&gt; So from what I have learned, we know that a preference relation admits a utility function representation &lt;em&gt;if&lt;/em&gt; it is rational (reflexive, complete, transitive) and continuous. I have found that this preference relation is not transitive, but this does not mean that there does not exist a utility function representation, because the aforementioned statement is not an &lt;em&gt;if and only if&lt;/em&gt; statement.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Moreover, I thought we could try to derive a contradiction from the fact that if there exists a utility function &lt;span class=&quot;math-container&quot;&gt;$u$&lt;/span&gt; representation of the preference relation, then we have &lt;span class=&quot;math-container&quot;&gt;$$(x_1,y_1)\mathcal{R}(x_2,y_2)\iff u(x_1,y_1)\geq u(x_2,y_2)$$&lt;/span&gt;&#xA;I tried to use the fact that the relation is not transitive to derive a contradiction by using the statement above, but was unsuccessful.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sadly, these are the two main theorems/propositions that I've learned to solve these problems.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help is appreciated!&lt;/p&gt;&#xA;" OwnerUserId="23491" LastActivityDate="2019-08-06T18:19:37.657" Title="Showing that a preference relation admits a utility function representation" Tags="&lt;utility&gt;&lt;preferences&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30023" PostTypeId="1" AcceptedAnswerId="30027" CreationDate="2019-07-02T16:42:21.977" Score="0" ViewCount="47" Body="&lt;p&gt;in the discrete case, if assignemt is random, then i can express E[y|d=1]-E[y|d=0] = B + E[e|d=1]-E[e|d=0], where the expectation of the errors are the same for both groups and become zero. Where I am confused is for a linear regression/continuous variable, we say this condition is expressed by E[e|x]=0, and I struggle to see how they are the same. its not the same as saying E[e|d]=0, right?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I take a partial derivative of E[y|x] wrt x, I get B+ dE[e|x]/dx. cant I have this last term be zero without having E[e|x]=0? is E[e|x1,x2]=E[e|x2] the same thing as E[e|x]=0&lt;/p&gt;&#xA;" OwnerUserId="8119" LastActivityDate="2019-07-03T00:01:22.297" Title="is there a difference between E[e|x]=0 and E[e|d=1]-E[e|d=0] in continuous vs discrete case in regressions?" Tags="&lt;microeconomics&gt;&lt;econometrics&gt;&lt;statistics&gt;&lt;applied-econometrics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30024" PostTypeId="2" ParentId="30015" CreationDate="2019-07-02T17:25:28.930" Score="2" Body="&lt;p&gt;As a part of the overall financial system, such instruments &lt;em&gt;can&lt;/em&gt; increase market efficiency and facilitate exchanges.  Since all such instruments are essentially backed by government monopoly rights (at the most basic, the monopoly held by governments to create money) they would fall under &quot;land&quot; in terms of the &lt;em&gt;classical&lt;/em&gt; factors of production.  While it may seem strange to count financial instruments as a form of &quot;land&quot; it makes sense if you understand &quot;land&quot; to really mean &quot;any factor of production associated with monopoly / exclusive use rights.&quot;  As a form of land, the returns to financial instruments are thus economic rent and the root cause of speculation.  So yes, they should be regulated / taxed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note, however, that it is &lt;em&gt;not&lt;/em&gt; true that they &quot;create no value economically&quot; -- monopoly rights exist for a reason, often specifically to increase overall market efficiency.  It makes more sense for government to grant rights-of-way to utilities and such, to prevent redundant over-building of utility lines, etc.  But the value so created is being created by &lt;em&gt;government&lt;/em&gt;, not the private entities that often claim the rent as their own.  Hence they should be taxed at (nearly) 100% so that the rents go back to the community, rather than free-loading rentiers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is plenty of theory on all of this, though it is considered heterodox today.  Henry George (and his peers) wrote about it at length around the turn of the 19th-20th century, and economists such as Mason Gaffney continue to publish current works in this area today.  The New Physiocrats are another contemporary group publishing ideas along the same lines. &lt;/p&gt;&#xA;" OwnerUserId="23023" LastActivityDate="2019-07-02T17:25:28.930" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30027" PostTypeId="2" ParentId="30023" CreationDate="2019-07-03T00:01:22.297" Score="0" Body="&lt;p&gt;It is very unclear what you are asking. But in most regressions it is assumed that the error term (I assume &quot;e&quot; is the error term) is assumed to be iid for all values of x. In particular, in the discrete case &lt;span class=&quot;math-container&quot;&gt;$E[\epsilon|d=1]=E[\epsilon|d=0]$&lt;/span&gt;, but this can be generalized by saying &lt;span class=&quot;math-container&quot;&gt;$E[\epsilon|x]=E[\epsilon|x']$&lt;/span&gt; for all &lt;span class=&quot;math-container&quot;&gt;$x, x'$&lt;/span&gt;. Now if your regression also includes a constant term, it is without loss of generality to assume that the expected value of &lt;span class=&quot;math-container&quot;&gt;$\epsilon$&lt;/span&gt; (which is the same for all values of x) is equal to zero. Thus, the importance of the assumption &lt;span class=&quot;math-container&quot;&gt;$E[\epsilon|x]=0$&lt;/span&gt; is not so much the &quot;equal to zero&quot; part, but the fact that is the same for all values of x. &lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-07-03T00:01:22.297" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="30028" PostTypeId="2" ParentId="30020" CreationDate="2019-07-03T00:18:59.450" Score="3" Body="&lt;p&gt;You just need to use the violation of transitivity and proceed by contradiction. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose you have  that &lt;span class=&quot;math-container&quot;&gt;$(x_1,y_1)R(x_2,y_2)$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$(x_2,y_2)R(x_3,y_3)$&lt;/span&gt; and a utility function, &lt;span class=&quot;math-container&quot;&gt;$u:[-1,1]^2\rightarrow \mathbb{R}$&lt;/span&gt;, exists, then &lt;span class=&quot;math-container&quot;&gt;$u(x_1,y_1)\geq u(x_2,y_2)$&lt;/span&gt; (these are two reals) and &lt;span class=&quot;math-container&quot;&gt;$u(x_2,y_2)\geq u(x_3,y_3)$&lt;/span&gt;. (another two reals). Since the reals are transitive, we conclude  &lt;span class=&quot;math-container&quot;&gt;$u(x_1,y_1)\geq u(x_3,y_3)$&lt;/span&gt; which in turn implies that &lt;span class=&quot;math-container&quot;&gt;$(x_1,y_1)R(x_3,y_3)$&lt;/span&gt;. However this is a contradiction (if you choose carefully your three bunddles). &lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-07-03T00:18:59.450" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30030" PostTypeId="1" CreationDate="2019-07-03T05:15:51.200" Score="0" ViewCount="80" Body="&lt;p&gt;Assume that there are &lt;span class=&quot;math-container&quot;&gt;$m$&lt;/span&gt; different types of aircrafts. For each type &lt;span class=&quot;math-container&quot;&gt;$l$&lt;/span&gt;, we know the number of movements, &lt;span class=&quot;math-container&quot;&gt;$n_{l}$&lt;/span&gt;, and the overall runway costs, &lt;span class=&quot;math-container&quot;&gt;$c_{l}$&lt;/span&gt;, associated with type &lt;span class=&quot;math-container&quot;&gt;$l$&lt;/span&gt; aircrafts. Since we want to find out how much each individual movement should be charged, we interpret each of them as a single player. &lt;span class=&quot;math-container&quot;&gt;$N_{l}$&lt;/span&gt; be the set of &quot;players&quot; associated with movements of type &lt;span class=&quot;math-container&quot;&gt;$l$&lt;/span&gt; aircrafts.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We assume that types are arranged in an increasing order with respect to the costs, i.e &lt;span class=&quot;math-container&quot;&gt;$0&amp;lt;c_{1}&amp;lt;c_{2}&amp;lt;...&amp;lt;c_{m}$&lt;/span&gt;. Let &lt;span class=&quot;math-container&quot;&gt;$N$&lt;/span&gt; be the (finite) set of all movements, namely &lt;span class=&quot;math-container&quot;&gt;$N:= \displaystyle\bigcup_{l=1}^{m}{N_l }$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The airport game associated with this is the TU-game with player &lt;span class=&quot;math-container&quot;&gt;$N$&lt;/span&gt; and characteristic function &lt;span class=&quot;math-container&quot;&gt;$c$&lt;/span&gt; defined, for each &lt;span class=&quot;math-container&quot;&gt;$S\subset N$&lt;/span&gt;,&lt;span class=&quot;math-container&quot;&gt;$S\ne \varnothing$&lt;/span&gt; by &#xA;&lt;span class=&quot;math-container&quot;&gt;$v(S):=- max\{c_{l}:S\cap N_{l}\ne \varnothing \}$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Questions&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) Could you explain why the negative sign?.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) Could you give me some help to verify that airport games is superadditive and convex?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Superadditive. If &lt;span class=&quot;math-container&quot;&gt;$A,B\subset N$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$A\cap B=\varnothing$&lt;/span&gt;,  &lt;span class=&quot;math-container&quot;&gt;$v(A\cup B)\ge v(A)+v(B)$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Convex.If &lt;span class=&quot;math-container&quot;&gt;$A,B\subset N$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$v(A\cup B)\ge v(A)+v(B)-v(A\cap B)$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit: The negative sign is because the cost function is not superadditive but its negative if it is. But why?&lt;/p&gt;&#xA;" OwnerUserId="23094" LastEditorUserId="23094" LastEditDate="2019-07-07T04:07:33.373" LastActivityDate="2019-07-07T04:07:33.373" Title="Airport problem" Tags="&lt;game-theory&gt;&lt;cooperative-game-theory&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="30032" PostTypeId="2" ParentId="30015" CreationDate="2019-07-03T11:22:56.847" Score="0" Body="&lt;p&gt;I'm going to answer this in terms of OTC contacts.The more efficient the market gets, transactional costs get lesser and lesser. This has more to do with efficiency of capitalism. A highly competitive environment will naturally have lower transactional costs. For example the profit spread for a financial intermediary for organising a interest rate swap between two interested participants was as much as 10x times a decade ago than it is today. &lt;/p&gt;&#xA;" OwnerUserId="23523" LastActivityDate="2019-07-03T11:22:56.847" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30034" PostTypeId="1" CreationDate="2019-07-03T17:26:58.853" Score="2" ViewCount="14" Body="&lt;p&gt;I was watching the news the other day and the reporter said that America was complaining about &quot;the range of subsidies that underpin China’s economic model&quot;. What exactly are those subsidies?&lt;/p&gt;&#xA;" OwnerUserId="23588" LastEditorUserId="7215" LastEditDate="2019-07-05T14:38:35.093" LastActivityDate="2019-07-05T14:38:35.093" Title="The range of subsidies that underpin China’s economic model" Tags="&lt;international-economics&gt;&lt;china&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30036" PostTypeId="1" AcceptedAnswerId="41660" CreationDate="2019-07-03T19:50:56.047" Score="8" ViewCount="379" Body="&lt;p&gt;The CES utility function has the form &#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;u(x_1,\dots,x_n)=\left[\sum_{i=1}^n\alpha_ix_i^\rho\right]^{1/\rho},&#xA;\end{equation}&lt;/span&gt;&#xA;where &lt;span class=&quot;math-container&quot;&gt;$\alpha_i$&lt;/span&gt; is the consumption share parameter and &lt;span class=&quot;math-container&quot;&gt;$\sigma=\frac{1}{1-\rho}$&lt;/span&gt; is the elasticity of substitution. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm interested in estimating the &lt;span class=&quot;math-container&quot;&gt;$\alpha_i$&lt;/span&gt;'s and &lt;span class=&quot;math-container&quot;&gt;$\sigma$&lt;/span&gt;. Since we do not directly observe utility levels, I think we can instead use data to estimate the Marshallian demand functions implied by the utility function: &#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;  x_i(p_1,\dots,p_n,M)=\frac{M(\alpha_i/p_i)^\sigma}{\sum_{j=1}^n\alpha_j^\sigma p_j^{1-\sigma}},\quad i=1,\dots,n.&#xA;\end{equation}&lt;/span&gt;&#xA;Clearly, the function is highly nonlinear in the parameters of interest. So a nonlinear estimation procedure would be required. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Say we have data consumption &lt;span class=&quot;math-container&quot;&gt;$x_i$&lt;/span&gt;, prices &lt;span class=&quot;math-container&quot;&gt;$p_i$&lt;/span&gt; and income &lt;span class=&quot;math-container&quot;&gt;$M$&lt;/span&gt;. &lt;strong&gt;How do we go about estimating the parameters &lt;span class=&quot;math-container&quot;&gt;$\alpha_i$&lt;/span&gt;'s and &lt;span class=&quot;math-container&quot;&gt;$\sigma$&lt;/span&gt;?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can find a lot of papers on estimating the CES &lt;em&gt;production&lt;/em&gt; function, but I don't find them helpful since I don't observe the dependent variable (&lt;span class=&quot;math-container&quot;&gt;$u$&lt;/span&gt;). Given that the CES utility is a common functional form used in the literature, I suspect its estimation must be somewhere in the literature. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I managed to find the &lt;a href=&quot;https://www.stata.com/manuals13/rnl.pdf&quot; rel=&quot;noreferrer&quot;&gt;nonlinear least squares estimation in Stata&lt;/a&gt;, but I don't know how susceptible such a procedure is to misspecification and how much confidence one should put on the statistics (e.g. t-stat or p-value) produced by the program.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any pointer to the papers/textbook chapters on the topic, as well as statistical packages that implement the estimation procedure will be greatly appreciated. &lt;/p&gt;&#xA;" OwnerUserId="42" LastEditorUserId="42" LastEditDate="2019-07-05T21:55:42.987" LastActivityDate="2020-12-23T06:57:26.273" Title="Estimating CES utility (not production) function parameters" Tags="&lt;econometrics&gt;&lt;reference-request&gt;&lt;applied-econometrics&gt;&lt;ces-function&gt;" AnswerCount="4" CommentCount="0" FavoriteCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="30039" PostTypeId="2" ParentId="30005" CreationDate="2019-07-03T20:59:06.907" Score="1" Body="&lt;p&gt;There is a Hungarian economist by the name &lt;a href=&quot;https://en.wikipedia.org/wiki/J%C3%A1nos_Kornai&quot; rel=&quot;nofollow noreferrer&quot;&gt;János Kornai&lt;/a&gt;, who has renowned work on eastern block socialist systems. He has devised a &lt;a href=&quot;https://books.google.hu/books?id=anhqDwAAQBAJ&amp;amp;pg=PA154&amp;amp;lpg=PA154&amp;amp;dq=j%C3%A1nos%20kornai%20coordination%20ethical%20non-profit&amp;amp;source=bl&amp;amp;ots=VSNUUHLJWT&amp;amp;sig=ACfU3U0yXPwoGgKlsCTnVuHN5_FPqAm3wg&amp;amp;hl=en&amp;amp;sa=X&amp;amp;ved=2ahUKEwj5wsXPy5njAhWOxIsKHcf8BSMQ6AEwAXoECAgQAQ#v=onepage&amp;amp;q=j%C3%A1nos%20kornai%20coordination%20ethical%20non-profit&amp;amp;f=false&quot; rel=&quot;nofollow noreferrer&quot;&gt;system theory&lt;/a&gt; on &lt;a href=&quot;http://www.kornai-janos.hu/Kornai1984%20Bureaucratic%20and%20market%20coordination.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;coordination mechanisms&lt;/a&gt; which guide the way people work together and allocate resources. Based on this theory you can explain different economic and political systems as well. The four coordination mechanisms are:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;market (for-profit business - capitalism)&lt;/li&gt;&#xA;&lt;li&gt;bureaucratic (the state - socialism)&lt;/li&gt;&#xA;&lt;li&gt;ethical (non-profit, charity organizations, the church etc.)&lt;/li&gt;&#xA;&lt;li&gt;aggressive (organized crime etc.)&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;From these four, the ethical is the mechanism which guides charity and non-profit organizations, which is actually the weakest in terms of efficiency. The guiding objectives are grounded on moral and altruistic behavior, but as humans are collectively more selfish in reality, this does not work too well. There is a crowding-out process, by which market coordination takes over in that certain field. Which is in your case the FMCG industry. Even if there are some moral initiatives to &lt;code&gt;simply provide consumers with a healthy and affordable morning meal, but not to make a profit&lt;/code&gt;, slowly the enthusiasm erodes and people start to behave more selfish, and exploit the the brand and image to make money. Look at part III. section 1. of the article titled, &lt;a href=&quot;http://www.kornai-janos.hu/Kornai1984%20Bureaucratic%20and%20market%20coordination.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;Neither bureaucracy, nor market?&lt;/em&gt;&lt;/a&gt; for a good explanation.&lt;/p&gt;&#xA;" OwnerUserId="19225" LastEditorUserId="19225" LastEditDate="2019-07-25T15:26:30.250" LastActivityDate="2019-07-25T15:26:30.250" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30041" PostTypeId="1" CreationDate="2019-07-04T00:41:23.810" Score="2" ViewCount="205" Body="&lt;p&gt;There are different zones of elasticity on a graph, but if we are to imagine a negatively sloped, straight line on a price v quantity graph, we find that elasticity differs based on where we look on the graph. Why is this the case, rather then elasticity being constant?&lt;/p&gt;&#xA;" OwnerUserId="23596" LastEditorUserId="11590" LastEditDate="2019-07-04T09:08:58.037" LastActivityDate="2019-07-04T09:08:58.037" Title="Why is elasticity not constant on a straight line graph?" Tags="&lt;microeconomics&gt;&lt;elasticity&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30042" PostTypeId="2" ParentId="30041" CreationDate="2019-07-04T01:14:54.690" Score="2" Body="&lt;p&gt;Theoretically, the responsiveness of quantity demanded is different at different prices. Take the equation for the elasticity of demand:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\epsilon_{D}=\frac{\Delta{Q}}{\Delta{P}}\frac{P}{Q}$$&lt;/span&gt;&#xA;The equation itself is non-constant as it depends on P and Q. Lets assume a linear demand curve with the simple form: &lt;span class=&quot;math-container&quot;&gt;$P(Q)=6-Q$&lt;/span&gt;. If we take an equal change in price, say &lt;span class=&quot;math-container&quot;&gt;$\Delta{P}=1$&lt;/span&gt;, and since the demand curve is linear in this case, we see it has a slope = &lt;span class=&quot;math-container&quot;&gt;$-1$&lt;/span&gt; and thus the &lt;span class=&quot;math-container&quot;&gt;$\Delta{Q}=1$&lt;/span&gt;. If we have two situations where &lt;span class=&quot;math-container&quot;&gt;$P=5$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$P=4$&lt;/span&gt;, then, to keep in accordance with our slope, lets say &lt;span class=&quot;math-container&quot;&gt;$Q=1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$Q=2$&lt;/span&gt;, respectively.&#xA;The two elasticities of demand for these two prices would be &lt;span class=&quot;math-container&quot;&gt;$\epsilon_{D}=5$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\epsilon_{D}=2$&lt;/span&gt; for the higher and lower price respectively.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In short, the elasticity of demand is a function of the responsiveness of quantity demanded to changes in prices that &lt;em&gt;depends&lt;/em&gt; on the current price/quantity combination.&#xA;At a higher point up the demand curve, the elasticity is higher, or demand more elastic, than at lower points.&lt;/p&gt;&#xA;" OwnerUserId="23546" LastActivityDate="2019-07-04T01:14:54.690" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30043" PostTypeId="1" AcceptedAnswerId="30411" CreationDate="2019-07-04T07:14:03.960" Score="2" ViewCount="660" Body="&lt;p&gt;In class, we have been using this calculator in order to see the effects of inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.rbnz.govt.nz/monetary-policy/inflation-calculator&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.rbnz.govt.nz/monetary-policy/inflation-calculator&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am slightly confused by what is meant by &quot;adjusting for inflation&quot;. I read online that this means the effect of inflation is removed. I've also listened to a lot of speeches where people talk about adjusting for inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the case of this calculator, what does it mean to adjust for inflation? It doesn't mean we remove the effect of inflation, right? And is CPI used to measure the increase in inflation?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And with this calculator, are real or nominal values being used?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(I've been studying economics for a couple of weeks, so sorry for the basic question!)&lt;/p&gt;&#xA;" OwnerUserId="23031" LastActivityDate="2019-08-04T18:03:32.260" Title="Confused about what is meant by adjusting for inflation" Tags="&lt;macroeconomics&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30044" PostTypeId="2" ParentId="30043" CreationDate="2019-07-04T07:33:38.413" Score="0" Body="&lt;p&gt;Adjusting for inflation means just that... How much would this thing that costs X now would have costed back in year Y. Of course, this depends on what good you're talking about. A loaf of bread that costed \$10 in 2000 might cost \$15 now, whereas a t-shirt that costed \$10 in 2000 might cost only \$12 now.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When talking about many goods, this might become problematic, and that's where CPI comes in. CPI is the &quot;price index&quot; for consumption goods. Basically a weighted average of the price of goods consumed by an average household. The number by itself might not mean much, but the growth of CPI (&quot;inflation&quot;) says how much the price of an average basket of goods has increased.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When you don't adjust for inflation, you're talking about the nominal value. When you adjust for inflation, you're using the &quot;real&quot; values.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope this helps!&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Edit: Maybe another example might help. Your salary is \$100 ten years ago and you can buy one basket of apples with that. Now your salary is $200. Can you buy two baskets with your current salary? Likely not, because the price of goods would have increased due to inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's say the price of apples increased by 20% over that period, to see how much your salary has actually increased (hence the &quot;real&quot; increase) you need to &quot;remove the effect of inflation&quot; from your salary (&quot;deflate&quot; it) by 20%.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A basket of apples used to cost \$100 ten years ago. Now it costs $120. So with your current salary, you can buy only 200/120 = 1.67 baskets. This means the &quot;real&quot; increase in your salary (i.e. adjusted for inflation) is only 67%.&lt;/p&gt;&#xA;" OwnerUserId="5145" LastEditorUserId="5145" LastEditDate="2019-07-04T07:54:39.183" LastActivityDate="2019-07-04T07:54:39.183" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="30045" PostTypeId="1" CreationDate="2019-07-04T07:39:14.690" Score="0" ViewCount="11" Body="&lt;p&gt;I am looking for an overview as most of the introduction to matching talks about the work done in the Marriage market, Job Matching which is axiomatic. Then while looking at Labour and housing market it very different and at a very macro level. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Marriage: &lt;a href=&quot;https://web.stanford.edu/~niederle/Palgrave%20Matching.Approved.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://web.stanford.edu/~niederle/Palgrave%20Matching.Approved.pdf&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Labour: &lt;a href=&quot;https://economics.mit.edu/files/7400&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://economics.mit.edu/files/7400&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Housing: &lt;a href=&quot;http://www-2.rotman.utoronto.ca/facbios/file/Search%20and%20Matching.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www-2.rotman.utoronto.ca/facbios/file/Search%20and%20Matching.pdf&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="16382" LastActivityDate="2019-07-04T07:39:14.690" Title="How is matching theory used in context of Marriage market difference in terms of which is used in context of labour and housing market?" Tags="&lt;labor-economics&gt;&lt;housing&gt;&lt;search-and-matching&gt;&lt;matching&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30046" PostTypeId="1" AcceptedAnswerId="30050" CreationDate="2019-07-04T07:57:20.220" Score="1" ViewCount="132" Body="&lt;p&gt;I have been reading a &lt;a href=&quot;https://www.researchgate.net/publication/318653587_Trading_on_local_energy_markets_A_comparison_of_market_designs_and_bidding_strategies&quot; rel=&quot;nofollow noreferrer&quot;&gt;paper&lt;/a&gt; on energy markets and I have stumbled upon double markets and clearing prices, which got me quite confused (bare in mind, I am relatively new to this topic). Quote from the work (Chapter 3, C):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The order book market design is implemented via a double auction market with discrete market closing times that results in a &lt;strong&gt;single clearing price&lt;/strong&gt; in every trading period. .... The lowest bid price that can still be served given the aggregated supply determines the market clearing price.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The way I understand this model is that there will be only 1 price, which every buyer is going to purchase the product for. For example:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Buyers:&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Buyer 1: bid price = 30 cent&lt;/li&gt;&#xA;&lt;li&gt;Buyer 2: bid price = 25 cent&lt;/li&gt;&#xA;&lt;li&gt;Buyer 3: bid price = 20 cent&lt;/li&gt;&#xA;&lt;li&gt;Buyer 4: bid price = 15 cent&lt;/li&gt;&#xA;&lt;/ul&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;And the ask prices of the sellers per item:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Sellers:&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Seller 1: ask price = 25 cent&lt;/li&gt;&#xA;&lt;li&gt;Seller 2: ask price = 20 cent&lt;/li&gt;&#xA;&lt;/ul&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;From what I understand is, that there would be just one clearing price and Buyers 1 and 2 will both purchase an item from Seller 1 and 2 for 20 cent, instead of 30 and 25 cent. Have I understood the concept of &lt;em&gt;the double auction&lt;/em&gt; correctly, or will Buyers 1 and 2 purchase their items for 30 and 25 cent from the respective sellers?&lt;/p&gt;&#xA;" OwnerUserId="23600" LastActivityDate="2019-07-04T16:47:26.233" Title="Clearing price in a double auction market" Tags="&lt;supply-and-demand&gt;&lt;auctions&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30047" PostTypeId="2" ParentId="30007" CreationDate="2019-07-04T10:36:37.630" Score="2" Body="&lt;p&gt;&lt;em&gt;Condition in yellow&lt;/em&gt;: Each consumer &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; is assumed to have initial wealth endowment &lt;span class=&quot;math-container&quot;&gt;$0$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Condition in purple&lt;/em&gt;: For each asset &lt;span class=&quot;math-container&quot;&gt;$k$&lt;/span&gt;, aggregate demand &lt;span class=&quot;math-container&quot;&gt;$\leq$&lt;/span&gt; aggregate supply, which is zero by assumption. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In practical terms, the asset &lt;span class=&quot;math-container&quot;&gt;$z_k$&lt;/span&gt; being traded at &lt;span class=&quot;math-container&quot;&gt;$t = 0$&lt;/span&gt; are &lt;span class=&quot;math-container&quot;&gt;$t = 1$&lt;/span&gt; claims to commodity &lt;span class=&quot;math-container&quot;&gt;$k$&lt;/span&gt;. It is a derivative contract. In this particular case, it is a futures contract, i.e. the right and obligation to &lt;span class=&quot;math-container&quot;&gt;$z_k$&lt;/span&gt; units of commodity &lt;span class=&quot;math-container&quot;&gt;$k$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume the exogenous asset returns &lt;span class=&quot;math-container&quot;&gt;$r_{sk} = 1$&lt;/span&gt; for all &lt;span class=&quot;math-container&quot;&gt;$k$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$s$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you sell a futures contract for &lt;span class=&quot;math-container&quot;&gt;$z = 30$&lt;/span&gt; barrels of West Texas Intermediate crude (tons of wheat/thousand pounds of coffee beans/etc.) at futures price &lt;span class=&quot;math-container&quot;&gt;$q = \$10$&lt;/span&gt;, then you pocket &lt;span class=&quot;math-container&quot;&gt;$z \cdot q = \$300$&lt;/span&gt; at &lt;span class=&quot;math-container&quot;&gt;$t = 0$&lt;/span&gt;. At &lt;span class=&quot;math-container&quot;&gt;$t = 1$&lt;/span&gt;, you must deliver &lt;span class=&quot;math-container&quot;&gt;$30$&lt;/span&gt; barrels of WTI crude to your counterparty. So you must purchase &lt;span class=&quot;math-container&quot;&gt;$z = 30$&lt;/span&gt; barrels of WTI at spot price &lt;span class=&quot;math-container&quot;&gt;$p = \$20$&lt;/span&gt;, say, at a cost of &lt;span class=&quot;math-container&quot;&gt;$z \cdot p = \$600$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Above is the case of a short position. Similarly, if you take a long position, it will cost &lt;span class=&quot;math-container&quot;&gt;$\$300$&lt;/span&gt; today but tomorrow you get to have &lt;span class=&quot;math-container&quot;&gt;$30$&lt;/span&gt; barrels of WIT, which you get to sell at the spot price &lt;span class=&quot;math-container&quot;&gt;$p = \$20$&lt;/span&gt;.&#xA;This adds &lt;span class=&quot;math-container&quot;&gt;$\$600$&lt;/span&gt; to your &lt;span class=&quot;math-container&quot;&gt;$t=1$&lt;/span&gt; budget which can then be used to buy consumption good &lt;span class=&quot;math-container&quot;&gt;$x_i$&lt;/span&gt;'s.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regardless of long or short position, today's cost is &lt;span class=&quot;math-container&quot;&gt;$z \cdot q$&lt;/span&gt; and tomorrow's gain is &lt;span class=&quot;math-container&quot;&gt;$z \cdot p$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you have zero &lt;span class=&quot;math-container&quot;&gt;$t = 0$&lt;/span&gt; wealth, the total value of contracts you buy cannot be more than the total value of contracts you sold. This is condition in yellow.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For each commodity good, if there is an aggregate of, say, &lt;span class=&quot;math-container&quot;&gt;$100$&lt;/span&gt; contracts being sold at &lt;span class=&quot;math-container&quot;&gt;$t = 0$&lt;/span&gt;, there cannot be &lt;span class=&quot;math-container&quot;&gt;$101$&lt;/span&gt; being bought. &#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\mbox{aggregate long position/demand} - \mbox{aggregate short position/supply} \leq 0.&#xA;$$&lt;/span&gt;&#xA;This is condition in purple. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Allowing for &lt;span class=&quot;math-container&quot;&gt;$&amp;lt; 0$&lt;/span&gt; implicitly assumes that there are other agents unmodelled that absorbs excess supply. Alternatively, one can insist that the futures market clears, i.e. &lt;span class=&quot;math-container&quot;&gt;$$&#xA;\mbox{aggregate long position/demand} - \mbox{aggregate short position/supply} = 0.&#xA;$$&lt;/span&gt;&#xA;This would not lead to material change in the economic implications of the model.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Comments&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;em&gt;Consumption Smoothing&lt;/em&gt;&lt;/strong&gt; &#xA;Under convexity and regularity assumptions on &lt;span class=&quot;math-container&quot;&gt;$U$&lt;/span&gt;, it is clear from the FOC that agents in this economy trade &lt;span class=&quot;math-container&quot;&gt;$t = 1$&lt;/span&gt; claims at &lt;span class=&quot;math-container&quot;&gt;$t = 0$&lt;/span&gt; in order to smooth their &lt;span class=&quot;math-container&quot;&gt;$t = 1$&lt;/span&gt; consumption across states. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;em&gt;Sequential Trading&lt;/em&gt;&lt;/strong&gt; &#xA;In this economy, there is a futures/forward market&#xA;at &lt;span class=&quot;math-container&quot;&gt;$t = 0$&lt;/span&gt; and a spot market at &lt;span class=&quot;math-container&quot;&gt;$t =1$&lt;/span&gt;. Agents trade today subject to their budget constraint today, same for tomorrow.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;em&gt;Rational Expectations&lt;/em&gt;&lt;/strong&gt; &#xA;However, agents correctly anticipates the &lt;span class=&quot;math-container&quot;&gt;$t=1$&lt;/span&gt; spot price at &lt;span class=&quot;math-container&quot;&gt;$t = 0$&lt;/span&gt;. Equilibrium is self-fulfilling.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;em&gt;Radner vs. Arrow-Debreu&lt;/em&gt;&lt;/strong&gt; &#xA;In an &lt;em&gt;Arrow-Debreu equilibrium&lt;/em&gt;, agents trade &lt;span class=&quot;math-container&quot;&gt;$t=0$&lt;/span&gt; state-contingent claims (&quot;Arrow-Debreu securities&quot;). There is no &lt;span class=&quot;math-container&quot;&gt;$t=1$&lt;/span&gt; spot market. Trading only occurs once ex ante. In practical terms, AD securities are digital options, instead of futures contracts.&#xA;A priori, agents' choice set of consumption profiles is more restricted in the Radner economy. A futures contract is a un-contingent claim. An important result is the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;If asset returns &lt;span class=&quot;math-container&quot;&gt;${r_{sk}}$&lt;/span&gt; is complete, then an Arrow-Debreu equilibrium can be implemented by a Radner equilibrium.&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is not surprising. When the market is complete, i.e. there is enough futures contracts to span the set of states, any Arrow-Debreu payoff profile can be engineered from a suitable portfolio of futures contracts. &lt;/p&gt;&#xA;" OwnerUserId="126" LastEditorUserId="126" LastEditDate="2019-07-15T16:50:42.493" LastActivityDate="2019-07-15T16:50:42.493" CommentCount="8" ContentLicense="CC BY-SA 4.0" />
  <row Id="30048" PostTypeId="1" AcceptedAnswerId="30122" CreationDate="2019-07-04T11:49:54.777" Score="1" ViewCount="85" Body="&lt;p&gt;Context: I would like to know how likely a player is to pick a specific action, provided that he plays optimally and the action is optimal. Phrased like this, the question is ill-defined. But is there some way around the problem?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Details: I have a zero-sum symmetric matrix game. Is there some good notion of a Nash equilibrium with a maximum support [edit: maximum among the NE strategies]? Like something along the lines of &quot;take the center of the simplex of NE strategies&quot;?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question: Is there some canonical solution to the vague question above? Possibly something already written down in a textbook or a paper. (It would feel silly to reinvent the wheel.)&lt;/p&gt;&#xA;" OwnerUserId="23602" LastEditorUserId="23602" LastEditDate="2019-07-07T15:19:30.373" LastActivityDate="2019-07-10T22:40:22.037" Title="Maximum-support Nash equilibria in zero-sum games" Tags="&lt;game-theory&gt;&lt;nash-equilibrium&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30049" PostTypeId="2" ParentId="30006" CreationDate="2019-07-04T12:18:45.753" Score="0" Body="&lt;p&gt;In a rational expectation equilibrium (strategic as well as competitive), certainly a non-binding price ceiling has no effect on equilibrium, as agents correctly anticipates price.&lt;/p&gt;&#xA;" OwnerUserId="126" LastActivityDate="2019-07-04T12:18:45.753" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30050" PostTypeId="2" ParentId="30046" CreationDate="2019-07-04T16:20:01.153" Score="2" Body="&lt;p&gt;In your example, the market clearing price is &lt;span class=&quot;math-container&quot;&gt;$25$&lt;/span&gt; as there are two buying bids at that price or higher and two selling bids at that price or lower, and no other price achieves this match&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So Buyer &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt; and Buyer &lt;span class=&quot;math-container&quot;&gt;$2$&lt;/span&gt; both pay &lt;span class=&quot;math-container&quot;&gt;$25$&lt;/span&gt; and Seller &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt; and Seller &lt;span class=&quot;math-container&quot;&gt;$2$&lt;/span&gt; both receive &lt;span class=&quot;math-container&quot;&gt;$25$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you want actual examples, you could look at the shares of Tottenham Hotspur Limited (the football club) on &lt;a href=&quot;https://www.assetmatch.com/app/OurCompanies/CompanyProfile?companyId=1456&quot; rel=&quot;nofollow noreferrer&quot;&gt;Asset Match&lt;/a&gt; and the Auction results (almost every month) in the right hand column.  The orders are shown cumulatively but it is easy enough to decipher the actual bids at each price.  For example in &lt;a href=&quot;https://www.assetmatch.com/app/OurCompanies/DownloadFile?realFileName=20190627%20THFC%20-%20Auction%20result.pdf&amp;amp;fileName=20190627%20THFC%20-%20Auction%20result.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;June 2019&lt;/a&gt; they looked like this&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;  Cumulative  Actual           Actual   Cumulative           &#xA;   wanted     wanted   Price   offered   offered&#xA;    11900         0     250p      875        875&#xA;    11900         0     260p      500       1375&#xA;    11900      7900     265p     9842      11217   &#xA;     4000      2500     270p    16314      27531 &#xA;     1500      1500     275p     1384      28915&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;The market clearing price was &lt;span class=&quot;math-container&quot;&gt;$265$&lt;/span&gt; covering &lt;span class=&quot;math-container&quot;&gt;$11217$&lt;/span&gt; shares as this is where the cumulative supply and demand curves cross.  The successful trades included all those shares offered at &lt;span class=&quot;math-container&quot;&gt;$250$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$260$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$265$&lt;/span&gt;, and all those wanted at &lt;span class=&quot;math-container&quot;&gt;$275$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$270$&lt;/span&gt; plus &lt;span class=&quot;math-container&quot;&gt;$7217$&lt;/span&gt; of the shares wanted at &lt;span class=&quot;math-container&quot;&gt;$265$&lt;/span&gt;.  All successful transactions were settled at &lt;span class=&quot;math-container&quot;&gt;$265$&lt;/span&gt;, though the Assetmatch would have then charged a small fee for arranging the deals&lt;/p&gt;&#xA;" OwnerUserId="8891" LastEditorUserId="8891" LastEditDate="2019-07-04T16:47:26.233" LastActivityDate="2019-07-04T16:47:26.233" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30053" PostTypeId="1" AcceptedAnswerId="30059" CreationDate="2019-07-04T21:52:11.473" Score="1" ViewCount="30" Body="&lt;p&gt;I am looking for data of Inflation and unemployment to run a Panel Data of a Philips Curve.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can anybody help me with some website/source that I can find data like these?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In my mind I would need too many countries (60 is enough) with this information through, for example, 2010 until 2019. Is it possible to obtain these data?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Many thanks&lt;/p&gt;&#xA;" OwnerUserId="21177" LastEditorUserId="11590" LastEditDate="2019-07-05T14:34:37.647" LastActivityDate="2019-07-05T14:34:37.647" Title="Data of Inflation and unemployment for a Panel Data" Tags="&lt;macroeconomics&gt;&lt;data-request&gt;&lt;paneldata&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30056" PostTypeId="2" ParentId="29969" CreationDate="2019-07-05T07:28:19.093" Score="2" Body="&lt;p&gt;The two propositions here are:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;EMH: I can't predict which stocks will do better than average.&lt;/li&gt;&#xA;&lt;li&gt;The average stock will increase in the long run.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;1 does not contradict 2.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Analogy: I am in a room full of babies.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;EMH: I can't predict which of these babies will be the tallest in 20 years.&lt;/li&gt;&#xA;&lt;li&gt;Nonetheless, I can predict that in 20 years, these babies will be taller than they are today.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2019-07-05T07:28:19.093" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30057" PostTypeId="1" CreationDate="2019-07-05T08:58:22.357" Score="1" ViewCount="151" Body="&lt;h3&gt;Some consumer economies&lt;/h3&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;In 2017, the United States household final consumption expenditure (HFCE) is $13t, which is 68% of its GDP.&lt;/li&gt;&#xA;&lt;li&gt;In 2017, the United Kingdom has a HFCE of 1.7t, which is 66% of its economy.&lt;/li&gt;&#xA;&lt;li&gt;In 2017, Hong Kong has a HFCE of 228b which is 68% of its economy.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;p&gt;&lt;strong&gt;Source:&lt;/strong&gt; &lt;a href=&quot;https://en.wikipedia.org/wiki/List_of_largest_consumer_markets&quot; rel=&quot;nofollow noreferrer&quot;&gt;Wikipedia&lt;/a&gt;&lt;/p&gt;&#xA;&lt;h1&gt;What is consumer economy?&lt;/h1&gt;&#xA;&lt;p&gt;A &lt;strong&gt;consumer economy&lt;/strong&gt; is an economy driven by &lt;strong&gt;consumer spending&lt;/strong&gt; unlike production exports like industrial economies.&lt;/p&gt;&#xA;&lt;p&gt;While I fully understand how consumer economy works in microeconomics (basically everything is the same and perfectly normal) and noted that US is an exception to the norms of international economic norms (since it's the owner of USD), I would like to be enlightened on &lt;strong&gt;how a consumer economy is possibly sustainable in terms of balance of trade, …aside from waiting for miraculous FDI injection&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;How can I continuously consume without running out of money&amp;amp;resources? (assuming this nation is not a Juche/Soviet)&lt;/li&gt;&#xA;&lt;li&gt;Does this not eventually cause a devaluation of your national currency if you keeps on importing more than you export?&lt;/li&gt;&#xA;&lt;li&gt;Is it OK for me to conclude that consumer spending is bad, we should save as much as possible like Singapore, China and Japan and focus on exports to make as much incoming money as possible?&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="18504" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2019-08-10T15:01:05.083" Title="How can a consumer economy possibly be sustainable?" Tags="&lt;macroeconomics&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30059" PostTypeId="2" ParentId="30053" CreationDate="2019-07-05T10:57:11.973" Score="1" Body="&lt;p&gt;For unemployment rates, check the &lt;a href=&quot;https://ilostat.ilo.org/&quot; rel=&quot;nofollow noreferrer&quot;&gt;ILO&lt;/a&gt;. For inflation rates, see the &lt;a href=&quot;https://data.worldbank.org/indicator/FP.CPI.TOTL.ZG?view=chart&quot; rel=&quot;nofollow noreferrer&quot;&gt;World Bank&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="17735" LastActivityDate="2019-07-05T10:57:11.973" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30060" PostTypeId="1" CreationDate="2019-07-05T11:01:22.783" Score="1" ViewCount="19" Body="&lt;p&gt;I was going through the Indian budget (Indiabudget.gov.in), and I noticed something very strange. The overall liability of the govt was many times more than the revenue estimated in the budget. How can such an economy grow when the govt has so much debt on itself and it continues to grow over the years. At what level does the debt seem to be dangerous? &lt;img src=&quot;https://i.stack.imgur.com/3fhde.jpg&quot; alt=&quot;enter image description here&quot;&gt;&#xA;&lt;img src=&quot;https://i.stack.imgur.com/ZViWt.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;" OwnerUserId="23611" LastEditorUserId="11590" LastEditDate="2019-07-07T11:30:39.073" LastActivityDate="2019-07-07T11:30:39.073" Title="How can a country grow with so much debt?" Tags="&lt;government-debt&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30061" PostTypeId="1" CreationDate="2019-07-05T11:03:18.193" Score="5" ViewCount="85" Body="&lt;p&gt;I'm looking for a good meta analysis which answers the question if patents are generally beneficial to economy or not. Some papers I've read claim they are indispensable, other say it depends on the field. I'm looking for a current state of the art meta analysis / review.&lt;/p&gt;&#xA;" OwnerUserId="18743" LastActivityDate="2021-01-04T22:17:51.980" Title="Do patents foster innovation?" Tags="&lt;macroeconomics&gt;&lt;economic-growth&gt;&lt;innovation&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="30062" PostTypeId="1" CreationDate="2019-07-05T17:30:52.857" Score="1" ViewCount="28" Body="&lt;p&gt;I have a producer price index which is the composite of 9 various commodity prices including that of coal. I want to remove the effects of coal price changes from the original index. I have data on coal prices. Does anyone know of a method that I could use to filter out the effects of coal price changes from the original index? &lt;/p&gt;&#xA;" OwnerUserId="6009" LastActivityDate="2019-07-07T11:28:07.680" Title="Manipulating index numbers" Tags="&lt;macroeconomics&gt;&lt;inflation&gt;&lt;statistics&gt;&lt;price-index&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="30063" PostTypeId="2" ParentId="29969" CreationDate="2019-07-05T17:35:19.230" Score="2" Body="&lt;p&gt;I do not see the contradiction here:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;The stock indices generally increase in the long run, because of the&#xA;growth of the global economy (or local economy in the case of one&#xA;national index). This increase is believed to be about 4-6%&#xA;per year in real terms (market premium + risk-free returns in real&#xA;terms) on the long run. (global average)&lt;/li&gt;&#xA;&lt;li&gt;The EMH semi-strong form merely states, that&#xA;you can not systematically exploit the public fundamental information&#xA;(for example quarterly reports, news which might affect future&#xA;earning) arising on an equity to outsmart the market, and be faster&#xA;than the rest when buying and selling. Because the market, as a&#xA;collective entity, is incredibly fast at assimilating these kinds of&#xA;information.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;But you still can expect a positive return on a individual stock based on its risk factor, just not more than that. These expected, and risk-and-time compensating positive returns are aggregated in the indices, and these produce the long-run average growth.&lt;/p&gt;&#xA;" OwnerUserId="19225" LastEditorUserId="4020" LastEditDate="2019-07-06T08:13:44.373" LastActivityDate="2019-07-06T08:13:44.373" CommentCount="8" ContentLicense="CC BY-SA 4.0" />
  <row Id="30064" PostTypeId="2" ParentId="30061" CreationDate="2019-07-05T18:35:21.273" Score="5" Body="&lt;p&gt;&lt;a href=&quot;https://lib.dr.iastate.edu/cgi/viewcontent.cgi?article=1317&amp;amp;context=card_workingpapers&quot; rel=&quot;noreferrer&quot;&gt;This article&lt;/a&gt; is from 2002, but it does a pretty good job of summarizing the pros and cons and has a section on normative decisions. Here is the abstract: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In this paper, we review the economic effects of intellectual property rights and specifically address the economics of the patent system. The production and dissemination of new knowledge is fraught with market failures because knowledge is a public good. Patents provide a second-best solution to the resulting appropriability problem. We review the main benefits and costs of the patent system, focusing on the role that patents play in providing incentives for innovation, in promoting the dissemination of knowledge, and in helping technology transfer and commercialization of new technology. From a more normative perspective, we address the questions of what the features of an optimal patent system are and whether the patent system is socially desirable. We examine the problem of the optimal length and scope of patent protection, both for the case of a single innovation and for the richer case of cumulative innovations. Finally, we review the issues related to how the patent system influences the market structure and research and development investments.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://lib.dr.iastate.edu/cgi/viewcontent.cgi?article=1317&amp;amp;context=card_workingpapers&quot; rel=&quot;noreferrer&quot;&gt;https://lib.dr.iastate.edu/cgi/viewcontent.cgi?article=1317&amp;amp;context=card_workingpapers&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="23470" LastActivityDate="2019-07-05T18:35:21.273" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30065" PostTypeId="2" ParentId="30057" CreationDate="2019-07-05T18:44:44.260" Score="0" Body="&lt;ol&gt;&#xA;&lt;li&gt;It's sustainable, in the sense of &quot;have the ability to continue consuming&quot;, so long as countries will loan us the money. Why they loan us the money is there trust that we will pay it back (they trust us) and that they save more than they consume (they have money to lend). &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Now if they decide to stop buying our bonds, then surely it's not sustainable. Here is a terrific Michael Lewis article explaining what happened when Japan stopped lending to U.S. companies in the late 1980s:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.vanityfair.com/news/2011/03/michael-lewis-japan-201103&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.vanityfair.com/news/2011/03/michael-lewis-japan-201103&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;3&quot;&gt;&#xA;&lt;li&gt;Consumption now and Saving for later are two sides of a coin. Which you value more is dependent on your opinion. Do you want a sense of security? (save more), do you want to live it up while you're young? (save less), etc. &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="23470" LastActivityDate="2019-07-05T18:44:44.260" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30066" PostTypeId="1" CreationDate="2019-07-05T20:57:15.030" Score="-1" ViewCount="172" Body="&lt;p&gt;Investopedia tells me that a weaker currency will reduce sovereign debt burdens. It is quoted as saying 'a weaker currency makes [these] payments effectively less expensive over time.' However, I cannot get my head around this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Say the US owes the UK £100 and the exchange rate is $1 = £2 (not accurate, I know)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This means that the US will have to use $50 to pay off their debt&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now say the exchange rate weakens to $1 = £1&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then the US will have to use $100 to pay off this debt&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Could someone please explain this to me, I am clearly missing something obvious?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is the link to the Investopedia article: &lt;a href=&quot;https://www.investopedia.com/articles/investing/090215/3-reasons-why-countries-devalue-their-currency.asp#devaluing-currency&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.investopedia.com/articles/investing/090215/3-reasons-why-countries-devalue-their-currency.asp#devaluing-currency&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="23613" LastActivityDate="2019-12-04T00:02:25.267" Title="Why does a weaker currency make sovereign debt cheaper?" Tags="&lt;currency&gt;&lt;government-debt&gt;&lt;debt&gt;&lt;usa&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30067" PostTypeId="1" AcceptedAnswerId="30068" CreationDate="2019-07-06T00:33:17.227" Score="1" ViewCount="25" Body="&lt;p&gt;Can the cost of any good be determined based on its ratio to a minimum wage?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For instance, if 10 years ago, eggs cost \$2 / dozen and the minimum wage is \$10 / hr (eggs cost 20% of the minimum wage) and at present, due to inflation, eggs cost \$2.50 / dozen and the minimum wage is \$15 / hr (eggs now cost 16% of the minimum wage).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Could it be said that the cost of eggs have decreased despite a rise in prices due to inflation?&lt;/p&gt;&#xA;" OwnerUserId="23614" LastActivityDate="2019-07-06T01:13:50.917" Title="How to determine the cost of a good" Tags="&lt;macroeconomics&gt;&lt;minimum-wage&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30068" PostTypeId="2" ParentId="30067" CreationDate="2019-07-06T01:13:50.917" Score="1" Body="&lt;p&gt;While you're on the right track, minimum wage is not the best way to get at it. What you're discussing is called &quot;real wages&quot;, and it is usually calculated based on some average wage, as many workers make more than minimum wage. So yes, the price of eggs has gone down (if minimum wage is a useful metric for average income).&lt;/p&gt;&#xA;" OwnerUserId="19175" LastActivityDate="2019-07-06T01:13:50.917" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30070" PostTypeId="2" ParentId="30066" CreationDate="2019-07-06T01:59:29.507" Score="-1" Body="&lt;p&gt;It does the opposite. Your interest payments are higher unless people don't care about you devaluing the currency.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In reality a large devaluation is usually a sign of polticial instability and sends rates shooting up, it does not result in cheaper debt and other factors are more important.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Investopedia is ignoring rollover.&lt;/p&gt;&#xA;" OwnerUserId="23615" LastActivityDate="2019-07-06T01:59:29.507" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30072" PostTypeId="1" CreationDate="2019-07-06T07:25:15.927" Score="0" ViewCount="378" Body="&lt;p&gt;Why do interest rates (mortgage, LIBOR, Treasury yields, etc.) move together? What is the fundamental reason behind that?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From my understanding, what drives it is the Federal Funds Rate, which is the rate at which banks borrow from the Federal Reserve. If that rates decrease, then they can borrow at a lower rate, which in turn impact their loan business because they can issue lower rate loans. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are there other reasons why that is the case? And what are the cases where rates do not move together?&lt;/p&gt;&#xA;" OwnerUserId="23588" OwnerDisplayName="Victor" LastActivityDate="2020-07-30T23:03:35.360" Title="Why do interest rates move together?" Tags="&lt;federal-reserve&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="30075" PostTypeId="1" CreationDate="2019-07-06T14:43:46.747" Score="1" ViewCount="73" Body="&lt;p&gt;I am forecasting demand for certain types of goods and services, which I expect to be correlated to a sub-set of a basket of macroeconomic indicators (considering 15-20 indicators)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I do not know which indicators influence the demand more, whether they have a simple correlation influence or whether a derivative of change influences the demand (i.e. GDP or GDP change for example) or whether there’s a delayed effect on demand (e.g. increased government spend in last year may better predict this year’s demand?). Some macro indicators may be correlated to each other.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have some basic hypotheses on likely indicators - that may be right or wrong.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Questions 1. What are good time-series forecasting models? What can be considered, apart from just a multivariate regression? 2. Is there a tool whereby I can input the historical demand, historical macro indicators, which will then output which set of indicators best predict the demand and which model works best?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know how to do regressions in excel, but that’s just one set of indicators at a time. 20 indicators (plus derivatives, plus lag) throws up so many possibilities I cannot manually simulate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help appreciated.&lt;/p&gt;&#xA;" OwnerUserId="23620" LastActivityDate="2021-03-28T06:00:45.113" Title="Building a time-series demand forecasting model" Tags="&lt;applied-econometrics&gt;&lt;algorithms&gt;&lt;forecasting&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30076" PostTypeId="1" CreationDate="2019-07-06T14:58:47.247" Score="0" ViewCount="58" Body="&lt;p&gt;When the domestic real gdp per capita increases then it has a negative effect on domestic currency (depreciation)? Why?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Source: &lt;a href=&quot;https://doi.org/10.1016/j.jeca.2015.04.002&quot; rel=&quot;nofollow noreferrer&quot;&gt;The real exchange rate of euro and Greek economic growth&lt;/a&gt;, Gregory T. Papanikos, The Journal of Economic AsymmetriesVolume 12, Issue 2, November 2015, Pages 100-109.&lt;/p&gt;&#xA;" OwnerUserId="23622" LastEditorUserId="7215" LastEditDate="2019-07-11T16:24:14.330" LastActivityDate="2019-07-11T16:24:14.330" Title="How does real gdp affect the domestic currency?" Tags="&lt;macroeconomics&gt;" AnswerCount="2" CommentCount="7" ContentLicense="CC BY-SA 4.0" />
  <row Id="30077" PostTypeId="1" AcceptedAnswerId="30101" CreationDate="2019-07-06T15:09:33.320" Score="1" ViewCount="53" Body="&lt;p&gt;It is known that with a unit mass of consumers, each of whom has a value distributed between 0 and 1, one can think of the monopolist solving&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;\max_{p} \ p[1-F(p)]&#xA;\end{equation}&lt;/span&gt;&#xA;when marginal costs are 0 and where &lt;span class=&quot;math-container&quot;&gt;$F$&lt;/span&gt; is the CDF of the consumers' valuations. &#xA;This yields the solution&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;p^*=\frac{1-F(p^*)}{f(p^*)}.&#xA;\end{equation}&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$\textbf{Question}$&lt;/span&gt;: How would one write the value function (optimal profit function) of the monopolist in this case, given that the solution is implicitly (?) defined?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can one just say that it is&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;\text{optimal profit function}=\frac{[1-F(p^*)]^2}{f(p^*)}&#xA;\end{equation}&lt;/span&gt; &#xA;or is this incorrect?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Many thanks.&lt;/p&gt;&#xA;" OwnerUserId="23621" LastEditorUserId="23621" LastEditDate="2019-07-06T15:33:54.123" LastActivityDate="2019-07-08T14:07:44.260" Title="Value Function For Durable-Good Monopolist with General Distribution" Tags="&lt;microeconomics&gt;&lt;game-theory&gt;&lt;monopoly&gt;&lt;profit-maximization&gt;&lt;producer-theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30078" PostTypeId="2" ParentId="30057" CreationDate="2019-07-06T20:28:45.043" Score="0" Body="&lt;p&gt;The short answer is that a high level of consumption compared to GDP is sustainable, until it is not, and foreign investment is one reason. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a longer answer please see the answer to a very similar question at this link.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://economics.stackexchange.com/questions/29206/what-is-the-economic-strategy-of-the-uk/29224#29224&quot;&gt;Sustainability of the U.K. economy.&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You asked about currency depreciation.  Almost all currencies depreciate almost all of the time because a small positive inflation rate is good for all economies. A currency is supported by foreign investment but it will depreciate regardless in the case of almost all currencies almost all of the time. Whether a currency depreciates relative to another is a different question. Foreign investment means that you cannot look at the balance of trade alone.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You asked if an economy should focus on exports. There is no single coordinator to focus the economy. Trade and investment are the result of the balance of forces domestic and foreign. That is explained at the link. &lt;a href=&quot;https://economics.stackexchange.com/questions/29206/what-is-the-economic-strategy-of-the-uk/29224#29224&quot;&gt;Sustainability of U.K. economy.&lt;/a&gt; Single coordinators can make bigger mistakes than uncoordinated individuals.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Foreign investment might be more volatile than exporting goods and services to foreigners but for some countries this concern is not so significant that it has become a major issue. &lt;a href=&quot;https://en.wikipedia.org/wiki/1997_Asian_financial_crisis&quot; rel=&quot;nofollow noreferrer&quot;&gt;There are counter examples such as the 1997 Asian financial crisis.&lt;/a&gt; Exporting goods and services is not inherently stable business either, because there can be a surge in protectionism or another politically or strategically motivated event or a Brexit-like event.&lt;/p&gt;&#xA;" OwnerUserId="6868" LastEditorUserId="6868" LastEditDate="2019-07-07T13:01:55.110" LastActivityDate="2019-07-07T13:01:55.110" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30079" PostTypeId="2" ParentId="30072" CreationDate="2019-07-06T21:18:22.910" Score="1" Body="&lt;p&gt;The assumption is based on intuition but it a bit more complicated:&#xA;Basically each and every country has short term interest rates and long term interest rates, based on the debt the country is managing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Short term interest is usually being set by central banks (the fed in the US), when the long term debt is managed by treasury. long term affect mortgages while short terms affect, short term loans and deposits&#xA;Long and short term rates affect each other - the long term interest, being riskier, in the same country, will yield more&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In today's open global capital markets, money seeks the best returns. with free money flows, so the best interest - inflation ( - risk) will pull more capital&#xA;And on the other hand, it will increase the country's currency value (higher demands for the currency). This in turn, will affect exporting, for each country.&#xA;Since this game is a global game between countries, they will pretty much react to each other's actions, effectively matching rates and policies&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that the description I gave may sound weird, and is a bit contradictory of economic theory, but that is the reality for the past decade...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Monetary policy in the world today, is in a theoretical no mans land&lt;/p&gt;&#xA;" OwnerUserId="19195" LastActivityDate="2019-07-06T21:18:22.910" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30080" PostTypeId="2" ParentId="30066" CreationDate="2019-07-06T21:26:06.853" Score="0" Body="&lt;p&gt;The US the unique case here&#xA;If a country devalues its currecny, say by printing money, it will owe double of the foreigh currecny debt, in local currency:&#xA;&lt;span class=&quot;math-container&quot;&gt;$1 = £2, then $&lt;/span&gt;1 = £3, and the debt in USD just went up...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand, debt priced USD loses its value (more paper dollars around).&#xA;This usually means, that foreign investors will sell USD priced debt in less money,&#xA;making the effective intesert on the debt rise:&#xA;Say the US IOU was boight and sold for 0.95&lt;span class=&quot;math-container&quot;&gt;$ per 1$&lt;/span&gt; return in a year, it can be sold for 0.9$.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The US will have a hard time recruiting new debt.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So The equilibrium is: interest rate - inflation = real rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The US is a bad example. The US did &quot;print money&quot; (lowered rates to zero), and exploited the rest of the world, since its own currency is the world base for trade.&lt;/p&gt;&#xA;" OwnerUserId="19195" LastActivityDate="2019-07-06T21:26:06.853" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30081" PostTypeId="2" ParentId="30075" CreationDate="2019-07-06T21:27:20.153" Score="2" Body="&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;If it's just knowing about the models, I'd suggest starting with Hamilton's &quot;Time Series Analysis&quot; but any book like it will do. You can also explore Google Scholar for inspiration (people likely had built similar models). It seems you have a VAR model, check this wikipedia link to see if it's what you have in mind: &lt;a href=&quot;https://en.wikipedia.org/wiki/Vector_autoregression&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://en.wikipedia.org/wiki/Vector_autoregression&lt;/a&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;If you are looking for tools to obtain these forecasts, I'd suggest EViews or R. They are not useful on their own: you &lt;strong&gt;must&lt;/strong&gt; have to have a model to do any kind of forecasting.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="7857" LastActivityDate="2019-07-06T21:27:20.153" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30082" PostTypeId="2" ParentId="30076" CreationDate="2019-07-06T21:39:39.043" Score="-1" Body="&lt;p&gt;file:///C:/Users/ACER/Downloads/1__Papper_exchange%20rate-gdp%20growth%20(15).pdf&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The real exchange rate of euro and Greek economic growth&#xA;Gregory T. Papanikos - So i got the information from this source&lt;/p&gt;&#xA;" OwnerUserId="23622" LastActivityDate="2019-07-06T21:39:39.043" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30083" PostTypeId="2" ParentId="30062" CreationDate="2019-07-07T11:28:07.680" Score="1" Body="&lt;p&gt;The best way is taking the index &quot;ingredients&quot; and rebuild it... assuming you manage the index data on a DB or on an excel file, that should not be too difficult&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Otherwise, assuming you're index ingredients are averaged equally, then in a sense, the index is calculated as:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;Index = (1 + Product1ChangeIn%)^(1/9) * (1 + Product2ChangeIn%)^(1/9) ...&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;So based on it, without coal, you're index should be:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;Index / (1 + CoalChangeIn%)^(1/9)&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;" OwnerUserId="19195" LastActivityDate="2019-07-07T11:28:07.680" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30085" PostTypeId="2" ParentId="26580" CreationDate="2019-07-07T14:52:14.060" Score="0" Body="&lt;p&gt;The system of FOC of the profit maximization problem when the production function is constant return to scale is a &lt;em&gt;degenerate system&lt;/em&gt;. For a good explanation see &lt;a href=&quot;https://math.stackexchange.com/questions/3090859/solution-to-a-two-equations-system&quot;&gt;this&lt;/a&gt;. In short, it means that the system of two equation in two unknown is actually a system of two equation in &lt;strong&gt;one&lt;/strong&gt; unknown, which in this case is &lt;span class=&quot;math-container&quot;&gt;$\frac{K}{L}$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The solution to this problem needs to satisfy both equations (2) and (3), and this happens only if equation (4) is satisfied. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence, to answer the main question, given one price, the other is uniquely identified by equation (4). Given one price, to determine the other it is enough to know the technological parameter, in this case, this is just &lt;span class=&quot;math-container&quot;&gt;$\alpha$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerUserId="17875" LastActivityDate="2019-07-07T14:52:14.060" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30088" PostTypeId="1" AcceptedAnswerId="30091" CreationDate="2019-07-07T20:19:02.227" Score="-2" ViewCount="45" Body="&lt;p&gt;Why did no US politician start the trade war with China (or possibly the Globe) a decade earlier if it is a good thing to do?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am asking for a list of reasons for why not.&lt;/p&gt;&#xA;" OwnerUserId="95" LastEditorUserId="11590" LastEditDate="2019-07-11T10:23:38.370" LastActivityDate="2019-07-11T10:23:38.370" Title="Why did no US politician start the trade war a decade earlier with China or possibly the Globe if it is a good thing to do?" Tags="&lt;macroeconomics&gt;&lt;international-trade&gt;&lt;international-economics&gt;&lt;free-trade&gt;&lt;balance-of-trade&gt;" AnswerCount="1" CommentCount="2" ClosedDate="2019-07-09T09:25:25.030" ContentLicense="CC BY-SA 4.0" />
  <row Id="30089" PostTypeId="1" AcceptedAnswerId="30100" CreationDate="2019-07-07T20:53:51.560" Score="0" ViewCount="156" Body="&lt;p&gt;I am reading a paper that derives a theoretical retirement model. There is a utility function and a budget constraint forming an optimal control problem. The solution to this problem states that &#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{align}&#xA;    U(C(t),0) &amp;amp;= \lambda \quad\text{for }0 \le t \le R,\\&#xA;    U(C(t),1) &amp;amp;= \lambda \quad\text{for }R \le t \le T,&#xA;\end{align}&lt;/span&gt;&#xA;where &lt;span class=&quot;math-container&quot;&gt;$\lambda$&lt;/span&gt; is the Lagrange multiplier. &lt;span class=&quot;math-container&quot;&gt;$U$&lt;/span&gt; is the utility function where the arguments of the function are consumption (&lt;span class=&quot;math-container&quot;&gt;$C$&lt;/span&gt;) and leisure (&lt;span class=&quot;math-container&quot;&gt;$L$&lt;/span&gt;). &lt;span class=&quot;math-container&quot;&gt;$R$&lt;/span&gt; is the retirement age, and &lt;span class=&quot;math-container&quot;&gt;$T$&lt;/span&gt; is the years the agent lives. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first condition says that the utility is constant during the working years where leisure available during working years is &lt;span class=&quot;math-container&quot;&gt;$0$&lt;/span&gt;. The second condition says that the utility is constant during the retirement years where leisure available during retirement years is &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The paper then mentions that &quot;This implies that the individual chooses a constant level of consumption for his pre-retirement years, &lt;span class=&quot;math-container&quot;&gt;$C_0$&lt;/span&gt;, and another (perhaps different) level of consumption, &lt;span class=&quot;math-container&quot;&gt;$C_1$&lt;/span&gt;, for his post-retirement years. &lt;span class=&quot;math-container&quot;&gt;$C_1$&lt;/span&gt; will exceed (be smaller than) &lt;span class=&quot;math-container&quot;&gt;$C_0$&lt;/span&gt; if&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;    \frac{\partial^2U}{\partial C\;\partial L}&amp;gt;0\quad(&amp;lt;0)&#xA;\end{equation}&lt;/span&gt;&#xA;The last expression denotes &quot;cross partial derivative of &lt;span class=&quot;math-container&quot;&gt;$U$&lt;/span&gt; with respect to &lt;span class=&quot;math-container&quot;&gt;$L$&lt;/span&gt; and then &lt;span class=&quot;math-container&quot;&gt;$C$&lt;/span&gt;&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am struggling to interpret the inequality. That is, the cross partial derivative says that if the change in the marginal utility of leisure with respect to a change in consumption is positive, then the consumption level during retirement should be larger than that during the working years. Why? &lt;/p&gt;&#xA;" OwnerUserId="23627" LastEditorUserId="42" LastEditDate="2019-07-08T16:06:58.603" LastActivityDate="2019-07-08T16:06:58.603" Title="Change in the marginal utility of leisure with respect to a change in consumption" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;labor-economics&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30090" PostTypeId="1" AcceptedAnswerId="30097" CreationDate="2019-07-08T01:09:39.743" Score="3" ViewCount="111" Body="&lt;p&gt;In my hypothetical situation, the USA population takes enough money away from the top 1% so that they are no richer than the average person. That money is then redistributed to the lower and middle class in the country. How much better off would the lower and middle class be if this happened?&lt;/p&gt;&#xA;" OwnerUserId="23633" LastActivityDate="2019-07-12T18:22:32.670" Title="How much better off would the average person be if we took away enough money from the top 1% to make them no richer than the average person?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30091" PostTypeId="2" ParentId="30088" CreationDate="2019-07-08T01:11:02.133" Score="-1" Body="&lt;p&gt;Since USA politicians serve shorter terms they have to be concerned with short term popularity.&#xA;A trade war could damage possibility of reelection if it takes too long and/or if it damages the USA economy.&lt;/p&gt;&#xA;" OwnerUserId="23632" LastActivityDate="2019-07-08T01:11:02.133" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30092" PostTypeId="1" AcceptedAnswerId="30096" CreationDate="2019-07-08T05:52:26.713" Score="4" ViewCount="804" Body="&lt;p&gt;I've reached the end of my Econometrics courses for the undegraduate level at my university, but I would like to continue learning. I hope I could get some recommendations for further reading. I present a summary (off the top of my head) of what has already been covered in my courses:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;OLS, Multiple OLS, heteroskedasticity&lt;/li&gt;&#xA;&lt;li&gt;Time series, autocorrelation, ARDL&lt;/li&gt;&#xA;&lt;li&gt;Pooled model, fixed effects, random effects&lt;/li&gt;&#xA;&lt;li&gt;IVs, Diff-in-diff, Probit, Tobit&lt;/li&gt;&#xA;&lt;li&gt;Fuzzy and Sharp RD&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;As well as the relevant tests for each case. I'm also familiar with Econometric theory on matrix form.&lt;/p&gt;&#xA;" OwnerUserId="5174" LastEditorUserId="38" LastEditDate="2019-11-06T20:09:48.780" LastActivityDate="2019-11-09T05:10:58.777" Title="What are some further readings in Econometrics you recommend?" Tags="&lt;econometrics&gt;&lt;reference-request&gt;" AnswerCount="6" CommentCount="1" FavoriteCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30093" PostTypeId="2" ParentId="30076" CreationDate="2019-07-08T08:03:33.390" Score="-2" Body="&lt;p&gt;One way to link both is the J curve reaction of a given country's trade balance, which directly affects GDP, towards fluctuations in the domestic currency exchange rate. &lt;/p&gt;&#xA;" OwnerUserId="23635" LastActivityDate="2019-07-08T08:03:33.390" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30094" PostTypeId="2" ParentId="30048" CreationDate="2019-07-08T08:31:51.533" Score="0" Body="&lt;p&gt;I am not sure about what exactly you mean by the maximum support NE but you may want to check the concept of Correlated Equilibrium. Any convex combination of NE payoff profiles is a Correlated Equilibrium (but not vice versa in general). So, what you wrote made me think about that. However, I don't think it makes much sense to use correlated equilibrium since, you know, there is no obvious advantage of correlation. Also, the NE payoff profile must be constant in your environment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another thing that comes to mind is restricting the attention to super-modular games. Then, you get a nice lattice of NE. So, I don't know if this makes sense either.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would suggest playing around with some examples to understand what exactly it is that you want to characterize and asking a new one based on your examples.&lt;/p&gt;&#xA;" OwnerUserId="4671" LastEditorUserId="4671" LastEditDate="2019-07-09T01:13:28.360" LastActivityDate="2019-07-09T01:13:28.360" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="30095" PostTypeId="2" ParentId="30092" CreationDate="2019-07-08T09:05:59.517" Score="5" Body="&lt;p&gt;Wooldrige - Econometric Analysis of Cross Section and Panel Data&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Greene - Econometric Analysis, 8th Edition. This is probably the 'bible', i.e. it covers everything, but I find it hard to digest.&lt;/p&gt;&#xA;" OwnerUserId="17735" LastActivityDate="2019-07-08T09:05:59.517" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30096" PostTypeId="2" ParentId="30092" CreationDate="2019-07-08T09:18:02.203" Score="7" Body="&lt;p&gt;I might be wrong but from what you write, it seems you've been given a &quot;classical&quot; introduction to econometrics: You've covered IVs and Diff-in-diff but apparently only in passing, and &lt;em&gt;causal inference&lt;/em&gt; does not look like it was the core of the classes you've taken.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If that's correct, then I would recommend reading:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Mastering 'Metrics (&lt;a href=&quot;https://rads.stackoverflow.com/amzn/click/com/0691152845&quot; rel=&quot;nofollow noreferrer&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.amazon.com/Mastering-Metrics-Path-Cause-Effect/dp/0691152845&lt;/a&gt;),&lt;/li&gt;&#xA;&lt;li&gt;Mostly Harmless Econometrics (&lt;a href=&quot;https://www.mostlyharmlesseconometrics.com/&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.mostlyharmlesseconometrics.com/&lt;/a&gt;)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;before reading anything else (e.g., Wooldridge or Greene, as referenced in E.Sommer's answer).&lt;/p&gt;&#xA;" OwnerUserId="38" LastEditorUserId="38" LastEditDate="2019-11-06T20:07:02.953" LastActivityDate="2019-11-06T20:07:02.953" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30097" PostTypeId="2" ParentId="30090" CreationDate="2019-07-08T09:37:11.203" Score="3" Body="&lt;p&gt;I assume the following:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;We redistribute wealth (not income) from the top 1% to the bottom 99%&lt;/li&gt;&#xA;&lt;li&gt;Everybody among the bottom 99% receives the same amount.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Source for my data: &lt;a href=&quot;https://wid.world/data/&quot; rel=&quot;nofollow noreferrer&quot;&gt;World Income Database&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In 2014, the average personal net wealth among the top 1% was around \$11 million in 2017 prices. The total wealth to be distributed is hence (3.3 million people in the top percentile &lt;span class=&quot;math-container&quot;&gt;$\times$&lt;/span&gt; 11 million) = \$36.3 trillion (&lt;span class=&quot;math-container&quot;&gt;$3.63\times10^{13}$&lt;/span&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This means that everybody among the bottom 99% receives around \$111,000. How much this makes you better off depends on your initial state. Concepts of low- and middle-class are somewhat ambigious. According to the WID data, net personal wealth among the bottom 50% is essentially zero, and \$205,000 among the 50 to 90th wealth percentile.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Please note that this is a purely mechanical and unrealistic exercise. For starters, it ignores legal and administrative hurdles. A major concern is also that a substantial share of the private wealth of the top 1% is invested in productive firms which employ millions of people. What happens  to their employees if you expropriate the owners of these firms?&lt;/p&gt;&#xA;" OwnerUserId="17735" LastEditorUserId="17735" LastEditDate="2019-07-12T18:22:32.670" LastActivityDate="2019-07-12T18:22:32.670" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30098" PostTypeId="1" AcceptedAnswerId="30109" CreationDate="2019-07-08T11:18:43.950" Score="1" ViewCount="132" Body="&lt;p&gt;So i have this question:&lt;a href=&quot;https://i.stack.imgur.com/46iWx.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/46iWx.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I go along and get &#xA;&lt;a href=&quot;https://i.stack.imgur.com/1Vfxk.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/1Vfxk.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then i need to calculate the effect on the optimal output is G increases by 80:&lt;a href=&quot;https://i.stack.imgur.com/NwMJg.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/NwMJg.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And on the answer sheet it states that the spending multiplier is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/DTxX7.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/DTxX7.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From my knowledge i know that &#xA;&lt;a href=&quot;https://i.stack.imgur.com/WBEtx.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/WBEtx.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now how come that the spending multiplier is 1/0.4? Where are they getting the 0.4, which should be 1-c1-d1 from the original equations?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A friend told me that the 1/0.4 is derived from 1/1-c1(1-t) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;then 1/1-0.8(0.75)= 1/0.4. He said that since there is no d1 in the equations ( in the investment equation) we don't use it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can somebody explain the meaning behind this 1/0.4) Thanks!&lt;/p&gt;&#xA;" OwnerUserId="23552" LastActivityDate="2019-07-09T04:26:29.303" Title="How to calculate the spending multiplier from a given set of equations?" Tags="&lt;macroeconomics&gt;&lt;general-equilibrium&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30099" PostTypeId="2" ParentId="30048" CreationDate="2019-07-08T13:53:26.080" Score="0" Body="&lt;p&gt;I am assuming that in the game you are considering there are multiple Nash equilibria and you want to select the most likely equilibria among them. If you are restricting attention to zero-sum games, I am not sure why this is a problem, the min-max value is unique (if you allow for mixed strategies), so all equilibria must be outcome-equivalent. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If your game was not a zero-sum game, you probably want to look at the notions of risk dominance or payoff dominance. The first one selects the less risky NE by entertaining the idea that other players might not be playing the strategy they should according to NE, while the second one selects the NE that is Pareto dominant. To some extent, if there is a NE that makes all of the players better off, it could be argued that it is the most likely equilibrium to arise. &lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-07-08T13:53:26.080" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="30100" PostTypeId="2" ParentId="30089" CreationDate="2019-07-08T14:00:26.473" Score="0" Body="&lt;p&gt;The partial derivative &lt;span class=&quot;math-container&quot;&gt;$\frac{\partial^2 U(\cdot)}{\partial C\partial L}$&lt;/span&gt; tells you how a change in leisure affects the marginal utility of consumption. Therefore if it is positive it means that the marginal utility of consumption is higher when &lt;span class=&quot;math-container&quot;&gt;$L=1$&lt;/span&gt;. In that case, the agent plans her life to be able to consume more when she is retired and leisure is bigger. In contrast, if leisure reduces the marginal utility for consumption, &lt;span class=&quot;math-container&quot;&gt;$\frac{\partial^2 U(\cdot)}{\partial C\partial L}&amp;lt;0$&lt;/span&gt;, then it is better to consume more while working, than when leisure is big. &lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-07-08T14:00:26.473" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="30101" PostTypeId="2" ParentId="30077" CreationDate="2019-07-08T14:07:44.260" Score="1" Body="&lt;p&gt;You probably want to say that the optimal profit is &lt;span class=&quot;math-container&quot;&gt;$\pi=\frac{[1-F(p^*)]^2}{f(p^*)}$&lt;/span&gt; where &lt;span class=&quot;math-container&quot;&gt;$F(x)$&lt;/span&gt; is a given probability distribution, &lt;span class=&quot;math-container&quot;&gt;$f(x)$&lt;/span&gt; is its density and &lt;span class=&quot;math-container&quot;&gt;$p^*$&lt;/span&gt; satisfies &lt;span class=&quot;math-container&quot;&gt;$p^*=\frac{1-F(p^*)}{f(p^*)}$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you are dealing with a general &lt;span class=&quot;math-container&quot;&gt;$F$&lt;/span&gt; function, you may want to state the conditions that guarantee that &lt;span class=&quot;math-container&quot;&gt;$p^*$&lt;/span&gt; exists and it is unique. If &lt;span class=&quot;math-container&quot;&gt;$F$&lt;/span&gt; is uniform or some other well-known distribution, however, you should probably find in closed form the value of &lt;span class=&quot;math-container&quot;&gt;$p^*$&lt;/span&gt; and give an actual number as optimal profit. &lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-07-08T14:07:44.260" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30102" PostTypeId="1" CreationDate="2019-07-08T14:37:34.203" Score="0" ViewCount="72" Body="&lt;p&gt;Consider two columns. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Column A has total cost per day, Column B has units bought that day. The marginal cost of each unit is increasing because of limited supply.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My goal is to estimate total possible units under a certain budget.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I did for this was run a LOGEST estimation to get the information in the form of cost = b+ m^units&#xA;My reason for doing this is because of the increasing marginal cost per unit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I got the function : &#xA;y = 1.00077^x + 0.24&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But when maximizing it, the numbers I'm getting for units are too small under this budget.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I also ran a LINEST and got that each unit bought increases the cost per unit by approximately 0.0005814009591 $. I have been unable to make a model that uses this estimation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any suggestion or different approach will be much appreciated,&#xA;Thanks.&lt;/p&gt;&#xA;" OwnerUserId="15053" LastActivityDate="2021-04-01T05:03:40.337" Title="Maximizing units under a budget constraint and increasing costs" Tags="&lt;economic-growth&gt;&lt;profit-maximization&gt;&lt;growth-accounting&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30103" PostTypeId="2" ParentId="30092" CreationDate="2019-07-08T15:33:45.903" Score="0" Body="&lt;p&gt;Not sure about the other fields, but for time series, I would recommend Time Series Analysis 1st Edition by James Douglas Hamilton. This is the book I used to learn time series when I was a graduate student.&lt;/p&gt;&#xA;" OwnerUserId="23639" LastActivityDate="2019-07-08T15:33:45.903" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30104" PostTypeId="2" ParentId="30092" CreationDate="2019-07-08T16:17:10.807" Score="0" Body="&lt;p&gt;What types of software have you used? Seeing as you have a pretty good understanding of core econometric principles, the next step is to at least get a few packages on your tool belt. I imagine you have at been exposed to at least one, but having knowledge in multiple languages is very valuable to employers or to an academic career. I suggest having either R or Stata or both. Preferably both as each have their advantages and make any consecutive languages easier to learn. &lt;/p&gt;&#xA;" OwnerUserId="23546" LastActivityDate="2019-07-08T16:17:10.807" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30105" PostTypeId="1" CreationDate="2019-07-08T20:28:59.520" Score="2" ViewCount="34" Body="&lt;p&gt;I'm trying to figure out if I need to include the main effect in a regression analysis with an interaction if I am already including a decomposed version of the main effect.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, let:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;-INT is an 0/1 indicator variable to use in the interaction&#xA;-AVG_Overall is an average value of variable X for all individuals in groups A and B&#xA;-AVG_A is the average value of variable X for individuals in group A ONLY&#xA;-AVG_B is the average value of variable X for individuals in group B ONLY&#xA;-Y is the dependent variable&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Is it appropriate to estimate the following regression?:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$Y_i = \beta_0 + \beta_1INT_i*AVG\_Overall_i + \beta_2AVG\_A_i + \beta_3AVG\_B_i + \beta_4INT_i + u_i \tag{1}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This specification omits the main effect of AVG_Overall. However, because AVG_A and AVG_B are the average variables of the two 2 subsets that comprise the overall sample used to calculate AVG_Overall, it seems reasonable that they are capturing the main effect. My thinking is that if the individuals in each subset have an identical effect on Y, then &lt;span class=&quot;math-container&quot;&gt;$\beta_2=\beta_3$&lt;/span&gt; and they would also be the same as the coefficient on the main effect AVG_Overall would have been. If, however, individuals in subsets A and B have a different effect on Y, then &lt;span class=&quot;math-container&quot;&gt;$\beta_2$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\beta_3$&lt;/span&gt; should be different.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An alternative specification is to include the main effect of AVG_Overall along with AVG_A and AVG_B, i.e.:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$Y_i = \beta_0 + \beta_1INT_i*AVG\_Overall_i + \beta_2AVG\_A_i + \beta_3AVG\_B_i + \beta_4INT_i + \beta_5AVG\_Overall_i + u_i \tag{2}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, AVG_Overall is by definition collinear with both AVG_A and AVG_B, making it difficult to distinguish the different effects of AVG_A and AVG_B (&lt;span class=&quot;math-container&quot;&gt;$\beta_2$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\beta_3$&lt;/span&gt;). Empirically I'm finding that including the main effect of AVG_Overall changes the magnitude of &lt;span class=&quot;math-container&quot;&gt;$\beta_2$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\beta_3$&lt;/span&gt; and makes them difficult to interpret, although their significance remains basically unchanged.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have theoretical reasons why I think &lt;span class=&quot;math-container&quot;&gt;$\beta_2$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\beta_3$&lt;/span&gt; should differ, and also why it doesn't make sense to interact the INT variable with both AVG_A and AVG_B, but I'm concerned that I might be running into some econometric problems.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Please help! Does specification (1) seem appropriate? If so (or if not), can you point me to some resources that explain the statistics behind this?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks!&lt;/p&gt;&#xA;" OwnerUserId="23640" LastEditorUserId="23546" LastEditDate="2019-07-09T00:03:40.510" LastActivityDate="2019-07-09T00:03:40.510" Title="Regression analysis with interaction and decomposed main effect" Tags="&lt;econometrics&gt;&lt;statistics&gt;&lt;applied-econometrics&gt;&lt;regression&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="30106" PostTypeId="1" AcceptedAnswerId="30116" CreationDate="2019-07-09T00:13:21.457" Score="3" ViewCount="76" Body="&lt;p&gt;Suppose we have a mechanism where a finite number of agents possess private information that is not drawn from a probability distribution.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The agents' types are given and fixed but agents only know their own type. As there is no probability distribution, players do not form any beliefs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The agents' behavior is modeled as utility-maximizers and the utility functions are quasilinear in nature.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does it make sense, from the above, to use as a solution concept the non-Bayesian Nash equilibrium (Nash, 1950)? If yes, could you please point me out to the right literature (some paper references)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you in advance.&lt;/p&gt;&#xA;" OwnerUserId="20754" LastActivityDate="2020-12-24T15:26:39.513" Title="Non-Bayesian Mechanism Design" Tags="&lt;nash-equilibrium&gt;&lt;mechanism-design&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30107" PostTypeId="2" ParentId="30005" CreationDate="2019-07-09T01:22:00.723" Score="0" Body="&lt;p&gt;The production of goods and services requires equity capital and possibly some debt capital. Equity capital investors usually require dividends or the prospect of dividends. Dividends arise from profits.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is a limited amount of equity capital available from the type of investors that do not require dividends or the prospect of dividends. That limit creates a limit on the formation of non-profit production.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can search the internet to read about non-profit organizations. Ask yourself what that type of organization might do if they had some undeployed financial capital. It is likely you will think &quot;breakfast cereal&quot; is an improbable answer.&lt;/p&gt;&#xA;" OwnerUserId="6868" LastActivityDate="2019-07-09T01:22:00.723" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30108" PostTypeId="2" ParentId="30092" CreationDate="2019-07-09T04:01:56.587" Score="1" Body="&lt;p&gt;Cheng Hsioa's (sp.?) &quot;Analysis of Panel Data&quot;.&lt;/p&gt;&#xA;" OwnerUserId="23644" LastActivityDate="2019-07-09T04:01:56.587" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30109" PostTypeId="2" ParentId="30098" CreationDate="2019-07-09T04:26:29.303" Score="1" Body="&lt;p&gt;Your friend is right. If you look at the initial investment equation, and comparing it to your definition, you have:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$I=900+(0)Y-50i$$&lt;/span&gt;&#xA;So &lt;span class=&quot;math-container&quot;&gt;$d_{1}=0$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$c_{1}=0.8(0.75)$&lt;/span&gt; and thats why you get the spending multiplier as &lt;span class=&quot;math-container&quot;&gt;$\frac{1}{0.4}$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="23546" LastActivityDate="2019-07-09T04:26:29.303" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="30110" PostTypeId="1" CreationDate="2019-07-09T05:40:32.680" Score="1" ViewCount="530" Body="&lt;p&gt;I am interested as to what areas of masters/PhD coursework that learning the fundamentals of Real Analysis would be beneficial for?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am aware of its applications in Econometrics proofs and analysis, but what of mathematical economics, microeconomics, and &lt;strong&gt;macroeconomics&lt;/strong&gt; that one would run into during either graduate degree? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Resources to consult or links to relevant papers would be appreciated! &lt;/p&gt;&#xA;" OwnerUserId="23546" LastEditorUserId="23546" LastEditDate="2019-07-10T22:07:43.753" LastActivityDate="2019-07-10T22:07:43.753" Title="What are some applications of Real Analysis in Graduate Economics?" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;academic-graduate&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30111" PostTypeId="1" CreationDate="2019-07-09T06:58:38.653" Score="0" ViewCount="22" Body="&lt;p&gt;Can anybody explain to me Nett Gross, Adjusted Nett Gross and Total Nett Gross through an example? I am new to this subject and from an engineering background. This knowledge is required for my research work. Thanks in advance.&lt;/p&gt;&#xA;" OwnerUserId="23649" LastActivityDate="2019-07-09T06:58:38.653" Title="What is Adjusted Nett Gross?" Tags="&lt;profits&gt;" AnswerCount="0" CommentCount="7" ContentLicense="CC BY-SA 4.0" />
  <row Id="30112" PostTypeId="1" CreationDate="2019-07-09T10:38:50.360" Score="3" ViewCount="294" Body="&lt;p&gt;in preparation for our upcoming exam, our tutor has uploaded sample questions. One of them is the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/T9Cs5.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/T9Cs5.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is my solution:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/MXZKM.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/MXZKM.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which differs from the solution, which gives the ordinary square root of the same parameters, not the 4th-one. I can't find my mistake, does anyone have any ideas?&lt;/p&gt;&#xA;" OwnerUserId="23467" LastActivityDate="2019-07-12T17:47:21.080" Title="Transforming an indirect utility function into an expenditure function" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30114" PostTypeId="2" ParentId="30110" CreationDate="2019-07-09T21:00:44.187" Score="4" Body="&lt;p&gt;My favorite example of real analysis' application in micro is the proof that lexicographic preference cannot be represented by any utility function. (A succinct version of the proof is given in p.43 of MWG.) It uses the notion of cardinality of sets, in particular, the different cardinalities between the rationals and the reals, which are some of the first things one learns in a real analysis course. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Other materials in real analysis, such as set operations, closedness, openness, continuity, differentiability, boundedness, compactness, etc., find their ways into every nook and cranny of economic theory. Some examples include: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Classical demand theory, which deals mostly with &lt;span class=&quot;math-container&quot;&gt;$\mathbb R^n$&lt;/span&gt;, the &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt;-dimensional commodity space, draws on a lot results from real analysis&lt;/li&gt;&#xA;&lt;li&gt;Any theoretical work that involves probability, e.g. econometrics as well as risk/uncertainty in micro or macro, would rely on some basic measure theory, an advanced topic in real analysis&lt;/li&gt;&#xA;&lt;li&gt;Dynamic programming/optimal control, a technique for solving DSGE (and other) models, relies on the contraction mapping theorem &lt;/li&gt;&#xA;&lt;li&gt;Separating hyperplane theorem is used to prove the existence of general equilibrium &lt;/li&gt;&#xA;&lt;li&gt;Brouwer's fixed point theorem is used to prove the existence of Nash equilibrium&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;See some of the &lt;a href=&quot;https://economics.stackexchange.com/q/4875/42&quot;&gt;book recommendations&lt;/a&gt; and related questions on this site (&lt;a href=&quot;https://economics.stackexchange.com/q/258/42&quot;&gt;1&lt;/a&gt;, &lt;a href=&quot;https://economics.stackexchange.com/q/5694/42&quot;&gt;2&lt;/a&gt;, &lt;a href=&quot;https://economics.stackexchange.com/q/48/42&quot;&gt;3&lt;/a&gt;, &lt;a href=&quot;https://economics.stackexchange.com/q/19172/42&quot;&gt;4&lt;/a&gt;) for more examples. &lt;/p&gt;&#xA;" OwnerUserId="42" LastEditorUserId="42" LastEditDate="2019-07-10T16:50:36.630" LastActivityDate="2019-07-10T16:50:36.630" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="30115" PostTypeId="2" ParentId="21206" CreationDate="2019-07-09T23:49:51.060" Score="2" Body="&lt;p&gt;In economics, the Radon-Nikodym density &lt;span class=&quot;math-container&quot;&gt;$\frac{d \mathbb Q}{d \mathbb P}$&lt;/span&gt; of the risk-neutral measure &lt;span class=&quot;math-container&quot;&gt;$\mathbb Q$&lt;/span&gt; with respect to the physical measure &lt;span class=&quot;math-container&quot;&gt;$\mathbb P$&lt;/span&gt; is the &lt;strong&gt;price of Arrow-Debreu securities&lt;/strong&gt;. It is a &lt;em&gt;price&lt;/em&gt;, not a claim. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the binomial setting, there are two AD securities, &lt;span class=&quot;math-container&quot;&gt;$1_u$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$1_d$&lt;/span&gt;. The former entitles the holder to 1 unit of numeraire if, and only if, state &lt;span class=&quot;math-container&quot;&gt;$u$&lt;/span&gt; realizes.&#xA;The no-arbitrage price of &lt;span class=&quot;math-container&quot;&gt;$1_u$&lt;/span&gt; is &lt;span class=&quot;math-container&quot;&gt;$\frac{q_u}{p_u}1_u$&lt;/span&gt; (say &lt;span class=&quot;math-container&quot;&gt;$R = 1$&lt;/span&gt;). Similarly for &lt;span class=&quot;math-container&quot;&gt;$1_d$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In general, the price of the AD portfolio &lt;span class=&quot;math-container&quot;&gt;$1_{\Omega'}$&lt;/span&gt;---which pays off 1 unit of numeraire if, and only if, state &lt;span class=&quot;math-container&quot;&gt;$\omega \in \Omega'$&lt;/span&gt; realizes---is&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;E^{\mathbb P}[ 1_{\Omega'} \frac{d \mathbb Q}{d \mathbb P}] = \mathbb Q (\Omega').&#xA;$$&lt;/span&gt;&#xA;So &#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;E^{\mathbb P}[\frac{d \mathbb Q}{d \mathbb P}] = 1&#xA;$$&lt;/span&gt; &#xA;is then the price of a bond/risk-free security (discount accordingly if &lt;span class=&quot;math-container&quot;&gt;$r \neq 1$&lt;/span&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Extending from &lt;span class=&quot;math-container&quot;&gt;$1_{\Omega'}$&lt;/span&gt; to a general &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; gives the usual risk-neutral pricing formula &lt;span class=&quot;math-container&quot;&gt;$E^{\mathbb Q}[X]$&lt;/span&gt;, as you have written out.&lt;/p&gt;&#xA;" OwnerUserId="126" LastActivityDate="2019-07-09T23:49:51.060" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30116" PostTypeId="2" ParentId="30106" CreationDate="2019-07-10T08:41:15.607" Score="4" Body="&lt;p&gt;Most prominently, it was Bob Wilson who criticized the role of common priors in game theory. Starting from the &lt;a href=&quot;https://apps.dtic.mil/dtic/tr/fulltext/u2/a163197.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;&amp;quot;Wilson doctrine&amp;quot;&lt;/a&gt;, some work in mechanism was done in that direction. Note that this research endeavor is not hopeless: in a popular auction format, the second-price auction, it is a (weakly) dominant strategy to report your true value. That is, your belief about others' types or strategies does not matter.&lt;/p&gt;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.jstor.org/stable/4626147&quot; rel=&quot;nofollow noreferrer&quot;&gt;Chung and Ely (ReStud 2007)&lt;/a&gt; have a paper on this topic:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Robert Wilson criticizes applied game theory's reliance on&#xA;common-knowledge assumptions. In reaction to Wilson's critique, the&#xA;recent literature of mechanism design has adopted the goal of finding&#xA;detail-free mechanisms in order to eliminate this reliance. In&#xA;practice this has meant restricting attention to simple mechanisms&#xA;such as dominant-strategy mechanisms. However, there has been little&#xA;theoretical foundation for this approach. In particular it is not&#xA;clear the search for an optimal mechanism that does not rely on&#xA;common-knowledge assumption would lead to simpler mechanisms rather&#xA;than more complicated ones. This paper tries to fill the void. In the&#xA;context of an expected revenue maximizing auctioneer, we investigate&#xA;some foundations for using simple, dominant-strategy auctions.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Another popular approach is by &lt;a href=&quot;https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1468-0262.2005.00638.x&quot; rel=&quot;nofollow noreferrer&quot;&gt;Bergemann and Morris (2005)&lt;/a&gt; &lt;a href=&quot;https://www.nowpublishers.com/article/Details/MIC-057&quot; rel=&quot;nofollow noreferrer&quot;&gt;(several papers)&lt;/a&gt;.&#xA;However, I guess this is not so much what you have in mind, but they have to be mentioned here.&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;The mechanism design literature assumes too much common knowledge of the environment among the players and planner. We relax this assumption by studying mechanism design on richer type spaces.&#xA;We ask when ex post implementation is equivalent to interim (or Bayesian) implementation for all possible type spaces. The equivalence holds in the case of separable environments; examples of separable environments arise (1) when the planner is implementing a social choice function (not correspondence) and (2) in a quasilinear environment with no restrictions on transfers. The equivalence fails in general, including in some quasilinear environments with budget balance.&#xA;In private value environments, ex post implementation is equivalent to dominant strategies implementation. The private value versions of our results offer new insights into the relationship between dominant strategy implementation and Bayesian implementation.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Usually in mechanism design, there is private information to be extracted and you need to take a stand on how to model it. That could be Bayesian or not, but the classical Nash equilibrium concept is suited for full information settings. The &amp;quot;prior-free&amp;quot; mechanism design literature pushed by computer scientists is concerned with worst-case analysis.&lt;/p&gt;&#xA;" OwnerUserId="11590" LastEditorUserId="24728" LastEditDate="2020-12-24T15:26:39.513" LastActivityDate="2020-12-24T15:26:39.513" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30117" PostTypeId="1" CreationDate="2019-07-10T09:42:55.740" Score="0" ViewCount="54" Body="&lt;p&gt;Is there any application of the Heine-Borel theorem or the Bolzano-Weirstrass theorem to Economics?&#xA;Also where are the notions of compact sets and elementary Real Analysis used in Economics?&lt;/p&gt;&#xA;" OwnerUserId="23660" LastActivityDate="2019-07-10T10:14:17.617" Title="Real Analysis and Economics" Tags="&lt;mathematical-economics&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="30118" PostTypeId="2" ParentId="30117" CreationDate="2019-07-10T10:01:34.997" Score="2" Body="&lt;p&gt;There are too many applications of the concepts and results you mention for a list to be of any use. As a first introduction, look at:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Real Analysis with Economic Applications, Efe A. Ok (&lt;a href=&quot;https://sites.google.com/a/nyu.edu/efeok/books&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;, &lt;a href=&quot;https://rads.stackoverflow.com/amzn/click/com/B005N8T6RM&quot; rel=&quot;nofollow noreferrer&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;, and &lt;a href=&quot;https://press.princeton.edu/titles/8274.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;There used to be pdfs of (reasonably high quality) working version of the book available online, but they are harder to find now that the book is out (I believe the author put these working versions online as a way to get feedback and typo-reports but removed them since then). If you look hard enough, some of these working version might still live in corners of the internet though.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also have a look at this related question: &lt;a href=&quot;https://economics.stackexchange.com/questions/30110/what-are-some-applications-of-real-analysis-in-graduate-economics&quot;&gt;What are some applications of Real Analysis in Graduate Economics?&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="38" LastEditorUserId="38" LastEditDate="2019-07-10T10:14:17.617" LastActivityDate="2019-07-10T10:14:17.617" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30119" PostTypeId="1" CreationDate="2019-07-10T15:12:19.837" Score="0" ViewCount="89" Body="&lt;p&gt;I am interested to know how one would expect a change in the quality of a product to affect its price elasticity of demand. Two example will illustrate my confusion:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Example 1&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose a producer is selling tap water at price P with quantity demanded Q. Let us call this good 'Beverage v1'. The producer changes the recipe; adding some grape juice and carbon dioxide to make Champagne. The producer continues to sell at price P but now with demand Q2&gt;Q (in the short-run, which is probably not an equilibrium). Let us call this good 'Beverage v2'.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We would, I think, expect the price elasticity of demand for Beverage v2 to be lower than that of Beverage v1. The common intuition is that 'essential' goods have lower PEoD than 'luxury' goods.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Example 2&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now suppose a producer is selling a medicine ('Medicine v1') which treats the symptoms of an illness pretty well. It is the only medicine for this illness so patients must choose between going untreated (feeling pretty awful) and buying the drug, which makes them feel 50% better than going untreated. The medicine is sold at price P with quantity demanded Q. The producer then makes some changes and now the medicine makes patients feel 100% better. It is not quite a cure, as patients have to keep taking the medicine, but it is pretty close. Let us call this 'Medicine v2'. The producer continues to sell at price P but now with quantity demanded Q2&gt;Q (in the short-run, which is probably not an equilibrium). Bear in mind that Medicine v1 is no longer available and that there are no other alternatives available either (except going untreated).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This seems to be similar to the beverage example above, but I feel as if the intuition is less clear in this case that PEoD for Medicine v2 would be higher than for Medicine v1. Is feeling 100% better more of a luxury than feeling 50% better? It is certainly better, but I am not certain that is therefore less essential. What do you think?&lt;/p&gt;&#xA;" OwnerUserId="23661" LastActivityDate="2019-07-10T18:32:13.910" Title="Effect of a change in quality on price elasticity of demand" Tags="&lt;microeconomics&gt;&lt;elasticity&gt;&lt;price&gt;&lt;demand&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30120" PostTypeId="2" ParentId="30119" CreationDate="2019-07-10T18:32:13.910" Score="1" Body="&lt;p&gt;It seems that your confusion is more about classifying goods into necessities vs. luxuries. In economics, the criterion for such classification is to look at whether the &lt;em&gt;income&lt;/em&gt; (not price) elasticity of demand is &quot;high&quot; or not. If a good has a high (and positive) income elasticity, then it's a luxury; if it has a low (but still positive) income elasticity, it's a necessity. What counts as &quot;high&quot; or &quot;low&quot; is an empirical matter. &lt;a href=&quot;https://www.investopedia.com/terms/i/incomeelasticityofdemand.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;Investopedia&lt;/a&gt; suggests &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt; as a threshold (high if &lt;span class=&quot;math-container&quot;&gt;$&amp;gt;1$&lt;/span&gt; and low if &lt;span class=&quot;math-container&quot;&gt;$&amp;lt;1$&lt;/span&gt;). &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Coming back to your question about price elasticity and quality improvement. The answer is: it depends on how you model the demand curve of the good. Recall that the price elasticity of demand is given by &#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;-\frac{\mathrm dQ}{\mathrm dP}\frac{P}{Q}=-\frac{1}{\text{slope}}\frac{P}{Q}&#xA;\end{equation}&lt;/span&gt;&#xA;where the slope is evaluated at the point &lt;span class=&quot;math-container&quot;&gt;$(Q,P)$&lt;/span&gt;. The quality improvement shifts demand curve to the right (since consumer is getting more value for each dollar spent, so they are willing to pay more for each unit or buy more units at the same price). If price remains unchanged (as you assumed), then quantity demanded must increase, say from the original &lt;span class=&quot;math-container&quot;&gt;$Q$&lt;/span&gt; to a higher &lt;span class=&quot;math-container&quot;&gt;$Q'$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the slope of demand stays the same at &lt;span class=&quot;math-container&quot;&gt;$(Q',P)$&lt;/span&gt;, then price elasticity would fall according to the formula. If demand becomes much flatter at &lt;span class=&quot;math-container&quot;&gt;$(Q',P)$&lt;/span&gt; (with a magnitude greater than the increase in quantity), then price elasticity would increase instead. &lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2019-07-10T18:32:13.910" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30121" PostTypeId="1" CreationDate="2019-07-10T21:55:26.003" Score="6" ViewCount="84" Body="&lt;p&gt;I'm currently reading &quot;&lt;a href=&quot;https://academic.oup.com/ej/article-abstract/122/563/933/5079744&quot; rel=&quot;nofollow noreferrer&quot;&gt;SAVING RATES AND POVERTY: THE ROLE OF CONSPICUOUS CONSUMPTION AND HUMAN CAPITAL&lt;/a&gt;&quot; by Omer Moav and Zvika Neeman, and I encounter some problem deriving one of the equations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Utility function, where &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; is income, &lt;span class=&quot;math-container&quot;&gt;$\widetilde y$&lt;/span&gt; is the belief of &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; based on &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; and human capital &lt;span class=&quot;math-container&quot;&gt;$h$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; is the product of interest:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$u(y,x) = (y-x)^{1-\lambda} \widetilde y(h,x)^\lambda$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Differentiate with respect to &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\frac{\lambda}{1-\lambda} \frac{y-x}{\widetilde y(h,x)} = &#xA;\frac{1}{d \widetilde y (h,x) / d x}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is the confusing part, how do I get this from above knowing that &lt;span class=&quot;math-container&quot;&gt;$y=\widetilde y(h,x)$&lt;/span&gt;?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given this &lt;span class=&quot;math-container&quot;&gt;$\underline y$&lt;/span&gt;, the lowest possible income an individual of &lt;span class=&quot;math-container&quot;&gt;$h$&lt;/span&gt; can have (&lt;span class=&quot;math-container&quot;&gt;$\pi$&lt;/span&gt; is an uncertain component of income that is not observed and has mean zero):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\underline y (h) \equiv h + \underline \pi (h)$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\widetilde y (h,x)^{1/(1-\lambda)} - \frac{x}{\lambda} \widetilde y (h,x)^{\lambda / (1-\lambda)} = \underline y (h)^{1/(1-\lambda)}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think it's something to do with utility being indifferent for the marginal person who consume &lt;span class=&quot;math-container&quot;&gt;$x&amp;gt;0$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$x=0$&lt;/span&gt;, but I don't know how to work it out to get the equation shown above.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks!!&lt;/p&gt;&#xA;" OwnerUserId="23666" LastEditorUserId="23666" LastEditDate="2019-07-12T08:26:47.700" LastActivityDate="2019-07-12T08:26:47.700" Title="Signalling Model (How to solve a differential equation?)" Tags="&lt;microeconomics&gt;&lt;difference-equations&gt;&lt;signaling&gt;" AnswerCount="0" CommentCount="2" FavoriteCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30122" PostTypeId="2" ParentId="30048" CreationDate="2019-07-10T22:40:22.037" Score="0" Body="&lt;p&gt;It seems that maximum-entropy Nash equilibrium is a relevant concept here. Or more generally, the question becomes well-defined once you fix a prior over all NE strategies, with the uniform prior (probably) being equivalent to the center of the NE simplex.&lt;/p&gt;&#xA;" OwnerUserId="23602" LastActivityDate="2019-07-10T22:40:22.037" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30123" PostTypeId="2" ParentId="30102" CreationDate="2019-07-11T02:06:14.190" Score="0" Body="&lt;p&gt;I think you are making this harder than this needs to be from a reasoning standpoint. Given a budget M, you are trying to maximize your total expenditure. You have just one input cost, being marginal material cost of the additional good. There is no trade-off between inputs, so &quot;maximizing&quot; in this sense just means how much you can buy given M, which will end up being simple algebra rather than some more difficult Lagrange calculus needed for multivariate constraint functions. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The issue with your LINEST model is that either your dependent variable is the marginal cost, not the total cost (as needed for your objective), or you are interpreting it incorrectly. If the former, rerun the regression with the data you referenced. If you used the two columns of data that you referenced then your interpretation I wrong and should be as follows: your coefficient β(1) would then just be the estimated price per item (an intercept shouldn't exist as no fixed costs are present), with the independent variable being the number of units, and the dependent being the total cost for that day. If you use this model, then your given M should be plugged into the left side of the equation and then solve for the number of units algebraically. Keep in mind that if you end up with, say, x=12.7, then you should round down, as 13 units would be unattainable under the constraint. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would consider using the log function, however, due to the increasing MC like you mentioned above. For your log function, follow the same algebra as above, solving for x=units attainable under the y=M constraint. Use a calculator for that one, no one wants to do log base 1.77  of a number in their head.&lt;/p&gt;&#xA;" OwnerUserId="23668" LastActivityDate="2019-07-11T02:06:14.190" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30124" PostTypeId="2" ParentId="12328" CreationDate="2019-07-11T04:13:15.600" Score="0" Body="&lt;p&gt;I believe every exchange has a minimum for outstanding shares that's required to be traded. So basically you'd just be going private. Decisions would be made by executives and liabilities would be accepted by the company.&lt;/p&gt;&#xA;" OwnerUserId="23632" LastActivityDate="2019-07-11T04:13:15.600" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30125" PostTypeId="1" CreationDate="2019-07-11T08:48:34.827" Score="1" ViewCount="183" Body="&lt;p&gt;Let’s assume a monthly Universal Basic Income (UBI) payment of \$1,000 and an annual inflation rate of 2%. I would like to understand what would happen to the real value of this UBI (its purchasing power) in terms of year-zero prices each year for say 20 years. Namely, how much the original \$1,000 worth after 5,10, and 20 years?&#xA;This is the link to a &lt;a href=&quot;https://docs.google.com/spreadsheets/d/1g6OCeU4Bl3n7HhbPRXLqnfgsinWLKW8U-Y1ffdv0LGU/edit?usp=sharing&quot; rel=&quot;nofollow noreferrer&quot;&gt;google spreadsheet&lt;/a&gt; - I hope that I did the calculations right. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My questions are:&#xA;How to calculate the real value of the UBI in each year in terms of year-zero prices if there is NO INDEXATION? Obviously, the real value must decrease due to inflation, but I would like to see what is left from the original purchasing power of $1,000 in years-zero every year for 20 years. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is what I have done in the Excel file attached:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Column “Real Value” represents the purchasing power of the nominal (NOT indexed) UBI of 1,000 dollars. Is it correct?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Column “Inflated Value” represents the INDEXED UBI, namely the UBI than would maintain the real purchasing power of the original $1,000 despite inflation. It is correct?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the calculations are correct, why then the loss to inflation is lower (and decreasing) than the amount of yearly compensation by indexation which is also increasing? What is the logic and intuition behind this?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks a lot!&lt;/p&gt;&#xA;" OwnerUserId="23685" OwnerDisplayName="Ron Slava Grodko" LastEditorUserId="362" LastEditDate="2019-07-11T16:24:41.627" LastActivityDate="2019-07-11T19:43:59.703" Title="Universal Basic Income: Indexation and Inflation" Tags="&lt;inflation&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30126" PostTypeId="2" ParentId="12328" CreationDate="2019-07-11T11:07:33.357" Score="0" Body="&lt;p&gt;I know only Hungarian law. In Hungary you cannot do that. You may buy back at most a limited percent and you have 3 options you have to do in a limited time (typically in one year):&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;you may sell it.&lt;/li&gt;&#xA;&lt;li&gt;it can be part of employee compensation.&lt;/li&gt;&#xA;&lt;li&gt;otherwise you must reduce capital by the amount of the owned stocks.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;In the meantime the equity in the balance sheet is already reduced by the own stocks but booked separately.&lt;/p&gt;&#xA;" OwnerUserId="19164" LastActivityDate="2019-07-11T11:07:33.357" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30128" PostTypeId="2" ParentId="30125" CreationDate="2019-07-11T13:46:27.273" Score="0" Body="&lt;p&gt;I don’t entirely follow what you are asking. The answer appears straightforward, and does not need a spreadsheet.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;If there is no indexation, the real value drops in value by the inflation rate (2%/year). Divide through by &lt;span class=&quot;math-container&quot;&gt;$\frac{1}{(1.02)^n}$&lt;/span&gt; to get real value in year n.&lt;/li&gt;&#xA;&lt;li&gt;If indexed, the payment grows at the rate of inflation, and the real value is constant.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The only technical issue is that in the real world, indexation is done with a lag, and there are deviations in real value if the inflation rate is not constant.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2019-07-11T13:46:27.273" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30130" PostTypeId="2" ParentId="30057" CreationDate="2019-07-11T14:26:15.023" Score="1" Body="&lt;p&gt;GDP is, by definition, basically &lt;em&gt;only&lt;/em&gt; consumption and government spending.  That's why you see consumption reported as such a high % of the overall number.  Gross Output (GO) is a more comprehensive measure of economic activity, and on that measure household consumption is closer to 35% of the economy.  A &quot;consumer economy&quot; isn't one in which most economic activity is in the form of consumption of imported goods &amp;mdash; there is plenty of &lt;em&gt;production&lt;/em&gt; going on in such countries, as well.  More production than consumption, in fact (since many of the goods produced are used by other businesses, and often not counted in GDP figures.)&lt;/p&gt;&#xA;" OwnerUserId="23023" LastActivityDate="2019-07-11T14:26:15.023" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30134" PostTypeId="2" ParentId="30125" CreationDate="2019-07-11T16:51:38.000" Score="1" Body="&lt;p&gt;Your real value column is wrong, but only slightly. You are decreasing it by 2% per year, but inflation of 2% doesn't cause real value to decrease by quite 2%. If there is 2% inflation, real value doesn't decrease by 2%; it decreases by &lt;code&gt;1 - 1/1.02&lt;/code&gt; which is approximately 1.961% .&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is just the way percentages work. Since they are multiplicative, the inverse is different in magnitude:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;If you lose 80% of an investment you have to gain 400% to break even. &lt;/li&gt;&#xA;&lt;li&gt;If you lose 50% of an investment you have to gain 100% to break even. &lt;/li&gt;&#xA;&lt;li&gt;If you lose 20% of an investment you have to gain 25% to break even. &lt;/li&gt;&#xA;&lt;li&gt;If you lose about 1.961% of an investment you have to gain 2% to break even. &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;If you change your real value formula to &lt;code&gt;=F6/(1+$F$4)&lt;/code&gt; you will get the correct values. You can also calculate the real value column by just calculating what portion of the buying power is left (&lt;code&gt;1000/H26&lt;/code&gt;) and multiplying it by the nominal value: &lt;code&gt;=1000*1000/H26&lt;/code&gt;. Both methods will give you the same result.&lt;/p&gt;&#xA;" OwnerUserId="23674" LastEditorUserId="23674" LastEditDate="2019-07-11T19:43:59.703" LastActivityDate="2019-07-11T19:43:59.703" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30136" PostTypeId="1" CreationDate="2019-07-12T00:07:23.400" Score="3" ViewCount="50" Body="&lt;p&gt;With all things being equal: shouldn't the GDP roughly increase equivalent to population growth (as a minimum, setting aside GDP increases resulting from technology, education, and all other factors).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Obviously there are a lot of factors that affect GDP.  However, in general, GDP in one way measures the 'productivity' of a certain population.  If that population increases, shouldn't it naturally follow that the overall productivity will increase proportionally (assuming normal population growth, rather than an influx of invalids, etc).  I assume there would be time-delay in the response of the GDP, dependent probably on the nature of the population growth.&lt;/p&gt;&#xA;" OwnerUserId="23500" LastActivityDate="2019-07-12T15:21:54.870" Title="Generally speaking, shouldn't GDP roughly increase equivalent to population growth?" Tags="&lt;gdp&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="30137" PostTypeId="1" CreationDate="2019-07-12T04:02:24.333" Score="0" ViewCount="46" Body="&lt;p&gt;I chose the phrasing &quot;great difficulties&quot; to be polite. The &quot;capital release unit&quot; seems to be a bit of a desperate action from the bank, coupled with further complications involving bad press made things even worse for DB. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Wouldn't all of that be a fairly unmistakable signal to buy gold as a hedging instrument?&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Question&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Is there anything in economic theory that can explain why gold would drop when a bank looks to be in big trouble? Have I missed something? Or is this a case of &quot;market irrationality?&quot; I wonder if there are studies on how long markets can remain &quot;irrational.&quot;&lt;/p&gt;&#xA;" OwnerUserId="12212" LastEditorUserId="8313" LastEditDate="2019-07-13T19:56:33.737" LastActivityDate="2019-07-13T19:56:33.737" Title="Why has gold dropped during the same week as Deutches Bank faces great difficulties" Tags="&lt;macroeconomics&gt;&lt;financial-economics&gt;&lt;markets&gt;&lt;commodities&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30138" PostTypeId="1" CreationDate="2019-07-12T10:51:52.603" Score="0" ViewCount="27" Body="&lt;p&gt;For a game theory class I am prepping, I am looking for simple mathematical puzzles that can easily be presented as one-shot 2-players simultaneous games in which one of the players has a dominant strategy. The puzzle is to find the dominant strategy. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My goal is to interactively illustrate how &quot;games are not equal in the face of dominant strategies&quot;: Although standard game theory predicts that players will play dominant strategies when they have one, dominant strategies can be more or less easy to identify in different games, which may lead players to play dominant strategies more often in some games than others. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would like to do so by putting students in the shoes of the player who has a dominant strategy in a series of games in which the dominant strategy is increasingly hard to find. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that the game of Nim is excluded because it is neither one-shot nor simultaneous. The games could for example (but do not have to) look like this:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The other player will choose and integer &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; satisfying property &lt;span class=&quot;math-container&quot;&gt;$P_1$&lt;/span&gt; (e.g., &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; is contained in some subset of integers). You must yourself choose an integer &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; satisfying property &lt;span class=&quot;math-container&quot;&gt;$P_2$&lt;/span&gt;. You win if &lt;span class=&quot;math-container&quot;&gt;$f(x,y)$&lt;/span&gt; (e.g., &lt;span class=&quot;math-container&quot;&gt;$x+ y$&lt;/span&gt;) satisfies property &lt;span class=&quot;math-container&quot;&gt;$P_3$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My question is&lt;/strong&gt;: can anyone provide a series of games that would do the job?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Desirable qualities of the series are:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Ideally, the series should contain between three and four games.&lt;/li&gt;&#xA;&lt;li&gt;Games should be easy to explain.&lt;/li&gt;&#xA;&lt;li&gt;Games should be &quot;truly interactive&quot; in the sense that the other player can actually influence the outcome (no &quot;The other player will choose &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt;. You must choose positive integer &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;. You win if &lt;span class=&quot;math-container&quot;&gt;$31^3+33^3+x^3 = 76^3$&lt;/span&gt;.&quot;)&lt;/li&gt;&#xA;&lt;li&gt;Games should be as &quot;entertaining&quot; as possible (sorry, I know this is subjective).&lt;/li&gt;&#xA;&lt;li&gt;The progression in the difficulty to find dominant strategies should ideally come from dominant strategies becoming more and more &quot;clever&quot;, as opposed to checking an increasing number of &quot;cases&quot; (sorry, I know this too is subjective).&lt;/li&gt;&#xA;&lt;li&gt;I should be able to explain why the dominant strategy is what it is in class relatively quickly (I.e., ideally dominant strategies should be of the kind &quot;hard to find, but easy to understand once you know what it is&quot;)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="38" LastActivityDate="2019-08-14T19:01:10.113" Title="Illustrating difficulty to find dominant strategies: series of simple one-shot two-players games" Tags="&lt;game-theory&gt;&lt;dominant-strategy&gt;&lt;teaching&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30139" PostTypeId="1" CreationDate="2019-07-12T11:56:06.833" Score="1" ViewCount="16" Body="&lt;p&gt;I am not sure if this is a straightforward question or not. Basically, I have a set of products along with their prices and quantities demanded. I also have own and cross price elasticities for each product as well as the cross price elasticity with my outside good. I want to figure out how quantity demanded will change when the prices of several products changes. For example, if my products are different types of beers and the outside option is wine, I want to know how quantity demanded of all beers and wine will change when several beers change their price. I want to assume that total quantity demanded of beer and wine remain constant (but expenditure can increase). Finally, I do not want to estimate a demand model I just want to use the elasticities that I already have access to (from an outside source).&lt;/p&gt;&#xA;" OwnerUserId="23684" LastActivityDate="2019-07-12T11:56:06.833" Title="How to simulate changes in quantity demanded when several prices change?" Tags="&lt;elasticity&gt;&lt;simulations&gt;&lt;elasticity-of-substituion&gt;&lt;demand-system-estimation&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30140" PostTypeId="2" ParentId="232" CreationDate="2019-07-12T12:57:46.127" Score="0" Body="&lt;p&gt;It doesn't apply to all games, but there are also situations in which (at least some of) the players &lt;em&gt;actually&lt;/em&gt; use randomization devices in games which could be viewed as one-shot. Here, probability distributions are not frequencies, they are the distributions that the randomization device uses. Any mixed-strategy equilibrium is then an equilibriun in an ex-ante sense (although players might very well draw from the randomization device a single time, and there might not be any sense in which the ex-post situation is an equilibrium).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Examples include:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.geek.com/apps/tsa-paid-1-4-million-for-randomizer-app-that-chooses-left-or-right-1651337/&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.geek.com/apps/tsa-paid-1-4-million-for-randomizer-app-that-chooses-left-or-right-1651337/&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.prnewswire.com/news-releases/new-startup-formed-to-commercialize-patented-usc-technology-that-uses-game-theory-to-intelligently-randomize-security-patrols-for-safer-airports-borders-municipalities-and-waterways-198028371.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.prnewswire.com/news-releases/new-startup-formed-to-commercialize-patented-usc-technology-that-uses-game-theory-to-intelligently-randomize-security-patrols-for-safer-airports-borders-municipalities-and-waterways-198028371.html&lt;/a&gt;, &lt;a href=&quot;http://teamcore.usc.edu/news-content.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://teamcore.usc.edu/news-content.htm&lt;/a&gt;, &lt;a href=&quot;https://magazine.viterbi.usc.edu/spring-2015-2/features/a-safer-world/&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://magazine.viterbi.usc.edu/spring-2015-2/features/a-safer-world/&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="38" LastActivityDate="2019-07-12T12:57:46.127" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30141" PostTypeId="1" CreationDate="2019-07-12T10:25:31.060" Score="1" ViewCount="107" Body="&lt;p&gt;I am wondering if, in the face of the global warming, the long-term passive investments into ETFs are still a good idea. Right know we benefit from the growth of the economy. I assume (maybe that's wrong assumption) that in the big picture the overall growth of economy is fully dependent on the energy, i.e. whether the particular company produces products or provides services you can always show that it needs energy to grow. Global warming seems to significantly affect our energy production and the following global crisis seems to me to be very different than for instance world wars - you cannot stop it by just signing peace documents. I wonder if my reasoning is right and to be honest I hope that it's not. &lt;/p&gt;&#xA;" OwnerDisplayName="Maciej Wasilewski" LastEditorUserId="8313" LastEditDate="2019-07-22T13:31:31.227" LastActivityDate="2019-07-22T13:31:31.227" Title="Is it possible, that the global warming will affect the growth of the economy?" Tags="&lt;macroeconomics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30142" PostTypeId="2" ParentId="30141" CreationDate="2019-07-12T15:16:07.427" Score="3" Body="&lt;p&gt;Global warming doesn't impact energy production in a major way (nuclear plants getting shut down because the cooling water is too hot is a thing, but it's not a major thing). If anything we're building far more energy production (solar and wind) before we ordinarily would have to (plants reaching end of life). If energy consumption went up we would just not close a power station early.... &lt;/p&gt;&#xA;&#xA;&lt;p&gt;All of the above assumes you're talking about europe/AUS/US. In other continents demand still outpaces production in many places. But that's not a global warming problem, they will happily build coal plants all day long.&lt;/p&gt;&#xA;" OwnerUserId="23673" LastActivityDate="2019-07-12T15:16:07.427" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30143" PostTypeId="2" ParentId="30136" CreationDate="2019-07-12T15:21:54.870" Score="1" Body="&lt;p&gt;Basically the answer is yes&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Population growth is a key factor in GDP growth. Population creates both demands for goods and labour supply&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Unlike GDP, GDP per Capita, cannot, obviously rely on population growth, and that is (or at least should be) the goal of governments. and unlike population, the &quot;rest of the factors&quot; affect GDP per Capita just the same&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A couple of extra points besides the obvious: population growth, by births or by immigration, affect age distribution, which affects both supplies of labour amd demands for goods and services&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Because of it, population stagnation may mean decrease in GDP per Capita and long term economic issues&lt;/p&gt;&#xA;" OwnerUserId="19195" LastActivityDate="2019-07-12T15:21:54.870" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30144" PostTypeId="2" ParentId="30137" CreationDate="2019-07-12T15:22:22.753" Score="1" Body="&lt;p&gt;As Brian Romanchuk commented, there are a number of factors that can affect the daily price of an asset.  &lt;a href=&quot;https://www.cmegroup.com/education/featured-reports/cme-group-leading-products.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Gold is one of the most traded futures contracts on the CME&lt;/a&gt; so the performance of one bank (assuming you mean Deutsche Bank) might not be enough to offset those other factors.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.investopedia.com/articles/forex/11/golds-effect-currencies.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;But there is a strong correlation between gold and fiat currencies&lt;/a&gt;.  This is because gold is used to hedge against inflation.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Regarding your question about economic theory:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.investopedia.com/terms/f/fractionalreservebanking.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;In a fractional reserve banking system&lt;/a&gt;, the supply of money is controlled by a central bank such as the Federal Reserve.  According to the &lt;a href=&quot;https://www.investopedia.com/terms/q/quantity_theory_of_money.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;Quantity Theory of Money&lt;/a&gt;, the supply and demand of money determines inflation.  However, John Maynard Keynes rejected this theory because it doesn't account for interest rates. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.investopedia.com/terms/k/keynesianeconomics.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;Keynes suggested that governments could offset recessionary / inflationary periods by directly decreasing / increasing interest rates.&lt;/a&gt;  According to Keynes, lowering interest rates in a recessionary period will create an incentive to borrow (cheaper capital) and short-term demand for money increases.  Prices change slowly in response to the change in interest rates as lenders increase the money supply to meet demand.  This slow change allows money supply and changes in interest rates to encourage or discourage borrowing and lending.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;I'll attempt to unite economic theory and the futures market:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.investopedia.com/terms/c/commercialbank.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;Generally speaking, a commercial bank generates most of its revenue through loans and consumer lending.&lt;/a&gt;  You could think of it as essentially selling / producing money.  They are inherently long money just like a gold miner is inherently long gold.  So their &quot;product&quot; becomes cheaper when interest rates are cut.  Since the price of gold behaves similarly to currencies, I suppose a bank could short gold futures in order to hedge their position.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Fed's chairman Jerome Powell spoke recently. &lt;a href=&quot;https://www.wsj.com/articles/powell-says-outlook-hasnt-improved-in-recent-weeks-setting-stage-for-rate-cut-11562761822&quot; rel=&quot;nofollow noreferrer&quot;&gt;Many interpreted his economic outlook as a dovish signal which could imply lower interest rates.&lt;/a&gt;  If that happens, banks' revenue would decrease and the value of the dollar would be &lt;strong&gt;expected&lt;/strong&gt; to decrease and the value of gold would be &lt;strong&gt;expected&lt;/strong&gt; to decrease as well.  But nothing is guaranteed :)  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Regarding irrational markets&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A former coworker would say to me, &quot;the market can remain irrational longer than you can remain solvent&quot;.  If you are able to predict irrationality then it would no longer be irrational. I recommend you read the book &lt;a href=&quot;https://rads.stackoverflow.com/amzn/click/com/0812975219&quot; rel=&quot;nofollow noreferrer&quot; rel=&quot;nofollow noreferrer&quot;&gt;Fooled By Randomness by Nassim Taleb&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="23430" LastEditorUserId="23430" LastEditDate="2019-07-12T15:42:43.097" LastActivityDate="2019-07-12T15:42:43.097" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30145" PostTypeId="1" CreationDate="2019-07-12T15:38:25.363" Score="3" ViewCount="227" Body="&lt;p&gt;I recently saw a meme, and the content was something like:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In the near future, a meteor will 'hit' the Earth, and there will be&#xA;  gold rain, and hence everyone will be rich&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The ridiculous thing with this is that if everyone has tons of gold, then gold becomes worthless, so in terms of poverty, nothing would change.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This got me thinking!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is clear that you cannot solve poverty by giving poor people money because than the money would loses its value, and prices go up (since also you would need to print heck a lot of money). However, one thing that might work is if everyone had a job with decent salary. Then, everyone would earn enough money to have decent life.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, this got me thinking even more!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This solution implicitly assumes that in such a case, everything would be the same except now everyone has enough money to support themselves, but if everyone has a job with a 'decent' salary, say a job with at least paying \$1000 per month, then the values of the money would (or could) drop because everyone has that \$1000, so then \$1000 wouldn't become a 'decent' pay, and not everyone would be able to support themselves with that much money now.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(same thing ...) even more!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Question:&lt;/strong&gt; Is not having and poor people mathematically possible ?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you think about it, the very fact that something is valuable, such as gold, depends heavily one the fact that not everyone has that item. Moreover, if all the wealth was distributed equally, and not allowed any imbalances, then we wouldn't be event survive as human species, but any imbalance would results in someone getting richer and some other getting poorer; and this means with some extreme exceptions, the existence of poverty is ensured mathematically.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Edit:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Guys, you are obscuring the core problem in here by dealing with specific details; forget money, thing in terms of wealth. There is some total wealth in the economy, and assume that there is some poverty threshold of in terms of wealth (it does not matter how this wealth is distributed or kept in practice i.e in terms of some money, gold, or silver; it does not matter.) What is this threshold.? we don't know, and we don't have to know for the time being. The analysis will show in what conditions, such a threshold can exists, and there can be no poor with respect to that threshold (of course, we then have to check, when we interpret our results in terms of real money whether that threshold corresponds to a &quot;decent&quot; one).&lt;/p&gt;&#xA;" OwnerUserId="15670" LastEditorUserId="15670" LastEditDate="2019-07-15T07:57:20.167" LastActivityDate="2019-07-15T21:16:39.440" Title="Is poverty a mathematical necessity?" Tags="&lt;macroeconomics&gt;&lt;wealth&gt;&lt;basic-income&gt;" AnswerCount="3" CommentCount="20" ContentLicense="CC BY-SA 4.0" />
  <row Id="30146" PostTypeId="2" ParentId="30145" CreationDate="2019-07-12T17:07:58.383" Score="1" Body="&lt;p&gt;American economic theorist &lt;a href=&quot;https://en.wikipedia.org/wiki/Henry_George&quot; rel=&quot;nofollow noreferrer&quot;&gt;Henry George&lt;/a&gt; wrote about precisely this issue in his famous work &lt;a href=&quot;https://en.wikipedia.org/wiki/Progress_and_Poverty&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;Progress and Poverty&lt;/em&gt;&lt;/a&gt; published in the late 1800s, and based on his observations on the economic development of San Francisco during the gold rush.  His argument was that increasing economic development primarily benefitted landowners, at the expense of both capital and labor.  (&lt;em&gt;However&lt;/em&gt;, since landowners were often also holders of large amounts of capital, it was primarily labor that ended up losing out.)  In a nutshell, the leverage that landowners held over the workers allowed them to push wages ever lower, creating poverty as a &lt;em&gt;result&lt;/em&gt; of economic progress.  He theorized that taxing economic rent (at/near 100%) would eliminate speculation and thus stop the boom/bust cycle endemic to market economies, as well as providing ample revenue to the government to fund social welfare programs and to develop infrastructure.&lt;/p&gt;&#xA;" OwnerUserId="23023" LastActivityDate="2019-07-12T17:07:58.383" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="30147" PostTypeId="2" ParentId="30112" CreationDate="2019-07-12T17:47:21.080" Score="2" Body="&lt;p&gt;There is no error in your calculations. The problem is with the indirect utility function that you were given. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;An indirect utility function should satisfy &lt;span class=&quot;math-container&quot;&gt;$v(\alpha p_1,\alpha p_2,\alpha y)=v(p_1,p_2,y)$&lt;/span&gt;. In other words, if income goes up and prices go up by the same factor then everyone is as well off as they were before.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Unfortunately, in this case &lt;span class=&quot;math-container&quot;&gt;$v(\alpha p_1, \alpha p_2, \alpha y)= \frac{1}2\alpha^2\frac{y^4}{p_1p_2}$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="21196" LastActivityDate="2019-07-12T17:47:21.080" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30148" PostTypeId="1" CreationDate="2019-07-12T17:59:08.180" Score="0" ViewCount="28" Body="&lt;p&gt;I am trying to examine the determinants of economic growth, essentially regressing a number of variables upon economic growth. I face a problem that there is likely simultaneous causality between many of my explanatory variables and the dependent variable. To deal with it I am using instrumental variables. I was wondering would it be reasonable to use the past values of my explanatory variables as instruments for their current values? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you so much for the answers.&lt;/p&gt;&#xA;" OwnerUserId="23688" LastActivityDate="2020-04-11T00:01:26.803" Title="Is it reasonable, in panel data, to use past values of explanatory variables as instruments to deal with simultaneous causality?" Tags="&lt;macroeconomics&gt;&lt;econometrics&gt;&lt;economic-growth&gt;&lt;instrumental-variable&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30150" PostTypeId="2" ParentId="30141" CreationDate="2019-07-12T19:59:32.290" Score="3" Body="&lt;p&gt;Investment &lt;em&gt;returns&lt;/em&gt; do not necessarily require economic &lt;em&gt;growth&lt;/em&gt;. People do invest in low- to zero-growth or even declining industries, such as public utilities or tobacco, which tend to throw off high dividends. Overall, dividends (and corporate share repurchases) represent profits beyond what can be usefully invested in growth. They can still be reinvested in additional shares by individuals, and thus compound over time. In a zero-growth steady state, not &lt;em&gt;everyone&lt;/em&gt; can reinvest their dividends, but that is fine -- some will be building their portfolios and some will be spending them down.&lt;/p&gt;&#xA;" OwnerUserId="19618" LastActivityDate="2019-07-12T19:59:32.290" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30151" PostTypeId="1" CreationDate="2019-07-12T20:03:49.800" Score="1" ViewCount="28" Body="&lt;p&gt;In &lt;em&gt;Introduction to Econometrics, 3rd Edition&lt;/em&gt;, by Stock and Watson, there is a short example about evaluating the ability of using dividend yields (current dividends over price) to predict future stock returns. The regression featured uses monthly data from 1960:1 to 2002:12 on the logarithm of the dividend-price ratio for the CRSP value-weighted index of stock returns. (See pp. 564-565.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;They present several regressions. The main one of interest is a ADL(1) regression (auto-regressive distributed lag regression)&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\text{excess return}_{t} = \rho_0 + \rho_1 \text{excess return}_{t-1} &#xA;+ \gamma_1 \ln(\text{dividend yield}_{t-1}) + \epsilon_t.&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The mention&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;One way to evaluate the apparent predictability found in column (3) of Table 14.7 is to conduct a pseudo-out-of-sample forecasting analysis. Doing so over the out-of-sample period 1993:1-2002:12 provides a sample root mean square forecast error (RMSFE) of 4.08%. In contrast, the sample RMSFE of a &quot;constant forecast&quot; (in which the recursively estimated forecasting model includes only an intercept) is 3.98%. The pseudo out-of-sample forecast based on the ADL(1,1) model with the log dividend yield does worse than forecasts in which there are no predictors!&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The regression results are given in the following table:&#xA;&lt;a href=&quot;https://i.stack.imgur.com/ahfnx.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/ahfnx.png&quot; alt=&quot;Table 14.7, Stock and Watson 3rd Edition&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Question:&lt;/strong&gt; Does anyone have a reference (a paper or something else) that calculates this same average out-of-sample forecast error on more recent data? Ideally, this would include data up until 5 years ago or so. &lt;/p&gt;&#xA;" OwnerUserId="59" LastActivityDate="2019-07-12T20:03:49.800" Title="Assessing the ability of dividend yields to predict stock returns using out-of-sample forecast errors" Tags="&lt;econometrics&gt;&lt;reference-request&gt;&lt;finance&gt;&lt;financial-economics&gt;&lt;prediction&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30152" PostTypeId="2" ParentId="30148" CreationDate="2019-07-12T21:35:34.660" Score="1" Body="&lt;p&gt;I suggest looking into System GMM. It is a panel regression method that uses past values as instruments and is exactly what you're looking for, I think. It has a few restrictions that much be met, the most important requires you to have more cross-sections than time periods. Without seeing your model and other details that is all I can provide for help. I hope this works for you.&lt;/p&gt;&#xA;" OwnerUserId="23546" LastEditorUserId="23546" LastEditDate="2019-07-15T20:54:59.050" LastActivityDate="2019-07-15T20:54:59.050" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30153" PostTypeId="1" CreationDate="2019-07-12T22:07:35.007" Score="1" ViewCount="39" Body="&lt;p&gt;It is alleged by this &lt;a href=&quot;https://www.theguardian.com/news/datablog/2019/jun/30/student-debt-loan-forgiveness-bernie-sanders&quot; rel=&quot;nofollow noreferrer&quot;&gt;article in the Guardian&lt;/a&gt; that the republican tax cuts cost more money than the total student loan debt bubble. The accuracy of this claim was briefly discussed in &lt;a href=&quot;https://skeptics.stackexchange.com/questions/44331/do-the-republican-tax-cuts-cost-more-than-forgiving-student-debt&quot;&gt;this post via the Skeptics stack-exchange&lt;/a&gt;; the comments on this post also suggest moving the discussion to this forum. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can someone provide more details to clarify the answer as to whether the republican tax cuts cost more or less than forgiving total student loan debt?&lt;/p&gt;&#xA;" OwnerDisplayName="user23691" LastActivityDate="2019-07-13T02:05:56.253" Title="Do the republican tax cuts cost more than forgiving student loan debt?" Tags="&lt;debt&gt;&lt;taxes&gt;&lt;tax&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30154" PostTypeId="1" AcceptedAnswerId="30230" CreationDate="2019-07-12T22:13:23.837" Score="1" ViewCount="119" Body="&lt;p&gt;Suppose we are estimating a linear model utilizing a Markov Chain Monte Carlo technique such as a Gibbs sampler, drawing from the posteriors in a Bayes framework.  Suppose the full sample of data we have is from time &lt;span class=&quot;math-container&quot;&gt;$t = 1, \dots,\tau\dots, T$&lt;/span&gt;, and we want to forecast returns one period ahead using a recursive window starting at time &lt;span class=&quot;math-container&quot;&gt;$t = \tau$&lt;/span&gt; until time &lt;span class=&quot;math-container&quot;&gt;$t = T$&lt;/span&gt;. We have trained the model from time &lt;span class=&quot;math-container&quot;&gt;$t=1$&lt;/span&gt; to time &lt;span class=&quot;math-container&quot;&gt;$t=\tau$&lt;/span&gt;, then we want to forecast returns out of sample at time &lt;span class=&quot;math-container&quot;&gt;$t=\tau+1$&lt;/span&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{equation} y_{\tau +1} = \beta' \mathbf{x}_\tau + \sigma \varepsilon_{\tau + 1}, \; \; \varepsilon_{\tau + 1} \sim \mathcal{N}(0,1) \end{equation}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When I tried this without setting the seed at each period the error term &lt;span class=&quot;math-container&quot;&gt;$\varepsilon_{\tau+1}$&lt;/span&gt; was so stochastic across the &lt;span class=&quot;math-container&quot;&gt;$I$&lt;/span&gt; iterations of the MCMC algorithm that &lt;span class=&quot;math-container&quot;&gt;$y_{\tau+1}$&lt;/span&gt; was essentially a random walk.  When I set the seed at each period such that the &lt;span class=&quot;math-container&quot;&gt;$I$&lt;/span&gt; iterations in the Gibbs sampler used the same &lt;span class=&quot;math-container&quot;&gt;$\varepsilon_{\tau+1}$&lt;/span&gt; I found much better results in terms of RMSFE.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Should we set the seed in the random number generator in each period &lt;span class=&quot;math-container&quot;&gt;$\tau$&lt;/span&gt;, such that all &lt;span class=&quot;math-container&quot;&gt;$I$&lt;/span&gt; iterations of evaluating &lt;span class=&quot;math-container&quot;&gt;$y_{\tau+1}$&lt;/span&gt; use the same error term &lt;span class=&quot;math-container&quot;&gt;$\varepsilon_{\tau+1}$&lt;/span&gt; when computing this forecast? &lt;/p&gt;&#xA;" OwnerUserId="5780" LastEditorUserId="5780" LastEditDate="2019-07-15T19:15:16.693" LastActivityDate="2019-07-21T00:49:01.877" Title="Should the seed be set in forecasting returns in a MCMC" Tags="&lt;markov-chain&gt;&lt;forecasting&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30155" PostTypeId="2" ParentId="30153" CreationDate="2019-07-13T02:05:56.253" Score="2" Body="&lt;p&gt;While many folks treat reductions in government revenue as equivalent to spending, they’re not actually the same thing. Tax cuts don’t “cost” anything. Tax cuts represent less money coming &lt;em&gt;in&lt;/em&gt;, while government spending (such as repayment of student loans) represent more money going &lt;em&gt;out&lt;/em&gt;. So your first thought when seeing the two things treated as if they were the same should be “somebody has an agenda here” and to view anything that follows with a skeptical eye. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;That said, it’s certainly valid to ask whether the tax cuts decrease government revenue by more than the cost of the repayment of student debt.  The short answer is “nobody knows” because both things represent such huge financial transfers that they would distort the economy. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Nobody denies that tax cuts increase economic activity &amp;mdash; the question is by how much.  Many Republicans argue that tax cuts increase economic activity by so much that they “pay for themselves” because the smaller slice of a much larger pie works out to more overall. Most Democrats dispute this. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Similarly, nobody denies that government spending stimulates the economy &amp;mdash; the question is by how much. Democrats often argue that government spending is a more effective (or at least more fair) way of stimulating the economy, than letting businesses (or the wealthy) hold onto the money and spend it themselves. Republicans dispute this. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Every facet of this issue is so politically charged, and what little hard data exists is so up to interpretation, that I don’t think you’ll really get the kind of definitive answer you’re probably after.  The bottom line is that it’s not really possible to conduct the kind of controlled experiments necessary to come to a solid conclusion. Which isn’t to say that people can’t make very reasonable (or persuasive) &lt;em&gt;guesses&lt;/em&gt;. Just be aware that they are, in fact, guesses &amp;mdash; and politically motivated ones, at that. &lt;/p&gt;&#xA;" OwnerUserId="23023" LastActivityDate="2019-07-13T02:05:56.253" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30156" PostTypeId="1" CreationDate="2019-07-13T10:09:57.290" Score="0" ViewCount="43" Body="&lt;p&gt;Let &lt;span class=&quot;math-container&quot;&gt;$\Vert A \Vert$&lt;/span&gt; denote the spectral norm of a random matrix. Let &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$u_k$&lt;/span&gt; be N&lt;span class=&quot;math-container&quot;&gt;$\times$&lt;/span&gt;T matrices. Denote &lt;span class=&quot;math-container&quot;&gt;$\beta \cdot u = \sum_{k=1}^K\beta_ku_k $&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$\beta$&lt;/span&gt; is a K-vector and &lt;span class=&quot;math-container&quot;&gt;$\beta_k$&lt;/span&gt; a scalar. Further, let &lt;span class=&quot;math-container&quot;&gt;$\Vert x \Vert = O_p(\sqrt N)$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\Vert u_k \Vert = O_p(\sqrt{NT})$&lt;/span&gt; for all &lt;span class=&quot;math-container&quot;&gt;$k=1,...,K$&lt;/span&gt; as N and T grow at the same rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why do we have &lt;span class=&quot;math-container&quot;&gt;$\Vert x \Vert \gg \Vert(\hat\beta-\beta)\cdot u\Vert $&lt;/span&gt; asymptotically if the convergence rate of &lt;span class=&quot;math-container&quot;&gt;$\hat\beta$&lt;/span&gt; to &lt;span class=&quot;math-container&quot;&gt;$\beta$&lt;/span&gt; is faster than &lt;span class=&quot;math-container&quot;&gt;$\sqrt N$&lt;/span&gt;?&lt;/p&gt;&#xA;" OwnerUserId="20850" LastEditorUserId="20850" LastEditDate="2019-07-13T15:32:11.660" LastActivityDate="2019-07-13T15:32:11.660" Title="Rate of convergence and asymptotic dominance in $\Vert x \Vert \gg \Vert(\hat\beta-\beta)\cdot u\Vert $" Tags="&lt;econometrics&gt;&lt;mathematical-economics&gt;&lt;probability&gt;" AnswerCount="0" CommentCount="11" ContentLicense="CC BY-SA 4.0" />
  <row Id="30157" PostTypeId="1" CreationDate="2019-07-13T17:02:22.870" Score="0" ViewCount="40" Body="&lt;p&gt;Following are the set of equations describing the demand and supply of two goods X and Y:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Demand functions: &#xA;&lt;span class=&quot;math-container&quot;&gt;$$X_d = a_1 - b_1P_x + c_1P_y$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$Y_d = a_2 - b_2P_y +c_2P_x$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$a_1,~ a_2,~ b_1,~ b_2,~ c_1,~ c_2$&lt;/span&gt; are positive.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Supply functions:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$X_s = -f_1 + g_1P_x$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$Y_s = -f_2 + g_2Py$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$f_1,~ f_2,~ g_1,~ g_2$&lt;/span&gt; are positive&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Government imposed &lt;span class=&quot;math-container&quot;&gt;$t\%$&lt;/span&gt; tax on &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; and allows &lt;span class=&quot;math-container&quot;&gt;$s\%$&lt;/span&gt; subsidy on &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt; such that government budget remains balanced. Find out the required tax rate.&#xA;(Clearly show How the set of equations change and the equilibrium prices ?)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I replaced &lt;span class=&quot;math-container&quot;&gt;$P_x$&lt;/span&gt; by &lt;span class=&quot;math-container&quot;&gt;$P_x(1+t)$&lt;/span&gt; in the two demand equations as according to my understanding consumers now face a higher effective price for &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt;. But I'm not sure how to incorporate the subsidy and what would be the economic logic behind such a change.&lt;/p&gt;&#xA;" OwnerUserId="14617" LastEditorUserId="14617" LastEditDate="2019-07-14T15:14:00.913" LastActivityDate="2019-07-14T15:14:00.913" Title="Equilibrium price determination in a 2 commodity framework" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;general-equilibrium&gt;&lt;competitive-equilibrium&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30158" PostTypeId="1" CreationDate="2019-07-13T18:16:58.390" Score="2" ViewCount="48" Body="&lt;p&gt;Suppose there are &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt; bidders and a seller. Bidder &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; observes a private signal &lt;span class=&quot;math-container&quot;&gt;$v_i$&lt;/span&gt; from &lt;span class=&quot;math-container&quot;&gt;$[a,b]$&lt;/span&gt;. Let &lt;span class=&quot;math-container&quot;&gt;$\mathcal{X} = \times_{i=1}^n[a,b]$&lt;/span&gt; Each bidder is represented by a random variable, that has a joint distribution &lt;span class=&quot;math-container&quot;&gt;$F(\textbf{v})$&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$\textbf{v} = (v_1,v_2,...,v_n)$&lt;/span&gt;. Let &lt;span class=&quot;math-container&quot;&gt;$(\textbf{Q}(\textbf{v}),\textbf{M}(\textbf{v}))$&lt;/span&gt; be the direct mechanism, where &lt;span class=&quot;math-container&quot;&gt;$\textbf{Q}(\textbf{v})$&lt;/span&gt; is the allocation rule and &lt;span class=&quot;math-container&quot;&gt;$\textbf{M}(\textbf{v})$&lt;/span&gt; is the payment rule, where &lt;span class=&quot;math-container&quot;&gt;$\textbf{Q}(\textbf{v}) = (Q_1(\textbf{v}),Q_2(\textbf{v}),...,Q_n(\textbf{v}))$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\textbf{M}(\textbf{v}) = (M_1(\textbf{v}),M_2(\textbf{v}),...,M_n(\textbf{v}))$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The ex-post utility for bidder &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; is given as &lt;span class=&quot;math-container&quot;&gt;$U_i(v_i) = v_iQ_i(v_i,v_{-i}) - M_i(v_i,v_{-i})$&lt;/span&gt;. From this, we can find out the expected utility function as &lt;span class=&quot;math-container&quot;&gt;$$u_i(v_i) = \int_{\mathcal{X}_{-i}}(v_iQ_i(v_i,v_{-i}) - M_i(v_i,v_{-i}))\,f(v_{-i}|v_i)dv_{-i}$$&lt;/span&gt; Writing &lt;span class=&quot;math-container&quot;&gt;$\int_{\mathcal{X}_{-i}}Q_i(v_i,v_{-i})f(v_{-i}|v_i)dv_{-i} = q_i(v_i)$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\int_{\mathcal{X}_{-i}}M_i(v_i,v_{-i})f(v_{-i}|v_i)dv_{-i} = m_i(v_i)$&lt;/span&gt;, the expected utility function can be re-written as &lt;span class=&quot;math-container&quot;&gt;$u_i(v_i) = v_iq(v_i)-m_i(v_i)$&lt;/span&gt;. &lt;span class=&quot;math-container&quot;&gt;$F(\textbf{v})$&lt;/span&gt; can be any joint distribution,i.e, it is not necessary that the joint distribution can be written as the product of marginal distributions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Incentive compatibility now dictates that &lt;span class=&quot;math-container&quot;&gt;$u_i(v_i) \equiv v_iq(v_i)-m_i(v_i) \geq u_i(v_i^{'}) \equiv v_iq(v_i^{'})-m_i(v_i^{'})$&lt;/span&gt;. From here, we get that &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{equation} &#xA;\begin{split}&#xA;u_i(v_i) &amp;amp; \geq v_iq(v_i^{'})-m_i(v_i^{'})\\ &amp;amp;=v_iq(v_i^{'})-m_i(v_i^{'}) + v_i^{'}q(v_i^{'}) - v_i^{'}q(v_i^{'}) \\ &amp;amp;= (v_i - v_i^{'})q(v_i^{'}) + (v_i^{'}q(v_i^{'})-m_i(v_i^{'}))\\ &amp;amp;= (v_i - v_i^{'})q(v_i^{'}) + u_i(v_i^{'}), \,\,\, or, \\ u_i(v_i)-u_i(v_i^{'}) &amp;amp; \geq (v_i - v_i^{'})q(v_i^{'})\,\,\,\,\,\,\,\, -(1)&#xA;\end{split}&#xA;\end{equation}&lt;/span&gt;&#xA;Similarly, we can get &lt;span class=&quot;math-container&quot;&gt;$$u_i(v_i^{'})-u_i(v_i)  \geq (v_i^{'} - v_i)q(v_i)\,\,\,\,\,\,\,\, -(2)$$&lt;/span&gt;&#xA;From &lt;span class=&quot;math-container&quot;&gt;$(1)$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$(2)$&lt;/span&gt;, we get that &lt;span class=&quot;math-container&quot;&gt;$$(v_i - v_i^{'})q(v_i^{'}) \leq u_i(v_i)-u_i(v_i^{'}) \leq (v_i - v_i^{'})q(v_i)$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given the above expression, is it possible to write the expected utility function as &lt;span class=&quot;math-container&quot;&gt;$$u_i(v_i) = u_i(a) + \int_a^{v_i}q_i(t)\, dt,$$&lt;/span&gt; for any distribution. Specifically, I know that this holds true for the IPV case. So, my question is that is it possible to write the utility function as the integral of &lt;span class=&quot;math-container&quot;&gt;$q_i(.)$&lt;/span&gt; without the assumption of independence?&lt;/p&gt;&#xA;" OwnerUserId="16340" LastActivityDate="2019-12-11T13:02:15.270" Title="Bayesian incentive compatibility for a general distribution" Tags="&lt;mechanism-design&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="30159" PostTypeId="2" ParentId="30145" CreationDate="2019-07-13T22:14:59.847" Score="-1" Body="&lt;p&gt;In the U.S. the poverty threshold is 3 times the minimum food requirement and it is adjusted for CPI inflation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.census.gov/topics/income-poverty/poverty/about/history-of-the-poverty-measure.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Link to the source.&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The person that determined this threshold was a government economist at the Social Security Administration. That means the poverty threshold is politically determined. Why is it 3 times but not 3.14 or 2.718. The former number was politically acceptable. That means that the resulting level of government generosity was politically acceptable. Since the threshold is politically determined it would require setting the threshold to a very low number to eliminate almost all poverty. This would be politically unacceptable but I sense that consideration might not be relevant to your inquiry. It seems you just want an answer to a logic problem involving math.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we redistribute within countries but not across borders, there would be a threshold for each country. There are probably countries that do not define a poverty threshold. If a threshold is undefined it is difficult to say if people are in poverty or not.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If all world income were redistributed equally, even across borders, you would still face the problem that the prevalence of poverty depends upon a politically determined threshold.   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Addendum&lt;/em&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Implied by the foregoing, there is no empirical fact of poverty until a standard is defined and one example of a standard is an income threshold &lt;code&gt;T&lt;/code&gt;. The threshold can be compared to arithmetic mean income &lt;code&gt;I&lt;/code&gt;. You have indicated that you believe income is relevant.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The existence of poverty is not mathematically ensured. (The non-existence of poverty is mathematically feasible.) In some circumstances &lt;code&gt;T &amp;lt; I&lt;/code&gt;. One circumstance is where political forces set &lt;code&gt;T&lt;/code&gt; low enough.  This answer is relevant to your inquiry because you posed a question of mathematical possibility. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another circumstance is where &lt;code&gt;T&lt;/code&gt; is left &quot;unchanged&quot; or perhaps changing only by the amount of CPI and CPI calculation is outsourced to a disinterested agent free from political influence. Technology will enable productivity changes over time so that &lt;code&gt;I&lt;/code&gt; will increase so that &lt;code&gt;T &amp;lt; I&lt;/code&gt; becomes true. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another circumstance is where &lt;code&gt;T&lt;/code&gt; is left &quot;unchanged&quot; or perhaps changing only by the amount of CPI and CPI calculation is outsourced to a disinterested agent free from political influence and &lt;code&gt;I&lt;/code&gt; is already higher than &lt;code&gt;T&lt;/code&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I do not agree with your comment about wealth: that when everyone has 1000 dollars the amount has more or less no value. I claim that it has the value that can be purchased with 1000 dollars. I also claim that, after an equalizing global wealth redistribution, wealth still exists and money will still have some purchasing power. I do not even need to have a theory about inflation for my claim to be true. In fact, I made no claim about inflation, other than that it is not infinite inflation. Unfortunately you implied infinite inflation will be a result of equalization.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You made a similar (but less extreme) statement about gold wealth. Since it is less extreme I do not want to address it directly. However, I will say that your statement about the 1000 dollars (of wealth, not income) and your statement about gold wealth, both seem to suggest wealth must diminish when there is equality. Yours is an inflationary theory that I think is wrong. I am not saying that there will not be inflation as a result of redistribution. I am saying there does not necessarily have to be inflation. I am also saying there does not have to be extreme inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The bottom line is that I think you have not justified your claim about the connection between equality (of wealth or of income) and a resulting extreme inflation.&lt;/p&gt;&#xA;" OwnerUserId="6868" LastEditorUserId="6868" LastEditDate="2019-07-15T21:16:39.440" LastActivityDate="2019-07-15T21:16:39.440" CommentCount="7" ContentLicense="CC BY-SA 4.0" />
  <row Id="30160" PostTypeId="2" ParentId="12328" CreationDate="2019-07-13T23:17:42.460" Score="3" Body="&lt;p&gt;The New York Stock Exchange has a continued listing requirement of 300 shareholders and 200,000 shares. A company will want to consider whether continuing to be traded on a stock exchange is desirable before approaching these limits. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.nyse.com/publicdocs/nyse/markets/nyse-american/MKT_Continued_Listing_Standards.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;LINK to a NYSE reference document.&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If a company buys back almost all of its shares the last individual or institutional owner (who ever owns the last outstanding share yet to be bought back) will will own all of the equity. This person or institution will control the company. The seller of the last outstanding share will want the highest possible price. If this trade &lt;em&gt;must&lt;/em&gt; be done via the company buying it's own shares, because that is the premise of your question, the owner will direct the company to pay the maximum cash amount. The company will generate the maximum cash by liquidating the company. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Definition from Wikipedia... &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Liquidation is the process in accounting by which a company is brought&#xA;  to an end&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Liquidation&quot; rel=&quot;nofollow noreferrer&quot;&gt;LINK to Wikipedia article about liquidation.&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the last outstanding share can trade for more than liquidation value, there is no reason to liquidate the company. The owner can sell the share to a different investor in order to get the highest possible price.&lt;/p&gt;&#xA;" OwnerUserId="6868" LastEditorUserId="6868" LastEditDate="2019-08-28T15:37:32.030" LastActivityDate="2019-08-28T15:37:32.030" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30161" PostTypeId="1" CreationDate="2019-07-14T07:58:05.760" Score="0" ViewCount="63" Body="&lt;p&gt;Reading from &lt;a href=&quot;https://transferwise.com/gb/mid-market-rate&quot; rel=&quot;nofollow noreferrer&quot;&gt;this&lt;/a&gt; and other sources, it appears to me that there are three different ratios between any two currencies, namely&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;the bid rate&lt;/li&gt;&#xA;&lt;li&gt;the ask rate&lt;/li&gt;&#xA;&lt;li&gt;the real rate&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;My understaning is that the two primal ratios are 1 and 2, while 3 is just a derived quantity, specifically the mid-point between the former two. In other word, I understand that 1 and 2 are the two real, market-driven numbers, and that 3 is just a convenience to know where 1 and 2 roam in that specific historical moment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Is my understanding correct?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the following I just report my line of reasoning.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For instance, if I have an amount &lt;span class=&quot;math-container&quot;&gt;$A_1$&lt;/span&gt; in one currency and I want to exchange it with another currency, I would receive the amount &lt;span class=&quot;math-container&quot;&gt;$A_2$&lt;/span&gt; in this other currency, defined as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$ A_2 = E_{1 \rightarrow 2} A_1$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where &lt;span class=&quot;math-container&quot;&gt;$E_{1 \rightarrow 2}$&lt;/span&gt; is the exchange rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I change my mind and decide to convert &lt;span class=&quot;math-container&quot;&gt;$A_2$&lt;/span&gt; back to the previous currency, then I will be given the amount &lt;span class=&quot;math-container&quot;&gt;$\overline{A_1}$&lt;/span&gt;,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$ \overline{A_1} = E_{2 \rightarrow 1} A_2 = E_{2 \rightarrow 1} E_{1 \rightarrow 2} A_1$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've understood that, if we leave the time elapsed between the two operations aside (or if we do the two exchanges at exactly the same moment), we are sure that &lt;span class=&quot;math-container&quot;&gt;$\overline{A_1} &amp;lt; A_1$&lt;/span&gt;, because we are sure that in any given moment in time the following holds: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$E_{2 \rightarrow 1} &amp;lt; \displaystyle\frac{1}{E_{1 \rightarrow 2}} \tag{1}$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Is this true?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To me it seems obvious, since if &lt;span class=&quot;math-container&quot;&gt;$(1)$&lt;/span&gt; had an equal sign, that would mean that I can freely exchange between currencies at zero cost (hence I could lose or earn money only as a consequence of the change of that unique rate over time due to other factors).&lt;/p&gt;&#xA;" OwnerUserId="23696" LastEditorUserId="23696" LastEditDate="2019-07-14T08:26:18.880" LastActivityDate="2019-07-19T00:48:42.567" Title="Is the mid-market currency exchange rate something real? Or are bid and ask rates the real rates?" Tags="&lt;exchange-rates&gt;" AnswerCount="2" CommentCount="8" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30162" PostTypeId="2" ParentId="30158" CreationDate="2019-07-14T11:52:37.527" Score="1" Body="&lt;p&gt;Your reformulation is certainly correct for independent values.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, if value &lt;span class=&quot;math-container&quot;&gt;$v_i$&lt;/span&gt; carries information about &lt;span class=&quot;math-container&quot;&gt;$v_{-i}$&lt;/span&gt;, you cannot write the incentive compatibility like that.&#xA;For independent value draws, the probability of winning and the expected payment in the direct mechanism depends only on your reported type &lt;span class=&quot;math-container&quot;&gt;$v'_i$&lt;/span&gt;, not on the true type &lt;span class=&quot;math-container&quot;&gt;$v_i$&lt;/span&gt;. That is the reason why you can write&#xA;&lt;span class=&quot;math-container&quot;&gt;$$u_i(v_i) \geq u_i(v_i^{'}) = v_iq(v_i^{'})-m_i(v_i^{'})$$&lt;/span&gt;&#xA;instead of &lt;span class=&quot;math-container&quot;&gt;$\widetilde u_i (v_i^{'},v_i) = v_iq(v_i^{'},v_i)-m_i(v_i^{'},v_i)$&lt;/span&gt;. That is, you cannot formulate your expected utility like this. If this was the expected utility, you could also formulate the expected transfer in a similar fashion and derive a revenue-equivalence result, but revenue equivalence requires independent values.&lt;/p&gt;&#xA;" OwnerUserId="11590" LastActivityDate="2019-07-14T11:52:37.527" CommentCount="7" ContentLicense="CC BY-SA 4.0" />
  <row Id="30164" PostTypeId="1" CreationDate="2019-07-14T12:48:18.987" Score="0" ViewCount="23" Body="&lt;p&gt;I've been reading up on the von-Neumann and Savage proofs for the existence of an expected utility representation.  I've also been reading critiques of the expected utility hypothesis, especially the Allais paradox.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Its obvious that the Allais paradox &quot;disproves&quot; von-Neumann: this can be shown numerically using commonly used utility functions such as log-utility.  However, I'm less sure why Allais and Savage are inconsistent with each other.  Its easy to find &quot;subjective&quot; probabilities that resolve the Allais paradox while still retaining the expected utility form.  To see this, consider the outcomes of the Allais paradox:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$M^T=\begin{bmatrix}&#xA;1 &amp;amp; 0 &amp;amp; 0 &amp;amp; 0 \\&#xA;1 &amp;amp; 1 &amp;amp; 0 &amp;amp; 0 \\&#xA;1 &amp;amp; 5 &amp;amp; 0 &amp;amp; 0 \\&#xA;1 &amp;amp; 0 &amp;amp; 1 &amp;amp; 0 \\&#xA;1 &amp;amp; 1 &amp;amp; 1 &amp;amp; 0 \\&#xA;1 &amp;amp; 5 &amp;amp; 1 &amp;amp; 0 \\&#xA;1 &amp;amp; 0 &amp;amp; 0 &amp;amp; 5 \\&#xA;1 &amp;amp; 1 &amp;amp; 0 &amp;amp; 5 \\&#xA;1 &amp;amp; 5 &amp;amp; 0 &amp;amp; 5 \\&#xA;1 &amp;amp; 0 &amp;amp; 1 &amp;amp; 5 \\&#xA;1 &amp;amp; 1 &amp;amp; 1 &amp;amp; 5 \\&#xA;1 &amp;amp; 5 &amp;amp; 1 &amp;amp; 5&#xA;\end{bmatrix}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where each column represents one of the four gambles.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;These gambles have the following corresponding &quot;physical&quot; probabilities: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ p=\begin{bmatrix}&#xA;0.008 \\&#xA;0.713 \\&#xA;0.080 \\&#xA;0.001 \\&#xA;0.088 \\&#xA;0.001 \\&#xA;0.001 \\&#xA;0.079 \\&#xA;0.009 \\&#xA;0.000 \\&#xA;0.010 \\&#xA;0.001&#xA;\end{bmatrix} $$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Using a log utility with initial wealth of $100,000, I get 13.911 &quot;utils&quot; for the sure million; 14.040 utils for the 89% chance for 1 million, 1 percent for 0, and 10% chance for 5 million; 11.777 utils for the 89% chance of 0 and 11% chance for 1 million; and 11.906 utils for the 90% chance of 1 million and 1% chance of 5 million.  Clearly this violates Allais' paradox.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, consider the following subjective probabilities:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$q=\begin{bmatrix}&#xA;0.04 \\&#xA;0.16 \\&#xA;0.02 \\&#xA;0.04 \\&#xA;0.07 \\&#xA;0.18 \\&#xA;0.01 \\&#xA;0.13 \\ &#xA;0.07 \\&#xA;0.18 \\&#xA;0.03 \\&#xA;0.07&#xA;\end{bmatrix}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Using these probabilities, I get 13.911 &quot;utils&quot; for the sure million; 13.785 utils for the 89% chance for 1 million, 1 percent for 0, and 10% chance for 5 million; 12.880 utils for the 89% chance of 0 and 11% chance for 1 million; and 13.440 utils for the 90% chance of 1 million and 1% chance of 5 million.  This provides probabilities that are consistent with Allais' paradox.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;How or why is Savage's proof inconsistent with Allais' paradox?&lt;/p&gt;&#xA;" OwnerUserId="23699" LastEditorUserId="11590" LastEditDate="2019-07-14T13:42:38.173" LastActivityDate="2019-07-14T13:42:38.173" Title="Savage's subjective probabilities applied to Allais paradox" Tags="&lt;expected-utility&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30165" PostTypeId="2" ParentId="30145" CreationDate="2019-07-14T13:09:15.247" Score="1" Body="&lt;p&gt;Onurcanbektas, I really like your thought process.  The problem with your mental model is that you've assumed economic output is exogenous.  However, in the real world (most) jobs produce economic output.  This output then increases the size of the pie, allowing people to be, on average, richer.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, from a societal perspective, I believe we will always have &quot;poor&quot; people since we essentially define poverty relative to some &quot;median&quot; income.  To see this, consider that the richest person 1000 years ago had no running water; something that nearly everyone in the US currently has regardless of whether or not they are &quot;poor&quot;.  Even in my lifetime, there has been a shift from &quot;feeding the poor&quot; to &quot;feeding the poor with nutritious food&quot;.  It used to be that the poor were thin, now our concern is they are too fat.  &lt;/p&gt;&#xA;" OwnerUserId="23699" LastActivityDate="2019-07-14T13:09:15.247" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30166" PostTypeId="2" ParentId="30161" CreationDate="2019-07-14T16:58:53.957" Score="2" Body="&lt;p&gt;Yes, bid/offer prices are what are directly observed. But that does not mean too much.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a liquid market, market participants have a target mid rate, and bid/offer prices are as spreads off mid. The bid/offer spread is normally set by convention, and is normally low during stable market conditions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This means that if you do a sequence of transactions, you normally model it as being at mid rates, and then you have expected slippage from that due to transaction costs: the bid/offer spread on each transaction.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And it is only on an electronic trading platform that “bid/offer” are real. Many markets trade over the phone, and bid/offer are indicative pricing only: the actual price paid is negotiated. In fact, entry into derivatives positions can often be negotiated at mid: it is the unwind where costs show up.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In illiquid markets, bid/offer spreads can be very wide. (For example, some Canadian small caps I used to look at in my personal portfolio would have bid/offers like of \$5-\$6 back in the pre-high frequency trading world.) In this case, the mid is somewhat meaningless. However, they are also an indication of a lack of a market; nobody is trading, so how real are those prices? The only sensible way to trade is to throw in a new order near mid, and see what happens.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2019-07-14T16:58:53.957" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30167" PostTypeId="1" CreationDate="2019-07-14T18:43:28.347" Score="1" ViewCount="49" Body="&lt;p&gt;Mas-Colell, Whinston and Green, in Microeconomic Theory (third edition), postulate the concept of an index for an excess demand vector, which is later used in the Index Theorem:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/lvMRB.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/lvMRB.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A regular equilibrium of the economy is defined as the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/yTkxY.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/yTkxY.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$D$&lt;/span&gt; denotes derivative (here, in respect to price), while &lt;span class=&quot;math-container&quot;&gt;$z$&lt;/span&gt; denotes the excess demand matrix:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/s9OWo.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/s9OWo.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where &lt;span class=&quot;math-container&quot;&gt;$p$&lt;/span&gt; denotes price and &lt;span class=&quot;math-container&quot;&gt;$\omega$&lt;/span&gt; denotes endowment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What does the concept of index means?&lt;/p&gt;&#xA;" OwnerUserId="6099" LastEditorUserId="6099" LastEditDate="2019-07-17T19:30:28.080" LastActivityDate="2019-07-17T19:30:28.080" Title="Index of an Excess Demand Vector" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;general-equilibrium&gt;" AnswerCount="0" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="30168" PostTypeId="1" CreationDate="2019-07-14T19:45:19.223" Score="1" ViewCount="42" Body="&lt;p&gt;I am currently doing some research on the monetary approach to the effects of currency fluctuations on trade balance. It's been a while since I took an int econ class back in the undergrad, so I hope I can glean some understanding from the gods of macroecon. I have a good understanding of the overall assertion being made by this approach (trade balance change dissapates in the LR), but am a bit confused by the details and how equilibria are reached. One of my old textbooks summarizes it as such: when the currency depreciates, money demand shifts up, and rates rise, trade balance improves. In the LR, investors will flock towards the higher rates, and the money supply shifts right, where equilibrium will return to the initial interest rate. This doesn't really make sense to me....&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;What is causing the currency to depreciate here? When I think of a devalued currency, I think of an expansionary policy/decrease in rates. But here, rates increase due to the depreciation&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Where is the deviation from the net zero trade balance and where does it return in terms of the process of the money market changes?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;How do foreign investors affect the supply of the currency? I thought that when higher rates existed, that the demand of the currency increased (which would explain why contractionary policy leads to currency appreciation)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;More as a question about the theory in general, is there empirical evidence of this? The US has had a trade deficit for a very long time. Does this approach suggest that our net exports should be zero?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Thanks!&lt;/p&gt;&#xA;" OwnerUserId="23668" LastActivityDate="2020-01-13T19:03:25.483" Title="Monetary Approach to a depreciating currency" Tags="&lt;international-economics&gt;&lt;foreign-exchange&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30170" PostTypeId="1" CreationDate="2019-07-15T10:22:03.440" Score="0" ViewCount="96" Body="&lt;p&gt;I am reading Murray's Rothbard &lt;code&gt;What has government done to our money?&lt;/code&gt; and this is his reasoning for inflation leading to loss of gold reserves to other countries (assuming everyone is on gold standard)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lets assume everyone is on gold standard. Then&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Credit expansion in country A&lt;/li&gt;&#xA;&lt;li&gt;Prices in A increase&lt;/li&gt;&#xA;&lt;li&gt;Increase in imports from country B because foreign goods become cheaper&lt;/li&gt;&#xA;&lt;li&gt;Country B redeems A's currency for gold. Hence gold outflow from A to B. &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;What I am confused about is how does inflation lead to increase in imports in 3. As monetary supply increases, A's currency would lose purchasing power and so imports would become equally expensive at that point. Why would that not be the case?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks,&lt;/p&gt;&#xA;" OwnerUserId="23707" LastActivityDate="2021-05-06T22:00:15.050" Title="Inflation leads to loss of gold reserves" Tags="&lt;international-trade&gt;&lt;business-cycles&gt;&lt;austrian&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30171" PostTypeId="2" ParentId="30168" CreationDate="2019-07-15T13:07:16.903" Score="1" Body="&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Let us call the country with the trade deficit, country A, which is our domestic country. If a country builds up a trade deficit, it is selling less goods to other countries than it buys from them. To do so, A must exchange its currency for foreign currency. This means more demand for the foreign currency and more supply for the domestic currency. More supply reduces the price of domestic currency relative to other currencies. More demand for foreign currency increases their price relaive to domestic currency. All this causes a depreciation of the domestic currency. For more detail on this see, for example, the answer to &lt;a href=&quot;https://economics.stackexchange.com/questions/27289/question-about-tariffs-in-henry-hazlitts-economics-in-one-lesson/27343#27343&quot;&gt;this&lt;/a&gt; question.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Currency values are fundamentally determined by supply and demand for currency (see answer above). Both of those are driven by both the goods and financial markets. So trade deficits have an effect here, as well as investors flocking to higher rates.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Foreign investors both affect and are affected by the exchange rates. If these investors want to invest in a foreign country with higher interest rates, they need the currency of that country in one way or another. So they sell their currency to buy the foreign currency, which like in the answer to 1) will have an effect on the value. Even if foreign investors have the foreign currency to invest, they will need to exchange it at some point in order to consume their earnings at home.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Solid empirical evidence is rather difficult when it comes to long term effects. It is true that the US has had a trade deficit for a long time. However, it is unclear how long a time is a long-run. Furthermore, before having a deficit, the US has had a surplus for a very long time, so it is natural it would eventually have a deficit. Whether this deficit has exceeded past built up surpluses is not necessarily clear.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="5557" LastActivityDate="2019-07-15T13:07:16.903" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30173" PostTypeId="1" AcceptedAnswerId="30180" CreationDate="2019-07-15T15:39:09.433" Score="2" ViewCount="81" Body="&lt;p&gt;I am vexed by a Game Theory question regarding infinitely repeated games. Usually, strategies such as &lt;em&gt;Grim Trigger&lt;/em&gt; or &lt;em&gt;Tit-for-Tat&lt;/em&gt; are discussed in a context where both players have the same strategy. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, I am wondering how to proceed when two players play different strategies, say Player 1 plays &lt;em&gt;Grim Trigger&lt;/em&gt; and Player 2 plays &lt;em&gt;Tit-for-tat&lt;/em&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is whether there exists any &lt;span class=&quot;math-container&quot;&gt;$\delta\in(0,1)$&lt;/span&gt; for which a profile of {&lt;em&gt;Grim Trigger&lt;/em&gt;, &lt;em&gt;Tit-for-tat&lt;/em&gt;} constitutes an equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The stage game payoffs are as follows: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{array}{|c|c|c|}&#xA;\hline&#xA;&amp;amp; C &amp;amp; D \\\hline &#xA;C &amp;amp; 3,3 &amp;amp; 0,4 \\\hline&#xA;D &amp;amp; 4,0 &amp;amp; 2,2 \\\hline&#xA;\end{array}&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="23710" LastEditorUserId="42" LastEditDate="2019-07-15T22:37:20.177" LastActivityDate="2019-07-18T21:26:34.997" Title="Two Players Different Strategies in infinitely repeated game" Tags="&lt;game-theory&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30174" PostTypeId="2" ParentId="30173" CreationDate="2019-07-15T16:04:00.203" Score="0" Body="&lt;p&gt;There is not a ton to go off of with your question, so apologies for the vagueness of my answer:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, since strategies aren’t symmetric, you will find a &lt;span class=&quot;math-container&quot;&gt;$\delta_1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\delta_2$&lt;/span&gt; for respective players. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For each player:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Check the payoffs from a one-shot optimal deviation (only deviate this period) and accepting the punishment. Note that the other players strategy tells you what will happen in the future. &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;For the grim strategy player, the tit for tat player will play punishment next period, then return to original move, then to punishment, etc. (two infinite sums) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the tit for tat player, the grim strategy will play punishment forever.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This could be confusing but your question doesn’t offer enough to answer.&lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;2&quot;&gt;&#xA;&lt;li&gt;Check that the punishment is incentive compatible. That is, does the punishment constitute a Nash equilibrium. The reason for this is the punishment has to be a “credible threat” or else neither will follow it. (Perhaps think of Mutually Assured Destruction)&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="23470" LastActivityDate="2019-07-15T16:04:00.203" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30176" PostTypeId="2" ParentId="30170" CreationDate="2019-07-15T16:55:59.873" Score="0" Body="&lt;p&gt;Inflation won't necessarily change the price of goods from country B in real terms, but it will change the relative costs of buying goods from country B now vs saving now and buying goods from country B later.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Under the gold standard, there are no central banks to force the interest rate up when inflation rises. If inflation goes up but interest rates don't go up, then consumers in country A will save less and spend more, leading to a temporary increase in imports from country B. &lt;/p&gt;&#xA;" OwnerUserId="21196" LastActivityDate="2019-07-15T16:55:59.873" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30177" PostTypeId="1" CreationDate="2019-07-15T17:47:11.557" Score="4" ViewCount="115" Body="&lt;p&gt;Let &lt;span class=&quot;math-container&quot;&gt;$f: \mathbb{R} \rightarrow \mathbb{R}$&lt;/span&gt; be a twice differentiable and strictly increasing function. Suppose that we are searching for the numbers &lt;span class=&quot;math-container&quot;&gt;$x_1$&lt;/span&gt;, ..., &lt;span class=&quot;math-container&quot;&gt;$x_n$&lt;/span&gt; that maximise&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\sum_{i=0}^{n}{f(x_i)}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;subject to the constraints that &lt;span class=&quot;math-container&quot;&gt;$\sum_{i=0}^{n}{x_i}=\bar{x}$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$x_i \geq 0$&lt;/span&gt; for all &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If &lt;span class=&quot;math-container&quot;&gt;$f$&lt;/span&gt; is strictly concave everywhere, it is optimal to set &lt;span class=&quot;math-container&quot;&gt;$x_i = x_j$&lt;/span&gt; for every &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$j$&lt;/span&gt; (so that &lt;span class=&quot;math-container&quot;&gt;$x_i^* = \bar{x}/n$&lt;/span&gt; for all &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;). If &lt;span class=&quot;math-container&quot;&gt;$f$&lt;/span&gt; is strictly convex everwhere, it is optimal to set &lt;span class=&quot;math-container&quot;&gt;$x_i=\bar{x}$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$x_j=0$&lt;/span&gt; for some arbitrary &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; and all &lt;span class=&quot;math-container&quot;&gt;$j\neq i$&lt;/span&gt;. However, I am interested in the 'mixed' case where &lt;span class=&quot;math-container&quot;&gt;$f$&lt;/span&gt; has at least one convex portion but is ultimately concave.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Specifically, suppose that &lt;span class=&quot;math-container&quot;&gt;$f$&lt;/span&gt; is strictly concave for all &lt;span class=&quot;math-container&quot;&gt;$x \geq \hat{x}$&lt;/span&gt;. Does this imply that &lt;span class=&quot;math-container&quot;&gt;$x_i^* = x_j^*$&lt;/span&gt; provided that &lt;span class=&quot;math-container&quot;&gt;$\bar{x}$&lt;/span&gt; is 'large enough'? If so, what precisely is the assumption that we need to make about &lt;span class=&quot;math-container&quot;&gt;$\bar{x}$&lt;/span&gt;? If not, are there some additional assumptions we can make to ensure that &lt;span class=&quot;math-container&quot;&gt;$x_i^* = x_j^*$&lt;/span&gt;?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Many thanks in advance!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Edit 1:&lt;/strong&gt; It has been pointed out that &lt;span class=&quot;math-container&quot;&gt;$f′(x_i^*)=f′(x_j^*)$&lt;/span&gt; whenever &lt;span class=&quot;math-container&quot;&gt;$x_i^*&amp;gt;0$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$x_j^*&amp;gt;0$&lt;/span&gt;. This might be a useful step towards an answer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Edit 2:&lt;/strong&gt; It has occurred to me that we will probably need to assume something like &lt;span class=&quot;math-container&quot;&gt;$f'(x) \rightarrow 0$&lt;/span&gt; as &lt;span class=&quot;math-container&quot;&gt;$x \rightarrow \infty$&lt;/span&gt; in order to ensure that &lt;span class=&quot;math-container&quot;&gt;$x_i^* = x_j^*$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerDisplayName="user17900" LastEditorDisplayName="user17900" LastEditDate="2019-07-23T17:05:57.907" LastActivityDate="2019-07-23T17:05:57.907" Title="Maximising a partly concave and partly convex function" Tags="&lt;mathematical-economics&gt;&lt;optimization&gt;" AnswerCount="1" CommentCount="9" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30178" PostTypeId="2" ParentId="30138" CreationDate="2019-07-15T18:12:39.083" Score="1" Body="&lt;p&gt;Start with the following matrix.&#xA;&lt;span class=&quot;math-container&quot;&gt;$$ \begin{matrix}1 &amp;amp;&amp;amp; 0 &amp;amp;&amp;amp; 0\\&#xA;1 &amp;amp;&amp;amp; 1 &amp;amp;&amp;amp; 0\\&#xA;1 &amp;amp;&amp;amp; 1 &amp;amp;&amp;amp; 1  \end{matrix}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You will choose a &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt; in the matrix and change it to a &lt;span class=&quot;math-container&quot;&gt;$0$&lt;/span&gt;. The other player will choose a &lt;span class=&quot;math-container&quot;&gt;$0$&lt;/span&gt; and change it to a &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt;. Your goal is for the resulting matrix to have an even determinant. The other player's goal is for the resulting matrix to have an odd determinant.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hover over the box to find out the dominant strategy:&lt;/p&gt;&#xA;&#xA;&lt;blockquote class=&quot;spoiler&quot;&gt;&#xA;  &lt;p&gt; Change the &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt; in the bottom left corner to a &lt;span class=&quot;math-container&quot;&gt;$0$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="21196" LastActivityDate="2019-07-15T18:12:39.083" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30180" PostTypeId="2" ParentId="30173" CreationDate="2019-07-15T22:32:18.667" Score="3" Body="&lt;p&gt;Just so that we have a common understanding of the strategies you mentioned: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;Grim trigger&lt;/strong&gt;: &quot;Play &lt;span class=&quot;math-container&quot;&gt;$C$&lt;/span&gt; unless the outcome of any previous stage is not &lt;span class=&quot;math-container&quot;&gt;$(C,C)$&lt;/span&gt;; in that case, play &lt;span class=&quot;math-container&quot;&gt;$D$&lt;/span&gt;.&quot; &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&lt;strong&gt;Tit-for-tat&lt;/strong&gt;: &quot;Start by playing &lt;span class=&quot;math-container&quot;&gt;$C$&lt;/span&gt;, and then play the action used by the other player in the previous stage.&quot; &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Therefore, on equilibrium path, the outcome &lt;span class=&quot;math-container&quot;&gt;$(C,C)$&lt;/span&gt; will be observed, and each player gets a discounted payoff of &#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;3+3\delta+3\delta^2+\cdots=\frac{3}{1-\delta}.\tag{1}&#xA;\end{equation}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose player 1 who adopts grim trigger deviates in the first stage only. The outcome in stage 1 would be &lt;span class=&quot;math-container&quot;&gt;$(D,C)$&lt;/span&gt;, and the outcome in all subsequent stages would be &lt;span class=&quot;math-container&quot;&gt;$(D,D)$&lt;/span&gt; according to the strategy profile. Thus, player 1's payoff from the deviation would be &#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;4+2\delta+2\delta^2+\cdots=4+\frac{2\delta}{1-\delta}.\tag{2}&#xA;\end{equation}&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$(1)$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$(2)$&lt;/span&gt; imply that a one-stage deviation is &lt;em&gt;not&lt;/em&gt; profitable for player 1 if &lt;span class=&quot;math-container&quot;&gt;$\delta\ge\frac12$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose player 2, who adopts tit-for-tat, deviates in the first stage only. The outcome in stage 1 would be &lt;span class=&quot;math-container&quot;&gt;$(C,D)$&lt;/span&gt;, and &lt;span class=&quot;math-container&quot;&gt;$(D,C)$&lt;/span&gt; in stage 2, &lt;span class=&quot;math-container&quot;&gt;$(D,D)$&lt;/span&gt; in all subsequent stages. Player's payoff from the deviation would be &#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;4+0\delta+2\delta^2+2\delta^3+\cdots=4+\frac{2\delta^2}{1-\delta}.\tag{3}&#xA;\end{equation}&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$(1)$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$(3)$&lt;/span&gt; imply that a one-stage deviation is &lt;em&gt;not&lt;/em&gt; profitable for player 2 if &lt;span class=&quot;math-container&quot;&gt;$\delta\ge 1-\frac{\sqrt 2}{2}$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that &lt;span class=&quot;math-container&quot;&gt;$\frac12&amp;gt;1-\frac{\sqrt2}2$&lt;/span&gt;. Hence, as long as &lt;span class=&quot;math-container&quot;&gt;$\delta\ge\frac12$&lt;/span&gt;, player 1 using grim trigger and player 2 using tit-for-tat can be sustained as a &lt;em&gt;Nash equilibrium&lt;/em&gt; of the infinitely repeated prisoner's dilemma. However, that the strategy profile is not a subgame perfect equilibrium (for a similar reason why a symmetric tit-for-tat strategy profile is not subgame perfect). &lt;/p&gt;&#xA;" OwnerUserId="42" LastEditorUserId="42" LastEditDate="2019-07-18T21:26:34.997" LastActivityDate="2019-07-18T21:26:34.997" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="30181" PostTypeId="1" CreationDate="2019-07-15T22:57:31.927" Score="0" ViewCount="91" Body="&lt;p&gt;I am interested in finding the quarterly real GDP growth rate of US and have found the following two measures from IMF International Financial Statistics:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/YBHEy.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/YBHEy.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which one should I choose (Dark Green or Light Green)?&lt;/p&gt;&#xA;" OwnerUserId="15509" LastActivityDate="2021-03-02T17:01:05.107" Title="US Real GDP Growth Rate" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30182" PostTypeId="2" ParentId="30181" CreationDate="2019-07-16T02:48:21.443" Score="0" Body="&lt;p&gt;It depends on what you want to look at. The blue line compares GDP of this period to the same period of the previous year. This is referred to &quot;year-on-year&quot; or &quot;year-over-year&quot; growth. The green line compares GDP of this period to the GDP of the previous period, &quot;quarter-on-quarter (QoQ)&quot; growth.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Because there's seasonality in the GDP (usually Q4 is the highest because of the holiday shopping), when you do QoQ growth you have to adjust for it, and that's where &quot;seasonally adjusted&quot; comes from.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Usually the year-on-year growth is what gets reported in the news.&lt;/p&gt;&#xA;" OwnerUserId="5145" LastActivityDate="2019-07-16T02:48:21.443" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30184" PostTypeId="2" ParentId="30177" CreationDate="2019-07-16T06:31:50.057" Score="2" Body="&lt;p&gt;&lt;em&gt;If &lt;span class=&quot;math-container&quot;&gt;$f$&lt;/span&gt; is strictly convex everywhere, it is optimal to set &lt;span class=&quot;math-container&quot;&gt;$x_i&#xA;=\overline x$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$x_j =0$&lt;/span&gt; for some arbitrary &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; and all &lt;span class=&quot;math-container&quot;&gt;$j\ne i$&lt;/span&gt;.&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I assume from this that the &lt;span class=&quot;math-container&quot;&gt;$x_i$&lt;/span&gt; are constrained to be non-negative?&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Using the Lagrange multiplier technique with Lagrangian &lt;span class=&quot;math-container&quot;&gt;$L=\sum_i f(x_i)-\lambda (\sum_i x_i-\overline x)$&lt;/span&gt;, we can conclude that the stationary points occur when &lt;span class=&quot;math-container&quot;&gt;$\frac{\mathrm{d} f}{\mathrm{d}x}\big{|}_{x_i}=\lambda$&lt;/span&gt;. Furthermore, if some of the &lt;span class=&quot;math-container&quot;&gt;$x_i$&lt;/span&gt; are assigned to be zero then we can use the same Lagrange multiplier technique on all of the remaining unassigned &lt;span class=&quot;math-container&quot;&gt;$x_i$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence we can deduce that &lt;span class=&quot;math-container&quot;&gt;$\sum f(x_i)$&lt;/span&gt; is maximised when, at all of the &lt;span class=&quot;math-container&quot;&gt;$x_i$&lt;/span&gt; which do not satisfy &lt;span class=&quot;math-container&quot;&gt;$x_i=0$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$f(x)$&lt;/span&gt; has the same derivative.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;As an example, consider the case when &lt;span class=&quot;math-container&quot;&gt;$f(x)=(x-1)^3$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$n=2$&lt;/span&gt;. If there is a maximum with &lt;span class=&quot;math-container&quot;&gt;$x_1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$x_2$&lt;/span&gt; both non-zero, then it must be the case that &lt;span class=&quot;math-container&quot;&gt;$\frac{\mathrm{d}f}{\mathrm{d}x}=3(x-1)^2$&lt;/span&gt; is the same at &lt;span class=&quot;math-container&quot;&gt;$x_1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$x_2$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For &lt;span class=&quot;math-container&quot;&gt;$x_1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$x_2$&lt;/span&gt; to be distinct we would have to have &lt;span class=&quot;math-container&quot;&gt;$x_1=1+\sqrt a, \ x_2=1-\sqrt a$&lt;/span&gt; for some constant &lt;span class=&quot;math-container&quot;&gt;$a$&lt;/span&gt;. Therefore, it &lt;span class=&quot;math-container&quot;&gt;$\overline x \ne 2$&lt;/span&gt;, then at the maximum either &lt;span class=&quot;math-container&quot;&gt;$x_1=x_2$&lt;/span&gt; or &lt;span class=&quot;math-container&quot;&gt;$x_1=0$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$x_2=\overline x$&lt;/span&gt;. On the other hand, if &lt;span class=&quot;math-container&quot;&gt;$\overline x=2$&lt;/span&gt; then, for any &lt;span class=&quot;math-container&quot;&gt;$0\le a \le 1$&lt;/span&gt;, there is a maximum with &lt;span class=&quot;math-container&quot;&gt;$x_1=1+\sqrt a, \ x_2=1-\sqrt a$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\sum_i f(x_i)=0$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Finally, there is one point that I would like to make about eventually concave functions. The function graphed below contains a section which is strictly convex but very close to being a horizontal line followed by a section which is strictly concave but is very close to being a straight line. Even for rather large &lt;span class=&quot;math-container&quot;&gt;$\overline x$&lt;/span&gt;, the maxima will satisfy &lt;span class=&quot;math-container&quot;&gt;$x_i=\overline x$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$x_j=0$&lt;/span&gt; for &lt;span class=&quot;math-container&quot;&gt;$j \ne i$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/5jAKV.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/5jAKV.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="21196" LastActivityDate="2019-07-16T06:31:50.057" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30185" PostTypeId="1" AcceptedAnswerId="30209" CreationDate="2019-07-16T08:02:03.457" Score="0" ViewCount="75" Body="&lt;p&gt;The following video &lt;a href=&quot;https://www.youtube.com/watch?v=PHe0bXAIuk0&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.youtube.com/watch?v=PHe0bXAIuk0&lt;/a&gt;  argues that credit is the principal force behind the business cycle.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this considered to be a established truth within some school of thought and is there a specific school of thought that disagree?&lt;/p&gt;&#xA;" OwnerUserId="8383" LastEditorUserId="8383" LastEditDate="2019-07-18T08:14:43.560" LastActivityDate="2019-07-18T14:02:38.250" Title="On a Dalio youtube video" Tags="&lt;debt&gt;&lt;business-cycles&gt;" AnswerCount="1" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="30189" PostTypeId="1" CreationDate="2019-07-16T13:49:52.533" Score="1" ViewCount="111" Body="&lt;p&gt;When first presenting the utility function and its arguments, textbooks typically start by stating that utility is a function of consumption and leisure. See for example &lt;a href=&quot;https://sites.hks.harvard.edu/fs/gborjas/publications/books/LE/LEChapter2.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://sites.hks.harvard.edu/fs/gborjas/publications/books/LE/LEChapter2.pdf&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand, some consider that the utility is a function of income and leisure, and claim that this is more familiar than if the utility was a function of consumption and leisure. See for example &lt;a href=&quot;https://www.jstor.org/stable/1911308?seq=1#page_scan_tab_contents&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.jstor.org/stable/1911308?seq=1#page_scan_tab_contents&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What are the different motivations behind the two approaches? Which one is, or should be, the standard? What should be the reference point in determining the arguments of the utility function?&lt;/p&gt;&#xA;" OwnerUserId="23627" LastEditorUserId="23627" LastEditDate="2019-07-16T18:27:48.943" LastActivityDate="2019-07-16T18:27:48.943" Title="What is the trade-off between? Consumption and Leisure or Income and Leisure?" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;labor-economics&gt;&lt;consumption&gt;" AnswerCount="0" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="30191" PostTypeId="2" ParentId="29645" CreationDate="2019-07-16T22:59:34.190" Score="2" Body="&lt;p&gt;Here's an example of why your question is difficult and depends on the framework.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Case 1: Take the classical OLS case &lt;span class=&quot;math-container&quot;&gt;$Y = \beta X + \epsilon$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this case, the &lt;span class=&quot;math-container&quot;&gt;$\epsilon$&lt;/span&gt; can thought of as an error term which represents noise around the response. So, the mean of the response is &lt;span class=&quot;math-container&quot;&gt;$\beta X$&lt;/span&gt; but on any particular response is not going to be exactly equal to that mean because of &lt;span class=&quot;math-container&quot;&gt;$\epsilon$&lt;/span&gt; which represents the variation around that mean. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Case 2: Take a simple dynamic model in econometrics such as  the ADL(1,0) so that &lt;span class=&quot;math-container&quot;&gt;$Y_t = \rho Y_{t-1} +  \beta X_{t} + \epsilon_t$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this case, &lt;span class=&quot;math-container&quot;&gt;$\epsilon_t$&lt;/span&gt; is not really noise because it's going to stay in &lt;span class=&quot;math-container&quot;&gt;$Y_{t}$&lt;/span&gt; after that period is finished so it's actually part of the model. It's almost like an exogenous variable rather than noise so, to me, the best term in this case for &lt;span class=&quot;math-container&quot;&gt;$\epsilon$&lt;/span&gt; would probably be innovation. It has what economists refer to as a &quot;permanent&quot; effect on the response.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, my point is that each case can be different. &lt;a href=&quot;http://web.uvic.ca/~dgiles/blog/error.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;This paper by Qin&lt;/a&gt; explains all of this in much more detail and more clearly.&lt;/p&gt;&#xA;" OwnerUserId="18201" LastEditorUserId="44" LastEditDate="2019-07-18T22:36:57.070" LastActivityDate="2019-07-18T22:36:57.070" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30192" PostTypeId="1" CreationDate="2019-07-16T23:23:41.703" Score="1" ViewCount="24" Body="&lt;p&gt;Are sales (discounts) during a promotional period considered an investment by the company/manufacturer to drag in more customers? Or a loss that wouldn't be paid back anytime in the future, but also drags in customers? If its the former (i.e investment) how do they pay back the money that's being discounted?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;e.g A product officially costs 100USD. There's a sale for that product for 50% off (so that product is now 50USD), how do they make profit or get back that other 50USD?&lt;/p&gt;&#xA;" OwnerUserId="23634" LastActivityDate="2019-07-17T07:07:25.950" Title="Are sales (discounts) an investment or a loss?" Tags="&lt;investment&gt;&lt;profits&gt;&lt;discount&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30193" PostTypeId="1" CreationDate="2019-07-16T23:24:05.720" Score="1" ViewCount="11" Body="&lt;p&gt;Does anyone know of any open-source U.S. data sets in a format appropriate to whole-economy CGE econometric modeling, i.e. data sets covering the entire economy, divided into at least 20 sectors, with annual price and quantity indexes for each sector? And I think I'd need 20 years or so of reasonably self-consistent data to have any hope of estimating flexible functional forms for production functions, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know that to really do this right you probably need to  combine data from multiple sources and become familiar with their idiosyncrecies. I've done that for certain sectors. But I'd like to see if I can embed my sectors in a whole-economy CGE, and I've also been thinking that I  could explore a richer system of own and cross-price elasticities than I have believed in the past to be feasible by using LASSO or some other form of penalized model to prevent excessive dimensionality.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Would BEA IO account data work for this? I think last time I checked the price part of the IO model was only updated every five years. But that was some years ago.&lt;/p&gt;&#xA;" OwnerUserId="12668" LastActivityDate="2019-07-16T23:24:05.720" Title="Data for CGE experiments?" Tags="&lt;data-request&gt;&lt;general-equilibrium&gt;&lt;price-level&gt;&lt;input-output&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30194" PostTypeId="2" ParentId="30161" CreationDate="2019-07-16T23:35:23.467" Score="3" Body="&lt;p&gt;Indeed the bid and ask spread is very real. The liquidity taker cannot buy and sell at the same price. The market maker extracts a &quot;liquidity premium&quot; for providing liquidity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When you buy with a market order, you pay the ask price. When you sell with a market order, you get the offer price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(OTOH, what you mean by &quot;real rate&quot; is not at all clear.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, in your hypothetical example, assuming all else constant---yes, after making the round trip trade, you will end up with less than you started. This already happens at, for example, the currency exchange booths at an airport. The booth is acting as the market maker.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now you can also buy with a limit order. That is, post a offer price and wait. If your order gets hit by someone's sell market order, then you get to buy cheap. Downside is execution risk---you may have to wait a while, possibly a very long while.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some further comments:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;The mid-quote between the best bid and ask could be a vacuous quantity when the spread is equal to the minimal price increment. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The spread is the difference between the &lt;em&gt;best&lt;/em&gt; bid and &lt;em&gt;best&lt;/em&gt; ask. If an market order size is larger than number of limit orders at those best prices, it will deplete those orders at the best prices and hit orders at the second best price and so on. So if an order size is large or market is thin at the best prices, the spread is a conservative indication of transaction cost. Professional investors split their large orders into smaller ones in order to minimize price impact.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;How much the spread matters depends on the type of trader. For a retail trader who occasionally transacts small orders, the cost is probably negligible. On the other hand, slippage is an important issue for institutional investors. Also, on inter-dealer platforms where orders are placed in units of million, spread is closely watched.  &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="126" LastEditorUserId="126" LastEditDate="2019-07-19T00:48:42.567" LastActivityDate="2019-07-19T00:48:42.567" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30195" PostTypeId="2" ParentId="29645" CreationDate="2019-07-17T00:28:38.003" Score="1" Body="&lt;p&gt;I don't think there is really a consensus and the definition depend on the field and context. Within applied macroeconomics, I prefer the definitions used by Blanchard and Watson (1986) and Bernanke (1986) and others. Valerie Ramey gives a good discussion of the definition in &lt;a href=&quot;https://www.sciencedirect.com/science/article/pii/S1574004816000045&quot; rel=&quot;nofollow noreferrer&quot;&gt;&quot;Macroeconomic shocks and their propagation&quot;&lt;/a&gt; in the &lt;em&gt;Handbook of macroeconomics, vol. 2&lt;/em&gt;. You can see a discussion in a &lt;a href=&quot;https://youtu.be/9qZRWDojM30?t=151&quot; rel=&quot;nofollow noreferrer&quot;&gt;YouTube video here.&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In short, a &lt;em&gt;shock&lt;/em&gt; is an economically meaningful primitive exogenous force. We can think of these as the &quot;empirical counterparts to the shocks we discuss in our theories.&quot; An innovation, on the other hand, is the residual from a reduced form VAR or similar model. An identifying assumption may establish a link between the innovation and the shock, but they are distinct concepts. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Within this context, the definition of a disturbance is less clear. Ramey mentions in the Handbook chapter that &quot;shocks are most closely related to the structural disturbances in a simultaneous equation system.&quot;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;em&gt;Ramey, Valerie A. &quot;Macroeconomic shocks and their propagation.&quot; In Handbook of macroeconomics, vol. 2, pp. 71-162. Elsevier, 2016.&lt;/em&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="59" LastActivityDate="2019-07-17T00:28:38.003" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30196" PostTypeId="2" ParentId="30192" CreationDate="2019-07-17T07:07:25.950" Score="1" Body="&lt;p&gt;Suppose that the wholesale cost of the product is 40USD, and the maximum price that most customers are prepared to pay for the product is 50USD, but a few customers are prepared to pay 100USD for the product. Suppose also that the few customers who are prepared to pay more for the product will put less effort into waiting for discounts. Suppose also that some customers are more likely to buy a 50USD product if it previously costed 100USD than if it had always costed 50USD. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What would be the optimal pricing strategy in this circumstance?&lt;/p&gt;&#xA;" OwnerUserId="21196" LastActivityDate="2019-07-17T07:07:25.950" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30197" PostTypeId="1" AcceptedAnswerId="30217" CreationDate="2019-07-17T08:40:16.790" Score="2" ViewCount="51" Body="&lt;p&gt;When a country make too many of their currencies, it will eventually lower the currencies' value and inflation would occur.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But why won't key currency work like this? If the US is making more and more money, shouldn't the value get lowered at some point? Where did all that amount of money which has been coming out of US go? Is it because the world is still growing even now, and the circulation needs more and more Dollars constantly?&lt;/p&gt;&#xA;" OwnerUserId="21565" LastEditorUserId="21565" LastEditDate="2019-07-18T13:01:29.177" LastActivityDate="2019-09-11T02:24:28.987" Title="How does key currency work?" Tags="&lt;currency&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30198" PostTypeId="1" CreationDate="2019-07-17T14:13:15.620" Score="1" ViewCount="84" Body="&lt;p&gt;I am trying to prove the existence of at least one stable steady state in a situation where I am given properties of the production function but not an explicit functional form. I have the following (implicit) first order difference equation for the evolution of capital (comes from an overlapping generations model with no uncertainty): &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ (1+n)k_{t+1}(k_t)=s(w_t,R_{t+1}) $$&lt;/span&gt;&#xA;Where &lt;span class=&quot;math-container&quot;&gt;$k$&lt;/span&gt; is per capita capital, &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt; is population growth, &lt;span class=&quot;math-container&quot;&gt;$s$&lt;/span&gt; is savings, &lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt; is wages (the problem assumes that labor is inelastically supplied), and &lt;span class=&quot;math-container&quot;&gt;$R$&lt;/span&gt; is rental rate on capital, with the appropriate time subscripts. From the firm's problem, and the assumption that the production function is CRS, this can be re-written as: &#xA;&lt;span class=&quot;math-container&quot;&gt;$$ (1+n)k_{t+1}(k_t)=s(f(k_t)-k_tf'(k_t), f'(k_t)-\delta)$$&lt;/span&gt; &#xA;Where &lt;span class=&quot;math-container&quot;&gt;$\delta$&lt;/span&gt; is depreciation. We are given standard assumptions on &lt;span class=&quot;math-container&quot;&gt;$f(k)$&lt;/span&gt;: &lt;span class=&quot;math-container&quot;&gt;$f(0)=0, f'(k)&amp;gt;0, f''(k)&amp;lt;0$&lt;/span&gt;, Inada conditions: &lt;span class=&quot;math-container&quot;&gt;$ \lim\limits_{k \to \infty}f'(k)=0,\lim\limits_{k \to 0}f'(k)=\infty$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have been able to prove that &lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) &lt;span class=&quot;math-container&quot;&gt;$k_{t+1}(0)=0$&lt;/span&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) &lt;span class=&quot;math-container&quot;&gt;$\lim\limits_{k \to \infty} \frac{k_{t+1}}{k_t}=0 $&lt;/span&gt;, implying that at some point, &lt;span class=&quot;math-container&quot;&gt;$k_{t+1}$&lt;/span&gt; lies below the &lt;span class=&quot;math-container&quot;&gt;$45^\text{o}$&lt;/span&gt; line&lt;/p&gt;&#xA;&#xA;&lt;p&gt;3) Solving for the derivative of &lt;span class=&quot;math-container&quot;&gt;$k_{t+1}$&lt;/span&gt; with respect to &lt;span class=&quot;math-container&quot;&gt;$k_t$&lt;/span&gt;: &#xA;&lt;span class=&quot;math-container&quot;&gt;$$ k_{t+1}^{'}(k_t)= \frac{-\frac{\partial s}{\partial w_t}k_tf''(k_t)}{1+n-\frac{\partial s}{\partial R_{t+1}}f''(k_{t+1})} $$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Making some additional assumptions on the derivatives of savings with respect to wages and interest (that aren't relevant to my question), I have that this is positive. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, in order to show that there exists at least one stable steady state, I need to show that &lt;span class=&quot;math-container&quot;&gt;$k_{t+1}$&lt;/span&gt; crosses the &lt;span class=&quot;math-container&quot;&gt;$45^\text{o}$&lt;/span&gt; line from above. This is where I am stuck. My professor says that this follows from the Inada conditions on &lt;span class=&quot;math-container&quot;&gt;$f(k)$&lt;/span&gt;, but I'm not seeing it. If I can show that &lt;span class=&quot;math-container&quot;&gt;$\lim\limits_{k \to 0}k_{t+1}^{'}(k_t)=\infty$&lt;/span&gt;, then I think I'm set. And this will hold if &lt;span class=&quot;math-container&quot;&gt;$\lim\limits_{k \to 0}k_tf''(k_t)=\infty$&lt;/span&gt; (I think). But the Inada conditions are on &lt;span class=&quot;math-container&quot;&gt;$f'(k_t)$&lt;/span&gt;, not &lt;span class=&quot;math-container&quot;&gt;$f''(k_t)$&lt;/span&gt;, so I don't know how to get what I need. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks very much in advance for the help!! &lt;/p&gt;&#xA;" OwnerUserId="21170" LastActivityDate="2019-07-17T14:13:15.620" Title="Proving the existence of a steady state" Tags="&lt;macroeconomics&gt;&lt;steady-state&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="30200" PostTypeId="1" CreationDate="2019-07-17T15:58:14.433" Score="0" ViewCount="20" Body="&lt;p&gt;In &lt;a href=&quot;https://www.youtube.com/watch?v=rjhIzemLdos&quot; rel=&quot;nofollow noreferrer&quot;&gt;The Spanish Empire, Silver, &amp;amp; Runaway Inflation: Crash Course World History #25&lt;/a&gt;, it is claimed that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;In ..., the silver was pouring into Spain, and because they were collecting same taxes as 60 years before, that lead to inflation...&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you watch the video, a similar situation happens in China; the government forces people to produce silk, and that lead the price drop, but that somehow also leads to inflation even though now the government has lots of silk which is quite valuable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, what is the reason for the inflation in both cases ? and how taxes related to the inflation in the Spanish case ?&lt;/p&gt;&#xA;" OwnerUserId="15670" LastActivityDate="2019-07-17T15:58:14.433" Title="Why is having lots of silver and not raising/decreasing taxes leads to inflation in a country?" Tags="&lt;inflation&gt;" AnswerCount="0" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="30202" PostTypeId="1" CreationDate="2019-07-17T16:21:26.003" Score="0" ViewCount="43" Body="&lt;p&gt;I've learned that efficient credit markets should theoretically allocate capital efficiently, which means that all possible investments should have the same marginal product of capital (assuming some type of concave production function). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;How exactly does that work? On the surface level, it makes sense that we should allocate more money to projects that have higher returns, but what would be the mechanism by which that happens? It seems like banks would have to charge a higher interest rate in Africa - and does that happen? I think I'm having a lot of trouble developing the correct intuition here.&lt;/p&gt;&#xA;" OwnerUserId="20877" LastEditorUserId="20877" LastEditDate="2019-07-17T19:38:48.987" LastActivityDate="2019-07-21T12:40:24.110" Title="How do efficient credit markets allocate capital properly?" Tags="&lt;credit&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30204" PostTypeId="2" ParentId="30202" CreationDate="2019-07-17T18:50:18.447" Score="0" Body="&lt;p&gt;Why are returns assumed to be fixed percentages? Since the production function is assumed to be concave, the returns from investing an additional \$x in a firm should be a decreasing function of the amount of money already invested in the firm.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the risk is the same for firms in both countries, then at equilibrium the amount of money invested in each firm will be at such a level that, for small x, the returns on investing an additional \$x in either company are the same.&lt;/p&gt;&#xA;" OwnerUserId="21196" LastActivityDate="2019-07-17T18:50:18.447" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30206" PostTypeId="1" CreationDate="2019-07-18T02:23:56.257" Score="1" ViewCount="119" Body="&lt;p&gt;Recently, President Erdogan sacked the head of Turkey’s central bank because he didn't want to cut interest rates. He even said: “We said that if rates fall, inflation will fall. He didn’t do what was necessary.”&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From my understanding of economics, this is the opposite of how things work. If we want to lower inflation, we should raise interest rates even further. So why President Erdogan is conviced of the opposite? Is there a sound economic theory that would agree with Erdogan's initiative?&lt;/p&gt;&#xA;" OwnerUserId="23588" LastEditorUserId="23588" LastEditDate="2019-07-18T06:22:37.590" LastActivityDate="2019-07-20T18:21:32.430" Title="Why Turkey's president thinks that by cutting interest rate it will lower inflation?" Tags="&lt;international-economics&gt;" AnswerCount="3" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="30207" PostTypeId="1" CreationDate="2019-07-18T10:43:41.927" Score="0" ViewCount="20" Body="&lt;p&gt;I am supposed to explain the rate of customer defaults by some macroeconomic variables, such as unemployment, GDP growth etc. For simple linear regression, I have promising results:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;summary(lm(ratio2~lag(unempl,3),data=defaults))&#xA;&#xA;Coefficients:&#xA;               Estimate Std. Error t value Pr(&amp;gt;|t|)   &#xA;(Intercept)    -0.14580    0.25465  -0.573  0.56820   &#xA;lag(unempl, 3)  0.15024    0.04763   3.154  0.00211 **&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;However, both of the used variables have unit roots, as confirmed by ADF and KPSS. When I take the first differences, the results are disappointing:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;summary(lm(diff(ratio2)~diff(values), data = defaults))&#xA;&#xA;Coefficients:&#xA;              Estimate Std. Error t value Pr(&amp;gt;|t|)&#xA;(Intercept)   0.001313   0.029896   0.044    0.965&#xA;diff(values) -0.120137   0.190690  -0.630    0.530&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;I know about spurious regression, but is it justified to ignore it in this case and use the &quot;normal&quot; variables? Or should I stick to the proper way and take first differences?  &lt;/p&gt;&#xA;" OwnerUserId="23724" LastActivityDate="2019-07-18T10:43:41.927" Title="Regressing two unit root variables" Tags="&lt;time-series&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30209" PostTypeId="2" ParentId="30185" CreationDate="2019-07-18T14:02:38.250" Score="1" Body="&lt;p&gt;I think this question is too open-ended and unqualified. One can point to two economists in particular who highlight the importance of debt in the cycle - Hyman Minsky and Steve Keen. Both of these economists are not considered to be “mainstream” (although Minsky has been more heavily cited since the Financial Crisis).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we look at the data, we see that credit (debt outstanding) grows during the cycle, and this can cause financial distress (not always). However, one could argue that the debt growth is a side effect of growth, and not the causal factor. Even though I am highly sympathetic to Minsky’s work, that criticism appears valid. We need to qualify exactly what we mean, but the question has no such qualifications.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastActivityDate="2019-07-18T14:02:38.250" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30210" PostTypeId="2" ParentId="30206" CreationDate="2019-07-18T14:09:26.733" Score="1" Body="&lt;p&gt;I'm gonna start this off by saying this is speculative, so take this answer with a grain of salt.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In order for a counter intuitive measure like this to work, there must be something else going on that over-shadows it. (Inflation topics tend to be riddled with things like this). I admit I don't know what the economic climate in Turkey is like currently; but I can think of a way that it would make sense to lower rates and expect lower inflation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In light of recent events, Turkey has been the focus of some very negative media coverage as of late, and some of it for good reason. The last couple years for Turkey have been rough to say the least; &lt;strong&gt;but that's not the macro-trend of Turkey.&lt;/strong&gt;&#xA;Turkey is an emerging market economy, they have urbanized dramatically from 2000-2015, maintained strong macroeconomic and fiscal policy frameworks, opened up to foreign trade and finance, harmonized many laws and regulations with European Union (EU) standards, and greatly expanded access to public services. It also recovered well from the global crisis of 2008/09.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Tying this back to your question now, it could be the case that Turkey's government spends too much money and is the biggest factor in the inflation numbers. If President Erdogan can better &lt;strong&gt;enable the people of Turkey&lt;/strong&gt; to replace the effect of government spending organically (enable the people via lowering interest rates), then he can purposely scale back government spending (which would lower inflation b/c it's the bigger factor). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In summary: Erdogan may be trying to stabilize Turkey's economic climate via lower government spending which will reduce aggregate demand, leading to lower growth and less demand pull inflation. The macro trend of Turkey and forecasted growth expectancy is very high, and probably over heated, despite the recent negative issues in the micro economic climate.  &lt;/p&gt;&#xA;" OwnerUserId="23072" LastActivityDate="2019-07-18T14:09:26.733" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30211" PostTypeId="1" AcceptedAnswerId="30213" CreationDate="2019-07-18T14:40:42.580" Score="2" ViewCount="822" Body="&lt;p&gt;according to the Cost formula in microeconomics class,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Total Fixed Cost is represented as “rK” (K as in unchanging, fixed K) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;now my economics teacher tells me this ‘r’ is the interest rate at which you rent capital, which is pretty vague and ambiguous to me. If r represents interest “rate” and not the “interest-added cost of capital”, then how can this r be the “price” of capital?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So for example, if the amount of capital is 5 (K=5) I understand that you assume you rent it, or borrow the money from a bank to get the capital, incurring interest. What I don’t understand is the formula. If r is the interest rate (aka rental rate) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;isn’t the cost formula supposed to be “K * {P(K) + P(K)*r}”, instead of “rK”?&#xA; (P(K) here represents the price of capital per unit) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;so if a unit of capital costs $10, and the interest rate (r) is 3%, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;in the end you will be paying $ 5 * (10 + 10 * 0.03) in total , not 5 * 0.03 right? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I mean, r is just the percentge, not the ‘amount’ that you have to pay for the capital. So I don’t really understand why the textbooks and the teachers tell me that the “price” of capital is r when it seems like it’s supposed to be ‘P(K) * (1+r)’ instead of just ‘r’ . &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I hope I can get a satisfying answer here. Would appreciate detailed explanations!  &lt;/p&gt;&#xA;" OwnerUserId="23697" LastEditorUserId="23697" LastEditDate="2019-07-18T15:00:00.890" LastActivityDate="2020-02-15T12:16:24.367" Title="Why is the price of capital ‘r’ ? (From Cost function)" Tags="&lt;production-function&gt;&lt;cost&gt;&lt;cost-functions&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30213" PostTypeId="2" ParentId="30211" CreationDate="2019-07-18T16:40:49.013" Score="1" Body="&lt;p&gt;Firstly, in your example the value of &lt;span class=&quot;math-container&quot;&gt;$r$&lt;/span&gt; (as used by economists in this context) would be &lt;span class=&quot;math-container&quot;&gt;$1.03$&lt;/span&gt;, not &lt;span class=&quot;math-container&quot;&gt;$0.03$&lt;/span&gt;. Economists call this the &quot;interest rate&quot;, but you might prefer to think of it as the &quot;rate of return on capital&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Secondly, what we define as constituting one unit of capital is pretty arbitrary. Is a computer one unit of capital or ten units of capital? It doesn't make any difference, just like it doesn't matter whether you measure distance in meters or feet, so long as everyone knows what units you are using. Since this choice is arbitrary, economists usually make the simplest possible choice and measure units of capital in units of money (e.g., dollars), meaning that one unit of capital has a price of one dollar by definition: &lt;span class=&quot;math-container&quot;&gt;$P(K)=1$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we return to your formula with &lt;span class=&quot;math-container&quot;&gt;$r=1.03$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$P(K)=1$&lt;/span&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$K[P(K)+0.03P(K)]=P(K)K(1+0.03)=Kr,$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;we get exactly the cost you saw in your course.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2019-07-18T16:40:49.013" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="30215" PostTypeId="1" AcceptedAnswerId="30222" CreationDate="2019-07-19T04:48:14.777" Score="1" ViewCount="153" Body="&lt;p&gt;I screenshot the picture beneath from &lt;a href=&quot;https://www.hsbc.com.hk/loans/products/personal-instalment/&quot; rel=&quot;nofollow noreferrer&quot;&gt;HSBC HK's website&lt;/a&gt;. Scroll down a quarter of the way, and click on 'Rates' to download that PDF. I ask just about loans under my green horizontal line.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/PoA0n.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/PoA0n.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.blackrock.com/ca/individual/en/products/product-list#!type=iSharesETFCA&amp;amp;tab=fees&amp;amp;view=list&amp;amp;fac=43511&quot; rel=&quot;nofollow noreferrer&quot;&gt;Canadian ETFs&lt;/a&gt; with MERs &amp;lt; 0.15% like  &lt;a href=&quot;https://www.blackrock.com/ca/individual/en/products/272104/ishares-core-sp-us-total-market-index-etf&quot; rel=&quot;nofollow noreferrer&quot;&gt;XUS&lt;/a&gt; (iShares Core S&amp;amp;P 500 Index ETF) can probably outstrip an APR of 6%. &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Thus why would a wealthy bank loan at APRs &amp;lt; 6%?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Conversely, why don't they charge more than 6%? Why not charge the opportunity cost of loaning, that is, the APR gained from investing in a relatively safe ETF like XSP? &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Furthermore, HSBC probably has PhDs in math like James Simons who can invest in alternative investments that can yield a higher rate of return for the same risk.  &lt;/p&gt;&#xA;" OwnerUserId="4020" LastEditorUserId="4020" LastEditDate="2019-11-17T00:58:05.283" LastActivityDate="2019-11-17T00:58:05.283" Title="Why do banks loan at APR &lt; 6%, when they can invest that principal in ETFs?" Tags="&lt;banking&gt;" AnswerCount="3" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30216" PostTypeId="2" ParentId="30215" CreationDate="2019-07-19T07:22:51.410" Score="-1" Body="&lt;p&gt;It's more complex than that&#xA;Banks loan in different interest rates to different customers based on their cost of capital and loaner risk.&#xA;They earn the difference between their cost of capital and interests paid.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The do not hold a dollar in deposits for each dollar loaned, but far less (depends on regulations, or internal policy. Bazel 2 recommendations talk about that). So the return on loans can and should be higher than any external device, in relation to the risks.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Banks do manage their cost of capital in financial divisions in charge preciely on that, including profitable trades on the banks money. These accounts are called &quot;nostro&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a broader sense any company can invest in capital markets instead of going about its business, as capital market derive from business activities and not the other way around, logic says its not a sustainable model. Yes, stock buybacks in exchange for company leverage is a bubble inflator and not something sustainable... &lt;/p&gt;&#xA;" OwnerUserId="19195" LastEditorUserId="4020" LastEditDate="2019-08-04T16:40:39.357" LastActivityDate="2019-08-04T16:40:39.357" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30217" PostTypeId="2" ParentId="30197" CreationDate="2019-07-19T09:30:20.543" Score="2" Body="&lt;p&gt;The demand for a key currency, like the USD - in contrast with other national currencies - is based not only on the domestic economy, but the global word economy. As the USA is viewed as a superpower and a global leader in economy, accordingly the US currency is generally viewed as a stable monetary asset which can be used as a global currency in international trade, or a clearing unit in international transfers and a value safeguard.&#xA;Some other currencies are tied to the value of the USD as well, which makes global trade much more calculable. As a result of this collective perception, the demand does not depend that much on the US economy, but the global economy and other global processes. This is obviously beneficial for the US economy and government as well, as it has much more wiggle room in becoming burdened with debts, while able to keep the value of its currency.&lt;/p&gt;&#xA;" OwnerUserId="19225" LastEditorUserId="19225" LastEditDate="2019-07-19T11:02:21.987" LastActivityDate="2019-07-19T11:02:21.987" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30219" PostTypeId="2" ParentId="13657" CreationDate="2019-07-19T10:54:04.393" Score="0" Body="&lt;p&gt;Time series on rental price of capital can be estimated using &lt;span class=&quot;math-container&quot;&gt;$$r=\frac{P_k}{P}(i-inf+\delta)$$&lt;/span&gt;&#xA;here, &lt;span class=&quot;math-container&quot;&gt;$P_k$&lt;/span&gt; is the price of capital goods (price index for capital goods), &lt;span class=&quot;math-container&quot;&gt;$P$&lt;/span&gt; is a deflator, &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; is nominal interest rate, &lt;span class=&quot;math-container&quot;&gt;$inf$&lt;/span&gt; is an inflation rate and &lt;span class=&quot;math-container&quot;&gt;$\delta$&lt;/span&gt; is depreciation rate of physical capital stock.&lt;/p&gt;&#xA;" OwnerUserId="6009" LastEditorUserId="6009" LastEditDate="2019-07-19T11:04:03.520" LastActivityDate="2019-07-19T11:04:03.520" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30220" PostTypeId="1" CreationDate="2019-07-19T11:02:05.987" Score="0" ViewCount="267" Body="&lt;p&gt;I am estimating time series for rental price of capital using Hall-Jorgenson method: &lt;span class=&quot;math-container&quot;&gt;$$r=\frac{P_k}{P}(i-inf+\delta)$$&lt;/span&gt;&#xA;here, &lt;span class=&quot;math-container&quot;&gt;$r$&lt;/span&gt; is the rental cost of capital, &lt;span class=&quot;math-container&quot;&gt;$P_k$&lt;/span&gt; is the price of capital goods (price index for capital goods), &lt;span class=&quot;math-container&quot;&gt;$P$&lt;/span&gt; is a deflator, &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; is nominal interest rate, &lt;span class=&quot;math-container&quot;&gt;$inf$&lt;/span&gt; is an inflation rate and &lt;span class=&quot;math-container&quot;&gt;$\delta$&lt;/span&gt; is depreciation rate of physical capital stock.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Because inflation rate is high in some periods, the rental cost of capital is negative for these periods; this does not make sense, any little help is welcome!&lt;/p&gt;&#xA;" OwnerUserId="6009" LastEditorUserId="6009" LastEditDate="2019-07-21T16:32:38.280" LastActivityDate="2019-07-21T16:32:38.280" Title="rental cost of capital" Tags="&lt;macroeconomics&gt;&lt;investment&gt;&lt;economic-history&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30221" PostTypeId="2" ParentId="24575" CreationDate="2019-07-19T11:33:47.630" Score="0" Body="&lt;p&gt;Sergei, the problem with Austrian economics in and of itself, just like with Keynesian economics, is that these are economic theories created a long time ago. They are currently front and center, one being applied by those in power, the other being touted by those who may or may not want to be the ones in power instead. Economic theories that do not apply to our modern world become ideology, no different than those believed by the Socialist Workers Party, the United States Communist Party if they still exist and the Libertarian Party. Having been around members of all these organizations, I found them all to be out of touch although I would say that ideally, Libertarianism makes more sense to me these days, but grabbing on to an ideology is never a good way to develop a full and healthy understanding of economics and our world today.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If there is any economist that I would tout as part of some ideological group and still be accurate with our modern times it would be the Peruvian economist Hernando De Soto, the author of &lt;em&gt;The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Von Mises/Austrian/Libertarian camp has not traditionally had a good answer for why capitalism failed everywhere else before De Soto came on the scene, now the Mises Institute pushes his work, but before the publishing of this book?  Before 2003? Mises was definitely around before then and yet in my readings of his work, I don't see any explanation of why capitalism has failed everywhere else, but I did see a lot of why socialism had failed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So what did De Soto teach us? He taught us that in highly dysfunctional economies, entrenched elites tolerate the informal structures, meaning the black market, working under the table, doing business in a currency that is not legal to use and so on, because these are less impactful on their wealth than formalized welfare.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I love how racist/classist people will mention that Latin-Americans are accustomed to welfare and thats why they swarm to the United States. Aside from this being a generalization, the fact is Latin-American governments, most of them anyway, do not have the huge welfare system we have here in the United States, so the comments are made by ignorant people who do not study the government and economies of other nations. In fact, in places like Colombia and Venezuela (pre-Chavez), government giving you a check for doing absolutely nothing is unheard of and the elites and government officials of those nations would scoff and laugh at the idea and possibly even follow it up with &quot;let them eat cake&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, as a result, an informal economy is tolerated by elites because they are sure as heck are not going to spend their resources to establish a welfare system such as we have here in the United States and they do not want an open rebellion of the disenfranchised.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Less dysfunctional societies such as ours here in the United States keep a tight rein on informal alternatives, forcing everyone but the most marginalized into the formal structure of employment or as I mentioned before, welfare.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am giving you a long-winded answer here because I am having to cite my sources in anticipation of those that disagree demanding I provide some citations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So lets go from De Soto, the economist I would tout more than Von Mises if I were still a libertarian and lets look at Christopher Wickhams' book, &lt;em&gt;The Inheritance of Rome: Illuminating the Dark Ages 400-1000 AD&lt;/em&gt;, it is not a work of economics but I often find that historians get it and prefer their analysis over an idealized economist from a century ago.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Wickham explains that after the demise of the Western Roman Empire, there was still loyalty to a central authority, after all, the people were afforded rights and limited self-rule within village councils and allowed ownership of land, but these rights were extinguished by feudalism, which bound the peasantry to the nobilities' persons and estates.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am suggesting here that Von Mises is out of touch because in the current era, the old formal structures of feudalism mentioned by Wickham have been replaced by new structures of control, divestiture and disenfranchisement that others refer to as &lt;em&gt;neofeudalism&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words, in this new neofeudalist economy that we exist in here in the United States, we technically have a political voice, but in reality the levers of governance and financial power are in the hands of global corporations and the top 1% of households and to a lesser degree in the top 10% managerial class that serves the interests of what others have called the &lt;em&gt;New Nobility&lt;/em&gt; or &lt;em&gt;New Aristocracy&lt;/em&gt;: technocrats, media editors/producers, professionals, lobbyists, etcetera.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Von Mises does not have much to say on the above does he? Of course not, he was living in a different time period, but ideology infused organizations insist on grabbing on to works of smart people with theories that no longer apply to our modern world.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The ideas of Von Mises and the other individual libertarians love, Ayn Rand are ideas that can only work in a system where there is broad-based ownership of productive capital, that is, capital that generates permanent income streams. This is the necessary foundation for political power to also be similarly broadly distributed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Not only De Soto explains how capitalism has indeed not worked in places where asymmetry of ownership and power were present, but so does Daron Acemoglu, Killian professor of economics at MIT and University of Chicago professor James A. Robinson in their book &lt;em&gt;Why Nations Fail&lt;/em&gt;. Again, more current, more relevant economists who explain that if this asymmetry of ownership and power were present since the birth of a nation, these societies are incapable of changing the power structure. Paid lackeys glorify the facades of democracy and free markets, but everyone knows these are facades.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How is Von Mises' theory working for the disenfranchised of Russia, not very well is it?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I do not know all the details of whats going on in Russia so I will stay focused on what I do know which is the United States. We are now in an advanced form of neofeudalism which is primarily financial which have generated enormous premiums for mobile capital, monopolies and specialized expertise in software and finance, while devaluing labor's value in the fields that can be profitably offshored or mechanized with software and robotics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is our modern situation, Von Mises will not help you understand this, he is long gone my friend. You need to do your own research and analysis of your situation and how to remedy it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, I read this study from Princeton University:&#xA;&lt;a href=&quot;https://scholar.princeton.edu/sites/default/files/mgilens/files/gilens_and_page_2014_-testing_theories_of_american_politics.doc.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://scholar.princeton.edu/sites/default/files/mgilens/files/gilens_and_page_2014_-testing_theories_of_american_politics.doc.pdf&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which found that voters have very little power here in the United States, effectively making the United States an oligarchy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We do not live in a capitalist economy here in the United States or anywhere else for that matter. We have a dominance of state-controlled markets which is the foundation of a neo-feudal oligarchy, I suspect Russia to be no different than this. You see when you control the state, you can protect state-enforced cartels and monopolies such as institutions of higher learning and the health industry.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Control the market and you can buy political power with the profits. I will not be getting into what a neofeudal state-market structure looks like here.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Austrian economics does not speak on the divergence of formal rights and the actual structure of wealth and power as the core characterist of neofeudalism and oligarchy, so read on, the answers you seek are elsewhere. Although I focused on the United States because its what I know, neo-liberal globalization has us tightly coupled so I do not think it is much different in Russia.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let me guess, much like United States citizens, you retain the right to cast a vote, but your vote has little actual influence over the government's decisions. Every citizen retains the legal right to acquire productive capital, but only the top 5% own meaningful amounts of productive capital and the majority of this capital is owned by the New Nobility, the top 0.1% of Russian households?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Most of my career has been in the non-profit sector because I always wanted to work in progressive organizations that were about solving pressing social problems, I became disillusioned, libertarians convinced me its because non-profits and governments are not the answer, the private sector and capitalism is the answer. Went through that whole process which I will not get into here, but in summary, today I understand that the problem was not that its a non-profit or a government agency and they don't work because they waste money and all that other ideology spouting.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem is in the current power structure, earning a university degree expecting to find secure employment, representatives expecting to make real change, progressive non-profits expecting to solve pressing social problems and so on do not work.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;None of the above have the power to correct the structural sources of decay.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Don't believe me, just look at the reality of the situation. College graduates like myself these days find that their diplomas have little market value except for those of select universities. Newly elected representatives find that any independence is punished by the party machinery. Idealists find they cannot change systemic roots of the problems. Everywhere, people are co-opted or corrupted by perverse incentives, sclerotic bureaucracies, self-serving insiders, crushing debt loads and all the other realities of a highly asymmetric neofeudal oligarchy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And those that will be offended by my answer are only serving to prove that indeed there is a tremendous divergence between the experiential reality of United States neofeudal power structure and the idealized expectations of its people, which will be a wellspring of non-linear social unrest in the end by the way.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So if you must have a &quot;libertarian&quot; point of view I would look to the Peruvian economist Hernando De Soto, his work seems to be acceptable in the eyes of the Mises Institute, but I would also look at Daron Acemoglu and James A. Robinson.&lt;/p&gt;&#xA;" OwnerUserId="20035" LastActivityDate="2019-07-19T11:33:47.630" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="30222" PostTypeId="2" ParentId="30215" CreationDate="2019-07-19T12:29:00.967" Score="2" Body="&lt;p&gt;XSP is riskier than the preferential rate personal loan. The Standard and Poors 500 is a large composite of U.S. equities, hedged (short USD, long CAD). XSP combines the equity market volatility and the USD / CAD volatility but it tries to offset currency value change by holding a hedge. Some of the volatility is offsetting; some is additive. The equity composite risk is acceptable for many investors if they intend a long investment period, for example, 30 years. The USD / CAD risk is acceptable for some investors if both the Federal Reserve and the Bank of Canada manage to achieve roughly equal inflation rates over the long investment period, but XSP's manager aims to minimize this risk. For many investors, the risk of XSP is only acceptable if a long investment period is intended. However, the preferential rate personal loan is likely for a shorter period. Over that shorter period XSP is expected to be riskier than the personal loan. The preferential rate personal loan is made after checking employment history, income, assets, and other indications of ability to meet obligations. A bank's business model is to own loans; not huge amounts of an equity index. Bank regulators force banks to keep risk below a certain level.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Incidentally...&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;If XSP is held in the investor's taxable account, keep in mind that the XSP manager sometimes returns capital to the investor which lowers the investor's average cost. The XSP manager sometimes reinvests cash into more equity which effectively means it raises the investor's average cost. Unless you plan to invest extremely large amounts, you might find keeping track of these things to be not worth the effort.&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Addendum:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There was a request for information about XUS. You avoid the &quot;currency hedging risk&quot; inherent in XSP by choosing XUS instead. Currency hedging risk is the risk that the fund manager's hedging activity imperfectly eliminates your exposure to the USD which is inherent in the underlying asset which is based on the S&amp;amp;P 500. By choosing XUS instead, you are accepting &quot;currency risk&quot;. That is the risk created by exposure to the USD which is inherent in the underlying asset which is based on the S&amp;amp;P 500.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this risk chart they show that XSP has both kinds of risks, because the hedging is imperfect so XSP still has currency risk. By implementing hedges, the manager aims to make that currency risk less than what is in XUS.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/vGcxJ.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/vGcxJ.png&quot; alt=&quot;image&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="6868" LastEditorUserId="6868" LastEditDate="2019-08-21T17:38:01.600" LastActivityDate="2019-08-21T17:38:01.600" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30223" PostTypeId="1" CreationDate="2019-07-19T14:54:22.843" Score="1" ViewCount="70" Body="&lt;p&gt;The book I'm reading shows that&#xA;&lt;span class=&quot;math-container&quot;&gt;$$ S= I +CA$$&lt;/span&gt;&#xA;where &lt;span class=&quot;math-container&quot;&gt;$S$&lt;/span&gt; is savings, &lt;span class=&quot;math-container&quot;&gt;$I$&lt;/span&gt; is investment, and &lt;span class=&quot;math-container&quot;&gt;$CA$&lt;/span&gt; is the current accounts surplus. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The book then states &quot;any domestic savings not absorbed by domestic investment must be shipped outside the country in the form of goods and services.&quot; I can understand how this works from an accounting equation point of view, but intuitively it doesn't seem to make sense. It seems odd that saved money would end up in the form of exports.&lt;/p&gt;&#xA;" OwnerUserId="20877" LastActivityDate="2019-07-21T23:03:55.280" Title="Current accounts as savings?" Tags="&lt;national-accounts&gt;" AnswerCount="1" CommentCount="4" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30224" PostTypeId="2" ParentId="30206" CreationDate="2019-07-19T15:03:04.893" Score="1" Body="&lt;p&gt;It is true that (standard) economic theory says that cutting interest rates will lead to higher inflation but there actually exists an empirical phenomenon called the price puzzle which says the opposite: Lower interests rates are associated with lower inflation in the short-term (anywhere from a a couple of quarters to a couple of years). References: &lt;a href=&quot;https://files.stlouisfed.org/files/htdocs/publications/net/20061001/cover.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://files.stlouisfed.org/files/htdocs/publications/net/20061001/cover.pdf&lt;/a&gt; and &lt;a href=&quot;https://pdfs.semanticscholar.org/4263/679d36e13d79cb8cf675768a21e53b22fc73.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://pdfs.semanticscholar.org/4263/679d36e13d79cb8cf675768a21e53b22fc73.pdf&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is a good chance this is not what Erdogan is referring to but the empirical inconsistency certainly is interesting. Note that the consensus (as far as I know) seems to be that the price puzzle can be 'removed' by 'correctly' specifying the empirical model, such that lower interest rates don't actually causally imply lower inflation.&lt;/p&gt;&#xA;" OwnerUserId="20232" LastEditorUserId="20232" LastEditDate="2019-07-19T16:11:05.750" LastActivityDate="2019-07-19T16:11:05.750" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30225" PostTypeId="2" ParentId="30215" CreationDate="2019-07-19T17:10:52.600" Score="1" Body="&lt;p&gt;The short answer is “fractional reserve banking” &amp;mdash; the banks lend out money that they &lt;em&gt;create&lt;/em&gt; (governed by regulations and reserve requirements) while they would need to invest their &lt;em&gt;own&lt;/em&gt; money in outside investments.  Being able to earn interest on “free money” means that even with lower rates of return, those kinds of investments tend to be far more lucrative.&lt;/p&gt;&#xA;" OwnerUserId="23023" LastActivityDate="2019-07-19T17:10:52.600" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30227" PostTypeId="1" CreationDate="2019-07-20T10:56:59.927" Score="2" ViewCount="128" Body="&lt;p&gt;What is the purpose of advertising for companies like Pepsi who advertise the same product and every person in the modern world knows about it? Why waste money? &lt;/p&gt;&#xA;" OwnerUserId="23745" LastActivityDate="2019-12-17T17:26:04.943" Title="The purpose of advertising for Pepsi" Tags="&lt;advertising&gt;" AnswerCount="3" CommentCount="0" FavoriteCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30228" PostTypeId="2" ParentId="15317" CreationDate="2019-07-20T16:20:52.030" Score="0" Body="&lt;p&gt;I think its great that you have discovered all these different economic theories, Marxism,Austrian school, Keynesianism and you should learn them all as some variation of each influences the world today.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems you are asking which one do I use as my worldview and in summary I would say none of them, because then you would be following an ideology.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I used to be a Marxist and then I evolved into an advocate of the Austrian school of thought, today I am neither.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I am suggesting here is you understand the strengths and limitations of each school of thought.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since the last ideology I clinged to before I liberated my mind and decided to live in the real-world with the real-economy was the Austrian school, until I realized the limitations of the markets just as I realized the limitation of the State with my previous ideology.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's take a look at the limits of both.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This idea that the market and/or the state can fix what's broken runs into intrinsic limits of both structures.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The States ontological imperative is to ceaselessly expand its control and budget, lest anything outside its control become a threat. In integrative stages, this expansion appears beneficial, potentially yielding some version of the much admired Scandinavian model of the state managing a vibrant private sector to provide generous universal welfare benefits to all.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But that is not the present story of life at least here in the United States.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's just say history has not been kind to states that continue to expand complexity, regulation and enforcement in disintegrative eras, especially expansions funded by borrowing money on a vast scale.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now the Austrian school and its libertarian followers of which I used to be one would agree with what I just wrote but here is where I part ways with them. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Markets are intrinsically incapable of differentiating between much very different things.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, in the logic of the market, the last schools of wild tuna fetch a nice price for being scarce, while farmed fish offer a ready substitute. But wild fisheries, being the complex ecosystems that they are, are qualitatively different from fish farms. The market equates the two because it is incapable of valuing ecosystems and externalities such as biodiversity. Markets price scarcity and demand in the present moment and thus they are ontologically incapable of valuing everything that cannot be reduced to a price discovered by supply and demand.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For many people like me, social cohesion, shared purpose, meaningful work and a great many other essential components of the social construct we call the economy are important, but these things cannot be reduced to a market, despite best efforts.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So on the left we have those who believe the answer is Universal Basic Income, which is essentially a more entrenched welfare system for all, funded by higher taxes on the wealthy. This would give everyone the money needed to buy more goods and services, that is, expand aggregate demand, thus driving growth which drives prosperity, but resources are finite so infinite growth is impossible and this is why you have innovative thinking investors and other wealthy people waxing on and on about nanotechnology, alternative energy, space exploration, life extension, biological engineering, robotics, distributed manufacturing, artificial intelligence, computer science and virtual reality. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The investors that tout the above topics believe that the problem is that markets have been hobbled by the state and the solution is simple: free markets will solve all problems by discovering the price of everything and thus incentivize everyone to develop substitutes for whatever is scarce, farmed fish substituted for wild fisheries, solar panels and wind turbines for oil, raw materials on Mars and other planets. The belief is that unfettered markets will drive growth which drives prosperity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's take these beliefs back in time with us to the Western Roman Empire circa 456 AD, 20 years before the final implosion of the empire. Alternatively, we could go back in time to the Qing Dynasty China in 1892, 20 years prior to the final collapse of the dynasty. What ailed both of these systems was not a lack of aggregate demand or hobbled markets; these systems were structurally brittle and fragile, completely lacking the flexibility and adaptability needed to navigate non-linear upheavals.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So of the two unrealistic solutions, on the left we have more entrenched welfare with Universal Basic Income and your Marxists, socialists and others are on that side of the fence and on the right we have the unfettered markets thinkers such as the Austrian school and other neoliberal economists. What I find interesting about both sides is that their solutions don't require any changes in the power structure.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So what I am saying to you is, read all of it, study all of it and then live your life and see what seems applicable and what does not. You may come to one set of conclusions now and as you gain more life experience and read more and study more, you will slowly but surely gain a healthier understanding and require even less the asking of the question, which ideology should be my life-preserver?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In short, believe nothing, study everything, arrive at your own conclusions. Best wishes.&lt;/p&gt;&#xA;" OwnerUserId="20035" LastActivityDate="2019-07-20T16:20:52.030" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30229" PostTypeId="2" ParentId="30206" CreationDate="2019-07-20T18:21:32.430" Score="0" Body="&lt;p&gt;Well, I don't know the specifics of Turkish economy enough to venture whether what Erdoğan says makes sense &lt;em&gt;in situ&lt;/em&gt; or not.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But while cheap credit will likely devaluate currency and therefore rise inflation, it stands to reason that loans are costs to individual industrial/commercial/agricultural firms. If those are in deep debt and the cut in interest rates allows them to renegotiate their debts, it is &lt;strong&gt;possible&lt;/strong&gt; that they will have more cash to pay for other expenses and to invest, resulting in an expansion of production and consequent fall of prices. Besides, of course, slashing part of their costs may allow them to lower their prices.&lt;/p&gt;&#xA;" OwnerUserId="15747" LastActivityDate="2019-07-20T18:21:32.430" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30230" PostTypeId="2" ParentId="30154" CreationDate="2019-07-21T00:49:01.877" Score="2" Body="&lt;p&gt;My understanding is that the standard advice is to randomly select a seed value, and then keep that seed for your entire analysis. This allows the same computer code to give identical results each time. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;See, for example, the &lt;a href=&quot;https://www.stata.com/manuals13/rsetseed.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Stata manual&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Stata’s random-number generation functions, such as runiform() and&#xA;  rnormal(), do not really produce  random  numbers.  These  functions &#xA;  are  deterministic  algorithms  that  produce  numbers  that can  pass&#xA;  for  random. runiform() produces  numbers  that  can  pass  for &#xA;  independent  draws  from  a rectangular distribution over[0,1);&#xA;  rnormal()produces numbers that can pass for independent draws from&#xA;  N(0,1).  Stata’s random-number functions are formally called&#xA;  pseudorandom-number functions.The  sequences  these  functions &#xA;  produce  are  determined  by  the  seed,  which  is  just  a  number &#xA;  andwhich  is  set  to  123456789  every  time  Stata  is  launched.&#xA;  ... If you record the seed you set, pseudorandom results such as&#xA;  results from a simulation or imputed values  from mi impute can  be &#xA;  reproduced  later.  &lt;strong&gt;Whatever  you  do  after  setting  the  seed, &#xA;  if  you  set the seed to the same value and repeat what you did, you&#xA;  will obtain the same results&lt;/strong&gt; ... It does not really matter how you&#xA;  set the seed, as long as there is no obvious pattern in the seeds that&#xA;  you set and as long as you do not set the seed too often during a&#xA;  session&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;However, if you are using parallelization to do many separate simulations then you need to make sure that you do not use the same seed, or a time based seed, on every node:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Properly seed your generator. Even the state-of-the-art Mersenne&#xA;  Twister ran into problems early on because the authors had neglected&#xA;  the issue of proper seeding....This rule is VITAL if you are going to&#xA;  run parallel simulations on a Beowulf cluster for example.The simplest&#xA;  way to seed a RNG is to take something like the current time e.g.&#xA;  using the time() function found in Unix and most C libraries, which&#xA;  returns a 32-bit integer giving the number of seconds since 1st Jan&#xA;  1970. ...Hundreds of jobs on different nodes will be starting at almost exactly the same time –therefore many of your jobs will be&#xA;  starting with exactly the same seed and therefore those that have the&#xA;  same seed will generate exactly the same results(assuming your code&#xA;  has no bugs in it).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://www0.cs.ucl.ac.uk/staff/D.Jones/GoodPracticeRNG.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Good Practice in (Pseudo) Random Number Generation for Bioinformatics Applications&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2019-07-21T00:49:01.877" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30231" PostTypeId="1" CreationDate="2019-07-21T05:49:25.153" Score="1" ViewCount="60" Body="&lt;p&gt;The problem starts at time t0.&#xA;At each time step, the participant can choose to opt out and claim a loser's reward Rl.&#xA;At each time step, the participant has a probability p to win a winner's reward Rw, the participant is aware of p.&#xA;Rewards decrease after each time step, at the same rate, and Rw &gt; Rl always.&#xA;After tn the 'game' is over and the participant claims Rl - the participant is aware of time tn.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example at t0 Rw = 100, Rl = 50, p = 0.05, reward decay rate is 1 each turn and the tn = 30.&#xA;First participant wins at t10 and claims a reward of (100 - 10 * 1) = 90.&#xA;Second participant opts out at t20 and claims a reward of (50 - 20 * 1) = 30.&#xA;Third participant loses at t30 and claims (50 - 30 * 1) = 20.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm interested in assessing the risk behavior of the second participant.&#xA;I'm thinking that the second participant considers the remaining number of turns, probability p to win each turn, and average amount that the participant would win, and weights it against the current loser's reward at time t20. &#xA;But I'm not sure this is the right way to consider the risk involved.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've read the early works by Kahneman and Tversky but this seems a bit more complex, I would appreciate any hints on where to find solutions in literature as well.&lt;/p&gt;&#xA;" OwnerUserId="23747" LastEditorUserId="23747" LastEditDate="2019-07-21T07:46:35.327" LastActivityDate="2019-07-21T07:46:35.327" Title="Assessing risk in a decision problem with repeated toss" Tags="&lt;risk&gt;&lt;probability&gt;&lt;risk-aversion&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30232" PostTypeId="2" ParentId="30227" CreationDate="2019-07-21T11:34:15.407" Score="-1" Body="&lt;p&gt;As an economist, I think, Pepsi Co would want their product to have inelastic demand.&lt;/p&gt;&#xA;" OwnerUserId="6009" LastActivityDate="2019-07-21T11:34:15.407" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="30233" PostTypeId="2" ParentId="30202" CreationDate="2019-07-21T12:40:24.110" Score="1" Body="&lt;p&gt;Under the usual assumptions of decreasing MPK and complete markets in equilibrium &lt;span class=&quot;math-container&quot;&gt;$MPK_{Firm_1} = MPK_{Firm_2} = r$&lt;/span&gt;. If firm i's MPK is larger than r and firm i does not face constraints with respect to scale, if will simply borrow more capital as it can make a net return of &lt;span class=&quot;math-container&quot;&gt;$MPK_{Firm_i} - r$&lt;/span&gt; on every unit for which  &lt;span class=&quot;math-container&quot;&gt;$MPK_{Firm_i} &amp;gt; r$&lt;/span&gt;. If &lt;span class=&quot;math-container&quot;&gt;$MPK_{Firm_i} &amp;lt; r$&lt;/span&gt; firm i will divest until &lt;span class=&quot;math-container&quot;&gt;$MPK_{Firm_i} = r$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are many reasons for which this nice result can break down in reality (Deviations from the nice assumptions above). For example agency costs (Bernanke, Gertler, and Gilchrist (1996)), where an entrepreneur can only borrow up to the present value his net worth at end of the loan contract. If an entrepreneur does not have enough wealth he cannot borrow enough capital to achieve &lt;span class=&quot;math-container&quot;&gt;$MPK_{Firm_i} = r$&lt;/span&gt;. Hence when talking about this topic you should make your assumptions known in advance.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With regard to you question about Africa, from the point of view of the setting described above too few capital is flowing to developing countries. This fact has been known for a while and is referred to as the &quot;Lucas paradox&quot; or the &quot;uphill flow of capital&quot; a recent summary on the topic can be found here:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://voxeu.org/article/revisiting-paradox-capital&quot; rel=&quot;nofollow noreferrer&quot;&gt;enter link description here&lt;/a&gt;&lt;a href=&quot;https://voxeu.org/article/revisiting-paradox-capital&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://voxeu.org/article/revisiting-paradox-capital&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="23694" LastActivityDate="2019-07-21T12:40:24.110" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="30234" PostTypeId="1" CreationDate="2019-07-21T13:05:51.217" Score="1" ViewCount="66" Body="&lt;p&gt;I am reading an economics &lt;a href=&quot;https://web.williams.edu/Economics/wp/ChenPhelan_DynamicConsequences.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;paper&lt;/a&gt; which contains a model with households and banks. In the model, banks are owned by households. The authors make this assumption when they discuss households (section 2.2, page 8):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;There is a continuum of risk-neutral households denoted by &lt;span class=&quot;math-container&quot;&gt;$h \in [0,1]$&lt;/span&gt; ...&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;When they move to discussing banks, they make a similar assumption (section 2.3, page 9):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;There is a continuum of banks denoted by &lt;span class=&quot;math-container&quot;&gt;$b \in [0,1]$&lt;/span&gt; ...&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I have seen countless papers in economics with such assumptions regarding continuum of agents. Most of the time, I just gloss over this but I don't really understand what these assumptions mean, what they are useful for and why there are there in the first place. It seems like it's something basic and nobody discusses it but I really want to grasp the meaning and purpose of this assumption. &lt;/p&gt;&#xA;" OwnerUserId="23438" LastActivityDate="2019-07-23T17:20:05.353" Title="Meaning of assumptions regarding continuum of agents in economics models" Tags="&lt;macroeconomics&gt;&lt;mathematical-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30235" PostTypeId="2" ParentId="30220" CreationDate="2019-07-21T13:17:36.837" Score="1" Body="&lt;p&gt;In theory there is nothing that is preventing the real interest rate from becoming negative. Making the real interest rate negative by keeping the nominal rate at zero and creating inflation has been the goal of the ECB in the recent past. Once you hit the ZLB there is no other way to further loosen monetary policy. With regard to your work it is probably important to carefully select the inflation rate you're using, but you dont describe this in detail. Depending on your question you might want to consider forward looking measures (i.e.Blue Chip or Greenbook forecasts if you're talking about the US).&lt;/p&gt;&#xA;" OwnerUserId="23694" LastActivityDate="2019-07-21T13:17:36.837" CommentCount="7" ContentLicense="CC BY-SA 4.0" />
  <row Id="30237" PostTypeId="2" ParentId="30234" CreationDate="2019-07-21T17:37:17.680" Score="2" Body="&lt;p&gt;Economic models often have a finite number of agents. In such models, agents are commonly named using the positive integers (i.e. 'natural numbers'): so the set of agents is &lt;span class=&quot;math-container&quot;&gt;$\{1, 2, ..., n\}$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Other economic models have an infinite number of agents. For example, the number of agents might be assumed to be the same as the number of positive integers. In that case, the set of agents is &lt;span class=&quot;math-container&quot;&gt;$\mathbb{N}=\{1, 2, ...\}$&lt;/span&gt;. It is said to have a 'cardinality' (or size) of &lt;a href=&quot;https://en.wikipedia.org/wiki/Aleph_number#Aleph-null&quot; rel=&quot;nofollow noreferrer&quot;&gt;aleph-null&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, some economic models have even more agents. In the examples you mention, each agent is named using a real number in &lt;span class=&quot;math-container&quot;&gt;$[0, 1]$&lt;/span&gt;; so the set of agents is the set of real numbers in &lt;span class=&quot;math-container&quot;&gt;$[0, 1]$&lt;/span&gt;. This set is said to have cardinality &lt;a href=&quot;https://en.wikipedia.org/wiki/Aleph_number#Aleph-one&quot; rel=&quot;nofollow noreferrer&quot;&gt;aleph-one&lt;/a&gt; and can be shown to be 'larger' than the set of natural numbers (in the sense of 'larger' defined by Cantor).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course, this is not very realistic -- the justification, presumably, is to make the mathematics easier. In particular, it allows for integration (e.g. to find total consumption in the economy) as opposed to summation.&lt;/p&gt;&#xA;" OwnerDisplayName="user17900" LastEditorDisplayName="user17900" LastEditDate="2019-07-23T17:20:05.353" LastActivityDate="2019-07-23T17:20:05.353" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30239" PostTypeId="1" AcceptedAnswerId="30240" CreationDate="2019-07-21T19:50:17.160" Score="17" ViewCount="13261" Body="&lt;p&gt;If a country prints money and distributes it between the people, it causes inflation. But what if a country prints its own money to spend ONLY abroad, which would allow a country to buy whatever it wants. What's wrong with this logic? &lt;/p&gt;&#xA;" OwnerUserId="23751" LastActivityDate="2021-04-10T08:08:10.200" Title="Why can't a country print its own money to spend it only abroad?" Tags="&lt;inflation&gt;" AnswerCount="4" CommentCount="3" FavoriteCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30240" PostTypeId="2" ParentId="30239" CreationDate="2019-07-21T19:59:34.767" Score="39" Body="&lt;p&gt;In order for one country to spend in another, it needs to exchange its currency for the currency of the other nation. This is done through something called the foreign exchange market. Like most markets however, the laws of supply and demand apply here too. If a country suddenly starts printing a lot of money, the actual value of its money in the foreign exchange market will go down (due to its increased supply). This will ultimately mean the currency will depreciate with respect to others, and will thus have lower buying power.&lt;/p&gt;&#xA;" OwnerUserId="19980" LastEditorUserId="8891" LastEditDate="2019-07-21T21:18:23.630" LastActivityDate="2019-07-21T21:18:23.630" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="30241" PostTypeId="1" CreationDate="2019-07-21T22:58:38.893" Score="0" ViewCount="32" Body="&lt;p&gt;I get confused. How &quot;Balassa Samuelson effect&quot; influences real exchange rate?&lt;/p&gt;&#xA;" OwnerUserId="23622" LastActivityDate="2019-07-21T23:28:30.260" Title="how Ballassa Samuelson affects real exchange rate?" Tags="&lt;macroeconomics&gt;" AnswerCount="0" CommentCount="2" ClosedDate="2019-08-01T08:15:49.087" ContentLicense="CC BY-SA 4.0" />
  <row Id="30242" PostTypeId="2" ParentId="30223" CreationDate="2019-07-21T23:03:55.280" Score="1" Body="&lt;p&gt;This is accountancy and double-entry bookkeeping, but intuitively there are two ideas underlying this:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;The net difference between domestic investments and domestic savings has to be financed from abroad (or leads to financing foreigners if domestic savings exceed domestic investments) and this is reflected in the financial or capital accounts of the balance of payments.  Put more simply, if you want to build new buildings or buy new machinery or just put stuff into warehouses to sell next year, and your domestic economy is not saving enough to pay for this, then you need to get the extra stuff (probably represented in money terms, but really it is goods and services) from foreigners, creating new liabilities to them.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The financial or capital accounts should be balanced by the current account of the balance of payments (note the accounting use of the word &lt;em&gt;balance&lt;/em&gt;). The net stuff you need for the excess investment over savings needs to bought from abroad (or if savings exceed investment then this needs to represent net stuff sold abroad).&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;There is a subtle difference between the balance of trade and the current account balance, with the difference representing income flows on existing international investments, but this is often relatively small and in accountancy terms is taken into account in the calculation of domestic savings.        &lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2019-07-21T23:03:55.280" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="30244" PostTypeId="2" ParentId="30239" CreationDate="2019-07-22T07:13:47.477" Score="3" Body="&lt;p&gt;China does, in fact, do something like this! It has two currencies - one for use internally and one internationally. It was explained better than I could by Adam Townsend on Twitter: &lt;a href=&quot;https://twitter.com/adamscrabble/status/1094717028009689089&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://twitter.com/adamscrabble/status/1094717028009689089&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thread unrolled: &lt;a href=&quot;https://threadreaderapp.com/thread/1094717028009689089.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://threadreaderapp.com/thread/1094717028009689089.html&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;ol&gt;&#xA;  &lt;li&gt;&lt;p&gt;The ‘onshore’ currency is the Renminbi (RMB) or yuan and also called the CNY. It is only used to pay bills on the mainland. The onshore currency can’t be used for international transactions. There...&#xA;  is no real market for the exchange rate, instead the People’s Bank of China (PBOC) comes up with a price every day thru an unknown equation, and then trades around it. &lt;/p&gt;&lt;/li&gt;&#xA;  &lt;li&gt;&lt;p&gt;The “offshore” currency, also called the yuan or CNH, is used for international clearing and trading.&lt;/p&gt;&lt;/li&gt;&#xA;  &lt;/ol&gt;&#xA;  &#xA;  &lt;p&gt;The CNH has a completely separate set of demand and supply conditions from the onshore RMB.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The Chinese have it both ways, huge inner stimulation to appease the people. Strong external currency to maintain purchasing power outside.&#xA;  By controlling the supply of CNH (offshore money) outstanding China can create a CNH shortage. They’d just buy the offshore currency to drive the value/price up.&#xA;  Alternatively they can sell the offshore currency, flooding the market with CNH to drive the value/price down. For example, when a foreign Purchaser of goods has to settle the transaction, and there’s a shortage of settlement currency (CNH), his/her cost goes up.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Conversely, if there are boatloads of CNH available his/her cost goes down.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="23754" LastEditorUserId="14221" LastEditDate="2019-07-23T06:30:03.433" LastActivityDate="2019-07-23T06:30:03.433" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30245" PostTypeId="2" ParentId="30239" CreationDate="2019-07-22T07:17:55.723" Score="44" Body="&lt;p&gt;This wouldn't work - for the money to have any value abroad, it has to find its way back to the source country.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider an example; the President of Ruritania wants a Swiss watch. He prints a thousand Ruritanian dingbats and sends them to his ambassador in Bern with the instruction to buy him a watch. However, the Swiss watch-maker doesn't want to be paid in dingbats - he wants Swiss Francs. So the ambassador goes to a Foreign Exchange (Forex) broker and asks to buy Swiss Francs using Ruritanian dingbats. What rate does the Forex broker give him? The broker has to consider what he could do with the dingbats - all he can do is sell them to some Swiss guy who needs dingbats for some reason. So it's the demand for dingbats in Switzerland that determines the rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's assume the Forex broker gives the ambassador some Swiss Francs and off he goes and gets the watch. What happens next? The broker &lt;em&gt;sells&lt;/em&gt; the dingbats to a Swiss importer who is buying Ruritanian apples. The Swiss guy uses the dingbats to pay his supplier in Ruritania and now, the dingbats have ended up back in Ruritania!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the Ruritanian money supply has increased and, despite the best efforts of the President, inflation is stoked.&lt;/p&gt;&#xA;" OwnerUserId="23753" LastEditorUserId="68" LastEditDate="2019-07-23T04:00:25.237" LastActivityDate="2019-07-23T04:00:25.237" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30246" PostTypeId="1" CreationDate="2019-07-22T08:37:03.510" Score="2" ViewCount="107" Body="&lt;p&gt;Does economic growth create more or less equality?&lt;/p&gt;&#xA;" OwnerUserId="8639" LastEditorUserId="25624" LastEditDate="2020-12-15T18:43:59.773" LastActivityDate="2020-12-16T23:27:58.540" Title="What is the relationship between economic growth and equality?" Tags="&lt;economic-growth&gt;&lt;inequality&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="30247" PostTypeId="1" CreationDate="2019-07-22T09:47:49.463" Score="1" ViewCount="178" Body="&lt;p&gt;Wikipedia says 'The Bolzano–Weierstrass theorem allows one to prove that if the set of allocations is compact and non-empty, then the system has a Pareto-efficient allocation.' &#xA;However, I couldn't find a compelling simple proof for this theorem anywhere. Could someone provide a proof for the theorem in a simple fashion that is understandable for Undergrad students in Economics who have done a course in Analysis?&lt;/p&gt;&#xA;" OwnerUserId="23760" LastEditorUserId="23760" LastEditDate="2019-07-22T09:55:41.263" LastActivityDate="2019-11-20T03:54:58.293" Title="Bolzano-Weierstrass Theorem and Pareto Efficient Allocation" Tags="&lt;mathematical-economics&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30248" PostTypeId="1" CreationDate="2019-07-22T12:54:41.500" Score="0" ViewCount="30" Body="&lt;p&gt;I always understood that high interest rates in country A attract investors and cause the currency to appreciate. However, the interest rate parity theory suggests that high interest rates weaken a currency and currency arbitrage is impractical. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;How can these theories be reconciled? Are they rival theories? &lt;/p&gt;&#xA;" OwnerUserId="23766" LastActivityDate="2019-07-22T12:54:41.500" Title="Effect of interest rates on currencies" Tags="&lt;currency&gt;&lt;interest-rate&gt;&lt;currency-exchange&gt;" AnswerCount="0" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="30249" PostTypeId="1" CreationDate="2019-07-22T14:43:54.710" Score="2" ViewCount="30" Body="&lt;p&gt;Someone asked a simple question: when wages increase, why don't companies just raise prices such that it cancels out the wage increase?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course, this isn't what happens in real life since real wage growth exists. But what's the best way to intuitively explain why that's the case?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A simple explanation could be that the demand curve shifting outward due to higher wages leads to an increase in quantity and price, but that's just from looking at lines on a graph.&lt;/p&gt;&#xA;" OwnerUserId="20877" LastActivityDate="2019-07-23T09:11:06.830" Title="How is real wage growth achieved?" Tags="&lt;wages&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30250" PostTypeId="1" CreationDate="2019-07-22T14:48:11.910" Score="5" ViewCount="313" Body="&lt;p&gt;I've been reading about prospect theory lately and have read often that prospect theory predicts people will be risk averse in gains and risk seeking in losses. This statement is typically supplemented with the phrase &quot;, contrary to the standard expected utility theory model&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, I'm not sure how expected utility theory deals with losses. Is it that EU theory assumes people who are risk averse in gains will be risk averse in losses as well? If so, how do you model this mathematically?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If our risk-averse EU maximizer has &lt;span class=&quot;math-container&quot;&gt;$u(x)=\sqrt{x}$&lt;/span&gt; for &lt;span class=&quot;math-container&quot;&gt;$x&amp;gt;=0$&lt;/span&gt;, would the equivalent function in losses be &lt;span class=&quot;math-container&quot;&gt;$u(x) = -x^2$&lt;/span&gt; for &lt;span class=&quot;math-container&quot;&gt;$x&amp;lt;0$&lt;/span&gt;? If so, wouldn't that mean that they are overweighting the loss component relative to the gain component - which is not an element of expected utility theory.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Graphically, a prospect theory value function is typically drawn as &lt;a href=&quot;https://i.stack.imgur.com/VczV9.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/VczV9.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&#xA;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;How would you draw the equivalent graph for an expected utility theory value function?&lt;/p&gt;&#xA;" OwnerUserId="21583" LastActivityDate="2019-07-22T17:53:10.843" Title="How does expected utility theory treat losses?" Tags="&lt;microeconomics&gt;&lt;expected-utility&gt;&lt;theory&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30252" PostTypeId="1" CreationDate="2019-07-22T16:41:25.770" Score="5" ViewCount="187" Body="&lt;p&gt;At the moment many governments, such as Finland's, are able to borrow money at negative interest rates. My question is: &lt;strong&gt;why don't they borrow as much money as possible while interest rates are negative?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The answers I have heard so far don't make sense.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Governments avoid borrowing too much money because that would lead to spending more money&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This doesn't make sense: they could borrow money and &lt;strong&gt;not spend it&lt;/strong&gt; and just take the profit from the negative interest rate.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Governments avoid borrowing too much money because they want to minimize the risk that a bank fails and loses their money&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This doesn't make sense: they could take the money out as &lt;strong&gt;cash&lt;/strong&gt;, pay people to guard it, and still make a profit from the negative interest rate even if the money was just sitting in a safe.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Governments avoid borrowing too much money because there are limits to how much they can take out in loans in they won't to keep a healthy distance to those limits.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This doesn't make sense: if they borrowed money at a negative interest rate now, and just saved the money, they would be in a better position in the future compared to not taking the loan. (In all cases except when interest rates go &lt;em&gt;even more&lt;/em&gt; negative in the future, in which case it might be beneficial to take the loans when the rates are lower - however, no-one is arguing that governments would be speculating like this).&lt;/p&gt;&#xA;" OwnerUserId="12192" LastEditorUserId="69" LastEditDate="2019-07-23T18:23:50.610" LastActivityDate="2020-08-20T01:10:43.220" Title="Why don't governments exploit negative interest rates more than they currently do?" Tags="&lt;interest-rate&gt;&lt;government-debt&gt;&lt;debt&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30253" PostTypeId="2" ParentId="30250" CreationDate="2019-07-22T17:42:28.520" Score="6" Body="&lt;p&gt;Gains and losses presuppose a reference point, which is not a feature in standard expected utility theory. In this theory, the only argument in the utility over wealth is &lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt;, the absolute level of wealth. A common form of utility function is the &lt;em&gt;constant relative risk aversion&lt;/em&gt; (CRRA) form: &#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;u(w)=\frac{w^{1-\rho}}{1-\rho},&#xA;\end{equation}&lt;/span&gt;&#xA;where &lt;span class=&quot;math-container&quot;&gt;$\rho$&lt;/span&gt; is the &lt;a href=&quot;https://en.wikipedia.org/wiki/Risk_aversion#Relative_risk_aversion&quot; rel=&quot;noreferrer&quot;&gt;coefficient of relative risk aversion&lt;/a&gt;. Note that this incorporates the commonly seen &lt;span class=&quot;math-container&quot;&gt;$\sqrt w$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\ln w$&lt;/span&gt; forms when &lt;span class=&quot;math-container&quot;&gt;$\rho$&lt;/span&gt; is &lt;span class=&quot;math-container&quot;&gt;$\frac12$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt;, respectively. As is obvious, there is no term that helps differentiate between gains and losses in this formulation. The graph for a standard EU function with risk aversion is the same as any strictly increasing and strictly concave function. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Prospect theory is motivated by empirical regularities found in psychology experiments. A typical utility form is &#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;u(x,r)=&#xA;\begin{cases}&#xA;(x-r)^\alpha &amp;amp;\text{if }x\ge r\\&#xA;-\lambda(r-x)^\beta &amp;amp;\text{if }x&amp;lt;r&#xA;\end{cases}&#xA;\end{equation}&lt;/span&gt;&#xA;where &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; is the payoff from some choice alternative (or &quot;prospect&quot; if the choice involves risks), &lt;span class=&quot;math-container&quot;&gt;$r$&lt;/span&gt; is the reference point (which is &lt;span class=&quot;math-container&quot;&gt;$0$&lt;/span&gt; in your example), &lt;span class=&quot;math-container&quot;&gt;$\alpha,\beta\in(0,1)$&lt;/span&gt; are parameters that govern the degree of risk preference, and &lt;span class=&quot;math-container&quot;&gt;$\lambda$&lt;/span&gt; is a parameter that separately captures &lt;a href=&quot;https://en.wikipedia.org/wiki/Loss_aversion&quot; rel=&quot;noreferrer&quot;&gt;loss aversion&lt;/a&gt;. Tversky and Kahneman (1992) estimate that &lt;span class=&quot;math-container&quot;&gt;$\alpha=\beta=0.88$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\lambda=2.25$&lt;/span&gt;. &lt;/p&gt;&#xA;" OwnerUserId="42" LastEditorUserId="42" LastEditDate="2019-07-22T17:53:10.843" LastActivityDate="2019-07-22T17:53:10.843" CommentCount="8" ContentLicense="CC BY-SA 4.0" />
  <row Id="30255" PostTypeId="2" ParentId="30252" CreationDate="2019-07-22T19:53:27.737" Score="1" Body="&lt;p&gt;(The arguments you listed are questionable, so I will not discuss them.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One thing to keep in mind is that we need to distinguish between the central bank and the fiscal authority (e.g., the U.S. Treasury). This is doubly true in the euro area. I will put aside what the central bank is doing, to match the spirit of the question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we are in a place that has limits on debt issuance - e.g., the US debt ceiling, or countries in the Maastricht Treaty - there are limits on debt that need to be respected. (Why these limits should be implied when it is profitable to borrow is a mystery to me, but that is a different question.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we put those legal limits aside, there is a very practical issue: when the Treasury issues bonds (which is a form of borrowing), it is removing money from the “private sector” (or more accurately, the “non-government sector”). Under normal circumstances, borrowing is aligned (roughly) with deficit spending, and the deficit spending sends money to the private sector&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a simple example, imagine a government runs a deficit of \$100 million. The deficit results in sending \$100 million in extra payments to whomever, and that will roughly coincide with what it needs to borrow.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the government just issues bonds, there is no source of money available to buy them. (The central bank can operate to make it possible, but this is limited.) The government will need to do something with what it borrows, and that would most likely be buying financial assets from the private sector.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Since this explanation was not adequate, I will explain further. If the government issues \$100 million in bonds, private sector entities need \$100 million in balances at the central bank to pay for them. However, banks need to keep balance levels near minimums to meet liquidity needs. If they are already at the minimum, there is no capacity to buy the bonds at auction. The only way the bonds are sold is via some arm of government to transfer \$100 million to banks to allow the auction to proceed. If the central bank is not able to do it, the only course of action is for the Treasury to buy something worth \$100 million from somebody in the private sector.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is entirely possible that the securities it buys are worthless, which poses a risk to the government. Also, it will hand windfall gains to people selling assets, which raises political issues.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;They could borrow to fund investment, which is exactly what many people have argued for governments to do. However, the capacity to so is limited by useful projects to invest in, and any projects raise other political issues.&lt;/p&gt;&#xA;" OwnerUserId="12891" LastEditorUserId="12891" LastEditDate="2019-07-26T19:20:12.297" LastActivityDate="2019-07-26T19:20:12.297" CommentCount="9" ContentLicense="CC BY-SA 4.0" />
  <row Id="30256" PostTypeId="2" ParentId="30239" CreationDate="2019-07-22T20:03:23.187" Score="2" Body="&lt;p&gt;Something close to what you want would be &lt;a href=&quot;https://en.wikipedia.org/wiki/Special_drawing_rights&quot; rel=&quot;nofollow noreferrer&quot;&gt;Special Drawing Rights&lt;/a&gt;, which were created by the IMF to serve as an international currency without the problem of a national currency having to both meet the needs of international trade and domestic economic goals.&lt;/p&gt;&#xA;" OwnerUserId="23774" LastActivityDate="2019-07-22T20:03:23.187" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30257" PostTypeId="1" CreationDate="2019-07-22T20:10:15.993" Score="1" ViewCount="69" Body="&lt;p&gt;I am conducting some regressions on economic growth determinants and I am disillusioned. Essentially by choosing what groups of variable to regress I can get the desired significance. What does this tell about whether the explanatory variables influence economic growth?&lt;/p&gt;&#xA;" OwnerUserId="23688" LastEditorUserId="108" LastEditDate="2019-07-22T21:17:59.823" LastActivityDate="2019-08-01T16:45:38.637" Title="What is the interpration of results if adding or subtracting a control variable effects the significance of explanotary variables?" Tags="&lt;macroeconomics&gt;&lt;econometrics&gt;&lt;economic-growth&gt;&lt;applied-econometrics&gt;&lt;regression&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30258" PostTypeId="2" ParentId="30257" CreationDate="2019-07-22T21:17:35.043" Score="3" Body="&lt;p&gt;When you run a regression you are making the assumptions of the &lt;a href=&quot;https://en.wikipedia.org/wiki/Gauss%E2%80%93Markov_theorem&quot; rel=&quot;nofollow noreferrer&quot;&gt;Gauss Markov Theorem&lt;/a&gt;, one of which is that the error is uncorrelated with all of the independent variables (exogeneity).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you remove from your regression a variable that is correlated with other explanatory variables then the error term and those explanatory variables will be correlated and the Gauss-Markov Theorem will then be violated. The consequence of this is that the estimates produced by the model will be biased. This particular form of bias is known as &lt;a href=&quot;https://en.wikipedia.org/wiki/Omitted-variable_bias&quot; rel=&quot;nofollow noreferrer&quot;&gt;Omitted Variable Bias&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A consequence of omitted variable bias is that spurious variables can often be made significant be deleting important variables from the model. In these instances, the fact that they become statistically significant doesn't signify that they suddenly became important, it just means that you are estimating a mis-specified model that violates your own assumptions. So we can't just blindly interpret the hypothesis tests associated with a regression model, we must pay attention to whether the model is well-specified—including the question of whether all of the relevant variables are included.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Last point: your question is &quot;What does this tell about whether the explanatory variables influence economic growth?&quot; The answer is &lt;strong&gt;nothing&lt;/strong&gt; because a regression in itself will not tell you anything about causality, only whether your variables are correlated. To make a causal connection between variables you have to think about how to build causal identification into your empirical strategy from the beginning.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2019-07-22T21:17:35.043" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30259" PostTypeId="1" AcceptedAnswerId="30260" CreationDate="2019-07-22T22:13:31.953" Score="2" ViewCount="42" Body="&lt;p&gt;Mas-Colell, Whinston and Green's Microeconomic Theory (3rd edition) defines the social choice function as the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/yQs2J.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/yQs2J.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Later, the mechanism outcome function is also defined:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/VgqD5.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/VgqD5.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The relationship between a social choice function and a mechanism is then stated as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/RGjOL.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/RGjOL.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is the difference between a social choice function and a mechanism outcome function?&lt;/p&gt;&#xA;" OwnerUserId="6099" LastActivityDate="2019-07-22T22:58:51.957" Title="Difference between social choice function and mechanism outcome function" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;mechanism-design&gt;&lt;social-choice&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30260" PostTypeId="2" ParentId="30259" CreationDate="2019-07-22T22:31:53.907" Score="4" Body="&lt;p&gt;A social choice function presumes the individuals' preference parameters &lt;span class=&quot;math-container&quot;&gt;$\theta_i$&lt;/span&gt;'s are observable, whereas in a mechanism, such knowledge is not presupposed. Therefore, in a mechanism, the arguments of the outcome function are strategies of the players, which are observable, not their preference parameters, which, although indirectly determine the players' strategies, are not observable. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As an example, suppose &lt;span class=&quot;math-container&quot;&gt;$3$&lt;/span&gt; individuals are either rich or pool (&lt;span class=&quot;math-container&quot;&gt;$\Theta_i=\{R,P\}$&lt;/span&gt; for &lt;span class=&quot;math-container&quot;&gt;$i=1,2,3$&lt;/span&gt;) and there are two policies, &lt;span class=&quot;math-container&quot;&gt;$X=\{A,B\}$&lt;/span&gt;. Assume rich people prefer &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt; and the poor prefer &lt;span class=&quot;math-container&quot;&gt;$B$&lt;/span&gt;. A social choice function would take a profile of the three people's wealth status and produce a policy outcome, for instance, &#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;f(R,R,P)=A,\quad\text{or}\quad f(P,P,R)=B.&#xA;\end{equation}&lt;/span&gt;&#xA;However, if individual wealth status is private information which cannot be directly observed, and the policy must be chosen by a simple majority voting mechanism, then each individual's strategy space would be &lt;span class=&quot;math-container&quot;&gt;$S_i=\{A,B\}$&lt;/span&gt; and their strategy &lt;span class=&quot;math-container&quot;&gt;$s_i:\Theta_i\to X$&lt;/span&gt; would map from their own type to a policy choice. The mechanism outcome function would turn a profile of the strategies into a policy outcome, e.g. &#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;g(A,B,A)=A,\quad\text{or}\quad g(A,B,B)=B.&#xA;\end{equation}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is a special mechanism: when each player's strategy space is also their type space, i.e. &lt;span class=&quot;math-container&quot;&gt;$S_i=\Theta_i$&lt;/span&gt;, and the mechanism's outcome function is the same as the social choice function &lt;span class=&quot;math-container&quot;&gt;$g(\theta)=f(\theta)$&lt;/span&gt;, we have what's known as a &lt;em&gt;direct mechanism&lt;/em&gt;.&lt;/p&gt;&#xA;" OwnerUserId="42" LastEditorUserId="42" LastEditDate="2019-07-22T22:58:51.957" LastActivityDate="2019-07-22T22:58:51.957" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30261" PostTypeId="1" AcceptedAnswerId="30263" CreationDate="2019-07-22T22:51:29.753" Score="1" ViewCount="401" Body="&lt;p&gt;I read that the tangency condition is not sufficient for optimality, and that one other condition is that the MRS must equal the slope of the budget line at an interior optimum. My confusion is that since MRS is the slope of an indifference curve, then wouldn't it automatically be equal to the slope of the budget line of the budget line is tangent to the indifference curve?&lt;/p&gt;&#xA;" OwnerUserId="23776" LastActivityDate="2019-07-23T18:50:57.627" Title="Optimal point and MRS" Tags="&lt;optimization&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30263" PostTypeId="2" ParentId="30261" CreationDate="2019-07-23T06:46:23.390" Score="0" Body="&lt;p&gt;The tangency condition itself is the condition that the optimal point, for an interior optimum, is the point where the MRS must equal the slope of the budget line. So the second part of your question is true. It is at the tangent point where MRS equals the slope of the budget line. You've confused yourself with the second (sufficient) condition which, on the other hand, states that the utility function must be strictly quasi-concave in order for an interior optimum to exist.&#xA;Hope this clarifies. &lt;/p&gt;&#xA;" OwnerUserId="23780" LastActivityDate="2019-07-23T06:46:23.390" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30265" PostTypeId="2" ParentId="30249" CreationDate="2019-07-23T09:11:06.830" Score="1" Body="&lt;p&gt;Why would companies want to &quot;cancel out&quot; the wage increase? Their goal is to make money, not to keep real wages constant.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Many things factor into the pricing decisions of companies. There are competitive pressures: if rival vendors are decreasing prices the company has to follow suit or lose market share. There are also cost factors: if the price of an input (e.g. labor) rose, than the company may have to increase prices to stay profitable, or just to achieve maximum profit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If technological improvements, economies of scale, or similar factors enable the company to produce the same quantity of goods at a lower cost, they can afford to decrease prices while keeping wages the same. This enables real wage growth. There are several similar scenarios where prices rose, but nominal wages rose even more.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2019-07-23T09:11:06.830" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30266" PostTypeId="2" ParentId="25535" CreationDate="2019-07-23T11:49:49.353" Score="-2" Body="&lt;p&gt;A central bank makes a profit for the fact that it makes money out of thin air. A hundred dollar bill costs them less  then fourteen cents to print. They use a simple model of supply and demand. When there is a high need for money small amounts will be circulated, and when the need is small the market gets flooded with the stuff. Fractional lending is another system they use. It works like this. For every hundred dollar bill they consolidate into a loan to a merchant for example. Another 10 hundred dollar bills are printed and loaned out. A big part of a central banks infrastructure in 2019 and beyond is Digital money. In other words their moving into a monetary system that will look a lot like the Apple Pay system. Where you just swipe a computer key to conduct huge transactions with Chase for example instead of delivering the stacks of paper money. Good question keep them coming. &lt;img src=&quot;https://i.stack.imgur.com/n7jHp.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;" OwnerUserId="23787" LastActivityDate="2019-07-23T11:49:49.353" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30267" PostTypeId="2" ParentId="6118" CreationDate="2019-07-23T12:23:06.750" Score="0" Body="&lt;p&gt;In the presence of transaction costs &lt;em&gt;No Arbitrage&lt;/em&gt; doesn't have to imply &lt;em&gt;Efficient Markets&lt;/em&gt;. For example, prices can be forecast-able but there is no way to profit from that forecast so prices remain wrong but are consistent with each other. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, it is possible to have three assets and two states of the world, all priced consistently with each other (in a no arbitrage sense), but to have the asset prices returns violate the efficient market. Consider states High and Low. Asset one has high and low payoffs \$2/\$0 and costs \$1. Asset two has payoffs \$0/\$3 and costs \$1. Asset three pays of \$4/$6 and costs \$4 (which is the same payoff as a portfolio of two of asset one and two of asset two and has the same cost as that portfolio). There is no arbitrage in this economy. However, if there are risk neutral investors that are not borrowing constrained, and using all public information we know that the probability of the high event is 75% and everyone agrees that this is true, then these are are not the efficient prices. &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2019-07-23T12:29:46.497" LastActivityDate="2019-07-23T12:29:46.497" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30269" PostTypeId="1" CreationDate="2019-07-23T13:56:16.843" Score="2" ViewCount="42" Body="&lt;p&gt;in panel data when examining economic growth determinants lags are often used to account for endogeneity of explanatory variables. However if the explanatory variable is serially correlated, does it mean that its lags are also endogenous and therefore should not be used as proxies or instruments?&lt;/p&gt;&#xA;" OwnerUserId="23688" LastEditorUserId="23688" LastEditDate="2019-07-23T14:06:15.607" LastActivityDate="2019-08-22T15:02:20.267" Title="If an endogenous explanatory variable is serially correlated does it mean that its lags are also endogenous?" Tags="&lt;macroeconomics&gt;&lt;econometrics&gt;&lt;economic-growth&gt;&lt;endogeneity&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30270" PostTypeId="1" AcceptedAnswerId="30298" CreationDate="2019-07-23T14:36:17.590" Score="0" ViewCount="32" Body="&lt;p&gt;In pure exchange GE models, a typical goods market clearing condition for good &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt; looks like:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\sum\limits_{i=1}^Ic_n^i=\sum\limits_{i=1}^Ie_n^i.$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider a model with production where firms can pay dividends and invest in new capital. New capital can be produced from output goods using a linear technology.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My Question:&lt;/strong&gt; Taking the existence of dividends and investment into account, how does the goods market clearing condition look like in this case?&lt;/p&gt;&#xA;" OwnerUserId="8560" LastActivityDate="2019-07-25T19:32:30.287" Title="Market Clearing with Dividend and Investment" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;general-equilibrium&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30272" PostTypeId="1" CreationDate="2019-07-23T17:31:03.620" Score="1" ViewCount="53" Body="&lt;p&gt;when there is simultaneous causation  between  dependent and  independent variables often in papers we see a  lagged  variable being  used in place of contemporaneous variable. For  example,  Clemens,   Radelet,  Bhavnani  and  Bazzi  (2012)  say - “We  avoid  poor-quality  instrumental variables and instead address  potential  biases from   reverse  and  simultaneous  causation  by  the   more   transparent   method  of  lagging&quot;.   Hayo,  Kutan,  and   Neuenkirch  (2010)  - “The  vector  of  controls  contains  lagged    returns...Contemporaneous  U.S.  returns  are  excluded  to  avoid    simultaneity  problems”  However what is the rationale for lagging? This  short article   looks at estimators of lagged variables used in such  cases. It  deduces  that either there is no serial correlation in the  variable and  the  value of the lagged estimator is 0. Or that there is  serial   correlation and the value of the lagged estimator is quite a meaningless value of  ((c+bf)/(1-be)), where b is the coefficient of x(t)  on y(t), f is the serial correlation, e is the effect of y(t) on x(t) and c is the true effect of x(t-1) on y(t). Further the article finds that these estimators are consistent but converge to true value  only for n&gt;100 approximately, further leading to wrong significance interpretations. Given this,   what is the rationale of  using a lag to deal with simultaneity? If the lagged  variable is not serially  correlated its  coefficient on y(t) is 0,   it does not capture the  effect of x(t) on y(t) and one only risks to make false significance inferences in small samples. If on the   other hand the variable is  serially correlated than it does capture the   effect of x(t) on y(t), but  only by the fraction of serial correlation and further that result  is distorted in non linear way because  the  estimator also captures the  effect of 1 - (y(t) on x(t) times x(t) on y(t)) in the denominator. So it is just a   meaningless result. Henceforth,  why do people use the lagged  variables  to address simultaneity  endogeneity? It seems to make no  sense.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The aforementioned article is this one: &lt;a href=&quot;https://www.otago.ac.nz/economics/news/otago075947111111111.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.otago.ac.nz/economics/news/otago075947111111111.pdf&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your thoughts are much appreciated!&lt;/p&gt;&#xA;" OwnerUserId="23688" LastEditorUserId="23688" LastEditDate="2019-07-23T22:06:58.710" LastActivityDate="2019-07-23T22:06:58.710" Title="The rationale for using a lagged variable to address endogeneity arising from simultaneous causation?" Tags="&lt;macroeconomics&gt;&lt;econometrics&gt;&lt;economic-growth&gt;&lt;endogeneity&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30273" PostTypeId="2" ParentId="30261" CreationDate="2019-07-23T18:19:30.043" Score="0" Body="&lt;p&gt;Below is an example where the tangency (point &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt;) is not the optimum (assuming both &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; are &quot;goods&quot; so that more of either good is preferred to less). In fact, the optimum occurs at the corner (point &lt;span class=&quot;math-container&quot;&gt;$B$&lt;/span&gt;) where the indifference curve is not tangent to the budget line. This happens because the preference over &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; is not &lt;a href=&quot;https://en.wikipedia.org/wiki/Convex_preferences&quot; rel=&quot;nofollow noreferrer&quot;&gt;convex&lt;/a&gt;, which is manifested by a set of indifference curves that is concave to the origin. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/I6GrW.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/I6GrW.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We normally assume that preference is convex, which generates indifference curves that are convex to the origin. Think of this as a taste for variety: if I'm indifferent between 2 can of pop and 2 slices of pizza, then I will be strictly better off if I get a combo of 1 pop and 1 pizza than having only one of the goods. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A non-convex preference represents the opposite taste for variety. Suppose &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; is pop and &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; is coffee, and I, as most people, would prefer to have them separately than combined. Then my preference over pop and coffee would be non-convex.&lt;/p&gt;&#xA;" OwnerUserId="42" LastEditorUserId="42" LastEditDate="2019-07-23T18:50:57.627" LastActivityDate="2019-07-23T18:50:57.627" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30274" PostTypeId="2" ParentId="21601" CreationDate="2019-07-23T18:23:10.690" Score="-2" Body="&lt;p&gt;Bro, more inflation is a domestic phenomenon,when u said more inflation means indian currency has relatively declined in its value in domestic market,lesser no. Of domestic goods can be purchased domestically but if exchange rate is not changing this inflation has no affect internationally Depreciation is a international phenomenon,comparing two currencies.&lt;/p&gt;&#xA;" OwnerUserId="23796" LastActivityDate="2019-07-23T18:23:10.690" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30277" PostTypeId="1" CreationDate="2019-07-24T09:37:13.907" Score="0" ViewCount="42" Body="&lt;p&gt;What is the proportion of countries that are capitalistic? What is the proportion of the planet's population who live in such countries? How is this, (somewhat subjective?)&lt;/p&gt;&#xA;" OwnerUserId="23806" LastActivityDate="2019-07-24T13:53:31.977" Title="Would it be accurate to say that the economies of most of the countries are capitalistic?" Tags="&lt;macroeconomics&gt;&lt;statistics&gt;&lt;capitalism&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30278" PostTypeId="2" ParentId="30277" CreationDate="2019-07-24T10:38:56.340" Score="1" Body="&lt;p&gt;A nice way to check this is by looking at the &lt;a href=&quot;https://www.heritage.org/index/ranking&quot; rel=&quot;nofollow noreferrer&quot;&gt;economic freedom index&lt;/a&gt; &#xA;As we can see, this is a scale, there is no perfect capitalistic country and most of the countries are not very free economically&lt;/p&gt;&#xA;" OwnerUserId="23807" LastEditorUserId="23807" LastEditDate="2019-07-24T13:53:31.977" LastActivityDate="2019-07-24T13:53:31.977" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30281" PostTypeId="1" CreationDate="2019-07-24T13:43:22.417" Score="0" ViewCount="150" Body="&lt;p&gt;This is an urban legend, mostly believed in Spain and some countries in South America.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The legend is based on the premise that their way to make a strike would be to work much more than usual in some goods production, this would cause prices to be lower due to increased supply in the presence of constant demand, so the owners of the business would end up losing money (or making less money) because of that, due to usually planning goods production with the &quot;just in time&quot; method. In addition they would have to pay employees for that day of work and storage costs for excess production, which might be high.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't think this would work for every case, but maybe for some it would be plausible.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Would such a type of strike be able to do something similar for at least some cases? If so, in which ones?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can consider that legally speaking there's no limit to no the number of goods that can be produced.&lt;/p&gt;&#xA;" OwnerUserId="23811" LastEditorUserId="69" LastEditDate="2019-07-30T18:44:40.370" LastActivityDate="2020-08-23T21:04:45.630" Title="Could a &quot;Japanese-style strike&quot; work as it's supposed to? Under what conditions?" Tags="&lt;macroeconomics&gt;&lt;labor-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30283" PostTypeId="1" CreationDate="2019-07-24T17:14:37.980" Score="0" ViewCount="34" Body="&lt;p&gt;Consider decision making in an economic model. Suppose that there is some utility and it is a function of consumption and leisure where leisure is full-time work, part-time work, or full-time retirement. In such a model, the agent decides on part-time work if both of the following hold:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$U^{PW} \color{gray}{− U^{FW}} &amp;gt; U^{FR} − \color{gray}{U^{FW}}$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$U^{PW} \color{gray}{− U^{FR}} &amp;gt; U^{FW} \color{gray}{− U^{FR}}$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;The left hand side in the first inequality is the marginal utility from working part-time instead of full-time work, and the right hand side is the marginal utility from full-time retirement instead if full-time work. The second inequality is interpreted similarly.&lt;/p&gt;&#xA;&lt;p&gt;Now consider decision making in an econometric model, say, in the multinomial probit model (&lt;a href=&quot;https://en.wikipedia.org/wiki/Multinomial_probit&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://en.wikipedia.org/wiki/Multinomial_probit&lt;/a&gt;). In such a model, the agent decides on part-time work if both of the following hold:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$U^{PW} &amp;gt; U^{FR}$&lt;/span&gt;,&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$U^{PW} &amp;gt; U^{FW}$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;In the economic model the comparisons are relative (to full-time work in the first inequality, to full-time retirement in the second inequality), while in the econometric model the comparisons are not relative. The question is how one should think of the two different types of comparisons made in the economic and in the econometric modelling. Why are they different? What is the mechanism that brings us from the comparison made in the economic model to the one made in the econometric model? What is the link between the two? The book from Winkelman and Boes (2006) mentions that &amp;quot;This raises the question of whether and how statistical models for binary dependent variables can be related to microeconomic models of choice, based on utility maximization subject to constraints. It turns out that such a link can in fact be made, and the class of discrete choice models has been developed to derive discrete probability models based on utility maximization (McFadden, 1974a, 1981).&amp;quot; I cannot find the answer to my question in the McFadden articles.&lt;/p&gt;&#xA;" OwnerUserId="23627" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2019-07-24T17:14:37.980" Title="Are marginal utilities or utilities compared?" Tags="&lt;microeconomics&gt;&lt;utility&gt;" AnswerCount="0" CommentCount="8" ContentLicense="CC BY-SA 4.0" />
  <row Id="30285" PostTypeId="1" CreationDate="2019-07-25T06:18:51.593" Score="0" ViewCount="102" Body="&lt;p&gt;This may seem like a basic question but it has been really bothering me for a while. I understand what excess supply is, and my question is regarding the firms' response to it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;All economics texbooks state that when there is excess supply&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;there will be a downward pressure for firms to lower prices to the new equilibrium point&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think this statement is not always true. I don't understand why firms always receive pressure to lower prices when there is excess supply. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For instance, if price elasticity of demand (demand elasticity) for the market is inelastic, lowering prices to get to the new equilibrium may actually lower the total revenue for the firm compared to the original price(where there was excess supply). In this scenario, I believe frims can definitely choose to simply maintain their prices at the excess supply level and ignore the stock that results from it, because the Total Revenue is higher compared to when firms lower the price to get to the new equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the question I wish to ask is, when there is excess supply, why are prices always lowered to the new equilibrium point where the quantity of demand increases and the quantity of supply decreases?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why is there always a 'downward pressure' when, depending on the elasticity of demand, maintaining the price at the excess supply level can result in higher Total Revenue for the firm compared to when the price is lowered to the new equilibrium? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Every economics textbook I searched states that firms will always lower prices when there is excess supply, but I really don't get it, especially learning later on about Total Revenue, elasticity of D, etc in the later chapters of Microeconomics. As stated at the beginning, no matter how much I put my thought into it I could not come up with an answer. I would sincerely appreciate it if someome could give me a clear answer on this. :D &lt;/p&gt;&#xA;" OwnerUserId="23697" LastEditorUserId="23697" LastEditDate="2019-07-25T06:45:32.210" LastActivityDate="2020-02-11T04:03:40.420" Title="(Microeconomics) Why must fims always lower prices when there is excess supply?" Tags="&lt;supply-and-demand&gt;&lt;elasticity&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30286" PostTypeId="1" CreationDate="2019-07-25T09:05:16.333" Score="-2" ViewCount="47" Body="&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Mercantilism&quot; rel=&quot;nofollow noreferrer&quot;&gt;Mercantilism&lt;/a&gt; is notorious for treating the world economy as a zero-sum game, wherein the local economy is supposed to benefit when regulations that operate to the detriment of foreign economies are in place.  Mercantilist thought is now outdated, and starting with &lt;a href=&quot;https://en.wikipedia.org/wiki/The_Wealth_of_Nations&quot; rel=&quot;nofollow noreferrer&quot;&gt;Adam Smith&lt;/a&gt; and continuing today, commentators love &lt;a href=&quot;https://www.handelsblatt.com/today/opinion/prized-mentality-the-economy-is-not-a-zero-sum-game/23566026.html?ticket=ST-9989545-adeufcoo1mgm1jFRlo93-ap5&quot; rel=&quot;nofollow noreferrer&quot;&gt;to point out that the economy is not a zero-sum game&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However economies are large and complex beasts, and the statement &quot;the world economy is not zero-sum&quot; only requires that there exists &lt;em&gt;some part&lt;/em&gt; of the world economy that is not zero-sum.  So, as a contrived example, the fact that pooling our resources to stop a giant meteor from crashing into Earth is win/win for everyone suffices to show that the world economy is &quot;not zero-sum&quot;, but has absolutely no bearing on the day-to-day operation of the world economy under 99.999999% of circumstances.  In this way, concepts such as &lt;a href=&quot;https://en.wikipedia.org/wiki/Absolute_advantage&quot; rel=&quot;nofollow noreferrer&quot;&gt;absolute advantage&lt;/a&gt; serve to illustrate that the world economy is not inherently zero-sum, but fails to demonstrate &lt;em&gt;the degree to which&lt;/em&gt; the economy is not zero-sum.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On a practical level, what are some ways/aspects in which the world economy is zero-sum or approximately zero-sum?  For example, access to natural resources such as oil might be considered mostly zero-sum... Norway benefits tremendously from its oil production, and if Switzerland were to capture their oil fields in some way then Switzerland would obtain much of that benefit.&lt;/p&gt;&#xA;" OwnerUserId="14072" LastActivityDate="2019-07-25T09:57:40.410" Title="What are ways in which world markets are zero-sum games?" Tags="&lt;game-theory&gt;" AnswerCount="1" CommentCount="8" ContentLicense="CC BY-SA 4.0" />
  <row Id="30289" PostTypeId="2" ParentId="30285" CreationDate="2019-07-25T09:37:56.670" Score="1" Body="&lt;p&gt;You are absolutely right. In many markets, especially consumer markets, which people often think of, firms are not forced to lower prices. If a bakery produces to much bread one day, it might make a bigger profit if it keeps the price and throws away the breads they have not sold at the end of the day. That is because its limited competition.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What many forget to tell you when they teach microeconomics, is which markets microeconomic models is designed to model. It is market with perfectly competition (infinitely many suppliers and consumers) and where everyone have perfect knowledge about prices. Think if big international markets of standard products, like crude oil, flower, rice and stocks.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you are a farmer wanting to sell rice on an international exchange (normally you will just sell directly to a distributer), you are to small to affect the market. Your only option is ether to sell a tiny amount below the spot price (the last transaction), or choose not to sell at all (something you probably don't want to do). If there are more sellers than buyers, the price is pressed downwards. This downward price pressure will continue until prices are either so small that buyers want to buy more, or the price is so low that some producers don't want to sell anymore.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you did not understand the last paragraph you should probably read up on how stock/commodity market auctions work.&lt;/p&gt;&#xA;" OwnerUserId="20957" LastEditorUserId="20957" LastEditDate="2019-08-25T18:03:59.550" LastActivityDate="2019-08-25T18:03:59.550" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30290" PostTypeId="2" ParentId="30286" CreationDate="2019-07-25T09:57:40.410" Score="0" Body="&lt;p&gt;No, the world economy is not a zero-sum game.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Take any sector, and the companies that survive in it are profitable. That's generally because they're wealth-creating.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Access to natural resources is not zero sum. Resources are only viable if they're economically extractable. Constant innovation in resource extraction constantly opens up new reserves, and means that the sector is not zero sum.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Anything involving international trade on a level basis, is not zero-sum - see David Ricardo's work on comparative advantage.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Manufacturing clearly isn't zero sum.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And I'd argue that service provision clearly isn't, either.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Public goods such as education and healthcare aren't either.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, we've eliminated primary, secondary and tertiary sectors, public goods, and trade. I think that about covers it.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2019-07-25T09:57:40.410" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="30291" PostTypeId="1" AcceptedAnswerId="30295" CreationDate="2019-07-25T11:29:00.457" Score="3" ViewCount="88" Body="&lt;p&gt;Mas-Colell, Whinston and Green in Microeconomic Theory describe the direct revelation mechanism as it follows:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/17Uj0.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/17Uj0.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The employed notation is the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$θ_i$&lt;/span&gt;: Player i's type&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$Θ_i$&lt;/span&gt;: Set of types for player i&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$S_i$&lt;/span&gt; Set of strategies for player i&lt;/p&gt;&#xA;&#xA;&lt;p&gt;f: Social choice function&lt;/p&gt;&#xA;&#xA;&lt;p&gt;g: Mechanism outcome function&lt;/p&gt;&#xA;&#xA;&lt;p&gt;X: Set of collective choices&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If &lt;span class=&quot;math-container&quot;&gt;$S_i$&lt;/span&gt; is a set of strategies and &lt;span class=&quot;math-container&quot;&gt;$Θ_i$&lt;/span&gt; is a set of types, how can &lt;span class=&quot;math-container&quot;&gt;$S_i = Θ_i$&lt;/span&gt; ?&lt;/p&gt;&#xA;" OwnerUserId="6099" LastActivityDate="2019-07-25T15:41:12.267" Title="Direct revelation mechanism's sets of strategies and types" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;game-theory&gt;&lt;mechanism-design&gt;&lt;social-choice&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30292" PostTypeId="2" ParentId="17321" CreationDate="2019-07-25T12:03:02.107" Score="0" Body="&lt;p&gt;This is essentially an elaboration of the &quot;taxes drive money&quot; idea from Brian Romanchuk's answer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the population of a country do not like their governments currency then they have several options. The could use barter or promissory notes or the currency of another country. If everyone does this then the government's currency becomes valueless, making &quot;taxation by inflation&quot; impossible.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, if the government says that everyone must pay tax in the government's currency or our police (who are paid in government currency and so have good reason for wanting to maintain its value) will come and lock you up then everyone needs to obtain government money to pay their taxes. They obtain this money by trading goods or services to the police. Thus the money circulates and retains value.&lt;/p&gt;&#xA;" OwnerUserId="23823" LastActivityDate="2019-07-25T12:03:02.107" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30293" PostTypeId="1" CreationDate="2019-07-25T13:13:56.093" Score="2" ViewCount="62" Body="&lt;p&gt;I'm wondering what methods are used in economics, specially in macro, to deal with model misspecification.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've already searched the web, but I may be missing some methods. Therefore, I ask you for some help.&lt;/p&gt;&#xA;" OwnerUserId="118" LastEditorUserId="1601" LastEditDate="2019-07-27T06:15:13.627" LastActivityDate="2019-07-27T06:15:13.627" Title="How to deal with misspecification of models in Macroeconomics?" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;econometrics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30295" PostTypeId="2" ParentId="30291" CreationDate="2019-07-25T15:41:12.267" Score="4" Body="&lt;p&gt;In mechanism design you are free to choose the rules of the game. The designer can determine &lt;span class=&quot;math-container&quot;&gt;$(S, g)$&lt;/span&gt;, i.e., what players can do and what happens when players played some strategy profile &lt;span class=&quot;math-container&quot;&gt;$s \in S := \times S_i$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a direct mechanism, players are simply asked to report their type. Hence, every player &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; must have a strategy that corresponds to &quot;I am type &lt;span class=&quot;math-container&quot;&gt;$\theta_i$&lt;/span&gt;&quot; for all &lt;span class=&quot;math-container&quot;&gt;$\theta_i \in \Theta_i$&lt;/span&gt; such that we can, without loss of generality, set &lt;span class=&quot;math-container&quot;&gt;$S_i = \Theta_i$&lt;/span&gt; and each strategy corresponds to a type report. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Together with the revelation principle, direct mechanisms are very powerfull, see my post &lt;a href=&quot;https://economics.stackexchange.com/a/27320/11590&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="11590" LastActivityDate="2019-07-25T15:41:12.267" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30296" PostTypeId="2" ParentId="30293" CreationDate="2019-07-25T15:50:51.817" Score="0" Body="&lt;p&gt;I think it really depends on what your views on model misspecification are. How do you determine whether your model is misspecified? Testing is not really feasible in a Bayesian framework which is increasingly common in macroeconomics nor is it really considered when you have stuctural or theory-based models. Oftentimes the closest people get to dealing with this is to use HAC standard errors to deal with heteroskedasticy and autocorrelation. In empirical VAR's the main approaches are lag selection to address autocorrelation concerns and either differencing or using a Minnesota type prior to address non-stationarity concerns (or going the cointegration route which also addresses non-stationarity). The David Hendry school of thought takes a different approach by incorporating testing for misspecification into the model selection / model design procedure and including non-linear transformations of the data, various indicator saturation procedures and lags.&lt;/p&gt;&#xA;" OwnerUserId="6844" LastActivityDate="2019-07-25T15:50:51.817" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="30297" PostTypeId="2" ParentId="30293" CreationDate="2019-07-25T16:46:48.213" Score="3" Body="&lt;p&gt;Thomas Sargent and Lars Peter Hansen have a series of work on &amp;quot;robustness&amp;quot;, a theory (and technique) that deals directly with potential model misspecifications in the context of macro. [The term &amp;quot;robustness&amp;quot; derives from &lt;a href=&quot;https://en.wikipedia.org/wiki/Robust_control&quot; rel=&quot;nofollow noreferrer&quot;&gt;robust control theory&lt;/a&gt;].&lt;/p&gt;&#xA;&lt;p&gt;Sargent's website has &lt;a href=&quot;http://www.tomsargent.com/robustness.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;a page dedicated to this topic&lt;/a&gt;. The two also published a book, &lt;a href=&quot;https://press.princeton.edu/titles/8535.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;Robustness&lt;/em&gt;&lt;/a&gt;, that contains the main results of their work to date. Below is the publisher's description:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;The standard theory of decision making under uncertainty advises the decision maker to form a statistical model linking outcomes to decisions and then to choose the optimal distribution of outcomes. This assumes that the decision maker trusts the model completely. But what should a decision maker do if the model cannot be trusted?&lt;/p&gt;&#xA;&lt;p&gt;Lars Hansen and Thomas Sargent, two leading macroeconomists, push the field forward as they set about answering this question. They adapt robust control techniques and apply them to economics. By using this theory to let decision makers acknowledge misspecification in economic modeling, the authors develop applications to a variety of problems in dynamic macroeconomics.&lt;/p&gt;&#xA;&lt;p&gt;Technical, rigorous, and self-contained, this book will be useful for macroeconomists who seek to improve the robustness of decision-making processes.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="42" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2019-07-25T17:07:40.737" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30298" PostTypeId="2" ParentId="30270" CreationDate="2019-07-25T19:32:30.287" Score="0" Body="&lt;p&gt;Look at textbook definitions of equilibrium in macro models of General Equilibrium with production and investment. Basically, the Equation &lt;span class=&quot;math-container&quot;&gt;$Y_t=C_t+I_t$&lt;/span&gt; that says that the amount produced at a certain period must equal the consumption plus investment in that period is the relevant market-clearing condition in the market for goods.&lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-07-25T19:32:30.287" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30300" PostTypeId="1" AcceptedAnswerId="30308" CreationDate="2019-07-25T20:53:09.660" Score="1" ViewCount="72" Body="&lt;p&gt;According to &lt;a href=&quot;https://en.wikipedia.org/wiki/Free_market&quot; rel=&quot;nofollow noreferrer&quot;&gt;Free market&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;a free market is a system in which the prices for goods and services&#xA;  are determined by the open market and by consumers. In a free market,&#xA;  the laws and forces of supply and demand are free from any&#xA;  intervention by a government or other authority and from all forms of&#xA;  economic privilege, monopolies and artificial scarcities&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Being monopolies and oligopolies a force against free market, is there any study, theory or anything which shows how much of a market has to be in power of a few companies for them to be able to alter the free market laws/rules?&lt;/p&gt;&#xA;" OwnerUserId="8165" LastActivityDate="2019-07-26T13:30:03.423" Title="Is there any research, theory, or anything which shows how much of a market has to be in power of a few companies to be a force against free market?" Tags="&lt;monopoly&gt;&lt;oligopoly&gt;&lt;free-market&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30303" PostTypeId="1" AcceptedAnswerId="30306" CreationDate="2019-07-26T04:11:02.677" Score="2" ViewCount="609" Body="&lt;p&gt;Nash Equilibrium is defined as a solution concept referring to a best outcome which players won't want to unilaterally deviate given the response of other players doesn't change. To me it seems like Nash equilibrium demands that there is no individual blocking (ie it is indivtually acceptable). So, in sense, it talks about individual level welfare.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;While Pareto efficiency is an outcome where one or all cannot be made better off without harming someone. To me, Pareto condition is demanding two things - outcome should not be individually blocked (ie they are better off or at par with their endowments at this pareto outcome) and neither should it be jointly blocked ie it should be acceptable to all. So, in sense it talks about societal welfare.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My problem is &lt;a href=&quot;https://en.m.wikipedia.org/wiki/Nash_equilibrium&quot; rel=&quot;nofollow noreferrer&quot;&gt;Wikipedia&lt;/a&gt; page refers to Nash equilibrium as a broader concept. In what sense is Nash equilibrium broader?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/Yg4WW.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Yg4WW.jpg&quot; alt=&quot;Picture for reference&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="18929" LastEditorUserId="1601" LastEditDate="2021-05-12T11:01:43.057" LastActivityDate="2021-05-12T11:01:43.057" Title="Difference between Nash equilibrium and Pareto Efficiency" Tags="&lt;game-theory&gt;&lt;nash-equilibrium&gt;&lt;pareto-efficiency&gt;&lt;solution-concept&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30304" PostTypeId="1" CreationDate="2019-07-26T07:30:53.573" Score="0" ViewCount="99" Body="&lt;p&gt;In my job as a data scientist, I am required to model the relationship between the price of a product and the sales or number of unit sold. I am trying to build a simplistic model, the assumptions of which are given below. I am not sure if all the assumptions will hold true simultaneously, or if there is a missing assumption or if some assumptions are wrong. Can any expert have a look and comment/give suggestions? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Assumptions&lt;/strong&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Different customers have different income so the product priced at &lt;span class=&quot;math-container&quot;&gt;$P$&lt;/span&gt; may be affordable to some and not affordable to others. But from a practical business point of view, we cannot build a model of each individual. So we assume that average income of the customers remains fairly constant in the short term and so we assume that we are trying to model the behavior of a single customer whose income is constant and equal the average income of all the customers.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;All other conditions external conditions such as macro economics, competitive products, government policies and business rules remain constant&lt;/li&gt;&#xA;&lt;li&gt;The product has demand, it is mature and stable and so at present the no. of units of the product sold depends only on its price.&lt;/li&gt;&#xA;&lt;li&gt;As the price changes, the probability that th customer will purchase the product changes. Let &lt;span class=&quot;math-container&quot;&gt;$a_1$&lt;/span&gt; be the probability that the customer purchases the product at price &lt;span class=&quot;math-container&quot;&gt;$P_1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$a_2$&lt;/span&gt; be the probability that the customer curchases the product at price &lt;span class=&quot;math-container&quot;&gt;$a_2$&lt;/span&gt;. Then &lt;span class=&quot;math-container&quot;&gt;$a_2$&lt;/span&gt; depends only on the initial price, initial probability and the new price i.e. &lt;span class=&quot;math-container&quot;&gt;$a_2 = f(a_1,P_1,P_2)$&lt;/span&gt; where &lt;span class=&quot;math-container&quot;&gt;$f$&lt;/span&gt; is some probability function whose behavior we are trying to find out assuming that such a function exists in the first place.&lt;/li&gt;&#xA;&lt;li&gt;If price remains constant, then the purchase probability remains unchanged i.e. &lt;span class=&quot;math-container&quot;&gt;$f(a_1,P_1,P_1) = a_1.$&lt;/span&gt;&lt;/li&gt;&#xA;&lt;li&gt;Hypothetically, if the product is critical for survival (e.g. purchasing your daily oxygen in a Mars colony) the customer will buy it no matter what the price is i.e. &lt;span class=&quot;math-container&quot;&gt;$f(1,P_1,x) = 1$&lt;/span&gt; for all &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;.&lt;/li&gt;&#xA;&lt;li&gt;If the product is not critical for survival then it will be out of demand at infinite price i.e. &lt;span class=&quot;math-container&quot;&gt;$ Lim_{x \to \infty} f(a_1,P_1,x) = 0.$&lt;/span&gt;&lt;/li&gt;&#xA;&lt;li&gt;If the product is important and very cheap then everybody will but it i.e. &lt;span class=&quot;math-container&quot;&gt;$ Lim_{x \to 0} f(a_1,P_1x) = 1$&lt;/span&gt;.&lt;/li&gt;&#xA;&lt;li&gt;As price increases, sales decreases i.e. if &lt;span class=&quot;math-container&quot;&gt;$P_1 &amp;lt; P_2 &amp;lt; P_ 3$&lt;/span&gt; then &lt;span class=&quot;math-container&quot;&gt;$0 \le f(a_1,P_1,P_3) &amp;lt; f(a_1,P_1,P_2) \le  1.$&lt;/span&gt;&lt;/li&gt;&#xA;&lt;li&gt;Since &lt;span class=&quot;math-container&quot;&gt;$f$&lt;/span&gt; is a probability density function, its value must be between 0 and 1 i.e. &lt;span class=&quot;math-container&quot;&gt;$0 \le f(a,x,y) \le 1$&lt;/span&gt; for all &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt;.&lt;/li&gt;&#xA;&lt;li&gt;Mathematically, since &lt;span class=&quot;math-container&quot;&gt;$f$&lt;/span&gt; is a probability density function, and price cannot be negative the total area under the probability density curve must be 1 i.e.&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\int_{-\infty}^{\infty} f(a_1,P_1, x) dx = \int_{0}^{\infty} f(a_1,P_1,x) dx = 1.$$&lt;/span&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Now there will be infinitely many functions &lt;span class=&quot;math-container&quot;&gt;$f$&lt;/span&gt; satisfying all the above conditions. For example &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;a_1^{P_2/P_1}, \frac{a_1\log(1+P_2/P_1)}{\log 2}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We eleminate the ones that do not fit the observed data. But even then we can still be left with multiple functions that satisfies all the assumptions of the framework as well as fits the data within an acceptable error range as defined by the business.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Question 1&lt;/strong&gt;: What other criteria/conditions/assumptions can we use to choose one mathematical model over another?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One way is to use Occam's Razor and go with the simplest model defined as the one which uses the least number of parameters in which case&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;f(a_1,P_1,P_2) = a_1^{P_2/P_1}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Question 2&lt;/strong&gt;: Lets ignore my entire framework. What are the other models in economics that can be used to estimate the purchase probability given &lt;span class=&quot;math-container&quot;&gt;$a_1, P_1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$P_2$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Question 3&lt;/strong&gt;: Which assumption is simple impossible and should be removed? What additional assumptions are required if any?&lt;/p&gt;&#xA;" OwnerUserId="10718" LastEditorUserId="10718" LastEditDate="2019-07-27T14:51:24.960" LastActivityDate="2020-12-18T17:00:40.067" Title="Mathematical framework for modelling the relationship between price and sales of a product" Tags="&lt;microeconomics&gt;&lt;econometrics&gt;&lt;mathematical-economics&gt;&lt;elasticity&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30305" PostTypeId="2" ParentId="30304" CreationDate="2019-07-26T12:05:04.700" Score="1" Body="&lt;p&gt;The main problem of your framework is that you talk about sales but model only demand. Assuming that the supplier is not a monopolist you should take competing suppliers into account, when estimating sales. To do that any real world examples will have to define the &lt;a href=&quot;http://www.cea.fi/course/textbook/chapter_3.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;extent of the market&lt;/a&gt;. Having said that your framework is a pretty good job as a first try! &lt;/p&gt;&#xA;&#xA;&lt;p&gt;@3, 4. Classic micro relies on the irrelevance of independent alternatives. Translating this to your framework &lt;span class=&quot;math-container&quot;&gt;$a_2 = f(P_2)$&lt;/span&gt;, unless &lt;span class=&quot;math-container&quot;&gt;$P_1$&lt;/span&gt; directly affects the consumer's budget in &lt;span class=&quot;math-container&quot;&gt;$t_2$&lt;/span&gt;. For example - if oxygen was more expencive than your income yesterday, you had to borrow to buy it and today will have to repay your debt. As far as such intertemporal concerns may be important, you need to specify the consumer's planning horizon, which will generally depend on the type of good. For example - if durable goods are involved - cars, fridges etc., and I buy today I won't return as a consumer to this market for the next five years no matter what. However if I know (or expect) that the price of cars will come down next month I will wait until it does and buy than. I.e. it can be that &lt;span class=&quot;math-container&quot;&gt;$a_1 = f(P_1, P_2)$&lt;/span&gt;. I cannot see why &lt;span class=&quot;math-container&quot;&gt;$a_1$&lt;/span&gt; should affect &lt;span class=&quot;math-container&quot;&gt;$a_2$&lt;/span&gt; or vice versa through a channel different than the price vector unless there are some asymmetric capacity issues in some periods and demand in excess of capacity thus moves back and forth between periods. I am not exactly sure about search frictions but I think that their effect is quite similar with regard to your question. As long as you have simple consumer goods that you buy every month &lt;span class=&quot;math-container&quot;&gt;$a_t = f(P_t)$&lt;/span&gt; is okay.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;@5 If the oxygen is so expencive that the purchase violates your consumer's life-time budget constraint I am sorry but he is going to have to die. In this case it is obvious that &lt;span class=&quot;math-container&quot;&gt;$a_2 = f(P_2)$&lt;/span&gt; only.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;@8 There are goods for which the quantity demanded increases when their price goes up. They are called Giffen goods. Apart of that if your consumer from @5. can afford oxygen he will buy. I.e. it can be that &lt;span class=&quot;math-container&quot;&gt;$P_1 &amp;gt; P_2$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$f(P_1) = f(P_2) = 1$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Demand is usually modeled as a &lt;span class=&quot;math-container&quot;&gt;$Q_t = f(P_t$&lt;/span&gt;, &lt;strong&gt;control variables&lt;/strong&gt;) + &lt;span class=&quot;math-container&quot;&gt;$\epsilon_t$&lt;/span&gt;,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where &lt;span class=&quot;math-container&quot;&gt;$f$&lt;/span&gt; is deterministic and all randomness comes from the error term, which should be familiar to you from your daily work.&lt;/p&gt;&#xA;" OwnerUserId="23694" LastEditorUserId="23694" LastEditDate="2019-07-26T12:49:54.240" LastActivityDate="2019-07-26T12:49:54.240" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30306" PostTypeId="2" ParentId="30303" CreationDate="2019-07-26T12:35:36.733" Score="3" Body="&lt;p&gt;I wouldn't say Nash equilibrium is broader than Pareto-efficiency I'd say its different. As all know the sole Nash equilibrium in the Prisoner's dilemma is not Pareto-efficient and the three Pareto-efficient outcomes are not Nash equilibria. That is to say there is no intersection between the two terms and hence none can encompass the other.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think the main difference comes from the fact that Pareto-efficiency is only concerned with outcomes and not with the mechanisms of strategic interaction. The Nash equilibrium takes this mechanisms into account explicitly. I.e. you cannot obtain a Pareto-efficient outcome in the Prisoner's dilemma as the other player will preempt it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My advice is: don't read about Game theory on Wikipedia! The first homework in the master's course on GT at my faculty is to find an error in a Wikipedia article on GT and correct it.&lt;/p&gt;&#xA;" OwnerUserId="23694" LastEditorUserId="23694" LastEditDate="2019-07-26T12:57:16.613" LastActivityDate="2019-07-26T12:57:16.613" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="30307" PostTypeId="1" CreationDate="2019-07-26T13:12:10.380" Score="2" ViewCount="50" Body="&lt;p&gt;I am looking at the graph of &lt;a href=&quot;https://finance.yahoo.com/quote/JNK/&quot; rel=&quot;nofollow noreferrer&quot;&gt;JNK&lt;/a&gt; and &lt;a href=&quot;https://finance.yahoo.com/quote/SPY/&quot; rel=&quot;nofollow noreferrer&quot;&gt;SPY&lt;/a&gt; prices close prices since 2008.  From 2008 to 2011, the two prices seem to move together.  However, somewhere in the beginning of 2012, the prices all of a sudden began to move in opposite directions.  Does anyone know the reason for this?  A picture is provided below. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/3nzum.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/3nzum.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="23834" LastEditorUserId="1601" LastEditDate="2019-07-27T05:54:49.673" LastActivityDate="2020-08-23T13:02:35.280" Title="JNK and SPY price movements question" Tags="&lt;time-series&gt;&lt;bonds&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30308" PostTypeId="2" ParentId="30300" CreationDate="2019-07-26T13:30:03.423" Score="4" Body="&lt;p&gt;The quote in the question isn't really rigorous about what a free market is, but it talks about monopolies and artificial scarcities, so I am interpreting the efficient outcome with price equal to marginal cost as being one necessary feature of what they understand as a free market.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Let's look at the cournot model of competition. There are &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt; firms, each with idiosyncratic marginal cost &lt;span class=&quot;math-container&quot;&gt;$c_i$&lt;/span&gt;. Each firm simultaneously chooses its output (supply) quantity, &lt;span class=&quot;math-container&quot;&gt;$q_i$&lt;/span&gt;. Given consumers' demand, this results in some market price &lt;span class=&quot;math-container&quot;&gt;$P(Q)$&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$Q=\sum_{i=1}^n q_i$&lt;/span&gt; is the total industry output. We would expect the demand curve to be downward sloping: &lt;span class=&quot;math-container&quot;&gt;$P'(Q)&amp;lt;0$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, a firm's profits are&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\pi_i(q_i,\mathbf{q}_{-i})=\left(P(Q)-c_i\right)q_i.$$&lt;/span&gt;&#xA;The first-order condition for maximisation of profit is&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\frac{\partial\pi_i}{\partial q_i}=P(Q)-c_i+\frac{\partial P(Q)}{\partial q_i}=0.$$&lt;/span&gt;&#xA;Noting that &lt;span class=&quot;math-container&quot;&gt;$$\frac{\partial P(Q)}{\partial q_i}=\frac{\partial P(Q)}{\partial Q},$$&lt;/span&gt;&#xA;the first-order condition can be re-written as&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\frac{P(Q)-c_i}{c_i}=-\frac{\partial P(Q)}{\partial Q}\frac{Q}{P(Q)}\frac{q_i}{Q},$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\frac{P(Q)-c_i}{c_i}=-\frac{1}{\eta}m_i,$$&lt;/span&gt;&#xA;where &lt;span class=&quot;math-container&quot;&gt;$\eta$&lt;/span&gt; is the price elasticity of demand and &lt;span class=&quot;math-container&quot;&gt;$m_i=q_i/Q$&lt;/span&gt; is firm &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;'s market share.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The left-hand side measures a firm's price-cost margin, or its market power. We can compute the average market power in the industry by weighting each firm by its market share:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\text{avg market power}=\sum_i m_i \frac{P(Q)-c_i}{c_i}=-\frac{\sum_i m_i^2}{\eta}.$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that &lt;span class=&quot;math-container&quot;&gt;$\sum_i m_i^2$&lt;/span&gt; is the HHI index for the market. So this equation tells us that the average market power in an industry will be positively related to the HHI. &lt;strong&gt;For any positive HHI, there will be a positive mark-up and the market will deviate from the perfectly competitive outcome in which artificial scarcities do not exist.&lt;/strong&gt; Put differently, only if there is an infinite number of firms, each controling an infinitely small share of the industry do we obtain the textbook perfect competition outcome.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2019-07-26T13:30:03.423" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30310" PostTypeId="1" CreationDate="2019-07-26T16:54:28.513" Score="0" ViewCount="36" Body="&lt;p&gt;I'm doing a project for my macro course, and I'm trying to find real disposable income for Iran over a 25 year period. In my course Disposable income, &lt;span class=&quot;math-container&quot;&gt;$Y_d = Y - T$&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt; is output (income) and &lt;span class=&quot;math-container&quot;&gt;$T$&lt;/span&gt; is taxes. I've been to the IMF and World Bank websites and have had no success in finding a disposable income indicator. Can someone please help me? Thank You!! &lt;/p&gt;&#xA;" OwnerUserId="5404" LastEditorUserId="23546" LastEditDate="2019-07-26T17:38:22.223" LastActivityDate="2019-07-26T17:38:22.223" Title="How to Find Real Disposable Income for Iran?" Tags="&lt;macroeconomics&gt;&lt;national-income&gt;&lt;basic-income&gt;" AnswerCount="0" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="30313" PostTypeId="1" CreationDate="2019-07-27T02:14:57.883" Score="0" ViewCount="17" Body="&lt;p&gt;I've found the gdp deflator for a country over a 25 year span. If I have nominal consumption for the same time series, then I just have to divide nominal consumption by the p-level I found with the deflator right? &lt;/p&gt;&#xA;" OwnerUserId="5404" LastActivityDate="2019-07-27T10:48:46.703" Title="If I find the GDP deflator (i.e., price level) for a given time series, can I then find real consumption given nominal consumption?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30314" PostTypeId="1" CreationDate="2019-07-27T02:26:07.183" Score="1" ViewCount="57" Body="&lt;p&gt;In Hansen (2019) p.221, I don't understand &quot;Specifically, the fact that &lt;span class=&quot;math-container&quot;&gt;$(y_i, x_i)$&lt;/span&gt; are mutually independent and identically distributed implies that any function of &lt;span class=&quot;math-container&quot;&gt;$(y_i, x_i)$&lt;/span&gt; is iid, including &lt;span class=&quot;math-container&quot;&gt;$x_i$&lt;/span&gt; &lt;span class=&quot;math-container&quot;&gt;$x_i'$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$x_i y_i&quot;$&lt;/span&gt;. Is there any theorem related to this? Thank you in advance!&lt;/p&gt;&#xA;" OwnerUserId="23840" LastEditorUserId="23694" LastEditDate="2019-07-28T17:08:13.057" LastActivityDate="2019-07-28T17:08:13.057" Title="Any function of jointly iid pair is iid (WLLN)?" Tags="&lt;econometrics&gt;" AnswerCount="0" CommentCount="7" ContentLicense="CC BY-SA 4.0" />
  <row Id="30315" PostTypeId="1" AcceptedAnswerId="30326" CreationDate="2019-07-27T04:38:17.740" Score="0" ViewCount="74" Body="&lt;p&gt;In Microeconomics there are 4 types of externalities - Positive Consumption Externality, Positive Production Externality, Negative Consumption Externality, and  Negative Production Externality. And along with externalities you learn about common resources and public goods which are classified according to their excludability and rivalry.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I believe that common resources go in the category of negative externality since they tend to be over-produced, and that public goods go in the category of positive externality since they tend to be under-produced.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I'm confused about is &lt;strong&gt;whether common resourses are classified as Negative Consumption Externality or Negative Production Externality&lt;/strong&gt;. The two have different characteristics that are represented by their different graphs, where the Negative Production Externality has two Cost Curves (Private Marginal Cost and Social Marginal Cost) and one Utility curve, while Negative Consumption Externality has two Utility Curves (Private Marginal Utility and Social Marginal Utility) and one Cost curve. I'm confused as to which negative externality common resources belongs to. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The same goes for public goods. &lt;strong&gt;Are public goods Positive Consumption Externality, or Positive Production Externality?&lt;/strong&gt; Like the explanation written previously, the two have different features and graphs as well depending on whether it is consumption, or production externality. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So to sum up I guess I have two questions which are a bit similar:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;Are Common Resourses classified as Negative Consumption Externality, or Negative Production Externality?&lt;/strong&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;strong&gt;Are Public Goods classified as Positive Consumption Externality, or Positive Production Externality?&lt;/strong&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;I would sincerely appreciate it if someone can provide me with a detailed explanation regarding each question. Thanks! :) &lt;/p&gt;&#xA;" OwnerUserId="23697" LastActivityDate="2019-07-27T19:24:28.880" Title="(Microeconomics) How to classify Public Goods and Common Resources in Externalities?" Tags="&lt;externalities&gt;&lt;public-goods&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30316" PostTypeId="2" ParentId="30307" CreationDate="2019-07-27T06:12:05.417" Score="1" Body="&lt;p&gt;When JNK appeared on the market on Dec 04 2007 it started at approximately the same price level at SPY (143 vs 146). It is however not true that after this they moved together. I downloaded the price data and calculated the correlation of the price differences* for the first 180 days. The correlation coefficient was -0.0526.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;They seem to move together because&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;both fell during the financial crisis&lt;/li&gt;&#xA;&lt;li&gt;in Dec 2007 the prices were roughly the same&lt;/li&gt;&#xA;&lt;li&gt;later the two prices drifted apart, this increases the scale and makes it hard to discern visually what happened in the early days.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;So in essence this is an optical illusion.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;sub&gt;*I did not run statistical tests for integration, but this seems very likely. Calculation was done in R using &lt;code&gt;cor(diff(SPY$Close[1:180]),diff(JNK$Close[1:180]))&lt;/code&gt;. &#xA;&lt;/sub&gt;&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2019-07-30T11:10:03.757" LastActivityDate="2019-07-30T11:10:03.757" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30317" PostTypeId="2" ParentId="27016" CreationDate="2019-07-27T06:20:49.327" Score="1" Body="&lt;p&gt;I was recently recommended '&lt;a href=&quot;https://press.princeton.edu/titles/9078.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Quantitative Techniques for Competition and Antitrust Analysis&lt;/a&gt;' by Peter Davis and Eliana Garcés. While it does not contain all the necessary info, it does refer to more specified books.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2019-07-27T06:20:49.327" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30319" PostTypeId="2" ParentId="30281" CreationDate="2019-07-27T10:42:44.107" Score="2" Body="&lt;p&gt;Without the cooperation of at least mid-level management I dont think that such an approach can work even in theory. Management sets the quantity of ressources and intermediate goods the striking employees have at their disposal to use as inputs. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The theory is inconsistent in the sense that on the one hand it relies on assuming JIT (for its lack of large storage facilities for final products) to obtain the dumping of a large quantity of output on the market. On the other hand &quot;no limit to no the number of goods that can be produced&quot; implies either large storage facilities for inputs or that the company striking is Bertrand's water well.&lt;/p&gt;&#xA;" OwnerUserId="23694" LastActivityDate="2019-07-27T10:42:44.107" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="30320" PostTypeId="2" ParentId="30313" CreationDate="2019-07-27T10:48:46.703" Score="1" Body="&lt;p&gt;GDP deflator deflates GDP. If you want to deflate consumption, you'd most likely want to use the consumer price index (CPI) to deflate. GDP deflator would take into account, for example, the price level faced by producers (PPI).&lt;/p&gt;&#xA;" OwnerUserId="5145" LastActivityDate="2019-07-27T10:48:46.703" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30322" PostTypeId="1" AcceptedAnswerId="30347" CreationDate="2019-07-27T16:55:16.070" Score="3" ViewCount="54" Body="&lt;p&gt;I have read the following statement and I am having difficulty understanding the second part:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Any set of preference orderings over a finite set of outcomes can be represented either by deterministic payoffs, one for each ordinal rank, or by only two payoffs, if the latter are stochastic. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I get how it can be represented by deterministic payoffs but I do not see how it can be represented by two payoffs if they are stochastic. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In hoping that someone here gets it, thanks in advance! &lt;/p&gt;&#xA;" OwnerUserId="21757" LastActivityDate="2019-07-29T17:53:42.850" Title="Representing preference orderings over a finite set of outcomes by two payoffs" Tags="&lt;microeconomics&gt;&lt;preferences&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30324" PostTypeId="1" CreationDate="2019-07-27T17:43:56.357" Score="0" ViewCount="37" Body="&lt;p&gt;Having a lower inflation rate is not the same as having lower overall prices.Why?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;lower CPI(inflation) means price levels in country decreases?&lt;/p&gt;&#xA;" OwnerUserId="23622" LastActivityDate="2019-07-28T13:42:09.557" Title="Having a lower inflation rate is not the same as having lower overall prices?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30325" PostTypeId="1" CreationDate="2019-07-27T18:24:34.933" Score="1" ViewCount="65" Body="&lt;p&gt;Presidential candidate Andrew Yang has published the following policy proposals on his website:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;FINANCIAL TRANSACTION TAX&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Financial markets have grown dramatically&#xA;  over the past decades. Speculation in them has also led to bubbles&#xA;  that, when popped, caused untold damage to the world’s economy.  In&#xA;  order to raise revenue while also stymying some of the rampant&#xA;  speculation that can lead to financial collapse, a financial&#xA;  transaction tax should be levied on financial trades. This has been&#xA;  adopted by other countries quite successfully.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Investing has been transformed into speculation by computer-generated&#xA;  algorithms and trading platforms. The average holding time of a stock&#xA;  is now only 4 months. There is no real value being generated, just&#xA;  individual firms trying to squeeze value out of the system, often at&#xA;  the expense of the public.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;PROBLEMS TO BE SOLVED: Financial transactions and speculation cause&#xA;  risk to the economy, and that risk isn’t covered by those who cause&#xA;  it.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;GUIDING PRINCIPLES: Equity Efficiency&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;GOALS: Raise revenue Limit speculation that has no real economic&#xA;  purpose&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;As President, I will… Propose a 0.1% financial transaction tax that&#xA;  would raise as much as $50 billion per year that will be used to help&#xA;  fund Universal Basic Income.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;2.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;ALGORITHMIC TRADING/FRAUD&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The way that trading algorithms currently&#xA;  operate makes it exceptionally difficult to find instances of&#xA;  impropriety. To combat this and make sure that everyone is operating&#xA;  cleanly, we must empower the Commodity Futures Trading Commission&#xA;  (CFTC) to investigate any trades that consistently make money&#xA;  regardless of market movements. We must also enlist a network of&#xA;  veteran traders to police the market, offering them “bounties” on&#xA;  finding illegal activity.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Investing in the market with computer-generated algorithms has become&#xA;  a game of identifying tiny market inefficiencies and wringing them of&#xA;  value at the expense of other investors and the public. There is no&#xA;  real value being generated and it increases the costs for retirees,&#xA;  pension funds and businesses trying to manage their risks. We need to&#xA;  start enforcing trading rules in a technologically sophisticated way.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;PROBLEMS TO BE SOLVED: Algorithmic trading is allowing financial crime&#xA;  at an unprecedented and technologically-advanced level.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;GUIDING PRINCIPLES: Equity Accountability&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;GOALS: Clean up the trading markets from improper algorithms&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;As President, I will… Provide the CFTC with enough funding to properly&#xA;  investigate any suspicious trades/algorithms. Create a new team to&#xA;  find financial crime and bring the perpetrators to justice.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;As someone who both aspires to be an independent algorithmic trader (with a preference for short timeframes), and has enthusiastically supported Andrew's campaign, discovering these policy proposals has been somewhat alarming.  The intent of this question is to understand the range and extent of detrimental outcomes a Yang presidency may plausibly carry, with respect to my algorithmic trading goals.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The best case scenario is that Andrew further progresses his understanding of this domain before implementing such policies, and updates them to be more charitable and nuanced.  For example, he observes that speculation has contributed to bubbles, but not that it ordinarily reduces volatility, while increasing liquidity.  He asserts that algorithmic trading enables financial crime, but in my understanding, it actually shrinks the practical feasibility of most types of market manipulation.  He seems to oscillate between identifying the core problem to be the crime algorithmic trading purportedly enables, and algorithmic trading itself.  Out of character for Andrew, he makes no distinction between the large, professional trading firms profiting nine digits per annum, and the amateur coder striving, in a spirit similar to the hobbyist Bitcoin mining rig assembler, to build his or her own five, maybe-someday-six, digit stream of self-sustaining income.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is, if Yang succeeds, what is the worst plausible case scenario, and what are the most likely scenario(s), from the perspective of an independent algorithmic trader?  The best answers should include an explication of financial transaction tax, examples of what tangible changes the second policy proposal might entail, and an analysis of how impactful all of this could and is likely to be for algorithmic intraday trading.  In terms of the worst case analysis, is it conceivable for a country to make algorithmic intraday trading altogether illegal or unprofitable?  Would this aim even align with the CFTC’s interests?  The best answers may also raise relevant considerations missing from these suggestions.&lt;/p&gt;&#xA;" OwnerUserId="23846" LastActivityDate="2019-09-17T16:48:05.017" Title="Yang's Impact on Algorithmic Trading?" Tags="&lt;finance&gt;&lt;taxation&gt;&lt;financial-economics&gt;&lt;political-economy&gt;&lt;algorithms&gt;" AnswerCount="0" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30326" PostTypeId="2" ParentId="30315" CreationDate="2019-07-27T19:24:28.880" Score="2" Body="&lt;p&gt;First let's clarify some terminology: I assume that with &quot;common resources&quot; you mean goods that are non-excludable but rivalrous. The term that applies in those cases is open access. In common resources there are shared property rights so some excludability (this is one of the mistakes in Hardin's tragedy of the commons).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The answer to your two related questions then is: it depends on the type of good. Public goods and externalities are related but distinct problems.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Take a classic public good: national defense. That is not a problem where production or consumption have unintended effects and hence there are no externalities. It is also a very clear example of a public good: one cannot be excluded from national defense and one person's protection does not diminish someone else's protection.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That is not to say that the two never go together. Air pollution is a classic example of a production consumption externality (the companies do not intentionally pollute the air, but reduce consumer health nonetheless) and often a public bad: if one lives in the area one cannot be excluded and breathing the polluted air by one doesn't reduce the overall pollution level. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The classic Gordon-Schaefer fishing model is both an open access resource problem and a production-production externality: the catch of an additional fish by one producer raises the costs of other producers.&lt;/p&gt;&#xA;" OwnerUserId="12186" LastActivityDate="2019-07-27T19:24:28.880" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30327" PostTypeId="1" CreationDate="2019-07-27T22:21:58.530" Score="0" ViewCount="38" Body="&lt;p&gt;I have the monthly indexes taken from the National Institute of Statistics of my country (below), then I can calculate its inter-annual variation easily:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;((index month year - index same month year - 1) / index same month year - 1) * 100&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But my problem is that I want to compare this inter-annual variation against Financial Statements that show 3, 6, 9 and 12 months values. Then this inter-annual variation is useless because it shows the price variation only for a month and not for 3, 6, 9, 12 months period.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To solve this problem, should I calculate the cumulative inflation of 3, 6, 9 and 12 months of each year, then calculate de inter-annual variation of that cumulative inflation and finally be able to compare them to the Financial Statement inter-annual variation?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there any other way to do this more accurately ?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/cC6Oo.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/cC6Oo.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="23847" LastActivityDate="2021-04-22T11:05:30.610" Title="How to calculate inter-annual variation of inflation for a 3 months period?" Tags="&lt;inflation&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30331" PostTypeId="2" ParentId="30324" CreationDate="2019-07-28T11:56:57.667" Score="2" Body="&lt;p&gt;The inflation rate is the rate of change in the price level. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A lower - but positive - inflation rate (say from 3% to 2%) still results in higher prices -this is typically called disinflation, and highlights the fact that lower inflation doesn’t necessarily mean lower prices.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A negative inflation rate print (like -1%) implies the price level did actually decrease - typically referred to as deflation.&lt;/p&gt;&#xA;" OwnerUserId="18839" LastEditorUserId="18839" LastEditDate="2019-07-28T13:42:09.557" LastActivityDate="2019-07-28T13:42:09.557" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30332" PostTypeId="1" CreationDate="2019-07-28T15:50:15.383" Score="1" ViewCount="15" Body="&lt;p&gt;For as long as I can remember people in the US have complained about the high cost and trajectory of college tuition and healthcare expenditures. I've also read that inflation has been low for awhile now. How can these opposite trends occur at the same time? Reasons I can think of:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Inflation metrics do not account for healthcare and tuition or emphasize them less than other expenditures. Perhaps our current measures of inflation are somewhat inadequate&lt;/li&gt;&#xA;&lt;li&gt;Rises in healthcare and college tuition are not as bad as the news would have you believe&lt;/li&gt;&#xA;&lt;li&gt;The large costs of healthcare and tuition today are more to due slow but steady compounded growth over a long time, so their impact on inflation is less noticeable from year to year but more noticeable over 20-30 years&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="15680" LastActivityDate="2019-07-28T15:50:15.383" Title="Impact of healthcare and college tuition on inflation" Tags="&lt;inflation&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30335" PostTypeId="1" CreationDate="2019-07-29T00:28:25.657" Score="0" ViewCount="26" Body="&lt;p&gt;I've normalised deflators for countries A and B. If the Price level of Country A/ Price level of country B = .291, does that mean that on average for every dollar a person in Country B spends, for the SAME thing in country A it only costs about .291? &lt;/p&gt;&#xA;" OwnerUserId="5404" LastActivityDate="2020-06-08T06:01:20.113" Title="If PPP Exchange rate is 0.291, what does that mean?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30338" PostTypeId="1" AcceptedAnswerId="30341" CreationDate="2019-07-29T07:42:09.310" Score="1" ViewCount="82" Body="&lt;p&gt;Exchange rate of national currency like US dollar or INR don't fluctuate much during a month or year, but the exchange rate of cryptocurrency like bitcoin is highly volatile even in a single day. What are the variables that impact the volatility of a currency? How does the government maintain the stability of its currency? Can one have a stable coin mathematically for example by changing the count of currency? How exchange rates of cryptocurrency and other currencies are calculated, who calculates it, what is math behind it?   &lt;/p&gt;&#xA;" OwnerUserId="23857" LastEditorUserId="23857" LastEditDate="2019-07-29T09:26:28.247" LastActivityDate="2019-07-29T09:43:56.590" Title="Why exchange rates of national currency are usually stable, where as cryptocurrency like bitcoin and ethereum is highly volatile?" Tags="&lt;currency&gt;&lt;cryptocurrency&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30339" PostTypeId="1" CreationDate="2019-07-29T07:49:25.340" Score="8" ViewCount="230" Body="&lt;p&gt;Does stock picking work? Why/why not? What does the research say about it?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(I was expecting that this should already have been asked and looked quite extensively for such a question but couldn't find anything)&lt;/p&gt;&#xA;" OwnerUserId="21651" LastActivityDate="2021-05-08T14:19:42.390" Title="Does stock picking work?" Tags="&lt;stock-market&gt;&lt;investment&gt;" AnswerCount="4" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30340" PostTypeId="1" CreationDate="2019-07-29T08:01:08.860" Score="0" ViewCount="45" Body="&lt;p&gt;Probably a dumb question:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know next to nothing about economics and I'm just trying to make sense of what I'm trying to learn. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, I've been looking into GDP lately, trying to understand what it means, and I came across a wiki page which states that in 2013 the US had a public debt of 17607 billion USD and that it was 74% of its GDP. From my understanding, that means that the US makes around 17607*100/74&lt;span class=&quot;math-container&quot;&gt;$\approx$&lt;/span&gt;23793 USD per year, so shouldn't that mean that they should have been able to pay the debt in a couple of years?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, the same wiki page says that the overall world public debt is 56308 USD. What does that mean? If one country A has a debt to country B, which has debt on country C and country C has debt on country A, can't some of the debts be canceled out? &lt;/p&gt;&#xA;" OwnerUserId="23858" LastActivityDate="2019-07-29T23:19:40.890" Title="Why does the US have public debt if they make more than that annually?" Tags="&lt;gdp&gt;&lt;government-debt&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30341" PostTypeId="2" ParentId="30338" CreationDate="2019-07-29T09:43:56.590" Score="3" Body="&lt;p&gt;The value of currencies (including most popular cryptocurrencies) is set by a market. If more people want to sell the currency (i.e., exchange it for a different currency) than to buy it then some of the sellers will be unable to find a buyer. Their only option will be to lower the price they demand until someone is willing to buy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Likewise, if more people want to buy, say, euros than are willing to sell them then they will have to be willing to pay a bit more for the euros in order to persuade someone to sell.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this way, price rises or falls until the supply and demand of the currency are equalised. So when the price fluctuates a lot, it is because either the supply or demand (or both) are changing a lot.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At the moment, cryptocurrencies have very little practical use. It's quite difficult to use them for many kinds of transaction. Thus, most of the trading of those currencies is driven by speculation: people buying and selling them in the hope of making money through changes in the price. This means the price can fall very rapidly when people think there is about the be a crash because everyone wants to sell to protect the value of their money. This is called a speculative bubble.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;While euros (and dollars, and pounds,...) are sometimes used for speculation too, the main reason most people want euros is to buy stuff from/in Europe—whether that's German cars, or Bordeaux wine, or just stock in an Italian company. Likewise, the main reason people want to sell Euros is because they are Europeans who are trying to buy stuff made in America or China or elsewhere. They sell their Euros for dollars so that they can buy Ford cars or Coca Cola. In normal times the value of euros tends to be quite stable because the amount of stuff people buy from Europe and the amount of foreign-made stuff that Europeans buy doesn't change very quickly.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2019-07-29T09:43:56.590" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30343" PostTypeId="1" AcceptedAnswerId="30344" CreationDate="2019-07-29T12:31:20.673" Score="-1" ViewCount="24" Body="&lt;p&gt;I have a given product &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; that is produced by the input &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; in the following relation: &lt;span class=&quot;math-container&quot;&gt;$2x=y$&lt;/span&gt;. In our example, we are given the unit price of &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; is &lt;span class=&quot;math-container&quot;&gt;$16$&lt;/span&gt;. Find the unit cost of &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt;. The answer is &lt;span class=&quot;math-container&quot;&gt;$8$&lt;/span&gt;. But I strongly disagree: surely it should be &lt;span class=&quot;math-container&quot;&gt;$32$&lt;/span&gt; because to create another unit of &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; I need &lt;span class=&quot;math-container&quot;&gt;$2$&lt;/span&gt; units of &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; each at cost &lt;span class=&quot;math-container&quot;&gt;$16$&lt;/span&gt;, and therefore &lt;span class=&quot;math-container&quot;&gt;$32$&lt;/span&gt; is the cost. Why is my answer wrong? I can’t see a fault in my logic?&lt;/p&gt;&#xA;" OwnerUserId="23860" LastEditorUserId="1601" LastEditDate="2019-07-29T13:27:19.367" LastActivityDate="2019-07-29T13:28:52.940" Title="Production technology of $y=2x$" Tags="&lt;microeconomics&gt;&lt;production-function&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30344" PostTypeId="2" ParentId="30343" CreationDate="2019-07-29T13:28:52.940" Score="2" Body="&lt;p&gt;To be formal, the production function is (under strict positiivity constraints)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$y = F(x) = 2x \implies x(y) = \frac{y}{2}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and the Total cost function is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$TC = p_x\cdot x(y) = p_x \cdot \frac{y}{2}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then the Average Cost function is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$AC = \frac {TC}{y} = \frac{p_x}{2}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the exercise gives the correct answer. Where did the OP's logic went wrong?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The OP wrote&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;...because to create another unit of &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; I need &lt;span class=&quot;math-container&quot;&gt;$2$&lt;/span&gt; units of &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Is the OP sure about the correctness of that statement? It seems to me that if I have one unit of &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; I can produce &lt;em&gt;two&lt;/em&gt; units of &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; since &lt;span class=&quot;math-container&quot;&gt;$y=2x\implies y = 2\cdot 1 = 2$&lt;/span&gt;,  therefore to &lt;em&gt;one&lt;/em&gt; unit of &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; corresponds &lt;em&gt;half&lt;/em&gt; a unit of &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2019-07-29T13:28:52.940" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30345" PostTypeId="1" CreationDate="2019-07-29T13:28:57.960" Score="0" ViewCount="26" Body="&lt;p&gt;I researched several literatures related with Balassa-Samuelson effect and according to literatures, as Balassa samuelson effect increases, real exchange rate appreciates. However according to the literature (The real exchange rate of euro and Greek economic growth by Gregory T. Papanikos) , as BS effect increases 10%, the the real exchange rate falls by 4.8%. I could not find any reasonable explanation for this argument. Why this happens?&lt;/p&gt;&#xA;" OwnerUserId="23622" LastActivityDate="2019-07-29T13:28:57.960" Title="When Balassa-Samuelson effect increases, real exchange rate depreciate?" Tags="&lt;macroeconomics&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30346" PostTypeId="1" CreationDate="2019-07-29T16:55:34.390" Score="0" ViewCount="30" Body="&lt;p&gt;Trying to research this for some time, but can't really find anything relevant.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As it currently stands borrowing can be one-to-one: 1 customer borrows money from 1 bank. And can be one-to-many: 1 company or country borrows money from many lenders by issuing bonds. The most popular bonds (government bonds) can be traded even on exchanges.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;However there is no such thing as many-to-many lending. Why?&lt;/strong&gt; Many to many lending would mean there are multiple borrowers and multiple lenders on both sides of the same asset where the borrower's payments are redistributed to the lenders.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a possible implementation there are fixed rate annuity bonds with various maturity dates.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;To borrow: you choose which bond you want to issue from the list of bonds designated for many-to-many lending. Then the broker issues those bonds and sells them on the market for market price to raise the money for you. You have to pay the coupons to the lender + some risk premium &lt;em&gt;(based on the credit rating of the borrower)&lt;/em&gt; to the broker which goes into a fund to be able to pay to the lenders in case of a default. The risk premium can be an ongoing payment or can be part of the broker's initial quote. The borrower can buy back the bonds from the market if they wish to pay back early.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;To lend: you buy these bonds just any regular bond.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;This is not meant to be a replacement of the existing debt market, just an interesting addition.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Interesting properties of this system I can foresee:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;That borrowers don't need to issue a new bond every time they borrow, instead they can use a common asset that are probably actively traded on an exchange so they have access to market prices thus can find the best bargain easily. Making the market more liquid than the usual bond market. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Properly chosen risk premiums can minimize the risk of default.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Balancing forces: increasing interest rates reduce bond prices and encourage both borrowers and lenders to buy bonds, driving prices up and decreasing interest rates and vice versa.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Borrowers benefit from increasing interest rates: it becomes cheaper to buy the bonds back from the market for early exit. In a regular fixed bank loan the opposite is true.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;So why don't we have something like this yet? I don't see any fatal flaws yet that could make such system impossible.&lt;/p&gt;&#xA;" OwnerUserId="4150" LastEditorUserId="4150" LastEditDate="2019-07-29T18:33:57.167" LastActivityDate="2019-07-29T18:33:57.167" Title="Why don't we have many-to-many lending yet?" Tags="&lt;debt&gt;&lt;bonds&gt;" AnswerCount="0" CommentCount="7" ContentLicense="CC BY-SA 4.0" />
  <row Id="30347" PostTypeId="2" ParentId="30322" CreationDate="2019-07-29T17:53:42.850" Score="2" Body="&lt;p&gt;Say you have preference over &lt;span class=&quot;math-container&quot;&gt;$N$&lt;/span&gt; &lt;em&gt;deterministic&lt;/em&gt; outcomes, say &lt;span class=&quot;math-container&quot;&gt;$N$&lt;/span&gt; bundles of goods, with &lt;span class=&quot;math-container&quot;&gt;$1\succ 2\succ\cdots\succ N$&lt;/span&gt;. The usual way to represent this preference is by assigning utility numbers &lt;span class=&quot;math-container&quot;&gt;$u_i\in\mathbb R$&lt;/span&gt; to each bundle &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;, such that &lt;span class=&quot;math-container&quot;&gt;$u_1&amp;gt;u_2&amp;gt;\cdots&amp;gt;u_N$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In contrast, you can also interpret the &quot;outcomes&quot; as lottery tickets that pay either a high payoff (say &lt;span class=&quot;math-container&quot;&gt;$\$1$&lt;/span&gt;) or a low payoff (e.g. &lt;span class=&quot;math-container&quot;&gt;$\$0$&lt;/span&gt;) with varying probabilities. So each lottery &lt;span class=&quot;math-container&quot;&gt;$L_i=(p_i,1-p_i)$&lt;/span&gt; is a distribution over the two payoffs, where &lt;span class=&quot;math-container&quot;&gt;$p_i$&lt;/span&gt; is the probability that you get &lt;span class=&quot;math-container&quot;&gt;$\$1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$1-p_i$&lt;/span&gt; is the probability of getting &lt;span class=&quot;math-container&quot;&gt;$\$0$&lt;/span&gt;. Thus, by choosing &lt;span class=&quot;math-container&quot;&gt;$p_i$&lt;/span&gt;'s that satisfy &lt;span class=&quot;math-container&quot;&gt;$p_1&amp;gt;p_2&amp;gt;\cdots&amp;gt;p_N$&lt;/span&gt;, you have a preference representation over the &lt;span class=&quot;math-container&quot;&gt;$N$&lt;/span&gt; lotteries in the expected utility framework. &lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2019-07-29T17:53:42.850" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30349" PostTypeId="2" ParentId="30340" CreationDate="2019-07-29T23:19:40.890" Score="3" Body="&lt;p&gt;The names “United States” or “US” refer to different entities here. With regards to the debt, they’re referring to the &lt;em&gt;government&lt;/em&gt; of the country. With regards to the GDP, they’re referring to all the &lt;em&gt;businesses&lt;/em&gt; of the country. So the government owes several trillions of dollars to those who have purchased treasury bonds, and the businesses of the country produce (every year) an even larger amount of money in profits. But the government only taxes a &lt;em&gt;portion&lt;/em&gt; of those profits, and so it would take far longer than just a few years, to pay off all of the debt — and also (at least recently) the government keeps spending more than it collects in taxes, so it is simply getting further and further into debt. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A similar situation is going on with the world as a whole. When talking about the debt of various countries, what people are really discussing are the debts of the various &lt;em&gt;governments&lt;/em&gt; of those countries. Basically, the governments of the world owe large sums of money to the businesses (and individuals) of the world. They also tax those businesses (and individuals) every year, and use those taxes to pay back (some of) the debts. But when (say) England owes money to the US and the US owes money to China, there’s no way to really “cancel out” the debt and just say that England owes China, because it’s the &lt;em&gt;government&lt;/em&gt; of England who owes money to &lt;em&gt;citizens&lt;/em&gt; in the US, and it’s the &lt;em&gt;government&lt;/em&gt; of the US who owes money to the &lt;em&gt;citizens&lt;/em&gt; of China, and so forth. Sometimes governments owe other governments money, but it’s often simpler to just keep track of the debts rather than try to cancel them out. &lt;/p&gt;&#xA;" OwnerUserId="23023" LastActivityDate="2019-07-29T23:19:40.890" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30350" PostTypeId="1" AcceptedAnswerId="30357" CreationDate="2019-07-29T23:54:33.443" Score="1" ViewCount="73" Body="&lt;p&gt;I am attempting to build a simultaneous equations model that estimates the equilibrium price of display advertisement, but I have only seen textbook examples with Quantity being the dependent variable - this question is similar: &lt;a href=&quot;https://economics.stackexchange.com/questions/19077/equilibrium-price-ols-regression&quot;&gt;Equilibrium Price - OLS Regression&lt;/a&gt;. However, I assume that quantity is also endogenous, and I think I should use two stage least squares to produce unbiased estimates. Display advertisement is bought/sold in online marketplaces, and that led me to believe this model would provide a good fit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$P_{Dt} = \beta _{0} + \beta _{1} Q_{t} + \beta_{2} Visits + u_{t}$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$P_{St} = \alpha _{0} + \alpha _{1} Q_{t} + \alpha_{2} Print_{t} + \alpha_{3} Prod_{t} + u_{t}$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$P_{Dt, St}$&lt;/span&gt; = Inverse Demand and Inverse Supply&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$Q_{t}$&lt;/span&gt; = Quantity of Display Advertisement&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$Visits$&lt;/span&gt; = Index of web traffic/visits (akin to income effect)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$Print$&lt;/span&gt; = Price of print advertisement (substitution effect)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$Prod$&lt;/span&gt; = Creative production costs (factor of production)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;If anyone has experience modeling structural equations with price as the dependent variable I would really appreciate hearing your thoughts on how I should create a predicted value for Quantity and finalize a reduced form equation. Thanks!&lt;/p&gt;&#xA;" OwnerUserId="23865" LastEditorUserId="8815" LastEditDate="2019-07-30T20:23:10.353" LastActivityDate="2019-07-30T20:23:10.353" Title="Estimating Equilibrium Price for Advertising using Simultaneous Equations Model" Tags="&lt;econometrics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30351" PostTypeId="2" ParentId="19606" CreationDate="2019-07-30T00:03:01.187" Score="-1" Body="&lt;p&gt;You're both wrong. The correct way to annualize is to take the average daily return (which will typically be a very small number such as 0.0005) and then apply the first formula. Trust me, it works and you won't get a crazy result like the one above, where you just quoted one return instead of the average daily. One other good convention is to only use trading days, which are on average 250, rather than all 365 days of the year.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know it's an old thread but I had to post this in case anyone else stumbled onto this.&lt;/p&gt;&#xA;" OwnerUserId="23866" LastActivityDate="2019-07-30T00:03:01.187" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30352" PostTypeId="1" CreationDate="2019-07-30T03:16:38.183" Score="-1" ViewCount="468" Body="&lt;p&gt;use the general form of the Cobb Douglas utility function &lt;span class=&quot;math-container&quot;&gt;$U(x,y)= (x^a)(y^b)$&lt;/span&gt; and the budget constraint in the form &lt;span class=&quot;math-container&quot;&gt;$B=p_{x}X + p_{y}Y$&lt;/span&gt; to find the demand functions for good x and good y. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this even possible? I took the derivative with respect to x and y and set them equal to &lt;span class=&quot;math-container&quot;&gt;$\frac{p_x}{p_y}$&lt;/span&gt;. I can’t get past &lt;span class=&quot;math-container&quot;&gt;$\frac{ay}{bx}= \frac{p_x}{p_y}$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="23867" LastEditorUserId="23546" LastEditDate="2019-07-31T08:17:23.797" LastActivityDate="2019-07-31T19:06:21.920" Title="Cobb Douglas, Budget Line, Demand function question" Tags="&lt;microeconomics&gt;&lt;optimization&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30353" PostTypeId="1" CreationDate="2019-07-30T05:04:04.280" Score="2" ViewCount="76" Body="&lt;p&gt;Gill, Madura. &lt;a href=&quot;https://www.amazon.ca/Personal-Finance-Canadian-Pearson-Package/dp/013485201X/ref=pd_cp_14_1?pd_rd_w=c29n6&amp;amp;pf_rd_p=64a84aa4-b549-4445-9bf3-48bdeed5f24a&amp;amp;pf_rd_r=82BZKGBE1YW3BZXRTA41&amp;amp;pd_rd_r=ac94fdf8-0331-4f63-9fd4-08392967896d&amp;amp;pd_rd_wg=LkHyc&amp;amp;pd_rd_i=013485201X&amp;amp;psc=1&amp;amp;refRID=82BZKGBE1YW3BZXRTA41&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;Personal Finance&lt;/em&gt;, 4th Canadian Edition 2019&lt;/a&gt;. p. 56.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;ol start=&quot;10&quot;&gt;&#xA;  &lt;li&gt;True or False? It is always better to choose a lump sum than periodic payments over time.&lt;/li&gt;&#xA;  &lt;/ol&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;p. 519&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;ol start=&quot;10&quot;&gt;&#xA;  &lt;li&gt;T&lt;/li&gt;&#xA;  &lt;/ol&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Doesn't the answer depend on the amount of lump sum vs. periodic payments and inflation? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or are the authors assuming that if lump sum = P, then you get n periodic payments of &lt;span class=&quot;math-container&quot;&gt;$\frac{P}{n}$&lt;/span&gt; (for a total of &lt;span class=&quot;math-container&quot;&gt;$n × \frac{P}{n}$&lt;/span&gt;)? Then inflation will cause each P/n to be worth less. &lt;/p&gt;&#xA;" OwnerUserId="4020" LastActivityDate="2019-07-30T16:06:20.030" Title="Why's it always better to choose a lump sum than periodic payments over time?" Tags="&lt;value&gt;" AnswerCount="1" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30354" PostTypeId="2" ParentId="30339" CreationDate="2019-07-30T05:14:13.777" Score="8" Body="&lt;p&gt;In general, stock picking does not work. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For more information, see this keynote address by Daniel Kahneman, who found that stock-pickers perform worse than chance when they change stocks: &lt;a href=&quot;https://forum.amundi.com/the-psychology-of-investors-the-cost-of-ideas/&quot; rel=&quot;noreferrer&quot;&gt;https://forum.amundi.com/the-psychology-of-investors-the-cost-of-ideas/&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is another reference on the subject:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;Abstract&lt;/strong&gt;&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Is expertise portable across closely related domains? We investigate this question empirically using a unique dataset of market&#xA;  experts---institutional investors with portfolios averaging $573&#xA;  million. A striking finding emerges: while there is clear evidence of&#xA;  skill in buying, the investors' selling decisions underperform&#xA;  substantially--even relative to random selling strategies. This holds&#xA;  despite the similarity between the two decisions in frequency,&#xA;  substance and consequences for portfolio performance. We present&#xA;  evidence that an asymmetric allocation of cognitive resources such as&#xA;  attention can explain the discrepancy: investors are prone to a&#xA;  systematic, costly heuristic process when selling but not when&#xA;  buying.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;&lt;em&gt;Akepanidtaworn, Klakow and Di Mascio, Rick and Imas, Alex and Schmidt, Lawrence, Selling Fast and Buying Slow: Heuristics and Trading Performance of Institutional Investors (May 8, 2019). &lt;a href=&quot;http://dx.doi.org/10.2139/ssrn.3301277&quot; rel=&quot;noreferrer&quot;&gt;http://dx.doi.org/10.2139/ssrn.3301277&lt;/a&gt;&lt;/em&gt;  &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="21196" LastActivityDate="2019-07-30T05:14:13.777" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30355" PostTypeId="2" ParentId="30339" CreationDate="2019-07-30T08:28:57.643" Score="6" Body="&lt;p&gt;This question probably needs the obligatory &lt;a href=&quot;https://en.wikipedia.org/wiki/Efficient-market_hypothesis&quot; rel=&quot;noreferrer&quot;&gt;Efficient Market Hypothesis&lt;/a&gt; answer to complement the great answer by Angela Richardson. Broadly, speaking, the EMH reasoning goes like this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose that there was a way—any way—for you to figure out that a stock's price is too low and that the price will be higher tomorrow. They you could make a profit by buying the stock today and waiting until tomorrow to sell.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But whatever data and method you used to figure that out is also available to everyone else, so they will figure it out too. After all, they've got billions of dollars at stake! And because they also know the price will increase, they too will go out and buy the stock right now. But all of their buying activity creates extra demand for the stock which, by the normal principles of supply and demand, causes the price to increase &lt;em&gt;today&lt;/em&gt;—earlier than forecast. You can replace &quot;today&quot; and &quot;tomorrow&quot; in this example with &quot;now&quot; and &quot;one millisecond from now&quot; if you want. So any method to predict the future price movement of a stock is self-defeating because all of the publicly available information is immediately incorporated into the stock's price as soon as people try to act on that information. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The theory is obviously quite stylized and shouldn't be take too literally. But the basic idea is helpful: there are people with lots of money at stake, which gives them an incentive to react quickly to any new information, closing the window of opportunity to profit from that information. You can see this work in practice by looking at what happens to a stock price when a news story breaks about a firm. Usually, if the news wasn't previously anticipated, you can see the stock price react to the news in seconds or fractions of second. For example, if we look at Twitter's stock price we can pinpoint the exact second that the news of Dick Costello's resignation as CEO hit the wires:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/okhU1.jpg&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/okhU1.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are companies that invest billions of dollars relocating their servers one or two feet closer to the exchange's master server because the shorter cable run shaves a nanosecond off of their trading time. So unless you have truly private information (which would probably make it illegal for you to trade the stock—so-called insider dealing), it's going to be difficult or impossible for you or anyone else to systematically &quot;beat the market&quot; by picking stocks.&lt;/p&gt;&#xA;" OwnerUserId="108" LastEditorUserId="108" LastEditDate="2019-07-30T13:42:15.013" LastActivityDate="2019-07-30T13:42:15.013" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30356" PostTypeId="1" CreationDate="2019-07-30T12:01:50.297" Score="0" ViewCount="43" Body="&lt;p&gt;I'm given the following incomplete Normal-Form Game:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt; | L | R&#xA;+--------&#xA;O|1,?|7,?&#xA;U|?,2|?,1&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;First I was asked to fill out the missing pieces to obtain a game with exactly two Nash-Equilibria in pure strategies. I came up with:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt; | L | R&#xA;+--------&#xA;O|1,0|7,7&#xA;U|2,2|0,1&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;The next question is to fill out the table to obtain a game with exactly one mixed strategy and I'm stuck at this point on how to approach this.&lt;/p&gt;&#xA;" OwnerUserId="13821" LastActivityDate="2019-07-31T12:49:39.797" Title="Fill out Normal-Form Game to obtain exactly one mixed equilibrium" Tags="&lt;game-theory&gt;&lt;nash-equilibrium&gt;&lt;dominant-strategy&gt;" AnswerCount="1" CommentCount="7" ContentLicense="CC BY-SA 4.0" />
  <row Id="30357" PostTypeId="2" ParentId="30350" CreationDate="2019-07-30T14:28:46.920" Score="1" Body="&lt;p&gt;You're definately on the right track. What you are doing is estimating the inverse demand and inverse supply in your market. The variables &lt;strong&gt;&lt;em&gt;Visits Print and Prod&lt;/em&gt;&lt;/strong&gt; can be used as &quot;shifters&quot; i.e. instruments for the quantity in the equation in which they are not present. &lt;strong&gt;&lt;em&gt;Visits&lt;/em&gt;&lt;/strong&gt; can be used as an instrument for quantity, when estimating the inverse supply equation and &lt;strong&gt;&lt;em&gt;Print and Prod&lt;/em&gt;&lt;/strong&gt; can be used as instruments for quantity when estimationg the inverse demand equation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A well known example of how this works is Grady's article on Fulton fish market. You can find STATA code that replicates that article here: &lt;a href=&quot;https://www.stata.com/data/s4poe/chap11.do&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.stata.com/data/s4poe/chap11.do&lt;/a&gt; .&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The data sets for the stata code are here: &lt;a href=&quot;http://www.principlesofeconometrics.com/poe4/data/stata/&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.principlesofeconometrics.com/poe4/data/stata/&lt;/a&gt; .&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course you should test the validity of the assumptions behind the use of IV in your SEM with the Hausman, Sargan-Wu and Stock-Yogo tests.&lt;/p&gt;&#xA;" OwnerUserId="23694" LastActivityDate="2019-07-30T14:28:46.920" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30358" PostTypeId="2" ParentId="30339" CreationDate="2019-07-30T15:49:19.467" Score="3" Body="&lt;p&gt;I think this &lt;a href=&quot;https://www.quora.com/What-do-mutual-fund-managers-think-of-Daniel-Kahnemans-claim-in-Thinking-Fast-and-Slow-that-their-so-called-investment-skills-are-mostly-luck&quot; rel=&quot;nofollow noreferrer&quot;&gt;Quora discussion on the fund manager illusion of validity&lt;/a&gt; told most of the story.  As one commenter has pointed out the flaw of typical fund manager attempt to use Berhshire Hathaway to cover them, however, as pointed out: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Berkshire is very far from a traditional fund. Look back on how they made their returns through the years. They’ve scooped up&#xA;  companies at rock-bottom prices and guided operators in turning them&#xA;  around, and they’ve used leverage and reinvested the float they’ve&#xA;  accumulated from their insurance businesses to multiply their returns.&#xA;  &lt;strong&gt;These are not typical strategies available to, or used by, the typical&lt;/strong&gt;&#xA;  &lt;strong&gt;mutual fund manager.&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Watch this video : &lt;a href=&quot;https://youtu.be/hOm6rD4m4V0&quot; rel=&quot;nofollow noreferrer&quot;&gt;Daniel Kahneman: Think 'Fast And Slow' About Index Funds&lt;/a&gt;, Daniel Kahneman simply confirmed that: Berkshire Hathaway doesn't trade stock, it just buy the company. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is why veteran investor recommended &lt;a href=&quot;https://en.wikipedia.org/wiki/Index_fund&quot; rel=&quot;nofollow noreferrer&quot;&gt;index fund / ETF &lt;/a&gt;, which is resilient to speculation volatility. The catch is, stock like Bershire hathaway, or index fund/index ETF usually seems quite expensive to retail investors. &lt;/p&gt;&#xA;" OwnerUserId="11177" LastEditorUserId="11177" LastEditDate="2019-08-01T11:05:21.477" LastActivityDate="2019-08-01T11:05:21.477" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30359" PostTypeId="2" ParentId="30352" CreationDate="2019-07-30T15:54:06.113" Score="0" Body="&lt;p&gt;You need to maximize the utility function subject to the budget constraint. I invite you to do the full procedure with the Lagrangian and the first order conditions. However the shortcut as you mention consist of equalizing the Marginal Rate of Substitution to the ratio of prices (Since it is the condition of optimality). Then, from this expression you need to solve for x as a function of y (or the reverse) and plug the result in the budget constraint. Doing so you will be able to solve for the demand for good y. Then plug the demand function of y into the expression of x and you get the demand function for x.&lt;/p&gt;&#xA;" OwnerUserId="23875" LastActivityDate="2019-07-30T15:54:06.113" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30360" PostTypeId="2" ParentId="30353" CreationDate="2019-07-30T16:06:20.030" Score="2" Body="&lt;h1&gt;The answer depends on the assumed interest rate of the periodic payments, compared to the expected return of alternative investments.&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;To be viable as a 'good' choice, the period payments must total to an amount that is equal to or greater than what could be achieved by taking the lump sum and doing something with it. In practice, this means that a period payment must total to a larger amount than the lump sum payment, with the difference increasing as the total amount of time of payments does.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For instance, the very large lotteries in the United States offer a lump sum amount that is somewhere on the order of 60% of the 'advertised' amount, which is what would be earned over 30 years of periodic payments. This figure is calculated assuming a 5% year-over-year increase of the payment amount.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Whether one is better than the other depends on what would be done with the lump sum money in the meantime. If one could invest the money or start a business with an expected rate of return greater than the one used to generate the periodic payment amount, then it is a bad idea to take the periodic payment; conversely, if the rate used in the periodic payment calculation is greater than what one would expect to earn themselves, then it would be a bad idea to take the lump sum.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the real world, since the periodic payment calculation is usually made with a conservative, guaranteed rate, the lump sum would be better. If the periodic payment calculation is made with an assumed rate of 0% (ie, the total of all payments is equal to the lump sum amount), the lump sum will always be superior, assuming it can be used to earn any money at all. It sounds like the author is implicitly assuming one of these two scenarios.&lt;/p&gt;&#xA;" OwnerUserId="23876" LastActivityDate="2019-07-30T16:06:20.030" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30361" PostTypeId="1" CreationDate="2019-07-30T16:14:49.513" Score="0" ViewCount="51" Body="&lt;p&gt;I'm looking at the following Normal-Form Game:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;         B&#xA;   |  1  |  2  |  3&#xA;---+-----------------&#xA;  1| 1,-1|-1, 1|-1, 1&#xA;A 2|-1, 1| 2,-2|-1, 1&#xA;  3|-1, 1|-1, 1| 3,-3&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;It's easy to see that there are no Nash-Equilibria in pure strategies. In mixed strategies I found, that &lt;span class=&quot;math-container&quot;&gt;$(\sigma_A, \sigma_B)$&lt;/span&gt; is a Nash-Equilibrium with:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\sigma_A(1) = \sigma_B(1) = \frac{6}{13}$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\sigma_A(2) = \sigma_B(2) = \frac{4}{13}$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\sigma_A(3) = \sigma_B(3) = \frac{3}{13}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem sheet now asks to argue with an example why no further mixed Nash equilibrium can exist. I'm not sure how to argue here. &lt;/p&gt;&#xA;" OwnerUserId="13821" LastActivityDate="2019-07-30T16:14:49.513" Title="Argue that no further mixed Nash Equilibria can exists" Tags="&lt;game-theory&gt;&lt;nash-equilibrium&gt;&lt;dominant-strategy&gt;" AnswerCount="0" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="30363" PostTypeId="2" ParentId="26595" CreationDate="2019-07-30T20:30:13.640" Score="-1" Body="&lt;p&gt;The paragraph that you included likely assumes that nominal rates won't go below zero, and therefore that &lt;span class=&quot;math-container&quot;&gt;$r_n$&lt;/span&gt;&gt;=0 at the zero lower bound. This has been challenged by unconventional monetary and exchange rate policies (i.e. the EU, Switzerland). This likely leads to a few assumptions under classical economic frameworks:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;-The Money Demand curve is not horizontally asymptotic at &lt;span class=&quot;math-container&quot;&gt;$r_n$&lt;/span&gt;=0&lt;/p&gt;&#xA;&#xA;&lt;p&gt;-If it is assumed that there is rate mobility below a zero nominal rate (it can go lower and lower with market manipulation), &lt;span class=&quot;math-container&quot;&gt;$\frac{d\left(r_n\right)}{d\left(Q_{md}\right)}$&lt;/span&gt;≠0 where &lt;span class=&quot;math-container&quot;&gt;$r_n$&lt;/span&gt;&amp;lt;0. Logically, a -0.41% rate affects consumers differently than does a -0.68% rate (remember that this is effectively the risk free rate; risk premiums will yield positive rates that can be interpreted using classical liquidity preference theory)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This tool has been used for different reasons. Switzerland isn't using negative nominal rates to escape a liquidity trap, but to keep the Franc from appreciating and sending their trade deficit through the roof. The EU on the other hand has resorted to this unconventional monetary policy to try to stimulate growth and avoid a deflationary spiral. They hope to incentivize banks to lend money at the negative rate plus a risk premium rather than be charged to hold money as reserves by the ECB. Consequences exist for these policies, however. Because consumers would rather hold money as cash than lose it in a negative yielding savings account, the money supply of the banking system weakens, and rates can rise back up. Due to its only recent implementation, negative interest rates are likely still considered experimental at best. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Anyways, the paragraph argues that an above zero inflation target allows more policy flexibility, as &lt;span class=&quot;math-container&quot;&gt;$r_r$&lt;/span&gt;=&lt;span class=&quot;math-container&quot;&gt;$r_n$&lt;/span&gt; when inflation equals zero. This effectively gives borrowers cheaper &quot;real&quot; lending while lenders still gain a rate on their assets above holding money as cash (and therefore no bank runs or contracted money supply). Again, this paragraph is either assuming that the ZLB equals zero, or that negative nominal rates are not sustainable. Mankiw would probably argue that a higher inflation target (which leads to generally higher nominal rates in equilibrium), would've given the EU a better ability to manipulate aggregate demand with a &quot;target&quot; lower bound of 0% nominal interest. &lt;/p&gt;&#xA;" OwnerUserId="23668" LastActivityDate="2019-07-30T20:30:13.640" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="30365" PostTypeId="2" ParentId="30356" CreationDate="2019-07-31T02:50:16.187" Score="3" Body="&lt;p&gt;To ensure that the game has a single, completely-mixed, Nash equilibrium there needs to be &quot;cyclic unique best responses&quot;, i.e., either&lt;/p&gt;&#xA;&#xA;&lt;p&gt;BR(L) = O, BR(O) = R, BR(R) = U, BR(U) = L,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;or&lt;/p&gt;&#xA;&#xA;&lt;p&gt;BR(L) = U,  BR(U) = R, BR(R) = O, BR(O) = L.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The strict cyclic preferences both rule out pure equilibria and allow a (unique) completely mixed equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are infinitely many ways to achieve either of the two cases above. Aiming for the first case with BR(L) = O, given that the payoff to the row player for (O,L) is 1, to ensure that BR(L) = O, i.e., the unique best response against L is O, one can set the payoff to the row player for (U,L) as any number strictly less than 1, i.e. so that against L, the row player strictly prefers O with payoff 1 to U with payoff strictly less than 1. The rest of the payoffs can be filled in similarly.&lt;/p&gt;&#xA;" OwnerUserId="2926" LastEditorUserId="2926" LastEditDate="2019-07-31T12:49:39.797" LastActivityDate="2019-07-31T12:49:39.797" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30366" PostTypeId="1" CreationDate="2019-07-31T03:26:18.683" Score="0" ViewCount="43" Body="&lt;p&gt;I am currently studying for a test and the following sentence &quot;In an open economy with high capital mobility, monetary policy is preferable to fiscal policy to stabilize the cycle&quot;, the &quot;answer&quot; is true, but I don´t understand why it is true.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I tried to analyze from the perspective of the Mundell-Fleming model in open economies, but I can't assume which exchange rate is present in the economy. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank You&lt;/p&gt;&#xA;" OwnerUserId="23881" LastEditorUserId="23546" LastEditDate="2019-07-31T08:17:33.517" LastActivityDate="2019-07-31T08:17:33.517" Title="which policy (fiscal or monetary) is better to stabilize the cycle?" Tags="&lt;monetary-policy&gt;&lt;fiscal-policy&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30367" PostTypeId="1" CreationDate="2019-07-31T08:11:17.730" Score="3" ViewCount="110" Body="&lt;p&gt;I would like to solve a game where firms have private information about their own type, but only know the distribution of the other firm's type. They interact in two stages, where the strategies depend on each other. The first period is an optimization problem, and in the second period Nash Equilibria have to be identified.&lt;/p&gt;&#xA;&lt;h3&gt;Example:&lt;/h3&gt;&#xA;&lt;p&gt;Consider two firms, &lt;span class=&quot;math-container&quot;&gt;$A,B$&lt;/span&gt; who are trying to sell their product to one customer.&lt;/p&gt;&#xA;&lt;p&gt;The customer just needs one indivisible unit of the product, which has value V for the customer, and will buy the product from the firm that offers the lowest price.&lt;/p&gt;&#xA;&lt;p&gt;Both firms initially are able to produce the product at cost &lt;span class=&quot;math-container&quot;&gt;$C$&lt;/span&gt;, but each firm &lt;span class=&quot;math-container&quot;&gt;$i \in \{A,B\}$&lt;/span&gt; may decrease it productions costs by &lt;span class=&quot;math-container&quot;&gt;$c_i$&lt;/span&gt; in private by investing &lt;span class=&quot;math-container&quot;&gt;$d_i (c_i)^2$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;p&gt;Each firm &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; has private knowledge about its own &lt;span class=&quot;math-container&quot;&gt;$d_i$&lt;/span&gt;, but only knows the distribution of &lt;span class=&quot;math-container&quot;&gt;$d_j$&lt;/span&gt;. (If the solution needs a specific distribution just pick one which fits your needs.)&lt;/p&gt;&#xA;&lt;p&gt;The sequence of game stages is:&lt;/p&gt;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;The two firms simultaneously privately invest into cost reductions &lt;span class=&quot;math-container&quot;&gt;$c_A,c_B$&lt;/span&gt;.&lt;/li&gt;&#xA;&lt;li&gt;The firms set prices &lt;span class=&quot;math-container&quot;&gt;$p_A,p_B$&lt;/span&gt; for the product.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&lt;p&gt;Straightforward backward induction does not work in my trials, due to the asymmetry of cost reduction investments.&lt;/p&gt;&#xA;&lt;p&gt;&lt;strong&gt;Question:&lt;/strong&gt; Is there a good textbook or paper where sth. similar is done or do you have any technical knack which I have missed?&lt;/p&gt;&#xA;" OwnerUserId="23882" LastEditorUserId="24728" LastEditDate="2020-12-23T14:10:46.313" LastActivityDate="2020-12-23T14:10:46.313" Title="Perfect Bayesian Equilibrium in a two stage game with incomplete information" Tags="&lt;game-theory&gt;&lt;nash-equilibrium&gt;&lt;bayesian-game&gt;&lt;oligopoly&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="30369" PostTypeId="1" CreationDate="2019-07-31T10:35:04.567" Score="1" ViewCount="35" Body="&lt;p&gt;I mean, for example, the government changes all x10000 to x1; where x equals to currency of the respected country (Dollar, for instance).  &lt;/p&gt;&#xA;" OwnerUserId="23765" LastActivityDate="2019-07-31T10:35:04.567" Title="What happens if a country omits the zeros of it's current money?" Tags="&lt;currency&gt;&lt;money&gt;&lt;government&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30370" PostTypeId="1" AcceptedAnswerId="30375" CreationDate="2019-07-31T13:43:00.200" Score="2" ViewCount="197" Body="&lt;p&gt;Consider a production process with two distinct capital types such that there is a capital aggregator. You could view &lt;span class=&quot;math-container&quot;&gt;$k_v$&lt;/span&gt; as a more versatile capital (e.g. can be converted into many different production processes) as opposed to &lt;span class=&quot;math-container&quot;&gt;$k_u$&lt;/span&gt; which is a unique factor of production exclusive to a particular production process. Hence &lt;span class=&quot;math-container&quot;&gt;$J=\{v,u\}$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;A CES aggregator is:  (&lt;span class=&quot;math-container&quot;&gt;$\gamma$&lt;/span&gt; is substitution coefficient, &lt;span class=&quot;math-container&quot;&gt;$\sigma_j$&lt;/span&gt; is factor share such that &lt;span class=&quot;math-container&quot;&gt;$\sum_\limits{j\in J}\sigma_j=1$&lt;/span&gt;)&#xA;  &lt;span class=&quot;math-container&quot;&gt;$$k\equiv(\sum_{j\in J}\sigma_j k_j^\gamma)^{\frac{1}{\gamma}}.$$&lt;/span&gt;  &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Similarly,&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;a Leontief aggregator is:&lt;br&gt;&#xA;  &lt;span class=&quot;math-container&quot;&gt;$$k\equiv\min\{\frac{k_v}{\sigma_v},\frac{k_u}{\sigma_u}\}.$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My Question:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;When and why (i.e. economic intuition) is it appropriate to use one aggregator over the other? Are there other aggregators that are also commonly used?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="8560" LastActivityDate="2019-07-31T17:26:47.117" Title="CES v. Leontief Aggregator in Production" Tags="&lt;macroeconomics&gt;&lt;production-function&gt;&lt;aggregate-production&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30371" PostTypeId="1" CreationDate="2019-07-31T15:58:15.293" Score="1" ViewCount="11" Body="&lt;p&gt;Does research explore the idea that there is an association of house prices in an area or neighborhood with the influx of new residents? That is, if there are empty spaces in a neighborhood, or currently occupied accommodation that has a change of residents; will that affect the prices of the surrounding properties or the rental values? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there any substance to the hypothesis to show that the influx, or change of residents affects a 'region' of property prices or sales/rental values? If so, can a 'radial' function of increase be expected?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The other question is whether there is any effect colloquially similar to the 'magical chairs' game in which the latest resident to move into a region of increased popularity will not reap the rewards obtained by the prior residents?&lt;/p&gt;&#xA;" OwnerUserId="23885" LastActivityDate="2019-07-31T15:58:15.293" Title="Does the property values (or rental price) of a neighborhood/region increase with new residents taking up empty lots or apartments changing residency?" Tags="&lt;markets&gt;&lt;housing&gt;&lt;property&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30372" PostTypeId="1" CreationDate="2019-07-31T16:08:57.763" Score="0" ViewCount="25" Body="&lt;p&gt;According to standard Balassa-Samuelson effect, when the productivity increases in the tradable sector (GDP), price increase can be observed in non-tradable sector and this can lead to appreciation of real exchange rate - This is what all of other papers explain, but the paper that I follow gives different result. When Greek real GDP per capita increases 10%, the real exchange rate falls 4,8%. (depreciation). This estimation follows another paper that explains undervaluation can cause economic development and productivity. In my opinion, GDP and real exchange rate have an inverse relationship that's why the author estimates that as exchange rate undervalued, GDP level gets larger. Is this true? &lt;/p&gt;&#xA;" OwnerUserId="23622" LastEditorUserId="6168" LastEditDate="2019-07-31T22:08:03.213" LastActivityDate="2019-07-31T22:08:03.213" Title="How the Balassa-Samuelson affect real exchange rate?" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;&lt;exchange-rates&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="30373" PostTypeId="2" ParentId="30352" CreationDate="2019-07-31T16:10:37.027" Score="2" Body="&lt;p&gt;its now been a couple days without response to @Herr so I will show you the general solution. Usually you will be given values for &lt;span class=&quot;math-container&quot;&gt;$a$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$b$&lt;/span&gt; and the respective prices, but you can always solve this symbolically treating them as unknowns. The solution follows:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$max\;U(X,Y)=X^{a}Y^{b}$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$s.t.\; B=P_{x}X+P_{y}Y$$&lt;/span&gt;&#xA;Taking first order conditions of the utility function, we get:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$FOC_{x}=aX^{a-1}Y^{b}$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$FOC_{y}=bX^{a}Y^{b-1}$$&lt;/span&gt;&#xA;Setting these equal to the price ratio as you suggested, it simplifies to&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\frac{aY}{bX}=\frac{P_{x}}{P_{y}}$$&lt;/span&gt;&#xA;As you found. Here you have this equation and the equation for the budget line: two equations and two unknowns, algebra is all that is needed now. Rearrange the tangency condition (&lt;span class=&quot;math-container&quot;&gt;$MRS=\frac{P_x}{P_y}$&lt;/span&gt;) and we get:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\frac{aY}{bX}=\frac{P_{x}}{P_{y}}$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$aY=\frac{P_{x}}{P_{y}}bX$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$Y=\frac{P_{x}}{P_{y}}\frac{b}{a}X$$&lt;/span&gt;&#xA;then we can substitute this demand for Y (as a function of X) into the budget line:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$B=P_{x}X+P_{y}(\frac{P_{x}}{P_{y}}\frac{b}{a}X)$$&lt;/span&gt;&#xA;which leaves us with an equation of only &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt;! Continue solving:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$B=P_{x}X+P_{x}\frac{b}{a}X$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$B=P_{x}X(1+\frac{b}{a})$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\frac{B}{1+\frac{b}{a}}=P_{x}X$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$X=\frac{B}{P_{x}(1+\frac{b}{a})}$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$X=\frac{a}{a+b}\frac{B}{P_x}$$&lt;/span&gt;&#xA;where the RHS are all values of parameters, hence the demand of &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; depends on the prices and level of income. Then you use the original &lt;span class=&quot;math-container&quot;&gt;$Y=\frac{P_{x}}{P_{y}}\frac{b}{a}X$&lt;/span&gt; derived from the tangency condition and substitute &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; in:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$Y=\frac{P_{x}}{P_{y}}\frac{b}{a}\frac{B}{P_{x}(1+\frac{b}{a})}$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$Y=\frac{b}{a}\frac{B}{P_{y}(1+\frac{b}{a})}$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$Y=\frac{a}{a+b}\frac{b}{a}\frac{B}{P_{y}}$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$Y=\frac{b}{a+b}\frac{B}{P_y}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note the symmetry between the demand functions of &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt;. While these questions are much easier with actual values for the unknowns, you come up with a rather intuitive answer when working with the parameters instead! The relationship still holds true and if you plug the values given into &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt; you will get the correct answer.&lt;/p&gt;&#xA;" OwnerUserId="23546" LastEditorUserId="23546" LastEditDate="2019-07-31T19:06:21.920" LastActivityDate="2019-07-31T19:06:21.920" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30374" PostTypeId="2" ParentId="30367" CreationDate="2019-07-31T17:07:22.480" Score="3" Body="&lt;p&gt;In your example, you would still use backward induction to solve for the Perfect Bayesian Equilibrium (assuming the distribution of private costs has full support). In fact, the second stage of your example is similar to a Bertrand competition with asymmetric information. You can refer to the following paper for a general solution of the second stage game: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Spulber (1995) &quot;Bertrand Competition When Rivals' Costs Are Unknown&quot;, &lt;em&gt;Journal of Industrial Economics&lt;/em&gt; 43:1-11. &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The first stage decisions should follow in a straightforward manner. &lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2019-07-31T17:07:22.480" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30375" PostTypeId="2" ParentId="30370" CreationDate="2019-07-31T17:26:47.117" Score="0" Body="&lt;p&gt;I guess it depends on the application in question. Leontief function presumes that there is no substitution between the arguments, i.e. no amount of increase in one argument can compensate the decrease in another to keep output at some original level. In contrast, the general CES does allow some degree (as captured by the parameter &lt;span class=&quot;math-container&quot;&gt;$\gamma$&lt;/span&gt;) of substitution between the arguments. Note also that Leontief is obtained by taking &lt;span class=&quot;math-container&quot;&gt;$\gamma\to\infty$&lt;/span&gt;, thereby rendering the elasticity of substitution between the arguments &lt;span class=&quot;math-container&quot;&gt;$0$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you were doing a simulation exercise, you should usually &quot;let the data speak&quot; first, namely, estimating the value of &lt;span class=&quot;math-container&quot;&gt;$\gamma$&lt;/span&gt; (and &lt;span class=&quot;math-container&quot;&gt;$\sigma_j$&lt;/span&gt;) from some existing data. However, if you have some a priori reason to believe that &lt;span class=&quot;math-container&quot;&gt;$\gamma$&lt;/span&gt; is of a particular value, then you would assume that value and carry on with the analysis. &lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2019-07-31T17:26:47.117" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="30376" PostTypeId="2" ParentId="5825" CreationDate="2019-07-31T18:43:39.500" Score="-1" Body="&lt;p&gt;Simply when AC' &gt;0 We have decreasing returns scale. Increasing returns to scale however imply MC falling and consequently AC'&amp;lt;0. Therefore dividing the TC function by Q and find AC'. Evaluate AC' to determine whether it is &gt;0 or &amp;lt; 0.  &lt;/p&gt;&#xA;" OwnerUserId="23886" LastEditorUserId="23886" LastEditDate="2019-07-31T21:37:34.140" LastActivityDate="2019-07-31T21:37:34.140" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="30377" PostTypeId="1" AcceptedAnswerId="30381" CreationDate="2019-07-31T20:47:10.703" Score="2" ViewCount="114" Body="&lt;p&gt;I was following the Fed’s decision on interest rates. I thought if there is an interest rate cut, the EUR/USD will go up but contrary to that it went down on 07/31/2019 immediately after the decision to lower interest rates. Some sites claim that the Fed didn't cut enough (50 basis points) as opposed to the actual cut of 25 basis points. I have been following the news for almost 3 months and no one expected a 50 basis point cut. Is there something I am missing?&lt;/p&gt;&#xA;" OwnerUserId="23887" LastEditorUserId="264" LastEditDate="2019-08-01T02:02:00.710" LastActivityDate="2019-08-03T04:55:58.507" Title="Why did the EUR/USD go down immediately when the Fed cut interest rate?" Tags="&lt;interest-rate&gt;&lt;federal-reserve&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30379" PostTypeId="2" ParentId="5825" CreationDate="2019-07-31T22:57:32.820" Score="2" Body="&lt;p&gt;First of all, knowing the cost function is not enough to know whether we have decreasing, increasing or constant returns to scale. Returns to scale are a property of the firm's production function -- and the relationship of the production function to the cost function is not as straightforward as you might think. However, if we assume that the firm takes factor prices as given, then we can apply a (rather intuitive) result from &lt;a href=&quot;https://www.jstor.org/stable/3439192?seq=1#metadata_info_tab_contents&quot; rel=&quot;nofollow noreferrer&quot;&gt;Sandmo (1970)&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Average cost is decreasing, constant or increasing according as returns to scale are increasing, constant or decreasing.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In light of this, we simply need to consider the average cost curve:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ AC(Q) =100+20Q+3Q^2 $$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Clearly, this is strictly increasing in &lt;span class=&quot;math-container&quot;&gt;$Q$&lt;/span&gt;. Therefore, if we are willing to assume price taking in the factor markets, we know that the firm's underlying production function exhibits decreasing returns to scale.&lt;/p&gt;&#xA;" OwnerDisplayName="user17900" LastEditorDisplayName="user17900" LastEditDate="2019-08-01T21:00:42.017" LastActivityDate="2019-08-01T21:00:42.017" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30380" PostTypeId="2" ParentId="30377" CreationDate="2019-08-01T02:23:48.607" Score="3" Body="&lt;p&gt;One possibility is that although market participants had generally expected a 25-basis-point cut, they had also assigned a small probability to a bigger 50-basis-point cut.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And so, when it was confirmed that the cut would be 25 rather than 50 points, market participants then reacted accordingly to this (mild) surprise by strengthening the USD.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Edit: Actually, a bigger factor may have been the Fed's failure to promise more stimulus/rate cuts in the coming months (as some/many may have hoped).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, &lt;a href=&quot;https://www.wsj.com/articles/fed-cuts-rates-by-a-quarter-point-ends-portfolio-runoff-11564596200&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;Wall Street Journal&lt;/em&gt;&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Stock markets sold off and the dollar strengthened Wednesday afternoon after Fed Chairman Jerome Powell disappointed investors in his post-decision news conference when he didn’t more explicitly ratify expectations of additional stimulus in the months ahead.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerDisplayName="user23102" LastEditorDisplayName="user23102" LastEditDate="2019-08-03T04:55:58.507" LastActivityDate="2019-08-03T04:55:58.507" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30381" PostTypeId="2" ParentId="30377" CreationDate="2019-08-01T05:00:47.890" Score="1" Body="&lt;p&gt;The probability of 50 bps cut was non-zero:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/oW7eO.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/oW7eO.png&quot; alt=&quot;https://www.dailyfx.com/forex/market_alert/2019/07/25/usd-us-dollar-turns-to-gdp-data-fed-rate-cut-bets.html&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In addition, the Fed's statement afterwards is seen as &quot;hawkish&quot; in the sense that the forward guidance doesn't say the Fed will continually cut the rate. &lt;a href=&quot;https://www.dailymaverick.co.za/article/2019-08-01-dollar-bears-and-trump-both-dealt-blows-by-feds-hawkish-cut/&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.dailymaverick.co.za/article/2019-08-01-dollar-bears-and-trump-both-dealt-blows-by-feds-hawkish-cut/&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="5145" LastActivityDate="2019-08-01T05:00:47.890" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30382" PostTypeId="2" ParentId="30327" CreationDate="2019-08-01T07:49:55.160" Score="0" Body="&lt;p&gt;Without further details, what I'd do is what you said. Take an 3/6/9/12-month average of the price index and calculate growth based on that.&lt;/p&gt;&#xA;" OwnerUserId="5145" LastActivityDate="2019-08-01T07:49:55.160" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30383" PostTypeId="1" AcceptedAnswerId="30387" CreationDate="2019-08-01T08:54:30.743" Score="1" ViewCount="81" Body="&lt;p&gt;Studying macroeconomics I began to wonder about the validity of a certain statement that I couldn't find a clear answer to: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;When Consumption decreases, Aggregate Demand curve will shift to the left.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First I thought this was obviously right. However, considering the components of AD (C, I, G, NX), when consumption decreases that would directly lead to the same amount of increase in Inventory, which results in the increase of Investment (I). So since the decrease in consumption is directly offset by the increase in Investment, Aggregate Demand wouldn't shift, and GDP wouldn't change at all right? At least, this is the answer I came up with.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If this statement (&quot;When Consumption decreases, Aggregate Demand curve will shift to the left.&quot;) was one of the choices for an AP Macroeconomics question where you had to choose the right/wrong answer choice, would this statement be true, or false? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I couldn't get my head around this statement, and the above logic (Consumption decrease ---&gt; Investment/Inventory increase by same amount ----&gt; GDP unchanged) was the only one I could think of after pondering for hours. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there a clear answer to this statement if this were in an AP Macroeconomics question? Would a decrease in consumption really directly shift the AD curve to the left, or would it remain unchanged due to my logic? I would really appreciate a good explanation! :) &lt;/p&gt;&#xA;" OwnerUserId="23697" LastEditorUserId="23697" LastEditDate="2019-08-01T08:59:46.580" LastActivityDate="2019-08-31T16:03:05.380" Title="Does consumption decrease directly lead to a shift in Aggregate Demand curve to the left?" Tags="&lt;gdp&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30385" PostTypeId="2" ParentId="30383" CreationDate="2019-08-01T11:53:33.143" Score="0" Body="&lt;p&gt;You mention here a crucial point that falls nowadays more and more in oblivion, that is the well-known aggregation issue across consumers. The described behavior of the individual and aggregate demand curve can only be expected to be observed when the essential properties of the individual demand functions can be bequeathed to the aggregated demand function. For this case one needs a particular type of utility function, it must be of Gorman form, that is, the utility functions of consumers must be quasi-linear, or to put it differently, they must be linear in the numeraire good to get an aggregate demand function that inherits their properties from the individual demand functions (cf. Varian Microeconomic Analysis 1992, third edition, pp.152-154).&lt;/p&gt;&#xA;" OwnerUserId="23117" LastActivityDate="2019-08-01T11:53:33.143" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30386" PostTypeId="2" ParentId="5853" CreationDate="2019-08-01T12:17:24.883" Score="3" Body="&lt;p&gt;Just as an addition to all mentioned above and because the original question is about environmental economics: in that context GAMS is used quite a bit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In fact Nordhaus celebrated DICE model that is the basis of much of his Nobel prize work on climate change is a GAMS model. As a consequence so is most of the follow-up research.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On a personal note I myself use Maxima sometimes which is a free program similar to Mathematica.&lt;/p&gt;&#xA;" OwnerUserId="12186" LastActivityDate="2019-08-01T12:17:24.883" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30387" PostTypeId="2" ParentId="30383" CreationDate="2019-08-01T14:59:13.433" Score="0" Body="&lt;p&gt;The response to this question depends on what you assume about AD (a point which is also made by @ Holger I Meinhardt). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example Blanchard's textbook (my best guess of what you are using) builds an AS-AD model on top of an IS-LM. The AD equation is a summary of all IS-LM equilibria for corresponding  price levels &lt;span class=&quot;math-container&quot;&gt;$P$&lt;/span&gt;. In such a setting a secular decrease of consumption shifts the underlying IS-curve to the left, which yields a new set of IS-LM-equilibria (one for each level of &lt;span class=&quot;math-container&quot;&gt;$P$&lt;/span&gt;) that are all to the left of the equilibria for the corresponding &lt;span class=&quot;math-container&quot;&gt;$P$&lt;/span&gt; before the secular change in  &lt;span class=&quot;math-container&quot;&gt;$C$&lt;/span&gt;. I.e. the AD-curve shifts to the left.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This would mean that you are missing the fact that your IS-LM has some way to go before it reaches an equilibrium after the initial shock to &lt;span class=&quot;math-container&quot;&gt;$C$&lt;/span&gt;, but I am just guessing here since you didn't provide info on your assumptions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In any case the question should make it clear that the decrease in &lt;span class=&quot;math-container&quot;&gt;$C$&lt;/span&gt; is secular - i.e. not caused by a change of another variable in the model. Otherwise it may well be a move along the curve. &lt;/p&gt;&#xA;" OwnerUserId="23694" LastEditorUserId="23694" LastEditDate="2019-08-01T15:05:35.620" LastActivityDate="2019-08-01T15:05:35.620" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30389" PostTypeId="2" ParentId="30257" CreationDate="2019-08-01T16:45:38.637" Score="0" Body="&lt;p&gt;You seem to say that by choosing what groups of variable to regress ,you can get the desired significance. It means that you can maniipulate the model and get significant result indicating dependence of economic growth on certain explanatory variables.  But, such a model is likely to fail if a scrutiny of the Model is carried out by following a scientific procdure. This has been indicated by preceding Answer as well.&lt;/p&gt;&#xA;" OwnerUserId="23891" LastActivityDate="2019-08-01T16:45:38.637" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30390" PostTypeId="1" CreationDate="2019-08-01T18:42:57.457" Score="5" ViewCount="110" Body="&lt;p&gt;&quot;Why is modern macroeconomics all about identifying this shock and that shock?&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Coming from a theoretical econometrics background, I have recently delved into empirical macro literature. I am a bit confused about the meaning and significance of the notion of shock. Why we are trying to see the macro-world through the lens of shocks? What is the nature of these shocks that gives them this much explanatory power? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The only explanation I could come up with is that this obsession with shocks is a result of trying to fit macro problems into the framework of Wold decomposition theorem. Any covariance stationary process can be decomposed into a deterministic part and an &lt;span class=&quot;math-container&quot;&gt;$MA(\infty)$&lt;/span&gt; part. The deterministic part fits well with the idea of steady-state of the endogenous variables, while the stochastic part gives rise to the idea of seeing the macro variables fluctuation as a result of MA shocks. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is confusing to me is that it seems macroeconomists are trying to find &quot;real&quot; meaning for this merely-statistical notion of shock. The impulse response function of tax shock, government expenditure shock, etc., are how they see the world.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What am I missing?&lt;/p&gt;&#xA;" OwnerUserId="23898" LastActivityDate="2019-08-01T19:15:59.043" Title="Why is macroeconomics studied through &quot;Shocks&quot;?" Tags="&lt;macroeconomics&gt;&lt;econometrics&gt;" AnswerCount="1" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="30391" PostTypeId="2" ParentId="30390" CreationDate="2019-08-01T19:15:59.043" Score="3" Body="&lt;p&gt;Im assuming you're discussing some of the models associated with Real Business Cycle Theory.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These models have a structural underpinnings (meaning that there is some assumptions/empirics with regard to consumer behavior). Starting with the understanding that consumers are also suppliers of labor which face a intertemporal consumption-leisure trade off and Firms are profit maximizing and use capital,labor and technology to produce.Using this setup we can do some standard calculations for what equilibrium and Balanced Growth Paths would be.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now this as it stands is not a theory of fluctuations. The way Fluctuations are accounted for in this model is VIA exogenous shocks that enter through Technology,A overall change in aggregate preferences and increases in interest rate ect. This enters in the error term of all our equations. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is the justification for using Impulse response functions, &lt;strong&gt;Its to analyse what the implications are for surprise changes in our variables in terms of consumer and producer behavior&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;TL;DR:&#xA;The main point of this analytical process of shocking is to be cognizant for &lt;strong&gt;how&lt;/strong&gt; economic shocks enter the economy and what the implications are for consumer and producer behavior. This is based on the structure of that is imposed by economic theory.&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2019-08-01T19:15:59.043" CommentCount="8" ContentLicense="CC BY-SA 4.0" />
  <row Id="30392" PostTypeId="1" AcceptedAnswerId="30787" CreationDate="2019-08-01T19:49:44.053" Score="1" ViewCount="39" Body="&lt;p&gt;After a subsidiary company spins off from its parent and becomes public, what happens when the subsidiary distributes its shares to the parent firm's shareholders at some later time? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I'm reading seems to suggest that the price of the subsidiary's stock will converge to that of its parent, but I'm not sure why. Can someone elaborate on this? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For context, I'm reading a paper on limitations of arbitrage that studies events where the market value of a parent company is worth more than that of its subsidiary. &lt;/p&gt;&#xA;" OwnerUserId="18006" LastEditorUserId="18006" LastEditDate="2019-08-02T00:25:54.297" LastActivityDate="2019-09-08T02:39:55.943" Title="What happens when a subsidiary distributes its shares to its parent company?" Tags="&lt;finance&gt;&lt;arbitrage&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30394" PostTypeId="1" CreationDate="2019-08-02T00:12:28.637" Score="1" ViewCount="29" Body="&lt;p&gt;I am wondering if I have found q for all 3 firms correctly before I move on. I feel like I am doing something completely wrong, but can't seem to figure out what I truly need to do. (Sorry for the many pictures, I don't know another way to get post all of the information without doing it this way) Here is the question:&lt;a href=&quot;https://i.stack.imgur.com/aAvYM.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/aAvYM.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is my work leading up to the answers I got for each q:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/MFe2o.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/MFe2o.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/NNfV1.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/NNfV1.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/wMuZ8.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/wMuZ8.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="23474" LastActivityDate="2019-08-02T00:12:28.637" Title="Industrial Economics Help" Tags="&lt;industrial-organisation&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30395" PostTypeId="1" CreationDate="2019-08-02T15:08:12.177" Score="2" ViewCount="62" Body="&lt;p&gt;The St. Louis Fed's article &lt;a href=&quot;https://research.stlouisfed.org/publications/page1-econ/2019/05/03/a-new-frontier-monetary-policy-with-ample-reserves&quot; rel=&quot;nofollow noreferrer&quot;&gt;&quot;A New Frontier: Monetary Policy with Ample Reserves&quot;&lt;/a&gt; states that the Fed now uses the IOER and ON RRP rates to set the FFR, instead of open market operations, which are no longer capable of influencing interest rates.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But the Fed just indicated it will resume treasury rollovers and net asset purchases next month, given the ongoing rate collapse (since December).  Before 2009, it purchased/sold assets continuously to alter the money supply to clamp the effective FFR within its target range.  How does the Fed choose its asset purchase rate now?&lt;/p&gt;&#xA;" OwnerUserId="399" LastActivityDate="2019-08-02T15:08:12.177" Title="How does the Fed choose its asset purchase rate in an ample reserves era?" Tags="&lt;monetary-policy&gt;&lt;federal-reserve&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30396" PostTypeId="1" CreationDate="2019-08-03T00:35:46.120" Score="1" ViewCount="20" Body="&lt;p&gt;Can a bank create an account at another bank and get a loan in the form of deposits at that bank? If so, could these deposits at the other bank be used to satisfy the first bank's reserve/liquidity requirements? Or do only deposits in the central bank (fed) count toward reserve/liquidity requirements?&lt;/p&gt;&#xA;" OwnerUserId="18412" LastActivityDate="2019-08-03T00:35:46.120" Title="Can a bank have deposits at another bank?" Tags="&lt;banking&gt;&lt;reserve-requirement-ratio&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30397" PostTypeId="1" CreationDate="2019-08-03T05:20:14.603" Score="0" ViewCount="48" Body="&lt;p&gt;The basic principle of BOP accounting is &lt;strong&gt;double entry bookkeeping&lt;/strong&gt;. In short, every transaction enters twice. As a consequence of this, by definition&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\text{Current account } (CA) + \text{Capital account } (KA) = \text{Financial account } (FA)$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that this may differ depending on how you classify BOP accounts. Some sources classify it as CA = KA (and do not have an FA), but the principle is the same.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In my definition, the FA includes the official reserve account (OA).&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;What I don't understand is - if every transaction automatically generates a credit and debit entry, how can it be possible to have:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$CA + KA \neq (FA \; \backslash \; OA)$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know I am wrong to think this, but it seems to me like the 'need' for central bank intervention to absorb a surplus/deficit in the other components violates the definition of double-entry bookkeeping, which implies BOP = 0 at any point in time.&#xA;So:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) Why am I wrong wrt the above?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) If the OA does not absorb the deficit/surplus from the rest of the BOP, what happens?&lt;/p&gt;&#xA;" OwnerUserId="14521" LastEditorUserId="14521" LastEditDate="2019-08-03T10:57:55.027" LastActivityDate="2019-08-06T05:22:50.423" Title="What happens if the Central Bank does not absorb a BOP deficit/surplus?" Tags="&lt;international-economics&gt;&lt;balance-of-payments&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30400" PostTypeId="2" ParentId="30397" CreationDate="2019-08-03T08:42:44.523" Score="1" Body="&lt;p&gt;If OA is a part of FA. The second equation follows from the first:&#xA;&lt;span class=&quot;math-container&quot;&gt;$CA + KA = FA \wedge OA \neq 0 \Rightarrow FA - OA = CA +KA -OA \neq CA +KA$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Response to your &lt;strong&gt;EDIT&lt;/strong&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$CA + KA \neq \frac{FA}{OA}$&lt;/span&gt; follows from the first equation as well:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$CA + KA = FA \wedge OA \neq 1 \Rightarrow  \frac{FA}{OA}= \frac{CA+KA}{OA} \neq CA +KA$&lt;/span&gt; in general. (I've checked your LateX expression it really says: &quot;(FA \backslash OA)&quot;). I don't understand why you would think that BOP has anything to do with division. For example Feenstra and Taylor say in their textbook:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$OSB=-Reserve FA=CA+KA+Nonreserve FA$&lt;/span&gt;, where OSB is your OA and their version of the BOP identity is &lt;span class=&quot;math-container&quot;&gt;$CA + KA + FA = 0$&lt;/span&gt;, with your FA as their -FA.&lt;/p&gt;&#xA;" OwnerUserId="23694" LastEditorUserId="23929" LastEditDate="2019-08-06T05:22:50.423" LastActivityDate="2019-08-06T05:22:50.423" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30402" PostTypeId="1" AcceptedAnswerId="30765" CreationDate="2019-08-03T10:42:55.047" Score="1" ViewCount="55" Body="&lt;p&gt;I quote from the first page of &lt;a href=&quot;https://www.indiabudget.gov.in/economicsurvey/doc/vol1chapter/echap01_vol1.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;India's Economic Survey 2019&lt;/a&gt; (an official document) - &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Investment, especially private investment, is the “key driver” that&#xA;  drives demand, creates capacity, increases labour productivity, introduces new&#xA;  technology, allows creative destruction, and generates jobs.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Does investment &lt;strong&gt;directly&lt;/strong&gt; drive demand? If so, how? I can only see investment leading to higher productivity which increases &lt;strong&gt;supply&lt;/strong&gt; and displaces jobs.&lt;br&gt;If not, is the increase in demand a ripple effect of investment? If yes, what's the connection?&lt;/p&gt;&#xA;" OwnerUserId="14660" LastEditorUserId="14660" LastEditDate="2019-08-05T08:14:45.793" LastActivityDate="2019-09-07T09:08:26.480" Title="Does investment directly influence demand?" Tags="&lt;macroeconomics&gt;&lt;investment&gt;&lt;demand&gt;" AnswerCount="3" CommentCount="8" ContentLicense="CC BY-SA 4.0" />
  <row Id="30405" PostTypeId="1" CreationDate="2019-08-03T19:09:57.150" Score="2" ViewCount="32" Body="&lt;p&gt;I am running regressions to estimate the impact of health conditions on life satisfaction.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have read a paper that showed that there is likely to be measurement error in the self-reported health variables in that those who do not work are more likely to report health problems to justify not working.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is, is this a problem for my estimates? I include various dummy controls to capture employment status so do I simply control for this potentially problematic bias due to measurement error?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or, is the bias still there in which case I guess it would be a downward bias? Does my use of panel data and fixed effects make any difference?&lt;/p&gt;&#xA;" OwnerUserId="23908" LastEditorUserId="1601" LastEditDate="2019-08-04T07:08:11.327" LastActivityDate="2019-09-03T17:02:40.333" Title="Is measurement error in self-reported health a problem in this scenario...?" Tags="&lt;econometrics&gt;&lt;applied-econometrics&gt;&lt;health-economics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30407" PostTypeId="5" CreationDate="2019-08-04T15:52:24.230" Score="0" Body="&lt;p&gt;Unemployment is the condition of one who is capable of working, actively seeking work, but unable to find any work. It is important to note that to be considered unemployed a person must be an active member of the labor force and in search of remunerative work.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Statistics on unemployment are collected and analyzed by government labor offices in most countries and have come to be considered a chief indicator of economic health. Trends in unemployment and statistical differences among groups in the population are studied for what they may reveal of general economic trends and as bases for possible governmental action. Full employment has been a stated goal of many governments since World War II, and a variety of programs have been devised to attain it. It should be pointed out that full employment is not necessarily synonymous with a zero unemployment rate, for at any given time the unemployment rate will include some number of persons who are between jobs and not unemployed in any long-term sense.&lt;/p&gt;&#xA;" OwnerUserId="175" LastEditorUserId="175" LastEditDate="2019-08-04T19:39:04.447" LastActivityDate="2019-08-04T19:39:04.447" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30408" PostTypeId="4" CreationDate="2019-08-04T15:52:24.230" Score="0" Body="Unemployment is the condition of one who is capable of working, actively seeking work, but unable to find any work." OwnerUserId="175" LastEditorUserId="175" LastEditDate="2019-08-04T19:36:53.557" LastActivityDate="2019-08-04T19:36:53.557" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30409" PostTypeId="2" ParentId="30405" CreationDate="2019-08-04T16:29:24.607" Score="1" Body="&lt;p&gt;Check the correlation between health status variables and employment status. Start with simple pairwise correlations and then perform auxiliary regressions where you regress a health indicator on the employment status variables.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If there is visible explanatory power in employment status for health indicators, you may want to treat health indicators as endogenous variables and employment status as instruments. Depending on the number of variables, this may be the Two-stage Least Squares estimator.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2019-08-04T16:29:24.607" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30410" PostTypeId="1" CreationDate="2019-08-04T17:03:09.110" Score="0" ViewCount="47" Body="&lt;p&gt;I realize that the part of the reason the Glass-Steagall act was enacted was to ensure that banks do not invest customer's deposits into risky securities, but what was the rationale for separating investing banking from consumer banking? What did they hope to achieve by doing this? &lt;/p&gt;&#xA;" OwnerUserId="18006" LastEditorUserId="18006" LastEditDate="2019-08-07T18:07:02.093" LastActivityDate="2019-08-07T18:07:02.093" Title="Why was the Glass-Steagall Legislation enacted?" Tags="&lt;banking&gt;&lt;corporate-finance&gt;" AnswerCount="0" CommentCount="6" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30411" PostTypeId="2" ParentId="30043" CreationDate="2019-08-04T18:03:32.260" Score="1" Body="&lt;p&gt;Things change in price over time. For example, a movie ticket in 1955 might cost \$.50, and a movie ticket today costs about \$10, 2000% as expensive in 2019 as in 1955. (&lt;a href=&quot;https://www.natoonline.org/data/ticket-price/&quot; rel=&quot;nofollow noreferrer&quot;&gt;source&lt;/a&gt;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These are &lt;em&gt;nominal prices&lt;/em&gt;. That is, what is the &lt;em&gt;number of dollars&lt;/em&gt; I need to pay for a movie ticket? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, these nominal prices might go up for two reasons. It could be that the item is getting more valuable. &lt;em&gt;Or&lt;/em&gt; it could be that the dollar is getting less valuable. In other words:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(1) One is that the &lt;em&gt;relative price&lt;/em&gt; of movie tickets might be going up. That is, movie tickets are getting more expensive relative to other goods. For example, imagine a loaf of bread also cost \$.50 in 1955, but cost \$5 today (I'm making these numbers up). In 1955, you'd have to give up one loaf of bread to have enough money to buy a movie ticket. But today, you'd have to give up &lt;em&gt;two&lt;/em&gt; loaves of bread to buy a movie ticket. So movie tickets have gotten more expensive &lt;em&gt;relative to bread&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(2) Another reason that movie tickets might get more expensive is because &lt;em&gt;everything gets more expensive together&lt;/em&gt;. In other words, &lt;em&gt;the value of the dollar drops&lt;/em&gt;. In 1955, you could trade a single dollar for two movie tickets, or for two loaves of bread. Today, you can't trade a single dollar for even one of either. In other words, a dollar today is less valuable than a dollar in 1955.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This second reason, where the value of the dollar drops, is called inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Adjusting for inflation&lt;/em&gt; is a process of getting rid of any price changes that happen for reason (2). This is done by calculating (usually using something called the Consumer Price Index) what the prices of things would be &lt;em&gt;if the dollar still had the same value that it did in a different year&lt;/em&gt; - if inflation had not occurred (we've adjusted for inflation).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;According to the &lt;a href=&quot;https://www.usinflationcalculator.com/&quot; rel=&quot;nofollow noreferrer&quot;&gt;US Inflation Calculator&lt;/a&gt;, a single dollar in 1955 is 855.8% as valuable as a single dollar in 2019. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So that 2000% comparison of movie ticket prices we had before? That actually represents that movie tickets are 2000/855.8 = 2.34 (234%) as expensive in 2019 as in 1955 - a 134% increase in &lt;em&gt;relative&lt;/em&gt; price. The rest of the nominal price increase is because the dollar itself got weaker.&lt;/p&gt;&#xA;" OwnerUserId="12848" LastActivityDate="2019-08-04T18:03:32.260" CommentCount="9" ContentLicense="CC BY-SA 4.0" />
  <row Id="30412" PostTypeId="1" CreationDate="2019-08-04T19:34:15.800" Score="-2" ViewCount="61" Body="&lt;p&gt;so this is a somewhat simple question but im stumped, here's why:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;given the utility &lt;strong&gt;&lt;em&gt;U=2&lt;span class=&quot;math-container&quot;&gt;$X_1$&lt;/span&gt;+2&lt;span class=&quot;math-container&quot;&gt;$X_2$&lt;/span&gt;  where &lt;span class=&quot;math-container&quot;&gt;$P_1$$X_1$&lt;/span&gt;+&lt;span class=&quot;math-container&quot;&gt;$P_2$$X_2$&lt;/span&gt;=20 and &lt;span class=&quot;math-container&quot;&gt;$P_1$&lt;/span&gt;=0.5&lt;span class=&quot;math-container&quot;&gt;$P_2$&lt;/span&gt;&lt;/em&gt;&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;the question asks to find optimal values of &lt;span class=&quot;math-container&quot;&gt;$X_1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$X_2$&lt;/span&gt;, i tried using lagrangian method but the FOCs would only leave me with &lt;span class=&quot;math-container&quot;&gt;$\lambda$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$P$&lt;/span&gt; values. i also tried finding the MRS, which resulted in &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt;, while the price ratio is &lt;span class=&quot;math-container&quot;&gt;$1:2$&lt;/span&gt; , in both methods the quantities of goods 1 and 2 would disappear and I'd be trying to figure it out with what feels like incomplete information. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;give it a try and tell me where i went wrong if possible.&lt;/p&gt;&#xA;" OwnerUserId="23916" LastActivityDate="2019-08-04T20:06:19.380" Title="finding optimal values of quantities through utility function when MRS is 1 and price ratio is 1:2" Tags="&lt;microeconomics&gt;&lt;measuring-utility&gt;" AnswerCount="1" CommentCount="1" ClosedDate="2019-08-22T03:40:46.187" ContentLicense="CC BY-SA 4.0" />
  <row Id="30413" PostTypeId="2" ParentId="30412" CreationDate="2019-08-04T20:06:19.380" Score="2" Body="&lt;p&gt;Linear utility functions like the one you have (&lt;span class=&quot;math-container&quot;&gt;$U = 2X_1+2X_2$&lt;/span&gt;) commonly lead to corner solutions where you only buy one of the goods. You can tell that this will occur here because utility is maximized with an internal solution by setting MRS equal to the price ratio, but MRS is always 1 and the price ratio is always .5, so they'll never be equal.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this utility function, adding another unit of &lt;span class=&quot;math-container&quot;&gt;$X_1$&lt;/span&gt; or &lt;span class=&quot;math-container&quot;&gt;$X_2$&lt;/span&gt; will always bring you the same amount of marginal utility (&lt;span class=&quot;math-container&quot;&gt;$2$&lt;/span&gt;). Notice that you can rewrite the utility function as &lt;span class=&quot;math-container&quot;&gt;$U = 2(X_1+X_2)$&lt;/span&gt;. All that matters is maximizing the total amount of units of either good you have, subject to constraints.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given that, and given that &lt;span class=&quot;math-container&quot;&gt;$X_1$&lt;/span&gt; is cheaper than &lt;span class=&quot;math-container&quot;&gt;$X_2$&lt;/span&gt;, you have no reason to ever buy any &lt;span class=&quot;math-container&quot;&gt;$X_2$&lt;/span&gt;. So set &lt;span class=&quot;math-container&quot;&gt;$X_2 = 0$&lt;/span&gt; and use the budget constraint to solve for &lt;span class=&quot;math-container&quot;&gt;$X_1$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerUserId="12848" LastActivityDate="2019-08-04T20:06:19.380" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30417" PostTypeId="1" CreationDate="2019-08-05T08:17:26.167" Score="0" ViewCount="17" Body="&lt;p&gt;I quote from &lt;a href=&quot;https://www.indiabudget.gov.in/economicsurvey/doc/vol1chapter/echap01_vol1.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;India's Economic Survey 2019&lt;/a&gt; (an official document) - &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;While the claim is often made that investment displaces jobs,&#xA;  this remains true only when viewed within the silo of a specific activity. When&#xA;  examined across the entire value chain, capital investment fosters job creation&#xA;  as the production of capital goods, research &amp;amp; development and supply chains&#xA;  generate jobs.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The immediate affect of investment is &lt;strong&gt;displacement of jobs&lt;/strong&gt; due to increase in productivity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Even if we look at the entire value chain, the new jobs created will require new skills. Is there any reason to claim the net affect on job loss is not significant?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, when IT revolution displaced clerical work, did it create enough jobs to absorb all those clerks? (I know it must have in the next 20 or 30 years but during the interim period there was significant job loss right?)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I want to clarify that I am not arguing against investment because of the potential job losses. I understand that regardless of job losses, investment and productivity gains are inevitable.&lt;/p&gt;&#xA;" OwnerUserId="14660" LastActivityDate="2019-08-05T08:17:26.167" Title="How does investment lead to generation of jobs?" Tags="&lt;macroeconomics&gt;&lt;investment&gt;&lt;demand&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30420" PostTypeId="2" ParentId="20044" CreationDate="2019-08-05T20:06:19.373" Score="0" Body="&lt;p&gt;For the theory, House (JME several years ago), Barsky, House and Kimball (AER, circa 2006) Barsky, Boehm, House, and Kimball (working paper on SED website).  Johannes Wieland has a new paper on this, maybe not yet available.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The key theoretical point (put somewhat loosely) is that purchases of an &quot;idealized durable&quot;, one with a very low depreciation rate, should have a near-infinite intertemporal elasticity of substitution.  &lt;/p&gt;&#xA;" OwnerUserId="23930" LastActivityDate="2019-08-05T20:06:19.373" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30421" PostTypeId="2" ParentId="30020" CreationDate="2019-08-06T01:33:06.737" Score="2" Body="&lt;p&gt;Transitivity and completeness are actually &lt;em&gt;necessary&lt;/em&gt; for the existence of a utility representation. Whenever you prove that preferences fail to be complete or transitive you can conclude that they do &lt;em&gt;not&lt;/em&gt; admit a utility function. &#xA;For finite choice sets &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt;, transitivity and completeness are necessary and sufficient, see Theorem 5 &lt;a href=&quot;https://pdfs.semanticscholar.org/1cdc/4f88148c2573769f2763897f831963015524.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Contrary to what you suggest, continuity is not itself necessary, but it is almost necessary. What you need is a condition called separability. Say that &lt;span class=&quot;math-container&quot;&gt;$\succcurlyeq$&lt;/span&gt; is separable if there exists a &lt;em&gt;countable&lt;/em&gt; set &lt;span class=&quot;math-container&quot;&gt;$Z \subseteq X$&lt;/span&gt; such that for every &lt;span class=&quot;math-container&quot;&gt;$x,y\in X$&lt;/span&gt; there exists some &lt;span class=&quot;math-container&quot;&gt;$z\in Z$&lt;/span&gt; such that &lt;span class=&quot;math-container&quot;&gt;$x\succcurlyeq z \succcurlyeq y$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Theorem&lt;/strong&gt; A preference relation &lt;span class=&quot;math-container&quot;&gt;$\succcurlyeq$&lt;/span&gt; on &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; admits a utility representation if and only if it is complete, transitive, and separable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is actually a very old result by Cantor that precedes the well-known result by Debreu&amp;mdash;which assumes continuity. Cantor's result was brought into Economics by Kreps. You can find a proof &lt;a href=&quot;https://pdfs.semanticscholar.org/1cdc/4f88148c2573769f2763897f831963015524.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here, Theorem 9&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="49" LastEditorUserId="11590" LastEditDate="2019-08-06T18:19:37.657" LastActivityDate="2019-08-06T18:19:37.657" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30422" PostTypeId="1" CreationDate="2019-08-06T02:38:39.067" Score="2" ViewCount="74" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/uKTvl.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/uKTvl.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So I think I understand the math, but I don't understand the intuition on a 3d graph. Why does the ratio of partial derivatives give us a tangent line on a level curve(indifference curve)? My understanding is  &lt;span class=&quot;math-container&quot;&gt;$\frac{\partial U(x_1,x_2)}{\partial x_1}$&lt;/span&gt; Will give a tangent line parallel to the &lt;span class=&quot;math-container&quot;&gt;$U(x_1,x_2), x_1$&lt;/span&gt; plane and &lt;span class=&quot;math-container&quot;&gt;$\frac{\partial U(x_1,x_2)}{\partial x_2}$&lt;/span&gt; Will give a tangent line parallel to the &lt;span class=&quot;math-container&quot;&gt;$U(x_1,x_2), x_2$&lt;/span&gt; plane. So why does dividing them end up with a tangent line parallel to the &lt;span class=&quot;math-container&quot;&gt;$(x_1, x_2)$&lt;/span&gt; plane?&lt;/p&gt;&#xA;" OwnerUserId="23931" LastActivityDate="2021-03-02T22:02:45.267" Title="What is the graphic intuition behind Marginal rate of subsitution" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30423" PostTypeId="1" AcceptedAnswerId="32347" CreationDate="2019-08-06T15:26:33.003" Score="5" ViewCount="101" Body="&lt;p&gt;I would like your help to better understand the notion of &lt;strong&gt;Bayes Correlated Equilibrium (BCE)&lt;/strong&gt; in a &lt;strong&gt;single-agent decision problem with uncertainty&lt;/strong&gt; The notion of BCE is provided in &lt;a href=&quot;http://www.princeton.edu/~smorris/pdfs/bce.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;this&lt;/a&gt; paper for a generic &lt;span class=&quot;math-container&quot;&gt;$N$&lt;/span&gt;-player game. &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Consider the following single-agent choice problem under uncertainty. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let &lt;span class=&quot;math-container&quot;&gt;$V$&lt;/span&gt; be the state of the world with support &lt;span class=&quot;math-container&quot;&gt;$\mathcal{V}$&lt;/span&gt; and probability distribution &lt;span class=&quot;math-container&quot;&gt;$P_V\in \Delta(\mathcal{V})$&lt;/span&gt;. First, let nature draw a realisation &lt;span class=&quot;math-container&quot;&gt;$v$&lt;/span&gt; of &lt;span class=&quot;math-container&quot;&gt;$V$&lt;/span&gt; from &lt;span class=&quot;math-container&quot;&gt;$P_V$&lt;/span&gt;. &#xA;Then, let the decision maker choose an action &lt;span class=&quot;math-container&quot;&gt;$y\in \mathcal{Y}$&lt;/span&gt;, with &lt;span class=&quot;math-container&quot;&gt;$\mathcal{Y}$&lt;/span&gt; finite, without observing &lt;span class=&quot;math-container&quot;&gt;$v$&lt;/span&gt;. Upon the decision has been made, the decision maker gets a payoff &lt;span class=&quot;math-container&quot;&gt;$u(y,v)$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Before choosing an action, the decision maker can receive some signal to refine her prior about the state of the world.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Now, I want to use Theorem 1 in Bergemann and Morris (2016) to characterise the set of optimal strategies under minimal assumptions on the amount of information that is processed by the decision maker. To do that, I introduce the notion of one-player BCE.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A one-player BCE of the game described is a probability distribution &lt;span class=&quot;math-container&quot;&gt;$P_{Y,V}\in \Delta(\mathcal{Y}\times \mathcal{V})$&lt;/span&gt; such that:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) &lt;span class=&quot;math-container&quot;&gt;$\forall v \in \mathcal{V}$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\sum_{y\in \mathcal{Y}}P_{Y,V}(y,v)=P_V(v)$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) &lt;span class=&quot;math-container&quot;&gt;$\forall y\in \mathcal{Y}$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\forall \tilde{y}\neq y$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\sum_{v\in \mathcal{V}} [u(y,v)-u(\tilde{y},v)] \times P_{Y,V}(y,v)\geq 0&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Let &lt;span class=&quot;math-container&quot;&gt;$\mathcal{P}$&lt;/span&gt; be the set of BCE. &#xA;Let &#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\mathcal{Q}\equiv \{P_Y\in  \Delta(\mathcal{Y}): P_Y(y)\equiv \sum_{v\in \mathcal{V}}P_{Y,V}(y,v) \text{ }\forall y \in \mathcal{Y}, P_{Y,V}\in \mathcal{P}\}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Questions:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) Is &lt;span class=&quot;math-container&quot;&gt;$\mathcal{Q}$&lt;/span&gt; convex? I guess it is because &lt;span class=&quot;math-container&quot;&gt;$\mathcal{P}$&lt;/span&gt; is convex. Could you confirm?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) Let &lt;span class=&quot;math-container&quot;&gt;$ \mathcal{B}\equiv \{b\in \mathbb{R}^{|\mathcal{Y}|}: b^Tb\leq 1\}$&lt;/span&gt; be the unit ball in &lt;span class=&quot;math-container&quot;&gt;$\mathbb{R}^{|\mathcal{Y}|}$&lt;/span&gt;. Let us stack in a &lt;span class=&quot;math-container&quot;&gt;$|\mathcal{Y}|\times 1$&lt;/span&gt; vector the image set of every probability distribution &lt;span class=&quot;math-container&quot;&gt;$P_{Y}\in \mathcal{Q}$&lt;/span&gt;. With some abuse of notation, let us still denote any such a vector by &lt;span class=&quot;math-container&quot;&gt;$P_{Y}\in \mathcal{Q}$&lt;/span&gt;. Does &#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\max_{P_Y\in \mathcal{Q}} b^T P_Y&#xA;$$&lt;/span&gt;&#xA;exists &lt;span class=&quot;math-container&quot;&gt;$\forall b\in \mathcal{B}$&lt;/span&gt;? I guess the answer to this question depends on the features of &lt;span class=&quot;math-container&quot;&gt;$\mathcal{Q}$&lt;/span&gt;. For example, if &lt;span class=&quot;math-container&quot;&gt;$\mathcal{Q}$&lt;/span&gt; is compact, then the maximum above exists. Could you help?&lt;/p&gt;&#xA;" OwnerUserId="1505" LastEditorUserId="1505" LastEditDate="2019-08-11T11:33:02.557" LastActivityDate="2019-10-20T17:18:30.253" Title="Features of the set of Bayes Correlated Equilibrium in a single-agent decision problem with uncertainty" Tags="&lt;game-theory&gt;&lt;bayesian-game&gt;" AnswerCount="1" CommentCount="4" FavoriteCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30425" PostTypeId="1" CreationDate="2019-08-06T21:18:12.247" Score="0" ViewCount="16" Body="&lt;p&gt;While I understand the meaning of the components of the Financial account what I don't understand is the concept of &quot;assets&quot; and &quot;liabilities&quot; after direct investment, portfolio investment etc. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A lot of studies have looked at gross capital inflows, gross capital outflows and net capital flows but don't mention exactly the procedure to find these.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would really appreciate if anyone can explain. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/acgwq.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/acgwq.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="15509" LastActivityDate="2019-08-06T21:18:12.247" Title="Interpretation of IMF Balance of Payments Data - Financial Account" Tags="&lt;balance-of-payments&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="30426" PostTypeId="2" ParentId="30402" CreationDate="2019-08-07T00:25:48.690" Score="0" Body="&lt;p&gt;Seems like this is kind of the logic behind &quot;Says Law&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By a loose chain of logic, increase in investment by firms increases capital stock posessed by firms.This then this increases productivity per worker which in turn increases wages for workers.&#xA;From these increases in wages workers  have more purchasing power.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This logic however ignores any sort of possible existance of labor contracts which keeps wages down when productivity goes up. When discussing the macroeconomy as a whole this isnt so crazy, however this logic is largely dependent on a given country's political economy.&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2019-08-07T00:25:48.690" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30427" PostTypeId="1" CreationDate="2019-08-07T07:50:00.590" Score="0" ViewCount="28" Body="&lt;p&gt;I'm looking for expenditure of research and development data per sector or averaged across all sectors from the United States prior to 1970 either in absolute values or in percentage of GDP.&lt;/p&gt;&#xA;" OwnerUserId="18743" LastEditorUserId="18743" LastEditDate="2019-08-07T09:50:37.747" LastActivityDate="2019-08-07T09:50:37.747" Title="Research and development data before 1970 for United States" Tags="&lt;research&gt;&lt;economic-history&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="30428" PostTypeId="1" AcceptedAnswerId="30430" CreationDate="2019-08-07T09:06:07.987" Score="2" ViewCount="112" Body="&lt;p&gt;Whenever we talk about quasi-linear preferences, we assume that the consumer is sufficiently wealthy. As far as I understand is that we need that assumption in order to obtain an interior solution.&#xA;But what would the economic intuition behind that premise be? Is it that the consumer would not consume anything of the nonlinear good in case of insufficient wealth?&lt;/p&gt;&#xA;" OwnerUserId="23937" LastActivityDate="2019-08-07T10:42:51.400" Title="Assumption of sufficient wealth in quasi-linear preferences" Tags="&lt;consumer-theory&gt;&lt;preferences&gt;&lt;wealth&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30429" PostTypeId="2" ParentId="30428" CreationDate="2019-08-07T10:04:34.363" Score="2" Body="&lt;p&gt;This depends on the exact preferences, but usually the utility function&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;U(x,y) = v(x) + y&#xA;$$&lt;/span&gt;&#xA;is such that&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\lim_{x \to 0} |MRS(x,y)| = \lim_{x \to 0} \frac{\text{d}v(x)}{\text{d} x} = \infty.&#xA;$$&lt;/span&gt;&#xA;In this case it is the consumption of an additional marginal unit of the nonlinear good &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; that is infinitely useful compared to the consumption of an additional marginal unit of the linear good &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt;. Hence the consumer will consume some units of &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; before buying any of &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt;. If the consumer is not 'wealthy enough', the corner solution will be such that &lt;span class=&quot;math-container&quot;&gt;$x &amp;gt; 0$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$y = 0$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2019-08-07T10:04:34.363" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30430" PostTypeId="2" ParentId="30428" CreationDate="2019-08-07T10:42:51.400" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Is it that the consumer would not consume anything of the nonlinear good in case of insufficient wealth?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;No, it is exactly the other way around.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The utility function in the two goods case will have the following form:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$U(x,y)=u(x)+y$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We assume that &lt;span class=&quot;math-container&quot;&gt;$u'(x)&amp;gt;0$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$u''(x)&amp;lt;0$&lt;/span&gt; or marginal utility of &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; is  decreasing in &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;. &lt;span class=&quot;math-container&quot;&gt;$MU_y$&lt;/span&gt; meanwhile is constant. &#xA;Another assumption that is often not explicitly stated is that &lt;span class=&quot;math-container&quot;&gt;$\frac{MU_x}{p_x}&amp;gt;\frac{MU_y}{p_y}$&lt;/span&gt; for some &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;. In words: There is some range of &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; values at which the marginal utility of a dollar spent on &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; exceeds the marginal utility of a dollar spent on &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt;. Now because we know &lt;span class=&quot;math-container&quot;&gt;$MU_x$&lt;/span&gt; is decreasing in &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;, we know that the preceding inequality will  hold true when the consumer is consuming a relatively small quantity of &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now if we assume that the budget is very large, we know that the left side of the inequality gets smaller and smaller while the right side remains constant as the consumer consumes more and more of &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;. Because of decreasing &lt;span class=&quot;math-container&quot;&gt;$MU_x$&lt;/span&gt; a moment will come where a dollar spent on &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; will generate at least as much utility as a dollar spent on &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;. When this moment comes (the consumption of &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; at which &lt;span class=&quot;math-container&quot;&gt;$\frac{MU_x}{p_x}=\frac{MU_y}{p_y}$&lt;/span&gt; ), the consumer will switch to consuming &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; with the rest of his budget.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When the consumer has a small budget however, he will never attain the point where the preceding equality holds true, that is, he is left consuming &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; in a quantity for which &lt;span class=&quot;math-container&quot;&gt;$\frac{MU_x}{p_x}&amp;gt;\frac{MU_y}{p_y}$&lt;/span&gt; This is the case of insufficient wealth. In this case the consumer only consumes the nonlinear good, in this case denoted by &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerUserId="18214" LastActivityDate="2019-08-07T10:42:51.400" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30431" PostTypeId="1" CreationDate="2019-08-07T11:18:50.640" Score="6" ViewCount="156" Body="&lt;p&gt;The problem, I am trying to solve is based on the paper by Rochet and Vila 1994 (see literature below). In fact, it is a variant of the seminal paper of Kyle 1985 in the finance/economics literature. Despite the problem being framed in the finance literature, the mathematical problem associated with it is far more general and is based on calculus of variations. Let me briefly introduce the problem:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Let &lt;span class=&quot;math-container&quot;&gt;$V \sim N(0, \sigma^2_V)$&lt;/span&gt; denote the random asset value, &lt;span class=&quot;math-container&quot;&gt;$U\sim N(0, \sigma^2_U)$&lt;/span&gt; the random liquidity trader's demand, &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; the order by the strategic trader, and &lt;span class=&quot;math-container&quot;&gt;$Y=X+U$&lt;/span&gt; the total order flow&lt;/li&gt;&#xA;&lt;li&gt;The strategic trader observes the realization of the asset value &lt;span class=&quot;math-container&quot;&gt;$V=v$&lt;/span&gt;, the exogenous liquidity trades &lt;span class=&quot;math-container&quot;&gt;$U=u$&lt;/span&gt;, and submits an order &lt;span class=&quot;math-container&quot;&gt;$x(u,v)$&lt;/span&gt; that maximizes his trading profits: &lt;span class=&quot;math-container&quot;&gt;$\pi(x,u,v)=x(v-P(y))$&lt;/span&gt;&lt;/li&gt;&#xA;&lt;li&gt;The market maker observes total order flow &lt;span class=&quot;math-container&quot;&gt;$Y=y$&lt;/span&gt; and sets the trading price equal to the conditional expected value of the asset, i.e. &lt;span class=&quot;math-container&quot;&gt;$P(y)=E[V|y]$&lt;/span&gt;.&lt;/li&gt;&#xA;&lt;li&gt;A market equilibrium is characterized by a trading strategy &lt;span class=&quot;math-container&quot;&gt;$x(u,v)$&lt;/span&gt; and a pricing rule &lt;span class=&quot;math-container&quot;&gt;$P(y)$&lt;/span&gt; such that: i) Given the pricing rule, for every &lt;span class=&quot;math-container&quot;&gt;$(u,v)$&lt;/span&gt;, the trading strategy &lt;span class=&quot;math-container&quot;&gt;$x(u,v)$&lt;/span&gt; maximizes the informed trader's profit &lt;span class=&quot;math-container&quot;&gt;$\pi$&lt;/span&gt; and ii) given the trading strategy, the pricing rule &lt;span class=&quot;math-container&quot;&gt;$P(y)$&lt;/span&gt; sets the price equal to the expected value of &lt;span class=&quot;math-container&quot;&gt;$V$&lt;/span&gt; conditional on &lt;span class=&quot;math-container&quot;&gt;$Y=y$&lt;/span&gt;.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Now the authors show that this problem is equivalent to the following optimization problem &lt;span class=&quot;math-container&quot;&gt;$\min_{P(\cdot)} E [ \max_x (v-P(x+u))x]$&lt;/span&gt;, that is, the problem can be solved by the calculus of variations. They state the answer to be &lt;span class=&quot;math-container&quot;&gt;$P(y)=\frac{\sigma_V}{\sigma_U}y$&lt;/span&gt; which is true, once we &quot;guess and verify&quot; the solution. However, I want to find the solution from scratch, that is, without &quot;guess and verify&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My problems arise as the function over which the functional of &lt;span class=&quot;math-container&quot;&gt;$P$&lt;/span&gt; is defined is itself an optimal value. We know that the insider maximizes &lt;span class=&quot;math-container&quot;&gt;$x(v-P(x+u))$&lt;/span&gt; or equivalently &lt;span class=&quot;math-container&quot;&gt;$(y-u)(v-P(y))$&lt;/span&gt;. From the first-order condition, we can calculate the optimal demand &lt;span class=&quot;math-container&quot;&gt;$y(u,v)^*= \frac{v-P(y^*)}{P'(y^*)} +u$&lt;/span&gt; which results in an optimal profit of &lt;span class=&quot;math-container&quot;&gt;$\pi(y^*,u,v)=\frac{(v-P(y^*))^2}{P'(y^*)}$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, the market maker's optimization problem can be rewritten as &lt;span class=&quot;math-container&quot;&gt;$$\min_{P(\cdot)} E [ \max_x (v-P(x+u))x]= \int_{ \infty}^{\infty} \int_{-\infty}^{\infty} \pi(y^*,u,v) f_V(v) f_U(u) du dv = \int_{ \infty}^{\infty} \int_{-\infty}^{\infty} \frac{(v-P(y^*))^2}{P'(y^*)} f_V(v) f_U(u) du dv  $$&lt;/span&gt; with &lt;span class=&quot;math-container&quot;&gt;$f_V$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$f_U$&lt;/span&gt; being the density functions of &lt;span class=&quot;math-container&quot;&gt;$V$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$U$&lt;/span&gt; respectively.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From the fact that &lt;span class=&quot;math-container&quot;&gt;$\pi^*$&lt;/span&gt; is the maximum of the informed trader's objective function, we can use the envelope theorem to simplify: i) &lt;span class=&quot;math-container&quot;&gt;$\frac{d \pi(y^*)}{d u}=\frac{\partial \pi(y,u,v)}{\partial u}|_{y=y^*}=-(v-P(y^*))$&lt;/span&gt; and  ii) &lt;span class=&quot;math-container&quot;&gt;$\frac{d \pi(y^*)}{d v}=(y^*-u)$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is where I am stuck. My problem is the fact that the argument &lt;span class=&quot;math-container&quot;&gt;$y^*(u,v)$&lt;/span&gt; of the function we are searching for &lt;span class=&quot;math-container&quot;&gt;$P(\cdot)$&lt;/span&gt; is itself the solution of a maximization problem. Especially, I do not know how to calculate the integral with respect to &lt;span class=&quot;math-container&quot;&gt;$v$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$u$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any comments are highly appreciated. Thank you!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Literature:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Rochet and Vila 1994, &quot;Insider Trading wihtout Normality&quot;, The Review of Economic Studites, Vol. 61, No. 1, pp. 131-152&lt;/li&gt;&#xA;&lt;li&gt;Kyle 1985, &quot;Continuous Auctions and Insider Trading&quot;, Econometrica, Vol. 52, No. 6, pp 1315-1335&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="23828" LastEditorUserId="59" LastEditDate="2019-08-09T03:36:28.393" LastActivityDate="2019-08-09T03:36:28.393" Title="Optimal price function: application of calculus of variations" Tags="&lt;finance&gt;&lt;academic-graduate&gt;&lt;optimal-control&gt;&lt;trading&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30432" PostTypeId="1" CreationDate="2019-08-07T13:10:27.763" Score="3" ViewCount="73" Body="&lt;p&gt;The &lt;a href=&quot;https://en.wikipedia.org/wiki/Quantity_theory_of_money&quot; rel=&quot;nofollow noreferrer&quot;&gt;quantity theory of money&lt;/a&gt; states the price level is proportional to the amount of money in circulation. That is, if the quantity of money increases by some factor &lt;span class=&quot;math-container&quot;&gt;$k$&lt;/span&gt;, the price level will increase by the same factor &lt;span class=&quot;math-container&quot;&gt;$k$&lt;/span&gt;. My question is simple: in which economic models should one expect such a claim to hold true?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To be clear, I am asking about 'microfounded' models which contain full descriptions of the preferences and constraints of the underlying agents (including but not restricted to general equilibrium models). I am not interested in equations like &lt;span class=&quot;math-container&quot;&gt;$MV = PY$&lt;/span&gt; unless you can show that they arise from such a model.&lt;/p&gt;&#xA;" OwnerDisplayName="user17900" LastEditorUserId="42" LastEditDate="2019-08-07T18:20:18.667" LastActivityDate="2020-01-06T19:47:51.420" Title="Quantity theory of money: microfoundations" Tags="&lt;microeconomics&gt;&lt;reference-request&gt;&lt;money-supply&gt;&lt;quantity-theory-of-money&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30433" PostTypeId="2" ParentId="30422" CreationDate="2019-08-07T14:50:44.753" Score="0" Body="&lt;p&gt;This isn't a perfect answer to your question, but I tend to show all my students pages 1-4 of Dixit's Optimization book. It describes exactly what the MRS is doing and why it must be tangent to the budget constraint. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.scribd.com/document/390573490/Dixit-Optimization-in-Economic-Theory-pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.scribd.com/document/390573490/Dixit-Optimization-in-Economic-Theory-pdf&lt;/a&gt; (pages 1-3 here unless you sign in) &lt;/p&gt;&#xA;" OwnerUserId="23470" LastActivityDate="2019-08-07T14:50:44.753" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30434" PostTypeId="1" AcceptedAnswerId="30438" CreationDate="2019-08-07T16:13:58.387" Score="7" ViewCount="384" Body="&lt;p&gt;I want to estimate a standard Cobb-Douglas production function of the form &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$ Y=AK^{\alpha}L^{\beta}$&lt;/span&gt;. However, I only have data on labour expenditures, not units of labour. I don't have data on the price of labour &lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt; either, so I can't back out the units of labour from expenditures. Is it okay to estimate the production function (in a GMM regression framework) using labour expenditures instead of units of labour?&lt;/p&gt;&#xA;" OwnerUserId="21583" LastActivityDate="2019-08-08T16:26:09.913" Title="Cobb-Douglas production function with expenditures rather than units" Tags="&lt;microeconomics&gt;&lt;econometrics&gt;&lt;applied-econometrics&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30435" PostTypeId="2" ParentId="17718" CreationDate="2019-08-07T17:42:09.380" Score="0" Body="&lt;p&gt;Negative book value is actually a 'bug' that remains unsolved by general accounting principles. It is a problem that we've better not think isolatedly. Any companies that have negative book values can actually 'transfer to' positive ones if alternative accounting principles are considered. But firms are not that flexible to change their ways of recording financial information so that this kinda anomaly exists. Correct me if I am wrong. &lt;/p&gt;&#xA;" OwnerUserId="23941" LastActivityDate="2019-08-07T17:42:09.380" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30438" PostTypeId="2" ParentId="30434" CreationDate="2019-08-07T18:44:44.473" Score="9" Body="&lt;p&gt;Sure you can, just that your interpretation of your variables in your analysis changes however. In this case you are analyzing how investment in differing factors of production affect output.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'd recommend that you may want to estimate a more flexible functional form like the &lt;a href=&quot;https://www.youtube.com/watch?v=vKo9g5wr5G0&quot; rel=&quot;noreferrer&quot;&gt;Translog Production Function&lt;/a&gt; to check if your function is CES instead of just a simple cobb-douglas.&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2019-08-07T18:44:44.473" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30439" PostTypeId="2" ParentId="30434" CreationDate="2019-08-07T19:20:29.440" Score="7" Body="&lt;p&gt;If prices are constant then quantities are proportional to expenditures. Consider :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ Y=AK^{\alpha}L^{\beta} = A(\frac{E_{K}}{r})^{\alpha}(\frac{E_{L}}{w})^{\beta} $$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$ = (\frac{A}{r^\alpha w^\alpha})(E_{K})^{\alpha}(E_{L})^{\beta} $$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$ = \tilde{A}(E_{K})^{\alpha}(E_{L})^{\beta} $$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If prices don't vary too much this may be an acceptable approximation. However, notice that this is a log-additive function:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$ \ln{Y_t} = y_t = a - \alpha \cdot r_t - \beta \cdot w_t + \alpha \cdot \ln (E_{K,t})  + \beta \cdot \ln (E_{L,t})$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you estimate a regression with time fixed effects, it absorbs the &lt;span class=&quot;math-container&quot;&gt;$a - \alpha \cdot r_t - \beta \cdot w_t $&lt;/span&gt; term and your expenditures regressions give the same results for &lt;span class=&quot;math-container&quot;&gt;$\alpha$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\beta$&lt;/span&gt; as if you knew the quantities. If you want to know &lt;span class=&quot;math-container&quot;&gt;$\alpha$&lt;/span&gt; or &lt;span class=&quot;math-container&quot;&gt;$\beta$&lt;/span&gt; this is fine, but you won't identify &lt;span class=&quot;math-container&quot;&gt;$a$&lt;/span&gt; / &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt; this way. &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2019-08-08T16:26:09.913" LastActivityDate="2019-08-08T16:26:09.913" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="30440" PostTypeId="2" ParentId="30432" CreationDate="2019-08-07T19:48:39.817" Score="2" Body="&lt;p&gt;In the chapter 4 of the graduate textbook &lt;a href=&quot;https://rads.stackoverflow.com/amzn/click/com/0262022834&quot; rel=&quot;nofollow noreferrer&quot; rel=&quot;nofollow noreferrer&quot;&gt; Lectures on Macroeconomics&lt;/a&gt; there is &lt;em&gt;&quot;The Overlapping Generation with Money&quot;&lt;/em&gt;. In that case we have a model which is microfounded (i.e. accounts for how our consumers interact with money on the microeconomic level). This is essentially an explanation of Paul Samuelson's 1958 &lt;i&gt;&quot;consumption loan model&quot;&lt;/i&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can find a useful set of videos on this model here:&lt;br&gt;&#xA;&lt;a href=&quot;https://www.youtube.com/playlist?list=PL10zuK3j9SNl15Xy-EGteGDTd74j4uE_n&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.youtube.com/playlist?list=PL10zuK3j9SNl15Xy-EGteGDTd74j4uE_n&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2019-08-07T19:48:39.817" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30441" PostTypeId="1" CreationDate="2019-08-07T23:05:16.207" Score="0" ViewCount="33" Body="&lt;p&gt;Now my professor explained to me that at full employment the increase in G (gov expenditure) shifts the IS curve to the right, but at the same time the price level increase from the rightward shift in AD curve leads to the leftward shift of the LM curve, leading to interest rate increase only and no change in Y. This is how he explained crowding out, but I don’t understand the implications here. &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;What are the firms actions that are implied in the movement of the LM curve to the left? What does its leftward shift exactly signify? How does it explain the firms crowding out from investment? &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;And doesn’t the LM curve shift leftward at under full employment as well since P(price level) will always increase with an increase in G (AD curve shift to the right)? Why does LM not shift at under full employment when the IS curve moves to the right, but suddenly move leftward when there is full employment? &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;I would really appreciate if someone can give me a clear explanation on what the professor meant with this logic. &lt;/p&gt;&#xA;" OwnerUserId="23697" LastEditorUserId="23697" LastEditDate="2019-08-08T07:22:23.873" LastActivityDate="2019-08-08T07:22:23.873" Title="Why is Crowding out more effective at full employment?" Tags="&lt;fiscal-policy&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30442" PostTypeId="2" ParentId="30431" CreationDate="2019-08-08T12:00:17.463" Score="4" Body="&lt;p&gt;Not really an answer, but too long for comment. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &lt;span class=&quot;math-container&quot;&gt;$P$&lt;/span&gt; in your &#xA;&lt;span class=&quot;math-container&quot;&gt;$$y(u,v)^*= \frac{v-P(y^*)}{P'(y^*)} +u$$&lt;/span&gt; &#xA;expression from the insider's problem and the &lt;span class=&quot;math-container&quot;&gt;$P$&lt;/span&gt; in the expression &#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\min_{P(\cdot)} \cdots&#xA;$$&lt;/span&gt; &#xA;from the market maker's problem should not be the same. That is &lt;em&gt;not&lt;/em&gt; the definition of rational expectation equilibrium in this context.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The insider takes the pricing rule as given, per definition of rational expectation equilibrium. This means insider has optimal demand &#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;y(u,v, P_1(\cdot))^*= \frac{v-P_1(y^*)}{P_1'(y^*)} +u&#xA;$$&lt;/span&gt; for any pricing rule &lt;span class=&quot;math-container&quot;&gt;$P_1(\cdot)$&lt;/span&gt;. Then market maker minimizes &#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;E[ ( y(u,v, P_1(\cdot))^* - u) \cdot ( v - P_2(y(u,v, P_1(\cdot))^*) )  ]&#xA;$$&lt;/span&gt; over &lt;span class=&quot;math-container&quot;&gt;$P_2$&lt;/span&gt;---taking &lt;span class=&quot;math-container&quot;&gt;$P_1$&lt;/span&gt; as fixed. It's a simultaneous game.&#xA;If the minimizing &lt;span class=&quot;math-container&quot;&gt;$P_2$&lt;/span&gt; coincides with &lt;span class=&quot;math-container&quot;&gt;$P_1$&lt;/span&gt;, then &lt;span class=&quot;math-container&quot;&gt;$P= P_1 = P_2$&lt;/span&gt; is an equilibrium pricing rule. Doing this in the one-period Kyle setting recovers Kyle's lambda, whereas your calculation would not.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The optimization problem you're solving is therefore not the correct one.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The insider optimizes with respect to a &lt;em&gt;conjectured&lt;/em&gt; pricing rule &lt;span class=&quot;math-container&quot;&gt;$P_1$&lt;/span&gt;. In equilibrium, the market maker confirms the insider's conjecture, making the latter's expectation rational.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your calculation assumes that the market maker acts after the insider. This is not the case in Kyle and I don't believe it's the case in Rochet and Vila either. &lt;/p&gt;&#xA;" OwnerUserId="126" LastEditorUserId="126" LastEditDate="2019-08-08T23:51:35.207" LastActivityDate="2019-08-08T23:51:35.207" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30443" PostTypeId="1" CreationDate="2019-08-08T15:09:31.510" Score="2" ViewCount="36" Body="&lt;p&gt;Not sure if the title reflects the question very accurately but my question is specific to the Gulf countries which have a huge population of migrant workers, like Saudi and UAE. So, let's say Raj is an expat living and working in RandomGulfCountry with his family. He has a decent job which also pays for a modest apartment and for his kids to go to an okay-ish school. The economic activity created by Raj brings in wealth for the RandomGulfCountry government which then uses it to fund free healthcare, education, utilities etc. that is accessible by only its citizens. It is literally free because there's no income tax (at least for citizens). Most citizens don't really 'work', as they either own the companies or are employed in high positions because of a law requiring a quota of employees to be citizens so they're just figureheads; meaning most of the economic activity is created by expatriates like Raj.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, Raj could access these programs but becoming a citizen is almost next to impossible. But Raj is still happy, his job in RandomGulfCountry is paying 5x the salary he'd have gotten back in his home country. However, his continued residence in RandomGulfCountry is at the mercy of his employer. If he gets fired and doesn't find another job soon he has to leave, there is no path to permanent residence or citizenship. The government also charges a high fee for renewing his residence permit and that fee increases with the number of family members staying with him.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So by continuing to work in RandomGulfCountry, Raj is effectively subsidizing the social programs which he can &lt;strong&gt;never&lt;/strong&gt; access. He still has to pay his utilities bill while the citizens don't have to. He has health insurance from his employer but he still has to pay his co-pays while citizens don't need to pay a single penny. Raj still has to fund his own kids higher education but the fruits of his labor go into funding RandomGulfCountry kids to go study abroad for college without them having to pay a single penny. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This example might be a bit too simplistic and people like Raj are very privileged unlike most of the actual migrant workers in the Gulf. So I want to know what is the most appropriate term for this phenomenon, where you contribute to a foreign economy directly and your productivity is exploited to increase the luxury of the citizens who already live quite luxuriously and you never have a chance to receive any of the benefits because you will always be considered a temporary resident. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I was thinking something like wage slavery but you do get good wages, just not the full outcome of your productivity I guess? While it takes into account the fact that you're at the mercy of your employer for your continued well being, it's not really the wages that are responsible for your well being. Also what term would also take into account that the foreign government not only exploits you but also charges you to stay in the country?&lt;/p&gt;&#xA;" OwnerUserId="23950" LastActivityDate="2019-08-08T20:49:22.017" Title="Name of phenomenon where migrant workers receive decent wage but absolutely no chance of getting any government benefits" Tags="&lt;labor-economics&gt;&lt;international-economics&gt;&lt;definition&gt;&lt;migration&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30446" PostTypeId="2" ParentId="30443" CreationDate="2019-08-08T20:49:22.017" Score="2" Body="&lt;p&gt;There's a lot going on in this question, so I'll focus on the labor-economics part of the question rather than the political-economy part of the question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If it is the case that these migrant workers are being paid considerably better than their alternative labor options, but they are at the same time being deprived of rights they might value (access to social services, citizenship), then this is an example of a &lt;strong&gt;compensating differential&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The theory of &lt;strong&gt;compensating differentials&lt;/strong&gt; says that, in order to get people to take a job that they'd rather not take (perhaps because taking it means they'd have to live as a second-class citizen), you have to pay them a little extra in order to convince them to take the job, &quot;compensating&quot; them for accepting the downsides of the job.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This explains, from a labor-econ perspective, why the workers might accept this arrangement. It doesn't explain the political system that deprives the workers of rights.&lt;/p&gt;&#xA;" OwnerUserId="12848" LastActivityDate="2019-08-08T20:49:22.017" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30447" PostTypeId="1" CreationDate="2019-08-08T21:06:25.440" Score="1" ViewCount="25" Body="&lt;p&gt;I know the two were caused by the burst bubbles and worsened by rising interest rates. I also know that the the 2001 recession had a long jobless recovery but did not experience as many bank failures as the Great Recession. I'm assuming the stock market fell for both?&lt;/p&gt;&#xA;" OwnerUserId="23952" LastEditorUserId="23952" LastEditDate="2019-08-10T17:10:14.587" LastActivityDate="2019-08-10T17:10:14.587" Title="What are some similarities and differences between the 2001 recession and the 2007 recession in terms of causes and the effects on the economy?" Tags="&lt;macroeconomics&gt;" AnswerCount="0" CommentCount="3" ClosedDate="2019-08-31T03:04:51.493" ContentLicense="CC BY-SA 4.0" />
  <row Id="30449" PostTypeId="1" CreationDate="2019-08-09T07:47:44.700" Score="2" ViewCount="79" Body="&lt;p&gt;I work with a large survey data that is pooled cross-section, i.e, people interviewed are randomly chosen in each time period. This is not panel data. But, I aggregate the individual cells according to age and gender groups and then run the regressions. Now that I work with age-gender groups, is this considered panel data?&lt;/p&gt;&#xA;" OwnerUserId="23955" LastEditorUserId="23891" LastEditDate="2019-08-20T16:53:50.750" LastActivityDate="2019-09-19T17:01:30.157" Title="Can I treat pooled cross-section as panel data and do regression analysis?" Tags="&lt;regression&gt;&lt;paneldata&gt;&lt;micro-data&gt;&lt;randomized-experiment&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="30450" PostTypeId="1" AcceptedAnswerId="30456" CreationDate="2019-08-09T08:34:48.460" Score="0" ViewCount="116" Body="&lt;p&gt;In Gali (2015)'s textbook Monetary Policy, Inflation, and the Business Cycle, variables in levels are denoted with capital letters, logged variables with lowercase letters. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, when a log-linearisation is performed, say of the household optimality condition, why is the result in logs and not in percentage deviations, (lower case letters with a hat, for instance)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there an intermediate step/reason for why we can go from percentage deviations to logs? Thanks!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/jHKbq.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/jHKbq.png&quot; alt=&quot;household optimality condition&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="23910" LastEditorUserId="59" LastEditDate="2019-08-10T03:13:09.467" LastActivityDate="2019-08-10T03:13:09.467" Title="Log linearising (Gali textbook)" Tags="&lt;macroeconomics&gt;&lt;mathematical-economics&gt;&lt;academic-graduate&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30451" PostTypeId="1" AcceptedAnswerId="30452" CreationDate="2019-08-09T16:00:47.040" Score="1" ViewCount="27" Body="&lt;p&gt;I stumbled upon this notation, (cl co(A+C), while reading &quot;Set Optimization—A Rather Short Introduction&quot; by Andreas H. Hamel, Frank Heyde, Andreas Löhne, Birgit Rudloff and Carola Schrage.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is it right for me to assume that cl co(A) means the convex closure of the set A?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/s6tBy.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/s6tBy.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="22996" LastActivityDate="2019-08-09T16:27:40.970" Title="The notation cl co (A)" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30452" PostTypeId="2" ParentId="30451" CreationDate="2019-08-09T16:27:40.970" Score="2" Body="&lt;p&gt;I'm pretty sure that &lt;span class=&quot;math-container&quot;&gt;$\mathrm{cl}$&lt;/span&gt; is the &lt;a href=&quot;https://en.wikipedia.org/wiki/Closure_operator&quot; rel=&quot;nofollow noreferrer&quot;&gt;set closure&lt;/a&gt; operation. I'm less sure about &lt;span class=&quot;math-container&quot;&gt;$\mathrm{co}$&lt;/span&gt;, but I've seen it being used for the &lt;a href=&quot;https://en.wikipedia.org/wiki/Convex_hull&quot; rel=&quot;nofollow noreferrer&quot;&gt;convex hull&lt;/a&gt; operation in other contexts.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a reference, in &lt;em&gt;&lt;a href=&quot;https://books.google.ca/books?id=hIYKBwAAQBAJ&amp;amp;pg=PA31&amp;amp;lpg=PA31&amp;amp;dq=cl+co+set+operation&amp;amp;source=bl&amp;amp;ots=POncdMbvG0&amp;amp;sig=ACfU3U0n6qwugWFJapEVzp6swCtGXX8QWw&amp;amp;hl=en&amp;amp;sa=X&amp;amp;ved=2ahUKEwj5ubekmPbjAhVHs54KHaurA9IQ6AEwAHoECAcQAQ#v=onepage&amp;amp;q=cl%20co%20set%20operation&amp;amp;f=false&quot; rel=&quot;nofollow noreferrer&quot;&gt;Fundamentals of Convex Analysis&lt;/a&gt;&lt;/em&gt;, the same notations are used to refer to the &lt;strong&gt;closed convex hull&lt;/strong&gt; of a set: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/l3ta2.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/l3ta2.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2019-08-09T16:27:40.970" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30453" PostTypeId="1" CreationDate="2019-08-09T17:04:53.063" Score="2" ViewCount="25" Body="&lt;p&gt;In &quot;Is Piketty's Second Law of capital fundamental?&quot; by Per Krusell and Anthony A. Smith Jr the authors say, in a footnote:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Specifically, from the FRED database, we use series A023RX1A020NBEA on real gross national income, series W206RC1A156NBEA on gross saving as a percentage of gross national income, and series W207RC1A156NBEA on net saving as a percentage of gross national income. These series all come from the Bureau of Economic Analysis; with them, it is straightforward to construct a series for net saving as a percentage of net national income. (p737)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;They say it is straightforward to construct a series for net saving as a percentage of net income. Can anyone explain how this series is constructed from the three given series? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The paper is available at  &lt;a href=&quot;http://www.jstor.org/stable/10.1086/682574&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.jstor.org/stable/10.1086/682574&lt;/a&gt; .&lt;/p&gt;&#xA;" OwnerUserId="10736" LastEditorUserId="10736" LastEditDate="2019-08-10T08:49:41.077" LastActivityDate="2019-08-10T08:49:41.077" Title="Net saving as a percentage of net income" Tags="&lt;saving&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30455" PostTypeId="2" ParentId="30450" CreationDate="2019-08-09T19:52:42.910" Score="2" Body="&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\frac{x_{t+1}}{x_t} \equiv \frac{x_{t}+Δx_{t+1}}{x_t} = 1+\frac{Δx_{t+1}}{x_t}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Further,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\ln (1+a) \approx a,$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;an acceptable approximation for &lt;span class=&quot;math-container&quot;&gt;$|a| &amp;lt;0.1$&lt;/span&gt; and certainly for &lt;span class=&quot;math-container&quot;&gt;$|a| &amp;lt;0.05$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2019-08-09T20:07:05.843" LastActivityDate="2019-08-09T20:07:05.843" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30456" PostTypeId="2" ParentId="30450" CreationDate="2019-08-10T00:55:05.373" Score="1" Body="&lt;p&gt;We can easily switch between logged equations and log-deviations. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To see this, note that a given equation always holds, and therefore it also holds in steady state. Hence, you can just subtract the steady state values of both sides of an equation to get log deviations, if you wish.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reason you want logs, in this case, can be seen in (9). You want &lt;span class=&quot;math-container&quot;&gt;$i_t - E_t\{\pi_{t+1}\}$&lt;/span&gt;, the real interest rate, to deviate around &lt;span class=&quot;math-container&quot;&gt;$\rho$&lt;/span&gt;. This makes more sense economically than deviations around their individual steady states. Mathematically they are equivalent.&lt;/p&gt;&#xA;" OwnerUserId="8630" LastActivityDate="2019-08-10T00:55:05.373" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30462" PostTypeId="1" CreationDate="2019-08-11T01:02:08.500" Score="0" ViewCount="38" Body="&lt;p&gt;I'm unable to understand the different role that both FDR and Nixon, played in de-linking gold with dollar.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I do understand that after Nixon, value of dollar is not linked to amount of gold (No longer fixed exchange rate between gold and dollar). But how did both FDR and Nixon both play two different roles?&lt;/p&gt;&#xA;" OwnerUserId="21681" LastActivityDate="2019-08-11T01:02:08.500" Title="Primary difference between FDR and Nixon for de-linking gold with dollar?" Tags="&lt;gold-standard&gt;" AnswerCount="0" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="30463" PostTypeId="1" AcceptedAnswerId="30470" CreationDate="2019-08-11T05:29:18.597" Score="1" ViewCount="97" Body="&lt;p&gt;If someone has the attitude that they want to maximize their worst possible outcome (so they are maximally risk-averse), what does the utility function for that look like?  Can this attitude be expressed as a utility function?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Maybe as a function defined by a limit?&lt;/p&gt;&#xA;" OwnerUserId="23538" LastActivityDate="2019-08-11T19:47:23.757" Title="Maximin utility function" Tags="&lt;utility&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30464" PostTypeId="2" ParentId="30449" CreationDate="2019-08-11T06:59:32.457" Score="1" Body="&lt;p&gt;Yes, you can consider this as panel data, but the key is to understanding why, as this affects how you explain and interpret your panel regression. In treating each cohort as the same unit over time, you are assuming that each cohort has a constant, unobserved fixed effect. That is, people in a particular age category and gender tend to have an unobserved effect on the dependent variable that is different to other cohorts.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Please note:&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Age increases over time, so, for example, the group aged 30–34 in year 1995 should be treated as the same group as the 35–39 year-olds in 2000. I suggest your time variable increases in steps of five years, as you indicated that your age categories are five-year bins. &lt;/p&gt;&#xA;" OwnerUserId="175" LastActivityDate="2019-08-11T06:59:32.457" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30465" PostTypeId="2" ParentId="30463" CreationDate="2019-08-11T10:14:27.037" Score="2" Body="&lt;p&gt;You can simply apply what you know about perfect complements. If we have &lt;span class=&quot;math-container&quot;&gt;$C_i$&lt;/span&gt; for &lt;span class=&quot;math-container&quot;&gt;$i=1,2,...,n$&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$C_i$&lt;/span&gt; is consumption in the &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;th state of the world, each state of the world occuring with some probability, the utility function &lt;span class=&quot;math-container&quot;&gt;$U=\min\{C_1,C_2,...,C_n\}$&lt;/span&gt; will ensure that the consumer will choose to have equal consumption in every state of the world.&lt;/p&gt;&#xA;" OwnerUserId="18214" LastEditorUserId="1601" LastEditDate="2019-08-11T10:25:14.100" LastActivityDate="2019-08-11T10:25:14.100" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30466" PostTypeId="1" CreationDate="2019-08-11T13:02:31.590" Score="1" ViewCount="58" Body="&lt;p&gt;I once read an argument by the libertarian economist Thomas Sowell against the conventional wisdom that rising income is bad because most statistics which show rising income inequality do not account for individuals moving between income bands over time. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;His argument went something like this. Consider the average professional at the beginning of their career, for example a junior doctor ( the argument also seems to apply to non-professionals but in a less extreme way). They won’t be in the top income bracket when they begin working but over the course of their career they almost certainly will at some point. For this reason income inequality is not as significant an indicator of the actual economic situation for many individuals as it does not track how the incomes of individuals change, and often increase, over time. Furthermore, income inequality statistics don’t count people who don’t work, which includes a large number of wealthy pensioners. Therefore rising income inequality can even be thought of as a positive thing as it affords young people the opportunity to earn more, and thus actual leads to less actual inequality of wealth.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I couldn’t find a link to his exact words unfortunately but I suspect that he was making the point from the point of view to defend free-market capitalism.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is simply is is argument correct, and if not why not? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am a physics student, so I’m possibly just not familiar with the most technical economic theory that might explain this, but I can’t figure out why this fact (that people move between income brackets over time) is basically never addressed either in political discourse ( eg the Labour Party are always talking about income inequality but I’ve never heard the Conservatives give as eloquent a response as Sowell) or the popular literature that I’ve read ( eg newspapers on the right and left, and books by modern economists such as Ha joon Chang and David pilling). &lt;/p&gt;&#xA;" OwnerUserId="23964" LastActivityDate="2019-08-11T14:35:22.480" Title="Social mobility and income inequality" Tags="&lt;inequality&gt;&lt;wealth&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30467" PostTypeId="1" CreationDate="2019-08-11T13:22:02.113" Score="3" ViewCount="145" Body="&lt;p&gt;I've started reading Jordi Galí's &lt;em&gt;Monetary Policy, Inflation and the Business Cycle&lt;/em&gt; (2nd ed., 2015). In section 2.5.2, Galí considers an example with the following non-separable period utility function:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$U(X_t, N_t) = \frac{X_t^{1 - \sigma} - 1}{1 - \sigma} - \frac{N_t^{1 + \varphi}}{1 + \varphi}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where &lt;span class=&quot;math-container&quot;&gt;$X_t$&lt;/span&gt; is defined as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$X_t = \begin{cases} &#xA;\displaystyle \left[ (1 - \vartheta) C_t^{1 - \nu} + \vartheta \left( \frac{M_t}{P_t} \right)^{1 - \nu} \right]^{\frac{1}{1 - \nu}} &amp;amp; \nu \ne 1 \\&#xA;\displaystyle C_t^{1 - \vartheta} \left( \frac{M_t}{P_t} \right)^\vartheta &amp;amp; \nu = 1\end{cases}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Galí notes on p. 35 that the household's optimality conditions are&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\frac{W_t}{P_t} = N_t^\varphi X_t^{\sigma-\nu} C_t^\nu (1 - \vartheta)^{-1}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$Q_t = \beta E_t \left\{ \left( \frac{C_{t+1}}{C_t} \right)^{-\nu} \left( \frac{X_{t+1}}{X_t} \right)^{\nu-\sigma} \left( \frac{P_t}{P_{t+1}} \right) \right\}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\frac{M_t}{P_t} = C_t(1 - \exp\{-i_t\})^{-\frac1\nu} \left( \frac{\vartheta}{1 - \vartheta}\right)^{\frac1\nu}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(these are his equations (37) to (39); here &lt;span class=&quot;math-container&quot;&gt;$Q_t$&lt;/span&gt; denotes the bond price in &lt;span class=&quot;math-container&quot;&gt;$t$&lt;/span&gt;, and bonds are assumed to pay one unit of money at maturity). Galí proceeds to log-linearize (37) and (39) as follows:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$w_t - p_t = \sigma c_t + \varphi n_t + (\nu - \sigma) (c_t - x_t)$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$m_t - p_t = c_t - \eta i_t$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(each up to an additive constant, and with &lt;span class=&quot;math-container&quot;&gt;$\eta = \frac1{\nu(\exp(i)-1)}$&lt;/span&gt;.) So far, so good.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, on page 36, Galí writes that &quot;&lt;em&gt;[l]og-linearizing the definition of &lt;span class=&quot;math-container&quot;&gt;$X_t$&lt;/span&gt; around [the zero-inflation] steady state and combining the resulting expression with (39) [..] yields&lt;/em&gt;&quot;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$w_t - p_t = \sigma c_t + \varphi n_t + \chi (\nu - \sigma) (c_t - (m_t - p_t))$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;with &lt;span class=&quot;math-container&quot;&gt;$\chi = \frac{ \vartheta^{\frac1\nu} (1 - \beta)^{1 - \frac1\nu} }{ (1 - \vartheta)^{\frac1\nu} + \vartheta^{\frac1\nu}(1 - \beta)^{1 - \frac1\nu} }$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm an undergrad student, not really familiar with log-linearization techniques yet, and I don't see how this follows, or how one would go about log-linearizing &lt;span class=&quot;math-container&quot;&gt;$X_t$&lt;/span&gt; around the steady state in the first place. I've read Zietz's &lt;a href=&quot;https://papers.ssrn.com/sol3/papers.cfm?abstract_id=951753&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;Log-Linearizing Around the Steady State: A Guide with Examples&lt;/em&gt;&lt;/a&gt;, but have failed in applying the techniques described therein (to the case of &lt;span class=&quot;math-container&quot;&gt;$\nu \ne 1$&lt;/span&gt;) to match Galí's result.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Could someone be so kind and fill in the details that Galí left out? Thank you.&lt;/p&gt;&#xA;" OwnerUserId="20644" LastEditorUserId="20644" LastEditDate="2019-08-11T21:54:17.917" LastActivityDate="2019-08-11T21:54:17.917" Title="Log-linearizing a non-separable utility function around the steady state" Tags="&lt;macroeconomics&gt;&lt;utility&gt;&lt;log-linearization&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30468" PostTypeId="2" ParentId="30466" CreationDate="2019-08-11T14:35:22.480" Score="2" Body="&lt;p&gt;&lt;strong&gt;The argument is correct&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Social Mobility&lt;/em&gt; and &lt;em&gt;Income Inequality&lt;/em&gt; are simply two distinct phenomenons. Mobility is arguably the more complex one, and there are many different ways to &lt;a href=&quot;https://digitalcommons.ilr.cornell.edu/cgi/viewcontent.cgi?article=1460&amp;amp;context=articles&quot; rel=&quot;nofollow noreferrer&quot;&gt;define&lt;/a&gt; it. As an example, &lt;em&gt;absolute&lt;/em&gt; mobility refers to someone earning more income in absolute terms (\$ per year), while &lt;em&gt;relative&lt;/em&gt; mobility refers to someone earning more in relative terms (going from the 60th to the 70th percentile of the income distribution). Note that the latter could occur for constant personal income, if income of all others decline. Another major distinction is made between &lt;em&gt;inter-&lt;/em&gt; and &lt;em&gt;intra-&lt;/em&gt; &lt;a href=&quot;https://wol.iza.org/articles/intergenerational-income-persistence&quot; rel=&quot;nofollow noreferrer&quot;&gt;generational mobility&lt;/a&gt;. I would attribute part of the reason mobility is not featured often in political discource to the ambigiuous meaning of the concept. Related to this, there is no generally accepted single indicator (like the Gini coefficient for income inequality) by which mobility could be measured.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The second reason is that measuring mobility requires repeated observations of income distributions for the same individuals, ideally over a long period of time. These kind of data are still rather rare and not available for all countries in the required quality.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The scenario you have in mind (&quot;the guy is not poor because he is likely going to earn a lot&quot;) is essentially a &lt;em&gt;prospective&lt;/em&gt; task where one would estimate future earnings paths. While this can be done in principle, the precision of such studies are far below e.g. a detailed analysis on poverty ratios for various demographic groups.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Summing up, measuring income inequality ignores the movement of individuals between two points in time, which should be kept in mind when talking about income inequality. Povery is much more a problem if it's not a transitory, but a permanent phenomenon from an individual perspective.&lt;/p&gt;&#xA;" OwnerUserId="17735" LastActivityDate="2019-08-11T14:35:22.480" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30469" PostTypeId="1" CreationDate="2019-08-11T16:16:06.353" Score="1" ViewCount="237" Body="&lt;p&gt;The hubzu website often has properties for bidding that state &quot;this is a value-based foreclosure auction, which means the beneficiary has provided a bid based on market value&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, it then states: &quot;This is a great opportunity for buyers since the final reserve may be priced at or below current market value.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;These statements seem contradictory to me, so I think I must not understand the first statement properly.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I believe the first statement to mean, for example:  Beneficiary &quot;Todd&quot; has a property which he reasonably believes based on market conditions to be worth, say, 55,000 USD.  So as I understand the first sentence, Todd has already provided (or will provide) a bid of 55,000.  Therefore, 55000 is effectively the minimum bid if one wanted to attempt to acquire Todd's property which Hubzu.com is auctioning.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Other things I have assumed or seem apparent: The terms &quot;market value&quot; and &quot;current market value&quot; are interchangeable since &quot;current&quot; would be the default implication anyway.  Second, I assume the final reserve would be something somewhere at or below Todd's bid.  I did assume that the market value is not the final reserve, but some lower value.  However, I cannot see the purpose of a final reserve in this situation... &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If so (and why I think my understanding is flawed), it is not possible to buy the property below the market value because, even if a buyer were to bid above the final reserve, but below the market value, Todd would win the bid and retain ownership.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have tried to google this terminology in various manners.  Here is the latest search 'define &quot;value-based foreclosure auction&quot; -hubzu'&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can someone produce an example that demonstrates what this means and how a buyer could reasonably buy this property below the market value?&lt;/p&gt;&#xA;" OwnerDisplayName="user23965" LastActivityDate="2019-08-11T16:16:06.353" Title="Hubzu.com bidding terminology - &quot;value-based foreclosure auction&quot;" Tags="&lt;auctions&gt;" AnswerCount="0" CommentCount="7" ClosedDate="2019-09-18T01:56:58.900" ContentLicense="CC BY-SA 4.0" />
  <row Id="30470" PostTypeId="2" ParentId="30463" CreationDate="2019-08-11T19:47:23.757" Score="1" Body="&lt;p&gt;&lt;a href=&quot;https://www.sciencedirect.com/science/article/abs/pii/0304406889900189&quot; rel=&quot;nofollow noreferrer&quot;&gt;Gilboa and Schmeidler (1989)&lt;/a&gt; is the canonical reference for such a function. The paper provides an axiomatic foundation for such a function being used to represent a maximin preference. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The following (taken from &lt;a href=&quot;http://www.columbia.edu/~md3405/BE_Risk_4_17.pdf#page=25&quot; rel=&quot;nofollow noreferrer&quot;&gt;this lecture note&lt;/a&gt;) is a succinct version:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/xx9tW.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/xx9tW.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It should be noted that maximin expected utility usually appears in the context of &lt;em&gt;ambiguity&lt;/em&gt; aversion, not risk aversion, although the two types of aversion are indeed related.&lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2019-08-11T19:47:23.757" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30471" PostTypeId="2" ParentId="17080" CreationDate="2019-08-12T11:31:34.247" Score="0" Body="&lt;p&gt;Even though the seller could sell smaller shoe for a lower price, why he should do it?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Small person and big person gain the same thing. Both are going to have a pair of shoes. Then why two different prices? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The extra amount gained by the producer is the producer surplus. &lt;/p&gt;&#xA;" OwnerUserId="23969" LastActivityDate="2019-08-12T11:31:34.247" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30473" PostTypeId="5" CreationDate="2019-08-12T11:55:37.200" Score="0" Body="" OwnerUserId="-1" LastEditorUserId="-1" LastEditDate="2019-08-12T11:55:37.200" LastActivityDate="2019-08-12T11:55:37.200" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30474" PostTypeId="4" CreationDate="2019-08-12T11:55:37.200" Score="0" Body="The topic is about the African economy as a whole, or how it responds to other economies (global or regional)." OwnerUserId="175" LastEditorUserId="175" LastEditDate="2019-08-13T14:29:32.540" LastActivityDate="2019-08-13T14:29:32.540" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30475" PostTypeId="5" CreationDate="2019-08-12T12:21:24.517" Score="0" Body="&lt;p&gt;Foreign aid can involve a transfer of financial resources or commodities (e.g., food or military equipment) or technical advice and training. The resources can take the form of grants or concessional credits (e.g., export credits). The most common type of foreign aid is official development assistance (ODA), which is assistance given to promote development and to combat poverty. The primary source of ODA—which for some countries represents only a small portion of their assistance—is bilateral grants from one country to another, though some of the aid is in the form of loans, and sometimes the aid is channeled through international organizations and nongovernmental organizations (NGOs). For example, the International Monetary Fund (IMF), the World Bank, and the United Nations Children’s Fund (UNICEF) have provided significant amounts of aid to countries and to NGOs involved in assistance activities.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Countries often provide foreign aid to enhance their own security. Thus, economic assistance may be used to prevent friendly governments from falling under the influence of unfriendly ones or as payment for the right to establish or use military bases on foreign soil. Foreign aid also may be used to achieve a country’s diplomatic goals, enabling it to gain diplomatic recognition, to garner support for its positions in international organizations, or to increase its diplomats’ access to foreign officials. Other purposes of foreign aid include promoting a country’s exports (e.g., through programs that require the recipient country to use the aid to purchase the donor country’s agricultural products or manufactured goods) and spreading its language, culture, or religion. Countries also provide aid to relieve suffering caused by natural or man-made disasters such as famine, disease, and war, to promote economic development, to help establish or strengthen political institutions, and to address a variety of transnational problems including disease, terrorism and other crimes, and destruction of the environment. Because most foreign aid programs are designed to serve several of these purposes simultaneously, it is difficult to identify any one of them as most important.&lt;/p&gt;&#xA;" OwnerUserId="175" LastEditorUserId="175" LastEditDate="2019-08-13T14:31:13.753" LastActivityDate="2019-08-13T14:31:13.753" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30476" PostTypeId="4" CreationDate="2019-08-12T12:21:24.517" Score="0" Body="Foreign aid, the international transfer of capital, goods, or services from a country or international organization for the benefit of the recipient country or its population." OwnerUserId="175" LastEditorUserId="175" LastEditDate="2019-08-13T14:30:04.347" LastActivityDate="2019-08-13T14:30:04.347" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30478" PostTypeId="1" AcceptedAnswerId="30481" CreationDate="2019-08-12T13:28:41.440" Score="1" ViewCount="40" Body="&lt;p&gt;Suppose we are interested in constructing an incentive compatibility constraint for an agent to announce his state truthfully.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider a simple case of the state space being &lt;span class=&quot;math-container&quot;&gt;$S=\{H,L\}$&lt;/span&gt; and his payoffs to be &lt;span class=&quot;math-container&quot;&gt;$\pi_L,\pi_H$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the player to announce the state and payoff truthfully, is it correct to set the IC as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\pi_H\leq\pi_L.$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If it is correct, why is it so, and if it isn't, what is the correct way of setting up the IC and why? Is there a general rule of thumb in constructing an IC? Any reference would be also helpful.&lt;/p&gt;&#xA;" OwnerUserId="8560" LastActivityDate="2019-08-13T17:46:33.983" Title="Incentive Compatibility Construction Rule" Tags="&lt;game-theory&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30480" PostTypeId="1" CreationDate="2019-08-12T16:02:32.970" Score="0" ViewCount="37" Body="&lt;p&gt;There are several criteria (or key figures) to list the world's &quot;largest&quot; companies, giving quite different lists:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.wikiwand.com/en/List_of_largest_companies_by_revenue&quot; rel=&quot;nofollow noreferrer&quot;&gt;revenue&lt;/a&gt; (in \$)&lt;/li&gt;&#xA;&lt;li&gt;profit (in \$)&lt;/li&gt;&#xA;&lt;li&gt;assets (in \$)&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.wikiwand.com/en/Market_capitalization&quot; rel=&quot;nofollow noreferrer&quot;&gt;market capitalization&lt;/a&gt; (in \$)&lt;/li&gt;&#xA;&lt;li&gt;number of employees&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;For &lt;strong&gt;any&lt;/strong&gt; company the following key figure or &lt;a href=&quot;https://www.wikiwand.com/en/Financial_ratio&quot; rel=&quot;nofollow noreferrer&quot;&gt;financial ratio&lt;/a&gt; makes sense (for investors mainly), depending on the exact definitions of &quot;profit&quot; and &quot;revenue&quot;:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.wikiwand.com/en/Profit_margin&quot; rel=&quot;nofollow noreferrer&quot;&gt;profit margin&lt;/a&gt; = profit / revenue&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;For &lt;a href=&quot;https://www.wikiwand.com/en/Public_company&quot; rel=&quot;nofollow noreferrer&quot;&gt;public companies&lt;/a&gt; the following key figures / criteria / financial ratios make sense, too:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;wage per employee = average wage (in \$) = total wages / number of employees &lt;/li&gt;&#xA;&lt;li&gt;median wage (in \$)&lt;/li&gt;&#xA;&lt;li&gt;minimal/maximal wage (in \$)&lt;/li&gt;&#xA;&lt;li&gt;revenue per employee (in \$)&lt;/li&gt;&#xA;&lt;li&gt;profit per employee (in \$)&lt;/li&gt;&#xA;&lt;li&gt;assets per employee (in \$)&lt;/li&gt;&#xA;&lt;li&gt;market capitalization per employee (in \$)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;Where do I find concise overviews and comparisons of such numbers for large companies like &lt;a href=&quot;https://www.wikiwand.com/en/List_of_largest_companies_by_revenue&quot; rel=&quot;nofollow noreferrer&quot;&gt;these&lt;/a&gt; (sorted by revenue)&lt;/strong&gt; (yellow = state-owned enterprise):&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/pDXfm.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/pDXfm.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;&lt;sub&gt;[Please tell me better tags for this question than those I have used!]&lt;/sub&gt;&lt;/em&gt;&lt;/p&gt;&#xA;" OwnerUserId="22991" LastEditorUserId="42" LastEditDate="2019-08-12T20:41:54.217" LastActivityDate="2019-08-12T20:41:54.217" Title="The world's largest companies" Tags="&lt;reference-request&gt;&lt;data-request&gt;&lt;industrial-organisation&gt;" AnswerCount="0" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="30481" PostTypeId="2" ParentId="30478" CreationDate="2019-08-12T18:08:58.787" Score="1" Body="&lt;p&gt;As @brunosalcedo suggests in the comment, the agent's payoff, &lt;span class=&quot;math-container&quot;&gt;$\pi(a,s)$&lt;/span&gt;, should depend on i) the realized state &lt;span class=&quot;math-container&quot;&gt;$s$&lt;/span&gt; and ii) the announced state &lt;span class=&quot;math-container&quot;&gt;$a$&lt;/span&gt;. Note that the announcement &lt;span class=&quot;math-container&quot;&gt;$a$&lt;/span&gt; should in general be a function of the realized state &lt;span class=&quot;math-container&quot;&gt;$s$&lt;/span&gt;, i.e. &lt;span class=&quot;math-container&quot;&gt;$a:S\to S$&lt;/span&gt;. Incentive compatibility should thus be &#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;\pi(s,s)\ge \pi(a',s),\quad\forall a'\ne s. &#xA;\end{equation}&lt;/span&gt;&#xA;In words, incentive compatibility requires that the agent's payoff when his announcement agrees with the state (i.e. the state is &lt;span class=&quot;math-container&quot;&gt;$s$&lt;/span&gt; and his announcement is also &lt;span class=&quot;math-container&quot;&gt;$s$&lt;/span&gt;) be no lower than his payoff when his announcement disagrees with the state (i.e. the state is &lt;span class=&quot;math-container&quot;&gt;$s$&lt;/span&gt; but his announcement is &lt;span class=&quot;math-container&quot;&gt;$a'\ne s$&lt;/span&gt;). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Check out the following book chapters for more detail: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://global.oup.com/ushe/product/microeconomic-theory-9780195073409&quot; rel=&quot;nofollow noreferrer&quot;&gt;Mas-Colell, Whinston, and Green (1995)&lt;/a&gt; (aka MWG) chapter 14.C discusses IC in the context of moral hazard &lt;/li&gt;&#xA;&lt;li&gt;MWG chapter 23.B introduces IC for truthful implementation &lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.elsevier.com/books/auction-theory/krishna/978-0-12-374507-1&quot; rel=&quot;nofollow noreferrer&quot;&gt;Krishna (2010)&lt;/a&gt; chapter 5 is similar to the previous MWG chapter, but draws out more implications of IC.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="42" LastEditorUserId="42" LastEditDate="2019-08-13T17:46:33.983" LastActivityDate="2019-08-13T17:46:33.983" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30482" PostTypeId="1" CreationDate="2019-08-12T18:30:28.273" Score="0" ViewCount="22" Body="&lt;p&gt;I read in Bloomberg that five countries moved to advanced economies  in the last 50 years from developing economies and one of them was Singapore. Wondering what are the other four countries?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The link to the article is as follows.&#xA;&lt;a href=&quot;https://bloom.bg/31s13gm&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://bloom.bg/31s13gm&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="21681" LastEditorUserId="21681" LastEditDate="2019-08-12T20:07:43.070" LastActivityDate="2019-08-12T20:07:43.070" Title="List of countries moved to developed economies in the last 50 years" Tags="&lt;macroeconomics&gt;&lt;national-accounts&gt;&lt;information&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30483" PostTypeId="1" AcceptedAnswerId="30497" CreationDate="2019-08-12T21:28:10.553" Score="3" ViewCount="65" Body="&lt;p&gt;Given the partitioned regression equation (into &lt;span class=&quot;math-container&quot;&gt;$X_1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$X_2$&lt;/span&gt;), I want to transform &lt;span class=&quot;math-container&quot;&gt;$X_1$&lt;/span&gt;, say &lt;span class=&quot;math-container&quot;&gt;$X^*_1$&lt;/span&gt;, such that &lt;span class=&quot;math-container&quot;&gt;$X_2$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$X^*_1$&lt;/span&gt; becomes orthogonal ie. &lt;span class=&quot;math-container&quot;&gt;$X_2^T$&lt;/span&gt;. &lt;span class=&quot;math-container&quot;&gt;$X_1^*$&lt;/span&gt;= 0.&#xA;A matrix can be transformed as &lt;span class=&quot;math-container&quot;&gt;$X_1^*$&lt;/span&gt; = &lt;span class=&quot;math-container&quot;&gt;$X_1$&lt;/span&gt;.p where P is transformation matrix.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we premultiply &lt;span class=&quot;math-container&quot;&gt;$X_1^*$&lt;/span&gt; = &lt;span class=&quot;math-container&quot;&gt;$X_1$&lt;/span&gt;.p with &lt;span class=&quot;math-container&quot;&gt;$X_2^T$&lt;/span&gt; we will get &lt;span class=&quot;math-container&quot;&gt;$X_2^T$&lt;/span&gt;.&lt;span class=&quot;math-container&quot;&gt;$X_1$&lt;/span&gt;.p = &lt;span class=&quot;math-container&quot;&gt;$X_2^T$&lt;/span&gt;.&lt;span class=&quot;math-container&quot;&gt;$X_1^*$&lt;/span&gt;= 0. How can I find P?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Part (ii) is easy to solve. Parameters of &lt;span class=&quot;math-container&quot;&gt;$X_2^T$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$X_1^*$&lt;/span&gt; will depend on their separate regression with Y. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/NBPGf.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/NBPGf.jpg&quot; alt=&quot;Question&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/jdrg7.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/jdrg7.jpg&quot; alt=&quot;Greene, Econometrics Analysis, Chapter 3,pg.49&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="18929" LastActivityDate="2019-08-14T09:21:31.250" Title="Transforming a matrix of explanatory variable in regression" Tags="&lt;regression&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30485" PostTypeId="1" AcceptedAnswerId="30493" CreationDate="2019-08-13T05:37:12.227" Score="1" ViewCount="36" Body="&lt;p&gt;I am struggling to understand why equity markets seem to suffer shortly after fed rate cuts. Here is a rather telling chart:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/yW6hr.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/yW6hr.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Question&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Assuming not some kind of spurious relationship, what's the intuition behind the  connection between rate cuts and equity dropping?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Maybe the rate cuts draws investors attention to the weakness of the macro conditions and makes them more risk-adverse?&lt;/p&gt;&#xA;" OwnerUserId="12212" LastActivityDate="2019-08-13T22:08:34.433" Title="Why does equity have historically poor performance after rate cuts?" Tags="&lt;macroeconomics&gt;&lt;monetary-policy&gt;&lt;stock-market&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30487" PostTypeId="1" CreationDate="2019-08-13T11:43:31.003" Score="0" ViewCount="14" Body="&lt;p&gt;How is it real wages = old wages * new cpi / old cpi? It seems this discounts back to the reference period and then multiplies out to current day. This would give us new (nominal) wages?&lt;/p&gt;&#xA;" OwnerUserId="17937" LastActivityDate="2019-08-13T11:43:31.003" Title="CPI and real quantities" Tags="&lt;macroeconomics&gt;" AnswerCount="0" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="30488" PostTypeId="1" AcceptedAnswerId="30605" CreationDate="2019-08-13T12:12:32.027" Score="4" ViewCount="139" Body="&lt;p&gt;I keep reading about all these warning signs of a coming recession, and I have a very silly question: If we can see it coming, why can't we do something about it now, instead of after we are deep in it and fighting about stimulus packages like last time?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, I said it was a silly question, so I know the reason we &lt;em&gt;don't&lt;/em&gt; is because of a lack of political will as well as a lack of political and economic consensus as to what that action should be. But I never hear &lt;em&gt;anyone&lt;/em&gt; talking about what can be done to prevent a recession before it hits when all the signs tell you it is coming. Why not? Thanks. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(p.s.- Wow, you don't even have a tag for recession? What a bunch of optimists! LOL)&lt;/p&gt;&#xA;" OwnerUserId="23977" LastEditorUserId="4817" LastEditDate="2019-08-22T16:34:31.333" LastActivityDate="2019-08-24T08:05:05.423" Title="Can the coming recession - or any recession - be avoided?" Tags="&lt;business-cycles&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30489" PostTypeId="1" CreationDate="2019-08-13T12:32:44.530" Score="2" ViewCount="60" Body="&lt;p&gt;When ordering items from some companies, they don't have their prices listed. One rather has to ask for a quote to get a price, having to provide information to do so. Why is this? Why do they not just show a price? Is the only point to get customer information or are there other reasons? This is with the product model number and quantity already known. &lt;/p&gt;&#xA;" OwnerDisplayName="user23608" LastEditorDisplayName="user23608" LastEditDate="2019-08-14T09:39:39.733" LastActivityDate="2019-08-14T09:39:39.733" Title="Why does one have to ask for a quote to get a price for some things?" Tags="&lt;price&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30490" PostTypeId="1" CreationDate="2019-08-13T13:19:29.570" Score="1" ViewCount="14" Body="&lt;p&gt;In macro oriented research papers the role of private debt is discussed and that apparently when there is a lot of private debt in the economy, households tend to be borrowed constrained.. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Could someone explain why we link private debt to borrowed constrained households? I understand that when households are borrowed constrain they have a larger marginal propensity to consume out of additional income. But, why is private debt linked in the background as a variable that influences this borrowing constrain, i.e. when consumers are borrowed constrain, the economy is in a state of high private debt.&#xA;I mean, you could also say that when a lot of private debt is in the economy, households are actually getting debt easier so they are not borrowed constrained, right?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suggesting a model, theory and/or a paper that explains this would be appreciated...&lt;/p&gt;&#xA;" OwnerUserId="23978" LastActivityDate="2019-08-13T13:19:29.570" Title="Useful models/theory private debt and borrowed constrained households" Tags="&lt;macroeconomics&gt;&lt;reference-request&gt;&lt;debt&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30491" PostTypeId="2" ParentId="30489" CreationDate="2019-08-13T15:14:59.120" Score="2" Body="&lt;p&gt;I believe that prices are typically available for well-defined products that dont vary between customers (e.g. groceries, cars, etc.). Whereas some products are customer specific (more so on the business to business side) and depend on quantity and quality simultaneously. I think of the example of a landscaping job (a service) that would depend on how much time the job would take (labour inputs) as well as the type of machinery (capital inputs) that would be needed to get the job done. Another example would be buying paper for an office, the cost would depend on how much you are buying and what quality and every companies needs would be entirely different.&lt;/p&gt;&#xA;" OwnerUserId="23546" LastActivityDate="2019-08-13T15:14:59.120" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30492" PostTypeId="1" CreationDate="2019-08-13T15:17:01.443" Score="3" ViewCount="286" Body="&lt;p&gt;Are there any remarkable economists who have envisioned alternative economic system to the ones previously tried? I'm looking for realistic economic system models and their authors.&lt;/p&gt;&#xA;" OwnerUserId="23980" LastEditorUserId="1601" LastEditDate="2019-08-13T20:44:13.747" LastActivityDate="2020-07-05T09:00:28.020" Title="Alternatives to Capitalism and Communism" Tags="&lt;reference-request&gt;&lt;capitalism&gt;&lt;communism&gt;" AnswerCount="3" CommentCount="1" FavoriteCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30493" PostTypeId="2" ParentId="30485" CreationDate="2019-08-13T17:17:29.190" Score="1" Body="&lt;p&gt;If this trend holds for a longer series, my guess is that this is due to the correlation between the federal funds rate and general economic conditions. The federal funds rate is usually cut in anticipation of a weakening economy or during a period of low growth.&#xA;It is well known that the expected returns on financial assets, including stocks and many other kinds of assets, vary with the business cycle. For example, see &lt;a href=&quot;http://pages.stern.nyu.edu/~dbackus/GE_asset_pricing/FamaFrench%20bus%20conds%20JFE%2089.PDF&quot; rel=&quot;nofollow noreferrer&quot;&gt;Fama and French (1989), &quot;Business Conditions and Expected Returns on Stocks and Bonds.&quot;&lt;/a&gt; The most common explanation for this is that effective risk aversion is higher in bad times than in good times (e.g., as measured by GDP or aggregate consumption). This phenomenon is discussed more generally in the paper, &lt;a href=&quot;https://onlinelibrary.wiley.com/doi/10.1111/j.1540-6261.2011.01671.x&quot; rel=&quot;nofollow noreferrer&quot;&gt;&quot;Discount Rates&quot;&lt;/a&gt;, by John Cochrane (2011). (Ungated access &lt;a href=&quot;https://faculty.chicagobooth.edu/john.cochrane/research/papers/discount_rates_jf.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here.&lt;/a&gt;) For example, on p.1052, we read&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;There is a strong common element and a strong business cycle&#xA;  association to all these forecasts. Low prices and high expected&#xA;  returns hold in “bad times,” when consumption, output, and investment&#xA;  are low, unemployment is high, and businesses are failing, and vice&#xA;  versa.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="59" LastEditorUserId="59" LastEditDate="2019-08-13T22:08:34.433" LastActivityDate="2019-08-13T22:08:34.433" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30494" PostTypeId="1" CreationDate="2019-08-13T17:20:50.497" Score="1" ViewCount="101" Body="&lt;p&gt;In general most economist agree that deficit is not a negative thing, but I have trouble understanding why&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example if country A has 10\$ and country A runs trade deficit to B of 2\$ per year, doesn't this necessary mean that in 5 year country A can no long buy product from other country?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think I am missing something important here. How can a country run trade deficit multiple years without eventually going bankrupt? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;One reason that I have been given is that since country A buys country B's product in country A's currency, country B must use that currency in country A, thus the trade is balance in the long run, is that true?&lt;/p&gt;&#xA;" OwnerUserId="23981" LastActivityDate="2020-01-11T17:03:25.523" Title="Why is trade deficit a good thing?" Tags="&lt;international-trade&gt;&lt;balance-of-trade&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30495" PostTypeId="1" CreationDate="2019-08-14T01:20:55.990" Score="2" ViewCount="105" Body="&lt;p&gt;Suppose we have the following form of the Solow Model: &lt;span class=&quot;math-container&quot;&gt;$$ Y_t=K_t^{a+b} L_t^{1-a} $$&lt;/span&gt; where a,b &gt;0, and a+b&amp;lt;1.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is it possible to determine the steady state growth rate of k (k=K/L), and the steady state growth rates of MPL and MPK?&lt;/p&gt;&#xA;" OwnerUserId="23983" LastEditorUserId="23983" LastEditDate="2019-08-14T01:54:21.303" LastActivityDate="2019-08-15T22:27:35.967" Title="Solow Model with a Capital Stock Externality" Tags="&lt;macroeconomics&gt;&lt;economic-growth&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="30496" PostTypeId="1" AcceptedAnswerId="30526" CreationDate="2019-08-14T06:14:41.993" Score="2" ViewCount="93" Body="&lt;p&gt;Consider the two models &lt;span class=&quot;math-container&quot;&gt;$ (a)  y = X\beta + u $&lt;/span&gt; where &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; is &lt;span class=&quot;math-container&quot;&gt;$n \times K$&lt;/span&gt; and (b) &lt;span class=&quot;math-container&quot;&gt;$y = Z\gamma + \omega $&lt;/span&gt; where &lt;span class=&quot;math-container&quot;&gt;$Z$&lt;/span&gt; is &lt;span class=&quot;math-container&quot;&gt;$n \times r$&lt;/span&gt;.&#xA;Under classical assumptions (and &lt;span class=&quot;math-container&quot;&gt;$Z$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; are non-stochastic) if model (a), that is &lt;span class=&quot;math-container&quot;&gt;$y = X\beta + u$&lt;/span&gt; is the true model, show that &lt;span class=&quot;math-container&quot;&gt;$E(\sigma^{2}_{\omega}) \geq \sigma^2_u$&lt;/span&gt; and explain the implication of your result.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can do it in two cases when &lt;span class=&quot;math-container&quot;&gt;$r&amp;gt;k$&lt;/span&gt; (overfitting) or when &lt;span class=&quot;math-container&quot;&gt;$r&amp;lt;k$&lt;/span&gt; (underfitting). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there any short way of doing this, without cases (because for both overfitting and underfitting variance is biased)? So, what I am asking is that can they be clubbed so that result doesn't depend on relationship between &lt;span class=&quot;math-container&quot;&gt;$r$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$k$&lt;/span&gt;? &lt;/p&gt;&#xA;" OwnerUserId="18929" LastEditorUserId="17735" LastEditDate="2019-08-14T12:11:43.293" LastActivityDate="2019-08-15T21:33:24.640" Title="Specification bias - estimated variance is biased estimator of true variance of error term" Tags="&lt;regression&gt;" AnswerCount="2" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="30497" PostTypeId="2" ParentId="30483" CreationDate="2019-08-14T08:38:01.840" Score="2" Body="&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\boldsymbol X^*_1$&lt;/span&gt; is the residual of the &lt;a href=&quot;https://en.wikipedia.org/wiki/Projection_matrix&quot; rel=&quot;nofollow noreferrer&quot;&gt;projection&lt;/a&gt; of &lt;span class=&quot;math-container&quot;&gt;$\boldsymbol X_1 $&lt;/span&gt; on &lt;span class=&quot;math-container&quot;&gt;$\boldsymbol X_2 $&lt;/span&gt;. The 'residual maker' matrix is &lt;span class=&quot;math-container&quot;&gt;$\boldsymbol I - \boldsymbol X_2 \left(\boldsymbol X_2^T\boldsymbol X_2\right)^{-1}\boldsymbol X_2^T$&lt;/span&gt;. Therefore, &lt;span class=&quot;math-container&quot;&gt;$$ \boldsymbol X_1^* = \left(\boldsymbol I -\boldsymbol X_2 \left(\boldsymbol X_2^T\boldsymbol X_2\right)^{-1}\boldsymbol X_2^T\right)\boldsymbol X_1.$$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="175" LastEditorUserId="175" LastEditDate="2019-08-14T09:21:31.250" LastActivityDate="2019-08-14T09:21:31.250" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30499" PostTypeId="1" CreationDate="2019-08-14T13:36:01.177" Score="0" ViewCount="98" Body="&lt;p&gt;From Japan to the US to Germany, we are currently seeing longer term bond yields falling at an alarming rate. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I tune into a fair bit of economic commentary, and can often come to some sort of understanding of the factors that commentators say are at play in the current situation. But one I struggle with is the idea that weak private investment is a factor in declining yields. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can somebody please explain why this is the case? Is the idea that weak private investment leads to weaker GDP growth, which leads to weaker inflation, which leads to higher bond prices? Or is there something else at play here?&lt;/p&gt;&#xA;" OwnerUserId="23988" LastEditorUserId="1601" LastEditDate="2019-08-14T14:37:02.520" LastActivityDate="2019-08-18T22:31:34.200" Title="Private Investment Impact on Bond Yields" Tags="&lt;investment&gt;&lt;bonds&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30501" PostTypeId="1" CreationDate="2019-08-14T14:42:54.503" Score="1" ViewCount="992" Body="&lt;p&gt;&quot;The value of currencies (including most popular cryptocurrencies) is set by a market. Price rises or falls until the supply and demand of the currency are equalized&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://economics.stackexchange.com/questions/30338/why-exchange-rates-of-national-currency-are-usually-stable-where-as-cryptocurre&quot;&gt;Why exchange rates of national currency are usually stable, where as cryptocurrency like bitcoin and ethereum is highly volatile?&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But how does the market calculate the price based on supply and demand that is visible in the cryptocurrency exchange? Can someone give some kind of simple math to understand? For example, I mint some utility coins or cryptocurrency on ethereum from thin air, decide an incentive system. How will the cryptocurrency gain value through trading?  &lt;/p&gt;&#xA;" OwnerUserId="23857" LastActivityDate="2020-01-13T16:11:47.880" Title="Whats the math behind calculating the price of cryptocurrency through supply and demand?" Tags="&lt;international-trade&gt;&lt;price&gt;&lt;cryptocurrency&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30502" PostTypeId="1" CreationDate="2019-08-14T15:08:56.537" Score="1" ViewCount="278" Body="&lt;p&gt;This is an asset pricing question. What is the difference between conditional and unconditional risk premia? Here's the context:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The fact that carry trade strategies typically earn positive average returns&#xA;  is a manifestation of the failure of the uncovered interest parity (UIP) hypothesis, a major longstanding puzzle in international finance. A longstanding consensus in the international finance literature attributed all of carry trade average returns to &lt;strong&gt;&lt;em&gt;conditional risk premia&lt;/em&gt;&lt;/strong&gt;, finding little evidence of nonzero &lt;strong&gt;&lt;em&gt;unconditional risk premia&lt;/em&gt;&lt;/strong&gt; on individual currencies throughoutmost ofthe 20th century (e.g., Lewis (1995)) Consequently, much of the literature has focused on explaining conditional currency risk premia by ruling out asymmetries (e.g., Verdelhan (2010), Bansal and Shaliastovich (2012), Colacito and Croce (2013)). However, Lustig, Roussanov, and Verdelhan (2011) show that unconditional currency risk premia are, in fact, substantial and Hassan and Mano (2014) further argue that they drive the bulk of carry trade profits.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Some explanation, and / or a reference would be greatly helpful.&lt;/p&gt;&#xA;" OwnerUserId="21529" LastActivityDate="2021-02-16T11:03:55.320" Title="What is the difference between conditional and unconditional risk premia?" Tags="&lt;macroeconomics&gt;&lt;finance&gt;&lt;exchange-rates&gt;&lt;asset-pricing&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30503" PostTypeId="2" ParentId="30494" CreationDate="2019-08-14T16:07:02.470" Score="1" Body="&lt;p&gt;First off, just because economists say that the trade deficit is not a negative thing, does not mean it is positive.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Yes, trade is balanced in the long run. In and of itself, a trade deficit is therefore not &lt;em&gt;necessarily&lt;/em&gt; an issue.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When a country runs a trade deficit that means that it is consuming more than it produces. The country consumes at least as much as it produced and then a bit from what other countries produced too. That in itself is not a bad thing. In fact, consuming more than you produce seems rather nice.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, a trade deficit may also be a symptom of other economic weaknesses. A perpetual deficit may also be the precursor to a crisis. So whether a deficit in a certain case is bad or good depends on the circumstances. A good source is &lt;a href=&quot;https://www.imf.org/external/pubs/ft/fandd/basics/current.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;this IMF report&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That being said, it is incorrect and a bit naive to simply see every trade deficit as a problem.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastActivityDate="2019-08-14T16:07:02.470" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30505" PostTypeId="1" CreationDate="2019-08-14T17:25:31.300" Score="0" ViewCount="57" Body="&lt;p&gt;I understand poorest countries based on GDP but what does poorest countries by population mean? Below is the link to the information I was looking at. &#xA;&lt;a href=&quot;http://worldpopulationreview.com/countries/poorest-countries-in-africa/&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://worldpopulationreview.com/countries/poorest-countries-in-africa/&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="23990" LastEditorUserId="1601" LastEditDate="2019-08-16T05:31:01.403" LastActivityDate="2019-08-17T07:19:25.483" Title="What does poorest country by population mean?" Tags="&lt;gdp&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30506" PostTypeId="2" ParentId="30496" CreationDate="2019-08-14T20:18:33.420" Score="1" Body="&lt;p&gt;If the model &lt;span class=&quot;math-container&quot;&gt;$ (a)  y = X\beta + u $&lt;/span&gt; is true, then &lt;span class=&quot;math-container&quot;&gt;$\omega = u + X\beta - Z\gamma $&lt;/span&gt; in &lt;span class=&quot;math-container&quot;&gt;$(b)$&lt;/span&gt;, and the claim follows.&lt;/p&gt;&#xA;" OwnerUserId="20576" LastActivityDate="2019-08-14T20:18:33.420" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30507" PostTypeId="2" ParentId="30492" CreationDate="2019-08-14T21:59:20.767" Score="2" Body="&lt;p&gt;Arguably, &lt;a href=&quot;https://en.wikipedia.org/wiki/Henry_George&quot; rel=&quot;nofollow noreferrer&quot;&gt;Henry George&lt;/a&gt; described such an alternative in his 1874 work &lt;a href=&quot;https://en.wikipedia.org/wiki/Progress_and_Poverty&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;Progress and Poverty&lt;/em&gt;&lt;/a&gt;.  His system eventually became known as &lt;a href=&quot;https://en.wikipedia.org/wiki/Georgism&quot; rel=&quot;nofollow noreferrer&quot;&gt;Georgism&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;George saw his system as different than either Capitalism or Communism, as both of those systems equated Land with Capital and called for either the private ownership of both, or the communal ownership of both.  Georgism calls for the private ownership of Capital but public ownership (of a sort) for Land.&lt;/p&gt;&#xA;" OwnerUserId="23023" LastActivityDate="2019-08-14T21:59:20.767" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30508" PostTypeId="1" CreationDate="2019-08-14T22:22:44.817" Score="2" ViewCount="46" Body="&lt;p&gt;I am given the following problem:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A firm currently owns assets worth &lt;span class=&quot;math-container&quot;&gt;$4$&lt;/span&gt; milllion dollars that have a beta of 1. The risk-free interest rate is 10% and the market risk premium is 8%. Suppose the firm has the opportunity to invest in a project that will earn a 13% rate of return for certain into the indefinite future. The cost of the project is &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt; million dollars. Should the firm make the investment?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How do I solve it using CAPM or capital structure theory?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is it correct to say that the firm should not invest because, using CAPM, the required rate of return should be:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$r_i = r_f + \beta_ * (E[R_{Mkt}] - r_f) = 18\%$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="5321" LastActivityDate="2019-08-16T15:34:51.457" Title="Solving a problem using CAPM and capital structure theory" Tags="&lt;investment&gt;&lt;capital-returns&gt;&lt;capital-structure&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30511" PostTypeId="2" ParentId="9560" CreationDate="2019-08-15T07:22:55.160" Score="1" Body="&lt;p&gt;This is the expenditure method. It includes all the expenditures in the economy. Indeed, when we import goods, we spend to consume. Even if you exclude imports from calculations, you will not exclude its part from consumption. Thus, you need to substract it.&lt;/p&gt;&#xA;" OwnerUserId="23972" LastActivityDate="2019-08-15T07:22:55.160" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30512" PostTypeId="1" CreationDate="2019-08-15T08:54:48.737" Score="3" ViewCount="128" Body="&lt;p&gt;In finance and specifically portfolio theory, a popular utility function is quadratic utility &#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;u(x)=x-\frac{\lambda}{2}(x-\mu_x)^2&#xA;$$&lt;/span&gt; &#xA;where &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; is wealth and &lt;span class=&quot;math-container&quot;&gt;$\lambda$&lt;/span&gt; is the parameter of risk aversion. For &lt;span class=&quot;math-container&quot;&gt;$x&amp;gt;\mu_x+\frac{1}{\lambda}$&lt;/span&gt; the utility is decreasing in &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;. This is undesirable as we do not think investors derive disutility from a high-enough return on investment. Is this a common problem? Let us consider an example. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;An investor holds shares of a company worth around \$&lt;span class=&quot;math-container&quot;&gt;$100$&lt;/span&gt; with &lt;span class=&quot;math-container&quot;&gt;$\mu_x\approx\$100$&lt;/span&gt;. Daily fluctuations of share prices of around 0.25% (corresponding to &lt;span class=&quot;math-container&quot;&gt;$\pm$&lt;/span&gt;\$0.25) and larger are not uncommon. Given a reasonable value of &lt;span class=&quot;math-container&quot;&gt;$\lambda=4$&lt;/span&gt; (see &lt;a href=&quot;https://quant.stackexchange.com/questions/8405/typical-risk-aversion-parameter-value-for-mean-variance-optimization&quot;&gt;&quot;Typical risk aversion parameter value for mean-variance optimization&quot;&lt;/a&gt;), this means &lt;span class=&quot;math-container&quot;&gt;$x&amp;gt;\mu_x+\frac{1}{\lambda}$&lt;/span&gt; will not be uncommon, i.e. a sufficiently large gain in wealth will lead to a reduction in utility quite frequently. If the investor holds shares worth \$&lt;span class=&quot;math-container&quot;&gt;$10,000$&lt;/span&gt; instead, close to half of the days will show &lt;span class=&quot;math-container&quot;&gt;$x&amp;gt;10,000+\frac{1}{4}$&lt;/span&gt;. Hence, the problem seems to be very common. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are there any common approaches in the literature to fixing this flaw while sticking to quadratic utility? What are they?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(I could come up with some simple modifications of the utility function myself, but I would like to follow the relevant literature instead, if there is any.)&lt;/p&gt;&#xA;" OwnerUserId="4230" LastEditorUserId="4230" LastEditDate="2020-01-21T19:09:56.050" LastActivityDate="2020-01-21T19:09:56.050" Title="Fixes of quadratic utility when probability of decreasing utility is large" Tags="&lt;utility&gt;&lt;finance&gt;" AnswerCount="0" CommentCount="9" ContentLicense="CC BY-SA 4.0" />
  <row Id="30513" PostTypeId="2" ParentId="30508" CreationDate="2019-08-15T10:45:42.017" Score="1" Body="&lt;p&gt;Assuming that the project has the same beta as the firm's existing assets -- and assuming I'm remembering what I learned in my introductory CorpFin class correctly --, you are indeed right. The present value of future cash flows is, in general,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\mathrm{PV} = \sum_{t=1}^T \frac{ \mathbb{E}[ \tilde{c}_t ] }{ (1 + \mu_t)^t }$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\mu_t = r_f + (\mu_M - r_f) \cdot \beta_t$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\mathbb{E}[ \tilde{c}_t ] = \int_{-\infty}^\infty f(c_t) \, c_t \, dc_t$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here, &lt;span class=&quot;math-container&quot;&gt;$T = \infty$&lt;/span&gt;, and for all &lt;span class=&quot;math-container&quot;&gt;$t$&lt;/span&gt;, we have &lt;span class=&quot;math-container&quot;&gt;$\beta_t = 1$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$\mu_t = 0.18$&lt;/span&gt;, and &lt;span class=&quot;math-container&quot;&gt;$\mathbb{E}(\tilde{c}_t) = 130.000$&lt;/span&gt;. The present value of the investment's future cash flows, then, is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\mathrm{PV} = \sum_{t\ge 1} \frac{ 130.000 }{ 1.18^t } \approx 722.222$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which is less than one million, and the investment should not be undertaken.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Using a hurdle rate for determining whether the investment should be undertaken is also possible, but I generally find the present value-based approach cleaner. It shows you how much you'd &lt;em&gt;gain&lt;/em&gt; (or, in this case, &lt;em&gt;lose&lt;/em&gt;) on the investment, and unlike IRR-based calculations it also works for investments where future cash flows change sign more than once (imagine, say, a mining operation where you have to pay for clean-up after resources have been mined).&lt;/p&gt;&#xA;" OwnerUserId="20644" LastEditorUserId="20644" LastEditDate="2019-08-15T10:50:58.357" LastActivityDate="2019-08-15T10:50:58.357" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30515" PostTypeId="1" CreationDate="2019-08-15T11:03:27.567" Score="8" ViewCount="173" Body="&lt;p&gt;I'm trying to understand the following paper: Hsieh &amp;amp; Ossa: A global view of productivity growth in China (2016). The pdf can be found here: &lt;a href=&quot;https://faculty.chicagobooth.edu/chang-tai.hsieh/research/hsieh_ossa_jie.pdf&quot; rel=&quot;noreferrer&quot;&gt;https://faculty.chicagobooth.edu/chang-tai.hsieh/research/hsieh_ossa_jie.pdf&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I struggle to understand the utility maximization problem right at the beginning of the paper. Can someone show me how to maximize the following utility with respect to &lt;span class=&quot;math-container&quot;&gt;$x_{ijs}$&lt;/span&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$U_j=\prod_s^S\left(\sum_i^N \int_0^{M_is^e}x_{ijs}(\nu_{is})^{\frac{\sigma_s-1}{\sigma_s}}d\nu_{is} \right)^{\frac{\sigma_s}{\sigma_s-1}\mu_{js}}$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The end result is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$x_{ijs}=\frac{p_{ijs}^{-\sigma_s}}{P_{js}^{1-\sigma_s}}\mu_{js}E_j$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where &lt;span class=&quot;math-container&quot;&gt;$P_{js}=\left(\sum_i^N M_{is}^ep_{ijs}^{1-\sigma_s}\right)^\frac{1}{1-\sigma_s}$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$N$&lt;/span&gt;: number of countries &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$S$&lt;/span&gt;: number of industries &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$M_{is}^e$&lt;/span&gt;: number of entrants in industry s of country i&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$x_{ijs}$&lt;/span&gt;: quantity of an industry s variety from country i consumed in country j&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\mu_{js}$&lt;/span&gt;: fraction of country j income spent on industry s varieties&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\sigma_s&amp;gt;1$&lt;/span&gt;: elasticity of substitution between industry s varieties&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$p_{ijs}$&lt;/span&gt;: price of an industry s variety from country i in country j&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$P_{js}$&lt;/span&gt;: ideal price index in industry s of country j&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$E_j$&lt;/span&gt;: total expenditure in country j&lt;/p&gt;&#xA;" OwnerUserId="23998" LastEditorUserId="23998" LastEditDate="2019-08-15T11:21:29.643" LastActivityDate="2021-05-18T11:17:22.767" Title="utility maximization with nested Cobb–Douglas–CES preferences" Tags="&lt;microeconomics&gt;&lt;utility&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30516" PostTypeId="2" ParentId="30501" CreationDate="2019-08-15T11:07:04.113" Score="2" Body="&lt;p&gt;Prices are set the same way as in any other market, which is to say that there is a (continuous, ongoing) process of &lt;em&gt;tâtonnement&lt;/em&gt; where (say) buyers find that they cannot purchase at the maximum price they are willing to pay, or sellers find that they cannot sell at the minimum price they are willing to accept, creating pressure to adjust those prices. In some markets, this will eventually lead to relatively stable prices (say, street food), while in others, prices are more volatile, depending on how elastic supply and demand are.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Conceptually speaking, the classic notion of price-setting is that of the Walrasian auctioneer who receives, from each participant in the market, the amount said participant is willing to buy / sell at any given price, and who then proceeds to calculate the equilibrium price, only &lt;em&gt;after&lt;/em&gt; which trade will actually take place. Needless to say, like the &quot;invisible hand&quot;, this is merely an aid to understanding.&lt;/p&gt;&#xA;" OwnerUserId="20644" LastActivityDate="2019-08-15T11:07:04.113" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30517" PostTypeId="1" CreationDate="2019-08-15T12:29:27.817" Score="1" ViewCount="115" Body="&lt;p&gt;The function is &lt;span class=&quot;math-container&quot;&gt;$f(K,L)= AK^{a}L^{b}$&lt;/span&gt; on the set of points &lt;span class=&quot;math-container&quot;&gt;$(K,L)$&lt;/span&gt; with &lt;span class=&quot;math-container&quot;&gt;$K\geq 0$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$L\geq 0$&lt;/span&gt;, assuming &lt;span class=&quot;math-container&quot;&gt;$A&amp;gt;0$&lt;/span&gt;&#xA;How do I find the Hessian and check for concavity?&lt;/p&gt;&#xA;" OwnerUserId="24001" LastEditorUserId="23546" LastEditDate="2019-08-15T20:30:42.237" LastActivityDate="2019-08-16T21:44:03.043" Title="How do I derive Hessian of this function and check for concavity?" Tags="&lt;mathematical-economics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30518" PostTypeId="2" ParentId="30499" CreationDate="2019-08-15T13:56:25.777" Score="-1" Body="&lt;p&gt;I think you've answered your own question. Not only would lower inflation be a factor in lower bond yields but also consider that a lower level of demand for loanable funds for private real investment means lower corporate bond yields. That view is cited in the following Larry Summers quote taken from &lt;a href=&quot;https://economics.stackexchange.com/questions/5584/larry-summers-on-the-causes-of-secular-stagnation&quot;&gt;this economics.stackexchange.com question on secular stagnation&lt;/a&gt;...&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Think about what the world was like when General Motors or AT&amp;amp;T or&#xA;  Exxon or IBM were iconic companies. They were issuing debt. They were&#xA;  investing on a massive scale to expand capacity and to build networks.&#xA;  Now think about iconic companies of today like Apple and Google. They&#xA;  have more cash flow, fundamentally, than they know what to do with.&#xA;  And the result of that, of course, is an excess supply of savings.&#xA;  Another way to approach the question is to say, what's happened to the&#xA;  relative price of durable equipment, either producer equipment or&#xA;  consumer equipment, appliances? And the answer is those prices have&#xA;  gone way down. Well, when those prices go way down it means a given&#xA;  unit of savings goes much further.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;All of that, it seems to me, operates to reduce real interest rates&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="6868" LastActivityDate="2019-08-15T13:56:25.777" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30520" PostTypeId="1" CreationDate="2019-08-15T15:29:28.923" Score="1" ViewCount="22" Body="&lt;p&gt;Yield curve inversion is often a sign of a looming recession, but is there an explanation of this phenomenon other than the fact that historically we have seen that the two phenomena were indeed associated together.&lt;/p&gt;&#xA;" OwnerUserId="23588" LastActivityDate="2019-08-15T15:29:28.923" Title="Yield curve inversion and recession" Tags="&lt;economic-growth&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30521" PostTypeId="2" ParentId="30508" CreationDate="2019-08-15T16:48:29.590" Score="2" Body="&lt;p&gt;@chsk gives the correct answer if the firm has to raise funds using the equity market and the cost of those funds is the same as that for the firm. However, I would recommend that this firm do the project. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As indicated in the project, the risk free rate of return is 10%, and this project &quot;...will earn a 13% rate of return for certain into the indefinite future.&quot; So this is a risk-less project with a return above that of the risk free rate. So, if you can borrow at the risk free rate, such a project will be profitable. That should be clear by introspection, but here are some numbers, even assuming that there are no cash flows during construction: &#xA;&lt;span class=&quot;math-container&quot;&gt;$$\mathrm{PV} = \$-1,000,000 + \sum_{t\ge 1} \frac{ \$130,000 }{ 1.1^t } \approx \$295,000$$&lt;/span&gt;&#xA;and if cash flows appear during the initial period the value is about \$425,000. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In general, the internal cost of capital should be tied to project risk and not overall firm cost of capital. Consider that we could start a new firm that does only the new project. What is the appropriate cost of capital to lend to this new firm? Well, by assumption, the new project has no risk. Therefore, the appropriate cost of funds should be the risk free rate (10% in this problem). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the real world this might be tricky. You might have synergies which complicate considering the project as a stand alone firm. You might not actually be able to find a investor that will provide funds to you based on project risk. You might have other frictions which put you in a pecking order project financing setting. But, safely in the confines of a study problem, these frictions are not of first order importance. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The way that I would answer this problem is as follows:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The appropriate cost of funds for this project should be the risk free&#xA;  rate because there is not uncertainty to the project's returns.&#xA;  Therefore, the NPV of this project should be positive (&lt;em&gt;show math to&#xA;  that effect&lt;/em&gt;). However, there are a number of reasons (&lt;em&gt;sketch some of&#xA;  these out&lt;/em&gt;) why it might be difficult to raise funds for a risk-less&#xA;  project at the risk free rate. It is likely that an upper bound on&#xA;  market financing on this project would be the firm's average cost of&#xA;  capital, which is 18%. At an 18% discount rate this is not an&#xA;  economical project (&lt;em&gt;show math to that effect&lt;/em&gt;). This firm should&#xA;  review its financing choices to determine their marginal cost of&#xA;  capital for this project. The internal rate of return on this project&#xA;  is 13% (&lt;em&gt;show math to that effect&lt;/em&gt;), so as long as the firm's cost of&#xA;  funds is &lt;span class=&quot;math-container&quot;&gt;$&amp;lt;13$&lt;/span&gt;% then they should fund this project.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2019-08-16T15:34:51.457" LastActivityDate="2019-08-16T15:34:51.457" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30522" PostTypeId="2" ParentId="30517" CreationDate="2019-08-15T18:18:14.560" Score="7" Body="&lt;p&gt;As @Herr K. stated, the beginning point is being able to take a derivative. The Hessian is a matrix equivalent to a second order derivative sometimes denoted as &lt;span class=&quot;math-container&quot;&gt;$\nabla^{2}$&lt;/span&gt;. Start by finding the gradient, &lt;span class=&quot;math-container&quot;&gt;$\nabla$&lt;/span&gt; which is a vector of first order derivatives of every &lt;em&gt;variable&lt;/em&gt; in the function. In your case, this would be&lt;br&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$ \nabla=&#xA;  \left[ {\begin{array}{cc}&#xA;   \frac{\partial{f}}{\partial{K}}  \\&#xA;   \frac{\partial{f}}{\partial{L}} \\&#xA;  \end{array} } \right] =&#xA;  \left[ {\begin{array}{cc}&#xA;   aAK^{a-1}L^{b}  \\&#xA;   bAK^{a}L^{b-1} \\&#xA;  \end{array} } \right] $$&lt;/span&gt;&#xA;The Hessian, would be the next (second) derivative of each of the above with respect to both variables and it takes the form:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$ \nabla^{2}=&#xA;  \left[ {\begin{array}{cc}&#xA;   \frac{\partial^{2}f}{\partial{K}^2} &amp;amp; \frac{\partial^{2}f}{\partial{K}\partial{L}} \\&#xA;   \frac{\partial^{2}f}{\partial{L}\partial{K}} &amp;amp; \frac{\partial^{2}f}{\partial{L}^2} \\&#xA;  \end{array} } \right] $$&lt;/span&gt;&#xA;Using whatever this would be in your case (left to you to compute) you can take the &lt;em&gt;determinant&lt;/em&gt; of the resulting matrix and, with values for your parameters &lt;span class=&quot;math-container&quot;&gt;$a$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$b$&lt;/span&gt; (or at least their signs like with the other variables and parameters) you can determine whether the &lt;em&gt;determinant&lt;/em&gt; is positive or negative and determine the concavity. If it is positive definite or positive semi-definite, this would imply either strict or non-strict convexity, respectively. If you don't know how to take a determinant it is simply dont by using a matrix say&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ A=&#xA;  \left[ {\begin{array}{cc}&#xA;   a_{1} &amp;amp; a_{2} \\&#xA;   a_{3} &amp;amp; a_{4} \\&#xA;  \end{array} } \right] $$&lt;/span&gt;&#xA;and then taking its determinant using the operation (without explanation for sake of brevity):&#xA;&lt;span class=&quot;math-container&quot;&gt;$$ A=&#xA;   {\begin{vmatrix}&#xA;   a_{1} &amp;amp; a_{2} \\&#xA;   a_{3} &amp;amp; a_{4} \\&#xA;  \end{vmatrix} } = a_{1}a_{4}-a_{2}a_{3} $$&lt;/span&gt;&#xA;Using this with the above, you should be able to figure the rest out and figure out whether or not its concave! (hint: for &lt;span class=&quot;math-container&quot;&gt;$a,b\geq 0$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$a+b\leq1$&lt;/span&gt; it is concave)&lt;/p&gt;&#xA;" OwnerUserId="23546" LastEditorUserId="23546" LastEditDate="2019-08-16T21:44:03.043" LastActivityDate="2019-08-16T21:44:03.043" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="30523" PostTypeId="1" CreationDate="2019-08-15T18:39:54.897" Score="1" ViewCount="21" Body="&lt;p&gt;I'm not an economist, so this may be a stupid question, but why are high borrowing rates among individuals and corporations bad? Like, I've heard high student and credit card debt mentioned as reasons that we should expect another recession, but it seems to me, naively, that these would be a good proxy for general confidence in the economy on the part of lenders.  Why don't people cite high borrowing rates as evidence that there &lt;em&gt;won't&lt;/em&gt; be another recession soon?&lt;/p&gt;&#xA;" OwnerUserId="17834" LastActivityDate="2019-08-15T20:33:37.850" Title="Is a high borrowing rate bad?" Tags="&lt;macroeconomics&gt;&lt;debt&gt;&lt;forecasting&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30526" PostTypeId="2" ParentId="30496" CreationDate="2019-08-15T21:27:28.533" Score="1" Body="&lt;p&gt;From a) we obtain &lt;span class=&quot;math-container&quot;&gt;$y - \hat{y}_x = M_xy = M_xu$&lt;/span&gt; and from b) &lt;span class=&quot;math-container&quot;&gt;$y - \hat{y}_z = M_zy = M_zX\beta + M_zu$&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$M_x$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$M_z$&lt;/span&gt; are the residual-maker matrices (the ones from the accepted answer of the question that you linked) and &lt;span class=&quot;math-container&quot;&gt;$\hat{y}_x$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\hat{y}_z$&lt;/span&gt; are the predicted values of y based on the who linear models.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The estimate of the variance is  &lt;span class=&quot;math-container&quot;&gt;$s_x^2 = \frac{(y - \hat{y}_x)^T(y - \hat{y}_x)}{n-k}$&lt;/span&gt; for the first model and &lt;span class=&quot;math-container&quot;&gt;$s_z^2 = \frac{(y - \hat{y}_z)^T(y - \hat{y}_z)}{n-r}$&lt;/span&gt; for the second.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus &lt;span class=&quot;math-container&quot;&gt;$E(s_z^2) = \frac{E[(M_zX\beta + M_zu)^T(M_zX\beta + M_zu)]}{n-r} = \frac{1}{n-r}( E[(M_zX\beta)^T(M_zX\beta)] + E[(M_zX\beta)^T(M_zu)] + E[(M_zu)^T(M_zX\beta)] + E[(M_zu)^T(M_zu)]) = \frac{1}{n-r}( E[(M_zX\beta)^T(M_zX\beta)] + 2E[(M_zX\beta)^T(M_zu)] + E[(M_zu)^T(M_zu)]) = \frac{1}{n-r}( E[||M_zX\beta||_2^2] + 2E[\beta^TX^TM_zu] + E[(M_zu)^T(M_zu)]),$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;as &lt;span class=&quot;math-container&quot;&gt;$(M_zX\beta)^T(M_zu) = (M_zu)^T(M_zX\beta) =  \beta^TX^TM_z^TM_zu = \beta^TX^TM_zu \hspace{.2cm} \in \mathbb{R}.$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Beacuse &lt;span class=&quot;math-container&quot;&gt;$Z, X -$&lt;/span&gt; fixed &lt;span class=&quot;math-container&quot;&gt;$||M_zX\beta||_2^2$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\beta^TX^TM_z$&lt;/span&gt; are constants.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus &lt;span class=&quot;math-container&quot;&gt;$$E(s_z^2) = \frac{1}{n-r}(||M_zX\beta||_2^2 + 2\beta^TX^TM_zE(u) + E(u^TM_zu)) =$$&lt;/span&gt; &lt;span class=&quot;math-container&quot;&gt;$$= \frac{||M_zX\beta||_2^2}{n-r} + 0 + \frac{E(u^TM_zu)}{n-r} = \frac{||M_zX\beta||_2^2}{n-r} + \sigma^2 \neq \sigma^2 \hspace{.2cm} in \hspace{.1cm}general.$$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="23694" LastEditorUserId="23694" LastEditDate="2019-08-15T21:33:24.640" LastActivityDate="2019-08-15T21:33:24.640" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30527" PostTypeId="2" ParentId="30495" CreationDate="2019-08-15T21:52:49.563" Score="1" Body="&lt;p&gt;There is no steady state in the Solow framework. The system is explosive because &lt;span class=&quot;math-container&quot;&gt;$a,b &amp;gt;0 \wedge a+b&amp;lt;1 \Rightarrow a+b + (1-a) &amp;gt; 1$&lt;/span&gt;. Thus &lt;span class=&quot;math-container&quot;&gt;$(zK_t)^{a+b} (L_tz)^{1-a} = z^{1+b}(K_t)^{a+b} (L_t)^{1-a}$&lt;/span&gt;. I.e. this production function has increasing returns to scale. Such capital stock externalities are discussed in the AK-Models.&lt;/p&gt;&#xA;" OwnerUserId="23694" LastEditorUserId="23694" LastEditDate="2019-08-15T22:27:35.967" LastActivityDate="2019-08-15T22:27:35.967" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="30528" PostTypeId="1" AcceptedAnswerId="30544" CreationDate="2019-08-15T23:12:07.973" Score="2" ViewCount="54" Body="&lt;p&gt;I have a question about a derivation in Abraham (1987)'s simple job market matching model (equations 3 through 7):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;She begins by writing down tautologies:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;J - V = L - U = E&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where J is the number of jobs, V is the number of vacancies, L is the total labor force, U is the total unemployed, and E is the total employed. Consider a probability function that a particular vacancy will be filled:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;p(V/U) where &lt;span class=&quot;math-container&quot;&gt;$p_u &amp;gt; 0, p_v &amp;lt;0, p_{uu} &amp;lt; 0, p_{vv} &amp;gt; 0$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, letting the total quits and firings from the current stock of employees be sE we must have:&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA; p(V/U)V - sE =0 &#xA;\end{equation}&lt;/span&gt;&#xA;Letting U/E = u, V/E = v, and dividing through by E we get:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;p(v/u)v = s&#xA;\end{equation}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now things get tricky. She writes &quot;along the set of points satisfying (the above)&quot; we have:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;\frac{dv}{du} = - \frac{p_u}{p+p_v v} &#xA;\end{equation}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is: how? Suppose I treat this as an implicit differentiation problem. Write &lt;span class=&quot;math-container&quot;&gt;$F(v,u) = p(v/u)v-s = 0$&lt;/span&gt; then we know we know:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;\frac{d v}{d u} = - \frac{\partial F}{du} / \frac{\partial F}{dv} &#xA;\end{equation}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I obtain &lt;span class=&quot;math-container&quot;&gt;$F_v = p + (v/u)p_v $&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$F_u =  - (\frac{v}{u})^2 p_{u}$&lt;/span&gt; which yields:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;\frac{dv}{du} =  \frac{(\frac{v}{u})^2 p_{u}}{p + (v/u)p_v} &#xA;\end{equation}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This doesn't look very close. Am I missing something? What's going on here?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Inspired by the answer below, I agree it is as simple as totally differentiating P(u,v) = p(v/u).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{equation} &#xA;p(v/u) = P(v,u) \rightarrow P(v,u)v - s = 0 &#xA;\end{equation}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, let's totally differentiate this expression with respect to v,u, and s.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{equation} &#xA;\left[P_v(v,u)v + P\right] dv + v P_u du - ds = 0&#xA;\end{equation}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider &lt;span class=&quot;math-container&quot;&gt;$ds = 0 $&lt;/span&gt; e.g. no change in the separation rate. This yields:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{equation} &#xA;\frac{dv}{du} = - \frac{vP_u}{vP_v + P}&#xA;\end{equation}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Substituting &lt;span class=&quot;math-container&quot;&gt;$p(v/u)$&lt;/span&gt; for &lt;span class=&quot;math-container&quot;&gt;$P(v,u)$&lt;/span&gt; gives the expression off by a factor v.&lt;/p&gt;&#xA;" OwnerUserId="24006" LastEditorUserId="24006" LastEditDate="2019-08-17T15:11:07.247" LastActivityDate="2019-08-18T15:44:48.887" Title="Abraham (1987) Simple Job Market Matching Model" Tags="&lt;mathematical-economics&gt;&lt;search-and-matching&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30529" PostTypeId="2" ParentId="17534" CreationDate="2019-08-16T00:33:07.857" Score="-1" Body="&lt;ol&gt;&#xA;&lt;li&gt;Get the Future Value: &lt;span class=&quot;math-container&quot;&gt;$8235.05&#xA;2. Divide it by 120 to get payment per month: $&lt;/span&gt;68.63&lt;/li&gt;&#xA;&lt;li&gt;Calculate Monthly Interest: 5000 * (5/12)&lt;/li&gt;&#xA;&lt;li&gt;Change formula in &quot;Balance&quot; column to previous balance + interest (5000 + 20.83)&lt;/li&gt;&#xA;&lt;li&gt;Copy down to row 120&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Yes, you do fully understand compounding but putting it into an amortized plan is not quite intuitive&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/XhxoJ.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/XhxoJ.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="24007" LastActivityDate="2019-08-16T00:33:07.857" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30530" PostTypeId="1" CreationDate="2019-08-16T01:08:03.897" Score="-1" ViewCount="17" Body="&lt;p&gt;I'm confused with the definition of recession. Is it two quarters of negative GDP growth , meaning GDP growing at -1% and -2% or GDP slowing to 2% and 1.5%.&lt;/p&gt;&#xA;" OwnerUserId="21681" LastActivityDate="2019-08-16T04:59:11.147" Title="What is recession? Two quarters of -ve GDP or two quarters of slowing GDP?" Tags="&lt;gdp&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30531" PostTypeId="1" CreationDate="2019-08-16T01:57:26.430" Score="1" ViewCount="76" Body="&lt;p&gt;Let's say there is some scarce resource and several agents compete to access this resource. Each agent is able to convert the resources into products that are beneficial to society, but each agent has a different efficiency with which it does so. Therefore, society would like to see the most efficient agent get the resource. However, the agent that pays more gets the resource.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is it possible to model this scenario in a Price of Anarchy calculation? What would the model look like?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the introductory examples of Price of Anarchy, I've come across Braess's Paradox and Pigou's example, but these are situations where the cost is incurred by the selfish agents themselves. In my example given above, the cost is incurred by society. That's why I'm not sure how to go about it.&lt;/p&gt;&#xA;" OwnerUserId="5591" LastActivityDate="2020-09-09T11:04:45.463" Title="Price of Anarchy when the cost is to society and not to the selfish agents" Tags="&lt;mechanism-design&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30532" PostTypeId="2" ParentId="30530" CreationDate="2019-08-16T04:59:11.147" Score="0" Body="&lt;p&gt;Negative growth.  Though I suspect this question will be quickly closed :)&lt;/p&gt;&#xA;" OwnerUserId="23023" LastActivityDate="2019-08-16T04:59:11.147" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30534" PostTypeId="1" CreationDate="2019-08-16T08:00:13.367" Score="2" ViewCount="200" Body="&lt;p&gt;The amount of cash in circulation is on the rise in rich countries (US, EU, etc; except the cashless economy, Sweden). In the digital era, isn't this phenomenon contradictional?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, here's the ratio of the value of cash to GDP in the Euro Area:&#xA;&lt;a href=&quot;https://i.stack.imgur.com/7l9SY.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/7l9SY.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Cash: Notes and coins in circulation (Currency)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Possible reasons:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Shadow economy is growing.&lt;/li&gt;&#xA;&lt;li&gt;More cash = more corruption.&lt;/li&gt;&#xA;&lt;li&gt;Lack of financial literacy.&lt;/li&gt;&#xA;&lt;li&gt;Feeling of safety. Lack of trust towards technology and banking&#xA;system.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;What is the main reason why the cash in circulation is on the rise in rich countries?&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="5017" LastEditorUserId="5017" LastEditDate="2019-08-16T08:27:08.227" LastActivityDate="2019-08-29T10:56:31.657" Title="Why is the cash in circulation on the rise in rich countries?" Tags="&lt;macroeconomics&gt;&lt;finance&gt;&lt;money-supply&gt;&lt;money&gt;&lt;black-market&gt;" AnswerCount="1" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="30535" PostTypeId="2" ParentId="30531" CreationDate="2019-08-16T08:50:02.963" Score="1" Body="&lt;p&gt;If there is a free market for the product the agent who gets the resource becomes a monopolist. &quot;Produce more efficiently&quot;  is taken to mean &quot;produce every quantity of output for lower cost&quot;. That is its usual meaning in economics. Thus if someone different from the most efficient producer by any means gets hold of the resource the best thing that someone could do for himself, is to sell this resource to the most efficient producer, who is going to make more profit than the initial owner could and hence is able to make the initial owner an offer he cannot reject. Hence in the end the product gets produced by the most efficient technology available and the prices for the product are the same in both worlds. The consumers are exactly as well off. There is only a shift of profits between the entrepreneurs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the resource is auctioned off to the highest bidder, the most efficient producer will win the auction, as he can outbid all others, because he is going to make the largest profits among all.&lt;/p&gt;&#xA;" OwnerUserId="23694" LastEditorUserId="23694" LastEditDate="2019-08-16T09:15:09.407" LastActivityDate="2019-08-16T09:15:09.407" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30537" PostTypeId="1" CreationDate="2019-08-16T12:34:26.600" Score="1" ViewCount="57" Body="&lt;p&gt;I have a data set about 125 companies. For each company I have the salary and some other variables about the top 5 managers in each company. &#xA;One observation contains the top 5 managers in each one of the 125 firms  from 2010 to 2018, so every company has the data for its managers for each year.&#xA;For some companies some years are missed or it is for less than top 5 managers.&#xA;I want to check the effect of a regulation that occurred in 2016, and my question is :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is it OK to do linear regression for the observations before 2016 at once ?,&#xA;I am not sure about that because every year has the same companies with the data of that year.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can anyone tell me if it is Ok to do that or help by advising another regression method    &lt;/p&gt;&#xA;" OwnerUserId="24012" LastEditorUserId="17735" LastEditDate="2019-08-19T21:03:24.853" LastActivityDate="2020-10-13T21:06:00.633" Title="regression method for data that contain a number of observation for several years" Tags="&lt;econometrics&gt;&lt;labor-economics&gt;&lt;regression&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30539" PostTypeId="1" AcceptedAnswerId="30572" CreationDate="2019-08-16T14:03:07.527" Score="1" ViewCount="67" Body="&lt;p&gt;Granted, I expect this question could be easily answered, but I cannot find a definitive reason as to why income tax is pinned at such a high rate in the United Kingdom.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm not much of an economist, but I do understand the function of national insurance, and I do understand the function of a tax to fund the various essential organs of the state (Monarchy, Government, Parliament, Intelligence Services,and Defense and Protection forces). However, I don't get why, if I earn around 40k (Sterling), a large portion, around 15% (which is around 5-6k), is taken for income tax. &lt;/p&gt;&#xA;" OwnerUserId="24016" LastActivityDate="2019-08-19T09:15:07.253" Title="Why is income tax so high? (UK)" Tags="&lt;taxation&gt;" AnswerCount="1" CommentCount="2" ClosedDate="2019-08-19T20:05:36.237" ContentLicense="CC BY-SA 4.0" />
  <row Id="30540" PostTypeId="1" CreationDate="2019-08-16T14:38:38.750" Score="0" ViewCount="16" Body="&lt;p&gt;what is the main difference between simple linear regression and Canonical cointegrating regression. Why we should use Canonical cointegrating regression instead of OLS?&lt;/p&gt;&#xA;" OwnerUserId="23622" LastActivityDate="2019-08-16T14:38:38.750" Title="what is the difference between normal OLS simple linear regression and Canonical cointegrating regression?" Tags="&lt;macroeconomics&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30541" PostTypeId="1" CreationDate="2019-08-16T16:02:19.093" Score="-1" ViewCount="33" Body="&lt;p&gt;Is it reasonable to expect that the US govt's financing of the growing budget deficit and US debt by issuing long term treasury bonds will push long term interest rates higher in the future?  Shouldn't that potentially lead to easing or elimination of the current yield curve inversion?&lt;/p&gt;&#xA;" OwnerUserId="24018" LastActivityDate="2019-08-16T18:26:07.723" Title="The effect of financing of government debt on the yield curve" Tags="&lt;monetary-policy&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30542" PostTypeId="2" ParentId="30541" CreationDate="2019-08-16T17:01:00.257" Score="0" Body="&lt;p&gt;Inversion hasn't been a permanent phenomenon anyway so it likely won't persist regardless of whether your hypothesis was the reason it ended. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/U6GT1.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/U6GT1.png&quot; alt=&quot;picture of then year minus two year&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If it ends people can debate about the cause. If short term yields decrease and the economy avoids a recession, inversion may end for reasons other than a high volume of bond issuance. This is a good economics question but hard to answer because financial markets exist for the assets involved. People know about the possibility of more bond issuance and they could have already shorted long bonds (raise the associated rate) and bought the shorter maturity bond, and yet we have inversions from time to time. There is the matter of the time when longer yields increase. Coupon interest must be paid when a bond has been shorted so this limits willingness to do so. If deflation, recessions, non-recession low growth, and risk aversion are the forces prevailaing then long bond yields can be low even while there is a high volume of bond issuance.&lt;/p&gt;&#xA;" OwnerUserId="6868" LastEditorUserId="6868" LastEditDate="2019-08-16T18:26:07.723" LastActivityDate="2019-08-16T18:26:07.723" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30543" PostTypeId="1" AcceptedAnswerId="30554" CreationDate="2019-08-16T19:24:28.473" Score="1" ViewCount="96" Body="&lt;p&gt;As the accepted answer points out, the premise of my question was flawed. Thank you for the dispelling of my wrong assumptions. The original question follows.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are two related questions (and feel free to assume the Central Bank in the questions is USA's Fed):&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;When the Central Bank sells bonds, where does the money go ultimately?&lt;/li&gt;&#xA;&lt;li&gt;How separate is the Central Bank budget from the government's budget?&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;To clarify: If the Central Bank sells \$1000M worth of bonds in order to repay \$800M old maturing debt and to raise an extra \$200M, does this \$200M simply become available for use to the government? Or is there some extra process in order to transfer money between the government and the central bank? Who decides (central bank, executive branch, legislative branch) how much new debt the central bank will be selling?&lt;/p&gt;&#xA;" OwnerUserId="21808" LastEditorUserId="21808" LastEditDate="2019-08-18T01:37:03.543" LastActivityDate="2019-08-18T01:37:03.543" Title="When the Central Bank sells a bond, where does the money go ultimately?" Tags="&lt;government-debt&gt;&lt;central-banking&gt;&lt;federal-reserve&gt;&lt;government-spending&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30544" PostTypeId="2" ParentId="30528" CreationDate="2019-08-16T22:14:10.223" Score="1" Body="&lt;p&gt;Note that function &lt;span class=&quot;math-container&quot;&gt;$p$&lt;/span&gt; actually depends upon a single variable &lt;span class=&quot;math-container&quot;&gt;$u/v$&lt;/span&gt; and I prefer avoiding the abuse of notation &#xA;(source of confusion) and write &lt;span class=&quot;math-container&quot;&gt;$p(u/v) = P(u,v)$&lt;/span&gt;. This implies:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;p'(u/v) = P_u(u,v)v = P_v(u,v) \cdot (-v^2/u). &#xA;\end{equation}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So if &lt;span class=&quot;math-container&quot;&gt;$P(u,v)v = s$&lt;/span&gt; total differentiation along &lt;span class=&quot;math-container&quot;&gt;$ds=0$&lt;/span&gt; yields&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;P_u(u,v)vdu + (P+P_v(u,v)v)dv = 0, &#xA;\end{equation}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;or equivalently &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;\frac{dv}{du} = - \frac{P_uv}{P+P_v v}. &#xA;\end{equation}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This result is still slighly different from those given in your question... Who can help further?&lt;/p&gt;&#xA;" OwnerUserId="20576" LastEditorUserId="20576" LastEditDate="2019-08-18T15:44:48.887" LastActivityDate="2019-08-18T15:44:48.887" CommentCount="7" ContentLicense="CC BY-SA 4.0" />
  <row Id="30545" PostTypeId="2" ParentId="30543" CreationDate="2019-08-16T22:16:55.840" Score="2" Body="&lt;p&gt;Federal reserve, has no limit on how much money they can print. Thus, when central banks buy bonds , new money flows into the system.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, when federal reserve sells the bond , the money is taken out of the system.&lt;/p&gt;&#xA;" OwnerUserId="21681" LastActivityDate="2019-08-16T22:16:55.840" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30546" PostTypeId="1" CreationDate="2019-08-17T00:32:05.703" Score="1" ViewCount="553" Body="&lt;p&gt;GDP at factor cost= Net value added + Depreciation. Here my question is why depreciation added to Net value added? I am confused here: Net value added = Gross value added - depreciation; so the above formula becomes GDP at factor cost= Gross value added - depreciation + Depreciation. Here depreciation get cancelled and finally becomes GDP at factor cost= Gross value added.&lt;img src=&quot;https://i.stack.imgur.com/1ydYm.jpg&quot; alt=&quot;enter image description here&quot;&gt;&#xA;Source: &lt;a href=&quot;http://www.economicsdiscussion.net/national-income/components-national-income/top-17-components-of-national-income/18793&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.economicsdiscussion.net/national-income/components-national-income/top-17-components-of-national-income/18793&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="21111" LastEditorUserId="21111" LastEditDate="2019-08-17T08:44:23.810" LastActivityDate="2019-08-17T09:43:35.107" Title="About gross domestic product at factor cost" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;" AnswerCount="1" CommentCount="7" ContentLicense="CC BY-SA 4.0" />
  <row Id="30547" PostTypeId="1" AcceptedAnswerId="30549" CreationDate="2019-08-17T03:10:06.417" Score="1" ViewCount="31" Body="&lt;p&gt;The following is the definition from World Bank:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/Z7hZk.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Z7hZk.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does it imply that apart from FDI, portfolio equity includes net inflows from equity securities including shares, stocks, depository receipts and direct purchases in local stock markets by foreign investors? &lt;/p&gt;&#xA;" OwnerUserId="15509" LastActivityDate="2019-08-17T07:29:02.450" Title="Interpretation of the World Bank's definition of Portfolio equity inflows" Tags="&lt;international-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30548" PostTypeId="2" ParentId="30505" CreationDate="2019-08-17T07:19:25.483" Score="2" Body="&lt;p&gt;&quot;Poorest country by population&quot; doesn't really mean anything: I think this is just sloppy writing by the website. The table on the website is actually ranking countries by &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\text{GDP Per Capita}=\frac{\text{GDP}}{\text{population}}.$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is a measure of the value of goods or services that the average person in a country produces.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2019-08-17T07:19:25.483" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30549" PostTypeId="2" ParentId="30547" CreationDate="2019-08-17T07:29:02.450" Score="0" Body="&lt;p&gt;Yes given that &lt;strong&gt;ownership of 10 percent or more&lt;/strong&gt; of the ordinary shares of voting stock is the criterion for determining the existence of a direct investment relationship. This threshold of 10 percent establishes a controlling interest, per guidelines established by the Organisation of Economic Co-operation and Development (OECD).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;According to the &lt;a href=&quot;https://stats.oecd.org/glossary/detail.asp?ID=2092&quot; rel=&quot;nofollow noreferrer&quot;&gt;OECD&lt;/a&gt; Portfolio investment is the category of international investment that covers investment in equity and debt securities, excluding any such instruments that are classified as direct investment or reserve assets.&lt;/p&gt;&#xA;" OwnerUserId="6168" LastActivityDate="2019-08-17T07:29:02.450" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30550" PostTypeId="2" ParentId="30546" CreationDate="2019-08-17T07:50:39.627" Score="1" Body="&lt;p&gt;The best practice would be to use definitions from recognized international institutions such as the World Bank or the Organisation for Economic Co-operation and Development (OECD). In &lt;a href=&quot;http://www.oecd.org/sdd/na/2681470.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;this document&lt;/a&gt; The OECD classifies three types of gross value added (1) at  basic  prices, (2) at producers' prices and (3) &lt;strong&gt;at factor cost&lt;/strong&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let first define gross value added at  basic  prices  as  output  valued  at  basic  prices  less  intermediate consumption valued at purchasers' prices. Then, gross  value  added at  factor  cost  can  be  derived  from  gross  value  added  at  basic  prices  by subtracting other taxes less subsidies on production. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As an example, GDP  at  market  prices  for  the  United  States  in  1992  was US\$ 6,234 billion.  As &lt;strong&gt;GDP at factor cost&lt;/strong&gt; removes all net taxes on production, it would equal \$6,234 billion less \$506 billion or \$5,728 billion.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;GDP at factor cost is thus a way of measuring gross value added at some prices. So, as far as I understand, it makes sense that depreciation get cancelled and finally becomes GDP (at factor cost) = Gross value added (at factor cost).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why is depreciation added to Net value added? According to your source, if we deduct depreciation from Gross Net Product (at factor cost), we get Net National Product (at factor cost). So, if we add depreciation to NNP we get GNP.&lt;/p&gt;&#xA;" OwnerUserId="6168" LastEditorUserId="6168" LastEditDate="2019-08-17T09:43:35.107" LastActivityDate="2019-08-17T09:43:35.107" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30554" PostTypeId="2" ParentId="30543" CreationDate="2019-08-17T15:24:17.747" Score="3" Body="&lt;p&gt;Firstly, the central bank doesn't issue bonds. The treasury (in the executive government) does, as a way to finance government expenditure, and make real investments in the economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In modern economies, the central bank's primary focus is the interest rate at which they lend money to private banks. If they require more money in order to finance those loans, they will simply create more money, as they have the legitimacy to do that. (Note that most money that is created is not physically printed, but rather it is just the electronic entry of that currency, in the initial transaction. An economy requires a fraction of electronic money to exist as cash, so a fraction of created money is printed.) However, fiat money requires some security to give it legitimacy. To this end, the central bank holds securities, stocks, precious metals, cash and foreign currency in its reserves. You can see here that bonds form part of those reserves, so &lt;strong&gt;that is why central banks buy treasury bonds&lt;/strong&gt;. Plenty of other domestic and foreign financial institutions also buy treasury bonds, as part of their reserves to give legitimacy to their &quot;demand deposits&quot; (which is fiat money), or as part of a strategy to lower the risk of their investment portfolios. Private banks also create money by loaning out their demand deposits.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Analogously, if the central bank raises the interest rate (in order to curb inflation), they will be slowing down the growth of money (which can be thought of as a &quot;leakage&quot;), and that is a situation in which they would buy fewer bonds.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Central banks need to operate autonomously from the executive government, and this autonomy is usually enshrined in the respective country's constitution. When this doesn't happen, the executive government could force the central bank to buy their bonds, which creates a huge injection of money into the economy. This money that is created belongs to the government, so they spend it in order to achieve policy goals, however, after a while the currency becomes worth less and less (as inflation is high). That is the main cause of high inflation. When the central bank is autonomous, they have control over the monetary system, and keep inflation in check with the central bank interest rate.&lt;/p&gt;&#xA;" OwnerUserId="175" LastEditorUserId="175" LastEditDate="2019-08-17T15:36:14.960" LastActivityDate="2019-08-17T15:36:14.960" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30555" PostTypeId="1" CreationDate="2019-08-17T16:48:15.327" Score="-1" ViewCount="61" Body="&lt;p&gt;GDP gives the picture from the consumers’ side, while GVA gives the picture from the producers’ side. By definitions of both GDP and GVA &quot;the amount of goods and services PRODUCED in an economy in a year&quot;. Here is my question,  if both GDP and GVA are 'produced' side according to definition then why GDP from consumer's side and GVA from producer's side? I am confused so please clarify my doubt. Here the source &lt;a href=&quot;https://www.google.com/amp/s/m.economictimes.com/markets/stocks/news/the-debate-over-the-use-of-gva-and-gdp/amp_articleshow/58905721.cms&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.google.com/amp/s/m.economictimes.com/markets/stocks/news/the-debate-over-the-use-of-gva-and-gdp/amp_articleshow/58905721.cms&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="21111" LastEditorUserId="21111" LastEditDate="2019-08-18T06:09:39.827" LastActivityDate="2019-08-18T06:26:34.467" Title="Consumer's side and producer's side" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;&lt;national-income&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30557" PostTypeId="1" CreationDate="2019-08-17T19:12:45.233" Score="0" ViewCount="1278" Body="&lt;p&gt;From &lt;a href=&quot;https://www.sapling.com/8117368/debt-handled-currency-devaluation&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.sapling.com/8117368/debt-handled-currency-devaluation&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Currency devaluation will not only affect consumer debts, but it will affect how a country pays back its national debt. If a loan is denominated in the devalued currency, then the debt will be easier to pay off, as the country will have to spend less money paying back foreign investors. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The above quote doesn't make sense to me. Why would the country have to spend less money paying back foreign investors? &lt;/p&gt;&#xA;" OwnerUserId="23988" LastActivityDate="2020-12-18T00:55:50.557" Title="Currency Devaluation - As a Means of Paying Off Debt" Tags="&lt;currency&gt;&lt;debt&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30558" PostTypeId="2" ParentId="30555" CreationDate="2019-08-17T19:48:01.890" Score="0" Body="&lt;p&gt;In a closed economy, everything that is consumed necessarily corresponds to the amount of goods produced. Production side and consumer's side are just two ways of adding up, but they will produce the same number.&lt;/p&gt;&#xA;" OwnerUserId="17735" LastActivityDate="2019-08-17T19:48:01.890" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30561" PostTypeId="1" CreationDate="2019-08-17T22:54:25.973" Score="2" ViewCount="45" Body="&lt;p&gt;My question is the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's say a person has two career choices. He would be succesful in both, but in one of them he is slightly better and thus he will do better. So let's say career A will bring him a utility of 10 and career B a utility of 9.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So career A will bring him a 1 net utility benefit, due to the opportunity cost of 9 of pursuing career B.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now suppose that for whatever reason, career B is not a choice anymore for him.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is he now better off, from the fact that his net utility benefit is 10 and not 1? Why or why not?&lt;/p&gt;&#xA;" OwnerUserId="24031" LastEditorUserId="24031" LastEditDate="2019-08-18T06:22:18.633" LastActivityDate="2019-08-18T09:01:26.220" Title="Opportunity Cost effect on benefits" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;consumer-theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30563" PostTypeId="2" ParentId="30561" CreationDate="2019-08-18T09:01:26.220" Score="2" Body="&lt;p&gt;If you measure how well off he is by his utility, then no. His utility is 10 in both scenarios.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The fact that career A is open to him increases his utility more in the second scenario than in the first scenario, this is what the &quot;net utility benefit&quot; shows you.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2019-08-18T09:01:26.220" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30564" PostTypeId="2" ParentId="26548" CreationDate="2019-08-18T11:26:39.100" Score="2" Body="&lt;p&gt;I believe you are correct. The points for which Ya = 0 and &lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;0\le Xa \le 4&#xA;\end{equation}&lt;/span&gt;&#xA;will be all Pareto efficient points.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Proof: Consider an allocation like (2,0). The indifference curve through this point for Individual A is the positive x-axis. (Look at the graph for the IC of Individual B)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/y3HDg.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/y3HDg.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Increasing the satisfaction level of A would require us to move to a point where Ya&gt;0 but this would reduce the satisfaction level of B.&lt;/li&gt;&#xA;&lt;li&gt;Increasing the satisfaction level of B would require us to move to a point where Ya&amp;lt;0 but this is not possible as we cannot have a negative allocation of product y for individual A.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Hence, all such points are also Pareto efficient in addition to the line of kinks for individual 2. &lt;/p&gt;&#xA;" OwnerUserId="24009" LastEditorUserId="24009" LastEditDate="2019-08-28T17:06:00.840" LastActivityDate="2019-08-28T17:06:00.840" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30565" PostTypeId="1" AcceptedAnswerId="32751" CreationDate="2019-08-18T17:02:23.443" Score="1" ViewCount="22" Body="&lt;p&gt;The debate between active and passive monetary policy is mentioned in most macroeconomics textbooks. Where does the current debate stand? Has a consensus been reached among economists? Do economists today broadly agree that one is better than the other, or, at least that one is better than the other in certain situations etc.?&lt;/p&gt;&#xA;" OwnerUserId="6486" LastActivityDate="2019-11-14T06:01:00.923" Title="Where does the current debate stand on passive vs active monetary policy?" Tags="&lt;monetary-policy&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30566" PostTypeId="2" ParentId="30557" CreationDate="2019-08-18T21:23:17.113" Score="1" Body="&lt;p&gt;Say that at time &lt;span class=&quot;math-container&quot;&gt;$0$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt;£ is worth &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt;€. Indeed, like any good or service, a unit of £ can be seen as having a price in € (and vice versa).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At time &lt;span class=&quot;math-container&quot;&gt;$0$&lt;/span&gt;, Alice lends &lt;span class=&quot;math-container&quot;&gt;$10$&lt;/span&gt;£ to Peter. Assume that Peter can actually influence the exchange rate between £ and €. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;At time &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt;, Peter influences the value of &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt;£ expressed in €, such that &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt;£ is now worth &lt;span class=&quot;math-container&quot;&gt;$0.5$&lt;/span&gt;€. Peter then decides to reimburse Alice the amount of &lt;span class=&quot;math-container&quot;&gt;$10$&lt;/span&gt;£. The point is that this amount of &lt;span class=&quot;math-container&quot;&gt;$10$&lt;/span&gt;£ is only worth &lt;span class=&quot;math-container&quot;&gt;$5$&lt;/span&gt; once converted back into €.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Alice, the lender, has lost &lt;span class=&quot;math-container&quot;&gt;$5$&lt;/span&gt;€ between time &lt;span class=&quot;math-container&quot;&gt;$0$&lt;/span&gt; and time &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt;. And for her, it was a bad operation given that she lives in a country wherein everything is priced in €.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For Peter, it may have been a good operation over the short term, especially if he does not need to import goods and services from €-based countries, indeed €-priced goods cost henceforth twice as much than at time &lt;span class=&quot;math-container&quot;&gt;$0$&lt;/span&gt;, since he would now need &lt;span class=&quot;math-container&quot;&gt;$2$&lt;/span&gt;£ to get &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt;€, etc... &lt;/p&gt;&#xA;&#xA;&lt;p&gt;That being explained, I do not think that Alice is willing to lend Peter money anymore, at least not in a currency that Peter can influence... She has learnt the lesson and, in the future, she will always write debt contracts which amount will be explictly expressed in the currency that matters most to her, i.e. in €.&lt;/p&gt;&#xA;" OwnerUserId="10247" LastActivityDate="2019-08-18T21:23:17.113" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="30567" PostTypeId="2" ParentId="30499" CreationDate="2019-08-18T22:03:52.093" Score="-1" Body="&lt;p&gt;First, when yields go down, prices go up and vice versa, simply because of &lt;a href=&quot;https://economics.stackexchange.com/a/29772/10247&quot;&gt;how bonds are valued...&lt;/a&gt; I.e. lower yields &lt;span class=&quot;math-container&quot;&gt;$\iff$&lt;/span&gt; higher prices &lt;span class=&quot;math-container&quot;&gt;$\iff$&lt;/span&gt; higher debt demand ceteris paribus.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When the yield curve inverts, it simply means that investments are going to long term &quot;projects&quot; (and so do the demands for bonds) &lt;em&gt;rather&lt;/em&gt; than to short term ones. Put differently, it shows what investors think of &quot;tomorrow&quot; &lt;em&gt;versus&lt;/em&gt; &quot;after-tomorrow&quot;. And in the case we are interested in, they think that short term (ST) investments are either less profitable or more risky than long term ones &lt;span class=&quot;math-container&quot;&gt;$\rightarrow$&lt;/span&gt; the demands concentrate on long term bonds &lt;span class=&quot;math-container&quot;&gt;$\rightarrow$&lt;/span&gt; their price increase. In the meanwhile, this means less ST investments, which means a weaker growth-engine (production-based) over the ST, which means an unemployment rate augmentation, which means less consumption, which means less inflation, which means less (per sector) profitable short and mid term perspectives, and so on.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, what is especially missing in your understanding is the mutually-exclusive nature of the directions of debt demands for different time horizons.&lt;/p&gt;&#xA;" OwnerUserId="10247" LastEditorUserId="10247" LastEditDate="2019-08-18T22:31:34.200" LastActivityDate="2019-08-18T22:31:34.200" CommentCount="7" ContentLicense="CC BY-SA 4.0" />
  <row Id="30568" PostTypeId="1" CreationDate="2019-08-18T22:51:50.017" Score="2" ViewCount="125" Body="&lt;p&gt;I have always thought that US securities were considered nearly risk free as the government will almost always pay them back. So why is it the case that investors currently view short term securities as more risky than long term ones?&lt;/p&gt;&#xA;" OwnerUserId="24034" LastEditorUserId="4988" LastEditDate="2019-09-29T12:41:26.550" LastActivityDate="2020-10-23T16:23:48.107" Title="Why does the inverted yield curve occur with US Treasury securities?" Tags="&lt;government-debt&gt;&lt;bonds&gt;&lt;usa&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30569" PostTypeId="2" ParentId="30568" CreationDate="2019-08-18T23:30:24.707" Score="2" Body="&lt;p&gt;In general a longer maturity rate is practically speaking as equally profitable as a series of short maturity rates compounded. So for example, investing for 1 year thrice is as equally profitable as investing for 3 years. Investing for 6 months 16 times is as equally profitable as investing for 8 years. There is no certainty of equality and you can make money if you guess correctly. If there are many guessers then near equality will be realized. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The U.S. Treasury short maturity yield is higher than some of the long maturity yields (today), not because the short maturity investments are riskier. It is because the &lt;a href=&quot;https://en.wikipedia.org/wiki/Federal_funds_rate&quot; rel=&quot;nofollow noreferrer&quot;&gt;very short term rate&lt;/a&gt; (overnight) set by the Federal Reserve is high enough that the 3 month rate is higher than the 10 year rate. In other words, the expected mean rate for the next 3 months is higher than the expected mean for the next 10 years. Sometime in the future there might be a recession and the Federal Reserve might want to lower the overnight rate to help the economy. Sometime in the future the Federal Reserve might increase the overnight rate to reduce inflation. Both these considerations form expectations. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In addition to overnight rate setting, the Federal Reserve has engaged in other activity that influences Treasury rates. The Federal Reserve increased its holdings of Treasury bonds in the period from 2008 to 2014. &lt;a href=&quot;https://www.ijcb.org/journal/ijcb11q1a1.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;These economists (Gagnon and others)&lt;/a&gt; in a paper titled &quot;The Financial Market Effects of the Federal Reserve’s Large-Scale Asset Purchases&quot; estimated that these purchases have been a downward force on long term rates. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The graph shows that those holdings have been decreasing since early 2018 so there might be reason to think that any downward force on long term rates is now not what it used to be so if we see a rise in those rates there is reason to think of causes that are apart from a change in risk perceptions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/xlAwA.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/xlAwA.png&quot; alt=&quot;Treasuries at the Fed&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Addendum: @Michael rightly points out that market participants bidding up long term bond prices is another force that lowers long term bond yields.&lt;/p&gt;&#xA;" OwnerUserId="6868" LastEditorUserId="6868" LastEditDate="2019-08-25T19:50:31.543" LastActivityDate="2019-08-25T19:50:31.543" CommentCount="14" ContentLicense="CC BY-SA 4.0" />
  <row Id="30571" PostTypeId="2" ParentId="30537" CreationDate="2019-08-19T08:11:05.830" Score="0" Body="&lt;p&gt;Your data structure is a panel, i.e. repeated observations of the same entities (companies in your case). Pooling all observations in a standard linear regression and ignoring the fact that many observations are repeated will lead to biased estimates. The most straightforward method for your case is a &lt;strong&gt;Fixed Effects Estimator&lt;/strong&gt;. Check your statistical package on how to do this. The idea is to do a linear regression on the company-specific mean values of dependent and independent variables. This way, you implicitly control for all time-constant firm characteristics.&lt;/p&gt;&#xA;" OwnerUserId="17735" LastActivityDate="2019-08-19T08:11:05.830" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30572" PostTypeId="2" ParentId="30539" CreationDate="2019-08-19T09:15:07.253" Score="2" Body="&lt;p&gt;In the UK, government spending is &lt;a href=&quot;https://tradingeconomics.com/united-kingdom/government-spending-to-gdp&quot; rel=&quot;nofollow noreferrer&quot;&gt;38.5 per cent of GDP&lt;/a&gt;.  To oversimplify, that means that for every £1 spent on private goods, 63p needs to be raised in taxes.  At present, the UK raises &lt;a href=&quot;https://www.economicshelp.org/blog/4001/economics/tax-revenue-sources-in-uk/&quot; rel=&quot;nofollow noreferrer&quot;&gt;a little over a quarter of that&lt;/a&gt; from income tax.  One of the reasons income tax is a significant component is that it is &lt;a href=&quot;https://en.wikipedia.org/wiki/Progressive_tax&quot; rel=&quot;nofollow noreferrer&quot;&gt;progressive&lt;/a&gt;, unlike other major sources such as VAT and excise duties.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is also worth mentioning that the categories of government expenditure you mention are relatively small.  &lt;a href=&quot;https://www.ukpublicspending.co.uk/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Half of all government spending goes on pensions, healthcare and education&lt;/a&gt;.  The categories you mention are marginal by comparison.&lt;/p&gt;&#xA;" OwnerUserId="16631" LastActivityDate="2019-08-19T09:15:07.253" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30574" PostTypeId="1" CreationDate="2019-08-19T13:18:48.467" Score="1" ViewCount="16" Body="&lt;p&gt;Suppose I have a set of units &lt;span class=&quot;math-container&quot;&gt;$n_i, i = 1,...,N$&lt;/span&gt;. One unit was receiving a treatment &lt;span class=&quot;math-container&quot;&gt;$n_j = 1$&lt;/span&gt; at times &lt;span class=&quot;math-container&quot;&gt;$t=1$&lt;/span&gt; to &lt;span class=&quot;math-container&quot;&gt;$t=\tau$&lt;/span&gt;. All other units never received the treatment so &lt;span class=&quot;math-container&quot;&gt;$\forall t, n_i=0,i\neq j$&lt;/span&gt;. At &lt;span class=&quot;math-container&quot;&gt;$\tau+1$&lt;/span&gt; to &lt;span class=&quot;math-container&quot;&gt;$T=t,T&amp;gt;&amp;gt;\tau+1$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$n_j=0$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose the shock to &lt;span class=&quot;math-container&quot;&gt;$n_j$&lt;/span&gt; is totally exogenous for simplicity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there a causal framework that allows me to estimate the impact of &lt;span class=&quot;math-container&quot;&gt;$n_j=1$&lt;/span&gt;?&lt;/p&gt;&#xA;" OwnerUserId="24006" LastActivityDate="2019-08-19T13:18:48.467" Title="One Treated Unit That Becomes Untreated" Tags="&lt;econometrics&gt;&lt;labor-economics&gt;&lt;causality&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30578" PostTypeId="1" CreationDate="2019-08-20T00:25:58.590" Score="1" ViewCount="47" Body="&lt;p&gt;Every macro textbook out there states that if a country has a Current Account deficit, it must have a surplus in the Financial account, but I have not heard a convincing explanation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Imagine a country that imports something and does not export anything. Why is it that macro textbooks state that the only way for a country to pull that off is by borrowing from the country from which they import. Why? The company that did the importing need not have borrowed to buy the imports. In aggregate, imagine that a country is using its savings to finance the current account deficit so no borrowing takes place. What am I missing here?&lt;/p&gt;&#xA;" OwnerUserId="20425" LastActivityDate="2019-08-20T00:25:58.590" Title="Why a Current Account deficit implies a Financial Account surplus" Tags="&lt;macroeconomics&gt;&lt;international-trade&gt;&lt;open-economy-macro&gt;&lt;balance-of-trade&gt;&lt;balance-of-payments&gt;" AnswerCount="0" CommentCount="0" ClosedDate="2019-08-26T15:10:16.780" ContentLicense="CC BY-SA 4.0" />
  <row Id="30579" PostTypeId="2" ParentId="30488" CreationDate="2019-08-20T05:08:28.793" Score="1" Body="&lt;p&gt;Most of the arguments I see saying that the recession is coming simply says that it's been long enough that we haven't had a recession, the last recession was more than ten years ago, the average business cycle boom is no more than 8 years, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With this kind of argument, the only thing you can do to &quot;stop&quot; the recession from happening is stopping the time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If there's more to this argument, like, there's a housing bubble in the housing market, then something can be done about it.&lt;/p&gt;&#xA;" OwnerUserId="5145" LastEditorUserId="5145" LastEditDate="2019-08-24T08:05:05.423" LastActivityDate="2019-08-24T08:05:05.423" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30581" PostTypeId="1" CreationDate="2019-08-20T09:56:43.997" Score="0" ViewCount="30" Body="&lt;p&gt;Using a Sraffian price model we have that, &lt;span class=&quot;math-container&quot;&gt;$p=(1+r)(pA+wl)$&lt;/span&gt; where &lt;strong&gt;&lt;em&gt;w&lt;/em&gt;&lt;/strong&gt; (nominal wage rate), &lt;strong&gt;&lt;em&gt;r&lt;/em&gt;&lt;/strong&gt; (average profit rate) are scalars; &lt;strong&gt;&lt;em&gt;p&lt;/em&gt;&lt;/strong&gt; (market prices), &lt;strong&gt;&lt;em&gt;l&lt;/em&gt;&lt;/strong&gt; (labor input coefficients) are vectors; &lt;strong&gt;&lt;em&gt;A&lt;/em&gt;&lt;/strong&gt; (producers' goods input coefficients) is a matrix. I wanted to prove that an increase in &lt;strong&gt;&lt;em&gt;w&lt;/em&gt;&lt;/strong&gt; would lead to a decrease in &lt;strong&gt;&lt;em&gt;A&lt;/em&gt;&lt;/strong&gt; or &lt;strong&gt;&lt;em&gt;l&lt;/em&gt;&lt;/strong&gt; (i.e., &lt;strong&gt;&lt;em&gt;p&lt;/em&gt;&lt;/strong&gt; is constant because of perfect competition). For that purpose I first try to refolmulate as&#xA;&lt;span class=&quot;math-container&quot;&gt;$$A=\frac{p-wl(1+r)}{p(1+r)}$$&lt;/span&gt;     &lt;span class=&quot;math-container&quot;&gt;$$l=\frac{p(1-A(1+r))}{w(1+r)}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I take the derivates and I get,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\frac{\partial A}{\partial w} =- \frac{l}{p}&amp;lt;0$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\frac{\partial l}{\partial w} =- \frac{p(1-A(1+r))}{w^{2}(1+r)}&amp;gt;0$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Both results make no sense. An increase in wages should lead to an increase in machines (production goods) and a decrease in labor input. I could guess that an increase in wages would make companies invest in technological change so both A and l are reduced. I am sort of lost.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you in advance&lt;/p&gt;&#xA;" OwnerUserId="15875" LastActivityDate="2019-08-20T09:56:43.997" Title="In this price model, employment grows with higher wages. Makes no sense" Tags="&lt;mathematical-economics&gt;&lt;wages&gt;&lt;price-theory&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="30582" PostTypeId="1" CreationDate="2019-08-20T12:34:26.867" Score="1" ViewCount="17" Body="&lt;p&gt;When an American buys a coffee within the US, how does that 3.50 dollars worth of consumption expenditure make it's way to the US GDP account? Is the information obtained from the company's tax records? When a French citizen buys the same 3.50 dollar coffee in the US how does that information get reported so as to make it into the US and French Balance of Statements? I don't see coffee shops asking customers for passports when these order coffee so how does the coffee shop know how much it sold to whom? How does the French government get information about this coffee purchase by one of its citizens in the US to know to reflect it on its Balance of Payments statement? &lt;/p&gt;&#xA;" OwnerUserId="20425" LastActivityDate="2020-06-16T14:08:05.773" Title="Sources of data for GDP and BoP accounts" Tags="&lt;gdp&gt;&lt;balance-of-trade&gt;&lt;balance-of-payments&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30584" PostTypeId="1" AcceptedAnswerId="30590" CreationDate="2019-08-20T17:54:41.780" Score="3" ViewCount="210" Body="&lt;p&gt;It is well known that players cannot use weakly dominated strategies in a trembling hand perfect equilibrium. My question, however, is a little different: does iterated deletion of weakly dominated strategies preserve &lt;a href=&quot;https://en.wikipedia.org/wiki/Trembling_hand_perfect_equilibrium&quot; rel=&quot;nofollow noreferrer&quot;&gt;trembling hand perfect equilibria&lt;/a&gt;? In other words, if &lt;span class=&quot;math-container&quot;&gt;$\sigma$&lt;/span&gt; is a trembling hand perfect equilibrium of a finite game &lt;span class=&quot;math-container&quot;&gt;$G$&lt;/span&gt;, is &lt;span class=&quot;math-container&quot;&gt;$\sigma$&lt;/span&gt; also a trembling hand perfect equilibrium of the game &lt;span class=&quot;math-container&quot;&gt;$G'$&lt;/span&gt; obtained by iteratively deleting weakly dominated strategies from &lt;span class=&quot;math-container&quot;&gt;$G$&lt;/span&gt;?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Apologies in advance if the answer is obvious!&lt;/p&gt;&#xA;" OwnerDisplayName="user17900" LastEditorDisplayName="user17900" LastEditDate="2019-08-20T18:09:21.540" LastActivityDate="2019-08-21T01:51:35.700" Title="Trembling hand perfection and weakly dominated strategies" Tags="&lt;microeconomics&gt;&lt;game-theory&gt;&lt;nash-equilibrium&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30586" PostTypeId="1" AcceptedAnswerId="30591" CreationDate="2019-08-20T20:21:18.887" Score="1" ViewCount="70" Body="&lt;p&gt;Common sense would indicate that the replacement level fertility of Norway ought to be lower than that of Sudan due to fewer children dying there. Why, then, is the replacement fertility rate universally taken as 2.1?&lt;/p&gt;&#xA;" OwnerUserId="16105" OwnerDisplayName="Thomas" LastEditorUserId="4816" LastEditDate="2019-08-26T11:22:48.307" LastActivityDate="2019-08-26T11:22:48.307" Title="How can the replacement level fertility be 2.1 everywhere in the world?" Tags="&lt;population-economics&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="30587" PostTypeId="1" AcceptedAnswerId="30723" CreationDate="2019-08-20T22:02:40.520" Score="2" ViewCount="124" Body="&lt;p&gt;I use the &lt;a href=&quot;https://cran.r-project.org/web/packages/poweRlaw/poweRlaw.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;poweRlaw&lt;/a&gt; package in R to fit a power law to my data. I am trying to figure out what is the value of the Pareto exponent. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume the probability mass function is defined by:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;p(x) = \frac{\alpha-1}{x_{min}} \left(\frac{x}{x_{min}} \right)^{-\alpha}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and the complementary cumulative density function is defined by:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;P(x) = \int_x ^\infty p(x’) dx’ = \left(\frac{x}{x_{min}}\right)^{-\alpha + 1}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is the Pareto exponent &lt;span class=&quot;math-container&quot;&gt;$\alpha$&lt;/span&gt; or &lt;span class=&quot;math-container&quot;&gt;$- \alpha + 1$&lt;/span&gt; or  &lt;span class=&quot;math-container&quot;&gt;$\alpha - 1$&lt;/span&gt;?&#xA;In most literature, the CCDF is used to describe the income/wealth distribution, and &lt;span class=&quot;math-container&quot;&gt;$-(\alpha-1)$&lt;/span&gt; is the slope of the CCDF on a log-log plot, so &lt;span class=&quot;math-container&quot;&gt;$\alpha-1$&lt;/span&gt; seems the most intuitive. I'm pretty sure the R library &lt;a href=&quot;https://cran.r-project.org/web/packages/poweRlaw/poweRlaw.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;poweRlaw&lt;/a&gt; returns &lt;span class=&quot;math-container&quot;&gt;$\alpha$&lt;/span&gt; as defined above.&#xA;I am using &lt;a href=&quot;https://arxiv.org/abs/cond-mat/0412004&quot; rel=&quot;nofollow noreferrer&quot;&gt;Newman&lt;/a&gt; as a reference.&lt;/p&gt;&#xA;" OwnerUserId="19707" LastEditorUserId="19707" LastEditDate="2019-10-04T01:38:37.123" LastActivityDate="2019-10-04T01:38:37.123" Title="What is the difference between a power law exponent and the Pareto exponent?" Tags="&lt;macroeconomics&gt;&lt;pareto-efficiency&gt;&lt;academic-graduate&gt;&lt;wealth&gt;&lt;r&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30588" PostTypeId="2" ParentId="25621" CreationDate="2019-08-20T23:37:45.880" Score="1" Body="&lt;p&gt;The person taking out the 1 million dollar mortgage will take the funds and use them towards buying a 1 million dollar home. If the home is sold by Joe who keeps his money under the pillow then in this scenario money supply does not increase at all. If, on the other hand, the party selling the home will deposit the 1 million dollars in his/her bank account with bank A, assuming a 10% reserve ratio, bank A will keep 100,000 dollars as reserves and lend out the remaining 900,000. Bank A lends these 900,000 to Bob, who will take them and deposit them with Bank B. As long as Bank B will again keep 10%, 90,000 in this case, and lend out the remainder - 810,000 to some other customer and if this chain continues in this fashion with no one keeping money under the pillow, then the overall money supply will increase by 1,000,000 + 900,000 + 810,000 + ... = 1,000,000/0.1 = 10,000,000. The banks will end up increasing their reserves by 100,000 + 90,000 + 81,000 + ... = 100,000/0.1= 1,000,000.&lt;/p&gt;&#xA;" OwnerUserId="20425" LastActivityDate="2019-08-20T23:37:45.880" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30589" PostTypeId="1" CreationDate="2019-08-21T01:10:23.630" Score="1" ViewCount="22" Body="&lt;p&gt;In Australia, successive conservative Federal governments have increased the share of public funding for non-government schools, and for the top schools the amounts of annual funding are many millions of dollars. The top schools have generally chosen to continue charging their fees and reinvest this and whatever other non-Govt income in facility upgrades (but most have also received small Govt grants to their capital works too). Lots of state schools (govt schools) are barely scraping by - my son's school doesn't have a librarian this year, so the library is not available through recess (its fine for him, our house is full of books, but lots of kids there won't have that).  Things are no doubt worse in regional schools in states in economic doldrums.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.abc.net.au/news/2019-08-13/rich-school-poor-school-australias-great-education-divide/11383384&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.abc.net.au/news/2019-08-13/rich-school-poor-school-australias-great-education-divide/11383384&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;[My question is not about the rights and wrongs of this in general, but the investment profile it reveals is the background to my question.]&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have a &lt;em&gt;strongly felt intuition&lt;/em&gt; that the best investment I (or any other relatively rich person) could make is not just in my kid, but also in him having better educated contemporaries in the environment he'll go to work - so at least kids all over the city, probably the state, likely the country and possibly even international neighbours. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a small example, within his class, my son is doing fine. But I think he's more likely to get a good job if all the other kids are equipped to take their shot at entrepreneurship or advanced studies or whatever their specific kind of excellence might be. My son might not be a great entrepreneur but others might; or he might be a great entrepreneur and need an enormous quantity of highly skilled workers. I think this applies right across the distribution of skill level - the economy has less and less use for unskilled labor, so the greater the proportion of kids mastering literacy, numeracy, history, the more productively the economy can employ them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question has two parts: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;is there any evidence my intuition is correct? &lt;/li&gt;&#xA;&lt;li&gt;if I were very rich, should I send my kid to the best school I can afford, or &#xA;go some way down the list and spend a matching amount charitably at high-need &#xA;schools?&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The factors that people believe are important when their kid might get into an elite school:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;networking &amp;amp; prestige: factors relating to social class. This one probably has real effects - Boris Johnson becoming Prime Minister is a perfect example. Is that a rational preference?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;non-stunting / pro-flourishing environment: What's our model of human potential and growth like? When do diminishing returns kick in for different people?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="18698" LastActivityDate="2019-08-21T01:10:23.630" Title="Is expensive private school a rational investment?" Tags="&lt;microeconomics&gt;&lt;education-economics&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30590" PostTypeId="2" ParentId="30584" CreationDate="2019-08-21T01:51:35.700" Score="2" Body="&lt;p&gt;A trembling hand perfect (THP) equilibrium may not survive iterated deletion of weakly dominated strategies, as is shown by the following example. Let game &lt;span class=&quot;math-container&quot;&gt;$G$&lt;/span&gt; be &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{array}{|c|c|c|c|}\hline&#xA;&amp;amp;A&amp;amp;B&amp;amp;C\\\hline&#xA;A&amp;amp;0,0&amp;amp;0,0&amp;amp;0,-2\\\hline&#xA;B&amp;amp;0,0&amp;amp;1,1&amp;amp;-1,-2\\\hline&#xA;C&amp;amp;-2,0&amp;amp;-2,-1&amp;amp;-2,-2\\\hline&#xA;\end{array}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are two pure strategy NEs: &lt;span class=&quot;math-container&quot;&gt;$(A,A)$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$(B,B)$&lt;/span&gt;, with the former involving iteratively weakly dominated strategies. And yet &lt;span class=&quot;math-container&quot;&gt;$(A,A)$&lt;/span&gt; is a THP equilibrium. To see this, consider the following sequence of totally mixed strategies&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;\sigma_i^k=\left(1-\epsilon^{-2k}-\epsilon^{-k},\epsilon^{-2k},\epsilon^{-k}\right),\qquad i\in\{1,2\} \text{ and }\epsilon&amp;gt;2,&#xA;\end{equation}&lt;/span&gt;&#xA;which converges to &lt;span class=&quot;math-container&quot;&gt;$(1,0,0)=A$&lt;/span&gt; as &lt;span class=&quot;math-container&quot;&gt;$k\to\infty$&lt;/span&gt;. It is easy to verify that, for any &lt;span class=&quot;math-container&quot;&gt;$k$&lt;/span&gt;, the best response of player &lt;span class=&quot;math-container&quot;&gt;$j\ne i$&lt;/span&gt; to &lt;span class=&quot;math-container&quot;&gt;$\sigma_i^k$&lt;/span&gt; is &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt;: &#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{align}&#xA;u_j(A,\sigma_i^k)&amp;amp;=0 \\&#xA;u_j(B,\sigma_i^k)&amp;amp;=\epsilon^{-2k}-\epsilon^{-k}&amp;lt;0 \\&#xA;u_j(C,\sigma_i^k)&amp;amp;=-2&amp;lt;0.&#xA;\end{align}&lt;/span&gt;&#xA;Therefore, &lt;span class=&quot;math-container&quot;&gt;$(A,A)$&lt;/span&gt; is THP. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, the game &lt;span class=&quot;math-container&quot;&gt;$G'$&lt;/span&gt; that survives iterated deletion of weakly dominated strategies does not contain the strategy &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt; for either player. Hence, the THP equilibrium &lt;span class=&quot;math-container&quot;&gt;$(A,A)$&lt;/span&gt; of the original game &lt;span class=&quot;math-container&quot;&gt;$G$&lt;/span&gt; is not preserved in game &lt;span class=&quot;math-container&quot;&gt;$G'$&lt;/span&gt;. &lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2019-08-21T01:51:35.700" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="30591" PostTypeId="2" ParentId="30586" CreationDate="2019-08-21T02:16:45.913" Score="3" Body="&lt;p&gt;Your claim that the replacement level fertility is &quot;universally taken as 2.1&quot; is false.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.wri.org/publication/achieving-replacement-level-fertility&quot; rel=&quot;nofollow noreferrer&quot;&gt;World Resources Institute&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;This rate is roughly 2.1 children per woman for most countries, although it may modestly vary with mortality rates.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Craig (&lt;a href=&quot;https://www.ncbi.nlm.nih.gov/pubmed/7834459&quot; rel=&quot;nofollow noreferrer&quot;&gt;1994&lt;/a&gt;):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In developed countries, replacement level fertility can be taken as requiring an average of 2.1 children per woman. In countries with high infant and child mortality rates, however, the average number of births may need to be much higher.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;2.1 is simply a very crude and made-up figure. It's just 2 (replace the parents) plus a little more (arbitrarily assumed to be 0.1) to account for mortality.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where a writer is unable or unwilling to obtain better estimates, she will often simply use this 2.1 figure. But this does not mean she believes that the true replacement level fertility in her context is precisely 2.1.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2019-08-21T02:16:45.913" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30593" PostTypeId="1" CreationDate="2019-08-21T04:41:53.860" Score="3" ViewCount="53" Body="&lt;p&gt;If a forreign firm buys a company. For example a Russian firm buys a British company. Is this good or bad or neutral for the British economy?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As I see it, the profits of the company will be going abroad so this seems bad.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Alternatively, there's nothing to say the people making profits if the company is British owned aren't spending their money abroad anyway.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Would it even matter if every British company was forreign owned?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If it doesn't matter. Why would the Chinese government be buying British firms? Surely to help their economy at the expense of the British economy? Yet, the British government seems to encourage this as &quot;investment&quot; in British industry. So who is getting the best deal here? Seems like Britain is getting a short term boost at the cost of long term profits.&lt;/p&gt;&#xA;" OwnerUserId="18968" LastActivityDate="2019-08-21T10:12:38.170" Title="Is it bad for the economy of a country if forreign firms buy companies?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30594" PostTypeId="2" ParentId="30593" CreationDate="2019-08-21T10:06:47.543" Score="1" Body="&lt;p&gt;It depends upon the circumstances and isn't necessarily bad.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose a foreign firm A buys a British company from its current British owner B. A is gaining the right to whatever stream of profits the company may make in future. B is gaining the price paid for the company by A.  Whether that is a good deal for B will depend upon various considerations including:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;The company's likely future stream of profits if it remains in B's ownership.&lt;/li&gt;&#xA;&lt;li&gt;The sale price, and how this compares with the discounted present value of the above stream of profits.&lt;/li&gt;&#xA;&lt;li&gt;Whether B's best use of the sale receipt is relatively advantageous, having regard to its preferences and attitude to risk (an entrepreneur who has taken risks in building up a company may in later years wish to hold their wealth in a safer form).&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;So it's quite possible for the sale to be good for B. Since B is likely, through their use of the sale receipts, to contribute to the British economy by spending (creating demand) and/or saving (providing capital for other firms), it &lt;em&gt;could&lt;/em&gt; be good for Britain.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, these possible advantages for Britain could in some circumstances be offset by other considerations:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;A's plans for the company may involve a loss of British jobs.  This could be because capital equipment will be substituted for labour, or because the company will be scaled down (perhaps the motive for buying it is to reduce competition).&lt;/li&gt;&#xA;&lt;li&gt;The company may operate in a sector within which foreign ownership is considered an unacceptable risk for strategic rather than economic reasons.  This might be argued in respect of firms supplying military equipment or essential infrastructure.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="1417" LastEditorUserId="1417" LastEditDate="2019-08-21T10:12:38.170" LastActivityDate="2019-08-21T10:12:38.170" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30598" PostTypeId="1" CreationDate="2019-08-21T15:18:59.717" Score="1" ViewCount="34" Body="&lt;p&gt;Here's a question about CPI in my microeconomics text (Pindyck), which I don't seem to understand:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The price of computers has fallen substantially over the past two decades. Use this drop in price to explain why the Consumer Price Index is likely to overstate substantially the cost-of-living index for individuals who use computers intensively.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In my opinion, the CPI is a universal thing, and the way we calculate the real price in some year with respect to a base year is also fixed, i.e. multiplying nominal price by the ratio of CPI of base year and the year in consideration.&#xA;&lt;em&gt;So how exactly can CPI overstate or understate the cost of living in any circumstance?&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Please help me out, I'm an engineering student and I'm very new to Economics (I've taken up a little course since I find it interesting)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;P.S. Here's the solution that's given (which I hardly can make sense of)&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The Consumer Price Index measures the cost of a basket of goods purchased by a typical consumer in&#xA;  the current year relative to the cost of the basket in the base year. Each good in the basket is assigned&#xA;  a weight, which reflects the importance of the good to the typical consumer, and the weights are&#xA;  kept fixed from year to year. One problem with fixing the weights is that consumers will shift their&#xA;  purchases from year to year to give more weight to goods whose prices have fallen, and less weight&#xA;  to goods whose prices have risen. The CPI will therefore give too much weight to goods whose&#xA;  prices have risen, and too little weight to goods whose prices have fallen. In addition, for nontypical&#xA;  individuals who use computers intensively, the fixed weight for computers in the basket will&#xA;  understate the importance of this good, and will hence understate the effect of the fall in the price of&#xA;  computers for these individuals. The CPI will overstate the rise in the cost of living for this type of&#xA;  individual.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Thanks!&lt;/p&gt;&#xA;" OwnerUserId="24053" LastActivityDate="2019-08-21T15:18:59.717" Title="Difficulty Understanding CPI (Consumer Price Index)" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;&lt;price-index&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="30600" PostTypeId="1" AcceptedAnswerId="42965" CreationDate="2019-08-21T17:09:05.140" Score="10" ViewCount="164" Body="&lt;p&gt;I am trying to understand the causes and macroeconomic implications of running a trade deficit in the United States, and I came across a few different views on this topic.  I'd like to know if there are studies that try to understand the root-cause of this trade deficit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, I understand that trade deficits aren't necessarily a bad thing, and it all depends on the context.  Since the trade deficit reflects the difference between savings and investment, whether it's good/bad depends on what the excess investment is being used for, and whether the investments will reap benefits in the future.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That said, my focus is on trying to understand what is causing the current trade deficit to increase; I see there are different views:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;US is consumption driven, and our consumers/government are spending beyond their means.  That is, there is a huge demand from the US economy, which is causing us to import more than we export, which is causing the deficit.  If we cut that spending, it will reduce the trade deficit [1].&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;East Asian countries (especially China) are experiencing a &quot;saving glut&quot; and instead of investing in their own country, they are exporting their capital to the US and parking it in safe US-Treasury investments.  It is this capital inflow to the US that is widening the trade deficit [2,3].&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;[1] &lt;a href=&quot;https://www.washingtonpost.com/opinions/everything-you-need-to-know-about-trade-economics-in-70-words/2017/05/05/a2b76a02-2f80-11e7-9dec-764dc781686f_story.html?noredirect=on&quot; rel=&quot;noreferrer&quot;&gt;https://www.washingtonpost.com/opinions/everything-you-need-to-know-about-trade-economics-in-70-words/2017/05/05/a2b76a02-2f80-11e7-9dec-764dc781686f_story.html?noredirect=on&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;[2] &lt;a href=&quot;https://carnegieendowment.org/chinafinancialmarkets/77009&quot; rel=&quot;noreferrer&quot;&gt;https://carnegieendowment.org/chinafinancialmarkets/77009&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;[3] &lt;a href=&quot;https://www.federalreserve.gov/boarddocs/speeches/2005/200503102/default.htm&quot; rel=&quot;noreferrer&quot;&gt;https://www.federalreserve.gov/boarddocs/speeches/2005/200503102/default.htm&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Qualitative evidence for (1):&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Our savings rate, measured as fraction of saving to GDP is lower than what it was in 1950s--1970s: &lt;a href=&quot;https://fred.stlouisfed.org/series/W207RC1Q156SBEA&quot; rel=&quot;noreferrer&quot;&gt;https://fred.stlouisfed.org/series/W207RC1Q156SBEA&lt;/a&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Our federal deficit is widening, and taxes aren't enough to cover the government expenditure.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Qualitative evidence for (2):&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;China is a net exporter, and continues to be competitive by taking steps to prevent RMB from strengthening against the dollar.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Savings rate in China is a high fraction of their GDP, relative to the US: &lt;a href=&quot;https://tradingeconomics.com/china/personal-savings&quot; rel=&quot;noreferrer&quot;&gt;https://tradingeconomics.com/china/personal-savings&lt;/a&gt;.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The interest rates in the US are historically low, which is because there is a lot of demand for US treasury from abroad. Quoting from [2]:&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Interest rates suggest very strongly that capital isn’t &lt;em&gt;sucked&lt;/em&gt; into the United States from abroad, but rather is &lt;em&gt;pushed&lt;/em&gt; into the United States from abroad.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I see a bit of truth in both sides of the story.  US is consumption driven (not necessarily a bad thing), and China has high savings, probably because of a host of factors such as culture (savings minded), more income inequality (rich save more of their income than the poor), etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have two main questions:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;What is the direction of causality?  Is US consumption driving the trade deficit, or is foreign capital inflow driving US consumption?  I'd appreciate any academic citations that argues one way or another quantitatively.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;If it's capital inflow driving US consumption, then why doesn't US just use the cheap loans to repay its current debt?  Isn't it in US's control to decide what to do with the capital we get -- why spend it?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="21721" LastEditorUserId="59" LastEditDate="2021-03-11T04:48:59.697" LastActivityDate="2021-03-11T09:24:53.080" Title="Causes of trade deficit: Multiple views" Tags="&lt;macroeconomics&gt;&lt;international-trade&gt;&lt;balance-of-trade&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="30601" PostTypeId="1" AcceptedAnswerId="30651" CreationDate="2019-08-21T18:30:32.257" Score="1" ViewCount="63" Body="&lt;p&gt;&lt;strong&gt;EDITED with insights from the comment below.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider a decision maker who has to choose an action among &lt;span class=&quot;math-container&quot;&gt;$\mathcal{Y}\equiv \{1,2,...,L\}$&lt;/span&gt;. The payoff from choosing action  &lt;span class=&quot;math-container&quot;&gt;$y\in \mathcal{Y}$&lt;/span&gt; depends on the state of the world, &lt;span class=&quot;math-container&quot;&gt;$V$&lt;/span&gt;, with support &lt;span class=&quot;math-container&quot;&gt;$\mathcal{V}$&lt;/span&gt;. Specifically, choosing action &lt;span class=&quot;math-container&quot;&gt;$y\in \mathcal{Y}$&lt;/span&gt; leads the payoff &lt;span class=&quot;math-container&quot;&gt;$u(y,v)$&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$u:\mathcal{Y}\times \mathcal{V}\rightarrow \mathbb{R}$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose the decision maker has complete information about the realisation of &lt;span class=&quot;math-container&quot;&gt;$V$&lt;/span&gt; drawn by nature. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A (mixed) strategy of this choice problem is a probability kernel, &lt;span class=&quot;math-container&quot;&gt;$\mathcal{P}_{Y|V}\equiv \{P_{Y}(\cdot| v)\in \Delta(\mathcal{Y}): v\in \mathcal{V}\}$&lt;/span&gt;,  collecting probability distributions of  &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt; conditional on every realisations &lt;span class=&quot;math-container&quot;&gt;$v$&lt;/span&gt; of &lt;span class=&quot;math-container&quot;&gt;$V$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence, &lt;span class=&quot;math-container&quot;&gt;$\mathcal{P}_{Y|V}$&lt;/span&gt; is an optimal strategy of the choice problem  above if  &lt;span class=&quot;math-container&quot;&gt;$\forall v\in \mathcal{V}$&lt;/span&gt; such that &lt;span class=&quot;math-container&quot;&gt;$P_{Y}(y|v)&amp;gt;0$&lt;/span&gt;, and  &lt;span class=&quot;math-container&quot;&gt;$\forall \tilde{y}\neq y$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\begin{aligned}&#xA;u(y, v)  \geq u(\tilde{y},v). \\&#xA;\end{aligned}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let &lt;span class=&quot;math-container&quot;&gt;$\mathcal{Q}^*$&lt;/span&gt; be the collection of all optimal strategies of the choice problem  above, that is&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\mathcal{Q}^*\equiv \Big\{\mathcal{P}_{Y|V}: \forall v\in \mathcal{V}, \forall y \in \mathcal{Y}\\&#xA;\hspace{6cm}\underbrace{P_{Y}(y|v)&amp;gt;0 \Rightarrow u(y, v)  \geq u(\tilde{y},v)\text{ } \forall \tilde{y}\neq y}_{\text{This is not a linear constraint because of the form &quot;IF ... THEN ...&quot;}}\Big\}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Question 1)&lt;/strong&gt; The definition of &lt;span class=&quot;math-container&quot;&gt;$\mathcal{Q}^*$&lt;/span&gt; just given seems to highlight that &lt;span class=&quot;math-container&quot;&gt;$\mathcal{Q}^*$&lt;/span&gt; is not a convex set. This is because it is defined by a constraint of the type &quot;IF ... THEN ...&quot;, which is not linear. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this comment correct?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Question 2)&lt;/strong&gt; Consider a payoff function &lt;span class=&quot;math-container&quot;&gt;$u(1,v)=u(L,v)&amp;gt;u(y,v)$&lt;/span&gt; &lt;span class=&quot;math-container&quot;&gt;$\forall y \neq 1,L$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\forall v \in \mathcal{V}$&lt;/span&gt;. Consider the following strategies&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;1) \mathcal{P}_{Y|V}\text{ s.t. } P_{Y}(1|v)=1 \text{  and }P_{Y}(y|v)=0 \text{ }\forall y\neq 1, \forall v \in \mathcal{V}&#xA;$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;2) \tilde{\mathcal{P}}_{Y|V}\text{ s.t. } \tilde{P}_{Y}(L|v)=1 \text{  and }\tilde{P}_{Y}(y|v)=0 \text{ }\forall y\neq L, \forall v \in \mathcal{V}&#xA;$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;3) \mathcal{P}^*_{Y|V;\alpha}\text{ s.t. } P^*_{Y}(1|v;\alpha)=\alpha P_Y(1|v) \text{, } P^*_{Y}(L|v;\alpha)=(1-\alpha) \tilde{P}_Y(L|v) \text{,  and }P^*_{Y}(y|v;\alpha)=0 \text{ }\forall y\neq 1,L, \forall v \in \mathcal{V}, \forall \alpha \in (0,1)&#xA;$$&lt;/span&gt;&#xA;I believe that the set &#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\mathcal{B}\equiv \{\mathcal{P}_{Y|V}, \tilde{\mathcal{P}}_{Y|V}, \mathcal{P}^*_{Y|V;\alpha} \text{ }\forall \alpha\in (0,1)\}&#xA;$$&lt;/span&gt;&#xA;is convex. Indeed it seems to me that &lt;span class=&quot;math-container&quot;&gt;$\mathcal{B}$&lt;/span&gt; is the convex hull of &lt;span class=&quot;math-container&quot;&gt;$\{\mathcal{P}_{Y|V}, \tilde{\mathcal{P}}_{Y|V}\}$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Correct? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is the relation between &lt;span class=&quot;math-container&quot;&gt;$\mathcal{Q}^*$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\mathcal{B}$&lt;/span&gt;? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think that &lt;span class=&quot;math-container&quot;&gt;$\mathcal{B}\subseteq \mathcal{Q}^*$&lt;/span&gt;. This is because for each element in &lt;span class=&quot;math-container&quot;&gt;$\mathcal{B}$&lt;/span&gt;, the &quot;IF ... THEN ...&quot; condition defining &lt;span class=&quot;math-container&quot;&gt;$ \mathcal{Q}^*$&lt;/span&gt; is satisfied. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does  &lt;span class=&quot;math-container&quot;&gt;$\mathcal{Q}^*\subseteq \mathcal{B}$&lt;/span&gt; too? If my assertion is question 1) is correct, then it should be &lt;span class=&quot;math-container&quot;&gt;$\mathcal{Q}^*\supset \mathcal{B}$&lt;/span&gt; because otherwise &lt;span class=&quot;math-container&quot;&gt;$\mathcal{Q}^*$&lt;/span&gt; would be convex. But here I'm lost: which element of &lt;span class=&quot;math-container&quot;&gt;$\mathcal{Q}^*$&lt;/span&gt; does not belong to &lt;span class=&quot;math-container&quot;&gt;$\mathcal{B}$&lt;/span&gt;?&lt;/p&gt;&#xA;" OwnerUserId="1505" LastEditorUserId="1505" LastEditDate="2019-08-22T12:10:20.047" LastActivityDate="2019-08-24T20:11:05.933" Title="Is the set of optimal strategies convex in a single-agent decision choice problem?" Tags="&lt;game-theory&gt;&lt;decision-theory&gt;&lt;probability&gt;&lt;choice-theory&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30603" PostTypeId="1" CreationDate="2019-08-21T23:50:25.233" Score="1" ViewCount="29" Body="&lt;p&gt;I've recently started my PhD and upon looking at my textbook (the sargent one) I found that it differed greatly from my Masters textbook (Romer) and in turn my undergraduate macro text (williamson).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is perplexing is that for the most part the models taught in all three books deal with key questions of economic growth, labor markets and business cycles. However the approaches are very different and dont necessarily feed into eachother almost like each model stands on its own disregarding the method of the previous.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is not my experience with micro, where it was very clear that more and more depth is uncovered using the same core models of consumers, firms and market structures.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This all being said, though i recognize the value of being exposed to so many different models as part of my academic training, holding them all on the same scale when analysing a phenomenon can be at times contradicting (i.e comparing the insight from infinitely lived households to overlapping generations models).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Bottom line: why are there so many different macroeconomic models that explain the same phenomenon.&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2019-08-21T23:50:25.233" Title="Regarding Macroeconomic Models" Tags="&lt;macroeconomics&gt;&lt;soft-question&gt;" AnswerCount="0" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="30605" PostTypeId="2" ParentId="30488" CreationDate="2019-08-22T03:33:30.153" Score="4" Body="&lt;p&gt;So here is the unpleasant truth about recessions.&lt;/p&gt;&#xA;&lt;p&gt;&amp;quot;The economy&amp;quot; as a whole consists is a broad term that in all forms, will always be comprised of so many moving parts, so many transactions, that it is hard to not only describe what is happening to it, but why those things are happening. In order to answer your question on why we &amp;quot;can't/don't&amp;quot; do anything about recessions, you have to understand that recessions are harder to predict that whatever the news makes it out to be. We can maybe see the signs that they are just about to come, when the whole snowball is already rolling down the hill, but trying to predict recessions from the long term is basically impossible.&lt;/p&gt;&#xA;&lt;p&gt;That said, there are two points I'd like put into focus.&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;We &lt;strong&gt;do&lt;/strong&gt; have some tools for trying to blunt the force of recessions, and we do try to use them!&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;The warning signs you are reading about, what I imagine most notably being the &lt;strong&gt;yield curve inverting&lt;/strong&gt;, is only a warning sign for certain reasons that don't necessarily have to hold in our current economy.&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;To the first point, I say &amp;quot;blunt&amp;quot; because trying to completely avoid recessions would probably mean making some big systematic changes, but also probably getting rid of a lot of uncertainty in the world. And our world is unfortunately full of it. We can argue over what causes boom and bust cycles and whether we would prefer to live in a world where growth is slow, but we can consumption smooth and prevent all dips in economic activity. Those are separate issues.&lt;/p&gt;&#xA;&lt;p&gt;What tools do we have to blunt recessions? There is fiscal policy and monetary policy. With fiscal policy, you can change taxes to try to encourage economic activity (for consumers, business, depends on where you cut the taxes), and with monetary policy you can lower the federal funds interest rate to encourage more lending and thus more investment. But of course these tools may not work as directly as we'd like. Cutting taxes may have to come with cutting spending on government programs that also encourage economic activity. During the 2008 recession, the federal funds late got floored down to 0%, leading the Federal Reserve to have to think of more creative measures of using monetary policy to help boost the economy.&lt;/p&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;The second point I think is more interesting to talk about. The financial news these days probably talks a lot about the yield curve inverting. What is this exactly?&lt;/p&gt;&#xA;&lt;p&gt;Imagine you are the government borrowing money through bonds. People value having money as accessible as they can, so a short term bond usually doesn't have a high interest rate. Investors don't get a high rate of return because they are getting compensated with more liquidity. If the government wants to borrow money for a longer time though, then the government will put a higher interest rate on it. This compensates investors who have to sit there and wait for their money longer, money that could have been used to invest in a more lucrative project that could have popped up in the meantime. There is uncertainty in the path of future interest rates, so you take on risk by holding onto a debt contract longer.&lt;/p&gt;&#xA;&lt;p&gt;So if you were to graph &amp;quot;length of time of a bond or other debt contract&amp;quot; (time to maturity) and &amp;quot;interest rate&amp;quot; (yield), you would &lt;strong&gt;normally&lt;/strong&gt; get an upward sloping curve that tapers off. Why this particular shape? Again, holding shorter term debt is pretty preferred among investors, so there is a steep upwards slope initially. The relative difference between a 3 month contract and a 6 month contract is a lot bigger than the relative difference between a 40 year and 40.25 year contract.&lt;/p&gt;&#xA;&lt;p&gt;So now we can ask why the yield curve would invert. This usually happens if investors expect a cut in future short term rates. The Federal Reserve is known as the &amp;quot;lender of last resort&amp;quot; and will more or less set the price of liquidity using the federal funds rate. If people expect the Fed to cut it, then the yield curve will invert. And the Fed often only makes big cuts to the federal funds rate to try and prevent or blunt a recession. So that's why the yield curve inverting is usually associated with a nearby recession.&lt;/p&gt;&#xA;&lt;p&gt;But suppose the yield curve inverts, the Fed cuts the rate and...there is no recession. And maybe the Federal Reserve never anticipated one. This could feasibly be the case too. The idea is that when setting the federal funds interest rate, usually unemployment and inflation tend to be tradeoffs, but they aren't always. Lowering the rate in recent years doesn't seem to have increased inflation expectations very much (a lot of that probably due to the aforementioned 0% bound that was around from the 2008 recession). Since the 1970s reforms to the Federal Reserve, the institution has gotten a reputation for being more committed to fighting inflation in the long run, which also helps with their ability to cut rates and not immediately see inflation boost up. So ultimately it's possible that the Fed may want to cut the rate for other reasons, like simply maintaining a healthy economy.&lt;/p&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;All that said, you might still be concerned about the yield curve inverting or other indicators that you read in the news. I think it is not unreasonable. But I think the important thing to realize is that people in the news industry frankly do not really understand or even care to explain the nuance behind these signals. They may not understand or explain what is being done about these signals at the policy level. A lot of mainstream news competition is just trying to get people's attention, and honestly who is going to watch a segment on monetary policy. Snore. So the reason you do not see anyone talking about how to respond to a recession is probably just because you don't listen to anyone who really knows much about them.&lt;/p&gt;&#xA;&lt;p&gt;Really, at the core of your question, you are basically asking why don't economists just predict all the bad stuff that can cause a recession and then stop it. The answer is because we just can't observe all of that, and it's goofy for anyone to think we can. We can only see some things, respond using some limited tools, and give our best policy suggestions. It is wishful thinking to believe we can stop all or even most of hardship in this uncertain world.&lt;/p&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;If you would like to read more about some recent research on recessions and macroeconomic policy, here are just a small number of papers you could try reading. Even if you don't read beyond the abstract, perhaps it will give you an idea of what sort of research economists are trying to do related to recessions and business cycles.&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Aikman, David, Jonathan Bridges, Anil Kashyap, and Caspar Siegert. &amp;quot;Would macroprudential regulation have prevented the last crisis?.&amp;quot; Journal of Economic Perspectives 33, no. 1 (2019): 107-30.&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Vassolo, Roberto, Javier Garcia-Sanchez, and Luiz Mesquita. &amp;quot;Competitive dynamics and early mover advantages under economic recessions.&amp;quot; Revista de Administração de Empresas 57, no. 1 (2017): 22-36.&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Martin, Philippe, and Thomas Philippon. &amp;quot;Inspecting the mechanism: Leverage and the great recession in the eurozone.&amp;quot; American Economic Review 107, no. 7 (2017): 1904-37.&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Koijen, Ralph SJ, Francois Koulischer, Benoit Nguyen, and Motohiro Yogo. Quantitative easing in the euro area: The dynamics of risk exposures and the impact on asset prices. No. 601. 2016.&lt;/p&gt;&#xA;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="4251" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2019-08-22T22:35:13.313" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30606" PostTypeId="1" AcceptedAnswerId="30611" CreationDate="2019-08-22T03:36:28.550" Score="1" ViewCount="126" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/fcHBc.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/fcHBc.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So I understand that the definition of consumer surplus is the difference between what the consumer pays and what the consumer would have been willing to pay. I just don't understand why the consumer surplus is the area of the triangle, as shown in the diagram. Is it representing all the possible consumer surpluses? &lt;/p&gt;&#xA;" OwnerUserId="23031" LastActivityDate="2019-08-22T09:40:58.470" Title="Why is consumer surplus the area under the curve?" Tags="&lt;consumer-surplus&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30607" PostTypeId="1" CreationDate="2019-08-22T04:13:34.757" Score="2" ViewCount="34" Body="&lt;p&gt;In games of imperfect information, one must reason about the belief on the state of nature, the beliefs of other player's beliefs of their beliefs, and so on. This is referred to as the belief hierarchy, which can stretch all the way to infinity. The &lt;a href=&quot;http://www.ma.huji.ac.il/~zamir/documents/BayesianGames_ShmuelZamir.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;universal belief space&lt;/a&gt;, also referred to as the universal type space, is a compact way to model this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Unfortunately, this is an unwieldy mathematical object. I realize that the value of it comes from the guarantee that in any game, one can represent the belief hierarchy by some set of types in a compact mathematical object. However, I am wondering if it is necessary to consider this level of detail in most games.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems that the higher one goes up the belief hierarchy, the less weight the information (beliefs of beliefs of...) carries. While this seems intuitive, I haven't seen any formalization of this in the literature. I realize this is a somewhat vague idea, but I am hopeful that there is some literature that formalizes this statement. Some papers I have seen only go up to second-order beliefs; it's unclear if this is because: it is sufficient for the game, it is a &lt;em&gt;good approximation&lt;/em&gt; in some sense, or if the complexity of the reasoning precluded reasoning about higher levels.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Question&lt;/strong&gt;: Are there general results (or even results for specific classes of games) that state how many levels up the belief hierarchy that one must reason about?  &lt;/p&gt;&#xA;" OwnerUserId="6108" LastEditorUserId="6108" LastEditDate="2019-08-22T21:14:55.027" LastActivityDate="2019-08-22T21:14:55.027" Title="How far must one reason up the belief hierarchy?" Tags="&lt;reference-request&gt;&lt;game-theory&gt;&lt;asymmetric-information&gt;&lt;information&gt;" AnswerCount="0" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="30608" PostTypeId="1" CreationDate="2019-08-22T05:16:48.227" Score="1" ViewCount="40" Body="&lt;p&gt;Consider the following classification of solution concepts&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;                   ║      static                dynamic         ║&#xA; ==================+===================+========================+&#xA;  perfect info.    ║ Nash equil.       | subgame perfect equil. ║&#xA;                   +-------------------+------------------------+&#xA;  incomplete info.  ║ Bayes Nash equil. | perfect Bayes equil.   ║&#xA; ==================+===================+========================+&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;I am wondering where Bergemann and Morris' &lt;a href=&quot;https://econtheory.org/ojs/index.php/te/article/viewFile/20160487/15457/452&quot; rel=&quot;nofollow noreferrer&quot;&gt;Bayes correlated equilibrium&lt;/a&gt; fits in this table. &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Some context&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Based on the name, it seems that Bayes correlated equilibrium (BCE) is the incomplete information analogue of correlated equilibrium (a solution concept for static games), which seems to imply that BCE is a solution concept for the class of static, incomplete information games (lower left spot of the table).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The discussion in the Bergemann and Morris paper is focussed on how &quot;signals&quot; influence players' beliefs throughout a game. As far as I understand, signaling is only a concept that appears in dynamic games of incomplete information, which seems to imply that BCE is a solution concept for dynamic games of incomplete information (lower right spot). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Furthermore, the following statement on page 5 of &lt;a href=&quot;https://econtheory.org/ojs/index.php/te/article/viewFile/20160487/15457/452&quot; rel=&quot;nofollow noreferrer&quot;&gt;the same paper&lt;/a&gt; states:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Lehrer, Rosenberg, and Shmaya (2013) study solution concepts which are intermediate between Bayes correlated equilibrium and Bayes Nash equilibrium, and provide partial characterizations of how the set of equilibrium outcomes vary with the information structure.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The topic of the Lehrer &lt;a href=&quot;http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.363.29&amp;amp;rep=rep1&amp;amp;type=pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;paper&lt;/a&gt; is again related to signaling. This seems to further imply that BCE is a solution concept for dynamic games.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Question:&lt;/strong&gt; Is Bayes correlated equilibrium a relevant solution concept for dynamic games of incomplete information? If not, has anyone generalized the notion to dynamic games?&lt;/p&gt;&#xA;" OwnerUserId="6108" LastEditorUserId="6108" LastEditDate="2019-08-23T17:54:46.887" LastActivityDate="2019-08-23T17:54:46.887" Title="Is Bayes correlated equilibrium relevant for dynamic games?" Tags="&lt;reference-request&gt;&lt;game-theory&gt;&lt;asymmetric-information&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30611" PostTypeId="2" ParentId="30606" CreationDate="2019-08-22T08:57:23.637" Score="4" Body="&lt;p&gt;This is quite fundamental, so I'd encourage you to look up your textbook as well... but here's a short explanation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Imagine that there are &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt; consumers in the market. You sort them by their willingness to pay from high to low. So the first consumer is willing to pay very high, and so on. Let's say the willingness to pay (sorted) is 12, 10, 9, 7, 5, 4, 2. This is represented by the downward-sloping demand curve.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's say the price is \$8.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first consumer's surplus is &lt;span class=&quot;math-container&quot;&gt;$12-8 = 4$&lt;/span&gt;.&#xA;The second consumer's surplus is &lt;span class=&quot;math-container&quot;&gt;$10-8 = 2$&lt;/span&gt;.&#xA;The third consumer's surplus is &lt;span class=&quot;math-container&quot;&gt;$9-8 = 1$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The fourth consumer onward wouldn't buy the item, since their willingness to pay is lower than the price. Their surpluses are all zero. They are the ones on the right of the equilibrium quantity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The sum of the consumers' surplus is 4 + 2 + 1 = 7, which is given by the area under the demand curve and above the price the consumer pays.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope that helps!&lt;/p&gt;&#xA;" OwnerUserId="5145" LastActivityDate="2019-08-22T08:57:23.637" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30612" PostTypeId="2" ParentId="24948" CreationDate="2019-08-22T09:21:17.713" Score="0" Body="&lt;p&gt;Car prices haven’t gone up due to the majority of auto makers profits being from the truck and SUV market. Trucks and SUVs have gone up 40% since 2007. I bought a brand new GMC 1500 in 2007 for \$20,000.  That same truck today is \$29,000. (\$20,000 X 1.45 = 45% inflation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As well the price of heavy equipment, trailers, and diesel trucks have gone up 30-40% as well. A 2007 Dodge 2500 diesel MSRP was around \$42,000. Currently that trucks MSRP is around \$60,000.&lt;/p&gt;&#xA;" OwnerUserId="24057" LastEditorUserId="5145" LastEditDate="2019-08-26T20:04:51.743" LastActivityDate="2019-08-26T20:04:51.743" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30613" PostTypeId="2" ParentId="30606" CreationDate="2019-08-22T09:40:58.470" Score="0" Body="&lt;p&gt;Beyond Art's good and didactic answer you may find the following paper interesting: &lt;a href=&quot;http://www.datascienceassn.org/sites/default/files/Using%20Big%20Data%20to%20Estimate%20Consumer%20Surplus%20at%20Uber.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Using Big Data to Estimate Consumer Surplus: The Case of Uber&lt;/a&gt;. It gives a real and concrete example of how to define a consumer surplus. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Using almost 50 million individual-level observations [...],  we  estimate  that  in  2015  the  UberX service  generated about \$2.9billion  in  consumer  surplus  in  the  four  U.S.  cities  included  in  our analysis. For  each  dollar  spent  by  consumers, about \$1.60 of  consumer  surplus  is  generated.  Back-of-the-envelope  calculations  suggest  that  the  overall  consumer  surplus  generated  by  the UberX service in the United States in 2015 was \$6.8 billion.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;There is also a Freakonomics podcast based on this paper: &lt;a href=&quot;http://freakonomics.com/podcast/uber-economists-dream/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Why Uber Is an Economist's Dream&lt;/a&gt;. Levitt's claims that the Consumer Surplus concept dates back form Jules Dupuit, a 19th-century economist and hydraulic engineer, who helped build the sewer system of Paris. The following website offers a nice historical view and description of the &lt;a href=&quot;http://www.economictheories.org/2008/08/jules-dupuit-marginal-utility-and.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Consumer Surplus&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="6168" LastActivityDate="2019-08-22T09:40:58.470" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30614" PostTypeId="1" CreationDate="2019-08-22T13:45:51.647" Score="2" ViewCount="27" Body="&lt;p&gt;There is a lot of talk about how we're approaching an economic recession. There is plenty of talk about how that would affect the world at large, but I haven't really found much on the level of private individuals (other than increased unemployment rates). When the economy fell during 2008 my family didn't really notice it as neither of my parents lost their job (granted, I was a high school freshman at the time so I can't really tell whether or not my parents had any issues).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, my question is more or less: &lt;strong&gt;As long as I don't lose my job, what changes to my life am I likely to see if we have another recession similar to the one in 2008?&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="24059" LastActivityDate="2019-08-22T13:45:51.647" Title="What changes do I, as an individual, experience during a recession?" Tags="&lt;microeconomics&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30615" PostTypeId="1" CreationDate="2019-08-22T16:51:20.820" Score="0" ViewCount="36" Body="&lt;p&gt;Why can't all blockchains use the same cryptocurrency like Bitcoin? Why do each of them have to invent a new cryptocurrency?&lt;/p&gt;&#xA;" OwnerUserId="24060" LastEditorUserId="24060" LastEditDate="2019-09-12T22:29:36.873" LastActivityDate="2019-09-12T22:29:36.873" Title="Why is there a need for multiple cryptocurrencies?" Tags="&lt;cryptocurrency&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30616" PostTypeId="1" CreationDate="2019-08-22T17:55:07.353" Score="5" ViewCount="135" Body="&lt;p&gt;Here are some examples of what I'm talking about:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Mass events such as Burning Man, the Olympics, and the World Cup sell out tickets very quickly which forces fans to resort to scalping or using bots if they want to secure a spot&lt;/li&gt;&#xA;&lt;li&gt;Concerts of popular artists sell out very quickly which creates a massive scalping market&lt;/li&gt;&#xA;&lt;li&gt;Limited editions of clothing suffer from &lt;a href=&quot;https://www.wired.com/2017/05/using-bots-to-buy-supreme-limited-edition-streetwear/&quot; rel=&quot;noreferrer&quot;&gt;automated bots&lt;/a&gt; buying up and reselling almost all of their stock in a matter of seconds&lt;/li&gt;&#xA;&lt;li&gt;Popular restaurants sometimes require making a reservation several days in advance or don't take reservations and have everyone wait in line for a long time&lt;/li&gt;&#xA;&lt;li&gt;Daycares in Canada and the US frequently &lt;a href=&quot;https://localbabysitter.com/seattle-daycare-waitlists-continue-to-grow-over-past-five-years/&quot; rel=&quot;noreferrer&quot;&gt;have waiting lists&lt;/a&gt; of several years which forces parents to sign up for one as soon as they conceive&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I'm sure there are more examples of such practices that I'm not aware of. All of them could have addressed the difficulty of obtaining the product through some form of dynamic pricing - as demand goes up you increase the price, as demand goes down you decrease it. Various forms of auctions could also be used to determine the price, if required. This is how the world of airlines operates these days - planes are almost never sold out, but you might find that a ticket costs 10x the original price if you buy one right before departure. &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;What's the name for such business policies in economic theory? &lt;/li&gt;&#xA;&lt;li&gt;Why would a business choose to follow such practices?&lt;/li&gt;&#xA;&lt;li&gt;Can this strategy actually result in higher profits over the long term or are businesses losing money by not using dynamic pricing?&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="8307" LastEditorUserId="8307" LastEditDate="2019-08-22T18:00:40.930" LastActivityDate="2020-01-20T15:55:22.617" Title="Why do some businesses choose scarcity as their business model instead of raising the price to meet the demand?" Tags="&lt;supply-and-demand&gt;&lt;pricing&gt;" AnswerCount="3" CommentCount="1" FavoriteCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30617" PostTypeId="1" CreationDate="2019-08-22T20:49:19.043" Score="1" ViewCount="21" Body="&lt;p&gt;What forecasting models would you recommend to forecast the GDP? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Through a quick research I have found that VEC, VAR, SVAR models are the most common. Are they though good forecasters? Or are they just good at &quot;analyzing&quot; the sample(through Granger tests, IRF's etc) and bad out-of-sample forecasters? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What about the unvariate autoregresive family, Or other types of models? Which would be better in your experience for forecasting this variable?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks in advance&lt;/p&gt;&#xA;" OwnerUserId="24062" LastActivityDate="2019-08-22T20:49:19.043" Title="Performing good forecasts for the GDP" Tags="&lt;gdp&gt;&lt;applied-econometrics&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30618" PostTypeId="1" AcceptedAnswerId="30686" CreationDate="2019-08-22T22:55:07.147" Score="1" ViewCount="116" Body="&lt;p&gt;Balance of Trade: &lt;a href=&quot;https://tradingeconomics.com/india/balance-of-trade&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://tradingeconomics.com/india/balance-of-trade&lt;/a&gt;&#xA;&lt;a href=&quot;https://i.stack.imgur.com/vDGmX.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/vDGmX.png&quot; alt=&quot;India&amp;#39;s historical balance of trade&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Foreign Exchange Reserves: &lt;a href=&quot;https://tradingeconomics.com/india/foreign-exchange-reserves&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://tradingeconomics.com/india/foreign-exchange-reserves&lt;/a&gt;&#xA;&lt;a href=&quot;https://i.stack.imgur.com/Xc97S.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Xc97S.png&quot; alt=&quot;India&amp;#39;s historical foreign exchange reserves&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Remittances do help (avg. \$4B/mo) but are not enough to offset the trade deficit (avg. \$15B/mo).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;India Remittances: &lt;a href=&quot;https://tradingeconomics.com/india/remittances&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://tradingeconomics.com/india/remittances&lt;/a&gt;&#xA;&lt;a href=&quot;https://i.stack.imgur.com/dXHpN.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/dXHpN.png&quot; alt=&quot;India remittances&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Please note that the time scales in the above charts are not the same.&lt;/em&gt;&lt;/p&gt;&#xA;" OwnerUserId="23414" LastEditorUserId="23414" LastEditDate="2019-08-27T08:27:20.287" LastActivityDate="2019-08-28T02:35:58.013" Title="How is India able to increase its foreign exchange reserves despite historically running a trade deficit?" Tags="&lt;balance-of-trade&gt;&lt;foreign-exchange&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30619" PostTypeId="2" ParentId="30616" CreationDate="2019-08-23T03:34:47.250" Score="1" Body="&lt;p&gt;I think it's more about customer's perception. If they were to raise their prices, they might be perceived as blood-thirsty artists/restaurants/etc. who take advantage of their customers. Instead, by keeping the prices low and having queues outside, it becomes a kind of advertising.&lt;/p&gt;&#xA;" OwnerUserId="5145" LastActivityDate="2019-08-23T03:34:47.250" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30620" PostTypeId="1" AcceptedAnswerId="30669" CreationDate="2019-08-23T04:16:14.693" Score="0" ViewCount="95" Body="&lt;p&gt;I have a few questions about hyperinflation that I’m really curious about:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;I learned there are two types of inflation - demand pull and cost push. I was wondering if hyperinflation fits into the former category since printing too much money leads to increase in the money supply, lowering interest rates and increasing Investment and Consumption, moving the AD curve. So hyperinflation should be demand-pull right? &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;My textbook states that only with a strong credible fiscal policy can hyperinflation be fixed, but I don’t understand what it means. Does it mean that monetary policy is useless when it comes to hyperinflation? And does it mean that the solution to hyperinflation is “contractionary fiscal policy” or “expansionary fiscal policy?”&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="23697" LastActivityDate="2019-08-26T09:56:35.373" Title="How is hyperinflation categorized, and how is it fixed?" Tags="&lt;inflation&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30621" PostTypeId="1" CreationDate="2019-08-23T05:49:47.640" Score="0" ViewCount="82" Body="&lt;p&gt;Would YouTubers see a sense in having a trade union?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, to establish policies how much the value of their contribution is.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The controversy here is, professional YouTubers make a bet for their income on the platform and have to accept its conditions, on the other hand YT has enough dominance and yet dependant on YouTubers making the bet their content will get them enough ad turnover.&lt;/p&gt;&#xA;" OwnerUserId="13716" LastEditorUserId="13716" LastEditDate="2020-04-09T04:58:35.157" LastActivityDate="2020-04-09T08:00:05.217" Title="Does a trade union of YouTubers exist?" Tags="&lt;labor-economics&gt;&lt;advertising&gt;" AnswerCount="1" CommentCount="3" ClosedDate="2020-04-10T15:49:01.623" ContentLicense="CC BY-SA 4.0" />
  <row Id="30622" PostTypeId="2" ParentId="30488" CreationDate="2019-08-23T09:16:53.827" Score="-1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;If we can see it coming, why can't we do something about it now, instead of after we are deep in it and fighting about stimulus packages like last time?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The short answer is we can. However, in order for the coming recession to be avoided, the Fed would need to reverse the effects of its recent 'quantitive tightening' and resume a stimulus policy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem is that the Fed is an autonomous entity and how it implements its goals are decided internally and in secrecy. If it should decide that the long term goal of improving US employment is to stop a Trump administration from engaging in a trade war with China by influencing domestic politics through a synthetic economic downturn, that is within its remit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT&gt; The above answer is not US-specific. The Fed central bank activity will primarily determine the global economic situation. On the other hand, if China were to decide that the world was too hostile to it, it would simply stop propping up global industry as it currently does (domestic automotive demand and low price manufacturing for export demand), which would also cause global chaos.&lt;/p&gt;&#xA;" OwnerUserId="24068" LastActivityDate="2019-08-23T09:16:53.827" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30623" PostTypeId="2" ParentId="30618" CreationDate="2019-08-23T09:24:16.093" Score="0" Body="&lt;p&gt;I saw somewhere that it's largely down to Indian employees abroad sending much of their earnings home, but I don't have the link to hand.&lt;/p&gt;&#xA;" OwnerUserId="24068" LastActivityDate="2019-08-23T09:24:16.093" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30625" PostTypeId="2" ParentId="30616" CreationDate="2019-08-23T10:00:18.237" Score="-1" Body="&lt;p&gt;Well, this is a hot topic where I live. Basically most of Central and Northern Europe is suffering from an overheated economy in certain sectors. So, if you want to get a house built or some construction repaired, or have some maintenance done on a gas boiler, you are looking at waiting a long time to get someone in, and you are looking at low quality work in general. I won't mention the equivalent problems in health services because that's more a state-vs-corporate pay struggle.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem as I see it is that right now personal TIME is way more important than SAVINGS. People simply prefer to earn less and have more quality life, because their sense of SECURITY in potential earnings precludes the need for SAVINGS. In short, people are lazy and prefer to earn enough and work less, rather than work more and earn in excess.&lt;/p&gt;&#xA;" OwnerUserId="24068" LastActivityDate="2019-08-23T10:00:18.237" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30628" PostTypeId="1" AcceptedAnswerId="30706" CreationDate="2019-08-23T14:28:18.033" Score="0" ViewCount="96" Body="&lt;p&gt;A specialized question for those, who excel in monopolistic competition and modern trade theories. I am interested in a derivation of an aggregate demand function for a model of monopolistic competition presented in the &lt;a href=&quot;https://press.princeton.edu/titles/8765.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;(text-)book by Combes, Mayer and Thisse (2008)&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Setup of consumer problem&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Utility of an individual consumer&lt;/em&gt;: &lt;span class=&quot;math-container&quot;&gt;$$U_i = CM^{\mu}$$&lt;/span&gt;&#xA;Where &lt;span class=&quot;math-container&quot;&gt;$M$&lt;/span&gt; stands for a composite manufacturing good defined a a sum of &quot;manufacturing&quot; goods consumed by a representative agent: &lt;span class=&quot;math-container&quot;&gt;$$M \equiv \left(\Sigma_i^n q_i^{\frac{\sigma - 1}{\sigma}}\right)^\frac{\sigma}{\sigma-1} $$&lt;/span&gt;&#xA;&lt;em&gt;Budget constraint&lt;/em&gt;: &#xA;&lt;span class=&quot;math-container&quot;&gt;$$PM \leq y$$&lt;/span&gt;&#xA;Where &lt;span class=&quot;math-container&quot;&gt;$P$&lt;/span&gt; is a composite price index for a composite manufacturing good defined as follows: &lt;span class=&quot;math-container&quot;&gt;$$P \equiv  \left(\Sigma_i^n p_i^{-(\sigma - 1)}\right)^{-\frac{1}{\sigma-1}} $$&lt;/span&gt;&#xA;Here comes the punchline (p. 57). Without any additional derivations, authors write the following:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In this case, it is well-known that the aggregate demand function take the form: &lt;span class=&quot;math-container&quot;&gt;$$ M = \frac{\mu L y}{P} $$&lt;/span&gt; My comment: &lt;span class=&quot;math-container&quot;&gt;$L$&lt;/span&gt; stands for a total labor supply in a country. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Two questions:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;This well-known result is totally unknown to me. Could someone kindly show its derivation (or maybe hint to a textbook) in detail?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Throughout the chapter, authors treat &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; as an exogenous value albeit the model they present is in a general equilibrium setting. This implies that &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; should be a sum of wages in the economy that feature in variable costs of firms: &lt;span class=&quot;math-container&quot;&gt;$C(q_i) = f + wq_i$&lt;/span&gt;. I suppose that they assume a perfect competition on a labour market among the identical workers and therefore the wage rates could be treated as fixed. Is my intuition true?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="14950" LastEditorUserId="23694" LastEditDate="2019-08-24T08:06:03.200" LastActivityDate="2019-08-30T21:46:52.233" Title="Derivation of aggregate demand function for Monopolistic Competition (based on Combes et. al, 2008)" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;international-trade&gt;&lt;international-economics&gt;&lt;monopolistic-competition&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="30630" PostTypeId="1" CreationDate="2019-08-23T17:41:53.937" Score="2" ViewCount="130" Body="&lt;p&gt;When I’m using the forward exchange rate formula based on non-arbitrage theory, it tells me that a positive interest rate spread (i_domestic &gt; i_foreign)would cause the forward exchange rate(units of foreign currency that I get for each 1 unit of domestic currency I pay) to be lower than the spot exchange rate, indicating that a positive domestic-to-foreign interest rate spread would lead to depreciation of the domestic currency.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, people keep saying that if the domestic Central Bank decides to raise the domestic interest rate, it would make the domestic currency to appreciate as international investors would be more willing to pour their money into the domestic market(selling foreign currency for domestic currency) due to a higher yield. This is saying domestic interest has a positive relationship with the exchange rate(units of foreign currency that I get for each 1 unit of domestic currency I pay).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So I’m confused about how these two different approaches give contradictory results. Can someone please explain this to me?&lt;/p&gt;&#xA;" OwnerUserId="24073" LastActivityDate="2020-11-19T14:03:50.347" Title="How does interest rate impact exchange rate?" Tags="&lt;macroeconomics&gt;&lt;interest-rate&gt;&lt;exchange-rates&gt;&lt;foreign-exchange&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30631" PostTypeId="2" ParentId="27477" CreationDate="2019-08-23T18:00:56.760" Score="2" Body="&lt;p&gt;&lt;a href=&quot;https://www.aeaweb.org/articles?id=10.1257/aer.103.6.2265&quot; rel=&quot;nofollow noreferrer&quot;&gt;Roberts and Schlenker (2013)&lt;/a&gt; estimate the price elasticity of demand for agricultural commodities to be about -0.08 to -0.05. These are elasticities estimated over much smaller changes in &lt;span class=&quot;math-container&quot;&gt;$p$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$q$&lt;/span&gt; than you are suggesting. Remember that the elasticity is effectively percent change in &lt;span class=&quot;math-container&quot;&gt;$q$&lt;/span&gt; for a percent change in &lt;span class=&quot;math-container&quot;&gt;$p$&lt;/span&gt;, so we can ask what the percent change in &lt;span class=&quot;math-container&quot;&gt;$p$&lt;/span&gt; is for a percent change in &lt;span class=&quot;math-container&quot;&gt;$q$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If production is 15x more soy than there is currently (in total, so globally) then this is a 1500% ((1*15+1 - 1)/1) increase in soy. Using the high end (most elastic), we get that prices have to fall 18,750% (15/-0.08) to clear the market at this new higher quantity. This is impossible, so this tells us that our local elasticity measures won't do to solve this problem. It also suggests that there would be no reason to add so much soy bean production, because demand is likely unable to handle so much soy. &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2019-08-23T19:45:23.403" LastActivityDate="2019-08-23T19:45:23.403" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30632" PostTypeId="1" CreationDate="2019-08-24T05:11:34.360" Score="1" ViewCount="39" Body="&lt;p&gt;I was surprised to find that we did not have a question on this Stack Exchange on this particular problem in decision theory. So I have chosen to add a question on &lt;strong&gt;Newcomb's Paradox&lt;/strong&gt;, though I would like to limit the scope of it to its economic considerations more than its philosophical considerations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For those unfamiliar with the problem, here is the usual formulation of the problem.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;You are presented with two boxes.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Box A is clear and has \$1,000 in it.&lt;/li&gt;&#xA;&lt;li&gt;Box B is opaque and either has \$0 or \$1,000,000 in it, which is decided by another player, let's say a machine here.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;You can choose to take just Box B, or both Box A and B, but &lt;em&gt;before&lt;/em&gt; you choose, a machine makes a decision about what is in Box B, based on what it thinks you will do. The machine has played this game many times before and empirically is &lt;em&gt;almost&lt;/em&gt; always correct in predicting what the player will do.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;If it thinks you are going to choose both boxes, the machine will place \$0 in Box B. &lt;/li&gt;&#xA;&lt;li&gt;If it thinks you are going to choose just Box B, the machine will place \$1,000,000 in Box B.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Empirically, people are split on whether to play the one box or two box strategy. The intuition for both cases goes likes this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For those who pick one box, the intuition is that if the machine is almost always right, then the &lt;strong&gt;expected value/utility&lt;/strong&gt; of picking just Box B will be much much higher than picking both boxes. So obviously one should pick just Box B and not be greedy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For those who pick two boxes, the intuition is that picking both boxes seems to be a &lt;strong&gt;dominant strategy&lt;/strong&gt;. If the machine has already picked putting nothing in Box B, it doesn't hurt, and can only help, if you pick both boxes. If the machine has already picked putting \$1,000,000 in Box B, then...well you should still want both boxes!&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;So what's the rub? Philosophers like getting into the weeds with this question in discussing causality or free will. But perhaps one criticism of this thought experiment is that the scenario described here is not rigorously defined within the realm of game theory. The machine's only goal is to predict the player's move correctly, but it does not actually have a defined payoff for making the correct prediction. One can map the set of choices and player payoffs as a tree, where the player cannot observe the choice of the machine, but the information set needs more elaboration than this. How does the machine make its prediction exactly so that it is &quot;almost always right&quot;? Why does the machine get to completely preclude mixed strategies and just...know what the player will do most of the time? Essentially, the whole game, strategies and payoffs and information, seems all very hazy. Should it even be considered a game? Or is this just a weird decision theory question?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With paradoxes, trying to add in extra assumptions, or showing why an existing assumption is ill-defined, this can go a long way to providing a possible solution to a paradox. So my question(s) are:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;ul&gt;&#xA;  &lt;li&gt;How could one alter the formulation of Newcomb's Paradox to make it decisively analyzable with game theory or decision theory, and what strategy/decision should the player make in that case?&lt;/li&gt;&#xA;  &lt;li&gt;If you would choose not to alter the formulation of the paradox, what is the correct analysis of the problem?&lt;/li&gt;&#xA;  &lt;/ul&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Two ending points. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$^1$&lt;/span&gt; I hope I have formulated my question so that there could be multiple correct answers that are objectively correct, and not just opinion based.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$^2$&lt;/span&gt; If you think Newcomb's Paradox is just so incoherent that one can't really alter it without really altering what makes the paradox interesting, you can talk about that too. I am not asking that as a question because I think that would be too opinion based.&lt;/p&gt;&#xA;" OwnerUserId="4251" LastEditorUserId="20644" LastEditDate="2019-08-26T02:32:04.197" LastActivityDate="2019-08-26T02:32:04.197" Title="Rigorously Defining Newcomb's &quot;Paradox&quot;" Tags="&lt;game-theory&gt;&lt;decision-theory&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30634" PostTypeId="1" AcceptedAnswerId="30679" CreationDate="2019-08-24T06:12:44.230" Score="1" ViewCount="136" Body="&lt;p&gt;I know what relative price is and that it fluctuates more frequently in times of Inflation. But what I don’t understand is why it is called “distortion” when relative price dispersion is caused by inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;According to various textbooks such as Mankiw’s, relative price is what enables rational consumer decisions and effective resource allocation, but inflation leads to its “distortion” which results in resource misallocation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now “distortion” usually means a phenomenon that misleads people into making wrong decisions. But where does distortion exist in relative price fluctuations? isn’t it natural for people to buy more goods that increase in terms of relative price, and buy less that decrease in relative price? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don’t understand what bad decisions people are making here, and why it leads to resource “misallocation”. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Even if there isn’t inflation, relative price fluctuation exists all the time, and consumers always make decisions based on that. We don’t really call THAT a distortion - it’s a perfectly normal thing that causes a substitution effect which makes us buy more things that are relatively cheaper. So wouldn’t decisions based on relative price usually actually lead to better resource allocation?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So my question is, what “distortion” is happening when relative price fluctuations happen from inflation, and why does that lead to “resource misallocation”? Is there an excess supply or excess demand that results from people taking action based on relative price fluctuations? If there isn’t, why is it resource misallocation?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would really appreciate it if someone could give me a good explanation on this. I’ve tried to solve this curiousity for days searching the internet and stuff but I’ve been unable to find satisfying answers. Detailed examples would be extremely helpful :)&lt;/p&gt;&#xA;" OwnerUserId="23697" LastEditorUserId="23697" LastEditDate="2019-08-24T07:33:19.857" LastActivityDate="2019-08-31T07:31:39.547" Title="Why is price dispersion from Inflation called relative price “distortion”?" Tags="&lt;macroeconomics&gt;&lt;inflation&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30635" PostTypeId="1" CreationDate="2019-08-24T08:04:08.227" Score="0" ViewCount="28" Body="&lt;p&gt;Is there anyone who can help me with a total differentiation exercize. I am starting with the following formula for AD:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$x=\mu ^{-1}(g+i+e)$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where &lt;span class=&quot;math-container&quot;&gt;$\mu$&lt;/span&gt; is the Keynesian multiplier.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And have to obtain the following result (which is obtained by total differentiating and diving through by x):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\dot{x}=-\dot\mu+\frac{\mu ^{-1}g}{x}\cdot \dot g+\frac{\mu ^{-1}i}{x}\cdot \dot i+\frac{\mu ^{-1}e}{x}\cdot \dot e$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you very much to anyone who wants to help me with every step.&lt;/p&gt;&#xA;" OwnerUserId="19586" LastActivityDate="2019-08-24T09:21:55.077" Title="Hep with total differentiation of an AD function" Tags="&lt;macroeconomics&gt;&lt;mathematical-economics&gt;&lt;economic-growth&gt;&lt;linear-algebra&gt;&lt;product-differentiation&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ClosedDate="2019-09-18T01:58:21.077" ContentLicense="CC BY-SA 4.0" />
  <row Id="30636" PostTypeId="2" ParentId="30635" CreationDate="2019-08-24T08:39:54.587" Score="2" Body="&lt;p&gt;For a variable &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt;, let &lt;span class=&quot;math-container&quot;&gt;$dX$&lt;/span&gt; denote its total differential. Let &lt;span class=&quot;math-container&quot;&gt;$k$&lt;/span&gt; be a constant, and &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt; variables. You'll need the following rules:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$dk = 0$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(constant rule),&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$d(X + Y) = dX + dY$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(sum rule),&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$d(XY) = Y \cdot dX + X \cdot dY$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(product rule) and&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$d\left(\frac{X}{Y}\right) = \frac{ Y \cdot dX - X \cdot dY }{ Y^2 }$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(quotient rule). These rules follow immediately from the definition of the total differential. (For more on total differentials, see e.&amp;thinsp;g. chapter 8 of Chiang and Wainwright, &lt;em&gt;Fundamental Methods of Mathematical Economics&lt;/em&gt;, 4th ed., McGraw-Hill 2005.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now let's start with your equation. By the product rule we have:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\begin{align}&#xA;dx &amp;amp; = d\left( \mu^{-1} (g + i + e) \right) \\&#xA;&amp;amp; = d\left(\mu^{-1}\right) (g + i + e) + \mu^{-1} d(g + i + e)&#xA;\end{align}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is &lt;span class=&quot;math-container&quot;&gt;$d(\mu^{-1})$&lt;/span&gt;? Because &lt;span class=&quot;math-container&quot;&gt;$\mu^{-1} = \frac1\mu$&lt;/span&gt;, by the quotient rule,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\begin{align}&#xA;d\left(\mu^{-1}\right) &amp;amp; = d\left(\frac1\mu\right) \\[4pt]&#xA;&amp;amp; = \frac{ \mu \cdot d1 - 1 \cdot d\mu }{ \mu^2 } \\&#xA;&amp;amp; = -\frac{ d\mu }{ \mu^2 }&#xA;\end{align}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where we also made use of the fact that by the constant rule, &lt;span class=&quot;math-container&quot;&gt;$d1 = 0$&lt;/span&gt;. Plug this into the above intermediate result and also apply the sum rule:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\begin{align}&#xA;dx &amp;amp; = d\left(\mu^{-1}\right) (g + i + e) + \mu^{-1} d(g + i + e) \\&#xA;&amp;amp; = -\frac{ d\mu }{ \mu^2 } (g + i + e) + \mu^{-1} \left( dg + di + de \right) \\&#xA;&amp;amp; = -\frac{ d\mu }{ \mu } \cdot \mu^{-1} (g + i + e) + \mu^{-1} \left( dg + di + de \right) \\&#xA;&amp;amp; = -\dot\mu \cdot x + \mu^{-1} \left( dg + di + de \right)&#xA;\end{align}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where use was made of the definition of &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;, and the fact that &lt;span class=&quot;math-container&quot;&gt;$\frac{ d\mu }\mu = \dot\mu$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now we're almost there. Note that since &lt;span class=&quot;math-container&quot;&gt;$\frac{ dX }X = \dot{X}$&lt;/span&gt; for any variable &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt;, we also have &lt;span class=&quot;math-container&quot;&gt;$dX = X \cdot \dot X$&lt;/span&gt;; applying this to &lt;span class=&quot;math-container&quot;&gt;$g$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$e$&lt;/span&gt; and dividing the entire equation by &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; then yields&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\begin{align}&#xA;\dot x = \frac{ dx }x &amp;amp; = -\dot\mu + \mu^{-1} \cdot \frac{ dg + di + de } x \\&#xA;&amp;amp; = -\dot\mu + \mu^{-1} \cdot \frac{ dg }x + \mu^{-1} \cdot \frac{ di }x + \mu^{-1} \cdot \frac{ de }x \\&#xA;&amp;amp; = -\dot\mu + \frac{ \mu^{-1} g }x \cdot \dot g + \frac{ \mu^{-1} i }x \cdot \dot i + \frac{ \mu^{-1} e }x \cdot \dot e&#xA;\end{align}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which is the desired result.&lt;/p&gt;&#xA;" OwnerUserId="20644" LastEditorUserId="20644" LastEditDate="2019-08-24T09:21:55.077" LastActivityDate="2019-08-24T09:21:55.077" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30638" PostTypeId="2" ParentId="30632" CreationDate="2019-08-24T09:15:35.073" Score="-1" Body="&lt;p&gt;In order to start making this tractable, I'd start by stating in which order the two events &amp;ndash; the player making their choice, and the machine deciding how much money to put into box B &amp;ndash; happen. There's two options:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;First, the machine deposits money into box B (based on a guess as to how the player will choose); the player chooses afterward.&lt;/li&gt;&#xA;&lt;li&gt;First, the player chooses; the machine deposits money into box B afterward.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;(Technically, there's a third option: both actions being performed at the same time. I'd consider this to be equivalent to the first, in that the machine cannot observe the player's actual choice, and the machine's choice is a given for the player.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first option is not interesting as a one-off game, as choosing both boxes is clearly a dominant strategy. However, it would be interesting as an iterated game where the player's goal is to maximize their total payout, while the machine's goal is to minimize it. Obviously the player's optimal strategy would depend on the strategy (programming) of the machine, and vice versa. In order to identify overall good strategies, one could perhaps come up with different strategies for both player and machine, pit them against each other over a certain number of rounds, and see which strategy is robust against a wide variety of adversary strategies, the way that Axelrod did for prisoner's dilemma strategies in the early 1980s.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the second option, the machine's decision-making process needs to be clarified; what does it mean for the machine to be &quot;almost always correct&quot;? I'd implement this as follows: the machine has access to an oracle that will tell it the player's choice, but which, with probability &lt;span class=&quot;math-container&quot;&gt;$p &amp;gt; 0$&lt;/span&gt;, will give an incorrect answer. The machine always follows the oracle and puts \$1,000,000 into box B iff the oracle says the player did not choose both boxes. This scenario could then be analyzed using standard tools, and the player's optimal strategy determined for both one-off and iterated games, depending on the value of &lt;span class=&quot;math-container&quot;&gt;$p$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerUserId="20644" LastActivityDate="2019-08-24T09:15:35.073" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30639" PostTypeId="1" AcceptedAnswerId="30640" CreationDate="2019-08-24T10:08:26.920" Score="2" ViewCount="30" Body="&lt;p&gt;What are the rules of total differentials? I.&amp;thinsp;e., given an arbitrary expression of which to take the total differential, what rules can be applied to arrive at the desired result, and how does one go about doing so?&lt;/p&gt;&#xA;" OwnerUserId="20644" LastActivityDate="2019-08-24T10:08:26.920" Title="Rules of total differentials" Tags="&lt;mathematical-economics&gt;" AnswerCount="1" CommentCount="3" ClosedDate="2019-09-08T21:11:56.520" ContentLicense="CC BY-SA 4.0" />
  <row Id="30640" PostTypeId="2" ParentId="30639" CreationDate="2019-08-24T10:08:26.920" Score="3" Body="&lt;p&gt;Recall that the total differential &lt;span class=&quot;math-container&quot;&gt;$df$&lt;/span&gt; of a function &lt;span class=&quot;math-container&quot;&gt;$f : \mathbb{R}^n \to \mathbb{R}$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$x = (x_1, \dots, x_n) \mapsto f(x)$&lt;/span&gt;, is defined as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$df = \sum_{i = 1}^n \frac{ \partial f }{ \partial x_i } dx_i = \sum_{i = 1}^n f_{x_i} dx_i = \nabla f \cdot \left(dx_1, \dots, dx_n\right)^\top$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$Z$&lt;/span&gt; be variables, and let &lt;span class=&quot;math-container&quot;&gt;$a$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$b$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$c$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$k$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt; be constants. Then the following rules are valid:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\begin{alignat}{3}&#xA;dk &amp;amp; = 0 &amp;amp;&amp;amp; \qquad \text{(constant rule)} \\&#xA;d(cX^n) &amp;amp; = cnX^{n-1} dX &amp;amp;&amp;amp; \qquad\text{(power rule)} \\&#xA;d(aX + bY) &amp;amp; = a\cdot dX + b \cdot dY &amp;amp;&amp;amp; \qquad\text{(sum rule)} \\&#xA;d(XY) &amp;amp; = Y \cdot dX + X \cdot dY &amp;amp;&amp;amp; \qquad\text{(product rule)} \\&#xA;d(XYZ) &amp;amp; = YZ \cdot dX + XZ \cdot dY + XY \cdot dZ &amp;amp;&amp;amp; \qquad\text{(product rule for three factors)} \\&#xA;d\left( \frac{X}{Y} \right) &amp;amp; = \frac{ Y \cdot dX - X \cdot dY }{ Y^2 } &amp;amp;&amp;amp; \qquad\text{(quotient rule)} \\&#xA;d(X^{-1}) &amp;amp; = -\frac{ dX }{ X^2 } &amp;amp;&amp;amp; \qquad\text{(inverse rule)} \\&#xA;d(X \circ Y) &amp;amp; = X'(Y) \cdot dY &amp;amp;&amp;amp; \qquad\text{(chain rule)}&#xA;\end{alignat}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When evaluating around &lt;span class=&quot;math-container&quot;&gt;$(X, Y, \dots) = (X_0, Y_0, \dots)$&lt;/span&gt; (e.&amp;thinsp;g. around the steady state of a model), replace &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; by &lt;span class=&quot;math-container&quot;&gt;$X_0$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt; by &lt;span class=&quot;math-container&quot;&gt;$Y_0$&lt;/span&gt; etc. in the above rules. For &lt;span class=&quot;math-container&quot;&gt;$X = X_0$&lt;/span&gt; or &lt;span class=&quot;math-container&quot;&gt;$Y = Y_0$&lt;/span&gt; respectively:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\begin{align}&#xA;d(cX^n) \biggr\rvert_{X = X_0} &amp;amp; = cnX_0^{n-1} dX \\&#xA;d(X^{-1}) \biggr\rvert_{X = X_0} &amp;amp; = -\frac{ dX }{ X_0^2 } \\&#xA;d(X \circ Y) \biggr\rvert_{Y = Y_0} &amp;amp; = X'(Y_0) \cdot dY&#xA;\end{align}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For &lt;span class=&quot;math-container&quot;&gt;$(X, Y) = (X_0, Y_0)$&lt;/span&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\begin{align}&#xA;d(aX + bY) \biggr\rvert_{(X, Y) = (X_0, Y_0)} &amp;amp; = a\cdot dX + b \cdot dY \\&#xA;d(XY) \biggr\rvert_{(X, Y) = (X_0, Y_0)} &amp;amp; = Y_0 \cdot dX + X_0 \cdot dY \\&#xA;d\left( \frac{X}{Y} \right) \Biggr\rvert_{(X, Y) = (X_0, Y_0)} &amp;amp; = \frac{ Y_0 \cdot dX - X_0 \cdot dY }{ Y_0^2 }&#xA;\end{align}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For (&lt;span class=&quot;math-container&quot;&gt;$X, Y, Z) = (X_0, Y_0, Z_0)$&lt;/span&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\begin{align}&#xA;d(XYZ) \biggr\rvert_{(X, Y, Z) = (X_0, Y_0, Z_0)} &amp;amp; = Y_0Z_0 \cdot dX + X_0Z_0 \cdot dY + X_0Y_0 \cdot dZ&#xA;\end{align}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As an example, consider the IS equation&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$Y = C((1 - t) \cdot Y) + I(i, E) + G$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;of an IS/LM model of a closed economy with a flat tax rate &lt;span class=&quot;math-container&quot;&gt;$t$&lt;/span&gt;. Take the total differential around the current state of the economy, using the rules above and setting &lt;span class=&quot;math-container&quot;&gt;$Y^v = (1 - t) Y$&lt;/span&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\begin{align}&#xA;dY &amp;amp; = d\left[ C((1 - t) Y) + I(i, E) + G \right] \\&#xA;&amp;amp; = d\left[ C((1 - t) Y) \right] + d\left[ I(i, E) \right] + dG \\&#xA;&amp;amp; = C_{Y^v} d\left[ (1 - t) Y \right] + I_i \, di + I_E \, dE + dG \\&#xA;&amp;amp; = C_{Y^v} \left[ Y_0 d(1 - t) + (1 - t_0) \, dY \right] + I_i \, di + I_E \, dE + dG \\&#xA;&amp;amp; = C_{Y^v} \left[ Y_0 (-dt) + (1 - t_0) \, dY \right] + I_i \, di + I_E \, dE + dG \\&#xA;&amp;amp; = C_{Y^v} \left[ (1 - t_0) \, dY - Y_0 \, dt \right] + I_i \, di + I_E \, dE + dG&#xA;\end{align}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;References:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Chiang, Alpha C. and Kevin Wainwright, &lt;em&gt;Fundamental Methods of Mathematical Economics&lt;/em&gt;, 4th ed., McGraw-Hill 2005, chapter 8.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="20644" LastActivityDate="2019-08-24T10:08:26.920" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30641" PostTypeId="1" CreationDate="2019-08-24T11:00:52.433" Score="1" ViewCount="39" Body="&lt;p&gt;From &lt;a href=&quot;https://www.investopedia.com/ask/answers/040615/why-productivity-important-concept-economics.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;investopedia:&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Supply rises with productivity, dropping real prices and increasing&#xA;  real wages; it lifts people out of poverty and allows them to focus on&#xA;  efforts beyond mere survival.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I thought I was naive so I asked google why productivity was &lt;em&gt;always&lt;/em&gt; good in economics and this is &quot;google's answer.&quot;  Does economics really assume that whatever work a human does, doing it less and something else more is always better for them?&lt;/p&gt;&#xA;" OwnerUserId="24081" LastActivityDate="2019-08-24T14:10:13.830" Title="Why is increased productivity infinitely good" Tags="&lt;productivity&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="30642" PostTypeId="1" CreationDate="2019-08-24T12:47:32.223" Score="0" ViewCount="30" Body="&lt;p&gt;I have the following equation:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\mu =\left [s_{\pi }-v(s_{\pi }-s_{W})+\zeta   \right ]$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And I have to derive its growth rate, which is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\dot \mu =-\frac{v}{\mu } (s_{\pi }-s_{W})\dot v$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Do you have any idea about the approach to follow? Thank you so much :)&lt;/p&gt;&#xA;" OwnerUserId="19586" LastActivityDate="2019-08-24T16:14:54.033" Title="Derive the growth rate of an equation" Tags="&lt;macroeconomics&gt;&lt;mathematical-economics&gt;&lt;economic-growth&gt;&lt;linear-algebra&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30643" PostTypeId="1" AcceptedAnswerId="30644" CreationDate="2019-08-24T13:09:56.463" Score="0" ViewCount="43" Body="&lt;p&gt;Following off the back of this question on debt-to-GDP vs. debt held by public-to-GDP - &lt;a href=&quot;https://economics.stackexchange.com/questions/15240/difference-between-debt-held-by-the-public-and-total-public-debt-outstanding&quot;&gt;Difference between &amp;quot;Debt Held by the Public&amp;quot; and &amp;quot;Total Public Debt Outstanding&amp;quot;?&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So in principle, the difference is that with debt held by public-to-GDP, treasuries that are owned by government agencies are not included in the statistic, but could somebody please provide some more detail on this?&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;What sort of government agencies are we talking about?&lt;/li&gt;&#xA;&lt;li&gt;Is the debt that they hold financed by the agencies allocation from the government budget?&lt;/li&gt;&#xA;&lt;li&gt;Or is the debt that these agencies hold financed by more debt?&lt;/li&gt;&#xA;&lt;li&gt;Which of the two statistics are generally considered to be more important?&lt;/li&gt;&#xA;&lt;li&gt;What is the point in government agencies lending the government money?&lt;/li&gt;&#xA;&lt;li&gt;What is the point in government agencies receiving interest payments from the government?&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Some of these questions are probably quite broad, but hopefully someone can shed some more detail on this topic.&lt;/p&gt;&#xA;" OwnerUserId="23988" LastActivityDate="2019-08-24T14:02:35.777" Title="Debt Held By The Public" Tags="&lt;gdp&gt;&lt;government-debt&gt;&lt;debt&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30644" PostTypeId="2" ParentId="30643" CreationDate="2019-08-24T14:02:35.777" Score="0" Body="&lt;p&gt;A down-to-earth explanation (including why) that I found: &lt;a href=&quot;https://www.thebalance.com/who-owns-the-u-s-national-debt-3306124&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.thebalance.com/who-owns-the-u-s-national-debt-3306124&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;FRED blogs are also helpful.&lt;/p&gt;&#xA;" OwnerUserId="24082" LastActivityDate="2019-08-24T14:02:35.777" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30645" PostTypeId="2" ParentId="30641" CreationDate="2019-08-24T14:10:13.830" Score="2" Body="&lt;p&gt;Productivity gains either allow to produce more with constant inputs, or to produce the same amount as before with fewer inputs. It is to individuals and firms to decide what to do do with productivity gains. In a market economy, the price and wage &#xA;adjustments induced by productivity changes help individuals to decide whether to work less or more, to invest and hire more employees, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Usually productivity gains do not fall from heaven, firms and individuals have to pay for it (R&amp;amp;D, organizational change, etc) so it is not necessarily good, it is however welfare &#xA;improving if the price paid to achieve productivity gains does not increase the benefits (private or public). How costs and benefits from productivity changes are shared &#xA;in order to promote both equity and further productivity gains is a challenging societal and political issue.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Contrary to the claim of your citation, productivity gains do not systematically increase wages, it depends on the technology and the structure of the commodity and labour market.&lt;/p&gt;&#xA;" OwnerUserId="20576" LastActivityDate="2019-08-24T14:10:13.830" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30646" PostTypeId="1" AcceptedAnswerId="30655" CreationDate="2019-08-24T14:26:28.647" Score="3" ViewCount="1546" Body="&lt;p&gt;How can I derive Hicksian demand, when from the FOC I only get &lt;span class=&quot;math-container&quot;&gt;$\frac{p_x}{p_y} = \frac13$&lt;/span&gt; without the usual x &amp;amp; y. So they cannot be derived directly from FOC, but if I plug the price relation into the budget constraint &lt;span class=&quot;math-container&quot;&gt;$I =p_x \cdot x + p_y \cdot y$&lt;/span&gt; I get the income in the demand function, so this is Marshallian demand. Plugging the relation in expenditure function, obtained from the indirect utility function also doesn't lead to the Hicksian demand (that I obtained via Shephard's lemma and equals &lt;span class=&quot;math-container&quot;&gt;$h_x = U + x + 3y$&lt;/span&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem is to minimize&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$p_x \cdot x + p_y \cdot y \qquad\text{s.t.}\qquad x + 3y ≥ U$$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="23896" LastEditorUserId="23896" LastEditDate="2019-08-25T08:03:26.917" LastActivityDate="2019-08-26T12:02:24.980" Title="How to derive Hicksian demand?" Tags="&lt;microeconomics&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30648" PostTypeId="2" ParentId="30630" CreationDate="2019-08-24T15:46:56.717" Score="1" Body="&lt;p&gt;Your first paragraph, except the last part of the sentence, is the statement of covered interest rate parity (CIP), which holds perfectly if not absolutely, except after the 2008 financial crisis (See &lt;a href=&quot;https://onlinelibrary.wiley.com/doi/abs/10.1111/jofi.12620&quot; rel=&quot;nofollow noreferrer&quot;&gt;this paper&lt;/a&gt;). However, in the last part of the sentence, if you use forward exchange rate to represent expected future exchange rate, this is where the uncovered interest rate parity comes in, which does not hold according to many papers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;About your second paragraph, the confusion arises from the benchmark that you want to compare. According to CIP, if the domestic interest rate is higher than foreign interest rate, then the spot exchange rate is less than the forward exchange rate (in domestic currency per foreign currency). In other words, if you use forward rate to represent expected future exchange rate, you expect that the domestic currency will depreciate and the foreign currency will appreciate. In this case, you are comparing &lt;strong&gt;spot rate&lt;/strong&gt; and &lt;strong&gt;forward rate&lt;/strong&gt; &lt;strong&gt;at the same point in time&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If, suddenly and unexpectedly, the domestic central bank raises interest rate, immediately you will observe a sharp drop in the spot rate (in domestic currency per foreign currency). So if you compare the &lt;strong&gt;spot rates before and after&lt;/strong&gt; raising the interest rate, you find that the domestic currency appreciate. However, whether you stand at the time before or after raising the interest rate, you always observe that the spot rate is less than the forward rate (in domestic currency per foreign currency) as long as the domestic interest rate is greater than the foreign interest rate.&lt;/p&gt;&#xA;" OwnerUserId="17831" LastActivityDate="2019-08-24T15:46:56.717" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30649" PostTypeId="2" ParentId="30642" CreationDate="2019-08-24T16:14:54.033" Score="2" Body="&lt;p&gt;First, note that the growth rate of &lt;span class=&quot;math-container&quot;&gt;$\mu$&lt;/span&gt; is defined as &lt;span class=&quot;math-container&quot;&gt;$\dot\mu = \frac{ d\mu }{ \mu }$&lt;/span&gt;. Therefore, you will have to&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;take the total differential of the equation; and&lt;/li&gt;&#xA;&lt;li&gt;divide by &lt;span class=&quot;math-container&quot;&gt;$\mu$&lt;/span&gt;.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;For the first step, as in &lt;a href=&quot;https://economics.stackexchange.com/questions/30635/hep-with-total-differentiation-of-an-ad-function&quot;&gt;your previous question&lt;/a&gt;, simply use the rules of total differentials, specifically the product rule that states that for variables &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt;, the total differential of &lt;span class=&quot;math-container&quot;&gt;$XY$&lt;/span&gt; is given by&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$d(XY) = Y \, dX + X \, dY$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assuming that &lt;span class=&quot;math-container&quot;&gt;$s_\pi$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$s_W$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\zeta$&lt;/span&gt; are (constant) parameters (so that by the constant rule, &lt;span class=&quot;math-container&quot;&gt;$ds_\pi = ds_W = d\zeta = 0$&lt;/span&gt;), we can apply this to your equation:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\begin{align}&#xA;d\mu &amp;amp; = d \left[ s_\pi - v (s_\pi - s_W) + \zeta \right] \\&#xA;&amp;amp; = ds_\pi - d \left[ v (s_\pi - s_W) \right] + d\zeta \\&#xA;&amp;amp; = -\left[ (s_\pi - s_W) \, dv + v \, d(s_\pi - s_W) \right] \\&#xA;&amp;amp; = -(s_\pi - s_W) \, dv&#xA;\end{align}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now divide both sides by &lt;span class=&quot;math-container&quot;&gt;$\mu$&lt;/span&gt;, noting that since &lt;span class=&quot;math-container&quot;&gt;$\dot v = \frac{ dv }v$&lt;/span&gt;, we also have &lt;span class=&quot;math-container&quot;&gt;$dv = v \dot v$&lt;/span&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\begin{align}&#xA;\dot\mu = \frac{ d\mu }\mu &amp;amp; = -\frac{ dv }\mu (s_\pi - s_W) \\&#xA;&amp;amp; = -\frac v\mu (s_\pi - s_W) \dot v&#xA;\end{align}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which is the desired result. As before, see  chapter 8 of Chiang and Wainwright, &lt;em&gt;Fundamental Methods of Mathematical Economics&lt;/em&gt;, 4th ed., McGraw-Hill 2005, for more on total differentials. Alternatively, see &lt;a href=&quot;https://economics.stackexchange.com/questions/30639/rules-of-total-differentials&quot;&gt;this Q&amp;amp;A post of mine&lt;/a&gt; explaining the rules of total differentials and showing another example of how to apply them to an equation.&lt;/p&gt;&#xA;" OwnerUserId="20644" LastActivityDate="2019-08-24T16:14:54.033" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30650" PostTypeId="1" AcceptedAnswerId="30678" CreationDate="2019-08-24T19:18:19.593" Score="1" ViewCount="54" Body="&lt;p&gt;There are negative interest rates now and into the foreseeable future. This must mean there is too much money being offered compared to the demand for loans. Fractional banking acts as a multiplier on the money available for loan takers, so it drives up the supply. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this extreme situation, perhaps it would be a good idea to gradually phase out fractional banking and return to a simpler and less risky economy. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What would happen to the economy if fractional banking was gradually abolished?&lt;/p&gt;&#xA;" OwnerUserId="23513" LastActivityDate="2019-08-26T22:42:53.247" Title="What would happen if fractional banking was phased out?" Tags="&lt;macroeconomics&gt;&lt;interest-rate&gt;&lt;banking&gt;" AnswerCount="1" CommentCount="0" ClosedDate="2019-08-31T03:03:48.380" ContentLicense="CC BY-SA 4.0" />
  <row Id="30651" PostTypeId="2" ParentId="30601" CreationDate="2019-08-24T20:11:05.933" Score="2" Body="&lt;p&gt;The set &lt;span class=&quot;math-container&quot;&gt;$Q^*$&lt;/span&gt; is the set of probability distributions over the maximizers of &lt;span class=&quot;math-container&quot;&gt;$u$&lt;/span&gt; for each value of &lt;span class=&quot;math-container&quot;&gt;$v$&lt;/span&gt;. So for a fixed &lt;span class=&quot;math-container&quot;&gt;$v$&lt;/span&gt; all the values of &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt; that have positive probability must give the same utility. That is, if &lt;span class=&quot;math-container&quot;&gt;$P_Y(y|v)&amp;gt;0$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$P_Y(y'|v)&amp;gt;0$&lt;/span&gt; then &lt;span class=&quot;math-container&quot;&gt;$u(y,v)=u(y',v)\geq u(\tilde y,v)$&lt;/span&gt; for all &lt;span class=&quot;math-container&quot;&gt;$\tilde y\neq y, y'$&lt;/span&gt;. Therefore, convex combinations of elements in &lt;span class=&quot;math-container&quot;&gt;$Q^*$&lt;/span&gt; must also be collections of probability distributions &lt;span class=&quot;math-container&quot;&gt;$P_{Y|V}$&lt;/span&gt; supported over the same elements in &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt;. That is, the convex combination will also be supported over maximizers of &lt;span class=&quot;math-container&quot;&gt;$u$&lt;/span&gt; for each &lt;span class=&quot;math-container&quot;&gt;$v$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In conclusion, even though the set of maximizers is not guaranteed to be convex, the set &lt;span class=&quot;math-container&quot;&gt;$Q^*$&lt;/span&gt;, of distributions, is a convex set. &lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-08-24T20:11:05.933" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30652" PostTypeId="1" AcceptedAnswerId="30658" CreationDate="2019-08-24T21:13:03.553" Score="1" ViewCount="16" Body="&lt;p&gt;I get the general implications that exist for both US-Chinese exports/imports. However, considering that some currencies are pegged to the USD, would there be any effect and if so what?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks&lt;/p&gt;&#xA;" OwnerUserId="24087" LastActivityDate="2019-08-25T16:36:11.953" Title="Implications for currencies pegged to USD of Chinese devaluation?" Tags="&lt;usa&gt;&lt;china&gt;" AnswerCount="1" CommentCount="0" ClosedDate="2019-09-06T10:54:44.537" ContentLicense="CC BY-SA 4.0" />
  <row Id="30653" PostTypeId="1" CreationDate="2019-08-25T01:59:54.333" Score="1" ViewCount="44" Body="&lt;p&gt;Inflation has been a challenging aspect &#xA;of policymaking. In such situations growth in &#xA;the income levels of the population living below &#xA;the poverty level can never be measured &#xA;accurately (due to higher infation poverty section will &#xA;show higher income) . My question is: Due to higher inflation why cannot we measure growth in the income levels of the population living below poverty line accurately? &lt;img src=&quot;https://i.stack.imgur.com/Txg2P.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;" OwnerUserId="24078" LastEditorUserId="24078" LastEditDate="2019-08-25T07:54:42.620" LastActivityDate="2019-08-27T01:27:57.903" Title="Can't we measure the growth in the income levels of poor?" Tags="&lt;macroeconomics&gt;&lt;inflation&gt;&lt;gdp&gt;&lt;economic-growth&gt;&lt;national-income&gt;" AnswerCount="1" CommentCount="6" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30654" PostTypeId="2" ParentId="27481" CreationDate="2019-08-25T10:05:11.503" Score="0" Body="&lt;p&gt;Each army general has 4 actions to take (or pure strategies) &lt;span class=&quot;math-container&quot;&gt;$(A,A), (A,NA), (NA,A), (NA,NA)$&lt;/span&gt;. So, construct a &lt;span class=&quot;math-container&quot;&gt;$4 \times 4$&lt;/span&gt; matrix and calculate the payoffs for each case. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Say, we have &lt;span class=&quot;math-container&quot;&gt;$\textbf{(A,NA)}$&lt;/span&gt; as army 1's strategy and &lt;span class=&quot;math-container&quot;&gt;$\textbf{(A,A)}$&lt;/span&gt; as army 2's strategy, it means, Army 1 attacks (&lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt;) when it is of type &quot;Strong&quot; and does not attack (&lt;span class=&quot;math-container&quot;&gt;$NA$&lt;/span&gt;) when it is of type &quot;Weak&quot;. Similarly, Army 2 attacks (&lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt;) in both types in this case. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The payoffs, in this case, are calculated as below:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The payoff for Army 1 = &#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;\frac{1}{4}* \{Strong Army1 (A) \textrm{vs} Strong Army 2 (A)\} + \frac{1}{4}\{Strong Army1 (A) \textrm{vs} Weak Army 2 (A)\}+\frac{1}{4}* \{Weak Army1 (NA) \textrm{vs} Strong Army 2 (A)\}+\frac{1}{4}* \{Weak Army1 (NA) \textrm{vs} Weak Army 2 (A)\}&#xA;\end{equation}&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;=\frac{1}{4}*(-6)+\frac{1}{4}*(10-6)+\frac{1}{4}*(0)+\frac{1}{4}*(0)&#xA;=\frac{-1}{2}&#xA;\end{equation}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That is the payoff for Army 1 in one &lt;span class=&quot;math-container&quot;&gt;$(A,NA),(A,A)$&lt;/span&gt; of the 16 cases. Calculate all the payoffs and then solve for BNE just like you solve for NE solution in a normal form game.&lt;/p&gt;&#xA;" OwnerUserId="16222" LastActivityDate="2019-08-25T10:05:11.503" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30655" PostTypeId="2" ParentId="30646" CreationDate="2019-08-25T10:48:02.157" Score="4" Body="&lt;p&gt;Expenditure minimization problem in the question is as follows :&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{eqnarray*} \min_{x\geq 0, y\geq 0} &amp;amp; \ \ p_Xx + p_Yy \\ \text{s.t.}&amp;amp; \ \ x + 3y \geq U \end{eqnarray*}&lt;/span&gt;&#xA;where &lt;span class=&quot;math-container&quot;&gt;$p_X &amp;gt; 0$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$p_Y &amp;gt; 0$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$U \geq 0$&lt;/span&gt; are given.&#xA;Since prices are positive, the cost minimizing choice will satisfy the condition that &lt;span class=&quot;math-container&quot;&gt;$x + 3y = U$&lt;/span&gt;. So, we can rewrite the above problem as :&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{eqnarray*} \min_{x\geq 0, y\geq 0} &amp;amp; \ \ p_Xx + p_Yy \\ \text{s.t.}&amp;amp; \ \ x + 3y = U \end{eqnarray*}&lt;/span&gt;&#xA;We can now substitute the value of &lt;span class=&quot;math-container&quot;&gt;$y = \frac{U-x}{3}$&lt;/span&gt; in the objective and rewrite the problem as :&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{eqnarray*} \min_{0 \leq x \leq U} &amp;amp; \ \ p_Xx + p_Y\left(\dfrac{U-x}{3}\right)  \end{eqnarray*}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since the objective &lt;span class=&quot;math-container&quot;&gt;${\color{red} {p_Xx + p_Y\left(\frac{U-x}{3}\right) =\frac{p_YU}{3} + \left(p_X- \frac{p_Y}{3}\right)x }}$&lt;/span&gt;  is linear in &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;, solution is straight forward :&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{eqnarray*} x^h(p_X, p_Y, U)  \begin{cases} = U &amp;amp; \text{if } p_X &amp;lt; \frac{p_Y}{3} \\ \in [0, U] &amp;amp; \text{if } p_X = \frac{p_Y}{3} \\ = 0 &amp;amp; \text{if } p_X &amp;gt; \frac{p_Y}{3}\end{cases} \end{eqnarray*}&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="11824" LastActivityDate="2019-08-25T10:48:02.157" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30656" PostTypeId="1" AcceptedAnswerId="30676" CreationDate="2019-08-25T11:08:44.650" Score="2" ViewCount="66" Body="&lt;p&gt;Suppose a wealth index is computed using information on a set of 14 assets that a household possesses.&#xA; The index is generated using principal components, as the 14 individual asset variables are highly&#xA;collinear. A OLS regression of education expenditures (in Rupees per household) on the wealth&#xA; index yields a coefficient of 0.4.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is harder to interpret coefficients principal components in terms of original regressors. But can I interpret wealth index as its own ie can I say - increase in wealth index by a score of 1 will increase education expenditure by 0.4?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there any alternative&#xA; formulation of doing this exercise that may be preferred?  &lt;/p&gt;&#xA;" OwnerUserId="18929" LastActivityDate="2019-08-26T21:35:49.640" Title="Principal component analysis interpretation" Tags="&lt;econometrics&gt;&lt;regression&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30658" PostTypeId="2" ParentId="30652" CreationDate="2019-08-25T16:30:41.473" Score="0" Body="&lt;p&gt;Let's take Lebanon as a country that pegs to the USD and examine the implications of Chinese devaluation on Lebanese imports and exports.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First step is to recognize that what matters for the trade balance is the &lt;strong&gt;real exchange rate&lt;/strong&gt;, not the nominal exchange rate. We need to examine the nominal exchange interrelationships first. The second step is to examine the inflation differential, under different hypothetical scenarios.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Nominal Exchange Rates&lt;/strong&gt;: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Since the Lebanese pound is pegged to the USD, if China devalues their currency and exchange rate used to be 100 Renminbi for 1 USD, now 120 Renminbi for 1 USD, by definition (of devaluation and peg) the nominal exchange rate between China and USA will change, but the nominal exchange rate between USA and Lebanon will not.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Inflation&lt;/strong&gt;: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Assuming zero inflation, for simplicity, in all 3 countries, then the&#xA;Chinese goods and services will now look cheaper to Americans and&#xA;cheaper to Lebanese. In turn, American and Lebanese imports will now&#xA;look more expensive to Chinese people.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Assuming China has a 30% inflation rate, while USA and Lebanon have 0&#xA;inflation rate, then the fact that the inflation rate differential&#xA;between China and USA is 30%, while the Chinese nominal exchange rate&#xA;was devalued by only 20%, implies that in real terms, the Chinese currency (relative to both the USD and Lebanese Pound) has&#xA;actually appreciated by approximately 10%=30%-20%, leading to Chinese exports looking more&#xA;expensive to Americans and Lebanese, and American and Lebanese&#xA;imports looking cheaper to the Chinese.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;Assuming US inflation rate to be zero, and Chinese inflation rate to be 30% while Lebanese inflation rate to be 5%, we are in a situation where the Chinese currency was devalued, as before, by 20% but the inflation differential (25%=30%-5%) overwhelms the devaluation (25%&gt;20%) hence the Chinese Renminbi has actually appreciated 5% relative to the Lebanese pound, rendering Chinese exports more expensive for Lebanese people. Lebanese exports will now look cheaper to Chinese people.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="20425" LastEditorUserId="20425" LastEditDate="2019-08-25T16:36:11.953" LastActivityDate="2019-08-25T16:36:11.953" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30659" PostTypeId="1" CreationDate="2019-08-25T20:22:35.687" Score="7" ViewCount="139" Body="&lt;p&gt;Though behavioural economics has been popularized over the past decade in both industry and pop culture, it seems that not much has changed with regard to the standard economic definition of  rationality. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is because for the most part (in my view and experience with my professors) it seems to have been irrelevant or unconvincing for the game theorists who deal with very similar theory to the behavioural economists. This is where a &quot;super-micro&quot; theory of consumer and prodoucer behaviour is generated and analysis takes place.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now im not a huge fan of behavioural economics, but points like discontinous time preferences and prospect theory are useful for adding a degree of realism to models. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This all being said, (except for a few articles on behavioural game theory) why has a large chunk of young game theorists decided to stay away from &quot;behavioural&quot; elements? &lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="8815" LastEditDate="2019-08-25T23:15:34.913" LastActivityDate="2020-12-19T14:59:58.880" Title="What do game theorists think of behavioural economics?" Tags="&lt;microeconomics&gt;&lt;game-theory&gt;&lt;behavioral-economics&gt;&lt;soft-question&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="30660" PostTypeId="1" AcceptedAnswerId="30661" CreationDate="2019-08-25T22:47:54.790" Score="1" ViewCount="43" Body="&lt;p&gt;Someone was saying: &quot;Why is credit so important? Because when a borrower receives credit (loan), he's able to increase spending. Spending drives the economy. This is because one person's spending is another person's income &quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think he didn't look at the lender's prospective. When a lender gives his money to someone else, his spending will decrease. So the economy is balanced and this will not drive the economy. The same amount is spent just by a different person. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Am I right?  What am I missing? &lt;/p&gt;&#xA;" OwnerUserId="24038" LastActivityDate="2019-08-25T23:07:07.393" Title="Why do loans drive the economy?" Tags="&lt;credit&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30661" PostTypeId="2" ParentId="30660" CreationDate="2019-08-25T23:07:07.393" Score="2" Body="&lt;p&gt;The lender is typically supplying loanable funds in the form of ‘savings’. I.e. money she wouldn’t spend until a future date. But the market for loanable funds allows one to earn interest on these savings rather than laying dormant (think about when people would store money under their mattresses). So, with this surplus of funds, another can make use of these funds (for a price, interest) and increase the amount of spending they themselves do. Hence, the total amount of spending would increase because if that person hadn’t borrowed money to increase their spending, the money would sit in savings.&lt;/p&gt;&#xA;" OwnerUserId="23546" LastActivityDate="2019-08-25T23:07:07.393" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30662" PostTypeId="1" CreationDate="2019-08-25T23:27:46.360" Score="0" ViewCount="16" Body="&lt;p&gt;Here 1) dwindles means reduce, smaller. Here is my doubt: If inflation fluctuates how can we use the word 'dwindles', what it means here? 2) Why the growth rate during inflation not measured in poor sections and poverty alleviation programs?&lt;img src=&quot;https://i.stack.imgur.com/jJhqV.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;" OwnerUserId="24078" LastActivityDate="2019-08-25T23:27:46.360" Title="Why growth of national income in current prices during inflation not measured in poor sections and poverty alleviation programs?" Tags="&lt;macroeconomics&gt;&lt;inflation&gt;&lt;gdp&gt;&lt;economic-growth&gt;&lt;national-income&gt;" AnswerCount="0" CommentCount="7" ContentLicense="CC BY-SA 4.0" />
  <row Id="30663" PostTypeId="1" AcceptedAnswerId="30667" CreationDate="2019-08-26T01:37:46.600" Score="1" ViewCount="169" Body="&lt;p&gt;I learned that inflation can be a result of more loans or debt. When there are too much borrowers in the country, people will have more money to spend and the amount of products is the same so prices will increase. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This does not make sense to me because for each new borrower, there is a new lender. Number of borrowers equals the number of lenders. So, when someone has more money to spend, the lender has less to spend. What can cause inflation? &lt;/p&gt;&#xA;" OwnerUserId="24038" LastEditorUserId="8387" LastEditDate="2019-08-26T09:59:42.400" LastActivityDate="2019-08-26T09:59:42.400" Title="Why loans/debt can cause inflation?" Tags="&lt;inflation&gt;&lt;interest-rate&gt;&lt;credit&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30664" PostTypeId="1" CreationDate="2019-08-26T04:02:11.160" Score="1" ViewCount="17" Body="&lt;p&gt;If one commodity has a higher stock-to-flow ratio than another, what does this market signal tell us about that commodity?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If it makes a difference, I'm talking about when this is a long-term phenomenon, rather than a short-term situation.&lt;/p&gt;&#xA;" OwnerUserId="24092" LastActivityDate="2019-08-26T04:02:11.160" Title="What can we infer when a commodity has a high stock-to-flow ratio?" Tags="&lt;commodities&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30666" PostTypeId="1" AcceptedAnswerId="33250" CreationDate="2019-08-26T08:08:02.007" Score="0" ViewCount="33" Body="&lt;p&gt;I am a bit confused about foreign exchange reserves.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I was reading this website (&lt;a href=&quot;https://www.thebalance.com/foreign-exchange-reserves-3306258#targetText=Foreign%20exchange%20reserves%20are%20the,to%20manage%20their%20currencies&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.thebalance.com/foreign-exchange-reserves-3306258#targetText=Foreign%20exchange%20reserves%20are%20the,to%20manage%20their%20currencies&lt;/a&gt;'%20values) which talks about the export money, banks and the central bank.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So when exporters from a country (let's say from Australia) recieve money (let's say USD), does that money go to a local bank? If so, does the local bank convert the money into AUD, or does the money go to the central bank which converts it into AUD? And does the overseas money just sit there in the reserve bank? Sorry if this is confusing.&lt;/p&gt;&#xA;" OwnerUserId="23031" LastEditorUserId="23031" LastEditDate="2019-08-26T09:18:36.863" LastActivityDate="2019-12-13T10:35:06.267" Title="Where does overseas money from exports go?" Tags="&lt;international-trade&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30667" PostTypeId="2" ParentId="30663" CreationDate="2019-08-26T08:22:08.707" Score="2" Body="&lt;p&gt;Imagine an economy with only one good, tomatoes, and three people, Lender, Borrower, and Owner. Owner owns all tomatoes. Lender owns all the money. And Borrower owns nothing. If Lender doesn't lend any money to Borrower and Lender doesn't purchase any tomatoes, the price of tomatoes is 0 as there is no demand. When Lender loans Borrower some money and Borrower uses that to purchase tomatoes, the price of tomatoes will rise - inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So how is this situation different than if Lender just bought the tomatoes themselves instead of loaning money to Borrower? First, the Lender is often not in the same position as the Borrower: money owned by the Lender is less likely to be immediately spent than if the Borrower held it and thus the velocity of that money will differ - after all, the Borrower is probably borrowing for a reason. Second, often times because of fractional reserve banking, the amount loaned to Borrower is more than what Lender has in reserve: in other words, more credit is created and if there is more credit chasing a fixed number of goods, price increases will follow.&lt;/p&gt;&#xA;" OwnerUserId="8387" LastActivityDate="2019-08-26T08:22:08.707" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30669" PostTypeId="2" ParentId="30620" CreationDate="2019-08-26T09:56:35.373" Score="2" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;So hyperinflation should be demand-pull right? &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The Weimar Republic in the 1920s is the classic example of hyperinflation. An oversimplified summary is that the Weimar Republic had to pay reparations that was way beyond what its economy could support: to put it differently, forced exports led to a heavily increased AD. And so this is a case of primarily demand-pull. In general, many hyperinflations start because of expenditure increases due to war, reparations, or poor government spending. I couldn't find a clear cut primarily cost-push hyperinflation trigger but it is theoretically possible to construct such an situation: stop all production of goods and services by raising the minimum wage to infinity and taxing inputs to infinity. Of course, probably a black market will just result. Once hyperinflation sets in, supply can often collapse as people stop investing in productive assets, so both demand-pull and cost-push apply.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;strong credible fiscal policy can hyperinflation be fixed, but I don’t understand what it means. Does it mean that monetary policy is useless when it comes to hyperinflation? And does it mean that the solution to hyperinflation is “contractionary fiscal policy” or “expansionary fiscal policy?”&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;You could trivially create hyperinflation by just unnecessarily printing increasing quantities of money. In this case, trivially adjusting your monetary policy to simply stop printing money is the solution. But it is important to remember that states almost never just print money for the sake of printing money: it is often a last choice that are forced to do to make some kind of payment (reparations, war, etc). And so the ideal solution is to stop the cause behind those payments, which is usually impossible. This would indeed be technically under the definition of contractionary fiscal policy. But to use the phrasing &quot;contractionary fiscal policy is the solution&quot; probably doesn't convey the severity of the situation: for example, case by case descriptions such as diplomacy (begging reparations to be reduced as in the case of the Weimar Republic) or ending the Second Congo War and self-dealing (in the case of Zimbabwe) will probably be more appropriate.&lt;/p&gt;&#xA;" OwnerUserId="8387" LastActivityDate="2019-08-26T09:56:35.373" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30670" PostTypeId="1" AcceptedAnswerId="30675" CreationDate="2019-08-26T10:28:00.023" Score="2" ViewCount="71" Body="&lt;p&gt;If a country wants to devalue their countries, why does buying more of a foreign countries currency devalue their currency?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I was reading the top answer from this question &lt;a href=&quot;https://economics.stackexchange.com/questions/6875/how-does-a-country-devalue-its-currency&quot;&gt;How does a country devalue its currency?&lt;/a&gt; and it states that buying more of a foreign currency will increase the supply of the yuan. Why and how is that?&lt;/p&gt;&#xA;" OwnerUserId="23031" LastEditorUserId="23031" LastEditDate="2019-08-26T10:37:36.637" LastActivityDate="2019-08-27T09:41:14.083" Title="How does buying more of a foreign currency devalue a nation's currency?" Tags="&lt;interest-rate&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30671" PostTypeId="2" ParentId="30646" CreationDate="2019-08-26T12:02:24.980" Score="2" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/HgRQn.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/HgRQn.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To start with, plot the line for which &lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;x + 3y = U&#xA;\end{equation}&lt;/span&gt;&#xA;The red line in the graph above is this line. For simplicity, I've assumed U = 9 in this case but the solution would work for any U &gt; 0. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The region to the right of this line would satisfy your constraint but since we are interested in minimising our cost, we would want our budget line to intersect this particular line.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Case 1:&lt;/em&gt; The budget line is flatter (black line) as compared to the constraint line, i.e. Px/Py &amp;lt; 1/3. To minimise cost, the line should be such that it intersects the constraint line at the right corner where x = U.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Case 2:&lt;/em&gt; The budget line is steeper (purple line) as compared to the constraint line, i.e, Px/Py &gt; 1/3. To minimise cost, the line should be such that it intersects the constraint line at the left corner where x = 0.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Case 3:&lt;/em&gt; If the slope of the budget line is equal to the slope of the constraint line, i.e. if Px/Py = 1/3, any point on the constraint line would be a solution point. x can vary anywhere from 0 to U. &lt;/p&gt;&#xA;" OwnerUserId="24009" LastActivityDate="2019-08-26T12:02:24.980" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30672" PostTypeId="1" CreationDate="2019-08-26T12:23:29.600" Score="2" ViewCount="61" Body="&lt;p&gt;I'm currently analyzing the relationship between stock, bonds, and real estate returns in Germany. I've gathered my data and am planning on estimating this equation:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\sigma_t = \beta_0 + \beta_1 R_{t+} + \beta_2 R_{t-} + y_t$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;through a GARCH model. In the article where I found equation 1 (Chan and Chang, 2014), they&#xA;    have delineted the parameters as so: &lt;span class=&quot;math-container&quot;&gt;$R_{t+}= \max [0, R_t]$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$R_{t–} = \min&#xA;[0, R_t]$&lt;/span&gt;, and &lt;span class=&quot;math-container&quot;&gt;$R_t$&lt;/span&gt; is the monthly return of stock, bond, or real&#xA;    estate. We use a three-month rolling return to calculate the&#xA;    standard deviation of the return.&quot; Does this mean they use the Max&#xA;    and Min of the series as parameters or the Max and Min of each&#xA;    rolling average across the series?&lt;/p&gt;&#xA;" OwnerUserId="21633" LastEditorUserId="1601" LastEditDate="2019-08-26T15:41:38.227" LastActivityDate="2021-05-23T23:07:15.650" Title="Data analysis with GARCH modeling" Tags="&lt;econometrics&gt;&lt;finance&gt;&lt;time-series&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30673" PostTypeId="2" ParentId="30670" CreationDate="2019-08-26T15:04:12.137" Score="0" Body="&lt;p&gt;In easy words it will increase the supply of the currency in the international market and thus devaluation will happen because demand will be same.&#xA;International market is a free trade economy where currencies value change because of the forces of supply and demand&lt;/p&gt;&#xA;" OwnerUserId="24100" LastActivityDate="2019-08-26T15:04:12.137" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30674" PostTypeId="1" CreationDate="2019-08-26T15:24:08.570" Score="1" ViewCount="17" Body="&lt;p&gt;I am analyzing three time series returns for stocks, bonds and real estate, and have done prelimanary tests including Engle's ARCH test which came back as not rejecting the null hypothesis. IF there are no ARCH effects can I still use GARCH modeling?&lt;/p&gt;&#xA;" OwnerUserId="21633" LastActivityDate="2019-08-26T15:24:08.570" Title="GARCH data modeling" Tags="&lt;econometrics&gt;&lt;finance&gt;&lt;time-series&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30675" PostTypeId="2" ParentId="30670" CreationDate="2019-08-26T20:40:43.910" Score="2" Body="&lt;p&gt;Simply because buying country A's currency priced in country B's currency means selling country B's currency.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Simplified but not simplistic example&lt;/em&gt;: say that you have 80¥ and want to buy 10€. When buying/demanding these 10€, you will actually simultaneoualy also sell 80¥ i.e. by doing so you become a supplier of (€-priced) yuans. And because selling an asset generally exerts a downward pressure on its price, the price of 1¥ expressed in euros will decrease. Hence the explanation you read.&lt;/p&gt;&#xA;" OwnerUserId="10247" LastEditorUserId="10247" LastEditDate="2019-08-27T09:41:14.083" LastActivityDate="2019-08-27T09:41:14.083" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="30676" PostTypeId="2" ParentId="30656" CreationDate="2019-08-26T21:25:37.467" Score="2" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;It is harder to interpret coefficients principal components in terms of original regressors.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Indeed, since you are now dealing with components, you can't. That being said, if your original regressors are highly colinear and all capturing wealth-related phenomena, a possibility is that your first component is still somehow strongly related to wealth, and other components only controling for phenomena that are &lt;em&gt;not related to wealth at all&lt;/em&gt;. Put differently, you could &lt;a href=&quot;https://en.m.wikipedia.org/wiki/Dimensionality_reduction&quot; rel=&quot;nofollow noreferrer&quot;&gt;reduce the dimensionality&lt;/a&gt; of your problem to this unique first component, and maintain your interpretation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But do not take what i am saying for granted: if you really want to know how abusive maintaining your economic interpretations would be, it's all a matter of visualizing/diagnozing the &lt;em&gt;relative&lt;/em&gt; weights of your components, e.g. you need to check the &lt;a href=&quot;https://en.m.wikipedia.org/wiki/Eigendecomposition_of_a_matrix&quot; rel=&quot;nofollow noreferrer&quot;&gt;eigen decomposition&lt;/a&gt; of your correlation matrix.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I recommend you to read &lt;em&gt;Michael Friendly and Ernest Kwan (2009) &quot;Where's Waldo? Visualizing Collinearity Diagnostics&quot; The American Statistician, Vol. 63, No. 1 (Feb., 2009), pp. 56-65.&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, &lt;em&gt;Yoel Haitovsky (1966) &quot;A Note on Regression on Principal Components&quot;&lt;/em&gt; is very clear and concise.&lt;/p&gt;&#xA;" OwnerUserId="10247" LastEditorUserId="10247" LastEditDate="2019-08-26T21:35:49.640" LastActivityDate="2019-08-26T21:35:49.640" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30677" PostTypeId="1" CreationDate="2019-08-26T22:10:59.053" Score="3" ViewCount="397" Body="&lt;p&gt;I'm struggling to gain a broad understanding of Mean-Variance utility theory as it relates to finding the efficient frontier of a group of assets which each have some return and variance.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The typical mean-variance utility function is given by &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$U(x) = E(r) - \frac{\alpha}{2}Var(r)$&lt;/span&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;where &lt;span class=&quot;math-container&quot;&gt;$\alpha$&lt;/span&gt; is some risk aversion parameter. The generally accepted way to find the efficient frontier is to minimize the following equation (&lt;a href=&quot;https://en.wikipedia.org/wiki/Modern_portfolio_theory&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://en.wikipedia.org/wiki/Modern_portfolio_theory&lt;/a&gt;):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$Var(r) - q E(r)$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where, here, &lt;span class=&quot;math-container&quot;&gt;$q$&lt;/span&gt; is a risk tolerance parameter - increasing the value of &lt;span class=&quot;math-container&quot;&gt;$q$&lt;/span&gt; pushes us out onto the frontier. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;At first, I thought that the equation to be minimized was just the negative of the utility function, but the negative of the utility function is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$-U(x) = \frac{\alpha}{2}Var(r) - E(r)$&lt;/span&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand that the &lt;span class=&quot;math-container&quot;&gt;$\frac{1}{2}$&lt;/span&gt; is simply a quadratic programming construct, but I don't know how we can change the risk aversion parameter, &lt;span class=&quot;math-container&quot;&gt;$\alpha$&lt;/span&gt;, to a risk tolerance parameter, &lt;span class=&quot;math-container&quot;&gt;$q$&lt;/span&gt;, and slap it onto &lt;span class=&quot;math-container&quot;&gt;$E(r)$&lt;/span&gt;. This makes me think that I am missing  something significant in this framework as it relates to utility, indifference curves, and the frontier. Hoping for some clarification.&lt;/p&gt;&#xA;" OwnerUserId="24105" LastActivityDate="2019-08-26T22:10:59.053" Title="Mean Variance Optimization in a Utility Maximization Framework" Tags="&lt;utility&gt;&lt;financial-economics&gt;&lt;portfolio-theory&gt;" AnswerCount="0" CommentCount="6" FavoriteCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30678" PostTypeId="2" ParentId="30650" CreationDate="2019-08-26T22:25:27.560" Score="3" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Fractional banking acts as a multiplier on the money available for loan takers.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Actually, this is subsequently to having &lt;strong&gt;&lt;em&gt;taken&lt;/em&gt;&lt;/strong&gt; loans that the money multiplier increases from 1. Fractional banking &lt;em&gt;potentially&lt;/em&gt; increases the &quot;money supply&quot;, it does not do so &lt;em&gt;performatively&lt;/em&gt;. Incidentally this is even why, western economists are currently discussing the possibility of &lt;a href=&quot;https://www.google.com/amp/s/www.thefiscaltimes.com/2019/08/19/We-May-Need-Helicopter-Money-Next-Downturn-Report%3famp&quot; rel=&quot;nofollow noreferrer&quot;&gt;fighting the next downturn with helicopter money&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I have borrowed, say, a bike, and that I do not plan to use it during the next week, why preclude someone else from borrowing it from me? And the risk that I change my mind and need my bike during the next week is not unmanageable. Especially that the new borrower may have good opportunities to increase to collective wealth.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;What would happen to the economy if fractional banking was gradually abolished?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Resources would be suboptimally employed and we would probably enter a long period of recession. Especially that the world currently &quot;needs&quot; inflation and that credit is the main &lt;a href=&quot;https://en.m.wikipedia.org/wiki/Monetary_policy#Conventional_instrument&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;conventional&lt;/em&gt;&lt;/a&gt; inflation-engine. That being said, at some point, the entire economic system would likely synchronize with this new credit pace, finally leading the world into a new economic regime, slower, with less volatility and with &lt;a href=&quot;https://en.m.wikipedia.org/wiki/Business_cycle&quot; rel=&quot;nofollow noreferrer&quot;&gt;longer business cycles&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="10247" LastEditorUserId="10247" LastEditDate="2019-08-26T22:42:53.247" LastActivityDate="2019-08-26T22:42:53.247" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30679" PostTypeId="2" ParentId="30634" CreationDate="2019-08-26T23:02:21.993" Score="1" Body="&lt;p&gt;The word &quot;&lt;em&gt;distortion&lt;/em&gt;&quot;, (as used in e.g. the &lt;a href=&quot;https://en.m.wikipedia.org/wiki/Ramsey_problem&quot; rel=&quot;nofollow noreferrer&quot;&gt;Ramsey–Boiteux pricing&lt;/a&gt;), &lt;strong&gt;&lt;em&gt;is not&lt;/em&gt;&lt;/strong&gt; &lt;em&gt;intrinsically negative&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It simply means that people change their consumption behaviour because of changes in price(s).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, a tax on oxygen would not (and cannot)  be distortive because people have no choice but consuming oxygen.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A contrario, a tax on tabacco is distortive, and is actually precisely implemented because of this very trait: it will change the consumption behaviour of smokers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Put differently, the notion of &lt;em&gt;distortion&lt;/em&gt; is strongly related to the notion of &lt;em&gt;price elasticity&lt;/em&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, constraining markets equilibrium can generate deadweight losses, which is likely the reason why people think of the word &quot;distortion&quot; as negative. Is changing behaviour via price signals negative &lt;em&gt;per se&lt;/em&gt;? Is trying to make people quit smoking negative &lt;em&gt;per se&lt;/em&gt; ? No.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;hr&gt;&#xA;The word &quot;distortion&quot; is probably one of the most misconceived/misused notion in economic theory, especially when it is used in the political sphere. But originally it has, I repeat, no negative connotation. And I really think that this is how Mankiw uses/perceives it.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Why is price dispersion from Inflation called relative price “distortion”?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It is called so because consumption behaviors do not change if all increases of prices in the economy are of the same relative magnitude &lt;span class=&quot;math-container&quot;&gt;$\iff$&lt;/span&gt; the dispersion is null. E.g. a tax on, say, tobacco, &lt;em&gt;has to be distortive&lt;/em&gt; to be useful, i.e. it has to be greater than inflation, even if such intervention can actually generate deadweight losses.&lt;/p&gt;&#xA;" OwnerUserId="10247" LastEditorUserId="10247" LastEditDate="2019-08-31T07:31:39.547" LastActivityDate="2019-08-31T07:31:39.547" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30681" PostTypeId="2" ParentId="30653" CreationDate="2019-08-27T01:27:57.903" Score="-1" Body="&lt;p&gt;That's not specific to poor, any income increases with inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The real problem is that the poor receive goods for free (charity, squatting, rent nonpayment) so their real income can never be measured.&lt;/p&gt;&#xA;" OwnerUserId="24107" LastActivityDate="2019-08-27T01:27:57.903" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30684" PostTypeId="1" CreationDate="2019-08-27T07:18:52.553" Score="0" ViewCount="38" Body="&lt;p&gt;For emerging market governments, why is it safer to issue bonds in local currencies than in foreign currencies to raise money? Given that both are invested in by foreign investors, couldn't both potentially lead to exchange rate risk and currency fluctuations, say if there is a sell-off?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I was confused about this while reading 'Pragmatic Approaches to Capital Market Liberalization' (2008), a paper by Raghuram Rajan and Eswar Prasad. It comes up on page 13.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I tried looking at Investopedia and a Financial Times article on the topic of emerging market bonds, but they seemed to look at it from the perspective of investors and not public policy (I'm not suggesting its a tradeoff but maybe there's different perspectives, I thought).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.investopedia.com/articles/03/073003.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.investopedia.com/articles/03/073003.asp&lt;/a&gt;&#xA;&lt;a href=&quot;https://www.ft.com/content/56cb690e-c6a8-11e1-963a-00144feabdc0&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.ft.com/content/56cb690e-c6a8-11e1-963a-00144feabdc0&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you for your help! I would really appreciate if to the extent possible, the answer is in layman(ish) terms.&lt;/p&gt;&#xA;" OwnerUserId="24110" LastActivityDate="2020-05-23T15:03:20.220" Title="Local vs. foreign currency denomination for Emerging Market Bonds" Tags="&lt;exchange-rates&gt;&lt;government-debt&gt;&lt;bonds&gt;&lt;currency-exchange&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30685" PostTypeId="2" ParentId="30684" CreationDate="2019-08-27T13:17:01.707" Score="2" Body="&lt;p&gt;An EME's government collects taxes in domestic currency. If it issues debt in foreign currency and the domestic currency depreciates, the value of foreign currency-denominated debt increases. For example 1 000 000 000 USD is due at some date. If the exchange rate is 1 peso per dollar the government has to collect 1 000 000 000 pesos to pay it off. If the exchange rate becomes 1.25 pesos per dollar the domestc government has to collect 1 250 000 000 pesos. If the debt was denominated in pesos all along the government would still need only 1 000 000 000 pesos. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If debt to GDP is high such a depreciation may cause the EME government to default.&lt;/p&gt;&#xA;" OwnerUserId="23694" LastActivityDate="2019-08-27T13:17:01.707" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30686" PostTypeId="2" ParentId="30618" CreationDate="2019-08-28T02:35:58.013" Score="1" Body="&lt;p&gt;The central bank's accounts are not the same as entire country's accounts.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The foreign currency reserves statistic comes from the Reserve Bank of India, the central bank, when it discloses its account. The trade deficit is not a property of the central bank's accounts, although the central bank might have economists producing that statistic. The trade deficit is a property of the entire country in aggregate, which includes household, business, and government trade activity.&lt;/p&gt;&#xA;" OwnerUserId="6868" LastActivityDate="2019-08-28T02:35:58.013" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30689" PostTypeId="1" CreationDate="2019-08-28T07:24:04.353" Score="1" ViewCount="409" Body="&lt;p&gt;I’m aware that in basic economics class one of the explanations for the downward-sloping Aggregate Demand Curve is the wealth effect or Pigou effect, which means that as price level goes down, your perceived real wealth increases, increasing consumption. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, I got stuck when I learned that, according to my professor, &#xA;“wealth effect was created to explain why people might increase spending when price levels go down, which couldn’t be explained by the Consumption model, which is a function of disposable income only.”&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why can’t “income” explain how people might increase their consumption when prices go down? There is the “income effect” we learn in microeconomics right? It is almost the same concept as the wealth effect - that when the price of a good goes down your real income - your purchase power increases so you increase consumption of that good. Of course if you go down to the minute details income is a ‘flow’ concept and wealth being ‘stock’, so there are subtle differences, but in the end they explain the same thing - consumption increases when prices go down, because your real wealth or real disposable income increases. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So my main question is, why do you need another concept such as the “wealth effect” to explain why people increase spending when price levels go down, when there is already a very similar concept (income effect) that also perfectly explains the same thing? Why can’t you just use “income effect” instead of “wealth effect” to explain the downward-sloping AD curve? I’m wondering why the concept of wealth effect exists at all when there is already a very similar concept explaining the same actions of economic agents....&lt;/p&gt;&#xA;" OwnerUserId="23697" LastActivityDate="2019-08-28T07:24:04.353" Title="What is the exact difference between Income Effect and Wealth Effect?" Tags="&lt;aggregate-production&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30691" PostTypeId="1" CreationDate="2019-08-28T09:24:05.527" Score="2" ViewCount="41" Body="&lt;p&gt;I have a conceptual question in terms of econometrics. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand for example that the primary goal of econometrics is to use estimated parameters to calculate the average change in the dependent variable conditional upon a unit change in the independent/explanatory variable(s). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, may I ask if this 'unit change' is represented by the standard deviation, or in fact is representative of a 1% change?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any feedback/discussion on this would be appreciated, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Best,&lt;/p&gt;&#xA;" OwnerUserId="24118" LastActivityDate="2019-08-28T16:11:43.900" Title="'One Unit Change in the Explanatory Variable'" Tags="&lt;econometrics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30692" PostTypeId="1" AcceptedAnswerId="32025" CreationDate="2019-08-28T11:36:56.907" Score="0" ViewCount="56" Body="&lt;p&gt;We have all enjoyed the flow of cheap Chinese imported goods, whether in the shops, or online.&lt;/p&gt;&#xA;&lt;p&gt;The shipping costs from China have always seemed very low.&lt;/p&gt;&#xA;&lt;p&gt;Now I see &lt;a href=&quot;https://sellercentral.amazon.com/forums/t/its-official-no-more-cheap-shipping-for-chinese-sellers/493043&quot; rel=&quot;nofollow noreferrer&quot;&gt;this note&lt;/a&gt;:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Got notification today that all USPS international GEPS contracts will be terminated September 31st.&lt;/p&gt;&#xA;&lt;p&gt;This is all related to the Universal Postal Union agreement that allows Chinese sellers to ship products to the U.S. for less than it costs us to ship to the same state.&lt;/p&gt;&#xA;&lt;p&gt;The administration has given the UPU an ultimatum, that they: either allow the USPS to set rates for China mail that arrives in the U.S., or the U.S. will officially leave the UPU on October 17th.&lt;/p&gt;&#xA;&lt;p&gt;Either way, this means as of October 17, no more cheap Chinese shipping. They will have to pay the same domestic rates as us once their e-packets arrive here.&lt;/p&gt;&#xA;&lt;p&gt;This is great news for U.S. sellers, especially eBay sellers.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;My question is: &lt;strong&gt;Who paid the bill for cheap Chinese export shipping?&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="8211" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2019-09-27T12:35:13.343" Title="Who paid the bill for cheap Chinese exports?" Tags="&lt;international-trade&gt;&lt;international-economics&gt;&lt;china&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="30693" PostTypeId="1" CreationDate="2019-08-28T15:49:26.207" Score="0" ViewCount="38" Body="&lt;p&gt;For most of the databases, monthly PPP data is not provided. How it can be possible to find monthly PPP data?  i mean PPP(exchange rate) conversion factors.&#xA;Thanks&lt;/p&gt;&#xA;" OwnerUserId="23622" LastActivityDate="2020-05-24T18:52:12.077" Title="is it possible to find PPP monthly data?" Tags="&lt;macroeconomics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30694" PostTypeId="2" ParentId="30691" CreationDate="2019-08-28T16:11:43.900" Score="3" Body="&lt;p&gt;You can use summary statistics to compare the one unit change to the standard deviation and could say that it represents a 1, 1.2 2 etc. standard deviation change. For example, if in the regular form:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$y_i=\beta_{0}+\beta_{1}x_i+u_i$$&lt;/span&gt;&#xA;say &lt;span class=&quot;math-container&quot;&gt;$\beta_{1}=6$&lt;/span&gt; and from your summary statistics, the standard deviation of &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; is 3, you could in turn explain the coefficient as: &quot;A one unit change in &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; is associated with a 2 standard deviation change in &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt;, ceteris paribus&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To interpret the unit change as a 1% change, you can convert the coefficient to read it in terms of percents relative to the levels of &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; or, to much more convenience, you can run the model in log-log form:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\log(y)_i=\beta_{0}+\beta_{1}\log(x)_{i}+u_i$$&lt;/span&gt;&#xA;In this form, &lt;span class=&quot;math-container&quot;&gt;$\beta_{1}$&lt;/span&gt; is the &lt;strong&gt;percentage&lt;/strong&gt; change in &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; from a 1% change in &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;. Exactly what you are looking for!&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\beta_{1}=\frac{\%\Delta y}{\%\Delta x}$$&lt;/span&gt;&#xA;where the denominator is usually a 1% change.&lt;/p&gt;&#xA;" OwnerUserId="23546" LastActivityDate="2019-08-28T16:11:43.900" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30695" PostTypeId="2" ParentId="30693" CreationDate="2019-08-28T16:38:52.160" Score="1" Body="&lt;p&gt;That doesn't exist. Gdp is quarterly.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are no short term indicators like that on a global levels.&lt;/p&gt;&#xA;" OwnerUserId="24107" LastActivityDate="2019-08-28T16:38:52.160" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30696" PostTypeId="2" ParentId="30534" CreationDate="2019-08-29T10:56:31.657" Score="3" Body="&lt;p&gt;For starters, I've confirmed your results for the United States using data from &lt;a href=&quot;https://www.federalreserve.gov/paymentsystems/files/coin_currcircvalue.txt&quot; rel=&quot;nofollow noreferrer&quot;&gt;federalreserve.gov&lt;/a&gt; and &lt;a href=&quot;https://alfred.stlouisfed.org/series?seid=GDP&quot; rel=&quot;nofollow noreferrer&quot;&gt;alfred.stlouisfed.org&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/JjV9d.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/JjV9d.png&quot; alt=&quot;Cash to GDP % in $USD&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we take a look at the breakdown of bills in circulation, we can see that the value of $100 bill has drastically increased relative to the total value of bills in circulation but the others bills have not.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/wGZHC.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/wGZHC.png&quot; alt=&quot;bills/currency ratio&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So people are indeed using cash less often for everyday purchases that most likely involve lower denomination bills. In short, people are most likely hoarding more cash in the form of higher denomination bills as a result of recent interest rate trends. According to a blog post by the &lt;a href=&quot;https://www.stlouisfed.org/on-the-economy/2014/september/what-does-money-velocity-tell-us-about-low-inflation-in-the-us&quot; rel=&quot;nofollow noreferrer&quot;&gt;St.Louis Fed&lt;/a&gt;, &quot;the nominal interest rate on short-term bonds has declined essentially to zero, and, in this case, the best form of risk-free liquid asset is no longer the short-term government bonds, but money.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You might ask why people wouldn't just hold more money in electronic currency versus paper cash? If we compare paper cash to &lt;a href=&quot;https://en.wikipedia.org/wiki/Money_supply#Empirical_measures_in_the_United_States_Federal_Reserve_System&quot; rel=&quot;nofollow noreferrer&quot;&gt;MZM&lt;/a&gt; (which includes various forms of electronic currency storage), we see that the % of the value in paper cash have actually gone down.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/Hvl5z.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Hvl5z.png&quot; alt=&quot;Currency/MZM&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That said, if there was more confidence in technology and banking system, the % in paper cash could decline further. There also seems to be some arguments for a &lt;a href=&quot;https://www.washingtonpost.com/news/wonk/wp/2013/04/23/americas-2-trillion-shadow-economy-is-the-recessions-big-winner/&quot; rel=&quot;nofollow noreferrer&quot;&gt;larger underground economy&lt;/a&gt; in the US since 2008. I couldn't find any long-term trends on financial literacy, but I also don't see how it would affect people to use paper cash over other forms of credit.&lt;/p&gt;&#xA;" OwnerUserId="8387" LastActivityDate="2019-08-29T10:56:31.657" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30697" PostTypeId="1" CreationDate="2019-08-29T11:23:48.833" Score="0" ViewCount="91" Body="&lt;p&gt;I am interested in knowing more about the valuation of a currency, and how the currency is determined to be 'overvalued' or indeed 'undervalued' in a floating/flexible exchange rate system. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;More specifically, in a flexible exchange rate system: what is the currency over/undervalued against, and what role does inflation play in the definition? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Best,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Andrew&lt;/p&gt;&#xA;" OwnerUserId="24118" LastActivityDate="2019-08-30T13:31:18.580" Title="Overvaluation of a Currency" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30699" PostTypeId="1" CreationDate="2019-08-29T17:16:08.063" Score="0" ViewCount="43" Body="&lt;p&gt;Price in micro is the point at which demand and supply meet. But in real world no one knows about the actual demand curve or supply curve. yet prices are set, so in a way there is a lot of costs being borne out in the process of setting up this price, and yet it is available as a public good. any good economic paper that discusses this point or any thoughts on the same would be highly appreciated.&lt;/p&gt;&#xA;" OwnerUserId="24004" LastEditorUserId="1601" LastEditDate="2019-08-29T18:26:49.813" LastActivityDate="2019-08-29T18:26:49.813" Title="Why are prices made available to the public?" Tags="&lt;microeconomics&gt;&lt;supply-and-demand&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30700" PostTypeId="1" AcceptedAnswerId="30703" CreationDate="2019-08-29T18:01:50.013" Score="1" ViewCount="46" Body="&lt;p&gt;I am a bit confused regarding the actual definition of structural unemployment. Some places say that it is the permanent decline of a particular industry, leading to workers being unemployed as they are occupationally immobile. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Other sources say that it is a change in the structure of an economy (e.g. from secondary to tertiary), usually brought about by changes in technology. (Also, just another question, how exactly does improved technology help convert an economy from being mainly secondary to being mainly tertiary?)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, could you please provide a rock-solid definition of 'structural unemployment'?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Answers would be very much appreciated.&lt;/p&gt;&#xA;" OwnerUserId="24122" LastActivityDate="2019-08-30T02:46:53.343" Title="Define structural unemployment" Tags="&lt;macroeconomics&gt;&lt;unemployment&gt;&lt;technology&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30701" PostTypeId="1" AcceptedAnswerId="30704" CreationDate="2019-08-29T19:08:22.247" Score="1" ViewCount="25" Body="&lt;p&gt;I can't get a homework problem started due to wording. I desire to understand it, so I will only put down enough to show my line of thought.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;we have a utility function to maximize, say &lt;span class=&quot;math-container&quot;&gt;$u(c,\ell)$&lt;/span&gt;, and some production function &lt;span class=&quot;math-container&quot;&gt;$Y=zF(K,L)$&lt;/span&gt;. The government purchases &lt;span class=&quot;math-container&quot;&gt;$g$&lt;/span&gt; units of the consumption good using a lump-sum tax &lt;span class=&quot;math-container&quot;&gt;$\tau$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question: the problem states &quot;government purchase does not enter consumer's utility.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does this mean that we do &lt;span class=&quot;math-container&quot;&gt;$\max_{c,\ell}u(c,\ell)$&lt;/span&gt;, relating &lt;span class=&quot;math-container&quot;&gt;$c=\ldots - \tau$&lt;/span&gt;, and do not do &lt;span class=&quot;math-container&quot;&gt;$\max_{c,\ell} u(c,\ell) + \phi(g)$&lt;/span&gt;, also with some relation?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks for any clarification &lt;/p&gt;&#xA;" OwnerUserId="24123" LastActivityDate="2019-08-30T02:55:25.700" Title="The equilibrium effects of a change in government purchases on consumption" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30702" PostTypeId="1" CreationDate="2019-08-29T22:45:43.590" Score="4" ViewCount="82" Body="&lt;p&gt;I was wondering whether someone can explain the household production function (HPF). Specifically, the variant presented in &lt;a href=&quot;https://agupubs.onlinelibrary.wiley.com/doi/full/10.1029/2003WR002443&quot; rel=&quot;nofollow noreferrer&quot;&gt;Patanayak et al (2005)&lt;/a&gt;. The paper uses the HPF to determine household willingness to pay for improved water supplies. The HPF model theorizes that averting expenditures (coping costs) are lower bound to willingness to pay (WTP). However other people (e.g. &lt;a href=&quot;https://www.sciencedirect.com/science/article/pii/S0921800916316159&quot; rel=&quot;nofollow noreferrer&quot;&gt;Orgill-Meyer et al (2018)&lt;/a&gt;) talk about how including sunk costs (expensive tank assets, pumps, etc) when calculating coping can reverse this relationship causing coping costs to be upper bound to WTP. However, Patanayak et al, 2005 includes amortized sunk costs in his coping cost calculations and the HPF premise still holds. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is confusing me a bit. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know the question is elementary but I am really not an economist. Can someone please clarify this?&lt;/p&gt;&#xA;" OwnerUserId="24124" LastEditorUserId="69" LastEditDate="2020-01-30T15:42:22.567" LastActivityDate="2021-02-23T18:08:20.907" Title="The Household Production Function" Tags="&lt;production-function&gt;&lt;applied-econometrics&gt;&lt;development-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30703" PostTypeId="2" ParentId="30700" CreationDate="2019-08-30T02:46:53.343" Score="0" Body="&lt;p&gt;Basically structural unemployment is caused by a mismatch in the skill of the workers available in the labor market and the skill demanded by the &quot;buyers&quot; in the labor market (firms). These workers don't have the skills that the market needs, so no one is willing to hire them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This happens because the industry in which these workers used to be employed in is in the decline, and I think this is the more correct definition.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Generally, a decline in an industry is caused by a technological change, but not necessary.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Example of tech change -&gt; decline:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The decline in demand for scribes (people who manually write texts in books) when the printing press was invented. This leads to the &quot;decline of the scribe industry&quot; and structural unemployment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Example of industry decline without tech change:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lumber industry... after 100 years all trees are gone. This would lead to a decline in demand for lumberjacks and a structural unemployment without technological change.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The second question might be better asked as a separate question per the guideline :)&lt;/p&gt;&#xA;" OwnerUserId="5145" LastActivityDate="2019-08-30T02:46:53.343" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30704" PostTypeId="2" ParentId="30701" CreationDate="2019-08-30T02:55:25.700" Score="0" Body="&lt;p&gt;Generally government purchase would have effect on the price of goods in the market (the &quot;crowding out&quot; effect). The question is just saying that &lt;span class=&quot;math-container&quot;&gt;$c$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\ell$&lt;/span&gt; are not functions of &lt;span class=&quot;math-container&quot;&gt;$g$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerUserId="5145" LastActivityDate="2019-08-30T02:55:25.700" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30705" PostTypeId="2" ParentId="30697" CreationDate="2019-08-30T13:31:18.580" Score="1" Body="&lt;p&gt;Not sure what level of answer you're expecting, but here's an intuition. In equilibrium, countries should have balanced trade. That is, imports equals to exports.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If a country consistently exports more than it imports, the demand for its currency should make the currency appreciate (relative to other currencies). The country's currency would appreciate until its exports are not as competitive, driving down the trade balance and current account.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Likewise, if a country's CA is negative, then the low demand for that country's currency would make the currency depreciate, and it would be able to export more.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By looking at the country's current account, you could &quot;estimate&quot; if the currency is overvalued (should depreciate in the future... if CA is negative) or undervalued (should appreciate in the future... if CA is positive).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is just the gist of the argument. More considerations need to be put in each country's characteristics such as demography, development status, etc. The IMF (with much criticisms from some of its member countries) issues what's called the &lt;a href=&quot;https://www.imf.org/external/np/res/eba/data.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;External Balance Assessment (EBA)&lt;/a&gt; which serves as a &quot;benchmark&quot; of whether it thinks a given currency is over/undervalued. To be sure, some argue that this is somewhat political as the USTR sometimes point to this as a basis for putting some countries on the &quot;watchlist&quot; for being a currency manipulator. Be sure to read the list of caveats and disclaimers of the EBA though.&lt;/p&gt;&#xA;" OwnerUserId="5145" LastActivityDate="2019-08-30T13:31:18.580" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30706" PostTypeId="2" ParentId="30628" CreationDate="2019-08-30T19:06:43.230" Score="3" Body="&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;As we have discussed in the comments, the utility function used in the book is Cobb-Douglas: &lt;span class=&quot;math-container&quot;&gt;$U = CM^{\mu}A^{1 - \mu}$&lt;/span&gt;. The well known fact mentioned in equation (3.3) on page 57 - the one that you highlighted - is that the Cobb-Douglas utility function is homothetic - the share of total income spent on any of the goods is &lt;strong&gt;&lt;em&gt;constant&lt;/em&gt;&lt;/strong&gt; over all possible incomes. More specifically here a share of &lt;span class=&quot;math-container&quot;&gt;$\mu$&lt;/span&gt; of the expenditure is always spent on manufacturing goods and a share of &lt;span class=&quot;math-container&quot;&gt;$1-\mu$&lt;/span&gt; is spent on the agriculture good. &lt;span class=&quot;math-container&quot;&gt;$\sigma$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$p_i$&lt;/span&gt; only determine how the &lt;span class=&quot;math-container&quot;&gt;$\mu y$&lt;/span&gt; units of income that the representative consumer spends on manufacturing output is allocated among the distinct manufacturing goods. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Although the output goods are different most such models assume that both the jobs and the employees are identical and there is a perfectly competitive domestic labor market. Hence the identical wage rate.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Note: &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; is personal income and &lt;span class=&quot;math-container&quot;&gt;$L$&lt;/span&gt; is the number of employees, thus the total income of the economy is &lt;span class=&quot;math-container&quot;&gt;$yL$&lt;/span&gt;. (E.g. the last sentence on page 56). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus the total expenditure &lt;span class=&quot;math-container&quot;&gt;$E = yL$&lt;/span&gt; - the total income, as the model is static. The expenditure on manufactured goods is &lt;span class=&quot;math-container&quot;&gt;$\mu E = \mu yL = PM \Leftrightarrow M = \frac{\mu yL}{P}$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerUserId="23694" LastEditorUserId="23694" LastEditDate="2019-08-30T21:46:52.233" LastActivityDate="2019-08-30T21:46:52.233" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30709" PostTypeId="1" CreationDate="2019-08-31T06:45:32.740" Score="0" ViewCount="99" Body="&lt;p&gt;I've &lt;a href=&quot;https://eml.berkeley.edu/~webfac/gourinchas/e202a_f14/Notes_Consumption_pog.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;read&lt;/a&gt; (pg 10) in Gourinchas' notes on consumption that the income and substitution effects cancel for log preferences, and I tried to prove this to myself doing the Slutsky decomposition for the simple case of &lt;span class=&quot;math-container&quot;&gt;$U(x,y) = \ln(x) + \ln(y)$&lt;/span&gt; s.t. &lt;span class=&quot;math-container&quot;&gt;$p_x x + p_y y = I$&lt;/span&gt;. I get that the Hicksian and Marshallian demand functions are &lt;span class=&quot;math-container&quot;&gt;$x^* = \frac{p_y}{p_x} y = \frac{I}{2 p_x} $&lt;/span&gt; respectively. Plugging these in gives me this for the decomposition:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ \frac{\partial x^*}{\partial p_x} = - \frac{p_y}{p_x^2} y - \frac{1}{2 p_x} \frac{p_y}{p_x} y $$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which is definitely not zero. Am I misunderstanding? &lt;/p&gt;&#xA;" OwnerUserId="19544" LastEditorUserId="19544" LastEditDate="2019-08-31T19:06:55.387" LastActivityDate="2019-10-01T17:00:55.363" Title="Why do the income and substitution effects cancel for log preferences? Trouble reconciling Slutsky decomposition" Tags="&lt;macroeconomics&gt;&lt;mathematical-economics&gt;&lt;consumption&gt;&lt;slutsky-equation&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="30710" PostTypeId="1" AcceptedAnswerId="30711" CreationDate="2019-08-31T08:29:13.557" Score="1" ViewCount="46" Body="&lt;p&gt;I wrote a paper relating the optimal deterrence strategy for crime to concepts on statistical physics, and I am considering submitting the paper to the Journal of Political Economy. I'm wondering if posting the preprint on Arxiv violates the journal's policy, or lowers the chances of my paper being accepted. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm not too familiar with the standard practices in the field of economics. Where do people commonly publish their preprints, if at all?&lt;/p&gt;&#xA;" OwnerUserId="24132" LastActivityDate="2019-08-31T11:47:28.233" Title="Can I Upload my Preprint on Arxiv Before Submitting it to JPE" Tags="&lt;macroeconomics&gt;&lt;optimization&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30711" PostTypeId="2" ParentId="30710" CreationDate="2019-08-31T11:47:28.233" Score="3" Body="&lt;p&gt;Most papers I have read in the JPE circulated in form of preprint before (not on arxiv, but this should not be an important point). See for instance &lt;a href=&quot;https://ideas.repec.org&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://ideas.repec.org&lt;/a&gt; if you want to find examples of working papers later published in JPE:&lt;a href=&quot;https://i.stack.imgur.com/XQuts.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/XQuts.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But it is probably better to read the journal's policy before submission.&lt;/p&gt;&#xA;" OwnerUserId="20576" LastActivityDate="2019-08-31T11:47:28.233" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30712" PostTypeId="2" ParentId="24811" CreationDate="2019-08-31T12:03:45.837" Score="1" Body="&lt;p&gt;You can use any software for this purpose. With R for instance you will find examples here:&lt;br&gt;&#xA;&lt;a href=&quot;https://rdrr.io/rforge/micEcon/man/translogCostEst.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://rdrr.io/rforge/micEcon/man/translogCostEst.html&lt;/a&gt;&lt;br&gt;&#xA;It is probably a good exercise however, to do it by hand...&lt;/p&gt;&#xA;" OwnerUserId="20576" LastEditorUserId="20576" LastEditDate="2019-09-01T14:30:29.430" LastActivityDate="2019-09-01T14:30:29.430" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30713" PostTypeId="1" CreationDate="2019-08-31T15:09:27.790" Score="8" ViewCount="501" Body="&lt;p&gt;When we differentiate the utility function with respect to some input &lt;span class=&quot;math-container&quot;&gt;$x_i$&lt;/span&gt;, we get a number that tells us how &quot;fast&quot; the utility function is changing at some point with respect to &lt;span class=&quot;math-container&quot;&gt;$x_i$&lt;/span&gt;. Doesn't that mean that when we compare marginal utilities, we are comparing with something that is based on the structure of the numeric output of the utility function, which shouldn't be the case since it's ordinal?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know I'm missing something here intuitively, but I can't seem to figure out what it is. &lt;/p&gt;&#xA;" OwnerUserId="20877" LastActivityDate="2021-01-30T07:40:03.477" Title="Doesn't the concept of marginal utility speak to a cardinal utility function?" Tags="&lt;utility&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="30715" PostTypeId="2" ParentId="30713" CreationDate="2019-09-01T02:47:30.293" Score="9" Body="&lt;p&gt;To the pure ordinalist who believes that preferences are purely ordinal, the concept of &lt;em&gt;marginal utility (MU)&lt;/em&gt; has no meaning. (And a fortiori, the concept of &lt;em&gt;diminishing MU&lt;/em&gt; also has no meaning.)&lt;/p&gt;&#xA;&lt;p&gt;However, the concept of the &lt;em&gt;marginal rate of substitution (MRS)&lt;/em&gt; &lt;strong&gt;does&lt;/strong&gt; have meaning.&lt;/p&gt;&#xA;&lt;p&gt;In the course of our work, we may compute something that we call MU. But to the pure ordinalist, any such number found has no meaning in and of itself.&lt;/p&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;&lt;strong&gt;Example.&lt;/strong&gt; Say an individual's preferences &lt;span class=&quot;math-container&quot;&gt;$\succsim$&lt;/span&gt; over two goods &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$B$&lt;/span&gt; can be represented by the utility function &lt;span class=&quot;math-container&quot;&gt;$U:(\mathbb{R}^+_0)^2\rightarrow\mathbb{R}$&lt;/span&gt; defined by &lt;span class=&quot;math-container&quot;&gt;$$U(A,B)=AB.$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;The intermediate microeconomics student may then carry out these computations:&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$MU_A=\frac{\partial U}{\partial A} = B.$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$MU_B=\frac{\partial U}{\partial B} = A.$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$MRS = \frac{MU_A}{MU_B}=\frac{B}{A}.$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;The above says that if, for example, my current bundle is &lt;span class=&quot;math-container&quot;&gt;$(A,B)=(200,1000)$&lt;/span&gt;, then  &lt;span class=&quot;math-container&quot;&gt;$$MU_A=B=1000\text{ and }MU_B=A=200.$$&lt;/span&gt; However, these two numbers have no meaning whatsoever.&lt;/p&gt;&#xA;&lt;p&gt;The only number that has meaning is the MRS: To get another unit of &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt;, I'm willing to give up (approximately) &lt;span class=&quot;math-container&quot;&gt;$$MRS=\frac{B}{A}=\frac{1000}{200}=5\text{ units of }B.$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;To the pure ordinalist, the above reasoning is completely legitimate, so long as one assigns meaning only to MRS. What's illegitimate is to assign any meaning to &lt;span class=&quot;math-container&quot;&gt;$MU_A=B$&lt;/span&gt; or &lt;span class=&quot;math-container&quot;&gt;$MU_B=A$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;p&gt;The pure ordinalist knows that if &lt;span class=&quot;math-container&quot;&gt;$\hat U$&lt;/span&gt; is a strictly increasing transformation of &lt;span class=&quot;math-container&quot;&gt;$U$&lt;/span&gt;, then &lt;span class=&quot;math-container&quot;&gt;$\hat U$&lt;/span&gt; is also a utility representation of &lt;span class=&quot;math-container&quot;&gt;$\succsim$&lt;/span&gt;. So, for example, if &lt;span class=&quot;math-container&quot;&gt;$\hat U:(\mathbb{R}^+_0)^2\rightarrow\mathbb{R}$&lt;/span&gt; is defined by &lt;span class=&quot;math-container&quot;&gt;$$\hat U(A,B)=2AB,$$&lt;/span&gt; then &lt;span class=&quot;math-container&quot;&gt;$\hat U$&lt;/span&gt; also represents &lt;span class=&quot;math-container&quot;&gt;$\succsim$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;p&gt;However, with &lt;span class=&quot;math-container&quot;&gt;$\hat U$&lt;/span&gt;, our computations seem to differ slightly from before:&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$M\hat U_A=\frac{\partial \hat U}{\partial A} = 2B.$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$M\hat U_B=\frac{\partial \hat U}{\partial B} = 2A.$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\hat{MRS} = \frac{M\hat U_A}{M\hat U_B}=\frac{2B}{2A}=\frac{B}{A}.$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;Any conclusions we arrive at with the new utility representation &lt;span class=&quot;math-container&quot;&gt;$\hat U$&lt;/span&gt; are the same as before.&lt;/p&gt;&#xA;&lt;p&gt;If again my current bundle is &lt;span class=&quot;math-container&quot;&gt;$(A,B)=(200,1000)$&lt;/span&gt;, then  &lt;span class=&quot;math-container&quot;&gt;$$M\hat U_A=2B=2000\text{ and }M\hat U_B=2A=400.$$&lt;/span&gt; However and again, these two numbers have no meaning whatsoever.&lt;/p&gt;&#xA;&lt;p&gt;The only number that has meaning is the MRS: To get another unit of &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt;, I'm willing to give up (approximately) &lt;span class=&quot;math-container&quot;&gt;$$\hat{MRS}=\frac{2B}{2A}=\frac{2000}{400}=5\text{ units of }B.$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;The quantity MU by itself has no meaning. Confusion arises only when one attaches meaning to MU and wonders how for example it is that &lt;span class=&quot;math-container&quot;&gt;$$M\hat U_A = 2MU_A,$$&lt;/span&gt; and what the above equation means. (Answer: It means nothing.)&lt;/p&gt;&#xA;&lt;p&gt;Out of convenience, the intermediate microeconomics student will often compute something called &lt;span class=&quot;math-container&quot;&gt;$MU_A$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$MU_B$&lt;/span&gt; and these can often be evaluated as actual numbers. But on their own, these numbers have no meaning (to the pure ordinalist). Only the &lt;em&gt;ratio&lt;/em&gt; of the two quantities has any meaning: &lt;span class=&quot;math-container&quot;&gt;$$MRS=\frac{MU_A}{MU_B}.$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;Some quotes. Hicks (&lt;a href=&quot;https://archive.org/stream/in.ernet.dli.2015.6501/2015.6501.Value-And-Capital-An-Inquiry-Into-Some#page/n29/mode/2up&quot; rel=&quot;noreferrer&quot;&gt;1939&lt;/a&gt;):&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;We have now to undertake a purge, rejecting all concepts which are tainted by quantitative utility, and replacing them, so far as they need to be replaced, by concepts which have no such implication.&lt;/p&gt;&#xA;&lt;p&gt;The first victim must evidently be marginal utility itself. If total utility is arbitrary, so is marginal utility. ...&lt;/p&gt;&#xA;&lt;p&gt;The second victim (a more serious one this time) must be the principle of Diminishing Marginal Utility. If marginal utility has no exact sense, diminishing marginal utility can have no exact sense either.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Dittmer (&lt;a href=&quot;https://www.jstor.org/stable/30042677&quot; rel=&quot;noreferrer&quot;&gt;2005&lt;/a&gt;, emphasis added):&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Many introductory microeconomics textbook authors derive the law of  demand from the assumption of diminishing marginal utility. Authors of intermediate and graduate textbooks derive demand from diminishing marginal rate of  substitution and ordinal preferences. These approaches are not interchangeable;  diminishing marginal utility for all goods is neither a necessary nor sufficient condition for diminishing marginal rate of substitution, and &lt;strong&gt;the assumption of diminishing marginal utility is inconsistent with the assumption of ordinal preferences&lt;/strong&gt;.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerDisplayName="user18" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2019-09-01T03:16:04.580" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30718" PostTypeId="2" ParentId="30702" CreationDate="2019-09-01T08:18:00.373" Score="2" Body="&lt;p&gt;I have only read the abstracts, but the two statements aren't conflicting.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From &lt;a href=&quot;https://en.wikipedia.org/wiki/Production_function&quot; rel=&quot;nofollow noreferrer&quot;&gt;Wikipedia&lt;/a&gt;, a production function gives the technological relation between quantities of physical inputs and quantities of output of goods. A household production function is a form of that idea that looks out how households combine inputs to get outputs that they consume such as water. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Under the HPF model, water is considered as an output that households consume. However, there are many ways to combine inputs to obtain water: you can use utility based water if the infrastructure for that exists or non-utility based water (involving personal tanks, pumps, etc). The assumption is that households will be willing to pay for the utility based water infrastructure at least the amount that it takes to upkeep their non-utility based water that they currently own accounting for the sunk costs of the upfront purchase of the tanks and pumps. And hence that is the &quot;lower bound to &lt;a href=&quot;https://en.wikipedia.org/wiki/Willingness_to_pay&quot; rel=&quot;nofollow noreferrer&quot;&gt;WTP&lt;/a&gt;&quot;. But this assumes that the utility based water is higher quality than what households already have. As noted in the abstract of the latter paper, &quot;[w]e attribute this departure from the traditional relationship between averting expenditures and contingent valuation to the lack of household confidence in the quality of utility-provided water.&quot; Hence, current coping costs become an upper bound to WTP. To put it differently, if households believed utility based water is exactly equivalent to what they currently have, then the WTP would be exactly equal to current coping costs.&lt;/p&gt;&#xA;" OwnerUserId="8387" LastEditorUserId="8387" LastEditDate="2019-09-01T08:23:42.940" LastActivityDate="2019-09-01T08:23:42.940" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30719" PostTypeId="2" ParentId="19774" CreationDate="2019-09-01T09:10:21.487" Score="2" Body="&lt;p&gt;If we are talking about a government indulging in printing their own US currency then there are two issues with it:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;For any large scale purchase or buying, they use marked currency of a certain series. Say, a country wanted to buy a few fighter jets or crude oil worth a few hundred millions then the recipient country would not only ask for marked currency but also verify the series to corroborate it with Fed to ensure copies of it are not in circulation.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Secondly, if a country wishes to sabotage another's economy then they would have to infuse it from Fed Reserve to banks. That's how new printed money is distributed. A foreign country can't make large scale disruption as it won't be able to infuse it to banks from the Reserve. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="24135" LastEditorUserId="1601" LastEditDate="2019-09-02T06:50:45.967" LastActivityDate="2019-09-02T06:50:45.967" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30720" PostTypeId="1" CreationDate="2019-09-01T11:44:15.957" Score="0" ViewCount="194" Body="&lt;p&gt;All this time I was thinking that common-pool resources are common goods, until I read this excerpt from a book. &#xA;&lt;img src=&quot;https://i.stack.imgur.com/q8VS6.jpg&quot; alt=&quot;It is an Excerpt from a book by Elinor Ostrom&quot;&gt;&lt;/p&gt;&#xA;" OwnerUserId="24136" LastEditorUserId="25624" LastEditDate="2020-12-15T14:50:01.080" LastActivityDate="2020-12-15T14:50:01.080" Title="What is the difference between Common Goods and Common Pool Resources?" Tags="&lt;microeconomics&gt;&lt;commons&gt;" AnswerCount="2" CommentCount="2" FavoriteCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30721" PostTypeId="2" ParentId="30709" CreationDate="2019-09-01T16:09:09.920" Score="1" Body="&lt;p&gt;You interpreted the passage you read as essentially saying that &lt;strong&gt;&quot;with log preferences, the Marshallian demand for the good &lt;em&gt;does not depend on its price&lt;/em&gt;.&quot;&lt;/strong&gt;&#xA;That doesn't sound very plausible, don't you think?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But the passage clearly refers to an intertemporal choice problem, it is about log-preferences over a single good and over time, it does not relate to the Slutsky decomposition of the static Marshallian demand function. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would suggest to continue reading the notes up to page 14.&lt;/p&gt;&#xA;" OwnerUserId="61" LastActivityDate="2019-09-01T16:09:09.920" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30722" PostTypeId="1" CreationDate="2019-09-01T16:24:13.427" Score="0" ViewCount="123" Body="&lt;p&gt;usually what i do to show that a utility function is homothetic is by either showing that the function is homogeneous or if the MRS is homogeneous of degree 0.&#xA;However the MRS is not defined. So im not even sure if the function is homogeneous.&#xA;What i have been thinking is that it has something to do with the expansión path, as it is always constant. But how about the homogeneous degree?&#xA;The specific function that i have is &lt;code&gt;U(X,Y)=min{2X,6Y}&lt;/code&gt;&#xA;Thank you&lt;/p&gt;&#xA;" OwnerUserId="10240" LastActivityDate="2019-09-01T16:24:13.427" Title="How to show that a leontief utility function is homothetic?" Tags="&lt;microeconomics&gt;&lt;self-study&gt;&lt;leontief&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30723" PostTypeId="2" ParentId="30587" CreationDate="2019-09-01T16:55:02.173" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;A random variable &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; has a Pareto distribution with Pareto exponent&#xA;  &lt;span class=&quot;math-container&quot;&gt;$\theta$&lt;/span&gt; if  &lt;span class=&quot;math-container&quot;&gt;$$\text{P}(X&amp;gt;x)=\begin{cases} &#xA; \left(\frac{x}{x_m}\right)^\theta \quad \text{ if } x\geq x_{min}\\  \&#xA; \ 1 \quad \quad \quad  \text{ if } x&amp;lt;x_{min} \end{cases}$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In this case, the Pareto exponent is &lt;span class=&quot;math-container&quot;&gt;$\theta = \alpha - 1$&lt;/span&gt;. Remember that &lt;span class=&quot;math-container&quot;&gt;$P(X&amp;gt;x)=\int_x^\infty p(x')\mathrm{d}x'$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerUserId="21196" LastActivityDate="2019-09-01T16:55:02.173" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30724" PostTypeId="1" CreationDate="2019-09-01T17:26:07.993" Score="1" ViewCount="78" Body="&lt;p&gt;When we say about &quot;the basket used for calculating the CPI is the same as the composition of GDP&quot; What does it mean the &quot;same basket&quot;? Does it just mean the goods and service are the same but the weights of each good itself do not matter?(Basket of CPI and GDP are also included A and B but no matter weights) . Or it means the weights of each good in the basket are the also same? (Basket of CPI and GDP are included A and B, also the weights of A is 0.4 and B is 0.6 in both baskets) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm really confusing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In additon, this is the original question though I think it would be useless for this question:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;Assume that the basket used for calculating the CPI is the same as the composition of GDP. Will CPI in a given year then equal the GDP deflator? If so why, if not why not?&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks to all the people willing to help!! &lt;/p&gt;&#xA;" OwnerUserId="21870" LastActivityDate="2021-02-26T16:01:05.147" Title="What does it mean when we talk about &quot;same basket&quot; exactly for both GDP and CPI?" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30725" PostTypeId="2" ParentId="30720" CreationDate="2019-09-01T17:45:07.450" Score="3" Body="&lt;p&gt;Common pool resources can be depleted by overuse. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, an area of communal grazing land would be a common pool resource because grazing too many animals decreases the amount of grass available to each animal. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Wikipedia is a common good but are not a common pool resource - reading a lot of articles on Wikipedia does not reduce the number of articles available for everyone else to read.&lt;/p&gt;&#xA;" OwnerUserId="21196" LastActivityDate="2019-09-01T17:45:07.450" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30726" PostTypeId="1" CreationDate="2019-09-01T17:48:45.283" Score="2" ViewCount="46" Body="&lt;p&gt;I'm new to economics and thinking about graduate study. My background is mathematics. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I started reading a book on microeconomics by Mas-Colell, Whinston and Green. My goal is to understand how groups of buyers and sellers arrive at a equilibrium. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand the three criteria satisfying the definition of a competitive equilibrium with the assumption of price-taking firms: clearing markets, maximized profits for the firms, and and maximized utility for the consumers subject to some wealth constraints. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I would like to do is make a simple python program which has firms, and consumers that (perhaps according to some distribution) decide their own ask and bid prices respectively (that would self adjust after some trial and error to transact) which tend to the situation of having an equilibrium (I'm not sure if a competitive equilibrium applies here since the firms are no longer price-takers). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the consumers, I was going to use the Cobb-Doulglas utitlity funtion for all consumers for an easy first simulation.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I would like to know is: Is there some sub-area that deals with consumers and firms battling it out which arrives at equilibrium? Are there any resources that axiomatically treat this scenario?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I tried looking at bayesian games, but it seemed that it was geared toward something a little different. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My inspiration for this project was this video: &lt;a href=&quot;https://www.youtube.com/watch?v=PNtKXWNKGN8&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.youtube.com/watch?v=PNtKXWNKGN8&lt;/a&gt; &lt;/p&gt;&#xA;" OwnerUserId="18868" LastEditorUserId="18868" LastEditDate="2019-09-01T22:50:56.403" LastActivityDate="2019-09-01T22:50:56.403" Title="Simulating a simple economy with ... price-makers? arriving at competitive equilibrium" Tags="&lt;microeconomics&gt;&lt;competitive-equilibrium&gt;&lt;simulations&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30727" PostTypeId="2" ParentId="30672" CreationDate="2019-09-01T18:49:13.427" Score="0" Body="&lt;p&gt;Well I havent read the paper but this is what it looks like to me:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Compute &lt;span class=&quot;math-container&quot;&gt;$R_t$&lt;/span&gt; - the rolling average for month t.&lt;/li&gt;&#xA;&lt;li&gt;&lt;span class=&quot;math-container&quot;&gt;$R_t &amp;gt; 0 \Rightarrow  R_{t+} = R_t \wedge R_{t-} = 0$&lt;/span&gt; and&lt;span class=&quot;math-container&quot;&gt;$R_t &amp;lt; 0 \Rightarrow  R_{t-} = R_t \wedge R_{t+} = 0$&lt;/span&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="23694" LastActivityDate="2019-09-01T18:49:13.427" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30728" PostTypeId="1" CreationDate="2019-09-01T20:14:21.473" Score="0" ViewCount="38" Body="&lt;p&gt;everyone. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a requirement to get my bachelor's in economics, I have to write a paper. The theme I picked is something along the lines of &quot;the impact of environmental crimes and regulation on international trade&quot;. The problem is I've always worked on topics that are based on microeconomics, never on macroeconomics. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, I'd like to ask for paper recommendations on international trade, if possible related to environmental issues, as a way for me to develop a solid foundation regarding this macroeconomic topic. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'll also be consulting Krugman's book, but I feel reading some papers that use theories and models tailored to international trade might be very useful. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I appreciate any help!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Feel free to ask for any clarifications if needed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Kind regards,&#xA;Pedro.&lt;/p&gt;&#xA;" OwnerUserId="8521" LastActivityDate="2019-09-02T13:45:44.150" Title="Papers on International Trade and Environment" Tags="&lt;macroeconomics&gt;&lt;international-trade&gt;&lt;environmental-economics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30730" PostTypeId="1" CreationDate="2019-09-01T21:33:38.830" Score="1" ViewCount="71" Body="&lt;p&gt;Gini index fell everywhere in great depression, great recession, the 80s recession, and so on. Has this ever not been the case? Have any countries not seen inequality fall in recession?&lt;/p&gt;&#xA;" OwnerUserId="24138" LastActivityDate="2019-09-10T20:03:03.197" Title="Has there ever been a first world recession where inequality didn't fall?" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="5" ClosedDate="2019-09-15T14:32:25.877" ContentLicense="CC BY-SA 4.0" />
  <row Id="30731" PostTypeId="2" ParentId="30728" CreationDate="2019-09-01T21:40:24.357" Score="0" Body="&lt;p&gt;Generally trade occurs in scammy goods like cash crops, iPhones, luxury cars and other high end items that have little material cost. Their environmental footprint would be minimal. That's why there are few papers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Oil trade is fairly significant. However it's becoming less so and the majority of countries obtain their oil within a thousand miles. Even China produces about half its own oil, and it mainly uses domestic energy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So you are better off looking into oil industry papers rather than general papers on trade.&lt;/p&gt;&#xA;" OwnerUserId="24138" LastActivityDate="2019-09-01T21:40:24.357" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="30732" PostTypeId="2" ParentId="30730" CreationDate="2019-09-01T22:02:05.477" Score="2" Body="&lt;p&gt;What you suggest can easily be rationalised, if those on fixed incomes (such as pensioners) tend to be poorer while those with economically sensitive incomes (such as workers and shareholders) tend to be richer and see their incomes more adversely affected by recessions. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But I am not convinced it is true in every case. The UK recession in 1980 may be an example, looking at &lt;a href=&quot;https://www.ons.gov.uk/peoplepopulationandcommunity/personalandhouseholdfinances/incomeandwealth/bulletins/householdincomeinequalityfinancial/financialyearending2019provisional&quot; rel=&quot;nofollow noreferrer&quot;&gt;this graph from the Office for National Statistics&lt;/a&gt; and I would expect there to be examples for other countries too.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/GNmwV.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/GNmwV.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2019-09-01T22:02:05.477" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30733" PostTypeId="1" CreationDate="2019-09-02T00:38:33.830" Score="0" ViewCount="56" Body="&lt;p&gt;Fed cut its rates for the first time in 10 years in July and it is about to cut the rates at least by 25 basis points during its September meeting.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Usually, when Fed cuts the rates the bond yields should go up as the economy will expand instead of contracting. But why are the yields of the bonds so low?&lt;/p&gt;&#xA;" OwnerUserId="21681" LastActivityDate="2019-09-03T07:44:11.453" Title="Why are bond yields so low when Fed is cutting rates?" Tags="&lt;macroeconomics&gt;&lt;federal-reserve&gt;&lt;bonds&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="30734" PostTypeId="2" ParentId="20087" CreationDate="2019-09-02T02:51:43.710" Score="2" Body="&lt;p&gt;Yes, and it's actually quite simple. Start with alternatives {A, B}, where you prefer A to B. If there exists some C such that introducing it causes you to prefer B to A instead, then the following holds:&#xA;I start by offering {A, B}, and you take A. Then I offer C as well, and also let you trade B for A so long as you give up some arbitrarily small amount of utility denoted dx. This means that your options are {A, (B-dx), C}, where dx is some arbitrarily small amount of utility that you will lose which is chosen so as to not change your opinion that B-dx is better than A. As a result you choose B-dx instead of A. The result is that you have given up utility for no benefit -- you could originally have chosen B originally, but instead took B-dx -- i.e. that you have been Dutch booked. &lt;/p&gt;&#xA;" OwnerUserId="24139" LastActivityDate="2019-09-02T02:51:43.710" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30735" PostTypeId="2" ParentId="30728" CreationDate="2019-09-02T13:45:44.150" Score="3" Body="&lt;p&gt;I have to disagree with the previous answer. There is quite a large literature on international trade and the effect of environmental regulations. To start off there is the whole race to the bottom literature and the environmental Kuznet's curve. A good start of trade versus the environment is given in Esty's 2001 Bridging the Trade-Environment Divide (found a.o. &lt;a href=&quot;https://www.aeaweb.org/articles?id=10.1257/jep.15.3.113&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;). Copeland and Scott Taylor have a 2004 article on international trade, growth and the environment in the &lt;a href=&quot;https://www.aeaweb.org/articles?id=10.1257/002205104773558047&quot; rel=&quot;nofollow noreferrer&quot;&gt;journal of economic literature&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for trade in natural resources and related trade policies Ruta and Venables have an overview paper &lt;a href=&quot;https://www.annualreviews.org/doi/abs/10.1146/annurev-resource-110811-114526&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a more general equilibrium model on differences in environmental regulations and how that affects trade you could start at Chichilnisky's 1993 North-South trade and the dynamics of renewable resources (&lt;a href=&quot;https://www.sciencedirect.com/science/article/abs/pii/0954349X9390017E&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;).&lt;/p&gt;&#xA;" OwnerUserId="12186" LastActivityDate="2019-09-02T13:45:44.150" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30736" PostTypeId="1" CreationDate="2019-09-02T17:35:59.743" Score="2" ViewCount="36" Body="&lt;p&gt;I have recently started studying mechanism design (after having taken a basic graduate micro course) through Borgers' 'Introduction to the theory of mechanism design'.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I was wondering if people are aware of any books/papers that explore how to actually construct real-world indirect mechanisms that implement the optimal allocations/transfer rules that are characterized throughout the text. So far I have not detected some methodology underlying going from drms to indirect mechanisms, just scattered examples. Am I missing something here?&lt;/p&gt;&#xA;" OwnerUserId="19893" LastActivityDate="2019-09-02T17:35:59.743" Title="Going from DRMs to Indirect Mechanisms" Tags="&lt;reference-request&gt;&lt;mechanism-design&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30737" PostTypeId="1" AcceptedAnswerId="30744" CreationDate="2019-09-02T19:05:59.543" Score="0" ViewCount="63" Body="&lt;p&gt;My objective is to prove that international trade leads human capital formation which leads to economic growth. I am regressing GDP on multiple variables among which Human capital is one. According to a paper, I've read, new lines of product provide more learning by doing opportunities for workers and hence accumulation of human capital. Since panel data on product innovation is not available, it uses 'first time export' of a commodity as an indicator of product innovation. The source for the data is &lt;a href=&quot;https://comtrade.un.org/db/&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://comtrade.un.org/db/&lt;/a&gt;&#xA;But I don't understand how to identify first time exported commodities.&#xA;i need suggestion for what other variables can be used as a proxy for product innovation.&lt;/p&gt;&#xA;" OwnerUserId="14617" LastActivityDate="2019-09-03T21:43:53.780" Title="what can be the proxy variable for measure of product innovation?" Tags="&lt;econometrics&gt;&lt;economic-growth&gt;&lt;applied-econometrics&gt;&lt;time-series&gt;&lt;development-economics&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30739" PostTypeId="2" ParentId="30733" CreationDate="2019-09-03T07:44:11.453" Score="2" Body="&lt;p&gt;Perhaps you are confusing bond prices with yields? When bond prices go up, payments relative to the price the bonds are purchased will go down, and thus by definition yields go down.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Fed mainly controls rates through &lt;a href=&quot;https://en.wikipedia.org/wiki/Open_market_operation&quot; rel=&quot;nofollow noreferrer&quot;&gt;open market operations&lt;/a&gt;, and more recently &lt;a href=&quot;https://en.wikipedia.org/wiki/Quantitative_easing&quot; rel=&quot;nofollow noreferrer&quot;&gt;quantitative easing&lt;/a&gt;. In short, when attempting to cut rates, the Fed purchases securities such as US government bonds and in turn injects &lt;a href=&quot;https://en.wikipedia.org/wiki/Federal_Reserve_Note&quot; rel=&quot;nofollow noreferrer&quot;&gt;Federal Reserve Notes&lt;/a&gt; into the system. This has the two simultaneous effects: it raises the prices of bonds purchased and thus lowers their yields, and increases the money supply, lowering interest rates.&lt;/p&gt;&#xA;" OwnerUserId="8387" LastActivityDate="2019-09-03T07:44:11.453" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30741" PostTypeId="1" CreationDate="2019-09-03T11:48:23.197" Score="1" ViewCount="53" Body="&lt;p&gt;Suppose we have an aggregate production function &lt;span class=&quot;math-container&quot;&gt;$Y = A F(K, L)$&lt;/span&gt;. I'm following some slides which then states that we if log differentiate we get the following:&#xA;&lt;span class=&quot;math-container&quot;&gt;$\frac{\dot{Y}}{Y} = \frac{\dot{A}}{A} + \frac{F_{K}' \dot{K}}{F K} + \frac{F_{L}' \dot{L}}{F L}$&lt;/span&gt;. &#xA;Where the dot notation &lt;span class=&quot;math-container&quot;&gt;$\dot{Y}$&lt;/span&gt; is the differential of Y wrt. t. I've tried to using eulers theorem about homogen functions so that we can write &lt;span class=&quot;math-container&quot;&gt;$Y = F_{k}'K + F_{L}'L$&lt;/span&gt;, but I can't see where I would get the &lt;span class=&quot;math-container&quot;&gt;$\frac{\dot{K}}{K}$&lt;/span&gt; terms. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can anyone guide me? Please ask for more information if i'm not clear enough, thanks! &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;EDIT:&lt;/strong&gt;&#xA;I wrote the formula wrong... its &lt;span class=&quot;math-container&quot;&gt;$\frac{\dot{Y}}{Y} = \frac{\dot{A}}{A} + \frac{F_{K}' K \dot{K}}{F K} + \frac{F_{L}' L \dot{L}}{F L}$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="24152" LastEditorUserId="24152" LastEditDate="2019-09-03T15:37:45.687" LastActivityDate="2019-09-03T15:37:45.687" Title="Log differentiation of aggregate production function" Tags="&lt;macroeconomics&gt;&lt;production-function&gt;&lt;aggregate-production&gt;" AnswerCount="0" CommentCount="5" FavoriteCount="0" ClosedDate="2019-09-08T21:14:07.683" ContentLicense="CC BY-SA 4.0" />
  <row Id="30742" PostTypeId="1" CreationDate="2019-09-03T12:22:35.987" Score="0" ViewCount="17" Body="&lt;p&gt;The bank's profit is measured as Return on Assets which is the ratio of Bank’s net profits and Net assets. &#xA;In case of increasing NPAs, the bank's net profits will decrease, but what will happen to net assets?&lt;/p&gt;&#xA;" OwnerUserId="24154" LastActivityDate="2019-09-03T12:22:35.987" Title="What happens to net assets in case of increasing NPAs(Non-Performing assets)?" Tags="&lt;banking&gt;&lt;profits&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30743" PostTypeId="2" ParentId="30737" CreationDate="2019-09-03T16:31:18.900" Score="1" Body="&lt;p&gt;UN COMTRADE has export data by country-product at the HS 6-digit level. What you could do to find out when the product was first exported is to get data for a country's export for product, say, with HS code 123456, from as far back as possible, and see when was the first year that the export of this product is not zero.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I've seen number of patents filed used as a proxy for product innovation in some papers. That might work for your paper as well?&lt;/p&gt;&#xA;" OwnerUserId="5145" LastActivityDate="2019-09-03T16:31:18.900" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30744" PostTypeId="2" ParentId="30737" CreationDate="2019-09-03T21:43:53.780" Score="1" Body="&lt;p&gt;There are many sources available where you can find export data like UNCOMTRADE, WITS.&#xA;Using HS codes, you can identify the products that are exported for first time, make sure to consider the concordance of HS Codes. &#xA;But this proxy can suffer from the problem like FTAs, liberalisation, Bilateral agreements. For an example: market produces jewellery from quite long time , but it entered in the international market when government provided export subsidy. There is no innovation, it's just opening of the market. You must mention in your paper, from what problems do the proxy suffer.&#xA;As mentioned by others, patent would be the good proxy to understand the technology adoptions and innovations.&lt;/p&gt;&#xA;" OwnerUserId="24157" LastActivityDate="2019-09-03T21:43:53.780" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30745" PostTypeId="2" ParentId="30724" CreationDate="2019-09-03T21:46:17.377" Score="0" Body="&lt;p&gt;Same basket means same goods and services at factor cost or market price. Weighting method could be different. &lt;/p&gt;&#xA;" OwnerUserId="24157" LastActivityDate="2019-09-03T21:46:17.377" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30752" PostTypeId="1" CreationDate="2019-09-04T17:31:50.703" Score="0" ViewCount="28" Body="&lt;p&gt;I'm using data over 10 countries for the period 1975 to 2010. My objective is to check if the chosen regressors have significant effect on GDP.&#xA;I have very basic knowledge of econometrics which I learnt in my first year of college. I was introduced to simple linear regression model with k variable which involved estimation of OLS, calculations of standard error, hypothesis testing for the slope coefficients. All of these were done with the assumptions of no perfect multicollinearity and the random disturbance term U follows normal distribution with constant variance. I have read a few papers on similar topic and they perform tests like unit root and Granger causality but I don't understand them.&#xA;So what are the topics I need to learn to be able to perform a test of significance for a panel data? Also, what would be an easy to understand book with stata examples for the suggested topics?&lt;/p&gt;&#xA;" OwnerUserId="14617" LastActivityDate="2019-09-04T17:31:50.703" Title="What are the statistical tests I need to perform before I regress GDP on multiple variables?" Tags="&lt;econometrics&gt;&lt;applied-econometrics&gt;&lt;regression&gt;&lt;paneldata&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30754" PostTypeId="1" CreationDate="2019-09-04T22:54:52.430" Score="0" ViewCount="16" Body="&lt;p&gt;If a government decides to recapitalize banks then will that come under government expenditure and show up in GDP or will it be a transfer payment and stay outside the GDP? and why?&#xA;In short, Is the capital infusion done in the banks by the federal government falls under transfer payments or govt expenditure? and why would it be so?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you!&lt;/p&gt;&#xA;" OwnerUserId="24166" LastActivityDate="2019-09-04T22:54:52.430" Title="Recapitalization of Banks" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30755" PostTypeId="1" AcceptedAnswerId="31914" CreationDate="2019-09-05T11:19:28.863" Score="6" ViewCount="121" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;The Australian dollar, often viewed by traders as a proxy for the&#xA;  Chinese economy, gained 0.3 per cent against its US counterpart.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;From: &lt;a href=&quot;https://www.ft.com/content/b18d1c56-cf75-11e9-b018-ca4456540ea6&quot; rel=&quot;nofollow noreferrer&quot;&gt;S&amp;amp;P 500 hits one-month high on renewed trade hopes&lt;/a&gt; (September 5, 2019)&lt;/p&gt;&#xA;" OwnerUserId="6699" LastEditorUserId="8481" LastEditDate="2020-05-03T07:48:17.033" LastActivityDate="2020-05-03T07:48:17.033" Title="Why is the Australian dollar, often viewed by traders as a proxy for the Chinese economy?" Tags="&lt;international-trade&gt;&lt;china&gt;&lt;currency-exchange&gt;&lt;australia&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30756" PostTypeId="1" CreationDate="2019-09-05T13:35:28.377" Score="2" ViewCount="790" Body="&lt;p&gt;Having learned that &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://wikiwand.com/en/Opportunity_cost&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;strong&gt;Opportunity costs&lt;/strong&gt;&lt;/a&gt; = the costs for avoided profits &lt;/p&gt;&#xA;&#xA;&lt;p&gt;are a well established and quite useful economic concept, I wonder how its counterpart is officially called and investigated:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Opportunity profits&lt;/strong&gt; = the profit by avoided costs&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Costs can be avoided in many different ways: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;by paying unfair wages&lt;/li&gt;&#xA;&lt;li&gt;by not providing good working conditions&lt;/li&gt;&#xA;&lt;li&gt;by paying too low taxes&lt;/li&gt;&#xA;&lt;li&gt;by exploiting the environment without paying for avoidance or reparation of damages and pollutions.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;My question is for&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;the official name of &quot;profit by avoiding costs&quot;&lt;/li&gt;&#xA;&lt;li&gt;some standard references on this topic&lt;/li&gt;&#xA;&lt;li&gt;esp. in comparison with opportunity costs&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;A useful article on opportunity costs is this one:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;a href=&quot;http://jfzuluaga.com/wp-content/uploads/CostoDeOportunidad.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Do Economists Recognize an Opportunity Cost When They See One?&lt;/a&gt; &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;One may as well ask: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Do Economists Recognize an Opportunity Profit When They See One?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Side question (the other way around): Would&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;paying higher wages than normal or necessary&lt;/li&gt;&#xA;&lt;li&gt;providing better working conditions than normal or necessary&lt;/li&gt;&#xA;&lt;li&gt;paying higher taxes than normal or necessary&lt;/li&gt;&#xA;&lt;li&gt;paying more for avoidance and reparation of environmental damages and pollutions than normal or necessary&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;count as opportunity costs?&lt;/p&gt;&#xA;" OwnerUserId="22991" LastEditorUserId="22991" LastEditDate="2019-09-05T16:03:50.887" LastActivityDate="2021-05-06T20:42:33.780" Title="Opportunity profits vs. opportunity costs" Tags="&lt;macroeconomics&gt;&lt;profit-maximization&gt;&lt;profits&gt;&lt;opportunity-cost&gt;&lt;fairness&gt;" AnswerCount="3" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30757" PostTypeId="2" ParentId="30756" CreationDate="2019-09-05T14:10:21.860" Score="4" Body="&lt;p&gt;Opportunity cost is simply the value not obtained of the highest value alternative. It can be positive or negative; meaning it doesn't really make sense to define the opposite as opportunity profit. There is only two ways to go about it rationally, either you are profiting from doing something, or you are not profiting by not doing something, which is defined as opportunity cost. Opportunity profit would just equate to opportunity cost because you are &lt;strong&gt;&lt;em&gt;not doing&lt;/em&gt;&lt;/strong&gt; whatever the opportunity is. (Also, I'm not the down voter). &lt;/p&gt;&#xA;" OwnerUserId="23072" LastActivityDate="2019-09-05T14:10:21.860" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="30758" PostTypeId="1" CreationDate="2019-09-05T14:59:07.067" Score="1" ViewCount="29" Body="&lt;p&gt;I have recently downloaded a time-series of one-week U.S. Generalized Collateral Repurchase Agreement Rates from Bloomberg (Ticker: USRGCY1Z CURNCY). While looking through the data, I noticed that the bid rate exceeds the ask rate a vast majority of the time. Intuitively, this does not make much sense to me since normally the bid rate is the rate at which a bank is willing to borrow and the ask rate represents the rate that is applied when lending money.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This can be found here: &lt;a href=&quot;https://financial-dictionary.thefreedictionary.com/Interbank+Bid+Rate&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://financial-dictionary.thefreedictionary.com/Interbank+Bid+Rate&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When considering the nature of a GC Repo contract, which is fully collateralized, might the reason be that the collateral (mostly high-quality bonds) are in such high demand that banks &quot;charge&quot; a premium when borrowing?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am very grateful for any thoughts or hints, thank you in advance! &lt;/p&gt;&#xA;" OwnerUserId="23509" LastEditorUserId="23509" LastEditDate="2019-09-05T18:42:55.363" LastActivityDate="2019-09-05T18:42:55.363" Title="One Week U.S. GC REPO Bid Rate Exceeds Ask Rate" Tags="&lt;banking&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30759" PostTypeId="1" AcceptedAnswerId="30805" CreationDate="2019-09-05T18:46:22.733" Score="3" ViewCount="78" Body="&lt;p&gt;Microeconomics concepts greatly help us to understand the broad aggregates which are used in Macroeconomics to understand the overall functioning of an economy  but &lt;strong&gt;are there any ways in which Macroeconomics help us to understand the behavior of individual units?&lt;/strong&gt;  &lt;/p&gt;&#xA;" OwnerUserId="24166" LastEditorUserId="24166" LastEditDate="2019-09-05T19:27:04.173" LastActivityDate="2019-09-08T23:26:08.820" Title="Macroeconomics v Microeconomics" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30760" PostTypeId="2" ParentId="30756" CreationDate="2019-09-05T20:17:10.743" Score="3" Body="&lt;p&gt;First off some terminology: opportunity cost are not necessarily avoided profit. Profit is a term that is used for firms, but opportunity cost does not just apply to firms. Moreover as @clinical coder points out the opportunity costs are not avoided profits but the value of the best alternative forgone. For certain firm decisions that may be forgone profit, but it may be something else entirely. For example in perfect competition the accounting profit of a firm in the long run equals the opportunity costs of the capital and labour contributed by the owners.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The examples you give of potentially avoided costs are all examples of either normative questions (when would you consider a wage to be &quot;fair&quot;, what are &quot;good&quot; working conditions?) or externalities (pollution). In any case in perfect competition opportunities for extra profit through avoidable costs are likely to be cashed in upon pretty quickly.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose a firm can make extra profit by paying a lower wage. As long as it can do so without chasing away employees and lowering its production it will do so in order to maximize its profits. If the first firm does so the rest will follow suit because otherwise the first firm can drive them out of the market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given that we expect avoidable costs to be cashed in upon pretty quickly, there is no specific term for it as far as I know. There is, however, a large literature on externalities and the economics of optimal regulation.&lt;/p&gt;&#xA;" OwnerUserId="12186" LastActivityDate="2019-09-05T20:17:10.743" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30761" PostTypeId="1" CreationDate="2019-09-06T02:58:28.763" Score="0" ViewCount="113" Body="&lt;p&gt;Let's assume that we start with an economy producing two goods, A and B, with each priced $100. Each good is weighted using the same quantity, so CPI equals 100. Nominal wage is also 100 dollars. An increase in money supply cause an equal increase of 20% for both good A and good B, while real wage fall because that CPI now equals 120. The question is that, relative prices between A and B did not change while the real wage fell (against CPI), what would be the result of these on real GDP? I presume that the producers would want produce the same amount as their relative prices did not change while the workers would reduce their quantity supplied as their real wage fell, compared to CPI. Thus, this would bid up wages until equilibrium in labor market is reached, as firms would find it non-optimal supplying any other quantity than initial level of real GDP because their MC would be bigger than their MR or vice versa. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Did I got the situation right? Any thoughts? Thanks in advance. &lt;/p&gt;&#xA;" OwnerUserId="24175" LastEditorUserId="24175" LastEditDate="2019-09-06T23:08:49.620" LastActivityDate="2021-05-29T03:04:50.483" Title="A hypothetical question on neutrality of money" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;&lt;money-supply&gt;&lt;price-level&gt;&lt;aggregate-production&gt;" AnswerCount="1" CommentCount="10" ContentLicense="CC BY-SA 4.0" />
  <row Id="30762" PostTypeId="1" CreationDate="2019-09-06T04:44:26.637" Score="1" ViewCount="47" Body="&lt;p&gt;In my textbook, it says that monopolistic competition will never lead to productive efficiency (where &lt;span class=&quot;math-container&quot;&gt;$MC=AC$&lt;/span&gt;) in the short run and long run. I understand that they are meant to be producing at the profit-maximising level of output (where &lt;span class=&quot;math-container&quot;&gt;$MC=MR$&lt;/span&gt;), but all the diagrams showcase scenarios where the &lt;span class=&quot;math-container&quot;&gt;$AC$&lt;/span&gt; curve is always positioned such that the points where MR=MC does not intersect where &lt;span class=&quot;math-container&quot;&gt;$MC=AC$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is, is there any possibility that the profit-maximising level of output will also happen to be where we've achieved the lowest possible unit cost (lowest &lt;span class=&quot;math-container&quot;&gt;$AC$&lt;/span&gt;)? So that &lt;span class=&quot;math-container&quot;&gt;$MC=MR=AC$&lt;/span&gt;, and the firm can be both productively-efficient whilst also being profit-maximising? Why is this not possible?&lt;/p&gt;&#xA;" OwnerUserId="24176" LastEditorUserId="1601" LastEditDate="2019-09-06T06:44:36.917" LastActivityDate="2019-09-06T06:44:36.917" Title="Monopolistic Competition- productive efficiency" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30763" PostTypeId="2" ParentId="30762" CreationDate="2019-09-06T06:33:28.967" Score="1" Body="&lt;p&gt;Let &lt;span class=&quot;math-container&quot;&gt;$q$&lt;/span&gt; denote the output of the firm, and let &lt;span class=&quot;math-container&quot;&gt;$\varepsilon_p(q)$&lt;/span&gt; denote the elasticity of price w.r.t. quantity sold. We know that when profit is maximized&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;|\varepsilon_p(q)| = \frac{p(q)-MC(q)}{p(q)}.&#xA;$$&lt;/span&gt;&#xA;We also know that in the long-run equilibrium firms have zero economic profit, i.e.&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;AC(q) = p(q).&#xA;$$&lt;/span&gt;&#xA;Productive efficiency is achieved when &lt;span class=&quot;math-container&quot;&gt;$AC(q)$&lt;/span&gt; is minimized, and at that point&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;AC(q) = MC(q)&#xA;$$&lt;/span&gt;&#xA;holds as well. Combining these we get&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;|\varepsilon_p(q)| = \frac{p(q)-MC(q)}{p(q)} = \frac{AC(q)-AC(q)}{p(q)} = 0.&#xA;$$&lt;/span&gt;&#xA;So the only case when all these properties coincide is when the quantity sold has no effect on the market price, i.e. when demand is perfectly elastic.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;An explanation without the elasticity part: &lt;br&gt;&#xA;From the other two properties (long-run equilibrium and productive efficiency) we have &#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;MC(q) = AC(q) = p(q).&#xA;$$&lt;/span&gt;&#xA;Together with profit maximization this implies that firms are price takers, &lt;span class=&quot;math-container&quot;&gt;$MR(q) = p(q)$&lt;/span&gt;, but since&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;MR(q) = \frac{\text{d} \ p(q)q}{\text{d} \ q} = p(q) + p'(q)q&#xA;$$&lt;/span&gt;&#xA;this is only possible if &lt;span class=&quot;math-container&quot;&gt;$p'(q) = 0$&lt;/span&gt;, which again means that demand is perfectly elastic.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;All the above assumed that the demand and inverse demand functions are continuously differentiable. You could have a situation with not perfectly elastic but kinked demand, where profit maximization occurs exactly at the kink. In this case &lt;span class=&quot;math-container&quot;&gt;$MR(q)$&lt;/span&gt; does not exist at the point of profit maximization.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2019-09-06T06:42:15.440" LastActivityDate="2019-09-06T06:42:15.440" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="30764" PostTypeId="2" ParentId="30402" CreationDate="2019-09-06T06:37:22.697" Score="0" Body="&lt;p&gt;The most direct way I could think of: investment means construction companies, etc. need to get more workers. These workers will then have higher income and generate more demand.&lt;/p&gt;&#xA;" OwnerUserId="5145" LastActivityDate="2019-09-06T06:37:22.697" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30765" PostTypeId="2" ParentId="30402" CreationDate="2019-09-06T06:53:28.580" Score="1" Body="&lt;p&gt;As mentioned by @Henry: investment is itself a demand for capital goods (physical, human, etc.).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I decide to buy trucks this manifests itself as an increase in demand to the truck factory.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="14660" LastEditDate="2019-09-07T09:08:26.480" LastActivityDate="2019-09-07T09:08:26.480" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30766" PostTypeId="1" AcceptedAnswerId="30770" CreationDate="2019-09-06T07:20:51.327" Score="2" ViewCount="707" Body="&lt;p&gt;Apparently, Mundell and Tobin used different methods to explain the Mundell-Tobin effect (which means that in general higher inflation increases the nominal interest rate, but decreases the real interest rate so Fisher's statement about the one-for-one adjustment of the nominal interest rate to the increase in inflation is slightly wrong) and I have two questions regarding their arguments:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;According to Mundell, higher inflation reduces demand for money and increases demand for Bonds, decreasing the required return on bonds and decreasing the real interest rate. &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Question here: Aren't required return on bonds &quot;nominal&quot;? So I assume here that the decrease in the required return for bonds means a decrease in the &quot;nominal&quot; interest rate. But isn't the Mundell-Tobin effect supposed to result in 'higher' nominal interest rates? This looks likes a contradiction to me but obviously I'm pretty sure I'm misunderstanding something here so I wish to know what I'm missing. &lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;2&quot;&gt;&#xA;&lt;li&gt;According to Tobin, higher inflation reduces demand for money and increases demand for real capital, decreasing the marginal productivity of capital and decreasing the real interest rate. &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Question here: I believe that an increase in the demand for real capital means the same thing as the increase in the demand for loanable funds to acquire capital as investment(in the loanable funds market). In this case the rightward shift of the demand curve for lonable funds actually increases the real interest rate in the loanable funds market, which directly contradicts Tobin's statement (since it is the real interest rate that is associated with the loanable funds market, not the nominal interest rate). So how should I understand this contradiction? &lt;/p&gt;&#xA;" OwnerUserId="23697" LastEditorUserId="23697" LastEditDate="2019-09-06T07:42:14.007" LastActivityDate="2019-09-06T18:55:56.553" Title="Explanation for Mundell-Tobin Effect" Tags="&lt;inflation&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30767" PostTypeId="1" CreationDate="2019-09-06T16:10:41.630" Score="-1" ViewCount="32" Body="&lt;p&gt;Is it 100 dollars or 50 dollars? I'm assuming it is $100 because GDP is the total market value of all final products. Is this correct?&lt;/p&gt;&#xA;" OwnerUserId="24179" LastActivityDate="2019-09-07T03:46:32.597" Title="If a firm produced 100 pens with a market value of $1 each, but only 50 were sold, what is the value added to the GDP?" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;&lt;markets&gt;" AnswerCount="1" CommentCount="0" ClosedDate="2019-09-18T01:57:39.267" ContentLicense="CC BY-SA 4.0" />
  <row Id="30768" PostTypeId="2" ParentId="30766" CreationDate="2019-09-06T16:53:17.497" Score="1" Body="&lt;p&gt;The Mundell-Tobin effect is only significant if there are a lot of people holding cash.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;Inflation causes the value of cash to decrease in real terms. When inflation is high, the required rate of return of bonds &lt;em&gt;in real terms&lt;/em&gt;  does not have to be so high for it to be worthwhile to move cash into bonds.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;If all capital assets are bought with loans, then demand for capital assets will be unaffected by inflation. However, capital assets may also be bought with cash.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;The following blog post explains the Mundell-Tobin effect better than I can.&#xA;&lt;a href=&quot;http://illusionofprosperity.blogspot.com/2011/01/mundell-tobin-effect-epiphany.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://illusionofprosperity.blogspot.com/2011/01/mundell-tobin-effect-epiphany.html&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="21196" LastActivityDate="2019-09-06T16:53:17.497" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30769" PostTypeId="1" CreationDate="2019-09-06T18:35:05.003" Score="2" ViewCount="95" Body="&lt;p&gt;I've come up with this question while discussing the topic of customer-perceived value with coworker. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there a theoretical upper limit to all circulating money in this world?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To avoid inflation or the simple answer &quot;just print more money&quot;, let's use the current USD as the 'standard money' in this question. (I'm simply going to go off 'value of USD' from Google [if someone has a more precise way, then any suggestions would be much appreciated] where 1USD = .91 euro at the time of writing this).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;According to &lt;a href=&quot;https://www.businessinsider.com/heres-how-much-money-there-is-in-the-world-2017-10&quot; rel=&quot;nofollow noreferrer&quot;&gt;Business Insider&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;according to the CIA, the total amount is $80 trillion if you include&#xA;  &quot;broad money.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In my mind, assuming that all first-world counties' standard of living stay the same or get better, if third-world countries were to, all of a sudden, become first world countries in 2020, that would mean there is more money circulating in the world (more GDP per capita in the third-world country, thus more GDP per capita in the world). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And as the economies of third-world countries get better, they would create more value in their products/services that the people of their country produces.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So in an ideal world, if everyone lived as millionaires (aka, everyone drives $100,000+ cars, million-dollar homes etc.), due to the economy in every country flourishing, wouldn't that mean there is no upper limit to all circulating money in the world?&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;But as a counter, that's only in an ideal world - not reality.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's say you can buy a car for 50,000 USD. The manufacturer is  &lt;strong&gt;not&lt;/strong&gt; going to create that car if it takes them $50,000 to make it. Where's the profit? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So then let's say there is a company that creates the rubber for the tire, another company creates the seats for the the car, so on and so forth. All those companies are not going to create their product without profit, because where's the incentive to do so without it? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If that's true, then someone at the bottom of the chain will be doing the work for minimal profit, which makes me think that the cars that are sold to people only exist because people at the bottom of the chain - which leads to, first world countries only exist due to third world countries (why do you think a t-shirt at GAP costs 3 dollars? Gap is selling you the shirt for 3 dollars because they only paid 1.50 dollars to make it, which someone did, most likely in a third world country), which means the upper limit of circulating money in the world would more or less look like y = ln(x) &lt;a href=&quot;https://i.stack.imgur.com/h3xqR.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;image of y = ln(x)&lt;/a&gt; because as first-world countries get wealtier, there is only so much they can grow because they're bounded to the work in third-world countries.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;em&gt;Disclaimer&lt;/em&gt;&lt;/strong&gt;: My counter argument is simply a hypothesis and I have no grounds of proof. I'd be happy to debate/have someone shed some light if I am entirely wrong. The only reason why I mentioned it is because I wanted to provide a counter reason as to why there is an upper limit to all the circulating money in the world.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;em&gt;Clarification&lt;/em&gt;&lt;/strong&gt;: What I am not asking is all the value in the world. I could create a painting and say it's worth 900 trillion dollars and that would 'increase' all the monetary value in the world to 980 trillion (assuming that we currently have $80 trillion in circulation). What I am asking is strictly &lt;strong&gt;circulating money&lt;/strong&gt;.&lt;/p&gt;&#xA;" OwnerUserId="24181" LastActivityDate="2020-02-03T20:02:10.313" Title="What is the upper limit of circulating money on earth?" Tags="&lt;economic-growth&gt;&lt;money-supply&gt;&lt;international-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30770" PostTypeId="2" ParentId="30766" CreationDate="2019-09-06T18:55:56.553" Score="2" Body="&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Robert_Mundell&quot; rel=&quot;nofollow noreferrer&quot;&gt;Robert Mundell&lt;/a&gt; originally wrote about Mundell-Tobin effect in response to the &lt;a href=&quot;https://en.wikipedia.org/wiki/Fisher_hypothesis&quot; rel=&quot;nofollow noreferrer&quot;&gt;Fisher effect&lt;/a&gt;, which states that &quot;the real interest rate is unaffected by monetary policy and hence unaffected by the expected inflation rate.&quot; In other words, nominal interest rates will always adjust such that real interest rates stay at whatever the market rate is. Hence, if inflation rises, then nominal interest rates must rise. Which brings us to the first point of confusion...&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Mundell-Tobin effect supposed to result in 'higher' nominal interest rates&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This is the Fisher effect not Mundell-Tobin. Note the Mundell-Tobin effect explains why nominal interest rates &lt;em&gt;will not rise as high as expected&lt;/em&gt; by the Fisher effect - it will be less than one-to-one. This is not a contradiction as much as a competing factor.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;I believe that an increase in the demand for real capital means the same thing as the increase in the demand for loanable funds&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The reduced demand for money increases the supply of loanable funds, which &lt;a href=&quot;https://en.wikipedia.org/wiki/Induced_demand&quot; rel=&quot;nofollow noreferrer&quot;&gt;induces more demand&lt;/a&gt;, which is then used to purchase real capital. This in turn reduces the expected rate of return on this capital. If expected rate of return is not as high on capital, real interest rates do not have to be as high to compete in terms of opportunity cost.&lt;/p&gt;&#xA;" OwnerUserId="8387" LastActivityDate="2019-09-06T18:55:56.553" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30771" PostTypeId="1" AcceptedAnswerId="30777" CreationDate="2019-09-06T19:19:35.567" Score="3" ViewCount="587" Body="&lt;p&gt;In Microeconomic theory, the budget constraint is defined by 4 distinct properties:&#xA;It is&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Bounded&lt;/li&gt;&#xA;&lt;li&gt;Closed&lt;/li&gt;&#xA;&lt;li&gt;Convex&lt;/li&gt;&#xA;&lt;li&gt;Non-empty&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;The 1. 2. and 4. are very straight forward and the benefits in terms of analysis are apparent. My question is with respect to convexity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Convexity of a set implies that any line between two points is the set is also within the set (i.e. take any two points say &lt;span class=&quot;math-container&quot;&gt;$q$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$q'$&lt;/span&gt; that both satisfy the constraint, then any linear combination of the &lt;span class=&quot;math-container&quot;&gt;$q$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$q'$&lt;/span&gt; also satisfy the constraint)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is, what is the benefit or added utility to this property holding?&#xA;I immediately think of a budget constraint that, rather than exhibiting diminishing marginal returns, exhibits increases returns in a kind of learning sense: As more of one good is produced, the production becomes more efficient as the producer is learning. Whether or not this is a realistic circumstance, it begs the question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What happens if convexity is violated? or rather, what can we &lt;strong&gt;no longer do&lt;/strong&gt;?&lt;/p&gt;&#xA;" OwnerUserId="23546" LastActivityDate="2019-09-07T14:31:37.033" Title="Set Theory Properties of the Budget Constraint" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;consumer-theory&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30772" PostTypeId="2" ParentId="30769" CreationDate="2019-09-06T19:24:20.313" Score="2" Body="&lt;p&gt;What you are asking, dressed up in economics lingo, is as follows: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there a limit to &lt;a href=&quot;https://en.wikipedia.org/wiki/Real_versus_nominal_value_(economics)&quot; rel=&quot;nofollow noreferrer&quot;&gt;real&lt;/a&gt; &lt;a href=&quot;https://en.wikipedia.org/wiki/Gross_world_product&quot; rel=&quot;nofollow noreferrer&quot;&gt;gross world product&lt;/a&gt; growth?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Short answer&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A qualified no.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Longer answer&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First of all, developed countries do indeed heavily benefit from the work of developing countries. Globalization has found a way to incorporate cheap labor from overseas for economic growth. However, incorporation of more labor is not the only way the economy grows. Innovation such as new ways to manufacture things more efficiently is another. Just search for &quot;ways in which GDP grows&quot; and most results should apply. But the bottom line is one could imagine a situation were autonomous robots produced expensive cars that were freely available to everyone without having to exploit human labor. Of course, whether the environment could sustain such intense resource usage or whether humans can bring automation/AI to such a point may put practical limits.&lt;/p&gt;&#xA;" OwnerUserId="8387" LastActivityDate="2019-09-06T19:24:20.313" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="30775" PostTypeId="2" ParentId="30771" CreationDate="2019-09-06T23:36:28.040" Score="4" Body="&lt;p&gt;Without convexity, we'd lose the convenience of using the first order condition (or the tangency condition) to identify the optimal consumption bundle.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As shown in the following figure, where the red-shaded region is a non-convex budget set, the tangency at point &lt;span class=&quot;math-container&quot;&gt;$E$&lt;/span&gt; is not the optimal consumption point; rather, the optimum is a corner solution, where only &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; is consumed. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/8RJV7.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/8RJV7.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2019-09-06T23:36:28.040" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="30776" PostTypeId="2" ParentId="30761" CreationDate="2019-09-07T00:04:39.310" Score="0" Body="&lt;p&gt;I think I figured out the answer using Excel. I assumed that there was a 100% inflation in goods market so that the prices of two goods doubled, while keeping the nominal wage fixed. The result was that an individual producer would still be making positive inflation adjusted profits. So I assume that in the scenario I described above, real GDP would still increase even though relative prices in goods market stays the same because that costs adjusted for inflation fall. When I also doubled the nominal wage so that the equilibrium in labor market is back to its initial level, profits were down back to the initial levels.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here are the screenshots from Excel&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/EbQEp.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/EbQEp.png&quot; alt=&quot;A hypothetical firm and its cost curve&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A hypothetical firm and its cost curve.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/dfaym.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/dfaym.png&quot; alt=&quot;Real price and real cost of the firm after a 100% inflation in the goods market&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Real price and real cost of the firm after a 100% inflation in the goods market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/b7znV.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/b7znV.png&quot; alt=&quot;Inflation adjusted profits of the firm after doubling the nominal wage from 120 dollars to 140 dollars. Profit levels are returned to their initial amounts and I presume that at this point firms would go back to produce the initial amount of real GDP.&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Inflation adjusted profits of the firm after doubling the nominal wage from 120 dollars to 140 dollars. Profit levels are returned to their initial amounts and I presume that at this point firms would go back to produce the initial amount of real GDP.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think what I got incorrect was that I was trying to compute real wages by dividing it to a ratio of nominal prices to CPI using the formula (W)/(P/P*) where P* representing CPI level. The correct usage should be (W/P*)/(P/P*) so that an equal increase in price of an individual good and CPI while holding the nominal wage fixed should result in a lower real wage, inducing higher profits than the initial level of prices and costs thus resulting in more labor demanded by the firm producing good A. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;When I doubled the nominal wage and used the (W/P*)/(P/P*) formula, real wage went back to the initial level so that there was no profit opportunity so the firms reduced the extra real GDP supplied and therefore went back to their original levels of production.&lt;/p&gt;&#xA;" OwnerUserId="24175" LastEditorUserId="24175" LastEditDate="2019-09-07T00:22:51.763" LastActivityDate="2019-09-07T00:22:51.763" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30777" PostTypeId="2" ParentId="30771" CreationDate="2019-09-07T00:10:06.653" Score="5" Body="&lt;p&gt;Convexity can be a very important assumption as much of economic analysis is built on working with convex sets, which makes things easier. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Very importantly, convexity of sets allows us to work with the Separating Hyperplane and Supporting Hyperplane theorems, which have applications to many results in economics, as partially discussed &lt;a href=&quot;https://economics.ubc.ca/files/2014/02/pdf_course_erwin-diewert-ECON594Ch2.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; and &lt;a href=&quot;https://en.wikipedia.org/wiki/Convexity_in_economics&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is also a short, concrete example of something for which we need convexity of the budget set:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose you want to prove that Marshallian Demand &lt;span class=&quot;math-container&quot;&gt;$x(p,m)$&lt;/span&gt; is single-valued for every (larger than zero) price (&lt;span class=&quot;math-container&quot;&gt;$p$&lt;/span&gt;) and (non-negative) income (&lt;span class=&quot;math-container&quot;&gt;$m$&lt;/span&gt;) combination. That is to say, a Marshallian Demand Function exists, since without single-valuedness we would have a Marshallian Demand Correspondence (i.e. we'd have multiple good combinations as part of the optimal demand choice for a single given price and income level), which can be harder to work with. This is a pretty nice result that we (almost) always work with in undergraduate texts. For that you need strictly convex preferences and a convex budget set &lt;span class=&quot;math-container&quot;&gt;$B(p,m)$&lt;/span&gt;. The proof is as follows:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If two points &lt;span class=&quot;math-container&quot;&gt;$x_1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$x_2$&lt;/span&gt; are both elements of the demand &lt;span class=&quot;math-container&quot;&gt;$x(p,m)$&lt;/span&gt; at given prices &lt;span class=&quot;math-container&quot;&gt;$p$&lt;/span&gt; and income &lt;span class=&quot;math-container&quot;&gt;$m$&lt;/span&gt;, i.e. if &lt;span class=&quot;math-container&quot;&gt;$x_1, x_2 \in x(p,m)$&lt;/span&gt;, then by definition we must have indifference between the two points, that is &lt;span class=&quot;math-container&quot;&gt;$x_1 \sim x_2$&lt;/span&gt;. For a single-valued demand function two different points &lt;span class=&quot;math-container&quot;&gt;$x_1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$x_2$&lt;/span&gt; cannot exist  for single given level of prices and income, i.e. they would have to be the same point. In other words  &lt;span class=&quot;math-container&quot;&gt;$x_1 = x_2$&lt;/span&gt;. We prove it by contradiction. Suppose &lt;span class=&quot;math-container&quot;&gt;$x_1 \neq x_2$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For all &lt;span class=&quot;math-container&quot;&gt;$\lambda \in (0,1)$&lt;/span&gt;, we have &lt;span class=&quot;math-container&quot;&gt;$\lambda *x_1 + (1-\lambda) *x_2 \in B(p,m)$&lt;/span&gt; by convexity of &lt;span class=&quot;math-container&quot;&gt;$B$&lt;/span&gt;. By strict convexity of preferences we have &lt;span class=&quot;math-container&quot;&gt;$\lambda *x_1 + (1-\lambda) *x_2 \succ x_1$&lt;/span&gt;. However, this contradicts the fact that &lt;span class=&quot;math-container&quot;&gt;$x_1 \in x(p,m)$&lt;/span&gt; in the first place. Hence, &lt;span class=&quot;math-container&quot;&gt;$x_1 = x_2$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, in words, some combination of &lt;span class=&quot;math-container&quot;&gt;$x_1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$x_2$&lt;/span&gt; is better than just &lt;span class=&quot;math-container&quot;&gt;$x_1$&lt;/span&gt; at the given price and income level. But such a combination is also &lt;strong&gt;attainable&lt;/strong&gt; at that given price and income level because of the convexity of the budget set. This is where the budget set convexity assumption is important. Furthermore, if for a given price and income level there is a point (in this case a combination of &lt;span class=&quot;math-container&quot;&gt;$x_1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$x_2$&lt;/span&gt;) that is both strictly better and attainable, then this contradicts the original starting point that &lt;span class=&quot;math-container&quot;&gt;$x_1$&lt;/span&gt; is a point in the demand function for the given price and income level.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a side note, I think it is a bit misleading to talk about producers in your post when talking about budget constraints. If we are looking at a budget constraint, we should be discussing consumers.&lt;/p&gt;&#xA;" OwnerUserId="5557" LastEditorUserId="5557" LastEditDate="2019-09-07T14:31:37.033" LastActivityDate="2019-09-07T14:31:37.033" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30778" PostTypeId="2" ParentId="30767" CreationDate="2019-09-07T03:46:32.597" Score="0" Body="&lt;p&gt;That is correct. \$50 would be counted towards consumption, and the rest would be counted as investment (inventory).&lt;/p&gt;&#xA;" OwnerUserId="5145" LastActivityDate="2019-09-07T03:46:32.597" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30779" PostTypeId="2" ParentId="29660" CreationDate="2019-09-07T03:53:45.380" Score="0" Body="&lt;p&gt;You need to take into account the &lt;em&gt;cost&lt;/em&gt; of producing a good as well. In most cases, the marginal cost of producing something is increasing. A profit-maximizing producer would want to produce until price is equal to marginal cost. That means that scenario 2 is responsible.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the case of rising prices with no increase in demand, just think about the basic demand and supply model. What could cause an increase in equilibrium price without the demand's changing? (Hint: a shift in ____). What could cause that shift?&lt;/p&gt;&#xA;" OwnerUserId="5145" LastActivityDate="2019-09-07T03:53:45.380" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30783" PostTypeId="1" CreationDate="2019-09-07T18:58:41.117" Score="1" ViewCount="51" Body="&lt;p&gt;As given in the picture, question ask us to transform dependent variable, by premultiplying with a weighting matrix W, (which will change the regression coefficient into C'β) such that the expression (given in question) has a minimum mean squared error.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, I solved part a) by solving for the brackets of E[(w′y−c′β)(w′y−c′β)′] and differentiating with respect to w, I obtain the expression as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$w′y=[c′ββ′x′(xββ′x′+σ^2.I)^{−1}]y$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is What does this espression signify or simply put what did we do/ what are we trying to achieve and why it is not practical to use above estimator? Any help or suggestion will be helpful. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;PS: Is it impractical because &lt;span class=&quot;math-container&quot;&gt;$σ^2$&lt;/span&gt; is unknown?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Expression can be rewritten as - &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$w′y=[c′ββ′x′(E(yy') )^{−1}]y$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Because Xβ = E(Y|X) and Var(y) =&lt;span class=&quot;math-container&quot;&gt;$σ^2$&lt;/span&gt;I, By the formula &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Var(Y) = E(YY') + E(Y|X)E(Y|X)'&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit: Expressions for estimated β is given by (X'X)&lt;span class=&quot;math-container&quot;&gt;$^{-1}$&lt;/span&gt;X'Y where, define A= (X'X)&lt;span class=&quot;math-container&quot;&gt;$^{-1}$&lt;/span&gt;X'. This gives estimated β = AY. So, the expression W'Y be also denoting another expression for estimated β, an expression computed such that the discrepancy between the stylised expression for est_β ie W'Y and the weighted β ie C'β is minimum? Am I thinking on correct lines? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/h9kuy.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/h9kuy.jpg&quot; alt=&quot;Question&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="18929" LastEditorUserId="18929" LastEditDate="2019-09-09T21:44:27.387" LastActivityDate="2019-09-09T21:44:27.387" Title="Minimizing the error: Transforming dependent variable" Tags="&lt;econometrics&gt;&lt;regression&gt;" AnswerCount="0" CommentCount="13" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30784" PostTypeId="1" CreationDate="2019-09-07T19:58:41.597" Score="0" ViewCount="56" Body="&lt;p&gt;When Forbes-lists of top billionaires are published we are usually aghast of their riches and statements such as &quot;the 8 richest people own as much as the poorer half&quot; are disseminated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I was wondering however, most of these top billionaires have a huge concentration of their wealth in the form of stocks/securities. Is this kind of wealth then calculated as &quot;number of stocks possessed x latest stock price&quot;? That would entail a subtle commitment/choice because of the reason that when a large shareholder such as a billionaire sells of his stake in a short period time (to consume the proceeds) this sudden excess of supply in shares deflates the stock-price thus rendering the total proceeds lower than the value previously proposed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Q: is there a simple way to answer the question how large the proceedings can optimally be if a large shareholder wishes to liquidate his shares in a time-interval &lt;span class=&quot;math-container&quot;&gt;$T&amp;gt;0$&lt;/span&gt; (assuming something like a rational-markets hypothesis applies to all other parties)? &lt;/p&gt;&#xA;" OwnerUserId="24185" LastActivityDate="2020-02-05T02:01:20.143" Title="Most profitable conversion of stock into money" Tags="&lt;microeconomics&gt;&lt;supply-and-demand&gt;&lt;liquidity&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="30786" PostTypeId="2" ParentId="30784" CreationDate="2019-09-08T01:02:07.160" Score="1" Body="&lt;p&gt;Yes.  There is a good chapter on this general question in &lt;em&gt;The Valuation Handbook&lt;/em&gt; book by Ashok Abbott.  It is a whole chapter so it is too long reproduce here.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Shortened down, he shows that there is a half-life effect given the amount of volume that a dealer normally carries and how long it normally takes them to liquidate a position.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;ISBN-10: 0470385790&lt;/p&gt;&#xA;" OwnerUserId="11321" LastActivityDate="2019-09-08T01:02:07.160" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30787" PostTypeId="2" ParentId="30392" CreationDate="2019-09-08T02:39:55.943" Score="1" Body="&lt;p&gt;The argument to have both share values converging is based on the fact that when the subsidiary redistributes the shares to the parent is similar to &quot;unspining off&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The spin-off subsidiary is effectively being re-owned by the parent, becoming a part (a share) of the parent. As such, owning shares of the subsidiary becomes a proxy of owning shares of the parent.&lt;/p&gt;&#xA;" OwnerUserId="12304" LastActivityDate="2019-09-08T02:39:55.943" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30788" PostTypeId="1" AcceptedAnswerId="30790" CreationDate="2019-09-08T02:49:25.907" Score="1" ViewCount="47" Body="&lt;p&gt;I've read that increased trade tends to decrease relative wages of labor. What is the intuition behind this? Lower wages in labor imply lower demand for workers, but doesn't trade just encourage specialization, meaning that workers can just be hired by whatever industry they decide to specialize in? &lt;/p&gt;&#xA;" OwnerUserId="18006" LastActivityDate="2019-09-08T09:35:38.070" Title="Why does trade depress relative wages?" Tags="&lt;labor-economics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30789" PostTypeId="2" ParentId="11792" CreationDate="2019-09-08T05:55:34.473" Score="1" Body="&lt;p&gt;I think a lot of people here gave some really good answers, including the person who got some downvotes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;240% debt-to-GDP ratio is based on a mathematical calculation. For example, currently here in the United States, we have a 105% debt-to-GDP ratio (\$22 Trillion ÷ \$21 Trillion = 1.05) That is the calculation used to arrive at that 240% you speak of.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Both are unmanageable debt-to-GDP ratios, the manageability consensus among economists being no higher than 60% debt-to-GDP ratio. So its not just unmanageable for individuals, it is indeed, unmanageable for nation-states as well, but if those figures concerning Japan are correct, why have they not entered insolvency is your burning question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Well, remember that nation-states can sell their debt via the bonds that Alexis talked about in his answer. Human behavior is always at play here. It could be that wishful thinkers type of investors are still hopeful that Japanese policymakers will reverse course just as with U.S. Treasury holders. Additionally pointed out by Alexis, Japan is a creditor to the nation that holds the worlds reserve currency, so we have to ask ourselves, if Japan was allowed to go insolvent, what effect would it have on the nation-state who holds the worlds reserve currency? Is that a desirable outcome to the international monetary system?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The difference with an individual is, nobody really cares if you go bankrupt except your loved ones. No one has skin in the game with your finances except for you and your loved ones. With nation-states there can be a lot more at stake.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, much like the United States, Japan is a major world economy with credit-worthiness and can also borrow in a currency that it prints...the yen. If you could borrow money as an individual in a currency that you print, you see how you would not go bankrupt so easily despite a huge debt load?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Remember, its the interest and late fees that really do us in where we as individuals have to file for bankruptcy and we can't print more money, we have to work more hours or hit the lottery or an inheritance.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By the way, by my research, in 2017 the Japanese debt-to-GDP was more like 253%.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The good news is, if Japan can hold such a debt load, it does not seem that the United States will collapse at 105%. This does not mean all is well.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When a nation-states debt-to-GDP ratio goes above 90%, that nation has gone through the looking glass into a new world of negative marginal returns on debt, slow growth and eventual default through nonpayment, inflation or renegotiation. This day is sure to arrive for both Japan and the United States, so do not be frustrated that it has not happened, it just does not happen as quickly for a nation-state than in our own personal finances. More complexity involved, before that day comes it will be preceded by a long period of weak growth, stagnant wages, rising income inequality and social discord.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here are a couple of resources that may also be of help to your inquiry:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.bis.org/publ/work352.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.bis.org/publ/work352.htm&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Used wisely and in moderation, [debt] clearly improves welfare. But, when [debt] is used imprudently and in excess, the result can be disaster. For individual households and firms, overborrowing leads to bankruptcy and financial ruin. For a country, too much debt impairs the governments' ability to deliver essential services to its citizens.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://voxeu.org/article/debt-and-growth-revisited&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://voxeu.org/article/debt-and-growth-revisited&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Have you researched whether that is already going on in Japan? See also &lt;a href=&quot;https://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1237.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;this 2010 European Central Bank study&lt;/a&gt;. It says that &quot;a higher public debt-to-GDP ratio is associated, on average, with lower long-term growth rates at debt levels above the range of 90-100% of GDP.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Notice this is not research from some fringe economics, it comes from the heart of the international monetary system and sponsored by the central banks.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So stay tuned, as evidence is accumulating that developed economies such as Japan and in particular, the United States, are on dangerous ground and possibly past the point of no return.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, despite not going bankrupt the last two decades for the Japanese economy has not been great, and I believe it could be possible that our next two decades here in the United States will look something like Japan's last two decades.&lt;/p&gt;&#xA;" OwnerUserId="20035" LastEditorUserId="4020" LastEditDate="2020-05-21T16:33:59.340" LastActivityDate="2020-05-21T16:33:59.340" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30790" PostTypeId="2" ParentId="30788" CreationDate="2019-09-08T09:35:38.070" Score="3" Body="&lt;p&gt;The theory is that if you have three types of production sectors in the economy:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Sectors which could export more with liberalised trade&lt;/li&gt;&#xA;&lt;li&gt;Sectors which could import more with liberalised trade&lt;/li&gt;&#xA;&lt;li&gt;Sectors which could see little change with liberalised trade&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;then increased trade could tend to increase wages in the first type of sector, reduce wages in the second type, while leaving the third type less affected.  In addition, greater efficiency associated with liberalised trade could tend to reduce overall consumer prices, boosting the real value of all wages.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So for an economy which has a comparative advantage in low-wage sectors, this theory might suggest that the relative wage gap could narrow with liberalised trade.  By contrast, the same theory might suggest that the relative wage gap could widen with liberalised trade for an economy which has a comparative advantage in high-wage sectors.    &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is only a theory and would require empirical confirmation.  Other things may be happening at the same time, such as changes in the local skill-sets or liberalised labour and consumer markets, which mean that the theoretical effects of liberalised trade are overwhelmed by other effects and the predicted relationship may not be seen.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An example of this sort of discussion can be read at &lt;a href=&quot;https://wol.iza.org/uploads/articles/378/pdfs/how-does-international-trade-affect-household-welfare.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://wol.iza.org/uploads/articles/378/pdfs/how-does-international-trade-affect-household-welfare.pdf&lt;/a&gt;      &lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2019-09-08T09:35:38.070" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30791" PostTypeId="1" AcceptedAnswerId="30802" CreationDate="2019-09-08T09:53:43.327" Score="3" ViewCount="381" Body="&lt;p&gt;While the fed has printed a lot of money the last decade and the M1 money quantity growth rate has gone up significantly (red), the M3 growth rate (blue) is almost exactly the same as before the financial crisis.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/WZCN3.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/WZCN3.png&quot; alt=&quot;M1 vs M3 growth rate in the US&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the euro area, M1 (red) has grown in the same rate as before, while M3 growth (blue) is significantly lower.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/2DUhG.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/2DUhG.png&quot; alt=&quot;M1 vs M3 growth rate in the euro zone&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why have M3 not followed the same quantitive expansion as M1?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And can this be an explanation for why we have not seen stronger inflation?&lt;/p&gt;&#xA;" OwnerUserId="20957" LastEditorUserId="20957" LastEditDate="2019-09-08T20:47:09.733" LastActivityDate="2019-09-08T22:57:50.917" Title="Why has M1 grown a lot faster than M3 after the financial crisis?" Tags="&lt;macroeconomics&gt;&lt;inflation&gt;&lt;money-supply&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30792" PostTypeId="2" ParentId="10664" CreationDate="2019-09-08T09:54:55.453" Score="1" Body="&lt;p&gt;At the level of individuals (and in the differentiable case), the first order derivatives of the demand system are related to the second order derivatives of the utility function. This implies that the second order derivatives of the demand system are related to the third order derivatives of the utility function. \ &#xA;Indeed, from the first order condition for optimality: &#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\frac{\partial u}{\partial x }(x^F(p,\lambda)) = \lambda p,  \\   &#xA;$$&lt;/span&gt;&#xA;where &lt;span class=&quot;math-container&quot;&gt;$x^F$&lt;/span&gt; denote the Frisch or &lt;span class=&quot;math-container&quot;&gt;$\lambda$&lt;/span&gt;-constant optimal demands. Keeping  &lt;span class=&quot;math-container&quot;&gt;$\lambda$&lt;/span&gt; constant, we see that changes in the price vector &lt;span class=&quot;math-container&quot;&gt;$p$&lt;/span&gt; affects optimal demands as follow: &#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{eqnarray*}&#xA;\frac{\partial^2 u}{\partial x \partial x'}(x^F(p,\lambda))\frac{\partial x^F}{ \partial p'}(p,\lambda) = \lambda I_K \\ &#xA;\Leftrightarrow \frac{\partial x^F}{ \partial p'}(p,\lambda) = \lambda \left[ \frac{\partial^2 u}{\partial x \partial x'}(x^F(p,\lambda))  \right]^{-1}.&#xA;\end{eqnarray*}&lt;/span&gt;&#xA;The last equivalence requires a regular Hessian matrix. This equality illustrates that a concave demand system requires restrictions on the third order derivatives of &lt;span class=&quot;math-container&quot;&gt;$u$&lt;/span&gt;. A similar conclusion holds for the Marshallian demand system &lt;span class=&quot;math-container&quot;&gt;$x^M(p,m)$&lt;/span&gt; (use Roy's identity to show the claim).&lt;/p&gt;&#xA;" OwnerUserId="20576" LastActivityDate="2019-09-08T09:54:55.453" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30793" PostTypeId="1" AcceptedAnswerId="30796" CreationDate="2019-09-08T11:44:14.363" Score="0" ViewCount="156" Body="&lt;p&gt;I am looking for a preference relation which satisfies the above property. &lt;/p&gt;&#xA;" OwnerUserId="19546" LastActivityDate="2019-09-09T15:44:11.253" Title="A case where the solution to Expenditure Minimisation Problem is not a solution to Utility Maximistion Problem" Tags="&lt;microeconomics&gt;&lt;utility&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30794" PostTypeId="1" CreationDate="2019-09-08T12:20:11.417" Score="0" ViewCount="29" Body="&lt;p&gt;I am reading a paper which empirically tests if primary exports affect education attainment in LAC countries over the period 1965 to 2010. It uses percentage of secondary school enrollment as dependent variable. It mentions that data has been obtained from Barro and Lee (2013). But the problem is that Barro and Lee provide data for every 5 years &#xA;interval where as the data on primary exports is available on yearly basis. So I'm confused as to how can one perform the regression when the data on one of the variables are largely missing?&#xA;I'm using stata to perform the task.&lt;/p&gt;&#xA;" OwnerUserId="14617" LastEditorUserId="14617" LastEditDate="2019-09-08T17:25:47.473" LastActivityDate="2019-09-08T17:25:47.473" Title="How to run Panel data analysis when data on the dependent variable is on a 5 year interval basis and that on independent variable is on yearly basis?" Tags="&lt;econometrics&gt;&lt;applied-econometrics&gt;&lt;regression&gt;&lt;paneldata&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30796" PostTypeId="2" ParentId="30793" CreationDate="2019-09-08T14:44:11.297" Score="5" Body="&lt;p&gt;If the utility is continuous and locally insatiable then the Hicksian demand equals the Walrasian demand.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So you'll need to look for a utility function which violates atleast one of these.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Lets try a simple violation of non-satiation &lt;span class=&quot;math-container&quot;&gt;$$&#xA;u(x,y) = \left\{&#xA;        \begin{array}{ll}&#xA;            x+y &amp;amp; \quad x+y \leq 1 \\&#xA;            1 &amp;amp; \quad \text{ otherwise}&#xA;        \end{array}&#xA;    \right.&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With &lt;span class=&quot;math-container&quot;&gt;$p=(1,1)$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$w=2$&lt;/span&gt; Then &lt;span class=&quot;math-container&quot;&gt;$x(p,w)=\{(x,y): 1\leq x+y\leq 2\}$&lt;/span&gt;. This is becuse the consumer's problem is &lt;span class=&quot;math-container&quot;&gt;$$\max_{x,y} u(x,y)$$&lt;/span&gt; &lt;span class=&quot;math-container&quot;&gt;$$\text{st }x+y\leq 2$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$u(x(p,w))=1$&lt;/span&gt; so apply the EMP to this utility &lt;span class=&quot;math-container&quot;&gt;$$\min x+y$$&lt;/span&gt; &lt;span class=&quot;math-container&quot;&gt;$$\text{st } x+y\geq 1$$&lt;/span&gt;&#xA;This gives &lt;span class=&quot;math-container&quot;&gt;$h(p,1)=\{(x,y): x+y= 1\}$&lt;/span&gt;. Hence, &lt;span class=&quot;math-container&quot;&gt;$h(p,v(p,w))\neq x(p,w)$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think a violation of non-satiation is much easier to construct a counter example with. If we have a 'thick' indifference curve then the UMP will choose the entire curve but the EMP will choose at most the lower envelope, as why spend more to get the same utility? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Conversely, we can use continuity to find an example of where &lt;span class=&quot;math-container&quot;&gt;$h(p,v)$&lt;/span&gt; is not a subset of &lt;span class=&quot;math-container&quot;&gt;$x(p,e(p,v))$&lt;/span&gt;. Take &lt;span class=&quot;math-container&quot;&gt;$p$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt; as above and &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;u(x,y) = \left\{&#xA;        \begin{array}{ll}&#xA;            x+y+1 &amp;amp; \quad x+y \geq 2,\ x\geq y \\&#xA;            x+y &amp;amp; \quad \text{ otherwise}&#xA;        \end{array}&#xA;    \right.&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The EMP with &lt;span class=&quot;math-container&quot;&gt;$v=2$&lt;/span&gt; is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\min x+y$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\text{st }u(x,y)\geq 2$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$h(p,2)=\{(x,y): x+y=2\}$&lt;/span&gt;. Now look at the UMP at &lt;span class=&quot;math-container&quot;&gt;$p,w$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\max u(x,y)$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$x+y\leq 2$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$x(p,w)=\{(x,y):\ x+y=2, x\geq y\}$&lt;/span&gt;. Hence, &lt;span class=&quot;math-container&quot;&gt;$x(p,e(p,v))$&lt;/span&gt; is a proper subset of &lt;span class=&quot;math-container&quot;&gt;$h(p,v)$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I found it alot easier to come up with a counterexample without continuity (our &lt;span class=&quot;math-container&quot;&gt;$u$&lt;/span&gt; is locally non-satiated). Perhaps with continuity you get &lt;span class=&quot;math-container&quot;&gt;$h\subset x$&lt;/span&gt; and local non-satiation you get the reverse? Ill leave that to you.&lt;/p&gt;&#xA;" OwnerUserId="24190" LastEditorUserId="24190" LastEditDate="2019-09-09T15:44:11.253" LastActivityDate="2019-09-09T15:44:11.253" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30797" PostTypeId="1" AcceptedAnswerId="30800" CreationDate="2019-09-08T20:05:22.253" Score="0" ViewCount="42" Body="&lt;p&gt;Recently, I read a news article stating&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Indiabulls Housing Finance shares plunges on reports of litigation against company&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Why do shares plunge when company finds itself in a litigation process? How does litigation affect the profitability of a firm? &lt;/p&gt;&#xA;" OwnerUserId="24166" LastEditorUserId="7538" LastEditDate="2019-09-17T02:52:28.653" LastActivityDate="2019-09-17T02:52:28.653" Title="Fall in share due to litigation" Tags="&lt;stock-market&gt;&lt;multinational-companies&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30798" PostTypeId="2" ParentId="30791" CreationDate="2019-09-08T21:04:52.817" Score="4" Body="&lt;p&gt;As you point out, central banks have &quot;printed&quot; a considerable amount of money since the 2008 crisis. The following chart of the US monetary base is one of clearest examples of this phenomenon.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/LZIRn.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/LZIRn.png&quot; alt=&quot;St. Lous Adjusted Monetary Base&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The metric you seem to be pointing out through your question is known as the &lt;a href=&quot;https://en.m.wikipedia.org/wiki/Money_multiplier&quot; rel=&quot;nofollow noreferrer&quot;&gt;money multiplier&lt;/a&gt;: the ratio of broad money (e.g., M1, M2, or MZM) to the monetary base. As we can see with the following chart, in the US, the money multiplier has decreased since the 2008 crisis.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/lK0dk.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/lK0dk.png&quot; alt=&quot;M1 money multiplier&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The money multiplier grows when banks and other financial institutions make loans. So in short, M3/MZM hasn't grown because a significant amount of the monetary base has just been kept in bank reserves without being loaned out. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/NYo5Z.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/NYo5Z.png&quot; alt=&quot;Excess reserves&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This has been used as an argument on the ineffectiveness of &lt;a href=&quot;https://en.wikipedia.org/wiki/Quantitative_easing&quot; rel=&quot;nofollow noreferrer&quot;&gt;quantitative easing&lt;/a&gt;, and that we need to &lt;a href=&quot;https://en.wikipedia.org/wiki/Helicopter_money&quot; rel=&quot;nofollow noreferrer&quot;&gt;more directly put money into people's hands&lt;/a&gt; in order to stimulate the economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And if excess reserves were all loaned out and invested/spent, we should indeed see higher levels of inflation in the short term. If the money is invested/spent wisely, then productivity growth may offset that inflation on a longer term assuming we don't continue to increase the money supply.&lt;/p&gt;&#xA;" OwnerUserId="8387" LastActivityDate="2019-09-08T21:04:52.817" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30800" PostTypeId="2" ParentId="30797" CreationDate="2019-09-08T21:12:48.227" Score="4" Body="&lt;p&gt;Litigation implies that the company may lose money if it loses the lawsuit. The expected loss decreases the expected profits of the firm, and thus negatively affects the share price.&lt;/p&gt;&#xA;" OwnerUserId="8387" LastActivityDate="2019-09-08T21:12:48.227" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30802" PostTypeId="2" ParentId="30791" CreationDate="2019-09-08T22:42:06.170" Score="4" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Why have M3 not followed the same quantitive expansion as M1?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Because commercial banks have used injected liquidities to &quot;consolidate&quot; their balance sheet instead of credit-stimulating demands. What I mean by &quot;consolidate&quot; is that the subprime crisis and its consequences have contaminated the Euro-zone's commercial banks through &lt;a href=&quot;https://en.m.wikipedia.org/wiki/Securitization&quot; rel=&quot;nofollow noreferrer&quot;&gt;securitization&lt;/a&gt;, interrogating the default risk associated to their assets and liabilities. Injected liquidities have thus often been used by commercial banks to anticipate these potential defaults on the one hand, and to elevate their fractional-reserve ratios on the other hand so as to comply with the &lt;a href=&quot;https://en.m.wikipedia.org/wiki/Basel_III&quot; rel=&quot;nofollow noreferrer&quot;&gt;Basel III&lt;/a&gt; framework.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;And can this be an explanation for why we have not seen stronger inflation?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Precisely. These precautious behaviours led the &lt;a href=&quot;https://en.m.wikipedia.org/wiki/Money_multiplier&quot; rel=&quot;nofollow noreferrer&quot;&gt;money multiplier&lt;/a&gt; to be &lt;em&gt;somehow&lt;/em&gt; blocked (to ~&lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt;), i.e. the expansion of M3 is the main &lt;a href=&quot;https://en.m.wikipedia.org/wiki/Monetary_policy&quot; rel=&quot;nofollow noreferrer&quot;&gt;conventional&lt;/a&gt; inflation engine.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;As explained by Kent&lt;/em&gt; (with who I fully agree as you can see), on &lt;a href=&quot;https://en.wikipedia.org/wiki/Helicopter_money#In_the_Eurozone&quot; rel=&quot;nofollow noreferrer&quot;&gt;March 10, 2016&lt;/a&gt;, the &lt;a href=&quot;https://www.ecb.europa.eu/home/html/index.en.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;ECB&lt;/a&gt; has even considered the possibility of giving 200€ per month and per person to stimulate inflation. And this with the intention of circumventing the commercial-bank system. This unconventional monetary policy is called &lt;a href=&quot;https://en.m.wikipedia.org/wiki/Helicopter_money&quot; rel=&quot;nofollow noreferrer&quot;&gt;monetary helicopter&lt;/a&gt;. And actually, as of September 2019, &lt;a href=&quot;https://www.ft.com/content/491e6bd2-cef5-11e9-99a4-b5ded7a7fe3f&quot; rel=&quot;nofollow noreferrer&quot;&gt;the ECB is still considering&lt;/a&gt; the possibility of using this non-conventional monetary instrument.&lt;/p&gt;&#xA;" OwnerUserId="10247" LastEditorUserId="10247" LastEditDate="2019-09-08T22:57:50.917" LastActivityDate="2019-09-08T22:57:50.917" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30803" PostTypeId="1" CreationDate="2019-09-08T22:50:13.347" Score="1" ViewCount="19" Body="&lt;p&gt;Please help me clarify this- &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Case 1&lt;/strong&gt; - If interest rates increase then people will save more to reap the benefits and will cut down on their consumption(C) so Consumption will fall.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Case 2&lt;/strong&gt; - Due to high interest rates - For every rupee saved, people's incomes will increase and their net wealth rises as a result of which consumption will increase.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;so, Will consumption rise or fall with increase in interest rate? which case is likely to be more true and why? If we get an objective type question in exam which one should we mark?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you so much for your help &amp;amp; support&lt;/p&gt;&#xA;" OwnerUserId="24166" LastActivityDate="2019-09-08T22:50:13.347" Title="Relationship b/w consumption &amp; increase in interest rate" Tags="&lt;interest-rate&gt;&lt;consumption&gt;&lt;saving&gt;&lt;basic-income&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30804" PostTypeId="2" ParentId="1893" CreationDate="2019-09-08T23:15:29.540" Score="1" Body="&lt;p&gt;It depends what formula you apply.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we apply the formula as laid out by Philippe Van Parijs and Yannick Vanderborght to the United States, for a UBI consisting of 25 percent of GDP distributed on a per-capita basis, amounts to a new entitlement program costing &lt;span class=&quot;math-container&quot;&gt;$4.8 trillion dollars per year at a time when the United States is already facing a $&lt;/span&gt;1 trillion and greater annual budget deficits for years into the future. The U.S. debt-to-GDP ratio is currently the highest in over seventy years, not including contingent liabilities for existing entitlements. Just one year implementation of a UBI type of program would push the U.S. debt-to-GDP ratio past 125 percent. A two year implementation of the program would push debt-to-GDP ratio past 140 percent. That would be higher than any economy in the world except Greece, Lebanon and Japan.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So the political feasibility of this program given existing entitlements would be nil, despite growing support for it. As a result, a modified form is being proposed as nominally rigid shared with us, by Charles Murray who proposes in my understanding a UBI of thirteen thousand dollars per year, with three thousand dollars automatically directed to the purchase of health-care insurance and the remaining ten thousand for use as the recipient sees fit. However, Murrays' UBI would be paid only to adults, not to every American and would replace all existing entitlements including Social Security, Medicare, Medicaid, welfare (GA, TANF and so on), farm subsidies and corporate tax benefits.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Murray's version would actually reduce the U.S. budget deficit slightly. He also suggests that individuals who work for a living and save up their UBI payments can invest them and actually have a better retirement savings than the current social security system offers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So what is the problem with Murray's version of UBI? Its a political nonstarter. Politicians will not even begin to approach the idea of slashing current entitlement programs. So, it sounds feasible but no politician will touch it solely because the idea asks that we scrap the current entitlement programs and that kills political careers.&lt;/p&gt;&#xA;" OwnerUserId="20035" LastActivityDate="2019-09-08T23:15:29.540" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30805" PostTypeId="2" ParentId="30759" CreationDate="2019-09-08T23:26:08.820" Score="0" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;[...] are there any ways in which Macroeconomics help us to understand the behavior of individual units?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Putting aside the totological cases in which a utility would directly integrate macroeconomic signals such as, e.g. key-rates, &lt;em&gt;AFAIK, no there are not&lt;/em&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As you mention, Macroeconomics is about aggregate level considerations and/or &lt;a href=&quot;https://www.google.com/url?sa=t&amp;amp;source=web&amp;amp;rct=j&amp;amp;url=https://en.m.wikipedia.org/wiki/Accounting_identity&amp;amp;ved=2ahUKEwiSoprCr8LkAhWlyoUKHVmGAY0QFjAAegQIBRAC&amp;amp;usg=AOvVaw3TYEQhOpQQrD6dM1OG0JQX&quot; rel=&quot;nofollow noreferrer&quot;&gt;identities&lt;/a&gt; That being said, you will find theoretical frameworks, such as  &lt;a href=&quot;https://www.google.com/url?sa=t&amp;amp;source=web&amp;amp;rct=j&amp;amp;url=https://en.m.wikipedia.org/wiki/General_equilibrium_theory&amp;amp;ved=2ahUKEwj0w9narsLkAhUCyYUKHVDTCwoQFjACegQIEBAG&amp;amp;usg=AOvVaw2zaBuqpWKIHD4daefctD6G&quot; rel=&quot;nofollow noreferrer&quot;&gt;General Equilibrium Theory&lt;/a&gt; that imply/represent &lt;a href=&quot;https://www.google.com/url?sa=t&amp;amp;source=web&amp;amp;rct=j&amp;amp;url=https://en.m.wikipedia.org/wiki/Microfoundations&amp;amp;ved=2ahUKEwi36Z7KrcLkAhUpyoUKHaoeCgoQFjADegQIAhAB&amp;amp;usg=AOvVaw0B7CEqFSZiNBhWz7yheS_d&quot; rel=&quot;nofollow noreferrer&quot;&gt;microfounded behaviours&lt;/a&gt; with the intention of adding them up instead of directly dealing with accounting-like macro aggregates.&lt;/p&gt;&#xA;" OwnerUserId="10247" LastActivityDate="2019-09-08T23:26:08.820" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="30806" PostTypeId="1" CreationDate="2019-09-09T04:12:48.127" Score="1" ViewCount="19" Body="&lt;p&gt;During Recession, banks loans decrease which leads to financial constraints and ultimately Investment suffers and declines.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;my question is - &lt;strong&gt;&quot;Are loans lower because of demand or supply?&quot;&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My thoughts are - We know that money can/is generated by banks at will so it doesn't seem like it is money supply problem but then my reading from newspapers tells me that it is the banks which stops lending perhaps due to realization that business firms will have a hard time so probability of low profits and therefore stops credit and as a result investment suffers. or Is it the other way round that Investment stops in recession due to meagre growth which result in low profitability and firms default on their loans leading to build of Non performing assets (NPA) and then banks responds to that? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If it is the former then why banks don't lend when it could help offset the slowdown/recession as Investments could potentially offset it and If it is the latter then does it not aggravate the problem because until investments picks up again, you can't have growth which means no profits and further adds to NPA problem?&lt;/p&gt;&#xA;" OwnerUserId="24166" LastActivityDate="2019-09-09T04:12:48.127" Title="Investments during recession" Tags="&lt;economic-growth&gt;&lt;banking&gt;&lt;investment&gt;&lt;default&gt;&lt;credit&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30807" PostTypeId="1" CreationDate="2019-09-09T04:21:35.330" Score="1" ViewCount="331" Body="&lt;p&gt;The locus of kinks would follow x=y^2 but what would the arms look like?&lt;/p&gt;&#xA;" OwnerUserId="21161" LastActivityDate="2019-09-09T10:42:45.777" Title="What would the indifference curve of min{√x,y} looks like?" Tags="&lt;utility&gt;" AnswerCount="1" CommentCount="3" FavoriteCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30809" PostTypeId="1" CreationDate="2019-09-09T05:58:46.160" Score="2" ViewCount="85" Body="&lt;p&gt;I was thinking about how online gambling could cause numerous governments to face a reduction in tax revenue from conventional gambling, upon which taxes do apply in most countries. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If governments do face such a loss in tax revenue, would such a loss in tax revenue be considered a negative externality?&lt;/p&gt;&#xA;" OwnerUserId="24196" LastActivityDate="2019-11-09T22:01:15.150" Title="Is loss in tax revenue a negative externality?" Tags="&lt;taxation&gt;&lt;externalities&gt;&lt;classical-economics&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30810" PostTypeId="2" ParentId="30807" CreationDate="2019-09-09T10:42:45.777" Score="3" Body="&lt;p&gt;This is how indifference curves look :&#xA;&lt;a href=&quot;https://i.stack.imgur.com/5gkzI.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/5gkzI.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="11824" LastActivityDate="2019-09-09T10:42:45.777" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30811" PostTypeId="1" AcceptedAnswerId="30822" CreationDate="2019-09-09T10:47:06.640" Score="2" ViewCount="51" Body="&lt;p&gt;Where can I find data on the agricultural subsidies of each country, ideally in a comparable fashion? I've googled without success. I hope there are some experts on this forum that can direct me to specialized data sources, or perhaps books. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems this is all surrounded with secrecy, so no much is available online.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;World bank website doesn't have this information.&lt;/p&gt;&#xA;" OwnerUserId="24197" LastEditorUserId="24197" LastEditDate="2019-09-10T07:45:13.183" LastActivityDate="2019-09-16T09:43:22.663" Title="Comparative data on agricultural subsidies" Tags="&lt;data-request&gt;&lt;agriculture&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30813" PostTypeId="1" CreationDate="2019-09-09T15:47:11.680" Score="1" ViewCount="22" Body="&lt;p&gt;I recently followed MIT online lectures for economy and I found this - one of the reason for investments decline in recession is &lt;strong&gt;bad expectations about economy -----&gt; leading to Higher capital output ratio -------&gt; lower Investments&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How does bad expectations leads to higher capital output ratio and then why does that translates into low investments?&#xA;My thoughts - Bad expectations about economy might cause firms to severely cut their production. Since, output gets lower and output being in the denominator makes the whole fraction to be bigger so we get higher capital output ratio and that discourages investments because cost of capital is high so with the lower output it would be hard to pay off the loans. Is my reasoning correct? Is it conceptually sound? Am I thinking clearly and simple yet effectively? I am not sure about the answer neither with my line of reasoning.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You're welcome to critique my thoughts and lead me to correct answer or you can share your own views or answer about it (and I guess that would be way better and conceptually sound)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you so much for your time. Grateful!&lt;/p&gt;&#xA;" OwnerUserId="24166" LastActivityDate="2019-09-09T15:47:11.680" Title="Link between recession and decline in investments" Tags="&lt;economic-growth&gt;&lt;investment&gt;&lt;capital-returns&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="30814" PostTypeId="1" CreationDate="2019-09-10T01:13:04.460" Score="4" ViewCount="59" Body="&lt;p&gt;&lt;strong&gt;Setup&lt;/strong&gt;&lt;br&gt;&#xA;Consider a one shot sealed bid multi-unit auction where &lt;span class=&quot;math-container&quot;&gt;$N$&lt;/span&gt; bidders compete for &lt;span class=&quot;math-container&quot;&gt;$K$&lt;/span&gt; identical objects and each bidder &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; has demand &lt;span class=&quot;math-container&quot;&gt;$d_i\in \{1,\dots,K\}$&lt;/span&gt;. Bidders receive private i.i.d. signals on the value of the objects &lt;span class=&quot;math-container&quot;&gt;$v_i^1, \ldots, v_i^{d_i}$&lt;/span&gt;. The pricing rule can be either pay-as-bid or uniform price with the clearing price equal the bid of the last accepted bidder.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume further that participation is uncertain: Any given player is inactive with positive (but small) probability. Inactivity is independent across bidders and of the signals. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Question(s)&lt;/strong&gt;&lt;br&gt;&#xA;Is there a unique (Bayes-)Nash-equilibrium?&lt;br&gt;&#xA;If so, under what conditions (pricing rule, distributions for private values, ...)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am looking for literature which either provides an argument for unique equilibria or for an example with multiple equilibria.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I conjecture (based on &lt;a href=&quot;https://academic.oup.com/restud/article/81/4/1366/1578040&quot; rel=&quot;nofollow noreferrer&quot;&gt;Ausubel et. al 2014&lt;/a&gt;) that one cannot prove uniqueness of equilibria independent of the pricing rule.&lt;/p&gt;&#xA;" OwnerUserId="24203" LastActivityDate="2019-09-10T01:13:04.460" Title="Unique Nash-equilibria in multi-unit auctions with uncertain participation" Tags="&lt;game-theory&gt;&lt;nash-equilibrium&gt;&lt;auctions&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30816" PostTypeId="1" AcceptedAnswerId="30819" CreationDate="2019-09-10T02:57:50.187" Score="1" ViewCount="56" Body="&lt;p&gt;I read somewhere that interest rate as the price of money is wrong but rather it is the price of credit. Can someone elaborate and explain what this means?&lt;/p&gt;&#xA;" OwnerUserId="21604" LastActivityDate="2019-09-10T07:48:41.090" Title="Interest rate - Price of Credit vs Price of Money" Tags="&lt;interest-rate&gt;&lt;money&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30817" PostTypeId="1" CreationDate="2019-09-10T05:31:56.933" Score="1" ViewCount="29" Body="&lt;p&gt;The ECB &lt;a href=&quot;https://www.ecb.europa.eu/pub/economic-bulletin/focus/2019/html/ecb.ebbox201905_01~874dddf42e.en.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;speaks&lt;/a&gt; (somewhat euphemistically, in my opinion) of a &quot;decoupling&quot; of world trade from &quot;activity&quot; (i.e. GDP) in Q1 2019:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/sYHDp.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/sYHDp.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Historically, has it been the case that such a &quot;decoupling&quot; can last, i.e. not lead to a reduction in world GDP, i.e. to a global recession?&lt;/p&gt;&#xA;" OwnerUserId="6210" LastActivityDate="2019-09-10T05:31:56.933" Title="Historically has the &quot;decoupling&quot; of world trade from GDP not lead to (or deepened) a recession?" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;&lt;international-trade&gt;&lt;economic-history&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30818" PostTypeId="1" CreationDate="2019-09-10T06:11:07.157" Score="1" ViewCount="15" Body="&lt;p&gt;One opinion voiced (in &lt;em&gt;The Economist&lt;/em&gt;) around the 2008 recession &lt;a href=&quot;https://www.economist.com/finance-and-economics/2008/03/06/the-decoupling-debate&quot; rel=&quot;nofollow noreferrer&quot;&gt;was that&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Decoupling does not mean that an American recession will have no impact on developing countries. That would be daft. The point is that their GDP-growth rates will slow by much less than in previous American downturns. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In hindsight, how did this pan out?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I seem to recall that some Eastern European countries, e.g. &lt;a href=&quot;https://www.eestipank.ee/sites/default/files/publication/en/AnnualReport/2009/_17.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Estonia&lt;/a&gt; (and actually &lt;a href=&quot;http://www.ijhssnet.com/journals/Vol_2_No_19_Special_Issue_October_2012/21.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;all 3&lt;/a&gt; Baltic states) had a much worse recession in the aftermath than the US did (~15% contraction of GDP for 2009 compared to 2.5% for the US). But how did this alleged decoupling from the US economy fare on average for the emerging markets in aftermath of 2008?&lt;/p&gt;&#xA;" OwnerUserId="6210" LastEditorUserId="6210" LastEditDate="2019-09-10T06:18:44.983" LastActivityDate="2019-09-10T06:18:44.983" Title="How did the purported 2008 decoupling of emerging markets pan out?" Tags="&lt;macroeconomics&gt;&lt;economic-history&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30819" PostTypeId="2" ParentId="30816" CreationDate="2019-09-10T07:41:37.270" Score="0" Body="&lt;p&gt;Interest rates are not to be &lt;em&gt;directly&lt;/em&gt; considered as the price of credit. Instead, they are unequivocally linked to it. This is simply due to &lt;a href=&quot;https://en.wikipedia.org/wiki/Bond_valuation&quot; rel=&quot;nofollow noreferrer&quot;&gt;how bonds are priced&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;P = \sum_{n=1}^N \frac{C + M[{I_{n=N}}]}{(1+i)^n}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; is the contractual interest rate, &lt;span class=&quot;math-container&quot;&gt;$C$&lt;/span&gt; is the coupon payment, &lt;span class=&quot;math-container&quot;&gt;$N$&lt;/span&gt; is the number of payments, &lt;span class=&quot;math-container&quot;&gt;$I_{n=N}$&lt;/span&gt; is an indicator function taking the value of &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt; when &lt;span class=&quot;math-container&quot;&gt;$n=N$&lt;/span&gt; is &lt;span class=&quot;math-container&quot;&gt;$true$&lt;/span&gt; or &lt;span class=&quot;math-container&quot;&gt;$0$&lt;/span&gt; otherwise, &lt;span class=&quot;math-container&quot;&gt;$P$&lt;/span&gt; is the market price of the bond, &lt;span class=&quot;math-container&quot;&gt;$M$&lt;/span&gt; is the value of the bond at maturity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a second time, there is a link between money and credit, but indeed, transitively saying that interest rates are &quot;the price of money&quot; is a bit simplistic since it omits a great part of institutional and financial mechanisms.&lt;/p&gt;&#xA;" OwnerUserId="10247" LastEditorUserId="10247" LastEditDate="2019-09-10T07:48:41.090" LastActivityDate="2019-09-10T07:48:41.090" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="30820" PostTypeId="2" ParentId="30811" CreationDate="2019-09-10T07:58:19.327" Score="1" Body="&lt;p&gt;Which countries are you looking at? &lt;a href=&quot;http://documents.worldbank.org/curated/en/734701543906677048/pdf/132660-REPLACEMENT-PUBLIC-Realigning-Agricultural-Support-CSA-v2.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;This paper&lt;/a&gt; seems to suggest there's data from OECD countries.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You might also take a look &lt;a href=&quot;https://www.worldbank.org/en/research/brief/distortions-to-agricultural-incentives&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; and &lt;a href=&quot;https://datacatalog.worldbank.org/dataset/estimates-distortions-agricultural-incentives-1955-2007-report-no-wps4612-412008-wps4864-3&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;. I downloaded zip files and, if I understand correctly, there seem to be data of subsidies by country, product, and year.&lt;/p&gt;&#xA;" OwnerUserId="5145" LastActivityDate="2019-09-10T07:58:19.327" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30821" PostTypeId="1" CreationDate="2019-09-10T08:17:03.700" Score="3" ViewCount="252" Body="&lt;p&gt;To preface this, I am asking this question on the Econ SE because I was made aware on Cross Validated that Difference in Difference estimation is quite an economics specific method.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/riZpN.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/riZpN.png&quot; alt=&quot;Quarter-end Dynamics&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The picture above depicts deviations from Covered Interest Parity, for the Yen, the Euro and Pound Sterling. The vertical gray bars mark quarter-end reporting dates. My plan was now to apply a Difference in Difference estimation in order to investigate if larger deviations from CIP coincide with quarter ends after January 2015. The reason behind suspected quarter-end dynamics is the change in reporting standards for global banks in 2015. From 2015 onwards European banks are coerced to report a snapshot of their balance sheet on the last day of each quarter. For U.S. banks a similar report is required, however in the form of the average of the month ends. The reasoning behind this hypothesis is that said reporting standards coupled with capital requirements cause balance sheet costs and therefore lead to a decrease of banks engaging in arbitrage.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This paper by DU et. al., which applies a difference in difference estimation, investigates the above-explained dynamics:&#xA;&lt;a href=&quot;https://onlinelibrary.wiley.com/doi/full/10.1111/jofi.1262&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://onlinelibrary.wiley.com/doi/full/10.1111/jofi.1262&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As can be seen in the graph the three time-series that I could acquire, have different missing values. Consequently, I am unsure of how to proceed. &#xA;The procedure applied in the paper does not seem like it actually requires a panel, please correct me here if you disagree. What leads me to believe that a panel is not actually required here, is based on the fact that the treated and untreated group are not as normally the case two different parts of the panel, in this case they are treated and untreated groups, at quarter-end/not at quarter-end and prior to 2015/after 2015 in all three time-series.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence this results in two questions:&#xA;Is it possible to build a panel considering that the three time-series have missing values at different points in time without losing every observation that is missing for one of the three currencies?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is it possible to estimate this difference-in-difference for each currency by itself, considering the facts I have pointed out above?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Model:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$x_{1w,it}= \alpha_0 +\gamma_1Post15_t+ \beta_{1}QendW_{t}+\beta_{2}QendW_{t} \times  Post15_t + \epsilon_{it}$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where &lt;span class=&quot;math-container&quot;&gt;$QendW$&lt;/span&gt; equals 1 if the settlement date of the contract is within a reporting date, &lt;span class=&quot;math-container&quot;&gt;$Post15$&lt;/span&gt; equals 1 after the European Leverage Ratio Delegated Act was established, and zero otherwise.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am very grateful for any tips or hints, thank you!&lt;/p&gt;&#xA;" OwnerUserId="23509" LastEditorUserId="23509" LastEditDate="2019-09-10T11:56:46.527" LastActivityDate="2019-09-11T19:03:55.830" Title="Dealing with Missing Values in Diff-in-Diff Estimation" Tags="&lt;currency&gt;&lt;time-series&gt;&lt;paneldata&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="30822" PostTypeId="2" ParentId="30811" CreationDate="2019-09-10T09:14:25.227" Score="1" Body="&lt;p&gt;Found it in the OECD. An annual report is produced. Latest is here:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.oecd-ilibrary.org/agriculture-and-food/agricultural-policy-monitoring-and-evaluation-2019_39bfe6f3-en&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.oecd-ilibrary.org/agriculture-and-food/agricultural-policy-monitoring-and-evaluation-2019_39bfe6f3-en&lt;/a&gt; &lt;/p&gt;&#xA;" OwnerUserId="24197" LastActivityDate="2019-09-10T09:14:25.227" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30824" PostTypeId="1" CreationDate="2019-09-10T11:15:33.300" Score="0" ViewCount="75" Body="&lt;p&gt;Given regression equation Y=Xβ + ε which satisfies all classical assumptions including those of homoscadasticity &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Estimated regression equation using OLS is the following - &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Y=Xb + e &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where, b is the OLS estimator for β and e is the estimated residual term for equation where E(e|x) =0&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note: b=(X'X)&lt;span class=&quot;math-container&quot;&gt;$^{-1}$&lt;/span&gt;X'Y&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can find, &#xA;Cov(b,e|x) = E(b.e|x) - E(b).E(e|x)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;=E(b.e|x) = E((X'X)&lt;span class=&quot;math-container&quot;&gt;$^{-1}$&lt;/span&gt;X'Y.e|x)=E((X'X)&lt;span class=&quot;math-container&quot;&gt;$^{-1}$&lt;/span&gt;X'(Xβ + ε).e|x)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;=E((β.e + (X'X)&lt;span class=&quot;math-container&quot;&gt;$^{-1}$&lt;/span&gt;X'ε.e)|x)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;=(X'X)&lt;span class=&quot;math-container&quot;&gt;$^{-1}$&lt;/span&gt;X'E(ε.e) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Solving for E(ε.e) gives σ²(n-k) [I wrote e= Y-Xb, substituting for b and some manipulation gave me e= ε + X(X'X)&lt;span class=&quot;math-container&quot;&gt;$^{-1}$&lt;/span&gt;X'ε] &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This gives Cov(b,e|x)=(X'X)&lt;span class=&quot;math-container&quot;&gt;$^{-1}$&lt;/span&gt;X'σ²(n-k) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think in this expression - (X'X)&lt;span class=&quot;math-container&quot;&gt;$^{-1}$&lt;/span&gt;X' - I shouldn't have X' in the right (as the formula of var(b) suggests). What am I missing? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/hq69d.jpg&quot; alt=&quot;Question&quot;&gt;&lt;/p&gt;&#xA;" OwnerUserId="18929" LastEditorUserId="18929" LastEditDate="2019-09-10T14:22:34.250" LastActivityDate="2019-09-10T14:22:34.250" Title="Covariance between regression coefficient and residual" Tags="&lt;econometrics&gt;&lt;regression&gt;&lt;variance&gt;" AnswerCount="0" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="30825" PostTypeId="2" ParentId="30809" CreationDate="2019-09-10T11:40:27.563" Score="-1" Body="&lt;p&gt;In my view yes, it would be considered an externality. An externality is said to occur when a production or consumption decision of an individual has an unintended consequence on the consumption or production of someone else.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The analysis of externalities usually does not include governments, considering only production and consumption, but one can think of the government as a firm that produces public goods like law and order and national defense.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In that case the decision of the individual to use online gambling rather than conventional gambling has an unintended effect on the production possibilities for the government. Now that the government has less revenues, it can produce less public goods. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;When a person goes for online gambling rather than conventional gambling they do not intend to reduce the overall provision of public goods, they just went for online gambling because it was more convenient/cheaper etc.&lt;/p&gt;&#xA;" OwnerUserId="12186" LastActivityDate="2019-09-10T11:40:27.563" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30826" PostTypeId="1" AcceptedAnswerId="30827" CreationDate="2019-09-10T13:44:23.823" Score="0" ViewCount="308" Body="&lt;p&gt;I have a panel data that includes a decade of firm-year observations (1995- 2005). These companies are from different countries. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A law has passed in (almost) every country at different points in time. For example, if a law passed in France in 2001, the variable 'law' is equal to 0 for firm-year observations in France from 1995 to 2000 and to 1 from 2001 to 2005. &#xA;France is a developed country. The variable 'developed' is equal to 1 for all firm-year observations in France over the decade 1995-2005. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I ran this line of code with Stata:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;areg payable i.law##i.developed i.year, absorb(firmid) vce(cluster countryindust)&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;I want to know what is this impact of the law alone, market development (developed country or not) and the interaction between the passage of the law and market development on accounts payable.   &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem is that the coefficient 'developed' is omitted. It says that '1.developed omitted because of collinearity'. Is it because my model has a constant? I don't understand because people use this specification all the time. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note: I also have time and firm fixed effects. I cluster for country-industry. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Am I doing something wrong? What should I do so that no coefficient is omitted?&lt;/p&gt;&#xA;" OwnerUserId="24210" LastActivityDate="2019-09-10T13:47:40.563" Title="Coefficient omitted because of collinearity" Tags="&lt;stata&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30827" PostTypeId="2" ParentId="30826" CreationDate="2019-09-10T13:47:40.563" Score="2" Body="&lt;p&gt;You have firm fixed effects. Presumably, every firm is in the same country throughout your observation period. Moreover, no country ever changes its development status (I assume). Hence, for a given firm, there is no variation in the development status. Therefore, you can't identify an effect.&lt;/p&gt;&#xA;" OwnerUserId="17735" LastActivityDate="2019-09-10T13:47:40.563" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="30828" PostTypeId="1" AcceptedAnswerId="33914" CreationDate="2019-09-10T15:22:32.370" Score="6" ViewCount="83" Body="&lt;p&gt;Recently we saw that the EU and Iran devised an instrument called &lt;a href=&quot;https://en.wikipedia.org/wiki/Instrument_in_Support_of_Trade_Exchanges&quot; rel=&quot;nofollow noreferrer&quot;&gt;INSTEX&lt;/a&gt; to avoid dealing in U.S. dollars and, hence, avoid U.S. sanctions. Similar thing is being planned between India and Russia (regarding the S-400 deal) to avoid U.S. sanctions under CAATSA.&lt;/p&gt;&#xA;&lt;p&gt;I don't understand how changing the currency under the deal circumvents the problem. Isn't the whole problem the deal itself rather than the currency? The U.S. can still impose sanctions if it gets to know that a deal has happened. Then, how does this INSTEX work?&lt;/p&gt;&#xA;&lt;p&gt;Sorry if I posted it on the wrong platform. I don't know where to go for such international, political and economics' questions.&lt;/p&gt;&#xA;" OwnerUserId="14317" LastEditorUserId="14317" LastEditDate="2021-03-11T19:51:46.370" LastActivityDate="2021-03-11T19:51:46.370" Title="Alternatives to avoid sanctions" Tags="&lt;international-trade&gt;&lt;international-economics&gt;&lt;sanctions&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="30829" PostTypeId="2" ParentId="30828" CreationDate="2019-09-10T15:46:22.557" Score="0" Body="&lt;p&gt;You should check the German wikipage on &lt;a href=&quot;https://de.wikipedia.org/wiki/Instex&quot; rel=&quot;nofollow noreferrer&quot;&gt;Instex&lt;/a&gt; (use a translator to read them). Here is the short translation on the purpose of Instex. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Instex was initiated in January 2019 as a special purpose vehicle&#xA;  designed to facilitate the settlement of transactions in Iran without&#xA;  penalties imposed on private banks by the use of US currency. The&#xA;  special purpose vehicle is intended to enable European companies to do&#xA;  business with Iran, despite strict US sanctions. As an exchange, it&#xA;  clears claims of European and Iranian companies. This allows Iran to&#xA;  export oil or other products. Money does not flow through banks to&#xA;  Iran, but to European companies selling goods to Iran.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="11177" LastActivityDate="2019-09-10T15:46:22.557" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="30832" PostTypeId="1" AcceptedAnswerId="31839" CreationDate="2019-09-10T23:29:25.200" Score="-3" ViewCount="61" Body="&lt;p&gt;Supposing that there in island. The island is barren except for a machine that makes food. Let us suppose that people want for nothing else.&#xA;At first the machine requires the whole population to maintain it and each is paid with food tokens.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But gradually the machine is updated until it requires only one person to run it. This person is paid in food tokens. He can use some of the tokens to buy security to stop other people stealing his food.&#xA;Now it seems if the market is allowed to run its course, this will end up with half the country with no food and no jobs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If nature takes its course, this half of the country will either die in a famine or simply decide they are too poor to support children and the population will drop.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But then the person who owns the machine needs less security, and so sacks them. Eventully it will just end up with him by himself.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The alternative would be to enforce giving free food to people without jobs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there an economic solution to this in which the population is maintained but everyone is not on welfare? Basically giving everyone the same even though one person is doing the work.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or are these the only alternatives:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Survival of the fitness, let the population die off&lt;/li&gt;&#xA;&lt;li&gt;Give everyone free money even if they are not working.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;These seem kind of like the left/right political spectrum but neither seems ideal.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(BTW. As I said the humans on this island are totally satisfied only by the food. And so there is no &quot;solution&quot; which involves things like becoming a masseuse or a poet or a comedian. One can assume that there could equally be a machine that could do these things.)&lt;/p&gt;&#xA;" OwnerUserId="18968" LastEditorUserId="7538" LastEditDate="2019-09-24T10:04:39.887" LastActivityDate="2019-09-24T10:04:39.887" Title="Is solving unemployment impossible?" Tags="&lt;basic-income&gt;&lt;automation&gt;" AnswerCount="1" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="30833" PostTypeId="2" ParentId="23869" CreationDate="2019-09-11T01:01:38.817" Score="1" Body="&lt;p&gt;I cannot believe no one answered this. Someone could have easily given a one phrase answer, its called Triffins Paradox.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The core of Triffin's Paradox is that the issuer of a reserve currency must serve two entirely different sets of users: the domestic economy, and the international economy, but you will not be able to make both sets of users happy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So our Federal Reserve needs to print USD to meet global demand for US dollars, but this money printing can lead to the devaluation of the currency which hurts the people of the issuing country by losing purchasing power, but does help foreign governments to be able to make their debt payments in USDs and certainly the people of these other nations like to stockpile USD in case their local currency goes kaput, but to meet their needs, you then have Americans who have to pay $4 a gallon for gas and are seeing prices in other commodities go up.&lt;/p&gt;&#xA;" OwnerUserId="20035" LastActivityDate="2019-09-11T01:01:38.817" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="31832" PostTypeId="2" ParentId="30197" CreationDate="2019-09-11T02:24:28.987" Score="1" Body="&lt;p&gt;Additionally, I would proceed with caution on the belief that just printing money causes inflation. It is not just money printing but money velocity. You can print your heart out like Japan has done for the past couple of decades and unless everyone is rushing to get rid of the currency via purchases of some sort, then you don't really have a lot of velocity and you will not get much inflation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Again, Japan has been printing its heart out with their yen and for the past two decades they have been experiencing deflation, not inflation.&lt;/p&gt;&#xA;" OwnerUserId="20035" LastActivityDate="2019-09-11T02:24:28.987" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="31833" PostTypeId="2" ParentId="30492" CreationDate="2019-09-11T03:50:05.183" Score="2" Body="&lt;h1&gt;Distributism&lt;/h1&gt;&#xA;&lt;p&gt;&lt;a href=&quot;https://distributistreview.com/about/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Distributism&lt;/a&gt; is one such alternative, promoted in the early 20&lt;sup&gt;th&lt;/sup&gt; century by Hilaire Belloc (&lt;a href=&quot;https://isidore.co/calibre/#panel=book_details&amp;amp;book_id=5605&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;Economics for Helen: A Brief Outline of Real Economy&lt;/em&gt;&lt;/a&gt;) and G. K. Chesterton (&lt;a href=&quot;https://isidore.co/calibre/#panel=book_details&amp;amp;book_id=5323&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;Utopia of Usurers&lt;/em&gt;&lt;/a&gt;). &lt;a href=&quot;https://distributistreview.com/about/&quot; rel=&quot;nofollow noreferrer&quot;&gt;As John Médaille describes it&lt;/a&gt;:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Its key tenet is that ownership of the means of production should be as widespread as possible rather than being concentrated in the hands of a few owners (Capitalism) or in the hands of state bureaucrats (Socialism).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;h1&gt;Solidarism&lt;/h1&gt;&#xA;&lt;p&gt;In a chapter entitled &amp;quot;Capitalism &amp;amp; Socialism&amp;quot; (p. 159) of &lt;a href=&quot;https://isidore.co/calibre/#panel=book_details&amp;amp;book_id=5322&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;Ethics and the National Economy&lt;/em&gt;&lt;/a&gt;, Heinrich Pesch, S.J., founder of &amp;quot;Solidarism,&amp;quot; writes:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Capitalists are usurers in the broadest sense of the word. We understand usury in the same sense as Franz Schaub does, as any contractual expropriation of what is clearly surplus value. So, in our time, we use the word capitalism to mean a social system where usury operates with more or less complete freedom. The concept, capitalism, signifies a quest for gain that is totally uninhibited. Capitalism, therefore, means economic dominion by capitalists…&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;And pp. 85-6:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Usury is not exclusively a monetary phenomenon having to do with money-lending. A disparity between what is offered and what is given in return, resulting in excessive gain, can arise anywhere in the exchange process, and especially in business transactions.&lt;/p&gt;&#xA;&lt;p&gt;Usury in a business transaction is &lt;em&gt;the contractual appropriation of obvious surplus value in the process of buying and selling&lt;/em&gt;. The damage is done by the contract itself where performance and remuneration are juxtaposed. …&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;As E. Michael Jones, Ph.D., editor of &lt;a href=&quot;https://culturewars.com/&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;Culture Wars Magazine&lt;/em&gt;&lt;/a&gt; and author of &lt;a href=&quot;https://isidore.co/calibre/#panel=book_details&amp;amp;book_id=7459&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;Barren Metal: A History of Capitalism as the Conflict Between Labor and Usury&lt;/em&gt;&lt;/a&gt;, writes:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Communism has failed, and now that Capitalism has shown us in the intervening years that it is even more ruthless than the communists imagined, we need an alternative to both Marx and the Manchester School. &lt;strong&gt;Heinrich Pesch is that alternative&lt;/strong&gt;, and Rupert Ederer [the translator] is his prophet.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="4101" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2019-09-15T05:15:08.870" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="31834" PostTypeId="2" ParentId="19913" CreationDate="2019-09-11T04:43:19.483" Score="-3" Body="&lt;p&gt;Capitalism is&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://economics.stackexchange.com/q/11358/4101&quot;&gt;considering money capital&lt;/a&gt;, i.e., considering money itself productive&lt;/li&gt;&#xA;&lt;li&gt;&quot;&lt;em&gt;control over economic life in the name of the unrestricted and unlimited acquisitive interests of those who own capital.&lt;/em&gt;&quot; (Heinrich Pesch, S.J., &lt;a href=&quot;https://isidore.co/calibre/#panel=book_details&amp;amp;book_id=5322&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;Ethics and the National Economy&lt;/em&gt;&lt;/a&gt; p. 159; cf. &lt;a href=&quot;https://economics.stackexchange.com/a/31833/4101&quot;&gt;these quotes&lt;/a&gt; from it)&lt;/li&gt;&#xA;&lt;li&gt;&quot;state-sponsored usury&quot; (&lt;a href=&quot;https://culturewars.com/&quot; rel=&quot;nofollow noreferrer&quot;&gt;E. Michael Jones&lt;/a&gt;, &lt;em&gt;&lt;a href=&quot;https://isidore.co/calibre/#panel=book_details&amp;amp;book_id=7459&quot; rel=&quot;nofollow noreferrer&quot;&gt;Barren Metal: A History of Capitalism as the Conflict Between Labor and Usury&lt;/a&gt;&lt;/em&gt;)&lt;/li&gt;&#xA;&lt;li&gt;&quot;means of production […] being concentrated in the hands of a few owners&quot; (&lt;a href=&quot;https://distributistreview.com/about/&quot; rel=&quot;nofollow noreferrer&quot;&gt;John Médaille&lt;/a&gt;)&lt;/li&gt;&#xA;&lt;li&gt;a &quot;dictatorship&quot; of &quot;those who, since they hold the money and completely control it, control credit also and rule the lending of money&quot; and &quot;regulate the flow, so to speak, of the life-blood whereby the entire economic system lives&quot; (Pius XI, &lt;a href=&quot;https://w2.vatican.va/content/pius-xi/en/encyclicals/documents/hf_p-xi_enc_19310515_quadragesimo-anno.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;Quadragesimo Anno&lt;/em&gt;&lt;/a&gt; §106)&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="4101" LastEditorUserId="4101" LastEditDate="2019-09-11T18:03:04.657" LastActivityDate="2019-09-11T18:03:04.657" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="31835" PostTypeId="2" ParentId="19913" CreationDate="2019-09-11T07:32:13.553" Score="1" Body="&lt;p&gt;&lt;a href=&quot;https://www.core-econ.org/&quot; rel=&quot;nofollow noreferrer&quot;&gt;CORE&lt;/a&gt; is an open-access economics course put together by a group of experts (including colleagues of mine).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://core-econ.org/the-economy/book/text/01.html#17-capitalism-as-an-economic-system&quot; rel=&quot;nofollow noreferrer&quot;&gt;This page&lt;/a&gt; covers their definition of a capitalist system. From there, this figure 1.8 visualises one aspect of it:&#xA;&lt;a href=&quot;https://i.stack.imgur.com/DnEd4.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/DnEd4.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;They go on to say:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The distinctive hallmark of the capitalist economic system is the&#xA;  private ownership(1) of capital goods(2) that are organized for use in&#xA;  firms. Other economic systems are distinctive because of the&#xA;  importance of privately owned land, the presence of slaves, because&#xA;  the government owns capital goods, or because of the limited role of&#xA;  firms. Capitalist economies differ, too, from earlier economies in the&#xA;  magnitude of the capital goods used in production. Massive power looms&#xA;  have replaced spinning wheels; a tractor now pulls a plough to do a&#xA;  job once done by a farmer using a hoe.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Capitalism is an economic system that combines centralization with&#xA;  decentralization. It concentrates power in the hands of owners and&#xA;  managers of firms who are then able to secure the cooperation of large&#xA;  numbers of employees in the production process. But it limits the&#xA;  powers of owners and of other individuals, because they face&#xA;  competition to buy and sell in markets.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;(1) the right to use and exclude others from the use of something, and&#xA;  the right to sell the thing that is owned&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;(2) The equipment, buildings, and other durable inputs used in&#xA;  producing goods and services, including where applicable any patents&#xA;  or other intellectual property that is used&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="44" LastActivityDate="2019-09-11T07:32:13.553" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="31836" PostTypeId="1" CreationDate="2019-09-11T16:49:44.583" Score="0" ViewCount="63" Body="&lt;p&gt;For a conference I need to show the Sharpe ratio's of bitcoin portfolios using different trading strategies. To calculate the Sharpe ratio, I need the Bitcoin's risk-free rate. Risk-free rate for normal stock markets is usually taken from Treasury documents. But cryptocurrencies have no central government and are not affiliated to any country. So how to determine the risk-free rate for, for example, Bitcoin? Is it simply 0?&lt;/p&gt;&#xA;" OwnerUserId="24218" LastActivityDate="2019-09-12T00:03:05.030" Title="How to calculate the risk-free rate of cryptocurrencies?" Tags="&lt;econometrics&gt;&lt;interest-rate&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="31837" PostTypeId="2" ParentId="30821" CreationDate="2019-09-11T19:03:55.830" Score="2" Body="&lt;p&gt;Just to make sure I understand:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;You have a daily panel (with missing values), probably weekday only, running from 2013 to mid-2017 with &lt;span class=&quot;math-container&quot;&gt;$n=3$&lt;/span&gt; cross-sectional units. &lt;/li&gt;&#xA;&lt;li&gt;You believe that after 2015, there is a stronger incentive to do something different at quarter end, so the average basis should be different on month end days during that period. &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;The typical difference-in-difference regression compares two types of units, some that are treated and some that are not, before and after the start of treatment. You don't have that here, but I think that's okay, because you are instead looking at the difference between quarter end and the rest of the quarter, pre- and post-. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a general matter, this setup is fine. As long as the missing-ness of the data is &quot;missing completely at random&quot; or &quot;missing at random&quot;. The problem occurs when the pattern of missing data reflects selection on the LHS variable, omitted variables causing changes in the LHS, or the value of the variable that's missing is related to the reason it is missing. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another concern would be empty cases. You want to make sure that you have quarter end and quarter not end observations for the pre- and post-period. If you use of unit FE, you want to make sure that you have data pre-/post-, quarter end / not, for each unit. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Make sure you are also satisfying &lt;a href=&quot;https://www.mailman.columbia.edu/research/population-health-methods/difference-difference-estimation&quot; rel=&quot;nofollow noreferrer&quot;&gt;the requirements of the difference-in-difference setup&lt;/a&gt;. Some are un-testable, but at a minimum you should make a graphical or statistical argument that your data satisfy the common trend assumption. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is some sample Python code that shows that you can recover the initial parameters in your setup. I did it with month end, not quarter end, because it makes it easier to have a large enough sample of missing data for both difference variables.  It has an example of MAR and MCAR. It shows it works for both. &lt;/p&gt;&#xA;&#xA;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;&#xA;    import numpy as np&#xA;    import pandas as pd&#xA;    import statsmodels.formula.api as smf&#xA;    import itertools&#xA;    np.random.seed(9876789)&#xA;&#xA;    startyear=2013&#xA;    endyear=2017&#xA;    daysinmonth = 21&#xA;    nummonths = 12&#xA;    numgroups = 3&#xA;    numyears = (endyear-startyear+1)&#xA;    dropfraction = 0.20&#xA;    # np.sort(np.tile(np.arange(2013,2018), 12*21))&#xA;    years   = np.repeat(np.arange(startyear,endyear+1), nummonths*daysinmonth*numgroups )&#xA;    days    = np.tile(np.arange(1,daysinmonth+1), nummonths*numyears*numgroups )&#xA;    months  = np.tile(np.repeat(np.arange(1,nummonths+1), daysinmonth),  numyears*numgroups)&#xA;    groups  = np.tile(np.repeat(np.arange(1,(numgroups+1)),nummonths*daysinmonth), numyears)&#xA;    df = pd.DataFrame({'year': years, 'month': months, 'day': days, 'group': groups})&#xA;&#xA;&#xA;    # Last weekday is monthend or the 21st &#xA;    df['endofmonth'] = df.day == 21&#xA;    df['QendW'] = 1*df['endofmonth']&#xA;    df['Post15'] = 1* (df.year &amp;gt; 2015)&#xA;    df['random'] = np.random.rand(daysinmonth*nummonths*numyears*numgroups)&#xA;    df['missing_completely_at_random'] = df['random'] &amp;lt;= dropfraction&#xA;    df['missing_at_random'] = (df['random'] - 0.05 * df['Post15'])  &amp;lt;= dropfraction&#xA;    df['QendWxPost15'] = df['QendW'] * df['Post15']&#xA;&#xA;    alpha0 =  0.2&#xA;    gamma1 =  0.05&#xA;    beta1  = -0.10&#xA;    beta2  =  0.15&#xA;    df['error'] = np.random.randn(daysinmonth*nummonths*numyears*numgroups) / 10&#xA;&#xA;    df['x1'] = alpha0 + gamma1 * df['Post15'] + beta1 * df['QendW'] + beta2 * df['QendWxPost15'] +  df['error']&#xA;&#xA;    df['x1_missing_completely_at_random'] = df['x1'].copy()&#xA;    df.loc[df['missing_completely_at_random'] == True, 'x1_missing_completely_at_random'] = np.nan&#xA;&#xA;    df['x1_missing_at_random'] = df['x1'].copy()&#xA;    df.loc[df['missing_at_random'] == True, 'x1_missing_at_random'] = np.nan&#xA;&#xA;    print(&quot;No missing data&quot;)&#xA;    model = smf.ols(formula='x1 ~ Post15 + QendW + QendWxPost15', data=df)&#xA;    results = model.fit()&#xA;    print(results.summary())&#xA;&#xA;&#xA;    print(&quot;Missing Completely At Random (MCAR)&quot;)&#xA;    model_missing_completely_at_random = smf.ols(formula='x1_missing_completely_at_random ~ Post15 + QendW + QendWxPost15', data=df)&#xA;    results_missing_completely_at_random = model_missing_completely_at_random.fit()&#xA;    print(results_missing_completely_at_random.summary())&#xA;&#xA;    print(&quot;Number missing quarter end (MCAR)&quot;)&#xA;    print(np.sum(df.loc[df['missing_completely_at_random'] == True, 'QendW'] ))&#xA;    print(&quot;Number missing quarter end post 2015 (CAR)&quot;)&#xA;    print(np.sum(df.loc[df['missing_completely_at_random'] == True, 'QendWxPost15'] ))&#xA;&#xA;&#xA;    print(&quot;Missing At Random (MAR)&quot;)&#xA;    model_missing_at_random = smf.ols(formula='x1_missing_at_random ~ Post15 + QendW + QendWxPost15', data=df)&#xA;    results_missing_at_random = model_missing_at_random.fit()&#xA;    print(results_missing_at_random.summary())&#xA;&#xA;    print(&quot;Number missing quarter end (MAR)&quot;)&#xA;    print(np.sum(df.loc[df['missing_at_random'] == True, 'QendW'] ))&#xA;    print(&quot;Number missing quarter end post 2015 (MAR)&quot;)&#xA;    print(np.sum(df.loc[df['missing_at_random'] == True, 'QendWxPost15'] ))&#xA;&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;" OwnerUserId="69" LastActivityDate="2019-09-11T19:03:55.830" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="31839" PostTypeId="2" ParentId="30832" CreationDate="2019-09-11T23:46:35.873" Score="0" Body="&lt;p&gt;Let me rephrase the question in my own words: in an environment where automation increasingly is taking over, are there alternatives besides leaving the have-nots behind or providing a basic income?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An (non-ideal) alternative is to pay people to do a job that is pointless (not related to food production in your analogy). If the point of this question is to confirm your belief that there is no other ideal alternative within your limited analogy, then you have a +1 from me. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would also argue that basic income isn't necessarily politically left wing, but I'll just link you to &lt;a href=&quot;https://politics.stackexchange.com/q/39629&quot;&gt;Politics SE&lt;/a&gt; to debate that. And perhaps I am too left wing to see otherwise but if there is a magical machine as in your analogy that takes care of food for everyone, why not just distribute food unconditionally? How is that not ideal? I understand the argument that humans need to work to fulfill &quot;higher needs&quot; but I think that is a separate question from needing to work to fulfill physiological needs.&lt;/p&gt;&#xA;" OwnerUserId="8387" LastActivityDate="2019-09-11T23:46:35.873" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="31840" PostTypeId="2" ParentId="31836" CreationDate="2019-09-12T00:03:05.030" Score="3" Body="&lt;p&gt;Instead of looking at bitcoin like a currency, I think you should look at it like a regular stock. The &quot;return&quot; is the return of &lt;em&gt;your fiat money (USD)&lt;/em&gt; that's investing in Bitcoin... so the risk free rate should be the risk free rate of your money, i.e. T-bill, etc.&lt;/p&gt;&#xA;" OwnerUserId="5145" LastActivityDate="2019-09-12T00:03:05.030" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="31841" PostTypeId="1" CreationDate="2019-09-12T01:51:02.463" Score="0" ViewCount="37" Body="&lt;p&gt;I was reading a macroeconomics textbook and found two statements which seem kind of contradictory so I wish to ask how to correctly interpret this.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;“When expected inflation is high, people increase their savings (such as buying bonds) due to the high nominal interest rate.” &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;“When expected inflation is high, people decrase their savings and increase their consumption because they expect that prices will become high in the future.” &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;If we look at the loanable funds market, the first statement will be represented by the rightward shift of the Savings curve (Supply of loanable funds), and the second statement will be represented by the leftward shift of the Savings curve (since increase in consumption means the same thing as decrease in savings as seen in the equation Y income = C consumption + S savings). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus the first statement and the second shows us completely opposite results, despite the fact that they come from the same stimulus - the rise of expected inflation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So how should I understand this? what happens to the loanable funds market in the end (does the Savings curve shift rightward or leftward?) I would appreciate a detailed explanation :) &lt;/p&gt;&#xA;" OwnerUserId="23697" LastEditorUserId="23697" LastEditDate="2019-09-12T01:56:07.697" LastActivityDate="2019-09-12T01:56:07.697" Title="Expected Inflation and its results" Tags="&lt;inflation&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="31843" PostTypeId="2" ParentId="11029" CreationDate="2019-09-12T02:35:35.127" Score="1" Body="&lt;p&gt;In recent times, capital markets have been looking to central banks to bail them out if they get into trouble. So if confidence is lost that they cannot, well, yes that can trigger a crash that may lead to a complete no confidence in a particular currency and thereby the loss of its purchasing power.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But losing faith in central banks is not the only risk factor.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are other risk factors that can trigger a market collapse such as leverage ratios, government debt-to-GDP ratios, government deficit-to-GDP ratios, real interest rates, real growth, nominal growth, contagion, trade wars, currency wars, credit spreads and geopolitical shocks.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It could also be a guy at a behemoth financial institution such as JPMorgan who has been left unsupervised and now has $6 billion in trading losses that triggers it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So its a lot more than just a lack of confidence in central banks.&lt;/p&gt;&#xA;" OwnerUserId="20035" LastActivityDate="2019-09-12T02:35:35.127" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="31844" PostTypeId="1" CreationDate="2019-09-12T09:20:28.030" Score="1" ViewCount="947" Body="&lt;p&gt;What is Rent dissipation? Please explain with an example.&#xA;I tried to search it on the internet about it. And I couldn't find anything in simple language. It was the esoteric language and was unclear. I wish there might have been a simple paragraph out there that could explain its meaning.&lt;/p&gt;&#xA;" OwnerUserId="24136" LastActivityDate="2019-09-13T13:44:58.193" Title="Rent dissipation meaning?" Tags="&lt;microeconomics&gt;&lt;utility&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="31845" PostTypeId="1" CreationDate="2019-09-12T10:08:49.313" Score="1" ViewCount="19" Body="&lt;p&gt;I'm collecting data on important business and economic news dates in the late 19th to early 20th century. The only list I found is this: &lt;a href=&quot;https://www.encyclopedia.com/history/news-wires-white-papers-and-books/1878-1899-business-and-economy-chronology&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.encyclopedia.com/history/news-wires-white-papers-and-books/1878-1899-business-and-economy-chronology&lt;/a&gt;. I'm trying to identify dates in which there were important news for the U.S. stock market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does anybody know of any other sources? Perhaps another encyclopedia, a news article, or an academic paper?&lt;/p&gt;&#xA;" OwnerUserId="24225" LastActivityDate="2019-09-12T10:08:49.313" Title="List of important business and economic news events between 1850 and 1930?" Tags="&lt;stock-market&gt;&lt;economic-history&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="31846" PostTypeId="1" AcceptedAnswerId="31847" CreationDate="2019-09-12T11:43:28.517" Score="1" ViewCount="2073" Body="&lt;p&gt;I was scrolling through many questions on this site about income offer path and it appeared to me that income offer path, income expansion path, engel curve all are different terms with same meaning, i.e. graph of the engel function.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Can somebody explain what is the difference between these terms, if any?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="24226" LastEditorUserId="1601" LastEditDate="2019-09-12T13:05:36.310" LastActivityDate="2019-09-15T06:23:15.023" Title="Difference between Engel curve and income expansion path" Tags="&lt;consumer-theory&gt;&lt;demand&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="31847" PostTypeId="2" ParentId="31846" CreationDate="2019-09-12T13:11:35.720" Score="1" Body="&lt;p&gt;Both of these curves describe the same phenomenon, the change in consumer choice as income changes. The difference is in the displayed variables. The Engel curve is a relationship between the consumption of a good &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; and income &lt;span class=&quot;math-container&quot;&gt;$I$&lt;/span&gt;, whereas the income expansion path (IEP) shows the relationship between the consumption of a good &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; and a good &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; as income increases. These are the coordinate systems the curves are usually displayed in, so Engel in &lt;span class=&quot;math-container&quot;&gt;$(x,I)$&lt;/span&gt;, IEP in &lt;span class=&quot;math-container&quot;&gt;$(x,y)$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Engel curve would show you if good &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; is inferior.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One can also learn this from IEP (it would have a negative slope somewhere), and in case both goods are normal IEP would show you if the consumption of one good would increase at a faster rate than that of the other.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2019-09-12T13:11:35.720" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="31848" PostTypeId="1" CreationDate="2019-09-12T14:28:58.087" Score="0" ViewCount="78" Body="&lt;p&gt;Why are averages preferred to extremes on the same indifference curve? Doesn't everything along an indifference curve have the same preference?&lt;/p&gt;&#xA;" OwnerUserId="24227" LastActivityDate="2019-09-15T13:33:52.843" Title="Indifference Curves and Preferences" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="31849" PostTypeId="2" ParentId="31848" CreationDate="2019-09-12T23:20:08.400" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Why are averages preferred to extremes on the same indifference curve?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;That is false. Whoever told you this is mistaken.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or it could also be that you misheard/misread and are confusing this with the idea that the bundle of 100 apples + 100 oranges is (usually) preferred to the bundle of 200 apples or the bundle of 200 oranges.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Doesn't everything along an indifference curve have the same preference?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Yes.&lt;/p&gt;&#xA;" OwnerDisplayName="user23102" LastActivityDate="2019-09-12T23:20:08.400" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="31852" PostTypeId="1" CreationDate="2019-09-13T10:04:18.453" Score="-1" ViewCount="57" Body="&lt;p&gt;If an appropriate electronic system were implemented governments would know how much money there is in circulation, who has it and if some illegal transaction has been done. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This measure could help reduce crime and remove black money and prevent capital flight to tax-havens. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why this measure is not being implemented? What would be the consequences of it? Is there a political interest in not taking this measure? I'm looking for remarkable authors who discuss this. &lt;/p&gt;&#xA;" OwnerUserId="23980" LastEditorUserId="1601" LastEditDate="2019-09-15T07:30:20.580" LastActivityDate="2019-09-15T07:30:20.580" Title="Consequences of removing hard currency" Tags="&lt;reference-request&gt;&lt;currency&gt;" AnswerCount="1" CommentCount="5" ClosedDate="2019-09-18T01:59:52.290" ContentLicense="CC BY-SA 4.0" />
  <row Id="31853" PostTypeId="2" ParentId="31852" CreationDate="2019-09-13T10:14:49.650" Score="2" Body="&lt;p&gt;Governments &lt;em&gt;do&lt;/em&gt; know how much physical currency has been issued, and have decent ways of estimating how much money is in circulation. And the evidence to date is that digital currencies &lt;em&gt;facilitate&lt;/em&gt; crime, including fraud, extortion, blackmail, international transfers of dodgy money, and money laundering.&lt;/p&gt;&#xA;" OwnerUserId="44" LastActivityDate="2019-09-13T10:14:49.650" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="31855" PostTypeId="2" ParentId="31844" CreationDate="2019-09-13T13:44:58.193" Score="1" Body="&lt;p&gt;You may find this article useful &lt;a href=&quot;https://www.romeconomics.com/licensing-rent-dissipation/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Licensing and Rent Dissipation&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In simple terms you might think of it as the devaluation of an 'asset' of some sort.&lt;/p&gt;&#xA;" OwnerUserId="17908" LastActivityDate="2019-09-13T13:44:58.193" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="31857" PostTypeId="1" AcceptedAnswerId="31858" CreationDate="2019-09-13T20:39:48.933" Score="1" ViewCount="66" Body="&lt;p&gt;I am an economics' graduate seeking to study Law and I want to illustrate the importance of legal certainty. Penalties, Costs are negativelly framed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am trying to word.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;200 dollars with 50% certainty or 100 dollars with absolute certainty both positevely and negatively.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The negative part is particularly difficult. I am giving nuances I should not.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I tried You find 200 dollars on the street( suppose you are unable to give them back) and after this you either have to pay 100 dollars or 200 with 50% certainty.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I do not know what nuances I give of but I always seem to fail to show people's inconsistency which I necessarily need to illustrate the importance of legal certainty.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How can I word the experiment question so as to best illustrate the Framing Effect?&lt;/p&gt;&#xA;" OwnerUserId="23287" LastActivityDate="2019-09-15T12:44:14.707" Title="Framing Effect Risk-Aversion Risk-Pursuit" Tags="&lt;microeconomics&gt;&lt;game-theory&gt;&lt;utility&gt;&lt;preferences&gt;&lt;behavioral-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="31858" PostTypeId="2" ParentId="31857" CreationDate="2019-09-13T23:05:03.390" Score="2" Body="&lt;p&gt;The following is a slight rewording of an example in Richard Thaler's &lt;em&gt;Misbehaving&lt;/em&gt; (1):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;Positive framing of certain outcome&lt;/strong&gt;&lt;/p&gt;&#xA;  &#xA;  &lt;blockquote&gt;&#xA;    &lt;p&gt;Imagine you are $300 richer than you are today.  You are given a choice between:&lt;/p&gt;&#xA;    &#xA;    &lt;blockquote&gt;&#xA;      &lt;p&gt;A. A certain gain of \$100.&lt;/p&gt;&#xA;      &#xA;      &lt;p&gt;B. A 50% chance to gain \$200 and a 50% chance of losing \$0.&lt;/p&gt;&#xA;    &lt;/blockquote&gt;&#xA;  &lt;/blockquote&gt;&#xA;  &#xA;  &lt;p&gt;&lt;strong&gt;Negative framing of certain outcome&lt;/strong&gt;&lt;/p&gt;&#xA;  &#xA;  &lt;blockquote&gt;&#xA;    &lt;p&gt;Imagine you are $500 richer than you are today.  You are given a choice between:&lt;/p&gt;&#xA;    &#xA;    &lt;blockquote&gt;&#xA;      &lt;p&gt;A. A certain loss of \$100.&lt;/p&gt;&#xA;      &#xA;      &lt;p&gt;B. A 50% chance of losing \$200 and a 50% chance of losing \$0.&lt;/p&gt;&#xA;    &lt;/blockquote&gt;&#xA;  &lt;/blockquote&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It can be seen that, under either framing, choice A implies \$400 richer than today while choice B implies a 50% chance of \$500 richer and a 50% chance of \$300 richer.  According to Thaler, however, 72% of subjects chose A when presented with the positive framing and only 36% chose it when presented with the negative framing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To modify this to fit the terms of your question, the initial figures in both framings could be reduced by \$300. The second would then become &quot;Imagine you are \$200 richer ...&quot;.  The first would no longer require any imagining.  My (untested) intuition, however, is that the inclusion of imagining in one framing but not in the other might influence people's responses in some way that Thaler's formulation avoids.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I therefore suggest instead the following, because it retains the symmetry of imagining in both framings:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;Positive framing of certain outcome&lt;/strong&gt;&lt;/p&gt;&#xA;  &#xA;  &lt;blockquote&gt;&#xA;    &lt;p&gt;Imagine you are \$50 richer than you are today.  You are given a choice between:&lt;/p&gt;&#xA;    &#xA;    &lt;blockquote&gt;&#xA;      &lt;p&gt;A. A certain gain of \$50.&lt;/p&gt;&#xA;      &#xA;      &lt;p&gt;B. A 50% chance to gain \$150 and a 50% chance to lose \$50.&lt;/p&gt;&#xA;    &lt;/blockquote&gt;&#xA;  &lt;/blockquote&gt;&#xA;  &#xA;  &lt;p&gt;&lt;strong&gt;Negative framing of certain outcome&lt;/strong&gt;&lt;/p&gt;&#xA;  &#xA;  &lt;blockquote&gt;&#xA;    &lt;p&gt;Imagine you are \$150 richer than you are today.  You are given a choice between:&lt;/p&gt;&#xA;    &#xA;    &lt;blockquote&gt;&#xA;      &lt;p&gt;A. A certain loss of \$50.&lt;/p&gt;&#xA;      &#xA;      &lt;p&gt;B. A 50% chance to gain \$50 and a 50% chance to lose \$150.&lt;/p&gt;&#xA;    &lt;/blockquote&gt;&#xA;  &lt;/blockquote&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Reference&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(1) Thaler R (2015) &lt;em&gt;Misbehaving: the Making of Behavioural Economics&lt;/em&gt;, republished by Penguin Random House UK in 2016, p 33.&lt;/p&gt;&#xA;" OwnerUserId="1417" LastEditorUserId="1417" LastEditDate="2019-09-15T12:44:14.707" LastActivityDate="2019-09-15T12:44:14.707" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="31859" PostTypeId="1" CreationDate="2019-09-14T00:54:14.463" Score="1" ViewCount="156" Body="&lt;p&gt;I understand the concept of creation of wealth through trade, innovation, labor and capital. New value is being added to the economy. Let's imagine for a second that there are no central banks and the money supply is constant. This would imply that even though one can create wealth and add value to the economy the money would just be changing hands, meaning in order for one individual to get richer another would have to get poorer. We all know that in the real world central banks print money (I am ignoring inflation, nevertheless that's not the point) but that isn't the problem as far as I can tell. The current rebuttal of my example is that even though no new money is being created somehow the pie gets larger so everyone can get a larger slice. But how exactly does this process of expanding the pie happen? I can't grasp my head around the idea that the pie can enlarge while the money supply is fixed. I guess that's the same problem mercantilists had back in the 16th and 17th centuries. &lt;/p&gt;&#xA;" OwnerUserId="24238" LastEditorUserId="24238" LastEditDate="2019-09-14T00:59:36.757" LastActivityDate="2019-09-14T07:26:48.367" Title="How does the pie get larger?" Tags="&lt;money-supply&gt;&lt;money&gt;&lt;wealth&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="31860" PostTypeId="2" ParentId="31859" CreationDate="2019-09-14T02:19:58.377" Score="2" Body="&lt;p&gt;(Mostly) ignore money for this growth issue; it's by and large a red herring that's distracting you. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Instead just think of technological progress for instance. Assume everyone is washing their clothes by hand. That takes a fair bit of time. Now someone invents a washing machine. Everyone (who can get a washing machine) will then have more time on their hand to do other stuff, like (say) invent and produce faster means of transportation, saving people time in yet another way and so on. All this is leads to improvements in efficiency (productivity).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you apply this process of improvements to (say) agriculture, you get to produce more food with the same amount of resources, like with the same manpower and even the land being the same. Now there is a literal pie (of food) that gets bigger, which can feed more people. (The inventions would have to be appropriate, of course, like irrigation, mechanization [tractors etc.], or genetic selection/modification of crops.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The additional people you can feed in turn can produce more stuff [until you run into limits on natural resources]. This is true even if you don't have technological progress. That's why demographic growth also matters for economic growth.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course, money becomes useful as a means of exchanging all this different stuff that people invent and produce, but it's not money that grows the economy, by and large, although financial services (including the basic presence of money) are also a way to make some processes more efficient. As an example of the latter, a loan allows someone to get machinery or even housing up-front, before they've produced enough stuff to pay for the item. That in turn buys them time (in their life) to produce stuff faster (using the machinery sooner rather than later) or even make babies, which would have housing where to live. I.e. financial services can speed up things which otherwise would happen slower or maybe not at all. (Do note that &lt;a href=&quot;https://www.weforum.org/agenda/2015/06/do-banks-really-create-money-out-of-thin-air/&quot; rel=&quot;nofollow noreferrer&quot;&gt;loans are money&lt;/a&gt; in the &lt;a href=&quot;https://en.wikipedia.org/wiki/Broad_money&quot; rel=&quot;nofollow noreferrer&quot;&gt;broad sense&lt;/a&gt;, in the modern economy; I'm not getting into details on that here; the first link explains it pretty well.)&lt;/p&gt;&#xA;" OwnerUserId="6210" LastEditorUserId="6210" LastEditDate="2019-09-14T03:14:26.203" LastActivityDate="2019-09-14T03:14:26.203" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="31861" PostTypeId="1" AcceptedAnswerId="31876" CreationDate="2019-09-14T02:47:30.993" Score="5" ViewCount="255" Body="&lt;p&gt;Were there capitalistic economies before the 18&lt;sup&gt;th&lt;/sup&gt; century?     &lt;/p&gt;&#xA;" OwnerUserId="4101" LastEditorUserId="6210" LastEditDate="2019-09-14T05:44:51.773" LastActivityDate="2019-09-15T05:42:15.763" Title="Did capitalism exist before the 18th century?" Tags="&lt;history&gt;&lt;economic-history&gt;&lt;capitalism&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="31862" PostTypeId="2" ParentId="31861" CreationDate="2019-09-14T05:18:01.010" Score="5" Body="&lt;p&gt;According to some yes. In this (historically oriented) view, whatever succeeded feudalism is called capitalism.&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Capitalism, broadly accepted as a phase of history, is dominating the last half-a-millennium. It has also become conventional that capitalism itself had various phases and stages. Its antecedents go back to ancient history. Barter and exchange of one thing for another, as Adam Smith, the main advocate and ideologue of market capitalism argued, are a part of human nature. The pockets of private-market economy and its institutions, especially in urban settlements, flourished in medieval Europe. Moneylenders and urban merchants were its main representatives.&lt;/p&gt;&#xA;&lt;p&gt;Its continuous development, however, began mostly from the sixteenth century. Historiography produced a vast literature on the transition from feudalism to capitalism. These writings maintain that declining productivity, a demographic crisis, and the scarcity of peasant labor generated the lowering of rents, a decrease of labor services, and an increase in peasant mobility and freedom in Western Europe. In most of these countries, consequently, serfdom was gradually loosened and disappeared by the sixteenth century. Commercialization of agriculture played a central role in the development of capitalism. The flourishing textile industry in Britain with an excess production over consumption led to the enlargement of productive capacities in an unheard scale and made England the ‘workshop of the world.’&lt;/p&gt;&#xA;&lt;p&gt;This stage between the sixteenth and eighteenth centuries is often called ‘commercial capitalism’ in history. The system was based on private ownership of warehouses and ships and buying and selling goods all over the world. The merchants also lent out money at interest and established connections with production. They bought and distributed raw materials for peasants who worked at home in the traditional way (&lt;a href=&quot;https://en.wikipedia.org/wiki/Putting-out_system&quot; rel=&quot;nofollow noreferrer&quot;&gt;putting-out system&lt;/a&gt;), and gradually subordinated the rural cottage industry. It led to a proto-industrialization, the development of a decentralized putting-out system coordinated by merchants, and later the establishment of (nonmechanized) factories, which introduced division of labor in the production procedure.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Quoted from I.T. Berend, &amp;quot;Capitalism&amp;quot; in International Encyclopedia of the Social &amp;amp; Behavioral Sciences, 2001&lt;/p&gt;&#xA;&lt;p&gt;Alternatively, what he calls &amp;quot;commercial capitalism&amp;quot; is called &lt;a href=&quot;https://en.wikipedia.org/wiki/Merchant_capitalism&quot; rel=&quot;nofollow noreferrer&quot;&gt;&amp;quot;merchant capitalism&amp;quot;&lt;/a&gt; by others. And as the Wikipedia article linked shows, others (&lt;a href=&quot;https://en.wikipedia.org/wiki/Ellen_Meiksins_Wood&quot; rel=&quot;nofollow noreferrer&quot;&gt;Ellen Meiksins Wood&lt;/a&gt; in particular) &lt;a href=&quot;https://en.wikipedia.org/wiki/The_Origin_of_Capitalism&quot; rel=&quot;nofollow noreferrer&quot;&gt;disagree&lt;/a&gt; on whether that was really capitalism.&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;She argues that commerce is not equivalent to capitalism and does not produce it because 'the dominant principle of trade everywhere was not surplus value derived from production but &amp;quot;profit on alienation&amp;quot;, &amp;quot;buying cheap and selling dear&amp;quot; ': that is, although trade involves the seeking of profits, it does not in itself affect how goods are produced. Wood argues that polities which flourished from trade such as medieval Florence and the early-modern Dutch Republic that did not become capitalist are not examples of a 'failed transition', but rather examples of how trade and urbanisation has flourished widely in human history without capitalism developing. She likewise argues that various past societies, such as early modern France, had peasantries with ample opportunity to enter into commercial production, which, however, did not take this opportunity. Thus Wood concludes that capitalism must have arisen from changing imperatives in fundamental relations of production.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Both &lt;a href=&quot;https://en.wikipedia.org/wiki/Iv%C3%A1n_T._Berend&quot; rel=&quot;nofollow noreferrer&quot;&gt;Berend&lt;/a&gt; and Woods have serious Marxist leanings, so even in this relatively narrow camp there's disagreement on when capitalism bagan...&lt;/p&gt;&#xA;&lt;p&gt;In yet other terms, this is the divergence of views between &lt;a href=&quot;https://en.wikipedia.org/wiki/History_of_capitalism#Other_views&quot; rel=&quot;nofollow noreferrer&quot;&gt;the &amp;quot;commercialization&amp;quot; vs the &amp;quot;agrarian&amp;quot;&lt;/a&gt; model of the emergence of capitalism. It seems to me that the latter is mainly favored by Marxists, while the former has a broader appeal (so Berend is a bit of a heretic among Marxists in this respect.)&lt;/p&gt;&#xA;" OwnerUserId="6210" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2019-09-15T03:48:01.770" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="31863" PostTypeId="2" ParentId="31859" CreationDate="2019-09-14T07:26:48.367" Score="1" Body="&lt;p&gt;The short answer is that money is not the same wealth. You yourself probably have less money than the value of all the stuff you own. When the economy grows the total amount of wealth grows. (This is usually also accompanied by growth of money, but that is a separate matter.)&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2019-09-14T07:26:48.367" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="31865" PostTypeId="2" ParentId="19913" CreationDate="2019-09-14T10:05:30.163" Score="2" Body="&lt;p&gt;The dictionary definitions of capitalism (currently the most upvoted answer) have been critiqued as inadequate, in the sense that they are too broad, by Geoffrey Hodgson in his treatise, &lt;em&gt;Conceptualising Capitalism&lt;/em&gt; (University of Chicago Press, 2015).&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Definitions proliferate. Most dictionaries stress private&#xA;  ownership and markets; many add the profit motive. The entry in The&#xA;   New Encyclopaedia Britannica (1998, 2:831) is typical: “Capitalism, also&#xA;  called free market economy, or free enterprise economy: economic system&#xA;  . . . in which most of the means of production are privately owned&#xA;  and production is guided and income distributed largely through the operation&#xA;  of markets.”&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;But, if we consider systems based largely on private ownership, the&#xA;  profit motive, and markets, we can find many examples before the medieval&#xA;  era. [...] trade has existed for tens of&#xA;  thousands of years, markets may have appeared as long as five millennia&#xA;  ago in China, and they were evident in several locations in the eastern&#xA;  Mediterranean and the Middle East around 600 BC. Private ownership,&#xA;  the pecuniary calculus, and the profit motive have similarly played&#xA;  a prominent role in leading economic regions for thousands of years.&#xA;  Hence, prominent dictionary definitions of capitalism make it a system&#xA;  that has lasted for multiple millennia. If we adopt such definitions, then&#xA;  we need to find another word to describe the institutional structures that&#xA;  were consolidated in the eighteenth century and gave rise to spectacular&#xA;  economic growth and ongoing technological innovation.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;And he does have his own definition (which I will not try to argue that is mainstream); its premise is that: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Capitalism [...] requires special forms of state that cannot confiscate property arbitrarily at will, that are effectively restrained by laws, that have internal&#xA;  checks and balances, and that are faced with countervailing (democratic&#xA;  or other) powers that help protect a relatively autonomous legal system.&#xA;  Such states are necessary to legitimate and protect property rights and&#xA;  to enforce contracts. They required peculiar circumstances and a long&#xA;  time to evolve. Foreshadowed in the Italian city- states, they did not appear&#xA;  on a national scale until the seventeenth century, in Britain and the&#xA;  Netherlands. [...]&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;I argue that, while markets are central to capitalism, capitalism is not&#xA;  simply a market system: unavoidably it contains different subsystems of&#xA;  governance, production, distribution, and exchange. Furthermore, capitalism&#xA;  cannot in principle have markets for everything or bring everything&#xA;  within the orbit of commodity exchange.&#xA;  In particular, under capitalism there can never be a complete set of&#xA;  markets for future labor power. For there to be full futures markets for&#xA;  labor, all workers must enter into contracts for their expected working&#xA;  life. This would be tantamount to voluntary bondage, limiting the freedom&#xA;  of workers to quit their employment. Paradoxically, pushing markets&#xA;  to their limits would mean the return of slavery for the workforce.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;He goes on to semi-formalize a list of tenets that constitute capitalism first according to [his interpretation of] Marx and then similarly for Schumpeter&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;M[arx]-capitalism&lt;/p&gt;&#xA;  &#xA;  &lt;ol&gt;&#xA;  &lt;li&gt;A legal system supporting widespread individual rights and liberties to own,&#xA;  buy, and sell private property&lt;/li&gt;&#xA;  &lt;li&gt;Widespread commodity exchange and markets involving money&lt;/li&gt;&#xA;  &lt;li&gt;Widespread private ownership of the means of production by firms producing&#xA;  goods or services for sale in the pursuit of profit&lt;/li&gt;&#xA;  &lt;li&gt;Much of production organized separately and apart from the home and&#xA;  family&lt;/li&gt;&#xA;  &lt;li&gt;Widespread wage labor and employment contracts&lt;/li&gt;&#xA;  &lt;/ol&gt;&#xA;  &#xA;  &lt;p&gt;Most dictionary and encyclopedia definitions emphasize conditions&#xA;  (1), (2), and (3), albeit often without emphasis on the legal system. More&#xA;  than Marx, the notion of M-capitalism emphasizes the legal system and&#xA;  individual rights. Regarding condition (4), the separation of much production&#xA;  from the family and the domestic sphere was emphasized by Weber&#xA;  (1968) and is implicit in Marx’s writings. Weber rightly argued that&#xA;  this separation was important to subject production to systems of rational&#xA;  accounting and pecuniary motivation. Marx emphasized condition&#xA;  (5) because it flows from the nature of capitalism as generalized commodity&#xA;  production and encapsulates the driving antagonism between&#xA;  the employing class and the working class. [...]&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;A problem [...] is that the addition of&#xA;  condition (5), widespread wage labor, to the preceding four does not effectively&#xA;  demarcate modern industrial capitalism from the four preceding&#xA;  centuries when wage labor was widespread in rural England.&#xA;  M-capitalism, as specified above, gives us a better-than-average definition,&#xA;  but not one that is sufficiently sharp in terms of historical specificity.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Further problems of historical demarcation arise with the first four&#xA;  conditions. As noted in section 4.4 above, the idea that secure property&#xA;  rights were first established in England in the seventeenth century is a&#xA;  myth. Furthermore, money, markets, and private ownership have existed&#xA;  for millennia. The fourth condition is helpful but hardly sufficient as an&#xA;  explanation of massive expansion of capitalism around 1800. The five&#xA;  conditions are inadequate to demarcate historically the explosion of capitalist&#xA;  productivity even if they are necessary for that system.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;As for S[chumpeter]-capitalism, he argues that it contains all of the above, except for #5, but that additionally it has&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;ol start=&quot;6&quot;&gt;&#xA;  &lt;li&gt;A developed financial system with banking institutions, the widespread use&#xA;  of credit with property as collateral, and the selling of debt&lt;/li&gt;&#xA;  &lt;/ol&gt;&#xA;  &#xA;  &lt;p&gt;The addition of condition (6) takes seriously the monetary definition&#xA;  of capital and institutions promoting collateralization and the salability&#xA;  of debt. Capitalism is thus marked by “the predominance of ‘capital’”&#xA;  (Sombart 1930, 196). This definition points to the development of institutions&#xA;  of clearer historical specificity. According to this definition, the&#xA;  emergence of capitalism in England is marked by developments in financial&#xA;  institutions in the eighteenth century.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Note that condition (1) in the definitions of M-capitalism and&#xA;  S-capitalism rules out (at least widespread) slavery. Consequently, both&#xA;  M-capitalism and S-capitalism involve missing futures markets for labor.&#xA;  With S-capitalism, there may be self-employment or worker cooperatives&#xA;  but not extensive slave labor. M-capitalism rules out an economy&#xA;  with predominant self- employment or worker cooperatives.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;As you can probably guess, by synthesis, he argues that the definition of capitalism should include the superset of 1-6 from both M- and S-capitalism (which already have a lot in common).&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;But there is a cost to the exclusion of condition (5) from this definition. [...] the advantage of retaining&#xA;  the employment contract in the definition of capitalism is that it demarcates&#xA;  the system from economies involving self-employed producers or&#xA;  worker cooperatives. Furthermore, the introduction of wage labor gave&#xA;  important incentives for labor-saving innovations and led to increases in&#xA;  productivity. Consequently, the definition of capitalism that is favored&#xA;  here— and described simply as capitalism, without any prefix— involves&#xA;  all six of the above conditions. [...] &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Conditions&#xA;  (5) and (6) serve as fuzzy historical bookends, together demarcating&#xA;  capitalism from preceding systems and possible successors. [...]&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Explicit reference to social class is also absent from the definition offered&#xA;  above. In his review of different definitions of capitalism, Michael&#xA;  Merrill (1995) argued that capitalism is much more than simply a market&#xA;  economy. He was right about that. But he wanted to define capitalism as&#xA;  “a market economy ruled by, or in the interests of, capitalists” (322). A&#xA;  problem [...] is that the basis of class itself has to&#xA;  be defined, and Marx and Engels were obliged to use legal terms such as&#xA;  ownership to do so. Being a capitalist or a worker is not a congenital attribute:&#xA;  it is the occupation of a social role that is determined in part by&#xA;  legal relations. Class-related legal terms appear in all points above, except&#xA;  condition (4).&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Marxists have abused class-centered definitions of capitalism. They&#xA;  see class struggle, where the destiny of one class is to seize control of the system from another. But, notwithstanding the power of capitalists over&#xA;  workers, capitalists do not control capitalism: it is more the other way&#xA;  round. Such large and complex systems cannot be fully controlled, as if&#xA;  from a single chamber of power.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;And while he disses that idea that capitalists control capitalism itself as a caricature, he nevertheless argues that it is an integrated economic and political system (and in this he is not that original, as he acknowledges):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The central role of the state within capitalism means that we must&#xA;  address politics as well as economics. [...] Douglass C. North, John J. Wallis,&#xA;  and Barry R. Weingast (2009, 269) argued: “The seeming independence&#xA;  of the economic and political systems on the surface is apparent, not&#xA;  real. In fact, these systems are deeply intertwined.” I also concur with&#xA;  Bruce R. Scott (2009, 4) in his claim that capitalism is both “a political&#xA;  phenomenon” and “an economic one” and that “specifically it requires&#xA;  the visible hands of political actors exercising power through political&#xA;  institutions.” Capitalism always involves legal and political institutions:&#xA;  pure “anarchocapitalism” is an unrealizable fantasy.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;And since the Austrians (Hayek actually) got mentioned in the question, Hodgson has this to say about their approach to defining capitalism:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The Austrian economists had&#xA;  little to say about the sphere of production—conditions (4) and (5)—&#xA;  including the employment contract. Although they mentioned money&#xA;  many times, they paid insufficient attention to the use of property as collateral&#xA;  or to the selling of debt—condition (6). Their theory of money&#xA;  downplays the vital constitutive role of the state. At best, they stressed&#xA;  three of the six conditions only. The first three conditions are insufficient to identify the institutions of the capitalist system that were responsible&#xA;  for the explosive production of wealth in the last three hundred&#xA;  years.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;While this may not be any sort of consensus statement, it is at least a comparative analysis of various definitions (from fairly prominent sources).&lt;/p&gt;&#xA;" OwnerUserId="6210" LastEditorUserId="6210" LastEditDate="2019-09-14T11:14:11.873" LastActivityDate="2019-09-14T11:14:11.873" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="31866" PostTypeId="1" CreationDate="2019-09-14T19:58:03.297" Score="2" ViewCount="164" Body="&lt;p&gt;So I was trying to figure out the amount paid for a loan in today's dollars using two different methods but they give me different results. I was hoping that someone could explain which method is right (or if neither are) and what mistakes I was making in the other method.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem assumes a constant rate of inflation.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Method 1&lt;/h2&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Calculate the real interest rate using the Fisher equation: &lt;span class=&quot;math-container&quot;&gt;$i_{real} = \frac{i_{nominal} - inflation}{1 + inflation}$&lt;/span&gt;&lt;/li&gt;&#xA;&lt;li&gt;Use the &lt;strong&gt;real&lt;/strong&gt; interest rate instead of the nominal rate in the loan payment formula: &lt;span class=&quot;math-container&quot;&gt;$payment = \frac{i * A}{1 - (1 + i)^{-n}}$&lt;/span&gt; where i is the interest rate, A is the amount borrowed, and n is the number of payments&lt;/li&gt;&#xA;&lt;li&gt;Find the total amount paid by multiplying the payment by the number of payments &lt;span class=&quot;math-container&quot;&gt;$total = payment * n$&lt;/span&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;h2&gt;Method 2&lt;/h2&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Find the payment using the &lt;strong&gt;nominal&lt;/strong&gt; interest rate. Again the payment formula I used is  &lt;span class=&quot;math-container&quot;&gt;$payment = \frac{i * A}{1 - (1 + i)^{-n}}$&lt;/span&gt;&lt;/li&gt;&#xA;&lt;li&gt;Convert each year's payment to today's dollars. To convert to today's I did &lt;span class=&quot;math-container&quot;&gt;$dollars_{today} = dollars_{future} * (\frac{1}{1 + inflation})^n$&lt;/span&gt;. n is the number of inflation periods.&lt;/li&gt;&#xA;&lt;li&gt;Sum up the results from step 2 to get the total paid. &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;h2&gt;An example where the methods give different answers&lt;/h2&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Loan Amount: = $1000&lt;/li&gt;&#xA;&lt;li&gt;Nominal Interest: 10%&lt;/li&gt;&#xA;&lt;li&gt;Number of payments: 20&lt;/li&gt;&#xA;&lt;li&gt;Inflation: 5%&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Using Method 1 we have&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Real Interest Rate = &lt;span class=&quot;math-container&quot;&gt;$\frac{0.10 - 0.05}{1 + 0.05} = 0.048$&lt;/span&gt;&lt;/li&gt;&#xA;&lt;li&gt;Each Payment = &lt;span class=&quot;math-container&quot;&gt;$\frac{0.048 * \$1000}{1 - (1 + 0.048)^{-20}} = \$78.63$&lt;/span&gt; &lt;/li&gt;&#xA;&lt;li&gt;Total Paid = &lt;span class=&quot;math-container&quot;&gt;$\$78.63 * 20 = \$1572.61$&lt;/span&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Using Method 2 we have&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Each payment = &lt;span class=&quot;math-container&quot;&gt;$\frac{0.10 * \$1000}{1 - (1 + 0.10)^{-20}} = \$117.46$&lt;/span&gt;&lt;/li&gt;&#xA;&lt;li&gt;Here is the &lt;a href=&quot;https://docs.google.com/spreadsheets/d/1EL7v2Vw9bfkKR34TSuEPPgzztavj0mwhzKtGHxTjWls/edit?usp=sharing&quot; rel=&quot;nofollow noreferrer&quot;&gt;spreadsheet with the work&lt;/a&gt; and a picture of it &lt;a href=&quot;https://i.stack.imgur.com/Uy5cw.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Uy5cw.png&quot; alt=&quot;Loan Cost Cacluations&quot;&gt;&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;The total paid is as you can see $1463.81&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;So you can see that the methods differ in amount by $108.80. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So can anyone explain which is right (if either of them is) and why the wrong one is wrong? My only guess so far is that &lt;/p&gt;&#xA;&#xA;&lt;blockquote class=&quot;spoiler&quot;&gt;&#xA;  &lt;p&gt; the loan payment formula always gives results in nominal dollars and all I did is change the interest rate by using the real interest rate. Not sure if this is really the case because I studied CS when I was in school, not Econ.  &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Thank you for your help in advance.&lt;/p&gt;&#xA;" OwnerUserId="24246" LastEditorUserId="24246" LastEditDate="2019-09-14T22:48:31.037" LastActivityDate="2021-02-11T01:08:05.843" Title="Calculating the amount paid for a loan in today's dollars" Tags="&lt;inflation&gt;&lt;currency&gt;&lt;interest-rate&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="31867" PostTypeId="1" AcceptedAnswerId="31881" CreationDate="2019-09-14T20:00:58.030" Score="2" ViewCount="54" Body="&lt;p&gt;From Mas-Colell, Whinston and Green (Microeconomic Theory), we have this proposition on page 27. If homogeneity holds,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ \Sigma_{k=1}^{L} \frac{\partial x_l (p,w)}{\partial p_k} p_k + \frac{\partial x_l (p,w)}{\partial w} w = 0 $$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That is, the price and wealth derivatives, when weighted by the price, &lt;span class=&quot;math-container&quot;&gt;$ p_k$&lt;/span&gt; and wealth &lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt;, equate to 0. What is the economic logic behind this? Homogeneity implies this -- but for this to hold, we don't require that prices and wealth increase proportionally (am I right?)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From this, we can also derive that the sum of price elasticities (own and cross price elasticities) equate to 0. I understand we can derive this mathematically-- but again, why'd these elasticities equate to 0, economically?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Also, if these results are held only when prices and wealth increase proportionally, I completely understand -- but the book doesn't make that distinction). &lt;/p&gt;&#xA;" OwnerUserId="6486" LastEditorUserId="1601" LastEditDate="2019-09-15T17:01:12.230" LastActivityDate="2019-09-16T06:39:57.267" Title="Why does the price and wealth derivatives, weighted by the price and wealth, sum to 0?" Tags="&lt;microeconomics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="31868" PostTypeId="1" CreationDate="2019-09-15T03:04:50.670" Score="0" ViewCount="82" Body="&lt;p&gt;In Chapter 8 (small open economy) of Gali's 2015 version of Monetary Policy, Inflation, and the Business Cycle, he often performs log linearisations around a symmetric steady state like below:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/N0ywq.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/N0ywq.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My questions are:&#xA;1. What exactly is a symmetric steady state,&#xA;2. How do we know that it exists&#xA;3. How do we know that &lt;span class=&quot;math-container&quot;&gt;$P_H = P_F = P$&lt;/span&gt; in steady state? (I know from S=1, that I can infer that &lt;span class=&quot;math-container&quot;&gt;$P_H = P_F$&lt;/span&gt;, but I'm confused about whether S=1 is the &lt;strong&gt;cause&lt;/strong&gt; for &lt;span class=&quot;math-container&quot;&gt;$P_H = P_F$&lt;/span&gt; or a &lt;strong&gt;consequence&lt;/strong&gt; of &lt;span class=&quot;math-container&quot;&gt;$P_H = P_F$&lt;/span&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you very much for your time in advance!&lt;/p&gt;&#xA;" OwnerUserId="23910" LastEditorUserId="23910" LastEditDate="2019-09-15T07:58:27.213" LastActivityDate="2020-09-21T16:50:19.843" Title="Gali (2015) Chapter 8 Symmetric Steady State" Tags="&lt;macroeconomics&gt;&lt;open-economy-macro&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="31869" PostTypeId="1" AcceptedAnswerId="32577" CreationDate="2019-09-15T04:19:41.987" Score="2" ViewCount="100" Body="&lt;p&gt;I suspect both supporters and detractors of &lt;a href=&quot;https://en.wikipedia.org/wiki/Laissez-faire&quot; rel=&quot;nofollow noreferrer&quot;&gt;laissez-faire capitalism&lt;/a&gt; have some historical examples in mind that they consider reasonably close to an ideal or to a &quot;natural experiment&quot;. (The examples used by supporters vs detractors might not actually be the same though.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Wikipedia article I've linked to discusses at length the history of the concept itself, but I'm having trouble finding a discussion of examples of the realization of the concept in there.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, do these examples exist in literature? If so, what is the pro/con angle on them?&lt;/p&gt;&#xA;" OwnerUserId="6210" LastActivityDate="2019-11-04T00:07:22.790" Title="What are some historical examples of laissez-faire capitalism?" Tags="&lt;reference-request&gt;&lt;economic-history&gt;&lt;capitalism&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="31876" PostTypeId="2" ParentId="31861" CreationDate="2019-09-15T05:42:15.763" Score="1" Body="&lt;p&gt;The German mathematician-turned-economist &lt;a href=&quot;https://www.encyclopediaofmath.org/index.php/Lexis,_Wilhelm&quot; rel=&quot;nofollow noreferrer&quot;&gt;William Lexis&lt;/a&gt; (1837-1914) considered capitalism as &quot;dat[ing] back to the Middle Ages&quot;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Large-scale enterprise based on the ownership of money, and operating on the&#xA;  basis of such monetary power; and its beginnings which date back to the Middle&#xA;  Ages are to be found in commercial and banking enterprises. Also, so far as&#xA;  labor was concerned, capitalism first appeared as a commercial operation in the&#xA;  putting-out system. Craftsmen were inclined or forced by circumstances to work&#xA;  as hired craftsmen for large-scale business, and commercial capital took over the&#xA;  distribution of their products in a wide market for which they, by themselves,&#xA;  would not have access to. In the factory system, capital then itself assumed the&#xA;  leadership of the productive enterprise; and it thereby achieved the potential for&#xA;  exploiting its economic power to a greater degree as opposed to the property-less&#xA;  worker. […] Before that there were masters and workers too, but they regarded&#xA;  themselves as members of the same species; whereas now capital emerged as a&#xA;  power that was dominant in production, was in a realm apart from the workers,&#xA;  and controlled their destiny like some transcendent power, even if &lt;em&gt;pro forma&lt;/em&gt;,&#xA;  there was still a free contract between the two.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;—Pesch, &lt;a href=&quot;https://books.google.com/books?id=Kneyg1BP7OkC&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;Lehrbuch&lt;/em&gt;&lt;/a&gt;, Vol. IV, book 2, pp. 156-7, as quoted in Jones, &lt;a href=&quot;https://isidore.co/calibre/#panel=book_details&amp;amp;book_id=7459&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;Barren Metal&lt;/em&gt;&lt;/a&gt;, p. 21&lt;/p&gt;&#xA;" OwnerUserId="4101" LastActivityDate="2019-09-15T05:42:15.763" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="31878" PostTypeId="2" ParentId="31846" CreationDate="2019-09-15T06:23:15.023" Score="1" Body="&lt;p&gt;The Income Offer Curve (which is the same as the Income Expansion Path) shows us the effect of a change in nominal money income on the consumption of both goods (in a 2 good model) in the real 2 good indifference curve space. Thus, to derive the income offer curve, one shifts the budget constraint by varying money income, and joins all the points of optimality. If both goods are normal goods, the income offer curve is upward sloping; if one of them is inferior, it is downward sloping.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Engel Curves can be derived by looking at the Income Offer Curve. The Engel Curve shows the relationship between ONE particular good and money income in a graph i.e. in the X-I space.  The Engel Curve for both goods can be figured out by looking at the Income Offer Curve. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, in a 2 good model, the income offer curve summarises the effect of a change in money income on both goods. &lt;/p&gt;&#xA;" OwnerUserId="24251" LastActivityDate="2019-09-15T06:23:15.023" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="31879" PostTypeId="2" ParentId="5739" CreationDate="2019-09-15T12:27:51.567" Score="3" Body="&lt;p&gt;In the present legal environment it's &lt;a href=&quot;https://en.wikipedia.org/wiki/Withdrawal_from_the_Eurozone#Legal_environment&quot; rel=&quot;nofollow noreferrer&quot;&gt;not possible&lt;/a&gt; for a country to exit just the Eurozone voluntarily, by itself. The only sure way is the complicated scenario in which a country would leave the EU and rejoin it without rejoining the Eurozone; it is so far out there that I doubt you can find any serious economic analysis of it. A few other scenarios have been posited in which all the EU member countries would essentially have to agree to it... but since they have given no indication they would do that for Greece, it's even more doubtful they would do it for Finland.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I actually voted to close this question as primarily opinion-based, but retracted since that is unfair given that I do answer it, even though with a &quot;not really answerable&quot; answer in many (and actually in the least unplausible, IMO) scenarios. It also turn out there is one paper, albeit not a deep analysis attempting to estimate this for Finland in particular. And given that a somewhat similar question &lt;a href=&quot;https://economics.stackexchange.com/questions/12357/is-a-brexit-really-that-bad&quot;&gt;about the costs of Brexit&lt;/a&gt;, wasn't closed... and that I &lt;a href=&quot;https://economics.stackexchange.com/questions/29613/the-economics-of-a-no-deal-brexit&quot;&gt;answered&lt;/a&gt; a specific-Brexit-scenario question myself... I will answering this in more depth, to the extent that is possible based on publications I found.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regarding euro-exit, for starters, you can read opinions/proposals like&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In 2018, Columbia University economics professor and Nobel laureate Joseph Stiglitz, in the context of arguing that Italy faces &quot;a choice [the country] shouldn’t have to make: between membership in the Eurozone and economic prosperity,&quot; remarked that &quot;the challenge [of exit] will be to find a way to leave the Eurozone that minimizes the economic and political costs. A massive debt restructuring, carefully done, with special attention to the consequences for domestic financial institutions, will be essential. Without such a restructuring,&quot; Stiglitz argued, &quot;the burden of euro denominated debt would soar, offsetting possibly a large part of the potential gains.&quot; He claimed that from &quot;an economic perspective, the easiest thing to do would be for [the exiting country's] entities (governments, corporations and individuals) to simply redenominate debts from Euros into the new [national currency]&quot; and then &quot;enact a super-Chapter 11 bankruptcy law, providing expeditious recourse to debt restructuring to any entity for whom the new national currency presents severe economic problems.&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;But that's not really an answer that quantifies anything, like what would the blowback be if a EU member unilaterally did this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Likewise, there are some off-the-cuff estimates, such as:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;At the American Economic Association's annual meeting of 2015, Berkeley University economic historian Barry Eichengreen predicted that the withdrawal of a member state, such as Greece, from the Eurozone, would &quot;set off [a] devastating turmoil in financial markets.&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Actually this one offered a sort of quantification &lt;a href=&quot;https://www.marketwatch.com/story/greek-euro-exit-would-be-lehman-brothers-squared-economist-2015-01-03&quot; rel=&quot;nofollow noreferrer&quot;&gt;calling it&lt;/a&gt; &quot;Lehman Brothers squared&quot;, but offered no deep analysis behind that &quot;number&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For Italy, it turns out there is more serious attempt to quantify something. There's a 2017 paper by &lt;a href=&quot;https://doi.org/10.1016/j.econmod.2017.04.010&quot; rel=&quot;nofollow noreferrer&quot;&gt;Bagnai et al.&lt;/a&gt;. It finds that if Italy exited the euro,&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;the Italian economy would recover its pre-crisis GDP level by 2020 i.e. five years before the year currently assumed by the IMF.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;However, some of the caveats are that they assume the worst the EU could do in return is to impose &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;a retaliatory tariff on Italian products by core countries, equal to 5% for the first two years of the simulation sample&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;And another limitations is that they basically assume a fixed exchange rate for the new currency&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In conceptual terms, our simulation experiments therefore amount to analysing the effects of realignment within a system of fixed exchange rates. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Frankly this seems a big limitation given that somewhat similar &lt;a href=&quot;https://www.pwc.com/gx/en/issues/economy/global-economy-watch/assets/pdfs/global-economy-watch-march-2015.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;analyses&lt;/a&gt; on Greece have suggested its new currency would face fairly rapid devaluation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And as it turns out, one of the handful of papers citing Bagnai... is one about Finland, &lt;a href=&quot;https://doi.org/10.1515/ev-2018-0020&quot; rel=&quot;nofollow noreferrer&quot;&gt;Malinen et al. (2018)&lt;/a&gt;. Its abstract concludes:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Although there is a way out of the euro for Finland and other member countries, exit would not be easy, nor would its short-term costs be known beforehand with any clear margin. We find the lack of a domestic payments system and uncertainty concerning the redenomination costs to be the biggest risks associated with the cost of Finland’s exit. Still, the costs of Finland’s exit need not be very large, around 10 billion euros in the best-case scenario, but we also acknowledge a very costly scenario for the exit.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The authors favor a unilateral exit after secret preparations. But in the draft one can find on SSRN, on page 11 the authors acknowledge that&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Probably the biggest single uncertainty concerning the euro exit is the role that the exiting country would have in the EU after an exit, especially in the case of a unilateral withdrawal from the Eurozone.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;And on p. 23&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;What remains unclear is whether the Eurozone authorities are willing and legally entitled to impose EU-related rather than Eurozone-specific hardships on an exiting country. If a country exiting the Eurozone also faced exclusion from the European Single Market, for instance, disincentives could become prohibitive. The European Court of Justice should in such cases be asked to assess whether such practices are legally allowed. The problem is that it may take years for the ECJ to reach a decision on this issue. In any case, present initiatives to develop a multi-speed EU may, under ideal scenarios, affect both the acceptability of exit and the need for retaliation.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;On p. 35 it is revealed that in the optimistic scenario (the $10B euros one)&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;we assume that both ECB and EBA will provide Finnish monetary authorities the support they need and that Finland will be allowed to continue as a member of the EU.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;As for the more pessimistic one(s)... they don't advance a figure.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Euro area authorities may be less than helpful in supporting the exit process. In the worst case, the ECB would even immediately stop euro clearing payments from Finland. Finland could also be cut off from SEPA, forcing Finland to rely completely on makeshift measures to run its payments system (see Section 3.1). The commission could even try to oust Finland from the EU, leading to major uncertainty, possibly large legal costs and (probably) to a political crisis in Finland and/or in the EU itself. Unfavorable derivative positions for exit could lead to unexpectedly large-scale losses for firms and banks with, e.g., need for substantial temporary financial support in the case of heavy depreciation of the NM. Finnish authorities could also fail on their preparations and/or on their efforts to achieve the trust of markets. Possible make-shift measures applied in banks could lead to failures of the payment systems causing additional hardship to the economy. These could lead to serious detrimental developments in, for example, Finland’s forex markets, domestic markets, trade and/or the balance of payments. We will not try to estimate these costs or their probability, as they are highly uncertain, but just to note that a much more costly scenario for Finland to exit the euro also exists.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Frankly, for the optimistic scenario the assumption of secret preparations doesn't quite square off with the assumption of complete support from the EU authorities. They do discuss the possibility of leaks (during the preparations) in the paper, but again that is not translated in quantitative terms. They do mention that if secrecy of preparations is not maintained, Finland may have to impose capital controls.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;They estimate that 33% of the debts would have to be redenominated. On the plus side (from a realism perspective) they do take into account a depreciation of the new Finnish currency (NM) of 5-15% even in the optimistic scenario. But I find it strange the only effect of a depreciation considered is to actually &lt;em&gt;reduce&lt;/em&gt; the cost of the exit, but reducing the value of the debts. The effects of the new currency depreciation on other aspects of the economy is not considered as an exit cost.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(As an aside, the journal in which this latter paper was published, &lt;a href=&quot;https://en.wikipedia.org/wiki/The_Economists%27_Voice&quot; rel=&quot;nofollow noreferrer&quot;&gt;The Economists' Voice&lt;/a&gt; &quot;is a publishing forum for professional economists that seeks to fill the gap between op-ed pages of newspapers and scholarly journal articles.&quot; Also, I'm somewhat unsurprised that Stiglitz turns out to be an editor of this journal. The journal might contain other similar [Euro-exit] articles, because the topic has been of a fair bit of interest to Stiglitz; he wrote a [Euro-skeptical] book about.)&lt;/p&gt;&#xA;" OwnerUserId="6210" LastEditorUserId="6210" LastEditDate="2019-09-15T21:45:39.610" LastActivityDate="2019-09-15T21:45:39.610" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="31880" PostTypeId="2" ParentId="31848" CreationDate="2019-09-15T13:33:52.843" Score="0" Body="&lt;p&gt;Averages are preferred to extremes is an assumption we make while drawing our indifference curves. However, while using this assumption to draw our ICs, we do not consider any two arbitrary extreme points. We consider 2 arbitrary extreme points that give the consumer the &lt;strong&gt;SAME AMOUNT OF SATISFACTION&lt;/strong&gt;. Now that we have these two extreme points, we can be sure that they &lt;em&gt;lie on the same indifference curve&lt;/em&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, the convexity assumption kicks in. A bundle &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; that is a linear combination of the two extreme bundles gives the consumer greater utility, and so will lie on a higher indifference curve. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;That is to say, suppose the two extreme bundles are &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$Z$&lt;/span&gt;, and &lt;span class=&quot;math-container&quot;&gt;$U(Y)$&lt;/span&gt;=&lt;span class=&quot;math-container&quot;&gt;$U(Z)$&lt;/span&gt;.&#xA;Then, for &lt;span class=&quot;math-container&quot;&gt;$t{\epsilon} [0,1]$&lt;/span&gt;, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$U[(1-t)Y+tZ]&amp;gt;U(Y),U(Z)$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, along the same Indifference Curve, the level of utility is a constant.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The convexity assumption ensures that the set all bundles that are weakly preferred to the bundles of the indifference curve is a convex set. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope it helps!&lt;/p&gt;&#xA;" OwnerUserId="24251" LastActivityDate="2019-09-15T13:33:52.843" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="31881" PostTypeId="2" ParentId="31867" CreationDate="2019-09-15T16:02:45.290" Score="1" Body="&lt;p&gt;As mentioned by Mas-Colell, Whinston and Green, the equality is true &quot;for all &lt;span class=&quot;math-container&quot;&gt;$p$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt;&quot;. It is a consequence of the budget constraint, which is satisfied for any prices and income values:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\Sigma_{k=1}^{L} p_k x_k (p,w) = w.&#xA;$$&lt;/span&gt;&#xA;As you mention, the equality &#xA;&lt;span class=&quot;math-container&quot;&gt;$$ \Sigma_{k=1}^{L} \frac{\partial x_l (p,w)}{\partial p_k} p_k + \frac{\partial x_l (p,w)}{\partial w} w = 0 $$&lt;/span&gt;&#xA;arises when applying the Euler-theorem to the budget constrained demand functions. As demand functions are homogeneous of degree zero in &lt;span class=&quot;math-container&quot;&gt;$(p,w)$&lt;/span&gt;, they are left unchanged when prices and income are up- or downscaled by any number &lt;span class=&quot;math-container&quot;&gt;$\kappa&amp;gt;0$&lt;/span&gt;: &#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;x_l (\kappa p,\kappa w) = x_l ( p, w) ,&#xA;$$&lt;/span&gt;&#xA;and this equality holds for any value of &lt;span class=&quot;math-container&quot;&gt;$p$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt;. This implies the former equality and also explains why it is not only true for the upscaled new prices and income &lt;span class=&quot;math-container&quot;&gt;$(p,w)=(\kappa p_0,\kappa w_0)$&lt;/span&gt; but actually for any prices and income because both &lt;span class=&quot;math-container&quot;&gt;$\kappa$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$(p_0,w_0)$&lt;/span&gt; can be arbitrary.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What about the economic interpretation? Hmm... I would say that any simultaneous (marginal and arbitrary) change in &lt;span class=&quot;math-container&quot;&gt;$p$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt; triggers changes in the values of demands such that the (own- and cross-) price reactions and the income response compensate. It is equivalent saying that all price elasticities and income elasticity add to zero for any demand function &lt;span class=&quot;math-container&quot;&gt;$x_l$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerUserId="20576" LastEditorUserId="20576" LastEditDate="2019-09-16T06:39:57.267" LastActivityDate="2019-09-16T06:39:57.267" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="31882" PostTypeId="1" CreationDate="2019-09-15T20:11:00.270" Score="0" ViewCount="13" Body="&lt;p&gt;I am an undergrad with limited experience in the fields of economics and ecology, and having recently discovered the work of the celebrated economist Herman Daly, who has been writing for decades about sustainable development and the steady-state economy. I'm wondering which of his books is the best &lt;strong&gt;introduction&lt;/strong&gt; to his ideas; steady-state economics and others. Considering this may be the only book of  his that I read for a while, I would just like the best overview possible. Thank you.&lt;/p&gt;&#xA;" OwnerUserId="24261" LastActivityDate="2019-09-15T20:11:00.270" Title="What is the most accessible work of Herman Daly?" Tags="&lt;macroeconomics&gt;&lt;environmental-economics&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="31883" PostTypeId="1" CreationDate="2019-09-15T21:49:22.183" Score="5" ViewCount="168" Body="&lt;p&gt;The term &quot;&lt;a href=&quot;https://en.wikipedia.org/wiki/Public_bad&quot; rel=&quot;noreferrer&quot;&gt;public bad&lt;/a&gt;&quot; is sometimes used for &quot;goods&quot; which, like public goods, are non-excludable and non-rival, but which tend to lower rather than raise welfare.  Air pollution is an example.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a public good, non-excludability is normally taken to mean that &lt;em&gt;the provider of the good&lt;/em&gt; is unable to exclude individuals from benefiting from the good . It can normally be assumed that individuals would not want to exclude themselves from benefiting.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a public bad, however, individuals will want to exclude themselves (if they can do so at reasonable cost) and it would seem that non-excludability could mean either or both of the following:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;The provider of the bad (eg a factory causing air pollution) is unable to exclude individuals from the bad.&lt;/li&gt;&#xA;&lt;li&gt;Individuals (eg living in a polluted neighbourhood) are unable to take protective measures to exclude themselves from the bad. &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;The case of noise from aeroplanes illustrates the distinction. Airlines are unable to exclude residents (in affected areas) from receiving noise.  But residents can, at a cost, take measures such as double glazing to keep the noise out of their homes or at least mitigate it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Question:&lt;/em&gt; Where the term &quot;public bad&quot; is used in economics, is there a consistent understanding of what is meant by non-excludability? &lt;/p&gt;&#xA;" OwnerUserId="1417" LastActivityDate="2019-09-15T21:49:22.183" Title="Public Bads and Non-Excludability" Tags="&lt;environmental-economics&gt;&lt;public-goods&gt;" AnswerCount="0" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="31884" PostTypeId="1" AcceptedAnswerId="31901" CreationDate="2019-09-16T02:16:49.727" Score="0" ViewCount="60" Body="&lt;p&gt;In the standard model of Aggregate Demand and Aggregate Supply which display equilibrium in all the markets, I often get confused on how a change in one variable will shift curves. Say, output decreases - how can one determine the causality between a change in output with other variables? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, can prices change output and output change prices? What about other variables - GDP, interest rate? &lt;/p&gt;&#xA;" OwnerUserId="19292" LastActivityDate="2019-09-16T19:05:35.463" Title="Standard Macro Model Intuition" Tags="&lt;macroeconomics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="31885" PostTypeId="2" ParentId="31867" CreationDate="2019-09-16T02:58:02.920" Score="0" Body="&lt;p&gt;The homogeneity mentioned in the text actually refers to homogeneity of degree zero as the book is talking about comparative statics. If it's not homogeneity of degree zero then the equation actually doesn't hold.&lt;/p&gt;&#xA;" OwnerUserId="24265" LastActivityDate="2019-09-16T02:58:02.920" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="31886" PostTypeId="1" CreationDate="2019-09-16T04:56:38.170" Score="0" ViewCount="19" Body="&lt;p&gt;Suppose there is some exogenous shock in the economy due to which the production of oil has fallen dramatically. Also, let's assume that oil forms a substantive part of the economy's production. What effects are we likely to see in the economy? What would happen to the IS-LM and AS/AD curve? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My understanding: A decrease in output will lead to a decrease in the price level (this will work through the labor market). But I'm confused about whether there will be a shift in the aggregate supply curve? &lt;/p&gt;&#xA;" OwnerUserId="19292" LastEditorUserId="19292" LastEditDate="2019-09-16T14:33:42.720" LastActivityDate="2019-09-16T14:33:42.720" Title="AS-AD Model, what would fall in production/output lead to?" Tags="&lt;macroeconomics&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="31888" PostTypeId="1" AcceptedAnswerId="31889" CreationDate="2019-09-16T06:42:33.547" Score="2" ViewCount="186" Body="&lt;p&gt;The other day I was having a debate with a supporter of high taxes.  I decided to argue against this by explaining the concept of the deadweight loss of taxation.  In order to do so, I started with the following example, to explain the deadweight gain of trade:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Bob and Sam live next door. Bob can mow his lawn in 4 hours, and clean his gutters in 2 hours.  Sam is the other way around:  He can mow his lawn in 2 hours and clean his gutters in 4.  If Bob cleans Sams gutters in exchange for Sam mowing his lawn, they both save 2 hours.&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My friend replied: &quot;I understand the mathematics, and don't dispute that in your example both people would be better off.  But is there any evidence that this works in the real world?  Perhaps there is some unforeseen factor that causes voluntary exchange to not be mutually beneficial.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This question left me momentarily stumped, because I had always found the concept self evident and did not have any obvious examples at hand.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Improvising, I tried using the example of China and the USA both benefiting from trading with each other (my thinking was that this was a more contemporary form of Ricardo's original wheat example).  However this caused my friend to object on grounds of geopolitical issues.  So I am hoping to find a better example, that does not raise other issues.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore I wanted to ask:  Can anyone suggest some unambiguous, real world (ie non-hypothetical) evidence of the mutual benefits of voluntary exchange?  If this could relate to exchange between individuals rather than countries I believe this would make the case more clearly.&lt;/p&gt;&#xA;" OwnerUserId="24264" LastEditorUserId="1601" LastEditDate="2019-09-16T07:40:37.740" LastActivityDate="2019-09-18T05:53:33.283" Title="Real world evidence that voluntary exchange is mutually beneficial?" Tags="&lt;empirical-evidence&gt;&lt;consumer-surplus&gt;&lt;producer-surplus&gt;&lt;comparative-advantage&gt;" AnswerCount="1" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="31889" PostTypeId="2" ParentId="31888" CreationDate="2019-09-16T07:34:59.013" Score="2" Body="&lt;p&gt;First of all, there is no need to believe any economic dogma. The real world is usually more complicated than these stories. If anyone can convince me of something with a two minute anecdote, that was probably not an important aspect of my world view, and I should probably not engage in setting such policy. (E.g. via voting for the person who tells the same anecdote.) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The statement that voluntary exchange is mutually beneficial relies on the assumption that both parties are rational and well-informed. If the exchange was not mutually beneficial, the one who is losing via the exchange would just say &quot;no, thank you&quot;. Hence literally all voluntary exchange is mutually beneficial (so long as the parties are rational and well-informed). This does not mean that the situation voluntary exchange leads to is optimal, just that it is better than having no market at all.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Some further remarks on taxation:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Deadweight loss is indeed bad. (By the way what you are describing is comparative advantage, not deadweight gain, as you yourself noted correctly in the tags.) However taxation is not the only thing that can cause  market failure, which is when the free market leads to a suboptimal outcome. For example market power (monopoly, oligopoly, monopsony, etc.) may also result in deadweight loss.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Unregulated externalities (e.g. pollution) may cause harm, and in this case taxation (or a proper market for the externalities) can actually improve everyone's situation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Underfinanced public goods (e.g. roads) may also mean market failure. Voluntary financing usually leads to underfinancing, hence taxes (or some revenue mechanism) are needed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So taxation, while it does have downsides, is not the devil. It may do more harm than good and it may do more good than harm, it all boils down to the details. &lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2019-09-18T05:53:33.283" LastActivityDate="2019-09-18T05:53:33.283" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="31892" PostTypeId="1" CreationDate="2019-09-16T11:47:14.060" Score="0" ViewCount="29" Body="&lt;p&gt;It is intuitive that E[xe] is non-zero but the result E[xe]=sigma(x)*sigma(e)*corr(xe) seems odd. Please help point me in the right direction.&lt;/p&gt;&#xA;" OwnerUserId="17937" LastActivityDate="2019-09-16T11:47:14.060" Title="Where can I find an endogeneity proof for bias by LLN?" Tags="&lt;econometrics&gt;&lt;statistics&gt;&lt;proof&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="31893" PostTypeId="1" AcceptedAnswerId="31894" CreationDate="2019-09-16T13:07:02.113" Score="4" ViewCount="104" Body="&lt;p&gt;I am trying to give a puzzle from behavioral economics illustrating on the irrationality of thinking of costs in proportional rather than absolute terms. I remembered vaguely an example like this but could not find the exact term or if another more salient example exists:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;You can buy a computer nearby for \$1k or 1 hour away for \$950. Most people think that \$50 is only 5% of the cost and so would not drive 1 hour  away.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;You can buy a stereo system nearby for \$100 or 1 hour away for \$50. Most people think that \$50 is 50% of the price and so would drive 1 hour to get the cheaper item.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The problem is that it's the same 1 hour away and the same \$50.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;What is the name of this puzzle or irrationality?&lt;/p&gt;&#xA;" OwnerUserId="24272" LastActivityDate="2019-09-17T16:36:47.947" Title="Name of example of irrationality of proportional and absolute cost" Tags="&lt;behavioral-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="31894" PostTypeId="2" ParentId="31893" CreationDate="2019-09-16T14:44:26.300" Score="5" Body="&lt;p&gt;I think you're referring to the &lt;strong&gt;jacket-calculator problem&lt;/strong&gt;, first proposed by &lt;a href=&quot;https://pdfs.semanticscholar.org/e552/054dbd030b8414058639389b4a63e727aedb.pdf#page=5&quot; rel=&quot;nofollow noreferrer&quot;&gt;Tversky and Kahneman (1981)&lt;/a&gt; as their Problem 10. The paper illustrates the idea of &lt;em&gt;mental accounting&lt;/em&gt; with several problems regarding uncertainty, and problem 10 illustrates &quot;the temporary devaluation of money&quot;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The following problem, based on examples by Savage and Thaler, further illustrates the effect of embedding an option in different accounts. Two versions of this problem were presented to different groups of subjects. One group (&lt;span class=&quot;math-container&quot;&gt;$N = 93$&lt;/span&gt;) was given the values that appear in parentheses, and the other group (&lt;span class=&quot;math-container&quot;&gt;$N = 88$&lt;/span&gt;) the values shown in brackets:&lt;/p&gt;&#xA;  &#xA;  &lt;blockquote&gt;&#xA;    &lt;p&gt;Problem 10: Imagine that you are about to purchase a jacket for (\$125) [\$15] and a calculator for (\$15) [\$125]. The calculator salesman informs you that the calculator you wish to buy is on sale for (\$10) [\$120] at the other branch of the store, located 20 minutes drive away. Would you make the trip to the other store?&lt;/p&gt;&#xA;  &lt;/blockquote&gt;&#xA;  &#xA;  &lt;p&gt;The response to the two versions of problem 10 were markedly different: 68 percent of respondents were willing to make an extra trip to save \$5 on a \$15 calculator; only 29 percent were willing to exert the same effort when the price of the calculator was \$125. ... By the curvature of &lt;span class=&quot;math-container&quot;&gt;$\nu$&lt;/span&gt;, a discount of \$5 has a greater impact when the price of the calculator is low than when it is high.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;...&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Many readers will recognize the temporary devaluation of money which facilitates extra spending and reduces the significance of small discounts in the context of a large expenditure, such as buying a house or a car. This paradoxical variation in the value of money is incompatible with the standard analysis of consumer behavior.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="42" LastEditorUserId="24272" LastEditDate="2019-09-17T16:36:47.947" LastActivityDate="2019-09-17T16:36:47.947" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="31895" PostTypeId="1" CreationDate="2019-09-16T14:44:37.657" Score="1" ViewCount="30" Body="&lt;p&gt;My thought process here would be that since government bonds are usually held by the richer households, buying of these government bonds would inject a large amount of money only to the richest, thus creating an imbalance.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Though empirical analysis seems to contradict this &lt;a href=&quot;https://www.ecb.europa.eu/pub/pdf/scpwps/ecb.wp2190.en.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.ecb.europa.eu/pub/pdf/scpwps/ecb.wp2190.en.pdf&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From what I understand, the increase in economic growth created less inequality, raising the incomes of poor households. Does this mean that if growth is controlled for monetary policy would increase inequality or am I missing something? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Also monetary policy reduces the rate of returns on capital, does this eventually lead to less inequality? I am thinking of Piketty's r-g framework)&lt;/p&gt;&#xA;" OwnerUserId="22942" LastActivityDate="2019-09-16T14:44:37.657" Title="How does monetary policy affect inequality?" Tags="&lt;macroeconomics&gt;&lt;monetary-policy&gt;&lt;inequality&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="31896" PostTypeId="1" AcceptedAnswerId="31900" CreationDate="2019-09-16T14:50:30.953" Score="2" ViewCount="361" Body="&lt;ul&gt;&#xA;&lt;li&gt;&lt;em&gt;There are two identical firms, &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$2$&lt;/span&gt;, with zero marginal costs. They produce homogenous product, which is demanded by a unit mass of identical consumers, each of which has inelastic unit demand with a reservation price of &lt;span class=&quot;math-container&quot;&gt;$2$&lt;/span&gt;. Prices are constrained to take only integer values. Using standard game theoretic reasoning, determine whether or not each possible pair &lt;span class=&quot;math-container&quot;&gt;$(p_1,p_2)$&lt;/span&gt; can be regarded as Bertrand Nash equilibrium.&lt;/em&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Would the Nash equilibria be &lt;span class=&quot;math-container&quot;&gt;$(p_{1}^{*},p_{2}^{*})=$&lt;/span&gt; &lt;span class=&quot;math-container&quot;&gt;$\{(0,0),(1,1)\}$&lt;/span&gt;. &#xA;For symmetric prices, &lt;span class=&quot;math-container&quot;&gt;$\{(2,2)\}$&lt;/span&gt; since the demand would be &lt;span class=&quot;math-container&quot;&gt;$0$&lt;/span&gt;, I can see how unilateral deviation to &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt; could increase profits for a firm. &#xA;However for prices &lt;span class=&quot;math-container&quot;&gt;$\{(0,0),(1,1)\}$&lt;/span&gt;, no unilateral profits are possible. For other non symmetric price pairings, unilateral deviations are possible. Therefore, the Nash equilirium prices are &lt;span class=&quot;math-container&quot;&gt;$\{(0,0),(1,1)\}$&lt;/span&gt;. &#xA;Is my reasoning correct? &lt;/p&gt;&#xA;" OwnerUserId="18398" LastActivityDate="2019-09-16T19:58:09.973" Title="Bertrand Duopoly Equilibrium for Discrete Prices" Tags="&lt;microeconomics&gt;&lt;game-theory&gt;&lt;self-study&gt;&lt;nash-equilibrium&gt;&lt;industrial-organisation&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="31897" PostTypeId="2" ParentId="31884" CreationDate="2019-09-16T15:00:48.683" Score="0" Body="&lt;p&gt;It is useful to write the equations out for your AD-AS curves, so you can easily see what the effect on the curve is (these would depend on the model you are using). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, you can't really start your analysis from &quot;output decreases&quot; or &quot;price decreases&quot; as they are endogenous veriable here so you would need to specify why it decreases.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;GDP is usually intended as a measure of output and the interest rate is often also an endogenous variable (for example in the IS-LM-AS model).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Examples of exogenous variables may be: government expenditure, money supply, taxes etc. &#xA;With these you can do comparative statics (ie.e asking if this changes then what happens). Which varibales are endogenous and which exogenous changes from model to model, for example in the classical model output is usually considered exogenous so the analysis becomes easier. &lt;/p&gt;&#xA;" OwnerUserId="22942" LastActivityDate="2019-09-16T15:00:48.683" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="31898" PostTypeId="1" CreationDate="2019-09-16T16:36:24.753" Score="0" ViewCount="19" Body="&lt;p&gt;This question is with reference to the paper 'Efficient Trade with Interdependent Values' by Marek Pycia and Peng Wang,2015(&lt;a href=&quot;http://pycia.bol.ucla.edu/pycia-wang-interdependent-trade.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;See here&lt;/a&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At page no. 4 of the paper, the authors describe &lt;span class=&quot;math-container&quot;&gt;$v_i$&lt;/span&gt; as the private signal observed by each agent. Are these signals i.i.d random variables (the paper says that the signals are drawn independently from the same distribution &lt;span class=&quot;math-container&quot;&gt;$F$&lt;/span&gt;, I'm not sure whether it translates to the i.i.d case or not)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, it is given that the agents report their private signals. So, as far as calculating the transfer and allocation profile for the mechanism is considered, wouldn't it be more relevant if the valuations are submitted instead of the private signals?&lt;/p&gt;&#xA;" OwnerUserId="16340" LastActivityDate="2019-09-16T16:36:24.753" Title="Questions regarding 'Efficient Trade with Interdependent Values' by Marek Pycia and Peng Wang,2015" Tags="&lt;mathematical-economics&gt;&lt;self-study&gt;&lt;mechanism-design&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="31899" PostTypeId="2" ParentId="31896" CreationDate="2019-09-16T16:43:34.633" Score="0" Body="&lt;p&gt;Firstly, at reservation prices, it's not compulsory that demand will be 0. The consumers will be indifferent between buying and not buying the good.&#xA;Let q* be the demand by the mass when price is 2 or less.&#xA;If you take out the profit function of both the firms,  you will see that at p1=2, profit received by firm 2 will be the same if P2=1,2. Because costs are 0, it will share the market at p2=2 and gain profit equal to q* and at p2= 1 it will gain the entire market and make profit equal to q* again. &#xA;When p1=1, firm 2's best response is p2=1. When p1=0, firm 2's best response is p2 is a member of N, where N is a natural number (0 is a natural number). This is because firm 2 will earn profits 0 for any price. The best response of firm 1 will be analogous because cost functions are the same. Therefore Nash Equilibriums are {(0,0),(1,1),(2,2)}.&#xA;For the reservation price P1=2, suppose the demand is 0, then the best response by firm 2 will be p2 is a member of N again, because it will earn 0 profits at all N. Also, when p1&gt;2, best response of firm 2 will be p2=2, but there will be no intersection of best responses beyond (2,2).&lt;/p&gt;&#xA;" OwnerUserId="24273" LastActivityDate="2019-09-16T16:43:34.633" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="31900" PostTypeId="2" ParentId="31896" CreationDate="2019-09-16T18:52:54.270" Score="1" Body="&lt;p&gt;The problem formulation admits the following Normal Form representation. We can reject any strategy involving price greater than 2, as demand falls to zero and such strategies are strictly dominated by those for which prices are either 1 or 2.&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;    0         1         2&#xA;&#xA;0 [0,0]     [0,0]     [0,0]    &#xA;&#xA;1 [0,0]   [0.5,0.5]   [1,0]&#xA;&#xA;2 [0,0]     [0,1]     [1,1]&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;With this setup you can see that there are three Nash equilibria: (0,0), (1,1) and (2,2). At (0,0), firms are indifferent to the outcome of a higher price, and will not deviate. At (1,1), Firm 1 will not deviate to 2, nor will Firm 2 deviate to 2, as this cedes the market to the opponent. At (2,2) firms are indifferent to reducing price to 1.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(0,1), (0,2), (1,0), and (2,0) are strictly dominated by deviating to a price-matching strategy, splitting the market between firms.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Similarly, (1,2) and (2,1) fail to be Nash equilibria because whichever firm opens with a price of 2 can capture half the market by deviating to a price of 1.&lt;/p&gt;&#xA;" OwnerUserId="24275" LastEditorUserId="24275" LastEditDate="2019-09-16T19:58:09.973" LastActivityDate="2019-09-16T19:58:09.973" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="31901" PostTypeId="2" ParentId="31884" CreationDate="2019-09-16T19:05:35.463" Score="1" Body="&lt;p&gt;Rule of thumb: if the changed quantity does not appear on an axis of the graph, its effect (if any) will be a &lt;strong&gt;shift&lt;/strong&gt; of the curve, rather than &lt;strong&gt;movement along&lt;/strong&gt; the curve.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, an AD-AS graph has price and quantity on the axes. Interest rate does not appear on the axes, so an increase in the interest rate (say) could be associated with a decrease in the money supply, resulting in a decrease in demand that shows up as a &lt;em&gt;shift&lt;/em&gt; of the aggregate demand curve to the left.&lt;/p&gt;&#xA;" OwnerUserId="24275" LastActivityDate="2019-09-16T19:05:35.463" CommentCount="8" ContentLicense="CC BY-SA 4.0" />
  <row Id="31904" PostTypeId="1" CreationDate="2019-09-16T22:08:34.273" Score="1" ViewCount="104" Body="&lt;p&gt;I was studying Fiscal policy and I came across measures to reduce income inequality by using fiscal tools. One of the tool mentioned in that was - &lt;strong&gt;Higher taxes on luxury goods&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This makes sense that luxury good are enjoyed by rich so imposing higher taxes is a sound and prudent measure to take for welfare of poor but here is my thought - &#xA;Let's say if we don't impose high tax on luxury goods then it would drive more consumption which in turn will cause firms to hire labor for production and poor will benefit with employment and better income opportunities. Government will also benefit from the taxes - both production and consumption taxes! so Wouldn't it be more feasible? Raising incomes of poor through employment is far better. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, I believe the reason why it is not done because government doesn't want to be seen as favouring business or corporates over poor which profoundly mars the chance of political party. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Please share your thoughts, critique and if possible help me find fault in my line of thinking.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note - In India when government imposed highest tax bracket on luxury cars, cars sales did see a slump so the argument that rich will continue to consume regardless of taxes might not hold true broadly also. &lt;/p&gt;&#xA;" OwnerUserId="24166" LastActivityDate="2019-09-20T01:32:15.993" Title="Does higher tax on luxury goods does more harm than benefit?" Tags="&lt;consumption&gt;&lt;fiscal-policy&gt;&lt;taxes&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="31905" PostTypeId="1" AcceptedAnswerId="31906" CreationDate="2019-09-16T22:48:22.963" Score="0" ViewCount="29" Body="&lt;p&gt;From the &lt;a href=&quot;https://en.wikipedia.org/wiki/Mortgage_calculator#Monthly_payment_formula&quot; rel=&quot;nofollow noreferrer&quot;&gt;Wikipedia&lt;/a&gt;:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;The fixed monthly payment for a fixed rate mortgage is the amount paid&#xA;by the borrower every month that ensures that the loan is paid off in&#xA;full with interest at the end of its term. The monthly payment formula&#xA;is based on the annuity formula. The monthly payment c depends upon:&lt;/p&gt;&#xA;&lt;p&gt;r - the monthly interest rate, expressed as a decimal, not a percentage. Since the quoted yearly percentage rate is not a&#xA;compounded rate, the monthly percentage rate is simply the yearly&#xA;percentage rate divided by 12; dividing the monthly percentage rate by 100 gives r, the monthly rate expressed as a decimal.&lt;/p&gt;&#xA;&lt;p&gt;N - the number of monthly payments, called the loan's term, and&lt;/p&gt;&#xA;&lt;p&gt;P - the amount borrowed, known as the loan's principal.&lt;/p&gt;&#xA;&lt;p&gt;In the standardized calculations used in the United States, c is given by the formula:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$c = \begin{cases}&#xA;  \frac{r P}{1-(1+r)^{-N}} = \frac {rP(1+r)^N}{(1+r)^N-1}, &amp;amp; r\ne 0; \\&#xA;  \frac{P}{N}, &amp;amp; r = 0.&#xA;\end{cases}$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;The &amp;quot;issue&amp;quot; with this monthly payment schedule is that, if inflation is positive, the amount you pay in real terms the first year is more than the amount you pay the last year. Assuming constant inflation &lt;span class=&quot;math-container&quot;&gt;$\pi$&lt;/span&gt;, what would the monthly payment formula look like if it had to be constant in real terms?&lt;/p&gt;&#xA;" OwnerUserId="8387" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2019-09-16T22:48:22.963" Title="What would mortgage payments be if monthly payments were constant in real terms?" Tags="&lt;inflation&gt;&lt;interest-rate&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="31906" PostTypeId="2" ParentId="31905" CreationDate="2019-09-16T22:48:22.963" Score="0" Body="&lt;p&gt;Note most of the argumentation adapts off the standard derivation for &lt;a href=&quot;https://en.wikipedia.org/wiki/Mortgage_calculator#Monthly_payment_formula&quot; rel=&quot;nofollow noreferrer&quot;&gt;constant nominal payments from Wikipedia&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let us assume &lt;span class=&quot;math-container&quot;&gt;$c$&lt;/span&gt; is a yearly payment for the sake of simplicity. Consider how much is left to be repaid after each year. The principal remaining after the first year is &lt;span class=&quot;math-container&quot;&gt;$P_1=(1+r)P-c$&lt;/span&gt;. That is, the initial amount plus interest less the payment. After the second year &lt;span class=&quot;math-container&quot;&gt;$P_2=(1+r) P_1 - c$&lt;/span&gt; is left, so &lt;span class=&quot;math-container&quot;&gt;$P_2=(1+r)((1+r)P-c)-c(1+\pi)$&lt;/span&gt;. Note we need to pay &lt;span class=&quot;math-container&quot;&gt;$c(1+\pi)$&lt;/span&gt; instead of &lt;span class=&quot;math-container&quot;&gt;$c$&lt;/span&gt; so that we are still paying &lt;span class=&quot;math-container&quot;&gt;$c$&lt;/span&gt; in real terms for the second year. If the whole loan was repaid after two years, &lt;span class=&quot;math-container&quot;&gt;$P_2=0$&lt;/span&gt;, so &lt;span class=&quot;math-container&quot;&gt;$P = \frac{c}{1+r}+\frac{c(1+\pi)}{(1+r)^2}$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This equation generalizes for a term of &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt; years, &lt;span class=&quot;math-container&quot;&gt;$$P = \frac{c}{1+r} \sum_{k=0}^{n-1} \frac{(1+\pi)^k}{(1+r)^k}$$&lt;/span&gt;. This is a &lt;a href=&quot;https://en.wikipedia.org/wiki/Geometric_series&quot; rel=&quot;nofollow noreferrer&quot;&gt;geometric series&lt;/a&gt; which has the sum&#xA;&lt;span class=&quot;math-container&quot;&gt;$P=\frac{c}{1+r}\left(\frac{1-\frac{1+\pi}{1+r}^n}{1-\frac{1+\pi}{1+r}}\right)$&lt;/span&gt;&#xA;which can be rearranged to give &lt;span class=&quot;math-container&quot;&gt;$$c=\frac{P(1+r)}{\left(\frac{1-\frac{1+\pi}{1+r}^n}{1-\frac{1+\pi}{1+r}}\right)}$$&lt;/span&gt;. The nominal payment for year &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt; will be &lt;span class=&quot;math-container&quot;&gt;$c(1+\pi)^{(n-1)}$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerUserId="8387" LastActivityDate="2019-09-16T22:48:22.963" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="31907" PostTypeId="2" ParentId="31866" CreationDate="2019-09-16T22:50:21.307" Score="0" Body="&lt;p&gt;The &lt;a href=&quot;https://en.wikipedia.org/wiki/Mortgage_calculator#Monthly_payment_formula&quot; rel=&quot;nofollow noreferrer&quot;&gt;monthly payment formula&lt;/a&gt; tries to ensure that you pay a constant amount each month. Hence, in real terms, you are actually paying more up front as $117.46 today is worth more than in 20 years assuming positive inflation. The more you pay up front, the less you have to pay in total. Even if you managed to &lt;a href=&quot;https://economics.stackexchange.com/q/31905/8387&quot;&gt;correctly calculate payments such that they were constant in real terms&lt;/a&gt;, you would end up paying more in nominal terms than if payments were constant in nominal terms.&lt;/p&gt;&#xA;" OwnerUserId="8387" LastActivityDate="2019-09-16T22:50:21.307" CommentCount="8" ContentLicense="CC BY-SA 4.0" />
  <row Id="31909" PostTypeId="2" ParentId="30755" CreationDate="2019-09-17T04:05:35.737" Score="3" Body="&lt;p&gt;I couldn't read the FT article... but...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;According to &lt;a href=&quot;http://www.forexblog.org/2010/10/betting-on-china-via-australia.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;this article&lt;/a&gt; here, China imports a lot of raw material from Australia. This means that if Chinese economy is doing well, they import a lot of stuff from Australia... hence AUD will appreciate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This &lt;a href=&quot;https://www.marketpulse.com/20190513/aud-usd-australian-dollar-dips-us-hits-china-new-tariffs/&quot; rel=&quot;nofollow noreferrer&quot;&gt;news piece&lt;/a&gt;, for example, says that as China is hit with new tariffs, AUD falls. This is because the Chinese won't be able to export as much, which means they won't demand as much raw material from Australia anymore.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or this &lt;a href=&quot;https://www.dailyfx.com/forex/market_alert/2019/09/10/AUDUSD-Hits-Session-Low.-China-CPI-Tops-Forecasts-PPI-Wilts.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;more recent article&lt;/a&gt; says that Chinese CPI comes out higher than expected. This means that it's more likely that the PBOC (China's central bank) will need to do something to reign in inflation, slowing down the Chinese economy and Australian exports. This depreciates AUD.&lt;/p&gt;&#xA;" OwnerUserId="5145" LastActivityDate="2019-09-17T04:05:35.737" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="31911" PostTypeId="1" CreationDate="2019-09-17T09:08:58.840" Score="3" ViewCount="46" Body="&lt;p&gt;My macroeconomics professor told the following:&#xA;A decrease in interest rate causes that consumers rather spend their money on investments (stocks, houses) than put the money on the bank, and the increase in demand for stocks and houses causes asset price inflation in return.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, if I try to search for a scholarly source saying the same thing, I cannot find anything. Is the above reasoning a solid one?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you very much in advance!&lt;/p&gt;&#xA;" OwnerUserId="24285" LastActivityDate="2019-09-17T18:40:59.537" Title="The effect of Monetary Policy on Asset Price Inflation" Tags="&lt;monetary-policy&gt;&lt;interest-rate&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="31913" PostTypeId="2" ParentId="31911" CreationDate="2019-09-17T14:17:09.850" Score="1" Body="&lt;p&gt;My understanding of the effect of easing monetary policy on asset prices is that it can work through a more direct channel. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If markets are efficient and risk neutral then generally the value of an asset &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; is equal to the net present value of the expected cash flows generated by that project:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$ P_i = NPV(i) = \sum_{\tau=0}^{\infty} \frac{E[C_\tau]}{\Pi_{\ell=0}^{\tau}(1+r_{\ell})} $$&lt;/span&gt;&#xA;Monetary policy directly lowers the denominator of the the fraction in the sum, so it raises the value of the sum. In English, by reducing the rate at which we discount future investment the present value of the asset's cash flows become more valuable. If monetary policy can also improve the economy more generally, it can also increase the expected size of the cash flows, further increasing the value of the asset (it also raises the numerator). &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2019-09-17T18:40:59.537" LastActivityDate="2019-09-17T18:40:59.537" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="31914" PostTypeId="2" ParentId="30755" CreationDate="2019-09-17T14:26:02.210" Score="3" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;China's currency, the yuan (CNY), only partially reflects what goes on&#xA;  in China's economy. It doesn't trade freely; the Chinese government&#xA;  sets an official rate for it every day and only allows it to fluctuate&#xA;  1 percent around that level every day. In fact, it doesn't even vary&#xA;  that much; the average difference between the high and the low price&#xA;  last year was a mere 0.15 percent.   However, there is a version of&#xA;  the yuan (CNH) that trades freely overseas. The government doesn't fix&#xA;  a value for that, but as its value never strays that far from the&#xA;  value of the yuan, it too is relatively stable. The result is that the&#xA;  currency, whether traded on the mainland or overseas, only reacts&#xA;  modestly to Chinese economic indicators and other news that would be&#xA;  market-moving in other, freely traded currencies.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;That's why the market has turned to the Australian dollar as a proxy&#xA;  for China. The Australian economy is almost tied to the hip to China –&#xA;  about one-third of its exports go to Greater China and, perhaps more&#xA;  importantly, two-thirds of its exports are products where China sets&#xA;  the price: coal, iron ore, wool, metals, etc. The mining and&#xA;  mining-related sector alone accounts for 19 percent of gross domestic&#xA;  product, while most of the growth of the country comes from the mining&#xA;  and agricultural sectors, which are now aimed squarely at the China&#xA;  market. With the fate of the Australian economy tied so closely to&#xA;  China, it should be no surprise that people who trade the Aussie&#xA;  dollar do so with one eye on China.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.cnbc.com/id/100493752&quot; rel=&quot;nofollow noreferrer&quot;&gt;Marshall Gittler, Watch This Currency If You Want to Trade China, 2013&lt;/a&gt;  &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2019-09-17T14:26:02.210" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="31915" PostTypeId="2" ParentId="22730" CreationDate="2019-09-17T14:37:38.960" Score="1" Body="&lt;p&gt;In the case of Apple at least, the answer is yes: this article dated August 31 2019 talks about the impact of the latest round of tariffs on Apple products produced in China.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Apple, the largest U.S. technology company by market cap, has its products assembled in China by Foxconn and then ships them to consumers all over the world. The Apple Airpods, Apple Watch and accompanying Apple Watch bands and the Apple Homepod are all products subject to the higher tariffs beginning Sunday. The iPhone doesn’t appear to be impacted this round, but could be subject to tariffs that begin Dec. 15.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://techcrunch.com/2019/08/31/apple-products-under-pricing-pressure-as-new-15-tariffs-drop-sunday/&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://techcrunch.com/2019/08/31/apple-products-under-pricing-pressure-as-new-15-tariffs-drop-sunday/&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="24275" LastEditorUserId="24275" LastEditDate="2019-09-18T14:19:52.423" LastActivityDate="2019-09-18T14:19:52.423" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="31916" PostTypeId="2" ParentId="29613" CreationDate="2019-09-17T15:14:43.390" Score="0" Body="&lt;p&gt;Here's one way to look at it: The NPV of a rapid X% hit to GDP exceeds the NPV of a rapid increase of +X% some years in the future, given a constant discount rate.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's say the additional one-time increase to GDP needed to get Britain back on its current growth path is Y%. So just to break even on Brexit, you need to believe that growth on the scale of X+Y% will happen, ideally quickly (the longer this takes, the bigger Y% will have to be).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On top of that, global growth is Z%, which in the current pessimistic environment, is not expected to be large.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So if X is large (and it's expected to be), and if Y is large (because it will probably take a while for Britain's economy to reorganize itself), then a positive outlook requires believing that Britain will experience a very large surge to GDP in an environment where overall growth rate forecasts are pessimistic.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can certainly have that outlook, but I'd be interested in hearing how you think it will happen.  :)&lt;/p&gt;&#xA;" OwnerUserId="24275" LastActivityDate="2019-09-17T15:14:43.390" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="31917" PostTypeId="2" ParentId="22745" CreationDate="2019-09-17T15:21:04.097" Score="0" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;When a company decides to import goods, are the tariffs paid on those goods collected by customs?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Why would they not?&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Or do companies treat tariffs as tax expense? &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Tariffs are a tax. But you seem to be asking whether they are treated as income tax, and collected by the IRS. The answer to that is &quot;no&quot;. That's why there's an &quot;I&quot; in &quot;IRS&quot;: they're the &lt;em&gt;Internal&lt;/em&gt; Revenue Service, as opposed to Customs, which collects taxes on external products. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In any case, can a company write off these tariffs &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Of course. They're a business expense.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;and eventually receive a tax refund on the import taxes they paid?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;You seem to not understand what &quot;write off&quot; means. It means that you deduct it from your taxable income. That is, it decreases the amount of income that you need to pay taxes on. It doesn't directly reduce your taxes. For instance, suppose your tax rate is 20%, and you write off 1000. That doesn't mean you reduce your &lt;em&gt;taxes&lt;/em&gt; by 1000, it means you reduce your &lt;em&gt;income&lt;/em&gt; by 1000. You then don't have to pay taxes on that, which reduces taxes owed by 200.&lt;/p&gt;&#xA;" OwnerUserId="16462" LastActivityDate="2019-09-17T15:21:04.097" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="31918" PostTypeId="1" CreationDate="2019-09-17T15:23:14.763" Score="1" ViewCount="221" Body="&lt;p&gt;&lt;em&gt;The following is the gist from chapters - 3, 4 &amp;amp; 5 dealing with IS-LM model from Macroeconomics, Blanchard &amp;amp; Johnson, 6th edition.&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Equilibrium in the financial market implies an increase in income leads to an increase in the interest rate, therefore the LM curve is upward sloping. &lt;strong&gt;The LM curve is derived at a given level of (real) money supply.&lt;/strong&gt; It is further assumed that price level is fixed in the short run. further, it is assumed that  central bank changes money supply through open market operations (OMOs). When the central bank buys bonds, bond prices goes up &amp;amp; interest rate goes down. Conversely, when the central bank sells bonds, bond prices goes down and interest rate goes up. Hence interest rate is directly dependent on the OMOs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I could not understand is why the interest rate is changing because of change in income, since there is no change in money supply and hence no OMO is going on? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, why would someone will buy the bond from central bank when the bond prices are going down?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit: (related to fixed money supply, first question) Since there is no interest rate on check-able deposits and bank money apart from reserves are used to purchase bonds, not for lending, people to people borrowing is an option. However, &lt;em&gt;it does not seem to be a plausible&lt;/em&gt; due to the following reasons. The Money demand shift to right for &lt;em&gt;an increase in income&lt;/em&gt; and intersects the Money supply curve at a higher point leading to increase in interest rate. Increase in income will suppress the people to people borrowing, leading to opposite of the required result, lower interest. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(related to variable money supply, second question) consumers who have already invested may hold on their bonds but may not purchase new bonds with the extra income. So the interest rate should not change. Moreover, if consumers buy and sell bonds among themselves without Central Bank Intervention and make major changes in the interest rate, they may not cooperate. e.g. CB decides to decrease money supply but consumers may not give up thier bonds as their income may have increase recently. &lt;/p&gt;&#xA;" OwnerUserId="2983" LastEditorUserId="2983" LastEditDate="2019-09-26T18:18:23.640" LastActivityDate="2019-09-26T18:18:23.640" Title="LM curve: How interest rate is changing without OMOs by the central bank?" Tags="&lt;macroeconomics&gt;&lt;interest-rate&gt;&lt;money-supply&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="31922" PostTypeId="1" CreationDate="2019-09-17T21:34:15.507" Score="1" ViewCount="52" Body="&lt;p&gt;Total Hours worked is a mix of extensive (to work or not, the usual standard working week) and intensive (how many hours to work).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm interested in how this balance of extensive and intensive margins worked in the US over time, particularly from the 1980s onwards, and over the financial crisis.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can anyone suggest a source carrying out such an analysis?&lt;/p&gt;&#xA;" OwnerUserId="24295" LastActivityDate="2021-03-11T15:01:25.220" Title="extensive vs intensive labor in US in recent decades" Tags="&lt;labor-economics&gt;&lt;business-cycles&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="31923" PostTypeId="1" AcceptedAnswerId="31929" CreationDate="2019-09-18T08:07:02.227" Score="1" ViewCount="28" Body="&lt;p&gt;In &lt;a href=&quot;https://www.bloomberg.com/news/articles/2019-09-17/new-york-fed-announces-operation-to-ease-money-market-rates&quot; rel=&quot;nofollow noreferrer&quot;&gt;recent coverage&lt;/a&gt; of the Fed's repo operation, I was struck by this line:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;It also indicated Wall Street is struggling to absorb record sales of&#xA;  Treasury debt to fund a swelling U.S. budget deficit. What’s more,&#xA;  many dealers have curtailed trading because of safeguards implemented&#xA;  after the 2008 crisis, making these markets more prone to volatility.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I do not find this so intuitive, because increasing volatility seems to be an unlikely policy objective in the context of other initiatives at the time (TARP et all.)&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Question&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;I hope I did not over-simplify the matter, and I would like to understand what is the regulation the article refers to and what is the logic behind the perceived &quot;more prone to volatility?&quot;&lt;/p&gt;&#xA;" OwnerUserId="12212" LastActivityDate="2019-09-18T14:46:26.380" Title="What is it about the money market safeguards that increase volatility?" Tags="&lt;macroeconomics&gt;&lt;monetary-policy&gt;&lt;federal-reserve&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="31925" PostTypeId="2" ParentId="31922" CreationDate="2019-09-18T09:10:59.110" Score="0" Body="&lt;p&gt;&lt;a href=&quot;http://ftp.iza.org/dp6051.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;This&lt;/a&gt; should serve as a starting point, although it's too early to cover the crisis. Maybe you'll find something when looking in papers citing this one via Google Scholar.&lt;/p&gt;&#xA;" OwnerUserId="17735" LastActivityDate="2019-09-18T09:10:59.110" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="31926" PostTypeId="1" CreationDate="2019-09-18T10:57:40.077" Score="2" ViewCount="123" Body="&lt;p&gt;Consider the limited attention choice framework by &lt;a href=&quot;https://economics.yale.edu/sites/default/files/matejka-140218.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Matejka and McKay (2015)&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This framework can give rise to consideration sets, as roughly summarised below. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Consideration sets in the limited attention choice framework:&lt;/strong&gt;&#xA;  Since attention is a scarce resource, the agents may be induced to contemplate only a subset of the available alternatives, ignoring all the others. More precisely, this framework assumes that the decision maker (hereafter, DM) knows the feasible set but is not fully aware of the value of each alternative in the feasible set. The DM is endowed with a prior on the value of each alternative in the feasible set and can &quot;buy&quot; an  &lt;em&gt;information structure&lt;/em&gt; to update such a prior.  An information structure consists of a  signal that, once realised, allows the DM to update her prior and then choose the alternative from the feasible set maximising the &lt;em&gt;expected&lt;/em&gt; utility given the refined information. On one hand,  the DM prefers a  signal that is as informative as possible on the value of each alternative  in order to minimise ex-post regret. On the other hand, limited attention constraints imply that a more informative  signal is more costly because it requires more cognitive effort to be processed. Such a trade-off can lead to equilibria featuring information structures such that some alternatives in the feasible set are never chosen by the DM for any realisation of the signal. Hence, these alternatives are not part of the DM's consideration set. Complementarily, the DM consideration set's consists of the alternatives which are chosen by the DM with positive probability  for at least some realisations of the signal. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Question:&lt;/strong&gt; Consider &lt;a href=&quot;https://en.wikipedia.org/wiki/Independence_of_irrelevant_alternatives&quot; rel=&quot;nofollow noreferrer&quot;&gt;the Sen's property &lt;span class=&quot;math-container&quot;&gt;$\alpha$&lt;/span&gt;&lt;/a&gt; stating that &#xA;if an alternative &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; is chosen from a set &lt;span class=&quot;math-container&quot;&gt;$T$&lt;/span&gt;, and &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; is also an element of a subset &lt;span class=&quot;math-container&quot;&gt;$S$&lt;/span&gt; of &lt;span class=&quot;math-container&quot;&gt;$T$&lt;/span&gt;, then &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; must be chosen from &lt;span class=&quot;math-container&quot;&gt;$S$&lt;/span&gt;. Does this property hold in the the limited attention choice framework by Matejka and McKay (2015)? The authors have a discussion about IIA (independence of irrelevant alternatives) but I couldn't understand whether the Sen's property &lt;span class=&quot;math-container&quot;&gt;$\alpha$&lt;/span&gt; holds or not. &lt;/p&gt;&#xA;" OwnerUserId="1505" LastActivityDate="2021-04-03T05:00:10.087" Title="Sen's property $\alpha$ holds when limited attention in choice?" Tags="&lt;decision-theory&gt;&lt;choice-theory&gt;&lt;rational-expectations&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="31927" PostTypeId="1" AcceptedAnswerId="31932" CreationDate="2019-09-18T14:20:11.743" Score="0" ViewCount="82" Body="&lt;ul&gt;&#xA;&lt;li&gt;There are two goods, &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$2$&lt;/span&gt; produced by two firms at zero marginal costs. The goods are perfect complements. The demand for each goods is: &lt;span class=&quot;math-container&quot;&gt;$Q_1=Q_2=a-(p_1+p_2)$&lt;/span&gt;. The prices are set sequentially, with the leader firm (&lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt;) credibly committing to a price which the follower takes as given. Determine the equilibrium prices, quantities and profits. &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I understand that in standard Stackelberg games of prices, the follower has a second mover advantage. For the above question, I found that the reaction curves turned out to be downward sloping, i.e. prices are strategic substitutes. &lt;span class=&quot;math-container&quot;&gt;$(p^*_1,p^*_2)=(\frac{a}{2},\frac{a}{4})$&lt;/span&gt;. &#xA;Would the second mover advantage still hold? Evaluating the leader's profit function at Bertrand prices would show that the leader has an incentive to set a price above &lt;span class=&quot;math-container&quot;&gt;$p^B_1$&lt;/span&gt; since prices are strategic substitutes and goods are perfect complements (evaluating &lt;span class=&quot;math-container&quot;&gt;$\frac{\partial\pi_1^L}{\partial p_1}$&lt;/span&gt; at bertrand prices). &#xA;Is this the correct method to evaluate second mover/first mover advantage? &lt;/p&gt;&#xA;" OwnerUserId="18398" LastEditorUserId="18398" LastEditDate="2019-09-18T15:58:15.973" LastActivityDate="2019-09-19T00:08:35.667" Title="Sequential Price Competition for Perfect Complements" Tags="&lt;game-theory&gt;&lt;self-study&gt;&lt;industrial-organisation&gt;&lt;dynamic-programming&gt;" AnswerCount="1" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="31928" PostTypeId="1" AcceptedAnswerId="31933" CreationDate="2019-09-18T14:23:02.690" Score="1" ViewCount="36" Body="&lt;p&gt;Is there an externality if someone buys all stock of some merchandise? On one hand, if they buy all of everything and there's still demand then they've taken it away from other people. On the other hand, it kind of feels like that should be accounted for in the supply curve, and it's not an externality so much as the producers not having known the correct supply curve?&lt;/p&gt;&#xA;" OwnerUserId="24297" LastEditorUserId="1601" LastEditDate="2019-09-18T16:23:17.433" LastActivityDate="2019-09-18T16:23:17.433" Title="Is there an externality if someone buys all stock of some merchandise?" Tags="&lt;microeconomics&gt;&lt;externalities&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="31929" PostTypeId="2" ParentId="31923" CreationDate="2019-09-18T14:46:26.380" Score="1" Body="&lt;p&gt;I don't know much about repo markets, but in dynamic systems in general, two things are likely to generate volatility:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Large shocks of any kind, corrective or not, especially when they are reactive (and therefore delayed and possibly out of phase with underlying cycles - think about pushing a child on a swing while standing at the edge, versus standing in the middle, of the arc).&lt;/li&gt;&#xA;&lt;li&gt;Reducing the inertial mass of the system.  In this case, reducing the volume of trading.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;You have both here. The large shock is the corrective policy (post-2008 actions like TARP), coming potentially years after the initial cause of the financial crisis. The reduced inertial mass can be partly explained by traders reacting to the disconnect between asset values and fundamentals due to actions like TARP, which was mainly about buying up worthless assets to keep banks afloat.&lt;/p&gt;&#xA;" OwnerUserId="24275" LastActivityDate="2019-09-18T14:46:26.380" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="31930" PostTypeId="2" ParentId="31928" CreationDate="2019-09-18T14:55:56.403" Score="-1" Body="&lt;p&gt;You can try drawing up an &lt;a href=&quot;https://en.wikipedia.org/wiki/Edgeworth_box&quot; rel=&quot;nofollow noreferrer&quot;&gt;Edgeworth box&lt;/a&gt; for a two-person, two-good economy to see this more clearly. It should be easy to show that overall utility is maximized for equilibria near the center of the diagram, where the two agents share both goods equally.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since you're talking about externalities, this implies that you're looking at maximizing social welfare.  You can certainly construct heterogenous preferences such that one agent hoarding 100% of a good is optimal, but they are probably not that realistic.&lt;/p&gt;&#xA;" OwnerUserId="24275" LastActivityDate="2019-09-18T14:55:56.403" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="31931" PostTypeId="1" CreationDate="2019-09-18T15:47:50.810" Score="2" ViewCount="303" Body="&lt;p&gt;I'm pretty sure this is a very simple question that I am missing something obvious. I have a simple linear regression with multiple independent variables. I want to calculate the elasticity (no problem - &lt;span class=&quot;math-container&quot;&gt;$\frac{\partial y}{\partial x} \cdot \frac{x}{y}$&lt;/span&gt;), but also report the confidence interval for the elasticity. I know it's straightforward to compute the confidence interval for &lt;span class=&quot;math-container&quot;&gt;$\beta$&lt;/span&gt; (&lt;span class=&quot;math-container&quot;&gt;$\hat{\beta} \pm t^{*}_{\alpha} \cdot \sigma_{\beta}$&lt;/span&gt; ). But for the confidence interval for the elasticity, would it be the same range? Or do I need to account for the transformation (&lt;span class=&quot;math-container&quot;&gt;$\beta * x/y$&lt;/span&gt;)? &lt;/p&gt;&#xA;" OwnerUserId="24299" LastEditorUserId="69" LastEditDate="2019-09-18T20:13:04.453" LastActivityDate="2019-09-21T21:02:05.680" Title="Confidence Intervals for Elasticity in Simple Linear Regression" Tags="&lt;elasticity&gt;&lt;regression&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="31932" PostTypeId="2" ParentId="31927" CreationDate="2019-09-18T16:14:12.177" Score="1" Body="&lt;p&gt;Just looking at the setup, everything is symmetric. This means that if they were to move simultaneously then we should have &lt;span class=&quot;math-container&quot;&gt;$p_1 = p_2$&lt;/span&gt;, and the payoffs for the two firms the same.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;According to your calculation, &lt;span class=&quot;math-container&quot;&gt;$(p^*_1,p^*_2)=(\frac{a}{2},\frac{a}{4})$&lt;/span&gt;. Since &lt;span class=&quot;math-container&quot;&gt;$Q_1 = Q_2 \Rightarrow \pi_1 &amp;gt; \pi_2$&lt;/span&gt;. So it's quite clear that in this case, the first mover has the advantage.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Intuitively, you can figure out which mover has the advantage by simply asking, would the first mover get higher payoff if he/she moves second?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Mathematically, if strategies are strategic substitute, then you can show that the first mover will have the advantage. Reference &lt;a href=&quot;https://www.jstor.org/stable/2555388&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Added later: one interesting way (I think) to look at this is this is just like Cournot competition, just with price and quantity switched.&lt;/p&gt;&#xA;" OwnerUserId="5145" LastEditorUserId="5145" LastEditDate="2019-09-19T00:08:35.667" LastActivityDate="2019-09-19T00:08:35.667" CommentCount="8" ContentLicense="CC BY-SA 4.0" />
  <row Id="31933" PostTypeId="2" ParentId="31928" CreationDate="2019-09-18T16:18:04.093" Score="1" Body="&lt;p&gt;From the &lt;a href=&quot;https://www.lexico.com/en/definition/externality&quot; rel=&quot;nofollow noreferrer&quot;&gt;Oxford dictionary&lt;/a&gt;: (emphasis added by me)&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;externality (noun) &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;A consequence of an industrial or commercial activity which affects other parties &lt;strong&gt;without this being reflected in market prices&lt;/strong&gt;...&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Another way to put this is that externalities are not the results of market rivalry. So if you and I are bidding on the same item on e-Bay, and you are buying it, I kind of suffer, but this is within the market context, this is not abnormal. Whereas if you buy a new stereo system on e-Bay and then keep me up all night by listening to loud music, this happens outside of the market context (unless I sold you the right to listen to loud music) and is an externality.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In case of a Cournot-oligopolies one firm's increased production would also harm other firms by lowering the price. But this is not an externality either, as it is the result of normal market rivalry for the consumers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems like in the situation you are describing you are not facing an externality, as it everything happens in a market context. Perhaps there is information asymmetry, as the store was understocked. (This would require additional assumptions and is not the only possible explanation.)&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2019-09-18T16:18:04.093" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="31934" PostTypeId="2" ParentId="31931" CreationDate="2019-09-18T16:25:18.913" Score="3" Body="&lt;p&gt;If I understand correctly, what you are proposing is estimating:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$y = \gamma_0 + \gamma_1 \cdot x + \xi $$&lt;/span&gt;&#xA;and then using the confidence interval of &lt;span class=&quot;math-container&quot;&gt;$\gamma_1$&lt;/span&gt; to estimate the range of elasticities:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$ [\frac{\gamma_1 - 2 \cdot \sigma{\gamma_1}}{y} \cdot x, \frac{\gamma_1 + 2 \cdot \sigma{\gamma_1}}{y} \cdot x] $$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is wrong, essentially because of &lt;a href=&quot;https://en.wikipedia.org/wiki/Jensen%27s_inequality&quot; rel=&quot;nofollow noreferrer&quot;&gt;Jensen's inequality&lt;/a&gt; (&lt;span class=&quot;math-container&quot;&gt;$E[f(x)]\neq f(E[x])$&lt;/span&gt;). You should absolutely take into account the non-linear uncertainty when calculating the confidence interval. Fortunately, this is easy. If you run the regression estimate of &lt;span class=&quot;math-container&quot;&gt;$$\ln(y) = \beta_0 + \beta_1 \cdot \ln(x) + \epsilon$$&lt;/span&gt;&#xA;then the confidence interval of &lt;span class=&quot;math-container&quot;&gt;$\beta_1$&lt;/span&gt; is the confidence interval of the elasticity. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In follow up discussion, the questioner asks if it is possible to do this with the linear regression coefficient (&lt;span class=&quot;math-container&quot;&gt;$\gamma_1$&lt;/span&gt;), along with &lt;span class=&quot;math-container&quot;&gt;$\bar{x},\bar{y}$&lt;/span&gt; and the associated standard errors? Why would you want to know the elasticity at the average values instead of the average implied elasticity over all x-y pairs? The beta parameter is estimated on the full population so why not the elasticity too? Because all we only know the average values and the linear regression coefficient. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In principle, you can do a Monte Carlo simulation like the following:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$ \hat{elasticity}= (\hat{\gamma} + SE_{\gamma} * N(0,1)) * (\bar{x}+ SE_{\bar{x}} * N(0,1)) / (\bar{y}+ SE_{\bar{y}} * N(0,1))$$&lt;/span&gt; &#xA;do a bunch of simulations, and use this to make a confidence interval around the elasticity estimate. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In simulations that I ran, this did result in 95% standard errors that included the true value, but that might simply be a function of the parameters I tried. Unsurprisingly, the resulting standard errors on the elasticity are much larger than in log specification.  &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2019-09-21T21:02:05.680" LastActivityDate="2019-09-21T21:02:05.680" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="31936" PostTypeId="1" CreationDate="2019-09-18T17:38:54.287" Score="0" ViewCount="29" Body="&lt;p&gt;In &lt;a href=&quot;https://www.cs.tau.ac.il/~mansour/sem-game-02-03/monderer-potential-96.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Monderer and Shapley (1996)&lt;/a&gt; (pdf) there is the following theorem.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The next theorem is well-known (and very useful).&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;THEOREM 4.5&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Let &lt;span class=&quot;math-container&quot;&gt;$\Gamma$&lt;/span&gt; be a game in which the strategy sets are intervals of&#xA;  real numbers. Suppose the payoff functions are twice continuously&#xA;  differentiable. Then &lt;span class=&quot;math-container&quot;&gt;$\Gamma$&lt;/span&gt; is a potential game iff&#xA;  &lt;span class=&quot;math-container&quot;&gt;$\frac{\partial^2{u^i}}{\partial{y^i}{y^j}}=\frac{\partial^2{u^j}}{\partial{y^i}{y^j}}$&lt;/span&gt;&#xA;  for every &lt;span class=&quot;math-container&quot;&gt;$i,j \in \mathbb{N}$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Where was this from? I might be missing something but I don't see a reference. Thank you in advance for your help.&lt;/p&gt;&#xA;" OwnerUserId="24303" LastActivityDate="2019-09-18T17:38:54.287" Title="Cross derivatives of payoff functions in potential games" Tags="&lt;game-theory&gt;&lt;potential-game&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="31938" PostTypeId="1" CreationDate="2019-09-19T04:44:10.030" Score="0" ViewCount="75" Body="&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/hZizb.jpg&quot; alt=&quot;enter image description here&quot;&gt;!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There's this statement in my Applied Economics book that I don't understand. Why is that when one person or group gets a good or service, someone else will have to live without it? I hope you answer this question. Thank you. &lt;/p&gt;&#xA;" OwnerUserId="24304" LastActivityDate="2019-09-19T13:32:17.387" Title="Why is that when one person or group gets a good or service, someone else will have to live without it?" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;nonrenewable-resources&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="31939" PostTypeId="2" ParentId="31938" CreationDate="2019-09-19T04:48:56.947" Score="2" Body="&lt;p&gt;That statement is not generally true.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is true of rivalrous goods (e.g. when I take a slice of a pizza, there's that much less left of the pizza for you).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is false of non-rivalrous goods (e.g. when I step into the sunshine, there is usually* no less of the sunshine for you).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;*Unless of course I somehow also block the sunshine for you.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2019-09-19T04:48:56.947" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="31940" PostTypeId="2" ParentId="31938" CreationDate="2019-09-19T04:49:32.003" Score="2" Body="&lt;p&gt;I believe this comes from a very beginning of the book, which tries to emphasize the concept of scarcity... a very important idea in economics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Later on, you'll see that there are certain types of goods that, when one person &quot;consumes&quot; it, it doesn't mean that other people cannot consume it as well. In economics, this is called a &lt;a href=&quot;https://en.wikipedia.org/wiki/Rivalry_(economics)&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;strong&gt;non-rivalry good&lt;/strong&gt;&lt;/a&gt;. Some examples include scenic views (you enjoy it doesn't mean your friends can't too), national defense, and radio signal.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that this is true only up to a point... when there's two people enjoying the view of the mountain, that's fine. Three, ok... but when it gets up to thousands of people enjoying the same view of the mountain, that gets a bit crowded. Here we're only talking to non-rivalry &lt;em&gt;within reasons&lt;/em&gt;.&lt;/p&gt;&#xA;" OwnerUserId="5145" LastActivityDate="2019-09-19T04:49:32.003" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="31942" PostTypeId="1" CreationDate="2019-09-19T09:30:17.903" Score="2" ViewCount="30" Body="&lt;p&gt;A bit of googling found some conflicting ones... &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.bis.org/publ/confp05n.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Capel and Houben (BIS)&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Asset inflation occurs when the prices of financial assets are rising even though they are already above their intrinsic or underlying value. Hence, to establish asset inflation, the intrinsic value of equities and houses must be first determined.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The latter problem is obviously rather hard.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another, more terse definition seem to roughly in the same vein:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.dbresearch.com/PROD/RPS_EN-PROD/PROD0000000000471539/Global_liquidity_%22glut%22_and_asset_price_inflation%3A.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Becker (Deutche Bank)&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;asset prices to levels not supported by economic&#xA;  fundamentals (“asset price inflation”).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So this more or less the same thing as a &quot;bubble&quot;, I think (and also as vague).&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://doi.org/10.1080/01603477.1999.11490238&quot; rel=&quot;nofollow noreferrer&quot;&gt;Dalziel (post-Keynesian)&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;there have been several episodes&#xA;  around the world in which property prices or the value of sharemarket&#xA;  equities have risen significantly, even while consumer prices and workers'&#xA;  wages remained relatively stable. Such asset price inflations [...]&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This seems an easier thing to measure in practice, but it's clearly not positing a deviation from an absolute/intrinsic value, at least in this snippet.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.kansascityfed.org/PUBLICAT/RESWKPAP/PDF/rwp01-04.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Filardo (Kansas Fed)&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Overall asset price inflation equals the (implicitly weighted) sum of the fundamental&#xA;  component of asset price inflation and the bubble component of asset price inflation. [...] The fundamental component of asset price inflation is assumed to be a function of lagged&#xA;  inflation, output growth, and an error term that captures unexpected changes in the fundamental component of asset price inflation. [...] The asset price bubble component is modeled as being exogenous. This specification is&#xA;  somewhat arbitrary because economists do not have good empirical models of asset price&#xA;  bubbles.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;But clearly in this view asset inflation is not the same as just a bubble...&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.imes.boj.or.jp/research/papers/english/me13-2-4.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Shigemi (BOJ)&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;not only Japan but also many countries [...] experienced big changes in asset prices, or so-called &quot;asset price inflation&quot; and &quot;asset price deflation&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Probably the most trivial definition, i.e. (nominal or real?) increase in asset prices. Later in the paper he graphs for instance &quot;real aggregate asset price indices&quot; but also &quot;nominal residential housing prices&quot;, so I'm not sure if his definition of asset inflation is in real or nominal terms.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So does any of these definitions have significant adoption in the literature? Are there more meanings for the term? Does any other definition of the term have substantial following?&lt;/p&gt;&#xA;" OwnerUserId="6210" LastEditorUserId="6210" LastEditDate="2019-09-19T09:56:44.250" LastActivityDate="2019-09-19T09:56:44.250" Title="Is there a widely accepted definition of &quot;asset [price] inflation&quot;?" Tags="&lt;asset-pricing&gt;&lt;definition&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="31943" PostTypeId="1" CreationDate="2019-09-19T09:59:50.887" Score="0" ViewCount="174" Body="&lt;p&gt;Given a utility function &lt;span class=&quot;math-container&quot;&gt;$U= {10x^{0.5}} + 5y$&lt;/span&gt;, calculate the MRS and explain its economic meaning.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The MRS I calculated is &lt;span class=&quot;math-container&quot;&gt;$\frac{1}{\sqrt{x_1}}$&lt;/span&gt;, but I can't really understand it's economic meaning or how to derive its indifference curve. Some help please?&lt;/p&gt;&#xA;" OwnerUserId="24309" LastActivityDate="2019-09-22T07:41:08.067" Title="Utility function is given as U(x1, x2) = 10x 0.5 1 + 5x2" Tags="&lt;microeconomics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="31944" PostTypeId="2" ParentId="31938" CreationDate="2019-09-19T11:59:59.200" Score="0" Body="&lt;p&gt;The statement is most clearly correct for goods which are both &lt;a href=&quot;https://en.wikipedia.org/wiki/Rivalry_(economics)&quot; rel=&quot;nofollow noreferrer&quot;&gt;rival&lt;/a&gt; and unique, for example, some houses (which may be unique by virtue of their size, room configuration and location), and unique original works of art (which can have only one owner even if displayed for viewing by others).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As other answers have said, the statement is not true for non-rival goods. But even for ordinary rival goods produced in large quantities (slices of pizza, say), the statement is only true in the sense that if someone consumes a particular unit of a good, then someone else (indeed everyone else) cannot consume &lt;em&gt;that particular unit&lt;/em&gt;. The wording &quot;have to live without it&quot; is rather pretentious in that context, given that a person who cannot consume one particular unit can often consume another equally good unit.&lt;/p&gt;&#xA;" OwnerUserId="1417" LastEditorUserId="1417" LastEditDate="2019-09-19T13:32:17.387" LastActivityDate="2019-09-19T13:32:17.387" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="31946" PostTypeId="2" ParentId="31943" CreationDate="2019-09-19T14:41:51.023" Score="3" Body="&lt;p&gt;The MRS represents the rate of exchange between goods x and y that would leave the agent indifferent to trading the two. It is the slope of the indifference curve for a given value of utility U.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To derive the indifference map (the set of indifference curves), take U constant in the utility function, and solve for y in terms of x. You can check if your MRS calculation is correct by taking the first derivative of your indifference map function.&lt;/p&gt;&#xA;" OwnerUserId="24275" LastEditorUserId="24275" LastEditDate="2019-09-19T15:42:20.033" LastActivityDate="2019-09-19T15:42:20.033" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="31947" PostTypeId="2" ParentId="30537" CreationDate="2019-09-19T18:17:03.183" Score="1" Body="&lt;p&gt;Hang on - so, what is the unit of analysis in your data set?  Is it companies, or is it managers?  Think carefully about this.  How are the &quot;top 5&quot; ranked?  Does the cohort change frequently?  What variables are you interested in with respect to policy impact?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's true that from a company view, you've got a panel, but if there's enough churn in the management roster you could justify a pooled approach.  In addition, if the missing data is non-random (e.g., cyclic, confined to certain firms/sectors/etc), then it would bias a panel approach, and a pooled regression may be the best you can do.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's down to the particulars of your data, which only you have access to.&lt;/p&gt;&#xA;" OwnerUserId="24275" LastActivityDate="2019-09-19T18:17:03.183" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="31949" PostTypeId="1" AcceptedAnswerId="31955" CreationDate="2019-09-19T20:51:04.493" Score="2" ViewCount="49" Body="&lt;p&gt;I originally asked this question on personal finance/money because I didn't know that this exchange site existed. &lt;a href=&quot;https://money.stackexchange.com/questions/114867/the-fed-lowered-interest-rates-are-they-going-to-buy-bonds&quot;&gt;link to same question at person finance/money&lt;/a&gt;.  Someone on that site mentioned that it might be off topic, so I thought I would try here.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Fed just lowered interest rates yesterday by 0.25%. I haven't heard anyone mentioning a resurgence of quantitative easing (QE).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is the Fed going to start buying bonds in order to influence the interest rate? If so, where can we find the dollar amount of bonds they are buying and over what time frame?&lt;/p&gt;&#xA;" OwnerUserId="24312" LastActivityDate="2019-09-21T10:50:42.717" Title="The Fed Lowered Interest Rates, Are they going to buy Bonds?" Tags="&lt;monetary-policy&gt;&lt;interest-rate&gt;&lt;money-supply&gt;&lt;federal-reserve&gt;&lt;quantitative-easing&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="31950" PostTypeId="2" ParentId="31866" CreationDate="2019-09-19T22:59:31.553" Score="0" Body="&lt;p&gt;We can reduce the problem down to just two payments. Suppose you take out a loan for 1000 in 2000, you pay back 576.16 in 2001 and 2002, with a nominal interest rate of 10% and inflation of 5%. If &quot;today&quot; is 2000, then the value of the 576.16 that you pay in 2001 is 548.75, and 522.62 for 2002, for a total of 1071.34.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Fisher equation gives that the real interest rate is 4.76. What you're saying &quot;You know how you calculated how large the payments should be for an interest rate of 10%? How about you do the calculation again for an interest rate of 4.76%.&quot; That gives 535.97 each payment, for a total payment of 1071.95, which is 61 cents larger than the 1071.34 calculated in the first paragraph. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words, in an alternative world in which there were no inflation, the equivalent interest rate would be 4.76%, so the bank would ask for payments of 535.97. But we're not in that universe. Rather than paying 535.97 real dollars each time, you paid 548.75 the first time (which is more than 535.97) and 522.62 the second time (which is less than 535.97). You paid an extra 12.77 real dollars in your first payment. Since the bank got those 12.77 dollars a year early, it didn't charge you interest on them during the final year. 12.77*4.76% gets you the 61 cent difference.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The effective interest rate is how much extra real dollars you owe. Whenever you have a formula for how much real money you owe, you can plug in the effective interest rate. But you can't plug it into formulas in general. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The loan payment formula tells you:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(1) given a nominal interest rate, if you have payments that all have the same nominal value, how much that nominal value&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(2) given an effective interest rate, if the payments have the same real value, how much that real value is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can't use (1) to tell you what the real value of the amount in (2) is. It doesn't mix and match like that.&lt;/p&gt;&#xA;" OwnerUserId="16462" LastActivityDate="2019-09-19T22:59:31.553" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="31951" PostTypeId="2" ParentId="31904" CreationDate="2019-09-20T01:32:15.993" Score="1" Body="&lt;p&gt;Luxury goods tend to be Veblen goods, so reducing taxes on them doesn't make them more attractive. They also tend to be goods whose value is mainly based on scarcity, so increasing demand doesn't increase the amount supply, it just increases the equilibrium price.  If diamonds were cheaper, would there be significantly more diamond jobs? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There's the further issue that taxes just move money around. Giving rich people a tax break means either raising taxes on poorer people, reducing government spending, and/or deficit spending (which reduces the amount of capital available for private investment).&lt;/p&gt;&#xA;" OwnerUserId="16462" LastActivityDate="2019-09-20T01:32:15.993" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="31952" PostTypeId="1" AcceptedAnswerId="31954" CreationDate="2019-09-20T02:50:34.237" Score="0" ViewCount="68" Body="&lt;p&gt;I know that when the Federal Reserve buys Treasury bonds it increases the money supply, but I don't understand the process behind it. The model that I have given below (which is my best understanding of open market operations) is wrong and I need help understanding why.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Suppose the US Government through the Treasury issues a \$100 bond with a yield of \$110. A third party purchases the bond and later sells it to the Federal Reserve for $105 during open market operations. Before the maturity date, the balance of the US Government is \$100, third party \$5, and Federal Reserve -\$105.&#xA;  At the maturity date, the balance of the US Government is -\$10, third party \$5, and Federal Reserve \$5. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This model erroneously depicts a zero sum transaction and not an increase in the money supply.&lt;/p&gt;&#xA;" OwnerUserId="24316" LastActivityDate="2019-09-20T06:43:26.723" Title="Why aren't open market operations a zero sum transaction?" Tags="&lt;monetary-policy&gt;&lt;money-supply&gt;&lt;federal-reserve&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="31953" PostTypeId="2" ParentId="4" CreationDate="2019-09-20T03:05:32.327" Score="1" Body="&lt;p&gt;Both answers here are giving really good definitions of the concepts, but I think it's important to additionally talk about the relation between the two to clarify the justified confusion and to compare them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;tl;dr&lt;/strong&gt; RER is combining PPP theory with the current exchange rate to produce a rate that is taking purchase power into account. Read the two last paragraph to understand the confusion.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From &lt;a href=&quot;https://en.wikipedia.org/wiki/Purchasing_power_parity&quot; rel=&quot;nofollow noreferrer&quot;&gt;Wikipedia&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Purchasing Power Parity (PPP) is a theory that measures prices at different locations using a common basket of goods.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;PPP&lt;/strong&gt; is giving us a ratio (rate) that is fair in purchase power between different locations (according to the basket of goods).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The market exchange rates are not following PPP. This is why the &lt;strong&gt;RER&lt;/strong&gt; exists. We apply PPP theory to the current exchange rates to get a &quot;real&quot; rate that takes purchase power into account. In other words, &lt;strong&gt;RER is using PPP&lt;/strong&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From &lt;a href=&quot;https://en.wikipedia.org/wiki/Exchange_rate#Purchasing_power_of_currency&quot; rel=&quot;nofollow noreferrer&quot;&gt;Wikipedia&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The real exchange rate (RER) is the purchasing power of a currency relative to another at current exchange rates and prices&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This is confusing because, at least in online litterature, we don't seem to be explicitly mentioning their relation. For example, when we talk and teach about PPP, we often associate it with simple price indices to give usage examples (e.g. the &lt;a href=&quot;https://en.wikipedia.org/wiki/Purchasing_power_parity#Big_Mac_Index&quot; rel=&quot;nofollow noreferrer&quot;&gt;Big Mac Index&lt;/a&gt;). These indices are using the current exchange rate to compare between countries, so they are simply RERs normalized to one currency and using a specific good basket for the comparison (in this case one single item, the Big Mac). Since this is not mentionned and one leads to the other, the distinction often becomes unclear.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another confusion factor is that you can easily find PPP rates, exchange rates and price indices online, but not RERs.&lt;/p&gt;&#xA;" OwnerUserId="24313" LastEditorUserId="24313" LastEditDate="2019-09-20T04:21:01.463" LastActivityDate="2019-09-20T04:21:01.463" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="31954" PostTypeId="2" ParentId="31952" CreationDate="2019-09-20T06:43:26.723" Score="0" Body="&lt;p&gt;When we talk about the &lt;a href=&quot;https://en.wikipedia.org/wiki/Money_supply&quot; rel=&quot;nofollow noreferrer&quot;&gt;money supply&lt;/a&gt;, we are often referring to credit that is circulating in the economy at a moment in time. In other words, the more assets the Federal Reserve takes on, the more the money supply will increase at that moment. Indeed if the Federal Reserve decided to reduce its balance sheet by letting treasuries mature and the US treasury absorbed an equivalent amount in taxes to pay off its debt, the money supply will shrink back to where it started before the government issued those treasuries. But that will be far into the future if it even ever happens, and so for the present time open market operations do nominally increase the money supply.&lt;/p&gt;&#xA;" OwnerUserId="8387" LastActivityDate="2019-09-20T06:43:26.723" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="31955" PostTypeId="2" ParentId="31949" CreationDate="2019-09-20T07:02:23.920" Score="1" Body="&lt;p&gt;There have been no such announcements as far as I know. The &lt;a href=&quot;https://www.federalreserve.gov/newsevents/pressreleases/monetary20190918a1.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;press release from the Federal Reserve&lt;/a&gt; mentions the following implementation details:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Decrease in interest rate on required/excess reserve balances to 1.80 percent&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://www.newyorkfed.org/markets/opolicy/operating_policy_190919&quot; rel=&quot;nofollow noreferrer&quot;&gt;Repo operations for up to an aggregate amount of $75 billion&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;Decrease in the primary credit rate to 2.50 percent&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;My guess is that if these efforts do not have enough of an effect, then quantitative easing might resume soon as hinted by Powell:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&quot;It is certainly possible we will need to resume the organic growth of the balance sheet sooner than we thought,&quot; Powell told reporters during a press conference. - &lt;a href=&quot;https://edition.cnn.com/business/live-news/stock-market-news-today-091819/index.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;CNN&lt;/a&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="8387" LastActivityDate="2019-09-20T07:02:23.920" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="31957" PostTypeId="2" ParentId="31918" CreationDate="2019-09-20T08:56:20.980" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Hence interest rate is directly dependent on the OMOs.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;While &lt;a href=&quot;https://en.wikipedia.org/wiki/Open_market_operation&quot; rel=&quot;nofollow noreferrer&quot;&gt;open market operations&lt;/a&gt; have a large influence on interest rates, there are other ways in which central banks influence interest rates. For example, they may increase or decrease the interest on &lt;a href=&quot;https://fred.stlouisfed.org/series/EXCSRESNS&quot; rel=&quot;nofollow noreferrer&quot;&gt;excess reserves&lt;/a&gt;. Moreover, the &lt;a href=&quot;https://en.wikipedia.org/wiki/IS%E2%80%93LM_model&quot; rel=&quot;nofollow noreferrer&quot;&gt;IS-LM model&lt;/a&gt; does not necessarily assume the existence of a central bank. Interest rates have been set by the market far before central banks existed to influence them.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So how do interest rates rise with a fixed real money supply? Increased &lt;a href=&quot;https://en.wikipedia.org/wiki/Transactions_demand&quot; rel=&quot;nofollow noreferrer&quot;&gt;transactions demand&lt;/a&gt; leads to a increase in demand for money. If real money supply stays constant, then interest rates should rise. The following is an example.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Imagine an economy with only one good, tomatoes, and two people, Buyer and Producer. Producer produces all tomatoes. Buyer owns all 10 credits and is disposed to consume everything possible. Imagine the Producer has produced 10 tomatoes, and is willing to sell at 1 credit per tomato. Thus real GDP is 10 credits. If the Buyer purchases all 10 tomatoes from Producer, Buyer will own 10 tomatoes and Producer will own 10 credits.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The next year Buyer has magically regained all 10 credits. Maybe Buyer stole them from Producer; it doesn't matter. Producer produces 20 tomatoes. Hence, real GDP is now 20 credits. Intuitively tomato prices should go down as there is more supply and a fixed demand (from Buyer) but that would imply that real money supply has gone down. So to better illustrate the LM curve, let us assume that Producer keeps prices at 1 credit per tomato. Buyer now purchases 10 tomatoes, and has no credits left. But Buyer is determined to consume everything possible, so Buyer strikes a deal with Producer to borrow the 10 credits that now Producer owns at 10% interest. Buyer then purchases 10 more tomatoes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In short, real GDP doubled, real money supply stayed the same, and interest rates went up from 0% (no one borrowing) to 10%.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Also, why would someone will buy the bond from central bank when the bond prices are going down?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Central banks will sometimes sell bonds that they have purchased previously to decrease the money supply. The announcement that a central bank will attempt to do so may attract &lt;a href=&quot;https://www.bloomberg.com/news/articles/2016-03-09/japan-march-bond-futures-trade-halted-for-30-seconds-on-plunge&quot; rel=&quot;nofollow noreferrer&quot;&gt;front-running speculators&lt;/a&gt;. In other words, basic market dynamics will apply: if no one wants to purchase bonds, then prices will decline until someone believes prices have declined enough that they will eventually start rising again even under pressure from the central bank.&lt;/p&gt;&#xA;" OwnerUserId="8387" LastActivityDate="2019-09-20T08:56:20.980" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="31958" PostTypeId="1" CreationDate="2019-09-20T09:37:56.077" Score="2" ViewCount="24" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;Primary dealers have a privileged position, so there is value in being registered as a primary dealer. - &lt;a href=&quot;https://economics.stackexchange.com/a/13450/8387&quot;&gt;https://economics.stackexchange.com/a/13450/8387&lt;/a&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I was previously under the assumption that &lt;a href=&quot;https://en.wikipedia.org/wiki/Primary_dealer&quot; rel=&quot;nofollow noreferrer&quot;&gt;primary dealers&lt;/a&gt; were the only ones allowed to bid on treasuries during &lt;a href=&quot;https://www.treasurydirect.gov/indiv/products/prod_auctions_glance.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;regular auctions&lt;/a&gt;. But apparently that is not the case.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Who Can Participate?&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;All auctions are open to the public. The following Treasury services&#xA;  enable various categories of investors to participate directly:&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;TreasuryDirect accounts: Individuals and various types of entities including trusts, estates, corporations, partnerships, etc. ...&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;TAAPS: Institutional Investors&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;- &lt;a href=&quot;https://www.treasurydirect.gov/indiv/products/prod_auctions_glance.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;www.treasurydirect.gov&lt;/a&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Additionally, according to the &lt;a href=&quot;https://www.newyorkfed.org/markets/pridealers_policies.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;New York Fed&lt;/a&gt;, being a primary dealer isn't a public endorsement.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In light of the foregoing, third parties are reminded that the&#xA;  designation of an entity as a primary dealer by the New York Fed in no&#xA;  way constitutes a public endorsement of that entity by the New York&#xA;  Fed, nor should such designation be viewed as a replacement for&#xA;  prudent counterparty risk management and due diligence.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It looks like primary dealers get their voice represented on surveys that may affect monetary policy.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;[primary dealers] provide the New York Fed’s trading desk with market commentary and market information and analysis helpful in the formulation and implementation of monetary policy&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So do primary dealers apply for this reason? Or is there some other reason in applying to become a primary dealer?&lt;/p&gt;&#xA;" OwnerUserId="8387" LastActivityDate="2019-09-20T09:37:56.077" Title="What is the privilege of a primary dealer?" Tags="&lt;monetary-policy&gt;&lt;government-debt&gt;&lt;federal-reserve&gt;&lt;auctions&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="31960" PostTypeId="2" ParentId="31943" CreationDate="2019-09-20T14:57:49.947" Score="1" Body="&lt;p&gt;1) &lt;strong&gt;To draw indifference curves.&lt;/strong&gt;&#xA;Assume some value of U on the LHS, assume some values of x and calculate corresponding values of y. for e.g. assume U=10.&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;assuming&#xA;x=0,0.01, 0.04, 0.09, 0.16, 0.25, 0.36, 0.49, 0.64, 0.81, 1 you get&#xA;y=2, 1.8, 1.6 ,  1.4,  1.2, 1,    0.8,  0.6,  0.4,  0.2,  0.&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Join these (x,y) coordinates to get indifference curve for U=10. Repeat for other values of U. What does this curve mean? It means any (x,y) on this curve gives you the same utility U=10. Therefore you are &lt;strong&gt;indifferent&lt;/strong&gt; between all points (x,y) on this curve.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) &lt;strong&gt;MRS&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What you did is right mathematically.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The MRS is the slope of the indifference curve. It is the rate at which you must substitute y for x to remain on the same utility curve. i.e. suppose you are currently consuming a bundle (1,0) . You now want to consume some y, how much x must you substitute out to get to consume 1 unit of y &lt;em&gt;at this point&lt;/em&gt;? That's  the question the MRS answers.&lt;/p&gt;&#xA;" OwnerUserId="24320" LastEditorUserId="12186" LastEditDate="2019-09-22T07:41:08.067" LastActivityDate="2019-09-22T07:41:08.067" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="31961" PostTypeId="1" CreationDate="2019-09-20T19:10:30.340" Score="2" ViewCount="36" Body="&lt;p&gt;Over the last few years, the amount of currency is circulation (and the corresponding liability on the Fed's balance sheet) has been growing; however, the asset side of the BS hasn't increased. By basic accounting, that means one of the other liabilities (either required reserves or excess reserves) has been shrinking.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm guessing the growth in currency volume has been offset by declining excess reserves, but I don't understand the mechanics of that. Does the fed send $100 bill to a bank and then reduce that banks' excess reserves by 100 dollars? If so, how does the Fed decide which banks' account will be reduced by how much?&lt;/p&gt;&#xA;" OwnerUserId="24323" LastActivityDate="2019-09-21T00:30:52.550" Title="How does the Federal Reserve reduce &quot;excess reserves&quot;?" Tags="&lt;currency&gt;&lt;federal-reserve&gt;&lt;reserve-requirement-ratio&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="31962" PostTypeId="2" ParentId="31961" CreationDate="2019-09-21T00:30:52.550" Score="2" Body="&lt;p&gt;As you point out excess reserves have indeed been going down since around 2014.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/Hkpim.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Hkpim.png&quot; alt=&quot;reserve balances with Fed&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Federal Reserve doesn't force member banks to withdraw excess reserves, although the Fed can provide incentives to do so by &lt;a href=&quot;https://www.federalreserve.gov/monetarypolicy/reqresbalances.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;lowering interest rates on those reserves&lt;/a&gt;. In other words, excess reserves have been going down because member banks have chosen to withdraw reserves to, for example, purchase financial assets.&lt;/p&gt;&#xA;" OwnerUserId="8387" LastActivityDate="2019-09-21T00:30:52.550" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="31964" PostTypeId="2" ParentId="31918" CreationDate="2019-09-21T11:26:41.363" Score="1" Body="&lt;p&gt;The LM-curve is &lt;em&gt;drawn for a given&lt;/em&gt; real money supply, a change in the money supply will &lt;em&gt;shift&lt;/em&gt; the curve.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Maybe it helps to look at the equation that is depicted as the LM-curve:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;LM:&lt;span class=&quot;math-container&quot;&gt;$$L(Y,i)=\frac{\overline{M}}{\overline{P}}$$&lt;/span&gt;&#xA;Where &lt;span class=&quot;math-container&quot;&gt;$L(\cdot)$&lt;/span&gt; is real money demand, &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt; is national income, &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; is the interest rate, and &lt;span class=&quot;math-container&quot;&gt;$M$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$P$&lt;/span&gt; are money supply and price level respectively. I have placed a bar on top of &lt;span class=&quot;math-container&quot;&gt;$M$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$P$&lt;/span&gt; to indicate that these are &lt;em&gt;fixed&lt;/em&gt;. The LM-curve then is the collection of all the &lt;span class=&quot;math-container&quot;&gt;$(Y,i)$&lt;/span&gt; pairs for which this equation holds, &lt;em&gt;keeping&lt;/em&gt; &lt;span class=&quot;math-container&quot;&gt;$M$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$P$&lt;/span&gt; constant. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The interpretation of this curve is straightforward, since the left side of the equation gives real money demand and the right side gives real money supply. The LM-curve then, is a locus consisting of all the pairs of &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; that equilibrate  the money market. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now let's look at the graph:&#xA;&lt;a href=&quot;https://i.stack.imgur.com/X3tj2.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/X3tj2.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&#xA;Now we are ready to answer your question:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;What I could not understand is why the interest rate is changing because of change in income, since there is no change in money supply and hence no OMO is going on?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Now remember the graph is a collection of &lt;span class=&quot;math-container&quot;&gt;$(Y,i)$&lt;/span&gt; pairs that equalize real money demand and supply. As we see, the curve is upward sloping. Why is this? With a higher income &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt; people will, all else equal, want to spend more money on goods and services. For this they need money in their pocket. To ensure having the money in their pocket needed to buy stuff, they lend out less for a given interest rate. This however (increased real money demand and fixed real money supply) leads to people wanting to lend out less money than people want to borrow: there is &lt;em&gt;excess demand&lt;/em&gt; for money. Thus the price of borrowing money increases, and this price is, you guessed it, the interest rate &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;. It increases until demand again equals supply.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus we have derived a positive relationship between interest rates and national income, &lt;em&gt;while money supply remains fixed&lt;/em&gt;: the LM-curve.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now suppose the central bank conducts open market operations. Specifically, suppose they buy bonds from the public, thus increasing the money supply: &lt;span class=&quot;math-container&quot;&gt;$M \uparrow $&lt;/span&gt;. Since the price level is fixed, the real money supply increases as well: &lt;span class=&quot;math-container&quot;&gt;$(\frac{M}{\overline{P}}) \uparrow$&lt;/span&gt;. The result is a lower interest rate for a given national income: a downward shift of the LM-curve. The story behind this is that at every &lt;span class=&quot;math-container&quot;&gt;$(Y,i)$&lt;/span&gt; pair on the 'old' LM-curve real money demand was equal to the 'old' real money supply, which is lower than the 'new' real money supply. So to let real money demand increase to the needed level, we need either higher national income (&lt;span class=&quot;math-container&quot;&gt;$Y \uparrow$&lt;/span&gt;), a lower interest rate  (&lt;span class=&quot;math-container&quot;&gt;$i \downarrow$&lt;/span&gt;), or both.&lt;/p&gt;&#xA;" OwnerUserId="18214" LastEditorUserId="18214" LastEditDate="2019-09-21T15:37:16.867" LastActivityDate="2019-09-21T15:37:16.867" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="31965" PostTypeId="1" AcceptedAnswerId="31966" CreationDate="2019-09-21T12:40:32.793" Score="0" ViewCount="28" Body="&lt;p&gt;I have been reading from this textbook which talks about CPI and inflation &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;http://faculty.washington.edu/cnelson/Chap04.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://faculty.washington.edu/cnelson/Chap04.pdf&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On pages 5 and 6, it talks about how they are deflating the nominal income using the CPI. But in page 6, they work out the percentage difference in real income between two years, and they state that is the net difference of her increase in real income &lt;i&gt;and inflation&lt;/i&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But I thought using the CPI was getting rid of the effect of inflation? What am I not undersranding?&lt;/p&gt;&#xA;" OwnerUserId="23031" LastActivityDate="2019-10-21T14:02:35.317" Title="Does finding real income adjust for inflation?" Tags="&lt;inflation&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="31966" PostTypeId="2" ParentId="31965" CreationDate="2019-09-21T13:09:20.397" Score="3" Body="&lt;p&gt;Indeed deflating nominal income using CPI does get rid of the effect of inflation. I think you're just getting confused by the phrasing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I assume you are referring to the following sentence on pg. 6:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;We  have  shown  that  the  net  result  of  her  raise  and  inflation  was  an  increase of 7.9% in real income.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Let me rephrase this sentence: we have shown that after raising her salary by 10% and then adjusting for inflation, the net effect is that her real income increased by 7.9%.&lt;/p&gt;&#xA;" OwnerUserId="8387" LastActivityDate="2019-09-21T13:09:20.397" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="31967" PostTypeId="1" AcceptedAnswerId="31980" CreationDate="2019-09-21T16:24:49.180" Score="0" ViewCount="341" Body="&lt;p&gt;For example I have a Cobb-Douglas utility function &lt;span class=&quot;math-container&quot;&gt;$U(x,y)$&lt;/span&gt; and I want to check the monotonicity property. &#xA;Can I use the marginal utility functions to see that they are always positive to conclude that &lt;span class=&quot;math-container&quot;&gt;$U(x,y)$&lt;/span&gt; has the monotonicity property?&lt;/p&gt;&#xA;" OwnerUserId="10240" LastEditorUserId="1601" LastEditDate="2019-09-21T16:28:19.127" LastActivityDate="2019-09-23T15:59:52.167" Title="Can i check monotonicity with the marginal utility?" Tags="&lt;microeconomics&gt;" AnswerCount="2" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="31969" PostTypeId="1" AcceptedAnswerId="31975" CreationDate="2019-09-22T10:53:41.767" Score="3" ViewCount="105" Body="&lt;p&gt;In Herman Daly's article &quot;Economics for a Full World&quot;, Daly states that international trade must be regulated because free capital mobility would invalidate the principle of comparative advantage (Daly, 2015, p.12). As a reference, he cites John Stuart Mill's &quot;Principles of Political Economy&quot; IV.VII.I. However, there doesn't seem to be a chapter 7 in book 4, so I cannot check what he is referring to. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would greatly appreciate your help in understanding the argument made by Daly here!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;References&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Daly, H. (2015). &lt;a href=&quot;https://greattransition.org/publication/economics-for-a-full-world&quot; rel=&quot;nofollow noreferrer&quot;&gt;Economics for a Full World&lt;/a&gt;. &lt;em&gt;Great Transition Initiative&lt;/em&gt;.&lt;/p&gt;&#xA;" OwnerUserId="24333" LastEditorUserId="6210" LastEditDate="2019-09-23T10:58:03.553" LastActivityDate="2019-09-23T19:58:33.670" Title="Does free capital mobility invalidate the basic comparative advantage argument for free trade in goods?" Tags="&lt;macroeconomics&gt;&lt;free-trade&gt;&lt;comparative-advantage&gt;&lt;capital-mobility&gt;" AnswerCount="2" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="31971" PostTypeId="1" AcceptedAnswerId="31972" CreationDate="2019-09-22T13:34:43.897" Score="0" ViewCount="51" Body="&lt;p&gt;I would like to know if there are other factors that can devalue a currency. I think the effect of the negative interest rates will not be much greater than the 0% interest rate because simply a very few people would put their money in the bank.  Maybe increasing the salary of the governmental employees would devalue but I think it's not a practical solution. Does 0% interest really mean the minimum value of the currency?&lt;/p&gt;&#xA;" OwnerUserId="24038" LastEditorUserId="10343" LastEditDate="2019-09-27T19:30:55.310" LastActivityDate="2019-09-27T19:30:55.310" Title="Does 0% interest rate mean the minimum value of a currency?" Tags="&lt;interest-rate&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="31972" PostTypeId="2" ParentId="31971" CreationDate="2019-09-23T01:27:07.837" Score="2" Body="&lt;p&gt;Can the inflation rate rise even if the interest rates are below 0%?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In short, yes. The inflation rate rises when more money chases goods and services than before. This can happen because there is &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;more money circulating&lt;/li&gt;&#xA;&lt;li&gt;less goods and services output&lt;/li&gt;&#xA;&lt;li&gt;money is circulating at a faster pace (increased &lt;a href=&quot;https://en.wikipedia.org/wiki/Velocity_of_money&quot; rel=&quot;nofollow noreferrer&quot;&gt;money velocity&lt;/a&gt;)&lt;/li&gt;&#xA;&lt;li&gt;money is chasing a narrower set of goods and services&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Note the last point decreases the inflation rate for the goods and services that are no longer chased.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the short term, when interest rates lower, people borrow more money to spend as borrowing is cheaper. &lt;a href=&quot;https://economics.stackexchange.com/questions/30663/why-loans-debt-can-cause-inflation&quot;&gt;Assuming no change in the goods and services output, the inflation rate should rise.&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As you mention, you can raise government employee salaries. And you don't have to necessarily limit the salary raise to government employees: an earned income &lt;a href=&quot;https://en.wikipedia.org/wiki/Tax_credit&quot; rel=&quot;nofollow noreferrer&quot;&gt;tax credit&lt;/a&gt; would have the effect of raising most people's salary. Or more generally, you can expand on fiscal spending: build bridges, fix roads, launch rockets, etc. Assuming this fiscal spending is financed through government debt and there is a budget deficit, there is now more money chasing existing goods and services in the short term, and thus the inflation rate should rise in the short term. Over the long term, productivity gains from fiscal spending should increase the output of goods and services and offset the inflation spike.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can also just print money and &lt;a href=&quot;https://en.wikipedia.org/wiki/Helicopter_money&quot; rel=&quot;nofollow noreferrer&quot;&gt;dump it off a helicopter&lt;/a&gt;. This will again cause more money to circulate and raise the inflation rate in the short term. What happens over the long term depends on how effectively people spend helicopter money.&lt;/p&gt;&#xA;" OwnerUserId="8387" LastActivityDate="2019-09-23T01:27:07.837" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="31973" PostTypeId="1" AcceptedAnswerId="31982" CreationDate="2019-09-23T05:21:27.820" Score="0" ViewCount="59" Body="&lt;p&gt;My absolute t-value is greater than t-critical value. This means that I can reject my null hypothesis which was that &lt;span class=&quot;math-container&quot;&gt;$\beta_1\leq 0$&lt;/span&gt;. Therefore, &lt;span class=&quot;math-container&quot;&gt;$\beta_1\gt 0$&lt;/span&gt; and my alternative hypothesis is correct. However, my data has a negative slope. which tells me that &lt;span class=&quot;math-container&quot;&gt;$\beta_1\lt 0$&lt;/span&gt;. What am I missing here? &lt;/p&gt;&#xA;" OwnerUserId="21604" LastEditorUserId="13883" LastEditDate="2019-09-29T12:40:53.570" LastActivityDate="2019-09-29T12:40:53.570" Title="Econometrics - Need help interpreting results" Tags="&lt;econometrics&gt;&lt;hypothesis-testing&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="31974" PostTypeId="1" CreationDate="2019-09-23T06:40:00.050" Score="2" ViewCount="227" Body="&lt;p&gt;What is the rationale behind government not including discouraged workers who have given up looking for jobs out of frustration given the state of economy?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This under-reports the job market and at the outset looks ridiculous.&lt;/p&gt;&#xA;" OwnerUserId="24166" LastActivityDate="2019-10-24T19:30:45.453" Title="Limitation of Unemployment rate" Tags="&lt;unemployment&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="31975" PostTypeId="2" ParentId="31969" CreationDate="2019-09-23T11:18:46.507" Score="2" Body="&lt;p&gt;Daly actually does explain further what he means by that in footnote 7 of his paper:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Capitalists are interested in maximizing absolute profits and therefore seek to minimize absolute costs. If capital is mobile between nations, it will move to the nation with lowest absolute costs. Only if capital is internationally immobile will capitalists bother to compare internal cost ratios of countries and choose to specialize in the domestic products having the lowest relative cost compared to other nations, and to trade that good (in which they have a comparative advantage) for other goods. In other words, comparative advantage is a second-best policy that capitalists will follow only when the first-best policy of following absolute advantage is blocked by international capital immobility. For more on this, see Chapter 18 in Herman Daly and Joshua Farley, Ecological Economics (Washington, DC: Island Press, 2004).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;But IMHO, the absolute conclusion that  international trade &lt;em&gt;must&lt;/em&gt; be regulated as following from that seems silly. After all, one can regulate capital flows too negating that first-best policy (argument). In fact there are plenty of barriers to capital flow, some implicit and some explicit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Having said that, I cannot quite find the ultimate conclusion stated in those absolute terms by Daly, although he does say (we should) &quot;Move from free trade and free capital mobility to balanced and regulated international trade.&quot; Which is frankly pretty vague. I mean doesn't the WTO do at least some of the latter?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The whole writeup of Daly smacks of a certain social agenda. Later he says&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Restore the US Full Employment Act of 1945 and its equivalent in other nations in order to make full employment once again the end, and economic growth the temporary means.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I think Bernie Sanders also said he wants something like that. Daly also says&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Un/under-employment is the price we pay for growth from automation, off-shoring, deregulated trade, and a cheap-labor immigration policy. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;And finally, Dally says (we should)&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;strengthen the original Bretton Woods vision of interdependent national economies, and resist the WTO vision of a single integrated global economy&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;That's basically a slogan in disguise, to put it diplomatically. You could just as well phrase it as &quot;&lt;a href=&quot;https://link.springer.com/article/10.1007/s11614-019-00340-9&quot; rel=&quot;nofollow noreferrer&quot;&gt;take back control&lt;/a&gt; of our economy/tariffs/borders/immigration&quot;. So his conclusions are more or less socio-political goals; it's hard to take them at face value as pure economic arguments. So there will undoubtedly be disagreement on such statements.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Perhaps to save his &quot;ecological economics&quot; creds Daly does say that in contrast&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;climate change and arms control require global institutions&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;To use a political science neologism, that's an ambivalox with demanding no world-wide regulatory institutions for any other economic issues, like trade.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;But to come back to the more serious economic topic, glossing over Daly's black-and-white approach, capital mobility as partially substituting for goods exchange is hardly a new discovery. See &lt;a href=&quot;https://www.jstor.org/stable/1813433&quot; rel=&quot;nofollow noreferrer&quot;&gt;Nadel (1971)&lt;/a&gt; for example.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;It has long been recognized that commodity movements and factor movements [e.g. capital, my note] are, to a degree, substitutes for each other in international exchange [...] Yet, until recently, the dominant theory of international trade, the Heckscher-Ohlin model, had been rather thoroughly recognized under the rigid assumption of the immobility of factors. Only in 1957, with the publication of Robert Mundell's important article, was capital mobility in the H-O model explored.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;(That important article being: Mundell, Robert, &lt;a href=&quot;https://www.jstor.org/stable/1811242&quot; rel=&quot;nofollow noreferrer&quot;&gt;“International Trade and Factor Mobility,”&lt;/a&gt; American Economic Review 67&#xA;(1957):321–35. It has around 2800 citations in Google Scholar.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is somewhat novel (in ecology-related economics) is that under some models of pollution, capital movement is preferable to goods movement:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Using a Heckscher–Ohlin model, this paper re-examines Robert Mundell’s famous thesis that free trade and&#xA;  unimpeded capital mobility are perfect substitutes. Under very general conditions which, according to many&#xA;  economists, have caused international convergence of factor rewards,we show that in a polluted environment&#xA;  free trade is inferior to free international investment.This happens even though commodity prices and factor&#xA;  rewards are the same with both policies.The practical side of our thesis is that the world will be better off by&#xA;  reducing the volume of trade while removing all barriers to foreign direct investment that at present hamper&#xA;  the service industries.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;That paper &lt;a href=&quot;https://doi.org/10.1111/j.1467-9396.2011.01007.x&quot; rel=&quot;nofollow noreferrer&quot;&gt;Batra and Belladi (2012)&lt;/a&gt; does also say that&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Daly (1996), Batra (1992), and Batra&#xA;  et al. (1998) argue that transportation is highly pollution intensive, specially relative to production&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;That seems to be a cornerstone assumption of the model. It is [to me at least] an interesting &lt;a href=&quot;https://skeptics.stackexchange.com/questions/45006/is-transportation-highly-pollution-intensive-relative-to-production&quot;&gt;separate question&lt;/a&gt; if economists outside of this narrow field of &quot;ecological economics&quot; agree with these premises.&lt;/p&gt;&#xA;" OwnerUserId="6210" LastEditorUserId="6210" LastEditDate="2019-09-23T19:58:33.670" LastActivityDate="2019-09-23T19:58:33.670" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="31976" PostTypeId="1" CreationDate="2019-09-23T11:22:56.783" Score="0" ViewCount="23" Body="&lt;p&gt;The latest attacks on oil production in Saudi-Arabia highlights the need for risk managers to follow up on possible terrorist targets that can have a global impact on the global financial economy, together with the corresponding degree of vulnerability and political uncertainty involved. More specifically, the translation of such a list in specific stress test scenarios can highlight areas for a company to hedge certain risks. So the question is, what are the current Achilles' heels of our global financial economy and how would you assess the vulnerability? &lt;/p&gt;&#xA;" OwnerUserId="24339" LastActivityDate="2019-09-23T11:22:56.783" Title="Economic Achilles' heels of global financial economy" Tags="&lt;macroeconomics&gt;&lt;unemployment&gt;&lt;commodities&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="31977" PostTypeId="2" ParentId="31967" CreationDate="2019-09-23T12:21:09.947" Score="0" Body="&lt;p&gt;Consider &lt;span class=&quot;math-container&quot;&gt;$f:\mathbb{R}\to\mathbb{R}$&lt;/span&gt; which has a positive derivative. Then by the fundamental theorem of calc we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$f(a)=\int_{0}^a\frac{df}{dx}dx-f(0)$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, &lt;span class=&quot;math-container&quot;&gt;$f$&lt;/span&gt; is monotonic (you are integrating a positive function over a larger area when you increase &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;). For a function &lt;span class=&quot;math-container&quot;&gt;$U$&lt;/span&gt; of two variables with positive partial derivatives we have similar results: If &lt;span class=&quot;math-container&quot;&gt;$a,b&amp;gt;0$&lt;/span&gt; then &lt;span class=&quot;math-container&quot;&gt;$U(x,y)&amp;lt;U(x+a,y)$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$U(x,y)&amp;lt;U(x,y+b)$&lt;/span&gt;. This follows because we can always fix &lt;span class=&quot;math-container&quot;&gt;$y_0$&lt;/span&gt; and view &lt;span class=&quot;math-container&quot;&gt;$U(x,y_0)$&lt;/span&gt; as a function of one variable call it &lt;span class=&quot;math-container&quot;&gt;$f_{y_0}(x)$&lt;/span&gt;. Then &lt;span class=&quot;math-container&quot;&gt;$\frac{\partial U}{\partial x}(x,y_0)=\frac{df_{y_0}}{dx}(x)$&lt;/span&gt; and apply the above results.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence we have,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$U(x,y)&amp;lt;U(x+a,y)&amp;lt;U(x+a,y+b)$$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="24190" LastActivityDate="2019-09-23T12:21:09.947" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="31978" PostTypeId="1" CreationDate="2019-09-23T14:06:14.737" Score="1" ViewCount="27" Body="&lt;p&gt;Is it true that the Chinese manufacturers pay 75% of the cost of the Trump's tariffs?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.econpol.eu/sites/default/files/2018-11/EconPol_Policy_Brief_11_Zoller_Felbermayr_Tariffs.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.econpol.eu/sites/default/files/2018-11/EconPol_Policy_Brief_11_Zoller_Felbermayr_Tariffs.pdf&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The  US  government has strategically levied  import  duties on goods&#xA;  with high import elasticities, which transfers a great share of the&#xA;  tariff burden on to Chinese exporters. &lt;strong&gt;Chinese firms pay&#xA;  approximately 75% of the tariff burden and the tariffs decrease Chinese&#xA;  exports of affected goods to the  United States by around 37%.&lt;/strong&gt; This&#xA;  implies that the bilateral trade deficit between the US and China drops&#xA;  by 17%. The additional tariffs generate revenues of around USD 22.5&#xA;  billion, which could subsequently be redistributed in the US.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;What cost are we talking about exactly? Because as far as I know, they're not paying them at all since it's the consumer who bear the brunt of the cost if they're buying the Chinese-made items. If they're not buying them, the Chinese manufacturers aren't paying any of the cost since they can put the goods in their inventory and sell it elsewhere, and reducing manufacturing output isn't a cost in any shape of form.&lt;/p&gt;&#xA;" OwnerUserId="24342" LastActivityDate="2019-09-23T14:06:14.737" Title="Is it true that the Chinese manufacturers pay 75% of the cost of the Trump's tariffs?" Tags="&lt;tariffs&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="31979" PostTypeId="2" ParentId="31969" CreationDate="2019-09-23T15:50:52.343" Score="1" Body="&lt;p&gt;Daly gets a lot wrong, including (in my view) the idea that capitalists pursue absolute profits in an economy that rests on fiat currencies and foreign exchange markets.  Indeed, the very notion of opportunity cost implies that it is relative, not absolute, costs that matter most to the rational agent. Does the capitalist seek the lowest absolute cost, or the highest relative return, net relative tax rates, net relative currency risk, net relative geopolitical risk, etc. etc.?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Like most ideas in economics, comparative advantage rests on a host of assumptions that don't play out perfectly in the real world. Many of these assumptions fail to hold if one looks at global trade.  Possibly the most important: the assumption that agents are identical except in their production functions.  In fact, geopolitical agents are diverse and varied - and most importantly, they have the power to impose arbitrary restrictions on trade.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, the real world is full of frictions, and I'm certainly not making an anti-regulation argument here.  But I am suggesting that it is impossible to assert that whatever misallocations are occurring in global trade today can be put down to the freedom of capital, rather than the haystack of conflicting policies.  The best of policymakers work with limited information, and I think it's fair to say that not all trade policy has global welfare in mind.  The so-called &quot;theory of second best&quot; implies that any new rule that conflicts with the existing set of rules is likely to be overall welfare-decreasing. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So I would disagree that &quot;capital mobility&quot; invalidates comparative advantage, if for no other reason than that true capital mobility is an experiment we've never run. I would also disagree that if the present global trade paradigm is sub-optimal, additional regulation is guaranteed to be the answer. This is like suggesting that the needle will be easier to find if we dump more hay onto the haystack.&lt;/p&gt;&#xA;" OwnerUserId="24275" LastActivityDate="2019-09-23T15:50:52.343" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="31980" PostTypeId="2" ParentId="31967" CreationDate="2019-09-23T15:59:52.167" Score="1" Body="&lt;p&gt;Yes. But you should review the definition of monotonicity (and perhaps of marginal utility) so that you understand why.&lt;/p&gt;&#xA;" OwnerUserId="24275" LastActivityDate="2019-09-23T15:59:52.167" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="31981" PostTypeId="1" CreationDate="2019-09-23T16:56:26.497" Score="1" ViewCount="26" Body="&lt;p&gt;I am trying to solve the following problem:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Debtor issued a bond on 20 000€ (including interest rate) with&#xA;  maturity rate of 8 months and interest rate of 8% per annum. Month&#xA;  later, the creditor sold the bond to a different person, who discount&#xA;  the bond with 9% interest rate p.a. &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;How much did the creditor receive for the bond?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;My solution is the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$FutureValue$&lt;/span&gt; &lt;span class=&quot;math-container&quot;&gt;$= P(1+i*t*t/12) = 20000(1+0,08*8*8/12) = 28533$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is it correct? Thanks&lt;/p&gt;&#xA;" OwnerUserId="24343" LastEditorUserId="24159" LastEditDate="2019-09-24T10:05:01.443" LastActivityDate="2019-09-24T10:05:01.443" Title="Interest rate, bond problem" Tags="&lt;interest-rate&gt;&lt;bonds&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="31982" PostTypeId="2" ParentId="31973" CreationDate="2019-09-24T00:34:04.680" Score="0" Body="&lt;p&gt;You seem to have &lt;span class=&quot;math-container&quot;&gt;$H_0: \beta_1 \le 0$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$H_1: \beta_1 &amp;gt; 0$&lt;/span&gt;. In this case, you reject &lt;span class=&quot;math-container&quot;&gt;$H_0$&lt;/span&gt; in favor of &lt;span class=&quot;math-container&quot;&gt;$H_1$&lt;/span&gt; if your t-value (not the &lt;strong&gt;absolute&lt;/strong&gt; t-value, but the t-value itself) is bigger than the one-tailed critical value. In your case, &lt;span class=&quot;math-container&quot;&gt;$\hat\beta_1 &amp;lt; 0$&lt;/span&gt; so your t-value is negative and so you do &lt;strong&gt;not&lt;/strong&gt; reject &lt;span class=&quot;math-container&quot;&gt;$H_0$&lt;/span&gt; in favor of &lt;span class=&quot;math-container&quot;&gt;$H_1$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Edit&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regarding significant* variables with the wrong signs (negative when expecting positive in your case), Jeffrey Wooldridge (&lt;em&gt;Introductory Econometrics: A Modern Approach&lt;/em&gt;, 7e, end of Section 4-2f, p. 134) writes:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;A significant variable that has the unexpected sign and a practically large effect is much more troubling and difficult to resolve. One must usually think more about the model and the nature of the data to solve such problems. Often, a counterintuitive, significant estimate results from the omission of a key variable or from one of the important problems we will discuss in Chapters 9 and 15.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note *: &quot;Significance&quot; means rejection of the null in favor of the &lt;em&gt;two-sided&lt;/em&gt; alternative. &quot;Significance&quot; does not necessary imply the rejection  of the null in favor of a one-sided alternative.&lt;/p&gt;&#xA;" OwnerUserId="10775" LastEditorUserId="10775" LastEditDate="2019-09-27T17:11:10.233" LastActivityDate="2019-09-27T17:11:10.233" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="31983" PostTypeId="1" CreationDate="2019-09-24T01:31:45.953" Score="0" ViewCount="41" Body="&lt;p&gt;So I´m a bit stuck on this one. There are two firms in the country that sell cars. Both sell Toyotas and they buy their cars directly from the manufacturer, which is Toyota. We can assume that quantity is the strategic variable, and that the two car dealers have no other marginal costs than the wholesale price &quot;r&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The inverse total demand:&#xA;P = 1500 - 5(q1 + q2)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;MC = 30 &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And I got:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;q1 + q2 = Q&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Q = 2(1500-r)/(2+1)5 = (3000-2r)/15&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which &lt;strong&gt;wholesale price, r&lt;/strong&gt;, will the Toyota set? What is the &lt;strong&gt;equilibrium retail price, p,&lt;/strong&gt; and the &lt;strong&gt;number of units sold?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When I solve for &quot;r&quot; I get:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;r = 1500 - 7.5Q &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But after this I am stuck and I can´t figure out what to do next. Anyone with any suggestions on how I should proceed or point me in the right direction?&lt;/p&gt;&#xA;" OwnerUserId="24345" LastActivityDate="2019-09-24T02:02:43.247" Title="Two firms competing ala Cournot" Tags="&lt;microeconomics&gt;&lt;financial-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="31984" PostTypeId="2" ParentId="31983" CreationDate="2019-09-24T02:02:43.247" Score="1" Body="&lt;p&gt;In dealing with problems like this, it's helpful to do it in stages. You know that the two dealers take the wholesale price &lt;span class=&quot;math-container&quot;&gt;$r$&lt;/span&gt; as a given (they can't change that), and car dealer &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; choose retail price &lt;span class=&quot;math-container&quot;&gt;$q_i$&lt;/span&gt; to try to maximize their profits &lt;span class=&quot;math-container&quot;&gt;$q_i \cdot (P - r)$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You also know that these car dealers are exactly the same... they have the same cost, set some price, face the same demand (we say the two firms are &quot;symmetric&quot;). So in the end you know that whatever is the best quantity &lt;span class=&quot;math-container&quot;&gt;$q_i$&lt;/span&gt; for the first car dealer would be the best choice for the second dealer as well, so we know &lt;span class=&quot;math-container&quot;&gt;$q_1 = q_2 = Q/2$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;With this, the dealers are choosing &lt;span class=&quot;math-container&quot;&gt;$Q$&lt;/span&gt; to maximize &lt;span class=&quot;math-container&quot;&gt;$\pi(Q, r) = \frac Q 2 \cdot (P - r)$&lt;/span&gt;, with &lt;span class=&quot;math-container&quot;&gt;$P$&lt;/span&gt; given by the demand function (solve the inverse total demand for &lt;span class=&quot;math-container&quot;&gt;$P$&lt;/span&gt;). Let's call this profit-maximizing quantity &lt;span class=&quot;math-container&quot;&gt;$Q^* = 2q_1^* = 2q_2^*$&lt;/span&gt; and the resulting price &lt;span class=&quot;math-container&quot;&gt;$P^*$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now that we're done with the car dealer, let's step in Toyota's shoes. You want to make as much money as you could, so the higher &lt;span class=&quot;math-container&quot;&gt;$r$&lt;/span&gt; is the better off you are. But you also know that if you set the retail price too high, the dealers will lose money with each car they sell and will likely stop ordering from you (maybe switch to selling Hondas instead). What's the maximum you could charge while still keep the dealers not losing money?&lt;/p&gt;&#xA;" OwnerUserId="5145" LastActivityDate="2019-09-24T02:02:43.247" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="31985" PostTypeId="1" CreationDate="2019-09-24T03:56:27.173" Score="2" ViewCount="62" Body="&lt;p&gt;I recently learned about the neoclassical growth model in both discrete and continuous time. The intuitive meaning of the shadow price for both cases is that it represents the value of one additional unit of capital. However, in discrete time, this value is the discounted value of the marginal utility at time t consumption level. Whereas, in continuous time, the shadow price is the discounted value of marginal utility at time 0 consumption level. I was wondering why is there such a difference when changing from discrete to continuous time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Moreover, I feel that the discrete-time seems more meaningful as the value of capital at time t should depend on the marginal utility at time t and not at time 0. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you!&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Continuous time case&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/6Ml3l.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/6Ml3l.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Discrete time case&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/uuDlp.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/uuDlp.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="22964" LastEditorUserId="23546" LastEditDate="2019-10-07T19:35:48.860" LastActivityDate="2019-10-07T19:35:48.860" Title="Neoclassical Economic Growth Model Shadow Price for Discrete vs Continuous Time" Tags="&lt;macroeconomics&gt;&lt;mathematical-economics&gt;&lt;economic-growth&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="31986" PostTypeId="1" CreationDate="2019-09-24T04:44:49.613" Score="0" ViewCount="15" Body="&lt;p&gt;The current economic in the US is very complex and uncertain. Is it possible to see the precise steps that the Fed uses to make its decisions? Why did they choose a rate of that amount and not another amount?&lt;/p&gt;&#xA;" OwnerUserId="23588" LastActivityDate="2019-09-24T04:44:49.613" Title="Is it possible to see the precise steps that the Fed uses to make its decisions?" Tags="&lt;federal-reserve&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="31988" PostTypeId="2" ParentId="31974" CreationDate="2019-09-24T14:16:49.627" Score="2" Body="&lt;p&gt;The U-3 unemployment rates is the total unemployed, as a percent of the civilian labor force (official unemployment rate). By definition it excludes the discouraged workers, which, as Varun and Kent understand, is not true of all unemployed statistics. I liked what Karabell (2014) says about this statistic:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;...[T]here is nothing wrong per se with the [U-3] unemployment figure,&#xA;  provided you know that &lt;strong&gt;the definition of employment is a construct,&#xA;  not a counting exercise&lt;/strong&gt;....&lt;strong&gt;to be unemployed, according to the&#xA;  Bureau of Labor Statistics, you have to be in the workforce. To be in&#xA;  the workforce, you have to have a job or be looking for a job. To be&#xA;  looking for a job, you have to answer when surveyed that you have&#xA;  actively sought employment at some point in the past four weeks. If&#xA;  you haven't, you aren't actually unemployed. You are a discouraged&#xA;  worker, are marginally attached to the workforce, and are not counted&#xA;  as part of said workforce. And if you haven't been looking for a year,&#xA;  you're not, statistically speaking, even discouraged.&lt;/strong&gt; You simply,&#xA;  statistically speaking, don't exist. You do, of course, actually exist&#xA;  (though that is a whole other topic), but not in the statistical&#xA;  universe of employment data. &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;The result of such methods is that it is possible, and not just&#xA;  theoretically, for the unemployment rate to drop not because more jobs&#xA;  were created or more people were hired but simply because more people&#xA;  gave up looking for work and dropped out of the workforce. That is, in&#xA;  fact, What happened in the United States and swaths of Europe after&#xA;  2009, though in America, there were also real job gains in 2010 and&#xA;  after. Nonetheless, the unemployment rate, which receives so much&#xA;  public scrutiny, went down in part not because the economic system was&#xA;  creating so many new jobs but because it was failing to do just that.&#xA;  To be fair, the BLS keeps multiple unemployment statistics and&#xA;  different unemployment rates, including ones that include&#xA;  underemployed, marginally attached, and part-time workers, but there&#xA;  is only one headline number. That is what the BLS points to in its&#xA;  monthly release; that is what the media pick up; and the other numbers&#xA;  are at best footnotes.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.goodreads.com/en/book/show/18144108-the-leading-indicators&quot; rel=&quot;nofollow noreferrer&quot;&gt;The Leading Indicators: A SHort History of the Numbers That Rule Our World&lt;/a&gt;&#xA;Zachary Karabell (2014)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, if your question is why does U-3 exclude discouraged workers, the answer is that's an essential part of the definition of discouraged. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If your question is why did they define U-3 this way in the first place, I am not sure. I suspect the following. The definition of the labor force, which is workers and those actively looking for work or waiting to be recalled to work. Detached and marginally attached workers are not in the labor force. Once you defined the labor force, a natural question is what fraction of the labor force is &lt;strong&gt;not working&lt;/strong&gt;, and that statistic is U-3. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If your question is why is this statistic more widely discussed than other economic statistics, the answer may simply be that it is older. The &lt;a href=&quot;https://fred.stlouisfed.org/series/UNRATE&quot; rel=&quot;nofollow noreferrer&quot;&gt;U-3 statistic goes back to 1948&lt;/a&gt; while &lt;a href=&quot;https://fred.stlouisfed.org/release/tables?rid=50&amp;amp;eid=4773&amp;amp;od=1993-12-01#&quot; rel=&quot;nofollow noreferrer&quot;&gt;U-4, U-5, and U-6 start in 1994&lt;/a&gt;. People may be used to talking about the better established statistic and enjoy the longer time series, and see insufficient benefit to switching to the newer statistics, despite the benefits. A sort of Dvorak vs. Qwerty keyboard issue for economic statistics. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a way, this is like an issue of GDP measurement. Home production is not in GDP and &lt;a href=&quot;https://voxeu.org/article/double-counting-investment&quot; rel=&quot;nofollow noreferrer&quot;&gt;Robert Barro has argued that investment is double counted in GDP&lt;/a&gt;. If you want to use GDP as a measure of something else, these may be big problems and other measures may serve better. However, if you want to compare GDP across countries or time, these issues matter less than having something useful and consistent to compare them with. Commenter ABC at Marginal revolution has a nice quote about this:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The algebra is fine as it is, but I take strong issue with the idea&#xA;  that GDP &quot;mismeasures&quot; something. As any decent intro macro course&#xA;  will tells its students, &quot;GDP is not a measure of welfare.&quot; Indeed,&#xA;  the Kuznets quotes that Barro points to are exactly of this nature; we&#xA;  have this high profile GDP number, but it doesn't do what you want it&#xA;  to do - or at least not ALL the things you want it to.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;What Barro does here is construct a new measure - present discounted&#xA;  value of consumption - and shown how it relates to GDP (and GDP's&#xA;  present discounted value). In addition, he provides a capital income /&#xA;  labor income decomposition for both measures (GDP having such an exact&#xA;  decomposition because of constant returns to scale, Euler's identity&#xA;  for homogenous functions, and marginal-value input prices). He then&#xA;  says present discounted value of consumption, and its associated&#xA;  decompositions, are &quot;right&quot; while the other the construction GDP is&#xA;  &quot;wrong&quot; and thus gives &quot;misstated&quot; decompositions. Of course,&#xA;  &quot;right/wrong&quot; and &quot;correct/incorrect&quot; begs the question - right about&#xA;  WHAT? Correct for WHAT?&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Barro says that in present discounted value terms GDP &quot;double counts&quot;&#xA;  investment. The &quot;double counting&quot; is only relative to how things are&#xA;  calculated for the present discounted value of consumption. This just&#xA;  reflects the fact that GDP counts production, while consumption only&#xA;  counts consumption.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://marginalrevolution.com/marginalrevolution/2019/07/robert-barro-says-we-double-count-investment.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;ABC's comment on Marginal Revolution Post: Robert Barro says we double-count investment&lt;/a&gt; &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2019-10-24T19:30:45.453" LastActivityDate="2019-10-24T19:30:45.453" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="31989" PostTypeId="1" AcceptedAnswerId="31991" CreationDate="2019-09-24T16:56:22.623" Score="1" ViewCount="206" Body="&lt;p&gt;When discussing the standard neoclassical model of labor supply, I have seen it is assumed that the sign of the income effect is ambiguous. Could anyone please explain this assumption, and more generally, how to think about the substitution effect and the income effect in this model?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Kind regards.&lt;/p&gt;&#xA;" OwnerUserId="24350" LastActivityDate="2019-09-24T20:38:45.553" Title="Sign of income effect is ambiguous" Tags="&lt;labor-economics&gt;&lt;public-economics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="31990" PostTypeId="1" AcceptedAnswerId="32010" CreationDate="2019-09-24T17:39:27.267" Score="4" ViewCount="1860" Body="&lt;p&gt;I've been reading about the history of the IMF recently, and it strikes me as odd that despite the problems that arose with the gold standard (Germany in the 1920s, Fed cutting money supply during the Depression), countries would agree to effectively peg their currencies to gold (via the US dollar). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It doesn't seem to me that there were any substantive differences between the Bretton Woods regime and the gold standard, as seen in the early 1970s, when Richard Nixon was forced to remove the US Dollar from its gold peg. I'd like to know why economists thought Bretton Woods was a good idea.&lt;/p&gt;&#xA;" OwnerUserId="13883" LastEditorUserId="13883" LastEditDate="2019-09-25T07:58:32.253" LastActivityDate="2019-09-26T12:30:24.353" Title="Bretton Woods vs Gold Standard" Tags="&lt;macroeconomics&gt;&lt;exchange-rates&gt;&lt;international-economics&gt;&lt;open-economy-macro&gt;&lt;gold-standard&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="31991" PostTypeId="2" ParentId="31989" CreationDate="2019-09-24T18:06:39.150" Score="1" Body="&lt;p&gt;Welcome to SE.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The two goods that the consumer consumes in this model are leisure and consumption. If the agent works more, he can consume more, but he has to give up leisure. Similarly, if he undertakes more leisure, he must consume less. All this assumes the wage rate is unchanged.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, consider an increase in the wage rate. The opportunity cost of lying in the sun (leisure) has increased, as the agent could have worked instead, earned a higher wage as compared to before, and consumed more. Thus, the &lt;em&gt;relative price&lt;/em&gt; of leisure has gone up, and the agent substitutes towards consumption, and this is the &lt;em&gt;substitution effect&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider the income effect now. A standard model would assume that consumption and leisure are both normal goods, that is, as your wealth increases, you have more of both. At the current optimum point, as the wage has increased, your wealth has increased, and thus you undertake more leisure and also consume more. This is the &lt;em&gt;income effect&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, what I think you were asking was more about the &lt;em&gt;total effect&lt;/em&gt; on working hours, that is, the cumulative result of both the substitution and income effects on the number of hours worked. Because in this example, the substitution effect pushes leisure up and the income effect pushes leisure down, the total effect is indeed ambiguous.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, just in case you were actually asking about the income effect per se, the ambiguity may be due to letting go of the normality assumption. If leisure isn't normal, but is inferior instead, then the income effect pushes leisure downwards. Here, the total effect isn't ambiguous however, as the total number of hours worked unambiguously increases.&lt;/p&gt;&#xA;" OwnerUserId="13883" LastEditorUserId="13883" LastEditDate="2019-09-24T20:38:45.553" LastActivityDate="2019-09-24T20:38:45.553" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="31993" PostTypeId="1" AcceptedAnswerId="31996" CreationDate="2019-09-25T04:31:30.407" Score="0" ViewCount="46" Body="&lt;p&gt;I see in the textbook that the Engel curve will be straight if &lt;span class=&quot;math-container&quot;&gt;$D_wx(p,w) = x(p,1)$&lt;/span&gt; but it's not immediately clear to me why this is the case. Could someone kindly explain to me? &lt;/p&gt;&#xA;" OwnerUserId="19727" LastActivityDate="2019-09-25T12:54:49.717" Title="Why is Engel curve a straight ray through the origin if $D_wx$ = x(p, 1)$?" Tags="&lt;microeconomics&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="31994" PostTypeId="2" ParentId="31993" CreationDate="2019-09-25T08:06:13.537" Score="1" Body="&lt;p&gt;The function &lt;span class=&quot;math-container&quot;&gt;$x(p,1)$&lt;/span&gt; is constant in &lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt;. If you integrate it wrt &lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt;, you end up with a straight line (wrt &lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt;), whose equation is ...&lt;/p&gt;&#xA;" OwnerUserId="20576" LastEditorUserId="20576" LastEditDate="2019-09-25T08:18:11.070" LastActivityDate="2019-09-25T08:18:11.070" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="31996" PostTypeId="2" ParentId="31993" CreationDate="2019-09-25T12:54:49.717" Score="0" Body="&lt;p&gt;The only function whose derivative is constant is an affine function. Hence, &lt;span class=&quot;math-container&quot;&gt;$x(p,w)$&lt;/span&gt; is of the form &lt;span class=&quot;math-container&quot;&gt;$wx(p,1)+a$&lt;/span&gt; for some constant &lt;span class=&quot;math-container&quot;&gt;$a$&lt;/span&gt;. We also know that &lt;span class=&quot;math-container&quot;&gt;$x(p,w)\cdot p=w$&lt;/span&gt;. Hence,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$w\sum_ix_i(p,1)p_i+a\sum_jp_j=w$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As &lt;span class=&quot;math-container&quot;&gt;$\sum_ix_i(p,1)p_i=1$&lt;/span&gt; it must be that &lt;span class=&quot;math-container&quot;&gt;$a=0$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Engles curve fixes &lt;span class=&quot;math-container&quot;&gt;$p$&lt;/span&gt; and plots &lt;span class=&quot;math-container&quot;&gt;$x(p,w)$&lt;/span&gt; as a function of &lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt;. In the case of &lt;span class=&quot;math-container&quot;&gt;$x(p,w)=w\cdot x(p,1)$&lt;/span&gt; its just a linear function in &lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt; with slope &lt;span class=&quot;math-container&quot;&gt;$x(p,1)$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerUserId="24190" LastActivityDate="2019-09-25T12:54:49.717" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="31997" PostTypeId="2" ParentId="28986" CreationDate="2019-09-25T13:25:36.143" Score="2" Body="&lt;p&gt;Consider a firm with constant marginal cost &lt;span class=&quot;math-container&quot;&gt;$c$&lt;/span&gt; that chooses to supply a quantity &lt;span class=&quot;math-container&quot;&gt;$q \in [0, \bar{x}]$&lt;/span&gt; when taking the price &lt;span class=&quot;math-container&quot;&gt;$p$&lt;/span&gt; as given. The profits of such a firm can be written as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ \text{total revenue} - \text{total cost}  = q p - c q = q(p - c).$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From this, we can immediately infer the optimal supply &lt;span class=&quot;math-container&quot;&gt;$q^*$&lt;/span&gt;:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;If &lt;span class=&quot;math-container&quot;&gt;$p&amp;lt;c$&lt;/span&gt;, then &lt;span class=&quot;math-container&quot;&gt;$q^* = 0$&lt;/span&gt;.&lt;/li&gt;&#xA;&lt;li&gt;If &lt;span class=&quot;math-container&quot;&gt;$p=c$&lt;/span&gt;, then &lt;em&gt;any&lt;/em&gt; &lt;span class=&quot;math-container&quot;&gt;$q \in [0, x]$&lt;/span&gt; is optimal.&lt;/li&gt;&#xA;&lt;li&gt;If &lt;span class=&quot;math-container&quot;&gt;$p&amp;gt;c$&lt;/span&gt;, then &lt;span class=&quot;math-container&quot;&gt;$q^* = \bar{x}$&lt;/span&gt; (the maximum possible quantity).&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Notice we need a constraint like &lt;span class=&quot;math-container&quot;&gt;$q \in [0, \bar{x}]$&lt;/span&gt; for the supply correspondence to be well-defined. If we had simply restricted &lt;span class=&quot;math-container&quot;&gt;$q$&lt;/span&gt; to &lt;span class=&quot;math-container&quot;&gt;$\mathbb{R}^+$&lt;/span&gt; (the non-negative real numbers), as is more usual, then there would be no solution to the profit maximisation problem in the case of &lt;span class=&quot;math-container&quot;&gt;$p&amp;gt;c$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerDisplayName="user17900" LastEditorDisplayName="user17900" LastEditDate="2019-09-25T13:30:47.430" LastActivityDate="2019-09-25T13:30:47.430" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="31998" PostTypeId="1" CreationDate="2019-09-25T15:06:23.053" Score="-2" ViewCount="84" Body="&lt;p&gt;Bank A has $1.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Bank A creates $10 fractional reserve money and deposits into bank B.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Bank B now has $10.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Bank B creates $100 and deposits into bank A. Repeat&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What stops banks from creating Infinite money?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;They can't lend $10 to another bank&quot; Then can't they just use a shell company? Is that a real objection?&lt;/p&gt;&#xA;" OwnerUserId="24360" LastActivityDate="2019-09-26T16:41:56.823" Title="What stops this from happening under fractional reserve currency" Tags="&lt;monetary-policy&gt;" AnswerCount="2" CommentCount="7" ClosedDate="2019-10-06T16:21:48.543" ContentLicense="CC BY-SA 4.0" />
  <row Id="32000" PostTypeId="1" CreationDate="2019-09-25T21:21:30.993" Score="2" ViewCount="350" Body="&lt;p&gt;Mankiw's definition and explanation of opportunity cost &lt;a href=&quot;https://www.csun.edu/sites/default/files/micro1.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt; is confusing. Since when have explicit costs become part of opportunity cost?&#xA;Here is what the guide says:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The concept of opportunity cost is one of the most important ideas in&#xA;  economics. Consider the question, “How much does it cost to go to&#xA;  college for a year?” We couldadd up the direct costs like tuition,&#xA;  books, school supplies, etc. These are examples of explicit costs,&#xA;  i.e., costs that require a money payment. However, these costs are&#xA;  small compared to the value of the time it takes to attend class, do&#xA;  homework, etc. The amount that the student could have earned if she had&#xA;  worked rather than attended school is theimplicit cost of attending&#xA;  college. Implicit costs are costs that do not require a money payment.&#xA;  The opportunity cost includes both explicit and implicit costs.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Since explicit costs are out of pocket costs, they are not considered as opportunity cost. Am I missing anything here?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT:&#xA;Here is another explanation from Keat et al. Managerial Economics.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;Opportunity Cost Versus Out-of-Pocket&lt;/strong&gt; &#xA;  &lt;strong&gt;Cost&lt;/strong&gt; Previous discussions&#xA;  pointed out that opportunity cost is one of the most important and&#xA;  useful concepts in economic analysis because it highlights the&#xA;  consequences of making choices under conditions of scarcity. We can&#xA;  now use this term in a more specific way to help explain the concept&#xA;  of relevant cost. Opportunity cost, as you recall, is the amount or&#xA;  subjective value that is forgone in choosing one activity over the&#xA;  next best alternative. This type of cost can be contrasted with&#xA;  “out-of-pocket cost.” On occasion, economists refer to opportunity&#xA;  cost as indirect cost or implicit cost, and refer to out-of-pocket&#xA;  cost as direct cost or explicit cost.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="6009" LastEditorUserId="6009" LastEditDate="2019-09-25T23:24:49.543" LastActivityDate="2019-10-26T01:59:59.620" Title="What is an opportunity cost?" Tags="&lt;microeconomics&gt;&lt;opportunity-cost&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="32001" PostTypeId="2" ParentId="32000" CreationDate="2019-09-26T00:10:33.667" Score="0" Body="&lt;p&gt;Every dollar you spend has an opportunity cost equal to the dollar spent on something else. By spending 100 dollars on good or service A, you give up on 100 dollars worth of good or service B. Therefore, an explicit cost of 100 dollars is an opportunity cost of 100 dollars worth of other goods and services as well.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By going to college you forego a salary but also goods and services worth exactly your explicit costs.&lt;/p&gt;&#xA;" OwnerUserId="24031" LastActivityDate="2019-09-26T00:10:33.667" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32003" PostTypeId="1" AcceptedAnswerId="32778" CreationDate="2019-09-26T01:51:19.240" Score="1" ViewCount="128" Body="&lt;p&gt;My notes says that if &lt;span class=&quot;math-container&quot;&gt;$u(.)$&lt;/span&gt; is strictly quasiconcave and differentiable, by the supporting hyperplane theorem, there exists &lt;span class=&quot;math-container&quot;&gt;$p &amp;gt;&amp;gt;0$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$w \geq 0$&lt;/span&gt; such that &lt;span class=&quot;math-container&quot;&gt;$ x = x(p,w)$&lt;/span&gt; &lt;span class=&quot;math-container&quot;&gt;$\forall x$&lt;/span&gt;. I am having a little trouble understanding this. Here's how I think:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$u(.)$&lt;/span&gt; quasiconcave,so the set &lt;span class=&quot;math-container&quot;&gt;$X = \{x \in R^L: x 	\succeq x_0\}$&lt;/span&gt; is convex. We also know that &lt;span class=&quot;math-container&quot;&gt;$u(.)$&lt;/span&gt; is differentiable, and thus continuous, so &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; is closed. Thus, &lt;span class=&quot;math-container&quot;&gt;$x_0$&lt;/span&gt; is on the boundary of &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt;. Then according to the theorem, there is some &lt;span class=&quot;math-container&quot;&gt;$p$&lt;/span&gt; such that if &lt;span class=&quot;math-container&quot;&gt;$x \succeq x_0$&lt;/span&gt; then &lt;span class=&quot;math-container&quot;&gt;$p.x &amp;gt; p.x_0$&lt;/span&gt; This means that with this &lt;span class=&quot;math-container&quot;&gt;$p$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$w = p.x_0$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$x_0 = x(p,w)$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is my understanding correct? In addition, if the set &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; is strictly convex, does that mean that theorem is now &quot;if &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; is a convex set and &lt;span class=&quot;math-container&quot;&gt;$x_0$&lt;/span&gt; is a point in the boundary of &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; there must exist a &lt;span class=&quot;math-container&quot;&gt;$p$&lt;/span&gt; such that &lt;span class=&quot;math-container&quot;&gt;$p.x &amp;gt; p.x_0 \forall x \in X$&lt;/span&gt; and not &lt;span class=&quot;math-container&quot;&gt;$\geq$&lt;/span&gt;?&lt;/p&gt;&#xA;" OwnerUserId="19727" LastEditorUserId="5145" LastEditDate="2019-09-26T02:44:14.830" LastActivityDate="2019-11-22T21:36:12.453" Title="Supporting Hyperplane Theorem and quasiconcave utility function" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;real-analysis&gt;" AnswerCount="1" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="32004" PostTypeId="1" CreationDate="2019-09-26T03:34:50.490" Score="1" ViewCount="49" Body="&lt;p&gt;Quasilinear preference is defined to be:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$x \sim y \Rightarrow x+ae_1 \sim y+ae_1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$x + ae_1 \succ x$&lt;/span&gt; with &lt;span class=&quot;math-container&quot;&gt;$e_1 = (1,0,0,...)$&lt;/span&gt;,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given a quasilinear preference, if f &lt;span class=&quot;math-container&quot;&gt;$x  \succeq y - ae_1$&lt;/span&gt;, does it mean &lt;span class=&quot;math-container&quot;&gt;$x + ae_1 \succeq y$&lt;/span&gt;? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know that &lt;span class=&quot;math-container&quot;&gt;$x + ae_1 \succ x$&lt;/span&gt; but how do I compare &lt;span class=&quot;math-container&quot;&gt;$x+ae_1$&lt;/span&gt; with &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt;? Drawing a diagram makes me see it but I can't prove it rigorously. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT: Included the definition for quasilinear preference.&lt;/p&gt;&#xA;" OwnerUserId="19727" LastEditorUserId="19727" LastEditDate="2019-09-26T21:16:26.063" LastActivityDate="2019-09-26T21:16:26.063" Title="Quasilinear utility: if $x \succeq y - ae_1$, does it mean $x + ae_1 \succeq y$?" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;" AnswerCount="0" CommentCount="9" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32005" PostTypeId="2" ParentId="31998" CreationDate="2019-09-26T04:37:55.307" Score="2" Body="&lt;p&gt;@EnergyNumbers has said the answer in the comments but I want to make it crystal clear what it means as I think this misconception of fractional reserve banking may be widespread.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, banks can lend to other banks. There is no shell company involved unless for some other reason.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Second, banks can lend to other banks, which then can lend back to the original bank, which then can lend to other banks, etc. How long can this process go? Infinitely - assuming your currency can be infinitely divided.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then an infinite amount of money is created, right? No. At each step in this process the amount lent out is decreased. If your reserve requirement is 20%, then you can only lend out 80% not 500%. The following is a table from &lt;a href=&quot;https://en.wikipedia.org/wiki/Money_multiplier&quot; rel=&quot;nofollow noreferrer&quot;&gt;the Wikipedia page on the money multiplier&lt;/a&gt; that illustrates this process:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/tPJva.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/tPJva.png&quot; alt=&quot;relending process without currency drain&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So at the end of the process, what is the maximum amount generated? The inverse of the reserve requirement: in other words, for a reserve requirement of 20%, it will be 5x. Note this is not 5x per step but 5x at the end of an infinite number of steps.&lt;/p&gt;&#xA;" OwnerUserId="8387" LastActivityDate="2019-09-26T04:37:55.307" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32006" PostTypeId="1" CreationDate="2019-09-26T08:38:10.927" Score="0" ViewCount="290" Body="&lt;p&gt;Let us assume that the current price &lt;span class=&quot;math-container&quot;&gt;$P$&lt;/span&gt; is lower than the 'equilibrium price' &lt;span class=&quot;math-container&quot;&gt;$P^\star$&lt;/span&gt; so that &lt;span class=&quot;math-container&quot;&gt;$Q$&lt;/span&gt; is lower than &lt;span class=&quot;math-container&quot;&gt;$Q^\star$&lt;/span&gt;. If we move from this combination towards the equilibrium one, it may be the case that the producer surplus decreases. I understand that the total surplus (consumers+producers) increases, but it is not clear to me why producers should be willing to reduce their surplus. So it looks like to me that there is not pareto improvement in moving from &lt;span class=&quot;math-container&quot;&gt;$(P,Q)$&lt;/span&gt; to (&lt;span class=&quot;math-container&quot;&gt;$P^\star$&lt;/span&gt;,&lt;span class=&quot;math-container&quot;&gt;$Q^\star$&lt;/span&gt;), in that consumers are better off but producers may be worse off.&#xA;What is wrong with my reasoning? Could you help me with this, please?&lt;/p&gt;&#xA;" OwnerUserId="24366" LastActivityDate="2019-09-26T09:42:10.690" Title="Why is market equilibrium pareto efficient?" Tags="&lt;pareto-efficiency&gt;&lt;competitive-equilibrium&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="32008" PostTypeId="2" ParentId="32006" CreationDate="2019-09-26T09:42:10.690" Score="3" Body="&lt;p&gt;A situation can be Pareto efficient without also being a Pareto improvement over every other situation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, here for example, equilibrium is Pareto efficient, but -- as you have noted -- is not a Pareto improvement over every other situation.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Example.&lt;/strong&gt; Say I have 100 apples to divide between A and B. The allocation (60, 40) is Pareto efficient, but it is not a Pareto improvement over the allocation (59, 41).&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2019-09-26T09:42:10.690" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="32009" PostTypeId="1" CreationDate="2019-09-26T11:27:25.033" Score="1" ViewCount="49" Body="&lt;p&gt;I have been stuck on this question for about two days and can find no way out (apologies if the question seems really simple as I haven't started university yet). I would strongly prefer it if this can be solved using the Lagrange multiplier. Thanks.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are two individuals, A and B, in an economy. Each derives utility from his&#xA;consumption, C, and the fraction of his time spent on leisure, l, according to the&#xA;utility function:&#xA;U = ln(C) + ln(l)&#xA;However, A is made very unhappy if B’s consumption falls below 1 unit, and he&#xA;makes a transfer, G, to ensure that it does not. B has no concern for A. A faces a&#xA;wage rate of 10 per period, and B a wage rate of 1 per period.&#xA;(a) For what fraction of the time does each work, and how large is the transfer G?&lt;/p&gt;&#xA;" OwnerUserId="24369" LastActivityDate="2019-09-26T15:35:55.507" Title="Constrained optimisation with transfer" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32010" PostTypeId="2" ParentId="31990" CreationDate="2019-09-26T12:30:24.353" Score="2" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;It doesn't seem to me that there were any substantive differences between the Bretton Woods regime and the gold standard, as seen in the early 1970s&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Note that most of what I'm about to write is summarized from &lt;a href=&quot;https://en.wikipedia.org/wiki/Gold_standard&quot; rel=&quot;nofollow noreferrer&quot;&gt;Wikipedia&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The gold standard of some form has always existed in the US since &lt;a href=&quot;https://en.wikipedia.org/wiki/Coinage_Act_of_1792&quot; rel=&quot;nofollow noreferrer&quot;&gt;the Coinage Act of 1792&lt;/a&gt; with a few interruptions. In 1934, gold was nationalized in the US but the value of the US dollar was still tied to gold reserves. Bretton Woods simply maintained the gold standard. While the rate between the US dollar and gold varied over the years, until 1976, the gold standard was officially kept. In other words, indeed there were no substantive differences because the Bretton Woods era was just a short part of the gold standard history.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;I'd like to know why economists thought Bretton Woods was a good idea.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In the sense that they mostly kept policy that had been in existence for over a century by that point, it wasn't too surprising. The general summarized critique against the gold standard based on my reading of the &lt;a href=&quot;http://www.igmchicago.org/surveys/gold-standard&quot; rel=&quot;nofollow noreferrer&quot;&gt;IGM survey&lt;/a&gt; is that gold is too volatile compared to the existing system with the US dollar and the Fed and gold doesn't allow for any counter-cyclical monetary policy. If economists a century ago took the same survey it isn't clear that there would be such a clear consensus against the gold standard. As the &lt;a href=&quot;https://www.stlouisfed.org/publications/regional-economist/second-quarter-2017/a-short-history-of-prices-inflation-since-founding-of-us&quot; rel=&quot;nofollow noreferrer&quot;&gt;St.Louis Fed&lt;/a&gt; writes,&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;For the pre-Fed period (1790-1913), the average annual inflation was&#xA;  0.4 percent with a coefficient of variation of 13.2. During the period 1941-2016, these figures changed to 3.5 percent and 0.8, respectively.&#xA;  If we look at the post-Volcker era (1988-2016), annual inflation was&#xA;  2.2 percent on average with a coefficient of variation of 0.4.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In other words, we've come a long way in terms of keeping price volatility of everyday goods and services in control. Relative to the past, in developed countries, we are no longer concerned with hyperinflation, which a gold standard makes fairly difficult. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also from the perspective of the US, it helped solidify the US dollar as a reserve currency. All of the benefits listed in &lt;a href=&quot;https://economics.stackexchange.com/a/6252/8387&quot;&gt;this SE answer&lt;/a&gt; apply besides seigniorage.&lt;/p&gt;&#xA;" OwnerUserId="8387" LastActivityDate="2019-09-26T12:30:24.353" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="32012" PostTypeId="2" ParentId="32009" CreationDate="2019-09-26T15:35:55.507" Score="1" Body="&lt;p&gt;I'll guess that, since you're not yet in college but you're doing something this &quot;advanced,&quot; you're not doing a homework problem, and that you're asking for a hint.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since B doesn't care about A, you should be able to find B's consumption &lt;span class=&quot;math-container&quot;&gt;$(C_B, l_B)$&lt;/span&gt; using standard method (maximizing utility w.r.t. budget constraint, etc.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now there are two cases.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;span class=&quot;math-container&quot;&gt;$C_B \geq 1$&lt;/span&gt;. Then what would the problem for A turn out to be?&lt;/li&gt;&#xA;&lt;li&gt;&lt;span class=&quot;math-container&quot;&gt;$C_B &amp;lt; 1$&lt;/span&gt;. Then think about how much should A transfer to B? Should he transfer nothing? 0.1? Up until what point would the increase in the transfer stop making A better off?&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="5145" LastActivityDate="2019-09-26T15:35:55.507" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32013" PostTypeId="2" ParentId="31998" CreationDate="2019-09-26T16:41:56.823" Score="-1" Body="&lt;p&gt;&lt;img src=&quot;https://i.stack.imgur.com/wMliD.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Take the above example:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As you can see 357 is lent from 100. So the 357 can be paid back with the loan, because it never disappeared, resulting in 357% growth and no ending debt, so you can repeat infinitely.&lt;/p&gt;&#xA;" OwnerUserId="24362" LastActivityDate="2019-09-26T16:41:56.823" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="32014" PostTypeId="1" CreationDate="2019-09-26T16:56:01.387" Score="-1" ViewCount="65" Body="&lt;p&gt;Does this satisfy completeness property? I need an intuitive explanation of this preference relation as well.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am confused about the way how this relation is defined. The commodity Y in the first bundle is strictly preferred to the commodity Y in second bundle.&lt;/p&gt;&#xA;" OwnerUserId="19546" LastEditorUserId="23651" LastEditDate="2019-10-16T07:13:56.657" LastActivityDate="2019-10-16T07:13:56.657" Title="A preference relation $\succ$ is defined as $(x_1,y_1)\succ (x_2,y_2)$ if $x_1&gt;x_2$ and $y_1&gt; y_2$" Tags="&lt;microeconomics&gt;&lt;preferences&gt;" AnswerCount="1" CommentCount="2" ClosedDate="2020-11-17T08:52:47.487" ContentLicense="CC BY-SA 4.0" />
  <row Id="32015" PostTypeId="2" ParentId="31918" CreationDate="2019-09-26T17:20:27.403" Score="0" Body="&lt;p&gt;The interest rate is nothing but the equilibrium of money demand and money supply. Your questions can be answered when you think in terms of this equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Money demand has two components - first, transaction demand for money and the second is the speculative demand for money. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;What I could not understand is why the interest rate is changing&#xA;  because of the change in income?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Suppose your income increases from \$100 a week to \$200 a week. This is nothing but increase in money demand by \$100 because in the first place your income has been measured in money. Secondly, higher-income would lead to higher expenditure that is higher transactions again money demand increases.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now bring in the concept of equilibrium. When money demand increases the price of money which is the interest rate should increase therefore you have a higher interest rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now comes the speculative component, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;When Central Bank sells bonds in the open market it tends to decrease the money supply in the economy. When supply goes down, the price of money which is nothing but the interest rate rises thereby decreasing the bond prices.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Also, why would someone buy the bond from the central bank when the&#xA;  bond prices are going down?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Note that when the bond price goes down the bond yield goes up.&lt;/li&gt;&#xA;&lt;li&gt;Bonds are nothing but speculative demand for money. What if your expectations are such that you except bond prices to rise in medium run so you end up making a capital gain because you initially bought it at a lower price.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="19546" LastActivityDate="2019-09-26T17:20:27.403" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="32016" PostTypeId="1" AcceptedAnswerId="32031" CreationDate="2019-09-26T18:48:14.363" Score="7" ViewCount="311" Body="&lt;p&gt;I am trying to estimate a simple Cobb-Douglas production function &lt;span class=&quot;math-container&quot;&gt;$Y=AL^{\alpha}K^{\beta}$&lt;/span&gt; &#xA;on US data and get an unrealistic estimate of &lt;span class=&quot;math-container&quot;&gt;$\alpha$&lt;/span&gt; and a high p-value for &lt;span class=&quot;math-container&quot;&gt;$\beta$&lt;/span&gt;.&#xA;Structure of regression is as follows:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\frac 1 Y \frac{\mathrm dY}{\mathrm dt} = \frac 1 A \frac{\mathrm dA}{\mathrm dt} + \alpha \frac 1 L \frac{\mathrm dL}{\mathrm dt} &#xA;+ \beta \frac 1 K \frac{\mathrm dK}{\mathrm dt}$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and assuming technological growth constant: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\text{growth}_Y = a_0 + \alpha\cdot \text{growth}_L + \beta\cdot \text{growth}_K$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have the following output of linear regression in R:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{array}{lllll}&#xA; &amp;amp;\text{Estimate}\quad &amp;amp; \text{Std. error}\quad &amp;amp; \text{t value} &amp;amp; \mathrm{Pr}(&amp;gt;|t|) \\&#xA;\text{(Intercept)}\ &amp;amp; 0.008256 &amp;amp;   0.006070 &amp;amp;  1.360  &amp;amp;  0.186    \\&#xA;growth_L  &amp;amp;  1.388552  &amp;amp; 0.283867  &amp;amp; 4.892 &amp;amp; 5.47\mathrm e^{-05}\ ^{***} \\&#xA;growth_K   &amp;amp; 0.194165   &amp;amp; 0.255572  &amp;amp; 0.760  &amp;amp;  0.455 \\&#xA;\\&#xA;R^2 = 58\%&#xA;\end{array}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Estimate for the coefficient in front of &lt;span class=&quot;math-container&quot;&gt;$\text{growth}_L$&lt;/span&gt; (&lt;span class=&quot;math-container&quot;&gt;$\hat\alpha$&lt;/span&gt;) seems unrealistically high (1.388552) and estimate for coefficient for &lt;span class=&quot;math-container&quot;&gt;$\text{growth}_K$&lt;/span&gt; (&lt;span class=&quot;math-container&quot;&gt;$\hat \beta$&lt;/span&gt;) has high p-value (0.455).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Before running the regression I excluded outliers (observations outside 2.5% and 97.5% for &lt;code&gt;growth_gdp&lt;/code&gt;, &lt;code&gt;growth_L&lt;/code&gt; and &lt;code&gt;growth_K&lt;/code&gt;).&#xA;I also checked correlation between &lt;code&gt;growth_L&lt;/code&gt; and &lt;code&gt;growth_K&lt;/code&gt; and it is 42% which is not that high to impact stability of coefficients of the regression that much.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Unfortunately I could not find a simple and reproducible analogue of the above analysis.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My questions are the following:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Is there an empirical analysis of simple Cobb-Douglas function producing realistic estimates of coefficients? So that I would understand my key mistakes&lt;/li&gt;&#xA;&lt;li&gt;If not, what would be the simplest form of production function which could be supported by empirical analysis?&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;P.S. For the full reproducibility of the analysis below is more info on data and R code used in estimation of the coefficients.&#xA;I take data from &lt;a href=&quot;https://stats.oecd.org/viewhtml.aspx?datasetcode=EO105_INTERNET&amp;amp;lang=en&quot; rel=&quot;nofollow noreferrer&quot;&gt;OECD Economic outlook database&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Variables used: GDPV – states for Real GDP, HRS states for hours worked per worker, LF – states for number of workers in Economy, KTPV states for productive capital stock. I calculated L as &lt;span class=&quot;math-container&quot;&gt;$LF*HRS$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Full R code and the input data set can be found at &lt;a href=&quot;https://pastebin.com/uqBm17SG&quot; rel=&quot;nofollow noreferrer&quot;&gt;pastebin&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="24373" LastEditorUserId="6168" LastEditDate="2020-04-18T09:42:37.867" LastActivityDate="2020-04-18T20:02:52.637" Title="Is there empirical evidence on usability of Cobb-Douglas production function?" Tags="&lt;macroeconomics&gt;&lt;econometrics&gt;&lt;applied-econometrics&gt;&lt;r&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="32017" PostTypeId="1" AcceptedAnswerId="32018" CreationDate="2019-09-26T20:19:36.010" Score="3" ViewCount="69" Body="&lt;p&gt;The classic literature refers to the problem where information asymmetry exists between an informed and an uninformed counterpart as the adverse selection problem, but how can we verify what kind of such a game is? Namely, how can we know that such a game is a screening game or a signaling one? &lt;/p&gt;&#xA;" OwnerUserId="23934" LastEditorUserId="1601" LastEditDate="2019-10-02T06:19:18.263" LastActivityDate="2019-10-02T06:19:18.263" Title="Adverse selection problem" Tags="&lt;game-theory&gt;&lt;mathematical-economics&gt;&lt;bayesian-game&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32018" PostTypeId="2" ParentId="32017" CreationDate="2019-09-26T21:17:27.043" Score="6" Body="&lt;p&gt;Signaling is the informed side taking actions to reduce (or maintain, depending on the private types) the information asymmetry. For example, high skill workers getting certifications to signal their productivity so as earn a higher wage. Or low skill workers trying to mimic the high-skilled's behavior as much as possible so that they cannot be separated. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Screening is the uninformed side taking actions to reduce the information asymmetry. For example, monopolists use price discrimination strategies to identify customers with high vs low willingness to pay and charge them accordingly. &lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2019-09-26T21:17:27.043" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="32019" PostTypeId="1" CreationDate="2019-09-27T03:08:32.817" Score="0" ViewCount="66" Body="&lt;p&gt;Prove that the set &lt;span class=&quot;math-container&quot;&gt;$X = \{x \in R^L_+| u(x) \geq \bar u\}$&lt;/span&gt; is closed. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Saw this statement in the textbook but I'm not sure how this is the case when we don't have any restrictions on &lt;span class=&quot;math-container&quot;&gt;$u(x)$&lt;/span&gt; such as continuity. I can prove this if it is continuous, but I'm not sure how to do it if  isn't. &lt;/p&gt;&#xA;" OwnerUserId="19727" LastActivityDate="2019-09-27T05:50:15.797" Title="Prove that the set $X = \{x \in R^L_+| u(x) \geq \bar u\}$ is closed" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;" AnswerCount="1" CommentCount="7" ContentLicense="CC BY-SA 4.0" />
  <row Id="32020" PostTypeId="1" AcceptedAnswerId="32022" CreationDate="2019-09-27T05:30:36.007" Score="-2" ViewCount="53" Body="&lt;p&gt;When  I buy a stock I don't actually buy anything. My broker gives money to Goldman Sachs which gives a share at an arbitrary price. And they collect a profit on the difference between the price for the person who gave them a share and what they charged me. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why is this any different from market manipulation?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is manipulation ok as long as it is within the bid ask spread?&lt;/p&gt;&#xA;" OwnerUserId="24375" LastEditorUserId="24375" LastEditDate="2019-09-27T07:35:39.763" LastActivityDate="2019-09-27T07:35:39.763" Title="How is market making not considered manipulation?" Tags="&lt;regulation&gt;" AnswerCount="1" CommentCount="2" ClosedDate="2019-10-19T08:51:43.303" ContentLicense="CC BY-SA 4.0" />
  <row Id="32021" PostTypeId="2" ParentId="32019" CreationDate="2019-09-27T05:50:15.797" Score="2" Body="&lt;p&gt;The statement does not seem to be true.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Define &lt;span class=&quot;math-container&quot;&gt;$u$&lt;/span&gt; as &lt;span class=&quot;math-container&quot;&gt;$u(x) = -1$&lt;/span&gt; if &lt;span class=&quot;math-container&quot;&gt;$x \leq 0$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$u(x) = 0$&lt;/span&gt; if &lt;span class=&quot;math-container&quot;&gt;$x \in (0,1)$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$u(x) = 1$&lt;/span&gt; if &lt;span class=&quot;math-container&quot;&gt;$x \geq 1$&lt;/span&gt;. The set of points &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; for which &lt;span class=&quot;math-container&quot;&gt;$u(x) \geq 0$&lt;/span&gt; is &lt;span class=&quot;math-container&quot;&gt;$(0,\infty)$&lt;/span&gt;, which is not closed.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2019-09-27T05:50:15.797" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="32022" PostTypeId="2" ParentId="32020" CreationDate="2019-09-27T06:30:43.500" Score="0" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;My broker gives money to Goldman Sachs which gives a share at an arbitrary price.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;If you're dealing with US stocks, &lt;a href=&quot;https://en.wikipedia.org/wiki/Regulation_NMS&quot; rel=&quot;nofollow noreferrer&quot;&gt;Regulation National Market System&lt;/a&gt; prevents brokers from giving you a &lt;a href=&quot;https://www.law.cornell.edu/cfr/text/17/242.611&quot; rel=&quot;nofollow noreferrer&quot;&gt;price that is worse than the national best bid and offer&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As noted by a blog post on &lt;a href=&quot;https://www.kalzumeus.com/2019/6/26/how-brokerages-make-money/&quot; rel=&quot;nofollow noreferrer&quot;&gt;kalzumeus.com&lt;/a&gt;,&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Payment for order flow is a minor footnote to the story of discount&#xA;  brokerages, in the same fashion that HFT is basically irrelevant to&#xA;  retail traders except for decreasing their cost of trading by&#xA;  decimating spreads.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Schwab earned 1.4% of revenue from payment for order flow, TD&#xA;  Ameritrade about 8.4%, and E*TRADE about 6.1%.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Interactive Brokers has historically been quite reticent about&#xA;  participating in internalization, because it doesn’t play well with&#xA;  their sophisticated clients; they earn about 1.1% from it.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="8387" LastActivityDate="2019-09-27T06:30:43.500" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="32024" PostTypeId="1" CreationDate="2019-09-27T10:21:51.287" Score="1" ViewCount="29" Body="&lt;p&gt;Suppose there are 4 individuals and two items in this particular(?) auction. I understand that the dominant strategy in second price auction is to bid your true value if there is a single item but I'm having a hard time understanding why that would change at all if there were two items.&lt;/p&gt;&#xA;" OwnerUserId="24378" LastEditorUserId="11590" LastEditDate="2020-09-15T16:09:47.877" LastActivityDate="2020-09-15T16:09:47.877" Title="How does your dominant strategy change in a second price auction if there are two items?" Tags="&lt;game-theory&gt;&lt;auctions&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32025" PostTypeId="2" ParentId="30692" CreationDate="2019-09-27T12:35:13.343" Score="1" Body="&lt;p&gt;The United States &lt;a href=&quot;https://www.reuters.com/article/us-un-postal/u-n-postal-union-clinches-deal-to-keep-u-s-in-club-idUSKBN1WA247&quot; rel=&quot;nofollow noreferrer&quot;&gt;was paying the bill&lt;/a&gt;. (This has now changed). &lt;/p&gt;&#xA;" OwnerUserId="8211" LastActivityDate="2019-09-27T12:35:13.343" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32026" PostTypeId="1" CreationDate="2019-09-27T14:18:35.167" Score="1" ViewCount="34" Body="&lt;p&gt;Contest theory, very much like auction theory, studies how people act in a contest and the properties of such a competition. There is a large literature that investigates different aspects of the contest, including efficiency, participation, total effort. However, while I am aware of many examples in which auction theory has been then applied to design real-world auctions, I have found no examples of contest theory being applied to design real-world contests. &lt;/p&gt;&#xA;" OwnerUserId="8708" LastEditorUserId="8708" LastEditDate="2019-10-03T15:37:34.333" LastActivityDate="2019-10-03T15:37:34.333" Title="Has contest theory ever been used to design real-world contests?" Tags="&lt;microeconomics&gt;&lt;labor-economics&gt;&lt;industrial-organisation&gt;&lt;incentives&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="32028" PostTypeId="2" ParentId="8644" CreationDate="2019-09-27T17:46:01.100" Score="-2" Body="&lt;p&gt;This system doesn´t have solution, because the consumer want to maximize their utility, so there is not a possible solution because is better consume x=0 that any other bundle&lt;/p&gt;&#xA;" OwnerUserId="24381" LastActivityDate="2019-09-27T17:46:01.100" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32031" PostTypeId="2" ParentId="32016" CreationDate="2019-09-27T21:23:50.273" Score="6" Body="&lt;p&gt;The simple answer to why the Cobb-Douglas functional form is used is because it is at least a log-linear approximation to some higher-order production function. That is, suppose you take a functional form that looks like this: &lt;span class=&quot;math-container&quot;&gt;$\log Y_t = f(A, K, L)$&lt;/span&gt;. Then a &lt;a href=&quot;https://en.wikipedia.org/wiki/Linear_approximation&quot; rel=&quot;nofollow noreferrer&quot;&gt;linear approximation&lt;/a&gt; would look like the Cobb-Douglas production function. (For a small &lt;span class=&quot;math-container&quot;&gt;$1\%$&lt;/span&gt; increase in &lt;span class=&quot;math-container&quot;&gt;$K$&lt;/span&gt;, we get approximately an &lt;span class=&quot;math-container&quot;&gt;$\alpha \%$&lt;/span&gt; increase in &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt;.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One potential source of the strange estimation results you're getting is likely a bias due to the &lt;a href=&quot;https://en.wikipedia.org/wiki/Endogeneity_(econometrics)&quot; rel=&quot;nofollow noreferrer&quot;&gt;endogeneity of the regressors&lt;/a&gt;. Total factor productivity (TFP) in your notation is &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt;. It is changing over time. In your regression, it shows up in the error term. Changes in productivity affect the composition of the inputs &lt;span class=&quot;math-container&quot;&gt;$L$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$K$&lt;/span&gt;. Thus, &lt;span class=&quot;math-container&quot;&gt;$L$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$K$&lt;/span&gt; are correlated with error term. To see this, solve any typical cost minimization for a firm. &lt;span class=&quot;math-container&quot;&gt;$L$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$K$&lt;/span&gt; will depend on &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt;. Also note that the behavior will be different in the short-run vs the long-run.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope this helps!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;EDIT:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you're interested, here is a &lt;a href=&quot;https://github.com/jmbejara/comp-econ-sp19/blob/master/HW/hw-03-panel-data-methods/productivity-monte-carlo.ipynb&quot; rel=&quot;nofollow noreferrer&quot;&gt;problem set&lt;/a&gt; (no solutions available) that walks you through a demonstration of the bias described above. In the end, one potential improvement to the estimation procedure is explored via Monte Carlo simulation. This improvement relies on the availability of panel data of firm input/output data.&lt;/p&gt;&#xA;" OwnerUserId="59" LastEditorUserId="59" LastEditDate="2020-04-18T20:02:52.637" LastActivityDate="2020-04-18T20:02:52.637" CommentCount="12" ContentLicense="CC BY-SA 4.0" />
  <row Id="32032" PostTypeId="1" AcceptedAnswerId="32035" CreationDate="2019-09-27T23:37:43.437" Score="1" ViewCount="79" Body="&lt;p&gt;Wikipedia and &lt;a href=&quot;https://www.cs.mcgill.ca/~rwest/wikispeedia/wpcd/wp/u/Ultimatum_game.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;this&lt;/a&gt; McGill University page states that the two games &quot;have been taken as both evidence for and against the Homo economicus assumptions of rational, utility-maximizing, individual decisions&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This argument makes some senses; however I am having trouble finding one famous economist, mathematician, or scientist who explicitly states that the assumption of individual utility maximization is &quot;wrong&quot; because of the findings in these games. &lt;/p&gt;&#xA;" OwnerUserId="13381" LastEditorUserId="13381" LastEditDate="2019-09-28T21:08:00.830" LastActivityDate="2019-09-28T21:08:00.830" Title="Who took utimatum game and dictator game as the evidence against Homo Economicus assumption of individual utility maximization?" Tags="&lt;microeconomics&gt;&lt;reference-request&gt;&lt;game-theory&gt;&lt;utility&gt;&lt;history&gt;" AnswerCount="1" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="32034" PostTypeId="1" CreationDate="2019-09-28T04:21:37.987" Score="0" ViewCount="38" Body="&lt;p&gt;To give a specific pair of contrasting examples:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;If I search for homes for sale in say Michigan, I can quickly see the listed price for each home. (See e.g. &lt;a href=&quot;https://www.zillow.com/mi/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Zillow&lt;/a&gt;.) Sure, there might be taxes, commission, fees, discounts, etc., but the final price I pay will almost certainly be within ±50% of the listed price I see.&lt;/li&gt;&#xA;&lt;li&gt;But if I search for an assisted living or adult foster care home (for the elderly) also in Michigan, I am unable to find a single home that lists &lt;em&gt;any&lt;/em&gt; price on its website, Facebook page, or anywhere else. Instead, every single home asks you to call or email them, or arrange for a tour. I have no idea what I'll have to pay, even very roughly, perhaps not even to an order of magnitude. I truly have no idea if the cost per month will be \$1,000, \$5,000, or \$10,000.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Unfortunately, from my brief search, there doesn't seem to be much research by economists on this topic (but let me know if I'm mistaken).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here are some possible explanations I've considered:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Price transparency tends to be decreasing in price.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;This &lt;em&gt;might&lt;/em&gt; be generally true, but fails to explain why there is so much less price transparency in healthcare than in real estate.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;In healthcare, there is much more uncertainty and variation as to what each patient will end up costing.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;But each healthcare facility does have standard rates for particular items, such as &quot;a standard type X blood test&quot;, &quot;a brain MRI in Machine #566&quot;, &quot;a 24-hour stay on Bed #125&quot;, &quot;a month's long stay in Room #351&quot; (excluding all miscellaneous costs). Just like any restaurant or business has standard rates for particular goods and services.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The difference is that most restaurants and other businesses do publish these prices, while healthcare facilities do not.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why is it advantageous for healthcare facilities to keep these prices shrouded in secrecy? Why have market forces not forced them to reveal these prices (in contrast to other industries)?&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;The US healthcare industry is perhaps exceptionally egregious. But I think it is also generally true in most countries that there tends to be much less price transparency in healthcare than most other industries. Why is this?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Please note that any successful explanation must explain why there is less price transparency in some industries (especially healthcare) than in others (real estate, airfare, food, cars, car repair, university tuition, etc.).&lt;/p&gt;&#xA;" OwnerDisplayName="user23102" LastActivityDate="2019-09-29T19:59:32.027" Title="Why is there less price transparency in some industries (especially healthcare) than in others?" Tags="&lt;price&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32035" PostTypeId="2" ParentId="32032" CreationDate="2019-09-28T05:08:20.543" Score="3" Body="&lt;p&gt;Utility maximization is a proposition that can neither be confirmed nor refuted. For one thing, &quot;utility&quot; does not even exist as an entity; it's a mere conceptual construct. For another, &quot;maximization&quot; as a motivation is inherently unobservable. Even behavioral economists, who are adept at finding so-called empirical &quot;anomalies&quot; --- behaviors that apparently contradict economic predictions --- talk of &quot;rationalizing&quot; those anomalous behaviors by coming up with models in which the anomalies are outcomes of some maximization process. See, for example, &lt;a href=&quot;https://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.9.2.209&quot; rel=&quot;nofollow noreferrer&quot;&gt;Thaler's review of the literature on ultimatum/dictator games&lt;/a&gt; which he pioneered.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What the experimental results from ultimatum/dictator (and trust) games tells us is merely that people are not income maximizers. It is nevertheless invalid to conclude that people do not seek to maximize some other criterion or objective, which may or may not be part of what economists call &quot;utility&quot;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As economists, we understand that the specific measures we use for utility, like income, satisfaction, or selfishness, are adopted because of analytical convenience for the problem at hand, not because we seriously believe that those measures reflect human nature in any deep philosophical sense. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a way, it's unsurprising that no economist, famous or otherwise, would declare utility maximization &quot;wrong&quot;, since doing so would first require a precise definition of what &quot;utility&quot; is. Such a definition, despite nearly two hundred years of intellectual endeavor, remains frustratingly elusive. &lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2019-09-28T05:08:20.543" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="32038" PostTypeId="2" ParentId="32014" CreationDate="2019-09-28T11:42:36.800" Score="0" Body="&lt;p&gt;Completeness property says that for any &lt;span class=&quot;math-container&quot;&gt;$a,b\in R$&lt;/span&gt; with &lt;span class=&quot;math-container&quot;&gt;$a=(x_1,y_1)$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$b=(x_2,y_2)$&lt;/span&gt; , &lt;span class=&quot;math-container&quot;&gt;$\:$&lt;/span&gt; &lt;span class=&quot;math-container&quot;&gt;$a\succ b$&lt;/span&gt; or &lt;span class=&quot;math-container&quot;&gt;$b\succ a$&lt;/span&gt; or both must be satisfied. However for any &lt;span class=&quot;math-container&quot;&gt;$x_1\le x_2$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$y_2\le y_1$&lt;/span&gt; neither &lt;span class=&quot;math-container&quot;&gt;$a\succ b$&lt;/span&gt; nor &lt;span class=&quot;math-container&quot;&gt;$b\succ a$&lt;/span&gt; , thus the completeness property doesn't satisfied.&lt;/p&gt;&#xA;" OwnerUserId="23651" LastActivityDate="2019-09-28T11:42:36.800" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32039" PostTypeId="1" CreationDate="2019-09-28T14:41:06.253" Score="0" ViewCount="297" Body="&lt;p&gt;Is there a good data source that aggregates the MPCs of various countries?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks.&lt;/p&gt;&#xA;" OwnerUserId="24387" LastActivityDate="2021-02-22T04:03:30.430" Title="Good source for marginal propensity to consume by country?" Tags="&lt;data-request&gt;&lt;consumption&gt;&lt;keynesian-economics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32040" PostTypeId="1" CreationDate="2019-09-28T15:28:21.750" Score="0" ViewCount="44" Body="&lt;p&gt;As in title, I'm looking for a paper estimating the amount of all money in the world, sum of value of all national currencies or something like this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When I google it, I find only pop-science curiosities, but I need hard data to quote.&lt;/p&gt;&#xA;" OwnerUserId="24388" LastEditorUserId="1601" LastEditDate="2019-09-29T14:08:25.573" LastActivityDate="2019-09-29T14:08:25.573" Title="I'm looking for a reviewed source on the amount of money in the world" Tags="&lt;money&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32041" PostTypeId="2" ParentId="32040" CreationDate="2019-09-28T16:20:33.673" Score="2" Body="&lt;p&gt;If you're looking for total value of banknotes and coins in circulation, then the &lt;a href=&quot;https://stats.bis.org/statx/srs/table/CT2&quot; rel=&quot;nofollow noreferrer&quot;&gt;Bank for International Settlements&lt;/a&gt; provides some useful statistics. While the BIS only collects data on ~20 countries including the EU, the noted countries cover almost all of the value of banknotes and coins in circulation as of now. At the end of 2017, the total amount in USD is $6.458 trillion. &lt;/p&gt;&#xA;" OwnerUserId="8387" LastActivityDate="2019-09-28T16:20:33.673" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32042" PostTypeId="1" CreationDate="2019-09-28T19:26:29.497" Score="3" ViewCount="98" Body="&lt;p&gt;The foundation of this question is a bit vague (based on something overheard at a conference) but I'm hoping someone here can provide some clarification. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I overheard a conversation between two people at a conference saying that signaling doesn't really make sense in zero-sum games. Unfortunately, I don't have much more context than that.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have continued to think about this statement and really can't figure out why it ``doesn't really make sense.'' The zero-sum aspect only talks about the payoffs, where the signaling aspect is concerned with how information is revealed as a function of the players' actions. I don't see why a game being zero-sum should preclude signaling.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Question:&lt;/strong&gt; Can signaling occur in zero-sum games? Please provide a link to a paper/example if so.&lt;/p&gt;&#xA;" OwnerUserId="6108" LastActivityDate="2021-02-21T09:06:35.620" Title="Signaling in zero-sum games?" Tags="&lt;game-theory&gt;&lt;signaling&gt;" AnswerCount="1" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32043" PostTypeId="1" CreationDate="2019-09-28T20:30:23.440" Score="1" ViewCount="82" Body="&lt;p&gt;Using the following definition of continuity: &lt;span class=&quot;math-container&quot;&gt;$\succsim$&lt;/span&gt; is continuous if for any bundles &lt;span class=&quot;math-container&quot;&gt;$x,y,z$&lt;/span&gt; such that x&lt;span class=&quot;math-container&quot;&gt;$\succ$&lt;/span&gt;y&lt;span class=&quot;math-container&quot;&gt;$\succ$&lt;/span&gt;z, there exists &lt;span class=&quot;math-container&quot;&gt;$\alpha \in (0,1)$&lt;/span&gt; such that &lt;span class=&quot;math-container&quot;&gt;$\alpha x + (1-\alpha)z \sim y$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am unable to show continuity/not continuity using this definition.&lt;/p&gt;&#xA;" OwnerUserId="20850" LastEditorUserId="20850" LastEditDate="2019-09-28T20:57:49.230" LastActivityDate="2020-06-24T23:05:50.690" Title="Study whether $\succsim$ represented by $u(x)=\lfloor x \rfloor$ is continuous" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;preferences&gt;" AnswerCount="1" CommentCount="0" ClosedDate="2020-07-13T21:25:00.077" ContentLicense="CC BY-SA 4.0" />
  <row Id="32044" PostTypeId="2" ParentId="32043" CreationDate="2019-09-28T21:04:54.320" Score="1" Body="&lt;p&gt;Are you sure that the definition you want? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;With your definition then yes its true.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You should show that &lt;span class=&quot;math-container&quot;&gt;$x\succ y\succ z\implies x&amp;gt;y&amp;gt;z$&lt;/span&gt;. Hence, you can always find a &lt;span class=&quot;math-container&quot;&gt;$\alpha$&lt;/span&gt; such that &lt;span class=&quot;math-container&quot;&gt;$\alpha x+(1-\alpha)y=z$&lt;/span&gt;, so &lt;span class=&quot;math-container&quot;&gt;$u(\alpha x+(1-\alpha)y)=u(z)$&lt;/span&gt; which then implies &lt;span class=&quot;math-container&quot;&gt;$\alpha x+(1-\alpha)y\sim z$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Perhaps the definition you want to use is for all &lt;span class=&quot;math-container&quot;&gt;$x^n$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$y^n$&lt;/span&gt; are two sequences with &lt;span class=&quot;math-container&quot;&gt;$x^n\to x$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$y^n\to y$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$x^n\succeq y^n$&lt;/span&gt; for all &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt; then &lt;span class=&quot;math-container&quot;&gt;$x\succeq y$&lt;/span&gt;? But maybe not, I dont want to presume.&lt;/p&gt;&#xA;" OwnerUserId="24190" LastActivityDate="2019-09-28T21:04:54.320" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="32045" PostTypeId="1" CreationDate="2019-09-28T21:11:50.100" Score="-2" ViewCount="62" Body="&lt;p&gt;Keynesian economics assumes falling lending opportunity lowers profit.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Under negative rates less lending actually means More Profit. So how does this change things?&lt;/p&gt;&#xA;" OwnerUserId="24391" LastActivityDate="2019-09-30T18:16:09.113" Title="What happens to demand economics when rates are negative?" Tags="&lt;macroeconomics&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32047" PostTypeId="2" ParentId="32040" CreationDate="2019-09-29T11:40:48.977" Score="1" Body="&lt;p&gt;And if you're looking for &lt;a href=&quot;https://en.wikipedia.org/wiki/Broad_money&quot; rel=&quot;nofollow noreferrer&quot;&gt;broad money&lt;/a&gt; (which basically includes bank accounts as well), the World Bank &lt;a href=&quot;https://data.worldbank.org/indicator/FM.LBL.BMNY.GD.ZS?view=chart&quot; rel=&quot;nofollow noreferrer&quot;&gt;puts it&lt;/a&gt; at about 125% of the world's GDP. It has been increasing fairly rapidly over the past decades; it was only around 50% in the 1960s.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/ki39J.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/ki39J.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Broad money (IFS line 35L..ZK) is the sum of currency outside banks; demand deposits other than those of the central government; the time, savings, and foreign currency deposits of resident sectors other than the central government; bank and traveler’s checks; and other securities such as certificates of deposit and commercial paper.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The world's GDP in 2018 &lt;a href=&quot;https://data.worldbank.org/indicator/ny.gdp.mktp.cd&quot; rel=&quot;nofollow noreferrer&quot;&gt;was&lt;/a&gt; almost \$86 trillion (nominal, World Bank data), which puts the (broad) money supply at around \$107 trillion in the same year. A more exact calculation is &lt;span class=&quot;math-container&quot;&gt;$1.24734 \times 85.804 = 107.027$&lt;/span&gt; trillion. There's a lot money in the bank accounts than there is physical currency in circulation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a sanity check, &lt;a href=&quot;https://www.marketwatch.com/story/this-is-how-much-money-exists-in-the-entire-world-in-one-chart-2015-12-18&quot; rel=&quot;nofollow noreferrer&quot;&gt;MarketWatch puts&lt;/a&gt; the broad money in the world at $90.4 trillion for 2017. The estimate is in the same ballpark as the one I made above. (Marketwatch does not cite a source for their data.) It does have more interesting comparisons though, including with the world real estate, stocks, and with derivatives (also with bitcoin if you care [to be amused]).&lt;/p&gt;&#xA;" OwnerUserId="6210" LastEditorUserId="6210" LastEditDate="2019-09-29T12:22:17.823" LastActivityDate="2019-09-29T12:22:17.823" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32049" PostTypeId="1" AcceptedAnswerId="32050" CreationDate="2019-09-29T13:44:13.153" Score="2" ViewCount="879" Body="&lt;p&gt;Why do we need separate form of demand? Where do we use inverse demand form? concept only. &lt;/p&gt;&#xA;" OwnerUserId="21868" LastActivityDate="2019-09-29T19:04:12.953" Title="Is there any specific significance of inverse demand?" Tags="&lt;supply-and-demand&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32050" PostTypeId="2" ParentId="32049" CreationDate="2019-09-29T14:06:24.573" Score="4" Body="&lt;p&gt;Inverse demand maps from quantity to value. It is useful to identify how much some units of the good are worth to the consumers. The central welfare concepts of consumer's and producer's surpluses rely on inverse functions in their definitions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In addition there are special cases (e.g. perfectly inelastic demand) where defining inverse demand is just easier. &lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2019-09-29T14:06:24.573" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32051" PostTypeId="2" ParentId="32045" CreationDate="2019-09-29T17:40:00.047" Score="-1" Body="&lt;p&gt;When interest rates are negative the entire point of keynesian economics is reversed and doesn't work.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Interest has been negative for a long time with subprime etc. It's just now obvious.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We need a new economics to deal with this situation. &lt;/p&gt;&#xA;" OwnerUserId="24398" LastActivityDate="2019-09-29T17:40:00.047" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32052" PostTypeId="2" ParentId="32049" CreationDate="2019-09-29T19:04:12.953" Score="4" Body="&lt;p&gt;Adding to the points made in Giskard's answer ...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In a competitive market, price and quantity are &lt;em&gt;simultaneously determined&lt;/em&gt; by the intersection of supply and demand.  So neither the ordinary market demand function (quantity as a function of price) nor the inverse market demand function (price as a function of quantity) can be considered more significant or fundamental, or as expressing a causal relation in a more natural way.&lt;/p&gt;&#xA;" OwnerUserId="1417" LastActivityDate="2019-09-29T19:04:12.953" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32053" PostTypeId="1" AcceptedAnswerId="32494" CreationDate="2019-09-29T19:53:58.153" Score="1" ViewCount="45" Body="&lt;p&gt;I have a panel dataset and to check the robustness of the results, I'm re-estimating the models with each panel unit excluded once. Does this robustness check habe a particular name?&lt;/p&gt;&#xA;" OwnerUserId="20518" LastEditorUserId="20518" LastEditDate="2019-09-29T20:00:11.070" LastActivityDate="2019-10-29T23:36:32.380" Title="Name of robustness check where you exclude individuals?" Tags="&lt;econometrics&gt;&lt;empirical-methods&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32054" PostTypeId="2" ParentId="32034" CreationDate="2019-09-29T19:59:32.027" Score="-1" Body="&lt;p&gt;Obviously nursing homes are a.smaller market...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Large, liquid markets with frequent buying and selling of standard products have the most information.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, Zillow is bad, home assessors exist for a reason.&lt;/p&gt;&#xA;" OwnerUserId="24400" LastActivityDate="2019-09-29T19:59:32.027" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32055" PostTypeId="2" ParentId="32053" CreationDate="2019-09-29T20:01:52.290" Score="0" Body="&lt;p&gt;Outlier check. You only need the outliers not all elements.&lt;/p&gt;&#xA;" OwnerUserId="24400" LastActivityDate="2019-09-29T20:01:52.290" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32056" PostTypeId="1" CreationDate="2019-09-29T21:42:35.373" Score="0" ViewCount="18" Body="&lt;p&gt;I have a &lt;a href=&quot;https://www.bls.gov/oes/#data&quot; rel=&quot;nofollow noreferrer&quot;&gt;dataset&lt;/a&gt; with mean and median wages for particular geographic areas around the United States. I am interested in calculating the wage premium between some areas. I can already do a simple version of that but I would like to adjust my model for heterogeneous labor markets because the dataset includes data split by industry group for each area. How would I go about doing that exactly?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider this example:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;+------+-------------+--------------------+-------------------+&#xA;| Area | Industry    | Mean Annual Income | Number of Workers |&#xA;+------+-------------+--------------------+-------------------+&#xA;| IL   | Medical     | &lt;span class=&quot;math-container&quot;&gt;$100,000           | 50                |&#xA;+------+-------------+--------------------+-------------------+&#xA;| IL   | Natural Gas | $&lt;/span&gt;50,000            | 50                |&#xA;+------+-------------+--------------------+-------------------+&#xA;| NY   | Medical     | &lt;span class=&quot;math-container&quot;&gt;$150,000           | 60                |&#xA;+------+-------------+--------------------+-------------------+&#xA;| NY   | Natural Gas | $&lt;/span&gt;90,000            | 40                |&#xA;+------+-------------+--------------------+-------------------+&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;I could just calculate the wage premium in Natural Gas and Medical between IL and NY, then take a weighted average. But what should the weights be? The proportion of workers in each industry is different for the two areas here.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This looks very similar to textbook price index problems. Could I just calculate a chained price index?&lt;/p&gt;&#xA;" OwnerUserId="24401" LastActivityDate="2019-10-01T05:21:47.243" Title="How do I adjust for heterogeneous labor markets when calculating the wage premium?" Tags="&lt;labor-economics&gt;&lt;paneldata&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32057" PostTypeId="1" CreationDate="2019-09-30T03:01:30.680" Score="0" ViewCount="61" Body="&lt;p&gt;I was traversing the web with examples about the sunk cost fallacy, and bumped into some example that a bit confuses me. The example is taken From here (&lt;a href=&quot;https://market.subwiki.org/wiki/Sunk_cost_fallacy&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://market.subwiki.org/wiki/Sunk_cost_fallacy&lt;/a&gt;) and I repeat it below in short. My question is whether it is a fair example of sunk cost fallacy?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider person owns an object A, and then the person loses it. Then (quote from that link):&#xA;“Assuming rational behavior, whether a person chooses to buy or not buy should be independent of whether the person loses the money or the object. However, what the sunk cost fallacy predicts that losing the object ￼ makes the person less likely to buy another copy of ￼, because the person does not want to admit that the initial purchase of ￼ was wasteful”&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I’m confused and not sure because this example is so much different from traditional examples when you keep spending money/effort/time because you already did it in the past. Could anyone clarify?&lt;/p&gt;&#xA;" OwnerUserId="24402" LastActivityDate="2019-09-30T06:02:01.003" Title="person owns object, loses it and refuses to buy it the second time. Is it really an example of sunk cost fallacy?" Tags="&lt;behavioral-economics&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32058" PostTypeId="2" ParentId="32057" CreationDate="2019-09-30T04:30:13.073" Score="0" Body="&lt;p&gt;Traditionally it is thought as: you have certain sunk costs, which lead you to believe that the best strategy is to keep spending, when the rational strategy is to not do so.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But it actually works both ways; that is: you have certain sunk costs, which lead you to believe that the best strategy is to &lt;em&gt;not&lt;/em&gt; spend, when the rational strategy is to do so.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;The point of the fallacy is that sunk costs influence you when they shouldn't; whether it's for spending more money/effort, or less, that's irrelevant.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the given case, if you believed that a certain amount of your income was ideal to spend on good A, then, as long as you don't have A - and assuming your preferences nor your income, nor the prices change (ceteris paribus) - you should want good A; that would be economically rational. Yet, given this exact circumstance after losing A for the first time, you choose not to buy. Why does the irrationality happen? Because losing good A incurred a cost, a sunk cost, and that somehow influenced your decision; therefore, it is a sunk cost fallacy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Which is again, the second definition in my answer: you have certain sunk costs (having lost good A), which lead you to believe that the best strategy is to not spend (don't buy A again), when the rational strategy is to do so (because the circumstances that lead you to buy A in the first place haven't changed).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope that helps!&lt;/p&gt;&#xA;" OwnerUserId="24031" LastActivityDate="2019-09-30T04:30:13.073" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32059" PostTypeId="2" ParentId="32057" CreationDate="2019-09-30T05:18:06.610" Score="1" Body="&lt;p&gt;I see two questions here. Are all fallacies that are based on sunk cost, &lt;em&gt;sunk cost fallacies&lt;/em&gt;? Does the example above describe likely human behavior?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The earliest mentions of the sunk cost fallacy seem to come from the following paper.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Arkes, H. R., &amp;amp; Blumer, C. (1985), The psychology of sunk costs. Organizational Behavior and Human Decision Processes, 35, 124-140.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The definition given is as follows:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The sunk cost effect is a maladaptive economic behavior that is manifested in a greater tendency to continue an endeavor once an investment in money, effort, or time has been made.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The loss of an object A is a sunk cost as whether or not you owned A in the past is not relevant to whether you should own it in the future. To be less likely (or more likely) to purchase the object A in the future is irrational behavior (a fallacy) related to sunk cost. However, it isn't clear whether it is a &lt;em&gt;sunk cost fallacy&lt;/em&gt; based on the definition above. You could argue that you put effort into not owning the object (by losing it). And thus by continuing to put effort into not owning the object (by not purchasing it again) despite that not being the optimal decision, you are committing the sunk cost fallacy. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A clearer argument is that you put effort into owning the object (by purchasing it once), and thus you are more likely to continue to put effort into owning the object (by repurchasing it) based on the sunk cost fallacy. And this latter argument sounds more likely to me, but I have no evidence to back this up.&lt;/p&gt;&#xA;" OwnerUserId="8387" LastEditorUserId="8387" LastEditDate="2019-09-30T05:23:22.497" LastActivityDate="2019-09-30T05:23:22.497" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32060" PostTypeId="2" ParentId="32057" CreationDate="2019-09-30T06:02:01.003" Score="0" Body="&lt;p&gt;Failing to repurchase a lost item is not necessarily irrational; maybe some new information came to light that made the purchase seem less worthwhile. However, humans tend to behave irrationally when deciding whether to repurchase an item.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The following quote comes from Kahneman's book Thinking Fast and Slow.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Imagine you go see a movie which costs \$10 for a ticket. When you&#xA;  open your wallet or purse you realize you’ve lost a \$10 bill. Would&#xA;  you still buy a ticket? You probably would. Only 12 percent of&#xA;  subjects said they wouldn’t. Now, imagine you go to see the movie and&#xA;  pay \$10 for a ticket, but right before you hand it over to get inside&#xA;  you realize you’ve lost it. Would you go back and buy another ticket?&#xA;  Maybe, but it would hurt a lot more. In the experiment, 54 percent of&#xA;  people said they would not.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="21196" LastActivityDate="2019-09-30T06:02:01.003" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32061" PostTypeId="2" ParentId="32045" CreationDate="2019-09-30T06:02:01.770" Score="0" Body="&lt;p&gt;Over the past several years, we have seen many countries that have risk free debt yield negative returns. Even &lt;a href=&quot;https://www.barrons.com/articles/yields-go-negative-on-corporate-bonds-not-just-government-debt-51562942845&quot; rel=&quot;nofollow noreferrer&quot;&gt;some corporate bonds&lt;/a&gt; are yielding negative returns now. However, most corporate debt and riskier debt still yields positive returns. And I expect it will be a long while (if ever) before the entire risk curve is yielding negative returns.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;While this may be a concern for other reasons, it doesn't change the fact that &quot;falling lending opportunity lowers profit&quot;. The less positive yielding debt that exists, the less opportunities to profitably lend. And while I am dubious of the sustainability, &lt;a href=&quot;https://www.marketwatch.com/story/that-near17-trillion-pile-of-negative-yielding-global-debt-its-a-cash-cow-for-some-bond-investors-2019-08-22&quot; rel=&quot;nofollow noreferrer&quot;&gt;negative yielding debt can apparently be profitable too&lt;/a&gt;. Keynesian ideas will be relevant for a long while.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In fact, one of the most relevant concepts in a world of negative yielding debt is the notion of a &lt;a href=&quot;https://en.wikipedia.org/wiki/Liquidity_trap&quot; rel=&quot;nofollow noreferrer&quot;&gt;liquidity trap&lt;/a&gt;, which was originally popularized by John Maynard Keynes. To combat this, in the next recession, we may see more unconventional monetary policy ideas like &lt;a href=&quot;https://en.wikipedia.org/wiki/Helicopter_money&quot; rel=&quot;nofollow noreferrer&quot;&gt;helicopter money&lt;/a&gt; be implemented.&lt;/p&gt;&#xA;" OwnerUserId="8387" LastActivityDate="2019-09-30T06:02:01.770" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32062" PostTypeId="2" ParentId="32042" CreationDate="2019-09-30T06:31:41.277" Score="0" Body="&lt;p&gt;I just taught my students that signalling is useless in &lt;a href=&quot;https://en.wikipedia.org/wiki/Matching_pennies&quot; rel=&quot;nofollow noreferrer&quot;&gt;Matching Pennies&lt;/a&gt; and Rock, Paper, Scissors. You would just lie and be random anyway so why would the other player ever believe any signal at all? That renders signals useless. Perhaps the people you overheard meant just that.&lt;/p&gt;&#xA;" OwnerUserId="6231" LastActivityDate="2019-09-30T06:31:41.277" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32063" PostTypeId="1" CreationDate="2019-09-30T08:53:29.560" Score="1" ViewCount="33" Body="&lt;p&gt;I recently watched Ray Dalio's video on how the economy runs on short/long term debt cycles. However I was wondering how other major events impact economic growth:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How does the short and long term debt cycle interact with major political or news events that might affect the economy (e.g. trade wars, Enron)? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does one supersede the other or perhaps even cause the other? &#xA;Does the debt cycle only apply in a vacuum as one factor of many?&lt;/p&gt;&#xA;" OwnerUserId="24405" LastActivityDate="2019-09-30T18:38:28.497" Title="How do major global events interact with debt cycles?" Tags="&lt;macroeconomics&gt;&lt;inflation&gt;&lt;interest-rate&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32065" PostTypeId="1" CreationDate="2019-09-30T12:20:52.753" Score="2" ViewCount="289" Body="&lt;p&gt;The usual answer is either &quot;foreign debt&quot; or &quot;Foreign Direct Investment&quot;. But:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Why does that make sense?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;And why wouldn't be financed otherwise like from importers taking out bank loans domestically rather than from foreigners?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Finally, it is said that a trade deficit can be financed by Foreign Direct Investment because the domestic currency given in exchange for the imports can only be spent back into the importing country. How does this work when whoever we're importing from is paid in THEIR currency rather than the domestic currency of the importer?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I hope someone more knowledgeable can help me out. Thanks.&lt;/p&gt;&#xA;" OwnerUserId="18249" LastActivityDate="2020-03-28T23:03:20.510" Title="How are trade deficits financed?" Tags="&lt;international-trade&gt;&lt;balance-of-trade&gt;&lt;balance-of-payments&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32066" PostTypeId="1" AcceptedAnswerId="32068" CreationDate="2019-09-30T15:50:04.220" Score="0" ViewCount="34" Body="&lt;p&gt;I am using three of the Worldwide Governance Indicators (WGI) estimates. They represent broad dimensions of governance for countries. All indicators range from -2.5 to 2.5 approximately. They are expressed in units of a standard normal distribution.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For your information: here is the link to the website: &lt;a href=&quot;https://info.worldbank.org/governance/wgi/Home/Documents#doc-intro&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://info.worldbank.org/governance/wgi/Home/Documents#doc-intro&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I want to use these indicators in a panel regression as control variables. All my other variables are not expressed in units of a standard normal distribution. Is it a problem? Do I need to convert the governance indicators (-2.5, 2.5) to another scale (0, 1)? Will the 'econometrics' make sense? &lt;/p&gt;&#xA;" OwnerUserId="24210" LastActivityDate="2019-10-02T08:14:33.143" Title="A few variables expressed in units of a standard normal distribution in a regression" Tags="&lt;econometrics&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32068" PostTypeId="2" ParentId="32066" CreationDate="2019-09-30T16:52:34.060" Score="1" Body="&lt;p&gt;In general, there is no expectation that right hand side variable in a regression are in the same units. We often have combinations of variables like years of education, price, regional dummies, etc. that are all included together. So in principle, there’s no reason why you should have to convert your controls to some other scale.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From a numerical standpoint, it can be useful to normalize variables to maintain numerical stability. The eigenvalues of the covariance matrix can be a little funky if the relative scales are way different (for example, one variable ranging between 1-4 and another variable ranging between 1-4 billion). It can also be useful to normalize variables to help with interpretation of the coefficient values (easier to compare 1 and 2 than it is to compare 1 and 0.000000002).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From your example, though, if you’re just considering adjusting from something that ranges on the order of -2 to 2 to something that ranges from 0 to 1, neither of these reasons would probably hold. As such, based on the info you’ve given, I would probably just leave the RHS variables as they are.&lt;/p&gt;&#xA;" OwnerUserId="238" LastActivityDate="2019-09-30T16:52:34.060" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32073" PostTypeId="2" ParentId="32065" CreationDate="2019-09-30T18:15:03.527" Score="2" Body="&lt;p&gt;Natural resources and gravity determines trade. How the balance of payments is settled is not really important. But there are a few possibilities&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;a country has a lot of debt and defaults or refis it down to a very low rate to go negative indefinitely;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;foreign aid;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;moneyprinting that isn't adequately adjusted in foreign exchange;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;selling overpriced domestic assets that are not properly accounted in the bop records;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;stealing things &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;An example of 1 would be any debt crisis.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For 3 for example, Zimbabwe was trade deficit during it's episode&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For 4, US startup equity is boosting it's balance of payments. It is not fdi or portfolio investment and includes travel expenses and things not adequately tracked;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For 5, any sort of anti western government expropriating assets, like Zimbabwe, uses that to fund it's balance of payments.&lt;/p&gt;&#xA;" OwnerUserId="8360" LastActivityDate="2019-09-30T18:15:03.527" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32076" PostTypeId="1" CreationDate="2019-09-30T19:41:26.500" Score="0" ViewCount="50" Body="&lt;p&gt;United States president Donald Trump has publicly declared a desire to deflate the value of the dollar.  I have read in news reports that he has asked aids to find ways to decrease the dollar's exchange rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I understand that attempting to influence the Fed to lower interest rates could achieve his goal of a lower exchange rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What are other methods a president could undertake to weaken the dollar?&lt;/p&gt;&#xA;" OwnerUserId="24312" LastActivityDate="2020-05-23T21:28:23.990" Title="What strategies can the president employ to deflate the dollar" Tags="&lt;macroeconomics&gt;&lt;currency&gt;&lt;exchange-rates&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32082" PostTypeId="2" ParentId="32056" CreationDate="2019-10-01T05:21:47.243" Score="1" Body="&lt;p&gt;It all depends on how you define the 'wage premium between different areas'. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The average NY resident makes $51,000 more per year than the average IL resident.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are 110 medical workers and 90 natural gas workers in NY and IL combined, so you could try weighting the wage premium of medical workers by 110/200 and the wage premium of natural gas workers by 90/200 to give a combined wage premium of $45,500. This will tell you how much more or less a person chosen at random from the whole population will earn if they work in the same industry that they are currently working but in a different area. &lt;/p&gt;&#xA;" OwnerUserId="21196" LastActivityDate="2019-10-01T05:21:47.243" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32084" PostTypeId="1" AcceptedAnswerId="32085" CreationDate="2019-10-01T15:04:54.413" Score="2" ViewCount="27" Body="&lt;p&gt;I have been able to show this constructively, but would like to prove it by induction. However, I am stuck with the induction step:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider &lt;span class=&quot;math-container&quot;&gt;$\succsim$&lt;/span&gt; defined over &lt;span class=&quot;math-container&quot;&gt;$X=\{x_1,...,x_n\}$&lt;/span&gt; and where without loss of generality &lt;span class=&quot;math-container&quot;&gt;$x_1$&lt;/span&gt; is the element such that &lt;span class=&quot;math-container&quot;&gt;$x_1 \succsim x, \forall x \in X$&lt;/span&gt;. Now, consider adding element &lt;span class=&quot;math-container&quot;&gt;$x_{n+1}$&lt;/span&gt; to the set. My reasoning is that since &lt;span class=&quot;math-container&quot;&gt;$\succsim$&lt;/span&gt; is defined over the original &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt;, there is nothing telling us that &lt;span class=&quot;math-container&quot;&gt;$x_{n+1}$&lt;/span&gt; should be in a complete relation with the elements in &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; (i.e. &lt;span class=&quot;math-container&quot;&gt;$\succsim$&lt;/span&gt; is not defined over a bigger set).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this reasoning correct? In that case, I don't see how you could prove this by induction.&lt;/p&gt;&#xA;" OwnerUserId="20850" LastActivityDate="2019-10-01T15:21:36.457" Title="Given a rational $\succsim$ over a finite set $X$, show that there exists $x \in X$ such that $x \succsim y, \forall y \in X$" Tags="&lt;microeconomics&gt;&lt;preferences&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32085" PostTypeId="2" ParentId="32084" CreationDate="2019-10-01T15:21:36.457" Score="1" Body="&lt;p&gt;You are almost there, but I think you are starting in the wrong place. I think the key is as follows: we want to prove the claim for set &lt;span class=&quot;math-container&quot;&gt;$X=\{x_1,\ldots,x_n\}$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Start with some &lt;span class=&quot;math-container&quot;&gt;$X'\subseteq{X}$&lt;/span&gt; for which the claim is true. Such an &lt;span class=&quot;math-container&quot;&gt;$X'$&lt;/span&gt; exists because the claim is true for the set &lt;span class=&quot;math-container&quot;&gt;$\{x_1\}$&lt;/span&gt; (by completeness and reflexivity). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If &lt;span class=&quot;math-container&quot;&gt;$X'=X$&lt;/span&gt; then we're done. If &lt;span class=&quot;math-container&quot;&gt;$X'\neq X$&lt;/span&gt; then we proceed with induction:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Denote by &lt;span class=&quot;math-container&quot;&gt;$\bar{x}$&lt;/span&gt; an &lt;span class=&quot;math-container&quot;&gt;$x\in X'$&lt;/span&gt; such that &lt;span class=&quot;math-container&quot;&gt;$\bar{x}\succsim y, \forall\ y\in X'$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now construct a new set &lt;span class=&quot;math-container&quot;&gt;$X''=X'\cup\{x_i\}$&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$x_i\in X\backslash X'$&lt;/span&gt;. Because &lt;span class=&quot;math-container&quot;&gt;$\succsim$&lt;/span&gt; is rational (preferences are complete) over &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt;, we either have &lt;span class=&quot;math-container&quot;&gt;$x_i\succsim \bar{x}$&lt;/span&gt; or &lt;span class=&quot;math-container&quot;&gt;$\bar{x}\succsim x_i$&lt;/span&gt; or both. Thus, if the claim holds for &lt;span class=&quot;math-container&quot;&gt;$X'$&lt;/span&gt; it also holds for &lt;span class=&quot;math-container&quot;&gt;$X''$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can repeat this inductive step until &lt;span class=&quot;math-container&quot;&gt;$X''=X$&lt;/span&gt;, which must happen after finitely many iterations because &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; is finite.&lt;/p&gt;&#xA;" OwnerUserId="108" LastActivityDate="2019-10-01T15:21:36.457" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32086" PostTypeId="1" CreationDate="2019-10-01T17:03:32.930" Score="0" ViewCount="26" Body="&lt;p&gt;Let &lt;span class=&quot;math-container&quot;&gt;$\succsim$&lt;/span&gt; complete and &lt;span class=&quot;math-container&quot;&gt;$x, y, z \in X$&lt;/span&gt;. Suppose &lt;span class=&quot;math-container&quot;&gt;$x \succsim y$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$y \succsim z$&lt;/span&gt;. Is it OK to write &lt;span class=&quot;math-container&quot;&gt;$x \succsim y \succsim z$&lt;/span&gt; just knowing this?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Or, on the contrary, such expression automatically implies &lt;span class=&quot;math-container&quot;&gt;$x \succsim z$&lt;/span&gt;?&lt;/p&gt;&#xA;" OwnerUserId="20850" LastActivityDate="2019-10-01T17:03:32.930" Title="Notation: is it correct to write $x \succsim y \succsim z$ before using transitivity?" Tags="&lt;microeconomics&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="32089" PostTypeId="1" CreationDate="2019-10-01T21:31:09.797" Score="0" ViewCount="33" Body="&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$u(x_1,x_2)=|x_1 −2|+x_2$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this function continuous?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;PS: The continuity theorem I use is this: Whenever for any &lt;span class=&quot;math-container&quot;&gt;$x^n$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$n \in N$&lt;/span&gt; with &lt;span class=&quot;math-container&quot;&gt;$x^n \to x$&lt;/span&gt; (i.e. &lt;span class=&quot;math-container&quot;&gt;$\lim_{n \to \infty} x^n = x$&lt;/span&gt;) and for any &lt;span class=&quot;math-container&quot;&gt;$y^n$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$n \in N$&lt;/span&gt; with &lt;span class=&quot;math-container&quot;&gt;$y^n \to y$&lt;/span&gt; with the property that &lt;span class=&quot;math-container&quot;&gt;$x^n$&lt;/span&gt; is weakly preferred to &lt;span class=&quot;math-container&quot;&gt;$y^n$&lt;/span&gt; for all &lt;span class=&quot;math-container&quot;&gt;$n \in N$&lt;/span&gt;, it must be that &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; is weakly preferred to &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerUserId="24418" LastEditorUserId="5145" LastEditDate="2019-10-02T17:18:55.640" LastActivityDate="2019-10-02T17:18:55.640" Title="Is this utility function continuous?" Tags="&lt;microeconomics&gt;&lt;utility&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="32090" PostTypeId="1" AcceptedAnswerId="32096" CreationDate="2019-10-01T22:24:28.277" Score="0" ViewCount="52" Body="&lt;p&gt;Consider a firm with the production function &lt;span class=&quot;math-container&quot;&gt;$y=CL^{a}K^{b}$&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$C&amp;gt;1$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$a&amp;gt;0$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$b&amp;gt;0$&lt;/span&gt;.&#xA;Write down the conditions under which this production function exhibits: i) increasing returns to scale, ii) constant returns to scale, and iii) decreasing returns to scale. Calculate the marginal product of &lt;span class=&quot;math-container&quot;&gt;$L$&lt;/span&gt; , the marginal product of &lt;span class=&quot;math-container&quot;&gt;$K$&lt;/span&gt;, and the marginal rate of technical substitution. Write down the conditions under which this technology exhibits diminishing marginal product in both factors. Write down the conditions under which the marginal rate of technical substitution is diminishing.&lt;/p&gt;&#xA;" OwnerDisplayName="user24420" LastEditorUserId="23546" LastEditDate="2019-10-02T02:10:46.303" LastActivityDate="2019-10-02T02:25:14.817" Title="Returns to Scale" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="2" ClosedDate="2019-10-20T17:22:14.290" ContentLicense="CC BY-SA 4.0" />
  <row Id="32092" PostTypeId="1" CreationDate="2019-10-01T22:51:52.170" Score="0" ViewCount="132" Body="&lt;p&gt;I have a time series of data which has daily returns over 15-year time period. &#xA;I understand that you get multi-period simple return using the following formula.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$1 + R_{t}(k) = \prod_{j=0}^{k-1}(1 + R_{t-j})$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I want to know how to get annualized return from this data.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks.&lt;/p&gt;&#xA;" OwnerUserId="24421" LastEditorUserId="5145" LastEditDate="2019-10-02T09:07:29.010" LastActivityDate="2019-10-02T09:07:29.010" Title="Get Annualized return from a time series of daily returns" Tags="&lt;stock-market&gt;" AnswerCount="0" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="32095" PostTypeId="1" CreationDate="2019-10-02T02:00:04.357" Score="0" ViewCount="48" Body="&lt;p&gt;Is it possible for a cournot duopoly game to not have the best response functions?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have a profit function whose first-derivative is piece-wise. When I solve for one player's quantity (decision), it is equal to &lt;span class=&quot;math-container&quot;&gt;$0$&lt;/span&gt;. Does this mean there does not exist best response functions? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am self-studying Game Theory and I apologize if this question is way too basic or completely wrong. &lt;/p&gt;&#xA;" OwnerUserId="24423" LastActivityDate="2019-10-02T02:00:04.357" Title="Cournot Duopoly and Non existence of best response function" Tags="&lt;game-theory&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="32096" PostTypeId="2" ParentId="32090" CreationDate="2019-10-02T02:25:14.817" Score="0" Body="&lt;p&gt;Returns to scale are computing as: &lt;span class=&quot;math-container&quot;&gt;$y(\theta L, \theta K) = C(\theta L)^{a}(\theta K)^{b}$&lt;/span&gt;. Try manipulating this such that you get &lt;span class=&quot;math-container&quot;&gt;$\theta^{r}$&lt;/span&gt; where &lt;span class=&quot;math-container&quot;&gt;$r$&lt;/span&gt; is some number. Then interpret that, increasing both inputs by a factor &lt;span class=&quot;math-container&quot;&gt;$\theta$&lt;/span&gt; leads to what kind of change? This is clear after simplifying down to &lt;span class=&quot;math-container&quot;&gt;$\theta^{r}CL^{a}k^{b} = \theta^{r}y$&lt;/span&gt;:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$y(\theta L, \theta K) = C(\theta L)^{a}(\theta K)^{b}$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$=\theta^{a+b}CL^{a}K^{b} = \theta^{a+b}y$$&lt;/span&gt;&#xA;Now, for what &lt;span class=&quot;math-container&quot;&gt;$a+b$&lt;/span&gt; do we IRS, CRS, and DRS?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, what is the definition of the marginal product? Just a derivative with respect to that particular good. Take the marginal product of labour using the original production function &lt;span class=&quot;math-container&quot;&gt;$y(L,K) = CL^{a}K^{b}$&lt;/span&gt; for example:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\frac{\partial y}{\partial L} = aCL^{a-1}K^{b}$$&lt;/span&gt;&#xA;The same process follows for the marginal product of capital, &lt;span class=&quot;math-container&quot;&gt;$K$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then the marginal rate of technical substitution is the ratio of these:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$MRTS_{LforK} = \frac{MP_{L}}{MP_{K}}$$&lt;/span&gt;&#xA;After substituting the two marginal products into the above, when would this be diminishing? That sounds like something that the second derivative could answer for you. This would also be a function of &lt;span class=&quot;math-container&quot;&gt;$a$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$b$&lt;/span&gt;. For what values of &lt;span class=&quot;math-container&quot;&gt;$a$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$b$&lt;/span&gt; would it be negative? positive? This would perhaps be the next step.&lt;/p&gt;&#xA;" OwnerUserId="23546" LastActivityDate="2019-10-02T02:25:14.817" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32097" PostTypeId="1" AcceptedAnswerId="32100" CreationDate="2019-10-02T03:55:41.833" Score="2" ViewCount="66" Body="&lt;p&gt;So I recently came across an interesting point on why NASA isn't a waste of money, and it basically stated how NASA supports thousands of jobs, creates community events, and uses a part of its budget as the salary of some of the smartest people on the planet. But is this a huge impact?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Whenever a large company is created, it creates hundreds maybe even thousands of decent paying jobs. But does this only benefit the people who are working in that company? Or does it benefit the community as a whole (in terms of economic success)?&lt;/p&gt;&#xA;" OwnerDisplayName="user24424" LastEditorUserId="5145" LastEditDate="2019-10-02T17:19:05.997" LastActivityDate="2019-10-02T17:19:05.997" Title="Does creating more jobs actually help the economy as a whole?" Tags="&lt;macroeconomics&gt;&lt;national-income&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32098" PostTypeId="1" CreationDate="2019-10-02T05:35:56.297" Score="1" ViewCount="42" Body="&lt;p&gt;Reuters &lt;a href=&quot;https://www.reuters.com/article/us-usa-economy/us-factory-activity-sinks-to-10-year-low-in-september-idUSKBN1WG47G&quot; rel=&quot;nofollow noreferrer&quot;&gt;says (Oct 1, 2019)&lt;/a&gt;:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;U.S. manufacturing activity tumbled to a more than 10-year low in September as lingering trade tensions weighed on exports, further heightening financial market fears of a sharp slowdown in economic growth in the third quarter.&lt;/p&gt;&#xA;&lt;p&gt;The survey from the Institute for Supply Management (ISM) on Tuesday came on the heels of data last week showing a cooling in consumer spending in August. The economy’s fading fortunes have been attributed to the Trump administration’s 15-month trade war with China, which has sapped business confidence and undermined manufacturing.&lt;/p&gt;&#xA;&lt;p&gt;Ironically, manufacturing has borne the brunt of the trade tariffs, which the White House says are necessary to protect industries from what it says is unfair foreign competition. President Donald Trump blames the Federal Reserve, in particular Chair Jerome Powell, for the manufacturing sector’s malaise.&lt;/p&gt;&#xA;&lt;p&gt;“As I predicted, Jay Powell and the Federal Reserve have allowed the Dollar to get so strong, especially relative to ALL other currencies, that our manufacturers are being negatively affected,” Trump wrote on Twitter shortly after the ISM survey was published. “Fed Rate too high. They are their own worst enemies, they don’t have a clue. Pathetic!”&lt;/p&gt;&#xA;&lt;p&gt;[...]&lt;/p&gt;&#xA;&lt;p&gt;“It couldn’t be more ironic that the trade tariffs done to bring factories back from overseas, are actually shutting down production at existing plants here in the U.S.” said Chris Rupkey, chief economist at MUFG in New York. Machinery manufacturers said demand was “softening on some product lines, backlogs have reduced, and dealer inventories are growing.” Electrical equipment, appliances and components makers noted that the “economy seems to be softening,” adding that “tariffs have caused much confusion in the industry.”&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;So we have two competing narratives here, not necessarily mutually exclusive:&lt;/p&gt;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Trump says the manufacturing slump is due to US interest rates being too high&lt;/li&gt;&#xA;&lt;li&gt;Others blame the trade war(s) started by Trump&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&lt;p&gt;Is there any economic analysis that can shed more light on this, or is it just going to be a matter of competing opinions?&lt;/p&gt;&#xA;&lt;p&gt;(The &lt;a href=&quot;https://www.theguardian.com/business/live/2019/sep/02/argentina-currency-controls-crisis-uk-eurozone-manufacturing-trade-war-business-live?page=with:block-5d6ccd4a8f081c5d7489e21c#block-5d6ccd4a8f081c5d7489e21c&quot; rel=&quot;nofollow noreferrer&quot;&gt;Eurozone manufacturing&lt;/a&gt; also shrank as did &lt;a href=&quot;https://www.theguardian.com/business/live/2019/sep/02/argentina-currency-controls-crisis-uk-eurozone-manufacturing-trade-war-business-live?page=with:block-5d6cd3528f08399d62f596c2#block-5d6cd3528f08399d62f596c2&quot; rel=&quot;nofollow noreferrer&quot;&gt;the UK's&lt;/a&gt;.)&lt;/p&gt;&#xA;" OwnerUserId="6210" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2019-10-02T06:17:47.603" Title="Can we know what mainly caused the latest US manufacturing slump?" Tags="&lt;macroeconomics&gt;&lt;united-states&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32100" PostTypeId="2" ParentId="32097" CreationDate="2019-10-02T06:25:18.003" Score="1" Body="&lt;p&gt;Generally, whenever people have more income, it doesn't only benefit those people with more income. Imagine you somehow received \$100 that fell from the sky (or through NASA job). Would you save the entire \$100 and never spend it? More likely, you would spend some fraction of it... let's say you spend \$60. This money you spend will go to a shopkeeper, who then keeps a fraction and spend some of that \$60 on something else, and so on. So this extra money benefits other people too, not just the person receiving the money.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you're interested, you can read more about this &lt;a href=&quot;https://en.wikipedia.org/wiki/Fiscal_multiplier&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="5145" LastActivityDate="2019-10-02T06:25:18.003" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="32101" PostTypeId="2" ParentId="32066" CreationDate="2019-10-02T08:14:33.143" Score="0" Body="&lt;p&gt;The interpretation of the coefficient &lt;span class=&quot;math-container&quot;&gt;$\beta$&lt;/span&gt; on the standard normal explanatory variable is that a one standard deviation increase in that variable will lead to a &lt;span class=&quot;math-container&quot;&gt;$\beta$&lt;/span&gt; increase in the dependent variable. Some examples: If the dependent variable was GDP, then &lt;span class=&quot;math-container&quot;&gt;$\beta$&lt;/span&gt; would be the amount of an increase in GDP associated with a one standard deviation increase in the governance score. Or, if the dependent variable was log GDP, then &lt;span class=&quot;math-container&quot;&gt;$100\cdot\beta$&lt;/span&gt; would approximately represent the percent increase in GDP associated with a one standard deviation increase in the governance score.&#xA;So, this interpretation is straightforward, and converting the variable to a range between 0 and 1 will make the interpretation more difficult and unintuitive. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Furthermore, a normally-distributed variable actually ranges from &lt;span class=&quot;math-container&quot;&gt;$-\infty$&lt;/span&gt; to &lt;span class=&quot;math-container&quot;&gt;$\infty$&lt;/span&gt;, mathematically speaking. Even though &lt;a href=&quot;https://www.wolframalpha.com/input/?i=P%5B-2.5%3CZ%3C2.5%5D+for+Z%7Estandard+normal&quot; rel=&quot;nofollow noreferrer&quot;&gt;98.8%&lt;/a&gt; of the values lie between 2.5 standard deviations from the mean, the variable &lt;em&gt;can&lt;/em&gt; still take on larger values, moreso in large samples. So, mathematically speaking, the transformation &lt;span class=&quot;math-container&quot;&gt;$f(x) = (x + 2.5)/5$&lt;/span&gt; will not actually keep all the values between 0 and 1.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is perfectly fine to have different units in your regression&amp;mdash;the only difference with using different units is how you interpret the coefficients. You may even want to normalize the dependent variable (by dividing it by its standard deviation), so that the interpretation becomes &quot;A one standard deviation increase in X increases Y by &lt;span class=&quot;math-container&quot;&gt;$\beta$&lt;/span&gt; standard deviations.&quot;&lt;/p&gt;&#xA;" OwnerUserId="175" LastActivityDate="2019-10-02T08:14:33.143" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32102" PostTypeId="1" CreationDate="2019-10-02T09:00:00.413" Score="1" ViewCount="859" Body="&lt;p&gt;In Hal Varian's Book &quot;Microeconomic analysis&quot; on page 35 he gives the following description of a profit maximising firm.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;...If the firm is maximising profits, then the observed net output choice at price pt must have a level of profit at least as great as the profit at any other net output the firm could have chosen. We don't know all the other choices that are feasible in this situation, but we do know some of them-namely, the other choices &lt;span class=&quot;math-container&quot;&gt;$y_s$&lt;/span&gt; for &lt;span class=&quot;math-container&quot;&gt;$s=1,...,T$&lt;/span&gt; that we have observed. Hence, a necessary condition for profit maximisation is that&#xA;&lt;span class=&quot;math-container&quot;&gt;$p_ty_t≥p_ty_s$&lt;/span&gt;&#xA;for all &lt;span class=&quot;math-container&quot;&gt;$t$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$s=1,...,T$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;We will refer to this condition as the Weak Axiom of Profit Maximisation (WAPM).&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I dont understand this can I get a more detailed drawn out explanation as if I'm five, or a reference to where I can further information on this?&lt;/p&gt;&#xA;" OwnerUserId="24426" LastEditorUserId="20576" LastEditDate="2019-10-02T17:19:12.623" LastActivityDate="2019-11-02T21:01:40.200" Title="Can I get a more detailed explanation of the Weak Axiom of Profit Maximization?" Tags="&lt;profit-maximization&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32103" PostTypeId="1" AcceptedAnswerId="32118" CreationDate="2019-10-02T09:19:02.083" Score="0" ViewCount="94" Body="&lt;p&gt;So from my past studies i know that if the interest rate is expected to decrease, then the expected return will increase and the demand for long term bonds shifts to the right.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If investors believe that interest rates will decrease in the future, then investors will buy more bonds now. If you believe interest rates will fall, then bond prices will increase. You will buy bonds now, because you will be  buying bonds for a cheaper price (high IR) and resell bonds in the future for a higher price, when market IR decrease. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a conclusion , if IR decrease in the future, it will make people expect higher return on long term bonds today , since there is more risk. There is a negative relationship between IRs and and expected returns.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then why , all of a sudden , my text book says :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;'If the possibility of a default increases because a corporation begins to suffer large losses, the default risk on corporate bonds will increase, and the expected return on these bonds will decrease'&lt;/strong&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;SO now all of a sudden expected return decreases when there is more default risk ? Shouldn't expected return increase when there is more default risk?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What am i missing?&lt;/p&gt;&#xA;" OwnerUserId="24427" LastActivityDate="2019-10-03T11:25:46.937" Title="What is the Relationship between expected return and risk of corporate bonds?" Tags="&lt;finance&gt;&lt;financial-economics&gt;&lt;bonds&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32106" PostTypeId="1" CreationDate="2019-10-02T12:16:51.473" Score="1" ViewCount="26" Body="&lt;p&gt;As reported by the media, Thomas Cook financially collapsed last week. Since then, hotels in tourist countries like greece or spain also collapsed, leaving several hundred to thousand people unemployed. This results in far more people can't meet their obligations due to this circumstances.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So my questions are:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;which following branches will be affected directly and indirectly?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;what does that mean for the world economy?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since greece and spain are part of the european currency zone I think that will also impact all other members of the complete european currency zone?&lt;/p&gt;&#xA;" OwnerUserId="24430" LastActivityDate="2019-10-02T12:16:51.473" Title="What are the possible consequences of the Thomas Cook collapse regarding the world economy?" Tags="&lt;financial-crises&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32107" PostTypeId="1" AcceptedAnswerId="32109" CreationDate="2019-10-02T15:19:20.597" Score="0" ViewCount="58" Body="&lt;p&gt;Today in class, we learned about aggregate demand. However, while I understand the shifters, I am an unable to understand what actual movement along the curve represents. Why doesn't a change in price level merely shift the graph to the left or right? What even is the difference between movement along the curve vs. shifting the curve?&lt;/p&gt;&#xA;" OwnerUserId="24359" LastActivityDate="2021-02-04T04:15:33.120" Title="Aggregate Demand" Tags="&lt;macroeconomics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32109" PostTypeId="2" ParentId="32107" CreationDate="2019-10-02T16:16:58.553" Score="5" Body="&lt;p&gt;This is very fundamental and I'd recommend that if you're still not crystal clear about this you should talk to your TA or course instructor, since you'll have a hard time going through the course without fully grasping this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The demand graph represents the relationship between price and quantity, &lt;strong&gt;holding everything else constant&lt;/strong&gt;. So it's saying that as price goes up, everything else being equal, quantity demanded will go down.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When &lt;em&gt;something else&lt;/em&gt; is changing (income, preferences, etc.), then there is usually a &lt;strong&gt;shift&lt;/strong&gt; in the demand curve.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Bottom line: if price is the only thing that's changing (everything else is constant), it's a shift along the curve. If something else is changing, then the curve would shift.&lt;/p&gt;&#xA;" OwnerUserId="5145" LastActivityDate="2019-10-02T16:16:58.553" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32110" PostTypeId="1" CreationDate="2019-10-02T16:46:22.863" Score="1" ViewCount="56" Body="&lt;p&gt;In my research I am trying to find minimal conditions to guarantee a quasi-equilibrium must always be a typical Arrow-Debreu equilibria in a rather specific production setting.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This may be rather trivial/maybe I'm misunderstanding something, but I am struggling to show that agents endowed with goods will never have zero-prices on their goods. This seems to intuitively be true to me because it makes no sense for an agent to give away a good for free if they might make profit on it/can just keep it for themselves otherwise, but I can't see why market clearing and optimal production would imply that consumers never have zero prices at a quasi-equilibria.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Long story short, could somebody explain to me what stops agents from having zero prices on goods in an Arrow-Debreu production economy? What types of assumptions are necessary? Again, sorry if this is a silly question. I'm a mathematician by trade and have only recently started working with economic models.&lt;/p&gt;&#xA;" OwnerUserId="24434" LastActivityDate="2020-04-21T06:02:55.310" Title="What guarantees that endowed agents have non-zero prices in an Arrow-Debreu Economy" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;general-equilibrium&gt;&lt;competitive-equilibrium&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="32111" PostTypeId="1" CreationDate="2019-10-02T23:55:26.087" Score="-1" ViewCount="167" Body="&lt;p&gt;The asymptotic sampling distribution, after taking plim, of the OLS estimator is given by &lt;span class=&quot;math-container&quot;&gt;$\sqrt{N}(\hat{\beta}-\beta) = E[X_iX_i^T]^{-1} \left(1/\sqrt{N} \sum_{I=1}^NX_ie_i \right) $&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It must be shown that the asymptotic variance can be written as: &lt;span class=&quot;math-container&quot;&gt;$ Var[E[X_iX_i^T]^{-1} 1/\sqrt{N} \sum_{I=1}^NX_ie_i] = \left( E[X_iX_i^T]^{-1} \right) &#xA;   \left( E[X_iX_i^T e_i^2]\right)&#xA;    \left( E[X_i X_i^T]^{-1} \right) $&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Because the variance is linear in parameters, my idea was to start like this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$V[\sqrt{N}(\hat{\beta}-\beta)] = \sqrt{N}Var[\hat{\beta}] + 0$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Because the &lt;span class=&quot;math-container&quot;&gt;$Var[\beta]=0$&lt;/span&gt;. Thus one could use the fact that &lt;span class=&quot;math-container&quot;&gt;$Var[\hat{\beta}]=E[(\hat{\beta}-\beta)(\hat{\beta}-\beta)^T]$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, while there seems to be a relationship I stuck at this point, mostly because of the &lt;span class=&quot;math-container&quot;&gt;$\sqrt{N}$&lt;/span&gt;. Thanks for help.&lt;/p&gt;&#xA;" OwnerUserId="24435" LastEditorUserId="24435" LastEditDate="2019-10-03T01:00:38.470" LastActivityDate="2019-10-09T16:23:36.787" Title="How to derive the asymptotic variance from the sampling distribution of the OLS estimator?" Tags="&lt;econometrics&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="32114" PostTypeId="1" CreationDate="2019-10-03T03:56:56.957" Score="0" ViewCount="64" Body="&lt;p&gt;I'm having trouble on my homework and I need some help.&#xA;A company sells products in a perfectly competitive market, where the price is &lt;span class=&quot;math-container&quot;&gt;$p = 24.$&lt;/span&gt; For each of the following cost functions, write down the company’s profit-maximization problem, and then find &lt;span class=&quot;math-container&quot;&gt;$q^∗$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;i. &lt;span class=&quot;math-container&quot;&gt;$C(q) = 2q^3$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;ii. &lt;span class=&quot;math-container&quot;&gt;$C(q)=30q+q^2$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;iii. &lt;span class=&quot;math-container&quot;&gt;$C(q) = 10q$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;iv. &lt;span class=&quot;math-container&quot;&gt;$C(q) = 24q$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I finished i and ii on my own, for i, &lt;span class=&quot;math-container&quot;&gt;$$\max_q \text{Total Revenue}-\text{Total Cost} = \max_q 24q-2q^3,$$&lt;/span&gt; then I take the derivative of max, I get &lt;span class=&quot;math-container&quot;&gt;$24-6(q^*)^2$&lt;/span&gt; and set it equal to 0, I get &lt;span class=&quot;math-container&quot;&gt;$q^*=2$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$q^*=-2$&lt;/span&gt;, then use the second-order condition find out &lt;span class=&quot;math-container&quot;&gt;$q^*=2$&lt;/span&gt;. For ii, I get &lt;span class=&quot;math-container&quot;&gt;$q^*=-3$&lt;/span&gt;.&#xA;But for iii, I get &lt;span class=&quot;math-container&quot;&gt;$$24q-10q=14q,$$&lt;/span&gt; when I take derivative I get &lt;span class=&quot;math-container&quot;&gt;$14$&lt;/span&gt;, how can I set &lt;span class=&quot;math-container&quot;&gt;$14=0$&lt;/span&gt;? What is &lt;span class=&quot;math-container&quot;&gt;$q^*4$&lt;/span&gt; in this situation? Or does &lt;span class=&quot;math-container&quot;&gt;$q^*$&lt;/span&gt; even exist?&#xA;Also for iv, &lt;span class=&quot;math-container&quot;&gt;$max'$&lt;/span&gt; is &lt;span class=&quot;math-container&quot;&gt;$0$&lt;/span&gt;, what is &lt;span class=&quot;math-container&quot;&gt;$q^*$&lt;/span&gt; in this situation?&#xA;Any help would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="24440" LastEditorUserId="1601" LastEditDate="2019-10-06T06:38:45.703" LastActivityDate="2019-10-06T06:38:45.703" Title="profit-maximization" Tags="&lt;microeconomics&gt;&lt;profit-maximization&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32115" PostTypeId="1" AcceptedAnswerId="32117" CreationDate="2019-10-03T04:00:49.967" Score="3" ViewCount="166" Body="&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Basic_income&quot; rel=&quot;nofollow noreferrer&quot;&gt;UBI&lt;/a&gt; - universal basic income (everyone gets a set amount per period)&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;If you've heard anything about me, it's that there's an Asian man&#xA;  running for president that wants to give every American $1000 dollars&#xA;  a month &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Andrew Yang 2020 Candidate (#YangGang)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;But would this really make a difference?&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Alaska is already experimenting with UBI, and it's working great! Every year, Alaskans get around $1000, and this has actually contributed to people working more often, and businesses opening up more jobs. Whatever the case, the important thing is that UBI is a success in Alaska, but why not the entirety of America? Two reasons.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;America's population is 450 times that of Alaska&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;There are just too many difference factors (opposing parties, different state laws, etc.)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;So when we give American's $1000 every month, what will this actually achieve? Well first, paying it won't be a problem. Yang has clearly laid out a very specific plan on where he would get all this money, but the real question is how would people react?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have a few ideas on this, and I'm not sure if it's correct or not.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) More immigration? People see UBI as a benefit for living in the States&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) Bad environment? Lower class people will buy more drugs, alcohol, and stuff like that, creating a negative atmosphere or a bad stereotype in America&lt;/p&gt;&#xA;&#xA;&lt;p&gt;3) Help renew the economy? More money is now into circulation through shops and businesses, creating a more stable and expanding economy***&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Recap. What I think will happen is when UBI is put into place, we should see a lot of immigration to America. In addition, some low class people will buy more abusive substances, therefore creating a bad rep for the country. But the positive side is that America's economy can now renew itself since people are buying more goods, therefore circulating more money into the system. Am I right? Probably not. What am I missing here?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any advice would be highly helpful. Thanks!&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;***The 4th industrial revolution is here. Robots are replacing millions of jobs across America, causing people to not have enough money. When people don't have enough money, they reduce their spendings. On what exactly? Groceries, clothes, fast food, etc. This causes a chain reaction of events that leads to the economy becoming dry since no one is spending their money. Am I correct here?&lt;/p&gt;&#xA;" OwnerDisplayName="user24424" LastEditorUserId="40" LastEditDate="2019-10-03T08:06:19.220" LastActivityDate="2019-10-03T08:56:34.137" Title="What are the benefits of UBI?" Tags="&lt;macroeconomics&gt;&lt;basic-income&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32116" PostTypeId="2" ParentId="32114" CreationDate="2019-10-03T04:26:15.203" Score="4" Body="&lt;p&gt;My professor once said, when doing economics, don't get stuck in mathematics. Math is just a tool.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You know that the price will always be 24 per piece. For (iii), your cost is &lt;span class=&quot;math-container&quot;&gt;$C(q) = 10q$&lt;/span&gt;. What's the cost per piece to produce it? Is it more or less than what you could sell? If it's the former, you're guaranteed to make profit for each piece you make. If it's the latter, you'll make a loss for each piece you make. Given this, what does that say about the quantity you should produce?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;Edit&lt;/em&gt;: well you could get stuck in math... but need to realize that for a function &lt;span class=&quot;math-container&quot;&gt;$f(x)$&lt;/span&gt; to be maximized at &lt;span class=&quot;math-container&quot;&gt;$x^*$&lt;/span&gt; where &lt;span class=&quot;math-container&quot;&gt;$f'(x^*) = 0$&lt;/span&gt; you need the second order condition, namely &lt;span class=&quot;math-container&quot;&gt;$f''(x^*) &amp;lt; 0$&lt;/span&gt;, to hold as well.&lt;/p&gt;&#xA;" OwnerUserId="5145" LastEditorUserId="5145" LastEditDate="2019-10-03T15:42:04.137" LastActivityDate="2019-10-03T15:42:04.137" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32117" PostTypeId="2" ParentId="32115" CreationDate="2019-10-03T08:56:34.137" Score="4" Body="&lt;p&gt;This is a huge question and I doubt any SE answer could address this fully, but I would like to elaborate on a few points.&lt;/p&gt;&#xA;&#xA;&lt;h1&gt;Effects of the Alaska Permanent Fund Dividend&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;I would argue that the primary success of the Alaska Permanent Fund Dividend is its positive effect on decreasing poverty. The effect on employment seems to be more neutral. Here is an exerpt from the &lt;a href=&quot;https://www.nber.org/papers/w24312.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;latest research paper&lt;/a&gt; by the National Bureau of Economic Research related to the subject,&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The employment to population ratio in Alaska after the introduction of&#xA;  the dividend is similar to that of synthetic control states. On the&#xA;  other hand, the share of people employed part-time in the overall&#xA;  population increases by 1.8 percentage points after the introduction&#xA;  of the dividend and relative to the synthetic controls. The&#xA;  unconditional cash transfer thus has no significant effect on&#xA;  employment, yet increases part-time work. &lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Given prior findings on the magnitude of the income effect, it is&#xA;  somewhat surprising for an unconditional cash transfer not to decrease&#xA;  employment. General equilibrium effects could explain why we do not&#xA;  find a negative effect on employment. Indeed, in our unique setting,&#xA;  the whole population in the state receives the dividend. Therefore, it&#xA;  is plausible that the dividend increases labor demand through its&#xA;  effects on consumption. And indeed, we find that the non-tradable&#xA;  sector shows more favorable effects than the tradable sector. In the&#xA;  tradable sector, employment decreases and part-time work increases,&#xA;  while in the non-tradable sector the effects on both employment and&#xA;  part-time work are close to zero and insignificant. Overall, the&#xA;  evidence is consistent with positive macro effects offsetting any&#xA;  negative micro effects, and leading to an overall null effect of an&#xA;  unconditional cash transfer on aggregate employment in the long-run.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In my opinion, that employment didn't decrease is surprising and positive. But I have heard some people spin its effect on jobs negatively by mentioning how it didn't increase employment. My guess is as time goes on people will spin this data in whatever way they see fit.&lt;/p&gt;&#xA;&#xA;&lt;h1&gt;On the 4th industrial revolution&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;Yang asserts that millions of manufacturing jobs have disappeared in the Midwest and that is how Donald Trump got elected. As the following chart shows manufacturing jobs have declined in number since 2000 without much recovery,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/uYpHD.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/uYpHD.png&quot; alt=&quot;manufacturing jobs&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://economics.stackexchange.com/q/15558/8387&quot;&gt;But stagnant wages have been an issue since 1970&lt;/a&gt;, and I think this has caused some push back among many economists that argue the effects of automation have been over-amplified over the effects of de-unionization. That said UBI could act as an expensive large scale form of unionization.&lt;/p&gt;&#xA;&#xA;&lt;h1&gt;On the framing of payments&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;I hear a lot of people talk about how the government would &quot;pay for something&quot; and personally I don't like the framing of this question. &lt;a href=&quot;http://www.igmchicago.org/surveys/balanced-budget-amendment&quot; rel=&quot;nofollow noreferrer&quot;&gt;It often weakly implies that the government can't run a budget deficit.&lt;/a&gt; In the &lt;a href=&quot;http://www.columbia.edu/dlc/wp/econ/vickrey.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;Fifteen Fatal Fallacies of Financial Fundamentalism&lt;/em&gt;&lt;/a&gt;, William Vickery eloquently addresses this as follows:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Deficits are considered to represent sinful profligate spending at the&#xA;  expense of future generations who will be left with a smaller&#xA;  endowment of invested capital. This fallacy seems to stem from a false&#xA;  analogy to borrowing by individuals.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;Current reality is almost the exact opposite. Deficits add to the net&#xA;  disposable income of individuals, to the extent that government&#xA;  disbursements that constitute income to recipients exceed that&#xA;  abstracted from disposable income in taxes, fees, and other charges.&#xA;  This added purchasing power, when spent, provides markets for private&#xA;  production, inducing producers to invest in additional plant capacity,&#xA;  which will form part of the real heritage left to the future. This is&#xA;  in addition to whatever public investment takes place in&#xA;  infrastructure, education, research, and the like. Larger deficits,&#xA;  sufficient to recycle savings out of a growing gross domestic product&#xA;  (GDP) in excess of what can be recycled by profit-seeking private&#xA;  investment, are not an economic sin but an economic necessity.&#xA;  Deficits in excess of a gap growing as a result of the maximum&#xA;  feasible growth in real output might indeed cause problems, but we are&#xA;  nowhere near that level.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Note that while the above was written in 1996, the last sentence still applies in the year 2019. &lt;a href=&quot;https://fred.stlouisfed.org/series/CPIAUCSL&quot; rel=&quot;nofollow noreferrer&quot;&gt;Notably, inflation is still below the 2% target.&lt;/a&gt; Instead we should always be asking does this expenditure make sense? &quot;Make sense&quot; is of course a broad term but vaguely we are concerned with whether it would increase GDP, increase life expectancy, decrease child mortality, etc. Or to put it differently, is this the best way to spend trillions of dollars?&lt;/p&gt;&#xA;&#xA;&lt;h1&gt;On the effects of UBI&lt;/h1&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;blockquote&gt;&#xA;    &lt;p&gt;Bad environment? Lower class people will buy more drugs, alcohol, and stuff like that, creating a negative atmosphere or a bad stereotype in America&lt;/p&gt;&#xA;  &lt;/blockquote&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I think this is an unjustified fear. &lt;a href=&quot;http://www.scottsantens.com/what-do-we-do-about-drug-users-with-basic-incomes&quot; rel=&quot;nofollow noreferrer&quot;&gt;None of the UBI pilots so far have seen increased drug rate use in participants.&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;blockquote&gt;&#xA;    &lt;p&gt;But the positive side is that America's economy can now renew itself since people are buying more goods&lt;/p&gt;&#xA;  &lt;/blockquote&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;UBI implemented through a VAT tax and debt monetization is effectively a redistribution mechanism from those who consume more and those who hold more cash. Broadly, &lt;a href=&quot;https://www.theguardian.com/business/2015/jun/15/focus-on-low-income-families-to-boost-economic-growth-says-imf-study&quot; rel=&quot;nofollow noreferrer&quot;&gt;poor people should get more money to consume, which should boost GDP&lt;/a&gt;:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The IMF report said the way income is distributed matters for growth. &quot;If the income share of the top 20% increases, then GDP growth actually&#xA;  declines over the medium term, suggesting that the benefits do not&#xA;  trickle down. In contrast, an increase in the income share of the&#xA;  bottom 20% is associated with higher GDP growth.&quot;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="8387" LastActivityDate="2019-10-03T08:56:34.137" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32118" PostTypeId="2" ParentId="32103" CreationDate="2019-10-03T11:25:46.937" Score="0" Body="&lt;p&gt;If interest rates decrease, people have less alternatives to lend at higher rates. Thus people are willing to accept lower yields. Hence, bonds prices go up (and yields go down).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the default risk increases, people want higher yields to make up for that risk. Hence, bonds prices go down (and yields go up).&lt;/p&gt;&#xA;" OwnerUserId="8387" LastActivityDate="2019-10-03T11:25:46.937" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="32120" PostTypeId="1" AcceptedAnswerId="32121" CreationDate="2019-10-03T12:22:34.823" Score="4" ViewCount="264" Body="&lt;p&gt;Out of personal interest I wanted to find out which carbon footprint one bitcoin transaction produces. Following I will present my calculation. The result surprises me and my question is &lt;strong&gt;Is this realistic? Did I make mistake?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Variables&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Transaction throughput: &lt;span class=&quot;math-container&quot;&gt;$\approx 4\frac{tx}{s}$&lt;/span&gt;  &lt;a href=&quot;https://www.blockchain.com/de/charts/transactions-per-second?daysAverageString=7&amp;amp;timespan=1year&quot; rel=&quot;nofollow noreferrer&quot;&gt;source&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;Bitcoin energy consumption &lt;span class=&quot;math-container&quot;&gt;$\approx 8.00GW$&lt;/span&gt; &lt;a href=&quot;https://www.cbeci.org/&quot; rel=&quot;nofollow noreferrer&quot;&gt;source&lt;/a&gt;&lt;/li&gt;&#xA;&lt;li&gt;Carbon emission per &lt;span class=&quot;math-container&quot;&gt;$\approx \frac{0.5kg}{kWh}$&lt;/span&gt; CO2 &lt;a href=&quot;https://www.umweltbundesamt.de/themen/co2-emissionen-pro-kilowattstunde-strom-sinken&quot; rel=&quot;nofollow noreferrer&quot;&gt;germany&lt;/a&gt; (Not sure if China is lower or higher here, since mining mostly happens in China)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Calculations&lt;/strong&gt;&lt;br&gt;&#xA;Transactions per hour: &lt;span class=&quot;math-container&quot;&gt;$4\frac{tx}{s} = 60*4\frac{tx}{m} = 60*60*4\frac{tx}{h} = 14.400\frac{tx}{h}$&lt;/span&gt;&lt;br&gt;&#xA;Energy Consumption per hour: &lt;span class=&quot;math-container&quot;&gt;$8.00GWh = 8 * 10^6kWh$&lt;/span&gt;&lt;br&gt;&#xA;Energy Consumption per transaction &lt;span class=&quot;math-container&quot;&gt;$\frac{8 * 10^6kWh}{14.400tx} \approx 555\frac{kWh}{tx}$&lt;/span&gt;&lt;br&gt;&#xA;Carbon footprint per transaction &lt;span class=&quot;math-container&quot;&gt;$555\frac{kWh}{tx} * \frac{0.5kg}{kWh} \approx 277\frac{kg}{tx}$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the whole energy used for bitcoin was produced in germany one bitcoin transaction would have a carbon footprint of 277kg. If we take &lt;a href=&quot;https://www.rensmart.com/Calculators/KWH-to-CO2&quot; rel=&quot;nofollow noreferrer&quot;&gt;Finland&lt;/a&gt; for example with more reneweable energies (&lt;span class=&quot;math-container&quot;&gt;$\frac{0.113kg}{kWh}$&lt;/span&gt;) it would be 77kg CO2. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;For reference: A single flight form Hamburg to Munich (600km, aprox. 1h) is 161kg &lt;a href=&quot;https://co2.myclimate.org/de/portfolios?calculation_id=2641900&quot; rel=&quot;nofollow noreferrer&quot;&gt;myclimate&lt;/a&gt;. The compensation of 277kg CO2 is roughly $6.50 with &lt;a href=&quot;https://www.atmosfair.de/en/offset/fix&quot; rel=&quot;nofollow noreferrer&quot;&gt;atmosfair&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="24448" LastActivityDate="2019-10-03T14:02:24.367" Title="CO2 footprint per bitcoin transaction" Tags="&lt;bitcoin&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32121" PostTypeId="2" ParentId="32120" CreationDate="2019-10-03T13:55:47.757" Score="2" Body="&lt;p&gt;I did some napkin math based on your data. At 4 tx/s and 8GW, that is 2GWs per transaction. 0.5kg/kWh is around 139kg/GWs. Thus each transaction is around 278kg. Looks like we reached the same answer. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But is this the carbon footprint of one Bitcoin transaction? To put it differently, if there was a global carbon tax, would it makes sense to charge for 278kg per transaction? Probably not. In fact, almost certainly most of the tax would just apply to the electricity bill of Bitcoin miners, which is split between hashing for the block reward and processing transactions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are &lt;a href=&quot;https://www.blockchain.com/charts/n-transactions-per-block&quot; rel=&quot;nofollow noreferrer&quot;&gt;roughly 2000 transactions per block&lt;/a&gt;. Each transaction costs roughly \$1. The block reward is 12.5 Bitcoins as of now. At \$8200 per Bitcoin, roughly &lt;span class=&quot;math-container&quot;&gt;$\$2000/(12.5\space\text{BTC} \times \$8200/\text{BTC} + \$2000)=0.0191$&lt;/span&gt; or 2% of a miner's electricity bill goes to transaction processing. So perhaps it makes more sense to say that each transaction costs around &lt;span class=&quot;math-container&quot;&gt;$278\space\text{kg} \times 0.02=5.56$&lt;/span&gt;kg of carbon.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So what about the rest of the carbon? In some sense, the main job that PoW does is preserving the integrity of existing token balances. The block reward is seniorage. This a similar principle to how central banks print more money and thus reduce the value of existing bank notes and coins. As of now &lt;a href=&quot;https://www.blockchain.com/charts/total-bitcoins&quot; rel=&quot;nofollow noreferrer&quot;&gt;there are close to 18 million Bitcoin in existence&lt;/a&gt;. Continuing with your carbon emission numbers, each Bitcoin holder that isn't transacting is then responsible for &lt;span class=&quot;math-container&quot;&gt;$((8/(18 \times 10^6)) \times 139) \times 0.98=0.000060542$&lt;/span&gt;kg of carbon per second per Bitcoin or 5.23kg of carbon per day per Bitcoin.&lt;/p&gt;&#xA;" OwnerUserId="8387" LastEditorUserId="8387" LastEditDate="2019-10-03T14:02:24.367" LastActivityDate="2019-10-03T14:02:24.367" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32123" PostTypeId="2" ParentId="24229" CreationDate="2019-10-03T15:52:02.543" Score="0" Body="&lt;p&gt;Just to add to the other answers here:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A constant rate is desirable because in general, information flow is not instantaneous, and delays in information flow in dynamical systems lead to oscillations.  Friedman's point about the desirability of a constant inflation rate could be understood as a point about oscillations - an oscillating inflation rate necessarily produces time-arbitration opportunities, leading to oscillations in consumption and savings behavior that are detached from fundamentals.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The rate of inflation acts as a brake on economic growth. The goal is to produce a &quot;critically damped&quot; system that grows as fast as possible while minimizing oscillations around its steady state (in the Solow model, this is the &quot;golden steady state&quot;). In this context, a zero inflation rate implies perfect and instantaneous information flow to all agents in the economy - but in a world where price-setting is an emergent (read: market-based) process and menu costs are a thing, this is not a realistic scenario.&lt;/p&gt;&#xA;" OwnerUserId="24275" LastActivityDate="2019-10-03T15:52:02.543" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32124" PostTypeId="2" ParentId="32114" CreationDate="2019-10-03T16:57:09.033" Score="0" Body="&lt;p&gt;You can get some insight by looking at iv). It's a similar problem, but has a very clear and easy to see result.  These questions are helping you remember that &quot;corner solutions&quot; exist, and you should always be on the lookout for them.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Remember that you can't find a unique solution to the optimization problem if your objective function (profits = revenues - costs) has no critical points. This is OK - in the real world, countless frictions exist that are not expressed in your model, but would probably take care of any unintuitive results.&lt;/p&gt;&#xA;" OwnerUserId="24275" LastActivityDate="2019-10-03T16:57:09.033" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32126" PostTypeId="2" ParentId="32102" CreationDate="2019-10-03T20:01:49.597" Score="1" Body="&lt;p&gt;You don't need more detail, you need less:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose a firm could make production choice A, or production choice B.  Suppose the firm chooses A, and is maximizing profits.  Then, this implies that the firm is making &lt;em&gt;as much or more&lt;/em&gt; profits as it would make if it had chosen B.&lt;/p&gt;&#xA;" OwnerUserId="24275" LastActivityDate="2019-10-03T20:01:49.597" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="32127" PostTypeId="1" CreationDate="2019-10-03T21:05:45.627" Score="2" ViewCount="98" Body="&lt;p&gt;I was just reading how \$1 from sometime in the mid-1800s is worth a little over $30 today.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This got me wondering, where does this go in the long term? In the year 2400, will a loaf of bread be $200? Will an average house be tens of millions? What about the year 2700?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My understanding is that inflation is a universal economic phenomenon. Has a currency ever lasted long enough to know where it leads in the very long term? If not, are there theories predicting what might happen?&lt;/p&gt;&#xA;" OwnerUserId="6951" LastActivityDate="2020-07-17T06:41:53.183" Title="What is the long term outcome of inflation?" Tags="&lt;inflation&gt;" AnswerCount="3" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="32128" PostTypeId="2" ParentId="32111" CreationDate="2019-10-03T23:41:59.960" Score="0" Body="&lt;p&gt;First,&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\sqrt{N}(\hat\beta - \beta) = \left( \frac{1}{N} \sum_{i=1}^N X_i X_i^T \right)^{-1} \frac{1}{\sqrt{N}} \sum_{i=1}^N X_i e_i.$$&lt;/span&gt;&#xA;(No. You can't take plim.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Next, apply LLN to the &quot;denominator&quot;, and apply CLT to the &quot;numerator&quot;. Then, under the assumption that &lt;span class=&quot;math-container&quot;&gt;$plim \frac{1}{N} \sum_{i=1}^n X_iX_i^T$&lt;/span&gt; is nonsingular and that &lt;span class=&quot;math-container&quot;&gt;$\frac{1}{\sqrt{N}} \sum_{i=1}^N X_i e_i$&lt;/span&gt; converges in distribution to a centered Gaussian distribution, you will be able to show that&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\sqrt{N}(\hat\beta - \beta) \rightarrow N(0, C)$$&lt;/span&gt;&#xA;for some &lt;span class=&quot;math-container&quot;&gt;$C$&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$C$&lt;/span&gt; is called the asymptotic variance of &lt;span class=&quot;math-container&quot;&gt;$\sqrt{N}(\hat\beta - \beta)$&lt;/span&gt;. (Please derive &lt;span class=&quot;math-container&quot;&gt;$C$&lt;/span&gt; yourself for this OLS case using &quot;if &lt;span class=&quot;math-container&quot;&gt;$plim A_n = A$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$b_n \rightarrow N(0,B)$&lt;/span&gt;, then &lt;span class=&quot;math-container&quot;&gt;$A_n b_n \rightarrow N(0, ABA^T)$&lt;/span&gt;.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, the &quot;asymptotic variance&quot; of &lt;span class=&quot;math-container&quot;&gt;$\hat\beta$&lt;/span&gt; is &lt;em&gt;defined&lt;/em&gt; as&#xA;&lt;span class=&quot;math-container&quot;&gt;$$AV(\hat\beta) = \frac{1}{N} AV( \sqrt{N}(\hat\beta - \beta)).$$&lt;/span&gt;&#xA;(This is my definition. Others may define it differently. I don't know yours.)&#xA;According to this definition, &lt;span class=&quot;math-container&quot;&gt;$AV(\hat\beta) = \frac{1}{N} C$&lt;/span&gt;. You have already derived &lt;span class=&quot;math-container&quot;&gt;$C$&lt;/span&gt; above. Divide it by &lt;span class=&quot;math-container&quot;&gt;$N$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One step further: I don't know how you define asymptotic variances. Depending on the exact definition of &lt;span class=&quot;math-container&quot;&gt;$AV$&lt;/span&gt;, you may need to remove &lt;span class=&quot;math-container&quot;&gt;$\lim$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$plim$&lt;/span&gt; from &lt;span class=&quot;math-container&quot;&gt;$C$&lt;/span&gt; and cancel &lt;span class=&quot;math-container&quot;&gt;$N$&lt;/span&gt;'s here and there. Some people also mean by &lt;span class=&quot;math-container&quot;&gt;$AV(\hat\beta)$&lt;/span&gt; a consistent estimator of &lt;span class=&quot;math-container&quot;&gt;$C$&lt;/span&gt; divided by &lt;span class=&quot;math-container&quot;&gt;$N$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerUserId="10775" LastActivityDate="2019-10-03T23:41:59.960" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="32129" PostTypeId="2" ParentId="32127" CreationDate="2019-10-04T01:10:47.350" Score="1" Body="&lt;p&gt;The long term outcome of inflation is that Denomination eventually becomes excessive and must be re denominated&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.m.wikipedia.org/wiki/Hungarian_peng%C5%91&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://en.m.wikipedia.org/wiki/Hungarian_peng%C5%91&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerDisplayName="user24454" LastActivityDate="2019-10-04T01:10:47.350" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32132" PostTypeId="1" CreationDate="2019-10-04T05:03:07.400" Score="3" ViewCount="36" Body="&lt;p&gt;Basically Eurostat trade &lt;a href=&quot;https://ec.europa.eu/eurostat/statistics-explained/index.php/China-EU_-_international_trade_in_goods_statistics#Trade_with_China_by_Member_State&quot; rel=&quot;nofollow noreferrer&quot;&gt;data&lt;/a&gt; for individual EU member countries with China seems to have some substantial artefacts probably because most EU imports from China arrive in Dutch ports, even though their ultimate destination is probably all over the EU. It's hard to explain otherwise the huge figure for Dutch imports (and thus trade balance) from/with China relative to Dutch population, economy, etc.&lt;/p&gt;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/UAkop.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/UAkop.png&quot; alt=&quot;enter image description here&quot; /&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&lt;p&gt;&lt;strong&gt;Are there any data sources or papers that try to adjust for this Rotterdam effect, i.e. figure out where those Chinese imports are really headed in the EU (and adjust the trade figures per member country accordingly)?&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;p&gt;(Thanks to Henry for pointing out the right term.) Eurostat actually acknowledges the issue &lt;a href=&quot;https://ec.europa.eu/eurostat/web/international-trade-in-goods/faq&quot; rel=&quot;nofollow noreferrer&quot;&gt;in a FAQ&lt;/a&gt;, but does not try to quantify it:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;The quasi-transit is known to impact mostly the Member States with big ports at the external border to the European Union and in particular the Netherlands. This is why its impact on figures is known as the ‘Rotterdam effect’. In case of imports, the goods destined to other EU Member States arriving in Dutch ports are recorded, according to Community rules, as extra-EU imports by the Netherlands (the country where goods are released for free circulation) and as dispatches from the Netherlands to the Member States of actual destination even though there is no link with economy of the Netherlands.&lt;/p&gt;&#xA;&lt;p&gt;The quasi-transit is known to impact more the imports but exports are also affected. In exceptional cases, the customs clearance occurs not in the actual Member State of export but in the Member State of exit, i.e. in the Member State from which the goods are taken out of the EU customs territory.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="6210" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2019-10-04T08:14:45.097" Title="Is there a way to adjust trade data between China and EU member countries for the Rotterdam effect?" Tags="&lt;international-trade&gt;&lt;european-union&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32133" PostTypeId="2" ParentId="32132" CreationDate="2019-10-04T06:38:26.440" Score="1" Body="&lt;p&gt;This seems relevant: &lt;a href=&quot;https://ideas.repec.org/p/cpb/docmnt/127.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;China and the Dutch Economy&lt;/em&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have only a limited experience in this, but here are some approaches you could look at.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Re-export data&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;UN Comtrade has re-exports data (products that the Netherlands import and export in the same form to other countries). Using this, you could make an assumption that x% of goods imported from China are re-exported to the EU. Assuming that this share of re-export actual source countries are the same for Dutch exports to the EU, you could get a rough estimate of how much goods from China goes to each EU country. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Using aggregate data, this could be a very far-off estimate. Belgium could import a lot from Netherlands, but all it imports are tulip flowers. To account for this, you can look at this on a HS-code level and you should get a reasonable estimate.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;TiVA&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Another approach is to look at the TiVA (trade in value-added) concept. This should tell you each country's value-added into an import of a country. OECD has this data, but I don't believe it covers all EU-28. Here's a &lt;a href=&quot;https://www.oecd.org/sti/ind/measuring-trade-in-value-added.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;link&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="5145" LastActivityDate="2019-10-04T06:38:26.440" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32134" PostTypeId="2" ParentId="27699" CreationDate="2019-10-04T08:23:41.777" Score="0" Body="&lt;p&gt;There are some reasons why trade unions are not perfectly be deprived of power by free trade. Important is the question whether the products are for the domestic market or for export. When the production targets the domestic market, a relocation to a foreign country means a weakening of the purchasing power in the local economy, which can affect the own sales. In addition to this, the additional transport costs possibly exceed the saving of labor costs. Thus the investment makes only sense if a market for the products also exists or arises in the target country. The transaction costs can also increase and the influence on the development will decrease due to a relocation abroad. So it can happen more easily, that market trends are missed and market shares are lost. The degree of automation will possibly differ, which in turn will influence the quality of the results.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Complex industrial goods often also require a grown industrial environment and well-trained, specialized workforce. Relocations to foreign countries are therefore strategic decisions, which have to be well considered, because in most cases, a suitable environment must first be created in the target country.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The situation is different for goods with relatively short value-added chains that are globally traded, such as clothing. However, these are today already only produced in exceptional cases in high-wage countries. For this kind of goods the trade unions in the low-wage countries are also in a difficult position, because they compete with the automation costs in high-wage countries.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Trade unions can judge very well how great their respective power is, and&#xA;will shape their demands accordingly.&lt;/p&gt;&#xA;" OwnerUserId="12910" LastActivityDate="2019-10-04T08:23:41.777" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32136" PostTypeId="1" CreationDate="2019-10-05T03:43:42.993" Score="0" ViewCount="39" Body="&lt;p&gt;Under what criteria a regressive or proportional tax can be used to fully fund a welfare program or policy that it's progressive (i.e., one that benefits lower-income people more) in nature? Are there any examples worldwide?&lt;/p&gt;&#xA;" OwnerUserId="24461" LastActivityDate="2019-10-05T03:43:42.993" Title="Can a progressive policy be solely funded by a regressive or even proportional tax?" Tags="&lt;taxation&gt;" AnswerCount="0" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="32137" PostTypeId="2" ParentId="32127" CreationDate="2019-10-05T11:07:41.740" Score="2" Body="&lt;p&gt;Inflation is not a fixed number, so there is no way to predict the value that a loaf of bread or an average house will be in 2400 or 2700. Inflation is the result of a complex macroeconomic process rooted in the behaviour of individuals, and people's &lt;em&gt;expectation&lt;/em&gt; of future inflation. The central bank is a key role player, so the integrity of that institution will determine how stable inflation is.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When there is high inflation, in the long run governments often just divide the numerical value of the currency by, for example, a million, in order to simplify the currency for the population. That doesn't change how much real wealth people hold, since it is done across the board. There is a common understanding that, for example, 1 million Zimbabwen Dollars yesterday is the same thing as 1 Zimbabwen Dollar today, so everyone catches on as to what happened.&lt;/p&gt;&#xA;" OwnerUserId="175" LastActivityDate="2019-10-05T11:07:41.740" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32138" PostTypeId="1" CreationDate="2019-10-05T12:12:49.110" Score="2" ViewCount="52" Body="&lt;p&gt;DSGE models and BVARs are commonly used in academia and policy circles. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;They generate different performances (e.g., in forecasting) and perhaps serve different purposes. Notwithstanding, they have a relationship and mapping to one another, and may be used jointly in forecast combination exercises. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm just wondering if there are specific and well-separated advantages and disadvantages to DSGE relative to BVARs -- for instance as regards certain diagnostic metrics or at certain horizons and certain situations?&lt;/p&gt;&#xA;" OwnerUserId="24464" LastEditorUserId="23546" LastEditDate="2019-10-14T12:21:42.723" LastActivityDate="2019-10-14T12:21:42.723" Title="What's the advantage of DSGE relative to BVARs?" Tags="&lt;macroeconomics&gt;&lt;dsge&gt;&lt;forecasting&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32139" PostTypeId="1" CreationDate="2019-10-05T13:56:33.893" Score="1" ViewCount="50" Body="&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$Y = X\hat{\beta} + Z\hat{\gamma} + e\\&#xA;(X'X)^{-1}X'Y = (X'X)^{-1}X'X\hat{\beta} + (X'X)^{-1}X'Z\hat{\gamma} + (X'X)^{-1}X'e\\&#xA;\hat{\beta}_{short} = \hat{\beta} + \hat{\delta}\hat{\gamma}&#xA;$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where &lt;span class=&quot;math-container&quot;&gt;$\hat{\beta}_{short}$&lt;/span&gt; is the OLS estimator of the coefficient on &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; from the misspecified model that omits &lt;span class=&quot;math-container&quot;&gt;$Z$&lt;/span&gt;, and &lt;span class=&quot;math-container&quot;&gt;$\hat{\delta}$&lt;/span&gt; is from the regression &lt;span class=&quot;math-container&quot;&gt;$Z = X\hat{\delta} + \eta$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This seems infinitely more simple than FWL proofs I've seen in econometrics textbooks. So what is this missing or getting wrong?&lt;/p&gt;&#xA;" OwnerUserId="24465" LastActivityDate="2019-10-05T16:49:46.107" Title="Is this a valid derivation of FWL?" Tags="&lt;regression&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32140" PostTypeId="1" CreationDate="2019-10-05T16:43:04.013" Score="0" ViewCount="183" Body="&lt;p&gt;I recently came across a utility function with min written at the start. I assumed that it was a case of a leontief utility function, and only after going ahead with the problem I found out that it is a case of perfect substitutes. Until then, I didn't even know that perfect substitutes could take this form. How do I identify various utility functions accurately? Are there other such confusing cases which I need to be aware of? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The example I have mentioned above looks something like this: &#xA;      U = Min [2x + y, x + 2y]&lt;/p&gt;&#xA;" OwnerUserId="24422" LastEditorUserId="24422" LastEditDate="2019-10-05T21:02:50.773" LastActivityDate="2019-10-09T18:48:33.787" Title="Identifying utility function" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;" AnswerCount="1" CommentCount="8" ContentLicense="CC BY-SA 4.0" />
  <row Id="32141" PostTypeId="2" ParentId="32139" CreationDate="2019-10-05T16:49:46.107" Score="1" Body="&lt;p&gt;The result is not the &lt;a href=&quot;https://en.wikipedia.org/wiki/Frisch%E2%80%93Waugh%E2%80%93Lovell_theorem&quot; rel=&quot;nofollow noreferrer&quot;&gt;Frisch–Waugh–Lovell Theorem&lt;/a&gt;. Rather, the result shows the extent of &lt;a href=&quot;https://en.wikipedia.org/wiki/Omitted-variable_bias&quot; rel=&quot;nofollow noreferrer&quot;&gt;Omitted variable bias&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Frisch-Waugh-Lovell Theorem states that the &lt;em&gt;residuals&lt;/em&gt; of the regression of &lt;span class=&quot;math-container&quot;&gt;$\boldsymbol y$&lt;/span&gt; on &lt;span class=&quot;math-container&quot;&gt;$\boldsymbol Z$&lt;/span&gt;, regressed on the &lt;em&gt;residuals&lt;/em&gt; of the regression of &lt;span class=&quot;math-container&quot;&gt;$\boldsymbol X$&lt;/span&gt; on &lt;span class=&quot;math-container&quot;&gt;$\boldsymbol Z$&lt;/span&gt;, gives &lt;span class=&quot;math-container&quot;&gt;$\boldsymbol{{\hat\beta}}$&lt;/span&gt;. To put it another way, let &lt;span class=&quot;math-container&quot;&gt;$\boldsymbol{M}$&lt;/span&gt; be the residual maker. Then the regression of &lt;span class=&quot;math-container&quot;&gt;$\boldsymbol{M_Z y}$&lt;/span&gt; on &lt;span class=&quot;math-container&quot;&gt;$\boldsymbol{M_Z X}$&lt;/span&gt; gives &lt;span class=&quot;math-container&quot;&gt;$\boldsymbol{{\hat\beta}}$&lt;/span&gt;. The equation is:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\boldsymbol{\hat\beta} = \left(\boldsymbol{X}'\boldsymbol{M_Z}'\boldsymbol{M_Z X}\right)^{-1}\boldsymbol X'\boldsymbol{M_Z}' \boldsymbol{M_Z y}$$&lt;/span&gt;&#xA;Note that the residual maker matrix is symmetric and idempotent.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An analogous result holds for &lt;span class=&quot;math-container&quot;&gt;$\boldsymbol{\hat\gamma}$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerUserId="175" LastActivityDate="2019-10-05T16:49:46.107" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32143" PostTypeId="1" CreationDate="2019-10-05T17:34:15.437" Score="1" ViewCount="67" Body="&lt;p&gt;So, this is an economics question but the problem I have is a pure math problem I guess. So I have the following equation:&lt;a href=&quot;https://i.stack.imgur.com/OaInc.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;f(x,y)&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;this function have the elasticity of substitution(EOS): 1/(1-beta). a,b are constants &gt;0 and beta is also a constant, but is ≤1. So, the general equation for EOS is the following: σ =−(∂log(x/y)) / (∂log((∂f(x,y)/∂x)/(∂f(x,y)/∂y)))&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From some calculus I got following result for the inner part of the denominator(without the log or derivative): &lt;a href=&quot;https://i.stack.imgur.com/YjEXu.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;(∂f(x,y)/∂x)/(∂f(x,y)/∂y)&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the numerator, I rewrite the expression to this(since it appear to be the case that we want to have x/y explicit):&lt;a href=&quot;https://i.stack.imgur.com/CgsKN.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;x/y&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Taking the logarithm of this gives me following result:&lt;a href=&quot;https://i.stack.imgur.com/Adhzz.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;log(x/y)&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Putting these together and insert in to the formula gives me:&lt;a href=&quot;https://i.stack.imgur.com/88h7i.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;σ&lt;/a&gt;&#xA;(note that the index should not be i and j, but x and y, my fault)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Okay, so this is how far as I get. And what I don't get from here is the &quot;∂&quot;-part, what am I suppose to take the derivative off? With respect to what variable? Even though there can be som errors in my calculations leading to that expression I still don't understand how I can take the derivative of an expression like that. The main formula for me does not make sense.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can someone please explain how I should continue?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Sorry for a messy post, I could not figure out if there was an effective way of writing in calculations in the post so I went with pictures instead)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Kind regards, Fridein&lt;/p&gt;&#xA;" OwnerUserId="24469" LastActivityDate="2019-10-05T17:34:15.437" Title="Elasticity of substitution" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;elasticity&gt;&lt;elasticity-of-substituion&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="32146" PostTypeId="1" CreationDate="2019-10-06T10:17:53.683" Score="1" ViewCount="79" Body="&lt;p&gt;I am struggling a bit with the math in my first graduate microeconomics course. I'm not sure if this belongs here. If it doesn't, please direct me to a more appropriate place.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Below is one question along the with provided solution. The red part is the part I don't follow.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/hehkJ.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/hehkJ.png&quot; alt=&quot;Solution image&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't understand how the derivative of &lt;span class=&quot;math-container&quot;&gt;$v(p, e(p,\overline{u}))$&lt;/span&gt; w.r.t. the price vector can evaluate to the LHS of the given equation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Perhaps I'm confused by the vector notation, so any step explaining this equation would be very much appreciated.&lt;/p&gt;&#xA;" OwnerUserId="24473" LastActivityDate="2019-10-06T14:03:57.530" Title="Prove that $h(p,u) = \nabla_p e(p,u)$ is implied by Roy's identity" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32147" PostTypeId="2" ParentId="32146" CreationDate="2019-10-06T14:03:57.530" Score="4" Body="&lt;p&gt;a) The convention, when differentiating a real valued function &lt;span class=&quot;math-container&quot;&gt;$v$&lt;/span&gt; wrt to a column vector &lt;span class=&quot;math-container&quot;&gt;$p$&lt;/span&gt; of dimension &lt;span class=&quot;math-container&quot;&gt;$(G \times 1)$&lt;/span&gt;, is that:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\nabla _{p}v\left( p,w\right) \equiv \frac{\partial v}{\partial p}\left(&#xA;p,w\right) =\left( &#xA;\begin{array}{c}&#xA;\frac{\partial v}{\partial p_{1}}\left( p,w\right)  \\ &#xA;\vdots  \\ &#xA;\frac{\partial v}{\partial p_{G}}\left( p,w\right) &#xA;\end{array}%&#xA;\right). &#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;b) When expenditures &lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt; are not constant, the column vector &lt;span class=&quot;math-container&quot;&gt;$p$&lt;/span&gt; with respect to which we take the derivative occurs twice in &lt;span class=&quot;math-container&quot;&gt;$v(p, e(p,\overline{u}))$&lt;/span&gt;, and the chain rule has to be applied in order to obtain the total effect of the price change on the indirect utility: the first partial effect on utility is due to the price changes, and the second effect is through the adjustment in expenditures implied by the price change. Hence the expression:&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{eqnarray*}&#xA;&amp;amp;&amp;amp;\frac{\partial v}{\partial p}\left( p,e\left( p,u\right) \right) +\frac{%&#xA;\partial v}{\partial w}\left( p,e\left( p,u\right) \right) \frac{\partial e}{%&#xA;\partial p}\left( p,u\right)  \\&#xA;&amp;amp;=&amp;amp;\left( &#xA;\begin{array}{c}&#xA;\frac{\partial v}{\partial p_{1}}\left( p,e(p,u)\right)  \\ &#xA;\vdots  \\ &#xA;\frac{\partial v}{\partial p_{G}}\left( p,e(p,u)\right) &#xA;\end{array}%&#xA;\right) +\frac{\partial v}{\partial w}\left( p,e(p,u)\right) \left( &#xA;\begin{array}{c}&#xA;\frac{\partial e}{\partial p_{1}}\left( p,u\right)  \\ &#xA;\vdots  \\ &#xA;\frac{\partial e}{\partial p_{G}}\left( p,u\right) &#xA;\end{array}%&#xA;\right). &#xA;\end{eqnarray*}&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="20576" LastActivityDate="2019-10-06T14:03:57.530" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32149" PostTypeId="1" CreationDate="2019-10-06T16:09:35.037" Score="1" ViewCount="13" Body="&lt;p&gt;Basel Accord amendment was brought into effect in 1998.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One of the features were:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Allows banks to use proprietary in-house models for measuring market risks&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How were market risks measured before this, and why did they feel the need to amend it?&lt;/p&gt;&#xA;" OwnerUserId="24476" LastActivityDate="2019-10-06T16:09:35.037" Title="Prior to the 1996 Basel Accords, how did banks measure market risk?" Tags="&lt;financial-economics&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32151" PostTypeId="1" CreationDate="2019-10-07T00:53:23.960" Score="4" ViewCount="242" Body="&lt;p&gt;Why don't all investors focus their intentions on development projects in less developed countries? Wouldn't this benefit all parties since the recipient country would be more developed and the investor would make a profit? In other words can it be said that development projects are the type of investments where no one is placed at a disadvantage and everybody prospers? ( p.s. please don't criticize if you find this is a stupid question or I sound redundant, I'm a 17 year old economics student excited to learn as much as I can)&lt;/p&gt;&#xA;" OwnerUserId="23468" LastActivityDate="2019-10-09T01:29:47.290" Title="Does everyone prosper through development projects?" Tags="&lt;economic-growth&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32152" PostTypeId="1" CreationDate="2019-10-07T01:17:38.213" Score="0" ViewCount="28" Body="&lt;p&gt;Taxation schemes can be classified as progressive (the tax rate is higher for higher income brackets), regressive (the tax rate is lower for higher income brackets), or neutral (the tax rate is the same for all income brackets).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Conceptually, as compared to a neutral taxation scheme, a progressive one shifts the tax burden more towards the higher segments of the income distribution, and a regressive one shifts the tax burden more towards the lower segments.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there a way to reason about deficit spending in these terms? That is, which segments of the income distribution does the debt incurred by deficit spending burden more?&lt;/p&gt;&#xA;" OwnerUserId="16131" LastEditorUserId="6210" LastEditDate="2019-10-07T04:18:19.343" LastActivityDate="2019-10-07T04:18:19.343" Title="What impact does deficit spending have on economic inequality?" Tags="&lt;macroeconomics&gt;&lt;taxation&gt;&lt;government-debt&gt;&lt;inequality&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="32153" PostTypeId="2" ParentId="32151" CreationDate="2019-10-07T02:13:27.490" Score="6" Body="&lt;p&gt;A lot of this comes down to risk. A developing country usually don't have very strong &quot;institution&quot; and are much more prone to various kinds of crisis (think military coup, hyperinflation, terrorist attack, &lt;a href=&quot;http://reuters.com/article/us-venezuela-crystallex-idUSKCN1B527D&quot; rel=&quot;nofollow noreferrer&quot;&gt;nationalization*&lt;/a&gt;). An investor might also not be as familiar with the developing country in question* (and hence the risk).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a result, investors require higher return (the &quot;premium&quot;) to invest in these countries. You can see the risk premium by country &lt;a href=&quot;http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/ctryprem.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is why developing credibility could be very helpful in terms of drawing foreign investment into a country.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;* Added from comments below.&lt;/p&gt;&#xA;" OwnerUserId="5145" LastEditorUserId="5145" LastEditDate="2019-10-09T01:29:47.290" LastActivityDate="2019-10-09T01:29:47.290" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="32154" PostTypeId="2" ParentId="29176" CreationDate="2019-10-07T14:11:10.107" Score="0" Body="&lt;p&gt;I don't think the edgeworth box will help here since there is only 1 good in the economy that is exchangeable. According to 1's utility function, he would always want to allocate his entire endowment of time to leisure. Thus, any allocation in which he consumes positive amount of good while consuming less than 1 labor is not efficient, because he can always opt to increase his utility by converting that positive amount of good to leisure and increase his utility. Similarly, you can reason for B. The set of pareto efficient allocations is such that (1-La, Ca, La)&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;ul&gt;&#xA;&lt;li&gt;1 consumes (1,C*,0),&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;2 consumes (0,24-C*,1),  &lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://i.stack.imgur.com/ONRaf.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/ONRaf.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;ul&gt;&#xA;&lt;li&gt;1 consumes (0,0,1)&lt;/li&gt;&#xA;&lt;li&gt;2 consumes (0,28,1)&lt;/li&gt;&#xA;&lt;/ul&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;1 will not envy 2's allocation only if &lt;a href=&quot;https://i.stack.imgur.com/VaJYw.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/VaJYw.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt; and B will not envy A's allocation if &lt;a href=&quot;https://i.stack.imgur.com/xukfm.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/xukfm.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;. Hence there are no envy free allocations.&#xA;The analyses changes when A can produce 7 units from 1 unit of labor. Now, A will always prefer to spend all his time on labor. Thus any allocation in which A consumes positive amount of leisure is not efficient.&#xA;The set of pareto efficient allocations now is such that&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;1 consumes (0,C*, 1)&lt;/li&gt;&#xA;&lt;li&gt;2 consumes (0,31-C*,1)&lt;/li&gt;&#xA;&lt;li&gt;&lt;a href=&quot;https://i.stack.imgur.com/U3dyg.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/U3dyg.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;A will not envy B's allocation only if &lt;a href=&quot;https://i.stack.imgur.com/Xpxu3.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Xpxu3.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&#xA;B will not envy A's allocation only if &lt;a href=&quot;https://i.stack.imgur.com/WEwOC.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/WEwOC.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&#xA;Therefore , the only envy free allocation is (0,31/2,1),(0,31/2,1).&lt;/p&gt;&#xA;" OwnerUserId="23014" LastActivityDate="2019-10-07T14:11:10.107" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32158" PostTypeId="1" CreationDate="2019-10-08T07:05:33.360" Score="0" ViewCount="57" Body="&lt;p&gt;This morning I read the following article: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.bbc.co.uk/news/business-49961301&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.bbc.co.uk/news/business-49961301&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It got me thinking, is there any country in the world not in debt? I am aware that debt is good for a country, but to what extent? I am fairly uneducated in this area so please educate me!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks in advance. &lt;/p&gt;&#xA;" OwnerUserId="24489" LastActivityDate="2019-10-08T08:34:29.150" Title="Is there a country in the world not in debt?" Tags="&lt;international-economics&gt;&lt;government-debt&gt;" AnswerCount="1" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="32159" PostTypeId="2" ParentId="32158" CreationDate="2019-10-08T08:34:29.150" Score="2" Body="&lt;p&gt;According to the World Economic Outlook database (April 2018), in 2018, the &quot;General government net debt&quot; of these countries was negative:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Kazakhstan, Norway, Trinidad and Tobago, Luxembourg, Botswana, Oman, Estonia.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This database doesn't have this datum for Singapore, but I believe the Singapore government also has negative net debt.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastActivityDate="2019-10-08T08:34:29.150" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32160" PostTypeId="1" AcceptedAnswerId="32166" CreationDate="2019-10-08T10:32:20.747" Score="0" ViewCount="37" Body="&lt;p&gt;I read a couple of years ago that in the long run (in centuries) the relative price between, say, schooling and agriculture keeps increasing, since the latter sector gets more and more productive, while there are barely any productivity gains in schooling.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I couldn't find literature that talks about it.  What is the name of this mechanism, or related literature? &lt;/p&gt;&#xA;" OwnerUserId="8630" LastActivityDate="2019-10-14T15:55:02.390" Title="Persistent changes in relative prices due to productivity differences" Tags="&lt;reference-request&gt;&lt;productivity&gt;&lt;economic-history&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32161" PostTypeId="1" CreationDate="2019-10-08T10:54:25.423" Score="1" ViewCount="93" Body="&lt;p&gt;An advice I often hear regarding our environmental impact is to 'stop consuming meat and dairy products'. This is stated as the number one way to reduce your ecological footprint, according to multiple sources. Whether this is true or not, obviously much of our economy and society depends on the meat and dairy industry, ranging from farming and transport to butcheries or supermarkets.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If everyone in the United States would stop consuming meat, dairy and eggs within the next twelve months, what would be the economic consequences? &#xA;How much of a hit would the economy take? &#xA;What percentage of farmers could realistically replace their current products with vegan alternatives?&#xA;What other unintended socio-economic consequences would this scenario have?&lt;/p&gt;&#xA;" OwnerUserId="24491" LastEditorUserId="59" LastEditDate="2021-03-18T18:12:11.983" LastActivityDate="2021-03-18T18:12:11.983" Title="Socio-Economic Consequences of Nation-Wide Vegan Diet" Tags="&lt;nonexpert&gt;&lt;environmental-economics&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ClosedDate="2021-04-06T21:42:26.350" ContentLicense="CC BY-SA 4.0" />
  <row Id="32162" PostTypeId="1" CreationDate="2019-10-08T11:40:48.573" Score="0" ViewCount="65" Body="&lt;p&gt;i have some basic knowledge on economics ,and i had an argument with a friend ,so  my question is this , as we all know &#xA;(If we ignore all the outside factors) that the price of any product is governed by it's quantity in the market. So the more from that product existing in the market the lower the prices and vise versa. &#xA;Is there a method or formula that works backwards i mean from the price of that product you can find the quantity that represented in the market ??&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Update:&lt;/strong&gt; &#xA;I saw a gold graph once and the price was changing according to time not the quantity. And people start to draw as they call it trend lines (upward and downward ) so if the trend is up they call it Supply if the trend is down it is a demand graph, is this right ? Is there  a way to find the quantity of gold that traded in this example from the graph it self ? Of course we still ignoring the other factors that could change market direction we talk only supply and demand.&#xA;Maybe it is a silly question .... sorry.&#xA;&lt;img src=&quot;https://i.stack.imgur.com/Rc5dN.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/p&gt;&#xA;" OwnerUserId="24493" LastEditorUserId="24493" LastEditDate="2019-10-10T09:20:05.957" LastActivityDate="2019-10-10T09:20:05.957" Title="A basic question about supply and demand graph" Tags="&lt;supply-and-demand&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32163" PostTypeId="1" CreationDate="2019-10-08T14:05:23.600" Score="0" ViewCount="47" Body="&lt;p&gt;this is the definition formulated by me:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Quantity total bid:&lt;/strong&gt; It’s the sum of currently open (remaining untraded and active) orders on the bid side.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Quantity total ask:&lt;/strong&gt; It’s the sum of currently open (remaining untraded and active) orders on the ask side.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm a programmer so I'm not an expert in this kind of stuff.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, could you please explain it more? &#xA;And I will appreciate if you give me the formulas and an example to calculate them. &lt;/p&gt;&#xA;" OwnerUserId="24494" LastActivityDate="2019-10-08T14:05:23.600" Title="what is exactly total bid quantity and total ask quantity?" Tags="&lt;trading&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="32164" PostTypeId="2" ParentId="32162" CreationDate="2019-10-08T15:02:35.337" Score="3" Body="&lt;p&gt;Yes, typically we would like estimate these curves’ functional forms. If we estimate a demand function &lt;span class=&quot;math-container&quot;&gt;$P=10-2Q$&lt;/span&gt; we can rearrange it such that &lt;span class=&quot;math-container&quot;&gt;$Q=5-\frac{1}{2}P$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This, just changes the way we interpret the relationship. For a given quantity how does price change? Compared to, for a given price how does quantity change? This begs even further questions however because in the market we typically just observe equilibriums and “shocks” that determine prices typically also affect quantity. This makes estimating these functional forms difficult from an econometrics point of view.&lt;/p&gt;&#xA;" OwnerUserId="23546" LastActivityDate="2019-10-08T15:02:35.337" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="32165" PostTypeId="2" ParentId="32140" CreationDate="2019-10-08T17:57:36.210" Score="2" Body="&lt;p&gt;Not sure about utility function being &lt;span class=&quot;math-container&quot;&gt;$\min$&lt;/span&gt; and it being a case of perfect substitutes... &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In general, I would say there are a few different types of utility functions but if you know more or less the theory and can imagine various functions' graphs, then (as mentioned in the comment) you will be fine.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So I think we should start with a &lt;strong&gt;Cobb-Douglas preferences&lt;/strong&gt; which can be represented by utility function of the form: &lt;span class=&quot;math-container&quot;&gt;$$u(x_1,x_2) = x_1^ax_2^b \:\:\: \textrm{for} \:\:\:a&amp;gt;0 \:\: \textrm{and} \:\: b&amp;gt;0$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/JWzGa.gif&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/JWzGa.gif&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then you have a &lt;strong&gt;perfect-substitute preferences&lt;/strong&gt; which can be represented by utility function of the form: &lt;span class=&quot;math-container&quot;&gt;$$u(x_1,x_2) = ax_1 + bx_2 \:\:\: \textrm{for} \:\:\:a&amp;gt;0 \:\: \textrm{and} \:\: b&amp;gt;0$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/C4bv3.gif&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/C4bv3.gif&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can also have a &lt;strong&gt;perfect-complement preferences&lt;/strong&gt; which can be represented by utility function of the form: &lt;span class=&quot;math-container&quot;&gt;$$u(x_1,x_2) = \min\{ax_1,bx_2\} \:\:\: \textrm{for} \:\:\:a&amp;gt;0 \:\: \textrm{and} \:\: b&amp;gt;0$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/qMJAg.gif&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/qMJAg.gif&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, you can have a &lt;strong&gt;quasi-linear preferences&lt;/strong&gt; which can be represented by utility function of the form: &lt;span class=&quot;math-container&quot;&gt;$$u(x_1,x_2) = f(x_1) +x_2 \:\:\: \textrm{where f is increasing and concave}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/NcUWW.gif&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/NcUWW.gif&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In all of the above graphs I assumed &lt;span class=&quot;math-container&quot;&gt;$a=b=1$&lt;/span&gt; for simplicity. In the last case the concave function was a square root.&#xA;Your example is (more or less):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/n8q9f.gif&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/n8q9f.gif&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can now try and argue what kind of preferences these are.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you are interested in consumer theory, you should find some proper course book or other materials - there's plenty of it on the Internet - just google it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The last piece of advice I can give you - try to draw as many graphs as you can think of and then try to find a story that the graph is explaining. Or the other way round. I remember my professors trying to &quot;play&quot; with us by giving us different kinds of utility functions - when you drew them, they looked &quot;strange&quot; but when you actually thought about them - they did have some story to tell. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;EDIT.&lt;/strong&gt;&#xA;There is also a special case in a way - &lt;strong&gt;monotonic transformation&lt;/strong&gt; is a real-valued function &lt;span class=&quot;math-container&quot;&gt;$f: \mathbb{R} \to \mathbb{R}$&lt;/span&gt; which basically transforms numbers into numbers in a way that preserves the order of the numbers, that is, for every two numbers &lt;span class=&quot;math-container&quot;&gt;$p$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$k$&lt;/span&gt; it hods that &lt;span class=&quot;math-container&quot;&gt;$p&amp;gt;k \implies f(p)&amp;gt;f(k) $&lt;/span&gt;. This means that if a function &lt;span class=&quot;math-container&quot;&gt;$f$&lt;/span&gt; is a monotonic transformation of utility &lt;span class=&quot;math-container&quot;&gt;$u( \cdot )$&lt;/span&gt;, then &lt;span class=&quot;math-container&quot;&gt;$f(u(\cdot))$&lt;/span&gt; also represents the consumer’s preferences. &lt;span class=&quot;math-container&quot;&gt;$$(x_1,x_2) \succeq (y_1,y_2) \iff f(u(x_1,x_2)) &amp;gt; f (u(y_1,y_2))$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;All this means is that you need to be careful for a case of utility function like: &lt;span class=&quot;math-container&quot;&gt;$\ln{x_1} + \ln{x_2}$&lt;/span&gt; which is just a natural logarithm of Cobb-Douglas preferences &lt;span class=&quot;math-container&quot;&gt;$x_1x_2$&lt;/span&gt; with &lt;span class=&quot;math-container&quot;&gt;$a=b=1$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerUserId="23083" LastEditorUserId="23083" LastEditDate="2019-10-09T18:48:33.787" LastActivityDate="2019-10-09T18:48:33.787" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32166" PostTypeId="2" ParentId="32160" CreationDate="2019-10-08T22:20:47.340" Score="1" Body="&lt;p&gt;When comparing industries it is almost intuitive that a relative productivity increase causes a relative price decrease in the absence of anything else happening. The reason it is intuitive is that all the competitors within the same industry probably benefit from the same productivity increase so together you can all raise prices slowly or not at all or decrease prices. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You might be looking for the Baumol effect. Wikipedia says...&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The rise of wages in jobs without productivity gains is from the&#xA;  requirement to compete for employees with jobs that have experienced&#xA;  gains and so can naturally pay higher salaries, just as classical&#xA;  economics predicts. For instance, if the retail sector pays its&#xA;  managers 19th-century-style salaries, the managers may decide to quit&#xA;  to get a job at an automobile factory, where salaries are higher&#xA;  because of high labor productivity. Thus, managers' salaries are&#xA;  increased not by labor productivity increases in the retail sector but&#xA;  by productivity and corresponding wage increases in other industries.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;According to this, a necessary condition for the Baumol effect is competition between industries for resources. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Baumol&amp;#39;s_cost_disease&quot; rel=&quot;nofollow noreferrer&quot;&gt;This is the relevant link.&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="6868" LastActivityDate="2019-10-08T22:20:47.340" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32167" PostTypeId="1" CreationDate="2019-10-08T23:31:12.090" Score="1" ViewCount="10" Body="&lt;p&gt;It is my understanding that for regular economies, equilibrium indices and number are preserved under perturbations, typically conceived as some point-wise translation. Does this hold under any transformation to a sufficiently close homotopic path?&lt;/p&gt;&#xA;" OwnerUserId="24459" LastActivityDate="2019-10-08T23:31:12.090" Title="Perturbation Constraints for Excess Demand" Tags="&lt;microeconomics&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32168" PostTypeId="1" CreationDate="2019-10-09T02:04:45.417" Score="2" ViewCount="18" Body="&lt;p&gt;A formulation of the Index theorem states that for a regular economy:&#xA;&lt;span class=&quot;math-container&quot;&gt;$\sum_{p | z(p) = 0, p_L = 1} index p = +1$&lt;/span&gt;&#xA;Does this hold for models with uncountably many agents?&lt;/p&gt;&#xA;" OwnerUserId="24459" LastActivityDate="2019-10-09T02:04:45.417" Title="Index Theorem for Regular Infinite-Agent Economies" Tags="&lt;consumer-theory&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32169" PostTypeId="1" CreationDate="2019-10-09T02:05:57.153" Score="3" ViewCount="18" Body="&lt;p&gt;Hong Kong is currently experiencing a slump in foreign tourist-oriented retail sales. Shops selling jewellery, watches, infant formula or Chinese medicine experienced a 25-35% decline YoY in August. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This certainly reduces the city's GDP and employment. On the other hand, tourist-oriented businesses don't seem to benefit the city's residents (except by providing employment), and at the same time raise retail space rents to world-record levels, pushing out businesses that serve locals, such as restaurants, laundry shops and other local services.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you take into account the GDP and employment, as well as rents, non-tourists oriented businesses, long-term prospects and quality of life, do economists generally consider there is a net benefit in decreasing foreign tourist-oriented businesses, or is there a net benefit in increasing the number of such businesses? Would the answer be different for Hong Kong considering the limited space available?&lt;/p&gt;&#xA;" OwnerDisplayName="user24498" LastEditorDisplayName="user24498" LastEditDate="2019-10-09T02:11:08.870" LastActivityDate="2019-10-09T02:11:08.870" Title="Are there any net benefits in reducing/increasing tourist-oriented retail business?" Tags="&lt;economic-growth&gt;&lt;labor-economics&gt;&lt;unemployment&gt;&lt;retail-economics&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32170" PostTypeId="1" CreationDate="2019-10-09T07:59:47.680" Score="0" ViewCount="59" Body="&lt;p&gt;I have a function f(x) in which there is log function &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$f(x)=log(1+ax)-bxg(x)$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I need a discount function g(x) with which the function f(x) is concave and the value of x is not too complex. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I tried &lt;span class=&quot;math-container&quot;&gt;$g(x)=\frac{1}{1+cx}$&lt;/span&gt; but it becomes too complex (quadratic).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Similarly I tried &lt;span class=&quot;math-container&quot;&gt;$g(x)=exp(cx)$&lt;/span&gt; but that too turns out to be a lambert function. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any guesses for a simple discount function g(x). &lt;/p&gt;&#xA;" OwnerUserId="14084" LastActivityDate="2019-10-09T07:59:47.680" Title="discount function with logarithm" Tags="&lt;discount&gt;" AnswerCount="0" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="32173" PostTypeId="1" CreationDate="2019-10-09T09:42:31.933" Score="0" ViewCount="22" Body="&lt;p&gt;Is oil supply really inelastic in the short run?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Though it remains evident that in the short run, the known capacities of oil can't be increased and hence we can assume that there remains a upper cap which ensures that even if there is high price change, our quantities supplied can't go up. However, if we consider the case of price decrement, then certainly, oil companies can horde oil and reduce the quantity supplied, making the elasticity go high? Then why do we assume that the oil supply in short run is nearly inelastic?&lt;/p&gt;&#xA;" OwnerUserId="24468" LastActivityDate="2019-10-09T09:42:31.933" Title="Is oil supply really inelastic in the short term" Tags="&lt;microeconomics&gt;&lt;elasticity&gt;&lt;oil&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="32174" PostTypeId="1" CreationDate="2019-10-09T12:04:12.130" Score="1" ViewCount="297" Body="&lt;p&gt;I know how to solve the two-good case with &lt;span class=&quot;math-container&quot;&gt;$u(x) = \min\{x1, x2\}$&lt;/span&gt;, but the addition of &lt;span class=&quot;math-container&quot;&gt;$x3$&lt;/span&gt; confuses me.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Problem&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Derive the demand function &lt;span class=&quot;math-container&quot;&gt;$x(p,w)$&lt;/span&gt; from &lt;span class=&quot;math-container&quot;&gt;$u(x) = \min\{x1, x2\} + x3$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;What I did so far&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We assume that in optimum &lt;span class=&quot;math-container&quot;&gt;$x1 = x2$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Set up the budget constraint &lt;span class=&quot;math-container&quot;&gt;$p1x1 + p2x2 + p3x3 = w$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Rewrite budget constraint as &lt;span class=&quot;math-container&quot;&gt;$(p1+p2)x1 + p3x3 = w$&lt;/span&gt; or &lt;span class=&quot;math-container&quot;&gt;$(p1+p2)x2 + p3x3 = w$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can write &lt;span class=&quot;math-container&quot;&gt;$x1*$&lt;/span&gt; or &lt;span class=&quot;math-container&quot;&gt;$x2* = \frac{w-p3x3}{p1+p2}$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$x3* = \frac{w-(p1+p2)a}{p3}$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Confusion&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How to proceed? Can I still use a Lagrangian to solve this?&lt;/p&gt;&#xA;" OwnerUserId="24504" LastEditorUserId="8481" LastEditDate="2020-04-09T23:40:18.957" LastActivityDate="2020-09-07T04:30:50.473" Title="Derive demand function $x(p,w)$ from utility function $u(x) = \min\{x_1, x_2\} + x_3$" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;&lt;leontief&gt;&lt;walrasian&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32176" PostTypeId="2" ParentId="32174" CreationDate="2019-10-09T15:39:34.263" Score="1" Body="&lt;p&gt;Hint: Imagine that there are two coffee bars, &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$B$&lt;/span&gt;. There is only one type of coffee in the world. My preferences are such that I always want 1 unit of sugar with 1 unit of coffee; if I consume units of coffee and sugar in the ratio &lt;span class=&quot;math-container&quot;&gt;$1:1$&lt;/span&gt;, additional units of only one of the two don't give me extra utility.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At coffee bar &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt; they sell coffee and sugar separately. That is: there is one counter for coffee, where coffee is sold for a price of &lt;span class=&quot;math-container&quot;&gt;$p_1$&lt;/span&gt; per unit. There is another counter for sugar, where I can buy one unit of sugar for a price of &lt;span class=&quot;math-container&quot;&gt;$p_2$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At coffee bar &lt;span class=&quot;math-container&quot;&gt;$B$&lt;/span&gt; however, they only sell one unit of coffee with one unit of sugar in a bundle, the price of which is equal to &lt;span class=&quot;math-container&quot;&gt;$p_3$&lt;/span&gt;. They do not sell anything separately&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At what prices do I prefer to buy my coffee with sugar at &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt;, at what prices do I prefer to buy my coffee with sugar at &lt;span class=&quot;math-container&quot;&gt;$B$&lt;/span&gt;?&lt;/p&gt;&#xA;" OwnerUserId="18214" LastEditorUserId="18214" LastEditDate="2019-10-09T19:38:12.527" LastActivityDate="2019-10-09T19:38:12.527" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="32177" PostTypeId="1" CreationDate="2019-10-09T15:40:09.200" Score="2" ViewCount="64" Body="&lt;p&gt;In the UK, I have not seen any graduate level IT jobs offering a starting salary below £20,000. At the same time, about 10% of computer science graduates are unemployed six months after graduation. Also, a significant proportion of computer science graduates end up in minimum wage jobs that do not use their skills and would prefer to work in the IT sector even if their pay remained the same.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why are there no minimum wage graduate level IT jobs? If there are job candidates whose labour is worth more than £20k a year, and there are candidates who are not worth employing even at minimum wage, then surely there must be candidates whose labour is worth less than £20k but more than minimum wage?&#xA;&lt;a href=&quot;https://www.theregister.co.uk/2016/07/22/computer_science_graduates_hesa_employment/&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.theregister.co.uk/2016/07/22/computer_science_graduates_hesa_employment/&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="21196" LastActivityDate="2019-10-11T04:41:08.840" Title="Why are there no minimum wage entry level IT jobs" Tags="&lt;labor-economics&gt;&lt;united-kingdom&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="32178" PostTypeId="2" ParentId="32111" CreationDate="2019-10-09T16:17:03.007" Score="0" Body="&lt;p&gt;Note that is it customary in econometrics to put the explanatory variables on the columns of &lt;span class=&quot;math-container&quot;&gt;$\boldsymbol X$&lt;/span&gt;, and the observations on the rows. The question has switched these around; I will use the notation in the question.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &lt;strong&gt;covariance matrix of &lt;span class=&quot;math-container&quot;&gt;$\boldsymbol{{\hat\beta}}$&lt;/span&gt;&lt;/strong&gt; is &lt;span class=&quot;math-container&quot;&gt;$$\sigma^2\cdot \mathrm E_{\boldsymbol X}\left[\left(\boldsymbol {XX^T}\right)^{-1}\right]$$&lt;/span&gt;&#xA;where an unbiased estimate of &lt;span class=&quot;math-container&quot;&gt;$\sigma^2$&lt;/span&gt; is &lt;span class=&quot;math-container&quot;&gt;$\frac 1{N-K}\sum_{i=1}^N e_i e_i $&lt;/span&gt;. This setting (with the expectation operation used) assumes that &lt;span class=&quot;math-container&quot;&gt;$\boldsymbol X$&lt;/span&gt; is &lt;a href=&quot;https://en.wikipedia.org/wiki/Stochastic&quot; rel=&quot;nofollow noreferrer&quot;&gt;stochastic&lt;/a&gt;, i.e. that we cannot fix &lt;span class=&quot;math-container&quot;&gt;$\boldsymbol X$&lt;/span&gt; in repeated sampling. My point is that this is not a &lt;em&gt;distribution&lt;/em&gt;, as claimed in the question. The following is a distribution: &lt;span class=&quot;math-container&quot;&gt;$$\sqrt N \left(\boldsymbol{\hat\beta} - \boldsymbol\beta\right) \overset a\sim \mathrm N\left(\ 0\,,\ \ N \sigma^2\cdot \mathrm E_{\boldsymbol X}\left[\left(\boldsymbol {XX^T}\right)^{-1}\right]\right).$$&lt;/span&gt;&#xA;Note that the above states that &lt;span class=&quot;math-container&quot;&gt;$\sqrt N \left(\boldsymbol{\hat\beta} - \boldsymbol\beta\right)$&lt;/span&gt; is asymptotically normally distributed and centred on &lt;span class=&quot;math-container&quot;&gt;$0$&lt;/span&gt; (if we didn't multiply by &lt;span class=&quot;math-container&quot;&gt;$\sqrt N$&lt;/span&gt;, the distribution would converge to a spike, because &lt;span class=&quot;math-container&quot;&gt;$\boldsymbol{\hat\beta}$&lt;/span&gt; is consistent). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In your question, you've looked at the &lt;strong&gt;bias&lt;/strong&gt; of &lt;span class=&quot;math-container&quot;&gt;$\boldsymbol{\hat\beta}$&lt;/span&gt;, which is expected to be &lt;span class=&quot;math-container&quot;&gt;$0$&lt;/span&gt;. Note that &lt;span class=&quot;math-container&quot;&gt;$\sum_{i=1}^N \boldsymbol {x_i}e_i$&lt;/span&gt; is expected to be &lt;span class=&quot;math-container&quot;&gt;$0$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerUserId="175" LastEditorUserId="175" LastEditDate="2019-10-09T16:23:36.787" LastActivityDate="2019-10-09T16:23:36.787" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32180" PostTypeId="2" ParentId="6053" CreationDate="2019-10-09T20:37:56.703" Score="2" Body="&lt;ol&gt;&#xA;&lt;li&gt;Yes, a reserve is needed to ensure the integrity of the money issued (as always).&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&lt;p&gt;On the international foreign exchange market, many millions are traded at a time. Otherwise, with smaller amounts of money, the costs of transferring that money (e.g. via SWIFT) would be too high for the amount transferred. That is why investors and small businesses do not trade in the forex market themselves—they go through the financial intermediary.&lt;/p&gt;&#xA;&lt;ol start=&quot;2&quot;&gt;&#xA;&lt;li&gt;Banks communicate with each other using computers and telephones. If you collectively put all these many communications together, you get the concept of an international interbank foreign exchange market.&lt;/li&gt;&#xA;&lt;li&gt;Prices are offered for foreign exchange deals. If the price is fairly high, the bank may not get a sale quickly—they will have to wait, or lower their price. If the price is lower, they will be more likely to find a buyer.&lt;/li&gt;&#xA;&lt;li&gt;This question is related to the reserve requirement. If banks need to increase their reserve, they will buy &lt;strong&gt;securities&lt;/strong&gt; denominated in that currency (government bonds, stocks, and other financial instruments), as these securities can easily be transferred from other locations. Vice versa: If the financial institution has too many illiquid assets (giving a lower leverage), they could choose to then sell these assets to other financial institutions who need them. So, buying and selling currency is not inextricably tied up with buying and selling reserves, as there is some play between the two. You asked about physical cash—cash is related to the demand for currency (so, yes, some cash is transferred, but not much as not everybody wants to draw cash). And you asked about precious metals—well, those are transferred even less, and only really serve as a 'reserve' to give integrity to fiat money generally.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&lt;p&gt;The rest of my answer is copied from &lt;a href=&quot;https://kevinkotze.github.io/if-2-forex/&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://kevinkotze.github.io/if-2-forex/&lt;/a&gt; , which comes from Kevin Kotzé's web page &lt;a href=&quot;https://www.economodel.com/international-finance&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.economodel.com/international-finance&lt;/a&gt;&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;&lt;strong&gt;1.1 Communications and funds transfers&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;p&gt;The enormous volume of trade in the foreign exchange market requires an extensive communication network between traders and a sophisticated settlement system to transfer payments in different currencies between the buyers and sellers of different currencies. Traders are able to obtain information that is provided by major commercial distributors such as Reuters and Bloomberg. The traders are then able to contact each other, to obtain actual prices and negotiate deals. In addition, they could approach a foreign exchange broker to broker a deal, or they can trade on an electronic brokerage system, where quotes on a screen are transactable. When a trade is agreed upon, banks communicate and transfer funds electronically, using systems such as the Society of Worldwide Interbank Financial Telecommunications (SWIFT), which confirm trades and facilitate payment.&lt;/p&gt;&#xA;&lt;p&gt;As Cross-Currency transactions may involve the simultaneous exchange of currencies, there is a risk that only one leg of the transaction may be completed, due to the possibility that parties use different systems in different countries that operate out of different time zones. This is known as cross-currency settlement risk, or Herstatt risk. Recently, foreign exchange dealers, encouraged by the BIS, have developed a number of practices to limit settlement risk. These measures include: firstly, banks now have strict limits on the amount of transactions they are willing to settle with a single counterparty on a given day. Secondly, banks have started to engage in a variety of netting arrangements, in which they agree to wire the net traded amounts only at the end of a trading day. Thirdly, settlement risk is eliminated if the exchange of the two monies occur simultaneously in a process known as payment versus payment (PvP).&lt;/p&gt;&#xA;&lt;p&gt;More recently, we have witnessed the foundation of the Continuous Linked Settlement (CLS) Bank, which is owned by the world’s largest financial groups. CLS is the largest multi-currency cash settlement system, eliminating settlement risk for over half of the worlds foreign exchange payment instructions and its members include central banks, large commercial banks and other large corporations. The CLS daily settlement cycle operates with settlement and funding occurring during a five-hour window when all real time gross settlement systems are able to make and receive payments. This enables simultaneous settlement of the payments on both sides of a foreign exchange transaction. Each member holds a single multicurrency account with CLS, which has a zero balance at the start and the end of trading day. The settlement of the payment instructions and the associated payments are final and irrevocable.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="175" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2019-10-09T20:37:56.703" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32182" PostTypeId="1" CreationDate="2019-10-09T21:22:08.397" Score="0" ViewCount="11" Body="&lt;p&gt;Given a multimarket model for staple agricultural commodities wheat, rice, maize and sorghum, in a low-income economy, Im trying to figure out how I can use the multimarket framework to look at the impacts of bringing in food aid to the economy as well as introducing improved agricultural technologies. Would it just be re-defining the equations used to solve the model to incorporate the changes and then re-solve the model to determine the results? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This village economy has 4 households including poor rural, rich rural, poor urban, and rich-urban. Would all or any of these households be harmed by these two changes? I think that the food aid would benefit the poor households and the improved ag tech could potentially harm the rural poor since they would make up most of the ag labor force which might be harmed by introducing new ag technology.&lt;/p&gt;&#xA;" OwnerUserId="20295" LastActivityDate="2019-10-09T21:22:08.397" Title="How can I model the impacts of improved agriculture technologies and food aid in a multimarket model?" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;development-economics&gt;&lt;development&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="32186" PostTypeId="1" CreationDate="2019-10-10T12:51:02.487" Score="-1" ViewCount="116" Body="&lt;p&gt;OVERVIEW OF THE EMF 32 STUDY ON U.S. CARBON TAX SCENARIOS&#xA;&lt;a href=&quot;https://www.worldscientific.com/doi/pdfplus/10.1142/S201000781840002X&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.worldscientific.com/doi/pdfplus/10.1142/S201000781840002X&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;About half of the EMF 32 models met a 50% reduction in carbon emissions within 25 years when they assumed the highest: $50 / +5% carbon fees. HR 763 will nearly match the 25th year value in its 15th year and has provisions to exceed this value by 27%. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The one thing that I am most uncomfortable with is that although all of the model projections and pending carbon fee and dividend legislation believe that they can drop total CO2 demand below 10% of current levels, even an absurdly high price for gasoline will not drop quantity demanded below 30% of current levels. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems to me that having a carbon fee of \$100 and increasing it by $100 every year for thirty years until the price of gas hits \$30 per gallon would &lt;strong&gt;provide the skin-in-the-game incentive&lt;/strong&gt; for most everyone to switch to electric cars and provide the incentive for producing much lower carbon electricity. &lt;strong&gt;HR 763 could be adapted with the following idea so that it always charges exactly the right carbon fee.&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;h1&gt;If legislators are very confident that their carbon fees will reduce the quantity demanded of carbon to the levels of their projections then they should have no problem agreeing to a Carbon Fee Fail-safe and Safeguard that only kicks in if their projections are wrong.&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Carbon Fee Fail-safe and Safeguard&lt;/strong&gt;&lt;br&gt;&#xA;It would be great if we had a Carbon Fee FAIL_SAFE that raises the carbon fee based on the number of years we are behind schedule and a SAFE_GUARD that skips the fee increase every year that we are more than a year ahead of schedule:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Every year once a year:&lt;/strong&gt;&lt;br&gt;&#xA;&lt;strong&gt;if&lt;/strong&gt; (Years_Behind Schedule &gt; 1.0)    &lt;strong&gt;-----Carbon Fee FAIL_SAFE&lt;/strong&gt;&lt;br&gt;&#xA;  Carbon_Fee = Carbon_Fee + (Years_Behind Schedule * $15); &lt;br&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;else if&lt;/strong&gt; (Years_Behind Schedule &gt; 0.0)  &lt;br&gt;&#xA;  Carbon_Fee = Carbon_Fee + $15;    &lt;strong&gt;----- HR 763 Trigger&lt;/strong&gt;&lt;br&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;else if&lt;/strong&gt; (Years_Behind Schedule &gt; -1.0)  &lt;strong&gt;// Carbon Fee SAFE_GUARD&lt;/strong&gt;&lt;br&gt;&#xA;  Carbon_Fee = Carbon_Fee + $10;    &lt;strong&gt;-----HR 763 Default&lt;/strong&gt; &lt;br&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Worst Case Scenario Carbon Fee&lt;/strong&gt;&lt;br&gt;&#xA;Worst Case Scenario Carbon Fee&#xA;It seems to me that the price elasticity of demand for gasoline might be a good worst case scenario proxy for the price elasticity of demand for carbon. The most reliable figure that I could get on this was -0.58. A price that is much above \$30 per gallon has little effect on quantity demanded. The $30 price only reduces quantity demanded down to 35% of original.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It would seem that increasing the price of gasoline \$1.00 per year for thirty years would have everyone switching to electric cars at some point before \$30 per gallon. A \$10 price per carbon equates to a ten cents per gallon price of gasoline, thus a maximum increment of \$100 for the price of carbon over 30 years seems to be maximum carbon fee required.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It would seem to me that people would find ways to drive very much less to save their carbon dividend to buy an electric car. Even as average demand for carbon drops thus reducing the average carbon consumed the dividend price goes up so that the dividend might increase fast enough for everyone to buy replacement hardware.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We could add a surcharge to the border adjustments as an incentive for countries not having a carbon fee and dividend program to adopt such a program. Unless they adopt such a program they would see the relative demand for their goods drop.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The carbon dividend cannot be taxed because it is supposed to do the best it can to have everyone with average carbon consumption break even throughout the duration of the program. If the price of gasoline goes up \$1.00 then any taxes taken out of the dividend prevent breaking even. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;According to the most elastic price elasticity of demand estimates for gasoline of -0.58&lt;/strong&gt; &lt;br&gt;&#xA;&lt;strong&gt;PDE=((Q1-Q0)/(Q1+Q0))/((P1-P0)/(P1+P0))&lt;/strong&gt;&lt;br&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;-0.58=((50-100)/(50+100))/((P1-2.66)/(P1+2.66))&lt;br&gt;&#xA;P0=\$2.66&lt;br&gt;&#xA;P1=&lt;strong&gt;\$9.85&lt;/strong&gt;&lt;br&gt;&#xA;Q0=100&lt;br&gt;&#xA;Q1=50  &lt;strong&gt;----Reduction to 50%&lt;/strong&gt;&lt;br&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;-0.58=((34-100)/(34+100))/((32.62-2.66)/(32.62+2.66))&lt;br&gt;&#xA;P0=\$2.66&lt;br&gt;&#xA;P1=&lt;strong&gt;\$32.62&lt;/strong&gt;&lt;br&gt;&#xA;Q0=100&lt;br&gt;&#xA;Q1=34.0  &lt;strong&gt;----Reduction to 34.0%&lt;/strong&gt;&lt;br&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Even though the price elasticity of demand for gasoline will probably change over time to become more elastic as the capital expenditure of switching to electric vehicles becomes increasingly more cost effective it seems reasonable to consider the -0.58 figure a good worst case scenario basis for carbon price ceilings. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Here is what the Point formula derives:&lt;/strong&gt;&lt;br&gt;&#xA;-0.58 = ((50-100)/100) / ((4.95-2.66)/2.66)&lt;br&gt;&#xA;-0.58 = -0.5 / 0.86&lt;br&gt;&lt;/p&gt;&#xA;&#xA;&lt;h1&gt;Historical records for (1998 to 2008) show that an inflation adjusted 300% increase in the price of gasoline corresponded to a 20% increase in miles driven.&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/BJRZx.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/BJRZx.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It might also be possible that a PED figure of -0.58 is too optimistic. Here is the original midpoint (interval) formula using PED = -0.50:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;-0.50=((50-100)/(50+100))/((P1-2.66)/(P1+2.66))&lt;br&gt;&#xA;P1 = &lt;strong&gt;\$13.30&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;h1&gt;This works out to a carbon fee that increases \$71 per year for fifteen years.&lt;/h1&gt;&#xA;" OwnerUserId="24455" LastEditorUserId="24455" LastEditDate="2019-10-17T19:23:37.980" LastActivityDate="2019-10-17T19:23:37.980" Title="How high of a carbon fee would reduce global emissions by 50% in 15 years?" Tags="&lt;elasticity&gt;" AnswerCount="1" CommentCount="6" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32187" PostTypeId="1" AcceptedAnswerId="32202" CreationDate="2019-10-10T14:51:25.803" Score="1" ViewCount="199" Body="&lt;p&gt;In a problem set, I found a strange utility function: &lt;span class=&quot;math-container&quot;&gt;$U(c)=-1/2(c^* - c)^2$&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$c^* =$&lt;/span&gt; positive constant level of consumption. Does this function have economic sense? &lt;/p&gt;&#xA;" OwnerUserId="24514" LastEditorUserId="1601" LastEditDate="2019-10-11T18:02:23.197" LastActivityDate="2019-10-11T18:02:33.203" Title="utility function always negative" Tags="&lt;microeconomics&gt;&lt;utility&gt;" AnswerCount="3" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="32189" PostTypeId="2" ParentId="32187" CreationDate="2019-10-10T15:14:55.647" Score="5" Body="&lt;p&gt;Remember that utility function only matters &lt;em&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Ordinal_utility&quot; rel=&quot;noreferrer&quot;&gt;ordinally&lt;/a&gt;&lt;/em&gt;... that is, you only care if &lt;span class=&quot;math-container&quot;&gt;$u(A) &amp;gt; u(B)$&lt;/span&gt;, and &lt;span class=&quot;math-container&quot;&gt;$u(A) = 100$&lt;/span&gt; with &lt;span class=&quot;math-container&quot;&gt;$u(B) = 10$&lt;/span&gt; is the same thing as &lt;span class=&quot;math-container&quot;&gt;$u(A) = -1000$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$u(B) = -1000.0001$&lt;/span&gt; (both have &lt;span class=&quot;math-container&quot;&gt;$u(A) &amp;gt; u(B)$&lt;/span&gt;.)&lt;/p&gt;&#xA;" OwnerUserId="5145" LastActivityDate="2019-10-10T15:14:55.647" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32192" PostTypeId="2" ParentId="31926" CreationDate="2019-10-10T20:54:03.820" Score="0" Body="&lt;p&gt;My math is a bit rusty, but I believe you can show that, for a well-behaved (e.g., open and connected) feasible set &lt;span class=&quot;math-container&quot;&gt;$T$&lt;/span&gt; and a consideration set &lt;span class=&quot;math-container&quot;&gt;$T'$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$x \in S \subseteq T' \subseteq T$&lt;/span&gt;, e.g. Sen's property &lt;span class=&quot;math-container&quot;&gt;$\alpha$&lt;/span&gt; holds.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That doesn't seem like a very interesting question/result though, as it just follows directly from the definition of &quot;well-behaved&quot;.  Maybe I'm missing something.&lt;/p&gt;&#xA;" OwnerUserId="24275" LastActivityDate="2019-10-10T20:54:03.820" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32193" PostTypeId="2" ParentId="30809" CreationDate="2019-10-10T20:59:12.757" Score="-1" Body="&lt;p&gt;Yes.  There's a concept whose precise term escapes me at the moment, but an example is when income taxes rise, leading to reduced consumption and reduced revenue from consumption taxes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Contrary to the above, this analysis frequently occurs in regulatory economics (at least, at the academic level - by all accounts, policy makers seem unaware of the concept. ;) )&lt;/p&gt;&#xA;" OwnerUserId="24275" LastActivityDate="2019-10-10T20:59:12.757" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="32194" PostTypeId="1" AcceptedAnswerId="32195" CreationDate="2019-10-11T03:15:09.273" Score="1" ViewCount="34" Body="&lt;p&gt;Going from this quote by &lt;a href=&quot;https://citywireamericas.com/manager/bryan-collins/d15454&quot; rel=&quot;nofollow noreferrer&quot;&gt;Bryan Collins&lt;/a&gt; of &lt;a href=&quot;https://www.fidelityinstitutional.com/en/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Fidelity&lt;/a&gt; on China's economy:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;One of the nice things we see from the development of a domestic bond&#xA;  market is that it starts the process of pricing capital better. And&#xA;  when you price capital better, you get a much better chance of that&#xA;  capital being allocated more efficiently.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I can certainly follow Collins' logic, but I don't understand the economic theory that underpins this logic.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Question&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Why is it exactly that a developed bond market leads to more efficient allocation of capital? &lt;/p&gt;&#xA;" OwnerUserId="12212" LastActivityDate="2019-10-11T04:10:31.710" Title="Why does the bond market induce efficient allocation of capital?" Tags="&lt;macroeconomics&gt;&lt;bonds&gt;&lt;capital&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32195" PostTypeId="2" ParentId="32194" CreationDate="2019-10-11T04:10:31.710" Score="2" Body="&lt;p&gt;This is no different from any other markets... just for money.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the demand side of the goods, those who want money (those who sell bonds) say how much they're willing to pay in terms of bond yields. The supplier of the goods (bond buyers) come to the bond market and choose the product.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Under a developed bond market, it's guaranteed that those who get the goods (money) are the bond sellers who could pay the highest [risk-adjusted] price, which would infer that they could use that goods most productively. It's also guaranteed that those who sell the goods (bond buyers) are the ones who require the lowest price, i.e. opportunity cost is the lowest.&lt;/p&gt;&#xA;" OwnerUserId="5145" LastActivityDate="2019-10-11T04:10:31.710" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32197" PostTypeId="2" ParentId="32186" CreationDate="2019-10-11T05:17:42.527" Score="4" Body="&lt;h2&gt;No one knows&lt;/h2&gt;&#xA;&lt;p&gt;No one knows how high a carbon fee would be required to reduce annual global emissions by 50% in 15 years: that would require a global restructuring that takes us outside the bounds of any currently-understood elasticities.  Our known elasticities are only valid for a certain range of prices - one can't simply just extrapolate them indefinitely and expect them to stay constant. (which is why your own calculations are wrong)&lt;/p&gt;&#xA;&lt;p&gt;Furthermore, there's little indication that there's any scope to introduce such a global carbon fee, with intransigent regressive politicians running each of the six most polluting countries currently - China, USA, India, Russia, Japan and Brazil (as well as other significant polluters such as Saudi Arabia and Iran).&lt;/p&gt;&#xA;&lt;p&gt;There are &lt;a href=&quot;https://www.ucl.ac.uk/energy-models/models/tiam-ucl&quot; rel=&quot;nofollow noreferrer&quot;&gt;system models&lt;/a&gt; that attempt to predict infrastructure investment. However, running them with a 15-year horizon usually means taking them outside the boundaries that they were designed for - it's too short - so there would be a lot of uncertainty over their results. Those models are likely to say that the carbon price would have to be huge.&lt;/p&gt;&#xA;&lt;h2&gt;Some sample numbers&lt;/h2&gt;&#xA;&lt;p&gt;&lt;strong&gt;A carbon fee of USD 500/&lt;a href=&quot;https://www.theguardian.com/environment/2011/apr/27/co2e-global-warming-potential&quot; rel=&quot;nofollow noreferrer&quot;&gt;tCO2e&lt;/a&gt;&lt;/strong&gt; would add (very roughly) USD 250 per MWh of CCGT-generated (natural gas) electricity, and that &lt;strong&gt;should be enough to drive pretty much all electricity grids to very low carbon content (&amp;lt;50gCO2/kWh), in a 15-year timespan&lt;/strong&gt;.&lt;/p&gt;&#xA;&lt;p&gt;Currently, in the UK, petrol/gas is around USD 1.60 per litre (USD 6 per US gallon), and consumption is still high, with sales of electric vehicles still very low (just &lt;a href=&quot;https://www.smmt.co.uk/vehicle-data/evs-and-afvs-registrations/&quot; rel=&quot;nofollow noreferrer&quot;&gt;1.3% of new car sales in Jan-Sep 2019&lt;/a&gt;); nevertheless, the UK is getting close to the tipping point where total cost of ownership is now cheaper for electric vehicles, for some drivers. So at &lt;em&gt;double&lt;/em&gt; the current UK fuel cost, i.e. if it rose to USD 12 per US gallon, we should expect that a near-complete switch to electric cars over 15 years would be highly likely. At ~9kg CO2e / gallon, and an estimated USA current gas price of USD 3 per gallon, that implies that &lt;strong&gt;a carbon fee of USD 1000 / tCO2e could be sufficient to get most drivers to switch to electric vehicles over a 15 year period&lt;/strong&gt;.&lt;/p&gt;&#xA;&lt;h2&gt;Beyond a carbon fee&lt;/h2&gt;&#xA;&lt;p&gt;Any &lt;em&gt;feasible&lt;/em&gt; carbon fee (even in tandem with a &lt;a href=&quot;https://blogs.imf.org/2019/10/10/fiscal-policies-to-curb-climate-change/&quot; rel=&quot;nofollow noreferrer&quot;&gt;dividend&lt;/a&gt;) on its own isn't sufficient. There needs to be the incentives there to replace existing infrastructure that has sunk capital costs. That is, the climate emergency requires the proscription of carbon-intensive infrastructure.&lt;/p&gt;&#xA;&lt;p&gt;So, by all means, let's have a global carbon fee. But we also need to be much more straightforward with enforced regulation, because we know that can be &lt;a href=&quot;http://dx.doi.org/10.1016/j.enpol.2015.08.020&quot; rel=&quot;nofollow noreferrer&quot;&gt;very effective when done well&lt;/a&gt;. Here's the sort of thing that countries should be doing: no more fossil-fuelled cars for sale after 2025, or in use after 2035; no burning of coal for heat or electricity after 2035; no more than 10% of electricity to come from natural gas after 2035. And then the right policies, incentives and structures need to be put in place to enable the market to deliver new zero-carbon infrastructure to replace the existing polluters.&lt;/p&gt;&#xA;&lt;p&gt;It will also require policies to ensure that society continues to the function through the duration of this massive industrial restructuring&lt;/p&gt;&#xA;&lt;h2&gt;Negative emissions&lt;/h2&gt;&#xA;&lt;p&gt;There are several factors which increase the uncertainty of the level of an effective carbon price. There are several negative-emissions options, some of which have fairly well understood costs, others do not, but all of which are quite hard to assess how quickly they can be scaled up - the only way to get a reliable idea of those costs, is to actually do it. There is &lt;a href=&quot;https://www.trilliontrees.org/&quot; rel=&quot;nofollow noreferrer&quot;&gt;mass afforestation&lt;/a&gt;, and there's &lt;a href=&quot;https://www.vox.com/energy-and-environment/2018/6/14/17445622/direct-air-capture-air-to-fuels-carbon-dioxide-engineering&quot; rel=&quot;nofollow noreferrer&quot;&gt;direct air capture and sequestration&lt;/a&gt;.&lt;/p&gt;&#xA;&lt;h2&gt;Start high, then reduce&lt;/h2&gt;&#xA;&lt;p&gt;Note that contrary to what's sometimes suggested, &lt;strong&gt;it would be more effective to set a high carbon fee initially, and the reduce it over time&lt;/strong&gt; (rather than start low and then increase). That's because there's a lot of sunk costs out there, a lot of existing infrastructure, and a lot of low-carbon technology that's still in development, with costs that will come down over time.&lt;/p&gt;&#xA;" OwnerUserId="44" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2019-10-11T05:17:42.527" CommentCount="13" ContentLicense="CC BY-SA 4.0" />
  <row Id="32198" PostTypeId="1" AcceptedAnswerId="32199" CreationDate="2019-10-11T05:39:06.417" Score="1" ViewCount="70" Body="&lt;p&gt;On the economics textbook it is written that GDP Income Approach can be calculated as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;[ Compensation of Employees + Operating Surplus + Consumption of Fixed Capital + Tax on Production and Imports - Subsidies ] (sometimes Consumption of Fixed Capital can be included in Operating Surplus - I think it depends on the textbook). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But when we usually learn about income in schools, we learn that people gain income in mainly 5 different forms - wages, rents, interest, and profit plus government income. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I get that Compensation of Employees can be considered as Wages, Operating Surplus as Profit, and Tax on Production and Imports as Government Income.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But what about interest and rent? How do we account for these two in the calculation above ([ ])? Consumption of Fixed Capital is all about &quot;Depreciation&quot; for fixed capital, not necessarily &lt;strong&gt;interest for capital goods&lt;/strong&gt;. And I have no idea where &lt;strong&gt;rent (for borrowing land)&lt;/strong&gt; is included in the above calculation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So I would appreciate it if someone could explain where &quot;Interest for capital goods (capital income)&quot; and &quot;Rent for borrowing land&quot; is included in the calculation ([ ]). &lt;/p&gt;&#xA;" OwnerUserId="23697" LastEditorUserId="23697" LastEditDate="2019-10-11T05:56:20.403" LastActivityDate="2019-10-11T12:17:00.453" Title="GDP Income Approach" Tags="&lt;gdp&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32199" PostTypeId="2" ParentId="32198" CreationDate="2019-10-11T11:06:17.080" Score="1" Body="&lt;p&gt;I'm going to quote data from the &lt;a href=&quot;https://www.bea.gov/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Bureau of Economic Analysis&lt;/a&gt; (US) but this should apply for many other countries.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you look at the breakdown of &lt;a href=&quot;https://fred.stlouisfed.org/release/tables?eid=17636&amp;amp;rid=53&quot; rel=&quot;nofollow noreferrer&quot;&gt;Gross Domestic Income by Type of Income&lt;/a&gt;, you'll see that net operating surplus includes among other things net interest and miscellaneous payments, proprietors' income with inventory valuation and capital consumption adjustments, rental income of persons with capital consumption adjustment, and corporate profits with inventory valuation and capital consumption adjustments. If you are a individual homeowner and you rent out your property, profits will be covered under rental income of persons with capital consumption adjustment. If you run a business, profits from interest on capital assets that are lent out will go under net interest and miscellaneous payments.&lt;/p&gt;&#xA;" OwnerUserId="8387" LastEditorUserId="8387" LastEditDate="2019-10-11T12:17:00.453" LastActivityDate="2019-10-11T12:17:00.453" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32202" PostTypeId="2" ParentId="32187" CreationDate="2019-10-11T13:58:40.287" Score="0" Body="&lt;p&gt;As discussed in comments above, this should be &lt;span class=&quot;math-container&quot;&gt;$U(c)=-\frac{1}{2}(c^* - c)^2$&lt;/span&gt;. The economic intuition is that c* is the &quot;bliss&quot; consumption level.  It is probably your first glimpse at the idea of &quot;satiation&quot;, which is an extension of the idea of diminishing marginal utility which allows discussion of situations where additional consumption actually produces disutility.  The most obvious example is the consumption of food, where c* would be the point at which you get &quot;full&quot;.  But there are other contexts involving the study of externalities, where satiation is important, such as in environmental economics.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The utility function isn't that interesting by itself, but remember that utility maximization is done subject to a budget constraint so that in general c* will not always be attainable.  If you haven't yet, you will eventually see this utility function in the context of lifetime consumption and savings decisions, usually as a lead-in to Friedman's permanent income hypothesis.&lt;/p&gt;&#xA;" OwnerUserId="24275" LastEditorUserId="1601" LastEditDate="2019-10-11T18:02:33.203" LastActivityDate="2019-10-11T18:02:33.203" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32203" PostTypeId="1" CreationDate="2019-10-11T14:43:02.063" Score="1" ViewCount="84" Body="&lt;p&gt;For a system of equations with &lt;span class=&quot;math-container&quot;&gt;$M=2$&lt;/span&gt; endogenous variables, &lt;span class=&quot;math-container&quot;&gt;$ Y=\begin{bmatrix}  y_1 &amp;amp; y_2 \end{bmatrix}$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$K=3$&lt;/span&gt; exogenous variables, &lt;span class=&quot;math-container&quot;&gt;$X=\begin{bmatrix}  x_1 &amp;amp; x_2 &amp;amp; x_3 \end{bmatrix}$&lt;/span&gt;. &#xA;The first equation of the system is given by: &#xA;&lt;span class=&quot;math-container&quot;&gt;$y_{1i}=\gamma_{12}y_{2i}+\beta_{11}x_{1i}+\epsilon_{1i}$&lt;/span&gt;.&#xA;The data matrices yield, &lt;span class=&quot;math-container&quot;&gt;$X'X$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$X'Y$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$Y'Y$&lt;/span&gt;, which are of dimension, &lt;span class=&quot;math-container&quot;&gt;$3*3$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$3*2$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$2*2$&lt;/span&gt; respectively&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I need to &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Write the OLS and 2SLS normal equations in terms of cross products of the data matrices.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;I tried using the standard procedure for deriving normal equations, that is, by minimizing sum of squared residuals, but I fail to understand how the equations can be modelled in form of the cross products of the given data matrices. I think I'm missing the point of the exercise. Please help me in understanding what the question demands. Thanks! &lt;/p&gt;&#xA;" OwnerUserId="18398" LastActivityDate="2019-10-14T12:21:08.933" Title="OLS and 2SLS normal equations" Tags="&lt;econometrics&gt;&lt;self-study&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32204" PostTypeId="2" ParentId="32187" CreationDate="2019-10-11T17:46:09.330" Score="0" Body="&lt;p&gt;To see if this function makes economic sense we must recall what the definition of economic rationality is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A consumer is said to have rational preferences if: &#xA;1) preferences are complete (any 2 bundles can be compared)&#xA;2)preferences are transitive (in this case we know if &lt;span class=&quot;math-container&quot;&gt;$-\frac{1}{2}(c^1-c)&amp;gt;-\frac{1}{2}(c^2-c)$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$-\frac{1}{2}(c^2-c)&amp;gt;-\frac{1}{2}(c^3-c)$&lt;/span&gt;&#xA;Then &lt;span class=&quot;math-container&quot;&gt;$-\frac{1}{2}(c^1-c)&amp;gt;-\frac{1}{2}(c^3-c)$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus our consumers preferences are rational and are consistent with economic theory.&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2019-10-11T17:46:09.330" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32205" PostTypeId="1" CreationDate="2019-10-11T23:19:33.740" Score="0" ViewCount="48" Body="&lt;p&gt;In pg 4 of Principles of Corporate finance (Allen et al, 2017), in the context of explaining financing decisions are less important that investment decisions, there is a line that says:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;Financial managers say that 'value comes mainly from the asset side of the balance sheet'&quot; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What does this mean? Why asset side? Why not shareholders equity on balance sheet? &#xA;The text did use an example of Microsoft, where they point out that successful companies finance R&amp;amp;D by reinvesting existing cashflow. &lt;/p&gt;&#xA;" OwnerUserId="24525" LastActivityDate="2020-03-04T17:33:40.763" Title="Financial Economics and Corporate Finance" Tags="&lt;finance&gt;&lt;financial-economics&gt;&lt;corporate-finance&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32206" PostTypeId="2" ParentId="32203" CreationDate="2019-10-12T01:51:38.437" Score="1" Body="&lt;p&gt;&lt;strong&gt;OLS&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The OLS part is clear: &lt;span class=&quot;math-container&quot;&gt;$\sum_{i=1}^n y_{2i} (y_{1i} - \hat\gamma_{12} y_{2i} - \hat\beta_{11} x_{1i}) = 0$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\sum_{i=1}^n x_{1i} (y_{1i} - \hat\gamma_{12} y_{2i} - \hat\beta_{11} x_{1i}) = 0$&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$\hat\gamma_{12}$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\hat\beta_{11}$&lt;/span&gt; are the OLS estimators.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;2SLS&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For 2SLS, I will assume that &lt;span class=&quot;math-container&quot;&gt;$(x_{1i}, x_{2i}, x_{3i})$&lt;/span&gt; is used as IV. The corresponding 2SLS is identical to the IV estimator using &lt;span class=&quot;math-container&quot;&gt;$\hat{y}_{2i}$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$x_{1i}$&lt;/span&gt; as IV. Thus, (I think) the &quot;normal equations&quot; are&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{align}&#xA;\sum_{i=1}^n \hat{y}_{2i} (y_{1i} - \tilde\gamma_{12} y_{2i} - \tilde\beta_{11} x_{1i}) &amp;amp;= 0,\\&#xA;\sum_{i=1}^n x_{1i} (y_{1i} - \tilde\gamma_{12} y_{2i} - \tilde\beta_{11} x_{1i}) &amp;amp;= 0,&#xA;\end{align}&lt;/span&gt;&#xA;where &lt;span class=&quot;math-container&quot;&gt;$\tilde\gamma_{12}$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\tilde\beta_{11}$&lt;/span&gt; are the 2SLS estimators using &lt;span class=&quot;math-container&quot;&gt;$x_{1i}, x_{2i}, x_{3i}$&lt;/span&gt; as IV, and &lt;span class=&quot;math-container&quot;&gt;$\hat{y}_{2i}$&lt;/span&gt; is the fitted value obtained by regressing &lt;span class=&quot;math-container&quot;&gt;$y_{2i}$&lt;/span&gt; on the instruments &lt;span class=&quot;math-container&quot;&gt;$x_{1i}$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$x_{2i}$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$x_{3i}$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the above, I understood 2SLS as the IV estimator using &lt;span class=&quot;math-container&quot;&gt;$(\hat{y}_{2i}, x_{1i})$&lt;/span&gt; as IV. We can also understand 2SLS as the OLS estimator of &lt;span class=&quot;math-container&quot;&gt;$y_{1i}$&lt;/span&gt; on &lt;span class=&quot;math-container&quot;&gt;$(\hat{y}_{2i}, x_{1i})$&lt;/span&gt;. In that case, the normal equations can be written as&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{align}&#xA;\sum_{i=1}^n \hat{y}_{2i} (y_{1i} - \tilde\gamma_{12} \hat{y}_{2i} - \tilde\beta_{11} x_{1i}) &amp;amp;= 0,\\&#xA;\sum_{i=1}^n x_{1i} (y_{1i} - \tilde\gamma_{12} \hat{y}_{2i} - \tilde\beta_{11} x_{1i}) &amp;amp;= 0,&#xA;\end{align}&lt;/span&gt;&#xA;where &lt;span class=&quot;math-container&quot;&gt;$y_{2i}$&lt;/span&gt; is replaced with &lt;span class=&quot;math-container&quot;&gt;$\hat{y}_{2i}$&lt;/span&gt;. The two sets of normal equations for 2SLS (one in terms of &lt;span class=&quot;math-container&quot;&gt;$y_{2i}$&lt;/span&gt; and the other in terms of &lt;span class=&quot;math-container&quot;&gt;$\hat{y}_{2i}$&lt;/span&gt;) are identical.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Intercept&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have noticed that the intercept is excluded in the question. If the model is &lt;span class=&quot;math-container&quot;&gt;$y_{1i} = \beta_{10} + \gamma_{12} y_{2i} + \beta_{11} x_{1i} + \epsilon_i$&lt;/span&gt; instead, you need equations for the intercept as well.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Matrix notations&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Using matrix notations, let &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; be the &lt;span class=&quot;math-container&quot;&gt;$n\times 1$&lt;/span&gt; matrix of the LHS variable, &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; the &lt;span class=&quot;math-container&quot;&gt;$n\times 2$&lt;/span&gt; matrix of &lt;span class=&quot;math-container&quot;&gt;$(y_{2i}, x_{1i})$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$Z$&lt;/span&gt; the &lt;span class=&quot;math-container&quot;&gt;$n\times 3$&lt;/span&gt; matrix of &lt;span class=&quot;math-container&quot;&gt;$(x_{i1}, x_{i2}, x_{i3})$&lt;/span&gt;. Let &lt;span class=&quot;math-container&quot;&gt;$\beta = (\gamma_{12}, \beta_{11})'$&lt;/span&gt;. (I am considering the model without the intercept. For the model with the intercept, &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$Z$&lt;/span&gt; contain a column of ones.) Then the OLS estimator is &lt;span class=&quot;math-container&quot;&gt;$\hat\beta = (X'X)^{-1} X'y$&lt;/span&gt;, which solves the normal equations &lt;span class=&quot;math-container&quot;&gt;$X'(y-X\hat\beta)=\boldsymbol 0$&lt;/span&gt;. To see this, note that &lt;span class=&quot;math-container&quot;&gt;$$X'(y-X\hat\beta)=\boldsymbol 0 \\&#xA;X'y - X'X\hat\beta = \boldsymbol 0\\&#xA;X'X\hat\beta = X'y\\&#xA;\hat\beta = (X'X)^{-1}X'y$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The 2SLS (using &lt;span class=&quot;math-container&quot;&gt;$Z$&lt;/span&gt; as instruments) estimator is &lt;span class=&quot;math-container&quot;&gt;$$\tilde\beta = [X'Z(Z'Z)^{-1} Z'X]^{-1} X'Z(Z'Z)^{-1} Z'y = (\hat{X}'X)^{-1} \hat{X}'y$$&lt;/span&gt; where &lt;span class=&quot;math-container&quot;&gt;$\hat{X} = Z(Z'Z)^{-1} Z'X$&lt;/span&gt;. This 2SLS solves &lt;span class=&quot;math-container&quot;&gt;$\hat{X}' (y-X\tilde\beta)=\boldsymbol 0$&lt;/span&gt;, the normal equations for this 2SLS. Again, to see this, note that &#xA;&lt;span class=&quot;math-container&quot;&gt;$$\hat{X}' (y-X\tilde\beta)=\boldsymbol 0\\&#xA;\hat X'y - \hat X'X\tilde\beta = \boldsymbol 0\\&#xA;\hat X'X\tilde\beta = \hat X' y\\&#xA;\tilde\beta = (\hat X'X)^{-1} \hat X'y $$&lt;/span&gt;&#xA;You will see that &lt;span class=&quot;math-container&quot;&gt;$\hat{X}$&lt;/span&gt; is the &lt;span class=&quot;math-container&quot;&gt;$n\times 2$&lt;/span&gt; matrix of &lt;span class=&quot;math-container&quot;&gt;$(\hat{y}_{2i}, x_{1i})$&lt;/span&gt;. It is also true that &lt;span class=&quot;math-container&quot;&gt;$\tilde\beta = (\hat{X}'\hat{X})^{-1} \hat{X}'y$&lt;/span&gt;, and the normal equations are also written as &lt;span class=&quot;math-container&quot;&gt;$\hat{X}' (y-\hat{X}\tilde\beta)=0$&lt;/span&gt;. The two different expressions are identical because &lt;span class=&quot;math-container&quot;&gt;$\hat{X}'X = \hat{X}'\hat{X}$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerUserId="10775" LastEditorUserId="118" LastEditDate="2019-10-14T12:21:08.933" LastActivityDate="2019-10-14T12:21:08.933" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="32207" PostTypeId="1" CreationDate="2019-10-12T08:52:27.123" Score="1" ViewCount="72" Body="&lt;p&gt;I am currently reading the book &quot;Where does money come from?&quot; which is co-authored by Richard Werner after I took the &quot;Money and Banking&quot;-class in coursera by Perry Mehrling.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are certain questions which always pop up in my mind and which I find them either to remain unanswered or I simply don't understand the procedures.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assumption:&#xA;I assume that Banks do not function as financial intermediaries as in neoclassical economics, which has been proven wrong by Richard Werner in his 2014 empirical study at the latest (but was well known to specialized economists, central bankers and bankers whose daily business are money market operations). Instead, I assume that money is created at the push of a button by a bank deciding to grant a loan to a customer. From this follows, that money in the form of cash/reserves is equally accepted by other agents as deposit accounts, which is why they are exchanged at par (i.e. at face value).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, as long as customers make electronic transactions within their bank or to other banks, the reserves of the respective bank remain unchanged. It is only when the customer withdraws cash that the reserves of the bank have to be converted to cash for the case that the bank doesn't hold enough. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;There exists basically two ways of a bank accessing reserves (at least in the Euro-area, the UK and the US):&#xA;1) Borrowing reserves in the interbanking market at the Fed Funds Rate (US), the LIBOR rate (UK), the EURIBOR rate (Euro-zone)&#xA;2) By selling government securities to the central bank (or doing repos)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So far, I get the part with the interbanking market and why it works. What I don't understand is the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) If a bank is selling government securities to the central bank in order to get reserves (or making a repo), where does this government security come from? &#xA;It is obvious that the security is issued by the government, but the government issues the security against receiving liquidity from the bank that buys the security. However, at the initial stage the bank doesn't have other liquidity than being able to open a deposit for the government to the amount of bought securities that the government in turn can access. Let's assume the government would like to access instantly the account of, say, 1 bn Euros and to withdraw the money in cash - will the central bank provide this 1 bn Euros without any discount?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;2) As a follow up question: How could money be created if a government does not issue securities?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks in adanvace.&#xA;BR&lt;/p&gt;&#xA;" OwnerUserId="24528" LastActivityDate="2020-11-05T12:56:01.477" Title="Initial creation of reserves" Tags="&lt;money-supply&gt;&lt;money&gt;&lt;central-banking&gt;&lt;liquidity&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32208" PostTypeId="2" ParentId="32207" CreationDate="2019-10-12T09:49:30.077" Score="1" Body="&lt;p&gt;The current international monetary system based on pure fiat currency is a post-1970s system. For a long time before that most of the international monetary system was based on the &lt;a href=&quot;https://en.wikipedia.org/wiki/Gold_standard&quot; rel=&quot;nofollow noreferrer&quot;&gt;gold standard&lt;/a&gt;. With the gold standard, governments issued currency relative to the amount of gold they held or they pegged their currency to another currency that was backed by gold. Hence, the bootstrapping issue you point out wasn't an issue. Note while current central banks often use government securities and bonds as assets to back the issuance of their currency, there is no rule that the asset needs to be a security (it could be gold like before) or that there even needs to be an backing asset at all (at risk of inflation).&lt;/p&gt;&#xA;" OwnerUserId="8387" LastActivityDate="2019-10-12T09:49:30.077" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32209" PostTypeId="1" CreationDate="2019-10-12T11:01:23.440" Score="0" ViewCount="97" Body="&lt;p&gt;My book says that the opportunity cost of purchase of a specialized equipment that has no alternative use is zero and hence such an expenditure is a &lt;strong&gt;sunk cost&lt;/strong&gt;. However, while calculating the user cost of capital, it takes into account how much interest one could have got had one not purchased the capital and invested the money somewhere else. So, why the same treatment has not been applied on the specialized equipment. Rather than buying it for &lt;span class=&quot;math-container&quot;&gt;$ \$20000$&lt;/span&gt; (say), I could have invested the money somewhere else and earned a return of &lt;span class=&quot;math-container&quot;&gt;$ \$2000$&lt;/span&gt; (say). So, shouldn't my opportunity cost amount to &lt;span class=&quot;math-container&quot;&gt;$\$22000$&lt;/span&gt; rather than 0&lt;/p&gt;&#xA;" OwnerUserId="24468" LastActivityDate="2021-04-12T01:05:30.457" Title="Why is the opportunity cost 0 in this case?" Tags="&lt;microeconomics&gt;&lt;cost&gt;&lt;opportunity-cost&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="32210" PostTypeId="2" ParentId="11774" CreationDate="2019-10-12T14:52:13.847" Score="5" Body="&lt;p&gt;There is now a &lt;a href=&quot;https://github.com/mwburke/stargazer/&quot; rel=&quot;noreferrer&quot;&gt;Python version&lt;/a&gt; of the well known &lt;strong&gt;stargazer&lt;/strong&gt; R package, which does exactly this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;See also this related question: &lt;a href=&quot;https://stackoverflow.com/q/35051673/2858145&quot;&gt;https://stackoverflow.com/q/35051673/2858145&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="24531" LastActivityDate="2019-10-12T14:52:13.847" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32212" PostTypeId="1" CreationDate="2019-10-13T06:42:49.700" Score="1" ViewCount="53" Body="&lt;p&gt;In economics, we are taught that, or needs are infinite and resources are fixed. And each needs and resources have some associated value.. At global level, we know, there are some rich as well as some poor countries.. But, I want to know, is it possible that, poorer countries will become rich as well as rich countries also become richer.. ?  If yes, then how is it possible, since resources are fixed.. . &lt;/p&gt;&#xA;" OwnerUserId="24056" LastActivityDate="2019-10-13T06:42:49.700" Title="Is it possible that all countries become developed and rich?" Tags="&lt;international-economics&gt;&lt;development-economics&gt;&lt;development&gt;" AnswerCount="0" CommentCount="8" ClosedDate="2019-10-15T04:18:36.093" ContentLicense="CC BY-SA 4.0" />
  <row Id="32213" PostTypeId="1" CreationDate="2019-10-13T08:40:56.660" Score="0" ViewCount="67" Body="&lt;p&gt;I am watching Lecture 3 of Yale's Financial Theory Lecture (by John). At about minute 50 he explains something along this line (with reference to log utility functions). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;MUx/Px=MUy/Py&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And simplifies down to: 0.75/Px(x)= 0.25/Py(y)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given that Px(x)+Py(y)=Total Money&lt;/p&gt;&#xA;&#xA;&lt;p&gt;He concludes that &quot;The total spent on x relative to 3/4 is equal to the total spent on y relative to 1/4&quot; and therefore a consumer would spend 3/4 of their income on x and 1/4 on y. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;How is he drawing that conclusion from the above equations?&lt;/p&gt;&#xA;" OwnerUserId="24534" LastActivityDate="2019-10-13T13:56:37.900" Title="Log Utiliy Function Trick" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32214" PostTypeId="2" ParentId="32213" CreationDate="2019-10-13T13:50:35.247" Score="1" Body="&lt;p&gt;Start here&#xA;&lt;span class=&quot;math-container&quot;&gt;$$0.75/p_xx= 0.25/p_yy$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Multiply both sides by &lt;span class=&quot;math-container&quot;&gt;$p_xx p_yy$&lt;/span&gt;, you get:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$0.75p_yy=0.25p_xx$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Add &lt;span class=&quot;math-container&quot;&gt;$0.75p_xx$&lt;/span&gt; to both sides, you get:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$0.75(p_xx+p_yy)=p_xx$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\frac{p_xx}{p_xx+p_yy}=0.75=\frac{3}{4}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And you spend the rest of your budget, so &lt;span class=&quot;math-container&quot;&gt;$1/4$&lt;/span&gt; of it, on &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerUserId="18214" LastEditorUserId="18214" LastEditDate="2019-10-13T13:56:37.900" LastActivityDate="2019-10-13T13:56:37.900" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="32215" PostTypeId="1" CreationDate="2019-10-13T15:38:05.080" Score="0" ViewCount="96" Body="&lt;p&gt;I have utility function given by:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$U(x_1, x_2) =&#xA;  \begin{cases}&#xA;                                   x_1+x_2 &amp;amp; \text{if $x_1+x_2&amp;lt;6$} \\&#xA;                                   6 &amp;amp; \text{if $6\leq x_1+x_2\leq10$} \\&#xA;                                   x_1 + x_2 &amp;amp; \text{if $x_1+x_2&amp;gt;10$}&#xA;  \end{cases}$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I transform this to this:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$F(U(x_1, x_2)) =&#xA;  \begin{cases}&#xA;                                   U(x_1, x_2)+4 &amp;amp; \text{if $U(x_1, x_2)&amp;lt;6$} \\&#xA;                                   10 &amp;amp; \text{if $U(x_1, x_2)=6$} \\&#xA;                                   U(x_1, x_2) &amp;amp; \text{if $U(x_1, x_2)&amp;gt;10$}&#xA;  \end{cases}$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is it strictly increasing function transformation?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks guys&lt;/p&gt;&#xA;" OwnerUserId="24524" LastEditorUserId="23083" LastEditDate="2019-10-13T17:47:02.400" LastActivityDate="2019-10-13T18:25:19.470" Title="Strictly increasing function transformation" Tags="&lt;utility&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="32216" PostTypeId="1" CreationDate="2019-10-13T17:21:44.237" Score="1" ViewCount="40" Body="&lt;p&gt;I have mainly an statistics/informatics background and i have basically not knowledge in economics.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What some good books to star given my background?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My principal interest is stock market analysis, investing and risk modeling.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have a degree in statistics and other informatic engineering(something like CS), i don't have problems with math-heavy books if it helps me to build a solid understanding.&lt;/p&gt;&#xA;" OwnerUserId="24537" LastEditorUserId="24537" LastEditDate="2019-10-13T19:25:09.237" LastActivityDate="2019-10-13T19:25:09.237" Title="Recommendation on economics books for a statistician" Tags="&lt;self-study&gt;&lt;books&gt;" AnswerCount="0" CommentCount="3" FavoriteCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="32217" PostTypeId="2" ParentId="12824" CreationDate="2019-10-13T17:28:08.160" Score="-2" Body="&lt;p&gt;I have been pondering this while enjoying a bowl of cereal as you will soon discover, and I think it is important to mention that this question is probably applied to a 'Short Run'..... yes prices &amp;amp; quantity supplied increase for now..., this is made easier to understand with this example,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Immediate- right now, how many bowls of cereal can you make.... and what would it cost you?(revenue - House, Bowls, fridge running cost, etc..)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Short Run- if I gave you an hour, How many bowls of cereal can you make, giving you time to go to the shop find money to buy ingredients, how much can you fit in the car etc...&#xA;How much would it cost on top of original costs (&amp;amp; could i start taking a bit more profit at this point??)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;'Long Run' If I gave you a year and you bought a van, big fridges, many many bowls etc..&#xA;eventually the large investments in reaching market capacity/equilibrium will have levelled out and economies of scale will begin effect creating a gradual downward sloping supply curve... &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So this should answer the question simply with, price increases with quantity sold in order to facilitate manufacture and costs in the short run (and of course some taking advantage in profit maximisation), but this is not true for the immediate or long run scenarios..&lt;/p&gt;&#xA;" OwnerUserId="24538" LastActivityDate="2019-10-13T17:28:08.160" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="32219" PostTypeId="1" AcceptedAnswerId="32232" CreationDate="2019-10-13T18:07:54.480" Score="0" ViewCount="35" Body="&lt;p&gt;I am curious about the connection between one-player Bayesian Correlated Equilibrium (hereafter, BCE) introduced by Bergemann and Morris for a generic &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt;-player setting with &lt;span class=&quot;math-container&quot;&gt;$n\geq 1$&lt;/span&gt; (&lt;a href=&quot;http://www.princeton.edu/~smorris/pdfs/bce.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;)  and the Bayesian persuasion problem in Kamenica and Gentzkow (&lt;a href=&quot;https://faculty.chicagobooth.edu/emir.kamenica/documents/bayesianPersuasion.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;) also discussed in Bergemann and Morris more recently (&lt;a href=&quot;https://www.aeaweb.org/articles?id=10.1257/jel.20181489&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would like your help to summarise such  relation. &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Preliminaries:&lt;/strong&gt; DM denotes decision maker. &lt;span class=&quot;math-container&quot;&gt;$G$&lt;/span&gt; is the basiline choice problem that consists of the DM's prior on the state of the world. &lt;span class=&quot;math-container&quot;&gt;$S$&lt;/span&gt; is the information structure that contains the probability distribution of the signal used by the DM to update the prior. &lt;span class=&quot;math-container&quot;&gt;$(G,S)$&lt;/span&gt; is the augmented choice problem. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\underline{S}$&lt;/span&gt; denotes the degenerate information structure, i.e., the information structure that does not convey additional information on the state of the world. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The set of one-player BCE of &lt;span class=&quot;math-container&quot;&gt;$G$&lt;/span&gt; consists of the set of probability distributions over actions and states that are &lt;em&gt;consistent&lt;/em&gt; with the prior and &lt;em&gt;obedient&lt;/em&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that the set of one-player BCE of &lt;span class=&quot;math-container&quot;&gt;$G$&lt;/span&gt; is equal to the set of one-player BCE of &lt;span class=&quot;math-container&quot;&gt;$(G,\underline{S})$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;This is my  attempt to link the two papers:&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose a mediator (&quot;sender&quot; in the Bayesian persuasion language)  could pick the information structure (&quot;experiment&quot; in the Bayesian persuasion language) that the DM (&quot;receiver&quot; in the Bayesian persuasion language) could process. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Kamenica and Gentzkow (&lt;a href=&quot;http://www.princeton.edu/~smorris/pdfs/bce.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;) characterize the set of distributions over actions and states &#xA; that the sender could induce &lt;strong&gt;through picking the null experiment&lt;/strong&gt; (i.e., &lt;span class=&quot;math-container&quot;&gt;$\underline{S}$&lt;/span&gt;) and having the DM choose&#xA;optimally. This set is equal to the set of one-player BCE of &lt;span class=&quot;math-container&quot;&gt;$(G,\underline{S})$&lt;/span&gt;.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Bergemann and Morris more recently (&lt;a href=&quot;https://www.aeaweb.org/articles?id=10.1257/jel.20181489&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;) explains that such relation holds for any information structure. In other words, the set of distributions over actions and states &#xA; that the sender could induce &lt;strong&gt;through picking ANY experiment &lt;span class=&quot;math-container&quot;&gt;$S$&lt;/span&gt;&lt;/strong&gt; and having the DM choose&#xA;optimally  is equal to the set of one-player BCE of &lt;span class=&quot;math-container&quot;&gt;$(G,S)$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Is my connection correct?&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="1505" LastEditorUserId="1505" LastEditDate="2019-10-13T18:35:27.343" LastActivityDate="2019-10-14T23:27:39.527" Title="Bayesian Correlated Equilibrium in a one player case: relation with literature" Tags="&lt;game-theory&gt;&lt;bayesian-game&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32220" PostTypeId="2" ParentId="32215" CreationDate="2019-10-13T18:25:19.470" Score="-2" Body="&lt;p&gt;This is a strictly increasing monotonic transformation simply because the preferences in the previous function are the same in the transformed function as well. &lt;/p&gt;&#xA;" OwnerUserId="23014" LastActivityDate="2019-10-13T18:25:19.470" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32221" PostTypeId="1" CreationDate="2019-10-13T20:02:36.823" Score="0" ViewCount="30" Body="&lt;p&gt;Let say the electorate consists of three segments of voters: 1, 2, and 3 with corresponding weak preference relations defined over the candidates. Let the preferences be given by --&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Segment 1: Biden &gt; Warren &gt; Sanders; Biden &gt; Sanders.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Segment 2: Warren &gt; Sanders &gt; Biden; Warren &gt; Biden.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Segment 3: Sanders &gt; Biden &gt; Waren; Sanders &gt; Warren.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Question: Derive the preference relation of the electorate, decided by majority rule. As a preferences of the electorate as a whole rational? Why or why not.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For this question, I feel like it would not be possible to derive a preference relation of the entire electorate because it seems that no one candidate is strongly/weakly preferred. Therefore, it would seem that the preferences of the entire electorate would not be rational because it does not satisfy the transitive and completeness principles. Would I be correct in thinking this way and that a net preferece relation may not be derived? Any help would be greatly appreciated. Thank you.&lt;/p&gt;&#xA;" OwnerUserId="24542" LastActivityDate="2019-10-14T23:40:42.083" Title="Net Preference Relations" Tags="&lt;preferences&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32223" PostTypeId="1" CreationDate="2019-10-13T23:18:35.433" Score="1" ViewCount="28" Body="&lt;p&gt;I feel like this is quite a stupid question, but I can't wrap my head around it. Why do suppliers make less of a good as profits drop? Intuitively, shouldn't they make more of the good in order to cope with the drop in profits? I understand that someone might say that the producers time is better used to work on supplying some other sort of good, but if an entire aggregate price level increases, what other options are there besides trying to make more of the item (as other industries have suffered the same drop in price level)?&lt;/p&gt;&#xA;" OwnerUserId="24359" LastEditorUserId="24359" LastEditDate="2019-10-14T05:36:02.150" LastActivityDate="2019-10-14T05:36:02.150" Title="Profits and Aggregate Supply" Tags="&lt;macroeconomics&gt;&lt;supply-and-demand&gt;&lt;aggregate-production&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32224" PostTypeId="1" CreationDate="2019-10-14T03:15:06.327" Score="5" ViewCount="355" Body="&lt;p&gt;I am trying to see how we treat &lt;span class=&quot;math-container&quot;&gt;$\varepsilon$&lt;/span&gt; in the following proof:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose we have a log-log single variable regression model&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ \ln(y) = \alpha + \beta \ln(x) + \varepsilon $$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;then take partial derivative with respect to &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; on both sides&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{align}&amp;amp;\implies \frac{\partial}{\partial x} \ln(y) = \frac{\partial}{\partial x} (\alpha + \beta \ln(x) + \varepsilon)\\&amp;amp;\implies\frac{\partial \ln(y)}{\partial y} \frac{\partial y}{\partial x} = 0 + \beta \frac{1}{x} + \frac{\partial \varepsilon}{\partial x}\\&amp;amp;\implies\frac{1}{ y} \frac{\partial y}{\partial x} = \beta \frac{1}{x} + \frac{\partial \varepsilon}{\partial x}\end{align}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We want to show that &lt;span class=&quot;math-container&quot;&gt;$\beta$&lt;/span&gt; is equal to the elasticity of &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; with respect to &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ \beta = \frac{\partial y}{\partial x} \frac{x}{y} $$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But how do we know the &lt;span class=&quot;math-container&quot;&gt;$\dfrac{\partial \varepsilon}{\partial x} $&lt;/span&gt; term is zero?&lt;/p&gt;&#xA;" OwnerUserId="5780" LastEditorUserId="5780" LastEditDate="2019-10-15T14:41:35.093" LastActivityDate="2019-10-16T12:58:38.390" Title="Proof coefficient in log-log model is equal to coefficient of elasticity" Tags="&lt;elasticity&gt;&lt;regression&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32225" PostTypeId="2" ParentId="32224" CreationDate="2019-10-14T09:40:40.273" Score="9" Body="&lt;p&gt;Because &lt;span class=&quot;math-container&quot;&gt;$\Bbb E[\varepsilon \mid x]= 0$&lt;/span&gt; is one of the key assumptions for the estimation. &lt;/p&gt;&#xA;" OwnerUserId="17735" LastEditorUserId="24547" LastEditDate="2019-10-15T03:50:12.583" LastActivityDate="2019-10-15T03:50:12.583" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="32226" PostTypeId="2" ParentId="32224" CreationDate="2019-10-14T10:05:54.420" Score="1" Body="&lt;p&gt;The normal procedure is to estimate the model using sample data for &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt;, obtaining a fitted regression line:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\ln(\hat{y})=\hat{\alpha}+\hat{\beta}\ln(x)$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You then have a straightforward log-linear relation between &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; and fitted values of &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; and can use partial differentiation as in your question, but without the &lt;span class=&quot;math-container&quot;&gt;$\varepsilon$&lt;/span&gt; terms, to show that:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\hat{\beta}=\frac{\partial \hat{y}}{\partial x}\frac{x}{\hat{y}}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the sample is representative of the population of interest, one can then infer that &lt;span class=&quot;math-container&quot;&gt;$\hat{\beta}$&lt;/span&gt; is a good estimate of elasticity in the population.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Trying instead to differentiate the original stochastic model leads into the difficult issue (see &lt;a href=&quot;https://mathoverflow.net/questions/26067/derivative-of-a-random-variable&quot;&gt;here&lt;/a&gt;) of whether it makes any sense to differentiate a random variable.&lt;/p&gt;&#xA;" OwnerUserId="1417" LastEditorUserId="1417" LastEditDate="2019-10-16T12:58:38.390" LastActivityDate="2019-10-16T12:58:38.390" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="32227" PostTypeId="1" AcceptedAnswerId="32230" CreationDate="2019-10-14T11:34:50.383" Score="0" ViewCount="33" Body="&lt;p&gt;I remember reading a few years back an article that showed an interesting graphic with the percentage/proportion of published papers with DSGE models across time. I've tried searching, but I get so many results related to DSGE, but not to what I'm looking for...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm looking for a reference with that graph.&lt;/p&gt;&#xA;" OwnerUserId="118" LastActivityDate="2019-10-14T19:02:26.993" Title="Percentage/proportion of published papers with DSGE models" Tags="&lt;macroeconomics&gt;&lt;dsge&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32228" PostTypeId="2" ParentId="32160" CreationDate="2019-10-14T15:55:02.390" Score="1" Body="&lt;p&gt;As @H2ONaCl correctly points out the mechanism that you mention can be well described by &quot;Baumol's cost disease&quot; mechanism associated perhaps most clearly with this 1966 article &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;William J. Baumol and William G. Bowen, “On the Performing Arts: The&#xA;  Anatomy of their Economic Problems.” The American Economic Review, Vol. 55,&#xA;  No. 2, 1965, pp. 495-502&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;and a book with a similar title.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;However credit for the idea that differential productivity between sectors will affect relative prices and other phenomena should be shared more broadly with other economists. In trade theory for example the &lt;a href=&quot;https://en.wikipedia.org/wiki/Balassa%E2%80%93Samuelson_effect&quot; rel=&quot;nofollow noreferrer&quot;&gt;Balassa-Samuelson effect&lt;/a&gt; (described in papers published at about the same time or earlier) uses the mechanism to explain why the cost of living in developed countries is higher than in less developed countries:  the productivity difference between workers in non-traded (NT) sectors (think haircuts, meal preparation, child care, many types of construction) is not that much higher in rich countries compared to poor countries but rich country workers are much more productive in tradable (T) sectors.  The higher tradable sector productivity drives up the wage in both T and NT sectors and hence also the price of non-traded goods and the cost of living there.    &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Authors &lt;a href=&quot;https://core.ac.uk/download/pdf/7370284.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Tica and Druzic&lt;/a&gt; argue in fact that the differential productivity mechanism had been explained already at least as early as Ricardo's 19th century &lt;em&gt;Principles of Political Economy and Taxation&lt;/em&gt; and by several early 20th century economists before being 'rediscovered' by Balassa, Samuelson, Baumol and others.&lt;/p&gt;&#xA;" OwnerUserId="4881" LastActivityDate="2019-10-14T15:55:02.390" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32229" PostTypeId="1" AcceptedAnswerId="32231" CreationDate="2019-10-14T18:58:56.107" Score="0" ViewCount="58" Body="&lt;p&gt;Draw the indifference curve for U= 10, U=15, U=20.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My knowledge of algebra has deteriorated over the last few years of being out of school and I am really unsure of how to answer this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The X value is going up in the standard 1 to 10.&lt;/p&gt;&#xA;" OwnerUserId="24552" LastActivityDate="2019-10-14T21:04:15.203" Title="Consider the utility function U(x,y) = y√x" Tags="&lt;decision-theory&gt;" AnswerCount="1" CommentCount="1" ClosedDate="2019-10-29T02:37:55.977" ContentLicense="CC BY-SA 4.0" />
  <row Id="32230" PostTypeId="2" ParentId="32227" CreationDate="2019-10-14T19:02:26.993" Score="0" Body="&lt;p&gt;You may have been thinking of a chart originally from &lt;em&gt;The Economist&lt;/em&gt; Nov 24th 2016 article &quot;&lt;a href=&quot;https://www.economist.com/finance-and-economics/2016/11/24/economists-are-prone-to-fads-and-the-latest-is-machine-learning&quot; rel=&quot;nofollow noreferrer&quot;&gt;Economists are prone to fads, and the latest is machine learning&lt;/a&gt;&quot; though I cannot see it there.  There is &lt;a href=&quot;https://1.bp.blogspot.com/-MX9aQjPRfIg/WgyD4CYTMHI/AAAAAAAAKaE/NNdEgGBXstAVfbJYRCRLLZdlwngaVIWaQCLcBGAs/s1600/dsge.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;a copy of the chart&lt;/a&gt; visible at &lt;a href=&quot;http://noahpinionblog.blogspot.com/2017/11/the-cackling-cartoon-villain-defense-of.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Noah Smith's blog&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It shows an analysis by &lt;em&gt;The Economist&lt;/em&gt; of the key words in working-paper abstracts published by the National Bureau of Economic Research, with lines for laboratory experiments, randomised control trials (RCTs), difference-in-differences, regression discontinuity, machine learning or big data, and DSGE &lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2019-10-14T19:02:26.993" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="32231" PostTypeId="2" ParentId="32229" CreationDate="2019-10-14T21:04:15.203" Score="2" Body="&lt;p&gt;Hint: This suggests &lt;span class=&quot;math-container&quot;&gt;$y=\dfrac{U}{\sqrt{x}}$&lt;/span&gt;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;so draw the three curves in the usual way&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$y=\dfrac{10}{\sqrt{x}}$&lt;/span&gt;; three of the points are &lt;span class=&quot;math-container&quot;&gt;$(1,10)$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$(4,5)$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$(9,3.333)$&lt;/span&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$y=\dfrac{15}{\sqrt{x}}$&lt;/span&gt;; three of the points are &lt;span class=&quot;math-container&quot;&gt;$(1,15)$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$(4,7.5)$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$(9,5)$&lt;/span&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$y=\dfrac{20}{\sqrt{x}}$&lt;/span&gt;; three of the points are &lt;span class=&quot;math-container&quot;&gt;$(1,20)$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$(4,10)$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$(9,6.667)$&lt;/span&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2019-10-14T21:04:15.203" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="32232" PostTypeId="2" ParentId="32219" CreationDate="2019-10-14T23:27:39.527" Score="1" Body="&lt;p&gt;There are a few imprecisions in the way you formalize things. For example saying &quot; is the baseline choice problem&quot; does not make a lot of sense, because a problem should include the DM's utility, the available actions, and the belief about the state of the world. You only included the latter.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regardless of notation, I think that you are missing the key connection between these two papers. Let me summarize what each paper does first and then draw the connection for you.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The concept of BCE characterizes the answer to the following question: If the DM were to observe some signal (informative or not) what are all the actions that would be optimal? &#xA;Of course the DM can use mixed strategies, so we talk about distributions over actions. Also, it is clear that depending on what information is contained in the signal, the actions of the receiver can vary. So the set of BCE collects all possible actions for all possible signals. Note that the concept of BCE is agnostic about where this extra information is coming from.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So yes, the distributions of actions that are in the set of BCE are obedient (i.e. optimal given some belief), and the beliefs that rationalize these actions are consistent with the prior (I.e. they are the Bayesian posteriors derived from some signal given the DM's prior).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In contrast, Kamenica and Gentzkow (KG) set up a game where a sender chooses what signal to give a receiver and then the receiver takes an action that affects both players. Kamenica and Gentskow presented the simplest case, where the sender knows the prior of the DM and there is only one sender.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Their approach has some limitations because finding the optimal signal can be complicated; especially if the state space is not binary. In their paper, it is also not clear at all how to solve the problem if the receiver has more information than &lt;span class=&quot;math-container&quot;&gt;$\underline S$&lt;/span&gt;, or if there is more than one receiver. So yes KG assume that the receiver has some prior information &lt;span class=&quot;math-container&quot;&gt;$\underline S$&lt;/span&gt;, but in equilibrium the sender usually provides more information, so your statement &quot;Kamenica and Gentzkow (here) characterize the set of distributions over actions and states that the sender could induce through picking the null experiment&quot; is false.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, let me try to connect the two papers:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Bergeman and Morris (2019) found that we can drastically simplify the analysis of the game presented by KG if instead of maximizing over signals, we maximize the sender's utility choosing the distribution of actions that can be induced using some signal. They make the connection that if a distribution of actions can be chosen by the sender, it must be because it is optimal for the receiver to choose those action after observing some signal &lt;span class=&quot;math-container&quot;&gt;$S\geq\underline S$&lt;/span&gt;, i.e. if the distribution over actions is a BCE. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is nice because the set of BCE's is relatively easy to find and to work with. So the game that KG setup can be dramatically simplified into a game where the sender chooses its favorite BCE. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Once you realize this connection, you can overcome many of the limitations in KG's approach. The concept of BCE can be easily extended to multiple receivers, and even receivers with private information. The authors showcase in their 2019 paper, the power of making this connection, and show how to think formally of receivers with more information than &lt;span class=&quot;math-container&quot;&gt;$\underline S$&lt;/span&gt;, among other things. &lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-10-14T23:27:39.527" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="32233" PostTypeId="2" ParentId="32221" CreationDate="2019-10-14T23:40:42.083" Score="1" Body="&lt;p&gt;Have you tried writing down your intuition? Maybe the preference relationship of the electorate as a whole is transitive, but not complete, or complete but not transitive, etc. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would start, for example asking the electorate, which one is preferred Biden or Warren? 2 voters would prefer Biden and one would prefer warren, so using the majority rule, we can conclude that for the electorate as a whole: Biden &lt;span class=&quot;math-container&quot;&gt;$&amp;gt;_{elect}$&lt;/span&gt; Warren. Keep going with all the pairs and conclude whether the  preferences are complete or transitive.&lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-10-14T23:40:42.083" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32234" PostTypeId="1" CreationDate="2019-10-15T00:38:58.740" Score="0" ViewCount="49" Body="&lt;p&gt;How would you algebraically write a perfectly elastic supply? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Will it be infinite at price = 4? (The choice of the number 4 is completely arbitrary)&lt;/p&gt;&#xA;" OwnerUserId="24422" LastActivityDate="2020-11-08T06:02:50.533" Title="Perfectly elastic supply" Tags="&lt;supply-and-demand&gt;&lt;producer-theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32235" PostTypeId="2" ParentId="32234" CreationDate="2019-10-15T03:12:26.427" Score="1" Body="&lt;p&gt;Yeah, that's pretty much it for any horizontal or vertical line:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;P = p0&lt;/p&gt;&#xA;" OwnerUserId="24031" LastActivityDate="2019-10-15T03:12:26.427" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32237" PostTypeId="1" CreationDate="2019-10-15T06:17:31.247" Score="1" ViewCount="81" Body="&lt;p&gt;I am having issues finding a solid example online that explains how the concepts surrounding the word &lt;em&gt;interest&lt;/em&gt; relate to each other. I am after an example that presents a concise mathematical formula that I can ultimately use to write a computer application.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let us start with nominal versus real interest rates. My understanding is that the simple concept of interest on a loan is called &lt;strong&gt;nominal interest&lt;/strong&gt;. If we consider an inflation rate, then their difference is called &lt;strong&gt;real interest&lt;/strong&gt;. Mathematically:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;r_r = r_n - r_i,&#xA;$$&lt;/span&gt;&#xA;where &lt;span class=&quot;math-container&quot;&gt;$r_r$&lt;/span&gt; denotes the real interest rate, &lt;span class=&quot;math-container&quot;&gt;$r_i$&lt;/span&gt; denotes the inflation rate, and &lt;span class=&quot;math-container&quot;&gt;$r_n$&lt;/span&gt; denotes the nominal interest rate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The so-called &quot;annualized percentage rate (APR)&quot; is an interest rate that accounts for any additional costs the loan may incur in. According to &lt;a href=&quot;https://www.investopedia.com/terms/a/apr.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;[1]&lt;/a&gt; the following is a formula for APR:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\begin{aligned} &amp;amp;\text{APR} = \left ( \left ( \frac{ \frac{ \text{Fees} + \text{Interest} }{ \text {Principal} } }{ n } \right ) \times 365 \right ) \times 100 \\ &amp;amp;\textbf{where:} \\ &amp;amp;\text{Interest} = \text{Total interest paid over life of the loan} \\ &amp;amp;\text{Principal} = \text{Loan amount} \\ &amp;amp;n = \text{Number of days in loan term} \\ \end{aligned}&#xA;$$&lt;/span&gt;&#xA;When algebraically manipulating the latter expression, it seems like an equivalent expression can be derived as follows: Let &lt;span class=&quot;math-container&quot;&gt;$f$&lt;/span&gt; denote the sum of all fees incurred by the loan, and let &lt;span class=&quot;math-container&quot;&gt;$p$&lt;/span&gt; denote the amount borrowed (i.e. principal). The APR for a loan period of &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt; days is then defined as:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;r_{APR} = 100\times\frac{365}{n}\times\left(\frac{f + p}{p}\right)\times r_n,&#xA;$$&lt;/span&gt;&#xA;where &lt;span class=&quot;math-container&quot;&gt;$r_n$&lt;/span&gt; denotes the nominal rate of interest.&lt;/p&gt;&#xA;&#xA;&lt;h1&gt;Examples:&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;Let &lt;span class=&quot;math-container&quot;&gt;$r_i = 0.04$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$r_n = 0.1$&lt;/span&gt;. Then &lt;span class=&quot;math-container&quot;&gt;$r_r = 0.06$&lt;/span&gt;, or 6%. Then, let &lt;span class=&quot;math-container&quot;&gt;$p = 200,000$&lt;/span&gt; USD and &lt;span class=&quot;math-container&quot;&gt;$f = 5,000$&lt;/span&gt; USD for a &lt;span class=&quot;math-container&quot;&gt;$n = 365$&lt;/span&gt; days loan period, so that &lt;span class=&quot;math-container&quot;&gt;$r_{APR} = 0.615$&lt;/span&gt;, with a total amount to payback of 212,300 USD, meaning the cost of the loan is 12,300 USD. Note, in this example, I’ve used the real interest rate rather than the nominal interest rate to compute the APR.&lt;/p&gt;&#xA;&#xA;&lt;h1&gt;Core questions:&lt;/h1&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Is the definition of real interest rate correct?&lt;/li&gt;&#xA;&lt;li&gt;Is the second definition for APR correct?&lt;/li&gt;&#xA;&lt;li&gt;What if &lt;span class=&quot;math-container&quot;&gt;$n = 365$&lt;/span&gt;, thus making the coefficient &lt;span class=&quot;math-container&quot;&gt;$365/n = 1$&lt;/span&gt;? Wouldn't this make this coefficient worthy of the name &lt;strong&gt;annualization coefficient&lt;/strong&gt;?&lt;/li&gt;&#xA;&lt;li&gt;What if instead of using the nominal interest rate to compute the APR, we use the real interest rate?&lt;/li&gt;&#xA;&lt;li&gt;Isn't APR a misnomer? The word &quot;annualized&quot; may be correct... but &quot;percentage rate&quot; seems like a very general noun phrase. Specifically, the word &quot;percentage&quot; only applies if we take it as a percentage, and the word &quot;rate&quot; is valid, but anywhere in APR the word interest appears.  Wouldn't a better name for this interest rate be &quot;annualized cost-of-borrowing (real) interest rate&quot;, in where the word &quot;real&quot; could be used in the case in which the formula used the real interest rate, rather than purely the nominal interest rate?&#xA;​   &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="24550" LastEditorUserId="24550" LastEditDate="2019-10-15T06:50:36.873" LastActivityDate="2019-10-17T08:48:11.760" Title="Understanding annualized percentage rate of interest, real interest and nominal interest rate" Tags="&lt;interest-rate&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="32238" PostTypeId="1" AcceptedAnswerId="32239" CreationDate="2019-10-15T09:27:50.037" Score="0" ViewCount="20" Body="&lt;p&gt;I am looking for estimates for the externalities from motor vehicles.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There's an excellent paper &quot;Automobile Externalities and Policies&quot; (&lt;a href=&quot;https://www.aeaweb.org/articles?id=10.1257/jel.45.2.373&quot; rel=&quot;nofollow noreferrer&quot;&gt;2007&lt;/a&gt;) on this exact issue, but it's a bit old now.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I was wondering if there was more recent/updated study that does something similar? &lt;/p&gt;&#xA;" OwnerDisplayName="user14083" LastActivityDate="2019-10-16T02:31:54.823" Title="Externalities from motor vehicles - more recent estimates?" Tags="&lt;reference-request&gt;&lt;externalities&gt;&lt;research&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32239" PostTypeId="2" ParentId="32238" CreationDate="2019-10-15T09:44:04.917" Score="0" Body="&lt;p&gt;&lt;a href=&quot;https://www.cedelft.eu/en/publications/2311/handbook-on-the-external-costs-of-transport-version-2019&quot; rel=&quot;nofollow noreferrer&quot;&gt;Handbook on the External Costs of Transport – Version 2019&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Commissioned by the European Commission and produced by the research firm CE Delft. I think it was first published in 2008 and had a 2014 update. This is the latest 2019 update.&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastEditorDisplayName="user18" LastEditDate="2019-10-16T02:31:54.823" LastActivityDate="2019-10-16T02:31:54.823" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32240" PostTypeId="1" CreationDate="2019-10-15T10:56:50.897" Score="0" ViewCount="509" Body="&lt;p&gt;It seems obvious that an individual company increases their profits when they reduce wages or increase automation or some such.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But if wages fell universally because of this, wouldn't that decrease profits, since ultimately the earnings of all those companies rely on wage-earning consumers?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It would seem to me, then, that an industrialist, in the sense of an owner of a particular company, should want to reduce wages, but a true capitalist, in the sense of someone with their finger in many pies, would actually want to increase wages - and that their interest would be to prevent other classes from accumulating savings by making sure that those increased wages are channeled into as much additional consumption as possible.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this correct? How can I understand this better?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In my innumerate way I have tried to reduce this to a simple thought experiment and here is where things get messy and confusing for me:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose there is just 1 capitalist and 1 worker &amp;amp; consumer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose that the worker produces $100 worth of goods and services.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In order for them to be purchased from the market, that worker will need to also earn $100.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So there doesn't appear to be any profit for the capitalist at all in this picture. And yet isn't profit surplus value? Where is that coming from?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Clearly I am getting this wrong, both because the above situation could not exist, and because if it did, it could not grow/change. But what is my error?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My gut sense is that factors involved here include:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;That a proper consideration of the role of currency is needed to pair with the goods, since we are not just dealing with the value of the goods, but the denotation of that value in money, the circulation of which behaves differently than that of the goods.&lt;/li&gt;&#xA;&lt;li&gt;That time intervenes between production and consumption causing a circulating effect that somehow (through market &amp;amp; financial intermediaries?) magnifies apparent value involved.&lt;/li&gt;&#xA;&lt;li&gt;Consumer credit - like credit cards - would seem to have a distorting effect on this process, but that's still in expectation of future wages, right?&lt;/li&gt;&#xA;&lt;li&gt;The existence of different tiers of wage earners and consumer, whether by class in the same economy, or maybe more importantly, in different economies - high earning &quot;consumers&quot; in Western nations having a codependent relationship with low earning &quot;laborers&quot; in developing nations. This one in particular seems relevant to me.&lt;/li&gt;&#xA;&lt;li&gt;The spending of the capitalists, even if that's minuscule in comparison. But if the &quot;surplus value&quot; from the workers going to the capitalist is what's needed to be spent in the market to buy all the produced goods and services then they would only be recirculating what they have, not earning, saving and reinvesting.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;What also seems relevant:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&quot;Semi-fungibility&quot; of different goods. What's an arch-capitalist going to do with a few million more bushels of grain? It would seem to me that money approximates fungibility to large extent but at the end of the day you can't eat a yacht.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;But this is all inchoate musing and I feel helpless to understand much less really explain any of it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any direction you could give me would be much appreciated!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Jenna&lt;/p&gt;&#xA;" OwnerUserId="24555" LastActivityDate="2019-11-28T22:46:23.863" Title="The relationship between profit and wages" Tags="&lt;macroeconomics&gt;&lt;reference-request&gt;&lt;labor-economics&gt;&lt;self-study&gt;&lt;wages&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32241" PostTypeId="1" AcceptedAnswerId="32263" CreationDate="2019-10-15T11:22:33.320" Score="1" ViewCount="51" Body="&lt;p&gt;Consider the following static single-agent choice problem under uncertainty. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let &lt;span class=&quot;math-container&quot;&gt;$V$&lt;/span&gt; be the state of the world with support &lt;span class=&quot;math-container&quot;&gt;$\mathcal{V}$&lt;/span&gt; and probability distribution &lt;span class=&quot;math-container&quot;&gt;$P_V\in \Delta(\mathcal{V})$&lt;/span&gt;. First, let nature draw a realisation &lt;span class=&quot;math-container&quot;&gt;$v$&lt;/span&gt; of &lt;span class=&quot;math-container&quot;&gt;$V$&lt;/span&gt; from &lt;span class=&quot;math-container&quot;&gt;$P_V$&lt;/span&gt;. &#xA;Then, let the decision maker (DM) choose an action &lt;span class=&quot;math-container&quot;&gt;$y\in \mathcal{Y}$&lt;/span&gt;, with &lt;span class=&quot;math-container&quot;&gt;$\mathcal{Y}$&lt;/span&gt; finite, without observing &lt;span class=&quot;math-container&quot;&gt;$v$&lt;/span&gt;. Upon the decision has been made, the DM gets a payoff &lt;span class=&quot;math-container&quot;&gt;$u(y,v)$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An optimal strategy of the decision problem above is &lt;span class=&quot;math-container&quot;&gt;$P_Y\in \Delta(\mathcal{Y})$&lt;/span&gt; such that, &lt;span class=&quot;math-container&quot;&gt;$\forall y\in \mathcal{Y}$&lt;/span&gt; such that &lt;span class=&quot;math-container&quot;&gt;$P_Y(y)&amp;gt;0$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\forall \tilde{y}\neq y$&lt;/span&gt;, &#xA;we have that &#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\sum_{v\in \mathcal{V}} u_i(y,v)P_V(v)\geq \sum_{v\in \mathcal{V}} u_i(\tilde{y},v)P_V(v)&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Additionally, one can imagine that the DM can process some information structure &lt;span class=&quot;math-container&quot;&gt;$S$&lt;/span&gt; to update her prior before choosing an action. In such case, we can use the notion of one-player BCE in Bergemann and Morris (2013,2016) to characterise the set of probability distributions of &lt;span class=&quot;math-container&quot;&gt;$(Y,V)$&lt;/span&gt; that are predicted by the model while remaining agnostic about &lt;span class=&quot;math-container&quot;&gt;$S$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Question:&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does the narrative above (and, hence, also the Bergemann and Morris framework) assume that the DM is risk neutral? Can it be reformulated also for the case in which the DM is risk averse?&lt;/p&gt;&#xA;" OwnerUserId="1505" LastActivityDate="2019-10-16T14:02:27.667" Title="Risk neutrality in single-agent choice problem under uncertainity" Tags="&lt;game-theory&gt;&lt;decision-theory&gt;&lt;bayesian-game&gt;&lt;choice-theory&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="32242" PostTypeId="2" ParentId="11375" CreationDate="2019-10-15T11:40:56.403" Score="2" Body="&lt;p&gt;The main point is that the principal's expected utility from a payoff &lt;span class=&quot;math-container&quot;&gt;$z$&lt;/span&gt; conditional on a certain level of effort &lt;span class=&quot;math-container&quot;&gt;$e$&lt;/span&gt; can be written as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ \text{E}[{z}|e] - \frac{r_p}{2}\text{Var}(z|e).$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words, since wealth is normally distributed, exponential utility has a simple `mean-variance' representation. For a derivation, see &lt;a href=&quot;https://m.tau.ac.il/~spiegel/teaching/corpfin/mean-variance.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I take it that the principal's payoff &lt;span class=&quot;math-container&quot;&gt;$z$&lt;/span&gt; equals &lt;span class=&quot;math-container&quot;&gt;$x - w(x) = (1 - b)x - a$&lt;/span&gt;. It is then straightforward to compute the (conditional) mean and variance of &lt;span class=&quot;math-container&quot;&gt;$z$&lt;/span&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ \text{E}[z|e] = (1 - b)\text{E}[x|e] - \text{E}[a] = (1 - b)\mu(e) - a,$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\text{Var}[z|e] = (1 - b)^2 \text{Var}(x|e) - \text{Var}(a)= (1 - b)^2\sigma^2. $$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It follows that the principal's expected utility can be written as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ (1 - b)\mu(e) - a - \frac{r_p}{2}(1 - b)^2\sigma^2.$$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerDisplayName="user17900" LastEditorDisplayName="user17900" LastEditDate="2019-10-15T16:33:13.080" LastActivityDate="2019-10-15T16:33:13.080" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32243" PostTypeId="1" CreationDate="2019-10-15T12:42:30.930" Score="2" ViewCount="22" Body="&lt;p&gt;For example, the indifference curve for goods &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$B$&lt;/span&gt; is &lt;span class=&quot;math-container&quot;&gt;$min$&lt;/span&gt;. How should I express its compensated demand function if the quantity of A does not depend on its price because of the zero substitution effect?&lt;/p&gt;&#xA;" OwnerUserId="24556" LastActivityDate="2019-10-15T12:42:30.930" Title="Compensated demand function for perfect complement indifference curve" Tags="&lt;microeconomics&gt;" AnswerCount="0" CommentCount="2" ClosedDate="2019-10-27T13:57:56.203" ContentLicense="CC BY-SA 4.0" />
  <row Id="32245" PostTypeId="1" CreationDate="2019-10-15T18:47:48.013" Score="-1" ViewCount="60" Body="&lt;p&gt;I have the following regression (pooled OLS; panel data):&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;Y  Treated Shock Shock*Treated {with industry and year fixed effects}&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Y is a continuous variable, “Treated” is a count variable between 1 and 10, which does not change within the years. “Shock” is equal to 1 if year&gt;1995 and zero otherwise. “Shock&lt;em&gt;Treated” is multiplication of Shock&lt;/em&gt;Treated. Below I provide you with the example of how data looks like for 1 firm:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/LU8AC.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/LU8AC.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Once I run the regression above the results omit “Shock” variable. I guess the problem is that I include year and industry fixed effects. Shall I control just for the industry fixed effect?  I simply dont know which fixed effects (dummies for years and industry) to include so that all the variables remain (i.e, not dropped after I run the regression&lt;/p&gt;&#xA;" OwnerUserId="24559" LastEditorUserId="5145" LastEditDate="2019-10-16T10:09:26.363" LastActivityDate="2020-11-09T11:06:20.650" Title="Running a regression to avoid multicollinearity" Tags="&lt;econometrics&gt;&lt;regression&gt;&lt;statistics&gt;" AnswerCount="1" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="32246" PostTypeId="1" CreationDate="2019-10-15T18:56:04.113" Score="0" ViewCount="49" Body="&lt;p&gt;as the title says, I am searching for examples where a firm incurs a negative event, for instance, a stockout, a supply chain glitch or investments that went wrong. In the best case the firm was in the aftermath under financial distress or even had to file for bankruptcy as a consequence of that initially privately known event.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you have a link to an example or just remember firm names, it would be a great help. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Best wishes&#xA;Paul&lt;/p&gt;&#xA;" OwnerUserId="24560" LastActivityDate="2019-11-14T20:01:45.247" Title="Examples of firms having private information about negative event" Tags="&lt;asymmetric-information&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32248" PostTypeId="2" ParentId="32245" CreationDate="2019-10-15T19:48:14.713" Score="0" Body="&lt;p&gt;Shock should be shifting your intercept. If you are doing a dummy for shock you would have one line when shock is zero and one where it is 1. Either case your slope remains same but only y-intercept changes. Could you edit the question to reflect what your end goal is? &lt;/p&gt;&#xA;" OwnerUserId="21604" LastActivityDate="2019-10-15T19:48:14.713" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32249" PostTypeId="2" ParentId="32246" CreationDate="2019-10-15T19:55:32.313" Score="2" Body="&lt;p&gt;Banks that were not bailed out in the 2008 recession and went insolvent i.e. Washington Mutual, IndyMac, Franklin Bank, First National Bank of Nevada e.t.c. You could also look into firms that were sanctioned by the Securities and Exchange Commission (SEC). I do not know the names of the top of my head but a simple google search should suffice. &lt;/p&gt;&#xA;" OwnerUserId="21604" LastActivityDate="2019-10-15T19:55:32.313" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="32250" PostTypeId="1" CreationDate="2019-10-15T20:32:23.197" Score="1" ViewCount="87" Body="&lt;p&gt;We have the utility function.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$U_{t} = \ln{c_{t}} + E_{t}\sum_{s=1}^{\infty}(\beta^{s}\ln{c_{t+s}})$$&lt;/span&gt;&#xA;And I am trying to find the value function.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$U$&lt;/span&gt; is utility function. &lt;span class=&quot;math-container&quot;&gt;$c_t$&lt;/span&gt; is consumption at time &lt;span class=&quot;math-container&quot;&gt;$t$&lt;/span&gt;. &lt;span class=&quot;math-container&quot;&gt;$\beta$&lt;/span&gt; is the discount factor.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My manual says multiply the right side with &lt;span class=&quot;math-container&quot;&gt;$1-\beta$&lt;/span&gt; to get:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$U_{t} = (1-\beta)\ln c_{t} + \beta E_{t}U_{t+1}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How? And multiply only the right side? I am unsure what is happening here and how.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For &lt;span class=&quot;math-container&quot;&gt;$s = 1$&lt;/span&gt; we have&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$U_{t} = \ln c_{t} + \beta E_{t}\ln c_{t+1}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;but this is as far as I can understand. I don't get anywhere multiplying the equation by &lt;span class=&quot;math-container&quot;&gt;$(1-\beta)$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerUserId="24562" LastEditorUserId="5145" LastEditDate="2019-10-16T07:13:31.673" LastActivityDate="2019-10-16T21:04:33.443" Title="derive value function from utility function" Tags="&lt;mathematical-economics&gt;&lt;utility&gt;&lt;optimization&gt;&lt;expected-utility&gt;" AnswerCount="0" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="32251" PostTypeId="1" CreationDate="2019-10-15T21:58:24.783" Score="1" ViewCount="81" Body="&lt;p&gt;The &quot;law&quot; of diminishing returns is usually &quot;demonstrated&quot; with made-up examples (programmers working on a software, farmers acquiring land...), but rarely on evidence. Is there any empirical research on actual data to acknowledge and quantify this law?&lt;/p&gt;&#xA;" OwnerUserId="24563" LastActivityDate="2019-10-18T05:42:54.347" Title="Is there any empirical evidence for the so-called &quot;law&quot; of diminishing returns" Tags="&lt;empirical-evidence&gt;&lt;economies-of-scale&gt;" AnswerCount="2" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="32252" PostTypeId="1" CreationDate="2019-10-15T22:55:31.317" Score="4" ViewCount="119" Body="&lt;p&gt;Even though utility maximisation is ubiquitous in economic textbooks to model consumer behaviour, its usefulness is rarely demonstrated by evidence.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Is there any evidence that some consumers do behave that way on at least some markets?&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Utility maximisation applied to a representative agent is also often used to model the demand side of a whole market. However, here also, this is hardly ever justified by evidence. On the other hand, alternative models seem to have good properties too: for instance in &lt;em&gt;Complex Economics&lt;/em&gt; by Alan Kirman, it is said that random consumption + heterogeneity of income suffices to construct an aggregate demand that decreases as price increases. Random consumption does not seem more stupid than perfectly informed utility-maximisation... but sounds definitely simpler.&lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;2&quot;&gt;&#xA;&lt;li&gt;Is there evidence that utility maximisation used as a model of the demand side of a market is actually better than other (simpler) models of consumer behaviour?&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="24563" LastActivityDate="2020-07-14T16:41:39.347" Title="Is there any evidence for consumer utility-maximising behaviour, at individual or market level?" Tags="&lt;utility&gt;&lt;consumer-theory&gt;&lt;empirical-evidence&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32253" PostTypeId="1" AcceptedAnswerId="32254" CreationDate="2019-10-15T23:29:36.537" Score="9" ViewCount="4858" Body="&lt;p&gt;Say I buy a glass bottle, I can either put it in the landfill or recycle it.&#xA;My understanding is, glass will breakdown into sand. (Not sure how well though, since we sometimes find glass from Roman times.) Alternatively we can recycle it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But I was wondering wouldn't this put some people out of work? Such as the people who have to mine all the silica for use in making the glass in the first place. And considering it is more economic to recycle glass, this seems like fewer humans would be needed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore could I make the case that not recycling my glass bottle is helping with employment. On the other hand, recycling might be helping the economy as a whole and there might be more money in the economy for public sector jobs. Which is right?&lt;/p&gt;&#xA;" OwnerUserId="18968" LastEditorUserId="4164" LastEditDate="2019-10-18T18:59:13.393" LastActivityDate="2019-10-18T18:59:13.393" Title="Does recycling lead to fewer jobs?" Tags="&lt;labor-economics&gt;&lt;productivity&gt;&lt;environmental-economics&gt;&lt;automation&gt;" AnswerCount="2" CommentCount="10" FavoriteCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="32254" PostTypeId="2" ParentId="32253" CreationDate="2019-10-16T02:20:52.463" Score="32" Body="&lt;p&gt;Any invention that replaces human labor puts an end to that specific task. Glass recycling eliminates (or decrease) the need for silica-gathering task. Typewriter eliminates the need for printing press typesetter. Etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Those people whose tasks are eliminated will get reallocated to their most productive use. This might be in the form of job change (silica miner move to coal miner), or might be in the form of task redefinition (the book &lt;a href=&quot;https://www.predictionmachines.ai&quot; rel=&quot;noreferrer&quot;&gt;&lt;em&gt;Prediction Machines&lt;/em&gt;&lt;/a&gt; describe how self-driving school bus might shift the main task of a school bus driver to an adult who oversees and &quot;teaches&quot; the schoolchildren.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Going back to your question, recycling also &lt;em&gt;creates&lt;/em&gt; new jobs. They need people to sort bottles, maybe drive a recycling truck, etc. So whether an invention leads to more or less job is ambiguous.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Added&lt;/strong&gt;: While the effect on a specific industry might be quantifiable, if you take into account job mobility, etc. then the effect on the whole labor market is ambiguous.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regardless, an invention that increases productivity should increase the size of the pie. We can produce more from the same resources. How that bigger pie is divided, however, is another very important question altogether.&lt;/p&gt;&#xA;" OwnerUserId="5145" LastEditorUserId="1601" LastEditDate="2019-10-16T07:08:22.150" LastActivityDate="2019-10-16T07:08:22.150" CommentCount="11" ContentLicense="CC BY-SA 4.0" />
  <row Id="32255" PostTypeId="1" CreationDate="2019-10-16T05:09:02.220" Score="0" ViewCount="87" Body="&lt;p&gt;Two players, 1 and 2, simultaneously choose their consumption of a public good. Given the consumption choices, g1 and g2, player 1 derives a marginal benefit of MB1 = 10 - (g1 + g2), while player 2's marginal benefit is given by MB2 = 8 - (g1 + g2). The unit price of the public good is equal to 4.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The question asks to find a Nash Equilibrium of the game, then calculate the efficient level of public good provision and compare it to the NE.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can understand the efficient provision of public good which will be nothing but the sum of marginal benefits set equal to the marginal cost. In this case, it turns out to be 7. What will be the Nash equilibrium?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;An update with my attempt: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Player 1's best response function: g1 = 6 - g2&#xA;Player 2's best response function: g2 = 4 - g1&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Added these two to get the total level of public good - it comes to 5. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then I equated the two response function to get: g1 = g2 - 2&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Substituted it in g1 + g2 = 5 equation with getting g2 = 3.5 and g1 = 1.5 &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't know if this is correct. &lt;/p&gt;&#xA;" OwnerUserId="24422" LastEditorUserId="24422" LastEditDate="2019-10-17T01:25:05.950" LastActivityDate="2019-10-17T01:25:05.950" Title="nash equilibrium public good - is this correct?" Tags="&lt;microeconomics&gt;&lt;public-economics&gt;&lt;public-goods&gt;" AnswerCount="1" CommentCount="0" ClosedDate="2019-10-26T20:04:53.550" ContentLicense="CC BY-SA 4.0" />
  <row Id="32256" PostTypeId="2" ParentId="25343" CreationDate="2019-10-16T05:21:05.617" Score="0" Body="&lt;p&gt;The answer provided by Adam is pretty comprehensive but I will just try to show you one way of thinking about it. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In case of a public good, consumers see the same quantity and then decide upon the price/willingness to pay. Hence, the vertical summation (remember - horizontal summation would increase the quantity which makes no sense here as there is specific and same quantity for all)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In case of a private good, everyone sees the same price in the market, and then they decide the quantity that they want to purchase (here, it makes sense to add quantities). &lt;/p&gt;&#xA;" OwnerUserId="24422" LastActivityDate="2019-10-16T05:21:05.617" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32258" PostTypeId="2" ParentId="32255" CreationDate="2019-10-16T06:57:55.210" Score="2" Body="&lt;p&gt;For the Nash equilibrium of any simultaneous-play game, you are looking for the point where each player is playing a best response to all other players at the same time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So your steps to solving this game should be:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Determine player 1's best response function (&lt;span class=&quot;math-container&quot;&gt;$g_1$&lt;/span&gt; as a function of &lt;span class=&quot;math-container&quot;&gt;$g_2$&lt;/span&gt;)&lt;/li&gt;&#xA;&lt;li&gt;Determine player 2's best response function (&lt;span class=&quot;math-container&quot;&gt;$g_2$&lt;/span&gt; as a function of &lt;span class=&quot;math-container&quot;&gt;$g_1$&lt;/span&gt;)&lt;/li&gt;&#xA;&lt;li&gt;Now you have two equations with two unknowns. Solve this system of equations algebraically to get the Nash equilibrium &lt;span class=&quot;math-container&quot;&gt;$g_1^*$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$g_2^*$&lt;/span&gt;.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;So how can you get the best response functions? Take player 1 for example. Player 1 wants to set &lt;span class=&quot;math-container&quot;&gt;$MB_1 = MC_1$&lt;/span&gt;. You have &lt;span class=&quot;math-container&quot;&gt;$MB_1$&lt;/span&gt;, and &lt;span class=&quot;math-container&quot;&gt;$MC_1 = 4$&lt;/span&gt;. So set them equal to each other and solve for &lt;span class=&quot;math-container&quot;&gt;$g_1$&lt;/span&gt; to get player 1's best response function &lt;span class=&quot;math-container&quot;&gt;$g_1^*$&lt;/span&gt; as a function of &lt;span class=&quot;math-container&quot;&gt;$g_2$&lt;/span&gt;. Then similarly for player 2 to get &lt;span class=&quot;math-container&quot;&gt;$g_2^*$&lt;/span&gt; as a function of &lt;span class=&quot;math-container&quot;&gt;$g_1$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That's not &lt;em&gt;quite&lt;/em&gt; all, though. In this game, the players (presumably) can't contribute negative amounts. So the real best response functions will be of the form&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;g_1^*=&#xA;\begin{cases}&#xA;some.function.of.g_2 \text{ if } some.condition.of.g_2\\&#xA;0 \text{ otherwise}&#xA;\end{cases}&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, first, try to solve your two best response functions together algebraically, assuming that both &lt;span class=&quot;math-container&quot;&gt;$some.condition.of.g_2$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$some.condition.of.g_1$&lt;/span&gt; hold so neither is 0. If you don't get a solution, or if that solution makes one of them negative or violates one of the &lt;span class=&quot;math-container&quot;&gt;$some.condition$&lt;/span&gt;s, then instead try setting &lt;span class=&quot;math-container&quot;&gt;$g_1 = 0$&lt;/span&gt;, find &lt;span class=&quot;math-container&quot;&gt;$g_2^*$&lt;/span&gt;, and see if that gives you a Nash equilibrium (i.e. if &lt;span class=&quot;math-container&quot;&gt;$g_1^*(g_2^*) = 0$&lt;/span&gt;). Then try setting &lt;span class=&quot;math-container&quot;&gt;$g_2 = 0$&lt;/span&gt;, find &lt;span class=&quot;math-container&quot;&gt;$g_1^*$&lt;/span&gt;, and see if that gives you a Nash. &lt;/p&gt;&#xA;" OwnerUserId="12848" LastActivityDate="2019-10-16T06:57:55.210" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="32260" PostTypeId="1" CreationDate="2019-10-16T11:30:09.573" Score="1" ViewCount="46" Body="&lt;p&gt;In neoclassical theory is said that the highest profit occurs when Marginal Cost equals Marginal Revenue, but this condition wouldn't be enough to determine the maximum if there were more than one. The fact that the maximum can be determined like this means that the uniqueness of the maximum derives from the assumptions of the theory? My professor said that the uniqueness is determined by the static nature of the theory, but this seems to me a little vague. How can it be explained in a more satisfactory way?&lt;/p&gt;&#xA;" OwnerUserId="24570" LastEditorUserId="21887" LastEditDate="2019-10-16T17:32:23.877" LastActivityDate="2019-10-16T17:32:23.877" Title="Why does the profit function in standard neoclassical theory have exactly one maximum?" Tags="&lt;microeconomics&gt;&lt;profit-maximization&gt;&lt;classical-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32261" PostTypeId="1" CreationDate="2019-10-16T11:45:18.400" Score="-1" ViewCount="177" Body="&lt;p&gt;A consumer is deciding about her hours (&lt;span class=&quot;math-container&quot;&gt;$h$&lt;/span&gt;) and consumption (&lt;span class=&quot;math-container&quot;&gt;$c$&lt;/span&gt;), her preference over bundles of work and consumption are as follows:&#xA;&lt;span class=&quot;math-container&quot;&gt;$U(c,h)= c + \sqrt{24-h}$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The consumer would get an hourly wage of &lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt; and the price of consumption is normalized to &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt;. In addition to her wage income the consumer also receives a non labor income equal to &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt;.&#xA;So I want to know how can I write the utility maximization problem for this consumer and how can I solve this problem, &#xA;I can't plot this function eather.&lt;/p&gt;&#xA;" OwnerUserId="24571" LastEditorUserId="23083" LastEditDate="2019-10-17T06:30:02.110" LastActivityDate="2019-10-17T06:30:02.110" Title="Utility function_maximazation" Tags="&lt;utility&gt;&lt;profit-maximization&gt;&lt;labor-cost&gt;" AnswerCount="2" CommentCount="0" ClosedDate="2019-10-28T14:58:17.980" ContentLicense="CC BY-SA 4.0" />
  <row Id="32262" PostTypeId="1" CreationDate="2019-10-16T13:32:05.837" Score="0" ViewCount="36" Body="&lt;p&gt;I am bit curious to understand what it actually means when I read global recession is coming soon. There are some questions which pop in my mind reading such news. Some of them are:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;What causes global recession?&lt;/li&gt;&#xA;&lt;li&gt;How is it possible that all countries' economies go down at the same time. A loss in business for someone means profit for another. So how come all economies start going downward at the same time?&lt;/li&gt;&#xA;&lt;li&gt;Does it mean that people's consumption capacity has declined or does it mean that the production of goods has declined which is leading to fall in GDP growths of all countries? If its the later case how difficult it is pump up the production capacity for any country to improve the economy instead of stating that global recession has led their economy to go down.&lt;/li&gt;&#xA;&lt;li&gt;How does the world come out of global recession? If it has happened before many times in history, why haven't the major economies taken lessons from it and only do things which helped them to come out of recession last time?&lt;/li&gt;&#xA;&lt;li&gt;Last but not least, is there a bigger picture which I am missing that all this global recession can be a planned activity by major economies every few years/decades to achieve something bigger?&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="24576" LastActivityDate="2019-10-16T19:08:23.113" Title="What does it mean by Global recession?" Tags="&lt;supply-and-demand&gt;&lt;monetary-policy&gt;&lt;international-economics&gt;&lt;fiscal-policy&gt;&lt;government&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32263" PostTypeId="2" ParentId="32241" CreationDate="2019-10-16T14:02:27.667" Score="1" Body="&lt;p&gt;No, risk neutrality is not assumed. Risk preferences are given by the concavity of  &lt;span class=&quot;math-container&quot;&gt;$u_i$&lt;/span&gt; which is arbitrary in this setup.&lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-10-16T14:02:27.667" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32264" PostTypeId="2" ParentId="32260" CreationDate="2019-10-16T14:15:29.960" Score="3" Body="&lt;p&gt;Mathematically, most neoclassical  models assume that the profits are concave. This guaranties the uniqueness of the maximum. In economic terms, the Neoclassical theory usually assumes that the law of diminishing returns holds. Thus, the more you hire workers, the more you produce, but at a diminishing rate. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am not so sure what your professor has in mind when he brings up the &quot;static nature of the theory&quot;. There are many dynamic neoclassical models and most of them have a unique maximal profit that also arises from having an appropriate form of diminishing returns, i.e. concavity of the profit function. &lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-10-16T14:15:29.960" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32266" PostTypeId="2" ParentId="32252" CreationDate="2019-10-16T14:27:12.433" Score="0" Body="&lt;p&gt;There is plenty of evidence. Many successful policy interventions have been designed assuming that people are utility maximizers and deriving its consequences. To the extent that the model can correctly anticipate the effects of the intervention, and then this effects can be measured in the data, the model is justified. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The list is long, but many procurement auctions are studied this way, antitrust policy, social programs to alleviate poverty, optimal ways to design contracts, education policy, monetary policy to control inflation, the effect of taxes and subsidies, etc, etc, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You touch on an important point. If there is another theory like the one in Complex Economics, that produces the same predictions (for example a downward sloping demand), then the data may not be able to help us figure out what model is better. The key is to find a model that can predict better. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I  would also like to push back on which model is simpler. I do not know Kirman's model, but I think that assuming that people maximize their happiness given their knowledge and their means is pretty simple too.  &lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-10-16T14:27:12.433" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="32267" PostTypeId="2" ParentId="32251" CreationDate="2019-10-16T14:31:11.063" Score="1" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/FGwbd.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/FGwbd.png&quot; alt=&quot;diminishing marginal returns&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The above chart is from &lt;a href=&quot;https://web.archive.org/web/20190501162614/https://digitalcommons.unl.edu/cgi/viewcontent.cgi?article=1356&amp;amp;context=agronomyfacpub&quot; rel=&quot;nofollow noreferrer&quot;&gt;Agroecosystems, nitrogen-use efficiency, and nitrogen management by Cassman KG, Dobermann A, Walters DT&lt;/a&gt;, and it deals with this sort of question quite extensively for those interested in all the gory details.&lt;/p&gt;&#xA;" OwnerUserId="23394" LastActivityDate="2019-10-16T14:31:11.063" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32268" PostTypeId="1" AcceptedAnswerId="32307" CreationDate="2019-10-16T15:26:33.143" Score="2" ViewCount="39" Body="&lt;p&gt;Consider a static model with CES demand. Real aggregate demand is&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;C = \left(\sum_j c_j^{(\eta-1)/\eta}\right)^{\eta/(\eta-1)}&#xA;$$&lt;/span&gt;&#xA;and labor supply is inelastic, so the budget constraint is&#xA;&lt;span class=&quot;math-container&quot;&gt;$&#xA;\sum_j p_j c_j = W&#xA;$&lt;/span&gt;&#xA;and the demand function is&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;c_j^{*} = \frac{C P^{\eta}}{p_j^{\eta}}&#xA;$$&lt;/span&gt;&#xA;where&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;P = \left(\sum_j p_j^{1-\eta} \right)^{1/(1-\eta)}&#xA;$$&lt;/span&gt;&#xA;is the ideal price index. Can I set &lt;span class=&quot;math-container&quot;&gt;$C P^{\eta} = 1$&lt;/span&gt; as my numeraire so that &lt;span class=&quot;math-container&quot;&gt;$c_j^{*} = p_j^{-\eta}$&lt;/span&gt;? More generally, what is required of a numeraire?&lt;/p&gt;&#xA;" OwnerUserId="24278" LastEditorUserId="24278" LastEditDate="2019-10-18T12:48:22.703" LastActivityDate="2019-10-18T12:56:15.123" Title="Can you set $C / P^{\eta}$ to be the numeraire in a NK model?" Tags="&lt;general-equilibrium&gt;&lt;new-keynesian-economics&gt;&lt;ces-function&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32269" PostTypeId="1" CreationDate="2019-10-16T15:50:04.627" Score="0" ViewCount="56" Body="&lt;p&gt;Free trade, it is said by those who support it, makes the whole world richer. Yet it seems, that if things like minimum wage, taxes, or living costs are unqual between countries then free trade would only be advantageous to the poor countries and to the upper echelons of the rich societies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, a factory in Antarctica would have higher living costs for the workers than a factory in China. Hence if the Antarctic peoples were formerly self sufficient, the upper classes would soon transfer all labour to the cheaper countries and the working classes would starve, and most likely freeze to death.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This seems like what happened in the EU where there was free trade but because the taxes were different in each country, it lead to a disaster.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How is it possible to make free trade work for the benefit of all people?&lt;/p&gt;&#xA;" OwnerUserId="18968" LastActivityDate="2019-10-17T07:08:37.163" Title="Is free-trade beneficial if living costs are unequal between countries?" Tags="&lt;free-trade&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="32270" PostTypeId="2" ParentId="32262" CreationDate="2019-10-16T19:08:23.113" Score="1" Body="&lt;p&gt;Let me start from the bottom up.&lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;5&quot;&gt;&#xA;&lt;li&gt;&lt;p&gt;&quot;[...] is there a bigger picture which I am missing that all this global recession can be a planned activity by major economies every few years/decades to achieve something bigger?&quot;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;No, global recessions usually hurt all economies and though in theory one can come up with an example where someone might benefit from a global recession, arguing that such actors actively caused a global recession for personal gains, is simply a false conspiracy theory. I don't think there is a single example of history where this has happened.&lt;/li&gt;&#xA;&lt;/ul&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;4.&quot;How does the world come out of global recession? If it has happened before many times in history, why haven't the major economies taken lessons from it and only do things which helped them to come out of recession last time?&quot;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Global economies are complex systems, it is not like you pull a trigger and you're out. People have won Nobel prices for coming up with ideas to come out of a recessions. However, each recession is different and might need different actions to come out of it. However, we have learned a LOT from previous recessions, nowadays,  global recessions are less frequent, and a lot less severe than they were in the past.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;1-3. &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;A global recession is a complicated phenomena, it might be caused because there are problems in the financial sector, or firms are investing less, or consumers are worried about the future and consuming less.  It could be because there is a war in an oil producing country which will increase the production costs for a lot of countries, etc, etc. &lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;It is absolutely false that a country's loss is always some other country's profit. Though there are situations where it might be true. For example Mexico losses economic growth because Americans are now substituting Mexican goods for Chinese (this is a fictitious example), but there are far more situations where this is false. Usually the growth of one country fosters the growth of its trading partner countries, and vice versa. In the crisis of 2008, to put a concrete example, most economies were worse off. Higher unemployment everywhere, less goods and services where produced and consumed, lower wages, etc.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;If you are interested in the last financial crisis of 2008, I recommend you to watch or read &quot;The big short&quot;. It is a well-balanced narrative that explains how the causes of a crisis can be complicated. And how a crisis usually occurs due to multiple mistakes in human actions, but not because someone wanted to cause a crisis. The way out of that crisis turned out to be quite complicated since the crisis looked nothing like previous ones.&lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-10-16T19:08:23.113" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32271" PostTypeId="2" ParentId="32261" CreationDate="2019-10-16T19:35:57.043" Score="3" Body="&lt;p&gt;This is quite a loaded question you asked here. I answered it in a few parts: first I introduce you to the idea of Robinson's economy, then I add a company to the equation (as you also asked about the wages &lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt;). I am about to show you how to write this problem (and how to solve it) from consumer's alone, and then from both, firm's and consumer's points of view. It would be cooler if you had a production function given explicitly but it is still interesting.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, it looks like a &lt;strong&gt;Robinson Crusoe's economy&lt;/strong&gt; (the guy was stranded on an island, so he is an economy unto himself): Robinson has preferences over consumption and leisure and can produce consumption goods by using labor (and capital but you did not mention it so we can skip it).&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Consumer Crusoe&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;In order to get how Crusoe makes optimal choice for labor, leisure, and consumption, we will examine both, production side and his preferences. I assume your hours (&lt;span class=&quot;math-container&quot;&gt;$h$&lt;/span&gt;) is hours a day he worked, so it is his labor.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;strong&gt;Production&lt;/strong&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;So again, usually we say that Crusoe uses the factors of production in order to produce output &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt;. In your example, we have only one factor of production - that is?&lt;/p&gt;&#xA;&#xA;&lt;blockquote class=&quot;spoiler&quot;&gt;&#xA;  &lt;p&gt; labor&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;We will also omit the rate of technology change &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt; as you did not mention it in your question. Therefore, the production function only by &lt;span class=&quot;math-container&quot;&gt;$y=f(h)$&lt;/span&gt;. The typical assumptions people make are that &lt;span class=&quot;math-container&quot;&gt;$f$&lt;/span&gt; is increasing in labor, so that the more you work, the more output you will produce and that &lt;span class=&quot;math-container&quot;&gt;$f(0)=0$&lt;/span&gt;, so when you do not work at all, there is no output at all. You probably are also aware that the marginal product of labor is the additional output that results from increasing labor. And just as a reminder - &lt;span class=&quot;math-container&quot;&gt;$MPL = \frac{dy}{dh}=f'(h)$&lt;/span&gt;, hence the marginal product of labor is actually the slope of the production function.&lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;2&quot;&gt;&#xA;&lt;li&gt;&lt;strong&gt;Preferences&lt;/strong&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Crusoe (just as you and me) likes to have some free time and consume things, so he cares about his consumption &lt;span class=&quot;math-container&quot;&gt;$c$&lt;/span&gt; and his leisure &lt;span class=&quot;math-container&quot;&gt;$24-h$&lt;/span&gt;. You have represented his preferences with a utility function &lt;span class=&quot;math-container&quot;&gt;$u(c,h)$&lt;/span&gt; but &lt;span class=&quot;math-container&quot;&gt;$h$&lt;/span&gt; is the time he spends on working and he does not like it that much. He prefers leisure over labor, or so we assume. The reason why I am mentioning it is to show you that Robinson actually cares about maximizing his leisure time &lt;span class=&quot;math-container&quot;&gt;$24-h$&lt;/span&gt;! Here come the usual assumptions about the preferences, they increase with his consumption and leisure time and are convex. We are having easier job, as his utility function was given to us: &lt;span class=&quot;math-container&quot;&gt;$u(c,h) = c + \sqrt{24-h}$&lt;/span&gt; &lt;strong&gt;BUT&lt;/strong&gt; when you draw them you can see that they are in fact increasing when you move along the curve to the right (they are increasing with labor &lt;span class=&quot;math-container&quot;&gt;$h$&lt;/span&gt;). This is the part where it gets tricky - if you drew them with leisure &lt;span class=&quot;math-container&quot;&gt;$24-h$&lt;/span&gt; on the horizontal axis, you'd get the proper utility function as you have probably seen before (or can see under &quot;&lt;strong&gt;quasi-linear preferences&lt;/strong&gt;&quot; here: &lt;a href=&quot;https://economics.stackexchange.com/questions/32140/identifying-utility-function/32165#32165&quot;&gt;Identifying utility function&lt;/a&gt; ).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/Ip8oO.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Ip8oO.jpg&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;3&quot;&gt;&#xA;&lt;li&gt;&lt;strong&gt;What choice does Crusoe make?&lt;/strong&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;When we put everything together, we get that the problem is actually something like that: &lt;span class=&quot;math-container&quot;&gt;$$\max_{c,h} u(c,h) \;\; \mathrm{s.t.} \;\; c \leq y \;\; \mathrm{and} \;\; y=f(h)$$&lt;/span&gt; This basically means that: Robinson is trying to maximize his utility choosing the level of consumption &lt;span class=&quot;math-container&quot;&gt;$c$&lt;/span&gt; and labor &lt;span class=&quot;math-container&quot;&gt;$h$&lt;/span&gt;, Robinson cannot consume more than he produces and the very last bit is the production technology he is in possession of. Now, remember that we assume that Robinson is utility maximizer. What does that imply?&lt;/p&gt;&#xA;&#xA;&lt;blockquote class=&quot;spoiler&quot;&gt;&#xA;  &lt;p&gt; &lt;span class=&quot;math-container&quot;&gt;$c=y$&lt;/span&gt; and therefore, &lt;span class=&quot;math-container&quot;&gt;$c=f(h)$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Hence, we can write the problem as: &lt;span class=&quot;math-container&quot;&gt;$$\max_{c,h} u(c,h) \;\; \mathrm{s.t.} \;\; c=f(h)$$&lt;/span&gt; Which is the utility maximization problem for this consumer. There are two ways to solve it: Lagrange multipliers or simply constraint substitution into the objective. After you substitute, you'd take first order condition and get something like &lt;span class=&quot;math-container&quot;&gt;$$\frac{du(f(h^*),h^*)}{dh}= u_1(f(h^*),h^*)f'(h^*) +u_2(f(h^*),h^*)$$&lt;/span&gt; where &lt;span class=&quot;math-container&quot;&gt;$h^*$&lt;/span&gt; is Crusoe's optimal choice of how much hours to work. But you are not given a true production function, so we will not get any further from here.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Company Crusoe Inc.&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Now we claim that Robinson on an island owns a company which has only one employee - Robinson himself! and that all the profit the company makes goes to one and only - Robinson! As you mentioned, we normalize the price of the good to &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt; so that it becomes the only medium of exchange in this funny looking economy. Let us assume that the output produced by the Crusoe Inc. is given by &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; (but we already know that &lt;span class=&quot;math-container&quot;&gt;$y=f(h)=c$&lt;/span&gt;). Hence, the profit the firm makes is given by: &lt;span class=&quot;math-container&quot;&gt;$\pi = c - wh$&lt;/span&gt;, so that the equation of isoprofit line is given by &lt;span class=&quot;math-container&quot;&gt;$c=\pi + wh$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now since we assume that Crusoe Inc. is a profit maximizing firm, it solves &lt;span class=&quot;math-container&quot;&gt;$$\max_{c,h} \pi(c,h) = c -wh$$&lt;/span&gt; to do so we substitute &lt;span class=&quot;math-container&quot;&gt;$c=f(h)$&lt;/span&gt;, so that the problem becomes: &lt;span class=&quot;math-container&quot;&gt;$$\max_{h} \pi(h) = f(h)-wh$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It wants to produce where the isoprofit slope is equal to the production function slope, i.e. &lt;span class=&quot;math-container&quot;&gt;$MPL = f'(h) = w$&lt;/span&gt;. So the maximized profit for the firm is &lt;span class=&quot;math-container&quot;&gt;$\pi^* = c^* - wh^*$&lt;/span&gt; if you had a production function given. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given &lt;span class=&quot;math-container&quot;&gt;$\pi^*$&lt;/span&gt; the consumer wishes to maximize his utility. His budget constraint is given by &lt;span class=&quot;math-container&quot;&gt;$c = \pi^* + wh$&lt;/span&gt;. Note that the budget constraint slope is also &lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt;! The slope of utility function for utility to be maximized must therefore be equal to the slope of budget constraint, hence &lt;span class=&quot;math-container&quot;&gt;$MRS=w$&lt;/span&gt;. To see it mathematically, we solve &lt;span class=&quot;math-container&quot;&gt;$$\max_{c,h} u(c,h)$$&lt;/span&gt; given the constraint. We substitute &lt;span class=&quot;math-container&quot;&gt;$c = \pi^* + wh$&lt;/span&gt; to the problem and get &lt;span class=&quot;math-container&quot;&gt;$$\max_{h} u(h) = \pi^* +wh + \sqrt{24-h}$$&lt;/span&gt; Then you take the first order condition and should get the utility maximizing labor supply and consumption demand. &lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Note&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;The important thing is that if you had a proper production function given, and you maximized the Robinson's utility directly (first part of my answer) and then maximized first company's profit and then Robinson's utility (second part of my answer) you should get the same results! &lt;/p&gt;&#xA;" OwnerUserId="23083" LastEditorUserId="23083" LastEditDate="2019-10-16T20:27:49.023" LastActivityDate="2019-10-16T20:27:49.023" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32273" PostTypeId="1" AcceptedAnswerId="32329" CreationDate="2019-10-16T20:25:25.023" Score="3" ViewCount="116" Body="&lt;p&gt;Why does investors having quadratic utility function mean that their optimal portfolios can be chosen by only considering mean and variance of returns i.e. imply &lt;span class=&quot;math-container&quot;&gt;$\mu-\sigma$&lt;/span&gt; preference?&lt;/p&gt;&#xA;" OwnerUserId="14778" LastActivityDate="2019-10-20T22:50:19.417" Title="Why does quadratic utility function imply $\mu-\sigma$ preference?" Tags="&lt;utility&gt;&lt;preferences&gt;" AnswerCount="1" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32274" PostTypeId="2" ParentId="32253" CreationDate="2019-10-16T20:39:15.003" Score="1" Body="&lt;p&gt;In the classical model, recycling (and most other changes in modes of consumption) doesn't change employment either way in the long term. The jobs gained by recycling are lost from other sectors and the jobs lost are gained. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Shifting away from the classical model, there are short term changes in employment from shocks in which recycling as a profession becomes more or less attractive to the point to induce workers to change jobs. During that switch unemployment will increase, but over time it should settle to its &quot;natural&quot; rate (which is determined by a host of unrelated factors).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another factor in employment is in the skills possessed and required for jobs. Maybe many of the people currently employed in recycling are very low-skill workers. If these people lose their current jobs it may be difficult to find a job that they meet the requirements for. That would increase unemployment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If recycling is actually less beneficial than the alternatives (as glass specifically may be), then employment in the long run may decrease as the economy becomes healthier.&lt;/p&gt;&#xA;" OwnerUserId="24583" LastActivityDate="2019-10-16T20:39:15.003" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32276" PostTypeId="1" CreationDate="2019-10-17T00:09:57.447" Score="1" ViewCount="38" Body="&lt;p&gt;Is there a good database comparing the cost of public transport? I found &lt;a href=&quot;https://www.worldatlas.com/articles/cost-of-public-transportation-around-the-world.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;this one&lt;/a&gt; and &lt;a href=&quot;https://www.priceoftravel.com/595/public-transportation-prices-in-80-worldwide-cities/&quot; rel=&quot;nofollow noreferrer&quot;&gt;this one&lt;/a&gt; but they cite no sources so have no idea how they were constructed. Also, it is for a given period. Ideally the database should have more years. I've searched in OECD and world bank without success. Help please! :)&lt;/p&gt;&#xA;" OwnerUserId="24197" LastActivityDate="2020-10-24T10:01:55.217" Title="Comparative cost of public transport" Tags="&lt;transportation&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32277" PostTypeId="2" ParentId="32261" CreationDate="2019-10-17T00:46:40.860" Score="2" Body="&lt;p&gt;Utility maximization problem in the question is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{eqnarray*} \max_{c, h} \ &amp;amp; c + \sqrt{24-h} \\ \text{s.t. } &amp;amp; c = wh + y  \\ &amp;amp; 0 \leq h \leq 24 \end{eqnarray*}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can rewrite the above problem as:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{eqnarray*} \max_{0 \leq h \leq 24} \ &amp;amp; wh + y + \sqrt{24-h}  \end{eqnarray*}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Taking the derivative of the objective with respect to &lt;span class=&quot;math-container&quot;&gt;$h$&lt;/span&gt;, we get labor supply as :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{eqnarray*} h(w) = \begin{cases} 0 &amp;amp; \text{if } w \leq \frac{1}{2\sqrt{24}} \\ 24 - \frac{1}{4w^2} &amp;amp; \text{if } w &amp;gt; \frac{1}{2\sqrt{24}}\end{cases}  \end{eqnarray*}&lt;/span&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consequently, consumption is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{eqnarray*} c(w, y) = \begin{cases} y &amp;amp; \text{if } w \leq \frac{1}{2\sqrt{24}} \\ 24w - \frac{1}{4w} + y &amp;amp; \text{if } w &amp;gt; \frac{1}{2\sqrt{24}}\end{cases}  \end{eqnarray*}&lt;/span&gt; &lt;/p&gt;&#xA;" OwnerUserId="11824" LastEditorUserId="11824" LastEditDate="2019-10-17T01:12:13.960" LastActivityDate="2019-10-17T01:12:13.960" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32278" PostTypeId="1" CreationDate="2019-10-17T01:00:04.843" Score="0" ViewCount="54" Body="&lt;p&gt;Question:Assume no non-labor income, Alice's labor supply function is &lt;span class=&quot;math-container&quot;&gt;$h(w) =\frac{w}{16}$&lt;/span&gt;. Her preferences are given by &lt;span class=&quot;math-container&quot;&gt;$u(c, l) =\sqrt{c}+3l$&lt;/span&gt;.&#xA;When the wage rate increases, Alice's labor supply increases because of? (Substitution effect or income effect only, or both? If both, are they moving along the same direction?)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is our homework question and when I solve this, I apply lagrange to the utility function and get &lt;span class=&quot;math-container&quot;&gt;$h(w) =\frac{w}{36}$&lt;/span&gt;,which contradicts with the equation given by &lt;span class=&quot;math-container&quot;&gt;$h(w) =\frac{w}{16}$&lt;/span&gt;. Does this mean that it is not appropriate to apply lagrange's method in this question? I found the utility function to be quasilinear so I selected that there's no income effect, but I got it wrong. What am I supposed to do to analyse this equation? Any help will be appreciated. &lt;/p&gt;&#xA;" OwnerUserId="24586" LastEditorUserId="23083" LastEditDate="2019-10-18T18:59:07.570" LastActivityDate="2019-10-18T18:59:07.570" Title="income effect and substitution effect" Tags="&lt;labor-economics&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="32279" PostTypeId="1" AcceptedAnswerId="32305" CreationDate="2019-10-17T01:18:32.570" Score="3" ViewCount="136" Body="&lt;p&gt;Who first used the term &lt;em&gt;externality&lt;/em&gt; in economics, as the term is currently used in its modern sense?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(I believe it was already used in philosophy to mean something else and the economics version of this term came into use later.)&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;The earliest instance I've found so far is Bator (&lt;a href=&quot;https://academic.oup.com/qje/article-abstract/72/3/351/1859737&quot; rel=&quot;nofollow noreferrer&quot;&gt;1958&lt;/a&gt;). However, he uses it without any introduction and as if it's already a well-known term so I suspect someone else may have used it before.&lt;/p&gt;&#xA;" OwnerDisplayName="user14083" LastEditorDisplayName="user14083" LastEditDate="2019-10-18T07:29:09.990" LastActivityDate="2019-10-18T09:42:10.067" Title="Who first used the term &quot;externality&quot; in economics?" Tags="&lt;definition&gt;&lt;history-economic-thought&gt;" AnswerCount="2" CommentCount="8" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32280" PostTypeId="2" ParentId="32269" CreationDate="2019-10-17T07:01:56.853" Score="3" Body="&lt;p&gt;The classic answers is transfers through welfare programs, re-training etc. See &lt;a href=&quot;https://economics.stackexchange.com/questions/27699/a-valid-argument-against-free-trade&quot;&gt;this question&lt;/a&gt; which is almost a duplicate. I'm re-quoting from there, just with a different emphasis:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;But just because the size of the pie expands [due to free trade], it doesn’t mean that everyone is better off. There are going to be some losers whose slice of the pie is so much smaller that they would have been better off with less trade. However, &lt;strong&gt;because the overall size of the pie has got bigger, the government can compensate the losers which can still make everyone better off. [...] But remember: thanks to free trade, you can afford that [better welfare programs], because the overall size of the pie is bigger.&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://research.stlouisfed.org/publications/page1-econ/2017/11/01/does-international-trade-create-winners-and-losers/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Or&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Trade enables countries to experience economic growth and a rising standard of living by increasing access to physical capital and export markets. However, not everyone is better off as a result of international trade. Some domestic businesses and industries fail in the face of foreign competition, which results in job losses for workers. &lt;strong&gt;Economists suggest, however, that policy solutions that impose trade barriers are harmful to the economy. Rather, they propose policies such as those that provide job training programs to assist those displaced by trade.&lt;/strong&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;(If you want to ask about the &lt;a href=&quot;https://en.wikipedia.org/wiki/European_debt_crisis&quot; rel=&quot;nofollow noreferrer&quot;&gt;Eurozone crisis&lt;/a&gt;, please ask separately, I don't want to get into details on that here. Suffice to say that it wasn't simply a matter of free trade, but also of a currency union etc.)&lt;/p&gt;&#xA;" OwnerUserId="6210" LastEditorUserId="6210" LastEditDate="2019-10-17T07:08:37.163" LastActivityDate="2019-10-17T07:08:37.163" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32281" PostTypeId="1" AcceptedAnswerId="32283" CreationDate="2019-10-17T07:03:06.170" Score="0" ViewCount="193" Body="&lt;p&gt;I'm aggregating individual demand curves but the demand curves are inelastic or elastic. Say, 20 people have an elastic demand for a product at price of $2. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another 40 people have an elastic demand for a product at price of $4. There is a third category who have an inelastic demand of 50 units. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;How do I aggregate these demand curves (graphically and in equation form)? &lt;/p&gt;&#xA;" OwnerUserId="24422" LastActivityDate="2019-10-17T08:14:16.520" Title="Aggregating individual demand curves" Tags="&lt;supply-and-demand&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32282" PostTypeId="2" ParentId="32281" CreationDate="2019-10-17T07:14:44.433" Score="0" Body="&lt;h2&gt;Mathematically&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;To calculate the total demand curve (aggregate demand has a &lt;a href=&quot;https://en.wikipedia.org/wiki/Aggregate_demand&quot; rel=&quot;nofollow noreferrer&quot;&gt;different meaning&lt;/a&gt;), you just need to ask yourself that for each price, how many units will be demanded.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You have three groups:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;A. 20 people, perfectly elastic at &lt;span class=&quot;math-container&quot;&gt;$p = 2$&lt;/span&gt;. This group will buy 20 units as long as &lt;span class=&quot;math-container&quot;&gt;$p \leq 2$&lt;/span&gt;.&lt;/li&gt;&#xA;&lt;li&gt;B. 40 people, perfectly elastic at &lt;span class=&quot;math-container&quot;&gt;$p = 4$&lt;/span&gt;. This group will buy 40 units as long as &lt;span class=&quot;math-container&quot;&gt;$p \leq 4$&lt;/span&gt;.&lt;/li&gt;&#xA;&lt;li&gt;C. 50 people, perfectly inelastic. This group will buy 50 units no matter what.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Mathematically,&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$A(p) = \begin{cases} 20 &amp;amp; \text{if $p \leq 2$} \\ 0 &amp;amp; \text{otherwise}\end{cases},\quad&#xA;B(p) = \begin{cases} 40 &amp;amp; \text{if $p \leq 4$} \\ 0 &amp;amp; \text{otherwise}\end{cases},\quad&#xA;C(p) = 50$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Total demand is just a function of &lt;span class=&quot;math-container&quot;&gt;$p$&lt;/span&gt;: &lt;span class=&quot;math-container&quot;&gt;$Q(p) = A(p) + B(p) + C(p)$&lt;/span&gt;.&#xA;If we start at &lt;span class=&quot;math-container&quot;&gt;$p = 1$&lt;/span&gt;, what's &lt;span class=&quot;math-container&quot;&gt;$A(1) + B(1) + C(1)$&lt;/span&gt;? Do this for all prices, and you'll get the total demand curve.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Graphically&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;You could also do this graphically... draw up the demand curve (would look like a rectangle) for each group. The total demand curve will just be the &lt;em&gt;horizontal&lt;/em&gt; stack of these rectangles.&lt;/p&gt;&#xA;" OwnerUserId="5145" LastEditorUserId="5145" LastEditDate="2019-10-17T08:14:16.520" LastActivityDate="2019-10-17T08:14:16.520" CommentCount="9" ContentLicense="CC BY-SA 4.0" />
  <row Id="32283" PostTypeId="2" ParentId="32281" CreationDate="2019-10-17T07:44:35.913" Score="0" Body="&lt;p&gt;Graph of Aggregate Demand Curve is as follows :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/rNmIN.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/rNmIN.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="11824" LastActivityDate="2019-10-17T07:44:35.913" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="32284" PostTypeId="1" AcceptedAnswerId="32294" CreationDate="2019-10-17T09:13:53.670" Score="1" ViewCount="157" Body="&lt;p&gt;I would like to discuss with you about the following production function. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$y=f(t_m, t_l)=\rho t_m^m(n+t_l)$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where &lt;span class=&quot;math-container&quot;&gt;$0&amp;lt;m&amp;lt;1 $&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$n&amp;gt;0$&lt;/span&gt; are fixed parameters.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$t_m$&lt;/span&gt; is manager time.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$t_l$&lt;/span&gt; is labour time. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The manager know the production function freely. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also let’s define &lt;span class=&quot;math-container&quot;&gt;$w_m$&lt;/span&gt;=manager’s wage and &lt;span class=&quot;math-container&quot;&gt;$w_l$&lt;/span&gt;=labour’s wage for &lt;span class=&quot;math-container&quot;&gt;$w_m&amp;gt;w_l&amp;gt;0$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\rho$&lt;/span&gt; is the good’s market price. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Extra Notes: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;• the manager’s outside option= the  manager wage in the economy  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;•the manager is going to  run his own company if he establishes one.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So far, I have defined the production function. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;How I have two questions that I would like to discuss with you. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;————————&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;How can I interpret the parameters &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$m$&lt;/span&gt;?&lt;/strong&gt; It is easy to interpret them mathematically, but I could not decide how to make a comment about these parameters in economic terms?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When I take derivatives &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\partial y/\partial t_l= t_m ^m&amp;gt;0$&lt;/span&gt; which means that as labour’s time increases, production increases, revenue increases and so profit increases. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\partial y/\partial t_m= m t_m ^{m-1}(n+t_l)&amp;gt;0$&lt;/span&gt; which means that as manager’s time increases, production is diminshingly increases (since &lt;span class=&quot;math-container&quot;&gt;$m-1&amp;lt;0$&lt;/span&gt;) and revenue diminishingly increases so profit diminishingly increases. ( I did this comment. But I don’t think it is enough or correct in economic view. How can I say it correctly?)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;———————-&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My important question is that!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Under Which conditions does the manager establish a company and decide to enter the industry?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For that, I firstly establish the manager’s decision problem as follow:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Revenue = &lt;span class=&quot;math-container&quot;&gt;$\rho y= \rho t_m^m(n+t_l)$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Cost= &lt;span class=&quot;math-container&quot;&gt;$t_m w_m + t_l w_l$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Profit = &lt;span class=&quot;math-container&quot;&gt;$\pi = \rho t_m^m(n+t_l) -( t_m w_m + t_l w_l)$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So his decision problem:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\max \rho t_m^m(n+t_l) -( t_m w_m + t_l w_l)$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Subject to &lt;span class=&quot;math-container&quot;&gt;$w_m&amp;gt;w_l&amp;gt;0$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$0&amp;lt;m&amp;lt;1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$n,p&amp;gt;0$&lt;/span&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;When we solve it&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\partial \pi/\partial t_m= \rho m t_m ^{m-1}(n+t_l) -w_m=0 $&lt;/span&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$w_m= \rho m t_m ^{m-1}(n+t_l)$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\partial \pi/\partial t_l=\rho t_l ^m-w_l=0$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$w_l= \rho t_m ^m$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So we know that &lt;span class=&quot;math-container&quot;&gt;$w_m&amp;gt;w_l&amp;gt;0$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ \rho m t_m ^{m-1}(n+t_l)&amp;gt; \rho  t_m^{m}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$n+t_l&amp;gt;{t_m\over m} $$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I only find this condition in order to establish a company. ( I am not sure but I hope it is true) But I cannot say something about it in economic view.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I solved everything, just discuss what I did. Is it correct or false? Or how can I interpret them in economic aspect? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks a lot.  &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;EDIT&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From the above maximization problem, I obtained the following solutions:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And from &lt;span class=&quot;math-container&quot;&gt;$w_l= \rho t_m ^m$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I get &lt;span class=&quot;math-container&quot;&gt;$$t^*_m=(w_l/\rho)^{1/m}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From &lt;span class=&quot;math-container&quot;&gt;$w_m= \rho m t_m ^{m-1}(n+t_l)$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I get &lt;span class=&quot;math-container&quot;&gt;$$t^*_l= {w_m\over m}p^{1-m/m}w_l^{1-m/m}-n$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When I insert these two &lt;span class=&quot;math-container&quot;&gt;$t^*_l$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$t^*_m$&lt;/span&gt; into the profit function, I get &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\pi^*=w_l^{1/m}w_m \rho^{1-m/m} {1\over m} (2-mp^{1/m-1})-nw_l$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, when I compare this with the outside option &lt;span class=&quot;math-container&quot;&gt;$w_m$&lt;/span&gt;, then I get &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\pi^*=w_l^{1/m}w_m \rho^{1-m/m} {1\over m} (2-mp^{1/m-1})-nw_l&amp;gt;= w_m$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But this result doesn’t make sense. I could not make any reasonable interpretation. &lt;/p&gt;&#xA;" OwnerUserId="6134" LastEditorUserId="6134" LastEditDate="2019-10-19T20:13:19.303" LastActivityDate="2019-10-22T16:06:56.450" Title="A profit maximization problem (whole problem has been solved, I just have question about interpretation)" Tags="&lt;optimization&gt;&lt;profit-maximization&gt;&lt;dynamic-programming&gt;&lt;linear-programming&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32286" PostTypeId="1" CreationDate="2019-10-17T15:01:06.350" Score="1" ViewCount="68" Body="&lt;p&gt;You plan to use the following specification for an empirical study:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$e_i = \alpha_i + \sum_{j=1}^{n} \beta_{ij}p_i + \gamma_iy +\delta_i, &#xA;i=1,...,n$$&lt;/span&gt; &#xA;where &lt;span class=&quot;math-container&quot;&gt;$e_i$&lt;/span&gt; is the consumer's expenditure on good &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$p_i$&lt;/span&gt; is the price of good &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; is the income and the &lt;span class=&quot;math-container&quot;&gt;$\alpha_i, \beta_{ij}, \gamma_i, \delta_i$&lt;/span&gt; are parameters.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You want the specification to be consistent with standard consumer theory and three friends offer the following opinions: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;1) “the equation will work for any values of the parameters;” &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(2) “you need to impose the  &lt;span class=&quot;math-container&quot;&gt;$\beta_{ij}=0,\sum_{i=1}^{n}, \delta_{i}=1$&lt;/span&gt;&quot;;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(3)“you need to impose restrictions such as &lt;span class=&quot;math-container&quot;&gt;$\beta_ij = -\gamma_i\alpha_j, \gamma_i \geq 0,\sum_{i=1}^{n}, \gamma{i}=1,\delta_i=0 $&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(a) Explain which of the friends gave sensible advice.&#xA;(b) Why should you really not listen to the advice of the other friends?&lt;/p&gt;&#xA;" OwnerUserId="24592" LastEditorUserId="24592" LastEditDate="2019-10-18T13:29:51.273" LastActivityDate="2019-10-18T13:29:51.273" Title="Consumer Theory question" Tags="&lt;microeconomics&gt;&lt;consumer-theory&gt;" AnswerCount="1" CommentCount="3" ClosedDate="2019-10-21T11:10:44.620" ContentLicense="CC BY-SA 4.0" />
  <row Id="32290" PostTypeId="2" ParentId="32240" CreationDate="2019-10-17T20:13:45.937" Score="2" Body="&lt;p&gt;At the end of the day, currency (such as $) is just a means of purchasing real goods and services in an economy. Roughly, utility corresponds to consumption. Since you assume the capitalist isn't allowed to consume, there is nothing for the capitalist to gain even if they capture all the currency. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is a slightly modified thought experiment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose there is one employer and one employee in an economy. Both are consumers. There is only one good: tomatoes. In other words, every credit is spent on purchasing tomatoes, and the real GDP of this economy is the number of tomatoes produced. If the employee earns less wages, then the employer has a larger slice of the revenue, and the employer now can purchase more tomatoes.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now what if the employer tries to pay the employee almost nothing? The employee might just quit: no tomatoes are produced, and everyone is worse off as no one gets tomatoes. Even if the employee doesn't quit, at some point the employee will be less productive because they are starving from not being able to consume tomatoes. In other words, for the employer that wants to consume as many tomatoes as possible, there is a balance between taking as large a share from the existing pie of tomatoes and increasing the pie by allowing the employee to have enough to be productive.&lt;/p&gt;&#xA;" OwnerUserId="8387" LastActivityDate="2019-10-17T20:13:45.937" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32291" PostTypeId="1" CreationDate="2019-10-17T20:34:32.080" Score="-3" ViewCount="94" Body="&lt;p&gt;&lt;strong&gt;Does recent gasoline price sensitivity data show that HR 763 Carbon pricing insufficient for the transportation sector?&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;h1&gt;This answer provided by: &quot;Heh&quot; moved to chat so it can't be seen:&lt;br&gt;&quot;Of course carbon pricing is insufficient for the transportation sector&quot;&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;Recent data show a price elasticity of demand for gasoline of -0.1&#xA;The following graph showing the change in price is mirrored by change in vehicle miles traveled seems to provide strong evidence that the price elasticity of demand for fuel in the transport sector -0.1. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;By dividing the maximum range of vehicles miles traveled 8.6% by the maximum range gasoline price 89.2% we estimate the price elasticity of demand for gasoline = -0.0964&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.energy.gov/eere/vehicles/articles/fotw-1024-april-9-2018-changes-vehicle-miles-travel-often-mirror-gasoline&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.energy.gov/eere/vehicles/articles/fotw-1024-april-9-2018-changes-vehicle-miles-travel-often-mirror-gasoline&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/2w5qX.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/2w5qX.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here is the corresponding data:&#xA;&lt;a href=&quot;https://www.energy.gov/sites/prod/files/2018/04/f50/fotw_1024_web.xlsx&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.energy.gov/sites/prod/files/2018/04/f50/fotw_1024_web.xlsx&lt;/a&gt;  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Point Price Elasticity of Demand formula: PED=((Q1-Q0)/Q1)/((P1-P0)/P0)    &lt;/p&gt;&#xA;&#xA;&lt;p&gt;-0.1=((50-100)/100)/((P-2.66)/2.66)  // Q0=100, Q1=50, P0=2.66, P1=\$15.96&lt;br&gt;&#xA;&lt;strong&gt;\$16 per gallon to reduce quantity demanded to 50%&lt;/strong&gt;&lt;br&gt;&#xA;Corresponding &lt;strong&gt;\$1330 carbon price is 3-fold greater than HR 763 maximum \$430&lt;/strong&gt;&lt;br&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;-0.1=((10-100)/100)/((P-2.66)/2.66)  // Q0=100, Q1=10, P0=2.66, P1=\$26.60&lt;br&gt;&#xA;&lt;strong&gt;\$27 per gallon to reduce quantity demanded to 10%&lt;/strong&gt;&lt;br&gt;&#xA;Corresponding &lt;strong&gt;\$2394 carbon price is 5.5-fold greater than HR 763 maximum \$430&lt;/strong&gt;&lt;br&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any legislators that are very confident of their own carbon fee estimates would have no legitimate basis for rejecting a Carbon Fee Fail-safe and Safeguard that only takes effect if their estimates are proved to be incorrect. &lt;/p&gt;&#xA;&#xA;&lt;h1&gt;Carbon Fee Fail-safe and Safeguard&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Every Year once a year:&lt;/strong&gt;&lt;br&gt;&#xA;&lt;strong&gt;if&lt;/strong&gt; (Years_Behind Schedule &gt; 1.0)    // &lt;strong&gt;Carbon Fee FAIL_SAFE&lt;/strong&gt;&lt;br&gt;&#xA;  Carbon_Fee = (Years_Behind Schedule * $15); &lt;br&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;else if&lt;/strong&gt; (Years_Behind Schedule &gt; 0.0)  &lt;br&gt;&#xA;  Carbon_Fee = Carbon_Fee + $15;    // HR 763 Trigger&lt;br&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;else if&lt;/strong&gt; (Years_Behind Schedule &gt; -1.0)  // &lt;strong&gt;Carbon Fee SAFE_GUARD&lt;/strong&gt;&lt;br&gt;&#xA;  Carbon_Fee = Carbon_Fee + $10;    // HR 763 Default  &lt;br&gt;&lt;/p&gt;&#xA;&#xA;&lt;h1&gt;I am ONLY looking at the PED for the transportation sector to prove that the fixed pricing of all of the carbon fee and dividend programs must have much more flexibility that kicks in if we fail to meet carbon reduction targets.&lt;br&gt; &lt;br&gt;WE CAN'T RISK LOCKING IN A CARBON PRICE THAT IS FAR TOO LOW.&lt;/h1&gt;&#xA;&#xA;&lt;p&gt;A US law (and every other similar US law) that is currently backed by the Citizen Climate Lobby is based on the premise that raising the price of gasoline a tiny little bit each year until at the end of 30 years total prices have increased by 100% to 150% will cause a 90% drop in emissions from gasoline. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;These two links seems to show that these expectations are totally unrealistic:&lt;/strong&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.eia.gov/todayinenergy/detail.php?id=19191&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.eia.gov/todayinenergy/detail.php?id=19191&lt;/a&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.energy.gov/eere/vehicles/articles/fotw-1024-april-9-2018-changes-vehicle-miles-travel-often-mirror-gasoline&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.energy.gov/eere/vehicles/articles/fotw-1024-april-9-2018-changes-vehicle-miles-travel-often-mirror-gasoline&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="24455" LastEditorUserId="24455" LastEditDate="2019-10-24T01:25:47.313" LastActivityDate="2019-10-24T21:36:39.513" Title="Does recent gasoline price sensitivity data show that HR 763 Carbon pricing insufficient for the transportation sector?" Tags="&lt;elasticity&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32293" PostTypeId="2" ParentId="32291" CreationDate="2019-10-17T21:05:46.670" Score="2" Body="&lt;p&gt;No, it is not sufficient proof.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There are a host of possible drivers of &quot;vehicle miles per-capita&quot; that are not causally connected to the price of fuel.  You would need to make a good-faith effort to identify them and assess their relative impact before coming to the conclusion you've done.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is in addition to the fact that the graphs you shared indicate that total miles travelled have been flat since 2005, and miles per-capita have dropped since 2005 even as gas prices roughly doubled.&lt;/p&gt;&#xA;" OwnerUserId="24275" LastActivityDate="2019-10-17T21:05:46.670" CommentCount="10" ContentLicense="CC BY-SA 4.0" />
  <row Id="32294" PostTypeId="2" ParentId="32284" CreationDate="2019-10-17T22:33:04.670" Score="1" Body="&lt;p&gt;Your production function is basically a Cobb-Douglas function of the form &lt;span class=&quot;math-container&quot;&gt;$y=A(t_m-a)^\alpha(t_l-b)^\beta$&lt;/span&gt;. Therefore, the parameters &lt;span class=&quot;math-container&quot;&gt;$\alpha$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\beta$&lt;/span&gt; measure the intensity with which inputs are needed for production. The smaller the value of such parameters, the smaller the marginal productivity of the inputs is. In your context, the company is more labor intense than managerial intense, since &lt;span class=&quot;math-container&quot;&gt;$\alpha=m&amp;lt;1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\beta=1$&lt;/span&gt;. Finally, the parameters &lt;span class=&quot;math-container&quot;&gt;$a$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$b$&lt;/span&gt; measure the minimum level needed by the company of each input in order to operate. In your case, &lt;span class=&quot;math-container&quot;&gt;$a=0$&lt;/span&gt; so the company needs a management to operate. However, &lt;span class=&quot;math-container&quot;&gt;$b=-n$&lt;/span&gt; so the company can produce even if &lt;span class=&quot;math-container&quot;&gt;$t_l$&lt;/span&gt; was equal to zero. Notice that the larger the &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt;, the less the company needs of labor. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In fact, though you found two equations that characterize equilibrium I think you want to solve for &lt;span class=&quot;math-container&quot;&gt;$t_m$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$t_l$&lt;/span&gt; in terms of parameters only (you will see that if  &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt; is very large, the optimal &lt;span class=&quot;math-container&quot;&gt;$t_l$&lt;/span&gt; is zero. After that, I would plug in the results into the profit function, that will tell you how much profit the manager will get if he decides to enter the industry, and you can compare that to the outside option.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Solution:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the manager to operate the company, the profit function must be larger than the outside option. I will assume that if she operates the company, since she is the manager, she does not need to pay herself, so the costs are only &lt;span class=&quot;math-container&quot;&gt;$w_lt_l^*$&lt;/span&gt;, but her outside option is equal to &lt;span class=&quot;math-container&quot;&gt;$w_mt_m^*$&lt;/span&gt;, the labor income she will earn working for a similar company  that would demand the optimal management labor.  Therefore, she operates the company iff the profit &lt;span class=&quot;math-container&quot;&gt;$\pi =\rho t_m^m(n+t_l)-w_lt_l-w_mt_m\geq 0$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Case 1&lt;/strong&gt;: (Assume that &lt;span class=&quot;math-container&quot;&gt;$t_m^*,  t_l&amp;gt;0^*$&lt;/span&gt;) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Solving the FOC's, we get &lt;span class=&quot;math-container&quot;&gt;$$t_m^*=\left(\frac{w_l}{\rho}\right)^{\frac1m} \qquad t_l^*=\frac{w_m}{m \cdot w_l}\left(\frac{w_l}{\rho}\right)^{\frac1m}-n$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\pi^*=\frac{w_m}{m}\left(\frac{w_l}{\rho}\right)^{\frac1m}-w_m\left(\frac{w_l}{\rho}\right)^{\frac1m}-w_l\left(\frac{w_m}{m\cdot w_l}\left(\frac{w_l}{\rho}\right)^{\frac1m}-n\right)=w_ln-w_m\left(\frac{w_l}{\rho}\right)^{\frac1m}$$&lt;/span&gt;&#xA;Therefore, &lt;span class=&quot;math-container&quot;&gt;$\pi^*\geq 0$&lt;/span&gt; iff  &lt;span class=&quot;math-container&quot;&gt;$$w_ln\geq w_m\left(\frac{w_l}{\rho}\right)^{\frac1m}$$&lt;/span&gt; However, we assumed that &lt;span class=&quot;math-container&quot;&gt;$t_l^*&amp;gt;0$&lt;/span&gt; so &#xA;&lt;span class=&quot;math-container&quot;&gt;$$\frac{w_m}{m}\left(\frac{w_l}{\rho}\right)^{\frac1m}\geq w_ln$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The two inequalities can hold since &lt;span class=&quot;math-container&quot;&gt;$1 &amp;gt; m$&lt;/span&gt;. These are necessary conditions for the manager to operate the company and demand strictly positive labor. I would interpret them as &lt;span class=&quot;math-container&quot;&gt;$w_ln$&lt;/span&gt; needs to be intermediate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Case 2:&lt;/strong&gt; (&lt;span class=&quot;math-container&quot;&gt;$t_m^*&amp;gt;0$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$t_l^*=0$&lt;/span&gt;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This case occurs if &#xA;&lt;span class=&quot;math-container&quot;&gt;$$\frac{w_m}{m}\left(\frac{w_l}{\rho}\right)^{\frac1m}\leq w_ln$$&lt;/span&gt;&#xA;Notice that (after doing some algebra) the optimal profit function &lt;span class=&quot;math-container&quot;&gt;$\pi^*$&lt;/span&gt; is still bigger than zero iff &#xA;&lt;span class=&quot;math-container&quot;&gt;$$w_ln\geq{w_m}\left(\frac{w_l}{\rho}\right)^{\frac1m}$$&lt;/span&gt;&#xA;In this case, if the first inequality is satisfied, the second holds too. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Conclusion&lt;/strong&gt; Putting the two cases together we conclude that the manager operates her company if and only if &#xA;&lt;span class=&quot;math-container&quot;&gt;$$w_ln\geq{w_m}\left(\frac{w_l}{\rho}\right)^{\frac1m}$$&lt;/span&gt;&#xA;She will sometimes hire workers in her company (if &lt;span class=&quot;math-container&quot;&gt;$w_ln$&lt;/span&gt; is not  too large) and sometimes she will not. &lt;/p&gt;&#xA;" OwnerUserId="21827" LastEditorUserId="21827" LastEditDate="2019-10-22T16:06:56.450" LastActivityDate="2019-10-22T16:06:56.450" CommentCount="12" ContentLicense="CC BY-SA 4.0" />
  <row Id="32295" PostTypeId="2" ParentId="32240" CreationDate="2019-10-17T22:37:25.337" Score="0" Body="&lt;p&gt;Accounting profit is revenue minus costs. One of the largest costs is wages. The owner of a business does not want to increase costs all else constant. Profits are split mainly two ways. One way to direct profits is to reward investors with interest and dividends. In a simplified world, that reward is spent so it becomes revenue. The other way to direct profits is into a type of &quot;saving&quot; which is in the form of incremental investment in the business. That &quot;savings&quot; is revenue for the supplier of the resources that go into a business, for example, materials, land, structures, machinery, knowledge, training, software, advertising, relationship building...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So to address the matter of your confusion I suggest that you do not overlook that interest and dividends become revenue (get spent) and do not overlook that profit retained in the business becomes revenue (gets spent). Do not think there is a narrow minded capitalist that wants to reduce wages and a holistic capitalist that wants to increase wages. When all else is constant lower wages increase profits and this is a concern of every capitalist.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You wrote&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;prevent other classes from accumulating savings&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;One class does not have an interest in preventing another class from &quot;saving&quot; if adequate inflation creates the incentive to minimize saving in the form of money holdings while the remainder of the savings go into revenue in the economy. Some of that &quot;saving&quot; will be lent through banks or through the purchasing of the bonds of governments and businesses. Some of it will be revenue for suppliers of resources that go into businesses possibly by way of an investment fund. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The one form of saving that is not immediately revenue (for whomever receives revenue in the economy) is money holdings. There is pressure to minimize holdings of money because of the loss of purchasing power caused by inflation. If we succeed in avoiding deflation that is helpful to minimizing holdings of money.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This chart shows Federal Reserve assets which are balanced by the money holdings of every household and business. This shows money holdings are more than they were 11 years ago. The same thing has happened at other major central banks such as the ECB. It might be that people expect an inflation rate that is lower than the expectation in the past. There might be the expectation that in the next recession the U.S. might have deflation like the slight deflation that Japan has had in some years in recent memory. The U.S. and world economies are bigger now so that creates a natural need for money. There is an incentive to use the USD in international transactions. Another important change is that the Fed started to pay interest in 2008. No doubt a combination of reasons would be needed to explain the higher level of money holdings. One thing to consider is that U.S. net worth is immeasurable but it might be approximately 100T USD so if the money holdings go from 1% of that to 4% of that in the context I described, how would we interpret the meaning of the 4% as to whether it is a high number or a low number or just right? Non-linear relationships might apply.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/RJiTr.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/RJiTr.png&quot; alt=&quot;fed assets&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that if every private bank decided to hold less money that would be impossible because they cannot as a homogeneous group buy bonds from the Fed in order to get rid of their money if the Fed does not want to sell bonds. However, an individual bank does not face this problem so what we have is many individual banks deciding to hold much more money than 11 years ago.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you are willing to accept that what is an excessive money holding is not easily identified, then we cannot be sure if the current level of money holdings is excessive. If it is not excessive then perhaps money holdings are not depressing revenue (spending).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You wrote&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The spending of the capitalists, even if that's minuscule in&#xA;  comparison&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Capitalist spending is not minuscule. Private pension funds distribute interest and dividends and a significant portion of the population relies upon and spends this significant quantity. Tax funded government pensions are not usually thought of as capital but they are in a sense because taxes are collected from taxpayers and taxpayers are entities that will produce value in the future. An entity that produces value in the future is one definition of capital. If the taxpayer is a company it can have a very long life. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You wrote &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;if the &quot;surplus value&quot; from the workers going to the capitalist is&#xA;  what's needed to be spent in the market to buy all the produced goods&#xA;  and services then they would only be recirculating what they have, not&#xA;  earning, saving and reinvesting&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Yes, this is re-circulation but why describe this as &quot;only&quot; re-circulation? Wealthy people and non-wealthy old people will want to spend some portion of what they have before the end of their lives.&lt;/p&gt;&#xA;" OwnerUserId="6868" LastEditorUserId="6868" LastEditDate="2019-11-28T22:46:23.863" LastActivityDate="2019-11-28T22:46:23.863" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32296" PostTypeId="1" CreationDate="2019-10-18T01:41:34.160" Score="0" ViewCount="45" Body="&lt;p&gt;Arista always spends  10&#xA; % of her income on whatzits. Assume that her income increases by some percentage while the price of whatzits remains constant (and that all whatzits cost the same). What is her income elasticity of demand for whatzits?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know elasticity of demand is either less than 1 or more than 1. &#xA;Since the equation for elasticity of income is quantity divided by income I dont understand what number to put for the numerator. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;? / 10 %.  = 1 &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Will the answer be positive 1 or negative 1. &lt;/p&gt;&#xA;" OwnerDisplayName="user24599" LastEditorDisplayName="user24599" LastEditDate="2019-10-18T01:55:00.050" LastActivityDate="2019-11-17T05:49:37.570" Title="elasticity of income if price changes by 10 percent" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;supply-and-demand&gt;&lt;elasticity&gt;&lt;basic-income&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="32297" PostTypeId="2" ParentId="32296" CreationDate="2019-10-18T02:37:04.153" Score="1" Body="&lt;p&gt;Try work it out step by step and don't just concentrate on the math.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose Arista has income of &lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt;, and the price of whatzits is &lt;span class=&quot;math-container&quot;&gt;$p$&lt;/span&gt;. She spends 10% of that on whatzits, so how many whatzits does she buy? Let's call this &lt;span class=&quot;math-container&quot;&gt;$q$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now suppose income is now &lt;span class=&quot;math-container&quot;&gt;$x \cdot w$&lt;/span&gt; (so if her income increases by 3% then &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; is 1.03.) The price of whatzits is still the same, &lt;span class=&quot;math-container&quot;&gt;$p$&lt;/span&gt;. How many whatzits does she buy now? Let's call this &lt;span class=&quot;math-container&quot;&gt;$q'$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The income elasticity of [quantity] demand[ed] is simply the percentage change in quantity demanded divided by the percentage change in income:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$e = \frac{\frac{q' - q}{q}}{\frac{xw - w}{w}}.$$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="5145" LastActivityDate="2019-10-18T02:37:04.153" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32299" PostTypeId="1" AcceptedAnswerId="32364" CreationDate="2019-10-18T05:12:53.763" Score="2" ViewCount="1141" Body="&lt;p&gt;I am having trouble completely understanding the mathematical definition of non-satiation. I have stated the definition from Wikipedia below. It would be great if someone can graphically explain.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Formally, if &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; is the consumption set, then for any &lt;span class=&quot;math-container&quot;&gt;$x \in X$&lt;/span&gt; and every &lt;span class=&quot;math-container&quot;&gt;$\varepsilon &amp;gt; 0$&lt;/span&gt;, there exists &lt;span class=&quot;math-container&quot;&gt;$y \in X$&lt;/span&gt; such that &lt;span class=&quot;math-container&quot;&gt;$||y-x|| \leq \varepsilon$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; is preferred to &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="24600" LastEditorUserId="5145" LastEditDate="2019-10-21T07:02:10.940" LastActivityDate="2019-10-21T15:02:58.740" Title="Local non-satiation in economics" Tags="&lt;microeconomics&gt;&lt;expected-utility&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="32300" PostTypeId="2" ParentId="32251" CreationDate="2019-10-18T05:42:54.347" Score="-1" Body="&lt;p&gt;There isnt any data because we can demonstrate this fact by the production of anything by holding the number of laborers fixed and increasing the amount of equipment. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Its an logic which holds in reality and thus generates a theory.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can do it with seeing how many cookies you can bake cookies in an hour with different resources. If its just you, increasing the number of ingredients may increase your yeild or even having another oven may speed up your time. However at some point there will be no gain from getting more ingredients or more equipment- you're simply limited by what you have.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now what would be interesting is checking if &lt;strong&gt;wicksell's law&lt;/strong&gt; holds (i.e. &lt;span class=&quot;math-container&quot;&gt;$\frac{\partial F^2}{\partial K \partial L} \geq 0$&lt;/span&gt;) however this is also logically sound. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Bottom line we can demonstrate it, but its logically consistent enough for us to take it for granted.&lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2019-10-18T05:42:54.347" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="32301" PostTypeId="1" CreationDate="2019-10-18T05:53:47.727" Score="1" ViewCount="67" Body="&lt;p&gt;I understand that monotonic preferences imply non-satiation. But I am not sure 100% if non-monotonic functions always have satiation. An intuitive and mathematical explanation would be very helpful.&lt;/p&gt;&#xA;" OwnerUserId="24600" LastActivityDate="2019-10-23T21:53:53.480" Title="Does non-monotonicity imply non-satiation always? Why or why not?" Tags="&lt;microeconomics&gt;&lt;preferences&gt;" AnswerCount="2" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="32302" PostTypeId="2" ParentId="32301" CreationDate="2019-10-18T06:04:37.453" Score="2" Body="&lt;p&gt;It depends on the function. A non-monotonic function with satiation:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;U(x_1,x_2) = 0.&#xA;$$&lt;/span&gt;&#xA;A non-monotonic function without (global) satiation:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;U(x_1,x_2) = \left \lfloor{x_1}\right \rfloor  + \left \lfloor{x_2}\right \rfloor .&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2019-10-18T06:04:37.453" CommentCount="7" ContentLicense="CC BY-SA 4.0" />
  <row Id="32304" PostTypeId="2" ParentId="32279" CreationDate="2019-10-18T08:44:01.743" Score="1" Body="&lt;p&gt;You seem to be correct. Or at least Medema (who is hopefully not you) agrees in a &lt;a href=&quot;http://ipl.econ.duke.edu/seminars/system/files/seminars/2469.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;2019 paper&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;It was Francis Bator’s elaboration of “The Simple Analytics of Welfare Maximization” in&#xA;  1957 that introduced the term “externality” into the economics literature (1957, 42, 43).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;In contrast, &lt;a href=&quot;https://doi.org/10.1080/09672560903552538&quot; rel=&quot;nofollow noreferrer&quot;&gt;Largreux (2010)&lt;/a&gt; says &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;the term ‘externality’ – which, apparently, was first coined by Paul Samuelson in the 1950s [...]&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;but he cites no particular paper of Samuelson for that and I could not find one pre-1958 in which Samuelson uses that exact term. Samuelson does adopt it in his later papers, &lt;a href=&quot;https://books.google.com/books?id=xisb9usg790C&amp;amp;printsec=frontcover#v=onepage&amp;amp;q=externalities&amp;amp;f=false&quot; rel=&quot;nofollow noreferrer&quot;&gt;for sure&lt;/a&gt;. It appears in vol 3 of his collected works when referring to Coase's [1960] paper for example.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Largreux also takes issue with how broadly Bator defined the term &quot;externality&quot;. Largreux &#xA;seem to criticize the use of the term for &quot;technical&quot; and &quot;ownership&quot; externalities (two of the three categories defined by Bator, the last one being &quot;public good externalities&quot;), but that may be a different matter.&lt;/p&gt;&#xA;" OwnerUserId="6210" LastActivityDate="2019-10-18T08:44:01.743" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32305" PostTypeId="2" ParentId="32279" CreationDate="2019-10-18T09:14:45.697" Score="2" Body="&lt;p&gt;I suspect you have found the author responsible for the original coinage of the word &quot;externality&quot; within economics, with this meaning.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the 1950s (and earlier), the discussion of externalities was typically done using the phrase &quot;external economies&quot;, as &lt;a href=&quot;https://en.wikipedia.org/wiki/Francis_M._Bator&quot; rel=&quot;nofollow noreferrer&quot;&gt;Francis M. Bator&lt;/a&gt; frequently did too. Bator built on &lt;a href=&quot;https://www.jstor.org/stable/1825572&quot; rel=&quot;nofollow noreferrer&quot;&gt;Scitovsky (1954)&lt;/a&gt; and &lt;a href=&quot;https://www.jstor.org/stable/2227173&quot; rel=&quot;nofollow noreferrer&quot;&gt;Meade (1952)&lt;/a&gt;, both of whom used &quot;external economies&quot;, as did JK Galbraith and others around that time (as well as several others before them).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Boudreaux and Meiners wrote the paper: &lt;a href=&quot;https://www.jstor.org/stable/26617802&quot; rel=&quot;nofollow noreferrer&quot;&gt;&quot;Externality: Origins and Classifications&quot;&lt;/a&gt;, 2019, within which they say:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Bator's article likely forms the basis for the now-common notion of&#xA;  externality&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;which is probably as close as we can get to confirmation that the word is Bator's original coinage for this particular meaning, together with Fizz's Medema reference. There's a long footnote in the reference that Fizz found - &lt;a href=&quot;http://ipl.econ.duke.edu/seminars/system/files/seminars/2469.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Medema 2019&lt;/a&gt; (p20) (my emphasis):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;Bator first used the term in his 1956 MIT Ph.D. thesis&lt;/strong&gt;, from which his 1957 and 1958 articles were derived (Bator 1956). &lt;strong&gt;Whether it was Bator who coined the term is hard to say.&lt;/strong&gt; Paul Samuelson, Bator’s MIT colleague, used it at nearly the same time in an article on the subject of intertemporal price equilibrium that appeared in Weltwirtschaftliches Archiv(Samuelson 1957). Samuelson noted simply that “knowledge is a resource loaded with externality” (1957, 210). Bator’s article seems to have appeared first and was certainly more widely read, being cited nearly fifty times over the next dozen years as against eighteen cites to Samuelson’s piece. (Source: Google Scholar, accessed August 22, 2017). Moreover, none of the citations to Samuelson’s article were in the welfare economics/externalities context. There is no input from Samuelson acknowledged in Bator’s opening footnote, nor is mention of Bator made in Samuelson’s article. The term was picked up relatively quickly though, being used another half-dozen times before 1960. It was also Bator who introduced the term “market failure” into the literature, this in his 1958 article, “The Anatomy of Market Failure.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Bator's 1956 PhD thesis for MIT (&lt;a href=&quot;http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.901.7372&amp;amp;rep=rep1&amp;amp;type=pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;pdf&lt;/a&gt;) uses the term 78 times, with no earlier citations or quotes of its use.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, with both Samuelson (&lt;a href=&quot;https://www.jstor.org/stable/40434184&quot; rel=&quot;nofollow noreferrer&quot;&gt;1957&lt;/a&gt;) and Bator writing around that time about externalities, using that specific word, and both at MIT, there's a fair chance that the word was coined there within that MIT department by one of them, or a colleague of theirs (with Robert Solow being the most likely candidate, as Bator's PhD supervisor), and entered the writings of both of them organically at around the same time, through the usual social and professional interactions that go on in an academic department.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And Medema's footnote quoted above makes a persuasive case that it is Bator's &lt;a href=&quot;https://www.jstor.org/stable/1812285&quot; rel=&quot;nofollow noreferrer&quot;&gt;1957&lt;/a&gt; &amp;amp; 1958 papers that &lt;strong&gt;established&lt;/strong&gt; the term in the literature, from where it became widely disseminated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Robert Solow is, at time of writing, still with us. I wonder if a direct enquiry to him might shed any light on this?&lt;/p&gt;&#xA;" OwnerUserId="44" LastEditorUserId="44" LastEditDate="2019-10-18T09:42:10.067" LastActivityDate="2019-10-18T09:42:10.067" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="32306" PostTypeId="2" ParentId="32286" CreationDate="2019-10-18T11:25:36.667" Score="0" Body="&lt;p&gt;You could use the fact that &lt;span class=&quot;math-container&quot;&gt;$\sum_{i=1}^{n}e_i=y$&lt;/span&gt; (adding-up property) to see which parameter values are compatible with the above specification and this identity.&lt;br&gt;&#xA;Before proceeding, you should replace on the RHS &lt;span class=&quot;math-container&quot;&gt;$\sum_{i=1}^{n}\beta_{ij}p_i$&lt;/span&gt; by &lt;span class=&quot;math-container&quot;&gt;$\sum_{j=1}^{n}\beta_{ij}p_j$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerUserId="20576" LastActivityDate="2019-10-18T11:25:36.667" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32307" PostTypeId="2" ParentId="32268" CreationDate="2019-10-18T12:56:15.123" Score="1" Body="&lt;p&gt;I'm going to answer my own question. Consider multiplying all prices and income (i.e., the wage) by a common factor &lt;span class=&quot;math-container&quot;&gt;$\lambda&amp;gt;0$&lt;/span&gt;. The new ideal price index is just &lt;span class=&quot;math-container&quot;&gt;$P' = \lambda P$&lt;/span&gt;. The new wage is just &lt;span class=&quot;math-container&quot;&gt;$W' = \lambda W$&lt;/span&gt;. So real expenditure, &lt;span class=&quot;math-container&quot;&gt;$C' = W'/P' = W/P = C$&lt;/span&gt;, is invariant. The &quot;numeraire&quot; should now be &lt;span class=&quot;math-container&quot;&gt;$C' (P')^{\eta} = \lambda^{\eta}$&lt;/span&gt;, hence prices relative to the new &quot;numeraire&quot; should now be &lt;span class=&quot;math-container&quot;&gt;$p_j' = p_j \lambda^{1-\eta}$&lt;/span&gt;, not &lt;span class=&quot;math-container&quot;&gt;$\lambda p_j$&lt;/span&gt;. That's a contradiction---&lt;span class=&quot;math-container&quot;&gt;$CP^{\eta}$&lt;/span&gt; is not a stable unit of account.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another way to see the problem is that demand is no longer homogeneous of degree zero in prices and income under this normalization: &lt;span class=&quot;math-container&quot;&gt;$(c_j^{*})' = \lambda^{-\eta} p_j^{-\eta}$&lt;/span&gt;, so &lt;span class=&quot;math-container&quot;&gt;$(c_j^{*})' / c_j^{*} = \lambda^{-\eta}$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerUserId="24278" LastActivityDate="2019-10-18T12:56:15.123" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32308" PostTypeId="1" AcceptedAnswerId="32315" CreationDate="2019-10-18T14:40:34.217" Score="0" ViewCount="240" Body="&lt;p&gt;I have question on central bank loss function. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;We know that the central bank loss function is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$L(\pi, \bar{Y})= (\pi- \pi^e)^2+\beta \bar {Y}^2$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And we know that fisher equation is &lt;span class=&quot;math-container&quot;&gt;$$i=r+\pi^e$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where &lt;span class=&quot;math-container&quot;&gt;$r$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; Are respectively the real and nominal interest rate. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;I want to minimize CB’s loss function by choosing &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;——-&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I tried to solve it. But it’s meaningless and so wrong:( &lt;/p&gt;&#xA;&#xA;&lt;p&gt;When I searched on the Net, I always saw that the CB loss function is minimized by substituting Phillips curve and takes derivative with respect to &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, I substituted the fisher equation into the Phillips curve i.e. &lt;span class=&quot;math-container&quot;&gt;$\pi=a \bar{Y} +\pi^e= a \bar{Y}+i-r$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And then I substituted this equation into the loss function I.e. &lt;span class=&quot;math-container&quot;&gt;$L(\pi, \bar{Y})= (a\bar{Y}+i-r- \pi^e)^2+\beta \bar {Y}^2$&lt;/span&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And take its derivative with respect to &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I got &lt;span class=&quot;math-container&quot;&gt;$2(a\bar{Y}+i-r-\pi^e)=0$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$i^*=\pi^e-a\bar{Y}+r$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But I think my way is wrong. Because this result doesn’t make sense. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Please let me show a way how to solve it. Any help would be appreciated. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks a lot. &lt;/p&gt;&#xA;" OwnerUserId="6134" LastEditorUserId="6134" LastEditDate="2019-10-18T14:46:15.347" LastActivityDate="2019-10-18T19:14:46.017" Title="Central bank loss function (I did a solution, but it doesn’t totally make sense I guess)" Tags="&lt;macroeconomics&gt;&lt;mathematical-economics&gt;&lt;self-study&gt;&lt;optimization&gt;&lt;central-banking&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32309" PostTypeId="1" AcceptedAnswerId="32317" CreationDate="2019-10-18T14:49:31.820" Score="0" ViewCount="134" Body="&lt;p&gt;I have a function: &lt;span class=&quot;math-container&quot;&gt;$ u(x) = x_{1} + x_{2} + \min\{x_{1}, x_{2}\}$&lt;/span&gt;. How do we algebraically show if it's convex or not? Also, what would be the general way to show if any given function is convex. &lt;/p&gt;&#xA;" OwnerUserId="24600" LastEditorUserId="23083" LastEditDate="2019-10-19T10:01:34.300" LastActivityDate="2019-10-23T13:59:18.300" Title="Algebraic approach towards convexity" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;utility&gt;&lt;expected-utility&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32310" PostTypeId="1" AcceptedAnswerId="32313" CreationDate="2019-10-18T15:37:24.877" Score="1" ViewCount="104" Body="&lt;p&gt;Suppose I have utility function like this: &lt;span class=&quot;math-container&quot;&gt;$u(x_1,x_2,x_3)=min\{x_1,a-x_1\}\times min\{x_2,b-x_2\}+x_3$&lt;/span&gt; where a and b are real numbers and &lt;span class=&quot;math-container&quot;&gt;$x_1\in [0, a]$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$x_2\in [0,b]$&lt;/span&gt;. What will be a procedure of finding, for example, Marshallian demand &lt;span class=&quot;math-container&quot;&gt;$x(p,w)$&lt;/span&gt;?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My confusion&lt;/strong&gt;: In case of more simple function without minimum or maximum structures I would simply use Lagrangian to define the demand. However, given function is not differentiable. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My question&lt;/strong&gt;: can I apply Lagrangian here and, if so, how can I do it? If it is impossible to use Lagrangian in this case, what else sholud I do? &lt;/p&gt;&#xA;" OwnerUserId="24606" LastActivityDate="2019-10-18T16:56:38.010" Title="Deriving demand function in case of multivariable utility functions with min and max structures" Tags="&lt;microeconomics&gt;&lt;utility&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32311" PostTypeId="2" ParentId="32309" CreationDate="2019-10-18T16:27:05.397" Score="0" Body="&lt;p&gt;I assume you meant &lt;span class=&quot;math-container&quot;&gt;$u(x_1,x_2)=x_1+x_2+\min\{x_1,x_2\}$&lt;/span&gt;. To check if a function of two or more variables is convex, you need to check if you can differentiate it twice, calculate its &lt;a href=&quot;https://en.wikipedia.org/wiki/Hessian_matrix&quot; rel=&quot;nofollow noreferrer&quot;&gt;Hessian&lt;/a&gt; and check if it is positive semi-definite. On top of that the domain needs to be a convex set but since we talk about utility in economics - you don't need to worry about that too much - &lt;a href=&quot;https://economics.stackexchange.com/questions/4725/can-a-utility-function-take-on-negative-values&quot;&gt;Can A Utility Function Take On Negative Values?&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In your example: &#xA;&lt;span class=&quot;math-container&quot;&gt;$$\mathbf{H}=\begin{bmatrix}&#xA; \frac{\partial^2u}{\partial x_1^2} &amp;amp; \frac{\partial^2u}{\partial x_1x_2}  \\&#xA; \frac{\partial^2u}{\partial x_1x_2} &amp;amp; \frac{\partial^2u}{\partial x_2^2}  \\&#xA;\end{bmatrix}=\begin{bmatrix}&#xA; 0 &amp;amp; 0  \\&#xA; 0 &amp;amp; 0  \\&#xA;\end{bmatrix}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;so it is?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The approach described above is a general way of showing a function being convex but as pointed in the comment section, you need to be careful - make sure that all the assumptions are met before jumping to conclusions. (Or else, you end up being mistaken as me right now.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;EDIT.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Minimum function mislead me, I agree. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's get back to basics:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$u(x_1,x_2)=x_1+x_2+\min(x_1,x_2)=x_1+x_2 + \frac{x_1+x_2-|x_1-x_2|}{2}=\begin{cases}x_1+2x_2 \;\; \mathrm{for} \;\; x_1 \geq x_2\\ 2x_1+x_2 \;\; \mathrm{for} \;\; x_1&amp;lt;x_2 \end{cases}$&lt;/span&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It looks like that (on horizontal axis &lt;span class=&quot;math-container&quot;&gt;$x_1$&lt;/span&gt;, on vertical axis &lt;span class=&quot;math-container&quot;&gt;$x_2$&lt;/span&gt;: &#xA;&lt;a href=&quot;https://i.stack.imgur.com/IPynM.gif&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/IPynM.gif&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is neither convex, nor concave. Due to the absolute value function that is in a core of minimum function: &#xA;&lt;a href=&quot;https://math.stackexchange.com/questions/991475/why-is-the-absolute-value-function-not-differentiable-at-x-0&quot;&gt;Why is the absolute value function not differentiable at x=0?&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I thought that eliminating point where &lt;span class=&quot;math-container&quot;&gt;$x_1=x_2$&lt;/span&gt; would solve the issue but as shown in the other answer - it does not.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;EDIT. 2 (final)&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is, in fact, concave as the user @afreelunch was telling me. You can see it directly from the definition. Or (what I think is even easier) from the way our utility function is built. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;We have &lt;span class=&quot;math-container&quot;&gt;$u(x_1,x_2) = \min\{2x_1+x_2,x_1+2x_2\}$&lt;/span&gt;. Now, let's take it apart: &lt;span class=&quot;math-container&quot;&gt;$f_1(x_1) = 2x_1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$g_1(x_2) = x_2$&lt;/span&gt;, they are both linear &lt;a href=&quot;https://math.stackexchange.com/questions/611633/is-linear-function-convex-or-concave&quot;&gt;Is linear function convex or concave?&lt;/a&gt; - hence, concave (and convex but we care about concavity here) and therefore their sum (&lt;a href=&quot;https://en.wikipedia.org/wiki/Concave_function&quot; rel=&quot;nofollow noreferrer&quot;&gt;property of concave function&lt;/a&gt;) &lt;span class=&quot;math-container&quot;&gt;$h_1(x_1,x_2)=2x_1+x_2$&lt;/span&gt; is also concave. Similarly, &lt;span class=&quot;math-container&quot;&gt;$f_2(x_1) = x_1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$g_2(x_2)=2x_2$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$h_2(x_1,x_2)=x_1+2x_2$&lt;/span&gt; is concave as well. Knowing that, we get &lt;span class=&quot;math-container&quot;&gt;$\min\{h_1(x_1,x_2),h_2(x_1,x_2)\}$&lt;/span&gt; - minimum of two concave functions - which is then concave (&lt;a href=&quot;http://www.princeton.edu/~amirali/Public/Teaching/ORF363_COS323/F14/ORF363_COS323_F14_Lec6.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;also a well known fact&lt;/a&gt;). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In short, minimum preserves concavity (and maximum preserves convexity).&lt;/p&gt;&#xA;" OwnerUserId="23083" LastEditorUserId="23083" LastEditDate="2019-10-23T13:59:18.300" LastActivityDate="2019-10-23T13:59:18.300" CommentCount="10" ContentLicense="CC BY-SA 4.0" />
  <row Id="32312" PostTypeId="1" AcceptedAnswerId="32318" CreationDate="2019-10-18T16:54:51.963" Score="1" ViewCount="52" Body="&lt;p&gt;I am not an economics student, but I would like to know about this simply but in details. I would like to understand this Noble Prize winning thoery by Abhijit Banerjee , Esther Duflo and Michael Kremer&lt;/p&gt;&#xA;" OwnerUserId="24608" LastActivityDate="2019-10-18T22:10:40.780" Title="What idea was proposed to remove global poverty?" Tags="&lt;poverty&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32313" PostTypeId="2" ParentId="32310" CreationDate="2019-10-18T16:56:38.010" Score="2" Body="&lt;p&gt;It is possible to use a Lagrangian to obtain your Marshallian demands, provided you break each min function up into two different pieces and remain wary of boundary solutions. So for example, if you impose the condition &lt;span class=&quot;math-container&quot;&gt;$x_1&amp;lt;\frac{a}{2}, x_2&amp;lt;\frac{b}{2}$&lt;/span&gt; you can simplify your utility function to &lt;span class=&quot;math-container&quot;&gt;$x_1 x_2 + x_3$&lt;/span&gt;, and then solve for Marshallian demands that are valid when this condition holds. Once you've obtained your demand for this piece it's good practice to re-state your condition as a function of the parameters (a, b, w, and &lt;span class=&quot;math-container&quot;&gt;$\textbf{p}$&lt;/span&gt;) Then go back to your original utility function, impose an alternative condition and repeat to get a different piece of the demand. The demand function will be piecewise (and in this case it seems like it'll consist of quite a few different pieces). Good luck!&lt;/p&gt;&#xA;" OwnerUserId="15597" LastActivityDate="2019-10-18T16:56:38.010" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="32314" PostTypeId="1" CreationDate="2019-10-18T17:09:13.830" Score="0" ViewCount="21" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/f9IXP.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/f9IXP.png&quot; alt=&quot;Numerical Solution Using Excel about optimal consumption of households&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;I'm not sure how to solve this problem. I'm given the discount factor, interest rate, probability of high income shock, and various income shock sizes that I need to use to compute optimal consumption. This is confusing because I'm not given &quot;c1&quot; in the example, so I have to guess an answer for it. What should I do? The math should be simple once I figure out c1. &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="24609" LastActivityDate="2019-10-18T17:09:13.830" Title="Numerical Solution Using Excel about optimal consumption of households" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;&lt;optimization&gt;&lt;consumption&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="32315" PostTypeId="2" ParentId="32308" CreationDate="2019-10-18T19:14:46.017" Score="1" Body="&lt;p&gt;You need to differentiate with respect to Y, as you said! You substitute the phillips curve as you did (because it is a constraint for the central bank's optimization problem), then differentiate w.r.t &lt;span class=&quot;math-container&quot;&gt;$\bar{Y}$&lt;/span&gt; (which I assume here stands for gap) and set this to 0 to obtain the optimality condition, which in turn will give you the monetary rule. Recall that once the optimal output-inflation combination is determined using the monetary rule, the central bank sets the interest rate to implement its choice.&lt;/p&gt;&#xA;" OwnerUserId="21757" LastActivityDate="2019-10-18T19:14:46.017" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="32316" PostTypeId="1" CreationDate="2019-10-18T19:37:53.620" Score="0" ViewCount="17" Body="&lt;p&gt;I've noticed that a lot of data online seems to measure a non-US country in USD. This seems odd to me, because doesn't that mean that US fiscal/monetary policies, politics, and economics would affect the GDP numbers for this other country?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From what I understand, the reason for measuring in USD is because it factors in the country's fiscal policy. If the country's government runs a deficit and borrows money, then that is somehow factored in when the GDP is converted to USD. But doesn't that also factor in things unrelated to the given country?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would have thought that measuring Real GDP would be a better metric for factoring in things like deficits and borrowing. If the government borrows, I that increases inflation, and therefore, measuring Real GDP would factor that in. Is that not the case?&lt;/p&gt;&#xA;" OwnerUserId="24611" LastActivityDate="2019-10-18T19:37:53.620" Title="Measuring economic growth in GDP (in USD) vs Real GDP (domestic currency)" Tags="&lt;macroeconomics&gt;&lt;gdp&gt;&lt;currency&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="32317" PostTypeId="2" ParentId="32309" CreationDate="2019-10-18T19:51:21.850" Score="0" Body="&lt;p&gt;This is an edit&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By definition,for a convex subset &lt;span class=&quot;math-container&quot;&gt;$C\subseteq \mathbb{R}^n$&lt;/span&gt; a convex function &lt;span class=&quot;math-container&quot;&gt;$f:C \to \mathbb{R}$&lt;/span&gt; satisfy &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ f((1-t)x+ty)\leq (1-t)f(x)+tf(y)$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;for every &lt;span class=&quot;math-container&quot;&gt;$x,y\in C$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$t \in (0,1)$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We can see if we let &lt;span class=&quot;math-container&quot;&gt;$x=(1,3)$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$y=(3,1)$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$t=\frac{1}{2}$&lt;/span&gt; that&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ u((1-t)x+ty)=u(2,2)=6 \not \leq 5=\frac{u(1,3)}{2}+\frac{u(3,1)}{2}=(1-t)u(x)+tu(y)$$&lt;/span&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;meaning your function is not convex. As you mentioned in the comments, the fact that the &lt;span class=&quot;math-container&quot;&gt;$\min$&lt;/span&gt; function is not differentiable around &lt;span class=&quot;math-container&quot;&gt;$x_1=x_2$&lt;/span&gt; gave you a false answer, since the function is piecewise linear.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The rest of my original answer is irrelevant to the question now, but is still usefull to know. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;More generally it helps to know the subspace of convex functions over &lt;span class=&quot;math-container&quot;&gt;$\mathbb{R}^n$&lt;/span&gt; is a cone in the vectorspace of functions over &lt;span class=&quot;math-container&quot;&gt;$\mathbb{R}^n$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Specifically, let &lt;span class=&quot;math-container&quot;&gt;$C$&lt;/span&gt; be the set of convex functions over &lt;span class=&quot;math-container&quot;&gt;$\mathbb{R}^n$&lt;/span&gt;, i.e. &lt;span class=&quot;math-container&quot;&gt;$\mathbb{R}^n \to \mathbb{R}$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If &lt;span class=&quot;math-container&quot;&gt;$f,g\in C$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$a,b\in \mathbb{R}^+$&lt;/span&gt; then &lt;span class=&quot;math-container&quot;&gt;$a\cdot f+b\cdot g \in C$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This means that you can start to see if &quot;complicated&quot; functions are convex, if they are a conic combination of known convex functions. &lt;/p&gt;&#xA;" OwnerUserId="16308" LastEditorUserId="16308" LastEditDate="2019-10-19T09:06:41.800" LastActivityDate="2019-10-19T09:06:41.800" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="32318" PostTypeId="2" ParentId="32312" CreationDate="2019-10-18T22:10:40.780" Score="3" Body="&lt;p&gt;Unlike many Nobel prizewinners, this year's award was not really given for a central theoretical development. All three of the winners have made important theoretical contributions relevant to development economics and that inspired their future work (for example Banerjee on networks or Kremer on technological change and productivity). However, their major contribution, and what they received the award for, is their major methodological contributions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In particular, the winners are responsible for designing and enacting a number of large-scale field experiments in development economics. These experiments use theory and domain knowledge to break poverty down into a series of more manageable problems, and then attempt to actually alleviate one of those problems with a policy intervention. These interventions are administered in randomized ways that allow us to see whether they actually work (like incentives to reduce teacher absenteeism, they found) or not (microfinance, they found).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Through these field experiments they have improved the lives of millions of people in at least some small way, and their work has led to huge changes in the way that development economics operates as a whole (for better or worse, I think better). The field today is much more focused on experimental and other causal work than it used to be, using data and empiricism to answer questions about development economics rather than using theory. In many cases this work focuses on finding actually-effective ways to improve policy and conditions in developing countries.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can see a more thorough description here: &lt;a href=&quot;https://marginalrevolution.com/marginalrevolution/2019/10/the-nobel-prize-in-economic-science-goes-to-banerjee-duflo-and-kremer.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://marginalrevolution.com/marginalrevolution/2019/10/the-nobel-prize-in-economic-science-goes-to-banerjee-duflo-and-kremer.html&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="12848" LastActivityDate="2019-10-18T22:10:40.780" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32319" PostTypeId="1" CreationDate="2019-10-19T02:24:22.633" Score="0" ViewCount="683" Body="&lt;p&gt;Given a function &lt;span class=&quot;math-container&quot;&gt;$u(x_1, x_2) = x_1 +x_2 + \min(2x_1, x_2)$&lt;/span&gt;, how do we mathematically prove that it monotonic or not? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there is a general algebraic technique to show monotonicity of suchlike functions?&lt;/p&gt;&#xA;" OwnerUserId="24600" LastEditorUserId="24600" LastEditDate="2019-10-21T16:37:15.923" LastActivityDate="2020-07-18T12:00:50.130" Title="Check if a utility function represents a monotone preference" Tags="&lt;microeconomics&gt;&lt;expected-utility&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="32320" PostTypeId="1" CreationDate="2019-10-19T04:04:06.493" Score="0" ViewCount="53" Body="&lt;p&gt;everyone!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am estimating a gravity model in order to analyze the impacts of tighter environmental regulations on international trade. More specifically, I am analyzing Brazil's trade flow.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My (linearized) model is as follows:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$ \ln(EXP) = \ln(GDP_O) +  \ln(GDP_D) +  \ln(POP_O) + \ln(POP_D) + \dots $&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words, the exports from Brazil (origin) to a country D (destination) depend on both countries GDPs,Populations, Total Area and  another couple of variables.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My problem is: because Brazil is the origin for the exports to all other countries, GDP_O, POP_O and any other variables representing Brazilian data will be equal for all observations and as such there will be perfect multicollinearity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How do I circumvent this? Every gravity model uses both the exporter and importer variables in order to explain the bilateral trade flow.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT: See for instance the estimation carried out here:  &lt;a href=&quot;https://drive.google.com/file/d/1DczfoFI_mkI8Tm4H0WcaVZTz9ZXLGb2K/view?usp=drivesdk&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://drive.google.com/file/d/1DczfoFI_mkI8Tm4H0WcaVZTz9ZXLGb2K/view?usp=drivesdk&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT2: Specifically, here:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;[Regression table] (&lt;a href=&quot;https://i.stack.imgur.com/TQDA3.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://i.stack.imgur.com/TQDA3.png&lt;/a&gt;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I appreciate any help!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Kind regards,&#xA;Pedro!&lt;/p&gt;&#xA;" OwnerUserId="8521" LastEditorUserId="8521" LastEditDate="2019-10-19T10:54:39.070" LastActivityDate="2019-11-18T16:08:09.610" Title="Perfect multicollinearity when estimating a gravity model" Tags="&lt;econometrics&gt;&lt;international-trade&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32321" PostTypeId="2" ParentId="32320" CreationDate="2019-10-19T04:25:54.657" Score="0" Body="&lt;p&gt;They will simply be sucked up into one variable. To &quot;fix&quot; this, you could simply drop all of Brazil's characteristics and leave a constant in: &lt;span class=&quot;math-container&quot;&gt;$\ln(EXP_D) = c + \beta_1 \ln(GDP_D) + \beta_2 \ln(POP_D) + \ldots$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Edit&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Just understood the question from the comments below.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you have only a cross-sectional data, you cannot distinguish the effects of GDP, population, etc. of the origin country (Brazil) on its exports.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One way you could do this is to run a panel regression... then you'll have variation in GDP, population, exports, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In order to do this, you need to assume that the relationship remains the same throughout your sample period. If, for example, you have a change in government, then you might need to control for that, etc.&lt;/p&gt;&#xA;" OwnerUserId="5145" LastEditorUserId="5145" LastEditDate="2019-10-19T10:25:35.213" LastActivityDate="2019-10-19T10:25:35.213" CommentCount="8" ContentLicense="CC BY-SA 4.0" />
  <row Id="32323" PostTypeId="1" CreationDate="2019-10-19T13:56:14.467" Score="0" ViewCount="269" Body="&lt;p&gt;Say that we are regressing consumption &lt;span class=&quot;math-container&quot;&gt;$C_t$&lt;/span&gt; on time &lt;span class=&quot;math-container&quot;&gt;$Y_t$&lt;/span&gt;. Furthermore, suppose that both series are &lt;span class=&quot;math-container&quot;&gt;$I(1)$&lt;/span&gt; and are co-integrated.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given this, we set up the error correction model (ECM) as follows: &lt;span class=&quot;math-container&quot;&gt;$$\Delta C_t = \beta_0 + \beta_1 \Delta Y_t + \theta(C_{t-1} - \gamma_0 - \gamma_1 Y_t) + u_t$$&lt;/span&gt; which is estimated using the 2-step Engle-Granger approach.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is: What is the economic interpretation of &lt;span class=&quot;math-container&quot;&gt;$\gamma_1$&lt;/span&gt;? Surely we cannot interpret this as the marginal propensity to consume (MPC)? I interpret it as describing the long-run equilibrium of the system.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, I'm struggling to explain why this is the case, since mathematically: &lt;span class=&quot;math-container&quot;&gt;$$\gamma_1 = \frac{\partial C_t}{\partial Y_t}$$&lt;/span&gt; which is exactly the definition of the MPC.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;On &lt;a href=&quot;https://en.wikipedia.org/wiki/Error_correction_model#An_example_of_ECM&quot; rel=&quot;nofollow noreferrer&quot;&gt;the Wikipedia page on ECMs&lt;/a&gt;, they describe &lt;span class=&quot;math-container&quot;&gt;$\gamma_1$&lt;/span&gt; as the average propensity to consume (APC), which makes a lot more sense to, but which doesn't sit well with me since mathematically: &lt;span class=&quot;math-container&quot;&gt;$$\text{APC} = \frac{C}{Y}$$&lt;/span&gt; and clearly that is not the definition of &lt;span class=&quot;math-container&quot;&gt;$\gamma_1$&lt;/span&gt; since: &lt;span class=&quot;math-container&quot;&gt;$$\frac{C}{Y} = \frac{\gamma_0}{Y} + \gamma1$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Could someone help me sort out my confusion?&lt;/p&gt;&#xA;" OwnerUserId="14521" LastEditorUserId="14521" LastEditDate="2019-10-21T00:01:19.150" LastActivityDate="2019-10-21T00:01:19.150" Title="Interpretation of coefficients in ECM for consumption" Tags="&lt;econometrics&gt;&lt;applied-econometrics&gt;&lt;consumption&gt;" AnswerCount="0" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="32326" PostTypeId="1" AcceptedAnswerId="32334" CreationDate="2019-10-19T15:30:25.743" Score="2" ViewCount="83" Body="&lt;p&gt;In the context of Walrasian demand:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose u is continuous, satisfies local nonsatiation, and is strictly quasi-concave, each &lt;span class=&quot;math-container&quot;&gt;$w(p, x)$&lt;/span&gt; contains a single consumption bundle.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The proof I got from a textbook is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let &lt;span class=&quot;math-container&quot;&gt;$x $&lt;/span&gt;~&lt;span class=&quot;math-container&quot;&gt;$ y$&lt;/span&gt; with &lt;span class=&quot;math-container&quot;&gt;$p^T x=p^T y =w$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$z=\alpha x + (1- \alpha) y$&lt;/span&gt; with &lt;span class=&quot;math-container&quot;&gt;$0 &amp;lt; \alpha &amp;lt; 1$&lt;/span&gt;.&#xA;&lt;span class=&quot;math-container&quot;&gt;$p^T z =w$&lt;/span&gt; because of the convexity of budget set.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note: I understand why this makes sense graphically.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Case 1:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If &lt;span class=&quot;math-container&quot;&gt;$x \neq y$&lt;/span&gt;, strict quasi-concavity implies &lt;span class=&quot;math-container&quot;&gt;$u(z) &amp;gt; u(x) = u(y)$&lt;/span&gt;, thus &lt;span class=&quot;math-container&quot;&gt;$z$&lt;/span&gt; is preferred to &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt;, hence &lt;span class=&quot;math-container&quot;&gt;$x, y$&lt;/span&gt; are not elements of Walrasian demand.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Case 2:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Otherwise &lt;span class=&quot;math-container&quot;&gt;$x = y = z$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For case 1, how can one be sure that the &lt;span class=&quot;math-container&quot;&gt;$z$&lt;/span&gt; is unique?&lt;/p&gt;&#xA;" OwnerUserId="14778" LastEditorUserId="14778" LastEditDate="2019-10-19T18:44:40.427" LastActivityDate="2019-10-19T23:32:53.997" Title="Why does strictly Walrasian demand with quasi-concave utility function mean that the walrasian demand having only one single consumption bundle?" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;consumption&gt;&lt;walrasian&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32329" PostTypeId="2" ParentId="32273" CreationDate="2019-10-19T17:33:49.960" Score="3" Body="&lt;p&gt;If you have quadratic preferences then your utility function is:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$ U(W) =  W - \lambda W^2$$&lt;/span&gt;&#xA;this implies your expected utility function looks like:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$ E[U(W)] =  E[W - \lambda W^2] =  E[W] - \lambda E[W^2]$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$ =  E[W] - \lambda E[W^2 - E[W]^2 + E[W]^2]$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$ =  E[W] - \lambda E[W^2 - E[W]^2] + \lambda E[E[W]^2]]$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$ =  \mu_w - \lambda \sigma_w^2 + \lambda \mu_w^2$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Therefore, we have established that expected utility depends only only the mean &lt;span class=&quot;math-container&quot;&gt;$(\mu_W)$&lt;/span&gt; and variance &lt;span class=&quot;math-container&quot;&gt;$(\sigma^2_W)$&lt;/span&gt; of wealth and the risk parameter &lt;span class=&quot;math-container&quot;&gt;$(\lambda)$&lt;/span&gt;. &lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2019-10-20T22:50:19.417" LastActivityDate="2019-10-20T22:50:19.417" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32331" PostTypeId="1" AcceptedAnswerId="32341" CreationDate="2019-10-19T19:50:15.520" Score="0" ViewCount="523" Body="&lt;p&gt;How do you interpret this central bank’s loss function:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$L(\hat x, \pi)=\alpha \hat{x}^2+(\pi-\pi^T)^2$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where &lt;span class=&quot;math-container&quot;&gt;$\alpha &amp;gt;0$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\hat x$&lt;/span&gt; is output gap. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Phillips curve is &lt;span class=&quot;math-container&quot;&gt;$\pi = \theta \hat{x}+\pi^T $&lt;/span&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Sorry I am not economist, I am studying math, and I need its interpretation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I guess I need to interpret the value of &lt;span class=&quot;math-container&quot;&gt;$a$&lt;/span&gt;, and I need to look at the geometry of the loss function in the Phillips curve diagram. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What is its interpretation in economic view?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you so much!&lt;/p&gt;&#xA;" OwnerUserId="6134" LastEditorUserId="6134" LastEditDate="2019-10-19T20:52:35.020" LastActivityDate="2019-10-20T08:21:02.627" Title="Question on Central bank loss function interpretation" Tags="&lt;macroeconomics&gt;&lt;inflation&gt;&lt;economic-growth&gt;&lt;self-study&gt;&lt;central-banking&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32332" PostTypeId="1" CreationDate="2019-10-19T21:22:26.007" Score="1" ViewCount="30" Body="&lt;p&gt;Suppose some ancient king of small bronze age city-state wants to introduce universal currency instead of barter that is currently in overwhelming practice in his kingdom. In order to smooth the shift, he wants to impose such intial prices that will correspond to current barter rates, for example, if ten pounds of fish are usually exchanged for one one pound of olive oil, that one pound of olive oil shall cost 10 times more than one pound of fish, etc. So king order his scribes to conduct a survey in order to determine traditional barter rates of all crucial products in the kingdom. In result, the following table was created:&lt;br&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$\begin{bmatrix}&#xA;k_{11} &amp;amp; k_{12} &amp;amp; ... &amp;amp; k_{1n} \\&#xA;k_{21} &amp;amp; k_{22} &amp;amp; ... &amp;amp; k_{2n} \\&#xA;... &amp;amp; ... &amp;amp; ... &amp;amp; ... \\&#xA;k_{n1} &amp;amp; k_{n1} &amp;amp; ... &amp;amp; k_{nn}&#xA;\end{bmatrix}$&lt;/span&gt;&lt;br&gt;&#xA;In this table &lt;span class=&quot;math-container&quot;&gt;$k_{ij}$&lt;/span&gt; is number that express barter how many units of product &lt;strong&gt;j&lt;/strong&gt; are usually given for one unit of product &lt;strong&gt;i&lt;/strong&gt;. Of course, &lt;span class=&quot;math-container&quot;&gt;$k_{ji} = \frac{1}{k_{ij}}$&lt;/span&gt; and for all &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$k_{ii}=1$&lt;/span&gt;. The idea was to find the cheapest commodity, establish its price as 1 and assign all prices accordingly from exchange of this commodity. However, it was discovered, that some of barter relationships are not in equilibrium. In other words, you can exchange commodity A to commodity B to commodity C and finally back to commodity A end up with significantly more or less than you started. King wants to achieve equilibrium for initial prices with minimized disruption to existing economic relationships in the market, thus the set of prices &lt;span class=&quot;math-container&quot;&gt;$P = \{p_1,p_2,...,p_n\}$&lt;/span&gt; should satisfy the following properties:&lt;br&gt;&#xA;1)&lt;span class=&quot;math-container&quot;&gt;$\sum_{i=0}^{n}\sum_{j=0}^{n}(k_{ij}\frac{p_j}{p_i})=n^2$&lt;/span&gt;&lt;br&gt;&#xA;2)&lt;span class=&quot;math-container&quot;&gt;$\sum_{ij}(k_{ij}\frac{p_j}{p_i}-1)^2$&lt;/span&gt; has minimum possible value of all that satisfy the first condition.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;The first condition&lt;/strong&gt; basically says that &lt;strong&gt;arithmetic mean&lt;/strong&gt; &lt;span class=&quot;math-container&quot;&gt;$k_{ij}\frac{p_j}{p_i}$&lt;/span&gt; is 1.&lt;br&gt;&#xA;&lt;strong&gt;The second condition&lt;/strong&gt; minimizes &lt;strong&gt;mean variance&lt;/strong&gt; of individual  &lt;span class=&quot;math-container&quot;&gt;$k_{ij}\frac{p_j}{p_i}$&lt;/span&gt; from this desired value.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there any mathematical approach used in economics that can express prices for given set of rates explicitly (up to common scaling factor, of course)? King's story is just for flavor, don't overanalyze it.&lt;/p&gt;&#xA;" OwnerUserId="24617" LastEditorUserId="24617" LastEditDate="2019-10-20T19:34:10.307" LastActivityDate="2019-10-20T19:34:10.307" Title="The centralized shift from barter to currency economy" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;optimization&gt;&lt;central-banking&gt;&lt;pricing&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="32333" PostTypeId="1" CreationDate="2019-10-19T21:41:42.263" Score="0" ViewCount="78" Body="&lt;p&gt;If the utility function &lt;span class=&quot;math-container&quot;&gt;$u$&lt;/span&gt; is continuous and satisfies local nonsatiation, and walrasian demand function &lt;span class=&quot;math-container&quot;&gt;$x(p, w)$&lt;/span&gt; is a function (i.e. always map to only single values), how to prove that &lt;span class=&quot;math-container&quot;&gt;$x(p,w)$&lt;/span&gt; is continuous in &lt;span class=&quot;math-container&quot;&gt;$p$&lt;/span&gt; (price vector) and &lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt; (wealth)?&lt;/p&gt;&#xA;" OwnerUserId="14778" LastEditorUserId="14778" LastEditDate="2019-10-20T05:41:47.573" LastActivityDate="2019-10-20T15:49:01.667" Title="How to prove that the walrasian demand function $x(p,w)$ is continuous in $p$ and $w$?" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;consumption&gt;&lt;walrasian&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="32334" PostTypeId="2" ParentId="32326" CreationDate="2019-10-19T23:32:53.997" Score="1" Body="&lt;p&gt;For case 1, you can argue &lt;span class=&quot;math-container&quot;&gt;$z$&lt;/span&gt; will be unique by contradiction:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose &lt;em&gt;ad absurdum&lt;/em&gt; there is another &lt;span class=&quot;math-container&quot;&gt;$z'$&lt;/span&gt; that is feasible (i.e. &lt;span class=&quot;math-container&quot;&gt;$p^Tz' =w$&lt;/span&gt;) optimal and &lt;span class=&quot;math-container&quot;&gt;$z'\neq z$&lt;/span&gt;. Then you can consider a convex combination of &lt;span class=&quot;math-container&quot;&gt;$z$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$z'$&lt;/span&gt;: &lt;span class=&quot;math-container&quot;&gt;$\bar z = \beta z + (1-\beta) z'$&lt;/span&gt;, for &lt;span class=&quot;math-container&quot;&gt;$\beta\in(0,1)$&lt;/span&gt;. Notice that &lt;span class=&quot;math-container&quot;&gt;$\bar z$&lt;/span&gt; is still feasible (because it is a combination of two feasible bundles) and, &lt;em&gt;because of strict quasi-concavity&lt;/em&gt;, &lt;span class=&quot;math-container&quot;&gt;$u(\bar z) &amp;gt; u(z')$&lt;/span&gt; so that &lt;span class=&quot;math-container&quot;&gt;$z'$&lt;/span&gt; cannot be optimal, a contradiction.&lt;/p&gt;&#xA;" OwnerUserId="14692" LastActivityDate="2019-10-19T23:32:53.997" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="32338" PostTypeId="2" ParentId="32331" CreationDate="2019-10-20T04:19:10.943" Score="0" Body="&lt;p&gt;In this case, you can interpret this as the central banks' having two mandates: output gap and inflation target.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here, the best possible scenario that would minimize the CB's loss function is having zero output gap (&lt;span class=&quot;math-container&quot;&gt;$\hat x^2 = 0$&lt;/span&gt;) and inflation is at the target (&lt;span class=&quot;math-container&quot;&gt;$\pi = \pi^T$&lt;/span&gt;). The CB simply wants to get as close to this as it could, with the &quot;importance&quot; of the output gap component given by &lt;span class=&quot;math-container&quot;&gt;$\alpha$&lt;/span&gt;. (What would &lt;span class=&quot;math-container&quot;&gt;$\alpha &amp;lt; 1$&lt;/span&gt; mean, for example?)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I'm not sure how to help with the geometry part, but note that you can plug &lt;span class=&quot;math-container&quot;&gt;$\pi(\hat x)$&lt;/span&gt; from the Phillips curve into the loss function.&lt;/p&gt;&#xA;" OwnerUserId="5145" LastActivityDate="2019-10-20T04:19:10.943" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32339" PostTypeId="1" CreationDate="2019-10-20T06:45:08.420" Score="2" ViewCount="27" Body="&lt;p&gt;I'm reading &quot;A History of Money and Banking in the United States&quot; by Murray Rothbard, and I'm having trouble understanding this one piece of history. Basically, the Massachusetts government issues irredeemable paper money in 1690 to help pay some debts to soldiers. In the next 40 years it further expanded its paper issue, causing rapid depreciation with respect to specie. To counteract this, the government passed legislation to make the paper legal tender at par with specie, and even granted a premium of 5 percent on all payments of debts from the notes. By Gresham's law, this led to loss of specie in circulation, and &quot;In addition, the expanding paper issues drove up prices and hampered exports from the colony&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have a couple questions to clarify.&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;what exactly is the meaning of &quot;granting a premium of 5 percent on all payment of debts&quot;? My intuition tells me that this is simply that if you choose to pay your debt in paper, as opposed to specie, you will have to pay 5% less.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;How would expanding paper issues, which drive up domestic prices, lead to hampering exports in this context? The way I'm thinking of it, increased money supply would increase prices via inflation, but would also devalue the currency with respect to specie and foreign currencies. So if 1 unit of specie/ foreign currency is worth more of the paper notes, wouldn't it INCREASE exports, as things would be cheaper?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="24619" LastActivityDate="2019-10-20T06:45:08.420" Title="Why would expanding fiat paper issue lead to decreased exports?" Tags="&lt;macroeconomics&gt;&lt;inflation&gt;&lt;balance-of-trade&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="32340" PostTypeId="1" AcceptedAnswerId="32343" CreationDate="2019-10-20T08:13:50.807" Score="0" ViewCount="216" Body="&lt;p&gt;According to textbook and &lt;a href=&quot;https://en.wikipedia.org/wiki/Income_elasticity_of_demand&quot; rel=&quot;nofollow noreferrer&quot;&gt;wikipedia&lt;/a&gt;, &quot;if income elasticity of demand of a commodity is less than 1, it is a necessity good. If the elasticity of demand is greater than 1, it is a luxury good or a superior good.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why was 1 chosen as the threshold? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think that luxury good is consumed in larger proportion by relatively rich people. How does &#xA;income elasticity of demand is greater than 1 reflect this?&lt;/p&gt;&#xA;" OwnerUserId="14778" LastActivityDate="2019-10-20T10:47:22.270" Title="Why income elasticity of demand of luxury good in greater than 1?" Tags="&lt;microeconomics&gt;&lt;elasticity&gt;&lt;basic-income&gt;&lt;demand&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32341" PostTypeId="2" ParentId="32331" CreationDate="2019-10-20T08:21:02.627" Score="1" Body="&lt;p&gt;The loss function reflects the central bank’s policy objective (i.e. their preferences for stabilizing inflation and some real variable around target levels, in this case output), and it says that the central bank is concerned about inflation fluctuating from their target level (&lt;span class=&quot;math-container&quot;&gt;$\pi^{T}$&lt;/span&gt;) and their perception of the equilibrium output (here reflected in the output gap). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, because the objective of the central bank includes two factors (output and inflation), we can know from the loss function how concerned the central bank is about stabilizing the output gap from the size of coefficient &lt;span class=&quot;math-container&quot;&gt;$\alpha$&lt;/span&gt;. Indeed, at varying levels of &lt;span class=&quot;math-container&quot;&gt;$\alpha$&lt;/span&gt; it is easy to see that the reaction of the central bank to the same output gap will differ. Since &lt;span class=&quot;math-container&quot;&gt;$\alpha$&lt;/span&gt; &gt; 0 we know that they are concerned about the welfare loss associated with the output gap (if = 0 they would simply not be concerned about this, and if &amp;lt; 0 this would reflect that bigger output gaps are best since the function is to be minimized). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can imagine that when looking at the geometry of the loss function in the Phillips curve diagram this may become clearer to you as someone from maths. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;And just to note that once you derive the policy rule - the slope of the MR curve - (as in your &lt;a href=&quot;https://economics.stackexchange.com/questions/32308/central-bank-loss-function-i-did-a-solution-but-it-doesn-t-totally-make-sense/32315?noredirect=1#comment48815_32315&quot;&gt;other&lt;/a&gt; question), you will see that this policy rule not only depends on the central bank’s preferences &lt;span class=&quot;math-container&quot;&gt;$\alpha$&lt;/span&gt; but also on the behavior of the private sector, the price flexibility as given by the parameter &lt;span class=&quot;math-container&quot;&gt;$\theta$&lt;/span&gt;.   &lt;/p&gt;&#xA;" OwnerUserId="21757" LastActivityDate="2019-10-20T08:21:02.627" CommentCount="11" ContentLicense="CC BY-SA 4.0" />
  <row Id="32343" PostTypeId="2" ParentId="32340" CreationDate="2019-10-20T10:37:34.833" Score="3" Body="&lt;p&gt;As for your &lt;strong&gt;first question&lt;/strong&gt;: income elasticity of demand is just a percentage change in quantity demanded divided by a percentage change in demand. If you divide two things that are equal you get one: &lt;span class=&quot;math-container&quot;&gt;$\frac{a}{b}=1 \iff a=b$&lt;/span&gt; (as long as &lt;span class=&quot;math-container&quot;&gt;$b \neq 0$&lt;/span&gt;). Same thing goes for income elasticity of demand, &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt; is not just some random value that was chosen to separate between goods. When &lt;span class=&quot;math-container&quot;&gt;$\%\Delta$&lt;/span&gt; in quantity demanded is greater than &lt;span class=&quot;math-container&quot;&gt;$\%\Delta$&lt;/span&gt; in income, then &lt;span class=&quot;math-container&quot;&gt;$\mathrm{YED}&amp;gt;1$&lt;/span&gt; just as in terms of letters &lt;span class=&quot;math-container&quot;&gt;$a$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$b$&lt;/span&gt;: &lt;span class=&quot;math-container&quot;&gt;$\frac{a}{b}&amp;gt;1 \iff a&amp;gt;b$&lt;/span&gt; (as long as &lt;span class=&quot;math-container&quot;&gt;$b &amp;gt; 0$&lt;/span&gt;). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for the &lt;strong&gt;second question&lt;/strong&gt;: income elasticity of demand that is greater than one can be translated to &quot;as the income grows, proportionally more is spent on luxuries&quot;. Which is exactly what you have in mind. &lt;/p&gt;&#xA;" OwnerUserId="23083" LastEditorUserId="23083" LastEditDate="2019-10-20T10:47:22.270" LastActivityDate="2019-10-20T10:47:22.270" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32344" PostTypeId="1" CreationDate="2019-10-20T11:15:41.627" Score="0" ViewCount="48" Body="&lt;p&gt;Why does Germany have such a small stock market, but very large powerful banks?&lt;/p&gt;&#xA;" OwnerUserId="24620" LastEditorUserId="6168" LastEditDate="2020-05-03T09:46:39.257" LastActivityDate="2020-05-03T09:46:39.257" Title="Banks and Stock Market in Germany" Tags="&lt;banking&gt;&lt;stock-market&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32346" PostTypeId="2" ParentId="32344" CreationDate="2019-10-20T16:07:05.480" Score="1" Body="&lt;p&gt;I don't know if your statements are true. By what margin is the German stock market small? And the only bank that did matter on the international level (Deutsche Bank) is far from being large and powerful.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That being said, your notion might have to do with the fact how the German economy has been organized since WWII. The &lt;a href=&quot;https://en.wikipedia.org/wiki/Social_market_economy&quot; rel=&quot;nofollow noreferrer&quot;&gt;Rhine capitalism&lt;/a&gt; used to be, among others, characterized by strong institutional links between banks and industry. Whereas firms would finance on the stock market in the U.S., they received credits from banks in Germany who, in turn, often held stocks of these firms. This construct was called &quot;Deutschland AG&quot;, but has been deteriorating since the early 2000s at the latest.&lt;/p&gt;&#xA;" OwnerUserId="17735" LastActivityDate="2019-10-20T16:07:05.480" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32347" PostTypeId="2" ParentId="30423" CreationDate="2019-10-20T17:18:30.253" Score="3" Body="&lt;p&gt;Yes,  &lt;span class=&quot;math-container&quot;&gt;$Q$&lt;/span&gt; is convex and closed precisely because &lt;span class=&quot;math-container&quot;&gt;$P$&lt;/span&gt; is and Q is its image under a continuous function. Therefore, &lt;span class=&quot;math-container&quot;&gt;$Q$&lt;/span&gt; is compact.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The function you are maximizing is continuous as well, so the maximum must exist. &lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-10-20T17:18:30.253" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32348" PostTypeId="1" CreationDate="2019-10-20T17:28:43.093" Score="0" ViewCount="89" Body="&lt;p&gt;According to a textbook, in the context of uncertainty (e.g. in lottery), &lt;strong&gt;if the preference is complete&lt;/strong&gt;, a monotone increasing but nonlinear transformation of a utility function would not represent the same preferences. Why is it so? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;An example of such preference would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="14778" LastEditorUserId="14778" LastEditDate="2019-10-21T20:09:18.207" LastActivityDate="2019-10-21T20:09:18.207" Title="Why is a monotone increasing but nonlinear transformation of a utility function not represent the same preferences if the preference is complete?" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;preferences&gt;" AnswerCount="1" CommentCount="8" ContentLicense="CC BY-SA 4.0" />
  <row Id="32349" PostTypeId="1" CreationDate="2019-10-20T17:48:04.827" Score="1" ViewCount="110" Body="&lt;p&gt;There are &lt;span class=&quot;math-container&quot;&gt;$N&amp;gt;0$&lt;/span&gt; Households in an economy. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The government has aim to maximize a weighted average of income by imposing tax on the rich people and redistribute the tax revenue to the labor ones. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this case, the objective function is given:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$${b \times cN \times (1-T)R(a-dT)+(1-b)\times (1-c)N\times (w+t)}\over N $$&lt;/span&gt;&#xA;(equation 1)&#xA;where&#xA;&lt;span class=&quot;math-container&quot;&gt;$c$&lt;/span&gt;=the portion of the households who are wealthy ones and &lt;span class=&quot;math-container&quot;&gt;$0&amp;lt;c&amp;lt;1$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$a&amp;gt;0$&lt;/span&gt; = each one have a wealth stock &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$R$&lt;/span&gt;= each one earns a gross return. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$(1-c)N$&lt;/span&gt; is the remaining measure of households and they earn each &lt;span class=&quot;math-container&quot;&gt;$w&amp;gt;0$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$0&amp;lt;T&amp;lt;1$&lt;/span&gt; is tax rate. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$t$&lt;/span&gt;= the transfer for each labor. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the ruler apply a tax, the wealthy ones do not save as determined by &lt;span class=&quot;math-container&quot;&gt;$d&amp;gt;0$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The government is constrained by its balanced budget which holds &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$T\times cN \times R(a-dT)=t\times (1-c)N$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(equation 2)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I need to find optimal tax rate &lt;span class=&quot;math-container&quot;&gt;$T^*$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;———&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I cannot know how to solve it. What is objective function and what is constraint function. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My guess is that I should maximize the equation 1 subject to equation 2. Since the question 2 consists of equality, I should integrate equation 2 into the equation 1. And then I take derivative with respect T. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this right? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Please let me know your ideas. Thanks a lot. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;————&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;EDIT&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\max_{T} {b \times cN \times (1-T)R(a-dT)+(1-b)\times (1-c)N\times (w+t)}\over N $$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Subject to &lt;span class=&quot;math-container&quot;&gt;$$T\times cN \times R(a-dT)=t\times (1-c)N$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, I insert the constraint into the objective function&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$${bcN(1-T)R(a-dT)+(1-b)(1-c)Nw+(1-b)(1-c)aNt}\over N$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$${bcN(1-T)R(a-dT)+(1-b)(1-c)Nw+(1-b)TcNR(a-dT)}\over N$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Secondly, I re-write this equation&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$${bcNR[a-(d+a)T+dT^2]+(1-b)(1-c)Nw+(1-b)cNR(aT-dT^2)}\over N$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thirdly, I take its derivative with respect to &lt;span class=&quot;math-container&quot;&gt;$T$&lt;/span&gt; and this derivative is equal to zero. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$${{bcNR[-(d+a)+2dT]+(1-b)cNR(a-2dT)}\over {N} }=0$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, I find the optimal &lt;span class=&quot;math-container&quot;&gt;$T^*$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$T^*= {{(2b-1)a+bd}\over{2d(2b-1)}}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since we know that &lt;span class=&quot;math-container&quot;&gt;$0&amp;lt;T^*&amp;lt;1$&lt;/span&gt;, &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$0&amp;lt; {{(2b-1)a+bd}\over{2d(2b-1)}}&amp;lt;1$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;From this inequality, I found the condition &lt;span class=&quot;math-container&quot;&gt;$1/2&amp;lt;b&amp;lt;{{a-2d}\over {2a-3d}}$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This question refers to the Laffer curve. &lt;/p&gt;&#xA;" OwnerUserId="6134" LastEditorUserId="6134" LastEditDate="2019-10-21T16:22:19.737" LastActivityDate="2019-10-21T16:22:19.737" Title="Revenue maximization problem" Tags="&lt;mathematical-economics&gt;&lt;self-study&gt;&lt;optimization&gt;&lt;profit-maximization&gt;&lt;optimal-taxation&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="32352" PostTypeId="1" AcceptedAnswerId="32354" CreationDate="2019-10-20T22:28:32.927" Score="1" ViewCount="435" Body="&lt;p&gt;I have a utility function: &lt;span class=&quot;math-container&quot;&gt;$U = x + \min\{x,y\}$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I want to draw the indifference curve and find the demand functions. Will it be the case of the usual perfect complements? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, what preferences could such a utility function represent?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Will the optimal solution be at the kink? &lt;/p&gt;&#xA;" OwnerUserId="24422" LastEditorUserId="24422" LastEditDate="2019-10-21T02:02:28.090" LastActivityDate="2021-05-01T14:10:50.937" Title="Finding demand functions for an unusual utility function" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;consumer-theory&gt;&lt;demand&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32354" PostTypeId="2" ParentId="32352" CreationDate="2019-10-20T22:51:14.007" Score="6" Body="&lt;p&gt;I assume you know how does &lt;span class=&quot;math-container&quot;&gt;$\min\{x,y\}$&lt;/span&gt; look like? In order to draw utility function of interest, you need to consider cases: &lt;span class=&quot;math-container&quot;&gt;$u(x,y)=x+\min\{x,y\}=\begin{cases}2x, \;\; \mathrm{for} \;\; x \leq y \\ x+y, \;\; \mathrm{for} \;\; x &amp;gt; y\end{cases}$&lt;/span&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;With &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; on horizontal and &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; on vertical axis:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/i2S4a.gif&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/i2S4a.gif&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Not sure about the &quot;usual&quot; perfect complements. It is more like a combination of substitutes (below &lt;span class=&quot;math-container&quot;&gt;$y=x$&lt;/span&gt;) and complements (above &lt;span class=&quot;math-container&quot;&gt;$y=x$&lt;/span&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, take a look here: &lt;a href=&quot;https://economics.stackexchange.com/questions/32140/identifying-utility-function/32165#32165&quot;&gt;Identifying utility function&lt;/a&gt; and &lt;a href=&quot;https://economics.stackexchange.com/questions/32309/algebraic-approach-towards-convexity/32311#32311&quot;&gt;Algebraic approach towards convexity&lt;/a&gt; where you can see more graphs. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;EDIT.&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for the demand function, &lt;a href=&quot;https://economics.stackexchange.com/questions/2969/finding-demand-function-given-a-utility-minx-y-function&quot;&gt;Finding demand function given a utility min(x,y) function&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="23083" LastEditorUserId="23083" LastEditDate="2019-10-20T23:59:33.597" LastActivityDate="2019-10-20T23:59:33.597" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="32355" PostTypeId="2" ParentId="32352" CreationDate="2019-10-21T01:59:15.777" Score="4" Body="&lt;p&gt;To provide some real world(ish) interpretation, you could consider the following:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Wallace enjoys eating cheese on its own. He doesn't much care for crackers on their own, but he especially loves eating crackers and cheese together, he makes nice little cracker n cheese sandwiches.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In this example, we can think of cheese (x) and crackers (y) as perfect complements, but cheese will be a perfect substitute for a cracker and cheese sandwich.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If a unit of cheese is cheaper than a unit of crackers he'll skip the sandwiches and spend his whole budget on cheese, but if crackers are cheaper he'll buy cheese and crackers in equal proportions.&lt;/p&gt;&#xA;" OwnerUserId="15597" LastActivityDate="2019-10-21T01:59:15.777" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32356" PostTypeId="1" AcceptedAnswerId="32358" CreationDate="2019-10-21T02:56:51.130" Score="0" ViewCount="36" Body="&lt;p&gt;In the description of an iterated prisoner's dilemma on Wikipedia, it states that in order for a game to be considered iterable, it must conform to the rule 2R &gt; T + S, where R is the reward for cooperation, T is the temptation payoff, and S is the sucker's payoff. Could someone provide an example of a dilemma in which this would not be the case, i.e. it would be non-iterable?   &lt;/p&gt;&#xA;" OwnerUserId="24626" LastActivityDate="2019-10-21T07:24:05.063" Title="Clarification of iterated prisoners dilemma" Tags="&lt;game-theory&gt;&lt;repeated-games&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32358" PostTypeId="2" ParentId="32356" CreationDate="2019-10-21T07:14:35.260" Score="3" Body="&lt;p&gt;The payoff depends entirely on how you set the game up. Here's one example of the case where &lt;span class=&quot;math-container&quot;&gt;$2R \leq T + S$&lt;/span&gt;:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;                                  Player B&#xA;                           Cooperate  |    Defect&#xA;Player     Cooperate        (1, 1)    |  (-2, 100)&#xA;A          Defect          (100, -2)  |  (-1, -1)&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Here, &lt;span class=&quot;math-container&quot;&gt;$R = 1$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$T = 100$&lt;/span&gt;, and &lt;span class=&quot;math-container&quot;&gt;$S = -1$&lt;/span&gt;, and &lt;span class=&quot;math-container&quot;&gt;$2R &amp;lt; T + S$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit: To add a bit more value to the answer... any game could be played repeatedly (and thus is &quot;iterable&quot; in that sense.) However, my understanding is that the Wikipedia page writer means that for (Cooperate, Cooperate) to be sustained, you at least need this condition to be true.&lt;/p&gt;&#xA;" OwnerUserId="5145" LastEditorUserId="5145" LastEditDate="2019-10-21T07:24:05.063" LastActivityDate="2019-10-21T07:24:05.063" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="32359" PostTypeId="1" AcceptedAnswerId="32361" CreationDate="2019-10-21T07:37:21.150" Score="0" ViewCount="42" Body="&lt;p&gt;According to a textbook, a monotone increasing but nonlinear transformation of a utility function might not represent the same preferences. Why is it so?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An example of such preference would be appreciated.&lt;/p&gt;&#xA;" OwnerUserId="14778" LastActivityDate="2019-10-21T10:24:40.220" Title="Why might a monotone increasing but nonlinear transformation of a utility function not represent the same preferences?" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;preferences&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="32360" PostTypeId="1" AcceptedAnswerId="32381" CreationDate="2019-10-21T07:45:03.373" Score="0" ViewCount="57" Body="&lt;p&gt;I run a simple AR(1) model in my analysis using ols:&lt;/p&gt;&#xA;&#xA;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;ar.ols(df$y, order.max = 1))&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;However, I work with generations as my unit of analysis. Therefore, the first lag of y would be the observation of y at time t-30. How can I specify this in the AR(1) model in R?&lt;/p&gt;&#xA;" OwnerUserId="20821" LastEditorUserId="20821" LastEditDate="2019-10-21T07:52:22.970" LastActivityDate="2019-10-22T14:31:03.310" Title="How to change the observation for the first lag in an AR(1) model?" Tags="&lt;econometrics&gt;&lt;r&gt;&lt;autoregressive&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="32361" PostTypeId="2" ParentId="32359" CreationDate="2019-10-21T10:01:23.347" Score="1" Body="&lt;p&gt;One reason I could think of is regarding convexity of the function (and hence risk aversion). For example, &lt;span class=&quot;math-container&quot;&gt;$u(x) = x$&lt;/span&gt; is risk neutral, but &lt;span class=&quot;math-container&quot;&gt;$v(x) = \ln(u(x)) = \ln(x)$&lt;/span&gt; is risk averse.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;See also &lt;a href=&quot;https://en.wikipedia.org/wiki/Risk_aversion#Utility_of_money&quot; rel=&quot;nofollow noreferrer&quot;&gt;this&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="5145" LastEditorUserId="5145" LastEditDate="2019-10-21T10:24:40.220" LastActivityDate="2019-10-21T10:24:40.220" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32362" PostTypeId="1" AcceptedAnswerId="32363" CreationDate="2019-10-21T14:10:52.907" Score="0" ViewCount="25" Body="&lt;p&gt;Of course, I am only interested in instances where the combination of the two strategies ultimately lead to higher profits than if the monopolistic firm had used only one.&lt;/p&gt;&#xA;" OwnerUserId="22996" LastActivityDate="2019-10-21T14:28:12.857" Title="Are there examples of strategies where a combination of third degree pricing and two-part tariffs are used together?" Tags="&lt;industrial-organisation&gt;&lt;price-discrimination&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32363" PostTypeId="2" ParentId="32362" CreationDate="2019-10-21T14:28:12.857" Score="0" Body="&lt;p&gt;Here's an easy example: movie theaters.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you view theater pricing models as a two-part tariff (ticket + snacks) then any time there's a &quot;seniors discount&quot; or something like it, this would fit your strategy.  It's a simple exercise to determine the conditions for profitability of such a campaign, but the fact that they've been around forever suggests that on net, they are.&lt;/p&gt;&#xA;" OwnerUserId="24275" LastActivityDate="2019-10-21T14:28:12.857" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="32364" PostTypeId="2" ParentId="32299" CreationDate="2019-10-21T15:02:58.740" Score="2" Body="&lt;p&gt;The Wikipedia article shows it graphically.  But here, you're leaving out the important bit:  &quot;The property of local nonsatiation of consumer preferences states that for any bundle of goods there is always another bundle of goods arbitrarily close that is preferred to it.&quot; This is the statement that you want to connect with the math.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So how does this relate? Let's go bit-by-bit. Refer to the graph on the Wikipedia page as needed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;-&quot;for any bundle of goods&quot; means &quot;choose any bundle &lt;span class=&quot;math-container&quot;&gt;$x \in X$&lt;/span&gt;, where X is the box in the Wikipedia graph.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;-&quot;arbitrarily close&quot; means &quot;choose any &lt;span class=&quot;math-container&quot;&gt;$\epsilon &amp;gt; 0, \epsilon \in \mathbb{R}$&lt;/span&gt;&quot;.  So, pick any non-zero real number as small or as large as you like.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;-&quot;there is always another bundle of goods arbitrarily close&quot; means &quot;given &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\epsilon$&lt;/span&gt;, you can always find a bundle &lt;span class=&quot;math-container&quot;&gt;$y \in X$&lt;/span&gt; that is within a distance &lt;span class=&quot;math-container&quot;&gt;$\epsilon$&lt;/span&gt; from &lt;span class=&quot;math-container&quot;&gt;$x%$&lt;/span&gt;.&quot; This is expressed as &lt;span class=&quot;math-container&quot;&gt;$||y-x|| \le \epsilon$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;-&quot;is preferred to it&quot; means that for any utility function &lt;span class=&quot;math-container&quot;&gt;$U(x)$&lt;/span&gt;, we have &lt;span class=&quot;math-container&quot;&gt;$U(y) &amp;gt; U(x)$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Putting this all together, &quot;non-satiation&quot; means that (without a budget constraint) an agent can &quot;never be satisfied&quot; because no matter what bundle of goods they have (&lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;) there is always a &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; that yields greater utility. &quot;Local&quot; means that &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; can be very similar (ie arbitrarily close to each other in &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt;).&lt;/p&gt;&#xA;" OwnerUserId="24275" LastActivityDate="2019-10-21T15:02:58.740" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32365" PostTypeId="2" ParentId="32348" CreationDate="2019-10-21T15:07:01.807" Score="1" Body="&lt;p&gt;Consider lotteries over &lt;span class=&quot;math-container&quot;&gt;$\{x,y,z\}$&lt;/span&gt;. Let &lt;span class=&quot;math-container&quot;&gt;$u(x)=0, u(y)=\frac{1}{2}, u(z)=1$&lt;/span&gt;. Consider the nonlinear transformation f(t)=t^2. Let &lt;span class=&quot;math-container&quot;&gt;$v:=f\circ u$&lt;/span&gt;, so &lt;span class=&quot;math-container&quot;&gt;$v(x)=0,v(y)=\frac{1}{4}, v(z)=1$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider two lotteries,  &lt;span class=&quot;math-container&quot;&gt;$P=(0,1,0)$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$Q=(\frac{1}{2},0,\frac{1}{2})$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$E_P[u]=\frac{1}{2}=E_Q[u]$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$E_P[v]=\frac{1}{4}&amp;lt;\frac{1}{2}=E_Q[v]$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In general, let &lt;span class=&quot;math-container&quot;&gt;$\succeq$&lt;/span&gt; be a preference over lotteries &lt;span class=&quot;math-container&quot;&gt;$\Delta(X)$&lt;/span&gt;.  Let &lt;span class=&quot;math-container&quot;&gt;$U$&lt;/span&gt; be a utility function of &lt;span class=&quot;math-container&quot;&gt;$\succeq$&lt;/span&gt; that has the EU form, so &lt;span class=&quot;math-container&quot;&gt;$U(P)=E_P[u]$&lt;/span&gt; for some &lt;span class=&quot;math-container&quot;&gt;$u$&lt;/span&gt;. Take any increasing transformation &lt;span class=&quot;math-container&quot;&gt;$f$&lt;/span&gt; and define &lt;span class=&quot;math-container&quot;&gt;$V(P):=f(U(P))$&lt;/span&gt; then &lt;span class=&quot;math-container&quot;&gt;$V$&lt;/span&gt; will also be a utility function for &lt;span class=&quot;math-container&quot;&gt;$\succeq$&lt;/span&gt;, that is &lt;span class=&quot;math-container&quot;&gt;$V(P)\geq V(Q)\iff P\succeq Q$&lt;/span&gt;. However, unless &lt;span class=&quot;math-container&quot;&gt;$f$&lt;/span&gt; is a positive affine transformation, that is &lt;span class=&quot;math-container&quot;&gt;$f(x)=Ax+B$&lt;/span&gt; where &lt;span class=&quot;math-container&quot;&gt;$A&amp;gt;0$&lt;/span&gt; then &lt;span class=&quot;math-container&quot;&gt;$V$&lt;/span&gt; will not be an expected utility function. That is, there will not exists a &lt;span class=&quot;math-container&quot;&gt;$v$&lt;/span&gt; such that &lt;span class=&quot;math-container&quot;&gt;$V(p)=E_p[v]$&lt;/span&gt;. &lt;/p&gt;&#xA;" OwnerUserId="24629" LastEditorUserId="24629" LastEditDate="2019-10-21T15:13:45.603" LastActivityDate="2019-10-21T15:13:45.603" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="32366" PostTypeId="2" ParentId="9827" CreationDate="2019-10-21T15:54:17.477" Score="1" Body="&lt;p&gt;To answer &quot;WHY&quot;, if you have a &lt;em&gt;lot&lt;/em&gt; of empty cells then one reason may be that when STATA drops the corresponding rows, you end up with fewer observations (rows) than features (x's). Intuitively, you might think of it like this: each observation is able to explain one &quot;fact&quot;. Each of the coefficients in your model is a fact about how your x's influence your y. If you have fewer observations than x's, you cannot explain all of your facts.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Depending on what you're doing, you could resort to model selection techniques to pare down the number of features (if your model isn't following directly from theory and you have lots of features).  Regularization techniques (e.g., standardization) are also possible, but will change the interpretation of your co-efficients and you may lose explainability of your results. Otherwise, you need to impute values for the missing cells as noted in @ChinG's answer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Not sure how you would plan to &quot;increase the matrix size&quot; -- unless this entails gathering more observations, it would not be the right thing to do.&lt;/p&gt;&#xA;" OwnerUserId="24275" LastEditorUserId="24275" LastEditDate="2019-10-21T16:07:48.133" LastActivityDate="2019-10-21T16:07:48.133" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32367" PostTypeId="1" AcceptedAnswerId="32378" CreationDate="2019-10-21T18:16:48.377" Score="0" ViewCount="72" Body="&lt;p&gt;Suppose the utility function is represented as &lt;span class=&quot;math-container&quot;&gt;$U(x_1,x_2;I)$&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$I$&lt;/span&gt; is the level of information the consumer possesses. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;How to find the change in the optimal choice of &lt;span class=&quot;math-container&quot;&gt;$x_1$&lt;/span&gt; as price of &lt;span class=&quot;math-container&quot;&gt;$x_1$&lt;/span&gt; changes with and also with respect to changes in Information? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;While I understand the procedure with a Cobb Douglas Utility function, I don't know how to work with general form. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My take: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The consumer maximises &lt;span class=&quot;math-container&quot;&gt;$U(x_1,x_2;I)$&lt;/span&gt; subject to a budget constraint &lt;span class=&quot;math-container&quot;&gt;$px \leq Y$&lt;/span&gt; where &lt;span class=&quot;math-container&quot;&gt;$p$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; are vectors and &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt; is income. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The optimal choice can be represented as &lt;span class=&quot;math-container&quot;&gt;$x_1^*(p,w;I)$&lt;/span&gt; - Marshallian Demand. Now differentiating this wrt &lt;span class=&quot;math-container&quot;&gt;$p$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$I$&lt;/span&gt; would be the solution. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is my understanding correct?&lt;/p&gt;&#xA;" OwnerUserId="15509" LastEditorUserId="1601" LastEditDate="2019-10-22T08:05:04.497" LastActivityDate="2019-10-22T11:36:47.610" Title="How to find change in the optimal choice with a utility function in general form?" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;information&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="32371" PostTypeId="1" AcceptedAnswerId="36502" CreationDate="2019-10-21T20:03:02.670" Score="0" ViewCount="20" Body="&lt;p&gt;While the capital-output ratio is widely used in Macroeconomics as a target in calibration, it is usually just set to be equal to 3, without specifying the data source nor the methodology used to compute it. After doing online research, I couldn't find any available data with the series of capital-output ratio.&lt;/p&gt;&#xA;" OwnerUserId="17875" LastActivityDate="2020-05-08T06:07:16.070" Title="Where to find series of capital-output ratio for the US?" Tags="&lt;macroeconomics&gt;&lt;dsge&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32372" PostTypeId="2" ParentId="32291" CreationDate="2019-10-21T21:04:46.797" Score="0" Body="&lt;p&gt;No, it was moved to chat because Stack Exchange is getting tired of this nonsense and asked me to &quot;please avoid extended discussions in comments&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You're not cracking open a vault with the realization that existing carbon pricing is inadequate to impact behavior on the scale necessary to meaningfully drop emissions from transportation enough to move us to a more favorable warming scenario.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What you're suggesting is untenable strictly from an information flow standpoint. It's also untenable economically until the root cause of the elasticity problem you've identified is addressed through the development of affordable substitutes to fossil-fueled transportation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why are you so sure that $15 is some kind of magic scale factor?  Why do you think climate damages scale linearly with time delay? Maybe they rise exponentially.  In fact, guessing based on physical first-principles, they likely do.&lt;/p&gt;&#xA;" OwnerUserId="24275" LastActivityDate="2019-10-21T21:04:46.797" CommentCount="12" ContentLicense="CC BY-SA 4.0" />
  <row Id="32374" PostTypeId="1" CreationDate="2019-10-22T00:00:14.707" Score="0" ViewCount="79" Body="&lt;p&gt;Jonathan Levin in &lt;a href=&quot;https://web.stanford.edu/~jdlevin/Econ%20202/Uncertainty.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;&quot;Choice under Uncertainty&quot;&lt;/a&gt; wrote in Theorem 1 &quot; A complete and transitive preference relation on a set of lotteries P satisfies continuity and independence if and only if it admits as expected utility representation&quot;. So it seems that if we have an expected utility function, preferences will definitely be independent and continuous, and vice-versa. Am I correct? But I am unsure that if preferences don't have expected utility form, will they necessarily not be continuous and independent?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;i.e. if preferences are inconsistent with expected utility, does that necessarily imply that the independence axiom is violated?&lt;/p&gt;&#xA;" OwnerUserId="24600" LastEditorUserId="24600" LastEditDate="2019-10-22T02:31:02.253" LastActivityDate="2019-11-21T16:01:10.137" Title="Relationship between expected utility and independence axiom" Tags="&lt;microeconomics&gt;&lt;expected-utility&gt;&lt;measuring-utility&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="32376" PostTypeId="2" ParentId="32319" CreationDate="2019-10-22T09:15:43.427" Score="1" Body="&lt;p&gt;Using &lt;a href=&quot;https://en.wikipedia.org/wiki/Monotone_preferences&quot; rel=&quot;nofollow noreferrer&quot;&gt;this&lt;/a&gt; definition of monotone preferences (Thanks to User &lt;a href=&quot;https://economics.stackexchange.com/users/5145/art&quot;&gt;Art&lt;/a&gt;). Let &lt;span class=&quot;math-container&quot;&gt;$X\subseteq \mathbb{R}^n$&lt;/span&gt; be the set of possible consumption bundles, and &lt;span class=&quot;math-container&quot;&gt;$x,y\in X$&lt;/span&gt;. We have weak monotone preferences if &lt;span class=&quot;math-container&quot;&gt;$y&amp;gt;&amp;gt;x \implies y\succ x $&lt;/span&gt;, and strict preferences if &lt;span class=&quot;math-container&quot;&gt;$y\geq x \implies y\succ x$&lt;/span&gt;. If we have a utility function &lt;span class=&quot;math-container&quot;&gt;$u: X\to \mathbb{R}$&lt;/span&gt;, then &lt;span class=&quot;math-container&quot;&gt;$y\succ x$&lt;/span&gt; is the same as &lt;span class=&quot;math-container&quot;&gt;$u(y)&amp;gt; u(x)$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Regarding notation for two bundles &lt;span class=&quot;math-container&quot;&gt;$x,y\in X, x=(x_1,x_2,...,x_n), y=(y_1,y_2,...,y_n)$&lt;/span&gt;, we say &lt;span class=&quot;math-container&quot;&gt;$y&amp;gt;&amp;gt;x$&lt;/span&gt; if &lt;span class=&quot;math-container&quot;&gt;$y_i&amp;gt;x_i$&lt;/span&gt; forall &lt;span class=&quot;math-container&quot;&gt;$i=1,2,...,n$&lt;/span&gt; and we say &lt;span class=&quot;math-container&quot;&gt;$y\geq x$&lt;/span&gt; if &lt;span class=&quot;math-container&quot;&gt;$y_i\geq x_i$&lt;/span&gt; forall &lt;span class=&quot;math-container&quot;&gt;$i=1,2,...,n$&lt;/span&gt; and there is a &lt;span class=&quot;math-container&quot;&gt;$j$&lt;/span&gt;, such that &lt;span class=&quot;math-container&quot;&gt;$y_j&amp;gt;x_j$&lt;/span&gt;. (This notation is not universal) &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, see if you can use this to answer your question&lt;/p&gt;&#xA;" OwnerUserId="16308" LastActivityDate="2019-10-22T09:15:43.427" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32378" PostTypeId="2" ParentId="32367" CreationDate="2019-10-22T11:36:47.610" Score="1" Body="&lt;p&gt;It depends what you know about your utility function and the &quot;space&quot; of goods &lt;span class=&quot;math-container&quot;&gt;$x_1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$x_2$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You ask in your question what the change of optimal choice is with respect to the parameter information.&#xA;This analysis is called &lt;em&gt;comparative statics&lt;/em&gt;, and you can use a number of mathematical tools to achieve this. The most common are&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;strong&gt;The Implicit Function Theorem&lt;/strong&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;If the space of goods in convex and everything nicely differentiable, quasi-concave etc. etc., then this is easiest. I will not discuss the theorem, you should work through it yourself (good references are in De La Fuente's book or in MWG).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First, what is the optimal choice for the actor? Since everything is differentiable, AND quasi-concavity implies that the first-order conditions characterize the optimum (this is important), you can derive the conditions for the optimal choice by the first order equations&#xA;&lt;span class=&quot;math-container&quot;&gt;$$ D_{x_1,x_2,I}U(x_1,x_2;I) = \mathbf{0}$$&lt;/span&gt;&#xA;where &lt;span class=&quot;math-container&quot;&gt;$D$&lt;/span&gt; is simply the differential operator aka in your case the vector of &lt;span class=&quot;math-container&quot;&gt;$\frac{\partial U}{\partial x_i}$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This characterizes the optimal choice. It is not yet &quot;solved&quot; as the form of &lt;span class=&quot;math-container&quot;&gt;$x_i=\ldots$&lt;/span&gt;, but this is often neither possible nor necessary. For example, maybe you don't really know what &lt;span class=&quot;math-container&quot;&gt;$U$&lt;/span&gt; is except that it has certain properties, so you can never solve for &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; explicitly. That is why we use the &quot;implicit&quot; function theorem.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Applying the Implicit Function Theorem allows you to calculate&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\frac{\partial x_i}{\partial I}$$&lt;/span&gt;&#xA;simply by using the &quot;ratios&quot; of first-order conditions you derived above. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Again, you need to carefully check some properties of the functions, so I will give you the formulas but urge you to check the literature.&lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;2&quot;&gt;&#xA;&lt;li&gt;&lt;strong&gt;Monotone comparative statics&lt;/strong&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;As it turns out, we can do comparative statics in an even more general world than a convex space of goods with differentiable utility. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose we are only interested in &quot;directions&quot; of choice. That is, we care only about monotonicity. For example, the IFT does not work for discrete goods (&quot;1 car&quot;, &quot;2 cars&quot;, &quot;3 cars&quot;) since the space is not convex. But the ideas should work similarly!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Doing optimization on these non-convex, and yet ordered sets it called lattice optimization. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, we merely need to assume that &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt;, the space of goods, is a lattice - a set where the possible combinations of &lt;span class=&quot;math-container&quot;&gt;$x_1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$x_2$&lt;/span&gt; have a certain order, and that the information values &lt;span class=&quot;math-container&quot;&gt;$I$&lt;/span&gt; constitute a partially ordered set.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, if we assume that the utility function is at least supermodular (think similar to concavity in this more general space), then we can use a similar result to the implicit function theorem, called &lt;strong&gt;Topkis's theorem&lt;/strong&gt; to establish how &lt;span class=&quot;math-container&quot;&gt;$x_i$&lt;/span&gt; changes as response to &lt;span class=&quot;math-container&quot;&gt;$I$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But in fact, this is not even the most general case. Remember the difference of concavity and quasi-concavity? Well! Here, too, we can invoke &lt;em&gt;quasi-supermodularity&lt;/em&gt;. This brings us in the word of Milgrom, P., and C. Shannon (1994): “Monotone Comparative Statics”.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In particular, they claim that this form of comparative statics is the most general, and in a sense, necessary and sufficient from of &quot;optimal choice&quot; and &quot;comparative statics&quot;.&#xA;I found that a very good reference is the book by Xavier Vives.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Well, you asked for generality, so there you go.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit: If you are an undergrad, then perhaps just file this response away and I will say that, yes, your understanding of the problem also works. You can differentiate the demand function to see how it changes with respect to the parameter ;-)&lt;/p&gt;&#xA;" OwnerUserId="6633" LastActivityDate="2019-10-22T11:36:47.610" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32381" PostTypeId="2" ParentId="32360" CreationDate="2019-10-22T14:31:03.310" Score="0" Body="&lt;p&gt;The ar.ols() function in R defaults to order &lt;span class=&quot;math-container&quot;&gt;$10log_{10} (N)$&lt;/span&gt;.  This implies that, to catch the 30th time lag, you need at least 1000 observations. That seems like a lot, but bear in mind that you are then running OLS on 30 features (lags t-1 to t-30). All else equal, it is not clear why 30 is the magic number for you here, and you can't just drop the more recent lags as they may have the dominant effect.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Without knowing more about your study, it's hard to recommend further.  Intuitively, though, I would not expect to be using annualized data to perform generational analysis unless I were running OLS (not AR) and explicitly constructing a lagged column vector to use as an additional feature alongside contemporaneous features/controls.&lt;/p&gt;&#xA;" OwnerUserId="24275" LastActivityDate="2019-10-22T14:31:03.310" CommentCount="7" ContentLicense="CC BY-SA 4.0" />
  <row Id="32382" PostTypeId="2" ParentId="32374" CreationDate="2019-10-22T15:22:36.400" Score="1" Body="&lt;p&gt;If the preferences do not have an expected utility representation, then either the preferences are not continuous, or they do not satisfy the axiom  of independence.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example in &lt;a href=&quot;https://en.wikipedia.org/wiki/Prospect_theory&quot; rel=&quot;nofollow noreferrer&quot;&gt;prospect theory&lt;/a&gt;, consumers display loss aversion, which  means that their preferences are not linear in probabilities. This is a case where preferences do not have the expected utility form, but the utility function is still continuous. This preferences violate the independence axiom.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Similarly, you could have preferences that do not admit the expected utility form, and satisfy the independence axiom, but not continuity. &lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-10-22T15:22:36.400" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32383" PostTypeId="1" CreationDate="2019-10-22T15:50:07.987" Score="0" ViewCount="29" Body="&lt;p&gt;According to &lt;a href=&quot;https://en.wikipedia.org/wiki/Protectionism&quot; rel=&quot;nofollow noreferrer&quot;&gt;Protectionism&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;(Protectionism) also reduce trade and adversely affect consumers in&#xA;  general (by raising the cost of imported goods), &lt;strong&gt;and harm the&#xA;  producers and workers in export sectors, both in the country&#xA;  implementing protectionist policies&lt;/strong&gt; and in the countries protected&#xA;  against&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;How does protectionism harm the producers and workers in export sectors in the country implementing the protectionist policies?&lt;/p&gt;&#xA;" OwnerUserId="8165" LastActivityDate="2019-10-22T16:38:39.417" Title="How does protectionism harm the producers and workers in export sectors in the country implementing the protectionist policies?" Tags="&lt;international-trade&gt;&lt;tariffs&gt;&lt;protectionism&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32384" PostTypeId="1" AcceptedAnswerId="32388" CreationDate="2019-10-22T16:35:08.413" Score="1" ViewCount="48" Body="&lt;p&gt;Banks are providing loans. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;While granting a loan two scenarios can take place&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;The Loan is repaid&lt;/li&gt;&#xA;&lt;li&gt;The Loan is not-repaid&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;The benefit from a re-payed loan is small profit. (Let's say 5% in general)&#xA;The loss from a not re-payed loan is huge loss. (you lost all your investments)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are there formulas that can calculate the ratio of loss of (based on pseudo-numbers for example) or other theories related to this issue?&lt;/p&gt;&#xA;" OwnerUserId="24639" LastActivityDate="2019-10-23T18:23:23.743" Title="Banks providing loans" Tags="&lt;banking&gt;&lt;trading&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32385" PostTypeId="2" ParentId="32383" CreationDate="2019-10-22T16:38:39.417" Score="1" Body="&lt;p&gt;Several channels I could think of:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;As you said, protectionist policies tend to raise the cost of goods that could previously be imported. If these goods are intermediaries for the export sector, the firms in those sectors would be affected. This is the most direct channel I could think of.&lt;/li&gt;&#xA;&lt;li&gt;You could also argue that the other countries will respond to the protectionist policy by imposing their own protectionist policies, which would eventually hurt the exporters. Think of US agricultural product exporters who got hurt as a result of the US' first imposing tariffs on Chinese exports through China's retaliatory tariffs.&lt;/li&gt;&#xA;&lt;li&gt;In the longer run, protectionist policies keep firms without comparative advantage in business. Of course, there's an argument of &quot;infant industry&quot; who needs protection... but aside from that, without such policies, the resources employed by these &quot;sunset industries&quot; could be diverted and used more productively elsewhere.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="5145" LastActivityDate="2019-10-22T16:38:39.417" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32388" PostTypeId="2" ParentId="32384" CreationDate="2019-10-22T18:27:48.470" Score="1" Body="&lt;p&gt;If you have an estimate of the probabilities of each scenario, say with probability &lt;span class=&quot;math-container&quot;&gt;$p\in[0,1]$&lt;/span&gt; the loan is repaid (assuming no other scenario exists), then you can calculate the expected value of making the loan of size &lt;span class=&quot;math-container&quot;&gt;$L$&lt;/span&gt;: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;In scenario 1, payoff is &lt;span class=&quot;math-container&quot;&gt;$-L+(1+0.05)L=0.05L$&lt;/span&gt; (giving out &lt;span class=&quot;math-container&quot;&gt;$L$&lt;/span&gt; and getting back the principal plus interest)&lt;/li&gt;&#xA;&lt;li&gt;In scenario 2, payoff is &lt;span class=&quot;math-container&quot;&gt;$-L$&lt;/span&gt; (giving out &lt;span class=&quot;math-container&quot;&gt;$L$&lt;/span&gt; and getting nothing back)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;The expected payoff from making the loan would be &#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;EV=p(0.05)L+(1-p)(-L)=1.05pL-L.&#xA;\end{equation}&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="42" LastEditorUserId="42" LastEditDate="2019-10-23T18:23:23.743" LastActivityDate="2019-10-23T18:23:23.743" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="32389" PostTypeId="1" CreationDate="2019-10-22T22:03:24.350" Score="0" ViewCount="49" Body="&lt;p&gt;On the exact definition and understanding of &quot;purchasing power parity&quot; it depends what it means when the World Bank defines&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;the “extremely poor” people of the world as those who are currently&#xA;  living on no more than $1 per day per person, measured at the&#xA;  purchasing power parity (PPP) exchange rate&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;as cited e.g. in Duflo/Banerjee's &lt;a href=&quot;https://economics.mit.edu/files/805&quot; rel=&quot;nofollow noreferrer&quot;&gt;The Economic Lives of the Poor&lt;/a&gt; (2006).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;According to the Wikipedia article on purchasing power parity&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Purchasing_power_parity&quot; rel=&quot;nofollow noreferrer&quot;&gt;PPP produces an exchange rate that equals the price of the basket of&#xA;  goods at one location over the price of the basket of goods at a&#xA;  different location.&lt;/a&gt;&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Furthermore it is stated:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;em&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Purchasing_power_parity#Range_and_quality_of_goods&quot; rel=&quot;nofollow noreferrer&quot;&gt;The goods that a currency has the &quot;power&quot; to purchase are a basket&#xA;  of goods of different types.&lt;/a&gt;&lt;/em&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;So PPP depends on a basket of goods, and it seems to be assumed that there is &lt;strong&gt;one&lt;/strong&gt; such basket. But obviously there is none such unique basket: In different countries and in different &lt;a href=&quot;https://en.wikipedia.org/wiki/Social_stratification&quot; rel=&quot;nofollow noreferrer&quot;&gt;socioeconomic strata&lt;/a&gt; there are very &lt;strong&gt;different&lt;/strong&gt; &quot;typical&quot; baskets of goods - so how to compare these, across countries and strata? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words (and trying to be specific): What exactly does it mean (according to the official definition) when it is for example said that an Indian farmer (let his name be Kalu) in the state of Rajasthan who &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;exhibits typical consumer behaviour (= has a typical basket of goods, including spendings on religious festivals) &lt;/li&gt;&#xA;&lt;li&gt;is partially self-supplying &lt;/li&gt;&#xA;&lt;li&gt;does a second job as a tourist camel guide&lt;/li&gt;&#xA;&lt;li&gt;does a third job as a quarryman&lt;/li&gt;&#xA;&lt;li&gt;has a monthly income of 10,000 rupies (averaged over a year)&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;lives on $X per day (measured at PPP exchange rate)? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But first of all: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;How exactly would I calculate X - given the information above + the&#xA;size/structure of his household?&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="22991" LastEditorUserId="22991" LastEditDate="2019-10-22T22:29:54.800" LastActivityDate="2019-10-22T22:29:54.800" Title="Purchasing Power Parity and Baskets of Goods" Tags="&lt;microeconomics&gt;&lt;exchange-rates&gt;&lt;purchasing-power-partity&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="32390" PostTypeId="1" CreationDate="2019-10-23T02:22:06.310" Score="1" ViewCount="41" Body="&lt;p&gt;This question comes out of Hansen's Econometrics ((&lt;a href=&quot;https://www.ssc.wisc.edu/~bhansen/econometrics/Econometrics.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.ssc.wisc.edu/~bhansen/econometrics/Econometrics.pdf&lt;/a&gt;))&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In section 2.18, we only impose the assumptions of finite variance and &lt;span class=&quot;math-container&quot;&gt;$Q_{xx}$&lt;/span&gt; being positive definite, and then derive the linear projection coefficient &lt;span class=&quot;math-container&quot;&gt;$\beta = E(\textbf{x} \textbf{x}^\prime)^{-1} E(\textbf{x} y)$&lt;/span&gt; as the minimizer of the expected squared error of the linear projection model &lt;span class=&quot;math-container&quot;&gt;$y = \textbf{x}^\prime {\beta} + e$&lt;/span&gt;. This leads to the implication (NOT the assumption) that &lt;span class=&quot;math-container&quot;&gt;$E(\textbf{x} e) = \textbf{0}$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then in section 4.4, under assumption 4.2, we have: &lt;span class=&quot;math-container&quot;&gt;$E(e_i | \textbf{x}_i)=0$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question is: is &lt;span class=&quot;math-container&quot;&gt;$E(e_i | \textbf{x}_i)=0$&lt;/span&gt; a newly-imposed assumption in chapter 4? Or is it equivalent to the condition &lt;span class=&quot;math-container&quot;&gt;$E(\textbf{x} e) = \textbf{0}$&lt;/span&gt; which we reached in chapter 2, not by assumption but by implication?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I know that &lt;span class=&quot;math-container&quot;&gt;$E(\textbf{x} e) = E(E(\textbf{x} e|\textbf{x})) = E(\textbf{x} E(e|\textbf{x}))$&lt;/span&gt;&#xA; (by law of iterated expectations and conditioning theorem, respectively), so imposing the assumption that &lt;span class=&quot;math-container&quot;&gt;$E(e|\textbf{x}) = \textbf{0}$&lt;/span&gt; yields the implication that &lt;span class=&quot;math-container&quot;&gt;$E(\textbf{x} e) = \textbf{0}$&lt;/span&gt;. But is the reverse true? Does &lt;span class=&quot;math-container&quot;&gt;$E(e_i | \textbf{x}_i)=0$&lt;/span&gt; follow from &lt;span class=&quot;math-container&quot;&gt;$E(\textbf{x} e) = \textbf{0}$&lt;/span&gt;, or is &lt;span class=&quot;math-container&quot;&gt;$E(e_i | \textbf{x}_i)=0$&lt;/span&gt; a new assumption that we're imposing?&lt;/p&gt;&#xA;" OwnerUserId="24465" LastEditorUserId="24465" LastEditDate="2019-10-23T12:13:20.520" LastActivityDate="2019-10-23T18:48:41.063" Title="Is conditional mean independence, $E(e_i | x_i)=0$, a different assumption from $E(x e) = 0$? (from Hansen)" Tags="&lt;regression&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32392" PostTypeId="1" CreationDate="2019-10-23T05:10:43.377" Score="7" ViewCount="240" Body="&lt;p&gt;It seems like lexicographic isn't that &quot;special&quot;. Like yes it is special in that supposing it has a utility function gives you a bijection from the rationals to the reals, but I mean unique in some sense. I know that it satisfies a bunch of nice properties, but it still feels like there should be plenty of other (rational) preference relations that don't have utility representations. &lt;/p&gt;&#xA;" OwnerUserId="24646" LastActivityDate="2019-10-24T12:31:43.403" Title="Are there any other rational preference relations without utility function representations, besides Lexicographic?" Tags="&lt;consumer-theory&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32393" PostTypeId="2" ParentId="32392" CreationDate="2019-10-23T07:34:55.090" Score="4" Body="&lt;p&gt;Yes, there are many. Here are some examples :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider the weak preference relation &lt;span class=&quot;math-container&quot;&gt;$\succsim$&lt;/span&gt; defined over &lt;span class=&quot;math-container&quot;&gt;$\mathbb{R}^2$&lt;/span&gt; as:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;strong&gt;Example 1&lt;/strong&gt;  &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$(x_1, y_1) \succsim (x_2, y_2)$&lt;/span&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;if and only if&lt;/em&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;either (&lt;span class=&quot;math-container&quot;&gt;$x_1+y_1 &amp;gt; x_2 + y_2$&lt;/span&gt;) or (&lt;span class=&quot;math-container&quot;&gt;$x_1+y_1 = x_2 + y_2$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$x_1 \geq x_2$&lt;/span&gt;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Claim&lt;/strong&gt; : &lt;span class=&quot;math-container&quot;&gt;$\succsim$&lt;/span&gt; cannot be represented by a utility function.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Proof&lt;/strong&gt; : Suppose by contradiction that there existed a utility function &lt;span class=&quot;math-container&quot;&gt;$u$&lt;/span&gt; representing these preferences. For each &lt;span class=&quot;math-container&quot;&gt;$a &amp;gt; 0$&lt;/span&gt;, we have &lt;span class=&quot;math-container&quot;&gt;$(a, 0) \succ (0, a)$&lt;/span&gt;, and therefore, &lt;span class=&quot;math-container&quot;&gt;$u(a, 0) &amp;gt; u(0, a)$&lt;/span&gt;. We can therefore assign to &lt;span class=&quot;math-container&quot;&gt;$a$&lt;/span&gt; a non-degenerate interval of values satisfying the above inequality&#xA;&lt;span class=&quot;math-container&quot;&gt;$I(a) = [u(0, a), u(a, 0)]$&lt;/span&gt;. For any &lt;span class=&quot;math-container&quot;&gt;$a &amp;gt; b &amp;gt; 0$&lt;/span&gt;, all commodity bundles generating utilities in the interval &lt;span class=&quot;math-container&quot;&gt;$I(a)$&lt;/span&gt; are strictly preferred to those in the disjoint interval &lt;span class=&quot;math-container&quot;&gt;$I(b)$&lt;/span&gt; and should therefore be assigned a greater utility level. Then in each of these intervals we can pick a distinct rational number in increasing order to represent preferences. Since &lt;span class=&quot;math-container&quot;&gt;$a \in \mathbb{R_{++}}$&lt;/span&gt;, there are uncountably many such intervals, but set of rational numbers are countable. This results in a contradiction.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;strong&gt;Example 2&lt;/strong&gt;  &lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$(x_1, y_1) \succsim (x_2, y_2)$&lt;/span&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;if and only if&lt;/em&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;either (&lt;span class=&quot;math-container&quot;&gt;$\min(x_1,y_1) &amp;gt; \min(x_2,y_2)$&lt;/span&gt;) or (&lt;span class=&quot;math-container&quot;&gt;$\min(x_1,y_1) =  \min(x_2,y_2)$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$x_1+y_1 \geq x_2 + y_2$&lt;/span&gt;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Claim&lt;/strong&gt; : &lt;span class=&quot;math-container&quot;&gt;$\succsim$&lt;/span&gt; cannot be represented by a utility function.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Proof&lt;/strong&gt; : Suppose by contradiction that there existed a utility function &lt;span class=&quot;math-container&quot;&gt;$u$&lt;/span&gt; representing these preferences. For each &lt;span class=&quot;math-container&quot;&gt;$a &amp;gt; 0$&lt;/span&gt;, we have &lt;span class=&quot;math-container&quot;&gt;$(a+1, a) \succ (a, a)$&lt;/span&gt;, and therefore, &lt;span class=&quot;math-container&quot;&gt;$u(a+1, a) &amp;gt; u(a, a)$&lt;/span&gt;. We can therefore assign to &lt;span class=&quot;math-container&quot;&gt;$a$&lt;/span&gt; a non-degenerate interval of values satisfying the above inequality&#xA;&lt;span class=&quot;math-container&quot;&gt;$I(a) = [u(a, a), u(a+1, a)]$&lt;/span&gt;. For any &lt;span class=&quot;math-container&quot;&gt;$a &amp;gt; b &amp;gt; 0$&lt;/span&gt;, all commodity bundles generating utilities in the interval &lt;span class=&quot;math-container&quot;&gt;$I(a)$&lt;/span&gt; are strictly preferred to those in the disjoint interval &lt;span class=&quot;math-container&quot;&gt;$I(b)$&lt;/span&gt; and should therefore be assigned a greater utility level. Then in each of these interval we can pick a distinct rational number in increasing order to represent preferences. Since &lt;span class=&quot;math-container&quot;&gt;$a \in \mathbb{R_{++}}$&lt;/span&gt;, there are uncountably many such intervals, but set of rational numbers are countable. This results in a contradiction.&lt;/p&gt;&#xA;" OwnerUserId="11824" LastEditorUserId="1601" LastEditDate="2019-10-24T12:31:43.403" LastActivityDate="2019-10-24T12:31:43.403" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="32394" PostTypeId="1" AcceptedAnswerId="32406" CreationDate="2019-10-23T09:28:57.227" Score="0" ViewCount="370" Body="&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/TvSwV.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/TvSwV.jpg&quot; alt=&quot;Question&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Answer&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/N5ZVx.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/N5ZVx.jpg&quot; alt=&quot;page 1&quot;&gt;&lt;/a&gt;&#xA;&lt;a href=&quot;https://i.stack.imgur.com/ngIwk.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/ngIwk.jpg&quot; alt=&quot;page 2&quot;&gt;&lt;/a&gt;&#xA;&lt;a href=&quot;https://i.stack.imgur.com/uemjz.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/uemjz.jpg&quot; alt=&quot;page 3&quot;&gt;&lt;/a&gt;&#xA;&lt;a href=&quot;https://i.stack.imgur.com/yy7wA.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/yy7wA.jpg&quot; alt=&quot;page 4&quot;&gt;&lt;/a&gt;&#xA;&lt;a href=&quot;https://i.stack.imgur.com/A5A4f.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/A5A4f.jpg&quot; alt=&quot;page 5&quot;&gt;&lt;/a&gt;&#xA;&lt;a href=&quot;https://i.stack.imgur.com/76tJr.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/76tJr.jpg&quot; alt=&quot;page 6&quot;&gt;&lt;/a&gt;&#xA;&lt;a href=&quot;https://i.stack.imgur.com/NrKYP.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/NrKYP.jpg&quot; alt=&quot;page 7&quot;&gt;&lt;/a&gt;&#xA;&lt;a href=&quot;https://i.stack.imgur.com/d0oIp.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/d0oIp.jpg&quot; alt=&quot;page 8&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hello, I upload the actual question with my 8-pages answer. Please can you check it. Is there a corner dissolution for &lt;span class=&quot;math-container&quot;&gt;$c=\gamma$&lt;/span&gt;. Please share your ideas. Thanks. &lt;/p&gt;&#xA;" OwnerUserId="6134" LastEditorUserId="6134" LastEditDate="2019-10-23T19:27:52.097" LastActivityDate="2019-11-09T00:37:24.950" Title="Corner solution of the maximization problem" Tags="&lt;consumer-theory&gt;&lt;self-study&gt;&lt;optimization&gt;&lt;linear-programming&gt;" AnswerCount="2" CommentCount="8" FavoriteCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32397" PostTypeId="2" ParentId="26975" CreationDate="2019-10-23T15:17:59.610" Score="0" Body="&lt;p&gt;Speaking in the accounting language, it would not affect assets. As employees work and deliver their services, that creates a liability and personnel costs to the bank. So the bank would book DR Personnel Costs in P&amp;amp;L CR Salaries Payable. Come payroll day, it would make a second journal entry DR Salaries Payable CR Due to Customers (e.g. Salary account, Deposit account). So by bank workers delivering a service to its employing bank, they actually create money, i.e. DR P&amp;amp;L CR Salary Account.&lt;/p&gt;&#xA;" OwnerUserId="24651" LastActivityDate="2019-10-23T15:17:59.610" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32398" PostTypeId="2" ParentId="32390" CreationDate="2019-10-23T18:48:41.063" Score="1" Body="&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$E(\mathbf{x}e)=0$&lt;/span&gt; does not imply &lt;span class=&quot;math-container&quot;&gt;$E(e|\mathbf{x})=0$&lt;/span&gt;, to see that, suppose that x is a variable that always takes the value of zero, but &lt;span class=&quot;math-container&quot;&gt;$e$&lt;/span&gt; is independent of &lt;span class=&quot;math-container&quot;&gt;$\mathbf x$&lt;/span&gt; and has a mean of, say, &lt;span class=&quot;math-container&quot;&gt;$3$&lt;/span&gt;. Then the expected value of the product is necessarily &lt;span class=&quot;math-container&quot;&gt;$0$&lt;/span&gt;, but the conditional expectation will be equal to 3 (given independence, the conditional mean is equal to the unconditional mean).&lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-10-23T18:48:41.063" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32399" PostTypeId="1" AcceptedAnswerId="32402" CreationDate="2019-10-23T18:55:14.977" Score="0" ViewCount="149" Body="&lt;p&gt;According to page 7 of &lt;a href=&quot;http://folk.uio.no/gasheim/4232f6t2.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;this slide&lt;/a&gt;, &amp;quot;A convex production set Y implies that the associated input requirement set V(y) is convex&amp;quot;.&lt;/p&gt;&#xA;&lt;p&gt;How can one go about proving it?&lt;/p&gt;&#xA;" OwnerUserId="14778" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2019-10-23T22:06:24.437" Title="How to prove that a concave production imply that the input requirement sets are convex?" Tags="&lt;microeconomics&gt;&lt;production-function&gt;&lt;input-output&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32400" PostTypeId="2" ParentId="32394" CreationDate="2019-10-23T19:01:57.700" Score="1" Body="&lt;p&gt;The corner solution is not &lt;span class=&quot;math-container&quot;&gt;$c=a$&lt;/span&gt; it cannot be because the marginal utility of even a tiny bit of consumption is unbounded there. However, you can have a corner solution where &lt;span class=&quot;math-container&quot;&gt;$h=0$&lt;/span&gt;. Since the agent has non-labor income &lt;span class=&quot;math-container&quot;&gt;$p$&lt;/span&gt;, the budget line has a kink. That is, if the agent receives a lot of income even without working, they may choose not to work, and fully enjoy leisure. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;After solving for the optimal &lt;span class=&quot;math-container&quot;&gt;$l$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$c$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$h$&lt;/span&gt; I am sure that the optimal &lt;span class=&quot;math-container&quot;&gt;$h$&lt;/span&gt; is defined by the  difference between two terms. Since you cannot work negative hours, the corner solution occurs whenever your equation for &lt;span class=&quot;math-container&quot;&gt;$h$&lt;/span&gt; goes negative. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you are not sure what I mean, simply update your question with the actual formulas you obtained, I can provide further comments and guide you to find the corner solution. &lt;/p&gt;&#xA;" OwnerUserId="21827" LastActivityDate="2019-10-23T19:01:57.700" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="32401" PostTypeId="2" ParentId="32301" CreationDate="2019-10-23T21:53:53.480" Score="0" Body="&lt;p&gt;A non-monotonic function with local non-satiation:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$u(x, y) = x - y$$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="11824" LastActivityDate="2019-10-23T21:53:53.480" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32402" PostTypeId="2" ParentId="32399" CreationDate="2019-10-23T22:06:24.437" Score="1" Body="&lt;p&gt;Start with definitions:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Production (possibilities) set: &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt; which you know is convex&lt;/li&gt;&#xA;&lt;li&gt;Input requirement set: &lt;span class=&quot;math-container&quot;&gt;$V(y)=\{\mathbf{x}:(y,−\mathbf{x})∈Y\}$&lt;/span&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;On page 7. you can see: &lt;span class=&quot;math-container&quot;&gt;$\mathbf{y}\in Y$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\mathbf{y'} \in Y$&lt;/span&gt; which then implies &lt;span class=&quot;math-container&quot;&gt;$t\mathbf{y}+(1-t)\mathbf{y'} \in Y$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hint 1:&lt;/p&gt;&#xA;&#xA;&lt;blockquote class=&quot;spoiler&quot;&gt;&#xA;  &lt;p&gt; Remember that: &lt;span class=&quot;math-container&quot;&gt;$\mathbf{y}=(y,−\mathbf{x})$&lt;/span&gt; !&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;What does it mean that &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt; is a convex set? &lt;/p&gt;&#xA;&#xA;&lt;blockquote class=&quot;spoiler&quot;&gt;&#xA;  &lt;p&gt; &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt; being a convex set means that if &lt;span class=&quot;math-container&quot;&gt;$\mathbf{y}=(y,−\mathbf{x}) \in Y$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\mathbf{y'}=(y,−\mathbf{x'}) \in Y$&lt;/span&gt; then &lt;span class=&quot;math-container&quot;&gt;$t(y,−\mathbf{x})+(1-t)(y,−\mathbf{x'}) \in Y$&lt;/span&gt; as page 7. would suggest.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Okay, but what does that actually mean?&lt;/p&gt;&#xA;&#xA;&lt;blockquote class=&quot;spoiler&quot;&gt;&#xA;  &lt;p&gt; &lt;span class=&quot;math-container&quot;&gt;$t(y,−\mathbf{x})+(1-t)(y,−\mathbf{x'}) \in Y \implies (ty+(1-t)y, -t\mathbf{x}-(1-t)\mathbf{x'}) \in Y \implies (y,-t\mathbf{x}-(1-t)\mathbf{x'}) \in Y $&lt;/span&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Which is just equivalent of saying that:&lt;/p&gt;&#xA;&#xA;&lt;blockquote class=&quot;spoiler&quot;&gt;&#xA;  &lt;p&gt; &lt;span class=&quot;math-container&quot;&gt;$t\mathbf{x}+(1-t)\mathbf{x'} \in V(y)$&lt;/span&gt; because both &lt;span class=&quot;math-container&quot;&gt;$\mathbf{x}$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\mathbf{x'}$&lt;/span&gt; are in &lt;span class=&quot;math-container&quot;&gt;$V(y)$&lt;/span&gt;. (Look: second definition)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="23083" LastActivityDate="2019-10-23T22:06:24.437" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32405" PostTypeId="1" CreationDate="2019-10-24T00:20:25.203" Score="0" ViewCount="38" Body="&lt;p&gt;Keynes has disapproved the say's law &quot;supply creates its own demand&quot; but I want to know if there is any empirical evidence that this law doesn't hold true? Theoretically, keynes successfully disapproved it by stating that if supply is there and no demand follows or demand doesn't rise in proportion to the supply then inventories will build up and producers will be forced to cut price and halt production and then we will have slowdown. But does this hold true?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The reason for my curiosity is if look at things whether in realm of society or business, supply does create its own demand. For eg - Every new invention or technological breakthrough ranging from Ipod to computers, e commerce to MOOCs, they are first supplied and then demands build up. If I may also put it in abstract terms also then it seems to hold valid. For eg - The more we love, the more generous we are, the more gratitude we supply from our own side the more we find we are capable to render. In my opinion only by consistently supplying goodwill or any good thing can we hope to increase the substantive over superficial in our individual lives and in the collective dream called culture.&lt;/p&gt;&#xA;" OwnerUserId="24166" LastActivityDate="2019-10-25T13:43:53.443" Title="&quot;Supply creates its own demand. Only by consistently supplying it can we hope to increase the demand for the substantive over the superficial&quot;" Tags="&lt;supply-and-demand&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="32406" PostTypeId="2" ParentId="32394" CreationDate="2019-10-24T01:49:08.203" Score="3" Body="&lt;p&gt;Here is the formulation of the problem :&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{eqnarray*} \max_{c, h, l} \  &amp;amp; \ln (c - \gamma) + \beta l + \theta h \\ \text{s.t.} &amp;amp;  l + h = 1, \\ &amp;amp; c \leq \omega h + \rho, \\ \text{and} &amp;amp; l, h \geq 0, c \geq \gamma \end{eqnarray*}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Substituting &lt;span class=&quot;math-container&quot;&gt;$l = 1 - h$&lt;/span&gt;, we can rewrite the above problem as :&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{eqnarray*} \max_{c, h} \  &amp;amp; \ln (c - \gamma) + \beta + (\theta -\beta)h \\ \text{s.t.} &amp;amp; 0 \leq h \leq 1 \\ \text{and} &amp;amp; \gamma \leq c \leq \omega h + \rho\end{eqnarray*}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since utility is increasing in &lt;span class=&quot;math-container&quot;&gt;$c$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$c = \omega h + \rho$&lt;/span&gt; will hold in optimum. So we can further reduce the problem to :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{eqnarray*} \max_{h} \  &amp;amp; \ln (\omega h + \rho - \gamma) + \beta + (\theta -\beta)h \\ \text{s.t.} &amp;amp; 0 \leq h \leq 1 \\ \text{and} &amp;amp; \gamma \leq \omega h + \rho\end{eqnarray*}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Please note that we'll assume &lt;span class=&quot;math-container&quot;&gt;$\omega + \rho \geq \gamma$&lt;/span&gt;. This is because when &lt;span class=&quot;math-container&quot;&gt;$\omega + \rho &amp;lt; \gamma$&lt;/span&gt;, there is no feasible solution. In other words, there does not exist any &lt;span class=&quot;math-container&quot;&gt;$h$&lt;/span&gt; satisfying the constraints.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To solve this problem, we'll consider two cases :&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;strong&gt;Case 1&lt;/strong&gt;: &lt;span class=&quot;math-container&quot;&gt;$\rho \geq \gamma$&lt;/span&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;In this case problem can be written as :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{eqnarray*} \max_{h} \  &amp;amp; \ln (\omega h + \rho - \gamma) + \beta + (\theta -\beta)h \\ \text{s.t.} &amp;amp; 0 \leq h \leq 1 \end{eqnarray*}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Derivative of the objective with respect to &lt;span class=&quot;math-container&quot;&gt;$h$&lt;/span&gt; is&#xA;&lt;span class=&quot;math-container&quot;&gt;$\frac{\omega}{\omega h + \rho - \gamma} + (\theta -\beta)$&lt;/span&gt; which yields the following solution :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{eqnarray*} h = \begin{cases} 1 &amp;amp; \text{if } \frac{\omega}{\omega + \rho - \gamma} + (\theta -\beta) \geq 0  \\  0 &amp;amp; \text{if } \frac{\omega}{\rho - \gamma} + (\theta -\beta) \leq 0  \\ \frac{1}{\beta -\theta} - \frac{\rho - \gamma}{\omega} &amp;amp; \text{otherwise} \end{cases} \end{eqnarray*}&lt;/span&gt; &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;strong&gt;Case 2&lt;/strong&gt;: &lt;span class=&quot;math-container&quot;&gt;$\rho &amp;lt; \gamma$&lt;/span&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;In this case problem can be written as :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{eqnarray*} \max_{h}  \ &amp;amp; \ln (\omega h + \rho - \gamma) + \beta + (\theta -\beta)h \\ \text{s.t.} &amp;amp; \frac{\gamma - \rho}{\omega} \leq h \leq 1 \end{eqnarray*}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Derivative of the objective with respect to &lt;span class=&quot;math-container&quot;&gt;$h$&lt;/span&gt; is&#xA;&lt;span class=&quot;math-container&quot;&gt;$\frac{\omega}{\omega h + \rho - \gamma} + (\theta -\beta)$&lt;/span&gt; which yields the following solution :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{eqnarray*} h = \begin{cases} 1 &amp;amp; \text{if } \frac{\omega}{\omega + \rho - \gamma} + (\theta -\beta) \geq 0   \\ \frac{1}{\beta -\theta} - \frac{\rho - \gamma}{\omega} &amp;amp; \text{otherwise} \end{cases} \end{eqnarray*}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Combining the two cases, we can write the solution as :&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{eqnarray*} h = \begin{cases} 1 &amp;amp; \text{if } \frac{\omega}{\omega + \rho - \gamma} + (\theta -\beta) \geq 0  \\  0 &amp;amp; \text{if } \frac{\omega}{\rho - \gamma} + (\theta -\beta) \leq 0 \text{ and } \rho \geq \gamma \\ \frac{1}{\beta -\theta} - \frac{\rho - \gamma}{\omega} &amp;amp; \text{otherwise} \end{cases} \end{eqnarray*}&lt;/span&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Using &lt;span class=&quot;math-container&quot;&gt;$c = \omega h + \rho$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$l = 1 -h$&lt;/span&gt; we can get optimal values of &lt;span class=&quot;math-container&quot;&gt;$c$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$l$&lt;/span&gt; in each of the cases.&lt;/p&gt;&#xA;" OwnerUserId="11824" LastEditorUserId="11824" LastEditDate="2019-11-09T00:37:24.950" LastActivityDate="2019-11-09T00:37:24.950" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32407" PostTypeId="1" AcceptedAnswerId="32421" CreationDate="2019-10-24T07:57:05.647" Score="1" ViewCount="172" Body="&lt;p&gt;I can imagine the following reasons for this: &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;conflation of positive vs normative economics in macro&lt;/li&gt;&#xA;&lt;li&gt;micro phenomenon is less complex (or smaller): thus easier to create reliable models for&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Thanks&lt;/p&gt;&#xA;" OwnerUserId="24655" LastEditorUserId="24655" LastEditDate="2019-10-26T02:23:19.170" LastActivityDate="2020-12-19T11:27:35.350" Title="Why would microeconomics be considered more &quot;objective&quot; than macroeconomics?" Tags="&lt;macroeconomics&gt;&lt;microeconomics&gt;" AnswerCount="3" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32408" PostTypeId="1" CreationDate="2019-10-24T09:43:52.543" Score="1" ViewCount="19" Body="&lt;p&gt;I will be conducting a research about the market structure of an outdoor farmers market. I wanted to know what kind of survey questions could help me for example to determine the PES of the market or anything else that I could use in order to determine the market structure. &#xA;I already will survey people about how do they choose the shop, how much time they spend finding a shop, if they have the information of the cheapest shop and how often do they return to the same store. In addition to that, I will be observing the price changes for about a month, and also use the Herfindahl-Hirschman Index (HHI). &lt;/p&gt;&#xA;" OwnerUserId="24656" LastActivityDate="2019-10-24T09:43:52.543" Title="Market structure determination" Tags="&lt;elasticity&gt;&lt;markets&gt;&lt;price&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="32410" PostTypeId="2" ParentId="32407" CreationDate="2019-10-24T10:27:30.483" Score="3" Body="&lt;p&gt;Those who decry the status of macroeconomics (to a certain extent), &lt;a href=&quot;https://krugman.blogs.nytimes.com/2013/01/05/ideology-and-economics/&quot; rel=&quot;nofollow noreferrer&quot;&gt;e.g. Krugman&lt;/a&gt;, do so because the macro field being closer to high-level political decision making is often involved in controversies, even if only a small part of the macro field itself is actually controversial (according to Krugman, 2013).&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;OK, here’s how I read the Gordon and Dahl results: what they show is that most of what economists do is indeed fairly objective and non-ideological; business-cycle macro, although it’s not at all like that, is a small enough part of the academic field that their data don’t pick it up.&lt;/p&gt;&#xA;&lt;p&gt;Unfortunately, while business-cycle macro may not be a large part of what economists do, it’s a field that matters a lot – especially with the world still facing its worst economic crisis in three generations.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;And then there's the &amp;quot;schools of thought&amp;quot; in macro. As an IMF blog &lt;a href=&quot;https://www.imf.org/external/pubs/ft/fandd/basics/bigsmall.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;summarizes&lt;/a&gt;:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Contemporary microeconomic theory evolved steadily without fanfare from the earliest theories of how prices are determined. Macroeconomics, on the other hand, is rooted in empirical observations that existing theory could not explain. How to interpret those anomalies has always been controversial. There are no competing schools of thought in microeconomics—which is unified and has a common core among all economists. The same cannot be said of macroeconomics—where there are, and have been, competing schools of thought about how to explain the behavior of economic aggregates. Those schools go by such names as New Keynesian or New Classical. But these divisions have been narrowing over the past few decades (&lt;a href=&quot;https://www.imf.org/external/pubs/ft/spn/2010/spn1003.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Blanchard, Dell’Ariccia, and Mauro, 2010&lt;/a&gt;).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;And that frankly is being kind by not mentioning a lot of the stuff &amp;quot;out there&amp;quot; that nonetheless influences some politicians, e.g. more recently &lt;a href=&quot;https://www.cnbc.com/2019/03/01/bernie-sanders-economic-advisor-stephanie-kelton-on-mmt-and-2020-race.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Sanders&lt;/a&gt; or even &lt;a href=&quot;https://www.bloomberg.com/news/articles/2019-05-16/as-republicans-trash-mmt-marco-rubio-seems-to-find-it-useful&quot; rel=&quot;nofollow noreferrer&quot;&gt;Rubio and the MMT&lt;/a&gt;, &lt;a href=&quot;https://politics.stackexchange.com/a/45579/18373&quot;&gt;Erdogan and the &amp;quot;neo-Fisherites&amp;quot;&lt;/a&gt; etc.&lt;/p&gt;&#xA;" OwnerUserId="6210" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2019-10-24T18:13:48.320" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32412" PostTypeId="1" CreationDate="2019-10-24T11:50:37.117" Score="1" ViewCount="25" Body="&lt;p&gt;How do I interpret the numbers of this table &lt;a href=&quot;https://data.worldbank.org/indicator/PA.NUS.PPP&quot; rel=&quot;nofollow noreferrer&quot;&gt;PPP conversion factor, GDP (LCU per international $)&lt;/a&gt; as published by the World Bank:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/Wp90P.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/Wp90P.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;First of all, it's just numbers, but what do they tell (in common words). What's the difference between &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Bahrein (0.19), a very rich country&lt;/li&gt;&#xA;&lt;li&gt;United States (1.0), the benchmark or reference country&lt;/li&gt;&#xA;&lt;li&gt;Belize (1.14), a rather poor country&lt;/li&gt;&#xA;&lt;li&gt;India (18.15)&lt;/li&gt;&#xA;&lt;li&gt;Armenia (197.04)&lt;/li&gt;&#xA;&lt;li&gt;Vietnam (7,792.72), a not so poor country&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Which property does Vietnam have 8,000 times more than the United States and 40 times more than Armenia? What is measured? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Side questions: What for and in which contexts are these numbers used and play an effective role? Do two decimal digits really make a difference?&lt;/p&gt;&#xA;" OwnerUserId="22991" LastEditorUserId="22991" LastEditDate="2019-10-24T15:20:45.470" LastActivityDate="2019-10-24T15:20:45.470" Title="Meaning of PPP conversion factors" Tags="&lt;exchange-rates&gt;&lt;purchasing-power-partity&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32414" PostTypeId="2" ParentId="15693" CreationDate="2019-10-24T12:31:14.487" Score="0" Body="&lt;p&gt;In this question we can see that ..&#xA;Px=1/2 &amp;amp; Py=3/2&#xA;And MRS= 4/14 &#xA;Px/Py=1/3&gt;4/14(MRS)&#xA;So, the optimal point will be on y axis and it will be(0,m/Py)&#xA;i.e. (0,2m/3).&lt;/p&gt;&#xA;" OwnerUserId="24317" LastActivityDate="2019-10-24T12:31:14.487" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32415" PostTypeId="1" AcceptedAnswerId="32529" CreationDate="2019-10-24T12:43:31.640" Score="9" ViewCount="117" Body="&lt;p&gt;Inspired by &lt;a href=&quot;https://economics.stackexchange.com/questions/32392/are-there-any-other-rational-preference-relations-without-utility-function-repre&quot;&gt;this question&lt;/a&gt;. The original question was answered by Amit with some nice examples. I would like to know the generalized answer:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose we have a preference ordering &lt;span class=&quot;math-container&quot;&gt;$\succeq$&lt;/span&gt;, which is weakly monotone, thus for any basket of goods &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$y \in \mathbb{R}^n$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;x &amp;gt;&amp;gt; y \Rightarrow x \succ y,&#xA;$$&lt;/span&gt;&#xA;and which only has singleton indifference curves, thus&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;x \sim y \Rightarrow x = y.&#xA;$$&lt;/span&gt;&#xA;Is there any such preference ordering which can be represented by a utility function?&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;A remark: without monotonicity one can simply take any &lt;a href=&quot;https://math.stackexchange.com/questions/243590/bijection-from-mathbb-r-to-mathbb-rn&quot;&gt;bijection from &lt;span class=&quot;math-container&quot;&gt;$\mathbb{R}^n \to \mathbb{R}$&lt;/span&gt;&lt;/a&gt; and claim that as a utility function. This would have singleton indifference curves.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2019-10-24T12:51:49.947" LastActivityDate="2019-11-01T08:26:37.190" Title="Weakly monotone preferences with singleton indifference curves: do any of them admit a utility representation?" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;preferences&gt;" AnswerCount="1" CommentCount="3" FavoriteCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32416" PostTypeId="1" CreationDate="2019-10-24T14:20:07.120" Score="1" ViewCount="51" Body="&lt;p&gt;Is there one single formula which allows to calculate the income of a person in &lt;a href=&quot;https://economics.stackexchange.com/questions/27144/how-to-read-ppp-aloud?rq=1&quot;&gt;PPP\$&lt;/a&gt; from her income in LCUs (local currency units), given for example the  &lt;a href=&quot;https://data.worldbank.org/indicator/PA.NUS.PPP&quot; rel=&quot;nofollow noreferrer&quot;&gt;PPP conversion factor, GDP (LCU per international $)&lt;/a&gt; as published by the World Bank. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Assume for example an Indian farmer with a monthly income of ₹50,000, given India's PPP conversion factor of 18 and exchange rate ₹70 = $1. What is his monthly income in PPP\$ and by which formula? Is other or further information needed? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Vice versa: What is the farmer's monthly income in rupees when his income is known to be PPP\$30?&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;References:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;GapMinder's &lt;a href=&quot;https://www.gapminder.org/dollar-street/matrix?countries=India&quot; rel=&quot;nofollow noreferrer&quot;&gt;Dollar Street&lt;/a&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;https://drive.google.com/drive/folders/0B9jWD65HiLUnRm5ZNWlMSU5GNEU&quot; rel=&quot;nofollow noreferrer&quot;&gt;Detailed income calculations for Dollar Street&lt;/a&gt;&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;a href=&quot;https://economics.mit.edu/files/805&quot; rel=&quot;nofollow noreferrer&quot;&gt;The Economic Lives of the Poor&lt;/a&gt; by Abhijit V. Banerjee and Esther Duflo&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="22991" LastEditorUserId="22991" LastEditDate="2019-10-24T17:24:44.903" LastActivityDate="2020-11-18T00:05:50.543" Title="How to calculate PPP$ from LCUs?" Tags="&lt;exchange-rates&gt;&lt;poverty&gt;&lt;purchasing-power-partity&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32418" PostTypeId="1" CreationDate="2019-10-24T18:14:26.507" Score="1" ViewCount="87" Body="&lt;p&gt;I see different (more or less abstract resp. specific) approaches to compare wealth (of individuals, regions, and countries):&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;by living standards&lt;/li&gt;&#xA;&lt;li&gt;by living expenses&lt;/li&gt;&#xA;&lt;li&gt;by incomes/salaries&lt;/li&gt;&#xA;&lt;li&gt;by purchasing powers&lt;/li&gt;&#xA;&lt;li&gt;by price levels&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;One such approach – to talk at large – could be:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;How long can I – coming from country X – live in country Y by spending&#xA;  my last monthly salary converted by nominal exchange rate:&lt;/p&gt;&#xA;  &#xA;  &lt;ol&gt;&#xA;  &lt;li&gt;as a backpacker or as a convenience tourist?&lt;/li&gt;&#xA;  &lt;li&gt;adapting to the other country's standards which may be lower?&lt;/li&gt;&#xA;  &lt;li&gt;adapting to higher standards than I am used to?&lt;/li&gt;&#xA;  &lt;/ol&gt;&#xA;  &#xA;  &lt;p&gt;How much does this period deviate from a month? &lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;My question is: Where do I find this approach taken?&lt;/p&gt;&#xA;" OwnerUserId="22991" LastEditorUserId="22991" LastEditDate="2019-10-25T15:11:37.367" LastActivityDate="2019-10-30T23:28:59.477" Title="How long can I live in the United States with my German monthly income?" Tags="&lt;reference-request&gt;&lt;exchange-rates&gt;&lt;poverty&gt;&lt;purchasing-power-partity&gt;&lt;wealth&gt;" AnswerCount="3" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32419" PostTypeId="2" ParentId="32407" CreationDate="2019-10-24T18:47:10.780" Score="1" Body="&lt;p&gt;Personally, I never saw it this way.  My background is in physics first, and I always viewed the micro/macro distinction as analogous to the quantum/classical distinction in physics. The point of macroeconomics is to describe the dynamics of bulk populations, which, due to constraints around information flows rooted in actual physics, are more efficient to attempt to manage through policy levers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Micro gets you the deep, nitty-gritty observation of human behavior, but you can't actually do any meaningful experiments with a single individual.  You always need a cohort, and then you end up talking about their bulk properties anyway, much like some of the more interesting results from quantum mechanics (e.g., the double-slit experiment).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The obsession with &quot;micro foundations&quot; for macro may make it sound like micro-economics is somehow superior, but I don't think that's the right way to describe the relationship. Also, to the extent that this analogy is valid, I strongly disagree that micro is &quot;less complex&quot;.&lt;/p&gt;&#xA;" OwnerUserId="24275" LastActivityDate="2019-10-24T18:47:10.780" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32421" PostTypeId="2" ParentId="32407" CreationDate="2019-10-24T19:27:43.620" Score="8" Body="&lt;p&gt;I used to think that microeconomics was relatively more scientific than macroeconomics. Early macroeconomics, in particular, suffered from choosing models of agent behavior that made modeling easier but bore little relationship (or at least a highly disputed relationship) with reasonable behavior of individual agents. This led to the &lt;a href=&quot;https://en.wikipedia.org/wiki/Microfoundations&quot; rel=&quot;nofollow noreferrer&quot;&gt;microfoundations effort&lt;/a&gt;, which attempted build macroeconomic models from the ground up by modeling the behaviors of the economic agents in line with microeconomic theory (rational expectations, utility functions, life cycle effects, market power, and so on). Aligning macroeconomics with microeconomics strongly implies that microeconomics &amp;quot;has it right&amp;quot; and macroeconomics does not.&lt;/p&gt;&#xA;&lt;p&gt;However, that's not the end of the story.  In a nice essay called &lt;a href=&quot;https://www.cbsnews.com/news/the-macroeconomic-foundations-of-microeconomics/&quot; rel=&quot;nofollow noreferrer&quot;&gt;The Macroeconomic Foundations of Microeconomics&lt;/a&gt;, macroeconomist Mark Thoma says that microeconomics has a lot of hidden macroeconomics lurking in the background, and it is important to recognize this and formalize the role of macroeconomics in microeconomic theory. For example:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;One of the lessons from macroeconomics is that prices do not always&#xA;move fast enough to keep markets in balance, and this observation --&#xA;this macroeconomic foundation -- needs to guide microeconomic&#xA;theorists. The Walrasian auctioneer is a convenient theoretical&#xA;assumption, somehow prices always magically move immediately to clear&#xA;all markets and attain the highest possible societal welfare (and it's&#xA;useful for comparing long-run outcomes). But that assumption is not&#xA;very useful as a foundation for macroeconomic models that try to&#xA;explain short-run swings in the macroeconomy. Microeconomic and&#xA;macroeconomic models ought to be consistent with each other, but the&#xA;microeconomic foundations need to have realistic assumptions about the&#xA;ability of price changes to clear markets.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;More generally, microeconomics usually assumes that microeconomic agents are embedded in a functioning macroeconomy. An economy with functioning markets for other goods, property rights, production functions and industrial organization that makes supply curves, demand curves that are well defined, and the like. This joint dependence on the assumptions of the other family makes the two major schools of economic thought closer to peers than the microfoundation revolution suggests.&lt;/p&gt;&#xA;&lt;p&gt;That said, microeconomics has done a lot more to bring experimentation (field and laboratory) into their research. This has helped inform their modeling and econometric work in a positive way, including this year (2019's) Nobel winners. For ethical and financial reasons it is much harder to do this in macroeconomics. This could be a reason to think that, in general, microeconomics might be a bit more objective. However, the majority of microeconomic research is non-experimental, so we shouldn't go too far with this argument.&lt;/p&gt;&#xA;&lt;p&gt;I also recommend Raj Chetty's essay &lt;a href=&quot;https://www.nytimes.com/2013/10/21/opinion/yes-economics-is-a-science.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Yes, Economics Is a Science&lt;/a&gt; for a comparison of the scientific bona fides of the field of economics with other scientific endeavors, particularly medicine.&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;It is true that the answers to many “big picture” macroeconomic&#xA;questions — like the causes of recessions or the determinants of&#xA;growth — remain elusive. But in this respect, the challenges faced by&#xA;economists are no different from those encountered in medicine and&#xA;public health. Health researchers have worked for more than a century&#xA;to understand the “big picture” questions of how diet and lifestyle&#xA;affect health and aging, yet they still do not have a full scientific&#xA;understanding of these connections. Some studies tell us to consume&#xA;more coffee, wine and chocolate; others recommend the opposite. But&#xA;few people would argue that medicine should not be approached as a&#xA;science or that doctors should not make decisions based on the best&#xA;available evidence.&lt;/p&gt;&#xA;&lt;p&gt;... Nonetheless, economists have recently begun to&#xA;overcome these challenges by developing tools that approximate&#xA;scientific experiments to obtain compelling answers to specific policy&#xA;questions. In previous decades the most prominent economists were&#xA;typically theorists like Paul Krugman and Janet L. Yellen, whose&#xA;models continue to guide economic thinking. Today, the most prominent&#xA;economists are often empiricists like David Card of the University of&#xA;California, Berkeley, and Esther Duflo of the Massachusetts Institute&#xA;of Technology, who focus on testing old theories and formulating new&#xA;ones that fit the evidence.&lt;/p&gt;&#xA;&lt;p&gt;This kind of empirical work in economics might be compared to the&#xA;“micro” advances in medicine (like research on therapies for heart&#xA;disease) that have contributed enormously to increasing longevity and&#xA;quality of life, even as the “macro” questions of the determinants of&#xA;health remain contested.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2020-12-19T11:27:35.350" LastActivityDate="2020-12-19T11:27:35.350" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32422" PostTypeId="2" ParentId="32416" CreationDate="2019-10-24T20:35:19.527" Score="1" Body="&lt;p&gt;It works like any other exchange rate:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Divide ₹50,000 by 70 to get about US$714 / month at market exchange rates&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Divide ₹50,000 by 18 to get about PPP$2778 / month at PPP rates (so not a poor farmer)&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Multiply USD$30 by 70 to get ₹2100 at market exchange rates&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Multiply PPP$30 by 18 to get ₹540 at PPP rates&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2019-10-24T20:35:19.527" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="32423" PostTypeId="2" ParentId="32161" CreationDate="2019-10-24T20:56:49.933" Score="1" Body="&lt;p&gt;I think your questions are very interesting. I am no expert on US farming data sources. However, I have briefly pursued these questions for the UK. As currently this question has no responses, I'll post my findings below verbatim along with my data sources.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I encourage you to pursue these research questions further, perhaps using a similar framework to below. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;My response uses DEFRA data to examine the extent of the agri-food economy that must change, in equilibrium, to complete a transition to a Vegan Economy. Although in the short run Rural Unemployment may rise, once we distribute the gains from a Vegan Economy, we can raise rural incomes and reduce rural unemployment.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Output Data&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;DEFRA's Food Statistics in your Pocket reveals that the Agri-Food Industry made up 6.3% of Gross Value Added in 2016. However, a Vegan Economy only entails removing animal products, which in equilibrium is unlikely to influence the distribution, retail, or catering sectors negatively; people under the vegan norm must consume sufficient calories to be healthy. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note: The Vegan Norm assumes that people spend, counterfactually, the same proportion of income and that they eat a healthy, varied Vegan Diet. We also assume that UK Welfare can distribute any economic gains from a Vegan Economy. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Only Agriculture, Fishing, and Food Manufacturing remain relevant, which has ~2% GVA contribution. This figure overestimates the contribution of Animal Products as plant-based firms can partially fill in for Food Manufacturing. Also, these figures fail to distinguish between animal and non-animal products. The ratio of the value of plant to animal products for imports or exports is 2 to 1, calculated from Observation of Economic Complexity (OEC) data, which seems a reasonable prior for domestic production too. This data also indicates that the UK balance of trade does not suffer.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Yet, the Vegan Economy also sees growth in GVA from old and new Vegan Alternatives to Animal Products. The market for alternative products is growing rapidly across the agri-food chain. We reference The Vegan Society who have collated such evidence on their website. As such, we can expect this market to fill in the anticipated output gap.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus, in equilibrium, the Vegan Economy may see at most a 1% reduction in Gross Value Added from eliminating Animal Products from Agriculture and Food Manufacturing. Trend GVA growth may even rise thanks to alternative products.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Employment Data&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;DEFRA's Pocketbook indicates that we employ 820,000 people in Agriculture, Fishing, and Food Manufacturing. Animal Products are more labour intensive but likely make up only a third of GVA. So, perhaps half of these workers (~1% of UK Labour Force) have their employment at risk under a Vegan Economy. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A sectoral shift towards crops and alternatives could fill in the output gap, suggesting that the general equilibrium effects on employment are likely negligible.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Yet, even for those who do lose their work, we can redistribute the benefits of a Vegan Economy. These benefits include increased government revenue from higher GVA growth, reduced healthcare costs and improved productivity from healthier workers. We also avoid costs associated with accelerated climate change.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Our options for helping those farmers or manufacturers out of work include but are not limited to:&#xA;incentives to switch to crop farming&#xA;start-up programs to encourage new land use such as afforestation or sanctuaries&#xA;incentives for transport, retail, accommodation, or local government to provide training or apprenticeship schemes for those out of work. They are often the main employers in rural areas.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;UK Economic Data Sources:&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;DEFRA (October 2018), Food Statistics in your pocket 2017 Summary&#xA;url: &lt;a href=&quot;https://www.gov.uk/government/publications/food-statistics-pocketbook-2017/food-statistics-in-your-pocket-2017-summary&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.gov.uk/government/publications/food-statistics-pocketbook-2017/food-statistics-in-your-pocket-2017-summary&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Page 7 of Rural productivity and Gross Value Added (GVA) statistics, DEFRA (2019)&#xA;url: &lt;a href=&quot;https://www.gov.uk/government/statistics/rural-productivity&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.gov.uk/government/statistics/rural-productivity&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Observation for Economic Complexity (2017), United Kingdom&#xA;url: &lt;a href=&quot;https://oec.world/en/profile/country/gbr/&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://oec.world/en/profile/country/gbr/&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The Vegan Society (2019), The Vegan Society Statistics: Business/Food Sales&#xA;url: &lt;a href=&quot;https://www.vegansociety.com/news/media/statistics&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.vegansociety.com/news/media/statistics&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Public Health Evidence&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Chen, J., Peto, R. Pan, W., Liu, B., Campbell, T.C. Mortality, Biochemistry, Diet and Lifestyle in Rural China. Geographic study of 69 counties in Mainland China and 16 areas in Taiwan. Oxford University Press, 2006&#xA;url: &lt;a href=&quot;https://nutritionstudies.org/the-china-study/&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://nutritionstudies.org/the-china-study/&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Academy of Nutrition and Dietetics (2016), The Position of the Academy of Nutrition and Dietetics: Vegetarian Diets&#xA;url: &lt;a href=&quot;https://www.eatrightpro.org/-/media/eatrightpro-files/practice/position-and-practice-papers/position-papers/vegetarian-diet.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.eatrightpro.org/-/media/eatrightpro-files/practice/position-and-practice-papers/position-papers/vegetarian-diet.pdf&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;British Dietetic Association (August 2017), British Dietetic Association confirms well-planned vegan diets can support healthy living in people of all ages &#xA;url: &lt;a href=&quot;https://www.bda.uk.com/news/view?id=179&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.bda.uk.com/news/view?id=179&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Environmental Evidence&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Poore and Nemecek (2018), Reducing food’s environmental impacts through producers and consumers&lt;/p&gt;&#xA;&#xA;&lt;p&gt;CH5 page 77 Figure 5.12 of &#xA;Climate Change and Land: an IPCC special report on climate change, desertification, land degradation, sustainable land management, food security, and greenhouse gas fluxes in terrestrial ecosystems (IPCC 2019)&#xA;url: &lt;a href=&quot;https://www.ipcc.ch/srccl-report-download-page/&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.ipcc.ch/srccl-report-download-page/&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="24664" LastActivityDate="2019-10-24T20:56:49.933" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32426" PostTypeId="1" CreationDate="2019-10-25T01:27:59.323" Score="1" ViewCount="450" Body="&lt;p&gt;A question in relation to Price Elasticity of Demand.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My understanding is that when demand is elastic, a price reduction will increase&#xA;total revenue.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the price of a product changes from \$100 to \$80 (20% decrease) and quantity demanded increases from 1000 to 1240 (24% increase), PED = 24/-20 = -1.2 (elastic).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Total revenue at the original price (\$100) and quantity demanded (1000) = \$100,000 Total Revenue after the price change is \$80 x 1240 = \$99,200 so total revenue has actually fallen&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can anyone reconcile this with the point that when demand is elastic a price reduction should increase total revenue?&lt;/p&gt;&#xA;" OwnerUserId="24666" LastEditorUserId="1601" LastEditDate="2019-10-25T03:03:23.780" LastActivityDate="2019-10-26T01:47:59.937" Title="Price Elasticity of Demand - elastic demand and impact of price reductions on total revenue" Tags="&lt;elasticity&gt;" AnswerCount="2" CommentCount="1" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32427" PostTypeId="2" ParentId="32426" CreationDate="2019-10-25T03:49:57.927" Score="2" Body="&lt;p&gt;Like anything derived from calculus, the statement is guaranteed to hold true &lt;strong&gt;&lt;em&gt;only for infinitesimal change&lt;/em&gt;&lt;/strong&gt;. Unfortunately, since I don't know the entire demand function, I can't say much more than this.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A clear example of why this wouldn't work: starting at the same point \$100 and Q = 1000, we can decrease price to zero and total revenue would go down.&lt;/p&gt;&#xA;" OwnerUserId="5145" LastActivityDate="2019-10-25T03:49:57.927" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32429" PostTypeId="2" ParentId="32426" CreationDate="2019-10-25T10:53:05.717" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;My understanding is that when demand is elastic, a price reduction will increase total revenue.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Some readers may want to know that an elastic demand can either be &lt;a href=&quot;https://sites.google.com/site/economicsbasics/unitary-elastic-demand&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;unitary elastic&lt;/em&gt;&lt;/a&gt; (&lt;span class=&quot;math-container&quot;&gt;$E_d = −1$&lt;/span&gt;) or &lt;a href=&quot;https://sites.google.com/site/economicsbasics/relatively-elastic-demand&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;relatively elastic&lt;/em&gt;&lt;/a&gt; (&lt;span class=&quot;math-container&quot;&gt;$−∞ &amp;lt; E_d &amp;lt; −1$&lt;/span&gt;). When unitary elastic, the above statement is not true, strictly speaking.&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Can anyone reconcile this with the point that when demand is elastic a price reduction should increase total revenue?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Actually, to be logically compatible with your &quot;point&quot; (in which the observed change in total revenue is the objective reference of accuracy), your elasticity should be smaller than &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt; (in absolute value). Which you do not get since you are using &lt;em&gt;an approximation&lt;/em&gt; formulae, not good enough in this case. Indeed, as outlined in the other answer, this approximation formulae is only good for infinitesimal changes. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;That being explained, note that the &lt;a href=&quot;https://en.wikipedia.org/wiki/Elasticity_(economics)#Mathematical_construct&quot; rel=&quot;nofollow noreferrer&quot;&gt;mathematical construct behind elasticities&lt;/a&gt; is based on continuous sets. A better approximation is then&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$E_d = \frac{\ln(1240/1000)}{\ln(80/100)} = \frac{.215}{-.223} = -.964$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;so &lt;span class=&quot;math-container&quot;&gt;$−1 &amp;lt; E_d &amp;lt; 0$&lt;/span&gt;, which caracterizes a &lt;a href=&quot;https://sites.google.com/site/economicsbasics/relatively-inelastic-demand&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;relatively inelastic demand&lt;/em&gt;&lt;/a&gt;. In this case, as summarized on &lt;a href=&quot;https://en.wikipedia.org/wiki/Price_elasticity_of_demand#Effect_on_total_revenue&quot; rel=&quot;nofollow noreferrer&quot;&gt;wikipedia&lt;/a&gt;, when the price goes down, the total revenu decreases... &lt;strong&gt;&lt;em&gt;which is what you see.&lt;/em&gt;&lt;/strong&gt; Put differently, the &quot;reconciliation&quot; you are searching lies in the fact that you are actually &lt;strong&gt;&lt;em&gt;not&lt;/em&gt;&lt;/strong&gt; dealing with an elastic demand.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;hr&gt;&#xA;&lt;strong&gt;&lt;em&gt;NB&lt;/em&gt;&lt;/strong&gt;: The better approximation &lt;em&gt;here&lt;/em&gt; lies in computing variations as &lt;span class=&quot;math-container&quot;&gt;$\left[\ln\frac{a}{b}\right]$&lt;/span&gt; instead of &lt;span class=&quot;math-container&quot;&gt;$\left[-1 + \frac{a}{b}\right]$&lt;/span&gt;. See &lt;a href=&quot;https://economics.stackexchange.com/questions/23790/using-an-elasticity-to-evaluate-changes-in-a-dependent-variable/23792#23792&quot;&gt;this answer of mine&lt;/a&gt; for explanations.&lt;/p&gt;&#xA;" OwnerUserId="10247" LastEditorUserId="10247" LastEditDate="2019-10-26T01:47:59.937" LastActivityDate="2019-10-26T01:47:59.937" CommentCount="8" ContentLicense="CC BY-SA 4.0" />
  <row Id="32432" PostTypeId="1" CreationDate="2019-10-25T13:51:38.897" Score="3" ViewCount="73" Body="&lt;p&gt;I have a question when I'm doing exercise 3.C.5(b) of MWG. The exercise asks to prove that a continuous preference on &lt;span class=&quot;math-container&quot;&gt;$(-\infty,\infty)\times R^{L-1}_+$&lt;/span&gt; is quasilinear with respect to the first commodity iff it admits a utility function &lt;span class=&quot;math-container&quot;&gt;$u(x)$&lt;/span&gt; of the form:&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;u(x)=x_1+\Phi(x_2,...,x_L)&#xA;\end{equation}&lt;/span&gt;&#xA;In the proof, the existence of the utility function needs to be shown, but I am not sure if the quasilinear preference is monotonic (and rational) since the definition of quasilinear preference only states about the numeraire commodity.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My  question&lt;/strong&gt;: is the quasilinear preference relation naturally rational, monotonic and continuous, or we have to state the rationality, monotonicity and continuity additionally? Could you give some references?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks a lot!&lt;/p&gt;&#xA;" OwnerUserId="24676" LastEditorUserId="11590" LastEditDate="2020-11-17T23:41:09.547" LastActivityDate="2020-11-17T23:41:09.547" Title="Does quasilinear preference contain rationality, monotonicity or other assumptions?" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;preferences&gt;&lt;mwg&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32433" PostTypeId="2" ParentId="32418" CreationDate="2019-10-25T14:50:32.100" Score="0" Body="&lt;p&gt;I think the World Bank's table &lt;a href=&quot;https://data.worldbank.org/indicator/PA.NUS.PPPC.RF&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;strong&gt;Price level ratio of PPP conversion factor (GDP) to market exchange rate&lt;/strong&gt;&lt;/a&gt; gives an answer. The numbers given here indicate somehow how much of a month an average inhabitant of this country could afford to live an average life in the United States (by an average monthly income in his own country), right?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/mClSv.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/mClSv.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&#xA;...&#xA;&lt;a href=&quot;https://i.stack.imgur.com/BEuON.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/BEuON.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the &quot;poorest&quot; country (Sudan) we find a value of 0.2 (which means 6 days which is maybe more than one would expect), for the &quot;richest&quot; country (Bermuda) we find a value of 1.6 (which means one month plus 18 extra days for free).&lt;/p&gt;&#xA;" OwnerUserId="22991" LastEditorUserId="22991" LastEditDate="2019-10-25T15:02:52.067" LastActivityDate="2019-10-25T15:02:52.067" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="32434" PostTypeId="1" AcceptedAnswerId="32436" CreationDate="2019-10-25T16:17:52.370" Score="0" ViewCount="867" Body="&lt;p&gt;According to &lt;a href=&quot;https://cruel.org/econthought/essays/product/profit.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;this site&lt;/a&gt;, if output price increases from &lt;span class=&quot;math-container&quot;&gt;$p*$&lt;/span&gt; to &lt;span class=&quot;math-container&quot;&gt;$p'$&lt;/span&gt; and factor prices remain constant, then a new production bundle chosen must yield at least the same amount of profits as the old bundle, as the old profit would yield at least as much profit in higher output price. The reasoning behind which is understandable.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, how does it also apply for the case when output price decreases from &lt;span class=&quot;math-container&quot;&gt;$p*$&lt;/span&gt; to e.g. &lt;span class=&quot;math-container&quot;&gt;$p&quot;$&lt;/span&gt;? How does one be sure that the maximum profit at &lt;span class=&quot;math-container&quot;&gt;$p&quot;$&lt;/span&gt; would definitely be &lt;strong&gt;higher&lt;/strong&gt; than the one at &lt;span class=&quot;math-container&quot;&gt;$p*$&lt;/span&gt; (instead of lower)?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also what does it mean by &quot;reverse convexity&quot; in &quot;A reverse convexity will be obtained if we plot &lt;span class=&quot;math-container&quot;&gt;$\pi (p, w)$&lt;/span&gt; against a particular factor price, &lt;span class=&quot;math-container&quot;&gt;$w_i$&lt;/span&gt;.&quot; in the aforementioned proof on the same site? I can not even find a proper definition of the term on internet.&lt;/p&gt;&#xA;" OwnerUserId="14778" LastActivityDate="2019-10-25T21:34:50.207" Title="How to prove that profit function is convex in price (with smaller price)?" Tags="&lt;microeconomics&gt;&lt;production-function&gt;&lt;price&gt;&lt;profit-maximization&gt;&lt;profits&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32435" PostTypeId="1" CreationDate="2019-10-25T18:26:01.243" Score="1" ViewCount="221" Body="&lt;p&gt;Say a Cobb Douglas like:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\max_{X,Y\: s.t. X \cdot P_x+ Y \cdot P_y=I} U=X^\alpha Y^\beta$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When it comes to maximization I would do the following way (for the fastest result):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;x: &lt;span class=&quot;math-container&quot;&gt;$\alpha/(\alpha + \beta) = r; r*income = r_2$&lt;/span&gt;; &lt;span class=&quot;math-container&quot;&gt;$r_2$&lt;/span&gt;/price good = x$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there a similar (or really fast) method to solve for minimization problems?&lt;/p&gt;&#xA;" OwnerUserId="24637" LastEditorUserId="69" LastEditDate="2019-10-25T21:01:14.137" LastActivityDate="2019-10-25T21:01:14.137" Title="Short cuts to solve Cobb Douglas Utility function (minimization)" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;" AnswerCount="1" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="32436" PostTypeId="2" ParentId="32434" CreationDate="2019-10-25T18:29:06.023" Score="1" Body="&lt;p&gt;I don't think it is a case. On a page you linked we have a proof that the profit function is non-decreasing in &lt;span class=&quot;math-container&quot;&gt;$p$&lt;/span&gt;. If the output price decreases, &lt;span class=&quot;math-container&quot;&gt;$p \geq p'$&lt;/span&gt; and factor prices remain constant, &lt;span class=&quot;math-container&quot;&gt;$w_i \leq w'_i$&lt;/span&gt; for all inputs, then the profit would be less or equal to the previous one. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then, in connection to your previous question: &lt;a href=&quot;https://economics.stackexchange.com/questions/32399/how-to-prove-that-a-concave-production-imply-that-the-input-requirement-sets-are/32402#32402&quot;&gt;How to prove that a concave production imply that the input requirement sets are convex?&lt;/a&gt; you can let &lt;span class=&quot;math-container&quot;&gt;$\mathbf{y}=(y,-\mathbf{x})$&lt;/span&gt; be maximizing profit at &lt;span class=&quot;math-container&quot;&gt;$(p,\mathbf{w})$&lt;/span&gt; so that your profit function becomes &lt;span class=&quot;math-container&quot;&gt;$\pi(p,\mathbf{w})=py-\mathbf{wx}$&lt;/span&gt;. On page 12. of the &lt;em&gt;Lectures in Microeconomic Theory Fall 2009, Part 3&lt;/em&gt; you have linked, you can see a proof of that (probably the same as on the page you linked just now but not sure as the page does not open properly to me (cannot really see the mathematical equations).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for your second question - &quot;reverse convexity&quot; is a little bit strange expression, to show what the author meant I will use a picture. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/5BPry.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/5BPry.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As you can see it is still convex in input prices &lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt;. However, in comparison to plot with output prices &lt;span class=&quot;math-container&quot;&gt;$p$&lt;/span&gt;, it is decreasing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/b0OlO.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/b0OlO.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Algebraically, you can see it that way:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Profit function is &lt;strong&gt;convex&lt;/strong&gt; in both prices: &lt;span class=&quot;math-container&quot;&gt;$$\frac{\partial^2\pi}{\partial p^2}&amp;gt;0 \;\;\; \textrm{and} \;\;\; \frac{\partial^2\pi}{\partial w^2}&amp;gt;0$$&lt;/span&gt;&lt;/li&gt;&#xA;&lt;li&gt;Profit function is &lt;strong&gt;increasing&lt;/strong&gt; in output prices &lt;span class=&quot;math-container&quot;&gt;$p$&lt;/span&gt;: &lt;span class=&quot;math-container&quot;&gt;$$\frac{\partial\pi}{\partial p}&amp;gt;0 $$&lt;/span&gt;&lt;/li&gt;&#xA;&lt;li&gt;Profit function is &lt;strong&gt;decreasing&lt;/strong&gt; in input prices &lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt;: &lt;span class=&quot;math-container&quot;&gt;$$\frac{\partial\pi}{\partial w}&amp;lt;0 $$&lt;/span&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="23083" LastEditorUserId="23083" LastEditDate="2019-10-25T21:34:50.207" LastActivityDate="2019-10-25T21:34:50.207" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="32438" PostTypeId="2" ParentId="32435" CreationDate="2019-10-25T20:18:34.140" Score="1" Body="&lt;p&gt;A shortcut to solve &lt;span class=&quot;math-container&quot;&gt;$$\min_{x,y} x^{\alpha} y^{\beta}$$&lt;/span&gt; s.t. &lt;span class=&quot;math-container&quot;&gt;$$xp_x + yp_x \leq m$$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$$0 \leq x,y$$&lt;/span&gt; is to set &lt;span class=&quot;math-container&quot;&gt;$x = 0$&lt;/span&gt; and/or &lt;span class=&quot;math-container&quot;&gt;$y = 0$&lt;/span&gt;, as this results in &lt;span class=&quot;math-container&quot;&gt;$U(x,y) = 0$&lt;/span&gt;, and the function does not map to negative values.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2019-10-25T20:18:34.140" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32439" PostTypeId="2" ParentId="32000" CreationDate="2019-10-26T01:59:59.620" Score="2" Body="&lt;p&gt;Keat is mistaken. Most economists agree with Mankiw. The term &lt;em&gt;oppportunity cost&lt;/em&gt; includes all costs, including explicit out-of-pocket ones and any other implicit ones.&lt;/p&gt;&#xA;&lt;p&gt;As Henderson &lt;a href=&quot;https://www.econlib.org/library/Enc/OpportunityCost.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;states&lt;/a&gt;:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;The word “opportunity” in “opportunity cost” is actually redundant. The cost of using something is already the value of the highest-valued alternative use. But as contract lawyers and airplane pilots know, redundancy can be a virtue. In this case, its virtue is to remind us that the cost of using a resource arises from the value of what it could be used for instead.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Here are some definitions from introductory economics textbooks:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;The next-best good that is forgone represents the opportunity cost of a decision. (Samuelson &amp;amp; Nordhaus, &lt;em&gt;Economics&lt;/em&gt;, 2010, p. 13)&lt;/p&gt;&#xA;&lt;p&gt;Opportunity cost is the benefit that you might have gained from choosing the next-best alternative. (Colander, &lt;em&gt;Microeconomics&lt;/em&gt;, 2017, p. 9)&lt;/p&gt;&#xA;&lt;p&gt;We refer to this best alternative activity as the opportunity cost. (Acemoğlu, Laibson, &amp;amp; List, &lt;em&gt;Microeconomics&lt;/em&gt;, 2016, p. 41)&lt;/p&gt;&#xA;&lt;p&gt;Economists call that kind of cost—what you must give up in order to get an item you want—the opportunity cost of that item. ... The opportunity cost of an item—what you must give up in order to get it—is its true cost. (Krugman &amp;amp; Wells, &lt;em&gt;Economics&lt;/em&gt;, 2015, p. 7).&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;Of course, as mentioned by Henry, you can define any term as you please. So the question might be, &amp;quot;What is the standard or most commonly used definition among economists?&amp;quot; And the answer is, &amp;quot;Mankiw's and not Keat's.&amp;quot;&lt;/p&gt;&#xA;" OwnerDisplayName="user18" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2019-10-26T01:59:59.620" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32440" PostTypeId="1" AcceptedAnswerId="32441" CreationDate="2019-10-26T03:21:17.063" Score="0" ViewCount="175" Body="&lt;p&gt;The proposition is from lecture notes of advanced econometrics of Yongmiao Hong: &lt;a href=&quot;https://i.stack.imgur.com/QinQu.jpg&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/QinQu.jpg&quot; alt=&quot;notes page&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A1: &lt;span class=&quot;math-container&quot;&gt;$\{Y_t,X_t'\}_{t=1}^n$&lt;/span&gt; is an i.i.d. random sample.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A2: &lt;span class=&quot;math-container&quot;&gt;$E(\varepsilon_t|X_t)=0$&lt;/span&gt; almost surely with &lt;span class=&quot;math-container&quot;&gt;$E(\varepsilon_t^2)=\sigma^2&amp;lt;\infty$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Then A1 and A2 imply the strict exogeneity holds:&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;E(\varepsilon_t|X)=E(\varepsilon_t|X_1,...,X_t,...,X_n)&#xA;=E(\varepsilon_t|X_t)=0&#xA;\end{equation}&lt;/span&gt;&#xA;My question is about the second equality: why we have &lt;span class=&quot;math-container&quot;&gt;$E(\varepsilon_t|X_1,...,X_t,...,X_n)&#xA;=E(\varepsilon_t|X_t)$&lt;/span&gt; under assumptions given above?&lt;/p&gt;&#xA;" OwnerUserId="24676" LastActivityDate="2019-10-26T18:28:59.117" Title="Econometrics: why the i.i.d assumption and weak exogeneity assumption imply strict exogeneity?" Tags="&lt;econometrics&gt;&lt;regression&gt;&lt;applied-econometrics&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="32441" PostTypeId="2" ParentId="32440" CreationDate="2019-10-26T14:17:21.520" Score="0" Body="&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{align*}&#xA;\mathbb{E}\left[ \epsilon_t \vert X \right] &amp;amp;= \mathbb{E}\left[\epsilon_t \vert X_1, \dots, X_t, \dots, X_n \right]\\&#xA;&amp;amp;= \mathbb{E} [Y_t - X_t'\beta^0 \, \vert X_1, \dots, X_t, \dots, X_n] \\&#xA;&amp;amp;= \mathbb{E} [Y_t - X_t'\beta^0 \, \vert X_t] \quad \text{since $\{Y_t,X_t\}$ is iid.} \\&#xA;&amp;amp;=\mathbb{E}\left[ \epsilon_t \vert X_t \right] \\&#xA;&amp;amp;= 0 \quad \text{by Assumption A2.}&#xA;\end{align*}&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="10069" LastActivityDate="2019-10-26T14:17:21.520" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="32442" PostTypeId="1" CreationDate="2019-10-26T14:26:59.640" Score="0" ViewCount="57" Body="&lt;p&gt;In information economics, information has economic value because it allows an agent to make better decisions. For example if an agent needs to buy some good, he will benefit from knowing about the existence of all possible sellers since he will be able to buy at the lowest price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I was wondering if there is work in economics that takes this view to the extreme and considers that the price of a good/service entirely reflects the absence of information about this good/service (to simplify it would be the sum of “not knowing how to efficiently manufacture this” + “not knowing where to get the raw material”)&lt;/p&gt;&#xA;" OwnerUserId="24231" LastActivityDate="2019-11-27T18:13:05.870" Title="Do all prices just reflect absence of information?" Tags="&lt;price-theory&gt;&lt;information&gt;" AnswerCount="2" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="32443" PostTypeId="1" AcceptedAnswerId="32445" CreationDate="2019-10-26T16:18:21.843" Score="1" ViewCount="295" Body="&lt;p&gt;I'm doing exercises of Chapter3 of MWG, there's a problem that I don't understand (I didn't figure out the solution manual either...).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is about exercise 3.D.4, the full statement of the exercise is as follows:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let &lt;span class=&quot;math-container&quot;&gt;$(-\infty,\infty)\times R_+^{L-1}$&lt;/span&gt; denote the consumption set, and assume that preferences are strictly convex and quasilinear. Normalize &lt;span class=&quot;math-container&quot;&gt;$p_1=1$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(a) Show that the Walrasian demand functions for goods &lt;span class=&quot;math-container&quot;&gt;$2,...,L$&lt;/span&gt; are independent of wealth. What does this imply about the wealth effect of demand for good 1?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(b) Argue that the indirect utility function can be written in the form &lt;span class=&quot;math-container&quot;&gt;$v(p,w)=w+\Phi(p)$&lt;/span&gt; for some function &lt;span class=&quot;math-container&quot;&gt;$\Phi(·)$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(c) Suppose, for simplicity, that &lt;span class=&quot;math-container&quot;&gt;$L=2$&lt;/span&gt;, and write the consumer's utility function as &lt;span class=&quot;math-container&quot;&gt;$u(x_1,x_2)=x_1+\eta(x_2)$&lt;/span&gt;. Now, however, let the consumption set be &lt;span class=&quot;math-container&quot;&gt;$R_+^2$&lt;/span&gt;, so that there is a nonnegative constraint on consumption of the numeraire &lt;span class=&quot;math-container&quot;&gt;$x_1$&lt;/span&gt;. Fix prices &lt;span class=&quot;math-container&quot;&gt;$p$&lt;/span&gt;, and examine how the consumer's Walrasian demand changes as wealth &lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt; varies. When is the nonnegativity constraint on the numeraire irrelevant?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;My question&lt;/strong&gt; is about the (c) part: &lt;strong&gt;1.&lt;/strong&gt; what does it mean? &lt;strong&gt;2.&lt;/strong&gt; Can anyone explain the solution to it?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The solution to (c) (from the solution manual) is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The non-negativity constraint is binding if and only if &lt;span class=&quot;math-container&quot;&gt;$p_2x_2(p,0)&amp;gt;w$&lt;/span&gt;. Note that &lt;span class=&quot;math-container&quot;&gt;$x_2(p,0)=(\eta')^{-1}(p_2)$&lt;/span&gt;, because &lt;span class=&quot;math-container&quot;&gt;$p_1=1$&lt;/span&gt;. Hence the constraint is binding if and only if &lt;span class=&quot;math-container&quot;&gt;$p_2(\eta')^{-1}(p_2)&amp;gt;w$&lt;/span&gt;. If so, the Walrasian demand is given by &lt;span class=&quot;math-container&quot;&gt;$x(p,w)=(0,w/p_2)$&lt;/span&gt;. Thus, as &lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt; changes, the consumption level of the first good is unchanged and the consumption of the second good changes at rate &lt;span class=&quot;math-container&quot;&gt;$1/p_2$&lt;/span&gt; with &lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt; until the non-negativity constraint no longer binds.&lt;/p&gt;&#xA;" OwnerUserId="24676" LastActivityDate="2019-10-30T16:09:36.393" Title="A question about MWG Exercise 3.D.4" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;preferences&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32445" PostTypeId="2" ParentId="32443" CreationDate="2019-10-26T20:49:58.170" Score="2" Body="&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;In the original problem, for &lt;span class=&quot;math-container&quot;&gt;$L=2$&lt;/span&gt;, the consumption set was &lt;span class=&quot;math-container&quot;&gt;$(-\infty,\infty) \times \mathbb{R}_{+}$&lt;/span&gt;. Now, the consumer is restricted to &lt;span class=&quot;math-container&quot;&gt;$[0,\infty)\times \mathbb{R}_{+} = \mathbb{R}_{+}^2$&lt;/span&gt;. Fix a price &lt;span class=&quot;math-container&quot;&gt;$p = (1,p_2)$&lt;/span&gt;, and now see what happens to Walrasian demand (i.e. &lt;span class=&quot;math-container&quot;&gt;$x(p,w) = (x_1,x_2))$&lt;/span&gt; as we vary &lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt;.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;You saw from part (a) that a consumer with these preferences consume in the following order.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(i) Spend all money on good 2 until we get to &lt;span class=&quot;math-container&quot;&gt;$x_2(p,0)$&lt;/span&gt; (since the amount of good 2 demanded is independent of &lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt;).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(ii) If you have money leftover, spend it on good 1 (i.e. &lt;span class=&quot;math-container&quot;&gt;$x_1(p,w) \geq 0$&lt;/span&gt;). Otherwise, in order to balance the budget, consume negative amounts of good 1 (i.e. &lt;span class=&quot;math-container&quot;&gt;$x_1(p,w) &amp;lt; 0$&lt;/span&gt;).&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;Let us now fix &lt;span class=&quot;math-container&quot;&gt;$p = (1,p_2)$&lt;/span&gt;. Now, we are unable to do case (ii) when you have overspent on good 2. You can only overspend when:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$p_2 \times x_2(p,0) &amp;gt; w$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Using the usual marginal rate of substitution equal price ratio, we have:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\frac{\eta'(x_2)}{1} = \frac{p_2}{1}&#xA;$$&lt;/span&gt;&#xA;Hence,&#xA;&lt;span class=&quot;math-container&quot;&gt;$$x_2(p,0) = \eta'^{-1}(p_2)$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Going back to the first equation, &lt;span class=&quot;math-container&quot;&gt;$p_2\times \eta'^{-1}(p_2) &amp;gt; w$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since she spends all her money on good 2, the budget constraint&#xA;&lt;span class=&quot;math-container&quot;&gt;$$x_1(p,w) + p_2 x_2(p,0) = w$$&lt;/span&gt;&#xA;becomes&#xA;&lt;span class=&quot;math-container&quot;&gt;$$p_2 x_2(p,0) = w$$&lt;/span&gt;&#xA;or&#xA;&lt;span class=&quot;math-container&quot;&gt;$$x_2(p,0) = \frac{w}{p_2}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence, her Walrasian demand (up to &lt;span class=&quot;math-container&quot;&gt;$p_2\times \eta'^{-1}(p_2) &amp;gt; w$&lt;/span&gt;) is&#xA;&lt;span class=&quot;math-container&quot;&gt;$$x(p,w) = (0,\frac{w}{p_2})$$&lt;/span&gt;&#xA;And once &lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt; is large enough such that &lt;span class=&quot;math-container&quot;&gt;$p_2\times \eta'^{-1}(p_2) \leq w$&lt;/span&gt;,&#xA;&lt;span class=&quot;math-container&quot;&gt;$$x(p,w) = (w - x_2(p,0),x_2(p,0))$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;EDIT: Lets try a different way to get the answer using the calculus approach.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Our new maximisation problem is:&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{align*}&#xA;\max_{x_1,x_2} \, &amp;amp;x_1 + \eta(x_2) \\&#xA;\text{s.t. } &amp;amp;x_1 + p_2 x_2 = w &amp;amp;\text{ (Budget constraint)}\\&#xA;&amp;amp;x_1 \geq 0 &amp;amp;\text{ (Non-negativity constraint) }&#xA;\end{align*}&lt;/span&gt;&#xA;I put equality on the budget constraint because I assume monotonicity.&#xA;The associated Lagrangian is &#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\mathcal{L} = x_1 + \eta(x_2) + \lambda(w - x_1 - p_2 x_2) + \mu(x_1)&#xA;$$&lt;/span&gt;&#xA;Taking first order conditions:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;1 - \lambda + \mu = 0 \\&#xA;\eta'(x_2) - p_2\lambda = 0&#xA;$$&lt;/span&gt;&#xA;Now, suppose the non-negativity constraint &lt;strong&gt;does not bind&lt;/strong&gt; (i.e. &lt;span class=&quot;math-container&quot;&gt;$x_1 &amp;gt; 0$&lt;/span&gt;). Then, by complimentary slackness, &lt;span class=&quot;math-container&quot;&gt;$\mu = 0$&lt;/span&gt;, which implies &lt;span class=&quot;math-container&quot;&gt;$\lambda = 1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$x^*_2 = \eta'^{-1}(p_2)$&lt;/span&gt;.&#xA;We can clearly see that the optimal choice of &lt;span class=&quot;math-container&quot;&gt;$x_2$&lt;/span&gt; does not depend on &lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt; at all when the constraint is non-binding.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, suppose the non-negativity constraint &lt;strong&gt;does bind&lt;/strong&gt; (i.e. &lt;span class=&quot;math-container&quot;&gt;$x_1 = 0$&lt;/span&gt;). Using the budget constraint, &lt;span class=&quot;math-container&quot;&gt;$0 + p_2x_2 = w$&lt;/span&gt;, thus &lt;span class=&quot;math-container&quot;&gt;$x_2 = \frac{w}{p_2}$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, when does the non-negativity constraint matter? It matters only when we would like to set &lt;span class=&quot;math-container&quot;&gt;$x_1 &amp;lt; 0$&lt;/span&gt;. Again, using the budget constraint, &#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;0 &amp;gt; x_1 = w - p_2x_2^* = w - p_2 \eta'^{-1}(p_2) \Leftrightarrow w &amp;lt; p_2 \eta'^{-1}(p_2)&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence, when &lt;span class=&quot;math-container&quot;&gt;$w &amp;lt; p_2 \eta'^{-1}(p_2)$&lt;/span&gt;, the constraint &lt;strong&gt;binds&lt;/strong&gt; thus &lt;span class=&quot;math-container&quot;&gt;$x_1 = 0$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$x_2 = \frac{w}{p_2}$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When &lt;span class=&quot;math-container&quot;&gt;$w \geq p_2 \eta'^{-1}(p_2)$&lt;/span&gt;, the constraint &lt;strong&gt;does not bind&lt;/strong&gt; thus &lt;span class=&quot;math-container&quot;&gt;$x_2 = \eta'^{-1}(p_2)$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$x_1 = w - \eta'^{-1}(p_2) \geq 0$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerUserId="10069" LastEditorUserId="10069" LastEditDate="2019-10-30T16:09:36.393" LastActivityDate="2019-10-30T16:09:36.393" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="32446" PostTypeId="1" AcceptedAnswerId="32464" CreationDate="2019-10-26T22:27:23.613" Score="1" ViewCount="61" Body="&lt;p&gt;Currently, the volatile price of cryptocurrencies such as Bitcoin means that they are currently poor stores of value and therefore are unlikely to achieve mass adoption. What can be done to stabilise the price of a cryptocurrency, apart from pegging the cryptocurrency to a fiat currency?&lt;/p&gt;&#xA;" OwnerUserId="24672" LastActivityDate="2019-10-28T03:24:18.910" Title="Can we stabilise the price of a cryptocurrency?" Tags="&lt;cryptocurrency&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="32447" PostTypeId="1" CreationDate="2019-10-27T06:07:44.473" Score="5" ViewCount="52" Body="&lt;p&gt;It is standard to claim that education generates positive externalities.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, Mankiw (2017, &lt;em&gt;Principles of Economics&lt;/em&gt;, p. 193):&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;education also yields positive externalities. One externality is that a more educated population leads to more informed voters, which means better government for everyone. Another externality is that a more educated population tends to result in lower crime rates. A third externality is that a more educated population may encourage the development and dissemination of technological advances, leading to higher productivity and wages for everyone. Because of these three positive externalities, a person may prefer to have neighbors who are well educated.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;But do economists (or anyone else) actually have any estimates of the magnitudes of the externalities generated by education?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(For example, Mankiw's &quot;more education leads to better government for everyone&quot; sounds plausible. But has anyone ever tried quantifying this? And if they did, is the effect positive and large? Or might it be near zero or even negative?)&lt;/p&gt;&#xA;" OwnerDisplayName="user14083" LastEditorUserId="6210" LastEditDate="2019-10-27T09:26:58.597" LastActivityDate="2019-10-27T09:26:58.597" Title="Estimates of magnitude of externalities generated by education?" Tags="&lt;empirical-evidence&gt;&lt;externalities&gt;&lt;education-economics&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32449" PostTypeId="1" CreationDate="2019-10-27T09:59:17.163" Score="2" ViewCount="61" Body="&lt;p&gt;I am supposed to solve the problem:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A 24-year-old man decides to invest 200,000 euros at a 7% annual interest rate to bring him a regular annual pension from 31 to 50 years inclusive. What will be the pension?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I did was that I used the formula for the future formula of pension:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$FV=A\frac{\left ( 1+i \right )^{n}-1}{i}\left ( 1+i \right )=200,000\frac{\left ( 1+0,07 \right )^{7}-1}{0,07}\left ( 1+0,07 \right )=1851960.514$$&lt;/span&gt; and then I divided it for twenty years which is 92598.02 &lt;/p&gt;&#xA;&#xA;&lt;p&gt;But that is incorrect. The correct solution is 28331. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can someone tell me, where I made a mistake?&lt;/p&gt;&#xA;" OwnerUserId="24640" LastActivityDate="2019-10-28T10:00:06.457" Title="Regular annual pension" Tags="&lt;mathematical-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32450" PostTypeId="1" CreationDate="2019-10-27T10:33:46.177" Score="1" ViewCount="441" Body="&lt;p&gt;In the expenditure approach of GDP calculation, why are government employee's salary counted under Government approach while for private firms, we don't count salaries. I am unable to understand if there is asymmetry and if yes, then why? &lt;/p&gt;&#xA;" OwnerUserId="21151" LastActivityDate="2019-10-27T11:05:09.877" Title="Why salaries counted under Government expenditure in GDP" Tags="&lt;gdp&gt;&lt;investment&gt;&lt;consumption&gt;&lt;government&gt;&lt;government-spending&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32451" PostTypeId="2" ParentId="32450" CreationDate="2019-10-27T11:05:09.877" Score="1" Body="&lt;p&gt;The expenditure measure of GDP counts final expenditure, i.e. consumption by individuals and government and foreigners (exports) plus all capital formation (i.e. investment), and then subtracts imports since that part of final expenditure is not satisfied by domestic production. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The salaries of government employees count as government consumption in the same way as the government's purchase of services from private companies also count as government consumption.  So the effect of paying for this work is the same whether the individuals are employees or contractors.&lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2019-10-27T11:05:09.877" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32453" PostTypeId="1" CreationDate="2019-10-27T18:22:31.410" Score="2" ViewCount="185" Body="&lt;p&gt;I was doing my homework and got really confused about how to approach the optimal levels of inputs when there are three variables. My current understanding is that the problem is to solve the optimization problem&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\min_{H, L, K}\;{sH + wL +rK}$$&lt;/span&gt; &#xA;subject to&#xA;&lt;span class=&quot;math-container&quot;&gt;$$q = \min\{H,L\} + \min\{H,K\}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, I don't know how to determine the inputs of H, L, and K. Below is the problem:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;A monopolist can hire high skill labor &lt;span class=&quot;math-container&quot;&gt;$H$&lt;/span&gt;, low skill labor &lt;span class=&quot;math-container&quot;&gt;$L$&lt;/span&gt;, and robots &lt;span class=&quot;math-container&quot;&gt;$K$&lt;/span&gt;. The per-unit price of these inputs are &lt;span class=&quot;math-container&quot;&gt;$s$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt;, and &lt;span class=&quot;math-container&quot;&gt;$r$&lt;/span&gt;. High skill labor is more expensive: &lt;span class=&quot;math-container&quot;&gt;$s &amp;gt; w$&lt;/span&gt;. The production function is &lt;span class=&quot;math-container&quot;&gt;$f(H, L, K) = \min\{H, L\} + \min\{H, K\}$&lt;/span&gt;. The demand curve that the monopolist faces is &lt;span class=&quot;math-container&quot;&gt;$D(p) = A-p$&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$A &amp;gt; w + r + s$&lt;/span&gt;. Suppose that robots are cheap: &lt;span class=&quot;math-container&quot;&gt;$r &amp;lt; w + s$&lt;/span&gt;.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Essentially, we're asked to find the optimal levels (yields lowest costs) of input in terms of q for H,L,K&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I initially thought since &lt;span class=&quot;math-container&quot;&gt;$r&amp;lt;w+s$&lt;/span&gt;, and &lt;span class=&quot;math-container&quot;&gt;$w&amp;lt;s$&lt;/span&gt;, we can deduce that &lt;span class=&quot;math-container&quot;&gt;$r&amp;lt;s+s$&lt;/span&gt;, and for this reason, the production function would give either &lt;span class=&quot;math-container&quot;&gt;$q = H+K$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$q = L+H$&lt;/span&gt;, or &lt;span class=&quot;math-container&quot;&gt;$q = L+K$&lt;/span&gt; (making &lt;span class=&quot;math-container&quot;&gt;$H+H$&lt;/span&gt; the only impossible combination). However, I'm super unsure if this is the right thought process, and I don't know how to proceed from here. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help is greatly appreciated. &lt;/p&gt;&#xA;" OwnerUserId="24692" LastEditorUserId="5145" LastEditDate="2019-10-28T11:10:00.633" LastActivityDate="2019-10-28T22:13:56.123" Title="Optimal Production Input in Relation to Cost Minimization Problem" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;input-output&gt;&lt;cost-functions&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32454" PostTypeId="2" ParentId="32449" CreationDate="2019-10-27T18:50:03.260" Score="2" Body="&lt;p&gt;Firstly, the formula you have used for FV is equivalent to that shown &lt;a href=&quot;https://www.accountingtools.com/articles/what-is-the-formula-for-the-future-value-of-an-annuity-due.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;here&lt;/a&gt;. What it calculates, with your numbers, is the value after 7 years of investing 200,000 &lt;em&gt;annually&lt;/em&gt; at a compound rate of 7% (as a rough confirmation, 1,851,960 is somewhat more than 7 x 200,000).  Instead, you need the value after 7 years (or 6 years if the man is already at the end of his 24th year) of a one-off investment of 200,000 (call that V).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Secondly, the simple division by 20 takes no account of the interest earned during years 31-50. To allow for this, you need the present value of an annuity formula (&lt;a href=&quot;https://financeformulas.net/Present_Value_of_Annuity.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;source&lt;/a&gt;):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$P\Bigg[\frac{1-(1+i)^{-n}}{i}\Bigg]$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Set this formula equal to V and treat the annual (periodic) payment P as an unknown to be found.&lt;/p&gt;&#xA;" OwnerUserId="1417" LastEditorUserId="1417" LastEditDate="2019-10-28T10:00:06.457" LastActivityDate="2019-10-28T10:00:06.457" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32455" PostTypeId="1" CreationDate="2019-10-27T11:37:57.357" Score="0" ViewCount="71" Body="&lt;p&gt;We know that government shouldn't just print money, because it's gonna be bad. Bad what if to do it in a small scale, just a little, for example to hire some scientist (probably nothing gonna happen because of printed salary for just one or three men) or get one oil tanker (to get a little of oil)?&#xA;And it both those cases it looks like a good investment that will return money.&lt;/p&gt;&#xA;" OwnerUserId="25197" OwnerDisplayName="R S" LastActivityDate="2019-10-27T19:05:30.167" Title="Can government just print a little of money to purchase some foreign resources?" Tags="&lt;inflation&gt;&lt;money-supply&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32456" PostTypeId="2" ParentId="32455" CreationDate="2019-10-27T12:11:48.300" Score="3" Body="&lt;blockquote&gt;We know that government shouldn't just print money&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I partly disagree. The government (or, well, the central bank) should print the amount of money that is needed to keep the inflation stable. Anything above that shouldn't be done.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;Bad what if to do it in a small scale, just a little&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;&lt;i&gt;What if you stole something small from a nearby shop, just a little?&lt;/i&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;i&gt;What if you took advantage of insider information, just a little?&lt;/i&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;i&gt;What if you committed a small accounting fraud, just a little?&lt;/i&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Printing money increases the monetary supply. That leads to inflation, which leads to increased inflation expectations. The increased inflation expectations raise the nominal interest rates.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Those who have net debt will benefit (if it's fixed rate), those who have financed the debt of others by depositing money into bank will suffer (if they are fixed rate deposits). The suffering will be greater than the benefit, because of the unpredictability of inflation (if the government is free to print money, you never know how large the inflation is going to be).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Generally, governments are in debt (and they should be because it offers investors the ability to invest into government bonds, which are a core part of a stable investment portfolio) and the debt is fixed rate. Thus, the people having the government bonds will suffer. Essentially, printing money steals from the government bond holders.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Those who have real assets like real estate, forest or non-financial stocks will not see any effect (expect perhaps by taxation because capital gains are typically fully taxed even if they occur in times of increased inflation).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note the government will eventually suffer as well. The unpredictable inflation means government bonds have a higher yield, meaning if the government is going to finance most of its operations by obtaining debt from the public (even though printing money for the rest of its operations), the interest rates will rise. So, printing money is a bad strategy, even in a small scale. Soon there will be no other way of funding the government operations apart from printing even more money, which leads to hyperinflation.&lt;/p&gt;&#xA;" OwnerUserId="24694" OwnerDisplayName="juhist" LastActivityDate="2019-10-27T12:11:48.300" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32457" PostTypeId="1" CreationDate="2019-10-27T19:33:52.067" Score="0" ViewCount="28" Body="&lt;p&gt;My book says that from the axioms of perfect competition follows that the price is fixed in every transaction but it doesn't specify in which way it is possible to prove it. Besides, are all the axioms necessary to prove this &quot;theorem&quot;?&lt;/p&gt;&#xA;" OwnerUserId="24572" LastEditorUserId="24572" LastEditDate="2019-10-28T09:13:06.913" LastActivityDate="2019-10-28T09:13:06.913" Title="Why hipothesis of perfect competition market implies fixed price of a product in every transaction?" Tags="&lt;microeconomics&gt;&lt;efficient-markets&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="32458" PostTypeId="1" AcceptedAnswerId="32465" CreationDate="2019-10-27T20:01:18.083" Score="0" ViewCount="25" Body="&lt;p&gt;I have two data frames with panel data. The first contains data on companies on a yearly basis. The layout is as below:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;ID Year x1  x2  x3&#xA;A1 2000 10  11  12&#xA;A2 2000 13  25  20&#xA;A1 2001 13  58  13&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;and so on. &#xA;The second data set contains the same companies, but data that is split by state AND year.&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;ID  Year  State  xx1  xx2  xx3&#xA;A1  2000   AL    581  135  1.22&#xA;A1  2000   FL    584  51    1.5&#xA;A2  2000   AL    5138 84   1.7&#xA;...&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Now, I am wondering if and how I can merge these two?&#xA;Economically, it makes sense to have these different data panels as some data is only available on an overall company level (total assets, debt, income) and some data can be split for example: revenue in state; customers in state and so on...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am very grateful for any idea on this!&lt;/p&gt;&#xA;&#xA;&lt;p&gt;p.s. using R&lt;/p&gt;&#xA;" OwnerUserId="24695" LastActivityDate="2019-10-29T00:51:51.380" Title="Merging Panel data with two different splits. Is it possible?" Tags="&lt;paneldata&gt;&lt;r&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32459" PostTypeId="2" ParentId="32453" CreationDate="2019-10-27T22:00:39.957" Score="1" Body="&lt;p&gt;I`d propose you to follow these steps:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Set up the minimization cost problem (&lt;em&gt;i.e.&lt;/em&gt; for a given output quantity &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; minimize costs):&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{align}&#xA;\min_{H,L,K}&amp;amp;  \quad sH + wL + rK \tag{1} \label{1}\\&#xA;\text{such that} &amp;amp;\quad  \min\{H,L\} + \min\{H, K\}\geq y \tag{2} \label{2}&#xA;\end{align}&lt;/span&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;In principle you have 3 cases, depending on price of factors &lt;span class=&quot;math-container&quot;&gt;$(s,w,r)$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;1)&lt;/strong&gt; When &lt;span class=&quot;math-container&quot;&gt;$r&amp;gt;s+w$&lt;/span&gt;, then buying a unit of &lt;span class=&quot;math-container&quot;&gt;$L$&lt;/span&gt; and one of &lt;span class=&quot;math-container&quot;&gt;$H$&lt;/span&gt; is going to cost you &lt;em&gt;strictly less&lt;/em&gt; than buying a unit ok &lt;span class=&quot;math-container&quot;&gt;$K$&lt;/span&gt;. Consequently the monopolist opts for producing only using &lt;span class=&quot;math-container&quot;&gt;$H$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$L$&lt;/span&gt; (&lt;span class=&quot;math-container&quot;&gt;$K=0$&lt;/span&gt;). Thus &lt;span class=&quot;math-container&quot;&gt;$H = L = y$&lt;/span&gt; &lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;2)&lt;/strong&gt; The second case happens for &lt;span class=&quot;math-container&quot;&gt;$s&amp;gt;r+w$&lt;/span&gt; which is, anyway, &lt;strong&gt;ruled out&lt;/strong&gt; by the assupmption &lt;span class=&quot;math-container&quot;&gt;$w&amp;gt;s$&lt;/span&gt; (if this was not the case, then producing only using &lt;span class=&quot;math-container&quot;&gt;$H$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$K$&lt;/span&gt; would have been optimal, &lt;em&gt;i.e&lt;/em&gt; &lt;span class=&quot;math-container&quot;&gt;$H = K = y$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$L = 0$&lt;/span&gt;). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;3)&lt;/strong&gt; Finally, when none of the above occurs, you have &lt;span class=&quot;math-container&quot;&gt;$L = H$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$K = H$&lt;/span&gt; because of the fixed proportions production function. Then the constraint \eqref{2} becomes &lt;span class=&quot;math-container&quot;&gt;$H + H \geq y$&lt;/span&gt; and the inequality sign become equality. The equality sign comes from the fact that producing more than &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; (the LHS of \ref{2} being strictly larger than the RHS) is just overshooting and inflates production costs for a &lt;em&gt;given&lt;/em&gt; &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt;. &lt;span class=&quot;math-container&quot;&gt;$L = H$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$K = H$&lt;/span&gt; comes from the &lt;em&gt;Leontief production&lt;/em&gt; set-up of the problem: inside the &lt;span class=&quot;math-container&quot;&gt;$\min\{...,...\}$&lt;/span&gt; operator is never convenient to exploit more one of the two factors (because by decreaing the most used factor one still gets the same amount of output but a lower cost). Therefore, each of the two &lt;span class=&quot;math-container&quot;&gt;$\min\{...,...\}$&lt;/span&gt; can just be seen as one of its inner arguments, namely, for convenience, &lt;span class=&quot;math-container&quot;&gt;$H$&lt;/span&gt;. So you finally get &lt;span class=&quot;math-container&quot;&gt;$H+H = y$&lt;/span&gt; and, from there: &lt;span class=&quot;math-container&quot;&gt;$H = y/2$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$L = K = y/2$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;ol start=&quot;3&quot;&gt;&#xA;&lt;li&gt;Substitute the optimal values &lt;span class=&quot;math-container&quot;&gt;${\big(H^*\small{(s,w,r)},L^*\small{(s,w,r)},K^*\small{(s,w,r)}\big)}$&lt;/span&gt; in \eqref{1} so to get an expression only in &lt;span class=&quot;math-container&quot;&gt;$(s,w,r)$&lt;/span&gt;. This expression is the cost function &lt;span class=&quot;math-container&quot;&gt;$C(s,w,r,y)$&lt;/span&gt;&lt;/li&gt;&#xA;&lt;li&gt;Now solve the monopolist's pricing problem for given factor prices:&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;\max_p \quad p\cdot D(p) - C\big(s,w,r,D(p)\big)&#xA;\end{equation}&lt;/span&gt;&#xA;and find the profit maximizing price, &lt;span class=&quot;math-container&quot;&gt;$p^*$&lt;/span&gt; for output level &lt;span class=&quot;math-container&quot;&gt;$y^* = D(p^*)$&lt;/span&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;I hope this helps, comment below if you need any more hint.&lt;/p&gt;&#xA;" OwnerUserId="14692" LastEditorUserId="14692" LastEditDate="2019-10-28T22:13:56.123" LastActivityDate="2019-10-28T22:13:56.123" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="32461" PostTypeId="1" AcceptedAnswerId="32468" CreationDate="2019-10-27T23:03:39.860" Score="5" ViewCount="826" Body="&lt;p&gt;I have been told that no arbitrage is a stronger assumption than than the law of one price.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In particular, Law of One Price is equivalent to the existence of a stochastic discount factor, whereas no arbitrage is equivalent to the existence of a &lt;em&gt;strictly positive&lt;/em&gt; stochastic discount factor.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can someone give me an example where LOOP holds, but No Arbitrage fails?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks.&lt;/p&gt;&#xA;" OwnerUserId="21529" LastEditorUserId="21529" LastEditDate="2019-10-28T02:43:09.303" LastActivityDate="2019-10-28T04:16:48.090" Title="Example of Law of One Price holds but No Arbitrage Fails" Tags="&lt;finance&gt;&lt;asset-pricing&gt;&lt;law&gt;" AnswerCount="1" CommentCount="2" FavoriteCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="32462" PostTypeId="2" ParentId="32442" CreationDate="2019-10-28T02:51:09.833" Score="-1" Body="&lt;p&gt;When barriers to entry are low that is the case. If I have a 3d printer and materials then anything I make is just information based.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As markets become more efficient and barriers fall this gets more obvious.&lt;/p&gt;&#xA;" OwnerUserId="24697" LastActivityDate="2019-10-28T02:51:09.833" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="32464" PostTypeId="2" ParentId="32446" CreationDate="2019-10-28T03:24:18.910" Score="0" Body="&lt;p&gt;First it might be useful to list the reasons behind cryptos' volatility.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One of the reasons is that cryptos have no underlying value. In contrast to other assets like oil, gold, company shares, etc. that you could make use of them, cryptos are similar to fiat currencies in that they're not fully backed... but in the case of fiat currencies, at least (in my understanding) there are laws that make them valuable (&quot;these notes can be used to settle debts&quot; or something similar.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Value of most cryptos are determined, therefore, by &quot;investors&quot;' beliefs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To &quot;fix&quot; this, you could, as you suggested, peg it to fiat currency (or basket of currencies), &lt;em&gt;or&lt;/em&gt; you could back it up with other assets/commodities.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Other reasons (you could Google why cryptos are volatile) include having many retail investors holding a significant portion of the asset, not having that many institutional players in the market, etc. could be analyzed accordingly to make cryptos more stable.&lt;/p&gt;&#xA;" OwnerUserId="5145" LastActivityDate="2019-10-28T03:24:18.910" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32465" PostTypeId="2" ParentId="32458" CreationDate="2019-10-28T03:30:11.137" Score="0" Body="&lt;p&gt;I would just merge them horizontally... so that the main dataset is the second one, and you include country-wide statistics into each row:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;ID  Year  State  xx1  xx2  xx3   x1  x2  x3&#xA;A1  2000   AL    581  135  1.22  10  11  12&#xA;A1  2000   FL    584  51   1.5   10  11  12&#xA;A2  2000   AL    5138 84   1.7   13  25  20&#xA;...&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;" OwnerUserId="5145" LastActivityDate="2019-10-28T03:30:11.137" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32467" PostTypeId="1" CreationDate="2019-10-28T03:52:37.503" Score="0" ViewCount="432" Body="&lt;p&gt;According to Pablo Kurlat's textbook on Macroeconomics, the graph of Ch 13 compares the velocity of M1 and M2 over the years. I don't understand why M1 velocity exceeds M2 even though M2 includes more variables such as M1+ money market mutual funds + time deposits + savings deposits. I thought M2 velocity would exceed M1 velocity. I also understand that according to the Quantity equation: money supply * velocity = price level * real GDP&#xA;&lt;a href=&quot;https://i.stack.imgur.com/V9lDy.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/V9lDy.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="24600" LastActivityDate="2019-11-27T07:02:25.373" Title="Velocity of M1 versus M2 money" Tags="&lt;macroeconomics&gt;&lt;monetary-policy&gt;&lt;money-supply&gt;&lt;quantity-theory-of-money&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32468" PostTypeId="2" ParentId="32461" CreationDate="2019-10-28T04:16:48.090" Score="5" Body="&lt;p&gt;Examples where this happens are always extreme and contrived. I can think of two kinds of examples. The first is where you have an asset that for some reason has a price of zero or negative but a positive payoff in some states (perhaps no other asset pays off in that state). The second is where you have two assets with positive prices that have negative payoffs in all states (or vice versa).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can come up with other varieties, but they're always a little weird. To show you how to do this, I'll be a little more precise. To answer this question, we need to be a little more clear about what arbitrage means. A lot of books give definitions for two kinds of arbitrage (e.g. see the asset pricing book by Darrell Duffie). Let me set up some notation first, though. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Notation&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let &lt;span class=&quot;math-container&quot;&gt;$p_i$&lt;/span&gt; be the price of security &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; with &lt;span class=&quot;math-container&quot;&gt;$p = [p1,...,p_N]'$&lt;/span&gt;. Let &lt;span class=&quot;math-container&quot;&gt;$D_{ij}$&lt;/span&gt; be the payoff of security &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; in state &lt;span class=&quot;math-container&quot;&gt;$j$&lt;/span&gt; with &lt;span class=&quot;math-container&quot;&gt;$D$&lt;/span&gt; being an &lt;span class=&quot;math-container&quot;&gt;$N \times S$&lt;/span&gt; matrix, where &lt;span class=&quot;math-container&quot;&gt;$N$&lt;/span&gt; is number of assets and &lt;span class=&quot;math-container&quot;&gt;$S$&lt;/span&gt; is the number of states. Let &lt;span class=&quot;math-container&quot;&gt;$\theta_i$&lt;/span&gt; be the number of securities of type &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; that are owned, with &lt;span class=&quot;math-container&quot;&gt;$\theta = [\theta_1, ..., \theta_N]'$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Some definitions&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;&quot;&lt;em&gt;The law of of one price&lt;/em&gt;&quot;: For any portfolio &lt;span class=&quot;math-container&quot;&gt;$\theta$&lt;/span&gt; that satisfies &lt;span class=&quot;math-container&quot;&gt;$D' \theta = \vec 0$&lt;/span&gt;, it must be that &lt;span class=&quot;math-container&quot;&gt;$q' \theta = 0$&lt;/span&gt;.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&quot;&lt;em&gt;Arbitrage of the First Type&lt;/em&gt;&quot;: There exists a portfolio &lt;span class=&quot;math-container&quot;&gt;$\theta$&lt;/span&gt; such that &lt;span class=&quot;math-container&quot;&gt;$p' \theta \leq 0$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$D' \theta &amp;gt; \vec 0$&lt;/span&gt;. This means that all elements of the vector &lt;span class=&quot;math-container&quot;&gt;$D' \theta$&lt;/span&gt; are strictly positive.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;&quot;&lt;em&gt;Arbitrage of the Second Type&lt;/em&gt;&quot;: There exists a portfolio &lt;span class=&quot;math-container&quot;&gt;$\theta$&lt;/span&gt; such that &lt;span class=&quot;math-container&quot;&gt;$p'\theta &amp;lt; 0$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$D'\theta \geq \vec 0$&lt;/span&gt;. This means that all elements of the vector &lt;span class=&quot;math-container&quot;&gt;$D' \theta$&lt;/span&gt; are nonnegative.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Examples&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;In this first example, consider the extreme case of the existence of only one asset. Suppose that &lt;span class=&quot;math-container&quot;&gt;$p = 0$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$D=1$&lt;/span&gt; (one state, but we can have more). Then the law of one price holds and arbitrage of the first type exists. This is pretty contrived, though.&lt;/li&gt;&#xA;&lt;li&gt;Consider the example of &lt;span class=&quot;math-container&quot;&gt;$p = [1 \quad 2]'$&lt;/span&gt; and&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;D = &#xA;\begin{bmatrix}&#xA;-2 &amp;amp; -1 \\&#xA;-4 &amp;amp; - 2&#xA;\end{bmatrix}.&#xA;$$&lt;/span&gt;&#xA;This satisfies the law of one price. However, when &lt;span class=&quot;math-container&quot;&gt;$\theta = [-1 \quad 0]'$&lt;/span&gt; or &lt;span class=&quot;math-container&quot;&gt;$\theta = [0 \quad -1]'$&lt;/span&gt;, we have &lt;span class=&quot;math-container&quot;&gt;$p'\theta &amp;lt; 0$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$D' \theta \geq 0$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\theta \neq 0$&lt;/span&gt;.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="59" LastActivityDate="2019-10-28T04:16:48.090" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32469" PostTypeId="1" AcceptedAnswerId="32472" CreationDate="2019-10-28T06:04:39.870" Score="1" ViewCount="35" Body="&lt;p&gt;I was reading the lecture notes by Acemoglu and Autor on Labour Economics. &lt;a href=&quot;https://economics.mit.edu/files/4689&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://economics.mit.edu/files/4689&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I was able to understand equations 1.1 to 1.8 of the notes; however, I am unable to understand how equations 1.9 and 1.10 were derived from equations 1.8 and 1.9 respectively. I understand that integration and differentiation was applied, but I am not able to figure out the exact steps involved.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the transition from equation 1.8 to 1.9, I tried to understand in terms of general power rule and general exponential rule of integration, but there are so many terms involved that I am unable to think how these rules apply.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the transition from 1.9 to 1.10, I tried to understand in terms of general product rule and quotient rule of differentiation, but I am unable to figure out exact steps.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would deeply appreciate if anyone could help me understand these steps. Please let me know if any other info is required from me.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you.&lt;/p&gt;&#xA;" OwnerUserId="24702" LastEditorUserId="17735" LastEditDate="2019-10-28T14:56:59.460" LastActivityDate="2019-10-28T14:56:59.460" Title="Question on Human Capital Accumulation Model by Acemoglu/Autor" Tags="&lt;labor-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32470" PostTypeId="2" ParentId="32467" CreationDate="2019-10-28T06:14:12.137" Score="1" Body="&lt;p&gt;You may be confusing &lt;a href=&quot;https://en.wikipedia.org/wiki/Velocity_of_money&quot; rel=&quot;nofollow noreferrer&quot;&gt;money velocity&lt;/a&gt; with &lt;a href=&quot;https://en.wikipedia.org/wiki/Money_supply&quot; rel=&quot;nofollow noreferrer&quot;&gt;money supply&lt;/a&gt;. From Wikipedia, the velocity of money is &quot;measure of the number of times that the average unit of currency is used to purchase goods and services within a given time period.&quot; There is indeed more M2 than M1 but the velocity of M1 is often higher than that of M2. The shared portion of M1 and M2 will have the same velocity: this is the same thing as saying the velocity of M1 is the same as the velocity of M1. However, the portion unique to M2 will have a lower velocity: for example, saving deposits are usually moved around less than credit in demand deposits (checking accounts). Hence, overall M2 will often have a lower velocity than M1.&lt;/p&gt;&#xA;" OwnerUserId="8387" LastActivityDate="2019-10-28T06:14:12.137" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32472" PostTypeId="2" ParentId="32469" CreationDate="2019-10-28T09:45:10.853" Score="0" Body="&lt;p&gt;The FOC from (1.9) is (I'm skipping the content of the &lt;span class=&quot;math-container&quot;&gt;$\exp()$&lt;/span&gt; expression for brevity):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$ \frac{1}{r+\nu+g_h + g_w} \left(\eta'(S)w(0) \exp(\cdot) + \eta(S) w(0) (r + \nu - g_w)\exp(\cdot)\right) \overset{!}{=} 0$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This makes use of product rule.&#xA;Since the first term can't be 0 due to the last equation on p.~11, it must be second one&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$ \eta'(S)w(0) \exp(\cdot) = \eta(S) w(0) (r + \nu - g_w)\exp(\cdot) $&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$ \eta'(S) = \eta(S) (r + \nu - g_w) $&lt;/span&gt;&#xA;yielding Eq. (1.10): &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$ \frac{\eta'(S)}{\eta(S)} = r + \nu - g_w $&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="17735" LastActivityDate="2019-10-28T09:45:10.853" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32473" PostTypeId="1" CreationDate="2019-10-28T12:59:16.480" Score="1" ViewCount="518" Body="&lt;p&gt;The term “compensated law of demand” I met in advanced microeconomics textbook, which appeared in “revealed Preference “&lt;/p&gt;&#xA;" OwnerUserId="24711" LastActivityDate="2020-07-25T07:07:25.717" Title="how to explain the term “Compensated law of demand” in a plain way?" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32474" PostTypeId="1" CreationDate="2019-10-28T18:35:12.203" Score="2" ViewCount="29" Body="&lt;p&gt;I am reading this paper:  &lt;a href=&quot;https://econpapers.repec.org/article/oupjleorg/v_3a10_3ay_3a1994_3ai_3a2_3ap_3a407-26.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://econpapers.repec.org/article/oupjleorg/v_3a10_3ay_3a1994_3ai_3a2_3ap_3a407-26.htm&lt;/a&gt; (Werden and Froeb 1994) about merger simulation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The paper is above my level, so I'm struggling through it a bit. The part I'm having the most difficulty with is how the authors go from demand elasticities to a demand function.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My general question is, if I have own-price elasticity of demand for every good &lt;span class=&quot;math-container&quot;&gt;$j$&lt;/span&gt; &lt;span class=&quot;math-container&quot;&gt;$e_j$&lt;/span&gt; and cross-price elasticity of demand between all goods &lt;span class=&quot;math-container&quot;&gt;$j$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$k$&lt;/span&gt; &lt;span class=&quot;math-container&quot;&gt;$e_{jk}$&lt;/span&gt;, how can I derive a demand function &lt;span class=&quot;math-container&quot;&gt;$q(p_j, p_{-j})$&lt;/span&gt; where &lt;span class=&quot;math-container&quot;&gt;$p_j$&lt;/span&gt; is the price of good &lt;span class=&quot;math-container&quot;&gt;$j$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$p_{-j}$&lt;/span&gt; is a vector of prices for all non-&lt;span class=&quot;math-container&quot;&gt;$j$&lt;/span&gt; goods?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems to me that I would need some observed price-quantity pair and an assumption that the demand function is linear. Is this all I would need? Is this what the authors are doing?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To confirm my understanding of the overall procedure for merger simulation used in this paper, my understanding is that I would then solve the merging firms' profit maximization problems pre- and post-transaction. This problem is &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$max_{p_j}  (p_j-c_j)q_j$&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$q_j$&lt;/span&gt; is a function of &lt;span class=&quot;math-container&quot;&gt;$e_j$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$e_{jk}$&lt;/span&gt;, which in turn depend on market shares, which will be the varying factor between the pre- and post-transaction calculations. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this what the authors are doing in this paper?&lt;/p&gt;&#xA;" OwnerUserId="21583" LastActivityDate="2019-10-28T18:35:12.203" Title="How to go from demand elasticities to a demand function? (merger simulation)" Tags="&lt;microeconomics&gt;&lt;industrial-organisation&gt;" AnswerCount="0" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32475" PostTypeId="1" CreationDate="2019-10-28T19:07:41.493" Score="4" ViewCount="58" Body="&lt;p&gt;Consider symmetric and finite game. By Nash (1950), the game must have at least one symmetric equilibrium (&lt;a href=&quot;https://ink.library.smu.edu.sg/cgi/viewcontent.cgi?referer=https://www.google.com/&amp;amp;httpsredir=1&amp;amp;article=2212&amp;amp;context=sis_research&quot; rel=&quot;nofollow noreferrer&quot;&gt;proof&lt;/a&gt;). Also, it must have at least one trembling hand perfect equilibrium (&lt;a href=&quot;http://www.princeton.edu/~fgul/2000handouts/H3.1.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;proof&lt;/a&gt;).&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Question: must it have at least one &lt;strong&gt;symmetric&lt;/strong&gt; trembling hand perfect equilibrium?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;My thoughts on this:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;We demonstrate the existence of a trembling hand perfect equilibrium by looking at a sequence of perturbed games which converge to the original game.&lt;/li&gt;&#xA;&lt;li&gt;By Nash (1950), each perturbed game has a symmetric equilibrium.&lt;/li&gt;&#xA;&lt;li&gt;Therefore (?), the original game has a symmetric trembling hand perfect equilibrium.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerDisplayName="user17900" LastEditorDisplayName="user17900" LastEditDate="2019-10-30T11:19:32.213" LastActivityDate="2019-10-30T11:19:32.213" Title="Existence of symmetric trembling hand perfect equilibria" Tags="&lt;mathematical-economics&gt;&lt;game-theory&gt;&lt;nash-equilibrium&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32476" PostTypeId="2" ParentId="32453" CreationDate="2019-10-28T19:11:40.327" Score="0" Body="&lt;p&gt;@GabMac, I don't think L=H,  K=H will always hold given this function. I think  L=H,   K=H holds because of the inequality r &amp;lt; w + s. If r &gt; w + s, the producer will always produce in H,L only and K=0 even when the production function remains fixed proportions. The answer is correct but I think only the reasoning for modifying the production function is wrong. Thus, L=H,K=H because of the given inequality r &amp;lt; w + s. &lt;/p&gt;&#xA;" OwnerUserId="23014" LastActivityDate="2019-10-28T19:11:40.327" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32477" PostTypeId="1" CreationDate="2019-10-28T20:18:17.800" Score="0" ViewCount="60" Body="&lt;p&gt;could someone really help me out I would need to show a situation in which the Heckscher-Ohlin result does not necessarily hold when preferences are heterogeneous. &#xA;Does someone have an idea how I could do that? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Would really appreciate the support &#xA;Cheers, &#xA;James&lt;/p&gt;&#xA;" OwnerUserId="24716" LastEditorUserId="24716" LastEditDate="2019-10-29T09:37:33.320" LastActivityDate="2019-10-29T09:37:33.320" Title="Heckscher-Ohlin with heterogeneous preferences" Tags="&lt;preferences&gt;&lt;competitive-equilibrium&gt;" AnswerCount="0" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="32478" PostTypeId="1" CreationDate="2019-10-28T21:12:43.290" Score="0" ViewCount="30" Body="&lt;p&gt;Can someone tell me how I can show with an example that the Heckscher-Ohlin result does not necessarily hold when preferences are not homothetic.&#xA;I was asked if it similar as a case in which the preference are heterogeneous, but that would obviously be a different type of preference.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Would anyone know how to proceed?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Cheers,&#xA;James&lt;/p&gt;&#xA;" OwnerUserId="24716" LastEditorUserId="24716" LastEditDate="2019-10-29T09:36:30.550" LastActivityDate="2019-10-29T09:36:30.550" Title="Heckscher-Ohlin with non homothetic preferences" Tags="&lt;international-trade&gt;&lt;preferences&gt;&lt;competitive-equilibrium&gt;" AnswerCount="0" CommentCount="4" ClosedDate="2019-10-29T21:46:49.963" ContentLicense="CC BY-SA 4.0" />
  <row Id="32479" PostTypeId="2" ParentId="21053" CreationDate="2019-10-28T21:48:01.787" Score="0" Body="&lt;p&gt;Simeon is correct that Modern Monetary Theory (MMT) is currently being promoted by Stephanie Kelton, who would be the economic adviser for Bernie Sanders if elected by the way.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So what exactly is Modern Monetary Theory?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The basic idea as I have read and understood it is that government does not really need to have any constraint on funding whatever projects are necessary to get the economy going.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The federal government could issue however much currency it feels is necessary to print to fund large-scale socially useful projects.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is a distinction between borrowing money to fund projects and printing money to fund projects.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Our current model is to borrow money which is the process of the federal government of the United States selling T-bonds and uses the proceeds to fund government spending. The Treasury pays the interest on those bonds. So like with any other borrowing that we may personally do, as borrowing rises, so do the payments on the interest and as these interest payments rise, it makes it difficult to engage in whatever spending the government wants.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;There is another mechanism to government funding where the Federal Reserve can create money out of thin air by buying T-bonds and injecting new money into the economy.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;MMT is saying we can bypass both paying interest on newly issued money and the monetization of debt, which is the second mechanism I described of the Federal Reserve buying T-bonds and just have the Treasury department print new currency directly.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As far as citing a paper, you need to do the research. You need to learn what are the economic policy journals out there. There is the &lt;em&gt;European Journal of Economics and Economic Policy&lt;/em&gt;, &lt;em&gt;Cambridge Journal of Economics&lt;/em&gt;, &lt;em&gt;The Financial Times&lt;/em&gt;, the &lt;em&gt;Wall Street Journal&lt;/em&gt; and so on. You can find an extensive list here:&#xA;&lt;a href=&quot;https://en.wikipedia.org/wiki/List_of_economics_journals&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://en.wikipedia.org/wiki/List_of_economics_journals&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="20035" LastActivityDate="2019-10-28T21:48:01.787" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32480" PostTypeId="1" CreationDate="2019-10-28T22:53:15.773" Score="0" ViewCount="127" Body="&lt;p&gt;Consider two random variables (costs and valuations) distributed &lt;span class=&quot;math-container&quot;&gt;$v\backsim G(.)$&lt;/span&gt; and&#xA;&lt;span class=&quot;math-container&quot;&gt;$c \backsim F(.)$&lt;/span&gt; with pdfs &lt;span class=&quot;math-container&quot;&gt;$g(.)$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$f(.)$&lt;/span&gt;. Let the supports of &lt;span class=&quot;math-container&quot;&gt;$c$&lt;/span&gt; and&#xA;&lt;span class=&quot;math-container&quot;&gt;$v$&lt;/span&gt; be &lt;span class=&quot;math-container&quot;&gt;$[x,y]$&lt;/span&gt;. Let &lt;span class=&quot;math-container&quot;&gt;$x&amp;lt;a=E(v)&amp;lt;b&amp;lt;y$&lt;/span&gt;, so &lt;span class=&quot;math-container&quot;&gt;$[a,b]\subset\lbrack x,y]$&lt;/span&gt;. Now&#xA;consider a strictly concave (twice differentiable and continuous) utility function&#xA;&lt;span class=&quot;math-container&quot;&gt;$u(.)$&lt;/span&gt;, with &lt;span class=&quot;math-container&quot;&gt;$u^{\prime}(.)&amp;gt;0$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$u^{^{\prime\prime}}(.)&amp;lt;0$&lt;/span&gt;, and &lt;span class=&quot;math-container&quot;&gt;$u(0)=0$&lt;/span&gt;&#xA;(passes through the origin). Establish sufficient conditions such that the&#xA;expression &#xA;&lt;span class=&quot;math-container&quot;&gt;$$\int_{a}^{b}u(E(v)-c)f(c)dc-\int_{a}^{b}\int_{x}^{y}%&#xA;u(E(v)-v)g(v)f(c)dvdc\geq0,$$&lt;/span&gt; where &lt;span class=&quot;math-container&quot;&gt;$E(v)=\int_{x}^{y}vg(v)dv.$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Things I've tried:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\int_{0}^{\bar{v}}u(E(v)-v)g(v)dv\leq0$&lt;/span&gt; by Jensen's inequality. To see&#xA;this, let &lt;span class=&quot;math-container&quot;&gt;$E(v)-v=t$&lt;/span&gt;. But &lt;span class=&quot;math-container&quot;&gt;$E(t)=E_{v}[E(v)-v]=0$&lt;/span&gt;, and so &lt;span class=&quot;math-container&quot;&gt;$E(u(t))\leq&#xA;u(E(t))=0$&lt;/span&gt;, since &lt;span class=&quot;math-container&quot;&gt;$u(0)=0$&lt;/span&gt; by assumption.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Clearly, &lt;span class=&quot;math-container&quot;&gt;$\int_{a}^{b}u(E(v)-c)f(c)dc\leq0$&lt;/span&gt;, since we are integrating the&#xA;integrand &lt;span class=&quot;math-container&quot;&gt;$(E(v)-c)$&lt;/span&gt; from &lt;span class=&quot;math-container&quot;&gt;$a=E(v)$&lt;/span&gt; to &lt;span class=&quot;math-container&quot;&gt;$b$&lt;/span&gt;.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Intuitively, a variant of Jensen's inequality should apply if &lt;span class=&quot;math-container&quot;&gt;$c$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$v$&lt;/span&gt;&#xA;are i.i.d. Let &lt;span class=&quot;math-container&quot;&gt;$c$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$v$&lt;/span&gt; be i.i.d. with identical supports. Then the&#xA;integrands are the same, and we have the expression&#xA;&lt;span class=&quot;math-container&quot;&gt;$$\int_{a}^{b}%&#xA;u(E(v)-v)f(c)dc-\int_{a}^{b}\int_{x}^{y}u(E(v)-v)g(v)f(c)dvdc.$$&lt;/span&gt; &#xA;However, we&#xA;can't apply Jensen's inequality directly since &lt;span class=&quot;math-container&quot;&gt;$\int_{a}^{b}u(E(v)-v)f(c)dc$&lt;/span&gt;&#xA;is not &lt;span class=&quot;math-container&quot;&gt;$u(E(x))$&lt;/span&gt;, even if we &quot;factor out&quot; the outer integrals. &lt;span class=&quot;math-container&quot;&gt;$\int_{x}%&#xA;^{y}u(.)g(v)dv$&lt;/span&gt; seems to be a form of &lt;span class=&quot;math-container&quot;&gt;$E(u(x))$&lt;/span&gt;.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;At a loss as to what to do here. Any help would be greatly appreciated. Thank you!&lt;/p&gt;&#xA;" OwnerUserId="23242" LastEditorUserId="24728" LastEditDate="2019-11-03T15:31:13.853" LastActivityDate="2020-07-30T19:03:15.297" Title="Expected Utility and Jensen's Inequality" Tags="&lt;game-theory&gt;&lt;expected-utility&gt;&lt;probability&gt;&lt;contract-theory&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32481" PostTypeId="2" ParentId="32458" CreationDate="2019-10-29T00:51:51.380" Score="0" Body="&lt;p&gt;Let the two dataframes be &lt;code&gt;DF1&lt;/code&gt; and &lt;code&gt;DF2&lt;/code&gt;. To merge them into a company-state level panel data (repeated the variables in &lt;code&gt;DF1&lt;/code&gt;) as Art's answer suggests:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;idx &amp;lt;- match(paste(DF2&lt;span class=&quot;math-container&quot;&gt;$ID, DF2$&lt;/span&gt;Year), paste(DF1&lt;span class=&quot;math-container&quot;&gt;$ID, DF1$&lt;/span&gt;Year))&#xA;for (v in c('x1', 'x2', 'x3')) DF2[[v]] &amp;lt;- DF1[idx,v]&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;Full example:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;DF1 &amp;lt;- data.frame(ID=c('A1','A2','A1'), Year=c(2000,2000,2001),&#xA;                  x1=c(10,13,13), x2=c(11,25,58), x3=c(12,20,13))&#xA;# DF1&#xA;#   ID Year x1 x2 x3&#xA;# 1 A1 2000 10 11 12&#xA;# 2 A2 2000 13 25 20&#xA;# 3 A1 2001 13 58 13&#xA;&#xA;DF2 &amp;lt;- data.frame(ID=c('A1','A1','A2'), Year=c(2000,2000,2000),&#xA;                  State=c('AL','FL','AL'),&#xA;                  xx1=c(581,584,5138), xx2=c(135,51,84), xx3=c(1.22,1.5,1.7))&#xA;# DF2&#xA;#   ID Year State  xx1 xx2  xx3&#xA;# 1 A1 2000    AL  581 135 1.22&#xA;# 2 A1 2000    FL  584  51 1.50&#xA;# 3 A2 2000    AL 5138  84 1.70&#xA;&#xA;idx &amp;lt;- match(paste(DF2&lt;span class=&quot;math-container&quot;&gt;$ID, DF2$&lt;/span&gt;Year), paste(DF1&lt;span class=&quot;math-container&quot;&gt;$ID, DF1$&lt;/span&gt;Year))&#xA;for (v in c('x1', 'x2', 'x3')) DF2[[v]] &amp;lt;- DF1[idx,v]&#xA;&#xA;DF2&#xA;#   ID Year State  xx1 xx2  xx3 x1 x2 x3&#xA;# 1 A1 2000    AL  581 135 1.22 10 11 12&#xA;# 2 A1 2000    FL  584  51 1.50 10 11 12&#xA;# 3 A2 2000    AL 5138  84 1.70 13 25 20&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;" OwnerUserId="10775" LastActivityDate="2019-10-29T00:51:51.380" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="32482" PostTypeId="2" ParentId="32473" CreationDate="2019-10-29T02:13:49.737" Score="1" Body="&lt;p&gt;The compensated law of demand is a tool we use to analyze the decomposition of substitution and income effects. We take a price change which changes the relative price ratio (the slope of our budget constraint in a simple two good example) which leads to a new tangency point on a new 'rotated' budget line. For simplicity, if we consider the tangency condition:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;|MRS| = \frac{MU_1}{MU_2} = \frac{p_1}{p_2}&#xA;$$&lt;/span&gt;&#xA;Then as &lt;span class=&quot;math-container&quot;&gt;$p_1$&lt;/span&gt; rises, for example, the value of our MRS defined as the slope of our indifference curve would rise at the optimal point. So our new tangency would be higher up on this new lower indifference curve. What we would then do is ask the hypothetical: &lt;strong&gt;Under the new prices, how much income would leave the consumer just as well as off before the price changes?&lt;/strong&gt; This is the idea of compensated demand. What would we do in practice is essentially shift the budget line up (or down) until it is tangent to the &lt;em&gt;original&lt;/em&gt; indifference curve. This gives us the pure substitution effect abstracting away from the change in purchasing power.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since you are reading from an advanced microeconomics textbook I imagine you are familiar with Marshallian and Hicksian demands, these concepts are very closely related to how we compute this hypothetical budget constraint. Sadly that is the simplest way I can think of explaining it as it is an 'advanced' concept. In practice, we don't usually use the tangency condition to arrive at these results but it helps in simplifying the concept.&lt;/p&gt;&#xA;" OwnerUserId="23546" LastEditorUserId="1601" LastEditDate="2019-10-29T06:51:46.070" LastActivityDate="2019-10-29T06:51:46.070" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="32483" PostTypeId="2" ParentId="25154" CreationDate="2019-10-29T04:22:26.220" Score="0" Body="&lt;p&gt;In SLP, &lt;span class=&quot;math-container&quot;&gt;$T(v)=\sup \{f(x,y)+ \beta v(y)\}$&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$v(y)$&lt;/span&gt; is the value function in the next period and &lt;span class=&quot;math-container&quot;&gt;$\beta\in(0,1)$&lt;/span&gt; is the discounting factor. Check Blackwell's discounting condition in order to get the intuition.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{align}&#xA;T(v+a) = Tv + \beta a&#xA;\end{align}&lt;/span&gt;&#xA;That is, if there is an increase by &lt;span class=&quot;math-container&quot;&gt;$a$&lt;/span&gt; in the next-period value function, the increase should be discounted to get the present value.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But the above intuition may be specific. Generally, the discounting condition should be termed as the shortening condition. That is, &lt;span class=&quot;math-container&quot;&gt;$a$&lt;/span&gt; should be shortened after mapping.&lt;/p&gt;&#xA;" OwnerUserId="24720" LastEditorUserId="8815" LastEditDate="2019-11-20T18:44:58.030" LastActivityDate="2019-11-20T18:44:58.030" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32484" PostTypeId="1" CreationDate="2019-10-29T04:36:09.110" Score="0" ViewCount="34" Body="&lt;p&gt;Knowing the average income per capita or the median income is a rather poor economical indicator of a country, even when given in PPP\$. Knowing the (dimension-less) &lt;a href=&quot;https://data.worldbank.org/indicator/SI.POV.GINI&quot; rel=&quot;nofollow noreferrer&quot;&gt;Gini index&lt;/a&gt; is somehow better, but it's too abstract a quantity and doesn't - as a number - tell too much. The Lorenz curve from which the Gini index is derived contains a bit more information but it is still hard to grasp: &quot;What exactly do these curves tell me?&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/8YzwF.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/8YzwF.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The most objective and intuitive way of displaying income statistics possibly is just plotting the number of people over income (blue) and the accumulated income per income group (silver):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/oFasd.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/oFasd.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Unfortunately I find such plots only rarely. What I am looking for is a database where I can find the appropriate data (e.g. relative sizes of 10 or 20 income groups) for ideally all countries of the world.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The World Bank seems to publish only &lt;a href=&quot;http://datatopics.worldbank.org/world-development-indicators/themes/poverty-and-inequality.html#featured-indicators_1&quot; rel=&quot;nofollow noreferrer&quot;&gt;income shares held by the kth 20%&lt;/a&gt; which is better than nothing and does allow to draw Lorenz curves. But it would not allow to draw more detailed income distributions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Where do I find such data: number of capita per income (with appropriate income bins: &amp;lt; 10%, &amp;lt; 20%, .... &gt; 90% of the average (or median) income).&lt;/strong&gt;&lt;/p&gt;&#xA;" OwnerUserId="22991" LastEditorUserId="22991" LastEditDate="2019-10-29T09:08:22.873" LastActivityDate="2019-10-29T09:08:22.873" Title="Data for income distributions" Tags="&lt;data-request&gt;&lt;statistics&gt;&lt;inequality&gt;&lt;wealth&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="32487" PostTypeId="1" AcceptedAnswerId="32489" CreationDate="2019-10-29T16:31:07.497" Score="0" ViewCount="41" Body="&lt;p&gt;Let the utility function be: &lt;span class=&quot;math-container&quot;&gt;$U(x,y) = \log x +y^2$&lt;/span&gt;.&#xA;In this case, the MRS is coming out to be &lt;span class=&quot;math-container&quot;&gt;$\frac{1}{2xy}$&lt;/span&gt;. Thus, how will the shape look like? &lt;/p&gt;&#xA;" OwnerUserId="23014" LastEditorUserId="23083" LastEditDate="2019-10-30T14:35:49.260" LastActivityDate="2019-10-30T14:35:49.260" Title="What would be the shape of the Indifference curve with slope 1/xy?" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="2" ClosedDate="2019-11-13T11:29:36.107" ContentLicense="CC BY-SA 4.0" />
  <row Id="32489" PostTypeId="2" ParentId="32487" CreationDate="2019-10-29T16:51:31.047" Score="1" Body="&lt;p&gt;Wolfram Alpha might come with some help. Try entering &lt;span class=&quot;math-container&quot;&gt;$\log x+y^2=n$&lt;/span&gt; for different n's (levels of utility). You will get the idea of how the indifference curve looks like. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;e.g.&#xA;&lt;a href=&quot;https://www.wolframalpha.com/input/?i=logx%2By%5E2+%3D+1.4&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.wolframalpha.com/input/?i=logx%2By%5E2+%3D+1.4&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="23083" LastActivityDate="2019-10-29T16:51:31.047" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32490" PostTypeId="1" CreationDate="2019-10-29T17:13:05.620" Score="0" ViewCount="91" Body="&lt;p&gt;I am new to Economics, but I have this doubt. The indifference curve and utility function both have the same equation, so their graph must also be similar, which is true I guess. Then why is it that the nature of graphs are different? I mean why is it that if the indifference curve is convex then utility function is quasi concave?  How did we arrive at this conclusion?&lt;/p&gt;&#xA;" OwnerUserId="8566" LastActivityDate="2019-10-30T07:43:20.310" Title="Why is the nature of graph of utility function different from indifference curve?" Tags="&lt;utility&gt;&lt;preferences&gt;" AnswerCount="2" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="32491" PostTypeId="2" ParentId="32490" CreationDate="2019-10-29T17:28:16.593" Score="4" Body="&lt;p&gt;You seem to be confusing some things.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The indifference curve and utility function both have the same&#xA;  equation&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;The utility function has a formula, not an equation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$U(x_1,x_2)$&lt;/span&gt; is a utility function.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The points &lt;span class=&quot;math-container&quot;&gt;$(x_1,x_2)$&lt;/span&gt; for which &lt;span class=&quot;math-container&quot;&gt;$U(x_1,x_2) = 13$&lt;/span&gt; form an indifference curve. (13 was picked as a random number)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The graph of a utility function has one more dimension than the graph of an indifference curve: in addition to the space of goods, this graph would also include the utility value, so its points would be something like &lt;span class=&quot;math-container&quot;&gt;$(x_1,x_2,u)$&lt;/span&gt;. Chances are you have not seen a graph of any such function, as 3D drawings are complicated. This is why maps of 2D indifference curves are used to get a feeling for the shapes of utility functions.  &lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2019-10-29T17:28:16.593" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32493" PostTypeId="1" AcceptedAnswerId="32496" CreationDate="2019-10-29T19:37:12.347" Score="1" ViewCount="162" Body="&lt;p&gt;In case of quasi-linear preference, why would one unit more of the numeraire good (good 1) give the same additional utility as spending an additional amount of wealth equal to the cost of one unit of good 1 on all other goods no matter how much unit of this good 1 have already been present in the consumption bundle? How would one prove it? (Interpretation would also be welcome.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems that it has something to do with the fact that utility maximization implies identical marginal utility per unit currency spent on each good.&lt;/p&gt;&#xA;" OwnerUserId="14778" LastActivityDate="2019-10-31T02:33:16.817" Title="A question about the property of quasi-linear preference" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;preferences&gt;&lt;marginal&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32494" PostTypeId="2" ParentId="32053" CreationDate="2019-10-29T23:31:01.670" Score="1" Body="&lt;p&gt;Depending on the context this is sometimes called &lt;a href=&quot;https://en.wikipedia.org/wiki/Jackknife_resampling&quot; rel=&quot;nofollow noreferrer&quot;&gt;Jackknife resampling&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;In statistics, the jackknife is a resampling technique especially&#xA;  useful for variance and bias estimation. The jackknife pre-dates other&#xA;  common resampling methods such as the bootstrap. The jackknife&#xA;  estimator of a parameter is found by systematically leaving out each&#xA;  observation from a dataset and calculating the estimate and then&#xA;  finding the average of these calculations. Given a sample of size n&#xA;  &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt;, the jackknife estimate is found by aggregating the estimates of&#xA;  each &lt;span class=&quot;math-container&quot;&gt;$( n − 1 )$&lt;/span&gt;-sized sub-sample.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It may also be referred to as &lt;a href=&quot;https://www.cs.cmu.edu/~schneide/tut5/node42.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;leave-one-out cross validation&lt;/a&gt;, which isn't exactly the same but very close. &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Leave-one-out cross validation is K-fold cross validation taken to its&#xA;  logical extreme, with K equal to N, the number of data points in the&#xA;  set. That means that N separate times, the function approximator is&#xA;  trained on all the data except for one point and a prediction is made&#xA;  for that point.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Well, that's the name for leaving out a single observation at a time. Strictly speaking, it isn't the name for leaving out each panel unit once. When you resample in way that accounts for the panel or time series structure, that is usually called &lt;a href=&quot;https://en.wikipedia.org/wiki/Bootstrapping_%28statistics%29#Block_bootstrap&quot; rel=&quot;nofollow noreferrer&quot;&gt;Block Bootstrapping&lt;/a&gt;, in this case a kind of cluster bootstrapping. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Personally, I would call this block-jacknife or leave-one-block-out cross validation.&lt;/p&gt;&#xA;" OwnerUserId="69" LastEditorUserId="69" LastEditDate="2019-10-29T23:36:32.380" LastActivityDate="2019-10-29T23:36:32.380" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32495" PostTypeId="2" ParentId="32490" CreationDate="2019-10-30T02:01:59.567" Score="1" Body="&lt;p&gt;Utility functions and indifference curves are the same object considered from different visual/conceptual angles. Below an illustration on &lt;span class=&quot;math-container&quot;&gt;$U(x_1, x_2) = x_1^{0.5} x_2^{0.5}$&lt;/span&gt; (representing &lt;em&gt;Cobb-Douglas preferences&lt;/em&gt;), done with excel:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/dImU3.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/dImU3.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="10247" LastEditorUserId="10247" LastEditDate="2019-10-30T07:43:20.310" LastActivityDate="2019-10-30T07:43:20.310" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32496" PostTypeId="2" ParentId="32493" CreationDate="2019-10-30T07:27:19.317" Score="2" Body="&lt;p&gt;This seems like a homework question, so I'll just give hints.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By &lt;a href=&quot;https://en.wikipedia.org/wiki/Quasilinear_utility&quot; rel=&quot;nofollow noreferrer&quot;&gt;definition&lt;/a&gt;, a quasilinear utility has the form &lt;span class=&quot;math-container&quot;&gt;$u(x, y) = x + v(y)$&lt;/span&gt; where &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; is a vector of all other goods and &lt;span class=&quot;math-container&quot;&gt;$v(\cdot)$&lt;/span&gt; is strictly concave. In this case, &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; is called the &lt;em&gt;numeraire&lt;/em&gt;.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;From utility maximization, what's the first order condition that relates &lt;span class=&quot;math-container&quot;&gt;$MU_x$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$MU_y$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$p_x$&lt;/span&gt;, and &lt;span class=&quot;math-container&quot;&gt;$p_y$&lt;/span&gt;? Write down the equation.&lt;/li&gt;&#xA;&lt;li&gt;What's the utility gain from consuming one more unit of &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;?&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;You should be able to work things out from there.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Edit&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$MU_x$&lt;/span&gt; will be constant... more precisely, &lt;span class=&quot;math-container&quot;&gt;$MU_x$&lt;/span&gt; is always one (by definition).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You can then plug this into FOC and get that &lt;span class=&quot;math-container&quot;&gt;$MU_y = 1/z$&lt;/span&gt;. where &lt;span class=&quot;math-container&quot;&gt;$z = p_x/p_y$&lt;/span&gt; is simply how many &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt;'s you could buy with &quot;additional amount of wealth equal to the cost of one unit of good 1 on all other goods&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since one more unit of good &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; will get you &lt;span class=&quot;math-container&quot;&gt;$1/z$&lt;/span&gt;, you need (approximately) &lt;span class=&quot;math-container&quot;&gt;$z$&lt;/span&gt; more of good &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; to get one more unit of utility increase (which is the same as what you get when you increase &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; by one unit).&lt;/p&gt;&#xA;" OwnerUserId="5145" LastEditorUserId="5145" LastEditDate="2019-10-31T02:33:16.817" LastActivityDate="2019-10-31T02:33:16.817" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="32497" PostTypeId="1" CreationDate="2019-10-30T07:40:14.917" Score="1" ViewCount="59" Body="&lt;p&gt;&lt;a href=&quot;https://www.uclan.ac.uk/staff_profiles/richard-taylor.php&quot; rel=&quot;nofollow noreferrer&quot;&gt;Prof Richard Taylor&lt;/a&gt;, &lt;a href=&quot;https://www.slaughterandmay.com/who-we-are/partners/damian-taylor/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Damian Taylor&lt;/a&gt;. &lt;a href=&quot;https://www.amazon.co.uk/Contract-Law-Directions-Richard-Taylor/dp/0198836597/ref=dp_ob_title_bk&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;em&gt;Contract Law Directions&lt;/em&gt; (6 edn, 2019)&lt;/a&gt;. p 65. Para 1.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;&lt;strong&gt;You might be wondering why businessmen bother to make an agreement&#xA;  if it has no legal effect—is it worth the paper it is written on? [mine]&lt;/strong&gt; In banking practice ‘comfort&#xA;  letters’ are used literally; they provide comfort to a lender that he will get his money back. A&#xA;  borrower’s parent company (i.e. its main shareholder) will usually be saying something along&#xA;  the lines of ‘we will try to be a really good parent company and make sure that our subsidiary&#xA;  pays all your money back’. The bank does not expect to be able to sue on this agreement, and&#xA;  should insist on receiving a guarantee if it wants to have legally enforceable rights against the&#xA;  parent company.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;In &lt;em&gt;Kleinwort Benson Ltd v Malaysia Mining Corp.&lt;/em&gt; (1989) the following wording in a comfort&#xA;  letter was held not to contain an intention to create legal relations: ‘It is our policy to ensure&#xA;  that the business of [our subsidiary] is at all times in a position to meet its liabilities to you under&#xA;  the above arrangements.’ Companies must be careful not to promise to ‘guarantee’ or ‘undertake’&#xA;  to do anything as this is more likely to be interpreted as a binding agreement.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I'm not swayed by &lt;a href=&quot;https://www.linkedin.com/in/shawn-goldmintz-46b0945/?originalSubdomain=ca&quot; rel=&quot;nofollow noreferrer&quot;&gt;Shawn Goldmintz&lt;/a&gt;'s (BBA York, JD Windsor) &lt;a href=&quot;https://www.lexology.com/library/detail.aspx?g=5a479bb2-572f-4ffe-b681-0e5db1cda6f6&quot; rel=&quot;nofollow noreferrer&quot;&gt;article&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;It may seem as though comfort letters have the potential to be absolutely useless in certain circumstances. The question begs as to why a creditor would accept a comfort letter from a guarantor that refuses to give a guarantee when the letter cannot be enforced at law. The commercial reality is that when a business fails to meet its obligations, whether as a matter of law or honour, it reflects poorly on that business. &lt;strong&gt;A bad reputation can be much worse for a company than having to repay a loan.&lt;/strong&gt; While this may not seem like an appropriately harsh punishment for one who fails to honour a non-contractual version of a guarantee, it should be remembered that, unfailingly, the author of a comfort letter will have been asked for a guarantee first, and the author refused.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;In addition to this weak punishment, it is entirely possible, and in fact probable, that some comfort letters will be interpreted as binding legal obligations in the future. All it would take is for the wording of a letter to indicate promissory intent (perhaps by using the future tense), and the letter would be held to create legally binding obligations.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I'm asking just about comfort letters that aren't legally enforceable. Viz. disregard last para above. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I were the lending officer at a rich bank, I'd distrust any borrower or its parent company that can't guarantee! I wouldn't lend it. After all, I can just lend to someone else who does guarantee, though I may have to sweeten my offer. &lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;p&gt;The emboldened quote doesn't feel true to me. Any examples? To the lender, &quot;a bad reputation&quot; won't get her his money back, and feels useless.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;Are there other reasons?&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="4020" LastActivityDate="2020-01-01T19:35:47.253" Title="Why would creditors accept a comfort letter that can't be legally enforced, from borrowers that refuses to guarantee?" Tags="&lt;credit&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32501" PostTypeId="2" ParentId="32418" CreationDate="2019-10-30T14:04:02.407" Score="1" Body="&lt;p&gt;This is tricky to answer precisely because governments vary a lot in the services they extent to visitors. There is also variation in the mix of consumption goods across countries as well as their relative prices. You might respond to local conditions by changing your consumption bundle more or less than the average person and that would change the economics for you relative to an average calculation. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The simplest approximation is to take GDP (or the C component of consumption), measured using exchange rates rather than PPP, and divide it by the population. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Think about it this way. Nominal GDP per capita in the US is about \$62,606 and in Germany is \$48,264. Assume it is safe to either ignore taxes or taxes are comparable in the two countries. If you have have saved the salary of the average German then you can afford the spending of the average American for about 9 months. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another way to do this is to look at destination country &lt;a href=&quot;https://en.wikipedia.org/wiki/List_of_countries_by_household_final_consumption_expenditure_per_capita&quot; rel=&quot;nofollow noreferrer&quot;&gt;household final consumption expenditure per capita&lt;/a&gt;. As of 2016 this was about \$36,373 in 2010 dollars, probably about \$43k in 2019 dollars. According to Wikipedia, average German salary, net of taxes, is about \$32,000. So if you have a pension that pays net of taxes the salary of a typical German (also net of taxes), you can afford about 75 percent of an average American's spending. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;A third way is to use expatriate cost of living indices, although I've been told that these are more accurate for affluent urban households. For example, &lt;a href=&quot;https://www.expatistan.com/cost-of-living/comparison/frankfurt-am-main/new-york-city&quot; rel=&quot;nofollow noreferrer&quot;&gt;expatistan says that the cost of living is 53 percent higher in NYC than in Frankfurt&lt;/a&gt;. This suggests you can live for eight months in NYC for the same income that buys a year's worth of consumption in Germany. &lt;/p&gt;&#xA;" OwnerUserId="69" LastActivityDate="2019-10-30T14:04:02.407" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32502" PostTypeId="1" AcceptedAnswerId="32503" CreationDate="2019-10-30T14:31:07.050" Score="0" ViewCount="36" Body="&lt;p&gt;A rough estimate of the oil and gas reserves in some country at the beginning of 2010 was 15 billion tons. production that year was approximately 250 million tons.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;when will the reserves be exhausted if production is kept at same level?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have no clue on how to solve and tackle this problem, it seems kind of odd to me that there is nothing to indicate at which level the reserves are being consumed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Really appreciate any hints on how to solve it.&lt;/p&gt;&#xA;" OwnerUserId="24734" LastActivityDate="2019-10-30T14:34:46.093" Title="When will the reserves be exhausted?" Tags="&lt;production-function&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32503" PostTypeId="2" ParentId="32502" CreationDate="2019-10-30T14:34:46.093" Score="0" Body="&lt;p&gt;If the country converts the reserves to 250 million per year, then in 4 years it will convert 1 billion and 15 billion will be exhausted in 15x4 years.&lt;/p&gt;&#xA;" OwnerUserId="23014" LastActivityDate="2019-10-30T14:34:46.093" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32505" PostTypeId="1" AcceptedAnswerId="32524" CreationDate="2019-10-30T19:46:32.007" Score="5" ViewCount="1966" Body="&lt;p&gt;I've been doing my own reading on non-rational preference relations.&lt;/p&gt;&#xA;&lt;p&gt;I'm currently under the impression that transitivity follows as a direct result of completeness of preferences. However my (much more advanced colleagues) have told me this is not necessarily the case.&lt;/p&gt;&#xA;&lt;p&gt;I'm still to understand how this can be. What would such preferences look like?&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="6168" LastEditDate="2020-08-30T13:04:04.137" LastActivityDate="2020-08-30T13:04:04.137" Title="Is it possible to have a preference relation that is complete but not transitive?" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;" AnswerCount="5" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="32506" PostTypeId="2" ParentId="32505" CreationDate="2019-10-30T20:18:13.327" Score="6" Body="&lt;p&gt;Completeness: given any pair, I have a preference, I can make a choice.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If had to choose between marrying Rachel and Monica, I would go for Rachel. Good looks, fun, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If had to choose between marrying Chandler and Rachel, I would go for Chandler. Corny sense of humor but aware of it, even temperament, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If had to choose between marrying Monica and Chandler, I would go for Monica. Loyal, very diligent etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Wait, if I had to choose between Rachel, Monica and Chandler, who would I marry? (what is my ordering, who is my 1st choice)&lt;/p&gt;&#xA;" OwnerUserId="1601" LastActivityDate="2019-10-30T20:18:13.327" CommentCount="8" ContentLicense="CC BY-SA 4.0" />
  <row Id="32507" PostTypeId="2" ParentId="32505" CreationDate="2019-10-30T20:22:14.543" Score="4" Body="&lt;p&gt;Here's an example of an incomplete but transitive preference.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider three fruits, an apple (&lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt;), a banana (&lt;span class=&quot;math-container&quot;&gt;$B$&lt;/span&gt;), and a coconut (&lt;span class=&quot;math-container&quot;&gt;$C$&lt;/span&gt;). I cannot choose between individual fruits, i.e. I don't have a preference over &lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$B$&lt;/span&gt;, or &lt;span class=&quot;math-container&quot;&gt;$C$&lt;/span&gt; --- not that I'm indifferent between them, I just can't compare them. However, I do prefer more variety to less, namely, I'd choose a bundle with two fruits, e.g. &lt;span class=&quot;math-container&quot;&gt;$\{A,B\}$&lt;/span&gt; over a bundle with only one fruit, say &lt;span class=&quot;math-container&quot;&gt;$\{C\}$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It's easy to see that my preference over bundles of fruits (the powerset of &lt;span class=&quot;math-container&quot;&gt;$\{A,B,C\}$&lt;/span&gt;) is &lt;strong&gt;incomplete&lt;/strong&gt;, since it is not defined over singletons. However, my preference is still &lt;strong&gt;transitive&lt;/strong&gt;, in that whenever bundle &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; is preferred to &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$Y$&lt;/span&gt; preferred to &lt;span class=&quot;math-container&quot;&gt;$Z$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$X$&lt;/span&gt; is preferred to &lt;span class=&quot;math-container&quot;&gt;$Z$&lt;/span&gt;, for example, &lt;span class=&quot;math-container&quot;&gt;$\{A,B,C\}\succ\{B,C\}\succ\{C\}\;\Rightarrow\;\{A,B,C\}\succ\{C\}$&lt;/span&gt;. &lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2019-10-30T20:22:14.543" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="32508" PostTypeId="2" ParentId="32505" CreationDate="2019-10-30T21:25:45.760" Score="0" Body="&lt;p&gt;From what I understand from @Giskard's answer is that the fact that we have comparablity of items over sets of 2, does not necessarily imply the fact that we have comparablity over sets of 3.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider the case where we are considering bundles &lt;span class=&quot;math-container&quot;&gt;$X=\{x_1,x_2\}$&lt;/span&gt;,&lt;span class=&quot;math-container&quot;&gt;$Y=\{y_1,y_2\}$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$Z=\{z_1,z_2\}$&lt;/span&gt;. Suppose now we have for the pairwise comparison between bundles:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$(1)\ \{X,Y\}\in A,\ \ \ Y\in C(A)$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$(2) \ \{Y,Z\}\in B,\ \ \ Z\in C(B)$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$(3) \ \{Z,X\}\in D,\ \ \ X\in C(D)$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Where &lt;span class=&quot;math-container&quot;&gt;$C(\cdot)$&lt;/span&gt; is the choice in environment &lt;span class=&quot;math-container&quot;&gt;$A,B,D$&lt;/span&gt; ect.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;We have shown that we in fact do have completeness of preferences since we can compare any two bundles. However, transitivity is not established because given the above results we cannot say for &lt;span class=&quot;math-container&quot;&gt;$ \{X,Y,Z\}\in Q$&lt;/span&gt; there is a choice that follows since we have (3) as our source of irrationality fudging the transitivity of preferences.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Graphically we have the following situation:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/hKRgx.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/hKRgx.png&quot; alt=&quot;&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;sub&gt;&lt;/sub&gt;&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="8815" LastEditDate="2019-11-01T14:12:19.260" LastActivityDate="2019-11-01T14:12:19.260" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32509" PostTypeId="2" ParentId="32065" CreationDate="2019-10-30T22:43:24.137" Score="2" Body="&lt;p&gt;This can be visualized nicely by an example:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let’s say there are two islands in the world. And let’s just say island A only produces apples and island B only produces bananas. Also, the (real) exchange rate is &lt;em&gt;one&lt;/em&gt; apple for &lt;em&gt;one&lt;/em&gt; banana.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, for whatever reason, island A exports 20 apples but imports 30 bananas &lt;strong&gt;&lt;em&gt;(a trade deficit)&lt;/em&gt;&lt;/strong&gt;. It now owes goods of the value of 10 apples/bananas to island B. How can it serve this debt? (If it were to send goods to the other island, its exports would rise by definition, and the trade deficit would disappear.) Instead, island A makes a promise to pay back the debt in a later period to island B &lt;strong&gt;&lt;em&gt;(foreign debt)&lt;/em&gt;&lt;/strong&gt;. Instead of debt contracts, island B can also trade the excess bananas for shares in the production of A of the same value, which is equivalent.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;em&gt;Regarding question 2:&lt;/em&gt;&lt;/strong&gt; A domestic loan has by definition a borrower and a lender on the same island. This always nets out to zero debt when aggregated to the island level. Hence, it can’t change the island’s debt position vis-à-vis another island.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;&lt;em&gt;Regarding question 3:&lt;/em&gt;&lt;/strong&gt; Note that so far, we haven’t even mentioned money. The trade effects can be entirely explained by real variables. If we introduce currencies on both islands, there must be a foreign exchange market. This market for currency only clears if the exchanged currencies are of equal value (in real terms). It does not matter if you pay in the producer’s or the buyer’s currency, the currency for buying 30 bananas is always of higher real value than the currency to buy 20 apples. Demand and supply of currency won’t cancel out, so the foreign exchange market does not help you to settle the debt.&lt;/p&gt;&#xA;" OwnerUserId="8630" LastActivityDate="2019-10-30T22:43:24.137" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32510" PostTypeId="2" ParentId="32418" CreationDate="2019-10-30T23:28:59.477" Score="1" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;How long can I – coming from country X – live in country Y by spending my last monthly salary converted by nominal exchange rate:&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;1 as a backpacker or as a convenience tourist?&#xA;  2 adapting to the other country's standards which may be lower?&#xA;  3 adapting to higher standards than I am used to?&#xA;  4 How much does this period deviate from a month?&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;My question is: Where do I find this approach taken?&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;There is a problem with this question, the size of the country.  This is a more straightforward question if Country X is Luxembourg, and Country Y is Bolivia.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a larger country, like the United States, the internal variability is extraordinary.  To provide an example, the price of a home I used to own was one-fifth of the price of what it would cost me in another part of the United States.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A person backpacking in New York faces radically different costs than one backpacking the Appalachian Trail, the Big Island in Hawaii, or crossing Alaska.  Of course, in Alaska, you would need things such as bear spray and a high powered weapon so as to minimize the risk of being eaten.  There are really good brands of bear spray, so you should ask a local rather than buy it before you got to the United States.  You cannot fix being eaten.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The United States, like the European Union, could be thought of as a custom's union combined with a monetary union.  Gross aggregates do not reflect internal costs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Two states, side-by-side, could be like day and night in terms of living standards and costs.  Also, they can create a range of comparison problems.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For example, if you decided to drive from the District of Columbia to Bangor Maine, you would cross around ten states and be near tens of millions of people.  The same driving distance would get you diagonally across the State of Montana.  Although there are a few more people in Montana and the District, Montana is about the size of the American Northeast, and DC is about 69 square miles (177 sq km).  Montana is about the same size as the island of Great Britain at approximately 147,000 square miles(381000 sq km).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Montana has stretches that go for hundreds of miles without gas stations or other stores of any kind.  DC goes for blocks without gas stations.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In some parts of the United States, such as West Virginia, you could live on half your German salary and save the rest.  In some parts of California, you will be homeless.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One of the problems with &quot;representative agent&quot; models, which is at least in part what any discussion of inflation, PPP or similar topics really imply or require, is that they reduce everything down to one number.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Your problem is closer to a personal finance question.  For it to be answered, greater specification of the events likely to happen must occur.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The representative American doesn't exist in this sense.  The American with the representative gross income is likely not paying the representative tax rate and is not the person paying representative housing prices, gasoline or health care costs.  The median wage isn't paying the median tax, the median insurance premium, or the median cost of food.  They are all different people.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I did a search for three-bedroom, two-bath homes in different parts of the United States.  One sells for \$109,000 with 1.25 acres of land in Arthurdale WV.  The other sells for \$918,000 with 7000 square feet of land.  I also looked at a few other cities, villages, reservations and towns but these two seemed to capture the variability.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;You will find your approach taken, approximately, in personal finance textbooks, minus the exchange rates.  They ask these specific questions.  The conversion to be taken place would be in nominal currency.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Traveling from a small country to a small country allows representative agent questions to be meaningful.  When traveling from a large country to a large country, it is better to compare states or counties(parishes) to states or counties(parishes).&lt;/p&gt;&#xA;" OwnerUserId="11321" LastActivityDate="2019-10-30T23:28:59.477" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32513" PostTypeId="1" CreationDate="2019-10-31T08:48:20.727" Score="1" ViewCount="329" Body="&lt;p&gt;In the answer to &lt;a href=&quot;https://economics.stackexchange.com/questions/14900/why-is-the-short-run-average-cost-curve-not-a-tangent-to-the-long-run-average-co&quot;&gt;this question&lt;/a&gt;, the answerer said &quot;the minimum point of a short run cost curve will be above the long run cost curve&quot;. Is it true? If so, how would it be so?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I thought that if e.g. the short-run capacity is too small or too big, it would just be represented as different short-run cost curve tangent with the long-run cost curve.&lt;/p&gt;&#xA;" OwnerUserId="14778" LastEditorUserId="14778" LastEditDate="2019-11-01T11:17:21.847" LastActivityDate="2019-11-10T12:55:04.030" Title="Is it possible that the minimum point of a short run cost curve does not touch the long run cost curve?" Tags="&lt;microeconomics&gt;&lt;cost&gt;&lt;long-run&gt;" AnswerCount="3" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="32515" PostTypeId="1" CreationDate="2019-10-31T09:34:25.473" Score="0" ViewCount="17" Body="&lt;p&gt;I am writing a paper using a panel dataset in which my depepent variable has an large percentage amount of zero values observations. Those zero values are real zeros, I mean they are not missing data or whatsoever. I have taken a look on the literature and there are many models that can be applied in this case. I am awared of the following: Tobit (Tobin, 1958), Two-Stage Model (Heckman, 1979), Two-Parts Model (Duan et al.,1984), PPML (Silva &amp;amp; Tenreyro, 2006) and Double-Hurdle models (Dong &amp;amp; Kaiser, 2008). Which one should I use and how to justify the adoption?&lt;/p&gt;&#xA;" OwnerUserId="24739" LastActivityDate="2019-10-31T09:34:25.473" Title="Handling large percentage of zero-valued observations in the dependent variable in a panel dataset" Tags="&lt;econometrics&gt;&lt;paneldata&gt;" AnswerCount="0" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="32517" PostTypeId="2" ParentId="32513" CreationDate="2019-10-31T10:30:05.853" Score="0" Body="&lt;p&gt;Looking at the context of the link posted, seems like you have the correct idea and the answerer might have misspoken. The minimum of SR cost curve should be &lt;em&gt;on&lt;/em&gt; the LR cost curve. Suppose (for contradiction) that SR cost curve is above the LR cost curve at point &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; on LR cost curve. This point &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; involves a set of fixed variable (which is adjustable in the long run). You could set the fixed variables to this level and obtain another, cheaper SR cost curve.&lt;/p&gt;&#xA;" OwnerUserId="5145" LastActivityDate="2019-10-31T10:30:05.853" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="32518" PostTypeId="1" CreationDate="2019-10-31T11:00:32.607" Score="1" ViewCount="47" Body="&lt;p&gt;Many sources show this definition for completeness of a relation&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\forall a, b \in A, a \neq b, (aRb) \text{ or } (bRa) \tag{1}&#xA;$$&lt;/span&gt; &#xA;Others show only&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\forall a, b \in A, (aRb) \text{ or } (bRa) \tag{2}&#xA;$$&lt;/span&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question, assuming that the first definition is correct, why does the definition of a complete relation include the &lt;span class=&quot;math-container&quot;&gt;$a \neq b$&lt;/span&gt; in its definition?&#xA;My doubt is that when given a relation and asked whether it is complete or not, which definition should I use (1) or (2) as given in the question. And why should I use that definition? &#xA;For example- Given a relation On RxR &#xA;R={(x,y)| x is not equal to y}. Is this relation complete?&#xA;Now if I use definition (1), it is complete.&#xA;If I use definition (2), it is not complete. So which is the right answer and why?&lt;/p&gt;&#xA;" OwnerUserId="23014" LastEditorUserId="23014" LastEditDate="2019-11-01T11:06:30.683" LastActivityDate="2019-11-01T11:18:44.063" Title="Two different definitions for a Complete Relation" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32519" PostTypeId="2" ParentId="32513" CreationDate="2019-10-31T11:08:13.820" Score="1" Body="&lt;p&gt;Adam Bailey is correct.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider the production function &lt;span class=&quot;math-container&quot;&gt;$f(x_1,x_2) = x_1 + x_2/2$&lt;/span&gt; where &lt;span class=&quot;math-container&quot;&gt;$(x_1,x_2)$&lt;/span&gt; are inputs.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If the input costs are &lt;span class=&quot;math-container&quot;&gt;$w_1=w_2=1$&lt;/span&gt; and all inputs are freely chosen, the solution to the cost minimization problem is&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{align*}&#xA;x_1 &amp;amp; = y \\&#xA;\\&#xA;x_2 &amp;amp; = 0.&#xA;\end{align*}&lt;/span&gt;&#xA;However, in the short run one or more of the input quantities may be fixed. If &lt;span class=&quot;math-container&quot;&gt;$x_2 = \bar{x}_2 &amp;gt; 0$&lt;/span&gt;, this is never optimal, the short term cost is always higher than the long term cost. The long and short run cost functions in this case would be&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{align*}&#xA;C(y) &amp;amp; = y \\&#xA;\\&#xA;C_s(y,\bar{x}_2) &amp;amp;= \bar{x}_2 + \max(y - \bar{x}_2/2;0) \geq y + \bar{x}_2/2 &amp;gt; C(y).&#xA;\end{align*}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Adam's other point (mentioned in his comment under this question) is that&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;C(y) = \min_{\bar{x}_2} C_s(y,\bar{x}_2).&#xA;$$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2019-11-01T08:17:23.567" LastActivityDate="2019-11-01T08:17:23.567" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="32521" PostTypeId="2" ParentId="32505" CreationDate="2019-10-31T12:18:55.680" Score="1" Body="&lt;p&gt;It may be helpful to consider a phenomenon from politics called the &lt;a href=&quot;https://en.wikipedia.org/wiki/Condorcet_paradox&quot; rel=&quot;nofollow noreferrer&quot;&gt;Condorcet paradox&lt;/a&gt;. This is a situation that can happen in votes, in which the overall population would vote for A over B, would vote for B over C, and would vote for C over A. It is not a purely theoretical possiblity: &lt;a href=&quot;https://blogs.lse.ac.uk/politicsandpolicy/brexit-condorcet/&quot; rel=&quot;nofollow noreferrer&quot;&gt;it is the present reality in the UK over the best resolution to the Brexit crisis&lt;/a&gt;. Either link gives a good explanation of how the situation can arise, but for completeness the simplest example has three voters and three candidates with preferences as follows:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;1: A &amp;gt; B &amp;gt; C&#xA;2: B &amp;gt; C &amp;gt; A&#xA;3: C &amp;gt; A &amp;gt; B&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;When taken to a vote, 2/3 would prefer A to B, 2/3 would prefer B to C, and 2/3 would prefer C to A. Transitivity would require that A be prefered over C. Therefore the preference of the group (although not the individuals) is complete and non-transitive. &lt;/p&gt;&#xA;" OwnerUserId="24741" LastActivityDate="2019-10-31T12:18:55.680" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32524" PostTypeId="2" ParentId="32505" CreationDate="2019-10-31T15:03:32.470" Score="8" Body="&lt;p&gt;I'm quite surprised nobody has picked the obvious one:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;I prefer rock over scissors.&lt;/li&gt;&#xA;&lt;li&gt;I prefer scissors over paper.&lt;/li&gt;&#xA;&lt;li&gt;I prefer paper over rock.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Complete, definitely not transitive.&lt;/p&gt;&#xA;" OwnerUserId="5740" LastActivityDate="2019-10-31T15:03:32.470" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32525" PostTypeId="1" CreationDate="2019-10-31T15:44:57.873" Score="2" ViewCount="185" Body="&lt;p&gt;I am studying a rather standard DSGE Model with a standard Utility function &lt;span class=&quot;math-container&quot;&gt;$U = f(c_t, n_t, M_t)$&lt;/span&gt; subject to a budget constraint. Now, tosolve the intertemporal optimization problem I have, or everyone has, to deal with an expectation term; often similar to &lt;span class=&quot;math-container&quot;&gt;$E_t \left[\lambda_{t+1}\right]$&lt;/span&gt;, where &lt;span class=&quot;math-container&quot;&gt;$\lambda_t$&lt;/span&gt; is the standard Lagrangian multiplier. Is there an anlytical trick to solve this? It seems to me the that usually the Expectation is just erased (without a justification) or studied using MLE estimators or Kalman Filters and surrogates.&#xA;Thanks to whoever can enlighten me on the issue.&#xA;Cheers&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Edit 1:&#xA;&lt;span class=&quot;math-container&quot;&gt;$\max_{c_t, n_t, i_t, M_t, K_t, B_t}{\mathbb{E}_t}\left[ \sum_{t=0}^{\infty} \beta^t \left( \log{(c_t^i)} - \gamma_i(n_t^i)^{2}+ \log \left(\frac{B_t}{P_t} \right) \right) \right]$&lt;/span&gt;&#xA;under the constraint: &#xA;&lt;span class=&quot;math-container&quot;&gt;$\frac{M_t}{P_t}+ c_t + i_t +  \frac{B_t}{P_t(1+r_t)} \leq u_t n_t + \frac{Q_t}{P_t}K_t + \frac{B_{t-1}}{(1+\pi_t)P_{t-1}} +\frac{M_{t-1}}{(1+\pi_t)P_{t-1}}$&lt;/span&gt;&#xA;The issue is wrt to a term which comes up in both the maximisation wrt to Bonds and Money: &lt;span class=&quot;math-container&quot;&gt;$\beta {\mathbb{E}}_{t}\left[\frac{\lambda_{t+1}}{(1+\pi_{t+1})}\right]$&lt;/span&gt; - how could I solve it? (with theother terms it would lead &lt;span class=&quot;math-container&quot;&gt;$ c_{t}^{-1}=\beta {\mathbb{E}}_{t}\left[\frac{c_{t+1}^{-1}}{(1+\pi_{t+1})}\right]$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="24743" LastEditorUserId="24743" LastEditDate="2019-11-04T17:41:21.900" LastActivityDate="2021-03-28T20:09:40.900" Title="Solving Euler Equation for standard DSGE Models" Tags="&lt;macroeconomics&gt;&lt;dsge&gt;&lt;rational-expectations&gt;" AnswerCount="1" CommentCount="3" FavoriteCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32526" PostTypeId="1" CreationDate="2019-10-31T16:53:42.303" Score="0" ViewCount="71" Body="&lt;p&gt;What is the relationship between foreign currency reserve(USD) of a country with it's exchange rate (against USD), and also with export and import strength ?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;And if it's too complicated to explain, which books I should head over to read more to know it better ? &lt;/p&gt;&#xA;" OwnerUserId="24744" LastActivityDate="2019-11-01T03:36:12.300" Title="Relation between foreign currency reserve and exchange rate and others" Tags="&lt;macroeconomics&gt;&lt;foreign-exchange&gt;&lt;currency-exchange&gt;" AnswerCount="1" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="32527" PostTypeId="1" AcceptedAnswerId="32531" CreationDate="2019-10-31T16:57:24.820" Score="0" ViewCount="43" Body="&lt;p&gt;I am aware that because of externalities or public goods (or for other reasons) there can be no allocative efficiency on the market. I am also aware that policy makers' subjective judgement of the situation on the market (if market outcomes are distributed &quot;fair&quot;) can be considered as equity in economics. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I wanted to empirically check if government spending can potentially increase efficiency or equity (as I think it should). I took labor productivity (a percentage of GDP) as a measure for efficiency and Gini index in disposable income as a measure for equity. While I am quite convinced with my measure of equity, as Gini tells me about the inequality of income distribution - I am not entirely sure about labor productivity. I am curious if I could choose better statistics to measure either efficiency or equity? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;In my results I got that government spending on environment is positively correlated with increase in efficiency in only about 30% cases and in equity in about 50% cases. This seems a little bit counter-intuitive as environment seemed like a textbook example where there is a negative externality, so the firms maximizing their profits based on private costs tend to overproduce - and that the government intervention in that case is justified. So that I thought after the intervention, there should be increase in allocative efficiency, right? But it is a case in only around 30% of cases. What could be a reason for that? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Similarly, government spending on health. To my contention, it should increase both, equity and efficiency - but from what I've got it seems to be true in about 20% of cases. Why would that be a case? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is it because of the measures I chose? Or my logic was simply wrong and government spending on environment causes efficiency to decrease and on health cases both, efficiency and equity, to decrease? &lt;/p&gt;&#xA;" OwnerUserId="23083" LastActivityDate="2019-10-31T19:48:34.987" Title="Empirically checking efficiency and equity" Tags="&lt;microeconomics&gt;&lt;public-economics&gt;&lt;government-spending&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32529" PostTypeId="2" ParentId="32415" CreationDate="2019-10-31T18:59:01.233" Score="4" Body="&lt;p&gt;What you're asking for is equivalent to finding an injective function &lt;span class=&quot;math-container&quot;&gt;$f:\mathbb R^n\to\mathbb R$&lt;/span&gt; that is monotone in the sense that if &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; is coordinate-wise at most as big as &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt;, then &lt;span class=&quot;math-container&quot;&gt;$f(x)\le f(y)$&lt;/span&gt;.&#xA;As a first step, notice that this is equivalent to finding such a function from &lt;span class=&quot;math-container&quot;&gt;$(0,1)^n\to\mathbb (0,1)$&lt;/span&gt;.&#xA;And this is easy by interleaving the digits of the coordinates of &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;, i.e., if &lt;span class=&quot;math-container&quot;&gt;$x=(x^1,x^2,\ldots,x^n)=(0.x^1_1x^1_2\ldots,0.x^2_1x^2_2\ldots,\ldots,0.x^n_1x^n_2\ldots)$&lt;/span&gt;, then let &lt;span class=&quot;math-container&quot;&gt;$f(x)=0.x^1_1x^2_1\ldots x^n_1x^1_2x^2_2\ldots x^n_2x^1_3x^2_3\ldots x^n_3\ldots$&lt;/span&gt;.&#xA;This is clearly injective and we prove monotonicity as follows.&#xA;If &lt;span class=&quot;math-container&quot;&gt;$f(x)&amp;gt;f(y)$&lt;/span&gt;, then they differ first at some &lt;span class=&quot;math-container&quot;&gt;$x_i^h&amp;gt;y_i^h$&lt;/span&gt; for which &lt;span class=&quot;math-container&quot;&gt;$x_j^h=y_j^h$&lt;/span&gt; for all &lt;span class=&quot;math-container&quot;&gt;$j&amp;lt;i$&lt;/span&gt;.&#xA;But then &lt;span class=&quot;math-container&quot;&gt;$x^h&amp;gt;y^h$&lt;/span&gt;, so &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; cannot be coordinate-wise at most as big as &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;ps. Note that &lt;span class=&quot;math-container&quot;&gt;$f$&lt;/span&gt; is almost surjective and almost continuous; the only issue is with numbers that have a finite decimal expansion. To see that an injective &lt;span class=&quot;math-container&quot;&gt;$f$&lt;/span&gt; cannot be continuous, consider &lt;span class=&quot;math-container&quot;&gt;$f^{-1}(\mathbb R_-)$&lt;/span&gt;, &lt;span class=&quot;math-container&quot;&gt;$f^{-1}(0)$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$f^{-1}(\mathbb R_+)$&lt;/span&gt; where wlog. &lt;span class=&quot;math-container&quot;&gt;$0$&lt;/span&gt; is an inner point of the image of &lt;span class=&quot;math-container&quot;&gt;$f$&lt;/span&gt;.&#xA;By continuity, these are two open sets and a point, so they cannot form a partition of &lt;span class=&quot;math-container&quot;&gt;$\mathbb R^n$&lt;/span&gt; for &lt;span class=&quot;math-container&quot;&gt;$n\ge 2$&lt;/span&gt;. (Here we didn't even use monotonicity.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is, however, possible to make &lt;span class=&quot;math-container&quot;&gt;$f$&lt;/span&gt; into a monotone bijection.&#xA;This can be achieved as follows.&#xA;First we show the statement for &lt;span class=&quot;math-container&quot;&gt;$f:[0,1)^n\to [0,1)$&lt;/span&gt;.&#xA;Write every number in its finite decimal form, if it has one, i.e., it shouldn't end with &lt;span class=&quot;math-container&quot;&gt;$999\ldots$&lt;/span&gt;.&#xA;The number &lt;span class=&quot;math-container&quot;&gt;$f(x)$&lt;/span&gt; will start with the first few decimal digits of &lt;span class=&quot;math-container&quot;&gt;$x^1$&lt;/span&gt;.&#xA;If &lt;span class=&quot;math-container&quot;&gt;$x^1_1\ne 9$&lt;/span&gt;, then &lt;span class=&quot;math-container&quot;&gt;$f(x)$&lt;/span&gt; will start with &lt;span class=&quot;math-container&quot;&gt;$x^1_1$&lt;/span&gt;, and then we take the first few digits of &lt;span class=&quot;math-container&quot;&gt;$x^2$&lt;/span&gt;.&#xA;If &lt;span class=&quot;math-container&quot;&gt;$x^1_1=9$&lt;/span&gt; but &lt;span class=&quot;math-container&quot;&gt;$x^1_2\ne 9$&lt;/span&gt;, then &lt;span class=&quot;math-container&quot;&gt;$f(x)$&lt;/span&gt; will start with &lt;span class=&quot;math-container&quot;&gt;$x^1_1x^1_2$&lt;/span&gt;, and then we go to &lt;span class=&quot;math-container&quot;&gt;$x^2$&lt;/span&gt;.&#xA;And so on, we always go until the first non-&lt;span class=&quot;math-container&quot;&gt;$9$&lt;/span&gt; digit of &lt;span class=&quot;math-container&quot;&gt;$x^1$&lt;/span&gt; before we start taking digits from &lt;span class=&quot;math-container&quot;&gt;$x^2$&lt;/span&gt;.&#xA;Then we repeat this for &lt;span class=&quot;math-container&quot;&gt;$x^2$&lt;/span&gt;, then for &lt;span class=&quot;math-container&quot;&gt;$x^3$&lt;/span&gt;, etc. (in a circular order).&#xA;This finishes the construction for &lt;span class=&quot;math-container&quot;&gt;$f:[0,1)^n\to [0,1)$&lt;/span&gt;.&#xA;To make it into a function &lt;span class=&quot;math-container&quot;&gt;$\mathbb R^n\to\mathbb R$&lt;/span&gt;, just apply a monotone bijection &lt;span class=&quot;math-container&quot;&gt;$g:\mathbb Z^n\to\mathbb Z$&lt;/span&gt; to the integer part of the numbers.&#xA;(Such a &lt;span class=&quot;math-container&quot;&gt;$g$&lt;/span&gt; is easy to construct by induction and by taking larger and larger cubes around the origin, &lt;span class=&quot;math-container&quot;&gt;$0^n$&lt;/span&gt;.)&#xA;Such a &lt;span class=&quot;math-container&quot;&gt;$g$&lt;/span&gt; gives a partition of &lt;span class=&quot;math-container&quot;&gt;$\mathbb R^n$&lt;/span&gt; into cubes that are isomorphic to &lt;span class=&quot;math-container&quot;&gt;$[0,1)^n$&lt;/span&gt;.&#xA;We can combine &lt;span class=&quot;math-container&quot;&gt;$f$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$g$&lt;/span&gt; to obtain a final function that will map &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; to &lt;span class=&quot;math-container&quot;&gt;$g(\lfloor x\rfloor)+f(x-\lfloor x\rfloor)$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerUserId="19338" LastEditorUserId="1601" LastEditDate="2019-11-01T08:26:37.190" LastActivityDate="2019-11-01T08:26:37.190" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32531" PostTypeId="2" ParentId="32527" CreationDate="2019-10-31T19:48:34.987" Score="1" Body="&lt;p&gt;Several things:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;It is not clear that labor productivity as a share of GDP tracks allocative efficiency.  For example, it could rise simply because the returns to capital (capital's share of GDP) are falling, which would most obviously be a consequence of allocative &lt;em&gt;inefficiency&lt;/em&gt; through over-investment in capital inputs.  There are potentially many other things that would confound this as an &quot;efficiency&quot; metric.&lt;/li&gt;&#xA;&lt;li&gt;Gini Index isn't the only measure of inequality, and in fact it doesn't do a very good job of capturing differences in economies at the extremes of their income distributions. &lt;/li&gt;&#xA;&lt;li&gt;You may have the causal arrow backwards: the most widely accepted model I'm aware of (which is not without controversy, mind you) is that of the Environmental Kuznets Curve, which assumes that wage growth (not labor's share of GDP) drives environmental improvement, not the other way around. &lt;/li&gt;&#xA;&lt;li&gt;Because &quot;equity&quot; in the probability-distribution sense is attainable both by improving and destroying quality of life (e.g., everyone earns zero dollars), it's not clear that you should expect a positive correlation between this and &quot;environmental spending&quot;.  In fact to first-order, your 50% split is consistent with what I've just pointed out.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="24275" LastActivityDate="2019-10-31T19:48:34.987" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="32532" PostTypeId="2" ParentId="32480" CreationDate="2019-10-31T20:12:57.503" Score="1" Body="&lt;p&gt;Didn't manage to get to a definitve answer in one shot, but it seems to me that Jensen inequality is not going to help much.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Build up: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;You are essentially asking that &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;   E_v \left(u(a - v) \right) \leq E_c \left(u(a-c) |a\leq c \leq b\right)&#xA;\end{equation}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;for a function &lt;span class=&quot;math-container&quot;&gt;$u$&lt;/span&gt; increasing and concave and &lt;span class=&quot;math-container&quot;&gt;$[a, b] \subset Supp_v = [x,y]$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the language of measures, the above condition can be rewritten as&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{equation}&#xA;   \int_x^a u(a-c) dG(c) + \int_b^y u(a-c)dG(c) \leq \int_a^b u(a-c) \cdot \left[\frac{f(c)}{F(b)-F(a)} - g(c) \right]dc.&#xA;\end{equation}&lt;/span&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;First term on the left is certainly positive, second term on the left is certainly negative. The term on the right is of undetermined sign: &lt;span class=&quot;math-container&quot;&gt;$u(a-c)$&lt;/span&gt; is negative in the integration interval, but &lt;span class=&quot;math-container&quot;&gt;$\frac{f(c)}{F(b)-F(a)}$&lt;/span&gt; cannot be uniformly lower than &lt;span class=&quot;math-container&quot;&gt;$g(c)$&lt;/span&gt; on &lt;span class=&quot;math-container&quot;&gt;$[a,b]$&lt;/span&gt;, as the former on this interval must sum up to 1 and the latter to &lt;span class=&quot;math-container&quot;&gt;$G(b)-G(a) \in (0,1)$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerUserId="24728" LastActivityDate="2019-10-31T20:12:57.503" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32534" PostTypeId="1" AcceptedAnswerId="32537" CreationDate="2019-10-31T22:51:53.000" Score="1" ViewCount="50" Body="&lt;p&gt;In this &lt;a href=&quot;http://web.math.ku.dk/~rolf/teaching/slides_070409&quot; rel=&quot;nofollow noreferrer&quot;&gt;slide&lt;/a&gt;, it says that constant relative risk-Aversion utility function have this form.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$u(x) = \frac{1}{1-b} x^{1-b}$&lt;/span&gt; for &lt;span class=&quot;math-container&quot;&gt;$b≠1$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$u(x) = In(x)$&lt;/span&gt; for &lt;span class=&quot;math-container&quot;&gt;$b=1$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When I tried to derive the utility function from &lt;span class=&quot;math-container&quot;&gt;$b = -x \frac{u''(x)}{u'(x)}$&lt;/span&gt; (the representation of CRRA), I got &lt;span class=&quot;math-container&quot;&gt;$u(x) = x^{1-b}$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;While I understand that preference will not be changed by linear transformation of the utility function, I wonder why is it necessary to make the utility function be &lt;span class=&quot;math-container&quot;&gt;$u(x) = \frac{1}{1-b} x^{1-b}$&lt;/span&gt; for &lt;span class=&quot;math-container&quot;&gt;$b≠1$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also how is the &quot;&lt;span class=&quot;math-container&quot;&gt;$u(x) = In(x)$&lt;/span&gt; for &lt;span class=&quot;math-container&quot;&gt;$b=1$&lt;/span&gt;&quot; obtained?&lt;/p&gt;&#xA;" OwnerUserId="14778" LastActivityDate="2019-11-01T01:58:59.917" Title="How is the utility function with constant relative risk-aversion obtained?" Tags="&lt;microeconomics&gt;&lt;risk&gt;&lt;risk-aversion&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32536" PostTypeId="2" ParentId="32525" CreationDate="2019-11-01T00:04:10.523" Score="0" Body="&lt;p&gt;It really depends on the problem. As to why it would disappear, sometimes you can express the multiplier in terms of variables at the present or past, as in &lt;span class=&quot;math-container&quot;&gt;$\lambda_{t+1}=\lambda_{(c_t,n_t,M_t)}$&lt;/span&gt; , which means it's an expectation over values that are known at that time. Therefore, you have &lt;span class=&quot;math-container&quot;&gt;$E_t[\lambda_{t+1}]=E_t[\lambda_{(c_t,n_t,M_t)}]=\lambda_{(c_t,n_t,M_t)}=\lambda_{t+1}$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But, as said above, it depends on the problem.&lt;/p&gt;&#xA;" OwnerUserId="7857" LastActivityDate="2019-11-01T00:04:10.523" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32537" PostTypeId="2" ParentId="32534" CreationDate="2019-11-01T01:58:59.917" Score="1" Body="&lt;p&gt;In the slide, we're given the marginal utility (or the derivative of the utility function) as &lt;span class=&quot;math-container&quot;&gt;$m(x) = x^{-b}$&lt;/span&gt;. The utility function whose derivative is &lt;span class=&quot;math-container&quot;&gt;$m(x)$&lt;/span&gt; is&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{eqnarray*} u(x) =  \int m(x) dx = \int x^{-b} dx = \begin{cases} \frac{1}{1- b} x^{1-b} &amp;amp; \text{when } b \neq 1 \\  \ln x &amp;amp; \text{when } b = 1 \end{cases} \end{eqnarray*}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Verify that &lt;span class=&quot;math-container&quot;&gt;$u'(x) = m(x)$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerUserId="11824" LastActivityDate="2019-11-01T01:58:59.917" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32538" PostTypeId="2" ParentId="32526" CreationDate="2019-11-01T03:36:12.300" Score="1" Body="&lt;p&gt;Quick and easy way is to think of a foreign currency (let's call this USD) as another good with its own demand and supply.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;Imports and exports&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;When a country imports a lot (assuming it imports from the US or the invoice is in USD), the importers will need to pay for these goods in USD. To do this, they go to a bank (roughly speaking) and buy USD, pay for USD with the local currency. This drives up the demand of USD, and hence the price of USD goes up... the local currency &lt;em&gt;depreciates&lt;/em&gt; against the USD.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When a country exports a lot, the reverse happens. Importers in other countries will need to pay local currency, so they sell the USD they have in order to get the local currency. The supply of the USD goes up (or you can think of it as demand of USD goes down)... price of USD goes down, and the local currency &lt;em&gt;appreciates&lt;/em&gt; against the USD.&lt;/p&gt;&#xA;&#xA;&lt;h2&gt;FX reserve&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Now to go back to your original question... FX reserve is just a place for a country to hold foreign currencies (since USD can't be used locally). It's like a warehouse for USD, controlled by the central bank.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;When a country can export a lot there will be a lot of people who wants to sell USD. The rapid appreciation of the local currency could affect firms (profits, etc.) so the central bank might &quot;intervene&quot; to stabilize the rate in the short run. They do this by buying up USD... in a sense create additional demand for USD so the price of USD doesn't fall down too fast. They then put this USD they bought in the reserve.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is why the change in FX reserve could be used as a proxy to see how much central bank has intervened in the FX market.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In buying USD, they could print new local currency and buy USD outright, resulting in higher supply of local currency and higher inflation, or they could &quot;sterilize&quot; the action by selling bonds just as they would do when they want to reduce money supply by the same amount that they used to buy USD.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On the other hand, if the local currency is depreciating too fast (price of USD going up), the central bank could help by selling USD in the reserve to increase USD supply.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem, though, is that the reserve could run out. This is what happened in the Asian Financial Crisis in 1997.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hope this helps!&lt;/p&gt;&#xA;" OwnerUserId="5145" LastActivityDate="2019-11-01T03:36:12.300" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32543" PostTypeId="1" CreationDate="2019-11-01T12:35:10.703" Score="0" ViewCount="32" Body="&lt;p&gt;Looking at forward rates, the exchange rate for the currency with the higher interest rate gets worse over time.  This makes sense or else there would be an arbitrage opportunity to borrow in the low rate currency, convert, lend in high rate, and buy a forward contract to eliminate currency risk.  However, this doesn't make sense given that low interest rates tend to increase inflation and weaken a currency while high rates do the reverse.  This implies that the low rate currency should weaken relative to the high rate currency, leading to better exchange rates for the high rate currency over time, not worse.  Why is this?  &lt;/p&gt;&#xA;" OwnerUserId="24754" LastActivityDate="2019-11-01T12:35:10.703" Title="Forward exchange rates and inflation" Tags="&lt;inflation&gt;&lt;monetary-policy&gt;&lt;interest-rate&gt;&lt;foreign-exchange&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="32544" PostTypeId="1" AcceptedAnswerId="32582" CreationDate="2019-11-01T13:04:55.550" Score="0" ViewCount="31" Body="&lt;p&gt;It is very likely that Banks have more loans that have been repaid compared to loans that have not been repaid. Otherwise the bank would lose money instead of money. (otherwise the bank will go bankrupt)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Are there statistics (research papers with references) about this?&#xA;(Can be of any country or individual bank etc.)&lt;/p&gt;&#xA;" OwnerUserId="24639" LastActivityDate="2019-11-04T05:05:25.693" Title="statistics about loaning tradeoff" Tags="&lt;banking&gt;&lt;credit&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32545" PostTypeId="1" CreationDate="2019-11-01T15:11:49.157" Score="1" ViewCount="154" Body="&lt;p&gt;&lt;a href=&quot;https://en.wikipedia.org/wiki/Tendency_of_the_rate_of_profit_to_fall&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://en.wikipedia.org/wiki/Tendency_of_the_rate_of_profit_to_fall&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The tendency of the rate of profit to fall (TRPF) is a hypothesis in economics and political economy, most famously expounded by Karl Marx in chapter 13 of Capital, Volume III.[1] Economists as diverse as Adam Smith,[2] John Stuart Mill,[3] David Ricardo[4] and Stanley Jevons[5] referred explicitly to the TRPF as an empirical phenomenon that demanded further theoretical explanation, yet they each differed as to the reasons why the TRPF should necessarily occur.[6]&lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Now, I have some years trained as an economist; but, find the whole fuss around the TRPF somewhat strange. Marx lived in a time of a non-fiat economy. The inherent value of one kopiejek or what have you was based on how much bread it could exchange. Nowadays money is defined to be a unit of account maintained by trust in the FED. Hence, inflation targeting. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;So, did Marx really miss the memo about credit? Can someone help me better understand where am I getting this concept wrong as so many think this is the cornerstone of Marxian economics. &lt;/p&gt;&#xA;" OwnerUserId="24756" LastEditorUserId="1601" LastEditDate="2019-11-01T21:14:32.637" LastActivityDate="2020-12-02T03:02:20.250" Title="Tendency of the rate of profit to fall" Tags="&lt;value&gt;&lt;marxism&gt;&lt;credit&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32546" PostTypeId="1" CreationDate="2019-11-01T19:31:34.370" Score="3" ViewCount="35" Body="&lt;p&gt;I'm currently doing some research on demand systems and have been experimenting with different underlying utility functions which will generate different systems of demands. However I've been doing most of this work with pen and paper and often it seems that a machine would be better regarding solving some routine questions regarding marshallian and hicksian demands.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there a software which I can use to solve Lagrangian where I can obtain a specific functional form for Marshallian demands and Hicksian demands? &lt;/p&gt;&#xA;" OwnerUserId="8815" LastActivityDate="2019-11-01T19:31:34.370" Title="Software used for solving demands of different functions" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;soft-question&gt;" AnswerCount="0" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="32548" PostTypeId="2" ParentId="32545" CreationDate="2019-11-01T19:49:00.267" Score="1" Body="&lt;p&gt;I'm not sure what the &quot;fuss&quot; is.  Is TRPF really so heavily disputed?  In a sense, profits are just a kind of arbitrage, and so the reasoning behind TRPF is similar to the reasoning around zero-arbitrage assumptions (profit-maxing agents under perfect competition with free entry/exit and full information will drive supply up and prices down until the profit gap closes). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Obviously, these assumptions make for boring problems; the real world is far from boring, so profits happen and can be sustained for a really long time in some cases.  I think the diversity of viewpoints you're seeing are more explanations for the varying degrees of failure of TRPF in real markets, than they are explanations of empirical evidence of TRPF.&lt;/p&gt;&#xA;" OwnerUserId="24275" LastActivityDate="2019-11-01T19:49:00.267" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32549" PostTypeId="1" AcceptedAnswerId="32589" CreationDate="2019-11-01T21:17:36.597" Score="0" ViewCount="44" Body="&lt;p&gt;As a student with almost zero background in economics, I've been struggling to comprehend the notion of the &lt;strong&gt;currency convertibility&lt;/strong&gt;. Most of the definitons I've found online talk about &lt;em&gt;the ease with which a country's currency can be converted into another currency&lt;/em&gt;. But what exactly is meant by &lt;em&gt;the ease&lt;/em&gt;? Does it mean both currencies should be equal, or close to being equal, in their value or is it something else?  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To provide context, I'm attaching the part of an article from &lt;em&gt;nationalarchives.gov.uk&lt;/em&gt; talking about the American financial aid to Britain during and after the WWII. Also, as I'm not able to figure out the meaning of the word, I don't understand the following (the last) sentence of the extract either.&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The economic circumstances of the late 1940s tested relations between&#xA;  the unions and the Labour Party. Financial assistance through the&#xA;  American lend-lease system ended in the autumn of 1945. Although a&#xA;  further loan was negotiated in 1945, it was apparent that a great&#xA;  increase in production and exports would be necessary to prevent a&#xA;  balance of payments deficit. In the winter of 1947, a coal shortage&#xA;  produced an energy crisis, which threatened to undermine production.&lt;/p&gt;&#xA;  &#xA;  &lt;p&gt;In July 1947, the Chancellor, Hugh Dalton, &lt;strong&gt;returned the pound to&#xA;  convertibility against the dollar&lt;/strong&gt; (as required by the terms of the&#xA;  American loan). However, as dollar reserves rapidly flowed out of the&#xA;  country, a full-blown economic crisis followed and in August of the&#xA;  same year Dalton was forced to suspend the move.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Thank you in advance for the response, I'd very much appreciate it. &lt;/p&gt;&#xA;" OwnerUserId="24758" LastEditorUserId="24758" LastEditDate="2019-11-01T21:24:32.783" LastActivityDate="2019-11-05T16:41:56.153" Title="What does 'currency convertibility' mean?" Tags="&lt;international-trade&gt;&lt;currency&gt;&lt;definition&gt;&lt;currency-exchange&gt;&lt;economic-terms&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32550" PostTypeId="1" CreationDate="2019-11-01T21:58:53.623" Score="1" ViewCount="110" Body="&lt;p&gt;If there is less money, its value increases.&lt;br&gt;&#xA;There is less liquidity when there is less money.&lt;br&gt;&#xA;Does a negative interest decrease the money supply?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Especially when people don't need money: they saved it up but nobody needs it -- nobody needs to borrow it from them so they saved up for their pensions and now they want to buy a pension but nobody really needs their money. So a negative interest rate is established to entice them to spend it: a little late because they are buying pensions but OK. They are too old to spend it well. They think the washer will outlive them. So they leave the money in the incinerator of negative interest bank accounts. Then there is less and less money. Now somebody wants to sell something (liquidate it) but there isn't that much money there at the moment. It was burnt. The money becomes a kind of commodity that people are willing to pay more assets for. The asset price in currency is lower. People think, hey cool: Let as much people as possible have their money burnt so that my cash becomes more valuable. Run on the bank. But then it turns out that the CB really can print money...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Here's a story. I guess it can be what happened in the repo market recently.&lt;/p&gt;&#xA;" OwnerUserId="24759" LastEditorUserId="59" LastEditDate="2021-03-26T06:32:30.087" LastActivityDate="2021-03-26T06:32:30.087" Title="Does a negative interest decrease the money supply?" Tags="&lt;monetary-policy&gt;&lt;money-supply&gt;&lt;nonexpert&gt;&lt;saving&gt;" AnswerCount="1" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32551" PostTypeId="1" CreationDate="2019-11-01T22:17:00.320" Score="0" ViewCount="17" Body="&lt;p&gt;I'm trying to understand not only which program is expected to be larger in terms of costs, but which one has the least capacity to adjust (reduce benefits if revenues for the program fall). &lt;/p&gt;&#xA;" OwnerUserId="24596" LastActivityDate="2019-11-01T22:32:30.167" Title="Does Medicaid or Medicare represent a higher risk to the Federal Government Solvency and Debt going forward?" Tags="&lt;government-debt&gt;&lt;debt&gt;&lt;risk&gt;&lt;government&gt;&lt;government-spending&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32552" PostTypeId="2" ParentId="32550" CreationDate="2019-11-01T22:23:56.927" Score="-1" Body="&lt;p&gt;&lt;strong&gt;Definition of Money Supply:&lt;/strong&gt;&#xA;The money supply is the entire stock of currency and other liquid instruments circulating in a country's economy as of a particular time. Because of it's definition, the money supply can only be affected if a central bank prints or burns currency. Thus, technically, rates don't affect it per-se. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Velocity of money and money in circulation:&lt;/strong&gt;&#xA;What you may be thinking of is related more with how much money is in circulation and how fast it changes hands. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Effect of negative rates:&lt;/strong&gt;&#xA;In theory, when rates go up, money flows into bonds and &quot;leaves&quot; circulation. By the same logic when rates go down, money flows out of bonds and &quot;enters&quot; circulation. &lt;/p&gt;&#xA;" OwnerUserId="24596" LastActivityDate="2019-11-01T22:23:56.927" CommentCount="5" ContentLicense="CC BY-SA 4.0" />
  <row Id="32553" PostTypeId="2" ParentId="32551" CreationDate="2019-11-01T22:32:30.167" Score="-1" Body="&lt;p&gt;Yes, both presents higher fiscal risks up to the future, as they imply in a higher Federal deficit. The hability to adjust depends, unfortunately, not only on the program itself, but in a political risk as the congress could refuse to reduce the revenue to these programs as this would be not appealing for voters. At least USA does not have something like &quot;free healthcare for everyone&quot; written in it's constituition like countries such as Brazil have.&#xA;The broader the extent of the program itself determines it's costs.&lt;/p&gt;&#xA;" OwnerUserId="24750" LastActivityDate="2019-11-01T22:32:30.167" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32554" PostTypeId="1" AcceptedAnswerId="32595" CreationDate="2019-11-01T22:36:39.497" Score="5" ViewCount="190" Body="&lt;p&gt;I know how its graph looks like, and it's like when you want to choose between 2 inferior goods you choose the cheaper one so you can have more, but is there another examples?&lt;/p&gt;&#xA;" OwnerUserId="24755" LastEditorUserId="5145" LastEditDate="2019-11-04T02:52:16.263" LastActivityDate="2020-02-25T14:02:36.887" Title="Are there any examples for $u(x_1, x_2) = \max\{x_1, x_2\}$ in real word?" Tags="&lt;microeconomics&gt;&lt;utility&gt;" AnswerCount="3" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="32556" PostTypeId="1" AcceptedAnswerId="32557" CreationDate="2019-11-02T06:51:01.583" Score="0" ViewCount="206" Body="&lt;p&gt;In Section 10.2, Monopoly Power, in Pindyck's text on Microeconomics, an example says that suppose &lt;span class=&quot;math-container&quot;&gt;$N$&lt;/span&gt; firms produce a particular product and the market demand curve is &lt;span class=&quot;math-container&quot;&gt;$P = -aQ + b$&lt;/span&gt;. &lt;strong&gt;&lt;em&gt;An individual firm is likely to face a demand curve which is more elastic than the market demand curve.&lt;/em&gt;&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Problem here is, while finding the individual demand curve, we first find &lt;span class=&quot;math-container&quot;&gt;$Q = (b-P)/a$&lt;/span&gt;, which is the market demand. We divide this by &lt;span class=&quot;math-container&quot;&gt;$N$&lt;/span&gt; to get the individual firm's demand curve, given by &lt;span class=&quot;math-container&quot;&gt;$Q = (b-P)/Na$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I compute the elasticity of demand in both cases, which is just equal to &lt;span class=&quot;math-container&quot;&gt;$(dQ/dP)(P/Q)$&lt;/span&gt;, I get the same value, which is not expected. Is there some mistake in my calculation, for finding the elasticity? Could someone please explain what's going on, and possibly show the exact calculation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A good check would be that as &lt;span class=&quot;math-container&quot;&gt;$N \to \infty$&lt;/span&gt;, there is perfect competition and hence perfectly elastic demand (right?)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thank you!&lt;/p&gt;&#xA;" OwnerUserId="24053" LastEditorUserId="1601" LastEditDate="2019-11-02T07:54:24.347" LastActivityDate="2019-11-02T08:07:49.963" Title="Individual Firm and Market Demand Curve" Tags="&lt;microeconomics&gt;&lt;supply-and-demand&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32557" PostTypeId="2" ParentId="32556" CreationDate="2019-11-02T08:07:49.963" Score="3" Body="&lt;p&gt;What you're doing when you calculate &lt;span class=&quot;math-container&quot;&gt;$dQ/dP$&lt;/span&gt; is assuming that all forms change their process by &lt;span class=&quot;math-container&quot;&gt;$dP$&lt;/span&gt;. This is the same as saying that the market price changes by &lt;span class=&quot;math-container&quot;&gt;$dP$&lt;/span&gt; and is why you get the same number.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The main difference here is that when the book says price elasticity of demand is higher for an individual firm, it means that, &lt;em&gt;holding the prices of other firms constant&lt;/em&gt;, a 1 percent change in a firm's price would result in a greater change in quantity demanded than when all forms change the price.&lt;/p&gt;&#xA;" OwnerUserId="5145" LastActivityDate="2019-11-02T08:07:49.963" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32560" PostTypeId="1" CreationDate="2019-11-02T13:28:49.223" Score="3" ViewCount="79" Body="&lt;p&gt;Elizabeth Warren is planning to pay for various things with &lt;a href=&quot;https://www.npr.org/2019/11/01/775339519/heres-how-warren-finds-20-5-trillion-to-pay-for-medicare-for-all&quot; rel=&quot;nofollow noreferrer&quot;&gt;a 6% wealth tax on those with fortunes in excess of $1B USD&lt;/a&gt;.  Now, right or wrong, this seems to be an awfully big annual scoop from a bucket that one intends to be scooping from in perpetuity.  If the bucket gets low, then we'll have to find other as-yet-unknown sources of income to fund these various projects. Is the bucket filling up at a rate large enough to sustain such a 6% tax?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In other words, is the rate of wealth increase of Billionaires at least 6% on average?&lt;/p&gt;&#xA;" OwnerUserId="14072" LastEditorUserId="6210" LastEditDate="2019-11-04T07:17:24.617" LastActivityDate="2020-01-10T18:54:52.283" Title="Is a 6% wealth tax a sustainable source of income?" Tags="&lt;macroeconomics&gt;&lt;taxation&gt;&lt;wealth&gt;" AnswerCount="2" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="32561" PostTypeId="1" AcceptedAnswerId="32588" CreationDate="2019-11-02T14:37:31.233" Score="-1" ViewCount="145" Body="&lt;p&gt;Utility function &lt;span class=&quot;math-container&quot;&gt;$u(x)$&lt;/span&gt; is monotonic. I want to prove that &lt;span class=&quot;math-container&quot;&gt;$u(x)$&lt;/span&gt; exhibits risk aversion if and only if for all lottery &lt;span class=&quot;math-container&quot;&gt;$F$&lt;/span&gt;: &lt;span class=&quot;math-container&quot;&gt;$E(x) \geq CE(F,u)$&lt;/span&gt; (CE is certainty equivalent).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(Definition of &lt;span class=&quot;math-container&quot;&gt;$CE$&lt;/span&gt;: the certainty equivalent &lt;span class=&quot;math-container&quot;&gt;$CE(F,u)$&lt;/span&gt; of lottery &lt;span class=&quot;math-container&quot;&gt;$F$&lt;/span&gt; given Bernoulli utility &lt;span class=&quot;math-container&quot;&gt;$u(x)$&lt;/span&gt; is such that &lt;span class=&quot;math-container&quot;&gt;$u(CE(F,u)) = E(u(x)) = U(F)$&lt;/span&gt;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I tried with &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$u(x)$&lt;/span&gt; is risk averse &lt;span class=&quot;math-container&quot;&gt;$&amp;lt;=&amp;gt;$&lt;/span&gt; &lt;span class=&quot;math-container&quot;&gt;$u(x)$&lt;/span&gt; concave &lt;span class=&quot;math-container&quot;&gt;$&amp;lt;=&amp;gt;$&lt;/span&gt; &lt;span class=&quot;math-container&quot;&gt;$E(u(x)) \leq u(E(x))$&lt;/span&gt;   (Jensen's inequality)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I am not sure about how to proceed. Since &lt;span class=&quot;math-container&quot;&gt;$u(x)$&lt;/span&gt; is monotonic and not strictly monotonic, I can not take inverse of &lt;span class=&quot;math-container&quot;&gt;$u(x)$&lt;/span&gt; on both side of the inequality.&lt;/p&gt;&#xA;" OwnerUserId="14778" LastEditorUserId="14778" LastEditDate="2019-11-03T17:32:23.607" LastActivityDate="2019-11-04T10:50:57.813" Title="How to prove the relationship between the expected value of a lottery and its certainty equivalent?" Tags="&lt;microeconomics&gt;&lt;utility&gt;&lt;expected-utility&gt;&lt;uncertainty&gt;" AnswerCount="1" CommentCount="7" ContentLicense="CC BY-SA 4.0" />
  <row Id="32564" PostTypeId="1" AcceptedAnswerId="32567" CreationDate="2019-11-02T17:27:40.010" Score="0" ViewCount="94" Body="&lt;p&gt;I was hoping someone could explain the following. Suppose the short-run total cost function is TC = 50 + 12Q. Which of the following statements is true at all levels of production?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The correct answer given was that MC = AVC&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Could someone explain to me why please?&lt;/p&gt;&#xA;" OwnerUserId="24766" LastActivityDate="2019-11-04T04:14:16.423" Title="Why does average variable cost = marginal cost for this function?" Tags="&lt;microeconomics&gt;" AnswerCount="2" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="32565" PostTypeId="1" CreationDate="2019-11-02T18:12:16.520" Score="2" ViewCount="36" Body="&lt;p&gt;&lt;a href=&quot;https://translate.google.com/translate?sl=de&amp;amp;tl=en&amp;amp;u=https%3A%2F%2Fwww.lai.fu-berlin.de%2Fe-learning%2Fprojekte%2Fvwl_basiswissen%2Fbip%2Fdefinition%2Findex.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;Here&lt;/a&gt; I've read the following (translated by Google)&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;GDP can be calculated in two ways: firstly, by origin, that is, by&#xA;estimating the value of all goods and services produced, and secondly&#xA;by the use side, that is, by recording total&#xA;expenditure on consumer and capital goods, including external trade&#xA;(the difference between the value of imported and exported goods and&#xA;services).&lt;/p&gt;&#xA;&lt;p&gt;These two calculations are always congruent, as consumption&#xA;adjusted for net exports corresponds to production.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;I wonder about one thing: What about all the products being produced but never sold and used: food, clothes, printed media, to name just a few. They appear only on the one side, not on the other. So how can the two numbers be congruent?&lt;/p&gt;&#xA;&lt;p&gt;And if they are not congruent: Which of them is finally published e.g. by the German Statistisches Bundesamt?&lt;/p&gt;&#xA;" OwnerUserId="22991" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2019-11-02T20:30:18.210" Title="Congruence of GDP as calculated by production and by consumption" Tags="&lt;gdp&gt;" AnswerCount="1" CommentCount="6" FavoriteCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32566" PostTypeId="2" ParentId="32565" CreationDate="2019-11-02T20:30:18.210" Score="1" Body="&lt;p&gt;The GDP expenditure approach is the sum of consumption, private investment, government spending, and the difference between exports and imports. I have not dug into the German Statistisches Bundesamt but unsold goods should be accounted for in the expenditure approach under &quot;change in private inventories&quot; or &quot;inventory investment&quot; (grouped with private investment).&lt;/p&gt;&#xA;" OwnerUserId="8387" LastActivityDate="2019-11-02T20:30:18.210" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="32567" PostTypeId="2" ParentId="32564" CreationDate="2019-11-02T22:23:24.957" Score="1" Body="&lt;p&gt;So using your above statements in the comments it should be relatively clear how to find that &lt;span class=&quot;math-container&quot;&gt;$MC = AVC$&lt;/span&gt;. &#xA;&lt;span class=&quot;math-container&quot;&gt;$$MC = \frac{\partial TC}{\partial Q} = 12$$&lt;/span&gt;&#xA;and then using the fact that variable cost is &lt;span class=&quot;math-container&quot;&gt;$12Q$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$AVC = \frac{VC}{Q} = 12$$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="23546" LastActivityDate="2019-11-02T22:23:24.957" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="32570" PostTypeId="1" AcceptedAnswerId="32585" CreationDate="2019-11-03T13:30:07.427" Score="0" ViewCount="733" Body="&lt;p&gt;It is well-known that convex indifference curve (i.e. the function is convex)/ preference would imply quasi-concave utility function. But does quasi-concave utility function imply convex indifference curve?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems that &lt;a href=&quot;https://economics.stackexchange.com/questions/26498/if-a-utility-function-is-quasi-concave-can-we-say-that-the-ic-curve-associated&quot;&gt;this answer&lt;/a&gt; give a brief sketch of the proof, but how can I show it in a more formal way?&lt;/p&gt;&#xA;" OwnerUserId="14778" LastEditorUserId="14778" LastEditDate="2019-11-03T17:35:35.557" LastActivityDate="2019-11-04T13:03:15.127" Title="Does quasi-concave utility function imply convex indifference curve?" Tags="&lt;microeconomics&gt;&lt;utility&gt;" AnswerCount="1" CommentCount="10" ContentLicense="CC BY-SA 4.0" />
  <row Id="32571" PostTypeId="1" AcceptedAnswerId="32575" CreationDate="2019-11-03T17:48:18.877" Score="1" ViewCount="139" Body="&lt;p&gt;What could be an example of equity-efficiency tradeoff in healthcare, social protection or defense? For environment I did think of pollution permits that can cause geographical differences in pollution. But for other sectors of government spending I do have a trouble with coming up with an example.&lt;/p&gt;&#xA;" OwnerUserId="23083" LastActivityDate="2019-11-03T23:09:48.907" Title="Equity-efficiency tradeoff examples" Tags="&lt;microeconomics&gt;&lt;public-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32573" PostTypeId="1" CreationDate="2019-11-03T21:36:29.937" Score="0" ViewCount="84" Body="&lt;p&gt;Does exchange rate of local currency relative to US dollar mean LOC/USD or USD/LOC ?&lt;/p&gt;&#xA;" OwnerUserId="24643" LastActivityDate="2019-12-04T01:01:00.313" Title="Meaning of Exchange rate" Tags="&lt;exchange-rates&gt;&lt;foreign-exchange&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32575" PostTypeId="2" ParentId="32571" CreationDate="2019-11-03T23:09:48.907" Score="3" Body="&lt;p&gt;Publicly funded healthcare and social welfare schemes typically serve redistributive functions and therefore can be considered as promoting equity (among the well-off and the poor). At the same time, these programs must be financed through taxation such as income tax that's usually distortive, thereby weighing down on efficiency.&lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2019-11-03T23:09:48.907" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32576" PostTypeId="2" ParentId="32573" CreationDate="2019-11-03T23:44:32.187" Score="-1" Body="&lt;p&gt;LOC/USD and USD/LOC are currency pairs. Whatever currency comes first is known as the base currency. The currency that comes second is known as quote currency. For major currency pairs, &lt;a href=&quot;https://en.wikipedia.org/wiki/Currency_pair#Base_currency&quot; rel=&quot;nofollow noreferrer&quot;&gt;the format of the currency pair is based on established priority&lt;/a&gt;. For example, EUR has the highest established priority and thus is almost always shown as the base currency. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Currency pairs quotes work such that one unit of the base currency can be exchanged for quoted amount of the quote currency (hence the name &quot;quote currency&quot;). For example, LOC/USD 6.25 means that one LOC can be exchanged for 6.25 USD. USD/LOC 0.16 means that one USD can be exchanged for 0.16 LOC.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Whenever people say &quot;local currency relative to US dollar&quot;, that usually should be parsed as &quot;[base currency] relative to [quote currency]&quot;, and thus it would be LOC/USD. A similar interpretation applies for &quot;local currency quoted against the US dollar&quot; (LOC/USD). Another hint is that most &quot;minor currencies&quot; are quoted against the US dollar.&lt;/p&gt;&#xA;" OwnerUserId="8387" LastActivityDate="2019-11-03T23:44:32.187" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32577" PostTypeId="2" ParentId="31869" CreationDate="2019-11-04T00:07:22.790" Score="3" Body="&lt;p&gt;There is an ongoing project to try and estimate how close a society is to the ideal, see the &lt;a href=&quot;https://en.wikipedia.org/wiki/Indices_of_economic_freedom&quot; rel=&quot;nofollow noreferrer&quot;&gt;indices of economic freedom&lt;/a&gt; by the Heritage Foundation and the Fraser Institute. The ones who made They score countries from 0 (all-pervasive state control) to 10. Hong Kong (8.91) and Singapore (8.71) are currently the two countries closest to the ideal, according to the &lt;a href=&quot;https://www.fraserinstitute.org/economic-freedom/map&quot; rel=&quot;nofollow noreferrer&quot;&gt;Fraser Institute&lt;/a&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;These projects only look at societies from 1970 and onward, however.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A few western countries during parts of the 19th Century have, in a way, been relatively close to the ideal, such as the US up till the Progressive Era and Sweden (around 1860 to 1910). However, both societies restricted the rights of married women and the southern states upheld slavery and later on Jim Crow laws against blacks. Still, the economy was mostly coordinated through private effort, though there were legal barriers for women and blacks to get into the &quot;commanding heights&quot; of these economies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For a description of the decline of laissez-faire in the US, see Murray Rothbard's &lt;a href=&quot;https://cdn.mises.org/The%20Progressive%20Era_0.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;The Progressive Era&lt;/a&gt; and Robert Higgs' &lt;a href=&quot;https://rads.stackoverflow.com/amzn/click/com/019505900X&quot; rel=&quot;nofollow noreferrer&quot; rel=&quot;nofollow noreferrer&quot;&gt;Crisis and Leviathan&lt;/a&gt;, which should complement a general economic history of the era.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Mancur Olson, an economist and critic of laissez-faire, argued in &lt;a href=&quot;https://rads.stackoverflow.com/amzn/click/com/0300030797&quot; rel=&quot;nofollow noreferrer&quot; rel=&quot;nofollow noreferrer&quot;&gt;The Rise and Decline of Nations&lt;/a&gt; that (probably the last) 50 years of British India was among the closest to a laissez-faire ideal. During that time India had hardly started developing. He says that the caste system was a drag on the economy, but he didn't see castes as being in conflict with the freedom to enter any business or trade.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Another way to study laissez-faire systems is to look at specific markets, when not heavily regulated. &lt;a href=&quot;https://www.independent.org/store/book.asp?id=17#t-1&quot; rel=&quot;nofollow noreferrer&quot;&gt;The Voluntary City&lt;/a&gt; shows examples of the private production of urban infrastructure, roads, commercial courts, police, social insurance (healthcare, sick benefits, life insurance), and primary education in 19th century US and England. For examples of the private production of coins, see &lt;a href=&quot;https://rads.stackoverflow.com/amzn/click/com/1598130439&quot; rel=&quot;nofollow noreferrer&quot; rel=&quot;nofollow noreferrer&quot;&gt;Good Money&lt;/a&gt;; for bank notes (and a free banking sector) see &lt;a href=&quot;https://oll.libertyfund.org/titles/selgin-the-theory-of-free-banking-money-supply-under-competitive-note-issue&quot; rel=&quot;nofollow noreferrer&quot;&gt;The Theory of Free Banking&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Also, for the record, I'm an ancap. &lt;/p&gt;&#xA;" OwnerUserId="24767" LastActivityDate="2019-11-04T00:07:22.790" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32578" PostTypeId="1" CreationDate="2019-11-04T00:08:47.940" Score="1" ViewCount="22" Body="&lt;p&gt;I'm looking for papers studying the implied rate of return for various government pension programs around the world. Both historical and expected returns. Or any study that looks at the taxes for the pension scheme, and what participants receive.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I have searched for papers on Google Scholar and found a few (on the state pension systems in USA, Germany, and Sweden), but now the searches give little yield.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Any help would be appreciated. Thanks in advance!&lt;/p&gt;&#xA;" OwnerUserId="24767" LastActivityDate="2019-11-04T00:10:07.437" Title="Papers on the rate of returns for government-run pension plans" Tags="&lt;reference-request&gt;&lt;finance&gt;&lt;public-economics&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32579" PostTypeId="2" ParentId="32578" CreationDate="2019-11-04T00:10:07.437" Score="2" Body="&lt;p&gt;Here are the papers I've already found, in chronological order.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;USA&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Boskin, Michael J., et al. &quot;Social security: A financial appraisal across and within generations.&quot; (1986). &lt;/li&gt;&#xA;&lt;li&gt;Boskin, Michael J., and Douglas J. Puffert. &quot;The financial impact of social security by cohort under alternative financing assumptions.&quot; (1987).&lt;/li&gt;&#xA;&lt;li&gt;Duggan, James E., Robert Gillingham, and John S. Greenlees. &quot;Returns paid to early social security cohorts.&quot; Contemporary Economic Policy 11.4 (1993): 1-13.&lt;/li&gt;&#xA;&lt;li&gt;Leimer, Dean R. Cohort-specific measures of lifetime net social security transfers. No. 59. US Dept. of Health and Human Services, Social Security Administration, Office of Research and Statistics, 1994.&lt;/li&gt;&#xA;&lt;li&gt;Beach, William W., and Gareth G. Davis. Social Security's rate of return. Heritage Foundation, 1998.&lt;/li&gt;&#xA;&lt;li&gt;Leimer, Dean. &quot;Cohort-specific measures of lifetime social security taxes and benefits.&quot; (2007).&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;GERMANY&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Schnabel, Reinhold. &quot;Rates of return of the German pay-as-you-go pension system.&quot; FinanzArchiv/Public Finance Analysis (1998): 374-399.&lt;/li&gt;&#xA;&lt;li&gt;Wilke, Christina Benita. &quot;Rates of Return of the German PAYG System-How they can be measured and how they will develop.&quot; (2005).&lt;/li&gt;&#xA;&lt;li&gt;Lüthen, Holger. &quot;Rates of return and early retirement disincentives: evidence from a German pension reform.&quot; German Economic Review 17.2 (2016): 206-233.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;OTHER&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Auerbach, Alan J., and Ronald Lee. &quot;Welfare and generational equity in sustainable unfunded pension systems.&quot; Journal of public economics 95.1-2 (2011): 16-27.&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="24767" LastActivityDate="2019-11-04T00:10:07.437" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32581" PostTypeId="2" ParentId="32564" CreationDate="2019-11-04T04:14:16.423" Score="0" Body="&lt;p&gt;If you are familiar with derivatives then the other answer is more appropriate. If you are not you can think of it this way : &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(1) since the cost function is 50+ 12Q, whenever you produce 1 unit of the good your total cost is increased by twelve (Q1 -Q0). Therefore the marginal cost is 12.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(2) The AVC is calculated this way : VC / Q. Therefore AVQ = 12Q / Q = 12&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;you can see that (1) and (2) give the same result so MC = AVC&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="20887" LastActivityDate="2019-11-04T04:14:16.423" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32582" PostTypeId="2" ParentId="32544" CreationDate="2019-11-04T05:05:25.693" Score="1" Body="&lt;p&gt;Loans that have not been repaid are generally called &quot;non-performing loans&quot; or NPL. Each country's bank regulatory body should have statistics on this. &lt;a href=&quot;https://data.worldbank.org/indicator/fb.ast.nper.zs&quot; rel=&quot;nofollow noreferrer&quot;&gt;Here's one&lt;/a&gt; from the World Bank.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that this is the ratio between outstanding NPL and total outstanding loans. The ratio could go down if the borrower agrees to continue paying back, or if the banks decide to &quot;write off&quot; the loans. It could also go down if there's a significant increase in loans (the denominator).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Since this statistic is a &quot;stock&quot; variable, the NPL to outstanding loans ratio could be huge, for example, after a financial crisis and stays high as NPLs got &quot;stuck&quot; in the system. It wouldn't be until these borrowers can pay back or banks write off that outstanding NPL could go down.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One way to rectify this is to look at the &quot;vintage&quot; of loans, essentially asking, of all loans originated in 2012, how much has turned into NPL after X months.&lt;/p&gt;&#xA;" OwnerUserId="5145" LastActivityDate="2019-11-04T05:05:25.693" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32583" PostTypeId="1" CreationDate="2019-11-04T05:09:17.287" Score="-1" ViewCount="30" Body="&lt;p&gt;So to maximize total revenue, we sell at the price on the demand elasticity curve where elasticity=1 right? Lets say on one curve, the elasticity throughout the curve is equal to 1.5? How much should we decrease the price? &lt;/p&gt;&#xA;" OwnerUserId="18836" LastActivityDate="2019-11-04T06:33:49.370" Title="How to maximize total revenue on constant elasticy curve" Tags="&lt;elasticity&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="32584" PostTypeId="2" ParentId="32583" CreationDate="2019-11-04T06:33:49.370" Score="0" Body="&lt;p&gt;Pick any point on the demand curve. If you were to increase price by &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; percent, the quantity sold will decrease by &lt;span class=&quot;math-container&quot;&gt;$1.5x$&lt;/span&gt; percent.&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;If you increase price, what will happen to your total revenue? Will it go up or down?&lt;/li&gt;&#xA;&lt;li&gt;If you decrease price, what will happen to your total revenue?&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Move your point &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; in the direction that will increase your TR. Do the same thing over and over again. &lt;a href=&quot;https://demonstrations.wolfram.com/ConstantPriceElasticityOfDemand/&quot; rel=&quot;nofollow noreferrer&quot;&gt;This link&lt;/a&gt; might also help you visualize and understand more.&lt;/p&gt;&#xA;" OwnerUserId="5145" LastActivityDate="2019-11-04T06:33:49.370" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32585" PostTypeId="2" ParentId="32570" CreationDate="2019-11-04T07:09:38.503" Score="4" Body="&lt;p&gt;Does quasi-concave utility function imply convex indifference curve?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;No that is not true. Consider &lt;span class=&quot;math-container&quot;&gt;$u(x, y) = -x^2 - y^2$&lt;/span&gt; defined on &lt;span class=&quot;math-container&quot;&gt;$\mathbb{R}^2_+$&lt;/span&gt;. Since &lt;span class=&quot;math-container&quot;&gt;$u$&lt;/span&gt; is concave it is quasiconcave. Observing the graph of the indifference curves, we see that ICs of &lt;span class=&quot;math-container&quot;&gt;$u$&lt;/span&gt; are not &quot;convex&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/eNOPK.png&quot; rel=&quot;noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/eNOPK.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="11824" LastEditorUserId="11824" LastEditDate="2019-11-04T13:03:15.127" LastActivityDate="2019-11-04T13:03:15.127" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32586" PostTypeId="2" ParentId="32560" CreationDate="2019-11-04T07:28:04.740" Score="3" Body="&lt;p&gt;I think the big unknown here is how much they'll start to &lt;a href=&quot;https://en.wikipedia.org/wiki/Wealth_tax#Criticisms&quot; rel=&quot;nofollow noreferrer&quot;&gt;dissimulate&lt;/a&gt; and/or offshore their (new) wealth.&lt;/p&gt;&#xA;&lt;p&gt;According to &lt;a href=&quot;http://piketty.pse.ens.fr/files/Krenecketal2017.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;one paper&lt;/a&gt;:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;A recent study by Brülhart et al. (2017) gives support to the plausible assumption that the&#xA;effect of net wealth taxes on reported wealth is the more pronounced the more integrated&#xA;the regions involved are. According to the authors’ estimations, the semi-elasticity of&#xA;reported wealth with respect to the net wealth tax rate amounts to 35% in aggregate, i.e. a&#xA;rise in wealth taxation by one percentage point decreases reported wealth by 35%.&#xA;Moreover, Brülhart et al. (2017) find that financial assets seem to be more responsive to&#xA;taxation than non-financial assets. They also interpret their results as suggesting that&#xA;wealth holders primarily respond by reducing their wealth holdings, not by moving to&#xA;jurisdictions with lower tax rates.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;So if that is true, then &amp;gt;3% wealth tax will result in &amp;quot;over&amp;quot; 100% dissimulation of new wealth. But caveat emptor, that's based on the fairly secretive Swiss:&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;It must be noted, however, that these analyses do not uncover the channels via which&#xA;wealth holdings are lowered. As indicated above, reported wealth holdings may be reduced&#xA;by real responses (i.e. by lowering accumulation of wealth) or by decreasing reported&#xA;wealth through hiding it from tax authorities. Which of these mechanisms is working in the&#xA;Swiss case cannot be determined without further analysis, e.g. by exploring whether there&#xA;is some relationship between the savings rate and the taxation of net wealth.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;The biggest issue with extrapolating much &lt;a href=&quot;https://www.nber.org/papers/w22376.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;from the Swiss case&lt;/a&gt; is that&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Wealth taxes are cantonal and municipal; there is no federal taxation of wealth.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;It's basically unknown how big that semi-elasticity would be if a whole country (like the US) had a wealth tax. France apparently &lt;a href=&quot;https://en.wikipedia.org/wiki/Solidarity_tax_on_wealth&quot; rel=&quot;nofollow noreferrer&quot;&gt;had one&lt;/a&gt;, but it looks like they don't have a clear figure of the aforementioned elasticity, despite the fact that the rate changed a few times. It is &lt;a href=&quot;https://ec.europa.eu/info/sites/info/files/economy-finance/dp003_en.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;known&lt;/a&gt; however that for about a decade there was a net outflow of around 300-500 people (per year) who would have qualified for the wealth tax, although they could have left for other reasons (including other parts of the tax code). France being in the EU also offers some special circumstances to migrate to neighboring countries but still (partly) invest in France.&lt;/p&gt;&#xA;&lt;hr /&gt;&#xA;&lt;p&gt;If we ignore the potential flight or dissimulation, there's still the issue that billionaire wealth might decrease even in not so bad times, &lt;a href=&quot;https://www.cnbc.com/2019/05/10/why-us-billionaires-fared-better-than-billionaires-generally-in-2018.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;e.g.&lt;/a&gt;&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Billionaires around the world saw their total wealth decline by 7% from 2017 to 2018, according to Wealth X’s Billionaire Census 2019. At the same time, the number of these ultra-high-net-worth individuals fell from 2,754 to 2,064.&lt;/p&gt;&#xA;&lt;p&gt;American billionaires had an easier time.&lt;/p&gt;&#xA;&lt;p&gt;The U.S. was one of the few countries that saw its UHNW population grow from 2017 to 2018, per the report, and &lt;strong&gt;America’s richest people lost only around 5% of their total wealth,&lt;/strong&gt; far less than their peers did in most other regions. [...] Total U.S. billionaire wealth fell from \$3.2 trillion to \$3.013 trillion.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;So, before we talk of sustainability, we'd need to decide on some time frame. Clearly their (total) wealth can go down year-to-year even with no wealth tax, although the trade war was apparently blamed for the recent downward trend. From 2015 to 2016 it actually &lt;a href=&quot;https://www.lifehealth.com/trending-return-growth-billionaires-globally-asia-outpacing-us-first-time/&quot; rel=&quot;nofollow noreferrer&quot;&gt;went up&lt;/a&gt; 15%.&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;In 2016, US billionaires saw their wealth increase from USD 2.4 trillion to USD 2.8 trillion&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;So it looks like US billionaire wealth is more volatile than the US economy as a whole.&lt;/p&gt;&#xA;" OwnerUserId="6210" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2019-11-04T08:54:16.633" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32588" PostTypeId="2" ParentId="32561" CreationDate="2019-11-04T10:50:57.813" Score="2" Body="&lt;p&gt;First, assume risk aversion. By the definition of the certainty equivalent and Jensen's:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$u(CE(u,F))=E(u(x))&amp;lt;u(E(x))$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now, from monotonicity:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$CE&amp;lt;E(x)$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Second, assume  &lt;span class=&quot;math-container&quot;&gt;$CE&amp;lt;E(x)$&lt;/span&gt;. By monotonicity and the definition of &lt;span class=&quot;math-container&quot;&gt;$CE$&lt;/span&gt;:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$u(E(x))&amp;gt;u(CE)=E(u(x))$$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="18636" LastActivityDate="2019-11-04T10:50:57.813" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="32589" PostTypeId="2" ParentId="32549" CreationDate="2019-11-04T14:45:46.883" Score="0" Body="&lt;p&gt;&lt;a href=&quot;http://www.knowledge.fintotal.com/List-of-Freely-Convertible-Currencies-and-Exchange-Rate/6553&quot; rel=&quot;nofollow noreferrer&quot;&gt;This&lt;/a&gt; definition of a freely convertible currency may be clearer to you:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Freely convertible currencies (also called as fully convertible or permitted currencies) are those that anyone can convert into another foreign currency without restrictions or interventions by government of the original country.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;It makes clear that the &quot;ease&quot; you refer to typically refers to the lack of government restrictions.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The stereotypical case of a non-convertible currency is one for which the government maintains a fixed exchange rate.  Imagine the UK pegs £1 to be worth \$2, although the market value (i.e. the equilibrium if restrictions were lifted and the goverment didn't intervene) is only \$1.80, say.  In order to maintain this exchange rate, the UK government has to be willing to buy sterling for a price of \$2 from anybody that wants to sell it.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Often this leads fairly quickly to the UK government running short of dollars, at which point the temptation is to try to bring in some sort of restrictions on who can buy dollars, in what circumstances, how long they have to wait for them to be delivered, etc. -- in order to slow the outflow of foreign exchange.  They may also introduce laws that say that when British firms sell goods abroad, they &lt;em&gt;have&lt;/em&gt; to convert the dollars they earn to sterling through the central bank, to provide a bigger source of foreign exchange.  They may also introduce laws banning the conversion of pounds by banks, street traders, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;By this point the &quot;ease&quot; with which sterling can be converted is pretty low; it has low convertability.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In the example you mention, the UK suddenly removes restrictions, returns the pound to full convertability, and buys dollars from anybody that wants to sell.  In this situation, you'd expect all sorts of people to rush to buy dollars from the UK government at the favourable rate before they run out and are forced to reintroduce restrictions.&lt;/p&gt;&#xA;" OwnerUserId="16631" LastEditorUserId="16631" LastEditDate="2019-11-05T16:41:56.153" LastActivityDate="2019-11-05T16:41:56.153" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32591" PostTypeId="1" CreationDate="2019-11-04T20:20:05.593" Score="0" ViewCount="57" Body="&lt;p&gt;So here's an example of a standard Supply &amp;amp; Demand Relationship for an Individual Supplier:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As a supplier, for 1 dollar, I'll produce 1 unit of something. For 2 dollars, I'll produce 2 units, for 3 dollars, I'll produce 3 units, and so on and so forth up until 10 dollars for 10 units.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At 1 dollar, I'll have 10 buyers, at 2 dollars, I'll have 9 buyers, at 3 dollars, I'll have 8 buyers...all the way up to having 1 buyer at 10 dollars.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As you can see, there's an inverse relationship with the equilibrium price being right in the middle: Producing 5 units with 5 buyers buying each of them at 5 dollars per unit. Simple...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But now I'm wondering what would happen if there was a surplus. Ideally I should've made 5 units at 5 dollars each and sold them all to 5 buyers. But let's say I make 6 units, thinking I'll be able to sell all of them for 6 dollars each, but I only end up selling 4 of them to 4 buyers. If I wanted to sell all 6, I would have to sell them at 4 dollars each to reach equilibrium. The problem is if I sell 6 of them for 4 dollars each, I'll make less money than I would selling only 5 of them for 5 dollars each.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So do I reduce the price to 4 dollars so I can sell all 6 of them, making 24 dollars? Or do I sell 5 of them at 5 dollars each, making 25 dollars, and then sell the remaining one for less money?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks in advance for answers.&lt;/p&gt;&#xA;" OwnerUserId="24786" LastActivityDate="2021-03-29T01:02:55.633" Title="Question Regarding Equilibrium Price &amp; Surplus" Tags="&lt;supply-and-demand&gt;&lt;price&gt;&lt;pricing&gt;&lt;surplus&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32592" PostTypeId="2" ParentId="32591" CreationDate="2019-11-04T21:16:21.923" Score="0" Body="&lt;p&gt;A supply curve is typically derived from a cost function, and you're leaving out some important costs such as storage and depreciation, which would help relieve some of the seeming counter-intuitiveness around a supplier choosing to &quot;sell more at a loss&quot; compared to selling less.&lt;/p&gt;&#xA;" OwnerUserId="24275" LastActivityDate="2019-11-04T21:16:21.923" CommentCount="10" ContentLicense="CC BY-SA 4.0" />
  <row Id="32593" PostTypeId="1" CreationDate="2019-11-04T22:01:28.053" Score="0" ViewCount="57" Body="&lt;p&gt;I keep hearing about repo rate etc. But this question is not what is the repo &lt;em&gt;rate&lt;/em&gt;. It is: What is a definition of 'repo' ?&lt;/p&gt;&#xA;" OwnerUserId="24787" LastActivityDate="2019-11-04T23:31:15.617" Title="What is 'repo' in banking" Tags="&lt;finance&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32594" PostTypeId="2" ParentId="32593" CreationDate="2019-11-04T22:08:59.357" Score="3" Body="&lt;p&gt;Repo is the short abbreviation for Repurchase agreement, as per Investopedia (&lt;a href=&quot;https://www.investopedia.com/terms/r/repurchaseagreement.asp&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.investopedia.com/terms/r/repurchaseagreement.asp&lt;/a&gt;).&lt;/p&gt;&#xA;" OwnerUserId="20995" LastActivityDate="2019-11-04T22:08:59.357" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32595" PostTypeId="2" ParentId="32554" CreationDate="2019-11-04T22:10:51.200" Score="4" Body="&lt;p&gt;One way to think about this utility function is &quot;I can only use one of these two goods, and I will use the one that I have more of&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some examples:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;&lt;p&gt;Choosing between two sets of equally-valued but non-matching dishware. Once you have one set, the other one is useless to you.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;If your budget constraint is such that you can only have one kind of &lt;em&gt;platform&lt;/em&gt; of some kind, then &quot;items to be used with that platform&quot; works. As commented above, Android apps and iPhone apps, or multi-platform video games, or DVDs vs Blu-Rays.&lt;/p&gt;&lt;/li&gt;&#xA;&lt;li&gt;&lt;p&gt;If you were an opportunistic politician deciding whether to pander to group A or group B, knowing that whichever group you pick the other will hate you, then &quot;number of voters in group A&quot; and &quot;number of voters in group B&quot; would go into your utility function as max(A, B).&lt;/p&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="12848" LastActivityDate="2019-11-04T22:10:51.200" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="32596" PostTypeId="2" ParentId="32593" CreationDate="2019-11-04T23:25:37.590" Score="0" Body="&lt;p&gt;Thanks for the link Mike J. My understanding is now that: &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;A 'repo', short for 'repurchase agreement', is typically: Party 'A' (effectively a borrower - typically a bank) selling an asset (eg. a treasury bond) for cash to Party 'B' (effectively the lender) with the following conditions as part of the deal: Party A agrees to buy the asset back the next day for cash at an agreed slightly higher price and Party B agrees to sell the asset back to Party A the next day for cash at the agreed slightly higher price. &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;Party A benefits by obtaining cash for a day and Party B benefits by getting a percentage return on the cash provided. &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;The annualised percentage price increase to the slightly higher price is known as 'The Repo Rate.' Increased repo rates indicates that repo lenders see more risk of default in Repo borrowers. &lt;/p&gt;&#xA;&#xA;&lt;hr&gt;&#xA;&#xA;&lt;p&gt;As repo borrowers are usually banks then a higher repo rate indicates a degree of banking system instability, either systemic or technical.&lt;/p&gt;&#xA;" OwnerUserId="24787" LastEditorUserId="24787" LastEditDate="2019-11-04T23:31:15.617" LastActivityDate="2019-11-04T23:31:15.617" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="32597" PostTypeId="1" AcceptedAnswerId="32606" CreationDate="2019-11-05T01:05:04.570" Score="5" ViewCount="577" Body="&lt;p&gt;Wikipedia &lt;a href=&quot;https://en.wikipedia.org/wiki/Pareto_efficiency&quot; rel=&quot;noreferrer&quot;&gt;defines&lt;/a&gt; a &lt;strong&gt;Pareto Improvement&lt;/strong&gt;, &quot;given a certain initial allocation of goods among a set of individuals&quot; as:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;a change to a different allocation that makes at least one individual or preference criterion better off without making any other individual or preference criterion worse off&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Given this definition, then, the opposite of a Pareto Improvement should be:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;a change to a different allocation that makes at least one individual or preference criterion worse off without making any other individual or preference criterion better off.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;What's the correct way to refer to this? Does it have a name?&lt;/p&gt;&#xA;" OwnerUserId="24788" LastActivityDate="2019-11-06T23:49:10.753" Title="What's the opposite of a Pareto improvement called?" Tags="&lt;definition&gt;&lt;pareto-efficiency&gt;&lt;economic-terms&gt;" AnswerCount="3" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="32598" PostTypeId="1" CreationDate="2019-11-05T02:53:38.497" Score="0" ViewCount="33" Body="&lt;p&gt;I am working on predicting the growth of a certain market. Traditionally, this is done through a simple compound interest model:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ ThisYear'sMarket * (1 + g)^n $$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What would be a better way to mimic progressive growth in real life? Perhaps through a natural log function or some form of &lt;span class=&quot;math-container&quot;&gt;$ y = e^x $&lt;/span&gt;? (There isn't enough past data so I'm not comfortable using regression).&lt;/p&gt;&#xA;" OwnerUserId="24790" LastActivityDate="2019-11-05T02:53:38.497" Title="Modeling market growth, without compound interest or regression" Tags="&lt;economic-growth&gt;" AnswerCount="0" CommentCount="8" ContentLicense="CC BY-SA 4.0" />
  <row Id="32599" PostTypeId="1" CreationDate="2019-11-05T11:53:23.153" Score="1" ViewCount="59" Body="&lt;p&gt;I know that a degenerate lottery is a lottery that yields outcome &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt; with probability &lt;span class=&quot;math-container&quot;&gt;$1$&lt;/span&gt; and I also know the definition of convex combination: given &lt;span class=&quot;math-container&quot;&gt;$x_{1},x_{2}, \cdots ,x_{n} \in \mathbb{R}$&lt;/span&gt;, a convex combination of these points is a point of the form &lt;span class=&quot;math-container&quot;&gt;$\alpha_{1}x_{1}+...+\alpha_{n}x_{n}$&lt;/span&gt; such that &lt;span class=&quot;math-container&quot;&gt;$\alpha_1+...+\alpha_n=1$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But I am quiet confused about why we can write any &lt;span class=&quot;math-container&quot;&gt;$L=(p_1,...,p_n)$&lt;/span&gt; as a convex combination of the degenerate lotteries &lt;span class=&quot;math-container&quot;&gt;$(L^1,...,L^n)$&lt;/span&gt;. Can someone please explain this for me? Many thanks!&lt;/p&gt;&#xA;" OwnerUserId="24795" LastEditorUserId="24795" LastEditDate="2019-11-05T12:11:47.763" LastActivityDate="2019-11-05T17:26:56.810" Title="Why can we write any lottery as a convex combination of the degenerate lotteries?" Tags="&lt;expected-utility&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32600" PostTypeId="2" ParentId="32597" CreationDate="2019-11-05T15:47:59.547" Score="-2" Body="&lt;p&gt;The negation would be &quot;there does not exist at least one person that is better off, or, there exists someone that is worse off.&quot;  That is the improper use of police power.  Indeed, this could be a stylized definition of racism if you defined racism as the theft of life or property from one group to another based on the color of their skin or other social classification.  The opposite of Pareto optimization would be something like institutionalized racism.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;A person commented it did not answer the question. That isn't true, but I will expand on the discussion.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The negation of the definition of Pareto optimality is above.  Either a reallocation has happened but no one is better off, or at least one person is worse off.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For the former to happen, there would have to be a use of police power.  If everyone is indifferent then there is no reason for reallocation to happen.  Although no one cares, it isn't rational for changes to happen as it is an equilibrium.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;An example of this is where a bunch of people are sitting around a table and no one cares where they sit.  The only way reallocation of chairs will happen is if someone with power says &quot;okay, everyone shift right one chair, for no reason, just because I have the power to do make everyone do it.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The second case has at least one person worse off.  No one would rationally make themselves worse off.  That also requires police power.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The problem is that English lacks a good term for theft of goods through police power except in the case of racism.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Note that the definition of racism is not bigotry or prejudice.  Bigotry is the strong personal aversion by a person against a group, possibly racial or ethnic but it could be on other dimensions such as religion or politics.  Neurological studies of bigotry show that it processes in the area of emotion connected to smell, disgust and emotion and links the group to danger to food.  That is bigotry.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Prejudice is simply the fast judgment of a person by observable characteristics and may not be related to race.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Racism is the theft of property or life from one group to another through the use of police power, whether formal as in Title One of the Housing Act of 1947 also known as the Negro Removal Act or informal as when the Klan was permitted to kill or seize property without governmental recourse by the victims.  It is the use of police power through acquiesence.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The only requirement of the negation of the Pareto principle is indifference OR at least one person loses.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That could also describe crime as it says nothing about at least one person being worse off.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I don't agree with your negation.  It does not follow from de Morgan's laws.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, it could happen due to taxation and reallocation.  Those would not be crimes either, moral or otherwise, but we lack a term for it.  Libertarians view it as theft for this reason.  Most people consider it morally neutral because there if there is no intent to specifically do harm to any group for the benefit of others.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I should point out that we usually lack words for things other than optimums and points of inflection.  If you look at &lt;span class=&quot;math-container&quot;&gt;$y=-x^2$&lt;/span&gt; there is an extreme value and we call it a maximum.  We do not have a name for the other uncountably many points.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;EDIT&lt;/strong&gt;&#xA;Based on your comment, where someone is worse off and no one is better off is called waste.  However, for the reallocation to happen on purpose it would mandate irrationality to happen.  I do not mean irrationality as a psychologist would mean it.  For example, a schizophrenic may have psychotic preferences but they still act rationally on those preferences.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let me give you an example. Let us assume that I hate you and you have apples that have rotted.  You do not care because you can turn them into applesauce and you are indifferent between fresh apples and applesauce.  I, on the other hand, hate applesauce.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I offer to trade your rotten apples, which you are indifferent for, for my good apple making me worse off.  Although I am indifferent to trade a good apple for a good apple, I am not indifferent to getting a rotten apple.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So I would be acting in an individually irrational manner.  There is no word for this but the term of art would be to act in an irrational manner.&lt;/p&gt;&#xA;" OwnerUserId="11321" LastEditorUserId="11321" LastEditDate="2019-11-06T23:49:10.753" LastActivityDate="2019-11-06T23:49:10.753" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="32601" PostTypeId="2" ParentId="32599" CreationDate="2019-11-05T17:26:56.810" Score="4" Body="&lt;p&gt;Pick any set of non-negative &lt;span class=&quot;math-container&quot;&gt;$p_1,\dots,p_n$&lt;/span&gt; such that &lt;span class=&quot;math-container&quot;&gt;$p_1+\cdots+p_n=1$&lt;/span&gt;. The convex combination of degenerate lotteries &lt;span class=&quot;math-container&quot;&gt;$L^1,\dots,L^n$&lt;/span&gt; with the &lt;span class=&quot;math-container&quot;&gt;$p_i$&lt;/span&gt;'s can be written as &#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{align}&#xA;p_1L^1+\cdots+p_nL^n&amp;amp;=p_1(1,0,\dots,0)+\cdots+p_n(0,\dots,0,1)\\&#xA;&amp;amp;=\bigl(p_1(1)+p_2(0)+\cdots+p_n(0),\;\dots,\;p_1(0)+\cdots+p_{n-1}(0)+p_n(1)\bigr)\\&#xA;&amp;amp;=(p_1,\dots,p_n).&#xA;\end{align}&lt;/span&gt;&#xA;This is just a lottery &lt;span class=&quot;math-container&quot;&gt;$L=(p_1,\dots,p_n)$&lt;/span&gt;.&lt;/p&gt;&#xA;" OwnerUserId="42" LastActivityDate="2019-11-05T17:26:56.810" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32602" PostTypeId="1" CreationDate="2019-11-05T21:40:02.917" Score="0" ViewCount="54" Body="&lt;p&gt;Theory states that GSP auctions induce truthful bidding.  Is it the case that this is true ONLY IF &lt;/p&gt;&#xA;&#xA;&lt;p&gt;a) each of the bidders truthfully bids their value (&lt;span class=&quot;math-container&quot;&gt;$b_i = v_i$&lt;/span&gt;) (each bidder's optimal strategy) AND &lt;/p&gt;&#xA;&#xA;&lt;p&gt;b) each bidder assumes that all of the other bidders are also truthfully employing their own optimal strategy ?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;My question arises out of the following possible example:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Two bidders bidding for a single item, Vickery sealed-bid second-price auction.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The bidders have equal values for the same item (say &lt;span class=&quot;math-container&quot;&gt;$v_1 = v_2 = 10$&lt;/span&gt;)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$b_1 = 7$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$b_2 = 9$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$b_2$&lt;/span&gt; will win the auction and pay &lt;span class=&quot;math-container&quot;&gt;$7$&lt;/span&gt;; with a surplus payoff of &lt;span class=&quot;math-container&quot;&gt;$2= (9-7)$&lt;/span&gt;.  This outcome is equivalent to the example where:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$v_1 = b_1 = 7$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$v_2 = b_2 = 9$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$b_2$&lt;/span&gt; wins in either example but neither bidder is using the optimal strategy in the first example.  What logic am I missing?&lt;/p&gt;&#xA;" OwnerUserId="13376" LastEditorUserId="23083" LastEditDate="2019-11-05T22:31:01.440" LastActivityDate="2019-11-12T07:29:42.087" Title="What is equilibrium dependent upon in Generalized Second-Price Auctions?" Tags="&lt;game-theory&gt;&lt;auctions&gt;" AnswerCount="2" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="32604" PostTypeId="1" CreationDate="2019-11-05T23:49:19.687" Score="2" ViewCount="22" Body="&lt;p&gt;The russian &lt;a href=&quot;https://ru.wikipedia.org/wiki/%D0%A0%D0%B5%D0%B2%D0%BE%D0%BB%D1%8E%D1%86%D0%B8%D1%8F_%D1%86%D0%B5%D0%BD#%D0%97%D0%B0%D0%BF%D0%B0%D0%B4%D0%BD%D0%B0%D1%8F_%D0%95%D0%B2%D1%80%D0%BE%D0%BF%D0%B0&quot; rel=&quot;nofollow noreferrer&quot;&gt;wiki on price revolution&lt;/a&gt; says &lt;em&gt;Ползучая инфляция стала тем стимулом, который привёл в конечном итоге к промышленной революции&lt;/em&gt;, which translates to &lt;strong&gt;in the end result, the creeping inflation led to the industrial revolution&lt;/strong&gt;, but it doesn't explain how exactly, and it's not obvious to me.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The only explicit link between the two that I could find is in &lt;a href=&quot;https://www.tandfonline.com/doi/pdf/10.1080/03585522.1957.10411396&quot; rel=&quot;nofollow noreferrer&quot;&gt;The ‘price revolution’ of the sixteenth century&lt;/a&gt;, saying: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;The conclusion reached was that the rise in prices &amp;lt;…&gt; greatly encouraged the industrial entrepreneur and promoted the 'rise of capitalism', because commodity prices rose much more than wages in the latter half of the 16th century. This was taken as a proof of decreasing costs and radically widened profit margins in industry.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;I thought the industrial revolution, among everything else, was about replacing human labour with machines. The process ended up being cost-effective in the long run, but it must have been expensive initially.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If, according to what I've been finding, the labour was actually getting cheaper due to inflation and lower wages, what was the incentive to move to the machines anyway? Striving for quality (and moreover, confidence that there &lt;em&gt;will&lt;/em&gt; be an increase in quality?)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;How did the creeping inflation linked to the price revolution cause the industrial revolution? Or is the statement wrong?&lt;/p&gt;&#xA;" OwnerUserId="24507" LastActivityDate="2019-11-05T23:49:19.687" Title="Linking creeping inflation to industrial revolution" Tags="&lt;inflation&gt;&lt;automation&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32606" PostTypeId="2" ParentId="32597" CreationDate="2019-11-06T06:33:22.330" Score="6" Body="&lt;p&gt;I usually use the phrase &quot;Pareto worsening&quot;. It is not really widespread, in fact I am not sure I have ever heard anyone else use it. However now I googled it and people seem to use it in connection with &lt;a href=&quot;https://www.sciencedirect.com/science/article/pii/0022053175900289&quot; rel=&quot;nofollow noreferrer&quot;&gt;Hart's 1975 paper&lt;/a&gt; wherein he shows that the opening of some new markets can make every agent worse off. Hart himself &lt;em&gt;did not&lt;/em&gt; call this Pareto worsening, but other scholars do. An example is on &lt;a href=&quot;https://books.google.hu/books?id=JiWjBQAAQBAJ&amp;amp;pg=PA230&amp;amp;lpg=PA230&amp;amp;dq=hart%20%22pareto%20worsening%22&amp;amp;source=bl&amp;amp;ots=r8w1lBCMoJ&amp;amp;sig=ACfU3U0Wl0a-HfVc4wpqJ-47CLOvrAszyw&amp;amp;hl=en&amp;amp;sa=X&amp;amp;ved=2ahUKEwjJic-L-tTlAhUOmIsKHdiiAgQQ6AEwAnoECAgQAQ#v=onepage&amp;amp;q=hart%20%22pareto%20worsening%22&amp;amp;f=false&quot; rel=&quot;nofollow noreferrer&quot;&gt;page 230&lt;/a&gt; of volume II of General Equilibrium, Growth, and Trade. Here is the same phrase used in &lt;a href=&quot;http://qed.econ.queensu.ca/pub/faculty/milne/870/Milne%20Shefrin%20JET%201987%20.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Information and Securities: A Note on Pareto Dominance and the Second Best&lt;/a&gt;.&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2019-11-06T08:54:32.097" LastActivityDate="2019-11-06T08:54:32.097" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32607" PostTypeId="2" ParentId="32597" CreationDate="2019-11-06T10:56:28.640" Score="4" Body="&lt;p&gt;The strict logic opposite of course is simply any change where at least one person is worse off but not sure we need a name for that. The conceptual opposite to Pareto improvement can as you say be a change where no one is better off and at least one person is worse of. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Existing Antonyms to &quot;improvement&quot;&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;As for what to call it, the Thersaurus does indeed suggests the primary antonym of &quot;improvement&quot; is &quot;worsening&quot;, which would justify &quot;Pareto worsening&quot; but to me it is an unsatisfying pairing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Some less perfect antonyms that work for me would give us:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Pareto impairment &lt;/li&gt;&#xA;&lt;li&gt;Pareto decrease&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Or a range of other choices.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;New coining from the etymology of &quot;improvement&quot;&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If we look into the etymology, the &quot;-prove&quot; comes very satisfactorily from old french for &quot;profit&quot; and &quot;im-&quot; is an intensifier (though confusingly &quot;en-&quot;, &quot;em-&quot;, &quot;in-&quot; and &quot;im-&quot; prefixes have multiple and often contradictory meanings). From which, if I were to make a new coining, we could use:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Pareto deprovement&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;I would choose &quot;impairment&quot;&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I think on balance I would go with &quot;improvement&quot; and &quot;impairment&quot; because they are readily understandable and fit well together.&lt;/p&gt;&#xA;" OwnerUserId="24801" LastActivityDate="2019-11-06T10:56:28.640" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32610" PostTypeId="1" CreationDate="2019-11-06T13:19:22.717" Score="1" ViewCount="48" Body="&lt;p&gt;I'm trying to walk through and understand the basic events of the great depression. I understand that at one point (Black Thursday) the news of a downfall of stock prices hit investors, so they obviously wanted to get rid of their shares.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Given the very high pace investors started to sell, there needs to be an equally big number of buyers, or -- more likely -- a not that big number of buyers, who bought that huge number of shares.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is this a valid assumption?&#xA;If it is, I don't see who bought those shares.&lt;/p&gt;&#xA;" OwnerUserId="24804" LastActivityDate="2019-11-07T15:40:44.150" Title="When everyone sells at an event of a recession, who buys?" Tags="&lt;supply-and-demand&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32612" PostTypeId="2" ParentId="32610" CreationDate="2019-11-06T14:18:08.560" Score="2" Body="&lt;blockquote&gt;&#xA;  &lt;p&gt;the news of a downfall of stock prices hit investors, so they obviously&#xA;  wanted to get rid of their shares.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;This is not the way you want to think about prices. Stock prices are determined via the equilibrium of demand and supply. It sounds like you are assuming that they drop from the sky and investors react, but they are determined via the actions of investors. What happens is that news of the fundamentals of the economy (Things like interest rates, employment numbers, job forecasts, etc.) hit, investors react, and then price falls. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose there are two investors A and B and a single stock. Suppose that &lt;span class=&quot;math-container&quot;&gt;$t=0$&lt;/span&gt; both investors 'subjectively value' the stock at 10, this valuation is determined via each investors subjective expectations of future earnings and future prices. So the price at &lt;span class=&quot;math-container&quot;&gt;$t=0$&lt;/span&gt; is 10 and lets suppose that investor A owns the stock. At &lt;span class=&quot;math-container&quot;&gt;$t=1$&lt;/span&gt; news about the fundamentals of the economy hits, each agent updates their subjective value of the stock. Suppose that the 'value' to agent A is 5 and to agent B is 6. Its clear that Agent A will trade the stock to agent B at a price between 5 and 6, hence price falls endogenously not exogenously.  As this example illustrates, trade occurs between pessimistic sellers and relatively optimistic buyers.&lt;/p&gt;&#xA;" OwnerUserId="24629" LastActivityDate="2019-11-06T14:18:08.560" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32614" PostTypeId="1" CreationDate="2019-11-06T16:13:57.367" Score="1" ViewCount="32" Body="&lt;p&gt;I've estimated a GARCH for S&amp;amp;P 500, Nikkei and DAX index. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The model for the return of S&amp;amp;P 500, the results indicate the return of DAX has an negative effect on the S&amp;amp;P 500 conditional variance? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is not in line with what I expected, given that high volatily must give a higher return. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can anyone help with this?&lt;/p&gt;&#xA;" OwnerUserId="24806" LastActivityDate="2019-11-07T03:48:44.813" Title="Negative correlation conditional variance and return" Tags="&lt;econometrics&gt;&lt;finance&gt;&lt;applied-econometrics&gt;" AnswerCount="1" CommentCount="7" ContentLicense="CC BY-SA 4.0" />
  <row Id="32615" PostTypeId="1" CreationDate="2019-11-06T17:08:59.970" Score="3" ViewCount="33" Body="&lt;p&gt;Was wondering if anyone who has taught a class on health economics could give some background on which textbook they used for their class and why.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It seems like &quot;Healthy Economics&quot; by Bhattacharya, Hyde and Tu or &quot;The Economics of Health and Health Care&quot; by Folland, Goodman and Stano are the two most popular texts, but I haven't read either. Thanks!&lt;/p&gt;&#xA;" OwnerUserId="24807" LastActivityDate="2020-02-07T11:06:07.883" Title="Economics of Health Textbook Recommendation" Tags="&lt;reference-request&gt;&lt;health-economics&gt;&lt;teaching&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32617" PostTypeId="1" AcceptedAnswerId="32619" CreationDate="2019-11-06T18:39:57.400" Score="0" ViewCount="29" Body="&lt;p&gt;&lt;a href=&quot;http://www.worldgovernmentbonds.com/country/germany/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Germany&lt;/a&gt; has a 10Y bond yield of -0.336%. Meanwhile, &lt;a href=&quot;http://www.worldgovernmentbonds.com/country/brazil/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Brazil&lt;/a&gt; has a 10Y bond yield of 6.415%. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Why doesn't the German government issue bonds in order to buy Brazilian bonds? It seems a no-brainer win. Actually, the German government could also issue bonds to invest in the stock market. Sure, there is a risk involved, but on average seems a winner. &lt;/p&gt;&#xA;" OwnerUserId="24197" LastEditorUserId="8481" LastEditDate="2020-05-03T14:47:16.710" LastActivityDate="2020-05-03T14:47:16.710" Title="What prevents a government from issuing debt to finance riskier investments?" Tags="&lt;government-debt&gt;&lt;bonds&gt;&lt;foreign-exchange&gt;&lt;arbitrage&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="32618" PostTypeId="2" ParentId="495" CreationDate="2019-11-06T20:04:55.163" Score="1" Body="&lt;p&gt;I am tempted to deviate from other answers and suggest that the best Econometrics textbook for someone with a strong enough mathematical background might &lt;em&gt;not&lt;/em&gt; be a &quot;mathematically-minded&quot; econometrics textbook, but rather a textbook that focuses on &quot;empirical methods and economics research&quot;, the best of which at the moment seems to remain:&lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Mostly Harmless Econometrics (&lt;a href=&quot;https://www.mostlyharmlesseconometrics.com/&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.mostlyharmlesseconometrics.com/&lt;/a&gt;)&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Since you already have a strong mathematical background --- and unless you're specifically interested in the mathematical aspects of econometrics --- you are likely to learn much more (and find much more inspiration) from a book that starts and ends with a strong focus on causal inference and research design. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;(This being said, by all means, do consult other answers in particular if you want to feed your interest in time-series analysis which is not covered much --- if at all --- in Mostly Harmless)&lt;/p&gt;&#xA;" OwnerUserId="38" LastEditorUserId="38" LastEditDate="2020-03-06T01:43:55.170" LastActivityDate="2020-03-06T01:43:55.170" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32619" PostTypeId="2" ParentId="32617" CreationDate="2019-11-06T21:45:15.043" Score="0" Body="&lt;p&gt;Here are some hand-wavy arguments to suggest that the &quot;no-arbitrage&quot; rule applies here:&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;Bond-buying at the scale that nation-states would do it would drive up prices.  So you'd see yields on Brazilian bonds fall even if coupon rates don't move.&lt;/li&gt;&#xA;&lt;li&gt;Germany would have to finance such a play by issuing yet more bonds, which would drive German bond prices down and therefore German bond yields up even if coupon rates don't move.&lt;/li&gt;&#xA;&lt;li&gt;Credit markets would likely punish Germany for taking that kind of risk, pushing German bond yields up further because coupon rates would rise.&lt;/li&gt;&#xA;&lt;li&gt;Ironically, the piling-in of high-quality foreign money into Brazil could serve to stabilize it, which would again lower Brazilian yields because coupon rates would fall.&lt;/li&gt;&#xA;&lt;li&gt;and 6. Movement in foreign exchange markets that would further close the gap. (credit to @Gio in a comment above).&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;The net effect: the arbitrage opportunity you've spotted would quickly vanish.  In essence, your plan would amount to Germany volunteering to prop up the Brazilian economy in exchange for being made worse-off.&lt;/p&gt;&#xA;" OwnerUserId="24275" LastActivityDate="2019-11-06T21:45:15.043" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32620" PostTypeId="1" AcceptedAnswerId="32621" CreationDate="2019-11-06T21:50:42.877" Score="2" ViewCount="23" Body="&lt;p&gt;I'm currently working on an assignment, which is making an export plan for a product aimed at Asia. However I can't define the market of my product. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;My product is basically an artificial riverbank; a mat made of coconut fibers with pre-grown plants in it, which can be easily placed on riverbanks to add more green and biodiversity to the place. It's completely sustainable and meant for urban areas. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;To export it, I need to find market info. I can't find the import value or any solid statistics to describe the market of this niche product. I basically want the definition of a market where there is a lot of info and statistics, which I can &quot;relate&quot; to this product. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Like for example: it's easy to find the import value for 'fruit' in Japan. To which category could my product belong to? (or is the closest to? outdoor plants,.. any ideas?) &lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;not even sure if this is the right forum to ask this stuff, but thank you very much anyway!&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;" OwnerUserId="24809" LastActivityDate="2019-11-06T23:10:21.233" Title="Which market category does this sustainable product belong to?" Tags="&lt;marketing&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32621" PostTypeId="2" ParentId="32620" CreationDate="2019-11-06T23:10:21.233" Score="1" Body="&lt;p&gt;I'm from Canada and I work on policies supporting &quot;clean technology&quot; development, but its a very nascent sector from a statistical standpoint.  Statistics Canada only recently formalized a (very imperfect) definition, and our federal export development branch politely puts your problem this way: &quot;For most Canadian cleantech exporters, the ASEAN markets are remote and not well known. Companies who feel that these countries may provide export opportunities should consult with Export Development Canada and the Canadian Trade Commissioner Service.&quot;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If you want to do some tough research, I would use search terms like &quot;clean technology&quot;, &quot;environmental goods and services&quot;, &quot;water management&quot;, &quot;land reclamation&quot;, etc. But in short, you're coming up dry because there's very little out there.&lt;/p&gt;&#xA;" OwnerUserId="24275" LastActivityDate="2019-11-06T23:10:21.233" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32623" PostTypeId="1" AcceptedAnswerId="32697" CreationDate="2019-11-07T00:29:32.837" Score="2" ViewCount="39" Body="&lt;p&gt;Why there are differences between the unemployment rate of the US between the data of the bureau of labor statistics and the ILO (international labor organization). Have they different definitions of labor force? Or is it because they are conducted by the different organizations?&lt;/p&gt;&#xA;" OwnerUserId="24810" LastActivityDate="2019-12-25T06:32:14.563" Title="Difference between unemployment rate between ILO and bureau of labor statistics" Tags="&lt;data-request&gt;&lt;statistics&gt;&lt;unemployment&gt;" AnswerCount="1" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32624" PostTypeId="2" ParentId="32614" CreationDate="2019-11-07T03:48:44.813" Score="1" Body="&lt;p&gt;This is simply saying that the falling returns are usually correlated with high variance (i.e. sharp movement in prices). This is not very surprising... you can see from the graph of S&amp;amp;P vs VIX below. Whenever the stock market plunges, volatility shoots up.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/q3Yqg.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/q3Yqg.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What @heh said was right. You need to compare assets that are more or less substitutable. For example, for what you said to hold true, it must be that investors in the US could say, returns in the US relative to the volatility is pretty low, so I'll move my money to Germany (where returns relative to volatility is higher) and invest there instead. In reality, such investors would have to face with interest rate differentials, FX risks, etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The &quot;high volatility -&gt; high return&quot; applies to assets that are in the same &quot;portfolio&quot; (for me, this means in the same country at least). For example, you could say that a stock of a small company offers very high return but is very risky. You then have another asset, of a large company, that offers low return but is more stable. You also have the &quot;risk-free&quot; treasury bill that offers the lowest return and no risk at all.&lt;/p&gt;&#xA;" OwnerUserId="5145" LastActivityDate="2019-11-07T03:48:44.813" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32625" PostTypeId="1" AcceptedAnswerId="32626" CreationDate="2019-11-07T06:57:26.970" Score="0" ViewCount="59" Body="&lt;p&gt;According to &lt;a href=&quot;https://en.wikipedia.org/wiki/Marginal_rate_of_substitution&quot; rel=&quot;nofollow noreferrer&quot;&gt;wikipedia&lt;/a&gt;, &quot;At equilibrium consumption levels (assuming no externalities), marginal rates of substitution are identical&quot;. Why is it so?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What does &quot;equilibrium consumption levels&quot; here mean? I thought that equilibrium means that demand equal to supply. How is it applicable for marginal rates of substitution?&lt;/p&gt;&#xA;" OwnerUserId="14778" LastEditorUserId="14778" LastEditDate="2019-11-07T07:25:00.520" LastActivityDate="2019-11-07T15:29:18.340" Title="Why are marginal rates of substitution are identical at equilibrium consumption levels?" Tags="&lt;microeconomics&gt;&lt;general-equilibrium&gt;&lt;marginal&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32626" PostTypeId="2" ParentId="32625" CreationDate="2019-11-07T07:27:13.400" Score="1" Body="&lt;p&gt;One explanation I could think of: MRS (which is equal to &lt;span class=&quot;math-container&quot;&gt;$MU_x/MU_y$&lt;/span&gt;) is equal to the price ratio &lt;span class=&quot;math-container&quot;&gt;$P_x/P_y$&lt;/span&gt;. In equilibrium, all consumers will consume where MRS = price ratio, and hence MRS will be &quot;identical&quot; across consumers.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I agree that this might not be a terribly good way of putting it.&lt;/p&gt;&#xA;" OwnerUserId="5145" LastActivityDate="2019-11-07T07:27:13.400" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32627" PostTypeId="1" CreationDate="2019-11-07T08:36:35.153" Score="2" ViewCount="67" Body="&lt;p&gt;I can see that Figure 2.F.1(a) satisfies the WARP (Definition 2.F.1) in MWG (page 30). &#xA;&lt;a href=&quot;https://i.stack.imgur.com/KjzlE.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/KjzlE.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&#xA;&lt;a href=&quot;https://i.stack.imgur.com/LWPDI.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/LWPDI.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&#xA;However, as the choice &lt;span class=&quot;math-container&quot;&gt;$x(p',w')$&lt;/span&gt; is only feasible under the price-income level &lt;span class=&quot;math-container&quot;&gt;$(p',w')$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$x(p'',w'')$&lt;/span&gt; is only feasible under &lt;span class=&quot;math-container&quot;&gt;$(p'',w'')$&lt;/span&gt; in Figure 2.F.1(b), why does it still satisfy the WARP definition which requires that a choice (say, &lt;span class=&quot;math-container&quot;&gt;$x(p',w')$&lt;/span&gt;) should be feasible under two different price-income levels (say, &lt;span class=&quot;math-container&quot;&gt;$(p',w')$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$(p'',w'')$&lt;/span&gt;)?&lt;/p&gt;&#xA;" OwnerUserId="5207" LastEditorUserId="11590" LastEditDate="2020-11-18T23:36:21.790" LastActivityDate="2020-11-18T23:36:21.790" Title="Why does Figure 2.F.1(b) (MWG page 30) satisfy the WARP (Definition 2.F.1)?" Tags="&lt;preferences&gt;&lt;choice-theory&gt;&lt;mwg&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32628" PostTypeId="2" ParentId="32627" CreationDate="2019-11-07T09:08:02.687" Score="4" Body="&lt;p&gt;Intuitively, this just says that if the bundle you choose was possible under wealth &lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt; and price &lt;span class=&quot;math-container&quot;&gt;$p$&lt;/span&gt; but it is not &lt;span class=&quot;math-container&quot;&gt;$x(p, w)$&lt;/span&gt;, then it must be that you cannot obtain it when price is &lt;span class=&quot;math-container&quot;&gt;$p'$&lt;/span&gt; and wealth is &lt;span class=&quot;math-container&quot;&gt;$w'$&lt;/span&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It simply does not say anything about case (b) in which &lt;span class=&quot;math-container&quot;&gt;$p' \cdot x(p'', w'') &amp;gt; w$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$p'' \cdot x(p', w') &amp;gt; w''$&lt;/span&gt;. Since the first part of the if ... then statement in the definition is false, everything evaluates to true.&lt;/p&gt;&#xA;" OwnerUserId="5145" LastActivityDate="2019-11-07T09:08:02.687" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="32629" PostTypeId="1" CreationDate="2019-11-07T13:31:36.173" Score="1" ViewCount="40" Body="&lt;p&gt;Is it the Black-Scholes equation useful if i want to invest in stock market ?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;how can i profit from using this equation in stock market ?&lt;/p&gt;&#xA;" OwnerUserId="24814" LastActivityDate="2019-11-07T13:31:36.173" Title="Can i get rich if i apply the Black Scholes equation or other mathematics in economy?" Tags="&lt;black-scholes-model&gt;" AnswerCount="0" CommentCount="1" ClosedDate="2019-11-13T11:30:41.107" ContentLicense="CC BY-SA 4.0" />
  <row Id="32631" PostTypeId="2" ParentId="32625" CreationDate="2019-11-07T15:29:18.340" Score="1" Body="&lt;p&gt;Building on @Art's answer, you can also think of it in terms of a dynamic process. Given some initial endowment of goods X and Y, everyone in the economy will want to trade goods X and Y back and forth until they are indifferent to further trading - which is to say, until their private MRS is equal to the price ratio. That's why &quot;marginal rates of substitution are identical&quot; -- all actors in the economy are working to shift their MRS towards the same target. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;At that point, since there is no further flow of goods, that's your connection to equilibrium - a state of balance in which the variables endogenous to the system (in this case, consumption of X and Y) do not change.&lt;/p&gt;&#xA;" OwnerUserId="24275" LastActivityDate="2019-11-07T15:29:18.340" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32632" PostTypeId="2" ParentId="32610" CreationDate="2019-11-07T15:40:44.150" Score="0" Body="&lt;p&gt;Even in a crash, some stocks do better than others.  In general, not every investor has the same exposure to the market, and so some investors do better than others.  A handful can likely afford to take risks, knowing that the market will rebound at some point. Fire sales happen en masse, and some people make out like kings. Remember that as long as your wealth doesn't fall to zero, relative prices are the only thing that &quot;matters&quot;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In general, your intuition seems reasonable: recessions concentrate wealth.&lt;/p&gt;&#xA;" OwnerUserId="24275" LastActivityDate="2019-11-07T15:40:44.150" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32635" PostTypeId="2" ParentId="32554" CreationDate="2019-11-07T22:42:54.820" Score="1" Body="&lt;p&gt;Both are &lt;em&gt;goods&lt;/em&gt;, so each provides utility if consumed alone. The utility function &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$u(x_1, x_2) = \max\{x_1, x_2\}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;or more generally&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$u(x_1, x_2) = \max\{f(x_1), g(x_2)\}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;for some functions &lt;span class=&quot;math-container&quot;&gt;$f,g$&lt;/span&gt;, may describe either&lt;/p&gt;&#xA;&#xA;&lt;p&gt;a) a situation where it is impossible to consume the two goods together. For example, concerts happening at the same time. Note that the fundamental aspect here is not the discreteness of the goods in question. It could be short-term vacations in a 4-day window where you can adjust the duration by one-two days but in any case cannot choose two destinations. By the way, this is an extreme foundation for a binomial choice model, although the final &lt;em&gt;choice&lt;/em&gt; may be the good offering the lesser utility if the other is very expensive (in other words, this utility function does &lt;em&gt;not&lt;/em&gt; reflect &quot;lexicographic preferences&quot;). But the utility function is about preferences, not actual choice.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;b) a situation where consuming one of them &quot;even a little&quot;, makes the consumption of the other to offer zero utility (in a static/synchronous, non-intertemporal framework). Note that we are talking about &lt;em&gt;actual consumption&lt;/em&gt;, not &quot;buying and leave it unconsumed&quot;. It is not easy to come up with examples in this category, because one has to find two goods where the actual consumption of the one &quot;neutralizes&quot; the concurrent actual consumption of the other. The relation need not be symmetric. A possible example is a very spicy food and a food with a very subtle taste (assuming that the consumer does not experience utility from the nutritional value of the food, i.e. this is a recreational eating situation). There is no point eating them together.&lt;/p&gt;&#xA;" OwnerUserId="61" LastEditorUserId="61" LastEditDate="2019-11-07T23:00:49.063" LastActivityDate="2019-11-07T23:00:49.063" CommentCount="7" ContentLicense="CC BY-SA 4.0" />
  <row Id="32637" PostTypeId="2" ParentId="13782" CreationDate="2019-11-08T01:28:36.010" Score="1" Body="&lt;p&gt;For a continuous version of a bliss point we can have the function:&#xA; &lt;span class=&quot;math-container&quot;&gt;$$U(x_1,x_2)=-(x_1-\delta)^2-(x_2-\delta_2)^2$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where &lt;span class=&quot;math-container&quot;&gt;$\delta_1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\delta_2$&lt;/span&gt; are bliss requirements.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The corresponding Marshallian:                                                                                                                                               demands for &lt;span class=&quot;math-container&quot;&gt;$x_1$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$x_2$&lt;/span&gt; are:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$x_1(p_1,p_2,I)=\frac{p_1m+p_2^2\delta_1+p_1\delta_2}{p_1^2+p_2^2}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$x_2(p_1,p_2,I)=\frac{p_2m+p_2^2\delta_2+p_2\delta_1}{p_1^2+p_2^2}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The corresponding Hicksian Demands for this function is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$x_1^c=\delta_1-\left[\frac{\bar{U}}{1+\frac{p_2}{p_1}}\right]^\frac{1}{2}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$x_2^c=\delta_2-\left[\frac{\bar{U}}{1+\frac{p_1}{p_2}}\right]^\frac{1}{2}$$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="8815" LastEditDate="2019-11-08T02:14:23.450" LastActivityDate="2019-11-08T02:14:23.450" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32638" PostTypeId="1" AcceptedAnswerId="32640" CreationDate="2019-11-08T01:53:48.010" Score="-2" ViewCount="43" Body="&lt;p&gt;I know what substitution effect is but I am not sure what substitution patterns are. To give some context the author says the following: &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&quot;I analyze the substitution patterns between exchange transplants and other transplant outcomes&quot; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What does this mean in layman terms? &lt;/p&gt;&#xA;" OwnerUserId="21604" LastActivityDate="2019-11-08T04:24:26.150" Title="What is a substitution pattern?" Tags="&lt;microeconomics&gt;" AnswerCount="1" CommentCount="3" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32639" PostTypeId="1" CreationDate="2019-11-08T02:26:12.260" Score="4" ViewCount="85" Body="&lt;p&gt;I've been looking at expenditure systems and have been really interested in the behaviour of the demand system that underlies bliss points:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Consider the bliss point utility function of the following form:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$U(x_1,x_2)=-(x_1-\delta_1)^2-(x_2-\delta_2)^2$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;for two dimensions the corresponding hicksian demands are:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$x_1^c=\delta_1-\left[\frac{\bar{U}}{1+\frac{p_2}{p_1}}\right]^\frac{1}{2}$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$x_2^c=\delta_2-\left[\frac{\bar{U}}{1+\frac{p_1}{p_2}}\right]^\frac{1}{2}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It follows that the expenditure function is:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$e(p_1,p_2,\bar{U})=p_1\delta_1-p_1\left[\frac{\bar{U}}{1+\frac{p_2}{p_1}}\right]^\frac{1}{2}+p_2\delta_2-p_2\left[\frac{\bar{U}}{1+\frac{p_1}{p_2}}\right]^\frac{1}{2}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Obviously expenditure functions can be much larger. however I'm having a hard time for generating a expenditure function for a number of &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt; goods.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;tldr&lt;/strong&gt; What would the hicksian demands look like for the utility function:&#xA;&lt;span class=&quot;math-container&quot;&gt;$$U(\mathbf{x})=-\sum_{i=1}^n(x_i-\delta_i)^2$$&lt;/span&gt;&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="1601" LastEditDate="2019-11-08T05:44:08.867" LastActivityDate="2020-12-08T08:42:05.260" Title="Regarding the Expenditure Function Underlying a Bliss Point" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;" AnswerCount="2" CommentCount="0" FavoriteCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32640" PostTypeId="2" ParentId="32638" CreationDate="2019-11-08T04:24:26.150" Score="0" Body="&lt;p&gt;I don't see that phrase in the linked PDF, but I don't think these terms are being used in a manner particularly special to economics, and this would probably be better suited to English Language SE. &quot;substitution&quot; means having one thing instead of another, and &quot;pattern&quot; means &quot;repeated form&quot;. &quot;substitution patterns between exchange transplants and other transplant outcomes&quot; would, I think, be better phrased as &quot;patterns of substitution of exchange for other transplant outcomes&quot;. &quot;substitution of exchange for other transplant outcomes&quot; refers to when an exchange happens, instead of something else, and &quot;patterns of substitution of exchange for other transplant outcomes&quot; means &quot;attributes that are common to substitution of exchange for other transplant outcomes&quot;. That is, the whole phrase refers to what we can expect when an exchange happens, rather than something else.&lt;/p&gt;&#xA;" OwnerUserId="16462" LastActivityDate="2019-11-08T04:24:26.150" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32641" PostTypeId="1" CreationDate="2019-11-08T06:45:51.987" Score="5" ViewCount="1183" Body="&lt;p&gt;Suppose you are playing a game against an opponent whom you know only uses pure strategies.  My question is, is there any such game in which using a mixed strategy in response is better than all the pure strategies you have at your disposal?&lt;/p&gt;&#xA;" OwnerUserId="4447" LastActivityDate="2019-11-08T19:16:26.500" Title="Is a mixed strategy ever the best response to a pure strategy?" Tags="&lt;game-theory&gt;&lt;nash-equilibrium&gt;&lt;dominant-strategy&gt;" AnswerCount="3" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32642" PostTypeId="2" ParentId="32641" CreationDate="2019-11-08T07:41:01.810" Score="8" Body="&lt;p&gt;Fixing the strategy of the opponent, a mixed strategy never yields a strictly higher utility if you are expected utility-maximizing.&#xA;The reason is that the expected utility from a mixed strategy is at most as high as the highest utility from the pure strategies which this mixed strategy plays with positive probability.&#xA;That is not to say that a mixed strategy cannot be a best response, though. &#xA;Consider for example rock-paper-scissors and a imagine your opponent playing each of the three actions with equal probability.&#xA;This leaves you indifferent between all three actions and hence any mixed strategy is a best response.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Things can be different when players are not expected-utility maximizers. If that's what you're interested in, you could take a look at the paper &quot;Equilibrium without independence&quot; by V. Crawford, 1990, as well as some of the references therein.&lt;/p&gt;&#xA;" OwnerUserId="24685" LastActivityDate="2019-11-08T07:41:01.810" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32645" PostTypeId="1" CreationDate="2019-11-08T11:25:01.327" Score="0" ViewCount="74" Body="&lt;p&gt;I'm an engineer with minimal to zero knowledge about economical topics, please be patient with me if the following question makes no sense or is too basic ...&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Currently I'm working through the &quot;Python Data Science Handbook&quot; of Jake van der Plas. In the chapter about time series data there are several examples with financial numbers, in particular stock rates.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;In one example he calculates the ROI out of a series of stock rates:&lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;from pandas_datareader import data&#xA;&#xA;# data_source google won't work anymore, use yahoo&#xA;goog = data.DataReader('GOOG', start='2004', end='2016',&#xA;                       data_source='google')&#xA;goog = goog.asfreq('D', method='pad')&#xA;ROI = 100 * (goog.tshift(-365) / goog - 1)&#xA;ROI.plot()&#xA;plt.ylabel('% Return on Investment');&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;So, he divides data from one year ago with the current data, plus 1, times 100 (to get it into percent values).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;For my understanding, the central formular is (with &lt;span class=&quot;math-container&quot;&gt;$f_0$&lt;/span&gt; for the data from one year ago and &lt;span class=&quot;math-container&quot;&gt;$f_1$&lt;/span&gt; for the current data): &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\frac{f_0}{f_1} - 1 \equiv \frac{f_0}{f_1} - \frac{f_1}{f_1} \equiv \frac{f_0 - f_1}{f_1} $&lt;/span&gt; &lt;/p&gt;&#xA;&#xA;&lt;p&gt;What I found when googling for ROI are especically the definitions from Wikipedia:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;return on investment = Net income / Investment&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;or&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;return on investment = (gain from investment – cost of investment) / cost of investment&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;or&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;return on investment = (revenue − cost of goods sold) / cost of goods sold&lt;/em&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Although the latter both definitions come quite close to the formular above, I'm unable to see the relationship between stock rates used in the data of the code example and the words used in the definitons from Wikipedia.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can anyone help me to understand this a bit better, with a brief explanation or a hint where to continue reading on this topic?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thanks and cheers&#xA;Wolfgang&lt;/p&gt;&#xA;" OwnerUserId="24815" LastEditorUserId="4230" LastEditDate="2021-01-05T16:34:06.760" LastActivityDate="2021-01-05T16:34:06.760" Title="ROI and stock rates" Tags="&lt;stock-market&gt;&lt;capital-returns&gt;&lt;python&gt;" AnswerCount="3" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32646" PostTypeId="1" AcceptedAnswerId="32652" CreationDate="2019-11-08T11:48:48.320" Score="0" ViewCount="32" Body="&lt;p&gt;My knowledge of economics is quite limited, but as far as I understand, the &quot;added value&quot; which is taxed by value-added tax refers to the difference in the cost of production and the cost in the store. Since the product has to be processed, packaged, transported etc. the cost will rise because every person in this chain wants a bit of money for themselves. The government then taxes this added value. Correct?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If this is true, then why is there VAT on services? Most of the services are &quot;supplied&quot; directly to the customer. For example, if a hairdresser cuts your hair, there were no intermediate persons in this process and the cost of the hair cutting service didn't rise because of them. If you're a web designer, you make a website and provide it directly to the customer - it doesn't have to be transported etc.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Basically, why would someone have to pay value-added tax if there is no added value?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(This also goes for all goods that are sold directly to the customer - but unlike services, goods can be passed on (the customer can sell the good that he has bought) whereas services can't, so I think that most services should be exempt from VAT).&lt;/p&gt;&#xA;" OwnerUserId="10420" LastActivityDate="2019-11-08T15:49:38.440" Title="Why do we have VAT on (most) services?" Tags="&lt;tax&gt;" AnswerCount="2" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32648" PostTypeId="2" ParentId="32641" CreationDate="2019-11-08T13:52:18.900" Score="3" Body="&lt;p&gt;Yes. For example, consider the rather trivial game&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;\begin{array}{|c|c|}\hline&#xA;&amp;amp;A&amp;amp;B\\\hline&#xA;A&amp;amp;0,0&amp;amp;0,0\\\hline&#xA;B&amp;amp;0,0&amp;amp;0,0&amp;amp;\\\hline&#xA;\end{array}&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Clearly, playing a mixed strategy is a best response to either of the pure strategies (since all strategies, mixed or otherwise, yield a payoff of 0).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Of course, as pointed out by a previous commenter, playing a mixed strategy can never be &lt;em&gt;strictly&lt;/em&gt; better than playing a pure strategy: mixed strategies can only be weakly better than pure strategies.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Finally, it seems plausible (to me) that if all payoff entries in a (two player) game are distinct, the game will never have an equilibrium in which one player mixes but the other does not. However, I won't try to prove this here.&lt;/p&gt;&#xA;" OwnerDisplayName="user17900" LastEditorDisplayName="user17900" LastEditDate="2019-11-08T13:58:21.653" LastActivityDate="2019-11-08T13:58:21.653" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="32649" PostTypeId="2" ParentId="32646" CreationDate="2019-11-08T14:06:51.570" Score="0" Body="&lt;p&gt;The hairdresser has bought scissors, shampoo, etc. He may even heat his/her store and supply it with electricity. These are all input to the production on which VAT was paid. Similarly, the web designer pays electricity, office material, every now and then a new computer...all subject to VAT. I intentionally did not mention rents, which are often VAT-exempted.&lt;/p&gt;&#xA;" OwnerUserId="17735" LastActivityDate="2019-11-08T14:06:51.570" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32651" PostTypeId="1" AcceptedAnswerId="32655" CreationDate="2019-11-08T15:23:23.040" Score="0" ViewCount="33" Body="&lt;p&gt;I am having some difficulty in understanding the following use of the penance strategy as a strategy to support compliance in the repeated game presented in &lt;a href=&quot;http://folk.uio.no/gasheim/climat01.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;Asheim et al. (2006)&lt;/a&gt;. I understand penance in the following way: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Begin in the cooperative phase where both states choose compliance; if&#xA;  State A then defects, the other State B immediately switches to defect&#xA;  for all subsequent periods until and including the first period that&#xA;  State A reverts to compliance. After that period, State B also reverts&#xA;  to compliance&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Now, in their work Asheim et al. state the following: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;We assume that compliance in the global agreement is sustained by way&#xA;  of the &quot;Penance&quot; strategy. This strategy specifies that a&#xA;  participating country plays cooperate except if another participating&#xA;  country has been the sole deviator from Penance in the previous&#xA;  period, in which case defect is played.&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;My doubt has to do with the use of the word &quot;sole&quot;. Specifically, following the penance strategy in a game with 3 or more players, is the punishment the same whether a single player deviates or more than one does? &lt;/p&gt;&#xA;" OwnerUserId="21757" LastActivityDate="2019-11-08T16:30:39.457" Title="Penance strategy game theory" Tags="&lt;game-theory&gt;&lt;repeated-games&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32652" PostTypeId="2" ParentId="32646" CreationDate="2019-11-08T15:49:38.440" Score="1" Body="&lt;p&gt;&lt;strong&gt;Services are just as much VATable supplies as pyhsical products are&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;It is a mistake to think of the increase in price along the supply chain as just each person wanting their cut. For them to achieve this they need to be increasing the value that can be delivered to end customers, even if - for example - it is simply bringing a pallet of product to a convenient location and being there so that customers can buy single items at a time and place that suits them. That adds value to the pallet of goods in a warehouse.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The value added is the differemce between the VATable outputs I can make and the VATable inputs I use. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If my  business uses a consultant's time I pay input VAT on the money they charge me. I can offset this against the VAT I had to collect from my customers and send to HMRC. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;If I hire a employee instead I pay their salary without VAT (so save input VAT) but then can't offset that amount against my output VAT, meaning I have to write a cheque to HMRC that is larger by the same amount as the input VAT I didn't have to pay (and which the consultant would have had to pay to HMRC). &lt;/p&gt;&#xA;&#xA;&lt;p&gt;It ends up a lot like a sales-tax but collected across the supply chain.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;The problem with exemptions and zero rating&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;(I don't want to go into it, but making something VAT-exempt and making it zero-rated are very different things.)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;One major problem with zero-rating activities from VAT is that it creates arbitrage opportuntiies if you can shift some or all of the supplies you make into the zero-rated category. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;As most supplies have in some sense a service and a product component, general zero-rating of services would create huge incentives to artificially split out product and service compoments to save on VAT, leading to huge tax bureaucracy and litigation.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;That this is a real issue can be seen in the hard-fought court cases over, for example, whether a jaffa cake is a cake or a biscuit or whether shops can save the VAT on a small transactino processing cost component of every transaction.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Ultimately VAT is very similar to a retail sales tax but with collection distributed across the supply chain.&lt;/p&gt;&#xA;" OwnerUserId="24801" LastActivityDate="2019-11-08T15:49:38.440" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32655" PostTypeId="2" ParentId="32651" CreationDate="2019-11-08T16:30:39.457" Score="2" Body="&lt;p&gt;I see two ways to produce histories with multi-state deviations (not including the degenerate case in which all states defect):&lt;/p&gt;&#xA;&#xA;&lt;ol&gt;&#xA;&lt;li&gt;&lt;strong&gt;Multiple states defect in different periods&lt;/strong&gt;.  This possibility is ruled out so long as Equation 3 (the necessary and sufficient condition for unilateral defection at time &lt;span class=&quot;math-container&quot;&gt;$t-1$&lt;/span&gt; to be punished by all other states at time &lt;span class=&quot;math-container&quot;&gt;$t$&lt;/span&gt;) is satisfied - in that case, only one state can ever defect at a time because all other states have credibly committed to Penance.&lt;/li&gt;&#xA;&lt;li&gt;&lt;strong&gt;Multiple states defect in the same period&lt;/strong&gt;. There are two obvious ways this can happen: 1) regional agreements are in effect and one of the regions is punishing a defection.  Equation 7 gives the conditions required for both regions to revert to Regional Penance in the following period, so this case isn't interesting.&lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;&#xA;&lt;p&gt;The other way to have multiple states defect in the same period is the interesting case. It implies collusion between a subset of states. This reduces to the Regional Penance case if the subset is equal to half the states.  If it isn't, Footnote 10 explains that such an arrangement is not weakly renegotiation-proof. This makes sense, as collusion implies that (Regional) Penance is not, in fact, subgame perfect.&lt;/p&gt;&#xA;" OwnerUserId="24275" LastActivityDate="2019-11-08T16:30:39.457" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32658" PostTypeId="2" ParentId="32641" CreationDate="2019-11-08T18:40:06.893" Score="2" Body="&lt;h2&gt;Repeated games and nonlinear utility&lt;/h2&gt;&#xA;&#xA;&lt;p&gt;Let's assume a trivial two-player game where each player has two options A and B; and the payout is +1/-1 if players pick the same and -1/+1 if players pick differently.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Let's assume that the game is repeated 100 times with the strategies chosen and committed to beforehand. This means that if your opponent picks a fixed strategy, and you choose a fixed strategy, then the expected result is 50% chance of +100 and 50% chance of -100, depending on what strategy they've chosen. However, if you choose a 50/50 mixed strategy (random), then the expected result is close to 0 - between -10 and +10 with a ~95% probability or so, and if you choose a 50/50 mixed strategy that's strictly alternating, then you get an expected result of exactly 0 with absolute certainty.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thing is, many theories of utility (and behavioral economics experiments) expect that it can be nonlinear, and that &quot;50% chance of +100 and 50% chance of -100&quot; and &quot;certain 0&quot; are &lt;em&gt;not&lt;/em&gt; equivalent, there can be a strong preference for one or the other depending on circumstances. So, if the utility of one player &quot;prefers&quot; reducing variance and avoiding the risk of a large loss, then a mixed strategy is strongly preferrable.&lt;/p&gt;&#xA;" OwnerUserId="4145" LastEditorUserId="4145" LastEditDate="2019-11-08T19:16:26.500" LastActivityDate="2019-11-08T19:16:26.500" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="32659" PostTypeId="1" CreationDate="2019-11-08T19:56:39.060" Score="0" ViewCount="27" Body="&lt;p&gt;I am currently studying the demand for money by Blanchard. this model assumes that the amount of money held is basically related to transaction levels and the the attractiveness of bonds.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;i.e.: Demand for money = Y . L(i)&lt;/p&gt;&#xA;&#xA;&lt;p&gt;where L(i) is a function of the interest rate. My question is this:&#xA;How does the money demand increase at low-interest rates and decrease at high-interest rates when at the same time bonds are more attractive at low interest rates? &lt;/p&gt;&#xA;" OwnerUserId="24691" LastActivityDate="2019-11-08T19:56:39.060" Title="demand for money" Tags="&lt;interest-rate&gt;&lt;financial-economics&gt;&lt;money&gt;&lt;bonds&gt;&lt;financial-markets&gt;" AnswerCount="0" CommentCount="3" ContentLicense="CC BY-SA 4.0" />
  <row Id="32660" PostTypeId="2" ParentId="30092" CreationDate="2019-11-09T05:10:58.777" Score="0" Body="&lt;ol&gt;&#xA;&lt;li&gt;Introductory Econometrics: A modern approach by Wooldridge &lt;/li&gt;&#xA;&lt;li&gt;Econometric Theory and Methods - Davidson and MacKinnon &lt;/li&gt;&#xA;&lt;li&gt;Econometric Analysis of Cross Section and Panel Data. by Jeffrey Wooldridge&lt;/li&gt;&#xA;&lt;li&gt;Mostly Harmless Econometrics &lt;/li&gt;&#xA;&lt;li&gt;Microeconometrics - Trivedi &lt;/li&gt;&#xA;&lt;/ol&gt;&#xA;" OwnerUserId="24832" LastActivityDate="2019-11-09T05:10:58.777" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32662" PostTypeId="1" CreationDate="2019-11-09T11:38:27.017" Score="0" ViewCount="245" Body="&lt;p&gt;I have been googling study guides, solution manuals and other helpful material made by professors. But I have not found anything useful.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Q: Do you guys know anything that will make the book easier and faster to digest?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Kind regards,&lt;/p&gt;&#xA;" OwnerUserId="24834" LastActivityDate="2020-08-05T14:01:35.093" Title="Study guide (and...) for &quot;Intermediate Microeconomics with Calculus&quot; by Varian" Tags="&lt;microeconomics&gt;&lt;reference-request&gt;&lt;self-study&gt;&lt;books&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32664" PostTypeId="2" ParentId="32662" CreationDate="2019-11-09T12:52:09.760" Score="1" Body="&lt;p&gt;Nothing will be better than going through the textbook. Lecture's slides can be beneficial, you can google newer versions or access older here: &lt;a href=&quot;http://www.mtholyoke.edu/~mirobins/econ212.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://www.mtholyoke.edu/~mirobins/econ212.html&lt;/a&gt;. I also used notes done by Łukasz Woźny, from SGH: &lt;a href=&quot;http://web.sgh.waw.pl/lwozny/LectureNotes.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;http://web.sgh.waw.pl/lwozny/LectureNotes.pdf&lt;/a&gt; - they are not entirely based on Varian's textbook but might be helpful as well. There is also an Instructor’s Manual to each of Varian's books where he points out what is the most important from each chapter - also you should be able to find one online, and can also be quite helpful if you want to consume his textbook faster.&lt;/p&gt;&#xA;" OwnerUserId="23083" LastActivityDate="2019-11-09T12:52:09.760" CommentCount="7" ContentLicense="CC BY-SA 4.0" />
  <row Id="32665" PostTypeId="2" ParentId="32645" CreationDate="2019-11-09T14:59:53.317" Score="2" Body="&lt;p&gt;I agree with Dan it is likely a typo.&lt;/p&gt;&#xA;&lt;hr&gt;&#xA;&lt;p&gt;Some definitions &lt;em&gt;(using your notations)&lt;/em&gt;&lt;/p&gt;&#xA;&lt;blockquote&gt;&#xA;&lt;p&gt;Investment : &lt;span class=&quot;math-container&quot;&gt;$f_0$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;Investment one year later : &lt;span class=&quot;math-container&quot;&gt;$f_1$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;Net income : &lt;span class=&quot;math-container&quot;&gt;$f_1 - f_0$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;ROI: &lt;span class=&quot;math-container&quot;&gt;$-1 + \frac{f_1}{f_0}$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&lt;p&gt;It follows that the correct code should be&lt;/p&gt;&#xA;&lt;pre&gt;&lt;code&gt;ROI = (goog/goog.tshift(-365) -1)*100&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;" OwnerUserId="10247" LastEditorUserId="-1" LastEditDate="2020-06-17T09:40:54.643" LastActivityDate="2019-11-09T15:11:39.740" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32666" PostTypeId="1" CreationDate="2019-11-09T15:05:14.347" Score="0" ViewCount="35" Body="&lt;p&gt;I have import values in LOCEUR (LOC is local currency). &#xA;How can I obtain these values only in EUR? &lt;a href=&quot;https://appsso.eurostat.ec.europa.eu/nui/show.do?query=BOOKMARK_DS-063319_QID_-622CB371_UID_-3F171EB0&amp;amp;layout=TIME,C,X,0;GEO,L,Y,0;INDIC_ET,L,Z,0;SITC06,L,Z,1;PARTNER,L,Z,2;INDICATORS,C,Z,3;&amp;amp;zSelection=DS-063319PARTNER,EXT_EU28;DS-063319INDIC_ET,MIO_EXP_VAL;DS-063319SITC06,TOTAL;DS-063319INDICATORS,OBS_FLAG;&amp;amp;rankName1=PARTNER_1_2_-1_2&amp;amp;rankName2=SITC06_1_2_-1_2&amp;amp;rankName3=INDIC-ET_1_2_-1_2&amp;amp;rankName4=INDICATORS_1_2_-1_2&amp;amp;rankName5=TIME_1_0_0_0&amp;amp;rankName6=GEO_1_2_0_1&amp;amp;sortC=ASC_-1_FIRST&amp;amp;rStp=&amp;amp;cStp=&amp;amp;rDCh=&amp;amp;cDCh=&amp;amp;rDM=true&amp;amp;cDM=true&amp;amp;footnes=false&amp;amp;empty=false&amp;amp;wai=false&amp;amp;time_mode=ROLLING&amp;amp;time_most_recent=false&amp;amp;lang=EN&amp;amp;cfo=%23%23%23%2C%23%23%23.%23%23%23&quot; rel=&quot;nofollow noreferrer&quot;&gt;My data are from Eurostat&lt;/a&gt;, where external trade indicator is &quot;Exports in million of ECU/EURO&quot;&lt;/p&gt;&#xA;" OwnerUserId="24643" LastEditorUserId="1601" LastEditDate="2019-11-10T15:37:41.610" LastActivityDate="2021-05-02T07:07:00.697" Title="echange rate from LOC/EUR to EUR" Tags="&lt;exchange-rates&gt;" AnswerCount="1" CommentCount="7" ContentLicense="CC BY-SA 4.0" />
  <row Id="32669" PostTypeId="1" AcceptedAnswerId="32671" CreationDate="2019-11-09T16:59:20.280" Score="0" ViewCount="62" Body="&lt;p&gt;In footnote [7] of Marx's Capital, T.I, Ch. 1, Sec 1, after ...&lt;em&gt;contradictio in adjecto&lt;/em&gt;, there are these quotes: «Nothing can have an intrinsick value.» (N. Barbon, t. c., p. 6); or as Butler says - «The value of a thing is just as much as it will bring.». &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Does somebody knows who is this Butler and where is that quote? &lt;/p&gt;&#xA;" OwnerUserId="24839" LastActivityDate="2019-11-10T11:30:41.200" Title="Who is Butler in Marx' footnote in Das Kapital?" Tags="&lt;value&gt;&lt;marxism&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32670" PostTypeId="1" AcceptedAnswerId="32682" CreationDate="2019-11-09T17:30:09.813" Score="2" ViewCount="62" Body="&lt;p&gt;Could anyone explain how I should calculate the share of services sector as a percentage of GDP? &lt;/p&gt;&#xA;&#xA;&lt;p&gt;I get the numbers for US GDP from Table 3: &lt;a href=&quot;https://www.bea.gov/system/files/2019-10/gdp3q19_adv_0.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://www.bea.gov/system/files/2019-10/gdp3q19_adv_0.pdf&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The GDP in 2018 (numbers in billions of $) was 20,580.2 and services accounted for 9,633.9, which gives us 46.8% of total GDP. However, there are many resources that say services make up about 80% of the US economy, including &lt;a href=&quot;https://www.statista.com/statistics/270001/distribution-of-gross-domestic-product-gdp-across-economic-sectors-in-the-us/&quot; rel=&quot;nofollow noreferrer&quot;&gt;Statista&lt;/a&gt;  or &lt;a href=&quot;https://en.wikipedia.org/wiki/Economy_of_the_United_States#By_economic_sector&quot; rel=&quot;nofollow noreferrer&quot;&gt;Wikipedia&lt;/a&gt; (under the &lt;strong&gt;&lt;em&gt;4.1 Nominal GDP sector composition&lt;/em&gt;&lt;/strong&gt; section).&#xA;Note that I use the numbers for 2018, Statista only up to 2016, and Wikipedia  for 2015-16, but that shouldn't make so much of a difference.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;What am I missing in my calculations? &lt;/p&gt;&#xA;" OwnerUserId="16518" LastEditorUserId="10909" LastEditDate="2019-11-10T14:04:47.083" LastActivityDate="2019-11-10T14:04:47.083" Title="How do I calculate the services sector as a percentage of GDP?" Tags="&lt;gdp&gt;&lt;usa&gt;" AnswerCount="2" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32671" PostTypeId="2" ParentId="32669" CreationDate="2019-11-09T19:11:29.623" Score="3" Body="&lt;p&gt;I googled &quot;&lt;em&gt;The value of a thing is just as much as it will bring.&lt;/em&gt;&quot; in quotes, and got several hits that show Marx referred to &lt;a href=&quot;https://en.wikipedia.org/wiki/Samuel_Butler_(poet)&quot; rel=&quot;nofollow noreferrer&quot;&gt;Samuel Butler&lt;/a&gt;, the author of Hudibras.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://h2o.law.harvard.edu/text_blocks/524&quot; rel=&quot;nofollow noreferrer&quot;&gt;Here is one.&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://www.britishmuseum.org/research/collection_online/collection_object_details.aspx?objectId=3029947&amp;amp;partId=1&amp;amp;people=86878&amp;amp;peoA=86878-1-6&amp;amp;page=1&quot; rel=&quot;nofollow noreferrer&quot;&gt;Here is a another, see Inscription.&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2019-11-10T11:30:41.200" LastActivityDate="2019-11-10T11:30:41.200" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="32672" PostTypeId="1" CreationDate="2019-11-09T19:20:29.403" Score="1" ViewCount="11" Body="&lt;p&gt;I am looking for studies in which the effect on demand of different prices of gasoline at different gas stations  in the same area is measured or estimated (on the same day or hour).&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This question has to do with &lt;a href=&quot;https://en.wikipedia.org/wiki/Price_elasticity_of_demand&quot; rel=&quot;nofollow noreferrer&quot;&gt;price elasticity&lt;/a&gt;. Since gasoline is strongly needed on a daily basis in equal amounts by many people, its price elasticity is quite low and &lt;a href=&quot;https://www.eia.gov/todayinenergy/detail.php?id=19191&quot; rel=&quot;nofollow noreferrer&quot;&gt;estimated to be in the range of -0.02 to -0.04 in the short term&lt;/a&gt;.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But I want to look a bit deeper: Can (and were) the effect on demand of different prices of gasoline at different gas stations in the same area be measured? &lt;/p&gt;&#xA;" OwnerUserId="22991" LastActivityDate="2019-11-09T19:20:29.403" Title="Can the effect of different prices of gasoline at different gas stations be measured?" Tags="&lt;reference-request&gt;&lt;elasticity&gt;&lt;price&gt;&lt;oil&gt;" AnswerCount="0" CommentCount="6" ContentLicense="CC BY-SA 4.0" />
  <row Id="32673" PostTypeId="1" CreationDate="2019-11-09T19:45:26.660" Score="4" ViewCount="115" Body="&lt;p&gt;Many Austrian/Neoclassical websites argue that Keynes and Keynesians demonise saving and encourage individual people to spend rather than save.  Someone (not an economist) recently told me that I need to feel guilty for my frugal lifestyle and that I'm being unpatriotic and should spend more money to help the economy.  But I'm not convinced that this is what Keyensians actually believe, as opposed to a straw-man used by the anti-Keynesians.  I thought the point was not that it's damaging to the economy for individual people to save their money as aggressively as they want to, but rather that if there is a paradox-of-thrift type situation during a recession, the &lt;em&gt;government&lt;/em&gt; should take corrective action to reflate the economy.  And I also thought that Keyensians believed that a higher household savings rate is always good in the long run, and that the debate was specifically about what happens during a recession.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is my friend right or am I?  Is it really true that there is any significant school of economists who would think that individual people saving their money prudently was bad for the economy and that such people ought to feel guilty for being savers?  Or can I carry on saving aggressively guilt-free? &lt;/p&gt;&#xA;" OwnerUserId="24843" LastActivityDate="2019-12-14T19:02:20.347" Title="Do Keyensians believe that it's wrong for households to aggresively save money?" Tags="&lt;new-keynesian-economics&gt;&lt;keynesian-economics&gt;&lt;austrian&gt;&lt;classical-economics&gt;" AnswerCount="3" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="32674" PostTypeId="2" ParentId="32513" CreationDate="2019-11-09T19:47:19.770" Score="2" Body="&lt;p&gt;The idea that the long run average cost curve (LRAC) must pass through the minimum points of the short run average cost curves (SRAC) is a fallacy, but it seems to be a remarkably plausible one.  It was the source of a famous error by the economist Jacob Viner, referred to in &lt;a href=&quot;https://www.jstor.org/stable/1183036?seq=1#page_scan_tab_contents&quot; rel=&quot;nofollow noreferrer&quot;&gt;this paper by Silberberg&lt;/a&gt;.  Underlying the fallacy is perhaps an assumption that the points of tangency with the LRAC must be the minimum points of the SRAC’s.  These points are coincident in the special case of a SRAC tangent to the LRAC &lt;em&gt;at the minimum point of the latter&lt;/em&gt;.  But usually they are distinct, as in the numerical example below.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose a firm has a Cobb-Douglas production function with increasing returns  &lt;span class=&quot;math-container&quot;&gt;$y = x_1^{0.6}x_2^{0.6}$&lt;/span&gt;.  The inputs are bought in markets in which supply is not perfectly elastic, so that costs are increasing functions of quantities:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\quad c_1(x_1)  =  20x_1 + x_1^2$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\quad c_2(x_2)  =  20x_2 + x_2^2$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The symmetry between the two inputs in respect of both technology and costs is not necessary to obtain a suitable example, but it is convenient because it implies that every point on the LRAC must satisfy &lt;span class=&quot;math-container&quot;&gt;$x_1=x_2$&lt;/span&gt; (see Appendix below for proof).  This simplifies the derivation of  the equation of the LRAC.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;LRAC&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Writing &lt;span class=&quot;math-container&quot;&gt;$c(a,b)$&lt;/span&gt; for the total cost function with inputs &lt;span class=&quot;math-container&quot;&gt;$a, b$&lt;/span&gt; and given &lt;span class=&quot;math-container&quot;&gt;$x_1=x_2$&lt;/span&gt; we have:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\quad c(x_1,x_2) = 40x_1 + 2x_1^2\qquad(1)$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\quad y = x_1^{1.2}\qquad(2)$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\quad x_1 = y^{5/6}\qquad(3)$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\quad c(x_1,x_2)  =  40y^{5/6} + y^{5/3}\qquad(4)$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and so:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\quad LRAC = \frac{40y^{5/6} + 2y^{5/3}}{y}  =  40y^{-1/6}+2y^{2/3}\qquad(5)$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To find the minimum point:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\quad \frac{dLRAC}{dy}  =  (-40/6)y^{-7/6} + (4/3)y^{-1/3} = 0\qquad(6)$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\quad -40/6 + (4/3)y^{5/6} = 0\qquad(7)$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\quad y^{5/6} = 5\qquad(8)$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\quad y=6.90\qquad(9)$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To confirm this is a minimum:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\quad \frac{d^2LRAC}{dy^2} = (280/36)y^{-13/6} + (-4/9)y^{-4/3}$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$\quad = (280/36)0.0152 – (4/9)0.0761 = 0.118 – 0.034 = 0.084 \boldsymbol{&amp;gt; 0}\qquad(10)$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The inputs at this minimum, using (3), are:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\quad x_1 = x_2 = 6.90^{5/6} = 5.00\qquad(11)$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;SRAC&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose now that &lt;span class=&quot;math-container&quot;&gt;$x_1$&lt;/span&gt; is freely variable but &lt;span class=&quot;math-container&quot;&gt;$x_2$&lt;/span&gt; is fixed in the short run at a value other than &lt;span class=&quot;math-container&quot;&gt;$5.00$&lt;/span&gt;, say &lt;span class=&quot;math-container&quot;&gt;$2$&lt;/span&gt;.  Then:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\quad y = x_1^{0.6}(2^{0.6})\qquad(12)$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\quad c(x_1,x_2)  =  20x_1 + x_1^2 + 44\qquad(13)$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Hence:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\quad x_1 = (2^{-0.6}y)^{5/3} =  (1/2)y^{5/3}\qquad(14)$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\quad c(x_1,x_2) = 10y^{5/3} + (1/4)y^{10/3} + 44\qquad(15)$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;and so:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\quad SRAC(x_2 = 2) = \frac{10y^{5/3} + (1/4)y^{10/3} + 44}{y} = 10y^{2/3} + (1/4)y^{7/3} + 44y^{-1}\qquad(16)$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The first derivative is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\quad \frac{dSRAC}{dy}  =  (20/3)y^{-1/3} + (7/12)y^{4/3} – 44y^{-2}\qquad(17)$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Relation between LRAC and SRAC&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The two curves meet when &lt;span class=&quot;math-container&quot;&gt;$x_1=x_2=2$&lt;/span&gt; implying &lt;span class=&quot;math-container&quot;&gt;$y = 2^{1.2} =  2.2974$&lt;/span&gt; since at that point, using (5) and (16):&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\quad LRAC = 40(2.2974^{-1/6}) + 2(2.2974^{2/3}) = 34.822 + 3.482 = \boldsymbol{38.30}\qquad(18)$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\quad SRAC = 10(2.2974^{2/3}) + (1/4)(2.2974^{7/3}) + 44(2.2974^{-1})$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$\quad = 17.411 + 1.741 + 19.152 = \boldsymbol{38.30}\qquad(19)$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Moreover they are tangential at that point since using (6) and (17) the respective slopes are:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\quad \frac{dLRAC}{dy} = (-40/6)(2.2974^{-7/6}) + (4/3)(2.2974^{-1/3})$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$\quad = -2.526 + 1.010 = \boldsymbol{-1.52}\qquad(20)$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\quad \frac{dSRAC}{dy}  =  (20/3)2.2974^{-1/3} + (7/12)2.2974^{4/3} + (-44)2.2974^{-2}$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$\quad = 5.052 + 1.768 – 8.336 = \boldsymbol{-1.52}\qquad(21)$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;However, this point of tangency is &lt;strong&gt;not&lt;/strong&gt; the minimum point of the SRAC.  Using (17) to find the minimum:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\quad \frac{dSRAC}{dy}  =  (20/3)y^{-1/3} + (7/12)y^{4/3} – 44y^{-2}  =  0\qquad(22)$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\quad (20/3)y^{5/3} + (7/12)y^{10/3} – 44 = 0\qquad(23)$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Treating this as a quadratic equation in &lt;span class=&quot;math-container&quot;&gt;$y^{5/3}$&lt;/span&gt;, or by trial and error, it can be found that &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt; is approximately &lt;span class=&quot;math-container&quot;&gt;$2.525$&lt;/span&gt;.  To confirm this is a minimum:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\quad \frac{d^2SRAC}{dy^2}  =  (-20/9)2.525^{-4/3} + (28/36)2.525^{1/3} + (88)2.525^{-1}  =  -0.646 + 1.059 + 34.851 = 35.26 \boldsymbol{&amp;gt; 0}\qquad(24)$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;At this minimum point:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\quad SRAC = 10(2.525^{2/3}) + (1/4)2.525^{7/3} + 44(2.525^{-1})$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$\quad = 18.543 + 2.170 + 17.426 = \boldsymbol{38.14}\qquad(25)$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This is lower than the point of tangency with the LRAC (&lt;span class=&quot;math-container&quot;&gt;$\boldsymbol{38.30}$&lt;/span&gt;), but above the LRAC at &lt;span class=&quot;math-container&quot;&gt;$y = 2.525$&lt;/span&gt; which using (5) is:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\quad LRAC = 40(2.525^{-1/6}) + 2(2.525^{2/3}) = 34.278 + 3.709 = \boldsymbol{37.99}\qquad(26)$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Appendix&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Suppose &lt;span class=&quot;math-container&quot;&gt;$x_1\neq x_2$&lt;/span&gt; and let &lt;span class=&quot;math-container&quot;&gt;$x* = \sqrt{x_1x_2}$&lt;/span&gt;.  Then:&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\quad y(x_1,x_2) = (x_1x_2)^{0.6} = (x*^2)^{0.6} = y(x*,x*)\qquad(27)$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$\quad c(x_1,x_2) = 20(x_1 + x_2) + x_1^2 + x_2^2$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$\quad = 20[(\sqrt{x_1} - \sqrt{x_2})^2 + 2\sqrt{x_1x_2}] + (x_1 – x_2)^2 + 2x_1x_2$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$\quad \boldsymbol{&amp;gt;} 2[20\sqrt{x_1x_2}) + (\sqrt{x_1x_2})^2] = c(x*,x*)\qquad(28)$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Thus the input combination &lt;span class=&quot;math-container&quot;&gt;$(x*,x*)$&lt;/span&gt; yields the same output at lower cost than &lt;span class=&quot;math-container&quot;&gt;$(x_1,x_2)$&lt;/span&gt;, and so the latter does not correspond to a point on the LRAC.&lt;/p&gt;&#xA;" OwnerUserId="1417" LastEditorUserId="1417" LastEditDate="2019-11-10T12:55:04.030" LastActivityDate="2019-11-10T12:55:04.030" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="32675" PostTypeId="1" CreationDate="2019-11-09T22:41:00.837" Score="0" ViewCount="107" Body="&lt;p&gt;I have a 2 consumer 2 goods economy. Both the goods produce an externality for the other consumer, therefore, they are a part of the other's utility function. How do I show that despite the externality, the equilibrium is efficient? &lt;/p&gt;&#xA;" OwnerUserId="24422" LastActivityDate="2019-11-11T23:21:15.350" Title="Efficiency conditions for externalities" Tags="&lt;pareto-efficiency&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32676" PostTypeId="2" ParentId="32670" CreationDate="2019-11-10T00:29:34.700" Score="1" Body="&lt;p&gt;The \$9,633.9 billion figure from the BEA is just the services consumed by private households in the US. Among the goods and services consumed by private households in the US, \$9,633.9 billion comes from services while \$4,364.8 comes from goods: in other words, around 69% comes from services.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;But that doesn't account for private investment, government spending, and the net effect of exports and imports. For example, if you look at the bottom of the page of the same BEA table, you can see that on net the US exports \$271 billion in services and imports $909.3 billion in goods; the net effect of this would push percentage of GDP coming from services higher. While I haven't double checked the math, the final result would probably be close to what Wikipedia suggests at around 80%.&lt;/p&gt;&#xA;" OwnerUserId="8387" LastActivityDate="2019-11-10T00:29:34.700" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32677" PostTypeId="2" ParentId="32675" CreationDate="2019-11-10T01:10:51.223" Score="1" Body="&lt;p&gt;You cannot show this because it is not always true. Consider the following situation:&lt;/p&gt;&#xA;&#xA;&lt;ul&gt;&#xA;&lt;li&gt;Two consumers (Romeo (R) and Juliet (J))&lt;/li&gt;&#xA;&lt;li&gt;Two goods (Apples (&lt;span class=&quot;math-container&quot;&gt;$A$&lt;/span&gt;) and Chocolates (&lt;span class=&quot;math-container&quot;&gt;$C$&lt;/span&gt;))&lt;/li&gt;&#xA;&lt;li&gt;Romeo's endowment is &lt;span class=&quot;math-container&quot;&gt;$(a = 1, c = 0)$&lt;/span&gt; and Juliet's endowment is &lt;span class=&quot;math-container&quot;&gt;$(a = 0, c = 1)$&lt;/span&gt;&lt;/li&gt;&#xA;&lt;li&gt;Preferences are given by &lt;span class=&quot;math-container&quot;&gt;$u_R(a_R, c_R, a_J, c_J) = a_R + 2a_J $&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$u_J(a_R, c_R, a_J, c_J) = c_J + 2c_R $&lt;/span&gt;&lt;/li&gt;&#xA;&lt;/ul&gt;&#xA;&#xA;&lt;p&gt;Observe that Romeo only cares about apple consumption and Juliet only cares for chocolate consumption. Even though Romeo likes apples himself but he loves to see Juliet consume his favorite fruit twice as much. Similarly, Juliet prefers to watch Romeo consume the chocolate than consuming it by herself. The only Pareto efficient allocation in this economy occurs when Romeo offers the apple to Juliet and Juliet gives her chocolate to Romeo i.e. &lt;span class=&quot;math-container&quot;&gt;$(a_R, c_R, a_J, c_J) = (0, 1, 1, 0)$&lt;/span&gt;. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;The competitive equilibrium in this economy is defined as &lt;span class=&quot;math-container&quot;&gt;$(p_A^*, p_C^*)$&lt;/span&gt; and an allocation &lt;span class=&quot;math-container&quot;&gt;$(a_R^*, c_R^*, a_J^*, c_J^*)$&lt;/span&gt; satisfying the property that both consumers choose their best bundle taking prices and other individual's choice as given. Since both can only choose for themselves and not for the other person they'll both end up buying what they like i.e. Romeo will buy only apples and Juliet will buy only chocolates. So endowment allocation &lt;span class=&quot;math-container&quot;&gt;$(a_R^*, c_R^*, a_J^*, c_J^*) = (1, 0, 0, 1)$&lt;/span&gt; is the only competitive equilibrium and is supported by any price vector &lt;span class=&quot;math-container&quot;&gt;$(p_A^*, p_C^*)$&lt;/span&gt; satisfying &lt;span class=&quot;math-container&quot;&gt;$p_A^* &amp;gt; 0, p_C^*&amp;gt; 0$&lt;/span&gt;. Clearly it is not efficient.&lt;/p&gt;&#xA;" OwnerUserId="11824" LastEditorUserId="11824" LastEditDate="2019-11-11T23:21:15.350" LastActivityDate="2019-11-11T23:21:15.350" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32678" PostTypeId="2" ParentId="32673" CreationDate="2019-11-10T01:11:34.947" Score="0" Body="&lt;p&gt;I like the analogy of money as a vote on the allocation of resources (land, labour, enterprise, and capital). When you purchase a lot of onions at a grocery store, you boost the demand for onions and thus put more of the world's resources on the production of onions. By not purchasing anything, you're effectively voting &quot;abstain&quot; and allowing the rest of the world to dictate how resources are used. Note that you will never truly be voting &quot;abstain&quot; as your savings are now in the hands of bankers, or whomever is controlling your money, to reallocate.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;The issue is that sometimes resources aren't fully allocated and some of the symptoms are low inflation and high unemployment. Ideally the government would step in and make good use of unallocated resources (e.g., fix broken infrastructure). Unfortunately, for political reasons this may not happen in which case central banks may step in to try to artificially allocate resources through policies such as quantitative easing.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;So I would frame the question as follows: assuming you believe resources aren't being fully allocated in your economy, is the money you're about to spend going to result in a better utility for you (including the utility you receive from believing your country will be better or worse off) than if other people or the government (or central bank) came in to fill that void? The worst thing you can do is spend money on goods and services you don't need and believe other people won't need more of: this gives you little utility and it also gives the economy the illusion that whatever good or service you consumed is in demand, and thus allocates more resources on producing that good or service. Since it sounds like you're happy with your own life, it may be worth considering putting money towards things that you believe other people might benefit from. Note this doesn't necessarily have to be personal consumption: you can donate or invest in clean energy, local organizations, or whatever you believe there should be more of in society.&lt;/p&gt;&#xA;" OwnerUserId="8387" LastActivityDate="2019-11-10T01:11:34.947" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32680" PostTypeId="2" ParentId="32174" CreationDate="2019-11-10T04:22:24.773" Score="1" Body="&lt;p&gt;for this problem you must conciser two possible branches of the utility function:&lt;/p&gt;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$u(\text{x})=x_1+x_3\ \ \text{if} \ \ x_1&amp;lt;x_2$$&lt;/span&gt;&#xA;&lt;span class=&quot;math-container&quot;&gt;$$u(\text{x})=x_2+x_3\ \ \text{if} \ \ x_1&amp;gt;x_2$$&lt;/span&gt;&lt;/p&gt;&#xA;&lt;p&gt;The demands of these then proceed how you would for any case of perfect substitutes. However you must list them for each case.&lt;/p&gt;&#xA;&lt;p&gt;Hope this helps&lt;/p&gt;&#xA;" OwnerUserId="8815" LastEditorUserId="1601" LastEditDate="2020-09-07T04:30:50.473" LastActivityDate="2020-09-07T04:30:50.473" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32682" PostTypeId="2" ParentId="32670" CreationDate="2019-11-10T05:45:34.727" Score="4" Body="&lt;p&gt;The table you are looking at is a GDP expenditure measure.  But this ignores the fact that services are involved in the costs of goods purchased, and that goods are involved in the cost of services purchased.  For example, if you buy a cake in a supermarket, the price reflects not just the food manufacturing industry, but also agriculture, transportation, retail trade and many more.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;To consider the importance of different industries in the economy, better analysis comes from the GDP income measure considering the value added (essentially wages and profits) for each industry. So looking at table 5 of another &lt;a href=&quot;https://www.bea.gov/system/files/2019-10/gdpind219.xlsx&quot; rel=&quot;nofollow noreferrer&quot;&gt;BEA release on GDP by industry&lt;/a&gt;, and stripping out duplicated values for sub-industries, you get something like  &lt;/p&gt;&#xA;&#xA;&lt;pre&gt;&lt;code&gt;                                                                     2018&#xA;                                                                $ billion&#xA;Gross domestic product                                           20,580.2&#xA;&#xA;--Private industries--&#xA;Agriculture, forestry, fishing, and hunting                         166.5&#xA;Mining                                                              346.6&#xA;Utilities                                                           325.9&#xA;Construction                                                        839.1&#xA;Manufacturing                                                     2,321.2&#xA;Wholesale trade                                                   1,212.2&#xA;Retail trade                                                      1,126.9&#xA;Transportation and warehousing                                      658.1&#xA;Information                                                       1,067.7&#xA;Finance, insurance, real estate, rental, and leasing              4,301.6&#xA;Professional and business services                                2,579.4&#xA;Educational services, health care, and social assistance          1,792.5&#xA;Arts, entertainment, recreation, accommodation, and food services   860.6&#xA;Other services, except government                                   437.2&#xA;--Government--&#xA;Federal                                                             790.8&#xA;State and local                                                   1,753.8&#xA;&lt;/code&gt;&lt;/pre&gt;&#xA;&#xA;&lt;p&gt;If you add up the first five rows (Agriculture through to Manufacturing) you get \$3,993.3bn (19.4% of total GDP), while if you add up the other rows you get \$16,580.8bn (80.6% of total GDP)&lt;/p&gt;&#xA;" OwnerUserId="8891" LastActivityDate="2019-11-10T05:45:34.727" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32683" PostTypeId="1" AcceptedAnswerId="32684" CreationDate="2019-11-10T10:54:41.043" Score="0" ViewCount="38" Body="&lt;p&gt;Why inner multiplication of the gradient of utility function in derivative of demand function with respect to income is equal to shadow price?&#xA;This is the equation which is given but I don't know where it comes from, I would be grateful if sb can give me a hint&#xA;&lt;a href=&quot;https://i.stack.imgur.com/EFzQq.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/EFzQq.png&quot; alt=&quot;enter image description here&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="24755" LastEditorUserId="24685" LastEditDate="2019-11-10T20:15:04.627" LastActivityDate="2019-11-10T20:15:04.627" Title="How can I prove $∇U(x).D_m x(p,m)= \text{shadow price}$?" Tags="&lt;utility&gt;&lt;demand&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32684" PostTypeId="2" ParentId="32683" CreationDate="2019-11-10T13:51:24.907" Score="3" Body="&lt;p&gt;Assuming certain regularity conditions, the first order conditions for &#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;\max_{x, \lambda} U(x) - \lambda (p \cdot x - m)&#xA;$$&lt;/span&gt;&#xA;are&#xA;&lt;span class=&quot;math-container&quot;&gt;\begin{align*}&#xA;&amp;amp;D_{x}U(x(p, m)) - \lambda p = 0 &#xA;\\&#xA;\text{and} \quad&#xA;&amp;amp; p \cdot x(p, m) - m = 0.&#xA;\end{align*}&lt;/span&gt;&#xA;Moreover &lt;span class=&quot;math-container&quot;&gt;$x(p, m)$&lt;/span&gt; will be differentiable with respect to &lt;span class=&quot;math-container&quot;&gt;$m$&lt;/span&gt; at &lt;span class=&quot;math-container&quot;&gt;$(p, m)$&lt;/span&gt;, and this fact together with the second equation implies&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;p \cdot D_{m}x(p, m) - 1 = 0.&#xA;$$&lt;/span&gt;&#xA;So, by the first equation,&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;D_{x}U(x(p, m)) \cdot D_{m}x(p, m)&#xA;=&#xA;\lambda p \cdot D_{m}x(p, m)&#xA;=&#xA;\lambda.&#xA;$$&lt;/span&gt;&#xA;The derivative &lt;span class=&quot;math-container&quot;&gt;$D_{x}U(x(p, m))$&lt;/span&gt; of the utility function at &lt;span class=&quot;math-container&quot;&gt;$x(p, m)$&lt;/span&gt; corresponds to &lt;span class=&quot;math-container&quot;&gt;$\nabla U(x)$&lt;/span&gt; in your notation.&lt;/p&gt;&#xA;" OwnerUserId="24685" LastEditorUserId="24685" LastEditDate="2019-11-10T16:32:37.627" LastActivityDate="2019-11-10T16:32:37.627" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="32685" PostTypeId="1" CreationDate="2019-11-10T16:00:20.400" Score="0" ViewCount="32" Body="&lt;p&gt;I know that a profit function is defined by &lt;span class=&quot;math-container&quot;&gt;$\pi(p;w)=\max_{x\in\mathbb{R}}pf(x)-w\cdot x$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$\pi$&lt;/span&gt; is a convex function (i.e. &lt;span class=&quot;math-container&quot;&gt;$\pi$&lt;/span&gt; is convex in &lt;span class=&quot;math-container&quot;&gt;$(p, w)$&lt;/span&gt;. My concern is how we can find the max value of the profit function when the profit function itself is convex. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;From my previous knowledge on convex function, I also know that a convex function has a global minimum on its domain (correct me if I was wrong), but how can we find the maximum?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Can anyone please explain this for me? I am so confused. Thanks in advanced!&lt;/p&gt;&#xA;" OwnerUserId="24795" LastEditorUserId="1601" LastEditDate="2019-11-10T17:57:22.830" LastActivityDate="2019-11-10T17:57:22.830" Title="Questions about profit function" Tags="&lt;profit-maximization&gt;" AnswerCount="1" CommentCount="0" ClosedDate="2019-11-11T00:03:05.993" ContentLicense="CC BY-SA 4.0" />
  <row Id="32686" PostTypeId="1" CreationDate="2019-11-10T16:02:29.653" Score="4" ViewCount="1525" Body="&lt;p&gt;I'm aware that certain terms in economics have precise definitions that don't necessarily line up with our intuition about what they mean. I'm currently writing a paper that heavily relies on the concept of scarcity, and I'd like to make sure I am using the term properly. Currently I have this sentence written: &lt;/p&gt;&#xA;&#xA;&lt;blockquote&gt;&#xA;  &lt;p&gt;Suppose widgets are a scarce resource that are distributed among&#xA;  agents&lt;/p&gt;&#xA;&lt;/blockquote&gt;&#xA;&#xA;&lt;p&gt;Then I rewrite this mathematically as &lt;span class=&quot;math-container&quot;&gt;$\mu = \sum\limits_{i=0}^n x_i$&lt;/span&gt; where &lt;span class=&quot;math-container&quot;&gt;$x_i$&lt;/span&gt; is the number of widgets agent &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; has. I don't see any problems with this myself, but I'd like to make sure that economists view this as orthodox. Are there any references that I could use to verify this? Is this accurate? What is the &lt;strong&gt;precise&lt;/strong&gt; definition of scarcity?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;strong&gt;Edit&lt;/strong&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;em&gt;A Dictionary of Economics&lt;/em&gt; states scarcity is: &quot;The property of being in excess demand at a zero price. This means that in equilibrium the price of a scarce good or factor must be positive&quot; This is the most authoritative source I've found so far, but this doesn't seem like a rigorous definition to me - it clearly isn't mathematically defined. Am I wrong about this?&lt;/p&gt;&#xA;" OwnerUserId="24850" LastEditorUserId="24850" LastEditDate="2019-11-13T01:17:29.750" LastActivityDate="2020-03-03T14:46:24.120" Title="What precisely is scarcity?" Tags="&lt;reference-request&gt;&lt;definition&gt;" AnswerCount="3" CommentCount="2" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32687" PostTypeId="1" AcceptedAnswerId="32734" CreationDate="2019-11-10T16:10:50.990" Score="0" ViewCount="49" Body="&lt;p&gt;What are the assumptions between rational expectations models and how restricted are there for the following results of economic theory? Where can I find them all gathered in some textbook or in the internet and what is the objection against REE models?&lt;/p&gt;&#xA;" OwnerUserId="23934" LastActivityDate="2019-11-13T01:48:28.373" Title="The assumptions of Rational Expectations Models" Tags="&lt;microeconomics&gt;&lt;mathematical-economics&gt;&lt;decision-theory&gt;&lt;rational-expectations&gt;" AnswerCount="1" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32688" PostTypeId="2" ParentId="32685" CreationDate="2019-11-10T17:42:53.803" Score="1" Body="&lt;p&gt;You're probably confusing two things: the objective function &lt;span class=&quot;math-container&quot;&gt;$pf(x) - wx$&lt;/span&gt; being used in profit maximization problem: &lt;span class=&quot;math-container&quot;&gt;$\max pf(x) - wx$&lt;/span&gt;, the objective function is concave in &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt; and thus, you can solve the maximization problem. However, a profit function &lt;span class=&quot;math-container&quot;&gt;$\pi(p,w)$&lt;/span&gt; being a result of maximization problem identifies the maximum profit given level of prices and wages &lt;span class=&quot;math-container&quot;&gt;$\pi^*(p,w)$&lt;/span&gt; (and it's convex in &lt;span class=&quot;math-container&quot;&gt;$p$&lt;/span&gt; and &lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt; as you said).&lt;/p&gt;&#xA;" OwnerUserId="23083" LastActivityDate="2019-11-10T17:42:53.803" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32689" PostTypeId="2" ParentId="32686" CreationDate="2019-11-10T18:03:52.390" Score="13" Body="&lt;p&gt;Your formula &lt;span class=&quot;math-container&quot;&gt;$\mu = \sum\limits_{i=0}^n x_i$&lt;/span&gt; just denotes the total amount of goods, so this just means that &lt;span class=&quot;math-container&quot;&gt;$\mu$&lt;/span&gt; units were distributed among &lt;span class=&quot;math-container&quot;&gt;$n$&lt;/span&gt; agents. Scarcity (in this context) means that no matter how you distribute these &lt;span class=&quot;math-container&quot;&gt;$\mu$&lt;/span&gt; units, as long as everything else is unchanged (ceteris paribus) at least one agent would like to get more, i.e. &lt;span class=&quot;math-container&quot;&gt;$\forall (x_i)_{i = 0}^n$&lt;/span&gt; where &lt;span class=&quot;math-container&quot;&gt;$\mu = \sum\limits_{i=0}^n x_i$&lt;/span&gt; there is an agent &lt;span class=&quot;math-container&quot;&gt;$i$&lt;/span&gt; and a positive &lt;span class=&quot;math-container&quot;&gt;$\epsilon$&lt;/span&gt; such that&#xA;&lt;span class=&quot;math-container&quot;&gt;$$&#xA;x_i \prec_i x_i + \epsilon.&#xA;$$&lt;/span&gt;&#xA;This is context dependent, there may be other definitions as well (e.g. ones that allow for production).&lt;/p&gt;&#xA;" OwnerUserId="1601" LastEditorUserId="1601" LastEditDate="2019-11-11T19:49:03.647" LastActivityDate="2019-11-11T19:49:03.647" CommentCount="4" ContentLicense="CC BY-SA 4.0" />
  <row Id="32691" PostTypeId="1" CreationDate="2019-11-10T18:29:00.673" Score="1" ViewCount="19" Body="&lt;p&gt;&lt;em&gt;Continuous trading economies.&lt;/em&gt; I see this expression in many papers but I do not know what it means in the precise technical sense. And I'm not an economist.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Maybe it could refer to an economic environment in which agents are allowed to trade continuously. But in what way? In time and goods to trades? E.g., in time: there is a subset &lt;span class=&quot;math-container&quot;&gt;$S\subset \mathbb R$&lt;/span&gt; s.t. &lt;span class=&quot;math-container&quot;&gt;$t\in S$&lt;/span&gt;? Or, in goods: there is a subset &lt;span class=&quot;math-container&quot;&gt;$U\subset \mathbb R$&lt;/span&gt; that represents all the possible goods that agents of this economy can trade?&lt;/p&gt;&#xA;" OwnerUserId="5790" LastActivityDate="2019-11-10T18:29:00.673" Title="Continuous trading economies" Tags="&lt;continuous-time&gt;&lt;trading&gt;" AnswerCount="0" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32694" PostTypeId="1" CreationDate="2019-11-10T20:57:39.173" Score="0" ViewCount="45" Body="&lt;p&gt;I have been reading several papers that use 2SLS. These papers usually also show the OLS regression results. I noticed that when authors report results for 2SLS, they also include control variables that were used in the OLS regression.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;If 2SLS is supposed to solve the omitted variable bias, couldn't we omit the control variables that are included in OLS because we do not have to worry about omitted variable bias? For what reason would authors include those variables?&lt;/p&gt;&#xA;" OwnerUserId="16095" LastEditorUserId="1601" LastEditDate="2019-11-11T07:22:38.620" LastActivityDate="2019-11-13T00:39:28.087" Title="Why are the same set of controls used for both OLS and 2SLS?" Tags="&lt;econometrics&gt;&lt;applied-econometrics&gt;" AnswerCount="1" CommentCount="7" ContentLicense="CC BY-SA 4.0" />
  <row Id="32695" PostTypeId="1" CreationDate="2019-11-10T21:10:07.010" Score="1" ViewCount="114" Body="&lt;p&gt;I know commercial banks need to meet liquidity requirements, but why would they choose to invest their money in an instrument that is guaranteed to give them a negative return, instead of just keeping their clients' money in &quot;cash&quot;?&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Is there some legislation forcing them to use government bonds?&lt;/p&gt;&#xA;" OwnerUserId="24852" LastActivityDate="2020-10-13T10:39:52.050" Title="Why do commercial banks buy government bonds at negative interest rates instead of keeping cash?" Tags="&lt;interest-rate&gt;&lt;banking&gt;" AnswerCount="1" CommentCount="2" ContentLicense="CC BY-SA 4.0" />
  <row Id="32697" PostTypeId="2" ParentId="32623" CreationDate="2019-11-11T07:35:53.097" Score="1" Body="&lt;p&gt;With regards to the concept of 'unemployment' and the 'unemployment rate' it is important to note that, while the general definition (number of unemployed /number labor force * 100) is pretty standard, the exact parameters or &quot;operational criteria&quot;, in ILO-speak, for how some of these concepts are defined can vary from place to place, often with large impacts on the final statistic.  &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Specifically, it is important to consider the criteria what is used to classify people as &quot;employed&quot; and &quot;unemployed&quot;, with the latter concept having many different criteria to define--e.g. working age, paid or not, what constitutes &quot;actively looking for work&quot;, what constitutes &quot;available for work&quot;, etc. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;With this in mind, the ILO has a standard definition with specific operational criteria for all of the concepts used to define employement, unemployment, and the labor force, so that calculations of the unemployment rate using this ILO definition are sure to be comparable from place to place. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;Now with all of that said, the US BLS uses the Current Population Survey to calculate unemployment rate according to the ILO definition, so the stat should be the same. If you go the the &lt;a href=&quot;https://www.ilo.org/ilostat-files/Country_Dashboard/USA.html&quot; rel=&quot;nofollow noreferrer&quot;&gt;ILO-STAT dashboard for the United States&lt;/a&gt;, you can see that the data-source for ILO stats on the U.S. is in fact, the BLS and the US Current Population Survey.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;On a more general note, the ILO recently published this very useful, concise guide that explains specifically l their definition, but also, more generally, how to interpret uemployment rates and all of operational criteria and how they can impact rate calculations. You can find &lt;a href=&quot;https://www.ilo.org/global/statistics-and-databases/publications/WCMS_675155/lang--en/index.htm&quot; rel=&quot;nofollow noreferrer&quot;&gt;the guide to  unemployment rate&lt;/a&gt; on the ILO site.&lt;/p&gt;&#xA;" OwnerUserId="19671" LastEditorUserId="19671" LastEditDate="2019-12-25T06:32:14.563" LastActivityDate="2019-12-25T06:32:14.563" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32698" PostTypeId="2" ParentId="32686" CreationDate="2019-11-11T07:44:26.363" Score="2" Body="&lt;p&gt;There are two key properties for a scarce good. First that demand can get arbitrarily high if the price is low enough. So if you plot demand on the &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;-axis and price on the &lt;span class=&quot;math-container&quot;&gt;$y$&lt;/span&gt;-axis this function is decreasing for all &lt;span class=&quot;math-container&quot;&gt;$x$&lt;/span&gt;. Second is that production cost is non zero, producing more items will always cost more money. This is always the case for physical goods but not for things like intellectual property goods.&lt;/p&gt;&#xA;" OwnerUserId="24857" LastActivityDate="2019-11-11T07:44:26.363" CommentCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32699" PostTypeId="1" CreationDate="2019-11-11T09:36:16.503" Score="1" ViewCount="27" Body="&lt;p&gt;Consider a coordination game, in which actions taken by players are strategic complements. Moreover, assume that actions are strong strategic complements, in that the slope of the &lt;em&gt;best response function&lt;/em&gt; is greater than unity in some range, as demonstrated in the graph below. &#xA;What is the intuition behind &lt;strong&gt;multiple equilibria&lt;/strong&gt; in such a case? I understand the graphical intuition, but don't see any economic intuition.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;a href=&quot;https://i.stack.imgur.com/2nodQ.png&quot; rel=&quot;nofollow noreferrer&quot;&gt;&lt;img src=&quot;https://i.stack.imgur.com/2nodQ.png&quot; alt=&quot;Source: https://ocw.mit.edu/courses/economics/14-462-advanced-macroeconomics-ii-spring-2004/lecture-notes/complementarties.pdf&quot;&gt;&lt;/a&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;Source for the image: &lt;a href=&quot;https://ocw.mit.edu/courses/economics/14-462-advanced-macroeconomics-ii-spring-2004/lecture-notes/complementarties.pdf&quot; rel=&quot;nofollow noreferrer&quot;&gt;https://ocw.mit.edu/courses/economics/14-462-advanced-macroeconomics-ii-spring-2004/lecture-notes/complementarties.pdf&lt;/a&gt;&lt;/p&gt;&#xA;" OwnerUserId="13883" LastActivityDate="2019-11-11T09:36:16.503" Title="Strategic Complementarities and Multiplicity" Tags="&lt;macroeconomics&gt;&lt;game-theory&gt;" AnswerCount="0" CommentCount="0" FavoriteCount="1" ContentLicense="CC BY-SA 4.0" />
  <row Id="32700" PostTypeId="2" ParentId="13705" CreationDate="2019-11-11T10:44:15.723" Score="2" Body="&lt;p&gt;The shock process is already linear. any log linearisation will result in identical expression. The underlying non linear shock process can be something like this:$&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$ Z_t = Z^{(1-\rho)} Z_{t-1} e^{\epsilon_{t}}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;This when you linearise, you obtain your linear shock processes.&lt;/p&gt;&#xA;" OwnerUserId="10571" LastActivityDate="2019-11-11T10:44:15.723" CommentCount="0" ContentLicense="CC BY-SA 4.0" />
  <row Id="32702" PostTypeId="1" CreationDate="2019-11-11T14:17:51.123" Score="1" ViewCount="81" Body="&lt;p&gt;I have the following nonlinear system&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$w$&lt;/span&gt; is wealth&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$c$&lt;/span&gt; is consumption &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$r(w)$&lt;/span&gt; is gross return on wealth &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$a,b, d$&lt;/span&gt; are parameters which are strictly positive and fixed.&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\dot{w} =r(w)w-c$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$\dot{c}= a(w-b)$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$$r(w)= 1+{d\over w^2}$$&lt;/span&gt;&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I would like to make economic interpretation of these three equations. &lt;/p&gt;&#xA;&#xA;&lt;p&gt;—————&lt;/p&gt;&#xA;&#xA;&lt;p&gt;I can just say that &lt;/p&gt;&#xA;&#xA;&lt;p&gt;&lt;span class=&quot;math-container&quot;&gt;$${\partial r(w) \over \partial w}=-2{d\over w^3}&amp;lt;0$$&lt;/span&gt; which means that as wealth increases, &l